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2019 (6) TMI 1450
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....als) [hereinafter referred to as 'the learned CIT(A)'] is bad in law and on facts. 2. Re: Notice issued u/s. 148 t.w.s. 147 was bad in law and needs to be quashed as void ab initio: 2.1. The Learned CIT(A) has grossly erred in upholding the order of Assessing Officer who has reopened the Assessment under section 147 without appreciating that there is a mere change of opinion on issues which had akeady been considered in the assessment order framed u/s 143(3). 3. Re: Addition on account of transfer of Technology to Foreign Subsidiary- Rs. 45.35.30.353/-: 3.1. In the facts and circumstances of the case and in law, the learned CIT(A) grossly erred in upholding the order of the Assessing Officer in adding income to the extent of Rs,45,35,30,553/-on sale of technology by Sun PharmaGlobal, Inc. (hereinafter referred to as "SPG"), to Caraco without appreciating that: .1 die said technologies have been developed by Unimed Technologies Limited (hereinafter referred to as "UTL") and M.J. Pharmaceuticals Limited (hereinafter referred to as "MJPL") who are both independent companies (and also not subsidiary companies of SPIL as alleged by the Asse....
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.... 2.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) grossly erred in upholding the actions of the Assessing Officer relating to allocation of R&D expenditure, without appreciating that: 2.1.1 The product technologies developed are completely owned by the Appellant and that no part of the ownership of the product technologies or processes developed during such R&D work is for any other party; 2.1.2 The Appellant being a working partner had in pursuance of the obligation undertaken by the Appellant under the partnership deed, had provided these services in relation to the manufacturing activities and that no R&D activity was carried out for SPI. For the services rendered by the Appellant it was receiving remuneration and share in profit from SPI. 2.2 Without prejudice to the above, the learned CIT(A) grossly erred in rejecting the Appellant's contention, that only expenditure amounting to Rs. 13.49 lakhs incurred for specific products manufactured in SPI ought to have been disallowed and in further stating that specific details of expenditure was not available during the course of appellate proceedings. ....
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.... was framed on 19/12/2011 for the year under consideration. 5. There was a survey operation u/s 133A of the Act on 08.11.2011 at the six business premises of the assessee located at Mumbai. 6. During the survey, a large number of incriminating documents (master formula, executive summary, master formula card, etc.) were found and impounded. Thus based on the survey report the case was reopened by issuing a notice u/s 148 of the Act dated 28/03/2013. The AO during the proceedings observed certain facts as detailed under: 1. The assessee had several subsidiaries in India and outside India. One of the subsidiary company of the assessee namely SUN BVI transferred certain technologies to CARACO, the USA over a certain period. The SUN BVI acquired these technologies from Unimed technologies Ltd/MJ Pharmaceuticals Ltd (in short UTL/MJPL), and UTL/MJPL acquired these technologies from SPIL. 2. The cost of technologies in the hand of SUN BVI was very nominal in comparison to the value at which SUN BVI transferred it to CARACO. As such the SUN BVI earned huge profit margin ranging from 95% to 97% on these transactions which is exempt from tax as SUN BVI is located in ....
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.... BVI. 2. It is only a presumption of AO that UTL/MJPL acquired these technologies from SPIL. In fact, these technologies were developed by them, and the same were shown in their books of accounts. As such these transactions were not recorded in the books of accounts of the assessee. 3. UTL/MJPL are not related party as per section 40A(2)(b) of the Act and not even as per AS-18 issued by the ICAI. Both of them are independent party and separately assessed to tax and orders u/s 143(3) have been passed on both of them. It means the transactions in their books have been accepted in the year under consideration and earlier years. Therefore, these entities cannot be said as mere name lenders. 4. Both the entities have their own dedicated and exclusive R&D facility having requisite infrastructure, resources, and dedicated staff to carry out the research. UTL is in the field of Pharma manufacturing & selling for the last 20 years. 5. Further, these entities have accessed and utilized the advanced R&D facility of the assessee to carry out their research in pursuance of an agreement entered with the assessee dated 04.04.2007. These parties paid the conside....
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....the SUN BVI and UTL, agreement between UTL and SPIL, transactions recorded in the books and without finding out any defect therein. It is the settled law that there cannot be any presumption while exercising jurisdiction u/s 147 of the Act. 13. The profit margin is high because consideration was in shares which were fixed in the agreement entered in the year 2002. At the time of the agreement the price of shares was very low. The value of technologies changed with the fluctuation in the price of the shares. It is also important to note in 2002, the price was USD 1.10(low) and USD 4.96(high). In year 2011 $4.18(low) and $6.93(high) with the peak price at $18.70 in 2009. 14. The consideration in shares was the part of long term strategic decision to increase the stake in the company for investment in the US market. The transfer of technology for shares was only a milestone established by the parties. In both the agreement (first between SPIL and CARACO on 21/04/97 and second between SUN global and CARACO on 21/11/02) the consideration in the number of shares was uniform at 5,44,000 shares for each technology. 15. It is wrong to compare the rates of purchase....
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....rmation available with this office UTL was primarily functioning as a job worker of assessee therefore, there is no reason to believe that it had proper R&D facilities to develop such a sophisticated generic product. 2. The difference in rate is very high i.e. it was sold by UTL for $4,00,000 to SUN BVI which was subsequently sold as $1,17,19,362/- to CARACO. 3. CARACO, a 100% subsidiary of assessee had earlier the same agreement with the SPIL (assessee). In the given circumstances and being a close connection between the concerns UTL/MJPL and the assessee as sister concerns and without proper and sufficient R&D facility, there is a strong reason to believe that they have not actually developed these technologies. As such SPIL actually developed the products. 4. As per the agreement in 1997, the assessee had to invest $7.5 million in stock which was to be issued as a consideration of technology transfer. However, it was mentioned that till Dec, 31, 2003 SPIL had delivered only 13 formulas and became the beneficiary owner for approximately 48% of the total shares. Assessee also submitted that after expiration of agreement in 1997 a new agreement in Nov 200....
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....e day of the agreement because at that time the consideration was fixed. 8. Apart from above assessee also reiterated its most of submission made before AO. 7.1. In view of above submission, assessee prayed before ld. CIT(A) to delete the addition made by AO. 7.2. However, Ld. CIT (A) disregarded the submission made before him and partly confirmed the addition made by AO by making following observation: 1. The AO correctly held that the new agreement was nothing but the extension of old agreement as there was already an old agreement of same nature which could not be complied with. This new agreement was made between CARACO and 100% subsidiary company of same group, which is in the tax heaven after acquiring 48% of shares of CARACO. 2. Assessee's contention is right that nothing is mentioned in statement that they were not co-operating, hence oath taken is meaningless. But the fact remains same that the clause (iii) of section 133A authorizes an IT authority to record statement of any person which may be useful. The Hon'ble Apex court also in the case of S. Khader khan has held that statement can be used by department in conjunction with other docum....
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....laimed to have been purchased by Sun BVI. Further it has been noted that the rate of sale of formula for generic products from Unimed to Sun BVI is very less as compared to the rate charged by Sun BVI to Caraco. It is an admitted fact that Sun BVI was not making any value addition to the product as Sun BVI did not have R&D facility which was duly accepted by Shri Sudhir Valia, the Director of Sun India and Sun BVI (Upto FY.2006-07) in the statement recorded u/s 131 before the ADIT (Inv.) Unit-1, Baroda on 21.3.2011. The difference in value was highly excessive and unbelievable that the technologies was sold by Unimed to Sun BVI for US$ 4,00,000 & Sun BVI sold to CARACO for US$ 1,17,19,362 which raises serious doubt as to the genuineness of the transaction and further strengthens the fact that actual vendor was none other than SPIL. The Caraco, a 100% subsidiary of the assessee, was earlier having an agreement with assessee for purchase of formula of generic products and subsequently it had another agreement with another 100% subsidiary of the assessee which is Sun BVI for purchase of generic products and it has claimed to have purchased such formula from two of the subsidi....
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....hands of the appellant. So far as the alternate contention of the appellant that if the entire consideration is taxed in its hands, then the hire charges received from M/s. UTL should be reduced from the income of the appellant is concerned, the same is acceptable. The hire charges of Rs. 660.7 lakhs shown by the appellant in its income as having received from UTL, is a part of consideration which was receivable by the appellant from M/s. Caraco USA. Hence, the AO is directed to reduce this amount while i computing the taxable income of the appellant for this year. 1.3. Remarks: The decision of the Ld.CIT (A) was not accepted by the Department. The Ld CIT(A) erred in holding that hire charges received from M/s. UTL is a part of consideration receivable from M/s. Caraco USA whereas the AO has only taxed the income receivable on account of transfer of technology to Caraco by Sun BVI and which did not include profit earned by the Unimed Technologies Ltd. It has been clearly mentioned by the AO that the technologies had been sold by Unimed Technologies Ltd. to Sun BVI for US$ 4,00,000 and Sun BVI sold the same technologies to Caraco for US$ 1,17,19,362. Accor....
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.... as under: 1.1 UTL is a public limited company, bearing CIN number U65999GJ1988PLC010304. It was incorporated as Unimed Technologies Private Limited' on January 27, 1988. Further it was converted to Public Company as 'Unimed Technologies Limited' on April 3, 1996 under the provisions of Companies Act, 1956. The registered office of UTL is situated at Survey No. 22&24, Village Ujeti Post Baska, Baska - Ujeti Road, Dist. Panchmahal, Halol - 389350, Gujarat. UTL had 4 Directors on its Board for the year under consideration. 1.2 UTL is engaged in the business of pharmaceutical products as manufacturers, dealers, job workers, processors, sellers, retailers, wholesalers, importers and exporters. UTL sells pharmaceutical products in domestic and overseas market. UTL also has its own dedicated and exclusive research and development facility having requisite infrastructure, | personnel and resources. 1.3 With respect to the question pertaining to the manner in which the valuation of shares was carried out to discharge the consideration paid by Caraco Pharmaceuticals Laboratories Ltd. ('Caraco'), it is submitted that pursuant to the agreement en....
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.... Further, it is submitted that the statement recorded during the course of survey proceedings is illegal and hence cannot be relied upon. In this regard, it is submitted that the power to record statement of employees and directors on oath is available under section 131 read with section'133(6) of the Income-tax Act, 1961 ('the Act'). As per the said provisions of the Act, the power can be exercised only in case where the assessee has not afforded facility to income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information. In the present case, the learned assessing officer has not recorded any satisfaction regarding the Appellant's non-co-operation during the course of Survey proceedings. Thus, the statement recorded, which is itself not as per law, cannot be considered as relevant for the purpose of determining the case. Also, it is settled legal principle that the statement recorded u/s. 133A of the Act in themselves have no evidentiary value. Hence, in the facts of the present case, no substantial relevance should be placed upon the statements recor....
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....e case that SPG BVI, as a company, does not own any assets of its own. SPG BVI is an entity engaged in the pharma business and that IPs constitutes its major assets base. Hence the argument raised by the Id. DR that SPG BVI does not own any assets is false as it owns various IPRs / ANDAs right. Thus, SPG BVI owns the most important assets that drive the generics pharma business i.e., ANDA approval under the Para IV filing of the product IPRs and that it also faces the biggest risk of prolonged litigation arising therefrom. In support of our above argument, we would also like to highlight the fact that for the year under consideration, the issue in connection to the sale of the Pantaprazole Sodium tablets by SPG BVI to Caraco was raised by the Transfer Pricing Officer (TPO) in connection to the ownership of SPG BVI over the IPRs / ANDAs rights of the products in question. Against the order of the TPO as further enhanced by the CIT (A), the Appellant had preferred an appeal before the Hon'ble Bench of this Tribunal. The Hon'ble Bench after verifying the documents and duly considering the submissions made I by the Appellant and Revenue in this regard, had com....
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....y states that the intellectual property rights belong to Unimed Technologies Ltd. and the Appellant shall be having no rights whatsoever on the dossiers developed in its premises. The relevant extract is reproduced as under: ".... Any and all Information, inventions and discoveries, whether or not patentable, whether complete or incomplete, which SPIL develops and/or makes as the result of services performed by SPIL under this Agreement, UTL shall be the sole and exclusive property of the Client and shall be assigned/transmitted to UTL on termination/expiry of the respective work or on request by UTL. It is a primary rule that firstly, entire agreement is to be read and secondly, it is to be interpreted in the way parties intend it to be. Thus, on reading the said agreement in its entirety it can be concluded that the intellectual property rights shall belong to UTL and the Appellant shall be having no rights whatsoever on the dossiers developed in its premises. 2.5 It is also the argument of the Id. DR that the consideration payable by UTL to the Appellant was vague and not specifically stated in the said agreement. The Id. DR also highlighted t....
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....ness is to be conducted. Thus, in the present case, the Revenue has no power to question the terms of the agreement entered in to by the Appellant which are normal under ordinary course of business. 2.6 It is the argument of the Id. DR that the Appellant had let out the R&D facility located at Mumbai to Unimed Technologies Ltd. without any agreement. In this regard, it is submitted that the argument raised by the Id. DR is factually incorrect. The Id. DR has proceeded on the wrong understanding of facts of the case. The agreement entered in to with Unimed Technologies Ltd. specifically states that the research and development activities shall be carried out at both the research facilities located at Mumbai and Baroda ; premises respectively. Attention is invited to the clause 1 of the said agreement. Relevant extract is reproduced as under for ready reference: "SPIL agrees to carry out such pharmaceutical research and development activities as may be mutually agreed y UTL and SPIL from time to time, for development of various pharmaceutical products ....... at SPIL's Research Centres at 17/B, Mahal Industrial Estate, Mahakali Caves R....
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....ent raised by the Id. DR to say that the SPG BVI has no risk appetite to absorb losses of claims arising on account of the litigation. Hope the above submissions suffice your Honours requirement. In case your Honours requires any further information and/or clarification in relation to the above, we shall be pleased to furnish the same. 11. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the AO has framed various allegations against the assessee which have already been discussed in detail in the preceding paragraph. Therefore, we are not inclined to repeat the same for the sake of brevity and convenience. Now to adjudicate the issue as discussed above certain questions emerges as detailed under: I. Whether UTL was a name lender in the impugned transactions, II. Whether the statement of Dr. T. Rajamannar, Hemang Seth recorded under section 131 of the Act was valid. III. Whether the SUN BVI is a paper company IV. Whether the impugned transaction is a Colourable Device V. Whether the Sale Consideration received by SUN BVI belongs to the a....
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....with the development of the impugned technologies. The correspondence by UTL to the assessee and the list of the persons is available on record. 16.1. Similarly, the learned AR also submitted that UTL is not an associated party in pursuance to the provisions of section 40A(2)(b) of the Act. The details filed by the assessee in Annexure 2 are available on record. 17. We also note that AO in his assessment order has made the observation as detailed under: As per the information available with this office Unimed was primarily was functioning as job worker. 17.1. From the above observation of the AO, it is transpired that UTL was very much engaged in the development activity of the technology but indirectly as job worker. Thus the role of UTL in the development of the technology cannot be ruled out completely as alleged by the Revenue. 17.2. We also note that UTL has developed the technologies in pursuance to the agreement with SUN BVI dated 03/04/2007 which is available on record. As such we are of the view that the assessee has discharged its onus by furnishing the details as discussed above. In this regard, we find the support and the guidance from the judgment ....
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....statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A is not given an evidentiary value. The statement obtained under section 133A would not automatically bind upon the assessee. Therefore, admission made during such statement cannot be made the basis of any admission." 18.1. It is also important to note that the above judgment of Hon'ble Madras High Court was upheld by the Hon'ble Supreme Court in the case of CIT vs. S. Khader Khan Son (2013) 352 ITR 480 (SC) wherein the head note reads as under: Section 133A of the Income Act, 1961 - Survey - Whether Section 133A does not empower any ITO to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition - Held, yes [In favour of assessee] 18.2. Now coming to the case law relied by the learner DR as detailed under: i. Raj Hans Towers (P) Ltd. Vs. CIT reported in 56 taxmann.com 67 ii. Pr.CIT Vs. Avinash Kumar Setia reported in 395 ITR 235. iii. Pebbl....
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....undisclosed income under coercion/undue influence. 3. In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the IT Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/coercion shall be viewed by the Board adversely." 18.6. From the above circular, it is clear that the CBDT has emphasized to its officers to focus on gathering evidences during search/survey operations and strictly directed to avoid obtaining admission of undisclosed income under coercion/ undue influence. Keeping in view the guidelines issued by the CBDT from time to time regarding the statements obtained during search and survey operation, it is undisputedly clear that the lower authorities have not collected any other evidence to prove the impugned transaction as bogus other than the statement. 18.7. It is also important to note that the statement furnished under section 131 of the Act dated 8-11-2011 was retracted by way of filing an affidavit dated 11-11-2011 immediately after 3 days. III.....
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.... such the Revenue has treated the part of the transaction of sale of the technology by the UTL to SUN BVI as colorable device whereas the part of transaction i.e. the rental charges from UTL as income under the head business and profession of the assessee has been accepted. 18.9. The main allegation/finding of the AO, which was later confirmed by the ld. CIT(A), that assessee has used this transaction as a colorable device to reduce its tax liability by diverting the income. Regarding this we note that Honorable Supreme court in case of McDowell & Co. Ltd vs. Commercial tax officer (154 ITR 148) dated 17-4-1985 wherein apex court observed that tax planning within the law is permitted, but colorable devices cannot be part of tax planning. 18.10. In the case of McDowell & Co, the assessee was not collecting the sales tax liability on the excise duty even after the amendment in the distillery rules 76 & 79 w.e.f. 4-8-1981. As such before the amendment in the rules, i.e., distillery rules 76 & 79 w.e.f. 4-8-1981, the buyers were liable to deposit the excise duty directly to the state government. Therefore the assessee did not collect the sales tax on such excise duty. It is perti....
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....e seller and buyer split into two, namely - duty so far paid separately directly to the tax authorities and the balance so paid to the seller; the arrangement was existing solely for the purpose of not paying the tax and it is not a transaction in reality of receiving less price than the one on which it was marketing. The Court no where said, that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act; an inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in McDowell's case (supra). Ratio of any decision has to be understood in the context it has been made. The facts and circumstances which led to McDowell's decision (supra) leaves us in no doubt that the principle enunciated in the above case has not affected the freedom of citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the frame w....
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.... and bona fide, merely on the ground that treating those as deliberate would result in tax liability in future. While the planning adopted as a device to avoid tax had been deprecated, principle cannot be read as laying down the law that a person is to arrange his affairs so as to attract maximum tax liability, and every act which results in tax reduction, exemption of tax or not attracting tax authorised by law is to be treated as device of tax avoidance." 18.3. It is also pertinent to mention here that whenever assessee has two options, any layman will always go for one which reduces its tax liability but to hold that the transaction as a colorable device Revenue needs to see it in entirety, as held by the Hon'ble Gujarat high court in the abovementioned case. 18.4. However, we further note that before applying the aforesaid principles laid down by the Hon'ble Apex court in case of McDowell (supra) to the case on hand certain facts needs to be considered for arriving at a finding whether a particular series of the transactions is a colourable device or not the onus is on the AO to find out: (i) whether the parties to the transactions have concealed or hidd....
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....nsaction. (v) whether actions of the parties finally are at variance with the terms of the agreement; Ans. There was no variance in the impugned transaction with regard to the terms of the agreement. 18.5. In view of the above we hold that the impugned transaction cannot be regarded as colorable device merely on the reasoning that there is no tax liability arising in the hands of the assessee. V. Whether the Sale Consideration received by SUN BVI belongs to the assessee 18.6. We also note that the consideration between SUN BVI and CARACO, USA was fixed in kind i.e. the CARACO was under the obligation to issue the shares to SUN BVI against the supply of the technology in pursuance to the agreement dated 21-11-2002. The relevant extract of the agreement stands as under: 2002 agreement between CARACO and SUN BVI: "4. CONSIDERATION 4.1. Consideration. In consideration of the obligations of Sun Global set forth in Section 1 and Section 3, for each Product delivered by Sun global to Caraco Sun Global shall receive five hundred fort-four thousand (544,000) shares of Convertible Preferred Steel containing those items a....
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....ible to plan the profit on transactions which will be due on future date. It is because the consideration in shares but its value cannot be fixed. As such the value of shares at the time of actual delivery can fluctuate downwards also and thus in the event of downward fluctuation in the price, the loss would not be allowed by the Revenue. 18.9. In view of the above, we are of the prima facie opinion that it is not possible that a person can predict the profit for a future date on the date of agreement itself specially, when the consideration is in shares whose price is not fixed. But at the same time we are also of the view that in the long run on the basis of past history i.e. technologies transferred in pursuant of 1997 it is possible for the assessee to predict/forecast these transactions and use them as a colorable device to shift the profit from India to BVI, a tax heaven, . In this regard we have already raised a specific query from the bench to the ld. DR as discussed in preceding Para, but there was no reply from the ld. DR. 18.10. It is also important to note that the new agreement i.e. between the SUN BVI & CARACO is almost same as old one except the party i.e. asse....
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....h difficult for assessee to enter into all these transactions. However, the assessee categorically denied the fact that UTL is a related party not even as per AS-18 of the assessee which is much wider than section 40A(b)(2) of the Act. In this regard we raised a query from the bench to the ld. Counsel who has furnished the shareholding pattern of UTL for the year under consideration and contended that UTL is not a related party as per this shareholding. The copy of the shareholding pattern and the specified person is available on record. The ld. DR has not brought anything on record to controvert the argument of the ld. AR for the assessee. 18.12. Even assuming that the impugned technologies were developed by the assessee, the question arises how to tax the income of the assessee. If it is so then the transaction for the sale of technological will be treated between the assessee and the SUNBVI being the associated enterprise. It is settled law the international transactions between the 2 associated enterprises are governed by the provisions of transfer pricing as per section 92 of the Act. Thus the impugned transaction between the assessee and its associated enterprises can be d....
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....e nor had it been shown that the value was not the value in the books of account. Further, it was not clear how the ITO arrived at the figures of addition back for each of these assessment years without comparing the prevailing market price of the tobacco of the particular quality purchased from the partners and 'C' on the dates of purchase with the purchase price actually paid to the partners and 'C'. The qualities of tobacco differ very widely and also there may be fluctuations in the market from time to time and striking an average of the price of all tobacco purchased during the entire season irrespective of qualities and irrespective of the fluctuations in the market rates, was a very unscientific method followed by the department in arriving at its conclusion but in any event he had no right to depart from the prices shown in the books of account unless he found the transaction not to be a bona fide one or to be sham one or unless he found that the prices paid were not what was shown in the books of account and since none of these three conclusions had been reached by him, he had no right to depart from the books of account of the assessee. I....
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....ting that the AO had applied the same pro-rata method of allocating the R&D expenditure which the assessee itself was applying for allocation of the R&D expenditure within its units in the ratio of their turnover." 22. Both the learned AR and the DR before us relied on the order of the authorities below as favourable to them. 23. We have heard the rival contentions and perused the materials available on record. At the outset we note that the issue is covered in favour of the assessee by the order of this tribunal in its own case in ITA No. 1666/AHD/2016 dated 8th September 2017. The learned DR has also not brought anything on record contrary to the argument advanced by the learned AR for the assessee. The relevant extract of the order is reproduced below: "49. 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 Group and it is carrying out the Research and Development work for the entire Sun Ph....
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.... the appeal for A.Y. 2-03, 2003-04 & 2004-05. 57. Per contra, the Id. 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 arid 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 expenditures have not been inc....
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....essment order without appreciating that the issue being debatable is outside the purview of proceeding u/s 154 of the IT Act and that the AO had dropped the rectification proceedings vide order u/s. 154 of the Act dated 23.09.2013 mentioning clearly the fact that issue arisen in the notice u/s. 154 is the subject matter of reassessment proceedings and would be looked into at the time of finalizing the re-assessment proceedings." 4. "On the facts and in the circumstances of the case, the Ld. CIT (A) erred in law and on facts in holding that the expenses incurred on clinical trial outside approved facility is eligible for weighted deduction without appreciating the fact that expenditure incurred for in-house research and development facility only is entitled for deduction u/s. 35(2AB) read with Explanation to section 35(2AB) of the Act, which finds support from the decision of I.T.A.T. Mumbai Bench "C" in the case of Concept Pharmaceuticals Ltd. v. CIT[2011] 43 SOT 423 (Mum.) 5. "On the facts and in the circumstances of the case, the Ld. CIT (A) erred in law and on facts in relying upon the judgement of Hon'ble Gujarat High Court in the case of Cadila Health Car....
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....at the issue raised by the Revenue in the above ground of appeal has already been adjudicated by us on merit in favour of the assessee and against the Revenue vide Para No. 37 of the this order. Accordingly we hold that the issue raised by the Revenue becomes infructuous. Hence we dismiss the same. The issue raised by the Revenue in ground No. 4 and 5 is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 2,50,44,500.00 on account of the weighted deduction under section 35(2AB) of the Act. 34. The assessee in the year under consideration has claimed the weighted deduction for Rs. 250.445 lacs in respect of expenses incurred in connection with the clinical trial conducted outside the approved R&D facility. However the AO was of the view that the expenditure incurred outside the approved facility will not be eligible for weighted deduction under section 35(2AB) of the Act. Therefore the AO disallowed the same and added to the total income of the assessee. 35. Aggrieved assessee preferred an appeal to the ld. CIT-A who allowed the weighted deduction in respect of the expenditure as discussed above under section 35(2AB) of the Act. Being aggrie....
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.... of the drug and so on. Extensive clinical trials, therefore, would be an intrinsic part of development of any such new pharmaceutical drug. It cannot be imagined that such clinical trial can be carried out only in the laboratory of the pharmaceutical company. If we give such restricted meaning to the term expenditure incurred on in-house research and development facility, we would on one hand be completely diluting the deduction envisaged under sub-section (2AB) of section 35 and on the other, making the explanation noted above quite meaningless. We have noticed that for the purpose of the said clause in relation to drug and pharmaceuticals, the expenditure on scientific research has to include the expenditure incurred on clinical trials in obtaining approvals from any regulatory authority or in filing an application for grant of patent. The activities of obtaining approval of the authority and filing of an application for patent necessarily shall have to be outside the in-house research facility. Thus the restricted meaning suggested by the Revenue would completely make the explanation quite meaningless. For the scientific research in relation to drugs and pharmaceuticals made fo....