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TMI Blog2015 (9) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... ns given by the DRP in its order on this aspect also, in our view is acceptable. The transaction between TPL and the Assessee for manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials, in our view, cannot fall within the ambit of the provisions of sec.92(1) of the Act. The reason for the above conclusion is that tax base erosion in India can happen only at the point of time of supply of insulin crystals by Novo Nordisk A/S. Thereafter it is the Assessee who gets the crystals converted into manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials and sells it in the Indian market. This transaction cannot result in erosion of tax base in India. The income of TPL from manufacture is subjected to tax in India. The sale of finished products by Assessee is subjected to tax in India. Therefore there can be no tax base erosion in India from the transaction of manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials by Assessee through TPL. - Decided in favour of assessee. Determination of ALP - Whether the transaction of supply of raw material excepient/insulin crystal by Novo Nordisk A/S to the Assessee can be benchma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vention fee will not be subjected to any ALP test and will only go to reduce the addition on account of determination of ALP, if any, that might ultimately survive - Decided in favour of assessee by way of remand. Disallowance made u/s.40(a)(ia) - Held that:- The order of the AO making disallowance u/s.40(a)(ia) of the Act which was sustained by the AO/DRP is set aside and the issue of disallowance u/.s.40(a)(ia) of the Act is directed to be decided afresh by the AO in the light of the certificate in form No.26-A filed by the Assessee and in the light of the decision referred to by the learned counsel for the Assessee. The correctness of the sale value as claimed by the Assessee will also be verified by the AO. The AO will afford opportunity of being heard to the Assessee before deciding the issue with liberty to furnish additional evidence to substantiate the claim of the Assessee. - Decided in favour of assessee by way of remand. Determination of ALP in respect of an international transaction of rendering IT enabled Services(ITES) by the Assessee to its AE - issue of inclusion/exclusion of companies as comparables - Held that:- Accentia Technologies Limited be excluded from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andran, CIT-III (DR) ORDER Per N.V. Vasudevan, Judicial Member IT(TP)A No.146/Bang/15 is an appeal by the Assessee against the order dated 9.01.2015 of DCIT, 5(1)(2), Bangalore, relating to A.Y. 2008-09 passed u/s.143(3) read with Sec.144C of the Income Tax Act, 1961 (Act). 2. The Assessee has raised as many as 50 grounds of appeal. It shall be convenient to first take up for consideration grounds 39 to 47 and the additional ground raised by the Assessee. The facts material for adjudication of the aforesaid grounds of appeal is as follows. 3. Novo Nordisk India Private Limited, hereinafter referred to as the Assessee , is a company incorporated under the Companies Act, 1956 in April, 1994. It is a subsidiary of Novo Investments Pte. Ltd., Singapore and Novo Nordisk region International Operations A/S Denmark . Novo Nordisk A/S. Denmark, hereinafter referred to as Novo Nordisk A/S is holding company of the holding companies of the Assessee. Therefore the Assessee and Novo Nordisk A/S are Associated Enterprises (AE) as defined in Sec.92A of the Act. The business of the Assessee is trading in high purity Insulin formulation, Insulin delivery system and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Novo Nordisk. There is no dispute that the Assessee and Novo Nordisk A/S are Associated Enterprises within the meaning of the said term as defined in Sec.92A of the Act. 6. The Assessee submitted a Transfer Pricing Study (TP Study) along with the report required to be filed in terms of Sec.92E of the Act in Form No. 3CEB. In the TP Study the Assessee took the stand that the transaction of purchase of excipients, purchase of finished goods, payment for quality testing and receipt of subvention fee between the Assessee and Novo Nordisk A/S are closely linked to the distribution function (purchase of finished products) and hence was being evaluated by adopting a combined transaction approach under the nomenclature Distribution Segment . According to the Assessee in order to assess, whether international transactions are at arm s length, a transfer pricing method may be applied to each of the transactions separately or to all such transactions a single group of transactions. According to the Assessee in its case, given the range of transactions involved it would not be appropriate to apply the arm s length method on a transaction-by-transaction basis. Hence international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been licensed by Novo Nordisk A/S to Novo Nordisk India free of charge. 4.3.28 Novo Nordisk A/S has entered into a insulin crystals and excepients bulk supply agreement dated January 04, 2000, which were amended from time to time vide extension agreement with Torrent. As per the above-mentioned insulin crystals and excepients bulk supply agreement, Torrent shall purchase the agreed quantity of insulin crystals and excepients only from Novo Nordisk A/S. Further the crystals and excepients shall be used solely for the manufacture of human monocomponent and highly purified insulin in 40 IU vials with the know-how and trade mark sub-licensed by Novo Nordisk India. Additionally, the insulin shall be sold only to Novo Nordisk India. 4.3.29 In the light of the above, Novo Nordisk India has entered into a insulin formulations supply agreement dated January 04, 2000, which were amended from time to time vide extension agreement with Torrent, whereby it agrees to buy the confirmed quantity of insulin, provided the formulations are manufactured strictly in accordance with the know-how and manufacturing standard. In order to ensure that the insulin produced by Torrent meets with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s like technical updates, continuous medical educational programs, global sponsorship programs for doctors etc. 4.3.33 The marketing executives are trained and scientifically equipped with regard to the product and disease through the medical team to enable them to promote the product with doctors and patients. The training includes imparting information about the disease and its control, drug therapy etc. The medical team handles customer complaint and undertakes Market Research so as to collate data and to provide assistance to customers in coping with the disease and administering the drug. This data is used as a database and feedback generated allows to understand the acceptability of the product and its effects on the patients. Necessary corrective actions are taken especially if such complaints are related to quality control reasons and ample monitoring is done both by Novo Nordisk India and Novo Nordisk A/S. The customer complaints are sent to a central database in Denmark where an international product safety section analysis the nature of such complaints. (emphasis supplied) 9. The Assessee s operating profit to sales in the distribution segment was arrived at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Novo Nordisk HealthCare AG. The products purchased locally are procured by the Assessee from TPL. The Agreement between the Assessee and TPL on the one hand and the Agreements between TPL and Novo Nordisk A/S and agreement between the Assessee and Novo Nordisk A/S are as follows: 1. Know-how license Agreement dated 28.2.1994: Novo Nordisk A/S owns the know how i.e., formulae, processes, recipes, product specifications, technical and manufacturing data, information, equipment, specification, specifications of raw materials and utilities and all other technical information and data, whether patented or not, accumulated techniques, experience and skill owned or possessed or acquired (referred to as Novo Nordisk know-how) to produce Novo Nordisk products i.e., products listed in appendix-1 to the agreement, which includes Human Monocomponenet Insulin Formulations (40 iu/ml in 10ml vials) and Highly Purified Porcine Insulin Formulations (40iu/ml in 10ml vials) (referred to as Novo Nordisk Products). Under clause 2.01 of the know-how license agreement dated 28.2.1994, Novo Nordisk A/S grants to the Assessee the exclusive right and license to use or sub-license the use of the Novo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are used as raw material in manufacture of 40 iu insulin vials. The agreement also refers to the know-how license and trade mark license between the Assessee and Novo Nordisk A/S and further refers to insulation formulations supply agreement between TPL and the Assessee. These are the agreements set out in sl.No.1 to 3 of the various agreements. These are referred to in appendix 5 to this agreement. Clause 2.5 of the agreement provides that appendices to the agreement form part of this agreement, i.e., Insulin Crystals and Excepients Bulk Supply Agreement dated 15.2.1994. The agreement provides for several restrictions with regard to maintenance of inventory by TPL of the raw material imported. Clause 5.3 of the Agreement is very material for the present case and it reads thus: 5.3. The Purchaser shall use the Insulin Crystals and Excepients only for the purpose of manufacturing Human Mono component and Highly purified Insulin in 40 IU vials ( formulations ) more particularly specified in Appendix4m with the know-how to be supplied by the Seller under a separate technology and know-how agreement to be entered into between the Purchaser and Novo Nordisk (India) Pvt. Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved at an operating margin of 15.5% (50% of 31%) to be earned by the Assessee based on application of PSM, thereby enhanced the overall adjustment in distribution segment by INR 58,831,508. 16. The DRP confirmed the order of the AO. Hence grounds No. 39 to 47 by the Assessee before the Tribunal. 17. At the time of hearing it was agreed by the parties before us that the facts and circumstances and the basis on which the addition was made in the present assessment year is identical to the facts and circumstances and the basis on which addition was made in AY 09-10 and this tribunal has already considered the said addition made in AY 09-10 in IT(TP) A. No.122/Bang/2014 order dated 8.5.2015. The Tribunal framed the following issues for consideration in that year:- 1. Whether transaction by which incipient (raw material for manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials) is supplied by Novo Nordisk A/S to TPL and the transaction by which the Assessee engages the services of TPL to convert the incipient into Human Mono component and Highly Purified insulin in 40 IU Vials and ultimately sells the same in Indian market on behalf of Novo Nordisk A/S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the transaction for supply of incipient was between Novo Nordisk A/S and TPL. Though the condition that at least one of the parties to a transaction should be a non-resident is satisfied in respect of this transaction, TPL is admittedly not an associated enterprise of Novo Nordisk A/S. and therefore the said transaction cannot be regarded as International Transaction . As far as the transaction of manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials is between TPL and the Assessee, the learned counsel submitted that both the Assessee and TPL are residents and therefore the condition that either or both the parties to a transaction should be non-resident is not satisfied and therefore the said transaction cannot also be regarded as International Transaction . 50. He then drew our attention to the provisions of Sec.92B(2) of the Act which provides a transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n associated enterprises under section 92B(2}. Under section 92A, two or more enterprises once determined to be associated enterprises remain so for the entire financial year. Their relationship will not change for different transactions between them. They will remain associated enterprises even if they do not have any transaction during the previous year. On the other hand, a transaction between an enterprise and another person can be deemed to be transaction between associated under section 92B(2} only in respect of transactions specified therein and not otherwise. This fiction is transaction specific and does not apply to all transactions between the enterprise and person, on the basis that one transaction attracts section 92B(2}. 28.6 Section 92B(2} was enacted to hit at those cases where two associated enterprises intend to have an international transaction but want to avoid transfer pricing provisions by interposing a third party as an intermediary. In such cases, the third party intermediary will generally not be the ultimate consumer of the services or goods. The intermediary would facilitate the transfer of services or goods from one enterprise to its associate enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are therefore not attracted. b. That transfer pricing provisions are not applicable to transactions between two domestic related parties. The transfer pricing regulations have been specifically been made applicable to transactions between two domestic related parties by virtue of the amendment through Finance Act, 2012. In case, the existing provisions were applicable to domestic transactions then there was no need to bring about the for the above amendment. 28.8 The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs in terms of section 92A(1) and 92A(2) of the Act. In our opinion, the transactions between the assessee and IJMII do not fall under section 92B(2) of the Act. Being so, as contended by the learned AR in his lengthy arguments, in our opinion, the DRP simply wants to keep the matter alive, though they agreed with the assessee's counsel, and confirmed the order of the TPO (AO). In our opinion, the argument of the Department is devoid of merit. Accordingly, we agree with the contention of the assessee's counsel on legal issue. Since we have decided on legal issue on applicability of tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns supply agreement between TPL and the Assessee i.e., the Human Mono component and Highly Purified insulin in 40 IU Vials. Clause 7.1 of the agreement provides that in the event of discontinuance of production by TPL, the all saleable unexpired stock of Insulin Crystals and excepient should be delivered to Novo Nordisk A/s. Clause-11.2 of the Agreement specifically provides that the bulk supply agreement shall be co-terminus with the Insulin Formulations Supply agreement between TPL and the Assessee and the know-how and trade mark sub-license agreement between the Assessee and TPL. 2. Know-how License Agreement and Trade mark License Agreement between TPL and the Assessee in clause 2.01 specifically provides that the agreement by which use of knowhow and use of trade mark by TPL was sub-licensed to TPL for manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials, specifically provides that the Assessee will disclose the source of the Assessee s right to grant sub-license of know-how and trade mark as from Novo Nordisk A/S and further provides that such original license agreement will be deemed to be incorporated in the sub-license agreement. 3. Insulin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Novo Nordisk A/S. This arrangement makes all the three parties namely Novo Nordisk A/S. Novo Nordisk India and Torrent, as associated enterprises and since one of the parties (i.e. Novo Nordisk A/S.) is a non-resident, it would amount to an international transaction that needs to comply with the Indian Transfer Pricing Regulations. 57. According to the learned DR this contradictory stand taken by the Assessee in the course of proceedings before TPO/DRP and now before the Tribunal, that there is no deemed international transaction of Manufacture according him has to be rejected. According to him the essential function performed by the Assessee was clearly Manufacturing for and on behalf of Novo Nordisk A/S. 58. The Learned DR then laid emphasis on the point that Sec.92(1) lays emphasis on determination of income from an International Transaction. According to him it was important to understand the meaning of the term Transaction as used in Sec.92(1). He drew our attention to the provisions of Sec.92F(v) of the Act which reads thus:- Definitions of certain terms relevant to computation of arm s length price, etc. 92F. In sections 92, 92A, 92B, 92C, 92D and 92E, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the report required to be filed in terms of Sec.92E of the Act in Form No. 3CEB. In the TP Study the Assessee accepted that the transaction of supply of excepients which is a raw material for manufacture of Human Mono-component and Highly Purified Insulin in 40 IU Vials, is an international transaction. According to the Assessee the arrangement for supply of raw materials for manufacture between Assessee, TPL and Novo Nordisk A/S. makes all the three parties namely Novo Nordisk A/S. Novo Nordisk India and Torrent, as associated enterprises and since one of the parties (i.e. Novo Nordisk A/S.) is a non-resident, it would amount to an international transaction that needs to comply with the Indian Transfer Pricing Regulations. The Assessee in its TP study characterized the transaction of supply of raw material by Novo Nordisk as akin to the distribution of products imported from Novo Nordisk A/S. The Assessee further took the stand that the transaction of purchase of excepients, purchase of finished goods, payment for quality testing and receipt of subvention fee between the Assessee and Novo Nordisk A/S are closely linked to the distribution function (purchase of finished products) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ques, experience and skill owned or possessed or acquired (referred to as Novo Nordisk know-how) to produce Novo Nordisk products i.e., products listed in appendix-1 to the agreement, which includes Human Monocomponenet Insulin Formulations (40 iu/ml in 10ml vials) and Highly Purified Porcine Insulin Formulations (40iu/ml in 10ml vials) (referred to as Novo Nordisk Products). Under clause 2.01 of the know-how license agreement dated 28.2.1994, Novo Nordisk A/S grants to the Assessee the exclusive right and license to use or sub-license the use of the Novo Nordisk know-how to manufacture Novo Nordisk Products at the Plant. Plant means the manufacturing facilities of the Assessee or those of its sub-licensee and or contractor manufacturer(s) as the case may be where Novo Nordisk A/S know how is used for production of any of Novo Nordisk Products. 2. Trade Mark Master License Agrement-1 dated 28.2.1994: Novo Nordisk A/S owns Trade Marks Actrapid, Lentard, Monotard, Insulatard, Mixtard, NovoPen, NovoFine, Glucagon Novo. By the agreement dated 28.2.1994, the Assessee is given the Master License to exclusively use and or sub-license the use of the Trade Marks of the aforesaid products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This agreement is between Novo Nordisk A/S and TPL. This Agreement in its preamble refers to the fact that TPL wants to enter into a long term purchase agreement with Novo Nordisk for purchase of Human Mono component and Highly Purified Porcine Insulin Crystals and Excepients, which are used as raw material in manufacture of 40 iu insulin vials. The agreement also refers to the know-how license and trade mark license between the Assessee and Novo Nordisk A/S and further refers to insulation formulations supply agreement between TPL and the Assessee. These are the agreements set out in sl.No.1 to 3 of the various agreements. These are referred to in appendix 5 to this agreement. Clause 2.5 of the agreement provides that appendices to the agreement form part of this agreement, i.e., Insulin Crystals and Excepients Bulk Supply Agreement dated 15.2.1994. The agreement provides for several restrictions with regard to maintenance of inventory by TPL of the raw material imported. Clause 5.3 of the Agreement is very material for the present case and it reads thus: 5.3. The Purchaser shall use the Insulin Crystals and Excepients only for the purpose of manufacturing Human Mono componen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties to the transaction is a non-resident the conditions specified in Sec.92B(1) of the Act are satisfied. 66. The decision of the ITAT Hyderabad in the case of M/S. Swarnandhra IJMII Integrated Township Development Co. Pvt. Ltd. (supra) was rendered on different facts. The ITAT in the aforesaid decision specifically found that the transaction in question did not involve transfer of goods or services from the assessee to IJM Group (non-resident AE) or to any other nonresident enterprise, either directly or indirectly, or by using IJMII as an intermediary. The transaction in question involved direct rendering of services by IJMII to the assessee. In the present case however the facts, as we have seen, is that there was transfer of raw material (excepient insulin crystals) by the non-resident AE to the Assessee, which clearly attracted the provisions of Sec.92(1) and 92B(1) of the Act. In the decision rendered by the ITAT Mumbai in the case of Kodak India Pvt. Ltd. (supra) in para 52 of the order, the Tribunal has clearly brought out that the global agreement did not have any role effect on the transactions of the two domestic companies and therefore deeming provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee is subjected to tax in India. Therefore there can be no tax base erosion in India from the transaction of manufacture of Human Mono component and Highly Purified insulin in 40 IU Vials by Assessee through TPL. Issue No.1 is decided accordingly. Issue No.2, 3 4 2. Whether the transaction of supply of raw material excepient/insulin crystal by Novo Nordisk A/S to the Assessee can be benchmarked for the purpose of determining ALP together with the international transaction of import of products directly from Novo Nordisk A/S and selling the same in India ( which is purely distribution function performed by the Assessee on behalf of Novo Nordisk A/S) on the plea that both the transactions are interlinked and therefore have to be benchmarked together 3. If the answer to the above question is in the negative, How the ALP of the transactions has to be determined? 4. Whether the determination of ALP as directed by the DRP is correct? 67. The learned DR submitted that the Assessee s action in combining/aggregating the activity of manufacture and sale of Human Mono component and Highly Purified insulin in 40 IU Vials with the pure distribution function of sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard and direct that the determination of ALP of the international transaction of (i) supply of raw material by Novo Nordisk A/S to the Assessee and (ii) import of product directly from Novo Nordisk A/S and sale of such products, which is in the nature of trading, separately. The segmental results as given by the Assessee in the chart given as ANNEXURE- 1 to this order should be adopted in this regard. As far as Quality Testing Fee is concerned, the ALP of the said transaction is to be tested again independently. The Assessee is accordingly directed to give his Transfer Pricing Analysis on the above lines for each of the transaction separately. As to what is the Most Appropriate Method (MAM) to be adopted will depend on the stand taken by the Assessee in its TP study and the opinion of the TPO on the approach adopted by the TPO. The application of Profit Split Method (PSM) as the MAM in our view requires reconsideration, as the Assessee s request for a personal hearing before applying PSM as MAM has not been considered by the DRP. The subvention fee is claimed to be paid by Novo Nordisk A/S just to help the Assessee to help survive and that there is no specific services render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 5.1.2012 wherein the Hon ble Karnataka High Court took the view that the payment made by the Assessee to TPL for insulin vials was in the nature of contract for work which requires tax deduction at source u/s.194C of the Act. According to the Assessee the issue has not attained finality and an appeal by way of SLP is pending against the said decision before the Hon ble Supreme Court. 21. It is not necessary for us to decide the controversy as to whether the payment made by the Assessee to TPL is payment for contract of work falling within the ambit of Sec.194C of the Act which requires tax deduction at source or not for the following reason. The learned counsel for the Assessee filed before us cop of the order of the ITAT Bangalore in the case of Shri G.Shankar Vs. ACIT ITA No.1832/Bang/2013 for AY 05-06 dated 10.10.2014 . In the aforesaid decision the amendment to Section 40(a)(ia) brought by the Finance Act 2012 was considered. The Tribunal noticed that with a view to liberalize provisions of Section 40(a)(ia) of the Act Finance Act 2012 brought amendment w.e.f 01.04.2013 as under. The following second proviso was inserted in sub-clause (ia) of clause (a) of Section 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. 24. The Tribunal thereafter observed that the provisions of Sec.40(a)(ia) of the Act are meant to ensure that the Assessee s perform their obligation to deduct tax at source in accordance with the provisions of the Act. Such compliance will ensure revenue collection without much hassle. When the object sought to be achieved by those provisions are found to be achieved, it would be unjust to disallowance legitimate business expenses of an Assessee. Despite due collection of taxes due, if disallowance of genuine business expenses are made than that would be unjust enrichment on the part of the Government as the payee would have also paid the taxes on such income. In order to remove this anomaly, this amendment has been introduced. In case of payment to non-resident, the government do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P is set aside and the issue of disallowance u/.s.40(a)(ia) of the Act is directed to be decided afresh by the AO in the light of the certificate in form No.26-A filed by the Assessee and in the light of the decision referred to by the learned counsel for the Assessee. The correctness of the sale value as claimed by the Assessee will also be verified by the AO. The AO will afford opportunity of being heard to the Assessee before deciding the issue with liberty to furnish additional evidence to substantiate the claim of the Assessee. Accordingly these grounds are treated as allowed. 28. Ground Nos.1 to 3 are general grounds and Ground Nos.17 to 24 raised by the Assessee are general grounds in relation to determination of ALP in respect of all international transactions which were referred to TPO and considered by the DRP in so far as it is prejudicial to the Assessee. These grounds need no specific adjudication. 28. Ground No.25 to 32 raised by the Assessee are with regard to addition of ₹ 83,95,951/- made to the total income consequent to determination of ALP in respect of an international transaction of rendering IT enabled Services(ITES) by the Assessee to its AE. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl. No. Company Name 1. Accentia Technologies Limited 2. Cosmic Global Ltd. 3. Eclerx Services Ltd. 4. Genesys International Ltd. 5. Infosys B P O Ltd. 11. We have heard the arguments of both the sides on the issue of inclusion/exclusion of the above five companies as comparables and also perused the relevant material on record including the various decisions of the coordinate benches of the Tribunal cited by the learned counsel for the assessee. Accentia Technologies Limited 12. As regards the selection of Accentia Technologies Limited as comparable, the learned counsel for the assessee has relied on the decisions of this Tribunal in the cases of Capital IQ Information Systems (India) Pvt. Ltd. V/s. Addl./Dy. Commissioner of Income-tax, Circle 1(2), Hyderabad and vice versa (ITA No.124 and 170/Hyd/2014 dated 31.7.2014); Excellence Data Research Pvt. Ltd., Hyderabad V/s. ITO Ward 2(1), Hyderabad (ITA No.159/Hyd/2014 dated 31.7.2014); and Hyundai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect the AO/TPO to exclude the Accentia Technologies Limited from the list of comparables. .. Infosys BPO 20. As regards selection of Infosys BPO as a comparable company, the learned counsel for the assessee has contended that the said company cannot be taken as comparable because of its uncomparable size of operations. He has contended that the turnover of the said company was many times higher than that of the assessee during the year under consideration. Although the Learned Departmental Representative has contended that the size of operations does not matter as far as selection of comparables is concerned especially in the sector of IT Enabled services, it is observed that similar issue has been decided by the Hon ble Delhi High Court in the case of CIT V/s. Agnity Technologies Pvt. Ltd. (219 Taxman 26) holding that huge turnover companies like Infosys and Wipro cannot be considered as comparables with smaller companies like the assessee in the present case. Respectfully following the decision of the Hon ble Delhi High Court in the case of Agnity Technologies P. Ltd. (supra), we direct the Assessing Officer/TPO to exclude Infosys BPO from the list of comparables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative support services; and (ii) Clinical Trial Activities. The international transactions pertaining to Clinical Trial Segment was analysed by the TPO as under. 35. In carrying out Clinical Trial activities, the taxpayer had incurred two types of expenditure. First, its own cost of ₹ 68,03,275/- and second, cost of ₹ 6,19,54,270/- on account of activities outsourced. While it has received compensation of cost with mark up of 13% relating to former, it received latter amount on cost-to-cost basis and claimed it as reimbursements. 36. The TPO however was of the view that the Assessee was in fact rendering clinical trial services to it s AE and chose comparable companies engaged in clinical trial services and arrived at a arithmetic mean of those companies at 18.37% operating cost to Total cost in para 5.5 of the TPO s order. The Assessee objected to the characterization of the Administrative Support Services rendered by it to its AE as Clinical Trial. The Assessee submitted that it was operating as a support hub and provided coordination for the clinical trial activity of Novo Nordisk A/S. The Assessee is compensated at a cost-plus mark up of 13% based on the Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the authorities on safety information. The Assessee undertakes support and coordination services with respect to phase II and phase III of the multi-centric trials for products of Novo Nordisk A/S, which are under development. The Assessee identifies centers for trials, selects the patients and ensures that the trials are run as per Good Clinical Practices ( GCP ) laid out by Novo Nordisk A/S. These tests are administered on patients in India with local permission from the authorities and with the consent of the patients through the investigators. The results of these studies are then collated and reported to Novo Nordisk A/S for further analysis and research. The Assessee pointed out that it s infrastructure was only in the form of furniture and fixtures, office equipment, data processing machines, motor vehicles and lease hold improvements, which were used for general administration and it was not sufficient for carrying out the whole clinical research activity. The main function of the Assessee is to collate the data and transmit the same to Novo Nordisk A/S for which it is substantially reimbursed by Novo Nordisk A/S by mark-up of 13% on cost. The above activities are akin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing adjustment u/s 92CA in respect of Clinical Trial Segment of the taxpayer s international transaction for the AY 2009-10. 39. Before the DRP, the Assessee reiterated submissions as were made before TPO. The DRP however confirmed the order of the TPO following the order of the DRP for AY 09-10. In AY 09-10, the DRP had held on this issue of clinical trial segment as follows: 15.3. Based on the above arguments, the assessee holds that the comparables selected by the TPO are functionally different from its own activities. However, the TPO on a consideration of the argument proceeded to determine the Transfer Pricing adjustment found that the functions discharged by the tax payer, assets deployed, risks assumed need not be separated out in order to distinguish its own cost and the comparable cost if done through third parties, when all the activities led to clinical trials conducted on behalf of the AE, which does not have any physical presence in India. 15.4. We have carefully considered the issue. From a perusal of the activities of the assessee, we find it farfetched to classify the same as mere administrative or coordination services. The conducing of clinical trials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de assertions. Facts with regard to the activities carried out by it on behalf of the AE for which the Assessee received administrative support service fee are within its knowledge. It has to substantiate that clinical research was in fact carried out by a third party pursuant to agreement with the AE and not with the Assessee and that the Assessee only carried out coordination activity for which it received payment from AE. Mere assertion before TPO/DRP and description of functional profile in the TP study will not be sufficient. We therefore direct the TPO to consider the issue afresh. The Assessee has to substantiate the real activities with supporting evidence and show that it did not carry out any clinical trial and that it acted only as co-ordinator between the AE and independent clinical trial service providers or hospitals. In the event of the Assessee s activities held to be clinical trial than the AO/TPO shall afford the Assessee opportunity to object to the comparability of the comparables that has been chosen or might be chosen by the TPO and in particular the additional evidence in the form of annual reports of Choksi Laboratories Ltd., NG Indusrtries Ltd. And Suven Li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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