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TMI Blog2019 (4) TMI 1830X X X X Extracts X X X X X X X X Extracts X X X X ..... o the ground. Hence this ground raised is dismissed at not pressed. 5. Brief facts in this regard are being dealt with reference to facts of figures for AY 2010-11 as issue is, common. The assessee new UCB India is wholly owned subsidiary of UCB, SA, Belgium. The assessee is engaged in the business of manufacturer and sale of prescription drugs. 6. During the relevant period, the assessee inter-alia entered into the international transaction of export of the FDFs Ucerax and Zyrtec to its AE. The assessee in its transfer pricing study report had benchmarked this international transaction using the TNMM at the segmental level as the most appropriate method using the Profit Level Indicator (PLI) of operating profits on operating cost. 23 comparables had been selected by the assessee and the arithmetic mean of the PLI was computed at 10.59% whereas the assessee's own PLI was 49.60%. Its PLI being higher than those of the comparables, the concerned international transaction of export of FDFs to its AE were claimed to be at arm's length. 7. However, the Transfer Pricing Officer was not satisfied with the above he rejected the benchmarking done by the assessee. The Transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady been mentioned above that the Finished Products Exported to AEs are of Superior Quality, they comply US FDA regulations. It is tact that the US PDA regulations are the toughest in the industry. So any drug which qualifies the US PDA has to be of extra ordinary quality. It has been submitted by employee of the assessee that Special Excipients are added to the Drugs which are exported. Thus, though the Quality of the Drugs Exported is very high as compared to drugs sold in India, the Price charged to AE is less than the Price at which it was sold to distributor in India. Therefore, the CUP is applied, taking the price at which the drugs are sold in India as ALP. Therefore, the transaction is not at Arm's Length. The difference in the price is as under: Name Sale price to AE ' ALP Difference/ unit Quantity sold to AE Total difference Ucerax 10 rng Rs.l21/bottle Rs. 327/bott!e 205/bottle 164120 bottles Rs. 3380S720 Ucerax25 mg Rs.l64/bottle Rs. 586bottle 422/bottIe 7670 bottles Rs. 3236740 Zyrtec Rs. 203/bottle Rs. 426/bottle 223/bottle 61850 bottles Rs. 13792550 5,08,38,010/- &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the benchmarking exercise keeping in view the prices of the specific individual international transactions as against comparable uncontrolled prices of similar products. However, while using the CUP method the AO/TPO are hereby directed to give appropriate discount for the additional marketing expenses incurred by the assessee in its beat sales. The ALP computed by the TPO in his order would be required to be reduced by the per unit salary cost of the employees engaged in the marketing functions. Subject to such modifications of the computation, the CUP method adopted by the assessee is hereby upheld. With these directions the grounds of appeal 1 to 5 with reference to the transfer pricing adjustment on export of FDFs by the assessee to the AE stand disposed. 11. Against the above the assessee is in appeal before us. We have heard both the counsel and perused the records. Learned counsel of the assessee submitted that the transfer pricing officer has erred in rejecting TNMM as the most appropriate method, though it was consistently followed earlier. He also submitted that the transfer pricing officer has erred in adopting Cup as the most appropriate method. 12. He referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the OP/OC of the total export of Rs. 33 crore is cogent. Further in the annual accounts there are no segmental accounts. The annual audited accounts does contain the breakup of export to associated enterprise and non-associate enterprise. Further more in the audited annual accounts the segmental results for export and local sales is also not available. Further the transfer pricing officer found that assessee has benchmarked the transaction of import of API and export of finished drugs with the same set of comparable. The transfer pricing officer has rightly observed that activity of import of API cannot be compared with that of export of finished products. In these circumstances the transfer pricing officer has rejected the TNMM method of benchmarking adopted by the assessee. 15. In our considered opinion the reasons given by the transfer pricing officer for rejecting the TNMM method adopted by the assessee is quite cogent. The above clearly show that if on the same facts in earlier period TNMM method was adopted it was an error. It is settled law that there is no use of perpetuating an error. The case here is not that the transfer pricing officer is changing the method to that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TPO on an analysis of the clauses in the relevant stockist's agreement observed that the stockists had undertaken to promote ethical business practice arid to secure orders from the doctors, hospitals and retailers. Thus substantial marketing functions were undertaken by the stockists appointed and not the assessee. 5.1 In the same context of differences between the export of FDFs to the AE and their sale in the local market, the assessee had contended that when dealing with the AEs, the credit risk borne by the assessee was negligible whereas in the local sales, as there is a possibility of bad debts arising, it is the assessee that bears the credit risk. Here again, the TPO has noted that the delivery to the local stockists is against post dated cheques issued by them to the assessee and to that extent the credit risk of the assessee on local sales is also negligible. In any case, there was a specific clause for payment of interest @18% if the stockists delayed the payments, whereas the invoices of, the AE permitted a credit period of 60 days. The assessee has also contended that without considering the manufacture for the export transactions, the production capacity util ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reduced by per unit salary cost of employees engaged in marketing field. 18. We find that the difference in FAR as submitted assessee has been cogently rebutted by assessee below. Hence we find no infirmity in the direction of the dispute admission panel in this regard. 19. We find that the learned counsel of the assessee has made a proposition before us that assessee has only used its surplus/spare capacity to make exports to the associated enterprise and it has actually made a profit out of the same. We find that this line of argument was never before the authorities below. We do not find any cogency in the same for taking this international transaction out of the ambit of ALP determination. As a matter of fact it is in fact an admission on the part of the assessee that prices charged from the associated enterprise are comparatively lower, which in turn further fortifies the action of the transfer pricing officer. We note that it is the contention of the learned counsel of the assessee that the assessing officer has not given effect to the direction of the DRP regarding adjustment in ALP computed by T.P.O. we direct the assessing officer to follow the direction of the disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier years. The assessee, consequent to the treatment of the e-connectivity charges of earlier years as capital in nature would have a brought forward written down value of e-connectivity assets of Rs. 2,07,69,309. In accordance with the consistent treatment given to these payments by the Department in the earlier years, depreciation allowance on the opening written down value for the period presently under consideration ought to have been granted to the assessee in the draft assessment order. The AO is hereby directed to do so after verification of the relevant facts. 22. In absence of any convincing arguments by the counsel of the assessee against the above treatment we dismiss the ground raised by the assessee in this regard. It is needless to add that assessing officer is bound to give effect to the direction of the dispute resolution panel in this regard 23. The issues raised with respect to levy of interest u/s. 234B & 234D are consequential in nature 24 issue raised with respect to short grant of credit of Advance Tax is not a matter appealable before the ITAT. Hence the same is dismissed. 23. In the result appeals filed by the assessee stand partly allowed as a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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