Bio Merieux India Pvt. Ltd., New Delhi vs Assessee

I.T.A. No. 3942/DEL/2010 A.Y. : 2006-07 M/s Bio Merieux India Pvt. Ltd., Dy. Commissioner of Income A-32, Mohan Cooperative Indl. VS. Tax, Area, Circle 3(1), Mathura Road, New Delhi New Delhi (PAN: AAACB4984F) (APPELLANT) (RESPONDENT)

Assessee by : Sh. Neeraj Jain, Adv. & Ms. Deepali Agarwal, CA Department by : Sh. Judy James, Standing Counsel

Date of Hearing : 24-3-2015 Date of Order : 30-3-2015

ORDER

PER H.S. SIDHU : JM This appeal by the Assessee is directed against the

assessment order dated 22.6.2010 of the Assessing Officer passed

u/s. 143(3) r.w.s. 144C of the I.T. Act, 1961 pertaining to

assessment year 2006-07.

2. The brief facts of the case are that the assessee in its transfer

pricing report had created segmental accounts and based on that an

internal TNMM analysis was carried and international transactions

were considered to be at Arm's Length. The Transfer Pricing Officer

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(TPO) rejected the internal bench marking carried out by the

assessee since the segmentation of its accounts was artificially

created by the assessee for the purpose of transfer pricing. As per

the TPO assessee does not maintain any reliable segmental data.

2.1 The TPO has taken OP/Sales as Profit Level Indicator (PLI) and

selected three companies, namely MJs. Casil Health Products Ltd.,

Organon (India) Ltd. and Span Diagnostics Ltd., as comparable

companies. While doing so the TPO has taken the segmental of the

comparable companies wherever it was available. The assessee

has objected to the selection of these comparables on the grounds

of the functions performed by these three companies and also on

the segmental accounts.

3. The TPO vide order dated 15.10.2009 has determined the

arm's length price w.r.t. the international transactions carried out by

the assessee and directed the AO to add a sum of Rs. 1,67,41,313/-

to the taxable income of the assessee. The assessee challenged

the draft assessment order before the DRP. The DRP has passed a

cryptic order on 30.4.2010 and consequently the final order has

been passed by the Assessing Officer. Aggrieved with the AO's

order, the assessee is in appeal before us on the following grounds:-

1. That the assessmg officer erred on facts and m law in

completing the assessment under section 144C read with

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sectionI43(3) of the Income-tax Act (the Act) at an income of

Rs. 43,65,760 as against the returned loss of Rs. 1,23,96,776.

2. That the assessing officer erred on facts and in law in

making an addition of Rs.1,67,41,313 to the income of the

appellant, on account of the alleged difference in the arm's

length price of international transactions undertaken during

the previous year.

3. That the assessing officer erred on facts and in law in

disregarding the internal benchmarking undertaken by the

assessee for determining the arm's length price of the

international transactions applying TNMM on the ground that-

(a) the audited financials do not maintain bifurcation of AE

and non AE business; the reporting of financial information in

annual audited account is based at entity level;

(b) the audited financials of the assessee do not contain

information about AE and non AE revenue separately;

(c) the allocation of expenditure to the AE and non AE

segment is not available in audited financials of the assessee;

(d) the allocation of expenditure on the basis of turnover

cannot be made because as per terms and conditions of the

agreement between the assessee and the AE, the assessee

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was required to incur expenditure on discounts, marketing,

maintenance and after sale services and was required to main

prescribed infrastructure for reporting and sales

administration. Accordingly, these AE specific expenditure

cannot be allocated on the basis of turnover.

( e) in support of the other claim of the assessee that revenue

and expense allocation to AE and non AE segments can be

ascertained correctly as the assessee has maintained ERP

accounts package, the assessee did not furnish any record in

support thereof.

4. That the assessing officer erred on facts and In law in

disregarding the segmental profitability submitted by the

appellant alleging that the correctness of allocation of

expenses and revenue to AE and non AE segment by the

appellant were not reliable, without pointing out any specific

error in the segmentation of profitability made by the

appellant.

5. That the assessing officer erred on facts and In law in

undertaking benchmarking analysis applying TNMM

considering certain external comparable companies

disregarding the internal comparison available on record.

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ITA NO. 3942/Del/2010

6. That the assessing officer erred on facts and in law in not

appreciating that internal comparison for application of TNMM

undertaken by the appellant was accepted in the Transfer

Pricing assessment for the preceding previous years, i.e.,

assessment years 2002-03,2003-04 and 2004-05.

7. That the assessing officer erred on facts and in law by

comparing the net operating profit margin of the appellant

which is engaged in "pure trading of diagnostic products" with

the net operating margins of companies at entity level which

are into manufacturing / manufacturing of different drugs,

capsules, contraceptives, injectables, cream, powder, hospital

disposables and other multiple activities.

7.1 That the assessing officer erred on facts and in law in

considering Casil Health Products Ltd., Organon (India) Ltd and

Span Diagnostics Ltd. as comparable companies for

undertaking the benchmarking analysis applying TNMM.

7.2 That the assessing officer erred on facts and in law in

taking the operating profit margin of 4.26% of Casil Health

Products Ltd. at entity wide level disregarding the loss of

13.31% from the "diagnostic product segment" available in the

audited financial statements of the Casil Health Products Ltd.,

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merely on the ground that certain expenses net of unallocated

income aggregating to Rs.52,626 were not allocated.

7.3 That the assessing officer erred on facts and in law in not

appreciating that in case of Organon (India) Ltd., sales of

diagnostic products constituted only 3.31 % of the gross sales

and the said company ought to have been excluded from the

list of comparable companies.

7.4 That the assessing officer erred on facts and in law in

considering Organon (India) Limited as part of the set of

comparable companies for applying TNMM on entity-wide basis

without appreciating that significant part of turnover of the

said company was from manufacturing operations of different

drugs, capsules, contraceptives, injectables, cream, powder

and other products as opposed to trading of "diagnostic

products" undertaken by the appellant.

7.5 That the assessing officer alternatively ought to have

considered operating profit margin of Organon (India) Ltd. at

(-) 6.91% attributed to trading segment instead of the entity-

wide margin of 15.38%, for undertaking the benchmarking

analysis.

7.6 That the assessing officer erred on facts and in law in

considering Span Diagnostic Limited as part of comparable

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companies for applying TNMM, not appreciating that said

company was primarily engaged in manufacturing activities,

considering that only 38% of the total turnover was from

trading in diagnostic products.

7.7 That the assessing officer erred on facts and in law in not

appreciating that in absence of data to determine operating

profit margin from "Trading segment", Span Diagnostic could

not be relied upon as comparable company for undertaking the

benchmarking analysis applying TNMM.

7.8 Without prejudice, that the assessing officer erred on

facts and in law in considering the combined net operating

profit margin of M/s. Casil Health Products Limited for applying

TNMM instead of considering only net operating profit margin

of the diagnostic products segment of the said company.

7.9 Without prejudice, that the assessing officer erred on

facts and in law in not appreciating that the gross profit margin

earned by the appellant from the international transactions of

trading / resale of diagnostic products at 31.32% was higher

than the average gross profit margin of 19.95% earned by the

comparable companies identified by the Transfer Pricing

Officer and, therefore, no adjustment on account of arm's

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length price of international transactions was even otherwise

called for being made.

7.10 Without prejudice, that the assessing officer erred on

facts and in law in considering the operating profit margin of

the appellant at 3.46% as against 4.29% after taking into

account rental income from equipment and after sale service

Income.

8. That the assessing officer erred on facts and in law in

restricting depreciation on computer peripherals and

accessories to 15% as against 60% claimed by the appellant.

The appellant craves leave to add, alter, amend or vary from

the aforesaid grounds of appeal before or at the time of

hearing."

4. After hearing, Shri Neeraj Jain, Ld. Counsel of the Assessee

and Shri Judy James, Ld. Departmental Representative/Standing

Counsel for the Revenue, we find that the Order dated 30.4.2010

passed by the Dispute Resolution Panel (DRP), New Delhi u/s. 144C

of the I.T. Act, 1961 is a cryptic and non speaking one. None of the

contentions raised by the assessee, have been dealt with by the

DRP. Under the circumstances, we have no other alternative, but to

remand back the matter to the file of the DRP for fresh adjudication,

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in accordance with law. The DRP shall pass a speaking order and

address all the contentions raised by the assessee.

4.1 We also find that before us the assessee has filed an

Application under Rule 29 of the Income Tax (Appellate Tribunal)

Rules, 1963 for admission of additional evidences. The DRP shall

consider this Application under Rule 29 on merits also.

5. In the result, the Appeal filed by the Assessee stands allowed

for statistical purposes.

Order pronounced in the Open Court on 30/3/2015.

Sd/- Sd/-

[J.S. REDDY] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date 30/3/2015 "SRBHATNAGAR" Copy forwarded to: - 1. Appellant -

2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches

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