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2022 (9) TMI 1560 - AT - Income TaxTP Adjustment - Addition on account of Corporate Guarantee Charges - HELD THAT - In our view since the issue is directly covered in favour of the assessee in its own case for assessment year 2012-13 and 2013-14 2021 (12) TMI 200 - ITAT AHMEDABAD wherein held no sound basis for disturbing the arm s length computation of these corporate guarantees issued by the assessee in favour of its AEs abroad taken at 1% which has been approved for earlier assessment years as well - we hereby allowing this ground of appeal filed by the assessee. Addition on account of Interest Imputation on Optionally Convertible Loans advanced - HELD THAT - As decided in own case A.Y. 2013-14 2021 (12) TMI 200 - ITAT AHMEDABAD whenever the assessee s right to exercise the option of converting the loan into equity comes to an end the assessee is entitled to interest on the commercial rates. It is not even the case of the authorities below that the interest so charged by the assessee in a situation in which the right to exercise the option has come to an end is not an arm s length price. Keeping in mind all these factors as also entirety of the case we deem it fit and proper to delete the arms length price adjustment in respect of interest which according to the revenue authorities should have charged on the optionally convertible loan granted to the AEs. Addition on account of Reimbursement of Expenses - HELD THAT - Respectfully following the observations of the ITAT in assessee s own case for assessment year 2012-13 and assessment year 2013-14 2021 (12) TMI 200 - ITAT AHMEDABAD we are of the considered view that the TPO has erred in fact and law in holding that the arm s-length price in respect of these cost to cost reimbursements should be determined at Nil . High Courts in various cases have held that the TPO cannot determine the arm s-length price of transaction as Nil on ad- hoc basis without employing any of the prescribed methods as the same is against the scheme of the Act.High Court s have also held on various occasions that the TPO s jurisdiction is limited to determine the arm s-length price of a transaction and does not have the jurisdiction to examine the allowability of expenses as provided in section 37 of the Act. Decided in favour of assessee. Product registration expenses/reimbursement of expenses for product registration support services - HELD THAT - As decided in own case 2006-07 to 2010-11 and assessment years 2012-13 and 2013-14 assesses does indeed deserve to succeed on this point for the short reason that even the Assessing Officer has admitted that the issue is covered by the binding judicial precedents in assesaee s own case and the additions have been made so to say keep the issue alive. AR fairly agree that this issue is settled in favour of the assessee. The relief granted to the on this point in past has achieved finality we uphold the plea of the assessee and direct the Assessing Officer to treat the product registration expenses and product support service expenses as revenue expenditure. Addition on account of trademark registration fees and patent fees - HELD THAT - As decided in assessee own case for assessment year 2013-14 2021 (12) TMI 200 - ITAT AHMEDABAD we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance. Addition as non-eligible expenditure u/s 35(2AB) - a ddition on the ground that the amount allowed by the DSIR was less as compared to deduction claimed by the assessee - HELD THAT - ITAT Pune Tribunal in the case of DCIT v. Force Motors 2021 (9) TMI 244 - ITAT PUNE while dealing with identical issue held that prior to amendment in 2016 section 35(2AB) does not provide any methodology of approval to be granted by prescribed authority vis-a-vis expenditure from year to year and therefore order of Assessing Officer in curtailing expenditure and consequent weighted deduction claimed under section 35(2AB) on ground that deduction cannot exceed claims approved by prescribed authority had rightly been set aside. Bangalore Tribunal in the case of Provimi Animal Nutrition India Pvt. Ltd 2020 (12) TMI 177 - ITAT BANGALORE held that prior to 1-7-2016 Form 3CL granting approval by prescribed authority in relation to quantification of weighted deduction under section 35 (2AB) had no legal sanctity and it was only with effect from 1-7-2016 with amendment to rule 6(7A)(b) that quantification of weighted deduction under section 35(2AB) has significance. Thus the position is clear that prior to amendment introduced w.e.f. 01/07/2016 the deduction u/s 35(2AB) of the Act would be available to an assessee having an approved in-house R D facility by the prescribed Authority Act and there is no mention of approval of the quantum of expenditure in the law as it stood prior to that date. The mandate of quantification of expenditure has been put in place only w.e.f. 01.07.2016. In view of the above observations we allow this ground of appeal of the assessee. Eligibility for weighted deduction u/s 35(2AB) - R D expenses in respect of clinical trial and bio-equivalence study - HELD THAT - As per ruling for assessment year 2013-14 2021 (12) TMI 200 - ITAT AHMEDABAD held that this issue is settled in favour of the assessee by decisions of the coordinate benches in assessee s own case These decisions hold good as on now and we are respectfully bound by those decisions as on now Of course whatever we hold does and shall always remain subject to what Hon ble Courts above decide as and when that happens In this view of the matter we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance - Decided in favour of assessee. Disallowance of depreciation on Hummer car - vehicle is owned by the director of the company and the above asset is not owned by the assessee company - HELD THAT - Since the issue is directly covered in favour of the assessee in his own case for assessment years 2009-10 and 2010-11 2017 (4) TMI 462 - ITAT AHMEDABAD and assessment years 2012-13 and 2013-14 2021 (12) TMI 200 - ITAT AHMEDABAD held car was used for the purpose of business and the Assessing Officer has himself allowed the running and maintenance expenses of this car and the registration of car in the name of driver was a matter of convenience as it gave advantage to the assessee in terms of road tax - once it is not in dispute that the vehicle was owned in substance by the assessee and the vehicle was used for the purposes of its business there cannot be any legally sustainable reasons for declining the depreciation respectfully following the orders passed on the assessee s own case we hereby allowing this ground of appeal filed by the assessee. Adjustment of disallowance u/s 14A for computation of book profits u/s 115JB - HELD THAT - This issue is settled in favour of the assessee by decisions of the coordinate benches in assessee s own cases.
Issues Involved:
1. Upward adjustments on international transactions related to Transfer Pricing (Corporate Guarantee Charges, Interest Imputation on Optionally Convertible Loans, Reimbursement of Expenses). 2. Addition on account of Product Registration Expenses and reimbursement for Product Registration Support Services. 3. Addition on account of Trademark Registration Fees and Patent Registration Fees. 4. Addition as non-eligible expenditure under section 35(2AB) of the Act. 5. Eligibility for weighted deduction under section 35(2AB) in connection with R&D expenses for Clinical Trial and Bio-equivalence Study. 6. Disallowance of depreciation on Hummer car. 7. Adjustment in respect of disallowance under section 14A for computation of book profits under section 115JB. 8. Credit for TDS. 9. Charging of interest under sections 234B and 234C. 10. Penalty proceedings under section 271(1)(c). Detailed Analysis: Ground 1(a): Upward Adjustment on Corporate Guarantee Charges The issue pertains to the addition of Rs. 17,44,51,548/- on account of corporate guarantee charges. The TPO benchmarked the corporate guarantee fee at 2.52%, based on external CUPs from banks. The assessee argued that the issue is covered in its favor by the ITAT's orders for previous assessment years (2012-13 and 2013-14), which benchmarked the fee at 1%. The ITAT upheld the assessee's plea, allowing the ground of appeal. Ground 1(b): Upward Adjustment on Interest Imputation on Optionally Convertible Loans The TPO imputed interest on optionally convertible loans advanced to the subsidiary, ZIPL, treating them as quasi-equity. The assessee contended that this issue is covered in its favor by ITAT orders for previous years. The ITAT agreed, citing previous rulings that characterized such loans as quasi-capital and not comparable to simple loan transactions. The ground of appeal was allowed. Ground 1(c): Upward Adjustment on Reimbursement of Expenses The TPO determined the ALP for reimbursements to AEs (Zydus Mexico, Zydus France, and Zydus Japan) as "Nil," treating the assessee as a contract manufacturer. The assessee argued that it acted as an entrepreneur/IP owner, and the reimbursements were on a cost-to-cost basis. The ITAT found the expenses were indeed for the assessee's business interests and allowed the ground of appeal. Ground 2: Addition on Product Registration Expenses The AO treated product registration expenses as capital expenditure, allowing depreciation but adding the residual amount. The assessee argued that this issue is covered by ITAT orders for previous years, which treated such expenses as revenue expenditure. The ITAT upheld the assessee's plea, allowing the ground of appeal. Ground 3: Addition on Trademark and Patent Registration Fees The AO disallowed trademark and patent registration fees as capital expenditure. The assessee cited ITAT rulings for previous years, which treated these expenses as revenue expenditure. The ITAT agreed and allowed the ground of appeal. Ground 4: Addition as Non-eligible Expenditure under Section 35(2AB) The AO and DRP made additions based on the amount allowed by DSIR being less than the claimed deduction. The ITAT cited various rulings, including those from the Pune and Mumbai Tribunals, which held that prior to amendments in 2016, DSIR's role was limited to approval of the facility, not quantification of expenditure. The ITAT allowed the ground of appeal. Ground 5: Eligibility for Weighted Deduction under Section 35(2AB) for Clinical Trial and Bio-equivalence Study The AO and DRP disallowed the deduction for expenses incurred outside the approved R&D facilities. The assessee argued that this issue is covered by ITAT orders for previous years. The ITAT upheld the assessee's plea, allowing the ground of appeal. Ground 6: Disallowance of Depreciation on Hummer Car The AO disallowed depreciation on the Hummer car, stating it was owned by the director, not the company. The assessee cited ITAT rulings for previous years, which allowed depreciation based on beneficial ownership and business use. The ITAT agreed and allowed the ground of appeal. Ground 7: Adjustment under Section 14A for Computation of Book Profits under Section 115JB The AO added disallowed expenses under section 14A to book profits under section 115JB. The assessee cited ITAT rulings for previous years, which excluded such disallowances from book profits. The ITAT upheld the assessee's plea, allowing the ground of appeal. Grounds 8 to 11: Not Pressed The counsel for the assessee did not press these grounds, as they were consequential or addressed in rectification proceedings. These grounds were dismissed as not pressed. Conclusion: The appeal was partly allowed, with the ITAT ruling in favor of the assessee on all pressed grounds, primarily based on precedent cases from previous assessment years.
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