The Tribunal upheld the TPO's application of TNMM for transfer pricing adjustments, emphasizing the interlinked nature of transactions, and reaffirmed the importance of compliance with statutory regulations for R&D deductions and interest disallowances under section 14A.

ORDER

PER MANJUNATHA G.:

This appeal has been filed by the Assessee- Company as well as cross-appeal filed by the Revenue against the order dated 30.09.2022 of the learned CIT(A), Hyderabad-10, Hyderabad, relating to the assessment year 2016-2017.

2. Brief facts of the case are that, the appellant is a public limited company, engaged in the business of manufacturing Active Pharmaceutical Ingredients [in short “API”], Finished Dosage Formulations [in short “FDF”] and high quality generic injectable products. The appellant company undertakes Product Research and Development activities [in short “PDS”]. These activities are pointed-out into separate segments. The appellant company has entered into Advance Pricing Agreement on 31.03.2014 [in short “APA”] for sale of FDF. For assessment year 2016-2017, sales of FDF to AE's was covered under the FDF APA. The appellant company had also entered into APA for injectables sold to certain AE's. Injectable APA was entered into on 20.03.2023 after conclusion of the assessment, and after the filing of appeal before the ITAT, for assessment year 2016-17, sale of injectables to certain AE's is covered under the Injectables APA.

3. The appellant company has filed its return of income for the assessment year 2016-2017 on 30.11.2016 declaring total loss of Rs.1143,75,70,959/- under normal provisions of the Income Tax Act, 1961 [in short “the Act” and book loss of Rs.306,42,31,817/- under Section 115JB of the Act. The case of the appellant company was selected for scrutiny under CASS. During the course of assessment proceedings, a Reference u/sec.92CA of the Act was made to the Transfer Pricing Officer [in short “TPO”] for determination of the Arms Length Price [in short “ALP”] of international transactions of the appellant company with it’s AEs.

3.1. During the course of TP proceedings, the TPO noticed that, as per Form-3CEB report, the appellant company has reported various international transactions with its AEs for purchase of raw materials, sale of bulk drugs, sale of finished dosage formulations, sale of WHC formulations, provision of market support services, receipt of advance licence fee and other transactions. The Assessing Officer further noted that the appellant company has adopted hybrid method of selecting most appropriate method for different transactions and has adopted CPM, TNMM, CUP and Other Method for benchmarking different transactions with different AEs. The TPO has analysed the TP documentation report submitted by the appellant company in light of segmental financial accounts certified by the Cost Accountant. In the cost audit report, the API segment has been further divided into regulated and non- regulated markets. The regulated markets have been further divided into AEs and non AEs. The taxpayer has benchmarked these transactions by using cost plus method and an internal comparison of the gross profit margi