TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 1403
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....d 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 the decision rendered therein. A chart listi....
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....e 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 claim of the assessee. Moreover identical claim of the assessee, we have noted, was allowed by the ITAT i....
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.... 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 market. Benefit if any to the AE was only incidental. And on account of such incidental benefit accruing to a third party it cannot be said that the expense was not wholly and exclusively for the....
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....one 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 has made specific factual and legal submissions countering the findings of the AO/CIT(A), pointing out that the facts are to the contrary that there was no agreement of GSK Biologicals SA with the assessee but in fact it had entered into two agreements with GSK Pharma, an Indian Company, ....
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....e 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 Year ITA No. Ground No. 2007-08 242/Chd/2017 4 to 4.2 2008-09 225/Chd/2017 4 to 4.2 2009-10 226/Chd/2017 4 to 4.1 2010-11 227/Chd/2017 4 to 4.1 2011-12 228/Chd/2017 5 to 5.1 2012-13 344/Chd/2017 7 to 7.1 2013-14 47/Chd/2018 5 to 5.1 2014-15 1500/Chd/2018 7 2015-16 1495/Chd/2019 8 to 8.2 12. ....
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....re 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 in the said case as under : "In this background we may peruse the expenses incurred by the appellant under the head 'Promotional and Trade Marketing expenses'. Such expenditure has been incurred on existing products of the appellant and includes cost of presentation items, gifts, etc. given to the customers on the sale of the product, expenditure on advertisement material etc. The expenditure can be viewed as in actuality discount in kind allowed to th....
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....nts. 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 the expenditure in question is a capital expenditure-The parity of reasoning laid down by the apex court in the case of Empire Jute Co. Ltd. (supra) discussed by us in the earlier paragraph is squarely applicable with respect to such expenditure also. xxxxx xxxxx In conclusion, we hold that having regard to the aforesaid discussion the claim of the appellant for allowability of impugned expenditure as revenue expenditure is justified. We, therefore set aside the order of the CIT(A....
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....el 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 treating them to be capital in nature on account of the fact that they provide enduring benefit, are incurred for launching new products and are not recurring in nature. It is not denied that the assessee is a FMCG company catering to the needs of consumers in the fast moving goods category. As rightly pointed out by the Ld.Counsel for the assessee, the demands in these type of companies are continuously changing and evolving and there is cut throat competition involved in it. Such circumstances, require r....
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....he 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 Accounting Standard!5 issued by ICAI which was to be followed during the year, is an allowable deduction in the hands of the appellant. The said claim being based on the valuation of the actuary is both scientific and one of the recognised method of accounting and quantifying the said post retiremental medical benefits. In such cases though actual and exact quantification may not be possible, however, the liability so recognised by the appellant could not be said to be unascertained and contingent. The appellant having followed the mercantile system of accounting was compulsori....
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.... 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. In the impugned case also, we find, that the assessee had claimed the provision, valued by an actuary, created in terms of the scheme of employment and the Accounting Standard-15 of the ICAI, which facts have not been controverted by the revenue before us. Therefore, the issue, we find, stands squarely covered by the decision of the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd. following which we hold that the provision for post retirement medical benefit is an allowable claim and the disallowance, therefore, made on account of the same is directed to be deleted. T....
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....at 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 cost of services and did so in the year in which the order holding them as not eligible for setoff against output tax, was passed. Till then they merely represented asset by way of service tax credit available on account of the same. In view of the same, we find merit in the claim of the assessee that the write off of cenvat credit recoverable was allowable as revenue expenditure in the year written off and the disallowance so made by the revenue authorities, holding them to be non trading in nature, we hold is not in accordance with law and is directed to be deleted. This issue of claim of CENVAT cred....
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....ientific 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 to be present obligation of the assessee even though it was required to be discharged in future years. The facts regarding the claim itself are not clear and therefore, we are not inclined to agree with the contention of the assessee. However, the alternate claim of the assessee of reducing the said provision reversed in subsequent years from its taxable income is justifiable and the revenue authorities are directed to allow the same in accordance with law. 36. The issue of allowance of provision of market claims is accordingly, adjudicated against the assessee. Issue No.9: Regarding claim of surcharge and education cess ....
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.... 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 CIT(A)'s order and any question of law,facts relating to which are on record,can be raised before the Tribunal for the first time. It was emphasized in the decision that the purpose of assessment proceedings is to correctly assess the tax liability of assessees in accordance with law and to this end the power of the Tribunal cannot be restricted only to decide issues which arise from the CIT(A)'s order. The decision of the Hon'ble apex court on the issue is as under: "The Tribunal has framed as many as five questions while making a reference to us. Since the Tribunal has not examined the additional grounds raised by the assessee on the merits, we do....
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.... 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 to appeals before the Tribunal also. 5. The view that the Tribunal is confined only to issues arising out of the appeal before the CIT(A) takes too narrow a view of the powers of the Tribunal [vide, e.g., CIT vs. Anand Prasad (1981) 128 ITR 388 (Del) : TC 8R.1021, CIT vs. Karamchand Premchand (P) Ltd. (1969) 74 ITR 254 (Guj) : TC 8R.547 and CIT vs. Cellulose Products of India Ltd. (1985) 44 CTR (Guj) 278 (FB) : (1985) 151 ITR 499 (Guj)(FB) : TC 8R.965]. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the ass....
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....re. 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 deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee- (i) ........................... ................................. (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduc....
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....f 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 a special surcharge. The super-tax was, however, to be increased by a surcharge for the purpose of the Union and a special surcharge. It will be noticed that s. 2(2) of the Finance Act, 1964, did not contain mention of any of the surcharges. This led to the controversy which resulted in the reference. 4. Before the High Court the assessee relied on ss. 4 and 5 of the IT Act, 1961, hereinafter called "the Act". These sections provide for charge of income-tax and super-tax. It was pointed out that surcharges was treated in the Finance Acts as a tax different from the income-tax and super-tax and that surcharge was levied by the Finance Act while the income and super-taxes were levied by the Act. Reference was made in this connection to the First Schedu....
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....ct 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 to surcharge were omitted in the Finance Acts of 1946 to 1950. It was reintroduced in the Finance Act of 1951 and the same has been continued in the Finance Acts of subsequent years. Special surcharge came to be levied in the Finance Acts of 1958 to 1964 and 1966 to 1971 and the additional surcharge was levied only by the Finance Act of 1963. 6. In the Finance Act of 1951, s. 2 relating to income-tax and super-tax provided that these taxes would be levied at the rates specified in Parts I and II of the First Schedule increased in each case by a surcharge for the purpose of the Union. The Finance Act of 1952 was a short document and s. 2 thereof simply provided : "The provisions of s. 2 of, and the First Schedule to, the Finance Act, 1951, shall apply in relation to incom....
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....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 provided in cl. (2). Art. 269 deals with taxes levied and collected by the Union but assigned to the States. The provisions of Art. 268 which is the first one under the heading "Distribution of revenue between the Union and the States" relate to duties levied by the Union but collected and appropriated by the States. Thus, these articles deal with the levy, collection and distribution of the proceeds of the taxes and duties mentioned therein between the Union and the States. The legislative power of Parliament to levy taxes and duties is contained in Arts. 245 and 246(1) read with the relevant entries in List I of the Seventh Schedule. 9. As mentioned before, the legislative entry 82 in List I relates to taxes on income other than agricultural income; income-tax, super-tax and surcharge would all fall un....
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.... 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 head "Salaries" according to the provisions of the Finance Act of the preceding year rather than of the current year if the assessee had any income in addition to his income by way of salary. According to the Tribunal this was done because if the income under the head "Salaries" was to be assessed at the rates fixed by the Finance Act enacted for the current year it would entail considerable administrative work in the form of a refund or collection in the final assessment. Since by the Finance Act of 1967, this method or procedure was dropped we do not consider that much significance can be attached to this aspect. 12. In the result we are unable to sustain the view of the High Court. The question that was referred must be answered in the affirmative and in favour of the Revenue. In view of the nature of the point involve....
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....d/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 bench marked the same applying SBI base rate plus 300 basis points, determining thereby the adjustment to the income of the assessee on account of deemed interest on receivables. The assessee objected to the same before the DRP which objection was dismissed holding the treatment of the delayed receipts of payments for receivables to have been rightly treated as international transactions, as defined for the purpose of transfer pricing adjustment to be made as per provisions of the Act, but at the same time directed that for treating the same as international transaction delay beyond 60 days is to be considered and the interest rate to be applied is LIBOR plus 400 basis points. 40. There are primarily two aspects to this issue which has been challenged before us; i) the treatment of the delayed payment of receivables as international transactions as defined u/s 92B of the Act; ii) Det....
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....rn 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 receivables outstanding for recovery of payment beyond a specific period as international transactions. Therefore, the basis of characterizing the receivables as international transactions in the cases before us is clearly is not in accordance with law as interpreted by the Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra). 45. In the facts of the case relating to assessment year 201213 the assessee has pointed out the facts relating to the recovery of the receivables during the year contending, in turn, that there couldn't have been a pattern reflecting in any way of any benefit being passed to the AE on account of outstanding receivables. He has pointed out that the assessee had recovered 99.72% of its receivables within agreed timeline as under: 1) 16 invoices of Rs.28.06 crores have been realized within 30 to 32 days. 2) 18 invoices of Rs.7.5 crores have been realized with 60 to ....
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....cision 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 working capital adjustment would take into account the impact of delayed recovery of debtors as also any account payable mechanism adopted by the assessee to balance the delayed realization. It was, therefore, held that if the operating profit margin of the assessee are higher than the operating profit margin of comparable cases after working capital adjustment, then no adjustment on account of realization of trade receipts is required. 49. Considering the same we restore the issue of treating the accounts receivables as international transactions and bench marking the same for the purpose of adjustment to be made to the income of the assessee, to the TPO to determine the same afresh in accordance with law. 50. Therefore, for assessment years 2014-15 and 2015-16 the issue is restored back to the TPO and is, therefore, allowed for statistical purposes. Issue No.11: Transfer Pricing Adjustment in relation to export of goods raised i....
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....ty 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 apparently been downloaded from MOCA Website or respective company website. It is also seen that in case of Celebrity Biopharma Ltd 99% shares are held by the promoter director and the nature of the business/products cannot be ascertained from the annual report. The company does not own any patent or intangible and hence is a contract, manufacturer at est. The TPO's action of rejecting these comparables and other compatibles which are not in public domain is therefore upheld. In case of Zim Laboratories Ltd the TPO has rejected n the grounds that it is functionally not comparable. It is admitted that the product names are formulations and compositions which are sold to Pharmaceutical companies for final production of drugs and medicines. TPO's action is upheld. 3.5 The assessee has requested for grant of working capital adjustment to the operating margins, which has been denied by the TPO. Having considered the submission of the assessee the TPO is directed to allow working capital adjustment to t....
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.... 400 mg tablets and supplying to WHO on its behalf. Accordingly: the appellant, during the year under consideration, has entered into international transaction of sales of 'Albendazole 400 mg' tablets for Rs. 37,93,49,355 to its group company, namely. GlaxoSmithKline Exports Limited. UK and earned an operating profit of 9.59% over cost. It shall be noted here that there could not be nay motive on the part of the appellant to divert any part of its profit to its foreign associated enterprises, by way of selling goods at a lower price as the associated enterprise is not selling the goods, but donating the same to WHO for a philanthropy cause. It would, therefore, be concluded that there was no transfer of profit by the appellant to the associated enterprises so as to result in an adjustment. Re: Fresh search undertaken by the assesse It is submitted that the appellant, in order to verify the suomoto search undertaken by the TPO, itself undertook a fresh search of comparable companies on the basis of quantitative and qualitative filters applied by the TPO. The search resulted in 22 companies with operating profit margin ranging from 2.30% to 13.49%. S. No Company....
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....r margins in order to predetermined result and rejected the said companies having lower margins. It may be noted that the companies passes all the filters applied by the TPO and functional dissimilarity is not disputed by the TPO. Therefore, the company be considered by the TPO. Elysium Pharmaceuticals Ltd. Strides Pharma Science Ltd. Triochem Products Ltd. Insufficient financial information in the public domain Complete financial information with audited accounts is available on the website of the company itself at (http://www.triochemproducts.com/erro rdocs/notfound.aspx?m=err. Further, the companies passes all the filters applied by the TPO and functional dissimilarity is not disputed by the TPO. Zim Laboratories Ltd. Functionally not comparable to the applicant company. The products manufactured by the said company include granules. pellets (sustained, modified, extended release), taste masked powders, suspensions, tablets, capsules etc. which caters to various therapeutic segments such as cardiovascular, anti-infective, gastrointestinal, respiratory system nervous system, musculoskeletal, hematology system and vitamins. The product name listed above are the name of th....
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....omparables selected by the TPO which includes the following names: 1) Celebrity Biopharma Ltd. 2) Elysium Pharmaceuticals Ltd. 3) Strides Pharma Science Ltd. 4) Triochem Products Ltd. 5) Zim Laboratories Ltd. 57. The DRP, we find, has only discussed and dealt with two comparables i.e. Celebrity Biopharma Ltd. and Zim Laboratories Ltd. while rejecting the entire comparables pointed out by the assessee as above, as having been wrongly excluded by the TPO. Even vis-à-vis the reasons given for rejecting Zim Laboratories Ltd. as being not functionally comparables, the findings of the DRP that the product names are formulation and composition which are sold to pharmaceutical companies for final production of drugs and medicines, we find, has not considered the facts relating to the company as pointed out to us wherein the assessee has mentioned the products manufactured by said company as including tablets, capsules, etc. which cater to various therapeutic segments. How this has been read to mean only formulations and composition sold for final production of drugs, we fail to understand. 58. Since we find the DRP has not applied its mind completely to the contenti....
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....ndia 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 BDS1, 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 TAA; d: BDSl, 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. 2.3 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. 2.4 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 functions, asset and risk analysis of the appellant vis-a-vis GSK, Bio, 61. The issue involved in the above groun....
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....e earlier assessment year, i.e. AY 2006-07, by treating the same as capital in nature. 63. 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 suo-moto disallowing market research expenses amounting to Rs. 1,26,83,000 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, are capital in nature and gave enduring benefit to the appellant. 5.1 That while the CIT(A) has categorically held that the disallowance of the said expense on adhoc basis by the AO is not tenable, he has erred on facts and in law in suo-moto treating the same to be capital in nature without appreciating the fact that the AO has never treated the said expense to be capital in nature. 5.2 That the CIT(A) erred on facts and in law in sustaining the said disallowance on a ground different than raised by the assessing officer without issuing an enhancement notice to the appellant. 5.3 Without prejudice, that the CIT(A) erre....
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....coverable. The AO disallowed the said claim holding them to be not in relation to the business of the assessee, which was allowed by the Ld.CIT(A) holding that they were in the nature of business loss incidental to the business of the assessee and as such covered u/s 37(1) of the Act. 69. The Department has challenged this allowance of claim by the Ld.CIT(A) before us. In this regard the Ld.Counsel for the assessee has pointed out that the issue is covered in favour of the assessee by the direction of the DRP in assessee's own case for assessment year 2006-07. 70. We have gone through the orders of the authorities below and see no reason to interfere in the order of the Ld.CIT(A). The fact that the advances written off relate to outstanding claim of vendors has not been disputed by the Revenue. In the light of this fact, the finding of the Ld.CIT(A) that the irrecoverability of the same tantamounted to trading/business losses to the assessee, we find, is correct. Moreover even the DRP has decided this issue in favour of the assessee in assessment year 2006-07. Therefore, we do not find any merit in the ground raised by the Revenue and dismiss the same. iii) On the facts and cir....
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.... same and the assessee when requested for further time, the same was not given and the assessment order passed. The Ld.CIT(A), we find, has also noted that the assessee couriered these details to the AO but they were still not considered by him. These facts have remained uncontroverted before us. In the light of the above facts, since adequate opportunity had not been given to the assessee to furnish the details and the facts demonstrating that the assessee made every possible effort to file the same during assessment proceedings, the admission of the additional evidences by the Ld.CIT(A), we hold, are in accordance with Rule 46A of the Income Tax Rules,1962, which require admission of the additional evidences by the CIT(A) in the absence of adequate opportunity given during assessment proceedings. In view of the above, we do not find any merit in the ground raised by the Revenue and dismiss the same. 74. In effect appeal of the Revenue is partly allowed for statistical purposes. A.Y 2008-09 ITA No.225/Chd/2017 Assessment Year : 2008-09 (Assessee's Appeal) "1. That the Commissioner of Income-tax (Appeals) ['ClT(A)'] erred on facts and in law in sustaining disal....
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....ny. 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. 76. 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 the disallowance of market research expenses amounting to Rs. 1,86,45,000 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, are capital in nature and gave enduring benefit to the appellant. 3.1 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said market research expenses by treating the same as capital in nature. 3.2 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said market research expenses incurred for the earlie....
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....er above. Accordingly, this ground is allowed 81. 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 year." 82. 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....
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....ting to Rs. 24,16,16,000 made from GlaxoSmithKline Biological S.A. ('GSK, Bio'), Belgium, allegedly holding that the appellant has failed to deduct tax at source from such payment. 1.1 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 supervision and control of GSK Bio and thereby establishing that there is a constant touch between the appellant and GSK Bio for R&D activities 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 ....
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....ve. Accordingly, this ground is allowed in said terms. 4 That the CIT(A) erred on facts and in law in sustaining the disallowance of product development expenses amounting to Rs. 18,07,000 (after allowing depreciation @25% p.a. on expense of Rs, 24,09,000) allegedly holding that the said expenditure is in relation to pre-launch of a product and therefore, capital in nature. 4.1 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, 2007-08 and 200809, by treating the same as capital in nature. 90. 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. 8,88,780 allegedly holding that the these provision are in the nature of contingent liability and thus not subject to deduction under income tax. 5.1 That the CIT(A) erred on facts a....
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.... 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 year." 96. 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. 97. In effect appeal of the assessee is partly allowed for statistical purposes. ITA No.221/Chd/2017 Assessment Year : 2009-10 (Revenue's Appeal) "i) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance from Rs. 24,16,16,000/- to Rs.1,77,16,251/- 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....
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....ies 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 functions, asset and risk analysis of the appellant vis-a-vis....
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....2008-09 and 2009-10, by treating the same as capital in nature. 104. 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 amounting to Rs. 3,34,000 allegedly by holding that the these provision are in the nature of contingent liability and thus not subject to deduction under income tax. 105. 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 disallowance of provision of market claims amounting to Rs. 1,96,24,000 allegedly holding that the appellant has failed to establish with supporting evidence the nature of liability for which provision has been created and claimed. 6.1 Without prejudice, that the CIT(A) erred on facts and in law in not considering that under the mercantile system of accounting deduction of expenditure is allowab....
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....the impugned year. Since the said issue has been restored back to the AO at para 101 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. 110. In effect appeal of the Revenue is allowed for statistical purposes A.Y 2011-12 ITA No.228/Chd/2017 Assessment Year : 2011-12 (Assessee's Appeal) "1. That the Commissioner of Income-tax (Appeals) ['CIT(A)'] erred on facts and in law in sustaining disallowance of Rs. 1,37,82,000 under section 40(a)(i) of the Act, with respect to purchase of vaccine amounting to Rs. 47,32,96,000 made from GlaxoSmithKline Biological S.A. ('GSK, Bio'), Belgium, allegedly holding that the appellant has failed to deduct tax at source from such payment. 1.1 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 supervision and control of GSK Bio and thereby establishing that there is a constant touch between the appellant and GSK Bio for R&D....
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..... 4,57,28,250 (after allowing depreciation @ 25% p.a. on expense of Rs. 6,09,71,000) 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, are capital in nature and gave enduring benefit to the appellant. 3.1 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said market research expenses incurred for the earlier assessment year, i.e. AY 2007-08, 200809, 2009-10 and 2010-11, by treating the same as capital in nature. 113. The issue involved in the above grounds stands adjudicated by us above at Issue No.5 in para 20 to 21 of our order above. Accordingly, this ground is allowed in said terms. 4. 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. 7,40,627 allegedly holding that the these provision are in the nature of contingent liability and thus not subject to deduction under income tax. 114. The issue involved in the above grounds stands adjudicated by us above at Issue No.6 in para 27 of our or....
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....rned income of Rs.1,75,46,21,920. The above ground is general in nature and needs no adjudication 2. That the assessing officer erred on facts and in law in making an adjustment of Rs. 14.819 to the arm's length price of alleged 'international transactions' of accounts receivable undertaken with the associated enterprise, on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer (TPO'). 2.1 That the Dispute Resolution Panel ('DRP') erred on facts and in law in upholding the order of the TPO, wherein, it was held that the alleged delay in receipt of receivables as unsecured loans advance to the associated enterprise which is as an international transaction in terms of section 92B of the Act. 2.2 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 'internal transaction' undertaken in 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....
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....iness in India and under direct supervision and control of GSK, SA. 3.2 That the assessing officer erred on facts and in law in holding that the appellant was responsible for undertaking any clinical trial as well as research and development activities on behalf of GSK, SA, the resultant new/ improved product of which belongs to GSK Biological SA. 3.3 That the assessing officer erred on facts and in law in holding that clinical trial activities constitute permanent establishment of GSK Biological SA in India within the meaning of Article 5 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. 3.....
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.... in nature. 122. The issue involved in the above grounds stands adjudicated by us above at Issue No.5 in para 20 to 21 of our order above. Accordingly, this ground is allowed in said terms. 6. That the assessing officer erred on facts and in law in making addition of Rs. 5,86,661 with respect to provision of medial reimbursement to retired employees allegedly holding that the expenditure was contingent in nature and the amount has not been actually paid thus not allowed as deduction. 123. 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. 7. That the assessing officer erred on facts and in law in disallowing product development expenses amounting to Rs. 2,74,98,750(after allowing depreciation @25%onRs.3,66,65,000i.e.Rs.91,66,250)allegedly holding that the said expenditure 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 th....
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....vision and control of GSK Bio and thereby establishing that there is a constant touch between the appellant and GSK Bio for R&D activities. 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 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 d....
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.... 132. 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. 5. That the CIT(A) erred on facts and in law in sustaining the disallowance of product development expenses amounting to Rs. 5,35,81,500 (after allowing depreciation @ 25% p.a. of expense of Rs. 7,14,42,000) 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 year, i.e. AY 2006-07 to 2012-13, by treating 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 Chamb....
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....ppreciating 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. 2.3 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. 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 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 ....
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....) of the DTAA; and e. Dependent agent PE in the form of the appellant under Article 5(4) of the DTAA. 3.3 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. 3.4 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. 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 licen....
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.... 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 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....
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....istical purposes. 3. That the assessing officer erred on facts and in law in making an adjustment of Rs. 18,98,270 to the arm's length price of alleged 'international transactions' of accounts receivable undertaken with the associated enterprise, on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing officer ('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....
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....takes place including but not limited to GDMCI 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 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 disallowa....