TaxTMI 
TaxTMI 
2026 (8) TMI 388
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....d in law, the order passed by the Learned Commissioner of Income-tax (Appeals) [the 'Ld. CIT(A)'] erroneously affirming the findings of the learned Assessing Officer [the 'Ld. AO'] is unsustainable and ought to be quashed. 1. Ground No. 1: Transfer pricing adjustment on transfer of electricity by Captive Power Plant ("CPP") - Rs. 13,43,19,516/-: 1.1 The CIT(A) has grossly erred in upholding the order of the AO/TPO who erred in am rejecting the transfer pricing benchmarking carried out the Appellant and determined the Arm's Length Price by taking average of two rates i.e. rate fixed by GERC and the market clearing price (as per IEX). 1.2. Without prejudice to the above, the Ld. AO/TPO grossly erred in adopting the rate at which distribution entity purchases power from CPP unit without appreciating that. the power was generated by the Appellant for captive consumption and not for sale to any distribution entity. 1.3. Without prejudice to the above, the Ld. AO/TPO grossly erred in ignoring the fact that there is only one prime seller in Appellant's region i.e. GEB, therefore, the open market rate for such power at which all t....
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....vice without appreciating that there was valid business and commercial rationale for the same. 3.5. The Ld. CIT(A) has grossly erred in confirming the disallowance without appreciating that: 3.5.1. Amount paid pursuant to out-of- court settlement is civil and compensatory in nature and not for 'any purpose' which is an offence or prohibited by law; 3.5.2. The Appellant has not been convicted by any Competent Court of Law and mere accusations/allegations do not prove one guilty: 3.5.3. In absence of such conviction, the Income-tax Officer has no authority to determine whether provisions of other statutes have been contravened; 3.5.4. The ambit of Explanation 1 is restricted to laws prevailing in India and infringement, if any, of foreign alien laws cannot be covered; 3.5.5. Entering of out-of-court settlement is a commercial decision and does not per se imply any infraction of law; 3.5.6. Commercial Expediency is a prerogative of the Assessee and has to be looked at from the perspective of a prudent businessman; 3.6. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in d....
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....rcumstances of the case and in law, the Ld. CIT(A) grossly erred in not allowing interest deduction of Rs. 15,81,50,414/- incurred by the Appellant. 5.2. The Ld. CIT(A) failed to appreciate that the interest was incurred as part of Appellant's business and that having satisfied all the conditions of section 36(1)(iii) it was allowable as deduction under the Act. 5.3. The Ld. CIT(A) ought to have appreciated that, with effect from the appointed date of demerger, the business activities were undertaken by Sun Pharma Global FZE for and on behalf of the Appellant and accordingly, all liabilities and expenditures arising thereafter are incumbent on the Appellant. 5.4. The Ld. CIT(A) grossly erred in confirming the action of the Ld. AO of regarding the borrowed funds as being utilized for the purpose of infraction of law. Without prejudice, the Ld. CIT(A) ought to have appreciated that allowability of interest deduction is independent of the nature of expenditure for which the borrowed funds have been utilized. 5.5. Without prejudice to the above, impugned interest payment should have been allowed as a deduction under section 37(1) of the Act. ....
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....ound No. 9: Non-taxability of Export incentives being capital receipt - Rs. 29,88,53,239/- 9.1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not treating export incentives granted under various schemes of Central Government as capital receipt not subject to tax both under normal as well as MAT provisions. 10. Ground No. 10: Deduction of foreign tax credit under section 37(1) - Rs. 7,10,520/- 10.1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not allowing deduction under section 37(1) in respect of taxes paid in foreign countries of which no credit is available as per section 90/91 of the Act without appreciating that the same has been incurred wholly and exclusively for the purposes of business and is not covered by section 40(a)(ii) of the Act. 11. Ground No. 11: Deduction of education and secondary & higher education cess under section 37(1) - Rs. 25,17,48,231/-: 11.1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not granting deduction under section 37(1) for education cess payable by the Ap....
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....he decision of ITAT in assessee's case for A.Y. 2008-09 & 2009-10 even when the expenses on repairs to building and payment for municipal taxes do not lead to any R & D activity. 6. On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the addition made on account of Lunch & refreshment and brokerage on property when these expenses does not relate to any R & D activity. 7. On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the addition made on account of provision of wealth tax of Rs. 22,70,000/- for computation of book profit u/s. 115JB without considering the fact that provisions for wealth tax forms part of Income Tax Act, 1961, and therefore, provision for Wealth tax is to be added for the purpose of determination of book profit u/s. 115JB. 8. On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in partly deleting the addition made by invoking the provisions of section 14A r.w. Rule 8D of the IT Act by ignoring that Rule 8D is applied in full and not in part. 9. On the facts and in th....
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.... the learned CIT(A) erred in the law and on facts in partly deleting the addition made on account of disallowance of gift expenses of Rs. 52,16,310/- without appreciating the fact that the assessee could not justify the business expediency of the gift expenses at the time of assessment proceedings and gift expenses are not allowable as business expenditure." 5. The brief facts of the case are that the assessee-company is the flagship company of Sun Pharma Group. The assessee is a pharma company listed in BSE/NSE. The assessee-company is engaged in manufacturing, trading and export of pharmaceutical products in India as well as outside India and also leasing of assets, financing/financial services. The manufacturing unit of the assessee situated at its various factories located at Silvasa, Dadra, Ankleshwar, Panoli, Halol, Ahmednagar, Kanchipuram and Karkhadi. 5.1 For the year under consideration, the assessee filed its original return of income on 30.11.2014 declaring a loss of Rs. 5,13,31,53,516/- under the normal provisions of the Act and a book loss of Rs. 95,47,10,196/- under section 115JB of the Act. Subsequently, the assessee filed a revised return of income on 31.03.20....
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....ERC) and the Market Clearing Price (MCP) prevailing on the Indian Energy Exchange (IEX). The Assessing Officer, on the basis of the order passed by the Transfer Pricing Officer under section 92CA(3) of the Act, held that the rate adopted by the assessee for transfer of electricity to its eligible units was not at arm's length and accordingly made the impugned transfer pricing adjustment. 6.1 In appeal, the Ld. CIT(A), after considering the submissions of the assessee and the facts on record, upheld the action of the Assessing Officer/TPO. 6.2 Before us, the Ld. AR reiterated the submissions advanced before the lower authorities and contended that the benchmarking adopted by the assessee was in accordance with the CUP Method. The Ld. AR submitted that the appropriate comparable is the tariff at which the distribution company supplies electricity to industrial consumers and not the rate at which electricity is procured by the distribution company. It was further submitted that the TPO erred in adopting the average of the GERC tariff and the IEX Market Clearing Price, which does not represent an uncontrolled comparable transaction. 6.3 The Ld. DR, on the other hand, suppo....
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.... the Revenue are dismissed. Ground Nos. 3 - Pfizer settlement (Normal provisions & MAT) 8. The facts, in brief, are that the assessee company is engaged in the business of manufacturing and trading of pharmaceutical products. During the year under consideration, pursuant to a Scheme of Demerger sanctioned by the Hon'ble Gujarat High Court vide order passed in August 2014 the Specified Undertaking of Sun Pharma Global FZE ("SPG FZE"), a step-down wholly owned subsidiary of the assessee incorporated in the United Arab Emirates, stood vested in the assessee. The appointed date for the said demerger was 01.05.2013. The Specified Undertaking of SPG FZE was engaged in the business of manufacturing and trading Ulcer therapeutics and also carried out certain investing and financing activities. The principal market of the said undertaking was the United States of America. Prior to the aforesaid demerger, the Specified Undertaking of SPG FZE had filed a Paragraph IV certification before the US Food and Drug Administration ("US FDA") in connection with the launch of its generic product Pantoprazole in the United States market. Consequent thereto, Wyeth LLC, a wholly owned subsidiary....
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....tly from the restructuring and amalgamation of the capital structure of the merging entity with the appellant. Additionally, learned CIT(A) considering that judicial decree pursuant to which the amount is determined dated back to 2010, held the amount constituted a prior-period expense. Thus, the learned CIT(A) confirmed the disallowance. 8.3 Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 8.4 The Ld. AR submitted that the issue under consideration is similar to the issue adjudicated in favour of the assessee by the co-ordinate bench in case of Ranbaxy Laboratories Limited (now merged into assessee) for AY 2012-13 in ITA No. 360/Ahd/2017 vide order dated 03.09.2021. The coordinate bench had opined that in absence of any offence proved against the assessee, the explanation 1 to section 37(1) of the Act cannot be invoked. 8.5 In addition to the above, the Ld. AR submitted that the impugned expenditure arose pursuant to a settlement agreement entered into during the year under consideration whereby the pending patent litigation in the United States was amicably resolved. It was contended that although the underlying dispute had originated ....
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....cation by any court or competent authority holding the assessee guilty of patent infringement. Mere allegations made by the plaintiff could not be equated with an established violation of law. The Id. AR submitted that a distinction must be drawn between allegations and proven guilt. According to him, the patent proceedings had not culminated in any finding adverse to the assessee and the dispute stood resolved through settlement before adjudication. Therefore, no inference could be drawn that the assessee had committed any infringement merely because it chose to settle the dispute. It was argued that every person is presumed innocent unless proven guilty and hence the expenditure could not be disallowed on the basis of unproven allegations. The Id. AR also contended that a compromise decree or consent order merely records the agreement arrived at between the parties and does not constitute a judicial determination of rights or liabilities. Accordingly, AR submitted that the settlement could not be construed as any violation of law by the assessee. The Id. AR further submitted that the impugned payment was compensatory and not penal in character. According to him, the payment was m....
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....e business and commercial considerations relating to corporate restructuring and reorganisation, and merely because it resulted in a tax benefit would not render it devoid of commercial rationale. Accordingly, the authorities below erred in characterising a court-approved transaction as a colourable device without any cogent evidence to support such a conclusion. 8.9 In support of the above propositions, the Id. AR relied upon various judicial precedents including S. A. Builders Ltd. v. CIT (288 ITR 1), CIT v. Delhi Safe Deposit Co. Ltd. (133 ITR 756), Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT (223 ITR 101), CIT v. Desiccant Rotors International (P.) Ltd. (347 ITR 32), DCIT v. Anil Dhirajlal Ambani (93 taxmann.com 492), DCIT v. VLS Finance Ltd. and other decisions dealing with commercial expediency, protection of business reputation, compensatory payments and settlements entered into without admission of guilt. 8.10 By way of an alternative plea, the Id. AR submitted that even if the expenditure were to be regarded as capital in nature, the assessee would be entitled to depreciation thereon under section 32 of the Act, since the Revenue itself had proceeded o....
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....ddition on multiple independent grounds, namely lack of business nexus, applicability of explanation 1 to section 37(1), capital nature of expenditure and its characterization as a prior-period liability. 8.14 We have heard the rival contentions of the Ld. Representatives of the parties and gone through the record. We find that the issue stands covered by the decision of the coordinate bench in the case of the assessee's predecessor entity, Ranbaxy Laboratories Limited (merged with Sun Pharmaceutical Industries Limited), for AY 2012-13 in ITA No. 360/Ahd/2017 vide order dated 03.09.2021. It is necessary to notice precisely what the payment in that case was for. The assessee group there had paid an aggregate sum of Rs. 25,95,95,57,864/-, comprising a settlement agreement of Rs. 1827,65,57,864/-and a plea agreement of Rs. 768,30,00,000/-, to the Department of Justice of the United States and to the participating States, consequent upon a Consent Decree of Permanent Injunction entered into with the US Food and Drug Administration and approved by the US District Court for the District of Maryland, in relation to alleged non-compliance with current Good Manufacturing Practice at ....
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....e settlements with the government of USA through DOJ. The consent decree was entered by the assessee in the month of December 2011 which was approved by the US District Court of Maryland in the month of January 2012. 69.3 A consent decree is a legal agreement that is reached between a company and the government (in this case, DOJ). It is a negotiated agreement detailing the voluntary actions pledged by the affected company to remedy non-conformances, including systems improvements, and to avoid FDA litigation. FDA uses consent decrees to change the overall corporate culture in compliance matters by pulling the company out of a pattern of long-standing CGMP problems and raising it to current standards. A consent decree commits the company to perform corrective actions in a timely manner, as verified by a third party. 69.4 Based on the consent decree which was approved by competent court, the assessee started negotiation with DOJ and entered into the settlement agreements in the year May 2013. Now the question arises whether the consent decree should be viewed as an offence provided under explanation 1 to section 37(1) of the Act. The word consent decree itself sugg....
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....For ready reference the relevant portion of settlement agreement between assessee and DOJ is reproduced hereunder: This Agreement is neither an admission of liability by Ranbaxy, except to the extent admitted by Ranbaxy USA, Inc. under the terms of the Plea Agreement. nor a concession by the United States that its claims are not well founded. Ranbaxy expressly denies the contentions and allegations of the United States and Relator as described in the Covered Conduct and set fourth herein and in the Civil Action, and denies that in engaged in any wrongful conduct, except as to such admissions that Ranbaxy USA, Inc. is required to make under the terms of the Plea Agreement. 69.7 The copy of the Plea Agreement is placed on pages 697 to 718 of the paper book. On perusal of the same we note that, plea agreement was part of overall settlement offer made by the DOJ to resolve the issue. As such the plea agreement was dependent upon the civil settlement meaning thereby that if assessee chooses to enter a settlement for civil liability then it has to enter into plea agreement also. The relevant portion of the plea agreement is reproduced as under: This letter, tog....
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....plication without admitting guilt amounts to evidence of an offence having been committed. 48. In view of the above discussion, we can safely observe that the detailed findings recorded by CIT(A) are as per material on record an require no interference on our part. Accordingly, there is no infirmity in the order of the CIT(A) for deleting disallowance made by invoking explanation to 37(1) of the IT Act. 69.11 We also draw support and guidance from the judgment of Hon'ble Delhi High court in case of Dessicant Rotors International (P.) Ltd (Supra) wherein it was held as under At the outset, the submission of the assessee that the paramount and governing consideration behind such a settlement/agreement could be to avoid the expenses and uncertainty of further litigation was to be accepted. It is a matter of common knowledge that litigation can turn out to be quite expensive and it cannot be even possible, what to talk of feasible, for a small time/middle level company in India like the assessee to litigate in US Court. Furthermore, the settlement agreement contained a specific recital to this effect inasmuch as it records "whereas, in order to avoid the expenses ....
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.... 69.14 The following are the ingredients of section 37 of the Act: (i) Expenditure should not be covered under the specific sections, i.e., 30 to 36 of the Act; (ii) Expenditure should not be of capital nature; (iii) Expenditure. should have been incurred during the previous year, (iv) Expenditure should not be of a personal nature; (v) Expenditure should have been incurred wholly or exclusively for the purpose of the business or profession. 69.15 All of the five conditions mentioned above are to be satisfied before claiming any expense as a deduction under this section. 69.16 An Explanation was added to this sub-section by the Finance (No. 2) Act, 1998 with effect from April 1, 1962 which reads as under: "For the removal of doubts, it is hereby declared that any expenditure, incurred by an assessee for any purpose, which is an offence or which is prohibited by law, shall not be deemed to have been incurred for the purpose of business or profession, and no deduction or allowance shall be made in respect of such expenditure". 69.17 The Explanation was brought in the statute in the year in 1998 which ma....
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....in section 23 of the Indian Contract Act, 1872. This came up for the consideration of the Full Bench in the case of Abdul Hameed v. Mohd. Ishaq AIR 1975 All. 166 wherein the Allahabad High Court observed as under: "12. The expression 'law' has not been defined in the Contract Act, nor in the U. P. General Clauses Act, 1904, but in the Central General Clauses Act, 1897, 'Indian Law' is defined in section 3(29) as below:- ""Indian law' shall mean any Act, Ordinance, Regulation, rule, order, bye law or other instrument which before the commencement of the Constitution had the force of law in any Province of India or part thereof, or thereafter has the force of law in any Part A State or Part C State or part thereof, but does not include any Act of Parliament of the United Kingdom or any Order in Council, rule or other instrument made such Act." 69.22 At this juncture, it is also important to refer the order of the Hyderabad tribunal in the case of Mylan Laboratories Ltd. Vs. DCIT reported in 113 taxmann.com 6 where it has been held that the provisions of explanation 1 to section 37(1) of the Act can be invoked where there is an office committed un....
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....ry in nature. Whenever such impost is found to be of composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obliged to bifurcate the two components of the impost and give deduction to that component part which is compensatory in nature and refuse to give deduction to that component which is penal in nature." 69.25 Such understanding is required to find out whether such penalty in the compensatory nature or panel in nature. The courts have held that the penalty which is in the nature of compensation are allowable deduction and therefore these penalties are outside the purview of the provisions of explanation 1 to section 37(1) of the Act. In holding so we draw support and guidance from the judgment of Hon'ble Supreme court in case of Prakash Cotton Mills P. Ltd. v. CIT (1993) 201 ITR 684, 690-91(SC), Standard Batteries Ltd. v. err (1995) 211 ITR 444, 446(SC), Swadeshi Cotton Mills Co. Ltd. v. err. (1998) 233 ITR 199, 202(SC) and Hon'ble high court of Andhra Pradesh CIT v. Bharat Television Pvt. Ltd (1996) 218 ITR 173(AP), CIT v. Hyderabad Allwyn Metal Works Ltd., (1988) 172 ITR 113. 121 (AP) 70.26 We note that there ....
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....ability. The relevant correspondence of the emails are enclosed as annexure-1. 69.28 On perusal of the above emails, there remains no ambiguity that the liability was very much quantified in the year under consideration. The amount mentioned in the emails was subsequently confirmed in the settlement agreement which was entered in the year May 2013. Thus in such a situation, the liability in the year under question cannot be treated as contingent liability 69.29 It was also submitted that the observation letter was received by the assessee in the year 2008 thus the impugned amount representes the prior period expenses and therefore the same cannot be allowed as deduction. In this connection we note that the observation letter was received in the year 2008 but that does not make the assessee accountable to make the provisions in the books of accounts. It is because at that point of time there was no whisper so as to hold that the assessee was thinking to enter into the consent decree. Therefore, we find no force in the argument of the learned DR. 69.30 A question was also raised that the impugned amount of penalty was allowing the assessee to continue business and t....
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....y owned subsidiary of Pfizer Inc., along with Nycomed GmbH, can be allowed as a business expenditure under Section 37(1) of the Act. The Revenue has denied this deduction primarily on five grounds: that it represents a penalty for the infraction of a foreign law and is therefore hit by Explanation 1 to Section 37(1); that it constitutes capital expenditure; that it is prior period item; and that the expenditure does not pertain to the business of the assessee inasmuch as the liability originated in the hands of the Specified Undertaking of SPG FZE; and that no corresponding income stood credited to the Profit and Loss Account against which the expenditure could be allowed. At the very threshold, however, we may observe that the genuineness of the payment itself is not in doubt. The settlement was arrived at with unrelated multinational pharmaceutical majors who were adversarial litigants before the US District Court, the settlement agreement was placed before and taken on record by that Court, and the quantum of payment and its actual discharge have not been disputed by the AO. The controversy is thus confined to the legal character of the payment and not to its factum or genuinene....
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.... the assessee or the Specified Undertaking. It is observed that the settlement arrived at without admitting guilt cannot be treated as evidence that an offence was committed, this proposition is supported by the Decision of ITAT Mumbai in the case of DCIT, Circle 3(3) (1), Mumbai v. Anil Dhirajlal Ambani, 93 taxmann.com 492. It was held there that an apprehension of protracted litigation, in terms of time, cost and reputation, is by itself a sufficient and logical explanation for entering into a settlement, and that a compromise arrived at without admitting guilt furnishes no basis whatsoever to infer the commission of an offence. 8.19 The reliance placed by the Revenue on the verdict of the United States District Court of New Jersey of the year 2010 does not carry its case any further. The record shows that the litigation did not attain finality with the said verdict; the proceedings remained alive and contested, and it was only in June 2013 that the parties mutually resolved to settle the entire dispute out of court. The quantum itself bears out that the payment was the product of a negotiated compromise and not the enforcement of any adjudicated liability: as against a claim ....
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....n (1) to section 37(1). Anyway, the Assessing Officer is no statutory authority empowered to decide whether any law has been contravened or not. This matter has to be decided by the relevant court or relevant statute. In the instant case, under the US law, the Appellant has never been held guilty as explained above. As no federal Court has proved that these expenses violate any law, I am of the considered view that the same is merely civil and compensatory but not penal in nature." 8.21 Applying the aforesaid reasoning, the Ld. CIT(A) deleted the said disallowance vide para 25.2.7 of the impugned order. No distinction of substance exists between the two settlements save the assertion that the 2010 verdict preceded the Pfizer settlement, an assertion which, as held above, ignores the fact that the said verdict never attained finality and stood superseded by the compromise voluntarily arrived at between the parties. There cannot be two contradictory approaches to the self-same legal issue in the same order for the same assessment year. On the parity of the reasoning adopted by the Ld. CIT(A) himself while deleting the Cephalon disallowance, the impugned disallowance also deserves ....
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....h retrospective effect from 01.04.1962, and the object of its insertion, as explained by the CBDT, was to deny deduction in respect of payments in the nature of protection money, extortion, hafta, bribes and the like, each of which constitutes an offence under the laws in force in India. Neither the text of Explanation 1 as it stood during the year under consideration nor the object of its insertion took within its sweep an amount paid under a commercial settlement of a civil dispute arising under the laws of a foreign country. The precise question came up for consideration before the coordinate bench of the Tribunal in Mylan Laboratories Ltd. v. Deputy Commissioner of Income-tax [2020] 113 taxmann.com 6/ [2020] 180 ITD 558 (Hyderabad -Trib.), a decision rendered for the very same assessment year as is before us. namely AY 2014-15. In that case, the assessee had paid an amount pursuant to a fine levied by the European Commission for alleged violation of European Union competition law, and the Revenue sought to disallow the payment by invoking Explanation 1 to section 37(1) of the Act. The coordinate bench examined the issue, including the CBDT Circular explaining the insertion of E....
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....to alleged infractions of foreign law. Thus, the Explanation 3 operates only prospectively and has no application whatsoever to the year under consideration. The entire controversy before us stands covered by the Decision of the coordinate bench of this Tribunal in DCIT v. AIA Engineering Ltd., ITA Nos. 565/Ahd/2025 and 351/Ahd/2025, vide order dated 01.10.2025. In that case also concerned a payment made in settlement of a suit for infringement of patent instituted in the United States, which the authorities below had disallowed by invoking Explanation 1 to section 37(1) of the Act. The coordinate bench held that the expression "prohibited by law", in the context of section 37(1), takes in only an act or omission which is an offence or which is declared illegal as being against public policy, societal welfare, ethical standards or the common good, and that private or individual disputes between parties do not fall within its scope and ambit. An out-of-court settlement arrived at to close, finally and amicably, a litigated claim or counter-claim over private or civil rights relating to ownership, title or licence is accordingly outside the expression, notwithstanding that in such li....
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....e scope of disallowance to include violations of laws outside India. The Memorandum to the Finance Act, 2022, also clearly states that the amendment will take effect from April 1, 2022. Therefore, the CIT(A) was in error in applying this provision retrospectively to the assessment year 2014-15. The assessee succeeds in respect of its this alternate contention also. 23.3. In view of the detailed discussion above, we conclude that the payment of Rs. 31,11,00,000/- was a compensatory payment made out of commercial expediency to settle a civil dispute and protect the assessee's business interests. It was not a penalty for an offense or for a purpose prohibited by law under Explanation 1 to Section 37(1). Even the Explanation 3 to Section 37(1) is not applicable to the year under consideration. Even the issue is also not covered under newly inserted clause (iv) to Explanation 3 to section 37(1) of the Act. We, therefore, find the disallowance to be unsustainable and the same is ordered to be deleted. Grounds No. 1 and 2 of the assessee's appeal are allowed. 24. Since we have allowed the claim of the assessee under section 37 of the Act, the alternative plea of ....
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.... Court in the said case interpreted the expression any law for the time being in force' appearing u/s 10(29) of the I.T.Act. In this context, the Hon'ble Apex Court held that though the words 'Indian law are not used in the said section, in order to claim exemption, the authority therein has to be constituted under any law for the time being in force in "India'. 136. However, the Finance Act, 2002 has introduced a new Explanation 3 to section 37 of the 1.T.Act, which reads as follows:- "Explanation 3. For the removal of doubts, it is hereby clarified that the expression "expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law" under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee,- (i) for any purpose which is an offence under, or which is prohibited by any law for the time being in force, in India or outside India; or (ii) to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in ....
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....d" or "for the removal of doubts". 140. The law prior to the amendment was that expenses towards offence under domestic laws of India alone would not be allowed as a deduction under section 37. This proposition was affirmed by the Tribunal which has also been noted in the Memorandum as reproduced above. Therefore, the aforesaid amendment alters the law as it stood earlier. Therefore, as per the above decision of the Hon'ble Supreme Court, the Explanation cannot be considered retrospective in nature. 141. Relying on the above judgment of the Hon'ble Supreme Court, the Hon'ble Delhi High Court in PCIT v Era Infrastructure [2022] 141 taxmann.com 289 (Delhi), held that a provision in the Act which is "for the removal of doubts cannot be presumed to be retrospective if it alters or changes the law as it stood earlier. In this case, the Hon'ble High Court dealt with the amendment to section 14A by the Finance Act, 2022 by way of insertion of an Explanation to the said section. The opening portion of the newly inserted Explanation read "For the removal of doubts...". The High Court noted that the Memorandum of the Finance Bill, 2022 explicitly stated that....
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....r may add to and widen its scope, that where it is clarificatory it must be read into the main provision from the time the main provision came into force; but that where it changes the law, it is not presumed to be retrospective, and this is so irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts". That proposition was reiterated by the Hon'ble Supreme Court in M.M. Aqua Technologies Ltd. v. CIT, (2021) 436 ITR 582 (SC), where it was held in terms that a provision in a taxing statute which is "for the removal of doubts" cannot be presumed to be retrospective, even where such language is employed, if it alters or changes the law as it earlier stood. The same principle was expounded by the Constitution Bench of the Hon'ble Supreme Court in CIT v. vatika Township (P.) Ltd., (2014) 367 ITR 466 (SC). 8.27 The next objection raised by the Revenue is that the payment is capital in nature because it relates to a patent and brings an enduring benefit to the assessee. We are unable to accept this approach as the assessee has not paid this amount to acquire a new patent or to build an asset-earning structure in the capital field. The pay....
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.... the assessee by operation of law. Thereafter it was incumbent upon the assessee to honour and discharge the said obligation; the assessee had no discretion in the matter and any failure to pay would have amounted to a default of an obligation assumed under a court-sanctioned scheme. The loss is also genuine beyond doubt, having arisen out of an out-of-court settlement with another pharmaceutical multinational of international standing, negotiated at arm's length between adversarial litigants. 8.28 In the assessee's own case for AY 2008-09, the coordinate bench of this Tribunal in ITA Nos. 3297 & 3420/Ahd/2014, while dealing with the transfer pricing addition relating to the sale of Pantoprazole, considered and rejected the Revenue's allegation of tax evasion through the group structure, relying upon the decision of the Hon'ble Supreme Court in Vodafone International Holdings B.V. v. Union of India [2012] 341 ITR 1, and observed, as reproduced in the impugned order itself, as under: "82. A though full consideration of the aforementioned decision of the Hon'ble Supreme Court would show that even the Apex court has recognized that multinationals and mu....
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....owed. Ground No.4 - Addition on compensation paid in pursuance of out of Court settlement with Pfiser Inc. u/s 115JB 9. Since the matter stands adjudicated at Ground No. 3, the Ground No. 4 on the issue of Section 115JB becomes infructuous and hence not adjudicated. Ground Nos. 5 & 6 - Interest on Pfizer settlement (Normal provisions & MAT) 10. The brief facts of the case concerning this issue are similar to the ground no. 3 relating to the out-of-court patent litigation settlement with Pfizer Inc. During the previous year relevant to the assessment year under consideration, the assessee incurred Rs. 15,81,50,414/- as interest on the financing was obtained from Standard Chartered Bank and claimed it as a business deduction under Section 36(1)(iii) of the Act. 10.1 Interest being consequential to the issue raised at Ground No.3, the appeal of the assessee on this ground is liable to be allowed. Since the matter stands adjudicated at Ground No. 5, the Ground No. 6 on the issue of Section 115JB becomes infructuous and hence not adjudicated. Ground No. 7 - Software expenditure - Rs. 12.81 Crores. 11. The Ld. CIT(A) treated the software expenditure capital in nature....
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....al, in the absence of any change in the factual matrix of the case and legal proposition, we affirm the order of the Ld. CIT(A). Ground No. 2 - TP adjustment on sales 16. This issue also stands covered by the order of the Tribunal in assessee's own case for AY 2008-09 & 2009-10 in ITA No. 3297/Ahd/2014 and ITA No.1663/Ahd/2016. Since the Ld. CIT(A) relied on the order of the Tribunal, in the absence of any change in the factual matrix of the case and legal proposition, we affirm the order of the Ld. CIT(A). Ground Nos. 4, 5, & 6 - Weighed deduction 17. This issue also stands covered by the order of the Tribunal in assessee's own case for AY 2009-10 in ITA No.1663/Ahd/2016. Since the Ld. CIT(A) relied on the order of the Tribunal, in the absence of any change in the factual matrix of the case and legal proposition, we affirm the order of the Ld. CIT(A). Ground Nos. 12 - Weighted deduction 18. This issue also stands covered by the order of the Tribunal in assessee's own case for AY 2010-11 in ITA No.1390/Ahd/2016 and the same has been confirmed by the Hon'ble Gujarat High Court in Tax Appeal No. 541 of 2017. Since the Ld. CIT(A) relied on the order of the Tribunal, ....