Concord Biotech Limited, Ahmedabad V. The ACIT, (OSD), Range-1, Ahmedabad

ITA 558/AHD/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76888 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 19-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 24-02-2014
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Transfer pricing; Principle of natural justice; International transaction; Rule of consistency; Proportionate interest
• Section: 14A; 10B

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , ! '# ! '# ! '# ! '#, , , , $ $ $ $ BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA (TP) NO. 558/AHD/2014 ASSESSMENT YEAR 2009-10 CONCORD BIOTECH LIMITED. 403, 4 TH FLOOR ISKON ELEGANCE, PRAHLADNAGAR CROSS ROADS, S.G. HIGHWAY, AHMEDABAD-380015. PAN: AAACC8514G VS ASSISTANT COMMISSIONER OF INCOME TAX, RANGE-1, AHMEDABAD. %&/ APPELLANT ()%& / RESPONDENT REVENUE BY : SHRI O.P. VAISHNAV, SR. DR WITH SHRI AJIT PAL SINGH DAIA, TPO ASSESSEE(S) BY : SHRI S.N. SOPARKAR, AR !* + #,/ // / DATE OF HEARING : 24/06/2014 -./ + #, / DATE OF PRONOUNCEMENT: 30/06/2014 0 0 0 0/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE DISPUTE RESOLUTION PANEL, AHMEDABAD DATED 27.12.201 3 FOR ASSESSMENT YEAR 2009-10. 2. GROUND NO. 1 OF THE APPEAL AS UNDER: LD. DRP AND LD AO ERRED IN LAW AND ON FACTS IN NOT ALLOWING DEPRECIATION ON ELECTRIC INSTALLATION AT 15% AND RE STRICTING THE SAME AT 10% THEREBY MAKING ADDITION OF RS 1,05,437/ -. THIS ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 2 - ACTION OF BOTH THE LOWER AUTHORITIES IN NOT ACCEPTI NG THE CLAIM OF THE APPELLANT IS TOTALLY ERRONEOUS, PREJUDICIAL, AN D AGAINST THE PRINCIPLES OF NATURAL JUSTICE THAT DESERVES TO BE Q UASHED. 3. AT THE TIME OF HEARING, THE AUTHORIZED REPRESEN TATIVE OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THIS GRO UND OF APPEAL, HENCE THE SAME IS DISMISSED AS NOT PRESSED. 4. THE SOLE ISSUE INVOLVED IN GROUND NO. 2 TO 4 OF THE APPEAL IS THAT THE DISPUTE RESOLUTION PANEL ERRED IN CONFIRMING TH E ORDER OF THE TRANSFER PRICING OFFICER IN MAKING TRANSFER PRICING ADJUSTME NT IN RELATION TO THE SALE OF MYCOMOFTEIL TO ASSOCIATED ENTERPRISE AND THEREBY MA KING ADDITION OF RS 9,84,14,422/-. 5. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 3 0/09/2009 DECLARING TOTAL INCOME OF RS.15,06,16,920/-. THE DC IT(OSD), RANGE-1, AHMEDABAD (AO) REFERRED THE CASE UNDER SECTION 92CA OF THE INCOME TAX ACT 1961 (THE ACT) TO THE TRANSFER PRICING OFFICER (IN SHORT TPO) FOR DETERMINING THE ARMS LENGTH PRICE (IN SHORT ALP) IN RELATION TO THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE WITH ITS ASSOCIATED ENTERPRISE (IN SHORT AE). 6. THE TPO, BASED ON THE TRANSFER PRICING STUDY WH ICH WAS MADE IN THE CASE OF THE ASSESSEE, PASSED THE ORDER UNDER SE CTION 92CA OF THE INCOME TAX ACT 1961 ON 15/01/2013 PROPOSING AN UPWA RD ADJUSTMENT OF RS.9,84,14,422/-. THE ASSESSING OFFICER PREPARED TH E DRAFT ASSESSMENT ORDER ON 18.03.2013 INCORPORATING THE ADJUSTMENT SU GGESTED BY THE TPO AND SERVED A COPY THEREOF TO THE ASSESSEE ON THE SA ME DAY. THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRAFT RESOLUTION PA NEL (DRP) UNDER SECTION 144C(2)(B) OF INCOME TAX ACT 1961 ON 17.04.2013. 7. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF PHARMACEUTICAL AND BIOTECHNOLOGICA L PRODUCTS. THE ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 3 - ASSESSEE COMPANY HAS UNDERTAKEN FOLLOWING INTERNATI ONAL TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION. DESCRIPTION ASSOCIATED ENTERPRISES AMOUNT OF TRANSACTION IN RS. METHOD SALE OF BULK DRUGS MATRIX LABORATORIES INC. 76, SOUTH ORANGE AVENUE SUITE#301 SOUTH ORANGE, NJ-07079 19,99,35,726/- COST PLUS METHOD 8. FOR THE PURPOSE OF BENCHMARKING THE AFORESAID I NTERNATIONAL TRANSACTIONS, COST PLUS METHOD (CPM) WAS ADOPTED AS THE MOST APPROPRIATE METHOD FOR ALL THE TRANSACTIONS. THE TRANSACTIONS I N RESPECT OF SALE OF PRODUCTS HAVE BEEN COMPARED WITH THE EXTERNAL COMPA RABLES FOR WHICH THE DETAILS WERE PROVIDED IN ANNEXURE-3 OF WRITTEN SUBM ISSION DATED 10 TH JANUARY 2011 TO THE TPO AND ON THIS BASIS THE CONCL USION WAS ARRIVED AT THAT THE INTER-COMPANY TRANSACTIONS BETWEEN CONCORD BIOT ECH AND ITS ASSOCIATED ENTERPRISES (HEREINAFTER ALSO REFERRED AS AE) ARE C ONSISTENT WITH THE ARM'S LENGTH STANDARD FROM THE INDIAN TRANSFER PRICING PE RSPECTIVE. 9. THE TPO CALLED FOR INVOICE-WISE DETAILS OF EXPO RT SALE TO AE, NON- AE, AND CALCULATIONS OF COST AND MARGINS EARNED THE REON WHICH FORMED THE BASIS FOR COST PLUS METHOD APPLIED BY THE ASSESSEE. AFTER EXAMINING THE DETAILS SUBMITTED, THE BENCHMARKING DONE IN SOME OF THE INTERNATIONAL TRANSACTIONS WERE NOT FOUND TO BE ACCEPTABLE AND TH EREFORE A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE INTER-ALIA STATIN G THAT: THE ASSESSEE COMPANY HAD SOLD FOLLOWING PRODUCTS TO ITS AE (MATR IX LABS INC.) 1. MYCO MOFTEIL 2. MYCO SODIUM 3. TACROLIMUS (PREMIX) 4. VANCOMYCIN (I) MYCOMOFTEIL: ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 4 - MYCO MOFTEIL AMOUNTING TO 7005 KGS WAS SOLD TO AE A T AN AVERAGE RATE OF RS.24,809/-. THE SAME PRODUCT WAS S OLD TO A NON AE IN USA AT THE RATE OF RS. 47,880/-. THE ASSESSEE SUBMITTED THAT THE QUANTITY SOLD TO NON AE IN USA IS JUST 2 KGS AND HE NCE THE QUANTITIES ARE NOT COMPARABLE AT ALL AND HENCE THE PRICE DIFFE RENCE. THE DOCUMENTS AND WRITTEN SUBMISSION MADE BY THE COMPAN Y REVEALED THAT MYCO MOFTEIL SOLD TO AE WAS NOT A DEVELOPMENT QUANTITY AND IT WAS A COMMERCIAL QUANTITY. SINCE THE QUANTITY OF MYCO MOFTEIL SOLD TO NON AE E NTITY IN USA IS JUST 2 KGS (SOLD AT RS. 47,880/- KG, ALMOST TWICE THE RATE AT WHICH THIS PRODUCT WAS SOLD TO THE AE (RS. 24809/-). HENCE, THE PRICES ARE NOT COMPARABLE. THE ASSESSEE HAS SOLD MYCO MOFTEIL TO THIRD PARTIES LOCATED IN OTHER THAN USA (252 KGS AT RATE OF RS 22,636/-) AND TO THE THIRD PARTY DOMESTIC (3651.33 KGS AT AVERAGE RATE OF RS. 22,239/- ). THE RATE AT WHICH THIS PRODUCT WAS SOLD TO THESE THIRD PARTIES IS LESSER THAN THE RATE AT WHICH IT WAS SOLD TO AE, BUT YET IT COULD N OT BE TREATED AS COMPARABLES SINCE USA IS A REGULATED MARKET WHERE THE PRICE REALIZATION ARE HIGHER COMPARED TO SATES IN DOMESTI C AND OTHER NON REGULATED MARKET, WHERE PRODUCT COULD BE SOLD WITHOUT ANY REGULATORY HURDLE TO THE FORMULATION COMPANY. HENCE IN THE NON REGULATED MARKETS LIKE MEXICO AND INDIA, THE PRICES WERE LOWER THAN THAT OFFERED IN THE USA. THE OTHER PRODUCTS SOLD TO NON ASSOCIATED COMPANIES IN USA CAN BE TREATED AS QUITE COMPARABLE WITH THE SALE OF MYCO MOFTEIL IN USA TO THE ASSOCIATED PARTY (MATRIX LABS INC.) THE COMPARATIVE DETAILS OF SALES MADE TO MATRIX LAB S AND OTHER NON AE'S IN USA IN RESPECT OF THESE TWO PRODUCTS IS REPRODUCED BELOW (BASED ON THE ASSESSEE'S SUBMISSIONS/DOCUMENTS ACCEPTING THE COST PLUS METHOD). THE PRODUCTS SOLD TO AE AND NON AES IN USA ARE COMP ARABLES ON FOLLOWING GROUNDS. SALE TO MATRIX LAB INC. (USA) [MYCO MOFTEIL] TO NON AES (IN USA) (OTHER PRODUCTS ) QUANTITY (KGS) 7005 4002 AMOUNT 17,37,87,525/- 4,96,16,100/- AVG. RATE 24,809/- 12,398/- COST/ PER KG. 18,840/- 6,011/- TOTAL COST 13,19,76,702/- 2,40,56,913/- PROFIT 4,18,10,823/- 2,55,59,187/- PROFIT/ KG. 5,969/- 6,386/- % PROFIT OF TOTAL COST 31.68% 106.25% ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 5 - 1. THE MYCO MOFTEIL (SOLD TO AE) AND OTHER PRODUCTS (PENCIL/N G AMIDASE ENZYME AND LOVASTATIN) ARE GENE RIC DRUGS MANUFACTURED BY THE ASSESSEE COMPANY. 2. THE SALE IS IN THE USA THAT IS A REGULATED MARKE T POSING EQUAL REGULATIONS FOR THE DRUGS SOLD IN THE STATES. 3. THE COMPARABLE SALES ARE IN THE SAME GEOGRAPHICA L AREA REPRESENTING SAME DEMOGRAPHIC STATISTICS. 4. THE DRUGS COMPARED HERE ARE IN COMPARABLE QUANTI TIES (7005 KGS AND 4002 KGS RESPECTIVELY). 5. THE DRUGS COMPARED HERE ARE COMMERCIAL QUANTITIE S AND NOT FOR DEVELOPMENT QUANTITY. ON THE BASIS OF ABOVE DISCUSSION, IT IS SEEN THAT I N THE SALE OF OTHER PRODUCTS IN NON AES IN USA, THE COMPANY IS EARNING 106.25% PROFIT OVER COST IN COMPARISON TO SALE OF MYCO MOFTEIL (31 .68%) PROFIT OVER TOTAL COST), THEN WHY NOT A PROFIT/TOTAL COST RATIO OF 106.25% BE ADOPTED FOR THE SALE OF MYCO MOFTEIL.' THE SALE OF OTHER PRODUCTS (LOVASTATIN) IN NON AES IN USA, THE COMPANY IS EARNING 106.25% PROFIT OVER COST IN COMP ARISON TO SALE OF MYCOPHENOLATE MOFTEIL (31.68%) PROFIT OVER TOTAL CO ST, THEREFORE A PROFIT /TOTAL COST RATIO OF 106.25% TREATING THE MA RGIN OF OTHER PRODUCTS (LOVASTATIN) SOLD TO NON AE AS ARM'S LENGT H PRICE IS ADOPTED FOR THE SALE OF MYCOPHENOLATE MYCO MOFTEIL. (IT IS WORTHWHILE TO MENTION HERE THAT 106% MARGIN ON COST ON ANDA DRUGS MANUFACTURED IN INDIA IS REASONABLE PROFIT MARGIN WHEN ONE CONSI DERS THAT THESE DRUGS BEING SOLD IN USA AT 1000% TO 2000% MARGIN ON COST NORMALLY.) COST OF MYCOPHENOLATE MOFTEIL =RS. 13,19,76,702/- PROFIT @ 106.25% (PROFIT) =RS. 14,02,25,246/- PRICE (ALP) SALE =RS. 27,22,01,948/- PRICE AT WHICH ACTUALLY SOLD =RS.17,37,87,525/- DIFFERENCE IN PRICE =RS. 9,84,14,422/- ACCORDINGLY, AN UPWARD ADJUSTMENT AMOUNTING TO RS. 9,84,14,422/- HAS BEEN PROPOSED IN THE CASE. 10. THE DISPUTE RESOLUTION PANEL, AFTER CONSIDERIN G THE SUBMISSIONS OF THE ASSESSEE, UPHELD THE ORDER OF THE TRANSFER P RICING OFFICER BY OBSERVING AS UNDER: 6. WE HAVE GONE THROUGH THE RECORDS AND HAVE CONSI DERED THE FACTS OF THE CASE. WE FIND THAT THE MAIN ISSUE IN THIS CASE REVOLVES AROUND DETERMINATION OF ARMS LENGTH PRICE OF MYCOPHENOLATE MOFTEIL SOLD TO THE AE. THE AO HAS AD OPTED AN APPROACH BY WHICH HE COMPARED THE GROSS PROFIT EARN ED BY THE ASSESSEE FROM SALE OF MYCOPHENOLATE MOFTEIL WITH TH E GROSS PROFIT ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 6 - EARNED BY THE ASSESSEE FROM SALE OF OTHER DRUGS TO THE NON AE. THE ASSESSEE HAS ARGUED THAT THE PRODUCTS ARE DIFFE RENT AND HENCE THE PROFIT MARGINS ARE DIFFERENT. THE ASSESSE E HAS PRODUCED DIRECT CUP IN THE FORM OF MYCOPHENOLATE MO FTEIL SOLD TO NON AE IN INDIA. THIS FACT IS ACCEPTED BY THE TPO B UT HE HAS REFUSED TO ACCEPT THE CUP FOR THE REASONS AS UNDER APPEARING IN THE TP ORDER: 'THE ASSESSEE HAS SOLD MYCO MOFTEIL TO THIRD PARTIE S LOCATED IN OTHER THAN USA (252 KGS AT RATE OF 22,636/-) AND TO THE THIRD PARTY DOMESTIC (3651.33 KGS AT AVERAGE RATE OF RS. 22,239/-). THE RATE AT WHICH THIS PRODUCT WAS SOLD TO THESE TH IRD PARTIES IS LESSER THAN THE RATE AT WHICH IT WAS SOLD TO AE, BU T YET IT COULD NOT BE TREATED AS COMPARABLES SINCE USA IS A REGULA TED MARKET WHERE THE PRICE REALIZATION ARE HIGHER COMPARED TO SATES IN DOMESTIC AND OTHER NON REGULATED MARKET, WHERE PROD UCT COULD BE SOLD WITHOUT ANY REGULATORY HURDLE TO THE FORMUL ATION COMPANY. HENCE IN THE NON REGULATED MARKETS LIKE ME XICO AND INDIA, THE PRICES WERE LOWER THAN THAT OFFERED IN T HE USA. THE OTHER PRODUCTS SOLD TO NON-ASSOCIATED COMPANIES IN USA CAN BE TREATED AS QUITE COMPARABLE WITH THE SALE OF MYCO M OFTEIL IN USA TO THE ASSOCIATED PARTY (MATRIX. LABS LNC.)(PAGE 5 OF THE ORDER) 7. THUS THE ASSESSEE IS ARGUING THAT PRODUCT SIMILA RITY IS MORE IMPORTANT FOR COMPARABILITY, WHEREAS THE TPO H AS HELD THAT GEOGRAPHY AND THE MARKET CONDITIONS ARE MORE IMPORT ANT. THE TPO THEREFORE HAS COMPARED TWO DIFFERENT PRODUCTS B UT SOLD IN THE SAME MARKET WHEREAS THE ASSESSEE IS ASKING FOR COMPARING THE SAME PRODUCT BUT SOLD IN DIFFERENT MARKETS. 8. THE ASSESSEE HAS RELIED HEAVILY ON THE DECISION OF JURISDICTIONAL TRIBUNAL IN THE CASE OF MISSION PHAR MA. WE HAVE GONE THROUGH THIS DECISION AND WE FIND THAT THE DEC ISION DOES NOT SUPPORT THE ASSESSEES CASE. THE ASSESSEE IN TH AT CASE WAS A LIMITED RISK BEARER TRADER OF GOODS. THE FACTS ARE DISCUSSED ON PAGE 74 OF THE TRIBUNAL'S ORDER. THE TRIBUNAL ACTUA LLY IN THAT ORDER ACCEPTED THAT IN NORMAL CIRCUMSTANCES GEOGRAP HY DOES MAKE A DIFFERENCE AND AN EXPORTER'S PROFITS CAN NOT BE COMPARED WITH PROFIT FROM DOMESTIC SALES. THE TRIBUNAL HOWEV ER HELD THAT IN THE CASE OF MISSION PHARMA THERE WERE EXCEPTIONA L CIRCUMSTANCES WHICH DENIED THE ASSESSEE THE BENEFIT S OF A NORMAL EXPORTER. IN THE PRESENT CASE THERE ARE NO S UCH EXCEPTIONAL CIRCUMSTANCES PREVAILING AND HENCE AS P ER THE ITAT WE MUST HOLD THAT PROFITABILITY IN DOMESTIC MARKET WOULD BE SIGNIFICANTLY DIFFERENT FROM THE SAME IN EXPORT MAR KET. THIS IMPLIEDLY MEANS THAT PRICES IN DOMESTIC MARKETS WOU LD BE MUCH LOWER THAN IN THE EXPORT MARKET PARTICULARLY US MAR KET. THE TPO HAS ALSO BROUGHT OUT RELEVANT FACT IN THIS REGARD A ND THEREFORE WE REJECT THE ASSESSEES CONTENTION THAT GEOGRAPHIE S DO NOT ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 7 - MAKE ANY DIFFERENCE AND HENCE CUP SHOULD BE ACCEPTE D ACROSS THE BORDERS. 9. WE ALSO HOLD THAT FOR APPLYING CUP A VERY HIGH D EGREE OF COMPARABILITY IS REQUIRED BECAUSE THE PRICES ARE IN FLUENCED BY THE TERMS AND CONDITIONS OF EACH TRANSACTION. THE A SSESSEE HAS PRODUCED SAMPLE INVOICES OF SALE OF THE DRUG IN IND IA TO CHL. THE ASSESSEE HAS ARGUED THAT CHL USES THE API AS A RAW MATERIAL AND SELLS THE FINAL PRODUCT IN USA, THEREF ORE SALE OF API TO CHL SHOULD BE CONSIDERED AS GOOD AS EXPORTS. WE ARE NOT IMPRESSED BY THIS ARGUMENT. CHL BUYS FROM THE ASSES SEE IN INDIA, AND THEREFORE PAYS A PRICE WHICH IS PREVALEN T IN INDIA. NOW IF CHL SELLS THE FINAL PRODUCT IN US, THE PROFI TS FROM EXPORTS ARE POCKETED BY CHL. WE DO NOT THINK THAT FOR THIS REASON CHL WOULD PAY TO THE ASSESSEE A PRICE WHICH IS PREVALEN T IN INDIA. 10. THE ASSESSEE HAS REFERRED TO VARIOUS US REGULAT IONS ETC, BUT WE DO NOT THINK THESE REGULATIONS IN ANY WAY AF FECT THE PRICE OF API SOLD IN INDIA. THE ASSESSEE HAS AT LEAST NOT PRODUCED ANY EVIDENCE THAT THE PDA IN ANY WAY MONITORS PRICING O F DRUGS ALSO AND SUCH MONITORING HAS AFFECTED THE PRICE CHARGED BY THE ASSESSEE TO ITS AE. 11. AS REGARDS ASSESSEES OBJECTIONS AGAINST THE CP M APPLIED BY THE TPO, WE MUST MENTION THAT THE ASSESSEE HIMSE LF HAD SELECTED PROFIT BASED METHODS TO JUSTIFY ITS INTERN ATIONAL TRANSACTIONS. THE ASSESSEE HAD TAKEN EXTERNAL COMPA RABLES AND COMPARED ITS MARGINS WITH THEIR MARGINS. IN SUCH A SITUATION, IT DOES NOT BEHOVE THE ASSESSEE TO ARGUE THAT MARGIN E ARNED FROM ONE PRODUCT CAN NOT BE COMPARED WITH THE MARGIN EAR NED FROM ANOTHER PRODUCT. THE ASSESSEE HIMSELF HAD CARRIED O UT COMPARABILITY ANALYSIS ACROSS THE PRODUCTS AT ENTIT Y LEVEL. THEREFORE WE DO NOT SUBSCRIBE TO THE ASSESSEES VIE W THAT MARGIN EARNED FROM ONE PRODUCT SHOULD NOT BE COMPAR ED WITH MARGINS EARNED FROM ANOTHER PRODUCT. IF THERE ARE F ACTORS WHICH MIGHT HAVE AFFECTED THE MARGINS OF DIFFERENT PRODUC TS THE ASSESSEE HAS FAILED TO POINT THEM OUT. NO CASE HAS BEEN MADE OUT THAT THERE WERE ANY DIFFERENCES BETWEEN MYCO MO FTEIL AND OTHER DRUGS AS TO PATENT PERIOD, BRAND VALUE ETC. I N THE ABSENCE OF THESE FACTS WE UPHOLD THE ACTION OF THE TPO. 11. BEFORE US, THE ASSESSEE HAS SUBMITTED AS FOLLO WS: IN THE ABOVE CAPTIONED APPEAL, ASSESSEE CHALLENGED ORDER OF DRP ERRED IN UPHOLDING THE ACTION OF TPO/AO IN MAKING T RANSFER PRICING ADJUSTMENT OF RS 9,84,12,422/-. THE ASSESSEE MAKES TWO PRIMARY SUBMISSIONS. ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 8 - 1. THE TPO HAS ERRONEOUSLY REJECTED INTERNAL COMP ARABLE USED BY THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS SOLD BULK DRUG BEING MYCOPHENOLATE MOFETIL IN FOLLOWING PARTI CULARS: PRODUCT QUANTITY (KG) SOLD TO PRICE (RS PER KG) MYCOPHENOLATE MOFTEIL 7005 AE(US) 24,800 MYCOPHENOLATE MOFTEIL 2 OTHER THAN AE (US) 47,800 MYCOPHENOLATE MOFTEIL 252 OTHER THAN AE (NON US) 22,630 MYCOPHENOLATE MOFTEIL 3651 CADILA HEALTH CARE LTD. (INDIA) 22,200 AS PER ASSESSEE AS THE PRODUCT SOLD TO ASSOCIATED E NTERPRISE (AE) IS AT A PRICE HIGHER THAN THE ONE SOLD IN INDI A TO NON AE (CADILA HEALTH CARE LTD. HEREINAFTER REFERRED TO AS 'CADILA'), THE INTERNATIONAL TRANSACTION IS AT ARM'S LENGTH PRICE. HOWEVER LD. TPO/AO/DRP HELD THAT THE PRICE AT WHICH THE SAID DR UG WAS SOLD IN USA TO THE A.E. IS NOT COMPARABLE WITH THE PRICE AT WHICH THE SAID DRUG IS SOLD IN INDIA. AT THE OUTSET THE APPELLANT SUBMITS THAT IN AS MUCH AS THE TPO DID NOT FIND ANY ERROR IN THE TP RECORDS OR THE TP WORKING OF THE APPELLANT, NO ADJUSTMENT IS PERMISSIBLE AS PER THE 2 CBDT CIRCULARS REFERRED TO IN THE JUDGMENT OF HONBLE DE LHI HIGH COURT IN THE CASE OF LI FUNG INDIA (P) LTD. (223 TAXMAN 368). MORE SO WHEN ON THE SAME FACTS NO ADJUSTMENTS ARE M ADE IN AN EARLIER OR LATER YEARS. THAT APART, NOW, THE APPELLANT DEALS WITH 2 ISSUES ARISING OUT THE CONTROVERSY. A. INDIAN PRICES ARE NOT COMPARABLE WITH USA PRICE SINCE BOTH ARE FOR DIFFERENT MARKETS HAVING DIFFERE NT REGULATORY ENVIRONMENT. THE ASSESSEE SUBMITS THAT THE WHOLE APPROACH OF THE TPO IS FUNDAMENTALLY ERRONEOUS ESPECIALLY THE FACTS OF THE CASE BECAUSE 1. THOUGH CADILA BUYS THE SAID DRUG FROM ASSESSEE I N INDIA, IT IS BEING USED BY IT FOR THE PURPOSE OF MANUFACTU RING, AND SUBSEQUENTLY EXPORTING THE FINISHED DOSAGE TO USA O NLY. THEREFORE, THE TRANSACTION THAT THE ASSESSEE HAS WI TH CADILA IS COGITATIVELY IDENTICAL TO ITS TRANSACTION WITH A.E. ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 9 - 2. IN ORDER FOR THE FORMULATION COMPANY TO SELL THE PRODUCT TO US, THEY NEED TO FILE AN ANDA AND THEIR SITE NEEDS TO BE USFDA APPROVED. ALSO THEY NEED TO ENSURE THAT THE A PI COMPANY SUPPLYING THEM WITH THE API WHICH WOULD BE PART OF THEIR FORMULATION IS COMING FROM A USFDA APPROVE D FACILITY AND THAT THEY HAVE ALL THE DOCUMENTATION L IKE AN APPROVED DMF. THEREFORE, WHETHER A COMPANY IS IN US OR IN INDIA, IF THEIR TARGET MARKET IS US, THEY HAVE T O FOLLOW THE SAME REGULATIONS AS DISCUSSED ABOVE. IN THIS CA SE, BOTH FORMULATION COMPANIES AE & CADILA ARE USFDA APPROVED AND ARE PROCURING API FROM CONCORD BIOTECH (THE ASSESSEE). HENCE THE ASSESSEE HAS TO ENSURE ABSOLUT ELY IDENTICAL RULES REGARDING QUALITY AND STANDARDS IRR ESPECTIVE OF THAT BEING SOLD TO AE OR CADILA. (PG 454 - 472 OF PAPERBOOK II) 3. ALTERNATIVELY, ASSESSEE ALSO SUBMITS AN EXTERNAL COMPARABLE TRANSACTION IN FORM OF THAT BIOCON LIMIT ED SELLS THE IDENTICAL DRUG (MYCOPHENOLATE MOFETIL) TO ITS T HIRD PARTY I.E. INTAS PHARMACEUTICAL LIMITED AT THE AVERAGE RA TE OF 18,250RS/KG.(AS AGAINST THE ASSESSEE SELLING AT 24,809RS/KG TO ITS AE) INTAS PHARMACEUTICAL THEN SUPPLIES THE SAME TO ITS SISTER CONCERN TO SELL IN THE US MARKET. THE SAME TRANSACTION CAN ALSO BE TAKEN AS COMPARABLE WHERE THE ASSESSEE HAS SOLD THE SAME TO ITS AE AT A PRICE BEING HIGHER, IS AT ARM'S LENGTH. THE REFORE IT IS SUBMITTED THAT EVEN CONSIDERING THE EXTERNAL COMPARABLE PRICES OF THE TRANSACTION BETWEEN BIOCON LIMITED AND INTAS PHARMACEUTICALS ALSO, THE TRANSAC TION OF THE ASSESSEE IS AT ARM'S LENGTH PRICE (PG 473 - 474 OF PAPERBOOK II) THE ASSESSEE RELIES ON FOLLOWING CASE LAWS FOR THE ARGUMENT THAT IN GEOGRAPHICAL TWO TRANSACTIONS CAN BE VERY MUCH C OMPARABLE IN CERTAIN CONDITIONS IRRESPECTIVE OF GEOGRAPHICAL DIFFERENCES. 1. WRIGLEY INDIA (P) LTD. (RELEVANT PARA 19-20, PAG E: 63-65 OF COMPILATION OF ORDERS) 2. BHARTI AIRTEL LIMITED (RELEVANT PARA 48-51 PAGE: 121-122 OF COMPILATION OF ORDERS) 3. MISSION PHARMA LOGISTICS INDIA (P) LTD (RELEVANT PARA: 26 PAGE 563-566 OF PAPERBOOK-II) B. THE TPO HAS COMPARED THE PROFITABILITY OF THE ASSESSEE'S SALE TRANSACTION (MYCOPHENOLATE MOFETIL) WITH THE SALE OF A COMPLETELY DIFFERENT PRODUCT (PENCILI N G AMIDASE ENZYME AND LOVASTATIN) ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 10 - HAVING HELD THAT THE SALE OF THE SAID DRUG TO CADIL A WOULD NOT BE A COMPARABLE TRANSACTION, THE TPO THEN PROCEEDED TO COMPARE THE PROFITABILITY OF THE SALES BETWEEN TWO COMPLETE LY DIFFERENT PRODUCTS SOLD BY ASSESSEE; ONE (MYCOPHENOLATE MOFET IL) TO AE AND SECOND (PENCILIN G AMIDASE ENZYME AND LOVASTATI N) TO NON AES IN US. TPO HELD THAT AS THE ASSESSEE HAS EARNED 106.25% PROFIT IN PENCILIN G AMIDASE ENZYME AND LOVASTATIN, IT OUGHT TO HAVE EARNED SAME PERCENTAGE PROFIT WHILE SELLING MY COPHENOLATE MOFETIL AS WELL. THIS APPROACH OF THE TPO IS FUNDAM ENTALLY ERRONEOUS FOR FOLLOWING REASONS. 1. THE TWO PRODUCTS ARE ENTIRELY DIFFERENT PRODUCTS OPERATING IN DIFFERENT FIELDS HAVING DIFFERENT METHODS OF MANUFACTURING AND HAVING DIFFERENT MEDICAL USE. AS THE SAID PRODUCTS ARE ENTIRELY DIFFERENT, THE QUESTION OF GIVING PRICE COMPARISON IS IRRELEVANT. OBVIOUSLY THE PRODUCTS WHICH ARE COMPLETELY DIFFERENT WOULD HAVE DIFFERENT MARGIN OF PROFIT AND ONE CANNOT SUBSTITUTE ONE FOR ANOTHER. T HE ASSESSEE HEREWITH PLACES ON RECORD AN ARTICLE FROM WWW.WIKIPEDIA.ORG (PG 481 -489 OF PAPERBOOK II) 2. AS PER INCOME TAX RULE 10B (1)(C)(II) UNDER COST PLUS METHOD THE PROFITABILITY OF 'SAME OR SIMILAR PROPERTY OR SERVICES' ARE TO BE COMPARED. IN THE FA CT OF THE CASE THE TPO HAS DIRECTLY VIOLATED THE RULE BY COMPARING THE PROFITABILITY OF TWO ABSOLUTELY DIFFE RENT PRODUCTS. 3. IF ALL PHARMACEUTICAL PRODUCTS ARE TAKEN TO BE SIMILAR, THEN THERE HAS TO BE IDENTICAL MARGIN OF PROFIT OF ALL PHARMA COMPANIES IRRESPECTIVE OF NATU RE OF DRUGS MANUFACTURED. (PG 490 OF PAPERBOOK II) THE ASSESSEE RELIES ON FOLLOWING CASE LAWS FOR THE ARGUMENT THAT UNDER COST PLUS METHOD TWO TRANSACTIONS TO BE COMPA RED MUST BE SAME OR SIMILAR. TWO COMPLETELY DIFFERENT PRODUC TS CANNOT BE COMPARED UNDER COST PLUS METHOD: 1. MERCK LTD (RELEVANT PARA 20, PAGE: 18-20 OF COMPILATION OF ORDERS) 2. QUAL CORE LOGIC LTD (RELEVANT PARA 39-45, PAGE: 41- 42 OF COMPILATION OF ORDERS) 3. GE BE (P) LTD (RELEVANT PARA 33,37,50 PAGE :86- 87,96 OF COMPILATION OF ORDERS) ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 11 - 4. ATUL LTD (RELEVANT PARA 5.18, PAGE: 147-149 OF COMPILATION OF ORDERS) HENCE THE ORDER PASSED BY THE TPO, AS CONFIRMED BY THE DRP, IS EX FACIE ERRONEOUS AND THE ADJUSTMENTS/MADE BY THEM TO THE INCOME OF THE APPELLANT NEEDS TO BE DELETED. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN THE INSTANT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MA NUFACTURING AND CONSULTANCY OF BIOTECHNOLOGY BASED PRODUCTS AND BUL K DRUGS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SOLD 7005 KG S. OF MYCOPHENOLATE MOFETIL TO ITS ASSOCIATED ENTERPRISE SITUATED IN US A FOR RS. 17,37,87,525.00 I.E. AT AN AVERAGE RATE OF RS. 24,809.00 PER KG. AC CORDING TO THE ASSESSEE, THE ABOVE TRANSACTION WAS AT ARMS LENGTH PRICE DETE RMINED BY APPLYING COST PLUS METHOD [C.P.M.]. THE TPO OBSERVED THAT THOUGH THE SAME PRODUCTS WERE SOLD TO NON-ASSOCIATE ENTERPRISES SITUATED IN INDIA AND IN MEXICO AT A PRICE LESSER THEN THE PRICE AT WHICH IT WAS SOLD TO ASSOCIATED ENTERPRISE BUT THOSE PRICES CANNOT BE COMPARED BECAUSE THOSE SALES WERE IN AN UNCONTROLLED MARKET WHEREAS SALE TO ASSOCIATED ENTE RPRISE WAS IN USA WHICH IS CONTROLLED MARKET. ACCORDING TO THE TPO, IN USA WHICH IS A CONTROLLED MARKET, THE SALE PRICE OF DRUGS ARE HIGHER AND NATU RALLY, PROFIT PERCENTAGE IN SALE TO SUCH MARKET IS HIGHER THAN THE PROFIT PERCE NTAGE EARNED IN SALE TO UNCONTROLLED MARKETS LIKE INDIA AND MEXICO. THE TPO OBSERVED THAT THE ASSESSEE SOLD PENCILLIN G AMIDASE ENZYME AND LOVAST ATIN IN US MARKET WHICH ARE ALSO GENERIC DRUGS AND EARNED PROFIT MARG IN OF 106.25%. THUS, THE TPO TOOK THIS 106.25% MARGIN AS PERCENTAGE OF M ARGIN IN RESPECT OF MYCOPHENOLATE MOFETIL FOR SALE IN US MARKET AND BEN CHMARKED THE ARMS LENGTH PRICE ON THAT BASIS CONSEQUENTLY ADDITION OF RS. 9,84,14,422.00 WAS MADE TO THE INCOME OF THE ASSESSEE. 13. ON APPEAL, THE DISPUTE RESOLUTION PANEL CONFIR MED THE ACTION OF THE LOWER AUTHORITIES FOR THE SIMILAR REASON. ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 12 - 14. BEFORE US, THE AR OF THE ASSESSEE SUBMITTED TH AT BOTH THE PRODUCTS [1] MYCOPHENOLATE MOFETIL AND [2] PENCILLI N G AMIDASE ENZYME AND LOVASTATIN ARE NOT COMPARABLE. BOTH ARE USED FOR MAKING DIFFER ENT MEDICINES WHICH ARE USED FOR DIFFERENT PURPOSES. THEREFORE, H E ARGUED THAT THE PROFIT MARGIN EARNED IN PENCILLIN G AMIDASE ENZYME AND LOV ASTATIN CANNOT BE TAKEN AS MARGIN OF PROFIT OF MYCOPHENOLATE MOFETIL ALSO FOR BENCHMARKING ARMS LENGTH PRICE. 15. HE ALSO ARGUED THAT SIMILAR TRANSACTIONS WERE ACCEPTED BY THE REVENUE IN EARLIER YEARS AS WELL AS IN SUCCEEDING Y EARS ALSO IN THE CASE OF THE ASSESSEE AND THEREFORE, REVENUE WAS NOT JUSTIFIED I N MAKING ADDITION ONLY IN THE YEAR UNDER CONSIDERATION. IN SUPPORT OF THIS AR GUMENT, HE RELIED UPON THE DECISION OF THE HON. DELHI HIGH COURT IN THE CA SE OF LI AND FUNG INDIA {P} LTD. V. CIT [2014] 223 TAXMAN 368 [DELHI]. 16. ON THE OTHER HAND THE DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 17. WE FIND THAT THE FACTS IN THE ABOVE CASE ARE N OT IN DISPUTE. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE EARNED PROFIT MARGIN @ 106.25% ON SALE OF PENCILLIN G AMIDASE ENZYME AND LOVASTATIN I N US MARKET TO NON ASSOCIATED ENTERPRISE. IT IS ALSO NOT IN DISPUTE TH AT THE PROFIT DISCLOSED BY THE ASSESSEE IN RESPECT OF SALE OF MYCOPHENOLATE MOFETI L IN US MARKET TO ITS ASSOCIATED ENTERPRISE IS 31.68%. 18. FURTHER, IT IS ALSO NOT IN DISPUTE THAT THE SA LE OF MYCOPHENOLATE MOFETIL TO ASSOCIATED ENTERPRISE IS AT A PRICE WHIC H IS MORE THAN THE PRICE AT WHICH THE SAME PRODUCT WAS SOLD TO NON ASSOCIATED E NTERPRISE SITUATED IN INDIA AND MEXICO. ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 13 - 19. AT THE SAME TIME, IT IS OBSERVED THAT THE ASSE SSEE HAS NOT DISPUTED BEFORE US THAT US MARKET IS A CONTROLLED M ARKET IN RESPECT OF PRODUCTS IN QUESTION AND INDIA AND MEXICO ARE UNCON TROLLED MARKETS. THE ASSESSEE HAS ALSO NOT DISPUTED BEFORE US, THAT THE OBSERVATION OF THE LOWER AUTHORITIES THAT PRICES IN CONTROLLED MARKETS OF TH E PRODUCTS IN QUESTION ARE HIGHER THAN THE PRICES IN UNCONTROLLED MARKETS. 20. THE COST PRICE METHOD HAS BEEN DEFINED IN RULE -10B, THE RELEVANT PORTION OF WHICH IS ABSTRACTED AS UNDER:- 10B[1][C]:- COST PLUS METHOD, BY WHICH I) THE DIRECT AND INDIRECT COSTS OF PRODUCTION INCURRE D BY THE ENTERPRISE IN RESPECT OF PROPERTY TRANSFERRED OR SE RVICES PROVIDED TO AN ASSOCIATED ENTERPRISE, ARE DETERMINE D. II) THE AMOUNT OF A NORMAL GROSS PROFIT MARK UP TO SUCH COSTS [COMPUTED ACCORDING TO THE SAME ACCOUNTING NORMS] ARISING FROM THE TRANSFER OR PROVISION OF THE SAME OR SIMILAR PROPERTY OR SERVICES BY THE ENTERPRISE, OR BY AN UNRELATED ENTERPRISE, IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS DETERMINED. III) THE NORMAL GROSS PROFIT MARK UP REFERRED TO IN SUB CLAUSE (II) IS ADJUSTED TO TAKE INTO ACCOUNT THE FUNCTIONA L AND OTHER DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONA L TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSAC TIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANS ACTIONS, WHICH COULD MATERIALLY AFFECT SUCH PROFIT MARK UP I N THE OPEN MARKET. IV) THE COSTS REFERRED TO IN SUB CLAUSE (I) ARE INCREAS ED BY THE ADJUSTED PROFIT MARK UP ARRIVED AT UNDER SUB CLAUSE (III) V) THE SUM SO ARRIVED AT IS TAKEN TO BE AN ARMS LENGT H PRICE IN RELATION TO THE SUPPLY OF THE PROPERTY OR PROVIS ION OF SERVICES BY THE ENTERPRISE. 21. IN THE INSTANT CASE, THE MAIN ARGUMENT OF THE AR OF THE ASSESSEE IS THAT BOTH THE PRODUCTS [1] MYCOPHENOLATE MOFETIL AND [2] PENCILLIN G AMIDASE ENZYME AND LOVASTATIN ARE NOT SIMILAR AND T HEREFORE, PROFIT EARNED ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 14 - IN ONE CANNOT BE APPLIED FOR DETERMINING ARMS LENG TH PRICE OF THE OTHER PRODUCT. 22. ON THE OTHER HAND, AS PER THE DEPARTMENT, BOTH THE PRODUCTS ARE GENERIC DRUGS AND THEREFORE, THEY ARE SIMILAR PRODU CTS. 23. WE FIND THAT AS PER THE ASSESSMENT ORDER, THE COST OF MYCOPHENOLATE MOFETIL IS RS. 18,840.00 PER KG WHERE AS THE COST OF PENCILLIN G AMIDASE ENZYME AND LOVASTATIN IS RS. 6,011.00 PER KG. ACCORDING TO THE ASSESSEE, AS BECAUSE THE LATTER PRODUCT IS OF LESSE R VALUE AND THEREFORE, MORE PROFIT IN TERMS OF PERCENTAGE IS EARNED ON THE LATTER PRODUCT. WE FIND THAT THE LOWER AUTHORITIES HAVE NOT EXAMINED THE IS SUE FROM THIS ANGLE. NO MATERIAL HAS BEEN BROUGHT BEFORE US BY BOTH THE PAR TIES TO SHOW WHAT WAS THE PROFIT EARNED IN PENCILLIN G AMIDASE ENZYME AND LOVASTATIN IN ITS SALE IN INDIA OR OTHER UNCONTROLLED MARKETS. IN ABSENCE OF THE RELEVANT DETAILS, WE ARE NOT IN A POSITION TO ADJUDICATE WHETHER THE NOR MAL GROSS PROFIT IN MYCOPHENOLATE MOFETIL SHOULD BE SAME AS GROSS PROFI T IN SALE OF PENCILLIN G AMIDASE ENZYME AND LOVASTATIN. 24. FURTHER, THOUGH THE ASSESSEE CONTENDED BEFORE US THAT NO TRANSFER PRICING ADJUSTMENT WAS MADE IN RESPECT OF SALE TO ASSOCIATED ENTERPRISE IN EARLIER YEARS AND IN SUCCEEDING YEARS AND THEREFORE, THE DEPARTMENT WAS NOT JUSTIFIED IN MAKING ADJUSTMENT D URING THE YEAR UNDER CONSIDERATION, WE FIND THAT THOUGH RES-JUDICATA IS NOT APPLICABLE IN INCOME TAX PROCEEDINGS, HOWEVER, RULE OF CONSISTENCY SHOUL D BE FOLLOWED. AT THE SAME TIME, WE OBSERVE THAT NO MATERIAL HAS BEEN BRO UGHT BEFORE US BY BOTH THE PARTIES TO SHOW THAT SALE OF SAME PRODUCTS TO A SSOCIATED ENTERPRISES SITUATED IN USA AT THE SAME PROFIT MARGIN AT WHICH DISCLOSED DURING THE YEAR WAS ACCEPTED BY THE DEPARTMENT IN EARLIER YEARS OR SUCCEEDING YEARS. IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, IT SHA LL BE FAIR AND IN THE INTEREST OF THE JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE TPO FOR ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 15 - ADJUDICATION AFRESH IN LIGHT OF THE DISCUSSIONS MAD E HEREINABOVE AFTER ALLOWING PROPER OPPORTUNITY OF HEARING TO THE ASSES SEE. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR THE STATISTIC AL PURPOSES. 25. GROUND NO. 5 OF THE APPEAL READS AS UNDER: THE LD. DRP AND LD. AO HAS ERRED IN NOT ALLOWING LA TE PAYMENT OF EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND AN D MAKING ADDITION OF RS 15,514/-. THIS ACTION OF BOTH THE L OWER AUTHORITIES IN NOT ACCEPTING THE CLAIM OF THE APPELLANT IS TOTA LLY ERRONEOUS, PREJUDICIAL, AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE THAT DESERVES TO BE QUASHED. 26. AT THE TIME OF HEARING, THE AUTHORIZED REPRESE NTATIVE OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THIS GRO UND OF APPEAL, HENCE THE SAME IS DISMISSED AS NOT PRESSED. 27. GROUND NO. 6 OF THE APPEAL READS AS UNDER: THE LD. DRP AND LD. AO HAS ERRED IN MAKING DISALLOW ANCE OF RS 8,86,820/- UNDER SECTION 14A READ WITH RULE 8D. TH IS ACTION OF BOTH THE LOWER AUTHORITIES IN NOT ACCEPTING THE CLA IM OF THE APPELLANT IS TOTALLY ERRONEOUS, PREJUDICIAL, AND AG AINST THE PRINCIPLES OF NATURAL JUSTICE THAT DESERVES TO BE Q UASHED. 28. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED EXEMPT DIVID END INCOME OF RS 17,28,619/-. NO EXPENSES HAVE BEEN OFFERED FOR DISALLOWANCE U/S. 14A IN THE RETURN OF INCOME FILED BY THE ASSESSEE. F URTHER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS DEBITED INTE REST EXPENDITURE ON CASH CREDIT ACCOUNT OF RS 67,98,753/-. ACCORDING TO AS SESSING OFFICER, HAD THE ASSESSEE NOT MADE INVESTMENTS THEN THE ASSESSEE WOU LD NOT HAVE BEEN REQUIRED TO BORROW FROM BANK AND INCUR INTEREST E XPENDITURE. THEREFORE, HE MADE A DISALLOWANCE TO PROPORTIONATE INTEREST EX PENDITURE OF RS 5,85,981/- U/S. 14A OF THE ACT. FURTHER, HE ALSO MADE ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 16 - A DISALLOWANCE AT THE RATE OF 0.5% OF AVERAGE VALU E OF INVESTMENT ON ACCOUNT OF ADMINISTRATIVE CHARGES OF RS 3,00,839/- U/S. 14A OF THE ACT. THUS, THE TOTAL DISALLOWANCE MADE U/S. 14A WAS RS 8 ,86,820/-. 29. ON APPEAL, THE DRP CONFIRMED THE ACTION OF ASS ESSING OFFICER OBSERVING THAT THE ASSESSING OFFICER HAS GIVEN A FI NDING THAT INTEREST BEARING FUND HAVE BEEN USED FOR EARNING DIVIDEND INCOME. 30. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS HAVING INTEREST FREE OWN FUNDS OF RS 6,44,02,630/- FOR WHICH THE ASSESSEE ENCLOSED CASH FLOW STATEMENT AND THE ASSESSEE MADE INVESTMENTS OF RS 1,14,36,151/- DURING THE YEAR. I T WAS SUBMITTED THAT AS THE ASSESSEE HAD INTEREST FREE OWN FUNDS OF RS 6,44 ,02,630/- FOR MAKING SUCH INVESTMENTS, NO DISALLOWANCE FOR INTEREST EXPE NDITURE WAS WARRANTED. HE PLACED RELIANCE FOR HIS SUBMISSION ON THE DECISI ON OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. HITACHI HOME AND LIFE SOLUTIONS (I) LTD. (2014) TAXMANN.COM 540 (GUJ.) AND THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. UTI BANK LTD. (2013) 32 TAXMANN .COM 370 (GUJARAT.) WHEREIN IT WAS HELD THAT WHERE THE ASSESSEES INTER EST FREE FUNDS EXCEED THE INVESTMENT MADE FOR EARNING DIVIDEND INCOME, DISALL OWANCE U/S. 14A WAS NOT JUSTIFIED. 31. THE DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 32. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON REC ORD, WE FIND THAT THE ASSESSING OFFICER MADE DISALLOWANCE OF INTEREST EXP ENDITURE OF RS 5,85,981/- AND ADMINISTRATIVE EXPENSES OF RS 3,00,839/- FOR EA RNING INTEREST FREE DIVIDEND INCOME OF ASSESSEE OF RS 17,28,619/- BY IN VOKING THE PROVISIONS OF ITA (TP)NO. 558/AHD/2014 CONCORD BIOTECH LTD., AHMEDABAD. AY 2009-10 - 17 - SECTION 14A OF THE ACT WHICH WAS CONFIRMED IN APPEA L BY THE DRP. THE ARGUMENT OF THE AUTHORIZED REPRESENTATIVE OF THE AS SESSEE THAT THE ASSESSEE HAD INTEREST FREE OWN FUNDS OF RS 6,44,02, 630/- AND THEREFORE, INVESTMENT MADE DURING THE YEAR OF RS 1,14,36,151/- WAS OUT OF ASSESSEES INTEREST FREE OWN FUNDS AND NO DISALLOWANCE FOR INT EREST EXPENDITURE WAS CALLED FOR U/S. 14A OF THE ACT. HE HAS RELIED ON T HE DECISIONS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. HITACHI H OME AND LIFE SOLUTIONS (I) LTD. (SUPRA) AND IN THE CASE OF CIT VS. UTI BANK LT D. (SUPRA) WHEREIN IT WAS HELD THAT WHERE THE ASSESSEES INTEREST FREE FUNDS EXCEED INVESTMENT MADE FOR EARNING DIVIDEND INCOME, DISALLOWANCE U/S. 14A WAS NOT JUSTIFIED. 33. THE DEPARTMENTAL REPRESENTATIVE COULD NOT CONT ROVERT THE SUBMISSIONS OF AUTHORIZED REPRESENTATIVE OF THE ASS ESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF HONBLE GUJ ARAT HIGH COURT CITED ABOVE, WE DELETE THE DISALLOWANCE OF INTEREST EXPEN DITURE OF RS 5,85,981/- U/S. 14A OF THE ACT. AS REGARDS ADMINISTRATIVE EXP ENSES OF RS 3,00,839/- MADE U/S. 14A OF THE ACT, NO SUBMISSIONS WERE MADE BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE DURING THE COURSE OF HEARING. THEREFORE, THIS DISALLOWANCE MADE U/S. 14A OF THE ACT IS CONFIRMED. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 34. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON MONDAY, THE 30 TH OF JUNE, 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 30/6/2014 GHANSHYAM MAURYA, SR. P.S.