Income Tax Appellate Tribunal - Mumbai
Siro Clinpharm P.Ltd, Mumbai vs Ito Rg 3(3)(2), Mumbai on 7 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "K" MUMBAI
BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND
SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)
ITA No. 7294/MUM/2016
Assessment Year: 2012-13
M/s Siro Clinpharma Pvt. ITO-3(3)(2)
Ltd. 63, 6th floor, Lady Room No. 602,
Ratan Tata Medical and Vs. Aayakar Bhavan
Research Centre, M.K. M.K. Road,
Marg, Cooperage, Mumbai-400020.
Mumbai-400021.
PAN No. AAECS8588A
Appellant Respondent
Assessee by : Mr. Prakash Shah, AR
Revenue by : Mr. Saurabh Deshpande DR
Date of Hearing : 10/08/2017
Date of pronouncement: 07/11/2017
ORDER
PER N.K. PRADHAN, A.M.
This is an appeal filed by the assessee. The relevant assessment year is 2012-13. The appeal is directed against the order dated 28.11.2016 of the ITO-3(3)(2), Mumbai (hereinafter referred to as the 'AO') in pursuance of the directions issued by the Dispute Resolution Panel (DRP)-II, Mumbai dated 15.09.2016 u/s 144C(5) of the Income Tax Act, 1961 (The 'Act').
M/s Siro Clinpharma Pvt. Ltd. 2 ITA No. 7294/Mum/2016
2. The 1st ground raised by the assessee is against the addition of Rs.26,70,438/- made by the AO on account of interest on delayed payment of export receivables from the Associate Enterprises (AEs).
2.1 Briefly stated, the facts of the case are that the assessee had provided clinical trial services during the year to the AEs and non AEs. On account of delay in realisation of export receivables by the assessee from its AEs, the AO proposed an upward transfer pricing adjustment of Rs.63,99,829/- on account of interest on delayed realisation. The TPO/AO rejected the argument of the assessee and held that the delay in realisation of export receivables by the assessee from its AEs is an international transaction which ought to have been benchmarked by the assessee. Further, they held that since there is substantial delay on realisation from AEs vis-a-vis non-AEs and in the present case as the AEs have been given a benefit, interest is chargeable. The weighted average delay in the case of non-AE is 19 days. Therefore, they gave a benefit of 19 days to the AEs for computing the adjustment on account of the arm's length price.
The AO issued a draft assessment order dated 26.02.2016 u/s 143(3) r.w.s. 144C(1) after considering the TPO's order and proposed an adjustment of Rs.63,99,829/-.
2.2 Having heard the assessee, the DRP held as under:
"6.3.21 In the present case assessee has not submitted any details about creditworthiness of the AE to find out Internal/External CUP for similar borrowings by unrelated parties. The assessee has also not submitted credit ratings of the AE before receipt of the loan. The assessee has not carried out M/s Siro Clinpharma Pvt. Ltd. 3 ITA No. 7294/Mum/2016 any exercise for determination of ALP. We therefore, do not find any infirmity with the action of the TPO/AO.
6.3.22 The Ld. Counsel for the assessee was required to furnish the working of period of delay. On a perusal of these details of the transactions with the AE as well as non-AE, it is seen that the average delay in case of AEs is 142.02 days as compared to 40.73 days. Accordingly, we direct the AO/TPO to verify the working and apply interest rate of LIBOR/EUROBOR for benchmarking the transaction, since the invoices are in USD & EURO both; and further a mark up LIBOR/EUROBOR rates, on the country of AE/currency in which invoices was raised from Bloomberg data base as under:
12 Month Mark Up % Total % LIBOR 2.02 3.43 5.45 EUROBOR 0.91 1.79 2.70 6.3.23 In view of the foregoing, the objection raised by the assessee is partly allowed."
2.3 Subsequently, as per the direction of DRP, the TPO revised the upward adjustment on the reason that the weighted average realisation in the case of AEs is 142.02 days and 40.73 days in the case of non-AEs and therefore, interest charged on delayed realisation days are of Rs.26,70,438/-. The AO thus made an addition of Rs.26,70,438/-.
2.4 Before us, the Ld. counsel of the assessee submits that (i) the adjustment towards notional interest for delayed payment made by the AEs is not an independent and stand alone transaction, (ii) it was not open for the DRP to make a separate adjustment for delay in realisation of debts when the assessee having claimed that it had already factored in the impact of the receivables of the working capital in TNMM analysis M/s Siro Clinpharma Pvt. Ltd. 4 ITA No. 7294/Mum/2016 and thereby on its pricing/profitability vis-a-vis that of its comparable,
(iii) no independent study has been undertaken by the TPO, (iv) in any event, mere delay in realisation of debts cannot be reason to make an addition as long as such a delay is peculiar to the transactions with the AEs and more particularly when no interest is charged to even non-AEs.
2.5 On the other hand, the Ld. DR supports the order passed by the AO. He submits that in the instant case the weighted average realisation in the case of AEs is 142.02 days and 40.73 days in the case of non-AEs. Thus the AO has rightly made an addition of Rs.26,70,438/- on account of interest charged on delayed realisation days.
2.6 We have heard the rival submission and perused the relevant materials on record. The TPO has mentioned at para 3 of his order dated 14.01.2016 that 'the assessee is a clinical research organisation, offering full scope, end to end clinical research services to its clients mainly conducting clinical trials in pharmaceuticals, biotechnology and medical devices sector in compliance with international standards'.
We find from 'Form 3CB' that the assessee has adopted TNMM for determining arm's length price for receipt and payment in respect of 'provision of clinical trial services'. The TPO/AO have failed to consider the contentions of the assessee that (i) the adjustment towards notional interest for delayed payment made by the AEs is not an independent and standalone international transaction and (ii) it had already factored in the impact of the receivables of the working capital in TNMM analysis and thereby on its pricing/profitability vis-a-vis that of its comparable.
M/s Siro Clinpharma Pvt. Ltd. 5 ITA No. 7294/Mum/2016 Considering the above facts, we set aside the order on the above issue and restore the matter to the file of the AO to make a fresh assessment in the light of our observation hereinbefore, after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/evidence before the AO.
As the matter has been set aside and restored to the file of the AO, we are not adverting to the case laws relied on by the Ld. counsels.
Thus the 1st ground of appeal is allowed for statistical purposes.
3. The 2nd ground raised by the assessee in this appeal is against the denial of deduction of profit and gains from scientific research and development u/s 80IB(8A) amounting to Rs.14,80,61,409/-.
3.1 In a nutshell, the facts are that the AO observed that the assessee did not comply with the provisions of section 80IB(8A) and accordingly disallowed the claim of the assessee. In the present year, the deduction under the said section has been disallowed solely on the ground that the Revenue is in appeal against the order of the ITAT in the assessee's own case for the previous assessment years before the Hon'ble Bombay High Court.
3.2 The Ld. counsel of the assessee submits that the deduction under the said section has been allowed for the previous 9 assessment years (this being the 10th and the last year) either by the Tribunal (for the first 8 assessment years) or by DRP for the 9th assessment year. The appeals filed by the Revenue for the AY 2007-08 has been dismissed by the Hon'ble Bombay High Court vide its order dated 09.01.2017. The Ld. M/s Siro Clinpharma Pvt. Ltd. 6 ITA No. 7294/Mum/2016 counsel submits that in view of the above judgment of the Hon'ble Bombay High Court upholding the order of the Tribunal, the sole ground on which the disallowance has been sustained by the DRP has to be set aside and the deduction u/s 80IB(8A) deserves to be allowed to the assessee.
3.3 The Ld. DR fairly agrees with the order of the Hon'ble Bombay High Court.
3.4 We have heard the rival submissions and perused the relevant materials on record. We find that the following substantial question of law was urged by the Revenue in the case of the assessee (ITA No. 1315 of 2014).
"Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing the claim of the assessee for a deduction u/s 80IB(8A) of the Income Tax Act without appreciating the fact that the assessee did not fulfil the conditions stipulated in Rule 18DA for claiming deduction under Section 80IB(8A) of the Act."
The Hon'ble High Court held:
"3. The impugned order of the Tribunal allowed the respondent assessee's appeal. This by following the decision of its co-ordinate bench in Rubicon Research Pvt. Ltd. vs. Income Tax Officer (ITA No. 6122/Mum/2009) for AY 2006-07 rendered on 24th February, 2010 and the decision of this court in Indian Planetary Society vs. Central Board of Direct Taxes & Ors. 318 ITR 102.
4. Mr. Kotangle, Ld. counsel appearing for the Revenue very fairly states that the issue urged by the Revenue herein stands concluded against the Revenue by the decision of this Court in Indian Planetary Society (supra) M/s Siro Clinpharma Pvt. Ltd. 7 ITA No. 7294/Mum/2016
5. In the above view, the question as proposed does not give rise to any substantial question of law. Thus not entertained."
3.5 Respectfully following the above judgment, we direct the AO to allow the claim of the assessee of deduction u/s 80IB(8A). Thus, the 2nd ground of appeal is allowed.
4. In view of our decision on the 1st and 2nd ground of appeal, the initiation of penalty u/s 271(1)(c) does not survive. Thus the 3rd ground of appeal is allowed.
5. In the result, the appeal is partly allowed.
Order pronounced in the open Court on 07/11/2017.
Sd/- Sd/-
(MAHAVIR SINGH) (N.K. PRADHAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 07/11/2017
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Dy./Asstt. Registrar)
ITAT, Mumbai