TaxTMI 
TaxTMI 
2025 (5) TMI 1707
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....IT(A), whereas the revenue has filed its appeal challenging the relief granted by the learned CIT(A) on certain issues. Facts of the Case: 2. The assessee is engaged in the business of development, manufacturing, and marketing of pharmaceutical formulations. For the Assessment Year 2015-16, the assessee filed its return of income on 30.11.2015, declaring total income of Rs. 54,17,72,240/- under normal provisions and book profit of Rs. 724,71,13,583/- under section 115JB of the Act. The return of income was selected for scrutiny under the Computer Aided Scrutiny Selection (CASS) and notice under section 143(2) of the Act was duly issued. Subsequently, notices under section 142(1) along with detailed questionnaires were issued from time to time, to which the assessee filed replies and furnished necessary information. During the course of assessment proceedings, the Assessing Officer made a reference under section 92CA(1) to the Transfer Pricing Officer (TPO) for determination of the arm's length price in respect of international transactions and specified domestic transactions reported by the assessee in Form No. 3CEB. The TPO, vide order passed under section 92CA(3) of the Act....
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.... charged interest on these advances. Further, the CIT(A) failed to appreciate the commercial expediency of granting advances to the AEs. b) That in the facts and circumstances of the case and in law, the learned CIT(A) has failed to appreciate that the appellant company has justified the arm's length rate of interest on commercial advances under CUP methodology by comparing the interest charged by it to AEs at with rate of interest quoted to it by independent third party (Bank of Nova Scotia, Singapore) in the context of providing foreign currency loan. The learned CIT(A) has failed to appreciate that the internal comparable are to be preferred over the external comparable while determining the arm's length price of the international transaction. c) That in the facts and circumstances of the case and in law, the learned CIT(A) ought to have appreciated that there was no parity between the comparable adopted by the AO/TPO and international transaction undertaken by the appellant company. d) Assuming but not accepting and without prejudice to above, the learned CIT(A) further erred in confirming ad-hoc addition of 100 basis points to the L....
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....cts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. 4. In the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming action of the ld. AO in initiating penalty u/s. 271(1)(c) of the Act. Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant. Additional Ground of Appeal The Appellant humbly submits that the following additional grounds of appeal which is purely of legal nature may kindly be admitted. In law and in the facts and circumstances of the appellant's case, the Ld. Assessing officer and Ld. CIT(Appeal) has erred in not allowing deduction for education cess and higher education cess amounting to Rs. 4,42,43,628/- as allowable expenditure u/s 40(a)(ii) of the I.T. Act, 1961 in view of the CIRCULAR F. NO. 91/58/66-ITJ(19) DT. 18TH MAY, 1967; while assessing the total income of the appellant. Hon'ble ITAT may direct for allowing deduction for education cess and highe....
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.... "Whether the CIT(A) has erred in law and on facts in deleting the disallowance of expenditure related to exempt income u/s. 14A r.w.r. 8D of the IT Act made while computing income under normal provisions of the Act?" (8) "Whether the CIT(A) has erred in law and on facts in deleting the disallowance of expenditure related to exempt income u/s. 14A r.w.r. 8D of the IT Act made to income computed u/s. 115JB of the Act in view of clause (f) of Explanation -1of the said section?" (9) "Whether the CIT(A) has erred in law and on facts in deleting the disallowance u/s. 40(a)(ia) of the Act of commission paid to non-resident?" (10) "It is, therefore, prayed that the order of ld. CIT(A) may be set aside and that of the Assessing Officer be restored." Later the Revenue filed revised grounds of appeal as follows: 1. Whether the CIT(A) has erred in law and on facts in deleting the disallowance of claim of depreciation of Goodwill without appreciating that no goodwill was in existence in the books of amalgamating company, and it was created in the books of amalgamated company solely on account of amalgamation? 2. Whether the CIT(A) has erred....
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....tual cost of the assets to the assessee in case of amalgamation as given in explanation 7 to section 43(1) of the I.T. Act and other provisions related to the amalgamation specially section 2(1B), sixth proviso to section 32(1), section 49(1)(iii)(e), explanation 2 to section 43(6) and section 55(2). 8. Whether the CIT(A) has erred in law and on facts in not appreciating that the Goodwill arose was allocated to Dehradun and Sikkim Units, which are part and parcel of the transferor company and after amalgamation depreciation claimed on goodwill is at higher valuation of existing assets and thereby why not this process be considered as Revaluation of existing assets? 9. Whether the CIT(A) has erred in law and on facts in deleting the addition of Rs. 10,19,24,003/- on account of disallowance of adjustment relating to allocation of common expenses? 10. Whether the CIT(A) has erred in law and on facts in deleting the addition upto the extent of Rs. 53,84,83,069/- made on account of deduction u/s. 35(2AB) of the IT Act. 11. Whether the CIT(A) has erred in law and on facts in deleting the disallowance of interest under section 36(1)(iii) of the IT Act. ....
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....e rate charged. The TPO, however, held that the benchmarking using a single internal CUP across AEs situated in different jurisdictions was not appropriate. The TPO also held that the assessee's benchmarking lacked a geographical and economic comparability analysis. The TPO observed that external Comparable Uncontrolled Price (CUP) using "Loan Connector" database, filtered for borrower region, tenor, unsecured status, and purpose (working capital), yielded higher ALP interest rates for certain AEs. Additionally, the TPO made an ad hoc addition of 100 basis points to cover forex and country risk, leading to an upward adjustment of Rs. 53,93,893/-. 6. The Ld. CIT(A) in the current assessment year upheld the TPO's adjustment of Rs. 53,93,893/- on account of undercharging of interest on loans to AEs. In doing so, the CIT(A) primarily relied on the decisions rendered in the assessee's own case for Assessment Years (AY) 2013-14 and 2014-15, where similar issues were adjudicated. In those earlier years, the CIT(A) had rejected the assessee's benchmarking approach, which was based on an internal CUP method using a quotation from Bank of Nova Scotia, Singapore. The CIT(A) held th....
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....on by the TPO. It was further held that no ad-hoc addition of 100 basis points towards forex risk was warranted, as there was no evidence of significant forex risk affecting the assessee's transactions. Following the binding precedent laid down by the Coordinate Bench in assessee's own case for Assessment Year 2013-14 (supra), and there being no distinguishing facts brought on record for the year under consideration, we respectfully apply the same ratio to the present case. Consequently, we hold that the benchmarking done by the assessee based on internal CUP is valid, and the adjustment of Rs. 53,93,893/- made by the TPO and confirmed by the CIT(A) on account of alleged undercharging of interest on advances to AEs is unsustainable. We accordingly direct the deletion of the addition of Rs. 53,93,893/-. Ground No. 1(ii) - Transfer Pricing Adjustment on Notional Interest on Outstanding Receivables from AEs - Rs. 14,64,47,827/-. 9. The next issue arising for our consideration pertains to the transfer pricing adjustment made by imputing notional interest on delayed realization of export proceeds from AEs, resulting in an addition of Rs. 14,64,47,827/-. 10. During the year ....
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.... issue relates to the transfer pricing adjustment made by the TPO and confirmed by the CIT(A) by imputing notional interest on receivables outstanding from AEs beyond a credit period of 180 days, resulting in an upward adjustment of Rs. 14,64,47,827/-. It is not disputed that the assessee had benchmarked its international transactions of export of finished goods to AEs under the TNMM, and that working capital adjustment had been undertaken while computing the Profit Level Indicator (PLI). The assessee contended that the receivables are incidental and intrinsically linked to the primary international transaction of sale of goods. The assessee also stated that the working capital adjustment duly captures the impact of credit terms, and therefore, a separate adjustment on outstanding receivables would lead to double taxation and the assessee maintained a uniform policy of not charging interest on delayed payments from both AEs and non-AEs. In assessee's own case for Assessment Year 2013-14 (ITA No. 400/Ahd/2018), the Coordinate Bench has categorically held that where TNMM has been applied and working capital adjustment has been given while benchmarking the main international transacti....
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....owards clinical trials incurred outside the in-house R&D facility Rs. 9,69,28,906/- towards exhibit batches taken in the plant area Rs. 21,91,031/- towards certain other revenue expenses, and Rs. 1,33,78,245/- pertaining to expenses of erstwhile Celestial Ltd. incurred prior to 18.12.2014. The AO issued a show cause notice requiring the assessee to explain why the disallowance should not be made for these items not forming part of the DSIR certification. In response, the assessee contended that it maintained separate books for its R&D facilities approved by the DSIR and that the entire expenditure pertained to in-house scientific research eligible for deduction. Detailed justifications were also furnished explaining the regulatory necessity and the scientific nature of clinical trials and exhibit batches. However, the AO was not satisfied and proceeded to disallow the amount of Rs. 65,09,81,251/- on the ground that the deduction under section 35(2AB) was allowable only to the extent of the expenditure approved and quantified by the DSIR in Form 3CL. In doing so, the AO also placed reliance on the assessment orders passed in earlier years, as noted in para 27.4 of the order, wherein....
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....g to exhibit batches taken in the plant area and Rs. 21,91,031/- towards other expenses, observing that the claim was not supported by DSIR certification and pertained to expenditure not carried out within the approved R&D facility. In respect of claim for revenue expenses aggregating Rs. 1,33,78,245/- incurred by the erstwhile Celestial Biologicals Ltd., the CIT(A) noted that the claim was not approved in Form No. 3CL and had not been allowed in earlier years as well. Therefore, for consistency, the disallowance of the said amount was also confirmed. Accordingly, the CIT(A) granted relief to the assessee to the extent of Rs. 53,84,83,069/- and sustained the disallowance of Rs. 11,24,98,182/-, thereby partly allowing the appeal of the assessee. 19. Aggrieved by the order of the learned CIT(A) to the extent it sustained the disallowance of Rs. 11,24,98,182/-, the assessee is in appeal before us. 20. The learned AR, reiterating the submissions made before the lower authorities, contended that the entire expenditure disallowed by the Assessing Officer and sustained by the CIT(A) was incurred wholly and exclusively for the purpose of scientific research carried out in connection ....
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....fore us, the learned Authorised Representative has reiterated that the DSIR's role under section 35(2AB), prior to the amendment of Rule 6(7A) with effect from 01.07.2016, was limited to approval of the in-house R&D facility, and not the quantification or approval of each item of expenditure. It was further submitted that the entire expenditure incurred was in the course of scientific research, carried out in duly approved in-house R&D units, and the same cannot be disallowed merely for want of reflection in Form 3CL. Reliance was placed on the decisions of the Coordinate Bench in assessee's own case for A.Ys. 2013-14 and 2014-15 in ITA No. 400/Ahd/2018, as well as on the decisions of the Hon'ble Gujarat High Court in Claris Lifesciences Ltd. [(2010) 326 ITR 251 (Guj)] and Cadila Healthcare Ltd. [(2013) 31 taxmann.com 300 (Guj)]. 23. In the said decision in assessee's own case, the Co-ordinate Bench has extensively examined the scope of DSIR's authority, the applicability of Rule 6(7A), and the evidentiary value of Form 3CL. It has been held that the Form 3CL merely reflects intimation of cost of in-house R&D facility to the Income Tax Department and is not a statutory approval ....
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....ettled that initiation of penalty proceedings is not appealable at the stage of quantum proceedings unless the penalty order is passed. The ground is thus premature. Accordingly, both grounds are dismissed. 27. We now proceed to deal with the grounds in appeal No. ITA 281/Ahd/2021 filed by the Revenue for the assessment year under consideration. Ground No. 1 to 3 (original) and Revised Ground No. 1 to 8 - Deleting Disallowance of Rs. 2,72,92,50,000/- being Depreciation of Goodwill 28. Under this main ground the revenue has raised multiple grounds challenging the action of the CIT(A) in deleting the disallowance of depreciation on goodwill arising pursuant to amalgamation. It is contended that the goodwill was not existing in the books of the amalgamating company and was artificially created in the books of the amalgamated company, and hence, no depreciation was allowable under section 32(1)(ii). The Revenue further argues that the actual cost of such goodwill should be treated as nil in view of Explanation 7 to section 43(1) and Explanation 2 to section 43(6), and that the assessee's method of allocation lacked identifiable assets or commercial rights. Reliance is also pla....
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....n two entities belonging to the same group, with ILPL being 96% held by the assessee-company and the remaining 4% by its shareholders. The amalgamation was thus entirely within the group and the AO concluded that the goodwill was self-generated by mere revaluation and book entries, not supported by actual cash outflow or identifiable intangible assets. The AO also emphasized that the scheme was approved by the Hon'ble High Court with an express stipulation that it would be subject to the provisions of section 2(1B) of the Income Tax Act, and, in case of any inconsistency, the scheme would be read down to align with tax law. In this backdrop, the AO held that the assessee had artificially created goodwill and claimed depreciation with the objective of reducing its taxable income. 32. Further, it was noted that the goodwill so recorded in the books of the amalgamated company was allocated to its tax-exempt units at Dehradun and Sikkim, which were eligible for deduction under section 80-IC and 80- IE respectively. The AO observed that since the goodwill did not represent any new asset acquired or intangible right transferred in amalgamation, but only arose due to revaluation, the c....
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.... consideration of Rs. 486.73 crore, which was recognized as goodwill. 35. The CIT(A) also observed that the Income Tax Department had been invited to raise objections to the scheme of amalgamation under the mandatory notice requirements laid down under section 394A of the Companies Act, 1956, and Circular No. 1/2014 of the Ministry of Corporate Affairs. Despite such opportunity, the Department did not raise any objection either before the Hon'ble Gujarat High Court or the Regional Director, MCA. The scheme was sanctioned after due verification and satisfaction that it was not prejudicial to public interest. In support, reference was made of the decision of the Hon'ble Mumbai Bench of the NCLT in Ajanta Pharma Ltd. (CPS No.995 and 996/2017), where amalgamation was denied on objection from Revenue when facts suggested tax avoidance. In contrast, in the present case, no such objection was raised. 36. Further, the CIT(A) examined the AO's allegation that the transaction was a colourable device. It was held that both amalgamating and amalgamated companies were distinct legal entities, separately registered and filing returns, and all disclosures regarding control and management, v....
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....0. The CIT(A) concluded that the assessee had incurred a determinable cost for acquiring the business on amalgamation, which resulted in recording of goodwill in its books of account, and that such goodwill qualifies as an intangible asset under section 32(1) of the Act. Accordingly, the CIT(A) directed the Assessing Officer to delete the entire disallowance of Rs. 227,92,50,000/- made on account of depreciation on goodwill and allowed the related grounds of appeal in favour of the assessee. 41. During the course of hearing, the Ld. DR supported the findings of the Assessing Officer and submitted that the depreciation on goodwill claimed by the assessee was rightly disallowed in the assessment order. The DR submitted that the entire transaction was intra-group and lacked commercial substance, as the amalgamating company, ILPL, was wholly owned and controlled by the assessee-company. It was pointed out that there was no real cash outflow in the hands of the assessee and the goodwill recorded in the books was created merely by way of an accounting entry, unsupported by actual acquisition of any independent business or commercial rights. The DR further contended that the goodwill h....
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....o recognized amounted to Rs. 911.70 crore, out of which Rs. 301.14 crore was allocated to the Dehradun unit and Rs. 601.56 crore to the Sikkim unit. The AR submitted that the goodwill was recognized in accordance with the purchase method of accounting prescribed under Accounting Standard-14 (AS-14) issued by the ICAI. It was submitted that such goodwill represented a determinable cost arising on account of excess consideration paid over the book value of net assets acquired in a lawful amalgamation. The AR contended that the goodwill so recognized qualifies as an intangible asset within the meaning of Explanation 3(b) to section 32(1) of the Act, and therefore, depreciation claimed thereon is fully allowable in law. 44. In support of the allowability of depreciation, the AR placed reliance on the judgment of the Hon'ble Supreme Court in CIT v. Smifs Securities Ltd. [(2012) 348 ITR 302 (SC)], wherein it was held that goodwill is an intangible asset falling within the expression "any other business or commercial rights of similar nature" and is eligible for depreciation under section 32. The AR also referred to the judgment of the Hon'ble Gujarat High Court in PCIT v. Zydus Wellne....
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....to section 32(1) and is eligible for depreciation. The CIT(A) also noted that the SLP filed by the Department against Zydus Wellness Ltd. was dismissed by the Hon'ble Supreme Court, giving finality to the issue. 47. On the question of cost, the CIT(A) rightly held that the goodwill arose as a result of an actual transaction supported by a court-sanctioned scheme and a valuation report, and not merely by accounting jugglery. The CIT(A) distinguished Explanation 7 to section 43(1) and Explanation 2 to section 43(6) by observing that they apply to tangible assets transferred in amalgamation but not to goodwill which arises afresh in the books of the transferee as a balancing figure when the consideration exceeds net assets. The CIT(A) further held that the Assessing Officer's suspicion regarding the valuation was unsubstantiated as no reference was made to the Departmental Valuation Officer and the valuation was supported by a report from a professional valuer. Relying on the decision of the Co-ordinate Bench of the Tribunal in Urmin Marketing Pvt. Ltd.(ITA 1806/Ahd/2019), the CIT(A) found that similar contentions had been rejected in earlier proceedings involving comparable facts.....
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....rt prepared by a registered valuer. No contrary valuation has been placed on record by the Revenue nor was the matter referred to the Departmental Valuation Officer. In any event, the presence or absence of third-party clients cannot be the sole criterion to determine whether goodwill was acquired. The Hon'ble Supreme Court in Smifs Securities Ltd. has held that goodwill falls within the expression "any other business or commercial rights of similar nature" as appearing in Explanation 3(b) to section 32(1) and is therefore eligible for depreciation. The statute does not require such rights to arise only from external dealings or unrelated parties. Once the transaction satisfies the requirements of section 2(1B), which defines amalgamation to include even group company mergers where 100% shareholding may vest with the amalgamated company, the legal form and accounting consequences must be respected. 50. Coming to the assessee's contention regarding the allocation of goodwill to the tax-exempt units in Sikkim and Dehradun, we find that the issue was duly considered by the CIT(A) in para 5.10 of the appellate order. As per the assessee's accounting treatment, the total goodwill of ....
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.... the court-sanctioned scheme of amalgamation. The valuation was carried out using recognized income and market approaches, namely the Discounted Cash Flow (DCF) and Comparable Companies Multiples (EV/EBITDA and PE ratios), in accordance with global best practices. The equity value per share for Intas Pharmaceuticals Ltd. (the amalgamated company) was determined at Rs. 147.65, while the equity value per share for ILPL (the amalgamating company) was arrived at Rs. 96.56. Based on this, the swap ratio was recommended at 100:65, i.e., 100 shares of the amalgamated company were to be issued for every 65 shares of the amalgamating company held. As regards the estimation of goodwill, the summary of working as derived from the KPMG valuation report is tabulated below: Particulars Amount (INR million) Enterprise value of Intas Lifesciences Pvt. Ltd. (ILPL) 9,656 Book value of tangible assets and net working capital taken over (539) - Book value of fixed assets (463) - Book value of current assets and advances (10,218) - Book value of cash and bank balances 654 - Book value of current liabilities 9,488 - Identifiable intangibles and goodwill Ni....
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....s consideration paid is bonafide, attributable to commercial intent, and not a colourable device, and where the valuation is backed by objective and auditable parameters, as is evident in the present case from the KPMG valuation report. Accordingly, we do not agree with the DR's contention that goodwill must necessarily arise only where identifiable third-party rights or clientele are acquired. The jurisprudence laid down in Smifs Securities Ltd. and consistently followed thereafter recognizes that "business or commercial rights of similar nature" under Explanation 3(b) to section 32(1) covers a wide ambit of intangible assets including goodwill that is recognized through proper valuation in a scheme of amalgamation. 55. We also note that both the AO and the DR have attempted to distinguish the assessee's case from the facts of Smifs Securities Ltd. on the premise that ILPL lacked independent clients, the goodwill was created within the same group, and there was no real transfer of business value. However, such a distinction, in our considered view, does not undermine the binding nature of the ratio laid down by the Hon'ble Supreme Court in Smifs Securities Ltd. (supra), wherein....
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....l lacks substance merely because the business of ILPL was functionally integrated or wholly dependent on the assessee. The principles of commercial reality, as recognised in Smifs Securities, Urmin Marketing, and Zydus Wellness Ltd., support the view that goodwill may arise even in intra-group amalgamations when excess consideration is paid and booked transparently. We thus uphold the conclusion of the CIT(A) that the goodwill so recognised constitutes a valid depreciable asset within the meaning of section 32(1)(ii), and that depreciation claimed thereon is allowable in law, subject only to the proportionate restriction of Rs. 52,69,97,415/- in respect of the Dehradun unit as correctly computed and sustained by the first appellate authority. 58. We shall now proceed to deal with the revised grounds raised by the Revenue in light of our detailed analysis above: Revised Ground No. 1: 59. The Revenue contends that depreciation on goodwill is not allowable as there was no goodwill recorded in the books of the amalgamating company and the same was created only in the books of the amalgamated company. We find this contention devoid of merit. As held by the Hon'ble Supreme Court....
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....der section 32 for cash outflow. Revised Ground No. 5: 63. The DR argues that the method adopted by the assessee was effectively the pooling of interest method and not the purchase method under AS-14, and therefore the excess should have been credited to capital reserve. We do not find any merit in this argument. The assessee has clearly followed the purchase method as permitted by AS-14, whereby the difference between consideration and net asset value is to be recorded as goodwill. The accounting method has been consistently applied and supported by audit and judicial approval of the scheme. The AO has not brought any evidence to show that pooling of interest was applied or that the accounting treatment was incorrect. Revised Ground No. 6: 64. The Revenue contends that the goodwill was created merely by netting the consideration against net assets without identifying specific assets or rights. This argument is also misplaced. The Hon'ble Supreme Court in Smifs Securities Ltd. held that even unidentified commercial rights can constitute goodwill eligible for depreciation. In the present case, the goodwill represents the expected future economic benefits arising from bus....
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.... to the action of the learned CIT(A) in deleting the disallowance of Rs. 10,19,24,003/-, which was made by the Assessing Officer by allocating a portion of common research and development (R&D) expenses to units of the assessee claiming deduction under sections 10AA, 80-IC, and 80-IE of the Act. The Assessing Officer observed that the assessee had claimed weighted deduction under section 35(2AB) in respect of in-house R&D expenditure incurred at the corporate level, without allocating any part of such expenses to its tax-exempt units. The Assessing Officer was of the view that failure to allocate such common expenditure resulted in excessive deduction under section 35(2AB), while simultaneously inflating the profits of the tax-exempt undertakings. Accordingly, he reworked the allocation of R&D expenses in the ratio of turnover and disallowed the weighted deduction under section 35(2AB) on the amount of Rs. 10,19,24,003/- which, in his view, was relatable to taxexempt units. 69. The learned CIT(A), after considering the detailed submissions of the assessee, deleted the said disallowance. The CIT(A) found that the assessee had maintained separate books of account for each eligible....
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....d that a mere apportionment without factual justification leads to unwarranted disallowance and duplication, particularly when the direct expenditures have already been absorbed in the unit's own audited accounts. 72. The CIT(A), having examined the assessee's contentions and verified the books of account, accepted that the common expenses sought to be allocated by the Assessing Officer had, in fact, already been accounted for in the unit-wise financials prepared and audited separately for each eligible undertaking. The CIT(A) observed that any further allocation of such expenses would result in double disallowance and would not reflect the correct profit derived from the respective eligible undertakings. The CIT(A) further took note of the fact that the methodology adopted by the assessee was consistent and in accordance with accepted accounting practices, and that in earlier years, the same treatment had been accepted by the Department without dispute. 73. We find merit in the reasoning given by the learned CIT(A). The Assessing Officer, while reallocating the common expenses, did not rebut the factual position that the concerned cost heads-such as audit fees, finance charg....
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....he learned CIT(A), however, allowed the assessee's claim, following the consistent appellate orders in assessee's own case in earlier years, holding that clinical trial expenditure, though incurred outside the in-house facility, forms an integral part of pharmaceutical R&D and qualifies for deduction under section 35(2AB). 77. This issue has already been adjudicated in detail while dealing with Ground No. 2 of the assessee's appeal, wherein we have held, following the decision of the Coordinate Bench in the assessee's own case for A.Y. 2013- 14 (ITA No. 400/Ahd/2018, order dated 31.10.2023), that prior to the amendment of Rule 6(7A) with effect from 01.07.2016, the DSIR had no authority to quantify the eligible expenditure in Form 3CL, and the deduction under section 35(2AB) could not be denied solely on that basis. We have accordingly upheld the assessee's claim and confirmed the deletion of the disallowance made by the Assessing Officer. 78. In view of our detailed findings already recorded in the preceding part of this order, no separate adjudication is required on these grounds. Accordingly, Ground No. 5 (Original) and Revised Ground No. 10 of the Revenue's appeal are dis....
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....ee had interest-free funds far exceeding the CWIP, had earned sufficient operating profit during the year, and that no direct nexus was established by the AO to show deployment of borrowed funds to CWIP. 82. During the course of hearing, the learned Departmental Representative relied upon the reasoning and conclusions drawn by the Assessing Officer, contending that the assessee had failed to demonstrate a nexus between interest-free funds and the capital work-in-progress (CWIP). On the other hand, the learned Authorised Representative placed strong reliance on the decision of the Coordinate Bench in assessee's own case for the A.Y. 2013-14 in ITA No. 704/Ahd/2018 where a similar disallowance made under section 36(1)(iii) was deleted on identical facts. 83. We have carefully considered the rival contentions and perused the assessment order, the detailed written submissions filed before the CIT(A), the impugned appellate order, and the binding judicial precedents relied upon by the assessee. It is not in dispute that the Assessing Officer disallowed interest expenditure of Rs. 11,29,21,996/- under section 36(1)(iii) of the Act by applying a proportionate formula based on averag....
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....led findings of the Co-ordinate Bench in assessee's own case for A.Y. 2013-14, we find no infirmity in the decision of the learned CIT(A) in deleting the disallowance of Rs. 11,29,21,996/- made by the Assessing Officer under section 36(1)(iii) of the Act. Accordingly, this ground of appeal raised by the Revenue stands dismissed. Ground Nos. 7 and 8 (original) and Revised Ground Nos. 12 and 13: Deletion of Disallowance amounting to Rs. 8,70,747/- under section 14A read with Rule 8D and corresponding adjustment to book profits under section 115JB 88. The Assessing Officer, during the course of assessment, observed that the assessee had made substantial investments in shares of group companies and subsidiaries such as Accord Healthcare Ltd., Intas Medi Devices Ltd., Alvi-Intas Medical Devices Pvt. Ltd., and Prime Pediatrics Pvt. Ltd., aggregating to Rs. 10.55 crores. Although the assessee had not earned any dividend or other exempt income during the previous year, the AO invoked the provisions of section 14A read with Rule 8D to disallow expenditure allegedly incurred in relation to such investments. The assessee submitted before the AO that no disallowance under section 14A was....
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....e binding precedents cited. The CIT(A) also noted that all the four investee companies were dormant, and no expenditure could be said to have been incurred in the relevant year in connection with earning exempt income. The CIT(A) placed reliance on a catena of judicial decisions. In conclusion, he deleted the disallowance made both under the normal provisions and under section 115JB. 91. During the course of hearing before us, the learned Departmental Representative supported the findings of the Assessing Officer. On the other hand, the learned Authorised Representative placed reliance on the decision of the Co-ordinate Bench of the Tribunal in assessee's own case for the A.Y. 2013-14 in ITA No. 704/Ahd/2018. The AR submitted that on identical facts, the Co-ordinate Bench had deleted the disallowance made under section 14A. 92. We have carefully considered the rival submissions and perused the orders of the lower authorities as well as the material placed on record. The Assessing Officer disallowed a sum of Rs. 8,70,747/- under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962. The disallowance comprised Rs. 3,42,992/- under Rule 8D(2)(ii) towards proport....
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.... to the disallowance of Rs. 5,27,755/- under Rule 8D(2)(iii), we note that unlike the earlier year where the assessee had made a suo motu disallowance under Rule 8D(iii), no such disallowance has been made by the assessee in the current year. However, it remains a settled position in law, following the same line of decisions, that if no exempt income is earned, even the disallowance under Rule 8D(2)(iii) cannot survive. This view is consistently upheld in Chettinad Logistics (supra), Corrtech Energy (supra), and by the Co-ordinate Bench in DCIT v. Asian Granito India Ltd. [(2020) 113 taxmann.com 445]. The CIT(A) has rightly concluded that since the investments were old and no administrative expenditure was demonstrably incurred in relation to such investments during the year, the disallowance under Rule 8D(2)(iii) was also unsustainable. 97. Accordingly, we uphold the deletion of the disallowance of Rs. 8,70,747/- made by the learned CIT(A) under section 14A read with Rule 8D, including both components under Rule 8D(2)(ii) and 8D(2)(iii). Consequently, the adjustment made by the Assessing Officer to the book profit under section 115JB on account of section 14A disallowance is al....
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....ee reiterated that the commission payments were made to non-resident agents for services rendered wholly outside India. The agents did not have any place of business, permanent establishment, or business connection in India. The assessee submitted a tabulated statement (page 248 of the CIT(A)'s order) detailing the list of non-resident agents, amounts paid, nature of service, and mode of payment. It was further pointed out that the issue was squarely covered by the binding judgment of the Hon'ble Supreme Court in CIT v. Toshoku Ltd. [(1980) 125 ITR 525 (SC)], wherein it was held that commission paid to a non-resident agent for services rendered outside India does not accrue or arise in India and is, therefore, not chargeable to tax in India. Reliance was also placed on the judgment of the Hon'ble Gujarat High Court in DCIT v. Jay Chemical Industries Ltd. [(2016) 422 ITR 449 (Guj)], as well as decisions of ITAT Ahmedabad in the assessee's own case for A.Ys. 2013-14 and 2014-15, where similar disallowances were deleted. 100. The Ld. CIT(A) carefully considered the submissions and evidence, including the copies of Form 15CA/15CB, tax residency certificates, and previous communicati....
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....(b) read with section 9(1)(i) of the Act, the income in the hands of such agents was deemed to accrue or arise in India, particularly since the execution of export contracts and the accrual of right to commission occurred in India. The AO thus concluded that the assessee was liable to deduct TDS and, having failed to do so, was liable for disallowance under section 40(a)(i) of the Act. The AO placed reliance on the decision of the AAR in the case of Rajiv Malhotra (284 ITR 564) and that of SKF Boilers & Driers (P.) Ltd. (18 taxmann.com 325) and took note of the withdrawal of erstwhile Circular No. 23 of 1969 by CBDT Circular No. 7 of 2009. In appeal, the Ld. CIT(A) recorded a categorical finding of fact that all services were rendered by the non-resident agents from outside India. Relying upon the landmark decision of the Hon'ble Supreme Court in the case of CIT v. Toshoku Ltd. [(1980) 125 ITR 525 (SC)], the CIT(A) held that commission earned by non-resident agents for services rendered abroad cannot be deemed to accrue or arise in India and is not taxable under the Act. He distinguished the factual matrix from the decisions relied upon by the AO and emphasized that none of the age....