TaxTMI 
TaxTMI 
2017 (9) TMI 1804
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....o separate adjudication. 5. Ground no. 3 relates to the addition on account of share application money advanced to Sun Pharma global Inc (SPGI) amounting to Rs. 4,00,64,965/-. 6. During the course of the scrutiny assessment proceedings, the AO/TPO noticed that as on 31.03.2009 the share application money pending allotment was Rs. 50.85 crores. The AO/TPO was of the opinion that the assessee should have charged interest at LIBOR plus basis. The assessee strongly objected to this proposition for TP adjustment stating that till the amount advanced for shares is actually adjusted towards allotment of equity shares, the amount is to be treated as advance towards share application money and the share application money shown as outstanding as on 31.03.2009 was subsequently converted into equity in A.Y. 2010-11. It was strongly contended that the assessee had sourced the application money to its AE out of the excess funds lying idle out of the issue of FCCB. The contentions of the assessee did not find any favour with the AO/TPO who computed the arms length interest rate at average Libor plus 3.95% which included foreign exchange risk of 1%. 7. The assessee carried the matter befo....
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....as advance for share application money till the allotment would not alter the characterization to the prejudice of assessee's position anyway. In our considered view, the percentage of ownership is the only material factor which remains at 100% prior to allotment and also post allotment. As the assessee is the only shareholder in it's 100% owned subsidiary company SPG BVI it should not make any difference merely because part of the share application money is converted into equity shares and the balance were allotted in subsequent assessment years. We, therefore, do not find any merit in the submissions of revenue in this behalf. This proposition, is reinforced by the decision of the Coordinate Bench in the case of Sterling Oil Resources (P.) Ltd. in ITA No. 1791/Mum/2014. The relevant part reads as under:- 9. There is one more aspect of the matter. In the present case, allotment of shares does not make any change to the position of the assessee, as the subsidiary' is admittedly a wholly owned subsidiary of the assessee. A delay in allotment of shares by the subsidiary company, as long as the subsidiary is a wholly owned subsidiary, does not prejudice the interests of t....
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....rt has, though in a very different context and which is materially different from a situation in which the payment is made for subscription of share capital- as in this case, held that re-characterization of a transaction is possible in only two situations - i.e. (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner. None of these conditions is satisfied in the present case. The form and substance of the transactions are the same. The assessee has behaved in a commercially rational manner inasmuch as whether the new shares are allotted at x point of time or y point of time, it does not make a difference to the position of the shareholder so far as the subsidiary is wholly owned by a single shareholder- as is the factual position in this case. The nominal value of shares, as long as all the shares are held by the assessee is entirely benefit neutral from a commercial point of view. The very foundation ....
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....ut that in the earlier assessment years, the Bench has drawn support from the decision in the case of Cadila Healthcare in ITA No. 2430/Ahd/2012 without appreciating the fact that in that case, the assessee has produced comparable data to show that independent parties had entered into agreements with similar terms (benefits) and not charged any interest thereon whereas in the case in hand, the assessee has not produced comparable data to justify that OFCDs were issued at arm's length price. It is strongly contended that since these facts have not been brought on record, therefore, the Bench should not follow its earlier decision. 20. Shri Soparkar ld. senior counsel replying to the submissions of revenue stated that the decision of the Hon'ble Supreme Court in the case of Sahara India Real Estate (Civil Application) No. 9813 of 2011 relied upon by the learned DR is not applicable to the issue before the Hon'ble ITAT. Even if it is held that OFCD is a hybrid instrument as laid down by the Supreme Court, in applying the Transfer Pricing Provisions, the entire instrument has to be considered and the same cannot be re-characterized partly as loan and partly as equity s....
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....sition that a judgment of this Court is binding, particularly, when the same is that of a coordinate Bench, or of a larger Bench. It is also correct to state that, even if a particular issue has not been agitated earlier, or a particular argument was advanced, but was not considered, the said judgment does not lose its binding effect, provided that the point with reference to which an argument is subsequently advanced, has actually been decided. The decision therefore would not lose its authority, "merely because it was badly argued, inadequately considered or fallaciously reasoned". The case must be considered taking note of the ratio decidendi of the same i.e. the general reasons, or the genera! grounds upon which the decision of the court is based, or on the test or abstract, of the specific peculiarities of the particular case, which finally gives rise to the decision. (Vide Somawanti v. State of Punjab, Ballabhadas Mathurdas Lakhani v. Municipal Committee, Matkapui, Ambika Prasad Mishra v. State of U.P and Director of Settlements v. M.R. Apparao.) 24. The Hon'ble Jurisdictional High Court of Gujarat in the case of Core Healthcare Ltd. 251 ITR 61 has observed as under:....
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.... 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 terms of agreement, no interest was payable if the amount was converted into equity. However, if the same is redeemed, interest was payable at Libor Plus 290 bps and the interest was to be computed at annual rates and payable at maturity that is 5 years from the date of first disbursement. The rupee value of the amount of loan as on 31.03.2008 was Rs. 108.32 crore. It was also noticed that Assessee has not shown any income from the aforesaid loan. In response, Assessee interalia submitted that Assessee had not opted for conversion of the loan during the year and therefore it was l....
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....s, the distinguishing facts as canvassed by the Shri Shrivastava do not culminate in to any proposition so as to convince us to take any divergence from earlier findings and the judicial discipline also guides us to follow the decision of the Co-ordinate Bench in the light of the ratio laid down by the Hon'ble Supreme Court and the Hon'ble Jurisdictional High Court of Gujarat (supra) and considering the fact that the OFCD were on beneficial terms as per facts mentioned above. Consequently, we have no hesitation to follow earlier judgment in assessee's own case as a result we delete the impugned additions. Ground No. 3 of assessee is allowed 14. Finding parity in the facts, respectfully following the findings of the Coordinate Bench, we direct the A.O. to delete the addition of Rs. 17,32,96,800/-. Ground no. 4 is accordingly allowed. 15. Ground no. 5 relates to the addition on account of Corporate Guarantee Provided to associated enterprises Sun Pharmaceutical Bangladesh Ltd. amounting to Rs. 21,90,400/-. 16. The AO/TPO noticed that the assessee has provided Corporate Guarantee to its AE Sun Pharmaceutical Bangladesh Ltd without charging any guarantee fees. Treating the sam....
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....ners and are getting medicines manufactured by the assessee company. The AE was in possession of certain product technologies and wanted to sell products in the regulated markets of USA, Europe etc. Hence, it approached SPIL to work on a Contract Research & Manufacturing Services (CRAMS) basis. The assessee in its Transfer Pricing Study report claimed that on the sale transactions with SPG, the net profit margin earned is 14.84%. To substantiate its claim, external TNMM was shown at 13.96%. The TPO rubbished the claim of most appropriate method as TNMM and adopted Profits Split Method (PSM) because he was of the strong belief that PSM is applied mainly to international transactions involving transfer of unique intangibles. The TPO as of the belief that the technology to manufacture Pantoprazole Sodium was originally developed by the assessee and was subsequently transferred to SPG indirectly. Therefore, the relevant international transactions involve transfer of unique intangibles. The TPO was of the opinion that a transactional profit split method may be the most appropriate method in cases where both parties to a transaction make unique and valuable contribution to the transactio....
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.... 76. SPG BVI purchased the Technology to manufacture Pantoprazole Sodium from Sun Pharma Advance Research Company Ltd. (SPARC). SPARC was incorporated on 01.03.2006 as a research company. With effect from 28.02.2007, the appellant company demerged its Innovative Research and Development business to SPARC. This is supported by the order of the Hon'ble High Court of Gujarat exhibited at pages 475 to 518 of the paper book. On 28.10.2007, SPARC sold a basket of 38 Technologies to SPG including ANDA for Pantoprazole Tablet, the consideration of which was USD 3 million for U.S. Market and USD 1.4 million for Europe Market. This is supported by the agreement for sale exhibited at pages 519 to 536 of the paper book. 77.By virtue of this agreement for sale, the Technology was purchased by SPG in the month of October, 2007 and immediately thereafter in the month of November, 2007, SPG enters into an agreement with appellant for manufacturing. Copy of supply agreement between SPG and SPIL is exhibited at pages 648 to 659 of the paper book. Relevant clauses of the supply agreement read as under:- AND WHEREAS SPGI is the owner of the various abbreviated new drug applicat....
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....t limited to product specifications, packaging and labeling practices and processes regarding the production of Products, and such other information as SPGI deems to be reasonable and necessary, From time to time, SPGI at its own expense may send a representative to visit SPIL to provide such technical knowledge as shall be mutually agreed to by SPGI and SPIL. 3.2 Intellectual Property Representation: Except for the rights expressly under the terms of the Agreement this Agreement does not transfer any intellectual property rights, specifically with respect to the Products from SPGI to SPIL. SPGI represents and warrants that, to the best of the knowledge and belief of SPI , SPIL's fulfillment of the terms of this agreement to the' manufacturing of the Products will not infringe any third party intellectual property rights. Nevertheless, in case SPIL would be or named as a formal party by reason of an infringement of third party rights for the Products, SPIL shall promptly inform SPGI thereof. SPGI shall conduct any defense of such suit at its own expense and SPGI shad indemnify and hold SPIL harmless from and against any loss, claim, damage, expense or liability if any ....
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....with an independent laboratory reasonably acceptable to both parties whose result shall be binding on both parties. SPIL shall replace all non-attributable to SPIL. SPIL shall also bear & reimburse to SPGI the cost of freight and insurance for such non-conforming Products Upon SPIL's instructions, SPGI shall destroy or return to SPIL at SPIL's cost, all non-conforming Finished Products. 4.6.4 SPIL agrees to invoice and dispatch at SPGI's cost and risk, the finished products to SPGI or its nominees as specified by SPGI according to the orders placed by SPGI and instructions given by SPGI and accepted by SPIL. 5.1 SPGI Indemnification. SPGI shall indemnify and hold SPIL harmless from and against any loss, claim, damage, expense or liability, resulting from any misrepresentation, negligence, or intentional misconduct by SPGI in performing this agreement including for any claim, demand or suit alleging that the Product infringes any third party's patent, copyright, trademark, trade secret or other intellectual property right or any product liability. Notwithstanding anything to the contrary in this Agreement, in no event shall SPGI be liable to SPIL for any incidental....
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....prazole Sodium Delayed Release Tablets 20Mg., 40mg. Pantoprazole Sodium 2 Amifostine Inj. 500mg. Amifostine 79. Copy of Orange Book reflected title of ANDA of Pantoprazole Sodium with SPG BVI is exhibited at pages 569 & 570 of the paper book which conclusively proves that the ANDA rights were with SPG BVI. 80. Adverting to the allegations of Ld Shri Shrivastava that these arrangements by the assessee is a brutal form of tax evasion , the Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. vs. Union of India and Another reported in 341 ITR 1 has laid down the ratio : "It is the task of the court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not adopt a dissecting approach. All tax planning is not illegal or illegitimate or impermissible". 81.The Hon'ble Supreme Court further held. :- (iv)The Income-tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence of companies as economic entities with legal independence vis-a-vis their shareholders or participants. Consequently, the entities subject to i....
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....gh it may be advantageous for parent and subsidiary companies to work as a group, each subsidiary will look to see whether there are separate commercial interests which should be guarded. Whether the parent company has "power" over the subsidiary depends on the facts of each case. In the case of multinationals their subsidiaries have a great deal of autonomy in the country concerned except where subsidiaries are created or used as a sham. The directors of the subsidiary under their articles are the managers of the companies. They are not to be dictated by the parent company if it is not in the interests of those companies (subsidiaries). The fact that the parent company exercises shareholder's influence on its subsidiaries cannot obliterate the decision-making power or authority of its (subsidiary's) directors. The decisive criteria is whether the parent company's management has such steering interference with the subsidiary's core activities that the subsidiary can no longer be regarded to perform those activities on the authority of its own executive directors. (vii) A typical large business corporation consists of sub-incorporates. Such division is legal....
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.... would have been anticipated and reflected in an agreement made at arm's length. See paragraphs 2.132 -2.145 for a discussion/6f how to split the combined profits. C.2 Strengths and weaknesses 2.109 The main strength of the transactional profit split method is that it can offer a solution for highly integrated operations for which a one-sided method would not be appropriate. For example, see the discussion of the appropriateness and application of profit split methods to the global trading of financial instruments between associated enterprises in Part III, Section C of the Report on the Attribution of Profits to Permanent Establishments.2 A transactional profit split method may also be found to be the most appropriate method in cases where both parties to a transaction make unique and valuable contributions (e.g. contribute unique intangibles) to the transaction, because in such a case independent parties might wish to share the profits of the transaction in proportion to their respective contributions and a two-sided method might be more appropriate in these circumstances than a one-sided method. In addition, in the presence of unique and valuable contributions, reli....
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....n 92C. 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction -[or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:- (d) profit split method, which may be applicable mainly in international transactions -[or specified domestic transactions]involving transfer or unique intangibles or in multiple international transactions [or specified domestic transactions] which are so interrelated that they cannot be evaluated separately for the purpose of determining the arm's length price of any one transaction, by which- (i) the combined net profit of the associated enterprises arising from the international transaction -[or the specified domestic transaction] in which they are engaged, is determined; (ii) the relative contribution made by each of the associated enterprises to the earning of such combined net profit, is then evaluated on the basis of the functions performed, assets employed or to be employed and risks assumed by each enterprise and on the basis of reliable exter....
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....between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realized by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction]; 88. PSM is applicable when the international transaction involved transfer of unique intangibles (in the case in hand there is no such transfer from SPG BVI to SPIL), or in multiple international transaction which are so inter related that they cannot be evaluated separately for the purpose of determining the arm's length price of any one transaction. This is also absent (in the case in hand as the appellant company has done only manufacturing of Pantoprazole Tablets for SPG BVI). 89. Coming to the application of TNMM, we find that the profit margin benchmark by the assessee at 21.57% on sales transactions is much higher than th....
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....With the settlement based on aggregate of yearly profits then even if the Profit Split Method is applied than the set off of each year losses has to be given for the corresponding year. The undisputed compensation being settled on the base of all yearly profits made by the AE during the exclusivity period PSM cannot be worked by divorcing the business realities. The contention of revenue that it is not concerned with the settlement which is pass event is untenable. Even if the PSM is applied the relatable losses which were so apparent by the time assessment was framed cannot be given a go by on unsustainable revenue stand. In such eventuality even the ALP offered by assesse as a contract manufacturer also will be wiped out. The PSM application may actually result in reduction of returned ALP working. Thus, considering the issues from all possible angles, the assessee has, undisputedly and as accepted by revenue, ultimately suffered losses which are not claimed in its books or tax purposes. Even the alternative application of PSM fails and would do no good to the Revenue . 92. To summarize in nutshell , by the order of the Hon'ble High Court Innovative Research and Developm....
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....ucts consisted of partly Para-IV filing drugs and partly generics drugs. The relevant findings of the Transfer Pricing Officer reads as under:- "9. Benchmarking of transactions related to sale of other formulations to SPG BVI and -SPG FZEs In addition to the sale of pantoprazole sodium tablets, SPIL has sold other formulations to its AEs Sun BVI and Sun FZE. It is seen that the methodology relating to sale of such formulations is similar as discussed at para 8 in respect of pantoprazoie. Sun BVI and Sun FZE have been treated as technology owners and SPIL as contract manufacturer. The drugs have been supplied by SPIL at fixed pre-declded margins and the entire remaining profit has been appropriated by the foreign entity. It is seen that the margins earned in respect of these drugs by these companies is over 90% and 35% in respect of SPG BVI and SPG FZE respectively as compared to 14.84% in respect of SPIL. 9.1 Rejection of FAR and TP Study conducted by the assessees. The functions performed, risks assumed and assets deployed by both the companies have been examined. It is seen that SPIL has deployed substantial assets in the form of approved manufacturing setup wit....
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....ied out for the drug pantoprazole applies verbatim to these drugs also. Accordingly, the apportioning of profit is carried out in the matter discussed earlier. The profit earned by both the foreign AEs in respect of chapter IV drugs is apportioned in the ratio of 50:50 in light of the FAR of the two companies, the foreign AE being compensated dominantly for the risk coverage. 10.2 Sale of other drugs: Alendronale, sold to Sun BVI andAlendronale and Leuprolide sold to un FZE belong to this category. For sale of these drugs in foreign countries, especially in US, they need to be manufactured in an US FDA approved facility. The assessee, at significant cost, both initial and operational, has created such facility for manufacturing of these drugs. The marketing setup of SPIL is being used as the sale is generally through the local subsidiary of SPIL with underlying guarantee of SPIL. Hence, the role played SPIL in sale of such drugs is much higher. While SPIL has higher functional and asset related responsibility, Sun BVI/FZE do not have to carry the risk they were carrying in the case of Chapter IV drugs. These companies also do not carry any significant functional responsibi....
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....this case also, a profit sharing ratio of 80:20 for the manufacturer - marketing entity is adopted as a reasonable way to allocate the total profits of the drug sale. 10.6 The computation of profit in line with above discussion is as below: A: Sale of drugs to Sun Pharma Global BVI: Sr. No. Particulars Sun Pharma [SPIL] Sun Pharma Global BVI Amount in Usd Amount in Rs. Amifostine Venlafaxine Para IV Total Alendronat Non Para IV Total Para IV Para IV 1 Total Sale Value of other formulations sold 106947162 9495979 63898127 73394106 929989 929989 2 Cost of other formulations sold 66114735.55 98757 2213389 2312146 186609 186609 3 Manufacturing Overheads 20876086.02 0 0 0 0 0 4 Gross Profit 19956340.43 9397222 61684738 71081960 743379.95 743380 5 Other expenses (R&D , corporate & other exs.) 4085381.588 550720 3705777 4256497 53935 53935 6 Profit 15870958.84 8846502 57978961 66825463 689445 ....
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....ssociates 16283439 4096995 Usd rate = Ind Rs. 45.94 45.94 45.94 Amount attributed to SPIL 8141720 3277596 Less profit already offered by SPIL 6277211 1323870 Net profit apportioned to SPIL 1864509 1953726 The total adjustment to the profits of SPIL is computed as below: Chapter IV Generic Total Sun Pharma Global BVI 60331176 22111122 82442298 Sun Pharma Global FZE 1864509 1953726 3818235 Total 62195685 24064848 86260533 Accordingly, an upward adjustment of Rs. 8,62,60,533/- Is recommended on account of benchmarking of sale of other drugs to Sun Pharma Global BVI and Sun Pharma Global FZE." 30. The appellant company strongly agitated this upward adjustment before the First Appellate Authority. It was strongly contended that the technology for manufacturing of these drugs pertained to the AEs and entire marketing has been also done ....
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.... of sale of generic drugs, the ratio of 80:20, has been applied for apportionment of the residual profit between/ appellant and AEs by the TPO/AO which is hereby confirmed. In any considered view, the same ratio has to be applied in respect of Para-IV filing drugs also because functions performed, assets deployed and risks assumed by the appellant are same as in the case/of generic drugs. Moreover, it is also noticed the other drugs under Para IV filing category are transacted under the facts and circumstances which are identical to the sale of pantoprazoie, and hence on this account also, ratio of 80:20 needs to be applied for appointment of aggregate profits between the appellant and AEs. Accordingly, an enhancement was proposed in the ALP of other products under Para-IV filing drugs resulting into a further upward adjustment of Rs. 3,73,17,411/- vide notice dated 29.03.2016. 32. Assessee filed a detailed reply to the notice of enhancement which was considered by the ld. CIT(A) who observed at Para 8.12.2 " The contentions made above are almost similar to those which have been made in response to the enhancement notice pertaining to sale of pantoprazole. For the similar reason....
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....le of weighted deduction 150% u/s. 35(2AB). During the course of the assessment proceedings, the assessee has made a fresh claim that the expenses to the tune of Rs. 6.81 crores are also eligible for deduction at 150%. The A.O. disallowed the same mainly on the ground that this claim was not made in the return of income and the assessee has also not revised the return for claiming weighted deduction at 150%. 38. Before the First Appellate Authority, the assessee once again claimed weighted deduction on R&D expenses of Rs. 6.81 crores. The claim of the assessee did not find any favour with the ld. CIT(A) who was of the opinion as to whether fresh claim can be made without filing of revised return of income. The ld. CIT(A) accordingly denied the claim of weighted deduction. 39. Before us, the ld. counsel for the assessee vehemently stated that the legal claim made by the assessee was based upon the facts which were already on record. Therefore, there is no reason why the assessee should not be allowed such legal claim. Strong reliance was placed on the decision of the Hon'ble High Court of Gujarat in the case of Mites Impex 46 taxmann.com 30. 40. Per contra, the ld. D.R. str....
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....the matter was agitated before the ld. CIT(A), the ld. CIT(A) observed at Para 10 of his order that the basis of disallowance and submissions of the appellants are similar to A.Y. 2008-09 and since the facts are identical in this year also, respectfully following the order of ld. CIT(A)-IV, Ahmedabad in A.Y. 2008-09, the action of the A.O. was upheld. 46. Before us, the ld. Senior Counsel drew our attention to the decision of the Tribunal in A.Y. 2008-09 and pointed out that the Tribunal has allowed the claim of weighted deduction to the assessee. 47. After carefully perusing the orders of the authorities below, we find force in the contention of the ld. Senior Counsel. The Tribunal has considered an identical issue vide ground no. 6 of the appeal in ITA No. 3297 & 3420/Ahd/2014 and the relevant findings of the Tribunal read as under:- 96. An identical issue was considered by the Bench in assessee's own case in ITA Nos. 2076 & 2067/Ahd/2013 wherein the Bench has followed the findings of the Co-ordinate Bench in ITA No. 1589/Ahd/2011 and the same reads as under:- 34. We find that an identical issue was considered by the Co-ordinate Bench in assessee's own cas....
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....holding the disallowance has been removed. We further find that on identical set of facts, the Mumbai Bench in the case of USV Ltd. (supra) has allowed the claim of the assessee in respect of expenditure incurred in respect of patent application. Respectfully, following the findings of the co-ordinate Bench (supra), we direct the A.O to delete the disallowance of Rs. 44,71,906/-. Ground no. 10 is accordingly allowed. 15. Respectfully following the detailed findings given, we direct the A.O to allow the impugned weighted deduction. Ground no. 3 is accordingly allowed. 35.We direct accordingly. Ground no. 6 is allowed. 48. As no distinguishing fact has been considered by the lower authorities, respectfully following the decision of the Tribunal (supra), we direct the A.O. to allow weighted deduction. Ground no. 11 is allowed. 49. Ground no. 12 relates to the disallowance on account of R&D expenses incurred by the assessee for products manufactured by Sun Pharmaceuticals Industries. 50. During the course of the assessment proceedings and survey operation conducted u/s. 133A of the Act, it was found that the assessee is the flagship company of Sun Pharma Grou....
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....eleted those additions while deciding the appeal for A.Y. 2002-03, 2003-04 & 2004-05. 57. Per contra, the ld. D.R. supported the findings of the lower authorities. 58. We have given a thoughtful consideration to the facts in issue before us. There is no dispute that the assessee did incurred expenditure under the head "Research & Development" activity. The only dispute relates to the allegation that part of such expenditure belong to the business activity of the partnership firm SPI. There is also no denying by the lower authorities that the entire Research and Development activities are done by the appellant company only being the flagship company of Sun Pharma Group. In our understanding of the facts, the appellant company had assisted the partnership firm in carrying on its business by using its network for marketing the pharmaceuticals products successively. Since the assessee is holding 97.5% of share in the partnership firm, SPI it becomes the duty of the assessee to promote the business of the partnership firm in the capacity of the majority stake holders. Incidentally, the revenue authorities have not brought anything on record which could suggest that the expenditure....
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....A) of the Act says that in the case of a person being a partner of a firm which is separately assessed as such his share in the total income of the firm will not form part of total income. Explanation to Section 10(2A) provides that the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding, anything contained in any other law, to be an amount which bears to the total income of the firm, the same proportion as the amount of a share in the profits of the firm in accordance with the partners deed bears to such profits. 114. Thus, it is clear that firstly the profit and loss account of the company should be in accordance with the relevant provisions of the Companies Act. Secondly, only specified items have to be added back as provided in various clauses to Explanation 1 and reduced by specific items provided thereon. The only specific amount of income which has to be reduced is the income to which provisions of Section 10, 11 or 12 apply, if any such amount is credited to the Profit and Loss account and Section 10(2A) defines such income as the share of profit of a partner from the partnership firm, the language is clear and unambi....
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....t that Rule 8D is not applicable for the year under consideration but at the same time for the computation of disallowance for administrative expenditures, the formula given under Rule 8D is the most appropriate method for the computation of the disallowance. We accordingly direct the A.O. to compute the disallowance so far as administrative expenditures are concerned as per Rule 8D of the ITAT Rules r.w.s. 14A of the Act. We accordingly set aside the disallowance of Rs. 27,55,18,783/- made by the First Appellate Authority and direct the A.O. to re-compute the disallowance as directed hereinabove. Ground no. 8 is allowed in part for statistical purpose. 154. The only distinguishing fact for the year under consideration is that Rule 8D in fact is applicable for the year under consideration and, therefore, we direct the A.O. to compute the disallowance for administrative expenditure as per the formula given under Rule 8D. Ground no. 17 is treated as allowed for statistical purpose. 65. Respectfully following the findings of the Tribunal (supra), we direct the A.O. accordingly. Ground no. 14 is treated as allowed for statistical purpose. 66. Ground no. 15 relates to the....
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....is issue in favour of the assessee and against the revenue. We find force in the contention of the ld. counsel. We also find that the First Appellate Authority has followed the findings of his predecessor given in A.Y. 2008- 09. 72. This issue was considered by the Tribunal in ITA Nos. 3297 & 3420/Ahd/2014 vide ground no. 13 of that appeal and the relevant findings of the Tribunal read as under:- 128. We have given a thoughtful consideration to the facts in issue. It is an undisputed fact that the remuneration has been paid by the firm SPI as per the partnership deed read with supplementary partnership deed. It is also an undisputed fact that the said partnership deed read with supplementary deed has not been treated as sham or unlawful deeds. The First Appellate Authority emphasized on the entire transaction as a device of tax evasion. The partnership firm SPI has claimed Rs. 40.12 crores as remuneration to the assessee company but at the same time, it did not claim the same as deduction as it was not paid to a whole time partner as provided in the Act. It is true that the appellant company has also not offered the same for taxation taking a shelter behind the provisio....
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....of 2013 77 taxmann.com 41. 78. The ld. D.R. could not bring any distinguishing decision in favour of the revenue. 79. We have given a thoughtful consideration to the orders of the authorities below. The dispute relates to whether the loss should be set off first before allowing the claim of deduction u/s. 10B of the Act. We find force in the contention of the ld. counsel. Hon'ble Supreme Court in the case of Yokogawa India Ltd. (supra) had the occasion to consider a similar dispute after the amendment of Section 10A by Finance Act 2000 with effect from 01.04.2001 and the Hon'ble Supreme Court held as under:- From a reading of the relevant provisions of section 1OA it is more than clear that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or noneligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794. dated 9-8- 2000. [Para 16] If the specific provisions of the Act provide [first proviso t....
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....on of un-realized export proceeds for computation of deduction u/s. 10B of the Act. 84. While scrutinizing the return of income, the A.O. noticed that the assessee company could not realize the sales proceeds in foreign exchange before the prescribed date amounting to Rs. 2,71,420/- and Rs. 9,39,896/- respectively in respect of Panoli and Halol units. Accordingly, on export sale proceeds which was not realized, the A.O. made disallowance of deduction u/s. 10B amounting to Rs. 4,46,557/-. 85. The assessee carried the matter before the ld. CIT(A) who while dismissing the grievance of the assessee at Para 19.21 of his order observed that under the similar facts and circumstances of the case, CIT-IV, Ahmedabad has also confirmed the disallowance vide Para21.3 of the order in A.Y. 2008-09. 86. Before us, the ld. counsel for the assessee drew our attention to the order of the Tribunal in A.Y. 2008-09 and pointed out that the Tribunal has restored the matter to the files of the A.O. with a direction to apply the provisions of Section 115(13) of the Act and decide the issue afresh. 87. We have considered the facts in issue carefully. The Tribunal in its order for A.Y. 2008-09 i....
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.... stated before the lower authorities. The ld. D.R. strongly supported the findings of the A.O. 93. We have carefully considered the orders of the authorities below. We find that following expenses were incurred by the assessee - (a)Kiran Pumps for Rs. 1,59,000/-:- The assessee has purchased LUTZ Pump FLP single motor which is capable of functioning independently without assistance of any other plant & machinery. Therefore, it can be said that a new capital assets has come into existence and hence the expenditure is treated as capital expenditure. (b) Martin Christ GMBH of Rs. 5,53,436/-:- the appellant has purchased Freeze Dryer Beta with accessories for the purposes of drying process of organic solvents. The assessee has also incurred labour charges on installation of this dryer. The factual matrix shows that new capital assets have come into existence and, therefore, the purchase cost and labour charges are treated as capital expenditure. (c) Communica Aids of Rs. 1,52,250/-:- The appellant has purchased Tata Make IOX 160 EPBAX System with 16 trunk lines and 4 E &M Circuits. The configuration of this machine itself shows that it is capable of being u....
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....ts in issue before us. We find that a similar issue was decided by the Tribunal in ITA Nos. 3297 and 3420/Ahd/2014 vide ground no. 17 of that appeal. The relevant findings read as under:- 153. A similar issue was considered by the Bench in A.Y. 2007-08 in ITA No. 2076 & 2067/Ahd/2013 and the relevant findings read as under:- 52. Coming to the disallowance made u/s. 14A by the First Appellate Authority, it is an undisputed fact that the assessee was having sufficient own funds for making the investment in the partnership firm. It is also true that the assessee was on a contractual obligation to look after the marketing and distribution activities of the firm SPI as per the partnership deed read along with the supplementary deed to earn remuneration from the partnership firm. However, it is equally true that a reasonable disallowance of expenditure should be made for earning the exempt income so far as the share of profit from the partnership firm SPI is concerned. We are conscious about the fact that Rule 8D is not applicable for the year under consideration but at the same time for the computation of disallowance for administrative expenditures, the formula given under Rul....
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.... under:- 7. So far as issue Nos. (iii) and (iv) are concerned, the learned counsel for the assessee has relied on the decision of this court in the case of Commissioner of Income-tax-1 v. Gujarat State Fertilizers & Chemicals Ltd., reported in (2013) 358 ITR 323 (Gujarat) where this court has held in paragraph Nos. 6 to 6.5 this court has observed as under: "6. So far as the fourth question is concerned, it pertains to addition of Rs. 1,14,43,0407- under Section 115JB of the Act being the expenditure estimated on earning of dividend income under Section 14A of the Act. 6.1 The Assessing Officer on referring to the said provision of Section 115JB(2) of the Act added the said amount considering that any amount of expenditure relatable to the income exempted under Section 10 of the Act shall need to be added in the profit shown in the 'Profit and Loss Account'. 6.2 When the matter travelled to the CIT (Appeals), since it deleted the addition of Rs. 1,14,43,040/- while deciding the question no. 1, it consequently deleted such addition under section 115JB of the Act on the ground that this would not serve any purpose. 6.3 The Tribunal decided....
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....ur view is also fortified by the decision of the Special Bench in the case of Vireet Investment (P) Ltd. 82 taxmann.com 415. Ground no. 21 is accordingly allowed. 106. Ground no. 22 relates to the initiation of penalty proceedings u/s. 271(1)(c) of the Act. This grievance is premature and is accordingly dismissed. 107. In the result, the appeal filed by the Assessee is partly allowed. ITA No. 1663/Ahd/2016 Revenue's appeal 108. Ground no. 1 relates to the part relief given in respect of 0% OFCD by 1% on account of country and foreign exchange risk. 109. This issue has been decided by us in assessee's appeal vide ground no. 4 (supra). For our detailed discussion therein, ground no. 1 is dismissed. 110. Ground no. 2 relates to the reduction on account of ALP for corporate guarantee fees from 2.95% to 2%. 111. An identical issue has been considered and decided by us in assessee's appeal vide ground no. 5. For our detailed discussion therein, we direct accordingly. Ground no. 2 is treated as allowed for statistical purpose. 112. Ground no. 3 relates to the deletion of the addition on account of price difference on sales made to Sun Pharma Industries. 113. A.O....
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....ich decision has been followed by the ld. CIT(A). The said decision of the Tribunal has been confirmed by the Hon'ble Jurisdictional High Court in Tax Appeal No. 383 of 2008. Now, that the decision of the First Appellate Authority is well supported by the decision of the Hon'ble Jurisdictional High Court. No interference is called for. Ground no. 2 is dismissed. 71. Respectfully following the same, ground no. 1 is dismissed. 72. Ground no. 2 relates to the deletion of the disallowance of Rs. 42,46,000/- claimed u/s. 35(2AB) of the Act on repairs and municipal taxes paid for building utilized for R & D activity. 73. An identical issue was considered by the Co-ordinate Bench in ITA No. 1592/Ahd/2011 qua ground nos. 2 & 3 of that appeal. In ground no. 1 of the present appeal, we have extracted the relevant part of the decision of the Coordinate Bench. For the reasons given therein, ground no. 2 is also dismissed. 74. Ground no. 3 relates to the deletion of the disallowance of Rs. 7,91,222/- claimed u/s. 35(2AB) of the Act incurred for lunch, refreshment and brokerage paid for property used by R & D unit employees. 119. Respectfully following the ....
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....disallowance of Rs. 20,97,048/- with respect to section 80IA(4) of the Act. 125. The A.O. made the impugned disallowance following the action of his predecessor for A.Y. 2008-09 and the ld. CIT(A) deleted the disallowance following the decision of his predecessor for A.Y. 2008-09. We find that the Tribunal in ITA Nos. 3297 & 3420/Ahd/2014 has confirmed the findings of the First Appellate Authority vide ground no. 8 of that appeal. The relevant findings read as under:- 178. We have given a thoughtful consideration to the orders of the authorities below and the reasons given by the A.O. as mentioned elsewhere. The details of year-wise profits generated in captive power plant are as under:- Statement of working of deduction u/s 801A Panoli CPP 08-09 Panoli CPP 07-08 Panoli CPP 06-07 Panoli CPP 05-06 Panoli CPP 04-05 A Profit before tax as per Profit & Loss A/c 32,79,235 (9,53,471) 82,89,195 75,41,568 43,51,772 B) Add: Items disallowed/considered separately Depreciation 18,57,315 18,57,315 18,57,315 18,57,315 13,95,524 Disallowance u/s 43 B....
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....stinct legislated laws. It is true that under the Explanation to Section 115JB of the Act, certain items have been mentioned which have to be added back for the computation of book profit. It is equally true that there is no mention of Wealth Tax provision. The provisions of the act are clear and unambiguous and require no addition/deletion of any items other than those mentioned in the provisions. We, therefore, do not find any infirmity in the findings of the ld. CIT(A). Ground no. 5 is dismissed. 130. Respectfully following the findings of the Tribunal (supra), ground no. 8 is dismissed. 131. Ground no. 9 relates to the deletion of the addition on account of disallowance of expenditure incurred on behalf of its sister concern. 132. A perusal of the order of the Co-ordinate Bench for earlier years shows that the Bench has considered similar issue in ITA Nos. 3297 & 3420/Ahd/2014 and has decided this issue in favour of the assessee and against the revenue. The Tribunal while deciding this issue had followed the decision of the Co-ordinate Bench in assessee's own case in ITA Nos. 1589 & 1592/Ahd/2011 wherein the decision given in ITA No. 2430/Ahd/2009 was followed. The rel....
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....sale of raw materials/products sold to its sister concern. 84. Aggrieved by this, assessee carried the matter before the ld. CIT(A) but without any success. 85. Before us, the ld. counsel for the assessee stated that it is not clear under which provision of the act additions have been made. Further the counsel stated that no 80IB deduction has been claimed by it which could justify the action of the A.O. Per contra, the ld. D.R. strongly supported the findings of the revenue authorities. 87. We have given a thoughtful consideration to the orders of the authorities below. We agree with the contention of the ld. counsel that no specific section has been mentioned in the assessment order for making the impugned additions. A perusal of the assessment order show that the additions have been made by treating the transactions u/s. 40A(2) of the Act. In that case, we have to state that provisions of section 40A(2) are applicable only in respect of payments made to related parties mentioned therein. But the transaction before us is of credit in nature i.e. sales so provisions of section 40A(2) are not at all applicable. 27. Respectfully following the find....