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TMI Blog2020 (6) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Adjustment - deduction u/s 35(2AB) being 200% of amount incurred towards scientific research - HELD THAT:- As rightly contended by the assessee before Ld. DRP that the issue is squarely covered in assessee s favor by the decision of Pune Tribunal in Cummins India Ltd. V/s DCIT [ 2018 (5) TMI 1314 - ITAT PUNE] - we hold that Ld.AO was not justified in curtailing the deduction u/s 35(2AB) in the pre-amended period. Therefore, by deleting the impugned additions. - I.T.A. No.7284/Mum/2018 - - - Dated:- 26-5-2020 - Shri Saktijit Dey, JM And Shri Manoj Kumar Aggarwal, AM For the Appellant : Ms. Urvi A. Mehta-Ld.AR For the Respondent : Shri Rajeev Harit -Ld. CIT-DR ORDER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1.1 Aforesaid appeal by assessee for Assessment Year [in short referred to as AY ] 2014-15 contest certain additions / adjustment made in final assessment order dated 17/10/2018 passed by Ld. Assistant Commissioner of Income Tax-7(3)(1), Mumbai [AO] u/s. 143(3) r.w.s. 144C(13), pursuant to the directions of Dispute Resolution Panel-2, Mumbai, [in short referred to as DRP], u/s 144C(5) dated 24/09/2018. The grounds raised read as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, erroneous and incorrect. 2:4 The Appellant submits that the learned AO be directed to delete the upward adjustment of INR 120,969/- made by him to the Appellant's total income and to re compute its total income and tax liability accordingly. 3 : 0 Not granting deduction of INR 10,54,524/- being the weighted deduction allowable u/s. 35(2AB) of the Act 3:1 The AO/ DRP has erred in not granting deduction of INR 10,54,524/- incurred towards research and development expenditure, claimed u/s. 35(2AB) of the Act. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the AO ought to have granted weighted deduction under section 35(2AB) of the Act as the R D facility has been approved by the DSIR and hence the stand taken by the AO/DRP in this connection is misconceived, erroneous and incorrect. 3:3 The Appellant submits that the AO be directed to grant entire deduction of the expenses incurred by the Appellant u/s. 35(2AB) of the Act and to re-compute its total income and tax thereon accordingly. 1.2 The income of the assessee has been determined at ₹ 1425.98 Lacs after certain Transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arm s Length price (ALP) was sale of goods by the assessee to one of its AE namely Omni-active Health Technologies Inc., USA (OHTI) for ₹ 11920.16 Lacs. The assessee benchmarked the same using Transactional Net Margin Method (TNMM), the assessee being the tested party, Profit Level indicator (PLI) being operating profit /operating expenses operating profit / operating revenue which were computed to be 19.02% 15.98% respectively. The assessee is stated to have sold natural ingredients products to its US AE. The assessee sourced certain raw material from third parties based in USA which is done via AE and AE had charged the assessee for the same on cost-to-cost basis. Such purchase of raw material amounted to ₹ 218.35 Lacs which was stated to be miniscule in comparison to overall volume of assessee s business. Both the transactions were aggregated for the purpose of benchmarking. The assessee also furnished segmental profitability wherein the return to total cost was reflected to be 22.05% on transactions with AE vis- -vis return of 8.4% on transactions with non-AEs. Accordingly, no TP adjustment was proposed by the assessee. However, the assessee, as per the observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has adopted transactional net margin method for determining the arm s length price for export of finalised goods to the Associate Enterprises. During the course of assessment proceedings, the Transfer Pricing Officer proceeded with the same and also asked the assessee to provide an updated margin of the comparable selected. The updated margin was given to the Transfer Pricing Officer. From the computation of updated margin also, the PLI of the assessee come to 15.21% which was higher than the PLI of the two comparable companies. Hence, from this analysis of updated comparables also, the transaction was found to be at arm s length. At this juncture, the Transfer Pricing Officer changed his tracks. He observed that no verifiable data has been provided to substantiate the method used. He further held that CUP would be a more appropriate method to bench mark the sale transaction. The assessee objected to the same. In the objections, the assessee also relied upon the OECD guidelines and the ITAT decision in the case of Welspun Zucchi Textiles Ltd. Vs ACIT. However, the Transfer Pricing Officer summarily rejected and held that the application of TNMM is the method of last resort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction provides the most reliable measure of an arm's length price in relation to the international transaction. (2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:- (a) the nature and class of the international transaction; (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises; (c) the availability, coverage and reliability of data necessary for application of the method; (d) the degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction and the comparable uncontrolled transaction or between the enterprises entering into such transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f most appropriate method set out in section 92C(1). The legislature does not provide for an order of preference of method of determining of arm s length price. Now once an appropriate method for determining the arms length price has been chosen and accepted by the Revenue consistently over a number of years, there has to be some cogent reason to make it departure from the consistent method. We do not find that any case has been made out by the Transfer Pricing Officer or the DRP that there was an error committed earlier when the TNMM method was chosen and approved. The Transfer Pricing Officer while justifying the change stated that in T.P. report assessee has bench marked the transaction under TNMM, no verifiable data has been provided to substantiate the method used. Hence, from the above discussion, we find that no cogent reason has been pointed out by the authorities below that the TNMM method applied earlier was not in accordance with the mandate of law as above. It is settled law that resjudicata does not apply to taxation proceedings but it has fairly often been held by the higher courts including by the Hon'ble Apex Court that the consistency should be maintained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Guarantee 4.1 The assessee provided corporate guarantee (CG) of 4 Million US dollars to Sun National Bank, New Jersey, USA to extend credit facilities to one of its 100% subsidiary. The initial guarantee was for 2.5 Million US dollars which was increased to 4 Million US dollars vide loan modification agreement dated 28/03/2014. In its TP study report, the assessee benchmarked the transactions and arrived at spread of 1.25% on these transactions. Applying the same to loan amount outstanding at the month end, the assessee worked out TP adjustment of ₹ 18.74 Lacs. However, during proceedings before Ld. TPO, it pleaded that the transactions would not constitute international transactions. The said plea was rejected in the light of decision of Hon ble Bombay High Court in Everest Kanto Cylinders Ltd. Mumbai Tribunal in Glenmark Pharmaceuticals (ITA No. 5031/Mum/2012 dated 13/11/2013). Finally, the rate of 1.25% adopted by the assessee was accepted as ALP rate. However, the same would apply to gross amount of guarantee and not on the actual loan availed by AE as held in Mumbai Tribunal in Laqshya Media Pvt. Ltd. (ITA No.500/Mum/2015 04/01/2017). Therefore, apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/Pun/2014) for the said submissions. However, Ld. DRP, relying upon DRP s direction for AY 2013- 14, confirmed the same. Aggrieved, the assessee is under further appeal before us. 5.3 Upon perusal of cited order of Tribunal in assessee s own case for AY 2013-14, we find that deduction was denied in that year since the assessee had not filed the necessary certificate issued by the prescribed authority in Form 3CL. The assessee sought to file the same during proceedings before Tribunal and therefore, the matter was remitted back to the file of Ld. AO for verification. However, the facts are different in this year since the assessee has furnished requisite certificates. The deduction has been denied to the extent of ₹ 10.54 Lacs, being the difference in amount claimed in Return of income vis- -vis amount mentioned in the Form issued by prescribed authority. Therefore, the decision of earlier year is not applicable to this year. 5.4 As rightly contended by the assessee before Ld. DRP that the issue is squarely covered in assessee s favor by the decision of Pune Tribunal in Cummins India Ltd. V/s DCIT (96 Taxmann.com 576 15/05/2018) wherein the coordinate bench has observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to maintenance of accounts and audit thereof and for audit of accounts maintained for that facility. 40. Under Rule 6 of Income Tax Rules, 1962 (in short 'the Rules), the prescribed authority for expenditure on scientific research under various sub-clauses has been identified. As per Rule 6(1B) of the Rules for the purpose of sub-section 2AB of section 35 of the Act, the prescribed authority shall be the Secretary, Department of Scientific and Industrial Research i.e. DSIR. Under sub-rule (4), application for obtaining approval under section 35(2AB) of the Act is to be made in form No.3CK. Under sub-rule (5A) of rule 6 of the Rules, the prescribed authority shall, if satisfied that the conditions provided in the rule and in sub-section (2AB) being fulfilled, pass an order in writing in form No.3CM. The proviso however lays down that reasonable opportunity of being heard is to be granted to the company before rejecting an application. So, the application has to be made under sub-rule (4) in form No.3CK and the prescribed authority has to pass an order in writing in form No.3CM. Sub-rule (7A) provides that the approval of expenditure under sub-section (2AB) of section 35 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 35(2AB) of the Act after the establishment of facility. However, section does not mention any cutoff date or particular date for eligibility to claim deduction. The Hon'ble High Court held as under:- 8. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of: (i ) development of facility; (ii ) incurring of expenditure by the assessee for development of such facility; (iii ) approval of the facility by the prescribed authority, which is DSIR; and (iv ) allowance of weighted deduction on the expenditure so incurred by the assessee. 9. The provisions nowhere suggest or imply that R D facility is to be approved from a particular date and, in other words, it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed form No.3CM. The Assessing Officer in that case refused to accord the benefit of aforesaid provision on the ground that recognition and approval was given by DSIR in the next assessment year. The Tribunal allowed the claim of assessee relying on the decision of the Hon'ble High Court of Gujarat inClaris Lifesciences Ltd.'s case (supra ). The Hon'ble High Court of Delhi taking note of the decision of the Hon'ble High Court of Gujarat observed that it has been held that cutoff date mentioned in the certificate issued by DSIR would be of no relevance where once the certificate was issued by DSIR, then that would be sufficient to hold that the assessee had fulfilled the conditions laid down in the aforesaid provisions. 45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a total period of 90 days. As per sub-clause (c) of Rule 34(5), every endeavor was to be made to pronounce the order within 60 days after conclusion of hearing. However, where it is not practicable to do so on the ground of exceptional and extraordinary circumstances, the bench could fix a future date of pronouncement of the order which shall not ordinarily be a day beyond a further period of 30 days. Thus, a period of 60 days has been provided under the extant rule for pronouncement of the order. This period could be extended by the bench on the ground of exceptional and extraordinary circumstances. However, the extended period shall notordinarily exceed a period of 30 days. 6.2 Although the order was well drafted as well as approved before the expiry of 90 days, however, unfortunately, on 24/03/2020, a nationwide lockdown was imposed by the Government of India in view of adverse circumstances created by pandemic covid-19 in the country. The lockdown was extended from time to time which crippled the functioning of most of the government departments including Income Tax Appellate Tribunal (ITAT). The situation led to unprecedented disruption of judicial work all over the country ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as inserted as a result of directions of Hon ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment . In the ruled so framed, as a result of these directions, the expression ordinarily has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond nin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered appropriate, following the due procedure . The term force majeure has been defined in Black s Law Dictionary, as an event or effect that can be neither anticipated nor controlled When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an ordinary period. 10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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