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2016 (5) TMI 1306 - AT - Income TaxAddition on account of interest on loans given given to Sun Pharma Global Inc. & Sun Pharmaceutical Industries Inc. as well as Optionally Fully Convertible Debentures subscribed to in Sun Pharma Global Inc. - Reference to TPO - Held that - The revenue has no power to re-characterize the transaction. The Hon ble High Court of Delhi in the case of Cotton Naturals India Pvt. Ltd. 2015 (3) TMI 1031 - DELHI HIGH COURT has held that Chapter X and Transfer Pricing rules do not permit the Revenue authorities to step into the shoes of the assessee and decide whether or not a transaction should not be entered. It is for the assessee to take commercial decisions and decide how to conduct and carry on its business. Actual business transactions that are legitimate cannot be restructured. Also see EKL Appliances Ltd. 2012 (4) TMI 346 - DELHI HIGH COURT . Thus we direct the A.O to delete the impugned additions. - Decided in favour of assessee Weighted Deduction u/s. 35(2AB) on Trade Mark Charged Overseas Product Registration Charges - Held that - We direct the A.O to delete the disallowance. See Sun Pharmaceutical Industries Ltd Versus Asst. Commissioner of Income Tax Central Circle-1 Baroda and Vica-varsha 2017 (1) TMI 1109 - ITAT AHMEDABAD . Allocation of R & D expenses for determining profits of the new industrial undertaking u/s. 80IB - Held that - The question related to the raw materials and not to all the items of expenditure and therefore the revenue authorities have erred in generalizing the statement of the Senior Vice President. We have given a thoughtful consideration to the findings of the lower authorities. We have also considered the statement of Dr. T. Rajamannar. Undisputedly the question related to the raw materials and not to all the items of expenditure under this head. In our considered opinion one cannot carry out the allocation on the basis of pick and choose method. We accordingly direct the A.O to restrict the re-allocation only to the raw material assessee gets partial relief. Provision for doubtful debts and advances while calculating book profits u/s. 115JB - Held that - We restore this issue to the files of the A.O to be decided afresh in the light of the decision given by the Hon ble High Court of Gujarat in the case of Vodafone Essar Gujarat Ltd 2012 (6) TMI 415 - ITAT Ahmedabad Non consideration of book profits for deduction u/s. 10B for determining of book profits u/s. 115JB - Held that - The issue stands covered in favour of the assessee by the decision of the Hon ble Supreme Court given in the case of Ajanta Pharma 2010 (9) TMI 8 - SUPREME COURT . We do not find any justifiable reason given by the ld. CIT(A). We accordingly direct the A.O to consider the deduction u/s. 10B for determination of book profit. Ground no. 6 is accordingly allowed. Additions made on account of sales made to Sun Pharmaceutical Industries - Held that - We direct the A.O to delete the impugned additions on account of sales made to Sun Pharmaceutical Industries. Disallowance of expenses incurred on behalf of Sun Pharmaceutical Industries - Held that - We direct the A.O to delete the impugned additions Reduction of unrealized export proceeds from export turnover for the purpose of deduction u/s. 10B - Held that - This issue has also to go back to the A.O for fresh consideration in the light of the provisions of Section 155(11A) of the Act.
Issues Involved:
1. Addition on account of interest on loans and debentures. 2. Weighted deduction under Section 35(2AB) on Trade Mark and Overseas Product Registration Charges. 3. Allocation of R&D expenses for profit determination under Section 80IB. 4. Addition of provision for doubtful debts and advances in book profits under Section 115JB. 5. Non-consideration of book profits for deduction under Section 10B. 6. Additions on account of sales and expenses related to Sun Pharmaceutical Industries. 7. Foreign exchange fluctuation gain. 8. Reduction of unrealized export proceeds for deduction under Section 10B. 9. Disallowance under Section 40(a)(i) for non-deduction of tax on foreign payments. 10. Weighted deduction on gifts to R&D employees and repairs & municipal taxes. 11. Deduction of interest on overdue bills for computation under Section 80IB. 12. Exclusion of provision for FBT and unascertained liabilities in book profits under Section 115JB. Detailed Analysis: 1. Addition on Account of Interest on Loans and Debentures: The assessee objected to the addition of ?28,92,24,784/- proposed by the Transfer Pricing Officer (TPO) for interest on loans and debentures given to associated enterprises (AEs). The assessee argued that the loans were sourced from excess funds from Foreign Currency Convertible Bonds (FCCBs) and charged interest at 3.81% (12-month LIBOR rate). The CIT(A) reduced the interest rate to LIBOR+0.25% from LIBOR+2%. The Tribunal, referencing the Delhi High Court rulings in Cotton Naturals India Pvt. Ltd. and EKL Appliances Ltd., held that the revenue has no power to re-characterize the transaction and directed the A.O to delete the additions. 2. Weighted Deduction Under Section 35(2AB) on Trade Mark and Overseas Product Registration Charges: The assessee claimed a weighted deduction on trademark registration and overseas product registration charges, which the A.O disallowed, allowing only 100% as revenue expenditure. The Tribunal, following its earlier decisions and the case of USV Ltd., directed the A.O to allow the weighted deduction. 3. Allocation of R&D Expenses for Profit Determination Under Section 80IB: The A.O reallocated R&D expenses to the Silvassa II Unit, which the assessee contested, arguing a scientific allocation across all units. The Tribunal, following its earlier decision, directed the A.O to restrict reallocation only to raw materials. 4. Addition of Provision for Doubtful Debts and Advances in Book Profits Under Section 115JB: The A.O added back the provision for doubtful debts and advances while calculating book profits under Section 115JB. The Tribunal restored the issue to the A.O to be decided afresh in light of the pending decision in the case of Vodafone Essar Gujarat Ltd. 5. Non-Consideration of Book Profits for Deduction Under Section 10B: The A.O declined the deduction of ?62,10,351/- for the 100% EOU unit under Section 10B while calculating book profits under Section 115JB. The Tribunal, referencing the Supreme Court decision in Ajanta Pharma Ltd., directed the A.O to consider the deduction under Section 10B. 6. Additions on Account of Sales and Expenses Related to Sun Pharmaceutical Industries: The A.O made additions on account of sales and expenses incurred on behalf of Sun Pharmaceutical Industries. The Tribunal, following its earlier decisions, directed the A.O to delete the impugned additions and disallowances. 7. Foreign Exchange Fluctuation Gain: The issue was remitted back to the A.O for fresh consideration as the matters were restored to the A.O in earlier years. 8. Reduction of Unrealized Export Proceeds for Deduction Under Section 10B: The issue was sent back to the A.O for fresh consideration in light of Section 155(11A) of the Act. 9. Disallowance Under Section 40(a)(i) for Non-Deduction of Tax on Foreign Payments: The issue was restored to the A.O for fresh consideration, pending the decision of the Tribunal Mumbai Benches in a similar case. 10. Weighted Deduction on Gifts to R&D Employees and Repairs & Municipal Taxes: The Tribunal dismissed the revenue’s appeal, upholding the CIT(A)’s decision supported by the jurisdictional High Court in the case of Claries Lifesciences Ltd. 11. Deduction of Interest on Overdue Bills for Computation Under Section 80IB: The Tribunal dismissed the revenue’s appeal, following its earlier decision in a similar case. 12. Exclusion of Provision for FBT and Unascertained Liabilities in Book Profits Under Section 115JB: The Tribunal upheld the CIT(A)’s decision, referencing the Bombay High Court decision in ASB International P. Ltd., and dismissed the revenue’s appeal. Outcome: - The assessee’s appeal was allowed for statistical purposes. - The revenue’s appeal was allowed in part for statistical purposes.
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