Astrix Laboratories Limited, Hyderabad V. ACIT, Circle 16(2), Hyderabad

ITA 2181/HYD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6057 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHAN SINGH SINGHANIA
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; International transaction
• Section: 92C; 143(3); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI P.MADHAVI DEVI, JUDICIAL MEMEBR AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.2181/HYD/11 : ASSESSMENT YEAR 2007 -08 ITA NO.312/HYD/12 : ASSESSMENT YEAR 2007- 08 M/S. ASTRI X LABORATORIES LTD., HYDERABAD ( PAN - AAACI 7064 D) V/S. ASSTT. COMMISSIONER OF INCOME - TAX CIRCLE 16(2), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI RAGHUNATHAN SAMPATH RESPONDENT BY : SHRI MOHAN SINGH SINGHANIA, CIT-DR DATE OF HEARING 29 . 10 .201 5 DATE OF PRONOUNCEMENT 29.1.2016 O R D E R PER SMT.P.MADHAVI DEVI, JUDICIAL MEMBER: BOTH THE ABOVE ARE ASSESSEES APPEALS FOR THE AS SESSMENT YEAR 2007-08. IN ITA NO.1281 /HYD/2011, ASSESSEE IS AGG RIEVED BY THE FINAL ASSESSMENT ORDER DATED 28.10.2011 PASSED UNDER S.14 3(3) READ WITH S.144C AND S.92CA OF THE INCOME TAX ACT,1961 IN AC CORDANCE WITH THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL. 1. THE ORDER OF THE ASSESSING OFFICER U/S. 143(3) R.W. S. 144C AND 92CA OF THE INCOME TAX ACT,1961 IS CONTRARY TO FACTS AND L AW. 2. THE DISPUTE RESOLUTION PANEL ERRED IN CONFIRMING TH E TRANSFER PRICING OFFICERS ORDER FOR REDUCING THE OPERATING MARGIN O F THE COMPANY BY A SUM OF RS.54,13,134/- BEING THE NET RENT REALIZED F ROM LEASE OF FACTORY BUILDINGS AND EQUIPMENT. 3. THE DISPUTE RESOLUTION PANEL ERRED IN CONFIRMING TH E ADJUSTMENT OF RS.11,45,00,000/- U/S. 92CA OF THE ACT IN RESPECT O F SALES MADE TO ASSOCIATED ENTERPRISES AND DETERMINING THE ARMS LE NGTH PRICE OF PROFIT LEVEL INDICATOR BEING OPERATING PROFIT MARGIN AT 25 .43% (OP/OPERATING COST) AND 19.11%(OP/OPERATING REVENUE ) BY REJECTING THE BASIS ADOPTED BY THE TAX PAYER U/S. 92C OF THE ACT. ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 2 4. THE DISPUTE RESOLUTION PANEL ERRED IN CONFIRMING TH E METHODOLOGY ADOPTED BY THE TRANSFER PRICING OFFICER WHICH RESUL TED IN MAKING AN ADJUSTMENT NOT ONLY IN RESPECT OF ASSOCIATED ENTERP RISES SALES BUT ALSO NON-ASSOCIATED ENTERPRISES SALES, CONTRARY TO THE P ROVISIONS OF SECTION 92C OF THE ACT. 5. THE DISPUTE RESOLUTION PANEL ERRED IN CONFIRMING TH E TRANSFER PRICING OFFICERS ORDER AND HOLDING THAT TRANSACTIONS AS BE TWEEN THE TAX PAYER COMPANY AND MYLAN LABORATORIES LIMITED (FORMERLY MA TRIX LABORATORIES LTD), A RESIDENT COMPANY ARE DEEMED INTERNATIONAL T RANSACTIONS REQUIRING COMPUTATION OF ARMS LENGTH PRICE U/S. 92 C. 6. THE DISPUTE RESOLUTION PANEL ERRED IN CONFIRMING TH E TRANSFER PRICING OFFICERS ORDER FOR MAKING AN ADJUSTMENT BY WAY OF DISALLOWING DEPRECIATION OF RS.10,64,50,499 ON INTANGIBLE ASSET S PURCHASED IN THE PRECEDING ASSESSMENT YEAR BY THE TAX PAYER FROM A R ESIDENT COMPANY U/S. 92C. 7. THE DISPUTE RESOLUTION PANEL ERRED IN CONFIRMING TH E TRANSFER PRICING OFFICERS ORDERS FOR MAKING AN ADJUSTMENT BY WAY OF DISALLOWING MANAGEMENT FEE AND R&D DEVELOPMENT CHARGES OF RS.1, 87,10,408 AS WELL AS REIMBURSEMENT OF EXPENSES OF RS.54,27,702 P AID BY TAX PAYER TO A RESIDENT COMPANY U/S. 92C. 8. THE APPELLANT CRAVES LEAVE TO ADD TO, TO ALTER OR A MEND ANY OF THE AFORESAID GROUNDS. 3. BRIEF FACTS LEADING TO THE FILING OF THE PRESEN T APPEAL ARE THAT THE ASSESSEE COMPANY, A PUBLIC LIMITED COMPANY, IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF ACTIVATED PHARMACEUTICAL INGREDIENTS(API) COMMONLY ALSO KNOWN AS BULK DRUGS. FOR THE ASSESS MENT YEAR 2007-08 IN RELATION TO THE PREVIOUS YEAR ENDED ON 31.3.2007 THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.2007, DECLARING A TOTAL I NCOME OF RS.1,26,41,273 UNDER NORMAL PROVISIONS AND BOOK PRO FIT OF RS.14,00,00,298 UNDER S.115JB OF THE INCOME TAX AC T,1961. DURING THE ASSESSMENT PROCEEDINGS UNDER S.143(3) OF THE ACT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS ENTERED INTO THE FOL LOWING INTERNATIONAL TRANSACTIONS- SL. NO. CLASSIFICATION PAID/ RECEIVED AMOUNT METHOD APPLIED 1. PURCHASE OF RAW MATERIAL PAID 10,90,68,355 TNMM 2. SALE OF FINISHED GOODS RECEIVED 99,91,82,316 TNMM ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 3 HE THEREFORE, REFERRED THE MATTER TO THE TRANSFER P RICING OFFICER UNDER S.92C OF THE ACT FOR DETERMINATION OF THE ARMS LEN GTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE. THE TRANSFER PRICING OFFICER OBSERVED THAT THE ASSESSEE IS A 50: 50 JOINT VENTURE BETWEEN ASPEN PHARMACARE LIMITED, SOUTH AFRICA AND MATRIX L ABORATORIES LTD., INDIA. HE OBSERVED THAT ASTRIX SPECIALIZES IN THE MANUFACTURE OF ANTIRETROVIRAL ACTIVE PHARMACEUTICAL INGREDIENTS, W HICH DRUGS ARE USED FOR THE TREATMENT OF INFECTION BY RETROVIRUSES, PRIMARI LY HIV; AND THAT THE MANUFACTURING FACILITY OF THE ASSESSEE IS LOCATED A T HYDERABAD AND IS ALSO APPROVED BY THE US FDA. HE FURTHER OBSERVED THAT T HE ASSESSEE, IN ITS TRANSFER PRICING DOCUMENTATION, HAS AGGREGATED THE INTERNATIONAL TRANSACTIONS INVOLVING PURCHASE OF RAW MATERIAL AND SALE OF FINISHED GOODS IN THE MANUFACTURING OF API ACTIVITY AND ARMS LEN GTH PRICE IS DETERMINED. HE OBSERVED THE FOLLOWING FINANCIAL RESULTS OF THE ASSESSEE FOR THE FINANCIAL YEAR 2006-07 FINANCIAL RESULTS OF ASTRIX LABS FOR THE FY 2006-0 7 OPERATING REVENUES : 226.71 OPERATING COSTS : 202.93 OP. PROFIT : 23.78 OP/TC : 11.72% OP/SALES : 10.50% HE OBSERVED THAT IN THE ANNUAL REPORT FOR THE FINA NCIAL YEAR 2006-07, THE ASSESSEE HAS SHOWN AN AMOUNT OF RS.2.27 CRORES UNDE R THE HEAD OTHER INCOME, WHICH INCLUDES RS.0.96 CRORES UNDER MISCEL LANEOUS INCOME. ON A QUERY RAISED BY THE ASSESSING OFFICER ABOUT THE BRE AK UP OF THE MISCELLANEOUS INCOME, THE ASSESSEE HAS FURNISHED TH E SAME AS FOLLOWS A) BUILDING RENT RS. 50.52 LAKHS B) EQUIPMENT RENT RS. 33.00 LAKHS C) ANALYSIS CHARGES RS.12.70 LAKHS TOTAL RS. 96.22 LAKHS ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 4 4. THE ASSESSEE HAS ALSO CLAIMED THAT THESE RECEIP TS WERE FROM ONE OF ITS JOINT VENTURE PROMOTER COMPANY, I.E. MAT RIX LABS INDIA FOR THE SERVICES PROVIDED TO IT. THE TRANSFER PRICING OFFIC ER, HOWEVER, OBSERVED THAT THE ASSESSEE HAS NOT SUBMITTED ANY RELEVANT DE TAILS IN THE NATURE OF LEDGER EXTRACTS, AGREEMENTS ETC. ALONGWITH REPLY. THEREFORE, HE HELD THAT THE BUILDING RENT AND EQUIPMENT RENT CONSTITUTE OT HER INCOME AND NOT OPERATING INCOME, AS THE SAID RECEIPTS ARE FROM L EASING OUT OF ASSETS. FURTHER, HE ALSO OBSERVED THAT THIS INCOME IS NOT I N THE NATURE OF BUSINESS INCOME, SINCE IT IS DERIVED FROM LEASING OF BUILDI NG AND EQUIPMENT OF MATRIX LABS, WHICH HAS NOTHING TO DO WITH THE BUSIN ESS OPERATIONS CONDUCTED BY THE ASSESSEE. THEREFORE, HE REDUCED TH E SAME FROM THE OPERATING INCOME OF THE ASSESSEE FOR COMPUTATION OF THE ARMS LENGTH PRICE. TO COME TO THIS CONCLUSION, HE PLACED RELIAN CE UPON THE DECISION OF THE INCOME TAX APPELLATE TRIBUNAL, PUNE, IN THE CAS E OF HONEYWELL AUTOMATION INDIA LTD. V/S. DCIT (2009-TIOL-104-ITAT -PUNE IN ITA NO . 4/PN/2008 DATED 10.02.2009). HE THEREAFTER, PROCEE DED TO CONSIDER THE TP STUDY MADE BY THE ASSESSEE AND OBSERVED THAT THE ASSESSEE HAS SELECTED THE FOLLOWING FINAL COMPARABLES- SL. NO. COMPANY NAME DATA SOURCE AVERAGE PLI 1. AURO LABORATORIES LTD. P -2.75% 2. DABUR PHARMA LTD. P 8.73% 3. DIVIS LABORATORIES LTD. P 28.27% 4. MARKSANS PHARMA LTD. P 13.36% 5. NECTAR LIFESCIENCES LTD. P 6.50% 6. NEULAND LABORATORIES LTD. P 8.22% 7. SHASUN CHEMICALS & DRUGS LTD. P 12.53% 8. TRANSCHEM LTD. P 0.65% MEAN 9.44% HE OBSERVED THAT THE AVERAGE MEAN OF THE ABOVE COMP ANIES IS 9.44% WHILE THE MARGIN OF THE ASSESSEE WAS 10.50% AND THE REFORE, THE ASSESSEE HAS TREATED ITS INTERNATIONAL TRANSACTIONS TO BE AT ARMS LENGTH PRICE. ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 5 HOWEVER, THE TPO, AFTER MAKING THE FAR ANALYSIS, OB SERVED THAT THE ASSESSEE HAS ADOPTED INAPPROPRIATE FILTERS IN ITS S EARCH. THEREFORE, HE REJECTED THE ASSESSEES TP STUDY AND CONDUCTED HIS OWN SEARCH WITH DATABASES CAPITALLINE AND PROWESS. THE TRANSFER PRI CING OFFICER ADOPTED THE FOLLOWING FINAL FILTERS- COMPANIES WHOSE DATA IS NOT AVAILABLE FOR THE FY 20 06-07 ARE EXCLUDED COMPANIES WHOSE REVENUES FROM OPERATIONS ARE AT RS. 100 CRORES TO RS.300 CRORES ONLY ARE CONSIDERED COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I .E. NOT MARCH, 2007) OR DATA OF THE COMPANY DOES NOT FALL W ITHIN TWELVE MONTH PERIOD I.E. 01.04.2006 TO 31.3.2007 AR E REJECTED COMPANIES WHO HAVE PERSISTENT LOSSES FOR THE PERIOD UNDER CONSIDERATION ARE EXCLUDED COMPANIES HAVING RELATED PARTY TRANSACTIONS MORE TH AN 25% (INCOME AS WELL AS EXPENDITURE) ARE EXCLUDED MANUFACTURING SALES TO TOTAL SALES < 75% ARE EXCLUD ED DOMESTIC COMPANIES EXCLUDED COMPANIES HAVING NO SEGMENTAL RESULTS ARE EXCLUDED COMPANIES THAT ARE FUNCTIONALLY DIFFERENT THAT OF T AX PAYER, AFTER GIVING VALID REASONS ARE EXCLUDED 5. THE ASSESSEE VIDE ITS REPLY DATED 19.3.2010 RAI SED ITS OBJECTIONS TO THE ABOVE FILTERS. THE FIRST OBJECTIO N WAS THAT THE TRANSFER PRICING OFFICER HAS CONSIDERED MOST OF THE COMPANIE S WHICH ARE INTO FORMULATION BUSINESS ALSO RATHER THAN INTO APIS W HICH ARE THE ASSESSEES MAIN BUSINESS OPERATIONS. THE TPO, HOWEVER FOUND TH AT NONE OF THE COMPANIES HAVE REPORTED SEGMENTAL DATA ON THE BASIS OF API OR FORMULATIONS AND THAT MOST OF THE COMPANIES HAVE B USINESS OPERATIONS I.E. FORMULATIONS OR FINISHED DOSAGE FORMS OR BULK DRUGS(APIS) AKIN TO THE ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 6 TAXPAYER COMPANY. HE FURTHER OBSERVED THAT THE ASSE SSEE HAS NOT SUBSTANTIATED THAT THE COMPANIES ENGAGED IN THE FOR MULATIONS BUSINESS PROFIT MARGINS OVER THE COMPANIES IN THE API BUSIN ESS AND FURTHER THAT TWO OF THE ALL THE COMPARABLE COMPANIES SELECTED BY THE TAX PAYER ARE ALSO INTO FORMULATIONS BUSINESS, HAVING SIGNIFICANT REVE NUES FROM FORMULATIONS. HE THEREFORE, REJECTED THE ASSESSEES OBJECTION ON THIS COUNT. 6. WITHOUT PREJUDICE TO THE ABOVE FINDING, HE FURT HER OBSERVED THAT EVEN IF ONLY COMPARABLES WHICH ARE 100% MANUFA CTURERS OF BULK DRUGS ARE CONSIDERED, THEN ONLY SIX COMPARABLE COMP ANIES ARE COMPARABLE AS THEY SATISFY ALL THE FILTERS APPLIED BY THE TPO AND OUT OF THE SIX COMPARABLE COMPANIES, THE ASSESSEE ACCEPTED FOUR CO MPANIES AND REJECTED ONLY TWO COMPANIES, I.E. SUVEN LIFE SCIEN CES LTD. AND NATCO PHARMA LTD. THE TRANSFER PRICING OFFICER OBSERVED THAT IN THE CASE OF THESE TWO COMPANIES, ONLY SEGMENTAL RESULTS ARE TO BE TAKEN. AS REGARDS THE NATCO PHARMA LTD., HE OBSERVED THAT THE COMPANY IS INTO MANUFACTURING OF BOTH BULK DRUGS AND FORMULATIONS A ND THE SEGMENTAL RESULTS ARE AVAILABLE IN THE PROWESS DATA BASE. HE THEREFORE, CONSIDERED THE FINANCIALS OF ONLY THE BULK DRUGS OF THE NATCO PHARMA LTD. AND WORKED OUT THE PROFIT MARGIN AS UNDER- SEGMENTAL SALES OF BULK DRUGS AND COMMON RS.100.35 CRORES SEGMENTAL COSTS RS. 53.49 CRORES OPERATING PROFIT RS. 46.86 CRORES OP/SALES 46.70% OP/COST 87.60% THUS, HE OBSERVED THAT THOUGH THE SEGMENTAL RESULTS HAVE VERY HIGH MARGIN, TO HAVE A FAIR AND TRANSPARENT APPROACH, HE HAS CONSIDERED THE GROSS SALES OF THE ENTERPRISE LEVEL PROFIT MARGINS, INCLUDING BOTH THE FORMULATIONS AND BULK DRUGS, AS CONSIDERED FOR ALL THE OTHER COMPARABLE ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 7 COMPANIES. AS REGARDS SUVEN LIFE SCIENCES LTD. IS CONCERNED, HE CONSIDERED THE SEGMENTAL RESULTS EXCLUDING THE R&D SEGMENT WERE CONSIDERED. HE THEREFORE, WORKED OUT AVERAGE MEAN MARGIN AT 23.02% ON OP/SALES AND 34.81% ON OP/COST. 7. THEREAFTER, THE TRANSFER PRICING OFFICER PROCEE DED TO CONSIDER THE APPROPRIATENESS OF THE COMPARABLES SELECTED BY THE ASSESSEE. AFTER CONSIDERING THE ASSESSEES CONTENTIONS, HE REJECTED THE FOLLOWING COMPANIES AS COMPARABLES- (A) AURO LABORATORIES LTD. (B) DABUR PHARMA LTD.(NOW KNOWN AS FRESENIUS KABI ONCOL OGY LTD.) (C) DIVIS LABORATORIES LTD. (D) MARKSANS PHARMA LTD. (E) NECTAR LIFESCIENCES LTD. (F) SHASUN CHEMICALS & DRUGS LTD. (G) TRANSCHEM LTD. THUS, HE ACCEPTED ONLY ONE COMPANY, I.E. NEULAND LA BORATORIES LTD., AS COMPARABLE TO THE ASSESSEE. THEREAFTER, HE SELECTE D THE FOLLOWING COMPANIES AS FINAL COMPARABLES, AND ARRIVED AT AVER AGE MEAN MARGIN ON OP/SALES AT 19.11% AND OP/COST AT 25.43%- ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 8 COMPARABLES SELECTED BY THE TPO: AFTER APPLYING THE FILTERS SELECTED BY THE TPO, FOLL OWING COMPANIES ARE CONSIDERED AS COMPARABLES: RUPEES IN CRORES SL NO NAME OF THE COMPANY NET SALES OPERAT- ING COST OPERAT- ING PROFIT OP/ SALES % OP/ COST % 1. SUVEN LIFE SCIENCES LTD.(SEG) 113.06 74.06 39.00 34.49 52.66 2. JUPITER BIOSCIENCE LTD. 110.98 72.58 38.40 34.60 52.91 3. ANUS LABS LTD 116.13 94.43 21.70 18.69 52.91 4. BRABOURNE ENTERPRISES LTD. (MERGED) 117.82 98.94 18.88 16.02 19.08 5. FLAMINGO PHARMACEUTICALS LTD. 128.32 116.47 11.85 9.23 10.17 6. VENUS REMEDIES LTD. 142.11 108.78 33.33 23.45 30 .64 7. THEMIS MEDICARE LTD. 171.82 155.73 16.09 9.36 10 .33 8. S M S PHARMACEUTICALS LTD. 178.59 140.61 37.98 21.27 27.01 9. NATCO PHARMA LTD. 185.88 137.31 48.57 26.13 35.37 10. NEULAND LABS LTD. 209.88 194.57 15.31 7.29 7.87 11. AARTI DRUGS LTD. 276.21 249.40 26.81 9.71 10.75 AVERAGE 19.11 25.43 THEREAFTER, HE PROCEEDED TO COMPUTE THE ARMS LENGT H PRICE AS UNDER- THE PRICE CHARGED BY THE TAX PAYER TO ITS AES IS COM PARED TO THE ARMS LENGTH PRICE IN RESPECT OF SALES TRANSACTIONS AND P ROVISION SERVICES IS AS UNDER: SL NO ITEM CODE REMARKS RUPEES IN CRORES 1. TOTAL OPERATING COSTS A 202.93 2. ARMS LENGTH MEAN MARGIN (OP/COST)(%) B 25.43% 3. ARMS LENGTH TOTAL SALES (202.93*125,43%) C AXB/100 254.33 4. TOTAL OP E RATIN G R E VENUE D 226.72 5. SALES WITH RELATED PARTIES E 99.02 6. SALES WITH UNRELATED PARTIES F D-E 127.70 7. ARMS LENGTH PRICE OF SALES MADE TO AES G C-F 126.83 8. ADJUSTMENT U/S. 92CA H G-E 27.81 THE TOTAL INCOME OF THE TAXPAYER IS ENHANCED WITH RS .27.81 CRORES BY WAY OF ADJUSTMENT U/S. 92CA OF THE INCOME TAX ACT, 1961. ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 9 8. SUBSEQUENTLY, THE TRANSFER PRICING OFFICER PR OCEEDED TO CONSIDER VARIOUS OTHER TRANSACTIONS OF THE ASSESSEE WITH MATRIX LABS I.E. ONE OF THE JOINT VENTURE OWNER OF THE ASSESSEE DURI NG THE YEAR UNDER CONSIDERATION. HE OBSERVED THAT THE ASSESSEE HAS EN TERED INTO THE FOLLOWING TRANSACTIONS WITH MATRIX LABS- SL NO CLASSIFICATION RELATED PARTY PAID/ RECEIVED AMOUNT (IN RS). 1. PURCHASE OF RAW MATERIAL MATRIX PAID 84,74,49,618 2. SALE OF FINISHED GOODS MATRIX RECEIVED 7,62,87,355 3. EXPENDITURE INCLUDING MANAGE - MENT FEES MATRIX PAID 2,41,38,115 4. INTEREST CHARGES MATRIX PAID 1,99,70,511 5. INCOME INCLUDING LEASE RENT AND TESTING CHARGES MATRIX 1,19,77,498 6 CONTRACT MANUFACTURING EXPENSES MATRIX PAID 6,96,33,624 7. PURCHASE OF KNOW-HOW, DMFS AND PATENT MATRIX PAID 90,02,000 8. PURCHASE OF FIXED ASSETS MATRIX PAID 10,26,707 9. MATERIALS TRANSFERRED MATRIX PAID 76,7 9,770 TOTAL 106,71,86,198 HE OBSERVED THAT ON 23.9.2005, MATRIX LABORATORIES LTD., HYDERABAD- INDIA AND ASPEN PHARMACARE HOLDINGS LTD., SOUTH AFR ICA EXECUTED A DEFINITIVE AGREEMENT FOR A LONG TERM BUSINESS RELAT IONSHIP BETWEEN THE TWO COMPANIES THROUGH THE JOINT VENTURE ROUTE AND T HAT ASTRIX LABORATORIES LTD. IS THE RESULT OF THIS AGREEMENT, WHEREIN BOTH MATRIX AND ASPEN WILL PICK UP 50% STAKE IN THE NEWLY FORME D ENTITY. HE OBSERVED THAT ON THE SAME DAY MATRIX PICKED UP 50% STAKE IN FINE CHEMICAL CORPORATION(FCC) , SOUTH AFRICA, WHICH HITHERTO IS A 100% OWNED COMPANY OF ASPEN SOUTH AFRICA. THUS, ACCORDI NG TO HIM, ASPEN AND MATRIX ARE HAVING CROSS-HOLDINGS TO THE TUNE OF 50% EQUITY BOTH IN ASTRIX AND FINE CHEM. HE OBSERVED THAT THE API SUP PLY AGREEMENT ENTERED INTO IN THE YEAR 2005 IS A TRIPARTITE AGREE MENT BETWEEN ASPEN PHARMACARE HOLDINGS LTD., SOUTH AFRICA AND MATRIX L ABORATORIES LIMITED, INDIA AND ASTRIX LABORATORIES LIMITED, INDIA, WHERE BY ASPEN PURCHASES ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 10 ANTI-RETROVIRAL-APIS FROM ASTRIX AND IN TURN, ASTRI X PURCHASES REQUISITE KNOW-HOW WHICH INCLUDES DRUG MASTER FILES (DMFS) FR OM MATRIX LABS. HE OBSERVED THAT AS PER CLAUSE 3.2 OF THE AGREEMENT , IT IS OBLIGATORY ON THE PART OF MATRIX TO SUPPLY REQUISITE DMFS TO THE NEWLY FORMED ENTITY, I.E. ASTRIX TO SUPPLY ARV-APIS TO ASPEN, AD THEREFO RE, THERE IS A PRIOR ARRANGEMENT BETWEEN ASPEN AND MATRIX VIDE ABOVE REF ERRED AGREEMENT IN TERMS OF S.92B(2), ACCORDING TO WHICH THE TRANSA CTION WILL BE TREATED AS AN INTERNATIONAL TRANSACTION FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE U/S. 92CA(2) OF THE ACT. THUS, A CCORDING TO HIM, S.92B(2) PROVIDES THAT A TRANSACTION ENTERED INTO B Y AN ENTERPRISE (ASTRIX) WITH A PERSON(MATRIX) OTHER THAN AN ASSOCI ATED ENTERPRISE(ASPEN) SHALL, FOR THE PURPOSE OF SUB-SEC TION (1), BE DEEMED TO BE A TRANSACTION ENTERED INTO BETWEEN TWO ASSOCI ATED ENTERPRISES (ASTRIX AND MATIX), IF THERE EXISTS PRIOR AGREEMENT (API SUPPLY AGREEMENT BETWEEN ASPEN, MATRIX AND ASTRIX) IN RELA TION TO THE RELEVANT TRANSACTION (TRANSACTIONS REFLECTED IN THE TABLE BE TWEEN ASPEN AND MATRIX- BETWEEN SUCH OTHER PERSON (MATRIX) AND THE ASSOCIATED ENTERPRISE(ASPEN)); OR THE TERMS OF THE RELEVANT TR ANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERSON ( MATRIX) AND THE ASSOCIATED ENTERPRISES(ASPEN). THUS, HE OBSERVED TH AT THOUGH THE ASSOCIATED ENTERPRISE (ASPEN) IS NOT A PARTY TO THE TRANSACTION, YET IT HAS DETERMINED ITS ESSENTIAL TERMS, AND SINCE THE T ERMS OF TRANSACTION ARE FIXED OR DICTATED BY THE ASSOCIATED ENTERPRISE( ASPEN), THE TRANSACTION CANNOT BE SAID TO HAVE BEEN ENTERED INT O BETWEEN TWO INDEPENDENT PARTIES (ASTRIX AND MATRIX). HE THEREFO RE, HELD THE TRANSACTION TO BE AN INTERNATIONAL TRANSACTION IN T ERMS OF SUB-SECTION (2) OF S.92B OF THE ACT. HE, THEREFORE, PROCEEDED TO COMPUTE THE ALP OF THESE TRANSACTIONS AND ASKED THE ASSESSEE TO FUR NISH DETAILS OF THE TRANSACTIONS. HOWEVER, THE ASSESSEE FILED ITS REPL Y ON 13.10.2010 WITHOUT MAKING ANY ANALYSIS WITH REFERENCE TO THE P RICES PAID/RECEIVED TO/FROM MATRIX LTD. IN RESPECT OF THE ABOVE TRANSAC TIONS. THE TPO ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 11 OBSERVED THAT THE ABOVE TRANSACTIONS BEING TANGIBL E AND PERTAINED TO THE OPERATIONS OF THE ASSESSEE, ALTHOUGH THE SAME H AS ALREADY BEEN AGGREGATED TO THE MAIN TRANSACTIONS, AND THEREFORE, NO SEPARATE ANALYSIS HAS BEEN MADE AND THE ADJUSTMENT HAS BEEN MADE UNDER TNMM ON SALES MADE TO AE. 9. AS REGARDS THE INTEREST CHARGES PAID, HE DID NOT MAKE ANY ADJUSTMENT. AS REGARDS THE MANAGEMENT FEE, HE ADOP TED CUP METHOD AND OBSERVED THAT THE ASSESSEE HAS FAILED TO JUSTIF Y THE PAYMENT MADE ON ACCOUNT OF MANAGEMENT FEE WITH REFERENCE TO RECE IPT OF SERVICES AND BENEFITS DERIVED FROM THEM IN ARMS LENGTH SITUATIO N. BY APPLYING THE CUP METHOD, HE OBSERVED THAT THE PAYMENT FAILED TH E BENEFIT TEST, AND THEREFORE, ARMS LENGTH PRICE OF SUCH PAYMENT IS DE TERMINED AT NIL. ACCORDINGLY, TOTAL INCOME OF THE ASSESSEE IS ENHAN CED WITH THIS AMOUNT. 10. AS REGARDS THE PURCHASE OF DMFS/PATENT AND TECH NICAL KNOW- HOW ALSO, THE TRANSFER PRICING OFFICER ADOPTED CUP METHOD AND OBSERVED THAT THIS HAS FAILED THE BENEFIT TEST AND THEREFORE, THE ENTIRE AMOUNT HAS TO BE CONSIDERED FOR ADJUSTMENT. THE ASS ESSEE HAD ALSO ARGUED BEFORE THE TRANSFER PRICING OFFICER THAT THE PAYMENTS MADE TOWARDS DMF AND TECHNICAL KNOW HOW, BEING DURING TH E FINANCIAL YEAR 2005-06, THE SAME ARE OUTSIDE THE PURVIEW OF TRANSF ER PRICING ADJUSTMENT FOR 2007-08. HOWEVER, THE TRANSFER PRIC ING OFFICER OBSERVED THAT THE ASSESSEE HAS SOUGHT AMORTIZATION OF THE ABOVE EXPENSES AND HAD CHARGED THE SAME TO THE PROFIT & L OSS ACCOUNT AND THEREFORE, THE TRANSACTIONS IN QUESTION ARE REQUIRE D TO BE ANALYSED TO FIND OUT WHETHER THEY ARE AT ARMS LENGTH. AS A CON SEQUENCE, HE BROUGHT THE ENTIRE AMOUNT OF RS.10.63 CRORES AS TRA NSFER PRICING ADJUSTMENT. ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 12 11. THUS, THE TOTAL ADJUSTMENT UNDER S.92CA PROPOS ED BY THE TPO ARE AS UNDER- SL. NO. TRANSACTION ADJUSTMENT (RS. IN CRORES) 1. SALES MADE TO ASPEN 27.81 2. MANAGEMENT FEE PAID TO MATRIX 2.41 3. AMORTIZED OUT OF PAYMENTS MADE TOWARDS DMFS./TECHNICAL KNOW-HOW TO MATRIX 10.63 TOTAL 40.85 ON THE BASIS OF THE ABOVE PROPOSAL OF THE TPO, THE ASSESSING OFFICER PASSED THE DRAFT ASSESSMENT ORDER, AGAINST WHICH TH E ASSESSEE PREFERRED ITS OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL. 12. THE DISPUTE RESOLUTION PANEL CONFIRMED THE ORD ER OF THE TRANSFER PRICING OFFICER AS REGARDS THE TP ADJUSTME NT WITH REGARD TO INTERNATIONAL TRANSACTIONS BETWEEN THE ASSESSEE AND ITS AES CONCERNED. HOWEVER, AS REGARDS THE ASSESSEES OBJECTION WITH R EGARD TO ITS TRANSACTIONS WITH MATRIX LTD., A RESIDENT COMPANY, TREATED AS DEEMED INTERNATIONAL TRANSACTION, THE DRP PARTLY ALLOWED T HE SAME. 13. IN ACCORDANCE WITH THE DIRECTIONS OF THE DRP, FINAL ASSESSMENT ORDER IS PASSED, AGAINST WHICH THE ASSESSEE IS IN A PPEAL BEFORE US. 14. AS REGARDS THE COMPARABLES ADOPTED BY THE TPO , THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT AS THE ASSESSEE COMPANY INVOLVED IN MANUFACTURE OF APIS/BULK DRUGS, THE COM PARABLE COMPANIES INVOLVED IN SIMILAR ACTIVITY ONLY SHOULD HAVE BEEN TAKEN AS COMPARABLE BY THE TPO. HE ALSO SUBMITTED THAT WHILE THE TPO AS W ELL AS THE DRP HAVE AGREED THAT THE BULK DRUG COMPANIES ONLY ARE COMPAR ABLE TO THE ASSESSEE, THE TPO HAS ADOPTED THE FORMULATION COMPANIES ALSO ON THE GROUND THAT THE NUMBER OF COMPANIES ON SUCH COMPARISON WOULD NO T BE SUFFICIENTLY ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 13 AVAILABLE. HE HAS DRAWN OUR ATTENTION TO THE AGREE MENT OF THE DRP THAT ONLY THE BULK DRUG COMPANIES ARE TO BE TAKEN INTO C ONSIDERATION. 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDERS OF THE DISPUTE RESOLUTION PANEL. 16. HAVING REGARD TO THE RIVAL CONTENTIONS AND MA TERIAL ON RECORD, WE FIND THAT RULE 10D OF IT RULES ITSELF PROVIDES T HAT THE TPO HAS TO CONDUCT THE FAR ANALYSIS AND ADOPT SUCH COMPANIES A S COMPARABLE WHICH ARE IN SIMILAR BUSINESS AS THE ASSESSEE AND THAT OT HER COMPANIES MAY ALSO BE TAKEN INTO CONSIDERATION, PROVIDED THE ADJUSTMEN T FOR DISSIMILARITIES, IF ANY, CAN BE MADE. THE COORDINATE BENCH OF THIS TRI BUNAL AT DELHI IN THE CASE OF GLOBAL VANTEDGE PVT. LTD. V/S. DCIT (2010-T IOL-24-ITAT-DEL) HELD THAT IF A COMPANY ENGAGES IN A VARIETY OF DIFF ERENT CONTROLLED TRANSACTIONS THAT CANNOT BE APPROPRIATELY COMPARED ON AN AGGREGATE BASIS WITH THOSE OF AN INDEPENDENT ENTERPRISE THEN, WHILE ANALYZING THE TRANSACTIONS BETWEEN INDEPENDENT ENTERPRISES TO THE EXTENT THEY ARE NEEDED, PROFIT ATTRIBUTABLE TO TRANSACTIONS THAT AR E NOT SIMILAR TO THE CONTROLLED TRANSACTIONS UNDER EXAMINATION SHOULD BE EXCLUDED FROM COMPARISON. SIMILAR VIEW HAS BEEN EXPRESSED BY THE TRIBUNAL AT MUMBAI IN THE CASE OF IL JIN ELECTRONICS (I) P. LTD. V/S. AC IT (2010-TIOL-151-ITAT- MUM) AND ALSO IN THE CASE OF ACIT V/S. T TWO INTERN ATIONAL PVT. LTD.(2010- TIOL-166-ITAT-MUM). THUS, FOR MAKING NECESSARY ADJ USTMENT IF SEPARATE SEGMENTAL ACCOUNTS ARE AVAILABLE, THE TPO OUGHT TO TAKE ONLY THE SEGMENTAL DETAILS OF THE COMPARABLE COMPANY. IN TH E CASE BEFORE US, THE TRANSFER PRICING OFFICER HAS TAKEN COMPANIES WHICH ARE INVOLVED IN BOTH THE ACTIVITIES ON THE GROUND THAT SUFFICIENT NUMBER OF COMPARABLES ARE NOT AVAILABLE. BUT, FROM THE ORDER OF THE TPO, WE FIND THAT EVEN AS PER THE FILTER ADOPTED BY THE TRANSFER PRICING OFFICER, AT LEAST SIX COMPANIES ARE AVAILABLE FOR COMPARISON, WHICH ARE INTO MANUFACTUR E OF ONLY BULK DRUGS AS ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 14 IN THE CASE OF THE ASSESSEE. THEREFORE, WE HOLD THA T ONLY SUCH COMPANIES ARE TO BE ADOPTED FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE. 17. FROM AMONG THESE SIX COMPANIES, THE ASSESSEE IS CHALLENGING THE ADOPTION OF SUVEN LIFE SCIENCES LTD. AND NATCO PHARMA. AS FOR THE SUVEN LIFE SCIENCES LTD IS CONCERNED, THE OBJECTION OF THE ASSESSEE IS THAT SUVEN LIFE SCIENCES LTD. IS MAINLY ENGAGED IN MANUF ACTURE OF INTERMEDIATES UNDER CONTRACT SERVICE AND PRODUCTS A RE DEVELOPED AND PRODUCED ON AN EXCLUSIVE BASIS UNDER CONTRACT MANUF ACTURING SERVICES. HE HAS DRAWN OUR ATTENTION TO PAGE 865 OF THE PAPER BO OK CONTAINING THE FINANCIAL DETAILS OF SUVEN LIFE AND HAS DRAWN OUR A TTENTION TO THE SEGMENTAL RESULTS OF SUVEN LIFE WHEREIN THE TURNOVE R ON ACCOUNT OF MANUFACTURE OF BULK DRUGS WAS ONLY RS.13,36,86,930 WHEREAS THE TPO HAS TAKEN THE TOTAL TURNOVER OF THE COMPARABLE OF RS.113,06,34,350, WHICH AMONG OTHERS INCLUDE THE TURNOVER OF BULK D RUGS ALSO. THUS, ACCORDING TO HIM, THE MARGIN TAKEN BY THE ASSESSING OFFICER /TPO IS ERRONEOUS AND IT ALSO FAILS THE TPOS FILTER OF RS, 100 TO RS.300 CRORES TURNOVER. THEREFORE, THE TPO HAS ARRIVED AT AN INC ORRECT MARGIN OF THE COMPANY CHOSEN AS COMPARABLE. ACTUAL WORKING HAS BE EN GIVEN BY THE ASSESSEE AT ANNEXURE 2 OF THE PAPER-BOOK FILED ON 2 9.10.2015, I.E. ON THE DATE OF HEARING. WE FIND THIS CONTENTION OF THE ASS ESSEE TO BE CORRECT AND WE THEREFORE DIRECT THE ASSESSING OFFICER/TPO TO RE COMPUTE THE MARGIN OF THE SUVEN LIFE BY TAKING THE SEGMENTAL RESULT OF BU LK DRUGS ONLY AND NOT THE TOTAL TURNOVER AS DONE BY THE TPO IN THE EARLIE R PROCEEDINGS. 18. AS REGARDS NATCO PHARMA, THE ASSESSEE S OBJEC TION TO THIS COMPANY IS THAT THE TPO HAS TAKEN THE FINANCIAL RE SULTS OF BOTH THE BULK CHEMICALS AS WELL AS COMMON DRUGS ON THE GROUND T HAT THE SEGMENTAL REPORT IS BEING CONSIDERED. HE SUBMITTED THAT COMM ON EXPENDITURE IS NOT ALLOCATED SEGMENT-WISE, AND IN THE CIRCUMSTANCES, T HESE EXPENSES CANNOT BE ATTRIBUTED TO BULK CHEMICALS ALONE AND TAKING TH E AGGREGATE OF BOTH THE EXPENDITURE, I.E. EXPENDITURE OF BULK CHEMICALS AS WELL AS COMMON ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 15 EXPENDITURE TOGETHER WOULD DISTORT THE FINANCIAL RE SULTS OF THE SAID COMPANY. HE SUBMITTED THAT IF ONLY THE TURNOVER OF THE BULK CHEMICALS IS TAKEN INTO CONSIDERATION, AS CLAIMED, THEN IT DOES NOT SATISFY THE TPOS FILTER OF RS.100 TO 300 CRORES TURNOVER AND THEREF ORE, IT HAS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. HE HA S DRAWN OUR ATTENTION TO PAGE 1188 OF THE PAPER-BOOK TO DEMONSTRATE HIS CONT ENTION BEFORE US. 19. LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUPPOR TED THE ORDERS OF THE AUTHORITIES BELOW. 20. ON VERIFICATION OF THE MATERIAL ON RECORD, IN THE LIGHT OF THE ARGUMENTS OF THE PARTIES AND THE TP STUDY OF THE AS SESSEE, WE FIND THAT THE CONTENTIONS OF THE ASSESSEE ARE CORRECT. WHEN T HE TPO IS TAKING SEGMENTAL RESULTS INTO CONSIDERATION, HE HAS TO CON SIDER ONLY THE OPERATING REVENUE AND OPERATING COST OF THE SAID SEGMENT. COM MON EXPENDITURE RELATING TO ALL THE SEGMENTS CANNOT BE ATTRIBUTED T O BULK DRUGS SEGMENT ALONE. HOWEVER, COMMON EXPENDITURE CANNOT BE IGN ORED ALTOGETHER. OPERATING COSTS INCLUDE COSTS DIRECTLY ATTRIBUTABLE TO THE MANUFACTURE OF BULK CHEMICALS AND ALSO INCLUDES COMMON EXPENDITURE ATTRIBUTABLE TO THE BULK DRUGS SEGMENT. THEREFORE, THE TPO OUGHT TO HAV E ALLOCATED THE COMMON EXPENDITURE PROPORTIONATELY BETWEEN ALL THE SEGMENTS AND THEREAFTER OUGHT TO HAVE CONSIDERED THE TURNOVER OF THE BULK CHEMICALS ONLY. SINCE THIS EXERCISE HAS NOT BEEN CARRIED OUT BY THE TPO/AO, WE DEEM IT FIT AND PROPER TO REMIT THIS ISSUE TO THE FILE O F THE TPO FOR RE-COMPUTATION OF MARGIN OF THE BULK DRUG SEGMENT OF NATCO PHARMA LTD AND THEREAFTER TO DETERMINE THE ARMS LENGTH PRICE ACCORDINGLY. AS F OR THE CONTENTION OF THE ASSESSEE THAT IF ONLY BULK DRUGS TURNOVER IS TAKEN INTO CONSIDERATION, IT FAILED THE TPOS FILTER OF RS.100 TO 300 CRORES, WE DIRECT THE TPO TO RE- DETERMINE THE MARGIN OF THIS COMPANY, AND IF IT FA ILS THE TPOS FILTER ADOPTED FOR COMPARABLES, HE SHALL NOT TAKE THIS CO MPANY INTO CONSIDERATION. ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 16 21. IN VIEW OF THE ABOVE DISCUSSION, THE ISSUE O F EXCLUDING SUVEN LIFE AND NATCO PHARMA FROM THE FINAL LIST OF COMPA RABLES IS REMITTED BACK TO THE FILE OF ASSESSING OFFICER/TPO FOR RE-DETERMI NATION, AFTER MAKING VERIFICATION OF THE ABOVE OBJECTIONS OF THE ASSESSE E. 22. AS REGARDS THE ASSESSEES CONTENTION THAT THE TPO HAS CONSIDERED THE TRANSACTIONS BETWEEN THE ASSESSEE AN D MATRIX LABORATORIES LTD. AS DEEMED INTERNATIONAL TRANSACTIONS, THE LEAR NED COUNSEL FOR THE ASSESSEE HAS ARGUED THAT THE ASSESSEE COMPANY WAS FORMED IN ASSESSMENT YEAR 2006-07, AS A JOINT VENTURE, HAVIN G EQUAL SHARE AND THE FACTORY AND KNOW-HOW WERE TRANSFERRED TO THE ASSESS EE. HE SUBMITTED THAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 VIDE ORDERS UNDER S.263 OF THE INCOME TAX ACT,1961, THE TRANSA CTIONS WERE DEEMED TO BE INTERNATIONAL TRANSACTIONS, BUT ON APPEAL, TH E TRIBUNAL, VIDE ORDER DATED 16.1.2015 IN ITA NO.840/HYD/2012, HAS HELD TH ESE TRANSACTIONS TO BE DOMESTIC TRANSACTIONS AND NOT INTERNATIONAL TRAN SACTIONS. A COPY OF THE SAID ORDER IS FILED BEFORE US. 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWE VER, SUPPORTED THE ORDERS OF THE TPO/DRP 24. HAVING REGARD TO THE RIVAL CONTENTIONS AND TH E MATERIAL ON RECORD, WE FIND THAT FOR ASSESSMENT YEAR 2006-07, THE COMMISSIONER INITIATED PROCEEDING UNDER S.263 ON THE BASIS OF TH E ASSESSMENT PROCEEDINGS/TPOS ORDER FOR ASSESSMENT YEAR 2006-0 7, WHICH WAS CHALLENGED BEFORE THE TRIBUNAL AND THIS TRIBUNAL, VIDE ITS ORDER DATED 26.1.2015, CITED ABOVE, AFTER CONSIDERING THE PROVI SIONS OF S.92B OF THE ACT, HAS HELD THAT FOR COMING WITHIN THE EXPRESSI ON INTERNATIONAL TRANSACTIONS AT LEAST ONE OF THE PARTIES SHOULD BE A NON-RESIDENT. IT WAS HELD THAT NEITHER THE ASSESSEE NOR MATRIX IS A NON- RESIDENT AND THEREFORE, THE TRANSACTIONS RELATING TO ACQUISITION OF KNOW-HO W AND DMF CANNOT BE ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 17 CALLED AS INTERNATIONAL TRANSACTIONS UNDER S.92B OF THE ACT. SIMILAR VIEW HAS BEEN TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10, VIDE ITS ORDE R DATED 25.3.2015 IN ITA NO.198/HYD/2014 AND A COPY OF THE SAID ORDER IS ALSO FILED BEFORE US. TAKING DUE NOTE OF THESE DECISIONS OF THE COORDINAT E BENCHES OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2006-07 AND 2009-10, IT IS HELD FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AS WELL THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE MATRIX LABORATORIES ARE NOT INTERNATIONAL TRANSACTIONS AND THE SAME ARE NOT AMENABLE TO TRANSFER PRICING ADJUSTMENT UNDER S.92B OF THE ACT. CONSEQUENTLY, GROUNDS NO.5 TO 7 OF THE ASSESSEE ARE TREATED AS AL LOWED. 25. FURTHER GROUND RAISED BY THE ASSESSEE IS AGAIN ST THE COMPONENT OF THE OPERATING INCOME, I.E. WHETHER THE RENT REALISED BY THE ASSESSEE ON LEASE OF THE BUILDING AND EQUIPMENT CA N BE CONSIDERED AS OPERATING INCOME OF THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS LET OUT THE BUILDING AS WELL AS EQUIPMENT TO MATRIX LABORAT ORIES AND HAS DERIVED INCOME THEREFROM. THE TPO HELD THAT THE ASSESSEES BUSINESS IS MANUFACTURING OF APIS AND NOT HIRING OUT/LEASING TH E BUILDING AND EQUIPMENT AND THEREFORE, THE RENTS DERIVED CANNOT F ORM PART OF OPERATING INCOME. THOUGH THE ASSESSEE SUBMITTED THAT THE BUIL DING AND THE EQUIPMENT WERE GIVEN FOR CARRYING OUT THE BUSINESS OPERATIONS AND SALES AND BOOST THE ASSESSEES BUSINESS INCOME, ASSESSEE HAS NOT FILED COPIES OF AGREEMENT BETWEEN THE ASSESSEE AND THE MATRIX LABOR ATORIES IN INDIA OR THE SERVICES PROVIDED TO THE LESSEE OF THE BUILDING AND EQUIPMENT. THEREFORE, IT IS NOT VERIFIABLE AS TO THE NATURE OF THE INCOME DERIVED BY THE ASSESSEE BY LEASING OUT THE BUILDING OR EQUIPMENT. UNLESS AND UNTIL THE PROPERTY IS LET OUT FOR THE PURPOSE OF ASSESSEES B USINESS, THE SAME CANNOT BE TREATED AS BUSINESS INCOME OR OPERATING INCOME O F THE ASSESSEE. EVEN BEFORE US, THE ASSESSEE HAS NOT BEEN ABLE TO PRODUC E ANY EVIDENCE IN SUPPORT OF ITS CONTENTION THAT THE INCOME FROM LETT ING OUT OF THE BUILDING ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 18 AND EQUIPMENT IS OPERATING INCOME. IN VIEW OF THE S AME, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE ASSE SSING OFFICER/DRP ON THIS ISSUE. 26. AS REGARDS THE ASSESSEES GROUNDS NO. 3 AND 4 , WE FIND THAT THE ASSESSEE HAS ALSO TRANSACTIONS WITH NON-AES AND THE TPO HAS TAKEN THE TOTAL TURNOVER INCLUDING TRANSACTIONS WITH NON- AE COMPANIES, FOR THE PURPOSE OF DETERMINATION OF ALP. IT HAS BEEN HELD IN A CATENA OF CASES THAT IT IS ONLY THE TRANSACTIONS OR THE TURNOVER IN VOLVED IN THE TRANSACTIONS WITH AES ALONE, WHICH HAVE TO BE CONSIDERED FOR COM PUTATION OF ALP. THE ASSESSING OFFICER/TPO ARE ACCORDINGLY DIRECTED TO T AKE INTO ACCOUNT THE TURNOVER OF THE TRANSACTIONS WITH AE ONLY FOR THE P URPOSE OF COMPUTING THE ALP. ACCORDINGLY, GROUNDS NO.3 AND 4 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 27. IN THE RESULT, ASSESSEES APPEAL IS PARTLY AL LOWED. ITA NO.312/HYD/2012 : ASSESSMENT YEAR 2007-08 28. THIS APPEAL IS DIRECTED AGAINST THE ACTION OF THE ASSESSING OFFICER IN REJECTING, VIDE LETTER DATED 8.12.2011, THE PETITION OF THE ASSESSEE UNDER S.154 FOR RECTIFICATION OF THE ORDER DATED 28.10.2011 PASSED UNDER S.143(3) READ WITH S.92CA AND S.144C O F THE INCOME TAX ACT,1961 IN ACCORDANCE WITH THE DIRECTIONS OF THE D ISPUTE RESOLUTION PANEL, AND THE EFFECTIVE GROUND RAISED BY THE ASSESSEE, BE ING GROUND NO.2, READS AS FOLLOWS- 2. THE ASSESSING OFFICER ERRED IN NOT COMPARING TH E REVISED OPERATING MARGINS OF THE APPELLANT OF 16.43%(OP/SAL ES) WITH THE TPO COMPARABLE MARGIN OF 19.11%(OP/SALES) AND INSTEAD MAKING AN ADDITION OF RS.11.45 CRORES I N RESPECT OF AE SALES AS ADJUSTMENT U/S. 92C OF THE A CT, WITHOUT CONSIDERING THE FACT THAT THE REVISED OPERA TING MARGIN OF THE APPELLANT FALLS WITHIN THE (+) OR (-) RANGE ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 19 OF THE TPO COMPARABLE MARGIN AS PER SECOND PROVISO TO SUB-SECTION (2) TO SECITON92C OF THE ACT. 29. THUS, THE ISSUE IN DISPUTE IN THIS APPEAL RELA TES TO THE TP ADJUSTMENT OF RS.11.45 CRORES MADE BY THE ASSESSING OFFICER WHILE GIVING EFFECT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL IN THE FINAL ASSESSMENT ORDER, AND REJECTION OF THE ASSESSEES P ETITION FOR RECTIFICATION OF THE SAID ORDER UNDER S.154 VIDE HIS LETTER DATED 8.12.2011. SINCE VARIOUS OBJECTIONS OF THE ASSESSEE WITH REGARD TO D ETERMINATION OF THE ARMS LENGTH PRICE AND ULTIMATE TRANSFER PRICING AD JUSTMENT MADE BY THE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER DAT ED 28.10.2011, HAVE BEEN ELABORATELY CONSIDERED BY US HEREINABOVE, WHIL E DEALING THE MAIN APPEAL OF THE ASSESSEE HEREINABOVE, AND THE ISSUE O F DETERMINATION OF ARMS LENGTH PRICE HAS BEEN SET ASIDE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS, FOR FRESH DETERMINATION, T HE PRESENT APPEAL OF THE ASSESSEE HAS BECOME INFRUCTUOUS. WE ACCORDINGLY, R EJECT THE GROUNDS OF THIS APPEAL. 30. IN THE RESULT, ASSESSEES APPEAL, ITA NO.312/H YD/2012, BEING INFRUCTUOUS IS DISMISSED. 31. TO SUM UP, WHILE APPEAL ITA NO.2181/HYD/2011 I S TREATED AS PARTLY ALLOWED, APPEAL ITA NO.312/HYD/2012, BEING I NFRUCTUOUS, IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 29.01.2016 SD/- SD/- ( S.RIFAUR RAHMAN ( P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/- 29 TH JANUARY, 2016 ITA NO.2181/HYD/2011 & 312/HYD/12 M/S. ASTRIX LABORATORIES LTD., HYDERABAD 20 COPY FORWARDED TO: 1. M/S. ASTRIX LABORATORIES LTD., PLOT NO.564/A/22, ROAD NO.92, JUBILEE HILLS, HYDERABAD 2. 3. ASST. COMMISSIONER OF INCOME-TAX CIRCLE 16(2), HYDE RABAD DISPUTE RESOLUTION PANEL, HYDERABAD 4. ADDL. COMMISSIONER OF INCOME - TAX TRANSFER PRICING, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S