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2013 (10) TMI 783 - AT - Income TaxAdjustment of arm s length price - Adjustment made on account of notional interest on Optionally Convertible Debenture to Foreign Subsidiary - Held that - CIT(A) while deleting addition has noted that as per agreement, interest was payable only if conversion option was not exercised on expiry of 5 year period. If at any time during 5 year period conversion option was exercised and lowas converted into equity, no interest accrued or become payable. He further noted that funds were provided by Assessee as per RBI guidelines and in immediately next year, entire logiven to subsidiary was converted into equity shares of Zydus International Pvt. Ltd. He has further held that since Assessee has converted lointo equity in immediate next year, there was no question of taxing notional interest. He has further held that Assessee had not granted interest free lobut invested in optionally convertible lowith clause of interest in case, Conversion option was not exercised and further held Assessee s transaction with subsidiary was at arms length. Before us, Revenue could not controvert findings of CIT(A) by bringing any contrary material on record - Decided against Revenue. Product Registration Expenses and reimbursement of Product Registration Support Services expenses - Trademark Registration Fees and Patent Registration Fees - capital v/s revenue - Held that - Assessee has not acquired any new right of permanent character. licenses or registrations are required to be renewed and therefore part of day to day running expenditure of business. ACIT v. Vodafone Essar Gujarat 2010 (1) TMI 941 - ITAT, AHMEDABAD . If expenditure cgive benefit which is said to be endured for one year or even annually year after year then it is unreasonable to hold that any enduring benefit taken place to assessee. Comsat Max Limited. 2009 (1) TMI 314 - ITAT DELHI-H . expenditure incurred in existing line of business in order to run business smoothly in years to come but in absence of creation of any new asset we hereby held that such enduring benefit may not tantamount to rendering of capital expenditure. DCIT v. Core healthcare 2008 (10) TMI 74 - GUJARAT HIGH COURT . Also as decided in CIT v. Finley Mills Ltd. 1951 (10) TMI 1 - SUPREME COURT that expenditure incurred in registering for first time its trademark, then by registration owner is merely absolved thereafter from obligation to prove his ownership of trademark. Thus expenditure is neither for creation of asset nor advantage for ever - in favour of assessee. Weighted deduction for expenditure on Scientific Research u/s. 35(2AB) in respect of Clinical Trial and Bio-equivalence Study disallowed - Held that - From contents of explanation of Section 25(2AB) it is found that not only expenditure incurred on clinical drug trial but expenditure incurred for obtaining approval from any regulatory authority under any Central, State or Provincial Act and also expenditure incurred for filing application for patent under Patent Act 1970 are stated to be covered within definition of expenditure on scientific research. For clinical drug trial, first stage is to enroll volunteers and/or patient into small pilot studies and subsequently large scale studies are carried out on patients and such clinical drug trial may be in one country or in multiple countries. Carrying out drug trial is essential for approval of drug in question to be sold in public and hence, clinical drug trial cannot be carried out inside in-house research facility i.e. usually laboratory. Hence, this explanation to Section 35(2AB)(1) does not require that these expenses which are included in this explanation are essentially to be incurred inside in-house research facility because in our considered opinion, it is not possible to incur these expenses inside in-house research facility - in favour of assessee. Disallowance u/s. 14A - Held that - Matter be restored back to file of A.O. for fresh decision as was done by tribunal in assessment year 2006-07 because as per this judgement of Godrej & Boyce Manufacturing Co. Ltd. v. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT as Rule 8D is applicable from assessment year 2008-09 - in favour of assessee. Restricting deduction u/s. 80IC & 80IB - Held that - stand of A.O. cannot be approved because it is not reasonable basis for computation of profit of eligible unit. profit has to be computed on basis of selling price less cost of goods produced along with various overheads and only where there is some inter unit transfer of goods or service between various units of same assessee, then it has to be ensured that recording of such transfer of goods or services should be at market value of such goods or services on date of transfer and even if such recording of transfer is not as per market value, A.O. cbring it to market value and he cannot proceed to estimate profits and gains on reasonable basis unless he establishes that there is any exceptional difficulty in adopting market value and even then, basis adopted by A.O. to compute profits and gains, should be reasonable basis. In present case, we have seen that neither pre requirement of sub-section (8) or its proviso to section 80-Ihas been fulfilled by A.O. nor basis adopted by him is reasonable basis and, therefore, we do not find any basis to confirm or approve action of A.O. - in favour of assessee. Addition as upward adjustment on international transactions - Transfer Pricing adjustment - Held that - Since in earlier year 2013 (1) TMI 655 - ITAT AHMEDABAD , similar issue was restored back to file of A.O. for fresh decision, we restore this mater back to file of A.O. for fresh decision for this year also with similar directions - in favour of assessee. Adjustment on account of Expenses disallowed u/s. 14A for purposes of computation of book profit u/s. 115JB - Held that - Following decision of Goetz (India) Ltd. v. CIT 2009 (5) TMI 615 - ITAT DELHI & there is no contrary decision on this issue till date - Decided in favour of assessee.
Issues Involved:
1. Adjustment made on account of notional interest on Optionally Convertible Debenture to Foreign Subsidiary. 2. Classification of Product Registration Expenses as revenue or capital in nature. 3. Classification of Trademark Registration Fees and Patent Fees as revenue or capital in nature. 4. Eligibility of expenses incurred outside the approved R&D facility for weighted deduction under section 35(2AB). 5. Deduction under section 80IC for the Baddi Unit. 6. Deduction under section 80IB for the Goa Unit. 7. Disallowance under section 14A for computation of book profit under section 115JB. 8. Depreciation on Hummer Car. Detailed Analysis: 1. Adjustment on Account of Notional Interest: The Assessing Officer (AO) added Rs. 3,99,74,426/- as notional interest on an optionally convertible loan to a foreign subsidiary, considering it as debt and applying an interest rate of 7.38%. The CIT(A) deleted this addition, noting that interest was only payable if the conversion option was not exercised within five years, and since the loan was converted to equity in the next year, no interest accrued. The Tribunal upheld the CIT(A)'s decision, finding no contrary evidence from the Revenue. 2. Product Registration Expenses: The AO classified Rs. 4,30,94,280/- of Product Registration Expenses as capital expenditure, arguing they provided enduring benefits. The CIT(A) reversed this, following the Tribunal's decision in the assessee's favor for previous years. The Tribunal affirmed the CIT(A)'s decision, noting the High Court had also ruled in favor of the assessee in similar cases. 3. Trademark Registration Fees and Patent Fees: The AO treated Rs. 2,79,60,159/- spent on Trademark and Patent Registration as capital expenditure. The CIT(A) allowed these as revenue expenses, following the Tribunal's previous decisions in the assessee's favor. The Tribunal confirmed the CIT(A)'s decision, citing consistent rulings in earlier years. 4. Weighted Deduction under Section 35(2AB): The AO disallowed Rs. 12,02,29,026/- of weighted deduction for expenses incurred outside the approved R&D facility. The CIT(A) allowed the deduction, following the Tribunal's decision in the assessee's favor for earlier years. The Tribunal upheld the CIT(A)'s decision, noting the High Court had dismissed the Revenue's appeal on this issue. 5. Deduction under Section 80IC for Baddi Unit: The AO restricted the deduction to Rs. 22,24,61,917/-, arguing the high profits included brand value and marketing network benefits. The CIT(A) allowed the full deduction, following the Tribunal's decision in the assessee's favor for previous years. The Tribunal upheld the CIT(A)'s decision, citing consistent rulings and lack of contrary evidence from the Revenue. 6. Deduction under Section 80IB for Goa Unit: The AO restricted the deduction to Rs. 19,25,491/-, applying a similar rationale as for the Baddi unit. The CIT(A) allowed the full deduction, following the Tribunal's decision in the assessee's favor for previous years. The Tribunal confirmed the CIT(A)'s decision, noting the High Court had ruled in favor of the assessee in similar cases. 7. Disallowance under Section 14A for Computation of Book Profit under Section 115JB: The AO added Rs. 6,05,91,025/- disallowed under section 14A to the book profit. The CIT(A) deleted this addition, following the Tribunal's decision in the assessee's favor for previous years. The Tribunal upheld the CIT(A)'s decision, citing consistent rulings and lack of contrary evidence from the Revenue. 8. Depreciation on Hummer Car: The AO disallowed Rs. 8,41,166/- of depreciation on a car registered in the director's name. The CIT(A) confirmed the disallowance, citing lack of evidence of business use. The Tribunal restored the matter to the AO for verification of the car's business use, following its decision in the assessee's favor for the previous year. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection for statistical purposes, directing the AO to verify the business use of the Hummer car. The Tribunal consistently upheld the CIT(A)'s decisions, following previous rulings in the assessee's favor and noting the lack of contrary evidence from the Revenue.
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