2017 (5) TMI 529 - ITAT HYDERABAD

TPA - International Transaction - Corporate guarantee provided by assessee company to it’s A.Es - Held that:- The Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute “International Transaction” within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect. Since we are of the opinion that it falls outside the ambit of “International Transaction” the alternative contention urged before us need not be taken into consideration. Suffice to say, that each year being independent, merely because the assessee has accepted in the earlier year it would not come in the way of the assessee to urge the same issue in a subsequent year.

Additional interest on loans given to A.Es. - Held that:- The principle that emerges from the decisions cited by the Learned Counsel for the Assessee particularly in assessee’s own case for the earlier years, show that benchmarking of ALP should be LIBOR + 200 basis points and TPO should not determine the ALP by taking into consideration the market rate prevailing in the respective countries. Even for A.Y. 2008-2009, the Hyderabad Bench accepted in principle that LIBOR + 200 basis points can be adopted as ALP. Under these circumstances, we set aside the matter to the file of the A.O. who is directed to adopt the LIBOR rate applicable for the years under consideration + 200 basis points to arrive at the ALP. This issue is disposed of accordingly.

Allowability of claim of depreciation on goodwill - Held that:- It is not in dispute that this very issue was considered by the ITAT in assessee’s own case for the A.Y. 2007-08 wherein the Bench allowed the plea of the assessee to allow depreciation on goodwill.

Allowability of business expenditure - Held that:- We direct the A.O. to verify the nature of the expenditure and disallow only such expenditure which was not incurred for the purpose of business of the assessee. This ground is accordingly treated as allowed for statistical purposes.

Allocation of corporate overheads expenses to tax holiday units - Held that:- We direct the A.O. to allocate net expenditure of the corporate entity amongst all the units on the basis of turnover. This ground is disposed of accordingly.

Jurisdiction of the DRP considering the matter of allowability of deduction referrable to profit share with DRL Swiss - Held that:- Even the matters not agitated by the assessee before the DRP can be considered for the purpose of enhancement. In fact, the DRP had issued a notice to assessee in 2013 by which time the Explanation to section 144C(8) was already in force. The case of the Revenue is also supported by the decisions of Tribunal referred to by the Ld. D.R. in the written submissions. Under the circumstances, we uphold the plea of the Ld. CIT-D.R. and hold that the DRP is well within its competence to consider the issue pertaining to profit sharing between DRL India and DRL SA.

Correctness of disallowance of the claim of sharing of profits - Held that:- The sharing of profits between DRL, India and DRL SA is for bonafide business purposes and therefore, assessee is entitled to claim deduction on this count. It may not be out of place to mention that the A.O. was of the view that the assessee has a major role in product development and therefore, in the process of sharing profits between DRL US and DRL, India, assessee is entitled to larger share i.e., 60%. It is not in dispute that the DRL, US has undertaken the responsibility of warehousing and marketing the product in US territory which is the main role that requires to be played in selling a drug during the exclusivity period. Despite that assessee having initially done the Research and filed an abbreviated new drug application for the drug namely “Sumatripton” and got approval to manufacture and develop the product in India and to sell the same in USA, there was an agreement between DRL, US and DRL, India to share the profits equally. Under these circumstances, we are of the view that the DRP was justified in holding that the sharing of profits between India and US at 50%-50% cannot be questioned.

As out of 50% share that the assessee earned it had to part with a portion of the profit with the DRL SA for the detailed reasons set-out in the above paras. Having regard to the circumstances of the case and in the backdrop of the principles laid down by the Hon’ble Supreme Court in the case of S.A. Builders [2006 (12) TMI 82 - SUPREME COURT] we are of the firm view that the agreement between DRL, India and DRL SA cannot be doubted. We direct the A.O. accordingly.