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Facts
Eli Lilly and Company (India) Private Limited challenged an upward adjustment of INR 21.60 crores made by the Transfer Pricing Officer (TPO) for the provision of business support services. The assessee had approached the Dispute Resolution Panel (DRP), which issued directions to the TPO to pass a speaking order with detailed reasons for the selection and rejection of comparables. The TPO's subsequent order maintained the adjustment without adequately complying with the DRP's directions.
Held
The Income Tax Appellate Tribunal found that the TPO had not complied with the DRP's directions to provide a speaking order with detailed reasons for the comparables used in the transfer pricing analysis. Therefore, the Tribunal remitted the matter back to the Transfer Pricing Officer for reconsideration and to pass a speaking order in strict compliance with the DRP's earlier directions.
Key Issues
Whether the Transfer Pricing Officer (TPO) complied with the Dispute Resolution Panel's (DRP) directions regarding the selection and rejection of comparables and the requirement to provide detailed reasons for the transfer pricing adjustment made for business support services.
Sections Cited
144C, 143(3), 144C(13), 144B, 92C(3), 92D, 10D, 92CA, 234B, 234C, 234D, 270A
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Income Tax Appellate Tribunal, DELHI BENCH, ‘I’: NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD
ORDER PER AMITABH SHUKLA, AM,
The captioned appeal has been preferred by the assessee against order dated 31.03.2021 of the Assessing officer arising out of direction of learned Dispute Resolution Pannel, (in short ‘ld. DRP’) 21.01.2021 passed u/s 144(c) of the Income Tax Act, 1961 pertaining to Assessment Year 2017- 18. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
The assessee has raised following grounds of appeal:-
1. That on the facts and circumstances of the case and in law, the order dated March 11, 2022 framed under Section 143(3) read with 144C(13) read with section 144B of the Income-tax Act, 1961 (the Act) ('assessment order) passed by the Additional/ Joint/ Deputy/ Assistant Commissioner of Income-tax/ Income-tax Officer, National Faceless Assessment Centre, Delhi (Ld. AO') pursuant to the directions passed by the Hon'ble Dispute Resolution Panel ( Hon'ble DRP') is bad in law and void.
2. That on the facts and circumstances of the case and in law, the Ld. AO/ Hon'ble DRP/ Ld. TPO erred in enhancing the income of the Assessee to IN 47,13,41,579 as against returned income of INR 44,97,41,579, thereby making an adjustment of IN 2,16,00,000 pertaining to provision of business support services. In doing so, erred in: 2.1. Not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 2.2. Not accepting the economic analysis undertaken by the assessee in accordance with the Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules'), and has further erred in conducting a fresh economic analysis for the international transaction pertaining to provision of business support services and holding that the transaction is not compliant with the arm's length pricing range; 2.3. Excluding the comparables in the TP Study without assigning the specific functional dissimilarity inspite of DR's direction to spell out the detailed reasons for rejection of the assessee's comparables; 2.4. Including the comparables which are functionally dissimilar without addressing assessee's objections with respect to inclusion of such comparables and have been retained inspite of DRP's direction to spell out detailed reasons for rejection of assessee's contentions; 2.5. In not providing detailed quantitative or qualitative screening criteria of the comparables finally included in the final set of comparables in the order; 2.6. In acting in flip-flop manner as in the first show cause notice the comparables selected by him do not find place in the comparables selected in the second show cause notice inspite of the fact the entire search criterion is identical in both the notices; Page | 2 2.7. In arbitrarily selecting companies having an average operating margin of more than 11 percent inspite of the fact that Assessee's margin is 9.94 per cent as well as the comparables in the first show cause notice had a margin less than that of the assessee & such comparables have been omitted without giving any justification; 2.8. Erroneously and without ascribing any reasons, rejecting the comparables proposed in the first show cause notice.
3. That on the facts and in the circumstances of the case and in law, the Ld. A0 has grossly erred in charging interest under 234B, 234C and 234D of the Act.
4. That on the facts and in the circumstances of the case and in the law, the Ld. AO/ Ld. TPO has erred in initiating proceedings u/s 270A of the Act mechanically and without recording any adequate satisfaction for such intimation.”
The only issue emanating through grounds of appeal no.1 and 2 raised by the assessee are regarding the disturbance made by the ld. TPO in respect of method adopted for doing his TP studies. As per brief facts of the case, the assessee is, inter alia, dealing in the business of trading of formulation and clinical trial activities to its AEs, providing medical information, answering medical queries, etc. The AO had made are reference under 92CA to the TPO who had made an upward adjustment of Rs.2,16,00,000/-. The assessee had approached DRP which vide its directions dated 09.02.2022 issued following directions to the ld. TPO “3.3.1 The Panel is, however, of the opinion that this Panel has granted full opportunity to the assessee to explain its case. Thus, this contention of the assessee becomes redundant. As for the 16 new comparables selected by the TPO and rejection of some of the assessee's comparable, it is noticed that the TPO has not spelt out detailed reasons for their inclusion, even though they are broadly similar to the functions of the assessee. The Panel, accordingly, directs the TPO to pass a Page | 3 speaking order in this regard, spelling out detailed reasons for selection of new comparables as well as rejection of assessee's comparables. As for the computational errors in determining the margins of certain companies, the Panel directs the TPO to verify the computation and take remedial action, if found necessary.”
4. The learned Transfer Pricing Officer in response, to above directions of learned Dispute Resolution Panel, passed an order dated 08.03.2022, which is reproduced as under:-
“……2. The assessee filed objection before the DRP-1, New Delhi, wherein the assessee had filed objections before the DRP, New Delhi against the Draft Assessment order passed by the Assessing Officer. The Hon'ble DRP has issued certain directions dated 15/02/2022 in the instant case giving the following directions to TPO in favour of the assessee: In respect of assessee's objection about selection of 16 new comparables and rejection of comparables proposed by the assessee in the final order, the Panel has directed the TPO to pass a speaking order giving detailed reasons for selection of new comparables considered in final order. In respect of certain errors in computing the margin of the comparables the panel has directed the TPO to verify the computation and take remedial action.
3. In pursuance to the directions of the Hon'ble DRP, the perusal of the TPO is as follows: A. In respect of assessee's objection about selection of 16 new comparables and rejection of comparables proposed by the assessee in the final order, the Panel has directed the TPO to pass a speaking order giving reasons for selection of new comparables considered in his final order. It is submitted that the comparables proposed by the assessee were related to the marketing support services and event management companies; there was no similarity of functions between the assessee's company (functions of company as per the documents Page | 4 submitted by the assessee during TPO proceedings) and comparables selected by the assessee. Therefore, the then TPO has rejected assessee's proposed comparables and a fresh search was conducted to find the suitable comparables. The fresh comparables was selected according to the search process by considering their annual reports and their functions. B. In respect of certain errors in computing the margin of the comparables the panel has directed the TPO to verify the computation and take remedial action. It is submitted that TPO has re-verified the computation. After verification, the contention of the assessee stands rejected.
Therefore, as per the directions of the Hon’ble DRP, the earlier adjustment of Rs. 2,16,00,000/- made to the income of the taxpayer remains unchanged. The Assessing Officer shall adjust the income of the assessee accordingly.”
The ld. Counsel for the assessee argued that the ld. TPO has not complied with the directions of the ld. DRP and thus committed default passing a non-speaking order. It was accordingly requested that the matter may be set-aside to the learned Transfer Pricing Officer for reconsideration of the matter and to pass an speaking order in compliance to the directions of the ld. DRP.
The ld. DR did not oppose the above request of the ld. Counsel for the assessee.
We have heard rival submission in the light of material available on records. A combined reading of the directions of ld. DRP and the OG order of the learned Transfer Pricing Officer clearly reveals that directions, of the ld. DRP have not been followed by the latter authority. A clear case of non- Page | 5 compliance is therefore made out. Be that as it may be, in the interest of justice, we remit the matter back to the file of the learned Transfer Pricing Officer for passing an speaking OG order by considering the directions of the ld. DRP given in their order dated 09.02.2022. Grounds of appeal no.1 and 2 raised by the assessee are therefore allowed for statistical purposes.
Ground of appeal no.3 and 4 are consequential in nature and hence dismissed as premature.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 17th December, 2025.