TaxTMI 
TaxTMI 
2026 (8) TMI 1673
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....ation of the following substantial questions of law: "(A) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in allowing the claim of the assessee for deduction u/s 80-IE of the Act without appreciating that mere submission of journal entries generated in computer cannot be treated as authentic document for establishing purchase of plant and machinery and that the assessee firm i.e. M/s. Sun Pharma Sikkim, as held by the Assessing Officer, was constituted by reconstruction of existing business of M/s. Sun Pharma Industries? (B) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in allowing the claim of the assessee for deduction u/s 80-IE of the Act even though the assessee firm was formed by the splitting up and reconstruction of the existing business of M/s. Sun Pharma Industries and the condition of using less than 20% of old/used machinery has not been fulfilled by the assessee? (C) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in deleting the disallowance of deduction u/s 80-IE(6) r.w.s. 80-IA(1....
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....e High Court of Jammu & Kashmir followed by the learned ITAT in the case of the sister concern of the assessee firm, M/s. Sun Pharma Industries (SPI) and not appreciating the judgments of the Hon'ble Supreme Court in the case of Ponni Sugars [2008] 306 ITR 392 & Sahney Steel case [1997] 228 ITR 253? (H) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in deleting the disallowance of deduction u/s. 80-IE(6) r.w.s. 80-IA(10) on remuneration to working partner of Rs. 67,25,68,237/- without appreciating the Assessing Officer's finding in the assessment order particularly with regard to assessee's reliance on supplementary partnership deed for inflating its profit for claiming higher deduction u/s. 80-IE(6) r.w.s. 80-IA(10) of the Act?" 4. Tax Appeal No. 184 of 2020 is admitted for consideration of the following substantial questions of law: "(A) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in allowing the claim of the assessee for deduction u/s 80-IE of the Act without appreciating that mere submission of journal entries generated in computer ca....
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.... R&D activity on the basis of turnover in the ratio of 3:1 is just, proper and reasonable? (F) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts indeleting the disallowance of deduction u/s 80-IE(6) r.w.s. 80-IA(10) on apportionment of royalty expenses, without appreciating the fact that the assessee was using trademarks, brands and logo of SPIL for which neither any fee or royalty is charged and hence disallowance made @8% of sales (as in SPI) adopted by the Assessing Officer is just, proper and reasonable? (G) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in deleting the disallowance of deduction u/s 80-IE(6) r.w.s. 80-IA(10) on apportionment of management fees without appreciating the fact that the affairs of the assessee were managed by Sun Pharma Industries Ltd. (SPIL), the working partner, and nothing is paid or charged by Sun Pharma Industries Ltd. (SPIL) and hence disallowance made @2% of turnover adopted by the Assessing Officer is just, proper and reasonable? (H) Whether on the facts and in circumstances of the case, the learned ITAT has e....
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....r both the years. 9. The Assessing Officer passed orders dated 19.03.2013 and 12.3.2014 for Assessment Years 2010-2011 and 2011-2012 respectively under section 143(3) of the Act. The Assessing Officer for the Assessment Year 2011-2012 has rejected book results and thereafter disallowed the claim of deduction made under section 80-IE of the Act. The Assessing Officer disallowed the claim of the assessee under section 80-IE on the ground that the assessee failed to fulfill the requisite conditions mentioned in the said section and in the alternative, it was observed that the eligible profit for claim of deduction computed by the assessee was wrong as certain expenditure ought to be apportioned in the units which were not eligible for deduction under section 80-IE of the Act. The Assessing Officer was of the opinion that the assessee was not entitled for deduction under section 80-IE even if it assumed for the sake of argument that it was entitled for deduction, then such deduction was to be granted on a reduced amount after bifurcation of the expenditure required to be allocated to the unit of the assessee, out of those units which were not eligible for the deduction. 10. Being....
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....ssessment year. (2) This section applies to any undertaking which has, during the period beginning on the 1st day of April, 2007 and ending before the 1st day of April, 2017, begun or begins, in any of the North-Eastern States,- (i) to manufacture or produce any eligible article or thing; (ii) to undertake substantial expansion to manufacture or produce any eligible article or thing; (iii) to carry on any eligible business. (3) This section applies to any undertaking which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in the said section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanations 1 and 2 to sub-section (3) o....
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....dence to determine whether the existing plant and machinery exceeds 20% of the old Machinery in the total value of the plant and machinery. In the remand report, the Assessing Officer narrated that the application for grant of license to manufacture or for sale or for distribution of drugs was dated 21.02.2007 whereas partnership deed by which the assessee firm came into existence was on 15.01.2009 and therefore, the Assessing Officer assumed that unit was functioning from earlier time as a unit of SPIL Dadra and Jammu. However, the assessee contended that the said date was taken on account of typographical error and Form No. 24, and the application clearly mentioned the correct date as 21.02.2009 which was verified by the CIT (Appeals) and accepted that license was taken on 21.2.2009 and not on 21.02.2007 as inferred by the Assessing Officer. 21. The Tribunal considering such findings by CIT(Appeals) arrived at the conclusion that the Assessing Officer has taken wrong facts which resulted into wrong conclusion to form a belief that the assessee-firm was constituted after splitting up and reconstruction of the existing business. 22. Another ground on which the Assessing Offic....
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....esides general disturbances in Jammu region. 25. Considering such facts and evidence on record, CIT(Appeals) did not concur with the view of the Assessing Officer and observed that decline in production of Jammu unit and Dadra Unit was on account of business strategy adopted by the group as well as disturbances in the Jammu area. CIT(Appeals) referred to the circular issued by the CBDT to consider the definition of expression "industrial undertaking" and "initial year" provided in section 80-IE(7) of the Act as under: "4.2.6 With regard to the deduction under section 80-IE, it is to be noted that the same is available to an 'industrial undertaking' and the deduction is available from the Initial assessment year. 'Initial assessment year' is defined in section 80-IE(7)(i) to mean that the assessment year in which the industrial undertaking begins to manufacture or produce. It is also an equally settled position of law that deduction is qua an undertaking and not qua an assessee. Circular F No.15/5/63-IT(A-1) dated 13.12.1963 of CBDT clarified that a new industrial undertaking taken over by another assessee before the expiry of five year the successor will....
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....ay his hand on sufficient material demonstrating the fact that the assessee has been established by splitting up and reconstruction of the existing business of SPI. The circumstances considered by the AO for arriving at a conclusion that it has been formed by splitting up are not sufficient to prove the view point of the AO. A perusal of the CIT(A)'s order would indicate that the ld. CIT(A) has minutely examined each circumstance considered by the AO, and thereafter held that the AO failed to bring any specific instance which can buttress his conclusion. Thus after going through a well reasoned finding of the CIT(A) on this issue, we are of the view that the assessee firm has not been formed by splitting up and reconstruction of existing business of SPI." 27. With regard to second issue raised by the Assessing Officer that the total value of plant and machinery installed in the industrial undertaking included more than 20% of old plant and machinery, the Tribunal considered the facts emerging from record that total amount of plant and machinery of Rs.49.33 crores were stated to be installed by the assessee, out of which, the plant and machinery having value of Rs.14.98 crore....
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....e 'Sun Pharmaceutical Indsutries" Sudhir Valia is Director in the group 112 Rushabh Enterprises 58,088/- LR not available Check Post stamp present on bill 164 Sainath Pneumatics and Boilers 1,54,473/- LR not available Bill for spare parts for Saizoner, platform for RMG2501 with railing. Delivery challan present 203 Vignesh Technosteet 1,27,296/- LR not available Bears Sikkim Check Post stamp for 25/12/2009 and entry stamp into SPS on 26/12/2009 246 Print Electronic Equipment 1,07,100/- LR not available Bill for Oasys RF with storage and in built UPS. Invoice cum delivery challan available. 4.2.11 After considering the submissions of the appellant and the observations of the AO in the remand report, I find that on the issue of duplicate bills the AO has not carried out any independent enquiry to establish that such bills pertained to machinery that had already been put to use prior to its installation in the appellant's unit. In my considered opinion, the mere fact that a particular piece of plant or machinery is supported by a duplicate bill, by itself does not prove that the said item is second hand or used. ....
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....ion of the outward structure housing the plant at Sikkim and does not in any way indicate the that commercial production had started. It is further stated that in the pharmaceutical industry, the initial phase of setting up of the plant involves considerable civil work including the installation of the Air Handling Unit (AHU) and that commercial production requires many other types of plant and machinery. On perusal of a copy of the said bill it is seen that same is clearly relating to civil construction work inasmuch as it details work relating to excavation, filling, steel reinforcement, masonry, plaster and water-proofing work. In its submissions the appellant has continuously been stating that work relating to the Sikkim unit was initially undertaken by SPI and that it was only at a later stage that the appellant firm was brought into existence and that the plant and machinery etc. was duly assigned to the appellant firm. That being the case, civil work would have certainly begun much prior to 2009 and the fact that M/s Yuksom therein and not as evidence to show commencement of commercial production as the mere existence of an outside structure cannot by itself be take....
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....stalled as on date of commencement of commercial production, it cannot be held that simply because additional units of similar machinery were installed subsequently, the appellant cannot have begun commercial production on the said date. 4.2.14 The AO has also drawn support from an impounded document issued by the Commercial Tax Division, Sikkim wherein it is mentioned that environmental liability for 2.4 crores is due from Sun Pharma Sikkim for the period October 2006 to March 2011. In this regard, the appellant has stated that the said notice was issued taking into account date of beginning of factory construction and that the appellant has only paid a fraction of the demand. From a perusal of the said document I find that it is merely a show cause which has been duly replied to by the appellant and that the document itself does reflect any adverse inference drawn by the Commercial Tax Division, Sikkim. 4.2.15 The AO has further sought to draw inference from the denial of deduction u/s 80IB(4) in the case of the sister concern Sun Pharma Industries Dadra Unit and Jammu Unit for A.Υ. 2004-05 and 2005-06 to support his conclusions in the case of the appell....
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....ls) held that the assessee was entitled to deduction under section 80-IE of the Act by observing as under: "26. We have duly considered rival contentions and gone through the details. According to the AO, bills having value of Rs.6.88 crores with regard to certain additions to plant & machinery were not furnished. Therefore, he presumed such machinery as second-hand machinery. Against his presumption, the assessee has filed an application for permission to adduce additional evidence. It was contended therein that questionnaire issued on 12.11.2012; bills were lying at factory premises in Sikkim; staff was not well conversant with income tax proceedings; they were lying in boxes; hence in a short span of time, complete details could not be submitted. Thereafter, the assessee produced complete details. The remand report was called for by the ld. CIT(A) on those details. In the remand proceedings, each bill was analysed and objection of the AO were noted. The bills have been discussed by the CIT(A) and the details are available in tabular form extracted (supra). We also have perused such details and are of the view that the defects are not substantive. They have only shown th....
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....s to be granted. The assessee had shown Net Profit at 76.46% for Assessment year 2010-2011. The Assessing Officer therefore, started to inquire whether the case of the assessee falls within the ambit of section 80-IA(10) of the Act and its profit for grant of deduction under section 80-IE deserves to be determined at reasonable basis. Section 80-IE(6) and section 80-IA(10) of the Act read as under: Section 80-IE(6): (6) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible undertaking under this section. Section 80-IA(10): (10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction unde....
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....pment expenditure, royalty fees, managerial fees, central excise duty incentive and remuneration to the working partner which were alleged to have been incurred by SPIL on behalf of the assessee and claimed by SPIL as per the presumption of the Assessing Officer. The Assessing Officer has calculated the expenses allowable to each entity on the basis of their turnover by allocating expenses to each unit on the basis of turnover and thereby reducing the eligible profit of the assessee by way of apportionment of expenditure. 37. The Tribunal after considering the order of CIT(Appeals) under each head dismissed each ground raised by the Revenue by upholding the findings arrived at by the CIT(Appeals) as under: Selling and Distribution Expenses: "31. The AO was of the view that the assessee has turnover of Rs. 624 crores. Its expenditure are in the ratio of turnover is 21% qua selling and distribution of the products. It has debited expenditure of Rs. 9.4 crores only, whereas, it should have debited expenditure at Rs. 44.27 crores. In this very manner, he has calculated the expenditure by SPI and made allocation. A perusal of the assessment order would indicate that....
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....t of Hon'ble Kerala High Court. In both these cases, it has been propounded that section 133A authorizes survey team to record statement, but such authorization is for recording of statement without administering an oath and statement recorded without oath has just a corroborative value as information. It is not an evidence per se. In the present case, these statements are general in nature highlighting the business operandi of a group as a whole. While appreciating some of the question, one has to keep in mind, the turnover of three concerns of group at Rs. 3011 crores. The accounts of the assessee are audited. No defects were found from the accounts by the AO. There might have been various strategic decisions at the HQ level, which is looking after the different entities of the group as a whole. So on the basis of general statement, it could not be harboured that exactly what expenditures of the assessee, were being borne by its working partner. The second circumstance referred by the AO is a comparable study from SPIL while considering the profit earned by the assessee vis-à-vis ratio of expenditure incurred by it. It is pertinent to observe that the assessee is in th....
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..... The facts with regard to other items, i.e. Research and Development expenses, Royalty and trademark, brand, logo use, managerial fees are also identical. We have already taken note of the CIT(A)'s finding. The ld. CIT(A) while appreciating the concern of the AO has recorded a finding that the ld.AO failed to take into account the facts that drugs being manufactured by the assessee did not enjoy high brand value, but were prescription drugs where the quality was more important than the brand recall. According to the CIT(A), the AO has also disregarded the order passed by the ITAT, Amristar Bench, which has deleted such apportionment of expenditure in the case of SPI. Hence, the issue has been considered as covered by the order of the ITAT cited supra. 34. Next item which has been reduced from the eligible profit is an amount of Rs.48.40 crores. The AO was of the opinion that the assessee has used trademark, brand and logo of SPIL, therefore it should have paid royalty or any other charges to SPIL. He has estimated 8% of the turnover which ought to have been paid by the assessee to SPIL. This 8% has been estimated by the AO on the basis of his view taken in the case of....
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....corded in the case of SPI and that finding did not meet approval of ITAT in the case of SPI. 37. Before us, the ld. counsel for the assessee relied upon the orders of the ITAT, Amristar Bench and Mumbai Bench and submitted that the assessee has already paid remuneration at 5% of the turnover which has been accounted in the accounts. No further adjustment was required. This stand of the assessee in the case of SPI has been approved. We find that the finding of the CIT(A) is on this line, and we do not see any reason to deviate from the order of the ITAT, Amristar Bench on this issue. Therefore, we do not find any merit in the contention of the Revenue, and view taken by the CIT(A) is being upheld. Central Excise Duty Incentive 38. In the next ground of appeal, grievance of the Revenue is that the ld. CIT(A) has erred in deleting the disallowance of deduction under section 80-IE read with section 80-IA(10) of the Act on central excise duty incentive of Rs. 12,75,65,446/- by putting reliance upon order of the Hon'ble Jammu and Kashmir High Court followed by the ITAT in the case of sister concern of the assessee firm. 39. Brief facts of the case ....
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....uired for creation of New Assets cannot be viewed in isolation, to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bona fide Industrial Units so that larger Public Interest of dealing with unemployment in the State, as Intended, in terms of the Office Memorandum, was achieved. 29. The other factors, which had weighed with the Tribunal in a15etermining the incentives as Production Incentives may not be decisive to determine the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided with the object of creating avenues for Perpetual Employment, to eradicate the social problem of unemployment in the State by accelerated industrial development. 30. For all what has been said above, the finding of the Tribunal on the first issue that the Excise Duty Refund, Interest Subsidy and Insurance Subsidy were Production Incentives, hence revenue Receipt, cannot be sustained, being against the law laid....