DCIT 8(2), MUMBAI v. IVAX INDIA P. LTD, MUMBAI

ITA 5707/MUM/2009 | 2004-2005
Pronouncement Date: 28-01-2011 | Result: Dismissed

Appeal Details

RSA Number 570719914 RSA 2009
Assessee PAN AAACI7787F
Bench Mumbai
Appeal Number ITA 5707/MUM/2009
Duration Of Justice 1 year(s) 3 month(s) 5 day(s)
Appellant DCIT 8(2), MUMBAI
Respondent IVAX INDIA P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted L
Tribunal Order Date 28-01-2011
Date Of Final Hearing 15-12-2010
Next Hearing Date 15-12-2010
Assessment Year 2004-2005
Appeal Filed On 23-10-2009
Judgment Text
1 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L BEFORE SHRI P.M. JAGTAP A.M. AND SHRI V. DURGA RAO JM ITA NO. 6107/MUM/2009 ASSESSMENT YEAR 2004-05 M/S TEVA INDIA PVT. LTD. TEVA HOUSE 76 MAKWANA ROAD MAROL NAKA ANDHERI KURLA ROAD ANDHERI (E) MUMBAI 400 059. PAN AAACI 7787F VS. D.C.I.T. RANGE 8(2) MUMBAI. ASSESSEE RESPONDENT ITA NO. 5707/MUM/2009 ASSESSMENT YEAR 2004-05 D.C.I.T. RANGE 8(2) MUMBAI. VS. M/S IVAX INDIA PVT. LIMITED IVAX HOUSE 76 MAKWANA ROAD MAROL NAKA ANDHERI KURLA ROAD ANDHERI (E) MUMBAI 400 059. PAN AAACI 7787F ASSESSEE RESPONDENT ASSESSEE BY SHRI M.P. LOHIA DEPARTMENT BY SHRI KESHAVA SAXENA ORDER PER P.M. JAGTAP A.M. THESE TWO APPEALS ONE BY THE ASSESSEE BEING ITA N O 6107/MUM/09 AND OTHER BY THE REVENUE BEING ITA NO. 5707/MUM/09 ARE CROSS AP PEALS WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) XIX MUMBAI DATED 17.08.200 9. 2 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY W HICH IS ENGAGED IN THE BUSINESS OF RESEARCH AND DEVELOPMENT AND DEVELOPMENT OF PHARMAC EUTICAL DRUGS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 30-10-2004 DECLARING TOTAL INCOME OF RS. 67 68 933-/. IN THE SAID THE YEAR TH E ASSESSEE HAD PROVIDED RESEARCH AND DEVELOPMENT RELATED SERVICES TO ITS OVERSEAS ASSOCI ATED ENTERPRISES (AES). FOR THESE SERVICES THE ASSESSEE WAS COMPENSATED ON A COST PL US 10% MARK-UP BASIS BY ITS AES. IN THE TRANSFER PRICING ANALYSIS THE ASSESSEE HAD ADO PTED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR DE TERMINING THE ARMS LENGTH PRICE FOR THE ABOVE MENTIONED INTERNATIONAL TRANSACTIONS. THE ASSESSEE HAD IDENTIFIED CERTAIN COMPANIES AS COMPARABLES IN RELATION TO THE PRESENT INTERNATIONAL TRANSACTIONS. THESE COMPANIES WERE ENGAGED IN THE BUSINESS OF PROVIDING R&D AND OTHER BUSINESS SUPPORT SERVICES. IN THIS REGARD THE ASSESSEE SUBMITTED T HAT IT HAD CONDUCTED A SEARCH FOR COMPANIES ENGAGED IN THE BUSINESS OF R&D; HOWEVER SINCE IT DID NOT GET ADEQUATE NUMBER OF COMPARABLES THE SEARCH HAD TO BE WIDENED . HENCE A SEARCH WAS CONDUCTED FOR COMPANIES THAT PERFORMED SIMILAR FUNCTIONS AT A BROAD LEVEL. ACCORDINGLY COMPARABLES PROVIDING OTHER BUSINESS SUPPORT SERVIC ES WERE SELECTED. THE ASSESSEE ALSO SUBMITTED THAT FINANCIAL DATA FOR THE FY 2003-04 FO R ALL THE COMPARABLE COMPANIES WAS NOT AVAILABLE AT THE TIME OF UNDERTAKING THE TRANSF ER PRICING STUDY. HENCE FINANCIAL DATA FOR FY 2001-02 AND FY 2002-03 WAS USED FOR SOME COM PARABLES. BASED ON THE ANALYSIS THE ARITHMETIC MEAN OF THE MARGINS EARNED BY THE CO MPARABLE COMPANIES WAS WORKED OUT AT 8.59 PERCENT ON OPERATING COST. DURING THE FY 2 003-04 THE ASSESSEE HAD EARNED AN OPERATING MARGIN OF 11.73 PERCENT ON OPERATING COST FROM THE PROVISION OF R&D/BIO- STUDY RELATED SERVICES TO ITS AES AND ACCORDINGLY THE PRICING IN RESPECT OF THESE INTERNATIONAL TRANSACTIONS WAS CONSIDERED AT ARMS LENGTH IN ACCORDANCE WITH SECTION 92(1) OF THE ACT. 3. THE MATTER WAS REFERRED BY THE AO TO THE TRANSFE R PRICING OFFICER (TPO) FOR DETERMINING ARMS LENGTH PRICE. THE TPO I.E. THE AD DITIONAL COMMISSIONER OF INCOME TAX (TRANSFER PRICING-II) DID NOT DISPUTE THE METHO D AND THE SEARCH CRITERIA ADOPTED BY 3 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. THE ASSESSEE. HOWEVER HE DISREGARDED THE ARMS LE NGTH MARGIN AS COMPUTED BY THE ASSESSEE. IN THIS REGARD THE ASSESSEE WAS ASKED BY THE TPO TO CONDUCT A FRESH SEARCH CONSIDERING THE DATA AVAILABLE FOR FY 2003-04. BAS ED ON THIS FRESH SEARCH THE TPO COMPUTED THE ARMS LENGTH MARGIN AS 33.26%. WHILE D OING SO THE TPO CONSIDERED RESULT OF FRESH SEARCH IN RESPECT OF COMPARABLES SELECTED BY THE ASSESSEE BUT IGNORED THE FOLLOWING COMPANIES ON THE BASIS THAT THESE WERE FU NCTIONALLY NOT COMPARABLE. BOMBAY INTELLIGENCE SECURITY (INDIA) LTD. TANU HEALTH CARE LTD. TIMES INFOTAINMENT MEDIA LTD. TOPS SECURITY LTD. UJJWAL LIMITED. FURTHER THE TPO DID NOT CONSIDER ONE ANOTHER COMPA NY NAMELY KITCO LIMITED ON THE GROUND THAT IT WAS LOSS MAKING COMPANY. THE TPO ALS O INCLUDED A COMPARABLE VIMTA LABS LTD. WHICH WAS INCLUDED BY THE ASSESSEE AS A C OMPARABLE IN FY 2002-03 BUT EXCLUDED IN FY 2003-04 ON THE GROUND THAT IT IS FUN CTIONALLY DIFFERENT. ACCORDINGLY IT WAS HELD BY THE TPO/AO THAT THE ASSESSEE SHOULD HAV E EARNED A COST PLUS MARK-UP OF 33.26% ON ARMS LENGTH BASIS AS AGAINST 11.73% ONLY SHOWN BY IT. TRANSFER PRICING ADJUSTMENT OF RS. 1 16 66 155/- THEREFORE WAS MADE BY THE TPO/AO AND THE SAID AMOUNT WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE IN TH E ASSESSMENT MADE U/S 143(3) VIDE AN ORDER DATED 30-11-2006. 4. AGAINST THE ORDER PASSED BY THE AO U/S 143(3) A N APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) DISPUTING THEREIN INTER-A LIA TRANSFER PRICING ADJUSTMENT MADE BY THE AO. WITH REGARD TO TPOS ACTION OF NOT CONSI DERING THE FIVE COMPARABLES MENTIONED ABOVE THE ASSESSEE SUBMITTED BEFORE THE LEANED CIT(A) THAT SINCE IT COULD NOT FIND ADEQUATE COMPARABLES PROVIDING R & D RELATED S ERVICES FOR ARRIVING AT THE ARMS LENGTH MARGINS IT HAD TO WIDEN ITS SEARCH TO INCLU DE OTHER BUSINESS SUPPORT SERVICES AS 4 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. WELL. IT WAS SUBMITTED THAT THE SEARCH PROCESS WAS ACCORDINGLY WIDENED BY USING KEYWORDS LIKE MARKET RESEARCH SERVICES COMMISSI ON AGENTS SERVICES LEGAL SERVICES ADVERTISING OTHER CONSULTANCY ETC. WHICH THREW INTER-ALIA THE SAID FIVE COMPARABLES. IT WAS FURTHER SUBMITTED THAT TNMM REQ UIRES THAT NET MARGINS FROM AN INTERNATIONAL TRANSACTION SHOULD BE COMPARED WITH N ET MARGINS FROM AN UNCONTROLLED TRANSACTION. IT DOES NOT REQUIRE PRODUCT-WISE / SER VICE-WISE PRODUCT COMPARABILITY. GIVEN THAT UNDER TNMM NET MARGINS ARE COMPARED THE METH OD IS MORE TOLERANT TOWARDS SUCH DIFFERENCES. IT WAS SUBMITTED THAT THIS VIEW IS SUP PORTED BY OECD GUIDELINES OF TRANSFER PRICING AND OECD DRAFT ON COMPARABILITY WHEREIN IT IS INDICATED THAT FOR TNMM MORE EMPHASIS SHOULD BE PUT ON FUNCTIONS SIMILARITY RATH ER THAT ON PRODUCT SIMILARITY. IT WAS CONTENDED THAT IN CASE OF TNMM IT IS THUS IMPORTAN T TO LOOK FOR COMPARABLES WHICH PERFORM SIMILAR FUNCTIONS ASSUME SIMILAR RISKS AND USE SIMILAR ASSETS AND PRODUCT COMPARABILITY IS NOT RELEVANT. 5. IT WAS ALSO SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(A) THE SEARCH STRATEGY AND METHODOLOGY ADOPTED BY IT WAS N OT CHALLENGED BY THE AO. THE SAME WAS ALSO FOLLOWED AND ACCEPTED IN THE PREVIOUS YEAR . IN FACT THE COMPARABLES SELECTED BY THE TPO HIMSELF ALSO INCLUDED COMPARABLES ENGAGED I N ACTIVITIES OTHER THAN R & D SUCH AS WATER & POWER CONSULTING SERVICES (INDIA) LTD A LPHAGEO (INDIA) LIMITED AND NIS SPARTA. IT WAS SUBMITTED THAT THE TPO THUS HAS RESO RTED TO CHERRY-PICKING OF COMPARABLES BY ELIMINATING LOSS MAKING/ LOW PROFIT MAKING COMPARABLES EVEN THOUGH THEY CARRIED FUNCTIONALLY SIMILAR ACTIVITIES RATHER THAN ADOPTING AN OBJECTIVE APPROACH IN IDENTIFYING AND SCREENING THE COMPARABLE COMPANIES. THE ASSESSEE CONTENDED THAT THIS APPROACH IN TURN CREATED A BIAS IN FAVOUR OF PROFIT ABLE COMPANIES IN THE COMPARABLE DATA RESULTING IN TRANSFER PRICING ADJUSTMENT IN ITS CAS E. IT WAS SUBMITTED THAT WHEN DETERMINING THE AVERAGE PRICE/ MARGIN OF AN INDUSTR Y ALL COMPANIES IN THE INDUSTRY (WHETHER INCURRING LOSSES OR EARNING LOW OR HIGH PR OFITS) WHICH ARE COMPARABLE TO THE TESTED PARTY NEED TO BE CONSIDERED SO THAT THE ARIT HMETIC MEAN IS REPRESENTATIVE OF THE NORMAL PROFITS/ LOSSES EARNED BY COMPANIES IN THAT INDUSTRY. THE ALP CANNOT BE TIED TO 5 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. THE ARITHMETIC MEAN OF THE OPERATING MARGINS OF ONL Y PROFITABLE COMPARABLE COMPANIES IN ANY INDUSTRY EVEN WHEN THAT INDUSTRY CONTAINS SOME OR MANY UNPROFITABLE OR LESS PROFITABLE COMPANIES THAT ARE EQUALLY COMPARABLE. 6. AS REGARDS THE OBJECTION OF THE TPO THAT BOMBAY INTELLIGENCE SECURITY (INDIA) LTD TANU HEALTHCARE LTD TIMES INFOTAINMENT MEDIA LTD AND TOPS SECURITY LTD. ARE COMPANIES THAT DID NOT APPEAR IN THE SEARCH SET OF THE PREVIOUS YEAR IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(A) TH AT THE DATABASES WHICH ARE USED TO SCREEN THE COMPANIES GET CONTINUOUSLY UPDATED AS AN D WHEN NEW DATA IS AVAILABLE. IT WAS SUBMITTED THAT IT IS THUS A NORMAL PHENOMENON THAT SOME COMPARABLES FROM PREVIOUS YEAR WOULD NOT BE INCLUDED IN THE SEARCH SET IF THEIR FI NANCIAL DATA OF THE RELEVANT YEAR IS NOT AVAILABLE. LIKEWISE IT IS ALSO COMMON THAT SOME COM PANIES WHICH WERE NOT PRESENT IN THE DATABASE/ WHOSE FINANCIAL DATA WAS NOT AVAILABL E IN THE PREVIOUS YEAR WOULD BE INCLUDED IN THE RELEVANT YEAR. IT WAS POINTED OUT T HAT THE CASE OF UJJWAL LIMITED HAD BEEN REJECTED BY THE TPO AS COMPARABLE IN AY 2003-04 ON THE GROUND THAT IT DID NOT FORM A PART OF THE ORIGINAL SEARCH SET OF THE ASSESSEE BU T THE SAME WAS CONSIDERED AS A VALID COMPARABLE AT APPELLATE STAGE. THE ASSESSEE SUBMITT ED THAT IT WAS NEVER THE CASE OF THE TPO/AO THAT THIS COMPARABLE IS FUNCTIONALLY DIFFERE NT OR THAT THERE IS ANY DIFFERENCE IN THE BUSINESS/FUNCTIONS OF UJJWAL LIMITED SINCE LAST YEAR. IT WAS CONTENDED THAT THE REJECTION OF UJJWAL LIMITED AS COMPARABLE BY THE TP O/AO ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT THUS IS ERRONEOUS. 7. WITH REGARD TO EXCLUSION OF KITCO LIMITED AS C OMPARABLE THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT(A) THAT IN ORDER TO ARRIVE A T THE CORRECT ARMS LENGTH PRICE IT WOULD BE INAPPROPRIATE TO IGNORE COMPARABLE COMPANI ES INCURRING LOSSES SINCE DOING SO WOULD AMOUNT TO CHERRY PICKING. AS PER THE PROVISO TO SUB-SECTION (2) TO SECTION 92 C OF THE ACT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD THE ARMS LENGTH PRICE CANNOT BE TIED TO THE ARITHMETIC MEAN OF THE OPERATING MARGINS OF ONLY PROFITABLE COMPARABLE COMPANIES IN ANY INDUSTRY EV EN WHEN THAT INDUSTRY CONTAINS SOME 6 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. OR MANY UNPROFITABLE COMPANIES THAT ARE EQUALLY COM PARABLE. THE ASSESSEE FURTHER SUBMITTED THAT ALL OTHER COMPANIES IN THE COMPARABL E SET HAVE POSITIVE AVERAGE OPERATING MARGINS. FURTHER COMPARABLE COMPANIES SUCH AS CHOK SI LABORATORIES AND THE COMPARABLE CHOSEN BY THE TPO I.E. VIMTA LABS HAVE AVERAGE OPER ATING MARGINS OF AS HIGH AS 34.86 PERCENT AND 58.73 PERCENT RESPECTIVELY WHICH HAVE B EEN CONSIDERED BY THE ASSESSEE FOR DETERMINING ARMS LENGTH PRICE. THE ASSESSEE SUBMIT TED THAT KITCO LIMITED WAS SELECTED AS A COMPARABLE COMPANY SINCE ITS BUSINESS OPERATIO NS ARE SIMILAR TO THE ACTIVITIES CARRIED ON BY THE ASSESSEE AND AT THE TIME WHEN THE INITIAL STUDY WAS DONE KITCO WAS NOT A PERSISTENT LOSS MAKING COMPANY I.E. ITS OPERATING M ARGIN FOR FY 1999-00 WAS 2.10%. IN THIS REGARD THE ASSESSEE PLACED RELIANCE ON THE DE CISION OF TRIBUNAL IN THE CASE OF M/S. SONY INDIA PVT. LTD; 288 ITR (AT) 53 (DEL) & OTHER RECENT ITAT JUDGMENTS ON THE TP ISSUES. 8. FURTHER WITH REGARD TO SELECTION OF VIMTA LABS AS A COMPARABLE BY THE TPO THE FOLLOWING SUBMISSION WAS MADE ON BEHALF OF THE ASSE SSEE BEFORE THE LEARNED CIT(A): VIMTA LABORATORIES LIMITED IS ENGAGED IN THE BUSIN ESS OF CLINICAL TRIALS ENVIRONMENTAL MONITORING AND IMPACT ASSESSMENT ANALYTICAL TESTIN G OF A WISE VARIETY OF CONSUMER PRODUCTS . HOWEVER BASED ON A REVIEW OF THE FINANCIAL STATEME NTS AND OTHER INFORMATION IT IS EVIDENT THAT VIMLA LABORATORIES LIMITED IS NOT A RISK-FREE SERVI CE PROVIDER BUT PERFORMS MARKETING FUNCTION ASSUMES ENTREPRENEURIAL RISKS AND MAKES SUBSTANTIAL INVESTMENTS IN ASSETS. GIVEN HEREUNDER IS A CHART SHOWING COMPARISON OF TR ANSACTIONS RATIO ANALYSIS AND RISK ANALYSIS BETWEEN VIMTA LABS AND TEVA INDIA: PARTICULARS VIMTA LABS TEVA INDIA NATURE OF ACTIVITY WHETHER COMPARABLE TO TEVA IND IA NOT COMPARABLE RESEARCH SUPPORT LEVEL OF ACTIVITY HIGH-END LOW-END RELATIVELY HIGHER INVESTMENT IN TOTAL ASSETS YES N O RATIO OF OPERATING COSTS TO ASSETS 97.78% 45.87% MARKETING / SALES FUNCTION YES NO BAD DEBT RISK YES NO PRICE / MARGIN RISK YES NO BUSINESS RISK YES NO AS SUBMITTED ABOVE THERE ARE SIGNIFICANT DIFFERENC ES IN THE FUNCTIONAL ASSET AND RISK PROFILES OF THE ASSESSEE AS COMPARED TO VIMTA LABORATORIES. THE DIFFERENCES IN THE BUSINESS MODEL OF THIS 7 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. COMPANY AS AGAINST THAT OF THE ASSESSEE IS ALSO ES TABLISHED BY THE FAR HIGHER RETURNS EARNED BY IT AS COMPARED TO THE NORMAL COMPARABLE COMPANIES. ON THIS COUNT ALSO THIS COMPANY DOES NOT REPRESENT THE POPULATION AND HENCE VITIATE THE BENC HMARKING ANALYSIS AND SHOULD THEREFORE BE REJECTED. FURTHER THE LEARNED TPO ON ONE HAND HAS EXCLUDED L OSS MAKING ENTITY KITCO LIMITED ON THE GROUNDS OF LOSS MAKING CRITERIA HOWEVER ON THE OTH ER HAND THE LEARNED TPO HAS INCLUDED VIMTA LABORATORIES WHICH IS A VERY HIGH PROFIT MAKING ENT ITY. WE RESPECTFULLY SUBMIT THAT IN CASE LOSS MAKING COM PANIES ARE PROPOSED TO BE REJECTED EVEN HIGH PROFIT MAKING COMPANIES LIKE VIMTA LABORATORIES SHO ULD BE ELIMINATED BASED ON THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF MENTOR GRAPHIC S (NOIDA) PRIVATE LIMITED (109 ITD 101) WHICH HAS OBSERVED AS UNDER: WE ARE NOT TAKING INTO ACCOUNT HIGH PROFIT OR HIGH LOSS MAKING COMPANIES AS COMPARABLES.-- - 9. AS REGARDS THE ACTION OF THE TPO/AO IN NOT ALLOW ING RELIEF BY WAY OF ADJUSTMENT OF (+/-) 5% TO THE ARMS LENGTH PRICE COMPUTED BY HI M WHILE DETERMINING THE AMOUNT OF TRANSFER PRICING ADJUSTMENT THE ASSESSEE SUBMITTED THAT AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT IT HAS THE OPTION OF CHARGING A PRICE TO ITS ASSOCIATED ENTERPRISES WHICH MAY VARY FROM THE ARMS LENGTH PRICE BY (+/-) 5%. T HE ASSESSEE CONTENDED THAT IT SHOULD BE ALLOWED THE BENEFIT OF (+/-) 5% VARIATION FROM T HE ARMS LENGTH PRICE AS PER SECTION 92C(2) OF THE ACT. IN THIS REGARD THE ASSESSEE PLA CED RELIANCE ON THE FOLLOWING DECISIONS: M/S. SONY INDIA (P) LTD. VS DCIT AND VICE VERSA [(2 008) 118 TTJ 865] PHILIPS SOFTWARE CENTRE PRIVATE LIMITED VS ACIT [(2 008) 26 SOT 226] DEVELOPMENT CONSULTANTS PVT. LTD VS DCIT [115 TTJ 5 77] SKODA AUTO INDIA PVT LTD [(2009) 122 TTJ 699] CUSTOMER SERVICES INDIA (P) LTD [(2009) TIOL 424] 10. AS REGARDS THE ADJUSTMENT ON ACCOUNT OF RISK FA CTORS THE ASSESSEE SUBMITTED THAT IT FUNCTIONS UNDER A LIMITED RISK ENVIRONMENT VIS--VI S ENTREPRENEURIAL RISK BORNE BY COMPARABLE COMPANIES WHO ARE INDEPENDENT SERVICE PR OVIDERS. THE COMPARABLES SELECTED FOR THE ANALYSIS INCLUDE COMPANIES PERFORMING ADDIT IONAL FUNCTIONS VIZ. MARKETING ETC WHICH BEAR MORE RISKS AKIN TO ANY THIRD PARTY INDEP ENDENT SERVICE PROVIDER VIS-A-VIS THE 8 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. ASSESSEE. IT WAS SUBMITTED THAT THE RISKS SUCH AS L EGAL RISK MARKETING RISK BUSINESS RISK; ETC ARE NORMALLY ASSOCIATED WITH EVERY INDEPENDENT COMPANY WHEREAS THE ASSESSEE IS INSULATED FROM THESE RISKS. IT WAS ALSO SUBMITTED T HAT THE ASSESSEE BEARS LESSER/ NO BUSINESS RISK AS COMPARED TO INDEPENDENT COMPARABLE S ENTERPRISES DUE TO NATURE OF ITS REVENUE MODEL SUCH AS CREDIT RISK ETC. THE ASSESSEE SUBMITTED THAT THE RISK PROFILE OF THE ASSESSEE IS SIMILAR TO THE RISK PROFILE OF PHILIPS SOFTWARE AS ANALYSED BY THE ITAT IN CASE OF M/S. PHILIPS SOFTWARE CENTRE PRIVATE LIMITED (SU PRA). IT WAS CONTENDED THAT THE ASSESSEE THUS IT SHOULD BE ALLOWED A RISK ADJUSTMEN T OF 5.25% BEING THE RISK PREMIUM AS DETERMINED BY THE HONBLE TRIBUNAL IN PHILIPS SOFTW ARE CASE (SUPRA) FOR AY 2004-05. 11. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHAL F OF THE ASSESSEE IN THE LIGHT OF MATERIAL AVAILABLE ON RECORD THE LEARNED CIT(A) DE CIDED THE ISSUE RELATING TO SELECTION OF COMPARABLES FOR TRANSFER PRICING EXERCISE VIDE HIS IMPUGNED ORDER AS UNDER : TPO HAS REJECTED THE FOLLOWING 5 COMPARABLES ON TH E GROUND THAT THESE ARE FUNCTIONALLY DIFFERENT: BOMBAY INTELLIGENCE SECURITY (INDIA) LTD. TANU HEALTH CARE LTD. TIMES INFOTAINMENT MEDIA LTD. TOPS SECURITY LTD. UJJWAL LIMITED. OF THESE I AM OF THE VIEW THAT THE FIRST 4 COMPANI ES ARE FUNCTIONALLY DIFFERENT AND SHOULD NOT BE CONSIDERED AS COMPARABLES. HOWEVER IN REGARD TO UJJWAL THE SAME WAS A PART OF THE COMPARABLE SET FOR AY 2003-04. T HE FAR ANALYSIS OF UJJWAL REMAINING THE SAME IN THE SUBJECT YEAR THE SAME SH OULD NOT HAVE BEEN EXCLUDED BY THE TPO IN AY 2004-05. HENCE UJJWAL LIMITED SHOUL D BE INCLUDED IN THE COMPARABLE SET FOLLOWING THE PRINCIPLE OF CONSISTEN CY. ON THE SAME FOOTING AS INCLUSION OF UJJWAL IN THE C OMPARABLE SET VIMTA LABS (WHICH WAS A PART OF THE COMPARABLE SET OF AY 2003- 04) SHOULD BE INCLUDED IN THE COMPARABLE SET OF AY 2004-05. JUDICIAL PROPRIETY DE MANDS CONSISTENCY UNLESS THERE ARE COMPELLING FOR NOT DOING SO. THERE WERE VALID REASONS WITH THE TPO FOR EXCLUDING KITCO LTD AS IT WAS OBSERVED THAT IT HAD INCURRED LOSSES FOR ALL THE THREE YEARS UNDER CONSIDERATION. THIS ISSUE HAS BEEN DEALT WITH IN THE CASE OF THE ASSESSEE IN AY 2 003-04 AND THE SAME ORDER IS FOLLOWED. 9 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. 12. AS REGARDS THE CLAIM OF THE ASSESSEE THAT IT SH OULD BE PROVIDED A DEDUCTION/COVER OF 5% AND ANY ADJUSTMENTS IF MADE SHOULD BE OVER AN D ABOVE IT AND NOT INCLUDING IT THE LEARNED CIT(A) DID NOT FIND THE SAME TO BE ACCEPTAB LE AND RELYING ON HIS APPELLATE ORDER IN THE CASE OF THE ASSESSEE FOR AY 2003-04 HE REJE CTED THE SAME. HE ALSO REJECTED THE CLAIM OF THE ASSESSEE MADE DURING THE APPELLATE PRO CEEDINGS FOR RISK ADJUSTMENT OF 5.25% FOLLOWING THE REASONING GIVEN IN THE ORDER IN THE C ASE OF THE ASSESSEE FOR AY 2003-04. 13. THE LEARNED CIT(A) THUS INCLUDED UJJWAL LTD AND VIMTA LABS AS COMPARABLES FOR TRANSFER PRICING EXERCISE ON THE BASIS OF FAR ANALY SIS. HE HOWEVER EXCLUDED BOMBAY INTELLIGENCE SECURITY (INDIA) LTD. TANU HEALTH CAR E LTD TIMES INFOTAINMENT MEDIA LTD. AND TOPS SECURITY LTD. AS THESE ENTITIES WERE ARE N OT CONSIDERED BY HIM AS COMPARABLES. ON THE BASIS OF THESE INCLUSIONS/EXCLUSIONS THE AR ITHMETIC MEAN OF THE COMPARABLES WAS WORKED BY THE LEARNED CIT(A) AT 28.28% AND APPLYING THIS MARGIN THE TRANSFER PRICING ADJUSTMENT WAS DETERMINED BY HIM AT RS. 89 69 308/- AS AGAINST THE ADJUSTMENT OF RS. 1 16 66 155/- MADE BY THE TPO/AO ALLOWING A PART RE LIEF OF ` 26 96 847/- TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVEN UE AND ASSESSEE BOTH ARE IN APPEAL BEFORE THE TRIBUNAL. 14. IN GROUND NO. 1.1 OF ITS APPEAL THE ASSESSEE C OMPANY HAS CHALLENGED THE ACTION OF THE AUTHORITIES BELOW IN REJECTING M/S KITCO LTD. A S COMPARABLE MERELY ON THE GROUND THAT THE SAID CONCERN WAS INCURRING LOSS. 15. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR ISSUE WAS INVOLVED IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR I.E. 2003-0 4 AND THE TRIBUNAL VIDE ITS ORDER DATED 13.10.2010 PASSED FOR THE SAID YEAR IN ITA NO. 1547 & 1966/M/2009 HAS RESTORED THE SAME TO THE FILE OF THE A.O. WITH A DIRECTION TO DE CIDE THE SAME AFRESH IN THE LIGHT OF THE DECISION OF DELHI BENCH OF ITAT IN THE CASE OF SONY INDIA P. LTD. 288 ITR (AT) 53 WHEREIN IT WAS HELD THAT A COMPARABLE COULD NOT BE EXCLUDED ONLY ON THE GROUND OF LOSSES 10 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. EXCEPT IN CASES WHERE THERE ARE OTHER FACTORS JUSTI FYING EXCLUSION OF THE SAID COMPARABLES. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE TRI BUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 ON A SIMILAR ISSUE WE RESTORE THIS ISSUE T O THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH ON THE SAME LINE AS DIRECTED BY THE TRI BUNAL IN A.Y. 2003-04. GROUND NO. 1.1 IS ACCORDINGLY TREATED AS ALLOWED. 16. IN GROUND NO. 1.2 THE ASSSESSEE HAS CHALLENGED THE ACTION OF THE AUTHORITIES BELOW IN REJECTING FOUR COMPARABLE CASES NAMELY M/S BOMBA Y INTELLIGENCE SECURITY INDIA LTD. M/S TANUR HEALTHCARE LTD. M/S TIMES INFOTAINMENT M EDIA LTD. & M/S TOP SECURITY LTD. 17. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE FOUR PARTIES WERE REJECTED AS COMPARABLES BY TPO MERELY BECAUSE FUNCTIONS PERFORM ED BY THEM WERE FOUND TO BE DIFFERENT FROM THE FUNCTIONS PERFORMED BY THE ASSES SEE COMPANY. HE INVITED OUR ATTENTION TO PAGE NO. 10 OF THE CIT(A)S ORDER WHERE SUBMISSI ONS MADE BY THE ASSESSEE JUSTIFYING INCLUSION OF THE SAID FOUR CASES AS COMPARABLES HAS BEEN REPRODUCED BY THE LD. CIT(A) AND STRONGLY RELIED ON THE SAME. HE ALSO TOOK US T HROUGH PAGE NO. 55 TO 58 OF HIS PAPER BOOK TO POINT OUT THE VARIOUS CRITERIA APPLIED BY T HE ASSESSEE TO SELECT THE COMPARABLE CASES. HE CONTENDED THAT OTHER COMPARABLE CASES SE LECTED BY THE ASSESSEE BY APPLYING THE SAME CRITERIA WAS ACCEPTED BY THE TPO/AO MAINLY BEC AUSE THE PROFIT MARGIN SHOWN BY THEM WAS HIGHER. HE CONTENDED THAT THESE FOUR PART IES SELECTED AS COMPARABLES BY APPLYING THE SAME CRITERIA HOWEVER WERE REJECTED BY THEM WITHOUT GIVING ANY CONVINCING REASONS. 18. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT THE EXACT NATURE OF THE ASSESSEES BUSINESS HAS TO BE TAKEN INTO CONSIDERATION TO ASCE RTAIN THAT THE CASES SELECTED ARE COMPARABLE OR NOT. HE SUBMITTED THAT THE IMPORTANT ASPECT OF THE ASSESSEES BUSINESS IS CONSULTANCY AND THAT TOO IN THE FIELD OF RESEARCH A ND DEVELOPMENT. HE CONTENDED THAT IN THE CASE OF FOUR PARTIES IN QUESTION THE NATURE OF ACTIVITY CARRIED ON BY THEM WAS FOUND TO 11 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. BE ENTIRELY DIFFERENT FROM THE NATURE OF BUSINESS C ARRIED ON BY THE ASSESSEE. IN THIS REGARD HE INVITED OUR ATTENTION TO PAGE 8 & 9 OF THE A.O. S ORDER WHERE THE A.O. HAS DISCUSSED THE NATURE OF BUSINESS CARRIED ON BY EACH OF THESE FOUR PARTIES AND SUBMITTED THAT THE VARIOUS ASPECTS HIGHLIGHTED BY THE A.O. IN RESPECT OF BUSINESS ACTIVITIES CARRIED ON BY THE SAID FOUR PARTIES VIS-A-VIS THE BUSINESS ACTIVITY C ARRIED ON BY THE ASSESSEE ARE SUFFICIENT TO SHOW THAT THE SAID FOUR CASES WERE FUNCTIONALLY DIF FERENT FROM THE CASE OF THE ASSESSEE. HE CONTENDED THAT EVEN THE OECD HAS INSISTED ON FUN CTIONAL SIMILARITY FOR SELECTION OF COMPARABLES FOR DOING TRANSFER PRICING ANALYSIS AND THE FUNCTIONS PERFORMED BY THE FOUR PARTIES IN QUESTION HAVING BEEN FOUND TO BE ENTIREL Y DIFFERENT FROM THE FUNCTIONS PERFORMED BY THE ASSESSEE THE SAID PARTIES WERE RI GHTLY REJECTED AS COMPARABLES. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT FUNCTIONAL TESTS HAS BEEN APPLIED TO SELECT THE COMPARABLES FOR THE TRANSFER PRICING ANALYSIS DONE IN THE CASE OF THE ASSESSEE. IT IS THEREFORE IMPORTANT THAT FUNCTIONAL SIMILARITY IS THERE IN ORDER TO SEL ECT ANY CASE AS COMPARABLE FOR THE SAID EXERCISE. AS RIGHTLY CONTENDED BY THE LD. D.R. IN THIS REGARD THE EXACT NATURE OF THE BUSINESS OF THE ASSESSEE NEEDS TO BE TAKEN INTO CON SIDERATION VIS-A-VIS THE NATURE OF BUSINESS ACTIVITY CARRIED ON BY THE OTHER PARTIES S O AS TO ASCERTAIN WHETHER THE SAID PARTIES CAN BE SELECTED AS COMPARABLE CASES FOR TRANSFER PR ICING ANALYSIS. IN THIS REGARD IT IS OBSERVED THAT THE BUSINESS OF THE ASSESSEE IS TO RE NDER CONSULTANCY SERVICES IN THE FIELD OF RESEARCH AND DEVELOPMENT WHEREAS THE NATURE OF BUSI NESS ACTIVITY AS DISCUSSED AND POINTED OUT BY THE A.O. IN RESPECT OF EACH OF THE F OUR PARTIES ON PAGE NO. 8 & 9 OF HIS ORDER WAS FOUND TO BE AS UNDER:- (A) M/S BOMBAY INTELLIGENCE SECURITY (INDIA) LTD. THIS ENTITY IS IN THE BUSINESS OF RENDERING OF SECURITY GUARDS AND LABOUR . THE ANNEXURE TO AUDITORS REPORT DT. 10.08.2004 PARA 29A) READS AS FOLLOWS:- THE COMPANY IS ENGAGED IN RENDERING SERVICES OF SE CURITY GUARDS 7 LABOUR AND THERE ARE NO INVENTORIES IN RESPECT OF RAW MATERIAL PACK ING MATERIAL WORK IN PROGRESS FINISHED GOODS AND CONSUMABLES HENCE THIS CLAUSE IS NOT APPLICABLE TO THE COMPANY6. HOWEVER THE COMPANY HAS PHYSICALLY VERIFIED THIS S TOCK OF UNIFORM AND PRINTING AND STATIONERY AT THE END OF THE YEAR 12 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. THIS ENTITY THEREFORE BEING IN THE BUSINESS OF PROV IDING SECURITY GUARDS AND LABOUR CANNOT BE TREATED AS COMPARABLE TO ASSESSEES LINE OF BUSINESS WHICH IS COORDINATING THE R&D AND BIO-RELATED SERVICES PROVIDED BY INDEPE NDENT INDIAN COMPANIES TO THE IVAX GROUP ENTITIES. HENCE THIS ENTITY IS FOUND T O BE NOT COMPARABLE TO ASSESEES LINE OF BUSINESS. (B) M/S TANU HEALTH CARE LTD. THIS ENTITY HAS RETURNED A SALE OF ABOUT ` 12 CRORES. THE SALES OF THIS COMPANY ARE FROM PHARMA DIVISION FINANCE & INVESTMENT DIVISION MEDIA DIVISION. ITS OTHER INCOME INCLUDE S ADVERTISING INCOME LOAN PROCESSING FEE SALE OF DEPB LICENCES DIVIDEND AND INTEREST. IN TOTAL EXTERNAL SALE OF ` 11.60 CRORES THE OTHER INCOME AS DISCUSSED IN THE PREVIOUS SENTENCE IS ` 2.04 CRORES SALES IN MEDIA DIVISION WHICH STARTED THIS YEAR IS ` 55 LAKH SALES IN FINANCE DIVISION HAVE BEEN SHOWN AT ` 1.89 CRORES AND SALES IN PHARMA DIVISION HAVE BEEN SHOWN AS ` 8.95 CRORES. THIS COMPANY M/S TANNU HEALTH CARE L D. IS INTO MANUFACTURING AND TRADING OF PHARMA PRODUCTS CHEMI CALS TRADING IN SHARES AND DEALING IN TV SERIALS. NOWHERE IS THE BUSINESS OF THE ASSESSEE CLOSE TO THIS ENTITY. ACCORDINGLY THIS ENTITY IS FOUND TO BE NOT COMPARA BLE TO THE ASSESSES LINE OF BUSINESS AND HENCE IS BEING REJECTED AS A COMPARAB LE. (C) M/S TIMES INFOTAINMENT MEDIA LTD. THIS ENTITY IS IN THE BUSINESS OF EVENT MANAGEMENT. OUT OF THE TOTAL SALES REPORTED AT ` 21.80 CRORES ` 21.09 CRORES HAS BEEN REPORTED FROM EVENT MANAGEMENT AND ` 71.25 LAKHS HAS BEEN REPORTED AS SERVICE FEES ON OUTDOOR REVENUES. THE OTHER INCOME REPORTED BY THIS ENTITY IS PROFIT ON SALE OF INVESTMENT ` 71.14 LAKHS INTEREST ABOUT ` 10 LAKHS INCOME FROM TELECAST RIGHTS ` 1.10 CRORES. THE BUSINESS ACTIVITIES OF THIS ENTI TY ARE EVENT MANAGEMENT AND OUTDOOR ACTIVITIES SUCH AS ADVERTISI NG ON BUS QUEUE SHELTERS. THUS THIS ENTITY IS AT BEST INTO ENTERTAINMENT OR ADVERT ISING OR MEDIA RELATED ACTIVITIES. NOWHERE IS THE BUSINESS OF THE ASSESSEE CLOSE TO T HIS ENTITY. ACCORDINGLY THIS ENTITY IS FOUND TO BE NOT COMPARABLE TO THE ASSESSEES LIN E OF BUSINESS AND HENCE IS BEING REJECTED AS A COMPARABLE. (D) M/S TOPS SECURITY LTD . THIS ENTITY IS INTO SECURITY BUSINESS THE FOLLOW ING ARE ITS LINES OF BUSINESS (I) CASH MANAGEMENT SERVI CES THROUGH ITS FLEET OF BULLET RESISTANT ARMORED TRUCKS (II) TOPS INTELLIGENCE P ROVIDING SPECIALIZED INVESTIGATION IN AREAS SUCH AS BANKING AND INSURANCE FRAUDS ASSE T LOCATIONS FINANCIAL EMBEZZLEMENT AND RISK MANAGEMENT (III) TOPS LINE THIS IS THE EMERGENCY RESPONSE SERVICE (IV) TOPS INTERNATIONAL SECURITY ACADEMY PR OVIDING TRAINING FOR GUARDING PEOPLE. NOWHERE IS THE BUSINESS OF THE ASSESSEE C LOSE TO THIS ENTITY. ACCORDINGLY THIS ENTITY IS FOUND TO BE NOT COMPARABLE TO THE AS SESSEES LINE OF BUSINESS AND HENCE IS BEING REJECTED AS A COMPARABLE. 20. AS IS CLEARLY EVIDENT FROM THE FINDINGS/OBSERVA TIONS RECORDED BY THE A.O. AS ABOVE WHICH HAVE REMAINED UNCONTROVERTED BY THE LD . COUNSEL FOR THE ASSESSEE THE NATURE OF BUSINESS ACTIVITY CARRIED ON BY THE FOUR PARTIES IN QUESTION WAS ENTIRELY DIFFERENT FROM THE BUSINESS ACTIVITY OF THE ASSESSEE. FOR INS TANCE M/S BOMBAY INTELLIGENCE SECURITY INDIA LTD. AND M/S TOP SECURITY LTD. WERE IN THE BUSINESS OF PROVIDING SECURITY 13 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. SERVICES WHICH IS ENTIRELY DIFFERENT FROM THE BUSIN ESS OF THE ASSESSEE OF PROVIDING SERVICES IN THE FIELD OF RESEARCH AND DEVELOPMENT. SIMILARLY M/S TIMES INFOTAINMENT INDIA LTD. WAS IN THE BUSINESS OF EVENT MANAGEMENT AND M/S TAN NUR HEALTHCARE LTD. WAS FOUND TO BE CARRYING VARIOUS BUSINESS ACTIVITIES INCLUDING M ANUFACTURING AND TRADING OF PHARMA PRODUCTS TRADING OF SHARES DEALING IN TV SERIALS ETC. WHICH WAS NOT EVEN REMOTEDLY CLOSED OR SIMILAR TO THE BUSINESS OF THE ASSESSEE C OMPANY. MOREOVER THE SERVICES RENDERED BY THESE PARTIES WERE IN THE NON-TECHNICAL FIELD WHEREAS ASSESSEE COMPANY WAS FOUND TO BE RENDERING SERVICES IN THE TECHNICAL FIE LD OF RESEARCH AND DEVELOPMENT. AS RIGHTLY HELD BY THE AUTHORITIES BELOW THE SAID CON CERNS THUS WERE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY AND THERE WAS NO JUSTIFIA BLE REASON TO SELECT THE SAME AS COMPARABLES FOR TRANSFER PRICING ANALYSIS. WE THER EFORE FIND NO INFIRMITY IN THE IMPUGNED OR OF THE CIT(A) ON THIS ISSUE AND UPHOLDING THE SA ME WE DISMISS GROUND NO. 1 & 2 OF THE ASSESSEES APPEAL. 21. IN GROUND NO. 2 THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF BENEFIT OF 5% VARIATION CLAIMED BY IT. AFTER CONSIDERING THE RIVA L SUBMISSION AND PERUSING THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT A SIMILAR I SSUE HAS BEEN RESTORED BY THE TRIBUNAL TO THE FILE OF THE A.O. VIDE ITS ORDER DATED 30.8.190 FOR A.Y. 2003 WITH A DIRECTION TO DECIDE THE SAME IN THE LIGHT OF THE DECISION OF THE TRIBUN AL IN THE CASE OF SONY INDIA PVT. LTD. (SUPRA) THE BENEFIT OF WHICH WAS NOT AVAILABLE TO THE AUTHORITIES BELOW AT THE TIME OF PASSING THEIR RESPECTIVE ORDERS. RESPECTFULLY FOLL OWING THE SAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 WE RESTORE THIS ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE DECISION OF DELHI BENCH OF ITAT IN THE CASE OF SONY INDIA LTD. (SUPRA). 22. AS REGARDS THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 3 & 4 RELATING TO ITS CLAIM FOR ADJUSTMENT IN RESPECT OF DIFFERENCE IN RI SKS PROFILE IN THE TRANSFER PRICING ANALYSIS IT IS OBSERVED THAT A SIMILAR ISSUE HAS A LSO BEEN RESTORED BY THE TRIBUNAL IN A.Y. 2003-04 TO THE FILE OF THE A.O. FOR DECIDING THE SA ME AFRESH AFTER OBTAINING ALL THE 14 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. NECESSARY DETAILS AND EVIDENCE AND AFTER GIVING PRO PER AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. RESPECTFULLY FOLLOWING TH E SAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE A.Y. 2003-04 WE RESTORE THIS I SSUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH ON THE SAME LINE AS HAS BE EN DIRECTED BY THE TRIBUNAL IN A.Y. 2003-04. GROUND NO. 3& 4 OF THE ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 23. NOW WE SHALL TAKE UP THE APPEAL OF THE REVENUE GROUND NO. 2 OF WHICH CHALLENGE THE DECISION OF LD. CIT(A) IN INCLUDING M/S UJJWAL LIMITED AS COMPARABLE CASE FOR TRANSFER PRICING ANALYSIS. 24. AFTER CONSIDERING THE RIVAL SUBMISSION AND PERU SING RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT M/S UJJWAL LTD. WAS EXCLUDED BY TP O/A.O. FOR THE PURPOSE OF TRANSFER PRICING ANALYSIS ON THE GROUND OF FUNCTIONAL DIFFER ENTIATION. THE LD. CIT(A) HOWEVER ACCEPTED THE CLAIM OF THE ASSESSEE FOR INCLUSION OF THE SAID PARTY AS COMPARABLE FOLLOWING HIS APPELLATE ORDER FOR A.Y. 2003-04. THE TRIBUNAL VIDE ORDER DATED 30.8.10 HAS UPHELD THE SAID ORDER OF THE LD. CIT(A) FOR A.Y. 2003-04 F OR THE FOLLOWING REASONS GIVEN IN PARA NO. 4.1 OF HIS ORDER: THE SECOND DISPUTE RAISED IN THE APPEAL OF THE REVE NUE IS REGARDING INCLUSION OF UJJWAL LTD. AS A COMPARABLE BY THE ASS ESSEE. THE ASSESSEE HAD NOT INCLUDED THE SAME IN THE ORIGINAL SUBMISSION BEFORE THE ASSESSING OFFICER BUT INCLUDED THE SAME LATER WHEN THE ASSESSING OFFICER ASKED FOR FRESH LIST OF COMPARABLES BASED ON LATEST DATA. CIT(A) HAD GIVEN A CLEAR FINDING THAT UJJWAL LTD. MET THE FUNCTIONAL TEST AND THERE IS NOTHING BEFORE US TO CONTROVERT THE SAID FINDING. THEREFORE UJJWAL LTD. CANNOT BE EXCLUDED ONLY ON TH E GROUND THAT IT WAS NOT INCLUDED BY THE ASSESSEE IN THE ORIGINAL SUBMISSION WHEN THE ASSESSING OFFICER HIMSELF ASKED FOR THE REVISED LIST BASED ON LATEST DATA WHICH BY THEN WAS AVAILABLE. THE ORDER OF CIT(A) HOLDING THAT UJJWAL LTD. HAS TO BE INCLUDED AS A COMPARABLE IS UPHELD. 25. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE R AS WELL AS ALL THE MATERIAL FACTS RELEVANT ARE SIMILAR TO THAT OF A.Y. 03-04 WE RESP ECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR 02-04 AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) ALLOWING INCLUDING OF M/S 15 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. UJJAWAL LTD. AS COMPARABLE CASE FOR TRANSFER PRICIN G ANALYSIS. GROUND NO. 2 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 26. IN GROUND NO. 1 OF ITS APPEAL THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS. 40 85 021/- MADE BY THE A.O. IN RESPECT OF UNREALISED FOREIGN EXCHANGE GAIN. 27. AFTER CONSIDERING THE RIVAL SUBMISSION AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT THE ADDITION MADE BY TH E A.O. ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION GAIN RELATING TO ECB OBTAINED BY THE AS SESSEE FROM ITS ASSOCIATED ENTERPRISES WAS DELETED BY THE LD. CIT(A) TREATING THE SAME CAP ITAL RECEIPT NOT CHARGEABLE TO TAX ON THE GROUND THAT IT REPRESENTED UNREALISED FOREIGN E XCHANGE GAIN IN RESPECT OF FOREIGN CURRENCY LOAN OBTAINED FOR ACQUISITION OF CAPITAL A SSET IN INDIA. WHILE ALLOWING RELIEF TO THE ASSESSEE ON THIS ISSUE THE LD. CIT(A) FOLLOWED HIS OWN APPELLATE ORDER PASSED IN ASSESSEES CASE FOR A.Y. 2003-04 ON A SIMILAR ISSUE . THE TRIBUNAL VIDE ITS ORDER DATED 30.9.10 (SUPRA) HAS ALREADY UPHELD THE SAID ORDER O F THE LD. CIT(A) FOR 2003-04 ON A SIMILAR ISSUE FOR THE FOLLOWING REASONS GIVEN IN PA RA NO. 4 OF HIS ORDER: WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. WE FIRST DEAL WITH THE DISPUTES RAISED IN THE APPEAL BY THE REVENUE. THE FIRST DISPUTE RAISED IN REVENUES APPEAL IS REGARDI NG ADDITION OF ` 9 09 970/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION GAIN. THE ASSESSING OFFICER HAD MADE ADDITION BEING THE GAIN ON ACCOUNT OF FOREIGN EXCHA NGE FLUCTUATION RELATING TO THE ECB LOAN TREATING THE SAME AS REVENUE RECEIPT. CIT (A) HAS HELD THAT ECB LOAN WAS ON CAPITAL ACCOUNT AND THEREFORE THE FOREIGN CURREN CY GAIN WAS CAPITAL IN NATURE AND HAS ACCORDINGLY DELETED THE ADDITION. THE LEARNED AR FOR THE ASSESSEE REITERATED THE STAND TAKEN EARLIER THAT THE LOAN WAS ON CAPITAL AC COUNT. HE REFERRED TO THE LOAN AGREEMENT PLACED AT PAGE 217 OF THE PAPER BOOK IN W HICH IT IS CLEARLY MENTIONED THAT THE ASSESSEE HAD TAKEN THE LOAN TO ESTABLISH A FORM ULATION PILOT PLANT ANALYTICAL LABORATORY AND OFFICE. LOAN WAS THEREFORE OBVIOUSL Y FOR ACQUISITION OF CAPITAL ASSETS. ANY GAIN/LOSS ARISING ON ACCOUNT OF FLUCTUATION OF FOREIGN CURRENCY LOAN TAKEN FOR ACQUISITION OF CAPITAL ASSETS HAS TO BE TREATED AS CAPITAL IN NATURE IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F SUTLEJ COTTON MILLS LTD. 9SUPRA). WE THEREFORE SEE NO INFIRMITY IN THE ORDE R OF CIT(A) AND THE SAME IS THEREFORE UPHELD. 16 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. 28. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT ARE SIMILAR TO THAT OF A.Y. 2003-04 WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR 2003-04 AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) AND ALLOW THE RELIEF TO THE ASSESSEE. GROUND NO. 1OF THE REVENUE S APPEAL IS ACCORDINGLY DISMISSED. 29. DURING THE COURSE OF HEARING BEFORE US THE ASS ESSEE HAS MOVED AN APPLICATION SEEKING ADMISSION OF THE FOLLOWING ADDITIONAL GROUN D: THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS BY CONFIRMING INCLUSION OF VIMTA LABS LTD. AS COMPARABLE MERELY FOR THE REASON THAT THE SAME WAS TAKEN AS COMPARABLE BY THE APPELLANT IN ASSESSMENT YEAR 2003 -04 WITHOUT APPRECIATING DIFFERENCES IN FUNCTIONAL-ASSET-RISK (FAR) PROFIL E OF VIMTA LABS LTD. AS COMPARED TO THE FUNCTIONAL-ASSET-RISK (FAR) OF THE APPELLANT . 30. IN SUPPORT OF THE CASE OF THE ASSESSEE FOR ADMI SSION OF THE ABOVE ADDITIONAL GROUND THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT THE SAID GROUND IS ARISING FROM THE IMPUGNED ORDER OF THE LD. CIT(A) AND THE SAME A S REMAINED TO BE RAISED IN THE ORIGINAL GROUNDS INADVERTENTLY. HE ALSO SUBMITTED THAT ALL THE REQUIRED FACTS FOR ADJUDICATION OF THE SAID GROUND ARE ALREADY AVAILAB LE ON RECORD AND IT DOES NOT CALL FOR INVESTIGATION INTO NEW FACTS. HE HAS RELIED INTER ALIA ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO LTD . 329 ITR 383. KEEPING IN VIEW THIS SUBMISSION MADE BY THE LD. COUNSEL FOR THE ASSESSEE WE HAVE ADMITTED THE SAID ADDITIONAL GROUND WHICH IS NOW BEING DECIDED ON MER IT. 31. IT IS OBSERVED THAT M/S VIMTA LABS LTD. WAS EXC LUDED BY THE ASSESSEE AS COMPARABLE ENTITY DUE TO HIGH PROFITS EARNED BY THE SAID CONCERN. IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT THE SAID ENTITY WAS EITHER INT O A DIFFERENT BUSINESS ACTIVITY OR IN THE NICHE MARKET. IT WAS CONTENDED THAT THE HIGH MARGI N OF PROFIT EARNED BY THE SAID ENTITY THUS WAS NOT STRICTLY COMPARABLE TO THAT OF THE ASS ESSEE. THE TPO/A.O. HOWEVER NOTED THAT THE SAID ENTITY WAS FUNCTIONALLY SIMILAR AND T HE ASSESSEE COMPANY ITSELF HAD CHOSEN THE SAME AS COMPARABLE IN TRANSFER PRICING ANALYSIS FOR A.Y. 2003-04. IT IS THEREFORE 17 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. INCLUDED THE SAID ENTITY IN COMPARABLES FOR TRANSFE R PRICING ANALYSIS. BEFORE THE LD. CIT(A) A CHART WAS FILED BY THE ASSESSEE SHOWING F AR ANALYSIS AND ON THE BASIS OF THE SAID ANALYSIS ASSESSEE CONTENDED THAT THERE WAS NO JUSTIFICATION IN SELECTING M/S VIMTA LABS LTD. AS A COMPARABLE CASE. THE LD. CIT(A) REJE CTED THIS STAND OF THE ASSESSEE WITHOUT MAKING ANY DISCUSSION OR GIVING ANY REASON. 32. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT ALTHOUGH A DETAIL SUBMISSION WAS MADE ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A) ON THE BASIS OF FAR ANALYSIS TO SHOW THAT THE SELECTION OF M/S VIMTA LABS AS COMPARABLE IS NOT JU STIFIED THE LD. CIT(A) HAS NOT ACCEPTED THE STAND OF THE ASSESSEE ON THIS ISSUE WI THOUT GIVING ANY COGENT OR CONVINCING REASONS. IN ITS RECENT DECISION RENDERED IN THE CAS E OF ADOBE SYSTEMS INDIA PVT. LTD. (ITA NO. 5043/DEL/2000 DTD. 21.01.2011) DELHI BENCH OF ITAT HAS HELD THAT EXCLUSION OF COMPANIES SHOWING SUPERNORMAL PROFITS AS COMPARED T O OTHER COMPARABLE IS FULLY JUSTIFIED. WE THEREFORE SET ASIDE THE IMPUGNED OR DER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A D IRECTION TO DECIDE THE SAME AFRESH AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS MADE BY T HE ASSESSEE BEFORE THE LD. CIT(A) AND KEEPING IN VIEW THE DELHI BENCH OF ITA IN THE CASE OF ADOBE SYSTEMS INDIA PVT. LTD. (SUPRA). 33. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED WHEREAS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 28 TH JANUARY 2011. SD/- SD/- (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 28 TH JANUARY 2011. RK 18 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. COPY TO 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A) XXI - MUMBAI 4. THE CIT CITY -21 MUMBAI 5. THE DR BENCH E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 19 ITA 5707/M/09 & 6107/M/09 & M/S TEVA INDIA PVT. L TD. INITIALS 1 DRAFT DICTATED ON 27/01/11 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 28/01/11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER