Segregation Of Contract Manufacturing Activity And Distribution Is Fair And Reasonable: Mumbai ITAT

The Bench comprising Vikas Awasthy (Judicial Member) and Gagan Goyal (Accountant Member) observed that “segregation of Contract Manufacturing activity and Distribution is fair and reasonable. Merely for the reason that the assessee committed error in TP study to merge the two distinct segments under one head would not mean that the error cannot be rectified, subsequently”. (Para 23)

As per the brief facts of the case, the assessee, engaged in manufacturing and distribution of Pharmaceutical Products, characterized its activities as Licensed Manufacturer, but during proceedings before TPO, the assessee recharacterized itself as Value-Added Distributor. The TPO rejected assessee's TNMM and adopted CUP method as MAM, collecting data from Customs Data Base (TIPS).

While rejecting the assessee's plea for recharacterization as VAD, the Bench noted that assessee is not seeking re-characterization in respect of second segment i.e. procurement of APIs from non-AEs and manufacturing of FDFs through Toll manufacturer, though the manner of operation in both the segments is same, except for source of procurement of APIs.

The Bench referred to the Delhi ITAT decision in Tilda Riceland Pvt. Ltd and Coordinate bench decision in Dow Chemical International (P) Ltd wherein it was held that information available in TIPS data base is available in public domain, is reliable, and can be used to determine ALP under CUP method.

The Bench observed that reasonable adjustment w.r.t quality of comparables can be allowed to assessee, pointing that no comparative analysis of quality of APIs (imported by assessee and by TPO's comparable) was available before TPO/DRP.

Once CUP was held to be MAM to benchmark a particular transaction, it cannot now be argued that CUP is not MAM without there being any change in the facts and nature of transaction, added the Bench.

Further, the Bench found that the assessee had clubbed distribution and contract manufacturing segments and was now seeking segregation of both segments.

Thus, the ITAT restored the issue to AO/TPO for fresh examination of Distribution segment after segregation.

Counsel for Appellant/ Assessee: P.J. Pardiwala & Madhur Agrawal

Counsel for Respondent/ Revenue: Dr. Yogesh Kamat & Ujjwal Kumar Chavan

Case Title: Fulford (India) Limited vs DCIT

Case Number: ITA No 338/MUM/2014

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