ROCHE DIAGNOSTICS INDIA P.LTD, MUMBAI V. ADDL CIT RG 8(3), MUMBAI

ITA 7566/MUM/2012

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7205 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 26-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 21-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN LD
• Assessee Lawyers: NITESH JOSHI LD
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

ITA.NO.7566/MUM/2012 ROCHE DIAGNOSTICS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , BEFORE SHRI MAHAVIR SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.7566/MUM/2012 ( ASSESSMENT YEAR: 2008-09) ROCHE DIAGNOSTICS INDIA PRIVATE LIMITED PLOT NO.114, ROAD NO.15 MIDC, ANDHERI(E) MUMBAI-400 093 VS. ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-8(3) ROOM NO.220,2 ND FLOOR AAYKAR BHAVAN, M.K.ROAD MUMBAI 400 020 PAN/GIR NO. AAACA-0266-H ( ! APPELLANT ) : ( '#! RESPONDENT ) ASSESSEE BY : NITESH JOSHI, LD. AR REVENUE BY : V.JENARDHANAN, LD. DR $% DATE OF HEARING : 12/04/2018 &'(% / DATE OF PRONOUNCEMENT : 04/05/2018 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2008-09 CONTEST THE FINAL ASSESSMENT ORDER PASSED BY LD. ADDITIONAL COMMISSIONER OF INCOME TAX-RANGE 8(3),MUMBAI [AO] U/S 143(3) OF THE ITA.NO.7566/MUM/2012 ROCHE DIAGNOSTICS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2008-09 2 INCOME TAX ACT,1961 DATED 23/10/2012 PURSUANT TO TH E DIRECTIONS OF LD. DISPUTE RESOLUTION PANEL [DRP]. DURING HEARING , THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL HAVE BEEN URGED BEFORE US: - 3. GROUND NO.3: THE LD. AO/TPO HAS ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN DETERMINING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES IN TRADING SEGMENT WITHOUT CONSIDERING THE FRESH BENCHMARKING WHICH WAS SPECIFICALLY ASKED BY THE LD . TPO DURING ASSESSMENT PROCEEDINGS. 4. GROUND NO.4: THE LD. AO/TPO/DRP HAVE ERRED IN LAW AND ON FACTS A ND IN CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING THE QUALITATIVE DATA OF CER TAIN COMPARABLE AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS AND ACCORDINGLY: A) NOT CONSIDERING FRONTLINE ELECTRO MEDICAL LTD IN THE LIST OF COMPARABLE, WHICH WAS IDENTIFIED AS COMPARABLE IN FRESH BENCHMARKING ASKED BY THE LD. TPO AND IS FUNCTIONALLY COMPARABLE TO THE APPELLANT. B) INCLUDING ASHCO NIULAB INDUSTRIES LTD. IN THE LI ST OF COMPARABLES INSPITE OF THE FACT THAT TRADING INCOME IN THIS COMPANY IS ONLY 49 .96% AND REST OF THE INCOME IS FROM SERVICES AND SEGMENTAL PROFIT AND LOSS ACCOUNT FOR TRADING ACTIVITY IS NOT AVAILABLE. 5. GROUND NO.5: THE LEARNED AO/TPO/DRP HAVE ERRED IN LAW AND ON FAC TS AND IN CIRCUMSTANCES OF THE CASE IN REJECTING CERTAIN COMPARABLES FUNCTIONA LLY COMPARABLE TO THE APPELLANT ON THE GROUND OF HAVING HIGH TURNOVER WITHOUT PROVI NG THAT THE HIGH TURNOVER OF THE COMPARABLES HAD AN UNDUE INFLUENCE ON THE OPERATING MARGIN OF THE COMPARABLES 2.1 FACTS IN BRIEF ARE THAT ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN THE BUSINESS OF IMPORT AND DISTRIBUTION OF BIOMEDICAL DIAGNOSTICS EQUIPMENTS, REAGENTS, SPARES FOR SUCH E QUIPMENTS AND MANUFACTURING OF REAGENTS WAS ASSESSED AT RS.22.04 CRORES AFTER CERTAIN TRANSFER PRICING [TP] ADJUSTMENT OF RS.7.55 CRORES AS AGAINST RETURNED INCOME OF RS.14.48 CRORES FILED BY THE ASS ESSEE ON 29/09/2008 WHICH WAS REVISED ON 08/05/2009 TO RECTIFY CERTAIN TDS DETAILS. 2.2 THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY T HE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES [AE] AS REPORTED IN FORM 3CEB WERE REFERRED FOR DETERMINATION OF ARMS LENGTH PRICE [ALP] U/S 92CA(1) TO LD. TRANSFER PRICING OFFICER [TPO] ON 15/11/2010. THE ISSUE UNDE R APPEAL IS RELATED ITA.NO.7566/MUM/2012 ROCHE DIAGNOSTICS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2008-09 3 WITH DETERMINATION OF ALP OF DISTRIBUTION SEGMENT WHICH CONSIST OF PURCHASE OF TRADING GOODS FROM AE AND RECEIPT FROM AES AGAINST SALE MADE TO INDIAN CUSTOMERS PURSUANT TO A GLOBAL MASTER AGREEMENT . THE PURCHASE OF TRADING GOODS AMOUNTS TO RS.112.32 CROR ES WHEREAS RECEIPTS FROM AE AMOUNT TO RS.1.16 CRORES. BOTH THE SE TRANSACTIONS HAVE BEEN AGGREGATED FOR THE PURPOSE OF DETERMINATI ON OF ALP . THE ASSESSEE HAS REFLECTED TURNOVER OF RS.190.07 CRORES AND PROFIT MARGIN OF RS.8.31 CRORES WHICH TRANSLATES INTO MARGIN OF 4.37 %. THE ASSESSEE ADOPTED TNMM METHOD TO BENCHMARK THE SAME WITH PROFIT LEVEL INDICATOR [PLI] AS OPERATING PROFIT / OPERATING INCOME [OP/OI] AND THE ASSESSEE BEING THE TESTED PARTY . THE AVERAGE PLI OF NINE COMPARABLES AS SELECTED BY THE ASSESSEE BASED ON SINGLE YEAR DATA WORKED OUT TO 5.46% AS AGAINST ASSESSEES PLI OF 4.37% AND THEREFORE, THE ASSESSEE SUBMITTED THAT THE SAME BEING WITHIN THE TOLERANCE RANGE OF + /-5%, NO TP ADJUSTMENT WAS REQUIRED. HOWEVER, BY APPLYING RPT TURNOVER FILTER OF RS.1000 CRORES, FOUR COMPARABLES GOT EXCLUDED AND T HE AVERAGE PLI OF THE REMAINING FIVE COMPARABLES WORKED OUT AS 8.35% AS AGAINST ASSESSEES PLI OF 4.37%, WHICH RESULTED INTO IMPUGNED TP ADJUSTMENT OF RS.7.55 CRORES. IN OTHER WORDS, THE ALP OF THE PURCHASES MADE BY THE ASSESSEE FROM ITS AE HAS BEEN COMPUTED AS RS.104.76 CRORES AS AGAINST RS.112.32 CRORES REFLECTED BY THE ASSESSEE AND THE DIFFERENCE OF THE TWO IS IMPUGNED TP ADJUSTMENT. INCORPORATING THE AFORESAID ADJUSTMENT, DRAFT ASSESSMENT HAS BEEN PASSED ON 26/ 12/2011 WHICH WAS SUBJECTED TO OBJECTIONS BEFORE LD. DRP. 2.3 AGGRIEVED, THE ASSESSEE RAISED OBJECTIONS AGAIN ST THE SAME WITHOUT ANY SUCCESS BEFORE LD. DRP VIDE DIRECTIONS U/S 144C(5) DATED ITA.NO.7566/MUM/2012 ROCHE DIAGNOSTICS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2008-09 4 25/09/2012. THE MULTIPLE SUBMISSIONS MADE BY THE AS SESSEE AGAINST THE DRAFT ASSESSMENT ORDER COULD NOT FIND FAVOR BEFORE LD. DRP AND THE STAND OF LOWER AUTHORITIES HAS BEEN CONFIRMED BY LD . DRP. ACCORDINGLY, INCORPORATING THE AFORESAID DIRECTIONS U/S 144C(5) OF LD. DRP, FINAL ASSESSMENT ORDER DATED 23/10/2012 HAS BEEN PASSED, WHICH HAS FURTHER BEEN CONTESTED BEFORE US BY THE ASSESSEE BY WAY OF PRESENT APPEAL. 3. THE LD. AUTHORIZED REPRESENTATIVE [AR] HAS REITE RATED THE MULTIPLE SUBMISSIONS AS RAISED BEFORE LD. DRP WHEREAS LD. DE PARTMENTAL REPRESENTATIVE [DR] SUPPORTED THE STAND OF THE LOWE R AUTHORITIES. VEHEMENT ARGUMENTS HAVE BEEN ADDUCED VIS--VIS TURN OVER FILTER AS APPLIED BY LD. DRP AND SELECTION OF COMPARABLES. R ELIANCE HAS BEEN PLACED ON SEVERAL JUDICIAL PRONOUNCEMENTS TO SUPPOR T THE RESPECTIVE SUBMISSIONS. 4.1 WE HAVE CAREFULLY PERUSED THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. UPON DUE CONSIDERATION , WE FIND THAT WHOLE CONTROVERSY PRIMARILY REVOLVES AROUND APPLICATION O F TURNOVER FILTER AND FUNCTIONAL COMPARABILITY OF THE COMPARABLES. 4.2 DURING HEARING BEFORE US, BOTH THE REPRESENTATI VES HEAVILY RELIED UPON VARIOUS JUDICIAL PRONOUNCEMENTS TO DEMONSTRATE THE RELEVANCY OF TURNOVER FILTER IN THE TP STUDY, LD. AR CONTENDING THAT THE SAME W AS NOT A RELEVANT FACTOR WHILE LD. DR CONTROVERTING THE SA ME. HOWEVER, NOTHING HAS BEEN BROUGHT ON RECORD EITHER IN THE ORDERS OF THE LOWER AUTHORITIES OR DURING SUBMISSIONS MADE BEFORE US TO DEMONSTRATE THAT WHETHER TURNOVER FILTER WAS ACTUALLY A RELEVANT FACTOR / DETERMINATIVE FACTOR OR NOT FOR ARRIVING AT MARGINS IN THE PECULIAR LINE OF BUS INESS BEING CARRIED ON BY THE ASSESSEE. A PERUSAL OF NATURE OF BUSINESS CARRI ED ON BY ASSESSEE ITA.NO.7566/MUM/2012 ROCHE DIAGNOSTICS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2008-09 5 REVEAL THAT THE ASSESSEE WAS ENGAGED IN SUPPLY OF IMPORTED BIOMEDICAL DIAGNOSTIC EQUIPMENTS WHICH WAS NOT A NORMAL LINE OF BUSINESS BUT A SPECIALIZED KIND OF BUSINESS REQUIRING NOT ONLY BUS INESS SKILLS BUT ALSO TECHNICAL SKILLS AS WELL. UPON CONSIDERATION OF MAT ERIAL BEFORE US, THIS PERTINENT QUESTION HAS REMAINED UNANSWERED. AS A LO GICAL CONSEQUENCE, IF TURNOVER FILTER WAS, AT ALL, FOUND TO BE A RELEV ANT FACTOR FOR THE MARGINS EARNED BY THE ASSESSEE THEN THE NEXT PERTINENT QUES TION WOULD BE THE UPPER / LOWER RANGE THEREOF SO AS TO ARRIVE AT MEAN INGFUL TP STUDY AS ENVISAGED BY LAW. 4.3 SO FAR AS THE ISSUE OF COMPARABLES IS CONCERNED , WE FIND THAT UNDER TNMM METHOD , ONLY A BROAD FUNCTIONAL COMPARABILITY IS REQUIRED AND THE STATUTE, ITSELF, HAS PROVIDED FOR A TOLERANCE RANGE OF +/-5% TO WEED OUT THE DISSIMILARITIES SINCE NO TWO ENTITIES COULD EXA CTLY BE THE IDENTICAL / SIMILAR IN ALL RESPECT. IT IS NOTEWORTHY THAT ALL T HE COMPARABLES UNDER DISPUTE HAS BEEN SELECTED BY THE ASSESSEE ITSELF AN D NO COMPARABLE HAS BEEN INTRODUCED BY THE REVENUE AND THEREFORE, THE M ORE ONUS WAS ON ASSESSEE TO JUSTIFY EXCLUSION / INCLUSION OF TWO CO MPARABLES NAMELY ASHCO INDUSTRIES LTD. & FRONTLINE. THE LD. AR HAS BROUGHT TO OUR NOTICE THE JUDICIAL PRONOUNCEMENTS TO CONTEND THAT THE COM PARABLES INITIALLY SELECTED BY THE ASSESSEE COULD BE EXCLUDED SUBSEQUE NTLY, FINDING THEM TO BE FUNCTIONALLY OR OTHERWISE UN-COMPARABLE IN THE CIRCUMSTANCES . AT THE SAME TIME, WE ARE OF THE OPINION THAT THERE COU LD NOT BE ANY CHERRY PICKING TO SUIT THE REQUIREMENT OF THE ASSESSEE. 4.4 THEREFORE, KEEPING IN VIEW THE OVERALL FACTUAL MATRIX OF THE CASE, WE ARE LEFT WITH NO OPTION, BUT TO REMIT THE MATTER BA CK TO THE FILE OF LD. AO / TPO FOR FRESH DETERMINATION OF ALP OF THE TRANSACTI ONS UNDER DISPUTE ITA.NO.7566/MUM/2012 ROCHE DIAGNOSTICS INDIA PRIVATE LIMITED ASSESSMENT YEAR 2008-09 6 KEEPING IN VIEW THE AFORESAID FACTORS. THE ASSESSEE , IN TURN, IS DIRECTED TO DEMONSTRATE / SUBSTANTIATE HIS STAND IN THIS REG ARD, INTER-ALIA, BY UNDERTAKING FRESH TP STUDY , IF THE CIRCUMSTANCES SO DEMAND. 5. RESULTANTLY, THE ASSESSEES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH MAY, 2018. SD/- SD/- (MAHAVIR SINGH) (MANOJ K UMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER )$ MUMBAI; DATED : 04 .05.2018 SR.PS:-THIRUMALESH COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. * / THE CIT(A) 4. * / CIT CONCERNED 5. +, '%- -( )$ / DR, ITAT, MUMBAI 6. ,./0$ GUARD FILE ! / BY ORDER, ' !# $ (DY./ASSTT.REGISTRAR) )$ / ITAT, MUMBAI