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TMI Blog2019 (5) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as a revenue expenditure. - Decided in favour of assessee Disallowance of deduction u/s 35(2AB) in respect of Ennore Unit Goregaon Unit - claim of weighted deduction under Sec.35(2AB) - HELD THAT:- The issue pertaining to the entitlement of the assessee towards claim of weighted deduction u/s 35(2AB) is a recurring issue which was also involved in its case for the immediately preceding year i.e A.Y 2008-09 [ 2018 (7) TMI 1887 - ITAT MUMBAI] We find that the Tribunal while disposing off the appeal of the assessee for the immediately preceding year i.e A.Y. 2008-09, had after considering the contention of the assessee that it had applied for approval in Form 3CM which was still pending, restored the issue to the A.O for providing an opportunity to the assessee to furnish the approval of the competent authority in the prescribed manner for claiming the deduction u/s 35(2AB). In all fairness ground requires to be restored to the file of the A.O as above - Ground allowed for statistical purposes. Depreciation on additions to computer software - assessee had claimed depreciation on the capitalized value of the software expenses @ 60% - AO allowed @25% - HELD THAT:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil. It is the claim of the assessee that the amount reflected in Clause 12(b) of the tax Audit report shall be treated as the adjustment required u/s 145A, and in support thereof had relied on the order in the case of Hawkins Cookers Ltd. Vs. ITO [ 2008 (8) TMI 904 - ITAT MUMBAI] . We have perused Clause 12(b) of the Tax Audit report of the assessee and find that it is the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by inter alia including the effect of CENVAT credit will be Nil, subject to Sec. 43B that the duty, taxes, cess etc. is paid before the due date of filing of the return of income. As the ld. D.R had submitted that the aforesaid working of the assessee would require to be verified, we therefore, in all fairness restore the matter to the file of the A.O for readjudication. Disallowance of interest expenditure u/s 14A r.w. Rule 8D(2)(ii) - HELD THAT:- As decided in assessee's own case [ 2018 (7) TMI 1887 - ITAT MUMBAI] Tribunal after deliberating on the issue under consideration, had directed the A.O to verify the assesses claim of availability of sufficient interest free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008-09, the disallowance made by the A.O/DRP u/s 35A of ₹ 2,42,85,714/- during the year under consideration viz. A.Y 2009-10 is vacated. Disallowance of advertisement and business promotion expenses - HELD THAT:- No such exercise carried out by the A.O can be gathered from the orders of the lower authorities. Apart there from, nothing has been brought to our notice by the ld. D.R in the course of hearing of the appeal which would have persuaded us to have arrived at a different view. Be that as it may, we find that the A.O even at the time of disallowing 50% of the expenses i.e ₹ 27,90,84,346/-, had observed that the same were being disallowed as majority of the expenses were incurred for giving freebies to doctors for promotion of assesses business which was inadmissible u/s 37(1) being an expense prohibited by law. We thus on the basis of our aforesaid observations, being of the considered view that the A.O/DRP had erred in making an adhoc disallowance of ₹ 27,90,84,346/- i.e 50% of the advertisement and business promotion expenses, therefore, delete the same. Disallowance of deduction u/s 80IC -on account of reallocation of expenses - A.O had carried ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the said condition stands satisfied by the assessee. However, at the same time the aforesaid claim of the assessee that the amount of ₹ 4,57,28,210/- (supra) did not from part of the cost of FFS machine, but was the accumulated depreciation of the said machine is not borne from the records and would require verification. Therefore, to the said extent the matter in all fairness is restored to the file of the A.O for making necessary verification. In case the claim of the assessee is found to be in order, then no adverse inferences as regards satisfaction of the second condition envisaged in Sec.80IC(4)(ii) would be drawn in its hands. Addition towards transfer pricing adjustment - Corporate guarantee given by the assessee to its AE - HELD THAT:- Issue under consideration had directed the A.O to charge commission on Corporate Guarantee @ 0.5%. As the facts involved in the case before us in context to the issue under consideration remains the same, therefore, we respectfully follow the view taken by the Tribunal in the case of the assessee for A.Y 2008-09 and direct the A.O to charge commission on Corporate Guarantee @ 0.5%. Addition of disallowance u/s 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B) in respect of R D expenses (Revenue and Capital) related to Ennore Unit and Goregaon Unit amounting to ₹ 24,89,50,211/- on the alleged ground that no approval is granted by appropriate authority for these units in Form 3CM. 2. The A.O failed to appreciate and ought to have held that approval granted by DSIR (Department of Scientific and Industrial Research) is sufficient for claiming deduction u/s 35(2AB) of the Act. 3. The Appellant prays that the A.O be directed to allow weighted deduction as claimed u/s 35(2AB) of the Act. GROUND III: DISALLOWANCE OF THE CLAIM OF DEPRECIATION ON ADDITIONS TO COMPUTER SOFTWARE OF ₹ 17,63,425/- 1. On the facts and circumstances of the case and in law, the A.O erred in following the erroneous direction of the DRP in recalculating depreciation on computer software @ 25% instead of @ 60% as claimed by the Appellant and thereby disallowed the excess depreciation of ₹ 17,63,425/- on the alleged ground that software purchased separately and independent from computer purchases amounts to intangible assets . 2. The Appellant prays that the A.O be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f valuation of stock, the amount of unutilized MODVAT credit has no impact on the profits of the Appellant. 3. The Appellant prays that the A.O be directed to delete the adjustment of ₹ 1 ,16,08,088/- made u/s 145A of the Act. GROUND VI: DISALLOWANCE U/S. 14A OF ₹ 5,59,06,129/- 1. On the facts and in the circumstances of the case and in law, the A.O erred in following the erroneous direction of the DRP in disallowing a sum of ₹ 5,59,06,129/- as expenditure attributable to earning exempt dividend income, u/s. 14A read with Rule 8D of the Income Tax Rules, 1962 ( the Rules ). 2. The appellant humbly prays that the disallowance u/s. 14A of ₹ 5,59,06,000/- be deleted or be appropriately be reduced. GROUND VII: DISALLOWANCE OF DEDUCTION CLAIMED U/S. 35A OF THE ACT ₹ 2,42,85,714/- 1. On the facts and circumstances of the case and in law, the A.O erred in following the erroneous direction of the DRP in disallowing a deduction of ₹ 2,42,85,714/- claimed u/s. 35A of the Act related to Sarahhai Piramal Pharmaceuticals Limited ( SPPL ) which is merged w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed not to allocate research and development expenditure of ₹ 12,28,00,000/- and interest expenditure of ₹ 11,31,00,000/- to the Baddi Unit. GROUND X: ELIGIBILITY OF DEDUCTION U/S. 80IC OF THE ACT 1. On the facts and circumstance of the case and in law, the A.O erred following the erroneous direction of the DRP in disallowing the deduction of ₹ 2,74,14,16,642/- claimed u/s. 80IC in respect of Baddi Unit on the alleged ground that the Baddi Unit is not eligible for deduction u/s. 80IC relying on the order for AY 2008-09. 2. The A.O failed to appreciate an4 ought to have held that the Baddi unit had been formed in A.Y. 07-08 by introducing fresh capital and purchasing new plant and machinery and it had been not formed by splitting of the existing business of the Appellant. 3. The Appellant prays that the A.O be directed to allow deduction u/s 80IC of the Act. GROUND XI: DILLOWANCE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT 1. On the facts and in the circumstances of the case and in law, the A.O erred in following the erroneous direction of the DRP in making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was selected for scrutiny assessment under Sec.143(2). 3. The A.O after deliberating on the various issues involved in the case of the assessee, therein vide his draft assessment order passed under Sec.143(3) r.w.s. 144C of the I.T. Act, dated 28.03.2013 proposed to inter alia make the following additions/disallowance in the hands of the assessee: Sr. No. Particulars Amount 1. Disallowance of Software expenses. ₹ 14,00,000/- 2. Disallowance of deduction under Sec.35(2AB) in respect of Ennore Unit and Goregaon Unit. ₹ 24,89,50,211/- 3. Disallowance of claim of depreciation of additions to computer software. ₹ 17,63,425/- 4. Disallowance of claim of depreciation pertaining to Boehringer Mannhem India Ltd. ( BMIL ) Piramal Healthc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the DRP under Sec.144C(5), dated 19.12.2013 passed the final assessment order under Sec.143(3) r.w.s. 144C(13), dated 28.01.2014 and assessed the income of the assessee at ₹ 338,89,29,170/- as per the normal provisions and worked out the book profit as per Sec.115JB at ₹ 297,87,39,511/-. 6. The assessee being aggrieved with the order passed by the A.O under Sec. 143(3) r.w.s 144C(13), dated 28.01.2014, has carried the matter in appeal before us. The ld. Authorized Representative (for short A.R ) for the assessee Shri J.D. Mistry, Senior Advocate, took us through the facts leading to the additions/disallowances that were assailed by the assessee in its present appeal before us. The ld. A.R. took us through a Chart filed by the assessee and submitted that certain issues involved in the present appeal were squarely covered by the order passed by the Tribunal in the assesses own case for the immediately preceding year i.e A.Y. 2008-09 in ITA No. 5471 /Mum /2017; dated 30.07.2018. The ld. A.R taking us through the disallowances of software expenses aggregating to ₹ 14,00,800/- submitted that the lower authorities had erred in disallowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord). It was submitted by the ld. A.R that the claim of the assessee under Sec. 35(2AB) in respect of R D expenses for its aforesaid units that was disallowed by the lower authorities in the preceding year i.e A.Y 2008- 09, was however on appeal restored by the Tribunal to the file of the A.O for providing opportunity to the assessee to furnish the approval of the competent authority in the prescribed form. In order to fortify his aforesaid contention the ld. A.R took us through the relevant part of the aforesaid order of the Tribunal in the assesses own case for A.Y. 2008-09. It was averred by the ld. A.R that as the assessee during the year under consideration could not file the approval in Form No. 3CM , therefore, in the same terms the matter may be restored to the file of the A.O for providing an opportunity to furnish the same in support of its aforesaid claim. As regards the disallowance of claim of depreciation on additions to computer software amounting to ₹ 17,63,425/-, it was submitted by the ld. A.R that the lower authorities had erred in restricting the entitlement of the assessee towards its claim of depreciation on computer software @ 25% instead of 60% as wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets of BMIL. Alternatively, it was submitted by the ld. A.R that even otherwise such claim of depreciation of the assessee was accepted by the Tribunal while disposing off its appeal for A.Y. 2008-09. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that that A.O be directed to follow the directions of the DRP and allow the assesses claim for depreciation pertaining to BMIL PHL. Further, the ld. A.R assailing the adjustment of inventory as per Sec. 145A amounting to ₹ 1,16,08,088/- that was made by the lower authorities, submitted that the said issue was tax neutral in nature. In order to buttress his aforesaid claim the ld. A.R took support of a Annexure B i.e a statement showing the change in profits on account of inclusion of excise duty in purchases and stocks, as per which there would be no consequential increase/decrease in the profits for the year under consideration. (Page 61) of the Assesses Paper Book (for short APB ). Insofar disallowance under Sec.14A of ₹ 5,59,06,129/- made by the A.O was concerned, it was submitted by the ld. A.R that the lower authorities by misconceiving the facts and the settled position of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Rule 8D(2)(ii) would stand restricted to an amount of ₹ 31.78 lacs. Insofar the disallowance under Rule 8D(2)(iii) was concerned, it was submitted by the ld. A.R that the same would be restricted to an amount of ₹ 0.21 lacs. The ld. A.R in order to fortify his aforesaid contention had during the course of hearing of the appeal placed on record the working of the claim of disallowance under Sec.14A r.w. Rule 8D. It was further submitted by the ld. A.R that the settled position of law that disallowance under Rule 8D(2)(iii) was to be worked out after excluding the investments which had not yielded any exempt income during the year, was considered by the Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09. The ld. A.R adverting to the disallowance of the assesses claim of deduction under Sec.35A amounting to ₹ 2,42,85,714/-, submitted that the said issue was squarely covered by the order of the Tribunal in the assesses own case for A.Y. 2008-09. The ld. A.R further in order to drive home his aforesaid contention took us through the relevant observations of the Tribunal, wherein the Tribunal had concluded that the assessee was eligible for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee were not in the nature of freebies. The ld. A.R in order to fortify his claim that the expenses incurred by the assessee which was a pharmaceutical company would not be hit by the Explanation 1 to Sec. 37 of the I.T. Act, relied on the order of ITAT, Mumbai A Bench in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018) Insofar, the reduction of the assesses claim of deduction under Sec. 80IC by an amount of ₹ 23,59,00,000/- was concerned, it was submitted by the ld. A.R that the lower authorities by misconceiving the facts had wrongly dislodged the claim raised by the assessee under the aforesaid statutory provision. It was submitted by the ld. A.R that as no part of the R D expenses incurred by the assessee were relatable to its eligible unit situated at Baddi, therefore, the assessee had rightly not allocated any part of such expenditure to the same. It was further submitted by the ld. A.R that as the interest expenditure incurred by the assessee during the year was in context of the borrowed funds utilised for the units (excluding Baddi unit), therefore, no part of such interest expenditure was allocated by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was submitted by the ld. A.R that the A.O had declined to allow the claim for deduction under Sec. 80IC by merely relying on the order passed by his predecessor for the immediately preceding year i.e A.Y. 2008-09. Insofar the claim of the assessee under Sec.80IC for A.Y. 2008-09 was concerned, it was submitted by the ld. A.R that the A.O in the said year had in his draft order only dislodged the allocation of expenses by the assessee, but in the final assessment order passed by him the assessee was held as not eligible for claim of the said deduction under Sec. 80IC. It was submitted by the ld. A.R that the Unit at Baddi since the very year of its formation viz. A.Y 2007-08 was manufacturing 87 products. It was further submitted by him that a Fill Form and Seal machine (for short FFS machine) that was transferred from the Mulund Unit of the assessee was dispatched on 12.03.2008 and the same was finally installed and had commenced production at Baddi in the month of February, 2009. The ld. A.R submitted that the A.O had declined to allow the assesses claim for deduction under Sec. 80IC(2) for the reason that the assessee had not satisfied the requisite cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aforesaid facts, it was submitted by the ld. A.R that now when no adverse inference as regards the eligibility of the assessee for claim of deduction under Sec. 80IC was drawn in the Initial year i.e AY. 2007- 08, therefore, it was impermissible on the part of the revenue to have concluded that the assessee was not eligible for the said deduction during the year under consideration i.e A.Y 2009-10, which happened to be the third year of its operation. It was further submitted by the ld. A.R that certain qualifications are required to be satisfied by an eligible assessee for availing deduction under Sec.80IC only in the initial assessment year viz. (i) that the undertaking or enterprise is not formed by splitting up, or the reconstruction of a business already in existence; and (ii) that it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. However, as per the ld. A.R the entitlement of the assessee towards claim of deduction under Sec.80IC would not be affected if in the subsequent years there is a splitting up of the business or transfer of a machinery or plant which was previously used for any purpose. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady in existence; and (ii) that the undertaking or enterprise is not formed by transfer to a new business of machinery or plant previously used for any purpose, in the backdrop of the judgment of the Hon ble Supreme Court in the case of DCIT, Circle-11(1), Banglore Vs. Ace Multi Systems Ltd. (2018) 400 ITR 141 (SC), were to be similarly construed as the qualifications or conditions that were required to be satisfied by the assessee only in the initial year i.e the year in which it was formed. In sum and substance, the ld. A.R by drawing support from his aforesaid contention, submitted, that no adverse inferences for non-satisfaction of the conditions envisaged in sub-section (4) of Sec. 80IC by the assessee in the years subsequent to the year of formation could be drawn for divesting the latter of its entitlement towards claim of deduction under the said statutory provision. In order to fortify his aforesaid contention the ld. A.R relied on the order of the ITAT, Delhi Bench C in the case of Ganpati Herbalcare (P) Ltd. Vs. Pr. CIT, New Delhi (2018) 97 taxmann.com 575 (Del) . It was submitted by the ld. A.R that in the aforementioned case the Tribunal had observed that for adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Investments (P) Ltd. 82 taxmann.com 415 (Del) (SB) and the judgement of the Hon ble High Court of Bombay in the case of CIT Vs. Bengal Finance Investments Pvt. ltd. (ITA No. 337/Mum/2013) (Bom) . It was thus averred by the ld. A.R that the disallowance, if any, made under Sec.14A was not liable to be considered for the purpose of computing the book profit under Sec.115JB of the I.T Act. 7. Per contra, the ld. Departmental Representative (for short D.R ) adverting to ground of appeal no. 3 i.e disallowance of the assesses claim of depreciation on addition of computer software by restricting the entitlement of the assessee to 25% instead of 60% as claimed by it, relied on the order of the ITAT, Delhi in the case of Sony India (P) Ltd. Vs. Addl. CIT, Range 9(2011) 141 TTJ 432 (Del) . The ld. D.R taking us through the aforesaid order, submitted, that it in the said case it was observed by the Tribunal that depreciation on license fees paid for use of computer software was to be restricted to 25%. The ld. D.R adverting to the adjustment of ₹ 1,10,88,000/- made by the A.O under Sec. 145A of the I.T Act, submitted that as the assessee had claimed that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... REPAIRS COMPUTERS OTHERS A/C CODE 6286120 (B) Purchase implementation of Sapphire software used by Quality Control Department ₹ 5,40,000 Purchase of Lotus notes web access licenses from Lauren Information Technologies ₹ 98,000 Purchase of Lotus notes web access licenses from Lauren Information Technologies ₹ 6,02,000 Purchase of Anti Virus Software from Softcell Technologies ₹ 1,60,000 Total ₹ 14,00,800 The A.O holding a conviction that the purchase of the aforesaid software licenses was in the nature of a capital expenditure, thus restricted the entitlement of the assessee towards claim of depreciation @ 25% of its value. In support of his aforesaid conviction, the A.O while concluding as hereinabove, was of the view that as a software license was a depreciable intangible asset under Sec.32(1)(ii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the same was rightly claimed by it as a revenue expenditure. We thus in terms of our aforesaid observations direct the A.O to allow the software expenses of ₹ 14,00,800/- as claimed by the assessee. The Ground of Appeal No. I is allowed. Disallowance of deduction under Sec.35(2AB) in respect of Ennore Unit Goregaon Unit: ₹ 24,89,50,211/-: 12. The assessee had claimed deduction under Sec. 35(2AB) pertaining to its Goregaon Ennore Units. In the course of the assessment proceedings, the assessee in order to substantiate its aforesaid claim of deduction under Sec. 35(2AB) furnished the copies of the approval obtained form DSIR. However, the A.O observing that the assessee had failed to place on record Form 3CM which was a separate approval from DSIR for claim of weighted deduction under Sec.35(2AB), thus declined to allow the said claim of deduction to the assessee. Insofar the copies of the approvals for DSIR were concerned, it was observed by the A.O that the same were only relevant for claiming the basic deduction under Sec. 35(1)(i) and 35(1) (iv) and were not approved for the purpose of claiming deduction under Sec.35(2AB) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses on upgradation of its existing software viz. MFGPRO, MS Office etc. It was noticed by him that the assessee had claimed depreciation on the capitalized value of the software expenses @ 60%. The A.O was of the view that as per Rule 5 of the I-T Rules, 1962 only computers including software were eligible for depreciation @ 60%. In other words, the A.O held a conviction that in a case where the computers were purchased along with the computer software, then such software would form part of the computer including software and would be eligible for depreciation @ 60%. However, in a case where software was purchased separately and independent from the computer, then the same would be an acquisition of an intangible asset as envisaged in Part B of the depreciation schedule shown in Appendix-1 of the I-T Rules, 1962, which reads as under: Know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature . On the basis of his aforesaid observations, the A.O holding a conviction that as the licence to use the software amounted to an intangible asset in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the CIT(A) in context of the issue under consideration and vacate the disallowance of ₹ 17,63,425/- made by the A.O on the said count. The Ground of appeal No. III is allowed. Disallowance of claim of depreciation on assets of BMIL and PHL : ₹ 68,75,396/- : 17. We shall now advert to the disallowance of the claim of depreciation raised by the assessee on the assets of Boehringer Mannhem India Limited (for short BMIL ) and pharmaceutical division of Piramal Healthcare Limited. (for short PHL ), aggregating to ₹ 68,75,396/-. The facts in brief are, that pursuant to the order dated 24.07.1997 of the Hon ble High Court of Bombay sanctioning the scheme of amalgamation BMIL was merged with the assessee company w.e.f 01.04.1996. In its assessments for A.Y. 1995-96 and A.Y 1996-97 BMIL had opted not to claim depreciation on its assets, and the A.O also had not allowed the same while framing the assessments for the said respective years. After the merger, the assessee company in its returns of income filed for the subsequent years claimed depreciation on the assets of BMIL after taking into account their Written down val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of CIT Vs. Mahendra Mills (2000) 159 CTR (SC) 381 , had concluded that in the absence of a claim of depreciation by the assessee, the same could not have been thrust upon it even if the particulars were available with the AO. We have perused the order of the Tribunal for A.Y. 2008-09 and finding no reason to take a different view, respectfully follow the same. Apart there from, we are also in agreement with the ld. A.R that now when the DRP while disposing off the objections filed by the assessee had specifically directed the A.O to allow claim of depreciation as was raised by the assessee in respect of BMIL, therefore, there was no reason for the A.O to have not followed such directions while passing the final assessment order u/s 143(3) r.w.s 144C(13), dated 28.01.2014. In terms of our aforesaid observations, we direct the A.O to allow the assesses claim of depreciation insofar the assets of BMIL are concerned. 19. As regards the claim of depreciation raised by the assessee on the assets of PHL which w.e.f 01.06.1996 were taken over by the assessee under a scheme of arrangement duly sanctioned by the Hon ble High Court of Bombay, vide its order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the preceding years, therefore, we find no infirmity in the order of the DRP who had rightly directed the A.O to allow depreciation to the assessee on the basis of the outcome of the main appeal. In terms of our aforesaid observations the Ground of appeal No. IV raised by the assessee is partly allowed. Adjustment of Inventory as per Sec. 145A : ₹ 1,16,08,088 21. We shall now advert to the contention of the ld. A.R that the A.O/DRP had erred in re-computing the value of the closing stock at ₹ 15,982.73 lacs as against ₹ 14,834 lacs and opening stock at ₹ 14,367.65 lacs as against ₹ 13,335 lacs, on the ground that the assessee is following exclusive method of accounting for MODVAT with regards to its inventory. It is the claim of the ld. A.R that irrespective of whether the assessee follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT shall have no bearing on the profits of the assessee. We find that the assessee had before the lower authorities objected to the aforesaid addition as was sought to be made by the A.O on three counts viz. (i) that requirement of valuing the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h on the issue under consideration and find that the assessee for the purpose of its statutory accounts had followed the AS-2 on Valuation of Inventories, and the Guidance Note on Accounting Treatment of MODVAT/CENVAT issued by the ICAI. Accordingly, the assessee had followed the exclusive method for accounting purposes. However, for the purposes of income-tax it had worked out the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by including inter alia the CENVAT credit. The adjustment required u/s 145A of the I.T Act was reflected in Clause 12(b) of the tax audit report of the assessee. As per Clause 12(b) the adjustment u/s 145A worked out at Nil. It is the claim of the assessee that the amount reflected in Clause 12(b) of the tax Audit report shall be treated as the adjustment required u/s 145A, and in support thereof had relied on the order of the ITAT, Mumbai in the case of Hawkins Cookers Ltd. Vs. ITO (2008) 14 DTR 206 (Mum) . We have perused Clause 12(b) (Page 61 of APB ) of the Tax Audit report of the assessee and find that it is the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 3,208,600,000/-; and (iv). Profit Loss a/c : ₹ 3,208,600,000/-. It was thus submitted by the ld. A.R that the disallowance of interest expenditure U/rule 8D(2)(ii) of ₹ 34.23 lacs made by the A.O/DRP could not be sustained and was liable to be vacated. Insofar the disallowance U/rule 8D(2)(iii) of administrative expenses of ₹ 524.83 lacs made by the A.O/DRP was concerned, it was averred by the ld. A.R that the same was to be computed only after considering those investments which had yielded exempt income during the relevant year for working out the average value of investments. 24. We have deliberated on the issue under consideration and are persuaded to subscribe to the contentions advanced by the ld. A.R. Insofar disallowance of interest expenditure u/s 14A r.w. Rule 8D(2)(ii) is concerned, we are in agreement with the ld. A.R that in case an assessee has sufficient interest free funds which would explain the source of the investments made in the exempt income yielding assets, then no disallowance of any part of the interest expenditure can be made u/s 14A r.w Rule 8D(2)(ii). Our aforesaid view is fortified by the judgments of the Hon ble Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii). As per the said working the disallowance works out at ₹ 20,730.26. The A.O is directed to examine the working of the assessee and decide the issue accordingly after affording an opportunity of being heard to the assessee. The Ground of appeal No. VI is allowed for statistical purposes in terms of our aforesaid observations. Disallowance of deduction under Sec. 35A : ₹ 2,42,85,714/- 26. We shall now take up the issue pertaining to disallowance of deduction of ₹ 2,42,85,714/- claimed by the assessee u/s 35A of the I-T Act. Briefly stated, the assessee had claimed a deduction of an amount of ₹ 2,42,85,714/- in its computation of income i.e 1/14th of ₹ 34,00,00,000/- that was incurred by Sarabhai Piramal Pharmaceuticals Ltd. (for short SPPL ) towards purchase of trademark from Ambalal Sarabhai Enterprises (for short ASE ). As per agreement dated 03.10.1997 as SPPL had merged with the assessee, therefore, the claim u/s 35A was raised by the assessee company. In the course of the assessment proceedings the A.O proposed to disallow the aforesaid claim of deduction of ₹ 2,42,85,714/- raised by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m i.e A.Y 2008-09 by following the view taken by his predecessor in the said earlier years. Apart there from, it was noticed by the Tribunal that as was discernible from the order of the Hon ble High Court of Bombay while deciding the Revenue s appeal on the said issue in the case of SPPL for A.Y 1998-99, the Tribunal had allowed the appeal of the assessee on the said issue on two grounds viz. (i). that as trade mark is not alien to patent right as there is a direct link between patent right and trade mark, thus the assessee was eligible to claim deduction u/s 35A; and (ii). Alternatively, that if the claim of deduction u/s 35A was not allowable, still the deduction has to be allowed u/s 37 of the I-T Act in view of the judgment of the Hon ble Apex Court in Alembic Chemicals Works Co. Ltd. Vs. CIT (1988) 177 ITR 377 (SC) . It was observed by the Tribunal that the revenue in its aforesaid appeal before the Hon ble Jurisdictional High Court in the case of SPPL for A.Y 1998-99, being conscious of the fact that if it succeeded on the ground of entitlement of the assessee towards deduction u/s 35A on the trade marks, then the deduction of the entire expenditure of ₹ 34 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch expenses were liable to be disallowed in the hands of the pharmaceutical companies. The DRP while rejecting the objection of the assessee observed, that keeping in view the fact that the assessee could not substantiate the expenses in all, and those were found to have been incurred in violation of the provisions of law regarding illegal payments as per the provisions of Medical Council (Professional Conduct Etiquette and Ethic) Regulations 2002, therefore, the A.O had in all fairness disallowed 50% of the said expenses. On the basis of the said directions of the DRP the A.O by his final assessment order passed u/s 143(3) r.w.s 144C(13), dated 28.01.2014 disallowed 50% of the expenses amounting to ₹ 27,90,84,346/-, for the reason that the majority of these expenses were incurred for giving various freebies to doctors for promotion of assesses business, which were inadmissible u/s 37(1) being an expense that was prohibited by law. 29. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record and the judicial pronouncements relied upon by them. It is the claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. We have deliberated at length on the issue under consideration and find that the issue that the expenses incurred by an assessee which is a pharmaceutical company would not be hit by the Explanation 1 to Sec. 37 of the I.T. Act, is covered by the order of a coordinate bench of the Tribunal i.e ITAT A Bench, Mumbai in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018) .The Tribunal after exhaustive deliberations in the aforesaid case, had observed that a perusal of the provisions of the Indian Medical Council Act, 1956, revealed that the scope and ambit of the statutory provisions relating to professional misconduct of registered medical practitioners under the Indian Medical Council Act, 1956, is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name is entered in the Indian Medical Register maintained under Sec. 21 of the said Act. Further, it was observed that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society, and deals only with the conduct of individuals registered medical practitioners and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouncil Act, 1956, would be liable to be disallowed in the hands of such pharmaceutical or allied health sector industry or any other assessee which had provided such freebies and claimed the same as a deductible expense against its income in the accounts. 21. We have deliberated at length on the issue under consideration and after perusing the regulations issued by the Medical Council of India, find that the same lays down the code of conduct in respect of the doctors and other medical professionals registered with it, and are not applicable to the pharmaceuticals or allied health sector industries. Rather, a perusal of the provisions of the Indian Medical Council Act, 1956, reveals that the scope and ambit of statutory provisions relating to professional conduct of registered medical practitioners under the Indian Medical Council Act, 1956 is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name are entered in the Indian Medical Register maintained under Sec. 21 of the said Act. We are of the considered view that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of our aforesaid observations are of the considered view that even if the assessee had incurred expenditure on distribution of freebies to doctors and medical practitioners, the same though may not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 (as amended on 10.12.2009), however, as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies in incurring of such sales promotion expenses, the latter cannot be held to have incurred an expenditure for a purpose which is an offence or is prohibited by law. In this regard we are reminded of the maxim Expressio Unius Est Exclusio Alterius , which provides that if a particular expression in the statute is expressly stated for a particular class of assessee, then by implication what has not been stated or expressed in the statute has to be excluded for other class of assesses. Thus, now when the MCI regulations are applicable to medical practitioners registered with the MCI, then the same cannot be made applicable to pharmaceutical companies or other allied healthcar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from other sources as the case may be depending on the facts of each case. The assessing officers of such medical practitioner or professional associations should examine the same and take an appropriate action. This may be brought to the notice of all the officers of the charge for necessary action. We may herein observe that a perusal of the aforesaid CBDT Circular reveals that the freebies provided by the pharmaceutical companies or allied health sector industries to medical practitioners or their professional associations in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 shall be inadmissible under Sec. 37(1) of the Income Tax Act, 1961, as the same would be an expense prohibited by the law. We are of the considered view that as observed by us hereinabove, the code of conduct enshrined in the notifications issued by MCI though is to be strictly followed and adhered by medical practitioners/doctors registered with the MCI, however the same cannot impinge on the conduct of the pharmaceutical companies or other healthcare sector in any manner. We find that nothing has broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12, dated 01.08.2012 was also looked into by the ITAT A Bench, Mumbai , in the aforementioned case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018) , wherein it was observed as under : 25. We thus, in the backdrop of the aforesaid settled position of law as regards the prospective applicability of an oppressive circular, are of the considered view that as the CBDT as per its Circular No. 5/2012, dated 01.08.2012 had enlarged the scope of Indian Medical Council Regulation, 2002, and had made the same applicable to the pharmaceutical companies, thus the same cannot be reckoned to have a retrospective effect. We find that a coordinate bench of the Tribunal viz. ITAT, Mumbai in the case of Syncom Formulations (I) Ltd. Vs. DCIT-8(3), Mumbai (ITA No. 6428 6429/Mum/2012, dated 23.12.2015) for A.Ys 2010-11 and 2011-12 had concluded that the aforesaid CBDT Circular No. 5/2012, dated 01.08.2012 would not be applicable to the A.Ys 2010-11 and 2011-12, as the same was introduced w.e.f. 01.08.2012. We thus, in terms of our aforesaid observations are of the considered view that the aforementioned CBDT Circular No. 5/2012, dated 01.08.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving administrative relief or for clarifying the provisions of law, but the same cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee. We thus, are unable to persuade ourselves to subscribe to the rigours contemplated in the CBDT Circular No. 5/2012, dated 01.08.2012, which we would not hesitate to observe, despite absence of anything provided by the MCI in its regulations issued under the Medical Council Act, 1956, contemplating that the regulation of code of conduct would also cover the pharmaceutical companies and healthcare sector, however provides that in case a pharmaceutical or allied health sector industry incurs any expenditure in providing any gift, travel facility, cash, monetary grant or similar freebies to medical practitioners or their professional associations in violation of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, the expenditure incurred on the same shall be disallowed in the hands of such pharmaceutical or allied health sector industry. We are of the consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain cases it was also not known as to who was the beneficiary of the amount that was given and what was the benefit that was accorded, therefore, the expenses claimed by the assessee cannot be considered as established to have been incurred by it wholly and exclusively in the course of its business. We are unable to persuade ourselves to endorse the aforesaid observations of the A.O for drawing of adverse inferences as regards the aforesaid expenses incurred by the assessee. As a matter of fact, as is discernible from the assessment order, the A.O except for directing the assessee to furnish sample bills, had at no stage called upon it to substantiate the same on the basis of any further material. At least, no such exercise carried out by the A.O can be gathered from the orders of the lower authorities. Apart there from, nothing has been brought to our notice by the ld. D.R in the course of hearing of the appeal which would have persuaded us to have arrived at a different view. Be that as it may, we find that the A.O even at the time of disallowing 50% of the expenses i.e ₹ 27,90,84,346/-, had observed that the same were being disallowed as majority of the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i). that the assessee had not demonstrated that the expenses incurred for R D either in the present or in the future were not in connection with its Baddi unit; and (ii). that the assessee had not demonstrated that any research which was being undertaken would not be used by it in its Baddi unit in future. As regards the allocation of the interest expenditure, the DRP declined to accept the contention of the assessee that the self owned funds and internal accruals of the Baddi unit were being utilized for the latter business. Rather, the DRP was of the view that as the business of the assessee was one, therefore, the borrowing costs had to be allocated amongst its constituents in logical proportions. On the basis of his aforesaid deliberations the DRP rejected the objection filed by the assessee as regards proposed allocation of both R D expenses and interest expenditure by the A.O. 37. The A.O following the directions of the DRP allocated the R D expenses of ₹ 12,28,00,000/- and Interest expenditure of ₹ 11,31,00,000/- to the Baddi unit, and resultantly disallowed the assesses claim of deduction u/s 80IC by an amount of ₹ 23,59,00,000/- in his fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also vide its aforesaid letter dated 11/02/2013 submitted that its detailed submissions at Para 60(iv) of its letter dated 14/11/2011 filed in the course of the assessment proceedings for A.Y 2008-09, as well as submissions made/provided during the course of the assessment proceedings of F.Y 2006-07 relevant to A.Y 2007-08 i.e the year of formation of the Baddi unit may also be considered in context of the issue under consideration. Insofar the R D expenses were concerned, it was in clear and unequivocal terms stated by the assessee vide its reply dated 11/02/2013 that the expenses of R D were incurred mainly on Process development for customs manufacturing. It was submitted by the assessee that as custom manufacturing had no connection directly or indirectly with the manufacturing activities carried out at Baddi unit, therefore, no part of such expenditure could be allocated to the said unit. 40. We have deliberated on the aforesaid claim of the assessee and are of the considered view that bypassing the specific claim of the assessee, the A.O had carried out part allocation of the interest R D expenditure to its Baddi unit, only for the reason that there was a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar under consideration claimed deduction u/s 80IC of ₹ 274,14,16,642/- in respect of its unit situated at Village: Bhatauli Khurd, P.O Baddi, Tehsil Nalagarh, District: Solan, Himachal Pradesh (hereinafter referred to as Baddi Unit ), which is stated to be engaged in the business of manufacturing of pharmaceutical goods. In the course of the assessment proceedings, it was observed by the A.O that such claim of deduction raised by the assessee as regards its Baddi unit was rejected by his predecessor in A.Y 2008-09. In the backdrop of the aforesaid fact, the A.O while framing the assessment for the year under consideration called upon the assessee to explain as to why on the similar ground its claim of deduction u/s 80IC may not be disallowed. In its reply, it was submitted by the assessee that it had set-up its Baddi unit on 10.06.2006, being the date on which the production had commenced at the said unit. In order to fortify its aforesaid claim of having set-up the aforesaid unit in the period relevant to A.Y 2007-08, the assessee took support of the report of the Chartered accountant in Form 10CCB that was filed along with the return of income for A.Y 2007-08. It was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 7.67 crore and ₹ 2.78 crore, respectively. In order to fortify its aforesaid claim, it was submitted by the assessee that its Baddi unit was sold by way of slump sale on 08.09.2010 to M/s Abbott Healthcare Pvt. Ltd, which had in its reply to a letter dated 09.01.2012 had submitted before the A.O that the book value of the FFS machine on the said date viz.08.09.2010 was 5.45 crore. On the basis of the aforesaid facts, it was submitted by the assessee that in any event the value of the FFS machine would be less than 20% of the value of the total plant and machinery that was installed and used at the Baddi unit. Apart there from, it was the claim of the assessee that though the FFS machine was transferred to Baddi unit in March, 2008, but the actual installation and use of the said machine took place much later. It was claimed by the assessee that in the previous year relevant to A.Y 2008-09 the FFS machine was not even installed, much the less put to use. On the basis of the aforesaid contentions, it was submitted by the assessee that as its claim for deduction u/s 80IC was well in order, therefore, there was no reason for denying the same during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediately preceding year i.e A.Y 2008-09. Further, the DRP observed that as the appeal of the assessee for A.Y 2008-09 was pending before the first appellate authority, therefore, the A.O by adopting a consistent approach had rightly disallowed the said claim of deduction during the year under consideration, subject to a rider that the same would be dependant on the final decision taken in appeal for A.Y 2008-09 that was pending adjudication. In sum and substance, as the denial of the assesses claim of deduction u/s 80IC for the year under consideration is inextricably interwoven and rather dependant on the reasoning adopted by the A.O/CIT(A) in A.Y 2008-09 for declining the claim of deduction raised by the assessee u/s 80IC in the said preceding year, therefore, it would be imperative on our part to also deliberate on the observations drawn by the said lower authorities in the case of the assessee for A.Y 2008-09. 43. The assessee company in its return of income for A.Y 2008-09 had raised a claim of deduction u/s 80IC of ₹ 247,10,42,003/-. The A.O in his draft assessment order u/s 143(3) r.w.s 144C, dated 29.12.2011 restricted the assesses entitlement towards c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s deleted by the Tribunal on the aforesaid legal issue, therefore, it did not advert to the merits of such disallowance which was assailed by the assessee before it. 44. Insofar the disallowance of the assesses claim of deduction u/s 80IC on merits by the A.O and sustained by the CIT(A) in A.Y 2008-09 is concerned, we find that the same had been relied upon by the A.O/DRP while concluding that the assessee was not eligible for claim of deduction u/s 80IC of ₹ 274,14,16,642/- during the year under consideration viz. A.Y 2009-10. As is discernible from the order of the CIT(A) for A.Y 2008-09, the genesis of the adverse inferences drawn by the A.O as regards the eligibility of the assessee for claim of deduction u/s 80IC was a Tax Evasion Petition (for short TEP ) that was received by him while framing the assessment of the assessee for A.Y 2008-09. Alongwith the TEP, a note prepared by Shri. A.B. Khot, General Manager, Manufacturing (Haemaccel), Mumbai, titled as business exigencies for shifting haemaccel manufacturing facility from Mulund, Mumbai to Baddi, H.P was forwarded to the A.O. As per the said note , it was stated that for business exigencies the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installed for running the entire HMR site and running these only for FFS machine was a costly proposition; (xii). that HMR which had its entire manufacturing activities including the research centre at Mulund site, had after selling the research centre and the Haemaccel plant to NPIL, had sold off the remaining site to developers who had put up commercial malls and residential complexes around the Haemaccel plant, as a result whereof there were complaints of smoke, noise from the residents, which were likely to increase in future. Apart there from, it was stated in the said letter that discussions were held with the Nicholas Employees union (i.e assesses employees union) for transfer of permanent workmen employed at Mulund to Baddi and arrangements for transfer were communicated to the employees union and transfer letters were also being issued to the permanent workmen. Further, it was stated in the said letter that the dismantling of the manufacturing facilities were to commence from 01.03.2008. 45. We find that the A.O acting on the basis of the information divulged by the TEP , had thereafter after making certain verifications disallowed the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprise is not formed by the transfer to a new business of machinery or plant previously used for any purpose. In sum and substance, as is discernible from the order of the CIT(A) for A.Y 2008-09, the A.O had disallowed the assesses claim for deduction u/s 80IC for two main grounds viz. (i). assessee had shifted the HAEMACCEL manufacturing facility from Mulund unit to its Baddi unit; and (ii). one of the major items of plant and machinery i.e FFS machine and allied equipment and accessories were transferred from Mulund unit to its Baddi unit, therefore the assessee had violated both the conditions stipulated in sub-section (4) of Sec. 80IC of the I-T Act, 1961. 46. Aggrieved, the assessee had assailed the assessment order for A.Y 2008-09 in appeal before the CIT(A). In order to impress upon the CIT(A) that it was eligible for claim for deduction u/s 80IC, the assessee had raised multiple contentions before him, as under : (i). That the conditions stipulated in Sec. 80IC(4) could be examined only in the year of Formation of the undertaking/unit. It was submitted by the assessee that as the Baddi unit was set-up by the assessee in F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e backdrop of the aforesaid facts, it was submitted by the assessee that in all the three scenarios viz. (i) the original cost (₹ 12.27 crore); (ii) the book w.d.v (₹ 7.67 crore); and (iii). the income-tax w.d.v (₹ 2.78 crore), the value of the FFS machine transferred from the Mulund unit, Mumbai to Baddi unit, Himachal Pradesh worked out to less than 20% of the total value of plant machinery used at the Baddi unit. It was thus the claim of the assessee that as the value of the FFS machine transferred to Baddi unit was less than 20%, therefore, as per Sec. 80IC(4) r.w. Explanation 2 of Sec. 80IA(3), the condition contemplated in Sec. 80IC(4)(ii) stood satisfied. (iv). Alternatively, the FFS machine which was shifted from Mulund unit to Baddi unit was not installed or put to use in the year ended March 31,2007 (1st year) or March 31,2008 (2nd year) : It was the claim of the assessee that though the FFS machine was transferred to Baddi unit around March, 2008, however, the machine was installed and put to use only in February, 2009. In order to fortify his aforesaid claim the assessee had drawn support from certain docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used for filling up liquid pharma product viz. Haemaccel . In fact, a close scrutiny of the observations of the CIT(A) while disposing off the appeal of the assessee for A.Y 2008-09 reveals that he held a conviction that the assessee by splitting up the existing Mulund unit, had set-up a Haemaccel unit at Baddi, Himachal Pradesh. It was observed by the CIT(A) that as the assessee had failed to satisfy the basic conditions laid down in sub-section (4) of Sec. 80IC of the I-T Act, therefore, it was not entitled for claim of deduction u/s 80IC not only for A.Y 2007-08 but also for A.Y 2008-09 and the subsequent assessment years. Apart there from, it was observed by the CIT(A) that the assessee had tried to side track from the main issue of splitting up and reconstruction of the existing Mulund unit, Mumbai and setting up of Baddi, Himachal Pradesh unit during A.Y 2008-09. Insofar satisfaction of the second condition envisaged in Sec. 80IC(4)(ii) r.w Explanation 2 to Sec. 80IA(3) of the I-T Act was concerned, it was observed by the CIT(A) that as the value of the FFS machinery transferred by the assessee from its Mulund unit to its Baddi unit was in excess of 20% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit, Himachal Pradesh the value of the FFS machine with accessories was mentioned at ₹ 16.08 crore, therefore, the same supported the fact that the plant and machinery transferred by the assessee to its Baddi unit was of a value of ₹ 16,87,47,613/- (supra). It was thus observed by the CIT(A) that now when the assessee itself had adopted the value of the FFS machine along with accessories at ₹ 16.08 crores, therefore, there was no reason to rely on the third party details gathered from M/s Abbot Healthcare Pvt. Ltd. to whom the Baddi unit of the assessee was sold by way of slump sale in September, 2010 or any other third party statements. It was thus observed by the CIT(A) that as the value of the FFS machine transferred by the assessee from its Mulund unit, Mumbai to its Baddi unit, Himachal Pradesh was of a value of ₹ 16,87,47,613/- i.e in excess of ₹ 10.82 crores [20% of ₹ 54.13 crores i.e total value of plant and machinery], therefore, the assessee also did not satisfy the second condition envisaged in Sec. 80IC(2)(ii) of the I-T Act. On the basis of his aforesaid deliberations, it was observed by the CIT(A) that the assessee had viola ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the machinery or plant used in its business at the Baddi unit, therefore, as per Sec. 80IC(4)(ii) r.w Explanation 2 of Sec. 80IA(3) the Baddi unit could not be held to have been formed by transfer of machinery or plant previously used for any purpose. 49. We shall first advert to the contention advanced by Shri. J.D Mistry, the ld. Senior counsel for the assessee that the A.O/DRP had erred in failing to appreciate that the qualifying conditions prescribed in sub-section (4) of Sec. 80IC viz. (i) that the undertaking or enterprise is not formed by splitting up, or the reconstruction, of a business already in existence; and (ii). that the undertaking or enterprise is not formed by the transfer to a new business of machinery or plant previously used for any purpose, are static and are required to be satisfied only in the initial assessment year. In order to appreciate the said contention of the Ld. A.R, it would be relevant to cull out qualifications prescribed in sub-section (4) of Sec. 80IC, which reads as under: 80-IC(4), Thus section applies to any undertaking or enterprise which fulfils all the following conditions, namely:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re are certain other conditions that have to continue to exist for claiming the incentive, such as employment of particular number of workers or not manufacturing or producing an article or things specified in the 8th schedule by an industrial undertaking (other than small scale industrial undertaking). The Hon ble Supreme Court while concluding as hereinabove, had observed as under: No doubt, certain qualifications are required only in the initial assessment year, e.g. requirements of initial constitution of the undertaking. Clause 2 limits eligibility only to those undertakings as are not formed by splitting up of existing business, transfer to a new business of machinery or plant previously used. Certain other qualifications have to continue to exist for claiming the incentive such as employment of particular number of workers as per sub-clause 4(i) of Clause 2 in an assessment year. For industrial undertakings other than small scale industrial undertakings, not manufacturing or producing an article or things specified in 8th Schedule is a requirement of continuing nature. We find that the conditions envisaged in clause (i) and (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, it was observed by the Tribunal that the condition of not formed by splitting up, or the reconstruction of a business already in existence or by transfer to a new business of machinery or plant previously used for any purpose, are required to be established in the initial year alone. 50. In the backdrop of our aforesaid observations that the satisfaction of the conditions prescribed in Sec. 80IC(4) are required to be satisfied only in the year of formation , we shall now deliberate on the facts involved in the case before us. Admittedly, the assessee had set-up its Baddi unit on 10.06.2006, being the date on which production had commenced in the said unit. The said date of formation of the Baddi unit is discernible from the certificate issued by a Chartered Accountant in Form No. 10CCB for A.Y 2007-08, wherein at Col No. 8 the date of commencement of operation activity by the undertaking or enterprise is stated as June 10, 2006 . Further, the assessee in the course of its assessment for A.Y 2007-08 had vide its letter dated 24.09.2009 (Page 524 of APB ) furnished with the A.O viz. (i). copy of the certificate of commencement of commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that as the assessee had failed to have satisfied the conditions prescribed in Sec. 80IC(4), thus it was not eligible for the same. On the basis of our aforesaid observations, we are of the considered view that now when admittedly the Baddi unit was formed by the assessee on 10.06.2006 i.e the period relevant to A.Y 2007-08, therefore, in the backdrop of the settled position of law as had been deliberated by us at length hereinabove, the satisfaction of the conditions prescribed in Sec. 80IC(4) was confined to the initial year i.e year of formation viz. A.Y 2007-08. In fact, we are of the considered view that now when the A.O had vide his assessment framed u/s 143(3), dated 18.12.2009 for A.Y 2007-08, had allowed the assesses claim of deduction u/s 80IC, therefore, there could have been no reason for him to have drawn adverse inferences as regards the eligibility of the assesses towards claim of such deduction during the year under the consideration viz. A.Y 2009-10 i.e the 3rd year of its operation, on the ground that the assessee had violated the conditions of constitution/formation as envisaged in Sec. 80IC(4). Be that as it may, as the satisfaction of the conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstance, the CIT(A) in the backdrop of his aforesaid observations had tried to project that the manufacturing of the pharma product viz. HAEMACCEL had resulted into setting up of a new HAEMACCEL manufacturing plant, which was a separate unit by itself. We have given a thoughtful consideration to the aforesaid observations of the CIT(A) and are unable to persuade ourselves to subscribe to the same. As observed by us hereinabove, the Baddi Unit of the assessee which was set up/ formed on 10.06.2006 since the initial year i.e the period relevant to A.Y.2007-08 was into manufacturing of 87 medicines/drugs, complete details of which were furnished by the assessee in the course of the assessment proceedings for A.Y. 2007-08. In our considered view the manufacturing of a new pharmaceutical formulation viz. HAEMACCEL along with 14 new pharma products for which a license was granted to the assessee in December, 2008/January, 2009 cannot be construed as setting up of a new undertaking or enterprise by the assessee. We are of a strong conviction that the pharmaceutical unit of the assessee at Baddi, Himachal Pradesh which was already manufacturing 87 medicines/drugs since its formation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the revenue in the hands of the assessee while framing the assessment for the year under consideration viz. A.Y. 2009-10 i.e its third year since formation cannot be sustained and is liable to be struck down on the said count itself. 52. We though have vacated the adverse inferences drawn by the lower authorities as regards the eligibility of the assessee towards claim of deduction u/s 80IC on the ground that the satisfaction of the conditions envisaged in sub-section (4) of Sec. 80IC can only be looked into in the year of formation and not in the subsequent years, however, for the sake of completeness we shall also deliberate on the merits of the claim of the assessee towards deduction under Sec.80IC. As is discernible from the orders of the lower authorities, the assessee was held to be ineligible for claim of deduction under Sec.80IC for the reason that it had failed to have satisfied both of the conditions envisaged in sub-section (4) of Sec.80IC viz. (i). that the undertaking or enterprise is not formed by splitting up, or the reconstruction, of a business already in existence; and (ii) that the undertaking or enterprise is not formed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be inferred that the Baddi unit for the said reason was to be held to have been formed by splitting up or the reconstruction of the business of the Mulund Unit of the assessee. Insofar the transfer of the FFS machine by the assessee from the Mulund unit to its Baddi Unit is concerned, the same in our considered view is a transfer of a machine which was earlier used at the Mulund Unit. Also, we are of a strong conviction that an undertaking or enterprise can be said to have been formed out of an existing business if the physical identity with the old unit is preserved, which is not the case before us. Be that as it may, in our considered view as the Baddi unit was formed way back on 10.06.2006 i.e the period relevant to A.Y. 2007-08, therefore, there is no occasion for us to infer that it was formed either by splitting up or the reconstruction of the Mulund Unit of the assessee during the year under consideration. As regards the satisfaction of the second condition envisaged in clause (ii) of Sec.80IC(4) viz. that the undertaking or enterprise should not be formed by the transfer to a new business of machinery or plant previously used for any purpose is concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the value of the said machine. It was thus submitted by the ld. A.R that the value of the FFS machine, whether the same be taken at cost or as per the WDV on the basis of books of accounts or the WDV as per the income tax records , was in either situation found to be substantially below 20% of the total value of plant machinery used for business at the Baddi unit, both in the year of formation i.e A.Y. 2007-08 or in the year in which the same was transferred i.e A.Y. 2008-09. In order to substantiate his aforesaid contention the ld. A.R had placed on record a chart wherein the aforesaid factual position stands revealed, as under: Particulars A.Y. 2007-08 A.Y. 2008-09 Cost Book WDV I.T WDV Cost Book WDV I.T WDV Total asset at Baddi 83.32 80.49 54.14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accumulated depreciation of the said machine is not borne from the records and would require verification. Therefore, to the said extent the matter in all fairness is restored to the file of the A.O for making necessary verification. In case the claim of the assessee is found to be in order, then no adverse inferences as regards satisfaction of the second condition envisaged in Sec.80IC(4)(ii) would be drawn in its hands. The Ground of appeal No. X is allowed in terms of our aforesaid observations. Addition towards transfer pricing adjustment :₹ 18,87,62,465/- 54. We shall now take up the transfer pricing adjustment of ₹ 18,87,62,465/- made by the A.O/TPO on account of corporate guarantee provided by the assessee on behalf of its Associated Enterprise (for short AE ), which has been assailed by the assessee before us. Briefly stated, the assessee company had given corporate guarantee for its AE viz. Piramal Healthcare Inc., USA. The A.O made a reference u/s 92CA(1) for determining the Arms length price (for short ALP ) of the international transactions of the assessee to the Addl. CIT, Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for exchange rate, risk, country specific risk and AE risk involved in giving guarantee on loans. It is the claim of the assessee that as the excess interest charged from the AE was sufficient to cover the Arms length guarantee fee on the risk exposure, therefore, the upward adjustment to the said extent is liable to be vacated. Alternatively, it is the claim of the assessee that the A.O be directed to recompute the addition on account of transfer pricing adjustment by taking the Arm s Length Rate at 0.35% i.e the rate at which HDFC Bank had given a domestic guarantee on behalf of the assessee. 56. During the course of hearing of the appeal, the ld. A.R has assailed the addition towards TP adjustment on account of Corporate guarantee fee on three grounds viz. (i). that corporate guarantee is not an international transaction; (ii). that the amendment to the definition of International transaction as envisaged in Sec. 92B, by the Finance Act, 2012, therein bringing within its sweep guarantee is prospective in nature; (iii). the blanket rates available on the website cannot be adopted to benchmark the transaction of corporate guarantee and commission.; and (iv). tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission on Corporate Guarantee @ 0.5%. The Ground of appeal No. XI is partly allowed in terms of our aforesaid observations. Addition of disallowance u/s 14A r.w Rule 8D for computing book profits under Sec. 115JB : 59. We shall now advert to the contention of the ld. A.R that the A.O/DRP had erred in adding back the disallowance made u/s 14A r.w Rule 8D for the purpose of computing the book profit u/s 115JB of the I.T Act. We have deliberated on the issue under consideration and are persuaded to subscribe to the contention advanced by the ld. A.R that the disallowance made u/s 14A is not to be considered for the purpose of computing the book profit u/s 115JB of the I-T Act. Our aforesaid view is fortified by the order of the Special bench of the ITAT, Delhi in the case of ACIT Vs. Vireet Investments (P) Ltd (2017) 165 ITD 27 (Del) (SB) and the order of the Hon ble High Court of Bombay in the case of CIT Vs. Bengal Finance Investment Pvt. Ltd. [ITA No. 337 of 2013] (Bom) . In terms of our aforesaid observations, we direct the A.O to not consider the disallowance made u/s 14A r.w Rule 8D while computing the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year under consideration and given similar directions. We are of the considered view that the revenue in the present appeal had wrongly inferred that the DRP had directed the deletion of the entire disallowance of ₹ 68,75,396/-. 64. As regards the merits of the issues under consideration, we have already deliberated at length on the same while disposing off the Ground of appeal No. IV raised by the assessee in its appeal for the year under consideration before us. Insofar the claim of depreciation on the assets of BMIL is concerned, we had followed the directions of the Tribunal in the assesses own case for the A.Y 2008-09 and have directed the A.O to allow the same. As regards the claim of depreciation raised by the assessee on the assets of PHL which w.e.f 01.06.1996 were taken over by the assessee under a scheme of arrangement duly sanctioned by the Hon ble High Court of Bombay, vide its order dated 14.08.1997, we had after cognizance of the fact that the issue as to whether the sale of the aforesaid two divisions viz. (i). Glass Division (GGL); and (ii). Bulk Drug Division (BDD) by the assessee was to be construed as an itemized sale of assets o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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