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Facts
The assessee, a subsidiary of Agilent Technologies, is involved in distribution and provides Software Development Services (SDS) and Marketing Support Services (MSS) to its associated enterprise. The appeal arises from the Assessing Officer's order which made adjustments for the distribution segment, SDS, and MSS, based on transfer pricing analysis.
Held
The Tribunal held that Fulford India was a valid comparable for the distribution segment as it primarily engaged in wholesale trading of medicines, similar to the assessee. However, the issue of RPT filters for comparables Carestream Health India Pvt. Ltd. and Nureca Limited was remitted back to the AO/TPO for fresh examination.
Key Issues
Whether Fulford India is a comparable for the distribution segment, and whether Carestream Health India Pvt. Ltd. and Nureca Limited failed RPT filters, requiring remittal for further examination.
Sections Cited
143(3), 144C(13), 144B, 92D, 10D, 270A, 271AA, 92CA(3), 270A, 271AA, 10B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘I’: NEW DELHI
Before: SHRI YOGESH KUMAR U.S. & SHRI AVDHESH KUMAR MISHRA
Date of Hearing 25/06/2025 Date of Pronouncement 17/09/2025 ORDER
PER AVDHESH KUMAR MISHRA, AM
This appeal of the assessee for the Assessment Year (‘AY’) 2020-21 is filed against the order dated 27.07.2024 passed under section 143(3) r.w.s. 144C(13) read with section 144B of the of the Income Tax Act, 1961 (‘Act’) by the Assessment Unit [‘Assessing Officer’/ ‘AO’].
The Assessee has raised following grounds: “1. That on the facts and circumstances of the case and in law, the order passed by the Ld. AO under section 143(3) r.w.s 144C(13) read with section 144B of the Act is bad in law and liable to be quashed to the extent it confirms the additions/disallowances made in the assessment order. Grounds against transfer pricing ("TP") adjustment
2. On facts and circumstances of the case and in law, the Ld. AO/ Learned Transfer Pricing Officer ("Ld. TPO") erred on facts and in law in enhancing the income of the Appellant by INR 113,467,375/- pertaining to distribution segment that do not satisfy the arm's length principle envisaged under the Act and in doing so, have grossly erred in: 2.1. erroneously rejecting the arm's length price ('ALP") as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("Rules"); 2.2. conducting a fresh comparability analysis based on the application of erroneous additional / revised filters in determining the ALP for the Appellant and rejecting the filters applied by the Appellant in its TP documentation; 2.3. erroneously including certain companies in the final comparable set that are functionally dissimilar as compared to the functional profile of the Appellant; 2.4. committing factual/computational errors while computing the operating margins of certain comparable companies; 2.5. committing computational errors while computing the adjustment in the distribution segment; 2.6. disregarding judicial pronouncements in India and international guidance while undertaking the TP adjustment. Other Grounds 3. On the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A and section 271AA of the Act.
The above grounds are without prejudice to each other. The Appellant craves leave to alter, amend or withdraw all or any objections herein or add any further grounds as may be considered necessary either before or during the hearing.”
The relevant facts giving rise to this appeal are that the appellant assessee, incorporated on 26 July, 1999, is a wholly owned subsidiary of Agilent Technologies Luxco S.A.R.L. The appellant assessee is engaged in distribution of Agilent Group’s products; such as, Life Sciences and Applied Markets Group (‘LSAG’), Diagnostics and Genomics Group (‘DGG’), Agilent Cross Lab Group (‘ACG’) products, etc., etc. The appellant assessee also provides Software Development Services (‘SDS’) and Marketing Support Services (‘MSS’) to its AE; namely, Agilent Technology Singapore International Pvt. Ltd. However, these services constitute only 1.47% of appellant assessee’s revenue. Following international transactions have materialized during the year: S. No. Nature of international transaction Amount (INR) 1. Purchase of traded goods, spare parts and 5,38,34,20,096 demonstration equipment 2. Re-export of goods 11,95,50,932 3. Receipt of commission income 68,49,52,213 4. Provision of IT and BCC Services 5,82,38,033 5. Provision of marketing services 66,41,837 6. Service Cost paid or payable 41,96,685 7. Service cost received or receivable 99,74,887 8. Provision of software development services 2,02,38,178 9. Provision of group marketing services 9,23,51,571 10. Purchase of fixed assets 57,18,866 11. Cost reimbursement paid/payable 4,00,93,118 12. Cost reimbursement received/ receivable 1,93,90,749 13. Trade receivables 34,33,90,069 14. Trade payables 77,12,07,356 3.1 The appellant assessee’s TP Study detailing the benchmarking for the above-mentioned international transactions were partially found acceptable by the Transfer Pricing Officer (‘TPO’). However, the appellant assessee has provided SDS and MSS solely to its AE. The risk of sole customer has not been considered by the assessee in its TP Study Report. Therefore, the TPO made adjustment of Rs.8,33,180/- under the head SDS segment and Rs.16,50,678/- under the head MSS segment in order passed under section 92CA(3) of the Act.
3.2 Further, the TPO examined comparables of Distribution Segment selected by the appellant assessee in its TP Study. Out of 8 comparables selected for Distribution Segment by the appellant assessee in its TP Study, the TPO rejected 1 comparable based on the reasoning detailed on page 47- 48 of in the order passed under section 92CA(3) of the Act. The TPO thereafter, picked up 10 new comparables in the final list of 17 comparables as detailed on page 48-50 of the order passed under section 92CA (3) of the Act. Due to new comparables, the TPO proposed the adjustment of Rs.22,90,44,906/- under the head ‘Distribution Segment’.
3.3 In the draft assessment order, the AO made three adjustments; (i) Rs.8,33,180/- under the SDS segment, (ii) Rs.16,50,678/- under the MSS segment and (iii) Rs.11,34,67,375/- under the Distribution Segment.
3.4 Aggrieved with the draft assessment order, the assessee preferred objections before the Ld. Dispute Resolution Penal (‘DRP’) who allowed part relief. In pursuance of the directions of the Ld. DRP, the AO, in the final assessment order, restricted the comparables to 11 instead of 17 in final set of comparables for Distribution Segment (page 23-24 of the final assessment order), which resulted consequential adjustment of Rs.11,34,67,375/- for Distribution Segment. As per directions of the Ld. DRP, other adjustments proposed in the draft assessment order under the heads SDS and MSS were not done in the final assessment order.
Before us, the Ld. Authorized Representative (‘AR’) drew our attention to the list of final comparables for the Distribution segment. Out of the list of final comparables for the Distribution segment, the Ld. AR of the appellant assessee requested for exclusion of three comparables; namely, i. Fulford (India) Ltd. (‘Fulford India’) ii. Carestream Health India Pvt. Ltd. (‘Carestream India’) iii. Nureca Limited (‘Nureca’) Fulford (India) Ltd.
The Ld. AR prayed for exclusion of Fulford India from the list of final comparables on the reasoning that it was functionally dissimilar as it was engaged in the business of manufacturing & trading of pharmaceuticals, whereas the appellant assessee was only distributor/ trader of the Life Sciences Products, etc. of the Agilent Group. It was further submitted that the Fulford India was engaged mainly in therapeutic areas i.e. Dermatology, antihistamines, antibiotics and Oncology. The Ld. AR further submitted that Fulford India dealt only in Pharma products and those Pharma products were quite different from the products of Agilant Group dealt in by the appellant assessee. He drew our attention to the page No. 4 of the Tribunal order in the case of Fulford India AY 2009-10 as under: -
“4. Shri P.J. Pardiwala appearing on behalf of the assessee submitted that the assessee is engaged in the business of manufacturing and distribution of pharmaceutical products in India. The assessee does not have its own manufacturing facility; thus, the assessee engages third party for manufacturing of pharmaceutical products. The business of assessee can be divided in four segments, viz: (i) Tolling: Import of APIs from AEs and converting the same into formulations by using services of third party viz. Gland Pharma. (ii) Tolling: Import/purchases of APIs from third party (non-AE) and thereafter, converting the APIs into formulations using third party manufacturing facility under the supervision of the assessee. (iii) Contract manufacturing: The assessee engages third party viz. Zyg Pharma and Encore Pharma to purchase the APIs from approved sellers of API, manufacture the formulations as per specifications given by the assessee, under supervision of the assessee and under the Brand name of assessee. (iv) Distribution: In this segment the assessee purchases finished formulations from its AEs and distributes/sells the same in India. The assessee acts as a distributor of the formulations manufactured by its AEs. The ld. Counsel for the assessee submits that in so far as segment (ii) and (iii) are concerned there is no dispute. The dispute is with respect to determination of arm's length pricing (ALP) in segment (i) and (iv).
Per contra, the ld. CIT-DR drew our attention to page No. 2 of Paper Book (PB) -II containing the Director’s report, wherein it was categorically mentioned that 99.99% of revenue of the relevant year had been earned only from wholesale trading in medicines and therefore, this comparable i.e. Fulford (India) P. Ltd. was quite similar to the assessee’s business and there was no need to have any segmental financials of the relevant year as the major revenue was wholly and exclusively from wholesale trading of medicines. The Ld. CIT-DR submitted that the facts of Fulford India of AY 2009-10 [ITA No. 338/Mum/2014] relied upon by the Ld. AR of no relevance in the present case as it pertained to AY 2020-21. He submitted that Fulford India in the relevant year was only trader. Thus, he contended that this comparable had rightly been included in the list of final comparables.
We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. CIT-DR that none of two comparables on this earth will be 100% similar. Undisputedly, more than 99% of revenue of Fulford India in the relevant year is from wholesale trading of medicines only. Fulford India passes all the filters. The case law relied upon by the Ld. Counsel, being factually different, is not relevant here. The Ld. Counsel did not demonstrate any factual inaccuracy in the financials of Profit & Loss account of Fulford India. Further, it is worth mentioning here that the Ld. Counsel has not brought any material on the record to contradict the finding of the AO/TPO. In view of the above, we hold that the AO is justified in including Fulford India in the list of final comparables for Distribution segment. We therefore, hold that Fulford India has been validly included in the list of final comparables by the AO/TPO. Carestream Health India Pvt. Ltd. and Nureca Limited: 8. The Ld. AR submitted that these two comparables had failed RPT filters. To augment his submission, the Ld. AR, placing emphsasis on annual reports of these comparables, drew our attention to the RPT/Sales of these comparables as under: - (i) Carestream India: Financial Year RPT Filter (RPT/Sales) 2017-18 63.74% 2018-19 71.17% 2019-20 71.76%
(ii) Nureca Limited: Financial Year RPT Filter (RPT/Sales) 2017-18 69.797% 2018-19 157.16% 8.1 Further, the Ld. AR submitted that Nureca was functionally dissimilar and thus was not a suitable comparable as it was engaged in the business of trading of home and healthcare wellness products. It was submitted that products dealt in by the Nureca were quite different than those of appellant assessee. Thus, he prayed for exclusion of these two comparables as these failed RPT filters. Further, the Ld. AR also contended that Carestream India dealt in pharma products which were quite different than the products of Agilent Group.
Per contra, the Ld. CIT-DR submitted that the issue of RPT failure had never been raised by the appellant assessee either before the TPO/AO or DRP; therefore, this issue/parameter had not been examined by Authorities below. The Ld. CIT-DR, drawing our attention to page No. 703 of the PB-I and page No. 27 of the DRP directions, submitted that neither the TPO nor the Ld. DRP had ever verified the RPT filters of these two comparables as the appellant assessee had never raised this issue before. Further, the Ld. CIT, drawing our attention to the financials of Nureca, submitted that this comparable did not fail in RPT Filters. He also drew our attention to the fact that the PB did not contain any financial of Nureca for FY 2019-20/AY 2020- 21. To the argument of Ld. AR that there were product dissimilarities dealt in by comparables and the appellant assessee, the Ld. CIT-DR submitted that TNMM and Rules 10B of Income Tax Rules were in respect of transactions/functional similarities and not products similarities. However; looking the facts in entirety, he prayed for remanding the issue of failure of RPT Filters by these two comparables to the AO/TPO for verifications as the issue of failure of RPT Filters had been raised for the first time before the Tribunal.
We have heard both parties and have perused the material available on the record. Before us, the Ld. AR, with the help of financials of both comparables has tried to make out a case that these comparables do not pass RPT filters. Whereas the Ld. CIT-DR, with the help of order/Directions of Authorities below and various pages of PBs has emphasized on the fact that this issue has never been raised by the appellant assessee either before the TPO/AO or DRP; therefore, these comparables have never been examined from this angle. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. CIT-DR that these two comparables; Carestream Health India Pvt. Ltd. and Nureca Limited are required to be examined afresh only that whether these two comparables pass RPT Filters. If yes, then these/anyone shall remain in the final set of comparables. However, at this stage, we are not offering any comment on merit/demerit of these two comparables. We set aside the finding of the AO with respect to these two comparables; Carestream Health India Pvt. Ltd. and Nureca Limited and remit the issue of failure of RPT Filters of these comparables back to the file of the AO/TPO for deciding their inclusion or exclusion on the basis of RPT Filters and pass order accordingly in accordance with law after providing adequate opportunity of being heard to the appellant assessee. Ordered accordingly. The appellant assessee, no doubt, shall cooperate in remitted proceedings before the AO/TPO. Further, we direct the AO/TPO to examine the issue of functional similarities of these comparables as well and decide their inclusion or exclusion on the basis of RPT Filters and functional similarities afresh.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in open Court on 17th September, 2025