Apotex Research Private Limited, Bangalore V. DCIT, Bangalore

ITA 918/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63799 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 20-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA CITIDR
• Keywords: Transfer pricing; International transaction; Working capital adjustments; Wholly owned subsidiary
• Section: 92C; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.918/BANG/2011 ASSESSMENT YEAR : 2007-08 APOTEX RESEARCH PRIVATE LTD., NO.1, BOMMASANDRA INDUSTRIAL AREA, 4 TH PHASE, BOMMASANDRA INDUSTRIAL ESTATE P.O., BANGALORE 560 099. PAN : AAECA 2791B VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI CHAVALI NARAYAN, C.A. RESPONDENT BY : SHRI S.K. AMBASTHA, CIT-I(DR) DATE OF HEARING : 06.11.2012 DATE OF PRONOUNCEMENT : 23.11.2012 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL AGAINST THE ORDER DATED 24.08. 201 OF THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 11(1), BANGALORE [HEREINAFTER REFERRED TO AS THE ASSESSING OFFICER (AO)] PASSED U/S. 143( 3) R.W.S. 144C OF THE INCOME-TAX ACT, 1961 [THE ACT]. ITA NO.918/BANG/2011 PAGE 2 OF 19 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS FOLLOWS:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THE ORDER OF THE LEARNED AO AND DIRECTIONS OF T HE HONBLE DRP ARE BASED ON INCORRECT INTERPRETATION OF LAW AN D THEREFORE ARE BAD IN LAW. 2. THE LEARNED AO HAS ERRED IN ASSESSING THE TOTAL INCOME AT RS. 7,96,29,650 AS AGAINST RETURNED INCOME OF RS. 1 6,12,489 COMPUTED BY THE APPELLANT. 3. THE LEARNED AO/TRANSFER PRICING OFFICER (TPO) ERRED IN MAKING AN ADDITION OF RS.8,41,59,983 TO THE TOTAL I NCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ENTERED BY T HE APPELLANT WITH ITS ASSOCIATED ENTERPRISES. 4. THE LEARNED AO/TPO ERRED IN LAW AND IN FACTS, B Y NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME-TAX RULES, 1962 (RULES), CONDUCTI NG A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF TH E ARMS LENGTH PRICE FOR THE IMPUGNED INTERNATIONAL TRANSAC TION, AND HOLDING THAT THE APPELLANTS INTERNATIONAL TRANSACT ION IS NOT AT ARMS LENGTH. 5. THE LEARNED AO/TPO ERRED IN LAW AND IN FACTS, I N DETERMINING THE ARMS LENGTH MARGIN USING ONLY FINA NCIAL YEAR 2006-07 DATA WHICH WAS NOT AVAILABLE IN THE PU BLIC DOMAIN AT THE TIME OF COMPLYING WITH THE TRANSFER P RICING DOCUMENTATION REQUIREMENTS. 6. THE LEARNED AO/TPO ERRED IN REJECTING CERTAIN C OMPANIES HAVING DIFFERENT ACCOUNTING YEAR (I.E. COMPANIES HA VING ACCOUNTING YEAR OTHER THAN MARCH 31 OR COMPANIES WH OSE FINANCIAL STATEMENTS WERE FOR A PERIOD OTHER THAN 1 2 MONTHS). 7. THE LEARNED AO/TPO ERRED, IN LAW AND FACTS, BY REJECTING CERTAIN COMPANIES FOR HAVING FOREIGN EXCHANGE EARNI NGS LESS THAN 25% OF THE REVENUES. 8. THE LEARNED AO/TPO ERRED, IN LAW AND IN FACTS, BY INCORRECTLY REJECTING A COMPARABLE COMPANY ON ACCOU NT OF PERSISTENT OPERATING LOSSES ON ONE HAND AND ACCEPTI NG CERTAIN SUPER PROFIT MAKING COMPANIES ON THE OTHER HAND. ITA NO.918/BANG/2011 PAGE 3 OF 19 9. THE LEARNED AO / TPO ERRED, IN ACCEPTING/REJECT ING CERTAIN COMPANIES USING UNREASONABLE COMPARABILITY CRITERIA . 10. THE LEARNED AO/TPO ERRED, IN LAW AND FACTS, BY INCORRECTLY COMPUTING THE WORKING CAPITAL ADJUSTMENT OF THE APP ELLANT VIS--VIS THE COMPARABLES. THE HONBLE DRP, IN TURN , HAS ERRED BY OVERLOOKING THE APPELLANTS OBJECTIONS ON THE SUBJECT AND IN CONCLUDING THAT THE WORKING CAPITAL ADJUSTMENT HAS BEEN CORRECTLY COMPUTED. 11. THE LEARNED AO / TPO ERRED IN NOT MAKING SUITA BLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS--VIS THE COMPARABLES. 12. THE LEARNED AO/TPO ERRED IN COMPUTING THE ARM S LENGTH PRICE WITHOUT GIVING BENEFIT OF +/- 5 PERCENT UNDER THE PROVISO TO SECTION 92C OF THE ACT. EACH OF THE GROUND IS REFERRED TO SEPARATELY, WHICH MAY KINDLY BE CONSIDERED INDEPENDENT AND WITHOUT PREJUDICE OF EAC H OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HONBLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDA NCE WITH THE LAW. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF PROVIDING CONTRACT PHARMACEUTICALS RESEARCH & DEVEL OPMENT SERVICES TO APOTEX PHARMACEUTICALS HOLDINGS INC. [ APHI ], A CORPORATION INCORPORATED UNDER THE LAWS OF CANADA. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF APHI. THE TRANSACTION BY WHICH THE ASSESSEE PROVID ED CONTRACT RESEARCH SERVICES TO ITS ASSOCIATED ENTERPRISE [ AE ] WAS AN INTERNATIONAL TRANSACTION AND THE PROVISIONS OF SECTION 92 OF THE ACT WERE AP PLICABLE. THE INCOME FROM SUCH TRANSACTIONS HAD TO BE DETERMINED HAVING REGARD TO THE ARMS LENGTH PRICE. ITA NO.918/BANG/2011 PAGE 4 OF 19 4. THE TYPICAL ACTIVITIES PERFORMED BY THE ASSESSEE ARE LISTED AS UNDER (THE FOLLOWING FUNCTIONS ARE PERFORMED BY THE ASSES SEE AFTER APOTEX INC. IDENTIFIES THE PRODUCT TO BE DEVELOPED AND BEFORE T HE FINAL PRODUCT IS MANUFACTURED AND EXPORTED BY APOTEX INC.) :- ANALYTICAL RESEARCH/TESTING AND FORMULATION DEVE LOPMENT : ANALYTICAL RESEARCH IS UNDERTAKEN SCREENING POTENTI AL DRUG CANDIDATES, TO AID IN THE DEVELOPMENT OF DRUG SYNTH ESIS . THE VARIOUS ACTIVITIES INVOLVED INCLUDE: DEVELOPMENT OF ANALYTICAL METHOD, INNOVATOR/COMPETITOR SAMPLE ANALYSIS, PROTO TYPE FORMULATION DEVELOPMENT, PRODUCT SPECIALIZATION DEVELOPMENT, ETC. SCALE UP/MANUFACTURING OF SAMPLES : PRODUCT OF PILOT BATCHES FOR STABILITY AND BIOEQUIVALENCE STUDY UNDER A MANU FACTURING PLANT ENVIRONMENT. STABILITY TESTING : LONG-TERM STUDIES, WHERE THE PRODUCT IS STORED AT ROOM TEMPERATURE AND HUMID CONDITIONS, TO ASSESS EXPIRY DATE AND STORAGE CONDITIONS FOR PHARMACEUTIC AL PRODUCTS. BIOEQUIVALENCE STUDY : A SERIES OF COMPARATIVE TESTS DESIGNED TO ESTABLISH THERAPEUTICAL EQUIVALENCE BETWEEN TEST AND REFERENCE (INNOVATOR) PRODUCTS. REGULATORY FILINGS/SUBMISSIONS : RESULTS FROM BIOEQUIVALENCE STUDY AND STABILITY TESTING ARE DOCUMENTED IN PRESC RIBED MANNER FOR DOSSIER PREPARATION AND SUBMISSION TO VA RIOUS REGULATORY AGENCIES TO OBTAIN APPROVAL. 5. IN SUPPORT OF THE CLAIM OF THE ASSESSEE THAT THE CONSIDERATION RECEIVED BY IT FROM ITS AE WAS AT ARMS LENGTH, THE ASSESSEE FILED TRANSFER PRICING [ TP ] STUDY IN ACCORDANCE WITH THE PROVISIONS OF THE A CT AND THE INCOME-TAX RULES, 1962. THE ASSESSEE ADOPTED THE T RANSACTIONAL N ET M ARGIN M ETHOD [ TNMM ] AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE A RMS L ENGTH P RICE [ ALP ]. THERE IS NO DISPUTE THAT TNMM WAS THE MOST APPROPRIATE METHOD AND EVEN THE TPO HAS ACCEPT ED THE SAID METHOD ITA NO.918/BANG/2011 PAGE 5 OF 19 AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP IN THE CASE OF ASSESSEE. 6. THE P ROFIT L EVEL I NDICATOR [ PLI ] WAS ADOPTED BY THE ASSESSEE AS OPERATING PROFIT ON COST. THE ASSESSEE IN ITS TP S TUDY HAD CHOSEN THE FOLLOWING AS COMPARABLES, GIVING AN ARITHMETIC MEAN OF 15.60%. COMPARABLES OF THE APPELANT SL. NO. LIST OF COMPARABLE COMPANIES MARGIN % REASON FOR REJECTION BY THE TPO 1 ALPHAGEO (INDIA) LTD. 30.31% ACCEPTED AS A COMPARABLE 2 CHOKSI LABORATORIES 32.00% COMPANY HAVING <25% EXPORT EARNINGS 3 DOLPHIN MEDICAL SERVICES 13.89% COMPANY HAVING <25% EXPORT EARNINGS 4 MEDINOVA DIAGNOSTICS 3.87% COMPANY HAVING <25% EXPORT EARNINGS 5 N G INDUSTRIES 31.01% COMPANY HAVING <25% EXPORT EARNINGS 6 NEEMAN MEDICALS INTERNATIONAL (ASIA) LTD. (-)13.28% BECAUSE OF CONTINUOUS LOSSES 7 VIMTA LABS LTD. 69.37% ACCEPTED AS A COMPARABLE 8 ADS DIAGNOSTICS LTD. (-) 14.17% FUNCTIONALLY DIFF ERENT 9 PFIZER LTD. (-) 0.03% FUNCTIONALLY DISSIMILAR 10 TRANSGENE BIOTEK (-) 0.03% FUNCTIONALLY DISSIMIL AR AVERAGE MARGIN AS PER TP STUDY 15.60% 7. THE TPO REJECTED THE COMPARABLES GIVEN BY THE AS SESSEE FOR THE REASONS GIVEN IN THE CHART GIVEN ABOVE (SEE COLUMN 4 OF THE CHART). AS CAN BE SEEN FROM THE CHART GIVEN ABOVE, THE TPO ACC EPTED THAT ALPHAGEO ITA NO.918/BANG/2011 PAGE 6 OF 19 (INDIA) LTD. AND VIMTA LABS LTD. WERE COMPARABLES, BUT IN RESPECT OF OTHER 8 COMPARABLES CHOSEN BY THE ASSESSEE, THE TPO REJEC TED THE SAME FOR THE REASONS GIVEN IN THE CHART GIVEN ABOVE. THE TPO ON HIS OWN SELECTED THE FOLLOWING AS COMPARABLES INCLUDING THE TWO COMPARAB LES SUGGESTED BY THE ASSESSEE WHICH WAS ACCEPTED BY THE TPO;- TPOS COMPARABLE COMPANIES SL NO. COMPARABLE COMPANIES SELECTED BY THE TPO MARGIN % 1 ENGINEERING INDIA LTD 45.16% 2 ALPHAGEO INDIA 38.21% 3 VIMTA LABS 27.44% 4 IDC INDIA LTD. 15.89% 5 OILFIELD INSTRUMENTATION 76.46% 6 CELESTIAL LABS 58.35% 7 MINDTREE LTD. 14.90% AVERAGE MARGIN AS PER TP ORDER 39.49% 8. THE TPO APPLYING THE AFORESAID MARGIN OF 39.49% DETERMINED THE ALP AS FOLLOWS:- THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. BASED ON THIS, THE ARMS LENGTH PRICE OF THE RESEARCH AND DEVELOPMENT SERVICES RENDERED BY THE T AXPAYER IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI : 39.49% ON COST LESS WORKING CAPITAL ADJUSTMENTS: 0.41% ON COST ARMS LENGTH MARGIN : 39.08% ON COST OPERATING COST RS. 32,48,39,378/- ARMS LENGTH MARGIN 39.08% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) @139.08% OF OPERATING COST RS. 45,17,86,607/- ITA NO.918/BANG/2011 PAGE 7 OF 19 6.4.1 PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRI CE : THE PRICE CHARGED BY THE TAX PAYER TO ITS ASSOCIATE D ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER: ARMS LENGTH PRICE (ALP) @139.08% OF OPERATING COST RS. 45,17,86,607/- PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS RS. 36,76,26,624/- SHORTFALL BEING ADJUSTMENT U/S 92CA RS. 8,41,59,983/- THE ABOVE SHORTFALL OF RS. 8,41,59,983/- IS TREATE D AS TRANSFER PRICING ADJUSTMENT U/S 92CA. 9. THE ADJUSTMENT SUGGESTED BY THE TPO WAS ADOPTED BY THE AO IN THE DRAFT ORDER OF ASSESSMENT. AGAINST THE DRAFT A SSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE DRP ACCEPTED THE VIEW OF THE TPO AND THE ADDITION PROPOSED IN THE DRAFT ASSE SSMENT ORDER. IN ACCORDANCE WITH THE DIRECTIONS OF THE DRP, THE AO P ASSED THE FAIR ASSESSMENT ORDER MAKING THE IMPUGNED ADDITION ON AC COUNT OF ADJUSTMENT TO ALP SUGGESTED BY THE TPO. AGAINST THE ADDITION SO MADE BY THE TPO, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE TH E TRIBUNAL. 10. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSE L FOR THE ASSESSEE AND THE LD. DR. THE LD. DR PRIMARILY RELIED ON THE ORDER OF THE TPO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, BR OUGHT TO OUR NOTICE THE DECISION OF THE MUMBAI BENCH OF THE ITAT IN THE CAS E OF TEVAPHARM PRIVATE LTD. VIDE ORDER DATED 23.12.2011 IN ITA NO. 6623/MUM/2011 FOR THE A.Y. 2007-08 , WHEREIN THE MUMBAI BENCH OF THE TRIBUNAL IN THE C ASE OF AN ASSESSEE WHO WAS ENGAGED IN PROVIDING CONTRACT RESE ARCH FOR PHARMA INDUSTRIES, HAD CONSIDERED THE COMPARABILITY OF 5 O F THE COMPARABLES CHOSEN BY THE TPO VIZ., ENGINEERS INDIA LTD., IDC I NDIA LTD., OIL FIELD ITA NO.918/BANG/2011 PAGE 8 OF 19 INSTRUMENTATION, CELESTIAL LABS & MINDTREE LTD. AND HAVE TAKEN THE VIEW THAT THESE COMPANIES CANNOT BE TAKEN AS COMPARABLES FOR DETERMINING THE ALP IN THE CASE OF A COMPANY PROVIDING CONTRACT RES EARCH & DEVELOPMENT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOL LOWING THE AFORESAID REASONING GIVEN BY THE MUMBAI BENCH OF THE TRIBUNAL , THE AFORESAID COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPA RABLES ADOPTED BY THE TPO. IT WAS FURTHER SUBMITTED THAT ONE OF THE CO MPARABLES CHOSEN BY THE ASSESSEE VIZ., NEEMAN MEDICALS INTERNATIONAL (ASIA) LTD. WAS REJECTED BY THE TPO ON THE GROUND THAT THE SAID COMPANY WAS A C ONSISTENTLY LOSS MAKING COMPANY. IT WAS POINTED OUT BY THE LD. COUN SEL FOR THE ASSESSEE THAT HE ASSESSEE FILED APPLICATION DATED 13.02.2012 BEFORE THE TPO POINTING OUT THAT IN PAGE 9 OF THE TPOS ORDER, THE TPO HAD MENTIONED THAT M/S. NEEMAN MEDICALS INTERNATIONAL (ASIA) LTD. IS I NTO LOSS FOR THE F.Y. 2004-05 AS ITS SALES WAS Q 3.15 CRORES, WHEREAS THE TOTAL COST WAS Q 4.40 CRORES, RESULTING IN A LOSS OF Q 0.59 CRORES. THE SAID COMPANY WAS THEREFORE EXCLUDED FROM COMPARABILITY. IN AN APPL ICATION U/S. 154 OF THE ACT FILED BY THE ASSESSEE (DATED 13.02.2012) BEFORE THE TPO, THE ASSESSEE POINTED OUT THAT AS PER THE ANNUAL REPORT OF NEEMAN MEDICALS INTERNATIONAL (ASIA) LTD. FOR THE F.Y. 2005-06 WHICH ALSO CONTAIN S FINANCIAL DATA FOR THE F.Y.2004-05, THE INCOME FROM CLINICAL TRIAL OF NEEM AN MEDICALS INTERNATIONAL (ASIA) LTD. FOR F.Y. 2004-05 WAS Q 4.51 CRORES WITH A COST OF Q 4.38 CRORES, RESULTING IN A PROFIT BEFORE TAX OF Q 16.83 LAKHS. THE ASSESSEE THEREFORE PLEADED THAT NEEMAN MEDICALS INTERNATIONA L (ASIA) LTD. SHOULD NOT BE REJECTED AS COMPARABLE ON THE GROUND THAT IT WAS CONSISTENTLY MAKING LOSSES. ITA NO.918/BANG/2011 PAGE 9 OF 19 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THE COMPARABLES CHOSEN BY THE TPO ARE REJECTED FOR THE REASONS GIVE N ABOVE AND EVEN IF IDC INDIA LTD., MINDTREE LTD. (SEGMENTAL DATA) AND NEEMAN MEDICALS INTERNATIONAL (ASIA) LTD. ARE CONSIDERED AS COMPARA BLES, OPERATING MARGIN ON COST WOULD BE 9.95% AS PER THE FOLLOWING DETAILS :- THE TABLE BELOW SHOWS THAT THE ARITHMETIC MEAN MARG IN WOULD BE 9.95% ON: INCLUDING COMPANIES ERRONEOUSLY REJECTED BY THE TPO (I.E.,NEEMAN) IN THE COMPARABLES SET EXCLUDING COMPANIES ERRONEOUSLY SELECTED BY THE TPO (I.E., CELESTIAL LABS, OIL FIELD AND EIL) SI. NO. COMPANY NAME UNADJUSTED OPERATING MARGINS ON COST (%) 1 ALPHA GEO INDIA LIMITED 38.21% 2 VIMTA LABS LIMITED 27.45% 3 IDC INDIA LIMITED 15.84% 4 MINDTREE LIMITED (SEG) 14.98% 5 NEEMAN MEDICAL INTERNATIONAL (ASIA) LIMITED - 46.73% AVERAGE 9.95% 12. IT WAS SUBMITTED THAT THE ASSESSEES OPERATING MARGIN ON COST WAS 13.17% WHICH WAS MORE THAN THE ARITHMETIC MEAN AS G IVEN IN THE ABOVE TABLE. THE LD. COUNSEL THEREFORE SUBMITTED THAT TH E ADJUSTMENT MADE TO THE ALP SHOULD BE DELETED. IT WAS ALSO SUBMITTED THAT WHEN THE ASSESSEE MAKES A SPECIFIC CLAIM THAT NEEMAN MEDICALS INTERNA TIONAL (ASIA) LTD. SHOULD NOT BE REJECTED AS COMPARABLE FOR CERTAIN RE ASONS AND IF THE TPO DOES NOT GIVE REASONS AS TO WHY THE CLAIM OF THE AS SESSEE CANNOT BE ACCEPTED, THEN IT IS TO BE PRESUMED THAT THE TPO HA S ACCEPTED THE CLAIM OF ITA NO.918/BANG/2011 PAGE 10 OF 19 THE ASSESSE. IT WAS THUS SUBMITTED THAT FOR THE AB OVE REASONS, THE ADDITION MADE BY THE TPO SHOULD BE DELETED. 13. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT N EEMAN MEDICALS INTERNATIONAL (ASIA) LTD. MADE LOSS DURING THE PREV IOUS YEAR RELEVANT TO A.Y. 2007-08 AND ON THAT GROUND ITSELF, THE REJECTION OF THE SAID COMPANY AS A COMPARABLE BY THE TPO SHOULD BE ACCEPTED. 14. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT THE NATURE OF SERVICES RENDERED BY THE ASSESSEE AND THE NATURE OF SERVICES RENDERED BY M/S. TEVAPHARM PVT. LTD ., WHICH WAS THE SUBJECT-MATTER OF THE DECISION BY THE MUMBAI BE NCH OF ITAT IN ITA NO.6623/MUM/2011 ARE IDENTICAL. FOR THE SAKE OF R EFERENCE, THE NATURE OF SERVICES RENDERED BY M/S. TEVAPHARM PVT. LTD. IS GIVEN IN PARA 3 OF THE AFORESAID ORDER WHICH IS AS FOLLOWS:- 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSIN ESS OF PROVIDING CONTRACT RESEARCH, BUSINESS DEVELOPMENT, PHARMA AND TECHNICAL SERVICES AND CONTRACT TESTING SERVICES. M ERCKLE GMBH, GERMANY IS A PHARMACEUTICAL PRODUCER AND CONTRACT M ANUFACTURER OF PROPRIETARY AND GENERIC MEDICINES. RATIOPHARM G MBH, GERMANY IS A 100% SUBSIDIARY OF MERCKE, GMBH AND IS ENGAGED IN THE BUSINESS OF DEVELOPMENT, MANUFACTURE AND DIS TRIBUTION OF GENERIC PHARMACEUTICAL PRODUCTS. RATIOPHARM INTERNA TIONAL GMBH, GERMANY IS A 100% SUBSIDIARY OF RATIOPHARM GM BH. THE ASSESSEE IS 100% SUBSIDIARY OF RATIOPHARM INTER NATIONAL GMBH AND IT WAS ORIGINALLY KNOWN AS RATIOPHARM INDI A PRIVATE LTD. THE ASSESSEE WAS SET UP IN DECEMBER, 2000 TO P ROVIDE PHARMA TECHNICAL SERVICES, INCLUDING SERVICES RELAT ED TO SOURCING AND DEVELOPMENT OF INGREDIENTS TO BE USED AS RAW MA TERIALS TO MEPHA, MERCKIE AND THE RATIOPHARM GROUP. THE ASSESS EE HAS ALSO SET UP A MODER R& D LABORATORY TO CARRY OUT PHARMAC EUTICAL PRODUCT DEVELOPMENT AND PROVIDE ANALYTICAL RESEARCH AND STABILITY TESTING SERVICES TO ITS ASSOCIATED ENTERPRISES. ITA NO.918/BANG/2011 PAGE 11 OF 19 15. IT CAN THUS BE SEEN FROM THE ABOVE THAT THE ACT IVITIES OF THE ASSESSEE IN THE PRESENT CASE AND THAT OF TEVAPHARM PVT. LTD. ARE IDENTICAL, I.E., BOTH THE COMPANIES CARRIED OUT ANALYTICAL RESEARCH AND S TABILITY TESTING SERVICES TO ITS AES. IN THE CASE OF TEVAPHARM PVT. LTD., THE TPO HAD SELECTED ENGINEERING INDIA LTD., IDC INDIA LTD., OIL FIELD I NSTRUMENTATION, CELESTIAL LABS AND MINDTREE LTD., AS COMPARABLE. THE TRIBUNA L EXAMINED THE COMPARABILITY OF THESE COMPANIES TO A COMPANY ENGAG ED IN CONTRACT RESEARCH & DEVELOPMENT AND CAME TO THE FOLLOWING CO NCLUSION:- 1. ENGINEERS INDIA LTD. (EIL) IS ENGAGED IN A DIVERSE SET OF ACTIVITIES VIZ., PROVIDING A FULL SUITE OF E NGINEERING AND RELATED TECHNICAL SERVICES FOR PETROLEUM REFINERIES AND OTHER INDUSTRIAL PROJECTS. IT PROVIDES A COMPLETE RANGE O F SERVICES NEEDED TO CONCEPTUALISE, DESIGN, ENGINEER AND CONST RUCT PROJECTS TO MEET THE SPECIFIC REQUIREMENTS OF ITS CLIENTS. I TS ASSOCIATION WITH THE CLIENTS EXTENDS BEYOND THE COMMISSIONING O F THEIR PLANTS THROUGH MONITORING OPERATION OF EACH PLANT AND ACCU MULATING FEEDBACK ON PERFORMANCE. LUMPSUM TURNKEY PROJECTS F ROM CONCEPT TO COMMISSIONING IS AN AREA INTO 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 MOD ELING THE PLANT BUILDINGS (I.E. REFINERIES, LNG PLANTS AND SPM PROJ ECTS) MAINLY 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 OU R ATTENTION TO PAGE-183 OF THE PAPER BOOK. (ANNUAL REPORT OF EI L) EIL IS MAKING CONSISTENT EFFORTS IN DEVELOPING TECHNOLOGIES AND STRENGTHENING ITS R&D DIVISION. TH E DIVISION IS CONTINUOUSLY 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 ITA NO.918/BANG/2011 PAGE 12 OF 19 RESEARCH AND DEVELOPMENT DONE IN THE COURSE OF REND ERING OTHER PROFESSIONAL SERVICES. WE FAIL TO SEE AS TO H OW THIS COMPANY CAN BE COMPARED WITH THE ASSESSEE WHO RENDE RS CONTRACT RESEARCH AND TESTING OF DRUGS. WE AGREE WI TH THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. (EMPHASIS SUPPLIED) 3. IDC (INDIA) LIMITED (IDC): IDC PRIMARILY UNDERTAKES RESEARCH AND SURVEY SERVICES FOR PRODUCTS. IDC RESE ARCH DOCUMENTS COVER AREAS LIKE ENTERPRISE MANAGEMENT AP PLICATIONS, BROADBAND, INTERNET AND EBUSINESS, MOBILE USAGE, IT SERVICE EXPORTS AND CONTINUOUS MARKET REVIEW OF COMPUTING A ND PERIPHERAL PRODUCTS. SUCH RESEARCH REPORTS PROVIDE MARKET FORECASTS, COMPETITIVE ANALYSES, VENDOR PROFILES, A ND INFORMATION ON CUSTOMER REQUIREMENTS AND BUYING PATTERNS. FURTH ER, THE AREAS OF RESEARCH INCLUDE COMMUNICATION SERVICES BROADBAN D 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 DE VELOPMENT AND IMPLEMENTATION OF BUSINESS STRATEGIES OF ICT BUILDE RS AND PROVIDERS. THESE PROJECTS ARE CUSTOMISED TO ADDRESS THE CLIENTS SPECIFIC BUSINESS PROBLEM. THE UNIQUELY QUALIFIED, MULTI- DISCIPLINARY EXPERTS HELP YOU DEVELOP BUSINESS STRA TEGIES, FINE TUNE PRODUCT DEVELOPMENT AND PRICING, DEFINE AND IM PLEMENT MARKETING GOALS, ASSESS COMPETITIVE FORCES, AND EVA LUATE JOINT VENTURES AND ACQUISITIONS. - STANDARD RESEARCH REPORTS: THESE RESEARCH DOCUMEN TS COVER EVERYTHING IN HARDWARE-PCS, PERIPHERALS, SERVERS, S OFTWARE SERVICES AND KEY INDUSTRY ISSUES. THE RESEARCH REPO RTS PROVIDE MARKET INTELLIGENCE, FORECASTS, COMPETITIVE ANALYSI S, VENDOR PROFILES, INFORMATION ON CUSTOMER REQUIREMENTS AND BUYING PATTERNS. THE FREQUENCY OF STANDARD RESEARCH OFFERI NGS MAY BE MONTHLY, QUARTERLY, HALF-YEARLY AND YEARLY. BASED ON THE ABOVE DESCRIPTIONS OF ACTIVITIES UNDER TAKEN BY IDC IT IS CLEAR THAT IDC ENGAGED IN PROVIDING MARKE T RESEARCH AND SURVEY SERVICES WHICH IS NOT COMPARABL E TO THE FUNCTIONAL PROFILE OF THE ASSESSEE AND ACCORDINGLY OUGHT NOT TO BE CONSIDERED A COMPARABLE. (EMPHASIS SUPPLIED) ITA NO.918/BANG/2011 PAGE 13 OF 19 4. OIL FIELD INSTRUMENTATION (INDIA) LIMITED (OIL FIEL D): OIL FIELD IS THE LARGEST MUD LOGGING SERVICES PROVI DER IN INDIA. OIL FIELD OFFERS MUD LOGGING SERVICES WITH REAL TIM E DATA ACQUISITION AND MONITORING OF DATA WITH ALARM ON CR ITICAL PARAMETERS, DATA STORAGE OPTION, 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 MINUTE, MUD FLOW, CONDUCTIVITY, TOTAL GAS, CHROMATOGRAPHIC ANALYSIS AND H2S ETC. OIL FIELD PROVIDES CUSTOMIZED MUD LOGG ING SOLUTIONS FOR EXPLORATORY, DEVELOPMENTAL, DEEPWATER AND CBM DRILLING LOCATIONS. OIL FIELD IS ENGAGED IN SUPPLY OF EQUIPMENT AND RENDERING SERVICES MAINLY FOR GEOLOGICAL OPERAT IONS FOR OIL, GAS AND MINERAL EXPLORATION. ALSO AS PER THE WEBSIT E OF OIL FIELD, OIL FIELD PROVIDES RIG INSTRUMENTATION AND SERVICES FOR DRILLING RIGS LIKE PRESSURE INDICATORS, DIAPHRAGMS, DRILLERS CONSOLE, RECORDER, ETC. IT ALSO PROVIDES ACCURATE, TIMELY AN D RELIABLE DRILLING DATA. THE WEBSITE INFORMATION ALSO SAYS TH AT OIL FIELDS 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, PRODUC TION AND REFINERY SECTORS. OIL FIELD PROVIDES GAS DETECTION LIKE HYDROCARBON DETECTOR, CARBON DIOXIDE DETECTOR, HYDR OGEN SULPHIDE DETECTOR, HIGHER HYDROCARBONS DETECTOR, NI TROGEN DETECTOR, SULPHUR DIOXIDE DETECTOR, OXYGEN DETECTOR , CARBON MONOXIDE DETECTOR, HYDROGEN DETECTOR, ETC. THE EXTRACTS OF THE FUNCTIONAL PROFILE OF OIL FIELD FROM ITS WEBSITE AS GIVEN ABOVE AND THE INFORMATION IN THE A NNUAL REPORT OF OIL FIELD ON THE NATURE OF ASSETS EMPLOYE D SUCH AS OUTER SHELL OF MUD LOGGING UNITS, SENSORS AND OTHER INSTRUMENTS CLEARLY DEMONSTRATE THE DISPARITY BETWE EN OIL FIELDS AND ASSESSEES OPERATIONS. AS DISCUSSED EAR LIER THE FUNCTIONAL PROFILE OF ASSESSEE IS IN THE NATURE OF PROVIDING - CONTRACT RESEARCH AND TESTING SERVICES. OIL FIELD D OES NOT CARRY OUT ANY OF THESE STIPULATED ACTIVITIES AND AC CORDINGLY OIL FIELD OUGHT NOT TO BE CONSIDERED A COMPARABLE. (EMPHASIS SUPPLIED) 5. CELESTIAL LABS LIMITED (CELESTIAL LABS): ACCORDING TO ASSESSEE CELESTIAL LABS AS A COMPARABLE HAS BEEN CH EERY PICKED BY THE TPO. CELESTIAL LABS IS A DIVERSIFIED COMPAN Y OPERATING IN VARIED FIELDS SUCH AS RENDERING IT SERVICES ENCOMPA SSING APPLICATION DEVELOPMENT AND MAINTENANCE, PRODUCTION SUPPORT, ITA NO.918/BANG/2011 PAGE 14 OF 19 EERP, DATA WAREHOUSING, SAP IMPLEMENTATION. CELESTI AL LABS ALSO IS INTO MANUFACTURING AND TRADING OF PRODUCTS SUCH AS ERP PACKAGE FOR MANUFACTURING AND HAS A PRODUCT SANJIV ANI WHICH IS A PORTAL FOR LIVE AYURVEDIC CONSULTATION. THE COMPA NY IS ALSO ENGAGED IN THE DISTRIBUTION OF HERBAL AYURVEDIC PRO DUCTS. 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 PLANNING, DESIGN AND IMPLEME NTATION TO MAINTENANCE AND ONGOING OPTIMIZATION. CELESTIAL HEL PS THE COMPANY ALIGN IT SOLUTIONS WITH BUSINESS STRATEGIES . CELSANJIVANI PRODUCTS: CELSANJIVANI IS A PART OF CE LESTIAL LABS LTD, AN ISO 9001-2000 COMPANY WORKING IN THIS SPACE OF BIO- INFORMATICS AND GIO-TECHNOLOGY. THE GOAL IS TO BECO ME A PRIMARY MARKET PLACE FOR THE HERBAL PRODUCTS PROVID ING QUALITY PRODUCTS TO THE CUSTOMERS AND INDUSTRIAL COMMUNITY. THIS IS AN AYURVEDIC PORTAL DEDICATED TO B28&C MARKET WITH ONL INE LIVE CONSULTING WITH OUR AYURVEDIC CONSULTANTS. IT PROVI DES EXCELLENT PLATFORM FOR TRADING OF HERBAL PRODUCTS, WITH IDENT IFICATION OF RAW HERBS, SCIENTIFIC DATA, MARKET & TRADE DATA, MONOGR APHS, POLICY, LAWS, GOOD MANUFACTURING PRACTICES, DNA FINGER PRIN TING ETC. 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 TRAD ING ACTIVITY WHICH IS NOT COMPARABLE TO THE ASSESSEE. H ENCE IT IS CLEAR THAT IT IS NOT COMPARABLE TO THE FUNCTIONAL P ROFILE OF THE COMPANY AND ACCORDINGLY OUGHT NOT TO BE CONSIDERED A COMPARABLE. (EMPHASIS SUPPLIED) THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAGE -389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS R EPORT 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. (APPRISE D AND FUNDED BY DEPARTMENT OF SCIENCE AND TECHNOLOGY NEW DELHI) BASED ON OUR IN SILICO EXPERTISE (APPLYING BIO- INFORMATICS TOOLS). THE COMPANY HAS DEVELOPED A MOLECULE TO TREAT LEUCODERMA AND MULTIPLE CANCER AN D ITA NO.918/BANG/2011 PAGE 15 OF 19 PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS A ND THE RESPONSE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDUR ES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE , DEPARTMENT OF MICROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY H AS SIGNED THE TECHNOLOGY TRANSFER AGREEMENT WITH IMTECH CHANDIGARH (A VERY REPUTED CSIR ORGANIZATION) TO MANUFACTURE AND MARKET INITIALLY T WO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN INDIA AND OVERSEAS. THE COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY FACILITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FACILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORI ES FOR CARRYING OUT FURTHER R & D ACTIVITIES TO DEVELOP NE W CANDIDATES DRUG MOLECULES AND LICENSE THEM TO INTERESTED PHARMA AND BIO COMPANIES ACROSS THE GLOBE. THE PROPOSED FACILITY 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 B E CONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY T HE LEARNED COUNSEL FOR THE ASSESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWARE FOR DISCOVERY OF NEW DRUGS. MOREOVER THE COMPANY ALSO IS OWNER OF THE IPR. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT OF A MOLECULE TO TREAT CAN CER USING BIO-INFORMATICS TOOLS FOR WHICH PATENTING PROCESS W AS ALSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSI FIED COMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPA RABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS B EEN NO ATTEMPT MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJ USTMENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUN CTIONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING T O SUCH A PROCESS OF MAKING ADJUSTMENT, THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THE REFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. (EM PHASIS SUPPLIED) 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 E NGINEERING ITA NO.918/BANG/2011 PAGE 16 OF 19 NEEDS. AS PER PAGE 11 OF THE ANNUAL REPORT, THE SEG MENT IS ENGAGED IN PROVIDING R&D SERVICES FOR VARIOUS INDUS TRIES LIKE COMMUNICATION, INDUSTRIAL AUTOMATION, AUTOMOTIVE AN D AVIONICS, STORAGE AND SYSTEMS ETC. THE RELEVANT EXT RACT HAS BEEN PROVIDED BELOW FOR READY REFERENCE: THE DIVERSIFIED FOCUS IN THE R&D SERVICES BUSINESS INTO VARIOUS VERTICALS SUCH AS COMMUNICATION, INDUSTRIAL AUTOMATION, AUTOMOTIVE AND AVIONICS. STORAGE AND SY STEMS, SEMI CONDUCTOR, WIRELESS AND CONSUMER ELECTRONICS H AD SHOWN 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 LIC ENCABLE INTELLECTUAL PROPERTIES WITH APPLICABILITY ACROSS I NDUSTRY GROUPS. SEMICONDUCTOR AND HARDWARE ENGINEERING - THE DEPART MENT PROVIDES PRODUCT REALIZATION AND FEASIBILITY SERVIC ES, AS WELT AS HIGH-SPEED INTERFACE DESIGN, HELPING ITS CLIENTS AS SESS THE RIGHT ELECTRONIC ARCHITECTURES AND DESIGN HIGH-SPEED HARD WARE INTERFACES. IT HELPS ITS CUSTOMERS AT ANY STAGE OF ASIC/SOC DEVELOPMENT FROM CONCEPT TO SILICON. THESE SERVICES OFFERED ON AN INDIVIDUAL AS WELT AS ON A TURNKEY BASIS. SOFTWARE ENGINEERING THE DEPARTMENT SET OF SKILLS SPANNING FROM EMBEDDED SOFTWARE TO APPLICATION SOFTWARE NEED ED FOR PRODUCT REALIZATION. THIS, COUPLED WITH HARDWARE EN GINEERING CAPABILITIES, ENABLES THE COMPANY TO WORK AS A ONE -STOP SHOP FOR SOFTWARE PRODUCT DEVELOPMENT NEEDS. VIDEO SURVEILLANCE SOLUTIONS THE DEPARTMENT PROVI DES A RANGE OF LICENSABLE COMPONENTS THAT ENABLE OEMS, LARGE SY STEM INTEGRATORS, AND DISTRIBUTORS TO INTRODUCE PRODUCTS LIKE SURVEILLANCE MANAGER, INTELLIGENT VIDEO ENCODERS, V IDEO DECODERS, AND INTELLIGENT DIGITAL VIDEO RECORDERS (DVR)S QUIC KLY INTO THE MARKET. THE APPLICATION OF THESE SET-VICES WILL COME IN USE FOR THE FOLLOWING INDUSTRIES: - AUTOMOTIVE - COMMUNICATION SYSTEMS - CONSUMER APPLIANCES AND COMPUTER PERIPHERALS - INDUSTRIAL SYSTEMS - MEDICAL ELECTRONICS ITA NO.918/BANG/2011 PAGE 17 OF 19 - STORAGE AND COMPUTING SYSTEMS THUS IT IS CLEAR THAT MINDTREE IS ENGAGED IN PROVID ING DIVERSIFIED SET OF SERVICES UNDER ITS R&D SEGMENT F OR VARIOUS INDUSTRIES. HENCE IT IS NOT COMPARABLE TO THE FUNCT IONAL PROFILE OF THE COMPANY AND ACCORDINGLY OUGHT NOT TO BE CONSIDERED A COMPARABLE.(EMPHASIS SUPPLIED) 16. WE ARE OF THE VIEW THAT IN THE LIGHT OF DECISIO N OF THE TRIBUNAL IN THE CASE OF M/S. TEVAPHARM PVT. LTD REFERRED TO ABOVE, THE AFORESAID COMPANIES CANNOT BE COMPARED AS COMPARABLES. THE A CTION OF THE TPO IN CONSIDERING THE AFORESAID COMPANIES AS COMPARABLES OF THE FUNCTIONS PERFORMED BY THE ASSES SEE ARE THEREFORE HELD TO BE NOT PROPER AND THESE COMPANIES ARE EXCLUDED FOR THE PURPOSE OF COMPARABILITY. 17. NOW WE WILL CONSIDER THE CLAIM OF THE ASSESSEE THAT NEEMAN MEDICAL INTERNATIONAL (ASIA) LIMITED IS NOT A CONSISTENTLY LOSS MAKING COMPANY AND THEREFORE IT SHOULD NOT HAVE BEE N EXCLUDED FOR COMPARABILITY PURPOSES ON THE SAID GROUND. IN THIS REGARD, WE FIND THAT THE TPO DOES NOT DISPUTE THE FACT THAT NEEMAN MEDICAL I NTERNATIONAL (ASIA) LIMITED IS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. THE ONLY REASON GIVEN BY THE TPO FOR EXCLUDING THE AFORESAID COMPANY IN THE LIST OF COMPARABLES IS THAT FOR THE F.Y. 2004-05, THIS COM PANY MADE A LOSS. IT IS, HOWEVER, NOTICED THAT FROM THE PROFIT & LOSS ACCOUN T OF THIS COMPANY FOR THE YEAR ENDED 31.03.2006 WHICH CONTAINS THE FIGURES OF INCOME & EXPENDITURE AS ON 31.03.2005 THAT INCOME OF THIS ASSESSEE WAS Q 4.05 CRORES AND THE ITA NO.918/BANG/2011 PAGE 18 OF 19 EXPENDITURE BEFORE TAX WAS Q 4.38 CRORES. THUS, NEEMAN MEDICAL INTERNATIONAL (ASIA) LIMITED IS NOT A CONSISTENTLY LOSS MAKING COMPANY. TO APPLY THE FILTER OF CONSISTENT LOSS MAKING COMPANY, IT IS NECESSARY THAT THE LOSS SHOULD BE CONSISTENT WHEREAS IN THE CASE OF NE EMAN MEDICAL INTERNATIONAL (ASIA) LIMITED, THE LOSSES ARE NOT CO NSISTENT AS CAN BE SEEN FROM THE ABOVE. WE ALSO FIND THAT THE ASSESSEES A PPLICATION U/S. 154 OF THE ACT IN THIS REGARD HAS NOT BEEN REJECTED BY THE TPO. WE ARE THEREFORE OF THE VIEW THAT NEEMAN MEDICAL INTERNATIONAL (ASIA ) LIMITED WHICH IS OTHERWISE FUNCTIONALLY COMPARABLE, SHOULD BE CONSID ERED FOR THE PURPOSE OF COMPARABILITY. 18. AS ALREADY SEEN IN THE EARLIER PART OF THIS ORD ER, IF THE SIX COMPANIES (INCLUDING IDC INDIA LTD. AND MINDTREE LTD.) IS TAK EN AS COMPARABLES, THE OPERATING MARGINS ON COST (UNADJUSTED) IS 10.22%. THE ASSESSEES OPERATING MARGIN ON COST IS 13.17% WHICH IS MUCH AB OVE THE ARITHMETIC MEAN OF THE COMPARABLES. IN THE GIVEN CIRCUMSTANCE S, WE ARE OF THE VIEW THAT THE PRICE AT WHICH THE ASSESSEE RENDERED SERVI CES TO ITS AE HAS TO BE CONSIDERED AS AT ARMS LENGTH AND NO ADJUSTMENT ON ACCOUNT OF ARMS LENGTH PRICE (ALP) OUGHT TO HAVE BEEN MADE. WE ACC ORDINGLY HOLD THAT THE ADDITION MADE BY THE ASSESSING OFFICER BY WAY ADJUS TMENT TO ALP DESERVES TO BE DELETED. ACCORDINGLY, THE SAME IS D IRECTED TO BE DELETED. THE APPEAL OF THE ASSESSEE IS ALLOWED ON THIS GROUN D. 19. THE GROUNDS WITH REGARD TO SAFE HARBOUR MARGINS I.E., MINUS / PLUS 5% OF THE ARITHMETIC MEAN AND THE CLAIM OF THE ASSE SSEE FOR SUCH CONCESSION DOES NOT ARISE FOR CONSIDERATION AS THE ASSESSEES OPERATING MARGIN ON COST IS FOUND TO BE MUCH HIGHER THAN THE ARITHMETIC MEAN OF THE ITA NO.918/BANG/2011 PAGE 19 OF 19 COMPARABLES. WITH THESE OBSERVATIONS, THE APPEAL O F THE ASSESSEE IS ALLOWED. 20. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF NOVEMBER, 2012. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 23 RD NOVEMBER , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.