2015 (5) TMI 936 - HC - Income Tax

Transfer pricing adjustment - selection of M/s Torrent Gujarat Biotech Limited and M/s Standard Pharmaceuticals Limited as comparables as directed by ITAT - Held that - The issues that arise in this case do not raise a question of law much less a substantial question of law. The Tribunal s order is far from perverse or absurd. It was a possible view. It was in fact a view that the TPO himself took by selecting Standard Pharmaceuticals Limited where use of PEN-G was only 5.23% as against the 7.60% use of PEN-G by Torrent Gujarat Biotech Limited. The Tribunal s view was more than just a probable one. Our attention was not invited to any error on principle in the choice of the said companies as comparables. - Decided against assesse.

Summary

Issues:
1. Whether the Tribunal erred in directing the TPO to include two companies as comparables for determining the arms length price (ALP) in an international transaction.

Analysis:

Issue 1: Tribunal's Direction to Include Companies as Comparables
The appellant raised a substantial question of law challenging the Tribunal's direction to include two companies, Torrent Gujarat Biotech Limited and Standard Pharmaceuticals Limited, as comparables for determining the ALP in an international transaction. The respondent had selected six companies as comparables, but the TPO rejected them and chose three other companies based on various grounds. The TPO's selection process included filters such as companies using Penicillin-G as raw material, among others. The Tribunal, however, held four companies, including Torrent Gujarat Biotech Limited and Standard Pharmaceuticals Limited, as appropriate comparables. The Tribunal emphasized that functional comparability, not identical usage of raw materials, should be the criterion for selection. It justified including these companies based on the proportionate usage of Penicillin-G and the absence of a stipulation on the extent of usage in the filters. The Tribunal's decision was considered reasonable and not perverse. It also included Standard Pharmaceuticals Limited as a comparable, despite the department's initial concession against it, to maintain consistency in the selection process. The argument that Torrent Gujarat Biotech Limited did not meet the criteria of having a negative net worth was dismissed as a new contention raised across the bar without prior mention in the proceedings. The High Court found no substantial question of law in the issues raised and upheld the Tribunal's order, dismissing the appeal.

This detailed analysis of the judgment highlights the key arguments, decisions, and reasoning behind the High Court's ruling on the issues raised in the case.