TaxTMI 
TaxTMI 
2013 (10) TMI 783
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder dated 09.08,2012 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A), the Revenue is now in appeal before us and Assessee has also filed CO. The grounds raised by the Revenue reads as under:- 1. Ld CIT(A) erred in deleting the addition made by the AO by way of upward adjustment on account of notional interest on OFCD to foreign subsidiary by holding that OFCD to be 'optionally convertible loan'. 2. Ld CIT(A) erred in holding that product Registration expenses of 43094280 are revenue in nature, when the 'Product Registration expenses made to' Drug Regulatory Authorities in various countries give enduring benefit of exporting the registered drugs for many years. 3. Ld CIT(A) erred in holding that Trademark Registration fee and Patent fee are revenue expenses, when the expenses were incurred on registration of Trademark in that country and also for registration of Patent, which are intangible assets under section 32(I)(ii) of the Act. 4. Ld CIT(A) erred in holding that that the expenses incurred outside the approved R & D facility would also get weighted deduction based on the word used "on in house" interpreting contradictorily to the finding o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al sanctity to segregate the profits, against the very provisions of section 80IA(8), proviso and Explanation there under. 11. Ld CIT(A) erred in deleting the addition of amount disallowed u/s 14 made to profit u/s 115JB, despite the specific clause (f) of Explanation-1 to 115JB. Expenditure quantified u/s 14A is nothing but expenditure relatable to income to which section 10 other than provisions of clause (38) apply. Ground No. 1 is with respect to adjustment made on account of notional interest on Optionally Convertible Debenture to Foreign Subsidiary. 4. During the course of assessment proceedings, Assessing Officer noticed that Assessee had subscribed to Optionally Convertible Loan of U.S. $ 27 Million issued by Zydus International Pvt. Ltd., Ireland. Accordingly reference under Section 92CA of the Act for computing of arms length price in relation to the transaction was made to Transfer Pricing Officer (TPO). TPO noted that the Assessee had entered into an agreement with Zydus International Pvt. Ltd. on 09.10.2007 for a convertible loan of U.S $ 27 Million which was subsequently utilized by the Ireland Company for acquiring shares in Zydus Healthcare, Brazil. As per the te....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entitled to interest at the rate of 6 months Libor plus 290 bps from the date of granting of loan on the amount which is not converted into equity. From this agreement it is clear that interest is payable only if conversion option is not exercised till the expiry of five-year period. If any time during this five-year period, conversion option is exercised and loan is converted in to equity, no interest will accrue or be payable. Appellant submitted that these kinds of instruments are generally issued/ invested by several public limited companies with non-AE investors. Appellant submitted details of some of the companies which issued zero coupon optionally convertible bonds to independent investors at completely arms length relationship. I have gone through the details of such convertible bond issues which did not have payment of interest if the same is converted to equity. There is no provision for payment of interest on such instruments annually since interest is subject to conversion of debenture/loan into equity. Appellant's case is no different than these cases. TPO made the adjustment in respect of notional interest for the period, the optionally convertible loan remained outs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement, funds were remitted abroad, such agreement cannot be disregarded. In fact, appellant converted loan into equity only on the basis of option provided in the said agreement. Therefore the terms of the agreement cannot be disregarded particularly when the same are at arm's length as discussed earlier. The decision relied upon by the TPO is in respect of interest free loan granted to the foreign subsidiary which is not applicable here. Appellant has not granted interest free loan but invested in optionally convertible loan of the subsidiary company with a clause of interest in case conversion option is not exercised. Therefore it is held that appellant's transaction with its subsidiary is at arm's length and therefore no adjustment is required on account of notional interest. 5. Aggrieved by the order of CIT(A) the Revenue is now in appeal before us. Before us, the learned D.R. relied on the findings of TPO and supported his order. 6. The learned A.R. on the other hand supported the order of CIT(A) and further submitted that the aforesaid loan was converted into equity in F.Y. 08-09. He therefore submitted that no addition was called for. 7. We have heard the rival submission....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egistered and approval is granted by a particular country, the Assessee can continue to export its goods over a long period of time and therefore the registration of product entitles the Assessee to a benefit of enduring nature in the form of marketing rights in that country which was in the form of intangible assets and therefore the expenditure was capital in nature. He was further of the view that by Finance Act, 1998, Section 32 of the Act has been amended and provision has been brought on statute for allowance of depreciation on intangible assets including business or commercial rights like marketing or sell rights. Since the statute provides for depreciation, the expenses related to acquisition of intangible assets cannot be allowed as revenue expenses. He further noted that in A.Y. 2006-07 & 2007-08 on similar issue, Dispute Resolution Panel had passed directions wherein the issue of disallowance was confirmed. He accordingly considered the aggregate amount of Rs. 7,48,24,709/- as capital expenditure but however allowed depreciation under Section 32 (1)(ii) of the Act. He accordingly made an addition of Rs. 4,30,94,280/- 10. Assessing Officer also noticed that Assessee had ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... held that no question of law arises and thus the matter was decided in Assessee's favour. He placed on record at page 130, 131 the copy of order of Hon. Gujarat High Court. He further submitted that since the issue has already been decided in assessee's favour, the same view be considered in the present case also. The learned D.R. on the other hand relied on the order of Assessing Officer. 13. We have heard the rival submission and perused the material on record. We find that for A.Y. 2007-08 on identical issue in Assessee's own case in ITA No. 2902/Ahd/2011 order dated 24.01.2013, the issue was decided in favour of Assessee by the Co-ordinate Bench of Tribunal by holding as under: 2.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the Tribunal decision cited by the Ld. A.R. We find that in assessment year 2006-07 raised before the Tribunal as per grounds No.2 & 3 and both these grounds were decided by the Tribunal in favour of the assessee as per para 3.12 of the Tribunal order which is reproduced below for the sake of ready reference: "3.12. We hereby hold that the payments in question are ine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evenue expenses on account of Research and Development to the tune of Rs. 9294.81 lakhs and has claimed 150% of the same as deduction under section 35(2AB). From the details submitted by the Assessee, Assessing Officer noticed that Assessee has incurred bio- study Expenses of Rs. 24,04,58,052/- which has been incurred outside the approved in-house Research and Development facilities but had charged the same under the head "Research and Development Expenses". Assessing Officer was of the view that as per the provisions of section 35(2AB), the benefit of enchanced deduction was available on expenditure on scientific research on in-house Research and Development facility as approved by the prescribed authority. He was of the view that the expenditure on clinical trials incurred outside the approved facilities cannot be considered to have been incurred "in house" for the purpose of this clause. He accordingly withdrew the enhanced 50% deduction amounting to Rs. 12,02,29,026/- on clinical trial expenses. He further noted that on identical issue for A.Y. 2006-07 & 07-08 the DRP had confirmed the disallowance. He accordingly disallowed Rs. 12,02,29,026/-. Aggrieved by the order of Assessi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on. ITAT. He placed on record the orders of both the years. He further submitted that against the aforesaid order of Tribunal, the Revenue preferred appeal before Hon. H.C. Hon. H.C. had dismissed the appeal of Revenue by holding that no question of law arises. He therefore submitted that following the decision of earlier years, the issue be decided in favour of Assessee. The ld. D.R. on the other hand relied on the order of Assessing Officer. 19. We have heard the rival submissions and perused the material on record. We find that Co-ordinate Bench of Tribunal in A.Y. 07-08 (order dated 24.01.2013) decided the issue in favour of Assessee by holding as under:- 3.8 We find that this issue is squarely covered in favour of the assessee by the Tribunal decision rendered in the assessee's own case for the assessment year 2006- 07 and only this argument was made by the Ld. D.R. that the Tribunal order rendered in the case of Concept Pharmaceuticals Ltd. (supra) and the judgement of Hon'ble Gujarat High Court rendered in the case of Claris Lifesciences Ltd. (supra) should be considered and we have already considered these two judgments cited by the Ld. D.R. and we have found that the jud....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ticed that Assessee has claimed Rs. 170.61 crore as deduction under 80IC of the Act for its unit at Baddi (H.P) being 100% of the profit of the unit. Assessing Officer noticed that Assessee had shown abnormally higher profit for Baddi unit at 54.49% of the turnover as compared to a profit of 7.29% for all other units taken together though the turnover of Baddi unit constituted 17.87% of the total turnover. The Assessee was asked to justify its claim and the abnormally higher profit of Baddi Unit as compared to other units. The Assessee interalia submitted that on identical facts in earlier year, the Assessee has been allowed deduction by DRP for A.Y. 06-07 & 07-08. The Assessee also submitted a comparative chart showing profit margin of products manufactured at Baddi in F.Y. 07-08 in comparison to the corresponding profit margin earned on such product when they were not so manufactured at Baddi. The submissions of the Assessee were not found acceptable to the Assessing Officer. He was of the view that in the year prior to the manufacture of products at Baddi unit, that is when the products were manufactured either through principal to principal supplier or at the formulations unit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....favor of revenue however no such decision on the issue could be submitted. Since there is no decision of ITAT special bench or any High Court or apex court on this issue in favor of revenue, the decision of jurisdictional ITAT in the appellant's own case will be binding on the undersigned. Considering the judicial discipline, CIT (A) cannot comment on the correctness or otherwise of the order of jurisdictional ITAT hence no discussion is made on the comments of the assessing officer while analyzing ITATs order. Respectfully following the aforesaid decision in the appellant's own case in the identical facts, assessing Officer is directed to allow deduction under section 80IC on the profit of Baddi unit claimed by the appellant. This ground is accordingly allowed. 22. Aggrieved by the order of CIT(A) the Revenue is now in appeal before us. Before us, the learned D.R. relied on the order of Assessing Officer. On the other hand the learned A.R. submitted that the facts in the year under appeal are identical to that of A.Y. 06-07 and for A.Y. 06-07 the issue has already been decided by Hon. ITAT in favour of Assessee. He therefore submitted that similar view be taken on the issue in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under the Statute, do not suggest such segregation or bifurcation, then it is not fair to draw an imaginary line to compute a separate profit of the Baddi Unit. The Baddi Unit has in fact computed its profit as per a separately maintained books of account of the eligible manufacturing activity. To implement the method of the computation at stand alone basis, as conveyed by the AO, the manufacturing unit has prepared a profit & loss account of its manufacturing-cum-sale business activity. If the Statute wanted to draw such line of segregation between the manufacturing activity and the safe activity, then the Statute should have made a specific provision of such demarcation. But at present the legal status is that the Statute has only chosen to give the benefit to "any business of drug manufacturing activity" which is incurring expenditure on research activity is eligible for this prescribed weighted deduction. The segregation as suggested by the AO has first to be brought into the Statute and then to be implemented. Without such law, in our considered opinion, if was not fair as also not justifiable on the part of the AO fo disturb the method of accounting of the assessee regularly ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nit at Morauya, the assessee was having of about 80.12% from all the products taken together which has increased to about 86.32%. He has observed that by setting up the manufacturing unit at Baddi, the assessee earned further profit of 6.2% on overall basis. On this basis, it is held that only additional 6.2% profit had been earned due to this unit at Baddi and therefore, the profit derived form Baddi unit was worked out to 6.2% on total turnover of Baddi unit and in this manner, he has worked out deduction allowable to the assessee u/s 80-1C in respect of Baddi unit at Rs. 14,44,65,492/-. 7.13 7.13 Now, we examine the legal provisions in this regard and hence, we reproduce provisions of section SO-1C. which are as under:........... As per sub-section (d) of Section 80-IC of the Income tax Act. 1961 reproduced above, sub-section (5) and sub -sections 7-12 of Section 80-IA are also applicable in the present case. The A.O. has invoked the provisions of subsection (8) of Section 80- IA of the Income tax Act, 1961/and therefore. We reproduce the provisions of sub-section (8) of Section 80-IA along with proviso which are as under:.............. 7.15 As per the provision of sub-sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to a non eligible unit, the A.O. has stated that Baddi unit has transferred the goods to the company who has sold such goods in the market and, therefore, it is a transfer of goods by the eligible unit to a non eligible unit. In our considered opinion, the action or the A.O. is not justified on any aspect. First of all, in the present case, there is no transfer of goods by the Baddi unit to any other unit of the assessee company and hence, the provisions of sub-section (8) of Section 80-IA are not applicable. We hold so because if Baddi unit is manufacturing the goods and it is sold by the company, it cannot be said that the goods were transferred by Baddi unit to some other unit. The assessee as a whole cannot be equated with any other business carried on by the assessee. In our considered opinion, the conditions of sub-section (8) of Section 80-IA will be fulfilled if goods or services are transferred form one unit to other unit of the same assessee e.g. if an assessee is having a flour mill and also a bread manufacturing unit and the flour is transferred from flour mill unit to bread manufacturing unit, it can be said that there is transfer of goods by one unit of the assessee t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asonable basis, then also, we find that the basis adopted by the A.O. is not a reasonable basis. The basis adopted by the A.O. is this that since 80% of the profit was earned by purchasing the goods form outside and selling the same, only profit over and above 80% has to be considered as profit of Baddi unit. In our considered opinion, it amounts to say like this that if one unit has been put up by one assessee by using own funds and other similar unit is put up by another assessee by using borrowed funds, then to the extent of interest payment by the 2nd unit, profits of the first unit is not on account of the profits from the eligible unit but is on account of interest savings and hence, not eligible for deduction u/s 80-IC. ...................... 7.22 As per above discussion we have seen that even while examining the issue in dispute independently without considering the tribunal order in assessment year 2006-07 in assessee's own case, we have reached to the same conclusion and hence, this ground of the assessee deserves to be allowed even without following this Tribunal order in assessee's own case for the assessment year 2006-07. No argument has been made by the Ld. D.R. as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) following the decision of Hon. Tribunal in the assessee's own case for A.Y. 06-07 decided the issue in favour of Assessee by holding as under:- 9.3 I have considered the facts of the case; assessment order and appellant's written submission. Appellant submitted that this ground is directly covered by the order of ITAT in appellant's own case in assessment year 2006-07. The ITAT has passed order in assessment year 2006-07 In ITA number 3140/AHD/2010 dated 25-05-2012. The relevant part of the order is quoted in para-8.5 while dealing with ground number 7. There is no dispute that facts are identical this year also and therefore the order of ITAT in the appellant's own case is binding on the undersigned even when Department has preferred appeal before High Court. Respectfully following the aforesaid decision in the appellant's own case, assessing officer is directed to allow deduction under section 80 IB in respect of Goa unit as claimed by the appellant. 27. Aggrieved by the order of CIT(A) the Revenue is now in appeal before us. Before us, the learned D.R. relied on the order of Assessing Office....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thing has been brought on record by Revenue that there was change in facts which warrants a different view as compared to earlier years. Further, since the facts of the year under appeal are identical to that of earlier year, we following the decision of Coordinate Bench allow the appeal in favour of Assessee. Thus this ground of Revenue is dismissed. Ground no. 11 is with respect to disallowance under 14A for computation of book profit under Section 115JB. 30. Assessing Officer noticed that the income under Section 115JB has been shown at Rs. 21,08,92,115/- and the Assessee has not added provision for doubtful debts, provision for product warranty and expenses disallowance under Section 14A. The Assessee was asked to justify its calculation. The Assessee interalia with respect to addition of disallowance submitted that under 14A that there was no deeming provisions under explanation to explanation 1 under Section 115JB. Assessee further relied on the decision in the case of Goetz (Ind.) Ltd vs. CIT 2009 32 SOT 101 (Del). The Assessing Officer did not accept the submissions of the assessee. He also noted that for A.Y. 06-07 & 07-08 DRP had confirmed the addition added to the book....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich do not find a place in the clause (f). Therefore, in so far as computation of adjusted book profit is concerned, provisions of sub-section (2) and sub-section (3) of section 14A cannot be imported into clause (f)". Once the Respected Bench has taken a view in respect of these very provisions of the Act, as raised before us, therefore following the same this part of the ground is allowed." Respectfully following the aforesaid decision in appellant's own case in identical facts, assessing officer is directed not to add disallowance made under section 14A to the book profit under section 115JB. This ground is accordingly allowed. 31. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us. Before us, the learned D.R. relied on the order of Assessing Officer. On the other hand, the Ld. A.R. submitted that on identical issue in the case of Assessee. The matter has been decided by Tribunal in its favour. He placed on record, the copy of ITAT order for A.Y. 06-07 & 07-08. He therefore submitted that the issue may be decided in favour of Assessee. 32. We have heard the rival submissions and perused the material on record. We find that identical issue was decided by....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... He also noticed that for A.Y. 07-08 DRP has confirmed the disallowance. He accordingly held that the Assessee was not entitled to claim depreciation on vehicle and accordingly disallowed the claim amounting to Rs. 8,41,166/-. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) confirmed the disallowance made by the Assessing Officer by holding as under:- 7.3 I have considered the facts of the case; assessment order and appellant's written submission. The basic fact is that director of the company purchased motor car in his name and the bill for the said purchase is also in the name of director. Therefore appellant company is not the legal owner of the motor car. For claim of depreciation, the two conditions are to be fulfilled namelyappellant must be owner of the asset and it must be used tor the purpose of appellant's business. In this case appellant is not the owner since the ownership vests with the director who is separate entity than the appellant company. As regards use of these cars for the purpose of business, the same were not furnished. Therefore use of car for the purpose of company's business is not established by the appella....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ver the asset as well as use for the purpose of business. If appellant is not able to prove either in the light of larger bench decision of Supreme Court, claim of depreciation on assets standing in others name cannot be allowed. The decisions of other high Courts have been considered. In all those decisions the. user of asset namely transport buses etc were by the companies and the companies were disclosing the income from hiring those vehicles. The user of asset for the purpose of business was proved in all these cases beyond doubt. With the user of asset, dominion and control is also proved. Therefore claim of depreciation in these cases were allowed by various high Courts However in the appellant's. case, use for the purpose of business is not at all proved and the dominion and control also remained unproved therefore these decisions do not help the appellant. Considering the larger bench decision of apex court and the Delhi High Court decision in the case of MM fisheries private Ltd, the decision of jurisdictional ITAT is not followed which has not considered these decisions. It is therefore held that the depreciation claimed by the appellant is correctly disallowed by the as....