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07-06-2019, Randox Laboratories (India), Section 144C(13), 92C, Tribunal Mumbai

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3 months 1 week ago #9705 by amit
Section - 144C(13), 92C
Order Date - 07-06-2019
Favouring - Assessee
Court - Tribunal Mumbai
Appellant - Randox Laboratories (India) P. Ltd.
Respondent - ITO
Citation - 619Taxpundit121
Appeal No. - IT(TP)A no.507/Mum./2015
Asstt. Year - 2010–11



Aforesaid cross appeals arise out of the final assessment order dated 6th February 2015, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2010–11, in pursuance to the directions of the Dispute Resolution Panel–II (DRP), Mumbai.

IT(TP)A no.507/Mum./2015
Assessee’s Appeal

2. In grounds no.1 and 2 the assessee has challenged the addition made on account of transfer pricing adjustment of ` 1,10,43,948, by applying Transactional Net Margin Method (TNMM) after rejecting assessee’s bench marking under Resale Price Method (RPM). Of course, in ground no.3, the assessee has raised ancillary and incidental issue relating to the computational aspect.

3. Brief facts are, as stated by the Transfer Pricing Officer, the assessee is a wholly owned Indian subsidiary of Randox Laboratories Ltd., a company based in United Kingdom. The parent company is primarily engaged in the business of manufacturing medical diagnostic reagents and analyzers. Whereas, the assessee is engaged in import of reagents and diagnostic equipments (analyzers) from the parent company and selling them to independent third parties in India. During the year under consideration, the assessee entered into various international transactions with its overseas Associated Enterprise (AE). However, in the present appeal, we are concerned with the international transaction relating to purchase of reagents, spares, analyzers etc. amounting to ` 9,55,52,538. In the transfer pricing analysis, the assessee benchmarked the aforesaid transaction by selecting RPM as the most appropriate method. It selected four independent comparables having arithmetic mean of 13.61% on the basis of three years weighted average Since, the gross profit margin shown by theassessee @ 47.09% was much higher than the arithmetic mean of the comparables, the international transaction with the AE was claimed to be at arm's length. In the course of proceedings before him, the Transfer Pricing Officer called upon the assessee to submit updated margin of comparables using the data for the financial year relevant to the assessment year under dispute. In response, the assessee submitted the updated margin of the comparables as per which the arithmetic mean worked out to 13.9%. Thus, on the basis of the aforesaid updated margin also, the international transaction under consideration was claimed to be at arm's length. The Transfer Pricing Officer, however, was of the view that RPM cannot be the most appropriate method to benchmark the international transaction with the AE since the assessee is not merely a trader but is also involved in manufacturing activity. Thus, he called upon the assessee to explain why RPM should not be rejected and TNMM should not be applied as the most appropriate method to benchmark the international transaction. Though, the assessee objected to the show cause notice issued by the Transfer Pricing Officer with elaborate submissions justifying applicability of RPM, however, the Transfer Pricing Officer did not find merit in the submissions of the assessee. Ultimately, he rejected the transfer pricing analysis done by the assessee under RPM and proceeded to determine the arm's length price by applying TNMM is the most appropriate method. After proceeding as such, though, the Transfer Pricing Officer accepted the comparables selected by the assessee, however he held that the Profit Level Indicator of the assessee and comparables Operating Profit / Operating Income have to be computed at net level. In this process, the Assessing Officer determined the margin of the assessee at (–)2.44% as against the average margin of the comparables @ 9.40%. Accordingly, the Transfer Pricing Officer determined the arm's length price of the import cost to AE at ` 8,45,08,589, as against the import cost paid by the assessee at ` 9,55,52,538. This resulted in an adjustment of `1,10,43,948. The aforesaid adjustment proposed by the Transfer Pricing Officer was added back to the income of the assessee in the draft assessment order. Though, the assessee raised objections against the aforesaid adjustment, however, learned DRP rejecting the objections of the assessee upheld the decision of the Transfer Pricing Officer.

4. Shri Ajit Jain, learned Counsel for the assessee submitted, the assessee is a simple reseller of goods imported from the AE without any value addition. He submitted, the assessee imports reagents from the AE and sells them to third party customers in India. Whereas, analyzers imported from AE are not for trading. Explaining further, he submitted, assessee does not undertake any manufacturing activity. He submitted, the assessee imports reagents which are required for clinical analysis in analyzers (diagnostic equipments). He submitted, in the impugned assessment year, the assessee has not started its manufacturing activity as it was in the process of setting–up of its factory. In this context, he drew our attention to the notes to the accounts forming part of the annual report of the assessee. Drawing our attention to the schedule of fixed assets forming part of the Balance Sheet, he submitted, in the year under consideration there is no plant; hence, there is no manufacturing activity. The learned Counsel submitted, analyzers are imported not for resale but for providing them to the customers in India who purchased reagents from the assessee. He submitted, as per the terms of the agreement

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