TaxTMI 
TaxTMI 
2020 (8) TMI 442
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.... the appeal in ITA No. 469/PUN/2016 for the A.Y. 2011-12. 4. The ld. AR submits that the assessee is not interested to prosecute ground Nos. 3 to 3.3 and requested to treat the same as not pressed. Accordingly, ground Nos. 3 to 3.3 raised by the assessee are dismissed as not pressed. 5. The ld. AR submits that the ground Nos. 1 to 2.5 raised by the assessee regarding challenging the action of AO in determining the ALP of international transactions involving Research and Development fees and Management fees at Nil without applying most appropriate method. The ld. AR submits that it is a legal issue concerning the action of AO/TPO in determining ALP without following the prescribed procedure u/s. 92CA of the Act. To support his contention he referred to page 9 of TPO and bringing our attention to para 10. He argued that the AO/TPO basing on the similar issues for A.Ys. 2009-10 and 2010-11 treated the ALP of Management Support fees at Nil without applying method. Further, he submits that the finding of TPO/DRP is incorrect in respect of that the assessee did not prefer an appeal for A.Ys. 2009-10 and 2010-11 regarding the issue on hand and referred to page 164 of the paper book to ....
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....the AO/TPO made upward adjustment regarding the segment management service fees of Rs. 5,08,05,398/- mainly basing on the issue arose for A.Ys. 2009-10 and 2010-11. Further, we note that the above said adjustment was made without following any prescribed method contemplated under the provisions of section 92C of the Act. We note that at Point No. 7 vide its reply the assessee is stated that the appeals for A.Ys. 2009-10 and 2010- 11 were pending before the CIT(A). Therefore, it is clear that the TPO made the said adjustment without following the due procedure contemplated under law and the adjustment made thereon is liable to be deleted. 9. Coming to the decision of Hon'ble High Court of Bombay in the case of Johnson & Johnson Ltd. (supra) we find that the TPO had made transfer pricing adjustment on account of sales promotion and publicity expenses being payable by the assessee to its parent company M/s. Johnson & Johnson, USA. The TPO did not follow any method prescribed u/s. 92C(1) of the Act r.w.s. 10B made adjustment. The Hon'ble High Court of Bombay was pleased to hold that the TPO is obliged under the law to determine the ALP by following any one of the prescribed methods of....
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....tating that the facts and the ground Nos. 1 to 3.5 of appeal except the amount raised in ITA No. 702/PUN/2017 is identical to the grounds raised in ITA No. 469/PUN/2016. Thus, in view of the fact that the issue in the appeal is identical and is arising from same set of facts the findings given by us while adjudicating the ground Nos. 1 to 3.5 of appeal in ITA No. 469/PUN/2016 would mutatis mutandis apply to the ground Nos. 1 to 3.5 of the appeal in ITA No. 702/PUN/2017, as well. Accordingly, the ground Nos. 1 to 3.5 of the appeal in ITA No. 702/PUN/2017 are allowed. 14. The assessee raised ground Nos. 4 to 4.2 questioning the action of TPO in not granting weighted deduction u/s. 35(2AB) of the Act. 15. Heard both parties and perused the material available on record. We find that issue is covered by the order of this Tribunal in the case of M/s. East West Seeds Ltd. in ITA No. 179/PUN/2018 for A.Y. 2014-15 wherein this Tribunal while placing reliance on the decision of Ahmedabad Bench of Tribunal in the case of Torrent Pharmaceuticals Ltd. in ITA No. 3569/AHD/2004 allowed the claim of weighted deduction u/s. 35(2AB) of the Act. The ld. AR placed on record above order dated 06-08-2....
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....penditure claimed by assessee. The relevant findings of Tribunal are vide paras 38 to 46, which read as under:- "38. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against the claim of deduction under section 35(2AB) of the Act i.e. expenditure incurred on Research & Development activity. For computation of business income under section 35 of the Act, expenditure on scientific research is to be allowed on fulfillment of certain conditions which are enlisted in the said section. Under various subsections of section 35 of the Act, the conditions and the allowability of expenditure vary. Subsection (1) to section 35 of the Act deals with expenditure on scientific research, not being in the nature of capital expenditure, is to be allowed to research association, university, college or other institution; for which an application in the prescribed form and manner is to be made to the Central Government for the purpose of grant of approval or continuation thereto. Before granting the approval, the prescribed authority has to satisfy itself about the genuineness of activities and make enquiries in this regard. Under sub-secti....
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....A) provides that the approval of expenditure under sub-section (2AB) of section 35 of the Act, shall be subject to the conditions that the facilities do not relate purely to market research, sales promotion, etc. Clause (b) to sub-rule (7A) at the relevant time provided that the prescribed authority shall submit its report in relation to the approval of in-house R & D facility in form No.3CL to the DG (Income-tax Exemption) within sixty days of its granting approval. Under clause (c), the company at the relevant time had to maintain separate accounts for each approved facility, which had to be audited annually. Clause (b) to subrule (7A) has been substituted by IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016, under which the prescribed authority has to furnish electronically its report (i) in relation to approval of in-house R & D facility in part A of form No.3CL and (ii) quantifying the expenditure incurred on in-house R & D facility by the company during the previous year and eligible for weighted deduction under sub-section 2AB of section 35 of the Act in part B of form No.3CL. In other words the quantification of expenditure has been prescribed vide IT (Tenth Amendment) Rul....
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.... facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered r. 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of Rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by s. 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up R&D facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weight....
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.... to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below. 46. The Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescri....