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2019 (2) TMI 1781 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT:- Assessee is a subsidiary of Apotex Holdings, undertakes manufacturing of Active Pharmaceutical Ingredients ('APIs') and intermediates (hereinafter collectively referred to as Pharmaceutical products) for Apotex Group. APIPL was engaged in manufacturing intermediate products for Apotex Inc. and Apotex Pharmachem lnc. APIPL also performs Research and Development activities ('R &D activities') on behalf of Apotex Pharmachem Inc. The R&D services are integral and is a prerequisite for undertaking manufacturing of any pharmaceutical products. The range of R&D services typically provided by APIPL include development of synthetic chemical process in the field of active pharmaceutical Ingredient ('API'), development and preparation of Drug Master Files (DMF's), and analytical services like stability studies, validation studies, analytical method development , thus companies functionally dissimilar with that of assessee need to be deselected from final list. Working capital adjustment is required to be given on actual basis for the purpose of determining the ALP as the adjustment is required to be given which had a bearing on the profit and margin of the comparables. Undoubtedly the working capital [receivable inventory, trade debtor and trade creditor, etc] have the impact on the profit and margin and therefore with a view to bring the parity between the assessee and the comparables it is necessary to give adjustment to work out the average PLI of the comparables Denying the benefit u/s.10B - permission was not granted for two separate and independent activities - Deviation from the specification without a written prior approval - HELD THAT:- The manufacturing of Active Pharmaceutical Ingredients (API) and intermediaries and carrying out of R & D for the same AE { as a contract service provider}, are two distinct activities and therefore the assessee should have taken two distinct approval from the DC by filing two separate project reports for carrying out these two activities. Only one project report in respect of manufacture of API and others for chlorobenzene and other chemicals were submitted and therefore there was no independent permission for carrying out the R & D activities of pharmaceuticals for AE. It is incumbent upon the DC for the purposes of granting the permission under the Act, to give specific things / article sought to be manufactured ( Rule 19) and also there is a statutory requirement to mention the area where the said manufacturing activity was sought to be carried out. In the present case, neither the separate activities / things / article sought to be manufactured were mentioned in the project report, nor a separate ear marked place was mentioned at the time of seeking the amendment to the order. Hence the argument of the assessee that the assessee is also entitled for deduction u/s.10B of the Act is incorrect and is liable to be rejected. Assessee is doing two activities and two activities are not permissible. In view of the above, this issue on Section 10B, raised by the assessee is required to be dismissed Deduction u/s 10A - business loss set off against such profit and gains of the undertaking - HELD THAT:- As in the case of CIT Vs. Yokogawa India Ltd. [2011 (8) TMI 845 - KARNATAKA HIGH COURT] held that as the income of sec. 10A unit has to be excluded at source itself before arriving at the gross total income, loss under non-section 10A unit cannot be set off against sec. 10A units u/s 72 of the Act. As the deduction u/s 10A of the Act has to be excluded from the total income of the assessee, the business loss being set off against such profit and gains of the undertaking as a whole could not arise. We uphold the impugned order of the ld CIT(A) in directing the AO to compute the deduction u/s 10A of the Act in the case on hand without setting off the business losses from non section 10A units against the income of 10A units.
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