9911796707
TMI Blog2019 (4) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of and without prejudice to one another: 1. The order passed by the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the learned CIT(A)'] is bad in law and on facts 2. Re: Addition on account of Corporate Guarantee provided to associated enterprises Sun Pharmaceutical Bangladesh Ltd. - Rs. 8,94,313/-. 2.1 The learned CIT(A) has grossly erred in upholding the additions of Assessing Officer/TPO who failed to appreciate the fact the Corporate Guarantee provided to associated enterprises is not covered under the definition of international transaction as envisaged under sec. 92B. 2.2 Without prejudice to the above, the learned CIT(A) has grossly erred in upholding the addition made by the Assessing Officer/TPO for benchmarking the Guarantee fees without appreciating that the Appellant giving corporate guarantee is shareholder's activity and not a service transaction. 2.3 Without prejudice to the above, the learned CIT(A) grossly erred in upholding the addition made by the Assessing Officer/TPO who has applied the yield method not being a prescribed method under the Indian Transfer Pricing provisions for benchmarking the transaction. 2.4 W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plit method is to be followed, the Assessing Officer grossly erred in upholding the order of the TPO who made addition without appreciating the fact that there is nil profit to be attributed to the Appellant since the entire profit earned by the AE on the sale of the Products in USA is wiped off on account of subsequent infringement claim of USD 506 Mn. 3.7 Without Prejudice to the above, the learned CIT(A) grossly erred in upholding the order of Assessing Officer/TPO who made addition without appreciating the fact the full infringement loss ought to be deducted against the profits of the AE derived from the sale of Para IV products and only the profits / loss after such adjustment, if any should be split between the Appellant and the AE. 3.8 Without prejudice to the above, the learned CIT(A) grossly erred in not allowing the relief of infringement claim of Rs. 1,42,52,16,938/- given by TPO while working out the profit from the transaction for the purpose of profit split. 3.9 Without prejudice to the above, if profit split method is to be followed, the ratios of 50:50 ought to be adopted for benchmarking of sales of products. 4. Re: Addition on account of Sale of Para IV pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the US FDA Para under which the product is filed is irrelevant for the Appellant who is a contract manufacturer. 5.3. Without prejudice to the above, the learned CIT{A) has grossly erred in upholding the order of TPO who has wrongly applied profit split method as the most appropriate method without referring to any external comparable benchmarks. 5.4. Without prejudice to the above, the learned CIT(A) has erred in not appreciating that the IPR rests with the AE and the AE was exposed to significant risks inherent in the transaction and accordingly the profit allocation for the IPR to the AE was extremely low and unjustified. 5.5. Without prejudice to the above, the learned CIT(A) has grossly erred in upholding the order of TPO who has benchmarked the sales of Non-Para IV products in ratio of 80:20 without appreciating that Appellant is merely a contract manufacturer. 5.6. Without prejudice to the above, if profit split method is to be followed, the ratios of 50:50 ought to be adopted for benchmarking of sales of products. 6. Re: Non-allowance of weighted deduction u/s 35(2AB): 6.1. On the facts arid in the circumstances of the case the learned CIT(A) grossly erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciating that the same is allowable to the Appellant u/s 35(2AB). 7.3 Without prejudice to the above, learned CIT(A) erred in not following the CIT(A) order passed in the case of Appellant for earlier years where it was considered that since the Appellant already has its infrastructure in place, only the incremental expenditure incurred by the Appellant after partnership firm came into existence ought to be disallowed. 7.4 Without prejudice to the above, the CIT(A) grossly erred in computing the amount of research and development expenditure attributable to the development of formulation drugs for the domestic market at Rs. 6343.53 lakhs against the correct amount of Rs. 2332.84 lakhs 7.5 Without prejudice to the above, similar issue has been considered by the Assessing Officer at the time of tax assessment of partnership firms SPI and SPS wherein the disallowance was restricted to Rs. 35.13 lakhs in case of SPI and Nil in case of SPS, and accordingly in the case of Appellant disallowance ought to be restricted on the same. * 7.6 Without prejudice to the above, the R&D expense should not be allocated on the basis of domestic formulation turnover as both the entities operate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the allegation that some of the expenditure is incurred on parts of the plant & machinery which can function independently. The learned CIT(A) ought to have appreciated that the expenditure on repairs has been incurred to maintain existing assets and not for creating new assets or results in benefit of enduring nature. 11. Re: Disallowance u/s 14A read with Rule 8D - 11.1 On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming the action of the Assessing Officer of making disallowance u/s.!4A read with rule 8D, without appreciating that: 1 The income earned by the appellant on its investment in partnership firm was not exempt and hence was not to be considered for disallowance under section 14A; 2 Section 14A was not applicable in instant case since Assessing Officer failed to Establish satisfaction as to how the claim of the Appellant was incorrect; 3 Provisions of section 14A could not be made applicable to investments which are capable of generating taxable income; 4 The Appellant had sufficient interest free funds to carry out investments and hence no borrowed funds were utilized for purpose of investments; 5 Provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sun Pharmaceutical Industries ("SPI") disallowed u/s 14A: 13.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in disallowing Selling and Distribution expenditure incurred by the Appellant u/s. 14A on the ground that the said expenditure is directly incurred by the Appellant for the partnership firm without appreciating that: 1 Selling and distribution expenditure were directly incurred by the Appellant for the purposes of its business activities and it could not be termed and categorized to be directly incurred for earning the exempt income under Rule 8D; 2 The selling and distribution expenditure to be disallowed as worked out by the Assessing Officer is determined arbitrarily in the ratio of turnover and has no direct nexus towards the exempt income earned by the Appellant; 3 The CIT(A) has failed to substantiate and demonstrate its claim that the said expenditure is directly incurred by the Appellant towards earning of exempt income; 4 The said expenditure was incurred by the Appellant for the purpose of the business of the Appellant and not merely for the purposes of earning profit; 5 The provisions of section 14A could not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee namely sun pharmaceutical (Bangladesh) Ltd. But the assessee has not charged any commission/fees from such associated enterprise. The assessee for not charging commission/fees has submitted that: i) It has not incurred any expense for providing the corporate guarantee to the banks on behalf of the associated enterprise. As such the corporate guarantee was provided as a measure of long-term commitment towards the subsidiary companies. Accordingly, the assessee has shifted its burden of providing financial resources to its associated enterprise to the banks. ii) It is an undisputed fact that the subsidiary company availing the loan from the bank is an associated concern of the assessee. Thus there exist an implicit guarantee which is always available to the associated enterprise. As such there was no impact on the loan provided by the bank on account of explicit guarantee provided by it. It is because the associate enterprise was capable of availing the loan facilities from the bank. There was also no benefit to the associate enterprise on account of the credit rating of the assessee. iii) There were sufficient tangible assets available with the associate enterprises, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat particular year and said ALP was worked out on the basis of Country and foreign exchange risk." 10. The Ld. AR before us filed a paper book running from pages 1 to 253 and submitted that in the identical facts and circumstances in the own case of the assessee and Revenue bearing ITA Nos. 1666/AHD/2016 and 1663/AHD/2016 pertaining to AY 2009-2010, the ITAT was pleased to restore the issue to the Ld. CIT (A) for fresh adjudication vide order dated 08-09-2017. Accordingly, the Ld. AR before us prayed to restore the issue to the file of Ld.CIT(A) for fresh adjudication as per the provision of Law. 11. On the other hand, the Ld. DR did not raise any objection if the matter is restored to the file of Ld. CIT(A) for fresh adjudication as per the provision of Law. 12. Both the parties before us relied on the order of authorities below as favorable to them. 13. We have heard the rival contentions and perused the materials available on record. At the outset, we find that in the identical facts and circumstances in the own case of the assessee (supra), the ITAT has restored the issue for fresh adjudication to the file of the Ld.CIT(A). The relevant extract of the order is reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities. If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly if a Division Bench differs from the view taken by another Division Bench it does not express disagreement and pronounce its different views, but has the matter posted before a Fuller Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting merely as a contract manufacturer. The assessee further submitted that its AE had suffered a huge loss on account of patent infringement. 15.2 However, the TPO during the proceedings observed certain facts as enumerated below: i. The drug, Pantoprazole falls under chapter IV of the FD&C Act, in the preceding year. But in the year under consideration, it was sold as a generic drug. Therefore there was no risk to the AE in the year under consideration on account of the infringement of the patent. ii. The assessee has earned a margin at the rate of 13.86% on the sale to AE as per the accounts of the AE whereas the AE has earned profit margin at the rate of 87.45% on sale which is representing 4186% on the cost of the drug. As per the TPO, such a huge margin is not natural considering the FAR analysis. The TPO was of the view that such huge margin has been shifted to its AE as it is located in tax heaven zone. iii. The AE has sold this drug in the US market through the company namely CARACO which is the AE of the assessee. There was the agreement between the assessee and the CARACO dated 29th January 2008 for the distribution of the drug in the USA. In such agreement there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost * ü Penalties * ü Chargebacks * ü Shelf Stock Adjustments * ü Product Returns and Other Allowances * ü Infringement issues * ü Loss of profit claims by the original patent holder in the event the patent claim is rejected. In the present case since the product is para IV product the same is subjected to huge litigations. The expenses/damage that can arise out of the litigations are as follows:- * Lost profits due to diminished sales because of infringement of patents * Lost profits due to the necessity of having to reduce price to compete with the infringing party * Lost profits due to overall reduction in business attributable to the need to divert resources because of infringement * Lost future profits due to depressed prices that cannot now again be raised. * Projected Lost profits for future competition with infringer because infringer established a market position." 15.8 The assessee further submitted that its AE on account of such risk had incurred a loss of Rs. 506 million USD which has been allocated over a period of 3 years as detailed under: "Without prejudice to the above even if the profit split met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and Caraco dated 29th of January 2008 further evidence that there was the active role of the assessee in the distribution and sale of the product. iii. The loss incurred by the AE-Sun BVI/FZE on account of infringement of a patent is routine business activities. The Sun BVI/FZE may incur a loss in some of the drugs which will certainly be compensated with the profit of other drugs. iv. The assessee is also performing other functions as detailed under: "-as a person developing the ANDA documentation-as a manufactuerer creating the entire infrastructure as per theUSFDA standards for production of the drug (creation of USDFDA approved facility- as a manufacturer getting the facility approved by USFDA- as a person whose selling and marketing network was utilized,- as a distributor who handled dispatch of the goods to US (although the bills were in the name of Sun Global, the dispatch was to Caraco Pharma Inc, USA)- SPIL which has entered into the agreement with Caraco for distribution of the product and had assumed the entire risk (in spite of the fact that risk indeed has been shared by Sun Global),- as a person engaged in finer nuances of sales and marketing, literature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 201 0-2011 0 8 Additional expenses [ litigation ] incurred by the company 0 9 Remaining profit [ 6 minus 7 minus 8 ] 9,52,58,053 10 Shared in equal ration by both associates 2,25,76,15,859 2,25,76,15,859 Usd rate = Ind Rs. 47.40 47.40 8.11. It is seen that SPG FZE has earned huge profits in sale of this drug. However, the of the assessee company with respect to significant risks involved in such sales is evident in the costs incurred by SPG FZE on sales return, rebates and litigationcosts. The assessee has claimed that due to the 'sale of pantoprazole' related costs, Sun BVI has suffered losses in the preceding years. It has claimed that during the current year, an amount of US$ 506 million has been paid to the patent owners for patent infringement in respect of sales made in the assessment years 08-09, 09-10 and 10-11. The claim of the assessee is that the entire profits generated out of the sale of this product has been wiped out on account of this payment. Since the infringement amount has been on account of pantoprazole sale which spans three years, the assessee has bifurca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch apportionment amounting to Rs. 142,52,16,938/- is allowed as deduction from the amount of Rs. 225,76,15,860/- suggested as adjustment in the case of pantoprazole sale. 8.13 In light of the above discussion, an upward adjustment of Rs. 83,23,98,920/- is made to the profits of the assessee company with reference to benchmarking of the transaction of sale of pantoprazole to SPG BVI and SPG FZE." 16. Aggrieved assessee preferred an appeal to the Ld.CIT (A) who has the enhanced the addition made by the AO/TPO by observing as under: "On careful consideration of submission of the Ld.Authorised Representative and the facts on record, I find that appellant company has sold pharmaceutics Is products worth Rs. 44.72 Crs to SPG BVI and worth Rs. 42.43 Crs to SPG FZE, both AEs, during the year under consideration which included sales of Pahtoprazoie at Rs. 24,67,71,030/-. The net margins have been disclosed by the appellant on these sales at 13,86% while the AEs have disclosed net margins on resale of the same products in USA at 87.45%. These facts have been clearly brought on record in the order of TPO. It has been clearly established with supporting documentary evidences that the AEs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n reproduced for the sake of brevity and convenience. The ld. DR vehemently supported the order of authorities below. 20. We have heard the rival contentions and perused the materials available on record. At the outset, we find that in the identical facts and circumstances in the own case of the assessee's (supra), the ITAT deleted the addition made by the TPO/AO. The relevant extract of the order is reproduced as under: "26.We have given a thoughtful consideration to the orders of the authorities below. We agree with the contention of the ld. Senior Counsel that no new facts have been considered by the lower authorities. The facts are identical to the facts considered by the Tribunal in A.Y. 2008-09 in ITA No.3297 & 3420/Ahd/2014. The relevant part of the judgment of the Tribunal read as under:- 76. SPG BVI purchased the Technology to manufacture Pantoprazole Sodium from Sun Pharma Advance Research Company Ltd. (SPARC). SPARC was incorporated on 01.03.2006 as a research company. With effect from 28.02.2007, the appellant company demerged its Innovative Research and Development business to SPARC. This is supported by the order of the Hon'ble High Court of Gujarat exhibited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I, SPIL shall supply the product ordered by SPGI by such carrier or carriers as SPGI may designate. Such delivery instructions shall be submitted by SPGI to SPIL well in advance SPIL agrees to dispatch at the cost of SPGI, the finished Product to SPGI or to its nominees within the time frames stipulated by SPGI from time to time as per the orders placed by SPGI and accepted by SPIL. SPIL further undertakes to supply the product with adequate packing and coverage to ensure that the Product reaches SPGI or its nominee adequately packed and acceptable as per CGMP guidelines. 3.1 SPGI's Technical Assistance, SPGI shall supply on a continuing basis all necessary information relating to the manufacturing of the Products, including, but not limited to product specifications, packaging and labeling practices and processes regarding the production of Products, and such other information as SPGI deems to be reasonable and necessary, From time to time, SPGI at its own expense may send a representative to visit SPIL to provide such technical knowledge as shall be mutually agreed to by SPGI and SPIL. 3.2 Intellectual Property Representation: Except for the rights expressly under the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with SPGI specifications, practices or stipulations. 4.5 SPIL Warranty, SPIL warrants that the Finished Products manufactured and delivered to SPGI hereunder shall conform to the product specifications communicated by SPGI to SPIL. SPGI shall notify SPIL of any non-conforming manufactured Products within sixty days after receipt of Products or within sixty (60) days after any hidden defects are discovered. Any notification or nonconformance under this section shall include proof of non-conformity/defect. SPIL may, at its discretion, have the defective Product tested at any other reputable laboratory and SPGI shall accept the report thereof. In case of a disputed result by such laboratory, the Product will be tested with an independent laboratory reasonably acceptable to both parties whose result shall be binding on both parties. SPIL shall replace all non-attributable to SPIL. SPIL shall also bear & reimburse to SPGI the cost of freight and insurance for such non-conforming Products Upon SPIL's instructions, SPGI shall destroy or return to SPIL at SPIL's cost, all non-conforming Finished Products. 4.6.4 SPIL agrees to invoice and dispatch at SPGI's cost and risk, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes of America and in Europe during the term of this Agreement any Products under a trademark connected with the Products or under a name phonetically or otherwise similar to trade names connected with the products as mentioned in Appendix A. 7.1.7 SPIL shall not subcontract or delegate to any other persons, firm or body corporate the whole or any part of the manufacture, of the Products or assign this Agreement or any part thereof or deal in any manner whatsoever with the rights, benefits or obligations created hereunder without the prior consent in writing by SPGI. 78. Appendix-A of this agreement reads as under;- No. NAME OF THE PRODUCT BULK PRODUCT (Active Ingredient) 1 Pantoprazole Sodium Delayed Release Tablets 20Mg., 40mg. Pantoprazole Sodium 2 Amifostine Inj. 500mg. Amifostine 79. Copy of Orange Book reflected title of ANDA of Pantoprazole Sodium with SPG BVI is exhibited at pages 569 & 570 of the paper book which conclusively proves that the ANDA rights were with SPG BVI. 80. Adverting to the allegations of Ld Shri Shrivastava that these arrangements by the assessee is a brutal form of tax evasion , the Hon'ble Supreme Court in the case of Vodafon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a holding structure, at the threshold, the burden is on the Revenue to allege and establish abuse, in the sense of tax avoidance in the creation and/or use of such structures. In the application of a judicial anti-avoidance rule, the Revenue may invoke the "substance over form" principle or "piercing the corporate veil" test only after it is able to establish on the basis of the facts and circumstances surrounding the transaction that the transaction in question is a sham or tax avoidant. (vi) The legal position of any company incorporated abroad is that its powers, functions and responsibilities are governed by the law of its incorporation. Though it may be advantageous for parent and subsidiary companies to work as a group, each subsidiary will look to see whether there are separate commercial interests which should be guarded. Whether the parent company has "power" over the subsidiary depends on the facts of each case. In the case of multinationals their subsidiaries have a great deal of autonomy in the country concerned except where subsidiaries are created or used as a sham. The directors of the subsidiary under their articles are the managers of the companies. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent enterprises would have expected to realise from engaging in the transaction or transactions. The transactional profit split method first identifies the profits to be split for the associated enterprises from the controlled transactions in which the associated enterprises are engaged (the "combined profits"). References to "profits" should be taken as applying equally to losses. See paragraphs 2.124- 2.131 for a discussion of how to measure the profits to be split. It then splits those combined profits between the associated enterprises on an economically valid basis that approximates the division of profits that would have been anticipated and reflected in an agreement made at arm's length. See paragraphs 2.132 -2.145 for a discussion/6f how to split the combined profits. C.2 Strengths and weaknesses 2.109 The main strength of the transactional profit split method is that it can offer a solution for highly integrated operations for which a one-sided method would not be appropriate. For example, see the discussion of the appropriateness and application of profit split methods to the global trading of financial instruments between associated enterprises in Part III, Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Pantoprazole Tablets. Except for this, there is no significant unique contribution by SPIL. For such simple functions as per OECD guidelines for transaction profit spilt method typically would not be appropriate of the functional analysis of that party. 87. The relevant agreement which is placed on record and has been dealt elsewhere clearly establishes that the appellant company SPIL is nothing but a contract manufacturer of SPG BVI. Now let us examine the relevant provisions of the Act read with Rules. Determination of arm's length price under section 92C. 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction --[or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:- d) profit split method, which may be applicable mainly in international transactions --[or specified domestic transactions]involving transfer or unique intangibles or in multiple international transactions [or specified domestictransactions] which are so interrelated that they cannot be evaluated separately for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realized by the enterprise and referred to in sub-clause(i) is established to be the same as the net profit margin referred to in sub-clause(iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction]; 88. PSM is applicable when the international transaction involved transfer of unique intangibles (in the case in hand there is no such transfer from SPG BVI to SPIL), or in multiple interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the out of court settlement and the payment of settlement compensation of USD 506 million The settlement is based on the cumulative profits earned by the AE till the date of settlement. here is no dispute and it has been accepted by both the lower authorities that after the out of court settlement of the litigation the assessee group has suffered losses which were based on the aggregate of profits earned by the group over all the year. With the settlement based on aggregate of yearly profits then even if the Profit Split Method is applied than the set off of each year losses has to be given for the corresponding year. The undisputed compensation being settled on the base of all yearly profits made by the AE during the exclusivity period PSM cannot be worked by divorcing the business realities. The contention of revenue that it is not concerned with the settlement which is pass event is untenable. Even if the PSM is applied the relatable losses which were so apparent by the time assessment was framed cannot be given a go by on unsustainable revenue stand. In such eventuality even the ALP offered by assesse as a contract manufacturer also will be wiped out. The PSM application may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal (supra) should not be followed. Respectfully following the findings, we direct the AO to delete the addition of Rs. 103,87,52,830/-. Ground no. 6 is accordingly allowed. 21. Admittedly, the facts in the case on hand are identical to the facts of the case as discussed above. However, the question arises whether the TPO verified the details furnished by the assessee in determining the ALP of the impugned transaction using TNMM during the assessment proceedings. Regarding this, 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. 21.1 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 impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the FAR analysis. In view of the above, the TPO made an upward adjustment of Rs. 73,03,24,358 in respect of drug falling under the category of Para-IV other than Pantoprazole and Rs. 21,34,71,777.00 in respect of drug falling under the category of Non-Para-IV. Thus the AO made the addition of Rs. 94,37,96,134.00 in aggrgate to the total income of the assessee. 23. Aggrieved assessee preferred an appeal to the Ld.CIT (A) who enhanced the addition in the order of the AO/TPO after having a reliance on the order of his predecessor for the assessment year 2008-09 by observing as under: "8.3.9. On careful consideration of the material available on record, it is noticed that the TPO has applied Residual Profit Split Method and accordingly determined adjusted profit from Para-IV filing drugs at Rs. 73,03,24,357/-and from generic drugs at Rs. 21,34,71,777/- (Total Rs. 94,37,96,134/-) by apportioning the profit in the ratio of 50:50 in case of Para-IV filing and 80:20 in case of generic drugs, between the appellant and its AEs. It is also noticed that the appellant has adopted same methodology as in the case of Pantoprazole in respect of sale of other formulations to its AEs by con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a IV filing namely Amifostine, Oxaliplatin & Nicardipine has been retained by SPG FZE and hence the risk of infringement was not transferred to appellant as in the case of Pantoprazole. However, I find that these drugs were not manufactured and marketed under exclusive right and hence there was hardly any risk of infringement cost. Further no evidence is brought on record by the appellant to show that any cost has also been incurred on this account by the AEs. Accordingly, keeping in view the entire facts and modus operand!" adopted by the appellant to shift huge profits to tax havens, I enhance the income by Rs. 43,81,94,615/- by making a further adjustment to ALP of other products under Chapter IV filing drugs by apportioning the residual profit in the ratio of 80:20 between the appellant and AEs. Accordingly, the addition made by the AO/TPO on this account at Rs. 94,37,96,134/- is confirmed along with enhancement of income by Rs. 43,81,94,615/-. Thus, appellant fails on this account. I am also satisfied that the appellant has furnished inaccurate particulars of income in respect of further Upward adjustment of Rs. 43,81,94,615/- and accordingly the penalty proceedings u/s.271(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings. Regarding this, 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 considering the fact that 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. 28.1 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. 28.2 We also place our reliance on the judgment of Hon'ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract has been reproduced in the preceding paragraph. In the light of the ratio decidendi in the above-said judgment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. 31.2 The assessee further submitted that it can claim deduction during assessment proceedings in view of the judgment of the Hon'ble Gujarat High Court in the case of Claris life sciences Ltd reported in 326 ITR 251. 31.3 The assessee also submitted that it is not necessary to get the research and development expenses approved by the DSIR. 31.4 However, Ld.CIT (A) rejected the claim of the assessee by observing that the weighted deduction was not claimed in the income tax return and no revised return was filed for the claim of such weighted deduction. 31.5 The Ld.CIT (A) also observed that the argument of the assessee is not relevant to the effect that it is not necessary to get the expenses certified by the DSIR to claim the weighted deduction as the plea of the assessee was rejected on the preliminary ground i.e. the weighted deduction was not claimed in the income tax return. 31.6 In view of the above the ld. CIT-A rejected the claim of the assessee and confirmed the order of the AO. 32. Being aggrieved by the order of the Ld.CIT (A), both the assessee and Revenue are in appeal before us. The assessee is in appeal before us against the confirmation of the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of [a sum equal to [two] times of the expenditure] so incurred. [Explanation.- For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority . A.Y. 2009-10 under any Central, State or Provincial Act and filing an application for a patent under the patents Act, 1970 (39 of 1970).] 42.A perusal of the aforementioned section clearly establishes that expenditure on scientific research is also eligible for weighted deduction. Considering the facts in totality in the light of the provision, we set aside the findings of the ld. CIT(A) and direct the A.O. to allow weighted deduction. Ground Nos. 9 & 10 are accordingly allowed." 36. As the facts in the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the same we set aside the order of ld. CIT-A. Accordingly, we direct the AO to Allow the weighted deduction u/s 35(2AB) of the Act as claimed by the assessee. Hence the ground of appeal of the assessee is allowed. Now coming to the Revenue ground of appeal as discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the department. An assessee engaged in such Research & Development activity having already obtained Form 3CM approval of its facility has no role to play in such correspondence. We notice that a co-ordinate bench of this tribunal in ACIT vs. M/s. Torrent Pharmaceuticals ITA No.3569/Ahd/2004 decided on 13.11.2009 holds that the impugned weighted deduction is not to be restricted to the extent of the amount of the necessary expenditure incurred stated in such Form 3CL. We further find that hon'ble jurisdictional high court's decision in CIT vs. CLARIS LIFESCIENCES Ltd. (2010) 326 ITR 251 (Gujarat) upholds this tribunal's decision in the very assessee's case observing that expenses incurred before Form 3CM approval cannot be denied for the purpose of Section 35(2AB) weighted deduction. We follow the very reasoning to opine that facts of the instant case rather go a step further wherein 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 amounting to Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place our reliance on the judgment of Hon'ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract has been reproduced in the preceding paragraph. In the light of the ratio decidendi in the above-said judgment, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. 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. In view of the above and respectfully following the ITAT order as discussed above, we allow the ground of appeal of the assessee and dismiss the ground of appeal of the Revenue. 39. The issue raised by the assessee in ground No. 7 is that the Ld.CIT (A) erred in confirming the order of the AO by allocating the research and development expenses incurred by it to the other partnership firms and accordingly made the disallowance of such expenses proportionately. 40. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on undertaken under the partnership deed had provided these services in relations to the manufacturing activities of the firm and that no R & D activity was carried out for SPI. In relation to the these claims, the appellant has also stated that it has received remuneration and share of profit from SPI, credits of which are available to it to the corresponding debit in the books of accounts of the SPI, and hence the profit were not understated. Another related claim made by the appellant is that the expenditure incurred by it for the partnership firm is as good as its own expenditure because ultimately the appellant is going to be the major beneficiary of any profit earned by the partnership firm as a result of this R & D expenditure. 7.3.1 These claims of the appellant are to be examined in view of the different provisions of the IT Act 1961. The share of profit received by the appellant from the firm is exempt from the Income Tax. The remuneration is received from the firm is taxable under the head income from business and profession, as per the provision of clause (v) of section 23 of the IT Act 1961. But the proviso to this section says that where such remuneration or part th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses to the manufacturing activitiesundertaken by the appellant and the manufacturing activity undertaken by the firm SPI. In this regard, the appellant has submitted that it had submitted working on unit profitability statement before AO during the course of assessment proceedings vide letter dated 21/11/2011 whereby the bifurcation .of turnover between domestic/export and formulation/bulk is clearly evident. These workings have been submitted by the appellant during the course of the current appellate proceedings also and the same are being utilized for the purpose of deciding this issue. 7.5.1 The first contention of the appellant is that the partnership firm and the appellant company cater to the different sections of business with underline facts. These differences have been submitted by the appellant which have already been reproduced above. The first difference pointed out is that the partnership firm is only into production of formulation drugs for the domestic market, whereas appellant incurred R & D expenditure on bulk drug segment and formulation segment both and that too for domestic market as well as international market and regulated market. It has been submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs. 7.5.2 Accordingly, the AO is directed to restrict the disallowance out of - R&D expenses to this figure of Rs. 1744.56 lakhs. The appellant gets part relief accordingly." 12.2. It is noticed that the appellant has furnished similar written submission in this year also and the details of various expenses incurred under different heads submitted before the Assessing Officer are as fellows:- Since the facts are identical in this year a/so, I respectful/y following the order of my predecessor in appellant's own case as mentioned above, hold that the R&D expenses incurred by the appellant admittedly are also pertaining to SPI/SPS and hence the same are required to be allocated in the ratio of turnover of appellant and SPI/SPS. I also agree with the views of my predecessor that the expenses incurred for Development of Formulation Drugs for domestic market are to be considered only because SPI/SPS has no business outside the country. As per the details furnished the R&D expenses for Development of Formulation drugs for domestic market are Rs. 3201.08 + 2816.97 + -194.80+ 130.68 = Rs,6343.53 lacs. Accordingly, the Assessing Officer is directed to work out the disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant 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. and confirmed by the First Appellate Authority. We, accordingly, direct the A.O. to delete the addition of Rs. 5,30,29,5255/-. Ground no. 12 is accordingly allowed" 48. Regarding the Revenue appeal, the relevant finding of the ITAT in ITA 1663/AHD/2016 in its order is extracted be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. The assessee further submitted that such remuneration cannot also be subject to tax under the section of 115JB of the Act. The assessee accordingly reduces the amount of remuneration while working out the tax liability under the provisions of section 115JB of the Act. 51.2. However, the AO disagreed with the contention of the assessee and held that the amount of share of profit from the partnership is exempted from tax under section 10(2A) of the Act. There is no exemption under section 10 of the Act in respect of the remuneration received from the partnership firm. Accordingly, the AO rejected the claim of the assessee and made the addition of the remuneration while determining the book profit under section 115JB of the Act. 52. The aggrieved assessee preferred an appeal to the Ld.CIT (A) who confirmed the order of the AO by observing as under: "14. Ground No. 11 is against the action of the Assessing Officer in not considering "remuneration" received from partnership firm (SPI) as share of profit to which provisions of section 10(2A) apply for the purpose of working of book profit u/s. 115JB. This issue has been discussed by the Assessing Officer in paras-6.1.3 and 6.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard the rival contentions and perused the materials available on record. At the outset, we find that in the identical facts and circumstances in the own case of the assessee (supra), the ITAT confirmed the addition made by the TPO/AO. The relevant extract of the order is reproduced as under: "60. This issue was also involved in the case of the appellant in A.Y. 2008-09 wherein the claim of deduction of remuneration received from the partnership firm SPI for the determination of Book Profits u/s. 115JB was denied by the revenue authorities. We find that when the matter was agitated before the Tribunal, the Tribunal also declined to interfere with the findings of the ld. CIT(A). The relevant findings of the Tribunal read as under:- 110. We have considered the facts, circumstances, relevant provisions and rival submissions,. A harmonious reading of the provisions of section 115JB of the Act reflects that in the case of a company subject to the provisions of Section 115JB of the Act has to prepare P&L statement in accordance with the provisions of part (ii) of Schedule (vi) of the Companies Act. 111. The relevant clause of Explanation 1 reads as under:- Explanation [1]- For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation 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. Ground no. 9 is dismissed." 57. As facts in the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the finding of the tribunal (supra), we direct the AO accordingly. 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. AR has not brought anything on record contrary to the finding of the Ld. CIT-A. 57.1 We also place our reliance on the judgment of Hon'ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract has been reproduced in the preceding paragraph. In the light of the ratio decidendi in the above-said judgment, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance made by the Assessing Officer. It may also be mentioned here that under the similar facts and circumstances of the case, CIT(A)-IV, Ahmedabad has also confirmed the disallowance vide para 21.3 of the order in A.Y. 2008-09. In view of the above discussion, Ground No.13 is dismissed." 61. Being aggrieved by the order of Ld.CIT (A) the assessee is in appeal before us. 62. The Ld. AR before us submitted that in the identical facts and circumstances in the own case of the assessee in ITA No.1666/AHD/2016 the impugned issue was set aside to the AO for fresh adjudication by the Hon'ble ITAT vide order dated 08-09-2017. Accordingly the Ld.AR for the assessee requested to restore the impugned issue to the file of AO for fresh adjudication as per the provision of law. 63. On the other hand, the Ld. DR vehemently supported the order of authorities below. 64. We have heard the rival contentions and perused the materials available on record. At the outset, we find that in the identical facts and circumstances in the own case of the assessee's (supra), the ITAT set aside issue to the file of AO for fresh adjudication. The relevant extract of the order is reproduced as under: "87.W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussed above shall be applied in the case on hand with full strength. The ld. 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. In view of the above and respectfully following the ITAT order as discussed above, the ground of appeal of the assessee is allowed for statistical purposes. 66. The issue raised by the assessee in the ground of 10 is that the Ld. CIT-A erred in treating the repairing expenditure of Rs. 16,82,791/- as capital in nature. 67. The AO during the assessment proceedings observed that the assessee had incurred Rs. 372.88 Million towards repairing expenses. The AO further found that certain expenses are not in the nature of revenue expenses but of capital in nature as detailed below: Sr. No. Location Name of the party Voucher No. Repairing expenses Amount Rs. 1 Halol EOU Mutech Engineers 313PUA0018 1,04,719/- 2 Halol EOU H 3 International 313PUA3154 4,00,000/- 3 Karkhadi Vam Services 403PUA0553 2,50,26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with accordingly. (a) Purchases of Rs. 1,04,719/-- from Mutech Engineers:- It is noticed that, the appellant has purchased panel boards for MCC (Motor Control Centre)which is in the nature of replacement of a part of larger machine. It is not, also capable of being used as an independent machinery and hence has to be treated as revenue expenditure. The Assessing Officer is directed accordingly. (b) Purchases of Rs. 4,00.OOP from H.3. International;- It is noticed that, the appellant has purchased Copeland compressor used for refrigerating and hence it is a part of refrigerator. The compressor cannot be used as an independent machine and hence the same has to be treated as revenue expenditure. The Assessing Officer is directed accordingly. (c) Purchases of Rs. 2,50,267/- from Vam Services:- It is noticed that, the appellant has purchased a low temperature heat exchanger which can becaused as an independent machine and hence the expenditure on this account has to be treated as capital expenditure. The Assessing Officer is directed accordingly. (d) Purchases of Rs. 26,520/- Iron Exchange Service Limited;- It is noticed that, the appellant has purchased rota-meter which is a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 . A.Y. 2009-10 have come into existence and, therefore, the purchase cost and labour charges are treated as capital expenditure. (c) Communica Aids of Rs. 1,52,250/-:- 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. (d) Purchases from Mutech Engineering & Ushail Sales and Services amounting to Rs. 2,33,734/-, Rs. 9,35,550/- and Rs. 2,05,441/-:- 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. 94.We, accordingly, direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses Rs. 4,17,40,201/- 76. The aggrieved assessee, preferred an appeal to the Ld.CIT (A) who partly confirmed the order of the AO by observing as under: "19. Ground No. 16 pertains to disallowance made u/s. 14A read with Rule 8D amounting to Rs. 4,23,23,188/-. This issue has been discussed by the Assessing Officer in para-13 of the assessment order. The Assessing Officer noticed that the assessee company has incurred interest expenditure of Rs. 44,2S/222/- during the year under consideration. Since the company has earned exempted income of Rs. 634.29 crores from the partnership firm, the Assessing Officer invoked the provisions of section 14A read with Rule 8D and worked out consequential disallowance of a sum Of Rs,5,82,987/- out of the interest expenditure. The Assessing Officer has further disallowed a sum of Rs. 4,17,40,201/- being 0.5% of average value of investment of Rs. 834,80,40,2297- resulting into exempt income. The similar disallowance was also made in A.Y. 2008-09 and the CIT(A)-IV, Ahmedabad vide paras 25.2 to 25.3 of order dated 14.10.2014 has confirmed the disallowance made by the Assessing Officer with the direction that the remuneration which was treated as exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We accordingly set aside the disallowance of Rs. 27,55,18,783/- made by the First Appellate Authority and direct the A.O. to re-compute the disallowance as directed hereinabove. Ground no. 8 is allowed in part for statistical purpose. 154. The only distinguishing fact for the year under consideration is that Rule 8D in fact is applicable for the year under consideration and, therefore, we direct the A.O. to compute the disallowance for administrative expenditure as per the formula given under Rule 8D. Ground no. 17 is treated as allowed for statistical purpose." 81. The Ld. AR before us has also not pointed out any defect in the order of the Ld. CIT-A. Thus we find there is a contradict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration to the order of the Hon'ble Jurisdictional High Court in the case of Alembic Ltd. The Hon'ble High Court was seized, interalia, with the following substantial question of law:- (iii) whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that adjustment made on account of disallowance u/s 14A of the Act in computation of book profit u/s 115JB of the Act is not as per law without appreciating that the amount disallowable under section 14A is covered under clause (f) of Explanation to section 115JB(2) and, thus, said amount has to be added back while computing amount of book profits? 120. Relevant findings of the Hon'ble High Court read as under:- 7. So far as issue Nos. (iii) and (iv) are concerned, the learned counsel for the assessee has relied on the decision of this court in the case of Commissioner of Income-tax-1 v. Gujarat State Fertilizers & Chemicals Ltd., reported in (2013) . A.Y. 2009-10 358 ITR 323 (Gujarat) where this court has held in paragraph Nos. 6 to 6.5 this court has observed as under: "6. So far as the fourth question is concerned, it pertains to addition of Rs. 1,14,43,0407- unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue Nos. (iii) and (iv) required to be answered in favour of the assessee and against the revenue. In . A.Y. 2009-10 that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal of revenue is dismissed. 121. Respectfully following the decision of the Hon'ble Jurisdictional High Court (supra), we direct the A.O. to delete the addition of expense disallowed u/s. 14A for computing book profit u/s. 115JB of the Act. 105. Respectfully following the findings of the Tribunal (supra), we direct the A.O. to delete the addition of expenses disallowed u/s. 14A for computing book profit u/s. 115JB of the Act. Our view is also fortified by the decision of the Special Bench in the case of Vireet Investment (P) Ltd. 82 taxmann.com 415. Ground no. 21 is accordingly allowed. 89. As facts in the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the finding of the tribunal (supra), 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce made u/s. 14A by the First Appellate Authority, it is an undisputed fact that the assessee was having sufficient own funds for making the investment in the partnership firm. It is also true that the assessee was on a contractual obligation to look after the marketing and distribution activities of the firm SPI as per the partnership deed read along with the supplementary deed to earn remuneration from the partnership firm. However, 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. We accordingly set aside the disallowance of Rs. 27,55,18,783/- made by the First Appellate Authority and direct the A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange risk involved on account of loan to the AE in dollar & severe fluctuations in the foreign exchange. 2. On the facts and in the circumstances of the case, learned CIT(A) erred in law and facts in reducing the adjustment on account of ALP for Corporate Guarantee Fees from 2,96% to 2% since ALP for each year is assessed on the basis of risk factor of that particular year and said ALP was worked out on the basis of Country and foreign exchange risk 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the addition on account of price difference on sales made to Sun Pharma Indusiries, even when the assessee has not been able to controvert the finding of the AO that raw materials were being sold to related concern at a rate lower than being sold to third parties. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and fads in deleting the addition weighted deduction made u/s.35(2AB) on trade mark registration charges and overseas product registration expenses of Rs. 2,17,24,945/- by holding me capital expenditure as expenditure revenue disregarding the facts of enduring benefits. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue in Ground No. 1 is that the Ld.CIT (A) erred in reducing the addition on account of interest on loans to AEs on account of 0% OFCD. 101. The assessee in the earlier year has invested 224.93 crores in 0% optionally fully convertible debenture (OFCD) in Sun Pharma Globla Inc. BVI. The assessee claimed that it was in the nature of share capital. Therefore it was not the international transaction. However, the TPO was of the view that it is in the nature of loan until converted into the equity. Thus the transaction should be benchmarked including the interest to determine the arm's length. However, the assessee has not shown any income on this amount and also not benchmarked the investment in the TP study. Accordingly, the TPO considered the OFCD as debt and proposed the interest rate at 12-month LIBOR plus markup 414.76 to work out the ALP on such amount. 101.1 However, the assessee in reply to the notice submitted that the outstanding OFCD as on 01-04-2009 have been converted into equity shares in the year 2010-11 and filed the details as under: OFCD outstanding as on 1st April, 2009 224.93 crores OFCDs converted into equity shares on 5th March, 2010 on followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the orders of the authorities below. At the very outset, we have to state 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. 276 CTR 445 at para 17 of its order 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. A similar view was taken by the Hon'ble Delhi High Court in the case of EKL Appliances Ltd. 345 ITR 241. 9. On identical set of facts, the Co-ordinate Bench had the occasion to consider similar issue in the case of Cadila Healthcare Ltd. in ITA No. 2430/Ahd/12 with C.O. No. 242/Ahd/12 in 146 ITR 502 wherein the first ground related to the adjustment made on account of notional interest on Optionally Convertible Debenture to Foreign Subsidiary. The Tribunal considered the following facts :- 4. During the course of assessment proceedings, Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercised and the loan was converted into equity, no interest accrued or become payable. He further noted that the funds were provided by the Assessee as per RBI guidelines and in the immediately next year, the entire loan given to subsidiary was converted into equity shares of Zydus International Pvt. Ltd. He has further held that since the Assessee has converted the loan into equity in the immediate next year, there was no question of taxing notional interest. He has further held that Assessee had not. granted interest free loan but invested in optionally convertible loan i with a clause of interest in case, Conversion option was not exercised and further held the Assessee's transaction with subsidiary was at arms length. Before us, the Revenue could not controvert the findings of CIT(A) by bringing any contrary material on record. In view of these facts, we find no reason to interfere with the order of CIT(A). 11. Respectfully following the findings of the Hon'ble High Court (supra) and the Co-ordinate Bench (supra), we direct the A.O, to delete the impugned additions^ Ground no. 2 is accordingly allowed." 6.4 Since the facts are identical in this year also, I respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble ITAT. Even if it is held that OFCD is a hybrid instrument as laid down by the Supreme Court, in applying the Transfer Pricing Provisions, the entire instrument has to be considered and the same cannot be re-characterized partly as loan and partly as equity so as to enable any transfer pricing adjustment for the same. In this regard, we rely on the decisions cited earlier, which have been appropriately followed by the Hon'ble ITAT in A.Y. 2007-08 and the decision of the Supreme Court (supra) cited by the ld. DR does not in any way justify any departure from the decision laid down in A.Y. 2007-08. 21. Adverting to ld. DR's contention that the terms of OFCDs and comparables have not been submitted, it is contended that the terms of OFCDs were duly submitted before the lower authorities in the form of Annexure B which is part of the PB. Similarly the allegation that assessee has not brought on record any comparable transactions to show that non-charging of interest was at arms- length and it got compensated by favorable terms similar to that offered by uncontrolled entities is also strongly refuted. It is contended all the relevant details and comparable were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhani v. Municipal Committee, Matkapui, Ambika Prasad Mishra v. State of U.P and Director of Settlements v. M.R. Apparao.) 24. The Hon'ble Jurisdictional High Court of Gujarat in the case of Core Healthcare Ltd. 251 ITR 61 has observed as under:- As laid down by the apex court in the case of Ambika Prasad Mishra v. State of U.P., AIR 1980 SC 1762 ; [1980] 3 SCC 719 (page 1764 of AIR 1980 SC): "Every new discovery or/argumentative novelty cannot undo or compel econsideration of a binding precedent . . . a decision does not lose its authority 'merely because it was badly argued, inadequately considered and fallaciously reasoned' . . ." Similarly in the case of Kesho Ram and Co. v. Union of India [1989] 3 SCC 151, it is stated by the Supreme Court thus (page 160): "The binding effect of a decision of this court does not depend upon whether a particular rgument was considered or not, provided the point with reference to which the argument is advanced subsequently was actually decided in the earlier decision ..." 25. A similar view is again taken by the Hon'ble Jurisdictional High Court of Gujarat in th case of Nirma Industries Ltd. 283 ITR 402. Coming to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee has not shown any income from the aforesaid loan. In response, Assessee interalia submitted that Assessee had not opted for conversion of the loan during the year and therefore it was loan for the year and as per the terms of agreement, no interest accrued to the Assessee and therefore no income was considered. The TPO did not find the contention of the Assessee acceptable. He considered the Optionally Fully Convertible loan as debt and considering the average six month Euro Libor rate for the year @ 4.48% to which he added the interest rate of 2.90 basis point as per the agreement and thereafter considered the rate of interest to be @ 7.38% and accordingly computed the interest on Rs. 108.32 Crore for 171 days at 7.38%. The aforesaid adjustment made by the TPO was considered by the Assessing Officer and the addition of Rs. 3,99,74,4267- was made to the income. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee decided the issue in favour of Assessee. 10. And the Tribunal held as under:- 7. We have heard the rival submissions and perused the material on record. CIT(A) whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Ld. DR has not brought anything on record against the finding of the Ld. CIT-A, and the argument advanced by the Ld. Counsel for the assessee. 107.1 We also place our reliance on the judgment of Hon'ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.) wherein it was held as under: "No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we order accordingly. Hence the ground of appeal of the Revenue is treated as allowed for statistical purpose. 109. The issue raised by the Revenue in ground number 3 is that the Ld.CIT (A) erred in deleting the addition made by AO on account of the price difference on sales made to SPI for Rs. 3,50,78,887/-. 110. During the assessment proceedings, the AO found that the assessee had been selling the certain raw material/product to its partnership firm namely SPI at a price lower than the priced charged from third parties. As such the AO was of the view that the assessee is shifting its profit to its partnership firm being eligible for the deduction u/s 80IB of the Act. 111. On a question by AO, the assessee submitted that the difference in the rate was there in few transactions with the firm which was minor. The assessee also explained the difference in price due to the following reason: 1) There was a difference in the quality of the product sold to its related parties. The related parties were sold lower quality as compared to outside parties product. 2) The volume of transactions with related parties is insignificant as against the third parties. 3) Assessee does not hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 vide order dated 8-9-2017, the ITAT has deleted the addition made by the TPO/AO. The relevant extract of the order is reproduced as under: "114. Since, the First Appellate Authority has followed the order of the Tribunal in ITA Nos. 1589/Ahd/2011 and 2430/Ahd/2009, therefore, we do not find any error or infirmity in the findings of the ld. CIT(A). Ground no. 3 is accordingly dismissed." 116. As facts in the case on hand are identical to the facts of the case as discussed above, therefore we are inclined not to disturb the finding of the Ld.CIT (A). 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 against the finding of the ld. CIT-A, and the argument advanced by the ld. Counsel for the assessee. 116.1 We also place our reliance on the judgment of Hon'ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract of the order has already been reproduced above. In the light of the ratio decidendi in the said orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for products marketing and sale overseas, but they have nothing to do with scientific research or in-house R&D. Accordingly, the disallowance of weighted deduction has been upheld. However, now the Hon'ble ITAT, Ahmedabad vide order dated 10.05.2016 contained In ITA No. 1589 & 1592/AHD/2011 (A.Y. 2006-07) under the identical facts, has directed the Assessing Officer to allow the deduction u/s 35(2AB) on Trade mark registration charges and Overseas product registration charges to the appellant. Since the facts are identical in this year also, I respectfully following the order of Hon'ble ITAT, Ahmedabad in A.Y. 2006-07 which Is binding on me, h-old that the appellant in entitled to claim weighted deduction u/s 35(2AB) on Trade mark registration charges and Overseas product registration charges and hence the Assessing Officer is directed to allow the same. Thus, appellant succeeds in respect of Ground No. 7." 120. Being aggrieved by the order of Ld.CIT (A), the Revenue is in appeal before us. 121. Both the parties before us vehemently supported the order of authorities below as favorable to them. 122. We have heard the rival contentions and perused the materials available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in assessee's own case in earlier years has decided this issue in favour of the assessee and against the revenue in ITA No. 1558/Ahd/2006. The ld. D.R. could not bring any distinguishing decision in favour of the revenue. 14. We have given a thoughtful consideration to the order of the Tribunal in earlier years; we find that the Tribunal while deciding the issue in favour of the assessee has followed the decision of the Co-ordinate Bench, Mumbai in the case of USV Ltd. 54 SOT 615. Findings of the Tribunal read as under:- 24. We have carefully perused the orders of the authorities below. We find that the ld. CIT(A) has simply followed the findings of his predecessor for A.Y. 2000-01. We also find that the assessment order for A.Y. 2000-01 has been quashed by the Tribunal vide a ITA Nos. 1199 & 1279/Ahd/2006, which means that the basis for upholding the disallowance has been removed. We further find that on identical set of facts, the Mumbai Bench in the case of USV Ltd. (supra) has allowed the claim of the assessee in respect of expenditure incurred in respect of patent application. Respectfully, following the findings of the co-ordinate Bench (supra), we direct th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lunch & Refreshment Expenses Rs.5,09,964/- Brokerage for Property Rs. 31,000/- 125. On a question by the AO, the assessee submitted that lunch and refreshments expenses had been incurred on the employees exclusively working with the research & development divisions. These expenses also represent the expenses incurred for the guest, visitors, dignitaries and the other professionals visiting exclusively to the research and development center. 126. All the centers are independent units, and these do not share any common space with the manufacturing factories of the assessee. As such these expenses were representing the expenses incurred exclusively in connection with the research and development division. 127. The assessee regarding the brokerage expenses submitted that these expenses were paid to the brokers/estate agents for locating the residential units for the employees working with the research and development divisions. As such these expenditures were incurred exclusively for the purpose of the research and development divisions. 127.1 However, the AO disagreed with the submission of the assessee by observing that the expenses do not relate with the research and dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant findings read as under:- 159. At the very outset, the ld. Senior Counsel for the assessee brought to our notice that these issues have been considered and decided by the Bench in favour of the assessee and against the revenue in ITA No. 2067/Ahd/2013. We find force in the contention of the ld. Senior Counsel. The Co-ordinate Bench in ITA No. 2067/Ahd/2013 has decided the impugned issues as under:- 69. Ground no.1 relates to the deletion of the disallowance of Rs. 67,620/- claimed as weighted deduction u/s. 35(2AB) of the Act on gift expenses incurred for R & D employees. 70. This issue has been decided in favour of the assessee and against the revenue by the Co-ordinate Bench in ITA No. 1592/Ahd/2011 qua ground no. 2 of that appeal. The relevant part reads as under:- Ground no. 2 relates to the weighted deduction u/s. 35(2AB) on account of gifts to R & D employees on occasion of marriage. 44. We find that an identical issues has been decided in favour of the assessee and against the revenue in the case of Claries Lifesciences Ltd. 112 ITD 307 (Ahd.) which decision has been followed by the ld. CIT(A). The said decision of the Tribunal has been confirmed by the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground of appeal of the Revenue is dismissed. 132. The issue raised by the Revenue in ground number 6 is that the Ld.CIT (A) erred in directing the AO to exclude the export turnover for allocating the expenses. 131A We have already decided the impugned issues against the Revenue and in favor of the assessee in the ground of appeal bearing no. 7 vide Para No.42 to 45 of this order in ITA 929/AHD/2017. Thus respectfully following the same, we do not find any reason to disturb the finding of the ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed. 133. The issue raised by the Revenue in ground number 7 is that the Ld.CIT (A) erred in deleting the addition on account of the provision of wealth tax for computation of book profit u/s 115JB of the Act. 133.1 The assessee while calculating book profit u/s 115JB of the Act has not added back the provision for wealth tax of Rs. 10,33,413/-. 133.2 On a question by Assessing Officer, the assessee submitted that provision for wealth tax does not fall under any of the adjustment of clause (a) to (i) of the explanation to section 115JB (2) of the Act. 133.3 Further, submitted that clause (a) of the said explanation refers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find that the order of the ld. CIT(A) was confirmed by the Tribunal in ITA Nos. 3297 & 3420/Ahd/2014 vide ground no. 5 of that appeal. The relevant findings read as under:- 167. There is no dispute that Wealth Tax Act, 1957 imposes the charge of Wealth Tax on the 'net wealth' of every individual, HUF/company as on the valuation date. While Income-tax is tax on income. Both Income-tax and Wealth Tax are governed by separate and distinct legislated laws. It is true that under the Explanation to Section 115JB of the Act, certain items have been mentioned which have to be added back for the computation of book profit. It is equally true that there is no mention of Wealth Tax provision. The provisions of the act are clear and unambiguous and require no addition/deletion of any items other than those mentioned in the provisions. We, therefore, do not find any infirmity in the findings of the ld. CIT(A). Ground no. 5 is dismissed. 130. Respectfully following the findings of the Tribunal (supra), ground no. 8 is dismissed. 138.1 As facts in the case on hand are identical to the facts of the case as discussed above, therefore we are inclined not to disturb the finding of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus the claim of Rs. 1,83,99,656/-u/s 80IA(4) is disallowed. 140. Aggrieved assessee preferred an appeal to the Ld.CIT (A) who deleted the addition made by the AO by observing as under: "18. Ground No.15 is against the action of Assessing Officer in disallowing deduction u/s.80IA(4) of the Act amounting to Rs. 1,83,99,656/- in respect of power generation unit used for captive purposes. This issue has been discussed by the Assessing Officer in para-12 of the assessment order. The Assessing Officer has made the disallowance on the similar ground on which the disallowance was made in A.Y. 2008-09. The CIT(A)-IV, Ahmedabad vide para 24.2 to 24.2.4 has allowed the claim of appellant. Since the facts are identical in this year also, I respectfully following the order of CIT(A)-IV, Ahmedabad, hold that the appellant is eligible for deduction u/s.80IA(4) in respect of income of Captive Power generation unit and hence the Assessing Officer is directed to allow the same after correctly computing the income of eligible unit. Thus, appellant succeeds in respect of Ground No.15." 141. Being aggrieved by the order of Ld.CIT (A) the Revenue is in appeal before us. 142. Both the parties bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in issue, we do not find any error or infirmity in the findings of the ld. CIT(A). Ground no. 8 is accordingly dismissed. 126. Respectfully following the findings of the Co-ordinate Bench (supra), we decline to interfere. Ground no. 7 is dismissed." 143.1 As facts in the case on hand are identical to the facts of the case as discussed above, therefore we are inclined not to disturb the finding of the Ld.CIT (A). 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 against the finding of the ld. CIT-A, and the argument advanced by the ld. Counsel for the assessee. 143.2 We also place our reliance on the judgment of Hon'ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract of the order has already been reproduced above. In the light of the ratio decidendi in the said order, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld force without extra efforts and costs. No additional expenses have been incurred by the assessee, for the services rendered by it to the firms. 144.5 Without prejudice to the above, the assessee also submitted that SPI has also incurred certain selling & distribution expenses amounting to Rs. 224.30 lakhs. 144.6 Without prejudice to the above, any expenses incurred to earn the remuneration would be deductible as expenses incurred in the course of carrying on the business. 145. However, the AO disagreed with the submission of the assessee by observing that it is impossible to assume that the assessee has not incurred any expenses on making such a huge sale on behalf of SPI. In the absence of detail of expenses incurred by it on behalf of SPI and perusal of other expense, personnel cost debited by assessee the following expenses directly related to assessee's function performed on behalf of SPI Selling & distribution expenses Rs. 122,29,47,629/- Salary and advance to field staff Rs. 76,91,47,335/- Total Rs. 199,20,94,983/- 145.1 These expenses divided into three concerns in their turnover ratio. The ratio of both partnership firms are 37.21 % (SPI 16.49% + SPS 20.72%) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder for making the impugned additions. A perusal of the assessment order show that the additions have been made by treating the transactions u/s. 40A(2) of the Act. In that case, we have to state that provisions of section 40A(2) are applicable only in respect of payments made to related parties mentioned therein. But the transaction before us is of credit in nature i.e. sales so provisions of section 40A(2) are not at all applicable. 27. Respectfully following the findings of the Tribunal (supra), we direct the A.O to delete the addition of Rs. 21,25,278/-. Ground no. 9 is allowed. 124. Respectfully following the same, we direct the A.O. to delete the addition of Rs. 2,75,07,070/-. Ground no. 11 is allowed. 125. Ground no. 12 relates to the disallowance of Rs. 62,15,78,070/- made u/s. 37 of expenses incurred on behalf of Sun Pharmaceutical Industries. 126 An identical issue was considered by the Bench in assessee's own case in ITA NO. 1589/Ahd/2011 and ITA No. 2430/Ahd/2009. The relevant part of ITA No. 2430/Ahd/2009 has been extracted in ground no. 11 of this appeal. For similar reasons, we direct the A.O. to delete the disallowance of Rs. 62,15,78,070/-. 133. Respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) [hereinafter referred to as 'the Ld. CIT(A)'] is bad in law and on facts. 1. Re: Addition on account of Sale of Pantoprazole to Sun Pharma Global FZE -Rs. 94,73,729/-: 1.1 The Ld. CIT(A) has grossly erred in upholding the order of Assessing Officer ('AO'}/ Transfer Pricing Officer ('TPO') who erred in rejecting the benchmarking done by the Appellant as a contract manufacturer having regard to the functions performed, the assets deployed and risks undertaken by the Appellant in the transaction. The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who erred in classifying the sales made by the Appellant having regard to the relevant Para of the US PDA under which the approval was sought without appreciating the fact that the US PDA Para under which the product is filed is irrelevant for the Appellant who is a contract manufacturer. The Ld. CIT(A) has grossly erred in sustaining the additions made by the TPO by recharacterizing the transaction undertaken by the appellant based on peculiar interpretation of the past & unpredictable future events. The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who erred in arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to the above, the Ld, CIT{A), has grossly erred in upholding the order of AO/TPO and further enhancing the adjustment merely by placing reliance on the order of CIT(A) for AY 2008-09 which covered Pantoprazole drug without appreciating the evidently distinguishable facts relevant for other Para IV products. 2.5 The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who erred in arbitrary adoption of residual PSM as the same cannot be applied to the transaction under review as neither there is any transfer of unique intangibles nor multiple interrelated transactions requiring separate evaluation, 2.6 Without prejudice to the above, the Ld. CIT(A) failed to appreciate that if at all PSM is adopted as the most appropriate method, the determination of ALP had to be in accordance with Rule 10B(1)(d)(ii) on the basis of "reliable external market data" which was totally nonexistent, hence application of PSM method would fail. 2.7 Without prejudice to the above, even if PSM is to be followed, the Ld. CIT(A) has grossly erred in not appreciating that the IPR belonged to the AE, AE was exposed to significant risks (having regard to the fact that the Para IV product had i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rests with the AE and the AE was exposed to significant risks inherent in the transaction and accordingly the profit allocation for the IPR to the AE was extremely low and unjustified. 3.8 Without prejudice to the above, if PSM is to bo followed, the ratio of 50:50 ought to be adopted for benchmarking sale of the products. 4. Non-deduction of Remuneration received from Partnership firm for determination of Book Profits u/s 115JB - Rs. 201,23,42,044/-: 4.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering the remuneration receivable from the partnership firm as an income to which the provisions of section 10 apply for the limited purpose of computing book profits u/s 115JB without appreciating that remuneration received from partnership firm is nothing but an appropriation of profit. 4.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the entire mechanism of computing book profits is based on normal commercial profits having regard to the relevant accounting framework prescribed in Companies Act and thus remuneration is eligible to be deducted for computing book profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creation of any new asset or any benefit of an enduring nature. 7. Disallowance of selling and distribution expenditure incurred on behalf of Sun Pharmaceutical Industries ('SPl') and Pharma Sikkim ('SPS') u/s 14A: Rs. 170,95,96,941/- 7.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in disallowing selling and distribution expenditure incurred by the Appellant u/s 14A on the ground that the said expenditure is directly incurred by the Appellant for earning exempt income without appreciating that: .1 Selling and distribution expenditure incurred by the Appellant is wholly and exclusively for the purposes and in furtherance of its business activities and in absence of any cogent evidence to the contrary, it could not be presumed to have been directly incurred for earning exempt income; .2 Remuneration received from the partnership firm is not an exempt income covered under chapter III rather a receipt which is not liable to tax in the hands of partner by virtue of interplay between provisions of section 28(v) and 40(b) since it has been indirectly charged in the hands of the partnership firm and therefore, application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) erred in considering the amount disallowed u/s 14A under normal provisions, as amount to be added for computing book profit u/s 115JB without appreciating that the provisions of section 115JB and section 14A are mutually exclusive, deeming provisions enacted under the Income-tax Act which are to be made operative only to the extent of the deeming fiction created therein. The Ld. CIT(A) grossly erred in importing the deeming provisions of sub-section (2) and (3) of section 14A into Explanation to section 115JB. 9.2 Without prejudice to the above, the Ld. CIT(A) erred in adding an amount of Rs. 7,16,20,195/- u/s 115JB read with section HAread with rule 8D without appreciating that: .1 In absence of direct and specific expenditure incurred for earning exempt income, no addition of the amount disallowed u/s 14A read with Rule 8D in computing book profits is warranted. .2 The Assessing Officer has mechanically invoked Rule 8D without first recording its satisfaction regarding the correctness of the claim made by the Appellant; .3 The income earned by the Appellant fro:n the partnership firm is not an exempt income covered under chapter 111 of the Act and hence sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cientific and Industrial Research (DSIR) has already approved the entire revenue expenditure. 10.4 Without prejudice to the above, Assessing Officer has undisputedly accepted that R&D expenses are futuristic in nature, and under such circumstances, R&D expenditure incurred during the year under consideration cannot be associated to the turnover of the said assessment year for the purpose of disallowance. 10.5 Without prejudice to the above, the Assessing Officer grossly erred in allocating total R&D cost incurred by the Appellant in the ratio of domestic formulations turnover without appreciating that only cost of raw materials consumed shall be allocated between the Appellant and the partnership firm, as held by the Honorable ITAT for AY 2005-06, 2004-05 and 2002-03. 10.6 Without prejudice to the above, the Ld. CIT(A) grossly erred in not accepting the segment wise expenditure incurred by the domestic formulation department amounting to Rs. 3053.29 Lakhs and ought to have disallowed the R & D expenses only relating to the domestic formulation activity. 10.7 Without prejudice to the above, the R&D expense should not be allocated on the basis of domestic formulation turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provide technical and other information to partnership firm in lieu of which it was entitled to receive remuneration and hence the utilization of the capital R&D equipment for the activities of the partnership firm, if any, was only in the furtherance of its obligation under the partnership deed. 11.6 Without prejudice to the above and without accepting any disallowance of the expenses, the Ld. CIT(A) should have restricted the disallowance towards expenses as provided u/s 14A read with Rule 8D. 12. Addition on account of re-characterizing remuneration from SPI and SPS (partnership firms) as consideration for use of Trademarks, Brands etc. - Rs. 201,23,42,044/-: 12.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in upholding the recharacterization of the remuneration received from the partnership firms, which is not taxable by virtue of the proviso to section 28(v) read with section 40{b) of the Act. In doing so, the Ld. CIT(A) erred in arbitrarily re-characterizing the receipt of partner's remuneration as royalty holding it to be a consideration for use of brand name and trade mark of the Appellant by the partnership firm wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of Rs. 96,27,96,704/- pertaining to past years cannot be included for the purpose of computing disallowance under this ground. 12.7 Without prejudice to the above and without admitting that the remuneration amounts to royalty, the Ld. CIT(A) ought to have appreciated that in any case, the entire remuneration cannot be held to be received for permitting use of trademarks, brand name but is for a wide range of functions / services performed by the Appellant in its capacity as working partner. 13. Re: Disallowance of R&D Expense not approved by DSIR of Rs. 36,93,69,000/-: 13.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in setting aside the issue to the AO on the ground that details of the expenses have not been furnished whereas in fact the relevant details have been duly submitted to the AO as well as the Ld. CIT{A) as part of the paperback. 14. Taxability of interest on Income Tax Refund u/s 244A - Rs. 5,99,53,963/-: 14.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in upholding the addition on account of interest on income tax refund. 14.2 Without prejudice to the above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espectfully following the same, the ground of appeal of the assessee is dismissed. 156. The issue raised by the assessee in the ground no. 5 is that the Ld.CIT (A) erred in not allowing the deduction of Rs. 7,56,90,473/- on account of expenditure incurred for doctors towards business promotion. 156.1 The assessee has shown Rs. 2424.3 million on account of selling & distribution expenses which includes Rs. 8,41,89,667/- on account of the distribution of gifts and providing hospitality services to the doctors/ medical practitioners. 156.2 However, the AO was of the view that the said expenditure is prohibited under the guidelines issued by the medical council of India (MCI). Therefore the same is not allowable under section 37(1) of the Act. 156.3 However, the assessee submitted the breakup of Rs. 8,41,89,667/- as under: Sr.No. Particulars Amount 1. Business Promotion expenses 7,27,99,029/- 2. Conference fees & Sponsorship 84,99,194/- 3. Accommodation (lodging & Boarding) 28,91,444/- Total 8,41,89,667/- 156.4 The assessee further contended that such expenses were incurred to gain regular development in the medical field and valuable inputs in the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred / by the Doctors/medical practitioners. As is evident from the written \ submission, the business promotion expenses of Rs. 7,27,99,029/-are pertaining to the equipment provided to various medical j practitioners as gifts. Claim of indirect business gain as a result of gifts/ provided to the medical practitioners is irrelevant for alfowabifity of these expenses. The appellant has also argued that the amendment to Indian Medical Council (Professional Conduct, Etiquette & Ethics) Regulation 2002 on 10.12.2009 and CBDT Circular No. 5/2012 dated 01.08.2012 are not applicable in the case of appellant since they are applicable to the Doctors/ Medical Practitioners accepting freebies.. This argument of Ld. Authorized Representative is also not acceptable. Undisputedly, Medical Council of India has amended Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 with effect from 10.12.2009 prohibiting from accepting of gifts, travel facility or hospitality, from any pharmaceutical company or the health care industry by the doctors/medical professionals. Thus regulation is issued by the statutory body created under the Act of Parliament i.e. Medical Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since were incurred for sharing the knowledge in the medical field which may help in improving the product and Research and Development activity of (appellant, in my considered view, it is not hit by the Circular No. 5/2012 and amended MCI Guidelines. Further they appears to be in the nature of remuneration for services rendered by the Medical Professionals in the conference and seminars. Accordingly, the disallowance to the extent .of Rs. 84,99,194/- being conference fees and sponsorship is directed to be deleted and balance amount of disallowance is confirmed. Thus, appellant succeeds partly in respect of Ground No. 20. 159. Being aggrieved by the order of the Ld.CIT (A), both the assessee and Revenue are in appeal before us. The revenue has raised the following ground of appeal: 1. Whether on the facts and circumstances of the case and in law the Ld. C.I.T. (A) was justified in directing the AO. to the disallowance to the extent of Rs. 84,99,194/- being conference fees and sponsorship, without appreciating that the A.O, had correctly disallowed the expenses on conference fees and sponsorship, since the said expenses incurred by the assessee were in the nature of freebies/gif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in the ground of 6 is that the Ld. CIT-A erred in treating the repairing expenditure of Rs. 28,93,787/- as capital in nature. 162.1 We have already decided the impugned issue in favor of the Revenue in ITA 929/AHD/2017 in the ground of appeal bearing no. 10 vide Para No. 72 & 73 of this order. Thus respectfully following the same, the ground of appeal of the assessee is dismissed. 163. The issue raised by the assessee in the ground of 7 is that the Ld.CIT (A) erred in making the addition for selling and distribution expenses amounting to Rs. 1,70,95,96,941/- incurred on behalf of SPI and SPS u/s 14A of the Act. 163.1 We have already decided the impugned issues by restoring the appeal to the file of the AO in ITA 929/AHD/2017 in the ground of appeal bearing no. 13 vide Para No. 95 & 96 of this order. Thus respectfully following the same, the ground of appeal of the assessee is allowed for statistical purpose. 164. The issue raised by the assessee in the ground of 8 is that the Ld. CIT-A erred in confirming the addition made by the AO u/s 14A of the Act. 164.1 We have already decided the impugned issues by restoring the appeal to the file of the AO in ITA 929/AHD/2017 in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the remuneration as taxable income by holding that remuneration was nothing, but it was fee for the use of all present and future trademark/brands and technology of the partnership firms. Therefore the AO took a similar view in the year under consideration and treated the remuneration as taxable income amounting to Rs. 2,01,23,42,044/- and added to the total income of the assessee. 169. Aggrieved assessee carried the matter to Ld. CIT (A) who confirmed the order of the AO by observing as under: 21.1. As per the existing Agreement, the appellant company has permitted user of trademark/brands by SPI/SPS for a token consideration of Rs. 1/- for the period of 5 years. The Assessing Officer, in the assessment order of SPI has discussed this issue and he has valued the royalty of Jammu and Dadra plant at a substantial sum, and consequently has reworked out the eligible deduction u/s. 80IB. It has been also noticed that the SPI has not paid any management fees to the appellant I company although three of its Directors and Key Management personnel | viz. Shri Dilip Sanghvi, Shri Sudhir Valia and Shri Shailesh Desai, have been i looking after the business of appellant as well as SPI/S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Ld. DR vehemently supported the order of the Lowe Authorities. 173. We have heard the rival contentions and perused the materials available on records. At the outset, we find that in the identical facts and circumstances in the own case of the assessee's (supra), the ITAT deleted the addition made by the AO. The relevant extract of the order is reproduced as under: 72.This issue was considered by the Tribunal in ITA Nos. 3297 & 3420/Ahd/2014 vide ground no. 13 of that appeal and the relevant findings of the Tribunal read as under:- 128. We have given a thoughtful consideration to the facts in issue. It is an undisputed fact that the remuneration has been paid by the firm SPI as per the partnership deed read with supplementary partnership deed. It is also an undisputed fact that the said partnership deed read with supplementary deed has not been treated as sham or unlawful deeds. The First Appellate Authority emphasized on the entire transaction as a device of tax evasion. The partnership firm SPI has claimed Rs. 40.12 crores as remuneration to the assessee company but at the same time, it did not claim the same as deduction as it was not paid to a whole time partner as pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. 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. In view of the above and respectfully following the ITAT order as discussed above, the ground of appeal of the assessee is allowed. 174. The issue raised in the ground no. 13 is that the Ld.CIT (A) erred in not allowing the deduction of R&D expenses not approved by the DSIR amounting to Rs. 36,93,69,000/- 174.1 Assessee has shown Rs. 18959.69 lacs (16,558.41 as revenue expenditure and Rs. 2401.28 as capital expenditure excluding land & building) on account of research and development expenses in house research facility. The assessee on these expenses has claimed weighted deduction u/s 35(2AB) of the Act amounting to Rs. 37919.39/-. However the AO found that the Department of Scientific and Industrial research (for short DSIR) approved the amount of Rs. 2313.05 as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (719.61) Total expenditure for which deduction is approved by DSIR 14,599.64 174.7 Reconciliation statement for capital expenditure as under: II. Capital R & D Expenditure Particulars Amount (Rs. In lacs) Amount (Rs.in lacs) Amount of Capital R &D on which weighted deduction is claimed by the Assessee in the retutn of income 3,521.04 Less: Inadmissible capital expenditure 1.Land (1,050.79) (16.23) Less: Amount claimed @100% u/s.35(i)(iv) 1.Buiding (60.57) 16,550.01 Net Amount of Revenue R &D on which weighted deduction is claimed by the Assessee in the return of income 2,409.68 Less: Amount not considered by DSIR 1.R&D vehicle (96.63) Total expenditure for which deduction is approved by DSIR 2,313.05 174.8 The assessee also submitted that the expenditure not approved by the DSIR is also eligible for weighted deduction u/s 35(2AB) of the Act. The submission of the assessee can be categorized as under: 1) Foreign patent filing expenditure and overseas product registration charges amounting to Rs. 20.92 lacs and Rs. 230.83 lacs respectively. The assessee required to take approval from various authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.80 3. Training Centre Expenses 0.01 4. Customer Entertainment 16.64 Total 102.55 These expenses are in the nature welfare of employees who are working in the approve R&D facility. All these facility provided by the company to it employees to retain them and for better productivity of employees. 5) The assessee has incurred the advertisement expense amounting to Rs. 1.71 lacs on which it claimed deduction u/s 35(2AB) of the Act. Such advertisement expenses paid by the Tandalja R&D unit to find out volunteers for the purpose of carrying out clinical trial which is integral part of the R&D activities. 6) The assessee has incurred expenses towards foreign professional fees amounting to Rs. 719.61 lacs. The professional fees incurred by the assessee for getting the advice relating to patents, violation or infringement on the existing patent of various pharmaceutical product. 7) The assessee has incurred contract labour charges during the year under consideration amounting to Rs. 219.81 lacs and claimed weighted deduction u/s 35(2AB) of the Act for Rs. 439.62 lacs. These payments made to contractors who provide the employee on temporary basis. This payment is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R&D facility. 4) The building maintenance, municipal tax paid, and rent pertaining to building exclusively used for the purpose of R&D activity are eligible for the deduction. 178. Being aggrieved by the order of the ld. CIT-A, both the assessee and Revenue are in appeal before us. The assessee is in appeal before us against the direction of the ld. CIT-A for the verification of the expenses and the Revenue is in appeal before us against the direction of the ld. CIT-A to allow the relief to the assessee after the verification of the expenses. 179. The Revenue before us has raised the following grounds of appeal: 14. Whether on the facts and circumstances of the cae and in law the Ld. C.I.T. (A) was justified in directing the A.O. to verify each and every item of the expenses not certified by D.S.I.R. included in Rs. 2046.99 lacs and then allow consequential relief without appreciating that the A.O. had correctly disallowed assessee's claim of weighted deduction u/s. 35(2AB) of the Act to the extent of Rs. 2046.99 lacs since the A.O. has no power to allow weighted deduction u/s. 35(2AB) of the Act in excess of what has been approved by D.S.I.R. in accordance with the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or making the addition to the total income. 182. Both the ld. AR and the DR before us relied on the order of authorities below as favorable to them. 183. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the ld. CIT-A allowed the ground of the assessee for statistical purpose after having reliance of the order of his predecessor for the AY 2008-09. We further note that the assessee against the order of the Ld. CIT-A preferred an appeal before the Tribunal in ITA No. 3297/AHD/2014 which was decided in favor of the assessee vide order dated 16-6-2017. The relevant extract is reproduced below. 93. As demonstrated elsewhere, the IPR/ANDA rights were very much with SPG BVI who entered into an agreement with the appellant company for the manufacturing of the said drug. The application of Transactiona!- Net Margin Method is the most appropriate method in such sale transaction and has been benchmarked by the assessee by showing it to be higher than the margin earned from the sales made to Eli Lily. 94 .Considering the facts in totality in the light of the decision of the Hon'ble Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee stated that the Tribunal in assessee's own case in earlier years has decided this issue in favour of the assessee and against the revenue in ITA No. 1558/Ahd/2006. The Id. D.R, could not bring any distinguishing decision in favour of the reven ue. 14. We have given a thoughtful consideration to the order of the Tribunal in earlier years; we find that the Tribunal while deciding the issue in favour of the assessee has followed the decision of the Coordinate Bench, Mumbai in the case of USV Ltd. 54 SOT 615. Findings of the Tribunal read as under:- 24. We have carefully perused the orders of the authorities below. We find that the Id. CIT(A) has simply followed the findings of his predecessor for A.Y. 2000-01. We also find that the assessment order for A. Y. 2000-01 has been quashed by the Tribunal vide a ITA Nos. 1199 & 1279/Ahd/2006, which means that the basis for upholding the disallowance has been removed. We further find that on identical set of facts, the Mumbai Bench in the case of USV Ltd. (supra) has allowed the .claim of the assessee in respect of expenditure incurred in respect of patent application. Respectfully, following the findings of the coordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hted deduction u/s. 35(2AB) of the Act on gift expenses incurred for R & D employees. 70. This issue has been decided in favour of the assessee and against the revenue by the Co-ordinate Bench in ITA No. 1592/Ahd/2011 qua ground no. 2 of that appeal. The relevant part reads as under:- Ground no. 2 relates to the weighted deduction u/s. 35(2AB) on account of gifts to R & D employees on occasion of marriage. 44. We find that an identical issues has been decided in favour of the assessee and against the revenue in the case of Claries Lifesciences Ltd. 112 ITD 307 (Ahd.) which decision has been followed by the ld. CIT(A). The said decision of the Tribunal has been confirmed by the Hon'ble . A.Y. 2009-10 Jurisdictional High Court in Tax Appeal No. 383 of 2008. Now, that the decision of the First Appellate Authority is well supported by the decision of the Hon'ble Jurisdictional High Court. No interference is called for. Ground no. 2 is dismissed. 71. Respectfully following the same, ground no. 1 is dismissed. 72. Ground no. 2 relates to the deletion of the disallowance of Rs. 42,46,000/- claimed u/s. 35(2AB) of the Act on repairs and municipal taxes paid for building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly related to in-house research as proper security is required to avoid leakage and only in-house staff will have assessed to building. Accordingly, this expenditure are for preserving the research which is completed and its clinical trial is pending. As regards to the environmental issue, the assessee-company has set up an affluent plant and as is widely accepted the vegetation, i.e. trees have contained the pollution. This expenditure of gardening and plantation have been done for the perseverance of environment and this is directly related to R & D facilities. As regards to salary paid to Dr. C.Dutt amounting to Rs. 58.54 lakhs, he is in-charge of R & D Centre at Bhatt. He is the person through whom all co-ordination of technical scientists and other technical persons are carried out. The entire reporting of the research activity to the management has been taken to the Board of Directors through him only and for this the salary is paid. Accordingly, the assessee has rightly paid the entire expenditure of Rs. 133.92 lakhs and building repairs Rs. 37.55 lakhas on which weighted deduction u/s.35(2AB) of the Act is allowable. In view of the above discussion, we allow ITA No.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was sought to explain for the same. 184.2 In reply to the question of AO, the assessee filed a letter dated 22- 02-2016 by stating that it has not accounted for such income during the year under consideration. 185.3 In view of the above, the AO accordingly added the amount of Rs. 5,99,53,963/- to the total income of the assessee. 186. Aggrieved assessee carried the matter to Ld. CIT (A) who confirmed the order of the AO by observing that the assessee failed to furnish any acceptable reason against the action of the AO. 187. Being aggrieved by the order of the Ld.CIT (A) assessee is in appeal before us: 188. The Ld. AR before us conceded that the issue stands against the assessee. On the contrary the Ld. DR before relied on the order of authorities below. 189. We have heard the rival contentions of the parties and perused the materials available on record. As the issue stands against the assessee by the order of Tribunal in the case of Avada trading Co.(P) ltd. Vs ACIT reported in 100 ITD 131. "In view of the above discussion, we are of the view 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rit in these appeals The implication of the fact that the assessment order passed by the Assessing Officer covers eight assessment years is to be noted. The assessment done in six assessment years is under section 153C. Assessment order is set aside only in respect of four such assessment years that too on the technical ground, noted above. The objection pertaining to the four assessment years in question does not relate to the other two assessment years, namely, 2004-05 and 2005-06. Likewise, this decision has no bearing in respect of assessment done qua assessment year 1999-2000 as well as assessment year 2006-07. The necessary consequence would be that insofar as the conclusions of the Assessing Officer in his assessment order regarding the activities of the trust not being genuine and not carried out in accordance with the trust deed or cancellation of registration, denial of benefits of sections 11 and 12 etc. are concerned, the same would not be affected by this judgment. It is, thus, clarified that this Court has not dealt with the matter on merits insofar as incriminating material found against the assessee or N is concerned. Pithily put, this Court has not given any clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of weighted deduction u/s. 35(2AB) of the Act. 4. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) was justified in directing the A.O. to allow weighted deduction on expenses relating to building repairs and Muncipal Taxes amounting to Rs. 1,21,59,206/-without appreciating that the A.O. had correctly disallowed expenditure on repair to building and municipal taxes u/s. 35(2AB) of the Act since the assesee did not establish as to how expenditure on repair to building and municipal tadaes lead to improvement in R & D activitities carried on by the assessee. 5. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) was justified in directing the A. O. to allow weighted deduction at 200% on lunch and refreshment and brokerage for property without appreciating that the A.O. had correctly disallowed expenses on lunch and refreshement u/s. 35(2AB) of the Act, sicne the expenses incurred by the assessee for guest and others were outside the R & D Centers, and expenses on brokerage had no direct nexus with the R & D activity carried on by the assessee. 6. Whether on the facts and circumstances of the case and in law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating that the A.O. by relying on the provision of 80A(4) 80AB, SOB 80IA(1) of the Act had correctly disallowed assessee's claim of deduction u/s. 80IA(4) of the Act. 10. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T, (A) was justified in holding that " The appellant is eligible for deduction u/s. 80IA(4) in respect of income of Captive Power Generation Unit and hence the Assessing Officer is directed to allow the same after correctly computing the income of eligible unit", without appreciating that the assessee did not substantiate its claim with facts and figures to prove that it had included profit of the Undertaking derived from utilization of captive power Genertion Unit in the gross total income. 11. Whether On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) was justified in holding that "The R & D expenses incurred by the appellant are required to be allocated in the ratio of turnover of appellant and SPI/SPS" without appreciating that the A.O. had correctly allocated R & D expenses in the ratio of turnover of formulations manufactured in SPIL, SPI and SPS, since products manufactured in units under SPI and SPS we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of weighted deduction u/s. 35(2AB) of the Act. 16. Whether on the facts and Circumstances of the case and in law, the Ld. C.I.T. (A) was justified in directing the A.O. to verify each and every item of the expenses not certified by D.S.I.R. included in Rs. 2046.99 lacs and then allow consequential relief without appreciating that in accordance with the Scheme of Section 35(2AB) of the Act, the approval of expenditure on Scientific research is the guiding factor for the A.O, to determine the allowance or otherwise of the weighted deduction u/s. 35(SAB) of the Act claimed by the assessee. 17. Whether on the facts and Circumstances of the case and in law, the Ld. C.I.T. (A) was justified in directing the A.O. to verify each and every item of the expenses not certified by D.S.I.R. included in Rs. 2046.99 lacs and then allow consequential relief without appreciating that "It is competent authority which has to decide whether a particular expenditure is eligible for deduction u/s. 35(2AB) or not, but not the A.O. " as held by the Hon'ble I.T.A.T. Vishakapatnam Bench in the case of Effronics Ssytems (P) Ltd. vs. A.C..I.T. Range-2, Vijaywada reported in [2016] 75 taxmann.c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intenance charges cannot be considered as the cost of the building. These expenses were incurred for wear & tear and maintenance of the building. These expenses are not bringing the building into existence or to put to use for work. Therefore expenses are not in the nature of capital. 196.2 Repair of building expenses incurred for the building in which the research and development activity carried out. 196.3 However, the AO rejected the contention of the assessee by observing that the repair and maintenance and municipal tax expenses incurred by the assessee pertaining to the building in which R&D activities carried out. Therefore on these expenses only 100% deduction allowable not weighted deduction. 197. Aggrieved assessee preferred an appeal before the Ld.CIT (A) who deleted the addition made by the AO by observing as under: 9. Ground No. 6 pertains to the disallowance of weighted deduction u/s 35(2AB) on expenses relating to Building repairs and Municipal taxes amounting to Rs. 1,21,59,206/ Rs. 88,20,437+33,38,769).The Assessing Officer has disallowed the weighted deduction to keep the issue alive since further appeal on this issue had been filed by the department in earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly following the same, we do not want to disturb the finding of ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed. 201. The issue raised by the Revenue in ground number 5 is that the Ld.CIT (A) erred in allowing the weighted deduction claimed under section 35(2AB) of the Act in respect of lunch/refreshment of expenses and brokerage of the property. 201.1 We have already decided the impugned issues against the Revenue in the ground of appeal bearing no. 5 vide Para No. 131 of this order in ITA 922/AHD/2017. Thus respectfully following the same, we are inclined not to disturb the finding of the Ld.CIT (A). Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed. 202. The issue raised by the Revenue in ground number 6 is that the Ld.CIT (A) erred in directing the AO to allow weighted deduction u/s 35(2AB) of the Act for the expenses not certified by the DSIR. 202.1 At the outset, we note that we have adjudicated the issue raised by the Revenue along with ground of appeal of the assessee bearing no. 13 vide Para no. 150.1 of this order in ITA 1237/AHD/2017. Thus respectfully, following the same, we do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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