TMI Blog2013 (10) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... dings of CIT(A) by bringing any contrary material on record - Decided against Revenue. Product Registration Expenses and reimbursement of Product Registration Support Services expenses - Trademark Registration Fees and Patent Registration Fees - capital v/s revenue - Held that:- Assessee has not acquired any new right of permanent character. licenses or registrations are required to be renewed and therefore part of day to day running expenditure of business. [ACIT v. Vodafone Essar Gujarat 2010 (1) TMI 941 - ITAT, AHMEDABAD]. If expenditure cgive benefit which is said to be endured for one year or even annually year after year then it is unreasonable to hold that any enduring benefit taken place to assessee. [Comsat Max Limited. 2009 (1) TMI 314 - ITAT DELHI-H]. expenditure incurred in existing line of business in order to run business smoothly in years to come but in absence of creation of "any new asset we hereby held that such enduring benefit may not tantamount to rendering of capital expenditure. [DCIT v. Core healthcare 2008 (10) TMI 74 - GUJARAT HIGH COURT]. Also as decided in CIT v. Finley Mills Ltd. [1951 (10) TMI 1 - SUPREME COURT] that expenditure incurred in register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket value of such goods or services on date of transfer and even if such recording of transfer is not as per market value, A.O. cbring it to market value and he cannot proceed to estimate profits and gains on reasonable basis unless he establishes that there is any exceptional difficulty in adopting market value and even then, basis adopted by A.O. to compute profits and gains, should be reasonable basis. In present case, we have seen that neither pre requirement of sub-section (8) or its proviso to section 80-Ihas been fulfilled by A.O. nor basis adopted by him is reasonable basis and, therefore, we do not find any basis to confirm or approve action of A.O. - in favour of assessee. Addition as upward adjustment on international transactions - Transfer Pricing adjustment - Held that:- Since in earlier year [2013 (1) TMI 655 - ITAT AHMEDABAD], similar issue was restored back to file of A.O. for fresh decision, we restore this mater back to file of A.O. for fresh decision for this year also with similar directions - in favour of assessee. Adjustment on account of 'Expenses disallowed u/s. 14A' for purposes of computation of book profit u/s. 115JB - Held that:- Following de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily to the finding of ITAT Mumbai in Concept Pharmaceuticals Ltd. V/s ACIT (ITAT,Mum) reported at 43 SOT 423. 5. Ld CIT(A) erred in holding that expenses incurred outside the approved R D facility also eligible for weighted deduction u/s 35 (2AB), particularly in view of the fact that DSIR itself has classified expenditure certain amount as incurred outside the approval facility and the assesse itself did not claim weighted deduction u/s 35(2AB) on such expenses spent outside India outside the approved R D. There is no difference between expenses incurred within India or outside India, once the same are outside the approved R D facility. 6. Ld CIT(A) erred in holding that the assesse is eligible for deduction u/s 80IC on the entire profit 83.90 % including the amount of profit which the company was already earning from marketing of the same products after purchase from P2P manufacturer. Increase in profit to the company in those products was only 7.24% after it started manufacturing the said products at Baddi unit. 7. Ld CIT(A) erred in holding that the A.O. has no right to determine the fair market value of goods, when there is no-inter-corporate transfer of goods, desp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thcare, Brazil. As per the terms of agreement, no interest was payable if the amount was converted into equity. However, if the same is redeemed, interest was payable at Libor Plus 290 bps and the interest was to be computed at annual rates and payable at maturity that is 5 years from the date of first disbursement. The rupee value of the amount of loan as on 31.03.2008 was Rs. 108.32 crore. It was also noticed that Assessee has not shown any income from the aforesaid loan. In response, Assessee interalia submitted that Assessee had not opted for conversion of the loan during the year and therefore it was loan for the year and as per the terms of agreement, no interest accrued to the Assessee and therefore no income was considered. The TPO did not find the contention of the Assessee acceptable. He considered the Optionally Fully Convertible loan as debt and considering the average six month Euro Libor rate for the year @ 4.48% to which he added the interest rate of 2.90 basis point as per the agreement and thereafter considered the rate of interest to be @ 7.38% and accordingly computed the interest on Rs. 108.32 Crore for 171 days at 7.38%. The aforesaid adjustment made by the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emained outstanding during the year. TPO also disregarded the terms of agreement on the ground that the same may not be enforceable. I agree with the TPO that if interest free loan is given by an Indian company to foreign subsidiary, notional interest is required to be adjusted as income of the Indian company. However in the case of appellant what was provided was not interest free loan but optionally convertible loan having provision for interest if the option is not exercised by the appellant. The funds were provided by the appellant as per RBI guidelines. At the time of providing funds, it was by way of optionally convertible loans. However immediately next year as per schedule 20 (clause 10A) of published annual report of the appellant company for FY 2008-09 the entire loan given to subsidiary was converted into equity shares of Zydus International Private Ltd. In view /of this it is clear that appellant exercised option of converting loan into equity in the immediate next year and accordingly there is no question of interest accrued to the appellant. It is not a case of simply loan transaction wherein adjustment in respect of notional interest is held to be justified on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions and perused the material on record. CIT(A) while deleting the addition has noted that as per the agreement, the interest was payable only if the conversion option was not exercised on the expiry of 5 year period. If at any time during the 5 year period conversion option was exercised and the loan was converted into equity, no interest accrued or become payable. He further noted that the funds were provided by the Assessee as per RBI guidelines and in the immediately next year, the entire loan given to subsidiary was converted into equity shares of Zydus International Pvt. Ltd. He has further held that since the Assessee has converted the loan into equity in the immediate next year, there was no question of taxing notional interest. He has further held that Assessee had not granted interest free loan but invested in optionally convertible loan with a clause of interest in case, Conversion option was not exercised and further held the Assessee s transaction with subsidiary was at arms length. Before us, the Revenue could not controvert the findings of CIT(A) by bringing any contrary material on record. In view of these facts, we find no reason to interfere with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that Assessee had debited Rs. 4,20,49,275/- under the head Trade Mark Registration Fees and Patent Fees. The Assessing Officer asked the Assessee to justify its claim. The Assessee interalia submitted that it gets Trade Mark Registered with the Registrar of Trade Marks under the Trade mark Act for which certain prescribed fees are required to be paid. The registration of Trade marks enables the Assessee to obtain speedy and less extensive remedy against the infringement of trade marks, it gives benefit of exclusive right to use its trade mark and is incurred for the protection of the business of the company and thus was incurred wholly and exclusively for the purposes of the assessee s business. With respect to patent registration fees, it was submitted that the expenses was incurred for carrying out various patent registration formalities including statutory fees prescribed in different countries. Registration of patents gives benefit of exclusive rights to use the patents and was incurred wholly and exclusively for the purpose of business. The Assessing Officer did not accept the contentions of the Assessee. He was of the view that by incurring the expenses of trade mark o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments in question are inextricably linked with the working of the assessee's business. By incurring those expenditure the assessee has not acquired any new right of permanent character. The licenses or the registrations are required to be renewed and therefore part of the day to day running expenditure of business [ACIT versus Vodafone Essar Gujarat 38 SOT 51 (Ahd.). If an expenditure can give a benefit which is said to be endured for one year or even annually year after year then it is unreasonable to hold the enduring benefit taken place to the assessee. [Cosmat Max Ltd. 29 SOT 6 (Del.)]. An expenditure incurred in the existing line of business it to run the business smoothly then though the business may run in future in the years to come but in the absence of creation of any new asset we hereby held that such an enduring benefit may not tantamount to rendering of capital expenditure. [DCIT versus Core healthcare 263 (Gujarat)]. A very identical case law has also been cited pronounced by the Hon'ble Supreme Court in the case of CIT versus Finley Mills Ltd. 20 1TR 475 and the opinion expressed was that an expenditure incurred in registering for the first time its trademark, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) decide the issue in favour of Assessee by holding as under:- 5.5 I have considered the facts of the case assessment order and appellant s written submission. Appellant submitted that this ground is directly covered by the order of ITAT in appellant s own case in assessment year 2006-07. The ITAT has passed order in assessment year 2006-07 in ITA No. 3140/Ahd/2010 dated 25.05.2012. The relevant part of the order is quoted below . There is no dispute that facts are identical this year also. Assessing officer pointed out during appeal hearing that ITAT did not consider the decision of ITAT Mumbai in the case of Concept Pharmaceuticals Ltd. Vs ACIT (ITAT, Mum) 43 SOT 423' in which weighted deduction on scientific research expenses incurred outside the approved facility was not allowed. Assessing officer also mentioned that appellant did not claim weighted deduction on research expenses incurred outside India and there is no difference between expense incurred outside approved facility and expenses incurred outside India. Appellant submitted that decision in the appellant's own case by j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have found that the judgment of Hon'ble Gujarat High Court is not applicable in the present case whereas in the Tribunal decision rendered in the case of Concept Pharmaceuticals Ltd.(supra), this aspect was not discussed, examined and decided as to whether clinical drug trial expenditure can be incurred inside the in-house research and development facility or not. We have seen that such expenditure on clinical drug trial cannot be incurred inside the in-house research and development facility. We have seen that in the said Tribunal order rendered in the case of Concept Pharmaceuticals Ltd. (supra), the other two expenses included in the relevant explanation to Section 35(2AB)(1) were not examined at all by the Tribunal to find out whether those expenses can be incurred inside the in-house research and development facility or not and hence, this aspect was not discussed and decided specifically as to whether the explanation also requires that the expenditure included in the explanation are also to be incurred inside the in-house research and development facility or not. We have seen that all the three expenses included in the explanation are not capable of being incurred inside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or at the formulations unit at Moraiya and Goa, the Assessee was having gross margin of 76.65% for all the products taken together which has increased to about 83.90% in the current year which in effect means that by setting up manufacturing unit at Baddi, the Assessee has earned a further profit of 7.24% on overall basis. He was further of the view that the profits shown at Baddi Unit comprises of Profits from the manufacturing activity, profit earned due to brand value owned by the parent company and the profits earned by exploitation and free usage of the marketing network of the parent company. Accordingly, the profits shown for the Baddi unit have to be apportioned to arrive at the true profits eligible for deduction under 80IC of the Act. From the details submitted by the Assessee, he concluded that increase in additional profit of 7.24% (76.65% in earlier years as compared to 83.90% in current year) has been earned due to its unit at Baddi and therefore the profit of Baddi unit was worked out at 7.24% of the turnover. He accordingly restricted the claim of deduction to Rs. 22,24,61,917/-. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken on the issue in the year under appeal also. 23. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the facts in the year under appeal are identical to that of A.Y. 06-07 07-08. The Co-ordinate Bench of Tribunal in ITA No. 3140/A/2010 order dated 25.05.2012 for A.Y. 06-07 decided the issue in favour of Assessee by holding as under. The relevant part of the order as quoted below: 8.5 I have considered the facts of the case assessment order and appellant's written submission. Appellant submitted that this ground is directly covered by the order of ITAT in appellant's own case in assessment year 2006-07. The ITAT has passed order in assessment year 2006-07 in ITA number 3140/AHD/2010 dated 25-05-2012. The relevant part of the order is quoted below- 10.3 It is not in dispute that for Baddi Unit the assessee has maintained separate books of accounts and therefore drawn a separate profit and loss account. In such a situation, whether the AO is empowered to disturb the computation of profit, is always a subject matter of controversy. From the side of the assessee, reliance was placed on ACIT v. Delhi Press Patra Prakashan 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the assessee regularly followed in the normal course of business, it is true that otherwise no fallacy or mistake was defected in the books of accounts of Badd Unit prepared on stand alone basis through which the only source of income/profit was the manufacturing of the specified products. We therefore hold that the AO's action of segregation was merely based upon a hypothesis, hence hereby rejected. These two grounds Nos.6 7 are allowed. " There is no dispute that facts are identical this year also. Assessing officer submitted his comments on the observations /decision of ITAT in its order for assessment year 2006-07. Appellant submitted that decision in the appellant's own case by jurisdictional ITAT is binding on CIT (A) besides commenting on assessing officer's report. During the course of appeal hearing assessing officer was specifically asked if there is any difference on facts between assessment year 2006-07 and assessment year 2008-09. Assessing officer confirmed that there is no difference as far as facts in these two years are concerned. Assessing officer was also asked to submit any judicial decision from higher forum i.e. ITAT special bench. High Court or Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of sub-section (8) of Section 80-IA, from the eligible business, if the assessee has transferred any goods or services to any of the business carried on by the assessee and vice versa, and if it is found by the A.O that for such transfer as recorded in the books of the eligible business, the price adopted do not correspond to the market value of such goods or services as on the date of transfer then for the purpose of deduction under this section, the profits and gains of such eligible business should be computed by considering the transfer at the market value of such goods or services as on the date of transfer. As per the provisions of sub-section (8) of Section 80- IA where in the opinion of the A.O.. the computation of profits and gains of eligible business in this manner presents exceptional difficulty, the A.O. may compute such profit and gains on such reasonable basis as he may deem fit. Hence, in order to invoke the provisions of this proviso to sub-section (8) of Section 80-IA, it is necessary for the A.O. to establish that some goods or services have been transferred by the eligible unit to some other unit of the assessee or by some other unit of the assessee to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit of the assessee to other unit of the assessee and if one of them is eligible unit and another is non eligible unit then, it has to be seen that price adopted for recording such transfer of goods is market value or not and even then, if the A.O. establishes that there is exceptional difficulty in finding out market value of such goods then only, the A.O. can proceed to compute the profits of the eligible unit on reasonable basis. In the present case, the A.O. has not established that there is any transfer of goods or services by the Baddi unit to any other unit of the assessee company. Secondly, this is not a finding of the A.O. that any transfer entry has been made at Baddi unit at some price and such price adopted by the assessee is not market value of the goods transferred from the Baddi unit. Thirdly, it is not established by the A.O. that even if it amounts to transfer of goods by Baddi unit to some other unit of the assessee company then there is exceptional difficulty in computing the profits as per the provisions of sub-section (8) of Section 801A by adopting fair market value of the goods so transferred and therefore, the A.O. has to adopt computation of such profit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. D.R. as to how the A.O. is fulfilling the pre requirement of sub-section (8) of Section 80-IA except this submission of the Ld. D.R. that goods were transferred form Baddi unit to the company and, therefore. Section 80-IA(8) is applicable. We have already observed hereinabove that the company as a whole cannot be equated with any other business carried out by the assessee and hence, the pre requirement for invoking provision of Section 80- IA(8) are not being fulfilled in the present case and moreover, the basis adopted by the A.O. is also not a reasonable basis. Moreover, there is no other objection of the A.O. about allowability of this deduction or regarding commutation of the amount of this deduction such as non allocation or wrong allocation of expenses to the eligible unit. Hence, these grounds of the assessee are allowed. 25. Since the facts of the present ground are identical to that of earlier years as admitted by both the parties. Respectfully following the decision of the Coordinate Bench for earlier years and for the reasons stated by the Co-ordinate Bench and for similar reasons, we decide the issue in favour of Assessee. Thus these grounds of Revenue are dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. On the other hand the Ld. A.R. submitted that the issue has been conclusively decided by Hon. Tribunal for A.Y. 06-07 07-08 in favour of the Assessee. 28. We have heard the rival submissions and perused the material on record. We find that on identical issue, the Co-ordinate Bench has decided the issue in favour of Assessee in ITA No. 2902/Ahd/2011 by holding as under: 7. Grounds No. 7 and 8 are interconnected which are as under: 7. That the learned Assessing Officer erred in law and on facts in restricting the deduction u/s. 80IC in respect of Baddi Unit to Rs. 14.45 crores as against the appellant s claim of Rs. 133.45 crores. 8. That the learned Assessing Officer erred in law and on facts in restricting the deduction u/s. 80IB in respect of Goa Unit to Rs. 18,40,530/- as against the appellant s claim of Rs. 1,28,03,700/-. 7.22 As per above discussion we have seen that even while examining the issue in dispute independently without considering the tribunal order in assessment year 2006-07 in assessee's own case, we have reached to the same conclusion and hence, this ground of the assessee deserves to be allowed even without following this Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition added to the book profit the expenses of Rs. 6,05,91,025/- disallowable u/s 14A. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) decided the issue in favour of Assessee by following the order of Tribunal in assessee s own case for A.Y. 06-07 by holding as under:- 11.3 I have considered the facts of the case; assessment order and appellant's written submission. Appellant submitted that this ground is directly covered by the order of ITAT in appellant's own case in assessment year 2006-07. The ITAT has passed order in assessment year 2006-07 in ITA number 3140/AHD/2010 dated 25-05-2012. The relevant part of the order is quoted below- "13. 1 The second limb of this ground is in respect of expenses disallowed u/s. 14A of IT Act. The AO's version was that in view of clause (f) Explanation- 1 to section 115JB the said adjustment should have been made. According to AO, the amount disallowed u/s. 14A is liable to be added as per the provision of sec. 115JB r.w.Explanation-1, clause (f) which mandates that the expenditure debited to Profit Loss account a/c. incurred in relation to income exempt u/s. 10 is to be added for computati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identical issue was decided by the Co-ordinate Bench for A.Y. 07-08 in ITA No. 2902/Ahd/2011 in Assessee s favour by holding as under:- 11.1 It was submitted by the Ld. A.R. that this issue was decided by the tribunal in favour of the assessee in the case of Goetz (India) Ltd. Vs CIT as reported in 32 SOT 101 (Del.). He also submitted that there is no contrary decision on this issue till date. Ld. D.R. supported the order of authorities below and he could not point out any contrary decision or any difference in the facts of the present case as compared to the facts of the case of Goetz (India) Ltd. (supra). We do not find any reason to take a contrary view in the present case and, therefore, respectfully following this Tribunal decision rendered in the case of Goetz (India) Ltd. (supra), we decide this issue in favour of the assessee. This ground of the assessee is allowed 33. Since the facts the year under issue are identical to that of earlier years. We respectfully following the order of Co-ordinate Bench in Assessee s own case find no reason to interfere with the order of CIT(A). Thus this ground of Revenue is dismissed. 34. In the result appeal of the Revenue is dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness is not established by the appellant. Although the onus to prove the user of asset was on the appellant, the same was not discharged either before the assessing officer or before the undersigned. Claim of an expense in the company accounts is not an evidence to prove that asset was used for the business of the company. In the absence of any tangible evidence to prove the business use of the motor car purchased in the name of director, it is held that the motor car was not used for the purpose of appellant's business. Coming to the appellant's argument of beneficial ownership, appellant submitted that payment for the car was made by the company and hence the appellant is the beneficial owner. Payment will not determine the ownership since payment can be made by way of loan also, in fact major payment is made by finance company but it is not the beneficial owner. Since both appellant and its director are separate entities and directors are not permanent, it cannot be said that appellant company has got complete dominion over the motor car. Since motor car is in possession and control of the director in whose name the same stand, there is no dominion_or control of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant is correctly disallowed by the assessing officer. 36. Aggrieved by the order of CIT(A), the Assessee is now in appeal before us. Before us, the learned A.R. submitted that on identical facts for A.Y. 07-08 the Assessee had raised the ground before Hon. Tribunal and the Tribunal had restored the matter to the file of Assessing Officer by holding as under:- But this is also to be seen as to whether the car in question was used for the business purpose the assessee. In fact, this is also to be seen as to whether it is possible to use this car for business purpose of the assessee company. There is no finding of the authorities below on this aspect of the matter and disallowance was made merely on this basis that the car in question is in the name of the assessee company. In our considered opinion, if the assessee is able to establish, that the car in question was used by the assessee company for its business purpose, then the claim of the assessee regarding depreciation on this car cannot be rejected but if the assessee fails on this aspect then obviously, depreciation is not allowable in the present case. Since this aspect was not decided by the authorities below, we fe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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