TaxTMI 
TaxTMI 
2018 (1) TMI 1730
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....57/Mum/2012: 2. First Ground of appeal is about deleting the addition of Rs. 2.17 crores made by the AO, on account of guarantee fee income. During the assessment proceedings the AO found that the assessee had entered into International Transactions (ITs.) with its Associated Enterprises (AE) for the year under consideration. He made a reference to the Transfer Pricing Officer (TPO) to determine the Arm's length Price (ALP) of the IT.s. During the TP proceedings, the TPO found that the AE of the assessee, namely CP Pharma (CPP), had acquired loans from HSBC, Bank, UK of 14 million pounds (GBP), that the assessee had guaranteed payment of HSBC bank for agreed guarantee fee charged of 0.75% of the loan amount to its AE, that the assessee had adopted CUP method for bench-marking the guarantee fee, that it was claimed that fee at the rate of 0.75% was at arm's-length, that the assessee had claimed that it had obtained quotation from HSBC Mumbai, for guarantee fee charged. The TPO asked the assessee to show cause, vide order sheet entry dt. 09/10/2010, as to why adjustment to the rates of guarantee fee should not be made in pursuance of the order of the earlier assessment ....
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...., that the calculation made by the TPO was more comprehensive. The Authorised representative (AR) had stated that assessee had charged GC @ 0.75%, that the TPO had considered to general rate card, that GC was not an IT, that amendment to sec. 92(2) was prospective in nature and was not applicable to the yr under consideration, that GC should be restricted to 0.75%. He referred to the case of Everest Kento Cylinder Ltd. (378 ITR 57); Marico Industries Ltd. (70 taxmann.com 214), Rushabh Diamonds (178 TTJ 425) and M/s. Asian Paints (India) Ltd. (243 taxmann 348). 2.3 We have heard the rival submissions and perused the material before us. We find that during the year under consideration the assessee had received guarantee fee of Rs. 1.22 crores from CPP in lieu of financial guarantee given by it for a loan taken by AE in UK, that it obtained quotation from HSBC, India for providing financial guarantee for the loan availed by the AE, that the HSBC Bank, Mumbai provided quotation of 0.75% as guarantee fee, that the assessee had adopted comparable uncontrolled price as the most appropriate method to benchmark the ALP of its IT, that the quotation from HSBC, Mumbai was considered as val....
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....should not be charged on the fund invested in the shares. After considering the submission of assessee, the AO held that apparent was not real, that the design and device of any planning had to be judged on the reality aspect of the assessee, that no document in respect of the decision and assessment of future profitability was filed, that assessee wanted to provide financial support to its AE without any financial consideration, that assessee had not earned any profit, that it had sold shares at lesser value, that loss had occurred to Wockhardt Ltd., that the whole transaction was a colourable device used by the assessee to support WEL, that the foreign entity required funds for establishing its business in Europe. Finally, the TPO held that the transaction in question was a loan transaction in the garb of share investment, that the amount in respect of bought back shares was remitted to 10th July, that the number of days involved was 101, that the rate of interest had to be applied at 5.07 per annum from Espharma - Germany. The same rate of in the took as benchmark in view of geographical location. Accordingly he calculated rate of interest as under:- After receiving the order....
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....to the date of remittance, that the assessee had furnished the report of the professionals i.e. Cas. who had valued the shares in dispute, that the TPO had not stated that as to what were the defects in the calculation of the professionals in valuing the shares Purchasing the share @ 1 pound per share and selling at @ 0.8 pound per share cannot be the basis for presuming that the transaction was not a genuine transaction-especially when the valuation was as per the exchange regulations. Buying back of share at par or at higher or lower rate than the purchase price is one of the very common practice of the business world. Until and unless it is proved that such a transaction was not based on scientific basis or was against the provisions of exchange manual/regulation, it should be accepted. We find that the FAA has given a categorical finding that the TPO had not doubted the valuation. In these circumstances, we hold that there was no justification for the TPO to charge notional interest. As the order of the FAA does not suffer from any legal or factual infirmity, so, confirming the same, we decide ground No. 2 against the AO. 4. Ground No. 3 deals with allocation of R & D exp....
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....een claimed. Similarly, the interest which was paid was claimed in the Head Office A/c. as the interests borrowed by the assessee were borrowed by the Head Office for running its overall business units. Therefore, allocation of some part of interest again is not justified as assessee has taken into account the interest amount on account of Head Office. Nothing has been brought on record that borrowed funds by the Head Office were transferred to the units on which the deduction U/s. 80IB has been claimed by the assessee. The onus lay upon the Assessing Officer to discharge it by bringing some positive evidence to establish that some part of the expenditure on account of R & D and on account of interest has been incurred on these units because Assessing Officer, who is alleging that some part of expenditure incurred on R & D and interest are related to the units on which deduction U/s. 80IB has been claimed. This onus has not been discharged, therefore, allocation of the proportionate expenses at the end of the Assessing Officer, in our considered view were not justified. The CIT(A) was also not justified in confirming the action of the Assessing Officer. In case of Ponds India Ltd.,....
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.... also legally time-barred. Whether the debt has become bad or not is a decision which the businessman has to take keeping in mind all the relevant facts. Since the assess was not able to recover the debt till the year of account and there were no prospects of recover, the assessee was justified in writing it off as bad debt. Neither the Assessing Officer nor the CIT(A) has brought any material on record to show that there was still some hope for recovery of the amount. The bad debt is directed to be allowed". The ratio of both of these decisions of the tribunal are surely applicable on the facts of the present case. Therefore, in view of the ratio of these decisions and in view of the facts and circumstances discussed by us above, we hold that the CIT (A) was not justified in confirming the action of the Assessing officer in regard to allocation of expenses on account of R & D and interest for the purpose of computing deduction U/s. 80IB. Accordingly, we set aside the order of lower authorities on this issue and the Assessing Officer is directed to re-compute the deduction accordingly". Respectfully following the same we uphold the order of the CIT (A) on the issu....
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....ourt in the case Cadilla Healthcare (214 taxmann 672). He relied upon the cases of Cadilla (67 SOT 110); Cadilla (56 SOT 89); Tejas Network Ltd. (60 taxmann.com 309); Mastek Ltd. (210 Taxman 432) and Electronics Corporation of India Ltd. (140 ITD 221). 5.3 We have heard the rival submissions and perused the material available before us. We are of the opinion that matter needs further verification. Therefore, we are remitting back the issue to the file of AO for deciding the issue afresh. He is directed to afford reasonable opportunity of hearing to the assessee and after considering the case laws relied upon by the assessee before us. Ground No. 4 is partly allowed. 6. Fifth Ground also deals with disallowance of weighted deduction u/s. 35(2AB) of the Act on the ground that Form 3CL was not submitted by the assessee. The AO had denied the deduction, claimed by assessee u/s. 35(2AB) of the Act, as the approval of appropriate authority i.e. DSIR was not submitted by the assessee. It was stated that assessee had made the application to the prescribe authority in time. 6.1 It was brought to our notice that other appeal filed by the AO is about the same issue. Therefore, we wou....
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....educted at source on this payment. In the case on hand, the assessee paid charges for testing at laboratories of CRO which used their own skills and equipments etc., to prepare the report. The Tribunal came to conclusion that there is no parting of skills or know-how by CRO and hence the service is not technical in nature, but was only a commercial service. Consisting with the view taken therein, we up-hold the finding of the first appellate authority and dismissed this ground of revenue. In the result the appeal of the revenue is allowed in part." Respectfully following the above, we decide the last Ground of appeal against the AO. ITA/4156/Mum/2012: 8. As stated earlier (Paragraph-6.1), the AO had rejected the application filed by the assessee u/s. 154 of the Act. The assessee had filed return of income, claiming deduction u/s. 35(2AB) @ 150% of the capital expenditure of Rs. 22.50 crores and revenue-expenditure of Rs. 175 crores for in-house R & D units. As per the provisions of section 35(2AB) in-house R & D facility has to be approved by the prescribed authority i.e. govt. of India Ministry of Science and Technology, DSIR. At the time of assessment the assessee had no....
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....FAA and relied upon the cases of Sun Pharmaceuticals Ltd. (85 taxmann.com 80); Shrikar Hotels Pvt. Ltd. (79 taxmann.com 63); Famy Care Ltd. (67 SOT 85); Ferment Biotech Ltd. (64 SOT 246) and Sri Biotech laboratories India Ltd. (69 taxmann. com 361) 8.3 We have heard the rival submissions. We find that DSRI had not issued the Form 3CL in time, that the assessee could not file the same before the AO during the assessment proceedings, that the Form was submitted before the AO after DSRI issued the same, that AO himself had mentioned in the order deduction would be allowable on production of Form 3CL. In these circumstances, we are of the opinion that he was not justified in rejecting the application filed by assessee u/s. 154 of the Act. We would like to reproduce the relevant portion of the order of the Tribunal in case of Famy Care Ltd. (supra) and it reads as under: "2.1. We have considered the rival submissions and perused the material available on record. ......... During the year under consideration, the assessee claimed research and development expenditure u/s. 35(2AB) of the Act, relating to its in-house division, amounting to Rs. 16,41,80,309/-. The assessee claim....
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....er the relevant provision of section 35(2AB) of the Act for ready reference. XXXXX 3. If the aforesaid section is analyzed then the deduction shall be allowed of a sum equal to two times of the expenditure so incurred and the prescribed authority is to submit its report of such approval/facility to the Director General on a prescribed form within specified time, meaning thereby, the authority concerned has to submit the report to the Director General. However, if the totality of facts are analyzed, as mentioned earlier, the assessee made application for such approval on 11/12/2007 with the prescribed authority and such approval was granted on 04/03/2009, therefore, the assessee cannot be denied the claimed deduction u/s. 35(2AB) of the Act merely on the ground that the prescribed authority did not submit form No. 3CL in time to the Income-tax Department. The assessee cannot be penalized for the fault, if any, of the Department. The Assessing Officer cannot be expected to be too technical rather is to take practical approach under the facts narrated hereinabove, because, it was beyond the control of the assessee to direct the authority to submit the prescribed form....