M/s. PFIZER LTD., MUMBAI V. ACIT Rg. - 8(2), MUMBAI

ITA 3729/MUM/2008

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2722 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 05-05-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 28-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Retrospective amendment; Question of law; Wholly owned subsidiary; Capital expenditure
• Section: 92C; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO.3729/MUM./2008 ( ASSESSMENT YEAR : 2003 04 ) PFIZER LIMITED PATEL ESTATE JOGESHWARI (WEST) MUMBAI 400 1 02 PAN AAACP3334M .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX RANGE 8(2), AAYAKAR BHAWAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO.3424/MUM./2008 ( ASSESSMENT YEAR : 2003 04 ) DY. COMMISSIONER OF INCOME TAX RANGE 8 (2), AAYAKAR BHAWAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S PFIZER LIMITED PATEL ESTATE JOGESHWARI (WEST) MUMBAI 400 102 PAN AAACP3334M .... RESPONDENT ASSESSEE BY : SHRI KANCHAN KAUSHAL A/W SHRI ALIAS GER RAMPURWALA AND MS. CHANDANI SHAH REVENUE BY : SHRI N.K. CHAND DATE OF HEARING 16.09.2015 DATE OF ORDER 06.11.2015 PFIZER LIMITED 2 O R D E R PER SAKTIJIT DEY, J.M. THESE CROSS APPEALS ARE AGAINST THE ORDER DATED 30 TH JANUARY 2008, PASSE D BY THE LEARNED COMMISSIONER (APPEALS) - 32, MUMBAI, FOR THE ASSESSMENT YEAR 2003 - 04. 2. WE FIRST PROCEED TO DISPOSE OF ASSESSEES APPEAL IN ITA NO.3729/MUM./ 2008 , FOR THE ASSESSMENT YEAR 2003 04 . IN THIS APPEAL, THE ASSESSEE IN TOTAL HAS RAISED NINE GROUNDS AS PER THE CONCISE GROUNDS OF APPEAL. 3. GROUND NO.1, IS GENERAL IN NATURE, HENCE, DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 4. REGARDING GROUNDS NO.3(B), 3(C)(II), 3(C)(III) AND 6, THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT HE D OES NO T WISH TO PRESS THESE GROUNDS OF APPEAL. HENCE, IN VIEW OF THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE, THESE GROUNDS ARE DISMISSED AS NOT PRESSED . 5. AS FAR AS GROUNDS NO.2 AND 3(A) ARE CONCERNED, THEY RELATE TO ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT WITH REGARD TO THE INTERNATIONAL TRANSACTIONS BETWEEN THE ASSESSEE AND ITS A.E. TOWARDS PFIZER LIMITED 3 PROVISIONS OF CLINICAL STUDY MANAGEMENT AND MONITORING SUPPORT SERVICES. 6. BRIEFLY STATED THE FACTS RELATING TO THE ISSUE ARE, THE ASSESSEE COMPANY I S ENGAGED IN MANUFACTURING AND SALE OF PHARMACEUTICAL PRODUCTS . AS AS PER THE SHARE HOLDING PATTERN PFIZER INC., HOLDS 40% OF THE EQUITY SHARE CAPITAL IN THE ASSESSEE COMPANY AND REST OF THE SHARE CAPITAL IS HELD BY OTHERS. THUS, THE ASSESSEE AND PFIZER IN C., ARE ASSOCIATE ENTERPRISE (A.E) OF EACH OTHER. THOUGH, DU RING THE YEAR, THE ASSESSEE ENTERED INTO A NUMBER OF INTERNATIONAL TRANSACTIONS WITH ITS A.E. HOWEVER, WE WILL DEAL WITH THE FACTS RELATING TO INTERNATIONAL TRANSACTIONS WHICH ARE IN DISPUTE IN TH E PRESENT APPEAL. 7. AS FAR AS CLINICAL S TUDY MANAGEMENT & MONITORING SUPPORT SERVICES (CSMM) IS CONCERNED, THE ASSESSEE FOR BENCH MARKING THE ARMS LENGTH MARGIN OF THE TRANSACTION ADOPTED TRANSACTION NET MARGIN METHOD (TNNM) AS THE MOST APPROPRIATE METHOD WITH OP/OC AS PROFIT LEVEL INDICATOR (PLI). BY ADOPTING THIS METHOD, ASSESSEE HAD SELECTED SIX COMPANIES AS COMPARABLE . B Y CONSIDERING PRECEDING THREE YEARS FINANCIAL S AVERAGE OPERATING MARGIN OF COMPARABLES WAS FOUND TO BE 12.61% AS AGAINST ASSESSEES M ARGIN OF 11.11%. HENCE, THE PRICE CHARGED WAS CONSIDERED TO BE WITHIN ARMS LENGTH. THE TRANSFER PRICING OFFICER OBSERVED , THE ROLE PLAYED BY THE ASSESSEE IN THE TRANSACTION PFIZER LIMITED 4 WITH A.E. IS NOT IN THE NATURE OF ROUTINE SUPPORT OR GENERAL SERVICES PROVIDER BUT THAT OF A SKILLED SPECIALISED SERVICES IN THE AREA OF CLINICAL TRIALS. HE FURTHER OBSERVED , ON EXAMINING THE BALANCE SHEET OF THE COMPARABLE COMPAN IES SELECTED BY THE ASSESSEE, IT WAS FOUND THAT ALL OF THEM ARE ENGAGED IN GENERAL MANAGEMENT CONSULTANCY AN D BUSINESS CONSULTANCY SERVICES AND NONE OF THE COMPANIES SELECTED BY THE ASSESSEE ARE ENGAGED IN CLINICAL TRIAL ACTIVITY, CONTRACT RESEARCH ACTIVITY OR EVEN ASSOCIATE D WITH HEALTH CARE INDUSTRY. HE OBSERVED THAT THE SERVICES PERFORMED BY THE ASSESSEE ARE DISTINCTLY DIFFERENT TO THE COMPARABLE COMPAN IES SELECTED BY THE ASSESSEE. HE, THEREFORE, PROCEEDED TO IDENTIFY COMPANIES WHICH ARE MORE FUNCTIONALLY SIMILAR TO THE ASSESSEE. THUS, THE ASSESSING OFFICER REJECTING FOUR COMPANIES OUT OF SIX SELECTED BY THE A SSESSEE, PROCEEDED TO SELECT SOME MORE COMPARABLE COMPANIES ON HIS OWN. BY CONDUCTING SEARCH IN DATA BASES, HE SELECTED THE FOLLOWING COMPANIES AS COMPARABLE: - SR. NO. NAME OF THE COMPANY OPERATING PROFIT TO COST 1. HINDUJA GROUP INDIA LTD. ( ) 1.10% 2. TECHCONS LTD. 2.55% 3. VIMTA LABS LTD. 26.08% 4. CHOKSI LABORATORIES LTD. 35.32% 5. SYNGENE INTERNATIONAL PVT. LTD. 61.31% 6. SIRO CLINPHAM PVT. LTD. 26.77% ARITHMETIC MEAN 25.15% PFIZER LIMITED 5 8. BY APPLYING THE AFORESAID ARITHMETIC MEAN OF THE COMPARABLE COMPANIE S TO THE TOTAL COST INCURRED BY THE ASSESSEE, ALP FOR THE SERVICES RENDERED WAS DETERMINED AT ` 26,60,49,000, AS A RESULT OF WHICH THERE WAS AN UPWARD ADJUSTMENT TO THE ALP FOR AN AMOUNT OF ` 3,53,26,000. IN TERMS WITH THE ORDER PASSED BY THE TRANSFER PRIC ING OFFICER, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY INCORPORATING THE TRANSFER PRICI NG ADJUSTMENT RECOMMENDED BY HIM. 9. BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE CHALLENGED BOTH SELECTION AS WELL AS REJECTION OF COMPARABLES BY THE TRANS FER PRICING OFFICER. THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, UPHELD SELECT ION OF SIRO CLINPHARM PVT. LTD., VI M TA LABS LTD. AND CHOKSI LABORATORY LTD. HOWEVER, THE LEARNED COMMISSIONER (APPEALS) ACCEPTED ASSESSE ES CONTENTION WITH REGARD TO SYNGENE INTERNATIONAL PVT. LTD. ON THE GROUND THAT IT HAS PREDOMINANTLY RELATED PARTY TRANSACTION. FURTHER, THE LEARNED COMMISSIONER (APPEALS) ALSO UPHELD THE REJECTION OF FOUR COMPARABLES SELECTED BY THE ASSESSEE. AS A RESULT OF PARTIAL RELIEF GRANTED BY LEARNED COMMISSIONER (APPEALS) , THE TRANSFER PRICING ADJUSTMENT WAS REDUCED TO ` 2,01,87,000. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. PFIZER LIMITED 6 10. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THE CLINICAL RESEARC H TRIAL DONE ON BEHALF OF THE A.E. IS AS A FACILITATOR. IT WAS SUBMITTED , FOR THIS PURPOSE THE ASSESSEE HAS IDENTIFIED CERTAIN HOSPITALS WHICH UNDERTAKE SUCH CLINICAL RESEARCH TRIAL ACTIVITY AND THE ASSESSEE NEVER DOES IT ON ITS OWN. IT WAS SUBMITTED , FOR CARRYING OUT SUCH ACTIVITY, ASSESSEE NEITHER HAS ANY INFRASTRUCTURE , MAN POWER OR THE ASSET. HE, THEREFORE, SUBMITTED WHILE SELECTING THE COMPARABLE COMPANIES, THIS FACT HAS NOT AT ALL BEEN CONSIDERED BY TRANSFER PRICING OFFICER. 11. CHALLENGING THE SELECTION OF SIRO CLINPHARM PVT. LTD., THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THIS COMPANY IS UNDERTAKING CLINICAL RESEARCH TRIAL ITSELF UNLIKE THE ASSESSEE. THEREFORE, THE BUSINESS MODEL OF THIS COMPANY BEING DIFFERENT FROM THE ASSESSEE, IT CANNOT BE CONSI DERED AS COMPARABLE. HE SUBMITTED IF A COMPANY I S NOT FUNCTIONALLY SIMILAR IN ALL RESPECT AND ITS BUSINESS MODEL IS DIFFERENT IT CANNOT BE CONSIDERED AS A COMPARABLE. IN THIS CONTEXT, HE SPECIFICALLY REFERRED TO THE JUDGMENT DATED 10 TH AUGUST 2005, OF HON' BLE DELHI HIGH COURT IN RAMP GREEN SOLUTIONS PVT. LTD. V/S CIT, ITA NO.201 OF 2015 . 12. AS FAR AS VIMTA LABORATORY LTD. AND CHOKSI LTD. ARE CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE ADVANCING SIMILAR ARGUMENTS PFIZER LIMITED 7 SUBMITTED , BUSINESS MODEL OF THESE COMPANIE S ARE NOT SIMILAR TO THE ASSESSEE AS CHOKSI LTD. IS DOING CLINICAL RESEARCH ACTIVITIES ITSELF WHEREAS VIMTA LAB S LTD. IS ENGAGED IN DIVERSIFIED ACTIVITIES , HENCE, THEY CANNOT BE CONSIDERED AS COMPARABLE. FOR SUCH PROPOSITION, HE RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN RAMP GREEN SOLUTIONS PVT. LTD. (SUPRA). THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED , THE TRANSFER PRICING OFFICER HIMSELF BEING SATISFIED THAT VIMTA LABS LTD. IS ENGAGED IN DIVERSIFIED ACTIVITIES AND FUNCTIONALLY DISSIMILAR TO THE ASSESSEE EXCLUDED IT AS A COMPARABLE IN ASSESSMENT YEAR 2005 - 06. A COPY OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER WAS ALSO PLACED ON RECORD. HE, THEREFORE, SUBMITTED THAT THESE THREE COMPANIES ARE REQUIRED TO BE EXCLUDED FROM L IST OF COMPARABLES . 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY OBJECTING TO THE CONTENTION OF ASSESSEES COUNSEL SUBMITTED , SIRO CLINPHARM PVT. LTD. WAS HELD AS A COMPARABLE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002 - 03 IN I TA N O.3098/MUM./2006 DATED 8 TH MARCH 2013. IN THIS CONTEXT, HE DREW OUR ATTENTION TO PARA - 17 OF THE ORDER. AS FAR AS CHOKSI LTD. AND VIMTA LABORATORY LTD. ARE CONCERNED, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT BOTH THESE COMPANIES WERE PART OF ASSESSEES OWN TRANSFER PRICING STUDY, HENCE THE CONTENTION OF THE ASSESSEE TO EXCLUDE THEM SHOULD NOT BE ACCEPTED. THE LEARNED DEPARTMENTAL REPRESENTATIVE REFERRING TO THE PFIZER LIMITED 8 CLINICAL SUPPORT SERVICES AGREEMENT BETWEEN THE ASSESSEE AND THE A.E. SUBMITTED , THE R E A D ING OF THE AGREEMENT AS A WHOLE WOULD SUGGEST THAT ASSESSEE HAS NOT MERELY ACTED AS A FACILITATOR BETWEEN THE A.E. AND THE HOSPITAL WHICH ARE CARRYING OUT CLINICAL RESEARCH. IT WAS SUBMITTED THE ASSESSEE IS NOT SIMPLY OUT SOURCING ITS ACTIVITIES TO THE HOSPITALS BUT CLEARLY MONITORS IT. IN EVERY STAGE OF THE CLINICAL TRIAL, THERE IS INTERACTION BETWEEN THE DOCTOR S AND ASSESSEES PERSONNEL. THEREFORE, THERE IS A VALUE ADDITION BY THE ASSESSEE. TAKING US THROUGH VARIOUS CLAUSES OF THE AGREEMENT, THE L EARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , THERE IS CONTINUOUS INTERFACE BETWEEN THE ASSESSEE AND THE HOSPITAL AS FAR AS THE CLINICAL RESEARCH TRIAL IS CONCERNED. REFERRING TO THE CONFIDENTIALITY AND THE INDEMNITY CLAUSES , HE SUBMITTED, THEY INDICATE TH AT THE PATENT AND IPR OF THE PRODUCTS ARE COMING TO THE A.E. T HEREFORE, IT CANNOT BE SAID THAT ASSESSEE IS MERELY ACTING AS A FACILITATOR . I T WAS SUBMITTED NO TWO COMPANIES WILL BE HAVING EXACTLY SIMILAR FUNCTION, THEREFORE, IF THE FUNCTIONS OF THE COMPANI ES ARE BROADLY SIMILAR THEY CAN BE CONSIDERED AS COMPARABLE. REFERRING TO THE ORDER OF THE TRANSFER PRICING OFFICER , THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , TRANSFER PRICING OFFICER HAS INCLUDED BOTH HIGH MARGIN AND LOW MARGIN COMPANIES EVEN THO UGH THEY ARE NOT FUNCTIONALLY SIMILAR. HE SUBMITTED WHEN THE ASSESSEE HAS NO ISSUE WITH LOW MARGIN COMPANIES WHICH ARE NOT FUNCTIONALLY SIMILAR PFIZER LIMITED 9 TO THE ASSESSEE, THERE SH OULD NOT BE ANY GRIEVANCE FOR INCLUSION OF HIGH MARGIN COMPANIES ONLY ON THE ALLEGATION THAT THEY ARE FUNCTIONALLY DISSIMILAR. HE SUBMITTED , TRANSFER PRICING OFFICER IS FAIR ENOUGH TO INCLUDE FUNCTIONALLY DISSIMILAR LOW MARGIN COMPANIES SELECTED BY THE ASSESSEE TO KEEP THE AVERAGE MARGIN OF THE COMPARABLES AT A LOW FIGURE. IT WAS SUBMITTED , THE ASSESSEE HA S THE CAPABILITY TO UNDERTAKE THE CLINICAL RESEARCH ACTIVITIES ON ITS OWN BUT ONLY FOR STRATEGIC REASON IT HAS OUT SOURCED ITS ACTIVITIES TO THIRD PARTIES. 14. THE LEARNED COUNSEL FOR THE ASSESSEE IN THE REJOINDER THROUGH, ACCEPTED THE FACT THA T IN ITS OWN CASE FOR THE ASSESSMENT YEAR 2002 - 03, THE TRIBUNAL HAS RETAINED SIRO CLINPHARM PVT. LTD. AS A COMPARABLE , BUT REFERRING TO THE OBSERVATIONS MADE BY THE TRIBUNAL HE SUBMITTED , THE BENCH HAS RECORDED A FINDING THAT BUSINESS MODEL OF TWO COMPANIE S ARE DIFFERENT AS SIRO CLINPHARM PVT. LTD., IS DOING SUCH ACTIVITIES ON ITS OWN WHEREAS , THE ASSESSEE IS OUT SOURCING IT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , AS THE TRIBUNAL HAS ITSELF RECORDED THE FINDING THAT BUSINESS MODEL OF SIRO CLINPHARM PVT. LTD. IS DIFFERENT FROM THE ASSESSEE, THE PRINCIPLE LAID DOWN BY THE HON'BLE DELHI HIGH COURT WOULD APPLY. PFIZER LIMITED 10 15. AS FAR AS THE ALLEGATION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSEE IN ITS TRANSFER PRICING STUDY, HAS INCLUDED CHOKSI LTD. A ND VIMTA LAB S LTD. AS COMPARABLE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , AT THE TIME OF PREPARATION OF TRANSFER PRICING STUDY, SUFFICIENT DATA WAS NOT AVAILABLE IN PUBLIC DOMAIN. THEREFORE, ASSESSEE HAD INCLUDED THEM AS COMPARABLE. HOWEVER, SUBSEQ UENTLY, ON THE BASIS OF DATA AVAILABLE I N PUBLIC DOMAIN, IF IT IS FOUND THAT THESE TWO COMPANIES ARE NOT FUNCTIONALLY SIMILAR , THE ASSESSEE CANNOT BE PRECLUDED FROM OBJECTING TO SELECTION OF THESE COMPANIES. HE, THEREFORE, SUBMITTED THAT THESE COMPANIES CA NNOT BE CONSIDERED AS COMPARABLE. 16. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES, PERUSED THE ORDERS OF THE DEPARTMENTAL AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. AS COULD BE SEEN, THE ISSUE IN DISPUTE IN THE AFORESAID GROUNDS RELATES TO SELECT ION OF THREE COMPARABLES VIZ. CHOKSI LTD., VIMTA LAB LTD. AND SIRO CLINPHARM PVT. LTD. AS FAR AS SIRO CLINPHARM PVT. LTD. IS CONCERNED, THE MAIN PLANK OF ASSESSEES ARGUMENT IS THE BUSINESS MODEL OF THIS COMPANY IS DIFFERENT FROM THE ASSESSEE AS THIS COMPA NY ITSELF CONDUCTS RESEARCH TRIALS WHEREAS THE ASSESSEE OUT SOURCES THE ENTIRE ACTIVITY. THOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE REFERRING TO THE SERVICE AGREEMENT BETWEEN THE ASSESSEE AND A.E. HAS STATED BEFORE US THAT THE ASSESSEE CANNOT BE CONSID ERED TO BE ACTING PFIZER LIMITED 11 AS MERE FACILITATOR BUT HAS ACTUALLY RENDERED VALUE ADDITION TO THE CLINICAL RESEARCH TRIAL, HOWEVER, NO SUBSTANTIVE EVIDENCE HAS BEEN BROUGHT ON RECORD TO PROVE SUCH FACTS. AS IT APPEARS , THE ASSESSEE HAS ENTERED INTO AGREEMENT WITH HOSP ITALS FOR CONDUCTING THE CLINICAL RESEARCH TRIAL AND THE ENTIRE PROCESS OF CLINICAL RESEARCH TRIAL WAS CONDUCTED BY THE HOSPITAL. WHEREAS , SIRO CLINPHARM PVT. LTD. CONDUCTS THE CLINICAL RESEARCH TRIAL ACTIVITIES ITSELF. THOUGH, IT IS A FACT THAT THE CO - ORD INATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002 - 03, IN ITA NO.3098/MUM./2006 ORDER DATED 8 TH MARCH 2013, HAS UPHELD SELECTION OF SIRO CLINPHARM PVT. LTD. AS A COMPARABLE BUT ON A PERUSAL OF THE RELEVANT FINDING OF THE CO - ORD INATE BENCH CONTAINED IN PARA - 17 OF THE ORDER WOULD INDICATE THAT THE TRIBUNAL HAS ACCEPTED THE FACT THAT BUSINESS MOD E L OF THE ASSESSEE AND SIRO CLINPHARM PVT. LTD. ARE DIFFERENT AS SIRO CLINPHARM PVT. LTD. IS DOING THE CLINICAL TRIAL ON ITS OWN , WHEREAS , THE ASSESSEE IS GETTING THE CLINICAL TRIAL DONE FROM THIRD PARTY. AS COULD BE SEEN , THE AFORESAID FINDING OF THE CO - ORDINATE BENCH IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR IS UPON CONSIDERING THE SAME SERVICE AGREEMENT BETWEEN THE RELATED PARTIES AS W ELL AS SIMILAR NATURE OF ACTIVITY. THE DEPARTMENT HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE NATURE OF ACTIVITY IN THE IMPUGNED ASSESSMENT YEAR IS IN ANY WAY DIFFERENT FROM THE ASSESSMENT YEAR 2002 - 03. THUS, FROM THE PFIZER LIMITED 12 AFORESAID FACT, IT IS VERY MUCH EVIDENT THAT THE BUSINESS MODEL OF THE ASSESSEE AND SIRO CLINPHARM PVT. LTD. ARE DIFFERENT. THE HIGH COURT IN CASE OF RAMP GREEN SOLUTIONS PVT. LTD. (SUPRA) WHILE EXPRESSING RESERVATION ON THE DECISION OF THE TRIBUNAL, SPECIAL BENCH, MUMBAI, I N MAERSK GLOBAL CONTAINERS PVT. LTD., HELD THAT CONTROLLED TRANSACTIONS MUST BE COMPARABLE IN ALL RESPECT WITH UNCONTROLLED TRANSACTION. IN THIS CONTEXT, IT IS RELEVANT TO REFER TO THE OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT IN THE REFERRED JUDGMENT A S UNDER: - 20. IN ORDER FOR THE BENCHMARKING STUDIES TO BE RELIABLE FOR THE PURPOSES OF DETERMINING THE ALP, IT WOULD BE ESSENTIAL THAT THE ENTITIES SELECTED AS COMPARABLES ARE FUNCTIONALLY SIMILAR AND ARE SUBJECT TO THE SIMILAR BUSINESS ENVIRONMENT AND R ISKS AS THE TESTED PARTY. IN ORDER TO IMPUTE AN ALP TO A CONTROLLED TRANSACTION, IT WOULD BE ESSENTIAL TO ENSURE THAT THE INSTANCES OF UNCONTROLLED ENTITIES/TRANSACTIONS SELECTED AS COMPARABLES ARE SIMILAR IN ALL MATERIAL ASPECTS THAT HAVE ANY BEARING ON T HE VALUE OR THE PROFITABILITY, AS THE CASE MAY BE, OF THE TRANSACTION. ANY FACTOR, WHICH HAS AN INFLUENCE ON THE PLI, WOULD BE MATERIAL AND IT WOULD BE NECESSARY TO ENSURE THAT THE COMPARABLES ARE ALSO EQUALLY SUBJECTED TO THE INFLUENCE OF SUCH FACTORS AS THE TESTED PARTY. THIS WOULD, OBVIOUSLY, INCLUDE BUSINESS ENVIRONMENT; THE NATURE AND FUNCTIONS PERFORMED BY THE TESTED PARTY AND THE COMPARABLE ENTITIES; THE VALUE ADDITION IN RESPECT OF PRODUCTS AND SERVICES PROVIDED BY PARTIES; THE BUSINESS MODEL; AND T HE ASSETS AND RESOURCES EMPLOYED. IT CANNOT BE DISPUTED THAT THE FUNCTIONS PERFORMED BY AN ENTITY WOULD HAVE A MATERIAL BEARING ON THE VALUE AND PROFITABILITY OF THE ENTITY. IT IS, THEREFORE, OBVIOUS THAT THE COMPARABLES SELECTED AND THE TESTED PARTY MUST BE FUNCTIONALLY SIMILAR FOR ASCERTAINING A RELIABLE ALP BY TNMM. RULE 10B(2) OF THE INCOME TAX RULES, 1962 ALSO CLEARLY INDICATES THAT THE COMPARABILITY OF CONTROLLED TRANSACTIONS WOULD BE JUDGED WITH REFERENCE TO THE FACTORS AS INDICATED THEREIN. CLAUSE ( A) AND (B) OF RULE 10B(2) EXPRESSLY INDICATE THAT THE SPECIFIC CHARACTERISTICS OF THE SERVICES PROVIDED AND THE FUNCTIONS PERFORMED WOULD BE FACTORS FOR CONSIDERING THE COMPARABILITY OF UNCONTROLLED TRANSACTIONS WITH CONTROLLED TRANSACTIONS. PFIZER LIMITED 13 THE HONBLE COURT FURTHER HELD: 30. AS INDICATED ABOVE, IN ORDER TO DETERMINE THE ALP IN RELATION TO A CONTROLLED TRANSACTION, THE ANALYSIS MUST INCLUDE COMPARABLES WHICH ARE SIMILAR IN ALL ASPECTS THAT HAVE A MATERIAL BEARING ON THEIR PROFITABILITY. PARAGRAPH 1. 36 OF THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' PUBLISHED IN 2010 (HEREAFTER 'OECD GUIDELINES') INDICATES THE 'COMPARABILITY FACTORS' WHICH ARE IMPORTANT WHILE CONSIDERING THE COMPARABILITY OF UNCONTROLLED TRANSACTIONS/ENTITIES WITH THE CONTROLLED TRANSACTIONS/ENTITIES. SUB - RULE (2) OF RULE 10B OF THE INCOME TAX RULES, 1962 ALSO MANDATES THAT THE COMPARABILITY OF INTERNATIONAL TRANSACTIONS WITH UNCONTROLLED TRANSACTIONS WOULD BE JUDGED WITH REFERENCE TO THE FACTORS INDICATED UNDER CLAUSES (A) TO (D) OF THAT SUB - RULE, WHICH ARE SIMILAR TO THE COMPARABILITY FACTORS AS INDICATED UNDER THE OECD GUIDELINES. THESE INCLUDE CHARACTERISTICS OF PROPERTY OR SERVICES TRANSFERRED AND FUNCTIONS PERFORMED. AFTER REFERRI NG TO THE OECD GUIDELINES THE HONBLE COURT HELD AS UNDER: 31. IN THE PRESENT CASE, THE TRIBUNAL NOTED THAT VISHAL AND ECLERX WERE BOTH ENGAGED IN RENDERING ITES. THE TRIBUNAL HELD THAT, 'ONCE A SERVICE FALLS UNDER THE CATEGORY OF ITES, THEN THERE IS NO SUB - CLASSIFICATION OF SEGMENT'. THUS, ACCORDING TO THE TRIBUNAL, NO DIFFERENTIATION COULD BE MADE BETWEEN THE ENTITIES RENDERING ITES. WE FIND IT DIFFICULT TO ACCEPT THIS VIEW AS IT IS CONTRARY TO THE FUNDAMENTAL RATIONALE OF DETERMINING ALP BY COMPARING C ONTROLLED TRANSACTIONS/ENTITIES WITH SIMILAR UNCONTROLLED TRANSACTIONS/ENTITIES. ITES ENCOMPASSES A WIDE SPECTRUM OF SERVICES THAT USE INFORMATION TECHNOLOGY BASED DELIVERY. SUCH SERVICES COULD INCLUDE RENDERING HIGHLY TECHNICAL SERVICES BY QUALIFIED TECHN ICAL PERSONNEL, INVOLVING ADVANCED SKILLS AND KNOWLEDGE, SUCH AS ENGINEERING, DESIGN AND SUPPORT. WHILE, ON THE OTHER END OF THE SPECTRUM ITES WOULD ALSO INCLUDE VOICE - BASED CALL CENTERS THAT RENDER ROUTINE CUSTOMER SUPPORT FOR THEIR CLIENTS. CLEARLY, CHAR ACTERISTICS OF THE SERVICE RENDERED WOULD BE DISSIMILAR. FURTHER, BOTH SERVICE PROVIDERS CANNOT BE CONSIDERED TO BE FUNCTIONALLY SIMILAR. THEIR BUSINESS ENVIRONMENT WOULD BE ENTIRELY DIFFERENT, THE DEMAND AND SUPPLY FOR THE SERVICES WOULD BE DIFFERENT, THE ASSETS AND CAPITAL EMPLOYED WOULD DIFFER, THE COMPETENCE REQUIRED TO PFIZER LIMITED 14 OPERATE THE TWO SERVICES WOULD BE DIFFERENT. EACH OF THE AFORESAID FACTORS WOULD HAVE A MATERIAL BEARING ON THE PROFITABILITY OF THE TWO ENTITIES. TREATING THE SAID ENTITIES TO BE COMPAR ABLES ONLY FOR THE REASON THAT THEY USE INFORMATION TECHNOLOGY FOR THE DELIVERY OF THEIR SERVICES, WOULD, IN OUR OPINION, BE ERRONEOUS. FINALLY, HONBLE COURT APPRECIATING THE FUNCTIONAL DIFFERENCE BETWEEN A COMPANY WHICH RENDERS THE SERVICES BY ITSELF AND A COMPANY WHICH GETS IT DONE THROUGH OUTSOURCING HELD AS UNDER: 38. IN OUR VIEW, EVEN VISHAL COULD NOT BE CONSIDERED AS A COMPARABLE, AS ADMITTEDLY, ITS BUSINESS MODEL WAS COMPLETELY DIFFERENT. ADMITTEDLY, VISHALS EXPENDITURE ON EMPLOYMENT COST D URING THE RELEVANT PERIOD WAS A SMALL FRACTION OF THE PROPORTIONATE COST INCURRED BY THE ASSESSEE, APPARENTLY, FOR THE REASON THAT MOST OF ITS WORK WAS OUTSOURCED TO OTHER VENDORS/SERVICE PROVIDERS. THE DRP AND THE TRIBUNAL ERRED IN BRUSHING ASIDE THIS VIT AL DIFFERENCE BY OBSERVING THAT OUTSOURCING WAS COMMON IN ITES INDUSTRY AND THE SAME WOULD NOT HAVE A BEARING ON PROFITABILITY. PLAINLY, A BUSINESS MODEL WHERE SERVICES ARE RENDERED BY EMPLOYING OWN EMPLOYEES AND USING ONES OWN INFRASTRUCTURE WOULD HAVE A DIFFERENT COST STRUCTURE AS COMPARED TO A BUSINESS MODEL WHERE SERVICES ARE OUTSOURCED. THERE WAS NO MATERIAL FOR THE TRIBUNAL TO CONCLUDE THAT THE OUTSOURCING OF SERVICES BY VISHAL WOULD HAVE NO BEARING ON THE PROFITABILITY OF THE SAID ENTITY. 17. THUS, K EEPING IN VIEW THE PRINCIPLE LAID DOWN BY THE HON'BLE DELHI HIGH COURT AS ABOVE, IN OUR VIEW, SIRO CLINPHARM PVT. LTD. CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE AS THE BUSINESS MODEL OF THIS COMPANY IS NOT ONLY DIFFERENT BUT IT IS NOT FUNCTIONAL LY SIMILAR TO THE ASSESSEE IN ALL RESPECT AS THIS COMPANY RENDERS THE SERVICES O N ITS OWN WITHOUT OUTSOURCING, UNLIKE THE ASSESSEE . THOUGH , IT MAY BE A FACT THAT TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR HAS ACCEPTED THIS PFIZER LIMITED 15 COMPANY AS COMPARABLE TO THE ASSES SEE, BUT THE TRIBUNAL DID NOT HA D THE BENEFIT OF PRINCIPLE LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN RAMP GREEN SOLUTIONS PVT. LTD. (SUPRA). IN VIEW OF THE AFORESAID, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE DELHI HIGH COURT IN RAMP GREEN SOLU TIONS PVT. LTD. (SUPRA), WE DIRECT EXCLUSION OF THIS COMPANY AS A COMPARABLE. 18. AS FAR AS CHOKS I LTD. IS CONCERNED, IT IS SEEN THAT THIS COMPANY IS ALSO DOING CLINICAL RESEARCH TRIAL ACTIVITY WITHOUT OUT SOURCING TO OTHERS. THEREFORE, THE BUSINESS MODEL OF T HE ASSESSEE IS DIFFERENT. ON A PERUSAL OF THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN RAMP GREEN SOLUTIONS PVT. LTD. (SUPRA), IT IS SEEN THAT THE HON'BLE DELHI HIGH COURT HELD M/S. VISHAL ENTERPRISE NOT COMPARABLE TO THE ASSESSEE AS IT WAS OUT SOURCING ITS ACTIVITIES. HENCE, THE BUSINESS MODEL IS DIFFERENT. REVERSE IS THE CASE WITH THE ASSESSEE. WHILE THE ASSESSEE IS OUT SOURCING ITS CLINICAL RESEARCH TRIAL ACTIVITIES, THE COMPARABLE COMPANY IS DOING THE ACTIVITY ITSELF. THUS, THE BUSINESS MODEL OF THE ASSESSEE AND COMPARABLE COMPANY ARE NOT SAME. THOUGH , LEARNED DEPARTMENTAL REPRESENTATIVE HAS RAISED SERIOUS OBJECTION WITH REGARD TO EXCLUSION OF THIS COMPANY BY SUBMITTING THAT ASSESSEE ITSELF IN ITS TRANSFER PRICING STUDY HAS SELECTED THIS COMPANY , BUT , IN OUR VIEW THAT CANNOT BE THE SOLE CRITERIA TO RETAIN THIS COMPANY AS A COMPARABLE IF IT IS ULTIMATELY FOUND THAT THE COMPANY IS NOT AT ALL A COMPARABLE. WE FIND MERIT IN PFIZER LIMITED 16 THE SUBMISSIONS OF THE ASSESSEE THAT ON THE BASIS OF LIMITED DATA AVAILABLE IN PUBL IC DOMAIN WHEN THE TRANSFER PRICING STUDY WAS PREPARED THE ASSESSEE HAS SELECTED THIS COMPANY AS A COMPARABLE. HOWEVER, WHEN COMP LE TE DAT A RELATING TO THIS COMPANY SUBSEQUENTLY CAME TO THE PUBLIC DOMAIN, IT WAS FOUND THAT THIS COMPANY IS NOT A COMPARABLE. IN OUR VIEW, THE AFORESAID EXPLANATION OF THE ASSESSEE DESERVES TO BE ACCEPTED. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPANY AS COMPARABLE. 19. AS FAR AS VIMTA LAB LTD. IS CONCERNED, APART FROM THE FACT THAT BUSINESS MODEL OF THIS COMPA NY IS DIFFERENT FROM ASSESSEE AS DEMONSTRATED BY THE LEARNED COUNSEL FOR THE ASSESSEE , F ROM THE MATERIAL ON RECORD IT IS ALSO SEEN THAT THE TRANSFER PRICING OFFICER HIMSELF IN ASSESSMENT YEAR 2005 - 06, HAS REJECTED THIS COMPANY AS COMPARABLE BY OBSERVING TH AT NOT ONLY IT IS ENGAGED IN DIVERSIFIED ACTIVITY BUT THE BUSINESS MODEL IS DIFFERENT. WE, THEREFORE, HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE. 20. IN GROUND NO.3(C)(I), THE ASSESSEE HAS CHALLENGED ESTIMATING INDIRECT COST AT 5% NOTIONALLY WH ILE COMPUTING THE MARGIN. 21. BRIEFLY STATED THE FACTS ARE, IN THE COURSE OF PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OFFICER ON VERIFYING THE RECORDS NOTICED THAT ASSESSEE HAD SHOWN COST ON CLINICAL SUPPORT SERVICES UNDER VARIOUS PFIZER LIMITED 17 HEADS AT ` ` 16,50,21,000 . THOUGH , AS PER ASSESSEE THE TOTAL OPERATING COST SHOWN CONSISTS OF DIRECT AND INDIRECT COSTS BUT THE TRANSFER PRICING OFFICER WAS UNDER AN IMPRESSION THAT THE TOTAL COST REPRESENTS ONLY DIRECT COSTS. REFERRING TO THE AGREEMENT WITH A.E., HE OBSERVED , AS PER THE TERMS OF AGREEMENT, THE ASSESSEE IS REQUIRED TO RE CO VER INDIRECT COSTS FROM THE A.E. BUT THE ASSESSEE HAS NOT DONE SO. THOUGH , THE ASSESSEE CONTENDED THAT MARK UP OF 10% WAS EARNED ON TOTAL COST AFTER CONSIDERING ALL INDIRECT COST I.E., 5% TOWARDS RECOVERY OF INDIRECT EXPENDITURE AND 5% TOWARDS COMPENSATION OF THE ACTIVITY. HOWEVER, THE TRANSFER PRICING OFFICER CONSIDERING THE ENTIRE EXPENDITURE TOWARDS DIRECT COST LEV IE D 5% FOR INDIRECT COST ON SUCH DIRECT COST WHILE COMPUTING THE MARGIN OF THE ASS ESSEE. THOUGH, THE ASSESSEE CHALLENGED SUCH COMPUTATION BY TRANSFER PRICING OFFICER BEFORE THE FIRST APPELLATE AUTHORITY BUT IT DID NOT FIND FAVOUR WITH HIM. 22. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US , IDENTICAL ISSUE CAME UP FOR CONSIDERAT ION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002 03 IN ITA NO.3098/MUM./2006, DATED 8 TH MARCH 2013. REFERRING TO THE FINDINGS OF THE TRIBUNAL IN PARA 24 OF THE ORDER, HE REQUESTED FOR REMITTING THE MATTER TO THE ASSESSING OFFICER FOR NECESSARY VERIFICATION IN TERMS OF THE SAID DIRECTION. PFIZER LIMITED 18 23. THE LEAR NED DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION TO THE AFORESAID SUGGESTION OF THE ASSESSEES COUNSEL. 24. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILAB LE ON RECORD. ON A PERUSAL OF THE ORDER PASSED BY THE CO ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE CITED SUPRA, IT IS SEEN THAT THE TRIBUNAL WHILE DECIDING IDENTICAL ISSUE, HELD AS UNDER: 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. WE AGREE IN PRINCIPLE WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE ON THIS ISSUE THAT IF THE INDIRECT COST WAS ALREADY INCLUDED BY THE ASSESSEE IN THE TOTAL COST OF RS. 1080.25 LAKHS INCURRED IN RELATION TO THE SERVICES PROVIDED TO ITS AE FOR APPLYING THE MARK UP OF 10%, THERE IS NO JUSTIFICATION IN ADDING INDIRECT COST @ 5% OF THE DIRECT COST SEPARATELY AS DONE BY THE AUTHORITIES BELOW RELYING ON THE TERMS OF THE RELEVANT AGREEMENT. HOWEVER, AS SUBMITTED BY THE LD. DR, THE STAND TAKEN BY THE ASSESSEE ABOUT INCLUSION OF INDIRECT COST OF RS. 285.48 CRORES IN THE TOTAL COST OF RS. 1080.25 LAKHS BASED ON THE BREAK - UP GIVEN ON PG.NOS. 58 & 59 OF THE PAPER BOOK REQUIRES VERIFICATION AS THERE IS NO REFERENCE TO ANY SUCH DETAILS FURNISHED BY THE ASSESSEE IN THE ORDER OF THE AUTHORITIES BELOW NOR THERE IS ANY FINDING GIVEN ON VERIFICATION OF SUCH DETAILS. SINCE THE LD. COUNSEL FOR THE ASSESSEE ALSO HAS NO OBJECTION IN THIS REGARD, WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO VERIFY FROM THE RELEVANT RECORD, THE STAND TAKEN BY THE ASSESSEE THAT INDIRECT COST OF RS. 285.48 LAKHS WAS ALREADY INCLUDED IN THE TOTAL COST OF RS. 1080.25 LAKHS AND IF THE SAME IS FOUND TO BE CORRECT, THE AO IS DIRECTED NOT TO ADD SEPARATEL Y INDIRECT COST @ 5% OF THE DIRECT COST FOR THE PURPOSE OF TRANSFER PRICING EXERCISE. GROUND NO. 2(D) IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 25. THE FACT AND ISSUE BEING MATERIALLY SAME, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING MATTER PFIZER LIMITED 19 AFRESH IN TERMS WITH THE DIRECTION OF THE CO ORDINATE BENCH (SUPRA) AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 26. THE NEXT ISSUE ON TRANSFER PRICING ADJUSTMENT WHICH ARISE FOR CONSIDERATION IS WITH REGARD TO ADJUSTMENT MADE TO THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION INVOLV ING IMPORT OF FINISHED DIRECT FORMU LATION (FDF) FOR RE SALE IN INDIA, WHICH IS RAISED IN GROUNDS NO.4 AND 5 OF CONCISE GROUND. HOWEVER, SUBSEQUENTLY, THE ASSESSEE ON 20 TH APRIL 2010, HAS SOUGHT PERMISSION TO RAISE FOLLOWING ADDITIONAL GROUNDS RELATED TO THIS ISSUE. WITHOUT PREJUDICE TO GR OUND NO.4 TO 6 OF THE CONCISE GROUND FILED ON MAY 18, 2010, APPELLANT SUBMITS THAT RESALE PRICE METHOD BE CONSIDERED AS MOST APPROPRIATE METHOD FOR DETERMINING THE ARMS LENGTH PRICE. THE APPELLANT PRAYS THAT THE INTERNATIONAL TRANSACTION OF IMPORT OF FDF S FOR RESALE OF INDIA BE CONSIDERED AT ARM'S LENGTH AND THE ADDITION OF ` 2,61,93,000 BE DELETED. 27. AT THE OUTSET, WE PROPOSE TO DEAL WITH THE ISSUE WHETHER ADDITIONAL GROUND CAN BE ENTERTAINED AT THIS STAGE. 28. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTE D BEFORE US , UNDER AN AGREEMENT WITH A.E. ASSESSEE IMPORTS FDFS FROM ITS A.E. AND SELLS THEM TO CUSTOMERS IN INDIA WITHOUT MAKING ANY VALUE ADDITION. IT WAS SUBMITTED , THE ASSESSEE SIMPLY ACTS AS A DISTRIBUTOR / TRADER OF THE PFIZER LIMITED 20 FDFS HENCE, THE MOST APPROPRIA TE METHOD FOR COMPUTING THE ARM'S LENGTH PRICE IS RE SALE PRICE METHOD (RS P M) . HE SUBMITTED , THOUGH , THE ASSESSEE IN TRANSFER PRICING STUDY HAS ADOPTED TNMM AS THE MOST APPROPRIATE METHOD BUT THAT WILL NOT PRECLUDE THE ASSESSEE FROM RAISING THE PLEA THAT T HE MOST APPROPRIATE METHOD FOR COMPUTING THE ARM'S LENGTH PRICE IS RE SALE PRICE METHOD , IF OTHERWISE IT IS APPLICABLE TO THE PARTICULAR INTERNATIONAL TRANSACTION AND IS IN CONFORMITY WITH THE RELEVANT STATUTORY PROVISIONS. THE LEARNED COUNSEL FOR THE ASSE SSEE DRAWING A PARALLEL BETWEEN THE ASSESSEES CASE AND THE CASE OF MAT T E L TOYS INDIA PVT. LTD. V/S CIT, ITA NO.2476/MUM./2008, DATED 12 TH JUNE 2013, SUBMITTED , IN THE REFERRED CASE ALSO THOUGH THE ASSESSEE HAD SELECTED TNMM AS THE MOST APPROPRIATE METHOD BUT CONSIDERING THE NATURE OF TRANSACTION BETWEEN THE ASSESSEE AND ITS A.E., THE TRIBUNAL ALLOWED ASSESSEES CLAIM WITH REGARD TO ADOPTION OF RE SALE PRICE METHOD AS THE MOST APPROPRIATE METHOD EVEN AT THE SECOND APPELLATE STAGE. HE SUBMITTED , AS PER THE R ELEVANT PROVISIONS CONTAINED UNDER THE INCOME TAX ACT, AND THE RULES, THE MOST APPROPRIATE METHOD IN CASE OF THIS PARTICULAR TRANSACTION BETWEEN THE ASSESSEE AND ITS A.E. IS RE SALE PRICE METHOD AS THE ASSESSEE SIMPLY IMPORTS THE GOODS FROM ITS A.E. AND SE L L S THEM TO CUSTOMERS IN INDIA. FOR THE AFORESAID PROPOSITION, HE RELIED UPON A NUMBER OF DECISIONS OF THE TRIBUNAL AS WELL AS HON'BLE JURISDICTIONAL HIGH COURT WHICH ARE AS UNDER: PFIZER LIMITED 21 I) CT V/S LREAL INDIA PVT. LTD., ITA NO.1046 OF 2012 (BOM.) II) ITO V/S LRE AL INDIA PVT. LTD., 53 SOT 0263 (URO) (2012) (MUM.); III) LUXOTTICA INDIA EYEWEAR PVT. LTD. V/S DCIT, ITA NO.1115/ DEL./2014 (DEL.) 29. AS FAR AS THE ISSUE WHETHER THE ADDITIONAL GROUND CAN BE ADMITTED AT THIS STAGE, THE LEARNED COUNSEL FOR THE ASSESSEE RELYING UPON THE DECISION OF THE HON'BLE SUPREME COURT IN NATIONAL THERMAL POWER CO. LTD. V/S CIT, [1997] 229 ITR 383 (SC), SUBMITTED WHEN ALL THE BASIC FACTS RELATING TO ASSESSEES TRANSACTION WITH THE A.E. IN RESPECT OF IMP OR T OF FDFS ARE AVAILABLE ON RECORD , AN D THE ISSUE RAISED CAN BE DECIDED ON THE BASIS OF SUCH AVAILABLE MATERIAL THE ADDITIONAL GROUND CAN BE ENTERTAINED. 30. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOSING THE CONTENTION OF THE ASSESSEES COUNSEL SUBMITTED , WHILE PREPARING THE TRANSFER PRICING STUDY, THE ASSESSEE ITSELF HAS REJECTED RE SALE PRICE METHOD BY GIVING CERTAIN REASONS WHICH ARE SPECIFICALLY MENTIONED IN THE TRANSFER PRICING STUDY. IN THIS CONTEXT, HE REFERRED TO THE TRANSFER PRICING STUDY SUBMITTED IN THE PAPER BOOK. HE SUBMIT TED , THE ASSESSEE WHILE REJECTING RSPM AS MOST APPROPRIATE METHOD HAS STATED THAT RELIABLE DATA IS NOT AVAILABLE IN PUBLIC DOMAIN AND IT IS DIFFICULT TO FIND COMPARABLE. HE, THEREFORE, SUBMITTED , WHEN THE ASSESSEE ITSELF HAS PFIZER LIMITED 22 ADMITTED THAT RELIABLE DATA IS NOT AVAILABLE RELATING TO COMPARABLES FOR APPLYING RSPM IN PUBLIC DOMAIN, HOW , AT THE SECOND APPEAL STAGE, ADDITIONAL GROUND CAN BE ENTERTAINED WHEN BASIC FACTS RELATING TO COMPARABILITY ANALYSIS ARE NOT AVAILABLE. REFERRING TO THE DECISION OF THE HON'BLE SUPREME COURT IN NATIONAL THERMAL POWER CO. PVT. LTD. (SUPRA), THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, ONLY WHEN THE BASIC FACTS RELATING TO THE ISSUE RAISED IN THE ADDITIONAL GROUND ARE AVAILABLE ON RECORD BEFORE THE ASSESSING OFFICER, THEN ONL Y IT CAN BE ENTERTAINED. HE SUBMITTED, AS PER THE PRINCIPLE LAID DOWN BY HON'BLE SUPREME COURT ONLY PURE QUESTION OF LAW CAN BE ADMITTED AS ADDITIONAL GROUND. HE SUBMITTED, WHEN THE BASIC FACTS RELATING TO COMPARABLES ARE NOT AVAILABLE ON RECORD, THE ADDIT IONAL GROUND RAISED BY THE ASSESSEE FOR SELECTING RSPM AS THE MOST APPROPRIATE METHOD CANNOT BE ENTERTAINED AS IT REQUIRES EXAMINATION OF FRESH FACTS RELATING TO COMPARABLES. 31. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE IN RELATION TO IMPORT OF FDFS HAS ALSO RECEIVED ADVERTISEMENT AND MARKET EXPEN SES WHICH SUGGEST THAT IT IS CREATING MARKETING INTANGIBLE BY INCURRING SUBSTANTIAL EXPENSES ON MARKETING. REFERRING TO CERTAIN OECD GUIDELINES, THE LEARNED DEPARTMENTAL REPRESENTAT IVE SUBMITTED , AS ENQUIRY INTO MARKETING FUNCTIONS IS A FACTUAL ENQUIRY THIS ISSUE CANNOT BE ENTERTAINED AT THIS STAGE. HE PFIZER LIMITED 23 SUBMITTED , THOUGH THE TRANSFER PRICING OFFICER HAS NOT DEALT WITH THE ISSUE OF ADVERTISEMENT AND MARKETING EXPENSES INCURRED BY THE A SSESSEE SEPARATELY BUT STILL THIS HAS TO BE KEPT IN MIND WHILE TAKING A DECISION AS TO WHETHER OR NOT THE ASSESSEE HAS MADE VALUE ADDITION TO THE PRODUCTS IMPORTED FOR RE SALE / DISTRIBUTION. HE, THEREFORE, SUBMITTED , THE ADDITIONAL GROUND SHOULD NOT BE EN TERTAINED. 32. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THOUGH THE ASSESSEE IN ITS TRANSFER PRICING STUDY MIGHT HAVE REJECTED RSPM AS THE MOST APPROPRIATE METHOD KEEPING IN VIEW THE DATA AVAILABLE IN PUBLIC DOMAIN AT THE RELEVANT TIME, BUT, IF SUBSEQUENTLY ENOUGH DATA HAVE COME INTO THE PUBLIC DOMAIN TO CONSIDER RSPM AS THE MOST APPROPRIATE METHOD, THE ASSESSEE CANNOT BE PRECLUDED FROM RAISING ITS PLEA FOR CONSIDERING RSPM AS MOST APPROPRIATE METHOD. IT WAS SUBMITTED, AS PER THE TRA NSFER PRICING PROVISIONS, ARM'S LENGTH PRICE HAS TO BE DETERMINED BY APPLYING THE MOST APPROPRIATE METHOD. C ONSIDERING THE NATURE OF TRANSACTION, IF IT IS FOUND THAT RSP M IS THE MOST APPROPRIATE METHOD EVEN IF THE ASSESSEE HAD SELECTED SOME OTHER METHOD T HE ASSESSING OFFICER / TRANSFER PRICING OFFICER IS ENTITLED TO APPLY THE CORRECT METHOD. IN THIS CONTEXT, HE RELIED UPON A DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN ACIT V/S CHEMTECH GLOBAL ENGINEERS PVT. LTD., ITA NO.3590/MUM./ 2010, ORDER DATED 12 TH JUN E 2013. HE SUBMITTED , ALL BASIC AND PRIMARY FACTS RELATING TO THE NATURE OF PFIZER LIMITED 24 TRANSACTION INVOLVING IMP OR T OF FDFS BETWEEN THE ASSESSEE AND ITS A.E. IS ALREADY AVAILABLE ON RECORD BEFORE THE ASSESSING OFFICER / TRANSFER PRICING OFFICER, THEREFORE, THE ISSUE RELATING TO SELECTION OF MOST APPROPRIATE METHOD WHICH IS A PURELY LEGAL ISSUE CAN BE ENTERTAINED BY WAY OF ADDITIONAL GROUND. HE SUBMITTED ONLY AFTER APPLICABILITY OF MOST APPROPRIATE METHOD IS DECIDED, ISSUE OF SELECTION OF COMPARABLE WILL COME WHICH CAN BE EXAMINED BY THE TRANSFER PRICING OFFICER BY VERIFYING THE DATA AVAILABLE IN PUBLIC DOMAIN. 33. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES, PERUSED THE ORDERS OF THE DEPARTMENTAL AUTHORITIES AS WELL AS THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO C AREFULLY APPLIED OUR MIND TO THE DECISIONS RELIED UPON BY BOTH THE PARTIES. AT THE OUTSET, WE PROPOSE TO DEAL WITH THE PRELIMINARY OBJECTION RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE OPPOSING ADMISSION OF ADDITIONAL GROUND S . IT IS THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT AS THE ISSUE RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUND IS A MIXED QUESTION OF FACT AND LAW AND NOT PURELY A QUESTION OF LAW ARISING FROM THE FACTS ALREADY ON RECORD IT CANNOT BE ENTERTAINED. HOWEVER, WE A RE UNABLE TO ACCEPT THE OBJECTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE. ON A PERUSAL OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER UNDER SECTION 92CA, AS WELL AS OTHER MATERIAL ON RECORD, IT IS VERY MUCH EVIDENT THAT THE ASSESSEE HAS PRODUCED A LL RELEVANT PFIZER LIMITED 25 DOCUMENTS SUCH AS AGREEMENT, INVOICES AND ALL OTHER RELEVANT DETAILS IN RELATION TO ITS TRANSACTIONS WITH A.E. FOR IMPORT OF FDFS FOR RE SALE / DISTRIBUTION IN INDIA. ON A PERUSAL OF THE PROVISIONS CONTAINED UNDER SECTION 92C R/W RULE 10B, IT I S CLEAR THAT THE ARM'S LENGTH PRICE IN RELATION TO A PARTICULAR INTERNATIONAL TRANSACTION HAS TO BE DETERMINED BY FOLLOWING ANY ONE OF THE MOST APPROPRIATE METHODS PRESCRIBED THEREIN. THEREFORE, THE FIRST STAGE IS SELECTION OF MOST APPROPRIATE METHOD. FOR DOING SO ALL RELEVANT DETAILS RELATING TO A PARTICULAR TRANSACTION BETWEEN THE ASSESSEE AND ITS A.E. ARE REQUIRED TO BE GONE INTO. IN THE PRESENT CASE, THERE IS NO DISPUTE TO THE FACT THAT ALL RELEVANT DETAILS INCLUDING DOCUMENTARY EVIDENCE PERTAINING TO I MPORT OF FDFS FROM THE A.E. ARE AVAILABLE ON RECORD OF THE DEPARTMENTAL AUTHORITIES. THEREFORE, AS FAR AS SELECTION OF MOST APPROPRIATE METHOD IS CONCERNED, THE PRIMARY FACTS ARE AVAILABLE ON RECORD. THEREFORE, THE ISSUE AS TO WHAT IS THE MOST APPROPRIATE METHOD IS A PURELY LEGAL ISSUE WHICH CAN BE DECIDED BY ANALYZING THE NATURE OF TRANSACTION ON THE BASIS OF PRIMARY FACTS AVAILABLE ON RECORD BEFORE THE ASSESSING OFFICER / TRANSFER PRICING OFFICER. AS FAR AS SELECTION OF COMPARABLES AND COMPARABILITY ANALY SIS IS CONCERNED, IT IS AT THE SECONDARY STAGE AFTER SELECTION OF MOST APPROPRIATE METHOD. THEREFORE, IN OUR VIEW, AS FAR AS SELECTION OF MOST APPROPRIATE METHOD IS CONCERNED, IT IS A PURELY LEGAL ISSUE AND CAN BE ENTERTAINED AT THIS STAGE IN THE FORM OF A DDITIONAL PFIZER LIMITED 26 GROUND. HAVING HELD SO, IT IS REQUIRED TO BE SEEN WHETHER RE SALE PRICE METHOD IS THE MOST APPROPRIATE METHOD AS CLAIMED BY THE ASSESSEE. ON A PERUSAL OF THE ORDER OF THE DEPARTMENTAL AUTHORITIES AS WELL AS OTHER MATERIAL ON RECORD, IT IS OBSERVE D THAT THE ASSESSEE CLAIMED THAT IT RE SELLS / DISTRIBUTES THE FDFS IMPORTED FROM ITS A.E. WITHOUT MAKING ANY VALUE ADDITION. THEREFORE, IT SIMPLY ACTS LIKE A TRADER. IF THE ASSESSEE CAN PROVE THIS FACT WITH SUPPORTING DOCUMENTARY EVIDENCE, THEN IN OUR VIEW RE SALE PRICE METHOD CAN BE CONSIDERED TO BE THE MOST APPROPRIATE METHOD AS ASSESSEE IS SUPPOSED TO BE ENGAGED IN A PURELY TRADING ACTIVITY. THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE OVERWHELMINGLY SUPPORT THIS VIEW. ONLY BE CAUSE THE ASSESSEE, AT THE INITIAL STAGE, WHILE PREPARING TRANSFER PRICING STUDY , HAS REJECTED RSPM AND SELECTED TNMM FOR INSUFFICIENT DATA IN THE PUBLIC DOMAIN , IT CANNOT BE PRECLUDED FROM MAKING A PLEA AT A LATER STAGE BEFORE THE APPELLATE AUTHORITIES TH AT RSPM IS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ARM'S LENGTH PRICE OF TRANSACTION RELATING TO IMPORT AND SALE OF FDFS. IN OUR VIEW, THE WHOLE INTENT AND PURPOSE OF TRANSFER PRICING PROVISIONS IS TO DETERMINE THE CORRECT ARM'S LENGTH PRICE BY APP LYING THE MOST APPROPRIATE METHOD. HOWEVER, CONSIDERING THE FACT THAT THE ASSESSEE HAS NOT RAISED THIS ISSUE EITHER BEFORE THE TRANSFER PRICING OFFICER OR BEFORE THE FIRST APPELLATE AUTHORITY, AND HAS RAISED IF FOR THE FIRST TIME BEFORE THE PFIZER LIMITED 27 TRIBUNAL BY WAY OF ADDITIONAL GROUND , TO GIVE A FAR OPPORTUNITY TO THE DEPARTMENT, WE ARE INCLINED TO RESTORE THE ISSUE RAISED IN TH E ADDITION GROUND TO THE FILE OF THE ASSESSING OFFICER / TRANSFER PRICING OFFICER FOR EXAMINING AFRESH AFTER CONSIDERING ALL MATERIAL S ON R ECORD AND IN THE LIGHT OF THE RELEVANT STATUTORY PROVISIONS AND JUDICIAL PRECEDENT RELIED UPON BY THE ASSESSEE . ONLY AFTER THE ASSESSING OFFICER / TRANSFER PRICING OFFICER DECIDES THE ISSUE RELATING TO SELECTION OF MOST APPROPRIATE METHOD, THEN HE CAN UNDE RTAKE THE COMPARABILITY ANALYSIS BY CALLING FOR INFORMATION FROM THE ASSESSEE AS WELL AS MAKING HIS OWN ENQUIRY IN THE DATA BASES OR OTHERWISE . HOWEVER, IT IS MADE CLEAR, THE ASSESSING OFFICER / TRANSFER PRICING OFFICER MUST AFFORD REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE IN THE MATTER. WITH THE AFORESAID OBSERVATIONS, WE ALLOW THE ADDITIONAL GROUND FOR STATISTICAL PURPOSES. 34. IN VIEW OF OUR AFORESAID DECISION, THE ISSUE RAISED IN GROUNDS NO.4 AND 5, HAVE BECOME REDUNDANT. HOWEVER, THE ASSESSEE IS AT LIBERTY TO RAISE THESE ISSUES BEFORE THE ASSESSING OFFICER / TRANSFER PRICING OFFICER OR BEFORE THE APPELLATE FORUM DEPENDING UPON THE DECISION TO BE TAKEN BY THE ASSESSING OFFICER / TRANSFER PRICING OFFICER WITH REGARD TO SELECTION OF MOST APPROPRIA TE METHOD. PFIZER LIMITED 28 35. IN GROUND NO.7, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF DEPRECIATION CLAIMED ON ASSETS OF ANKLESHWAR PLANT. 36. BRIEFLY STATED THE FACTS ARE, IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED DEPR EC I ATION ON ASSETS OF ANKLESHWAR PLANT WHICH HAS CLOSED DOWN ITS OPERATION . HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE CLAIM OF DEPRECIATION SHOULD NOT BE DISALLOWED . T HOUGH , THE ASSESSEE SUBMITTED THAT ONCE THE ASSETS FORM PART OF THE BLOC K, IT LOSSES ITS INDIVIDUAL CHARACTER, HENCE, DEPRECIATION ON SUCH INDIVIDUAL ASSET CANNOT BE DISALLOWED BUT THE ASSESSING OFFICER MENTIONING THAT SIMILAR DISALLOWANCE WAS MADE IN ASSESSMENT YEAR 2000 01 DISALLOWED DEPRECIATION RELATING TO ANKLESHWAR PLANT AT ` 32,87,058. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. 37. THE LEARNED COMMISSIONER (APPEALS) ALSO SUSTAINED THE DISALLOWANCE. 38. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US , THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002 03 AND OF THE HON'BLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001 02. RESPECTIVE ORDERS WERE ALSO PLACE D BEFORE THE BENCH. PFIZER LIMITED 29 39. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT CONTROVERTED THE AFORESAID FACTUAL POSITION. 40. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS FAR AS THE FACTUAL ASPECT OF THE ISSUE IS CONCERNED, THERE IS NO DISPUTE THAT ASSESSEE HAS CLAIMED DEPRECIATION ON BLOCK OF ASSET WHICH ALSO INCLUDES ASSETS OF ANKLESHWAR PLANTS. IT IS OBSERVED , WHEN IDENTICAL ISSUE OF DISALLOWANCE OF DEPRECIATION ON THE ASSETS OF ANKLESHWAR PLANTS CAME UP FOR CON SIDERATION BEFORE THE TRIBUNAL, MUMBAI BENCH , IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002 03, THE TRIBUNAL IN ORDER DATED 8 TH MARCH 2013, IN ITA NO.3098/MUM./2006, ALLOWED ASSESSEES CLAIM BY FOLLOWING ITS OWN ORDER FOR THE ASSESSMENT YEAR 2001 02 IN ITA NO.8821/MUM./2004. IT IS ALSO RELEVANT TO OBSERVE , THE HON'BLE JURISDICTIONAL HIGH COURT DISMISSED REVENUES APPEAL ON THE ISSUE OF CLAIM OF DEPRECIATION ON PLANT AND MACHINERY OF ANKLESHWAR UNIT IN ITA NO.6776/2010 FOR THE ASSESSMENT YEAR 2000 01. IN VIEW OF THE AFORESAID, WE ALLOW ASSESSEES CLAIM OF DEPRECIATION BY DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. 41. THE NEXT ISSUE, AS RAISED IN GROUND NO.8, RELATES TO THE DECISION OF THE DEPARTMENTAL AUTHORITIES IN TREATING THE INCOME FROM SUB PFIZER LIMITED 30 L EASING OF PROPERTY AS INCOME FROM BUSINESS AS AGAINST ASSESSEES CLAIM OF HOUSE PROPERTY INCOME. 42. BRIEFLY STATED THE FACTS ARE, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS SHOWN THE AMOUNT RECEIVED ON SUB LEASING OF OFFICE PREMISE AS HOUSE PROPERT Y INCOME CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE INCOME SHOULD NOT BE TREATED AS BUSINESS INCOME AS THE ASSESSEE IS NOT THE OWNER OF THE PREMISE AND FURTHER IT IS EXPLOITATION OF COMMERCIAL PREMISE. THOUGH, THE ASSESSEE SUBMITTED ITS EXPLANATION IN SUP PORT OF ITS CLAIM BUT THE ASSESSING OFFICER REJECTING THE SUBMISSIONS OF THE ASSESSEE TREATED THE AMOUNT RECEIVED FROM SUB LEASING OF THE OFFICE PREMISE AS BUSINESS INCOME. THE LEARNED COMMISSIONER (APPEALS) ALSO CONFIRMED THE VIEW OF THE ASSESSING OFFICER BY OBSERVING THAT IN THE ASSESSMENT YEAR 2002 03, SIMILAR VIEW WAS EXPRESSED BY THE FIRST APPELLATE AUTHORITY. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT ISSUE IN DISPUTE STANDS SQUARELY COVERED IN ITS FAVOUR NOT ONLY BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002 03 BUT BY THE HON'BLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000 01 AND 2001 02. 43. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT CONTROVERTED THE AFORESAID FA CTUAL POSITION. PFIZER LIMITED 31 44. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A PERUSAL OF THE ORDER OF THE CO ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.3098/MUM./2006, DATED 8 TH MARCH 2013, IT IS VERY MUCH CLEAR THAT T HE ISSUE WHETHER THE INCOME RECEIVED FROM SUB LEASING OF OFFICE PREMISE IS TO BE TREATED AS INCOME FROM HOUSE PROPERTY OR BUSINESS INCOME HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING ITS OWN ORDER FOR ASSESSMENT YEAR 2000 01 AS WELL AS EARLIER A SSESSMENT YEAR. IT IS FURTHER EVIDENT, THE HON'BLE JURISDICTIONAL HIGH COURT HAS APPROVED SUCH VIEW OF THE TRIBUNAL TAKEN IN ASSESSMENT YEAR 2000 01 AND 2001 02 IN ITA NO.128/2009 AND 6776/201. IN VIEW OF SUCH UNCONTROVERTED FACTUAL POSITION, FOLLOWING THE DECISION OF THE CO ORDINATE BENCH AS WELL AS JURISDICTIONAL HIGH COURT, WE ALLOW ASSESSEES CLAIM OF HOUSE PROPERTY INCOME IN RESPECT OF SUB LEASING OF OFFICE PREMISES. 45. THE LAST ISSUE IN GROUND NO.9 RELATES TO LEVY OF INTEREST UNDER SECTION 234D OF THE A CT. 46. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002 03. PFIZER LIMITED 32 47. ON A PERUSAL OF THE ORDER OF THE CO ORDINATE BENCH OF TH E TRIBUNAL REFERRED TO ABOVE, IT IS FOUND THAT THE BENCH HAS DECIDED THE ISSUE AGAINST THE ASSESSEE TAKING INTO CONSIDERATION THE RETROSPECTIVE AMENDMENT MADE TO SECTION 234D. IN VIEW OF THE AFORESAID, WE UPHOLD THE LEVY OF INTEREST BY DISMISSING THE GROUN D RAISED BY THE ASSESSEE. 48. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. WE NOW TAKE UP REVENNUES APPEAL IN ITA NO.3242/MUM./ 2008 , FOR THE ASSESSMENT YEAR 2003 04 . THE REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL: ' 1. ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN EXCLUDING 'SYNGENE INTERNATIONAL PVT. LTD.' AS A COMPARABLE FOR DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY THEREBY GRANTING RELIEF TO THE A SSESSEE COMPANY TO THE EXTENT OF RS.1,51,39,000/ - BY RESTRICTING THE ADDITION ON ACCOUNT OF TRANSFER PRICING TO RS.2,01,87,000/ - AS AGAINST RS.3,53,26,000/ - MADE BY THE T.P.O'. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C IT(A) ERRED IN HOLDING THE MARKET RESEARCH EXPENSES OF RS.54.14 LAKHS AS BUSINESS EXPENDITURE AND THEREBY DELETING THE DISALLOWANCE MADE BY THE A.O. 49. THE FIRST GROUND RELATES TO EXCLUSION OF SYNGENE INTERNATIONAL PVT. LTD., AS A COMPARABLE BY THE LEARNED C OMMISSIONER (APPEALS) AS FAR AS INTERNATIONAL TRANSACTION RELATING TO CSMM SUPPORT SERVICES. IN COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER , THOUGH THE ASSESSEE OBJECTED TO SELECTION OF AFORESAID COMPANY AS A COMPARABLE PFIZER LIMITED 33 ON THE GROUND THAT IT IS A WHOLLY OWNED SUBSIDIARY OF BIOCON INDIA LTD. AND AS PER THE DISCLOSURE MADE BY THE COMPANY ITSELF, IT HAS RELATED PARTY TRANSACTION BUT THE TRANSFER PRICING OFFICER OVERRULING THE OBJECTIONS OF THE ASSESSEE SELECTED THIS COMPANY AS A COMPARABLE. THE F IRST APPELLATE AUTHORITY WHILE DECIDING ASSESSEES APPEAL ON THE ISSUE OF SELECTION OF THIS COMPANY AS A COMPARABLE AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE FACTS AND MATERIAL ON RECORD, FOUND THAT THE COMPANY HAS CONSIDERABLE RELAT ED PARTY TRANSACTION WHICH IS EVIDENT FROM THE NOTE TO THE FINANCIAL STATEMENTS OF THE COMPANY. HE, THEREFORE, ACCEPTING ASSESSEES CONTENTION, EXCLUDED SYNGIN INTERNATIONAL PVT. LTD. FROM THE LIST OF COMPARABLE. 50. THE LEARNED DEPARTMENTAL REPRESENTATIVE S UBMITTED BEFORE US , THE RELATED PARTY TRANSACTION OF THE COMPANY IS NOT TO THE EXTENT THAT IT CANNOT BE CONSIDERED AS A COMPARABLE. IN THIS CONTEXT, HE REFERRED TO THE ANNUAL REPORT OF THE COMPANY PLACED IN ASSESSEES PAPER BOOK AND SUBMITTED THAT THE RELA TED PARTY TRANSACTION HAS NOT EXCEEDED 25%. HE FURTHER SUBMITTED THAT THE TRANSFER PRICING OFFICER HAS NOT APPLIED RELATED PARTY TRANSACTION FILTER WHILE SELECTING / REJECTING COMPARABLES. HOWEVER, THE LEARNED DEPARTMENTAL REPRESENTATIVE FAIRLY SUBMITTED T HE EXCLUSION OF THIS COMPANY WILL NOT HAVE MUCH IMPACT ON THE PROFIT MARGIN . PFIZER LIMITED 34 51. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, STRONGLY SUPPORTING THE VIEW EXPRESSED BY THE FIRST APPELLATE AUTHORITY, SUBMITTED , APART FROM THE FACT THAT IT IS HAVING SUBSTANTIAL RELATED PARTY TRANSACTION BEING A SUBSIDIARY OF BIOCON LTD. BUT AS PER ITS OWN ANNUAL REPORT NO SEGMENTAL ANALYSIS HAS BEEN DONE HE, THEREFORE, SUBMITTED THAT IN THE ABSENCE OF SEGMENTAL ANALYSIS, IT CANNOT BE CONSIDERED AS A COMPARABLE. IN THIS CONTEXT, HE RELIED UPON THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN EVONIK DEGUSSA INDIA PVT. LTD. V/S ACIT, ITA NO.7653/MUM./2011, ORDER DATED 21 ST NOVEMBER 2012. 52. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES, WE ARE OF THE VIEW THAT SYNGE NE INTERNATIONAL PVT. LTD. HAS BEEN CORRECTLY TREATED AS UN COMPARABLE TO THE ASSESSEE. AS COULD BE SEEN FROM THE MATERIAL PLACED BEFORE US , IT IS WHOLLY OWNED SUBSIDIARY OF BIOCON INDIA LTD. AND HAVING SUBSTANTIAL RELATED PARTY TRANSACTION. THIS FACT HAS N OT BEEN CONTROVERTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE WITH CONTRARY EVIDENCE. MOREOVER, IT IS RE VEALED FROM ITS ANNUAL REPORT , IT HAS TWO STREAMS OF INCOME VIZ. FROM CONTRACT RESEARCH FEES AND SALE OF COMPOUNDS, HOWEVER, SEGMENTAL ANALYSIS IS NOT AVAILABLE IN THE ANNUAL REPORT WHICH HAS BEEN ACCEPTED BY THE CO ORDINATE BENCH OF THE TRIBUNAL IN EVONIK DEGUSSA INDIA PVT. LTD. (SUPRA). IN THE AFORESAID PFIZER LIMITED 35 VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY ON THE ISSUE BY DISMISSING GROUND NO.1, RAISED BY THE DEPARTMENT. 53. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) IN ALLOWING MARKET RESEARCH EXPENSES OF ` 54.14 LAKH AS BUSINESS EXPENSES. 54. BRIEFLY STATED THE FACTS ARE, DURING THE ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER, WHILE EXAMINING ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF MARKET RESEARCH EXPENSES AMOUNTING TO ` 54.14 LAKH, WAS OF THE VIEW THAT IT IS IN THE NATURE OF CAPITAL EXPENDITURE, HENCE, NOT ALLOWABLE. 55. THE LEARNED CO MMISSIONER (APPEALS), HOWEVER, ALLOWED ASSESSEES CLAIM BY CONSIDERING THE FACT THAT IN THE EARLIER YEARS, THE FIRST APPELLATE AUTHORITY HAS ALLOWED SUCH EXPENSES. WHILE DOING SO, HE ALSO OBSERVED THAT NO NEW PRODUCT HAS EITHER BEEN DEVELOPED BY THE ASSESS EE OR INTRODUCED IN THE MARKET IN THE YEAR UNDER CONSIDERATION SO AS TO TREAT THE EXPENDITURE AS CAPITAL IN NATURE. 56. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN ASSESSEES FAVOUR IN ITS OWN CASE FOR T HE ASSESSMENT YEAR 2002 03, IN ITA NO.3180/MUM/2006 ORDER DATED 18 TH DECEMBER 2008. PFIZER LIMITED 36 57. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT CONTROVERTED THE AFORESAID FACTUAL POSITION. 58. ON A PERUSAL OF THE ORDER PASSED BY THE CO ORDINATE BENCH OF THE TRIBUNAL, AS PLACED BEFORE US BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND THAT THE TRIBUNAL, WHILE CONSIDERING IDENTICAL ISSUE IN ASSESSMENT YEAR 2002 03, ALLOWED ASSESSEES CLAIM UPON CONSIDERING THE FACT THAT AGAINST SIMILAR DISALLOWANCE MADE IN ASSESSMENT YEAR 2001 02, THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED COMMISSIONER (APPEALS) WHO ALLOWED ASSESSEES CLAIM. HOWEVER, THE DEPARTMENT DID NOT CHALLENGE THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) BY PREFERRING APPEAL BEFORE THE TRIBUNAL. THE CO OR DINATE BENCH, THEREFORE, HELD THAT AS THE REVENUE HAS FAILED TO BRING ANY MATERIAL TO SHOW THAT THE FACT IN THE ASSESSMENT YEAR 2002 03 IS, IN ANY WAY, DIFFERENT FROM THE PRECEDING ASSESSMENT YEAR, THERE IS NO REASON TO DISALLOW ASSESSEES CLAIM. ACCORDING LY, TRIBUNAL DISMISSED REVENUES APPEAL ON THE ISSUE. CONSIDERING THE FACT THAT IN THE PRECEDING ASSESSMENT YEAR, SIMILAR EXPENDITURE HAS BEEN ALLOWED BY THE APPELLATE AUTHORITIES AND THERE BEING NO DIFFERENCE IN FACTS IN THE IMPUGNED ASSESSMENT YEAR, WE U PHOLD THE DECISION OF THE FIRST APPELLATE AUTHORITY BY DISMISSING THE GROUND RAISED BY THE DEPARTMENT. PFIZER LIMITED 37 59. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 60. TO SUM UP, ASSESSEES APPEAL IS PARTLY ALLOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.11.2015 SD/ - D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 06.11.2015 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI PFIZER LIMITED 38 DATE INITIAL ORIGINAL DICTATION PA D IS ENCLOSED AT THE END OF FILE 1. DRAFT DICTATED ON 5 30 .10.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 2 .1 1 .2015 SR.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 1 8 .1 1 .2015 SR.PS 6. DATE OF PRONOUNCEMENT 06 .1 1 .2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 19 .1 1 .2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER , / / 19997 98 2000 01 / / / / / / / / / /