HOSPIRA HEALTHCARE INDIA PRIVATE LIMITED,CHENNAI vs. DCIT, CHENNAI
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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
PER JAGADISH, A.M : Aforesaid appeal filed by the assessee against the assessment order passed by the DCIT, Corporate Circle-2(2), Chennai U/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter “the Act”) for the assessment year 2012-13, in pursuance of the directions issued by the Dispute Resolution Panel, Bengalore (hereinafter ‘DRP’) vide directions dated 09.11.2016. :- 2 -:
The brief facts of the case are that the assessee is engaged in manufacturing and selling of generic injectable drugs to its group
entities and certain other concerns called as distribution partners. It was incorporated on 17th November, 2009 as a subsidiary of Hospira
Pte. Ltd, Singapore. Assessee had on 15.12.2009 acquired the generic injectable pharmaceutical business of M/s. Orchid Chemicals
& Pharmaceuticals Ltd (in short ‘’Orchid India) as a going concern on a slump sale basis. By virtue of this slump acquisition, various
agreements entered between M/s. Orchid India and distribution
partners were inherited by the assessee. Such types of agreements
were named as legacy agreements. In support of the consideration
paid for the injectable drug division taken over by the assessee from M/s. Orchid India, assessee had filed a valuation report prepared by M/s. R.B. Shah & Associates who as per assessee were the merchant
bankers authorized to make such valuation. The prices paid were for the tangible assets as well as the intangible assets like customer
relationships, contract manufacturing, developed products, in-process
research and development and goodwill. For raising the capital that was required for acquiring the unit from Orchid India, assessee had issued inter corporate convertible debentures (ICCD) for which interest :- 3 -:
was payable at 10.5%. The ICCD series was subscribed by its Associated Enterprise namely Hospira Pte Ltd, Singapore.
In the agreement entered by the assessee with Orchid India for acquiring its injectable drug unit, the assessee has also made payment
to Mr. K. Raghavendra Rao for non-compete fee during F.Y 2010-11
and F.Y 2011-12 and claimed as intangible asset.
During the relevant previous year, assessee had affected sales
of Rs. 555.9 Crore to its Associated Enterprises. The assessee also had similar transactions with one M/s. Apotex Corp and Apotex Inc
Signet which were treated as deemed AE.
The business model adopted by the assessee and its trading
partners mentioned above were on profit sharing basis. Profits were worked out by deducting from the sales effected by the entities abroad
cost of products sold and marketing cost. Associated Enterprise
abroad who were selling assessee’s products were entitled for marketing cost of 7.5% on the total sale price. Cost of the products
deducted was based on the billings by the assessee. Resulting profit
was shared in the ratio of 50% each. The basis of this model was the agreement already entered by M/s.Orchid India with the above
enterprises abroad, which agreement became the legacy of the :- 4 -:
assessee when they acquired the unit of generic injectable drugs from M/s. Orchid India. It is to be noted that M/s. Orchid India was supplying
pharmaceuticals products to two other companies named Northstar
and Actavis also under the same formula.
The Ld. Assessing Officer while completing the assessment
for the impugned assessment year disallowed the claim of depreciation on intangible assets introduced in the books of account
on the basis of valuation, on acquisition of generic injectable unit of M/s. Orchid India . The Ld assessing Officer has also disallowed the depreciation on non compete fee paid to Mr. K. Raghavendra Rao
and claimed as intangible asset. The Ld. Assessing Officer also made
addition on TP adjustment on sale to AE by applying TNMM methods
as against CUP as most appropriate methods . The Ld. A.O also further made adjustment for the rate of interest paid by the assessee
on inter corporate convertible debentures (ICCD) issued to its AE.
5 While recommending upward adjustment for the profit shared
between the assessee and its Associated Enterprise abroad, Ld. TPO
treated M/s. Apotex Corp and Apotex Inc Signet also as Associated
Enterprises of the assessee. The Ld. TPO relied on an order dated
2012 of Income Tax Settlement Commission in the case of M/s. :- 5 -:
Orchid India for the assessment years 2006-07 to 2010-2011 for coming to a conclusion that Apotex Corp and Apotex Inc Signet were Associated Enterprises of the assessee .
Now before us, assessee had raised the following concise grounds
of appeal in lieu of its original grounds:
Ground 1 – The assessment order is bad in law
The impugned Order which includes the contentions of the Learned Assessing Officer (‘Ld. AO’) and Learned Transfer Pricing Officer (‘Ld. TPO’), based on the directions issued by Honourable Dispute Resolution Panel (‘Hon’ble DRP’), to the extent prejudice to the Appellant, is contrary to the law, facts, and circumstances of the case.
Ground 2 – Disallowance of depreciation on acquired “Intangible assets” is bad in law and facts
The Ld. AO and the Hon’ble DRP erred in disallowing the claim of depreciation of INR 74,39,88,656 by holding that developed products, in-process research and development, customer relationship and contract manufacturing acquired by the Appellant pursuant to acquisition of business from Orchid Chemicals and Pharmaceuticals Ltd (‘Orchid India’) are not intangible assets eligible for depreciation under section 32 of the Income Tax Act (“Act”).
The Ld. AO and the Hon’ble DRP, erred in not appreciating, that in case value of any of the above intangible assets are reduced, the reduction to that extent would need to be construed as “Goodwill” and consequently, depreciation under section 32 of the Act ought to be allowed on the same.
The Ld. AO and the Hon’ble DRP erred in disallowing the claim of depreciation of INR 2,28,62,041 on the non-compete fee paid to Mr. K Raghavendra Rao, the principal shareholder of Orchid India by not treating them as intangible assets eligible for depreciation under section 32 of the Act.
Without prejudice to the above, the Ld.AO erred in not considering the alternate plea of allowing the non-compete fee as “revenue expenditure” since appropriate taxes have also been withheld on :- 6 -:
the payment or to allow the expenditure as deduction over the period of the agreement in line with the accounting treatment.
Ground 3 – Miscellaneous issues
That, the Ld. AO erred in not giving effect to the direction of the Hon’ble DRP to delete the disallowance of delayed remittance of employees’ contribution to provident fund and employees’ state insurance.
That, the Ld. AO erred in not granting entire credit for taxes deducted at source (“TDS”) amounting to INR 1,15,82,340. 4. Ground 4 – Erroneous rejection of CUP as the most appropriate method for sale of goods by Hospira India
That the Ld. TPO and Hon’ble DRP erred in failing to adopt a consistent TP approach as in the previous year, by using the Comparable Uncontrolled Price (“CUP”) for the sale of goods.
That the Ld. TPO and Hon’ble DRP disregarded Appellant’s position of applying CUP as the most appropriate method and proceeded to pass an adjustment of INR 204,59,59,557 under TNMM.
That, without prejudice to the above, pursuant to the Chennai ITAT order of Orchid Pharma Limited (TS-943-ITAT-2016(CHNY); the distribution arrangement between Orchid Chemicals and Pharmaceuticals Limited and Northstar Healthcare Limited (i.e., discerned as an arrangement between two third parties) serves as a valid CUP for sales made by the Appellant to Hospira Group.
Ground 5 – Erroneously applying provisions of Section 92A(2)(i) for sales made to third parties.
That, the Ld. TPO and Hon’ble DRP erred in concluding Apotex entities as deemed AE. This exercise is violating the provisions of the Income Tax Act and Rules.
That, without prejudice to the above, distribution agreement between Orchid Chemicals and Pharmaceuticals Limited and Northstar Healthcare Limited (supra) serves as a valid CUP for transactions with Apotex entities, even if it were to be treated as deemed AEs and subject to transfer pricing regulations.
Ground 6 – Erroneous adoption of Transaction Net Margin Method (‘TNMM’) as the most appropriate method for sale of goods
That the Ld. TPO and Hon’ble DRP erroneously applied a residual method i.e., TNMM, and made an adjustment of INR :- 7 -:
204,59,59,557. 6. 2. That, without prejudice, the Hon’ble DRP while applying TNMM, erred in adjusting the entire Irungatukottai (‘IKKT’) manufacturing segment where international transaction is only a portion of the total sales made from the IKKT segment.
Ground 7 – Incorrect approach in comparability analysis while applying TNMM
That, without prejudice that CUP is the most appropriate method, the Ld. TPO and Hon’ble DRP failed to appreciate the facts and circumstances of the case while performing the comparability analysis under TNMM.
That, without prejudice, the Ld. TPO and Hon’ble DRP rejected the Appellant’s comparability analysis without providing cogent reasons for the same.
1. That, the Ld. TPO and Hon’ble DRP incorrectly applied operating margins as the PLI by treating amortization as an operating expense without taking cognizance of the irreconcilable differences in amortization expense between Appellant and comparable companies.
2. That, the Ld. TPO and Hon’ble DRP erred in law and facts by not taking cognizance of Appellant’s submission made with regard to usage of cash operating by cash operating cost as the profit level indicator.
Ground 8 – Rejection of the Appellant’s benchmarking analysis (including additional benchmarking analysis) for interest payment for Indian Currency Convertible Debentures (“ICCD”) and adopting an erroneous methodology for benchmarking interest payment for ICCD from N L database
The Ld. TPO and the Hon’ble DRP erred in making a downward adjustment of INR 230,930,959 for interest paid on ICCD.
The order of the Ld. TPO was erroneous for the following reasons: 8.2. 1. The search strategy adopted for benchmarking the interest on ICCD using the N L database was not provided 8.2. 2. The Ld. TPO discarded his own comparables when the Appellant demonstrated that the interest paid was at arm’s length even if his set of comparable companies are appropriately used. :- 8 -:
3. The Hon’ble DRP disregarded the Appellant’s claim that TPG Wholesale is not a comparable instrument.
The Hon’ble DRP disregarded the additional evidence in the form of supplementary benchmarking analysis provided by the Appellant using the N L and Bloomberg database.
Ground 9 Consequential Relief
The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra and all consequential relief thereto.”
Ground No. 1 is general in nature hence, no specific
adjudication required.
Ground No.2 is against the disallowance of depreciation of Rs. 76,68,50,697/- on intangible assets . The assessee has claimed
depreciation on brand and trade marks and non-compete fee as under:
Description of asset Value of the Addition Amount of asset depreciation Brand and Trademarks 297,59,54,325/- Nil 74,39,88,656/- Non-compete fee 3,41,48,250/- 6,98,44,885/- 2,28,62,041/-
1 The A.O has disallowed the claim of depreciation on intangibles as they are in nature of non compete fee, customer
relationships, contract manufacturing & developed products and cannot be sold independently unlike other intangible assets in the form
of know how, franchise rights , license etc . The Ld. DRP has also rejected assessee’s objection noting that the identical issue was :- 9 -:
before DRP for A.Y 2011-12 also but the panel has not accepted the view of the taxpayer for the reason given in its order as under:
1 The assessee has made detailed submissions on the above issue. The submissions of the assessee have duly been considered. The issue has been discussed in detail by the assessing officer (AO) in para 5 of his order. Identical issue was before DRP for AY 2011-12 also but the Panel had not accepted the view of the taxpayer for the reasons given in its orders. The same are reproduced as follows: “2.1 The assessee has made detailed submissions on the issue. The submissions of the assessee have duly been considered. The issue has been discussed in detail by the AO in his order. The claim of the assessee that 'customer relationships, 'contract manufacturing developed products (i.e product approvals, dossiers, know-how and other intangibles associated with developed products) and IP R&D are depreciable intangible assets for the purposes of section 32(1) (i1) cannot be accepted. All these rights are such, which cannot be independently traded or sold to the world at large. The agreement is between assessee and M/s Orchid India and not with these customers and contract manufacturers. Further the assessee has valued these aspects of customer relationships, 'contract manufacturing' etc. arbitrarily and without any technical study. The assessee has also not produced any technical valuation for the IP R&D and the developed product so as to ascertain their correct value, and the values adopted by assessee are without any base. The AO has discussed these aspects in detail in his order and there is no reason to disagree with the same. So the objection of the assessee is not accepted."
The Ld. AR has submitted that the assessee has claimed
depreciation on the basis of valuation done by the merchant banker,
wherein tangible and intangible assets have been valued. He further
submitted that these assets were acquired in the preceding year and the Ld. A.O has disallowed depreciation and the Hon’ble ITAT had remitted the issue to the file of A.O for fresh consideration. The Ld.
A.R has submitted that on fresh consideration, the Ld. A.O vide order :- 10 -:
dated 28.02.2020 has allowed the depreciation on brand and trademarks and non-compete fee.
3 The Ld. D.R, on the other hand, relied upon the orders of the authorities below.
4
We have heard the rival contentions, and perused the materials available on record. The intangible assets accounted as brand and trademarks on the acquisition from M/s. Orchid India and non-compete fee paid to Shri K. Raghavendra Rao were acquired in the preceding year. During the year, the assessee has added non-
compete fee of Rs. 6,98,44,885/- and claimed depreciation. The A.O
in the A.Y 2011-12 has not allowed the claim on depreciation and the Ld. DRP has agreed to the finding of Ld A . O . On appeal, the ITAT
for A.Y 2011-12 has remitted the matter back to the A.O on both the issues observing as under:
“12. We have considered the rival contentions and perused the orders of the authorities below. The purchase price allocation by M/s. R.B. Shah & Associates, for the unit acquired by the assessee from M/s.Orchid India was as under:- Description Valuation of Estimat Estimate methodology ed fair d Fair Assets value Value (U in (INR In Millions) Millions)* Net Property Fixed Assets of Sales 98.6 4,431.4 and Equipment orchid Chemicals & Comparison / Pharmaceuticals Ltd Income include Land, Approach/ :- 11 -:
Building, Plant and Cost Machinery, Furniture Approach & Fixtures Debt-Free Net (Stocks, Debtors, Book Value 24.6 1,103.8 Working Capital Loans and Advances, (adjusted for Cash and Bank fair value of Balance) (Creditors, inventory) provisions) Customer Excellent relationship Inocme 4.9
1 Relationships maintained with Approach – customers of orchid Difference in Chemicals & ‘’with’’ and Pharmaceuticals Ltd ‘’without’’ customer relationships
Contract The Oral Ceph Fill/ Income 0.1
5 Manufacturing Finish Agreement Approach binds Hospira to perform contract manufacturing services on behalf Orchid during the upcoming years. Developed Injectable Generics Income 82.8 3,719.6 Products Viz Cephalosprins, Approach 11.8Penicillins. In process of Awaiting FDA Income 11.8 530.3 research & approval Viz. Penems Approach development and new molecules of (IPR &D) Cephalosporins Products Goodwill Arising out of the Excess of 159.2 7,156.4 transaction Cost of Acquisation over net of assets acquired and the liabilities assumed Ld. Assessing Officer had disallowed depreciation on brand and trademark. The value of these intangible assets has been taken by the ld. Assessing Officer at ₹396,79,39,500/-. However, this figure is not apparent from the valuation report relied on by the assessee. Whether the valuer namely M/s. R.B. Shah & Associates who assessee has claimed to be a merchant banker was having the authority to make a valuation under Income Tax Act, also requires :- 12 -:
verification. No doubt as mentioned by ld. Authorised Representative accounting standard AS 26 applies only for internally generated intangible assets. The conditions set out by the ld. Assessing Officer at para 5.3 of his order apply only to internally generated intangible assets and not to the intangible assets acquired by payment of consideration. We therefore remit the issue regarding depreciation on intangible assets back to the file of the ld. Assessing Officer for consideration afresh in accordance with law.
Adverting to, disallowance of non compete fees paid to Shri. K Raghavendra Rao, ld. Authorised Representative contented that it was purely a business expenditure allowable as revenue outgo. As per ld. Authorised Representative by virtue of clauses 8.6.1 to 8.6.4 of the tripartite agreement between assessee, M/s. Orchid India and Shri. K. Raghavendra Rao, both Orchid India as well as Shri. K. Raghavendra Rao were barred from engaging in any business which would compete with the business of the assessee for a period of ten years. Further, as per ld. Authorised Representative there was a separate agreement entered by the assessee with Shri. K. Raghavendra Rao, through which this restriction was made absolute. As per ld. Authorised Representative amount payable to Shri. K. Raghavendra Rao was 10 million U and it was purely a revenue outgo. Reliance was placed on the judgment of Hon’ble Juri ictional High Court in the case of Pentasoft Technologies Ltd vs. DCIT 264 CTR 187. 14. Per contra, ld. Departmental Representative submitted that these were all part of a single understanding that assessee had with M/s. Orchid India for transferring their injectable drug division to the assessee.
We have considered the rival contentions and perused the orders of the authorities below. Ld. Assessing Officer had treated non-compete fees as not eligible for depreciation. As per ld. Assessing Officer it could not be considered as an intangible asset. Now the submission of the ld. Authorised Representative is that such payments should be considered as a revenue outgo. However, we find that assessee had not preferred any such claim before ld. Assessing Officer. No doubt in the case of Pentasoft Technologies (supra) Juri ictional High Court had held that non compete clause under an agreement transferring a division exclusively, should be read as a supporting clause and should be considered as an intangible assets. However, what we find in the instant case is that clause 8.6.1 to 8.6.4 of the tripartite agreement between the assessee, Orchid India and Shri. K.Raghavendra Rao and the bipartite agreement between assessee and Shri. K.Raghavendra Rao were not carefully verified by any of the lower authorities. What is required to be seen is whether the payment of non compete fee was a supporting one to the transfer of the injectable drugs division. :- 13 -:
We are of the opinion that this issue also requires a fresh look by the ld. Assessing Officer . We therefore set aside the orders of the lower authorities with regard to disallowance of depreciation an intangible assets and remit it back to ld. Assessing Officer for to considering afresh, in accordance with law. Concise ground No.2 of the assessee is allowed for statistical purpose.”
5 Pursuant to the directions of Co-ordinate Bench of this Tribunal, the Ld. A.O vide order dated 28.02.2020 has allowed the claim on depreciation observing as under:
“10.5 The assessee filed detailed submission dated December 24, 2019 explaining the nature of intangible assets acquired from Orchid such as developed products, in-process R&D, customer relationships, contract manufacturing and the utility of these intangibles in the business of the assessee, that is, income generation from the said asset(s). With regard to authority of valuer, in the absence of any requirements/conditions under the Act, the details regarding registrations obtained by RBSA from various authorities such as SEBI, ICAI, etc. and their credentials was provided by the assessee.
6 With regard to non-compete fee, the assessee reiterated the submission made on November 22, 2019, that it is entered into as a support for the business acquisition. On a careful consideration of the assessee's submissions and verification of the tripartite agreement between the assessee company, Orchid Chemicals and Shri Raghavendra Rao, it is observed that the non-compete fee payment is a supporting one for acquisition of the Injectable Drugs Division by the assessee company. The arrangement is found in line with the ruling of the Hon'ble Madras High Court in the case of Pentasoft Technologies Ltd 264 CTR 187, as observed by Hon'ble ITAT.
7 On a careful consideration of the assessee's submissions along with the observations and directions of the Hon'ble ITAT, the disallowance made in the assessment order in respect of Brand & Trade Marks (Rs.99,19,84,875) and Non- compete fee (Rs.1,13,82,750) is hereby deleted.”
6 However, the assessee has filed writ petition against the above assessment order and the Hon’ble High Court has held that the :- 14 -:
impugned order is barred by limitation. As the assessment order
passed consequent to ITAT order for A.Y 2011-12 does not survive ,
the WDU on which depreciation is to be computed is not available .
A.O is therefore directed to re-compute the WDV as on 01.04.2011
on the intangible assets as per direction given by ITAT in AY 2011-12
and allow the depreciation as per law in force. In view of the above,
ground No.2 is allowed for statistical purposes.
Ground No 3.1 has not been pressed.
Ground No 3.2 is against non consideration of TDS credit
while computing the demand. The Ld AR has submitted that the Ld
AO has not given credit of TDS and prayed for direction . The Ld AO is directed to allow the credit as per law.
Ground No.4 and 6 are against the rejection of CUP as Most
Appropriate Method (MAM ) for benchmarking the sale transaction and adopting TNMM as MAM for sale transaction and the assessee has made sale of Rs. 555 Crores to its AE M/s. Hospira, USA and claimed
CUP as MAM for benchmarking AE transaction. The assessee has submitted that M/s. Orchid India has entered into agreement starting
with 2005-06 with its Distribution Partner (DP) for export of products
and when M/s. Orchid India was acquired in 2010 the same :- 15 -:
agreement has been relied upon for transaction between M/s. Orchid
India and DP as the third party agreement . Accordingly, legacy
agreement was relied upon as a valid CUP between Hospira and its AE. However, the TPO has not accepted its argument as there was variation in the agreement rate and amount raised on sale from the AEs. The TPO has stated that out of total 589 sale transactions, in 76 transactions the realized rate was less than the agreed rate and in 397 transactions it was more than the agreed rate and only in four
transactions the realized rate was at agreed value. The TPO rejected
CUP methods for the following reasons:
“(1) The transactions are numerous in number (589 transactions) in the AE segment alone; (2) In respect of deemed AE, the assessee could not furnish any details substantiating the CUP; (3) In respect of the profit share also, the assessee could not furnish statement of accounts received from AEs and Deemed AEs and corresponding credit notes raised by the assessees on AEs and deemed AEs. (4) CUP requires a stringent comparison on Transaction to Transaction basis and therefore this office is not in a position to verify the transactions in entirety and in respect of deemed AEs, such information was not forthcoming from the assessee also. (5) As per assessee's own admission in respect of AE transactions only 4 transactions out of 589 transactions have been carried out with reference to the old agreement rates which accounts for less than 1% (0.68%). (6) The position is not known in the case of profit share and the assessee itself admits in the TP documentation that there are variations. :- 16 -:
(7) In the case of the deemed AEs such an analysis could not be carried out.”
1 The Ld. DRP has rejected assessee’s objection rejecting
CUP as MAM as it agreed to findings of Ld TPO and found the findings uncontroverted .
Assessee’s submission:
2 The Ld. A.R has submitted that the assessee-company was incorporated for the specific purpose of acquiring the business of an Indian unrelated company Orchid Chemicals & Pharmaceuticals Ltd.
hereinafter refer as “Orchid India”. The generic injectable
pharmaceuticals business of Orchid India was acquired through a slump sale arrangement on 30.03.2010. Prior to the acquisition of business from Orchid India, the assessee and its group entities
globally transacting with Orchid India throughout trade arrangements.
Since, the assessee acquired the business from slump sale
transaction from Orchid India, the trade agreement between Orchid
India and Hospira group entities which was entered into before
acquisition continued to be operational and were adopted after the acquisition also and were acted upon. These trade agreements are referred to a legacy agreement. Subsequent to the acquisition, the same legacy agreement which was originally entered between
independent third party was adopted and transacted, it was considered :- 17 -:
as a CUP for transfer pricing purpose. The Ld. A.R argued that same
formula has been used for transaction during the year and is consistent with what was valued between Orchid India and Hospira
entities when they were unrelated parties. The ld. AR further submitted
in A.Y 2011-12, the Ld TPO has examined that price realized by the assessee on various shipments to its AE’s are higher than or lower
than the price of drugs mentioned in the trade agreement he made
upward adjustment only in cases where there was under realization
ignoring the cases where there was excess realization. The Ld. TPO
had further made adjustment for the transaction of the assessee with its group entities abroad by twitching profit sharing ration also. Against
this, the assessee has filed appeal before the Tribunal and the Tribunal has set aside the order with regard to adjustment for difference in pricing between cost of shipment and standard price back
to the file of Ld. A.O/TPO for consideration afresh observing that even
though an adjustment can be made such as adjustment has to consider both positive as well as negative price difference. However,
when the case was remanded back, the ld. TPO vide order dated
2019 applied TNMM methods but allowed amortization of good
will as non operative expenditure and no transfer pricing adjustment
was made . The Ld. A.R has submitted that all the facts are similar to :- 18 -:
the facts in A.Y 2011-12 but Ld TPO/DRP has rejected the legacy
agreement as CUP for justifying the transaction to be at arms length
though this issue was specifically dealt with by the Hon’ble Tribunal in para 22 of its order in A.Y 2011-12. The Ld AR has also relied upon the decision of ITAT, Bangalore in the case of Cable and Wireless
Network India (P) Ltd. in which CUP method was held to be MAM in legacy agreement.
3 The Ld. D.R has reiterated findings of the Ld. TPO in rejecting the CUP as MAM. The Ld. D.R has submitted that the transactions are numerous in nature and the transaction covers
different products and inspite of each product they are multiple classes
by way of dosage, strength etc. and the CUP requires comparison of price and its transactions to transaction basis and it has been stated
that the standard cost which forms for invoicing products to the AE and non AE are subject to revision on annual basis. The Ld DR also argued that agreement with AE cannot be considered as third party
uncontrolled transaction for purpose of CUP. He also submitted that agreement between Orchid Pharma and North Star cannot be considered as comparable for external CUP as North Star is in oral
whereas assessee is in injectables. :- 19 -:
4
We have heard the rival contentions and perused the materials available on record. Section 92 of the Act provides that any income arising from an international transaction shall be computed
having regard to the arm’s length price. The term "arm's length price"
has been defined in section 92F(ii) to mean: `a price which is applied
or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions’. Section 92C
dealing with computation of ALP provides through sub-section (1) that the ALP shall be determined by any of the following methods, being
the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe. Five specific methods have been set out,
namely, (a) comparable uncontrolled price method; (b) resale price
method; (c) cost plus method; (d) profit split method; (e) transactional
net margin method. Sub-section (2) of section 92C mandates that:
`The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed’. On going through the prescription of sub-sections (1)
and (2) of section 92C read with section 92, it gets highlighted that the legislature has used the word `shall’ for determining the ALP under the :- 20 -:
most appropriate method and the most appropriate method is to be applied having regard to the nature of transaction or class of transaction etc. The crux is to apply the most appropriate method for determining the ALP having regard to the nature of transaction etc. It means we need to first understand the nature of transaction and then
select the method for the ALP determination, that is befitting its nature
etc. The ultimate aim of Chapter –X of the Act is to determine the arm’s length price of the transaction. The methods prescribed are only
the means of achieving the object of the ALP determination .Suppose,
an assessee applies a particular method as the most appropriate for determining the ALP of a transaction but the TPO, having regard to the nature of transaction or class of transactions etc., comes to the conclusion that the most appropriate method was not applied, he has every right to discard that method and apply the one which is actually
the most appropriate in the given facts of the case. The controversy
in the present case revolves around the selection of the most
appropriate method between the CUP method and TNMM method.
5 Rule 10B, which states that: `For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international
transaction … shall be determined by any of the following methods,
being the most appropriate method, in the following manner, namely’. :- 21 -:
Clause (a) of rule 10B(1) prescribes the manner of determination of the ALP under the CUP method, which reads as under: “(a)
comparable uncontrolled price method, by which,— (i) the price
charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled
transactions or between the enterprises entering into such transactions, which could materially affect the price in the open
market; (iii) the adjusted price arrived at under sub-clause (ii) is taken
to be an arm's length price in respect of the property transferred or services provided in the international transaction or the specified
domestic transaction.”
6 This method stipulates that, firstly, the price paid for property
in a comparable uncontrolled transaction is identified. The term
uncontrolled transaction has been defined in rule 10A(b) to mean : `a transaction between enterprises other than associated enterprises..’.
So the price in an uncontrolled transaction is a price of some actual
transaction between enterprises other than AEs. Such price is then
adjusted to account for differences, if any, between the international :- 22 -:
transaction and the comparable uncontrolled transaction. The adjusted
price is taken as ALP. On going through the mandate of the CUP
method, it follows that the benchmark price is the actually transacted
price (charged or paid and not some theoretical price) in a comparable
uncontrolled situation.
7 The Assessee has submitted that sale to AEs are at armed
length price as it has sold the goods at the same terms as it was being
sold by Orchid before it was acquired by assessee . The assessee
submitted that legacy agreement executed between AEs and Orchid
prior to its acquisition should be considered as internal CUP . The assessee further submitted that Orchid and Northstar has been held
by ITAT in the preceding year as not associated enterprises,
therefore price arrangement with them can be considered external
CUP . The Learned AR has argued that assessee has adopted CUP
method for benchmarking the sales transaction which is the most
appropriate method and accordingly no adjustment is called for. We,
do not agree with the assessee’s contention that terms of sale of goods prior to March 2010 can be considered as internal CUP as the price in an uncontrolled transaction is a price of some actual
transaction between enterprises other than AEs as per clause (a) of Rule 10B. As regards to argument about pricing method with :- 23 -:
Northstar as external CUP ,the arrangement with Northstar can not be considered as external CUP as it is operating in different segments .
We have also observed that 99.84% of sale has been made to its AEs
and there are 589 sales trasactions out of which in 166 cases sale
realized is less than so called agreement price and in 419 case it is more than agreement price. The TPO in A.Y 2011-12 has made
adjustment only on transactions , where there were short realization
and the ITAT has held that even though an adjustment can be made
such adjustment has to consider both positive and negative price
difference. The TPO/DRP on the above observation has adopted
TNMM method for benchmarking transaction , which in our view is MAM considering the nature and class of transactions.
8 The Ld AR has relied upon the decision of Banglore Tribunal
in the case of Cable & Wireless networks India Pvt Ltd in ITA No 1549/bang/2014 , which is not applicable in facts of present case. In the case relied, assessee has benchmarked the transaction by TNMM
method and requested for adjustment for capacity utilization , and the bench held CUP as MAM as the price of actual trasaction of other
than AE was available. It was not the case where price agreement
with AE was argued to be internal CUP. :- 24 -:
9 We therefore , concur with the reasons given by the learned
TPO/DRP rejecting the CUP as most appropriate method and adopting TNMM as most appropriate method . Grounds 4 and 6 are accordingly dismissed.
Ground No.5 is against applying the provisions of section 92A(2)(i) of the Act for sale made to Apotex Corp and Apotex Signet
treating as a deemed AE.
1 The Ld TPO/DRP has held that the Apotex group shall be treated as a deemed AE as per Section 92A(2)(i) of the Act and accordingly, benchmarked the international transactions undertaken by the assessee with Apotex group.
2 The Ld. A.R has submitted that the issue of treating the Apotex group has a deemed AE is covered against the assessee vide
assessee’s order for A.Y 2011-12 dated 28.02.2017. However , the arms length nature of transactions must be benchmarked under the CUP method based on legacy agreement or under the Orchid India –
Northstar arrangement.
3
We have considered the rival submissions. The issue of deemed AE of Apotex group has been decided by the Tribunal in A. Y
2011-12 as under : :- 25 -:
““28. We have considered the rival contentions and perused the orders of the authorities below. First, we have to deal with the issue whether Apotex Cort and Apotex Inc Signet were Associated Enterprise of the assessee. Contention of the assessee is that clause (1) and (2) of Section 92A of the Act should not be applied independently. In other words as per the assessee influence in pricing should be such that, an element of control is apparent therefrom. Interpretation of Sec. 92A(2)(i) was an issue which was considered by the Co-ordinate Bench in the case of Orchid Pharma Limited (supra). There one M/s.Northstar with which Orchid India has having a similar profit sharing arrangement was considered as an Associated Enterprise of M/s. Orchid India, by the ld. TPO. Interpreting Sec. 92A(2)(i) of the Act, the Co-ordinate Bench held as under:- ‘’12. It is in this background that we have to address ourselves to the scope of Section 92A(2)(i) which provides that “……two enterprises will be deemed to beassociated enterprises…………when the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise”. As we do so, we may take note of the fact, as discussed earlier as well, that the definition of associated enterprises in the cases covered by Section 92A(1), which refers to the participation in management, control or capital of the other enterprises, extend only to such extent as covered by Section 92A(2). In other words, even when it is an admitted situation that the assessee has participated in control, capital or management of the other enterprise, the assessee will not be treated as an AE of the other enterprise unless the conditions set out in one of the clauses of Section 92A(2) are satisfied. It is in this sense that both the limbs of Section 92A are required to be read together. However, the situation that we are dealing with is exactly contrary to the situation so visualized by us. We have a case in which wordings of Section 92A(2) are admittedly satisfied, but the mandate of Section 92A(1) is not satisfied inasmuch as the scale of inter se business relations between the two enterprises is so insignificant, at less than 5% of entire sales, that there is no element of de facto control over the other enterprise so as hold that two enterprises are associated enterprises.
We may, at this stage, take note of decision of a coordinate bench of this Tribunal, in the case of Page Industries Limited Vs DCIT [(2016) 159 ITD 680 (Bang)]. That is a case in which the coordinate bench has held that even though the provisions of Section 92A(2)(g) are satisfied in a case, the assessee cannot be treated as an associate enterprise of the non resident company granting it licence to manufacture its products, because the provisions of Section 92A(1) are not satisfied.
As evident from the limited narration of facts in the said decision, the assessee-company (i.e. Page Industries Ltd; PIL in short) was “a licensee of the brand- name 'Jockey' for exclusive manufacture and marketing of goods under license agreement” but “the assessee- company owns entire manufacturing facility, capital investment of Rs.100 crores and 15000 employees” and “there is no participation of JII :- 26 -:
(i.e. Jockey International Inc., USA) in the capital and management of the assessee-company”. On these facts, the coordinate bench has held that JII and PIL are not associated enterprises as there is no participation by JII in “management or capital of PIL(emphasis supplied by us)”. We have our reservation, whatever be it’s worth, on the conclusions arrived at in this case but that does not dilute our highest respect for an important principles of law laid down by the coordinate bench. The reasons for this approach are as follows. The expression ‘control’ appearing in Section 92A(1) is very crucial and the manner in which control is exercised could go well beyond capital and management, but the coordinate bench had no occasion to deal with the “control” aspect at all. As held in the case of Diageo India Pvt Ltd Vs DCIT [(2011) 47 SOT 252 (Mum)], even when an enterprise exercise control over the other enterprises by way of controlling the supply of raw material or use of trademarks, this also constitutes ‘participation in control’ leading to the status of associated enterprises under section 92A(1). It appears that this aspect of the matter has not been brought to the notice of, or pleaded before, the bench. While the conclusion arrived at by the bench clearly overlooks the specific mention of the word “control” in both limbs of the basic rule under section 92A(1) (i) as also under section 92A(1)(ii), and to that extent we are unable to concur that in the absence of participation in capital or management, two enterprises cannot be ‘associated enterprises’ under section 92A, what is important to us is that the coordinate bench has, inter alia, also held that, “….in order to constitute relationship of an AE, the parameters laid down in both sub-.sections (1) and (2) should be fulfilled” and justified this approach by observing that “if we were to hold that there is a relationship of AE, once the requirements of sub-sec.(2) are fulfilled, then the provisions of sub-sec.(1) renders otiose or superfluous” and that “it is well settled canon interpretation of statutes that while interpreting the taxing statute, construction shall not be adopted which renders particular provision otiose”. The coordinate bench then further observed that “when interpreting a provision in a taxing statute, a construction, which would preserve the purpose of the provision, must be adopted”. The legal position thus summed up by the coordinate bench is that in a situation in which the conditions, with respect to a set of enterprises, set out in section 92A(1) are clearly not fulfilled, even if the conditions under one of the clauses of section 92A(2) are fulfilled, such enterprises cannot be treated as associated enterprise under section 92A. To the limited extent of the principle so laid down by the coordinate bench, we are in considered agreement with the views of the coordinate bench, and it is this principle which is relevant for the purposes of our adjudication. It does directly affect the issue in appeal before us inasmuch as we are also dealing with a situation in which admittedly words of section 92A(2)(i) are clearly satisfied on the facts of this case, the scale of commercial relationship is so insignificant vis-à-vis total business operations of the assessee that there is admittedly no participation in control by one of the enterprise over the other enterprise so as to satisfy the mandate of Section 92A(1).
While dealing with this, we may also refer to some observations made by Dr Ramon Dwarkasing, an Associate Professor in Transfer Pricing at Maastricht University, the Netherlands, in his book “Associated :- 27 -:
Enterprises- A Concept Essential for Application of the Arm’s Length Principle” [ ISBN: 978-90-81724-0-1, published by Wolf Legal Publishers, the Netherlands @ page 6], as follows:
“…..in various countries, the concept of associated enterprises may even cover relationships between independent enterprises, for instance, where a foreign buyer has a strong negotiating power. For example, an Indian software company has a customer in Netherlands which is responsible for more than 90% of turnover of Indian software developer. The Dutch customer is able to dictate the prices to Indian software developer. The Indian software company is, therefore, able to charge a price with 1% margin/mark up, which is very low compared to his Indian counterparts (which apply, for instance, 6% mark up). According to the Indian transfer pricing law, if the gods or articles manufactured or processed by one enterprises, are sold to other enterprise abroad or to person specified by such other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprises, the two enterprises shall be deemed to be associated enterprises [See section 92A(2)(i) of the Indian Income Tax Act, 1961].
The Indian tax authorities consider the Indian software developer and its Dutch customer to be associated. They may adjust the prices and tax an unrealized profit, i.e. difference between real results and results based on prices derived from other software developers in India. The Netherlands does not consider the companies to be associated as it applies a narrow concept that does not include “de facto control” as a criterion for association. “Control” in the absence of company law based relationship or in the absence of any formal right to exercise control can be described as “de facto” control. Participation in capital and management can be characterized as “de jure” concepts; concepts covered by company law.
[Emphasis, by underlining, supplied by us]
While the above observations do seem to be at variance with the plain words of the statutory provision inasmuch as it refers to influence by way of “strong negotiating power” rather than an influence simplictor- as is the apparent scheme of the statutory provision, what is immediately discernible from the above extracts is that the ‘de facto’ control is the foundation of the wider approach to the concept of ‘associated enterprises, and, of course, the impression that one of the ways in which use of expression ‘influence’, in concept of associated enterprises under the transfer pricing, can be rationalized is as dominant influence in the nature of defacto control. The definition of ‘associated enterprise’, as the above academic analysis shows, has two approaches- wider approach and narrow approach. A narrow approach to the concept of associated enterprises takes into account only “de jure” association i.e. though formal participation in the capital or participation in the management. A wider approach to the concept of ‘associated enterprises’ takes into account not only the de jure relationships but also de facto control, in the absence of participation in capital or participation in management, through other modes of control such as commercial relationships in :- 28 -:
which one has dominant influence over the other. This wider concept is clearly discernible from the principles underlying approach to the definition of ‘associated enterprises’ in the tax treaties and has also been adopted by the transfer pricing legislation in India in an unambiguous manner. There is no other justification in the Indian transfer pricing legislation, except the participation in capital of an enterprise, management of an enterprise or control of an enterprise, which can lead to the relationship between enterprise being treated as ‘associated enterprises’. What essentially follows is that clause (i) of Section 92A(2) has, at its conceptual foundation, de facto control by one of the enterprise over the other enterprise, on account of commercial relationship of its buying the products, either on his own or through any nominated entities, from such other enterprise and in a situation in which it can influence the prices and other related conditions. The wordings of clause (i), however, do not reflect this position in an unambiguous manner inasmuch as it does not set out a threshold of activity, giving de facto control to the other enterprise engaged in such commercial activity, in percentage terms or otherwise- as is set out in clause (g) and (h) or, for that purpose, in all other operative clauses of Section 92A(2). If the words of this clause are to be interpreted literally, as the authorities below have read, even if there is one isolated transaction with an enterprise in such an enterprise can influence the prices, such an enterprise is to be treated as an associated enterprise- whether or not this commercial relationship amounts to control on the other enterprise. That will clearly be an incongruous result. However, as Section 92A(2)(i) is to be read alongwith Section 92(A)(1), in such a situation in which an enterprise does not participate in (a) capital, (b) management, or (c) control of other enterprise, and thus does not fulfil the basic rule under section 92A(1), even if the conditions of Section 92A(2)(i) are fulfilled, these enterprise cannot be treated as ‘associated enterprise’. In the case before us, it is not even the case of the revenue that the assessee has any participation in management or capital of the other enterprise, nor there is anything to even remotely indicate, much less establish, that one of the enterprise, by way of this commercial relationship, participates in control over the other enterprise. Viewed thus, Northstar, even if it is assumed that it can influence prices and other conditions relating to sale, cannot be treated as associated enterprise of the assessee before us. It is also important to bear in mind the fact that given the context in which the expression “prices and other conditions relating thereto are influenced by such other enterprise” appears in Section 92A(2)(i), this influence has to be something more than influence in the ordinary course of business and in the process of negotiation, because, even in the course of ordinary every business and in the course of day to day negotiation, selling prices as also conditions of sale are invariably, in a way, influenced by the buyer. Therefore, even when a customer offers terms to someone with a ‘take it or leave it’ message, such an approach, by itself, cannot be termed as ‘influence’, for our purposes, unless the seller is in such a position and under such an influence that he has to simply accept the dictated terms. Any other view of the matter will result in all the enterprises dealing with each other as every party to a transaction has an influence over the price and conditions relating to the sale, and will lead to a situation in which all the :- 29 -:
enterprises dealing with each other on negotiated prices will have to be as associated enterprises. That again is a clearly absurd and unintended result, and it is only elementary that law is to be interpreted in such a manner as to make it workable rather than redundant. This principle is expressed in the latin maxim “utres magis valeat quam pereat”. Explaining this principle, Hon’ble Supreme Court has, in the case of CIT Vs Hindustan Bulk Carriers [(2003) 259 ITR 449 (SC)], has observed that “A construction which reduces the statute to a futility has to be avoided” and that “A statute or any enacting provision therein must be so construed as to make it effective and operative on the principle expressed in maxim utres magis valeat quam pereat i.e., a liberal construction should be put upon written instruments, so as to uphold them, if possible, and carry into effect the intention of the parties. [See Broom’s Legal Maxims (10th Edition), p. 361, Craies on Statutes (7th Edition) p. 95 and Maxwell on Statutes (11th Edition) p. 221.]” It is, therefore, important that the expression ‘influence’ is given a sensible meaning so as to make the provisions of Section 92A(2)(i) workable rather than adopting a literal meaning which will lead to wholly incongruous results.
Viewed in this perspective, we must adopt a sensible meaning of expression ‘influence’ which advances the scheme of the transfer pricing provisions rather than making these provisions unworkable. That meaning had to be a dominant influence which leads to de facto control over the other enterprise rather than an influence simplictor. If we are to adopt literal meaning of influence, as has been adopted by the authorities below, all the transactions on negotiated prices will be hit by the provisions of Section 92A(2)(i). In the light of the discussions above, the expression ‘influence’, in the present context, must remain confined to dominant influence which amounts to de facto control. Acceptance of terms of the buyer on commercial considerations, as in this case, cannot be treated as influence of the buyer. It is a commercial decision whether to accept the terms of the buyer, with respect to the price or related conditions, or not. It becomes influence, for the purpose of Section 92A(2)(i), when the seller is placed in such a situation that he has no choice, because of buyer’s dominant influence, but to accept it. It is thus clear that context in which a reference is made to the expression ‘influence’ in section 92A(2)(i) requires this expression to be read as a dominant influence in the sense of control by one enterprise over the other. Given the fact that the assessee’s exports through the distribution part constitutes less than 5% of its entire exports, and less than 6% of its entire sales, Northstar is certainly not in a position to exercise any dominant influence, over the assessee. The assessee’s decision to accept the terms set out by Northstar, even if that be so, may be justified on account of commercial expediencies or warranted by business exigencies or may simply be compulsion of this somewhat unique and complex business model, but it cannot, by any stretch of logic, be on account of dominant influence of Northstar as a customer. It may even be a sound business strategy to accept a rather passive and back seat role, if one can term it that way, in day to day decision making under this business model, but cannot be on account of dominant influence that Northstar exercises on buying of products from the assessee. The influence of Northstar, given the scale of business through Norrthstar as :- 30 -:
a distribution part, is too modest to make it a dominant influence in the nature of control. In this view of the matter, as also bearing in mind the earlier discussions on the issue, the assessee and Northstar can not be treated as ‘associated enterprises’ under section 92 A. We uphold the plea of the assessee’’.
What we understand from the above is that the term influence appearing in Sec.92A(2)(i) of the Act is a type of dominant influence which lead to a defacto control over the other enterprise. Co-ordinate Bench had held that M/s. Northstar was not in a position to exercise any such dominant influence since M/s. Orchid India had also exported through various other distribution partners and dealings with M/s.Northstar constituted less than 5% of the entire exports and less than 6% of the entire sales of M/s.Orchid India. As against this admittedly, in the case before us, the entire sales of the assessee were to Apotex Cort/Apotex Inc Signet and M/s. Hospira group, concerns of which the latter admittedly were Associated Enterprises of the assessee. The profit share which came to the assessee from these parties were as under:-
Party Name Profit Share Amount
Apotex Corp 29,21,54,195 Apotex Inc 85,79,870 Total 30,07,34,065 Hospira 95,19,26,971 95,19,26,971 Enterprises BV Grand Total 125,26,61,036
The total sales to Hospira group as already mentioned by us at para 5 above, aggregated to ₹283,79,39,806/-. It can be safely concluded from the above data that more than 20% of assessee’s sales were to Apotex Corp and Apotex Inc. The profit shared earned by the assessee from them aggregated to ₹30,07,34,065/- out of the total profits of ₹125,26,61,036/-. We are therefore of the opinion that M/s. Apotex Corp and Apotex Inc were in a position to exercise a dominant influence over the assessee. A person who purchased more than 1/5th of the total sales of the assessee, in our opinion, would have a distinctly dominant influence on the pricing and can exercise a defacto control. In the circumstances, we are of the opinion that lower authorities were justified in treating M/s. Apotex Corp and Apotex Inc as Associated Enterprise of the assessee.” :- 31 -:
4 As the issue is identical to the A.Y 2011-12, respectfully
following the order for A.Y 2011-12, we hold the Apotex group as deemed AE and the ground of appeal is dismissed.
Ground No. 7 is against not allowing economic adjustments
while computing operating margins under TNMM method .
1 The Ld AR submitted that the Ld. TPO has not considered
adjustment of amortization of goodwill while computing the operating
profit under TNMM. The Ld AR argued that amortization of goodwill is an extraordinary item and therefore should be excluded from the operating expenditure for computing the arms length margin . The Ld
DRP has rejected the assessees objection on the ground that TNMM
is robust enough to take care such difference. The Ld AR submitted
that in preceding year after the TP issue was remanded back by the ITAT, the Ld TPO has granted adjustment on amortization of goodwill.
Assessee has relied upon the ITAT, Banglore decision in the case
Continental automotive component (India) Pt Ltd 139 taxman.com 187
and Delhi ITAT decision in the case of DHR Holding India Ltd 133
taxman.com 519. 10.2 The Ld DR relied upon findings of the Ld. TPO/DRP. :- 32 -:
3
We have considered the rival arguments and perused the TP
documents . We agree with assessee submission that amortization of goodwill is an abnormal item arising out of business acquisition and therefore not part of operating expenditure . The Ld AO/TPO in A.Y
2011-12 has allowed the assessee’s claim of adjustment on account of amortization . The Ld AO/TPO are accordingly , directed to grant
adjustment of amortization of goodwill by excluding from operating
expenditure.
4 The assessee has also objected before Ld DRP that since
there is difference in depreciation between assessee and comparable
companies the cash profit (i.e profit before depreciation , and other
non cash expenses ) by cost should be taken as PLI. The Ld DRP has rejected the assessee objection.
5
We have heard the rival arguments and perused the documents. The depreciation sought to be excluded from the operating profit are not extraordinary and has been considered both
in assessee and comparable companies while determining the profit
margin . Therefore prayer of assessee on this ground is rejected.
Ground is partly allowed. :- 33 -:
Ground No.8 is against transfer pricing adjustment for revision in arms length interest on ICCD. The assessee issued
50% ICCD for 921.20 Crores to Hospira Pte. Ltd. on 30.03.2010
and paid Rs. 96.69 Crores as interest on ICCD. The assessee has claimed the interest paid at armed length. The Ld. TPO/DRP has made adjustment of Rs. 26,68,10,984/-. However, the Ld. TPO has rejected the search performed by the assessee and adopted the same
set adopted for AY 2011-12, with the outliers of 0.5% and 15.5% which averaged to 8% margins to benchmark the transaction. The Ld. DRP
upheld the stand of the Ld. TPO.
1 The Ld. AR submitted that this issue is covered in favour of the assessee vide the order of this Tribunal dated February 28, 2017 in assessee’s own case for AY 2011-12 wherein this Bench had directed
the Ld. TPO to verify and exclude TPG Wholesale Limited as a comparable company Subsequent to the above, the Ld. TPO while
giving effect to ITAT order has concluded the remand proceedings
without making any adjustment to the interest cost.
2 The Ld. D.R has supported the orders of the authorities
below. :- 34 -:
3
We have heard the rival contentions, and perused the materials available on record. The Co-ordinate Bench in A.Y 2011-12
has set aside the matter to the lower authorities as per the following
directions:
“25. We have considered the rival contentions and perused the orders of the authorities below. It is not disputed that assessee had provided for interest at the rate of 10.5% on its ICCD. Ld. TPO had selected two companies for comparison of which one company was having ICCD interest rate of 15.5% and the other company 0.5%. Contention of the assessee is that M/s.TPG Wholesale Private Limited for which ld. TPO had taken ICCD interest at 0.5% had actual interest rate of 50%. In our opinion there is a wide disparity between what is stated in the Balance sheet and the schedule of M/s. TPG Wholesale Private Limited filed before
