TaxTMI 
TaxTMI 
2023 (4) TMI 18
X X X X Extracts X X X X
X X X X Extracts X X X X
....deduction of Rs.21,39,774/- on account of deferred revenue expenditure as claimed by the assessee, even though the said claim is not allowable u/s 37(1) of the IT. Act, 1961? ii) Whether on the facts and in the circumstances of the case Ld. CIT (A) was right in allowing the deduction of Rs.17,50,244/- on account of prepayment Charges paid to IDBI as claimed by the assessee, even though the said claim is not allowable u/s 37(1) of the IT. Act, 1961? iii) Whether on the facts of the case and in law Ld. CIT (A) was right in accepting the additional evidence in contravention to Rule 46A for determination of Arms Length Price following the Transactional Net Margin Method (TNMM)? iv) Whether on the facts of the case and in law Ld. CIT (A) was right in deleting the addition made due to determination of ALP by the TPO and determination of Arms Length Price following the Transactional Net Margin Method (TNMM) ignoring the comparable companies suggested by the TPO in the remand report and accepting the companies suggested by the assessee, which are also found to be manufacturing different types of products? v) Whether on the facts of the case and in law Ld....
X X X X Extracts X X X X
X X X X Extracts X X X X
....44 ITR 474 (Cal.). 3. CIT Vs. Jagatjit Industries Ltd. 287 ITR 46 (Del.). 4. Madras Industrial Investment Corpn. Ltd. Vs. CIT 225 ITR 802 (SC). 5. CIT Vs. A.R.J. Security Printers 264 ITR 266(Del.). 6. DCIT Vs. United Vanaspati Ltd. 88 ITD 313. 6.3 The AO however disallowed the expenses by observing as under: The submissions made by the assessee were examined n light of the decision of the court cases cited by the assessee and the facts of the case. The above said expenditure has been disallowed in the case of the assessee for the AYr . 2004-05 . For the reasons mentioned in the Assessment Order for the A.Yr 2004-05 the above said expenditure is disallowed for the A.Yr. under consideration . It may be mentioned that the Indian Income Tax Act does not provide for deferment of any expenditure except for certain expenses like the preliminary expenses which is specifically provided u/s 35 of the I.T.Act . Section 37(1) of the I.T.Act has specifically laid down certain conditions: 1. The expenditure should not be in the nature described u/s 30 to 36 of the I.T.Act. 2. It should not be in the nature of capital expenditure.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch expenses. Apart from 1/5 claim of these expenses, Assessee Company has also claimed 1/5 of deferred revenue expenditure carried forward from preceding assessment yeaRs.Claim of deferred revenue expenditure has also been clarified in para 7 (Miscellaneous Expenditure) of Schedule XXI of Annual Accounts filed with return of income. In this connection it is further submitted before your honour that expenses was of revenue in nature and not disputed by assessing officer. Major part of expenses was incurred by Assessee Company in the assessment year 2001- 02. Expenses was incurred for foreign traveling expenses and exhibition expenses etc. and keeping in view of its enduring benefit nature it was decided by assessee company to claim the said revenue expenses equally in five assessment yeaRs.The claim of expenses so made was also examined by Addl. Commissioner of Income Tax Range 9, then assessing officer in A.Y. 2001-02 i.e. in the year of incurrence of expenditure and accordingly expenses as claimed by assessee company was allowed. Copy of assessment order for assessment year 2001-02 along with reply filed is annexed herewith for your honour's ready reference. Assessmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ations made by the AO and strongly supported the assessment order dt. 08/12/2008. 10. In his rival submissions the Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and strongly supported the impugned order passed by the Ld. CIT(A). It was further submitted that this issue is squarely covered by the decision of the ITAT Delhi Bench 'F' in ITA No. 232/Del/2009 in assessee's own case for the A.Y. 2004-05 copy of the said order was furnished which is placed on record. 11. We have considered the submissions of both the parties and perused the material available on the record. It is noticed that an identical issue having similar facts has already been decided in favour of the assessee vide order dt. 13/08/2009 in ITA No. 232/Del/2009 for the A.Y. 2004-05 in assessee's own case and the relevant findings have been given in para 16 to 19 of the said order which read as under: 16. On appeal the CIT (Appeals), after considering the detailed submissions of the assessee, the case law referred to in his order, as well as, on considering the assessment order passed by the Assessing Officer, directed the Assessing Officer to allow 1/5th of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....) and ITAT Ahmedabad Bench in the case of Asstt. CIT Vs. Amtrex Appliances Ltd. (2005) 94 TTJ (Ahd) 396 quoted by the appellant and discussed, supxa. Further, the Applant had claimed deferred Revenue Expenditure in the preceding assessment years and same were allowed by the A.O. In view of the above, I agree with the contention of the appellant on this issue. Accordingly, the AO is directed to allow 1/5th of the Deferred Revenue Expenditure, as claimed by the appellant, in the instant year.'" 17. Before us, learned DR for the revenue except placing reliance on the order of Assessing Officer was not able to controvert the factual findings recorded in the order of CIT (Appeals). 18. On the other hand, learned AR for the assessee placing strong reliance on the reasoning given in the order of CIT (Appeals) submitted that the CIT (Appeals) rightly allowed the claim of the assessee. 19. On considering the submissions of both the parties and going through the orders of the authorities below, we find that the CIT (Appeals) by placing reliance on the relevant decision (supra) referred to in his order, on the basis of uncontroverted finding of facts r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sallowed in the case of the assessee for the AYr . 2004-05 . For the reasons mentioned in the Assessment Order for the A.Yr 2004-05 the above said expenditure is disallowed for the A.Yr. under consideration . Therefore, the assessee's claim of pre-payment charges of Rs 17,50,244/- is disallowed and added back to the total income of the assessee. 14. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: "In this connection it is further submitted before your honour that Id Addl. CTT ii has also not appreciated the correct facts of the case and disallowance of expenditure is made arbitrarily. This issue had also been examined by |j assessing officer in assessment year 2003-04 while completing the assessment u/s 143(3) of the IT. Act. During the course of assessment proceedings It was explained to the assessing officer that assessee company was enjoying two different term loans from IDB1 attracting the higher interest rate of 14%. During the assessment year 2003-04 the assessee company negotiated with Vijaya Bank 17, Barakhamba Road, New Delhi who agreed to take over the term loan of assessee company with IDB1 at an attractive and re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he parties and perused the material available on the record. It is noticed that an identical issue having similar facts was a subject matter of the assessee's appeal for the A.Y 2004-05 in ITA No. 232/Del/2009 in assessee's own case wherein the ITAT Delhi Bench 'F' allowed the claim of the assessee's vide order dt. 13/08/2009 and the relevant findings are being given in para 22 to 25 of the said order which read as under. 22. On appeal, the CIT (Appeals), considering the submissions of the assessee and observation of the Assessing Officer in the assessment order, deleted the impugned disallowance of Rs.17,50,242/- made by the Assessing Officer while observing as under: "It is seen that appellant has made this payment of IDBI for repaying loan before stipulated date. This prepayment charges are for swapping the loan with Vijaya Bank. This swapping was done with a view to reduce the interest burden. The IDBI was charging 14% of interest rates for the corporate loan of Rs.1047.75 lacs. During the F.Y. 2002-03, the appellant negotiated with Vijaya Bank, Barakhamba Road and the bank agreed to swap the term loan of Rs.1047.75 lacs with an interest rate of LIBOR + 2% whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the assessee company was engaged in the manufacturing of both oral and sterile range of antibiotics. It had a 100% subsidiary at Sri Lanka by name Chem Pharma Pvt. Ltd. which manufactured drug intermediates. The assessee purchased intermediate products from its Sri Lankan Associated Enterprise (AE), the International Transaction related to the purchase of raw material was amounting to Rs.6,95,54,400/-. The assessee had used Comparable Uncontrolled Price (CUP) method to justify that the said International Transaction was at arm's length. The assessee furnished report in Form No. 3 CB under section 92E of the Act relating to International Transaction along with return of income. The AO in accordance with the provisions of Section 92 CA(3) of the Act made a reference to the Transfer Pricing Directorate for computation of arm's length price for the International Transaction entered into by the assessee company with its AE. The assessee produced CUP data before the TPO as under: Material Name Purchase from Associate Purchase from Uncontrolled parties Qty (Kg) Avg. Rate per Kg Qty. (Kg) Avg. Rate per Kg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee are compared with the average yearly prices paid, by the assessee" 20.3 The assessee stated to the TPO that the quotations from unrelated parties should be accepted as valid CUP. It was further stated that the prices of the chemicals fluctuated during the year and that the price of some of the chemical had fallen internationally in the month of March 2005. However the TPO did not accept the submission of the assessee and made a best judgment fixing of ALP based on the ALP of two chemicals. The relevant part of the order of the TPO read as under: "In view of the above-mentioned position only an estimate, based on best judgment can be made keeping in view the information already available. Consequently, it is reasonably estimated that the average percentage by which the assessee has overpaid for imports of Cefotaxime Acid and Mica Acid should be benchmarked to calculate the ALP in respect of these imports. On a percentage basis it is seen that the variation in prices by 1.2% and 28.81% in the prices of Cefotaxime Acid and Mica Acid, respectively. The average works out to 15% and therefore the prices of the imports worth Rs.14.52 cRs.will be accordingl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onth of march, where as CUP method provides that comparison should be made for purchases made by assessee company from associate enterprise and from other comparable uncontrolled transaction. Thus the very basis of making addition by TPO is not correct and not as per any of the methods provided U/S 92C of the I.T. Act. 'The TPO to determined the arm length price has compared the price paid by Chemical resouces to Chempharma Pvt Limited. (li) 'The comparison of average price of March with the average price paid by Assessee Company to its AE for the purchases made during the whole year, made by the TPO is also not correct under the circumstances when price of the product was fluctuating and. varying on day to day/ month to month basis. Further without prejudice to our objection on average price of month of march paid by unrelated party to Chempharma Pvt Limited taken by TPO to work out the arm's length price of the whole year transaction of assessee company with its AE we would also like to submit that basis of addition by TPO is also not correct on account of following reasons:- (iii) Section 92C deals with computation of arm's len....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the price determined by the assessing officer. In such cases, the price declared by the tax payer may be accepted." In view of above CBDT circular, no addition is called for. This is also important to mention here that at the one hand TPO is ignoring the items for which less price is paid by the assessee company and on the other hand for determining the arrn,s length price total addition is taken into consideration as a whole. (w) Word "the price charged or paid" used in rule 1 of U)B(l)(a) should be interpreted and read in the true sense and exhaustive manner and not in the literal meaning. The Id. TPO has rejected the quotations taken by the assessee company from various independent outside country suppliers before entering into the transaction with its AE only on the literal interpretation of language used in the rule 1 of 10B(l)(a). The transfer pricing officer was under obligation to accept the quotations price under the circumstances when no price paid was available for the month in which transaction with AE is taken place, from uncontrolled parties and notices under section 133(6) sent by the TPO to various uncontrolled parties have drawn a blank.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... month under the circumstances that price paid by the company to Chempharma Private Limited is lesser than the price paid by M/s Chemical resources to Chempharma Private Limited' (x) In para 7 assessing officer has observed that transaction of Rs.14,52,70,213/- have not been benchmarked and he has asked to show cause as to why a best judgment assessment should not be made with reference to the determination of ALP. In this connection it is submitted that assessee companyhas obtained the quotations for the items as referred in para 7 of TPO order as done for purchase of other raw materials. He has accepted the quotation obtained by the assessee company for other items in support of benchmarking under CUP although same is rejected, while working the arm's length price But for the items of Rs.14,52,70,213 he has rejected the quotations for bench marking for the reason best known to him. (xi) To make the adjustments downwards for the transaction of Rs.14.52 Crores assessing officer has adopted the average percentage of the items for which allegedly higher price is paid by the assessee company as worked out by the TPO ignoring the overall price paid by the comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wn product. Since appellant company could not able to get the said raw material from, its AE on urgent need therefore said raw material was purchased from Chemical Resources. M/s Chemical resources is also assessed to tax with the department. (xiv) Regarding the reason given by the assessing officer that quotations taken from the independent parties could not be materialize is concerned. It is submitted before your honour that Assessee Company like government department has called upon the quotations from the prospective sellers to purchase the raw material. Since price of AE was much lesser than the price quoted by the independent parties therefore purchases were made from the AE. Every prudent business man will approach to the party which has quoted lower price and will pay the lesser price of a product of its needs. Therefore the. observation of the assessing officer that merely obtaining the quotations without any purchase has no relevancy and is not acceptable to determine the arm's length pace is not correct. As per AO's observation if appellant company might have purchased a negligible quantity even a Kg from these prospective sellers, then he might have acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5 in respect of direction of TPO to initiate and impose the penalty under section 271BA and 271G of the I.T Act for non maintenance and non production of documents as per referred sections with respect to the international transaction worth Rs.14,52,70,213. In this connection it is submitted that all the necessary documents as required under the provi sions of the Act was maintained by the assessee and filed/produced as and when required by TPO. More eve all the necessary documents prescribed under rule 10D of the Income Tax rules was maintained and submitted/produced before TPO and has also been observed by TPO in para 1 and para 2.1 of order under section 92CA(3) as under :- Para 1 "The documents prescribed under rule 10D of the Income Tax Rules was submitted and placed on the record." Para 2.1 "The assessee has used the CUP Method to justify the arms length nature of the transaction with it's A. E. In support, of the same, documents were filed by the assessee as prescribed under Rule 10D. The above said observation of TPO in the transfer pricing order is contrary to the recommendation made. It is further stated that in this case p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and fallen. Accordingly addition so made may please be deleted. 2. Further adjustments of Rs.25,93,048/- made by TPO on purchase of Cefotaxime Acid of Rs 21,04,15,349/= works out to be 1.23% (falls within permissible range of 5%) and therefore should be deleted. 3. Adjustments of Rs 2,17,90,532/- on Misc items has been made by TPO in para 7,8 and 9 of the order by adopting the simple average method {(1.23%+28.81%)/2} of differences in rates of Cefotaxime Acid and Mica Acid. This is an adhoc addition is made by TPO without any scientific basis and also without giving any show cause on the adjustments made by TPO and thus giving any opportunity to the appellant company to revert the adjustment so made and method so adopted by TPO. In this connection this is further stated before your honour that appellant company now has also benched marked the international transaction on the basis of other methods as prescribed under rule 10B of The Income Tax Rules, 1961 which is much more appropriate method than the method adopted by the Id TPO. Since there was no occasion for the appellant to discuss the same with the TPO as no proper opportunity was given, your honou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AE in Sri Lanka only after making the adjustment only on account of custom and excise duty. From the above your honour will also appreciate that that ALP determined by appellant company is also justified by Profit-Split Method also. Further the appellant, company has also compared its performance with its peer companies i.e. Aurobindo Pharma Ltd and Orchid Chemicals & Pharmaceuticals Ltd. Both these companies are listed on Stock Exchange in India and are our competitors being in identical business of bulk drug. A comparison of the same i s also annexed herewith as per annexure 'C. From the comparative statement your honour will also appreciate that PUT of Nectar is 8.37 %o in comparison to PET of Aurobindo Pharma Ltd @ 3.70%o and Orchid Chemicals Ltd @ 4.36%. From the comparative statement your honour will also appreciate that PBT of appellant company is better than both these reputed Companies, which also shows that ALP has been arrived and calculated correctly by the appellant company in a very reasonable manner. We are enclosing the following Annual Reports for financial year 2004-05: 1) Annual Report of Nectar Lifesciences Ltd. 2) Annual....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 500 Kg. 81.18 2 05.02.05 Zibo Jincheng Ind.Co. Ltd. China Himant Pharam P. Ltd. Lahore, Pakistan 400 Kg. 81.93 3 05.03.05 Zhejiang Hengdian Imp. & Exp. Co. Ltd., China Zakaria-Tabriz Pharmaco Iran 2000 Kg 59.50 Overwriting in date 4 08.03.05 Zibo Jincheng Ind. Co. Ltd. China Bethulem Pharma, Addis Ababa, Ethiopia 1000 Kg. 57.53 5 26.03.05 Zhejiang Hengdian Imp. & Exp. Co. Ltd., China Phlox Pharmaceuticals Ltd. Baroda, India 2000 Kg. 60.00 Overwriting in date 6 26.03.05 Zibo Jincheng Ind. Co. Ltd. China Zakaria-Tabriz Pharmaco Iran 1500 Kg 57.00 It may be seen from the information in the above table that the copies of invoices given as proof for fall in prices of MICA acid in March 2005 belong to differing j geographies and. are for different quantities. The prices are normally higher I when the purchase is for small quantities and lower when purchased in bulk. Besides, only two invoices are in respect of purchases made by Indian parties. But these imports are from China and not from Sri Lanka, hence, they are not j exact....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs.21,04,15,349/- works out to 1.23% which falls within permissible range of 5% and hence should be deleted. It is seen that the TPO has taken price from only one party and not the arithmetic mean of prices of various parties. The range of 5% is available to the assessee only when the arithmetical mean is taken. In view of the same, the argument of the assessee is not correct. 5. The assessee was asked vide letter dated 10.02.12 to give further! evidence, if any in respect of CUP data. The assessee has not submitted any further evidence." 22.4 The Ld. CIT(A) after considering the submissions of the assessee and the remand reports of the TPO dt. 09/10/2009 and 27/02/2012 observed that the TPO had not raised any objection for the acceptability of the additional evidence. The Ld. CIT(A) referred to the decision of the ITAT Chandigarh Special Bench in the case of M/s Quark Systems Pvt. Ltd. Vs. ITO [2010-TIOL-31-ITAT-CHD-SB] wherein the assessee company M/s Quark Systems Pvt. Ltd. had chosen Datamatics Technologies Ltd. as one of its comparable company in its transfer pricing study for the A.Y. 2004-05. The TPO had also accepted the same as comparable and the Ld. CIT(A) up....
X X X X Extracts X X X X
X X X X Extracts X X X X
....served that the assessee had produced quotations for the chemicals from the third parties as a CUP data for the chemical imported from its AE, and the TPO had rejected the same. The Ld. CIT(A) agreed with the decision of the TPO that the quotation could not be used as a CUP data and that the quotation submitted by the assessee were not obtained in an open tender. He further observed that Rule 10B(1)(a)(i) specified that the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction or a number of such transactions to be the basis of comparison. He further observed that in the commercial reality, quotation is only first step of negotiation for the price and other terms and condition of delivery. From the stage of quotation to the stage of completed transaction the price defers based on geographical location, terms and condition of delivery, warranty, quantum/volume of transaction, transportation cost etc. Therefore quotations as such cannot be accepted as a completed transaction and since the Rule mandates to take "price charged or paid" from completed transaction. He therefore agreed with the decision of the TPO in not accepting the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... benchmarked at all by the assessee. Therefore the TPO made a best judgment assessment and calculated the ALP of the 10 different chemicals. The basis of the calculation was that the variation in prices of Cefatoxime Acid and Mica Acid was 1.2% and 28.11% as compared to the ALP determined in those two chemicals and therefore the average of those two, which worked out at 15% was taken as a percentage to adjust downwards the import prices of the 10 chemicals imported from its AE as a consequence Rs.2.17 crores were added to the income of the assessee on account of transactions in those 10 chemicals. So this method also suffers from comparing uncomparable chemicals on the one hand and using an average variation between the ALP and the actual price in two different chemicals and hence the same as the variation in the ALP of the 10 different chemicals. The Ld. CIT(A) pointed out that the ALP of the two chemicals were arrived at by taking the independent third party invoices for the March 2005 and compared to the whole year International Transaction of the assessee. Therefore this method i.e; CUP method suffered from multiple infirmities. Accordingly the Ld. CIT(A) held that with the ava....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nit about 50%) of the profit of the Indian unit can be said to be arising out of trie transactions with the Sn Lankan unit. This view is being taken also in view of the fact that the value addition as seen from the %o of manufacturing expenses to sales is much more in case of Indian unit (4.60%)) than for Sri Lankan unit (1.56%). Hence, consolidated profit on account of transactions which are integrated transactions involving transactions botli in Indian unit and in Sri Lankan unit becomes Consolidated profit on account of integrated transactions = 50% profit of India unit from operating activities + 100% profit of Sri Lankan unit from operating activities. = 0.5x(1848.18 -1072.31*) + (1965.37-30.92) = 0.5x 775.87 + 1934.45 = Rs.2322.385 lakhs * "Miscellaneous income mainly comprising of dividend from Sri Lankan unit is not operational income and therefore the same has been reduced from the net profit. 6. In the FAR analysis of the Indian unit and Sri Lankan unit, it can be seen following functions can be attributed to Indian and Sri Lankan unit:- Functions Indian Unit Sri Lankan Unit R & D Function Yes, as it is the main co. which....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... being performed by Indian unit. Indian unit has more asset intensity. Besides, the' Indian unit is subject to more risk. In view of the same, 70% of consolidated profits need to be attributed to Indian unit and 30% of the consolidated profits need to be attributed to Sri Lankan unit. Hence, the profit of Sri Lankan unit should be Rs.696.72 lakhs. Since, because of the price set for products, the profits of Sri Lankan unit are much higher at Rs.1934.45 lakhs (excluding misc. income). Hence, an adjustment of Rs.1237.73 lakhs is warranted on account of PSM." 22.11 The Ld. CIT(A) forwarded the remand report of the TPO to the assessee for comments and the assesse vide submissions dt. 10/03/2012 stated as under: "Further Id TPO has stated that appellant company has not applied PSM in the correct way and he has also tried to use PSM method on the presumption of profit earned by the appellant company on international transaction in the ratio of purchases made from its AE with total purchase made and has tried to establish that 50% of the profit of the Indian unit can be said to be arising out of the transactions with Sri Lankan Unit. Further in para 6 to 9 Id TPO consideri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w of above mentioned facts Id. TPO is also not justified in determining the arm's length price on determining the consolidated net profit of both the unit on estimation basis and further allocating such consolidating the net profit on estimation and with the wrong presumption ignoring the process involves, other factors and tax benefits to Sri Lankan Unit. In view of above your honour is requested not to accept the adjustment proposed by Id TPO on wrong presumption and wrong method." 22.12 The Ld. CIT(A) after considering the remand report of the TPO and the comments of the assessee observed that in the absence of a clear analysis of the functions performed, assets employed and risk undertaken by the entities (FAR analysis), attribution of profit, the PSM was not possible. 22.13 The Ld. CIT(A) pointed out that the submission of the assessee lacked the FAR analysis. However the fact that the Sri Lankan unit of the assessee had an indirect tax advantage to the extent of 16% in Excise Duty and 16% Custom Duty also could not be denied and that the assessee had claimed its duty benefit while calculating the PSM and the TPO in his remand report did not agree with this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Hypnoticchostimulant, Anti Convulsant Anti Depressant, Anti emetic, Proton pump inhibitor, Expectorant, Decongestant No Wanbury Anti diabetic Anti Analgesic, Anti Histaminic, Inflammatory, Anti depressant,Anti Thrombotic, Anti Hypertensive, Anti Viral, Anti Epileptic, Anti Inflammatory, Anti Arthritis, Anti diabetic, Anti Psychotic, Anti Ulcer No Shasun Pharma Pain management & Musculoskeletal, Hyperphosphataemia, Central Nervous system, Gastrointestinal, Anti-Infective (Cycloserine, Chlorphenesin) NO Sequent Scientific Anthelmintic, artemisininbased combination therapy(ACT), Cancer and Viral Therapy, antipsoriatics, Antivirals, Immune Response modifier, Anesthetic Adjunct No Divi's Lab Antidepressant, Anti-cancer, Antihistamine, Antitussive, Parkinson's disease, Antineoplastic, Antianginal, antiarrhythmic(class IV), antihypertensive, analgesic, antipyretic, anti-inflammatory, Antiarthritic, Antihyperlipidemic, Angiotensin II receptor and other related. No It was further clarified by the assessee as under : Let us put first three companies viz. Nectar Life sciences, Aurobindo Pharma and Orchid Chemicals in GROUP A and all the other....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s length price, comparison with the companies in the same group is done by appellant company and your honour from the comparable data given will also appreciate that profitability of the appel lant company is higher than the other group manufacturing company and therefore wrong adjustment in the arm's length price has been made by Id TPO and therefore your honour is requested to delete the unjustified adjustment and addition so made and oblige." 22.16 The Ld. CIT(A) after considering the objection of the TPO and the submissions of the assessee observed that the assessee had not able to justify its International Transaction based on CUP because of lack of availability of exact CUP in this case and the best judgment decision of the TPO was not acceptable because on the basis of a limited number of invoices of one particular month, the entire International Transaction of the whole year could not be benchmarked and that the average method which the TPO had used was also not correct specially when most appropriate method used was CUP. 22.17 As regards to the PSM method as suggested by the assessee, the Ld. CIT(A) observed that as pointed out by the TPO, this method suffered fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e year and the comparables, namely M/s Aurobindo Pharma Ltd. and M/s Orchid Chemicals Pharmaceuticals Ltd. were having turnover of Rs.1160/- crroes and Rs.650/- crores respectively. Therefore even in terms of size of the operation they were similar. The Ld. CIT held that those two companies were comparable companies to the assessee and as the meanmargins of the other two comparables were less than the margin earned by the assessee (PBT/Sales) the International Transaction of the assessee should be held as at arm's length and addition made due to the determination of the ALP by the TPO should be deleted. Accordingly the addition made by the AO was deleted. 23. Now the Department is in appeal. 24. The Ld. CIT DR reiterated the observations made by the TPO in his order dt. 23/09/2008 passed under section 92CA(3) of the Act. It was further submitted that the assessee itself applied CUP method and adopted its own CUP data for benchmarking of the International Transaction with its AE i.e; Sri Lankan entity. However before the Ld. CIT(A) the assesse submitted that CUP method was not the most appropriate method and the TNMM should be adopted. The assessee also furnished the additiona....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in order to achieve reasonable basis of comparing the transactions, the assessee furnished additional evidences from time to time in the form of fluctuation in price of the material i.e; Mica to supplement its CUP data. It was submitted that the Ld. CIT(A) was well within its power to accept additional evidences and there had been no contravention of Rule 46A for the reasons that each time when any sort of additional submission / evidene had been furnished by the Assessee, the same was forwarded to the TPO for her examination and comments by giving due opportunity. Reference was made to para 5.7 & 5.8 of the CIT(A)'s order. It was further submitted that the submissions made during the first appellate proceedings relating to calculation of ALP, two additional methods being PSM and TNMM were send to the TPO and her comments were called for, during the remand proceedings, the TPO called for additional information from the assessee which were duly provided as had been mentioned in para 5.11 of the impugned order. It was stated that the Ld. CIT(A) categorically stated in para 5.12 of the impugned order that the TPO in her both the remand reports did not raise any objection on the accept....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der. It was contended that the Ld. CIT(A) in para 5.16 of the impugned order had explained in detail as to why the CUP method adopted by the assessee as well as TPO failed to address the issue of determination of ALP due to the inherent defects and shortcomings listed by him, which justifies the action of the Ld. CIT(A) in rejection of the ALP as determined by the TPO. It was stated that TNMM is one of the most widely used method for determination of ALP of an International Transaction and is particularly used where the most direct methods like CUP etc. cannot be used for want of adequate data. It was stated that under this method, there is an entity level comparison to compare transaction between two independent enterprises versus transactions between AEs under similar circumstances. 25.4 As regards to the reasons for accepting the two comparable entities provided by the assessee vis a vis rejection of the comparables suggested by the TPO, our attention was drawn towards chart reproduced by the Ld. CIT(A) in para 5.18.2 on page no. 36 of the impugned order wherein the similarity between the nature of products manufactured by the comparables selected by the assessee namely M/s A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. Vs. ITO, Circle 11(2), 176 TTJ 145 (Bangalore- Trib). 25.7 It was further stated that the TPO in the remand report had alleged that the process of selection of comparables of two companies namely M/s Aurobindo Pharma Ltd. and M/s Orchid Chemicals Pharmaceuticals Ltd. made by the assessee was not transparent and random so should be rejected. In this regard it was submitted that no comparable could be rejected without justifying its exclusion by adducing cogent reasons. The reliance was placed on the following case laws : * Aztec Software & Technology Services Ltd. Vs. Asstt. CIT[2007] 107 ITD 141 (Bang.)(SB)(Mag.) * DCIT Vs. Nortel Networks India (P.) Ltd. [2016] 176 TTJ 25 (Delhi-Trib) * Yum Restaurants (India) (P.) Ltd. [2015] 152 ITR 773 (Delhi-Trib) It was accordingly submitted that the Ld. CIT(A) had rightly accepted the comparable companies adopted by the assessee and rejected the other comparables suggested by the TPO, since the mean margin earned by the assessee was better than the comparable companies therefore no adjustment in ALP was required and hence the impugned addition made by the TPO / AO was rightly deleted by the Ld. CIT(A). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. CIT(A) by following the judgment of the Special Bench of ITAT Chandigarh in the case of M/s Quark Systems Pvt. Ltd. Vs. ITO (supra) accepted the additional evidences in the interest of justice. In the instant case while accepting the additional evidences the Ld. CIT(A) not only adopted all fair procedure in granting the TPO sufficient and ample opportunity to examine the evidences, but the TPO also called further informations from the assessee and did not object to the additional evidences furnished by the assessee. Therefore, we are of the view that the Ld. CIT(A) was justified in admitting the additional evidence furnished by the assessee and there was no contravention of Rule 46A of the Income Tax Rule 1962. 26.1 In the present case, the Ld. CIT(A) explained in detail in the impugned order as to why the CUP method adopted by the assessee as well as the TPO failed to address the issue of determination of ALP due to the inherent defects and short comings particularly when the CUP data were not available for all the four varieties of chemicals imported by the assessee from its AE. The assessee imported Cefotaxime Acid, ATCA, GVNE and Mica Acid, however the TPO considered pric....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nly Cephalosporins) Yes Aurobindo Antibiotic (wide range), Yes ORCHID Chemicals Antibiotic (mainly Cephalosporins & Penicillins), Carbapenems, and others Yes Arch Pharmalabs Lipid Lowering Agent (Atrovastatin), Calcium Channel Blocker, Anti Platelet Agent, Anti hypertensive Anti angina, Anti Asthmatic Anti Histamine Anti Diabetic, Anti Protozonal Anti Fungal, Oncology, Analgesic, Anti gout Anti Retroviral Anti parkinsonian, Hypnoticchostimulant, Anti Convulsant Anti Depressant, Anti emetic, Proton pump inhibitor, Expectorant, Decongestant No Wanbury Anti diabetic Anti Analgesic, Anti Histaminic, Inflammatory, Anti depressant,Anti Thrombotic, Anti Hypertensive, Anti Viral, Anti Epileptic, Anti Inflammatory, Anti Arthritis, Anti diabetic, Anti Psychotic, Anti Ulcer No Shasun Pharma Pain management & Musculoskeletal, Hyperphosphataemia, Central Nervous system, Gastrointestinal, Anti-Infective (Cycloserine, Chlorphenesin) NO Sequent Scientific Anthelmintic, artemisininbased combination therapy (ACT), Cancer and Viral Therapy, antipsoriatics, Antivirals, Immune Response modifier, Anesthetic Adjunct No Divi's Lab Antid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved that the computation of income filed by the assessee was not very clear, so, he asked the assessee to furnish the complete details of the investment through which such dividend was earned and the reason for payment of taxes at special rate of 20% alongwith the payment of taxes at normal rate. The A.O. also asked the assessee to show cause as to why not the disallowance under section 14A of the Act be made. 28.1 In response, the assessee submitted that it owned 9614165 equity share of SRL Rs.10/- each of its subsidiary company at Sri Lanka namely M/s Chempharma Pvt. Ltd. It was further stated that based on the consultation with tax expert, in view of Article 10 of Agreement for avoidance of double taxation and prevention of fiscal evasion signed between India and Sri Lanka as per Notification No. GSR 342(E) dt. 19/04/1983 the assessee company was of the opinion that tax on dividend received from Sri Lankan company was payable either @ 15% but not more than 20%, hence the assessee company had opted to pay the tax @ 20%. The reference was made to the decision of the Hon'ble Supreme Court in the case of DCIT Vs. Torqouise Investment & Finance Ltd. reported at 2008 168 Taxmann 10....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estimate of the income of an assessee and if a claim is otherwise admissible, it is not to be denied only because it was not made before the A.O. or not made within time. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. us C1T (1999) 187 ITR 688 (SC) and recent decision of Delhi Tribunal in case of ACIT vs. Bharti Sharma (ITA No. 3140/Del/2007). In view of the above, I am convinced with the submissions of the appellant and deciding the issue involved on the merits of the case as under: As regards the A.O.'s stand that the appellant should have made this claim within a period of one year as laid down in section 239 of the IT Act, it may be mentioned that section 239 prescribes the time limit for claiming refunds whereas in the case of the appellant the claim has been made about the dividend income being exempt and not in regard to the refund. The A.O. has also sought to distinguish between the facts of the appellant's case and those in the case of M/s Turquoise Investment whereas the issue in both the cases was regarding the taxability of dividend income received from abroad (in case of the ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany in the j hands of the taxpayer. I agree with the decision of the CIT (A)-XVI, New Delhi j in the assessee's own case for the subsequent assessment year. Apart from the j merits of the case, the consistency principle as enunciated in the ease of CIT vs LG Rarnamurthy (Madras HC) (110 ITR 453) also demands that the decision of the CIT(A) XVI should be accepted. In view of the above, on merits, 1 direct the AO to allow the claim of Rs.10,24,05,617/- made by the appellant in this regard. 30. Now the Department is in appeal. 31. The Ld. CIT DR reiterated the observations made by the AO and strongly supported the assessment order passed by him. 32. In his rival submissions the Ld. Counsel for the Assessee strongly supported the impugned order passed by the Ld. CIT(A) and further submitted that this issue has been decided for the A.Y. 2006-07 in favour of the assessee and discussion has been made in para 3 to 3.2 at page no. 6 to 25 of the order dt. 28/02/2011. He relied on the said order of the Ld. CIT(A) for the A.Y 2006-07. 33. After considering the submissions of both the parties we think it appropriate that this issue may be dealt with the appeal in ITA No. 761/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-06 which we have already disposed off in the former part of this order, therefore, our findings given in the former part of this order on this issue shall apply mutatis mutandis. Accordingly we do not see any merit in these grounds of the Departmental appeal. 40. Vide Ground No. 4 the grievance of the Department relates to the allowing the claim of non taxability of dividend received from Sri Lankan Subsidiary company. 41. The facts related to this issue in brief are that during the course of assessment proceedings the AO noticed from the Schedules to the balance sheet that the assessee had received dividend to the extent of Rs.20,72,78,330/- from its AE i.e; Sri Lankan subsidiary and a sum of Rs.66,73,580/- being dividend income was claimed as exempt under section 10(34) of the Act. 41.1 During the course of assessment proceedings the assessee submitted to the AO as under: (a) during the year under consideration assessee company has received the dividend of Rs.20,72,78,330/- from its subsidiary company at Sri Lanka. (b) At the time of filing of original and revised return of income, after discussion with the legal experts assessee company has offered th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... honou's kind attention is drawn towards the board circular no. 68 dated 17.11.1971 in which it has been clarified by the board that where an assessee moves an application under section 154 pointing out that in the light of a later decision of the Supreme Court pronouncing of correct legal position, a mistake has occurred in any of the completed assessments in his case the application shall be acted upon, provided the same has been filed within time and is otherwise in order. Further your honour's kind attention is also drawn towards the decision of Hon'ble Supreme Court in case of Anchor Pressing Private Limited v. CIT [161 ITR159] wherein Hon'ble Apex Court was in agreement with the contention of the assessee that if assessee is entitled for a relief it could not be refused merely because appellant had omitted to claim the relief in the return to income. Madras High Court in case of CIT vs. K.N. Oil Industries [142 ITR 13], Choksi Metal Refinery v. CIT [107 ITR 63(Guj) and Walchandnagar Industries Limited vs. V.S. Gaitonde. [44 ITR 260(Bom)]. In view of our above submission and decision of Hon'ble Supreme Court on the similar facts of the cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the assessee the claim of refund is on the basis of the revised computation of income filed during the course of the assessment proceedings on 10.09.2009 and not in the original return or the revised return filed by the assessee as in the case sighted above . The refund in the case of the assessee is claimed through revised computation during the assessment proceedings out of the payment made as self assessment tax. (d) In the submissions made by the assessee it has been claimed that the issue 'whether dividend accrued in the country with whom the Government of India having the DTAA is taxable in India or not under any provision of the Income tax Act' was pending with the Hon'ble Supreme Court for it's final decision. This claim is factually incorrect. The above said issue was well settled by the decision of the Apex Court in its judgement in the case of CIT Vs P.V.A,L.Kulandagan Chettiar (2004) 267ITR 654. Further , even the review I petition filed against the decision of this court was also dismissed on 1, November 2007. As such the issue was well settled by the apex court well before the assessee filed its revised return of income on 12th March 2008 .....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 0323(SC) has held that the assessee can revise its claim before the assessing officer only by fding a revised return under section 139(5) of the Act. Since this claim has not been fled by assessee by way of a revised return fled u/s 139(5) of the Act and also there is no time available for filing revised return the claim of assessee is not acceptable and hence rejected. (c) The assessee company has relied on the judgment of the apex court in case of CIT Vs. Torqouise Investments and Finance Limited (2008) 300 ITR 001. However in the case of the above said case the assessee had claimed refund amounting to Rs.29,16,660/- on the basis of the credit of deemed TDS on dividend received from a Malasian Company alongwith the return. The relevant facts of the case are reproduced below jor better appreciation: - "The assessee-respondent, hereinafter referred to as "the assessee"' filed its return of income for the assessment year 1992-93 declaring an income of Rs.4,30,06,580/- by showing its business as investment and finance, which was processed under section 143(l)(a) of the Income Tax Act, 1961 (for short 'the Act"), on January 18,1996, on the same income. Along....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of Hon 'ble Supreme Court in case of Goetze (India) Limited vs Commissioner of Income Tax (2006) 284 ITR 323 and rejected the claim of appellant as also rejected for the same reason as in A. Y. 2005-06. Appeal filed by appellant for A.Y. 2005-06 has been heard before CIT(A) XX, New Delhi and order is awaited. 42.1 The assessee also highlighted the facts before the Ld. CIT(A) as under: (i) During the year under consideration appellant company had filed its return of income declaring income of Rs.14,99,88,355/- and the assessee company paid the tax of Rs.2,47,08671/- under section 115JB of the IT. Act on book profit of Rs.32,94,48,947/-. Thereafter return was revised and tax of Rs.2,42,08,513/-under section 115JB of the IT Act on the book profit of Rs.32,27,75,367/-adjusting the book profit declared in original return by the dividend of Rs.66,73,580/- on mutual funds. (ii)Although dividend received by the assessee company was exempt from tax in Sri Lanka being the associated concern situated in tax free zone, but in view of deeming tax (aj, 15% in Sri Lanka, assessee company at the time offiling of return of income on the basis of discussion with the lega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly because it was not made before the AO or not made with in time. Reliance was placed on the following case laws: * Jute Corporation of India Ltd. Vs. CIT(1999) 187 ITR 688 (SC) * ACIT Vs. Bharti Sharma in ITA No. 3140/Del/2007 (Delhi Trib) 42.4 The Ld. CIT(A) observed that in the case of DCIT Vs. Turquoise Investment & Finance Ltd. (supra), the Hon'ble Supreme Court was of the view that dividend income received by the assessee from a company in Malaysia was not taxable in view of Article 10 of the Double Taxation Avoidance Agreement signed between India and Malaysia which would prevail over the provisions of the IT Act, 1961, in case of any conflict between the two. The Ld. CIT(A) observed that Article-10 of the Double Taxation Avoidance Agreement(DTAA), regarding chargeability of the dividend income, signed between India and Sri Lanka was identical with Article 10 of the DTAA between India and Malaysia. The Ld. CIT(A) reproduced the Article 10 of DTAA with Sri Lanka and Malaysia at page no. 18 to 20 of the impugned order for the cost of repetition the same is not reproduced herein. 42.5 The Ld. CIT(A) mentioned that the provisions as per Article 24 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Sri Lanka States as follows:- 11. There shall be exempt from income tax. (a) (b) (c) Any dividend paid by a company with which an agreement has been entered into on or after November 8, 1995 by the Board of Investment of Sri Lanka u/s 17 of the Board of Investment of Sri Lanka Law, No.4 of 1978 to any shareholder of that company during the period for which the prof i t s and income of that company are exempt from income tax under the terms of that agreement or within one year therefore out of the prof i t s and income which are exempt from income tax. 42.6 The Ld. CIT(A) observed that the assessee had received dividend from its subsidiary company M/s Chempharma Pvt. Ltd. which was registered on 18/10/2002 in terms of section 17(2) of the Board of investment of Sri Lanka Law No: 4 of 1978 and had entered into an agreement with the Board to set up, conduct and operate a business to manufacture drugs in Export Processing Zone at Horana. Accordingly, the assessee company was exempted from the imposition, payment and recovery of income tax in respect of the profits of the aforementioned enterprises. Another agreement was entered into by M/s Chemph....
X X X X Extracts X X X X
X X X X Extracts X X X X
....India with the Government of Malaysia would override the provisions of the Act if they are at variance from the provisions of the Act. Hence dividend income would be taxed only in the contracting states where such income accrued. Thus Dividend income of Rs . 21,75,766/- is not to be taxed in India Under any of the provisions of the Act. e) Aggrieved by the order of the Tribunal, the department further filed appeal in the court of Madhya Pradesh, which held that Tribunal was justified in holding that dividend income derived by the assessee from a company in Malaysia is not liable to be taxed in the hands of the assessee under any of the provisions of the Act. 42.8 The Ld. CIT(A) also observed that in Clause 10(2) of the DTAAs with Sri Lanka and Malaysia for taxability of dividend income in the other contracting state, the word was used 'may' which can also not be read as 'shall' in view of various court Judgments and in the above referred decision of the Hon'ble Supreme Court wherein it has been held that tax on dividend income can be charged in the contracting state where the same accrued. Undisputedly in case of assessee company, dividend from its Associate Enterprise ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... placed at page no. 62 of assessee's paper book), in case of dividend, the foreign tax credit of Sri Lanka Tax payable was given by underlying tax credit (UTC) method which is a method to provide relief from the economic double taxation of the income and refer to the credit that may be given in the resident state, for the tax paid on the underlying profits out of which dividend was paid by the company in the source state. The reliance was placed on the following case laws: * Krishan Bharati Co-operative Ltd. Vs. ACIT (2016) 158 ITD 777 (Del Trib) * M/s MMTC Ltd. Vs. Assistant CIT in ITA No 4265/Del/2010 (Del Trib) 46. We have considered the submissions of both the parties and perused the material available on the record. In the present case, the Ld. CIT(A) categorically stated that the provisions in the India - Malaysia Treaty were similar to India Sri Lanka Treaty and the Hon'ble Apex Court in the case of DCIT Vs. Turquoise Investment & Finance Ltd.(supra) held that the dividend income from the Malaysian Company could not taxed in the hands of the assessee. In the said case the Hon'ble Apex Court affirmed the judgment of the Hon'ble High Court of the Madhya Pr....