Eli Lilly & Co. (India) Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 788/DEL/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98004 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 27-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 09-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SYED NASIR ALI
• Assessee Lawyers: NITYA GUPTA
• Keywords: Gift; Transfer pricing; International transaction; Rule of consistency; Wholly owned subsidiary
• Section: 143(3); 234B; 37(1); 10B

Judgement Text

1 ITA NO.788/DEL/2015 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI S.V.MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.788/DEL./2015 (ASSESSMENT YEAR : 2010-11) ELI LILLY & CO. (INDIA) PVT. LTD., VS. ACIT, CIRCL E 1 (1), PLOT NO.92, SECTOR 32, GURGAON. GURGAON. (PAN : AAACE8901F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, SENIOR ADVOCATE, SHRI NEERAJ JAIN, ADVOCATE SHRI ABHISHEK AGARWAL, CA & MS NITYA GUPTA CA REVENUE BY : SHRI SYED NASIR ALI, CIT DR DATE OF HEARING : 28.08.2015 DATE OF PRONOUNCEMENT : 24.11.2015 O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : 2 ITA NO.788/DEL/2015 THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, IS DI RECTED AGAINST THE ASSESSMENT ORDER DATED 12.01.2015 PASSED U/S 14 3(3) R.W.S 144C OF THE I.T. ACT. 2 THE APPELLANT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPLETING ASSESSMENT UNDER SECTION 144C/143(3) OF THE INCOME-TAX ACT, 1961(THE ACT) AT AN INCOME OF RS. 23,06,18,7 30 AS AGAINST THE INCOME OF RS. 16,75,13,196 RETURNED BY THE APPELLAN T. 2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPLETING ASSESSMENT UNDER SECTION 144C/143(3) OF THE INCOME-TAX ACT, 1961(THE ACT) AT AN INCOME OF RS. 23,06,18,7 30 AS AGAINST THE INCOME OF RS. 16,75,13,196 RETURNED BY THE APPELLAN T. 2.1 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE FREE SAMPLES WERE NEITHER FR EEBIES NOT GIFTS AND WERE DISTRIBUTED BY THE APPELLANT TO DOCTORS/ME DICAL PRACTITIONERS ON THE SPECIFIC WRITTEN REQUEST OF THE LATTER. 2.2 THAT THE ASSESSING OFFICER/DRP ERRED ON FACTS A ND IN LAW IN NOT APPRECIATING THAT NO PERSONAL BENEFIT HAS BEEN CONF ERRED BY THE APPELLANT TO DOCTORS/ MEDICAL PRACTITIONERS IN AS M UCH AS THE ABOVE FREE SAMPLES WERE TO BE USED BY THE PATIENTS ONLY. 2.3 THAT THE ASSESSING OFFICER/DRP ERRED ON FACTS A ND IN LAW IN NOT FOLLOWING THE ORDER OF DRP IN APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2009-10 WHEREBY SIMILAR DISALLOWANCE MADE ON A CCOUNT OF FREE SAMPLES DISTRIBUTED TO DOCTORS/ MEDICAL PRACTITIONE RS WERE DELETED. 3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 88,85,591 ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF THE INTERNATIONAL TRANSACTION OF BU SINESS SUPPORT SERVICES. ON THE BASIS OF THE ORDER PASSED UNDER SE CTION 92CA(3) OF THE ACT BY THE TPO. 3 ITA NO.788/DEL/2015 3.1 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN E XCLUDING THE FOLLOWING COMPANIES FROM THE SET OF COMPARABLES COM PANIES ALLEGEDLY HOLDING THAT THESE COMPANIES WERE NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT: (I) EDUCATIONAL CONSULTANT INDIA LIMITED (ECIL) (II) ITDC LIMITED (ITDC) (III) IN HOUSE PRODUCTION LIMITED (IHPL) (IV) INDUS TECHNICAL & FINANCIAL CONSULTANTS LIMITED (I TFCL) 3.2 THAT THE ASSESSING OFFICER/DRP ERRED FACTS AND IN LAW IN REJECTING THE FOLLOWING COMPANIES WITHOUT APPRECIAT ING THAT THE RELEVANT BUSINESS SEGMENTS OF THESE COMPANIES WERE FUNCTIONALLY COMPARABLES TO THE INTERNATIONAL TRANSACTIONS OF BU SINESS SUPPORT SERVICES UNDERTAKEN BY THE APPELLANT: SR. NO. NAME OF THE COMPANY COMPARABLE SEGMENT 1. EDUCATIONAL CONSULTANT INDIA LIMITED TECHNICAL ASSISTANCE AND HUMAN RESOURCE DEVELOPMENT 2. ITDC LIMITED EVENT MANAGEMENT SEGMENT 3. IN HOUSE PRODUCTION LIMITED HEALTHCARE DIVISION 3.3 THAT THE ASSESSING OFFICER/DRP ERRED ON FACTS A ND IN LAW IN REJECTING THE ABOVE COMPANIES FROM THE SET OF COMPA RABLE COMPANIES NOT APPRECIATING THAT THE RELEVANT BUSINESS SEGMENT S OF THESE COMPANIES WERE CONSIDERED BY THE DRP FOR UNDERTAKIN G THE BENCHMARKING ANALYSIS IN THE PRECEDING YEAR. 3.4 THE DRP/TPO ERRED ON FACTS AND IN LAW IN CONSID ERING FOLLOWING COMPANIES AS COMPARABLE NOT APPRECIATING THAT THESE COMPANIES FAILED TEST OF THE COMPARABILITY AS PROVI DED IN RULE 10B (2) OF THE INCOME TAX RULES: (I) APTICO LIMITED (II) GLOBAL PROCUREMENT LIMITED (III) HCCA BUSINESS SERVICES PRIVATE LIMITED (IV) TSR DARASHAW LIMITED 4 ITA NO.788/DEL/2015 3.5 THAT THE ASSESSING OFFICER/DRP ERRED ON FACTS A ND IN LAW IN NOT CONSIDERING THE FOLLOWING COMPARABLE COMPANIES PLAC ED ON RECORD BY THE APPELLANT DURING THE COURSE OF PROCEEDINGS BEFO RE THE DRP: (I) MICROGENETICS SYSTEMS LIMITED(MGS) (II) CG-VAK SOFTWARE & EXPORTS LIMITED (CG-VAK) (III) R SYSTEMS INTERNATIONAL 3.6 THAT THE DRP/TPO ERRED ON FACTS IN LAW IN NOT A LLOWING COMPARABILITY ADJUSTMENT TON ACCOUNT OF DIFFERENCE IN WORKING CAPITAL EMPLOYED BY THE APPELLANT VIS-A- VIS COMPARABLE COM PANIES CONSIDERED BY TPO, ALLEGEDLY HOLDING THAT THE ONUS IN THIS REGARD WAS ON THE APPELLANT TO DEMONSTRATE THE REASONS AND CAL CULATION OF WORKING CAPITAL ADJUSTMENT, WHICH WAS NOT DISCHARGED. 3.7 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN N OT BEING CONSISTENT IN DENYING ON THE CLAIM OF WORKING CAPIT AL ADJUSTMENT BY THE APPELLANT, WHEN THE SAME HAS BEEN ALLOWED IN CA SE OF THE OTHER ASSESSEE. 3.8 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN N OT ALLOWING RISK ADJUSTMENT TO ESTABLISH COMPARABILITY ON ACCOU NT OF THE APPELLANT BEING A LOW-RISK BEARING CAPTIVE SERVICE PROVIDER A S OPPOSED TO THE COMPARABLE COMPANIES. 3.9 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ASSESSING OFFICER/TPO ERRED IN REJECTING T HE CONTENTION OF THE APPELLANT REGARDING RISK ADJUSTMENT, ALLEGEDLY HOLD ING THAT IN ABSENCE OF ROBUST AND RELIABLE DATA, BOTH FOR THE APPELLANT AND FOR THE COMPARABLES, RISK ADJUSTMENT CANNOT BE CONSIDERED F OR ENHANCING COMPARABILITY 4 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LEVYING INTEREST UNDER SECTION 234B AND SECTION 234C OF THE ACT. 3. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF ELI LILLY NETHERLANDS B.V. AND ENGAGED IN THE BUSINESS OF TRA DING OF FORMULATIONS IN THE DOMESTIC MARKET WHICH IS PURCHA SED FROM ITS 5 ITA NO.788/DEL/2015 AES AND THIRD PARTIES. IT IS ALSO INTO MARKETING A ND SELLING OF LIFE SAVING DRUGS FORMULATIONS THAT FIND USAGE IN THE TR EATMENT OF SEVERAL DISEASE SEGMENTS RANGING FROM ONCOLOGY, CNS , CARDIOVASCULAR, CANCER, INFECTIOUS DISEASES, ENDOCR INE, ETC. THE ASSESSEE FILED ITS RETURN OF INCOME ON 13.10.2010 D ECLARING AN INCOME OF RS. 16,75,13,196/- WHICH CAME TO BE ASSES SED AT AN INCOME OF RS. 23,06,18,730/- IN AN ORDER DATED 12.1 .2015 U/S 144C/143(3) OF THE ACT AND HENCE THIS APPEAL BY APP ELLANT COMPANY 4. GROUND NO. 1 IS GENERAL AND IS THEREFORE REJECTE D. 5. GROUND 2 TO 2.3 RELATES TO DISALLOWANCE UNDER SE CTION 37(1) OF THE ACT OF RS. 5,42,19,943/- BEING EXPENDITURE I NCURRED TOWARDS DISTRIBUTION OF FREE SAMPLES TO DOCTORS/MEDICAL PRA CTITIONERS, HOLDING THE SAME TO BE INCURRED IN CONTRAVENTION OF THE GUIDELINES ISSUED BY INDIAN MEDICAL COUNCIL READ WITH CIRCULAR 05/2012 ISSUED BY THE CBDT. 6. THE RELEVANT FACTS, AS SUCCINCTLY STATED ARE THA T ASSESSEE HAD INCURRED AN AMOUNT OF RS. 5,42,19,943/- TOWARDS DIS TRIBUTION OF FREE SAMPLES TO DOCTORS/MEDICAL PRACTITIONERS. THE ASSESSING OFFICER/DRP DISALLOWED THE WHOLE OF THE ABOVE EXPEN DITURE IN VIEW OF THE CIRCULAR NO. 5/2012 [F. NO. 225/142/201 2-ITA-II] DATED 01.08.2013 ISSUED BY THE CENTRAL BOARD OF DIR ECT TAXES (CBDT) READ WITH INDIAN MEDICAL COUNCIL (PROFESSI ONAL 6 ITA NO.788/DEL/2015 CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 OB SERVING THAT ABOVE FREE SAMPLES OF MEDICINES DISTRIBUTED BY THE APPELLANT TO DOCTORS/ MEDICAL PRACTITIONERS AND OTHERS CONSTITUT ED GIFTS OR FREEBIES, WHICH ARE NOT ALLOWABLE IN TERMS OF EXPLA NATION TO SECTION 37(1) OF THE ACT. THE RELEVANT PORTION OF THE ORDER READS AS UNDER: A BARE READING OF THIS EXTRACT CLARIFIES THAT A) RECEIVING OF ANY GIFT BY MEDICAL PRACTITIONER F ROM A PHARMACEUTICAL COMPANY IS VIOLATIVE OF THE REGULATI ONS, WHETHER THAT GIFT IS FOR DIRECT PERSONAL BENEFIT OF THE DOC TOR OR NOT. B) THE TERM GIFT HAS NOT DEFINED IN THE IMC REGULAT IONS, BUT IN THE GIVEN CIRCUMSTANCES, AND IN VIEW OF THE UNHO LY PROFIT- SHARING NEXUS BETWEEN MEDICAL PRACTITIONERS AND PHARMACEUTICAL INDUSTRY PREVALENT TODAY, WHICH PROM PTED IMC TO AMEND ITS REGULATIONS IN 2009, AND EXHAUSTIVE DE FINITION OF THE TERM GIFT HAS TO BE APPLIED, GIFT WOULD, IN TER-ALIA, INCLUDE FREE DRUG SAMPLE ALSO. THE ASSESSEE COMPANY HAS PR OVIDED FREE SAMPLE TO DOCTORS/HOSPITALS ETC, WHICH WOULD RESULT IN INFLUENCING THE DISCRETION OF SUCH DOCTORS/HOSPITAL S IN FAVOUR OF ASSESSEES MEDICINES WHILE RECOMMENDING MEDICINE TO A PATIENT. THUS, FREE SAMPLE ARE DISTRIBUTED TO DOCT ORS SO THAT THEY PRESCRIBE MORE AND MORE OF THE ASSESSEES PRODUCTS IN PREFERENCE TO OTHER MANUFACTURERS PRODUCTS. THIS AM OUNTS TO SOLICITING ENDORSEMENT OF THE ASSESSEES PRODUCTS B Y THE DOCTOR. AS PER CLAUSE (H) OF REGULATION 6.8 OF IMC REGULATI ONS, 2002, WHICH HAS BEEN REPRODUCED ABOVE, ENDORSEMENT OF ANY DURING OR PRODUCT OF THE INDUSTRY IS ALSO PROHIBITED. THU S, DISTRIBUTION OF FREE SAMPLES TO DOCTORS TO GET ENDORSEMENT FROM THEM IN RETURN IS ALSO VIOLATIVE OF IMC REGULATIONS AND CON SEQUENTLY, VIOLATIVE OF SECTION 37(1) OF THE I.T. ACT. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE CONTE NTION THAT DISTRIBUTION OF FREE SAMPLE DOES NOT BENEFIT DOCTOR S IN ANY 7 ITA NO.788/DEL/2015 MANNER IS ALSO NOT ACCEPTABLE. FREE SAMPLES RECEIV ED BY THE DOCTOR ARE GIVEN BY THE DOCTOR TO HIS/HER PATIENTS, WHICH HELPS IN ADVANCING HIS/HER MEDICAL PRACTICE BY GENERATING GO ODWILL. LURE OF GETTING FREE MEDICINE ATTRACTS MORE PATENTS TOWARDS THE DOCTOR, THUS BENEFITING HIS MEDICAL PRACTICE. BASED ON THE OBSERVATIONS ABOVE, EXPENSES INCURRED TOWARDS FREE SAMPLE TO DOCTORS OR MEDICAL PRACTITIONERS ARE TREATED AS DISALLOWABLE. DISALLOWANCE OF RS. 5,42,19,943/- BE ING EXPENSES TOWARDS FREE SAMPLE TO DOCTORS IS HEREBY M ADE. 7. BEING AGGRIEVED, THE ASSESSEE HAS COME UP IN APP EAL BEFORE US AND BROUGHT TO OUR NOTICE THE STANDARD OPERATING PROCEDURE (SOP) ADOPTED BY THE ASSESSEE TO DISTRIBUTE SAMPL ES TO DOCTORS/MEDICAL PRACTITIONERS. IT WAS SUBMITTED THA T THE SAMPLE SO DISTRIBUTED TO THE DOCTORS/MEDICAL PRACTITIONERS BY THE APPELLANT ARE IN PURSUANCE OF THE SPECIFIC REQUEST BEING MADE BY THE LATTER AND SUCH SAMPLES ARE NOT DISTRIBUTED VOLUNTARILY/ SUO-M OTO TO ANY DOCTOR/ MEDICAL PRACTITIONER IN ORDER TO INFLUENCE THE LATTERS DISCRETION OF PRESCRIBING ITS MEDICINES TO THE PATI ENTS. A REFERENCE WAS MADE TO REGULATION 6.8 OF THE INDIAN MEDICAL CO UNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002, (AS AMENDED IN 2009), WHICH READS AS UNDER: 6.8.1 IN DEALING WITH PHARMACEUTICAL AND ALLIED HE ALTH SECTOR INDUSTRY A MEDICAL PRACTITIONER SHALL FOLLOW AND AD HERE TO THE STIPULATIONS GIVEN BELOW: A) GIFTS: A MEDICAL PRACTITIONER SHALL NOT RECEIVE ANY GIFT FROM ANY PHARMACEUTICAL OR ALLIED HEALTH CARE INDUSTRY A ND THEIR SALES PEOPLE OR REPRESENTATIVES. 8 ITA NO.788/DEL/2015 B) TRAVEL FACILITIES: A MEDICAL PRACTITIONER SHALL NOT ACCEPT ANY TRAVEL FACILITY INSIDE THE COUNTRY OR OUTSIDE INCLU DING RAIL, AIR, SHIP, CRUISE TICKETS, PAID VACATIONS, ETC. FROM ANY PHARMACEUTICAL OR ALLIED HEALTH CARE INDUSTRY OR TH EIR REPRESENTATIVES FOR SELF AND FAMILY MEMBERS FOR VAC ATION OR FOR ATTENDING CONFERENCES, SEMINARS, WORKSHOPS, CME PROGRAMME ETC, AS A DELEGATE. C) HOSPITALITY: A MEDICAL PRACTITIONER SHALL NOT AC CEPT INDIVIDUALLY ANY HOSPITALITY LIKE HOTEL ACCOMMODATI ON FOR SELF AND FAMILY MEMBERS UNDER ANY PRETEXT. D) CASH OR MONETARY GRANTS: A MEDICAL PRACTITIONER SHALL NOT RECEIVE ANY CASH OR MONETARY GRANTS FROM ANY PHARMA CEUTICAL AND ALLIED HEALTHCARE INDUSTRY FOR INDIVIDUAL PURPO SE IN INDIVIDUAL CAPACITY UNDER ANY PRETEXT. FUNDING FROM MEDICAL RESEARCH STUDY ETC. CAN ONLY BE RECEIVED THROUGH AP PROVED INSTITUTIONS BY MODALITIES LAID DOWN BY LAW/RULES/G UIDELINES ADOPTED BY SUCH APPROVED INSTITUTIONS IN A TRANSPAR ENT MANNER. IT SHALL ALWAYS BE FULLY DISCLOSED. E) MEDICAL RESEARCH: A MEDICAL PRACTITIONER MAY CAR RY OUT, PARTICIPATE IN WORK IN RESEARCH PROJECTS FUNDED BY PHARMACEUTICAL AND ALLIED HEALTHCARE INDUSTRIES. A MEDICAL PRACTITIONER IS OBLIGED TO KNOW THAT THE FULFILMENT OF THE FOLLOWING ITEMS (I) TO (VII) WILL BE IMPERATIVE FOR UNDERTAKING ANY RESEARCH ASSIGNMENT/PROJECT FUNDED BY INDUSTRY FOR BEING PROPER AND ETHICAL. THUS, IN ACCEPTING SUCH A POSIT ION A MEDICAL PRACTITIONER SHALL: (I) ENSURE THAT THE PARTICULAR RESEARCH PROPOSAL(S) HAS THE DUE PERMISSION FROM THE COMPETENT CONCERNED AUTHORITIES . (II) ENSURE THAT SUCH A RESEARCH PROJECT(S) HAS THE CLEARANCE OF NATIONAL/STATE/INSTITUTIONAL ETHICS COMMITTEE/BODIE S. (III)ENSURE THAT IT FULFILLS ALL THE LEGAL REQUIREM ENTS PRESCRIBED FOR MEDICAL RESEARCH; 9 ITA NO.788/DEL/2015 (IV) ENSURE THAT THE SOURCE AND AMOUNT OF FUNDING I S PUBLICALLY DISCLOSED AT THE BEGINNING ITSELF; (V) ENSURE THAT PROPER CARE AND FACILITIES ARE PROV IDED TO HUMAN VOLUNTEERS, IF THEY ARE NECESSARY FOR THE RESEARCH PROJECT(S). (VI) ENSURE THAT UNDUE ANIMAL EXPERIMENTATIONS ARE NOT DONE AND WHEN THESE ARE NECESSARY THEY ARE DONE IN A SCI ENTIFIC AND HUMANE WAY; (VII) ENSURE THAT WHILE ACCEPTING SUCH AN ASSIGNMEN T A MEDICAL PRACTITIONER SHALL HAVE THE FREEDOM TO PUBLISH THE RESULTS OF THE RESEARCH IN THE GREATER INTEREST OF THE SOCIETY BE INSERTING SUCH A CLAUSE IN THE MOU OR ANY OTHER DOCUMENT/AGREEMENT F OR ANY SUCH ASSIGNMENT. F) MAINTAINING PROFESSIONAL AUTONOMY: IN DEALING WI TH PHARMACEUTICAL AND ALLIED HEALTHCARE INDUSTRY A MED ICAL PRACTITIONER SHALL ALWAYS ENSURE THAT THERE SHALL N EVER BY ANY COMPROMISE EITHER WITH HIS/HER OWN PROFESSIONAL AUT ONOMY AND/OR WITH THE AUTONOMY AND FREEDOM OF THE MEDICAL INSTITUTION. G) AFFILIATION: A MEDICAL PRACTITIONER MAY WORK FOR PHARMACEUTICAL AND ALLIED HEALTHCARE INDUSTRIES IN ADVISORY CAPACITIES, AS CONSULTANTS, AS RESEARCHERS, AS TREA TING DOCTORS OR IN ANY OTHER PROFESSIONAL CAPACITY. IN DOING SO, A MEDICAL PRACTITIONER SHALL ALWAYS: (I) ENSURE THAT HIS PROFESSIONAL INTEGRITY AND FREE DOM ARE MAINTAINED; (II) ENSURE THAT PATIENTS INTEREST ARE NOT COMPROMI SED IN ANYWAY; (III) ENSURE THAT SUCH AFFILIATIONS ARE WITHIN THE LAW; (IV) ENSURE THAT SUCH AFFILIATIONS/EMPLOYMENTS ARE FULLY TRANSPARENT AND DISCLOSED. 10 ITA NO.788/DEL/2015 H) ENDORSEMENT: A MEDICAL PRACTITIONER SHALL NOT EN DORSE ANY DRUG OR PRODUCT OF THE INDUSTRY PUBLICALLY. ANY STU DY CONDUCTED ON THE EFFICACY OR OTHERWISE OF SUCH PRODUCTS SHALL BE PRESENTED TO AND/OR THROUGH APPROPRIATE SCIENTIFIC BODIES OR PUBLISHED IN APPROPRIATE SCIENTIFIC JOURNALS IN A PROPER WAY. 8. ON THE BASIS OF THE AFORESAID REGULATIONS, IT WA S CONTENDED THAT DOCTORS/MEDICAL PRACTITIONERS ARE PROHIBITED F ROM RECEIVING, INTER-ALIA, ANY GIFT OR CASH OR MONETARY GRANTS OR TRAVEL FACILITY FROM ANY PHARMACEUTICAL OR ANY ALLIED HEALTHCARE INDUSTR Y. IT WAS SUBMITTED THAT AS PER MEDICAL COUNCIL GUIDELINES ON LY THOSE FREEBIES WHICH CONFER PERSONAL BENEFIT TO THE MEDIC AL PRACTITIONER DIRECTLY COULD ONLY BE CONSIDERED TO BE IN VIOLATIO N OF THE MEDICAL COUNCILS GUIDELINES. IT WAS SUBMITTED THAT IN THE PRESENT CASE, SAMPLES ARE DISTRIBUTED BY THE ASSESSEE ONLY ON THE SPECIFIC WRITTEN REQUESTS OF THE DOCTORS/MEDICAL PRACTITIONERS FOR T HEIR PATIENTS, THEREFORE, THE ABOVE DISTRIBUTION DOES NOT CONSTITU TE A GIFT. THE ASSESSEE ALSO MADE REFERENCE TO CIRCULAR NO. 5/3/20 09-PI-II ISSUED BY MINISTRY OF CHEMICALS & FERTILIZERS, DEPARTMENT OF PHARMACEUTICALS, DATED 19.03.2012, IN RELATION TO U NIFORM CODE OF PHARMACEUTICAL MARKETING ETHICS (UCPMP) WHEREIN A LSO THE DISTRIBUTION OF FREE SAMPLES TO A PERSON QUALIFIED TO PRESCRIBE SUCH PRODUCT SUBJECT TO CERTAIN CONDITIONS IS PERMITTED. A REFERENCE WAS DRAWN TO THE FOLLOWING EXTRACT FROM THE AFORESAID CODE: 5. SAMPLES 11 ITA NO.788/DEL/2015 5.1 FREE SAMPLES OF DRUGS SHALL NOT BE SUPPLIED TO ANY PERSON WHO IS NOT QUALIFIED TO PRESCRIBE SUCH PRODUCT. 5.2 WHERE SAMPLES OF PRODUCTS ARE DISTRIBUTED BY A MEDICAL REPRESENTATIVE, THE SAMPLE MUST BE HANDED DIRECTLY TO A PERSON QUALIFIED TO PRESCRIBE SUCH PRODUCT OR TO A PERSON AUTHORIZED TO RECEIVE THE SAMPLE ON THEIR BEHALF. 5.3 THE FOLLOWING CONDITIONS SHALL BE OBSERVED IN T HE PROVISION OF SAMPLES TO A PERSON QUALIFIED TO PRESCRIBE SUCH PRO DUCT: (I) SUCH SAMPLES ARE PROVIDED ON AN EXCEPTIONAL BAS IS ONLY (SEE (II) TO (VII) BELOW) AND FOR THE PURPOSE OF ACQUIRING EX PERIENCE IN DEALING WITH SUCH A PRODUCT; (II) SUCH SAMPLE PACKS SHALL BE LIMITED TO PRESCRIB ED DOSAGES FOR THREE PATIENTS FOR REQUIRED COURSE OF TREATMENT; (III) ANY SUPPLY OF SUCH SAMPLES MUST BE IN RESPONS E TO A SIGNED AND DATED REQUEST FROM THE RECIPIENT; (IV) AN ADEQUATE SYSTEM OF CONTROL AND ACCOUNTABILI TY MUST BE MAINTAINED IN RESPECT OF THE SUPPLY OF SUCH SAMPLES ; (V) EACH SAMPLE PACK SHALL NOT BE LARGER THAN THE S MALLEST PACK PRESENT IN THE MARKET; (VI) EACH SAMPLE SHALL BE MARKED 'FREE MEDICAL SAMP LE- NOT FOR SALE' OR BEAR ANOTHER LEGEND OF ANALOGOUS MEANING; (VII) EACH SAMPLE SHALL BE ACCOMPANIED BY A COPY OF THE MOST UP-TO- DATE VERSION OF THE PRODUCT INFORMATION (AS REQUIRE D IN DRUG AND COSMETIC ACT. 1940) RELATING TO THAT PRODUCT. 5.4 A PHARMACEUTICAL COMPANY SHALL NOT SUPPLY A SAM PLE OF A DRUG WHICH IS AN ANTIDEPRESSANT, HYPNOTIC, SEDATIVE OR T RANQUILLIZER. 5.5 THE COMPANIES WILL MAINTAIN DETAILS, SUCH AS PR ODUCT NAME, DOCTOR NAME, QUANTITY OF SAMPLES GIVEN, DATE OF SUP PLY OF FREE SAMPLES DISTRIBUTED TO HEALTHCARE PRACTITIONERS ETC . 12 ITA NO.788/DEL/2015 6. GIFTS 6.1 NO GIFTS, PECUNIARY ADVANTAGES OR BENEFITS IN K IND MAY BE SUPPLIED, OFFERED OR PROMISED TO PERSONS QUALIFIED TO PRESCRIBE OR SUPPLY DRUGS, BY A PHARMACEUTICAL COMPANY OR ANY O F ITS AGENTS I.E. DISTRIBUTORS, WHOLESALERS, RETAILERS ETC. 6.2 GIFTS FOR THE PERSONAL BENEFIT OF HEALTHCARE PR OFESSIONALS AND FAMILY MEMBERS (BOTH IMMEDIATE AND EXTENDED) (SUCH AS TICKETS TO ENTERTAINMENT EVENTS) ALSO ARE NOT BE OFFERED OR PR OVIDED. 9. FURTHER, REFERENCE WAS ALSO MADE TO THE PROVISIO NS OF DRUGS AND COSMETICS ACT, 1945 WHEREIN THE DISTRIBUTION OF FREE SAMPLES HAD BEEN HELD TO BE PERMISSIBLE, I.E. NOT AGAINST T HE PUBLIC POLICY, SUBJECT TO CERTAIN CONDITIONS. THE RELEVANT EXTRACT S OF SUCH REGULATIONS HAS RELIED UPON AS BELOW: 65 (18): NO DRUG INTENDED FOR DISTRIBUTION TO THE MEDICAL PROFESSION AS FREE SAMPLE WHICH BEARS A LABEL ON THE CONTAINER AS SPECIFIED IN CLAUSE (VIII) OF SUB-RULE (1) OF RULE 96, AND NO DR UG MEANT FOR CONSUMPTION BY THE EMPLOYEES STATE INSURANCE CORPO RATION, THE CENTRAL GOVERNMENT HEALTH SCHEME, THE GOVERNMENT ME DICAL STORES DEPOTS, THE ARMED FORCES MEDICAL STORES OR OTHER GO VERNMENT INSTITUTIONS, WHICH BEARS A DISTINGUISHING MARK OR ANY INSCRIPTION ON THE DRUG OR ON THE LABEL AFFIXED TO THE CONTAINER T HEREOF INDICATING THIS PURPOSE SHALL BE SOLD OR STOCKED BY THE LICENSEE ON HIS PREMISES. 10. ON THE BASIS OF ABOVE, IT WAS SUBMITTED THAT AS SESSEE HAD, AS PER THE TERMS OF THE SOP(SUPRA), PROVIDED FREE SAMP LES ONLY ON THE SPECIFIC WRITTEN REQUESTS OF DOCTORS/MEDICAL PRACTI TIONERS. IN OTHER WORDS, THERE IS NO VOLUNTARY ACT ON BEHALF OF THE A SSESSEE IN DISTRIBUTING SUCH SAMPLES TO THE DOCTORS/MEDICAL PR ACTITIONERS. 13 ITA NO.788/DEL/2015 MOREOVER, SUCH SAMPLES ARE USED BY THE PATIENTS OF THE DOCTORS AND NOT BY THE DOCTOR HIMSELF. IT WAS SUBMITTED THAT S UCH SAMPLES COULD NOT, IN ANY MANNER, BE SAID TO BE COVERED WIT HIN THE AMBIT OF THE TERM GIFT, MUCH LESS CONFERRING ANY BENEFIT T O SUCH DOCTORS/MEDICAL PRACTITIONERS. 11. FURTHER AR CONTENDED THAT SIMILAR DISALLOWANCE OF EXPENSES ON SAMPLE DISTRIBUTION WAS MADE WHILE COMPLETING TH E ASSESSMENT FOR THE ASSESSMENT YEAR 2009-10 AS WELL. IT WAS SUB MITTED THAT ASSESSEE HAD CHALLENGED THE SAID ORDER BEFORE DRP A ND THE DRP VIDE ORDER DATED 05.09.2013, INTER ALIA, DELETED TH E SAID DISALLOWANCE. IT WAS THUS PRAYED THAT ISSUE RELATI NG TO ALLOWANCE OF EXPENSES ON SAMPLE DISTRIBUTION IS SQUARELY COVERED IN FAVOUR OF APPELLANT BY THE ORDER OF DRP FOR THE ASSESSMENT YE AR 2009-10 AND THEREFORE DISALLOWANCE MADE MAY BE DELETED. 12. THE LD. DR SUPPORTED THE ACTION OF THE AUTHORIT IES BELOW. 13. HAVING CONSIDERED THE RIVAL SUBMISSIONS WE FIND THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR DRP BY AN ORD ER DATED 5.9.2013 HAD DELETED THE IDENTICAL DISALLOWANCE BY OBSERVING AS UNDER: 6.11.3 THE PANEL HAS CAREFULLY CONSIDERED THE SUBM ISSIONS MADE BY THE ASSESSEE AND ALSO GONE THROUGH THE RELE VANT ACT/RULES/ GUIDELINES. FOR UNDERSTANDING THE INTENT OF THE GOVERNMENT ON THIS ISSUE, IT WOULD BE RELEVANT TO R EFER TO THE UCPMP AND REPRODUCE THE RELEVANT PROVISIONS. 14 ITA NO.788/DEL/2015 THIS IS A VOLUNTARY CODE OF MARKETING PRACTICES FOR INDIAN PHARMACEUTICAL INDUSTRY FOR THE PRESENT AND ITS IMP LEMENTATION WILL BE REVIEWED AFTER A PERIOD OF IMPLEMENTED EFFE CTIVELY BY THE PHARMA ASSOCIATION/COMPANIES, THE GOVERNMENT WO ULD CONSIDER MAKING IT A STATUTORY CODE. 1 2 3 4. 5 SAMPLES 5.1 FREE SAMPLE OF DRUGS SHALL NOT BE SUPPLIED TO A NY PERSON WHO IS NOT QUALIFIED TO PRESCRIBE SUCH PRODUCT. 5.2 WHERE SAMPLE OF PRODUCTS RE DISTRIBUTED BY A ME DICAL REPRESENTATIVE, THE SAMPLE MUST BE HANDED DIRECTLY TO A PERSON QUALIFIED TO PRESCRIBE SUCH PRODUCT OR TO A PERSON AUTHORIZED TO RECEIVE THE SAMPLE ON THEIR BEHALF 5.3 THE FOLLOWING CONDITIONS SHALL BE OBSERVED IN T HE PROVISIONS OF SAMPLES TO A PERSON QUALIFIED TO PRES CRIBE SUCH PRODUCT. I) SUCH SAMPLES ARE PROVIDED ON AN EXCEPTIONAL BASI S ONLY (SEE (II) TO (VII) BELOW) AND FOR THE PURPOSE OF AC QUIRING EXPERIENCE IN DEALING WITH SUCH A PRODUCT II) SUCH SAMPLE PACKS SHALL BE LIMITED TO PRESCRIBE D DOSAGES FOR THREE PATIENTS FOR REQUIRED COURSE OF TREATMENT III) ANY SUPPLY OF SUCH SAMPLE MUST BE IN RESPONSE TO A SIGNED AND DATED REQUEST FOR THE RECIPIENT IV) AN ADEQUATE SYSTEM OF CONTROL AND ACCOUNTABILIT Y MUST BE MAINTAINED IN RESPECT OF THE SUPPLY OF SUCH SAMP LES V) EACH SAMPLE PACK SHALL NOT BE LARGER THAN THE SM ALLEST PACK PRESENT IN THE MARKET 15 ITA NO.788/DEL/2015 VI) EACH SAMPLE SHALL BE MARKED FREE MEDICAL SAMPL E-NOT FOR SALE OR BEAR ANOTHER LEGEND OF ANALOGOUS MEANI NG VII) EACH SAMPLE SHALL BE ACCOMPANIED BY A COPY OF THE MOST UP TO DATE VERSION OF THE PRODUCT INFORMATION (AS R EQUIRED IN DRUG AND COSMETIC ACT; 1940) RELATING TO THAT PRODU CT 6 GIFTS 6.1 NO GIFTS, PECUNIARY ADVANTAGES OR BENEFITS. IN KIND MAY BE SUPPLIED OFFERED OR SUPPLIED DRUGS BY A PHARMACE UTICAL COMPANY OR ANY OF ITS AGENTS I.E. DISTRIBUTORS, WHO LESALERS, RETAILERS ETC. 6.2 GIFTS FOR THE PERSONAL BENEFIT OF HEALTHCARE PR OFESSIONALS AND FAMILY MEMBERS (BOTH IMMEDIATELY AND EXTENDED) (SUCH AS TICKETS TO ENTERTAINMENT EVENTS) ALSO ARE NOT BE OF FERED OR PROVIDED 7 RELATIONSHIP WITH HEALTHCARE PROFESSIONALS 7.1 TRAVEL FACILITIES. 7.2 HOSPITALITY. 7.3 CASH OR MONETARY GRANTS WHERE THERE IS ANY ITEM MISSING, THE CODE OF MCI AS PER INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQ UETTE AND ETHICS) REGULATION, 2002 AS AMENDED TIME TO TIME WI LL PREVAIL 6.11.4 THUS IT IS EVIDENT FROM THE ABOVE THAT A CLE AR DISTINCTION HAS BEEN MADE BETWEEN THE FREE SAMPLES, GIFTS, TRAV EL FACILITIES, HOSPITALITY AND CASH OR MONETARY GRANTS. IT WOULD A CCORDINGLY BE INCORRECT TO PUT SAMPLES IN THE DEFINITION OF GIFTS BEING SEPARATELY CATEGORIZED IN PARA 5 & 6 OF THE UCPMP RESPECTIVELY. IT IS NOTICED FROM THE CBDT CIRCULAR NO. 5/2012 THAT IT REFERS THE IMC REGULATIONS 2002 WHICH IMPOS ED A PROVISION ON THE MEDICAL PRACTITIONER FOR TAKING AN Y GIFT, TRAVEL FACILITY, HOSPITALITY, CASH AND MEDICAL GRANT FROM THE PHARMA 16 ITA NO.788/DEL/2015 SECTOR. THE GOVERNMENT OF INDIA HAS CLEARLY DEMARCA TED THE OPERATION NATURE OF EACH TERM IN THE UCPMP, WHICH H AS BEEN DISCUSSED ABOVE AND THEREFORE, IT CANNOT BE SAID TH AT THE TERM GIFT COVERS FREE SAMPLES ALSO. 6.11.5 MOREOVER A MEDICAL PRACTITIONER IS BOUND BY THE IMC REGULATIONS 2002. PARA 7.8 OF THE SAID REGULATIONS READ AS UNDER: 7.8 A REGISTERED MEDICAL PRACTITIONER SHALL NOT CON TRAVENE THE PROVISIONS OF THE DRUGS AND COSMETICS ACT AND REGUL ATIONS MADE THERE UNDER. ACCORDINGLY 1 PRESCRIBING STEROIDS/PSYCHOTROPIC DRUGS WHEN THER E IS NO ABSOLUTE MEDICAL INDICATIONS; 2 SELLING SCHEDULE H AND L DRUGS AND POISIONS T O THE PUBLIC EXCEPT TO HIS PATIENT IN CONTRAVENTION OF THE ABOVE PROVISIONS SHALL CONS TITUTE GROSS PROFESSIONAL MISCONDUCT ON THE PART OF THE PHYSICIA N. 6.11.6 IT IS NOTICED FROM THE ABOVE THAT THE MEDICA L PRACTITIONER IS TO ADHERE TO THE PROVISIONS OF THE DRUGS AND COS METICS ACT AND REGULATIONS MADE THERE UNDER. THE RELEVANT REGU LATIONS 65(18) APPLICABLE TO THE LICENSE/DISTRIBUTOR AND RE GULATION 95 REGARDS AS UNDER: 65(18) NO DRUG INTENDED FOR DISTRIBUTION TO THE ME DICAL PROFESSION AS FREE SAMPLE WHICH BEARS A LABEL ON TH E CONTAINER AS SPECIFIED IN CLAUSE (VIII) OF SUB-RULE () OF RUL E 96 AND NO DRUG MEANT FOR CONSUMPTION BY THE EMPLOYEES STATE INSURA NCE CORPORATION. THE CENTRAL GOVERNMENT HEALTH SCHEME, THE GOVERNMENT MEDICAL STORES DEPOTS, THE ARMED FORCES MEDICAL STORES OR OTHER GOVERNMENT INSTITUTIONS, WHICH BEAR S A DISTINGUISHING MARK OR ANY INSCRIPTION ON THE DRUG OR ON THE LABEL AFFIXED TO THE CONTAINER THEREOF INDICATING T HIS PURPOSE SHALL BE SOLD OR STOCKED BY THE LICENSEE ON HIS PRE MISES 17 ITA NO.788/DEL/2015 95 PROHIBITION OF SALE OR DISTRIBUTION UNLESS LABE LED-SUBJECT TO THE OTHER PROVISIONS OF THESE RULES, NO PERSON S HALL SELL OR DISTRIBUTE ANY DRUG (INCLUDING A PATENT OR PROPRIET ARY) UNLESS IT IS LABELED IN ACCORDANCE WITH THESE RULES. THUS, IT BECOMES EVIDENT THAT EVEN THE DRUGS AND CO SMETICS ACT AND REGULATIONS MADE THERE UNDER DO NOT PROHIBI T THE LICENSEE OR A MEDICAL PRACTITIONER TO DISTRIBUTE TH E FREE SAMPLES, ALBEIT FOLLOWING PRESCRIBED CONDITIONS. ON THIS ACC OUNT ALSO, THE PANEL OBSERVES THAT THE FREE SAMPLES CANNOT BE SAID TO HAVE BEEN COVERED BY A WIDER DEFINITION OF GIFT. 6.11.7 MOREOVER, AS HELD BY THE HONBLE SUPREME COU RT IN THE CASE OF ESKAYEF PHARMACEUTICALS (245 ITR 116), THE OBJECT OF DISTRIBUTION OF THE SAMPLES OF THE DRUGS TO THE DOC TORS IS TO MAKE THEM AWARE THAT SUCH DRUGS ARE AVAILABLE IN THE MAR KET IN RELATION TO THE CURE OF A PARTICULAR AFFLICTION AND , THEREFORE, TO PERSUADE THEM TO PRESCRIBE THE SAME IN APPROPRIATE CASES AND THIS IS TANTAMOUNT TO PUBLICITY AND SALES PROMOTION . ACCORDINGLY, SUCH EXPENDITURE CANNOT BE SAID TO BE DISALLOWABLE U/S 37(1) OF THE INCOME-TAX ACT IN THE HANDS OF THE PHARMA COMPANIES DISTRIBUTING SUCH FREE SAMPLES TO DOCTORS. 6.11.8 IN THE LIGHT OF THE DETAILS DISCUSSION MADE ABOVE, THE PANEL HOLDS THAT THE FREE SAMPLES ARE NOT COVERED B Y THE IMC REGULATIONS OF 2002 (AS AMENDED IN 2009) READ WITH CBDT CIRCULAR NO. 5/2012, UCPMP AND THE DRUGS AND COSMET IC ACT AND REGULATIONS MADE THERE UNDER. ACCORDINGLY THE O IS DIRECTED TO DELETE THE PROPOSED ADDITION ON THIS AC COUNT. ACCORDINGLY THE AO IS DIRECTED TO DELETE THE PROPOS ED ADDITION ON THIS ACCOUNT.(EMPHASIS SUPPLIED) 14. THE ABOVE ORDER HAS ACQUIRED FINALITY AND NO AP PEAL THERE FROM HAS BEEN PREFERRED BY THE REVENUE. IN LIGHT O F THE ABOVE AND IN ACCORDANCE WITH PRINCIPLE OF CONSISTENCY THE DIS ALLOWANCE IS HELD TO BE LEGALLY UNTENABLE. IN SUPPORT OF THE AB OVE CONCLUSION 18 ITA NO.788/DEL/2015 RELIANCE IS PLACED ON THE JUDGMENT OF APEX COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES 358 ITR 295 WHEREIN IT HA S BEEN HELD AS UNDER: 29. IN RADHASOAMI SATSANG SAOMI BAGH V. COMMISSIO NER OF INCOME TAX, [1992] 193 ITR 321 (SC) THIS COURT D ID NOT THINK IT APPROPRIATE TO ALLOW THE RECONSIDERATION O F AN ISSUE FOR A SUBSEQUENT ASSESSMENT YEAR IF THE SAME 'FUNDA MENTAL ASPECT' PERMEATES IN DIFFERENT ASSESSMENT YEARS. IN ARRIVING AT THIS CONCLUSION, THIS COURT REFERRED TO AN INTEREST ING PASSAGE FROM HOYSTEAD V. COMMISSIONER OF TAXATION, 1926 AC 155 (PC) WHEREIN IT WAS SAID: 'PARTIES ARE NOT PERMITTED TO BEGIN FRESH LITIGATIO N BECAUSE OF NEW VIEWS THEY MAY ENTERTAIN OF THE LAW OF THE CASE , OR NEW VERSIONS WHICH THEY PRESENT AS TO WHAT SHOULD BE A PROPER APPREHENSION BY THE COURT OF THE LEGAL RESULT EITHE R OF THE CONSTRUCTION OF THE DOCUMENTS OR THE WEIGHT OF CERT AIN CIRCUMSTANCES. IF THIS WERE PERMITTED, LITIGATION W OULD HAVE NO END, EXCEPT WHEN LEGAL INGENUITY IS EXHAUSTED. I T IS A PRINCIPLE OF LAW THAT THIS CANNOT BE PERMITTED AND THERE IS ABUNDANT AUTHORITY REITERATING THAT PRINCIPLE. THIR DLY, THE SAME PRINCIPLE, NAMELY, THAT OF SETTING TO REST RIG HTS OF LITIGANTS, APPLIES TO THE CASE WHERE A POINT, FUNDA MENTAL TO THE DECISION, TAKEN OR ASSUMED BY THE PLAINTIFF AND TRA VERSABLE BY THE DEFENDANT, HAS NOT BEEN TRAVERSED. IN THAT CASE ALSO A DEFENDANT IS BOUND BY THE JUDGMENT, ALTHOUGH IT MAY BE TRUE ENOUGH THAT SUBSEQUENT LIGHT OR INGENUITY MIGHT SUG GEST SOME TRAVERSE WHICH HAD NOT BEEN TAKEN.' 16. FOR THE AFORESAID REASONS STATED ABOVE THE DISA LLOWANCE MADE ARE DELETED AND GROUNDS RAISED ARE ALLOWED. 19 ITA NO.788/DEL/2015 17. GROUND NO. 3 TO 3.9 RELATES TO TRANSFER PRICING ADJUSTMENT OF RS. 88,85,591/- ON ACCOUNT OF PROVISION OF BUSINESS SUPPORT SERVICES. 18. THAT DURING THE RELEVANT ASSESSMENT YEAR, THE A SSESSEE HAD UNDERTAKEN THE FOLLOWING INTERNATIONAL TRANSACTIONS : SR. NO. TYPES OF INTERNATIONAL TRANSACTION METHOD SELECTED TOTAL VALUE OF TRANSACTION 1 PURCHASE OF FORMULATIONS TNMM 150,21,21,570 2 CO-ORDINATION OF CLINICAL TRIALS IN INDIA TNMM 19,87,41,111 3 PROVISION OF BUSINESS SUPPORT SERVICES TNMM 7,57,78,032 4 PAYMENT OF INTEREST ON EXTERNAL COMMERCIAL BORROWINGS CUP 35,93,979 5 WRITE BACK OF LIABILITIES DUE TO AES - 1,28,52,359 6 COST REIMBURSEMENTS TO AES - 33,73,457 19. FROM THE ABOVE, IT IS NOTICED THAT ASSESSEE REC EIVED AN AMOUNT OF RS. 7,57,78,032/- FOR BUSINESS SUPPORT SE RVICES IN THE INSTANT YEAR.. THE ASSESSEE SOUGHT TO JUSTIFY THE C ONSIDERATION RECEIVED FOR THE INTERNATIONAL TRANSACTIONS ENTERED INTO WITH THE AES TO BE AT ALP. THE ASSESSEE SUBMITTED A TRANSFER PRICING REPORT ADOPTING OPERATING PROFITS TO THE TOTAL COST AS ITS PROFIT LEVEL INDICATOR (HEREAFTER PLI) FOR THE TRANSFER PRICIN G STUDY. THE ASSESSEE APPLIED THE TRANSACTIONAL NET MARGIN METHO D (HEREAFTER 20 ITA NO.788/DEL/2015 'TNMM'), WHICH WAS CONSIDERED TO BE THE MOST APPROP RIATE METHOD FOR THE PURPOSES OF BENCHMARKING THE INTERNA TIONAL TRANSACTIONS. THE ASSESSEE'S OPERATING PROFIT MARGI N (I.E. OPERATING PROFIT/TOTAL COST) WAS COMPUTED AT 9.26% AND THE AS SESSEE CLAIMED THAT THE SAME WAS COMPARABLE WITH OTHER COMPANIES R ENDERING BUSINESS SUPPORT SERVICES. FOR THE PURPOSES OF THE TRANSFER PRICING STUDY, THE ASSESSEE USED MULTIPLE YEAR DATA AND CHO SE 11 COMPANIES AS COMPARABLE ON THE BASIS OF THE SEARCH CONDUCTED IN THE PUBLIC DATA BASES PROWESS AND CAPITAL LINE PLUS AND COMPUTED THE WEIGHTED AVERAGE MEAN AS THE RESULT OF THE BEN CHMARKING ANALYSIS AS UNDER: SR. NO. NAME OF THE COMPANY WEIGHTED AVERAGE OP/TC (%) 1 ACCESS INDIA ADVISOR LIMITED 34.77% 2 ASIAN BUSINESS EXHIBITION & CONFERENCES LTD. 18.10% 3 EDUCATIONAL CONSULTANT IND LIMITED (SEGMENT) (TECHNICAL ASSISTANCE & HRD) 4.37% 4 ICRA MANAGEMENT CONSULTING SERVICES LIMITED 0.06% 5 IDC (INDIA) LIMITED 12.30% 6 IN HOUSE PRODUCTION LIMITED (SEGMENT) (HEALTHCARE DIVISION) 1.51% 7 ITDC LIMITED 5.31% 8 MA FOI GLOBAL SERVICES -0.54% 9 MA FOI MANAGEMENT CONSULTANTS LIMITED 3.61% 10 OVERSEAS MANPOWER CORPN. LIMITED 3.23% 11 TIMES INNOVATIVE MEDIA LIMITED -2.21% AVERAGE 7.23% 21 ITA NO.788/DEL/2015 20. IT WAS SUBMITTED THAT SINCE ARITHMETIC AVERAGE OF THE OPERATING PROFIT MARGIN OF THE SAID COMPARABLES WAS COMPUTED AT 7.23% AND THE PRICE CHARGED IN ITS INTERNATIONAL TR ANSACTIONS IS MORE THAN THE SAID ARITHMETICAL MEAN PRICE, THE PRI CE CHARGED IN THE INTERNATIONAL TRANSACTIONS HAS BEEN TREATED AS AT A RMS LENGTH. 21. THE ASSESSING OFFICER REFERRED THE MATTER TO TH E TPO. THE TPO, BY AN ORDER DATED 23 RD JANUARY, 2014, UNDER SECTION 92CA(3) OF THE ACT, COMPUTED THE TP ADJUSTMENT AT RS. 88,85 ,591/- (RUPEES EIGHTY EIGHT LACS EIGHTY FIVE THOUSAND FIVE HUNDRED AND NINETY ONE). THE TPO ACCEPTED THE METHOD ADOPTED BY THE AS SESSEE (I.E. TNMM), BUT REJECTED THE BENCHMARKING REPORT AFTER H AVING BEEN FOUND THE DEFECTS IN THE TP ANALYSIS CARRIED ON BY THE TAXPAYER AND HOLDING THAT THE DATA USED IN COMPUTATION OF THE AR MS LENGTH PRICE IS NOT RELIABLE AND CORRECT. THE TPO ALSO REJECTED THE ASSESSEE'S CLAIM FOR ANY ADJUSTMENT ON ACCOUNT OF WORKING CAPI TAL PROVIDED TO THE ASSESSEE AND/OR RISKS BORNE BY THE AE. 22. FURTHER, TPO APPLIED THE FOLLOWING FILTERS FOR SELECTION OF COMPARABLE COMPANIES IN ORDER TO BENCHMARK THE INTE RNATIONAL TRANSACTION OF PROVISION OF BUSINESS SUPPORT SERVIC ES: I) COMPANIES WHOSE DATA IS NOT AVAILABLE FOR FY 2009-1 0 ARE EXCLUDED II) COMPANIES WHOSE MARKET/BUSINESS SUPPORT SERVICE INC OME < RS. 1 CR. ARE EXCLUDED 22 ITA NO.788/DEL/2015 III) COMPANIES WHOSE REVENUE FROM MARKET/BUSINESS SUPPOR T SERVICES IS LESS THAN 75% OF TOTAL OPERATING REVENU ES ARE EXCLUDED IV) COMPANIES HAVING MORE THAN 25% RELATED PARTY TRANSA CTIONS OF INCOME ARE EXCLUDED V) COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I .E. NOT MARCH 31, 2010) OR DATA OF THE COMPANY DOES NOT FAL L WITHIN 12 MONTH PERIOD I.E. 01.04.2009 TO 31.03.2010, ARE REJ ECTED VI) REJECT COMPANIES THAT HAVE EMPLOYEE COST LESS THAN 25% OF TOTAL COST. VII) COMPANIES THAT ARE HAVING PECULIAR ECONOMIC CIRCUMS TANCES ARE EXCLUDED. VIII) COMPANIES THAT ARE FUNCTIONALLY DIFFERENT FROM THE TAXPAYER ARE EXCLUDED. 23. DURING THE COURSE OF PROCEEDINGS, THE ASSESSEE SUBMITTED UPDATED MARGIN OF COMPARABLE COMPANIES IDENTIFIED I N THE TRANSFER PRICING DOCUMENT WITH CURRENT YEAR PROFITS AVAILABL E FOR 9 COMPANIES. THE TPO, APPLIED THE AFORESAID CRITERIA OF ACCEPTANCE/ REJECTION AND ACCORDINGLY, REJECTED/ACCEPTED FOLLOW ING COMPANIES FROM THE SET OF COMPANIES SUBMITTED BY THE ASSESSEE : SR. NO. NAME OF THE COMPANY REMARKS OF THE TPO 1 CYBER MEDIA INDIA ONLINE LIMITED FORMERLY IDC (INDIA) LIMITED THIS IS A SUITABLE COMPARABLE 2 INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD. FAILS TURNOVER FILTER APPLIED BY THE TPO 3 EDUCATIONAL CONSULTANT IND FUNCTIONALLY NOT 23 ITA NO.788/DEL/2015 LIMITED (SEGMENT) (TECHNICAL ASSISTANCE & HRD) COMPARABLE 4 HT MUSIC & ENTERTAINMENT CO. LTD. FUNCTIONALLY NOT COMPARABLE 5 MA FOI GLOBAL SEARCH SERVICES LTD. DIFFERENT YEAR ENDING AND IT ALSO FAILS POSITIVE NETWORTH FILTER 6 ICRA MANAGEMENT CONSULTING SERVICES LIMITED FUNCTIONALLY NOT COMPARABLE 7 ITDC LIMITED (SEGMENT) FUNCTIONALLY NOT COMPARABLE 8 IN HOUSE PRODUCTION LIMITED (SEGMENT) (HEALTHCARE DIVISION) FUNCTIONALLY NOT COMPARABLE 9 OVERSEAS MANPOWER CORPN. LIMITED FUNCTIONALLY NOT COMPARABLE 24. ALSO, THE TPO BROUGHT FOLLOWING COMPANIES IN TH E FINAL SET OF COMPARABLE COMPANIES WHICH WERE REJECTED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY ON ACCOUNT OF FUNCTIONAL DISSIMILARITY: SR. NO. NAME OF THE COMPANY OP/TC (%) 1 APTICO LIMITED 9.91% 2 GLOBAL PROCUREMENT CONSULTANTS LIMITED 37.19% 3 HCCA BUSINESS SERVICES PVT. LTD. 20.05% 4 QUADRANT COMMUNICATIONS LIMITED 13.11% 5 TSR DARASHAW LIMITED 41.15% 6 CAMEO CORPORATE SERVICES LIMITED 8.26% 24 ITA NO.788/DEL/2015 25. IN PURSUANCE THEREOF, THE FINAL SET OF 8 COMPAR ABLE COMPANIES CONSIDERED BY THE TPO IN THE IMPUGNED ORDER, HAVING AN AVERAGE OPERATING PROFITS OF 22.08% IS AS UNDER: SR. NO. NAME OF THE COMPANY OP/TC (%) (WITHOUT FOREX) 1 CYBER MEDIA INDIA ONLINE LIMITED FORMERLY IDC (INDIA) LIMITED 14.85% 2 APTICO LIMITED 40.09% 3 GLOBAL PROCUREMENT CONSULTANTS LIMITED 37.19% 4 HCCA BUSINESS SERVICES PVT. LTD. 20.05% 5 QUADRANT COMMUNICATIONS LIMITED 13.11% 6 TSR DARASHAW LIMITED 41.15% 7 CAMEO CORPORATE SERVICES LIMITED 8.26% 8 ICRA MANAGEMENT CONSULTING SERVICES LIMITED 1.94% ARITHMETIC MEAN 22.08% 16. ACCORDINGLY, THE TPO COMPUTED AN ADJUSTMENT OF RS.88,85,591/- TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DIFFERENCE IN ARMS LENGTH PRICE OF PROVISION OF BU SINESS SUPPORT SERVICES BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRI SES, AS UNDER: OPERATIONAL COST FOR BUSINESS SUPPORT SERVICE SEGMENT 6,93,50,936 ARMS LENGTH PRICE AT A MARGIN OF 122.08% 8,46,63,6 23 PRICE RECEIVED 7,57,78,032 ADJUSTMENT 88,85,591 25 ITA NO.788/DEL/2015 27. UPON RECEIVING THE DRAFT ASSESSMENT ORDER FORWA RDED BY THE ASSESSING OFFICER TO ASSESSEE ON 31.03.2014 UNDER S ECTION 143(3) OF THE ACT READ WITH SECTION 144C(1) OF THE ACT, TH E ASSESSEE FILED ITS OBJECTIONS TO THE SAME BEFORE THE DISPUTE RESOL UTION (HEREAFTER DRP) AGAINST THE ADJUSTMENT PROPOSED BY THE ASSES SING OFFICER IN ITS DRAFT ORDER. THE DRP VIDE ITS ORDER DATED 16 .12.2014, REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE IN I TS ORDER AND CONFIRMED THE ABOVE ADJUSTMENT AND, FOLLOWING WHICH ADDITION OF RS. 88,85,591 WAS MADE IN THE FINAL ORDER DATED 12. 1.2015 U/S 143(3)/144C OF THE ACT 28. THE LEARNED COUNSEL FOR THE ASSESSEE DURING THE COURSE OF HEARING THAT ONCE M/S EDUCATIONAL CONSULTANT INDIA LTD., M/S ITDC LTD. AND M/S IN HOUSE PRODUCTION LTD. ARE INCL UDED IN THE SET OF COMPARABLES AND FURTHERMORE M/S TSR DARASHAW LTD. IS EXCLUDED FROM SET OF COMPARABLES, THEN THE MARGIN O F THE APPELLANT IS WITHIN THE RANGE. 29. HAVING REGARD TO THE ABOVE SUBMISSION, WE TAKE UP THE COMPARABLE EDUCATIONAL CONSULTANT INDIA LIMITED (ED CIL) (TECHNICAL ASSISTANCE & HRD) (SEGMENT). THE TPO/DR P HAS EXCLUDED THE ABOVE COMPARABLE ON THE GROUND THAT TH E COMPANY IS INVOLVED IN EDUCATIONAL CONSULTANCY BUSINESS AND IS NOT PROVIDING ANY SERVICES, HENCE IT IS FUNCTIONALLY DIFFERENT AN D CANNOT BE ACCEPTED. 26 ITA NO.788/DEL/2015 30. HAVING CONSIDERED THE RIVAL SUBMISSIONS WE FIND THAT THE AFORESAID COMPANY WAS HELD TO BE VALID COMPARABLE I N OUR OWN ORDER FOR ASSESSMENT YEAR 2009-10 BY HOLDING AS UND ER: 19 WE HAVE HEARD THE RIVAL SUBMISSIONS AND, PERUSE D THE MATERIAL ON RECORD. IN THE PRESENT CASE, THE ASSESS EE WANTS INCLUSION OF EDCIL, A GOVERNMENT COMPANY, IN THE FI NAL SET OF COMPARABLES ADOPTED BY TPO/DRP. THE ASSESSEE INTER- ALIA SUBMITTED THAT IN THE APPELLANTS OWN CASE FOR THE A SSESSMENT YEAR 2008-09. DRP HAD DIRECTED THE TPO TO CONSIDER THE AFORESAID SEGMENT, NAMELY, TECHNICAL ASSISTANCE A ND HUMAN RESOURCE AS COMPARABLE TO THE ASSESSEE AND SINCE T HE BUSINESS OF EDCIL AND ASSESSEE HAS REMAINED UNCHANGED FROM PRECEDING YEARS, EDCIL CONTINUES TO BE COMPARABLE T O THE ASSESSEE AND THERE EXISTS NO LEGITIMATE REASON TO R EJECT THE COMPANY IN THE YEAR UNDER CONSIDERATION. THE ASSESS EE PLACED HIS RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COU RT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LIMITED 358 ITR 29 5, WHEREIN THEIR LORDSHIPS REITERATED THE LAW LAID DOWN IN RAD HASOAMI SATSANG VS. CIT 193 ITR 321 TO HOLD THAT, WHERE A F UNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAVE BEEN FOUND AS A FACT ONE WAY OR THE OTHER, AND THE PARTIES HAVE ALLOWED THE POSITION TO BE SUSTAINED BY NOT CHALLEN GING THE ORDER, IT IS NOT ALLOWED TO CHANGE THE POSITION IN ANY SUBSEQUENT YEAR. HAVING GONE THROUGH THE ORDER DATED 30.8.201 2 FOR ASSESSMENT YEAR 2008-09 IN THE CASE OF APPELLANT, I T IS STATED THAT DRP HAS HELD IN REGARD TO THE ABOVE COMPARABLE AS UNDER: 1 EDUCATIONAL CONSULTANTS INDIA LTD. (EDCIL) ACCORDING TO THE ASSESSEE EDCIL OFFER SUPPORT SERVI CES IN THE FOLLOWING AREAS: STUDENT PLACEMENT SECONDMENT OF EXPERTS 27 ITA NO.788/DEL/2015 TECHNICAL ASSISTANCE PROCUREMENT SERVICES TESTING AND RECRUITMENT SERVICES TECHNICAL SUPPORT GROUP TRAINING AND MANAGEMENT SERVICES THE COMPANY OPERATES IN THREE SEGMENTS: TECHNICAL ASSISTANCE, INSTITUTIONAL DEVELOPMENT AND HUMAN RESOURCES DEVELOPMENT. THE SERVICES PROVIDED UNDER TECHNICAL ASSISTANCE AND HUMAN RESOURCE DEVELOPMENT HAVE BEEN CONSIDERED AS COMPARABLE TO THE NATURE OF SERV ICES PROVIDED BY THE ASSESSEE TO ITS AE. FURTHER, WE WISH TO SUBMIT THE EDCIL WAS ACCEPTED A S COMPARABLE TO THE ASSESSEE BY THE LEARNED TPO DURIN G THE ASSESSMENT PROCEEDINGS FOR AY 2007-08 AS WELL AS EA RLIER YEARS. HENCE SINCE THE BUSINESS OF EDCIL AND THE ASSESSEE HAS REMAINED UNCHANGED FROM LAST YEAR, EDCIL CONTINUES TO BE COMPARABLES TO THE ASSESSEE AND THERE EXIST NO LEGI TIMATE REASON TO REJECT THE COMPANY THIS YEAR. AFTER CONSIDERING THE ABOVE FACTS, WE FIND THAT FUN CTIONALLY IT IS COMPARABLE AND TPO IS DIRECTED TO INCLUDE IT IN THE LIST OF COMPARABLES FOR COMPUTATION OF ALP 21 FOR THE FOREGOING REASON AND THERE BEING NO CHAN GE IN THE FACTS FOR THE INSTANT ASSESSMENT YEAR, THE AO/DRP I S DIRECTED TO INCLUDE EDCIL IN THE FINAL SET OF COMPARABLE COMPAN IES. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING OBSERVATION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACI T VS. NGC NETWORK INDIA (P) LTD. 10 TAXMANN.COM 140 WHERE IN IT HAS BEEN HELD AS UNDER: THESE COMPARABLES AND THE METHOD OF COMPUTATION OF ARMS LENGTH PRICE HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE 28 ITA NO.788/DEL/2015 SUBSEQUENT ASSESSMENT YEAR I.E. 2004-05. THEREFORE IN OUR VIEW COMPARABLES SELECTED BY THE ASSESSEE HAVE TO BE ADO PTED FOR THE PURPOSE OF COMPUTATION OF TRANSFER PRICING ADJUSTME NTS THIS YEAR ALSO. 22 THUS, AFTER INCLUDING EDCIL IN THE FINAL SET OF COMPARABLE COMPANIES CONSIDERED BY THE TPO, THE AVE RAGE OPERATING PROFIT TO COST MARGIN OF THE COMPARABLE C OMPANIES WORKS OUT TO 14.98%, AS UNDER: SR. NO. NAME OF THE COMPANY OP/TC (%) 1 BEST MULYANKAN CONSULTANTS LTD. 9.91% 2 IDC (INDIA) LTD. 10.46% 3 BASIZ FUND SERVICES PVT. LTD. 46.75% 4 INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD. 6.45% 5 IMMACS MANAGEMENT SERVICES LTD. 14.54% 6 SHRISTI URBAN INFRASTRUCTURE DEVELOPMENT LTD. 8.66% 7 CHOKSI LABORATORIES LTD. 23.19% 8 IN HOUSE PRODUCTIONS (SEGMENT) 2.51% 9 WAPCOS LTD. (SEGMENT) 23.60% 10 EDUCATIONAL CONSULTANT INDIA LIMITED (TECHNICAL ASSISTANCE & HRD SEGMENT) 3.80% AVERAGE 14.98% 23 SINCE, THE OPERATING PROFIT TO COST OF THE APPEL LANT AT 9.82% IS WITHIN THE +/-5% RANGE OF THE AVERAGE OPER ATING PROFIT TO COST RATIO OF THE AFORESAID 10 COMPARABLE COMPAN IES AT 14.98%, THE INTERNATIONAL TRANSACTION OF PROVISION OF BUSINESS SUPPORT SERVICES OF ASSESSEE DURING THE RELEVANT YE AR IS CONSIDERED TO BE AT ARMS LENGTH AND THE ADJUSTMENT MADE BY THE TPO IN THE IMPUGNED ORDER IS LIABLE TO BE DELETED, FOR THIS 29 ITA NO.788/DEL/2015 REASON ALONE. THE GROUNDS ARE ALLOWED TO THE EXTEN T DISCUSSED ABOVE. 31. FOLLOWING THE SAME EDCIL IS HELD TO BE FUNCTION ALLY COMPARABLE TO THE APPELLANT AND THEREFORE INCLUDED IN THE FINAL SET OF COMPARABLE COMPANIES. 32. NOW TAKING UP M/S ITDC LTD., THE TPO/DRP HAS RE JECTED THE SAID COMPARABLE BY HOLDING THAT THE EVENT MANAG EMENT SEGMENT AS CONSIDERED BY THE ASSESSEE AS COMPARABLE DOES NOT MATCH TO THE PROFILE OF THE ASSESSEE. IT WAS HELD THAT ITDC OWNS HOTELS, MOTELS, INNS, RESORTS PROVIDING SHORT TERM LODGING FACULTIES INCLUDING ACCOMMODATION IN HOUSE BOATS AND HENCE TH IS IS NOT A SUITABLE COMPARABLE. 33. THE COUNSEL FOR THE ASSESSEE THAT ITDC OPERATES IN THE FOLLOWING SEGMENTS: HOTEL/RESTAURANTS OPERATIONS, ASHOK CREATIVE (TOURISM PROMOTION DIVISION) ASHOK INTERNATIONAL TRADE [DUTY FREE SHOPS/DUTY PAI D SHOPS OPERATIONS] ASHOK TRAVEL AND TOUR OPERATIONS ASHOK RESERVATION AND MARKETING SERVICE DIVISION ( ARMS) AND ASHOK CONSULTANCY & ENGINEERING DIVISION 30 ITA NO.788/DEL/2015 34. HE FURTHER SUBMITTED THAT FOR THE PURPOSE OF TH E COMPARABILITY ANALYSIS, THE ARMS SEGMENT HAS BEEN CONSIDERED CO MPARABLE TO THE APPELLANTS BUSINESS. 35. THE DR ARGUED FOR THE EXCLUSION OF THE SAID CO MPARABLE. 36. HAVING CONSIDERED THE RIVAL SUBMISSION WE FIND THAT ITDC OPERATES IN THE VARIOUS SEGMENTS, AND FOR THE PURPO SE OF THE COMPARABILITY ANALYSIS, THE SEL & ARMS & MISC O PERATIONS SEGMENT HAS BEEN CONSIDERED COMPARABLE TO ASSESSEE S BUSINESS. THE RELEVANT SEGMENT PROVIDES EVENT MANAGEMENT SERV ICES, WHICH IDENTIFIES AND COORDINATES WITH VARIOUS SERVICE AGE NCIES FOR ITS CLIENTS AND THE SAME IS COMPARABLE TO THE NATURE OF SERVICES RENDERED BY THE ASSESSEE TO ITS AES. THE SERVICES RENDERED BY THE COMPANY UNDER THE ARMS SEGMENT, AS NOTED FROM THE W EBSITE OF THE COMPANY ARE REPRODUCED AS UNDER: MANAGEMENT CONSULTANCY AND ADVISORY SERVICES: THESE ENVISAGE ASSISTANCE IN PROJECT MANAGEMENT, RE CRUITMENT OF PERSONNEL, IMPARTING IN-HOUSE ON-THE-JOB-TRAININ G OF HOTEL STAFF. ITDC CAN ALSO OFFER GROUP-MARKETING SERVICES THROUGH ITS NETWORK OF ASHOK RESERVATION AND MARKETING SERVICES (ARMS) ALL OVER INDIA. PREPARATION OF COST-BENEFIT ANALYSIS AND BUDGETARY SUPPORT OPERATION OF HOTELS, BUSINESS CENTRES, CONVENTION H ALLS, BANQUETING, ETC. PREPARATION OF MASTER PLANS FOR DEVELOPMENT OF TOUR ISM. 31 ITA NO.788/DEL/2015 37. IN VIEW OF THE ABOVE ITDC IS DIRECTED TO BE INC LUDED IN THE FINAL SET OF COMPARABLES. 38. SO FAR AS M/S IN HOUSE PRODUCTION LTD., IT IS N OTED THAT TPO/DR EXCLUDED THE SAID COMPARABLE ON THE GROUND T HAT SUCH COMPANY IS AN ITES COMPANY ENGAGED IN MEDICAL TRANS CRIPTION. HE HAS HELD THAT DURING FINANCIAL YEAR 2009-10 AS P ER PROWESS DATABASE 69.33% OF ITS INCOME WAS FROM MEDICAL BPO AND 15.05% FROM PROGRAMME RIGHTS AND HENCE IT IS FUNCTIONALLY DIFFERENT AND WAS REJECTED AS A COMPARABLE. 39. BEFORE US THE LEARNED COUNSEL SUBMITTED THAT TH E SAID COMPANY HAS TWO SEGMENT NAMELY HEALTHCARE; AND MEDI A DIVISION. IT WAS SUBMITTED THAT UNDER THE HEALTHCARE DIVISION , IHPL PROVIDES ACCESS TO INFORMATION, RELATING TO HEALTHCARE TECHN OLOGY INCLUDING MANAGEMENT PRACTICES AND KNOWLEDGE DATABASES TO HEA LTHCARE DELIVERY INSTITUTIONS AND HEALTH PROFESSIONALS IN I NDIA, WHICH IS SIMILAR TO THE INFORMATION/KNOWLEDGE BEING PROVIDED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES ON THE MARK ET CONDITIONS IN INDIA AND ACCORDINGLY FOR THE PURPOSES OF COMPARABI LITY ANALYSIS, THE HEALTHCARE SEGMENT OF THE COMPANY HAS BEEN CO NSIDERED COMPARABLE TO THE APPELLANT. HAVING CONSIDERED THE RIVAL SUBMISSION, WE NOTICE THAT THE SAID COMPANY HAS ALS O BEEN CONSIDERED COMPARABLE BY THE DRP IN AY 2008-09 AND AY 2009- 32 ITA NO.788/DEL/2015 10. THE RELEVANT EXTRACT FROM THE ORDER OF DRP FOR AY 2008-09 IS AS FOLLOWS: ACCORDING TO THE ASSESSEE THE IHPL, THE COMPANY H AS TWO MAIN BUSINESS SEGMENTS, NAMELY - MEDIA DIVISION AND - HEALTHCARE IN THE MEDIA DIVISION, THE COMPANY IS ENGAGED IN SA LE OF PROGRAMMING SOFTWARE AND RIGHT. UNDER THE HEALTHCARE DIVISION IHPL, PROVIDES ACCESS TO INFORMATION, RELATING HEALTHCARE TECHNOLOGY INCLUDING MANAGEMENT , PRACTICES AND KNOWLEDGE DATABASE TO HEALTHCARE DELIVERY INSTITUTI ONS AND HEALTH PROFESSIONAL IN INDIA. THIS IS SIMILAR TO INFORMAT ION/KNOWLEDGE BEING PROVIDED BY THE ASSESSEE TO ITS AES ON INDUSTRIAL P RODUCTS RELATED TO AUTOMOTIVE ELECTRONICS AND FACTORY AUTOMATION IN IN DIA. HENCE, THIS DIVISION IS COMPARABLE TO THE ASSESSEE. DRP HAS EXAMINED THE ABOVE CONTENTIONS AND SUBMISSI ON OF THE ASSESSEE. WE FIND THAT FUNCTIONALLY IT IS COMPARAB LE AND TPO IS DIRECTED TO INCLUDE IT AS A COMPARABLE FOR COMPUTIN G ALP. RELEVANT EXTRACT FROM DRP ORDER OF AY 2009-10 IS AS FOLLOWS: 2 IN HOUSE PRODUCTION LIMITED FUNCTIONALLY DIFFERENT FUNCTIONALLY SIMILAR ACCORDING TO THE ASSESSEE THE IHPL THE COMPANY HAS TWO MAIN BUSINESS SEGMENTS, NAMELY-MEDIA DIVISION AND HEALTHCARE. IN THE MEDIA DIVISION, THE COMPANY IS ENGAGED IN SALE OF PROGRAMMING SOFTWARE AND RELATED RIGHTS. UNDER THE HEALTHCARE DIVISION 33 ITA NO.788/DEL/2015 IHPL PROVIDES ACCESS TO INFORMATION RELATING HEALTHCARE TECHNOLOGY INCLUDING MANAGEMENT PRACTICES AND KNOWLEDGE DATABASE TO HEALTHCARE DELIVERY INSTITUTION AND HEALTH PROFESSIONAL IN INDIA. THIS IS SIMILAR TO INFORMATION/KNOWLEDGE BEING PROVIDED BY THE ASSESSEE TO ITS AES. HENCE, THIS DIVISION IS COMPARABLE TO THE ASSESSEE. DRP HAS EXAMINED THE ABOVE CONTENTIONS AND SUBMISSION OF THE ASSESSEE. WE FIND THAT FUNCTIONALLY IT IS COMPARABLE FOR COMPUTING ALP. 40. HAVING REGARD TO THE ABOVE WE FIND FORCE IN THE SUBMISSION OF ASSESSEE AND AS SUCH DIRECT THE INCLUSION OF M/S IN HOUSE PRODUCTION LTD. 41. FURTHER SO FAR AS M/S TSR DARASHAW LTD. IS CONC ERNED, THE TPO/DRP HAVE HELD THAT THE SAID COMPANY IS ENGAGED IN BPO SERVICES, PAYROLL PROCESSING SERVICES, REGISTRAR AN D TRANSFER AGENTS SERVICES ETC. WHICH ARE IN THE NATURE OF BUSINESS S UPPORT SERVICES AND THEREFORE WAS RETAINED AS A COMPARABLE IN THE F INAL SET OF COMPARABLES. 34 ITA NO.788/DEL/2015 42. THE LEARNED AR SUBMITTED THAT THE TPO HAS INCLU DED TSR DARASHAW LTD. IN THE FINAL SET OF COMPANIES WITH AN OPERATING PROFIT MARGIN OF 41.15%. IN THIS REGARD, IT WAS SUB MITTED THAT THE COMPANY IS A BPO COMPANY PROVIDING PAYROLL PROCESS OUTSOURCING SERVICES TO ITS CUSTOMERS. IT WAS FURTH ER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HA S SELECTED A NEW GLOBAL PAYROLL ERP APPLICATION CALLED RAMCO FOR ITS FAST GROWING PAYROLL BUSINESS. FURTHER, THE COMPANY IN I TS ANNUAL REPORT HAS CLEARLY PROVIDED THAT IT IS DERIVING ITS INCOME FROM THE FOLLOWING BUSINESS SEGMENTS, NAMELY, SHARE REGISTRY AND TRANSFER SERVICES, DEPOSITORY SERVICES, RECORD MANAGEMENT AN D FUND MANAGEMENT, CORPORATE AND FIXED DEPOSIT MANAGEMENT SERVICES. MOREOVER, IT WAS SUBMITTED THAT THE COMPANY HAS IDE NTIFIED THREE BUSINESS SEGMENTS NAMELY, REGISTRAR AND TRANSFER AG ENT ACTIVITY, RECORDS MANAGEMENT ACTIVITY AND PAYROLL AND TRUST A CTIVITY IN THE ANNUAL REPORT. IN VIEW OF THE ABOVE, IT WAS SUBMIT TED THAT THE SERVICES PROVIDED BY TSRDL ARE FAR MORE COMPLEX THA N THE BUSINESS SUPPORT SERVICES PROVIDED BY ASSESSEE TO I TS AES. THE COMPANY IS ENGAGED IN PROVIDING ALTOGETHER DIFFEREN T SET OF SERVICES AND THEREFORE IT IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT COMPANY. THE ASSESSEE, IN THIS REGARD, HAS ALSO PLA CED RELIANCE ON THE OF THE HONBLE DELHI BENCH OF TRIBUNAL IN THE C ASE OF MICROSOFT CORPORATION INDIA PVT. LTD. VS. DCIT IN I TA NO. 35 ITA NO.788/DEL/2015 5766/DEL/2011 WHEREIN IT WAS HELD THAT TSR DARASHAW IS NOT FUNCTIONALLY COMPARABLE TO THE COMPANY PROVIDING MA RKETING SUPPORT SERVICES AND WAS DIRECTED TO BE EXCLUDED FR OM THE FINAL SET OF COMPARABLE COMPANIES. THE LEARNED DR SUPPORTED THE INCLUSION OF SAID COMPARABLE. 43. HAVING CONSIDERED THE RIVAL SUBMISSIONS IT IS S EEN THAT DELHI BENCH OF TRIBUNAL IN THE CASE OF M/S MICROSOFT CORP ORATION LTD. VS. DCIT ITA NO. 5766/D/2011 HAS HELD THAT TSR DARA SHAW IS NOT FUNCTIONALLY COMPARABLE TO THE COMPANY PROVIDING MA RKETING SUPPORT SERVICES AND HAS OBSERVED AS UNDER: 16. THIS COMPANY WAS CHOSEN BY THE ASSESSEE AS CO MPARABLE IN ITS TRANSFER PRICING STUDY REPORT. THE TPO ACCEP TED THE FUNCTIONAL COMPARABILITY OF THIS SEGMENT OF THE COM PANY WITH THE ASSESSEES MARKETING SUPPORT SERVICES AGREEMENT . THE LD. AR CONTENDED THAT THIS COMPANY WAS WRONGLY INCLUDED IN THE LIST OF COMPARABLES AND THE SAME SHOULD BE EXCLUDED . THE LD. DR OBJECTED TO THE EXCLUSION OF THIS COMPANY ON THE GROUND THAT SINCE THE ASSESSEE VOLUNTARILY INCLUDED IT IN THE FINAL SET OF COMPARABLES, NOW IT CANNOT TURN AROUND TO CONTEND I TS INCOMPARABILITY. 17. WE ARE NOT INCLINED TO UPHOLD THE OBJECTION TAK EN BY THE LD. DR ON THE INCLUSION OF THIS COMPANY AS COMPARABLE M ERELY ON THE FACT THAT THE ASSESSEE TREATED IT AS COMPARABLE IN ITS TP STUDY REPORT. IT GOES WITHOUT SAYING THAT THERE CAN BE NO ESTOPPEL AGAINST CORRECTNESS. IF THE ASSESSEE INADVERTENTLY INCLUDES A COMPANY IN ITS FINAL SET OF COMPARABLES, WHICH IS, IN FACT, NOT COMPARABLE, HE HAS A RIGHT TO AGITATE BEFORE THE AU THORITIES THAT THIS COMPANY MAY BE EXCLUDED. THIS RIGHT OF THE ASS ESSEE DOES NOT, IN ANY MANNER, PREJUDICE THE POWERS OF THE AUT HORITIES TO EXAMINE THE COMPARABILITY OF THE COMPANY WHICH IS S OUGHT TO BE EXCLUDED. IF, ON MAKING SUCH AN ANALYSIS, THE AU THORITIES FIND THAT THE COMPANY SO AGITATED AS FUNCTIONALLY INCOMP ARABLE, IS 36 ITA NO.788/DEL/2015 COMPARABLE, THEN THERE CAN BE NO REASON TO EXCLUDE THE SAME. IF, HOWEVER, THE COMPANY TURNS OUT TO BE FUNCTIONALLY D ISSIMILAR FROM THE ASSESSEE, THEN, THERE CAN BE NO RATIONALE IN CONTINUING TO TREAT IT AS COMPARABLE DESPITE THE FUNCTIONAL VA RIATION. THE CRUX IS THAT WHAT REALLY MATTERS IS THE ACTUAL COMP ARABILITY AND NOT THE WRONG VIEW CANVASSED BY THE ASSESSEE IN THE ORIGINAL REPORTING. WHAT IS TRUE FOR THE ASSESSEE IS EQUALLY TRUE FOR THE REVENUE AS WELL. THE AUTHORITIES ARE FULLY COMPETEN T TO CONSIDER THE COMPARABILITY OF THE COMPANIES TREATED BY THE A SSESSEE AS COMPARABLE. IF THE ANALYSIS UNDERTAKEN BY THE TPO S HOWS THAT SOME OF THE COMPANIES SO CONSTRUED BY THE ASSESSEE AS COMPARABLE ARE, IN FACT, NOT COMPARABLE, THEN, SUCH COMPANIES ARE LIABLE TO BE EXCLUDED. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS (P) LTD. (2010) 132 TTJ (CHD) (SB) 1, HAS HELD THAT AN ASSESSEE IS ENTITLED TO RAISE A CLAIM FOR THE FIRST TIME BEFORE THE TRIBUNAL EVEN T HROUGH AN ADDITIONAL GROUND THAT A COMPANY WAS WRONGLY INCLUD ED IN THE LIST OF COMPARABLES. IN VIEW OF THE FOREGOING DISCU SSION, WE ARE OF THE CONSIDERED OPINION THAT THE OBJECTION TAKEN BY THE LD. DR IN OUTRIGHTLY REJECTING THE ASSESSEES CONTENTION, IS UNTENABLE. 18. COMING TO THE MERITS OF COMPARABILITY, WE FIND THAT THIS COMPANY HAS THREE SEGMENTS, WHICH INTER ALIA INCLUD E: PAY ROLL AND TRUST FUND ACTIVITY (PAY ROLL). IT IS THIS SEG MENT WHICH HAS BEEN CONSIDERED BY THE ASSESSEE AS COMPARABLE. THIS COMPANY ON AN OVERVIEW IS A BROKING AND INVESTMENT BANKING HOUSE. ITS OTHER SEGMENTS ARE : REGISTRAR AND TRANSFER AGENT ACTIVITY (R&D) AND RECORDS MANAGEMENT ACTIVITY (RECORDS). THE SEGMENT OF PAY ROLL WAS CONSIDERED BY THE ASSESSE E AS COMPARABLE IN ITS TP STUDY REPORT AND THE SAME IS N OW ASSAILED. UNDER THE PAY ROLL SEGMENT, THIS COMPANY UNDERTAK ES PAY ROLL AND EMPLOYEE TRUST FUND ADMINISTRATION AND MANAGEME NT. WHEN WE COMPARE THE NATURE OF PAY ROLL ACTIVITY UNDERTAK EN BY THIS COMPANY WITH THE MARKETING SUPPORT SERVICES RENDERE D BY THE ASSESSEE TO ITS AES, WE FIND THAT BOTH ARE WAY APAR T FROM EACH OTHER. THERE CAN BE NO LOGICAL COMPARISON BETWEEN A SPECIFIC PAY ROLL SERVICES RENDERED BY A COMPANY TO ITS CLIE NTS WITH THE MARKETING SUPPORT SERVICES RENDERED BY THE ASSESSEE TO ITS AES. THIS COMPANY IS, THEREFORE, DIRECTED TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 37 ITA NO.788/DEL/2015 44. FOLLOWING THE ABOVE DECISION M/S TSR DARASHAW I S HELD TO BE NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT AND IS DIRECTED TO BE EXCLUDED FROM THE SET OF COMPARABLE COMPANIES. 45. HAVING REGARD TO THE ABOVE CONCLUSION WE FIND T HAT AS A RESULT OF THE ABOVE INCLUSION OF M/S EDUCATIONAL CONSULTAN T INDIA LTD., M/S ITDC LTD. AND M/S IN HOUSE PRODUCTION LTD. AND EXCLUSION OF TSR DARASHAW LTD. IN THE FINAL SET OF COMPARABLE, T HE AVERAGE OPERATING PROFIT TO COST RATIO WORKS OUT TO 6.30% A S UNDER: SR. NO. NAME OF THE COMPANY OP/TC (%) (WITHOUT FOREX) 1 CYBER MEDIA INDIA ONLINE LIMITED FORMERLY IDC (INDIA) LIMITED 14.85% 2 QUADRANT COMMUNICATIONS LIMITED 13.11% 3 CAMEO CORPORATE SERVICES LIMITED 8.26% 4 ICRA MANAGEMENT CONSULTING SERVICES LIMITED 1.94% 5 EDUCATIONAL CONSULTANT IND LIMITED (SEGMENT) (TECHNICAL ASSISTANCE & HRD) 7.37% 6 ITDC LIMITED (SEGMENT) -5.50% 7 IN HOUSE PRODUCTION LIMITED (SEGMENT) (HEALTHCARE DIVISION) 4.09% AVERAGE 6.30% ASSESSEES MARGIN 9.26% 46. SINCE THE OPERATING PROFIT TO COST MARGIN OF TH E APPELLANT AT 9.26% IS HIGHER THAN THE OPERATING PROFIT TO COST R ATIO OF THE COMPARABLE COMPANIES AT 6.30%, THE ADJUSTMENT MADE BY THE AO/TPO/DRP, IN RELATION TO INTERNATIONAL TRANSACTIO N OF PROVISION 38 ITA NO.788/DEL/2015 OF BUSINESS SUPPORT SERVICES, IS DELETED. IN VIEW O F THE ABOVE CONCLUSION, WE DO NOT FIND, IT NECESSARY TO ADJUDIC ATE AS TO THE COMPARABILITY OF INCLUSION OF APTICO LIMITED, GL OBAL PROCUREMENT CONSULTANTS LIMITED. AND HCCA BUSINESS SERVICES (P) LTD., AND THE OBJECTION OF THE ASSESSEE IN RESP ECT OF THESE TWO COMPANIES ARE KEPT OPEN. THE GROUNDS ARE ALLOWED T O THE EXTENT DISCUSSED ABOVE. 47. AS FAR AS GROUND NO. 4 IS CONCERNED I.E. WITH R EGARD TO LEVY OF INTEREST UNDER SECTION 234C, IT IS HELD THAT INT EREST UNDER SECTION 234C IS LEVIABLE ON THE SHORTFALL OF ADVANCE TAX AS COMPARED TO THE TAX DUE ON RETURNED INCOME. 48. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 24 TH DAY OF NOVEMBER, 2015. SD/- SD/- (S.V.MEHROTRA) (A.T.VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 24 TH DAY OF NOVEMBER, 2015/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.