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2021 (10) TMI 1403
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....filed by the assessee and the department and the remaining, i.e. pertaining to assessment years 2011-12 to 2015-16, are appeals filed by the assessee. While the appeals for A.Y 200708 to 2011-12 and A.Y 2013-14, are against the separate orders of the Commissioner of Income Tax (Appeals)(in short referred to as ["CIT(A)"] passed u/s 250(6) of the Income Tax Act,1961, (hereinafter referred to as "Act"), those for A.Y 2012-13, 201415 and 2015-16 are against orders passed by the Assessing Officer in compliance with the directions of the Dispute Resolution Panel(DRP), passed u/s 143(3) r.w.s. 144C(5) of the Act. 2. At the outset itself it was stated that the impugned appeals had earlier been listed for hearing alongwith the appeals for assessment year 2005-06 and assessment year 2006-07, in ITA No.2453/Del/2016 and ITA No.532/Chd/2014 respectively, since all the appeals involved certain common issues. That the appeals for assessment years 2005-06 and 2006-07, being the lead years, had been heard and the decision was awaited. Both the parties submitted that certain issues arising in the present appeals, being common to those in assessment years 2005-06 and 2006-07, would be covered by....
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.... pointing out any infirmity in the explanation of the assessee duly evidenced with documents, we hold, the claim could not be denied for want of further evidence. Nothing has been pointed out regarding the insufficiency of evidences filed by the assessee. Then why further evidences were needed to substantiate the claim we are unable to understand. In the light of the same, we hold, the claim of the assessee as fully justified vis a vis write off of vaccines since undoubtedly such vaccines were not capable of being used beyond expiry period and had no realizable value thereafter. As for the write off of Aquafresh tooth brush the assessee we find had explained to the CIT(A) the reasons for discontinuation of the business and the consequent withdrawal of the toothbrushes, from the market, being commercially unviable and had as evidence filed copy of the Board resolution dated 25-11-2003 to this effect. Thus, we find that the assessee has been able to establish documentarily the fact of write off of the said product and the Revenue has not proved anything to the contrary. For the reasons stated above in the context of write off of vaccines we see no reason to disallow the clai....
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....tes an identity/perception of the business, generating awareness about the business using strategies and campaigns with the goal of creating a unique and lasting image of the business in the market place. Brand building creates a customer base establishing long term relationship with the customer. With this clear distinction between the two expenses, the onus to establish incurrence of either of the expenses is on the party claiming so. The Revenue claiming that the assessee has incurred brand building expenses, the onus is on the Revenue to establish the said fact. It cannot simply be derived from the fact that assessee has incurred huge expenses on advertisement and sale promotion of products the brand of which belonged to another entity, considering the clear distinction in the end objective of the said expenses and the assessee consistently claiming that it had acquired the exclusive license to manufacture and sell the products in India and thus being the sole user of the brand name in India. These contentions of the assessee have remained uncontroverted. The entire benefit, in such circumstances, inured to the assessee alone as it alone was operating in the Indian mar....
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....me we find merit in the contention of the Ld. Counsel for the assessee that the issue needs reconsideration. The AO has held PE of GSK Biologicals SA in India based on his findings that clinical trials and R &D are core activities in vaccine development which is got done by GSK Biologicals in India through the assessee and other affiliates. These findings we find are based on, as mentioned in the assessment order at page 35 "facts extracted from various websites of the assessees group companies which throw light on the vaccine business of the group and role of Indian affiliates". The role of the assessee is based on decision taken in the 63rd meeting of the Genetic Engineering Approval Committee on the 8th February 2006.The AO has contended that GSK Biologicals is carrying on vaccine development activity through these fixed place of business. That all intellectual property in the vaccine vests with GSK Biologicals, while R&D activity is carried out in India, the assessee is economically dependent on GSK Biologicals SA and has no other business. The Ld. CIT(A),we have noted has merely reiterated the findings of the AO. The assessee on the other hand, we find ....
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....e the Hon'ble Delhi High Court in writ petitions filed by GSK Biologicals SA against proceedings initiated u/s 148 of the Act on the basis that there exists PE, for A.Y 2005-06 TO 2009-10. Considering the above, we are of the view that it would be in the fitness of matter to restore the issue back to the AO for adjudication afresh in accordance with law after giving due opportunity of hearing to the assessee and after considering all factual and legal contentions raised by it. Ground No 2.2 - 3.4 are accordingly restored back to the AO with the above directions and therefore stand allowed for statistical purposes." 11. Since the issue already stands adjudicated as above in the preceding assessment years, A.Y. 2005-06 & 2006-07, the decision rendered therein will apply to the issues in all the remaining years concerned. Accordingly, the issues of Disallowance of purchase of vaccine of GlaxoSmithkline Biological S.A. u/s 40(a)i) of the Act stands allowed for statistical purposes. Issue No.4: Disallowance of Product Development Expenses in relation to pre-launch of product being capital in nature raised in assesse's appeal for following A.Y. Assessment....
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.... 242/Chd/2017 5 to 5.3 2008-09 225/Chd/2017 3 to 3.2 2009-10 226/Chd/2017 3 to 3.1 2010-11 227/Chd/2017 3 to 3.1 2011-12 228/Chd/2017 3 to 3.1 2012-13 344/Chd/2017 5 to 5.1 2013-14 47/Chd/2018 3 to 3.1 2014-15 1500/Chd/2018 5 2015-16 1495/Chd/2019 6 15. Brief facts relating to the issue are that the assessee had debited expenses incurred towards market research/study which were disallowed by the AO to the extent of 50% on an adhoc basis holding that the assessee had failed to provide name, address and PAN of the parties. The CIT(A) upheld the disallowance but for a different reason, holding that the impugned expenses were capital in nature giving enduring benefit to the assessee having been incurred on products which were yet to be launched. 16. At the outset itself, Ld. counsel for the assessee pointed out that the issue is covered by the order of the Tribunal in the case of GlaxoSmithKline Consumer Healthcare Ltd. for assessment year 1998-99 to 2001-02 and 2002-03, 2003-04 and 2004-05 to 2008-09, 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14. Our attention was drawn to the relevant findings i....
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....e appellant. However, the issue to be considered is whether the expenditure seeks to enlarge the profit yielding capacity or it increases the efficiency of the business. This aspect, in our considered opinion, is to be decided in the light of the business realities under which the appellant is operating. The appellant is engaged in the business of manufacturing of fast moving consumer goods. The business of the appellant is subjected to volatility in consumer preferences, tastes and wants. The appellant is therefore required to perennially study the market and launch new varieties in its products line and meet the competition in the market. It is in this background one has to examine whether the impugned expenditure incurred on development, introduction and launching of newer products is an advantage in the revenue filed or not. In our humble opinion, the expenditure in question has merely enabled the appellant to remain competitive in the market and retain the customer preferences and loyalty towards its brand of products. The said advantage certainly is not limited to the period under consideration but spills over to the future also. So however this is not conclusive to hold that....
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....and for all but are recurring in nature which is evident from the fact that such expenditure has been incurred in the future years also. He pointed out that the decision of the CIT(A) holding it as capital in nature was based on account of his observations that the expenditure is not recurring but occurs once and for all, has the potential to enlarge the profit yielding capacity of the assessee by introducing new products and has provided the assessee with an advantage of enduring nature. The ld. counsel for the assessee pointed out that in view of the submissions made in this regard and the decision of the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd. (supra) the reasoning of the Revenue authorities for holding the impugned expenditure falls flat. 19. The ld. DR on the other hand heavily relied on the order of the CIT(A) supporting his findings that the impugned expenses were capital in nature and hence had been rightly disallowed. 20. We have heard both the parties and we have also gone through the decision of the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd.(supra) cited before us. The issue relates to disallowance of Market Research Expenses ....
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....5 2009-10 226/Chd/2017 5 to 5.2 2010-11 227/Chd/2017 5 2011-12 228/Chd/2017 4 2012-13 344/Chd/2017 6 2013-14 47/Chd/2018 4 2014-15 1500/Chd/2018 6 2015-16 1495/Chd/2019 7-7.1 22. Brief facts relating to the issue are that the AO noted from the balance sheet of the assessee that the assessee had made provision for employees' benefit which included provision for post retirement medical benefits liability. The AO disallowed the same holding that such provisions were not allowable, which was upheld by the ld. CIT(A) holding that the impugned provision is only a contingent liability. 23. Before us, at the outset it was pointed out that identical issue of disallowance of provision for post retirement benefits to employees had been adjudicated by the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd. for assessment year 2007-08 to 2013-14 wherein the Tribunal had held as under : "In the facts of the present case before us the appellant had recognised and accounted for the post retirement benefit due to its employees, in terms of the scheme of employment and also in terms of the revised/ change in Accou....
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.... The ld. counsel for the assessee pointed out that in the impugned case also, the facts were identical, that the assessee having created the provision in accordance with the terms of employment and the Accounting Standard 15 of the ICAI relating to accounting of employee benefits. He, therefore, contended that the impugned provision had been rightly claimed by the assessee. 26. The ld. DR on the other hand relied on the order of the authorities below. 27. We have heard both the parties. We have also gone through the orders of the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd.(supra) and have noted that the issue of allowability of provision created for meeting medical expenses of the employees post retirement had been adjudicated in the said case wherein the ITAT had allowed the said provision on noting that it had been created on scientific basis by actuary in terms of and recognizing the scheme of employment and also the Accounting Standard-15 issued by the ICAI in this regard. Considering the same, the ITAT had held that the said provision could not be, therefore, said to be contingent in nature and was duly allowable, being recognized method of accounting. I....
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.... should be allowed in the respective years to which it belonged since it represented cost of services availed. 30. The ld. DR on the other hand relied on the orders of the authorities below. 31. We have heard both the parties. The CENVAT credit write off claimed by the assessee has been denied by the Revenue holding it to be not in trading nature. The facts relating to the claim, not disputed by the Revenue, is that they represented the input service tax paid by the assessee for various services availed, which was accounted for separately, to be adjusted against out-put service tax to be paid. That it was claimed as a write off in the Profit & Loss Account on account of orders passed by the Service Tax Authorities denying benefit of set off to the said claim. In the backdrop of these undisputed facts, it is clear that the CENVAT Credits represented cost of services availed, which was not claimed in the relevant years since they were eligible to be set off against output service tax to be paid by the assessee. On this claim of set off being judicially held to be not allowable, we agree with the Ld.Counsel for the assessee, the impugned CENVAT Credits partook the character of c....
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.... came into effect during the relevant previous years. He, therefore, contended that the impugned claim was allowable. Alternatively, he contended that the amount of market claim which was added to the income of the assessee in subsequent years on reversal may be directed to be reduced from the same if the claim is held not allowable in the impugned year. 34. The ld. DR on the other hand relied on the orders of the authorities below. 35. We have heard both the parties. There is no dispute vis-àvis the proposition of law, that an ascertained liability which is a present obligation determined on a reasonable and scientific basis, is to be allowed as deduction even if the outflow for the same, to settle the obligation, arises in a future date. What is important is the incurrence of the liability. In the present case, the assessee has contended that it has incurred liability on account of VAT claims to be made by dealers which is to be discharged in the subsequent years, but, we find, no documentary evidence in this regard has been filed to substantiate its claim. In the absence of the same, we fail to understand how the liability arose in the impugned year or could be said....
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....e appeal an opportunity of being heard, pass such orders thereon as it deems fit. Rule 11 of the ITAT Rules,1963,which deals with Grounds which may be taken in appeal, permits raising of additional grounds by appellants, being other than those raised in the memorandum of appeal, subject to the same being heard by the leave of the Tribunal. The Rule further permits the Tribunal to not confine itself to the grounds raised while deciding an appeal. Reading the above together, there is no restriction to the power of the Tribunal in entertaining an additional ground raised before it for adjudication. As long as all facts are available on record all additional grounds, including those raised for the first time can be adjudicated by the ITAT. This issue stands settled by the apex court in the case of NTPC Limited (supra) where on the question whether the Tribunal has jurisdiction to examine a question of law not raised before the lower authorities, it was categorically held that the power of the ITAT in dealing with appeals has been expressed in the statute in the widest possible terms. That there is no restriction of its power to deal only with those issues which arise from the ....
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....f India Ltd. vs. CIT (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) : TC 7R.343, this Court, while dealing with the powers of the AAC observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. the AAC should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply ....
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....y the additional ground impacts only one claim of the assessee to deduction of education cess paid, which neither requires any facts to be uncovered or even verified or investigated. There is no finding of fact to be recorded vis a vis the impugned issue and hence no impediment to the ITAT in adjudicating the issue. Therefore we find there is no reason to restore it for adjudication to the CIT(A). The contention of the Ld. D.R. therefore that the additional ground raised should be restored to the CIT(A) is accordingly dismissed. Now coming to the issue to be adjudicated, whether the education cess paid by the assessee and calculated as proportion of the income tax, is allowable as expenditure. This issue arises in the context of the provisions of section 40(a)(ii) of the Act which deals with certain amounts which are not allowable while computing the income under the head 'business and profession' and sub-clause(ii) thereof mentions taxes paid on profits and gains of business and profession as not allowable. The relevant provisions of section reproduced as under: "40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be....
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....t of tax and therefore was liable to be paid as per the charging provision of the Act. The relevant portion of the order of the Hon'ble apex court in this regard is as under; "Sec. 2 of the Finance Act, 1964, which is headed as "Income- tax and supertax" provides in sub-s. (1) that income-tax and super-tax shall be charged at the rates specified in Parts I and II of the First Schedule respectively and that in cases to which certain paragraphs of those parts apply these taxes shall be increased by a surcharge for the purpose of the Union. According to sub-s. (2) where the total income of an assessee not being a company includes any income chargeable under the head "Salaries" income-tax and super-tax payable by the assessee on the salary portion of the total income shall be the proportionate amount payable according to the rates provided in the Finance Act, 1963. Under s. 2 of the Finance Act, 1963, income-tax was to be charged at the rates specified in Part I of the First Schedule and super-tax at the rates specified in Part II of that Schedule. The income-tax was to be increased in the cases mentioned by a surcharge and additional surcharge for the purpose of the Union and....
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....rovisions relating to finance, property, contracts and suits. Secs. 137 and 138 in Chapter I headed "Finance" provided for levy and collection of certain succession duties, stamp duties, terminal tax, taxes on fares and freights, and taxes on income, respectively. In the proviso to s. 137 the Federal legislature was empowered to increase at any time any of the duties or taxes leviable under that section by a surcharge for Federal purposes and the whole proceeds of any such surcharge were to form part of the revenues of the federation. Sub-s. (3) of s. 138 which dealt with taxes on income related to imposition of a surcharge. Under the Government of India Act, 1935, the surcharge was levied for the first time by the Indian Finance No. 2 Act, 1940. Sec. 3(1) of that Act read : "Subject to the provisions of this section, the rates of income-tax and rates of super-tax...imposed by sub-s. (1) of s. 7 of the Indian Finance Act, 1940, shall, in respect of the year beginning on the first day of April, 1940, be increased by a surcharge for the purposes of the Central Government." Similar phraseology was employed in respect of surcharge on super-tax. The provisions relating....
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....inance Acts of 1940 and 1941 showed that only the rates of income-tax and super- tax were to be increased by a surcharge for the purpose of the Central Government. In the Finance Act of 1958, the language used showed that income-tax which was to be charged was to be increased by a surcharge for the purposes of the Union. The word "surcharge" has thus been used to either increase the rates of income-tax and super-tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term "income-tax" as used in s. 2 includes surcharge. 8. According to Art. 271, notwithstanding anything in Arts. 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles by a surcharge for the purposes of the Union and the whole proceeds of any such surcharge shall form part of the consolidated fund of India. Art. 270 provides for taxes levied and collected by the Union and distributed between the Union and the States. Clause (1) says that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner ....
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....surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to s. 2 of the Finance Act, 1963, it would lead to the result that income-tax and super-tax were to be charged in four different ways or at four different rates which may be described as : (i) the basic charge or rate (In Part I of the First Schedule); (ii) surcharge; (iii) special surcharge; and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way, the additional charges form a part of the income-tax and super-tax. It is possible to argue, and that argument has been commended on behalf of the Revenue, that the word "surcharge" has been used in Art. 271 for the purpose of separating it from the basic charge of a tax or duty for the purpose of distributing the proceeds of the same between the Union and the States. The proceeds of the surcharge are exclusively assigned to the Union. Even in the Finance Act itself it is expressly stated that the surcharge is meant for the purpose of the Union. 11. It would appear that, since the Finance Act, 1943, upto the Finance Act, 1967, a provision was made for taxing the income under the ....
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....is in the nature of tax levied on the income from the business and profession and thus specifically not allowable as per the provisions of section 40(a)(ii) of the Act. There is no scope for any other interpretation/ view on the issue considering the decision of the apex court in K. Srinivasan (supra) read with the Finance Bill levying education cess. We therefore hold that education cess falls within the scope of amounts not allowed as deduction u/s 40(a)(ii) of the Act. The additional grounds raised by the assessee are, therefore, dismissed." In view of the same, this issue is admitted for adjudication in all the appeals wherein raised and decided against the assessee. Issue No.10: Adjustment made on account of interest on receivable allegedly recharacterizing as on secured loans raised in the following appeals of the assessee. ITA No.344/Chd/2017 ITA No.1500/Chd/2018 ITA No.1495/Chd/2019 A.Y.2012-13 A.Y.2014-15 A.Y. 2015-16 Ground No.2 to 2.7 Ground No.2 to 2.7 Ground No.3 to 3.6 39. Briefly stated, the TPO treated the delayed receipts of payments for receivables beyond 30 days as international transactions and be....
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....tended to benefit the AE in some way. It was pointed out that this view was reiterated by the Hon'ble High Court in the case of Avenue Asia Pvt. Ltd. Vs. DCIT reported at 398 ITR 120. The Ld. DR was unable to bring our notice any contrary decision of any High Court on the issue. 43. In view of the same, therefore, the above interpretation by the Hon'ble Delhi High Court, of the explanation inserted to section 92B of the Act defining the international transactions, will prevail. Following the decision of the Hon'ble Delhi High Court and applying it to the issue before us, we hold that for characterizing the receivables as international transactions, the same could not have been done automatically and the TPO ideally should have studied the pattern in the accounts of the assessee regarding recovery of the amounts receivables and determined from the same thereafter whether the same reflected a pattern indicating an arrangement enduring to the benefit of the AE. 44. In the facts of the cases before us relating to assessment years 2012-13, 2013-14 and 2014-15, we find, no such exercise has been done by the TPO but in fact he has only proceeded to characterize the receivabl....
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....d case pending for recovery beyond 60 days could be treated as international transactions. Therefore, the adjustment made on account of interest on the same, for A.Y. 2012-13, amounting to Rs.14,819/- is directed to be deleted. 47. In the remaining years i.e. assessment years 2014-15 and 2015-16 the facts as above relating to the recovery of receivables are not there before us, therefore, the issue needs to be restored back to the TPO to determine the characterization of outstanding receivables as international transactions in accordance with the observations of the Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra). 48. We have also noted from the order of the Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra) that it has been held that the delay in recovery of receivables would have an impact on the working capital of the assessee which also needs to be studied. In the decision of the ITAT in the case of Kusum Healthcare Pvt. Ltd. vs ACIT in ITA No.6814/Del/2014, relied upon by the Ld.Counsel for the assessee before us, we have noted that the adjustment on account of outstanding receivables was deleted holding that the....
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....red into with it, free of cost for elimination of lymphatic filariasis disease from endemic countries. The assessee also objected to the inclusion of certain comparables. The DRP dismissed all the contentions of the assessee holding in paras 3.3 to 3.5 of its order as under: "3.3 Having considered the submission of the assessee, we are of the view that the subsequent action of the AE is not material to decide the arm's length price of exports to the AE. The very fact that in the TP study the profit margin of the transaction has been benchmarked shows that the arguments of the transaction being not for commercial purposes does not hold any ground, and must be rejected. 3.4 The assessee has objected to rejection of certain companies by the TPO from the set of comparables in the TP study. The following companies were rejected by the TPO on the grounds that they were not appearing in the search portal based on accept/reject matrix of the assessee: (i) Celebrity Biopharma Ltd. (ii) Elysium Pharmaceutical Ltd (iii) Strides Pharma Science Ltd 3.4.2 The Financial statements submitted by the assessee has been perused, which has appar....
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....ent made by the TPO with respect to the difference in the arm's length price of international transaction related of sale of goods to the associated enterprise is not sustainable and liable to be deleted for the following reasons submitted as under: Re: The transaction of sale of goods was not for commercial purposes and the AEs have further donated the goods to WHO without any charge It is submitted that in terms of Memorandum of Understanding entered by the associated enterprise with World Health Organization ('WHO'), the associated enterprise agreed to provide Albendazole 400 mg tablets required by WHO for implementation of program for elimination of Lymphatic Filariasis disease from each endemic country. The said Albendazole 400 mg tablets were agreed to be provided by the associated enterprise to WHO with any charge. However, the associated enterprise has assured the appellant, an arm's length return of 9% (approx.) on direct and indirect expenses incurred in manufacturing such Albendazole 400 mg tablets and supplying to WHO on its behalf. Accordingly: the appellant, during the year under consideration, has entered into....
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....he arm's length price of international transaction of export of goods. Re: Incorrect exclusion of comparable by the TPO In this regard, it is respectfully submitted that while applying TNMM, the following companies excluded by the TPO in the impugned order ought to be considered as comparable for the reasons tabulated as under: Company Name Reasons for Remarks of the applicant exclusion by TPO Remarks of the applicant Celebrity Biopharm a Ltd. Cherry picked by the appellant as the said companies were not appear in accept/reject matrix submitted by the applicant along with the TP study. It is submitted that the TPO himself has undertaken a fresh search of comparable companies, applying additional quantitative and qualitative filters, on the basis of contemporaneous information available in public domain. Had it been the case that only those companies can be considered as comparable which has featured in the search analysis of comparable companies undertaken at the time of preparation of transfer pricing study, then under such circumstances, the TPO should not have undertaken a fresh search and considered a fresh set of the TPO comparable compa....
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....39% 35th Percentile 2.30% 65th Percentile 11.40% Since, the operating margin of the applicant at 9.59% lies within the range of final comparable companies from 2.0% to 11.40%, therefore, the international transaction of export of goods undertaken by the applicant ought to be considered to be at arm's length criteria." The Ld. DR supported the order of the TPO/ DRP. 55. We have heard both the parties. With regard to the assessee's contention of no adjustment to be made on account of the end purpose of the transaction of sale of goods to its AE being philanthropic, we do not find any merit in the same for the reason that the commercial intention in the transaction between the assessee and its AE is an admitted fact, the assessee having charged a margin of 9% approximately on the cost incurred by it. When there is an admitted commercial intent in the transaction, it should ideally be, therefore, then at arms' length only. The subsequent action of the AE of using the product/goods for philanthropic purpose cannot have any effect considering the admitted commercial transaction between the assessee and its AE. 56. As for....
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....and promotion of Rs. 15,32,22,000 allegedly on the ground that the said expenditure resulted in promotion of brand name owned by the foreign company. 1.1 That the CIT(A) erred on facts and in law in not appreciating that the assessee is the exclusive licensee authorized to manufacture and sell products under the brand name in India and since the expenditure was incurred in the course of carrying on of its business, it was allowable deduction as business expenditure. 60. The issue involved in the above grounds stands adjudicated by us above at Issue No.2 in para 7-to 8 of our order above. Accordingly, this ground is allowed 2. That the CIT(A) erred on facts and in law in sustaining disallowance of Rs. 96.44,127 under section 40(a)(i) of the Act, with respect to purchase of vaccine amounting to Rs. 19,12,91,000 made from GlaxoSmithKIine Biological S.A. ('GSK, Bio'}, Belgium, allegedly holding that the appellant -as failed to deduct tax at source from such payment. 2.1 That the CIT(A) erred on facts and in law in allegedly holding that GSK Bio has outsourced its core activity to the appellant and all the activities are undertaken under direct supe....
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....such details. 3.2 That the CIT(A) erred on facts and in law in not appreciating the fact that in the case of the appellant itself, similar expenses incurred towards "Provision for Stock Obsolescence" was allowed deduction by the Dispute Resolution Panel ('DRP') in the direction issued for the assessment year 2006-07 and the revenue is not in appeal against the direction of DRP. 3.3 That the CIT(A) erred on facts and in law in not adjudicating appellant's contention raised in grounds of appeal no. 4.1 and 4.2 filed before him, for directing the assessing officer to expunge the extraneous and unfounded remarks made in the assessment order alleging that the appellant was once charged for improper disposal of expired drugs by FDA Maharashtra. 62. The issue involved in the above grounds stands adjudicated by us above at Issue No.1 in para 4 to 5 of our order above. Accordingly, this ground is allowed 4. That the CIT(A) erred on facts and in law in sustaining the disallowance of product development expenses amounting to Rs. 8,21,000 allegedly holding that the said expenditure is in relation to pre-launch of a product and therefore, capital in nat....
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.... CIT(A) has erred in restricting the disallowance from Rs. 19,12,91,000/- to Rs. 96,44,127/- made u/s 40(a)(ia) of the Act on account of payment made to Glaxo Smith Kline Biological SA at Belgium for purchase of Vaccine without deducting tax u/s 195 of the by relying on circular No. 2/2014 dated 26.02.2014 and circular No. 3/2015 dated 12.02.2015 holding that these circulars were clarificatory in nature ignoring the fact that these circulars came into force during F.Y. 2013-14 and F.Y. 2014-15 respectively and do not apply to A.Y. 2007-08. 67. It was common ground that the issue raised above was connected to Ground No.2 to 2.4 of the assesses appeal in ITA No.242/Chd/2017 for the impugned year. Since the said issue has been restored back to the AO at para 61 of our order above, this issue also stands restored to the AO with the direction to the AO to decide the same alongwith the said grounds No.2 to 2.4 of the assesses appeal. Ground of appeal No.i is allowed for statistical purposes. ii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 4703/- made on account of written off advances by treating the....
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....sion of additional evidences, ignoring the provisions of Rule 46A of the Income Tax Rules,1962, governing the manner of admission of additional evidences in this regard. 72. The facts relating to the issue are that during assessment proceedings the AO had disallowed 50% of expenditure relating to discount on sales, market research expenses, selling and distribution expenses, sales promotion expenses for the reason that the assessee had not furnished details of expenses incurred in respect of discount on sales and whether TDS had been deducted on the same or not and had further not submitted names, addresses and PANs of the parties. With respect to the disallowance of other expenses the reasoning of the AO was the same on account of non furnishing of proper information regarding the same. During appellate proceedings the assessee filed additional evidences which was admitted by the Ld.CIT(A) after confronting the AO with the same and the issue, thereafter, decided partly in favour of the assessee. It is against this admission of additional evidences that the Revenue has come up before us contending that the AO had objected to the admission of the additional evidences on the groun....
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....nical trial activities constitute permanent establishment of GSK Bio in India within the meaning of Double Taxation Avoidance Agreement (DTAA) between India and Belgium on account of the following: a. Fixed place of business in the form of place where clinical trials and research and development takes place including but not limited to CDMCI and BDSI, Bangalore under Article 5(1) of the DTAA; b. Premises used as a sales outlet or for receiving or soliciting orders with respect to vaccines under Article 5(2)(i) of the DTAA; c. CDMCI. Bangalore under Article 5(2)(c) of the DTAA; d. BDSI, Bangalore under Article 5(2)(c) of the DTAA; and e. Dependent agent PE in the form of the appellant under Article 5(4) of the DTAA. 1.3 That the CIT(A) erred on facts and in law in alternatively holding that the assessee constituted business connection with GSK Bio within the meaning of section 9(1 )(i) of the Act. 1.4 Without prejudice, the CIT(A) erred on facts and in law in determining the profit attributable to the alleged PE in India at 23% of the net profits of GSK, Bio, as against 15.38% determined by the appellant on the basis of ....
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....allowing depreciation @ 25% on the said product development expenditure by treating the same as capital in nature. 4.2 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said product development expenditure incurred for the earlier assessment year, i.e. AY 2006-07 and 2007-08, by treating the same as capital in nature. 78. The issue involved in the above grounds stands adjudicated by us above at Issue No.4 in para 13 to 14 of our order above. Accordingly, this ground is allowed for statistical purposes. 5. That the CIT(A) erred on facts and in law in sustaining the disallowance on account of provision for post-retirement medical benefit given to employees of amounting to Rs. 6,62,343 allegedly holding that the these provision are in the nature of contingent liability and thus not subject to deduction under income tax. 79. The issue involved in the above grounds stands adjudicated by us above at Issue No.6 in para 27 of our order above. Accordingly, this ground is allowed. 6. That the CIT(A) erred on facts and in law in sustaining the disallowance of Cenvat credit recoverable amounting to Rs. 3,45,6....
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....of the by relying on circular No. 2/2014 dated 26.02.2014 and circular No. 3/2015 dated 12.02.2015 holding that these circulars were clarificatory in nature ignoring the fact that these circulars came into force during F.Y. 2013-14 and F.Y. 2014-15 respectively and do not apply to A.Y. 2008-09. 84. It was common ground that the issue raised above was connected to Ground No.1 to 1.4 of the assesses appeal in ITA No.225/Chd/2017 for the impugned year. Since the said issue has been restored back to the AO at para 75 of our order above, this issue also stands restored to the AO with the direction to the AO to decide the same alongwith the said grounds 2 to 2.4 of the assesses appeal. Ground of appeal No.i is allowed for statistical purposes. ii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 42,000/- made on account of written off advances by treating the same to be in the nature of business loss incidental to the business of the assessee when these advances had never been shown by the assessee as a part of its income and therefore could not be claimed as expense when these were written off. 85. It was comm....
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....o the alleged PE in India at 23% of the net profits of GSK, Bio, as against 15.38% determined by the appellant on the basis of functions, asset and risk analysis of the appellant vis-a-vis GSK, Bio. 87. The issue involved in the above grounds stands adjudicated by us above at Issue No.3 in para 10 to 11 of our order above. Accordingly, this ground is allowed for statistical purposes. 2. That the CIT(A) erred on facts and in law in sustaining the disallowance of Rs. 11,48,37,000, being 1/3rd of the expenditure on advertisement and promotion of Rs. 34,45,11,000 allegedly on the ground that the said expenditure resulted in promotion of brand name owned by the foreign company. 2.1 That the CIT(A) erred on facts and in law in not appreciating that the assessee is the exclusive licensee authorized to manufacture and sell products under the brand name in India and since the expenditure was incurred in the course of carrying on of its business, it was allowable deduction as business expenditure. 88. The issue involved in the above grounds stands adjudicated by us above at Issue No.2 in para 7 to 8 of our order above. Accordingly, this ground is allowed 3. T....
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....the mercantile system of accounting deduction of expenditure is allowable in the year in which the liability is quantified and accrued, notwithstanding that the same has to be discharged at a later date. 91. The issue involved in ground No.5 stands adjudicated by us above at Issue No.6 in para 27 of our order above. Accordingly, this ground is allowed. 92. The issue involved in ground no.5.1 stands adjudicated by us above at Issue No.8 in para 35 to 36 of our order above. Accordingly, this ground is dismissed. 93. Ground No.5.2 is argumentative and relates to both the issues raised in Ground No5 & 5.2 and has been dealt with in them. 6. That the CIT(A) erred on facts and in law in upholding the disallowance of a sum of Rs. 87,32,000 being the amount of provision of stock obsolescence charged to the profit and loss account allegedly on the ground that: (i) the appellant failed to furnish evidence for destruction of obsolete stock. (ii) No details of drugs which have become obsolete and withdraw and actually destroyed were furnished by the assessee. 6.1 That the CIT(A) erred on facts and in law in not appreciating that the said provision f....
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....ed to Ground No.1 to 1.4 of the assesses appeal in ITA No.226/Chd/2017 for the impugned year. Since the said issue has been restored back to the AO at para 87 of our order above,this issue also stands restored to the AO with the direction to the AO to decide the same alongwith the said grounds 2 to 2.4 of the assesses appeal. Ground of appeal No.i is allowed for statistical purposes. ii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 95,000/- made on account of written off advances by treating the same to be in the nature of business loss incidental to the business of the assessee when these advances had never been shown by the assessee as a part of its income and therefore could not be claimed as expense when these were written off. 99. It was common ground that the issue raised in the above ground was identical to that raised by the Revenue in its appeal for A.Y 2007-08,in ITA No.219/Chd/2017 in ground No.ii. In view of the same our decision rendered therein at para70 of our order above will apply following which this ground raised is dismissed. 100. In effect appeal of the Revenue is partly allowe....
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....d for statistical purposes. 1. That the CIT(A) erred on facts and in law in sustaining the disallowance of Rs. 14,54,53,000, being 1/3rd of the expenditure on advertisement and promotion of Rs. 4,363.60 lacs allegedly on the ground that the said expenditure resulted in promotion of brand name owned by the foreign company. 2.1 That the CIT(A) erred on facts and in law in not appreciating that the assessee is the exclusive licensee authorized to manufacture and sell products under the brand name in India and since the expenditure was incurred in the course of carrying on of its business, it was allowable deduction as business expenditure. 102. The issue involved in the above grounds stands adjudicated by us above at Issue No.2 in para 7 to 8 of our order above. Accordingly, this ground is allowed. 3. That the CIT(A) erred on facts and in law in sustaining disallowance of market research expenses amounting to Rs. 3,07,09,000 (after allowing depreciation @25% on the expense of Rs. 4,09,46,000) allegedly holding that the said expenditure incurred on market surveys, market research for the products which are to be launched and party for existing products, ar....
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....scharged at a later date. 106. The issue involved in the above grounds stands adjudicated by us above at Issue No.8 in para 35 to 36 of our order above. Accordingly, this ground is dismissed. The assessee has also raised additional ground as under: "1. That on the facts and circumstances of the case and in law. the assessing officer ought to have allowed, in pursuance to law clarified by the Hon'ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Ltd vs JCIT: D.B. 1TA No.52/2018 and Hon'ble Bombay High Court in the case of Sesa Goa Ltd vs JCIT: 117 taxmann.com 96 (Bom HC), deduction of Rs. 2,55,04,589, being education cess computed on returned income, paid by the Appellant before the due date of filing return of income for the subject assessment year. 2. That on the facts and circumstances of the case and in law, pursuant to law clarified in the case of Chambal Fertilisers and Chemicals Ltd (supra) and Sesa Goa Ltd (supra), the assessing officer also ought to have allowed further deduction in respect of any additional amount paid by the Appellant towards education cess during the financial year relevant lo the subject assessment....
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.... 1.2 That the CIT(A) erred on facts and in law in holding that clinical trial activities constitute permanent establishment of GSK Bio in India within the meaning of Double Taxation Avoidance Agreement (DTAA) between India and Belgium on account of the following: a. Fixed place of business in the form of place where clinical trials and research and development takes place including but not limited to CDMCI and BDSI, Bangalore under Article 5(1) of the DTAA; b. Premises used as a sales outlet or for receiving or soliciting orders with respect to vaccines under Article 5(2)(i) of the DTAA; c. CDMCI, Bangalore under Article 5(2)(c) of the DTAA; d. BDSI, Bangalore under Article 5(2)(c) of the DTAA; and e. Dependent agent PE in the form of the appellant under Article 5(4) of the DTAA. 1.3 That the CIT(A) erred on facts and in law in alternatively holding that the assessee constituted business connection with GSK Bio within the meaning of section 9(1 )(i) of the Act. 1.4 Without prejudice, the CIT(A) erred on facts and in law in determining the profit attributable to the alleged PE in India at 23% of the net profits of ....
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....rounds stands adjudicated by us above at Issue No.6 in para 27 of our order above. Accordingly, this ground is allowed. 5. That the CIT(A) erred on facts and in law in sustaining the disallowance of product development expenses amounting to Rs. 95,76,000 (after allowing depreciation @ 25% p.a. of expense of Rs. 1,27,68,000/- allegedly holding that the said expenditure is in relation to pre-launch of a product and therefore, capital in nature. 5.1 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said product development expenditure incurred for the earlier assessment years, i.e. AY 2006-07 to 2010-11, by treating the same as capital in nature. 115. The issue involved in the above grounds stands adjudicated by us above at Issue No.4 in para 13 to 14 of our order above. Accordingly, this ground is allowed for statistical purposes. 116. The assessee has also raised additional ground as under: "1. That on the facts and circumstances of the case and in law. the assessing officer ought to have allowed, in pursuance to law clarified by the Hon'ble Rajasthan High Court in the case of Chambal Fertilise....
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....the form of sale of goods/services rendered to the associated enterprise. 2.3 That the DRP/TPO erred on facts and in law in re-characterizing the alleged delay in receipts of receivables as unsecured loans advanced to the associated enterprises and making a transfer pricing adjustment on that basis. 2.4 Without prejudice, that the DRP/TPO erred on facts and in law in not accepting that in any case the transaction of delay in respect of receivables was closely linked to the 'international transaction' of exports and since the profit earned by the appellant as a percentage of cost is higher than the profit earned by comparable companies, no transfer pricing adjustment was even otherwise required to be made in this regard. 2.5 Without prejudice, that the DRP/TPO erred on facts and in law in rejecting the delay in receipt of receivables on transaction undertaken with unrelated third parties as comparable uncontrolled price for the purpose of benchmarking the delay in receipt of receivables on transaction undertaken with associated enterprises, applying CUP method. 2.6 Without prejudice, that the DRP/TPO erred on facts and in law in adding an ....
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....cle 5(2)(i) of the DTAA; c. CDMCI, Bangalore under Article 5(2)(c) of the DTAA; d. BDSI, Bangalore under Article 5(2)(c) of the DTAA; and e. Dependent agent PE in the form of the appellant under Article 5(4) of the DTAA. 3.4 That the assessing officer erred on facts and in law in alternatively holding that the assessee constituted business connection with GSK Belgium SA within the meaning of section 9(1 )(i) of the Act. 3.5 Without prejudice, the assessing officer erred on facts and in law in determining the profit attributable to the alleged PE in India at 22.5% of the net profits of GSK, SA as against 15.38% determined by the appellant on the basis of functions, asset and risk analysis of the appellant vis-a-vis GSK, SA. 120. The issue involved in the above grounds stands adjudicated by us above at Issue No.3 in para 10-11 of our order above. Accordingly, this ground is allowed for statistical purposes. 4. That the assessing officer erred on facts and in law in disallowing a sum of Rs. 33,28,14,000, being 1/3rd of the expenditure incurred by the appellant on advertisement and publicity amounting to Rs. 99,84,41,000 lacs, ho....
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....nditure is capital in nature and gave enduring benefit to the appellant. 7.1 Without prejudice, that the assessing officer erred on facts and in law in not allowing depreciation @ 25% on the said product development expenditure incurred for the earlier assessment year, i.e. AY 2006-07 to 2011-12, by treating the same as capital in nature. 124. The issue involved in the above grounds stands adjudicated by us above at Issue No.4 in para 13 to 14 of our order above. Accordingly, this ground is allowed for statistical purposes. 8. That the assessing officer erred on facts and in law in levying interest under sections 234B, 234D and 244k of the Act. 125. This ground is consequential in nature and is therefore not being dealt with by us. 126. The assessee has also raised additional ground as under: "1. That on the facts and circumstances of the case and in law. the assessing officer ought to have allowed, in pursuance to law clarified by the Hon'ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Ltd vs JCIT: D.B. 1TA No.52/2018 and Hon'ble Bombay High Court in the case of Sesa Goa Ltd vs JCIT: 117 taxmann.com 96 (Bom HC),....
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....f the DTAA; d. BDSI, Bangalore under Article 5(2)(c) of the DTAA; and e. Dependent agent PE in the form of the appellantunderArticle5(4)of the DTAA. 1.3 That the CIT(A) erred on facts and in law in alternatively holding that the appellant constituted business connection with GSK Bio within the meaning of section 9(1 )(i) of the Act. 1.4 Without prejudice, the CIT(A) erred on facts and in law in determining the profit attributable to the alleged PE in India at 22.5% of the net profits of GSK, Bio, as against 15.38% determined by the appellant on the basis of functions, asset and risk analysis of the appellant vis-a-vis GSK, Bio. 129. The issue involved in the above grounds stands adjudicated by us above at Issue No.3 in para 10 to 11 of our order above. Accordingly, this ground is allowed for statistical purposes. 1 That the CIT(A) erred on facts and in law in sustaining the disallowance of Rs. 39,76,18,333, being 1/3rd of the expenditure on advertisement and promotion of Rs. 11928.55 lacs allegedly on the ground that the said expenditure resulted in promotion of brand name owned by the foreign company. 1.1 That the CIT(A) err....
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....ing the same as capital in nature. 133. The issue involved in the above grounds stands adjudicated by us above at Issue No.4 in para 13 to 14 of our order above. Accordingly, this ground is allowed for statistical purposes. The assessee has also raised additional ground as under: "1. That on the facts and circumstances of the case and in law. the assessing officer ought to have allowed, in pursuance to law clarified by the Hon'ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Ltd vs JCIT: D.B. 1TA No.52/2018 and Hon'ble Bombay High Court in the case of Sesa Goa Ltd vs JCIT: 117 taxmann.com 96 (Bom HC), deduction of Rs. 2,55,04,589, being education cess computed on returned income, paid by the Appellant before the due date of filing return of income for the subject assessment year. 2. That on the facts and circumstances of the case and in law, pursuant to law clarified in the case of Chambal Fertilisers and Chemicals Ltd (supra) and Sesa Goa Ltd (supra), the assessing officer also ought to have allowed further deduction in respect of any additional amount paid by the Appellant towards education cess during the financial year re....
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.... transaction of delay in respect of receivables was closely linked to the 'international transaction' of export and since the profit earned by the assessee as a percentage of cost is higher than the working capital adjusted profit earned by comparable companies, no transfer pricing adjustment was even otherwise required to be made in this regard. 2.5 Without prejudice, that the DRP/ TPO erred on facts and in law in not appreciating that the appellant has received receivables from unrelated parties with similar delay of period and accordingly the delay in receipt of receivables from unrelated parties should be considered as a valid internal CUP for the purpose of benchmarking. 2.6 Without prejudice, that the DRP/ TPO erred on facts and in law in adding an adhoc mark-up of 400 points on the Libor rate of interest, arbitrarily on account of credit rating risk, security risk, transaction cost etc., following the direction of DRP passed in the preceding year. 2.7 Without prejudice, that on the facts and in the circumstances of the case and in law, the DRP/TPO erred on facts and in law in not appreciating that the in terms of Master Circular of 2013-14,....
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....sset and risk analysis of the appellant vis-a-vis GSK, Bio. 139. The issue involved in the above grounds stands adjudicated by us above at Issue No.3 in para 10 to 11 of our order above. Accordingly, this ground is allowed for statistical purposes. 4. That the DRP/ AO erred on facts and in law in sustaining the disallowance of Rs.37,74,87,000, being 1/3rd of the expenditure on advertisement and promotion of Rs. 11324.59 lacs allegedly on the ground that the said expenditure resulted in promotion of brand name owned by the foreign company. 4.1 That the DRP/ AO erred on facts and in law in not appreciating that the appellant is the exclusive licensee authorized to manufacture and sell products under the brand name in India and since the expenditure was incurred in the course of carrying on of its business, it was allowable deduction as business expenditure. 140. The issue involved in the above grounds stands adjudicated by us above at Issue No.2 in para 7 to 8 of our order above. Accordingly, this ground is allowed. 5. That the DRP/ AO erred on facts and in law in sustaining disallowance of market research expenses amounting to Rs.5,42,63,000 (after a....
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....cumstances of the case and in law, pursuant to law clarified in the case of Chambal Fertilisers and Chemicals Ltd (supra) and Sesa Goa Ltd (supra), the assessing officer also ought to have allowed further deduction in respect of any additional amount paid by the Appellant towards education cess during the financial year relevant lo the subject assessment year." 145. The admission & adjudication of the above grounds has been dealt in Issue No.9 at para 38 of our order above The additional ground accordingly is admitted for adjudication and dismissed. 146. In effect appeal of the assessee is partly allowed for statistical purposes. A.Y 2015-16 ITA No.1495/Chd/2019 Assessment Year : 2015-16 (Assessee's Appeal) "1. That the Assessing Officer erred on facts and in law in completing the assessment under section 143(3) read with section 144C of the Income-tax Act ("the Act") at an income of Rs. 404,73,27,530 as against income of Rs.361,50,30,310 returned by the appellant. 147. The above ground being general in nature needs no adjudication. 1.1 That on the facts and circumstances of the case and in law, the impugned order pa....
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....TPO') and sustained by Dispute Resolution Panel ('DRP'). 3.1 That the DRP/ TPO erred on facts and in law in recharacterizing the alleged transaction of delay in receipts of receivables as unsecured loans advanced to the associated enterprises. 3.2 That the DRP/ TPO erred on facts and in law in not appreciating that delay in receipt of receivable is not an 'international transaction', per se, under section 92B of the Act but is a consequence of an 'international transaction' undertaken in the form of services rendered to the associated enterprise. 3.3 That the DRP/ TPO erred on facts and in law in holding that the non-realization of invoice value beyond the period of 60 days is a separate international transaction, whose arm's length price is required to be determined separately. 3.4 Without prejudice, that the DRP/ TPO erred on facts and in law in not accepting that in any case the transaction of delay in respect of receivables was closely linked to the "international transaction' of export and since the profit earned by the appellant as a percentage of cost is higher than the working capital adjusted profit ea....
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....TAA; d. BDSI, Bangalore under Article 5(2)(c) of the DTAA; and e. Dependent agent PE in the form of the appellant under Article 5(4) of the DTAA 4.3 That the DRP/ AO erred on facts and in law in alternatively holding that the appellant constituted business connection with GSK Bio within the meaning of section 9(1 )(i) of the Act. 4.4 Without prejudice, the DRP/ AO erred on facts and in law in determining the profit attributable to the alleged PE in India at 22.5% of the net profits of GSK, Bio, as against 15.38% determined by the appellant on the basis of functions, asset and risk analysis of the appellant vis-a-vis GSK, Bio. 151. The issue involved in the above grounds stands adjudicated by us above at Issue No.3 in para 10 to 11 of our order above. Accordingly, this ground is allowed for statistical purposes. 5. That the DRP/ AO erred on facts and in law in sustaining the disallowance of Rs. 38,09,78,666, being l/3rd of the expenditure on advertisement and promotion of Rs. 11429.36 lacs allegedly on the ground that the said expenditure resulted in promotion of brand name owned by the foreign company. 152. The issue involved in th....