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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI SAKTIJIT DAY
सुनवाई की तायीख / Date of Hearing : 15.9.2015 घोषणा की तायीख /Date of Pronouncement : 16.10.2015 आदेश / O R D E R
PER D. KARUNAKARA RAO, AM:
This appeal filed by the Revenue on 15.2.2010 is against the order of the CIT (A)-15, Mumbai dated 4.12.2009 for the assessment year 2002-2003. In this appeal, Revenue raised the following ground which reads as under: “On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in deleting the penalty levied u/s 271(1)(c) of the Act amounting to Rs. 50,11,923/- without appreciating the facts of the case.”
2. Briefly stated relevant facts of the case are that the assessee is engaged in the business of manufacture of pharmaceuticals, chemicals and animal health products. Assessee filed the return of income declaring the total income of Rs. 85,50,92,000/-. In regular assessment, the annual income is determined at Rs. 103,34,09,040/-. In the assessment, the TPO examined the TP studies of the assessee and suggested adjustments to the tune of Rs. 1,40,39,000/- vide his order u/s 92CA(3) of the Act, dated 23.2.2005. The adjustments are made in respect of issues involving claims of „clinical trial services‟. The said adjustments were the subject matter of litigation before the CIT (A). Eventually, the said were upheld and the decision was given in favour of the Revenue. Subsequently, the assessee filed an appeal before the Tribunal. The Tribunal remanded the matter to the file of the AO with certain directions vide its order in appeal dated 8.3.2013 [ 33 taxmann.com 310]. Meanwhile, AO levied penalty of Rs. 50,11,923/- u/s 271(1)(c) of the Act vide his order dated 30.3.2007 on the said adjustment of Rs. 1,40,39,000/-. On appeal, CIT (A) deleted the said penalty vide his order dated 4.12.2009. Contents of para 9 of the same are relevant for the reason for granting relief. In brief, CIT (A) held that the exceptions provided in the Explanation 7 to section 271(1)(c) of the Act covers the assessee‟s case. He held in para 9.7 of his order that assessee satisfied both the conditions specified in the said Explanation 7. Against the said order of the CIT (A), Revenue is in appeal before the Tribunal by raising the above mentioned grounds.
Before us, Ld DR for the Revenue relied on the order of the AO / TPO and submitted that the assessee failed in adopting the correct comparables. He was also critical of the decisions of the CIT (A) in the matter.
Per contra, Ld Counsel for the assessee relied on the order of the CIT (A). Further, he relied on the order of the Tribunal and brought our attention to the contents of para 24 and submitted that this issue of (i) inclusion of ID cost in the total cost of Rs. 1080.25/- was remanded to the AO. He also brought our attention to the direction of the Tribunal and submitted that the said adjustment is made and there is no need for making adjustment by the TPO. Further, he also brought our attention to para 17 and 24 of the said Tribunal‟s order (supra) and submitted that the comparable SIRO is a good comparable now and the Tribunal directed the AO / TPO for doing adjustment after affording an opportunity to the assessee. This issue was remanded too. “17. We have considered the rival submissions on this issue and also perused the relevant material on record. It is observed that the assessee has challenged the action of the authorities below in excluding Gilicon and Kitco and including Siro for the purpose of comparability analysis. As regards Siro, it is observed that there is a functional similarity between the said company and the assessee company in as much as both of them are engaged in the business of providing services relating to clinical trials. The difference is only in the business model adopted by these two companies in as much as Siro is doing the clinical trials on its own where as the assesse company is getting the clinical trials done from the third parties. In our opinion, this difference in business model adopted by Siro cannot be the basis to exclude the said company from the comparability analysis especially when there is a functional similarity in the main business carried on by Siro as well as by the assessee-company which is that of providing services in relation to clinical trials. It is also pertinent to note in this context that there are very few comparables available which are engaged in the business of providing services relating to clinical trials and the assessee company in fact has taken comparables which are in the business of providing business consultancy services for the purpose of comparability analysis. We therefore find merit in the argument of the ld. DR that Siro should be included for the purpose of comparability analysis and what at the most can be done is to make certain adjustments on account of different business model adopted by the said company as has been directed by the Tribunal in the case of Zydus Altana Healthcare P. Ltd. (supra). Accordingly, we direct the AO/TPO to make such adjustments after taking into consideration the relevant facts and after giving the assessee an opportunity of being heard on this aspect. 18..... 19.... 20.... 21.... 22.... 23....
We have considered the rival submissions and also perused the relevant material on record. We agree in principle with the contention of the ld. Counsel for the assessee on this issue that if the indirect cost was already included by the assessee in the total cost of Rs. 1080.25 Lakhs incurred in relation to the services provided to its AE for applying the mark up of 10%, there is no justification in adding indirect cost @ 5% of the direct cost separately as done by the authorities below relying on the terms of the relevant agreement. However, as submitted by the ld. DR, the stand taken by the assessee about inclusion of indirect cost of Rs. 285.48 Crores in the total cost of Rs. 1080.25 Lakhs based on the break-up given on Pg.Nos. 58 & 59 of the Paper Book requires verification as there is no reference to any such details furnished by the assessee in the order of the authorities below nor there is any finding given on verification of such details. Since the ld. Counsel for the assessee also has no objection in this regard, we restore this issue to the file of the AO to verify from the relevant record, the stand taken by the assessee that indirect cost of Rs. 285.48 Lakhs was already included in the total cost of Rs. 1080.25 Lakhs and if the same is found to be correct, the AO is directed not to add separately indirect cost @ 5% of the direct cost for the purpose of Transfer Pricing exercise. Ground No. 2(d) is accordingly treated as allowed for statistical purposes.”
Narrating the above two paragraphs, Ld Counsel for the assessee submitted that the major issues were remanded to the file of the AO / TPO. In that case, the adjustments stand deleted. In such circumstances, the penalty does not survive. Ld Counsel for the assessee submitted that the AO may reinitiate the penalty u/s 271(1)(c) of the Act, in case the adjustments again made to the total income.
We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. We have also gone through the Tribunal order (supra), dated 8.3.2013 in general and para 17 to 24 in particular. The held portion of the said decision read as follows:-