OMNIACTIVE HEALTH TECHNOLOGIES LIMITED,MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 8(2)(1), AAYAKAR BHAWAN, MUMBAI

ITA 4675/MUM/2024

AI Insights

The case involves Omni Active Health Technologies Limited, which appealed against the assessment order for the Assessment Year 2020-21, which included a significant transfer pricing adjustment. The appellant, engaged in the business of natural active pharmaceutical ingredients, had declared a nil income in its return. The case was selected for scrutiny, leading to a reference to the Transfer Pricing Officer (TPO) due to international transactions with Associated Enterprises. The TPO made an upward transfer pricing adjustment, which was contested by the appellant on grounds of inconsistency and improper application of transfer pricing methods. The Tribunal's decision favored the appellant, emphasizing the need for consistency in applying transfer pricing methods and rejecting the change from TNMM to Comparable Uncontrolled Price (CUP) method without cogent reasons.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 26617 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: misc
• Other Referred Cases: Radhasoami Satsang V. CIT, Serdia Pharmaceuticals (India) (P.) Ltd. v Asstt. CIT, Welspun Zucchi Textiles Ltd. v Asstt. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN SALUNKHE
• Assessee Lawyers: KETAN VED
• Keywords: Set aside; Transfer pricing; International transaction; Rule of consistency
• Section: 143(3); 22; 13; 92CA; 144C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘J’ BENCH MUMBAI BEFORE: SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER & SHRI SUNIL KUMAR SINGH, JUDICIAL MEMBER ITA No. 4675/MUM/2024 (Assessment Year : 2020–21) Omni Active Health Technologies Limited T-8b, 5TH Floor, Phoenix House, A Wing, Phoenix Mill Compound, 462 Senapati Bapat Marg, Lower Parel, Mumbai-400013. Vs. Assessment Unit, Income Tax Department. PAN/GIR No. AADCP2914Q (Appellant) .. (Respondent) Assessee by Shri. Ketan Ved Revenue by Shri. Pravin Salunkhe, Sr. DR Date of Hearing 21/02/2025 Date of Pronouncement 27/02/2025 आदेश / O R D E R PER SUNIL KUMAR SINGH (J.M): 1. This appeal is directed against the assessment order dated 22.07.2024 passed u/s. 143(3) r.w.s 144(13) r.w.s 144B of the income tax act 1961 (hereinafter referred to as ‘the Act’) as per the directions dated 18.06.2024 issued by the Dispute ITA no. 4675/MUM/2024 Omniactive Health Technologies Limited 2 Resolution Panel-2, Mumbai (hereinafter referred to as ‘the DRP’) u/s. 144C(5) of the Act pertaining to the A.Y 2020-21. 2. The brief facts state that the appellant assessee company is engaged in the business of natural active pharmaceutical ingredients (APIs) and Novel delivery systems for nutrients and active ingredients. The appellant filed return of income on 15.02.2021 for A.Y. 2020-21, declaring total income for Rs. Nil. The case was selected for scrutiny under CASS. During the assessment proceedings, the learned assessing officer noticed that the appellant has entered into international transactions with Associated Enterprises (AEs) and a reference was made to the Transfer Pricing Officer (TPO) for the computation of Arm’s Length Price (ALP) u/s. 92CA(1) of the Act. The TPO, vide order dated 08.05.2023 passed u/s. 92CA of the Act, determined upward transfer pricing adjustment at Rs. 15,93,35,145/-. The draft assessment order dated 26.09.2023 was accordingly passed, against which objections filed by the appellant were disposed off by DRP on 18.06.2024. Pursuant to the directions of DRP impugned assessment order dated 22.07.2024 was passed u/s. 143(3) r.w.s 144C(13) and 144B of the Act. 3. Aggrieved assessee has filed present appeal against the impugned order on the following grounds: “The Appellant craves to prefer an appeal against an order dated 22 July 2024 passed by the Assessment Unit, Income Tax Department passed under section 143(3) r.w.s. 260 read with section 144B of the Income tax Act, 1961 (\"the Act\") in pursuance to the directions dated 18 June 2024 issued by the Hon'ble Dispute Resolution Panel ('DRP\") u/s 144C(5) of the Act, for the aforesaid assessment year on the grounds set out herein; ITA no. 4675/MUM/2024 Omniactive Health Technologies Limited 3 1:0 Transfer Pricing Adjustment of INR 15,93.35.145 to the international transaction relating to export of goods 11 The learned Assessing Officer (\"AO\")/ Transfer Pricing Officer (TPO)/ Dispute Resolution Panel (\"DRP\") has erred in making an upward adjustment of INR 15,93,35,145/- to the total income of the Appellant by holding that the international transaction relating to the export of goods entered into by the Appellant with its Associated Enterprise (\"AE\") was not at arm's length. 1:2 The learned AO/TPO/DRP erred in rejecting Transactional Net Margin Method (\"TNMM\") which was determined by the Appellant as the most appropriate method as per provisions of section 92C(1) of the Act. 1:3 The learned AO/TPO/DRP has erred in applying Comparable Uncontrolled Price (\"CUP\") method by comparing sales made to third party customers with that to AE ignoring the significant factors like differences on account of geographical market, volume of transactions etc. 1:4 The learned AO/TPO/DRP has erred in not following the orders of the Hon'ble Income Tax Appellate Tribunal ('ITAT') in Appellant's own case in earlier years wherein TNMM was accepted as the most appropriate method relating to export of goods to AE Accordingly, the learned TPO/AO/DRP have erred in adopting consistency in approach and disregarding the fact that there is no change in facts of the Appellant which required change in the benchmarking approach. 1:5 The Appellant submits that the learned AO be directed to delete the upward adjustment of INR 15,93,35,145 made by him to the Appellant's total income and to re-compute its total income and tax liability accordingly. 2:0 General 2:1 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the impugned order dated 22 July 2024 passed u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 is ab-initio void being barred by limitation and hence, ought to be struck down. 2:2 The Appellant submits that considering the facts and circumstances of its case, the learned AO has erred in initiating penalty proceedings under section 270A of the Act. ………………………………………………………………………………” 4. Perused the records and heard learned representative for the appellant and learned DR for the respondent revenue. 5. Learned representative for the appellant assessee has submitted that in earlier years, revenue has consistently ITA no. 4675/MUM/2024 Omniactive Health Technologies Limited 4 accepted the Transactional Net Marginal Method (TNMM) as most appropriate method relating to the export of goods to AE. However, in the present assessment year, revenue has applied Comparable Uncontrolled Price (CUP) method without any change of law or facts. Learned AR has referred order dated 19.04.2023 passed by the coordinate Mumbai bench of this Tribunal in ITA No. 748/MUM/2022 for the relevant A.Y. 2017-18 in assessee’s own case and prayed to delete the aforestated transfer pricing adjustment based on comparable uncontrolled method (CUP). 6. Learned DR has submitted that each assessment order, being a unit, what has been decided in one year, may not apply in the following year. Learned DR has referred Radhasoami Satsang V. CIT, [1992] 193 ITR 321(SC) in support of his arguments and supported the impugned order. 7. It is pertinent to mention that the appellant assessee, vide application dated 12.11.2024 requested to withdraw ground of appeal no. 2.1, challenging the validity of the final assessment order u/s. 143(3) r.w.s 144C (13) of the Act. Hence, the ground no. 2.1 stands withdrawn as prayed. 8. The main point for consideration on the basis of the remaining grounds under appeal is as to whether TNMM method is the most appropriate method applied by the appellant assessee as against the Comparable Uncontrolled Price (CUP) method applied by the revenue in determining the total income of the assessee? If yes, the effect thereof ? ITA no. 4675/MUM/2024 Omniactive Health Technologies Limited 5 9. The main grievance of the appellant is against the transfer pricing adjustment of Rs. 15,93,35,145/-. During the relevant previous year, the appellant assessee exported the goods to its AE’s i.e Omni Active Health Technologies Inc., USA, and determined ALP for the same at Rs. 308,93,64,259/- by adopting internal Transaction Net Marginal Method (TNMM) with operating profit (OP)/operating cost (OC) as the profit level indicator (PLI). Before the transfer pricing officer, The appellant filed audited segmental profitability statement for two segments-First was related to transactions with independent uncontrolled non-AE parties having OP/OC of 10.11% and the second segment, which was related to transaction with AEs having OP/OC of 12.65%. Appellant, accordingly contended that the transaction of sale/export of goods by the appellant to its AE should be treated as being on arm’s length basis. Further, on the corroborative basis, based on earlier years, the appellant, also carried out bench marking analysis considering external TNMM as the most appropriate method. The margin of comparables as selected in transfer pricing study report of the appellant for external TNMM on corroboration basis came to 4.03 to 7.62 percent and the median of the data set was 6.55? as against the operating profit on cost earned by Omni Active India of 12.65%. It was therefore contended by the appellant that even by adopting external TNMM, the transaction of sale/export of goods by the appellant to its AE was on arm’s length basis. However, the TPO rejected the TNMM method and applied comparable ITA no. 4675/MUM/2024 Omniactive Health Technologies Limited 6 uncontrolled price (CUP) method as the most appropriate method by taking the price at which products were sold by the appellant to non AEs, the TPO applied internal CUP to determine ALP in respect of 9 products of comparable companies and arrived at aggregate pricing transfer adjustment of Rs. 15,93,35,145/-. The appellant objected before DRP, justifying rejection of CUP method in the transfer pricing study report on the ground that the transaction between the AE and non-AE was not comparable on account of difference such as, difference in geographical location, volume of sales, currency of transaction, commission and sales promotion incurred. 10. We notice that for A.Y. 2010-11 and 2011-12, the Ld. AO/TPO had accepted internal TNMM benchmarking analysis conducted by the appellant, whereas for A.Y. 2020-21, the TPO has not provided any reasoning for rejection of TNMM as the most appropriate method. Learned DRP Pannel, referring earlier orders, passed by it in assessee’s own case for A.Y. 2012-13 to 2014-15, rejected the assessee’s objections. However for A.Ys 2012-13 and 2013-14, the Tribunal, vide order dated 06.03.2018 passed in ITA Nos. 638 and 4643/Mum/2017, has accepted TNMM method as applied by the appellant as most appropriate method. 11. This issue has further been elaborately dealt in details by the coordinate bench of this Tribunal, vide order dated 19.04.2023 passed in ITA No. 748/MUM/2022 for A.Y. 2017- ITA no. 4675/MUM/2024 Omniactive Health Technologies Limited 7 18 in assessee’s own case. The relevant paras 9 to 11 are reproduced as under: “9.We have considered the rival submissions on the transfer pricing adjustment and perused the material on record. We find that for the Assessment Year 2010-11 and 2011-12, Assessing Officer/TPO had accepted internal TNMM benchmarking analysis conducted by the Appellant. For Assessment Years 2012-13 and 2013-14, the Tribunal has vide order, dated 06/03/2018, passed in ITA Nos. 638 & 4643/Mum/2017), allowed the appeal of the Appellant and accepted TNMM method, as applied by the Appellant as the most appropriate method holding as under: “24. Against the above order, the assessee is in appeal before us. 25. We have heard both the counsels and perused the records. The ld. Counsel of the assessee submitted that since the last three years the assessee has been following TNMM method which has been duly accepted by the Revenue. He submitted that no cogent reason has been given for rejecting the TNMM method in the present year. He placed reliance on several decisions from the Hon'ble Apex Court including Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 for the proposition that there should be a consistency in the income tax proceedings unless mandated by change in law and the facts. 26. Per contra, the ld. Departmental Representative relied upon the orders of the Transfer Pricing Officer. Justifying the change from TNMM to CUP method, the ld. Departmental Representative submitted the case law for the proposition that error should not be perpetuated. He further referred to ITAT decision in the case of Serdia Pharmaceuticals (India) (P.) Ltd. v Asstt. CIT [2011] 44 SOT 391/9 taxmann.com 13 (Mum.) that CUP method was to be preferred. 27. We have carefully considered the submissions and all the relevant records have been perused. We find that the first objection of the ld. Counsel of the assessee is that in the preceding years, for three years transactional net margin method was used to benchmark the international transaction. In the present assessment year, the Transfer Pricing Officer noted that the assessee has adopted transactional net margin method for determining the arms length price for export of finalised goods to the Associate Enterprises. During the course of assessment proceedings, the Transfer Pricing Officer proceeded with the same and also asked the assessee to provide an updated margin of the comparable selected. The updated margin was given to the Transfer Pricing Officer. From the computation of updated margin also, the PLI of the assessee come to 15.21% which was higher than the PLI of the two comparable companies. Hence, from this analysis of updated comparables also, the transaction was found to be at arm's length. At this juncture, the Transfer Pricing Officer changed his tracks. He observed that no verifiable data has been provided to substantiate the method used. He further held that CUP would be a more appropriate method to benchmark the sale transaction. The assessee objected to the same. In the objections, the assessee also relied upon the OECD Guidelines and the ITAT decision in the case of Welspun Zucchi Textiles Ltd. v Asstt. CIT [2014] 151 ITD 353/43 taxmann.com 314 (Mum. - Trib.). However, the Transfer Pricing Officer summarily rejected and ITA no. 4675/MUM/2024 Omniactive Health Technologies Limited 8 held that the application of TNMM is the method of last resort when the comparable price method cannot be applied. However, he noted that in the assessee's case since the comparable price for the same or similar products to the third parties has been provided by the assessee, the same has to be considered for bench-marking this transaction. Accordingly, Transfer Pricing Officer proceeded to apply the CUP method for bench-marking. The assessee's objection in this regard was also dismissed by the DRP when it held that it was of the opinion that when internal CUP is easily available, the TNMM is to be treated as method of last resort. 28. From the above discussion, we find that the Transfer Pricing Officer has rejected the consistently applied TNMM method without bringing on record any cogent reason. It is the settled law that the consistent method followed can be changed only if there is a change of facts or law. There are various decisions of Hon'ble Apex Court in this regard including that from Radhasoami Satsang (supra). In the present case, there is no case that there is a change of law or there is a change in fact. It is also not the case that TNMM method which has been consistently applied in past was totally wrong method. In this regard, we may gainfully refer to the relevant provisions contended by the Transfer Pricing Officer as under “92C Computation of Arm‟s Length Price xx xx……………………………………………..” 29. Thus from the above, it is evident that the arm's length price in relation to an international transaction is to be determined by one of the prescribed methods which is most appropriate method having regard to the nature of transaction, class of transaction, class of associated persons, functions to form by such person, or such other relevant factors. Section 92C(2) provides that it is only the appropriate method as referred to in section 92C(1) which can be applied for determining arm's length price in the prescribed manner. The choice of method on the basis of which arm's length price is determined has to be exercised on the touch stone of principles governing selection of most appropriate method set out in section 92C(1). The legislature does not provide for an order of preference of method of determining of arm's length price. Now once an appropriate method for determining the arm's length price has been chosen and accepted by the Revenue consistently over a number of years, there has to be some cogent reason to make it departure from the consistent method. We do not find that any case has been made out by the Transfer Pricing Officer or the DRP that there was an error committed earlier when the TNMM method was chosen and approved. The Transfer Pricing Officer while justifying the change stated that in T.P. report assessee has benchmarked the transaction under TNMM, no verifiable data has been provided to substantiate the method used. Hence, from the above discussion, we find that no cogent reason has been pointed out by the authorities below that the TNMM method applied earlier was not in accordance with the mandate of law as above. It is settled law that res judicata does not apply to taxation proceedings but it has fairly often been held by the higher courts including by the Hon'ble Apex Court that the consistency should be maintained in the assessment proceedings. A consistently applied method can be changed only if there is a change in facts and law. In the present case, we find that there is no such case ITA no. 4675/MUM/2024 Omniactive Health Technologies Limited 9 has been made out. Rather the Transfer Pricing Officer has proceeded to examine the issue on the basis of TNMM method. He has ordered for updated data of comparable. Thereafter, when even on the basis of updated data, the international transaction was found to be at arm's length, he laconically held that CUP method would be preferred. The DRP had summarily upheld the change from TNMM to CUP method without assigning any cogent reason whatsoever. By no means it is justified to keep on finding a method for addition by trial and error method. Accordingly, on the anvil of aforesaid Hon'ble Apex Court's decision as discussed hereinabove, we hold that there was no justification in rejecting the TNMM method applied by the assessee as in the preceding year. Since as per the same computation the assessee's margin was found to be at arm's length, we set aside the order of authorities below and decide the issue in favour of the assessee. Since we have already allowed the assessee's appeal on this issue, for lack of justification in changing the method of benchmarking we are not dealing with the arguments on other aspects of merits of application of CUP method computation of arm's length price by the Transfer Pricing Officer in this case. The case law referred by the ld. Departmental Representative are distinguishable on the facts of this case.” 10. The above decision of the Tribunal was followed by the Tribunal in appeal preferred by the Appellant for the Assessment Year 2014- 15. The relevant extract of the decision of the Tribunal dated 26/05/2020, passed in ITA No. 7284/Mum/2018 read as under: “3.4 We find that, as rightly noted by Ld. DRP, the issue stood covered in assessee‟s favour by the order of Tribunal for AYs 2012- 13 & 2013-14 wherein the coordinate bench held as under:- „ 27. We have carefully considered the submissions ……………‟ Upon perusal of the same, we find that TNMM method as adopted by the assessee in earlier years has constantly been accepted to be the Most Appropriate Method as against the observation of Ld. TPO that it was to be applied as a last resort. We find that similar facts exist in this year. Applying TNMM method, the assessee‟s margins in AE segment are much higher than margin in non-AE segment and therefore, it could be stated that the transactions were at Arm‟s Length. No infirmity has been pointed out by any of lower authorities in assessee‟s methodology. Therefore, respectfully following the earlier order of Tribunal in assessee‟s own case, we hold that TNMM method as adopted by the assessee was appropriate methodology and therefore, no TP adjustment would be warranted on these transactions. By deleting the same, we allow ground no.1 of the appeal.” (Emphasis Supplied) 11. As noted by the DRP, the facts and circumstances in which transfer pricing addition was made during the Assessment Year 2017-18 before us are identical to those prevailing in Assessment Year 2012-13 to 2014-15. Therefore, respectfully following the above decision in the case of the Assessee, we hold that TNMM method as adopted by the Assessee was the most appropriate method for benchmarking the international transaction of sale/exports of goods. Accordingly, transfer pricing adjustment of INR 16,59,51,699/- made by the Assessing Officer is set aside, and the issue is remanded back to the file of Assessing Officer for determination of ALP of the transaction of export of ITA no. 4675/MUM/2024 Omniactive Health Technologies Limited 10 finished goods by the Appellant to its AE (i.e. OmniActive Health Technologies Inc., USA) as per TNMM method as adopted by the Appellant. It is clarified that no transfer pricing addition would be made in case the submission of the Appellant that the Appellant’s margins in AE Segment are higher than the margins in non-AE Segment is found to be correct. In terms of the aforesaid, Ground No. 1 to 1.4 are allowed for statistical purposes.” 12. We note that the DRP has rejected appellant’s objections vide order dated 18.06.2024 merely by referring some of its earlier orders. There is neither any change in law nor in fact pertaining to the previous year relevant to the present A.Y. 2020-21. The impugned order is also found to be against the rule of consistency. The facts and circumstances in which the transfer pricing addition has been made during the present A.Y. 2020-21 are identical to those prevailing during A.Ys. 2012-13 to A.Y. 2014-15 and A.Y. 2017-18. Therefore, respectfully following the above referred Tribunal’s order passed in assessee’s own case. We hold that TNMM method (as against the Comparable Uncontrolled Price (CUP) method) adopted by the assessee was the most appropriate method for benchmarking the international transaction of sale/exports of goods. The impugned order related to the transfer pricing adjustment of Rs. 15,93,35,145/- is accordingly set aside. The matter is restored to the file of learned assessing officer for determination of ALP of the assessee’s transaction of export of goods to its AE (Omni Active Health Inc. USA) as per TNMM method as adopted by the appellant. The aforesaid point is accordingly determined in positive in favour of the appellant assessee and against the respondent revenue. ITA no. 4675/MUM/2024 Omniactive Health Technologies Limited 11 13. In the result, assessee’s appeal is allowed for statistical purposes. Order pronounced in open court on 27.02.2025. Sd/- (NARENDRA KUMAR BILLAIYA) Sd/- (SUNIL KUMAR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 27/02/2025 Anandi Nambi, Steno Copy of the Order forwarded to: BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// "