Modus Operandi for determining the ALP under the `Profit Split method� as per Rule 10B(1)(d)

IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH, ‘C’, PUNE
BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND
SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER

ITA Nos.738, 739 & 740/PUN/2017

Assessment Years : 2011-12, 2012-13 & 2013-14

M/s. Sava Medica Ltd.,
Sava House, 3rd Floor,
Lawani Plaza, B-Wing,
Plot No.57/58, Sakorenagar,
Viman Nagar, Pune – 411007
PAN: AANCS8819F

vs

ACIT, Central Circle
2(1), Pune

Assessee by : Shri Kishor Phadke
Revenue by : Shri Sangram Gaikwad
Date of hearing : 25-08-2021
Date of pronouncement : 30-08-2021

ORDER

153A of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) in relation to the assessment years 2011-12, 2012-13 & 2013-14. Since some common issues have been raised in these appeals, we are, therefore, proceedings to dispose them off by this consolidated for the sake of convenience.

2.The assessee is aggrieved by an addition of Rs.37,78,910 made by the AO in the impugned order. Pithily put, the factual panorama of the case is that the assessee is a part of the Sava group of companies, which is engaged in the business of manufacturing, importing and exporting pharmaceutical drugs etc. It filed a return declaring loss of Rs.1,94,792 on 30.11.2011.

3. We have heard both the sides and gone through the relevant material on record. It can be seen from the TPO’s order that no separate detailed discussion qua the ALP determination has been made in the body of the order except following his own order passed in the case of Anagha Pharma Ltd. now Sava Healthcare Ltd. [hereinafter also called the `other Indian entity (OIE)’] for the A.Y. 2007-08, whose copy has been placed at page 99 onwards of paper book.

4. Sub-clause (i) of the rule emphatically provides that: `the price at which property purchased … by the enterprise from an associated enterprise is resold   to an unrelated enterprise, is identified’. Thus, it is glaring that this method applies where an Indian entity purchases goods from its foreign/AE and then resells the same. The entire mechanism in the subsequent sub-clauses of rule 10B(1)(b) is a consequence of this foundational fact.

5. The AO made a reference to the TPO for determining their ALP. The TPO, vide his concise order dated 29.01.2016, determined the amount of transfer pricing adjustment at Rs.54,08,226. He did not separately discuss  the merits of the transfer pricing addition but, as done for th preceding year, relied on the discussion made by him in his order passed in the case of OIE for the A.Y. 2007-08.

6.If the contention is that such expenses, which are otherwise operating in nature, relate to the future years, then naturally such expenses should have formed part of the operating costs base for the future years. On a clarification in this regard, the ld. AR candidly admitted that such costs for both the years were not included in the operating cost base of any of the future years.

7.In the result, the appeal for the A.Y. 2011-12 is partly allowed for statistical purposes and the appeals for the A.Ys. 2012-13 and 2013-14 are dismissed.
Order pronounced in the Open Court on 30th August, 2021.

Please find attached the enclosed file for the full judgement