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of <h1>High Court affirms Tribunal decisions on transfer pricing & R&D deductions, emphasizing correct expense allocation &D</h1> <h3>Commissioner of Income Tax – LTU Versus M/s. Glenmark Pharmaceuticals Ltd</h3> Commissioner of Income Tax – LTU Versus M/s. Glenmark Pharmaceuticals Ltd - [2019] 417 ITR 479 (Bom) Issues:1. TP adjustment made by TPO on corporate guarantee2. Deduction under Section 80-IC and Section 35(2AB) for R&D expenses allocation3. Double deduction claimed for R&D expenditureAnalysis:Issue 1 - TP Adjustment on Corporate Guarantee:The Tribunal allowed the appeal of the respondent, holding that the Arm's Length Price of a corporate guarantee cannot be determined based on a Bank Guarantee. The Revenue's appeal to the High Court was dismissed as it did not raise any substantial question of law. The High Court noted no distinguishing feature from a previous case and upheld the Tribunal's decision.Issue 2 & 3 - Deduction for R&D Expenses Allocation:The respondent had units in Himachal Pradesh and Maharashtra, claiming deductions under different sections of the Income Tax Act. Disagreements arose regarding the allocation of R&D expenses for deduction purposes. The Assessing Officer enhanced the allocation of R&D expenses to the Himachal Pradesh unit, reducing the relief under Section 80-IC. The CIT(A) further enhanced the income by disallowing weighted deduction under Section 35(2AB) to the Maharashtra units. The Tribunal found that the CIT(A) erred in law regarding the deduction under Section 35(2AB) as the R&D expenditure was incurred at approved facilities in Maharashtra, not Himachal Pradesh. The Tribunal directed the Assessing Officer to determine if any R&D expenditure had a nexus to the Himachal Pradesh unit. The High Court upheld the Tribunal's decision, emphasizing that expenses incurred on R&D work cannot be allocated to a unit that did not incur such expenses. The High Court concluded that the issue was rightly restored to the Assessing Officer for further examination in line with the decision in Zandu Pharmaceuticals Works Ltd.In summary, the High Court dismissed the appeal, upholding the Tribunal's decisions on both issues and emphasizing the importance of correctly applying tax laws and ensuring expenses are allocated appropriately for deductions.
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