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2010 (4) TMI 883 - ITAT MUMBAITP adjustment - determining the arm’s length price - MAM selection - expenses incurred by the assessee which were reimbursed by the associated concern to the assessee - whether mark up percentage over cost being 5 per cent is correct or not? - whether the comparable cases, as selected by TPO, were substantially similar to the assessee’s function or not? HELD THAT:- SIRO Clinpharm Pvt. Ltd. was engaged in conducting clinical trial services. It was an organization which was mainly doing the clinical research activity and, therefore, when the TPO was adopting it as a basis for comparing the assessee’s transaction then as per rule 10B(1)(a)(ii ), she was required to adjust in regard to differences. As per sub-clause (iii) of clause (c) of rule 10B, when cost method is adopted, the normal gross profit is required to be adjusted to take into account the functional and other differences, if any, between the international transaction and the comparable uncontrolled transactions. Therefore, 17.14 per cent mark up in the case of SIRO Clinpharm Pvt. Ltd. was required to be adjusted before it could be made applicable for determining the arm’s length price in regard to international transaction entered into by the assessee. As details of expenses incurred by the assessee which were reimbursed by the associated concern to the assessee contained and pointed out that the assessee had incurred such expenses which were directly relatable to the research activity. We find the laboratory charges paid are Rs. 11,875 but the payments to hospital for initiating study is Rs. 7,54,050. This clearly shows that mainly the assessee has made the payment not for laboratory test but mainly to hospitals that carried out the clinical test on the patients. The assessee’s infrastructure was only in the form of furniture, vehicle, office equipments and computers, which were used for general administration and it was not sufficient for carrying out the whole research activity. Therefore, the assessee was solely dependent on the data provided by the doctors in various hospitals. The main function of the assessee was to collate the data and transmit the same to Byk Gulden for which it was suitably reimbursed by Byk by mark up of 5 per cent over the cost. The assessee’s functions were more like co-ordinator/facilitator rather than performing the function itself. Further, the assessee’s submission that its profits were exempt under section 10B carries lot of substance because the assessee was, in no way, benefited by charging 5 per cent mark up as against 17.14 per cent fixed by TPO because, in any view of the matter, the profits were exempt. The assessee has also pointed out that the profits by the AEs have been subjected to tax in the respective overseas jurisdiction and, therefore, there is no necessity for the assessee to transfer the profits in any overseas jurisdiction. This aspect should not have been lost sight of while examining the issue. In view of above discussion, we do not find any infirmity in the order of ld. CIT(A) and, accordingly, we uphold the same.
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