Granules India Limited, Hyderabad V. Dy.CIT, Central Circle-2(3), Hyderabad

ITA 775/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91680 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 20-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 29-04-2014
• Court: TRIBUNAL
• Department Lawyers: K KAMAKSHI
• Assessee Lawyers: J J VARUN
• Keywords: Related party transaction; Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER I.T.A. NO. 775/HYD/2014 ASSESSMENT YEAR: 2009-10 GRANULES INDIA LIMITED, MADHAPUR HYDERABAD [PAN: AAACG7369K] VS DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(3), RANGE-2, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI J.J. VARUN , AR FOR REVENUE : SMT. K. KAM A KSHI , CIT - DR DATE OF HEARING : 20 - 0 5 - 201 5 DATE OF PRONOUNCEMENT : 27 - 05 - 2015 O R D E R PER INTURI RAMA RAO, A.M. : THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER OF THE ASSESSING OFFICER (AO) PASSED U/S. 143(3) R.W.S. 92 CA(3) CONSEQUENT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP ) U/S. 144C(5) OF THE INCOME TAX ACT, 1961 (ACT). 2. BRIEFLY STATED, ASSESSEE M/S. GRANULES INDIA LI MITED IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF BULK DRUG (API) FORMULATIONS/GRANULES (PFI) AND TABLETS. ASSESSEE I S HAVING A WHOLLY OWNED SUBSIDIARY IN USA NAMED GRANULES USA (INC.) T O MARKET THE PRODUCTS MANUFACTURED BY ASSESSEE. FOR THE AY. 2009 -10, ASSESSEE FILED I.T.A. NO. 775/HYD/2014 GRANULES INDIA LTD., :- 2 -: ITS RETURN OF INCOME ON 30-09-2009 DECLARING TOTAL INCOME OF RS. 1,04,02,901/- AFTER CLAIMING DEDUCTION UNDER SECTIO N 10B OF THE ACT. 3. THE AO ULTIMATELY DETERMINED THE TOTAL INCOME A T RS. 12,71,70,274/- VIDE DRAFT ORDER DATED 31-01-2014 BY MAKING THE FOLLOWING ADJUSTMENTS : I. TRANSFER PRICING ADJUSTMENT U/S.92CA RS. 8,86,12,580 II . BELATED PAYMENT OF PROVIDENT FUND RS. 1 , 8 1 , 191 III . BELATED PAYMENT OF EMPLOYEES STATE INSURANCE RS. 4, 58, 1 62 IV. DISALLOWANCE OF GDR EXPENSES U/S.35D RS. 17,60,140 V. DISALLOWANCE OF DEDUCTION U/S.10B RS. 3,33,94,883 4. THE ASSESSEE RAISED VARIOUS OBJECTIONS BEFORE T HE DRP AND THE DRP CONSIDERED THE OBJECTIONS AND PASSED THE OR DER DT. 27-11-2013, WHEREBY THE ADDITION UNDER TP ADJUSTMENT WAS CONFIR MED AND ON THE OTHER ADDITIONS, THE MATTER WAS RESTORED TO THE FIL E OF THE AO FOR VERIFICATION/FRESH EXAMINATION. NOW THE ASSESSEE H AS FILED THE PRESENT APPEAL CHALLENGING THE ORDER OF HON'BLE DRP CONFIRM ING THE TP ADJUSTMENT RAISING THE FOLLOWING GROUNDS OF APPEAL: '1. THE TPO ERRED IN REJECTING THE ECONOMIC ANALYSI S UNDERTAKEN BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE A CT READ WITH THE INCOME TAX RULES 1962 AND CONSEQUENTLY MAKING ADJUSTMENTS TO T HE TRANSFER PRICING OF ITS INTERNATIONAL TRANSACTION WITH AE. 2. THE TPO ERRED IN SELECTION OF THE TESTED PARTY FOR DETERMINATION OF ALP. 3. THE TPO ERRED IN REJECTING RESALE PRICE METHOD (RPM) WHICH WAS SELECTED BY THE ASSESSEE AS THE MOST APPROPRIATE ME THOD TO DETERMINE ARM'S LENGTH PRICE FOR TRANSACTIONS ENTERED WITH ITS AE. 4. THE DRP IN PARA 6.2 OF THEIR ORDER ERRED IN REJ ECTING THE SUBMISSIONS MADE WITH RESPECT TO GROUNDS 1, 2 & 3 ABOVE, WHICH CONSEQUENTLY LED TO NO RELIEF BEING GRANTED BY THE ASSESSING OFFICER IN FINAL ASS ESSMENT ORDER U/S. 143(3) DATED 31.01.2014. I.T.A. NO. 775/HYD/2014 GRANULES INDIA LTD., :- 3 -: 5. THE TPO ERRED IN REJECTING THE ALTERNATIVE ANAL YSIS UNDERTAKEN BY THE ASSESSEE UNDER TNMM TO DETERMINE THE ARM'S LENGTH P RINCE FOR TRANSACTION ENTERED BY THE ASSESSEE WITH ITS AE BY GIVING THE F OLLOWING REASONS: A. TURNOVER FILTER APPLIED BY ASSESSEE IS NOT APPROPRI ATE B. SELECTION OF COMPARABLE WITH FOREX REVENUE MORE THA N 60% IS NOT APPROPRIATE AND NO RATIONALE C. COMPARABLES SELECTED BY THE ASSESSEE ARE FUNCTIONAL LY DIFFERENT. THE TPO ERRED IN CONDUCTING A FRESH SEARCH TO IDENT IFY SUITABLE COMPARABLES FOR COMPARISON UNDER TNMM. 6. THE DRP IN PARAS 7.2, 7.3 & 7.4 OF THEIR ORDER ERRED IN REJECTING THE SUBMISSIONS MADE WITH RESPECT TO GROUND 5 ABOVE, WH ICH CONSEQUENTLY LED TO NO RELIEF BEING GRANTED BY THE ASSESSING OFFICER IN FI NAL ASSESSMENT ORDER U/S. 143(3) DATED 31.01.2014. 7. WITHOUT PREJUDICE TO GROUND.5, THE TPO ERRED IN APPLYING THE FOLLOWING FILTERS IN SELECTING COMPARABLE TO DETERMINE ALP UN DER TNMM A. TURNOVER FILTER THIS FILTER RESULTED IN REDUCING THE NO. OF COMPARABLES B. FUNCTIONALLY DIFFERENT SELECTED COMPARABLE COMPAN IES WHICH ARE FUNCTIONALLY DIFFERENT THAT OF THE ASSESSEE THE TPO ERRED IN MAKING ADJUSTMENT OF RS. 8,86,12,5 80/- IN RESPECT TO SALES MADE TO ITS AE. 8. THE DRP IN PARA 8.0 OF THEIR ORDER ERRED IN REJ ECTING THE SUBMISSIONS MADE WITH RESPECT TO GROUND NO. 7 ABOVE, WHICH CONS EQUENTLY LED TO NO RELIEF BEING GRANTED BY THE ASSESSING OFFICER IN FINAL ASS ESSMENT U/S. 143(3) DATED 31.01.2014. 9. THE ASSESSING OFFICER ERRED IN INITIATING PENAL TY PROCEEDINGS U/S. 271(1)(C) AT THE TIME OF FINALIZATION OF ORDER OF A SSESSMENT. 10. FOR THE ABOVE AND / OR ANY OTHER ADDITIONAL GR OUNDS THAT MAY BE SUBMITTED AT THE TIME OF HEARING OF THE APPEAL, THE APPELLANT PRAYS BEFORE THE HON'BLE TRIBUNAL THAT THE ABOVE ADDITION BE DELETED AND NECESSARY ORDER BE PASSED'. 5. THE ASSESSEE HAS RAISED 10 GROUNDS IN ITS APPEA L. GROUND NO. 1 AND 10 ARE GENERAL IN NATURE. HENCE, DOES NO T REQUIRE ANY ADJUDICATION. GROUND NO. 2 TO 8 PERTAINS TO TP ADJ USTMENTS MADE UNDER SECTION 92C. I.T.A. NO. 775/HYD/2014 GRANULES INDIA LTD., :- 4 -: 6. TRANSFER PRICING ADJUSTMENTS : GROUND NO. 2 IS WITH REFERENCE TO ISSUE OF SELECTION OF TESTED PARTY IN DETERMINATION OF ARMS LENGTH PRICE (ALP). BRIEFLY STATED, DURING THE FINA NCIAL YEAR ASSESSEE ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WIT H ITS ASSOCIATED ENTERPRISE (AE) FOR A TOTAL SUM OF RS. 1,03,86,76,1 26/- AS UNDER : S. N. CLASS OF TRANSACTIONS PAID/ RECEIVED A.E. AMOUNT (IN INR) METHOD APPLIED 1. EXPORT OF FINISHED GOODS RECEIVED GRANULES USA INC. 8 3, 06 , 28 , 503 RPM 2. PURCHASE OF RAW MATERIALS PAID HUBEI GRANULES BIOCAUSE PHARMACEU TICALS CO. LTD., CHINA 20 , 76 , 2 9, 307 CUP 3 . INTEREST RECEIVED ON LOAN RECEIVED GRANULES USA INC. 4,1 8 ,3 16 CUP 1,03,86,76,126 7. IN THE T.P. STUDY ASSESSEE HAD FURNISHED PROFIT ABILITY ANALYSIS IN RESPECT OF DOMESTIC SALES AND SALES TO AE AND NON-AE UNDER EXPORT SEGMENT FOR FY. 2008-09. ASSESSEE HAS ALLOCA TED DIRECT AND INDIRECT EXPENSES TO THESE SEGMENTS IN PROPORTION T O THEIR SALES AND NOT OF THEIR ACTUAL BASIS. IN THE T.P. STUDY OF ASSESSE E, THE TESTED PARTY WAS THE AE IN USA. ASSESSEE EXPORTED FINISHED GOODS TO AE IN USA FOR A SUM OF RS. 83,06,28,503/- AND ASSESSEE SUBMITTED BEFORE THE AO THAT THE AE HAS LEAST COMPLEX TRANSACTIONS AND THE ALP CAN BE D ETERMINED ACTUALLY BY ADOPTING RE-SALE PRICE METHOD (RPM). ASSESSEE S OURCED THE DATA FROM THE WEBSITE WWW.SESC.GOV AND THE INTERNATIONA L TRANSACTIONS WITH THE AE WERE COMPARED BY SEARCHING THE DATA BASED IN THE WEBSITE AND SIX COMPARABLES WERE PICKED FROM THE BUSINESS OF MA RKETING AND DISTRIBUTION USING THE MULTIPLE YEAR DATA. ASSESSE E ARRIVED AT WEIGHTED I.T.A. NO. 775/HYD/2014 GRANULES INDIA LTD., :- 5 -: AVERAGE GROSS PROFIT MARGIN OF THESE COMPANIES COMP UTED AT RANGES FROM 3.07% TO 29.23%. THE GROSS PROFIT MARGIN OF AE WAS WORKED OUT TO 5.13% AND CONCLUDED THAT INTERNATIONAL TRANSACTION WITH THE AE WERE AT ARMS LENGTH. 8. THE TPO HELD THAT TRANSFER PRICING STUDY OF THE ASSESSEE BY MAKING THE AE AS TESTED PARTY WAS DEFECTIVE AND REJ ECTED THE SAME BY GIVING THE FOLLOWING REASONS : I . FAR ANALYSIS OF THE COMPA NIES SELECTED AS COMPA RABLES NOT PROPERLY CARRIED OUT; II . S EARCH PROCESS AND MATRIX NOT PROVIDED ; III . F ILTERS APPLIED NOT REVEALED ; IV . M ULTIPLE YEAR DATA USED; V. FOREIGN COMPARABLES SELECT ED ARE CHERRY PICKED AND FOUND TO BE FUNCTIONALLY DISSIMILAR. THE ACTIVITIES IN WHICH T HEY ARE ENGAGED ARE DIFFERENT FROM THAT OF THE TAXPAYER. 9. IN ADDITION TO THE RPM, THE ASSESSEE CARRIE D OUT AN INDEPENDENT ANALYSIS BY APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR ANALYZING THE SALE TRANSACTIONS. THIS TP STUDY WAS REJECTED BY THE TP O. THE TPO HAD USED ONLY THE CURRENT YEAR DATA ON PROWESS AND CAPITALIN E PLUS DATABASES FOR SEARCHING THE COMPARABLES AND SELECTED 8 COMPARABLE S, THE ARITHMETIC MEAN PLI (OP/OC) OF WHICH COMES TO 21.01% AS AGAINS T THE PLI OF THE TAXPAYER AT 9.35% WHICH IS OUTSIDE THE ARM'S LENGTH RANGE OF [X/-] 5%. THEREFORE, THE TPO MADE ADJUSTMENT U/S. 92CA(3) OF RS. 8,86,12,580/-. BEING AGGRIEVED, THE ASSESSEE HAD FILED OBJECTIONS BEFORE THE HON'BLE DRP. I.T.A. NO. 775/HYD/2014 GRANULES INDIA LTD., :- 6 -: 10. BEFORE THE DRP, IT WAS CONTENDED THAT REJECTION OF TP STUDY, REJECTION OF AE AS THE TESTED PARTY AND REJE CTION OF RPM WAS NOT JUSTIFIED. THE ASSESSEE SUBMITTED BEFORE DRP THAT IT IS ENGAGED IN THE MANUFACTURE OF API, PFI AND FD AND IS THE PARENT CO MPANY AND ASSUMES THE RESPONSIBILITY TO MANUFACTURE THE PHARM ACEUTICAL PRODUCTS, UNDERTAKES TO MAINTAIN THE QUALITY STANDARDS AND SP ECIFICATIONS AS PER THE REQUIREMENTS OF THE AE. IN THE TP STUDY, THE T ESTED PARTY WAS THE ASSOCIATED ENTERPRISE IN USA. THE ASSESSEE EXPORTE D THE FINISHED GOODS TO AE IN USA FOR A SUM OF RS. 83.06 CRORES AND FOR THE TP STUDY PURPOSE, THE ENTITY IN USA WAS SELECTED AND THE TAX PAYER SUBMITTED BEFORE THE AO AND DRP THAT IT HAD THE LEAST COMPLEX TRANSACTIONS AND ALP CAN BE DETERMINED ACCURATELY BY ADOPTING THE RP M AND SELECTED 6 COMPARABLES FROM THE BUSINESS OF MARKETING AND DIST RIBUTION AND CONCLUDED THAT THE INTERNATIONAL TRANSACTIONS WITH THE AE WERE AT ARM'S LENGTH. 11. HOWEVER, THE DRP FOLLOWING ITS ORDER FOR EARLIE R YEARS I.E., AY. 2007-08 AND 2008-09, REJECTED THE SUBMISSION OF THE ASSESSEE. 12. THE ASSESSEE IN THE TP STUDY REPORT, IN ADDITIO N TO THE ANALYSIS OF INTERNATIONAL TRANSACTIONS UNDER RPM, A LSO MADE AN ALTERNATIVE ANALYSIS UNDER TNMM AND CONDUCTED SEARC H IN THE CAPITALINE PLUS DATABASE AND IDENTIFIED 4 COMPARABL ES AFTER APPLYING CERTAIN FILTERS I.E., COMPANIES HAVING NET FOREIGN EXCHANGE REVENUE OVER 60% AND TURNOVER FILTER BETWEEN RS. 190 CRORE TO RS . 440 CRORES AND COMPANIES HAVING RELATED PARTY TRANSACTIONS LESS TH AN 25% AND SELECTGED 2 COMPANIES (NUELAND LABS AND VINATHI ORG ANICS) AS COMPARABLES. THE TPO FOUND THE SEARCH PROCESS COND UCTED BY THE ASSESSEE DEFECTIVE AND CARRIED OUT AN INDEPENDENT A NALYSIS BY APPLYING TNMM AS THE MAM FOR ANALYZING THE SALE TRANSACTIONS BY USING POWESS I.T.A. NO. 775/HYD/2014 GRANULES INDIA LTD., :- 7 -: AND CAPITALINE PLUS DATABASES. THE FINAL FILTERS A PPLIED BY THE TPO ARE AS UNDER: I. COMPANIES WHOSE DATA IS NOT AVAILABLE FOR THE FY. 2 008-09 WERE EXCLUDED; II. COMPANIES WHOSE REVENUE MANUFACTURING OF PHARMACEUT ICALS IS LESS THAN 75% OF THE TOTAL OPERATING REVENUES WERE EXCLUDED; III. COMPANIES WHOSE REVENUES FROM OPERATIONS ARE BETWEE N RS. 250 TO RS. 380 CRORES ARE SELECTED; IV. COMPANIES WHICH HAVE MORE THAN 25% RELATED PARTY TR ANSACTIONS (INCOME AS WELL AS EXPENDITURE COMBINED); V. COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I .E., NOT MARCH 31, 2009) OR DATA OF THE COMPANY DOES NOT FALL WITH IN 12 MONTH PERIOD I.E., 1-4-08 TO 31-3-2009 AFTER REJECTED; VI. COMPANIES THAT ARE FUNCTIONALLY DIFFERENT FROM THAT OF TAXPAYER, AFTER GIVING VALID REASONS, WERE EXCLUDED; 13. WITH REGARD TO TNMM METHOD, TO DETERMINE THE A LP FOR TRANSACTION ENTERED BY ASSESSEE WITH ITS AE, IT WAS SUBMITTED BEFORE HON'BLE DRP THAT THE TPO WAS NOT JUSTIFIED IN REJEC TING THE COMPARABLES SELECTED BY THE ASSESSEE ON THE GROUND VIZ (1) TURN OVER FILTER APPLIED BY ASSESSEE IS NOT APPROPRIATE (2) SELECTION OF COMPAR ABLE WITH FOREX REVENUE MORE THAN 60% IS NOT APPROPRIATE AND NO RAT IONALE AND (3) COMPARABLE SELECTED BY THE ASSESSEE ARE FUNCTIONALL Y DIFFERENT. 14. THE DRP HELD THAT THE ASSESSEE HAD BEEN SELECT ED AS THE TESTED PARTY AND APPLIED THE TURNOVER FILER OF RS. 250 CRORES TO RS. 380 CRORES. THE TPO IN PRINCIPLE AGREED WITH THE ASSES SEE THAT THERE SHOULD BE A TURNOVER FILTER IN MANUFACTURING SECTOR AND TH E DISPUTE IS IN RESPECT OF THE QUANTUM. IT WAS NOTED THAT THE ASSESSEE ADO PTED THE SALES RANGE OF RS. 190 CRORES TO RS. 440 CRORE WHEREAS THE TPO ADOPTED RS. 250 I.T.A. NO. 775/HYD/2014 GRANULES INDIA LTD., :- 8 -: CRORES TO RS. 380 CRORES. SINCE THE ASSESSEE'S TUR NOVER IS RS. 315.93 CRORES AND THE ASSESSEE HAD NOT GIVEN ANY REASONS A S TO WHY IT HAD ADOPTED SUCH WIDE RANGE OF TURNOVER, THE TPO'S SELE CTION OF COMPANIES WHICH HAVE SIMILAR SCALE OF OPERATION IS NEARER TO THE TURNOVER OF THE ASSESSEE AND MORE ACCURATE. THEREFORE, THE TURNOVE R FILTER APPLIED BY THE TPO WAS HELD TO BE JUSTIFIED AND ACCORDINGLY, THE O BJECTION WAS REJECTED. 15. ON THE NEXT ISSUE REGARDING THE EXPORT REVENUE FILTER, THE ASSESSEE'S SUBMISSION BEFORE DRP WAS THAT, REVENUES FROM EXPORTS IN A COMPARABLE SHOULD BE IN EXCESS OF 60% OF THE TOTAL TURNOVER. SINCE THE ASSESSEE HAD NOT SUBSTANTIATED THIS GROUND WITH ANY FACTS AND FIGURES NEITHER BEFORE THE TPO NOR BEFORE THE PANEL, THE OB JECTION WAS REJECTED. 16. AS REGARD TO THE ASSESSEE'S ARGUMENT THAT SOME OF THE COMPARABLES SELECTED BY THE TPO WERE FUNCTIONALLY D ISSIMILAR HAD BEEN CONSIDERED. THE PANEL NOTED THAT THE TPO HAD GIVEN THE PROFILE OF THE COMPARABLES SELECTED AND ALSO NOTED THAT THE COMPAN IES NATCO PHARMA LTD., VENUS REMEDIES LTD., HITKAL LTD., HAD BEEN HE LD TO BE FUNCTIONALLY SIMILAR TO THE ASSESSEE-COMPANY IN THE AY. 2008-09 AND THE DRP HAD ENDORSED/CONSIDERED THE VIEW OF THE TPO. ACCORDING LY, THE PANEL UPHELD THE SELECTION OF THESE THREE COMPANIES AS COMPARABL ES. REGARDING INDOCO REMEDIES LTD., THE TPO HAD NOTED AT PARA 7.3 THAT THERE WAS NO FUNCTIONAL DISSIMILARITY AND FOR THE REASONS GIVEN THEREIN, THE PANEL AGREED WITH THE VIEW OF THE TPO. IN THE CASE OF AA RTI DRUGS LTD., THE TPO HAD REJECTED THE ASSESSEE'S OBJECTION THAT THE SAID COMPANY FAILS THE TURNOVER FILTER APPLIED BY THE TPO, BY CLEARLY STAT ING THAT AS PER THE AUDITED FINANCIALS OF THE SAID COMPANY, ITS OPERATI NG REVENUE WAS RS. 376.6 CRORES AND THEREBY PASSES THE TURNOVER FILTER APPLIED. THEREFORE, THE PANEL REJECTED THE OBJECTION. AGGRIEVED WITH TH E ORDER OF DRP, THE ASSESSEE HAD COME UP WITH THE PRESENT APPEAL. I.T.A. NO. 775/HYD/2014 GRANULES INDIA LTD., :- 9 -: 17. IT WAS SUBMITTED BEFORE US BY THE LD. AR THAT THE ISSUE MAY BE RESTORED TO THE FILE OF AO FOR FRESH DETERMINATI ON OF ALP BY FOLLOWING THE RPM, SINCE, FOR EARLIER YEARS, IT WAS HELD BY T HIS HON'BLE TRIBUNAL THAT RPM IS THE MOST APPROPRIATE METHOD FOR DETERMI NING THE ALP AND THE ISSUE WAS RESTORED TO THE FILE OF AO. LD CIT-D R HAD NO SERIOUS OBJECTION FOR REMITTING THE MATTER BACK TO THE FILE OF AO FOLLOWING THE ORDERS OF THIS HON'BLE TRIBUNAL FOR EARLIER YEARS. 18. WE HEARD THE RIVAL PARTIES AND PERUSED T HE ORDERS OF THIS HON'BLE TRIBUNAL FOR THE EARLIER YEARS AS WELL AS T HE ORDERS OF THE LOWER AUTHORITIES. WE CONCUR WITH THE SUBMISSION OF THE LD. AR THAT ISSUE SHOULD BE SENT BACK TO THE FILE OF AO/TPO WITH A DI RECTION THAT ALP MAY BE DETERMINED BY ADOPTING RPM AS MOST APPROPRIATE M ETHOD IN LINE WITH THE EARLIER ASSESSMENT YEARS. THE CO-ORDINATE BENC H OF THIS HON'BLE TRIBUNAL HELD IN ITA NO. 1793/HYD/2012 (AY. 2008-09 ) IN PARA 11 OF ITS ORDER HELD AS UNDER: ' 10.. 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS A ND EXAMINED THE ISSUE. SINCE WE HAVE ALREADY CONSIDERED ABOVE THAT A.E. SHOULD B E SELECTED AS TESTED PARTY, IT IS NOTHING BUT NATURAL THAT THE T.P. STUDY SHOUL D BE UNDERTAKEN BY RESALE PRICE METHOD ONLY, AS A.E. IS ONLY UNDERTAKING THE DISTRI BUTION OF ASSESSEES PRODUCTS IN THE LOCAL MARKET. PROFITABILITY OF THE SELECTED COMPARABLE COMPANIES IN DOMESTIC MARKET MAY VARY WITH THE PROFIT MARGINS AV AILABLE ABROAD, PARTICULARLY IN THE USA MARKET. DRP ALSO REJECTED THE METHOD SOL ELY ON THE REASON THAT AE WAS NOT SELECTED AS TESTED PARTY. THEREFORE, KEEPIN G IN MIND THE SUBMISSIONS MADE BY THE LD. COUNSEL, THE ISSUE OF SELECTION OF METHOD OF RESALE PRICE METHOD OR OF TNMM OR ANY OTHER METHOD SUITABLE TO THE INTE RNATIONAL TRANSACTIONS IS ALSO RESTORED TO THE FILE OF A.O. TO EXAMINE THE SUITABI LITY OF VARIOUS METHODS AND CONSIDER ACCORDINGLY'. 19. RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDI NATE BENCH, WE ALSO RESTORE THE ISSUE OF SELECTION OF MOST APPR OPRIATE METHOD AS WELL AS SELECTION OF THE TESTED PARTY TO THE FILE OF AO/ TPO TO EXAMINE AFRESH, I.T.A. NO. 775/HYD/2014 GRANULES INDIA LTD., :- 10 -: WHETHER AE CAN BE SELECTED AS TESTED PARTY AND RPM CAN BE SELECTED AS MOST APPROPRIATE METHOD. 20. THE ISSUE OF DETERMINING ALP BY TNMM BECOMES ACADEMIC IN THE LIGHT OF OUR ABOVE FINDING. HOWEVE R, THE ASSESSEE IS GIVEN LIBERTY TO RAISE ANY CONTENTIONS AS AND WHEN NEEDED IN CASE RPM METHOD IS REJECTED BY THE TPO. THEREFORE, THERE IS NO NEED TO ADJUDICATE THE GROUNDS RELATING TO THE FILTERS, COMPARABLES RE LATING TO TNMM RAISED IN THE APPEAL. 21. AS FAR AS THE GROUND OF PENALTY PROCEEDINGS U/S . 271(1)(C), SINCE IT IS ONLY CONSEQUENTIAL IN NATURE AND DOES NOT ARISE OUT OF THE ORDER OF DRP. HENCE THIS GROUND IS NOT MAIN TAINABLE. 22. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MAY, 2015 SD/- SD/- (SAKTIJIT DEY) (INTURI RAMA RAO) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED 27 TH MAY, 2015 TNMM I.T.A. NO. 775/HYD/2014 GRANULES INDIA LTD., :- 11 -: COPY TO : 1. GRANULES INDIA LIMITED, 2 ND FLOOR, 3 RD BLOCK, MY HOME HUB, HITEC CITY, MADHAPUR, HYDERABAD. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2( 3), RANGE-2, HYDERABAD. 3. DISPUTE RESOLUTION PANEL (DRP), HYDERABAD. 4. THE DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATI ON, INCOME TAX TOWERS, 10-2-3, A.C.GUARDS, HYDERABAD. 5. ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICI NG), HYDERABAD. 6. D.R. ITAT, HYDERABAD.