D.C.I.T-8(2), MUMBAI v. M/S. MONSANTO HOLDING INDIA PVT. LTD., MUMBAI

ITA 6558/MUM/2008 | 2004-2005
Pronouncement Date: 09-11-2011 | Result: Dismissed

Appeal Details

RSA Number 655819914 RSA 2008
Assessee PAN AAACM5981H
Bench Mumbai
Appeal Number ITA 6558/MUM/2008
Duration Of Justice 2 year(s) 11 month(s) 28 day(s)
Appellant D.C.I.T-8(2), MUMBAI
Respondent M/S. MONSANTO HOLDING INDIA PVT. LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted L
Tribunal Order Date 09-11-2011
Date Of Final Hearing 06-07-2011
Next Hearing Date 06-07-2011
Assessment Year 2004-2005
Appeal Filed On 11-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L MUMBAI BEFORE SHRI R.S.SYAL (A.M) & SHRI N.V.VASUDEVAN(J .M) ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) THE DCIT 8(2) ROOM NO.216-A AAYKAR BHAVAN MK ROAD MUMBAI 20. (APPELLANT) VS. M/S. MONSANTO HOLDINGS PVT. LTD. AHURA CENTRE 5 TH FLOOR 96 MAHAKALI CAVES ROAD ANDHERI (EAST) MUMBAI 93 PAN:AAACM 5981H (RESPONDENT) APPELLANT BY : SMT. MALATHI SRIDHARAN RESPONDENT BY : SHRI M.P.LOHIA ORDER PER N.V.VASUDEVAN J.M. ITA NO.3423/MUM/2008 IS AN APPEAL BY THE REVENUE I S AGAINST THE ORDER DATED 18/1/08 OF CIT(A) 32 MUMBAI RELATING T O ASSESSMENT YEAR 2003-04. ITA NO.6558/MUM/2008 IS ALSO AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 24.7.2008 OF CIT(A)-32 MUMBAI REL ATING TO AY 04-05. SINCE ONE COMMON ISSUE IS INVOLVED IN BOTH THESE APPEALS AND PERTAIN TO THE SAME ASSESSEE WE DEEM IT FIT TO PASS THIS CONSOLIDATED ORDER. 2. FIRST WE SHALL TAKE UP FOR CONSIDERATION ITA NO .3423/MUIM/08 APPEAL OF THE REVENUE FOR AY 03-04. THE GROUND OF APPEAL OF THE REVENUE READS AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS .1 11 25 027/- MADE BY WAY OF UPWARD ADJUSTMENT TO THE ARMS LENGTH PRI CE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITHOUT APPRECIATING THE FACTS OF THE CASE. ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 2 3. THE ASSESSEE IS A COMPANY. IT IS HEREINAFTER RE FERRED TO AS MHPL OR ASSESSEE. MHPL IS A WHOLLY OWNED SUBSIDIARY OF MON SONTO COMPANY USA (HEREINAFTER REFERRED TO AS MTC) IN INDIA. MTC IS STATED TO BE A LEADING PROVIDER OF AGRICULTURAL PRODUCTS TO FARMERS AND OF FERS SEEDS IMPROVED THROUGH BIOTECHNOLOGY WITH ONE OR MORE TRAITS. IT IS STATED TO BE RENOWNED ALL OVER THE WORLD FOR ITS TECHNOLOGY-BASED SOLUTIO NS IN THE AGRICULTURAL FIELD. MHPL ACTS AS A HOLDING COMPANY FOR VARIOUS DOWNSTRE AM INVESTMENTS OF THE MONSANTO GROUP IN INDIA. AS A GROUP HOLDING COMPA NY OF INDIAN VENTURES MHPL PROVIDES CERTAIN SUPPORT/STEWARD SERVICES TO V ARIOUS DOWNSTREAM VENTURES IN INDIA. 4. MTC ENTERED INTO A SUPPORT AGREEMENT WITH MHPL DATED JANUARY 1 2001. SINCE THE SAID AGREEMENT WAS VALID ONLY FOR A PERIOD OF ONE YEAR A FRESH AGREEMENT WAS EXECUTED BY THE CONTRACTING ENT ITIES (EFFECTIVE FROM APRIL 1 2002) (THE SUPPORT AGREEMENT). THE SUPPORT AG REEMENT ENVISAGES PROVISION OF FOLLOWING SERVICES BY MHPL. CONTRACT RESEARCH SERVICES: - PROVIDE CONTRACT RESEARCH SERVICES IN CERTAIN SPECI FIC AREA (VIZ. AGRICULTURE AND AGRO CHEMICALS) FOR RESEARCH PROJEC TS INITIATED BY MTC; AND - UNDERTAKE (AT THE REQUEST OF MTC) SPECIAL STUDIES A ND MARKET RESEARCH ON PRODUCTS LAUNCHED BY MTC CONCERNING TH E NEW NEED OF THE INDIAN MARKET. CORPORATE SUPPORT SERVICES: - ASSIST MTC IN EXPANDING ITS BUSINESS PRESENCE IN IN DIA THROUGH SUBSIDIARIES / JVS; - UPDATE MTC WITH THE CHANGING REGULATORY SCENARIO W HICH INCLUDES IMPORT-EXPORT REGULATIONS FOREIGN DIRECT INVESTMEN T POLICY COMMERCIAL ISSUES ETC.; AND ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 3 - IDENTITY APPROPRIATE BUSINESS OPPORTUNITIES AND COM MUNICATE THE SAME TO MTC; MHPL PROVIDES CONTRACT RESEARCH AND SUPPORT SERVICE S TO MTC FROM A SEPARATE FACILITY SET-UP IN BANGALORE KNOWN AS MONS ANTO RESEARCH CENTER (MRC). THE RESEARCH PROJECT IS PRIMARILY INITIAT ED BY MTC. MHPL PROVIDES SUPPORT SERVICES TO MTC IN THE FIELD OF CROP TRANSF ORMATION AND CROP PROTECTION. THE SUPPORT AGREEMENT FURTHER PROVIDE S THAT MHPL SHOULD PROVIDE SUCH SUPPORT SERVICES TO MTC ON AN EXCLUSI VE BASIS AND THE RISK AND REWARDS OF THE RESEARCH WOULD BE EXCLUSIVELY OW NED BY MTC. DURING F.Y 2002-03 MHPL HAS RECEIVED A SERVICE FEE FROM M TC AGGREGATING TO RS. 12 97 50 895 FOR PROVIDING THE AFORESAID CORPORATE SUPPORT AND CONTRACT RESEARCH SERVICES. 5. IT IS NOT IN DISPUTE THAT THE TRANSACTION BETWEE N THE MHPL AND MTC BY WHICH MHPL PROVIDED CONTRACT RESEARCH SERVICES A ND CORPORATE SUPPORT SERVICES WAS AN INTERNATIONAL TRANSACTION BETWEEN T WO ASSOCIATED ENTERPRISES AND THEREFORE ANY INCOME ARISING OUT OF THE SAID TRANSACTION HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTI ON 92 OF THE INCOME TAX ACT 1961 HAVING REGARD TO THE ARMS LENGTH PRICE ( ALP). 6. MHPL HAD FILED A TRANSFER PRICING STUDY IN WHICH IT ADOPTED THE TNMM AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. OPERATING PROFIT (OPM) ON TOTAL COST HAS BEEN CONSIDERED AS THE RE LEVANT NET MARGIN FOR CONDUCTING THE COMPARABILITY ANALYSIS. THE OPM HAS BEEN WORKED OUT AS: NET MARGIN = OPERATING PROFIT / OPERATING COST *100 (OPERATING PROFIT = PROFIT BEFORE TAX + NON-OPERATING INCOME / EXPENSE) (OPERATING COST = TOTAL COST INTEREST NON-OPERA TING EXPENSES) 7. THE ASSESSEE GAVE OPERATIVE PROFIT MARGIN OF COM PARABLE COMPANIES WHICH IS AS FOLLOWS: ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 4 SR. NO. COMPANY NAME YEAR OPERATING INCOME OP EXPS. OP OP% 1. AMTRAC MANAGEMENT SERVICES. 31/3/2003 1 458 960 1 475 680 (16 720) - 1. 3% 2 DABUR RESEARCH FOUNDATION 31/3/2003 179 997 656 168 718 427 11 279 229 6.69% 3. HINDUJA GROUP INDIA LTD. 31/3/2003 48 002 686 48 455 982 2 059 326 4.25% 4. ICI INDIA RESEARCH & TECHNOLOGY CENTRE 31/3/2003 46 933 379 46 864 594 68 785 0.15% 5. MANU CONSULTANTS LTD. 31/3/2003 667 500 659 327 8 173 1.24% 6. RAPTAKOS BRETT TEST LABORATORIES LTD. 31/3/2003 8 987 642 8 336 961 650 681 7.80% AVERAGE 3.17% THE OPERATIVE MARGIN OF THE ASSESSEE WAS WORKED OUT AT 7.09% OF THE TOTAL COST. ACCORDING TO THE ASSESSEE THE OPERATIVE MARG IN WAS HIGHER THAN THE AVERAGE OPM OF COMPARABLE COMPANIES I.E. 3.17% AND ACCORDINGLY HAVING REGARD TO THE PROVISIONS OF SECTION 92(3) THE CONS IDERATION BEING RECEIVED BY MHPL FOR RENDERING SUPPORT SERVICES TO MTC MEETS WI TH THE ARMS LENGTH PRINCIPLE. THE ASSESSEE THUS CLAIMED THAT THE INTE RNATIONAL TRANSACTION WITH ITS AE WAS AT ARMS LENGTH PRICE AND THE SAME SHOULD BE ACCEPTED AS PROPER. 8. THE TRANSFER PRICING OFFICER (TPO) HOWEVER WAS OF THE VIEW THAT THE COMPARABLE CASES WHICH WERE REFERRED TO BY THE ASSE SSE IN ITS TRANSFER PRICING WERE NOT COMPARABLE FOR THE FOLLOWING REAS ONS: S.NO. NAME OF THE COMPANY REMARKS 1. AMTRAC MANAGEMENT SERVICES THIS COMPANY IS A SHARE TRANSFER AGENCY. ITS TOTAL REVENUES IS RS. 15 LAKHS DURING THE P.Y AS COMPARED TO RS. 14 LAKHS IN THE PRECEDING YEAR. IT APPEARS THAT THE SERVICES PROVIDED BY THIS COMPANY IS OF ROUTINE NATURE. 2. DABUR RESEARCH FOUNDATION THIS COMPANY IS ENGAGE D IN RESEARCH ACTIVITY. ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 5 3. HINDUJA GROUP INDIA LTD. THIS COMPANY IS ENGAGED IN PROVIDING CONSULTANCY AND ADVISORY SERVICES. HOWEVER THE NATURE OF SUCH CONSULTANCY IS NOT INDICATED ANYWHERE AND THE INFORMATION IN THE BALANCE SHEET IS VERY SKETCHY. 4. ICICI INDIA RESEARCH AND TECHNOLOGY SERVICES THIS COMPANY IS ENGAGED IN TECHNICAL RESEARCH ACTIVITY. THE DIRECTORS REPORT HAS NOT BEEN PROVIDED. HOWEVER FROM THE BALANCE SHEET IT IS EVIDENT THAT IT HAS ENTERED INTO RELATED PARTY TRANSACTION. IT APPEARS TO BE IN-HOUSE RESEARCH COMPANY PROVIDING RESEARCH TO ICICI INDIA LTD. 5. MANU CONSULTANTS LTD. THIS COMPANY HAS TOTAL CON SULTANCY INCOME OF RS. 1 40 000/- DURING THE YEAR. NO OTHER INFORMATION IS AVAILABLE SUCH AS DIRECTORS REPORT ETC. FROM WHICH ANY INFORMATION REGARDING THE NATURE OF ACTIVITY UNDERTAKEN BY THIS COMPANY COULD BE ASCERTAINED. 6. RAPTAKOS BRETT TESTS LABORATORIES LTD. THIS COMPANY IS AN INDUSTRIAL TEST LABORATORY. ACCORDING TO THE TPO FROM A PERUSAL OF ABOVE IT WAS EVIDENT THAT THE COMPANIES APPEARING AT SR.NO.1 3 AND 5 CANNOT BE R EGARDED AS COMPARABLE TO THE ASSESSEES CONTRACT RESEARCH ACTIVITY. THE L EVEL OF ACTIVITY IN THE CASE OF SR.NO.1 AND 5 ACCORDING TO THE TPO WAS VERY LOW. IN THE CASE OF COMPANY AT SR.NO.4 THE ENTIRE SERVICES ARE RENDERED TO ITS GR OUP COMPANIES. IN CASE OF SR.NO.3 THE INFORMATION AVAILABLE WAS EXTREMELY SK ETCHY AND IT WAS NOT CLEAR WHAT KINDS OF CONSULTANCY SERVICES ARE PROVIDED. AC CORDING TO THE AO BARRING CASES AT SR.NO. 2 & 6 THE OTHER COMPARABLE ENTITIES CANNOT BE CONSIDERED TO BE COMPARABLE TO THE FUNCTIONS PERFOR MED BY THE ASSESSEE IN ITS CONTRACT RESEARCH ACTIVITY. THE TPO THEREFORE E XAMINED DATABASE TO IDENTIFY WHETHER MERE CLOSELY COMPARABLE CASES COUL D BE IDENTIFIED. THE TPO THEREFORE EXAMINED COMPANIES ENGAGED IN SERVICES SU CH AS CONSULTANCY BUSINESS CONSULTANCY GENERAL SERVICES TECHNICAL A ND ENGINEERING CONSULTANCY AND CONTRACT RESEARCH WERE EXAMINED IN PROWESS AND APITALINE DATABASE AND ON THE BASIS OF THE SAME IDENTIFIED THE FOLLOWING FOUR COMPANIES. THE COMPANIES ALONGWITH THEIR BUSIN ESS ACTIVITIES WAS AS FOLLOWS ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 6 (I) ALPHA GEO INDIA LTD. : THIS COMPANY WAS ENGAGED IN ANALYSIS OF DATA RELATING TO SEISMIC FOR OIL COMPANIES (II) VIMTA LABS LTD. : THEY ARE ENGAGED IN PROVIDI NG INSPECTING TESTING AND ANALYSIS SERVICES IN CONNECTION WITH WATER FOOD D RUG CHEMICAL PETRO PRODUCTS MINERAL & WATER AND CONTRACT RESEARCH (III) CHOKSHI LABORATORIES LTD.: THE COMPANY WAS A COMMERCIAL TESTING HOUSE ENGAGED IN TESTING OF VARIOUS PRODUCTS AND OF FERS SERVICES IN THE FIELD OF POLLUTION CONTROL. (IV) SYNGENE INTERNATIONAL PVT. LTD.: THIS COMPANY WAS FORMED FOR PROVIDING CONTRACT RESEARCH SERVICES TO OVERSEAS CUSTOMERS IN THE FIELD OF SYNTHETIC CHEMISTRY AND MOLECULAR BIOLOGY. 9. THE ASSESSEE SUBMITTED BEFORE THE TPO THAT THE C OMPARABLE CASES IDENTIFIED BY THE TPO ARE NOT ENGAGED IN SIMILAR AC TIVITIES AS THAT OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE SERVIC ES PROVIDED BY THE COMPARABLE CASES IDENTIFIED BY THE TPO WERE HIGH EN D SERVICES WHEREAS THE SERVICES PERFORMED BY THE ASSESSEE WERE IN THE NATU RE OF LOW END SERVICES. IT WAS ALSO SUBMITTED THAT TWO OF THE COMPARABLE CO MPANIES IDENTIFIED BY THE TPO NAMELY VIMTA LABS LTD. & SYNGENE INTERNATIONA L PVT. LTD. HAD ENGAGED IN TRANSACTIONS WITH RELATED PARTIES AND WERE THER EFORE NOT COMPARABLE. IT WAS FURTHER SUBMITTED THAT THE ASSETS EMPLOYED BY V IMTA LABS LTD.AND ALPHA GEO LTD. WERE MUCH MORE THAN THE ASSETS EMPLO YED BY THE ASSESSEE. IT WAS ALSO POINTED OUT THAT THE COMPARABLE CASES I DENTIFIED BY THE TPO PERFORMED MARKETING FUNCTIONS ALSO AND THEY HAD TO BE FACE RISK OF BAD DEBTS WHEREAS THE ASSESSEE DOES NOT PERFORM MARKETING FUN CTIONS OR ASSUMED RISK FOR BAD DEBTS. ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 7 10. THE TPO HOWEVER WAS OF THE VIEW THAT THE OBJEC TIONS RAISED BY THE ASSESSEE CANNOT BE ACCEPTED. THE TPO HOWEVER WAS OF THE VIEW THAT THE NATURE OF ACTIVITIES PERFORMED BY THE COMPARABLE CA SES IDENTIFIED BY HER WAS SAME AS THAT OF THE ASSESSEE. THE TPO ALSO HELD TH AT SOME OF THE COMPANIES IDENTIFIED BY THE ASSESSEE ALSO ASSUMED RISK OF BAD DEBTS. WITH REGARD TO COMPANIES IDENTIFIED AS COMPARABLE BY THE TPO HAVIN G RELATED PARTY TRANSACTIONS THE TPO HELD THAT SUCH RELATED TRANSA CTIONS WERE NOT WITH GROUP COMPANIES BUT WERE ONLY ON ACCOUNT OF KEY MAN AGEMENT PERSONNEL BEING ONE AND THE SAME PERSONS. WITH REGARD TO THE OBJECTIONS REGARDING CAPITAL EMPLOYED BY THE COMPANIES IDENTIFIED BY THE TPO BEING THE SAME THE TPO HELD THAT EVEN THE COMPARABLE COMPANIES IDENTIF IED BY THE ASSESSEE EMPLOYED HUGE CAPITAL. SIMILAR FINDING WAS GIVEN W ITH REGARD TO THE PERFORMING OF MARKETING FUNCTIONS BY THE COMPARABLE COMPANIES IDENTIFIED BY THE TPO. WITH REGARD TO THE OBJECTION THAT THE ASSESSEE WAS PERFORMING LOW END SERVICES THE TPO HELD AS FOLLOWS: (A) THE ASSESSEE EMPLOYED 50 EMPLOYEES CONSISTING O F PERSONS HAVING BACHELOR AND MASTERS DEGREE AND SOME ARE PH.DS. TH ERE ARE SUPPORT STAFFS. (B) THE ASSESSEE USED LAB EQUIPMENT AND COMPUTERS T O PERFORM THESE FUNCTIONS. (C) THE ASSESSEE CARRIED OUT EFFICACY STUDIES OF TH E SEEDS UNDER DIFFERENT CLIMATIC AND SOIL CONDITION FERTILITY AN ALYSIS ETC. TO COMPLY WITH THE REQUIREMENT OF REGULATORY BODIES (D) PROVIDING SUPPORT FOR OBTAINING APPROVAL FOR CO MMERCIALIZATION OF HYBRID SEEDS OF MONSANTO (E)ANALYSIS OF HYBRID SEEDS TO ASCERTAIN PESTS RESI STANT. THE ASSESSEE ALSO OUTSOURCED SOME OF THESE STUDIES (F) DISCOVERY OF GENE AND ITS EVALUATION (G) LABORATORY TESTING OF GENES STUDYING GENE EXPR ESSION ON A CROP AND WHETHER SEEDS OF SUCH CROP CONTAINED GENE AS PE R REQUIREMENT. ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 8 (H) ASSESSEE HAS A 25 000 SQ.FT. LAB SPACE AND 10 0 00 SQ. FT. OF GREEN HOUSE SPACE. PT HAS ALSO HAS A WELL STOCKED LIBRARY OF TECHNICAL JOURNAL AND RESEARCH REPORTS. FOR THE ABOVE REASONS THE TPO HELD THAT THE TYPE O F SERVICES RENDERED BY THE ASSESSEE WAS MORE COMPARABLE TO THE TYPE OF SERVICE S RENDERED BY THE COMPARABLES IDENTIFIED BY HER. THEREAFTER THE TPO W ORKED OUT THE ARITHMETIC MEAN OF THE FOUR COMPANIES IDENTIFIED BY HER AND AL SO SIX COMPANIES IDENTIFIED BY THE ASSESSEE AND ARRIVED AT 18.22%. THIS WAS LATER RECTIFIED AS THERE WERE APPARENT MISTAKES IN SUCH CALCULATION TO 16.28%. AN ADDITION ON ACCOUNT OF ADJUSTMENT TO ALP WAS DETERMINED BY THE TPO AS FOLLOWS: PARTICULARS AS PER REVISED CALCULATION. REVENUE FROM SUPPORT SERVICES INCLUDING CONTRACT RESEARCH SERVICES. 129 750 895 PROFIT FROM THE ABOVE ACTIVITY 8 594 456 COST OF THE ABOVE ACTIVITY 121 156 439 PROFIT MARKUP ON COST 7.09% ARMS LENGTH PROFIT MARK UP 16.28% ARMS LENGTH PROFIT (RS.) 19 719 483 ARMS LENGTH PRICE (RS.) 140 875 922 DIFFERENCE BETWEEN TRANSACTION VALUE AND ARMS LENGTH PRICE (ADJUSTMENT VALUE) 11 125 027 THE SAME WAS ADOPTED BY THE AO AND A SUM OF RS.1 11 25 027 WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY THE AO IN THE O RDER OF ASSESSMENT. 11. AGGRIEVED BY THE ORDER OF THE AO THE ASSES SEE FILED APPEAL BEFORE THE CIT(A). THE SUBMISSIONS AS WERE MADE BEFORE THE AO WERE REITERATED BEFORE THE CIT(A). IN PARTICULAR THE FOLLOWING ASPECTS WE RE HIGHLIGHTED: ASSESSEE PERFORMS LOW END SERVICES: A COMPARATIVE SUMMARY OF THE FUNCTIONS PERFORMED BY THE ASSESSEE AND ITS AE IN R ELATION TO THE RESEARCH ACTIVITY WAS PROVIDED IN THE FORM OF A TABLE GIVEN BELOW: ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 9 FUNCTIONS THE APPELLANT MONSANTO USA DETERMINING OVERALL CONCEPT DIRECTION AND METHODO LOGY FOR RESEARCH NO YES TRACKING AND SCREENING GENETIC DATABASES AND COLLAT ING INFORMATION FOR IDENTIFYING POTENTIAL GENE TRAITS YES NO PRELIMINARY STUDY OF GENE CONFIGURATIONS FOR TRACKI NG DESIRED CHARACTERISTICS YES NO IDENTIFYING LEADS AND DECISION TO CONDUCT FURTHER I NVESTIGATION NO YES FIELD TRIALS AND SELECTION OF POTENTIAL PRODUCTS FO R COMMERCIALIZATION ADVANCED DEVELOPMENT OF THE HYBRID! VARIETY AND DEM ONSTRATE EFFICACY OF TRAIT NO YES DEVELOPMENT OF DATA / DOCUMENTATION FOR SEEKING AP PROVAL NO YES SEEK LOCAL GOVERNMENT] REGULATORY APPROVALS AND RES POND TO LOCAL REGULATORY PROCEDURES YES NO DEVELOP PLANS FOR PRODUCT COMMERCIALIZATION / LAUNC H NO YES MARKETING / SALES FUNCTION NO YES IT WAS CONTENDED THAT THE ASSESSEES ACTIVITIES (RE SEARCH SUPPORT SERVICES) WERE CONFINED TO LOW-END ROUTINE WORK NOT INVOLVIN G USE OF ANY SIGNIFICANT ASSETS OR INTELLECTUAL CAPITAL OR UNDERTAKING OF AN Y ENTREPRENEURIAL RISK. IT WAS HIGHLIGHTED THAT THE ASSESSEES RESEARCH WORK W AS NEGLIGIBLE IN COMPARISON TO THE GLOBAL R&D ACTIVITY OF ITS AE (VI Z ITS PARENT COMPANY MONSANTO USA). RISKS ASSUMED BY THE ASSESSEE: THE ASSESSEE SUBMITTED THAT IT IS A RISK FREE SERVICE PROVIDER. IN THIS REGARD THE ASSESSE E POINTED OUT THE RISK ASSUMED BY IT IN THE MATTER OF PROVIDING CONTRACT M ARKET RESEARCH SERVICES IN THE FORM OF THE FOLLOWING CHART: ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 10 RISK THE APPELLANT MONSANTO USA MARKET RISK NO YES RESEARCH RISK NO YES PRICE/ MARGIN RISK (DUE TO COST OVERRUNS ETC.) NO YES BAD DEBT RISK NO YES THIRD PARTY LIABILITY RISK IN RELATION TO RESEARCH RESULTS. NO YES IN THE LIGHT OF THE ABOVE DESCRIPTION OF THE RISK A SSUMED AND FUNCTIONS PERFORMED BY THE ASSESSEE IN RESPECT OF THE INTERNA TIONAL TRANSACTION THE ASSESSEE GAVE A DESCRIPTION OF THE NATURE OF FUNCTI ONS AND RISKS ASSUMED BY THE FOUR COMPANIES CHOSEN AS COMPARABLE BY THE TPO. A COMPARATIVE ANALYSIS OF THE ACTIVITIES OF THE SAID ADDITIONAL C OMPANIES ( BASED ON INFORMATION AVAILABLE IN THE ANNUAL ACCOUNTS AND OF FICIAL WEBSITES OF THE COMPANIES) VIS--VIS THE ACTIVITY OF THE ASSESSEE WAS GIVEN BY THE ASSESSEE IN THE FORM OF THE FOLLOWING TABLE: S.NO. NAME OF COMPANY ACTIVITY OF IDENTIFIED COMPAN Y THE ASSESSEES ACTIVITY 1. ALPHAGEO (INDIA) LTD. - ACQUIRING AND PROCESSING SEISMIC DATA - PROVIDES SEISMIC SURVEY SERVICES TO OIL COMPANIES AND GOVERNMENT IN RELATION TO OIL EXPLORATION PROJECTS. PROVISION OF RESEARCH SUPPORT AND FACILITATION SERVICES. 2. CHOKSI LABORATORIES - ANALYTICAL TESTING OF BUILDING MATERIALS DRUGS FOOD WATER ETC. 3. SYNGENE INTERNATIONAL PVT. LTD. - RESEARCH IN THE FIELD OF SYNTHETIC CHEMISTRY AND MOLECULAR BIOLOGY. - SALE OF PRODUCTS ARISING FROM RESEARCH ACTIVITY. 4. VIMTA LABS LTD. - CLINICAL TRAILS - ENVIRONMENTAL MONITORING AND IMPACT ASSESSMENT. - ANALYTICAL TESTING OF A WIDE VARIETY OF CONSUMER PRODUCTS. IT WAS FIRSTLY SUBMITTED THAT THE FOUR COMPANIES CH OSEN BY THE TPO AS COMPARABLE ARE NOT ENGAGED IN THE SAME/SIMILAR ACTI VITY AS THE ASSESSEE THE ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 11 ASSESSEE DID ONLY SUPPORT IN THE FIELD OF RESEARCH WITHOUT ASSUMING ANY RISK. IT WAS SUBMITTED THAT THE FOUR COMPARABLE COMPANIES CHOSEN BY THE TPO WERE NOT RISK FREE SERVICE PROVIDERS BUT PERFORM MA RKETING FUNCTION ASSUME ENTREPRENEURIAL RISKS AND MAKE SUBSTANTIAL INVESTME NTS IN ASSETS. THE FOLLOWING CHART WAS FILED BY THE ASSESSEE: PARTICULARS ALPHA GEO CHOKSI SYNGENE VIMTA LABS THE ASSESSEE NATURE OF ACTIVITY WHETHER COMPARABLE T O THE ASSESSEE NOT COMPARABLE NOT COMPARABLE NOT COMPARABLE NOT COMPARABLE RESEARCH SUPPORT. LEVEL OF ACTIVITY HIGH-END HIGH-END HIGH-END HIGH-E ND LOW-END RELATED PARTY / CONTROLLED TRANSACTIONS YES (RS. 0.42 CR. AMOUNTING TO 4.27% OF SALES) NO YES (TRANSACTIONS WITH HOLDING COMPANY BIOCON LTD.) NO TRANSACTION UNDER CONSIDERATION RELATIVELY HIGHER INVESTMENT IN TOTAL ASSETS RATIO OF COSTS TO ASSETS YES 0.46 YES YES 1.02 YES 0.91 NO 2.46 MARKETING / SALES FUNCTION YES YES YES YES NO BAD DEBT RISK YES YES YES YES NO PRICE / MARGIN RISK YES YES YES YES NO BUSINESS RISK YES YES YES YES NO YES - INDICATE EXISTENCE OF SPECIFIED FUNCTIONS/ASS ETS/RISK NO - INDICATE ABSENCE OF SPECIFIED FUNCTIONS/ASSET S/RISK 12. WITHOUT PREJUDICE TO THE ASSESSEES CONTENTION THAT THE FOUR ADDITIONAL COMPANIES IDENTIFIED BY THE LEARNED TPO SHOULD NOT BE CONSIDERED AS COMPARABLE IT WAS SUBMITTED THAT THE LEARNED TPO S HOULD HAVE ALSO INCLUDED OTHER SIMILAR INSTANCES EXISTING IN THE DA TABASE AT THE TIME OF ASSESSMENT PROCEEDINGS AS COMPARABLE WHICH ARE ALS O ENGAGED IN THE ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 12 SAME/ SIMILAR ACTIVITY AS THE FOUR ADDITIONAL COMPA NIES SELECTED BY THE TPO VIZ. : 1. CLINGENE INTERNATIONAL PRIVATE LIMITED 2. PANACEA BIOTEC LIMITED. (RESEARCH AND DEVELOPME NT SEGMENT) 3. I D C (INDIA) LIMITED 4. CRISIL LIMITED (INFORMATION SEGMENT PERTAINING TO THE COMPANYS RESEARCH ACTIVITY) 5. ICRA LIMITED (INFORMATION SEGMENT PERTAINING T O THE COMPANYS RESEARCH ACTIVITY) 13. IT WAS BROUGHT TO THE NOTICE OF THE LEARNED CI T(A) THAT THE ASSESSEE HAD SUBMITTED BEFORE THE AO VIDE LETTER DATED MARCH 24 2006 REQUESTING THE LEARNED AO TO INCLUDE CLINGENE INTERNATIONAL PVT. L TD. AS A COMPARABLE (ALONG WITH OTHER COMPANIES CONSIDERED IN THE TPOS ORDER) FOR BENCHMARKING THE ASSESSEES INTERNATIONAL TRANSACTI ON. IT WAS POINTED OUT THAT AS PER THE ANNUAL REPORT OF CLINGENE INTERNATI ONAL PVT. LTD. FOR FY 2002- 03 THE SAID COMPANY WAS ENGAGED IN SIMILAR ACTIVITY AS SYNGENE INTERNATIONAL PVT. LTD. ONE OF THE COMPANIES CONSIDERED BY THE LEARNED TPO AS COMPARABLE. IT WAS HIGHLIGHTED THAT THE OPER ATING PROFIT MARGIN OF CLINGENE WAS (-) 33.97% OF ITS OPERATING COST. THUS IT WAS PRAYED THAT IF SYNGENE IS CONSIDERED AS COMPARABLE THEN EVEN CLIN GENE INTERNATIONAL PVT. LTD. OUGHT TO HAVE BEEN INCLUDED AS A COMPARABLE IN DETERMINING THE ARMS LENGTH PRICE. AFTER INCLUDING CLINGENE INTERNATION AL PVT. LTD. AS COMPARABLE (ALONGWITH THE CORRECT PROFIT MARGINS OF THE TEN CO MPANIES CONSIDERED BY THE LEARNED TPO IN ORDER DATED MARCH 20 2006) THE ARI THMETIC MEAN OF THE PROFIT MARGINS OF ALL ELEVEN COMPANIES WOULD STAND REDUCED TO 11.71%. SINCE THE PROFIT MARGIN FROM THE ASSESSEES CONTRACT RESE ARCH AND SUPPORT SERVICES ACTIVITY WAS 7.08% ON COST THE TRANSACTION VALUE T HE ASSSESSEES INTERNATIONAL TRANSACTION MEETS WITH THE ARMS LENG TH PRINCIPLE BY APPLYING ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 13 THE SAFE HARBOR RULE ENSHRINED IN THE SECOND PROVIS O BELOW SECTION 92C(2) OF THE ACT WHICH PROVIDES THAT IF THE VARIATION BETWEE N THE ARMS LENGTH PRICE DETERMINED BY THE TPO AND PRICE AT WHICH THE INTERN ATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN BY THE ASSESSEE DOES NOT E XCEED FIVE PER CENT OF THE LATTER THE PRICE AT WHICH THE INTERNATIONAL TR ANSACTION HAS ACTUALLY BEEN UNDERTAKEN SHALL BE DEEMED TO BE THE ARMS LENGTH P RICE. THE FOLLOWING CHART WOULD EXPLAIN THE CONTENTION PUT FORTH BY THE ASSESSEE: SL.NO. COMPANY NAME YEAR OP% 1. AMTRAC MANAGEMENT SERVICES LTD. 31.3.2003 - 1.13% 2. DABUR RESEARCH FOUNDATION 31.3.2003 6.69% 3. HINDUJA GROUP INDIA LTD. 31.3.2003 4.25% 4. ICI INDIA RESEARCH & TECHNOLOGY CENTRE 31.3.2003 0.15% 5. MANU CONSULTANTS LTD. 31.3.2003 1.24% 6. RAPTAKOS BRETT TEST LABORATORIES LTD. 31.3.2003 7.80% 7. VIMTA LABS LTD. 31.3.2003 26.08% 8. ALPHAGEO (INDIA) LTD. 31.3.2003 37.28% 9. SYNGENE INTERNATIONAL PVT.LTD. 31.3.2003 46.51% 10. CHOKSI LABORATORIES LTD. 31.3.2003 33.36% 11. CLINGENE INTERNATIONAL PVT.LTD. 31.3.2003 -33.97% ------------ ARITHMETICAL MEAN 11.71% ------------ CALCULATION OF ARMS LENGTH PRICE BASED ON THE ABOV E: PARTICULARS RS. REVENUE FROM CONTRACT RESEARCH 12 97 50 895 PROFIT FROM CONTRACT RESEARCH SUPPORT 85 94 456 COST OF CONTRACT RESEARCH SUPPORT 12 11 56 439 PROFIT MARKUP ON COST 7.09% ARMS LENGTH PROFIT MARK UP 11.71% ARMS LENGTH PROFIT 1 41 84 851 ARMSS LENGTH PRICE 13 53 41 290 DIFFERENCE BETWEEN THE TRANSACTION VALUE AND ARMS LENGTH PRICE 55 90 395 95% OF ARMS LENGTH PRICE 12 85 74 225 ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 14 SINCE THE TRANSACTION VALUE FALLS WITHIN 5% RANGE THE ASSESSEES PRICE SHOULD BE ACCEPTED AS AT ARMS LENGTH. 14. WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS AND IN THE ALTERNATIVE THE ASSESSEE POINTED OUT THAT IN TERMS OF RULE 10B(1)(E )(I) OF THE RULES THE TNMM CAN BE APPLIED BY TAKING THREE CRITERIA VIZ. THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TR ANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE CAN BE COMPUTED IN RELATIO N TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE. THE ASSE SSEE POINT OUT THAT IF COST TO ASSET RATIO IS TAKEN IN RESPECT OF THE COMPANIES IDENTIFIED BY IT AND THAT IDENTIFIED BY THE TPO THE ASSESSEES COST TO ASSET RATIO IS MUCH HIGHER. THE FOLLOWING CHARTS WERE GIVEN TO DEMONSTRATE THE ABOV E PROPOSITION: CHART-1: RATIO OF OPERATING COSTS TO ASSETS OF THE COMPARABLE COMPANIES IDENTIFIED BY THE ASSESSEE: NAME OF THE COMPANY OPERATING COST/ASSETS AMTRAC MANAGEMENT SERVICES LTD. 0.57 DABUR RESEARCH FOUNDATION 1.47 HINDUJA GROUP INDIA LTD. 1.10 ICI INDIA RESEARCH & TECHNOLOGY CENTRE 1.13 MANU CONSULTANTS LTD. 1.05 RAPTAKOS BRETT TEST LABORATORIES LTD. 1.16 --------------------- ARITHMETIC MEAN 1.08 THE ASSESSEES OPERATING COST TO ASSET 2.46 CHART-2: RATIO OF OPERATING COSTS TO ASSETS OF THE 4 COMPARABLE COMPANIES IDENTIFIED BY THE TPO: NAME OF THE COMPANY OPERATING COST/ASSETS ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 15 ALPHA GEO LTD. 0.46 VIMTA LABORATORIES 0.91 CHOKSI LABORATORIES LTD. 0.35 SYNGENE INTERNATIONAL PVT.LTD. 1.02 --------------------- ARITHMETIC MEAN 0.69 THE ASSESSEES OPERATING COST TO ASSET 2.46 15. FINALLY IT WAS SUBMITTED THAT EVEN IF ALL CONT ENTIONS OF THE ASSESSEE ARE REJECTED AND IT IS HELD THAT THE COMPARABLE IDENTIF IED BY THE TPO ARE COMPARABLE WITH THAT OF THE ASSESSEE FUNCTIONALLY EVEN THEN IN TERMS OF RULE 10B(3) OF THE RULES ADJUSTMENTS TO THE PROFIT MARGIN OF THE COMPARABLES HAVE TO BE MADE TO ELIMINATE THE EFFECT S OF DIFFERENCES IN FUNCTIONS ASETS AND RISKS. 16. THE CIT(A) AFTER CONSIDERING THE ABOVE SUBMISS IONS ON BEHALF OF THE ASSESSEE HELD AS FOLLOWS: A) THE ASSESSEE WAS A LOW END SERVICE PROVIDED FOR ITS AE AND ITS ROLE WAS LIMITED TO PROVIDING SUPPORT SERVICES IN RELATI ON TO THE RESEARCH ACTIVITIES OF THE ASSOCIATED ENTERPRISES. THE ASSE SSEE WAS NOT TAKING ANY BUSINESS RISK LIKE CONTRACT RISK MARKET RISK WARR ANTY RISK PRICE RISK ETC. WHICH WERE BORNE BY THE ASSOCIATE ENTERPRISE. THE INTELLECTUAL PROPERTY RIGHT (IPR) WAS OWNED BY THE AE AND NOT TH E ASSESSEE. THE ASSESSEE ONLY DEPLOYED NECESSARY HUMAN RESOURCES AN D INFRASTRUCTURE FOR RESEARCH. THE ABOVE CHARACTERISTICS OF THE INT ERNATIONAL TRANSACTION OF THE ASSESSEE WERE NOT KEPT IN MIND WHILE MAKING FUN CTIONAL COMPARISON WITH THOSE SELECTED BY THE TPO. B) THE TP STUDY DONE BY THE ASSESSEE WAS IN ACCORD ANCE WITH THE ACT AND THE RULES AND CONFIRMED TO THE OECD GUIDELINES. THOUGH IDENTICAL TRANSACTION COULD NOT BE LOCATED EVEN BY THE ASSESS EE AN ATTEMPT WAS MADE TO FIND OUT COMPARABLE TRANSACTIONS AS CLOSE A S POSSIBLE TO THE ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 16 CONTROLLED TRANSACTION. THIS ACCORDING TO CIT(A) W AS EVIDENT FROM THE FACT THAT EVEN THE TPO DID NOT REJECT THE COMPARABLE IDE NTIFIED BY THE ASSESSEE. C) THE CIT(A) ALSO HELD THAT SYNGENE INTERNATIONAL PVT. LTD. AND CLINGENE INTERNATIONAL PVT. LTD. WERE BOTH SUBSIDIARY COMPAN IES OF BIOCON LTD. ENGAGED IN IDENTICAL BUSINESS AND THE TPO ARBITRARI LY SELECTED SYNGENE INTERNATIONAL PVT. LTD. AS COMPARABLE AND IGNORED C LINGENE INTERNATIONAL PVT. LTD. AS COMPARABLE. THE CIT(A) HELD THAT HAD CLINGENE INTERNATIONAL PVT. LTD. BEEN CONSIDERED AS COMPARABLE THEN THE AR ITHMETIC MEAN WOULD OF ALL COMPARABLES SELECTED BY THE TPO AND THE ASSE SSEE WOULD BE ONLY 11.71% AND APPLYING THE SAFE HARBOUR RULES IN TERMS OF SECOND PROVISO BELOW SEC.92C(2) OF THE ACT THE DIFFERENCE IN PRIC E BETWEEN THE ONE ADOPTED BY THE ASSESSEE AND THE ALP DETERMINED BY I NCLUDING CLINGENE INTERNATIONAL PVT. LTD. WOULD BE WITHIN + OR 5% R ANGE CALLING FOR NO ADJUSTMENT TO THE PRICE ADOPTED BY THE ASSESSEE IN RESPECT OF THE INTERNATIONAL TRANSACTION. FOR THE ABOVE REASONS THE CIT(A) DELETED THE ADDIT ION MADE BY THE AO. 17. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVE NUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED D.R. AND THE LEARNED COUNSEL FOR THE ASSESS EE. 18. THE LEARNED D.R. SUBMITTED THAT THE FINDINGS O F THE CIT(A) THAT THE TPO DID NOT TAKE INTO ACCOUNT THE FUNCTIONAL DISSIMILAR ITY BETWEEN THE COMPARABLE CASES RELIED BY THE ASSESSEE AND THE COM PARABLE CASES IDENTIFIED BY THE TPO ON HER OWN STUDY IS NOT CORRECT. IT WA S SUBMITTED BY HER THAT THE FURTHER FINDING OF THE CIT(A) THAT THE ASSESSEE WAS PERFORMING LOW END SERVICES IS ALSO NOT CORRECT. IN THIS REGARD THE A SSESSEE POINTED OUT TO THE FINDINGS OF THE TPO IN HER ORDER AS TO HOW THE FUNC TIONS PERFORMED BY THE ASSESSEE WERE HIGH END. IT WAS ALSO SUBMITTED BY H ER THAT THE PROCESS OF ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 17 SELECTION OF COMPARABLE AS ADOPTED BY THE ASSESSEE AS WELL AS THE TPO WERE IDENTICAL VIZ. SELECTION OF DATA FROM PROWESS AN D CAPITALLINE KEEPING IN MIND THE NATURE OF SERVICE RENDERED BY THE ASSESSEE TO ITS AE VIZ. CONTRACT RESEARCH AND CORPORATE SUPPORT SERVICES. IT WAS H ER SUBMISSION THAT THERE IS ALWAYS AN ELEMENT OF SUBJECTIVITY IN THE PROCESS OF SELECTION OF COMPARABLE ON THE BASIS OF FUNCTIONAL SIMILARITY. IT HAS TO B E SEEN TO WHAT EXTENT THE COMPARABLE FUNCTIONAL SIMILARITY ADOPTED BY THE TPO IS ARBITRARY. IT WAS HER SUBMISSION THAT THE TPO IN THE PRESENT CASE HAS GIV EN VALID REASONS FOR CHOOSING 4 ADDITIONAL COMPANIES AS COMPARABLE WITH THAT OF THE BUSINESS OF THE ASSESSEE BASED ON FUNCTIONS PERFORMED. IT WAS HER SUBMISSION THAT NEITHER THE CIT(A) NOR THE ASSESSEE HAS BEEN ABLE T O SHOW TO WHAT EXTENT THE ACTION OF THE TPO IS ARBITRARY. 19. HER FURTHER CONTENTION WAS THAT THE FINDINGS O F THE CIT(A) THAT THE TPO ARBITRARY DID NOT CHOOSE CLINGENE INTERNATIONAL PVT . LTD. AS A COMPARABLE COMPANY IS NOT CORRECT. IN THIS REGARD IT WAS SUBM ITTED BY HER THAT DATA RELATING TO CLINGENE INTERNATIONAL PVT. LTD. WAS N OT BROUGHT TO THE NOTICE OF THE TPO AT ALL. OUR ATTENTION WAS DRAWN TO THE FAC T THAT THE DATA RELATING TO CLINGENE INTERNATIONAL PVT. LTD. WAS BROUGHT TO TH E NOTICE OF THE AO BY ASSESSEES LETTER DATED 24.3.2006. THE TPOS ORDER WAS PASSED ON 20.3.2006. IT WAS THEREFORE SUBMITTED THAT THE TPO HAD NOT ACTED ARBITRARILY IN NOT CONSIDERING CLINGENE INTERNATIONAL PVT. LTD. AS COMPARABLE. WITHOUT PREJUDICE TO THE ABOVE CONTENTION IT WAS HER SUBMI SSION THAT THOUGH FUNCTIONALLY CLINGENE INTERNATIONAL PVT. LTD. CAN BE CONSIDERED AS COMPARABLE TO THE FUNCTIONS PERFORMED BY THE ASSESS EE AS IT WAS ALSO ENGAGED IN CONTRACT RESEARCH OF DRUGS YET THE RESU LTS OF CLINGENE INTERNATIONAL PVT. LTD. FOR THE FINANCIAL YEAR END ING 31.3.2005 CANNOT BE TAKEN FOR COMPARISON FOR THE REASON THAT THE SAID C OMPANY INCURRED LOSS DUE TO THE FOLLOWING REASONS AS STATED IN THE DIRECTORS REPORT: ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 18 FOR THE FINANCIAL YEAR THE COMPANY HAS INCURRED A LOSS OF RS.5.56 MILLION AS AGAINST A PROFIT OF RS.8.4 MILLION IN TH E PREVIOUS YEAR. THIS IS DUE TO THE COMPLETION OF THE DIABETES STUDY FOR SUR ROMED INC. AND THE CONTINUATION OF THE SELF-SPONSORED DIABETIC STUDY. THIS STUDY HAS ENROLLED TWO RESEARCH PARTNERS VIZ. STRAND GENOMIC S AND IISC AND THE PROGRESS HAS GENERATED SEVERAL POTENTIALLY HIGH VAL UE PATENTS FOR CLINGENE INTERNATIONAL PVT. LTD.IN THE AREA OF NEW BIOMARKER FOR DIABETIC NEPHROLOGY. THE COMPANY IS ALSO IN THE PROCESS OF SETTING UP A HUMAN PHARMACOLOGY UNIT TO CARRY OUT PHAST-1 TO PHASE-3 C LINICAL TRIAL AND BAVBE STUDIES. NECESSARY APPLICATION FOR ESTABLISH MENT OF THE SAME HAVE BEEN FILED AND THE FACILITY IS EXPECTED TO BE OPERATIONAL BY SEPTEMBER 2003. BASED ON THE ABOVE REMARKS OF THE DIRECTORS THE LEA RNED D.R. SUBMITTED THAT FIRSTLY CLINGENE INTERNATIONAL PVT. LTD. WAS DOING ITS OWN RESEARCH AND HAD SUFFERED LOSS DURING THE PREVIOUS YEAR DUE TO SELF SPONSORED RESEARCH AND THEREFORE FUNCTIONALLY IT SHOULD NOT BE REGARDED AS COMPARABLE OR IN THE ALTERNATIVE SUITABLE ADJUSTMENT OUGHT TO BE MADE TO THE RESULT OF LOSS BEFORE BENCHMARKING THE SAME AS COMPARABLE. 20. IT WAS ALSO SUBMITTED BY HER THAT THE CIT(A) H AS NOT CONSIDERED THE COMPARABILITY FACTOR OF THE 4 COMPARABLE IDENTIFIED BY THE TPO ON HIS OWN BUT HAS ONLY HELD THAT THE SAME ARE NOT COMPARABLE WITHOUT ASSIGNING HIS OWN REASONS. 21. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATE D SUBMISSIONS AS WERE MADE BEFORE THE CIT(A). WITH REGARD TO CLINGENE IN TERNATIONAL PVT. LTD. IT WAS SUBMITTED BY HIM THAT THEY WERE IN THE BUSINESS OF UNDERTAKING CONTRACT RESEARCH FOR OTHERS AND THEIR RESULTS WERE COMPARABLE WITH THAT OF THE ASSESSEE. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE BEFORE US THAT THE TNMM IS THE MOST APPROPRIATE METHOD FOR DE TERMINING THE ALP OF THE INTERNATIONAL TRANSACTION. THE DISPUTES ARE WI TH REGARD TO THE ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 19 COMPARABILITY OF THE COMPARABLE RELIED UPON BY THE TPO THE NATURE OF SERVICES PERFORMED BY THE ASSESSEE WHETHER IT IS LO W END OR HIGH END SERVICE AND WHETHER THE TPO WAS JUSTIFIED IN REJECTING ONE OF THE COMPARABLE COMPANIES IDENTIFIED BY THE ASSESSEE VIZ. CLINGEN E INTERNATIONAL PVT.LTD. AND IN THE EVENT OF THE SAME BEING CONSIDERED ALONG WITH THE OTHER COMPARABLE INSTANCES RELIED BY TPO THE DIFFERENCE B ETWEEN ALP AND THE PRICE ADOPTED BY THE ASSESSEE WOULD BE LESS THAN 5% PLUS OR MINUS CONTEMPLATED BY THE SECOND PROVISO TO SEC.92C(2) OF THE ACT AND CONSEQUENTLY THERE WOULD BE NO NEED TO MAKE ANY ADJUSTMENT TO THE PRICE ADOP TED BY THE ASSESSEE IN RESPECT OF THE INTERNATIONAL TRANSACTION ENTERED IN TO WITH ITS AE. IN THIS REGARD THE RELEVANT PROVISIONS OF THE ACT HAVE TO B E NOTICED. COMPUTATION OF ARMS LENGTH PRICE . 92C. (1) THE ARMS LENGTH PRICE IN RELATION TO AN INTERN ATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS BEING THE MOST APPROPRIATE METHOD HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCT IONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE 24 NAMELY : ( A ) COMPARABLE UNCONTROLLED PRICE METHOD; ( B ) RESALE PRICE METHOD; ( C ) COST PLUS METHOD; ( D ) PROFIT SPLIT METHOD; ( E ) TRANSACTIONAL NET MARGIN METHOD; ( F ) SUCH OTHER METHOD AS MAY BE PRESCRIBED 24 BY THE BOARD. (2) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB- SECTION (1) SHALL BE APPLIED FOR DETERMINATION OF ARMS LENGTH PRICE I N THE MANNER AS MAY BE PRESCRIBED 25 : 26 [ PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES: PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARMS LENGTH PRIC E SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRA NSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED FIVE PER CENT OF TH E LATTER THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BE EN UNDERTAKEN SHALL BE DEEMED TO BE THE ARMS LENGTH PRICE.] ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 20 DETERMINATION OF ARMS LENGTH PRICE UNDER SECTION 9 2C. 10B. (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SECTION 92C THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION S HALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS BEING THE MOST APPROPRIAT E METHOD IN THE FOLLOWING MANNER NAMELY : (A). TO (D).. ( E ) TRANSACTIONAL NET MARGIN METHOD BY WHICH ( I ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSO CIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRE D OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY TH E ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; ( II ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTI ON OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGA RD TO THE SAME BASE; ( III ) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( II ) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES IF ANY BETWEEN THE INTERN ATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSAC TIONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACT IONS WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MA RGIN IN THE OPEN MARKET; ( IV ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AND REFERRED TO IN SUB-CLAUSE ( I ) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( III ); ( V ) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TA KEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELATION TO T HE INTERNATIONAL TRANSACTION. (2) FOR THE PURPOSES OF SUB-RULE (1) THE COMPARABI LITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFERENCE TO THE FOLLOWING NAMELY: ( A ) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRAN SFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; ( B ) THE FUNCTIONS PERFORMED TAKING INTO ACCOUNT ASSE TS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED BY THE RESPECTIV E PARTIES TO THE TRANSACTIONS; ( C ) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICI TLY OR IMPLICITLY ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 21 HOW THE RESPONSIBILITIES RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( D ) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE INCLUDING THE GEOGRAPH ICAL LOCATION AND SIZE OF THE MARKETS THE LAWS AND GOVERNMENT ORDERS IN FORCE COSTS OF LABOUR AND CAPITAL IN THE MARKETS OVERALL ECONO MIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS AR E WHOLESALE OR RETAIL. (3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF ( I ) NONE OF THE DIFFERENCES IF ANY BETWEEN THE TRAN SACTIONS BEING COMPARED OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PR ICE OR COST CHARGED OR PAID IN OR THE PROFIT ARISING FROM SUCH TRANSA CTIONS IN THE OPEN MARKET; OR ( II ) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO EL IMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. (4) THE DATA TO BE USED IN ANALYSING THE COMPARABIL ITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTI ON HAS BEEN ENTERED INTO : PROVIDED THAT DATA RELATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY ALSO BE CONSIDERED IF SU CH DATA REVEALS FACTS WHICH COULD HAVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICES IN RELATION TO THE TRANSACTIONS BEING COMPARED. 23. A READING OF THE PROVISIONS OF RULE 10B(2) OF THE RULES SHOWS THAT UNCONTROLLED TRANSACTION HAS TO BE COMPARED WITH IN TERNATIONAL TRANSACTION HAVING REGARD TO THE FACTORS SET OUT THEREIN. IN T ERMS OF RULE 10B(3) OF THE RULES AN UNCONTROLLED TRANSACTION SHALL BE CONSIDER ED AS COMPARABLE IF NONE OF THE DIFFERENCES BETWEEN THE CONTROLLED AND UNCON TROLLED TRANSACTIONS MATERIALLY AFFECTS THE PRICE OR COST CHARGED OR PAI D IN OR THE PROFIT ARISING FROM SUCH TRANSACTIONS IN THE OPEN MARKET. IF THE RE IS SCOPE FOR VARIATION IN THE PRICE OR COST CHARGED OR PAID IN OR THE PROFIT ARISING FROM SUCH TRANSACTIONS IN THE OPEN MARKET SUCH VARIATION SHO ULD BE CAPABLE OF BEING QUANTIFIED AND SUITABLE ADJUSTMENT MADE TO ELIMINAT E THE MATERIAL EFFECT OF SUCH DIFFERENCES. ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 22 24. WE WILL FIRST TAKE UP FOR CONSIDERATION ONE OF THE PLEA OF THE ASSESSEE BEFORE CIT(A) WHICH WAS ACCEPTED BY THE CIT(A) TO INCLUDE CLINGENE AS A COMPARABLE (ALONG WITH OTHER COMPANIES CONSIDERED I N THE TPOS ORDER) FOR BENCHMARKING THE ASSESSEES INTERNATIONAL TRANSACTI ON. IT IS NOT IN DISPUTE THAT AS PER THE ANNUAL REPORT OF CLINGENE INTERNATI ONAL PVT. LTD. FOR FY 2002- 03 THE SAID COMPANY WAS ENGAGED IN SIMILAR ACTIVITY AS SYNGENE INTERNATIONAL PRIVATE LIMITED ONE OF THE COMPAN IES CONSIDERED BY THE LEARNED TPO AS COMPARABLE. THE OPERATING PROFIT MAR GIN OF CLINGENE INTERNATIONAL PVT. LTD WAS (-) 33.97% OF ITS OPERAT ING COST. IT WAS THE PLEA OF THE ASSESSEE THAT IF SYNGENE INTERNATIONAL PVT. LTD IS CONSIDERED AS COMPARABLE THEN EVEN CLINGENE INTERNATIONAL PVT. L TD OUGHT TO HAVE BEEN INCLUDED AS A COMPARABLE IN DETERMINING THE ARMS L ENGTH PRICE. AFTER INCLUDING CLINGENE INTERNATIONAL PVT. LTD AS COMP ARABLE (ALONGWITH THE CORRECT PROFIT MARGINS OF THE TEN COMPANIES CONSIDE RED BY THE LEARNED TPO IN ORDER DATED MARCH 20 2006) THE ARITHMETIC MEAN OF THE PROFIT MARGINS OF ALL ELEVEN COMPANIES WOULD STAND REDUCED TO 11.71%. SINCE THE PROFIT MARGIN FROM THE ASSESSEES CONTRACT RESEARCH AND SU PPORT SERVICES ACTIVITY WAS 7.08% ON COST THE TRANSACTION VALUE THE ASSSES SEES INTERNATIONAL TRANSACTION MEETS WITH THE ARMS LENGTH PRINCIPLE B Y APPLYING THE SAFE HARBOR RULE ENSHRINED IN THE SECOND PROVISO BELOW S ECTION 92C(2) OF THE ACT WHICH PROVIDES THAT IF THE VARIATION BETWEEN THE AR MS LENGTH PRICE DETERMINED BY THE TPO AND PRICE AT WHICH THE INTERN ATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN BY THE ASSESSEE DOES NOT E XCEED FIVE PER CENT OF THE LATTER THE PRICE AT WHICH THE INTERNATIONAL TR ANSACTION HAS ACTUALLY BEEN UNDERTAKEN SHALL BE DEEMED TO BE THE ARMS LENGTH P RICE. THE OBJECTION OF THE LEARNED D.R. WAS THAT THE RESULTS OF CLINGENE I NTERNATIONAL PVT. LTD. FOR THE FINANCIAL YEAR ENDING 31.3.2005 CANNOT BE TAKEN FOR COMPARISON FOR THE REASON THAT THE SAID COMPANY INCURRED LOSS DUE TO T HE FACT THAT IT WAS DOING NOT ONLY CONTRACT RESEARCH BUT WAS ALSO DOING OWN R ESEARCH. OPERATING PROFIT (OPM) ON TOTAL COST CONSIDERED BY THE ASSE SSEE ACCORDING TO THE ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 23 LEARNED D.R. WOULD NOT BE PROPER AS THE OPERATING E XPENSES WOULD BE INCLUSIVE OF OWN RESEARCH AS WELL AS CONTRACT RESEA RCH. 25. TO APPRECIATE THIS CONTENTION WE HAVE TO HAVE A LOOK AT THE WAY OPERATING PROFIT HAS BEEN ARRIVED AT BOTH IN THE CA SE OF CLINGENE INTERNATIONAL PVT. LTD AND SYNGENE INTERNATIONAL PV T. LTD WHICH ARE AS FOLLOWS: CLINGENE INTERNATIONAL PVT. LTD PARTICULARS AMOUNT F.Y.2002-03 SALES/SERVICE INCOME (AS PER P & L A/C) 1 10 72 7 04 TOTAL OPERATING INCOME 1 10 72 704 PROFIT BEFORE TAX (AS PER P & L A/C.) (60 52 929 ) ADD: INTEREST EXPENSES (AS PER P & L A/C.) 3 55 460 OPERATING PROFITS (56 97 469) OPERATING COSTS 1 67 70 173 OPERATING PROFIT % ON COST -33.97% SYNGENE INTERNATIONAL PVT. LTD PARTICULARS AMOUNT F.Y.2002-03 TOTAL INCOME (AS PER P & L A/C) 26 17 97 528 LESS: NON OPERATING INCOME 5 50 695 TOTAL OPERATING INCOME 26 12 46 861 PROFIT BEFORE TAX (AS PER P & L A/C.) 8 21 85 57 9 ADD: INTEREST EXPENSES (AS PER P & L A/C.) 12 9 2 903 ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 24 LESS: NON-OPERATING INCOME (AS PER P& L A/C) 5 50 695 OPERATING PROFITS 8 29 27 815 OPERATING COSTS 17 83 19 046 OPERATING PROFIT % ON COST 46.51% NOTE: CLINGENE INTERNATIONAL PVT. LTDS INCOME IS ONLY IN THE FORM OF FEE FOR CONTRACT RESEARCH. SYNEGENE INTERNATIONAL PVT. LT DS INCOME OF RS.26 17 97 528 COMPRISES OF CONTRACT RESEARCH FEE OF RS.22 51 53 306 AND SALE OF COMPOUNDS OF RS.3 60 93 565. TO THAT EXTEN T SYNEGENE INTERNATIONAL PVT. LTDS INCOME INCLUDES RECEIPTS FROM ACTIVITIES OTHER THAN CONTRACT RESEARCH ALSO. 26. WE WILL NOW CONSIDER THE EXPENDITURE IN THE FO RM OF CONTRACT RESEARCH AND OTHER OPERATING EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT OF BOTH THE ABOVE COMPANIES. TOTAL EXPENDITURE DEBITED IN THE PROFIT AND LOSS A/ C. TOWARDS CONTRACT RESEARCH AND OTHER OPERATING EXPENSES: SYNGENIE INTERNATIONAL PVT. LTD RS.16 15 48 290 CLINIGENE INTERNATIONAL PVT. LTD RS. 1 58 80 701 A BREAK-UP OF THE CONTRACT RESEARCH AND OTHER OPERA TING EXPENSES (WITH FIGURES FOR THE YEAR ENDING 31.3.2002) IN RESPECT O F SYNGENIE INTERNATIONAL PVT. LTD AND CLINGENE INTERNATIONAL PVT. LTD IS AT PAGE 105 AND 121 RESPECTIVELY OF THE PAPER BOOK-I FILED BY THE ASSES SEE. A PERUSAL OF THE SAME SHOWS THAT BOTH COMPANIES HAVE INCURRED EXPENSES ON CHEMICALS AND REAGENTS SALES EMPLOYEES COSTS ETC. THE OPM HAS BEEN WORKED OUT BY THE ASSESSEE AS WELL AS TPO AS: NET MARGIN = OPERATING PROFIT / OPERATING COST *100 (OPERATING PROFIT = PROFIT BEFORE TAX + NON-OPERATING INCOME / EXPENSE) (OPERATING COST = TOTAL COST INTEREST NON-OPERA TING EXPENSES) ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 25 THERE IS NO BREAK UP OF EXPENSES AS BETWEEN OWN RES EARCH AND CONTRACT RESEARCH IN THE CASE OF CLINGENE INTERNATIONAL PVT. LTD BUT COMPARISON OF THE FIGURES OF EXPENSES AS ON 31.3.2002 DOES NOT SHOW A NY SIGNIFICANT DIFFERENCE IN THE EXPENSES HEAD AS WELL AS THE QUANTUM OF EXPE NSES. SIMILARLY THERE IS NO BREAK UP OF FIGURES OF EXPENDITURE IN THE CASE O F SYNIGENE INTERNATIONAL PVT. LTD AS EXPENSES RELATING TO SALE OF COMPOUNDS AND CONTRACT RESEARCH. WE ARE THEREFORE OF THE VIEW THAT CLINGENE INTERNAT IONAL PVT. LTD WOULD NOT CEASE TO BE A COMPARABLE COMPANY BECAUSE OF THE FAC T THAT THEY WERE ALSO DOING OWN RESOURCE DURING THE FINANCIAL YEAR ENDING 31.3.2003. AS POINTED OUT ABOVE DOWNWARD ADJUSTMENT TO THE OPERATING PRO FIT MARGIN OF SYNIGENE INTERNATIONAL PVT. LTD OUGHT TO HAVE BEEN GIVEN FOR THE ACTIVITY RELATING TO SALE OF COMPOUNDS. AN UPWARD ADJUSTMENT OUGHT TO H AVE BEEN MADE FOR THE EXPENSES RELATING TO OWN RESEARCH HAVING BEEN CONSI DERED WHILE ARRIVING AT THE OPERATING PROFIT MARGIN. THUS THE ADJUSTMENT T O BE MADE TO THE OPERATING PROFIT MARGINS OF THE TWO COMPARABLES OF SYNIGENE INTERNATIONAL PVT. LTD AND CLINGENE INTERNATIONAL PVT. LTD WOULD GET NEUTRALISED (WITHOUT GOING INTO ACTUAL DETAILS OF QUANTIFICATION) AND TH EREFORE THEIR MARGINS AS CLAIMED BY THE ASSESSEE FOR ARRIVING AT THE ARITHME TIC MEAN OF 11.71% AFTER INCLUDING ALL COMPARABLE COMPANIES CONSIDERED BY TH E TPO AND THE RESULTS OF CLINGENE INTERNATIONAL PVT. LTD. IS HELD TO BE P ROPER AND ACCEPTABLE. IN THAT VIEW OF THE MATTER THE DIFFERENCE BETWEEN THE PROFIT MARGIN FROM THE ASSESSEES CONTRACT RESEARCH AND SUPPORT SERVICES A CTIVITY OF 7.08% ON COST BEING THE TRANSACTION VALUE THE ASSESSEES INTERNAT IONAL TRANSACTION MEETS WITH THE ARMS LENGTH PRINCIPLE BY APPLYING THE SAF E HARBOR RULE ENSHRINED IN THE SECOND PROVISO BELOW SECTION 92C(2) OF THE ACT WHICH PROVIDES THAT IF THE VARIATION BETWEEN THE ARMS LENGTH PRICE DETERMINED BY THE TPO AND PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BE EN UNDERTAKEN BY THE ASSESSEE BEING NOT EXCESS OF FIVE PER CENT OF THE L ATTER THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN SHALL BY THE ASSESSEE IS HELD TO BE AT ARMS LENGTH. THE ORDER OF THE CIT(A) IS UPHELD ON THIS GROUND. IN VIEW OF THE ABOVE CONCLUSION THE OTHER ISSUES WITH REGARD TO ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 26 COMPARABILITY (WHETHER THE ASSESSEE WAS PERFORMING LOW-END SERVICES AND THE COMPARABLE COMPANIES WERE PERFORMING HIGH-END S ERVICES ETC.) AND NON- CONSIDERATION OF OTHER FACTORS LAID DOWN IN RULE 10 B(1)(E)(I) ARE NOT BEING CONSIDERED. FOR THE REASONS GIVEN ABOVE THE ORDER OF THE CIT(A) IS UPHELD. 26. FOR THE REASONS GIVEN ABOVE APPEAL BEING ITA NO.3423/MUM/08 IS DISMISSED. 27. ITA NO.6558/MUM/2008 (REVENUES APPEAL FOR AY 04-05) GR.NO.2 RAISED BY THE REVENUE IS IDENTICAL TO THE O NLY GROUND OF APPEAL OF THE REVENUE IN AY 03-04 WHICH WE HAVE ALREADY DECIDED. THE SAID GROUND OF APPEAL READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.1 85 13 396/- MADE BY THE TPO TO THE VALUE OF INTERNATIONAL TRANSACTION UNDERTAKE N BY THE ASSSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 28. THE FACTS WITH REGARD TO THE TRANSFER PRICING ADJUSTMENT MADE IN THIS YEAR ARE IDENTICAL TO THE FACTS AS IT PREVAILED IN AY 03-04. THE ASSESSEES OPERATING PROFIT MARGIN TO COST IN AY 04-05 WAS 18. 87%. THE TPO CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE AE COMPE NSATED THE ASSESSEE AT COST PLUS 18.87% COMPARED TO COST PLUS 7% AGREED MA RK UP IN THE EARLIER YEAR. THE ASSESSEE EXPLAINED THAT MHPL CHARGED ITS AE ON A COSTS PLUS BASIS WHEREBY COSTS ARE BUDGETED AT THE TIME OF IN VOICE AND BILLED TO THE AE ALONGWITH THE AGREED MARK-UP AND THAT DURING THE RE LEVANT PERIOD THE ACTUAL COSTS INCURRED WERE LOWER THAN THAT BUDGED C OSTS WHICH RESULTED IN A HIGHER RECOVERY AND HENCE THE HIGHER PROFITABILITY OF 18.87% ON COST. A CERTIFICATE FROM THE AE TO THE SAID EFFECT WAS ALSO FILED BEFORE TPO. IT WAS FURTHER CONFIRMED BY THE AE THAT THE AMOUNTS PAID T O THE ASSESSEE WILL NOT BE RECOVERED BY IT FROM THE ASSESSEE IN FUTURE IN A NY FORM. ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 27 29. THE TPO DREW UP LIST OF COMPARABLE 11 COMPANIE S WHICH WERE THE SAME AS WAS DONE BY THE TPO IN AY 03-04. THE ARITHMETIC MEAN OF THESE 11 COMPANIES IS AS FOLLOWS: SR.NO. NAME OF THE COMPANY PROFIT MARGIN % ON COST 1. AMTRAC MANAGEMENT SERVICES (-) 9.86% 2. DABUR RESEARCH FOUNDATION 0.73% 3. HINDUJA GROUP INDIA LTD. 5.79% 4. IDC INDIA LIMITED 11.99% 5. ICI INDIA RESEARCH AND TECHNOLOGY SERVICES. (-) 0.91% 6. MANU CONSULTANTS LTD. 0.73% 7. RAPTAKOS BRETT TESTS LABORATORIES LTD. 8.54% 8. ALPHA GEO LTD. 47.56% 9. VIMTA LABORATORIES 61.04% 10. CHOKSI LABORATORIES LTD. 33.48% 11. SYNGENE INTERNATIONAL PVT. LTD. 71.12% ARITHMETIC MEAN OF ALL 11 COMPANIES 20.93% MHPL 18.87% 30. THE TPO THEREAFTER DETERMINED THE ALP OF THE I NTERNATIONAL TRANSACTION AS FOLLOWS: 18. FROM THE AFORESAID AND THE CERTIFICATE PROVI DED IT IS CLEAR THAT THE ASSESSEE HAS NOT PUT THE AE IN KNOWLEDGE THAT THE A SSESSEE HAS CHARGED THE AE ON A BASIS ACTUAL COST PLUS MORE THAN 7% MAR K UP. ACCORDINGLY THERE IS ALWAYS THE POSSIBILITY OF THE AE ASKING TH E MONEY BACK FROM THE ASSESSEE IN THE SUBSEQUENT YEARS. FURTHER MORE THE AES REPLY IT IS INFERRED THAT THE AE HAD PAID TO THE ASSESSEE ASSUM ING THAT IT IS BEING CHARGED AT COST PLUS 7%. THEREFORE ASSUMING THAT THE ASSESSEE HAS ACTUALLY RECEIVED ITS REMUNERATION AT COST PLUS 7% THIS OFFICE IS DERIVING THE ASSESSEES COST AND CONSEQUENTLY THE MARGINS TO BE EARNED BY THE ASSESSEE BASED ON THE MARGINS EARNED BY COMPARABLES . THE CALCULATION OF ARMS LENGTH MARK UP IS AS HEREUNDER: AMOUNT RECOVERED BY THE ASSESSEE FROM ITS AE FOR TH E SERVICES PROVIDED(THE AE HAS CONFIRMED THAT IT HAS PAID THIS AMOUNT OF RS.14 22 06 270 ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 28 RS. 14 22 06 270 ON A BASIS COST PLUS 7% SO THIS AM OUNT IS BEING TREATED AS COST PLUS 7%) COST AFTER MARK DOWN OF 7% MARK-UP (RS.14 22 06 270 X100/107) RS.13 29 03 056 ARMS LENGTH MARK-UP ( AS DISCUSSED EARLIER IN THE O RDER) 20.98% OVER COSTS ARMS LENGTH MARK-UP (RS.13 29 03 056 X 20.93 / 100 ) RS.278 16 5610 ARMS LENGTH PRICE (RS.13 29 03 056 + RS. 2 78 16 6 10) RS.16 07 19 666 ADJUSTMENT TO BE MADE (RS.16 07 19 666 LESS RS.14 22 06 270) RS.1 85 13 396 19. IN VIEW OF THE AFORESAID IT IS HELD THAT THE A SSESSEE SHOULD HAVE CHARGED A MARK-UP OF 20.93% OVER COST WHEREAS IT HA S CHARGED A MARK UP OF 7% EMBEDDED IN THE AMOUNT OF RS. 14 22 06 270/-. AS ELABORATED ABOVE AN ADJUSTMENT OF RS. 1 85 13 396/- IS BEING MADE TO THE ARMS LENGTH PRICE OF RESEARCH SUPPORT SERVICES. THE A SSESSING OFFICER IS REQUIRED TO MAKE THE ADJUSTMENT AS AFORESAID. 31. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED T HE ADDITION MADE BY THE AO BASED ON TPOS REPORT FOR IDENTICAL REASONS THAT WERE ASSIGNED BY THE CIT(A) FOR AY 03-04. IN ADDITION TO THE ABOVE THE CIT(A) HELD THAT IF CLINGENE INTERNATIONAL PVT. LTD WAS CONSIDERED AS COMPARABLE THEN THE ARITHMETIC MEAN OF THE 11 COMPANIES INCLUDING CLINGENE INTERNA TIONAL PVT. LTD WOULD BE ONLY 14.18% WHICH WAS LOWER THAN 18.87% ON COST ADOPTED BY THE ASSESSEE FOR ITS INTERNATIONAL TRANSACTION WITH THE AE. ON THE ACTION OF THE AO IN CONSIDERING 7% MARK UP ON COST THE CIT(A) HE LD AS FOLLOWS: 7.20. THE TPO HAS ALSO PROCEEDED BY APPLYING T HE MARGINS WORKED OUT BY HIM ON HYPOTHETICAL COST BASE. ACTUAL COST OF TH E APPELLANT WAS RS. 11 96 35 967/-. AFTER ADDING MARGINS OF THE APPELLA NT. OF RS. 2 25 70 303/- THE AMOUNT CHARGED TO AE WORKED OUT TO RS. 14 22 06 270/-. THUS MARGINS OF APPELLANT STOOD OU T 18.87%. AS PER THE TERMS AND AGREEMENT WITH AE THE APPELLANT WAS SUPP OSED TO CHARGE COST PLUS 7%. SUCH CHARGING WAS DERIVED ON THE BASIS OF BUDGETED COST. SINCE ACTUAL COST INCURRED BY THE APPELLANT WAS LESS THAN THE BUDGETED COSTS FOR THE CURRENT YEAR ITS MARGIN ULTIMATELY WORKED OUT TO BE 18.87%. THE APPELLANT ALSO REPRESENTED BEFORE TPO AND FILED CON FIRMATION BEFORE AO THAT EXCESS SUM CHARGED IS NOT REFUNDABLE TO ITS AE . IN ANY EVENT APPELLANT HAD OFFERED FULL MARGIN OF RS. 2 25 70 30 3/- (18.87%) TO TAX. THE TPO DISREGARDED ALL THESE AND DID BACKWARD CALC ULATION. HE BEGAN ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 29 WITH AMOUNT CHARGED BY APPELLANT TO ITS AE (IE RS. 14 22 06 270/-). FROM THAT HE REDUCED THE ASSUMED MARGIN OF 7% AND CONSID ERED THE RESULTANT FIGURE (RS. 13 29 03 056/- AS HYPOTHETICAL COST AGA INST ACTUAL COST (RS. 11 96 35 967/-). ON THIS HYPOTHETICAL COST BASE TH E TPO APPLIED THE ARMS LENGTH MARGIN AS COMPUTED BY HIM LEADING TO D OUBLE TOPPING OF THE LAYERS ON COST I.E FIRST RETAINING THE DIFFERENCE O F RS. 1 32 67 089/- AS PART OF HYPOTHETICAL COST BASE AND AGAIN INFLATING THE S AME BY THE MARGIN APPLIED. SUCH AN ACTION OF TPO IS NOT SUPPORTED BY ANY PROVISION OF THE ACT AND THEREFORE NOT TENABLE. FURTHER THE APPELLA NT DEMONSTRATED THAT IF MARGINS AS CALCULATED BY TPO WERE APPLIED TO ACTUAL COST BASE EVEN THE APPELLANTS CHARGES/PRICE TO AE WOULD HAVE FALLEN W ITHIN LIMITS PRESCRIBED U/S 92C(2). THEREFORE I HOLD THAT NO ADJUSTMENT WO ULD BE REQUIRED ON THIS COUNT ALSO. 7.21. IN VIEW OF THE FOREGOING IT IS OBSERVED THA T THE MARK-UP CHARGED BY THE APPELLANT WAS HIGHER THAN THAT EARNED BY THE CO MPARABLES SELECTED BY THE APPELLANT THROUGH A SCIENTIFIC SCREENING PROCES S. FURTHER FOR THE YEAR UNDER CONSIDERATION THE APPELLANT HAS EARNED AN AC TUAL HIGHER RETURN 18.87% (AS AGAINST THE AGREED MARK UP OF 7%) AND TH E EXCESS CONSIDERATION RECEIVED BY THE ASSESSEE HAS NOT BEEN REFUNDED AND IS NOT REFUNDABLE TO ITS AE AND WAS ALSO OFFERED TO TAX. T HIS IMPORTANT ASPECT WAS NOT CONSIDERED BY THE TPO / AO. THEREFORE HAVI NG REGARD TO FACTS OF THE CASE AND MATERIAL ON RECORD THE PRICE DISCLOSE D BY THE ASSESSEE AS ALP IS REQUIRED TO BE ACCEPTED. CONSEQUENTLY THE ADDITION OF RS.1 85 13 396/- IS DIRECTED TO BE DELETED. 32. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVE NUE HAS RAISED GR.NO.2 BEFORE THE TRIBUNAL. THE LEARNED D.R. AND THE LEAR NED COUNSEL FOR THE ASSESSEE ADOPTED THE SAME ARGUMENTS THAT WERE ADVAN CED IN THE APPEAL FOR AY 03-04. WE HAVE ALREADY HELD WHILE DECIDING THE APPEAL OF THE REVENUE FOR AY 03-04 THAT CLINIGENE INTERNATIONAL PVT. LTD. OU GHT TO BE CONSIDERED AS COMPARABLE. IT IS NOT IN DISPUTE THAT IF CLINIGENE INTERNATIONAL PVT. LTD IS CONSIDERED AS COMPARABLE THEN 14.81 WOULD BE THE AR ITHMETIC MEAN OF PROFIT MARGIN. IN THAT CASE THE ASSESSEES MARGIN ON COST OF 18.87% IN RESPECT OF THE INTERNATIONAL TRANSACTION WITH THE AE IS MUCH H IGHER AND DESERVES TO BE ACCEPTED AS AT ARMS LENGTH. BESIDES THE ABOVE FO R ARGUMENT SAKE EVEN IF TPOS COMPARABLE AND ARITHMETIC MEAN OF 20.93% IS A CCEPTED AS CORRECT EVEN THEN THERE IS NO REASON TO TREAT THE ASSESSEE S MARGIN ON COST AT 7%. THE ASSESSEES MARGIN IS 18.87% AND THERE IS NOTHIN G ON RECORD TO INDICATE ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 30 THAT THE AE HAD AGREED OR IS LIKELY TO REFUND THE E XCESS. IF 18.87% IS THE MARGIN ON COST THEN DIFFERENCE BETWEEN THE VALUE OF INTERNATIONAL TRANSACTION BY APPLYING THE ARITHMETIC MEAN OF 20.93% DETERMINE D BY THE TPO AND THE ACTUAL VALUE OF INTERNATIONAL TRANSACTION BY THE AS SESSEE WITH ITS AE WOULD BE WITHIN THE RANGE OF PLUS OR MINUS 5% RANGE CALL ING FOR NO ADJUSTMENT IN VIEW OF THE SECOND PROVISO BELOW SEC.92C(2) OF THE ACT. EVEN ON THIS BASIS THE ADDITIONAL MADE BY THE AO WAS RIGHTLY DELETED B Y THE CIT(A). CONSEQUENTLY WE FIND NO MERIT IN GR.NO.2 RAISED BY THE REVENUE IN ITS APPEAL AND THE SAME IS DISMISSED. 33. GR.NO.1 RAISED BY THE REVENUE READS AS FOLLOWS : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN ALLOWING DELETING THE DISAL LOWANCE OF INTEREST OF RS. 15 15 000/- WITHOUT APPRECIATING THE FACTS OF T HE CASE. THE ASSESSEE HAD ADVANCED AN INTEREST FREE LOAN OF RS. 2 CRORES TO MONSANTO INDIA LTD. A GROUP COMPANY (MIL) DURING THE PREVI OUS YEAR 2000-01 I.E. ASSESSMENT YEAR 2001-02. THE SAID SUM WAS ADVANCE D FOR PLACING AN INTEREST-FREE SECURITY DEPOSIT OF RS.2 CRORES BY MI L WITH THE LESSOR IN RESPECT OF FLAT TAKEN IN MUMBAI ON LEAVE AND LICENSE BASIS FOR PROVIDING ACCOMMODATION TO MR. SEKHAR NATRAJAN THE THEN MANA GING DIRECTOR OF MIL AND WHO ALSO WAS THE SOUTH ASIA BUSINESS HEAD OF TH E MONSANTO GROUP OF COMPANIES. 34. ACCORDING TO THE ASSESSEE SINCE IT ACTS AS THE HOLDING COMPANY FOR MONSANTO GROUP OF COMPANIES IN INDIA IT WAS AGREED THAT THE ASSESSEE WOULD SHARE THE HOUSING COST BY PROVIDING THE INTER EST FREE SECURITY DEPOSIT WHICH WAS TO BE PLACED WITH THE LANDLORD IN TERMS O F THE LEAVE AND LICENSE AGREEMENT BETWEEN THE LESSOR AND MIL. ACCORDINGLY THE AFORESAID SUM WAS ADVANCED BY THE ASSESSEE PURSUANT TO CONSENT OF THE BOARD OF DIRECTORS OF BOTH THE COMPANIES I.E. ASSESSEE AND MIL ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 31 35. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAD BORROWED WORKING CAPITAL LOAN OF RS.40 20 00 000 FR OM MIL (AMOUNT OUTSTANDING AS ON MARCH 31 2004 WAS RS.13 48 00 00 0) AND PAID INTEREST OF RS.90 74 383 ON THE AMOUNTS BORROWED FROM MIL THE S AID LOANS WERE ADVANCED AT INTEREST RATE OF 7.75% P.A. FOR THE MON TH OF APRIL 2003 AND 7.5% P.A. FOR THE PERIOD MAY 2003 TO MARCH 2004. ACCORD ING TO THE ASSESSEE INTEREST PAID ON WORKING CAPITAL LOAN CORRESPONDIN G PROPORTIONATE TO THE INTEREST FREE SUM ADVANCED IS ALLOWABLE UNDER SECT ION 36(1)(III) AS THE LOAN WAS PROVIDED FOR BUSINESS PURPOSES (I.E. PLACING T HE INTEREST FREE SECURITY DEPOSIT FOR THE ACCOMMODATION OF MONSANTOS REGIONA L BUSINESS HEAD) AND SINCE THERE WAS NO NEXUS BETWEEN THE FUNDS BORROWED FROM AND LENT TO MIL. 36. THE AO DID NOT HOWEVER AGREE WITH THE CONTENTIO N OF THE ASSESSEE AND DISALLOWED DEDUCTION OF INTEREST PAID ON WORKING CA PITAL LOAN TO MIL OF RS.15 50 000 CORRESPONDING TO THE INTEREST FREE SU M ADVANCED TO MIL I.E. INTEREST COMPUTED AT 7.75% P.A. ON RS. 2 00 00 000. 37. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE ENTIRE INTEREST PAID BY THE ASSESSEE ON THE WORKING CAPITAL LOAN TAKEN FROM MONSANTO INDIA LTD. DURING FY 2003-04 IS ALLOWABLE UNDER SECTION 36(1) (III) AS THE LOAN WAS TAKEN FOR BUSINESS PURPOSES THE FUNDS WERE FULLY U TILIZED FOR CARRYING ON BUSINESS ACTIVITIES AND WERE DEPLOYED AS WORKING CA PITAL. FURTHER THERE IS NO NEXUS BETWEEN THE FUNDS BORROWED FROM MONSANTO I NDIA LIMITED AND ADVANCE GIVEN. THE ASSESSEE SUBMITTED THAT THE ADVA NCE P1ACED WITH MONSANTO INDIA LIMITED (FOR SECURITY DEPOSIT WITH L ANDLORD) IS FOR THE PURPOSE OF BUSINESS AND IS COMMERCIALLY JUSTIFIED. FURTHER THE ADVANCE PLACED BY THE ASSESSEE WITH MONSANTO INDIA LIMITED WAY BACK IN FY 2000-01 WAS A SEPARATE BUSINESS TRANSACTION UNLINKED TO THE WORKI NG CAPITAL LOAN TAKEN BY ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 32 THE APPELLANT DURING THE AY UNDER CONSIDERATION. TH E ASSESSEE ALSO PLACED RELIANCE ON THE JUDICIAL PRECEDENTS IN THE CASE OF S A BUILDERS LTD VS CIT (289 ITR 26) (SUPREME COURT) AND CIT VS SRIDEV ENTE RPRISES (192 ITR 165) (KARNATAKA HIGH COURT). 38. THE CIT(A) HELD AS FOLLOWS: 6.5 I HAVE CONSIDERED THE APPELLANTS ARGUMENTS/SU BMISSIONS AS WELL AS AOS FINDINGS AS DISCUSSED IN HIS ORDER. I AGREE WITH THE APPELLANTS CONTENTION THAT THERE IS NO NEXUS BETWEEN THE ADVAN CE PLACED BY THE APPELLANT AND THE WORKING CAPITAL BORROWING OBTAINE D BY THE APPELLANT FROM MONSANTO INDIA LIMITED SINCE THERE IS A TIME APPELLANT WAY BACK IN FY 2000-2001 AND THE COMMERCIAL EXPEDIENCY WAS N OT DISPUTED BY THE AOS DURING THE ASSESSMENT PROCEEDINGS FOR THE E ARLIER FINANCIAL YEARS. THE APPELLANTS CLAIM THAT MR. SHEKHAR NATRA JAN WAS SOUTH ASIA BUSINESS HEAD OF MONSANTO GROUP OF COMPANIES A ND HENCE LOAN ADVANCED TO SISTER CONCERN FOR THE PURPOSE OF HIS R ESIDENCE WAS OUT OF APPELLANTS BUSINESS NEED HAS NOT BEEN DISPUTED BY THE AOS IN EARLIER YEARS WHEN THE LOAN WAS GIVEN. FURTHER IN THE CASE OF S.A. BUILDERS THE HONOURABLE SUPREME COURT HAS UPHELD THAT INTERE ST FREE ADVANCE MADE TO THE SISTER CONCERN MADE FOR THE PURPOSE OF BUSINESS COULD NOT BE THE BASIS TO DISALLOW INTEREST EXPENSES. IN VIEW OF THE ABOVE THE ADDITION OF RS. 15 50 000/- IS DELETED. 39. BEFORE US THE LEARNED D.R. RELIED ON THE ORDER OF THE AO. WE HAVE CONSIDERED HER SUBMISSION. WE ARE OF THE VIEW THAT THE ORDER OF CIT(A) DESERVES TO BE UPHELD. WE HAVE ALREADY SEEN THAT M HPL ACTS AS A HOLDING COMPANY FOR VARIOUS DOWNSTREAM INVESTMENTS OF THE M ONSANTO GROUP IN INDIA. AS A GROUP HOLDING COMPANY OF INDIAN VENTU RES MHPL PROVIDES CERTAIN SUPPORT/STEWARD SERVICES TO VARIOUS DOWNSTR EAM VENTURES IN INDIA. MR.SEKHAR NATRAJAN WAS SOUTH ASIA HEAD OF THE MONS ATO GROUP. IT IS THUS CLEAR THAT THE INTEREST FREE ADVANCE IN QUESTION WA S OWING TO COMMERCIAL AND BUSINESS EXPEDIENCY. THEREFORE THE DISALLOWANCE OF INTEREST WAS RIGHTLY HELD ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 33 TO BE NOT PROPER BY THE CIT(A). WE DO NOT FIND ANY GROUNDS TO INTERFERE WITH THE ORDER OF THE CIT(A). CONSEQUENTLY GR.NO.1 RAI SED BY THE REVENUE IS DISMISSED. 40. IN THE RESULT ITA NO.6558/MUM/08 IS DISMISSED . 41. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 9 TH DAY OF NOV.2011. SD/- SD/- (R.S.SYAL ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 9 TH NOV .2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RL BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.3423/MUM/2008(A.Y.2003-04) ITA NO.6558/MUM/2008(A.Y.2004-05) 34 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 2/11&4/11/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 8/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER