2019 (4) TMI 868 - AT - Income Tax

TP adjustment - Corporate Guarantee provided to associated enterprises - reliance on ratio decidendi rendered by the earlier order of the Tribunal - assessee is against the confirmation of the addition of corporate guarantee fees up to 2% whereas the Revenue is in appeal before us against the reduction of the addition of corporate guarantee fee from 2.96% to 2% - HELD THAT - On identical facts and circumstances in the own case of the assessee and Revenue pertaining to AY 2009-2010, the ITAT was pleased to restore the issue to the Ld. CIT (A) for fresh adjudication 2017 (9) TMI 1804 - ITAT AHMEDABAD . Also see LG. RAMAMURTHI AND OTHERS 1976 (10) TMI 18 - MADRAS HIGH COURT wherein held if the Tribunal in the present case wanted to take an opinion different from the one taken by the earlier Bench, it should have placed the matter before the President of the Tribunal so that he could have referred the case to a Full Bench of the Tribunal, consisting of three or more members for which there is provision in the Act itself. Tribunal completely erred in coming to the conclusion it did, at variance with and opposed to the conclusion of the Tribunal on the earlier occasion, Enhancing the addition made on account of TP adjustments - Sales made to AE - TPO by issuing show cause notice to apply the profit-sharing method in the ratio of 50% each after considering the function, assets and the risk involved between the assessee and its AE - Assessee submitted that the AE being the owner of IPR is a very complex entity whereas the assessee being a mere contract manufacturer is a less complex entity. Therefore the assessee should be treated as the test party - whether the TPO verified the details furnished by the assessee in determining the ALP of the impugned transaction using TNMM during the assessment proceedings? - HELD THAT - As decided in the own case of the assessee s ITAT deleted the addition made by the TPO/AO 2017 (9) TMI 1804 - ITAT AHMEDABAD . A query was raised from the bench to the learned counsel for the assessee who replied that all the necessary details were available with the TPO and no defect of whatsoever was pointed out therein. Similarly, the ITAT in the earlier year because no defect was pointed out by the TPO in the details furnished by the assessee in determining the ALP using TNMM allowed the appeal of the assessee. The learned DR has also not brought anything on record contrary to the argument advanced by the learned AR of the assessee. Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the ld. DR has not brought anything on record contrary to the argument advanced by the ld. counsel for the assessee. We also place our reliance on the judgment of Hon ble Madras High Court in the case of CIT v. L.G. Ramamurthi (supra). DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum Deduction u/s 35(2AB) - HELD THAT - There is no dispute that all the factual details were available before the lower authorities. The claim made by the assessee was purely legal claim as it is eligible for weighted deduction as per the provisions of Section 35(2AB) of the Act. Merely because the same was not claimed in the return of income nor through a revised return of income, the same cannot be denied. Weighted deduction under section 35(2)AB of the Act in respect of the expenses which were not certified by DSIR - HELD THAT - As in the own case of the assessee 2016 (12) TMI 1539 - ITAT AHMEDABAD expenses incurred before Form 3CM approval cannot be denied for the purpose of Section 35(2AB) weighted deduction. The appellant has only claimed those expenses which relate to the time period as approved in the Form 3CM. We accordingly hold that the assessee is very much entitled for claiming the above capital and revenue expenses incurred on in house research and development. The Assessing Officer had rightly held it entitled for the above weighted deduction after verifying all necessary particulars during the course of scrutiny. Merely because the prescribed authority failed to send intimation in Form 3CL, would not be reason enough to deprive the assessee s claim of deduction under section 35(2AB) of the Act. 2017 (8) TMI 933 - GUJARAT HIGH COURT Disallowance of allocated R & D expenses of partnership firm - Assessee is substantial stake holders in firm - research and development expenses incurred to the other partnership firms - HELD THAT - The appellant company had assisted the partnership firm in carrying on its business by using its network for marketing the pharmaceuticals products successively. Since the assessee is holding 97.5% of share in the partnership firm, SPI it becomes the duty of the assessee to promote the business of the partnership firm in the capacity of the majority stake holders. Incidentally, the revenue authorities have not brought anything on record which could suggest that the expenditures have not been incurred for the purposes of business. Be it assessee s business or the business of the partnership firm where the assessee is a majority stake holder. In our understanding of the law an expenditure is allowable if it is incurred for the purposes of the business of the assessee. Finding that the assessee is having 97.5% share in the profits of the firm SPI, we do not find any merit in the disallowance made by the A.O Adjustment u/s 115JB - remuneration received from the partnership firms and credited to Profit and Loss account - HELD THAT - Section 115JB is a complete code in itself. Therefore, if the remuneration is credited by the appellant company in its Profit and Loss account then the same could be reduced it specifically provided under the Explanation to Section 115JB of the Act which we find missing from the relevant provisions. We, therefore, do not find any merit in this claim of the assessee and accordingly we confirm the findings of the First Appellate Authority. See SUN PHARMACEUTICAL INDUSTRIES LTD. VERSUS DCIT 2017 (9) TMI 1804 - ITAT AHMEDABAD Repairing expenditure treated as capital in nature - assessee claimed that all these expenses are nothing but repair and maintenance expenses incurred by it to keep the machinery in proper working condition by replacing the existing part of the machinery and it does not by itself create any new assets - HELD THAT - Purchase of Pumps is single motor which is capable of functioning independently without assistance of any other plant & machinery. Therefore, it can be said that a new capital assets has come into existence and hence the expenditure is treated as capital expenditure. Purchase of Freeze Dryer Beta with accessories for the purposes of drying process of organic solvents. The assessee has also incurred labour charges on installation of this dryer. The factual matrix shows that new capital assets.The appellant has purchased Tata Make IOX 160 EPBAX System with 16 trunk lines and 4 E &M Circuits. The configuration of this machine itself shows that it is capable of being used as independently and a new asset has come into existence the same has to be treated as capital expenditure. The appellant company has purchased Copper Busbar 1 MTR for 3000 KVA Transformer and 2 panel boards for MCC (Motor Contrl Centre). The details show that these items have been purchased to replace the electrical items damaged in fire. All these items form part of 3000 KVA Transformer and has no used independently. Therefore, the same have to be treated as revenue in nature. Addition u/s 14A r.w.r 8D - HELD THAT - Admittedly the rule 8D was applicable w.e.f. AY 2008-09 as observed by the ITAT in its order as discussed above. We also note that in the AY 2008-09 the AO made the disallowance as per rule 8D of income tax rule, but yet the ITAT restored the issue to the file of AO to make disallowance as per rule 8D as discussed above. Thus in order to maintain the consistency and to avoid the multiple proceeding, we are inclined to restore the issue to the file of AO to adjudicate afresh as per the direction of ITAT as discussed above. Hence the ground of appeal of the assessee is allowed for statistical purpose. Disallowance u/s 14A of the Act for computing the book profit u/s 115JB - HELD THAT - We direct the AO accordingly to delete the addition of expenses disallowed u/s 14A while computing the book profit u/s 115JB of the Act. Hence the ground of appeal of the assessee is allowed. Addition for selling and distribution expenses incurred on behalf of SPI u/s 14A - HELD THAT - it is equally true that a reasonable disallowance of expenditure should be made for earning the exempt income so far as the share of profit from the partnership firm SPI is concerned. We are conscious about the fact that Rule 8D is not applicable for the year under consideration but at the same time for the computation of disallowance for administrative expenditures, the formula given under Rule 8D is the most appropriate method for the computation of the disallowance. We accordingly direct the A.O. to compute the disallowance so far as administrative expenditures are concerned as per Rule 8D of the ITAT Rules r.w.s. 14A of the Act. interest on refund u/s 244A - HELD THAT - Interest on refund under section 244A(1) would be assessable in the year in which it is granted and not in the year in which proceedings under section 143(1)(a) attain finality See AVADA TRADING CO. (P.) LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX, SPL. CIRCLE 18 (1) 2006 (1) TMI 465 - ITAT MUMBAI Relief u/s 10(15) for interest on tax-free bond which assessee mistakenly offered to tax - Admission of additional ground - HELD THAT - The ground raised by the assessee is legal in nature which can be admitted at any stage of the proceedings. For this proposition we find support and guidance from the judgement of Hon ble Supreme Court in case of CIT Vs. Sinhgad technical education society 2017 (8) TMI 1298 - SUPREME COURT OF INDIA

Summary

Issues Involved:
1. Addition on account of Corporate Guarantee provided to associated enterprises.
2. Addition on account of Sale of Pantoprazole to associated enterprises.
3. Addition on account of Sale of Para IV products other than Pantoprazole.
4. Addition on account of Sale of Non-Para IV products.
5. Non-allowance of weighted deduction u/s 35(2AB).
6. Disallowance on account of R&D expenses incurred for products manufactured by partnership firms.
7. Deduction of Remuneration received from Partnership firm for determination of Book Profits u/s 115JB.
8. Reduction of unrealized export proceeds from export turnover for the purpose of deduction u/s 10B.
9. Disallowance of expenditure on repairs treating them as capital expenditure.
10. Disallowance u/s 14A read with Rule 8D.
11. Addition of expense disallowed u/s 14A for computing book profit u/s 115JB.
12. Addition of Selling and Distribution expense incurred on behalf of partnership firm disallowed u/s 14A.
13. Initiation of penalty proceedings u/s 271(l)(c).

Detailed Analysis:

1. Addition on account of Corporate Guarantee provided to associated enterprises:
The Tribunal found that the facts were identical to the previous years where the issue was restored to the file of the CIT(A) for fresh adjudication. The Tribunal directed the CIT(A) to decide the issue in accordance with the Hon'ble Jurisdictional High Court of Gujarat and after giving adequate hearing to the assessee.

2. Addition on account of Sale of Pantoprazole to associated enterprises:
The Tribunal noted that the facts were identical to the previous years where the ITAT deleted the addition made by the TPO/AO. The Tribunal directed the AO to delete the addition made by him.

3. Addition on account of Sale of Para IV products other than Pantoprazole:
The Tribunal found that the facts were identical to the previous years where the ITAT deleted the addition made by the TPO/AO. The Tribunal directed the AO to delete the addition made by him.

4. Addition on account of Sale of Non-Para IV products:
The Tribunal noted that the facts were identical to the previous years where the ITAT deleted the addition made by the TPO/AO. The Tribunal directed the AO to delete the addition made by him.

5. Non-allowance of weighted deduction u/s 35(2AB):
The Tribunal found that the facts were identical to the previous years where the ITAT allowed the deduction u/s 35(2AB) of the Act. The Tribunal directed the AO to allow the weighted deduction u/s 35(2AB) of the Act as claimed by the assessee.

6. Disallowance on account of R&D expenses incurred for products manufactured by partnership firms:
The Tribunal noted that the facts were identical to the previous years where the ITAT deleted the addition made by the TPO/AO. The Tribunal directed the AO to delete the addition made by him.

7. Deduction of Remuneration received from Partnership firm for determination of Book Profits u/s 115JB:
The Tribunal found that the facts were identical to the previous years where the ITAT confirmed the addition made by the TPO/AO. The Tribunal directed the AO accordingly.

8. Reduction of unrealized export proceeds from export turnover for the purpose of deduction u/s 10B:
The Tribunal noted that the facts were identical to the previous years where the ITAT set aside the issue to the file of AO for fresh adjudication. The Tribunal directed the AO accordingly for fresh adjudication as per the provisions of law.

9. Disallowance of expenditure on repairs treating them as capital expenditure:
The Tribunal found that the facts were identical to the previous years where the ITAT confirmed the addition made by the TPO/AO. The Tribunal directed the AO accordingly.

10. Disallowance u/s 14A read with Rule 8D:
The Tribunal noted that the facts were identical to the previous years where the ITAT restored the issue to the file of AO to adjudicate afresh as per the direction of ITAT. The Tribunal directed the AO accordingly.

11. Addition of expense disallowed u/s 14A for computing book profit u/s 115JB:
The Tribunal found that the facts were identical to the previous years where the ITAT deleted the addition made by the TPO/AO. The Tribunal directed the AO to delete the addition of expenses disallowed u/s 14A while computing the book profit u/s 115JB of the Act.

12. Addition of Selling and Distribution expense incurred on behalf of partnership firm disallowed u/s 14A:
The Tribunal noted that the facts were identical to the previous years where the ITAT restored the issue to the file of AO to adjudicate afresh as per the direction of ITAT. The Tribunal directed the AO accordingly.

13. Initiation of penalty proceedings u/s 271(l)(c):
The Tribunal found that the grievance of the assessee was premature at this stage and therefore dismissed the same.

Conclusion:
The Tribunal allowed the appeal of the assessee and Revenue partly for statistical purposes and dismissed the Revenue's appeal in certain issues. The Tribunal directed the AO to adjudicate afresh on certain issues as per the direction of ITAT and deleted the additions made by the AO in other issues.