TEVAPHARM INDIA P. LTD ( FORMERLY KNOWN AS RATIOPHARM INDIA P. LTD), MUMBAI V. ADDL CIT 10(3), MUMBAI

ITA 6623/MUM/2011

• Counselvise Citation: 662319914 RSA 2011
• Duration Of Justice: 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 14-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 03-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Keywords: Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary; Revised return; Capital expenditure; Set aside
• Section: 92C; 143(3); 92D; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.6623/MUM/2011(A.Y.2007-08) M/S. TEVAPHARM PRIVATE LIMITED, (FORMERLY KNOWN AS RATIOPHARM INDIA PRIVAT LTD.) 402, OMEGA, HIRANANDANI GARDENS, POWAI, MUMBAI 76. PAN:AABCR 7561F (APPELLANT) VS. ADDL. COMMISSIONER OF INCOME TAX 10(3), MUMBAI. (RESPONDENT) APPELLANT BY : S/SHRI HARRISH AROR A/BIPIN PAWAN/ ARUN SARIPALLI REVENUE BY : SHRI B.JAYAKUMAR ( DR) DATE OF HEARING : 14/12/2011 DATE OF PRONOUNCEMENT : 23/12/2011 ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 24/8/2011 OF ADCIT, 10(3), MUMBAI (THE AO) PASSED UNDER SECTI ON 143(3) R.W. 144C(13) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. GR.NO.1 AND 2 RAISED BY THE ASSESSEE READS AS FO LLOWS: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW; 1. THAT THE ASSESSMENT ORDER PASSED IN PURSUANCE TO THE DIRECTIONS ISSUED BY THE LEARNED DISPUTE RESOLUTION PANEL (LD. DRP) IS A VITIATED ORDER AS THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION MADE BY THE LD. ASSESSING OFFICER (AO) T O THE APPELLANTS INCOME WITHOUT APPROPRIATE APPLICATION OF MIND. 2. THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN CO NFIRMING THE ADDITION OF RS. 3,56,80,542 TO THE INCOME OF THE APPELLANT B Y HOLDING THAT ITS INTERNATIONAL TRANSACTION OF CONTRACT RESEARCH AND TESTING SERVICES DOES ITA NO.6623/MUM/2011(A.Y.2007-08) 2 NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UN DER THE INCOME-TAX ACT, 1961 (THE ACT). IN DOING SO THE LD. DRP HAS GROSSLY ERRED IN AGREEI NG WITH THE TRANSFER PRICING OFFICERS (LD. TPO) ACTION OF: 2.1. DISREGARDING THE ARMS LENGTH PRICE (ALP) A ND THE METHODICAL BENCHMARKING PROCESS CARRIED OUT BY THE APPELLANT I N THE TRANSFER PRICING (TP) DOCUMENTATION MAINTAINED BY IT IN TERMS OF S ECTION 92D OF THE ACT READ WITH RULE IOD OF THE INCOME-TAX RULES, 1962 ( RULES); 2.2. NOT ALLOWING THE USE OF MULTIPLE YEAR DATA AS PRESCRIBED UNDER RULE 1OB(4) OF THE RULES READ WITH THE OECD TP GUIDELINE S, AND DETERMINING THE ARMS LENGTH PRICE ON THE BASIS OF FINANCIAL IN FORMATION OF THE COMPARABLES FOR THE YEAR ENDED MARCH 31, 2007 IDENT IFIED PURSUANT TO A FRESH SEARCH FOR COMPARABLES PERFORMED DURING THE A SSESSMENT PROCEEDINGS. THE AO/ TPO/ LD. DRP ERRED IN REJECTIN G THE CONTEMPORANEOUS DOCUMENTATION MAINTAINED BY THE APP ELLANT AS REQUIRED UNDER THE INDIAN TP REGULATIONS; 2.3. REJECTING THE SET OF COMPARABLE COMPANIES (8 COMPARABLES) SELECTED BY THE APPELLANT IN THE TRANSFER PRICING REPORT BY STATING THEY REPRESENT AN INADEQUATE SET. REJECTION OF THE COMPARABLES ON THIS GROUND IS NOT CONSISTENT WITH THE GLOBALLY ACCEPTED ECONOMIC AND TP PRINCIPLES. 2.4. REJECTING 2 LOSS MAKING COMPANIES I.E., ADS DIAGNOSTIC LIMITED - DIAGNOSTIC SEGMENT AND MAX NEEMAN MEDICAL INTERNA TIONAL LIMITED BY CITING THAT THE INCLUSION OF THESE COMPANIES IN THE SET WOULD MAKE THE COMPARABLE SET LOP-SIDED. 2.5. CONDUCTING A FRESH COMPARABILITY ANALYSIS BAS ED ON INFORMATION AVAILABLE AT THE TIME OF ASSESSMENT WHICH WAS NOT A VAILABLE AT THE TIME OF DETERMINING THE ARMS LENGTH PRICE IS NOT THE INTEN T OF THE INDIAN TP REGULATIONS, AND IS NOT A CONTEMPORANEOUS APPROACH AS REQUIRED BY RULE 1OD(4) OF THE RULES. 2.6. UPHOLDING THE ACTION OF THE TPO OF CHERRY PIC KING OF A COMPARABLE COMPANY I.E., CELESTIAL LABS LTD. 2.7. IDENTIFYING 6 FRESH COMPARABLE COMPANIES (I.E . M/S ENGINEERS INDIA LIMITED, M/S AGILE ELECTRIC TECHNOLOGIES PRIVATE LI MITED, M/S IDC (INDIA) LIMITED, M/S OIL FIELD INSTRUMENTATION LIMITED, M/S CELESTIAL LABS LIMITED AND M/S MINDTREE LIMITED) WHICH ARE FUNCTIO NALLY NOT COMPARABLE TO THE APPELLANT. LD. DRP HAS ERRED IN MAKING AN IN CORRECT COMPARISON OF THE FUNCTIONS UNDERTAKEN BY THE COMPARABLES VIS--V IS THOSE PERFORMED BY THE APPELLANT ITA NO.6623/MUM/2011(A.Y.2007-08) 3 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF PROVIDING CONTRACT RESEARCH, BUSINESS DEVELOPMENT, PHARMA AND TECHNICA L SERVICES AND CONTRACT TESTING SERVICES. MERCKLE GMBH, GERMANY IS A PHARM ACEUTICAL PRODUCER AND CONTRACT MANUFACTURER OF PROPRIETARY AND GENERI C MEDICINES. RATIOPHARM GMBH, GERMANY IS A 100% SUBSIDIARY OF M ERCKE, GMBH AND IS ENGAGED IN THE BUSINESS OF DEVELOPMENT, MANUFACTURE AND DISTRIBUTION OF GENERIC PHARMACEUTICAL PRODUCTS. RATIOPHARM INTERN ATIONAL GMBH, GERMANY IS A 100% SUBSIDIARY OF RATIOPHARM GMBH. T HE ASSESSEE IS 100% SUBSIDIARY OF RATIOPHARM INTERNATIONAL GMBH AND IT WAS ORIGINALLY KNOWN AS RATIOPHARM INDIA PRIVATE LTD. THE ASSESSEE WA S SET UP IN DECEMBER, 2000 TO PROVIDE PHARMA TECHNICAL SERVICES, INCLUDIN G SERVICES RELATED TO SOURCING AND DEVELOPMENT OF INGREDIENTS TO BE USED AS RAW MATERIALS TO MEPHA, MERCKIE AND THE RATIOPHARM GROUP. THE ASSES SEE HAS ALSO SET UP A MODER R& D LABORATORY TO CARRY OUT PHARMACEUTICAL P RODUCT DEVELOPMENT AND PROVIDE ANALYTICAL RESEARCH AND STABILITY TESTI NG SERVICES TO ITS ASSOCIATED ENTERPRISES. 4. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD INTERNATIONAL TRANSACTIONS WITH FOLLOWING AES: 1. M/S. MEHPA AG 2. M/S. MERCKLE GMBH 3. M/S. RATIOPHARM GMBH 4. M/S. RATIOPHARM INC. 5. M/S. LABORATORIE RATIOPHARM SA 6. M/S. RATIOPHARM BV 7. M/S. RATIOPHARM UK LTD. 8. M/S. RATIOPHARM SCHWEIZ AG 9. M/S. RATIOPHARM INTERNATIONAL GMBH, GERMANY ITA NO.6623/MUM/2011(A.Y.2007-08) 4 5. THE DISPUTE IN THIS APPEAL IS WITH REGARD TO TH E ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTION OF RENDERING CONTR ACT TESTING AND RESEARCH SERVICES BY THE ASSESSEE TO ITS ASSOCIATED ENTERPR ISES (AES) VIZ., MEPHA AG, MERCKLE GMBH AND RATIOPHARMA GMBH. THE ASSESSEE RE CEIVED A SUM OF RS.39.80 CRORES FOR RENDERING THE ABOVE SERVICES TO ITS AES. THE BREAKUP OF THE SUM RECEIVED IS AS UNDER: (A) CONTRACT TESTING : RS. 12.89 CRS. (B) PHARACEUTICAL PRODUCT DEVELOPMENT : RS. 23.28 CRS. (C) ANALYTICAL RESEARCH/ TESTING : RS. 3.63 CRS TOTAL : RS. 39.80 CRS. ============= THE ABOVE ACTIVITIES WERE TOGETHER CONSIDERED AS CO NTRACT RESEARCH AND TESTING AND THE ALP OF PROVIDING SUCH SERVICES WAS TO BE DETERMINED. THE ASSESSEE IN SUPPORT OF HIS CLAIM THAT THE CONSIDERA TION RECEIVED BY IT FROM ITS AES IS AT ARMS LENGTH, FILED A TRANSFER PRICING ST UDY REPORT. THE TRANSACTION NET MARGIN METHOD (TNMM) WAS ADOPTED AS THE MOST APPROPRIATE METHOD IN TERMS OF SEC.92C(2) OF THE AC T BY THE ASSESSEE IN ITS REPORT. RULE 10-B(1) (E) OF THE RULES, GIVES THE F OLLOWING OPTIONS WHILE COMPUTING ALP ON THE BASIS OF TNMM. THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERE D INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO (A) COSTS INCURRED OR (B) SALES EFFECTED OR (C) ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTE RPRISE OR (D) HAVING REGARD TO ANY OTHER RELEVANT BASE; THE ASSESSEE ADOPTED THE YARDSTICK OF NET PROFIT MA RGIN REALISED BY IT ON THE BASIS OF OPERATING PROFIT TO TOTAL COST (OP/TC) FOR CONDUCTING THE COMPARABILITY ANALYSIS. THIS HAS BEEN REFERRED TO AS PROFIT LEVEL INDICATOR (PLI) IN THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE TRANSFER PRICING ITA NO.6623/MUM/2011(A.Y.2007-08) 5 OFFICERS ORDER U/S.92CA(3) OF THE ACT. THE ASSESS EE IDENTIFIED 10 COMPARABLES. 6. THE ASSESSEES PLI WAS 16.03%, WHEREAS THE ARI THMETIC MEAN OF THE PLI OF 10 COMPARABLES WAS 8.09%, WHICH WAS AS UNDER: S.NO. NAME OF THE COMPARABLE COMPANY PLI (%) ------ ---------------------------------------- --- --------- 1. VIMTA LABS LTD 27.44 2 ALPHAGEA (INDIA) LTD 38.21 3 CHOKSI LABORATORIES LTD. 34.96 4 DOLPHIN MEDICAL SERVICES LTD. 10.76 5 MEDINOVA DIAGNOSTIC SERVICES LTD. 5.83 6 N G INDUSTRIES LTD. 18.23 7 MAX NEEMARI MEDICAL INTL. LTD. - 46.80 8 A D S DIAGNOSTIC LTD DIAGNOSTIC - 24.97 9 TRANSGENE BIOTEK LTD DIAGNOSTIC 10.78 10 PFIZER- SERVICES 6.46 ARITHMETIC MEAN 8.09 THEREFORE, THE ASSESSEE CLAIMED, THAT SINCE ITS PLI IS MORE THAN THE ARITHMETIC MEAN OF THE PLI OF 10 COMPARABLES, THE I NTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AE SHOULD BE CONSIDERED TO HAVE BEEN ENTERED AT ALP. 7. THE TPO TO WHOM THE DETERMINATION OF ALP WAS RE FERRED BY THE AO, WAS OF THE VIEW THAT OUT OF THE ABOVE COMPARABLE COMPAN IES IDENTIFIED BY THE ASSESSEE, TWO COMPANIES (AT S. NO. 7 & 8) WERE CONS ISTENTLY LOSS MAKING AND THEREFORE CANNOT BE TAKEN AS COMPARABLE. ACCORDING TO THE TPO, AFTER EXCLUDING THE ABOVE TWO COMPANIES, THERE REMAINED O NLY 8 COMPARABLE COMPANIES. IN VIEW OF THE INADEQUACY OF A REASONABL E NUMBER OF COMPARABLES AND THE BROAD LEVEL OF COMPARABILITY AL LOWED UNDER THE TNMM, ITA NO.6623/MUM/2011(A.Y.2007-08) 6 THE TPO IDENTIFIED A FRESH SET OF 8 COMPARABLES (WH ICH INCLUDES 2 COMMON COMPARABLE WITH THAT OF ASSESSEE), WHICH COMPANIES ACCORDING TO THE TPO PERFORM FUNCTIONS BROADLY COMPARABLE TO THE ACTIVIT IES OF THE ASSESSEE. THE DETAILS OF PLI OF REMAINING 8 COMPARABLES ARE A S UNDER: S.NO. NAME OF THE COMPARABLE COMPANY PL1 (%) ------ ----------------------------------------- - --------- 1. M/S. ENGINEERS INDIA LTD(SEG.) 45.16 2 M/S. ALPHAGEA (INDIA) LTD * 38.21 3 M/S. AGILE ELECTRIC TECHNOLOGIES PVT LTD 6.58 4 M/S. VIMTA LABS LTD* 27.44 5 M/S. IDC (INDIA) LTD 15.89 6. M/S. OIL FIELD INSTRUMENTATION (INDIA) L TD 76.46 7 M/S. CELESTIAL LABS LTD 58.35 8 M/S MINDTREE LTD.(SEG) 14.90 ARITHMETIC MEAN 35.37 *THESE 2 COMPARABLES ARE COMMON TO THE SET OF SSE SSEE AS WELL AS DEPARTMENT. THE ABOVE ARITHMETIC MEAN OF THE PLI OF THE ABOVE C OMPARABLES WAS 35.37%. THE TPO THEREFORE CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ALP OF THE TRANSACTION SHOULD BE DETERMINED BY APPLYING THE ABOVE ARITHMETIC MEAN OF 35.37%. 8. IN RESPONSE TO THE ABOVE, ASSESSEE MADE DETA ILED SUBMISSIONS VIDE LETTERS DATED 16.7.2010 AND 28.7.2010 OBJECTING ABO UT THE SET OF 8 COMPARABLES AND THE GIST OF SUBMISSIONS WAS AS UND ER: FUNCTIONALLY INCOMPARABLE, LIKE ENGINEERING SERVI CE COMPANIES ETC. ARE INCLUDED PUBLIC SECTOR COMPANIES ARE ALSO INCLUDED. YEAR ON YEAR VARIATION IN PROFITS OF COMPARABLES . ITA NO.6623/MUM/2011(A.Y.2007-08) 7 9. THE TPO WAS OF THE VIEW THAT THE ABOVE CONTENTIO NS OF THE ASSESSEE WERE NOT ACCEPTABLE BECAUSE AS PER TP REPORT, ASSESSEE H AD SELECTED 10 COMPARABLES, WHICH INCLUDES M/S. ALPHAGEO (INDIA) L TD. ACTIVITY OF M/S. ALPHAGEO (INDIA) LTD. HAD BEEN SHOWN AS CONSULTANCY IN THE FIELD OF OIL AND GAS EXPLORATION. AS CAN BE SEEN EVEN THE ASSESSEE H AS SELECTED THE COMPARABLE COMPANIES NOT EXACTLY INTO R&D SERVICES BUT FUNCTIONALLY SIMILAR AND HENCE, IT CANNOT OBJECT TO DEPARTMENT SELECTING FUNCTIONALLY SIMILAR COMPANIES. 10. THEREAFTER, THE TPO GAVE PROFILE OF THE SET OF 8 FRESH COMPANIES IDENTIFIED BY THE TPO DEPARTMENT, WHICH INCLUDES 2 COMMON COMP ARABLES, AS UNDER: S.NO. NAME OF COMPARABLE COMPANY PRO FILE 1 M/S. ENGINEERS INDIA LTD. THE COMPANYS CONSULTAN CY & ENGINEERING PROJECTS CAN BE CONSIDERED AS A COMPARABLE. 2 M/S. ALPHAGEO (INDIA) LTD. THE COMPANY IS IN TECH NICAL CONSULTANCY AND ENGINEERING SERVICES. 3 M/S. AGILE ELECTRIC TECHNOLIES PVT. LTD. THE COMPANY IS IN TECHNICAL CONSULTANCY & ENGINEERING SERVICES 4 M/S VIMTA LABS LTD. THE COMPANY IS INTO CONTRACT R ESEARCH 5 M/S. IDC (INDIA) LTD. IT DERIVES IT MAJOR INCOME FROM RESEARCH AND SURVEY. 6 M/S. OIL FIELD INSTRUMENTATION (INDIA) LTD. THE COMPANY IS IN TECHNICAL CONSULTANCY & ENGINEERING SERVICES 7 M/S. CELESTIAL LABS LTD. THE COMPANY IS INVOLVED IN THE R&D COMMERCIAL PRODUCTION AND MARKETING OF ENZYMES, NUTRACEUTICALS. 8. M/S. MINDTREE LTD. THE COMPANY HAS SOFTWARE R&D SERVICES SEGMENT. A. THE TPO WAS OF THE VIEW THAT THE 8 COMPARABLES IDE NTIFIED BY THE TPO WERE PERFORMING R&D SERVICES, OF WHICH ONE COMPANY WAS IN THE FIELD OF R&D RELATING TO PHARMACEUTICALS ALSO. ACCORDING TO THE TPO, TO INCLUDE MORE COMPARABLES, SELECTION IS TO BE MADE O F COMPANIES, WHICH ARE FUNCTIONALLY COMPARABLE AND THEREFORE, TH E COMPARABLE SET NEEDS TO EXPAND TO INCLUDE COMPANIES SIMILAR TO ALL TYPES OF R&D SERVICES. THE TPO ALSO POINTED OUT THAT THE ASSESSE ES SET OF COMPARABLES ALSO INCLUDED ENGINEERING SERVICE (M/S ALPHAGEC (INDIA) ITA NO.6623/MUM/2011(A.Y.2007-08) 8 LTD) COMPARABLE, THEREFORE, SIMILARLY THE TPO WAS A LSO JUSTIFIED IN INCLUDING COMPANIES HAVING SIMILAR TYPE OF FUNCTION S. THE TPO WAS ALSO OF THE VIEW THAT WHILE APPLYING THE TNMM, FUNC TIONAL SIMILARITY OF COMPARABLES IS NOT RESTRICTED TO INCLUDE COMPANIES WITHIN THE SAME INDUSTRY, IN THE EVENT OF INADEQUATE COMPARABLE COM PANIES. IN THIS REGARD THE TPO ALSO REFERRED TO THE OECD TP GUIDELI NES WHICH PERMITS COMPARISON EVEN WHERE THE COMPARABLE IS NOT IN THE SAME INDUSTRY AS THAT OF THE TESTED PARTY, WHERE THERE IS INADEQUATE COMPARABLE COMPANIES. B. IN THE COMPARABLES IDENTIFIED BY THE TPO, ENGINEE RS INDIA LTD. WAS A PUBLIC SECTOR UNDERTAKING. ACCORDING TO THE TPO, P UBLIC SECTOR UNDERTAKINGS WERE ALSO IN THE MARKET FOR EARNING PR OFITS, SIMILAR TO PRIVATE COMPANIES AND THEREFORE, THESE COMPANIES AR E ALSO CONSIDERED AS COMPARABLE AND CANNOT BE DISCARDED ON ACCOUNT OF PUBLIC SECTOR UNDERTAKINGS. C. YEAR TO YEAR VARIATIONS IN PROFITS IS NOT A CRITER ION FOR DETERMINING COMPARABILITY. SINCE, THE COMPANIES ARE ENGAGED IN R&D SERVICES IN THE CURRENT YEAR, THE SAME CAN BE TAKEN AS COMPARAB LE, THUS, ASSESSEES ARGUMENTS OF NOT CONSIDERING DEPAR TMENTS COMPARABLES WERE REJECTED BY THE TPO. 11. THE TPO TOOK INTO CONSIDERATION THE COMPARABLES IDENTIFIED BY THE ASSESSEE EXCEPT THE TWO LOSS MAKING COMPANIES ALREA DY REFERRED TO IN THE EARLIER PART OF THIS ORDER. THE TPO ACCEPTED THAT ALL THE COMPANIES IDENTIFIED BY THE ASSESSEE AS COMPARABLE WERE FUNCTIONALLY COM PARABLE WITH THE ASSESSEE (EXCEPT THE TWO COMPANIES WHICH WERE LOSS MAKING). THE TPO ACCORDINGLY DETERMINED THE ALP OF THE ASSESSEES TR ANSACTION, BY APPLYING AN ARITHMETIC MEAN OF THE FOLLOWING COMPARABLE COMPANI ES FINALLY SELECTED ( FROM ASSESSEES AND DEPARTMENTS SET): ITA NO.6623/MUM/2011(A.Y.2007-08) 9 S.NO. NAME OF THE COMPARABLE COMPANY PLI(%) REMARK 1 M/S ENGINEERING INDIA LTD. 45.16 DEPARTMENT 2 M/S.ALPHAGEO (INDIA) LTD 38.21 COMMON 3 M/S. AGILE ELECTRIC TECHNOLOGIES PVT. LTD. 6.58 DEPARTMENT 4 M/S.VIMTA LABS LTD. 27.44 COMMONS 5. M/S. IDC (INDIA) LTD. 15.89 DEPARTMENT 6. M/S. CELESTIAL LABS LTD. 58.35 DEPARTMENT 7. M/S.OIL FIELD INSTRUCTIONS (INDIA) LTD. 76.46 DE PARTMENT 8 M/S. MINDTREE LTD 14.9 DEPARTMENT 9 M/S CHOKSI LABORATORIES LTD 34.96 ASSESSEE 10. M/S. TRANSGENE BIOTEK LTD DIAGNOSTIC 10.78 AS SESSEE 11. M/S.PFIZER- SERVICES 6.46 ASSESSEE 12 M/S. DOLPHIN MEDICAL SERVICES LTD. 10.76 ASSESSE E 13 M/S. MEDINOVA DIAGNOSTIC SERVICES LTD. 5.83 ASS ESSEE 14 M/S. N.G INDUSTRIES LTD. 18.23 ASSESSEE ARITHMETIC MEAN 26.43 ASSESSEE 16.03 AS THE PLI OF 14 COMPARABLE COMPANIES WAS 26.43% AS AGAINST 16.03% OF THE ASSESSEE, THE TRANSACTIONS OF THE ASSESSEE WAS HELD TO BE NOT AT ARMS LENGTH. IN VIEW OF THE ABOVE, THE ALP OF THE ABOVE 3 TRANSACTIONS WAS DETERMINED BY ADOPTING PLI OF 26.43% AS UNDER:- S.NO. PARTICULARS AS PER ASSESSEE (FORMM 3CEB) ALP DETERMINED BY DEPARTMENT. ITA NO.6623/MUM/2011(A.Y.2007-08) 10 1 SALES VALUE OF R&D SERVICES PROVIDED TO THE AE 398,098,771 43,37,79,313 2 OPERATING EXPENSES (TC) 343,098,405 343,098,4 05 3 OPERATING PROFIT (OP) 55,000,366 9,06,80,908 4 OP/TC 16.03 26.43 5. DIFFERENCE BETWEEN ALP OF SALES AND VALUE OF INTERNATIONAL TRANSACTION (RS.43,37,79,313 RS.39,80,98,771) 6 APPLICATION OF +/- 5% RANGE: (105% * RS.43,37,79,313) =455,468,279 (95% * RS.43,37,79,313) = 412,090,348 THUS, THE ALP OF THE TRANSACTION WAS DETERMINED AT RS. 43,37,79,313/- AS AGAINST THE VALUE OF TRANSACTION AT RS. 39,80,98,77 1/-. ACCORDINGLY, AN ADJUSTMENT OF RS. 3,56,80,542/- (RS.43,37,79,313/- MINUS RS. 39,80,98,771/-) WAS PROPOSED TO THE VALUE OF THE IN TERNATIONAL TRANSACTION IN RESPECT OF PROVIDING R&D SERVICES TO ITS AES. 12. THE AO ACCEPTED THE REPORT OF THE TPO IN ITS D RAFT ASSESSMENT ORDER. THE DRP ACCEPTED THE DRAFT ASSESSMENT ORDER PROPOSE D BY THE AO. THE RELEVANT OBSERVATIONS OF THE DRP IN THIS REGARD WER E AS FOLLOWS: 1.4 IN COURSE OF THE PROCEEDINGS BEFORE US, THE ARGUMENTS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED. CITING SPECI FIC INSTANCES, ARGUMENT WAS REEMPHASIZED THAT 6 COMPARABLES SELECTED BY THE TPO ARE FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEES LIN E OF TRANSACTION. WITH REGARD TO THE REJECTION OF THE 2 LOSS MAKING COMPAR ABLES BY THE TPO, IT WAS POINTED OUT THAT NEEMAN MEDICAL INTERNATIONAL A SIA LTD. CANNOT BE CONSIDERED AS LOSS MAKER AND FURTHER, EVEN AFTER RE MOVING ADS DIAGNOSTIC LTD., THE OP/TC MARGIN OF COMPARABLES IS LESS THAN THAT OF THE ASSESSEE. POINT WAS FURTHER MADE THAT TPO HAS NOT I NTERPRETED THE REGULATIONS IN A MANNER THAT DOES NOT CAUSE ANY UND UE HARDSHIP TO THE TAXPAYER. 1.5 WE HAVE CONSIDERED THE ORDER OF THE TPO AND THE ASSESSEES SUBMISSIONS. LOOKING INTO THE GROUNDS OF REJECTION OF THE COMPARABLES OF THE ASSESSEE, THE SET OF COMPARABLES PRESENTED BY T HE TPO, THE GROUNDS OF REJECTING THE COMPARABLES OF THE ASSESSEE, AND O THER ATTENDING FACTS AND CIRCUMSTANCES OF THE ASSESSEES TRANSACTIONS WI TH REGARD TO CONTRACT TESTING & RESEARCH SERVICES, WE FIND THE ADJUSTMENT MADE BY THE TPO IN ORDER. TO THIS END, WE FIND THE TPOS SET OF COMPARA BLES EQUALLY ITA NO.6623/MUM/2011(A.Y.2007-08) 11 APPROPRIATE AS THE SET PRESENTED BY THE ASSESSEE. T HE REJECTION OF THE 2 LOSS MAKING UNITS FROM THE ASSESSEES SET OF COMPAR ABLES IS IN ORDER AS THESE 2 COMPARABLES ARE INCOMPATIBLE IN THE SET OF THE OTHER COMPARABLES SHOWING P11 % IN RANGES AS HIGH AS 76.46%, 58.35%, 45.16% WITH LOW RANGES AT 15.89%, 14.90%, 6.58%. IN THIS SPECTRUM, THE LOSS MAKING UNITS LEAD TO LOPSIDED IMBALANCE IN DETERMINATION O F ARITHMETIC MEAN. FURTHER, WE ALSO FIND THAT 2 COMPARABLES FROM THE A SSESSEES SET HAVE ALSO BEEN INCLUDED BY THE TPO IN HIS SET OF COMPARA BLES. THE ASSESSEES ARGUMENT WITH REGARD TO THE FUNCTIONAL INCOMPARABIL ITY OF 6 COMPARABLES IS DEFICIENT IN THAT THESE COMPARABLE COMPANIES ALS O PRINCIPALLY RENDER RESEARCH AND DEVELOPMENT SERVICES, WHICH IS ALSO TH E FRAME WORK OF THE SERVICES RENDERED BY THE ASSESSEE. BESIDES, AS RIGH TLY POINTED OUT BY THE TPO, SINCE THE ASSESSEE HAS ADOPTED THE TNMM METHOD , FUNCTIONAL SIMILARITY IS NOT RESTRICTED TO INCLUDE COMPANIES W ITHIN THE SAME INDUSTRY IN THE EVENT OF INADEQUATE COMPARABLE COMPANIES. TH E ASSESSEES OBJECTION ON INCLUSION OF PUBLIC SECTOR UNDERTAKING S IS ALSO NOT RELEVANT IN THAT PUBLIC SECTOR UNDERTAKINGS ALSO FUNCTION ON SIMILAR PRINCIPLES AS ANY OTHER COMPANY AND THEY ARE ALSO IN THE MARKET F OR EARNING PROFITS. THE ASSESSEES OBJECTION ON OBTAINING OF ADDITIONAL INFORMATION IS NOT BORNE BY THE PROVISIONS OF THE INCOME-TAX ACT. THER E IS NOTHING IN THE INCOME-TAX ACT WHICH PREVENTS THE TPO FROM OBTAININ G ADDITIONAL INFORMATION FROM ANY SOURCE. FURTHER, WE DO NOT FIN D ANY INFIRMITY IN THIS ACTION OF THE TPO AS THE ASSESSEE WAS FINALLY CONFR ONTED WITH ALL THE INFORMATION OBTAINED. MOREOVER, IT IS SEEN THAT THE TPO IN WORKING OF THE ARITHMETIC MEAN OF 26.43% HAS CONSIDERED ALL OF THE ASSESSEES COMPARABLES EXCEPTING THE 2 LOSS MAKING COMPARABLES . THUS, THE ASSESSEES OBJECTION PRIMARILY SEEMS TO BE ON THE I DENTIFICATION OF COMPARABLES BY TPO. THIS IS NOT ACCEPTABLE AS THE P ROVISIONS OF LAW DO NOT PROHIBIT THE TPO FROM VERIFYING AND SEARCHING C OMPARABLES OTHER THAN THOSE OF ASSESSEE. MOREOVER, IN THE METHOD FOL LOWED I.E. TNMM, A STRICT CONFORMITY OF BUSINESS IS NOT A PRECONDITION . 1.6 IN SO FAR AS TPO ASKING FOR UPDATED PIT FOR TH E FINANCIAL YEAR INVOLVED IS CONCERNED, THIS IS ALSO IN CONFORMITY W ITH THE PROVISIONS OF LAW. FURTHERMORE, THE PROVISION OF +/- 5% IN RESPEC T OF ALP IS NOT A PROVISION FOR A DEDUCTION OF 5% WHILE MAKING ADJUST MENT. THIS CLAIM HAS NOT BEEN ACCEPTED BY THE REVENUE WHILE MAKING SUCH ADJUSTMENTS IN THE PAST YEARS IN OTHER CASES AS WELL. 1.7 PREMISED ON THE FOREGOING, WE FIND THE TP ADJUS TMENT IN ORDER. ITA NO.6623/MUM/2011(A.Y.2007-08) 12 13. THE AO PASSED FAIR ASSESSMENT ORDER ADOPTING T HE ADJUSTMENT SUGGESTED BY THE TPO AS DIRECTED BY THE DRP AND MAD E AN ADDITION TO THE TOTAL INCOME OF THE ASSESSEE AS SUGGESTED BY THE TP O. AGGRIEVED BY THE SAID ORDER OF THE AO, THE ASSESSEE HAS RAISED GR.NO.1 AN D 2 BEFORE THE TRIBUNAL. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE SUBM ISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE WERE REITERATION OF THE ST AND OF THE ASSESSEE AS WAS PUT FORTH BEFORE THE TPO/AO/DRP. THE LEARNED D.R. TOOK THE STAND OF THE REVENUE AS REFLECTED IN THE ORDERS OF TPO/DRP. WE WILL ELABORATE THESE SUBMISSIONS IN THE COURSE OF RENDERING OUR DECISION ON THE VARIOUS ISSUES RAISED IN THE GROUNDS OF APPEAL, WHEREVER IT IS REQ UIRED. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 15. THE PROVISIONS OF THE ACT AND THE RULES THA T ARE RELEVANT FOR DECIDING THE ISSUE HAVE TO BE FIRST SEEN. SEC.92. OF THE ACT PROVIDES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. SEC.92-B PROVIDES THAT INTERNATIONAL TRANSACTION MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PU RCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SE RVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES, AND S HALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCI ATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBU TION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WI TH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR M ORE OF SUCH ENTERPRISES. SEC.92-A DEFINES WHAT IS AN ASSOCIATED ENTERPRISE. IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE TRANSACTION BETWEEN THE ASSE SSEE AND ITS GROUP COMPANIES IN GERMANY WHEREBY THE ASSESSEE PROVIDED SERVICES IN THE FORM ITA NO.6623/MUM/2011(A.Y.2007-08) 13 OF CONTRACT TESTING AND RESEARCH SERVICES WAS AN IN TERNATIONAL TRANSACTION ATTRACTING THE PROVISIONS OF SEC.92 OF THE ACT. SE C.92C PROVIDES THE MANNER OF COMPUTATION OF ARMS LENGTH PRICE IN AN INTERNAT IONAL TRANSACTION AND IT PROVIDES: (1) THAT THE ARMS LENGTH PRICE IN RELATION TO AN I NTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS , BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCT IONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE, NAMELY : ( A ) COMPARABLE UNCONTROLLED PRICE METHOD; ( B ) RESALE PRICE METHOD; ( C ) COST PLUS METHOD; ( D ) PROFIT SPLIT METHOD; ( E ) TRANSACTIONAL NET MARGIN METHOD; ( F ) SUCH OTHER METHOD AS MAY BE PRESCRIBED BY THE BOA RD. (2) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB- SECTION (1) SHALL BE APPLIED, FOR DETERMINATION OF ARMS LENGTH PRICE, I N THE MANNER AS MAY BE PRESCRIBED: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES: PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARMS LENGTH PRIC E SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRA NSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED FIVE PER CENT OF TH E LATTER, THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BE EN UNDERTAKEN SHALL BE DEEMED TO BE THE ARMS LENGTH PRICE. (3) WHERE DURING THE COURSE OF ANY PROCEEDING FOR T HE ASSESSMENT OF INCOME, THE ASSESSING OFFICER IS, ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION, OF THE OPINION THAT ( A ) THE PRICE CHARGED OR PAID IN AN INTERNATIONAL TRA NSACTION HAS NOT BEEN DETERMINED IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2); OR ( B ) ANY INFORMATION AND DOCUMENT RELATING TO AN INTER NATIONAL TRANSACTION HAVE NOT BEEN KEPT AND MAINTAINED BY TH E ASSESSEE IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SUB-SEC TION (1) OF SECTION 92D AND THE RULES MADE IN THIS BEHALF; OR ( C ) THE INFORMATION OR DATA USED IN COMPUTATION OF TH E ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT; OR ITA NO.6623/MUM/2011(A.Y.2007-08) 14 ( D ) THE ASSESSEE HAS FAILED TO FURNISH, WITHIN THE SP ECIFIED TIME, ANY INFORMATION OR DOCUMENT WHICH HE WAS REQUIRED TO FU RNISH BY A NOTICE ISSUED UNDER SUB-SECTION (3) OF SECTION 92D , THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION IN A CCORDANCE WITH SUB- SECTIONS (1) AND (2), ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM: 16. RULE 10B OF THE IT RULES, 1962 PRESCRIBES RULE S FOR DETERMINATION OF ARMS LENGTH PRICE UNDER SECTION 92C. 10B. (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SE CTION 92C, THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSA CTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING T HE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY : (A). TO (D).. ( E )TRANSACTIONAL NET MARGIN METHOD, BY WHICH, ( I ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSO CIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRE D OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY TH E ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; ( II ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTI ON OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGA RD TO THE SAME BASE; ( III ) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( II ) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERN ATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSAC TIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACT IONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MA RGIN IN THE OPEN MARKET; ( IV ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AND REFERRED TO IN SUB-CLAUSE ( I ) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( III ); ( V ) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TA KEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELATION TO T HE INTERNATIONAL TRANSACTION. ITA NO.6623/MUM/2011(A.Y.2007-08) 15 (2) FOR THE PURPOSES OF SUB-RULE (1), THE COMPARABI LITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRAN SACTION SHALL BE JUDGED WITH REFERENCE TO THE FOLLOWING, NAMELY: ( A ) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRAN SFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; ( B ) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSE TS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIV E PARTIES TO THE TRANSACTIONS; ( C ) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICI TLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( D ) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPH ICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONO MIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS AR E WHOLESALE OR RETAIL. (3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF ( I ) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRAN SACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PR ICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSA CTIONS IN THE OPEN MARKET; OR ( II ) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO EL IMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. (4) THE DATA TO BE USED IN ANALYSING THE COMPARABIL ITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE IN TERNATIONAL TRANSACTION HAS BEEN ENTERED INTO : PROVIDED THAT DATA RELATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY ALSO BE CONSIDERED IF SUCH DATA REVEALS FACTS WHICH COULD HAVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICES IN RELATION TO THE TRANSACTIONS BEING COMPARED. 17. A READING OF THE PROVISIONS OF RULE 10B(2) OF THE RULES SHOWS THAT UNCONTROLLED TRANSACTION HAS TO BE COMPARED WITH IN TERNATIONAL TRANSACTION HAVING REGARD TO THE FACTORS SET OUT THEREIN. BEFO RE US THERE IS NO DISPUTE THAT THE TNMM IS THE MOST APPROPRIATE METHOD FOR DE TERMINING THE ALP OF ITA NO.6623/MUM/2011(A.Y.2007-08) 16 THE INTERNATIONAL TRANSACTION. THE DISPUTES ARE WI TH REGARD TO THE COMPARABILITY OF THE COMPARABLE RELIED UPON BY THE TPO AND WHETHER THE DIFFERENCE BETWEEN ALP AND THE PRICE ADOPTED BY THE ASSESSEE WOULD BE LESS THAN 5% PLUS OR MINUS CONTEMPLATED BY THE SECOND PR OVISO TO SEC.92C(2) OF THE ACT AND CONSEQUENTLY THERE WOULD BE NO NEED TO MAKE ANY ADJUSTMENT TO THE PRICE ADOPTED BY THE ASSESSEE IN RESPECT OF THE INTERNATIONAL TRANSACTION ENTERED INTO WITH ITS AE. THERE ARE OTHER INCIDENT AL GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL AND WE WILL DEAL THEM ALSO. 18. THE ISSUE RAISED BY THE ASSESSEE IN GR.NO.2. 1 IS WITH REGARD TO THE ACTION OF THE AO IN DISREGARDING THE TRANSFER PRICI NG STUDY REPORT OF THE ASSESSEE AND PROCEEDING TO CONDUCT A FRESH SEARCH. IN THIS REGARD, THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT U/S.92C(3) OF THE ACT, THE AO CAN DETERMINE THE ALP ONLY ON FULFI LMENT OF THE CONDITIONS LAID DOWN THEREIN. IN THIS REGARD, IT WAS ARGUED T HAT THE AO HAS NOT DISPUTED THAT THE TNMM IS THE MOST APPROPRIATE METH OD OF DETERMINING ALP IN THIS CASE AND THEREFORE THE CONDITIONS OF SEC.92 C(1) OF THE ACT STOOD SATISFIED. IT WAS NEXT POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN ACCORDANCE WITH SECTION 92C(2) OF THE ACT R EAD WITH RULE 10B(I)(A) OF THE RULES PROVIDES GUIDANCE IN RELATION TO THE MANN ER OF APPLICATION OF THE MOST APPROPRIATE METHOD CHOSEN BY THE ASSESSEE. RUL E L0B(2)(1) PROVIDES GUIDANCE REGARDING THE COMPARABILITY OF AN INTERNAT IONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION WHICH SHALL INCLUDE SPECIF IC CHARACTERISTICS OF THE PROPERTY TRANSFERRED, FUNCTIONS PERFORMED, ASSETS E MPLOYED AND RISK ASSUMED BY THE RESPECTIVE PARTIES, CONTRACTUAL TERM S, AND CONDITIONS PREVAILING IN THE MARKET IN WHICH THE RESPECTIVE PA RTIES TO THE TRANSACTION OPERATE. IT WAS SUBMITTED THAT THE ASSESSEES FUNC TIONAL AND RISK PROFILE WAS A LIMITED RISK CONTRACT RESEARCH SERVICE PROVIDER. IT WAS SUBMITTED THAT THE ASSESSEE CONDUCTED SEARCH ON TWO REPUTED AND MOST W IDELY USED PUBLIC INFORMATION DATABASES (PROWESS AND CAPITALINE) BY A PPLYING APPROPRIATE ITA NO.6623/MUM/2011(A.Y.2007-08) 17 QUANTITATIVE CRITERIA JUDICIOUSLY TO INITIALLY SHOR T LIST A SET OF COMPARABLES. THEREAFTER, A DETAILED ANALYSIS OF EACH SHORT CO MPARABLE WAS CONDUCTED BY REVIEWING THE INFORMATION REPORTED IN THE DATABASES , ANNUAL REPORTS FILED WITH THE REGISTRAR OF COMPANIES AND WEBSITES. THIS FINALLY YIELDED THE SET OF 10 COMPARABLES SELECTED BY THE ASSESSEE IN THE TP S TUDY. IT WAS HIGHLIGHTED THAT SINCE THE ASSESSEE WAS ENGAGED IN THE PROVISIO N OF CONTRACT RESEARCH AND TESTING SERVICES, THE ASSESSEE SELECTED COMPARA BLES ENGAGED IN CONTRACT RESEARCH AND DEVELOPMENT SERVICES, CLINICAL TRIAL S ERVICES AND TESTING AND DIAGNOSTIC SERVICES. GIVEN THE LEVEL OF DATA AVAILA BLE IN THE PUBLIC DOMAIN, THE ABOVE COMPARABLES DEMONSTRATED SUFFICIENT LEVEL OF COMPARABILITY IN LINE WITH THE COMPARABILITY REQUIREMENTS PRESCRIBED IN T HE INCOME TAX RULES. IT WAS ALSO HIGHLIGHTED THAT THE TPO HAS NOT PER SE DI SPUTED THE APPROACH CRITERIA APPLIED BY THE ASSESSEE FOR IDENTIFYING CO MPARABLES. IT WAS SUBMITTED THAT THE ASSESSEE HAS COMPLIED WITH THE R EQUIREMENTS OF SECTION 92C(2) OF THE ACT WITH REGARD TO THE APPLICATION OF THE MOST APPROPRIATE METHOD. IT WAS ARGUED THAT THE CONDITIONS LAID DOW N IN SEC.92C(3)(A) OF THE ACT, CANNOT BE SAID TO HAVE BEEN VIOLATED. 19. IT WAS ALSO HIGHLIGHTED THAT THE CONDITIONS LAID DOWN IN SEC.92C(3) (B TO (D) OF THE ACT HAVE ADMITTEDLY NOT BEEN VIOLATED . WE MUST SAY THAT THIS CONTENTION THAT THE CONDITIONS LAID DOWN IN SEC.92C (3) (B) TO (D) OF THE ACT HAVE ADMITTED NOT BEEN VIOLATED, IS CORRECT AND HAS NOT BEEN DISPUTED BY THE TPO IN HIS ORDER ALSO. 20. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN A SITUATION WHERE NONE OF THE CONDITIONS LAID DOWN IN SEC.92C(3) ARE SATISFIED, THERE WAS NO REASON TO FALL BACK UPON SO ME OTHER DATA AT ALL. IN OTHER WORDS IT WAS THE SUBMISSION THAT THE CONDITIO N PRECEDENT FOR THE AO TO MAKE ADJUSTMENT TO THE ALP AS DETERMINED BY THE ASS ESSEE WAS THAT THE AO ITA NO.6623/MUM/2011(A.Y.2007-08) 18 SHOULD BE SATISFIED WITH REGARD TO THE EXISTENCE OF CONDITIONS MENTIONED IN SEC.92C(3) OF THE ACT. IT WAS HIS SUBMISSION THAT SINCE, NO SUCH SATISFACTION IS DISCERNIBLE EITHER FROM THE ORDER OF THE TPO OR THE ORDER OF THE AO, (BOTH DRAFT AND FAIR ASSESSMENT ORDERS) THE ALP ADOPTED B Y THE ASSESSEE SHOULD BE ACCEPTED. 21. WE HAVE CONSIDERED THIS SUBMISSION AND ARE O F THE VIEW THAT THE SAME CANNOT BE ACCEPTED. U/S.92C(3) OF THE ACT, THE A O HAS POWER TO DETERMINE ALP ON THE BASIS OF MATERIAL OR INFORMATION OR DOCU MENT IN HIS POSSESSION. THE REPORT OF THE TPO IS MATERIAL, INFORMATION OR D OCUMENT IN POSSESSION OF THE AO. THE TPO HAS DISPUTED THE ALP AS DETERMINED BY THE ASSESSEE IN ITS TRANSFER PRICE STUDY REPORT. ACCORDING TO THE TPO THE PRICE CHARGED OR PAID IN THE INTERNATIONAL TRANSACTION HAS NOT BEEN DETER MINED IN ACCORDANCE WITH SUB-SECTIONS (2) OF SEC.92C OF THE ACT. THE TPO HA S DISPUTED THE MANNER IN WHICH THE ALP HAS BEEN ARRIVED AT BY THE ASSESSEE. HIS COMPLAINT IS THAT THE SAME IS NOT IN ACCORDANCE WITH RULE 10-B(1)(D), RULE 10-B (2) AND (3) OF THE RULES IN AS MUCH AS THE COMPARABLE IDENTIFIED B Y THE ASSESSEE WERE INADEQUATE AND THAT UNDER THE TNMM METHOD BROAD LEV EL OF COMPARABILITY IS ALLOWED. THE CORRECTNESS OF THIS FINDING IS ANOTH ER MATTER AND WILL BE DEALT WITH WHILE DEALING WITH THE OTHER GROUNDS OF APPEAL OF THE ASSESSEE. THOUGH THERE IS NO SPECIFIC FINDING IN THIS REGARD IN THE ORDER OF THE AO, THE FACT THAT THE AO HAS MADE A REFERENCE TO THE TPO FOR DETERMIN ATION OF ALP AND THE FACT THAT HE HAS ADOPTED THE ALP AS SUGGESTED BY TH E TPO ONLY SHOWS THAT THE AO WAS NOT SATISFIED WITH THE PRICE CHARGED OR PAID IN THE INTERNATIONAL TRANSACTION IS AT ARMS LENGTH AND THAT IT HAS NOT BEEN DETERMINED IN ACCORDANCE WITH SUB-SECTIONS (2) OF SEC.92C OF THE ACT. IN THIS REGARD WE ARE ALSO OF THE VIEW THAT THERE IS NO REQUIREMENT O F ANY SPECIFIC FINDING TO BE RECORDED IN TERMS OF SEC.92C(3) OF THE ACT AND IF O N FACTS THESE ASPECTS ARE SPELT OUT IN THE ORDER OF THE TPO AND ADOPTED BY TH E AO, THEN THAT WOULD BE SUFFICIENT COMPLIANCE WITH THE REQUIREMENTS OF SEC. 92C(3) OF THE ACT. ON THE ITA NO.6623/MUM/2011(A.Y.2007-08) 19 FACTS OF THIS CASE, WE ARE SATISFIED THAT THE OBJEC TION RAISED IN GROUND NO.2.1 IS FACTUALLY INCORRECT AND CANNOT BE ACCEPTED. CON SEQUENTLY, THE SAME IS DISMISSED. 22. GR.NO.2.2 WAS NOT PRESSED AND THE SAME IS DI SMISSED AS NOT PRESSED. AS FAR AS GR.NO.2.3 AND 2.4 RAISED BY THE ASSESSEE ARE CONCERNED, THE SAME CAN BE DEALT WITH ALONG WITH GR.NO.2.5 TO 2.8 AND T O A GREAT EXTENT DEPEND ON THE FINDINGS THAT MAY BE ARRIVED AT ON THOSE GRO UNDS. WE ARE ALSO OF THE VIEW THAT GR.NO.2.3 IS WITH REGARD INADEQUACY OF CO MPARABLE CONSIDERED IN THE ASSESSEES TRANSFER PRICING STUDY/REPORT, AS RA ISED BY THE TPO IN HIS ORDER. THE TPOS OBJECTION IN THIS REGARD WAS THAT THE COMPARABLES CONSIDERED BY THE ASSESSEE IN ITS REPORT WAS NOT A REASONABLE NUMBER. EVEN THE TPO HAS ACCEPTED THE FACT THAT THE COMPARABLE A S SELECTED BY THE ASSESSEE ARE OTHERWISE COMPARABLE IN TERMS OF FUNCT IONS, ASSETS AND RISKS. THE ANSWER TO GR.NO.2.3 WILL THEREFORE BE DIRECTLY RELATED TO GR.NO.2.6 AND 2.7. WE ARE ALSO OF THE VIEW THAT ADEQUACY OF INAD EQUACY OF THE COMPARABLES WOULD DEPEND ON ACCEPTABILITY OF THE FRESH COMPARAB LE SELECTED BY THE TPO. IF THEY ARE FOUND TO BE NOT COMPARABLE THEN AS A NA TURAL COROLLARY THE COMPARABLE GIVEN BY THE ASSESSEE WOULD ALONE STAND FOR CONSIDERATION. 23. AS FAR AS GR.NO.2.4 WITH REGARD TO REJECTION O F TWO COMPARABLE CITED BY THE ASSESSEE IN ITS T.P.STUDY/REPORT, WE NOTICE THA T EVEN IF BOTH ARE REJECTED AND IF THE FRESH COMPARABLE CASES CITED BY THE TPO ARE FOUND TO BE NOT COMPARABLE THEN THE REJECTION OF THE LOSS MAKING CO MPARABLE SELECTED BY THE ASSESSEE WILL NOT MAKE ANY DIFFERENCE AS IS REVEALE D BY THE FOLLOWING CHART: ITA NO.6623/MUM/2011(A.Y.2007-08) 20 TP STUDY COMPARABLES UPDATED FINANCIAL INFORMATION ON REMOVING ADS ON REMOVING ADS AND NEEMAN S.NO. NAME OF THE COMPARABLE COMPANY PLI% (OP/TC) PLI (OP/TC) PLI% (OP/TC) 1 ALPHAGEO (INDIA) LTD. 38.21 38.21 38.21 2 VIMTA LABS LTD. 27.44 27.44 27.44 3 CHOKSI LABORATORIES LTD 34.96 34.96 34.96 4 DOLPHIN MEDICAL SERVICES LTD 10.76 10.76 10.76 5 MEDINOVA DIAGNOSTIC SERVICES LTD. 5.83 5.83 5.83 6 NG INDUSTRIES LTD. 18.23 18.23 18.23 7 TRANSGENE BIOTEK LTD. DIAGNOSTIC 10.78 10.78 10.78 8 PFIZER LIMITED SERVICES 6.46 6.46 6.46 9 NEEMAN MEDICAL INTERNATIONAL (ASIA) LTD. -46.80 -46.80 10 ADS DIAGNOSTIC LTD. DIAGNOSTIC -24.97 ARITHMETIC MEAN 8.09 11.76 19.08 FROM THE ABOVE TABLE, IT CAN BE SEEN THAT IF ADS DI AGNOSTIC IS REJECTED, THE OP/TC OF COMPARABLE COMPANIES IS 11.76% AS AGAINST 16.03% OF THE ASSESSEE. FURTHER, WITHOUT PREJUDICE, IF BOTH NEE MAN AND ADS DIAGNOSTIC ARE REJECTED, THE ARITHMETIC MEAN IS 19.08 AS AGAIN ST 16.03% OF THE ASSESSEE AND ACCORDINGLY ON APPLYING THE 5% RANGE AS PROVIDE D IN PROVISO TO SECTION 92C(2), THE ASSESSEES TRANSACTION ARE AT ARMS LEN GTH. IF COMPARABLE CASES CONSIDERED BY THE TPO ARE FOUND TO BE COMPARABLE TH EN WE WILL DEAL WITH THE QUESTION WHETHER LOSS MAKING COMPARABLE CASES CAN B E ALTOGETHER REJECTED AND WHAT WOULD BE THE CRITERIA FOR REJECTING LOSS M AKING COMPARABLE AS LAID DOWN IN OECD GUIDELINES, ANALYSIS FOR REASONS FOR L OSSES WHETHER SHOULD BE SEEN AND OTHER RELEVANT CONSIDERATIONS. 24. NO SPECIFIC ARGUMENTS WERE RAISED ON GR.NO.2 .5 EXCEPT TO SAY THAT THE DATA AVAILABLE AT THE TIME OF ASSESSMENT OUGHT NOT TO BE USED. WE MAY IN ITA NO.6623/MUM/2011(A.Y.2007-08) 21 THIS REGARD QUOTE THE PROVISIONS OF RULE 10B(4) OF THE RULES WHICH PROVIDES THAT THE DATA TO BE USED IN ANALYSING THE COMPARABI LITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE *THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANS ACTION HAS BEEN ENTERED INTO. PROVISO TO THE SAID RULES PROVIDES THAT DATA RELATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL Y EAR MAY ALSO BE CONSIDERED IF SUCH DATA REVEALS FACTS WHICH COULD H AVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICES IN RELATION TO THE TRANSACTIONS BEING COMPARED. WE ARE THEREFORE OF THE VIEW THAT THIS O BJECTION OF THE ASSESSEE DOES NOT FIND SUPPORT IN LAW. ON FACTS IT HAS NOT BEEN SHOWN AS TO HOW THE DATA RELIED UPON BY THE TPO WAS NOT RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO . WE THEREFORE DO NOT FIND ANY SUBSTANCE IN GR.NO.2.5 RAISED BY THE ASSESSEE. 25. WITH THIS BACKGROUND, WE WILL TAKE UP FOR CONS IDERATION, GR.NO.2.6 & 2.7. THE FUNCTIONAL ANALYSIS OF THE ASSESSEE HAS F IRST TO BE SET OUT. THE SAME IS AS FOLLOWS: THE FOLLOWING ARE THE SERVICES RENDERED BY THE ASSE SSEE TO THE AES. 1. CONTRACT TESTING AND RESEARCH SERVICES; AND - STABILITY TESTING; - PHARMACEUTICAL PRODUCT DEVELOPMENT AND - ANALYTICAL RESEARCH / TESTING. A. STABILITY TESTING: MERCKLE HAS ENTERED INTO A SERVICES ARRANGEMENT WI TH THE ASSESSEE, WHEREBY ASSESSEE IS ENGAGED PROVIDE CONTRACT TESTING SERVI CES I.E. STABILITY TESTING OF MEDICINAL PRODUCTS. STABILITY TESTING IS THE PRIMA RY TOOL USED TO ASSESS EXPIRATION DATING AND STORAGE CONDITIONS FOR PHARMA CEUTICAL PRODUCT. STABILITY TESTING INCLUDES LONG-TERM STUDIES, WHERE THE PRODUCT IS STORED AT ROOM TEMPERATURE AND HUMIDITY CONDITIONS, AS WELL A S ACCELERATED STUDIES WHERE THE PRODUCT IS STORED UNDER CONDITIONS OF HIG H HEAT AND HUMIDITY. ITA NO.6623/MUM/2011(A.Y.2007-08) 22 MERCKLE, AS A PART OF THE PHARMACEUTICAL PRODUCT DE VELOPMENT PROCESS, UNDERTAKES VARIOUS TESTING ACTIVITIES MANDATED BY R EGULATORY AUTHORITIES, INCLUDING STABILITY TESTING. MERCKLE HAS OUTSOURCED STABILITY TESTING SERVICES TO WITH THE FOLLOWING OBJECTIVES: BENEFITING FROM GREAT POOL OF TALENTED AND WELL EDUCATED PEOPLE; AND COST SAVINGS FOR THE GROUP. THE FUNCTIONS PERFORMED AND RISKS ASSUMED BY ASSESS EE VIS--VIS MERCKLE IN RESPECT OF PROVSION OF STABILITY TESTING HAVE BEEN DESCRIED BELOW. A. HUMAN RESOURCE (HR) FUNCTION. ASSESSEE MAINLY RECRUITS SCIENTISTS WITH MSC AND BS C DEGREES. CANDIDATES HOLDING PHD, M PHARM AND B. PHARM DEGREES ARE CONSI DERED FOR HIGHER LEVEL POSITIONS. THE TEM COMPRISES OF 19 FULL TIME EQUIV ALENTS (FTES), INCLUDING A MANAGER, DEPUTY MANAGER, SENIOR RESEARCH SCIENTIS T, RESEARCH SCIENTIST, RESEARCH ASSOCIATES, TRAINEES AND LAB ATTENDANTS. ASSESSEE PROVIDES TRAINING FOR SPECIFIC FUNCTIONS TO FRESH/NEW EMPLOY EES. (B) TEST SAMPLES AND RELEVANT INFORMATION. MERCKLE PROVIDES ALL THE ESSENTIAL INFORMATION, PAR TICULARLY TESTING INSTRUCTIONS, SPECIFICATIONS, VALIDATION DOCUMENTS AND OTHER RELEVANT INFORMATION, ALONG WITH REFERENCE SUBSTANCES FOR AS SAY AND IMPURITY TESTING WHILES PROVIDING THE ORDER TO TEST MEDICINAL PRODUC TS. IN THIS REGARD, MERCKLE ENSURES THAT THE SAMPLES ARE PROPERLY TAKEN AND THAT THE TEST SAMPLES ARE PROPERLY PACKAGED AND DISPATCHED TO TH E ASSESSEE. (C) OBTAINING AN IMPORT LICENSE AND IMPORT OF TEST SAMPLES THE TEST SAMPLE/REFERENCE SUBSTANCES ARE IMPORTED F ROM THE ASSOCIATED ENTERPRISE. ASSESSEE MAKES THE NECESSARY APPLICAT IONS FOR OBTAINING THE LICENSE FOR IMPORTING THE STUDY DRUG ON WHICH THE S TABILITY TESTING WILL BE CARRIED OUT. ON RECEIPT OF APPROVAL FOR IMPORT OF T HE STUDY DRUG, ASSESSEE MAKES ARRANGEMENTS TO IMPORT THE TEST DRUG. ITA NO.6623/MUM/2011(A.Y.2007-08) 23 (D). PROVISION OF SERVICE ASSESSEE CARRIES OUT STABILITY TESTING ON THE TEST SAMPLES AT ITS GOA UNIT AS PER THE PREVAILING ICH-GUIDELINES AND THE TESTING I NSTRUCTIONS PROVIDED BY MERCKLE. ASSESSEE USES VALIDATED TESTING METHODS AN D TESTING PROCEDURES. IF NECESSARY, ASSESSEE REVALIDATES THE METHODS SPECIFI ED BY MERCKLE TO THE NECESSARY EXTENT, E.G., IN THE CASE OF ESSENTIAL CH ANGES IN EQUIPMENT. ASSESEE MAKES THE TEST RESULTS AVAILABLE TO MERCKLE IN THE FORM OF A TEST REPORT, DULY SIGNED BY AN AUTHORIZED PERSON. (E) QUALITY CONTROL AND MONITORING MERCKLE IS RESPONSIBLE FOR ENSURING THAT THAT THE TESTING INSTRUCTIONS INCLUDING SPECIFICATIONS PROVIDED TO L STABILITY TE STING ARE CONSISTENT WITH THE REGISTRATION DOSSIER OF THE CORRESPONDING MEDICINAL PRODUCT AND ITS STARTING MATERIALS. MERCKLE ALSO PROVIDES ASSESSEE WITH ALL DOCUMENTS NECESSARY FOR SAFE HANDLING OF THE TEST SAMPLES AND THE REFERENCE SUBSTANCES TO BE PROCESSED. ASSESSEE ENSURES THAT THE TEST SAMPLES ARE HANDLED PROPERLY AND DISPOSED OFF. RIPL ALSO ENSURES THAT ITS EQUIPMENT IS QUALIFIED, REGULARLY SERVICED AND CALIBRATED. (F) INVOICING AND PAYMENT ASSESSEE CHARGES ON SCIENTIST MAN DAY RATE. THE SCI ENTIFIC MAN DAY RATE IS DERIVED BY DIVIDING THE BUDGETED TOTAL COST (DIRECT AND INDIRECT) PLUS MARK- UP, BY AN ESTIMATED TOTAL NUMBER OF DAYS LIKELY TO B DEPLOYED BY THE RESEARCH SCIENTIST / ANALYST. THE RATE IS REVIEWED PERIODICALLY. B. PHARMACEUTICAL PRODUCT DEVELOPMENT (PPD) WITH AN INTENTION TO DEVELOP GENERIC PHARMACEUTICAL PRODUCTS, RATIOPHARM HAS OUTSOURCED PPD TO ASSESSEE WITH THE FOLLOWING O BJECTIVES: BENEFITING FROM GREAT POOL OF TALENTED AND WELL E DUCATED PEOPLE; AND COST SAVINGS FOR THE GROUP. ITA NO.6623/MUM/2011(A.Y.2007-08) 24 IN THIS REGARD ASSESSEE AND RATIOPHARM HAVE ENTERED INTO AN ARRANGEMENT WHEREBY ASSESSEE IS ENGAGED TO PROVIDE PPD SERVICES . IN THE PERFORMANCE OF THE ABOVE ACTIVITIES, ASSESSE E SEEKS TO COMPLY WITH CURRENT GOOD MANUFACTURING PRACTICES (GMP) AND G OOD LABORATORY PRACTICES (GLP) STANDARDS. THE PROVISION OF THES E SERVICES INVOLVES THREE DEPARTMENTS AT ASSESSEES FACILITY AT GOA, I.E., AN ALYTICAL DEVELOPMENT, QUALITY CONTROL AND PHARMACEUTICAL DEVELOPMENT. (A) ANALYTICAL RESEARCH DEVELOPMENT ANALYTICAL RESEARCH IS UNDERTAKEN FOR SCREENING POT ENTIAL DRUG CANDIDATES, TO AID IN THE DEVELOPMENT OF DRUG SYNTHESES, SUPPORT F ORMULATION STUDIES, MONITOR THE STABILITY OF ACTIVE PHARMACEUTICAL INGR EDIENTS (APL) AND FORMULATIONS, AND TEST FINAL PRODUCTS FOR RELEASE. THE QUALITY OF ANALYTICAL DATA IS A KEY FACTOR IN THE SUCCESS OF A DRUG DEVEL OPMENT PROGRAM. ( B). QUALITY CONTROL QUALITY CONTROL DEPARTMENT COMPRISES OF THREE PARTS VIZ ; WET LABORATORY, INSTRUMENTATION AND MICROBIOLOGY DEPARTMENT. QUAL ITY CONTROL DEPARTMENT IS MAINLY INVOLVED IN VALIDATION, INACTIVE API ANAL YSIS AND ROUTINE WATER ANALYSIS. FURTHER, IT IS ALSO INVOLVED IN MICROBIOL OGICAL TESTING OF ACTIVES, INACTIVE, AREA MONITORING AND ANALYSIS OF ANALYTICA L AND STABILITY CONTROL SAMPLES. (C) PHARMACEUTICAL DEVELOPMENT PHARMACEUTICAL DEVELOPMENT DEPARTMENT IS MAINLY INV OLVED IN SCALING UP THE PRODUCTION OF FORMULATIONS IN THE PLANT USING THE S IMILAR TECHNOLOGY I KNOW- HOW, OPERATING PRINCIPLES AND EQUIPMENTS USED AT TH E LABORATORY SCALE. THE SUCCESSFUL SCALE-UP AND COMMERCIAL PRODUCTION OF TH E DEVELOPED FORMULATIONS ARE THE KEY RESPONSIBILITIES OF THE SC IENTISTS WORKING IN THIS ITA NO.6623/MUM/2011(A.Y.2007-08) 25 DEPARTMENT. THESE FORMULATIONS ARE THEN SUBJECT TO STABILITY TESTING AND BIO- EQUIVALENT STUDY. PRODUCT DEVELOPMENT AS A PROCES S, LARGELY INVOLVES UNIT OPERATIONS SUCH AS MIXING, SIFTING, GRANULATION, DR YING, SIZE REDUCTION, COMPRESSION, COATING, PACKING ETC. TO DEVELOP ORAL DOSAGE FORMS BASED ON DIFFERENT TECHNOLOGIES. RIPL HAS A QUALITY MODULE S YSTEM IN RELATION TO EACH SCIENTIFIC OPERATION BEING CARRIED OUT. THE FUNCTIO NING OF THE DEPARTMENT IS ALSO SUPPORTED BY STANDARD OPERATING PROCEDURES, QU ALIFIED EQUIPMENT, AND ADHERENCE TO GMP, SO AS TO MAINTAIN A HIGH DEGREE O F QUALITY IN OPERATIONS. ANALTICAL RESEARCH TESTING OF MEDICINAL PRODUCTS ASSESSEE ALSO PROVIDES ANALYTICAL RESEARCH SERVICES TO RATIOPHARM FROM A UNIT LOCATED AT MUMBAI. AS DISCUSSED EARLIER, ANALYTICAL RESEARCH IS UNDERTAKEN TO SCREEN POTENTIAL DRUG CANDIDATES, TO AID IN THE DEVELOPMENT OF DRUG SYNTHESES, SUPPORT FORMULATION STUDIES, MONITOR THE STABILITY OF API AND FORMULATIONS, AND TEST FINAL PRODUCTS FOR RELEASE. THE NATURE OF ANALYTICAL RESEARCH SERVICES PROVIDED BY ASSESSEE TO RATIOPHAR M INCLUDES DEVELOPMENT OF ANALYTICAL METHODS FOR API AND FORMULATIONS, EVA LUATION OF ANALYTICAL METHODS, STABILITY STUDIES AND PHYSICOCHEMICAL CHAR ACTERIZATION OF APIS. FUNCTIONS PERFORMED THE ASSOCIATED ENTERPRISES, AS A PART OF THE PHARMA CEUTICAL PRODUCT DEVELOPMENT PROCESS, UNDERTAKE VARIOUS RESEARCH AND TESTING ACTIVITIES, INCLUDING ANALYTICAL RESEARCH SERVICES. RATIOPHARM HAS OUTSOURCED ANALYTICAL SERVICES TO ASSESSEE WITH THE FOLLOWING OBJECTIVES BENEFITING FROM GREAT POOL OF TALENTED AND WELL E DUCATED PEOPLE; AND COST SAVINGS FOR THE GROUP. 26. WE HAVE NOT SET OUT THE MANNER IN WHICH FUNCTI ONS ARE PERFORMED AND RISKS ASSUMED IN THE TRANSACTION, AS WE ARE OF THE VIEW THAT THAT MAY NOT BE REQUIRED NOR HAS COMPARISON BEEN DONE ON THOSE FACT ORS BY THE TPO. THE ITA NO.6623/MUM/2011(A.Y.2007-08) 26 FRESH COMPARABLE CASES SELECTED BY THE TPO AND THEI R FUNCTIONS ARE AS SET OUT BELOW: 1. ENGINEERS INDIA LTD. (EIL ) IS ENGAGED IN A DIVERSE SET OF ACTIVITIES VIZ., PROVIDING A FULL SUITE OF ENGINEER ING AND RELATED TECHNICAL SERVICES FOR PETROLEUM REFINERIES AND OTHER INDUSTR IAL PROJECTS. IT PROVIDES A COMPLETE RANGE OF SERVICES NEEDED TO CON CEPTUALISE, DESIGN, ENGINEER AND CONSTRUCT PROJECTS TO MEET THE SPECIFI C REQUIREMENTS OF ITS CLIENTS. ITS ASSOCIATION WITH THE CLIENTS EXTENDS B EYOND THE COMMISSIONING OF THEIR PLANTS THROUGH MONITORING OP ERATION OF EACH PLANT AND ACCUMULATING FEEDBACK ON PERFORMANCE. LUM PSUM TURNKEY PROJECTS FROM CONCEPT TO COMMISSIONING IS AN AREA I NTO WHICH EIL HAS ENTERED IN A BIG WAY. FURTHER, EIL OPERATES IN THE REFINING SECTOR INVOLVING IN ACTIVITIES SUCH AS MOTOR SPIRIT QUALIT Y UP-GRADATION PROJECTS, UP-GRADATION OF REFINERIES, PIPELINE PROJ ECTS. ALSO, EILS ENGINEERING SERVICES ARE IN THE NATURE OF MODELING THE PLANT BUILDINGS (I.E. REFINERIES, LNG PLANTS AND SPM PROJECTS) MAIN LY IN THE NATURE OF ARCHITECTURAL ACTIVITIES. THE LEARNED D.R. HOWEVER POINTED OUT THAT EIL ALSO DOES RESEARCH AND DEVELOPMENT AND IN THIS REGARD DREW OUR ATTENTION T O PAGE-183 OF THE PAPER BOOK. (ANNUAL REPORT OF EIL) EIL IS MAKING CONSISTENT EFFORTS IN DEVELOPING TEC HNOLOGIES AND STRENGTHENING ITS R&D DIVISION. THE DIVISION IS CO NTINUOUSLY PURSUING DEVELOPMENTAL ACTIVITIES BOTH IN-HOUSE AND IN COLLABORATION WITH OTHER R&D INSTITUTES LIKE IOCL(R &D), IIP, IICT, BPCL(R&D) ETC. THE DEVELOPMENTAL ACTIVITIES STARTED EARLIER HAVE RESULTED IN THE COMMERCIALIZATION OF A NUMBER OF TECHNOLOGIES. AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE THE RESEARCH AND DEVELOPMENT IS NOT A PROFIT CENTRE. IT IS PART OF THE RESEARCH AND DEVELOPMENT DONE IN THE COURSE OF RENDERING OTHER P ROFESSIONAL SERVICES. WE FAIL TO SEE AS TO HOW THIS COMPANY CA N BE COMPARED WITH THE ASSESSEE WHO RENDERS CONTRACT RESEARCH AND TEST ING OF DRUGS. WE AGREE WITH THE SUBMISSION OF THE LEARNED COUNSEL FO R THE ASSESSEE THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH TH AT OF THE ASSESSEE. ITA NO.6623/MUM/2011(A.Y.2007-08) 27 2. AGILE ELECTRIC TECHNOLOGIES PRIVATE LIMITED (AG ILE) AGILE IS ENGAGED IN THE BUSINESS OF DESIGN AND DEVELOPMENT O F DRAWINGS FOR MOTORS AND OTHER RELATED ACTIVITIES. AGILE ALSO CA RRIES ON THE BUSINESS OF PROVIDING ENGINEERING AND ASSOCIATED SERVICES. BESIDES, IT IS THE OWNER OF THE INTELLECTUAL PROPERTY IN THE DESIGNS D EVELOPED. HERE AGAIN THE FUNCTION PERFORMED BY THIS COMPANY C ANNOT BE COMPARED WITH THAT OF THE ASSESSEE. THE LEARNED D. R. HOWEVER POINTED OUT TO PAGE-318 OF THE PAPER BOOK, WHICH CONTAINS T HE ANNUAL REPORT OF AGILE ELECTRIC TECHNOLOGIES PVT.LTD. AS ON 31.3. 2008 AND SUBMITTED THAT THEY ALSO DO TESTING. WE HAVE SEEN THE RELEVA NT DOCUMENT AND FIND THAT THE SAME REFERS TO ACQUISITION BY THE SAI D COMPANY OF COMPONENT MANUFACTURING LINE ALONG WITH TESTING AND VALIDATION LAB AND BUILDING. THE SAME REPORT SAYS THAT THE ACQUIS ITION WOULD ENABLE THE COMPANY TO BECOME A FULL SERVICE SUPPLIER BY OF FERING GAMUT OF SERVICES BY MOVING FROM SERVICE PROVIDER TO MANUFAC TURER EXPORTER. THE PLEA OF THE LEARNED D.R. IN THIS REGARD THEREFO RE CANNOT BE ACCEPTED. 3. IDC (INDIA) LIMITED (IDC): IDC PRIMARILY UNDERTAKES RESEARCH AND SURVEY SERVICES FOR PRODUCTS. IDC RESEARCH DOCUMENT S COVER AREAS LIKE ENTERPRISE MANAGEMENT APPLICATIONS, BROADBAND, INTE RNET AND EBUSINESS, MOBILE USAGE, IT SERVICE EXPORTS AND CON TINUOUS MARKET REVIEW OF COMPUTING AND PERIPHERAL PRODUCTS. SUCH R ESEARCH REPORTS PROVIDE MARKET FORECASTS, COMPETITIVE ANALYSES, VEN DOR PROFILES, AND INFORMATION ON CUSTOMER REQUIREMENTS AND BUYING PAT TERNS. FURTHER, THE AREAS OF RESEARCH INCLUDE COMMUNICATION SERVICE S BROADBAND BUSINESS, NETWORK SERVICES, IP BASED SERVICES, RESI DENTIAL SMALL BUSINESS AND WIRELESS COMMUNICATIONS. THE PRODUCTS AND SERVICES OF IDC CONSIST OF THE FOLLOWING: - CUSTOMISED SERVICES: IDC DELIVERS STRATEGIC AND T ACTICAL RESEARCH, AND CONSULTING SERVICES TO SUPPORT THE DEVELOPMENT AND IMPLEMENTATION OF BUSINESS STRATEGIES OF ICT BUILDE RS AND PROVIDERS. THESE PROJECTS ARE CUSTOMISED TO ADDRESS THE CLIENT S SPECIFIC BUSINESS PROBLEM. THE UNIQUELY QUALIFIED, MULTI-DISCIPLINARY EXPERTS HELP YOU DEVELOP BUSINESS STRATEGIES, FINE TUNE PRODUCT DEVE LOPMENT AND ITA NO.6623/MUM/2011(A.Y.2007-08) 28 PRICING, DEFINE AND IMPLEMENT MARKETING GOALS, ASSE S COMPETITIVE FORCES, AND EVALUATE JOINT VENTURES AND ACQUISITION S. - STANDARD RESEARCH REPORTS: THESE RESEARCH DOCUMEN TS COVER EVERYTHING IN HARDWARE-PCS, PERIPHERALS, SERVERS, SOFTWARE SER VICES AND KEY INDUSTRY ISSUES. THE RESEARCH REPORTS PROVIDE MARKE T INTELLIGENCE, FORECASTS, COMPETITIVE ANALYSIS, VENDOR PROFILES, I NFORMATION ON CUSTOMER REQUIREMENTS AND BUYING PATTERNS. THE FREQUENCY OF STANDARD RESEARCH OFFERINGS MAY BE MONTHLY, QUARTERLY, HALF-YEARLY AN D YEARLY. BASED ON THE ABOVE DESCRIPTIONS OF ACTIVITIES UNDER TAKEN BY IDC IT IS CLEAR THAT IDC ENGAGED IN PROVIDING MARKET RESEARC H AND SURVEY SERVICES WHICH IS NOT COMPARABLE TO THE FUNCTIONAL PROFILE OF THE ASSESSEE AND ACCORDINGLY OUGHT NOT TO BE CONSIDERED A COMPAR ABLE. 4. OIL FIELD INSTRUMENTATION (INDIA) LIMITED (OIL FIELD): OIL FIELD IS THE LARGEST MUD LOGGING SERVICES PROVIDER IN INDIA. OIL FIELD OFFERS MUD LOGGING SERVICES WITH REAL TIME DATA ACQUISITION AN D MONITORING OF DATA WITH ALARM ON CRITICAL PARAMETERS, DATA STORAGE OPT ION, COMPUTERIZED LOGS AND WEB ENABLED TRANSMISSION. IMPORTANT PARAMETERS MEASURED ARE TOTAL DEPTH, RATE OF PENETRATION, WEIGHT ON HOOK, HEAVE, WEIGHT ON BIT, ROTATION PER MINUTE, STAND PIPE PRESS, STROKE PER M INUTE, MUD FLOW, CONDUCTIVITY, TOTAL GAS, CHROMATOGRAPHIC ANALYSIS A ND H2S ETC. OIL FIELD PROVIDES CUSTOMIZED MUD LOGGING SOLUTIONS FOR EXPLO RATORY, DEVELOPMENTAL, DEEPWATER AND CBM DRILLING LOCATIONS . OIL FIELD IS ENGAGED IN SUPPLY OF EQUIPMENT AND RENDERING SERVIC ES MAINLY FOR GEOLOGICAL OPERATIONS FOR OIL, GAS AND MINERAL EXPL ORATION. ALSO AS PER THE WEBSITE OF OIL FIELD, OIL FIELD PROVIDES RIG INSTRU MENTATION AND SERVICES FOR DRILLING RIGS LIKE PRESSURE INDICATORS, DIAPHRA GMS, DRILLERS CONSOLE, RECORDER, ETC. IT ALSO PROVIDES ACCURATE, TIMELY AN D RELIABLE DRILLING DATA.THE WEBSITE INFORMATION ALSO SAYS THAT OIL FIE LDS REAL TIME GAS EVALUATION SYSTEMS OFFER CONSIDERABLE ACCURACY THAT HELP IN TAKING CRITICAL ON SITE DRILLING DECISIONS. IT IS RUGGED AND FIELD PROVEN EQUIPMENT, USED IN EXPLORATION, PRODUCTION AND REFINERY SECTORS. OIL FIELD PROVIDES GAS DETECTION LIKE HYDROCARBON DETECTOR, CARBON DIOXIDE DETECTOR, HYDROGEN SULPHIDE DETECTOR, HIGHER HYDROCARBONS DETECTOR, NI TROGEN DETECTOR, SULPHUR DIOXIDE DETECTOR, OXYGEN DETECTOR, CARBON M ONOXIDE DETECTOR, HYDROGEN DETECTOR, ETC. THE EXTRACTS OF THE FUNCTIONAL PROFILE OF OIL FIELD FROM ITS WEBSITE AS GIVEN ABOVE AND THE INFORMATION IN THE ANNUAL REPORT OF O IL FIELD ON THE NATURE ITA NO.6623/MUM/2011(A.Y.2007-08) 29 OF ASSETS EMPLOYED SUCH AS OUTER SHELL OF MUD LOGGI NG UNITS, SENSORS AND OTHER INSTRUMENTS CLEARLY DEMONSTRATE THE DISPARITY BETWEEN OIL FIELDS AND ASSESSEES OPERATIONS.AS DISCUSSED EARLIER THE FUNCTIONAL PROFILE OF ASSESSEE IS IN THE NATURE OF PROVIDING - CONTRACT R ESEARCH AND TESTING SERVICES. OIL FIELD DOES NOT CARRY OUT ANY OF THESE STIPULATED ACTIVITIES AND ACCORDINGLY OIL FIELD OUGHT NOT TO BE CONSIDERED A COMPARABLE. 5. CELESTIAL LABS LIMITED (CELESTIAL LABS): ACCORDING TO ASSESEE CELESTIAL LABS AS A COMPARABLE HAS BEEN CHEERY PICK ED BY THE TPO. CELESTIAL LABS IS A DIVERSIFIED COMPANY OPERATING I N VARIED FIELDS SUCH AS RENDERING IT SERVICES ENCOMPASSING APPLICATION DEVE LOPMENT AND MAINTENANCE, PRODUCTION SUPPORT, EERP, DATA WAREHOU SING, SAP IMPLEMENTATION. CELESTIAL LABS ALSO IS INTO MANUFAC TURING AND TRADING OF PRODUCTS SUCH AS ERP PACKAGE FOR MANUFACTURING AND HAS A PRODUCT SANJIVANI WHICH IS A PORTAL FOR LIVE AYURVEDIC CO NSULTATION. THE COMPANY IS ALSO ENGAGED IN THE DISTRIBUTION OF HERBAL AYURV EDIC PRODUCTS. SAP SERVICES: CELESTIAL DELIVERS SAP CONSULTING, SA P IMPLEMENTATION AND POST-SAP IMPLEMENTATION SERVICES FOR ITS CUSTOMERS. CELESTIAL IS ENGAGED IN IMPLEMENTING SAP FOR CUSTOMERS FROM INITIAL PLAN NING, DESIGN AND IMPLEMENTATION TO MAINTENANCE AND ONGOING OPTIMIZAT ION. CELESTIAL HELPS THE COMPANY ALIGN IT SOLUTIONS WITH BUSINESS STRATE GIES. CELSANJIVANI PRODUCTS: CELSANJIVANI IS A PART OF CE LESTIAL LABS LTD, AN ISO 9001-2000 COMPANY WORKING IN THIS SPACE OF BIO-INFO RMATICS AND GIO- TECHNOLOGY. THE GOAL IS TO BECOME A PRIMARY MARKET PLACE FOR THE HERBAL PRODUCTS PROVIDING QUALITY PRODUCTS TO THE CUSTOMER S AND INDUSTRIAL COMMUNITY. THIS IS AN AYURVEDIC PORTAL DEDICATED T O B28&C MARKET WITH ONLINE LIVE CONSULTING WITH OUR AYURVEDIC CONSULTAN TS. IT PROVIDES EXCELLENT PLATFORM FOR TRADING OF HERBAL PRODUCTS, WITH IDENTIFICATION OF RAW HERBS, SCIENTIFIC DATA, MARKET & TRADE DATA, MO NOGRAPHS, POLICY, LAWS, GOOD MANUFACTURING PRACTICES, DNA FINGER PRINTING E TC. IT FACILITATES CONTACTS WITH SUPPLIERS, MANUFACTURERS AND DEALERS OF HERBAL PHARMA INDUSTRY. THE ACTIVITIES UNDERTAKEN CELESTIAL LABS ARE IN THE NATURE OF PROVIDING HOST OF IT RELATED SERVICES AND SOME TRADING ACTIVI TY WHICH IS NOT COMPARABLE TO THE ASSESSEE. HENCE IT IS CLEAR THAT IT IS NOT COMPARABLE TO THE FUNCTIONAL PROFILE OF THE COMPANY AND ACCORDING LY OUGHT NOT TO BE CONSIDERED A COMPARABLE ITA NO.6623/MUM/2011(A.Y.2007-08) 30 THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAGE -389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS REPORT WHICH READS AS FOLLOWS: THE COMPANY AS DEVELOPED A DE NOVO DRUG DESIGN TOO L CELSUITE TO DRUG DISCOVERY IN , FINDING THE LEAD MOLECULES FOR DRUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER THE COPY IF RIGHT /PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AN D TECHNOLOGY NEW DELHI) BASED ON OUR IN SILICO EXPERTISE (APPLYING BIO-INFO RMATICS TOOLS). THE COMPANY HAS DEVELOPED A MOLECULE TO TREAT LEUCODERM A AND MULTIPLE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS AND THE RESPON SE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDUR ES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTME NT OF MICROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY H AS SIGNED THE TECHNOLOGY TRANSFER AGREEMENT WITH IMTECH CHANDIGAR H (A VERY REPUTED CSIR ORGANIZATION) TO MANUFACTURE AND MARKE T INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN IND IA AND OVERSEAS. THE COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY F ACILITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FACILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORIES FOR CARRYING OUT FURTHER R & D ACTIVITIES TO DEVELOP NEW CANDIDATES DRUG MOLECULES AND LICENSE THEM TO INTERESTED PHARMA AND BIO COMPANIES ACROSS THE GLOBE. THE PROPOSED FA CILITY WILL BE SET UP IN GENOME VALLEY AT HYDERABAD IN ANDHRA PRADESH. ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALS O IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD BE CONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE AS SESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWARE FOR DISCOVERY OF NEW DRUG S. MOREOVER THE COMPANY ALSO IS OWNER OF THE IPR. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT OF A MOLECULE TO TREAT CANCER USING BIO -INFORMATICS TOOLS FOR WHICH PATENTING PROCESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSIFIED COMPANY AND THEREFORE CANNOT BE CO NSIDERED AS COMPARABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMPT MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJ USTMENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUNCTIONAL COMPAR ABILITY CAN BE ITA NO.6623/MUM/2011(A.Y.2007-08) 31 ELIMINATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMENT, THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS R EGARD. 6. MINDTREE LIMITED R&D SEGMENT (MINDTREE) : MINDTREES R&D SEGMENT IS ENGAGED IN PROVIDING DOMAIN-SPECIFIC END -TO-END R&D SERVICES TO HELP ORGANIZATIONS MEET THEIR ENGINEERING NEEDS. AS PER PAGE 11 OF THE ANNUAL REPORT, THE SEGMENT IS ENGAGED IN PROVIDING R&D SERVICES FOR VARIOUS INDUSTRIES LIKE COMMUNICATION, INDUSTRIAL A UTOMATION, AUTOMOTIVE AND AVIONICS, STORAGE AND SYSTEMS ETC. THE RELEVANT EXTRACT HAS BEEN PROVIDED BELOW FOR READY REFERENCE: THE DIVERSIFIED FOCUS IN THE R&D SERVICES BUSINES S INTO VARIOUS VERTICALS SUCH AS COMMUNICATION, INDUSTRIAL AUTOMAT ION, AUTOMOTIVE AND AVIONICS. STORAGE AND SYSTEMS, SEMI CONDUCTOR, WIRELESS AND CONSUMER ELECTRONICS HAD S HOWN RESULTS IN 2006-07 AS WELL AS PER THE WEBSITE OF THE COMPANY, THE SERVICES IN THIS SEGMENT CONSIST OF THE FOLLOWING DEPARTMENTS: IP LED SERVICES THE DEPARTMENT OFFERS RESEARCH TH AT FOCUSES ON CREATING LONG TERM TECHNOLOGY INNOVATION AND LICENC ABLE INTELLECTUAL PROPERTIES WITH APPLICABILITY ACROSS INDUSTRY GROUP S. SEMICONDUCTOR AND HARDWARE ENGINEERING - THE DEPAR TMENT PROVIDES PRODUCT REALIZATION AND FEASIBILITY SERVICES, AS WE LT AS HIGH-SPEED INTERFACE DESIGN, HELPING ITS CLIENTS ASSESS THE RIGHT ELECTR ONIC ARCHITECTURES AND DESIGN HIGH-SPEED HARDWARE INTERFACES. IT HELPS ITS CUSTOMERS AT ANY STAGE OF ASIC/SOC DEVELOPMENT FROM CONCEPT TO SILIC ON. THESE SERVICES OFFERED ON AN INDIVIDUAL AS WELT AS ON A TURNKEY BA SIS. SOFTWARE ENGINEERING THE DEPARTMENT SET OF SKILLS SPANNING FROM EMBEDDED SOFTWARE TO APPLICATION SOFTWARE NEEDED FO R PRODUCT REALIZATION. THIS, COUPLED WITH HARDWARE ENGINEERING CAPABILITIE S, ENABLES THE COMPANY TO WORK AS A ONE-STOP SHOP FOR SOFTWARE P RODUCT DEVELOPMENT NEEDS. VIDEO SURVEILLANCE SOLUTIONS THE DEPARTMENT PROVI DES A RANGE OF LICENSABLE COMPONENTS THAT ENABLE OEMS, LARGE SYSTE M INTEGRATORS, AND DISTRIBUTORS TO INTRODUCE PRODUCTS LIKE SURVEILLANC E MANAGER, INTELLIGENT VIDEO ENCODERS, VIDEO DECODERS, AND INTELLIGENT DIG ITAL VIDEO RECORDERS (DVR)S QUICKLY INTO THE MARKET. THE APPLICATION OF THESE SET-VICES WILL COME IN USE FOR THE FOLLOWING INDUSTRIES: - AUTOMOTIVE ITA NO.6623/MUM/2011(A.Y.2007-08) 32 - COMMUNICATION SYSTEMS - CONSUMER APPLIANCES AND COMPUTER PERIPHERALS - INDUSTRIAL SYSTEMS - MEDICAL ELECTRONICS - STORAGE AND COMPUTING SYSTEMS THUS IT IS CLEAR THAT MINDTREE IS ENGAGED IN PROVID ING DIVERSIFIED SET OF SERVICES UNDER ITS R&D SEGMENT FOR VARIOUS INDUSTRI ES. HENCE IT IS NOT COMPARABLE TO THE FUNCTIONAL PROFILE OF THE COMPANY AND ACCORDINGLY OUGHT NOT TO BE CONSIDERED A COMPARABLE. 27. IT CAN BE SEEN FROM THE ABOVE DISCUSSION THAT THE 6 FRESH COMPANIES SELECTED BY THE TPO ARE FOUND TO BE NOT COMPARABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. AS WE HAVE ALREADY SEEN THE FUNCTION AL COMPARABILITY HAS TO BE DONE AS LAID DOWN IN RULE 10-B (2) OF THE RULES WHICH LAYS DOWN THE MANNER IN WHICH COMPARISON HAS TO BE MADE. IT LAYS DOWN THAT THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFERENCE TO THE F OLLOWING, NAMELY : (A) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TR ANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION ; (B) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT AS SETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIV E PARTIES TO THE TRANSACTIONS ; (C) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERM S ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICI TLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS ; (D) CONDITIONS PREVAILING IN THE MARKETS IN WHICH T HE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPH ICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS ARE WH OLESALE OR RETAIL. RULE 10-B(3) LAYS DOWN THAT AN UNCONTROLLED TRANSA CTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF ITA NO.6623/MUM/2011(A.Y.2007-08) 33 (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TR ANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST C HARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE OPEN MARKET ; OR (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. NONE OF THE PARAMETERS LAID DOWN IN THE RULES HAVE BEEN CONSIDERED BY THE TPO EITHER IN THE MATTER OF COMPARISON OR ADJUSTMEN T TO BE MADE WHERE COMPARISON IS POSSIBLE AFTER MAKING ADJUSTMENTS. S INCE THE COMPARABLE ADOPTED BY THE ASSESSEE HAVE NOT BEEN DISPUTED BY T HE TPO AS NOT COMPARABLE, THE SAME IS ACCEPTED. WE MAY ALSO ADD THAT RESEARCH AND DEVELOPMENT SERVICES RENDERED AS A PROFIT CENTRE IS DIFFERENT FROM OWN RESEARCH AND DEVELOPMENT IN CONNECTION WITH BUSINES S CARRIED ON BY AN ASSESSEE. THE TPO HAS PROCEEDED TO COMPARE SUCH CO MPANIES WHICH DO RESEARCH NOT AS PROFIT CENTRE BUT AS PART OF SOME O THER ACTIVITY SAY MANUFACTURE OR MARKET RESEARCH. SUCH AN APPROACH I N OUR VIEW CANNOT BE ACCEPTED ON THE FACTS OF THE PRESENT CASE. ANOTHER REASON GIVEN BY THE TPO FOR CHOOSING FRESH COMPARABLE IS THAT THE ASSESSEE HAS CHOSEN ALPHAGEO (I) LTD., WHICH IS IN THE FIELD OF CONSULTANCY IN OIL A ND GAS EXPLORATION. ON THIS APPROACH OF THE TPO, WE FIND THAT ALPHAGEO (I)LTD., WAS SELECTED AS A COMPARABLE BY THE ASSESSEE AS IT WAS DOING TESTING SERVICES ON CONTRACT BASIS. THE APPROACH OF THE ASSESSEE IS ACCEPTABLE IN THIS REGARD AND AFFORDS A BROADER COMPARABILITY. 28. FOR THE REASONS GIVEN ABOVE, WE ALLOW GROUND N O.2.7 RAISED BY THE ASSESSEE. CONSEQUENTLY, THE COMPARABLE CONSIDERED BY THE ASSESSEE HAS TO BE ACCEPTED AS DISCUSSED EARLIER. THE ALP AS ARRIV ED AT BY THE ASSESSEE THEREFORE DESERVES TO BE ACCEPTED. CONSEQUENTLY GR .NO.2.3 BECOMES ACADEMIC. AS ALREADY OBSERVED, EVEN IF LOSS MAKING COMPANIES OUT OF THE COMPARABLE IDENTIFIED BY THE ASSESSEE ARE IGNORED, STILL THE ALP ADOPTED BY THE ASSESSEE WOULD BE WITHIN THE (+) OR (-) 5% RANG E AS CONTEMPLATED BY THE ITA NO.6623/MUM/2011(A.Y.2007-08) 34 PROVISO TO SECTION 92C OF THE ACT. CONSEQUENTLY GR .NO.2.4 OF THE GROUNDS OF APPEAL IS ALSO HELD TO BE ACADEMIC NOT CALLING FOR ADJUDICATION. AS CELESTICAL LABS, A COMPARABLE IDENTIFIED BY THE TPO, IS HELD T O BE FUNCTIONALY NOT COMPARABLE WITH THE FUNCTIONS PERFORMED BY THE ASSE SSEE, THE GRIEVANCE PROJECTED IN GR.NO.2.6 DOES NOT REQUIRE ANY ADJUDIC ATION. SO ALSO GR.NO.2.8 PRAYING FOR A (+) (-) OF 5% AS STANDARD DEDUCTION W HILE COMPUTING ALP. 29. FOR THE REASONS GIVEN ABOVE, THE ADDITION MADE BY THE AO BY WAY OF ADJUSTMENT TO THE ALP IS DIRECTED TO BE DELETED. GR.NO.1 AND 2 ARE ALLOWED AS INDICATED IN THE EARLIER PARAGRAPHS. 30. THE GROUNDS OF APPEAL NO.3 & 4 RAISED BY THE AS SESSEE READS AS FOLLOWS: 3. THE LD. DRP ERRED IN DISALLOWING REPAIRS OF R S. 1,38,707.82 TOWARDS MURAL, BY TREATING IT AS BEING CAPITAL IN N ATURE. 4. THE LD. DRP FURTHER ERRED ON FACT AND IN LAW BY WRONGLY CONSIDERING AN AMOUNT OF RS. 20,89,500/- TOWARDS COMPUTER HARDW ARE AS DISALLOWANCE (EVEN THOUGH SUCH EXPENDITURE WAS ALRE ADY CAPITALIZED BY THE APPELLANT AND NOT CLAIMED AS REVENUE EXPENDI TURE AT ALL), AND BASED ON THIS DIRECTION OF THE LD. DRP, THE LD. AO ADDED THIS AMOUNT OF RS. 20,89,500/- TO THE INCOME. 31. THE ASSESSEE HAD DEBITED UNDER THE HEAD REPAIR AND MAINTENANCE EXPENSES A SUM OF RS. 1,21,16,972/- IN THE P&L ACCO UNT. OUT OF THE ABOVE THE AO WAS OF THE VIEW THAT ONLY A SUM OF RS. 27,46 ,806/- WHICH RELATED TO THE ANNUAL MAINTENANCE CONTRACTS OF EQUIPMENT WAS O F REVENUE NATURE AND ALL OTHER EXPENSES RELATED TO EITHER PURCHASE OF NE W ASSETS LIKE WIRE, SWITCHES, SCREWS AND MAJORITY OF THE EXPENSES RELAT ED TO EXTENSIVE RENOVATION OF BUILDING. IN THE DRAFT ASSESSMENT ORDER THE AO WANTED TO TREAT THE SUM OF RS. 93,70,166/- AS CAPITAL EXPENDITURE AND DISAL LOW THE CLAIM FOR DEDUCTION TO THAT EXTENT. HOWEVER, THE DRP IN ITS ORDER DATED 20/7/11 ITA NO.6623/MUM/2011(A.Y.2007-08) 35 DIRECTED THAT EXCEPT EXPENDITURE RELATING TO PURCHA SE OF A MURAL FOR A SUM OF RS. 1,38,702.82 AND PURCHASE OF HARDWARE FOR ITS SYSTEMS AMOUNTING TO RS. 20,89,500/- SHOULD BE ALLOWED AS DEDUCTION. TH E AFORESAID TWO ITEMS OF EXPENDITURE WERE CONSIDERED AS CAPITAL EXPENDITURE. THE AO HOWEVER, ALLOWED DEPRECIATION ON THE AFORESAID TWO ITEMS. A GGRIEVED BY THE AFORESAID ORDER OF THE AO THE ASSESSEE HAS RAISED GROUND NO.3 & 4 BEFORE THE TRIBUNAL. 32. AS FAR AS THE EXPENDITURE ON PURCHASE OF MURAL OF RS.1,38,702.82 IS CONCERNED THE FACTS ARE THAT THE AFORESAID EXPENDIT URE WAS INCURRED FOR THE PURPOSE OF ACQUIRING HAND PAINTED MURAL ART WORK WH ICH WAS FIXED IN THE CANTEEN WALL. IT WAS SUBMITTED BY THE ASSESSEE THA T DUE TO FREQUENT DAMPERS AND DAMAGE TO THE WALL IN THE CANTEEN DUE T O MOISTURE FREQUENT TOP UP TO THE CANTEEN WALL WAS REQUIRED. IT WAS FURTHE R SUBMITTED THAT THE ASSESSEE WAS A PHARMA RELATED R&D INDUSTRY AND WAS REQUIRED TO MAINTAIN AND UP KEEP ITS FACILITIES IN A PARTICULAR MANNER. IT WAS CONTENDED THAT NO NEW ASSET CAME INTO EXISTENCE AND THE EXPENDITURE W AS ONLY FOR PRESERVING AND MAINTAINING AN ALREADY EXISTING ASSET. RELIANC E WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. SARONA SPINNING MILL P. LTD., 293 ITR 201(SC) AND BALLIMAL NAVAL KISHORE VS. CIT,224 ITR 414 (SC). THE LD. D.R RELIED ON THE OR DER OF THE AO. 33. THE FACTS WITH REGARD TO PURCHASE OF MURAL PAI NTING WAS BROUGHT TO THE NOTICE OF THE AO BY THE ASSESSEE IN THE FORM OF FILING A LETTER DATED 23/2/06, WHICH IS A BILL RAISED BY THE PERSON WHO C REATED THE HAND PAINT MURAL. THE FACT THAT THIS WAS INSTALLED IN THE CAN TEEN WALL IS ALSO NOT DISPUTED. WE ARE OF THE VIEW THAT GOING BY THE PUR POSE FOR WHICH THE HAND PAINTED MURAL ART WORK WAS DONE AND FIXED TO THE WA LL IT CANNOT BE SAID THAT AN ADVANTAGE OF AN ENDURING NATURE ACCRUED TO THE A SSESSEE. THE EXPENDITURE WAS ONLY TO PRESERVE AND MAINTAIN AN EX ISTING ASSET. ITA NO.6623/MUM/2011(A.Y.2007-08) 36 CONSEQUENTLY THE ADDITION MADE BY THE AO IS DIRECTE D TO BE DELETED. GROUND NO.3 IS ALLOWED. 34. AS FAR AS GROUND NO.4 IS CONCERNED THE FACTS TH AT THE ASSESSEE PURCHASED A SISCO CATALYST SWITCHES WORTH TO RS.20 ,29,500/- AND ADDING 2% CST THE COST WAS RS.21,31,290/-. THIS AMOUNT WA S CAPITALIZED AS FIXED ASSET ACQUIRED DURING THE YEAR. IN FACT IN ANNEXUR E-8 TO THE BALANCE SHEET THE DETAILS OF FIXED ASSETS ACQUIRED DURING THE YEA R HAVE BEEN LISTED AND THIS ITEM OF ASSET DULY APPEARS IN THE SAID LIST. IT AP PEARS THAT THE AO AS WELL AS THE DRP DID NOT NOTICE THIS ASPECT AND PROCEEDED TO HOLD THAT THE SUM OF RS. 20,89,500/- IS TOWARDS PURCHASE OF HARDWARE FOR SYS TEM (7 ITEMS OF RS. 2,98,500/- EACH). WE ARE OF THE VIEW THAT THE ORD ER OF THE AO SHOULD BE SET ASIDE ON THIS ISSUE AND AO SHOULD BE DIRECTED TO CO NSIDER THE CLAIM OF THE ASSESSEE AS ABOVE AFRESH. CONSEQUENTLY GROUND NO.4 RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 35. GROUND NO.5 RAISED BY THE ASSESSEE READS AS FOL LOW: 5. THE LD. AC ERRED IN NOT ALLOWING THE LEGITIMAT E CLAIM OF RS 144,048/- BEING THE PROFIT ON SALE OF CARS EVEN THO UGHT THE CAPITAL GAIN ON THE SALE OF CARS WAS ALREADY OFFERED TO TAX BY T HE APPELLANT. COMPLETE DETAILS FOR THE SAME WERE SPECIFICALLY CAL LED FOR BY THE LD. AC, BUT THE SAME WERE TOTALLY IGNORED. THE APPELLANT PRAYS THAT THE BOOK VALUE OF THE INTE RNATIONAL TRANSACTIONS OF CONTRACT TESTING AND RESEARCH SERVI CES SHOULD BE HELD TO BE THE ARMS LENGTH PRICE OF THE SAID TRANSACTIO NS AS PER THE APPELLANTS TRANSFER PRICING DOCUMENTATION, AND THE ADDITION MADE ON ACCOUNT OF THE ABOVE GROUNDS SHOULD BE DELETED. THE APPELLANT FURTHER PRAYS THAT THE CLAIM OF EXPEN DITURE AS REPAIRS, AS WELL AS CLAIM FOR REDUCTION FROM INCOME DUE TO T AXATION OF CAPITAL GAIN ARISING ON SALE OF CARS BE ALLOWED AND THAT TH E EXPENDITURE WHICH WAS ALREADY CAPITALISED (AND NOT CLAIMED AS REVENUE ) SHOULD NOT BE ADDED TO THE INCOME. ITA NO.6623/MUM/2011(A.Y.2007-08) 37 36. IN PARA 3 OF THE DIRECTION ISSUED BY DRP-II, THE AO WAS DIRECTED TO ALLOW/ DISALLOW THE ASSESSEES CLAIM REGARDING PROF IT ON SALE OF ASSETS OF RS. 1,44,048/-. THE FACTS IN THIS REGARD, AS SUBMITTED BY THE ASSESSEE, WERE THAT DURING THE PREVIOUS YEAR, THE ASSESSEE SOLD 3 CARS. DETAILS OF THE GROSS VALUE, ACCUMULATED DEPRECIATIONS, NET BLOCK, SALE P ROCEEDS AND PROFIT/LOSS ON SALE OF EACH CAR WAS GIVEN. THERE WAS ONE CAR U NDER THE BLOCK OF 50% DEPRECIATION AND OPENING INCOME TAX WDV WAS RS.44,9 54/- BUT UNDER THE COMPANY LAW, THE OPENING BLOCK WAS NIL AND ACCORDIN GLY THE BOOK PROFIT ON SALE OF RS. 150,000/- WAS REDUCED FROM THE PROFIT ( INCOME) AND RS. 105,046/- WAS OFFERED FOR TAX AS CAPITAL GAINS. HO WEVER, THE RESULTANT PROFIT ON THE SALE OF THE OTHER 2 CARS OF RS. 144,048/- WA S NOT REDUCED FROM THE INCOME (PLEASE REFER THE COMPUTATION OF INCOME) THE REFORE, THIS CLAIM OF REDUCTION FROM INCOME BY RS.144,048/- BE GRANTED TO THE ASSESSEE. THE ASSESSEE HAS GIVEN THE COMPUTATION IN THIS REGARD A S FOLLOWS: DESCRIPTION OF CAR GROSS VALUE ACCU. DEP. NET BLOCK SALE VALUE PROFI T/(LOSS) MARUTI ZEN 50% 450674 450,674 - 150,000 150,000 HONDA CRV 17,00,956 10,18,671 6,82,285 8,75,000 1,9 2,715 PROFIT ON SALE OF ASSETS 3,42,715 SHOWN IN OTHER INCOME SCH.10 TATA INDICA 4,32,641 1,18,974 3,13,667 2,65,000 (45 ,667) LOSS ON SALE OF ASSETS (48,667) SHOWN IN MISC. EXPENSES UNDER SCH.13 25,84,271 15,88,319 9,95,952 12,90,000 2,94,048 OUT OF THE ABOVE, FOR THE FIRST CAR THE PROFIT OF R S.150,000 WAS REDUCED FROM THE INCOME TAX AND CORRESPONDING CAPITAL GAINS FOR THIS CAR OF RS.105,046 WAS OFFERED IN THE INCOME TAX AS THIS BLOCK OF 50% DEPRECIATION ITEM BECAME NIL. BUT FOR THE 2 ND CAR, AS THE CLOSING BLOCK UNDER INCOME TAX WAS HA VING WDV BALANCE, THE NET PROFIT ON THE SALE OF RS. 192, 715 WHICH WAS SHOWN IN THE OTHER INCOME WAS NOT REDUCED FROM THE INCOME (P LS REFER THE COMPUTATION OF INCOME) BUT FOR THE 3 RD CAR THE LOSS OF RS. 48,667/- WAS NOT ADDED BACK TO THE INCOME. HENCE, THE NET CLAIM OF DEDUCTION OF RS. 144048/- FROM THE INCOME WAS REQUESTED TO BE GRANTE D AND ACCORDINGLY THE INCOME WAS REQUESTED TO BE REDUCED TO THAT EXTENT. ITA NO.6623/MUM/2011(A.Y.2007-08) 38 37. PURSUANT TO THE DIRECTIONS OF THE DRP, THE AO EXAMINED THE ISSUE AND WAS OF THE VIEW THAT ASSESSEE HAD EARLIER FILED ORI GINAL RETURN AND LATTER THE RETURN WAS REVISED ON 26.6.2009. ACCORDING TO THE AO, THAT REVISED RETURN WAS NOT A VALID RETURN IN THE EYES OF LAW AS THE SAME WAS FILED AFTER 31.3.2009. THE CLAIM FOR DEDUCTION OF RS. 1,44,048/ - WAS MADE FOR THE FIRST TIME VIDE LETTER DT. 15 OCTOBER, 2010. EVEN AT THA T STAGE, NO WORKING FOR THE SAME WAS FURNISHED. IN THE P&L A/C OF ASSESSEE IN S CHEDULE 10 PROFIT ON SALE OF FIXED ASSETS WAS SHOWN AT RS.3,42,715/-. TH E ASSESSEE REDUCED ONLY THE SUM OF RS.1,50,000/- IN THE COMPUTATION OF INCO ME. THUS THE FIGURES ARE NOT RECONCILING WITH EACH OTHER. THE AO FURTHER HEL D THAT THAT SUPREME COURT IN GOETZ INDIA LTD VS. CIT 284 ITR 323 HELD T HAT NO DEDUCTION CAN BE CLAIMED BY THE ASSESSEE AT THE TIME OF ASSESSMENT O THERWISE THAN BY WAY OF REVISED RETURN. THE RELIEF CAN NOT BE ALLOWED IN AN Y OTHER WAY. SECTION 143(2) ALSO PROVIDES THAT AO ISSUES A NOTICE U/S. 143(2) O NLY TO EXAMINE WHETHER ASSESSEE CLAIMED EXCESSIVE LOSS OR UNDERPAID THE TA XES IN ANY MANNER. THUS HE CAN NOT ENTERTAIN ANY ADDITIONAL CLAIM IN THE CO URSE OF HEARING. THE AO THUS DID NOT ALLOW THE CLAIM OF THE ASSESSEE. 38. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE HAS RAISED THE AFORESAID GROUND OF APPEAL BEFORE THE TRIBUNAL. WE HAVE CONS IDERED THE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT THIS CLAIM OF THE ASSESSEE DESERVES FRESH EXAMINATION BY THE AO. THE AO HAS PLACED REL IANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE IND IA LTD., 284 ITR 323. THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF CHICAGO PNEUMATIC INDIA LTD. VS. DCIT, 15 SOT 252 (BOM) HELD THAT THE APPELLATE TRIBUNAL HAS HOWEVER THE POWER TO ENTERTAIN ANY CLAIM. WE ARE OF THE VI EW THAT THE CLAIM OF THE ASSESSEE DESERVES EXAMINATION BY THE AO. IN THIS REGARD WE FIND FROM PG.499 OF THE ASSESSEES PAPER BOOK THE ASSESSEE HA S GIVEN DETAILED SUBMISSIONS TOGETHER WITH ANNEXURES IN SUPPORT OF I TS CLAIM. IN THE LIGHT OF THE ABOVE DETAILS THE AO WILL EXAMINE THE CLAIM OF THE ASSESSEE AFRESH IN ITA NO.6623/MUM/2011(A.Y.2007-08) 39 ACCORDANCE WITH LAW AFTER AFFORDING THE ASSESSEE OP PORTUNITY OF BEARING HEARD. GR.NO.5 IS THUS ALLOWED FOR STATISTICAL PUR POSES. 39. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 23 RD DAY OF DEC. 2011. SD/- SD/- ( R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 23 RD DEC.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RE BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.6623/MUM/2011(A.Y.2007-08) 40 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 14/12/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 15/12/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER