Mylan Pharmaceuticals Private Limited Vs ACIT (ITAT Mumbai)
The appeal before the Income Tax Appellate Tribunal (ITAT), Mumbai, was filed by the assessee against the assessment order dated 23.01.2017, passed pursuant to the directions of the Dispute Resolution Panel (DRP) dated 28.11.2016. The principal dispute concerned a transfer pricing adjustment relating to the assessee’s Business Support Services segment and the rejection of its audited segmental results by the Transfer Pricing Officer (TPO) and the DRP.
Background of the case: During the relevant assessment year, the assessee carried on business in two distinct segments—Business Support Services and Trading in Finished Dosage Formulations (FDF). The Business Support Services segment provided services to its Associated Enterprise (AE) and was remunerated on a cost-plus 20% mark-up basis. The Trading in FDF segment was a new business activity commenced during the year and involved purchases from and sales to third parties.
The assessee submitted that its accounting system (SAP-ERP) maintained separate accounting codes for each segment, enabling direct allocation of segment-specific costs. Only common expenses amounting to Rs. 7,73,926 were apportioned between the two segments based on segmental costs. However, the TPO rejected the audited segmental results, re-cast the accounts by allocating the entire costs on the basis of the turnover of each segment, and adopted a 20% mark-up as the arm’s length margin instead of the comparable margin of 8.86%, resulting in a transfer pricing adjustment of Rs. 18.66 crore.
