2018 (4) TMI 1685 - HC - Income Tax

TP adjustment - Interest on loan to Sun Pharma Global Inc (AE) at London Inter Bank Offer Rate (LIBOR) Plus 2% Rate - addition to the Arm s Length Price of international transaction as Corporate Guarantee -sale of Pantoprazole tablets to Sun Pharma Global, BVI - HED THAT;- Appeal admitted on question A to J Weighted deduction u/s 35(2AB) - expenditure incurred on Corporate Advertisement - HELD THAT - The amount involved is merely ₹ 40,000/-. Looking to the smallness of claim, the question is not considered. Disallowance u/s. 14A as per Rule 8D - addition on administrative expenses only on the issue of earning exempt income as a share of partnership firm M/s. Sun Pharmaceutical Industries - non applicability of section 37 - HELD THAT - The assessee had claimed certain expenditure which the Assessing Officer had disallowed holding that the same was not for the purpose of business. CIT (A) gave partial relief but made disallowance under section 14A of the Act. In further appeals by the Revenue as well as by the assessee, the Tribunal uphold applicability of section 14A of the Act but provided that Rule 8D formally may be applied. In that view of the matter, this question does not arise at the hands of the Revenue. We make it clear that we have already admitted Revenue s contention regarding non-applicability of section 37 of the Act. Such question would not be influenced by non-entertaining this question. Disallowance of provision for leave encashment u/s. 43B - ITAT setting aside the issue to the file of the Assessing Officer with a direction that the issue must be considered afresh after the decision from the Hon ble Supreme Court in the case of Exide Industries Ltd 2007 (6) TMI 175 - CALCUTTA HIGH COURT - Tribunal, noted that the SLP against such judgement is pending before the Supreme Court and therefore placed the issue before the AO and directed the Assessing Officer to decide the same on the basis of outcome of such proceedings before the Supreme Court - HELD THAT - Revenue brought to our notice, the amended provision of sub-section (6) of section 153 which provides for a time limit of 12 months for the Assessing Officer to pass order giving effect to the appellate orders. He submitted that this would create a complication and the Assessing Officer s order may become time barred, if by the time the period expires, the Supreme Court were not to pronounce the judgement. We recognize the genuine difficulty in view of sub-section (6) of section 153 now amended. Mere admission of this question in this Tax Appeal will also not solving the issue since this would give rise to chain of proceedings out of the order that the Assessing Officer may be compelled to pass within the statutory time frame. Under the circumstances, after hearing both sides, this issue is placed before the CIT (A) who would dispose of the proceedings once the judgement of the Supreme Court in the Revenue s appeal against such judgement of Calcutta High Court is rendered. This question is disposed of accordingly.

Summary

Issues Involved:
1. Transfer Pricing Adjustment on Interest on loan
2. Transfer Pricing Adjustment on interest on 0% OFCDs
3. Addition to Arm's Length Price for Corporate Guarantee
4. Transfer Pricing Adjustment on sale of Pantoprazole tablets
5. Admission or rejection of additional evidence by ITAT
6. Weighted deduction under section 35(2AB) for Foreign Trade Marks and Patents
7. Weighted deduction under section 35(2AB) for revenue expenditure
8. Addition to Book Profit under section 115JB
9. Disallowance of expenses incurred on behalf of another entity
10. Treatment of "exempted partnership profit"
11. Provision for leave encashment under section 43B

Transfer Pricing Adjustment on Interest on loan:
The High Court considered whether the ITAT was justified in setting aside the CIT (A)'s findings and directing the deletion of Transfer Pricing Adjustments on interest amounts. The Court analyzed the calculations made by the Assessing Officer and the provisions of section 92C of the Act to determine the correctness of the adjustments.

Transfer Pricing Adjustment on interest on 0% OFCDs:
Similarly, the Court examined the Transfer Pricing Adjustment on interest related to 0% Optionally Fully Convertible Debentures (OFCDs) to ascertain if the Assessing Officer had correctly computed the Arm's Length Price in accordance with section 92C of the Act.

Addition to Arm's Length Price for Corporate Guarantee:
The issue revolved around whether the addition to the Arm's Length Price for a Corporate Guarantee was justified. The Court assessed if the Corporate Guarantee constituted an international transaction and if it warranted an upward adjustment.

Transfer Pricing Adjustment on sale of Pantoprazole tablets:
The Court reviewed the Transfer Pricing Adjustment made on the sale of Pantoprazole tablets to determine if the Assessing Officer had appropriately calculated the Arm's Length Price in compliance with section 92C of the Act.

Admission or rejection of additional evidence by ITAT:
The Court deliberated on whether the ITAT's omission to address the Revenue's applications for admitting crucial evidence affected the completeness of the order and the decision-making process.

Weighted deduction under section 35(2AB) for Foreign Trade Marks and Patents:
Regarding the claim for weighted deduction under section 35(2AB) for expenses related to registration of Foreign Trade Marks and Patents, the Court examined the eligibility of the assessee for such deductions.

Weighted deduction under section 35(2AB) for revenue expenditure:
Similarly, the Court assessed the justification for claiming weighted deduction under section 35(2AB) for revenue expenditure, analyzing the provisions of the Income Tax Act.

Addition to Book Profit under section 115JB:
The Court evaluated the deletion of an addition to Book Profit under section 115JB, considering the disallowed amount under section 14A of the Act and its impact on the book profit calculation.

Disallowance of expenses incurred on behalf of another entity:
The Court examined the disallowance of expenses incurred by the assessee on behalf of another entity to determine the correctness of such disallowance under the law.

Treatment of "exempted partnership profit":
The Court analyzed the deletion of the amount received as "exempted partnership profit" from another entity, considering the CIT (A)'s findings and the impact on the assessed income.

Provision for leave encashment under section 43B:
The issue centered on the deduction claimed by the assessee for provision of leave encashment under section 43B of the Act. The Court considered the applicability of section 43B and directed the matter to be reconsidered after a decision from the Supreme Court in a related case due to pending proceedings.

This detailed analysis covers the various substantial questions of law addressed in the judgment by the High Court, providing a comprehensive overview of the legal considerations and decisions made for each issue involved.