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2022 (4) TMI 1514
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....ent years is that the learned lower authorities have erred in law and on facts in making Arm's Length Price "ALP" adjustment of Rs.18,31,62,550/-, Rs.10,50,45,151/- Rs.16,41,02,540/-; and Rs.2,01,88,555/-; assessment year wise; respectively pertaining to advances made to associated enterprises. We note with the able assistance coming from both the sides that the assessee's case all along has been that its corresponding advances to the overseas Associated Enterprises "AEs" had been made for the purpose of equity investments followed by allotment of corporate stake therein than loans simplicitor. Learned counsel further submits that the assessee has also filed copies of corresponding share allotments before the learned lower authorities. We note that this has been very much a recurring issue between the parties wherein the learned co-ordinate bench's earlier order involving assessee's appeal ITA No.212/Hyd/2016 for A.Y. 2011-12 has restored the matter back to the Transfer Pricing Officer "TPO" as follows : "5. As regards ground no.3, the brief facts are that during the transfer pricing proceedings, in the T.P. documentation of assessee, the AO found that the assessee h....
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....al placed on record, we find that the assessee, not only in its T.P. documentation, but also in its reply to notice of the TPO, has clearly stated that these are working capital advances, though at para 2.5 of its submissions before the TPO, assessee had stated that it had invested in its sister concerns. However, neither the TPO nor the DRP have gone into this aspect, nor has the assessee filed any evidence in this context before the authorities below. The board resolutions and the evidence that assessee has been allotted equity shares in the subsequent year were never put before the authorities below. In view of these facts, we deem it fit and proper to set aside the issue to the file of AO/TPO with a direction to consider the evidence filed by assessee to the effect that assessee had invested money in equity shares of its subsidiaries and has not given working capital advances and if it is found that these transactions were in fact investments in equity shares of the subsidiaries, then no T.P. adjustment shall be made. However, if it is found that the funds transferred by the assessee to its subsidiaries during the year were working capital advances, which were later decided to ....
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....w wherein various learned co-ordinate benches have adopted different rates. Faced with this situation, we deem it appropriate in these peculiar facts and circumstances that a lumpsum commission rate of 0.5% qua the extent of amount of assessee's corporate guarantee(s) actually utilized only in all these four assessment years; would be just and proper. This second substantive ground is partly allowed in very terms. 7. Next comes the assessee's third substantive grievance challenging correctness of the learned lower authorities' action making "ALP" adjustments of Rs.82,61,182/-, Rs.1,38,06,050/-, Rs.74,71,053/- and Rs.2,51,81,348/-; pertaining to interest as trading receivables assessment year-wise; respectively. Both the learned representatives reiterated their respective stands regarding the impugned "ALP" adjustment made going by the bank's short term deposit interest rates. So far as the legal question as to whether such interest on outstanding receivables forms an 'international transaction' or not, we note that the same also comes under Section 92B Explanation (I)(c) which has been already as applicable with retrospective effect (supra). We thus uphold the learned lower auth....
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....ed w.e.f. 01.04.2015 and the assessee had made its sale - purchase transactions covered under section 92B of the Act to its Spain based "AE", the learned lower authorities ought to have benchmarked the combined book results at segmental level pertaining to both these units only. We therefore direct the learned TPO to go by the assessee's consolidated book results as per the combined audit report and proceed afresh for the purpose of necessary benchmarking as per law. Ordered accordingly. This 4th substantive ground is treated as allowed for statistical purposes. 11. Next common issue in all these four assessment years i.e. 201415 to 2017-18 before us is that of depreciation disallowance involving figures of Rs.7,85,08,308/-, Rs.12,56,73,713/-, Rs.10,54,93,832/- and Rs.8,90,58,358/-; respectively. Learned counsel submitted during the course of hearing that the lower authorities have not considered even the closing figure of the corresponding fixed assets in A.Y. 2013-14 forming opening balance figure as on 01.04.2014. He further referred to the Assessing Officer's remand report to this effect as well. Mr. Sai placed a very strong reliance on the learned lower au....
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.... appeals seeks to reverse the learned lower authorities' action disallowing its sales, promotions and business marketing expenses of Rs.2,69,91,154/-, Rs.8,59,69,646/-, Rs.7,25,09,692/- and Rs.1,94,75,335/-; respectively. The DRP's findings under challenge affirming the Assessing Officer's action to this affect reads as under : "2.11 Ground of objection No.11. Relating to disallowance of sales promotion expenses of Rs.2,69,91,154/-. Objection No.11.1. The Ld. AO erred in making the disallowance of sale promotion expenses for an amount of Rs.2,69,91,154/- based on suspicions and surmises without having any cogent reasoning. Objection No.11.1.1: The Ld. AO erred in making the addition to the income of the assessee only on presumption, without making the addition to the income of the assessee only on presumption, without bringing any corroborative evidence on record to substantiate the claim of alleged payment of sales expenditure. Objection No.11.1.2: The AO ought to have to appreciate the fact that assessee has maintained all the documents / vouchers / bills and same has also been submitted. Objection No.11.1.3: The AO erre....
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....from pharma agencies on 10.12.2009. Hence. any expenditure incurred w.e.f. 10.12.2009 towards freebies to doctors is disallowable u/s.37(1) of the I.T. Act. The validity of the CBDT Circular was upheld by the Himachal Pradesh High Court in Confederation of Indian Pharmaceutical Industry (SSI) Vs. CBDT [2014] 44 taxmann.com 365/[2013] 353 ITR 388. The expenses incurred by the Pharma Companies in providing free air travel stay and food in hotels, focal car conveyance etc. for prescribing medicines of the assessee is akin to giving commission and certainty in contravention of the public policy. Courses are arranged by many technical bodies such as Institute of Chartered Accountants, engineers where participants register themselves by paying a fee put here all the expenses are borne by the Pharma companies on behalf of some doctors so as to encourage them to attend the seminar or conferences. This can be seen as the incentive to make them prescribe the medicines manufactured or marketed by them which has to be held to be not allowable in view of the CBDT Circular cited supra and section 37(1). Another argument put forward is that it is disallowable under the hands of the medical profes....
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.... to the manufacturing companies where they are further processes in order to producing the final products. Learned counsel further that those finished products only are ultimately sold in market than the special chemicals in issue. We prima facie find merit in the assessee's claim as the learned DRP's findings have nowhere made it clear as to in what manner the assessee had offered freebies to the doctors which are covered under the Medical Council of India Act's guidelines. We also take note of the hon'ble apex court's recent landmark decision (2022) 135 taxmann.com 286 (SC) M/s. Apex Laboratories (P.) Ltd. Vs. DCIT upholding disallowance of freebies offered by pharmaceutical companies to doctors' associations. We next note that there is not even a single observation in the DRP's directions that the assess had incurred the impugned expenditure for any such freebies to doctors and their associations. We reiterate that it has not even manufactured the final products to be sold in market as well. We accordingly conclude that the impugned disallowance is not sustainable. The same stands deleted. 16. The assessee's eighth substantive grievance in A.Ys. 2014-15 to 2015-16 and 2017-18....
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....) and making unreasonable disallowance. Objection No.5.1.10: The Ld AO ought to have appreciated the fact that the assessee has complied with all the provisions of the Income Tax Act, 1961 to claim the deduction u/s 35(2AB). 2.5.1 The assessee has incurred an amount or Rs.13,84,91,210/- towards R & D expenditure and claimed deduction @200% of the expenditure incurred towards In-House scientific research and development u/s 35(2AB) of Rs.27.69,82,420/-. The AO has made disallowance of deduction u/s 35(2AB) for an amount of Rs.27,69,82,420/- stating that assessee has not produced Form 3CL and form 3CM. The assessee contended that the R & D facility was duly approved by the competent authority and relevant certificates were produced before the AO. 2.5.2 Having considered the submissions, we are of the view that the AO has to allow the deduction u/s 35 (2AB) @ 200% to the extent of approval given by the prescribed authority, i.e. Department of Scientific and Industrial Research (DSIR) as per form No 3CL. The matter needs to be examined by a competent authority specified by the Central Govt. namely, Department of Scientific and Industrial Res....
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....logy for AY 2012-13 vide their letter dated 20.5.2009, a copy of which is placed at Page-30 of the Assessee's paper book. The approval is for the period 1.4.2009 upto to 31.3.2012. Therefore, the condition for allowing deduction u/s.35(2AB) of the Act has been fulfilled by the Assessee. The claim of the revenue, however, is that the approval by the prescribed authority in form No.3CM is not final and conclusive and the quantum of expenditure on which deduction is to be allowed is to be certified by DSIR in form No.3CL. There is no statutory provision in the Act which lays down such a condition. We shall therefore examine what is Form No.3CL. 15. DSIR has framed guidelines for approval u/s.35(2AB) of the Act. The guidelines as on May, 2010 which is relevant for AY 2012-13, in so far as it is relevant for the present appeal, was as given below. (i) As per guideline 5 (iv) of the guidelines so framed, every company which has obtained an approval from the prescribed authority should also submit an undertaking as per Part C of Form No. 3CK to maintain separate accounts for each R&D centre approved under Section 35(2AB) by the Prescribed Authority, and to get the ac....
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....unsel for the Assessee submitted that since the audited accounts were not submitted by 31st October of the succeeding AY, as is required under ITA No.2215/Bang/2019 M/s. Provimi Animal Nutrition India Pvt. Ltd., Bangalore Guideline 5 (vi), the Assessee's application would not have been considered by the DSIR. 17. Rule-6(7A)(b) of the Rules specifying the prescribed authority and conditions for claiming deduction u/s.35(2AB) of the Act has been amended by the Income Tax (10th Amendment) Rules, 2016 w.e.f. 1.7.2016, whereby it has been laid down that the prescribed authority, i.e., DSIR shall quantify the quantum of deduction to be allowed to an Assessee u/s.35(2AB) of the Act. Prior to such substitution, the above provisions merely 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 DGIT days of granting approval. Therefore prior to 1.7.2016 there was legal sanctity for Form No.3CL in the context of allowing deduction u/s.35(2AB) of the Act. 18. The issue as to whether deduction u/s.35(2AB) of the Act can be denied for absence of Form No.3CL by the DSIR was subject matter of....
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....of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by 6,75,000/-. Thus, grounds of appeal No.10.1, 10.2 and 10.3 are allowed." (ii) The Hyderabad ITAT in the case of M/S. Sri Biotech Laboratories India Ltd. Vs. ACIT ITA No.385/Hyd/2014 for AY 2009-10 order dated 24.9.2014 took the view (vide Paragraph-13 of the order) that when the Assessee's R & D facility is approved the deduction u/s.35(2AB) of the Act cannot be denied merely on the ground that prescribed authority has not submitted report in Form 3CL. 19. The question of allowing deduction u/s.35(2AB) of the Act was considered by the Hon'ble Delhi High Court in the case of CIT vs. Sadan Vikas (India) Ltd. (2011) 335 ITR 117 (Del) where AO refused to accord the benefit of the weighted deduction to the assessee under s. 35(2AB) on the ground that recognition and approval was given by the DSIR in February/September, 2006, i.e., in the next assessment year and, therefore, the weighted deduction cannot be allowed. The CIT(A) confirmed the order of the AO. The Tribunal held that the assessee would be entitl....
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.... 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 research and development 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 weighted deduction." 20. From the above discussion it is clear that prior to 1.7.2016 Form 3CL had no legal sanctity and it is only w.e.f 1.7.2016 with the amendment to Rule 6(7A)(b) of the Rules, that the quantification of the weighted d....
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.... Learned counsel's first and foremost argument before us is that the corresponding sales in relation to which the impugned outstanding receivables are considered have already been offered to tax in preceding assessment years' computation(s). The Revenue's stand on the other hand is that the instant issue more requires a reconciliation than any substantive adjudication. Faced with this situation and in order to avoid double addition on the very same issue, we direct the learned Assessing Officer to verify the necessary factual position and ensure that the assessee does not suffer a double addition herein. This 9th substantive ground is accepted for statistical purposes. 20. The assessee's 10th substantive grievance in A.Ys. 2015-16 and 2016-17 is that the learned lower authorities have erred in law and on facts in denying section 80IC deduction(s) of Rs.1,59,75,342/- and Rs.1,67,71,619/- respectively pertaining to its Haridwar Unit. Learned CIT-DR vehemently contended during the course of hearing that a return filed u/s 153A ought not to include a fresh claim of deduction under Chapter VI of the Act in light of section 80IC requiring a return to be filed u/s 139(1) of th....
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.... note of all other material apart from the incriminating and seized one during the course of search for the purpose of framing assessment u/s.153A as he supposed to total income. 24. This tribunal's co-ordinate bench's order in M/s.KNR Constructions Ltd. Vs. DCIT in ITA No.946 to 948/H/2015, dt.16-10-2015 has also settled the issue now that the Hon'ble Rajasthan high court's decision in Jai Steel (India) Vs. ACIT (2013) [259 CTR 281] (Rajasthan) (supra) nowhere dealt with instance of a deduction claim under ChapterVI as the assessee therein had raised a general fresh claim of expenditure of sale tax only. The very factual position continues in EBR Enterprises Vs. Union of India (2019) [107 taxmann.com 220 (Bombay)] (supra) as well wherein the hon'ble high court had come across an issue of Section 80-IA deduction claim, not involving Section 153A proceedings, as are the facts before us. It rather emerges that their lordships yet another recent decision in PCIT Vs. JSW Steel Ltd. (2020) [115 taxmann.com 165 (Bombay) has taken note of the foregoing non-obstante clauses in line in Section 153A(supra) in holding that an assessee in Section 153A return can very well raise such....
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....ds industrial development in the State. The purpose/object of the West Bengal Incentive Scheme was for encouraging the setting up of new industrial units and expansion of existing industrial units pursuant to which IPA was to be paid in form of power subsidy, sales tax/VAT subsidy to the assessee. 29. The Hon'ble Apex Court in their judgment in the case of CIT vs. Ponni Sugar & Chemicals Ltd. (306 ITR 392) has held that whether the subsidy or grant given by the Government is in the nature of capital or revenue will have to be judged and decided with reference to the object and the purpose for which the subsidies are granted and not the form and manner of payment. 30. From the given facts of the present case, especially to the Gazette Notification of the West Bengal Government the Incentive for Promotion of Industries Scheme 2004, (herein after referred to as the Scheme) wherein details of the Scheme is found placed from page 143 to 171 of PB and from a perusal of the same it is noted that the intent and object behind the industrial promotion assistance [herein after referred to as IPA] extended by the State under their Industrial Policy Scheme was to encourage....
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....to set up a new unit or expand the existing unit for overall economic development of the State and so we concur/endorse this finding of Ld CIT(A) on this issue to the same effect. 33. We find that this particular issue is now no longer res integra in light of the decision of the Hon'ble Supreme Court in the case of CIT Vs Chaphalkar Brothers (400 ITR 279) wherein the Supreme Court after analysing the ratio laid down in their earlier judgments in the cases of CIT vs Rajaram Maize Products(supra), M/s Sahney Steel & Press Works Ltd. vs. CIT (supra) and CIT vs. Ponni Sugar & Chemicals Ltd. (supra) held that the subsidies granted under the State Industrial Scheme to accelerate industrial development and generate employment in the State, is capital in nature. The relevant extracts of the judgment are as follows: "21. What is important from the ratio of this judgment is the fact that Sahney Steel was followed and the test laid down was the "purpose test". It was specifically held that the point of time at which the subsidy is paid is not relevant; the source of the subsidy is immaterial; the form of subsidy is equally immaterial. 22. Applying the aforesaid ....
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....not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery. 24. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to achieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus considered, it was obvious that the incentives would have to be held capital and not revenue. Mr. Ganesh, learned Senior Counsel, pointed out that by an order dated 19.04.2016, this Court stated that the issue raised in those appeals was covered, inter alia, by the judgment in Ponni Sugars & Chemicals Ltd. case (supra) and the appeals were, therefore, dismissed. 25. We have no hesitation in holding that the finding of the Jammu and Kashmir High Court on the facts of the incentive subsidy contained in that case is absolutely correct. In that once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement o....
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....e assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. It the object of the subsidy scheme was to enable the assessee to run the business more profitable then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant." 21. A perusal of the judgments in Sahney Steel & Press Works Ltd. (supra) and Ponn....
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....ng to the 'purpose test' laid out by the Hon'ble Supreme Court, various and High Courts including our Court the aforesaid subsidy should be treated as capital receipt in spite of the fact that computation of 'Power subsidy' is based on the power consumed by the assessee. It is well established from submission of the assessee as enunciated above that once the purpose of a subsidy is established; the mode of computation is not relevant as held in the decisions of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra), CIT v. Ponni sugars & Chemicals Ltd. (supra) and the decision of our High Court in case of Rasoi Ltd. (supra) against which SLP has been dismissed. The mode of computation/form of subsidy is irrelevant. The mode of giving incentive is re-imbursement of energy charges. The nature of subsidy depends on the purpose for which it is given. Hence the assessee draws support from the decisions already discussed earlier as the same principle will apply here. Thus, the entire reason behind receiving the subsidy is setting up of plant in the backward region of West Bengal, namely, Bankura. 25. Accordingly we hold the afore....
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....aid scheme as well as the entitlement as indicated in section 3 mentioned above, it is clear that the Government has decided to grant the subsidy by way of financial assistance to tide over the period of crisis for promotion of the industries mentioned in the scheme which have the manufacturing units in West Bengal and which are in need of financial assistance for expansion of their capacities, modernization, and improving their marketing capabilities and such subsidy for the financial year in question was only for that year and was equivalent to ninety per centum of the amount of sales tax paid by the ITA No. 1493/Kol/2019, M/s Ankit Metal & Power Ltd.., AY 2013-14 Industry concerned, for any quarter under the Sales Tax Act in respect of sales of such goods. 15. We find that the principles laid down in the case of Sahney Steel & Press Works Ltd. (supra), relied upon by Mr. Nizamuddin has been explained by the Supreme Court in a subsequent decision in the case of Ponni Sugars & Chemicals Ltd. (supra), relied upon by Mr. Poddar in the following terms : "In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court....
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.... subsidy is given is irrelevant. 16. In the case before us, the object of the subsidy is for expansion of their capacities, modernization, and improving their marketing capabilities and, thus, those are for the assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90 per cent of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sale tax paid. As pointed out by the Supreme Court in the case of Senairam Doongarmall v. CIT AIR 1961 SC 1579, it is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue. Thus, in the case before us, the amount paid as subsidy was really capital in nature. 36. For the reasons as discussed above and respectfully following the above cited judgments of the Hon'ble Supreme Court and jurisdictional Calcutta High Court (supra), we accordingly uphold the Ld. CIT(A)'s action of treating the aforesaid incentive subsidies as 'capital receipts' and therefore not in the nature of 'income' liable to be taxed in relevant AY 201....
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....C) that no such proceedings initiated u/s 153A of the Act sustainable in law for want of incriminating material found or seized during the course of search. We make it clear that although the Revenue has vehemently argued that there indeed exists sufficient seized material in light of the annexures attached with the DRP's directions (supra), a perusal thereof sufficiently indicates that this so called material parts already formed of the assessee's books which had already been considered in both the corresponding scrutiny assessments pending on the date of search. This tribunal's Special Bench's decision in All Cargo Global Logistics Ltd. Vs. DCIT (2012) 137 ITD 287 (ITAT-Mum) (SB) holds that incriminating material is that material which is found during the course of search and not produced in the course of original assessment and undisclosed income or property disclosed during the course of search, as the case may be. We find from a perusal of the case(s) records and more particularly in light of the DRP's compilation of the alleged seized material it only includes the assessee's expenses / claims or EBIDTA details etc. which could hardly be termed as anything incriminating in the....