TaxTMI 
TaxTMI 
2017 (6) TMI 1323
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....levant documentary evidence in the light of Rule 18(6) of the ITAT Rules. The assessee is a Pharma Company engaged in manufacturing of bulk drugs as well as formulation products. The manufacturing work is done at its various factories located at silvasa, Ankleshwar, Panoli, Halol, Ahmednagar, Kanchipuram and Karkhadi [Padra]. The assessee had submitted Form No. 3CEB [Report u/s. 92E relating to International Transactions. Reference thereof was made to the TPO and the A.O. framed the assessment order u/s. 143(3) of the Act on the basis of the order passed by the Transfer Pricing Officer u/s. 92CA(3) Of the Act vide order dated 28.10.2011. We will first take up Assessee's appeal in ITA No. 3297/Ahd/2014 5. Ground no. 1 is of general in nature and requires no separate adjudication. 6. Ground no. 2 relates to the addition on account of interest on share application money advanced to Sun Pharma Global Inc. 7. The TPO/AO noted that the assessee has given share application money towards subscription of shares in its associated enterprise Sun Pharma Global Inc. (SPGI). The TPO was of the opinion that the assessee should have charged interest at LIBOR plus basis and that arm....
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....ance to SPG but has in fact applied LIBOR + 4%. The submissions/contentions of the assessee did not find any favour with the ld. CIT (A) who confirmed the upward adjustment made by the AO/TPO. 11. Before us, the ld. Senior Counsel reiterated what has been stated before the lower authorities. 12. Ld. G.C. Shrivastava contends that relevant provisions of the Indian Companies Act provide for charging of interest if the company is unable to allot shares within a period of 60 days from the receipt of application money if such amount is not to repaid within 15 days from the end of the period of 60 days. The Bench on this issue raised a query that Sun Pharma Global Inc. being incorporated in British Virgin Island in such eventuality whether provisions of Indian Companies Act would be applicable to such a case. Ld. Shri G.C. Shrivastava though accepts that Indian Companies Act provisions will not be applicable, however reference to provisions of the Indian Companies Act are canvassed to support revenues stand that the share application money should not be made available to the allotting Company for its business before corresponding shares are allotted. Strong reliance was placed on t....
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....s 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 Co-ordinate Bench in the case of ITO v. Sterling Oil Resources (P.) Ltd. [2016] 67 taxmann.com 2 (Mum-Trib). 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 the assessee. It is, therefore, wrong to even allege that an assessee does not behave in a commercially rationale manner, as expected in an arm's length situation, when the assessee does not ask for payment of ....
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....nsaction 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 mode 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 entirety benefit neutral from a commercial point of view. The very foundation of the adjustment made by the Assessing Officer is, therefore, wholly devoid of legally sustainable merits and factually correct assumptions. 15. Considering the facts in totality, we set aside the findings of t....
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....ollow 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 (supra) 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 so as to enable any transfer pricing adjustment for the same. In this regard, we rely on the decisions cited earlier, which have been appropriately followed by the Hon'ble ITAT in A.Y. 2007-08 and the decision of the Supreme Court (supra) cited by the ld. PR does not in any way justify any departure from the decision laid down in A.Y. 2007-08. 21. Adverting to ld. DR's contention that the terms of OFCDs and comparables have not been submitted, it is contended that the terms of OFCDs were duly submitted before the lower authorities in the form of Annexure B which is part of the PB. Similarly the allegation that assessee has not ....
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....aking note of the ratio decidendi of the same i.e. the general reasons, or the general 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 Dy. CIT v. Core Healthcare Ltd. [2001] 251 ITR 61 has observed as under:- As laid down by the apex court in the case of Ambika Prasad Mishra v. State of U.P. ; [1980] 3 SCC 719 (page 1764 of AIR 1980 SC): "Every new discovery or/argumentative novelty cannot undo or compel reconsideration of a binding precedent. . . . . a decision does not lose its authority 'merely because it was badly argued, inadequately considered and fallaciously reasoned. . . ." Similarly in the case of Kesho Ram & Co. v. Union of India [1989] 3 SCC 151, it is stated by the Supreme Court thus (page 160): "The binding effect of a decision of this co....
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....re, 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 inter alia submitted that Assessee had not opted for conversion of the loan during the year and therefore it was loan for the year and as per the terms of agreement, no interest accrued to the Assessee and therefore no income was considered. The TPO did not find the contention of the Assessee acceptable. He considered the Optionally Fully Convertible loan as debt and considering the average six month Euro Libor rate for the year @ 4.48% to which he added the interest rate of 2.90 basis point as per the agreement and thereafter considered the rate of interest to be @ 7.38% and accordingly computed the interest on Rs. 108.32 Crore for 17l days at 7.3896. The aforesaid adjustment made by the TPO w....
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.... result we delete the impugned additions. Ground No. 3 of assessee is allowed 27. Ground No. 4 relates to the addition on account of Corporate Guarantee provided to associated enterprises Sun Pharmaceutical Bangladesh Ltd. amounting to Rs. 23,88,000/-, 28. Facts in issue are that the assessee had given Corporate Guarantee to bank on behalf of its AEs. The TPO found that the assessee had not charged any commission/fee from its AE for extending such guarantee. TPO made an adjustment of corporate guarantee commission @ 2% on to total amount of guarantee extended for the benefit of AE. This adjustment was confirmed by the first Appellate Authority. 29. Before us, the ld. Senior Counsel stated that an identical issue has been decided by ITAT in own ease for A.Y. 2007-08 in ITA Nos. 2076 & 2067/Ahd/2013. Ld. Senior Counsel pleaded that similar view should be taken for the year under consideration also. 30. Ld. Shri G.C. Shrivastava vehemently opposed this contention by referring to other decisions of the Co-ordinate Benches on this issue and it is proposed that as there are conflicting decisions of the Co-ordinate Benches, the issues should be referred for a Special Bench. It....
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....file of the ld. CIT (A) (to avoid any issue of limitation to give effect to ITAT order as apprehended by ld. CR) with a direction that this issue may be decided in accordance with Hon'ble Jurisdictional High Court of Gujarat and after giving adequate of hearing to the assessee. Ground No. 4 is accordingly treated as allowed for statistical purpose. 34. Ground No. 5 relates to the addition on account of Sale of Pantoprazole to Sun Pharma Global amounting to Rs. 612,03,79,468/-. 35. During the course of the Transfer Pricing proceedings, it came to the notice of the TPO that the assessee (SPIL) has sold medicine called Pantoprazole Tablets, manufactured at its US FDA plant worth Rs. 16.67 crore on GRAMS basis-(Contract Research & Manufacturing services) to its AE, Sun Pharma Global BVI (SPG BVI) on which the assessee had earned a margin of 21.57% on these sale transactions. The TPO further noticed that the same products were sold by SPG BVI without any value addition in the US market for Rs. 1525.42 crore. On such sale, SPG earned a margin of over 95%. 36. The TPO found that the assessee has applied Transactional Net Margin Method (TNMM) and benchmarked the transaction at....
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.... the AE and the AE has to bear all the risks. 41. Insofar as the FAR analysis for the AE is concerned, the functions carried out by the AE relate to the co-ordination with the various job workers to procure the goods and supplying of the same in US and other markets. The ANDA is owned by the AE, the technology to manufacture the product is also owned by the AE. Since, the owner of the IPRs is the AE; the substantial risks related to the product are borne by the AE. The risks borne by the AE are as follows- (a) Litigation risks (b) Chargebacks (c) Self Stock Adjustments (d) Product Returns and Other Allowances (e) Infringement issues 42. It was brought to the notice of the ld. CIT (A) that the propositions of the ld; TPO/AQ that the assessee cannot be merely treated as a contract manufacturer and has performed substantial functions, were neither correct nor justified as in terms of the functions, SPIL has performed no functions other than manufacturing. The assessee also rebutted the observation of the TPO that assessee was in knowledge of the technical know-how of the said product qua the agreement between the assessee and Caraco L....
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.... ultimate profit earned by it and the sale of the same product made by the assessee and the ultimate profit earned by it:- "Particulars A.Y. 08-09 A.Y. 09-10 A.Y. 10-11 Total USD(Mio.) USD(Mio.) USD(Mio) USD(Mio) Gross Sales 420.00 93.12 248.87 761.99 Less: Returns, Chargebacks etc. 160.00 53.75 122.38 336.13 Net Sales 260.00 39.37 126.49 425.86 Less: Other expenses 10.54 9.73 26.03 46.30 Profitability 249.46 29.64 100.46 379.56 Infringement Claim 506 Mn USD 506.00 Net Profit/(Loss) (126.44) As against this, the summary of the sales made by the assesses in respect of the said product and the profit earned by the assessee as considered by TPO in its assessment order as summarised in the table below: [All Amount in Rs.] Particulars A.Y. 08-09 A.Y. 09-10 A.Y. 10-11 Total Gross Sales 16,66,93,000 6,67,83,600 24,67,71,030 48,02,47,630 Less: Expenses 13,07,33,000 5,17,11,515 21,25,68,565 pasjyiaj (sic) Net Profit 3,59,60,000 1,50,72,085 3....
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....illy - "Lilly and SPIL hereby agree that SPIL shall perform the manufacturing activities (the "Manufacturing Activities") as set out in Appendix A for the Products in the form listed in Appendix B (the "Products") using of the bulk material(s) set forth in Appendix C (the "Bulk Material") and excipient materials as set forth in Appendix D (the/Other Material") and that SPIL shall not use a third party to perform the Manufacturing Activities without Lilly's prior written consent." From the above, it is clear the Lilly has given the task of only manufacturing the product listed in the agreement with proper specifications and using the bulk material mentioned in Appendix C and excipient materials as mentioned in Appendix-D. This definitely indicates towards contractual activity where only the task of manufacturing of product is outsourced with specific directions regarding manufacturing process. As against this, the clause in the agreement with SPG mentions that appellant has agreed to 'sell and supply' the products to SPG which has agreed to 'purchase' the products. In the entire agreement with SPG, there are no details like listing of bulk material....
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....dix B & C contains names of the products to be manufactured and Appendix-D contains the details of different raw materials, primary packaging components and secondary packaging materials. No such technical details are available in the agreement with SPG. 7.9.1.2 From the above detailed analysis of both the agreements, it is clear that the two agreements are not at all comparable. The agreement with Lilly is definitely in the nature of a 'contract manufacturing agreement' where specific details of the activities to be carried out, financial implication, and duty to procure raw materials have been clearly mentioned with specific clauses defining the responsibilities of SPIL and Lilly under various covenants. On the other hand, in the agreement with SPG no such specific details are available describing responsibilities and financial burden of the two parties. In fact, the clause (1) of agreement with SPG itself says that SPG was ready to 'purchase' and SPIL was ready to 'sell' and supply products. The appellant has sold goods to SPG which were manufactured in appellant's plant and were directly shipped to Coraco and not SPG. Once it is established ....
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....tion make unique and valuable contribution to, the transaction because in such a case independent parties might wish to share: the profits in proportion to their respective contributions and a two-sided method might be more appropriate than done sided method, in: addition, in the presence of unique and valuable contributions, reliable comparables information might be insufficient to apply another method. An advantage to apply PSM to such kind of transactions is that it offers flexibility by taking into account specific, possibly unique facts and circumstances of the associated enterprises that are not present in independent enterprises, while still constituting an arm's length approach to the extent that it reflects what independent enterprises reasonably would have done if faced with the same circumstances. It is less likely that either party to the controlled transaction will be left with an extreme and improbable profit result, since both parties to the transaction are evaluated. This aspect is particularly important because the present case involves analysis of contributions by both the parties in respect to intangible property i.e. ANDA/IPR employed in the controlled inter....
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....nership interest. It is contended that the transactions that have been entered into with Caraco are basically in the nature of supply of bulk and formulation drugs for various commercial considerations including: - 1. The US pharmaceutical markets are highly regulated having tough compliance and regulatory norms. Caraco was an existing US Company having an efficiently functional distribution network and a broad understanding of the module of the US markets. SPIL on the other hand would have had to build a distribution network and gain an understanding of how the US markets operate. Besides the distribution networks in the US are very different to that of India where only the approved generics and the formulations are sold. Caraco has got its own manufacturing facilities in US and was not merely a trader of medicines. Assessee sold bulk drugs as well which have been used for manufacture by Caraco having independent own set of operations in a market which was not easily accessible to SPIL. 2. The main criteria governing the transactions entered into with Caraco were the following: a. To get entry for SPIL in the US markets; b. To understand the reg....
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....ional Net Margin Method (TNMM) 1. SPIL's transactions with Caraco are governed by long-term business objectives, being the only party to whom sales are made by SPIL in the highly regulated US markets, the transactions with Caraco could not be compared with other transactions carried out by SPIL. 2. The net profit margin earned by SPIL on the sales, transactions with Caraco is 70.45%. 3. The average external net profit margins of comparable companies are around 20:82%. Detailed workings and derivation of the said margins were filed with TPO. - Step 1: Selection of Pharmaceutical Companies: A sample list of 141 pharmaceutical companies was found from various websites like www.moneypore.com and www.moneycontrol.com. The companies found are listed as under: Sr. No. Company Name Sr. No. Company Name 1 Ranbaxy Laboratories 72 Mangalam Drugs and Organics Ltd. 2 Cipla Ltd. 73 Bal Pharma Ltd. 3 Dr Reddys Laboratories 74 Medicamen Biotech Ltd. 4 Lupin Ltd. 75 Amrutanjan Healthcare Ltd. 5 Sun Pharmaceuticals Industries Ltd. 76 Sanjivani Paranteral Ltd. 6 A....
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....Ortin Laboratories Ltd. 43 Indoco Remedies Ltd. 114 Gennex Laboratories Ltd. 44 Dabur Pharma Ltd. 115 DIL Ltd. 45 Natco Pharrna Ltd. 116 Advik Laboratories Ltd. 46 Marksans Pharma Ltd. 117 Zyden Gentec Ltd. 47 Themis Medicare Ltd. 118 Nutraplus Products Ltd. 48 Neuland Laboratories Ltd. 119 Beryl Drugs Ltd. 49 Venus Remedies Ltd. 120 Shaba Chemicals Ltd. 50 Parenteral Drugs (India) Ltd. 121 Colinz Laboratories Ltd. 51 TTK Healthcare Ltd. 122 Yenkey Drugs and Pharmaceuticals Ltd. 52 Granules India Ltd. 123 Aura Laboratories Ltd. 53 Arvind Remedies Ltd. 124 Elder Projects Ltd. 54 SMS Pharmaceuticals Ltd. 125 Godavari Drugs Ltd. 55 Fulford (India) Ltd. 126 Ishita Drugs and Industries Ltd. 56 Solvay Pharma India 127 Unjha Formulations Ltd. 57 KDL Biotech Ltd. 128 Zenith Healthcare Ltd. 58 Albert David Ltd. 129 Triochem Products Ltd. 59 Vivimed Labs Ltd. 130 Gujarat Inject Kerala Ltd. 60 Wanbury Ltd. 131 Biofil Chemicals and Pharmaceuticals Ltd. 61 Jagsonpal Pharmaceut....
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....cted for the above mentioned six companies. The said ratios are enclosed herewith in an annexure. The average of the PBT Ratios of the six companies is 20.82% - Step 5: Adjustments to Ratios: The net profit margin extracted above of 20.82% ought to be adjusted to take into account the differences, if any, on account of the following costs which would not be incurred in sales to associated unrelated enterprise: * Administrative costs to service sales to AE * Commission would not be payable on sales to AE * Business promotion expenses would not be required * Bad Debts risk would be virtually eliminated in sales to AE * The selling and distribution efforts involved in sales to Garaco are much lower. * Taxes saved on account of the location of the manufacturing plants which enjoy tax holidays / deductions under the Income-tax Act. * No risk of stocking Having regard to the above factors, the margins actually earned on sales to Caraco after adjustment to the above factors would be higher than 70.45% which actually earned. However since the actual margins earned on s....
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.... Yes Yes Yes Yes Yes Accounting Function - Processes sales orders from third parties Research and Development Function Yes Yes Description of Assets SPIL Associated Enterprise Employees Yes Yes Property, plant and equipment - Warehouse - Manufacturing facilities - Land and office building - Moveable assets Yes Yes Yes Yes Yes Yes Intangibles - Brand name - Trademarks - Patents - Technical know-how - Distributor network in foreign country Yes Yes Yes Yes Yes Yes Description of Risks SPIL Associated Enterprise Credit Risk of Customers - Risk of non-payment of dues by customers to whom, credit has been extended Yes Service Level Quality risk - Risk of delivering quality product Yes Yes Working Capital Risk - Risk of financing the working, cap....
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....plant and equipment - Warehouse - Manufacturing facilities - Land and office building - Moveable assets Yes Yes Yes Yes Yes Intangibles - Brandname - Trademarks - Patents - Technical know-how - Distributor network in foreign country Yes Yes Yes Yes Yes Description of Risks SPIL Associated Enterprise Credit Risk of Customers - Risk of non-payment of dues by customers to whom credit has been extended Yes Service Level Quality risk - Risk of delivering quality product Yes Yes Working Capital Risk - Risk of financing the working capital Yes Yes Foreign Currency Risk - Risk of fluctuation in earnings due to fluctuations in currency conversion rates Yes Yes Market Risk - Risk of uncertainty in business volumes Yes Yes Technology Risk - Risk of technology/obsolescence Yes Human Capital Risk - Risk of appropriately trained human skill sets Yes ....
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....lopment Risk - Risk of failed research and development Yes Yes Note: 1. The bulk drugs sold by SPIL are utilized by the Associated Enterprise for its captive consumption. The bulk drugs are subsequently used by the AE as raw material for the production of formulation products. Accordingly no sales or marketing functions are carried out in respect of the sale of bulk drugs. The said transaction pertains to the sale of the product Pantaprozole by the Assessee to its AE, In the said transaction the issue has been raised on the allocation of the profit margin among the Assessee and its AEs. On merits following is submitted by the assessee:- FAR ANALYSIS:- Functions Carried out by the Assessee: - Manufacturing of Product as per the Specifications provided by the AE on a contract basis. To substantiate the same we hereby enclose the agreement between SPIL and SPG BVI whereby the SPIL is to manufacture the said product on behalf of SPG BVI. (The said agreement is enclosed as per ("Annexure - 8")) The said manufacturing is carried out on a Job Work ....
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....ription about the risks is placed on record. From the above FAR it is evident that the SPIL is just a contract manufacturer of the said product whereas the major IPR owner and the bearer of the substantial risks is SPG BVI. The evidences submitted also substantiate that the owner of the IPRs is the AE. Hence the substantial assets are borne by the AE. Consequently the risks shall be borne by the AE. II. SPIL Caraco Agreement dated 29th January, 2008:- 1. In respect of the said agreement it is [hereby submitted that the agreement has been entered into by the Assessee in the capacity of the representative of the Sun Pharma Group. This is because the Assessee is the Ultimate holding Company. Sun Pharma Group had various ANDAs which were partially owned by it as well as its other affiliates. Some of these ANDAs were para IV products. Although Caraco is also a subsidiary of the SPSL and thus belonged to Sun Group, still it was an independent listed company in USA with very strong requirements to corporate governance and with very strong insight by the independent directors. Due to this for all regulatory purposes including repriting ....
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....ship for supply and distribution of Para IV products by the Sun Pharma Group covering all Sun Group entities including the AE. 7. It will not be out of place to mention that the Assessee has also made sales of a Para IV product - Oxcarbazepine (of which the Assessee is the owner) to its: US based AE- Caraco in 2007-08. On the said sales the Assessee has earned huge profits because the substantial asset - the IPR was owned by the Assessee and the substantial risks were also borne by the Assessee. Consequently the Assessee has earned huge profits in the said transaction. The details of said transaction is already submitted vide our submission dated 31/01/2011. 8. Hence it will be clearly evident that the sales relating to para IV products or other ANDA products were carried out by entities that owned the underlying ANDA. It is further contended by assesse that: 1. The Assessee does not own the technology to manufacture the product. The same is owned by the AE. Only for the limited purpose of contract manufacturing on behalf of the AE that the same has been used by the Assessee. 2. The Assessee has made the supply to Caraco only on th....
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...., it is entitled to a higher share of profits. This is of the principle that - Higher the risks, Higher the rewards. Also the said Para IV drug was under the exclusivity period whereby the product commands the monopoly which a patented product demands and hence the owner of the IPR enjoys the right to charge a higher price for the said product. Once the said exclusivity period expires the price has to be reduced. Thus the overall profitability of the product during its life -cycle is leveled out. Hence while determining the profitability of the transaction of sales the overall economic life - cycle of the product is to be considered and the evaluation should not be on a yearly basis. As an example we submit the profit and loss Account of A.Y. 09-10 whereby there is substantial loss of revenue. The brief extract of the same is as follows: Particulars Amount in USD Amount in USD Income: Income/(loss) from Operations (87,752,391) Expenditure: Cost of Materials/ Goods 3,140,1,88 Personnel Cost 738,027 Operating and Other Expenses 5,459,090 &....
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....share from 50% each to 80% attributable to assessee and 20% to AE. Assessee contended before Ld. CIT (A) that: - SPIL continued the development of the product and then transferred to Sun Pharma Advanced Research Company Ltd. in Feb 2007 in pursuance to the scheme of arrangement in the nature of demerger of the R & D undertaking as approved by Hon'ble High Court of Gujarat. - SPARC became the owner of Abbreviated New Drug Application (ANDA) pursuant to the scheme of arrangement. - Thereafter SPARC transferred many ANDAs i.e. IPR to SPG including the ANDA in relation to Pantoprazole Tablets transferred its ownership to SPG BVI on Oct- 2007. - SPG therefore became the owner of the IPRs - Both the Abbreviated New Drug Application (herein after referred as ANDA) and the technology to manufacture of Pantoprazole Tablets and other ANDAs. - SPG has vide the Supply agreement dated 1st November, 2007 has authorized the Assessee Company: Sun Pharmaceuticals Industries Limited (herein after referred as SPIL) to manufacture and supply these products on Contract basis. - The products manufactured by SPIL are sold to SPG BVI. SPG has marke....
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....can wipe off the entire profits of the entity. A suit had been lodged against the AE also against the Para IV filing. This confirms the basic risks in a para IV filing. (ii) The AE thus owns the most important Assets that drive the generics business - i.e. ANDA approval under the Para IV filing and the product IPRs. It also owns the biggest risk of litigation and the technology obsolesce. (iii) Being the owner of the IPRs (ANDA and the product technology) AE takes the entrepreneurial risks of protecting the IPR title as well as all the claims of infringement. The Appellant is thus a mere contract manufacturer that manufactures the products on behalf of SPG. It bears no risk in respect of the IPR. (iv) The above fact was explained at length to the TPO which was partly accepted. (v) However the contention of the appellant that para IV Filing Products are susceptible to high risk became a fact when the litigation with Pfizer surfaced. The AE was defending a claim of USD 960 million which was substantially higher than the earnings made from this product. The claim by Pfizer was ultimately settled for USD 550 million. (vi) The amount payable ....
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....nspired that the TPO has carried out the entire exercise on directions of your goodself. The appellant objects to the very jurisdiction of the TPO in respect of a concluded case. As discussed above TPO is not the AO and therefore he cannot be called upon to appear before the CIT (A) as well. Even in case TPO has the jurisdiction to appear and defend his case, the appellant should be handed over all the details and information present before him which led him to compile and prepare such FAR. Not providing the above details as well as not giving the appellant an opportunity to check and verify the data based on which TPO has compiled FAR is against the basic principles of natural justice. Further it may also be noticed that many hearings have taken place between your good self and the TPO wherein the appellant was not given any notice to remain present. Therefore any hearings conducted in absence of the appellant are not legal and accordingly it lacks any legal validity. 4. Without prejudice to the above, we would like to reiterate that the Appellant company (appellant) is in the business of the manufacturing of Generic Drugs. One of the key business drivers in generics busi....
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....uring Of the pharmaceutical products, the appellant does not undertake any of the following functions namely marketing, distribution, credit risk, product litigation liabilities, patent infringement or damage claim risk, bad debts, sales returns, charge backs, damage & expiry, price erosion etc. (h) In spite of the above the appellant had earned a margin of 21.57% on its sale to its AE. (i) That it is an undisputed fact that the legal as well as economic owner of ANDA was the AE of the appellant. (j) That in respect of the ANDA in relation to Pantoprazole the Appellant had specifically submitted vide letter dated 7th Aug 2014 and 6th Sept 2014, that the ownership of these ANDAs lies with SPG BVI, now with SPG FZE. Relevant portion, of the submissions made vide above letters is reproduced here under: "On October 28, 2007, SPARCL has sold pharmaceutical manufacturing technology developed in the form of Abbreviated New Drug Applications [ANDA] to Sun Pharma Global Inc. BVI [SPG]. The consideration for sale of such ANDA were determined on the basis of valuation report of the government approved independent valuer for the entire basket of techno....
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....; YES Manufacturing of Product as per the Specifications provided by the AE on a contract basis Agreement between SPIL and SPG BVI- Annexure-'C' Selling and Distribution YES Copy of Packing Slip - Annexure- 'D' Description of Assets Employed SPIL SPG Caraco Pharma USA Remarks The Abbreviated New Drug Application [ANDA] YES Copy of US FDA Approval is enclosed The technology to manufacture the Product YES US FDA Plant facility to manufacture YES Utilization of Distribution, Selling and Marketing Network in USA YES Copy of Packing Slip Attached at Annexure-'E' above Description of Risk Assumed SPIL SPG Caraco Pharma USA Remarks Litigation risks YES Copy of Bank Advise for payment of infringement claim is enclosed Annexure-'F' Infringemen....
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....on made by the TPO/Assessing Officer. It is proposed to allocate 15% to 'Functions' instead of 10%, The TPO/AO has allocated total 35% to 'Assets' (25% to IPR and 10% to US FDA plant) whereas 55% has been allocated to 'Risks'. However, in view of the above discussion, it is proposed to allocate 60% to 'Assets' and 25% to 'Risks'. Similarly, it is proposed that out of the total weightage of 60% given to 'Assets', 30% is to be allocated for IPR/ANDA and remaining 30% for US FDA plant. It is proposed to allocate only 10% of IPR/ANDA weightage to SPG and the remaining 20% to be allocated to you, Out of 'Risks' 15% is allocated to you and balance 10% to SPG. 8. Considering the above findings and the entire gamut of facts, it is hereby proposed to modify the FAR analysis as below: FAR Weightage Appellant AE (SPG) 1. Functions 15% 15% - 2. Assets 60% 50% 10% 3. Risks 25% 15% 10% TOTAL 100% 80% 20%" 61. At the very outset it may be pointed out that the above break up of FAR does not form part of the TP assessment. The breakup of ....
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....y 10% of weightage out of 60% to ownership of IPR/ANDA/Technology to the AE of the appellant company. As discussed several times during the course of the hearing, the ownership of ANDA is with the AE, However at the cost of repetition, it is submitted that ownership of IPR/ANDA/Technology was acquired by SPG / AE from SPARC Limited, an independent listed company for a consideration. This transaction was also a subject matter of scrutiny by the TPO. Therefore once the ownership has been transferred, the question of allocation of weightage for the Technology to the appellant on the ground that the IPR was developed by it is completely uncalled for. Without prejudice, the allocation proposed is completely arbitrary and based on surmises and conjectures, 11. Your good self has further reduced the allocation to the 'Risk' of owning and using IPR of a Para IV drug by observing that the part of the risk relating to litigation and infringement are borne by the appellant company. In this respect it is submitted that the liability Of Infringement Claim was provided and settled by the AE of the appellant company i.e. SPG FZE. The amount payable on account of settlement was al....
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....elf without bringing on record any tangible material. The entire exercise is completely based on surmises and conjectures. 65. In view of the above as well as earlier submissions, your honour will appreciate that there is no basis whatsoever to carry out any enhancement on account of profits on Sale of Pantoprazole for the detailed submissions made above and further as no profit has been earned on it after claim of infringement payment. Rather, we once again pray that the relief sought by the appellant in the appeal be granted and the entire addition made by the TPO / Assessing Officer be deleted. To that extent we request your good self to either delete the addition or reduce/ reallocate the profit allocation made to the Appellant and oblige. 66. Ld. CIT (A) was not convinced with the submissions of the assessee and upheld the PSM method adopted by the TPO/AO and enhanced the profit sharing by attributing 80% to assessee and 20% to AE and made the ALP working and TP addition accordingly. 67. Before us the ld. Senior Counsel vehemently stated that TNMM is the most appropriate method on the facts of the case and the same cannot be disturbed at the whims and surmises of the ....
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.... the remaining sum of USD 400 million, SPG FZE had taken a loan from Standard Chartered Bank and paid the amount. However, as the Demerger scheme, all the liabilities of SPG FZE have been taken over by SPIL. Accordingly, this liability of 400 million was also transferred back to SPIL. Therefore, the entire liability of USD 506 million has been eventually borne by SPIL It is difficult to appreciate the contention of the assessees that the litigation burden was borne by SPG and not SPIL. 69. Apropos assessee's claim that it was a contract manufacturer in the transaction with SPG, to the case of Eli Lily which is another contract manufacturer of SPG. Sri Shrivastava referred to the relevant clauses of both the agreements to canvas his contention that though with Eli Lily assessee is a contract manufacturer however qua AE SPG BVl agreement, assessee does not fulfil the conditions as a contract manufacturer. 70. Replying to the FAR analysis done by the assessee, it was stated that the entire manufacturing function was carried out by SPIL, in its US FDA approved plant SPG does not have any R&D facility, while SPIL has its full fledged R&D facility was used for the development o....
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....on our records. 74. In rejoinder by assessee ld. Senior counsel strongly objected to the submission made by revenue which are summarized as under: A. That SPG BVI was not the owner of the ANDA and that SPIL only retained ownership of the ANDA; B. That even if SPG BVI was regarded as owner of the IPR, it did not assume any legal risks of the IPR; C. That Profit Split Method is the Most Appropriate Method (MAM) on account of the fact that the Appellant Company retained full / partial ownership of the ANDA and the underlying transactions were multiple and so inter related that they cannot be evaluated separately for determining the ALP; D. That at best SPG BVI was merely a legal owner and did not perform sufficient functions, deploy assets or assume risks A. Regarding Ownership of ANDA 1. Relying on ownership documents compiled in additional evidences filed on 21st April 2017, the learned Counsel for the Department pointed out that SPG BVI/SPG FZE were not the only/ absolute owner of ANDA rights. 2. Sun Pharma Advance Research Centre Ltd. (SPARC 1) was a 100% subsidiary of the Assessee Company and was amalgamated with t....
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.... USD 17.23 million in place of the agreed value of USD 8.93 Million equivalent Rs. 33,98 crore. 6. The learned counsel also referred to various pages of compilation filed During the course of the hearing including the extract of the Orange Book which reflects that the owner of the ANDA's is in fact SPIL and not SPG BVI/ SPG FZE. This fact is completely erroneous since the extract has been taken by the learned counsel from the USFDA website on 30th April 2017. The website provides an extract of the prevailing position with regard to the ANDA as on the relevant date when the search is made. The learned counsel has simply ignored the fact that earlier by way of demerger of a division from SPG FZE (SPG FZE acquired ownership of the ANDA pursuant to the transfer of the entire pharmaceutical business of SPG BVI on 30 November 2008) to the Assessee company, the referenced IPR namely Pantoprazole which was part of the demerged undertaking, was transferred to the Assessee Company. 7. The learned counsel has also raised a question with regard to the extract of the Orange Book submitted during the course of the assessment proceedings and placed on record at pages 569 to ....
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....hnology obsolescence. (iii) Being the owner of the IPRS (ANDA and the product technology), AE took the entrepreneurial risks of commercialization of the product along with an impending threat due to the litigation already initiated, protecting the IPR title as well as the claims of infringement. The Appellant is a mere contract manufacturer that manufactures the products on behalf of SPG BVI. It bears no risks arising out of the IPRs Selling and Distribution is not carried out by the Appellant and it has been carried out by the overseas AE. (iv) These facts were explained at length to the TPO which was partly accepted. (v) However, the contention of the appellant that para IV Filing Products are susceptible to high litigation risk became a fact when the litigation with Pfizer surfaced. The AE was defending claim of USD 960 million which was substantially higher than the earnings that could be made from this product. The claim by Pfizer was ultimately settled for USD 550 million. (vi) The amount on account of settlement with Pfizer has been paid by the AE of the assessee-company out of its internal accruals and borrowings. (vii) In order ....
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....hich has also been independently examined by the tax department and TP addition has been made thereon. 3. There is no other allegation with regard to transfer of any other unique intangible other than the ANDA. 4. It is also submitted that there are no multiple transactions which are so inter related that they cannot be evaluated separately for determining the ALP. The fact pattern is very clear. SPG BVI was the legal owner of the ANDA and vested with the risks and benefits incidental to the ownership of the ANDA and its commercialization. The assessee-company was merely a contract manufacturer who carried out the manufacturing using technology owned by the AE and did not perform any other functions in the relevant transaction. The goods manufactured by the Assessee Company were invoiced to the AE and dispatched to the ultimate distributor who distributed the products in their respective territories. 5. As can be seen that each of these activities are distinct and sequential and there is no overlapping or intertwined activity so as to justify application of PSM. 6. It is also submitted that each of the contract manufacturer and the distributor ha....
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.... in relevant rule 10B(l)(d) can only cover situations that are quite complex under which separate evaluation of the profit was not possible. The learned DR has not been able to point out any other type of complex transaction which would be covered by the said rule and how the present transaction was a fit case to apply PSM. 10. It is submitted that on a without prejudice basis that the allocation of profit has to be based on reliable external market data which would indicate how unrelated parties would evaluate contribution in similar circumstances. No such exercise has been carried out by the department. D. AE being merely a legal owner and not performing appropriate functions: 1. In this regard, it is submitted that legal ownership and assumption of the risks was the main attribute of a Para IV filing as has been explained above. Each of the other parties were adequately remunerated for the functions performed, assets deployed and risks assumed by each of them. 2. It is submitted that during the assessment proceedings, the assessee-company had furnished the FAR analysis and the tax department has not called for any other supporting for determin....
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....nment of the PRODUCT within 45 (forty-five) days of acceptance by SUN of purchase order from SPGI or within such other time as may be mutually agreed upon. SPGI shall not be entitled to cancel any order placed by it and accepted by SPIL unless other wise agreed upon by the parties, 2.2 SPGI agrees to provide a forecast on agreed format to SPIL so as to facilitated SPIL to carry out production planning of the Products for sale and supply as per terms of this Agreement. 2.3 SPGI will be required to make payments in US Dollars against supplies of the PRODUCT within 75 days of the receipt of goods for the invoices raised by SPIL in this regard or within such other time as may be mutually agreed upon in this regard. 2.4 At the request of SPGI, SPIL shall supply the product ordered by SPGI by such carrier or carriers as SPGI may designate. Such delivery instructions shall be submitted by SPGI to SPIL well in advance SPIL agrees to dispatch at the cost of SPGI, the finished Product to SPGI or to its nominees within the time frames stipulated by SPGI from time to time as per the orders placed by SPGI and accepted by SPIL. SPIL further undertakes to supply the pro....
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....on its part on account of legal liabilities or Otherwise. SPGI hereby also undertakes to indemnify SPIL wherever found appropriate, on account of any failure or lapses, or neglect or damage etc. on its part on account of legal liabilities or otherwise arising out of non-meeting its all legal obligation in respect of any matter whatsoever. 4.4 Quality control. If mutually agreed in writing, SPIL may conduct itself quality control tests pursuant to specifications, policies and/or procedures provided by SPGI in writing No production batch shall be released for sale unless it conforms to the SPGI specifications, practices and stipulations referred to in Section 4.1. SPGI will facilitate SPIL in curing deficiencies, to the extent acceptable to SPGI, of lots or batches of Product not meeting with SPGI specifications, practices or stipulations. 4.5 SPIL Warranty, SPIL warrants that the Finished Products manufactured and delivered to SPGI hereunder shall conform to the product specifications communicated by SPGI to SPIL. SPGI shall notify SPIL of any non-conforming manufactured Products within sixty days after receipt of Products or within sixty (60) days after any hidden....
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....ry, special or consequential damages whatsoever (including but not limited to, lost profits, loss of goodwill, any patent/trademark infringement or interruption of business) that may be suffered or incurred by SPGI as a result of SPIL's violation of this representation. Notwithstanding anything to the contrary in this Agreement, it is agreed that SPIL's liability for indemnification under this Agreement will be limited for the Product containing manufacturing defect or the Product fist conforming to the product specifications communicated by SPGI to SPIL under this Agreement 7.1.6 SPIL Shall not claim any right; title, or interest to the Products, product names and the rights attached with them under any of the trademarks, or patent laws, SPIL shall not manufacture and/or sell for sale in the market of United States of America and in Europe during the term of this Agreement any Products under a trademark connected with the Products or under a name phonetically or otherwise similar to trade names connected with the products as mentioned in Appendix A. 7.1.7 SPIL shall not sub-contract or delegate to any other persons, firm or body corporate the whole or any....
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....;s executive directors' competences are transferred to other persons or bodies or where the subsidiary's executive directors' decision-making has become fully subordinate to the holding company with the consequence that the subsidiary's executive directors are no more than puppets then the turning point in respect of the subsidiary's place of residence comes about. Whether a transaction is used principally as a colourable device for the distribution of earnings, profits and gains, is determined by a review of all the facts and circumstances surrounding the transaction. (v) Holding structures are recognized in corporate as well as tax laws. Special purpose vehicles and holding companies have a place in legal structures in India, be it in company law, the takeover code under the Securities and Exchange Board of India or even under the income-tax law. When it comes to taxation of a holding structure, at the threshold, the burden is on the Revenue to allege and establish abuse, in the sense of tax avoidance in the creation and/or use of such structures. In the application of a judicial anti-avoidance rule, the. Revenue may invoke the "substance over form" p....
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....r objects and to carry on their business smoothly in a competitive world . Moreover no person would arrange its affairs in such a manner which would culminate into huge losses to the extent of USD 506 millions as was suffered by the assessee group in this transaction . 83. Having established that the ownership of IPR/ANDA rights of Pantoprazole Sodium was with SPG BVI, how let us examine the applicability of the most appropriate method for determining the arm's length price. 84. OFCD guidelines for profits spilt method (PSM) states as under:- C. Transactional profit split method C. 1 In general 2.108 The transactional profit split method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction (or in controlled transactions that are appropriate to aggregate under the principles of paragraphs 3.9-3,12) by determining the division of profits that independent enterprises would have expected to realise from engaging in the transaction or transactions. The transactional profit split method first identifies the profits to, be split for the associated enterprises from the controlled transactions in whic....
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....action contribute significant intangible property. The profit is to be divided such as is expected in a joint venture relationship. 6.3.13.2. The Profit Split Method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction (or in controlled transactions that it is appropriate to aggregate) by determining the division of profits that independent enterprises would have expected to realize from engaging in the transaction or transactions. 86. A perusal of the aforementioned guidelines shows that PSM can offer a solution for highly integrated operations for which a one-sided method would not be appropriate. PSM may also found to be the most appropriate method in cases where both parties to a transaction make unique and valuable contributions to the transaction Considering the functions performed by the appellant company to SPG BVI, it is clear that SPIL has performed only one simple function and that is manufacturing of Pantoprazole Tablets. Except for this, there is no significant unique contribution by SPIL. For such simple functions as per OECD guidelines for transaction profit split method typically would not be appropri....
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....ference to market returns achieved for similar types of transactions by independent enterprises, and thereafter, the residual net profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution in the manner specified under sub-clauses (ii) and, (iii), and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual net profit apportioned to that enterprise on the basis of its relative contribution shall be taken to be the net profit arising to that enterprise from the international transaction -[or the specified domestic transaction]; (e) Transactional net margin method, by which,- (i) the net profit margin realized by the enterprise from an international transaction [or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a num....
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....vidence is exhibited at pages 569 and 570 of the paper book, and as mentioned elsewhere, clearly establishes the ownership of ANDA with Sun Pharma Global. For the sake of completeness, it would not be out of place to mention that the printout of these documents were taken from the Website on 28.09.2011 and 27.09.2011 and the order of the First Appellate Authority is 14.10.2014 and yet the FAA has observed that the assessee did not furnish ANDA related documents filed by SPG. SPG may not have done any filing related to Pantoprazole Sodium patent to US FDA but the fact of the matter and which have been demonstrated successfully by the appellant company is that the IPR/ANDA rights became the property of SPG BVI by virtue of the agreement for sale between SPARC and SPG. 91. Adverting to assessee's alternate and without prejudice contention that even if PSM is held to be the most appropriate method for a moment than also the same has to be considered in the light of the sequence of events starting from the manufacturing and sales of the drug Pantoprazole and ending with the out of court settlement and the payment of settlement compensation of USD 506 million. The settlement is ba....
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....ere, the IPR/ANDA rights were very much with SPG BVI who entered into an agreement with the appellant company for the manufacturing of the said drug. The application of Transactional Net Margin Method is the most appropriate method in such sale transaction and has been benchmarked by the assessee by showing it to be higher than the margin earned from the sales made to Eli Lily. 94. Considering the facts in totality in the light of the decision of the Hon'ble Supreme Court In the case of Vodafone International Holdings B.V. (supra) and on conspectus understanding of the facts as discussed elsewhere, we do not find any merit in the findings of the First Appellate Authority in accepting the application of PSM as the MAM, in our understanding of the facts TNMM is the MAM on the given facts and the same is accepted as such. We set aside the findings of the ld. CIT (A) and direct to delete the addition of Rs. 612,03,39,468/-. Ground No. 5 of the assesse is allowed. [emphasis by us] 95. Ground No. 6 relates to the denial of weighted deduction u/s. 35(2AB) on trademark charges, overseas product registration charges. 96. An identical issue was considered by the Bench in assesse....
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....used the orders of the authorities below. We find that the ld. CIT (A) has simply followed the findings of his predecessor for A.Y. 2000-01. We also find that the assessment order for A.Y. 2000-01 has been quashed by the Tribunal vide a ITA Nos. 1199 & 1279/Ahd/2006, which means that the basis for upholding 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. 97. Respectfully following the same, we direct accordingly. Ground No. 6 is allowed. 98. Ground No. 7 relates to the denial of weighted deduction u/s, 35(2AB) on expenses incurred on Corporate Advertisement. 99. The issue is identical to the issu....
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....CIT (A) concluded by holding that remuneration of 40.12 crores should not be deducted while computing book profit as per Section 115JB of the Act. 107. Aggrieved by this, the assessee is before us. 108. The ld. Senior Counsel once again explained the factual matrix relating to the claim of deduction of remuneration for the computation of book profit u/s. 115JB of the Act. It is the say of the ld. Senior Counsel that for the purpose of computation of book profits u/s 115JB read with Section 10(2A) of the Act, profits as understood in the commercial sense are relevant and income which is taxable in the hands of the partnership firm cannot be once again taxed in the hands of the partner either under the normal provisions or the MAT provisions. To substantiate his claim, the ld. Senior Counsel placed strong reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. R M Chidambaram Pillai [1977] 106 ITR 292. The ld. Counsel continued by stating that both the normal provisions and the MAT provisions relating to book profits operate in two separate compartments. For the purpose of normal computation, the entire computation mechanism and the relevant classificati....
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.... by- (f) the amount or amounts of expenditure relatable to any income to which [section 10 (other than the provisions contained in clause (38) thereof) or [***] section 11 or section 12 apply; or] 112. And as reduced by :- (ii)the amount of income to which any of the provisions of [section 10 (other than the provisions contained in clause (38) thereof) or [***] section 11 or section 12 apply, if any such amount is credited to the [statement of profit and loss]; or 113. And section 10(2A) 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 ....
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..... in [Tax Appeal No. 1249 of 2014, dated 15-12-2014]. The ld. D.R. relied upon the findings of the revenue authorities. 119. We have considered the orders of the authorities below and have given a thoughtful consideration to the order of the Hon'ble Jurisdictional High Court in the case of Alembic Ltd. (supra) The Hon'ble High Court was seized, inter alia, with the following substantial question of law:- (iii) whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that adjustment made on account of disallowance u/s 14A of the Act in computation of book profit u/s 115JB of the Act is not as per law without appreciating that the amount disallowable under section 14A is covered under clause (f) of Explanation to section 115JB(2) and, thus, said amount has to be added back while computing amount of book profits? 120. Relevant findings of the Hon'ble High Court read as 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. [2013] 3....
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....tion requires to be confirmed." 8. Taking into consideration the evidence on record and considering the division of this court in the case of Gujarat State Fertilizers & Chemicals Ltd. (supra), we are of the opinion that issue Nos. (iii) and (iv) required to be answered in favour of the assessee and against the revenue. In that view of the matter, we answer questions (iii) and (iv) referred, to us in favour of the assessee and against the revenue. The appeal of revenue is dismissed. 121. Respectfully following the decision of the Hon'ble jurisdictional High Court (supra), we direct the A.O. to delete the addition of expense disallowed u/s. 14A for computing book profit u/s. 115JB of the Act. 122. Ground No. 11 relates to the addition made on sales made to Sun Pharmaceuticals Industries amounting to Rs. 2,75,07,070/-. 123. An identical issue was considered by the Co-ordinate Bench in assessee's own case in A.Y. 2006-07 in ITA No. 1589 and 1592/Ahd/2011 qua ground No. 7 of that appeal wherein the Co-ordinate Bench has followed the decision given in ITA No. 2430/Ahd/2009. The relevant part reads as under- 25. While scrutinizing the return of income, ....
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....ieved 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 80-IB 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 findings of the Tribunal (supra), we direct the A.O to delete the addition of R....
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....of the products. 130. It was further brought to the notice of the first Appellate Authority that the proposed addition is based on the findings of the A.O. given in the case of the firm SPI wherein the A.O. had made addition of Rs. 73.38 crores and Rs. 17.29 crores applying the provisions of Section 80-IB(10) of the Act. Assessee drew further attention to the decision; of the Tribunal, Amritsar Bench in ITA No. 129/ASR/2009 wherein the Bench deleted the addition made by the A.O. in the case of firm SPI. It was further contended that in assessee's own case in earlier years, such remuneration has never been re-characterized and added back. 131. The contentions of the assessee did not find any favour with the First Appellate Authority who stated that the order of the Tribunal Amritsar Bench has been challenged by the Department before the Hon'ble High Court, therefore, the same has not reached finality. The ld, CIT (A) further opined that the assessee company has arranged the Business affairs with the partnership firm SPI in such a manner that such arrangement is an obvious device of tax evasion. The ld. CIT (A) observed that the payment of remuneration was not allowed i....
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....axation taking a shelter behind the provisions of Section 28(v) of the Act. No doubt, the profits of the partnership firm are exempt u/s. 80-IB(4) of the Act, Even, if the partnership firm had not charged Rs. 40.12 crores as remuneration to the appellant company, the profits of the firm would have increased by this amount. Since the assessee is holding 97.5% share in the profits of the partnership firm, this amount of 40.12 crores would have otherwise come to the assessee in the firm of share of profit which again is exempt from taxation u/s. 10{2A) of the Act, Therefore, in our considered opinion, the allegation that it is a case of tax evasion is ill-founded. The fact of the matter is that such payments were never re-characterized as royalty in earlier assessment years and the action of the First Appellate Authority in the year under consideration is nothing but based Upon assumptions and presumptions. No addition can be sustained which are based upon assumptions, surmises or conjectures. We, therefore, set aside the findings of the Id. CIT (A) and direct the A.O. to delete the amount of Rs. 40.12 crores re-characterized by the First Appellate Authority. Ground No. 13 is allowed.....
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.... the provisions of the law. After allowing depreciation, the A.O. made an addition of Rs. 14,88,900/-. 143. After Considering facts and the submissions, the ld. CIT (A) observed that the A.O. has merely given the findings that the items purchased are capital assets without giving any reasons as to how the purchase of various items made by the appellant company has resulted into bringing the new asset into existence or obtain a new advantage. After considering the copies of bills/vouchers for the relevant purchases, the First Appellate Authority came to the conclusion that the purchase of extruder 800 ml. Thermobarrel Stainless Steel from Northen Lipids Inc was an asset independently capable of producing article or thing. It was a new asset and cannot be equated with routine repairs and spares and, therefore, treated the amount of Rs, 10,17,500/- as capital expenditure. 144. Insofar as the purchase of 6300 Ltrs glass line reactor from Nile Ltd. amounting to Rs. 5,60,000/- and purchase of Cylinder Vertical Flat Storage Tank Rs. 1,47,500/- and HOPE Cylinder Vertical Vessel Tank Rs. l,51,500/- are concerned, the First Appellate Authority came to the conclusion that these expendit....
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....the First Appellate Authority. 149. Insofar as the items purchased amounting to Rs. 1,47,500/- and 1,51,500/- is concerned, the First Appellate Authority have given a categorical finding that the effluent treatment systems after regular intervals requires maintenance and upgradation and the expenditure incurred during the year is on existing machines and did not bring into existence any new asset or added advantage to the assessee. As this factual finding has not been controverted before us, we do not find any reason to interfere with the findings of the First Appellate Authority. The addition of Rs. 8,59,000/- stands deleted. With this ground No. 7 of revenue's appeal in ITA No. 3420/Ahd/2014 is dismissed. 150. Ground No. 16 relates to the disallowance of provision for leave encashment u/s, 43B of the Act amounting to Rs. 39,98,673/-. 151. As mentioned in earlier years decision by the Bench in ITA No. 2076 & 2067/Ahd/2013 that the Hon'ble Supreme Court is seized with an identical issue in the case of Exide Industries and, therefore, restore the issue to the files of the A.O. with a direction to decide the issue afresh after decision of the Hon'ble Supreme Cour....
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....ssee's own case given in earlier assessment years. 157. We find force in the contention of the ld. Senior Counsel. Since this issue was not raised before the First Appellate Authority, we set aside this issue to the files of the FAA with a direction to decide the same as per the provisions of the law considering the earlier decisions of the Co-ordinate Bench. Additional ground is treated as allowed for statistical purpose. ITA No. 3420/Ahd/2014 Revenue's appeal 158. Ground Nos. 1, 2 & 3 relate to the allowance of weighted deduction u/s. 35(2AB) of the Act in respect of (a) Marriage Gift Rs. 21,400/- (b) Repairs and Municipal Taxes Rs. 1,52,43,529/- and (c) Lunch and Refreshment and brokerage paid for property for assisting & helping R&D unit employees Rs. 3,27,855/-. 159. At the very outset, the ld. Senior Counsel for the assessee brought to our notice that these issues have been considered and decided by the Bench in favour of the assessee and against the revenue in ITA No. 2067/Ahd/2013. We find force in the contention of the ld. Senior Counsel. The Co-ordinate Bench in ITA No. 2067/Ahd/2013 has decided the impugned issues as under:- 69. Ground No.1 r....
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....identical issue was considered by the Co-ordinate Bench in assessee's own case in ITA No. 2067/Ahd/2013 qua ground No. 4 of that appeal and has decide this issue in favour of the assessee. The relevant part reads as under:- 79. Before us, the ld. D.R. supported the assessment order and the ld, Senior Counsel reiterated what has been stated before the First Appellate Authority. It is true that the main business of the assessee is manufacturing of bulk drugs as well as formulation products. It is equally true that the assessee is also in the business of leasing and finance activity. There is no dispute that the Hire charges have been assessed as business income. Therefore, we do not find any reason why the higher rate of depreciation should not be allowed. In our considered opinion, once the basic conditions are duly satisfied, there is no bar for claiming higher depreciation. Moreover, this issue is now well settled in favour of the assessee and against the revenue by the Hon'ble Supreme Court in the case of ICDS Ltd. 350 ITR 527. We decline to interfere. Ground No. 4 is dismissed. 163. Ground No. 5 relates to the deletion of the addition of provision of Wealth T....
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....e has been considered at length by us in assessee's appeal in ITA No. 3297/Ahd/2014 qua ground No. 15 of that appeal. For our detailed discussion therein, this ground is dismissed. 172. Ground No. 8 relates to the claim of the assessee allowed u/s. 80-IA(4) in respect of captive power plant. 173. While scrutinizing the return of income for the year under consideration, the A.O. noticed that the assessee has claimed deduction u/s. 80-IA(4) of the Act amounting to Rs. 43,48,120/- in respect of undertaking engaged in generation of power. This claim of the assessee was denied by the A.O. on the following grounds:- (a) The A.O. was of the opinion that the profits from captive power plant were not engaged in the gross total income. (b) The decision of the Tribunal Chettinad Cement Cororation Ltd. in ITA No. 1029/M/2005 is against the assessee. 174. Assessee strongly agitated the matter before the ld CIT (A) and reiterated its claim. 175. The assessee submitted details of year-wise profits generated in captive power plant. It was further contended that the decision relied upon by the A.O. is not relevant post the amendment brought to the provisions of sec....