SANDOZ P.LTD, MUMBAI V. ASST CIT RG 8(1)(2), MUMBAI

ITA 2263/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4181 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 30-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A MOHAN CIT DRS
• Assessee Lawyers: HEMANT CHANDARI YA
• Keywords: Gift; Transfer pricing; International transaction; Retrospective amendment; Initiation of penalty proceedings; Set aside
• Section: 271(1)(c); 143(3); 133(6); 37(1); 113; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI , ! . ,$ % BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI G.MANJUNATHA, ACCOUNTANT MEMBER . 2263 / /2017(. . 2012-13 ) ITA NO.2263 /MUM/2017(A.Y.2012-13) . 2264 / /2017(. . 2008-09 ) ITA NO.2264/MUM/2017 (A.Y.2008-09) . 6815 / /2017(. . 2013-14 ) ITA NO.6815 /MUM/2017(A.Y.2013-14) SANDOZ PRIVATE LIMITED, MIDC, PLOT NO.8-A/2,8-B, TTC INDUSTRIAL AREA.KALWA BLOCK, VILLAGE DIGHA, NAVI MUMBAI 400 708 PAN: AAACS9267J ...... - / APPELLANT VS. THE JOINT COMMISSIONER OF INCOME TAX -8(1)(2)/ THE DY. COMMISSIONER OF INCOME TAX -8(1)(2), ROOM NO.615, 6 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 051 ..... ./ / RESPONDENT -0/ APPELLANT BY : S/SHRI RAJAN VORA & HEMANT CHANDARI YA ./ 0/ RESPONDENT BY : S/SHRI ANAND MOHAN & A. MOHAN, CIT - DRS 1/ / DATE OF HEARING : 04/09/2020 234 1/ / DATE OF PRONOUNCEMENT : 10/09/2020 2 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) / ORDER PER VIKAS AWASTHY, JM: THESE THREE APPEALS HAVE BEEN FILED BY THE ASSESS EE. IN ITA NO.2263/MUM/2017 THE ASSESSEE HAS ASSAILED THE ASSE SSMENT ORDER DATED 30/01/2017 PASSED U/S.143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) FOR THE ASSESSMENT YEAR 2012-13. ITA NO.2264/MUM/2017 IS AGAINST THE ASSESSMENT ORDER DATED 30/01/2017 PASSE D U/S. 143(3) R.W.S. 144C(13) OF THE ACT, FOR ASSESSMENT YEAR 2008-09. I TA NO.6815/MUM/2010 IS DIRECTED AGAINST ASSESSMENT ORDER DATED 30/10/2017 PASSED U/S. 143(3) R.W.S. 144C(13) OF THE ACT FOR A.Y. 2013-14. SINCE, THE I SSUES RAISED IN ALL THESE APPEALS ARE COMMON, THESE APPEALS ARE TAKEN UP TOGE THER FOR ADJUDICATION AND ARE DECIDED VIDE THIS COMMON ORDER. THE APPEAL FOR ASSESSMENT YEAR 2012-13 IS TAKEN AS LEAD CASE, HENCE, THE FACTS ARE NARRATE D FROM THE SAID APPEAL. ITA. NO 2263/MUM/2017 A.Y. 2012-13 . FACTS OF THE CASE: 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RE CORDS ARE THAT THE ASSESSEE IS A SUBSIDIARY OF NOVARTIS HOLDING-AG, SW ITZERLAND. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF ACTIVE PHARMACEUTICAL INGREDIENTS (APIS) AND FINISHED DRUGS FORMULATION ( FDFS). THE ASSESSEE IS ALSO ENGAGED IN PROVISION OF CONTRACT DEVELOPMENT SUPPOR T SERVICES AND RELATED RECOVERIES. 2.1. IN THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE I MPORTED 17 APIS FROM ITS ASSOCIATED ENTERPRISES (AES). THE ASSESSEE ADOPTED TRANSACTIONAL NET MARGIN 3 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) METHOD (TNMM) AS MOST APPROPRIATE METHOD TO BENCHMA RK ITS INTERNATIONAL TRANSACTIONS OF IMPORT OF APIS. OUT OF 17 APIS, TH E TRANSFER PRICING OFFICER (TPO) COULD OBTAIN COMPARABLE PRICE IN RESPECT OF O NLY FOUR APIS U/S 133(6) OF THE ACT. THE TPO ACCEPTED THE PRICE ADOPTED BY ASS ESSEE IN RESPECT OF TWO APIS I.E. HYDROXYPROPYL CELLULOSE AND MACROGOL, AS THE ASSESSEES IMPORT PRICE OF THE SAID APIS WAS LOWER THAN THE COMPARABLE PRIC E. IN RESPECT OF THE OTHER TWO APIS I.E. MYCOPHENOLATE MOFETIL AND ACTIVATED C ARBON THE TPO APPLIED CUP TO BENCHMARK THE TRANSACTION AS THE IMPORT PRIC E OF THESE TWO ITEMS WERE HIGHER THAN THE AVERAGE PRICE PER UNIT OF COMPARABL E. THE TPO MADE ADJUSTMENT OF RS.17,97,82,202/- IN RESPECT OF INTER NATIONAL TRANSACTION OF IMPORT OF TWO APIS FROM AES. THUS, OUT OF 17 APIS I MPORTED BY THE ASSESSEE, THE TPO ACCEPTED IMPORT PRICE OF 15 APIS. FURTHER, THE TPO REJECTED ASSESSEES APPROACH OF INTER-LINKING IMPORT AND EXPORT TRANSAC TIONS. THE TPO HELD THAT BOTH THE TRANSACTIONS ARE SEPARATE AND INDEPENDENT AS THEY ARE BETWEEN DIFFERENT ENTITIES. 2.2. THE TPO ALSO MADE TRANSFER PRICING ADJUSTMENT IN RESPECT OF RECOVERIES OF COST OF: - MATERIAL (APIS) TO RENDER CONTRACT DEVELOPMENT SUPP ORT SERVICES; AND - BIOEQUIVALENCE STUDIES. THE CONTENTION OF THE ASSESSE IS THAT THE COST ON A BOVE SERVICES ARE RECOVERED FROM AES ON ACTUAL BASIS. THE TPO HELD THAT THE SER VICES ARE AKIN TO SERVICES PROVIDED BY THE ASSESSE UNDER CONTRACT DEVELOPMENT SUPPORT SERVICES AND ASSESSEES MARGIN FOR THE SAME IS 34.45%. THE TPO A PPLIED SAME MARK-UP ON RECOVERIES AND MADE ADJUSTMENT OF RS.24,89,43,950/- . THUS, TPO VIDE ORDER 4 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) DATED 22/1/2016 MADE ADJUSTMENT OF RS.42,87,26,152/ - ON THE INTERNATIONAL TRANSACTIONS WITH AES BY THE ASSESSEE. 2.3. THE ASSESSING OFFICER WHILE PASSING THE DRAFT ASSESSMENT ORDER MADE DISALLOWANCE OF RS.1,30,04,803/- U/S. 37(1) OF THE ACT IN RESPECT OF PAYMENTS PURPORTEDLY MADE TO THE DOCTORS. AGGRIEVED BY THE ORDER OF TPO AND THE DISALLOWANCE MADE IN THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEF ORE THE DISPUTE RESOLUTION PANEL (DRP). THE OBJECTIONS OF THE ASSESSE ON AFORE MENTIONED ADJUSTMENTS/DISALLOWANCES WERE REJECTED IN TOTO BY THE DRP. THE ASSESSING OFFICER PASSED IMPUGNED ASSESSMENT ORDER MAKING ADD ITIONS IN ACCORDANCE WITH THE DIRECTIONS OF THE DRP. HENCE, THE PRESENT APPEAL BY THE ASSESSEE. SUBMISSIONS ON BEHALF OF THE ASSESSEE: 3. SHRI RAJAN VORA APPEARING ON BEHALF OF THE ASSES SEE SUBMITTED THAT THE ASSESSEE IN APPEAL HAS RAISED 28 GROUNDS. THE GROU ND NO.1 TO 3 ARE GENERAL. IN GROUND OF APPEAL NO. 4 TO 12, THE ASSESSEE HAS ASSA ILED THE ADDITION MADE IN RESPECT OF INTERNATIONAL TRANSACTIONS OF IMPORT OF APIS. THE MAIN GROUNDS CHALLENGING THE ADJUSTMENT ARE GROUND NO.4 AND 9. T HE OTHER GROUNDS I.E. GROUND NO.5 TO 8 AND 10 TO 12 ARE IN SUPPORT OF THE ABOVE SAID TWO MAIN GROUNDS. 3.1. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSES SEE SUBMITTED THAT IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE IMPORTED 17 APIS FROM ITS AES TO BE USED IN MANUFACTURING OF FDFS. THE ASSESSEE EXPORTE D FINAL PRODUCT (FDFS) TO ITS AES. THE IMPORT OF AIPS FROM AES AND EXPORT OF FDFS TO AES IS A COMPOSITE 5 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) TRANSACTION UNDER AN AGREEMENT. THE TPO HAS ERRED I N TREATING IMPORT OF APIS AND EXPORT OF FDFS AS TWO SEPARATE TRANSACTIONS. T HE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE BUSINESS MODEL OF THE ASSESSEE IS AKIN TO THAT OF A CONTRACT MANUFACTURE R. THE ASSESSEE MANUFACTURES THE PRODUCTS AS PER SPECIFICATIONS OF ITS AES BASED ON CONFIRMED ORDER FROM THE AES. THE INPUTS ARE IMPORTED FROM A ES AND THE FINAL PRODUCT IS EXPORTED TO AES. THE ASSESSEE HAS TO MAINTAIN DEFIN ED STANDARD OF QUALITY AND HAS TO USE STANDARDISED RAW MATERIAL FOR MANUFACTUR ING OF FDFS. OWING TO CONTRACT MANUFACTURING ARRANGEMENT BETWEEN ASSESSEE AND ITS AES, THE ASSESSEE RECEIVES REMUNERATION ON COST PLUS BASES. THE COMPENSATION PAYABLE TO THE ASSESSEE AS PER MANUFACTURING AGREEMENT (AT PAGE 376 OF THE PAPER BOOK) DEPENDS ON THE PRICE AT WHICH APIS HAS BEEN I MPORTED BY THE ASSESSEE. THUS, PRICING OF THE ASSESSEES EXPORT IS INTER-LIN KED WITH THE PRICING OF ASSESSEES PURCHASE OF APIS. THE ASSESSEE IS ENTITL ED TO RECOVER ACTUAL COST OF APIS AND OTHER INPUTS USED IN MANUFACTURE OF FDFS. THE ASSESSEE IS COMPENSATED WITH COST + MARK-UP ON MANUFACTURING PR OCESS ONLY. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE POINTED T HAT IT IS AN UNREBUTTED FACT THAT THE ASSESSEE IS EXPORTING FDFS TO ITS AES. TH E ONLY OBJECTION RAISED BY THE TPO IS THAT THE IMPORT OF APIS AND EXPORT OF FDFS A RE TO DIFFERENT ENTITIES. THE TPO HAS FAILED TO APPRECIATE THE TERMS AND CONDITIO NS OF THE MANUFACTURING AGREEMENT WHICH WAS FURNISHED BEFORE HIM. THE LD. A R POINTED THAT AT PAGE 404 TO 406 OF THE PAPER BOOK ARE THE EXTRACTS FROM THE EXCISE REGISTER. THE SAME WOULD SHOW EXPORT/CONSUMPTION DETAILS OF API ( MYCOPHENOLATE MOFETIL) USED IN MANUFACTURING PROCESS. AMPLE DOCUMENTARY EV IDENCE WAS FURNISHED BEFORE THE TPO AND THE DRP TO SUBSTANTIATE THE CONT ENTIONS MADE ON BEHALF OF 6 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) THE ASSESSEE. THE TPO AND THE DRP HAVE FAILED TO AP PRECIATE THE COGENT EVIDENCES PRODUCED BY THE ASSESSEE. 3.2. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSE SSEE SUBMITTED THAT OUT OF 17 APIS IMPORTED BY THE ASSESSEE FROM ITS AES, THE TPO OBJECTED TO THE IMPORT COST OF ONLY TWO AIPS I.E. ACTIVATED CARBON AND MYC OPHENOLATE MOFETIL. THE ASSESSEE ADOPTED TNMM AS MOST APPROPRIATE METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTION. THE TPO REJECTED THE SA ME IN RESPECT OF IMPORT OF ONLY TWO APIS AND APPLIED CUP TO BENCHMARK THE TRAN SACTION OF IMPORT OF ACTIVATED CARBON AND MYCOPHENOLATE MOFETIL. THE LD. AR CONTENDED THAT THE TRIBUNAL IN THE CASE OF UCB INDIA PRIVATE LTD. VS. ASST. CIT REPORTED AS 12 1 ITD 131 (MUM.) HAS HELD THAT THE TPO HAS ERRED IN APPLYING CUP WI THOUT EXAMINING QUALITY, POTENCY AND OTHER PARAMETERS OF PRODUCT PU RCHASED BY THE COMPARABLES AND SET ASIDE THE ADJUSTMENT MADE BY TH E TPO. IN THE PRESENT CASE THE TPO/DRP HAS FAILED TO APPRECIATE THAT THE ASSESSEE IS STRICTLY FOLLOWING WHO-GOOD MANUFACTURING PRACTICE (GMP) IN MANUFACTUR ING ACTIVITY. FURTHER, THERE IS GEOGRAPHICAL DIFFERENCE WITH RESPECT OF PR OCUREMENT OF APIS. THE ASSESSEE IS IMPORTING APIS FROM ITS AES LOCATED IN GERMANY AND SLOVENIA, WHEREAS, THE COMPARABLE SELECTED BY THE TPO PROCURE APIS FROM DOMESTIC MANUFACTURERS. 3.3. THE LD. AR FURTHER CONTENDED THAT THE TPO CANN OT RESORT TO CHERRY PICKING WHEN ALL THE APIS ARE PART OF CLOSELY LINKE D TRANSACTIONS. THE TPO ACCEPTED TNMM IN RESPECT OF OTHER 15 APIS OUT OF 17 . THE LD. AR PLACED RELIANCE ON THE DECISION OF TRIBUNAL IN THE CASE OF AMPHENOL INTERCONNECT INDIA PVT. LTD VS. DCIT IN ITA NO. 1548/PUN/2011 FOR AY 2 007-08 DECIDED ON 7 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) 30/05/2014 TO CONTEND THAT WHERE SUBSTANTIAL PART OF BENCHMAR KING OF INTERNATIONAL TRANSACTION HAS BEEN ACCEPTED BY THE TPO, THE TPO CANNOT CHANGE THE METHOD OF BENCHMARKING REMAINING MINUSCU LE PART OF THE SAME INTERNATIONAL TRANSACTION. 3.4. THE LD. AR CONTENDED THAT THE TPO GATHERED INF ORMATION REGARDING TWO APIS UNDER SECTION 133(6) OF THE ACT TO BENCHMARK T HE TRANSACTION. THE SAID INFORMATION IS NOT AVAILABLE IN PUBLIC DOMAIN. THE LD. AR SUBMITTED THAT THE ADJUSTMENT MADE BY TPO IS WITHOUT PROPER APPRECIATI ON OF FACTS AND JUDICIAL PRECEDENTS. THE ASSESSEE IS ENTITLED TO FULL REIMBU RSEMENT OF THE COST OF APIS, HENCE, THERE IS NO TRANSFER OF PROFITS. THE TPO AND THE DRP HAVE ERRED IN OBSERVING THAT THERE IS NO MENTION OF RECOVERY OF C OST OF APIS IN THE MANUFACTURING AGREEMENT. THE LD. AR POINTED THAT AT THE END OF AGREEMENT THERE IS A TABLE OF COST ELEMENTS TO BE REIMBURSED UNDER THE MANUFACTURING AGREEMENT (PAGE 388 & 389 OF PAPER BOOK). THE TABL E CLEARLY SHOWS THAT COST OF MATERIAL INCLUDING APIS USED AS INPUTS WOULD BE REIMBURSED WITHOUT MARKUP. 3.5. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSE SSEE FURTHER CONTENDED THAT NO DISPUTE WHATSOEVER WAS RAISED BY THE TPO IN RESPECT OF INTERNATIONAL TRANSACTION OF IMPORT OF APIS IN THE ASSESSMENT YEARS 2009-10, 2010-11, 2011-12 AND 2014-15. THE TPO MADE ADJUSTME NT IN RESPECT OF IMPORT OF APIS IN AY 2008-09, 2012-13 AND 2013-14. THE DRP ACCEPTED THE OBJECTIONS OF THE ASSESSEE IN AY 2013-14. THE LD. AUTHORIZED R EPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS BEEN REGUL ARLY IMPORTING APIS FROM AES AND AFTER MANUFACTURING FDFS, HAS BEEN EXPORTIN G THE SAME TO ITS AES. IN 8 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) ALL THE YEARS THE ASSESSEE HAS BEEN CONSISTENTLY AP PLYING TNMM AS THE MOST APPROPRIATE METHOD TO BENCHMARK ITS TRANSACTION. TH E NATURE OF INTERNATIONAL TRANSACTIONS, I.E. IMPORT OF APIS & EXPORT OF FDFS TO AES IS ON SIMILAR LINES IN ALL THE YEARS. 4. THE LD. AR SUBMITTED THAT IN GROUND OF APPEAL NO . 13 TO 17, THE ASSESSE HAS ASSAILED THE ADJUSTMENT MADE BY THE TPO/ DIRECT IONS OF THE DRP IS IN RESPECT OF RECOVERY OF COST OF APIS AND COST OF BIO -EQUIVALENCE STUDIES UNDER THE CONTRACT DEVELOPMENT SERVICES SEGMENT. THE LD. AR POINTED THAT THE COST IS INCURRED IN RESPECT OF THOSE PATENTS THAT ARE LIKEL Y TO EXPIRE. AS PER THE TERMS AND CONDITIONS OF SERVICE AGREEMENT (PAGE 495 TO 51 0 OF THE PAPER BOOK) THE DATA COMPILED BY THE DEVELOPMENT CENTRE IS SENT TO THE AES. THE COST OF THE SERVICES IS BILLED BY THE ASSESSEE ON INTERNAL COST + MARK-UP. THE ASSESSEE ALSO INCURS SOME EXTERNAL COST ON BEHALF OF THE AES, LIK E COST OF PROCUREMENT OF APIS AND BIO-EQUIVALENT STUDIES CONDUCTED BY THIRD PARTI ES. THE EXTERNAL COST ARE CHARGED TO AES ON ACTUAL BASIS. THE TPO HAS ERRED IN HOLDING THAT THE RECOVERIES OF THE ACTUAL COST BY THE ASSESSEE FROM AES ARE IN THE NATURE OF SUNDRY SERVICES RENDERED TO AES. MAJORITY OF THE RE COVERIES ARE ON ACCOUNT OF COST OF MATERIAL TO RENDER CONTRACT DEVELOPMENT SUP PORT SERVICES AND BIO- EQUIVALENCE STUDIES. SUCH TRANSACTIONS ARE SIGNIFI CANT IN THE DEVELOPMENT OF NEW PRODUCTS BY ASSESSEES AE. THE SERVICES RENDERE D BY THE ASSESSEE ARE AKIN TO CONTRACT DEVELOPMENT SUPPORT SERVICES. THE AS SESSEE IS REMUNERATED BY MARK-UP OF 34.45%. SINCE THE NATURE OF TRANSACTION IS SAME, THE TPO APPLIED SAME MARK-UP ON RECOVERIES. THE LD. AR PRAYED FOR D ELETING THE ENTIRE ADJUSTMENT AS THE ASSESSEE IS RECOVERING EXTERNAL C OST WITHOUT ANY MARK-UP. 9 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE M ADE AN ALTERNATIVE PRAYER WITHOUT PREJUDICE TO HIS INITIAL SUBMISSIONS TO DELETE THE ENTIRE ADJUSTMENT. THE LD. AR SUBMITTED THAT IF, THE COST OF APIS AND BIO-EQUIVALENCE STUDIES ARE CONSIDERED AS INTEGRAL PART OF CONTRACT DEVELOPMENT SUPPORT SERVICES SEGMENT I.E. THE AVERAGE COST IS INCLUDED IN SEGMENT REVENUE AND SEGMENT COST, THE REVISED MARGIN (OP/OC) AFTER CONS IDERING COST OF APIS AND BIO-EQUIVALENCE STUDIES WOULD BE 18.03%. THE SAID M ARGIN WOULD MEET ARMS LENGTH TEST IF COMPARED TO AVERAGE MARGIN OF THE CO MPARABLE COMPANIES I.E. 13.08%. THE LD. AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE FURNISHED A TABLE GIVING THE CALCULATIONS: PARTICULARS AS PER TRANSFER PRICING STUDY REVISED MARGI N AFTER CONSIDERING COST OF APIS AND BIO-EQUIVALENCE STUDIES. OPERATING REVENUE (A) 1,03,83,00,256 1,74,15,78,243 OPERATING COST (B) 77,22,59,534 1,47,55,37,522 OPERATING PROFIT (C=A - B) 26,60,40,722 26,60,40,722 OP/OC(D=C/B) 34.45% 18.03% MARGIN OF COMPARABLE COMPA NIES AS PER TRANSFER PRICING STUDY 13.08% THE LD.AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE P OINTED THAT SIMILAR ADJUSTMENT WAS MADE BY THE TPO IN ASSESSMENT YEAR 2 013-14. THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE DRP UPHELD TPO S FINDINGS OF TREATING COST OF AIPS AND BIO-EQUIVALENCE STUDIES AS INTEGRAL PAR T OF CONTRACT DEVELOPMENT SERVICE ACTIVITIES. HOWEVER, THE DRP AFTER CONSIDER ING THE REVISED MARGIN OF OPERATING COST VIS-A-VIS THE MARGIN EARNED BY THE C OMPARABLE COMPANIES CONCLUDED THAT THE COST OF RECOVERIES IS AT ARMS L ENGTH. THE DRP AFTER APPRECIATING ALTERNATE PLEA OF THE ASSESSEE DELETED THE ADJUSTMENT PROPOSED BY THE TPO. 10 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) 5. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSE E SUBMITTED THAT IN GROUND OF APPEAL NO.18 TO 22, THE ASSESSEE HAS ASSA ILED DISALLOWANCE OF RS.1,30,04,803/- MADE UNDER SECTION 37(1) OF THE AC T IN RESPECT OF PAYMENTS ALLEGEDLY MADE TO MEDICAL PRACTITIONERS (DOCTORS). THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE PAYMENTS WERE NEITHER MADE TO MEDICAL PRACTITIONERS, NOR MADE FOR PURCHAS ING GIFTS OR SPONSORING TRAVELLING EXPENSES OF THE DOCTORS, THE EXPENSES WE RE INCURRED TOWARDS CONDUCTING OF SEMINARS. THE LD. AUTHORIZED REPRESEN TATIVE FOR THE ASSESSEE POINTED THAT ASSESSING OFFICER HAS MADE DISALLOWANC E BY REFERRING TO THE CODE OF CONDUCT LAID DOWN BY INDIAN MEDICAL COUNCIL (PRO FESSIONAL CONDUCT ETIQUETTE AND ETHICS)REGULATIONS 2002 ( IN SHORT M CI REGULATIONS) AND CBDT CIRCULAR 5/2012. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ASSERTED THAT THESE REGULATIONS APPLY TO MEDICAL PRACTITIONE RS AND NOT TO PHARMACEUTICAL COMPANIES AND HENCE, THE EXPENDITURE HAS BEEN WRONGLY DISALLOWED IN THE HANDS OF THE ASSESSEE. IN SUPPOR T OF HIS SUBMISSIONS THE LD. AUTHORIZED REPRESENTATIVE PLACED RELIANCE ON FOLLOW INGS DECISIONS: 1. MAX HOSPITALS VS. MEDICAL COUNCIL OF INDIA [WP(C) 1 334/2013(DEL)(HC) 2. DR. ANIL GUPTA VS. ACIT(ITA NO.485/2008) (RAJ) (HC) 3. DCIT VS. PHL PHARMA PRIVATE LTD. (ITA NO.4605/MUM/2 014) (MUM. TRIB.) 4. M/S. SOLVAY PHARMA INDIA LTD. (NOW MERGED WITH ABBO TT INDIA LTD.) VS. PR. CIT (ITA NO.3585/MUM/2016)(MUM. TRIB.) 5. NOVARTIS HEALTHCARE PVT. LTD. VS. ACIT (ITA N.2786 /M/2016) (MUM. TRIB.) 6. ARISTO PHARMACEUTICALS PVT. LTD. VS. ACIT (ITA NO.6 680/MUM/2012, 5553/MUM/2014, 5479/MUM/2015) (MUM. ITAT) 11 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) 6. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESS EE SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS GROUNDS OF APPEAL N O.23 TO 27. SUBMISSION OF DEPARTMENT REPRESENTATIVE: 7. PER CONTRA, SH. ANAND MOHAN, REPRESENTING THE DE PARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ASSESSMENT ORDER AND THE DIRE CTIONS OF THE DRP. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE TPO COULD GATHER COMPARABLE PRICES OF ONLY FOUR APIS OUT OF 17 IMPOR TED BY THE ASSESSEE DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER AP PEAL. THEREFORE, IN THE ABSENCE OF COMPARABLE DATA IN RESPECT OF 13 APIS, T HE TPO ACCEPTED THE DATA FURNISHED BY THE ASSESSEE. OUT OF FOUR APIS FOR WH ICH COMPARABLE PRICES WERE AVAILABLE, THE TPO ACCEPTED THE PRICE IN RESPECT OF TWO APIS AS THE COMPARABLE PRICES WERE HIGHER. IT WAS ONLY IN THE CASE OF 2 A PIS THAT THE TPO FOUND THAT PRICES CHARGED TO THE ASSESSEE WERE HIGHER. HENCE, THE ADJUSTMENT WAS MADE BY THE TPO WHILE DETERMINING ARMS LENGTH PRICE. TH E LD. DEPARTMENTAL REPRESENTATIVE DEFENDED THE ACTION OF TPO IN APPLYI NG CUP AS MOST APPROPRIATE METHOD TO DETERMINE ALP. IN SUPPORT OF HIS CONTENTION THE LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE DECISION OF TRIBUNAL RENDERED IN THE CASE OF SERDIA PHARMACEUTICALS INDIA PVT. LTD. VS. ACIT REP ORTED AS 44 SOT 391(MUM) AND FULFORD (INDIA) LTD. VS. ACI T, 113 TAXMANN.COM 286 . THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITT ED THAT SINCE IMPORT OF API AND EXPORT OF THE FINAL PRODUCT MANUFACTURED BY THE ASSESSEE WERE NOT TO SAME ENTITIES, THEREFORE, THE TPO AND THE DRP WERE JUSTIFIED IN HOLDING THAT BOTH THE TRANSACTIONS ARE DISTINCT AND UNCONNECTED. 12 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) 7.1 AS REGARDS CORPORATE TAX ISSUE OF DISALLOWANCE UNDER SECTION 37(1) OF THE ACT, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT THE ISSUE CAN BE RESTORED TO ASSESSING OFFICER FOR VERIFICATION OF T HE EXPENDITURE. FINDINGS: TRANSFER PRISING ADJUSTMENTS 8. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO EXAMI NED THE DOCUMENTS REFERRED BY THE LD. AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE DURING THE COURSE OF HIS SUBMISSIONS AND THE DECISIONS ON WHIC H RELIANCE HAS BEEN PLACED BY THE RIVAL SIDES. THE GROUND NO. 1 TO 3 OF THE A PPEAL ARE GENERAL IN NATURE AND HENCE, REQUIRE NO ADJUDICATION. IN GROUND NO.4 AND 9 OF THE APPEAL, THE ASSESSEE HAS IMPUGNED ADJUSTMENT IN RELATION TO INTERNATIONAL TRANSACTIONS OF IMPORT OF APIS BY THE ASSESSEE. THE SAID GROUND S ARE REPRODUCED HERE IN BELOW:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED AO/HONBLE DRP/JOINT COMMISSIONER OF INCOME TAX- TRANSFER PRIC ING-4(1) (HEREINAFTER REFERRED TO AS THE LEARNED TPO) ON FACTS AND IN LAW HAVE: 4. ERRED IN MAKING A TRANSFER PRICING ADJUSTMENT OF RS.17,97,82,202 IN RESPECT OF THE INTERNATIONAL TRANSACTION OF IMPORT OF APIS FROM AE NAMELY ACTIVATED CARBON AND MYCOPHENOLATE MOFETIL (HEREINAFTER REFERRED TO AS ' SAID APIS'); 9. ERRED IN MAKING A TRANSFER PRICING ADJUSTMENT O N ACCOUNT OF IMPORT OF APIS FROM AE (WHICH IS USED FOR MANUFACTURE OF FDFS) UND ER CUP METHOD, WITHOUT APPRECIATING THAT THE APPELLANT IS FOLLOWING A COST PLUS MODEL UNDER MANUFACTURING OF FDFS SEGMENT AND THEREBY ANY ADJUSTMENT MADE ON THE COST SIDE WILL HAVE A CORRESPONDING IMPACT ON THE REVENUE SIDE WHICH WILL BE REVENUE NEUTRAL; THE ASSESSEE IS ENGAGED IN MANUFACTURING AND TRADIN G OF APIS AND FDFS. THE ASSESSEE IMPORTS APIS FROM ITS OVERSEAS AES AND AFT ER MANUFACTURING OF DRUGS 13 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) AND FORMULATIONS EXPORT FDFS TO ITS GROUP CONCERNS/ AES. SINCE, THE ASSESSEE IS IMPORTING INPUTS FOR MANUFACTURING OF FDFS FROM IT S AES AND EXPORTING FINAL PRODUCT TO ITS AES ONLY, THE ASSESSEE HAS TREATED T HE ENTIRE TRANSACTION OF IMPORT AND EXPORT AS ONE COMPOSITE TRANSACTION. DUR ING THE COURSE OF SUBMISSIONS, THE LD.AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE HAS REFERRED TO MANUFACTURE AGREEMENT DATED 01/01/2009 BETWEEN SAND OZ GMBH (IN SHORT SANDOZ) AND THE ASSESSEE (AT PAGE 376 OF THE PAPE R BOOK). IT WOULD BE ESSENTIAL TO REFER TO THE RELEVANT CLAUSE OF THE SA ID AGREEMENT TO APPRECIATE THE SCOPE OF AGREEMENT, OBLIGATIONS OF THE ASSESSE AND MANNER OF REMUNERATION. THE EXTRACT OF THE RELEVANT CLAUSES O F THE AGREEMENT ARE REPRODUCED HEREIN BELOW:- ARTICLE 2 SCOPE OF THE AGREEMENT 2.1 THIS AGREEMENT LAYS DOWN THE GENERAL CONDITIO NS APPLICABLE TO THE PRODUCTION AND SUPPLY OF AGREEMENT PRODUCTS BY MAN UFACTURER FOR SANDOZ UNDER A MANUFACTURING ARRANGEMENT, WHICH MAY BE AM ENDED SEPARATELY FROM TIME TO TIME UPON MUTUALLY WRITTEN AGREEMENT O F THE PARTIES. IT IS UNDERSTOOD THAT THIS AGREEMENT SHALL NOT APPLY TO T HE EXTENT THE PARTIES, IN INDIVIDUAL CASES, EXPLICITLY AND IN WRITING DEPART FROM ITS TERMS AFTER THE EFFECTIVE DATE. 2.2 INDIVIDUAL MANUFACTURING WILL BE DEEMED COMPLET ED UPON THE RELEASE TO SANDOZ OF THE RELEVANT QUALITY ASSURANCE STATEMENT OF COMPLIANCE, UNLESS OTHERWISE AGREED IN WRITING. ARTICLE 3 PURCHASE ORDER AND ACCEPTANCE 3.1 SANDOZ OR ITS AFFILIATES SHALL ISSUE WRITTEN PU RCHASE ORDERS DESCRIBING THE SPECIFIC ORDER IN DETAILS. MANUFACTURER SHALL ONLY ACCEPT ORDERS FROM SANDOZ OR ITS AFFILIATES UNDER THIS AGREEMENT IF THEY ARE IN WRITING. ORAL ORDERS (TELEPHONE) SHALL ONLY BE ACCEPTED IN EXCEPTIONAL C ASES (EMERGENCY) FORWARDING THE WRITTEN ORDER WITHOUT DELAY. SANDOZ OR ITS AFFILIATES WILL SPECIFY IN THE PURC HASE ORDER: 14 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) - THE AGREEMENT PRODUCTS ORDERED (INCLUDING SPECIFIC ATION) - VOLUME - DELIVERY SCHEDULE - PACKAGING AND TRANSPORTATION, IF APPLICABLE - THE REFERENCE NUMBER OF THE RESPECTIVE PURCHASE ORD ER. - THE NAME OF THE SANDOZ UNIT/AFFILIATE ISSUING THE P URCHASE ORDER AND THE COUNTRY OF DESTINATION AND PLACE OF DELIVERY. ARTICLE 4 COMMERCIAL TERMS 4.1 THE PRICE FOR THE INDIVIDUAL AGREEMENT PRODUCT SHALL IN GENERAL INCLUDE THE COST FOR THE RESPECTIVE API AND/OR BULK PRODUCT. THE TERMS AGREEMENT PRODUCT AND AFFILIATES AS D EFINED IN ARTICLE 1 OF THE AGREEMENT ARE AS UNDER: AGREEMENT PRODUCT SHALL MEAN ANY API, MEDICAL PRODUCT, BULK PRODUCT , DRUG PRODUCT, AS THE CASE MAY BE, WHICH SANDOZ ORDERS FROM MANUFACTU RER DURING THE TERM OF AGREEMENT; AFFILIATE SHALL MEAN ANY CORPORATION OR OTHER BUSINESS ENT ITY WHICH DIRECTLY OR INDIRECTLY, IS CONTROLLED BY, CONTROLS, OR IS UNDER COMMON CONTROL WITH SANDOZ OR MANUFACTURER AS THE CASE MAY BE. FOR SUCH PURPOSES, CONTROL SHALL MEAN THE DIRECT OR INDIRECT OWNERSHIP OF AT LEAST FIFTY PERCENT (50%) OF THE VOTING INTEREST IN SUCH CORPORATION OR OTHER ENTITY OR THE POWER IN FACT TO CONTROL THE MANAGEMENT DIRECTIONS OF SUCH E NTITY; 8.1. AS PER ARITCLE-2 OF THE AGREEMENT THE ASSESSEE (MANUFACTURER) SHALL MANUFACTURE AND SUPPLY THE AGREEMENT PRODUCTS FOR S ANDOZ ONLY. THE ARTICLE- 3.1 SPECIFIES THAT THE ASSESSEE SHALL ACCEPT MANUFA CTURING ORDERS ONLY FROM THE SANDOZ OR FROM ITS AFFILIATES UNDER THE AGREEMENT. THUS, A BARE PERUSAL OF THE ABOVE MENTIONED CLAUSES OF THE AGREEMENT SHOWS THAT THE AGREEMENT BINDS THE ASSESSEE TO CARRY OUT MANUFACTURING PROCESS FOR SANDOZ AND ITS AFFILIATES (AES). ARTICLE 4 OF THE AGREEMENT SPECIFIES THAT T HE COST OF MANUFACTURED PRODUCT INCLUDES COST OF API/BULK PRODUCT. ALONG WI TH THE AGREEMENT THERE IS SCHEDULE THAT SPECIFIES COST ELEMENT TO BE REIMBURS ED TO THE ASSESSEE. A PERUSAL OF THE CHART SHOWS THAT THE ASSESSEE WOULD BE ENTITLED FOR 15 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) REIMBURSEMENT OF MATERIAL COST INCLUDING APIS, BULK PRODUCT AND PARTIALLY PACKED DRUG PRODUCTS WITHOUT MARK-UP. THE ASSESSEE SHALL BE REMUNERATED WITH MARK-UP OF 15% ON PROCESSING COST AND TRANSPOR TATION, WAREHOUSING AND CUSTOMER SERVICES COST. THE REVENUE HAS NOT DISPUTE D THE FACT THAT THE ASSESSEE HAS IMPORTED INPUTS (APIS) FOR MANUFACTURI NG OF FDFS FROM ITS AES AND HAS EXPORTED THE FINAL PRODUCTS TO ITS AES, ALBEIT TO AES OTHER THAN THE SUPPLIERS OF APIS. THE ONLY OBJECTION RAISED BY TH E TPO IS THAT THE IMPORT OF RAW MATERIAL AND THE EXPORT OF FINISHED GOODS ARE T O DIFFERENT ENTITIES. HOWEVER, THE TPO HAS FAILED TO APPRECIATE THE FACT THAT THE INTERNATIONAL TRANSACTIONS OF IMPORTING APIS AND EXPORT OF FDFS A RE WITHIN GROUP COMPANIES. THE MANUFACTURING AGREEMENT IN AN UNAMBIGUOUS MANNE R HAS RESTRICTED THE ASSESSEE TO MANUFACTURE FOR SANDOZ AND ITS AFFILIAT ES. SINCE THE IMPORT AND EXPORT TRANSACTIONS ARE WITHIN THE GROUP CONCERNS A ND MANUFACTURING IS CARRIED OUT IN ACCORDANCE WITH THE ORDERS RECEIVED FROM AES , WE HAVE NO HESITATION IN HOLDING THAT THERE IS LIVE LINK OF THE IMPORT AND E XPORT TRANSACTIONS. 9. AS WE HAVE OBSERVED EARLIER THAT ALONG WITH THE MANUFACTURING AGREEMENT IS A SCHEDULE SPECIFYING THE COST ELEMENT S TO BE REIMBURSED. ARTICLE 4.1 READ WITH THE SCHEDULE MAKES IT EXPLICITLY CLEA R THAT THE COST OF FDFS SHALL INCLUDE COST OF APIS AND THE COST OF ALL INPUTS INC LUDING APIS WOULD BE REIMBURSED WITHOUT ANY MARK UP. IT IS ONLY THE MANU FACTURE/PROCESSING COST ON WHICH THE ASSESSEE WOULD BE REMUNERATED WITH MARK-U P OF 15%. SINCE, THE ASSESSEE WOULD BE REIMBURSED ENTIRE COST OF APIS US ED IN MANUFACTURING OF FDFS, THERE IS NO ELEMENT OF TRANSFER OF ANY PROFIT S TO OVERSEAS AES. WHATEVER COST THE ASSEESEE IS PAYING TO ITS AE FOR IMPORT OF API, THE SAME IS ADDED TO THE 16 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) STANDARD COST OF INPUTS USED FOR MANUFACTURING FDFS AND IS RECOVERED BY EXPORTING FDFS TO AES. 10. THE ASSESSEE HAS IMPORTED 17 APIS FROM ITS AES AND APPLIED TMNN TO DETERMINE ARMS LENGTH PRICE OF THE IMPORT TRANSACT IONS. THE TPO ACCEPTED TNMM IN RESPECT OF 15 APIS AND APPLIED CUP TO BENCH MARK ARMS LENGTH PRICE OF ONLY 2 APIS. IT IS UNDISPUTED THAT THE ASSESSEE DOES NOT HAVE UNFETTERED CHOICE TO SELECT MOST APPROPRIATE METHOD TO BENCHMA RK INTERNATIONAL TRANSACTIONS. THE METHOD TO BENCHMARK ARMS LENGTH PRICE HAS TO BE SELECTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND RU LES FRAMED THEREUNDER. HOWEVER, TPO HAVING ACCEPTED THE METHOD APPLIED BY ASSESSEE TO BENCHMARK SUBSTANTIAL PART OF THE INTERNATIONAL TRANSACTION O F IMPORTING APIS, CANNOT QUESTION THE METHOD OF BENCHMARKING TRIVIAL PART OF SAME TRANSACTION. OUR VIEW IS SUPPORTED BY THE DECISION RENDERED IN THE C ASE OF AMPHENOL INTERCONNECT INDIA PVT. LTD. (SUPRA.). 11. THE REVENUE HAS PLACED HEAVY RELIANCE ON THE DE CISION OF SERDIA PHARMACEUTICALS (INDIA) PVT. LTD. (SUPRA) FOR APPLYING CUP TO BENCHMARK THE TRANSACTION OF IMPORT OF TWO APIS I.E. MYCOPHENOLAT E MOFETIL AND ACTIVATED CARBON. THE AFORESAID DECISION OF THE TRIBUNAL IS D ISTINGUISHABLE ON FACTS AND HENCE, DOES NOT ADVANCE THE CAUSE OF REVENUE. IN TH E SAID CASE THE APIS WERE IMPORTED BY THE ASSESSEE (THEREIN) FROM ITS AES AND USED THE SAME FOR MANUFACTURING FDF. THE FDF WAS PRODUCED AND MARKETE D BY THE ASSESSEE FOR CONSUMPTION OF END USERS. FURTHER, THE APIS IMPORTE D BY THE ASSESSEE HAD COMPARABLES. THE ASSESSEE ADOPTED TNMM TO BENCHMARK THE TRANSACTION OF IMPORT OF APIS. ON THE BASIS OF INPUTS FROM ASSESSE E, THE TPO COLLECTED 17 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) INFORMATION ON THE COST OF APIS AND FOUND THAT THE COMPARABLE PRICES OF APIS WERE FAR LOWER. THE TPO REJECTED TNMM AND APPLIED C UP AS THE MOST APPROPRIATE METHOD TO BENCHMARK THE ARMS LENGTH PR ICE OF APIS AND MADE ADJUSTMENT. THE CIT(A) UPHELD THE ADJUSTMENT. THE T RIBUNAL AFTER EXAMINING THE FACTS IN THE SAID CASE CONFIRMED THE ORDER OF C IT(A) IN UPHOLDING DETERMINING ARMS LENGTH PRICE OF APIS BY ADOPTING CUP AS THE MOST APPROPRIATE METHOD. THE TRIBUNAL WHILE UPHOLDING SE LECTION OF CUP FOR BENCHMARKING TRANSACTION OF IMPORT OF APIS OBSERVED : 76. IN VIEW OF THE ABOVE DISCUSSION, IN OUR CONSID ERED VIEW, AS LONG AS APPROPRIATE COMPARABLES CAN BE FOUND, CUP METHOD WILL INDEED BE THE MOST APPROPRIATE METHOD IN RESPECT OF GENERIC DRUG, EVEN WHEN SUCH A GENERI C DRUG IS MANUFACTURED BY ITS ORIGINAL PATENT HOLDER. SIMILAR VIEW HAS BEEN EXPRESSED BY THE TRIBUNAL IN THE CASE OF FULFORD (INDIA) LTD. (SUPRA) . IN THE INSTANT CASE THE DISTINGUISHABLE FACTS ARE: THE ASSESSEE HAS IMPORTED APIS FROM ITS AES FOR MANUFACTURING FDFS A ND HAS EXPORTED FDFS TO ITS AES UNDER MANUFACTURING ARRANGEMENT. THUS, THE ENTIRE INTERNATIONAL TRANSACTIONS OF IMPORT AND EXPORT IS WITHIN THE CLO SED LOOP OF AES. THE ASSESSEE HAS IMPORTED 17 APIS. THE TPO ACCEPTED TNM M ADOPTED BY THE ASSESSEE IN RESPECT OF 15 APIS AND APPLIED CUP IN R ESPECT OF ONLY TWO APIS. THE TPO FAILED TO FIND APPROPRIATE COMPARABLES FOR CLOS ELY LINKED TRANSACTIONS. HENCE, IN THE PECULIAR FACTS OF THE PRESENT CASE CU P CANNOT BE ADOPTED TO BENCHMARK THE INTERNATIONAL TRANSACTION OF IMPORT O F APIS. 18 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) 12. OSTENSIBLY, THE ASSESSEE HAS BEEN CONSISTENTLY BENCHMARKING ITS INTERNATIONAL TRANSACTIONS OF IMPORT OF APIS BY ADO PTING TNMM AS THE MOST APPROPRIATE METHOD. THE LD. AUTHORISED REPRESENTATI VE OF THE ASSESSEE HAS POINTED THAT TPO HAS ACCEPTED THE ASSESSEES METHOD OF BENCHMARKING IN AY 2009-10, 2010-11, 2011-12 AND AY 2014-15. THE TPO H AS OBJECTED TO APPLYING TNMM IN AY 2008-09, 2012-13 AND 2013-14. ALTHOUGH I N ALL THE YEARS THE NATURE OF INTERNATIONAL TRANSACTIONS AND THE PRODUC T IMPORTED FROM AES WERE SAME. IN AY 2013-14 THE OBJECTIONS OF THE ASSESSEE AGAINST THE ADJUSTMENT WERE ACCEPTED BY THE DRP AND THE ADJUSTMENT WAS DEL ETED. THE REVENUE ACCEPTED THE SAME AS NO APPEAL AGAINST THE FINDINGS OF THE DRP HAS BEEN FILED BY THE DEPARTMENT. THESE FACTS HAVE NOT BEEN REFUT ED BY THE REVENUE. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO DISTINGUISH THE FACTS IN THE IMPUGNED ASSESSMENT YEAR. 13. BE THAT AS IT MAY, ONCE THE TPO HAS ACCEPTED TH E COST OF INPUTS DETERMINED BY THE ASSESSEE BY APPLYING TNMM AS THE MOST APPROPRIATE METHOD IN SUBSTANTIAL PART OF INTERNATIONAL TRANSAC TION, THE TPO HAS NO DISCRETION OF CHERRY PICKING TWO APIS AND APPLY CUP TO BENCHMARK TRANSACTION. WE FURTHER OBSERVE THAT WHATEVER BE THE COST OF INP UTS (APIS), THE ASSESSEE WOULD BE GETTING REIMBURSEMENT OF THE COST (WITHOUT MARGIN) AFTER PROCESSING OF THE SAME INTO FDF. THE INTERNATIONAL TRANSACTION S OF IMPORT OF APIS AND EXPORT OF FDFS ARE WITHIN THE CLOSE LOOP OF GROUP C ONCERNS AND HENCE, INTERLINKED. THE FINDINGS OF THE TPO AND THE DIRECT IONS OF THE DRP ARE REVERSED AND THE ADJUSTMENT MADE ON THE IMPORT COST OF APIS IS DELETED. THE ASSESSEE SUCCEEDS ON GROUND NO.4 AND 9 OF THE APPEAL. 19 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) 14. THE GROUNDS NO.5 TO 8 AND 10 TO 12 OF THE APPEA L ARE IN SUPPORT OF THE MAIN GROUNDS I.E. GROUND NO. 4 AND 9, RAISED BY THE ASSESSEE ASSAILING ADJUSTMENT OF INTERNATIONAL TRANSACTION OF IMPORT O F APIS. SINCE THE ASSESSEE SUCCEEDS ON MAIN GROUNDS, THE SUPPORTING GROUNDS HA VE BECOME ACADEMIC, HENCE, ARE NOT DELIBERATED UPON. 15. THE NEXT TRANSFER PRISING ISSUE RAISED IN THE A PPEAL BY ASSESSE IS AGAINST ADJUSTMENT OF RS.24,89,43,950/- ON RECOVERIES OF CO ST OF APIS AND COST OF BIO- EQUIVALENCE STUDIES UNDER CONTRACT DEVELOPMENT SERV ICE AGREEMENT. THE GROUNDS OF APPEAL ON THE ISSUE ARE AS UNDER: ADJUSTMENT OF 24,89,43,950 OF INTERNATIONAL TRANSA CTIONS WITH AES WITH RESPECT TO RECOVERY OF COST OF APIS & COST OF BIOEQUIVALENC E STUDIES IN CONTRACT DEVELOPMENT SERVICES SEGMENT 13. ERRED IN MAKING A TRANSFER PRICING ADJUSTMENT O F RS.24,89,43,950 OF INTERNATIONAL TRANSACTIONS WITH AES WITH RESPECT TO RECOVERY OF COST OF APIS & COST OF BIOEQUIVALENCE STUDIES IN CONTRACT DEVELOPMENT SERV ICES SEGMENT; 14. ERRED IN NOT APPRECIATING THAT THE INTERNATIONA L TRANSACTION OF CONTRACT DEVELOPMENT SUPPORT SERVICE PROVIDED TO AES SHOULD EXCLUDE THE RECOVERY OF COST OF APIS AND BIOEQUIVALENCE STUDIES WHICH ARE PASS THRO UGH COSTS AND ENTIRE COST ON THESE EXPENSES ARE RECOVERED FROM AES ON A COST TO COST BASIS WHICH MEETS THE ARM'S LENGTH TEST; 15. ERRED IN APPLYING A MARK-UP EARNED BY THE APPEL LANT ITSELF IN ITS CONTRACT DEVELOPMENT SUPPORT SERVICES SEGMENT I.E. 34.45% ON RECOVERY TRANSACTION OF COST OF APIS AND COST OF BIO-EQUIVALENCE STUDIES WHICH IS A RISING OUT OF A CONTROLLED TRANSACTION AND IS CONTRARY TO THE ARM'S LENGTH PRI NCIPLES; 16. WITHOUT PREJUDICE TO THE ABOVE , ERRED IN NOT CONSIDERING THAT EVEN IF THE RECOVERY COST OF APIS AND COST OF BIO-EQUIVALENCE S TUDIES ARE CONSIDERED AS AN INTEGRAL PART OF CONTRACT DEVELOPMENT SUPPORT ACTIV ITY OF THE APPELLANT (I.E THE AFORESAID COST IS INCLUDED IN THE SEGMENT REVENUE A ND SEGMENT COST), THE REVISED MARGIN OF 18.03% ON OPERATING COST WOULD STILL MEET THE ARM'S LENGTH TEST AS COMPARED TO COMPARABLE COMPANIES (I.E. 13.08% ON OP ERATING COST); 20 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) 17. WITHOUT PREJUDICE TO THE ABOVE , ERRED IN MAKING ADJUSTMENT ON TOTAL RECOVERY OF EXPENSES FROM AES AMOUNTING TO RS. 72,26,23,949 AS AGAINST RS. 70,32,77,988 BEING RECOVERY FROM AES IN RELATION TO COST OF APIS AND COST OF BIO-EQUIVALENCE STUDIES AS PER FORM 3CEB; 16. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESS EE HAS REFERRED TO SERVICE AGREEMENT AT PAGE 495 OF THE PAPER BOOK. A PERUSAL OF THE SAID AGREEMENT REVEALS THAT AS PER ARTICLE-3 OF THE AGREEMENT, THE ASSESSEE (SERVICE PROVIDER) SHALL INVOICE ON MONTHLY BASIS THE SERVICE CHARGES FOR SERVICES RENDERED AND THE ASSESSEE SHALL BE ENTITLED TO MARK-UP OF 10% ON INTERNAL SERVICES COST ONLY. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE H AS FAIRLY ADMITTED THAT IN ASSESSMENT YEAR 2013-14, THE DRP HAS HELD T HAT THE COST OF APIS AND COST OF BIO-EQUIVALENCE STUDIES ARE INTEGRAL PART O F CONTRACT DEVELOPMENT SERVICES SUPPORT ACTIVITY. HOWEVER, THE DRP DELETED THE ADDITION ON THE GROUND THAT THE REVISED MARGIN OF THE ASSESSE AFTER INCLUDING THE RECOVERY COST OF API AND BIO-EQUIVALENCE STUDIES ARE AT ARMS LEN GTH. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE STATED AT THE BAR TH AT THE ISSUE CAN BE DISPOSED OF IN THE SIMILAR MANNER. THE ASSESSEE HAS FILED A CHART GIVING THE REVISED MARGIN AFTER INCLUDING COST OF APIS AND BIO-EQUIVAL ENCE STUDIES. THE REVISED MARGIN OF THE ASSESSEE IS 18.03% AS AGAINST MARGIN OF COMPARABLE COMPANIES AT 13.08%. SINCE THE MARGIN IS WITHIN TOLERANCE LI MIT, THEREFORE, NO ADJUSTMENT IS REQUIRED. THE ALTERNATIVE CONTENTION OF THE ASSE SSEE RAISED IN GROUND NO.16 OF THE APPEAL IS ACCEPTED. IN THE RESULT, GROUND NO .13 TO 15 AND 17 ARE DISMISSED AND GROUND NO.16 IS ALLOWED. 21 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) CORPORATE TAX ISSUE : 17. IN GROUND NO.18 TO 22 OF THE APPEAL, THE ASSESS EE HAS ASSAILED DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS.1,03,04 ,803/- INCURRED BY THE ASSESSEE ON HEALTH CARE PROFESSIONALS(DOCTORS). THE ASSESSING OFFICER HAS MADE DISALLOWANCE BY PLACING RELIANCE ON MCI REGULATIONS AND CBDT CIRCULAR (SUPRA). THE CONTENTIONS OF THE ASSESSEE IS THAT THE EXPENDI TURE HAS BEEN INCURRED FOR CONDUCTING SEMINARS AND NOT ON GIFTS AND PERSONAL T RAVELLING EXPENSES OF DOCTORS. WE FIND THAT THIS ISSUE HAS BEEN CONSIDERE D BY THE TRIBUNAL IN CATENA OF APPEALS AND HAS HELD THAT MCI REGULATIONS DOES N OT APPLY ON PHARMACEUTICAL COMPANIES. THUS, ANY EXPENDITURE INC URRED BY PHARMACEUTICAL COMPANY ON MEDICAL PROFESSIONALS IS OUTSIDE THE SCO PE OF MCI GUIDELINES. FOR THE SAKE OF COMPLETENESS RELEVANT EXTRACT OF THE DE CISION RENDERED IN THE CASE OF M/S SOLVAY PHARMA INDIA LTD. IS REPRODUCED HEREI N BELOW:- 21. CBDT CIRCULAR NO. 5 OF 2012 SEEKS TO DISALLOW EXPENDITURE INCURRED BY PHARMACEUTICAL COMPANIES INTER-ALIA IN PROVIDING 'FREEBIES' TO DOC TORS IN VIOLATION OF THE MCI REGULATIONS. THE TERM 'FREEBIES' HAS NEITHER BEEN DEFINED IN THE INC OME-TAX ACT NOR IN THE MCI REGULATIONS'. HOWEVER, THE EXPENDITURE SO INCURRED BY ASSESSEE DO ES NOT AMOUNT TO PROVISION OF 'FREEBIES' TO MEDICAL PRACTITIONERS. THE EXPENDITURE INCURRED BY IT IS IN THE NORMAL COURSE OF ITS BUSINESS FOR THE PURPOSE OF MARKETING OF ITS PRODUCTS AND DI SSEMINATION OF KNOWLEDGE ETC AND NOT WITH A VIEW TO GIVING SOMETHING FREE OF CHARGE TO T HE DOCTORS. THE ACT OF GIVING SOMETHING FREE OF CHARGE IS INCIDENTAL TO THE MAIN OBJECTIVE OF PRODUCT AWARENESS. ACCORDINGLY, IT DOES NOT AMOUNT TO PROVISION OF FREEBIES. CONSEQUENTLY, THERE IS NO QUESTION OF CONTRAVENTION OF THE MCI REGULATIONS AND APPLICABILITY OF CIRCULAR N O. 5 OF 2012 FOR DISALLOWANCE OF THE EXPENDITURE. 22. THE DEPARTMENT HAS NOT BROUGHT ANYTHING ON RECO RD TO SHOW THAT THE AFORESAID REGULATION ISSUED BY MEDICAL COUNCIL OF INDIA IS ME ANT FOR PHARMACEUTICAL COMPANIES IN ANY MANNER. ON THE CONTRARY, THE ASSESSEE HAS BROUGHT T O THE NOTICE OF THE BENCH THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF MAX HOSPITAL V. MCI IN [WPC 1334 OF 2013, DATED 10- 1- 2014], WHEREIN THE MEDICAL COUNCIL OF INDIA ADMITTE D THAT THE INDIAN MEDICAL COUNCIL REGULATION OF 2002 HAS JURISDICTION TO TAKE ACTION ONLY AGAINST THE MEDICAL PRACTITIONERS AND NOT TO HEALTH SECTOR INDUSTRY. FROM THE AFORESAID D ECISION, IT IS OSTENSIBLY CLEAR THAT THE MEDICAL COUNCIL OF INDIA HAS NO JURISDICTION TO PAS S ANY ORDER OR REGULATION AGAINST ANY HOSPITAL OR ANY HEALTH CARE SECTOR UNDER ITS 2002 R EGULATION. SO ONCE THE INDIAN MEDICAL 22 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) COUNCIL REGULATION DOES NOT HAVE ANY JURISDICTION N OR HAS ANY AUTHORITY UNDER LAW UPON THE PHARMACEUTICAL COMPANY OR ANY ALLIED HEALTH SECTOR INDUSTRY, THEN SUCH A REGULATION CANNOT HAVE ANY PROHIBITORY EFFECT ON THE PHARMACEUTICAL C OMPANY LIKE THE ASSESSEE. IF MEDICAL COUNCIL REGULATION DOES NOT HAVE ANY JURISDICTION U PON PHARMACEUTICAL COMPANIES AND IT IS INAPPLICABLE UPON PHARMA COMPANIES LIKE ASSESSEE TH EN, WHERE IS THE VIOLATION OF ANY OF LAW/REGULATION? UNDER WHICH PROVISION THERE IS ANY OFFENCE OR VIOLATION IN INCURRING OF SUCH KIND OF EXPENDITURE. 23. NOW COMING TO THE EXPLANATION TO SECTION 37(1) INVOKED BY THE CIT, THE EXPLANATION PROVIDES AN EMBARGO UPON ALLOWING ANY EXPENDITURE I NCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. THIS MEANS THAT THERE SHOULD BE AN OFFENCE BY AN ASSESSEE WHO IS CLAIMING THE EXPENDIT URE OR THERE IS ANY KIND OF PROHIBITION BY LAW WHICH IS APPLICABLE TO THE ASSESSEE. HERE IN TH IS CASE, NO SUCH OFFENCE OF LAW HAS BEEN BROUGHT ON RECORD, WHICH PROHIBITS THE PHARMACEUTIC AL COMPANY NOT TO INCUR ANY DEVELOPMENT OR SALES PROMOTION EXPENSES. A LAW WHIC H IS APPLICABLE TO DIFFERENT CLASS OF PERSONS OR PARTICULAR CATEGORY OF ASSESSEE, SAME CA NNOT BE MADE APPLICABLE TO ALL. THE REGULATION OF 2002 ISSUED BY THE MEDICAL COUNCIL OF INDIA (SUPRA), PROVIDES LIMITATION/CURB/PROHIBITION FOR MEDICAL PRACTITIONE RS ONLY AND NOT FOR PHARMACEUTICAL COMPANIES. HERE THE MAXIM OF 'EXPRESSIO UNIUS EST E XCLUSIO ALTERIUS' IS CLEARLY APPLICABLE, THAT IS, IF A PARTICULAR EXPRESSION IN THE STATUTE IS EXPRESSLY STATED FOR PARTICULAR CLASS OF ASSESSEE THEN BY IMPLICATION WHAT HAS NOT BEEN STAT ED OR EXPRESSED IN THE STATUTE HAS TO BE EXCLUDED FOR OTHER CLASS OF ASSESSEE. IF THE MEDICA L COUNCIL REGULATION IS APPLICABLE TO MEDICAL PRACTITIONERS THEN IT CANNOT BE MADE APPLICABLE TO PHARMA OR ALLIED HEALTH CARE COMPANIES. IF SECTION 37(1) IS APPLICABLE TO AN ASSESSEE CLAIMING THE EXPENSE THEN BY IMPLICATION, ANY IMPAIRMENT CAUSED BY EXPLANATION 1 WILL APPLY TO TH AT ASSESSEE ONLY. ANY IMPAIRMENT OR PROHIBITION BY ANY LAW/REGULATION ON A DIFFERENT CL ASS OF PERSON/ASSESSEE WILL NOT IMPINGE UPON THE ASSESSEE CLAIMING THE EXPENDITURE UNDER TH IS SECTION. 24. WE OBSERVE THAT THE CBDT CIRCULAR DATED 1-8-201 2 (SUPRA) IN ITS CLARIFICATION HAS ENLARGED THE SCOPE AND APPLICABILITY OF 'INDIAN MEDICAL COUN CIL REGULATION 2002' BY MAKING IT APPLICABLE TO THE PHARMACEUTICAL COMPANIES OR ALLIE D HEALTH CARE SECTOR INDUSTRIES. SUCH AN ENLARGEMENT OF SCOPE OF MCI REGULATION TO THE PHARM ACEUTICAL COMPANIES BY THE CBDT IS WITHOUT ANY ENABLING PROVISIONS EITHER UNDER THE PR OVISIONS OF INCOME TAX LAW OR BY ANY PROVISIONS UNDER THE INDIAN MEDICAL COUNCIL REGULAT IONS. THE CBDT CANNOT PROVIDE CASUS OMISSUS TO A STATUTE OR NOTIFICATION OR ANY REGULAT ION WHICH HAS NOT BEEN EXPRESSLY PROVIDED THEREIN. THE CBDT CAN TONE DOWN THE RIGOURS OF LAW AND ENSURE A FAIR ENFORCEMENT OF THE PROVISIONS BY ISSUING CIRCULARS AND BY CLARIFYING T HE STATUTORY PROVISIONS. CBDT CIRCULARS ACT LIKE 'CONTEMPORANEA EXPOSITIO' IN INTERPRETING THE STATUTORY PROVISIONS AND TO ASCERTAIN THE TRUE MEANING ENUNCIATED AT THE TIME WHEN STATUTE WA S ENACTED. HOWEVER THE CBDT IN ITS POWER CANNOT CREATE A NEW IMPAIRMENT ADVERSE TO AN ASSESSEE OR TO A CLASS OF ASSESSEE WITHOUT ANY SANCTION OF LAW. THE CIRCULAR ISSUED BY THE CBDT MUST CONFIRM TO TAX LAWS AND FOR PURPOSE OF GIVING ADMINISTRATIVE RELIEF OR FOR CLAR IFYING THE PROVISIONS OF LAW AND CANNOT IMPOSE A BURDEN ON THE ASSESSEE, LEAVE ALONE CREATI NG A NEW BURDEN BY ENLARGING THE SCOPE 23 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) OF A DIFFERENT REGULATION ISSUED UNDER A DIFFERENT ACT SO AS TO IMPOSE ANY KIND OF HARDSHIP OR LIABILITY TO THE ASSESSEE. IN ANY CASE, IT IS TRITE LAW THAT THE CBDT CIRCULAR WHICH CREATES A BURDEN OR LIABILITY OR IMPOSES A NEW KIND OF IMPARI TY, SAME CANNOT BE RECKONED RETROSPECTIVELY. THE BENEFICIAL CIRCULAR MAY APPLY RETROSPECTIVELY BUT A CIRCULAR IMPOSING A BURDEN HAS TO BE APPLIED PROSPECTIVELY ONLY. HERE I N THIS CASE THE CBDT HAS ENLARGED THE SCOPE OF 'INDIAN MEDICAL COUNCIL REGULATION, 2002' AND MADE IT APPLICABLE FOR THE PHARMACEUTICAL COMPANIES. THEREFORE, SUCH A CBDT CI RCULAR CANNOT BE RECKONED TO HAVE RETROSPECTIVE EFFECT. THE FREE SAMPLE OF MEDICINE I S ONLY TO PROVE THE EFFICACY AND TO ESTABLISH THE TRUST OF THE DOCTORS ON THE QUALITY OF THE DRUG S. THIS AGAIN CANNOT BE RECKONED AS FREEBIES GIVEN TO THE DOCTORS BUT FOR PROMOTION OF ITS PRODU CTS. THE PHARMACEUTICAL COMPANY, WHICH IS ENGAGED IN MANUFACTURING AND MARKETING OF PHARMACEU TICAL PRODUCTS, CAN PROMOTE ITS SALE AND BRAND ONLY BY ARRANGING SEMINARS, CONFERENCES A ND THEREBY CREATING AWARENESS AMONGST DOCTORS ABOUT THE NEW RESEARCH IN THE MEDICAL FIELD AND THERAPEUTIC AREAS, ETC. EVERY DAY THERE ARE NEW DEVELOPMENTS TAKING PLACE AROUND THE WORLD IN THE AREA OF MEDICINE AND THERAPEUTIC, HENCE IN ORDER TO PROVIDE CORRECT DIAG NOSIS AND TREATMENT OF THE PATIENTS, IT IS IMPERATIVE THAT THE DOCTORS SHOULD KEEP THEMSELVES UPDATED WITH THE LATEST DEVELOPMENTS IN THE MEDICINE AND THE MAIN OBJECT OF SUCH CONFERENCE S AND SEMINARS IS TO UPDATE THE DOCTORS OF THE LATEST DEVELOPMENTS, WHICH IS BENEFICIAL TO THE DOCTORS IN TREATING THE PATIENTS AS WELL AS THE PHARMACEUTICAL COMPANIES. 25. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE ORDER PASSED U/S.263. 26. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. THUS, WE FIND MERIT IN THE GROUNDS NO. 18 TO 22 RAI SED BY THE ASSESSEE. HOWEVER, WE OBSERVE THAT THE AO WHILE DEALING WITH THIS ISSUE HAS OUT-RIGHTLY DISALLOWED THE AMOUNT CLAIMED BY THE ASSESSEE. WE D EEM IT APPROPRIATE TO RESTORE THIS ISSUE TO THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFICATION OF THE EXPENDITURE AND ALLOW THE SAME IN ACCORDANCE WITH OUR ABOVE FINDING. THE GROUNDS NO.18 TO 22 ARE ALLOWED FOR STATISTICAL PURPOSE, IN THE ABOVE TERMS. 18. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSE E HAS STATED AT THE BAR THAT HE IS NOT PRESSING GROUNDS NO.23 TO 27 OF THE APPEAL. THESE GROUNDS OF APPEAL ARE DISMISSED, ACCORDINGLY. 24 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) 19. IN GROUND NO.28 OF THE APPEAL THE ASSESSEE HAS ASSAILED INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE CHALLENGING TO PENALTY PROCEEDINGS IS PREMATURE AT THIS STAGE. TH IS GROUND OF THE APPEAL IS DISMISSED, AS SUCH. 20. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2012-13 I S PARTLY ALLOWED IN THE TERMS AFORESAID. ITA NO.2264/MUM/2017, A.Y. 2008-09: 21. THIS APPEAL BY THE ASSESSEE IS AGAINST TRANSFER PRICING ADJUSTMENT ON IMPORT OF APIS AND RECOVERIES OF COST OF APIS & COS T OF BIO-EQUIVALENCE STUDIES UNDER CONTRACT DEVELOPMENT SERVICES AGREEMENT. BOT H THE SIDES UNANIMOUSLY STATED THAT THE FACTS IN ASSESSMENT YEAR 2008-09 AR E SIMILAR TO TP ADJUSTMENT MADE IN ASSESSMENT YEAR 2012-13. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE STATED THAT THE SUBMISSIONS MADE IN RESPEC T OF APPEAL FOR 2012-13 WOULD EQUALLY HOLD GOOD FOR THE APPEAL FOR ASSESSME NT YEAR 2008-09. 20. BOTH SIDES HEARD. WE FIND THAT THE TPO IN ASSE SSMENT YEAR 2008-09 HAS MADE TRANSFER PRICING ADJUSTMENT ONLY IN RESPECT OF 2 APIS I.E. SODIUM BENZOATE AND SIMVASTATIN USP ROVERETO (LEK) AS AGA INST 11 APIS IMPORTED BY THE ASSESSEE DURING THE RELEVANT PERIOD. THE ADJUS TMENT HAS BEEN MADE BY TPO FOR SIMILAR REASONS AS HAS BEEN GIVEN IN ASSESS MENT YEAR 2012-13. SINCE THE FACTUAL MATRIX OF THE CASE AND THE NATURE OF IN TERNATIONAL TRANSACTIONS ARE IDENTICAL IN BOTH THE ASSESSMENT YEARS, THE FINDING S GIVEN BY US WHILE ADJUDICATING THIS ISSUE IN ITA NO.2263/MUM/2017 WOU LD MUTATIS MUTANDIS 25 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) APPLY TO ASSESSMENT YEAR 2008-09. CONSEQUENTLY, GR OUND NO.6 AND 11 OF THE APPEAL ARE ALLOWED. 21. THE OTHER GROUNDS RAISED ON THE ISSUE I.E. GROU NDS NO. 7 TO 10 AND 12 TO 14 BEING IN SUPPORT OF THE MAIN GROUND HAVE BECOME ACADEMIC AND HENCE, NOT BEING DELIBERATED UPON. 22. IN GROUND OF THE APPEAL NO.15 TO 19, THE ASSESS EE HAS ASSAILED ADJUSTMENT OF RS.35,44,97,586/- WITH RESPECT TO COS T OF APIS AND COST OF BIO- EQUIVALENCE STUDIES. THE ABOVE GROUNDS ARE IDENTIC AL TO GROUNDS NO.13 TO 17 RAISED IN THE APPEAL FOR ASSESSMENT YEAR 2012-13. T HE ASSESSEE HAS FILED A CHART GIVING REVISED MARGINS AFTER INCLUDING COST O F APIS AND BIO-EQUIVALENCE STUDIES. THE REVISED MARGIN OF THE ASSESSEE IS 16.3 7% AS AGAINST MARGIN OF COMPARABLE COMPANIES AT 13.54%. PARTICULARS AS PER TRANSFER PRICING STUDY RE VISED MARGIN AFTER CONSIDERING COST OF APIS AND BIO-EQUIVALENCE STUDIES. OPERATING REVENUE (A) 75,24,19,812 1,56,18,54, 198 OPERATING COST (B) 53,27,18,828 1,34,21,53,215 OPERATING PROFIT (C=A - B) 21,97,00,984 21,97,00,984 OP/OC(D=C/B) 41.24% 16.37% MA RGIN OF COMPARABLE COMPANIES AS PER TRANSFER PRICING STUDY 13.54% SINCE THE MARGINS OF THE ASSESSEE ARE WITHIN TOLERA NCE LIMITS, THE FINDINGS GIVEN BY USE WHILE ADJUDICATING THIS ISSUE IN ASSESSMENT YEAR 2012-13, WOULD MUTATIS MUTANDIS APPLY TO THE PRESENT APPEAL. ACCORDINGLY, GROUND NO.18 IS ALLOWED AND GROUNDS NO.15 TO 17 AND 19 ARE DISMISSED. 26 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) 23. IN GROUND NO.20, THE ASSESSEE HAS ASSAILED INIT IATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE CHALLENGE TO PENALTY PROCEEDINGS AT THIS STAGE IS PREMATURE. THIS GROUN D OF THE APPEAL IS DISMISSED, AS SUCH. 24. THE GROUND OF APPEAL NO.1 AND 2 ARE GENERAL IN NATURE, HENCE, REQUIRE NO ADJUDICATION. 25. IN GROUND 3 AND 4 OF THE APPEAL, THE ASSESSEE H AS RAISED LEGAL GROUND CHALLENGING THE JURISDICTION OF TPO. THE LD. AUTHO RIZED REPRESENTATIVE OF THE ASSESSEE STATED AT THE BAR THAT GROUNDS NO.3 & 4 AR E NOT PRESSED. BOTH THESE GROUNDS ARE DISMISSED, AS SUCH. 26. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2008-09 I S PARTLY ALLOWED. ITA NO.6815/MUM/2017, A.Y. 2013-14: 27. THE ASSESSEE IN APPEAL HAS RAISED TWO ISSUES. THE FIRST ISSUE IS AGAINST ADJUSTMENT OF RS75,19,986/- ON ACCOUNT OF MODVAT CR EDIT AND CLOSING STOCK UNDER SECTION 145A OF THE ACT. THE LD.AUTHORIZED R EPRESENTATIVE OF THE ASSESSEE STATED AT THE BAR THAT THIS ISSUE IS NOT P RESSED. ACCORDINGLY, THE ISSUE RAISED IN THE GROUNDS OF APPEAL IS DISMISSED AS NOT PRESSED. 28. THE SECOND ISSUE IN APPEAL IS WITH REGARD TO DI SALLOWANCE OF RS.78,84,160/- UNDER SECTION 37(1) OF THE ACT ON A CCOUNT OF PAYMENT MADE TO HEALTH CARE PROFESSIONALS(DOCTORS). THIS ISSUE IS I DENTICAL TO THE ONE ADJUDICATED BY US IN THE APPEAL OF ASSESSEE FOR ASS ESSMENT YEAR 2012-13 27 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) ABOVE. SINCE THE FACTS AND THE GROUNDS OF APPEAL A RE IDENTICAL, THE FINDING GIVEN BY US WHILE ADJUDICATING THE ISSUE IN ASSESSM ENT YEAR 2012-13 WOULD MUTATIS MUTANDIS APPLY TO THE PRESENT APPEAL. THE ISSUE IS RESTORE D TO THE FILE OF ASSESSING OFFICER WITH SIMILAR DIRECTIONS. THE G ROUNDS OF APPEAL NO.1 TO 5 ARE ALLOWED FOR STATISTICAL PURPOSE. 29. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESS EE STATED AT THE BAR THAT HE IS NOT PRESSING GROUNDS NO.6 TO 8. CONSEQUENTLY, THESE GROUNDS ARE DISMISSED, AS SUCH. 30. IN GROUND NO.9 OF THE APPEAL, THE ASSESSEE HAS ASSAILED INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE CHALLENGE TO PENALTY PROCEEDINGS AT THIS STAGE IS PREMATURE. TH IS GROUND OF THE APPEAL IS DISMISSED, AS SUCH. 31. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2008-09 I S PARTLY ALLOWED. 32. TO SUM UP, ALL THE APPEALS BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THURSDAY THE 10 TH DAY OF SEPTEMBER, 2020. SD/- SD/- (G.MANJUNATHA) (VIKAS AW ASTHY) $ / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 6 #/ DATED: 10/09/2020 VM , SR. PS(O/S) 28 ITA NO.2263 /MUM/2017(A.Y.2012-13) ITA NO.2264 /MUM/2017(A.Y.2008-09) ITA NO.6815 /MUM/2017(A.Y.2013-14) COPY OF THE ORDER FORWARDED TO : 1. - / THE APPELLANT , 2. ./ / THE RESPONDENT. 3. 7/ ( )/ THE CIT(A)- 4. 7/ CIT 5. 89./# , . . . , / DR, ITAT, MUMBAI 6. 9:;<= / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVE D DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER