ASST CIT 10(3) (OSD), MUMBAI V. FERRING PHARMACEUTICALS P.LTD, MUMBAI

ITA 6072/MUM/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6802 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 23-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESHPANDE; POOJA SWARUP
• Assessee Lawyers: SUBODH L RATNAPARKHI
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction
• Section: 133(6); 10B

Judgement Text

K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.6072/ MUM/2014 ( / ASSESSMENT YEAR : 2008 - 09) THE ASSISTANT COMMISSIONER OF INCOME - TAX 10(3)(OSD) ROOM NO. 403, 4 TH FLOOR, AAYAKAR BHAWAN, M K ROAD, MUMBAI - 400020 / V. FERRING PHARMACEUTICAL PRIVATE LIMITED 403/404, SIGMA TECHNOLOGY STREET HIRANANDANI GARDENS POWAI , MUMBAI - 400076 ./ PAN : AA ACF3120H ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : MR. SAURABH DESHPANDE & MS. POOJA SWARUP ASSESSEE BY: SHRI. SUBODH L. RATNAPARKHI / DATE OF HEARING : 09.03.2018 / DATE OF PRONOUNCEMENT : 01.06 .2018 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE , BEING ITA NO. 6072 /MUM/2014, IS DIRECTED AGAINST APPELLATE ORDER DATED 24.03.2014 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 10, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR ASSESSMENT YEAR 2008 - 09, THE APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM ASSESSMENT ORDER DATED 23.02.2012 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE A O) U/S 143(3)(II) R.W.S. 144C( 3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) FOR AY 2008 - 09 WHICH WAS ISSUED IN PURSUANCE TO THE ORDER DATED 31.10.2011 PASSED BY THE TRANSFER PRICING OFFICER ( HEREINAFTER CALLED THE TPO ) PASSED U/S 92CA(2) OF THE 1961 ACT . I.T.A. NO.6072/MUM/2014 2 2. THE G ROUNDS OF APPEAL RAISED BY THE R EVENUE IN THE MEMO OF APPEAL FILED WITH THE IN COME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - 1.1 ' IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GIVING DIRECTION TO EXCLUDE M/S. CELESTIAL LABS LTD. FROM THE COMP ARABLES FOR DETERMINING THE ALP ON THE SOLE GROUND THAT SAID COMPANY HAS ABNORMAL PROFIT LEVEL INDICATOR.' 1.2 ' IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT FUNCTIONAL ANALYSIS OF M/S. CELESTIAL LABS LTD. REVEALS THAT IT IS INVOLVED IN SIMILAR FUNCTIONAL ACTIVITY AS THE ASSESSEE', 1.3 ' IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT M/S .TONIRA PHARMA LTD. IS TO BE INCLUDED IN THE FINAL SET OF COMPARABLES FOR DETERMINING THE ARITHMETICAL MEAN WITHOUT APPRECIATING THAT IT IS A FUNCTIONALLY DIFFERENT COMPANY.' 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY OF THE GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ' 3 . THE ASSESSEE IS ENGAGED IN BUSINESS OF IMPORT, WHOLESALE TRADE, MANUFACTURE OF DRUG AND MEDICINES AND RESEARCH IN PHA RMACEUTICALS PRODUCTS. THE ASSESSEE IS 99.9% SUBSIDIARY OF FERRING BV. THE ASSESSEE IS MAINLY ENGAGED IN DISTRIBUTION OF FINISHED FORMULATIONS IMPORTED FROM ITS A SSOCIATED E NTERPRISES ( HEREINAFTER CALLED THE AE ) . THE ASSESSEE IMPORTS FINISH ED FORMULATI ONS FROM ITS AE FOR SALE IN DOMESTIC MARKET AND THESE FORMULATIONS ARE IN THE NATURE OF SUPER SPECIALITY AND TEMPERATURE SENSITIVE PRODUCTS FOR TREATING INFERTILITY, BED WETTING ETC. . THE ASSESSEE ALSO C ARRIES OUT PRODUCT DEVELOPMENTAL SERVICES ON CONTRACT BASIS FOR ITS AE . THE INTERNATIONAL TRANSACTION S REPORTED BY THE ASSESSEE WITH ITS AE ARE AS UNDER: - SR. NO. NAME OF THE AE NATURE OF TRANSACTION AMOUNT (RS.) METHOD USED 1 DIFFERENT AES PURCHASE OF FINISHED GOODS 139,345,778 TNMM 2 DIFFERENT AES SALE OF FINISHED GOODS 647,821 TNMM 3 FERRING INTERNATIONAL CENTRE S.A. INTEREST ON EARLY PAYMENT 29,21,609 TNMM 4 FERRING INTERNATIONAL CENTRE S.A. PROVISION OF PRODUCT DEVELOPMENT SERVICE 2,30,94,302 TNMM I.T.A. NO.6072/MUM/2014 3 THE MATTER WAS REFERRED BY AO TO TPO FOR DETERMINING ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ENTERED INTO BY ASSESSEE WITH ITS AE. T HE TPO OBSERVED THAT THE ASSESSEE HAS CONSIDERED THE T RANSACTIONAL N ET M ARGIN METHOD (HEREINAFTER CALLED TNMM) AS THE MOST APPROPRIATE METHOD AND OPERATING PROFIT MARGIN AS THE APPROPRIATE PROFIT LEVEL INDICATOR ( HEREINAFTER CALLED PLI ) FOR THE TRADING ACTIVITY. SO FAR AS FIRST THREE ITEMS IN THE ABOVE TABLE ARE CO NCERNED THERE IS NO D ISPUTE BETWEEN RIVAL PARTIES , WHILE THE DISPUTE REVOLVES AROUND THE PRODUCT DEVELOPMENT ACTIVITY CARRIED OUT BY ASSESSEE FOR ITS AE . THE ASSESSEE IS PROVIDING R&D SUPPORT SERVICES TO ITS AE AND IS BEING REMUNERATED ON A NET COST PLUS MARK - UP OF 14% . T HE FOLLOWING COMPARABLES WERE SELECTED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY REPORT : - SR. NO. NAME OF THE COMPARABLE COST PLUS MARK UP FY 2007 - 08 1 CHOKSI LABORATORIES LTD. 29.23% 2 DOLPHIN MEDICAL SERVICES LTD. 15.56% 3 ESCORTS HOSPITAL & RESEARCH CENTRE LTD. 3.53% 4 INDRAPRASTHA MEDICAL CORPN. LTD, 10.44% 5 RESEARCH SUPPORT INTERNATIONAL LTD. 9.43% 6 VIMTA LABS LTD. 17.86% 7 ABL BIO - TECHNOLOGIES LTD. 17.80% 8 TCG LIFESCIENCES LTD. 30.07% 9 TONIRA PHARMA LTD. - 16,90% 10 ZANDU PHARMACEUTICAL WORKS LTD. 17.48% ARITHMETIC MEAN 13.45% THE TPO FOUND ABOVE COMPARABLES AS NOT EXACTLY COMPARABLES TO THE ASSESSEE AND THUS, THE ASSESSEE WAS DIRECTED BY TPO TO CONDUCT A FRESH I.T.A. NO.6072/MUM/2014 4 SEARCH OF COMPARABLES WHICH WERE ARRIVED AT BY THE ASSESSEE AS DETAILED HERE UNDER: - SR. NO. NAME OF COMPARABLE COST PLUS MARK - UP FY 2007 - 08 1 DOLPHIN MEDICAL SERVICES LTD. 15.56% 2 FORTIS CLINICAL RESEARCH LTD. 20.55% 3. RESEARCH SUPPORT INTI. P. LTD. 8.35% 4. VIMTA LABS LTD. 14.62% 5. WINTAC LTD. - 0.50% ARITHMETIC MEAN 11.71% THE TPO HOWEVER WAS NOT SATISFIED WITH THE FRESH COMPARABLES IDENTIFIED BY THE ASSESSEE AS THEY WERE FOUND TO BE NOT EXACTLY COMPARABLES AND T HE TPO SHORTLISTED FOLLOWING COMPARABLES: - O THE DISPUTE NOW REMAINING BETWEEN RIVAL PARTIES BEFORE US IS WITH REGARD TO THE GRIEVANCE OF THE REVENUE IN DELETION OF CELESTIAL LABS LTD AS COMPARABLE FOR COMPUTING ARMS LENGTH PRICE( HEREINAFTER CALLED ALP) BY LEARNED CIT(A) WHILE SAME WAS EARLIER INCLUDED BY TPO WHICH HAD A COST SR. NO. NAME OF COMPARABLE COST PLUS MARK - UP FY 07 - 08 1 ENGINEERS INDIA LTD. (SEG.) 35.10% 2 ALPHAGEO (INDIA) LTD. 40.52% 3 AGILE ELECTRIC TECHNOLOGIES PVT. LTD. 6.05% 4 VIMTA LABS LTD. 19.67% 5 IDC (INDIA) LTD. 15.38% 6 OIL FIELD INSTRUMENTATION (INDIA) LTD:. 45.30% 7 CELESTIAL LABS LTD 87.94% 8 MINDTREE LTD. (SEG.) 8.35% ARITHMETIC MEAN 32.29% I.T.A. NO.6072/MUM/2014 5 PLUS MARK - UP OF ( OP/TC) OF 87.94%. T HE TPO ARRIVED AT FOLLOWING CONCLUSION S WHILE INCLUDING CELESTIAL LABS LIMITED AS COMPARABLE : - NAME OF THE ENTITY COMMON - C ASSESSEES A, DEPARTMENT - D DISCUSSION OUTCOME PLI(OP/TC) CELESTIAL LABS LTD D THE COMPANY WAS FIGURED UNDER RESEARCH AND DEVELOPMENT LAST YEAR IN PROWESS SERACH, BUT, THIS YEAR, IT WAS NOT CATEGORIZED AS R&D COMPANY. BUT AS PER THE WEBSITE AS WELL AS PER THE DRHP FILED BEFORE SEBI, IT IS ENGAGED IN CLINICAL RESEARCH. HOWEVER, AS PER THE AR, IT IS CATEGORIZED AS SOFTWARE DEVELOPMENT SERVICES PROVIDE R . 133(6) NOTICE IS ISSUED TO CLARIFY ON FUNCTIONALLY. BUT AS PER THE DRHP FILED WITH SEBI, IT IS MAINLY ENGAGED IN CLINICAL RESEARCH/TRIALS. SELECTED 87.94% I.T.A. NO.6072/MUM/2014 6 THE SECOND DISPUTE BETWEEN THE RIVAL PA RTIES IS WITH RESPECT TO THE GRIEVANCE OF REVENUE IN INCLUSION OF TONIRA PHARMA LTD. AS COMPARABLE FOR COMPUTING ALP BY LEARNED CIT(A) WHICH WAS EARLIER EXCLUDED BY TPO ALTHOUGH THE SAME WAS INCLUDED BY THE ASSESSEE IN ITS LIST OF COMPARABLE PRESENTED TO T HE TPO . THE SAID TONIRA PHARMA LIMITED HAD A COST PLUS MARK - UP OF ( - ) 16.90% . THE TPO EXCLUDED THE SAME BY HOLDING AS UNDER: - NAME OF THE ENTITY COMMON - C ASSESSEES A, DEPARTMENT - D DISCUSSION OUTCOME PLI(OP/TC) TONIRA PHARMA LTD. A TONIRA HAS A FULL - FLEDGED EFFLUENT TREATMENT PLANT, GAS EMISSION ABSORPTION AND SOLID WASTE HANDLING SYSTEMS AND HAVING IPRS AND ALSO LOSS MAKING COMPANY. REJECTED - 16.90% THE ABOVE DECISION OF THE TPO CULMINATED INTO AN ORDER DATED 31.10.2011 PASSED BY THE TRANSFER PRICING OFFICER U/S 92CA(2) OF THE 1961 ACT WHICH ULTIMATELY LED TO PASSING OF THE ASSESSMENT ORDER DATED 23.02.2012 U/S 143(3)(II) R.W.S. 144C(3) OF THE 1961 ACT. THE LEARNED CIT(A) WHILE PASSING APPELLATE ORDERS DATED 24 - 03 - 2014 DIRECTED EXCLUSION OF CELESTIAL LABS LIMITED AS COMPARABLE FOR COMPUTING ALP OF INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS AE FOR PRODUCT DEVELOPMENT ACTIVITY , THUS HOLDING IN FAVOUR OF ASSESSEE DIRECTING EX CLUSION OF M/S. CELESTIAL LABS LTD. AS COMPARABLE BY HOLDING AS UNDER: - 15. THE TPO HAS SELECTED M/S. CELESTIAL LABS LTD. AS ONE OF THE COMPARABLES FOR DETERMINING THE ARMS LENGTH PRICE. AS PER THE WEB - SITE OF SAID COMPANY, THE FUNCTIONAL PROFILE OF M/S. CELESTIAL LABS LTD. IS PRODUCTION AND SALE OF BIOTECHNOLOGICAL PRODUCTS H AVING INDUSTRIAL IMPLICATIONS. THE APPELLANT ON THE OTHER HAND IS ENGAGED IN PROVIDING I.T.A. NO.6072/MUM/2014 7 CONTRACTUAL PRODUCT DEVELOPMENT SERVICES TO ITS AE ON COST PLUS MARKUP BASIS. THE FUNCTIONAL PROFILE OF M/S. CELESTIAL LABS LTD. IS THEREFORE DIFFERENT FROM THE TESTED P ARTY, WARRANTING ITS EXCLUSION FROM THE SET OF COMPARABLES. EVEN OTHERWISE, THE ABNORMAL PROFIT MARGIN OF 87.94% REPORTED BY THE SAID COMPANY, WHEN NONE OF THE OTHER SELECTED COMPARABLES BY THE TPO REFLECT PROF IT LEVEL INDICATOR EXCEEDING 30. 07% REQUIRES I TS EXCLUSION ON ACCOUNT OF EXISTENCE OF SUPER NORMAL PROFITS. THE DECISIONS RELIED UPON BY THE APPELLANT IN THE WRITTEN SUBMISSION ALSO SUPPORT THE CLAIM OF THE APPELLANT .THAT COMPANY SHOWING EXTRA - ORDINARY PROFIT IS REQUIRED TO BE EXCLUDED FROM THE COM PARABLES, I THEREFORE EXCLUDE M/S. CELESTIAL LABS LTD. FROM THE COMPARABLES FOR DETERMINING THE ALP. THE LEARNED CIT(A) WHILE DIRECTING INCLUSION TONIRA PHARMA LTD. AS A COMPARABLE TO COMPUTE ALP OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE WIT H ITS AE HELD AS UNDER: - 17. I ALSO FIND THAT THERE IS NO REASON TO EXCLUDE M/S. TONIRA PHARMA LTD. FROM THE COMPARABLES FOR THE REASON THAT IT WAS LOSS MAKING COMPANY WHEN ALL OTHER FACTORS ARE COMPARABLE. THE ARGUMENTS OF THE AO THAT THE SAID COMPANY HA D WASTE DISPO SAL SYSTEMS IS OF NO RELEVANCE. ANY COMPANY ENGAGED IN MANUFACTURING WORK WILL HAVE WASTE DISPOSAL SYSTEMS. THIS IS NO REASON TO EXCLUDE THE SAID COMPANY FROM THE SET OF COMPARABLES. I DIRECT THAT M/S. TONIRA PHARMA LTD. IS TO BE INCLUDED IN THE FINAL SET OF COMPARABLES FOR DETERMINING THE ARITHMETICAL MEAN. 4 . THE REVENUE I S AGGRIEVED BY THE DECISION OF LEARNED CIT(A) AND HAS FILED AN APPEAL BEFORE THE TRIBUNAL. THE LD DR OPEN ED ARGUMENTS BEFORE US AND DREW OUR ATTENTION TO THE ORDER OF T HE TPO . I T WAS SUBMITTED THAT ENTITY LEVEL TNM METHOD WAS ADOPTED TO COMPUTE ALP OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AE FOR PRODUCT DEVELOPMENT ACTIVITY WHICH IS NOT IN DISPUTE BETWEEN THE RIVAL PARTIES. THE ASSESSEE I S RENDERING PRODUCT DEVELOPMENT SERVICES FOR ITS AE MAINLY FERRING INTERNATIONAL CENTRE S.A., SWITZERLAND, FOR WHICH AN AMOUNT OF RS. 2,30,94,302/ - IS CHARGED . THE ASSESSEE IS BEING REMUNERATED AT NET COST PLUS MARK - UP OF 14% AS PER PRE - EXISTING CONTRACT WITH ITS AE. THE ASSESSEE FOLLOWS TNM METHOD FOR BENCH MARKING ITS INTERNATIONAL TRANSACTIONS WITH ITS AE FOR PRODUCT DEVELOPMENT ACTIVITY. THE TPO ACCEPTED TNM METHOD AS APPLICABLE TO THE ASSESSEE WHICH IS NOT IN DIS PUTE. THE ASSESSEE SELECTED FEW COMPARABLES WHICH REFLECTED AVERAGE PLI(OP/TC) OF 13.45% AND THE ASSESSEE CLAIMED THAT NO TP ADJUSTMENT IS REQUIRED . THE TPO ASKED THE ASSESSEE TO SUBMIT REVISED COMPARABLE WHICH THE ASSESSEE SUBMITTED WHICH HAD A REVISED PLI OF 11.71% . THE ASSESSEE MARK UP WAS I.T.A. NO.6072/MUM/2014 8 14% AND HENCE IT WAS CLAIMED TO BE AT ARMS LENGTH PRICE AND NO TP ADJUSTMENT WAS CONTEMPLATED BY THE ASSESSEE . BUT HOWEVER THE TPO SELECTED ITS OWN COMPARABLES AND ARRIVED AT AVERAGE PLI OF 30.67% , WHICH LED TO T HE ADDITION TO THE TUNE OF RS. 33,77,036/ - U/S. 92CA OF THE ACT. THE ASSESSEE DISPUTED FOR INCLUSION OF CELESTIAL L AB LTD. WHICH HAS PLI OF 87.94% , WHILE THE ASSESSEE ALSO PLEA D ED FOR INCLUSION OF TONIRA PHARMA LTD. WHICH HAS NEGATIVE PLI OF ( - ) 16.90% . THE TPO EXCLUDED TONIRA PHARMA LTD. AS COMPARABLE WHILE LEARNED CIT(A) DIRECTED FOR ITS INCLUSION . THE LEARNED CIT(A) ALSO DIRECTED FOR EXCLUSION OF CELESTIAL LAB LTD. AS COMPARABLE ON THE GROUND S OF SUPER NORMAL PROFIT S AND DIFFERENT FUNCTIONAL PROFILE . R EFERENCE WAS DRAWN TO RULE 10 B (2) AND 10B (3) OF INCOME - TAX RULES, 1962. OUR ATTENTION WAS ALSO DRAWN TO DECISION OF MUMBAI - TRIB. IN THE CASE OF WILLS PROCESSING SERVICES PRIVATE LIMITED V. DCIT REPORTED IN (2013) 30 TAXMANN.COM 350 (MUM.) . THE LEARNED DR ALSO RELIED UPON DECISION OF HONBLE DELHI HIGH COURT DECISION IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) PRIVATE LIMITED V. DCIT REPORTED IN (2015) 56 TAXMANN.COM 417(DELHI) . O UR ATTENTION WAS DRAWN TO DECISION OF HONBLE DELHI HIGH COURT DECISION IN THE CASE OF RAMPGREEN SOLUTION PVT. LTD. V. CIT REPORTED IN (2015) 60 TAXMANN.COM 355(DEL) . IT WAS THUS CONTENDED THAT LEARNED CIT (A) HAS WRONGLY EXCLUDED CELESTIAL LAB LTD. ON THE GROUNDS OF SUPER NORMAL PROFITS WITHOUT DOING EXERCISE TO FIN D OUT REASONS FOR MATERIAL DISSIMILARITIES. IT WAS SUBMITTED THAT THE SAID COMPANY CELESTIAL LABS LIMITED CA ME OUT WITH IPO OF 50 LAKH OF EQUITY SHARE S OF RS. 10 EACH AT RS. 60 PER SHARE (INCLUSIVE OF SHARE PREMIUM OF RS. 50 PER EQUITY SHARE) DURING THE RELEVANT PERIOD. THE PROSPECTUS ISSUED BY CELESTIAL LABS LIMITED IS PLACED IN PAPER BOOK FILED WITH THE TRIBUNAL. THE LD. DR STRONGLY CONTENDED FOR INCLUSION OF CELESTIAL LABS LIMITED AS COMPARABLE FOR COMPUTING ALP. THE LEARNED DR SUBMITTED THA T THE TPO HAS ALSO EXCLUDED TONIRA PHARMA LTD. AS IT HAS A WASTE DISPOSAL/ETP PLANT AND IT WAS A LOST MAKING COMPANY BUT LEARNED CIT (A) ERRED IN INCLUDING THE SAME BUT IT REQUIRES PROPER INVESTIGATION INTO THE FAR ANALYSIS OF THESE COMPANIES . THE LD. AR ON THE OTHER HAND JUSTIFY THE APPELLATE ORDER OF THE LEARNED CIT(A) . THE LEARNED AR SUBMITTED THAT AS PER PRE - EXISTING CONTRACT OF THE ASSESSEE WITH ITS AE, MARK - UP ON COST WAS OF 14% . I T WAS SUBMITTED THAT THE CELESTIAL LAB S LIMITED IS NOT DOING ACTI VITY OF PRODUCT DEVELOPMENT AND IT I.T.A. NO.6072/MUM/2014 9 IS FUNCTIONALLY DIFFERENT COMPANY WHICH WAS ALSO THE OBSERVATION OF THE CIT(A) . IT WAS SUBMITTED THAT CELESTIAL LABS LIMITED HAD SUPER NORMAL PROFITS AND THUS WAS RIGHTLY EXCLUDED BY LEARNED CIT(A) . THE LEARNED AR RELI ED UPON THE DECISION OF MUMBAI - TRIBUNAL IN THE CASE OF TEVAPHARMA INDIA PVT. LTD. V. ACIT REPORTED IN (2016) 74 TAXMANN.COM 109 (MUM - TRIB.) . IT WAS SUBMITTED THAT TONIRA PHARMA LIMITED HAS INCURRED LOSSES BUT AT THE SAME TIME IT WAS FAIRLY AGREED BY LEARNED AR THAT LOSS OF RS. 190 LACS SHOULD BE CONSIDERED FOR COMPUTING PLI OF TONIRA PHARMA LIMITED AND NOT LOSSES OF RS. 52 LACS AS WERE TAKEN BY AUTHORITIES BELOW AS IT INCLUDED EXTRA ORDINARY /EXCEPTIONAL LOSSES WHICH CANNOT BE CONSIDERED FOR COMPUTING OP/TC I.E. PLI . IT WAS FAIRLY AGREED THAT TPO/CIT(A) SHOULD HAVE GONE DEEPER INTO FINANCIAL STATEMENT S . T HE LD. DR IN REJOINDER SUBMITTED THAT CELESTIAL LABS LIMITED IS IN THE SAME BUSINESS AS THAT OF THE ASSESSEE AND SUBMITTED THAT RELIANCE OF THE ASSESSEE O N DECISION OF UCB INDIA PRIVATE LIMITED V. ACIT REPORTED IN (2016) 73 TAXMANN.COM 389(MUM - TRIB) IS NOT CORRECT AS IS SUBMITTED IN THE PAPER BOOK FILED BY THE ASSESSEE WITH THE TRIBUNAL . SIMILARLY IT WAS SUBMITTED THAT THE LEARNED COUNSEL ERRED IN RELYING O N DECISION OF TEVAPHARM INDIA PRIVATE LIMITED(SUPRA). 5 . WE HAVE CONSIDER ED RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING ORDERS OF THE AUTHORITIES BELOW AND CITED CASES BEFORE US. WE HAVE CAREFULLY GONE THROUGH MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF IMPORT, WHOLESALE TRADE, MANUFACTURE OF DRUG AND MEDICINES AND RESEARCH IN PHARMACEUTICALS PRODUCTS. THE ASSESSEE IS 99.9% SUBSIDIARY OF FERRING BV. THE ASSESSEE IS MAINLY ENGAGED IN DISTRIBUTION OF FINISHED FORMULATIONS IMPORTED FROM ITS AE. THE ASSESSEE IMPORTS FINISHED FORMULATIONS FROM ITS AE FOR SALE IN DOMESTIC MARKET AND THESE FORMULATIONS ARE IN THE NATURE OF SUPER SPECIALITY AND TEMPERATURE SENSITIVE PRODUCTS FOR TREATING INFERTILITY, BED WETTING ETC.. THE ASSESSEE ALSO CARRIES OUT PRODUCT DEVELOPMENTAL SERVICES ON CONTRACT BASIS FOR ITS AE . THE INTERNATIONAL TRANSACTIONS REPORTED BY THE ASSESSEE WITH ITS AE ARE AS UNDER: - SR. NO. NAME OF THE AE NATURE OF TRANSACTION AMOUNT (RS.) METHOD USED I.T.A. NO.6072/MUM/2014 10 1 DIFFERENT AES PURCHASE OF FINISHED GOODS 139,345,778 TNMM 2 DIFFERENT AES SALE OF FINISHED GOODS 647,821 TNMM 3 FERRING INTERNATIONAL CENTRE S.A. INTEREST ON EARLY PAYMENT 29,21,609 TNMM 4 FERRING INTERNATIONAL CENTRE S.A. PROVISION OF PRODUCT DEVELOPMENT SERVICE 2,30,94,302 TNMM T HE DISPUTE HAS ARISEN BETWEEN RIVAL PARTIES WITH RESPECT TO THE INTERNATIONAL TRANSACTION OF PRODUCT DEVELOPMENT SERVICES RENDERED BY ASSESSEE TO ITS AE FERRING INTERNATIONAL CENTRE S.A., SWITZERLAND FOR WHICH AN AMOUNT OF RS. 2,30,94,302/ - WAS CHARGED BY THE ASSESSEE. . THE ASSESSEE HAD A CONTRACT WITH ITS AE AND THE ASSESSEE WAS ENTITLED FOR COST PLUS MARK - UP OF 14% FROM ITS AE ON THE SAID PRODUCT DEVELO PMENT SERVICES CARRIED OUT BY THE ASSESSEE FOR ITS AE. T HE ASSESSEE HAD ADOPTED TNM METHOD TO ARRIVE AT ALP OF ITS INTERNATIONAL TRANSACTION FOR PRODUCT DEVELOPMENT SERVICES CARRIED OUT FOR ITS AE WHICH METHOD OF COMPUTING ALP IS NOT IN DISPUTE BETWEEN RIV AL PARTIES. T HE ASSESSEE CONDUCTED TP STUDY AND SELECTED COMPARABLES WHICH HAD PLI WITH ARITHMETIC MEAN OF 13.4 5 % AND HENCE IT WAS CONCLUDED THAT NO TP ADJUSTMENT IS WARRANTED AS ASSESSEE PLI WAS 14% AND HENCE THE SAME FELL WITHIN MARGIN OF +/ - 5%. THE TPO WAS NOT SATISFIED WITH THE COMPARABLES S ELECTED BY THE ASSESSEE AND ASKED THE ASSESSEE TO FILE REVISED COMPARABLES. THE ASSESSEE SUBMITTED REVISED COMPARABLES BEFORE TPO WHICH ALSO HAD A N PLI WITH ARITHMETIC MEAN OF 11.7 1 % AND IT WAS CONTENDED THAT NO TP ADJUSTMENT NEED TO BE DONE TO THE INCOME OF THE ASSESSEE . THE TPO FINALLY REJECTED THE TP STUDY CONDUCTED BY THE ASSESSEE AND THE TPO ADOPTED ITS OWN COMPARABLES AFTER MAKING SEARCH WHEREIN FINALLY PLI WITH AVERAGE MEAN OF 30.67% WAS CONSIDERED FOR COMP UTING ALP OF THE INTERNATIONAL TRANSACTION OF THE ASSESSEE WITH ITS AE FOR PRODUCT DEVELOPMENT SERVICES WHICH LED TO THE TP ADDITIONS TO THE TUNE OF RS. 33,77,036/ - U/S 92CA IN AN ORDER PASSED BY TPO WHICH LED TO THE FRAMING OF ASSESSMENT ORDER BY THE AO . T HE DISPUTE WHICH FINALLY NOW REMAINS BETWEEN RIVAL PARTIES IS WITH REGARD TO TWO COMPARABLES NAMELY CELESTIAL LAB S LTD HAVING PLI OF 87.9 4% WHICH COMPARABLE ALBEIT WAS INCLUDED BY TPO BUT STOOD DELETED BY LEARNED CIT(A) I.T.A. NO.6072/MUM/2014 11 DUE TO DIFFERENT FUNCTIONAL PRO FILE AND SUPER NORMAL PROFITS. THE SAID COMPANY CELESTIAL LABS LIMITED IS A LISTED COMPANY ON STOCK EXCHANGES AND ITS FINANCIAL DATAS ARE AVAILABLE IN PUBLIC DOMAIN . T HE EVIDENCES PLACED ON RECORD BY THE ASSESSEE OF THE SAID COMPANY BEFORE US IN PAPER BO OK FILED WHICH IS A DRAFT PROSPECTUS ISSUED BY THE SAID COMPANY WITH RESPECT TO PUBLIC ISSUE OF 50,00,000 EQUITY SHARES OF RS. 10 EACH AT A PREMIUM OF RS. 50 EACH. THE SAID DRAFT PROSPECTUS WAS ISSUED BY SAID COMPANY CELESTIAL LABS LIMITED IN THE YEAR 2006 WHILE THE INITIAL PUBLIC OFFER CAME IN JUNE 2007 . AS PER THE SAID DRAFT PROSPECTUS, THE SAID COMPANY CELESTIAL LABS LIMITED IS ENGAGED IN FOLLOWING ACTIVITIES: - CELESTIAL BUSINESS MODEL CELESTIAL LABS LIMITED IS 8 YEARS OLD HYDERABAD BASED IS O 9001 - 2000 CERTIFIED COMPANY, I T HAS BEEN PROVIDING CUSTO MIZED ENTERPRISE SOLUTIONS, BIO INFORMATICS SERVICES TO HEALTH AND LIFE SCIENCE SECTOR, LIKE GENE SEQUENCE COMPARISON AND ANALYSIS, PREDICTION MODELING, DESIGN AND DEVELOPMENT OF DRUG MOLECULES; AND DEVELOPMENT OF INDUSTRIAL ENZYMES. THE DEPARTMENT OF SCIENCE AND INDUSTRIAL RESEARCH (DSIR), MINISTRY OF SCIENCE AND TECHNOLOGY, NEW DELHI HAS RECOGNIZED THE COMPANY'S RESEARCH AND DEVELOPMENT CENTER . CELESTIAL IS IN CONTACT WITH IICT, CCMB IMTECH AND OSMA NIA UNIVERSITY, THE PREMIER RESEARCH INSTITUTIONS AT HYDERABAD FOR ITS CHEMICAL TECHNOLOGY, MOLECULAR BIOLOGY AND MICROBIOLOGY COLLABORATIVE RESEARCH PROJECTS. PRESENT EXPANSION THE EXPANSION HAS BEEN PLANNED: TO SCALE UP THE CONTRACT RESEARCH AND PRO JECT MANAGEMENT SERVICES DEDICATED TO HEALTH AND LIFE SCIENCE SECTOR BY INCREASING INFRASTRUCTURE AND RESOURCES. TO DEVELOP DRUG MOLECULES, PERFORM CLINICAL TRIALS AND PROVIDE LICENSING FOR GLOBAL PRODUCTION TO MANUFACTURE AND MARKET ENZYMES WITH THE PROVEN AND IMPROVED TECHNOLOGY BY LEVERAGING THE EXPERTISE IN FERMENTATION PROCESS CELESTIAL DURING ITS EXPANSION PLAN, HAS SCALED UP ITS SERVICE OPERATIONS WITH THE AVAILABLE RESOURCES AND FURTHER DEVELOPED A DE NOVO DRUG DESIGN TOOL 'CELSUITE ' TO AID DRUG DISCOVERY AND STRENGTHEN RELATED SERVICES IN FINDING THE LEAD DRUG MOLECULES. THE CELSUITE HAS BEEN FILED FOR IPR UNDER THE INDIAN COPYRIGHT ACT, 1957. THE VARIOUS MODULES OF CELSUITE HELP IN PROVIDING THE EFFECTIVE RESEARCH SERVICES TO THE C LIENTS IN THE FIELD OF DRUG DEVELOPMENT. I.T.A. NO.6072/MUM/2014 12 BASED ON ITS OWN IN SILICA EXPERTISE (APPLYING THE BIOINFORMATICS TOOLS), CELESTIAL HAS DEVELOPED THERAPEUTIC MOLECULES TO TREAT LEUCODERMA AND MULTIPLE CANCER AND THESE HAVE BEEN FILED FOR THE INDIAN PATENT RIGHTS . CELESTIAL HAS COMPLETED THE CLONING OF THE THERAPEUTIC MOLECULE FOR CURING THE VITILIGO AND CURRENTLY, THE PURIFICATION STAGE IS IN PROGRESS AT ITS COLLABORATIVE INSTITUTE, DEPARTMENT OF MICROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. AS AN UPWARD INTEGRATI ON STRATEGY ENHANCING THE REGULAR REVENUE STREAM, CELESTIAL IS LEVERAGING ITS EXPERTISE IN FERMENTATION PROCESS, HAS SIGNED A TECHNOLOGY TRANSFER AGREEMENT WITH INSTITUTE OF MICROBIAL TECHNOLOGY (IMTECH), A PREMIER CSIR ORGANIZATION AT CHANDIGARH, INDIA, T O MANUFACTURE TWO INDUSTRIALLY IMPORTANT ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE AND MARKET THEM IN INDIA AND OVERSEAS. CELESTIAL IS SETTING UP FACILITIES TO ACCOMPLISH DIVERSIFIED ACTIVITIES IN THE BIOTECHNOLOGY SECTION, INCLUDING MANUFACTURING OF I NDUSTRIAL ENZYMES AND LABORATORIES FOR DEVELOPING NEW DRUG CANDIDATE MOLECULES AND LICENSING FOR MANUFACTURE AND DISTRIBUTION GLOBALLY. THIS FACILITY IS BEING SETUP IN GENOME VALLEY AT HYDERABAD IN ANDHRA PRADESH. CELESTIAL HAS COMPETENT AND EXPERIENCED P ERSONNEL ON ITS ROLLS TO EFFECTIVELY CARRY OUT THE SCIENTIFIC, ENGINEERING, FINANCE AND MANAGEMENT FUNCTIONS OF ITS PROJECT ACTIVITIES. CELESTIAL HAS AN EXPERIENCED AND DIVERSE BOARD OF DIRECTORS TO GUIDE THE CORE MANAGEMENT OF THE COMPANY TO DEVISE THE RI GHT STRATEGIES AND EFFICIENTLY CARRY OUT THE TASKS TO ACHIEVE THE TARGETS. THE COMPANY HAS ACHIEVED BUSINESS OF RS. 1022.18 LAKHS IN THE YEAR 2005 - 06 IN COMPARISON TO RS. 804.98 LAKHS DURING THE YEAR 2004 - 05. PRODUCTS & SERVICES OF THE COMPANY CELSUITE S TRUCTURE - BASED DRUG DESIGN PLAYS A CRUCIAL ROLE IN THE DISCOVERY OF NOVEL CHEMICAL ENTITIES, WHICH ARE OF IMMENSE USE IN HEALTH CARE MARKET. USING IN SILICA TOOL, ONE CAN APPRECIABLY REDUCE THE HIGH COSTS INVOLVED IN SYNTHESIZING AND TESTING THE POTENTIAL BIOACTIVE COMPOUNDS OR DRUG MOLECULES. CELESTIAL LABS HAS DEVELOPED CELSUITE - A DRUG DESIGN TOOL, WHICH FACILITATES MOLECULAR MODELING; ACTIVE SITE PREDICTION AND LIGAND BUILD UP, THE IMPORTANT FEATURES OF A DRUG DISCOVERY PROCESS. STARLING WITH MOLECULAR COORDINATES OF THE TEST CANDIDATE, THE CELSUITE PREDICTS THE POTENTIAL OF THE LIGAND MOLECULES, BUILDS VIRTUAL DRUG, SCREENS OUT UNFAVOURABLES, AND PREDICTS TOXICITY THROUGH A LOGICAL AND RATIONAL PROCESS. THE VISUALIZER DISPLAYS THE RESULT MOLECULES ON TH E SCREEN IN A VARIETY OF REPRESENTATION AND COLOURS. CELSUITE WILL BE LICENSED INDIVIDUALLY ONCE IT IS INTEGRATED WITH TOXICITY PREDICTION MODULE AND ALSO IT WILL USED BY CELESTIAL TO OFFER THE DRUG MOLECULE DEVELOPMENT RELATED SERVICES TO PHARMA AND BIOTECH COMPANIES, GLOBALLY. BIOPRODUCTS {DRUG MOLECULE DEVELOPMENT) I.T.A. NO.6072/MUM/2014 13 CELESTIAL LABS, BASED ON ITS IN SILICO EXPERTISE, HAS DEVELOPED 2 MOLECULES TO TREAT LEUCODERMA / VITILIGO, TANNING, WRINKLES AND MULTIPLE CANCER. PURIFICATION OF THESE CLONED MOLECULES I S UNDER ACTIVE PROGRESS PAVING THE WAY FOR RAPID DEVELOPMENT OF THE FINAL PRODUCTS AND LICENSING. THESE MOLECULES HAVE BEEN FILED FOR THE IPR PROTECTION IN 2005. VITILIGO/WRINKLE FORMATION/TANNING WHILE THE MARKET FOR PRODUCTS TO TREAT WRINKLE FORMATION AN D TANNING NEEDS IS PICKING UP TREMENDOUS GROWTH, SURVEYS SHOW THAT 1 TO 6 % OF THE WORLD POPULATION IS AFFECTED BY THE DISORDER OF DEPIGMENTATION POPULARLY KNOWN AS LEUCODERMA OR VITILIGO. DRUGS BEING DEVELOPED TO CURE THIS DISORDER ARE OF IMMENSE VALUE AS THEY REDUCE THE MENTAL DEPRESSION AND PSYCHOLOGICAL TRAUMA ASSOCIATED WITH THE DISORDER AND WILL CERTAINLY IMPROVE THE QUALITY OF LIFE, APART FROM AVOIDING THE SOCIAL WITHDRAWAL OF THE AFFECTED PATIENTS. ETIOLOGY OF THIS DISORDER IS NOT CLEAR IN SPITE OF THE FACT THAT CAUSES ARE PARTIALLY HYPOTHESIZED AS GENETIC OR OF AUTO - IMMUNE NATURE OR ARE DUE TO GROWTH FACTOR DEPRIVATION. MULTIPLE CANCER DEVELOPMENT AND APPLICATION OF PEPTIDE MOLECULES AS ANTI - CANCER DRUGS IS BEING ACTIVELY PURSUED GLOBALLY. HOWEVER, KEEPING IN MIND THE COMPLEX MECHANISM OF ACTION INVOLVED, SELECTION OF THE PEPTIDE WOULD NEED MORE RIGOROUS AND RATIONAL APPROACH. PREPARATION OF THESE PEPTIDES AND ITS SUCCESSFUL ADMINISTRATION WITH SELECTIVE TARGETING AND SPECIFIC DELIVERY TO CANCER CELL S NEEDS THE KNOWLEDGE PERTAINING TO BIOLOGICAL SYSTEM COMPRISING TUBULIN - TARGETING DRUGS. USING ITS IN - HOUSE DRUG DESIGN TOOL, CELESTIAL HAS WORKED ON THE ACTIVE SITE PREDICTION OF TUBULIN COMPLEX AND DESIGNED A FEW PROMISE SHOWING LIGANDS. FURTHER WORK IS IN ACTIVE PROGRESS AND CELESTIAL IS OPTIMISTIC FOR GENERATING POTENTIAL PEPTIDE THAT CAN HELP IN TUBULIN AGGREGATION LEADING TO ANTI - CANCER ACTIVITY. INDUSTRIAL ENZYMES THE BIO - INDUSTRIAL SECTOR OF THE BIOTECHNOLOGY INDUSTRY IN INDIA HAS BEEN RECORDING IM PRESSIVE ANNUAL GROWTH AT THE RATE OF MORE THAN 35%. INDUSTRIAL ENZYMES REPRESENT THE HEART OF BIOTECHNOLOGY PROCESSES. THE FIELD OF INDUSTRIAL ENZYMES NOW IS EXPERIENCING MAJOR R&D INITIATIVES, RESULTING BOTH IN THE DEVELOPMENT OF A NUMBER OF NEW PRODUCTS , AND IN IMPROVEMENT IN THE PROCESS AND PERFORMANCE OF SEVERAL ' EXISTING PRODUCTS. IN VIEW OF THE OPTIMUM UTILIZATION OF EXPERTISE AND RESOURCES, CELESTIAL LABS IS DEVELOPING THE APPROPRIATE TECHNOLOGICAL - BASE FOR THE PRODUCTION OF TWO IMPORTANT INDUSTRIA L ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE, WITH THE REQUISITE INFRASTRUCTURE FOR MANUFACTURING AND QUALITY CONTROL. CELESTIAL LABS HAS TIED UP WITH IMTECH AT CHANDIGARH FOR THE TECHNOLOGY TRANSFER AND WILL AVAIL THE SERVICES OF LEADING PLANT & MACHINE RY PROVIDERS TO HELP THE COMPANY ESTABLISH AND SCALE - UP OF MANUFACTURING PROCESSES. I.T.A. NO.6072/MUM/2014 14 CONSUMPTION OF THE PROPOSED ENZYMES TO BE MANUFACTURED IS SHARED MAINLY BY DETERGENTS, TEXTILES, FOOD AND PHARMACEUTICAL INDUSTRIES IN INDIA, CURRENTLY WITH AN IMPORT OF 70 % OF THESE ENZYME PRODUCTS. SERVICES CELESTIAL HAS BEEN PROVIDING CUSTOMIZED ENTERPRISE SOLUTIONS, BIOINFORMATICS SERVICES TO HEALTH AND LIFE SCIENCE SECTOR, LIKE DATABASE PREPARATION AND MANAGEMENT, GENE SEQUENCE COMPARISON AND ANALYSIS, PREDICTION MODELI NG, DESIGN AND DEVELOPMENT OF DRUG MOLECULES. FURTHER THE SERVICES ARE BEING STRENGTHENED BY APPLYING SUITABLE RESOURCES AND INFRASTRUCTURE. BUSINESS STRATEGY THE BUSINESS PLAN OF THE COMPANY IS ESSENTIALLY BASED ON SCALING UP THE SERVICE OPERATIONS SUCH A S ERF IMPLEMENTATIONS, PROJECT MANAGEMENT SERVICES, BIOINFORMATICS SERVICES, ETC., ALREADY IN PLACE; THE PRODUCTION AND SUPPLY OF THE BIOTECHNOLOGICAL PRODUCTS, WHICH HAVE VERY SIGNIFICANT INDUSTRIAL IMPLICATIONS, ESPECIALLY IN PHARMACEUTICAL SECTOR. THE P LAN ENVISAGES A THOROUGH GROUNDWORK IN TERMS OF BUILDING UP OF A TECHNOLOGY BASE THROUGH RELEVANT STAKEHOLDERS AND COLLABORATORS, LURTHER SUPPORTED BY MARKET ANALYSIS AND IMPORT - EXPORT IMPERATIVES. THE FOCUS IS TO USE MULTI DISCIPLINARY SKILLS TO VISUALIZ E AND TACKLE PROBLEMS IN RIGHT PERSPECTIVE. THIS HAS ENABLED CELESTIAL TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL HAVING A WIDE KNOWLEDGE BASE IN DIFFERENT AREAS SUCH AS MICROBIOLOGY, BIOCHEMISTRY, TOXICOLOGY ETC. BESIDES THE TECHNICAL, PROGRAMME IMP LEMENTATION AND EFFECTIVE MANAGEMENT SKILLS, THESE PERSONNEL ARE EQUIPPED WITH EXPERTISE IN RESEARCH, ECONOMIC AFFAIRS AND ENTREPRENEURSHIP BACKGROUND, A COMPREHENSIVE DISTRIBUTOR NETWORK WILL BE SET UP ACROSS INDIA WITH EMPHASIS ON SPECIFIC NEEDS OF DOMES TIC ENZYME MARKET REQUIREMENTS. EXPORT ACTIVITIES WILL BE CARRIED OUT IN ASSOCIATION WITH PROSPECTIVE AGENTS TO CATER TO THE ENZYME MARKET REQUIREMENTS IN EUROPE AND USA. MARKETING NETWORK ALREADY IN PLACE FOR CELESTIAL LABS' INFORMATION TECHNOLOGY PRODUCT S AND SERVICES WILL COMPLEMENT TO ESTABLISH THE DOMESTIC CLIENTELE FOR THE ENZYME PRODUCTS. FOR LICENSING DRUG MOLECULES, THE COMPANY WILL KEEP IN CONTACT WITH SOME LEADING CONSULTING AGENCIES OPERATING WORLD WIDE FOR ASSISTANCE IN LICENSING THE DRUG MOLEC ULES TO PHARMA AND BIOTECH C OMPANIES. KEY STRENGTHS DEDICATED AND COMMITTED MANAGEMENT TEAM EXPERIENCED SCIENTISTS AND TECHNICAL TEAM INNOVA TION TREMENDOUS OPPORTUNITY IN BIO - SERVICES AND PRODUCT TECHNOLOGICAL COLLABORATION WITH LEADING RESEARCH INSTITUTIONS. I.T.A. NO.6072/MUM/2014 15 IPR GENERATIONS THE ABOVE BUSINESS MODEL IS EXTRACTED FROM THE DRAFT PROSPECTUS ISSUED BY CELESTIAL LABS LIMITED IN 2006 FOR ITS PROPOSED PUBLIC ISSUE OF SHARES WHICH CAME IN JUNE 2007. T HE PERUSAL OF THE FINANCIAL STATEMENT OF THE CELESTIAL LAB LTD. EXTRACT ED FROM THE SAID DRAFT PROSPECTUS IS REPRODUCED BELOW : - PARTICULARS INCOME YEAR ENDED 31/3/2002 YEAR ENDED 31/3/2003 YEAR ENDED 31/3/2004 YEAR ENDED 31/3/2005 YEAR ENDED. 31/3/200.6 RS. IN LACS SAL ES 363.83 373.54 502.8 804.98 1022.18 OTHERS 2.09 TOTAL 363.83 373.54 502.8 807.07 1022.18 EXPENDITURE SALARIES 154.51 169.96 192.36 253.55 288,91 COMMUNICATIONS 13.87 15.26 17.55 21.94 21.11 ADMINISTRATIVE EXPENDITURE 65.1 78.44 94.16 164,44 188.98 SELLING EXPENSES 13.43 14.76 36.2 50.82 78.76 INTEREST 0.63 0.63 1.58 0.15 DEFERRED REVENUE - EXPENDITURE WRITE OFF 6.76 9.15 11.44 30.87 55,55 DEFERRED REVENUE - EXPENDITURE WRITE OFF (PRODUCT DEVELOPMENT) 31.10 PRELIMINARY EXPENSES W/O 0.01 0.01 0.01 0.01 0.01 TOTAL :''*' - ' 254.31 288.21 353.31 521.63 664.57 PROFIT BEFORE DEPRECIATION 109.52 85.33 149.49 285.44 357.61 DEPRECIATION 12.73 18.55 26.92 17.5 25.53 PROFIT BEFORE TAX 96.79 66.78 122,57 267.94 : 332.08 PROVISION FOR TAXATION 11.18 5.26 9.65 0.00 1.49 PROVISION FOR DEFERRED TAX 0.00 0.00 20.00 2.98 2.35 PROFIT AFTER TAX . 85.61 61.52 92.92 264.96 328.23 I.T.A. NO.6072/MUM/2014 16 PERUSAL O F THE SAID PROFIT AND LOSS FOR THE YEAR ENDED 31 ST MARCH 2006 OF CELESTIAL LABS LIMITED CLEARLY SHOWS THAT THE PROFIT AFTER TAX IS RS. 328.23 LACS ON SALES OF RS. 1022.18 LACS WHICH GIVES N ET PROFIT RATIO OF 32 .11 % FOR THE YEAR ENDED 31 ST MARCH 2006 . SIMILARLY, FOR THE YEAR ENDED 31 ST MARCH 2005, NET PRO FIT RATIO IS 32.83%. THE SAID COMPANY CELESTIAL LABS LIMITED , THUS, FOR THE YEAR ENDED 31 - 03 - 2005 AN D 31 - 03 - 2006 AS PER ABOVE PROFIT AND LOSS ACCOUNT DOES NOT HAVE SUPER NORMAL PROFITS . ONE OF THE REASONS FOR DELETION BY LEARNED CIT(A) IS THE SUPER NORMAL PROFITS REPORTED LY EARNED BY SAID CONCERN OF 87.94% WHEREIN NO DEEPER PROBE OF THE FINANCIAL STATEM ENTS WERE MADE BY THE AUTHORITIES BELOW TO FIND OUT REASONS FOR EARNING SUPER NORMAL PROFITS IN THE YEAR UNDER CONSIDERATION WHICH IS NOT IN LINE WITH THE PROFITS EARNED IN IMMEDIATELY PRECEDING YEARS . THE SECOND REASON FOR DELETION BY LEARNED CIT(A) OF TH IS COMPARABLE IS DIFFERENT FUNCTIONAL PROFILE OF CELESTIAL LABS LIMITED. HOWEVER, LD. DR HAS SUBMITTED BEFORE US , THIS COMPANY IS ENGAGED IN SIMILAR ACTIVITIES OF RESEARCH AND DEVELOPMENT IN THE PHARMA INDUSTRY AS WERE THE PRODUCT DEVELOPMENT SERVICES REN DERED BY THE ASSESSEE CATERING TO I T S AE IN PHARMA INDUSTRY . ON CAREFUL PERUSAL OF THE ORDER OF TPO AND LEARNED CIT(A) WE ARE OF THE CONSIDERED OPINION THAT NEITHER OF THEM HAVE MADE A PROPER AND DETAILED ANALYSIS OF FUNCTIONAL PROFILE OF THE ASSESSEE AND THE SAID COMPARABLE BEFORE ARRIVING AT THEIR RESPECTIVE CONCLUSION. IN THIS REGARD A DETAILED STUDY OF THE ANNUAL REPORT AND OTHER FINANCIAL DATA OF BOTH THE ASSESSEE AND THE SAID COMPARABLE CELESTIAL LABS LIMITED FOR THE IMPUGNED PREVIOUS YEAR IS REQU IRED TO BE MADE. . FURTHER, REASONS FOR SUPER NORMAL PROFIT IN THE FINANCIAL YEAR ENDED 31 - 03 - 2008 NEEDED TO BE ANALYSED FURTHER BY ANALYSING FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 - 03 - 2008 TO WEED OUT THE IMPACT OF EXTRA - ORDINARY EVENTS SUCH AS IPO . T HIS COMPANY CELESTIAL LABS LIMITED IS A LISTED COMPANY AND ITS FINANCIAL STATEMENTS ARE AVAILABLE IN THE PUBLIC DOMAIN BEING A LISTED COMPANY . T HE TPO HAS INCLUDED THE SAID COMPANY AS COMPARABLE AND HENCE THE ONUS IS ON THE TPO /AO TO BRING ON RECORD THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 - 03 - 2008 AND TO MAKE DEEPER ANALYSES OF ITS FINANCIAL STATEMENTS TO WEED OUT IMPACT OF EXTRA - ORDINARY EVENTS SUCH AS IPO ON ITS PROFITABILITY . T HE SAID COMPANY CELESTIAL LABS LIMITED CAME OUT WITH IPO IN J UNE 2007 , AND HENCE THE IMPACT OF THIS EXTRA - ORDINARY EVENT IN I.T.A. NO.6072/MUM/2014 17 THE PROFITABILITY IS TO BE EXCLUDED BEFORE COMPUTING PLI. H ENCE , IN OUR CONSIDERED VIEW, IMPACT OF THE EXPENSES INCURRED IN CONNECTION WITH IPO AS WELL INTEREST INCOME EARNED ON ESCROW ACCOUNT WHEREIN PROCEEDS OF IPO WERE KEPT SHALL BE EXCLUDED WHILE COMPUTING PLI OF THE SAID COMPANY FOR BENCHMARKING INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AE , AS IT IS CLEARLY VISIBLE THAT THIS EXTRA - ORDINARY EVENT OF IPO HAPPENED IN THE RELEVANT PERIOD UNDER CONSIDERATION BEFORE US . THUS, THERE IS A NEED TO FURTHER ANALYSE THE FINANCIAL STATEMENTS OF CELESTIAL LABS LIMITED. THUS, ADOPTING PLI OF 8 7.94% FOR THE YEAR UNDER CONSIDERATION OF CELESTIAL LABS LIMITED WITHOUT DEEPER ANALYSIS OF FINANCIAL STATEMENTS WAS NOT JUSTIFIED ON THE PART OF TPO/AO AND HENCE WE ARE SETTING ASIDE THE MATTER TO THE FILE OF THE AO/TPO FOR RE - ADJUDICATION OF THE ISSUE ON MERITS DE - NOVO IN ACCORDANCE WITH LAW. THE AO/TPO ARE DIRECTED TO PROVIDE PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. THE EVIDENCES FILED BY THE ASSESSEE IN ITS DEFENCE IN DE - NOVO PROCEEDINGS SHALL BE ADMITTED BY AO/TPO IN THE INTEREST OF SUBSTANTIAL JUSTICE AND THEREAFTER ADJUDICATED ON MERITS IN ACCORDANCE WITH LAW. KEEPING IN VIEW THE RELEVANT CASE LAWS WHICH MAY BE RELIED UPON BY THE ASSESSEE. WE ORDER ACCORD INGLY. NOW, COMING TO THE COMPARABLE TONIRA PHARMA LTD. WHICH WAS REJECTED BY TPO BUT WAS DIRECTED TO BE INCLUDED BY LEARNED C IT(A) . THE SAID COMPANY HAS NEGATIVE PLI OF ( - ) 16.90%. T HE AUDITED FINANCIAL STATEMENTS OF TONIRA PHARMA LIMITED IS PLACED ON RE CORD . AS PER AUDITED FINANCIAL STATEMENTS , TONIRA PHARMA LIMITED IS ENGAGED IN THE BUSINESS OF AS UNDER: - INDUSTRY SCENARIO AND DEVELOPMENTS: INDIAN ECONOMY, HAS BEEN ONE OF THE FASTEST GROWING ECONOMY OF THE WORLD BACKED BY COUNTRY'S STRONG GDP GROWTH AND IMPROVED F D I INFLOW AND HEALTHY FOREIGN EXCHANGE RESERVES WITH MANUFACTURING AND SERVICE SECTORS PLAYING SIGNIFICANT ROLE IN THE GROWTH OF INDIAN ECONOMY. INDIA IS PREFE RRED MANUFACTURING DESTINATION F OR PHARMACEUTICAL BECAUSE OF WIDE RANGE OF CAPABILITIES AND ATTRACTIVE AND COST EFFECTIVE MANUFACTURING OPPORTUNITIES, COMPARATIVELY LOW PRODUCTION COST OF ACTIVE PHARMACEUTICAL INGREDIENTS (A P I S), ROBUST MANUFACTURING CAPABILITIES, EXISTENCE OF REGULATORY APPROVED MANUFACTURING FACILITIES FO R APIS AND FORMULATIONS AND AVAILABILITY OF CHEAP SKILLED MANPOWER. FOR INDIAN BULK DRUG MANUFACTURERS, OPPORTUNITIES ARE PRESENT IN TWO FORMS - EXP ORT OF NON PATENTED BULK DRUGS TO REGULATED MARKET OF US, EUROPE AND JAPAN AND CONTRACT MANUFACTURING OF PATENT PROTECTED BULK I.T.A. NO.6072/MUM/2014 18 APIS FOR PATENT/LICENSE HOLDERS. INDIA OFFERS THE ADVANTAGE OF ITS LOW PRODUCTION COST, QUALITY PRODUCTION AND REGULATORY APPROVED MANUFACTURING FACILITIES. INT RODUCTION: TONIRA PHARMA LIMITED HAS BEEN AWARDED STAR EXPORT HOUSE STATUS FROM KFTZ IN ACTIVE PHARMACEUTICAL INGREDIENTS (APIS). THE COMPANY'S NANDESARI MANUFACTURING UNIT HAS BEEN RECENTLY INSPECTED AND APPROVED BY US PDA. THE COMPANY'S CUSTOMERS OF JA PAN, EUROPE, SOUTH EAST ASIA AND SOUTH AMERICA ARE CATERED FROM ITS WHO, G.MP, ISO 9000 PLANT AT ANKLESHWAR AND NANDESARI. WITH THE US FDA APPROVAL OF THE NANDESARI PLANT, THE COMPANY WILL HAVE ACCESS TO MORE CUSTOMERS FROM REGULATED MARKETS. OUR OPERATI ONS AND BUSINESS STRATEGY: THE COMPANY IS IN THE PROCESS O( STEPPING UP COMMERCIAL PRODUCTION AT ITS NANDESARI PLANT TO MEET INCREASED DEMAND FROM NEW CUSTOMERS. THE COMPANY HAS ALREADY FILED 8 DMFS WITH US FDA. SWOT ANALYSIS STRENGTHS: (I) T ONIRA IS A QUALITY PRODUCER OF EXCLUSIVE PRODUCTS OF ITS CUSTOMERS AS PER THEIR SPECIFIC REQUIREMENTS, (II) ITS NANDESARI UNIT IS USFDA COMPLIANT PLANT AND ISO 9002 CERTIFIED WIT H GOOD MANUFACTURING PRACTICES (GMP) CERTIFICATE FOR SEVERAL API PRODU CTS. (III) THE COMPANY HAS A STATE - OF - THE - ART R & D CENTER AT NANDESARI HAVING MULTIPLE CLASS CAPABILITIES. THE CENTER IS IN THE PROCESS OF CONTINUOUSLY DEVELOPING NEWER VALUE ADDED MOLECULES THROUGH INNOVATIVE AND COST - EFFECTIVE PROCESS ROUTES TO T AP THE MARKET OPPORTUNITIES. (IV) TONIRA IS CONSTANTLY INVOLVED IN R & D LO ACHIEVE COST REDUCTION THROUGH ALTERNATIVE PROCESS ROUTES, MANUFACTURING EXCELLENCE AND REDUCTION IN ENERGY COSTS. (V) TONIRA SHOULD ALSO BE ABLE TO PROVIDE DEDICATED FACI LITIES FOR CRAMS (CONTRACT RESEARCH AND MANUFACTURING SERVICES). (VI) IT HAS ALSO FILED PROCESS PATENT A PPLICATION FOR THREE MOLECULES . (VII)'TONIRA HAS FOUR DRUG MASTER FILES IN CTD FORMAT. (VIII) TONIRA HAS A VERY WELL DEVELOPED MIS AND SYSTEM OF INTERNAL CONTROL, WHICH HELPS THE MANAGEMENT TO TAKE INFORMED AND TIMELY DECISIONS. OPPORTUNITIES AND THREATS: ALL MEDIUM SIZED PHARMACEUTICAL COMPANIES WHICH HAVE SUCCEEDED IN ACHIEVING MANUFACTURING EXCELLENT OVER THE YEARS AND HAVE DEVELOPED I.T.A. NO.6072/MUM/2014 19 COST - EFFECTIVE SYNTHESIS ROUTES HAVE SCOPE FOR PARTNERING WITH, MULTINATIONAL COMPANIES FOR CONTRACT MANUFACTURING AND RESEARCH SERVICES, I.E. CRAMS. WITH THE STATE - OF THE ART R & D CENTER AND EXTENSIVE MANUFACTURING FACILITIES, TONIRA IS GEARING UP TO CAS H IN THE MARKET OPPORTUNITIES INTENSE COMPETITION IN THE FIELD HAS TO BE TACKLED WITH CONSTANT COST - REDUCTION, PROCESS IMPROVEMENT AND OPERATIONAL EXCELLENCE. INTERNAL CONTROL AND ITS ADEQUACY FOR EFFECTIVE INTER DEPARTMENTAL COMMUNICATIONS AND FOLL OW UP PROCESS, COMPUTERS AND REQUISITE SOFTWARE AND NETWORKS FOR COMMUNICATION HAVE BEEN INSTALLED. THE SYSTEM OF INTERNAL CONTROL PROVIDES UNDATED ACCOUNTING RECORDS, THE RELIABILITY OF FINANCIAL INFORMATION ESSENTIAL FOR RUNNING BUSINESS. THE COMPANY HAS A CLEARLY DEFINED ORGANIZATION STRUCTURE AND DELEGATED AUTHORITY. SUFFICIENT CONTROL IS EXERCISED THROUGH MONTHLY, QUARTERLY AND ANNUAL BUSINESS REVIEW BY THE MANAGEMENT. 'FINANCIALS: THE DETAILED FINANCIAL ANALYSIS OF THE COMPANY'S OPERATIONS FOR TH E YEAR IS GIVEN IN THE DIRECTORS' REPORT AND THEREFORE THE SAME IS NOT REPEATED. RISK AND CONCERNS: THE COMPANY HAS BEEN SUCCESSFUL IN THE PAST IN SECURING LONG - TERM EXPORT CONTRACTS AND FUTURE BUSINESSES ARE CONTINGENT UPON THESE LONG - TERM SUPPLY CONTRACTS CONTINUING. THE SPIRALLING COST OF RAW MATERIALS AND OTHER INPUT COSTS MAY PUT THE MARGINS UNDER PRESSURE. HUMAN RESOURCES: HUMAN RESOURCE BEING THE MOST SIGNIFICANT OF THE FACTORS CONTRIBUTING TO THE SUCCESS OF THE COMPANY IN ACHIEVING ITS OBJECTIVES, THE COMPANY HAS BEEN FOLLOWING A PROACTIVE POLICY FOR HUMAN RESOURCE MANAGEMENT. ADEQUATE SIZED TEAM HAS BEEN DEVELOPED AND MAINT AINED TO FACILITATE SMOOTH AND UNINTERRUPTED FUNCTIONING OF ALL DEPARTMENTS. NEW RECRUITM ENTS HAVE BEEN MADE TO KEEP P ACE WITH INCREASING REQUIREMENT OF SKILLED AND EXPERIENCED TECHNICAL PERSONNEL FOR NEW PROJECTS AND EXPANSION. INITIATIVE TO DEVELOP A TEAM COMPATIBLE OF FUNCTIONING IN EVER CHANGING TECHNOLOGY HAVE BEEN TAKEN. THE COMPANY HAS TOTAL 368 EMPLOYEES AS OF 31ST MARCH, 2008 OUTLOOK AND FUTURE STRATEGY: WITH COMMENCEMENT OF COMMERCIAL PRODUCTION AT UDFDA APPROVED MANUFACTURING FACILITY AT NANDESARI, THE COMPANY IS CONFIDENT OF REGISTERING HIGHER PRODUCTION AND SALES IN THE COMING YEAR. THE COMPANY DEPENDS MORE ON STRENGTHENING CORE BUSINESS WITH PROVEN SKILLS AND RESEARCH AND DEVELOPMENT TO PUT ON FAST TRACK FOR I.T.A. NO.6072/MUM/2014 20 COST' EFFECTIV ENESS AND TO HAVE WORLD CLASS MANUFACTURING FACILITY SO IT CAN CONTINUE TO CATER TO DEVELOPED COUNTRIES IN LONG RUN. ARMED WITH STRONG RESOURCE BASE AND A VISION TO BE A LEADING MANUFACTURER OF BULK DRUGS AND HIGH VALUE ACTIVE PNARMA INGREDIENTS (APIS) IN SELECTED THERAPEUTIC AREAS, TONIRA IS POISED TO UHFEASH ITS TRUE POTENTIALS TO MEET THE CHALLENGES AND EXPLOIT THE GROWTH OPPORTUNITIES AHEAD. CAUTIONARY STATEMENT: STATEMENT IN THE MANAGEMENT DISCUSSION AND ANALYSIS DESCRIBING THE COMPANY'S OBJECTIVES, PROJECTIONS, EXPECTATIONS AND ESTIMATES REGARDING FUTURE PERFORMANCE MAY BE 'FORWARD LOOKING STATEMENTS' AND ARE BASED ON CURRENTLY AVAILABLE INFORMATION AND CURRENT SCENARIO. THE MANAGEMENT BELIEVES THESE TO BE TRUE TO THE BEST OF ITS KNOWLEDGE AT THE TI ME OF PREPARATION OF THIS REPORT. HOWEVER, THESE STATEMENTS ARE SUBJECT TO CERTAIN FUTURE EVENTS AND UNCERTAINTIES, WHICH COULD CAUSE ACTUAL RESULTS TO 'DIFFER MATERIALLY FROM THOSE THAT MAY BE INDICATED IN SUCH STATEMENTS. THE EXTRACT OF THE FINANCIAL PERFORMANCE OF TONIRA PHARMA LIMITED FOR THE FINANCIAL YEAR ENDED 31 - 03 - 2007 AND 31 - 03 - 2008 ARE REPRODUCED HEREUNDER: WE HAVE OBSERVED THAT THE TPO REJECTED THE SAID COMPANY DUE TO THE SAID COMPANY HAVING EFFLUENT TREATMENT PLANT/WASTE DISPOSAL SYSTEM WHICH IN OUR CONSIDERED VIEW IS NOT A JUSTIFIED CAUSE FOR ITS EXCLUSION BY TPO. PRIMARILY ALL INDUSTRIES IN INDIA REQUIRES POLLUTION CONTROL CLEARANCES WHICH IS MANDATE OF LAW AND PART OF STATE POLICY BECAUSE ENVIRONMENTAL CONCERNS ARE GROWING AND STATE/POLLUTION CONTROL BOARDS WHILE GRANTED POLLUTION CLEARANCES FOR SETTING UP/CONTINUATION OF RUNNING OF AN INDUSTRY REQUIRE SETTING UP ETP/WASTE DISPOSAL PLANTS TO BE SET UP AS P RE - CONDITION FOR THE SET UP AND CONTINUATION OF THE RUNNING OF INDUSTRY . THE SETTING UP OF I.T.A. NO.6072/MUM/2014 21 ETP/WASTE DISPOSAL PLANTS ARE IN LINE WITH STATE POLICY AND THIS IS NOT A VALID REASON FOR DISCARDING COMPARABLE. HOWEVER, PERUSAL OF THE AUDITED FINANCIAL STATEMEN TS FOR THE YEAR ENDED 31 - 03 - 2008 WHICH IS PLACED IN FILE REVEALS THAT THE SAID COMPANY HAS TWO UNITS NAMELY ANKLESHWAR UNIT AND NANDESARI UNIT. THE ANKLESHWAR UNIT OF TONIRA PHARMA LIMITED WAS HIT BY AN EXTRA - ORDINARY EVENT OF ATTACHMENT OF ITS INVENTORY B Y THE EXCISE AND CUSTOM DEPARTMENTS THE EXCISE AND CUSTOM DEPARTMENT DISALLOWED THE CLEARANCES OF FINISHED GOODS FROM THE SAID COMPANYS TONIRA PHARMAS ANKLESHWAR PLANT DUE TO LITIGATION WITH EXCISE AND CUSTOM DEPARTMENT . THE SAID COMPANY REPORTED PROFIT OF RS. 164.03 LACS IN THE FINANCIAL YEAR ENDED 31 - 03 - 2007 WHILE IT REPORTED LOSS ( BEFORE EXCEPTIONAL ITEMS ) OF RS. 190.79 LACS. THE SAID COMPANY INCURRED LOSS OF RS. 582.98 LACS WHICH WAS AFTER CONSIDERING LOSS ON EXCEPTIONAL ITEMS .THE ASSESSEE WRONGLY ADOPTED THIS LOSS OF RS. 582.98 LACS FOR COMPUTING PLI WHILE THE ASSESSEE OUGHT TO HAVE TAKEN INTO CONSIDERATION LOSS(BEFORE EXCEPTIONAL ITEMS) OF RS. 190.79 LACS. THUS AS COULD BE SEEN THAT THE ANKLESHWAR UNIT WAS ADVERSELY AFFECTED DUE TO LITIGATION WITH CUSTOM AND EXCISE DEPARTMENTS AND INVENTORIES WERE ATTACHED AND CLEARANCES OF FINISHED GOODS WERE DISALLOWED. THE IMPACT OF THIS EXTRAORDINARY EVENT IS ALSO TO BE EXCLUDED WHILE COMPUTING PLI FOR BENCHMARKING INTERNATIONAL TRANSACTION OF THE ASSESSEE WITH ITS AE OF PRODUCT DEVELOPMENT ACTIVITY BECAUSE PERUSAL OF THE EXCEPTIONAL LOSS CLEARLY REVEALS THAT ONLY IMPACT PAYMENT OF INTEREST, DUTIES AND PENALTIES PERTAINING TO EARLIER YEARS WERE CONSIDERED BUT OPERATIONAL LOSS INCURRED DUE TO IMPACT OF STOPPAGE O F CLEARANCE BY EXCISE AND CUSTOM DEPARTMENT AND ATTACHMENT OF INVENTORIES WAS NOT CONSIDERED . THE RELEVANT EXTRACT OF THE DIRECTOR REPORT ATTACHED WITH AUDITED FINANCIAL STATEMENTS IS REPRODUCED HEREUNDER : : - OPERATIONS IN RETROSPECT.: - DURING THE YEAR - UNDER REVIEW, THE COMPANY R ECORDED TOTAL INCOME OF RS.3295. 88 LACS AND THE OPERATIONS RESULTED IN NET LOSS OF RS.190.79 LACS BEFORE EXCEPTIONAL ITEMS AS AGAINST A PROFIT OF RS.164.03 LACS IN THE PREVIOUS YEAR. AFTER PROVISION OF EXCEPTIONAL ITEMS BEING PAYMENT TOWARDS DUTIES, INTEREST AND PENALTY PERTAINING TO PRIOR PERIOD DEMAND AND LOSS ON ACCOUNT OF FIRE AT NANNDESARI PLANT, THE NET LOSS FOR THE YEAR UNDER REPORT IS RS. 582.98 LAC THE TOTAL INCOME DURING THE YEAR UNDER REPORT DECLINED DUE TO CONTINUED ATTACHMENT OF INVENTORIES OF THE I.T.A. NO.6072/MUM/2014 22 COMPANY'S ANKLESHWAR PLANT BY THE EXCISE AND CUSTOMS DEPARTMENT. THE EXCISE AND CUSTOMS DEPARTMENT ALSO, FOR SOME PERIOD OF TIME DURING THE YEAR UNDER REPORT, DISALLOWED THE CLEARANCES OF FINISHED GOODS FROM THE COMPANY'S ANKLESHWAR PLANT. THIS EXCISE AND CUSTOMS DUTY DEMAND MATTER IS STILL OUTSTANDING AND THE APPEALS OF THE COMPANY BEFORE HPN'BLE GUJARAT HIGH COURT AND CESTAT IS PENDING FOR DISPOSAL. FU TURE OUTLOOK: THE COMPANY HAS A STAR EXPORT HOUSE STATUS ASSIGNED BY KFTZ IN ACTIVE PHARMACEUTICALS INGREDIENTS (APIS) AND EXPORTS ITS PRODUCTS MAINLY TO JAPAN, EUROPE, SOUTH EAST ASIA AND SOUTH AMERICA APART FROM SELLING SMALL QUANTITIES IN THE DOMESTIC M ARKET. COMPANYS MANUFACTURING FACI LITY AT NANDES ARI WAS RECENTLY INSPECTED AND APPROVED BY US FDA AND WITH THIS APPROVAL, THE COMPANY WILL EXPAND ITS REACH TO REGULATED MARKETS OF NORTH AND SOUTH AMERICANS FOR EXPORTS OF ITS APIS. WITH THESE DEVELOPMENT T HE COMPANY EXPECTS RELATIVELY A GOOD PERFORMANCE IN THE COMING YEARS, BARRING UNFORESEEN CIRCUMSTANCES. UNDER THESE CIRCUMSTANCES , IN OUR CONSIDERED VIEW, THE MATTER NEED TO BE RESTORED TO THE FILE OF THE AO/TPO FOR FRESH ADJUDICATION OF THIS ISSUE OF SELECTION OF TONIRA PHARMA LIMITED AS COMPARABLE FOR COMPUTING ALP OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AE OF PRODUCT DEVELOPMENT ACTIVITY IS CONCERNED . THE ASSESSEE IS DIRECTED TO FILE NECESSARY EVIDENCES IN ITS DEFENC E WHICH SHALL BE ADMITTED BY TPO/AO I N THE INTEREST OF THE SUBSTANTIAL JUSTICE AND ADJUDICATED ON MERITS IN ACCORDANCE WITH LAW . N EEDLESS TO SAY PROPER AN D ADEQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY AO/TPO TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW . WE ORDER ACCORDINGLY. 6. IN THE RESULT , APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. O RDER PRONOUNCED IN THE OPEN COURT ON 01.06 .2018 01.06 .2018 SD/ - SD/ - (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 01.06 .2018 I.T.A. NO.6072/MUM/2014 23 COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI