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TMI Blog2020 (7) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed is also reversed. Assessee is bound to succeed with regard to its alternative claim that even if the expenditure is treated as capital, depreciation would be allowable at the rate of 60%. As could be seen, while deciding similar issue in assessee s own case in Assessment Years 2009-10 and 2010-11 (supra), the Tribunal has allowed depreciation at the rate of 60%. This ground is allowed. Disallowance of deduction u/s 35(2)(AB) - AO disallowed weighted deduction at the enhanced rate only because the assessee failed to furnish approval of the competent authority in form 3CM - HELD THAT:- While deciding identical issue in assessee s own case in Assessment Year 2008-09 [ 2018 (7) TMI 1887 - ITAT MUMBAI] the Tribunal while holding that furnishing of form 3CM is mandatory has however restored the issue to the AO for enabling the assessee to furnish the approval in form 3CM. Identical view was expressed by the Tribunal while deciding similar issue in Assessment Years 2009-10 and 2010-11. Before us, the learned Counsel has submitted that though the assessee had applied for approval in form 3CM, as yet, the competent authority has not granted the approval. Considering the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive expenditure under Rule 8D(2)(iii) - as held in Vireet Investment Pvt. Ltd [ 2017 (6) TMI 1124 - ITAT DELHI] such disallowance has to be computed only taking into consideration the investments which have yielded exempt income during the year. Those investments which have not yielded any exempt income during the year have to be excluded from the average value of investments while computing the disallowance under Rule 8D(2)(iii) of the Rules. Disallowance of advertisement and business promotion expenses - expenditure incurred by the assessee was for providing gifts and travel facility to the doctors - AO has disallowed a part of expenditure on the allegation that it is in violation of the Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations - HELD THAT:- While deciding the issue in assessment year 2009-10 [ 2019 (5) TMI 689 - ITAT MUMBAI] the Tribunal has allowed assessee s claim holding that the Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations does not apply to the assessee and further, the CBDT circular also applies prospectively. The same view was reiterated by the Tribunal while deciding the issue in assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IC of the Act have been fully complied with by the assessee. Accordingly, we allow assessee s claim of deduction under section 80IC of the Act. This ground is allowed. Transfer pricing adjustment of guarantee commission - HELD THAT:- Similar nature of dispute arose in assessee s own case in Assessment Year 2008-09 [ 2018 (7) TMI 1887 - ITAT MUMBAI] Tribunal has accepted assessee s claim that guarantee commission for corporate guarantee provided should be charged at 0.5%. Similar view has been expressed by the Tribunal while deciding the issue in assessment years 2009-10 and 2010-11. Facts being identical, respectfully following the view expressed by the Tribunal in the preceding assessment years, we direct the Assessing Officer to compute the ALP of the guarantee commission for providing corporate guarantee to the AEs at 0.5%. Disallowance of deduction claimed u/s 48 - assessee has sold its stake (shares) in PDSPL, erstwhile subsidiary of the assessee engaged in medical diagnostic activities, by entering into a share purchase agreement with SRL - computing capital gain arising out of such transaction assessee has claimed deduction of an amount under section 48 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Delhi in ACIT vs. Vireet Investment P. Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] has held that no adjustment/disallowance can be made under section 115JB of the Act with reference to section 14A read with Rule 8D of the Rules. However, the Tribunal has directed the Assessing Officer to compute the book profit in consonance with the provisions of section 115JB of the Act read with explanation (1)(f) - we direct the Ld. AO to delete additions made towards book profit computed u/s. 115JB of the Act, in respect of disallowances made u/s. 14A Short grant of credit of TDS - mis-calculation of dividend distribution tax payable and grant of short credit thereof - HELD THAT:- Direct the Assessing Officer to factually verify assessee s claim and allow credit in accordance with law. Disallowance under section 35A relating to Sarabhai Piramal Pharmaceuticals Ltd. (SPPL) - AO continued to disallow the expenditure claimed on the reasoning that trademark does not come within the purview of section 35A of the Act, as it only speaks patents and copyrights - HELD THAT:- Considering the fact that in the preceding assessment years assessee's claim of deduction under section 35A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal passed in assesee s own case (i) ITA No. 1257/Mum/2014 dated 07/05/2019 for Assessment Year 2009-10 (ii) ITA No. 1754/Mum/2015 dated 15.01.2020 for Assessment Year 2010-11. In addition, the learned counsel relied upon various other decisions as well. 4. Shri A. Mohan, the learned Departmental Representative, though, agreed that the issue is covered by the decision of the Tribunal in assessee s own case. However, he relied upon the observations of the Revenue authorities. 5. We have considered rival submissions and perused the materials on record. As could be seen, the disputed disallowance is in respect of expenditure claimed towards repairs computers-annual maintenance and Repairs-computers-others . The Assessing Officer has treated it as capital expenditure on the reasoning that it was towards purchase of licenses and allowed depreciation at the rate of 25%. However, while deciding identical issue in assessee s own case in Assessment Year 2009-10, the Tribunal accepting assessee s claim has allowed the deduction claimed as revenue expenditure. The same view was reiterated by the Tribunal while deciding assessee s appeal in Assessment Year 2010-11 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Assessing Officer has not raised any doubt on the incurring of expenditure by the assessee. Therefore, he has allowed deduction under section 35(1)(i) of the Act. However, he has disallowed weighted deduction under section 36(2AB) of the Act at the enhanced rate only because the assessee failed to furnish approval of the competent authority in form 3CM. Notably, while deciding identical issue in assessee s own case in Assessment Year 2008-09 [(2018) 97 taxman.com 352], the Tribunal while holding that furnishing of form 3CM is mandatory has however restored the issue to the Assessing Officer for enabling the assessee to furnish the approval in form 3CM. Identical view was expressed by the Tribunal while deciding similar issue in Assessment Years 2009-10 and 2010-11. Before us, the learned Counsel has submitted that though the assessee had applied for approval in form 3CM, as yet, the competent authority has not granted the approval. Considering the above and keeping in view the decisions of the co-ordinate Bench in assessee s own case as referred to above, we restore the issue to the file of the Assessing Officer to enable the assessee to furnish the approval in from 3CM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to explain why disallowance under section 14A should not be made. In response, it was submitted by the assessee, since, no expenditure was incurred for earning dividend income, no disallowance under section 14A can be made. Rejecting the submissions of the assessee, the Assessing Officer proceeded to compute disallowance under section 14A at ₹ 93,23,40,000/- representing interest expenditure under Rule 8D(2)(ii) of the rules. While considering assessee s objection on the issue, the learned Dispute Resolution Panel granted partial relief to the assessee by directing the Assessing Officer to exclude investment made in debentures, growth fund and thereafter compute the disallowance under section 14A of the Act. As a result of such direction of learned Dispute Resolution Panel, the disallowance was reduced to ₹ 23,38,84,000/-. 19. The learned Counsel submitted, the assessee had sufficient interest free surplus fund available with it to take care of the investment, hence, no disallowance of interest expenditure can be made. Further, he submitted, as regards disallowance of administrative expenditure under Rule 8D(2)(iii), only those investments which yielded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual position with reference to the financial statements and also considering the fact that in the preceding assessment years, the Tribunal has restored the issue to the Assessing Officer for verifying availability of surplus interest free funds, we restore the issue to the Assessing Officer with a direction to verify assessee s claim of availability of surplus interest free funds and delete the disallowance under Rule 8D(2)(ii) of the Rules, in case such funds are available. As regards disallowance of administrative expenditure under Rule 8D(2)(iii), as held by the ITAT, Delhi Special Bench in the case of ACIT vs Vireet Investment Pvt. Ltd., (2017) 165 ITD 27, such disallowance has to be computed only taking into consideration the investments which have yielded exempt income during the year. In other words, those investments which have not yielded any exempt income during the year have to be excluded from the average value of investments while computing the disallowance under Rule 8D(2)(iii) of the Rules. This view has also been expressed by the Tribunal while deciding assessee s appeals in assessment years 2008-09, 2009-10 and 2010-11. Accordingly, the Assessing Officer is direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. We have considered rival submissions and perused the material on record. Undoubtedly, the expenditure incurred by the assessee was for providing gifts and travel facility to the doctors. The Assessing Officer has disallowed a part of expenditure on the allegation that it is in violation of the Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations. In this context, he also referred to CBDT Circular No. 5/2012. In our view, the stand of the Assessing Officer is self contradictory. If he was of the view that the expenditure incurred is in violation of Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations as well as the CBDT circular, he should not have allowed 50% of the expenditure, thereby, accepting a part of the expenses to be not only genuine but in accordance with law. Be that as it may, we have noted that identical disallowances were made in assessee s own case in the preceding assessment years. While deciding the issue in assessment year 2009-10 (supra), the Tribunal has allowed assessee s claim holding that the Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations does not apply to the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l brought on record. Therefore, he submitted, similar directions may be issued in the impugned assessment year. 30. The learned Departmental Representative submitted, consistent with the view expressed by the Tribunal in the preceding assessment years, issue may be restored back to the Assessing Officer. 31. We have considered rival submissions and perused the materials available on record. As could be seen from the facts on record, this is a recurring issue between the assessee and the Revenue. In Assessment Year 2008-09, on identical reasoning, the Assessing Officer had allocated a part of the interest and R D expenditure to the Baddi unit, thereby, reducing the deduction claimed by the assessee under section 80IC of the Act. While deciding assessee s appeal on the issue in Assessment Year 2008-09, the Tribunal has restored it to the Assessing Officer for fresh adjudication after considering assessee s claim in the context of facts and materials brought on record. Same view was reiterated by the Tribunal while deciding the issue in Assessment Years 2009-10 and 2010-11 as well. Facts being identical, consistent with the view expressed by the Tribunal in the preceding assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80IC(4) of the Act, hence, is eligible to claim deduction under section 80IC of the Act. He submitted, the aforesaid decisions of the Tribunal in assessee s own case clearly clinch the issue in favour of the assessee. In this context, the learned counsel drew our attention to the relevant observations of the Tribunal in the appellate order passed in Assessment Years 2009-10 and 2010-11. 35. The learned Departmental Representative though agreed that in the preceding Assessment Years, Tribunal has decided the issue in favour of the assessee, however, he relied on the observations of learned Dispute Resolution Panel and the Assessing Officer. 36. We have considered the rival submissions and perused materials on record. As could be seen from the facts on record, this is fourth year of claim of deduction under section 80IC of the Act by the assessee in respect of Baddi unit. The assessment order clearly reveals that relying upon the reasoning on the basis of which similar claim was disallowed in Assessment Years 2008-09 to 2010-11, the Assessing Officer concluded that the assessee had failed to comply with the conditions of section 80IC of the Act and accordingly, disallowed ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n received from State Bank of India with a mark-up for risk factors. Though, the assessee objected to the proposed adjustment and justified the arm s length nature of guarantee commission charged at 0.5%, however, rejecting the submissions of the assessee, the Transfer Pricing Officer determined the ALP of guarantee commission at the rate of 3% per annum, thereby, suggesting an adjustment of ₹ 12,67,15,700/-. Learned Dispute Resolution Panel also confirmed the adjustment made by the Transfer Pricing Officer. 39. The learned Senior Counsel submitted, while deciding identical issue in assessee s own case in Assessment Years 2008-09, 2009-10 and 2010-11, the Tribunal has held that guarantee commission charged at 0.50% is at arm s length. Thus, he submitted, the adjustment made has to be deleted. 40. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and Dispute Resolution Panel. 41. We have considered rival submissions and perused the materials on record. As noted above, similar nature of dispute arose in assessee s own case in Assessment Year 2008-09 (supra). In the decision referred to above, the Tribunal has accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... octors to whom it was paid cannot be held to be having the expertise in brokering a deal which requires valuation of shares. Thus, learned Dispute Resolution Panel held that the expenditure incurred being not fully and exclusively connected with the transfer, cannot be allowed. 44. The learned counsel for the assessee submitted, the assessee wanted to divest its shares held in PDSPL, therefore, wanted to enter into a deal with any interested party/ entity, which can purchase the shares and take over the diagnostic division of the assessee company. To achieve that object, the assessee entrusted the doctors working/ associated with the diagnostic division viz. Dr. Avinash Phadke, Dr. Subendhu Roy and Dr. Bhavin Jhankaria to identify, evaluate and negotiate with interested parties towards divesting assessee s stake in PDSPL while maximizing the value of company s investment. He submitted, the above said decision was also approved by the Board through resolution and as per the terms of the resolution, the payment made to the concerned parties for brokering the deal was also fixed. He submitted, in terms of Board resolution mandate was issued to the concerned doctors, which they not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary of the assessee engaged in medical diagnostic activities, by entering into a share purchase agreement with SRL. While computing capital gain arising out of such transaction assessee has claimed deduction of an amount of ₹ 18,96,00,000/- under section 48 of the Act towards expenditure incurred wholly and exclusively for the purpose of transfer. The aforesaid payment made by the assessee was split between three persons, stated to be doctors, in the following manner: - (i) Dr. Subendy Roy ₹ 5,58,41,125/- (ii) Dr. Avinash Phadke ₹ 8,37,64,688/- (iii) Dr. Bhabin Jhankariars 5,00,00,000/- 47. It is further relevant to observe, the aforesaid payments were made as per the board resolution in the following pattern: - Dr. Subendhu Roy- up to an amount not exceeding 1.5% of the net consideration to be received by the company, Dr. A Avinash Phadke- up to an amount not exceeding 2.5% of the net consideration to be received by the company Dr. Bhabin Jhankaria- up to an amount not exceeding ₹ 5,00,00,000/- 48. To substantiate the claim that the aforesaid expenditure was incurred in connection with transfer of shares, the learned counsel ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l requiring such huge payment is not forthcoming from the facts on record. The mandate letters issued by the assessee to the concerned persons and their acceptance letters are identically worded and stereotype. They do not specify the services rendered by each individual in brokering the deal when ultimately the buyer is the same party i.e. SRL. Therefore, the onus is very much on the assessee to establish on record that the expenditure incurred is wholly and exclusively in connection with the transfer. One more aspect which needs mention is the difference in the fee structure while making payment to the concerned persons for the same work. As discussed earlier, the payment made to Dr. Avinash Phadke was fixed at 2.5% of the net consideration and in respect of Dr. Subendhu Roy it was fixed at 1.5% of the net considering. Whereas, in case of Dr. Bhavin Jhankaria it was fixed at ₹ 5 crores. It is not disputed that payments have been made to the concerned persons at the rate fixed in the resolution. Thus, it certainly defies logic peaks an answer when the parties are performed, when the concerned persons, as per the mandate letter are performing the same work, it certainly defie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such is exempt under section 10(15) of the Act. However, in the return of income filed for the impugned assessment year, the assessee wrongly offered to tax the interest earned on such bond amounting to ₹ 8,25,13,638/-. During the assessment proceedings, assessee filed revise computation claiming exemption of interest earned on tax free bond under section 10(15) of the Act. However, the Assessing Officer rejected such claim on the reasoning that it was not made through a revised return of income. Learned Dispute Resolution Panel also confirmed the aforesaid decision of the Assessing Officer. 51. We have considered rival submissions and perused materials on record. Undisputedly, interest earned on tax free bond is exempt under section 10(15) of the Act. Though, it may be a fact that the assessee has wrongly offered such interest income to tax in the return of income filed for the year under consideration, however, it is equally true that during the assessment proceedings the assessee has filed a revised computation claiming exemption in respect of such income offered to tax. Both the Assessing Officer and learned Dispute Resolution Panel have rejected assessee s claim on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in the preceding assessment years, we direct the Assessing Officer to compute the book profit under section 115JB of the Act following the directions of the Tribunal in the preceding assessment years. This ground is allowed for statistical purposes. 55. In ground No. xii, assessee has challenged short grant of credit of TDS. 56. Having considered rival submissions, we direct the Assessing Officer to factually verify assessee s claim and allow credit for TDS in accordance with law. 57. In ground No. xiii, assessee has raised the issue of mis-calculation of dividend distribution tax payable and grant of short credit thereof. 58. Having considered rival submissions, we direct the Assessing Officer to factually verify assessee s claim and allow credit in accordance with law. 59. In the Result the appeal of the assessee is partly allowed. ITA No. 1799/Mum/2016- Appeal by the department 60. The only issue raised relates to deletion of disallowance under section 35A of the Act relating to Sarabhai Piramal Pharmaceuticals Ltd. (SPPL). 61. Briefly stated facts are, noticing that the assessee had claimed an amount of ₹ 2,42,85,715/- being 1/14th o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,35,81,000, paid to Piramal Enterprises Ltd. (PEL). . 64. On a careful reading of the aforesaid extracted portion from the judgment of the Hon'ble Jurisdictional High Court, it is very much clear that while examining the allowability of identical deduction claimed by SPPL the Tribunal has allowed it claim by holding that trade mark is not alien to the patent right as there is a direct link between patent right and trade mark. Thus, the assessee is eligible to claim deduction under section 35A of the Act. Alternatively, the Tribunal also held that even if the assessee's claim of deduction under section 35A of the Act is not allowable, still the deduction claimed has to be allowed under section 37 of the Act in view of the judgment of the Apex Court in Alembic Chemicals Works Co. Ltd. v. CIT [1988] 177 ITR 377/43 Taxman 312. When the appeal of the Revenue on the disputed issue came up before the Hon'ble Jurisdictional High Court, the Revenue being conscious of the fact that if assessee's claim is allowed under section 37 of the Act then the entire amount of ₹ 34 crores has to be allowed in one-go, therefore, the Revenue would be i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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