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TMI Blog2015 (7) TMI 241X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 143(1) of the Act and the case was taken up for scrutiny. 2.2 The Assessing Officer observed that the assessee had entered into international transactions in excess of Rs. 15 Crores and therefore with the approval of the CIT-I, Bangalore made a reference to the Transfer Pricing Officer (' TPO') to determine the arms length price ('ALP') thereof, as per the provisions of section 92CA of the Act. In the year under consideration, the total operating revenues from R&D Services provided to its AE was Rs. 2,69,52,315 with operating costs at Rs. 2,22,63,590. The operating profit was Rs. 46,88,725 and the operating profit as a percentage of operating revenue was 21.06%. In its T.P. Study, the assessee adopted TNMM as the Most Appropriate Method ('MAM') and selected 8 companies as comparables. The arithmetic mean of these comparable companies was computed at 7.49%. Since the assessee's profit margin (OR/OC) of 21.06%, from the provisions of R&D Services, was higher than that of the comparables computed at 7.49%, the assessee assumed the value of international transactions relating to R&D Services Segment to be at arm's length. The TPO adopted TNMM in the MAM. However, out of the 8 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer based on the TPO's order. 3. The learned CIT (Appeals) has erred in holding that the TPO should exclude M/s. Oilfield Instrumentation India Ltd., as a comparable as it is functionally different from that of the tax payer. 4. The learned CIT (Appeals) has erred in holding that the TPO should exclude M/s. Celestial Labs as a comparable as it is functionally different and has high profit margins form that of the tax payer. 5. The learned CIT (Appeals) has erred in holding that the TPO should not include uncontrolled comparables having any unrelated party transactions even up to 25%. 6. The learned CIT (Appeals) has erred in holding that the assessee is eligible for a standard deduction of 5% from the Arm's Length Price under the proviso to section 92C(2) of the IT Act. 7. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT (Appeals) be reversed in so far as the above mentioned issues are concerned and that of the Assessing Officer be restored. 8. The appellant craves leave to add, to alter, to amend or to delete any of the grounds that may be urged at the time of hearing of the appeal." 4. The Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng heard the contention of the appellant, one thing is clear that the nature of the operation of the company is ambiguous which has even been acknowledged by the Transfer Pricing Officers by selecting the company as comparable to the software development services in some of the cases and also as comparable to the R&D services in other cases. The Hon'ble ITAT Mumbai in the case of M/s. Tevapharm Pvt. Ltd. (supra) held that "according to the learned D R Celestial labs is also in the field of research in pharmaceutical products and should be considered as comparable. As rightly submitted by the learned counsel for the assessee, the discovery is in relation to a software for discovery of new drugs. Moreover the company also is owner of the IPR. There is however a reference to development of a molecule to treat cancer using bio informatics tools for which parenting process was also being pursued. As explained earlier it is a diversified company and therefore cannot be considered as comparable functionally with that of the assessee, there has been no attempt made to identify and eliminate and make adjustment of the profit margins so that the difference in functional comparability can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l comparable, there is no need to apply the filter to include the comparables which have related party transactions. However, in the circumstances where it is not possible even to find out one comparable out of the comparables selected based on the FAR analysis without any related party transactions. In such a situation, it will be necessary for the TPO to apply a suitable filter in regard to the related party transactions to identify such comparables, margins of which are not influenced by the related party transactions. However, in the present case, even after excluding the comparables which have related party transactions, more than one comparable are available to determine the arm's length price. Therefore, it is not appropriate to retain the above company as comparable. Further, the above company was excluded as comparable form the R&D services in the case of M/s. Tevapharm Pvt. Ltd. (supra) holding that "we have seen the relevant document and find that the same refers to acquisition by the said company of component manufacturing line along with testing and validation lab and building. The same report says that the acquisition would enable the company to become a full service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from being a comparable. In the case on hand from the details on record, it is reported that this company has RPT of about 62.38% on turnover and therefore following the decision of the co-ordinate bench in the case of 24/7 Customer.Com Pvt. Ltd. (supra), we hold that the learned CIT(A) was correct in rejecting M/s. Agile Electric Technologies Pvt. Ltd. as a comparable for this reason also. Consequently, the grounds raised at S.Nos.3 to 5 of Revenue's appeal are dismissed. 6.1 In Ground No.6, Revenue challenges the decision of the learned CIT(A) in holding that the assessee is eligible for standard deduction of 5% from the ALP under the proviso to section 92C(2) of the Act. 6.2 The Income Tax Act, 1961 has been amended with retrospective effect from 1.4.2002 by the introduction of a clarificatory amendment in which Section 92C(2A) was inserted by Finance Act, 2012. This new section mandates that if the arithmetical mean price falls beyond +/- 5% from the price charged in the international transactions, then the assessee does not have any option referred to in Section 92C(2) of the Act. Thus, as per the above amendment, it is clear that the +/- 5% variation is only to justify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the facts of the matter, as brought out above at paras 8.1 and 8.2 (supra), we are of the considered view that the reasons adduced by the petition for the delay of 72 days in filing the C.O. indicate that the said delay was neither deliberate nor intentional, but was due to bona fide reasons and reasonable cause, and that in these circumstances this is a fit case for condonation of the delay of 72 day. We accordingly condone the delay of 72 days in filing the C.O. by the petitioner and admit the C.O. for adjudication. 9.0 The Grounds raised in C.Os filed by the assessee are as under :- " 1. The order of the learned CIT (Appeals) - IV, Bangalore to the extent prejudicial to the respondent is bad in law. 2. The learned CIT (Appeals) - IV, Bangalore has erred in confirming the action of the Assessing Officer and Transfer Pricing Officer in : a. rejecting the comparables and transfer pricing analysis undertaken by the respondent on unjustifiable grounds; and b. rejecting Agrima Consultants International Limited, Neelam Medical International (Asia) Limited (new name - Max Neema Medical International Limited) and Research Support International Limited (new name - Evotec Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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