TaxTMI 
TaxTMI 
2022 (8) TMI 1443
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....d in the circumstances of the case and in law, the order passed by the Learned Commissioner of Income-tax (Appeals) [the 'Ld. CIT(A)'] erroneously affirming the findings of the learned Assessing Officer [the 'Ld. AO'] is unsustainable and ought to be quashed. 2. Re: Addition on account of Corporate Guarantee provided to Associated Enterprises Sun Pharmaceutical Bangladesh Ltd. - Rs 9,95,440/-. 2.1 The learned CIT(A) has grossly erred in upholding the additions of Assessing Officer/ TPO who failed to appreciate the fact the Corporate Guarantee provided on behalf of Associated Enterprises is not an international transaction. 2.2 The learned CIT(A) has grossly erred in not appreciating that the Appellant had extended the guarantee to promote its own interest and had not incurred any additional cost for the same. 2.3 Without prejudice to the above, the learned CIT(A) has grossly erred in upholding the addition made by the Assessing Officer/ TPO for benchmarking the Guarantee fees to be charged by the Appellant from its Associated Enterprise (AE). 2.4 Without prejudice to the above, the learned CIT(A) grossly erred in upholdin....
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....t appreciating that the same is neither included in the Profit and Loss Account for the year nor covered under Explanation 1 to section 115JB(2). The action of the Ld. CIT(A) / Ld. AO is in gross contradiction to the law laid down by the Hon'ble Supreme Court in case of Apollo Tyres Ltd. vs. CIT [255 ITR 273 (2002)]. 3.5 Without Prejudice to the above, the said remuneration of Rs. 67,25,69,731/- from SPS has been duly accounted and considered in determining book profits for AY 2012-13 and has already been subjected to addition in that year and hence, no addition in this regard ought to be made in the current year. 4. Disallowance of expenditure incurred on repairs treating them as capital expenditure - Rs. 35.13.250/-: 4.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in holding expenditure aggregating to Rs. 35,13,250/- to be capital in nature despite the same been incurred for meeting routine commercial necessities like maintaining operational efficacies, asset replacements in the ordinary course of business, without giving rise to any benefit in the capital field, indicating that the expenditure was reve....
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.... the same is dismissed being infructuous. 5. The next issue raised by the assessee in ground no. 2 of its appeal is that the learned CIT(A) erred in confirming the upward adjustment of Rs. 9,95,440/- under the provisions of Transfer Pricing on account of Corporate guarantee given to the AE. 6. The AO/TPO in the assessment proceeding found that that the assessee has provided Corporate Guarantee to its AE namely Sun Pharmaceutical Bangladesh Ltd to the extent of Rs. 1.84 crores without charging any guarantee fees. The TPO/AO treating the same as an international transaction made upward adjustment of Rs. 9,95,440/- by applying guarantee fee @ 5.41%. 6.1 On appeal, the learned CIT (A) found that the assessee is in appeal before Hon'ble Jurisdictional High court on the same issue in Income Tax Appeal No. 567 of 2016 and the outcome of the same is pending. Thus, the learned CIT (A) disposed of the issue by holding the upward adjustment on account of guarantee fee will stand confirmed or deleted subject to the order of the Hon'ble High court. 7. Being aggrieved by the order of the learned CIT(A) both the assessee and Revenue are in appeal before us. The relevant ground of appe....
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.... international transaction amounting to Rs. 2,32,62,603/- as corporate guarantee not amounting to international transactions and not liable for upward adjustment ?" 31. A perusal of the above clearly shows that the rejection of the request for the constitution of larger bench was never challenged before the Hon'ble High Court. We, therefore, do not find any reason why this issue has been raised once again before us when the same has not been challenged before the Hon'ble High Court. Moreover, when a superior court is seized with a substantial question of law on this very issue, it would be improper for an inferior court to constitute a special bench to decide the same issue. 32.Considering the issue in totality in the light of the admission of the appeal before the Hon'ble High Court of Gujarat, in all fairness, in our considered view and understanding of the law, we restore this issue to the files of the A.O. with a direction that the same must be considered afresh after the decision from the Hon'ble Jurisdictional High Court of Gujarat and after giving a fresh opportunity of being heard to the assessee. Ground no. 5 is treated as allowed for statistical purpose ....
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....r assuring the payment of Associate Enterprise. In the light of the above decisions, the Tribunal committed an error in deleting the additions made against Corporate and Bank Guarantee and the order passed by the DRP is to be restored. [Para 76] 10.3 Thus in view of the above, we hold that the bank/corporate guarantee is an international transaction. Therefore, the same has to be bench marked for determining the ALP. Thus the issue involved on hand is no longer covered as alleged by the learned AR for the assessee in view of the judgment of Hon'ble Madras High Court as discussed above. 10.4 The next aspects arises to determine the benchmarking for working out the ALP of the impugned international transaction. The TPO/AO in the case on hand has worked out the ALP at 5.41% and basis of the same has already been elaborated in TPO order. In this regard, we find that the Hon'ble Bombay High Court in case of CIT vs. Everest Kento Cylinders Ltd reported in 58 taxmann.com 254 held that while determining the ALP the rate charged by the bank or financial institution cannot be taken as comparable. The relevant finding of the Hon'ble Court reads as under: In the present....
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....against 2% fixed by TPO the Tribunal upheld the claim of the assessee at 0.53% following the decision in Prolifics Corpn. Ltd. v. Dy. CIT [2015] 68 SOT 104 (URO)/55 taxmann.com 226 (HYD - Trib.). (vi) Everest Kanto Cylinder Ltd. (supra) - Assessee paid guarantee commission at rate of 0.5 per cent for obtaining guarantee. This was accepted as ALP for all corporate guarantees given by the assessee. (vii) Godrej Consumer Products Ltd. v. Asstt. CIT [2016] 69 taxmann.com 436 (Mumbai - Trib.)- The assessee suo motu benchmarked the commission chargeable on bank guarantee @ 0.25%. It was determined at 0.50%. 10.6 Thus, in view of the above discussion and latest development, we are also of the opinion that the extension of corporate/guarantee to AEs is an international transaction and needs to be benchmark and in view of several order of the tribunal as referred above 0.5% of commission on the value of corporate/ bank guarantee will serve the justice to both the assessee and the Revenue. However in the case on hand, we have set aside the issue to the file of the AO for fresh adjudication in light of consistent view taken by the Tribunal in own case of the assessee for ....
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....ction 40(b)(i) of the Act. Thus, receipt which is not taxable hands of the assessee cannot be made subject to tax under the provisions of MAT while collecting the profit while calculating the profit under section 115 JB of the Act. Thus it was prayed by the learned AR that the order of this Tribunal in the own case of the assessee in the earlier years cannot be followed in the year under consideration by virtue of the development as discussed above. 15. On the other hand, the learned DR vehemently supported the order of the authorities below. 16. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue on hand is covered against the assessee by the order of this Tribunal vide order dated 0809-2017 in the own case of the assessee for AY 2008-09 bearing ITA No. 3297/Ahd/2014. The relevant finding of the coordinate bench reads as under: 110. We have considered the facts, circumstances, relevant provisions and rival submissions,. A harmonious reading of the provisions of section 115JB of the Act reflects that in the case of a company subject to the provisions of Section 115JB of the Act h....
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....ioned elsewhere, Section 115JB is a complete code in itself. Therefore, if the remuneration is credited by the appellant company in its Profit and Loss account then the same could be reduced it specifically provided under the Explanation to Section 115JB of the Act which we find missing from the relevant provisions. We, therefore, do not find any merit in this claim of the assessee and accordingly we confirm the findings of the First Appellate Authority. Ground no. 9 is dismissed. 16.1 However, at the time of hearing, it was brought to the our notice that the Hon'ble Calcutta High Court in the case of Ankit Metal & Power Ltd. (supra) has held that the items of receipt which are not income under the provision of section 2(24) of the Act cannot be made subject to tax under the provisions of MAT while calculating the profit under section 115 JB of the Act. The relevant extract of the judgment is reproduced as under: "27. In this case since we have already held that in relevant assessment year 2010-11 the incentives 'Interest subsidy' and 'Power subsidy' is a 'capital receipt' and does not fall within the definition of 'Income' under Section ....
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....o not find any reason to uphold the finding of the learned CIT -A. Accordingly we reverse the same and direct the AO to delete the addition made by him. Thus, the ground of appeal raised by the assessee is hereby allowed. 17. The next issue raised by the assessee in ground No. 4 is that the learned CIT(A) erred in confirming the order of the AO by treating the repairs and maintenance expenses amounting to Rs. 35,13,250/- as capital in nature. 18. During the assessment proceeding, the AO on examination of repair and maintenance expenses found that the amount claimed by the assessee includes certain amount aggregating to Rs. 35,29,755/- which are in nature of capital expenditure. On question, the assessee submitted that these expenses include amount towards installation charges, purchase of stores and consumables, purchase of glass-lined agitator, tablet filling attachment, PLC system with control panel and air sampler. The assessee made detailed submission with regard to each item but sum and substance of the same are that all these item are replacement of worm out item as normal wear and tear expenses incurred in the normal course of business and individually, these items do ....
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.... allowed as revenue expenditure. The Assessing Officer is directed accordingly. b) GMM Pfaudler Ltd, of Rs. 5,77,500/-: Scrutiny of Invoice No. 2735 dated 24.06.2010 reveals that the appellant has purchased a Glasslined Agitator in Panoli Unit. Since agitator is capable of independently functioning as a separate machine, the expenditure is treated as capital in nature. The action of Assessing Officer on this account is confirmed. c) GMM Pfaudler Ltd, of Rs. 3,30,000/-: Scrutiny of Invoice No. 2711 dated 03.06.2010 reveals that appellant has purchased a Glasslined Agitator in Nagar Unit. Since agitator is capable of independently functioning as a separate machine, the expenditure is treated as capital in nature. The action of Assessing Officer on this account is confirmed. d) ACG Pam Pharma Tech Pvt. Ltd, of Rs. 16,95,000/-: Scrutiny of Invoice dated 27.02.2011 reveals that the appellant has purchased a capsule filling machinery which is capable of independently functioning as a machine. Hence the expenditure on this account has to be treated as capital expenditure and accordingly the action of Assessing Officer is confirmed. ....
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....nate bench, we hereby dismiss the ground of appeal of the assessee 24. The next issue raised by the assessee in ground No. 5 is that the learned CIT-A erred in confirming the order of the AO by treating the purchases of Rs. 51,712/- as bogus in nature. 25. The AO during the assessment proceedings found that the assessee has claimed certain expenses by way of purchase of the material from the parties based in Mumbai, the VAT registration of which were cancelled by the Maharashtra VAT Department. Thus the AO treated the same as bogus in nature and added to the total income of the assessee. 26. Aggrieved assessee preferred an appeal to the learned CIT-A, who also confirmed the order of the AO by observing as under: "25.2. I have carefully considered the facts on records and submission of the Ld. Authorized Representative. Undisputedly, the appellant has not established genuineness of the parties from whom purchases are claimed to have been made by furnishing their confirmation or by producing them before the Assessing Officer. The transportation of goods from the seller to the business premises of the appellant, has also not been proved by Delivery challan or G....
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....re the authorities below. This fact has nowhere been doubted by the revenue. It is also significant note that considering the large volume of the business of the assessee, it is unexpected that the assessee having such high scale of business will indulge in such kind of practices for the purchase of 51,712./- only. In view of the above and after considering the facts in totality, we are not inclined to uphold the finding of the authorities below. Thus we set aside the order of the learned CIT (A) and direct the AO to delete the addition made by him. Hence, the ground of appeal raised by the assessee is hereby allowed. 31. The next issue raised by the assessee in ground No. 6 of its appeal is that the learned CIT(A) erred in confirming the disallowance of business promotion expense of Rs. 4,75,64,950/- incurred in connection with doctors. 32. The assessee during the year claimed selling & distributing expenses of Rs. 196,66,18,209/- only. The AO on the verification found that selling and distribution expenses includes gift and freebies to the doctor for an amount aggregating to Rs. 6,64,27,499/- detailed as under: Sr. No. Nature of Expenses Amount 1 SAS - ACCOMM....
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....enefit. Similarly, the business promotion expenses are in the nature of various equipments gifted to the medical professionals. However, the conference fees and sponsorship expenses were for the purposes of conference and seminars held in India and abroad for sharing knowledge and obtaining feedback in order to develop into product and research and development. Under the identical facts, this issue has been decided by the CIT(A) in the case of Sun Pharmaceutical Industries Ltd., A.Y. I 2012-13 vide order dated 23.02.2017 contained in Appeal No. CAB/(A)-2/351/16-17 relevant portion of which is reproduced as under:- "23.2. I have careful considered the facts on record and submission of the Ld. Authorized Representative. Admittedly, the appellant has incurred expenditure of Rs. 8,41,89,667/- as detailed above on gifts and reimbursement of lodging and boarding and conference expenses incurred by the Doctors/medical practitioners. As is evident from the written submission, the business promotion expenses of Rs. 7,27,99,029/- are pertaining to the equipment provided to various medical practitioners as gifts. Claim of indirect business gain as a result of gifts provided to the me....
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....herance of business objections of upgrading the medical knowledge. Similarly, conference fees and sponsorship has been also stated to be reimbursement of fees for conference and seminars held in India and abroad. It has further been claimed that conference and seminars were organized to gain the knowledge by the medical practitioner which is, then shared with the appellant for improving the product quality and Research and Development. From the submission of appellant itself, it is crystal clear that the reimbursement of accommodation expenses have directly benefited the medical practitioner and Doctor and hence the same is in the nature of gift hit by Circular No. 5/2012 and amended guidelines of Medical Council of India. Accordingly, I hold that accommodation expenses at Rs.28,91,444/- are also deserves to be disallowed being freebies. The conference fees and sponsorship expenses since were incurred for sharing the knowledge in the medical field which may help in improving the product and Research and Development activity of appellant, in my considered view, it is not hit by the Circular No. 5/2012 and amended MCI Guidelines, Further they appears to be in the nature of remunerati....
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....ent for medical treatment against the public policy. Accordingly, it was held that if demanding of such commission was bad, then paying of it was also equally bad and hence both were privies to a wrong. Therefore, payment of commission to private doctors was held as not allowable expenditure. ii) CIT Vs. Pt. Vishwanath Sharma (2009) 316 ITR 419 (All.). In this case, commission paid to the Government doctors was held to be illegal gratification/bribe and hence the expenditure thereon was treated to be not allowable u/s. 37. 27.2.3 In view of the above factual and legal position, disallowance of accommodation and business promotion expenses is confirmed and balance is directed to be deleted. Thus, Ground No. 24 is partly allowed." 34. Being aggrieved by the order of the learned CIT (A), both the assessee and Revenue are in appeal before us. The assessee is in appeal against confirmation of disallowance of Rs. 4,75,64,950/- whereas the Revenue is in appeal against deletion of disallowance of Rs. 1,88,62549/- being conference & sponsorship fee and miscellaneous expenses. The relevant ground of appeal of the Revenue in ITA No. 1519/Ahd/2018 reads as under: ....
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....he impugned expenses. Hence, the ground of appeal raised by the assessee for the year under consideration is hereby by dismissed. 38. The assessee vide letter dated 26-10-2020 filed additional ground of appeal which reads as under: "1. The Appellant is a listed company engaged in the business of manufacturing, trading and marketing of pharmaceuticals products. The assessment for A.Y. 2011-12 was completed after making additions and disallowances on various items by the Deputy Commissioner of Income tax, Circle - 2(1)(1), Vadodara ('Ld. AO') vide its order dated 16.04.2015 passed under section 143(3) r. w. s. 92C r. w. s. 144C(3) of the Income-tax Act, 1961 ('the Act') in its capacity as jurisdictional Assessing Officer of the Appellant Company. Aggrieved by the order, the Appellant has preferred an appeal before Commissioner of Incometax (Appeals) [CIT(A)]. The Hon'ble CIT(A) has also decided the appeal vide its order dated 28.03.2018. In response thereto, the Appellant has preferred the captioned appeal before the Hon'ble Income-tax Appellate Tribunal (Tribunal1) vide ITA no. 1462/Ahd/2018. 2. During the year under consideration, the Ap....
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....e is an amendment under the provisions of section 40(a)(ii) of the Act wherein an explanation has been inserted with retrospective effect i.e. assessment year 2005-06. The amendment reads under: [Explanation 3.-For the removal of doubts, it is hereby clarified that for the purposes of this sub-clause, the term "tax" shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax;] 39.1 As per the above amendment, there remains no ambiguity to the fact that the assessee cannot claim the deduction of the cess by treating the same as revenue expenditure. Thus, we do not find any merit in the additional ground of appeal raised by the assessee. Hence, the additional ground of appeal raised by the assessee is hereby dismissed. 40. In the result, the appeal of the assessee is hereby partly allowed for statistical purposes. 41. Coming to ITA NO. 1519/Ahd/2018 an appeal by the Revenue for A.Y. 2011-12 42. The Revenue has raised the following grounds of appeal: "1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee and in not confirming the a....
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....arges were incurred by the assessee outside India and therefore, could not be considered for the purpose of allowance of weighted deduction u/s 35(2AB). 8. On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in allowing weighted deduction u/s 35(2AB) on expenses relating to building repairs and municipal taxes without appreciating the facts and reasons mentioned by the AO in the assessment order. 9. On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in allowing weighted deduction u/s 35(2AB) on lunch and refreshment and brokerage expenses without appreciating the facts and reasons mentioned by the AO in the assessment order. 10.1 On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting the disallowance u/s 37(1) in respect of selling and distribution expenses as they pertained to Sun Pharmaceutical Industries and Sun Pharma Sikkim, without appreciating the facts and reasons mentioned by the AO in the assessment order, and without appreciating that the assessee had failed to demonstrate that the expenditure was wholly and exclusively for the purpose of business in t....
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....e facts and reasons mentioned by the AO in the assessment order. 15. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs. 73,45,33,442/- towards recharacterization of 'remuneration' received from partnership firms Sun Pharmaceuticals Industries (SPI) and Sun Pharma Sikkim (SPS) as consideration for use of trademarks, brands, etc. without appreciating the facts and reasons mentioned by the AO in the assessment order, and without appreciating that the amount received from SPI and SPS as "exempted partnership profit" actually represents royalty from the partnership firm. 16. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition towards foreign exchange gain without appreciating the facts and reasons mentioned by the AO in the assessment order. 17. On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting the disallowance in respect of conference fees and sponsorship under the head gift and freebies to doctors without appreciating the facts and reasons mentioned by the AO in the assessment order, and without appreciating the ....
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....sessee against which assessee was in appeal before ITAT in ITA No. 3297/Ahd/2014 where the Hon'ble ITAT decided the issue in favour of the assessee. Thus, the learned CIT (A) following the order of the ITAT in own case of the assessee for A.Y. 2008-09 allowed the appeal of the assessee. 47. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal before us. 48. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order. 49. On the other hand, the learned AR before us submitted that identical upward adjustment was also made in A.Y. 2008-09, 2009-10 where the matter travelled up-to ITAT in ITA No. 3297/Ahd/20154 and ITA No. 1663 & 1666/Ahd/2016 respectively. The ITAT in all these appeal allowed the issue in favour of the assesse. 50. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue on hand is covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for AY 2008-09 bearing ITA No. 3297/Ahd/2014. The relevant finding of the coordinate bench reads as under: ....
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..... In the present case, allotment of shares does not make any change to the position of the assessee, as the subsidiary' is admittedly a wholly owned subsidiary of the assessee. A delay in allotment of shares by the subsidiary company, as long as the subsidiary is a wholly owned subsidiary, does not prejudice the interests of the assessee. It is, therefore, wrong to even allege that an assessee does not behave in a commercially rationale manner, as expected in an arm's length situation, when the assessee does not ask for payment of interest for the period of delay in allotment of shares. We have noted that the TPO's stand that since the assessee was not issued shares during the period, the assessee did not derive any benefit from this investment and, for this reason, the arm's length price adjustment has been made for notional interest for the money which should be assessee's reward for the investment. What the TPO and DRP have overlooked is that since the assessee was only shareholder of the subsidiary company, the fruits of this investment belong to the assesse only and in entirety. On giving this money to the subsidiary and on use of this money by the subsidia....
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....es not make a difference to the position of the shareholder so far as the subsidiary is wholly owned by a single shareholder- as is the factual position in this case. The nominal value of shares, as long as all the shares are held by the assessee is entirely benefit neutral from a commercial point of view. The very foundation of the adjustment made by the Assessing Officer is, therefore, wholly devoid of legally sustainable merits and factually correct assumptions. 15. Considering the facts in totality, we set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition of Rs. 6,56,60,828/-. Ground no. 2 is allowed. 50.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we uphold th....
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....t in the case of Sahara India Real Estate Corporation Ltd. in Civil Appeal No. 9813 of 2011. It is contended that the Hon'ble Supreme Court has explained the nature of OFCDs and have held that OFCDs are hybrid securities which remained in the nature of debentures till they are converted into equity, after which they take form of equity. Counsel further pointed out that in the earlier assessment years, the Bench has drawn support from the decision in the case of Cadila Healthcare in ITA No. 2430/Ahd/2012 without appreciating the fact that in that case, the assessee has produced comparable data to show that independent parties had entered into agreements with similar terms (benefits) and not charged any interest thereon whereas in the case in hand, the assessee has not produced comparable data to justify that OFCDs were issued at arm's length price. It is strongly contended that since these facts have not been brought on record, therefore, the Bench should not follow its earlier decision. 20. Shri Soparkar ld. senior counsel replying to the submissions of revenue stated that the decision of the Hon'ble Supreme Court in the case of Sahara India Real Estate (Civil Applicat....
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....t in the earlier year, the bench has not considered certain facts while relying upon the decision of the Co-ordinate Bench in the case of Cadila Healthcare. 23. The Hon'ble High Court in the case of A.P.V. Kokkiliagada Meerayya, Masud Khan has laid down the following : 28. There can be no dispute with respect to the settled legal proposition that a judgment of this Court is binding, particularly, when the same is that of a coordinate Bench, or of a larger Bench. It is also correct to state that, even if a particular issue has not been agitated earlier, or a particular argument was advanced, but was not considered, the said judgment does not lose its binding effect, provided that the point with reference to which an argument is subsequently advanced, has actually been decided. The decision therefore would not lose its authority, "merely because it was badly argued, inadequately considered or fallaciously reasoned". The case must be considered taking note of the ratio decidendi of the same i.e. the general reasons, or the genera! grounds upon which the decision of the court is based, or on the test or abstract, of the specific peculiarities of the particular case, w....
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....consider similar issue in the case of Cadila Healthcare Ltd. in ITA No. 2430/Ahd/12 with C.O. No. 242/Ahd/12 in 146 ITR 502 wherein the first ground related to the adjustment made on account of notional interest on Optionally Convertible Debenture to Foreign Subsidiary. The Tribunal considered the following facts:- 4. During the course of assessment proceedings, Assessing Officer noticed that Assessee had subscribed to Optionally Convertible Loan of U.S. $ 27 Million issued by Zydus International Pvt. Ltd., Ireland. Accordingly reference under Section 92CA of the Act for computing of arms length price in relation to the transaction was made to Transfer Pricing Officer (TPO). TPO noted that the Assessee had entered into an agreement with Zydus International Pvt. Ltd. on 09.10.2007 for a convertible loan of U.S $ 27 Million which was subsequently utilized by the Ireland Company for acquiring shares in Zydus Healthcare, Brazil. As per the terms of agreement, no interest was payable if the amount was converted into equity. However, if the same is redeemed, interest was payable at Libor Plus 290 bps and the interest was to be computed at annual rates and payable at maturity tha....
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....ringing any contrary material on record. In view of these facts, we find no reason to interfere with the order of CIT(A). 11. Respectfully following the findings of the Hon'ble High court (supra) and the Co-ordinate Bench (supra), we direct the A.O to delete the impugned additions. Ground no. 2 is accordingly allowed. 26. Thus, the distinguishing facts as canvassed by the Shri Shrivastava do not culminate in to any proposition so as to convince us to take any divergence from earlier findings and the judicial discipline also guides us to follow the decision of the Coordinate Bench in the light of the ratio laid down by the Hon'ble Supreme Court and the Hon'ble Jurisdictional High Court of Gujarat (supra) and considering the fact that the OFCD were on beneficial terms as per facts mentioned above. Consequently, we have no hesitation to follow earlier judgment in assessee's own case as a result we delete the impugned additions. Ground No. 3 of assessee is allowed 57.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authori....
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....ppropriate method to determine ALP because assessee was not just manufacturer of the product. The AO/TPO further found that learned CIT(A) for AY 2008-09 while upholding the Profit Split Method taken the profit sharing ratio at 80:20 between assessee and AE. Accordingly the AO made upward adjustment of Rs. 88,67,09,657/- only by adding to the total income of the assessee. 62. On appeal by the assessee, the learned CIT(A) found that addition made in the year under consideration is identical to the addition made in the AY 2008-09 in own case of the assessee against which assessee was in appeal before ITAT in ITA No. 3297/Ahd/2014 where the Hon'ble ITAT decided the issue in favour of the assessee by holding the assessee as contract manufacturer only. Thus the learned CIT (A) following the order of the ITAT in own case of the assessee for A.Y. 2008-09 allowed the appeal of the assessee. 63. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal before us. 64. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order. 65. On the other hand the learned AR before us and submitted that i....
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....rements thereof, manufactured. Processed and/or packed by SPIL only and does not preclude SPGI from making similar or alternative arrangements with one or more other parties at its sole discretion. 2.1 SPIL agrees to sell and supply the product to SPGI at prices as agreed to between the parties. SUN will dispatch consignment of the PRODUCT within 45 (forty-five) days of acceptance by SUN of purchase order from SPGI or within such other time as may be mutually agreed upon. SPGI shall not be entitled to cancel any order placed by it and accepted by SPIL unless other wise agreed upon by the parties. 2.2 SPGI agrees to provide a forecast on agreed format to SPIL so as to facilitated SPIL to carry out production planning of the Products for sale and supply as per terms of this Agreement. 2.3 SPGI will be required to make payments in US Dollars against supplies of the PRODUCT within 75 days of the receipt of goods for the invoices raised by SPIL in this regard or within such other time as may be mutually agreed upon in this regard. 2.4 At the request of SPGI, SPIL shall supply the product ordered by SPGI by such carrier or carriers as SPGI may designat....
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....agreement by SPIL does not and will not violate any provision of applicable law or of any regulation, order decree of any court, arbitration or/.governmental authority or any other agreement to which SPIL Is a party, SPIL hereby indemnifies SPGI from any consequences whatsoever of any failure or lapses, or gross neglect or damage etc. on its part on account of legal liabilities or otherwise. SPGI hereby also undertakes to indemnify SPIL wherever found appropriate, on account of any failure or lapses, or neglect or damage etc. on its part on account of legal liabilities or otherwise arising out of non meeting its all legal obligation in respect of any matter whatsoever. 4.4 Quality control. If mutually agreed in writing, SPIL may conduct itself quality control tests pursuant to specifications, policies and/or procedures provided by SPGI in writing No production batch shall be released for sale unless it conforms to the SPGI specifications, practices and stipulations referred to in Section 4.1. SPGI will facilitate SPIL in curing deficiencies, to the extent acceptable to SPGI, of lots or batches of Product not meeting with SPGI specifications, practices or stipulations. ....
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....wever, that SPIL's obligation of indemnification shall not extend to any loss, claim, damage or expense or liability, resulting from SPGI's gross negligence or misconduct. Notwithstanding anything to the contrary in this Agreement, in no event shall SPIL be liable to SPGI for any incidental indirect, exemplary, special or consequential damages whatsoever (including but not limited to, lost profits, loss of goodwill, any patent/trademark infringement or interruption of business) that may be suffered or incurred by SPGI as a result of SPIL's violation of this representation. Notwithstanding anything to the contrary in this Agreement, it is agreed that SPIL's liability for indemnification under this Agreement will be limited for the Product containing manufacturing defect or the Product fist conforming to the product specifications communicated by SPGI to SPIL under this Agreement. 7.1.6 SPIL Shall not claim any right, title, or interest to the Products, product names and the rights attached with them under any of the trademarks, or patent laws, SPIL shall not manufacture and/or sell for sale in the market of United States of America and in Europe during the term ....
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....re transferred to other persons or bodies or where the subsidiary's executive directors' decisionmaking has become fully subordinate to the holding company with the consequence that the subsidiary's executive directors are no more than puppets then the turning point in respect of the subsidiary's place of residence comes about. Whether a transaction is used principally as a colourable device for the distribution of earnings, profits and gains, is determined by a review of all the facts and circumstances surrounding the transaction. (v) Holding structures are recognized in corporate as well as tax laws. Special purpose vehicles and holding companies have a place in legal structures in India, be it in company law, the takeover code under the Securities and Exchange Board of India or even under the income-tax law. When it comes to taxation of a holding structure, at the threshold, the burden is on the Revenue to allege and establish abuse, in the sense of tax avoidance in the creation and/or use of such structures. In the application of a judicial anti-avoidance rule, the Revenue may invoke the "substance over form" principle or "piercing the corporate veil" t....
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....smoothly in a competitive world . Moreover no person would arrange its affairs in such a manner which would culminate into huge losses to the extent of USD 506 millions as was suffered by the assessee group in this transaction. 83. Having established that the ownership of IPR/ANDA rights of Pantoprazole Sodium was with SPG BVI, now let us examine the applicability of the most appropriate method for determining the arm's length price. 84. OFCD guidelines for profits spilt method (PSM) states as under:- C. Transactional profit split method C.1 In general 2.108 The transactional profit split method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction (or in controlled transactions that are appropriate to aggregate under the principles of paragraphs 3.93.12) by determining the division of profits that independent enterprises would have expected to realise from engaging in the transaction or transactions. The transactional profit split method first identifies the profits to be split for the associated enterprises from the controlled transactions in which the associated enterprises are enga....
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....intangible property. The profit is to be divided such as is expected in a joint venture relationship. 6.3.13.2. The Profit Split Method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction (or in controlled transactions that it is appropriate to aggregate) by determining the division of profits that independent enterprises would have expected to realize from engaging in the transaction or transactions. 86. A perusal of the aforementioned guidelines shows that PSM can offer a solution for highly integrated operations for which a one sided method would not be appropriate. PSM may also found to be the most appropriate method in cases where both parties to a transaction make unique and valuable contributions to the transaction. Considering the functions performed by the appellant company to SPG BVI, it is clear that SPIL has performed only one simple function and that is manufacturing of Pantoprazole Tablets. Except for this, there is no significant unique contribution by SPIL. For such simple functions as per OECD guidelines for transaction profit spilt method typically would not be appropriate of the functional a....
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....eturns achieved for similar types of transactions by independent enterprises, and thereafter, the residual net profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution in the manner specified under sub-clauses (ii) and (iii), and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual net profit apportioned to that enterprise on the basis of its relative contribution shall be taken to be the net profit arising to that enterprise from the international transaction -[or the specified domestic transaction]; (e) Transactional net margin method, by which,- (i) the net profit margin realized by the enterprise from an international transaction [or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transact....
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....idence is exhibited at pages 569 and 570 of the paper book, and as mentioned elsewhere, clearly establishes the ownership of ANDA with Sun Pharma Global. For the sake of completeness, it would not be out of place to mention that the print out of these documents were taken from the Website on 28.09.2011 and 27.09.2011 and the order of the First Appellate Authority is 14.10.2014 and yet the FAA has observed that the assessee did not furnish ANDA related documents filed by SPG. SPG may not have done any filing related to Pantoprazole Sodium patent to US FDA but the fact of the matter and which have been demonstrated successfully by the appellant company is that the IPR/ANDA rights became the property of SPG BVI by virtue of the agreement for sale between SPARC and SPG. 91. Adverting to assessee's alternate and without prejudice contention that even if PSM is held to be the most appropriate method for a moment than also the same has to be considered in the light of the sequence of events starting from the manufacturing and sales of the drug Pantoprazole and ending with the out of court settlement and the payment of settlement compensation of USD 506 million. The settlement is ....
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....where, the IPR/ANDA rights were very much with SPG BVI who entered into an agreement with the appellant company for the manufacturing of the said drug. The application of Transactional Net Margin Method is the most appropriate method in such sale transaction and has been benchmarked by the assessee by showing it to be higher than the margin earned from the sales made to Eli Lily. 94. Considering the facts in totality in the light of the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. (supra) and on conspectus understanding of the facts as discussed elsewhere, we do not find any merit in the findings of the First Appellate Authority in accepting the application of PSM as the MAM , in our understanding of the facts TNMM is the MAM on the given facts and the same is accepted as such. We set aside the findings of the ld. CIT(A) and direct to delete the addition of Rs. 612,03,39,468/-. Ground no. 5 of the assesse is allowed. 66.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Be....
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.... Rs. 8,92,819/- and Rs. 19,500/- by holding these expenses were either incurred outside the approved facility or having no relation with R&D activity. 68. On appeal by the assessee, the learned CIT(A) found that addition made in the year under consideration is identical to the addition made in the AY 200809 in the own case of the assessee against which assessee was in appeal before ITAT in ITA No. 3297/Ahd/2014 where the Hon'ble ITAT decided the issue in favour of the assessee and same was also followed in A.Y. 2009-10. Thus the learned CIT (A) following the order of the ITAT in own case of the assessee for A.Y. 2008-09 and 2009-10 allowed the appeal of the assessee. 69. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal before us. 70. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order. 71. On the other hand, the learned AR before us submitted that identical disallowance was also made in AY 2008-09 and 2009-10 and the matter travelled up-to the ITAT in ITA No. 3297/Ahd/20154 and ITA No. 1663 & 1666/Ahd/2016 respectively. The ITAT in all these appeals allowed the issue ....
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.... favour of the revenue. 14. We have given a thoughtful consideration to the order of the Tribunal in earlier years; we find that the Tribunal while deciding the issue in favour of the assessee has followed the decision of the Co-ordinate Bench, Mumbai in the case of USV Ltd. 54 SOT 615. Findings of the Tribunal read as under:- 24. We have carefully perused the orders of the authorities below. We find that the ld. CIT(A) has simply followed the findings of his predecessor for A.Y. 2000-01. We also find that the assessment order for A.Y. 2000-01 has been quashed by the Tribunal vide a ITA Nos. 1199 & 1279/Ahd/2006, which means that the basis for upholding the disallowance has been removed. We further find that on identical set of facts, the Mumbai Bench in the case of USV Ltd. (supra) has allowed the claim of the assessee in respect of expenditure incurred in respect of patent application. Respectfully, following the findings of the coordinate Bench (supra), we direct the A.O to delete the disallowance of Rs. 44,71,906/-. Ground no. 10 is accordingly allowed. 15. Respectfully following the detailed findings given, we direct the A.O to allow the impugned wei....
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....cal Industries (SPI) and Sun Pharma Sikkim (SPS) for 97.5% of share of profit. The assessee is looking after the marketing of product on behalf of firm, providing advice on technical matter and product stability and position to firms for which assessee was entitled to withdraw 5% of net profit earned by the firm in form of partner remuneration. 74.1 Based on the above the AO was of the view that assessee is incurring marketing, distribution and other technical expenses on behalf of the firm and against which receiving remuneration which is exempt in its hand. Therefore, such expenses incurred by the assessee on behalf of firm needs to be disallowed. Accordingly, the AO disallowed the selling and distributing expenses along with salary & allowances of filed staff in proportion of turnover of the firms which has resulted an addition of Rs. 286,63,09,571/- to the total income of the assessee. 75. On appeal by the assessee, the learned CIT (A) found that addition made in the year under consideration is identical to the addition made in the AY 2008-09 in the own case of the assessee against which assessee was in appeal before ITAT in ITA No. 3297/Ahd/2014 where the Hon'ble ITAT de....
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....ver, the A.O noticed that the partnership firm has not debited this remuneration paid to the assessee by taking recourse to the provisions of section 40(b) wherein remuneration is allowed to a working partner who is an individual. 89. The A.O further noticed that though the remuneration was not offered for taxation by the assessee but it has debited the expenditure incurred on behalf of the partnership firm in its books of account. The A.O was of the firm belief that these expenditures are not related to the earning of income and accordingly disallowed - (a) selling and distribution expenses 25,68,21,928/- salary and allowance to field staff 24,12,98,724/- totaling to Rs. 49,81,20,652/. The A.O proceeded by disallowing Rs. 8,49,79,383/- based on the ratio of the total turnover of the assessee and the partnership firm SPI. 90. Aggrieved by this, the assessee carried the matter before the ld. CIT(A). Ld. CIT(A) has considered this grievance at para 26 vide ground no. 25 before him. After considering the facts and the submissions, the ld. CIT(A) was of the opinion that the assessee already had an existing sales and distribution network in the form of C & F agent, etc....
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....s account. However, the assessee company using its network has incurred certain expenditure which according to the revenue authorities are not directly related to earning of income. In our understanding of the law an expenditure is allowable if it is incurred for the purposes of the business of the assessee and not for the purposes of earning profit. As per the agreement between the assessee company and the partnership firm, the assessee had assisted the partnership firm in carrying on its business by using its network for marketing the pharmaceuticals products successively. Thus, it cannot be said that the expenditure incurred by the assessee are not for the purposes of its business. Since the assessee is holding 95% in the partnership firm it becomes the duty of the assessee to promote the business of the partnership firm, in the capacity of the majority stake holder. Incidentally, the revenue authorities have not brought anything on record which could suggest that the expenditures have not been incurred for the purposes of business. Be it assessee's business or the business of the partnership firm where the assessee is a majority stake holder. Therefore, in our considered opinio....
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.... income tax rule. 83. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal before us. 84. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order. 85. On the other hand, the learned AR before us submitted that identical disallowance was also made in AY 2008-09 and 2009-10 and the matter travelled up-to the ITAT in ITA No. 3297/Ahd/20154 and ITA No. 1663 & 1666/Ahd/2016 respectively. The ITAT in all these appeals allowed the issue in favour of the assesse. 86. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue of disallowances under section 14A read with rule 8D of income tax rule is covered partly in favour of the assessee by order of this tribunal in the own case of the assessee for A.Y. 2007-08 bearing ITA No. 2076 & 2067/Ahd/2013 and the same was also followed in subsequent years. The relevant finding of the coordinate bench reads as under: 52. Coming to the disallowance made u/s. 14A by the First Appellate Authority, it is an undisputed fact that the assessee was having suff....
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....h rule 8D of the Income-tax Rules, 1962." 86.4 The ratio laid down by the Hon'ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act. 86.5 However, it is also clear that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- "We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by ....
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....mely Sun Pharmaceutical Industries (SPI) and Sun Pharma Sikkim (SPS) in ratio 97.5% and drawing huge exempted profit. The AO also found that both the firm are eligible for exemption under section 80IC/80IB of the Act but both the firm has not debited R&D expenses. Therefore, the AO was of the view that the entire R&D activity was carried out by the assessee for both firm and proposed to allocate the R&D expenses in the ratio of turnover to the assessee and firm. The proposition of allocation of R&D expenses was opposed by the assessee at length. However the AO disregarded the contention of the assessee and made disallowances of Rs. 87,56,00,900/- on account of allocation of R&D expenses being revenue in nature and further an amount of Rs. 15,63,71,515/- being capital expenditure to the Firm SPI and SPS after giving detailed reasoning. 89. On appeal by the assessee, the learned CIT(A) found that the addition made in the year under consideration is identical to the addition made in the AY 2009-10 in the own case of the assessee against which assessee was in appeal before ITAT in ITA No. 1666 & 1663/Ahd/2014, where the Hon'ble ITAT decided the issue in favour of the assessee. Thus,....
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....o not find any merit in the disallowance made by the A.O. and confirmed by the First Appellate Authority. We, accordingly, direct the A.O. to delete the addition of Rs. 5,30,29,5255/-. Ground no. 12 is accordingly allowed. 93.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we uphold the finding of the learned CIT(A). Thus, the ground of appeal raised by the Revenue is hereby dismissed. 94. The next issue raised by the Revenue vide ground no. 15 of its appeal is that the learned CIT(A) erred in deleting the addition of Rs. 73,45,33,442/- made on account of re-characterization of remuneration received from the firm. 95. The AO found that the assessee has permitted the partnership namely SPI and SPS to....
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.... SPI as per the partnership deed read with supplementary partnership deed. It is also an undisputed fact that the said partnership deed read with supplementary deed has not been treated as sham or unlawful deeds. The First Appellate Authority emphasized on the entire transaction as a device of tax evasion. The partnership firm SPI has claimed Rs. 40.12 crores as remuneration to the assessee company but at the same time, it did not claim the same as deduction as it was not paid to a whole time partner as provided in the Act. It is true that the appellant company has also not offered the same for taxation taking a shelter behind the provisions of Section 28(v) of the Act. No doubt, the profits of the partnership firm are exempt u/s. 80IB(4) of the Act. Even, if the partnership firm had not charged Rs. 40.12 crores as remuneration to the appellant company, the profits of the firm would have increased by this amount. Since the assessee is holding 97.5% share in the profits of the partnership firm, this amount of 40.12 crores would have otherwise come to the assessee in the firm of share of profit which again is exempt from taxation u/s. 10(2A) of the Act. Therefore, in our considered o....
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....lowed the appeal of the assessee. 104. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal before us. 105. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order. 106. On the other hand, the learned AR before us submitted that the identical addition was also made in AY 2009-10 which was deleted the ITAT in ITA No. 1663 & 1666/Ahd/2016 and thus the issue was allowed in favour of the assesse. 107. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue on hand is covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for AY the 2007-08 bearing ITA No. 2076 & 2067/Ahd/2013. The relevant finding of the coordinate bench reads as under: 61. In our considered opinion profits accrued to the assessee is not in the course of any trading activity but on account of appreciation on account of hedging in forex even if the same has been held for investment purposes. Therefore, such gains have to be treated as capital receipt. For this proposition, we draw ....
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.... 35(2AB) of the Act on account of Revenue R&D expenditure of Rs. 13548.51 lakh and on account of capital expenditure of Rs. 2303.34 lakh. However, the DSIR approved the Revenue expenses of Rs. 11973.91/- only and capital expenses of Rs. 2278/- lakh only. The assessee submitted that as per the order of the jurisdiction High court of Gujarat in case of Claris Lifescience Ltd (326 ITR 251) where it was held that entire expenditure incurred in connection with the approved in-house facility of R&D will be eligible for weighted deduction under section 35(2AB) of the Act irrespective of expenses approved by the DSIR in form 3CL. 111.1 The AO disagreed with the contention of the assessee and held that from the plain reading of the provisions of section 35(2AB) of the Act it is clear that the assessee will be eligible for weighted deduction on the amount of expenditure approved by the prescribed authority i.e. DSIR. Further, the Hon'ble Gujarat High Court in case of Claris Life-science Ltd (326 ITR 251) have only held that the entire expenditure incurred on R&D will be available for weighted deduction. As such the Hon'ble High Court nowhere held that deduction is available for the amount....
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....h Research & Development activity having already obtained Form 3CM approval of its facility has no role to play in such correspondence. We notice that a co-ordinate bench of this tribunal in ACIT v. Torrent Pharmaceuticals [IT Appeal No. 3569/AHD/2004, dated 13.11.2009] holds that the impugned weighteddeduction is not to be restricted to the extent of the amount of the necessary expenditure incurred stated in such Form 3CL. We further find that hon'ble jurisdictional High court's decision in CIT v. Claris Lifesciences Ltd. [2010] 326 ITR 251/[2008] 174 Taxman 113 (Guj.) upholds this tribunal's decision in the very assessee's case observing that expenses incurred before Form 3CM approval cannot be denied for the purpose of Section35(2AB) weighteddeduction. We follow the very reasoning to opine that facts of the instant case rather go a step further wherein the appellant has only claimed those expenses which relate to the time period as approved in the Form 3CM. We accordingly hold that the assessee is very much entitled for claiming the above capital and revenue expenses incurred on in house research and development amounting to Rs. 237,77,05,310/-. 116.1 The abov....
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....e to one another: 1. On the facts and in the circumstances of the case and in law, the order passed by the Learned Commissioner of Income-tax (Appeals) [the 'Ld. CIT(A)'] erroneously affirming the findings of the learned Assessing Officer [the 'Ld. AO'] is unsustainable and ought to be quashed. 2. Re: Addition on account of Product Development Services given to AE - Rs. 99,88,000/-: 2.1. The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who rejected benchmarking carried out by Appellant and considered Cost Plus Method ("CPM") as most appropriate method inspite of there being direct comparable consideration methodology for Product Development rendered by the other JV partner Merck to MSD Sun FZ LLC (JV) on same terms as 10% markup on cost. 2.2. The Ld. CIT(A) has grossly erred in considering that the services rendered by SPIL to MSD Sun FZ LLC and Taro are similar in nature. 2.3. The Ld. CIT(A) has grossly erred in not appreciating that it would be difficult for one of the JV partner to influence complete control as the other JV partner will perform a balancing act and bring it to a reasonable commercial ba....
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....out appreciating that remuneration received from partnership firm is nothing but appropriation of profits. 3.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the entire mechanism of computing book profits is based on normal commercial profits having regard to the relevant accounting framework prescribed in Companies Act and thus, remuneration is eligible to be deducted for computing book profits as per clause (ii) to Explanation to section 115JB (2) read with Chapter III of the Income-tax Act, 1961 ('Act'). 3.3 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have appreciated that the income not chargeable to tax by virtue of section 28(v) under normal provisions of the Act cannot be brought to tax by virtue of Minimum Alternate Tax ('MAT') provisions. 5. Disallowance of expenditure incurred on repairs treating them as capital expenditure - Rs. 45,77,088/-: 5.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in holding expenditure aggregating to Rs. 45,77,088/- to be capital in nature despite the ....
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....pany has provided Product Development Services to MSD Sun FZ LLC, a JV between Sun Pharma Group and Merck Group, and received a payment of Rs.3103,71 lakhs. In its transfer pricing study, the appellant has stated that the payment for service charge has been received following Cost Plus Method with 10% markup. In the same TP report, it has been also mentioned that the appellant has also carried out Pilot Pivotal Study for TARO USA and benchmarked the transaction under TNMM with an average margin of comparables at 14.56%. Since the transaction and nature of work was similar in both the transactions being contact research, the TPO was of the view that the same margin should have been marked up in the transaction with MSD. Accordingly, the TPO held that the correct margin in the comparables submitted by the appellant for benchmarking of transaction with TARO USA is 13.54%, which was wrongly mentioned in show cause notice at 14.56%. Accordingly, the TPO has worked out the cost of transaction with MSD at Rs.2821.55 crores and then marked up ALP at 13.54% resulting into addition of Rs.99,88,000/-. From the discussion by the TPO, it is crystal clear that although he has adopted benchmark m....
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....dopted as comparable to benchmark the transaction. The learned AR in support of his contention has drawn our attention about the different services rendered to Taro USA and to the jointventure which are placed on pages 362 to 364 of the paper book. 125.2 The learned AR further contended that the assessee has adopted cost plus method for determining the ALP which has been substituted by the AO/TPO to TNMM without assigning any reason. 126. On the other hand, the learned DR vehemently supported the order of the authorities below. 127. We have heard the rival contentions and perused the materials available on record. The assessee along with the other party has made JV as detailed in the preceding paragraph. Both the assessee and other party of the jointventure are rendering services relating to the development of the project at the cost +10% markup. The issue arises in the present case whether the markup charged by the assessee is at the arm length price. Before we dwell upon the issue arising from the order of the authorities below, we note that the assessee has carried out the identical transaction with its associated enterprise as discussed above in the immediate preceding....
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....articulars Units Rs. Lacs Rate ALP Rate ALP Rs. Lacs 1 Ankleshwar BD 6690018 468.00 7.00 3.36 224. 7S 2 Holol 20562045 1438.33 7.00 3.36 690.99 3 Panoli BD-CPP 1(125) 2230545 156.38 7.01 3.36 74.956 4 Panoli BD-CPP 2 (131) 6252618 445.76 7.13 3.36 210.09 Grand Total 2508.77 1200.70 ADJUSTMENT 1308.07 48. Thus the transactions of sale of electricity by CPP to manufacturing units are revised down by Rs. 13,08,07,000. Being an inter Unit captive sale the Total Income of the assessee company is not impacted. However the AO should take into account this revision in the computation of losses of CPP in AY 2013-14 and on computation of deduction in the years ahead. 130. Aggrieved assessee preferred an appeal to the learned CIT (A) who also confirmed the order of the AO/TPO by observing as under: "8.2. I have carefully considered the facts on records and submission of the Ld. Authorized Representative, I find that the appellant has benchmarked the transaction of power supply by CPP at Rs.7.00 to 7.1....
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....er and CIT (Appeals) while adopting Rs. 4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that Rs. 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs. 4.17 per unit which was the cost of electricity generation and Rs. 0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of Rs. 4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term "Market Value" is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. T....
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....of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the assessee is hereby allowed. 137. The next issue raised by the assessee in ground no. 5 of its appeal is that the learned CIT(A) erred in confirming the disallowances of repair and maintenance expenses by treating the same as capital expenditure. 138. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the assessee in ITA No. 1462/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITA No. 1462/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 23 to 23.1 of this order against the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds....
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.... to be disallowed and not cess. The said position is also upheld by decisions of Hon'ble Rajasthan High Court in case of Chambal Fertilisers and Chemicals Limited vs. JCIT (D.B. Income Tax Appeal No. 52/2018) (Dated 31-07-2018) as well as recent decision of the Hon'ble Bombay High Court in the case of Sesa Goa Ltd. v. JCIT [2020] 117 taxmann.com 96. Accordingly, the Appellant seeks to raise additional ground for claiming deduction of cess paid in computing total income of the Appellant. 4. In order to claim its rightful entitlement, the Appellant feels the urge to raise an additional ground before the Hon'ble Tribunal. The Appellant seeks to raise additional ground in view of the Hon'ble Supreme Court's decision in case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) and the decision of Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. v. CIT [1993] 66 Taxman 27 (Bombay)." 140. The assessee in the additional ground of appeal has claimed the deduction of the cess paid on the income tax on the reasoning that same is revenue expenditure. However, we note that there is an amendment under the provisions of secti....
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....stration charges without appreciating the facts and reasons mentioned by the AO in the assessment order. 5.2 On the facts and circumstances of the case and in law, CIT(A) erred in directing the A.O. to allow weighted deduction u/s. 35(2AB) of the Act on trade mark registration charges and overseas product registration charges without appreciating that the trade mark registration charges and overseas product registration charges were incurred by the assessee outside India and therefore, could not be considered for the purpose of allowance of weighted deduction u/s 35(2AB). 6. On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in allowing weighted deduction u/s 35(2AB) on expenses relating to building repairs and municipal taxes without appreciating the facts and reasons mentioned by the AO in the assessment order. 7. On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in allowing weighted deduction u/s 35(2AB) on lunch and refreshment and brokerage expenses without appreciating the facts and reasons mentioned by the AO in the assessment order. 8. On the facts and circumstances of the case an....
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....ential relief without appreciating the facts and reasons mentioned by the AO in the assessment order, and without appreciating that weighted deduction u/s. 35(2AB) is not allowable in excess of what has been approved by D.S.I.R. 13.2 That on the facts and circumstances of the case and in law the CIT(A) erred in directing the A.O. to verify the expenses not certified by D.S.I.R. and to allow consequential relief by relying on a decision of the Hon'ble Gujarat High Court, without appreciating that this decision pertained to disallowance of weighted deduction u/s. 35(2AB) due to non-certification of expenditure on scientific research by the DSIR, whereas in the present case, the DSIR has specifically excluded the excess expenditure as per norms. 14. The appellant craves leave to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal." 144. The issue raised by the Revenue in ground no. 1 of its appeal is general in nature and not requiring separate adjudication. Hence the same is dismissed being infructuous. 145. The next issue raised by the Revenue in ground no. 2 of its appeal is that the learned CIT (A) erred in....
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....l of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 72 to 72.2 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the Revenue is hereby dismissed. 151. The next issue raised by the Revenue in ground Nos. 8 and 9 are that the learned CIT(A) erred in deleting the disallowances made under section 14A and further addition under 115JB of the Act. 152. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the A.Y. 2013-14 are identical to the issues raised by the Revenue in ITA No. 1519/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITA No. 1519/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 86 to 86.7 of this order partly in favour of the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall ....