TEVAPHARM INDIA P.LTD, MUMBAI V. DCIT CIR 10(3), MUMBAI

ITA 2251/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0925 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 19-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHR SAURABH DESH
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction; Question of law; Revenue expenditure
• Section: 10B

Judgement Text

1 M/S TEVAPHARMA INDIA PVT LTD IN THE INCOME TAX APPELLATE TRIBUNNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI C.N.PRASAD (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A.NO.2251/MUM/2014 ( ASSESSMENT YEAR: 2009-10) M/S TEVAPHARM INDIA PVT LTD (FORMERLY KNOWN AS RATIO PHARM INDIA PVT LTD)402, OMEGA, HIRANANDANI GARDENS, POWAI, MUMBAI-76 DY.CIT 10(3), MUMBAI PAN : AABCR7561F APPELLANT RESPONDENT I.T.A.NO.2085/MUM/2014 ( ASSESSMENT YEAR : 2009-10) DY.CIT 10(3), MUMBAI M/S TEVAPHARM INDIA PVT LTD (FORMERLY KNOWN AS RATIO PHARM INDIA PVT LTD)402, OMEGA, HIRANANDANI GARDENS, POWAI, MUMBAI-76 APPELLANT RESPONDENT ASSESSEE BY SHRI DHANESH BAFNA MS CHANDNI SHAH SHRI HARISH ARORA REVENUE BY SHR SAURABH DESHPANDE DATE OF HEARING 25.04.2017 DATE OF ORDER .05.2017 2 M/S TEVAPHARMA INDIA PVT LTD O R D E R PER ASHWANI TANEJA, AM:- THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE ORD ER OF DISPUTE RESOLUTION PANEL-II, MUMBAI DATED 19-11-2013 U/S 14 4(C) OF THE ACT FOR A.Y. 2009-10. 2. FIRST, WE SHALL TAKE UP THE APPEAL FILED BY THE REV ENUE IN ITA NO. 2085/MUM/2014 ON THE FOLLOWING GROUNDS:- 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISPUTE RESOLUTION PANEL ERRED IN REJECTING THE COMPARABLE AS ADOPTED BY TPO IN DETERMINING THE TP ADJUSTMENT AS VALID COMPARABLES ' 3. DURING THE COURSE OF HEARING, THE LD. DR APPEARING ON BEHALF OF THE REVENUE CLARIFIED THAT REVENUE IS AGGRIEVED WITH ON LY TWO COMPARABLES WHICH HAVE BEEN EXCLUDED BY THE DRP, VIZ. (1) PFIZER LTD; AND (2) CELESTIAL LABS LTD. 4. WITH REGARD TO PFIZER LTD, IT WAS SUBMITTED BY THE LD. DR THAT DRP HAS APPLIED RPT FILTER AND IT WAS FOUND THAT RELATED PA RTY TRANSACTIONS WERE WERE MORE THAN 90%, THEREFORE, THIS COMPARABLE WAS DIREC TED TO BE EXCLUDED. IT WAS SUBMITTED THAT IN THE EARLIER YEARS ALSO, THE SAME COMPARABLE WAS SELECTED AND IT WAS NOT OBJECTED TO BY THE ASSESSEE, THEREFORE, IN THIS YEAR MERELY BECAUSE RELATED PARTY TRANSACTIONS ARE MORE THAN 25%, THE S AME CANNOT BE ALLOWED TO BE EXCLUDED. FURTHER, THE SAID COMPARABLE WAS EXCL UDED BY THE DRP ALSO FOR THE REASON THAT IT HAD A DIFFERENT ACCOUNTING PERIO D AND, THEREFORE, CANNOT BE INCLUDED IN THE LIST OF COMPARABLES. IN THIS REGAR D, IT WAS SUBMITTED THAT MERELY BECAUSE ACCOUNTING YEAR OF THE SAID COMPANY WAS END ING ON 30 TH NOVEMBER, THE SAME CANNOT BE EXCLUDED FOR THIS REASON ALONE. RELIANCE WAS PLACED BY HIM ON THE DECISION OF THE TRIBUNAL IN THE CASE OF PANG EA3 & LEGAL DATABASE 3 M/S TEVAPHARMA INDIA PVT LTD SYSTEMS PVT LTD VS ITO (ITA NO. 2128/M/2014 ORDER D ATED 06-03-2017). IT WAS SUBMITTED THAT THOUGH A COMPARABLE COMPANY MAY FOLL OW A DIFFERENT FINANCIAL YEAR BUT IF FINANCIAL DATA IS AVAILABLE FOR ALL THE QUARTERS INCLUDING JANUARY TO MARCH, THEN THE SAME CANNOT BE EXCLUDED FROM THE LI ST OF COMPARABLES MERELY BECAUSE THE COMPARABLE IS FOLLOWING DIFFERENT FINAN CIAL YEAR. IN VIEW OF THESE SUBMISSIONS, HE REQUESTED FOR REVERSING THE ORDER O F DRP AND REQUESTED FOR INCLUDING THIS COMPANY AS PART OF COMPARABLES. 5. SIMILARLY, WITH REGARD TO THE OTHER COMPANY, VIZ. C ELESTIAL LABS LTD, IT WAS SUBMITTED THAT THE DRP HAS WRONGLY DIRECTED FOR ITS EXCLUSION ON THE GROUND THAT THE SAID COMPANY WAS ENGAGED IN PROVIDING HOST OF IT RELATED SERVICES. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS OF T HE TRIBUNAL WHEREIN IT WAS HELD THAT THE SAID COMPANY WAS NOT COMPARABLE TO A COMPANY ENGAGED IN PROVIDING IT RELATED SERVICES:- I. HEWLETT PACKARD (INDIA) SOFTWARE OPERATION (P) L TD VS DCIT 67 TAXMANN.COM 309 II. CORE OBJECTS INDIA (P.) LTD VS ITO 72 TAXMANN. COM 53 (BANG.TRIB) III. INTERWOVEN SOFTWARE SERVICES INDIA (P) LTD VS DCIT 67 TAXMANN.COM 361 (BANG TRIB) IV. TEXTRON INDIA (P.) LTD VS DCIT 72 TAXMANN.COM 307 (BANG TRIB) IT WAS THUS SUBMITTED THAT THE SAID COMPANY IS VERY MUCH COMPARABLE TO THE ASSESSEE COMPANY, AND THEREFORE, IT SHOULD NOT HAVE BEEN DIRECTED TO BE EXCLUDED. 6. PER CONTRA, LD. COUNSEL OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER PASSED BY THE DRP. 7. WITH REGARD TO THE EXCLUSION OF PFIZER LTD, IT WAS SUBMITTED THAT THE RECORDS WOULD CLEARLY SHOW THAT RELATED PARTY TRANS ACTIONS WERE MORE THAN 90%. OUR ATTENTION WAS DRAWN ON THE FINANCIAL STAT EMENT OF THE SAID COMPANY. OUR ATTENTION WAS ALSO DRAWN ON THE ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2007-08 & 2008-09. IT WAS SUBMITT ED THAT IT WAS DIRECTED TO 4 M/S TEVAPHARMA INDIA PVT LTD BE EXCLUDED BY THE DRP ON ITS OWN. WITH REGARD TO THE EXCLUSION OF THE SAID COMPANY ON THE GROUND OF DIFFERENT ACCOUNTING PERIO D, RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS PTC SOFTWARE (I) PVT LTD (ITA NO.732 OF 2014 DATED 26-09-2016). IT WAS SUBMITTED THAT THE JUDGMENT OF JURISDICTIONAL HIGH COURT IS BINDING. IT WAS ALSO SUBMITTED THAT THE VIEW TAKEN BY THE TRIBUNAL IN THE CASE OF PANGEA3 & LEGAL DATABASE SYSTEMS PVT LTD VS ITO (SUPRA) CANNOT BE APPLIED IN GENERAL IZED MANNER. THE SAID VIEW WAS GIVEN BY THE TRIBUNAL SUBJECT TO THE CONDITION OF AVAILABILITY OF DATA OF LAST QUARTER OF BOTH YEARS. THUS, IN ABSENCE OF AVAILABI LITY OF QUARTERLY DATA, THAT TOO, FOR THE RELEVANT SEGMENT; THE SAID COMPANY CAN NOT BE TAKEN AS PART OF COMPARABLES. FURTHER, THE OTHER HANDICAP WAS THAT PFIZER LTDS FINANCIAL YEAR ENDS ON 30 TH NOVEMBER AND NOT ON 31 ST DECEMBER AND THUS, AVAILABILITY OF DATA OF LAST QUARTER WILL NOT BE SUFFICIENT. THUS, KEEPI NG IN VIEW ALL THESE DIFFICULTIES, THE DRP HAS RIGHTLY DIRECTED FOR EXCLUSION OF THE S AME. 8. WITH REGARD TO CELESTIAL LABS LTD. IT WAS SUBMITTED BY THE LD. COUNSEL THAT THE TRIBUNAL IN ASSESSES OWN CASE FOR AY 2007-08 & 2008-09 HAS ALREADY TAKEN A VIEW IN FAVOUR OF THE ASSESSEE AND THE SAME VIEW SHOULD BE APPLIED. OUR ATTENTION WAS DRAWN ON THE ANNUAL REPORT OF THE SAI D COMPANY TO SHOW THAT IT WAS ENGAGED IN SALES OF PRODUCTS ALSO AND ITS PRIMA RY BUSINESS SEGMENTS WERE SOFTWARE DEVELOPMENT AND SERVICES. FURTHER, THE TPO HAS MENTIONED THAT FUNCTIONAL PROFILE OF THE ASSESSEE AND THE COMPARAB LES ARE SAME AS IN EARLY YEARS. THUS, THE VIEW TAKEN BY THE TRIBUNAL IN ASSE SSEES OWN CASE FOR AY 2007- 08 & 2008-09 SHOULD BE FOLLOWED IN THIS YEAR ALSO. THUS, THE ORDER OF THE DRP SHOULD BE UPHELD. 9. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES AND ALSO GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORI TIES AND BY THE TRIBUNAL FOR EARLIER YEARS. WE SHALL DEAL WITH BOTH THE COMP ARABLES HEREUNDER: 5 M/S TEVAPHARMA INDIA PVT LTD PFIZER LTD: 10. IN THE CASE OF PFIZER LTD., IT HAS BEEN HELD BY THE DRP THAT RELATED PARTY TRANSACTIONS OF THE SERVICE SEGMENT OF THE SAID COM PANY ARE APPROXIMATELY TO THE TUNE OF 95.30%. LD. DR WAS NOT ABLE TO DISPUTE THIS FACTUAL SUBMISSION WHEN THE FINANCIAL STATEMENTS OF THE SAID COMPANY W ERE SHOWN TO HIM. THEREFORE, WE FIND THAT DRPS DECISION SHOULD BE UPH ELD ON THIS REASON, ITSELF. 10. HOWEVER, WE SHALL ALSO DEAL WITH OTHER ARGUMENT TAK EN BY THE DRP, I.E. DIFFERENT ACCOUNTING PERIOD FOLLOWED BY THE SAID CO MPANY. IN THIS REGARD, WE SHALL FIRST TAKE SUPPORT FROM THE JUDGMENT OF HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT V. PTC SOFTWARE (I) PVT. LTD. (SUPRA), WHEREIN WITH REGARD TO THE ISSUE OF ACCEPTABILITY OF A COMPANY AS PART OF LIST OF COMPARABLES WHICH IS FOLLOWING DIFFERENT ACCOUNTING PERIOD, IT WAS OBSER VED BY THE HONBLE BOMBAY HIGH COURT AS UNDER:- 11. RE. QUESTION (III) (A) THE ASSESSING OFFICER ON THE BASIS OF THE ORDER OF THE TPO INCLUDED M/S. TRANSWORDKS INFORMATION SERVICES LTD. (TRANSWO RKS LTD.) IN HIS COMPARABILITY ANALYSIS. THE GRIEVANCE OF THE RESPON DENT ASSESSEE BEFORE THE TRIBUNAL WAS THAT TRANSWORKS LTD. CANNOT BE A COMPARABLE AS THE RESPONDENT ASSESSEES FINANCIAL PERIOD IS FR OM 1ST APRIL, 2006 TO 31 ST MARCH, 2007 WHILE THE FINANCIAL PERIOD IN RESPECT OF THE COMPARABLE IS FROM IST JULY 2006 TO 30TH JUNE, 2007 . THIS GRIEVANCE BASED ON FACT WAS NOT DISPUTED BY THE REVENUE BEFOR E THE TRIBUNAL OR EVEN BEFORE US. IN THE TERMS OF RULE 10B (4) OF THE INCOME TAX RULES, 1962, THE ANALYSIS FOR COMPARISON SHALL BE ON THE D ATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTI ON HAS BEEN ENTERED INTO. IN THE ABOVE VIEW, THE TRIBUNAL HELD THAT AS THE FINANCIAL PERIOD DURING WHICH THE INTERNATIONAL TRANSACTION WAS ENTE RED INTO IS DIFFERENT, M/S. TRANSWORK LTD. COULD NOT BE TREATED AS COMPARABLE AND THUS NOT INCLUDABLE. (B) WE FIND THAT THE PROVISIONS OF SECTION 10B(4) O F THE RULES ARE CLEAR IN AS MUCH AS IT OBLIGES THAT THE DATA TO BE USED FOR COMPARABILITY ANALYSIS SHOULD BE OF THE SAME FINANC IAL YEAR IN WHICH THE INTERNATIONAL TRANSACTIONS WERE ENTERED INTO BY THE TESTED PARTY. 6 M/S TEVAPHARMA INDIA PVT LTD IN FACT, THIS PRINCIPLE/MANDATE WAS APPLIED BY THE TPO WHILE CONSIDERING M/S. POWER SOFT GLOBAL SERVICES LTD. AS A COMPARABLE BECAUSE IT HAD A FINANCIAL YEAR ENDING IN SEPTEMBER , 2006 AND NOT 31 ST MARCH, 2007 AS IN THE CASE OF RESPONDENT ASSESSEE. THE SAME YARDSTICK OUGHT TO HAVE COMPARABLE. THE SUBMISSION ON BEHALF OF THE REVENUE THAT THE MANDATE OF RULE 10B OF THE RULES C AN BE IGNORED AS THE DIFFERENCE IS ONLY OF THREE MONTHS IS WITHOUT A NY BASIS. NO SUCH LIBERTY IS GRANTED IN TERMS OF RULE 10B (4) OF THE RULES. (C) THE FINDINGS OF THE TRIBUNAL BEING ON THE BASIS OF THE UNAMBIGUOUS MANDATE OF RULE 10B(4) OF THE RULES, QUESTION (III) AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. T HUS, NOT ENTERTAINED. THUS FROM THE ABOVE IT IS CLEAR THAT HONBLE HIGH C OURT HAS CLEARLY LAID DOWN THAT IN VIEW OF PROVISIONS OF RULES 10B(4) OF INCOME TAX RULES, 1962, THE ACCOUNTING PERIOD OF THE COMPARABLE COMPANY SHO ULD BE SAME WITH THAT OF THE ASSESSEE COMPANY. THERE IS NO NEED TO MENTION THAT THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I S BINDING UPON US. HOWEVER, LD. DR HAS RELIED UPON THE DECISION IN THE CASE OF PANGEA3 & LEGAL DATABASE SYSTEMS PVT LTD (SUPRA) WHEREIN IT I S CLAIMED THAT THE COMPANY HAVING DIFFERENT ACCOUNTING PERIOD CAN BE I NCLUDED IN THE LIST OF COMPARABLES. PERUSAL OF THE SAID DECISION CLARIFIES THAT UNDERSTANDING OF THE LD. DR IS NOT COMPLETE AND CORRECT. IT IS NOTED THAT THE BENCH HAS GIVEN ITS VIEW IN A HIGHLY QUALIFIED AND RESTRICTED MANNE R. IT WAS CLARIFIED THAT A COMPANY CAN BE TAKEN AS PART OF COMPARABLES ONLY WH EN QUARTERLY DATA IS ALSO AVAILABLE. IN THE FACTS OF THE CASE BEFORE US, IT IS NOTED THAT ACCOUNTING PERIOD OF PFIZER LTD. IS ENDING ON 30 TH NOVEMBER. THEREFORE, THERE SHOULD BE AVAILABILITY OF DATA FROM 1 ST DECEMBER, 2008 TO 31 ST MARCH, 2009 AND ALSO FROM 1. 12. 2007 TO 31.3. 2008. THE ADJUSTMENT IS REQUIRED TO BE MADE IN SUCH A MANNER THAT LAST QUARTERS TRANSACTI ONS WOULD BE ADDED AND THE FIRST QUARTERS TRANSACTION WOULD BE REDUCE D. FURTHER, THE DATA 7 M/S TEVAPHARMA INDIA PVT LTD SHOULD BE AVAILABLE ON SEGMENTAL BASIS AND NOT AS A WHOLE. IN OUR CONSIDERED VIEW, THIS KIND OF EXERCISE IS NEITHER F EASIBLE NOR DESIRABLE. IT WILL ADD TO LOT OF CONFUSIONS IN AN AREA WHICH IS O THERWISE ALSO HIGHLY SUBJECTIVE AND VAGUE. THEREFORE, IN OUR CONSIDERED VIEW, THE VIEW ADOPTED BY THE HONBLE HIGH COURT IN THE CASE OF PTC INDIA PVT. LTD. (SUPRA) IS ABSOLUTELY PERFECT AND IS IN ACCORDANCE WITH THE RU LES PRESCRIBED IN THIS REGARD. WE DO NOT FIND ANY NEED OR JUSTIFICATION OR ANY KIND OF DEVIATION IN THIS REGARD. IT MAY OTHERWISE LEAD TO CONFUSIONS AN D CHAOS. FURTHER, WHEN THE HIGHER WISDOM IS AVAILABLE, THEN THE LOWER WISD OM MUST YIELD BEFORE IT. THUS, TAKING INTO ACCOUNT TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE DECISION TAKEN BY THE D RP. THEREFORE, THE SAME IS UPHELD. CELESTIAL LABS LTD.: 11. THIS COMPANY HAS BEEN DIRECTED TO BE EXCLUDED ON TH E GROUND THAT ITS FUNCTIONAL PROFILE IS DIFFERENT. IT IS NOTED THAT T RIBUNAL FOR AYS 2007-08 AND 2008-09 AS HELD UNDER:- 5. CELESTIAL LABS LIMITED (CELESTIAL LABS): ACCORDI NG TO ASSESSEE CELESTIAL LABS AS A COMPARABLE HAS BEEN CH EERY PICKED BY THE TPO. CELESTIAL LABS IS A DIVERSIFIED COMPANY OP ERATING IN VARIED FIELDS SUCH AS RENDERING IT SERVICES ENCOMPASSING A PPLICATION DEVELOPMENT AND MAINTENANCE, PRODUCTION SUPPORT, EE RP, DATA WAREHOUSING, SAP IMPLEMENTATION. CELESTIAL LABS ALS O IS INTO MANUFACTURING AND TRADING OF PRODUCTS SUCH AS ERP P ACKAGE FOR MANUFACTURING AND HAS A PRODUCT 'SANJIVANI' WHICH I S A PORTAL FOR LIVE AYURVEDIC CONSULTATION. THE COMPANY IS ALSO ENGAGED IN THE DISTRIBUTION OF HERBAL AYURVEDIC PRODUCTS. SAP SERVICES: CELESTIAL DELIVERS SAP CONSULTING, SA P IMPLEMENTATION AND POST-SAP IMPLEMENTATION SERVICES FOR ITS CUSTOM ERS. CELESTIAL IS ENGAGED IN IMPLEMENTING SAP FOR CUSTOMERS FROM INIT IAL PLANNING, DESIGN AND IMPLEMENTATION TO MAINTENANCE AND ONGOIN G 8 M/S TEVAPHARMA INDIA PVT LTD OPTIMIZATION. CELESTIAL HELPS THE COMPANY ALIGN IT SOLUTIONS WITH BUSINESS STRATEGIES. CELSANJIVANI PRODUCTS: CELSANJIVANI IS A PART OF CE LESTIAL LABS LTD. AN ISO 9001-2000 COMPANY WORKING IN THIS SPACE OF B IO- INFORMATICS AND GIO-TECHNOLOGY. THE GOAL IS TO BECO ME A PRIMARY MARKET PLACE FOR THE HERBAL PRODUCTS PROVIDING QUAL ITY PRODUCTS TO THE CUSTOMERS AND INDUSTRIAL COMMUNITY. THIS IS AN AYUR VEDIC PORTAL DEDICATED TO B2B&C MARKET WITH ONLINE LIVE CONSULTI NG WITH OUR AYURVEDIC CONSULTANTS. IT PROVIDES EXCELLENT PLATFO RM FOR TRADING OF HERBAL PRODUCTS, WITH IDENTIFICATION OF RAW HERBS, SCIENTIFIC DATA, MARKET & TRADE DATA, MONOGRAPHS, POLICY, LAWS, GOOD MANUFACTURING PRACTICES, DNA FINGER PRINTING ETC. IT FACILITATES CONTACTS WITH SUPPLIERS, MANUFACTURERS AND DEALERS OF HERBAL PHAR MA INDUSTRY. THE ACTIVITIES UNDERTAKEN CELESTIAL LABS ARE IN THE NATURE OF PROVIDING HOST OF IT RELATED SERVICES AND SOME TRADING ACTIVI TY WHICH IS NOT COMPARABLE TO THE ASSESSEE. HENCE IT IS CLEAR THAT IT IS NOT COMPARABLE TO THE FUNCTIONAL PROFILE OF THE COMPANY AND ACCORD INGLY OUGHT NOT TO BE CONSIDERED A COMPARABLE. THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAGE -389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS R EPORT WHICH READS AS FOLLOWS: 'THE COMPANY AS DEVELOPED A DE NOVO DRUG DESIGN TOO L 'CELSUITE' TO DRUG DISCOVERY IN, FINDING THE LEAD MOLECULES FOR D RUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER THE COPY IF RIGHT /PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AN D TECHNOLOGY NEW DELHI) BASED ON OUR IN SILICO EXPERTISE (APPLYING BIO-INFO RMATICS TOOLS). THE COMPANY HAS DEVELOPED A MOLECULE TO TREAT LEUCODERM A AND MULTIPLE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS A ND THE RESPONSE IS VERY FAVOURABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDUR ES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTME NT OF MICROBIOLOGY, 0SMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY H AS SIGNED THE TECHNOLOGY TRANSFER AGREEMENT WITH IMTECH CHANDIGAR H (A VERY 9 M/S TEVAPHARMA INDIA PVT LTD REPUTED CSIR ORGANIZATION) TO MANUFACTURE AND MARKE T INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN IND IA AND OVERSEAS. THE COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY F ACILITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FACILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORIES FOR CARRYING OUT FURTHER R&D ACTIVITIES TO DEVELOP NEW CANDIDATES' DRUG MOLECULES AND LICENSE THEM TO INTERESTED PHARMA AND BIO COMPANIES ACROSS THE GLOB E. THE PROPOSED FACILITY WILL BE SET UP IN GENOME VALLEY A T HYDERABAD IN ANDHRA PRADESH.' ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALS O IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD BE C ONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COU NSEL FOR THE ASSESSEE, THE DISCOVER Y IS IN RELATION TO A SOFTWARE FOR DISCOVERY OF NEW DRUGS. MOREOVER THE COMPANY ALSO IS OWNER OF TH E IPR. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT OF A MOLECULE TO TREAT CANCER USING BIO-INFORMATICS TOOLS FOR WHICH PATENTING PRO CESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSI FIED COMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FU NCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMPT MAD E TO IDENTIFY AND ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MAR GINS SO THAT THE DIFFERENCE IN FUNCTIONAL COMPARABILITY CAN BE E LIMINATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMEN T, THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARA BILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS R EGARD. 12. OUR ATTENTION WAS ALSO DRAWN ON THE ORDER PASSED BY THE TPO WHEREIN IT HAS BEEN MENTIONED THAT FUNCTIONAL PROFILE OF THE A SSESSEE AS WELL AS COMPARABLE COMPANIES ARE SAME AS WAS THERE IN THE EARLIER YEARS. FURTHER, OUR ATTENTION WAS DRAWN ON THE FINANCIAL STATEMENTS OF THE SAID COMPANY WHEREIN IT HAS BEEN MENTIONED IN ITS P & L ACCOUNT THAT IT DERIVES INCOME FROM ITS SALE OF PRODUCTS AND SERVICES. FURTHER, NOTE N O.12 OF NOTES TO ACCOUNTS MENTIONS THAT THE SAID COMPANYS PRIMARY BUSINESS S EGMENT IS SOFTWARE DEVELOPMENT & SERVICES. NO OTHER CONTRADICTORY EVI DENCE IS IN THE POSSESSION OF THE LD. DR TO CONTRADICT THESE FACTS. THEREFORE , WE HAVE NO OPTION BUT TO FOLLOW THE VIEW TAKEN BY THE TRIBUNAL FOR AYS 2007- 08 & 2008-09. THUS, WE FIND 10 M/S TEVAPHARMA INDIA PVT LTD THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE DRP AND, THEREFORE, THE SAME IS UPHELD. THEREFORE, APPEAL FILED BY THE REV ENUE IS HEREBY DISMISSED. 13. NOW WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.22 51/M/2014, FILED ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DEPUTY COMMISSIONER OF INCOME TAX (ASSESSING OFFICE R 'AO')/ ADDITIONAL COMMISSIONER OF INCOME TAX (THE TRANSFER PRICING OFFICER 'TPO') ERRED IN GIVING EFFECT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL ('DRP') BY ERRONEOUSLY INCLUDING C ELESTIAL LABS IN THE FINAL SET OF COMPARABLES THEREBY MAKING A TRANS FER PRICING ADJUSTMENT OF RS.1,88,26,768 TO THE A PP ELLANT'S INTERNATIONAL TRANSACTION OF CONTRACT RESEARCH AND TESTING SERVIC ES; AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, IT BE HELD THAT CELESTIAL LABS IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND THEREFORE THE AO BE DIRECTED TO FOLLOW THE DIRECTIONS OF THE DRP TO EXCLUDE THE SAID COMPARABL E. 3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE DISPUTE RESOLUTION PANEL (DRP) DID NOT GIVE ANY DIR ECTIONS TO THE ASSESSING OFFICER, AFTER HEARING THE APPELLANT'S AU THORISED REPRESENTATIVE (AR) ON THE SPECIFIC GROUND OF OBJEC TION; BEING THE DIRECT TAX GROUNDS. 4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO, DISREGARDED THE CLAIM OF THE APPELLANT OF RS 35,52, 789/- TOWARDS SOFTWARE LICENCE FEES AS REVENUE EXPENDITUR E AND CAPITALISED THE SAME UNDER THE HEAD COMPUTERS AND G RANTED DEPRECIATION THEREON, WHICH RESULTED IN THE ADDITIO N TO THE TOTAL INCOME BY RS 14,16,116/-. 14. IN GROUNDS 1 & 2, THE ASSESSEE HAS REQUESTED FOR IS SUING SUITABLE DIRECTION TO AO FOR FOLLOWING THE DIRECTIONS OF THE DRP. DURING THE COURSE OF HEARING, IT WAS SUBMITTED THAT THE AO HAS NOT FOLLO WED THE DIRECTIONS OF THE DRP FULLY AND, THEREFORE, A DIRECTION SHOULD BE GIV EN TO AO TO STRICTLY FOLLOW THE DIRECTION OF THE AO. NO OBJECTION WAS RAISED BY TH E DR IN THIS REGARD. 11 M/S TEVAPHARMA INDIA PVT LTD THEREFORE, WE DIRECT THE AO TO STRICTLY FOLLOW THE DIRECTIONS ISSUED BY THE DRP. 15. IN GROUNDS 3 & 4, THE ASSESSEE IS AGGRIEVED IN DISR EGARDING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE SOFTWARE LICENCE FE E CLAIMED AS REVENUE EXPENDITURE. IN THIS REGARD IT WAS SUBMITTED THAT THE DRP HAS OMITTED TO ADJUDICATE THIS ISSUE DESPITE THE FACT THAT OBJECTI ON WAS RAISED BY THE ASSESSEE IN THIS REGARD. DURING THE COURSE OF HEARING BOTH THE PARTIES JOINTLY STATED THAT THIS ISSUE SHOULD GO BACK TO THE DRP FOR ITS PROPER ADJUDICATION. 16. IT IS NOTED BY US THAT THOUGH OBJECTION WAS RAISED BY THE ASSESSEE IN THIS REGARD, HOWEVER, DRP HAS NOT ADJUDICATED THIS ISSUE INADVERTENTLY. THEREFORE, WE SEND GROUND 3 & 4 BACK TO THE FILE OF THE DRP FO R ITS ADJUDICATION AFRESH. IT WAS SUBMITTED BY THE LD. COUNSEL THAT IDENTICAL ISS UE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN AY 2008-09. THE ASSESSEE IS PER MITTED TO RAISE ALL THE LEGAL AND FACTUAL ISSUES BEFORE THE DRP AND MAY ALSO SUBM IT THE ORDER OF THE TRIBUNAL BEFORE THE DRP FOR ITS CONSIDERATION. THE DRP SHALL DECIDE THIS ISSUE AFRESH AFTER TAKING INTO ACCOUNT THE ENTIRE MATERIA L AS MAY BE PLACED ON RECORD BY THE ASSESSEE. THESE GROUNDS MAY BE TREATED AS A LLOWED, FOR STATISTICAL PURPOSE. 17. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS TREATE D AS ALLOWED, FOR STATISTICAL PURPOSE. 18. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED A ND THAT OF THE ASSESSEE IS TREATED AS ALLOWED, FOR STATISTICAL PURPOSE. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING IN THE PRESENCE OF REPRESENTATIVES OF BOTH THE PARTIES. 12 M/S TEVAPHARMA INDIA PVT LTD SD/- SD/- (C.N. PRASAD) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 03.05.2017 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , K, BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES