TaxTMI 
TaxTMI 
2026 (7) TMI 1694
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....nce, consistency in adjudication, and to avoid repetition of facts and reasoning, they are being disposed of by this common and consolidated order. 2. At the outset, the learned Departmental Representative (DR) submitted that the Revenue's appeals had been filed with a delay of 54 days before the Tribunal. It was explained that owing to the extraordinary workload associated with the preparation and filing of central scrutiny reports, coupled with the handling of other timebarring matters by the Assessing Officer, the appeals could not be filed within the prescribed period of limitation. 2.1 We have duly considered the explanation furnished by the Revenue. Having regard to the circumstances brought on record, we are satisfied that the delay was occasioned by a bona fide and reasonable cause and was neither deliberate nor attributable to any lack of diligence. In our considered view, the Revenue has demonstrated sufficient cause within the meaning of the law for not preferring the appeals within the stipulated time. Accordingly, the delay of 54 days in filing the appeals is condoned, and the Revenue's appeals are admitted for adjudication on merits. 3. The appeals for the AY....
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....Raw Material, as per the ground/s contained in the assessment or otherwise. Transfer Pricing Adjustments 8. On the facts and circumstances of the Appellant's case and in law the Ld. TPO has not given sufficient and reasonable opportunity to the appellant to comply with the notice of 180 and therefore the adjustments made by the TPO are contrary to facts and are baseless. 9. On the facts and circumstances of the Appellant's case and in law the Ld. Assessing Officer erred in making disallowance as per Para 11 of the impugned order, a sum of Rs. 4,17,22,865/- being Arm's length adjustments made by the Ld. TPO u/s. 92CA(3) of the Income Tax Act 1961 on account of purchase of raw materials and job work charges paid to Exon Laboratories Pvt. Ltd., as per the ground/s contained in the assessment or otherwise. 10. On the facts and circumstances of the Appellant's case and in law the Ld. Assessing Officer erred in making disallowance as per Para 11 of the impugned order, a sum of Rs. 60,48,481/-being Arm's length adjustments made by the Ld. TPO u/s. 92CA(3) of the Income Tax Act 1961 on account of inter unit transfer to its manufacturi....
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.... by the appellant during the assessment proceedings, as per the ground/s contained in the assessment or otherwise. 16. On the facts and circumstances of the Appellant's case and in law the Ld. Assessing Officer erred in not reducing the excise duty refund amounting to Rs. 11,44,53,373/-while calculating the book profits as per provisions of section 115JB being capital in nature, as per the ground/s contained in the assessment or otherwise." 3.1 The grounds raised by the Revenue are reproduced as under:- 1. "Whether on the facts and circumstances of the case and in law, Ld. CIT(А) has erred in making disallowance of Rs. 19,23,79,082/- on account of alleged freebies services provided by the appellant to the medical practitioners, as per the ground/s contained in the assessment oro otherwise. Over invoicing and unexplained purchases. 2. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in making disallowance of Rs. 1,40,35,340/- on account of alleged over invoicing of Raw Material, as per the ground/s contained in the assessment or otherwise. Transfer Pricing Adjustments. 3. Whether on the facts and ci....
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.... has been held by Hon'ble ITAT, Mumbai in the case of DCIT vs. Tata Autocomp Systems Ltd. (2012)?" 4. Briefly stated, the facts giving rise to the present appeals are that the assessee-company is engaged in the business of manufacturing, marketing and research of pharmaceutical products. For the year under consideration, the assessee filed its return of income on 29.11.2013 declaring a total income of Rs. 1,83,50,95,960/- under the normal provisions of the Income-tax Act, 1961 (hereinafter referred to as "the Act") and book profit of Rs. 4,62,65,58,940/- under section 115JB of the Act. 4.1 Subsequently, a search and seizure operation under section 132 of the Act was conducted in the case of the assessee on 23.12.2014. Pursuant thereto, a notice under section 153A of the Act dated 04.05.2016 was issued requiring the assessee to furnish its return of income. In compliance with the said notice, the assessee filed its return declaring the same income as originally returned. Thereafter, statutory notices were issued and assessment proceedings were carried out. The assessment came to be completed vide order dated 30.01.2018 passed under section 153A read with section 143(3) of ....
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....uch expenditure and thereafter apportioned the same between the eligible and noneligible units in the ratio of their respective turnovers. Ultimately, the disallowance attributable to the non-eligible units alone was sustained. Being aggrieved, the assessee has challenged, through Ground Nos. 2 and 3, the sustenance of the disallowance relatable to travel and hotel expenses. The Revenue, on the other hand, is aggrieved by the relief granted by the learned CIT(A) in respect of the remaining categories of expenditure and has assailed the same by way of Ground No. 1 of its appeal. 7.1 The brief facts relevant to the issue under consideration are that, during the course of the search and post-search proceedings, the Investigation Wing undertook an examination of the expenditure claimed by the assessee under the head "Sales Promotion and Marketing Expenses", with particular emphasis on expenditure allegedly incurred in relation to doctors and medical practitioners. 7.2 In the assessment order, the Assessing Officer observed that statements of Shri Sharwan Beli, an employee of the assessee company, and Shri Premchand Godha, Director of the assessee company, were recorded under sect....
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....owance would merely result in a corresponding enhancement of the eligible deduction. Accordingly, the Assessing Officer ultimately made a net addition of Rs. 10,69,34,270/- to the total income of the assessee under section 37(1) of the Act. 7.6 In the first appellate order, ld. CIT(A) observed that identical disallowances arising from the same search action in assessee's own case for AYs 2009-10 to 2014-15 had already been adjudicated by the ITAT, Mumbai vide order dated 08.04.2024 in ITA Nos. 879 to 883/M/2021. The ld. CIT (A) noted that the facts involved during the year under consideration were identical to the facts before the Tribunal in earlier years and therefore the findings of the Tribunal were directly applicable to the present year. The ld. CIT(A) further observed that the ITAT, while considering the judgment of the Hon'ble Supreme Court in Apex Laboratories Ltd. v. DCIT (supra), had held that only expenditure in the nature of gifts, travel facilities, hospitality and monetary grants provided to doctors would fall within the ambit of prohibited freebies under Regulation 6.8.1 of the MCI Regulations. The ld CIT(A) in its order further stated that the Tribunal had also ....
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.... submission that the assessee company is entitled to create awareness of its products by participating in exhibitions and organizing conferences and therefore the expenditure incurred for organizing the same would not fall within the ambit of CBDT Circular No.5/2012 read with MCI Regulations 2009. Likewise, any journals or periodicals printed and shared with customers, distributors or medical practitioners to make them aware about the research behind manufacture of any new medication or its uses or effects in any particular disease also cannot be termed as 'gifts' given to doctors. However, the expenses, if any, incurred on travel and hotel accommodation of the doctors to attend these exhibitions or conferences would however be hit by the rigors of MCI Regulations, 2009. 8.6 Having discussed as above, it is noted that each head wise expenses have been considered by ITAT in their order. It is noted that the nature and head of expense incurred by the assessee in the current year have remained same as compared to the earlier period dealt with by the ITAT. I have gone through the submission of the assessee and order of ITAT. I rely upon the findings and decision of ITAT and do....
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....a 11.24, AO is directed to delete the disallowance. 10. Taxi Hire Charges 1,10,16,369 Relying upon the ITAT order at para 11.25, AO is directed to delete the disallowance. 11. Field Printing Expenses 4,12,14,476 Relying upon the ITAT order at para 11.26, AO is directed to delete the disallowance. 8.7 Further, as per the decision of the Tribunal (as per para 11.31) in respect of the disallowance sustained as per above table, the AO is directed to attribute the disallowance of freebies to the eligible unit's under chapter VI-A of the Act and shall re-compute the enhanced eligible profits and allow the deduction accordingly. In light of the above, Ground No. 2,3 & 4 are partially allowed." 7.8 Before us the ld Counsel submitted that the entire disallowance made by the ld. AO is based solely on the statement recorded during the course of search proceedings and not on the basis of any incriminating material found during the course of search. No document, seized material or other evidence was found by the department to establish that the impugned sales and marketing expenditure was bogus, non-genuine or incurred for any purpose prohibited by law. In ab....
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....ly, the assessee was required to create awareness regarding its products through conferences, seminars, exhibitions, awareness programmes and medical camps. The expenditure incurred on such activities is wholly and exclusively for the purpose of business and represents legitimate business promotion expenditure incurred during the ordinary course of business. 7.12 It was submitted that expenditure incurred on conferences, seminars, awareness programmes and exhibitions was for dissemination of medical knowledge, product awareness and interaction with medical professionals and therefore cannot be equated with prohibited freebies. The MCI Regulations merely prohibit doctors from accepting certain personal benefits and do not prohibit pharmaceutical companies from conducting professional or educational programmes for product awareness and dissemination of scientific information. 7.13 It was submitted that similarly, expenditure incurred on journals, medical literature, periodicals and printed material distributed to doctors and medical practitioners was incurred only for dissemination of information relating to research, efficacy and therapeutic usage of medicines manufactured by ....
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.... The Tribunal vide consolidated order dated 08.04.2024 passed in ITA Nos. 879 to 883/Mum/2021 has extensively examined the nature of sales and marketing expenditure, applicability of the MCI Regulations and CBDT Circular No. 5/2012, as well as the evidentiary value of statements recorded during search proceedings (Copy placed at page nos. 1112 of the paper book). 7.17 We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material placed on record. The controversy before us pertains to the disallowance of sales promotion and marketing expenditure allegedly incurred by the assessee in contravention of the Medical Council of India (MCI) Regulations and consequently held to be inadmissible under Explanation 1 to section 37(1) of the Act. 7.18 The Assessing Officer proceeded to make the impugned disallowance principally on the basis of statements recorded during the course of search proceedings and on the premise that the expenditure represented prohibited freebies provided to medical practitioners. The learned CIT(A), however, upon a detailed examination of the nature of the expenditure and after taking note of the decision of....
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....dical practitioners was held to be prohibited by law and therefore the expenditure incurred on distribution of such freebies was not allowable as deduction in terms of Explanation (1) to Section 37(1) of the Act. While holding so, the Hon'ble Apex Court held that the CBDT Circular No. 5/2012 dated 01.08.2012 clarifying that the freebies given by pharmaceutical companies to medical practitioners was inadmissible as deduction u/s. 37(1) of the Act was clarificatory in nature. The said Circular was thus held to be effective from the date of implementation of Regulation 6.8 of the 2002 MCI Regulations i.e. from 14.12.2009. 11.11 We also noted that the Hon'ble jurisdictional Bombay High Court in the case of Abbott India Ltd Vs ACIT (WP No. 685 of 2016) dated 10.02.2023, after considering the decision of Hon'ble Supreme Court in the case of Apex Laboratories (supra) explained that the ruling of the Hon'ble High Court laying down that the CBDT Circular No.5/2012 is indeed clarificatory in nature, but the same is only effective retrospectively from the date of implementation of Regulation 6.8 of 2002 Regulations, i.e. 14th December 2009. The Hon'ble High Court is noted to have thu....
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....ing value of less than Rs. 1000/- is provided, then such would not fall within the mischief of MCI Regulations, 2009. The relevant extract of the Notification, found placed at Pages 239-245 of Paper Book reads as under:- "6.4 Companies may occasionally provide modest, appropriate brand recall items/ brand reminders, which are customary business courtesies and are reasonable in value and frequency. However, the value of such brand recalls items/ brand reminders shall not exceed INR 1,000 (Rupees One Thousand). Companies shall maintain proper documentation with respect to expense incurred on such brand reminders." 11.16 The Ld. AR also brought to our notice that this Tribunal at Bangalore in the case of Himalaya Drug Company Vs CIT (124 taxmann.com 252) has taken cognizance of the above MCI Notification. The Tribunal is noted to have deleted the estimated disallowance made by the AO out of sales promotion expenses by observing that gifts having value less than Rs. 1000/- would not fall under the mischief of MCI regulations 2009. 11.17 The Ld. AR has also rightly pointed out that, being a pharmaceutical company, the assessee cannot advertise its products. Ho....
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....s towards thermometers, basic BP machines etc. were meant for the patients and their disease detection. He pointed out to us that, the averment made by the AO that these equipment's would have been gifted to doctors later on, was on pure surmise and conjecture and not based on any material or evidence found in course of search. He showed us that, the cost of these medical equipment's were minimal, if considered item-wise, and the shelf life of these medical equipment's when used tirelessly in the camps was very low and accordingly these were usually either discarded on completion of camp or shifted out by the field staff to other camps. Hence, these medical equipment's were also meant for the benefit of patients and not the doctors as wrongly presumed by the AO. The Ld. AR also brought to our notice that, the medical practitioners attending the camps were engaged in professional basis and professional fees were separately paid to them for attending patients. 11.19.2 We note that, the Ld. CIT(A) had examined the details of these expenses and recorded a finding of fact that the expenses on Patient Detection were incurred for the benefit of patients and not the doctors and th....
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.... is not the case of the Ld. CIT(A) that the assessee had not provided the details of the expenses or that the books of accounts were found to be unreliable. Hence, without rejecting the books of accounts or pointing out any defect / omission in the details filed by the assessee, the Ld. CIT(A) was unjustified in making estimated disallowance of 10%. The Ld. AR has shown us that complete details of expenses were found & seized by the Investigating authorities, which were available on the server. It was not the case of any of the lower authorities that any specific item of expense debited under Sponsorship Expenses was found to have been paid to or for the benefit of doctors. Overall, therefore, we hold that the sponsorship expenses not having been incurred for the benefit of doctors but to create brand awareness about the assessee company was allowable as deduction u/s. 37(1) of the Act. The AO is accordingly directed to delete the disallowance made on this count. 11.21 We now examine the expenses debited under the sub-head Participation in Symposiums / Exhibitions: The AO had noted that the expenses under this head majorly comprised of payments to organizers for hiring & e....
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....nd these conferences. According to Ld. AR, the hotel expenses comprised of food & refreshment, which the assessee was duty bound to provide as being organizer of the conference and thus he prayed that these expenses should not be viewed adversely. As far as the travelling expenses, the Ld. AR submitted that the doctors who were attending conferences were required to be provided with conveyance so that they would reach the venue timely and ensure smooth execution of the conferences. The Ld. AR thus urged that even these travelling expenses fell outside the ambit of MCI Regulations, 2009. 11.22.1 Upon examination of the facts placed before us, it is noted that the expenditure incurred for organizing the conference i.e. hiring of venue & making arrangements etc. cannot be said to be in nature of 'freebies' given to the doctors. Understandably, the assessee, being a pharmaceutical company is required to organize such conferences to educate the delegates about their products and also obtain their feedback. Hence, the registration / conference expenses paid for organizing such events for their brand awareness and dissemination of information and research, cannot be said to const....
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....sputed by the Revenue that the items of expenses incurred under these heads were of nominal value less than Rs. 1000/- on flowers, sweets, cup, aprons etc. The sales promotion articles which had their name & logo were given to customers, retailers, stockiest and distributors as a part of their brand awareness strategy. Likewise, flowers and sweets of nominal value would also be given by field staff on special occasions to their customer / stockiest / distributors. Also, some of these items were used by field staff to be given to doctors in the course of their visits. As noted in Para 11.15 above, the MCI Notification dated 01.02.2016 has excluded nominal gifts valuing Rs. 1000/- and less from the mischief of MCI Regulations, 2009. This was also clarified by a public notice issued by Government of India dated 16.03.2022. In light of the foregoing and following the decision of this Tribunal at Bangalore in the case of Himalaya Drug Company (supra), as discussed earlier, the disallowance made by the AO out of these sub-heads of sales promotion expenses is held to be unsustainable and is thus directed to be deleted. 11.24 With regard to sub-head 'Journals & Periodicals', it is....
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....he Ld. CIT(A). Before us, the Ld. AR has placed sample copies of invoices at Pages 250-253, 267-268 of Paper Book No. 3 to evidence the nature of printing charges incurred by the assessee. Having perused the same, we note that these expenses related to printing of files, folders, pads and pens which were understandably to be used by the field staff and also the doctors who were attending camps. Going by the nature of these expenses, it cannot be termed as 'freebies' given to doctors and hence we uphold the order of Ld. CIT(A) deleting the same. 11.27 The next sub-head for our consideration is 'Trade Relation Expenses & Gifts for Sales Promotion'. Briefly noted, these expenses are noted to cover the cost of articles / gifts purchased by field staff to be distributed to wholesalers / stockiest / business partners etc. The assessee is noted to have placed sample supporting's at Page Nos. 270 to 279 of Paper Book No. 3. It is observed that, the AO had disallowed these expenses under erroneous understanding that these were given to doctors. On appeal, the Ld. CIT(A) in AY 2014-15 is noted to have deleted the addition by observing as under :- ..... 11.27.1 The ....
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....ental Representative was unable to point out any distinguishing feature in the facts of the year under consideration vis-à-vis the facts considered by the Tribunal in the earlier years. No material has been brought on record to demonstrate either a change in the factual matrix or a change in the legal position warranting a departure from the view consistently adopted by the Coordinate Bench. In such circumstances, the principles of judicial discipline and consistency require us to follow the earlier decision rendered in the assessee's own case on identical facts. 7.23 It is a settled proposition that where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and the position continues to remain unchanged, consistency in approach ought to be maintained unless there exist compelling reasons to take a different view. No such reason has been demonstrated before us. 7.24 Accordingly, respectfully following the decision of the Coordinate Bench in the assessee's own case for the preceding assessment years, we find no infirmity in the order of the learned CIT(A) in granting relief in respect of the expenditure held to....
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....ver-Invoicing/Kg Amount of Overinvoicing (in Rs. 1. Meta-Chigo Aniline (MCA) Rs.30/- 1,23,21,900/- 2. Paracetamol Rs. 10/- 3,58,76,350/- 3. Erythromycin Estolate Rs. 200/- 1,73,45,000/- Total 6,55,43,250/- 8.2 The Assessing Officer also placed reliance upon the statement of Shri Jagdish Chandra Somani, Director of M/s Reynolds Petro Chems Limited, recorded during survey proceedings conducted under section 133A of the Act on 16.04.2015. According to the Assessing Officer, Shri Somani admitted that M/s Reynolds Petro Chems Limited procured raw materials from the regular suppliers of the group concerns, inflated the purchase prices and thereafter supplied the same to the concerned entities. It was further alleged that the inflated component was subsequently returned in cash after retention of a nominal commission of 5%. A substantial part of the Assessing Officer's reasoning rested upon the seizure of cash of Rs. 1.17 crores from the residence of Shri Prashant Godha. According to the Assessing Officer, Shri Prashant Godha had admitted in his statement that the said cash represented proceeds generated through over-invo....
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....cing at Rs. 1,40,35,340/- and held the same to be liable for disallowance as under:- Sr. No Name of the Raw Material Name of the Buyer Quantity in Kg Over Invoicing/Kg Total amount of (in Rs. ) over invoicing 1. Meta-Chloro Aniline (MCA) IPCA Lab. Limited 119953 Rs.30/- 3598590 2. Paracetamol IPCA Lab. Limited 553175 Rs.10/- 5531750 Erythromycin Estolate IPCA Lab. Limited 24525 Rs.200/- 4905000 Total 1,40,35,340 8.5 The Assessing Officer ultimately observed that since the source of the cash seized during the search was allegedly traceable to the assessee-company and the same had, according to him, been admitted during the search, post-search and assessment proceedings, an addition of Rs. 1,40,35,340/- was required to be made substantively in the hands of the assessee-company. Simultaneously, an equivalent amount was added on a protective basis in the hands of Shri Prashant Godha, being the person from whose possession the cash of Rs. 1.17 crores had been found and seized during the course of the search proceedings. 8.6 On further appeal the ld. CIT(A) n....
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....nolds Petro Chem Ltd. has already been disallowed in the case of M/s. Maker Laboratories Ltd. by the department in various year to the tune of Rs. 2.18 Crs. which is much more than cash found at the residence of the promoter. 9.9 Further, with regards to the statement recorded of the key person M/s. Reynolds Petro Chem Ltd (Shri Jagdish Chandra Somani ) wherein he has accepted on oath that assessee is engaged in purchasing raw materials by over invoicing, It is observed that such statement was never confronted with the assessee during the course of assessment proceedings. Further, it is also observed that the modus operandi used for providing the over invoicing/ inflated purchases was never linked by the AO with the case of the assessee . 9.10 It is also observed that the assessee has not purchased any materials from M/s. Reynolds Petro Chem Ltd. as can be perused from the assessment order. Further, AO has nowhere able to link the purchases of the assessee with M/s. Reynolds Petro Chem Ltd. Also, none of the companies from whom the materials have been purchased has confirmed of paying any commission to M/s. M/s. Reynolds Petro Chem Ltd. 9.11 The assessee ....
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....n oath any person who is found to be in possession or control of any books of account, documents, money etc. Such a statement made by that person may thereafter be used in evidence in any proceedings under the Act. Evidence is a mode or means to prove a fact-in- issue. Statement is an oral testimony of relevant fact; and an admission of a factin-issue is an important piece of evidence, provided it has been voluntarily given without any inducement, promise, threat or coercion. Once a statement recorded of a person who is in possession of any valuable thing or control of books found during search then it can be used as evidence in any proceedings under the Act and the presumption would be that it has been given by that person voluntarily. The burden to prove that the statement was incorrect based on mistake of fact or that it was not voluntarily obtained, but due to threat, coercion, promise etc., is upon the maker of statement. In this context, the Hon'ble Apex Court in the case of Pullengole Rubber Produce Co. Ltd. v. State of Kerala (91 ITR 18) has held that although an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It was he....
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.... it is evident that they had only admitted to over-invoicing being done through M/s Reynolds Petro Chem Ltd. The Ld. AR has rightly pointed out that none of these employees have named the assessee, i.e. M/s IPCA Laboratories Ltd. in their answers. Instead, while explaining the modus operandi, these employees are noted to have named M/s Maker Laboratories Ltd, which we note to be sister concern of the assessee who had made purchases from M/s Reynolds Petro Chem Ltd. It is not the Revenue's case that the assessee had made any purchases from M/s Reynolds Petro Chem Ltd. The AO instead is noted to have used these statements to allege that purchases made from other vendors, namely, M/s Sarna Chemicals Pvt Ltd, M/s Anuh Pharma Ltd, M/s Mehta API Pvt Ltd, M/s Calyx Chemicals and Pharmaceuticals Ltd and M/s Farmson Pharmaceuticals Pvt Ltd were also subjected to over-invoicing. Upon query by this Bench on this aspect, the Ld. AR confirmed that there were no purchases made by the assessee from M/s M/s Reynolds Petro Chem Ltd and this admitted factual position was not controverted by the Revenue. The Ld. AR brought to our notice that only M/s Maker Laboratories Ltd had conducted transactions ....
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....om purchases made from vendors, M/s Sarna Chemicals Pvt Ltd, M/s Anuh Pharma Ltd, M/s Mehta API Pvt Ltd, M/s Calyx Chemicals and Pharmaceuticals Ltd and M/s Farmson Pharmaceuticals Pvt Ltd. The AO, instead, is noted to have drawn this inference on his own surmises and not any incriminating material found in the course of search. Overall, therefore, we find that the entire premise on which the AO alleged over-invoicing of purchases by the assessee was fundamentally flawed and not backed by any material or evidence. Accordingly, the additions made in this regard in the hands of the assessee is untenable." 9.14 In light of the above decision and considering that factual position of the current year are identical to the facts of the assessment years which has been dealt by the Tribunal, the AO is directed to follow the decision of the ITAT. Accordingly, the addition made by the AO amounting to Rs. 1,40,35,340 is should be deleted. Accordingly, ground no. 5,6 & 7 are allowed." 8.7 Before us the ld counsel submitted that the above issue is directly covered by the order passed by the Hon'ble ITAT (supra) for earlier years wherein the findings of the search were considered & di....
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....nts. Their role was confined to purchaserelated functions and they had merely provided details of products and suppliers to the investigation team. Thus, the statements relied upon by the ld. AO lacked evidentiary value and could not form the sole basis for making addition. 8.11 It was pointed out that after the retraction affidavits were placed on record, it was incumbent upon the ld. AO to conduct proper enquiry and cross-examination of the concerned persons. However, no such exercise was undertaken. The ld. AO mechanically disregarded the retractions without bringing any independent corroborative material on record. Such action is contrary to settled principles of law. 8.12 Further, it was also submitted that even the original statements relied upon by the ld. AO pertain to alleged transactions involving group concern M/s Makers Laboratories Ltd. and M/s Reynolds Petro Chem Ltd. The assesseecompany has admittedly not made any purchases from M/s Reynolds Petro Chem Ltd. Therefore, the very foundation of the addition made in the appellant's case is factually incorrect. It is pertinent to submit that additions on account of alleged over-invoicing relating to purchases from M/....
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....the same is enclosed at page no. 313 to 320 of the paper book. However, such favourable data has been completely ignored by the ld. AO while framing the assessment. It was further submitted that the ld. AO himself ultimately did not make addition based on the alleged price comparison analysis, but instead made addition solely on the basis of figures mentioned in the statements recorded during search proceedings. This itself establishes that the comparison exercise undertaken by the ld. AO had no independent evidentiary value. 8.16 In view of the above facts, judicial precedents and order of the ITAT in appellant's own case on identical issue, it was submitted that the impugned addition made by the ld. AO is wholly unjustified and liable to be deleted in entirety. 8.17 We have carefully considered the rival submissions, perused the orders of the authorities below and examined the material available on record. The sole grievance raised by the Revenue in Ground No. 2 pertains to the deletion of the addition of Rs. 1,40,35,340/- made by the Assessing Officer on account of alleged over-invoicing of purchases of pharmaceutical raw materials. 8.18 The foundation of the impugned a....
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....invoicing was fundamentally flawed and unsupported by any cogent material or evidence. The Tribunal further found that the statements relied upon by the Revenue primarily related to transactions undertaken by M/s Makers Laboratories Ltd., a group concern, with M/s Reynolds Petro Chem Ltd., and not to purchases made by the present assessee. 8.21 Significantly, the Tribunal recorded a finding that the assessee-company had admittedly not made any purchases from M/s Reynolds Petro Chem Ltd., which was the entity alleged to be involved in providing inflated invoices. The Revenue has not brought any material before us to demonstrate that the aforesaid finding of fact has either been reversed or shown to be erroneous. We also find merit in the observation of the learned CIT(A) that the cash of Rs. 1.17 crores recovered during the course of search was subsequently offered to tax by Shri Prashant Godha in his individual capacity and the same stood accepted and assessed by the Department in his hands. Once the Revenue itself has accepted the said amount as undisclosed income of Shri Prashant Godha, it would be legally incongruous to simultaneously attribute the very same amount to the ass....
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....been brought on record warranting a departure from the view already taken. In such circumstances, judicial discipline and the principle of consistency require us to follow the earlier decision rendered in the assessee's own case on identical facts. 8.26 Accordingly, we find no infirmity in the order of the learned CIT(A) deleting the addition. We therefore uphold the impugned order on this issue and dismiss Ground No. 2 raised by the Revenue. 9. Ground No. 3 raised by the Revenue assails the action of the learned CIT(A) in allowing deduction under sections 80-IB, 80-IC and 80-IE of the Act in respect of income arising from the sale of scrap/empty containers, resulting in deletion of the disallowance of Rs. 36,24,176/- made by the Assessing Officer. 9.1 The Assessing Officer, while framing the assessment, held that the receipts arising from the sale of scrap and empty containers could not be regarded as profits "derived from" the eligible industrial undertakings for the purposes of sections 80-IB, 80-IC and 80-IE of the Act. According to the Assessing Officer, such receipts were merely incidental in nature and lacked the requisite direct nexus with the manufacturing activit....
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....m the eligible undertaking. The AO accordingly held the profit from sale of scrap to be ineligible for deduction u/s. 80-IC of the Act. Likewise, on appeal, the Ld. CIT(A) is noted to have deleted this disallowance by following the order passed by this Tribunal in assessee's own case in ITA No.3597/Mum/2016 for AY 2009-10 dated 29.08.2022. The Revenue is now in appeal before us. 13.2 Heard both the parties. It is noted that the impugned issue stands squarely covered in favour of the assessee by the decision rendered by this Tribunal in their common order passed in assessee's own case for AYs 2008-09 & 2009-10. The relevant findings of the Tribunal is noted to be as under :- "We have carefully considered the rival contention and perused the orders of the lower authorities. Apparently, assessee earned receipt of sale of empty containers. Undisputedly, the unit at Silvassa and Dheradun are eligible undertakings income, which is eligible for deduction under Section 80IC and 80IB of the Act. Provision of Section 80IC of the Act allows deduction of profit and gains derived by undertaking from eligible business. It cannot said that sale of empty containers is altogether ....
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....y such test. 9.5 We have heard the rival submissions and perused the material available on record. We find that the learned CIT(A) has granted relief by faithfully following the decision of the Coordinate Bench of the Tribunal rendered in the assessee's own case on an identical issue. The Tribunal, after examining the nature of the receipts, had categorically held that the sale of empty containers and scrap generated during the manufacturing process forms an integral part of the business operations of the eligible undertaking and that the profits arising therefrom qualify for deduction under the relevant provisions of the Act 9.6 It is noteworthy that the Revenue has not brought on record any material demonstrating a change either in the factual matrix or in the legal position prevailing during the year under consideration. Nor has any distinguishing feature been pointed out which would justify taking a view different from that consistently adopted in the assessee's own case. In the absence of any such distinguishing circumstance, the principles of judicial discipline and consistency require that the view already taken by the Coordinate Bench be followed. 9.7 Accordingly, ....
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....on'ble Supreme Court in the case of CIT vs. Goetze (India) Ltd. 10.4 The Assessing Officer declined to entertain the revised claim on the ground that the same had not been made through a revised return filed under section 139(5) of the Act. Placing reliance upon the decision of the Hon'ble Supreme Court in Goetze (India) Ltd. v. CIT, the Assessing Officer held that a fresh claim could not be entertained otherwise than by way of a revised return. The Assessing Officer further rejected the assessee's contention on merits and continued to treat the excise duty refund as revenue receipt liable to tax. He also declined to exclude the said amount while computing book profit under section 115JB of the Act. 10.5 During the appellate proceedings before ld. CIT(A the assessee raised the above claim contending that the excise duty refund received under the North East Industrial and Investment Promotion Policy (NEIIPP), 2007 was a capital receipt and therefore not chargeable to tax. The assessee also claimed that the said receipt was liable to be excluded while computing book profit u/s. 115JB of the Act. The assessee requested to adjudicate the said claim. 10.6 The learned CIT(A) fir....
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....rth East Region of the country was industrially backward due to their isolated location from the rest of the country. In order to attract investment and improve industrialisation, a North East Industrial Policy, 1997 was announced by the Government. However, State of Sikkim was not included in the said policy. Subsequently, a new policy under the name of North East Industrial and Investment Promotion Policy (NEIIPP) was introduced by the Ministry of Commerce and Industry dated 01.04.2007 wherein the state of Sikkim was included. The copy of the scheme was also placed page nos.468-473 of the paper book filed by the assessee during the appellate proceedings. The assessee in its submission pointed out that in the said policy, all the new units who establish their new unit and start production after 01.04.2007 would be eligible for subsidy in the nature of exemption from excise duty for a period of ten years. The main focus of the said policy was purely to attract investment in industries in the north east region of the country which was backward at that relevant point of time. 14.5 The assessee further submitted that such receipt are capital in nature, in this regard, the ass....
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....e revised return. However, in light of the above decision, it is also a noted position that such additional claims can be accepted by the appellate authorities. Accordingly, the claim made by the assessee in its revised computation filed before the AO can be accepted at this appellate stage. Further with regards to the nature of such receipts, I find that the Hon'ble tribunal has decided this issue in the favour of the assessee for AY 2012-13 & 2014- 15 wherein the additional claim was made by the assessee by way of filling the revised computation before the AO. The relevant portion of the order reads as under:- "14.4 We have considered the rival submissions of both the parties. From the facts as discussed in the foregoing, it can be safely inferred that the subsidy was granted to the assessee for setting up new unit in the State of Sikkim. The Hon'ble Supreme Court in the case of Chaphalkar Brothers (400 ITR 279) has held that the subsidies granted under Government Industrial Scheme to accelerate industrial development and generate employment is capital in nature. The relevant extracts of the judgment are as follows: ..................... 14.5 The ab....
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....nd in the present case before us. In the decided case, it has been held that the subsidy received by the assessee in form of excise duty exemption for setting up new industry in the North Eastern State viz., Sikkim was in the capital field and therefore not liable to tax under the provisions of section 115JB of the Act. The relevant findings of this Tribunal are as follows: ................................ 14.9 For the reasons set out above and respectfully following the decisions (supra), we uphold the order of Ld. CIT(A) excluding the subsidy received by the assessee for setting up new industry, by way of refund of excise duty from the computation of book profit u/s. 115JB of the Act. 14.10 As far as the ld. CIT, DR's contention regarding admission of fresh claim is concerned, we note that the assessee had raised the claim in the abated AYs 2012-13 & 2014-15. It is noted that the Hon'ble Bombay High Court in the decisions rendered in the cases of Pr. CIT v. JSW Steel Limited (270 Taxman 201) and CIT v. B. G. Shirke Construction Technology (P.) Ltd.(395 ITR 371) has held that, it is open for an assessee to lodge a new claim in a proceeding under sect....
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....by the decision of the Coordinate Bench rendered in the assessee's own case. It was contended that the dominant purpose of the NEIIPP Scheme was to encourage entrepreneurs to establish industries in economically backward regions and thereby generate employment and industrial growth. Applying the well-settled "purpose test" laid down by the Hon'ble Supreme Court in Sahney Steel & Press Works Ltd. v. CIT, CIT v. Ponni Sugars & Chemicals Ltd., CIT v. Shree Balaji Alloys and CIT v. Chaphalkar Brothers, it was submitted that the subsidy was clearly capital in character. It is further submitted that the decision of Mumbai Tribunal in the case of Man Industries India Ltd. vs. ACIT held that incentives granted for setting up industries in backward areas constitute capital receipts and are not liable to tax. 10.10 It was further submitted that the issue relating to exclusion of such subsidy from book profit under section 115JB is equally covered by the decisions of the Hon'ble Calcutta High Court in Pr. CIT v. Ankit Metal & Power Ltd., as well as the decisions of various Coordinate Benches of the Tribunal including Sicpa India (P.) Ltd. v. DCIT. Reliance was also placed on the decision o....
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....tal & Power Ltd. (supra) and other judicial precedents cited before us. Significantly, the Revenue has not pointed out any distinguishing feature either in the factual matrix or in the governing legal position which would warrant a departure from the view consistently taken in the assessee's own case. In fact, it has been brought on record that the Assessing Officer himself accepted a similar claim in Assessment Year 2015-16. 10.15 In these circumstances, and respectfully following the binding decision of the Coordinate Bench rendered in the assessee's own case, we find no reason to interfere with the order of the learned CIT(A). We accordingly uphold the finding that the excise duty refund of Rs. 11,44,53,373/- received under the NEIIPP Scheme is a capital receipt not chargeable to tax and is liable to be excluded both from the computation of income under the normal provisions and from the computation of book profit under section 115JB of the Act. The Ground No.4 of the appeal of the Revenue is accordingly dismissed. 11. Ground No. 5 relates to the transfer pricing adjustment of Rs. 4,17,22,865/- made in respect of the Specified Domestic Transactions entered into by the asse....
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.... considering the assessee as tested party. The ld. CIT(A) observed that there was no dispute between the assessee and the TPO regarding adoption of TNMM as the Most Appropriate Method. The dispute was only with respect to the action of the TPO in treating the AE, namely M/s. Exon Laboratories Pvt. Ltd., as the tested party and selecting certain companies as comparables. The ld. CIT(A) noted that the AE was engaged in manufacturing intermediate pharmaceutical products such as HNDA and Etodolac, which were used by the assessee in the manufacturing of final products. However, the comparables selected by the TPO, namely M/s. Brook Laboratories Ltd. and M/s. NGL Fine Chem Ltd., were engaged in manufacturing finished pharmaceutical formulations for human and veterinary consumption. The ld. CIT(A) held that the companies selected by the TPO were functionally different from the AE. It was observed that an intermediate manufacturer operates with lower commercial and marketing risks, whereas manufacturers of finished formulations bear higher risks along with branding, packaging and marketing functions. The ld. CIT(A) further recorded that TPO had not carried out proper FAR analysis before se....
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.... Fine Chem Ltd. which is involved in the manufacturing of finished goods for Human consumption as well as veterinary animals consumption. I find that the comparable should be 'functionally similar' entities which means that companies being compared should Perform similar functions, Bear similar risks, Use similar assets 11.5 In the case of intermediate manufacturer such as AE, their products are used in the early stage of production which means that they are at lower commercial risks, lower marketing cost. Whereas in case of formulation manufacturer, their product are directly used for consumption which means that they are at higher commercial risk, higher marketing, branding, packaging cost. Moreover, the assessee has pointed out that TPO has not made any FAR analysis before selecting the said comparable. Therefore, I agree with the submission of the assessee that the comparable used by the TPO are not correct. 11.6 Further, the assessee has pointed out that the AE cannot be taken as tested party since there are no comparable available for the companies who are engaged in the business of intermediate manufacturing. In this regard, the assessee has submitted the r....
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....ly because they operated within the pharma sector. It is submitted that product segmentation and functional comparability are crucial factors in transfer pricing analysis, particularly in the pharmaceutical industry. It was submitted that while preparing its Transfer Pricing Study Report, assessee had undertaken a detailed accept-reject analysis and had excluded companies engaged in functionally dissimilar pharmaceutical segments. Accordingly, the observation of the TPO that the assessee itself had selected companies operating in different product segments is factually incorrect. Thus, the comparables adopted by the ld. TPO is incorrect and deserves to be deleted. 11.9 It was further submitted that the AE had entered into two distinct categories of transactions with the assessee, namely (i) supply of intermediate products and (ii) rendering of manufacturing/job work services. The margins attributable to job work activities are inherently higher since there is no purchase cost for the same. Whereas in the case of supply of products, the purchase cost is debited in the P & L account. However, the TPO has incorrectly considered a combined operating margin of 20.83% without carrying....
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....elf as the tested party and comparing its net margin of 17.06% with the industry average margin of 12.93%, thereby establishing that the transactions were undertaken at arm's length. The above working has nowhere been doubted by the ld. TPO. It is also submitted that even if the AE were to be considered as the tested party, no reliable comparables engaged in similar activities of manufacturing pharmaceutical intermediates were available in the public domain. The comparable companies available under pharmaceutical segments largely related to formulations, finished drugs, APIs, vitamins and veterinary products, which were functionally different from the activities carried out by the AE. Further, it was also submitted that assessee was justified in adopting itself as the tested party considering that its operations were homogeneous in nature and consisted of integrated manufacturing, distribution and export activities in the pharmaceutical business. In such circumstances, entity-level TNMM constituted the most appropriate method. Moreover, it may be noted that the TPO has accepted TNMM method at entity level for similar transaction done with another AE M/s. Paschim Chemicals Pvt. Ltd.....
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....analysis was undertaken by the Transfer Pricing Officer before selecting the aforesaid comparables. In the absence of such foundational exercise, the comparability analysis loses its reliability and cannot form a sustainable basis for determination of the Arm's Length Price. 11.19 We further find merit in the observations of the learned CIT(A) that the Associated Enterprise had multiple streams of operations, including manufacture and supply of pharmaceutical intermediates as well as rendering of job-work/manufacturing services. The profitability arising from these activities is inherently different in character. However, the Transfer Pricing Officer adopted the overall margin of the Associated Enterprise without carrying out any segmental analysis or making appropriate adjustments. Such an approach, in our considered opinion, does not satisfy the standards of comparability contemplated under Chapter X of the Act. 11.20 The learned CIT(A) has recorded a categorical finding that reliable comparable companies engaged in similar intermediate manufacturing activities were not available and that the comparables selected by the Transfer Pricing Officer were functionally dissimi....
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....ed by the assessee was not appropriate for benchmarking the transactions. According to the TPO, monthly average rates of comparable uncontrolled transactions ought to have been considered instead of annual weighted averages. On the basis of the aforesaid approach, the TPO recomputed the ALP of the inter-unit transactions and proposed additional transfer pricing adjustments over and above the adjustments already offered by the assessee in various years. 12.3 The TPO further held that wherever monthly prices charged to unrelated third parties were higher than the rates charged to the eligible units, upward adjustments were required to be made for determining the ALP. Accordingly, adjustments were made on the allegation that the assessee had supplied goods to the eligible units at prices lower than the arm's length prices. 12.4 On further appeal the ld. CIT(A) upheld the action of the TPO in rejecting the benchmarking methodology adopted by the assessee for determining the arm's length price of inter-unit transfer transactions. The contention of the assessee that annual weighted average prices should be adopted under the CUP method was not accepted. The ld. CIT(A) observed that ....
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.... under the transfer pricing provisions. Accordingly, the explanation of the assessee regarding stability of inter-unit prices and fluctuation in third party prices was rejected. 12.6 Before us the ld Counsel submitted that the benchmarking analysis undertaken by the assessee was fully in accordance with the provisions of Chapter X of the Act and was based on annual weighted average prices of similar products sold to unrelated parties. The said methodology was consistently adopted considering the continuous and regular supply of captive raw materials to the eligible units throughout the year. It was submitted that the monthly average approach adopted by the TPO is fundamentally incorrect and has resulted in distorted and unreliable comparisons. It is submitted that sales made to third parties were not undertaken on a regular or uniform basis every month, whereas supplies to captive units were continuous, stable and recurring in nature. Therefore, comparison on a month-wise basis does not provide a true and reliable determination of the arm's length price. 12.7 It was further submitted that market prices in the pharmaceutical industry are subject to substantial fluctuations on ....
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....th positive as well as negative differences are required to be considered collectively and the adjustment, if any, should be arrived at only after adopting a netting-off approach. Thus, selective consideration of only upward differences, while disregarding downward variations, has resulted in an incorrect and excessive adjustment. A sample revised working for the same is enclosed herewith as Annexure-1. It was submitted that in such circumstances, while computing the transfer pricing adjustment, the net impact of both positive and negative price differences ought to have been considered instead of considering only those instances where the comparable uncontrolled price was higher. The transactions undertaken by the assessee were spread over the entire financial year and while in some months there existed a positive variance, there were also several instances where the variance was negative. 12.9 Accordingly, it was submitted that for the purpose of determining the adjustment, the negative differences should also be aggregated & only the net of said difference should be considered for adjustment. 12.10 In this regard, reliance was placed on the decision of Mumbai tribunal in t....
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..... 12.13 We have carefully considered the rival submissions and perused the orders of the authorities below as well as the material placed on record. The controversy before us relates to the determination of the Arm's Length Price in respect of inter-unit transfer of Active Pharmaceutical Ingredients (APIs) and other captive raw materials supplied by the non-eligible units of the assessee to its eligible units claiming deduction under sections 80IC, 80-IB, 10AA and 80-IE of the Act. 12.14 The principal grievance of the assessee is directed against the rejection of the benchmarking methodology adopted by it, namely, determination of the arm's length price on the basis of annual weighted average prices of comparable uncontrolled transactions. According to the assessee, annual averaging neutralizes market fluctuations and provides a more reliable benchmark. The Revenue, on the other hand, is aggrieved by the relief granted by the learned CIT(A) by extending the benefit of the tolerance range prescribed under Rule 10CA of the Income-tax Rules, 1962. 12.15 Having examined the rival contentions, we find ourselves in agreement with the reasoning and conclusion recorded by the lear....
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....sustained by the learned CIT(A) cannot be said to suffer from any legal or factual infirmity. 12.19 It is a settled principle that where the first appellate authority has examined the issue in detail, applied the correct legal principles and granted appropriate relief in accordance with the statutory framework, interference by the Tribunal is unwarranted unless the findings are shown to be perverse or contrary to law. In the present case, we find that the learned CIT(A) has adopted a balanced and legally sustainable approach by affirming the CUPbased benchmarking methodology adopted by the Transfer Pricing Officer while simultaneously granting the assessee the benefit of the permissible tolerance band under Rule 10CA. 12.20 In view of the foregoing discussion, we find no reason to interfere with the well-reasoned findings recorded by the learned CIT(A). Accordingly, the order of the learned CIT(A) on this issue is affirmed. Consequently, Ground No. 4 raised by the assessee and Ground Nos. 7 to 10 raised by the Revenue are dismissed. 13. Now we take up the appeals of the assessee and Revenue for Assessment Year 2015-16 for adjudication. The grounds raised by the assessee ar....
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....ma Nigeria Ltd., as per the ground/s contained in the assessment or otherwise. 8. On the facts and circumstances of the Appellant's case and in law the Ld. Assessing Officer erred in making disallowance as per Para 10 of the impugned order, a sum of Rs. 6,00,998/- being Arm's length adjustments made by the Ld. TPO u/s. 92CA(3) of the Income Tax Act 1961 on account of Corporate Guarantee provided on behalf of M/s Ipca Pharma Inc USA, as per the ground/s contained in the assessment or otherwise. 9. On the facts and circumstances of the Appellant's case and in law the Ld. Assessing Officer erred in making disallowance as per Para 10 of the impugned order, a sum of Rs. 1,36,34,585/-being Arm's length adjustments made by the Ld. TPO u/s. 92CA(3) of the Income Tax Act 1961 on account of service charges paid to M/s Ipca Pharma Inc, USA, as per the ground/s contained in the assessment or otherwise. 10. On the facts and circumstances of the Appellant's case and in law the adjustment of Rs. 1,36,34,585 10. by the Ld. TPO is adhoc, arbitrary and without any base as the TPO has not carried out any activity of determining the ALP for the markup. ....
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....while allowing the deduction to the appellant u/s. 80IB/80IC/80IE of the Income Tax Act, 1961, as per the ground/s contained in the assessment or otherwise." 3.1 The grounds raised by the Revenue are reproduced as under:- 1. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in making disallowance of Rs. 17,14,87,839/ - on account of alleged freebies services provided by the appellant to the medical practitioners, as per the ground/s contained in the assessment or otherwise." 2. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in making disallowance of Rs. 2,07,84,600/- on account of alleged over invoicing of Raw Material, as per the ground/s contained in the assessment or otherwise." 3. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in making disallowance of Rs. 27,50,024/- being scrap sales while allowing the deduction to the appellant u/s. 80IB/80IC/80IE of the Income Tax Act, 1961, as per the ground/s contained in the assessment or otherwise." Grounds of Appeal on TP adjustments: 4.1. "Whether on facts and circumstances of t....
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....e the benchmarking of the above transactions and arrived at the ALP adjustment for the Inter unit transfers as per provisions of section 92C of the Income Tax Act 1961?" 6.3. "Whether on facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the tolerance limit of 3% benefit is generally applied on an aggregate basis* (i.e., after considering the net effect of all transactions of the same category) rather than item-wise as has been held by Hon'ble ITAT, Mumbai in the case of DCIT vs. Tata Autocomp Systems Ltd. (2012)?" 14. The Ground No.1 of the appeal was not pressed and therefore same is dismissed as infructuous. 15. The Ground Nos.2 and 3 of the appeal of the assessee and Ground No.1, 2 and 3 of the appeal of the Revenue are covered by the grounds already adjudicated for appeal of the assessee/Revenue for assessment year 2013-14 and therefore these grounds are decided mutatis-mutandis. 16. The assessee in Ground No.4 and Revenue in Ground No.4 and 5 is aggrieved with the transfer pricing adjustment for entering transfer of purchase of the raw material. The issue in dispute has been adjudicated by us while deci....
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....f the CUP Method. Placing reliance on Rule 10B(3) of the Income-tax Rules, 1962, the TPO held that adjustments are warranted only where the differences materially affect the prices charged in the controlled and uncontrolled transactions. Since, according to him, the products sold were identical and the sales to both AE and non-AE customers were largely within the Asian and African regions, the comparison was considered appropriate. 17.4 Before the TPO, the assessee vehemently opposed the adoption of the CUP Method and submitted that the method demands a high degree of comparability, which was absent in the present case. It was contended that material differences existed in geographical markets, sales volumes, commercial terms, pack sizes, packaging configurations, regulatory requirements and other economic factors. The assessee further submitted that identical pharmaceutical products may be marketed in different countries with varying specifications, packaging formats and commercial conditions, thereby rendering a mere comparison of unit sale prices unreliable and misleading. 17.5 The TPO, however, was not persuaded by the aforesaid submissions. Rejecting the objections raise....
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....h price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (ii) the adjusted price arrived at under sub-clause (il) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction; (c) (d) (e) Transactional net margin method, by which, (1) the net profit margin realized by the enterprise from an international 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; from (ii) the net profit margin realized by the enterprise or by an unrelated enterprise a-comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (III) the net profit margin referred to in sub-clause (il) arising in comparable uncontrolled transactions is adjusted to take into accou....
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....for specific examination of each international transaction, to ascertain whether the arm's-length price in respect of the same has been determined in accordance with law. (v) The CIT(A) in the assessee's own case for AY 2008-09 to 2010-11 has upheld the adjustment proposed by the TPO using internal CUP method. Hence, it is held that internal CUP, comparing the AE transactions with the assessee's exports to 3rd parties, is applied. It is pertinent to note that spite of giving sufficient opportunity of more than 3 months, the assessee has submitted the annual average rates for export to third parties on 23.10.2017. Therefore, the issue of paucity of time raised by the assessee is factually incorrect. In view of the above, comparison of rate charged to AE and non-AE was carried out on the data furnishes by the AE and the difference between AE and non-AE pricing (where the price charged to AE is lower than the price charged to non-AE) is proposed as adjustment. The same is summarized below. Accordingly, an adjustment of Rs. 12,96,73,021/- is proposed. S. No. Name of product Qty sold Sale price to AE Sale price to unrelated ....
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....imilar. According to the learned CIT(A), the foundational requirement for application of the CUP Method is the existence of comparable market conditions, commercial circumstances and economic environments, failing which the reliability of the benchmarking exercise becomes seriously impaired. 17.7 The learned CIT(A) further noted that the reliance placed by the Transfer Pricing Officer on the orders passed in the assessee's own case for the earlier assessment years was misplaced. It was observed that the controversy adjudicated by the Tribunal in those years was confined to the validity of the "basket approach" adopted by the assessee while applying the CUP Method and did not involve the question whether transactions undertaken in countries having materially different economic and geographical conditions could be compared under the CUP Method without appropriate adjustments. The learned CIT(A), therefore, held that the earlier decisions did not constitute a binding precedent on the issue arising in the year under consideration, particularly when the assessee had adopted TNMM as the Most Appropriate Method during the relevant assessment year. 17.8 Upon examining the benchmarkin....
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....priate method in cases involving closely connected and integrated business activities. 17.11 In light of the aforesaid findings, the learned CIT(A) concluded that the CUP Method adopted by the Transfer Pricing Officer was unsuitable in the facts and circumstances of the case and that the entity-level TNMM adopted by the assessee represented the Most Appropriate Method for benchmarking the impugned international transaction. The transfer pricing adjustment made in respect of exports to M/s IPCA Nigeria Limited was, accordingly, directed to be deleted. The relevant finding of the learned CIT(A) is reproduced as under: "18.4 I have considered the contention of the TPO and submissions of the assessee. It is understood that issue arises in the present ground is to whether CUP can be applied for determining ALP. In the transfer pricing order, TPO has contended that the appellant has sold certain products to its Nigeria AE and the same has also been sold to third parties in different countries across the globe. As per TPO, when the products are sold within the same continent of Africa or even in Asia, the same are comparable. The appellant has pointed out that TPO has compared....
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....ared the same with the industry comparable. I find that there is no bar as per transfer pricing rules to adopt the entity level margin to apply TNMM. The assessee has explained that the transaction entered into by the company is inter connected making the transaction specific profit margin not workable. Also, the assessee has explained that comparable for each transaction wise profit margin or segment wise are not available. I find that the working of the net margin has not been doubted by the TPO. Also, the assessee has pointed out that TNMM has been accepted by TPO in the subsequent years. I find that the entity level margin is proper considering the interconnected activities of the assessee. In this regard, I find that the assessee has relied upon the decision of Delhi Tribunal in the case of McCann Erickson India Pvt. Ltd. vs. ACIT, ITA No.5871/Del/2011 wherein the entity level TNMM has been upheld and the same reads as under- "6.9 Ld. AR has argued that even on merits TNMM was the most appropriate method, due to the fact that appellant was engaged in only one activity ie, advertising and marketing services and all the international transactions are closely linked and ....
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....ived the ALP to be 'NIL' without providing the reasons for selection of CUP method as the most appropriate method over the TNMM selected by the appellant. 9. We have heard both sides and have also gone through the orders of the AO, TPO and DRP. We have also perused the relevant evidences filed before the authorities below. The DRP has allowed part relief to the assessee. The assessee had placed evidences in respect of the management service charges and client coordination fee on record. The chart at pages 18 to 26 of this order which is part of assessee's argument establishes the nature of service provided by AE and received by assessee. Benefits derived by assessee are also narrated in this chart disclosed net margin services. anything for negating any of considered view, the Revenue had not brought content of this chart of services and benefits derived thereof. The assessee company has 26% as against 8% average of the comparable other companies at entity level. The assessee is engaged in one class of business that is advertising and its allied segments different activities which business of the assessee, there are be said independent of each other, in our con....
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....s difficult to accurately measure these benefits in terms of money value separately. We have examined the chart where assessee has enumerated in detail and description of type of services received and how these services have been received and in what manner the benefits have been derived from these services by the assessee company. The description of services received by the assessee company from its associated enterprises has been mentioned in para 6.13. For the sake of brevity, the description of the services along with the explanation of the type of services received, how these services were received and what benefits derived by the assessee are not repeated here again. In these charts, the assessee. has given detailed functions, submissions and references to various evidences. The revenue has not brought anything on record to negate the details provided in these charts. In view of these evidences brought on record by the assessee and considering the peculiar nature of business and facts and circumstances of the case, we find merits in the claim of the assessee. Therefore, we find no justification to sustain any addition in this regard on this issue. We direct to delete the addi....
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....as been done by the ld. TPO. It is pertinent to mention that where reasonable adjustment are not possible to be made for making the comparison, then CUP method cannot be applied. 17.14 Further, it was submitted that pharmaceutical products are sold across different countries in varying pack sizes, packaging structures and commercial configurations. For instance, a product such as Glycinorm-M 80 Tablets may be sold in a pack configuration of 3x10 tablets in one jurisdiction and 10x10 tablets in another jurisdiction. In such circumstances, comparison of unit prices without suitable adjustments for pack size and packaging differences would not yield a reliable or meaningful comparison. This fact was duly pointed out to the ld. CIT(A) in our submission. However, the TPO has mechanically compared the unit sale prices charged to AEs with those charged to unrelated parties without appreciating the material differences in pack size, pack configuration and other economically relevant factors affecting the pricing of the products. Such an approach is contrary to the settled principles governing the application of the CUP method. It is further submitted that CUP could not have been reliabl....
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....e Tribunal in the impugned order found that there are vast differences in the functions which are performed and the rate of commission paid by the respondent to the AEs as well as to the third parties. This was evidenced by the fact that the rate of commission paid varies from 1% to 7% depending upon the services rendered by the AEs in respect of the sales made. The impugned order of the Tribunal finds on facts that the functions performed by the AEs for which they paid sales commission was much wider than that performed by non-AE agents. Further, the comparison of sales commission paid on sales made in India to sales commission paid to sales made abroad would, in view of the geographical differences and differences in the functions performed, result in the TNM method and not the CUP method as the MAM to determine the ALP of the sales commission paid to AEs. Thus, allowed the appeal. (c) We note that the impugned order of the Tribunal has analyzed the differences between sales commission paid to its AEs for clients identified by them and the sales commission paid to third party agents in respect of sales goods in India. On account of the differences in respect of function ....
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....opriate method." 17.17 Further, it was submitted that TNMM method adopted for comparing the sales made to Nigeria has been accepted by the ld. TPO in AY 2013-14 as well as in AY 2018-19 to 2022-23, when no adjustment have been made. Accordingly, applying the principle of consistency, no adjustment can be made. In this regard, reliance is placed on the decision of Mumbai Tribunal in the case of M/s. Lubrizol India Private Limited vs. DCIT bearing ITA No. 4630/MUM/2024, wherein the Hon'ble Tribunal has held that that the rejection of TNMM method and adoption of the CUP method was unjustified, particularly when TNMM had been consistently accepted in the assessee's own case in earlier as well as subsequent assessment years. The relevant part of the tribunal order is reproduced as under:- 21. In the background of the aforesaid discussion and precedent we hold that the change in method from TNMM to CUP method is not justified. Hence, we set aside the order of the Assessing Officer. Accordingly, the order of learned CIT(A) for A.Y. 2005-06 is upheld and the order of Assessing Officer pursuant to DRP direction for A.Y. 2006-07 and 2007-08 is set aside. As it could be observed t....
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....the sales made by the assessee to its AE were at fair and reasonable prices and not at suppressed pricing. Accordingly, it was submitted the CUP method cannot be considered as MAM in the present case. Once, the CUP is not leviable, the TNMM Method applied by the appellant needs to be upheld when no discrepancy has been shown by the TPO.It was submitted that in view of the aforesaid facts and circumstances, the transfer pricing adjustment made by the learned TPO is based on an erroneous computation mechanism and an unreliable comparability analysis. The adjustment so made is therefore liable to be deleted in full. 17.19 We have thoughtfully considered the rival submissions and perused the orders of the authorities below as well as the material placed on record. The short controversy before us is whether the Transfer Pricing Officer was justified in rejecting the Transactional Net Margin Method (TNMM) adopted by the assessee and in substituting the same with the Comparable Uncontrolled Price (CUP) Method for benchmarking the export transactions undertaken with its Associated Enterprise, namely M/s IPCA Nigeria Limited. 17.20 Upon a careful consideration of the facts on record, ....
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....tructure. The Transfer Pricing Officer has neither disputed the computation of operating margins furnished by the assessee nor demonstrated any defect in the benchmarking analysis carried out under TNMM. Significantly, no reliable segmental data or comparable transaction-wise margins have been brought on record so as to justify rejection of the entity-level TNMM adopted by the assessee. 17.24 The Revenue has also failed to controvert the finding of the learned CIT(A) that the Associated Enterprise in Nigeria had incurred losses and that no material has been brought on record to suggest any profit shifting or manipulation of transfer prices. Equally, no cogent material has been produced before us to establish that the prices charged by the assessee to its Associated Enterprise were not at arm's length. 17.25 In our considered opinion, the learned CIT(A) has correctly appreciated both the factual and legal aspects of the matter and has arrived at a conclusion which is fully supported by the transfer pricing provisions, judicial precedents and the material available on record. We find no perversity, factual error or legal infirmity in the findings recorded by the learned CIT(A) ....
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....ities. According to the TPO, the risk assumed by the assessee in extending a corporate guarantee to its Associated Enterprise was qualitatively higher than the risk assumed by a bank, since the bank's exposure was secured by the counter-guarantee and support extended by the assessee, whereas the assessee itself did not enjoy any corresponding security against possible default by its Associated Enterprise. The TPO, therefore, held that an independent enterprise would have charged a guarantee fee at a rate higher than that charged by banks. 18.5 Proceeding on the aforesaid reasoning, the TPO determined the Arm's Length Price of the corporate guarantee commission at 1% of the guaranteed amount by applying the CUP Method. Since no such commission had been charged by the assessee from its Associated Enterprise, an adjustment of Rs. 6,00,998/- was made under section 92CA of the Act towards guarantee commission chargeable on the corporate guarantee extended by the assessee. 18.6 Accordingly, the Transfer Pricing Officer proposed an adjustment of Rs. 6,00,998/- in respect of the international transaction relating to the corporate guarantee furnished on behalf of the Associated Enterp....
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....inding of the TPO in earlier assessment years, I deem it fit to levy a fee @ 1% for CG provided by the assessee on behalf of the AE. The working of fee on CG is as under: guaranteed amount $ ALP rate Guarantee Commission $ Guarantee Commission in Rs. 1,00,000 1% 10,000 600998 The above amount of Rs. 6,00,998/- is being treated as an adjustment u/s. 92CA in respect of guarantee fee chargeable on the corporate guarantee provided on behalf of AE." 18.7 Accordingly, the Ld. TPO made adjustment of Rs. 6,00,998/- to the international transaction of guarantee fee chargeable on the guarantee provided on behalf of the AE. 18.8 On appeal, the learned CIT(A) examined the transfer pricing adjustment made by the Transfer Pricing Officer and found that the assessee had already suo motu offered an adjustment of Rs. 64.35 lakhs, representing the actual guarantee commission and charges paid to the bank for availing the Standby Letter of Credit (SBLC) facility extended in favour of its Associated Enterprise. The learned CIT(A) observed that the adjustment so offered by the assessee was based on a direct and reliable comparable, namely, the actual charges levied....
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....bank had charged a guarantee fee amounting to Rs. 64,35,400, which was almost 10%, and the said amount was directly paid by the assessee to the bank. It was submitted that while benchmarking the transaction, the assessee had adopted CUP as the most appropriate method considering the bank charges constituted the best internal comparable uncontrolled price for determination of the arm's length nature of the transaction. Since no amount was recovered from the AE, the assessee itself grossed up the amount paid to the bank and offered the same as income while computing the ALP. 18.23 It was submitted that once the entire bank guarantee charges paid to the bank had already been offered as income, no further adjustment on account of guarantee commission could be made. It was submitted that the amount already offered by the assessee exceeded 10% of the total guarantee amount and therefore adequately covered any possible arm's length compensation attributable to the guarantee transaction. 18.24 We have given our thoughtful consideration to the rival submissions and have carefully perused the orders of the authorities below as well as the material placed on record. 18.25 The und....
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....0/- voluntarily offered by the assessee failed to reflect the arm's length value of the guarantee transaction. Nor has it been demonstrated that the methodology adopted by the assessee suffered from any factual or legal infirmity warranting a further upward adjustment. In the absence of any such material, the additional adjustment made by the Transfer Pricing Officer is rendered wholly unsustainable. 18.30 In view of the foregoing discussion, we find ourselves in complete agreement with the findings recorded by the learned CIT(A). The order of the learned CIT(A) does not suffer from any legal or factual infirmity warranting interference by this Tribunal. Accordingly, the deletion of the transfer pricing adjustment of Rs. 6,00,998/- made on account of corporate guarantee commission is upheld. Consequently, Ground No. 4.4 raised by the Revenue stands dismissed. 19. We shall now advert to Ground Nos. 5.1 to 5.3 of the Revenue's appeal, which pertain to the transfer pricing adjustment made in respect of service charges paid by the assessee to its Associated Enterprise in the United States of America. 19.1 The facts, in brief, are that during the year under consideration, the a....
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....of the 20 per cent mark-up/service charge to the Associated Enterprise. According to him, the assessee had failed to substantiate the basis on which such mark-up had been determined and had not demonstrated, through cogent evidence, either the necessity for availing the services or the tangible economic benefits derived therefrom. The TPO further observed that no formal service agreement or contemporaneous documentation had been produced to establish the precise nature, scope and terms governing the services allegedly rendered by the Associated Enterprise. 19.6 Proceeding on the aforesaid premise, the TPO concluded that the assessee had failed to establish the arm's length nature of the service charge component paid to the Associated Enterprise. He was, therefore, of the view that no independent enterprise would have agreed to pay the impugned mark-up under comparable circumstances. Consequently, the Arm's Length Price of the markup/service charge was determined at 'Nil', and the entire amount representing the mark-up paid to the Associated Enterprise was proposed for adjustment. 19.7 Accordingly, the TPO determined the Arm's Length Price of the service charge component at Ni....
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....the learned CIT(A) recorded that the Transfer Pricing Officer had neither disputed the genuineness of the expenditure so incurred nor questioned the actual rendering of services by the Associated Enterprise. 19.12 Having regard to the nature of the assessee's international business operations, the learned CIT(A) held that the establishment and maintenance of a dedicated Associated Enterprise in the United States for undertaking liaisoning, regulatory support, marketing assistance and customer coordination constituted a commercially prudent and businessoriented arrangement. The learned CIT(A) observed that the commercial expediency underlying such an arrangement could not be questioned merely because the services were rendered by an Associated Enterprise. 19.13 Insofar as the Transfer Pricing Officer's approach of treating the Associated Enterprise as the tested party was concerned, the learned CIT(A) accepted the contention of the assessee that reliable and publicly available data relating to comparable independent enterprises operating in the United States and performing similar functions was not available. The learned CIT(A) further observed that despite rejecting the asses....
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....t basis along with a markup/service charge of 20%. 19.17 It was submitted that the international transaction was benchmarked by adopting TNMM as the Most Appropriate Method at the entity level. Since the profit margin earned by the assessee was higher than that of comparable uncontrolled entities, the transaction was considered to be at arm's length. It was contended that the TPO had effectively disallowed the entire service charges paid to the AE without bringing any material on record to demonstrate that the services were not actually rendered or that the transaction was sham or non-genuine. Further, it was submitted that the AE was actively engaged in marketing support functions, liaisoning with regulatory authorities, customer coordination, product registration and identification of export opportunities in the USA market. These services are essential for smooth functioning and expansion of the assessee's export business and, therefore, the expenditure incurred towards such services constituted legitimate business expenditure wholly and exclusively incurred for business purposes. It was further submitted that the genuineness of the services rendered by the AE and the expenses....
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....o the ld. DR argument that profit percentage is high, reference can be made to the CBDT Notification dated 7 June 2017 notifying the Safe Harbour Rules, it was submitted that sub-rule (2A), column 3 of the said Rules provides that in cases where the international transaction involves provision of Knowledge Process Outsourcing (KPO) services, the operating profit margin in relation to operating expenses should not be less than 24% for determination of the Arm's Length Price. Though the present services are not KPO services, however, a comparison can be drawn from such notification wherein margin @ 24% has been approved. Accordingly, the assessee submitted that the transfer pricing adjustment made by the ld. TPO in respect of service charges/markup paid to the AE was unjustified, contrary to the facts on record and liable to be deleted. 19.20 We have carefully considered the rival submissions and perused the orders of the authorities below as well as the material available on record. The issue in controversy relates to the transfer pricing adjustment made by the Transfer Pricing Officer by determining the Arm's Length Price of the service charge/mark-up paid by the assessee to its....
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....ng Officer has neither demonstrated that the services were not rendered nor brought any comparable uncontrolled transaction on record to establish that the mark-up of 20 per cent was excessive. Significantly, no independent benchmarking exercise has been undertaken by the Revenue to justify determination of the Arm's Length Price at 'Nil'. Such an approach, in our considered opinion, is contrary to the settled principles governing transfer pricing adjudication. 19.25 We also find merit in the contention of the assessee that reliable comparable data pertaining to entities situated in the foreign jurisdiction was not readily available and that the assessee had, therefore, benchmarked the transaction by adopting the Transactional Net Margin Method. The learned CIT(A) has recorded a finding that the Transfer Pricing Officer failed to identify any suitable comparable enterprise to support his alternate approach of considering the Associated Enterprise as the tested party. The Revenue has not been able to demonstrate any perversity in the said finding. 19.26 Another important circumstance which cannot be ignored is that a similar mark-up charged by the same Associated Enterprise in....
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....he reasons mentioned in the impugned order or otherwise. 5. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of Ld. Assessing Officer in not allowing the foreign tax credit claimed by appellant in its return of income amounting to Rs. Rs. 35,38,108/-for the reasons mentioned in the impugned order otherwise." 20.1 The grounds raised by the Revenue are reproduced as under: "1. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the disallowance of Rs. 14,10,70,135/-on account of alleged freebie services provided by the appellant to the medical practitioners is on flimsy grounds and not considering the submissions made by the appellant during the course of assessment vide its representatives letter dated 16th December 2019 and not following the decisions of the PHL Pharma (P). Ltd. (163 ITD 10) and Solve Pharma Ltd v/s CIT (169 ITD 13) and Delhi High Court in the case of Max Hospital us. MCI (WPC 1334 of 2013 the Mumbai Tribunal in the case of DCIT us. dated 10.1.2014). 2. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) ha....
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.... has erred in allowing deduction of Rs. 144,79,75,920/- u/s. 80IE of the Act, in respect of its profits from Rs. 144,97,10,782/-claimed by the appellant in the return of income." 10. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in confirming deducting Rs. 17,34,862/- being empty containers sales from the profits of industrial undertaking for the purpose of 80IE. deduction. The appellant submits that, sale of empty containers are directly related to the profits appellant from the business of the industrial undertaking to the appellant and derived therefore the same is eligible for deduction. Grounds of appeal on TP adjustments: 11.1 "Whether on facts and circumstances of the case and in law, the Ld. CIT(A) is justified deleting the transfer pricing adjustment done by the TPO of Rs. 1,57,11,574/- made on account of sale of products to it's Associated Enterprise Le. IPCA Pharma Nigeria Ltd.? 11.2 Whether on facts and circumstances of the case and in law, the Ld. CIT(A) is justified deleting the transfer pricing adjustment done by the TPO without appreciating the flaws pointed out by the TPO in the method used by the....
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...., the Assessing Officer computed a total disallowance of Rs. 36,65,376/-, comprising Rs. 20,23,126/- under Rule 8D(2)(ii) towards interest expenditure and Rs. 16,42,250/- under Rule 8D(2)(iii) towards administrative expenditure. After granting credit for the suo motu disallowance already made by the assessee, the balance amount was added to the total income. The Assessing Officer further included the said disallowance while computing the book profit under Section 115JB of the Act. 23.2 In appeal, the learned CIT(A), upon an examination of the balance sheet and other material available on record, recorded a categorical finding that the assessee's own funds, comprising share capital and free reserves, were substantially in excess of the investments yielding exempt income. The learned CIT(A) further noted that the Assessing Officer had failed to establish any direct nexus between the borrowed funds and the investments from which exempt income had been earned. Relying upon the judgments of the Hon'ble Bombay High Court in CIT v. HDFC Bank Ltd. [(2014) 366 ITR 505 (Bom)] and HDFC Bank Ltd. v. DCIT [(2016) 383 ITR 529 (Bom)], the learned CIT(A) held that where sufficient interestf....
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....assessee. In the assessment order, AO has made disallowance under Rüle 8D(ii) on account of interest and Rule 8D(iii) on account of average investment. I find that the assessee has own funds in excess of the investment made and AO has not made any linkage that the interest bearing fundshave been used for the purpose of investment. The assessee has relied upon the decision of Bombay High Court in the case of CIT v. HDFC Bank Ltd. [2014] 366 ITR 505 and HDFC Bank Ltd. v. DCIT [2016] 383 ITR 529, Following the decision of jurisdictional High Court, I hold that no interest disallowance can be made under Rule 8D(il) where the own funds are much more than the investiment amount 30.6 Further, assessee has submitted that while applying Rule 8D(iii), only investment on which exempt income has been earned shall be considered. This issue is covered in the favour of the assessee by the decision of Hon'ble Delhi Tribunal in the case of Vireet Investment Pvt. Ltd. Following the decision of Tribunal, I hold that the disallowance can be made under Rule 8D(iii) only on the investment on which exempt income has been earned. The AO shall allow set off of the disallowance already mad....
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.... be sustained. 23.8 We further find that the learned CIT(A) has correctly directed that, for the purpose of computing disallowance under Rule 8D(2)(iii), only those investments which have actually yielded exempt income during the relevant previous year are to be considered. The said issue stands concluded by the decision of the Special Bench of the Tribunal in ACIT v. Vireet Investment Pvt. Ltd., which has been consistently followed in a catena of decisions. The Revenue has not placed before us any contrary binding precedent warranting a departure from the aforesaid view. 23.9 It has also been brought to our notice that, upon considering only those investments which yielded exempt income, the disallowance under Rule 8D(2)(iii) works out to Rs. 84,085/-, whereas the assessee had already made a suo motu disallowance of Rs. 1,02,037/- under Section 14A of the Act. This factual position has not been controverted by the Revenue. Therefore, no further disallowance survives for consideration. 23.10 We also find no infirmity in the direction of the learned CIT(A) that the disallowance computed under Section 14A read with Rule 8D cannot be imported into the computation of book prof....
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....n the doubly taxed income, the Assessing Officer restricted the Foreign Tax Credit to Rs. 6,34,626/- and consequently disallowed the balance claim of Rs. 35,38,108/- 26.2 On appeal, the learned CIT(A) concurred with the approach adopted by the Assessing Officer and observed that the Foreign Tax Credit had been allowed on the basis of the tax payable in India on the income attributable to the Colombian transactions. The learned CIT(A) further held that the computation made by the Assessing Officer was in conformity with the provisions of Section 90 of the Act read with Rule 128 of the Income-tax Rules, 1962, and accordingly affirmed the disallowance. 26.3 Before us, the learned counsel for the assessee assailed the findings of the authorities below and submitted that the Assessing Officer had adopted an arbitrary method for determining the income attributable to the Colombian operations by mechanically applying the overall net profit rate of the assessee's business without examining the actual profitability of the transactions undertaken in Colombia. It was contended that such an approach did not reflect the true income arising from the said operations and consequently resulte....
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....relevant facts giving rise to the controversy are that, during the year under consideration, the assessee incurred expenditure on scientific research and development in respect of its approved in-house Research and Development (R&D) facility and claimed weighted deduction under Section 35(2AB) amounting to Rs. 107.51 crores. The claim comprised both capital expenditure and revenue expenditure, including expenditure incurred towards BioEquivalence Studies and Clinical Trials undertaken in connection with the assessee's pharmaceutical research activities. 27.2 It is an undisputed position that the assessee's in-house R&D facility stood duly approved by the Department of Scientific and Industrial Research (DSIR). The assessee further contended that the entire expenditure claimed was duly certified by its Chartered Accountant in Form No. 3CLA. Although the DSIR had approved eligible expenditure resulting in weighted deduction aggregating to Rs. 106.44 crores, the Assessing Officer restricted the deduction to Rs. 95.48 crores, thereby making a disallowance of Rs. 12.02 crores. 27.3 In appellate proceedings, the assessee pointed out that expenditure amounting to Rs. 10.96 crore....
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....6 and consequently applied only from Assessment Year 2017-18 onwards. Prior thereto, the statutory role of the DSIR was confined to granting approval to the in-house R&D facility and did not extend to determining or restricting the quantum of expenditure eligible for deduction. 27.8 It was further submitted that neither the Assessing Officer nor the learned CIT(A) has doubted the genuineness of the expenditure in question. No finding has been recorded that the expenditure of Rs. 1,06,18,872/- was bogus, excessive, unsupported by evidence, or unrelated to the approved research and development activities carried on by the assessee. According to the learned counsel, once the expenditure was actually incurred for the approved R&D facility, the deduction could not be curtailed merely because the said amount did not find place in Form No. 3CL issued by the DSIR. 27.9 Reliance was placed upon various judicial precedents, including the decisions in Pharmanza Herbal (P.) Ltd. v. DCIT [2023] 155 taxmann.com 56 (Ahmedabad-Trib.) and ACIT v. Crompton Greaves Ltd. [2019] 111 taxmann.com 338 (MumbaiTrib.), wherein it has been held that, for assessment years preceding Assessment Year 2017-1....
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....Appellant's case and in law the Ld. CIT(A) erred in confirming the action of Ld. Assessing Officer in holding the sales & marketing expenses incurred by the appellant alleged 'freebies to the medical practitioners, without any concrete material on record. 3. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of Ld. Assessing Officer in making disallowance to the extent of Rs. 1,29,90,113/-on account of alleged freebies services provided by the appellant to the medical practitioners, as per the ground/s contained in the appellate order or otherwise." 28.1 The grounds raised by the Revenue are reproduced as under: 1. "Whether on the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in relying only on the finding given in the order for the preceding assessment years in spite of the fact that the same was not based on correct facts and cannot be applied to the appellant. 2. Whether on the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in deleting the disallowance of Rs. 19,24,81,374/-made by the AO on account of al....
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....ces of the Appellant's case and in law the Ld. CIT(A) erred in deleting taxing Rs. 19,76,627/- u/s. 80IE being sale of empty containers from the profits of industrial undertaking for the purpose of deduction u/s. 80IE of the Act. The appellant submits that, sale of empty containers are directly related to the profits derived from the business of the industrial undertaking to the appellant and therefore the same is eligible for deduction. Grounds of appeal on TP adjustments: 10.1 "Whether on facts and circumstances of the case and in law, the Ld. CIT(A) is justified deleting the transfer pricing adjustment done by the TPO of Rs. 16,17,926/-made on account of sale of products to it's Associated Enterprise i.e. IPCA Pharma Nigeria Ltd.? 10.2 "Whether on facts and circumstances of the case and in law, the Ld. CIT(A) is justified deleting the transfer pricing adjustment done by the TPO without appreciating the flaws pointed out by the TPO in the method used by the assessee?" 10.3 "Whether on facts and circumstances of the case and in law, the Ld. CIT(A) erred in rejecting the adjustment done by TPO in determining Arm's Length Price (ALP) b....
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....he sales & marketing expenses incurred by the appellant as alleged 'freebies to the medical practitioners, without any concrete material on record. 3. On the facts and circumstances of the Appellant's case and in law the Ld. CTT(A) erred in confirming the action of Ld. Assessing Officer in making disallowance to the extent of Rs. 2,13,98,278/-on account of alleged freebies services provided by the appellant to the medical practitioners, as per the ground/s contained in the appellate order or otherwise. 4. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of Ld. Assessing Officer in making adjustment of Rs. 4,88,243/-being Arm's length adjustments made by the Ld. TPO u/s. 92CA(3) of the Income Tax Act 1961 on account of inter unit transfer to its manufacturing unit, for the reasons mentioned in the impugned order or otherwise." 29.1 The grounds raised by the Revenue are reproduced as under: "1. Whether on the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in relying only on the 1 finding given in the order for the preceding assessment years....