2017 (4) TMI 462 - AT - Income Tax

Tribunal Decisions: ALP Adjustments, Disallowance Issues, Deductions, Expenses Treatment

Cadila Healthcare Limited Versus Assistant Commissioner of Income Tax OSD Range 1, Ahmedabad and Vice-Versa

Cadila Healthcare Limited Versus Assistant Commissioner of Income Tax OSD Range 1, Ahmedabad and Vice-Versa - TMI Issues Involved:1. Upward adjustment on international transactions involving Transfer Pricing provisions.2. Disallowance under section 40(a)(i) for non-deduction of TDS on payments to non-residents.3. Disallowance under section 14A for expenses related to tax-exempt income.4. Eligibility for deduction under section 80IC.5. Treatment of product registration expenses.6. Treatment of trademark registration and patent fees.7. Allowability of weighted deduction under section 35(2AB).8. Depreciation on a vehicle registered in the name of a director.9. Addition to book profit under section 115JB.Detailed Analysis:1. Upward Adjustment on International Transactions Involving Transfer Pricing Provisions:- Interest on Loans to AEs: The TPO made an ALP adjustment of Rs. 5,00,35,270 on the grounds that the assessee did not charge interest on optionally convertible loans to its AEs. The Tribunal found that the loans were quasi-capital in nature, and the true reward for the loans was the opportunity to own capital on favorable terms. Therefore, the ALP adjustment was deleted.- Corporate Guarantee Charges: The TPO proposed an ALP adjustment of Rs. 4,19,22,177 for not charging guarantee fees on corporate guarantees issued to AEs. The Tribunal referenced the decision in Micro Ink Ltd and held that corporate guarantees were in the nature of shareholder activities and not services, leading to the deletion of the ALP adjustment.- Liaison Services: The TPO rejected the comparables selected by the assessee for product registration services, leading to an ALP adjustment. The Tribunal remitted the matter back to the DRP for fresh adjudication, emphasizing that the TPO must provide valid comparables.2. Disallowance under Section 40(a)(i) for Non-Deduction of TDS on Payments to Non-Residents:- The Assessing Officer disallowed Rs. 18,18,96,302 under section 40(a)(i) for non-deduction of TDS on payments for clinical trials, bio-analysis, consultancy, and legal fees. The Tribunal noted that the DRP had not examined the matter on merits and remitted the issue back to the DRP for fresh adjudication, directing them to consider specific case-by-case comments from the Assessing Officer.3. Disallowance under Section 14A for Expenses Related to Tax-Exempt Income:- The Assessing Officer disallowed Rs. 16,06,73,002 under section 14A, while the assessee had offered Rs. 3,89,21,994. The Tribunal directed the Assessing Officer to reconsider the disallowance, taking into account the assessee's objections regarding the inclusion of investments abroad and the correct figure of interest paid.4. Eligibility for Deduction under Section 80IC:- The DRP allowed the assessee's claim for deduction under section 80IC on the entire profit, including the profit from marketing the same products. The Tribunal upheld the DRP's decision, noting that the issue was covered by earlier decisions in the assessee's favor.5. Treatment of Product Registration Expenses:- The Assessing Officer treated product registration expenses as capital expenditure, while the assessee claimed them as revenue expenses. The Tribunal upheld the DRP's decision to treat these expenses as revenue, referencing earlier decisions in the assessee's favor.6. Treatment of Trademark Registration and Patent Fees:- The Assessing Officer classified trademark registration and patent fees as intangible assets, while the assessee claimed them as revenue expenses. The Tribunal upheld the DRP's decision to treat these expenses as revenue, referencing earlier decisions in the assessee's favor.7. Allowability of Weighted Deduction under Section 35(2AB):- The Assessing Officer disallowed weighted deduction for expenses incurred outside the approved R&D facility. The Tribunal upheld the DRP's decision to allow the deduction, referencing earlier decisions in the assessee's favor.8. Depreciation on a Vehicle Registered in the Name of a Director:- The Assessing Officer disallowed depreciation on a vehicle registered in the name of a director. The Tribunal upheld the DRP's decision to allow the depreciation, noting that the vehicle was used for business purposes and beneficial ownership rested with the assessee company.9. Addition to Book Profit under Section 115JB:- The Assessing Officer added Rs. 16,06,73,002 to book profit under section 115JB, corresponding to the disallowance under section 14A. The Tribunal upheld the DRP's decision to delete the addition, referencing earlier decisions in the assessee's favor.Conclusion:- The appeals were partly allowed or dismissed based on the detailed analysis and findings of the Tribunal, with several issues remitted back to the DRP for fresh adjudication.