ASST CIT 15(3)(1), MUMBAI V. ZYDUS NYCOMED HEALTHCARE P. LTD, NAVI MUMBAI

ITA 3336/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2302 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 12-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; International transaction; Additional evidence; Assessment record; Set aside
• Section: 142(1); 115JB; 133(6); 10B; 143(1); 250; 80IA; 201; 143(2); 131; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI M. BALAGANESH , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO S . 3336 /MUM/201 6 ( / ASSESSMENT YEA R S : 200 9 - 10 ) ACIT 15(3)(1) ROOM NO.451, 4 TH FLOOR, AAYKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI - 400020 . / VS. M/S. ZYDUS NYCOMED HEALTHCARE PVT. LTD. C - 4 MID, VILL. PAWANE, THANE BELAPUR ROAD, VASHI, NAVI MUMBAI - 400705. / I .T.A. NO S . 4670 /MUM/2016 ( / ASSESSMENT YEARS : 2011 - 12 ) D CIT - 15 (3)(1) ROOM NO. 451 , 4 TH FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI - 400020 . / VS. M/S. ZYDUS NYCOMED HEALTHCARE PVT. LTD. C - 4 MID, VILL. PAWANE, THANE BELAPUR ROAD, VASHI, NAVI MUMBAI - 400705 . ./ ./ PAN/GIR NO. : AAACZ0736D ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 01 / 0 8 / 201 9 / DATE OF PRONOUNCEMENT : 28 /08 /2019 / O R D E R PER AMARJIT SINGH (JM) : THE REVENUE HAS FILED THE ABOVE MENTIONED APPEAL S AGAINST THE DIFFERENT ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 24 , MUM BAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y S . 2009 - 10 & 2011 - 12 . REVENUE BY: SHRI MANJUNATHA SWAMY (DR) ASSESSEE BY : SHRI B. V. JHAVERI (AR) I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 2 ITA. NO.3336 /M/201 6 2. THE REVENUE HAS FILED THE PRESENT APPEAL S AGAINST THE ORDER DATED 02 . 0 2 .2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 24 , MUMBAI [HEREIN AFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2009 - 10 . 3 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE REDUCTION DONE BY AD IN THE CL AIMS THE ASSESSEE FOR DEDUCTION UNDER SECTION 10B OF THE ACT INVOKING THE PROVISIONS OF SECTION 80IA(10)/69 - C OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT (A) HAS ERRED IN DECIDING THAT NET PROFIT @84% IN NOT 'MORE TH AN ORDINARY PROFITS' DESPITE THE FACT THAT CLOSE CONNECTION BETWEEN THE PARTIES CARRYING ON THE ELIGIBLE BUSINESS HAS BEEN ESTABLISHED AND THE COURSE OF BUSINESS BETWEEN THE PARTIES IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM EARNED 'N - TOR E THAN ORDINARY PROFITS'. 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ' 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE FILED ITS E - RETURN OF INCOME ON 24 . 09 .200 9 DECLARING TOT AL INCO ME TO THE TUNE OF RS.4,26,73,588 / - . THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 1961 . THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY . N OTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING KEY INTERMEDIATES USED IN PRODUCTION OF ANTI - ULCERANT DRUG PANTOPRAZOLE. DURING THE YEAR OF UN DER CONSIDERATION, EXPORT SALES WAS SHOWN TO THE TUNE OF RS.205,90,43,906/ - AND OTHER RELATED INCOME IN SUM OF RS.6,07,16,078/ - . NET I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 3 PROFIT WAS COMPUTED IN SUM OF RS.154,35,36,062/ - . SINCE THE ASSESSEE WAS HAVING INTERNATIONAL TRANSACTIONS , THEREFORE, THE MATTER WAS REFERRED TO THE ADDL. COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) - II(6), MUMBAI WHO DID NOT MADE ANY ADJUSTMENT TO ARMS LENGTH PRICE WITH REFERENCE TO THE INTERNATIONAL TRANSACTION VIDE ORDER DATED 31.0 8.2012 PASSED U/S 92CA(3) OF THE ACT. TH E ASSESSEE CLAIMED THE DEDUCTION U/S 10B OF THE ACT OF RS.151.04 CRORES. THE CLAIM OF THE ASSESSEE WAS DECLINED ON THE BASIS OF THE REASONS EXPLAINED WHILE FINALIZING THE ASSESSMENT OF THE ASSESSEE FOR THE A.Y. 2006 - 07 AND THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS. 155,35,32,810/ - AND BOOK PROFIT U/S 115JB OF THE ACT IN SUM OF RS.154,31,59,062/ - . FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO ALLOWED THE CLAIM OF THE ASSESSEE, THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 5 . WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. BEFORE GOING FURTHER, WE DEEM IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 2.4.5 GROUND NOS. 1 & 2 ARE IN R ESPECT OF PARTIAL DISALLOWANCE OF CLAIM FOR EXEMPTION U/S 10B. BRIEFLY STATED THE APPELLANT COMPANY IS MANUFACTURER OF KEY INTERMEDIATES USED IN PRODUCTION OF ANTI - ULCERANT DRUG 'PANTOPRAZOLE' VIZ. KSM - 6 AND KSM - 14 (IN SHORT). DURING THE ASSESSMENT YEAR IN QUESTION, THE APPELLANT COMPANY WAS A JOINT VENTURE BETWEEN THE NYCOMED GMBH, GERMANY AND CADILLA HEALTHCARE LIMITED, AHMEDABAD. IT HAD STARTED ITS COMMERCIAL PRODUCTION IN YEAR 2001 - 02 AND AS PER THE TERMS OF THE JOINT VENTURE AGREEMENT, THE APPELLANT CO MPANY SUPPLIED ALL INTERMEDIATES MANUFACTURED BY IT EXCLUSIVELY TO NYCOMED GMBH, GERMANY. THE APPELLANT COMPANY CLAIMED DEDUCTION U/S 10B ON THE INCOME EARNED FROM THE ABOVE DURING THE YEAR IT HAD SHOWN SALES OF RS.199.83 CRORE AT A COST OF PRODUCTION BF R 16.25 CRORE AND ITS GROSS PROFIT MARGIN WORKED OUT TO 81% WITH NET PROFIT MARGIN PROFIT OF 77%. FURTHER, IT WAS SEEN FROM THE INFORMATION FURNISHED BY THE APPELLANT THAT KSM - 6 WAS SOLD AT EUROS 182 PER KG EQUIVALENT TO APPROXIMATELY RS.10,323/ - PER KG AND KSM - 14 AT EUROS 200 PER KG EQUIVALENT TO APPROXIMATELY RS.14,379/ - I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 4 PER KG. IN THE PREVIOUS YEAR, LD. AO GATHERED CERTAIN INFORMATION FROM THE INTERNET AND FOUND THAT THE ABOVE PRODUCTS WERE AVAILABLE IN THE MARKET AT MUCH LOWER PRICE THAN THE PRICE AT WHIC H THE APPELLANT HAD BEEN SELLING TO ITS JOINT VENTURE PARTNER. DURING THE COURSE OF SCRUTINY ASSESSMENT FOR A.Y.2007 - 08, FROM ONE SUCH MARKET INFORMATION AVAILABLE ON THE INTERNET, LD. AO GATHERED THAT A COMPANY VIZ. MIS NOSCH LABS PVT. LTD., HYDERABAD WAS ALSO INTO THE MANUFACTURE AND TRADING OF PANTOPRAZOLE. SINCE LD. AO FOUND THE GROSS PROFIT AND NET PROFIT MARGIN AS EXORBITANT, ENQUIRES WERE CAUSED TO BE CONDUCTED BY HIM THROUGH THE DDIT(LNV.) IJNIT - 11(1), HYDERABAD U/S 131 OF THE ACT BY CALLING FOR THE AVERAGE PRICE AT WHICH THE TWO INTERMEDIATES WERE PURCHASED BY M/S NOSCH LABS PVT. LTD. THE SAID INFORMATION WAS FURNISHED BY MIS NOSCH LABS PVT. LTD. VIDE ITS LETTER DATED 22.11.2010 AND IT WAS FOUND THAT WHEREAS KSM - 6 WAS PURCHASED BY THE SAID COMPANY D URING F.Y. 2006 - 07 AT A PRICE OF RS.1,357 PER KG, KSM - 14 WAS PURCHASED AT A PRICE OF RS.2854/ - PER KG. LD. AO FOUND THAT BOTH THESE ITEMS WERE IMPORTED BY THE COMPANY FROM CHINA. SIMILAR FACTS HAVE BEEN MENTIONED BY THE LD. AO AT PARAGRAPH 5.4 OF HIS ORDER IN RESPECT OF F.Y. 2008 - 09, 2009 - 10 AND 2010 - 11. 2.4.6 APART FROM THE ABOVE, IN THE YEAR UNDER APPEAL, LD. AO ISSUED NOTICE U/S 133(6) TO VARIOUS PARTIES WHO WERE EITHER MANUFACTURERS OF PANTOPRAZOLE OR WERE INTO MANUFACTURE/DEALING IN THE ABOVE TWO INTER MEDIATES REQUIRING THEM TO FURNISH DETAILS OF TRANSACTIONS ENTERED INTO BY THE SAID CONCERNS FOR PURCHASE AND SALE OF ABOVE INTERMEDIATES DURING F.Y.2008 - 09. IN RESPONSE, INFORMATION WAS RECEIVED FROM NINE PARTIES, THE DETAILS OF WHICH ARE TABULATED BELOW: ULTIMATELY, LD. AO CAME TO THE CONCLUSION THAT PRICE OF KSM - 6 AND KSM - 14 RANGED OVER A PERIOD OF 5 YEARS BETWEEN RS.1,315/ - PER KG TO RS.2,170/ - PER KG AND RS.2,765/ - PER KG TO RS.3,400/ - PER KG RESPECTIVELY IN THE OPEN MARKET WHEREAS THE APPELLANT HAD BEEN SELLING THE ABOVE PRODUCTS AT I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 5 RS.10.323/ - PER KG AND RS.14,379/ - PER KG RESPECTIVELY TO ITS JOINT VENTURE PARTNER. ACCORDINGLY, LD. AO CONFRONTED THE APPELLANT WITH THE ABOVE FACTS BY OBSERVING THAT THE PRICES BEING CHARGED BY THE APPELLANT TO ITS JOI NT VENTURE PARTNER WAS UNREASONABLY HIGH AS COMPARED TO THE PRICES OF THE SAID PRODUCTS IN THE OPEN MARKET AND ACCORDINGLY, IT WAS REQUESTED TO SHOW CAUSE AS TO WHY PROVISIONS OF SUB - SECTION (7) TO SECTION 10B READ WITH SUBSECTION (10) OF SECTION 80 - IA SHO ULD NOT BE INVOKED IN COMPUTING THE DEDUCTION CLAIMED U/S 10B. 2.4.7 IN RESPONSE TO LD. AO'S SHOW CAUSE NOTICE DATED 27.07.2012 AND LETTER DATED 09.01.2013 TO THE ABOVE EFFECT, THE APPELLANT FURNISHED ITS OBJECTIONS VIDE ITS LETTER DATED 30.01.2013 BY. INT ER ALIA, STATING AS UNDER : I. M/S NYCOMED GMBH BEING A PRIVATELY OWNED, GLOBAL, MARKET - DRIVEN PHARMACEUTICAL COMPANY HAD A PATENTED PRODUCT CALLED PANTOPRAZOLE WHICH COULD NOT BE MANUFACTURED AND SOLD BY ANYBODY OTHER THAN M/S NYCOMED FOR US AND EUROPE M ARKETS. II. PANTOPRAZOLE WAS THE MAIN REVENUE GENERATING PRODUCT OF M/S NYCOMED WHICH WAS INVENTED AND PATENTED IN THE YEAR 1988 - 89 AND THE TWO INGREDIENTS VIZ. KSM - 6 AND KSM - 14 WERE PROCURED BY IT PRIOR TO THE YEAR 2000 FROM M/S ISOCHEM INC., FRANCE BEFOR E A JOINT VENTURE AGREEMENT WAS MADE WITH THE APPELLANT COMPANY. III. THE JOINT VENTURE APPELLANT COMPANY WAS FORMED PURELY WITH THE AGREEMENT THAT THE QUALITY CONTROL REQUIREMENTS OF THE EUROPE FOOD & DRUG REGULATORY AUTHORITY AS WELL DRUG MASTER FILE SPE CIFICATIONS OF THE PATENTED PRODUCT WOULD BE ADHERED TO IN THE PRODUCTION OF KSM - 6 AND KSM - 14 AND IN THE BARGAIN M/S NYCOMED AGREED TO PURCHASE THE TWO PRODUCTS FROM THE JOINT VENTURE COMPANY AT A PRICE LESSER THAN THE PRICE IT WOULD PAY TO M/S LSOCHEM INC ., FRANCE. IV. ON THE BASIS OF THE ABOVE UNDERSTANDING, THE JOINT VENTURE COMPANY WAS FORMED WHICH LED TO REDUCTION OF COST OF PRODUCTION OF PANTOPRAZOLE BY AT LEAST 10% IN THE HANDS OF M/S NYCOMED LEADING TO SUBSTANTIAL GAIN TO M/S NYCOMED. IN THE JOINT V ENTURE, APPELLANT COMPANY ALSO GAINED BY RECEIVING SALE PRICE OF ITS PRODUCTS AT INTERNATIONAL LEVEL. V. BY ENTERING INTO A DEAL WITH THE JOINT VENTURE APPELLANT COMPANY M/S NYCOMED SECURED ITS KEY INTERMEDIATES FOR MANUFACTURING PANTOPRAZOLE ON AN UNINTER RUPTED BASIS AT PRICE LESSER THAN THE PRICE PAID BY IT TO EUROPEAN SUPPLIER ISOCHEM INC. FURTHER, M/S NYCOMED ALSO PROTECTED ITSELF FROM A COMPETITION FROM M/S CADILA HEALTHCARE LTD. WHICH COULD HAVE MANUFACTURED PANTOPRAZOLE UNDER A DIFFERENT BRAND NAME T O CAPTURE THE THIRD WORLD MARKET WHERE THE PATENT OF A PRODUCT IS NOT I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 6 RECOGNIZED BY THE GOVERNMENT. ALSO, M/S NYCOMED KNEW THAT THE PATENT WILL EXPIRE IN THE YEAR 2010 AND, THEREFORE, TO CAPTURE THE GROWING MARKET LIKE INDIA, IT JOINED HANDS FOR MANUFACTUR ING KEY INTERMEDIATES FOR PRODUCTION OF PANTOPRAZOLE WHICH COULD BE LATER SOLD IN THE THIRD WORLD MARKET AFTER THE EXPIRY OF THE PATENT. VI. PANTOPRAZOLE ACCOUNTED FOR 39% OF THE TOTAL SALES OF M/S NYCOMED WHICH WAS 1314 MILLION EUROS IN YEAR 2008 AND CONV ERTED INTO INDIAN RS. PER KG SALE PRICE OF PANTOPRAZOLE FETCHED BY M/S NYCOMED WAS RS.6,12,992/ - WHICH COMPARED TO THE PROCUREMENT OF RS.10,323/ - PER KG AND RS.14,3791 - PER KG FOR KSM - 6 AND KSM - 14 WAS A MINIMAL 4.0% OF THE SALE PRICE AND HENCE, THE PRICE P AID BY M/S NYCOMED TO THE APPELLANT COMPANY WAS VERY COMPETITIVE AND IN ANY CASE LESS THAN WHAT IT HAS PAID TO M/S ISOCHEM INC., FRANCE. VII. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT IN ORDER TO ASCERTAIN THE PREVAILING MARKET PRICE OF THE PRODUCTS MANU FACTURED BY THE APPELLANT COMPANY IN THE INTERNATIONAL MARKET, THE PRICE CHARGED BY THE APPELLANT COMPANY TO M/S NYCOMED COULD BE COMPARED ONLY WITH THE PRICE PAID BY M/S NYCOMED TO ITS OTHER SUPPLIERS AND IT COULD NOT BE COMPARED WITH THE PURCHASE OR SALE PRICE OF OTHER MANUFACTURERS FROM WHOM M/S NYCOMED WAS NOT PURCHASING ITS RAW MATERIALS DUE TO DIFFERENT QUALITY STANDARDS. VIII. IN THIS BACKGROUND, IT WAS URGED AS M/S NYCOMED DID NOT PROCURE ITS REQUIREMENT OF KSM - 6 AND KSM - 14 FROM CHEAP SUPPLIERS LIKE CHINA MANUFACTURERS DUE TO THE STRICT SPECIFICATIONS OF DRUG MASTER FILE OF EUROPE FOOD & DRUG REGULATORY AUTHORITY, THERE WAS NO BASIS FOR COMPARISON OF THE APPELLANT'S SALES PRICE WITH THE PURCHASE OR SALE PRICE OF OTHER INDIAN COMPANIES. IX. AS FAR AS THE ALLEGATION THAT M/S NYCOMED WAS PAYING HIGHER PRICE TO THE APPELLANT COMPANY FOR THE PURPOSE OF TAX EVASION, IT WAS STATED THAT MERELY BECAUSE THE APPELLANT COMPANY WAS EARNING SUBSTANTIAL PROFIT FROM ITS BUSINESS OF MANUFACTURING AND EXPORTING KSM - 6 A ND KSM - 14 AT AN AGREED PRICE TO AN INTERNATIONAL COMPANY, IT COULD NOT BE SAID TO BE A CASE OF TAX EVASION. X. APART FROM THE ABOVE, THE APPELLANT COMPANY ALSO FURNISHED A COMPARATIVE FIGURE OF GROSS PROFIT AND NET PROFIT IN RESPECT OF M/S LSOCHEM INC. TO SUGGEST THAT THESE WERE COMPARABLE WITH THE PROFITS OF THE APPELLANT COMPANY. XI. WITHOUT PREJUDICE TO THE ABOVE, IT WAS STATED THAT THE PROVISIONS OF SECTION 108(7) R.W.S 80IA(10) WERE SOUGHT TO BE INVOKED FOR THE FIRST TIME IN THE APPELLANT'S OWN CASE FO R A.Y. 2004 - 05 WHICH WAS FOLLOWED IN AN. 2005 - I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 7 06 AND EVEN THE ASSESSMENT FOR A.Y.2003 - 04 WAS RE - OPENED TO RESTRICT THE APPELLANT'S CLAIM ON THE SAME GROUND. HOWEVER, LD. CIT(A) IN ALL THREE YEARS CONCLUSIVELY ALLOWED THE APPEALS. FURTHER, FOLLOWING THE DEC ISION OF THE FIRST APPELLATE AUTHORITIES FROM A.YS. 2003 - 04 TO 2005 - 06, LD. AO DROPPED THE EARLIER COURSE OF INVOKING THE PROVISIONS OF SECTION 108(7) R.W. SECTION 80IA(8) & (10) IN THE SCRUTINY ASSESSMENT FOR AY. 2006 - 07 AND THAT IT WAS, THEREFORE, SURPRI SING THAT THE EARLIER COURSE OF ACTION WAS SOUGHT TO BE REINSTATED RELYING ON THE PROVISIONS OF SECTION 80IA(8). IN THIS REGARD IT WAS, THEREFORE, SUBMITTED THAT THE PROVISIONS OF SECTION 80IA(8) WERE ATTRACTED ONLY WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSE OF ELIGIBLE BUSINESS WERE TRANSFERRED TO ANY BUSINESS CARRIED ON BY THE ASSESSEE WHEREAS IN THE APPELLANT'S CASE, KSM - 6 AND KSM - 14 MANUFACTURED BY IT WERE NOT TRANSFERRED TO ANY BUSINESS CARRIED ON BY IT BUT THE PRODUCTS SO MANUFACTURED WERE INDEP ENDENTLY SOLD AS PER THE TERMS OF THE JOINT VENTURE AGREEMENT TO NYCOMED GMBH, GERMANY AND HENCE, UNDER THE CIRCUMSTANCES, THE QUESTION OF COMPUTING THE PROFITS AND GAINS OF ELIGIBLE BUSINESS AT MARKET RATE AS CONTEMPLATED BY SECTION 80IA(8) DID NOT ARISE AND THAT NYCOMED MBH, GERMANY CONFIRMED THE FACT THAT THE SUPPLY PRICE CHARGED BY THE COMPANY TO THE JOINT VENTURE PARTNER FOR KSM - 6 & KSM 14 WAS IN ACCORDANCE WITH THE TERMS OF E;IHE SO PLY AGREEMENT WHICH REQUIRED THAT IT WAS AT A MORE FAVOURABLE PRICE T HAN THE LOWEST SUPPLY PRICE CHARGED TO THE JOINT VENTURE PARTNER BY THIRD PARTY SUPPLIERS. 2.4.8 LD. AO REBUTTED THE OBJECTIONS RAISED BY THE APPELLANT BY OBSERVING THAT THE APPELLANT COMPANY DID NOT SUBSTANTIATE ITS CONTENTION THAT THE TWO INTERMEDIATES M ANUFACTURED BY MIS NOSCH & OTHERS DID NOT COMPLY WITH THE EUROPEAN STANDARDS. AS FAR AS THE ISSUE OF TAX EVASION IS CONCERNED, LD. AO ONCE AGAIN REFERRED TO THE PROVISIONS OF SECTION 108(7) RW.S 801A(8) AND 801A(10) TO BRING HOME THE POINT THAT HE HAD THE POWERS TO ADOPT THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED IN CASE HE FOUND THAT THE BUSINESS TRANSACTIONS WERE ARRANGED WITH OTHER PARTIES SO AS TO PRODUCE MORE THAN ORDINARY PROFITS. APART FROM THE ABOVE, LD. AO REFERRED TO TH E FINDINGS IN THE SCRUTINY ASSESSMENT FOR A.Y. 2007 - 08 RELATING TO MIS NOSCH LABS PVT. LTD. HE FURTHER DEALT WITH THE INFORMATION RECEIVED U/S 133(6) FROM OTHER PARTIES MENTIONED IN THE ASSESSMENT ORDER AND AS POINTED OUT IN THE CHART SUPRA TO SUGGEST THAT NONE OF THESE PARTIES HAD DENIED THAT THEY WERE NOT ENGAGED IN MANUFACTURING/DEALING IN SUCH INTERMEDIATES OR PANTOPRAZOLE. IT WAS THUS HELD BY LD. AG THAT APPELLANT'S CASE SQUARELY FELL UNDER THE PROVISIONS OF SUB - SECTION (8) AND (10) OF SECTION 801A. TH EREFORE, AFTER GIVING DUE WEIGHTAGE OF 20% TO 25% HIGHER RANGE THAN THE PREVAILING MARKET PRICE AS PER ENQUIRIES CONDUCTED, LD. AG ADOPTED THE MARKET PRICE OF SALE OF KSM - 6 AT RS.3,000/ - AND KSM - 14 AT RS.5,200/ - PER KG AND THEREBY DISALLOWED THE EXCESS SAL E CONSIDERATION I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 8 CLAIMED BY THE APPELLANT OVER AND ABOVE THE NORMAL PRICE. HE, ACCORDINGLY, COMPUTED THE DEDUCTION U/S LOB AT RS.16,94,77,741/ - . 2.4.9 APART FROM THE ABOVE, LD. AG ALSO REFERRED TO THE ASSESSMENT PROCEEDINGS FOR A.Y. 2006 - 07 WHERE THE THEN I TG - 10(3)(4) AFTER CALLING FOR AND EXAMINING THE DETAILS AND EVIDENCE REGARDING CHANGE IN SHAREHOLDING PATTERN DURING F.Y. 2002 - 03, GAVE A FINDING THAT THE APPELLANT HAD VIOLATED THE PROVISIONS OF SECTION 108(9) OF THE ACT DURING F.Y.2002 - 03 AND HENCE, HELD THE APPELLANT TO BE INELIGIBLE FOR DEDUCTION U/S 10B IN SUBSEQUENT ASSESSMENT YEARS. ACCORDINGLY, HE DENIED THE ENTIRE DEDUCTION CLAIMED BY THE APPELLANT U/S 108 FOR A.Y. 2006 - 07. LD. AG IN THE IMPUGNED ASSESSMENT ORDER FOR THE YEAR UNDER APPEAL HAS STATE D THAT THE APPELLANT SHOW CAUSED AS TO WHY DISALLOWANCE FOR VIOLATION OF PROVISIONS OF SECTION 10B(9) BE NOT MADE. IN RESPONSE TO THE SAME, THE APPELLANT REITERATED ITS SUBMISSIONS AND CONTENTION WHICH WERE EARLIER PUT FORTH BEFORE THE THEN ITG - 10(3)(4) DU RING A.Y. AS THE FIRST APPEAL FOR A.Y. 2006 - 07 WAS PENDING AT THE TIME OF FRAMING THE ASSESSMENT FOR THE CURRENT YEAR, LD. AG RELYING ON THE ORDER FOR A.Y. 2006 - 07 AND WITHOUT PREJUDICE TO THE AMOUNT OF DEDUCTION COMPUTED SUPRA, DISALLOWED THE ENTIRE CLAIM OF DEDUCTION U/S 10B. 2.4.10 PER CONTRA, THE APPELLANT DURING THE COURSE OF THE APPELLATE PROCEEDINGS FILED A COMPREHENSIVE SUBMISSION BY ASSAILING LD. AO'S ORDER WHEREBY OBJECTION TO THE GROUNDS TAKEN BY THE APPELLANT WERE REBUTTED. IN ITS SUBMISSIONS AV AILABLE ON RECORD FILED ON 20.01.2016, IT HAS BEEN, INTER ALIA, STATED AS UNDER: M/S NYCOMED, GMBH (CURRENTLY KNOWN AS TAKEDA GMBH) AND M/S CADILA HEALTHCARE LTD. FOR THE PURPOSE OF MANUFACTURING RAW MATERIALS FOR MANUFACTURING PANTOPRAZOLE. PRIOR TO THE I NCORPORATION OF THE JOINT VENTURE IN INDIA. M/S NYCOMED GMBH, GERMANY USED TO PURCHASE KSM - 6 AND KSM - 14 FROM VARIOUS SUPPLIERS IN EUROPE AND OTHER COUNTRIES AT A HIGHER PRICE AND, THEREFORE, AT THE TIME OF FORMATION OF THE APPELLANT JOINT VENTURE COMPANY, M/S NYCOMED GMBH AGREED THAT IT WOULD BUY - BACK THE PRODUCTION OF THE APPELLANT JOINT VENTURE AT A PRICE WHICH WOULD BE LESS THAN THE PRICE PAID BY M/S NYCOMED GMBH TO ANY OTHER SUPPLIER ALL OVER THE WORLD. THAT PRICE DETERMINED BY THE APPELLANT HAD ALWAYS BEEN LOWER THAN THE PRICE PAID BY M/S NYCOMED GMBH TO ANY OTHER PARTY IN THE WORLD AND THAT M/S NYCOMED GMBH ALWAYS WANTED THE APPELLANT TO ADHERE TO THE HIGHEST STANDARDS OF MANUFACTURING AND ALSO MAINTAIN THE SAME QUALITY STANDARDS AS ARE FOLLOWED BY THE EUROPEAN SUPPLIERS (GOOD MANUFACTURING PRACTICES) AND BY OTHER REPUTED SUPPLIERS WORLD OVER. I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 9 THAT IN VIEW OF THE SAME, SALE PRICE OF THE RAW MATERIALS MANUFACTURED BY THE APPELLANT COMPANY FOR M/S NYCOMED GMBH WAS COMPARABLE TO THE INTERNATIONAL PRICES C HARGED BY LEADING MANUFACTURERS OF THE WORLD, WHO FOLLOWED COMPARABLE STANDARDS OF MANUFACTURING PROCESS AND QUALITY. THAT AS REGARDS M/S NOSCH LABS AND EIGHT OTHER COMPANIES VIZ. SUN PHARMA, MYIAN LABORATORIES LTD., WOCKHARDT LIMITED, MACLEODS PHARMACEUTI CALS LTD., DR. REDDY'S LA BORATORIES LTD., JUBILANT LIFE SCIENCES,NATCO PHARMA LTD. AND RAKSHIT DRUGS PVT. LTD. (HEREINAFTER REFERRED TO AS M/S NOSCH LABS AND EIGHT OTHER COMPANIES), LD. AO HAD NO INFORMATION IN RESPECT OF MANUFACTURING FACILITIES OF THAT C OMPANY AND AS TO WHETHER IT HAD ACTUALLY ENGAGED ITSELF IN MANUFACTURING OF KSM - 6 AND KSM - 14. V. THAT THERE WAS NO DEFINITE INFORMATION THAT M/S NOSCH LABS AND EIGHT OTHER COMPANIES WAS A MANUFACTURER AND THAT IT HAD ITSELF CATEGORICALLY CONFIRMED THAT THE TWO PRODUCTS WERE SOLD TO M/S SMILAX LABORATORIES ONLY ONCE IN THE F.Y.2008 - 09 AND THE QUANTITIES OF SALE WERE SHOWN AT ONLY 500 KGS EACH. THAT IT WAS FOR THE LD. AO TO FIRST GIVE THE INFORMATION ABOUT THE QUALITY OF KSM - 6 AND KSM - 14 OF M/S NOSCH LABS AND EIGHT OTHER COMPANIES TO COMPARE THE SAME WITH THE FACILITIES OF THE APPELLANT WHICH WERE OF HIGHEST STANDARD IN THE WORLD. VII. THAT IT WAS NOT IN DISPUTE THAT THE APPELLANT HAD CHARGED HIGHER RATES FOR KSM - 6 AND KSM - 14 TO M/S NYCOMED GMBH AND THE SAID S ALE CONSIDERATION HAD BEEN DULY RECEIVED BY THE APPELLANT COMPANY IN FOREIGN CURRENCY ON REGULAR BASIS THROUGH BANKING CHANNELS VIII. THAT AS PER THE CONTRACTUAL UNDERSTANDING, THE PRICE CHARGED BY THE APPELLANT TO M/S NYCOMED GMBH WAS LOWER THAN THE PRICE PAID BY M/S NYCOMED GMBH TO ANY OTHER PARTY IN THE WORLD. IX. THAT IT WAS NOT IN DISPUTE THAT M/S NYCOMED GMBH WAS ONLY HAVING 50% SHARE IN THE APPELLANT COMPANY AND, THEREFORE, IT WOULD NOT HAVE LIKED TO PAY ANYTHING MORE THAN THE FAIR MARKET PRICE OF TH E SAID INTERMEDIATES COMMENSURATE TO ITS QUALITY AND STANDARDS. THAT THE VERY VITAL POINT THAT WAS REQUIRED TO BE NOTED WAS THAT THE PANTOPRAZOLE MANUFACTURED BY M/S NYCOMED GMBH WAS A PATENTED PRODUCT DURING THE YEAR UNDER CONSIDERATION AND, THEREFORE, M/ S NYCOMED GMBH AS PATENT OWNER, WAS ENJOYING THE HEALTHY PRICE ON THE SALE OF PANTOPRAZOLE AND THUS IT WAS EARNING SUBSTANTIAL PROFITS. THEREFORE, THE PRICE PAID BY M/S NYCOMED GMBH FOR SOURCING THE SAID TWO INTERMEDIATES WAS IN FACT A FAIR I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 10 MARKET PRICE WH ICH WAS LOWER THAN THE COMPARABLE INTERNATIONAL MARKET PRICE. XI. THAT M/S NYCOMED HAD SALES OF EURO 1685 MILLIONS OF PANTOPRAZOLE PRODUCT WHICH COMPRISED 48% OF ITS TOTAL SALES IN YEAR 2007 AND THAT THIS PRODUCT WAS MANUFACTURED AND SOLD BY M/S NYCOMED FO R EUROPE AND US MARKETS WHICH REQUIRED HIGHEST STANDARD OF SPECIFICATIONS AND QUALITY CONTROL REQUIREMENTS OF EUROPE FOOD & DRUG REGULATORY AUTHORITY AS WELL AS DRUG MASTER FILE SPECIFICATIONS. XII. THAT PRIOR TO THE FORMATION OF THE JOINT VENTURE IN THE Y EAR 2001 - 02, THESE TWO INTERMEDIATES WERE PROCURED BY M/S NYCOMED FROM M/S ISOCHEM INC., FRANCE WHICH WAS STRICTLY COMPLYING WITH DRUG MASTER FILE (DMF) SPECIFICATIONS OF THE PANTOPRAZOLE PRODUCT AS WELL AS GOOD MANUFACTURING PRACTICES (GMP) PRESCRIBED BY EUROPE FOOD & DRUG REGULATORY AUTHORITY. XIII. THAT AFTER SETTING UP OF THE JOINT VENTURE COMPANY, IT WAS DECIDED TO HAVE A FACTORY FOR MANUFACTURING THESE INTERMEDIATES ADHERING TO THE ABOVE STANDARDS FOR WHICH THE JOINT VENTURE COMPANY WAS TO SUPPLY THES E INTERMEDIATES AT A PRICE LOWER THAN THE PRICE M/S NYCOMED WOULD PAY TO M/S ISOCHEM INC., FRANCE OR ANY OTHER COMPANY IN THE WORLD FOLLOWING SIMILAR STANDARDS AND SPECIFICATIONS. XIV. THAT ON THE BASIS OF THE ABOVE AGREEMENT AND UNDERSTANDING, THE APPELLA NT'S FACTORY COMMENCED ITS PRODUCTION IN SEPTEMBER, 2001 AND SINCE THEN KSM - 6 AND KSM - 14 WAS BEING MANUFACTURED AND EXPORTED EXCLUSIVELY TO M/S NYCOMED AT A PRICE LOWER THAN THE PRICE PAID BY M/S NYCOMED TO M/S ISOCHEM INC. XV. THAT THE FOLLOWING CHART SHO WED THE PRICE PER KG OF KSM - 6 AND KSM - 14 PAID BY M/S NYCOMED TO THE APPELLANT COMPANY AND TO M/S ISOCHEM INC RESPECTIVELY IN THE CALENDAR YEARS 2001 TO 2009. I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 11 XVI. THAT AS REGARDS THE PROFIT OF MIS NYCOMED GMBH & ISOCHEM INC. IT WAS CLEAR FROM THE FINANCI AL STATEMENTS PRESENTED BEFORE THE LD. AO THAT MIS NYCOMED GMBH WAS EARNING A CLEAR GROSS MARGIN OF 74% ON ITS SALE OF PANTOPRAZOLE EVEN AFTER PAYING THE ALLEGED EXCESSIVE PRICE TO THE APPELLANT COMPANY ON ITS PURCHASE OF KSM - 6 AND KSM - 14 AND THE MARGINS E ARNED BY ISOCHEM INC. WAS 84% AND 81% FOR KSM - 6 AND KSM - 14 RESPECTIVELY KEEPING IN VIEW THE COST AUDIT REPORT PRESENTED BEFORE THE LD. AC IN RESPECT OF ISOCHEM INC. 2.4.11 KEEPING IN VIEW THE ABOVE CHART, IT HAS BEEN STATED THAT MIS NYCOMED GMBH REAPED MUL TIPLE BENEFITS BY ENTERING INTO A PURCHASE UNDERSTANDING WITH THE APPELLANT COMPANY, FIRSTLY BY REDUCING ITS COST OF PRODUCTION OF PANTOPRAZOLE BY AT LEAST 10% AND THEREBY SUBSTANTIALLY INCREASING ITS PROFIT MARGIN ESPECIALLY IN VIEW OF THE FACT THAT SALES OF PANTOPRAZOLE ACCOUNTED FOR 48% OF ITS TOTAL SALES. SECONDLY, MIS NYCOMED SECURED AN UNINTERRUPTED SUPPLY OF RAW MATERIALS AT MORE ECONOMICAL PRICES. FURTHER, MIS NYCOMED PROTECTED ITSELF FROM COMPETITION FROM MIS CADILA HEALTHCARE LTD. WHICH COULD HAVE MANUFACTURED PANTAPRAZOLE UNDER A DIFFERENT BRAND NAME AND CAPTURED THE THIRD WORLD MARKETS WHERE THE PATENT OF A PRODUCT IS NOT RECOGNIZED DUE TO HIGH COSTS. IT WAS ALSO URGED THAT MIS NYCOMED KNEW THAT THE PATENT WAS TO EXPIRE IN 2010 - 11 AND AT THAT TIM E IT WOULD NEED A BASE IN A COUNTRY LIKE INDIA, WHICH HAD FAST GROWING MARKET AND THIS WAY MANUFACTURE OF PANTAPRAZOLE IN INDIA COULD FACILITATE SALE EVEN IN THE THIRD WORLD COUNTRIES. 2.4.12 AS FAR AS THE PROCUREMENT OF KSM - 6 AND KSM - 14 FROM THE APPELLAN T COMPANY AT HIGH RATE IS CONCERNED, IT HAS BEEN STATED BY THE APPELLANT THAT AS AGAINST THE RATES OF RS.10,323/ - AND RS.14,3791 - PAID BY M/S NYCOMED TO THE APPELLANT COMPANY FOR KSM - 6 AND KSM - 14 RESPECTIVELY, ITS SALE PRICE PER KG OF PANTAPRAZOLE WAS RS.6 ,12,992/ - WHICH AMOUNTED TO MERELY 4.0% OF THE EFFECTIVE SALE PRICE FETCHED BY IT ON THE SALE OF PANTAPRAZOLE. FURTHER, BY AGREEING TO PURCHASE OF KSM - 6 & KSM14 AT A PRICE EVEN LESS THAN THE PRICE IT WOULD HAVE PAID TO M/S ISOCHEM, FRANCE, M/S NYCOMED ENHA NCED ITS GROSS PROFIT MARGIN BY ANOTHER AT LEAST 10%. IT HAS THUS BEEN SUBMITTED THAT THE PRICE PAID BY M/S NYCOMED TO THE APPELLANT COMPANY HAS TO BE COMPARED WITH THE PRICE PAID BY IT TO M/S ISOCHEM INC. FRANCE WHICH WAS THE MOST REASONABLE WAY OF COMPAR ISON. THE APPELLANT HAS FURTHER STATED THAT IN ORDER TO ASCERTAIN THE PREVAILING MARKET PRICE MANUFACTURED BY THE APPELLANT COMPANY, THE PRICE CHARGED BY THE APPELLANT TO M/S NYCOMED SHOULD HAVE BEEN COMPARED WITH THE PRICE PAID BY M/S NYCOMED TO ITS OTHER SUPPLIERS FOR SIMILAR PRODUCTS AND IT COULD NOT HAVE BEEN COMPARED, AS DONE BY THE LD. AO, WITH THE PRICE OF PRODUCTS FROM COMPANIES LIKE NOSCH LABS AND EIGHT OTHER COMPANIES DUE TO THE STANDARDS, QUALITY AND SPECIFICATIONS AS MANDATED BY DRUG MASTER FILE SPECIFICATIONS OF THE I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 12 PATENTED PANTOPRAZOLE. IN THIS REGARD, THE APPELLANT HAS ALSO FILED COMPARISON OF SPECIFICATIONS FOR NON - PATENTED PANTOPRAZOLE WITH THEIR ANALYTICAL TEST REPORT WITH SIMILAR REPORTS FOR KSM - 6 AND KSM - 14 USED IN PATENTED PANTOPRAZOLE AND A COPY OF WHICH WAS _ ORWARDED TO THE LD. AO DURING APPELLATE PROCEEDINGS FOR A.YS. 2007 - 08 & 2008 - 09. 2.4:13 ADVANCING ITS ARGUMENTS FURTHER, THE APPELLANT HAS STATED THAT M/S NYCOMED BEING A GLOBAL COMPANY WAS IN COMPLETE KNOWLEDGE OF THE FACT THAT KSM - 6 ANDKSM - 14 WAS ALSO AVAILABLE FROM MANUFACTURERS IN OTHER COUNTRIES SUCH AS CHINA AT MUCH CHEAPER PRICES THAN THE ONE PAID TO THE APPELLANT COMPANY OR TO M/S ISOCHEM INC., FRANCE, HOWEVER, LOOKING INTO THE MANUFACTURING STANDARDS AND QUALITY CONTROL A DHERENCE REQUIRED IN ORDER TO COMPLY WITH THE SPECIFICATIONS OF DRUG MASTER FILE AND OF EUROPEAN FOOD & DRUG REGULATORY AUTHORITY, M/S NYCOMED NEVER MADE PURCHASE OF ANY CHEAP PRODUCTS FEARING LOSS OF ITS PATENT. THIS, ACCORDING TO THE APPELLANT, WAS A CON SCIOUS DECISION OF M/S NYCOMED AND IN ANY CASE AS EXPLAINED EARLIER, M/S NYCOMED PAID ONLY AROUND 4.0% OF ITS SALE - PRICE OF PANTOPRAZOLE TO THE APPELLANT COMPANY FOR PROCURING KSM - 6 AND KSM - 14 WHICH IN ANY CASE WAS LOWER BY 10% OR MORE OF THE PRICE PAID BY IT TO M/S ISOCHEM INC. 2.4.14 MEETING THE LD. AO'S CHARGE OF TAX EVASION, IT HAS BEEN POSITED THAT M/S NYCOMED WAS HOLDING 50% OF THE SHARES OF THE APPELLANT COMPANY AND, THEREFORE, IT WOULD BY NO STRETCH OF IMAGINATION PAY A HIGHER PRICE TO GET A LESSER RETURN. BY WAY OF EXAMPLE IT HAS BEEN STATED THAT IF M/S NYCOMED GAVE ONE RUPEE EXTRA TO THE APPELLANT COMPANY, IT COULD EARN DIVIDEND OF 50 PAISA ONLY ON WHICH AFTER DEDUCTING THE DIVIDEND DISTRIBUTION TAX, THE EFFECTIVE DIVIDEND WOULD BE ONLY 42 PAISA AN D HENCE, THERE WAS NO LOGIC IN JUSTIFYING THE ALLEGATIONS MADE BY LD. AO THAT THE ENTIRE STRUCTURE WAS CREATED WITH AN OBJECTIVE OF TAX EVASION. 2.4.15 FINALLY, THE APPELLANT HAS RELIED ON THE APPELLATE ORDERS IN ITS OWN CASE FOR A.YS.2003 - 04, 2004 - 05 AND 2005 - 06 WHERE THE LD. CSIT(A) DELETED SIMILAR ADDITIONS MADE ON SIMILAR CHARGE OF THE APPELLANT EARNING ABNORMAL PROFIT. THE APPELLANT HAS REBUTTED THE ABOVE ARGUMENTS BY STATING THAT THE DETAILED AND ELABORATE SUBMISSIONS MADE EARLIER CLEARLY HIGHLIGHTED THAT THE INFORMATION GATHERED BY LD. AO WAS NOT COMPARABLE IN ANY MANNER TO THE FACTS OF THE APPELLANT'S CASE. 2.4.16 COMING TO THE LEGAL CONTENTIONS, THE APPELLANT HAS RELIED ON THE DECISION OF HON'BLE MUMBAI BENCH OF ITAT IN THE CASE OF M/S SCHMETZ INDIA PVT. LTD. VS ACIT IN ITA NO. 76291M/2007 DATED 30TH JULY, 2008 WHICH CAME TO BE AFFIRMED BY THE HON'BLE BOMBAY HIGH COURT IN ITXA NO. 4508 OF 2010 (2012) 79 DTR 356, (BORN). REFERRING TO THE DECISION OF THE HON'BLE MUMBAI I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 13 BENCH IN THE ABOVE CASE, IT HAS B EEN HELD THAT THE AFORESAID DECISION SQUARELY APPLIES TO THE FACTS OF THE APELLANT'S CASE IN AS MUCH AS, FIRSTLY, THE TRANSFER PRICING OFFICER HAD NOT MADE ANY STATEMENT IN RESPECT OF EXPORT OF GOODS BY THE APPELLANT COMPANY TO ITS J.V. PARTNER. SECONDLY, LD. AO HAD NOT BEEN ABLE TO ADDUCE ANY EVIDENCE THAT THE APPELLANT HAD EARNED HIGHER PROFITS DUE TO ANY ARRANGEMENT BETWEEN THE APPELLANT AND ITS JOINT VENTURE PARTNER. THIRDLY, THE SO - CALLED EXTRAORDINARY PROFIT COULD NOT LEAD TO THE CONCLUSION THAT THERE WAS AN ARRANGEMENT BETWEEN THE PARTIES AND LASTLY, LD. AO HAD ACCEPTED THAT THE PROFIT MADE BY THE APPELLANT COMPANY IN A.Y. 2002 - 03 WAS REASONABLE AND THE INCREASE IN PROFIT IN SUBSEQUENT YEARS WAS DUE TO REDUCTION IN COST IN RAW MATERIALS, DECREASE IN A VERAGE MANUFACTURING COST, ECONOMY OF SCALE ETC. IT WAS FURTHER STATED THAT ALL THESE ASPECTS WERE TAKEN INTO ACCOUNT AT LENGTH IN THE APPELLATE ORDERS FOR A.YS. 2003 - 04 TO 2005 - 06. 2.4.17 THE APPELLANT FURTHER RELIED ON THE DECISION OF HON'BLE MUMBAI BENC H OF ITAT IN THE CASE OF ITO V. NOVEL CONSUMER PRODUCTS (P) LTD. (2006) 7 SOT 615 (MUM). EVEN IN THAT CASE, THE AO HAD INVOKED THE PROVISIONS OF SUB - SECTION (10) OF SECTION 80 - IA AND ADOPTED THE PROFIT OF ASSESSEE'S BUSINESS AT THE RATE OF 22.5% AS THE ASS ESSEE IN THAT CASE WAS SELLING ALMOST ITS ENTIRE PRODUCTION TO A PROPRIETARY CONCERN OF ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY. THE AO IN THAT CASE FOUND THAT THE ASSESSEE COMPANY WAS EARNING A NET PROFIT OF APPROXIMATELY 70% IN THE YEAR 1998 - 99 WHER EAS THE PROFITS OF PROPRIETARY CONCERN TO WHICH THE ENTIRE PRODUCTION WAS BEING SUPPLIED WAS AS LOW AS 1%. TAKING THESE ASPECTS INTO CONSIDERATION, AO IN THAT CASE HELD THAT THE AFFAIRS WERE ARRANGED IN SUCH A WAY ONLY BECAUSE THE PROFITS DISCLOSED BY THE ASSESSEE ENJOYED DEDUCTION U/S 80IA WHEREAS THE PROPRIETARY CONCERN WAS NOT ENTITLED TO CLAIM SUCH A DEDUCTION. HOWEVER, THE HON'BLE ITAT REFERRING TO AN EARLIER DECISION IN THE CASE OF ITO VS PCA ENGG. LTD. 89 ITD 518 (BORN) HELD THE AO'S DECISION TO BE U NJUSTIFIED. 2.4.18 RELIANCE IN THIS REGARD WAS ALSO PLACED ON THE DECISIONS IN THE FOLLOWING OTHER CASES 1. ZAVATA INDIA (P) LTD. (2013) 31 TAXMANN.COM 147 (HYDERABAD). II. TWEEZERMAN (INDIA) P. LTD. [2010] 133 TTJ 308 (CHENNAI) III. DIGITAL EQUIPMENT IN DIA LTD. V. DY. CIT [2006] 103 TTJ 329 (BANG.) IV.VISUAL GRAPHICS COMPUTING SERVICES (INDIA) P. LTD. 52 SOT 172 (CHENNAI) - THE AO WAS NOT JUSTIFIED TO INVOKE THE PROVISION OF SECTION 80IA(10) R.W.S 10A(7) SO AS TO REDUCE THE ELIGIBLE PROFITS. I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 14 2.4.19 ON S IMILAR ISSUE IN A.Y. 2007 - 08, TAKING ALL THE ABOVE ASPECTS INTO CONSIDERATION, MY LD. PREDECESSOR (THE THEN CIT(A) - 22, MUMBAI) REMANDED THE MATTER TO THE LD. AO VIDE LETTER DATED 14.08.2013 FORWARDING THEREWITH THE TWO VOLUMES OF PAPER BOOK SUBMITTED BY TH E APPELLANT MAINLY OBJECTING TO THE MARKET RATES FIXED BY THE LD. AO. LD. CIT(A) - 22, MUMBAI FELT THAT AS THE INFORMATION/DOCUMENTS FILED WERE NOT AVAILABLE BEFORE THE LD. AO, IT AMOUNTED TO FURNISHING OF ADDITIONAL EVIDENCE AND SINCE THE GROUNDS RAISED WEN T TO THE ROOT OF THE ISSUE, LD. AO WAS DIRECTED TO EXAMINE IN DETAIL EACH OF THE OBJECTIONS RAISED BY THE APPELLANT AND THEREAFTER SUBMIT A REMAND REPORT AFTER CONDUCTING NECESSARY ENQUIRIES. LD. AO VIDE HIS FIRST REMAND REPORT DATED 19.08.2013 STATED THAT EXCEPT THE ANALYTICAL TEST REPORT FOR APIS (KSM - 6 & KSM - 14) SUBMITTED BY THE APPELLANT, ALL OTHER DETAILS WERE CONSIDERED BY LD. AO AND AS EVEN THE SAID REPORT WAS PREPARED BY THE APPELLANT, IT WAS NOT AN INDEPENDENT/GLOBAL REPORT WHICH COULD BE RELIED UP ON. IT WAS, THEREFORE, URGED THAT THE SANCTITY OF THE ANALYTICAL TEST REPORT COULD BE CONSIDERED ONLY IF IT WAS FURNISHED BY AN INDEPENDENT AUTHORITY. 2.4.20 AS PER RULE 46A, THE APPELLANT SHALL NOT BE ENTITLED TO PRODUCE ANY EVIDENCE BEFORE THE CIT(A), WH ETHER ORAL OR DOCUMENTARY, OTHER THAN THE EVIDENCE PRODUCED BY HIM DURING THE COURSE OF PROCEEDINGS BEFORE THE AO, EXCEPT IN THE FOLLOWING CIRCUMSTANCES, NAMELY; A) WHERE THE AO HAS REFUSED TO ADMIT EVIDENCE, OR B) WHERE APPELLANT WAS PREVENTED BY SUFFICIE NT CAUSE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE AO, OR C. WHERE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING BEFORE THE AO ANY EVIDENCE WHICH IS RELEVANT TO ANY GROUND OF APPEAL, OR D. ) WHERE AO HAS MADE THE OR DER WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE APPELLANT TO ADDUCE EVIDENCE. 2.4.21 ADMITTEDLY THE APPELLANT'S CASE DID NOT FALL UNDER (A), (B) OR (D) ABOVE AS PER THE RECORDS. HENCE THE APPELLANT HAS TO SATISFY SUFFICIENCY OF CAUSE UNDER (C) FOR NOT PRO DUCING THE EVIDENCE BEFORE THE AO. THE RIGHT TO PRODUCE ANY EVIDENCE UNDER RULE 46A(1) BEFORE THE CIT(A) IS NOT AUTOMATIC. THE ASSESSEE HAS TO APPLY PROPERLY TO MAKE OUT THE REASONABLE CASE AND HE HAS TO MAKE OUT THE CASE OF HIS INCAPACITY TO BRING CRUCIAL AND RELEVANT MATERIAL ON RECORD INSPITE OF HIS BEST AND SINCERE EFFORTS. EVEN RELIANCE ON THE PROVISION OF 250(4) & (5) OF THE L.T. ACT READ WITH RULE 46A OF INCOME TAX RULES TO ADMIT ADDITIONAL EVIDENCE IN EACH AND EVERY CASE WOULD BE QUITE FARFETCHED AS EVERY CASE WOULD DEPEND UPON THE FACTS AND CIRCUMSTANCES OBTAINING THEREIN AND BEFORE ADDUCING TO ADMIT ADDITIONAL EVIDENCE OR EVEN TO SEND THE ADDITIONAL EVIDENCE TO THE AO FOR COMMENTS, A I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 15 PRIMA FACIE EXAMINATION OF THE SO CALLED ADDITIONAL EVIDENCE HAS TO BE MADE BY THE CIT(A). HOWEVER, UPON APPRECIATION OF FACTS, I FOUND THAT AS THE EVIDENCES FURNISHED BY THE APPELLANT GO TO THE ROOT OF THE ISSUE AS WAS ALSO HELD BY THE THEN ID. CIT(A) - 22, MUMBAI WHILE REMANDING THE MATTER TO THE ID. AO, IN THE INTEREST OF FAIRNESS, ID. AO HAVING BEEN GRANTED AN OPPORTUNITY TO EXAMINE THE EVIDENCE IN DETAIL, THESE EVIDENCE NEEDED TO BE ADMITTED IN A.Y.2007 - 08 WHICH HAS A BEARING ON THIS YEAR. IN ANY CASE, AS WOULD TURN OUT LATER, THESE EVIDENCES ARE NOT THE SOLE GROUNDS FOR DECIDING THE APPEAL AS APPELLANT'S CLAIM OF EXEMPTION UNDER SEC. 10B WAS ALREADY SUBJECT MATTER OF ADJUDICATION BY THE HONBLE ITAT IN EARLIER YEARS. 2.4.22 IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF CASE CIT VS. P.S. JAIN & CO. LTD. 322 ITR 320(DEL.) WHERE IT HAS BEEN HELD THAT THE CIT(A) HAD EXERCISED HIS DISCRETION IN ALLOWING ADDITIONAL EVIDENCE IN RESPECT OF CASH CREDITS AND HAD ALSO AFFORDED AN OPPORTUNITY TO THE ASSESSING OFFICER TO EXAMINE THE ADDITIONAL EVIDENCE. IN VIEW OF THE SAME IT WAS HELD THAT THERE WAS NO PERVERSITY IN THE FINDING OF THE TRIBUNAL IN CONFIRMING THE ACTION OF THE CIT(A). 2.4.23 HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SMT. PRABHAVATI S. SHAH VS. CIT 231 ITR 1 (BORN) HAS HELD THAT THE AAC {NOW THE SAME PO WERS BEING EXERCISED BY CIT(A)}IS NOT FETTERED BY RULE 46A IN EXAMINING OR CALLING FOR PRODUCTION OF ANY DOCUMENTS AND HAS IN FACT WIDE POWERS UNDER SUB SEC (4) OF SECTION 250 TO MAKE SUCH FURTHER ENQUIRY AS HE THINKS FIT. HON'BLE BOMBAY HIGH COURT FURTHER HELD THAT THE POWERS OF THE AAC WHICH ARE WIDER THAN THE POWERS OF CIVIL COURT OF APPEAL AND THAT THE SCOPE OF HIS POWERS IS CO - TERMINUS WITH THAT OF THE IT WAS ALSO HELD THAT POWER CONFERRED ON MC UNDER SUB SECTION (4) TO SEC.250 BEING QUASI - JUDICIAL POWE R, IT IS INCUMBENT ON HIM TO EXERCISE THE SAME IF THE FACTS AND CIRCUMSTANCES JUSTIFY. IF THE AAC FAILS TO EXERCISE HIS DISCRETION JUDICIALLY AND ARBITRARY AND REFUSES TO MAKE AN ENQUIRY IN A CASE WHERE THE FACTS AND CIRCUMSTANCES SO DEMAND, HIS ACTION WOU LD BE CALLED UPON FOR CORRECTION BY THE HIGHER AUTHORITY. THE HON'BLE HIGH COURT WENT ON TO HOLD THAT THE ADDITIONAL EVIDENCE SHOULD HAVE BEEN ALLOWED TO BE PRODUCED BY THE APPELLANT UNDER RULE 46A OF THE I.T. ACT, 1962 IN RESPECT OF CASH CREDIT. 24.24 AC CORDINGLY, HAVING GIVEN CAREFUL CONSIDERATION TO THE FACTS NARRATED IN THE ASSESSMENT ORDER AND BROUGHT BEFORE ME DURING THE APPELLATE PROCEEDINGS IN A.Y.2007 - 08, I WAS OF THE CONSIDERED VIEW THAT APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THE EVIDENCE WITHIN THE MEANING OF SUB CLAUSE (C) OF SUB RULE (1) OF RULE 46A OF THE I.T. RULES, 1962. IN THESE CIRCUMSTANCES, I ADMITTED THE ADDITIONAL EVIDENCE. AS THE LD. A.O. WAS ALREADY GIVEN AN OPPORTUNITY TO FURNISH HIS OBJECTIONS TO THE ADDITIONAL I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 16 EVIDENCE AND HE HAS DONE SO, THE PROCEDURE INVOLVED AS PER SUB RULE (3) OF RULE 46A WAS HELD TO BE MET. 2.4.25 PURSUANT TO THE ABOVE, THE COPY OF THE REMAND REPORT IN A.Y. 2007 - 08 WAS PROVIDED TO THE APPELLANT WHO VIDE ITS ARS' LETTER SUBMITTED ON 22.08.2 013 BEFORE THE THEN LD. CIT(A) - 22, MUMBAI FILED A REJOINDER STATING THAT THE LD. AG HAD ACCEPTED MOST OF THE SUBMISSIONS AND HAD NOT OFFERED ANY COMMENTS IN REGARD TO THE SPECIFIC POINTS RAISED BY THE APPELLANT WHERE IT HAD ELABORATELY EXPLAINED AS TO HOW THE THEN LD. AO WRONGLY ADOPTED THE PRICE OF KSM - 6 AND KSM - 14 AT RS.2,000/ - AND RS.4,000/RESPECTIVELY BASED ON THE UNJUSTIFIED INFORMATION FROM MIS NOSCH LAB PVT. LTD. AND EIGHT OTHER COMPANIES. IT WAS ALSO POINTED OUT BY LD. AR THAT THE LD. AO HAD NOT DIS PUTED IN ANY MANNER THE DRUG MASTER FILE SPECIFICATIONS OF THE PATENTED PANTOPRAZOLE WHICH WERE REQUIRED TO BE COMPLIED WITH BY THE APPELLANT COMPANY. IT WAS FURTHER STATED THAT THE LD. AO DID NOT FIND ANY FAULT WITH THE APPELLANT'S SUBMISSION HIGHLIGHTING THE KEY ASPECT THAT 'COMPARISON SHOULD BE OF LIKE TO LIKE' AND THAT THE GROSS MARGINS OF MIS NYCOMED GMBH SUPPORTED THE LOGICAL CONTENTION THAT APPELLANT COMPANY HAD NOT CHARGED ANY EXCESSIVE PRICE FROM MIS NYCOMED. 2.4.26 SUBSEQUENTLY, LD. AR FOR THE AP PELLANT HAD ALSO FILED AN ADDITIONAL RELYING ON THE ITAT ORDER DATED 31.10.2013 FOR A.YS. 2003 - 04, 2004 - 05 ND 2005 - 06 WHERE THE THEN LD. AO HAD RESTRICTED THE APPELLANT'S CLAIM FOR DEDUCTION U/S 10B ON THE SIMILAR CHARGE OF EARNING ABNORMAL PROFITS. WHILE MAKING THE ABOVE SUBMISSION, IT WAS POINTED OUT BY LD. AR THAT THE HON'BLE TRIBUNAL HELD THAT THE PROVISIONS OF SECTION 10B(7) R.W.S 801A(10) COULD BE INVOKED 'ONLY IF IT COULD BE SAID THAT THE COURSE OF SUCH BUSINESS BETWEEN THE ASSESSEE COMPANY AND APAG , THAT M/S NYCOMED, GERMANY WAS A PRIVATELY OWNED, GLOBAL, MARKET DRIVEN PHARMACEUTICAL COMPANY AND APAG GERMANY WAS SO ARRANGED THAT THE SAME PRODUCED TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINES S AS CONTEMPLATED IN SECTION 80IA(10) OF THE ACT. 2.4.27 FURTHER, RELYING ON VARIOUS OBSERVATIONS OF THE HONBLE ITAT IN ITS OWN CASE FOR A.YS. 2003 - 04 TO 2005 - 06, THE APPELLANT ALSO POINTED OUT THAT THE PROFITS FOR THE IMPUGNED ASSESSMENT YEAR I.E. A.Y. 2 009 - 10 ARE IN NO MANNER UNREASONABLE OR MORE THAN ORDINARY AS COMPARED TO THE BASE YEAR AX.2002 - 03, MORE PARTICULARLY ON THE FOLLOWING COUNTS: A. SALE PRICE OF KSM - 6 AND KSM - 14 CHARGED BY THE APPELLANT TO MIS NYCOMED GMBH GERMANY ARE LOWER AT EURO 182 PER KG AND EURO 200 PER KG RESPECTIVELY, IN A.Y. 2007 - 08. I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 17 B. THE NET PROFIT BEFORE TAX FOR A.Y.2007 - 08 WORKED OUT TO 77%, WHICH IS, IN FACT, MARGINALLY LOWER THAN 84.54% IN A.Y. 2005 - 06 WHICH HAS BEEN UPHELD BY THE HONBLE ITAT TO BE FAIR AND REASONABLE AND BEY OND THE SCOPE OF INVOCATION OF THE PROVISIONS OF SECTION 801A(1 0). C. EVEN IN THE EARLIER YEARS THE JOINT VENTURE PARTNER APAG GERMANY IN THE APPELLANT COMPANY HAD ONLY 50% SHARE AND IT WAS DIFFICULT TO COMPREHEND AS TO WHY IT WOULD ENTER INTO ANY SORT OF ARRANGEMENT TO ALLOW THE APPELLANT COMPANY TO MAKE MORE THAN ORDINARY PROFITS. 2.4.28 IN THE END IT WAS URGED THAT KEEPING IN VIEW THE APPELLATE DECISION OF THE HON'BLE TRIBUNAL IN ITS OWN CASE WHERE IT WAS HELD THAT MERE SUBSTANTIAL PROFIT BY ITSELF WOU LD NOT GIVE RISE TO A CONCLUSION THAT THERE COULD BE ANY SUCH ARRANGEMENT TO PRODUCE MORE THAN THE ORDINARY PROFITS TO THE ASSESSEE FROM ELIGIBLE BUSINESS, THE DISALLOWANCE MADE BY THE LD. AO BY RESTRICTING THE APPELLANT'S CLAIM U/S 108 HAD TO BE DELETED. 2.4.29. AS THE FACTS FOR THIS YEAR ARE SIMILAR TO EARLIER YEARS IT IS IMPERATIVE TO THE LD. AO'S FINDINGS IN REMAND PROCEEDINGS OF EARLIER YEARS. THE THEN LD. T(A) - 22, MUMBAI HAD REMANDED THE MATTER TO THE LD. AO VIDE HIS LETTER DATED .09.2014 FOR BOTH AYS . 2007 - 08 & 2008 - 09 BY STATING THAT THE WORKING ADOPTED BY LD. AO USING SALE PRICE TO RESTRICT THE CLAIM OF DEDUCTION WAS NOT AS PER PROVISIONS OF LAW AND HENCE UNACCEPTABLE. IN THAT VIEW OF THE MATTER, HE DIRECTED THE LD. AO TO ASCERTAIN THE ACTUAL PROFIT EARNED ON SALE OF THESE TWO APIS BY MIS NOSCH LAB PVT. LTD. AND EIGHT OTHER COMPANIES. LD. AO WAS FURTHER DIRECTED TO ASCERTAIN WHETHER MIS NOSCH LAB PVT. LTD. AND EIGHT OTHER COMPANIES WERE MANUFACTURER OR TRADER AND WHETHER THOSE COMPANIES WERE EXCLUSIV ELY DEALING WITH APIS (KSM - 6 AND KSM - 14). LD. AO WAS THEREAFTER REQUIRED TO FIND OUT THAT IN CASE THE SAID COMPANIES WERE DEALING IN MANY PHARMACEUTICAL PRODUCTS, WHAT WAS THE SEGMENTAL PROFIT FOR THESE TWO PHARMACEUTICAL INGREDIENTS WHICH ONLY COULD BE CO MPARED WITH THE PROFITS OF THE APPELLANT SO AS TO INVOKE THE PROVISIONS OF SECTION 801B(10). 2.4.30 AFTER A SUSTAINED FOLLOW UP, LD. AO FINALLY SUBMITTED HIS SECOND REMAND REPORT DATED 19.11.2015 RECEIVED IN THIS OFFICE ON 26.11.2015 THROUGH THE OFFICE OF ADDL.CIT, RANGE - 15(3), MUMBAI. THE SALIENT POINTS OF THE SAID REMAND REPORT, OTHER THAN REPEATING THE FINDINGS IN THE LD. AO'S ORDER AND OBSERVATIONS OF LD. CIT(A) - 22, MUMBAI WHILE REMANDING THE MATTER, WAS MERELY BASED ON THE INFORMATION AVAILABLE ON THE ASSESSMENT RECORD. LD. AO HAD NOT CARED TO CARRY OUT ANY FURTHER VERIFICATION AND HAD RELIED ON THE INFORMATION AVAILABLE ON THE WEBSITE OF MIS NOSCH LAB PVT. LTD. ALONE. IN THE CONCLUDING PARAGRAPH, LD. AO STATED THAT THE THEN LD. AO HAD COMPARED THE PUR CHASE PRICE OF MIS NOSCH LABS PVT. LTD. AND EIGHT I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 18 OTHER COMPANIES WITH THE APPELLANT'S SALE PRICE AS THAT WAS MORE OBJECTIVE AND RELIABLE WAY OF COMPARISON. IN NUTSHELL, NO NEW EVIDENCE WAS BROUGHT ON RECORD OTHER THAN THE ONE WHICH WAS NARRATED IN THE ASS ESSMENT ORDER. 2.4.31 A COPY OF THE SECOND REMAND REPORT WAS PROVIDED TO THE APPELLANT FOR REJOINDER PURSUANT TO WHICH THE SAME WAS SUBMITTED VIDE LETTER DATED 22.12.2015 WHICH READS AS UNDER: 'REVISED SUBMISSIONS FOR THE APPELLANT IN RESPONSE TO THE REMA ND REPORT DATED 19/11/2015 SUBMITTED BYDY. CIT - 15(3)(1), MUMBAI IN CONTINUATION OF THE ELABORATE SUBMISSIONS AND ADDITIONAL SUBMISSIONS, - ALONG - WITH THE TWO PAPER BOOKS FILED BY THE APPELLANT DURING THE COURSE OF THE APPEAL PROCEEDINGS FROM TIME TO TIME, THE APPELLANT WISHES TO PRESENT THE FOLLOWING REVISED SUBMISSIONS, IN RESPONSE TO THE REMAND REPORT DATED 19/11/2015 SUBMITTED BY THE DY. CIT - 15(3)(1). MUMBAI (THROUGH THE ADDL. CIT, RANGE - 15(3), MUMBA: 1. UNDER PARAS 1 TO 5.1 OF HIS REMAND REPORT, THE LEA RNED A. 0. HAS MERELY SUMMARIZED IN A NUTSHELL THE FACTS OF THE CASE. UNDER PARA 5.2, THE LEARNED A. 0. HAS QUOTED CERTAIN OBSERVATIONS OF THE HON'BLE CIT(APPEALS) FOR PURPOSES OF SEEKING THE REMAND REPORT. AS OBSERVED BY THE HON WE CIT(APPEALS), 'THE A. 0 . HAD PURELY GONE BY THE COST OF SALE PER KG, WHICH IS UNINTENDED BY SEC. 80 - IA(10). THE SECTION GIVES THRUST ON THE ORDINARY PROFITS WHICH IS EXPECTED FROM THE ELIGIBLE BUSINESS. HENCE, WHAT IS TO BE COMPARED IS THE PROFIT OF THE ELIGIBLE BUSINESS WITH TH AT OF THE OTHER CONCERN. THE COST OF SALE AS SUCH CANNOT BE TREATED AS THE PROFIT OF THE ELIGIBLE UNIT THOUGH IT HAS GOT PROFIT EMBEDDED INTO IT.' 2. PARA 5.2 OF THE REMAND REPORT FURTHER NOTES THE FOLLOWING FINDINGS AND DIRECTIONS OF THE HON'BLE CIT(APPEA LS) GIVEN TO THE LEARNED A.O. FOR THE PURPOSE OF SUBMITTING HIS REMAND REPORT: A. THE WORKING ADOPTED BY THE A. 0. USING THE SALE PRICE TO RESTRICT THE CLAIM OF DEDUCTION IS NOT AS PER PROVISIONS OF LAW AND HENCE IS UNACCEPTABLE PROPOSITION. B. IN VIEW OF THIS, THE A.O. IS DIRECTED TO ASCERTAIN THE ACTUAL PROFIT EARNED ON SALE OF THESE TWO APIS (KSM - 6 AND KSM - 14) BY THE SEVEN COMPARABLE COMPANIES FROM THEIR ANNUAL ACCOUNTS. C. THE A.O. NEEDS TO FURTHER ASCERTAIN WHETHER THE ABOVE CONCERNS ARE A MANUFACTURE OR A TRADER OR MANUFACTURER CUM TRADER AND ALSO TO ASCERTAIN WHETHER THESE CONCERNS ARE EXCLUSIVELY DEALING WITH APIS KSM - 6 AND KSM - 14. I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 19 D. IN CASE, IF THE CONCERNS ARE DEALING WITH MANY PHARMACEUTICAL PRODUCTS THEN IT IS THE DUTY OF THE A. 0. TO FIND OUT T HE SEGMENTAL PROFIT FOR THESE TWO PHARMACEUTICAL INGREDIENTS AND THEN COMPARE SUCH PROFIT WITH THE PROFIT OF THE APPELLANT TO INVOKE THE PROVISIONS OF SEC. 80 - 1A(10). 3. IT IS PERTINENT TO POINT OUT THAT ALTHOUGH THE LEARNED A. 0. WAS GIVEN MORE THAN SUFFI CIENT TIME TO SUBMIT HIS FINDINGS AND COMMENTS ON THE AFORESAID FOUR ISSUES AS DIRECTED BY THE HON'BLE CIT(APPEALS), HE HAS NOT CONDUCTED ANY INQUIRY OR GATHERED ANY INFORMATION IN THE MATTER, BUT UNDER PARAS 5.3 TO 5.7 MERELY ANALYZED THE FACTS ON THE REC ORD OF THE CASE, AS AVAILABLE AT THE TIME OF THE ORIGINAL ASSESSMENT PROCEEDINGS. ON THE BASIS OF THE SAME, THE LEARNED A.O. HAS MERELY ATTEMPTED TO REITERATE THE VERY SAME ISSUES AS NOTED BY HIS PREDECESSOR UNDER THE ASSESSMENT ORDER. IN FACT, IT IS MOST RESPECTFULLY SUBMITTED THAT THE LEARNED A. 0. HAS DONE NOTHING BUT TO QUESTION THE WISDOM PT. THE HON'BLE CIT(APPEALS), WITHOUT RESPONDING TO ANY OF THE ANSWERS AS SPECIFICALLY SOUGHT FROM HIM. THIS IS CLEAR AND EVIDENT FROM THE FOLLOWING: IN RESPONSE TO T HE DIRECTION UNDER WHICH THE A. 0. WAS ASKED TO ASCERTAIN THE ACTUAL PROFIT EARNED ON SALE OF THESE TWO APIS BY THE SEVEN COMPANIES FROM THEIR ANNUAL ACCOUNTS, THE LEARNED A.O. HAS UNDER PARA 5.4 VAGUELY OBSERVED THAT, 'MOST OF THE COMPANIES MAINTAINED ONL Y CONSOLIDATED PROFITABILITY OF ALL THE PRODUCTS AND DID NOT MAINTAIN PRODUCT WISE/SEGMENT WISE PROFITABILITY.' II. UNDER THE NEXT POINT RAISED BY THE HON'BLE CIT(APPEALS) FOR PURPOSES OF REMAND, THE LEARNED A.O. WAS ASKED TO ASCERTAIN WHETHER THESE COMPAN IES WERE A MANUFACTURER OR TRADER OR MANUFACTURER CUM TRADER. UNDER PARA 5.3, THE LEARNED A. O. HAS MERELY REITERATED THE OBSERVATIONS OF HIS PREDECESSOR WHO FRAMED THE ORIGINAL ASSESSMENT AS SUBMITTED BY THE APPELLANT IN ITS SUBMISSIONS DURING THE APPEAL PROCEEDINGS BEFORE YOUR HONOUR, THERE IS NO EVIDENCE ON RECORD WHICH CAN GO TO CONCLUSIVELY SHOW AS TO WHAT WAS THE ACTIVITY OF THE SEVEN COMPANIES WITH REFERENCE TO KSM 6 AND KSM 14. WITHOUT ASCERTAINING ANYTHING AS DIRECTED BY THE HON'BLE CIT(APPEALS), T HE LEARNED A.O. HAS ON THE BASIS OF HIS OWN ASSUMPTIONS CONCLUDED UNDER PARA 5.3 THAT, 'THEREFORE IT MAY BE SAID THAT THE COMPANY MS. NOSCH LAB PVT. LTD. IS ENGAGED MAINLY IN MANUFACTURING.' AS REGARDS THE REMAINING SIX COMPANIES, HE HAS NOT STATED ANYTHIN G EXCEPT OBSERVING THAT, 'THE A. O. HAS ALSO GATHERED INFORMATION BY ISSUE OF OF NOTICE U/S. 133(6) FROM THE OTHER SIX COMPANIES, WHICH ARE DEALING IN THESE TWO APIS.' IT IS PERTINENT TO POINT OUT THAT NO SUCH SPECIFIC INFORMATION IS AVAILABLE ON ,AUIN THE L:TT'INAI ASSESSMENT PROCEEDINGS IN REGARD TO THE SIX PARTIES BEING A MANUFACTURER OR TRADER, AS REQUIRED TO BE CLARIFIED UNDER THE REMAND DIRECTIONS OF THE HON'BLE CIT (APPEALS). I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 20 III. THE A. O. WAS ALSO ASKED UNDER REMAND TO FIND OUT THE SEGMENTAL PROFIT FOR KSM - 6 AND KSM - 14 AND COMPARE SUCH PROFIT WITH THE PROFIT OF THE APPELLANT TO INVOKE THE PROVISIONS OF SEC. 80IA(10). WITHOUT MAKING ANY INDEPENDENT EFFORT AT HIS END, THE LEARNED A.O. HAS UNDER PARA 5.7 MERELY DEFENDED THE ACTION OF HIS LEARNED PREDEC ESSOR AND QUESTIONING THE APPROACH OF THE HON'BLE CIT(APPEALS), COMMENTED THAT THE COMPARABILITY OF THE PURCHASE PRICE IS THE MOST DIRECT AND MORE RELIABLE COMPARABLE THAN PROFITABILITY.' THE LEARNED A.O. HAS FURTHER MADE A CRYPTIC REMARK WITHOUT ANY LOGIC AL SUPPORT OR BASIS THAT 'INTERMEDIARY PRODUCTS ARE CHEMICAL FORMULATIONS, SO QUALITY OR NATURE OF THE PRODUCT HAS TO BE IDENTICAL IN ALL CASES.' IT IS RESPECTFULLY SUBMITTED THAT THIS APPROACH OF THE LEARNED A. 0. IS PATENTLY ERRONEOUS. THE QUALITY OF THE RAW MATERIALS USED IN THE MANUFACTURE OF A PHARMACEUTICAL END PRODUCT IS EXTREMELY RELEVANT IN THE DETERMINATION OF ITS COST AND ULTIMATE PROFITABILITY. THE APPELLANT WISHES TO MOST RESPECTFULLY SUBMIT THAT THE REMAND REPORT SUBMITTED BY THE LEARNED A. O. IS IN NO WAY IN DUE COMPLIANCE OF WHAT WAS SOUGHT FOR BY THE HON'BLE CIT(APPEALS) AND FURTHER DOES NOT EVEN EFFECTIVELY DEAL WITH THE REASONING AND THE POSERS PUT FORWARD BY THE HON'BLE CIT(APPEALS). IN THIS CONTEXT, THE APPELLANT WISHES TO PRESENT THE FO LLOWING SUBMISSIONS FOR YOUR HONOUR'S KIND CONSIDERATION: UNDER PAGES 287 TO 336 OF THE APPELLANT'S PAPER BOOK (VOL.2), THE DETAILS COLLECTED BY THE ASSESSING OFFICER BY ISSUING NOTICE U/S. 133(6) TO SIX PHARMACEUTICAL COMPANIES VIZ. SOURAV CHEMICALS, CIPL A, MATRIX LABORATORIES, SUN PHARMACEUTICALS, ORCHID CHEMICALS AND PHARMACEUTICALS AND APEX DRUGS AND INTERMEDIATES HAVE BEEN DULY COMPILED. AS WILL BE EVIDENT FROM THE SAME, THESE PHARMACEUTICAL COMPANIES HAVE MERELY PURCHASED KSM - 6 AND KSM - 14 FROM VARIOUS PARTIES OF CHINA AND INDIA DURING A. Y. 2008 - 09 (FY 2007 - 08). INTACT, NONE OF THESE SIX PARTIES HAVE EITHER MANUFACTURED KSM - 6 OR KSM - 14 AS DONE BY THE APPELLANT AND THEREFORE THE COMPARISON OF THE PURCHASE RATES IN THE CASE OF THE SAID SIX COMPANIES WITH THE SALE PRICE OF THE APPELLANT WHO HAS MANUFACTURED KSM - 6 AND KSM - 14 FOR THE EUROPEAN MARKET AS PER HIGHEST INTERNATIONAL STANDARDS IS CLEARLY UNJUSTIFIED, AS IT WOULD TANTAMOUNT TO COMPARING APPLES WITH ORANGES.' IL MOREOVER, NONE OF THE SIX COMPANIES H AVE EITHER EXPLAINED TO THE A. 0. NOR HAS THE A. 0. GATHERED ANY INFORMATION FROM THEM IN REGARD TO HOW OR IN WHAT MARINER THE KSM - 6 OR KSM - 14 PURCHASED BY THE SAID COMPANIES HAVE BEEN UTILIZED BY THEM. IT IS ALSO NOT KNOWN AS TO WHAT WAS THE END PRICE OF THE PRODUCT MADE OUT OF THE UTILIZATION OF THE SAID INTERMEDIATES KSM - 6 AND KSM - 14 AND WHAT PROFIT WAS EARNED BY THEM OUT OF SUCH SALE. I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 21 III. IT IS PERTINENT TO NOTE THAT ALTHOUGH THE HON'BLE CIT(APPEALS) HAD UNDER THE DIRECTIONS FOR GETTING THE REMAND REPO RT SPECIFICALLY ASKED THE LEARNED A. 0. TO GET DETAILS OF PROFITABILITY OF THE SAID COMPANIES FOR PURPOSES OF COMPARING WITH THE PROFITABILITY OF THE APPELLANT, THE LEARNED A.O. HAS NOT BEEN ABLE TO DO SO. IN FACT, HE HAS QUESTIONED THE LOGIC AND REASONING OF THE HON'BLE CIT(APPEALS) THAT FOR PURPOSES OF SEC. 80 - IA(10), WHAT IS REQUIRED TO BE CONSIDERED IS NOT THE PURCHASE OR THE SALE PRICE BUT THE AMOUNT OF PROFITS EARNED ON THE BUSINESS TRANSACTED WITH THE PERSON WITH WHOM THE ASSESSEE HAS CLOSE CONNECTIO N. UNDER THE CIRCUMSTANCES, YOUR HONOUR MAY BE PLEASED TO DECIDE THE MATTER KEEPING IN VIEW THE MERITS OF THE APPELLANT'S ELABORATE SUBMISSIONS AND THE LOGICAL REASONING OF THE HON'BLE ITAT ORDER IN THE APPELLANT'S OWN CASE, DEALING WITH THIS IDENTICAL CON TROVERSY IN THE EARLIER YEARS.' 2.4.32 UPON CONSIDERING THE ENTIRE CONSPECTUS OF FACTS WHICH HAVE BEEN ELABORATELY COMPILED SUPRA, I FIND THAT THE ONLY DIFFERENCE BETWEEN THE FACTS OBTAINING IN A.YS. 2003 - 04 TO 2005 - 06 WHICH WERE ADJUDICATED UPON BY THE HO NBLE TRIBUNAL VIDE ITS ORDER DATED 31.10.2013 (SUPRA) AND THE FACTS OBTAINING IN THE PRESENT APPEAL BEFORE ME IS THAT LD. AO HAS REFERRED TO A COMPARABLE FROM M/S NOSCH LABS PVT. LTD. AND EIGHT OTHER COMPANIES VIS - A - VIS THE SALE PRICE OF THE APPELLANT COM PANY TO M/SNYCOMED TO COME TO THE CONCLUSION THAT THE APPELLANT COMPANY WAS CHARGING EXCESSIVELY TO M/S NYCOMED AND THAT THE ENTIRE AFFAIRS WERE ARRANGED IN ORDER TO CLAIM EXCESSIVE DEDUCTION U/S 10B OF THE ACT. AS POINTED OUT EARLIER, LD. CIT(A) - 22, MUMBA I WHILE REMANDING THE MATTER BACK FOR THE SECOND TIME TO THE LD. AO VIDE LETTER DATED 12.09.2014 FOR A.YS 2007 - 08 & 2008 - 09 HAD CLEARLY HELD THAT COST OF SALE OF M/S. NOSCH LAB AND EIGHT OTHER COMPANIES COULD NOT BE ADOPTED FOR COMPUTING THE PROFIT OF THE ELIGIBLE UNIT AND, THEREFORE, THE WORKING ADOPTED BY LD. AO USING THE COST OF SALE TO RESTRICT THE CLAIM OF DEDUCTION WAS NOT AS PER THE PROVISIONS OF LAW AND HENCE, WAS AN UNACCEPTABLE PROPOSITION. WHAT THE LD. AG HAD DONE IN THE SECOND REMAND REPORT WAS NOTHING MORE THAN WHAT WAS BROUGHT OUT IN THE ASSESSMENT ORDER. THE HON'BLE ITAT IN APPELLANT'S OWN CASE FOR A.YS. 2003 - 04 TO 2005 - 06 (SUPRA) FOUND THAT THE THEN JOINT VENTURE PARTNER MIS APAG, GERMANY WAS ALSO SOURCING KSM - 6 AND KSM - 14 FROM THE APPELLANT COMPANY THROUGH JOINT VENTURE AGREEMENT, SUPPLY AGREEMENT AND LICENSE AND DISTRIBUTION AGREEMENT AS IS THE SITUATION IN THE PRESENT APPEAL. 2.4.33 THEREFORE, ON A CLOSE AND CAREFUL CONSIDERATION OF THE ABOVE, LAM OF THE VIEW THAT THE ID. AG WAS NOT JUSTIFI ED IN RESTRICTING THE APPELLANT'S CLAIM FOR EXEMPTION U/S.10B(7). FOR ARRIVING AT THIS CONCLUSION, I HAVE BEEN GUIDED BY THE FOLLOWING IMPORTANT ASPECTS: I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 22 A. LD. AO HAS RESTRICTED THE APPELLANT'S CLAIM FOR EXEMPTION BY INVOKING THE PROVISIONS OF SEC.801A(8) AND (10). AS REGARDS THE APPLICABILITY OF THE PROVISIONS OF SEC.801A(8), THE APPELLANT IS QUITE JUSTIFIED IN CONTENDING THAT SEC.801A(8) IS ATTRACTED ONLY IN A CASE, 'WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERR ED TO ANY BUSINESS CARRIED ON BY THE ASSESSEE.' ON THE FACTS OF THE APPELLANT'S CASE, IT IS SEEN THAT THE SALE OF KSM - 6 AND KSM - 14 MANUFACTURED BY THE APPELLANT WERE NOT TRANSFERRED TO ANY BUSINESS CARRIED ON BY IT RATHER THE PRODUCTS MANUFACTURED BY IT WE RE INDEPENDENTLY SOLD AS PER THE TERMS OF THE JOINT - VENTURE AGREEMENT TO ITS JOINT - VENTURE PARTNER, NYCOMED GMBH, GERMANY. UNDER THE CIRCUMSTANCES, I AM INCLINED TO AGREE WITH THE APPELLANT'S CONTENTION THAT THE INVOKING OF THE PROVISIONS OF SEC. 801A(8) I S NOT CALLED FOR ON THE FACTS OF ITS CASE. B. AS POINTED OUT EARLIER, IT IS A MATTER OF RECORD THAT THE PROVISIONS OF SEC. 10B(7) R.W.SEC.801A(10) WERE SOUGHT TO BE INVOKED FOR THE FIRST TIME I IN THE APPELLANT'S ASSESSMENT FOR A.Y.2004 - 05 AND ITS CLAIM FO R EXEMPTION U/S 10B WAS RESTRICTED BY THE ID. A.O. WHO FRAMED THE ASSESSMENT THEN. ON THE BASIS OF THE VIEW TAKEN IN A.Y.2004 - 05, NOT ONLY WAS THE ASSESSMENT FOR THE A.Y.2005 - 06 FINALISED ACCORDINGLY, RESTRICTING THE APPELLANT'S CLAIM U/S.10B, BUT ALSO THE COMPLETED ASSESSMENT FOR A.Y.2003 - 04 WAS REOPENED U/S.147. THE APPEALS FILED BY THE APPELLANT FOR ALL THE THREE YEARS WERE DULY ALLOWED BY THE ID. CIT(A) AND THEY CAME TO BE CHALLENGED BY THE DEPARTMENT BEFORE THE HON'BLE ITAT. AS CLEARLY HIGHLIGHTED BY T HE HON'BLE ITAT IN PARA 16 OF ITS ORDER DATED 31/10/2013 (SUPRA), THE PROVISIONS OF SEC. 10B(7), R.W.S. 801A(1O) CAN BE INVOKED, 'ONLY IF IT CAN BE SAID THAT THE COURSE OF SUCH BUSINESS BETWEEN THE ASSESSEE COMPANY AND APAG, GERMANY WAS SO ARRANGED THAT TH E SAME PRODUCED TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS AS CONTEMPLATED IN SECTION 80IA(10) OF THE ACT' IN THE SAME PARAGRAPH, HON'BLE ITAT FURTHER OBSERVED THAT, 'THE CASE OF THE A.O. IN TH IS REGARD IS BASED ON THE COMPARATIVE WORKING OF PROFITABILITY MADE BY HIM TO ALLEGE THAT THE PROFITS SHOWN BY THE ASSESSEE FOR ALL THE THREE YEARS UNDER CONSIDERATION WERE MORE THAN THE PROFITS SHOWN BY THE ASSESSEE FOR THE FIRST YEAR I.E. A. Y 2002 - 03 WH ICH WAS TAKEN BY THE HIM ABNORMAL PROFITS OF THE ASSESSEE'S ELIGIBLE BUSINESS.' THUS, THE EFFECTIVE BENCHMARK LAID DOWN BY THE HONTLE ITAT WAS AS TO WHETHER THE PROFITS FOR THE THREE YEARS A.YS. 2003 - 04 TO 2005 - 06, COULD BE COMPARED TO BE FAIR AND REASONAB LE, CONSIDERING THE BASE PARAMETERS OF A.Y. 2002 - 03, WHICH THE ID. AO HIMSELF HAD ACCEPTED AS THE COMPARABLE BASE. ON THE BASIS OF THE ABOVE, THE HON'BLE ITAT, AFTER REFERRING TO THE FIGURES AS PER RESPECTIVE TAX AUDIT REPORTS, HAS REPRODUCED IN PARA 19 OF ITS ORDER THE COMPARABLE NET PROFIT BEFORE TAX FOR THE FOUR YEARS FROM A.Y. 2002 - 03 TO A.Y. 2005 - 06. ON DUE I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 23 APPRECIATION OF THE RELEVANT FACTS OF THE SUBSEQUENT THREE YEARS, HON'BLE ITAT HAS GIVEN A CATEGORICAL FINDING IN PARA 20 THAT, 'THE INCREASE IN GR OSS PROFIT RATE FOR THE YEARS UNDER CONSIDERATION AS COMPARED TO THAT OF A. Y 2002 - 03 WHICH WAS TAKEN BY THE A. 0. AS THE YEAR OF ORDINARY PROFITS THUS WAS PROPERLY EXPLAINED BY THE ASSESSEE AND KEEPING IN VIEW THE SAID EXPLANATION WHICH WAS BASED ON THE R ELEVANT FACTS AND FIGURES, WE ARE OF THE VIEW THAT THE ID. CIT(A) WAS FULLY JUSTIFIED IN HOLDING THAT THE PROFITS OF THE ASSESSEE COMPANY FROM ITS ELIGIBLE BUSINESS FOR THE YEARS UNDER CONSIDERATION COULD NOT BE REGARDED AS MORE THAN THE ORDINARY PROMS WHI CH ARE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS SO AS TO ATTRACT THE PROVISIONS OF SECTION 801,4(1 0) OF THE ACT' C. KEEPING IN VIEW THE ABOVE BENCHMARK REASONING ADOPTED BY THE HON'BLE ITAT, THE APPELLANT HAS EMPHATICALLY CONTENDED THAT EVEN FOR THE YE AR UNDER CONSIDERATION, VIZ. A.Y.2009 - 10, THE PROFITS ARE IN NO MANNER UNREASONABLE OR MORE THAN ORDINARY, AS COMPARED TO THE BASE YEAR A.Y. 2002 - 03, ON THE TWO COUNTS, VIZ.,(I) THE SALE PRICE OF KSM - 6 AND KSM - 14 CHARGED BY THE APPELLANT TO M/S. NYCOMED GM BH GERMANY, ARE LOWER AT EURO 182 PER KG AND EURO 200 PER KG. RESPECTIVELY, IN A.Y. 2008 - 09; AND (H) THE NET PROFIT BEFORE TAX FOR A.Y. 2009 - 10 WORKS OUT TO 77%, WHICH IS IN FACT MARGINALLY LOWER THAN 84.54%, BEING THE SIMILAR RATE FOR AN. 2005 - 06, WHICH HAS BEEN UPHELD BY THE HON'BLE ITAT TO BE FAIR AND REASONABLE AND BEYOND THE SCOPE OF INVOCATION OF THE PROVISIONS OF SEC. 80IA(10). THIS IMPORTANT FACT HIGHLIGHTED BY THE APPELLANT IN ITS SUBMISSIONS HAS NOT BEEN CONTROVERTED BY THE ID. AO, EVEN IN HIS TW O REMAND REPORTS SUBMITTED DURING THE APPELLATE PROCEEDINGS. D. FURTHER, IN THE AFORESAID ORDER, THE HON'BLE TRIBUNAL'S OBSERVATIONS IN PARA 21 ARE PERTINENT, WHEREIN IT HAS BEEN NOTED THAT, 'APAG GERMANY WAS A JOINT VENTURE PARTNER IN THE ASSESSEE COMPANY HAVING 50% SHARE ONLY AND IT IS DIFFICULT TO COMPREHEND AS TO HOW AND WHY IT WILL ENTER INTO ANY SOD OF ARRANGEMENT TO ALLOW THE ASSESSEE COMPANY TO MAKE MORE THAN ORDINARY PROFITS AT ITS OWN COST KNOWING FULLY WELL THAT THE BENEFIT OF SUCH ARRANGEMENT A S A RESULT OF ANY EXCESS PROFIT COULD BE SHARED BY IT ONLY TO THE EXTENT OF 50% WITH THE BALANCE 50% GOING TO THE OTHER JOINT VENTURE PARTY.' E. THE HON'BLE ITAT HAS USEFULLY RELIED ON THE RATIO IN THE CASE OF DIGITAL EQUIPMENT INDIA LTD. VS. DC1T, (2006) 103 TTJ (BANG.) 359 BY NOTING THAT, 'A SIMILAR ISSUE WAS INVOLVED WHEREIN THE DEDUCTION CLAIMED BY THE JOINT VENTURE COMPANY WAS RESTRICTED BY THE REVENUE AUTHORITIES BY GERMANY WAS SO ARRANGED THAT THE SAME PRODUCED TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS AS CONTEMPLATED IN SECTION 801A(10) OF THE ACT' I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 24 F. AS FAR AS THE APPROACH OF THE ID. AO IN REWORKING THE PROFIT OF THE APPELLANT ADOPTING THE MARKET PRICES OF RS.3,000/ - FOR KSM - 6 AND RS.5, 200/ - FOR KSM - 14 IS CONCERNED, FOR THE SAID PURPOSE, HE HAS RELIED ON THE SALE PRICES OF SIMILAR PRODUCTS AS AVAILABLE IN THE CASE OF M/S. NOSCH LAB PVT. LTD. AND EIGHT OTHER COMPANIES. I FIND THAT THERE WAS NO DEFINITE INFORMATION IN THE POSSESSION OF THE ID. AO AS TO WHETHER DURING THE RELEVANT PERIOD UNDER CONSIDERATION, M/S. NOSCH LAB PVT. LTD AND EIGHT OTHER COMPANIES WERE MANUFACTURER OF KSM - 6 & KSM - 14 OR THEY WERE MERE TRADERS. LD. AO HAS ALSO NOT PLACED ON RECORD ANY INFORMATION IN REGARD TO THE MAN UFACTURING FACILITIES (IF ANY) AND/OR PROCESS INVOLVED IN THE MANUFACTURE, THE QUALITY STANDARDS OF THE SAME ETC. THE APPELLANT IS, THEREFORE, QUITE JUSTIFIED IN CONTENDING THAT IN THE ABSENCE OF ANY INFORMATION IN REGARD TO THE QUALITY STANDARDS FOLLOWED BY SOME CHINESE AND INDIAN SUPPLIERS WHO HAD SUPPLIED KSM - 6 AND KSM - 14 TO M/S. NOSCH LAB AND EIGHT OTHER COMPANIES, THE PRICES OF THE PRODUCTS MANUFACTURED BY THE APPELLANT COMPLYING WITH THE HIGHEST QUALITY STANDARDS FOR SUPPLY IN THE EUROPEAN MARKET COUL D NOT BE ARBITRARILY COMPARED TO THE HALF - HEARTED INFORMATION COLLECTED BY THE ID. AO IN THE MANNER AS POINTED OUT HEREINABOVE. G. I ALSO FIND THAT THE APPELLANT'S SUBMISSIONS IN REGARD TO ITS PRICING BEING FAIR AND PROFITS BEING REASONABLE ARE LOGICALLY C ONVINCING. IT IS NOT IN DISPUTE THAT AS PER THE CONTRACTUAL UNDERSTANDING, THE PRICE CHARGED BY THE APPELLANT TO M/S NYCOMED GMBH IS LOWER THAN THE PRICE PAID BY M/S H. I ALSO FIND FORCE IN THE APPELLANT'S SUBMISSIONS THAT IN ORDER TO ASCERTAIN THE PREVAIL ING MARKET PRICE OF THE PRODUCTS MANUFACTURED BY THE APPELLANT COMPANY, THE PRICE CHARGED BY THE APPELLANT TO MIS. NYCOMED SHOULD BE COMPARED WITH THE PRICE PAID BY MIS. NYCOMED TO ITS OTHER SUPPLIERS FOR SIMILAR PRODUCTS AND IT CANNOT BE COMPARED, AS DONE BY THE ID. A.O. WITH THE PRICE OF PRODUCTS (THOUGH AVAILABLE AT A MUCH CHEAPER PRICE), BUT WHICH MIS. NYCOMED IS NOT PURCHASING AS ITS RAW MATERIALS. IT IS IMPORTANT TO BEAR IN MIND THAT A COMPARISON OF PRICES, SHOULD BE OF PRODUCTS WHICH ARE LIKE TO LIKE IN TERMS OF THEIR SPECIFICATION, STANDARDS AND QUALITY. THE APPELLANT IS QUITE JUSTIFIED IN CONTENDING THAT MIS. NYCOMED IS A GLOBAL COMPANY AND, THEREFORE, IT WOULD HAVE KNOWN THAT KSM - 6 AND KSM - 14, WHICH ARE BEING MANUFACTURED BY THE APPELLANT COMPANY, ARE ALSO AVAILABLE FROM MANUFACTURERS IN OTHER COUNTRIES SUCH AS CHINA, AT CHEAPER PRICES THAN THE PRICE PAID BY IT TO THE APPELLANT COMPANY OR TO MIS. ISOCHEM INC. HOWEVER, MIS. NYCOMED DID NOT PREFER TO PROCURE ITS REQUIREMENTS OF KSM - 6 AND KSM - 14 FROM S UCH SUPPLIERS AT CHEAPER RATES, BECAUSE IT DID NOT WISH TO COMPROMISE ON THE MANUFACTURING STANDARDS AND QUALITY CONTROL ADHERENCE, REQUIRED FOR MANUFACTURING KSM - 6 AND KSM - 14. IT IS A KNOWN FACT THAT SUCH HIGH STANDARDS ARE NOT COMPLIED WITH BY SUCH MANUF ACTURERS I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 25 WHO PRODUCE THE SAME PRODUCTS AT CHEAPER RATES. AS THE PRODUCT PANTOPRAZOLE WAS PATENTED BY M/S. NYCOMED, IT WAS REQUIRED TO COMPLY WITH THE STRICT SPECIFICATIONS OF DRUG MASTER FILE AND OF EUROPEAN FOOD & DRUG REGULATORY AUTHORITY, OTHERWISE IT C OULD LOSE ITS PATENT. M/S. NYCOMED HAD, THUS, TAKEN A CONSCIOUS DECISION TO PROCURE ITS REQUIREMENTS OF KSM - 6 AND KSM - 14 FROM THE APPELLANT COMPANY, AS IT WAS FULLY COMPLYING WITH THE SPECIFICATIONS OF DRUG MASTER FILE AND OF EUROPEAN FOOD & DRUG REGULATOR Y AUTHORITY. I. TO SUPPORT ITS CONTENTION THAT M/S. NYCOMED GMBH IS NOT PAYING TO THE APPELLANT ANY EXCESSIVE PRICE FOR PROCURING KSM - 6 AND KSM - 14 FOR MANUFACTURING OF PANTOPRAZOLE, THE APPELLANT HAS SUBMITTED A FINANCIAL ANALYSIS OF BOTH, M/S. NYCOMED, AS ALSO M/S. LSOCHEM INC. WHICH WAS EVEN PRODUCED BEFORE THE LD. AO DURING ASSESSMENT FOR A.Y.2008 - 09 AND FORWARDED IN REMAND PROCEEDINGS BUT NO COMMENTS WERE OFFERED BY HIM. FROM THE SAME, IT IS EVIDENT THAT NYCOMED'S OWN PROFIT MARGINS ARE AS HIGH AS 74%. MOREOVER, THE PROFIT MARGIN OF AROUND 81% TO 84% IN THE CASE OF M/S. ISOCHEM INC., ALSO GOES TO JUSTIFY THAT M/S. NYCOMED GMBH IS NOT PAYING ANY EXCESSIVE PRICE TO THE APPELLANT COMPANY, MORE PARTICULARLY IN VIEW OF THE FACT THAT THE APPELLANT'S PROFIT MAR GIN FOR THE YEAR UNDER CONSIDERATION BEING 77% IS VERY MUCH COMPARABLE WITH THAT OF M/S. LSOCHEM. 2.4.34 IT IS PERTINENT TO NOTE THAT THE FACTS AS NOTED HEREINABOVE WERE NOT CONTROVERTED IN ANY MANNER BY THE ID. AO IN HIS REMAND REPORTS FOR A.YS 2007 - 08 & 2008 - 09. OTHER THAN REFERRING TO THE ARGUMENTS IN A.Y.2007 - 08 IN RESPECT OF M/S NOSCH LABS PVT. LTD., LD. AO IN HIS SECOND REMAND REPORT DID NOT EVEN CARE TO MAKE ANY REFERENCE TO OTHER EIGHT COMPANIES. SAME IS TRUE IN THIS YEAR. IN VIEW OF THE SAME, I HOL D THAT THE ID. AO WAS CLEARLY NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SEC. 10B(7) R.W.S. 80IA(10), SINCE IT CANNOT BE SAID THAT THE BUSINESS TRANSACTED BETWEEN THE APPELLANT AND M/S. NYCOMED PRODUCED TO THE APPELLANT MORE THAN THE ORDINARY PROFITS EXPE CTED TO ARISE IN SUCH BUSINESS. 2.4.35 THEREFORE, AFORESAID FINDINGS OF THE HON'BLE ITAT, IN THE APPELLANT'S OWN CASE, CAN BE SQUARELY APPLIED TO RESOLVE THE CONTROVERSY BEFORE ME IN A.Y. 2008 - 09, MORE PARTICULARLY, KEEPING IN VIEW THE MATERIAL FACTS AS HI GHLIGHTED HEREINBEFORE, WHICH ARE SIMILAR TO THOSE OF A.YS. 2003 - 04 TO 2005 - 06. THUS, RESPECTFULLY FOLLOWING THE SAME, I HAVE NO HESITATION IN HOLDING THAT THE LD. A0 WAS NOT JUSTIFIED IN DRAWING HIS CONCLUSION AGAINST THE APPELLANT THAT ITS COURSE OF BUSI NESS WITH NYCOMED GMBFI, GERMANY WAS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCED TO THE APPELLANT MORE THAN THE ORDINARY PROFITS, WHICH MIGHT BE EXPECTED TO ARISE IN SUCH CASE. THEREFORE, THE ACTION OF RESTRICTING THE EXEMPTION I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 26 U/S.10B A S DONE BY THE LD. AO CANNOT BE UPHELD. HE IS, ACCORDINGLY, DIRECTED TO ALLOW THE APPELLANT'S CLAIM FOR EXEMPTION U/S. 10B OF THE I.T. ACT AS CLAIMED IN ITS RETURN OF INCOME. 2.5. IN THE RESULT, THE APPEAL FOR A.Y. 2009 - 10 IS ALLOWED. 6. ON APPRAISAL OF TH E ABOVE MENTIONED FINDING, WE NOTICED THAT THE CIT(A) HAS DEALT WITH THE EACH AND EVERY ASPECT OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE MATTER OF CONTROVERSY HAS ALREADY BEEN ALLOWED IN THE A.YS.2003 - 04 TO 2005 - 06 IN WHICH THE CLAIM OF THE A SSESSEE WAS FOUND JUSTIFIABLE IN VIEW OF THE ORDER OF HONBLE ITAT IN THE ASSESSEES OWN CASE WHICH HAS BEEN REPRODUCED BY THE CIT(A), THEREFORE, THERE IS NO NEED TO REPEAT THE SAME. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE. NO LAW CONTRARY TO THE L AW RELIED BY THE LD. REPRESENTATIVE OF THE CIT(A) HAS BEEN PRODUCED BEFORE US. TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THESE ISSUE S ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. IN THE RESULT, APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. ITA. NO. 4670 /M/201 6 9 . THE FACTS OF THE PRESENT CASE ARE QUITE SIMILAR TO THE FACT OF THE CASE AS NARRATED ABOVE WHILE DECIDING THE ITA. NO.3336 /M/201 6 , THEREFORE, THERE IS NO NEED TO REPEAT THE SAME. HOWEVER, THE FIGURE IS DIFFERENT. THE MATTER OF CONTROVERSY IS ALSO THE SAME. THE FINDING GIVEN ABOVE WHILE DECIDING THE APPEAL OF THE ASSESSEE BEARING IT A. NO.3336 /M/201 6 IS QUITE APPLICABLE TO THE I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 27 FACTS OF THE PRESENT CASE AS MUTATIS MUTANDIS. ACCORDINGLY, WE CONFIRM THE FINDING OF THE CIT(A) ON THESE ISSUES. 22 . IN THE RESULT, APPEALS FILED BY THE REVENUE ARE HEREBY ORDERED TO BE DISMISSED. ORDER PRONOUNCE D IN THE OPEN COURT ON 28 /08/2019 SD/ - SD/ - ( M. BALAGANESH ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBA I DATED : 28 /08/2019 VIJAY/SR. PS I .T.A. NO S . 3336/MUM/2016 4670/MUM/2016 A.Y. 2009 - 10 & 2011 - 12 28 / COPY OF THE ORDER FORWARDED T O : / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE.