AMGEN TECHNOLOGY P.LTD, MUMBAI V. DCIT CIR 1(1), MUMBAI

ITA 1215/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92592 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 17-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 24-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Transfer pricing; Wholly owned subsidiary

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE HONBLE S/SHRI VIJAY PAL RAO ( JM ) , AND B.R.BASKARAN (AM) , . . , ./ I.T (TP) .A. NO . 1215 /M UM/20 1 4 ( / ASSESSMENT YEAR : 200 9 - 10 ) M/S AMGEN TECHNOLOGY PVT.LTD. DYNASTY BUSINESS PARK LEVEL - 4, A - WING, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI - 400059 / VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1), ROOM NO.579, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAGCA2156C / : ASSESSEE BY S/SHRI KUNTAL KUMAR SEN, ALISGER RAMPURAWALA, M/S HIRALI DES AI / REVENUE BY : SHRI N K CHAND / DATE OF HEARING : 2 7 .0 5 . 201 5 / DATE OF PRONOUNCEMENT : 29. 5. 2015 / O R D E R PER B.R.BASKARAN (AM) THE ASSESSEE HAS FIL ED THIS APPEAL CHALLENGING THE ASSESSMENT ORDER DATED 2 4.12 .201 3 PASSED BY THE ASSESSING OFFICER UNDER SECTION 144C (1) R.W.S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) AND IT RELATES TO THE ASSESSMENT YEAR 2009 - 10. 2. THE ASSESSEE IS AGGRIEVED BY THE ADDITION OF RS.1.22 CRORES MADE ON ACCOUNT OF TRANSFER PRICE ADJUSTMENT. 3. THE ASSESSEE HEREIN IS A WHOLLY OWNED SUBSIDIARY OF M/S AMGEN INTERNATIONAL INC. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CARRYING OUT ITA NO. 1215 /MUM/201 4 2 CLINICAL TRIALS FOR NEW THERAPEUTIC PRODU CTS. THE ASSESSEE HAD ASSISTED M/S AMGEN INC WITH CLINICAL TRIALS FOR NEW THERAPEUTIC PRODUCTS BEING DEVELOPED BY M/S AMGEN INC BEFORE PRODUCT CAN BE COMMERCIALLY SOLD. THE ASSESSEE COMPANY HAS RECEIVED A SUM OF RS.18.18 CRORES FROM M/S AMGEN INC FOR PROV IDING CLINICAL TRIAL SUPPORT SERVICES. THE ASSESSEE HAS ADOPTED TNMM AS MOST APPROPRIATE METHOD WITH OP/TC AS PLI TO DETERMINE ARMS LENGTH PRICE. THE ASSESSEE PROVIDED SIX COMPARABLES IN ITS TRANSFER PRICING STUDY. THE TP O, HOWEVER, REJECTED THREE COMPARA BLES AND INCLUDED TWO MORE FRESH COMPARABLES. THUS, THE TP O HAS CONSIDERED FIVE COMPARABLES IN TOTAL. T HE ARITHMETIC OP/TC MARGIN OF ABOVE SAID FIVE COMPARABLES WORKED OUT 28.69% AS AGAINST 17.47 % REPORTED BY THE ASSESSEE. ACCORDINGLY , THE TPO HAS RECOMME NDED FOR ADDITION OF RS. 1.73 CRORES TO THE INCOME DECLARED BY THE ASSESSEE. 4 . THE ASSESSEE FILED ITS OBJECTION S BEFORE DRP . T HE DRP FIXED THE RTP FILTER AT 25 % AND ACCORDINGLY, IT INCLUDED ON MORE COMPANY M/S MAX NEEMAN MEDICAL INTERNATIONAL LTD AS A C OMPARABLE CASE . AS A RESULT , THE ARITHMETIC MEAN OF OC/TC MARGIN OF COMPARABLES CAME DOWN TO 25.39%. ACCORDINGLY, TP ADJUSTMENT WAS ALSO REDUCED TO RS.1.22 CRORES. THE AO PASSED FINAL ASSESSMENT ORDER ACCORDINGLY. 5 . THE ASSESSEE IS AGGRIEVED BY THE DE CISION OF DRP IN CONSIDERING TWO COMPANIES VIZ SUVEN LIFE SCIENCES (SEG) AND JUBILANT CHEMSYS LTD AS COMPARABLE CASES. 6. THE LD COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HEREIN IS PROVIDING ONLY CLINICAL SUPPORT SERVICES VIZ., IDENT IFYING HOSPITAL/DOCTORS, LOOKING AFTER COMPLIANCE OF GOVERNMENT REGULATIONS, LOOKING AFTER PROTOCOL COMPLIANCE DURING TRIALS, CLINICAL RESEARCH ASSISTANCE IN THE FORM OF COLLATING REPORTS AND PASSING IT ON TO THE AE. HE SUBMITTED ITA NO. 1215 /MUM/201 4 3 THAT THE TWO COMPARABLES VIZ., SUVEN LIFE SCIENCES AND JUBILANT CHEMISYST ARE PERFORMING DIFFERENT TYPES OF FUNCTIONS AND HENCE THE DRP WAS NOT JUSTIFIED IN ACCEPTING THE SAME AS COMPARABLES. ELABORATING FURTHER, THE LD A.R SUBMITTED THAT M/S SUVEN LIFE SCIENCES IS CARRYING ON CO MPREHENSIVE ACTIVITIES VIZ., CONTRACT RESEARCH AND MANUFACTURING ACTIVITIES; DRUG DISCOVERY AND DEVELOPMENT SUPPORT SERVICES (DDDSS) AND COLLABORATIVE RESEARCH SERVICES. HE FURTHER SUBMITTED THAT A PART OF SERVICES FALLING IN THE CATEGORY OF DDDSS MAY BE FUNCTIONALLY COMPARABLE WITH THE FUNCTIONS PROVIDED BY THE ASSESSEE HEREIN, HOWEVER, FULL SEGMENTAL FINANCIAL DETAILS ARE NOT AVAILABLE ON RECORD. ACCORDINGLY HE SUBMITTED THAT M/S SUVEN LIFE SCIENCES CANNOT BE CONSIDERED AS A COMPARABLE CASE. WITH REGAR D TO M/S JUBILANT CHEMISYST, THE LD A.R SUBMITTED THAT THE SAID COMPANY IS PROVIDING SERVICES IN MEDICAL CHEMISTRY, WHICH INVOLVES WIDER AND COMPLEX FUNCTIONS AND HENCE THE SAID COMPANY CANNOT ALSO BE CONSIDERED AS A COMPARABLE CASE. HE FURTHER SUBMITTED THAT THE ASSETS EMPLOYED BY THE ASSESSEE AND THAT EMPLOYED BY THE ABOVE SAID TWO COMPARABLE ARE NOT MATCHING. FURTHER THE RISK TAKEN BY THE ASSESEE IS MINUSCULE, WHEREAS THE RISK TAKEN BY THE ABOVE SAID TWO COMPANIES ARE HIGH. ACCORDINGLY HE SUBMITTED TH AT BOTH THE COMPANIES CITED SHOULD BE EXCLUDED AND IF IT IS DONE SO, THE PAYMENTS RECEIVED BY THE ASSESSEE SHALL SATISFY THE PARAMETERS OF ARMS LENGTH. 7. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS ADOPTED TNMM METHOD AS MOST SUITABLE ME THOD. HE SUBMITTED THAT UNDER TNMM METHOD, IT IS ENOUGH IF THE FUNCTIONS PERFORMED BY THE COMPARABLES ARE BROADLY SIMILAR. HE SUBMITTED THAT IT IS NOT NECESSARY THAT THE COMPARABLE CASES SHOULD ALSO PERFORM IDENTICAL FUNCTIONS AS THAT PERFORMED BY THE AS SESSEE COMPANY AND IT IS ENOUGH IF THE SKILL SET REQUIRED FOR PERFORMING THE SUPPORT FUNCTIONS ARE IDENTICAL IN NATURE. HE SUBMITTED THAT THE ASSESSEE HEREIN HAS OUTSOURCED THE CLINICAL RESEARCH ACTIVITIES AND HENCE IT ITA NO. 1215 /MUM/201 4 4 DID NOT REQUIRE ASSETS FOR CARRYING OUT THE RESEARCH ACTIVITIES. HE SUBMITTED THAT THE FUNCTIONS PERFORMED BY THE ASSESSEE IS NARRATED IN PARAGRAPH 4.4 AT PAGE 28 OF THE PAPER BOOK AND IN PARAGRAPN 4.6.3 (PAGE 29), IT IS STATED THAT THE INTELLECTUAL PROPERTY RIGHTS SHALL RESIDE WITH AMGEN I NC. THE LD D.R, ACCORDINGLY, SUBMITTED THAT THE ASSESSEE IS CARRYING ON DIFFERENT TYPES OF ACTIVITIES. HE SUBMITTED THAT THE ASSESSEE IS PERFORMING RESEARCH & DEVELOPMENT ACTIVITIES ALSO AND THE SAME IS STATED IN PAGE 30 OF THE PAPER BOOK. HENCE THE RIS K ASSUMED BY THE ASSESSEE IS ALSO AT A HIGH LEVEL. 8. THE LD D.R FURTHER SUBMITTED THAT FUNCTIONS PERFORMED BY M/S SUVEN LIFE SCIENCES ARE BROADLY COMPARABLE. INVITING OUR ATTENTION TO PAGE 162 OF THE PAPER BOOK, THE LD D.R SUBMITTED THAT THE ACTIVITIES CARRIED ON BY M/S SUVEN LIFE SCIENCES ARE IDENTICAL TO THAT PERFORMED BY THE ASSESSEE HEREIN. THE LD D.R FURTHER SUBMITTED THAT THE MEDICAL SERVICES PROVIDED BY MS JUBILANT CHEMISYS IS ANALOGOUS TO THE SERVICES PROVIDED BY THE ASSESSEE HEREIN AND THE SAM E IS EVIDENT FROM THE DIRECTORS REPORT, WHICH IS PLACED AT PAGE 183 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS ACCEPTED M/S CHOKSI LABORATORIES LTD AS A COMPARABLE CASE. HOWEVER, THE FUNCTIONS PERFOR MED BY THE ABOVE SAID COMPANY ARE ID ENTICAL WITH THAT ONE PERFORMED BY M/S SUVEN LIFE SCIENCES LTD. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE SHOULD NOT HAVE GRIEVANCE IN INCLUDING M/S SUVEN LIFE SCIENCES AS A COMPARABLE CASE. ACCORDINGLY, THE LD D.R CONTENDED THAT THE DRP HAS RIGHTLY INCL UDED THE TWO COMPANIES AS COMPARABLE CASES. 9. IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE INTENSITY OF THE FUNCTIONS PERFORMED BY EACH OF THE COMPANIES SHOULD BE EXAMINED IN ORDER TO ASCERTAIN FUNCTIONAL SIMILARITIES OF TWO COMPANIES. HE SUBMITTED ITA NO. 1215 /MUM/201 4 5 T HAT THE ASSESSEE HEREIN PROVIDED ONLY SUPPORT SERVICES, WHERE AS M/S SUVEN LIFE SCIENCES IS PROVIDING BOTH SUPPORT AND RESEARCH SERVICES. 10. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE ASSESSEE IS AGGRIEVED IN INCLUDING TWO C OMPANIES VIZ., M/S SUVEN LIFE SCIENCES AND M/S JUBLANT CHEMISYS AS COMPARABLE CASES. ACCORDING TO THE LD A.R, THE ASSESSEE IS PROVIDING ONLY CLINICAL SUPPORT SERVICES TO ITS AE, WHEREAS M/S SUVEN LIFE SCIENCES IS CARRYING OUT VARIOUS TYPES OF ACTIVITIES, OF WHICH THE CLINICAL SUPPORT SERVICES IS ONLY ONE OF THE ACTIVITIES. HE FURTHER SUBMITTED THAT THE FULL SEGMENTAL FINANCIAL DETAILS ARE NOT AVAILABLE AND HENCE M/S SUVEN LIFE SCIENCES CANNOT BE CONSIDERED AS A COMPARABLE. ON THE CONTRARY, THE LD D.R SUB MITTED THAT THE ACTIVITIES CARRIED ON BY M/S SUVEN LIFE SCIENCES AND M/S CHOKSI LABORATORIES ARE IDENTICAL AND THE ASSESSEE HAS ACCEPTED THE LATER COMPANY AS A COMPARABLE CASE. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE SHOULD NOT HAVE ANY GRIEVANCE IN IN CLUDING M/S SUVEN LIFE SCIENCES AS ONE OF THE COMPARABLE CASES. THE LD D.R FURTHER SUBMITTED THAT THE FUNCTIONS PERFORMED BY EACH OF THE COMPANIES SHOULD BE COMPARED IN A BROAD MANNER ONLY. ON THE CONTRARY, THE LD A.R SUBMITTED THAT THE SIMILARITY OF FUN CTIONS PERFORMED BY EACH OF THE COMPANIES SHOULD BE ASCERTAINED BY CONSIDERING THE INTENSITY OF THE ACTIVITIES PERFORMED. THUS, WE NOTICE THAT BOTH THE PARTIES ARE HAVING STRONG POINTS IN SUPPORT OF THEIR RESPECTIVE CONTENTIONS. HENCE, WE ARE OF THE VIEW THAT THE QUESTION AS TO WHETHER M/S SUVEN LIFE SCIENCES CAN BE CONSIDERED AS A COMPARABLE CASE SHOULD BE EXAMINED AFRESH BY CONSIDERING VARIOUS ASPECTS CONTENDED BY EACH OF THE PARTIES. IF THE ACTIVITIES CARRIED ON BY M/S CHOKSI LABORATORIES LTD ARE IDEN TICAL WITH THAT PERFORMED BY M/S SUVEN LIFE SCIENCES, THEN THE ASSESEE SHOULD NOT HAVE ANY GRIEVANCE IN INCLUDING THE SAME AS A COMPARABLE CASE. FURTHER IT IS NOT CLEAR AS TO WHETHER THE OP/TC COMPUTED FOR M/S CHOKSI LABORATORIES ITA NO. 1215 /MUM/201 4 6 LTD IS AT ENTITY LEVEL OR AT SEGMENTAL LEVEL. IN OUR VIEW, THIS ASPECT ALSO REQUIRES EXAMINATION. 11. WITH REGARD TO M/S JUBILANT CHEMISYS , THE SERVICES PROVIDED BY THAT COMPANY IS DESCRIBED AS MEDICAL CHEMISTRY SERVICES. ACCORDIN G TO LD A.R, THE SAID SERVICES ARE MUCH W IDER AND INVOLVE COMPLEX FUNCTIONS, WHERE AS THE LD D.R CONTENDS THAT THE SERVICES ARE ANALOGOUS IN NATURE. HENCE, IN OUR VIEW, PROPER EXAMINATION OF THE NATURE OF SERVICES PR OVIDED BY M/S JUBILANT CHEMISYS IN A BROAD MANNER IS REQUIRED IN ORDER TO ASCERT AIN AS TO WHETHER THE SAME CAN BE CONSIDERED AS A COMPARABLE CASE . 12. AT THE TIME OF HEARING, THE LD A.R FURNISHED A COPY OF ORDER PASSED BY THE CO - ORDINATE BENCH IN THE CASE OF WATSON PHARMA (P) LTD VS. DCIT (2015)(54 TAXMANN.COM 88)(MUM) AND SUBMIT TED THAT THE ASSESSEE, IN THE ABOVE SAID CASE, WAS ALSO PROVIDING CLINICAL SUPPORT SERVICES. IN THE TRANSFER PRICING STUDY, IT CONSIDERED THE RESULT OF M/S DOLPHIN MEDICAL SERVICES LTD AS A COMPARABLE CASE. THE TPO/DRP REJECTED THE SAME, BUT THE TRIBUNA L HAS HELD THAT M/S DOLPHIN MEDICAL SERVICES LTD SHOULD NOT BE EXCLUDED. ACCORDINGLY HE SUBMITTED THAT M/S DOLPHIN MEDICAL SERVICES LTD SHOULD BE CONSIDERED AS A COMPARABLE CASE. THE LD D.R, HOWEVER, STRONGLY PROTESTED TO THE PLEA PUT FORTH BY LD A.R. H E SUBMITTED THAT THE ASSESSEE HAS CHALLENGED ONLY INCLUSION OF M/S SUVAN LIFE SCIENCES AND M/S JUBILANT CHEMISYS IN THE APPEAL FILED BEFORE THE TRIBUNAL AND HENCE THE ASSESSEE IS NOT ENTITLED TO PLEAD FOR INCLUSION OF A NEW COMPANY AT THIS STAGE. 13. I N THE FOREGOING DISCUSSIONS, WE HAVE EXPRESSED THE VIEW THAT THE QUESTION AS TO WHETHER M/S SUVAN LIFE SCIENCES AND M/S JUBILANT CHEMISYS CAN BE CONSIDERED AS COMPARABLES REQUIRES FRESH EXAMINATION FOR THE REASONS STATED ABOVE . HENCE, WE ASIDE THE ABOVE S AID QUESTION TO THE FILE ITA NO. 1215 /MUM/201 4 7 OF AO/TPO /DRP FOR FRESH EXAMINATION. IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE MAY PRAY FOR INCLUSION OF M/S DOLPHIN MEDICAL SERVICES LTD BEFORE THE AO/TPO AND THE SAID PRAYER MAY BE CONSIDERED BY THEM IN ACCORDANCE WITH THE LAW. 14 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 29TH MAY , 2015 . 29TH MAY , 2015 SD SD ( / VIJAY PAL RAO ) ( . . , / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT ME MBER MUMBAI: 29TH MAY, 201 5 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. 6 , , / DR, ITAT, MUMBAI CONCERNED / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUM BAI