Missionpharma Logistics (India) Pvt.Ltd., Ahmedabad V. The ACIT.,(OSD)-I,Range-4, Ahmedabad

ITA 2835/AHD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2166 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 18-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR; URVASHI SO
• Keywords: Transfer pricing; Principle of natural justice; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI A.K . GARODIA, ACCOUNTANT MEMBER ITA NO. 2835/AHD/2012 A.Y: 2008-09 MISSIONPHARMA LOGISTICE (INDIA) PRIVATE LIMITED. 301-302, 3 RD FLOOR, ZODIAC SQUARE, OPP: GURADWARA, S.G. HIGHWAY, BODAKDEV, AHMEDABAD. PAN: AACCM 6133D VS ACIT (OSD)-1, RANGE-4, AHMEDABAD (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SUBHASH BAINS, CIT- DR ASSESSEE(S) BY : SHRI S.N. SOPARKAR & MS. URVASHI SOPAN, A.R. / // / DATE OF HEARING : 23/07/2013 / DATE OF PRONOUNCEMENT: 26/07/2013 / O R D E R PER SHRI A.K. GARODIA: THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIRE CTED AGAINST THE ASSESSMENT ORDER PASSED BY THE A.O. ON 16.10.2012 U NDER SECTION 143(3) R.W.S 144 C OF THE IT ACT AND IN THIS ASSESSMENT OR DER, THE AO HAS SIMPLY DECIDED THE ISSUE ON THE BASIS OF DIRECTION OF DISP UTE RESOLUTION PANEL (DRP), AHMEDABAD DATED 25.9.2012. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER (AO') GROSSLY ERRED, IN CONFORMITY WITH TH E DIRECTIONS OF HON'BLE DISPUTE RESOLUTION PANEL ('DRP'), AHMEDABAD UNDER S ECTION 144C(5) OF THE INCOME-TAX ACT, 1961 ('THE ACT'), IN MAKING THE UPW ARD TRANSFER PRICING ITA NO.2835/AHD/ 2012 MISSIONPHARMA LOGISTICS (INDIA) (P) LTD. VS. ACIT, AHMEDABAD A.Y. 2008-09 - 2 - ADJUSTMENT OF RS. 15,87,39,602/- IN RESPECT OF APPE LLANT'S INTERNATIONAL TRANSACTION OF SALE OF MEDICAL KITS (COMPRISING GEN ERIC PHARMACEUTICAL PRODUCTS, HOSPITAL SUPPLIES AND DISPOSABLES) TO ITS ASSOCIATED ENTERPRISE (AE') MISSIONPHARMA A/S, DENMARK (MPAS'). THE APPELLANT SUBMITS THAT NO TRANSFER PRICING ADJUSTMENT IS WARRANTED IN ITS CAS E AND WISHES TO RAISE THE FOLLOWING SUB-GROUNDS OF APPEAL, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: I. THE HON'BLE DRP/LD. TPO/LD. AO ERRED, IN LAW AND IN FACTS, BY NOT ACCEPTING THE ECONOMIC ANALYSIS CARRIED OUT BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES, CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARM' S LENGTH PRICE IN CONNECTION WITH THE IMPUGNED INTERNATIONAL TRANSACT ION, AND HOLDING THAT THE APPELLANT'S INTERNATIONAL TRANSACTION IS NOT AT ARM 'S LENGTH. II. THE HON'BLE DRP ERRED IN UPHOLDING THE T RANSFER PRICING ADJUSTMENT MADE BY THE LD. TRANSFER PRICING OFFICER (TPO') WI THOUT APPRECIATING THAT LD. TPO DID NOT PROVIDE TO THE APPELLANT THE MATERI AL AND INFORMATION PERTAINING TO THE ENTIRE SEARCH PROCESS CARRIED OUT BY THE LD. TPO DESPITE THE APPELLANT'S REQUEST FOR THE SAME AND THEREBY LD. TP O BLATANTLY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. III. THE HON'BLE DRP/LD.TPO/LD. AO ERRED, IN L AW AND IN FACTS, BY CONSIDERING THE TRANSFER PRICING COMPARISON UNDERTA KEN BY THE APPELLANT, USING INDIAN WHOLESALE PHARMACEUTICAL DISTRIBUTORS, AS DEFECTIVE AND REJECTING THE COMPARABLES IDENTIFIED BY THE APPELLA NT ON UNREASONABLE GROUND. IV. THE HON'BLE DRP/LD.TPO/LD. AO ERRED, IN LAW AND IN FACTS, BY CONSIDERING THE AE (I.E. MPAS), RATHER THAN APPELLA NT, AS THE TESTED PARTY. V. THE HON'BLE DRP/LD.TPO/LD. AO ERRED, IN LAW AND IN FACTS, BY CONSIDERING IDA FOUNDATION NETHERLANDS (A 'NOT FOR PROFIT ORGANISATION'), AS COMPARABLE TO THE AE (I.E. MPAS) FOR THE PURPOSE OF ECONOMIC ANALYSIS. VI. THE HON'BLE DRP/LD.TPO/LD. AO ERRED, IN LAW AND IN FACTS, IN NOT CONSIDERING AND NOT MAKING APPROPRIATE ADJUSTMENTS FOR FUNCTIONAL, RISK AND ECONOMIC DIFFERENCES BETWEEN THE AE (I.E. MPAS) AND IDA FOUNDATION NETHERLANDS (A 'NOT FOR PROFIT ORGANISATION'). VII. THE HON'BLE DRP/LD.TPO/LD.AO ERRED, IN F ACTS AND IN LAW, BY NOT CONSIDERING THAT FRESH SEARCH PROCESS CONDUCTED BY LD. TPO IS UNSYSTEMATIC, VAGUE, ERRONEOUS AND RESULTS INTO ONLY ONE ALLEGED COMPARABLE AND THEREBY DEFIES THE STATUTORY PROVISIONS INCLUDING THE PROVI SO TO SECTION 92C(2) ALLOWING THE VARIATION IN ARM'S LENGTH PRICE OF UPT O 5%. VIII. THE HON'BLE DRP/LD.TPO/LD. AO ERRED, IN LAW AND IN FACTS, BY NOT ACCEPTING THAT APPELLANT IS A CAPTIVE WHOLESALE TRA DER IN GENERIC PHARMACEUTICAL PRODUCTS AS DOCUMENTED IN TRANSFER P RICING DOCUMENTATION REPORT SUBMITTED TO LD. TPO/DRP. IX. THE HON'BLE DRP/LD.TPO/LD. AO ERRED, IN L AW AND IN FACTS, BY ATTRIBUTING THE EXCESS PROFITS RETAINED AT THE LEVE L OF THE AE (I.E. MPAS), TO THE APPELLANT. X. THE HON'BLE DRP/LD.TPO/LD. AO ERRED, IN L AW AND IN FACTS, IN COMPUTING THE AMOUNT OF TRANSFER PRICING ADJUSTMENT AT RS.15,87,39,602/-. ITA NO.2835/AHD/ 2012 MISSIONPHARMA LOGISTICS (INDIA) (P) LTD. VS. ACIT, AHMEDABAD A.Y. 2008-09 - 3 - XI. THE ORDERS OF THE HON'BLE DRP/LD.TPO/LD. AO ARE UNTENABLE IN LAW BECAUSE THEY SUFFER FROM FACTUALLY INCORRECT STATEM ENTS, OBSERVATIONS AND CONCLUSIONS. GROUND NO. 2: THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(L)(C) OF THE ACT. GROUND NO. 3: THE APPELLANT CRAVES TO ADD, ALTER, AMEND OR DELETE ALL OR ANY OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING. 3. IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESS EE THAT THIS ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY T HE TRIBUNALS DECISION RENDERED IN THE ASSESSEES OWN CASE FOR EARLIER TWO ASSESSMENT YEARS, I.E., A.Y. 2005-06 AND 2006-07 AS PER THE DECISION REPORTED IN [2013] 33 TAXMANN. COM 479. HE SUBMITTED A COPY OF THE TRIBUN ALS DECISION. HE FURTHER SUBMITTED THAT IN PARAGRAPH 17 OF THE TRIBU NALS ORDER, IT WAS NOTED BY THE TRIBUNAL THAT TWO ISSUES ARE TO BE DEC IDED BY THE TRIBUNAL, I.E, (1) SELECTION OF THE TESTED PARTY, WHETHER IT SHOULD BE THE ASSESSEE OR THE AE. (2) SELECTION OF THE COMPARABLES. HE FURT HER SUBMITTED THAT REGARDING THE FIRST ISSUE, I.E., SELECTION OF TESTE D PARTY, IT WAS HELD BY THE TRIBUNAL THAT THE ASSESSEE IS LEAST COMPLEX PARTY A S COMPARED TO THE AE, AND HENCE, THE ASSESSEE SHOULD BE SELECTED AS A TES TED PARTY AND REGARDING THE SECOND ISSUE, I.E., SELECTION OF COMPARABLE, IT WAS HELD BY THE TRIBUNAL THAT IDA FOUNDATION, NETHERLANDS CANNOT BE ACCEPTED AS A COMPARABLE BECAUSE THIS COMPANY IS NOT WORKING FOR PROFIT MOTI VE AND OUT OF TOTAL 9 LOCAL COMPARABLES SELECTED BY THE ASSESSEE, THE TRI BUNAL HELD THAT FOUR COMPARABLES ARE TO BE ACCEPTED. HE FURTHER SUBMITTE D THAT IN THE PRESENT YEAR, THE ASSESSEE HAS ADOPTED SIX LOCAL COMPARABLE S AS NOTED AT PAGE NO.4 OF THE TPO ORDER AND OUT OF THIS, SERIAL NO.1 AND 5 BEING ADITYA MEDISALES LTD. AND SHAMROCK INDUSTRIAL CO. LTD. ARE THE SAME AS ACCEPTED BY THE TRIBUNAL IN THE EARLIER YEAR. HE FU RTHER SUBMITTED THAT THE ITA NO.2835/AHD/ 2012 MISSIONPHARMA LOGISTICS (INDIA) (P) LTD. VS. ACIT, AHMEDABAD A.Y. 2008-09 - 4 - MARGIN PERCENTAGE (OP/COST) NOTED BY TPO AT PAGE NO .4 OF HIS ORDER IS IN FACT GROSS PROFIT MARGIN ON COGS AND IT CAN BE SEEN AT PAGE 216 OF THE PAPER BOOK. BUT FOR OUR PURPOSE, WE HAVE TO SELECT OPERATING MARGIN ON OPERATING COST WHICH IS VERY LOW IN RESPECT OF THES E COMPARABLES. FOR THESE TWO COMPARABLES AT SERIAL NO.1 AND 5, I.E., A DITYA MEDIASALES LTD. AND SHAMROCK INDUSTRIAL CO. LTD., THE OPERATING PRO FIT MARGIN ON OPERATING COST IS 0.61% AND 0.67%, RESPECTIVELY. HE ALSO SUBMITTED THAT THE MARGIN OF THE ASSESSEE COMPANY FOR THE PRESENT YEAR IS 0.9433% AS NOTED BY DRP AT PAGE NO.15 OF ITS ORDER. HE FURTHER SUBMITTED THAT THEREFORE IN THE LIGHT OF THIS TRIBUNAL ORDER, THES E TWO COMPARABLES OUT OF SIX COMPARABLES SHOULD BE ACCEPTED AND THE PROFIT M ARGIN REPORTED BY THE ASSESSEE SHOULD ALSO BE ACCEPTED AND THE ADDITION M ADE BY AO ON THE BASIS OF DRP ORDER SHOULD BE DELETED. 4. AS AGAINST THIS LEARNED D.R. OF THE REVENUE SUPP ORTED THE ASSESSMENT ORDER AS WELL AS DRP ORDER BUT HE COULD NOT POINT OUT AS TO HOW THE ISSUE IN DISPUTE IS NOT COVERED IN FAVOUR O F THE ASSESSEE BY THIS TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR EARLIER T WO YEARS. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT THE DRP AND TPO HAS ADOPTED THE AE AS TESTED PARTY AND IDA FOUNDATION NETHERLANDS AS COMPARABLE AND ON BOTH THESE ASPECTS , AS PER THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR EARLIER YEARS, THE ASSESSEE HAS TO BE ACCEPTED AS A TESTED PARTY AND IDA FOUNDATION, NETH ERLANDS CANNOT BE ACCEPTED AS A COMPARABLE. OUT OF SIX COMPARABLES NO TED BY TPO AT PAGE NO.4 OF HIS ORDER, THE ARITHMETIC MEAN WAS 3.44% AN D THE SAME IS WITHIN + 5% RANGE OF THE ASSESSEES PROFIT MARGIN. ADMITTEDL Y, OUT OF THESE SIX ITA NO.2835/AHD/ 2012 MISSIONPHARMA LOGISTICS (INDIA) (P) LTD. VS. ACIT, AHMEDABAD A.Y. 2008-09 - 5 - COMPARABLES, TWO ARE COMMON IN THE PRESENT YEAR AND EARLIER YEAR AND THEREFORE, THESE TWO ARE ACCEPTABLE AS PER LEARNED A.R. IN RESPECT OF THIS, IT WAS POINTED OUT BY THE BENCH THAT FOR ONE OF THE SE TWO COMPARABLES, I.E., ADITYA MEDIASALES LTD., IT WAS NOTED BY THE T PO IN PARAGRAPH 6.7.5 OF HIS ORDER THAT THIS COMPANY IS HAVING A HUGE REL ATED PARTY TRANSACTION (RPT). WHEN THIS WAS POINTED OUT TO LEARNED AR OF T HE ASSESSEE, IT WAS SUBMITTED THAT EVEN IF THIS COMPARABLE IS REJECTED, WE ARE LEFT WITH ONE COMPARABLE, I.E., SHAMROCK INDUSTRIAL CO. LTD AND T HE PROFIT MARGIN OF THIS COMPANY IS ONLY 0.67% AS PER PAGE 216 OF THE P APER BOOK WHICH IS LESS THAN THE PROFIT MARGIN OF THE ASSESSEE COMPANY AND HENCE, NO ALP ADJUSTMENT IS CALLED FOR. REGARDING THIS COMPANY, I .E., M/S. SHAMROCK INDUSTRIAL LTD., THE OBJECTION OF THE TPO IN PARAGR APH 6.5.2 WAS THIS THAT THIS COMPANY IS MANUFACTURER OF PHARMACEUTICALS AND FINE CHEMICALS AND IS NOT HAVING ANY EXPORT SALE. AS PER THE PROWESS D ATA BASE EXTRACT OF THIS COMPANY AT PAGE 381 AND 388 OF THE PAPER BOOK, FOR THE PERIOD OF 12 MONTHS ENDING IN MARCH, 2008, THIS COMPANY WAS HAVI NG SALES OF 12 CRORES AND OUT OF THE SAME, THE ENTIRE SALE WAS ON ACCOUNT OF TRADING TURNOVER AND THERE WAS NO SALE ON ACCOUNT OF INDUST RIAL SALE AND THEREFORE, THIS OBJECTION OF THE TPO THAT THIS COMPANY IS HAVI NG MANUFACTURING ACTIVITY IS FACTUALLY NOT CORRECT IN THE LIGHT OF T HIS DATA OF THIS COMPANY ON THE BASIS OF PROWESS DATA BASE EXTRACT. THEREFORE, THIS OBJECTION OF THE TPO AND DRP REGARDING THIS COMPANY IS NOT ACCEPTABL E. REGARDING OTHER OBJECTION THAT THE COMPANY IS NOT HAVING EXPORT TUR NOVER, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE T RIBUNAL DECISION IN THE ASSESSEES OWN CASE FOR EARLIER TWO YEARS, THEREFOR E, WE HOLD THAT THIS COMPANY IS ACCEPTABLE AS A COMPARABLE. BECAUSE OF T HIS REASON THAT OUT OF 6 LOCAL COMPARABLES NOTED BY THE TPO AT PAGE NO. 4 OF HIS ORDER, ONE IS ITA NO.2835/AHD/ 2012 MISSIONPHARMA LOGISTICS (INDIA) (P) LTD. VS. ACIT, AHMEDABAD A.Y. 2008-09 - 6 - ACCEPTABLE, I.E. SHAMROCK INDUSTRIAL LTD. AND ONE I S NOT ACCEPTABLE BECAUSE OF HIGH RPT, I.E., ADITYA MEDIASALES LTD., WE DO NOT EXAMINE THE ACCEPTABILITY OF OTHER COMPARABLES BECAUSE WHETHER THE OTHERS ARE ACCEPTED OR NOT ACCEPTED, IT WILL NOT HAVE IMPACT O N OUR DECISION BECAUSE NONE OF THESE COMPARABLES IS HAVING PROFIT MARGIN A T THE RATE OF HIGHER THAN THE PROFIT MARGIN OF THE ASSESSEE COMPANY. WE, THEREFORE, HOLD THAT THE ADDITION MADE BY THE AO ON ACCOUNT OF ALP AS PE R TPO AND AS PER DRP IS NOT SUSTAINABLE AND HENCE, WE DELETE THE SAM E. GROUND NO.1 IS ALLOWED. GROUND NO.2 IS REGARDING INITIATION OF PEN ALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE IT ACT AND THIS GROUND IS REJECTED AS PREMATURE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON THE DATE MENTIONED ON CAPTION P AGE. SD/- SD/- (G.C. GUPTA) (A.K. GARODIA) VICE PRESIDENT ACCOU NTANT MEMBER PRABHAT KR. KESARWANI, SR. P.S. TRUE COPY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. #$#% ' '& / CONCERNED CIT 4. ' '&() / THE CIT(A)-III, AHMEDABAD 5. )*' %, ' ' % , ,-$ / DR, ITAT, AHMEDABAD 6. *./ 0 / GUARD FILE. / BY ORDER, 1 11 1/ // /,' #2 ,' #2 ,' #2 ,' #2 ( DY./ASSTT.REGISTRAR) ' ' % ' ' % ' ' % ' ' % , , , , ,-$ ,-$ ,-$ ,-$ / ITAT, AHMEDABAD