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05-09-2019, Ranbaxy Laboratories, Section 144C, 92D, Tribunal Ahmedabad

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4 months 2 weeks ago #10721 by amit
Section - 144C, 92D, 40(a)(ia), 37, 80G, 8D, 14A
Order Date - 05-09-2019
Favouring - Partly allowed for statistical purposes
Court - Tribunal Ahmedabad
Appellant - Ranbaxy Laboratories Ltd.
Respondent - DCIT
Citation - 919Taxpundit50
Appeal No. - IT(TP)A No. 781/Del/2015
Asstt. Year - 2009-10 & 2010-11



The captioned appeals have been filed at the instance of the Assessee against the separate orders of the Dispute Resolution Panel-II, New Delhi [ DRP in short] vide order dated 27/12/2013 & 04/12/2014 arising in the assessment orders passed under s.143(3) r.w.s.144C of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 30/01/2014 and dated nil (for Ay 2010-11) relevant to Assessment Years (AYs) 2009-10 & 2010-11 respectively.

First, we take up ITA No. 1782/Del/2014 AY 2009-10 This appeal is preferred by assessee (hereinafter referred to as “appellant”) against the order passed by the assessing officer (hereinafter referred as “AO”) under section 143(3) read with section 144C of the Income Tax Act,1961 (hereinafter referred as “The Act”) dated 30.01.2014 as per the direction of learned Dispute Resolution panel (hereinafter referred as DRP)-II dated 27.12.2013.

2. The assessee has raised the following grounds of appeal as under:-

“1. That on the facts and circumstances of the case, and in law, the Assessment Order dated 30.01.2014 passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (The Act') in pursuance of the directions issued by the Learned Dispute Resolution Panel ('Ld DRP') is illegal and bad in law.

1.1 That the Ld DRP erred on facts and in law in confirming the additions/ disallowances proposed in the draft assessment order passed by the assessing officer, without judiciously considering the factual and legal objections filed against the said o der.

1.2 That the DRP erred on facts and in law in not directing the assessing officer to delete various additions/ disallowance, which were squarely covered in favour of the appellant by the order(s) of the appellate authorities for earlier years.

1.3 That the DRP erred on facts and in law in not independently considering/ directing the assessing officer to consider certain claims made by way of notes forming integral part of the return on the ground that the said claims were not made in the return and no variation was proposed on the said claims in the draft assessment order.

2. That the Ld. DRP erred, both on facts and in law, in confirming the addition of Rs.145,13,17,725 by holding that the appellant's international related party transactions do not satisfy the arm's length principle as envisaged under the Act and in doing so the Ld. DRP has grossly erred in agreeing with the Ld. Transfer Pricing Officer's ('TPO') action of:

2.1 disregarding the arm's length price ('ALP') and the methodical benchmarking process carried out by the appellant in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act readwith Rule 10D of the Income-tax Rules, 1962 ('Rules');

2.2 not accepting the overseas Associated Enterprises ('AEs') as the tested party, being the least complex of the transacting entities and instead considering the appellant as the tested party thus violating the basic principles of TP.

2.3 disregarding the approach adopted by the appellant of undertaking a regional benchmarking in the TP report which is in line with the globally accepted TP principles.

2.4 holding that relevant and sufficient financial data is not available for the comparable companies selected by the appellant.

2.5 holding that financial accounts of the overseas AEs need to be re-casted from April to March and ignoring the fact that the financials of the overseas comparables furnished in the TP report have similar period as that of the AEs.

3. That the Ld. AO/DRP erred in modifying the supplementary economic analysis conducted by the appellant, taking appellant as the tested party and while doing so the Ld. AO/DRP has grossly erred by:

3.1 disregarding the ALP and the methodical benchmarking process carried out by the appellant while preparing the supplementary economic analysis as submitted before the Ld. DRP and Ld. TPO in order to meet their requirements;

3.2 disregarding the approach adopted by the appellant of using the multiple year/ prior available year's data in the supplementary economic analysis and holding that current year (i.e. Financial Year 2008-09) data for comparable companies should be used despite the fact that the same was not necessarily available to the appellant at the time of preparing TP documentation;

3.3 resorting to arbitrary rejection of low profit making companies based on erroneous and factually incorrect reasons;

3.4 selecting random companies as comparables without providing a search strategy and thereby undertaking cherry picking of comparables with the sole objective of making the adjustment;

3.5 modifying the search strategy consistently applied by the appellant and including certain companies that are not comparable to the appellant in terms of functions performed, assets employed and risks assumed;

3.6 by not allowing appropriate economic adjustment for research and development expenses undertaken to enhance comparability;

3.7 not appreciating that TP adjustment cannot exceed the total profit made by the overseas AEs from the international transactions entered into with the appellant company.

4. On the facts and in the circumstances of the case and in law, the Ld. AO/DRP has erred in disregarding sound TP principles and judicial pronouncements in India in undertaking the TP adjustment.

5. That the Ld. AO/DRP erred on facts and in law in holding that deferred employee compensation deb ted to the Profit & Loss Account (P&L) pursuant to company's Employees Stock Option Scheme (ESOP) amounting to Rs. 6,84,523 is not allowable as deduction.

5.1 That the AO/DRP erred on facts and in law in holding that employees compensation expense claimed by the appellant did not represent a crystallized liability and the claim being without any evidence, random in nature, hence not allowable as deduction.

5.2 That the AO/DRP further erred on facts and in law in holding that since the appellant did not deduct any tax at source, the amount claimed was disallowable under section 40(a)(ia) of the Act.

5.3 Without prejudice, that the AO/DRP failed to appreciate that: (a) tax was not deductible on mere issuance of options and (b) no disallowance, in any case, can be made under section 40(a)(ia) of the Act on account of alleged non-deduction of tax on payments made in the nature of 'emoluments' to employees.

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