AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2023 (2) TMI 1270
X X X X Extracts X X X X
X X X X Extracts X X X X
....74,57,370/- IV. Disallowance of freebies u/s 37(1) amounting to Rs.70,89,734/-. V. Disallowance under section 14A under computation of book profits under section 115JB. The assessee has also raised an additional ground of appeal, the same reads as under: "Additional I: Order passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 is barred by limitation. 1) On facts and circumstances of the case and in law, the Assessing Officer erred in passing the assessment order after expiry of time prescribed under section 153 of the Act and thus, the assessment order passed is barred by limitation and ought to be quashed. 2) The Appellant humbly prays that the order be quashed." 3. The Revenue in its appeal has assailed the findings of the CIT(A) on following grounds: "1. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition of Rs2.41.02.350/- representing upward adjustments on account of Guarantee Fee income received in relation to guarantee provided on loans to its AE in UK to ALP recommended by the Transfer Pricing Officer (TPO) without appreciating the fact that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents which the assessee did not do so." 7. On the facts and in the circumstance of the case and in law, Ld. CIT(A) erred In deleting addition of Rs.323,96,93,037/- representing provision for marked to market (MTM) unrealised losses for calculation of book profit u/s 115JB" 8. On the facts and in the circumstance of the case and in law, Ld. CIT(A) erred in deleting addition of Rs.99,96,694/- representing provision for gratuity for calculation of book profit u/s 115JB of the Act." 9. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 10. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored." 4. The brief facts of the case as emanating from records are: The assessee is engaged in the business of manufacturing and trading of pharmaceutical FDFs and APIs. Apart from India, the asssessee has its manufacturing facilities in US, UK, France and Ireland. During the period relevant to the assessment year under appeal, the assessee had entered into following international tran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or + 3.75% (8.55) Libor + 2 Morton Grove Pharma, USA $ 20,00,000 24,39,502 Libor + 3.75% (8.45) Libor + 2 6.1 The assessee has charged interest from its subsidiaries using LIBOR/EURIBOR as base rate. The contentions of the assessee before the Assessing Officer (AO) and the TPO was that banks/financial institutions follow the same practice in line with RBI guidelines. The TPO was not convinced with the submissions of the assesse. The TPO observed that the RBI has prescribed prime lending rate on year to year basis and the BPLR for the Financial Year 2008-09 was ranging between 12.5% to 12.75% for an unsecured loan of more than Rs.2,00,000/- . The TPO further observed that in an uncontrolled scenario when an Indian entity is advancing long term unsecured loans to an overseas entity, it has to take into account, the currency risks, entity risks, and sovereign risks. The TPO applied interest rate of 12.5% on the unsecured loans advanced by the assessee to its AE's and thus made upward adjustment of Rs.498,99,490/-. The CIT(A) following the decisions of its predecessor in AY 2008-09 decided the issue in similar terms. In AY 2008-09 CIT(A) had held that if the averag....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... no. 2 of appeal, the assessee has assailed disallowance of weighted deduction u/s 35(2AB) of the Act. The Revenue in ground no. 5 of its appeal has assailed relief granted by the CIT(A) on the issue. 7.1 During the year under consideration, the assessee claimed deduction at the rate of 150% on capital expenditure of Rs.5.37 crores and Revenue expenditure of Rs.176.58 crores of inhouse R & D unit. The assessee had paid consultancy charges on clinical trials to third parties. The AO held that clinical trials and bio studies payments made to out siders would not qualify for weighted deduction at the rate of 150% of such expenditure. The CIT(A) following the decision of its predecessor in A.Y. 2008-09 dismissed this ground of appeal. The learned AR submitted that in AY 2008-09 the Tribunal after placing reliance on the decisions of the Hon'ble Gujrat High Court in the case of CIT Vs. Cadila Pharmaceuticals ltd in Tax Appeal No.39 of 2015 decided on 23/01/2015 and PCIT Vs. Sun Pharmaceuticals Industries ltd. in R/Tax Appeal No.92 of 2020 decided on 25/02/2020 had restored the issue to AO. The AO till date has not passed order giving effect to the Tribunal order, therefore, this issu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed in section 35(2AB) of the Act, only those expenditures which are incurred in the in-house research and development facility are eligible for deduction. In fact, while dealing with identical issue in assessee's own case in the assessment years 2002-03 to 2004-05 in ITA no 2522 to 2524/Mum/2009, dated 13th April 2012, the Tribunal decided the issue against the assessee. However, while deciding the same issue in assessee's own case in assessment year 2007-08, in ITA No.5557/Mum/ 2012, dated 5th January 2018, the Tribunal has restored the issue to the Assessing Officer for fresh adjudication keeping in view various decisions cited by the assessee including the decision of the Hon'ble Gujarat High Court in Cadila Healthcare Ltd (supra). Therefore, following the decision of the Tribunal in assessment year 2007-08, we are inclined to restore the issue to the Assessing Officer for de novo adjudication keeping in view the ratio laid down in the decisions to be cited by the assessee including the decision of the Hon'ble Gujarat High Court in Cadila Healthcare Ltd. (supra). While doing so, the Assessing Officer is also directed to examine the ratio laid down by the Hon'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....In ground no. 4 of appeal, the assessee has assailed expenditure incurred on alleged freebies u/s 37(1) of the Act. The learned AR of the assessee submits that during the period relevant to assessment year under appeal, the assessee has incurred expenditure in the nature of sales promotion expenses, gifts and giveaways amounting to Rs.17,89,734/- and has claimed the same as expenditure allowable u/s 37(1) of the Act. The AO disallowed the aforesaid expenditure by placing reliance on CBDT Circular No. 5/2012 dated 01/08/2012 stating it to be expenditure prohibited by law. The learned AR submits that the 'Indian Medical Counsel' (Professional Conduct, Etiquette and Ethics) Regulations, 2022 (in short "MCI Regulations') were amended in 2009. By way of amendment clause 6.8 was inserted. The said clause prohibited medical practitioners to accept gifts, hospitality, cash or monetary grants etc. from pharmaceutical companies. The said amendment comes into force from publication of notification in the Official Gazette i.e. 14/12/2009. The said amendment is prospective in nature and thus, would have no application to the AY 2009-10. The learned AR asserted that any expenditure incurred by p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o trigger disallowance u/s 37(1) applying Explanation 1 thereto, the question as to whether there is any infraction of law or whether the expenditure is incurred for any purpose which is an offence or which is prohibited by law, has to be first decided/determined by the authority or the court empowered to do so under the respective law and no other person or authority can determine such violation. 10. For example, the income tax authorities under the Income-Act 1961 can 'alone' determine the violations of provisions of the Act, if any, on the part of any assessee and no other authorities/regulators. Similarly, for regulating the functions of Banking companies, it is the RBI who is the regulator, for securities compliance, it is the SEBI who is the regulator, for Insurance companies, it is the IRDA who is the regulator, for foreign exchange related aspects, it is the RBI who is the regulator. So on and so forth. If this is not so, then there was no need for these regulators, the penal provisions under the respective law etc. and the powers of such regulators would be just redundant." 9.2 Without prejudice to the primary submissions, the learned AR advanced an alt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of assessee from 01/04/2009 to 13/12/2009 and rejected the claim of assessee from 14/12/2009 (i.e. from the date of publication of amendment in Official Gazette) to 31/03/2010. Against the said findings of CIT(A), the assessee in ITA No. 1153/Madras/2014 and the Revenue in ITA No. 1343/Madras/2014 carried the issue in appeal before the Tribunal. The Tribunal after considering the decision of Hon'ble Himachal Pradesh High Court in the case of Confederation of India Pharmaceutical Industry (SSI) Vs. CBDT reported as 353 ITR 288 (HP) upheld the findings of CIT(A) and dismissed both the appeals vide order dated 29/01/2018. The assessee carried the issue further in appeal before the Hon'ble Madras high Court in Tax Case Appeal No. 723 of 2018. The Hon'ble High Court dismissed the appeal of assessee vide judgment dated 18/03/2019. The assessee further agitated the issue before Hon'ble Supreme Court of India. The Hon'ble Apex Court affirming the decision of High Court inter alia held: - CBDT Circular 5/2012 dated 01/08/2012 is clarificatory in nature, and effective from the date of implementation of Regulation 6.8 of the 2002 Regulations, i.e. from 14/12/2009. &....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 143(3) r.w.s. 144C of the Act. As per the assessee, the assessment order suffers from limitation. The learned AR fairly stated that this ground for the impugned AY has been decided against the assessee by the Tribunal vide separate order dated 11/10/2022. 11.1 The Co-ordinate Bench vide separate order dated 11/10/2022 has dismissed additional ground of appeal. The operative part of the same is reproduced for the sake of completeness: "9)..............Therefore, so far as choice between a division bench decision of a non-jurisdictional High Court and a single judge bench of a non-jurisdictional High Court is concerned, it is clear that a simple objective criterion of choice will require the division bench decision to be preferred over the single judge bench decision. Therefore, even though the decision of the Hon'ble Madras High Court, in Vedanta Ltd's case (supra), cannot be said to per incuriam, for the simple reason that a Hon'ble High Court judgment does not constitute a binding precedent for any other Hon'ble High Court other than the Hon'ble High rendering such a judgment, the judgment of Hon'ble Andhra Pradesh High Court in the case of Zu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntee commission from its AEs at 0.75%. We find no infirmity in the findings of CIT(A) on this issue. Hence, the findings of CIT(A) on this issue are upheld, ground no.1 of appeal by the Revenue is dismissed. 14. In ground no. 3 of appeal, the Revenue has assailed deleting notional interest on infusion of additional funds. The learned AR of the assessee submits that the relief was granted to the assessee by the CIT(A) in preceding assessment year. The CIT(A) has only allowed consequential relief in the impugned assessment year. The Revenue has not disputed the fact that the relief is already granted to the assessee in earlier assessment year i.e. AY 2008-09 and it is only the consequent relief that has been allowed to the assesssee in the assessment year under appeal. Thus, in facts of the case, the ground no. 3 raised in appeal by Revenue is dismissed. 15. In ground no. 4 of appeal, the Revenue has assailed allocation of R & D expenses for the purpose of section 80IB and 80IC of the Act to the qualifying units. We find that similar issue had come up before the Tribunal in assessee's own case in AY 2008-09 (supra). The Tribunal decided the issue in favour of the assessee by ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wing the decisions of Co-ordinate Bench for the preceding assessment year, ground no. 4 of appeal is dismissed for parity of reasons. 16. In ground no. 6 of appeal, the Revenue has assailed deleing of addition made u/s 40 (a)(i) of the Act amounting to Rs.13,90,04,355/-, in respect of payments made to non-residents on account of pilot bio-study, clinical research. The learned AR pointed that this issue is decided by the Tribunal in assessee's own case in Departments Appeal ITA No.5378/MUM/2013 for AY 2008-09 decided on 09/03/2020. 16.1 We find that the issue raised in appeal by the Revenue is perennial. The Tribunal decided the issue in AY 2005-06 in ITA No.7383/MUM/2010 vide order dated 14/03/2012 and AY 2006-07 in ITA No.1875/MUM/2011 vide order dated 12/06/2019. In AY 2008-09, the Tribunal following the decisions rendered in AY 2006-07 held as under: "26. We have considered the submissions of the parties and perused the order of the tax authorities below. During the assessment the assessing officer noted that the assessee claimed expenses of Rs. 6,94,82,607/- on payment to non- resident on account of bio study, clinical research without deducting tax at source. Th....