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TMI Blog2022 (3) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... . Scope of amendment brought by finance Act 2012 - We hold that the amendment as discussed was brought by the finance Act 2012 but the same is applicable retrospectively i.e. 1-4-2002. Thus the amendment is applicable to the year under consideration. Determination of the benchmarked for working out the ALP of the impugned international transaction - Bombay high court in case of CIT vs. Everest Kento Cylinders Ltd [ 2015 (5) TMI 395 - BOMBAY HIGH COURT] held that while determining the ALP the rate charge by the bank or financial institution cannot be taken as comparable. ALP rate of the commission on corporate guarantee - 0.5% of commission on the value of corporate guarantee will serve the justice to both the assessee and the Revenue. Hence, the contention of the assessee is partly allowed. Adjustment by the TPO/AO on account of interest on Loan given to AEs - As decided in own case [ 2019 (5) TMI 1932 - ITAT AHMEDABAD] we note that the assessee is charging margin at 37.50 bps from the AE which appears quite low as even the bank charges from the company having high net worth a margin of .50%. Therefore we are inclined to uphold the finding of the TPO for charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man resources engaged in different undertaking of the assessee, that should be the consideration for allocation of administrative expenses, as held by the Coordinate Bench [ 2019 (5) TMI 1932 - ITAT AHMEDABAD] from which we are not inclined to deviate, and hence respectfully following the decision, we delete the addition made by the Revenue in reducing deduction under section 80IC Deduction admissible under section 80IC is to be restricted to the extent of income from business and profession, as against gross total income of the assessee - HELD THAT:- As relying on RELIANCE ENERGY LTD. (FORMERLY BSES LTD.) THROUGH ITS M.D. [ 2021 (4) TMI 1237 - SUPREME COURT] we find no justification in restricting the deduction under section 80IC of the Act to the extent of income from business and profession, rather to be extended against the gross total income of the assessee. Thus, we find merit and considerable substance in the case made out by the assessee, and therefore, we direct the ld.AO to work out the deduction available to the assessee keeping in view of the above observation made by us hereinabove, based on the judgment of Hon ble Supreme Court cited (supra). We allow this groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction claimed under section 35(2AB) - HELD THAT:- Assessee is eligible for weighted deduction on expenditure incurred in connection with rates and taxes and salary to Dr. C. Dutt. Deduction with respect to expenses incurred on account of clinical trial and patient registration - We note this issue also covered in favour of the assessee by the order of special bench of the Tribunal in case of Cadila Healthcare Ltd.[ 2013 (3) TMI 539 - GUJARAT HIGH COURT] - we hold that the assessee is eligible for weighted deduction on expenses incurred on clinical trial and patent registration. Accordingly, we do not find any infirmity in the order of learned CIT(A) and directed the AO to allow weighted deduction. Depreciation @ 60% on computer software instead of at 25% on the value of the assets - whether the software purchased by the assessee is part of computer for purpose of depreciation or the same can be treated as intangible assets? - HELD THAT:- Software is part of computer. Hence, the depreciation on the same is allowable at the rate applicable for computer. In this regard we also find support and guidance from the judgment of Hon ble Madras High Court in case of CIT vs. Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edical expenses - Medical Council of India jurisdiction to pass any order or regulation against any hospital or any health care sector under its 2002 regulation - HELD THAT:- Circular issued by the CBDT as under Indian Medical Council Professional Conduct, Etiquette and Ethics) Regulations, 2002 is not applicable for the year under consideration and consequently the disallowance cannot be made in the year under consideration on account of freebies given to the medical practitioners being the AY 2009- 10. Hence, the ground of appeal of the assessee is allowed. Claim of the assessee that while computing deduction under section 80IC that the eligible income ought to be reduced by reallocating administrative expenses allowed Deduction under the provision of MAT while calculating the book profit - whether the assessee is entitled the benefit of reducing the profit of the business eligible for deduction under section 80HHC of the Act while computing the book profit under the provisions of section 115JB? - HELD THAT:- Parliament is empowered to bring amendments under the statute that too retrospectively provided it is not detrimental to the assessee. In other words any amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the loss cannot be adopted by the revenue. In the light of the above stated discussion, we hold that the loss claimed by the assessee is an allowable deduction. Thus, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Deduction with respect to provision for leave encashment - HELD THAT:- There are certain expenses which are allowed on payment basis in pursuance to the provisions of section 43B of the Act irrespective of the year of incurrence. One of such expenditure is leave encashment. Admittedly, the assessee has not made the payment of the leave encashment and therefore the same can t be allowed as deduction. However, the assessee is at liberty to claim the deduction of such expense in the year of payment. Thus the ground of appeal of the assessee is dismissed in terms of the above. Upward adjustment of TP on account of capital infusion, corporate guarantee and loan and advances provided to AE - HELD THAT:- No dispute to the fact that the assessee has advanced money to its AE for acquiring the shares which is a capital account transaction. Therefore, there cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Institute of India (supra) in similar facts and circumstances observed that nature of the assets used in the business is to be decided on the basis of functional test of the assets and accordingly held that tables, stools, rackets etc. used in laboratories are part and parcel of plant and machinery. We also find that the learned CIT(A) in his order followed the order cited above i.e. order of the Pune Tribunal i.e. Serum Institute of India [ 2012 (4) TMI 373 - ITAT PUNE] The relevant extract of the order has already been reproduced in the order of the ld. CIT-A. Respectfully, following the same, we do not find any infirmity in the order of the learned CIT(A). Hence the ground of appeal of the Revenue is hereby dismissed. Upward adjustment on account of dossier licensing fee - HELD THAT:- We note that the profit sharing ratio has already been accepted by the revenue in the earlier years. There is no change in the facts and circumstances for the year under consideration viz a viz the earlier years. It is the same agreement based on which the income has been shared between the assessee and the AE in the year under consideration. As such the agreement was entered dated 18-02-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A) erred in confirming addition of ₹ 1,92,04,765 from out of total addition of ₹ 1,93,56,012 made by the Assessing Officer on the basis of the order u/s. 92CA(1) passed by the Transfer Pricing Officer. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of ₹ 3,33,478 made by the Assessing Officer in respect of Employees' Contributions to ESI on the ground that the same was not paid within the prescribed time limit under the ESI Act even though the payment was made within the time limit for filing the return of income u/s. 139(1) of the Income-tax Act. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant company's relevant ground of appeal that from out of the total development cost incurred by the appellant company for the products to be sold in domestic as well as international market, only the portion of development cost pertaining to the products to be sold in domestic market should be allocated to Baddi Unit for the purposes of Section 80-IC as the said unit is solely engaged in the manufacturing products to be sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee at ₹ 30,74,68,950/- an appeal was preferred by the assessee against the said order before the first appellate authority. The ld. CIT(A) vide order dated 21.3.2017 partly allowed the appeal filed by the assessee against the said assessment order. Being aggrieved by order of the ld. CIT(A), both the assessee and Revenue are before us with respective grievance. 5. Now we adjudicate the issues ground wise raised in the above appeal as follows. 6. Ground No.1: In this ground, the grievance of the assessee is that the ld. CIT(A) erred in confirming the addition of ₹ 1,92,04,765/- out of total addition of ₹ 1,93,56,012/- made by the ld. AO on the basis of order under section 92CA(3) of the Income Tax Act, 1961 passed by Transfer Pricing Officer (TPO). 7. During the course of assessment proceedings, the issue was referred to the TPO, who vide his order dated 29.1.2013 read with subsequent order dated 22.3.2013 passed under section 154 of the Act made the following adjustment on account of Arm s Length Price (ALP) in respect of international transactions as detailed below: 1) Interest on loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a certain fee for extending such facilities, as the risk assumed was of quite onerous nature. Therefore, TP study conducted by the assessee in respect of giving guarantees to the AEs was found to be inaccurate and not in terms of the provisions of section 92C of the Act. As such, the study conducted by the assessee was rejected by the ld. TPO. Thereafter, the ld. TPO issued a show cause notice as to why service provided by the assessee to its AEs should not be benchmarked and as to why a suitable commission of 3% should not be taken as arm s length price for providing corporate guarantee in respect of these entities. The assessee was accordingly supplied with requisite data on which benchmarking was based, in a CD. The assessee by and under a written submissions dated 18.1.2013 pleaded that benchmarking in the instant case did not require, because there was an implicit parent support to the subsidiary, more so when, subsidiary companies are carrying on the business of marketing of assessee s products, and the assessee company was simply helping its AEs in its growth by taking risk factors. Relying on the decision of ITAT, Hyderabad Bench in the case of Four Soft Limited, it was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent if that person or concern fails to. In case the guarantee is valid, unconditional and irrevocable and it requires prompt payment in full before pursuit of remedies, in principle it provides full credit substitution. If sufficient funding is not provided by the parent company for some reason, subsidiaries that attract funding from third parties are necessarily required to arrange additional collateral from related (parent) company in the form of guarantees. At the same time, guarantees are also being used, at the option of the borrower, to obtain better conditions, notably interest rates, on external financial transactions, creating a benefit on a group -wide basis. 7.6. The claim of the assessee that the guarantee has been provided for working capital and financial needs of the AE and hence it should be treated as implicit parent support and hence the guarantee needs to be benchmarked at nil is not found an acceptable argument. For an arm's length study, the parentsubsidiary obligation needs to be set aside and it needs to be determined as to what would be the behavior of an independent party in the same scenario. The plea of implicit support would need to be discard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or borrowing money.... In considering the arms length price of a loan, the rate o interest has to be considered and income on account of interest can be attributed; (iv) The result of the transaction was that the income of the assessee in India would reduce while that of the AE would increase. This was a classic case of violation of transfer pricing norm where profits were shifted to low tax jurisdiction to bring down the aggregate tax incidence of a multinational group. 7.8 The assessee has elaborately discussed the benefits being given by the AEs to the assessee company. However, for this, these companies are being remunerated at arm's length rate. Providing free guarantee support cannot be a reward for providing market access. For that a separate reward system exists. As far as guarantee is concerned, it needs to be benchmarked a suitable rate. 7.9 The reliance placed by the assessee company on the decision of Hon'ble ITAT in the case of Everest Kanto Cylinder Ltd ITA No. 542/Mum/2012 is examined. The decision of the Hon'ble ITAT has many contradictions built into it. While it mentions that the HSBC guarantee cannot be compared to assessee gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f repayment of the loan taken; the assessee would have to pay 100% of the amount while in case of payment already made only a percentage is charged. 7.12 In light of the discussion above, no case is made to alter the charge of guarantee as per the process described in the show cause notice. An attempt has been made to analyze the bond data in US market to arrive at various levels of yields for differently rated bonds in a global scenario since the US bond market is a mature one and is freely traded globally. The coupon rate represents yield on various bonds and the rate is directly proportional to the rating given to the bond. Higher the risk of default by the issuing company on this bond, higher the coupon rate. .Details of these bonds are available on the web. The details of such corporate bonds available on www.finanace.yahoo.com (publicly available) was gathered. On analysis of over 1100 bond data, from where the bonds Issued during the F:V 2008-09 were segregated, it is seen that the difference in coupon rate (yield or interest rate) in respect of AA rated bonds and RS rated bonds cornes to 2.706 %age points. A copy of the data mentioned above is supplied to you in a CD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment of ₹ 54,73.537 /-. Similar issue had arisen in appellant's appeal for A. Y. 2007-08 and 2008-09 wherein for similar reasons, addition was made by the TPO on account of corporate guarantee fees. The submissions made by the appellant are similar to that of A. Y, 2007-08 and 2008-09. The CIIT(A) has decided the appeal raised by the appellant in these years i.e. AY 2007-08 and 2008-09 and have confirmed the adjustment made by TPO and addition made by the AO. For convenience sake the findings of CIT(A) in AY 2007-08 is reproduced as under: .. In AY 2008-09 also the CIT(A) has taken the same view and confirmed the addition made by the AO on similar facts following his own order in AY 2007-08. In the current year under appeal i.e. AY 2009-10, the issue is the same and I find no reason to differ from the findings of CIT(A) as quoted above. Hence following the same reasoning, I uphold the addition made by the A. O. Accordingly, the ground on this issue is dismissed. 9. Being aggrieved by the order of the ld. CIT-A, the assessee is now in appeal before the Tribunal. 10. Before us, the ld. counsel for assessee, besides reiterating the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d within the ambit of international transaction vide the Finance Act 2012 with retrospective effect. Thus there remains no ambiguity to the fact that corporate guarantee extended by the assessee to its AE is an international transaction and therefore the same has to be benchmarked at the arm length price. However, we note that the different benches of the ITAT have taken different view. Some of them held that the transaction of corporate guarantee is an international transaction whereas some of them held that the transaction of corporate guarantee is outside the purview of the international transaction including the Ahmedabad tribunal in the case of Micro Ink Ltd. vs. Addl. CIT reported in [2015] taxmann.com 353, wherein it was held that the corporate guarantee is not international transaction. At the time of hearing, the learned AR heavy relied on this order of the tribunal. 12.2. However, we find that the Hon ble Madras High Court in the case of PCIT vs. Redington (India) Ltd. reported in 122 taxmann.com 136 has held that corporate guarantee is covered under the limb of international and having bearing on profit and loss account. The relevant finding of the Hon ble court rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .com 136 has held that such amendment was applicable retrospectively. The relevant portion of the judgment reads as under: 72. A new Enactment or an Amendment meant to explain the earlier Act has to be considered retrospective. The explanation inserted in section 92B by Finance Act 2012 with retrospective effect from 1-4-2002 commences with the sentence For the removal of doubts, it is hereby clarified that - 73. An Amendment made with the object of removal of doubts and to clarify, undoubtedly has to be read to be retrospective and Courts are bound to give effect to such retrospective legislation. 12.5. In view of the above, we hold that the amendment as discussed above was brought by the finance Act 2012 but the same is applicable retrospectively i.e. 1-4-2002. Thus the amendment is applicable to the year under consideration. 12.6. The next aspects arises for the determination of the benchmarked for working out the ALP of the impugned international transaction. The TPO/AO in the case on hand has adopted US bond data for working out the ALP by using the data of bond obtained from the finance yahoo.com by observing as under: 7.12 In light of the disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not raise any substantial question of law and it is dismissed 12.8. Now question arose what should be the ALP rate of the commission on corporate guarantee? In this regard we find that The Tribunal in several cases has considered 0.50% (of corporate guarantee given) as ALP rate of Corporate Guarantee commission. Some of these cases are as under: (i) Videocon Industries Ltd. v. Dy. CIT [2017] 79 taxmann.com 216 (Mumbai - Trib.), Parent company charged commission at 0.25 %. The ALP was determined by the Tribunal at 0.50%. (ii) Hindalco Industries Ltd. v. Addl. CIT [2015] 62 taxmann.com 181 (Mum.), Parent company charged commission at 0.50% which was considered as at ALP. (iii) Manugraph India Ltd. v. Dy. CIT [2015] 62 taxmann.com 347 (Mum. - Trib.), The corporate guarantee was not treated as international transaction by the parent company but the Tribunal treated it as international transaction u/s 92B and upheld the ALP of 0.50%, following the order in the case of the assessee for the earlier year. The Tribunal followed Everest Kento Cylinder Ltd. v. Asstt. CIT [2015] 56 taxmann.com 361 (Mum-Trib). It seems that the decision in Bharti Airtel Ltd. (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - @ Libor + 100Bps 13.1. In response to SCN issued by TPO, assessee submitted that it has provided short term finance to its AEs and charged interest at the rate of LIBOR plus 100/200 basis points per annum whereas it has taken the foreign currency term loan at the rate of LIBOR plus 62.5 basis points. Accordingly, the assessee contended that the interest charged from AEs is comparatively on higher side from interest paid to the third party and thus the interest charged from the AE is at ALP. The Assessee further submitted that it is not in the business of lending money, therefore the margin charged by bank/financial institution cannot be taken as comparable. However, TPO disregarded the contention of the assessee by observing that there are certain clauses in the Loan agreement which should be considered while determining the ALP as detailed under: i. The loan has a commitment fee of 0.25% on the undrawn balance of the facilities i.e. the bank would be paid a fee even if the loan has not been availed. ii. The interest charged is Libor plus 62.50 bps per annum (Libor plus 0.625%) iii. Agreement fees @0.5% to be paid immediately on signing the doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the above computation, s total upward adjustment of ₹ 1,40,15,277/- is re corn mended on account of wrong, benchmarking of interest on loans given to the related parties. 13.3. However the upward adjustment on account loan given to Torrent Pharma Philippines for ₹ 8,13,341/- has been reduced to ₹ 5,29,292/- vide order dated 22-03-2013 passed under section 154 of the Act. 14. The aggrieved assessee preferred an appeal to Ld. CIT (A) who confirmed the order of the AO/TPO by observing as under: The appellant had given inter-corporate loan to its associate enterprise in foreign countries and had charged interest at the rate of LIBOR + 100 BP from its associate enterprises. It is stated that the loan advanced to the associate enterprise which is mainly subsidiaries is for advancing appellant's own business interest and it supports the business of the appellant in creating market. Il is further stated that the appellant has not incurred any loss or shifted any profit by advancing1 loan. It has been getting loan at the rate of LIBOR + 62.5 basis and is charging interest at LIBOR + 100 basis. Thus, it has not incurred any loss or transferred any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and advances is covered by the consolidated order this tribunal in own case of the assessee in ITA No. 1634/Ahd/2012 for A.Y. 2008-09. The finding the coordinate bench reads as under: 53. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the determination of ALP of the interest amount on loan given by the assessee to its AE s. The first contention of ld. AR of the assessee before us is that in the given facts, it would be appropriate to accept internal CUP method, i.e., the rate at which the assessee had obtained foreign exchange borrowings at arm's length price under CUP method. 53.1 Regarding the contention of the assessee, we are of the view that the transaction of obtaining the loan is a different transaction from the lending even if both the loan transactions are in foreign currency. It is because the loan was accepted from the bank whereas the loan was advanced to the subsidiary company in the given facts circumstances. Therefore, we disagree with the contention of ld. AR. 53.2 The TPO indeed has taken the AE as the testing party. Accordingly, the TPO has worked out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or security. The learned Transfer Pricing Officer has made addition of 300 basis points on account of transaction cost. Learned Transfer Pricing Officer has made an adjustment at the rate of 3% on account of transaction cost, security, and single customer risk on interest rate. Contesting this adjustment the learned authorised representative has relied upon the decision of the coordinate bench in case of Bharti Airtel Ltd. (supra) wherein it has been held that that when the Transfer Pricing Officer has taken the lender as the tested party and yet made adjustment for higher risk on account of assumed lack of security and increased risk of single party dealing is not based on any rational for adjustment on account of higher risk. Apparently, in this case the assessee, lender is a tested party and further the loan is advanced to 100% wholly owned subsidiary in Indonesia the facts of the case are clearly covered by the decision of coordinate bench. The Hon ble Delhi High Court in Cotton Naturals (I) (P.) Ltd. (supra) has already held that the transaction cost of hedging cost is borne and paid by the borrower therefore transaction cost is not applicable in case in question the loan ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the assessee, in all fairness, submitted that this issue stands covered against the assessee by decision of Hon ble Jurisdictional High Court in the case of Gujarat State Road Transport Corporation Ltd. Vs. CIT, reported in 366 ITR 170. However, the ld. counsel further relied on certain judgment passed by other High Courts contrary to the view taken by the jurisdictional High Court on the issue. On the other hand, the ld. DR relied upon the orders passed by the authorities below. 22. We have considered rival submissions of the respective parties, and also perused relevant material available on record. We find that the ld. CIT(A) while deciding the issue considered section 2(24)(x) read with section 36(1)(va) of the Act and observed that the assessee shall be entitled to deduction of such amount while computing the income referred to in section 28, if said sum has been credited by the assessee to employees account in the relevant fund/(s) on or before due date i.e. date by which the assessee is required as employer to credit the same to the employees account in the relevant fund. It is admitted position that the assessee has not credited the same amount within the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26,855,078 - - 26,855,078 Building Other than building 26,855,078 49,533,572 - - - - 26,855,078 49,533,572 During the period under consideration, the assessee company has claimed weighted deduction @150% of Rs. I,58,72,70,461/-, on revenue spend of₹ 105,81,80,307/-. Of this the Development cost amounts to ₹ 65,80,09,561/-. Out of this development cost ₹ 33,92,52,691 /- has been allocated to Baddi unit the basis of turnover, being 51.56% of total turnover ofBaddi and Indra Unit, excluding Insulin sates. The deduction under section 80IC has to be computed as if such eligible business was the only source of income of the assesses. This follows from the provisions of section 8010(7), which stipulates that the provisions of section 801A (5) and sub section (7) to (12) shall apply to section 80IC (is well Section 80IA(5) is reproduced for ready reference. (5) Notwithstanding anything contained in any other provision of this Act, the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 658,019,561 339,252,691 318,766,870 - Capital Exepnses 26,855,078 - - 26,855,078 Building Other than building 26,855,078 49,533,572 13,846,478 25,539,510 13,008,600 23,994,062 24.1. The above explanation was not found acceptable by the AO, and thus deduction under section 80IC in regard to R D allocation to the tune of ₹ 36,16,40,065/- was disallowed by the ld.AO, which in turn confirmed by the ld. CIT(A). Hence, the instant appeal by the assessee before us. 24.2. The case of the assessee is that there is no direct service rendered by the R D centre to Baddi Unit, and therefore, there is no need to attribute R D expenditure by virtue of force of attraction. In fact the assessee allocated entire development related of R D expenditure to the said Baddi Unit in its return of income. During the assessment proceedings, the case sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn of income. However, the assessee filed additional ground of appeal before us to consider the judgment passed by the Hon ble jurisdictional High Court in assessee s own case whereby and where under it was held that no R D expenditure included development cost, and capital expenditure claimed under section 35(2AB) or 35(iv) should be allocated to industrial units eligible for deduction under section 80IC of the Act. This additional ground has been filed by the assessee before us. At this stage, reliance was placed on the ratio laid down by Hon ble Supreme Court in the case of National Thermal Power reported in ITA No. 229 ITR 383. On the other hand, the ld. DR relied upon the order passed by the authorities below in disallowing the deduction under section 80IC of the Act in relation to R D allocation to the tune of ₹ 36,16,40,065/- . 25. We have considered rival submissions and gone through the materials available on record. We have further considered order passed by the Coordinate Bench of the ITAT, Ahmedabad Bench in assessee s own case vide consolidated order in ITA No. 907/Ahd/2012 (Department) and 938/Ahd/2012 (assessee) for the assessment years 2007-08 and ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing the decision of coordinate Bench in ITA No.1347/Ahd/2007 for A.Y. 2003-04 dismissed the ground of appeal raised by Revenue. In view of the fact that issue has already been decided by Hon'ble co-ordinate Bench in ITA No. 4356/Ahd/2007 for A.Y. 2004-05 and ITA 44 ITA Nos. 907, 938, 1634 1725/Ahd/No.1347/Ahd/2007 for A.Y. 2003-04 in assessee's own case. Respectfully following the order of the coordinate bench, this ground of Revenue's appeal is dismissed. 40.3 It is also important to note that, the AO in the subsequent assessment year 2008-09 has not allocated the cost on scientific research under the head discovery and capital cost to the eligible unit. Thus in our considered view the principle of consistency needs to be applied in the case on hand as held by the Hon ble apex court in the case of RadhaswoamiSatsang v/s CIT reported in 193 ITR 221 wherein it was held as under: 13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by it. In view of the matter, we delete the impugned addition of ₹ 36,16,40,065/- disallowed by the ld.AO. Hence the ground of appeal of the assessee is allowed. Ground No.4 26. Quantum of eligible income by reallocating administration expenses to the tune of ₹ 3,75,57,364 to Baddi Unit is the subject matter before us. 27. During the assessment proceedings, it is found that the assessee allocated common administrative expenses on the basis of number of employees of Indrad and Baddi units. However, according to the ld.AO, the same was not found suitable, rather allocation on the basis of turnover of the respective units was found to be fit by the ld.AO, as a result whereof, deduction under section 80IC was reduced by ₹ 3,75,57,364/- which was in turn confirmed by the ld.CIT(A). Hence, aggrieved by this action of both the authorities, the assessee is before us. 27.1. In reply to show cause notice with regard to the basis of allocation of administrative expenses, the assessee submitted the following figures: The allocation of administrative expenses during the year under consideration on the basis of number of employee is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and perused the materials available on record. The issue in the instant case relates to the allocation of the said expenses between Indrad and Baddi unit. As per the assessee, the administrative expenses need to be allocated based on the number of employees working whereas the AO allocated the expenses based on the turnover. The learned CIT (A) subsequently confirmed the order of the AO. 21.1 Now the issue before us arises so as to adjudicate the basis of allocation of the administrative expenses. At the outset, we note that the impugned issue of the allocation of the administrative expenses was also there in the assessment year 2008-09. Therefore, the argument of the learned AR for the assessee is not correct. As such the AO has also disputed the basis of allocation of the administrative expenses in the year 2008-09 as well. 21.2 Administrative expenses are the expenses which are not directly connected/ attributable with a specific function/ department/ undertaking such as manufacturing, production or sales of the organization. But these represent essential costs to maintain a company's daily operations and administer its business. The administrative expenses ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him. Hence the ground of appeal of the assessee is allowed. 28.3. We find that the Coordinate Bench was of the view that the expense was not linked to any particular undertaking of the company, in a case where the assessee has more than one undertaking. Such expenses cannot be allocated on the basis of turnover also. Since turnover of any undertaking is volatile depending on varied situations, as has been indicated hereinabove. On the other hand, human resources work in any particular undertaking do not frequently change as the market forces do not regulate the same, unlike sales, and therefore, it is nothing but the human resources engaged in different undertaking of the assessee, that should be the consideration for allocation of administrative expenses, as held by the Coordinate Bench, from which we are not inclined to deviate, and hence respectfully following the decision, we delete the addition made by the Revenue in reducing deduction under section 80IC of the Act to the tune of ₹ 3,75,57,364/- . Hence, the ground of appeal of the assessee is allowed. 29. Ground No.5 : By this ground, the assessee challenges the order of the ld. CIT(A), vide which, the ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company submits that it had duly computed the quantum of deduction of eligible undertaking as per the mechanism provided under Section 801C of the Act of the Act same has been certified by the chartered accountant vide the report given in Form 10CCB Before discussing the issue involved, the assessee company hereby discusses the provision of Section 80IC of the Act, which reads as under - 80-IC(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3) (2) .. (3) The deduction referred to in sub-section (1) shall be - (i) in the case of any undertaking or enterprise referred to m subclauses (i) and (in) of clause (a) or sub-clauses (i) and (Hi) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year; (ii) in the case of any unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly upto the limit of Gross Total income and cannot be extended beyond that. It shall be noteworthy to take into account that for restricting the claim of deduction under Part C of Chapter VI-A, what is to be seen is the amount of Gross Total income. It is on computing income under individual heads and after clubbing, and set off of losses, the Gross Total Income is arrived at. And once the Gross toll Income of an assesses is arrived at, after rightly applying the provisions of the Act, it shall not be open for revenue to segregate individual dements of the Gross Total Income and restrict the amount of deduction any further. Further, in this context, it is submitted that if real intention of the lawframers was to restrict the benefit of deduction only upto the extent of income derived under the head business and profession, then they would have explicitly mentioned the term 'Profits and Gains from Business and Profession', instead of referring to the term 'Gross Total Income' as provided under Section 80AB of the Act. It is hereby, most humbly submitted that, in absence of any express provision under the present Act/ for restricting the quantum of deduction up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O was of the view that section 80AB lays down limit of such deduction allowable in computation of total income. It further clarifies that for the purpose of deduction, the income of that nature herein business income as computed in accordance with the provisions of this Act, shall alone deem to be the amount of income of that nature, which is derived or received by the assessee, and which included in the gross total income. Therefore, according to him, section 80AB speaks of gross total income consisting of only income of that nature for the purpose of claiming deduction under section 80IC of the Act, which in the case on hand is nothing but business income. The ld. AO came to a finding that though deduction under section 80IC is allowed in respect of eligible profit of Baddi Unit, same shall be restricted to the income from profession or business only, and it cannot be extended to the exclusion of income under the head capital gain. The assessee reiterated the stand taken by it before the ld.AO. However, the ld. CIT(A) while upholding the order passed by the ld.AO observed as follows: The assessment order and the submission of the appellant is considered. On the perusal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld.AR, upon which the following were submitted before us along with the statement of income with reference to the revised return filed by the assessee. Particulars Total for Assessee Allocated to Baddi R D Expenses Revenue - Wt component 529,090,154 170,021,131 R D Capex (other than Building ) 74,300,359 Nil R D Building 26,855,078 Nil Provision on diminishing value of Investment 29,236,868 Nil Disallowance as per TP report 25,881,195 Nil Impairment loss on asset held for sale 2,556,779 NIL Tax Depreciation 340,762,513 164,830,419 32.1. The ld. counsel for the assessee has drawn our attention to statement of income, wherein the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA refers to computation of quantum of deduction being limited from 'eligible business' by taking it as the only source of income. It is contended that the language of sub-section (5) makes it clear that deduction contemplated in subsection (1) is only with respect to the income from 'eligible business' which indicates that there is a cap in sub-section (1) that the deduction cannot exceed the 'business income'. On the other hand, it is the case of the Assessee that sub-section (5) pertains only to determination of the quantum of deduction under sub-section (1) by treating the 'eligible business' as the only source of income. It was submitted by Mr. Vohra, learned Senior Counsel, that the final computation of deduction under section 80-IA for the assessment year 2002-03 as accepted by the Assessing Officer, was arrived at by taking into account the profits from the 'eligible business' as the 'only source of income'. He submitted that, however, sub-section (5) is a step antecedent to the treatment to be given to the deduction under sub-section (1) and is not concerned with the extent to which the computed deduction be allowed. To exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eductions in order to arrive at the total income of the assessee. The Assessee also relied on the judgment of this Court in Canara Workshops (P.) Ltd. (supra) to emphasize the purpose of sub-section (5) of Section 80-IA. In this case, the question that arose for consideration before this Court related to computation of the profits for the purpose of deduction under section 80-E, as it then existed, after setting off the loss incurred by the assessee in the manufacture of alloy steels. Section 80-E of the Act, as it then existed, permitted deductions in respect of profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. It was argued on behalf of the Revenue that the profits from the automobile ancillaries industry of the assessee must be reduced by the loss suffered by the assessee in the manufacture of alloy steels. This Court was not in agreement with the submissions made by the Revenue. It was held that the profits and gains by an industry entitled to benefit under section 80-E cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble business which indicate that there is a cap in sub-section 1 that deduction cannot exceed business income. On the other hand, the assessee submitted that sub-section 1 pertained only to determination of quantum of deduction under sub-section 1 by treating the eligible units as only source of income. In that particular case, the amount of deduction from eligible business computed under section 80IA for the concerned assessment year was of ₹ 492,78,60,973/- which represents income from eligible business under section 80IA and is the only source of income for the purpose of computing deduction under section 80IA of the Act. Question, therefore, arose with regard to allowing deduction so computed to arrive at total income of the assessee can be determined by resorting to interpretation of sub-section (5) of section 80-IA of the Act. Hon ble Court ultimately pleased to hold that subsection 5 of section 80IA of the Act is limited to determination of quantum of deduction under sub-section 1 of section 80IA of the Act by treating eligible business as the only source of income. But sub-section 5 cannot be pressed into service for reading a limitation of deduction under sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount pertains to: i) Allocation of R D expenses. ii) Deduction in respect of Notice Pay. iii) Sale of scrap. 8) Whether the Ld.CIT(A) is right in law and on facts deleting the disallowance of ₹ 30,21,416/- made u/s.80G of the Act 37. In Ground no.1, the Revenue has challenged the deletion of disallowance of ₹ 14,94,163/- on account of garden expenses. 38. For claiming garden expense as revenue expenditure, the explanation of the assessee was that the said expenditure was required to be incurred regularly for gardening inside the factory premise as per the requirement of Gujarat Pollution Control Board, in order to minimize the effect of pollution arising out of chemical process, and therefore, the same is an allowable deduction. However, the AO was of the view that since the assessee has incurred substantial expense in this behalf, the same has resulted in enduring benefit to the assessee, and therefore, expenditure was of capital nature. Accordingly, he disallowed the claim of the assessee. However, the ld. CIT(A) deleted the disallowance made by the AO by observing that in the assessee s own case from the Assessment Year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso the Notification of the CBDT circular cited supra. We find that the ld. AO has not appreciated whole facts of the case while deciding the applicability of Notification cited (supra). On the contrary, the ld. CIT-A observed that parameters provided in the Notification clearly applicable to the case of the assessee, and therefore, assessee is entitled for higher depreciation. To support his finding, the ld.CIT(A) has also relied upon decision of the ITAT, Ahmedabad Bench in the case of Voltamp transformer in ITA No.1676/Ahd/2021. The ld. CIT(A) allowed depreciation at 50% on sound footing, based on the above notification. This view of the matter, we do not find any infirmity in the order of the ld. CIT(A) on this issue, which we confirm, and the ground no. 2 of the Revenue s appeal stands rejected. Ground No. 3: 43. The issue raised by the Revenue in ground no. 3 is that the learned CIT (A) erred in deleting the addition of ₹ 7,84,88,000/- on account of deduction claimed under section 35(2AB) of the Act. 44. The assessee during the year under consideration claimed deduction under section 35(2AB) of the Act for ₹ 168,84,25,897/- only. The AO from the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 7,84,88,000/- (1,09,15,500/- + 6,75,72,500/-) only. 45. Aggrieved assessee preferred an appeal before the learned CIT(A) who deleted the disallowances made by the AO by observing as under: 8.2 I have carefully perused the assessment order and the submissions given by the appellant. The issue related to this addition are claim of different expenses which have not been accepted by the DSIR in its report. The DS1R has disallowed revenue expenditure on R D including recurring expenses on building rates and taxes and salary to Dr. C. Dutt amounting to ₹ 218.31 and revenue expenses incurred outside approved facility amounting to ₹ 1351.45 lakh. The issue has been decided in earlier years in favour of the appellant by CIT(A) for A.Ys. 2006-07. 2007-08 2008-09 where following the orders of ITAT for earlier years in the case of the appellant, the expenditure was held to be allowable. Therefore, the appellant is entitled for weighted deduction on these items of expenditure. The appellant had also claimed expenses amounting to ₹ 1351.45 lakh incurred outside the approved in-house research and development centre and the same has been disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon'ble Gujarat High Court in case of Cadila Health Care, the disallowance of ₹ 7,84.88.0007- (₹ 1,09,15,500 + ₹ 6,75,72,500) made by the AO u/s.35(2AB) is deleted. Accordingly, this ground of appeal is allowed. 46. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 47. Both the learned DR and AR before us vehemently supported the order of the authorities below as favourable to them. 48. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue of rates and taxes and salary to Dr. C Dutt is squarely covered in favour of the assessee by order of this tribunal in own case of the assessee in ITA 1869/AHD/2009 vide order dated 31-5-2012 pertaining to the AY 2005-06. The relevant extract of the order is reproduced as under: 6. Another effective ground as raised by the Revenue is with regard to deleting the disallowance of weighted expenses on R D of ₹ 1,03,25,000/-. Ld. CIT-DR submitted that order passed by Ld. CIT(A) is erroneous. On the contrary, Ld. Authorized Representative for the assessee submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be incurred inside the in-house research and development facility and if the same are incurred in relation to drug developed in an in-house research and development facility, the same become eligible for deduction under section 35(2AB)(1). [Para 3.8] . 50.1 Respectfully following the above finding of special bench of Tribunal, we hold that the assessee is eligible for weighted deduction on expenses incurred on clinical trial and patent registration. Accordingly, we do not find any infirmity in the order of learned CIT(A) and directed the AO to allow weighted deduction. Hence the ground of appeal of the Revenue is hereby dismissed. Ground No. 4: 51. The issue raised by the Revenue in ground no. 4 is that the learned CIT (A) erred in allowing the depreciation @ 60% on computer software instead of at 25% on the value of the assets. 52. The assessee in the books of account recorded computer software under intangible assets but in computation of income clubbed the same with the block of computer and claimed depreciation on the same @ 60%. On question by the AO, the assessee submitted that as per the requirement of As-26 it disclosed the computer software s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) highlighted the fact that term 'computer' has not been defined under the ITAct nor in the general clauses Act, 1987. the meaning of the term computer has to be understood by applying the principles of statutory interpretation i.e.. one has to give the meaning to the expression 'compute/-' not merely by going to the dictionary meaning but by applying common parlance or commercial parlance tests as well as hv analyzing the amendment of legislature in providing higher rate of depreciation..... The Hon 'ble special bench further went on to hold that 'though junctions of the computer ax one composite unit is for performing logical, arithmetical or memory functions etc.. but it is not the only equipment which perform* such functions that can be called as 'computer'. All the input and output devices which in fact support in the receipt of input and outflow of the output are also part of the 'computer'. There/ore the ratio which can be culled out for the aforesaid decision for Hon 'ble special bench (specifically para 31.4 of the order) . it is to be seen that the Hon 'ble special bench has clearly held that when a particular hardw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule contain the rate of depreciation for computer including computer software which reads as under: III. MACHINERY AND PLANT *** (5) Computers including computer software [See note 7 below the Table] Notes: 7. Computer software means any computer programme recorded on any disc, tape, perforated media or other information storage device. 56.1. From the reading of the above, it becomes clear that software is part of computer. Hence, the depreciation on the same is allowable at the rate applicable for computer. In this regard we also find support and guidance from the judgment of Hon ble Madras High Court in case of CIT vs. Computer Age Management Services (P.) Ltd. reported in 109 taxmann.com 134 where in similar facts, Hon ble court held as under: 8. The question would be as to whether the software application, which was acquired by the assessee would fall under Entry 5 of Part A of New Appendix I, which states that computers including computersoftware are entitled to depreciation at 60%. Note 7 of the Appendix defines the expression 'computersoftware' to mean any programs recorded on CD or disc, tape, perforated media ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee, that assessee is regularly following 'exclusive method', i.e. 'net method' of accounting, whereby cost of purchases are accounted for without taking into effect i.e. net of MODVAT including inventory i.e. opening stock and closing stock. He relied on the proposition of law laid down by the Hon ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd. (supra), where it was held that the MODVAT being irreversible credit in the hands of the manufacturer, the same would not amount to income taxable under the Act. It is not in dispute that the assessee is following exclusive method of accounting for the past several years. In other words, valuing purchase price minus MODVAT credit is permissible method of accounting. The ld. CIT(A) has rightly relied upon the judgment of Hon ble Apex Court in the case of Indo Nippon Chemical Co. Ltd. (supra) wherein it was observed that merely because MODVAT credit was irreversible credit offered to manufacturers upon purchase of duty paid on raw-material, that would not amount to income which was liable to be taxed under the Act. It has further held that whichever method of accounting is adopted, the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be treated on capital account. Following the ratio of this decision the AO is directed to treat the capital investment subsidy of ₹ 30,00,000/- received from Government of India under the Central Capital investment Subsidy Scheme. 2003 as received towards cos! of capital asset and not to reduce the claim of depreciation. Accordingly, appeal on this ground is allowed. 65. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 66. Both the learned DR and AR before us vehemently supported the order of the authorities below as favourable to them. 67. We have heard the rival contentions of both the parties and perused the materials available on record. The dispute on hand is whether the WDV of block assets can be reduced by the amount of subsidy or not. At this juncture, we note that the subsidy was provided on account of setting up of small scale industrial unit in backward area under Central Capital Investment Scheme 2003 and not for plant and machinery or any other fixed assets. Therefore, in in our considered opinion, we are inclined to agree with the contention of the learned AR that the same cannot be reduced from WDV of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds to be interpreted liberally. The subsidy of the nature in the instant case did not partake of the incidents which attract the conditions for their deductibility from 'actual cost'. The Government subsidy, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the 'actual cost'. 67.2. In view of the above discussion and judgment of Hon ble Supreme Court, we do not find any infirmity in the order of the learned CIT(A). Thus the ground of appeal of the Revenue is hereby dismissed. 68. Ground No. 7: In this ground, the revenue raised the issue that learned CIT(A) erred in deleting of disallowance made under section 80IC of the Act on account of allocation of R D expenses of ₹ 36,16,40,065/-, notice pay of ₹ 9,00,504/- and sale of scrap ₹ 59,59,721/-. 69. At the outset we note that the issue of allocation of research and development expenses is covered in favour of the assessee by the order of this Tribunal in own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of co-ordinate Bench in ITA No.1347/Ahd/2007 for A.Y. 2003-04 dismissed the ground of appeal raised by Revenue. In view of the fact that issue has already been decided by Hon'ble co-ordinate Bench in ITA No. 4356/Ahd/2007 for A.Y. 2004-05 and ITA No.1347/Ahd/2007 for A.Y. 2003-04 in assessee's own case. Respectfully following the order of the coordinate bench, this ground of Revenue's appeal is dismissed. 40.3 It is also important to note that, the AO in the subsequent assessment year 2008-09 has not allocated the cost on scientific research under the head discovery and capital cost to the eligible unit. Thus in our considered view the principle of consistency needs to be applied in the case on hand as held by the Hon ble apex court in the case of Radhaswoami Satsang v/s CIT reported in 193 ITR 221 wherein it was held as under: 13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him. Hence the ground of appeal of the assessee is allowed and the Revenue is dismissed. 69.3. Respectfully following the same, we do not find any reason to interfere in the order of the ld. CIT-A and thus direct the AO grant the deduction under section 80-IA of the Act on the items of income as discussed above. Hence, we hereby dismiss the ground of appeal of the Revenue. 70. Ground No. 8 : This ground relates to the deletion of disallowance of ₹ 30,21,416/- made under section 80G of the Act. 71. Brief facts of the case are that, during the assessment proceedings, the ld. AO noticed that the assessee has made donation of ₹ 1,17,20,000/-, but the same was not reflected in the return of income. According to the ld.AO, since the assessee has claimed deduction under section 80IC in respect of 100% profit of the Baddi unit, which was arrived at after the said disallowance of donation, separate deduction in response of the donation was not allowable under section 80G of the Act to the assessee. On question by the AO, the assessee explained that since the payment in question relating to donation was not related to operation of Baddi Unit, therefore, the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r allowing deduction under section 80G of the Act. We uphold his order, and this ground of Revenue s appeal stands rejected. 73. In the result, the appeal of the Revenue is dismissed Now we take up ITA No. 1286/Ahd/2017, an appeal by the Assessee for AY 2010-11 74. The assessee has raised the following ground of appeal: 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of Doctors' Sponsorship Expenses of ₹ 14,32,80,540 out of the total disallowance of ₹ 14,86,15,415 made by the Assessing Officer. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming addition of ₹ 98,71,013 made by the Assessing Officer on the basis of the order dated 8.1.2014 passed by the Transfer Pricing Officer u/s. 92CA of the Income-tax Act 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the relevant Ground of Appeal raised by the appellant company before him that while computing deduction u/s. 80-IC of the Income-tax Act the Assessing Officer wrongly reduced the quantum of the eligible income by reallocating admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the assessee is that the learned CIT(A) erred in confirming the disallowance of doctor sponsorship expense in part for ₹ 14,32,80,540/- only. 76. The assessee during the year claimed selling and distribution expenses of ₹ 70.81 Crores which included expenses of ₹ 14,86,15,415/- on account of doctor sponsorship and business advancement of ₹ 25,29,92085/- only. 76.1. The AO in the assessment proceeding observed that the expenses incurred for the benefit of doctor is not allowable under the provision of section 37(1) of the Act as the same is incurred in violation of regulation issued by the Indian Medical Council in exercise of power conferred under section 33 of Indian Medical Council Act 1956. Further, the CBDT also issued circular number 05/2012 dated 01-08-2012 prohibiting the allowances of such expenses. Thus the AO disallowed the expense amounting to ₹ 14,86,15,415/-. 76.1. Similarly, the AO observed that the assessee failed to establish that the expenditure on account of business advance does not include expenses incurred for benefit of the Doctors. Thus the AO made Ad-hoc disallowance of such expense for an amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for pharmaceutical companies like the appellant. 6.2.1 It is seen from the submissions made by the appellant that the amount spent on doctor's sponsorship expenses includes the following- Sr. No. Particulars Amount [Rs. 1. Academic Grant/Scientific Grant 10,62,30,190 2. Gift Card 3,26,69,010 3. Travel Charges 43,81,340 4. Organizing CME 17,24,750 5. Medical Equipment 9,22,176 6. Stationary Kit 7,39,014 7. Conference Participation 5,18,565 8. Book 5,00,334 9. Advertisement 3,46,891 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total disallowance made by the AO out of Doctor's Sponsorship expenses, the disallowance of ₹ 14,32,80,540/- is confirmed. 6,2.5 As regards the disallowance of ₹ 2,52 99,20S/-on account of business advancement expenses, it is seen from the details filed that the expenditure has been incurved on the distribution of gift items of various kinds to various stakeholders, like distributors, stockiest, wholesalers, employees, pharmacies, etc. In view of various case laws in this regard, eg AC1T Vs M/s Dupen Laboratories Pvt Ltd, in !TA No 5195/Mum/2013 and ACIT Vs. M/s Liva Healthcare Lld in ITA No.847/Mum/2012 and the facts of the case, it. is held that these expenses are essential for the business of the appellant and pertain wholly and exclusively to its business. The addition of ₹ 2,52,99,208/- Is deleted. Ground of appeal No 3 is partly allowed. 78. Being aggrieved by the order of the learned CIT(A) both the assessee and Revenue are in appeal before us. The assessee is in appeal against confirmation of disallowance of ₹ 14,32,80,540/- whereas the Revenue is in appeal against the deletion of addition of ₹ 53,34,875/- and ₹ 2,52,99 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofessional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. 3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant extract of the order reads as under: 8. From a perusal of above amendment/notification in the MCI regulation, it is quite clear again that same is applicable for medical practitioners only and the censure/action which has been suggested by it is only on medical practitioners and not for pharmaceutical companies or allied health sector industries. The violation of the aforesaid regulation would not only ensure a removal of a doctor from the Indian Medical Register or State Medical Register for a certain period of time and it does not impinge upon the conduct of pharmaceutical companies. This important distinction has to be kept in mind that regulation issued by Medical Council of India is qua the doctors/medical practitioners and not for the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of section 37(1) r.w. Explanation 1, then it is only meant for medical practitioners and not for pharmaceutical company (Assessee Company) for claiming the expenditure. 80.5. From the above order of Delhi tribunal, there remains no ambiguity that the Medical Council of India has no jurisdiction to pass a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, the relevant assessment year under consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance so made by the AO in both the assessment years under consideration. 80.7 In view of the above we hold that the circular issued by the CBDT as discussed above is not applicable for the year under consideration and consequently the disallowance cannot be made in the year under consideration on account of freebies given to the medical practitioners being the AY 2009- 10. Hence, the ground of appeal of the assessee is allowed. Ground No. 2 81. The grievance of the assessee in this ground of appeal is that the learned CIT(A) erred in confirming the upward adjustment of TP for ₹ 98,71,013.00 only. 82. We find that the TPO/AO made upward adjustment of ₹ 91,90,770/- on account of loan and advances provided to AE and an amount of ₹ 6,80,243/- on account of liaising fee paid to AE. 83. As far as TP adjustment of Rs, 91,90,770/- on account of loan/advance is concern we note that the issue raised by the assessee in its grounds of appeal for the AY 2010-11 is identical to the issue raised by the assessee vide gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee kept 75 per cent of revenue and paid 25 per cent of revenue to AEs, since said model was duly supported by relevant documents, impugned addition made to assessee's ALP by adopting revenue sharing model of 1 5 per cent was to be set aside. In view of above discussion the adjustment of ₹ 1,51,247 /- on account of Liason Services by restricting it to 2% is not sustainable. The AO is directed lo delete the addition made on the basis of this adjustment. 84.1. We note that the above finding of the learned CIT (A) reached to finality as none of the party either Revenue or the assessee challenged the same. Therefore we are of the view principle of consistency should be followed in the given fact and circumstances as there is no change in the facts and law applicable for the time being in force. Thus we set aside the finding of the authority below, hence the ground of appeal the assessee is allowed. 85. Ground no.3: In this ground, the grievance of the assessee is that the ld. CIT(A) has erred in rejecting the claim of the assessee that while computing deduction under section 80IC of the Act that the eligible income ought not to be reduced by reallocating admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ld.AO in reducing the following income while computing deduction under section 80IC of the Income Tax Act, 1961. (d) Other income ₹ 76,774/- (e) Export Benefits ₹ 1,23,57,230/- (f) Insurance Income ₹ 2,69,386/- (g) Penalties recovered from suppliers ₹ 2,60,250/- 90. During the assessment proceedings, the ld.AO noticed that the assessee has included the above four income as eligible profit and claimed deduction under section 80IC thereon. To the show cause notice, it was explained by the assessee, all the above incomes are integral part of business of the assessee, and therefore, the same are eligible income for claiming deduction under section 80IC of the Act. However, the ld.AO did not accept this submission of the assessee. He held that the impugned income earned by the assessee has no direct nexus and independent of its manufacturing activities, and therefore, does not qualify for inclusion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) wherein the head note of the judgment reads as under: I Section 80-I of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings, etc., after a certain date (Computation of deduction) - Assessment years 1994-95, 1996-97 and 1997-98 - Deduction under section 80-I is allowable in respect of Kasar, discount and sales-tax set off [In favour of assessee] I Deduction under section 80-I is allowable in respect of Kasar, discount and sales-tax set off. II Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Assessment years 1994-95, 1996-97 and 1997-98 - Foreign exchange fluctuation and duty drawback is an income derived from industrial undertaking, eligible for deduction under sections 80-I and 80-IA [In favour of assessee] II Foreign exchange fluctuation and duty drawback is an income derived from industrial undertaking, eligible for deduction under sections 80-I and 80-IA. 73.2 In view of the above, we hold that the assessee is eligible for deduction in respect of the income as discussed above under section 80 IC of the Act. Accordingly, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the 1st day of the assessment year. Accordingly the assessee contended that it cannot be denied the benefit of the deduction provided under clause (iv) to section 115JB of the Act. 96.2. However, the AO disregarded the contention of the assessee by observing that the amendment by the Finance Act 2011 was brought under the statute with retrospective effect i.e. 1-4-2005 wherein the benefit given to the assessee under clause (iv) of explanation 1 of section 115JB of the Act was denied to the assessee. Accordingly, the AO did not allow the deduction of the amount of ₹ 79,58,97,799/- to the assessee while calculating the amount of profit under section 115JB of the Act. 97. Aggrieved assessee preferred an appeal to the learned CIT-A, who confirmed the order of the AO by observing as under: I have considered the assessment order, facts on the case and the submissions made by the appellant. The AO made the impugned addition since assessee has subtracted the profit eligible u/s.80HHC of ₹ 79,58,97,799/- from its book profit. In view of the amendment brought into section 80HHC by the Finance Act, 2011 with effect from 1.4.2005, the said profit u/s.80HHC is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he finance Act 2011 which denied the benefit to the assessee with retrospective effect. The Hon ble Supreme Court in the case of Star India Pvt. Ltd vs. Commissioner of Central Excise reported in 280 ITR 321 has held that the benefit granted under the statute to the assessee cannot be withdrawn by way of retrospective amendment. The relevant extract of the Judgment reads as under: It was clear from the language of the validation clause of section 148 of the Finance Act, 2002, that the liability was extended not by way of clarification but by way of amendment to the Finance Act with retrospective effect. It is wellestablished that while it is permissible for the Legislature to retrospectively legislate, such retrospectivity is normally not permissible to create an offence retrospectively. There were clear judgments, decrees or order of courts and Tribunals or other authorities which were required to be neutralized by the validation clause. It could only be assumed that the judgments, decrees or orders, etc., had, in fact, held that persons situate like the appellants were not liable as service providers. This is also clear from the Explanation to the validation section which s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -11 is identical to the issue raised by the assessee vide ground no. 3 in ITA No. 1285/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1285/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2010-11. The appeal of the assessee for the assessment 2009-10 has been decided by us vide paragraph Nos. 25 of this order and allowed in favour of assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2010-11. Hence, the ground of appeal filed by the assessee is allowed. 106. In the result appeal of the assessee is partly allowed. Coming to ITA No. 1328/AHD/2017, an appeal by the Revenue for the AY 2010-11 107. The revenue has raised following grounds of appeal: 1) Whether the Id, C1T(A) is right in law and on facts in deleting the disallowance of ₹ 29,99,765/- made by the A.O. on account of garden expenses. 2) Whether the Ld. C1T(A) is right in law and on facts in granting relief of ₹ 53,34,875/- on account of distribution expenses under the head Doctor Sponsorship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Revenue is hereby dismissed. 110. In ground no. 2, the grievance of the Revenue is that the ld. CIT(A) has erred in deleting disallowance of ₹ 53,34,875 being distribution expenses under the doctor sponsorship and ₹ 2,52,99,208/- being business advancement expenses. 111. At the outset, we note that issue raised by the Revenue in this ground of appeal has been decided along with assessee ground no. 1 in ITA No.1286/Ahd/2017 vide paragraph no. 80 of this order where ground of appeal of the Revenue has been dismissed. Hence the ground of appeal filed by the revenue is hereby dismissed. 112. In ground no. 3, the grievance of the Revenue is that the ld. CIT(A) has erred in deleting the disallowance of ₹ 13,74,22,500/- made by the AO under section 35(2AB) of the Act. 113. At the outset, we note that the issue raised by the Revenue in its grounds of appeal for the AY 2010-11 is identical to the issue raised by the Revenue vide ground no. 3 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2010-11. The ground of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment subsidy. 119. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2010-11 is identical to the issue raised by the Revenue vide ground no. 6 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2010-11. The ground of appeal of the Revenue for the assessment 2009-10 has been decided by us vide paragraph No. 67 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2010-11. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 120. In ground no. 7, the issue raised by the revenue is that learned CIT(A) erred in deleting of disallowance made under section 80IC of the Act on account of allocation of R D expenses, notice pay and sale of scrap. 121. At the outset, we note that the issues raised by the Revenue in its ground of appeal for the AY 2010-11 are identical to the issues raised by the Revenue vide ground no. 7 in ITA No. 1327/AHD/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany. 3. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming the reallocation of administrative expenses amounting to ₹ 7,80,92,117 in respect of the Baddi Unit for the purposes of allowing deduction u/s. 80IC of the Incometax Act. 4. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming that the following items of income are required to be excluded from the income of the Baddi Unit for the purposes of allowing deduction u/s. 80-IC of the Income-tax Act: (a) Other Income 1,91,553 (b) Export benefits 3,50,73,115 (c) Insurance income 23,88,005 (d) Penalties recovered from suppliers. 4,79,471 5. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in rejecting the relevant Ground of Appeal No. 13 raised before him to the effect that even though the appellant allocated R D development cost to Baddi Unit on the basis of turnover while filing the return of income, there is no need for such allocation as profit u/s.80-IC is required to be computed assuming that the eligible business was the only source of income of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of advances was never treated as income in the books of the assessee. For claiming the bad debts, it is one of the precondition that the amount which has been offered to tax as income can only be written off in the event of nonrecovery. 127.3. The contention of the assessee that it s AE was standing as debtors in the books of accounts against which the amount was due against the sale of the goods. As such the amount of loan was advanced to the AE in order to realize the outstanding amount against the sale of the goods. The AO rejected the contention of the assessee by holding that the character of the loan will not change merely on the reasoning that loan was advanced in order to realize the outstanding debtors. It is for the reason that such advance was not representing the trading advance which was supposed to be adjusted against the bills raised by the assessee. Likewise, the use of the loan by the AE provided by the assessee shall not also change the nature of the loan. Thus the impugned amount of loan cannot be treated as trading advances. 127.4. Similarly, the AO also found that subsidiary of the assessee was not liquidated. As such, the company was very muc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly action of AO is upheld . This ground of appeal is dismissed. 129. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 130. The learned AR before us contended that the loss was incurred by the assessee in the course of the business and therefore the same should be allowed as deduction. 131. On the contrary learned DR before us vehemently supported the order of the authorities below. 132. We have heard the rival contentions of both the parties and perused the materials available on record. The controversy in the present case relates whether the assessee is entitled for the deduction of the working capital loan written off in the books of accounts on the reasoning that the same was not recoverable. Before, we touch the issue raised before us, it is imperative to make a note of certain facts as detailed under: i. Both the assessee and its subsidiary in Russia were engaged in the same business. The assessee has established its wholly owned subsidiary company namely ZAO Torrent Pharma in the year 1997 which was the extended arm of it (the assessee) for marketing the product of the assessee company in Russia. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent that the issue involved in this appeal is covered by decision of Bombay High Court in Colgate Palm Olive (India) Ltd. (supra), which has been upheld by the Supreme Court. The ratio of aforesaid decision is where the assessee makes investment in its 100% subsidiary for business purpose, loss or sale of investment has to be treated as business loss of the assessee. In the instant case, the assessee made investment in the shares of WOS for the business purpose i.e., for the enhancement of business activity of the assessee in global market which primarily related to business operation of the assessee. The WOS suffered losses and therefore the assessee wrote off the assessment of ₹ 3,41,23,200/- as business loss. The investment was made for the purpose of extension of business activity and not with a view to creating capital asset in the form of holding shares. It is also pertinent to note that the assessee never acquired any capital asset or expenditure of enduring benefits to WOS and there is no relinquishment or transfer of capital asset to any third party. 132.2 From the above judgment, we note that even there was the loss incurred by the assessee i.e. ACE Designer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit from the subsidiary company over a period of time which was brought to tax and therefore on the same reasoning if any loss is arising to the assessee relating to the same subsidiary company, a different treatment by denying the loss cannot be adopted by the revenue. In the light of the above stated discussion, we hold that the loss claimed by the assessee is an allowable deduction. Thus, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed, 133. In ground no. 2, the grievance of the assessee is that the ld. CIT(A) has erred confirming the addition of ₹ 9,57,520/- made on corporate guarantee provided to AE. 134. At the outset we note that the issue raised by the assessee in its grounds of appeal for the AY 2011-12 is identical to the issue raised by the assessee vide ground no. 1 in ITA No. 1285/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1285/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2011-12. The appeal of the assessee for the assessment 2009-10 has been decided by us vide paragraph Nos. 12 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its favour. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2010-11 shall also be applied for the year under consideration i.e. AY 2011-12. Hence, the ground of appeal filed by the assessee is allowed. 139. In ground no. 5, the grievance of the assessee is that the learned CIT(A) erred in rejecting the ground no. 13 that research and development expenses should not be allocated to Baddi unit. 140. At the outset we note that the issue raised by the assessee in its ground of appeal for the AY 2011-12 is identical to the issue raised by the assessee vide ground no. 3 in ITA No. 1285/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1285/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2011-12. The appeal of the assessee for the assessment 2009-10 has been decided by us vide paragraph Nos. 25 of this order in its favour. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2011-12. Hence, the ground of appeal filed by the assessee is allowed. 141. In g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) that the Ld. CIT(A) is right in law and on facts in granting relief of ₹ 13,35,93,41s/- on account of distribution expenses under the head Doctor Sponsorship and deleting the disallowance of ₹ 2,63,50,133/- made by the A.O. on account of business advancement expenses. 3) that the Ld. CIT(A) is right in law and on facts in deleting the disallowance of ₹ 26,44,63, OOO/- made by the A. O. out of deduction claimed by the assesses u/.s 35(2AB) of the I. T. Act in respect of research and development expenditure. 4) that the Ld. CIT(A) is right in law and on facts in allowing depreciation @50% in place of 15% on the basis of Notification No, 10/2009 dated 19.01.2009 issued by CBDT. 5) that the Ld. CIT(A) is right in law and on facts in allowing depreciation @60% in place of 25% on computer and computer software. 6) that the Ld. CIT(A) is right in law and on facts in deleting the disallowance of ₹ 3,25,125/- made by the A.O. on account of capital investment subsidy. 7) that the Id. CIT(A) is right in law and on facts deleting the disallowance made u/s. 80IC of the Act attributable to amount pertains to: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby dismissed. 154. In ground no. 3, the grievance of the Revenue is that the learned CIT(A) erred in deleting the disallowance made by the AO for the weighted deduction under section 35(2AB) of the Act for ₹ 26,44,63,000/- only. 155. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issue raised by the Revenue vide ground no. 3 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2011-12. The appeal of the Revenue for the assessment 2009-10 has been decided by us vide paragraph Nos. 48 to 50 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2011-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 156. In ground no. 4, the grievance of the Revenue is that the learned CIT(A) erred in deleting the disallowance of depreciation on the basis of CBDT notification no. 10/2009 dated 19-01-2009 157. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2011-12. Hence, the grounds of appeal filed by the Revenue is hereby dismissed. 162. In ground no. 7, the issue raised by the revenue is that learned CIT(A) erred in deleting of disallowances made by the AO under section 80IC of the Act on account of allocation of R D expenses, notice pay and sale of scrap. 163. At the outset, we note that the issue raised by the Revenue in its grounds of appeal for the AY 2011-12 is identical to the issue raised by the Revenue vide ground no. 7 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2011-12. The appeal of the Revenue for the assessment 2009-10 has been decided by us vide paragraph Nos. 69 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2011-12. Hence, the ground of appeal filed by the Revenue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer in respect of Employees Provident Fund and ESI contributions on the ground that these payments were made by the appellant company beyond the time limit prescribed under the relevant provisions of PF and ESIC Acts. 2. On the facts and in the circumstances of the case, the learned ClT(Appeals) erred in confirming transfer pricing adjustments as per TPO's order in respect of the following amounts: (a) Capital infusion 89,935 (b) Bank Guarantees given by the appellant company in respect of subsidiaries 11,07,739 (c) Interest on loan to Associate Enterprises 1,45,206 3. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming the reallocation of administrative expenses amounting to ₹ 8,44,58,039 in respect of the Baddi Unit for the purposes of allowing deduction u/s. 80IC of the Incometax Act. 4. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming that the following items of income are required to be excluded from the income of the Baddi Unit for the purposes of allowing deduction u/s. 80-IC of the Incometax Act: (a) Export ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. Therefore, the findings given in ITA No. 1285/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 2009-10 has been decided by us vide paragraph Nos. 22 of this order against the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the assessee is dismissed. 172. In ground no. 2, the grievance of the assessee is that the ld. CIT(A) has erred in confirming the upward adjustment of TP for ₹ 89,935/-, ₹ 11,07,739/- and ₹ 1,45,206 on account of capital infusion, corporate guarantee and loan and advances provided to AE. 173. At the outset we note that the issues of TP adjustment on account of corporate guarantee and loan and advances provided to the AE are identical to the issues raised by the assessee vide ground no. 1 in ITA No. 1285/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1285/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2012-13. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be only done for 4 days. 177. The learned CIT(A) after considering the fact in totality admitted the alternative claim of the assessee and restricted the addition to the extent of ₹ 89,934/- by observing as under: 17.8 I have carefully considered the facts of the case and submissions made as well as chain of decisions relied upon by him to support his contention that the TPO does not have the power to re-characterize the transaction from equity to debt. On analysis of the facts, it is noticed that there is a delay on only 4 days in allotment of shares by the appellant. The appellant has also made an alternative argument that if the contention of recharacterization is not accepted the adjustment should be confined only to 4 days i.e. The inordinate delay caused by Zao Torrent Pharma, Russia to allot the shares against the money contributed. Since in this case there is a delay of only 4 days in allotment of shares which is in contravention to the RBI guidelines, there is merit in the alternate argument of the appellant that if interest is to be charged it can be charged only for the period of delay. Accordingly, the interest is charged only for 4 days i.e. the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enabling such deeming fiction. What is before us is a transaction of capital subscription, its character as such is not in dispute and yet it has been treated as partly of the nature of interest free loan on the ground that there has been a delay in allotment of shares. On facts of this case also, there is no finding about what is the reasonable and permissible time period for allotment of shares, and even if one was to assume that there was an unreasonable delay in allotment of shares, the capital contribution could have, at best, been treated as an interest free loan for such a period of ' inordinate delay' and not the entire period between the date of making the payment and date of allotment of shares. Even if ALP determination was to be done in respect of such deemed interest free loan on allotment of shares under the CUP method, as has been claimed to have been done in this case, it was to be done on the basis as to what would have been interest payable to an unrelated share applicant if, despite having made the payment of share application money, the applicant is not allotted the shares. That aspect of the matter is determined by the relevant statute. This situation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2012-13 are identical to the issues raised by the assessee vide ground no. 4 in ITA No. 1286/AHD/2017 for the assessment year 2010-11. Therefore, the findings given in ITA No. 1286/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 2010-11 has been decided by us vide paragraph Nos. 94 of this order in favour of assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2010-11 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the ground of appeal filed by the assessee is allowed. 185. Ground no. 5 In this ground of appeal, the grievance of the assessee is that the learned CIT(A) erred in confirming the disallowance of the weighted deduction under section 35(2AB) of the Act. 186. The assessee during the year under claimed deduction of ₹ 246,31,22,480/- under section 35(2AB) which is detailed as under: From the perusal of the statement of total income, it is noticed that the assessee has claimed deduction on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 187. Aggrieved assesse preferred an before the learned CIT(A). 187.1. The assessee before learned CIT(A) furnished the form 3CL which was forwarded to the AO for remand report. The AO in remand report submitted that there are certain expenditures which were not approved by the DSIR as detailed below: Particulars Amount Incurred (at Allowed by DSIR (b) Difference (a-b) R D Building 46.50 46.50 R D Capital Expenses (Other than Building) 796.52 706.25 90.27 R D Revenue Expenses 11495.84 8588.28 2907.56 Total 12338,85 9341-03 2997 82 The break-up of ₹ 2997.82 lakhs is as under: Particulars Amount (Rs. In lakhs) Revenue Expenses Salary to Dr. C Dutt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iming weighted deduction hence such claim of Appellant is not accepted. 189. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 190. The learned AR for the assessee before us besides reiterating the submission made before the lower authorities submitted that the issue on hand is covered by the judgment of Hon ble Gujarat High court in the own case of the assessee reported in 88 taxmann.com 530. 191. On the other hand the learned DR vehemently supported the order of the authorities below. 192. We have heard the rival contentions of both the parties and perused the materials available on records. At the outset, we note that issue of allowance of weighted deduction on account of expenditure incurred in connection with research and development activity is covered in favour of the assessee by the order of the Hon ble Gujarat High Court in the own case of the assessee (supra) wherein the Hon ble court held as under: 13. As regards Question No.(A), we find that the Tribunal has followed its earlier decision passed in respect of this very assessee in ITA No.446/Ahd/2002. In our opinion, the Tribunal rightly held that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of appeal filed by the assessee is allowed for the statistical purposes. 196. Ground no. 8 of the assessee is general in nature, hence the same does not require any separate adjudication. Accordingly, we dismiss the same as infructuous. 197. In the result appeal of the assessee is partly allowed. Coming to ITA No. 1415/AHD/2018, an appeal by the Revenue for the AY 2012-13 198. The Revenue has raised the following grounds of appeal: 1) that the Ld. CIT(A) is right in law and on facts in deleting the disallowance of ₹ 36,67,88l/- made by the A.O. on account of garden expenses. 2) that the Ld. CIT(A) is right in law and on facts in granting relief of ₹ 21,41,80,000/- on account of distribution expenses under the head Doctor Sponsorship and deleting the disallowance of ₹ 4,4 7,60,553/ - made by the A.O. on account of business advancement expenses and sales promotion expenses of ₹ 40,78,113. 3) that the Ld. CIT(A) is right in law and on facts in deleting the disallowance of ₹ 1,20,17,23,600/- made by the A.O. out of deduction claimed by the assesses u/s. 35(2AB) of the I. T. Act in respect of resear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the Revenue is hereby dismissed. 201. The issue raised in ground no. 2 by the Revenue is that the learned CIT(A) erred in deleting the disallowances of doctor sponsorship expenses of ₹ 21,41,60,553/- and business advancement expenses of ₹ 4,47,60,113 and sales promotion expenses of ₹ 40,78,113/-. 202. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2012-13 are identical to the issues raised by the assessee vide ground no. 1 in ITA No. 1286/AHD/2017 for the assessment year 2010-11. Therefore, the findings given in ITA No. 1286/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 2010-11 has been decided by us in favour of the assessee vide paragraph Nos. 80. Please refer the relevant paragraph for the detailed discussion. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2010-11 shall also be applied for the year under consideration i.e. AY 2012-13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue vide ground No. 4 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the Revenue for the assessment 2009-10 has been dismissed by us vide paragraph Nos. 56 of this order. Please refer the relevant paragraph for the detailed discussion. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the Revenue is hereby dismissed. 209. The issue raised in ground no. 6 by the Revenue is that the learned CIT(A) erred in deleting the disallowance of depreciation of ₹ 2,76,356/- on account of capital subsidy received. 210. At the outset we note that the issue raised by the Revenue in its ground of appeal for the AY 2012-13 is identical to the issue raised by the Revenue vide ground no. 6 in ITA No. 1327/AHD/2017 for the assessment year 2009- 10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des an amount of ₹ 8,73,445 received from various suppliers being penalty on account of short or late supply of materials and deficiencies in services etc. Similarly it includes an amount of ₹ 26,48,271/- being cost recovered against inter unit transfer of stock which does not have any element of profit. It also includes an amount 1,553/- being cost of making duplicate keys recovered from employee and remaining amounts represent receipt such as amount recovered on account of material mishandling for ₹ 1,90,000/- other for ₹ 670/-. Thus the assessee argued that same is either directly related with manufacturing activity or not having any profit element as same amount also claimed as expenses. 214.3. However the AO held the discount received from vender on purchases which is not arising from eligible manufacturing activity. Thus the same is not eligible for deduction under section 80IC of the Act. Likewise, the miscellaneous income also not arising from manufacturing activity. Thus the AO disallowed the amount of cash discount and miscellaneous income from eligible profit under section 80IC of the Act. 215. Aggrieved assessee preferred an appeal to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant is entitled for deduction under Section 80-IC for ₹ 37,16,408/- on the impugned miscellaneous income. 216. Being aggrieved by the order of learned CIT (A) the Revenue is in appeal before us 217. Both the learned DR and learned AR vehemently supported the order of the authority as favorable to them. 218. We have heard the rival contentions of both the parties and perused the materials available on record. As regards income shown by the assessee under the head cash discount amounting to ₹ 2,00,147/- , we note that such cash discount is against the purchases on account of prompt payment made by the assessee. In other words, the purchases were recorded by the assessee at the higher value without adjusting the amount of cash discount. Had the assessee been adjusted such cash discount against the purchases, the gross value the purchases would have come down by the amount of cash discount which would have resulted in the greater amount of income and the same would have been eligible for deduction under section 80IC of the Act. Thus, we are of the view that amount of income by way of cash discount cannot be denied for the benefit of the deduction under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Accordingly, the assessee claimed that all these transaction are ordinary business transaction. Hence, any gain arising from ordinary business transaction is allowable for deduction under section 80IC of the Act. The assessee in support has furnished the details of exchange gain/loss and placed reliance on various judgments. 219.2 The AO, however held that the gain on foreign currency exchange has nothing to do with sale or export of goods. As such it is arising due to prevailing conditions of forex market and the assessee also has not treated the same as part of sale. Further Accounting Standard 11 issued by the ICAI also requires to disclose any gain or loss arising due to fluctuation in foreign currency rate separately from sale or purchases and this principles is also approved by the Hon ble Supreme court in case of CIT vs. Woodward Governor India (P) Ltd reported in 312 ITR 254. Therefore in the light of AS-11 and Judgment of Hon ble Supreme court such gain on foreign currency exchange cannot be treated as ordinary business profit. Accordingly the AO disallowed the amount of foreign exchange gain of ₹ 7,16,31,391/- from eligible profit under section 80IC of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ₹ 7,16,13,391/- is deleted. 221. Being aggrieved by the by the order of the learned CIT(A) the Revenue is in appeal before us. 222. Before us both the learned DR and AR vehemently supported the order of the authorities below as favorable to them. 223. We have heard the rival contentions of both the parties and perused the material available on records. With respect to the foreign exchange income, we note that this issue has already been allowed in favour of the assessee in the series of judgments which have been reproduced in the order of the learned CIT-A. At the time of hearing, the learned DR has not brought anything on record contrary to the finding of the learned CIT. 224. In view of the above and after considering the facts in totality, we do not find any infirmity in the order of the learned CIT-A. Hence the ground of appeal of the revenue is hereby dismissed. 225. The issue raised in ground No. 8 by the Revenue is that the learned CIT(A) erred in deleting the disallowance of the additional depreciation of ₹ 32,02,273/- on trolley, mobile racket and pallets. 226. The assessee during the year under consideration has purchased Tro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines and for this purpose had laboratories - It purchased stools, tables, stainless steel racks, trolley, etc., as part of plant and machinery and claimed depreciation accordingly - Assessing Officer held that said assets were not 'plant and machinery' but 'furniture' and, accordingly, allowed depreciation - Whether Assessing Officer should have adopted functional test to decide whether said items constituted plant and machinery - Held, yes - Whether since said stools, tables, stainless steel racks, etc., were required for laboratory purpose, i.e.. for purpose of production or processing of chemical tests, in laboratory premises leading to production of stocks, they must .be categorized as plant and machinery - Held, yes Further, Hon'ble Pune Tribunal in case of Varroc Engineering P.Ltd vide ITA No: 827/PN/2013dated 25/08/2014 held as under: 13. We find that the Hon'ble Bombay High Court in the case of CIT vs. Parke Davis (India) Ltd. (1995) 214 ITR 587 (Bom) has held that the assessee company claimed depreciation u/s.32 in respect of the fans, which were installed in its administrative office. The Tribunal held that the fans installed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehemently supported the order of the authorities below as favourable to them. 230. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee during the year under consideration purchased certain Trolleys, Mobile Rackets and Pallets and treated the same as part and parcel of the plant and machinery and claimed depreciation accordingly whereas the AO treated the same as furniture and fixture and disallowed the excess deprecation which has been reversed by the learned CIT (A). 230.1. Now the question arises before us whether the assets being Trolleys, Mobile Rackets and pallets used in manufacturing plant for movement and safe storage of goods can be described as plant and machinery or furniture. At this juncture, we note that the coordinate of bench Pune Tribunal in case of Serum Institute of India (supra) in similar facts and circumstances observed that nature of the assets used in the business is to be decided on the basis of functional test of the assets and accordingly held that tables, stools, rackets etc. used in laboratories are part and parcel of plant and machinery. We also find that the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of deletion of upward adjustment on account of liaison service, we note that identical issues was raised by the assessee vide ground no. 2 in ITA No. 1286/Ahd/2017 for A.Y. 2010-11 Therefore, the findings given in ITA No. 1286/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the Assessee for the assessment 2010-11 has been decided by us vide paragraph Nos. 84 of this order against the revenue. Please refer the relevant paragraph for the detailed discussion. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2010-11 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the Revenue to the extent of upward adjustment on account of liaison services is hereby dismissed. 237. Coming to deletion of upward adjustment of ₹ 5,88,66,054 on account of dossier licensing fee. 237.1. The assessee in the year under consideration has shown an income of ₹ 2,68,25,090/- from its associated enterprises based in Germany on account of Dossier licensing fees. It was explained that there is an agreement between the assessee and T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to A.E. who inturn supplies the same to the licensees. As per Form 3CEB the appellant is a manufacturer of pharmaceutical products generating revenues and profit from manufacturing of pharmaceutical products was the key area. The appellant has followed cost plus method as the most appropriate method to benchmark sale of pharmaceutical products to its A.E. Appellant company has earned substantial margins on sa e of pharmaceutical products. Detailed working has also been provided by the appellant. It is noted that appellant has earned a profit of ₹ 3,80,83,078/- during the year on sales emanating from the dossier licensing. Further the TPO has also accepted that the transaction of sale of pharmaceutical products to A.E. TPO has not controverted this vital fact pointed out at length by the Ld. AR in response to the Show Cause Notice issued. This fact has been ignored for the purpose of making Transfer Pricing adjustment. What is pertinent to be noted is that the TPO did not note that pursuant to the Dossier License Agreement there also emanates an intangible right in the form of 'exclusive manufacturing rights1 for the appellant company. All profits attributable to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in and Sertraline, On registration of these two drugs the expense incurred by the A.E. is only ₹ 17.41 lacs. Hence, as per TPO the profits of the combined entity should not be the parameter for computing the profits under the PSM. In this regard appellant contended that mere registration of products does not result into getting the Dossier Licensing Fees. It is after the products are registered the AE undertakes the function of marketing the said I registrations and explores multiple opportunities in the jurisdiction and when they find the clients who intend to license their dossier the dossier licensing fees is received. The revenue from the Dossier Licensing may or may not be generated in the year of product registration. It may take several years for registered product being accepted in a foreign market and there are also possibilities that no Dossier Licensing Fees may be generated from certain registrations. Therefore, the reasoning of TPO that the profits of the AE is considered at entity level and includes income and expenses to activities other than sale of Dossier Licensing cannot be a ground for rejecting the ratio of allocation of Dossier Licensing Fees adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit under the provisions of section 115JB of the Act has made the adjustment of the expenses for ₹ 91,72,392/- which was disallowed by the assessee under section 14A under normal computation of income. 245. Aggrieved assessee preferred an appeal to the learned CIT-A, who deleted the adjustments made by the AO while determining the book profit under the provision of section 115JB of the Act by observing as under: 15.3 I have carefully considered the facts of the case, Assessment Order and submissions made by the appellant. The Assessing Officer has made addition of ₹ 91,72,392/- on account of disallowance u/s 14A of the Act while computing book profits u/s 115JB of the Act. It is observed that identical issue came up for consideration before Hon'ble Ahmedabad ITAT in the case of Adani Agro Pvt. Limited in ITA No. 2539/Ahd/2013, dated 2nd February, 2018 wherein, relying upon decision of Vireet Investments (ITAT, Delhi Special Bench), adjustment made under Section 14A while computing book profit under Section 115JB is deleted. The relevant finding is as under: 15 As far as applicability of section 115JB upon the assessee is concerned, there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atable to earlier years Interest expenditure and processing charges which have been worked out by the assessee and added back represent borrowings for the current year. This fact is discernible from the submissions made by the assessee and reproduced by the Id. CiT (A). The Special trench has also observed that while computing disallowance u/s.14A r.w.r. 8D those investment should be taken for considering average value of investment which have yield exempt income during this year. This finding is qua the computation for 14A r.w.r. 8D. As far as adjustment in the book profit is concerned, Special Bench has held that such adjustment cannot be made by adopting the procedure provided in section 14A r.w.r. 8D. Thus, this issue is squarely covered by the decision of Special Bench. On due consideration of the above facts and circumstances, we are of the view that the Id. CIT (A) has appreciated the controversy in right perspective. The Id. CIT (A) has rightly excluded the amount of ₹ 6.06 crores from book profit. As issue is covered in favour of Appellant, by the decision of Hon'ble Ahmedabad ITAT cited (supra), disallowance under Section 14A made by AO while computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act. 248.4. Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. (Supra). 248.5. Now the question arises how to determine the disallowance as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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