The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has deleted transfer pricing adjustment pertaining to import of Minipress for trading purposes.
The Assessee, M/s. Pfizer Ltd. is into the business of manufacturing and trading in pharmaceutical and healthcare products as well as in the export of goods and services. During the year under consideration the assessee entered into international transactions with its AEs.
The issue raised was in respect of Transfer price adjustment made by the TPO to the tune of Rs. 2,34,00,0000/- qua international transaction pertaining to import of Finished Drugs Formulations (FDF) i.e. Minipress for trading purposes, deleted by CIT(A) is under challenge before the Tribunal.
The TPO compared the margin of the comparable companies i.e. 3.47% with operating loss incurred by the assessee i.e. -16.90%. It is also not in dispute that TPO had taken note of the fact that in AY 2003-04, margin at 3.41% was adopted to determine the arm‟s length price of import of Minipress for the purpose of trading. It is also not in dispute that assessee imported finished goods Minipress for the purpose of trading for Rs. 80,814,000/- and Minipress constitute the majority of import of finished goods for the purpose of trading totally at Rs. 90,651,000/-. In view of the aforesaid undisputed facts, TPO determined the arm’s length price
However, CIT(A) deleted the TP adjustment on the ground that profitability trend of the product from FY 2001-02 to 2009-10 is apparent and the assessee has suffered loss in FY 2004-05 only which is not on account of transaction with the related parties rather it was due to incurring substantial marketing expenses in the initial years. CIT(A) thrashed the facts brought on record by the assessee and reached to the conclusion that price of the import of Minipress for trading purpose is at arm’s length if the underlying economics is given due importance, because in the initial years businessman keeps the business strategy of marketing perceptions in mind.
The coram headed by Vice President, Pramod Kumar and Judicial Member Kuldip Singh held that the operating loss incurred during the year under consideration is certainly not on account of transfer pricing of the product, a rather due initial business strategy of marketing penetration adopted by the assessee. During the initial years for which, CIT(A) has rightly provided the economic adjustment, hence rightly deleted the transfer pricing adjustment pertaining to import of Minipress for trading purposes.
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