BIO-RED LABORATORIES (INDIA) P.LTD,NEW DELHI V. DCIT, NEW DELHI

ITA 690/DEL/2022

AI Insights

The case involves Bio-Red Laboratories (India) P. Ltd. appealing against the final assessment order passed by the Deputy Commissioner of Income Tax, which included adjustments to the arm's length price (ALP) of international transactions related to intra-group services and the purchase of fixed assets. The Tribunal examined the adjustments made by the TPO and the DRP, which included a significant adjustment for the payment of INR 10,81,27,623 for intra-group services and INR 9,18,13,926 for the purchase of fixed assets. The Tribunal found that the TPO and DRP had not adequately considered the evidence provided by the assessee, including agreements and invoices, and had incorrectly applied the benefit test for determining the ALP of the intra-group services. The Tribunal also noted that the ALP of the trading segment, which included the depreciation on the fixed assets, had been accepted by the TPO as being at arm's length.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474584 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2017-2018
• Other Referred Cases: Guy Carpenter vs. CIT, De Beers India Minerals [P] Limited vs. CIT, Shell India Markets (P.) Ltd. vs. CIT, Linklaters LLP vs. Deputy Commissioner of Income tax, Tata Iron & Steel Co Ltd. vs. CIT, CBDT vs. Oberoi (India) (P) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.K. JADHAV
• Assessee Lawyers: K.M. GUPTA
• Keywords: Set aside; Capital asset; Opportunity of being heard; Additional evidence; Transfer pricing; International transaction; Business expenditure; Question of law; Depreciation; Commercial expediency; Valuation report; Advance ruling; Double taxation relief
• Section: 144; 143(3); 92B; 10B; 92C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.690/DEL/2022 (Assessment Year: 2017-18) Bio-Red Laboratories (India) P. Ltd., vs. DCIT, Plot No.1270, Lal Dora, New Delhi. Near Fun and Food Village, Kapashera, South West, Delhi – 110 037. (PAN : AAACB3202A) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri K.M. Gupta, Advocate Ms. Shruti Khimta, AR Shri Jaskaran Singh, CA REVENUE BY : Shri S.K. Jadhav, CIT DR Date of Hearing : 07.01.2025 Date of Order : 19.03.2025 O R D E R PER S.RIFAUR RAHMAN, AM : 1. This appeal is filed by the assessee against the final assessment order dated 25.02.2022 passed u/s 144 r.w.s.144C (13) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter called ‘the Act’) subsequent to the directions of the Ld. Dispute Resolution Panel (DRP)/TPO for Assessment Year 2017-18 raising following concise grounds of appeal :- 2 ITA No.690/DEL/2022 “1. That on the facts and circumstances of the case and in law, the order dated February 25, 2022 passed by the Additional/Joint/Deputy/Assistant Commissioner of income tax/Income tax Officer, National Faceless Assessment centre, Delhi (Ld. AO) under section 143(3) read with section 144C(13) read with section 144B of the Income tax Act, 1961 is bad in law and liable to be quashed. 2. That on the facts and circumstances of the case and in law, the Ld. AO / Hon'ble D RP / Ld. TPO erred in making an adjustment to the extent of INR 10,81,27,623 in respect of international transaction pertaining to receipt of Intra Group Services CIGS') alleging that the same to be not at arm's length and erred in fact and law by: 2.1. Not appreciating that the subject transaction is closely linked to the main business activity of the Assessee, an aggregation approach using the Transactional Net Margin Method CTNMM') having Net Operating Profit Margin based on income CNPM') as the Profit Level Indicator CPLI') is the most appropriate transfer pricing methodology for benchmarking the subject transaction. 2.2. Exceeding their jurisdiction, by determining the Arm's Length Price CALP') of IGS at NIL, by applying the benefit test, not being a valid method prescribed u/s 92C of the Act, thus applying other method in incorrect manner. 2.3. Not appreciating the documentary evidence including allocation methodology/ information/ explanation as provided by the Assessee during the course of the assessment proceedings evidencing the actual receipt of services. 2.4. Questioning the commercial expediency wisdom of the Assessee for availing such IGS. 2.5. Rejecting the corroborative search for IGS submitted by way of additional evidence dated May 28, 2021, for APAC and America region to substantiate adherence to the arm's length principle. 3. That on the facts and circumstances of the case and in law, the Ld. AO/ Hon'ble DRP / Ld. TPO erred in making an adjustment 3 ITA No.690/DEL/2022 to the extent of INR 9,18,13,926 in respect of international transaction pertaining to purchase of fixed assets alleging that the same to be not at arm's length and erred in fact and law by: 3.1. Not appreciating the back-up documentary evidences, including documents pertaining to the customs valuation of fixed assets and price comparison of similar assets in trading business, provided by the Assessee during the course of the assessment proceedings evidencing the transaction to be at ALP. 3.2. Not appreciating the fact that since the subject transaction is closely linked to the main business activity of the Assessee, an aggregation approach using TNMM having NPM as the PLI is the most appropriate transfer pricing methodology for benchmarking the subject transaction. 3.3. Applying Other Method for determining the ALP for subject transaction without sharing the relevant material/ information required to apply such method. 3.4 Without prejudice to other contentions, not restricting the amount of adjustment to the amount of depreciation of the said fixed assets claimed during AY 2017-18. 4. That the Ld. AO erred on facts and in law in charging interest u] s 234B, 234C and 234D of the Act. That the above grounds of appeal are independent and without prejudice to each other. All the above grounds are without prejudice to each other.” 2. Ground No.1 is general in nature and does not require any adjudication. 3. With regard to Ground No.2, relevant facts are, during the year, assessee has entered into several international transactions as per Form 3CEB and after analyzing the transactions under consideration, AO specifically selected the IG services availed by the assessee from its Associated 4 ITA No.690/DEL/2022 Enterprises (AEs) in the field of AP Management Services for a value of Rs.8,71,61,912/- and availed corporate management services of Rs.2,09,65,711/- and purchase of fixed assets from its AEs for the value of Rs.9,18,13,926/-. During the course of TP proceedings, the TPO directed the assessee to file all the agreements entered by it relating to intra-group services and submit relevant documents for the services actually received by the assessee. In response, assessee has submitted various evidences vide its letter dated 07.12.2020 and 18.01.2022. After considering the submissions made by the assessee, TPO observed that various evidences submitted by the assessee contain list of various services provided by its AEs, however he observed that there is no evidence of actual services provided by them during the year. Basically he rejected all the evidences submitted by the assessee on the basis of benefit test. Further he observed that assessee has paid huge sum of Rs.10.81 crores to its AEs for purported services, one would expect highly specialised services by necessary documentation by the assessee. Assessee has failed to file any worthwhile evidences of purported services. Assessee also failed to produce necessary documentation of services in this regard as per section 92B and Rule 10. He also rejected the claim of the assessee that TPO cannot go into benefit test or commercial expediency of the assessee by observing that he has not 5 ITA No.690/DEL/2022 asked for benefit obtained by the assessee or challenged the commercial decision of the assessee company not incurring the purported services. He has only tried to see whatever services actually received to be able to determine the ALP. Therefore, assessee has failed to convince that these services were actually availed. By relying on various decisions, TPO has rejected the submissions of the assessee. He also rejected the plea of the assessee that other method under section 92C and Rule 10B the same cannot be applied in absence of critical information. Accordingly, he proceeded to treat the total payment of Rs.10.81 crores as ALP adjustment and determined the ALP at Rs.nil. 4. Aggrieved with the above order, assessee preferred an appeal before the DRP. Ld. DRP, after considering the submissions of the assessee, remand report from TPO and assessee’s response to remand report, observed that the adjustment on account of intra-group services has been the subject matter in the case of the assessee for AYs 2011-12 to 2016-17 wherein the ld. DRP upheld the findings and adjustments made in the draft assessments for AYs 2012-13 to 2016-17 and the ld. CIT (A) also upheld the AO’s order in AY 2011-12. Considering the fact that there is no change in the factual matrix of the case, ld. DRP finds no reason to deviate from the decision on the subject taken by the DRP in earlier years. Accordingly, they dismissed the objections raised by the assessee. 6 ITA No.690/DEL/2022 5. Aggrieved assessee is in appeal before us. 6. Ld. AR of the assessee submitted as under :- “A. Intra Group Services 1. Cost allocation methodology for intra-group services availed by Appellant. 1.1. During the AY under consideration, Bio-Rad India had availed certain support services from its AEs i.e., Bio-Rad Singapore and Bio-Rad USA amounting to INR 10,81,27,623. The services received were in the nature of Information Technology ('IT'), sales and marketing, finance and accounting, human resources, regulatory affairs and quality assurance along with admin services and material management, procurement and logistics services ('Intra-group services') (for details refer pg. no. 1116 to 1118 and 1139 to 1141 of the paperbook volume 2). 1.2. The detailed of agreements in respect of these services were entered into by the Appellant with its AE is as under: a. Global Services and cost allocation agreement with Bio-Rad Laboratories Inc with effect from January 1.2009. (refer pg. no. 1089-1104 of the paperbook volume 2) b. Global Services and cost allocation agreement with Bio-Rad Laboratories (Singapore) Pte Ltd with effect from January 1. 2010(refer pg. no. 1130-1145 of the paperbook volume 2) 1.3. The details of the specific services rendered are mentioned at Page no 1103-1104 & 1116-1117 of paperbook volume 2. Further, it may also be noted that the AEs also agreed to a mark-up of 5 % on the cost incurred would be the appropriate remuneration for these services. 1.4. The Hon'ble Bench directed the Appellant to file the basis for allocating the cost by the AE i.e. the allocation keys. Accordingly, the details on the basis of which the allocations were made to the Appellant under each head is tabulated below for the Hon'ble Bench's ready reference: 7 ITA No.690/DEL/2022 Service Group Allocation Keys/ Method Information technology services Headcount Sales and marketing services Revenue* Finance and accounting services Revenue Human resources Headcount - Regulatory Revenue Legal Revenue Education and Training Revenue Treasury Revenue Logistics Revenue General, Administrative and others Revenue *(i.e. Revenue of India/Group Revenue) - (i.e. Head Court of India/Group Head Count) 1.5. The Appellant had submitted to the Ld. TPO the detailed documentation explaining the mode, manner and utilisation of the services along with detailed necessary documentation to substantiate the rendition of such services (refer pg. no. 112 to 758 of the paperbook volume 1). 1.6. The Appellant submits that invoices with regard to the services rendered were filed before the Ld. TPO/DRP (refer Page no 822-835 paperbook volume 2). The Hon'ble Bench would appreciate that monthly management cross charges and the mark- up of 5% charged by the AE is reflected in these invoices. Further, a complete break-up of the cross charges with respect to each Department has also been stated in these invoices. 1.7. In addition to the above, the Appellant has submitted that it had provided the cost break-up and the documentary evidence to demonstrate the need-benefit test before the TPO and the DRP through various submissions which are available from Page no 3- 932 of the paperbook. 1.8. In the DRP proceedings, the Ld. TPO/ AO has reiterated its stand that the documentary evidence submitted by the Appellant were not sufficient to establish that the services were actually rendered.' 8 ITA No.690/DEL/2022 1.9. In this regard, the TPO has filed to acknowledge the documentary evidence submitted by the Appellant were not sufficient to establish that the services were actually rendered. In this regard, the Ld. TPO had failed to acknowledge that there were agreements entered with the AE and the invoices are already placed on record, in addition to the above, the documentary evidences in the form of emails, reports and the resolutions of IT queries were placed on record which clearly establish that such services are being rendered continuously on an year-to-year basis. 1.10. The Appellant during the course of the hearing had drawn the attention of the Hon'ble Bench to the specific findings of the Ld. TPO that the Appellant has not received any services during the subject year (refer page 37 para 4.6 of the appeal set). This is factually incorrect in view of the assessment orders passed for the Appellant's AE's i.e. Bio-Rad USA and Bio-Rad Singapore for AY 2018-19 and AY 2019-20. In these order, the services rendered under the same agreement (as impugned in the subject proceedings) were held to be is in the nature of management support services through which the AE's have rendered professional/expert services to the Indian AE (i.e. the Appellant in the subject case). It was further held that technical knowledge, experience, skill, know-how etc. were made available by the Appellant's AE to the Indian affiliate and therefore these services were in the nature of Fee for Technical Services being taxable under the provisions of the relevant DTAA. (refer page no 1172 to 1193 of the paperbook Volume 2 for the assessment order for Bio- Rad Singapore & refer 1213 to 1258 of the paperbook Volume 2 for the assessment order for Bio-Rad USA). Thus, from the above facts it is clearly evident that the finding of the TPO that the services were not rendered buy the AE is factually incorrect and liable to be rejected. It is also an undisputed fact that the agreements with the AEs in respect of the above stated services were in force from January 1, 2009 and January 1, 2010 respectively and such services were being received by the Appellant on a continuous basis. 1.11. During the course of hearing, the Appellant was directed to place on record the copies of the orders for AY 2018-19 and AY 2019-20 passed by higher authorities (i.e. !TAT and High court) in case of Bio-Rad USA and Bio-Rad Singapore (Annexure 1 - Page no 6 to 23 of this submission), Bio-Rad USA (Annexure 2 - Page 9 ITA No.690/DEL/2022 no. 24 - 52 of this submission) and High court order of Bio-Rad Singapore (Annexure 3 - Page no. 53 to 56 of this submission). 1.12. Thus, in these orders, the factum of services being rendered is duly established. Though, the services rendered by the AE have been held not chargeable to tax due to the non-satisfaction of the make-available test prescribed in the relevant DTAA. 1.13. Prayer: In view of the submissions above, it is prayed that the conclusion of the Ld. TPO that no services have been rendered is liable to be rejected. Consequently, the determination of the arm's length price of the transaction as NIL by applying Other Method is unwarranted. Hence, the adjustment proposed in relation to the receipt of intra group services should not be made. 7. On the other hand, ld. DR of the Revenue brought to our notice page 2 of the TPO order and submitted that assessee has not submitted any evidence to support the services availed by it from its AEs on payment of such huge IGS charges. There is no evidence brought on record and he heavily relied on the orders of the lower authorities. 8. Considered the rival submissions and material available on record. We observed that similar issue was considered by the coordinate Bench in AYs 2018-19 and 2019-20 vide its order in ITA No.994/Del/2022 & 996/Del/2022 vide order dated 30.12.2022. After considering the detailed submissions of both the parties, the Tribunal decided the issue in favour of the assessee by observing as under :- 10 ITA No.690/DEL/2022 “20. In our humble opinion, mere incidental advantage to the recipient of services is not enough. The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld. CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advantage. 21. In our understanding, in order to invoke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. 22. The Hon'ble Delhi High Court in the case of Guy Carpenter 346 ITR 504 [supra] on similar circumstances held as under: “9. A plain reading of Article 13(4)(c) of the DTAA indicates that 'fees for technical services' would mean payments of any kind to any person in consideration for the rendering of any technical or consultancy services which, inter alia, \"makes available\" technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. According to the Tribunal this \"make available\" condition has not been satisfied inasmuch as no technical knowledge, experience, skill, know-how, processes, have been made available by the assessee to the insurance companies operating in India. It also does not consist of the development and transfer of any technical plan or technical design. 10. The Tribunal examined the evidence available on record in order to return a finding on the issue as to whether the payments received by the assessee from the insurance companies operating in India would fall within the expression 'fees for technical services' as appearing in article 13(4)(c) of the DTAA read with section 9(1)(vii) of the said Act. XXXXX 11 ITA No.690/DEL/2022 11. The Tribunal also noted the process by which the transaction takes place. It has been pointed out that the originating insurer in India would contact J.B. Bodal M.B. Boda for placing identified risks/ class of risks with international reinsurers. J.B. Boda, in turn, would contact one or more international firm(s) of reinsurance broker(s) like the assessee for competitive proposals from the international reinsurer. Then, the international reinsurance brokers like the assessee would contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by the international reinsurance brokers, like the assessee, to J.B. Boda, the latter would present various options to the originating insurer in India, which would take a final decision in the matter. Based on the decision of the originating insurer in India, the policy terms would then be agreed upon and the risk would be placed with the international reinsurer. It was also pointed out that as per the normal industry practice, the reinsurance premium net of brokerage of 10% as per the policy contract is remitted to the assessee, i.e., reinsurance brokers, for onward transmission to international reinsurers. The intermediation fee which is another word for brokerage is paid separately by the originating insurance in India to J.B. Boda, the international reinsurance brokers like the assessee and other intermediaries, based on a mutually agreed ratio which accounts for their relative contribution in the reinsurance process. 12. Based on this manner of transacting, the Tribunal came to a conclusion that the payment received by the assessee could not be regarded as 'fees for technical services'. Further, more, the Tribunal also held that such receipts would not amount to fees for technical services as the \"make available\" clause contained in article 13(4)(c) had not been satisfied in the facts and circumstances of the present case. 13. In our view, the Tribunal has arrived at these conclusions purely on assessing the factual matrix of the case at hand. The findings are in the nature of factual findings and, therefore, according to us, no substantial 12 ITA No.690/DEL/2022 question of law arises for our consideration, particularly, because the learned counsel for the Revenue was unable to point out any perversity in the recording of such findings.” 23. Similarly, the Hon'ble High Court of Karnataka in the case of De Beers India Minerals [P] Limited 346 ITR 467 has, inter alia, held as under: “Therefore the clause in Singapore agreement which explicitly makes clear the meaning of the word make available, the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but t should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know-how or process which is used by service provider to render technical service should also be made available :it is open to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know -how or processes so as to render such technical services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilizes for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical 13 ITA No.690/DEL/2022 knowledge, experience, skill, know-how or process to the recipient of the technical service, in view of the clauses in the DTAA, the liability to tax is not attracted. [Para 14] From the aforesaid discussion it is clear that test is whether the recipient of the service is equipped to carry on his business without reference to the service provider. If he is able to carry on his business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available. [Para 18] It is in this background one has to look at the facts of this case, in order to find out whether the service provider has made available the technical knowledge to the assessee so as to foist the liability of payment of tax. [Para 21] What is the meaning of 'make available'. The technical or consultancy service rendered should be of such a nature that it 'makes available' to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology 'making available', the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical edge, skills, etc., does not mean that technology is made available to the person purchasing the service within the meaning of paragraph (4)(b ). Similarly, the use of a product which embodies technology shall not per se be 14 ITA No.690/DEL/2022 considered to make the technology available. In other words, payment of consideration would be regarded as 'fee for technical/included services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.” 24. In light of the aforementioned judicial decisions, we are of the considered view that the service recipient of the assessee is unable to make use of the said technology only by itself in its business or for its own benefit without recourse to the assessee year after year. 25. The Revenue has relied upon the decision in the case of Shell India Markets (P.) Ltd.(342 ITR 223. This decision was also used in the case of Linklaters LLP vs Deputy Commissioner of Income tax [2017] 79 taxmann.com 12 and while deciding the appeal of Linklaters LLP(supra), the co-ordinate bench at Mumbai has observed as under: “14 Similarly reliance placed by AO on another judgement of AAR in the case of Perfetti Ben case (supra) is misconceived since this ruling has been set aside by Hon'ble Delhi High Court in the judgement reported at 52 Taxmann.com 161. Similarly, reliance on the judgement of Shell India Markets (P.) Ltd., In re [2012] 342 ITR 223/205 Taxman288/l8 taxmann.com 46 (AAR - New Delhi) is also of no use since in this case also earlier ruling in the case of Perfetti was followed which has been set aside by Hon'ble Delhi High Court. Thus, impliedly, the said judgment gets overruled by the judgement of Hon'ble Delhi High Court. Similarly, decision in Dy. DIT (IT) v. Tata Iron &Steel Co Ltd. [2009] 34 SOT 83 (Mum.) was in context of provisions of section 9(i)(vii) of the Act and does not deal with the provisions of DTAA. Further it was given on altogether different facts.” 26. Further, the Assessing Officer has also relied upon the decision in the case of CBDT vs Oberoi (India) (P) Ltd. 97 Taxmann 453 (SC) wherein services were provided to a non- resident and the decision is in connection with not granting approval u/s 80-O of the Act and is inapplicable to the facts of the case. 27. Further, we find that the Assessing Officer has referred to 15 ITA No.690/DEL/2022 various decision which are based upon the decision of the Authority for Advance Rulings in the case of Perfetti Van Melle Holding B.V. which has subsequently been reversed by the Hon'ble High Court of Delhi in 52 Taxmann.com and hence is no longer a good law. 28. Considering the facts of the case in totality, in light of the judicial decisions discussed hereinabove, we are of the considered view that the receipts of the assessee on account of provision of information technology and other administrative services to its affiliate in India are not in the nature of Fees for Technical Services under the India Singapore Double Taxation Avoidance Agreement and we, accordingly, direct the Assessing Officer to delete the same. 29. In the result, the appeals of the assessee in ITA Nos. 995 & 997/DEL/2022 are allowed.” 9. Respectfully following the above decision, we are inclined to allow Ground No.2 raised by the assessee. 10. With regard to Ground No.3, the relevant facts are, the TPO observed that during the current year, assessee has paid Rs.17,03,82,112/- to its AEs for purchase of fixed assets. The payments are made to following AEs :- Name of AE Amount Rs. Bio Rad Laboratories Inc., USA 6,22,54,489 Bio Rad France 8,71,61,912 Bio Rad France 2,09,65,711 11. With reference to above, assessee was asked to file the documentary evidences and also asked to confirm whether the fixed assets are old or new. If these assets are used assets then provide the date of purchase by the AEs, cost of purchase by the AEs and written down value of these assets with documentary evidences. After considering the submissions of 16 ITA No.690/DEL/2022 the assessee, TPO observed that assessee has provided copies of invoices raised by its AEs, there is no detail about the cost of purchase of these assets by the AEs and the time period for which they have been used by the AEs and there is no valuation report from an independent valuer. The assessee was asked to submit relevant documents as prescribed under section 92B and Rule 10D. In this regard, assessee has submitted as under :- “In relation to this, we would like to bring to your kind notice that during the subject assessment year, Bio-Rad India purchased specialized biomedical equipments, reagents, fine chemicals and related equipments from its AEs for the purpose of resale to third party Indian customers as part of its business operations. As mentioned above, based on Bio-Rad India's business model, which is similar to industry trend, Bio-Rad India deployed some of the equipments procured from the AEs on the customer's site. Bio-Rad India provides these equipment free of cost with the understanding that the customers would purchase the reagent / fine chemicals for the equipment from Bio Rad India only, since any other company's reagents / chemicals cannot be used in the said equipment (supplied by Bio-Rad India). For operating the biomedical equipment, the reagent will have to be used together with the equipment else the equipment will not function. This combination of equipment and reagent is complementary to each other in the same way as printer cannot be used without the cartridge. This way Bio-Rad India expands its customer base of reagents which is also the significant source of revenue. Further, such equipments are capitalized in the books of account of Bio-Rad India and included as part of the fixed assets for the purpose of computing depreciation. The Assessee has submitted the template of agreement with third party customer in Annexure 2 for your goodself’s reference. 17 ITA No.690/DEL/2022 The cost of depreciation for the purchase of fixed assets (as mentioned above) has been included in the operating cost base of Bio-Rad India and the same has been bench marked at an entity level margin with the primary transaction of trading activity. Kindly refer to the Transfer Pricing Report submitted vide submission dated March 02, 2020. Basis above, it may be reasonable to conclude that the international transaction pertaining to purchase of fixed assets is in compliance with the arm's length principal from an Indian Transfer Pricing perspective. Further, without prejudice to the above submission, Assessee has submitted detailed arguments (along with relevant judicial pronouncements) for adhoc and unjustified adoption of other method to benchmark the said transaction in section 1 (page no. 5 to 6) above” 12. After considering the submissions of the assessee, TPO observed that assessee has failed to respond any of the observations in the show-cause notice issue that assessee has provided only invoice copies, there is no details about the cost of purchase of these assets by the AEs and the time period for which it has been used by the AEs and also there is no valuation report of the independent valuer. The TPO rejected the plea of the assessee that it should be benchmarked at entity level margin or to adopt other method. Accordingly, he came to the conclusion that assessee has failed to maintain all the relevant information and the preliminary onus of establishing that an international transaction is at arms length is upon the assessee. Since assessee has failed to discharge this onus, he proceeded to dismiss the claim of the assessee and 18 ITA No.690/DEL/2022 determined the ALP at Rs.nil and made the TP adjustment of Rs17,03,82,112/- i.e. total purchase price of the fixed assets. 13. Aggrieved with the above order, assessee preferred objections before the ld. DRP. Assessee has submitted as under :- “(i). It is stated that assessee failed to collect Form F for certain stock transfers undertaken during F. Y. 2009-10. (ii) In this regard, assessee created a provision for sales tax liability amounting to INR 9,670,803 during the F.Y. 2012-13 and the same was added in the profit for computation of total income. (iii) The reversal was credited to the profit and loss by way of reducing expense account. (iv) The journal entry does not show any reversal of Form F liability as claimed by the assessee. (v) The assessee has taken alternative plea that if the claim of the assessee is taken as interest on VAT, the same should be allowed u/s 37 of the Income Tax Act 1961. (vi) The journal entry shown by the assessee does not explain the writing back of sales tax liability. As per details provided to the assessing officer, assessee company had made payment towards interest on VAT. The assessing officer has disallowed this amount being penal in nature and not allowable as business expenditure as per section 37 of the income Tax Act 1961.” 14. After considering the submissions of the assessee and remand report from the TPO, ld. DRP has rectified the ALP adjustment on purchase of fixed assets from Rs.17,03,82,112/- to Rs.9,18,13,926/-. It observed that keeping in view of the TPO’s observations vide draft order and remand report and earlier orders of ld. DRP, the ld. DRP hereby rejected the contentions of the assessee in this regard. 15. Aggrieved assessee is in appeal before us and submitted as under :- 19 ITA No.690/DEL/2022 “B. Purchase of Fixed Assets 2.1. During the subject year, the Appellant purchased assets which are used by Bio-Rad India for either of the following: A. Trading business: Bio-Rad India sells the equipment's to third party customers in India; B. Capital assets for Reagent business: Bio-Rad India sells regents/ fine chemicals on commercials basis to the third-party customers along with supply of the equipment's. 2.2. The Appellant in the TP Study at Page no 1060 has categorically stated that capital assets were purchased for the purpose of resale. However, a part of these traded goods were used for demonstration purposes. Accordingly, these assets were capitalized. Since, the transaction is closely interlinked and aggregated with the trading segment of the Appellant for the purpose of determination of ALP for the reason that the depreciation on these fixed assets was charged to the Profit & Loss account and the margins were arrived at after considering the impact of depreciation on such assets. It is also an admitted position of fact that the ALP of the trading segment has been accepted by the Ld. TPO to be at arm's length. Accordingly, a separate adjustment with respect to the purchase of fixed assets is unwarranted and liable to be deleted. 2.3. In addition to the above, the Appellant has also demonstrated that before your Honour's that by giving a comparative chart of similar assets by providing a unit price and invoice details which were purchased by the Appellant from the same AEs for both sale and trading at the same unit/ cost price. The chart is reproduced below for ready reference: Comparative pricing for assets purchased for Trading vis-it-vis Reagent business (Amt. in INR) Nature of Assets Nature of the AE Purchase value of assets used for (Amount in INR) Category A : Sold to third-part customers* (Trading business) Category B : Reagent business (Capital assets) Invoice Number Unit Price Page no. (refer Annexure 1 of the synopsis) Invoice Number Unit Price Page No. (refer Paper book) ID- Incubator 37 SI Bio-Rad France 93124168 123875 1 93124307 123875 786 Variant II System Bio-Rad Laboratories Inc., USA (Bio-Rad USA) 901350918 1955757 2 901624932 1955757 789 901558517 1955757 3 901782177 1921795 790 901703877 1955757 4 D20 Haemoglobin Testing Bio-Rad France CRI/370182 30 829,009 5-6 CRI/36064026 829,009 795 CRI/360727 829 7 20 ITA No.690/DEL/2022 System 81 CRI/3614751 1 829 8 CRI/3616144 829,009 798 CRI/361650 20 829 9 Evolis W/O Screen – Printer Bio-Rad France CRI/3613272 3 2365822 10 Cri/37005389 2365822 804 *The value of fixed assets purchased from AE’s and sold to third party customers are reported as “Purchases” in the Form 3CEB. Prayer : It is therefore prayed that the addition made by the Ld. TPO and upheld by the DRP is liable to be deleted as it can clearly be seen from the table above that the unit price of the asset is the same for both the segments.” 16. On the other hand, ld. DR of the Revenue relied on the orders of the lower authorities. 17. Considered the rival submissions and material available on record. We observed that the assessee purchased similar equipments for the purchase of resale, however a part of the abovesaid capital assets were also used for demonstration purposes. The assets which are used for demonstration purposes were capitalized by the assessee. The transaction is closely inter-linked and aggregated with the trading segment of the assessee for the purpose of determination of ALP, we observed that assessee has also claimed depreciation on these assets on the assessee’s trading margin was determined after claim of the depreciation on abovesaid assets which are used for demonstration purposes. Further it is brought to our notice that the TPO has accepted the ALP of the trading segments which is at arms length. Since the assessee has capitalized the same traded assets, in our considered view, the ALP of the purchase of fixed assets to be 21 ITA No.690/DEL/2022 determined based on the value of input cost of traded goods which assessee has traded during the year and shown relevant profits. The assessee has submitted a comparative purchase chart of traded and the assets utilized for demonstration purposes which was already reproduced in the submissions of the ld. AR. For the sake of overall justice, we are inclined to remit this issue back to the file of Assessing Officer/TPO with a direction to verify the cost of assets utilised for demonstration purposes and also the cost of input of traded goods. We direct the TPO to verify the same and determine the ALP of the payment of cost of purchase to its AEs based on the documentations provided by the assessee for the purpose of assets for demonstration purposes as well as similar assets/ machineries purchased by the assessee for the purpose of trading during the year. We direct TPO to redo the ALP adjustment after giving proper opportunity of being heard to the assessee and determine the ALP as per law. Accordingly, ground no.3 is allowed for statistical purposes. 18. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on this 19th day of March, 2025. Sd/- sd/- (ANUBHAV SHARMA) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 19.03.2025 TS 22 ITA No.690/DEL/2022 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "