The Income-Tax Appellate Tribunal (ITAT) set aside a massive transfer-pricing adjustment of Rs 357.35 crore on the ground that the Transfer Pricing Officer (TPO) had applied an ad-hoc methodology outside the ambit of Section 92C of the Income-Tax Act, thereby affirming the importance of prescribed methods in international transaction pricing.
Background & Facts
The Dispute
UCB India Private Limited (the assessee) challenged the final assessment order for Assessment Year 2016-17 that incorporated a transfer-pricing adjustment of Rs 357.35 crore and treated the sale of its identified business to Dr. Reddy's Laboratories Limited (DRL) as a deemed international transaction under Section 92B(2). The assessee contended that the transaction was an arm-length slump sale and that the TPO had ignored independent valuation reports and the contribution analysis submitted by the assessee.
Key Facts
- 01.04.2015: UCB India entered into a Business Transfer Agreement (BTA) with DRL for the sale of identified pharmaceutical business, receiving consideration of Rs 434.65 crore (reported as Rs 440.80 crore in the final settlement).
- 16.06.2015: UCB Global (UCB Farchim SA and UCB Biopharma SPRL) entered into a Trademark Assignment Agreement (TAA) with DRL, receiving Rs 359.20 crore for the intellectual-property rights.
- 31.10.2019: The TPO issued an order under Section 92CA(3), attributing 99% of the total Rs 800 crore consideration to UCB India and proposing a TP adjustment of Rs 357.35 crore.
- 21.12.2019: Draft assessment order under Section 144C(1) proposed to tax the TP adjustment as business income.
- 19.03.2021: Dispute Resolution Panel-3 (DRP) upheld the TP adjustment of Rs 357.35 crore and directed that it be taxed as capital gains.
- 22.04.2021: Final assessment order passed, assessing total income at Rs 1,131,56,51,392 and including the TP adjustment.
- 23.04.2021: Assessee filed a rectification application under Section 154 challenging double addition of capital gains, interest computation and classification of TDS interest.
- 28.12.2023: Rectification order reduced total income to Rs 743,93,32,610.
- 28.08.2026: Hearing before the ITAT.
- 31.08.2026: Judgment pronounced.
Procedural History
- 28.08.2026: Original appeal (ITA No. 905/MUM/2021) filed before the ITAT “J” Bench, Mumbai, by UCB India challenging the final assessment.
- 31.08.2026: ITAT delivered its order, partially allowing the appeal.
Parties' Positions
- Assessee (UCB India): Argued that the TPO failed to apply any of the six prescribed methods under Section 92C, relied on independent valuation reports, and submitted a detailed contribution analysis showing a 55.10% share of consideration for UCB India.
- Revenue (Assessing Officer): Maintained that the transaction was a deemed international transaction, that AMP expenses justified attributing most of the consideration to UCB India, and that the TP adjustment was correct.
Relief Sought
UCB India sought deletion of the TP adjustment of Rs 357.35 crore, recharacterisation of the transaction as a capital gain, refund of excess Dividend Distribution Tax (DDT) paid on a dividend to its non-resident shareholder, and reversal of interest under Section 234A.
