AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (12) TMI 1172
X X X X Extracts X X X X
X X X X Extracts X X X X
....Officer disallowing the claim of the assessee for deduction under S.10B and also proposing certain other additions/disallowances, worked out the total income of the assessee, as under- Profit of the business before exemption u/s. 10B : Rs.148,94,82,301 Add: Disallowance of claim on account of ESOP Scheme : Rs. 35,61,793 Add: Disallowance of depreciation on non-compete fee : Rs. 13,23,670 Add; Adjustment u/s. 92CA : Rs. 12,38,95,227 Add: Disallowance of excess claim of weighted deduction : Rs. 2,71,59,649 Add: Interest on Income tax refund : Rs. 76,94,193 Rs. 16,36,34,532 Taxable Income Rs.165,31,16,833 3. Against the draft assessment proposed by the Assessing Officer, objections were filed by the assessee before the Dispute Resolution Panel. After considering the submissions made on behalf of the assessee as well as the material placed on record before it, the Dispute Resolution Panel found some of the objections raised by the assessee to be sustainable. Accordingly, the DRP gave directions to the Assessing Officer, vide order passed under S.144C(5) and as per the said directions, the Assessing Officer passed the final assessmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 144C r.w.s. 92CA dt.30.01.2014 of the Income Tax Act,1961 is contrary to facts and law. (2) The Dispute Resolution Panel erred in confirming the order of the TPO in reducing the operating profits of the tax-payer by Rs. 13,45,65,013 being the income from settlement of patent infringement suit credited to Profit & Loss Account. (3) The Dispute Resolution Panel erred in not directing the Assessing Officer to grant weighted deduction u/s. 35(2AB) of the Act in respect of expenditure incurred for registering patents outside India amounting to Rs. 1,06,10,707. (4) Without prejudice to aforesaid ground, the Dispute Resolution Panel erred in confirming the action of the Assessing Officer on denying deduction under sec.35(1)(i) & (iv) of the Act @ 100% of expenditure of Rs. 2,53,36,687 in respect of amount not considered by the prescribed authority under sec.35(2AB) for weighted deduction. (5) The Dispute Resolution Panel erred in failing to direct Assessing Officer to allow the deduction of Rs. 29,98,80,451 claimed u./s, 10B of the Act in respect of Export Oriented Undertaking situated at Jeedimetla (Unit - 3.2) (6) The Dispute Resolution Panel erred in confirming the Assessi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... L account this year is only a notional deferred income whereas the actual income was received much earlier. As can be seen from the facts on record, the corresponding expenditure pertaining to development of 'Perindopril' was spent much earlier i.e., much prior to assessment year 2005- 2006. Therefore, there is no corresponding expenditure in the relevant assessment year. Even if there are costs/ liabilities for developing the product on which the assessee received patent infringement compensation, the costs and liabilities does not pertain to the year under consideration. 16. Assessee relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Desiccant Rotors s International Pvt. Ltd. (2012) 347 ITR 32 (Del.) (H.C.) wherein the issue was with reference to the claim of expenditure under section 37(1). In that context, the Hon'ble Delhi High Court has analyzed the principles relating to patent infringement rights and held that they are purely compensatory in nature and confirmed the liability of amount under section 37(1) of the Act and the ITAT order was accordingly confirmed by the Hon'ble Delhi High Court. But as seen from the judgment, the is....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the cost, the income is included in the computation of operational profits, the same gets skewed because of inclusion of extraordinary items. It was decided in number of cases by the Tribunal that incomes of extraordinary nature are to be excluded and further extraordinary events in any company also make it non-comparable while doing exercise of FAR analysis for comparability purpose. For the reasons stated above, we agree with the Assessing Officer/DRP that this income from settlement of patent infringement cannot be considered as operational income while working out the segmental profits or as total profits of the assessee for the purpose of comparison. At best, it can be considered as another segment of income for which no expenditure was charged, but the same cannot be included in either of the segmental operations of the assessee. This ground is accordingly rejected. 10. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to assessment year 2008-09, we respectfully follow the decision of the Tribunal for assessment year 2008-09 and uphold the impugned order of the Assessing Officer, whereby he reduced the opera....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee for deduction under S.35(1)(i) and (iv) of the Act at 100% of expenditure of Rs. 2,53,36,687 in respect of amount not considered by the prescribed authority under S.35(2AB) for weighted deduction is squarely covered in favour of the assessee by the order of the Tribunal dated 16.1.2014 in assessee's own case for assessment year 2008-09 cited supra, wherein a similar issue was decided by the Tribunal in favour of the assessee vide paragraph 58 of its order, which reads as follows- "58. This ground is consequent to the earlier ground. Briefly stated the assessee has originally claimed weighted deduction on an amount of Rs. 49,94,14,696/- consisting of actual expenditure of Rs. 33,29,43,131/- in respect of approved three R & D units. The prescribed authority however certified the actual eligible expenditure for weighted deduction at Rs. 32,73,07,418/-. The balance of expenditure at Rs. 56,35,712/- (Rs.33,29,43,131/- (-) Rs. 32,73,07,418/-) is not eligible for weighted deduction, but quantifies for deduction under section 35(1) at 100%. This amount however is not allowed. We do not see any reason in not allowing this amount. We are of the opinion that both Assessing Officer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the100% EOU situated at Jeedimetla unit in respect of which it is claiming deduction under sec. lOB of the Act, is duly approved under the provisions of Explanation to sec. lOB. 1. Letter of Permission (LOP) under the EOU scheme was issued by the office of the Development Commissioner, Visakhapatnam Special Economic Zone, Department of Commerce, Government of India vide its letter No. PER:237/EOU/VSEZ/2004/3601 dated 19-9-2004. 2. Green Card No. 454/VSEZ dated 14-09-2004 issued by the Development Commissioner for and on behalf of the Secretary to the Government of India, Ministry of Commerce and Chairman, Board of Approval for 100% Export Oriented Units. 3. Letter No. 8/EOU-l11/VSEZ/HYD/2010 dated 17-3-2010 from the office of Development Commissioner informing the assessee company that the LOP issued has been placed before the board of Approval and the same. Has been ratified by teh Board of Approval in its meeting held on 23-11- 2004 4. the minutes of the meeting of the Board of Approval held on 23-11-2004; as conveyed to the Development Commissioner vide letter dated 9-12-2004 along with the Agenda forwarded by the Development Commissioner to the Board of Approvals vide forme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9 and the same was upheld by the Tribunal vide its order dated 16.1.2014 cited supra, thereby allowing the relevant ground of the assessee's appeal on this issue for statistical purposes. Respectfully following the decision of the Tribunal on similar issue in assessee's own case for assessment year 2008-09, we uphold the directions given by the DRP and allow the ground No.5 of the assessee's appeal for statistical purposes. 16 As regards Ground No.6, the learned representatives of both the sides have agreed that the issue involved therein relating to the quantification of the deduction under S.10B, by reducing the benefit under S.10B by Rs. 85,67,995 for Unit 3.2 situated at Jeedimetla, is squarely covered in favour of the assessee by the order of the Tribunal dated 16.1.2014 in assessee's own case for assessment year 2008-09 cited supra, wherein a similar issue was considered and decided by the Tribunal vide paras 42 to 45 thereof, which read as follows- "42. Ground No.14 reads as under : "The Dispute Resolution Panel erred in confirming the Assessing Officer's order in rejecting the basis adopted by the tax payer for apportionment of common corporate overhead expense to al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orate office these costs are debited on the basis of number of employees and the amount allocated to Jeedimetla was at Rs. 1.50 crores. It was the contention that ignoring the scientific basis adopted by the assessee, the Assessing Officer allocated on the basis of turnover of the sales in each unit thereby, arriving at a different percentage and excess apportionment of common overhead costs to the tune of Rs. 42.91 lakhs. The learned Counsel relied on the decision of ITA.No.66/Hyd/2013 Mylan Laboratories Ltd. (Formerly Matrix Laboratories Ltd.) Hon'ble Delhi High Court in the case of S.T. Micro Electronics Pvt. Ltd. in ITA.No.928/2010 wherein the Hon'ble High Court upheld the ITAT order and inturn of the learned CIT(A) order wherein the bifurcation of common expenses on the basis of ratio of employees head count was reasonable, conservative and justified. It was the contention that the rationale adopted by the assessee should be accepted. 45. We have considered the issue and examined the facts. Even though the issue was pending in earlier year, we are of the opinion that issue can be decided independently in this year. After considering the facts as stated in the objectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to Rs. 6,56,200 on brought forward written down value of Rs. 26,25,000 in respect of non-compete fee of Rs. 40,00,000 paid in Asst. Year 2007-08 to Sudhir Vaid in relation to Concord Biotech Limited. 19. As for the first issue, against (a) above, relating to depreciation @ 25% amounting to Rs. 6,67,420 on brought forward written down value of Rs. 26,69,678 in respect of non-compete fee of Rs. 200 lakhs paid to Medispan Ltd. by Medicorp Technologies Ltd. (amalgamating company) in the previous year relevant to assessment year 2002-03, learned representatives of both the sides have agreed that this issue is squarely covered by the order of the Tribunal dated 16.1.2014 in assessee's own case for assessment year 2008-09 cited supra, wherein a similar issue contained corresponding Ground no.15(a) in the appeal for that year, was considered and decided in favour of the Revenue and against the assessee, confirming the finding of the DRP, by the Tribunal, dealing with the corresponding ground, vide paras 48 to 52 thereof, which read as follows- "48. The next claim i.e., Ground No.15(a) is with reference to claim of depreciation at 25% amounting to Rs. 8,75,000/- on brought forward written....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the other amount also. As far as the claim of depreciation on carry forward non-compete fee is concerned, we have already directed the Assessing Officer to follow ITAT Orders given in that case which is binding, being the claim of depreciation on the written down value. However, for the fresh claim to be entertained on the payment made for Concord Biotech Limited to Mr. Sudhir Vaid, the issue has to be examined afresh. 51. After considering the rival submissions, we are of the opinion that the cases against the assessee are more in number and there is a consistent view of the ITAT in not allowing the depreciation on non-compete fee. This issue which was originally considered in the case of Tecumse India Pvt. Ltd. Addl. CIT 5 ITR TRIB 50 (Del.) wherein the proposition canvassed by the assessee that non-compete fee is revenue expenditure was rejected and held that noncompete fee for acquisition of business has been held as capital expenditure as the same was incurred for the initial outlay of the business. Following the above principles and the decision of the Hon'ble Delhi High Court in the case of Hindustan Coco Beverages Pvt. Ltd. 331 ITR 192 (Del), the ITAT, Chennai Bench &#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n brought forward written down value of Rs. 26,25,000 in respect of non-compete fee of Rs. 40,00,000 paid in assessment year 2007-08 to Sudhir Vaid in relation to Concord Biotech Limited, learned representatives of both the sides have agreed that this issue is squarely covered in favour of the assessee and against the Revenue by the order of the Tribunal dated 16.1.2014 in assessee's own case for assessment year 2008-09 cited supra, wherein a similar issue, raised by way of ground no.15(b), was considered and decided in favour of the assessee and against the Revenue, vide paras 47 thereof, which read as follows- "47. This ground is against the claim of depreciation on different amounts paid by the assessee. The sub ground (b) is with reference to the claim of depreciation of Rs. 8,89,893/- on brought forward written down value of Rs. 35,59,570/- in respect of non-compete fee paid to M/s. Medispan Ltd by Medicorp Technolgoies Ltd. in previous year relevant to assessment year 2002-2003. Consequent to merger of the Medicorp Technologies Ltd. with the assessee company, the depreciation was claimed on the written down value. Even though the assessee's claim was crystallized by the ....