9911796707
TMI Blog2022 (3) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of PCIT vs. Redington (India) Ltd. 2020 (12) TMI 516 - MADRAS HIGH COURT] has held that corporate guarantee is covered under the limb of international and having bearing on profit and loss account. Scope of amendment brought by finance Act 2012 - We hold that the amendment as discussed was brought by the finance Act 2012 but the same is applicable retrospectively i.e. 1-4-2002. Thus the amendment is applicable to the year under consideration. Determination of the benchmarked for working out the ALP of the impugned international transaction - Bombay high court in case of CIT vs. Everest Kento Cylinders Ltd [ 2015 (5) TMI 395 - BOMBAY HIGH COURT] held that while determining the ALP the rate charge by the bank or financial institution cannot be taken as comparable. ALP rate of the commission on corporate guarantee - 0.5% of commission on the value of corporate guarantee will serve the justice to both the assessee and the Revenue. Hence, the contention of the assessee is partly allowed. Adjustment by the TPO/AO on account of interest on Loan given to AEs - As decided in own case [ 2019 (5) TMI 1932 - ITAT AHMEDABAD] we note that the assessee is charging margin at 37.50 bps fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any particular undertaking do not frequently change as the market forces do not regulate the same, unlike sales, and therefore, it is nothing but the human resources engaged in different undertaking of the assessee, that should be the consideration for allocation of administrative expenses, as held by the Coordinate Bench [ 2019 (5) TMI 1932 - ITAT AHMEDABAD] from which we are not inclined to deviate, and hence respectfully following the decision, we delete the addition made by the Revenue in reducing deduction under section 80IC Deduction admissible under section 80IC is to be restricted to the extent of income from business and profession, as against gross total income of the assessee - HELD THAT:- As relying on RELIANCE ENERGY LTD. (FORMERLY BSES LTD.) THROUGH ITS M.D. [ 2021 (4) TMI 1237 - SUPREME COURT] we find no justification in restricting the deduction under section 80IC of the Act to the extent of income from business and profession, rather to be extended against the gross total income of the assessee. Thus, we find merit and considerable substance in the case made out by the assessee, and therefore, we direct the ld.AO to work out the deduction available to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. CIT(A) on this issue, which we confirm, and the ground no. 2 of the Revenue s appeal stands rejected. Addition on account of deduction claimed under section 35(2AB) - HELD THAT:- Assessee is eligible for weighted deduction on expenditure incurred in connection with rates and taxes and salary to Dr. C. Dutt. Deduction with respect to expenses incurred on account of clinical trial and patient registration - We note this issue also covered in favour of the assessee by the order of special bench of the Tribunal in case of Cadila Healthcare Ltd.[ 2013 (3) TMI 539 - GUJARAT HIGH COURT] - we hold that the assessee is eligible for weighted deduction on expenses incurred on clinical trial and patent registration. Accordingly, we do not find any infirmity in the order of learned CIT(A) and directed the AO to allow weighted deduction. Depreciation @ 60% on computer software instead of at 25% on the value of the assets - whether the software purchased by the assessee is part of computer for purpose of depreciation or the same can be treated as intangible assets? - HELD THAT:- Software is part of computer. Hence, the depreciation on the same is allowable at the rate applicable for compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this ground of Revenue s appeal stands rejected. Disallowance of doctor sponsorship expense/medical expenses - Medical Council of India jurisdiction to pass any order or regulation against any hospital or any health care sector under its 2002 regulation - HELD THAT:- Circular issued by the CBDT as under Indian Medical Council Professional Conduct, Etiquette and Ethics) Regulations, 2002 is not applicable for the year under consideration and consequently the disallowance cannot be made in the year under consideration on account of freebies given to the medical practitioners being the AY 2009- 10. Hence, the ground of appeal of the assessee is allowed. Claim of the assessee that while computing deduction under section 80IC that the eligible income ought to be reduced by reallocating administrative expenses allowed Deduction under the provision of MAT while calculating the book profit - whether the assessee is entitled the benefit of reducing the profit of the business eligible for deduction under section 80HHC of the Act while computing the book profit under the provisions of section 115JB? - HELD THAT:- Parliament is empowered to bring amendments under the statute that too retrospec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to the same subsidiary company, a different treatment by denying the loss cannot be adopted by the revenue. In the light of the above stated discussion, we hold that the loss claimed by the assessee is an allowable deduction. Thus, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Deduction with respect to provision for leave encashment - HELD THAT:- There are certain expenses which are allowed on payment basis in pursuance to the provisions of section 43B of the Act irrespective of the year of incurrence. One of such expenditure is leave encashment. Admittedly, the assessee has not made the payment of the leave encashment and therefore the same can t be allowed as deduction. However, the assessee is at liberty to claim the deduction of such expense in the year of payment. Thus the ground of appeal of the assessee is dismissed in terms of the above. Upward adjustment of TP on account of capital infusion, corporate guarantee and loan and advances provided to AE - HELD THAT:- No dispute to the fact that the assessee has advanced money to its AE for acquiring the shares w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in case of Serum Institute of India (supra) in similar facts and circumstances observed that nature of the assets used in the business is to be decided on the basis of functional test of the assets and accordingly held that tables, stools, rackets etc. used in laboratories are part and parcel of plant and machinery. We also find that the learned CIT(A) in his order followed the order cited above i.e. order of the Pune Tribunal i.e. Serum Institute of India [ 2012 (4) TMI 373 - ITAT PUNE] The relevant extract of the order has already been reproduced in the order of the ld. CIT-A. Respectfully, following the same, we do not find any infirmity in the order of the learned CIT(A). Hence the ground of appeal of the Revenue is hereby dismissed. Upward adjustment on account of dossier licensing fee - HELD THAT:- We note that the profit sharing ratio has already been accepted by the revenue in the earlier years. There is no change in the facts and circumstances for the year under consideration viz a viz the earlier years. It is the same agreement based on which the income has been shared between the assessee and the AE in the year under consideration. As such the agreement was ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Transfer Pricing Officer. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of ₹ 3,33,478 made by the Assessing Officer in respect of Employees' Contributions to ESI on the ground that the same was not paid within the prescribed time limit under the ESI Act even though the payment was made within the time limit for filing the return of income u/s. 139(1) of the Income-tax Act. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant company's relevant ground of appeal that from out of the total development cost incurred by the appellant company for the products to be sold in domestic as well as international market, only the portion of development cost pertaining to the products to be sold in domestic market should be allocated to Baddi Unit for the purposes of Section 80-IC as the said unit is solely engaged in the manufacturing products to be sold in the domestic market, in spite of the fact that the appellant company wrongly considered total development cost for allocating to Baddi unit while filing the return of income. 4. On the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said assessment order. Being aggrieved by order of the ld. CIT(A), both the assessee and Revenue are before us with respective grievance. 5. Now we adjudicate the issues ground wise raised in the above appeal as follows. 6. Ground No.1: In this ground, the grievance of the assessee is that the ld. CIT(A) erred in confirming the addition of ₹ 1,92,04,765/- out of total addition of ₹ 1,93,56,012/- made by the ld. AO on the basis of order under section 92CA(3) of the Income Tax Act, 1961 passed by Transfer Pricing Officer (TPO). 7. During the course of assessment proceedings, the issue was referred to the TPO, who vide his order dated 29.1.2013 read with subsequent order dated 22.3.2013 passed under section 154 of the Act made the following adjustment on account of Arm's Length Price (ALP) in respect of international transactions as detailed below: 1) Interest on loans to Associate Enterprises 1,37,31,228/- 2) Guaranty fee charges in respect of Associate Enterprises ₹ 54,73,537/- 3) Fees paid to Associate Enterprises for Liaison Services ₹ 1,51,247 Total ₹ 1,93,56,012/- 8. First we take up corporate guarantee of ₹ 54,73,53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions dated 18.1.2013 pleaded that benchmarking in the instant case did not require, because there was an implicit parent support to the subsidiary, more so when, subsidiary companies are carrying on the business of marketing of assessee's products, and the assessee company was simply helping its AEs in its growth by taking risk factors. Relying on the decision of ITAT, Hyderabad Bench in the case of Four Soft Limited, it was pleaded by the assessee that corporate guarantee was not covered within the scope of the international transactions under section 92B of the Act. The contents of submissions of the assessee are as under: "The assessee has contended that yield method is not the correct method to evaluate guarantees and that the difference between two differently rated bonds cannot indicate guarantee rates. The corporate guarantee is very much incidental to the business of the assessee and hence same cannot be compared to a bank guarantee transaction. The assessee has relied on the Canada Tax Court decision for benchmarking. However, it is seen that in its own TP report, it has not even acknowledged that the guarantee needs benchmarking. \The assessee has claimed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AE and hence it should be treated as implicit parent support and hence the guarantee needs to be benchmarked at nil is not found an acceptable argument. For an arm's length study, the parentsubsidiary obligation needs to be set aside and it needs to be determined as to what would be the behavior of an independent party in the same scenario. The plea of implicit support would need to be discarded. Once it is acknowledged that a service has been rendered (as it has been done in this case -as the guarantee enables the AE to handle its finances more efficiently), then the service needs to be benchmarked. 7.7 The assessee has contended that providing guarantee is a more efficient way of providing support to the AE as this does not involve any liquid fund outflow and enables the AE handle its financials. The company being the sole shareholder benefits as by providing guarantees, it is prevented from investing in equity. The contention is not found acceptable. A transaction has to be identified by what it actually is - rather than what it could have been. In the case of Perot Systems TSI Vs. DCIT (ITAT Delhi) the assessee, an Indian company, advanced interest free loans to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate reward system exists. As far as guarantee is concerned, it needs to be benchmarked a suitable rate. 7.9 The reliance placed by the assessee company on the decision of Hon'ble ITAT in the case of Everest Kanto Cylinder Ltd ITA No. 542/Mum/2012 is examined. The decision of the Hon'ble ITAT has many contradictions built into it. While it mentions that the HSBC guarantee cannot be compared to assessee guarantee as assessee does not incur a cost while giving guarantee, it has failed to mention the costs incurred by HSBC in giving the guarantee. While it has talked about discussing the terms, conditions and circumstances in which the third party guarantees have been given, it has accepted guarantee between a Bank and the assessee itself as a proper internal CUP for the guarantee between the assessee and its AE, both being non-banking corporations. No need has been felt to discuss the conditions, circumstances and the financial position in this cast. Without prejudice to this discussion, in the current case, we are not banking on the guaranty given by any person but merely relying on the coupon rates of bonds traded freely in the market to arrive at the benefit enjoyed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch corporate bonds available on www.finanace.yahoo.com (publicly available) was gathered. On analysis of over 1100 bond data, from where the bonds Issued during the F:V 2008-09 were segregated, it is seen that the difference in coupon rate (yield or interest rate) in respect of AA rated bonds and RS rated bonds cornes to 2.706 %age points. A copy of the data mentioned above is supplied to you in a CD. By taking guarantee for payments on behalf of its AC, the assessee has incurred significant currency risk as evident by general depreciation of rupee against dollar. In order to factor this currency risk, the above spread is increased to 3% which is found to be reasonable spread which the assessee should have charged as benefit granted to the AE. . . 7.13 The assessee has contended that the guarantees have not been utilized during the year. However, it is seen from the annual accounts of the assessee that the guarantees in the case of Zao, Russia, the guarantees have been reduced from ₹ 120 crore last year to ₹ 51 crore this year, in case of Torrent Pharma GmbH, they have reduced from ₹ 47.32 crore to ₹ 43.86 crore and in the case of Torrent Pharma Brazil, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue is the same and I find no reason to differ from the findings of CIT(A) as quoted above. Hence following the same reasoning, I uphold the addition made by the A. O. Accordingly, the ground on this issue is dismissed." 9. Being aggrieved by the order of the ld. CIT-A, the assessee is now in appeal before the Tribunal. 10. Before us, the ld. counsel for assessee, besides reiterating the submissions made before the ld. Revenue authorities, further contended that the issue is covered in the favour of the assessee in its own case in ITA 907/AHD/2012 for the AY 2007-08 after referring the decision rendered by the ITAT, Ahmedabad Bench in the case of Micro Ink Ld. Vs. ACIT, reported in 63 taxmann.com 353. 11. On the other hand, the learned DR submitted that the order of this Tribunal in the case of Micro Ink Ld. Vs. ACIT, reported in 63 taxmann.com 353 has been reversed by the judgment of Hon'ble Madras High Court in the case of PCIT Vs. Redington (India) Limited. Therefore, no reliance can be placed in the own case of the assessee for the year under consideration as contended by the learned AR for the assessee. The learned DR vehemently supported the order of the authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned AR heavy relied on this order of the tribunal. 12.2. However, we find that the Hon'ble Madras High Court in the case of PCIT vs. Redington (India) Ltd. reported in 122 taxmann.com 136 has held that corporate guarantee is covered under the limb of international and having bearing on profit and loss account. The relevant finding of the Hon'ble court reads as under: The concept of bank Guarantees and Corporate Guarantees was explained in the decision of the Hydrabad Tribunal in the case of Prolifics Corpn. Ltd v. Dy. CIT [2015] 55 taxmann.com 226/68 SOT 104 (URO). In the said case, the revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is and additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of section 92B does not enlarge the scope of the term 'international transaction' to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. 12.6. The next aspects arises for the determination of the benchmarked for working out the ALP of the impugned international transaction. The TPO/AO in the case on hand has adopted US bond data for working out the ALP by using the data of bond obtained from the finance yahoo.com by observing as under: 7.12 In light of the discussion above, no case is made to alter the charge of guarantee as per the process described in the show cause notice. An attempt has been made to analyze the bond data in US market to arrive at various levels of yields for differently rated bonds in a global scenario since the U5J bond market is a mature one and is freely traded globally. The coupon rate represents yield on various bonds and the rare is directly proportional 10 the rating given to the bond. Higher the risk of default by the issuing company on this bond, higher the coupon rate. .Details of these bonds are available on the web. The details of such corporate bonds available on www.finanace.yahoo.com (publicly available) was gathered. On analysis of over 1100 bond data, from where the bonds issued during the FY 2008-03 were segregated, it is seen that the difference in coupon rate (yield ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal treated it as international transaction u/s 92B and upheld the ALP of 0.50%, following the order in the case of the assessee for the earlier year. The Tribunal followed Everest Kento Cylinder Ltd. v. Asstt. CIT [2015] 56 taxmann.com 361 (Mum-Trib). It seems that the decision in Bharti Airtel Ltd. (supra) was not referred to in this case. (iv) Aditya Birla Mincas Worldwide Ltd. v. Dy. CIT [2015] 56 taxmann.com 317/69 SOT 18 (URO) (Mum - ITAT). The assessee had not classified this transaction as international transaction. However, guarantee commission was fixed at 0.50%. (v) Mylan Laboratories Ltd. v. Asstt. CIT [2015] 155 ITD 1123/63 taxmann.com 179 (Hyd. - Trib.). The assessee admitted corporate guarantee as international transaction, then as against 2% fixed by TPO the Tribunal upheld the claim of the assessee at 0.53% following the decision in Prolifics Corpn. Ltd. v. Dy. CIT [2015] 68 SOT 104 (URO)/55 taxmann.com 226 (HYD - Trib.). (vi) Everest Kanto Cylinder Ltd. (supra) - Assessee paid guarantee commission at rate of 0.5 per cent for obtaining guarantee. This was accepted as ALP for all corporate guarantees given by the assessee. (vii) Godrej Consumer Products Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lities, research facilities and office premises. v. A minimum fixed asset cover of 1.1 times over these assets. vi. Net debt / EBIDTA to be not more than 4.5 times vii. Debt gearing not to exceed 1.65 times during the currency of facility. viii. Debt service cover ratio shall not be less than 1.33 times during the currency of facility. ix. Tangible net worth shall not be less than INR 3.4 billion at all times during the currency of the loan. x. Exposure to non-pharmaceutical group companies not to exceed 15% of tangible net worth, xi. Currency risk on the borrower. xii. The loan documents related to the loan drawn by Torrent Pharmaceuticals Ltd, the parent company at its own financial creditworthiness and rating." 13.2. In view of the above, the TPO rejected the comparable considered by the assessee and submission made during proceeding and made the upward adjustment by holding as under: 6. in light of the above discussion, the various objections raised by the assessed against the rate proposed by this office on the basis of benchmarking study conducted is not found acceptable. The transactions of the assesses company are not found to be at arm's length and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount has been given as loan and has .been shown in the balance sheet as such the appellant should charge market rate of interest at Arm's Length Price. The basic principle of determining the Arm's Length Price is by assuming that the transaction has taken place between unrelated parties. Therefore, the reasoning given by the appellant is not acceptable. The TPO has given detailed justification while adopting the Arm's! Length interest rate which should have been charged by the appellant from the AE. I am in complete agreement with the finding given by him and no interference is required in the order of the TPO. The CIT(A} has taken the same view and confirmed the addition made by the AO on similar facts in AY 2008-09 and 1 find no reason to differ. The adjustment on account of interest at LIBOR + 4.48 basis point is accordingly upheld. The ground of appeal is accordingly dismissed. 15. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 16. The learned AR before us submitted besides reiterating the submissions made before the ld. Revenue authorities, further contended that the issue is covered in the favour of the assessee in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain infirmities as detailed under: i. Once the AE has taken as a tested party, then the comparables of AE should be obtained to determine the ALP. However, the TPO in the case compared the AE with the credit rating of Indian companies as discussed above. In our view, the comparables with the AE should have taken and not with the comparables available with the assessee. ii. The TPO at his own determined the credit rating of the AE based on the financial documents provided by the assessee. In our view, the TPO is not the right person to determine the credit rating of the AE. As such he should have taken the report from some authorized agency. iii. The TPO in his order has admitted the fact that the rate of interest and as well as margins in the international markets are slightly lower than the Indian rates. Accordingly, the TPO proposed risk of 3.50%. However, the observation of the was based on his wisdom but without referring to any evidence. 53.5 We further note that the loan is given in foreign currency which is to be repaid in foreign currency only. Therefore there was no need to make any adjustment in the rate of interest on account of Risk. The ITAT Delhi also took the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07-2008 though the assessment was framed under section 143(3) of the Act. 53.9 Now the second controversy arises about the basis of charging .50% margin from the AE. Regarding this, we note that the assessee is charging margin at 37.50 bps from the AE which appears quite low as even the bank charges from the company having high net worth a margin of .50%. Therefore we are inclined to uphold the finding of the TPO for charging the margin at .50% over and above the 6 month average labor rate. In effect, the rate of interest charged by the assessee from the AE shall increase by 12.5 bps. Thus the ground of appeal of the assessee is partly allowed. 18.1. In view of the above and respectfully following the above order of the coordinate bench in own case of the assessee, the contention of the learned AR with respect to ALP of interest on loan to AE is partly allowed. 19. In view of the above ground of appeal raised by the assessee is partly allowed 20. The ground no. 2 relates to disallowance of ₹ 3,33,278/- made by the AO in not depositing employees' contribution to ESI on the ground that the same was not paid within the time limit prescribed under ESI Act. Disallowance made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon verification of the details filed by the assessee, it was found by the AO that the assessee did not allocate R&D expenditure relating to discovery and research expenditure while computing profit eligible under section 80-IC in respect of Baddi Unit, whereupon explanation was sought from the assessee as to why the same should not be allocated to Baddi Unit. In reply whereof, the assessee submitted the following: "Your honour have observed that the as$essee company has not allocated R & D cost relating to discovery and R & D capital expenditure, white computation of profit eligible for deduction ii/s, 801C in respect of Baddi unit. In this regards, the assesses has been asked to explain as why the same should not be allocated and the deduction u/s. 80IC should not be reduced. In this regards, it may be noted that the assesses company has incurred following expenses on R & D: Particulars Total Baddi Indrad TRC Revenue Expenses Dscovery cost 400,160,746 - - 400,160,746 Development Cost 658,019,561 339,252,691 318,766,870 - Capital Exepnses 26,855,078 - - 26,855,078 Building Other than building 26,855,078 49,533,572 - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Baddi unit and hence there is no need to allocate such expenditure to Baddi utiit. Following the same logic for R&D discovery expenses, the capital expenditure on R & D should also not be so allocated, Without prejudice to the above contentions, it is submitted that even if as per your goodselves stand that all the R&D cost should be allocated, the allocation would work out as under: Particulars Total Baddi Indrad TRC Revenue Expenses Discovery cost 400,160,746 206,322,881 193,837,865 Development Cost 658,019,561 339,252,691 318,766,870 - Capital Exepnses 26,855,078 - - 26,855,078 Building Other than building 26,855,078 49,533,572 13,846,478 25,539,510 13,008,600 23,994,062 24.1. The above explanation was not found acceptable by the AO, and thus deduction under section 80IC in regard to R&D allocation to the tune of ₹ 36,16,40,065/- was disallowed by the ld.AO, which in turn confirmed by the ld. CIT(A). Hence, the instant appeal by the assessee before us. 24.2. The case of the assessee is that there is no direct service rendered by the R&D centre to Baddi Unit, and therefore, there is no need to attribute R&D expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment cost for making allocation to Baddi Unit while filing return of income, and disallowed the claim of the assessee. It is a fact that such mistake was done by the assessee inadvertently while filing return of income. However, the assessee filed additional ground of appeal before us to consider the judgment passed by the Hon'ble jurisdictional High Court in assessee's own case whereby and where under it was held that no R&D expenditure included development cost, and capital expenditure claimed under section 35(2AB) or 35(iv) should be allocated to industrial units eligible for deduction under section 80IC of the Act. This additional ground has been filed by the assessee before us. At this stage, reliance was placed on the ratio laid down by Hon'ble Supreme Court in the case of National Thermal Power reported in ITA No. 229 ITR 383. On the other hand, the ld. DR relied upon the order passed by the authorities below in disallowing the deduction under section 80IC of the Act in relation to R&D allocation to the tune of ₹ 36,16,40,065/- . 25. We have considered rival submissions and gone through the materials available on record. We have further considered order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case pertaining to A.Y. 2004-05. We have perused the order of the Hon'ble co-ordinate Bench in assessee's own case in ITA No.4356/Ahd/2007 (supra). The Hon'ble Tribunal following the decision of coordinate Bench in ITA No.1347/Ahd/2007 for A.Y. 2003-04 dismissed the ground of appeal raised by Revenue. In view of the fact that issue has already been decided by Hon'ble co-ordinate Bench in ITA No. 4356/Ahd/2007 for A.Y. 2004-05 and ITA 44 ITA Nos. 907, 938, 1634 & 1725/Ahd/No.1347/Ahd/2007 for A.Y. 2003-04 in assessee's own case. Respectfully following the order of the coordinate bench, this ground of Revenue's appeal is dismissed. 40.3 It is also important to note that, the AO in the subsequent assessment year 2008-09 has not allocated the cost on scientific research under the head discovery and capital cost to the eligible unit. Thus in our considered view the principle of consistency needs to be applied in the case on hand as held by the Hon'ble apex court in the case of RadhaswoamiSatsang v/s CIT reported in 193 ITR 221 wherein it was held as under: "13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out by the assessee are to be viewed this particular fact of not extending any research work by the said unit, and no benefit thereof was being rendered by it. In view of the matter, we delete the impugned addition of ₹ 36,16,40,065/- disallowed by the ld.AO. Hence the ground of appeal of the assessee is allowed. Ground No.4 26. Quantum of eligible income by reallocating administration expenses to the tune of ₹ 3,75,57,364 to Baddi Unit is the subject matter before us. 27. During the assessment proceedings, it is found that the assessee allocated common administrative expenses on the basis of number of employees of Indrad and Baddi units. However, according to the ld.AO, the same was not found suitable, rather allocation on the basis of turnover of the respective units was found to be fit by the ld.AO, as a result whereof, deduction under section 80IC was reduced by ₹ 3,75,57,364/- which was in turn confirmed by the ld.CIT(A). Hence, aggrieved by this action of both the authorities, the assessee is before us. 27.1. In reply to show cause notice with regard to the basis of allocation of administrative expenses, the assessee submitted the following figures: "T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant case relates to the allocation of the said expenses between Indrad and Baddi unit. As per the assessee, the administrative expenses need to be allocated based on the number of employees working whereas the AO allocated the expenses based on the turnover. The learned CIT (A) subsequently confirmed the order of the AO. 21.1 Now the issue before us arises so as to adjudicate the basis of allocation of the administrative expenses. At the outset, we note that the impugned issue of the allocation of the administrative expenses was also there in the assessment year 2008-09. Therefore, the argument of the learned AR for the assessee is not correct. As such the AO has also disputed the basis of allocation of the administrative expenses in the year 2008-09 as well. 21.2 Administrative expenses are the expenses which are not directly connected/ attributable with a specific function/ department/ undertaking such as manufacturing, production or sales of the organization. But these represent essential costs to maintain a company's daily operations and administer its business. The administrative expenses generally include: Rent Utilities Insurance Executives wages and be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench was of the view that the expense was not linked to any particular undertaking of the company, in a case where the assessee has more than one undertaking. Such expenses cannot be allocated on the basis of turnover also. Since turnover of any undertaking is volatile depending on varied situations, as has been indicated hereinabove. On the other hand, human resources work in any particular undertaking do not frequently change as the market forces do not regulate the same, unlike sales, and therefore, it is nothing but the human resources engaged in different undertaking of the assessee, that should be the consideration for allocation of administrative expenses, as held by the Coordinate Bench, from which we are not inclined to deviate, and hence respectfully following the decision, we delete the addition made by the Revenue in reducing deduction under section 80IC of the Act to the tune of ₹ 3,75,57,364/- . Hence, the ground of appeal of the assessee is allowed. 29. Ground No.5 : By this ground, the assessee challenges the order of the ld. CIT(A), vide which, the ld. CIT(A) has confirmed the action of the ld. AO in reducing the following income while computing deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussing the issue involved, the assessee company hereby discusses the provision of Section 80IC of the Act, which reads as under - "80-IC(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3) (2) ….. (3) The deduction referred to in sub-section (1) shall be - (i) in the case of any undertaking or enterprise referred to m subclauses (i) and (in) of clause (a) or sub-clauses (i) and (Hi) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year; (ii) in the case of any undertaking or enterprise referred to in subclause (ii) of clause (a) or sub-clause (ii) of clause (b), of subsection (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent (or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual heads and after clubbing, and set off of losses, the Gross Total Income is arrived at. And once the Gross toll Income of an assesses is arrived at, after rightly applying the provisions of the Act, it shall not be open for revenue to segregate individual dements of the Gross Total Income and restrict the amount of deduction any further. Further, in this context, it is submitted that if real intention of the lawframers was to restrict the benefit of deduction only upto the extent of income derived under the head business and profession, then they would have explicitly mentioned the term 'Profits and Gains from Business and Profession', instead of referring to the term 'Gross Total Income' as provided under Section 80AB of the Act. It is hereby, most humbly submitted that, in absence of any express provision under the present Act/ for restricting the quantum of deduction upto the extent of income under the head Income form business or profession, it shall not be right to extend the ambit of restrictive provisions crafted under Section 80AB of the Act, to reduce the quantum of allowable deduction only upto such amount Your good selves may acknowledge the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of income of that nature, which is derived or received by the assessee, and which included in the gross total income. Therefore, according to him, section 80AB speaks of gross total income consisting of only income of that nature for the purpose of claiming deduction under section 80IC of the Act, which in the case on hand is nothing but business income. The ld. AO came to a finding that though deduction under section 80IC is allowed in respect of eligible profit of Baddi Unit, same shall be restricted to the income from profession or business only, and it cannot be extended to the exclusion of income under the head capital gain. The assessee reiterated the stand taken by it before the ld.AO. However, the ld. CIT(A) while upholding the order passed by the ld.AO observed as follows: "The assessment order and the submission of the appellant is considered. On the perusal of the Facts of the case it is noticed that the AO has rightly restricted the deduction u/s.801C to income derived from business by stating as under: "Since the profit from eligible business forms part of business which is included Gross Total Income, the deduction u/s.80IC cannot exceed income of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l R&D -Building 26,855,078 Nil Provision on diminishing value of Investment 29,236,868 Nil Disallowance as per TP report 25,881,195 Nil Impairment loss on asset held for sale 2,556,779 NIL Tax Depreciation 340,762,513 164,830,419 32.1. The ld. counsel for the assessee has drawn our attention to statement of income, wherein the assessee has claimed deduction of ₹ 183.91 crores under section 80IC being the profit eligible for Bhaddi units as contained in Annexure-1 attached along with paper book. 33. On this aspect, we have further considered judgment of Hon'ble Supreme Court in the case of CIT Vs. Reliance Energy Ltd. [2021] 127 taxmann.com 69 (SC). On an identical situation, question arose before the Hon'ble Apex Court as to whether provision of section 80IA(5) of the Act cannot be pressed into service for reading a limitation of deduction under subsection (1) of section 80IA only to the "business income". While deciding the issue in favour of the assessee, Hon'ble Court was pleased to observe as follows: "12. The import of Section 80-IA is that the 'total income' of an assessee is computed by taking into account the allowable deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was arrived at by taking into account the profits from the 'eligible business' as the 'only source of income'. He submitted that, however, sub-section (5) is a step antecedent to the treatment to be given to the deduction under sub-section (1) and is not concerned with the extent to which the computed deduction be allowed. To explain the interplay between sub-section (5) and sub-section (1) of Section 80-IA, it will be useful to refer to the facts of this Appeal. The amount of deduction from the 'eligible business' computed under section 80-IA for the assessment year 2002-03 is ₹ 492,78,60,973/-. There is no dispute that the said amount represents income from the 'eligible business' under section 80-IA and is the only source of income for the purposes of computing deduction under section 80-IA. The question that arises further with reference to allowing the deduction so computed to arrive at the 'total income' of the Assessee cannot be determined by resorting to interpretation of sub-section (5). 14. It will be useful to refer to the judgment of this Court relied upon by the Revenue as well as the Assessee. In Synco Industries (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the profits from the automobile ancillaries industry of the assessee must be reduced by the loss suffered by the assessee in the manufacture of alloy steels. This Court was not in agreement with the submissions made by the Revenue. It was held that the profits and gains by an industry entitled to benefit under section 80-E cannot be reduced by the loss suffered by any other industry or industries owned by the assessee. 15. In the case before us, there is no discussion about Section 80-IA(5) by the Appellate Authority, nor the Tribunal and the High Court. However, we have considered the submissions on behalf of the Revenue as it has a bearing on the interpretation of sub-section (1) of Section 80-IA of the Act. We hold that the scope of sub-section (5) of Section 80-IA of the Act is limited to determination of quantum of deduction under sub-section (1) of Section 80-IA of the Act by treating 'eligible business' as the 'only source of income'. Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to 'business income'. An attempt was made by the learned Senior Counsel for the Revenue to rely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imately pleased to hold that subsection 5 of section 80IA of the Act is limited to determination of quantum of deduction under sub-section 1 of section 80IA of the Act by treating eligible business as the only source of income. But sub-section 5 cannot be pressed into service for reading a limitation of deduction under sub-section 1 only to business income. Hence, relying upon ratio laid down by the Hon'ble Apex Court, we find no justification in restricting the deduction under section 80IC of the Act to the extent of income from business and profession, rather to be extended against the gross total income of the assessee. Thus, we find merit and considerable substance in the case made out by the assessee, and therefore, we direct the ld.AO to work out the deduction available to the assessee keeping in view of the above observation made by us hereinabove, based on the judgment of Hon'ble Supreme Court cited (supra). We allow this ground of appeal of the assessee, and set aside the orders of the Revenue authorities on this issue. 34. Ground no. 7 is general in nature and does not require any adjudication. Hence the same is dismissed as infructuous. 35. In the result, the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enduring benefit to the assessee, and therefore, expenditure was of capital nature. Accordingly, he disallowed the claim of the assessee. However, the ld. CIT(A) deleted the disallowance made by the AO by observing that in the assessee's own case from the Assessment Year 2003-2004 to 2008-09, the impugned claim allowed consistently right up-to the Tribunal. As such, the Tribunal dismissed the appeal of the Revenue. Accordingly, the ld. CIT(A) has allowed claim of the assessee, and deleted the impugned disallowance. Revenue is therefore in an appeal before the Tribunal. 39. After hearing both the parties, and after considering materials available on record, we find no disparity on the facts of the present case with that of earlier years. In other words, the fact is same and issue is identical. The Revenue has not disputed factum of allowance of similar claim being allowed consistently in the earlier years. Therefore, following the principle of consistency, we uphold order of the ld. CIT(A) on this issue, and reject the ground no.1 of appeal of the Revenue. 40. In ground no. 2, the Revenue is aggrieved by the action of the ld. CIT(A) in allowing depreciation at the rate of 50% in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 7,84,88,000/- on account of deduction claimed under section 35(2AB) of the Act. 44. The assessee during the year under consideration claimed deduction under section 35(2AB) of the Act for ₹ 168,84,25,897/- only. The AO from the details in form 3CL found that there were certain expenses amounting to ₹ 218. 31 Lacs which has not been approved by the DSIR. Similarly, an amount of ₹ 1351.45 Lacs has been approved by DSIR as incurred outside the approved facility. Thus, the AO purposed to disallow the claim of weighted deduction on the same. 44.1 The assessee submitted that the expenses of ₹ 218.31 Lacs which has not been approved by DSIR include an amount ₹ 15.63 Lacs and ₹ 158.60 lacs on account of rates & taxes and salary to Dr. C Dutt respectively. The rates & taxes are entirely connected with the building where research & development activity has been carried out. Thus same is eligible for weighted deduction under section 35(2AB) of the Act as this expense is similar to the building repair expenses which have been allowed by CIT(A) in A.Ys. 2003-04 to 2004-05. As far as salary to Dr. C. Dutt is concern, the same is also allowable as he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on these items of expenditure. The appellant had also claimed expenses amounting to ₹ 1351.45 lakh incurred outside the approved in-house research and development centre and the same has been disallowed by the AO. According to him, the expenditure incurred outside the approved in-house research and development centre is not allowable. It is stated that when the prescribed authority has certified such expenditure as outside approved facility it cannot be allowed. Accordingly, he has worked out the disallowance on this account at ₹ 6,75,72,500/-. The appellant has relied upon the submissions made by the A. O. in this regard. Before the A. 0. it was staled that the appellant's research activity is approved by DSIR. The appellant has'also maintained separate account for R & D Unit. The appellant had referred to the explanation of section 35(2AB) and stated that for the purpose of the said section, expenditure on scientific research would also include the expenditure incurred on clinical drug trail. Therefore, such expenditure is admissible. It is noted that the explanation to section 35(2AB) inserted by Finance Act, 2001 w.e.f, 01/04/2002 mentions that the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses on R & D of ₹ 1,03,25,000/-. Ld. CIT-DR submitted that order passed by Ld. CIT(A) is erroneous. On the contrary, Ld. Authorized Representative for the assessee submitted that weighted deduction on ₹ 33.33 expenses relating to repairing building expenses ₹ 9.01 lakh municipal tax paid by the assessee and ₹ 75.97 lakh, salary to Mr. C Dutta has been allowed in the earlier year. Ld. AR submitted that this issue is squarely covered in favour of assessee in ITA No.3569/Ahd/2004 A.Y. 2001-02. 7. We have heard the rival submissions, perused the materials available on record and judgment cited by the parties. So far the disallowance with regard to R&D, building, municipal tax and salary to Dr. C. Dutt are concerned this issue has been decided by the Hon'ble co-ordinate bench in ITA No.3569/Ahd/2004 (supra) in favouor of assessee. In view of the matter, we do not find any infirmity into the order passed by Ld. CIT(A). Hence, this ground of Revenue's appeal is dismissed . 49. In view of the above, we hold that the assessee is eligible for weighted deduction on expenditure of ₹ 218.31 Lacs incurred in connection with rates and taxes and salar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on the same @ 60%. On question by the AO, the assessee submitted that as per the requirement of As-26 it disclosed the computer software separately as intangible assets. However as per the note 7 to depreciation schedule under the Act, the software is included in the computer. Thus, it claimed deprecation @ 60% on the same under the block of computer. 52.1. However, the AO disregarded the contention of the Assesse by observing that the word in note 7 to depreciation schedule under the Act, as "computer and computer software" are only applicable to system software which are necessary and inbuilt in computer to perform basic function such as operating system. While the application software is different from system software which is not necessary for operation of basic computer function. Application software are the software which is used for specific task in computer which assessee have to acquire separately and these software should be classified as intangible assets under the provision of section 32 of the Act. As such the assessee itself classified these application software separately from computer in the books of account. Thus, the AO reduced the rate of the depreciation from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4 of the order) . it is to be seen that the Hon 'ble special bench has clearly held that when a particular hardware or software is used along with the computers and when their functions are integrated with a computer or in other words when a device is use as part of a computer or in other words when the device is use as part of the computer in its functions even though it may be have in user on standalone basis, bin still than such hardware or software would be termed as a 'computer'. In view of the detailed finding given by the Hon'ble ITAT Ahmedabad in case of Voltamp Transformer Ltd (supra) and Mumbai special bench in its order of Data Craft India Ltd. and discussion by the CIT(A) in appellant's own case for A.Y.2010-11, 2011-12 and 2012-13, the claim of depreciation @ 60% by the appellant is allowable. I do not Hud any reason to differ with findings o!' Hon'ble ITAT, Ahmedabad and Mumbai in above mentioned cases. Neither the Income Tax Act nor the judicial pronouncement differentiate between the computer and computer software and license to use the same. The list of tangible assets in the table of rate of depreciation at serial no.5 name of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; to mean any programs recorded on CD or disc, tape, perforated media or other information storage devices. 9. The case of the Revenue is that software are licences and that they are intangible assets and would fall under Part B of New Appendix I, which deals with knowhow, patents, copyrights, trademarks, licenses, francises or any other business or commercial rights of similar nature. 10. We find that Part B of New Appendix I is a general entry whereas Entry 5 of Part A of New Appendix I is a specific entry read with Note 7. In the instant case, the Tribunal, in our considered view, rightly held that the assessee is eligible to claim depreciation at 60 56.2. In view of the above discussion and the principle laid down by the Hon'ble Madras High court, we do not find any infirmity in the finding of the learned CIT (A). Hence the ground of the Revenue's appeal is dismissed. 57. Ground No.5: In this ground, the Revenue challenges action of the ld. CIT(A) in deleting addition of ₹ 3,54,21,20/- made by the AO on account of unutilized MODVAT/CENVAT credit under section 145A of the Income Tax Act. 58. The case of the Revenue is that unutilized MODAVT/CENVAT was a kind of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of accounting is adopted, the net result would be same. Considering the proposition of law laid down by the Hon'ble Apex Court on this issue, we do not find any justification for the AO to add unutilized MODVAT credit to the closing stock. The ld. CIT(A) has not committed any error in allowing claim of the assessee on this issue, which we uphold, and this ground of Revenue's appeal is dismissed. Ground No. 6: 62. The issue raised by the Revenue in ground 6 is that the learned CIT (A) erred in deleting the disallowance of ₹ 4,50,000/- made on account of capital investment subsidy. 63. The assessee during the year received subsidy from central government for ₹ 30 Lacs under Capital Investment Scheme 2003 for its unit situated at Baddi Himachal Pradesh, which has been treated as capital receipt. The AO was of the view that the block assets should be reduced by the amount of the subsidy. Accordingly the AO show caused the assessee. 63.1. The assessee in response to SCN submitted that depreciation under section 32 of the Act is allowed on WDV and WDV is defined under section 43(6) of the Act as actual cost at which assessee has acquired the assets and as increased or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets. Furthermore, the depreciation on assets are allowed on the concept of block assets/ WDV of block of assets which is defined under section 43(6) r.w.s 43(1) of the Act which reads as under: 43. In sections 28 to 41 and in this section, unless the context otherwise requires- (6) "written down value" means- (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force: Provided ************************ (c) in the case of any block of assets,- (i) **************** (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal filed by the revenue was dismissed. The relevant finding of the bench reads as under: 40. We have heard the rival contentions and perused the materials available on record. There is no dispute with regard to the facts of the case, therefore we are not inclined to repeat the same for the sake of brevity and convenience. The issue in the instant case relates whether the expenditure incurred by the assessee on research under the head discovery cost and capital cost is to be allocated to the unit eligible for deduction under section 80 IC of the Act. 40.1 The provisions of section 80IC of the Act mandates to claim the deduction in respect of eligible unit considering the income from such unit as only the source of income. The assessee in the case on hand has allocated the cost of research expenditure which was directly connected with its eligible unit. The assessee besides the direct cost, has also incurred the cost on scientific research activity which did not materialize. Therefore the same was not allocated to the eligible unit as the same was not directly connected with the eligible unit. In our considered view the cost which is directly connected with the eligible uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, it would not be at all appropriate to allow the position to be changed in a subsequent year." After considering the facts in totality as discussed above, we do not find any infirmity in the order of the learned CIT-A. Hence we decline to interfere in in his order. Thus the ground of appeal raised by the Revenue is dismissed. 69.1. Similarly, the issue of income on account of notice pay and sale of scrap is also covered in favour of the assessee and against the revenue by the order of this tribunal in own case of the assessee in ITA No 1634/Ahd/2012 for A.Y. 2008-09. The relevant finding reads as under: 73.1 It is undisputed fact that all the aforesaid income or arising from the activities carried out by the industrial undertaking eligible for deduction under section 80IC of the Act. Therefore we are of the considered view all the incomes are eligible for deduction under section 80A of the Act. Regarding this we find support and guidance from the judgment of Hon'ble High Court in the case of Metrochem Industries Ltd (supra) wherein the head note of the judgment reads as under: "I Section 80-I of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssesseecompany for giving the donation was also generated by way of profits of Baddi unit, which was exempted income under section 80IC of the Act. Therefore, the ld. AO allocated amount of donation to the extent of ₹ 60,42,832/- to baddi unit and deduction @50% was disallowed to the assessee-company under section 80G of the Act. However, in appeal before the first appellate authority, the ld.CIT(A) allowed the claim of the assessee by holding that profit eligible for deduction under section 80IC will have to be first computed, and thereafter donation has to be considered for working out the deduction. In other words, firstly deduction under chapter VIA are to be deducted, and thereafter deduction under section 80G of the Act is to be made. The ld. CIT(A) while allowing the claim of the assessee also relied upon the decision taken in the assessee's own case for the Asstt. Year 2007-08 and 2008-09. Aggrieved by the decision of the ld. CIT(A), the Revenue is before the Tribunal. 72. We have heard both the parties, and perused material available on record. At the outset it is brought to our notice that this issue has been covered in favour of the assessee by the consolidated or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l raised by the appellant company before him that while computing deduction u/s. 80-IC of the Income-tax Act the Assessing Officer wrongly reduced the quantum of eligible income to the following extent: (a) Other Income 76,774 (b) Export Benefits 1,23,57,230 (c) Insurance Income 2,69,386 (d) Penalties Recovered from Suppliers 2,60,250 5. On the facts and in the circumstances of the case, the learned CIT(A) erred in not allowing deduction of a sum of ₹ 79,58,97,799 being profit eligible u/s. 80HHC of the Income-tax Act, while computing book profit u/s. 115JB of the Income-tax Act. 6. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the Additional claim made by the assessee company in respect of provision for leave encashment. 7. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the Additional Ground raised by the assessee company that research and development expenses should not be allocated to Baddi unit on the basis of turnover. 8. Without prejudice to the above, on the facts and in the circumstances of the case, the learned CIT(A) erred in considering the appellant company' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c grant for research activity, medical equipment given for free to increase the confidence about the products etc. Thus, the assessee contended that these expenses are incurred wholly and exclusively for the purpose of the business allowable under section 37 of the Act. The assessee further submitted that the regulation of the Indian Medical Council is only applicable for medical practitioners being member of medical council and not on the assessee which is engaged in industry of pharmaceuticals. Therefore, there is no violation of law on force. 77.2. The assessee alternatively submitted that Indian Medical Council amended its regulation vide amended as on 10th December 2009 and CBDT circular bearing No. 05/2012 was issued as on 01-08-2012. Thus same cannot be applicable before the date of issue of such notification and circular. 77.3. The assessee with respect to business advancement expense submitted that such expense was incurred for giving some gift to business associates and none of the expense exceed the sum of ₹ 1,000/-. 77.4. The learned CIT (A) after considering the facts in totality provided part relief to the assessee by observing as under: 6.2 I have consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that to be able to give grants to doctors, there are certain guidelines to be followed and certain conditions to be fulfilled. No explanation has been given by the appellant to demonstrate whether these were, in fact, adhered to. Similarly, the nature of 'Gift card" amounting to ₹ 3,26,69,010/- is not explained. In view of the MCI guidelines, I am of the view that while it is true that the same are guidelines for doctors, it is equally true that to voluntarily spend copious amounts on something which is prohibited by law (both by MCI and by virtue of the CBDT Circular] is not justified. Thus it is held that the expenditures at Serial Nos. 1, 2 and 3 ie Academic Grant/Scientific Grant - ₹ 10,62,30,190/-; Gift Card -Us.3,26,69,010/- and Travel Charges -₹ 43,81,340/- (Total ₹ 14,32,80,540/- ] are correctly disallowed by the A.O. However as regards the expenditure at Sr. Nos. 4 to 12 , these are found to be in the nature of business promotion expenses, and in my view, do not violate the guidelines discussed in the .paras above. The same are( therefore allowed. Thus out of the total disallowance made by the AO out of Doctor's Sponsorship expenses, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under the Explanation 1 to Section 37(1) of the Income-Tax Act. ii. Whether the benefit being freebies given by the assessee to doctors are prohibited by virtue of the provisions of CBDT circular bearing No. 5/2012 issued on 1-8-2012 under explanation 1 to section 37(1) of the Act. 80.1. At this juncture, we refer the said CBDT Circular No. 5/2012 dated 01.08.2012 which is reproduced as under: Inadmissibility of expenses incurred in providing freebees to Medical Practitioner by pharmaceutical and allied health sector Industry Circular No. 5/2012 [F. No. 225/142/2012-ITA.II], dated 1-8-2012 It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the 'Council') which is a regulatory body constituted under the Medical Council Act, 1956. 2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of "Indian Medical Council Professional Conduct, Etiquette and Ethics Regulations, 2002". However, we find that there was no mention in the said regulation/ notification/ circular issued by the MCI covering pharmaceutical companies or allied health sector industries. At the time of hearing, the learned DR has also not brought anything on record suggesting that the regulations framed by the MCI were applicable to the pharmaceutical industries in any manner directly or indirectly. In other words, to our understanding, such regulations made by the MCI were meant for the doctors/medical practitioners and therefore the same cannot bound the pharmaceutical industries and allied health sector companies. 80.4 In this connection, we draw support and guidance from the order of Delhi tribunal in the case of DCIT Vs. PHL Pharma P Ltd. reported in 78 taxmann.com 36 wherein it was held that Indian Medical Council Regulation of 2002 has jurisdiction to take action only against the medical practitioners and not to health sector industry. The relevant extract of the order reads as under: 8. From a perusal of above amendment/notification in the MCI regulation, it is quite clear agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. DCIT in ITA Nos.6429 & 6428/Mum/2012 order dated 23/12/2015. The relevant operative para of the order of the Coordinate Bench is reproduced hereunder:- "5. We have considered rival contentions and found that receiving of gifts by doctors was prohibited by MCI guidelines, giving of the same by manufacturer is not prohibited under any law for the time being in force. Giving small gifts bearing company logo to doctors does not tantamount to giving gifts to doctors but it is regarded as advertising expenses. As regards sponsoring doctors for conferences and extending hospitality, pharmaceuticals companies have been sponsoring practicing doctors to attend prestigious conferences so that they gather contemporary knowledge about management of certain illness/disease and learn about newer therapies. We found that the disallowance was made by the AO by relying on the CBDT Circular dated 01.08.2012 onwards. However, the Circular was not applicable because it was introduced w.e.f. 01.08.2012. i.e. assessment year 2013-2014. Whereas, the relevant assessment year under consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance so made by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices being received from AEs is mentioned. The appellant also provided the report of the independent review of the expert after considering the factuality and nature of services rendered where mark up of 10% to 16% over costs has been considered as appropriate so as to compensate for these services. The AR also argued that in earlier years also the appellant company had compensated AL's at 10% mark up which has already been accepted in the assessment proceedings, The facts and circumstances have not changed in this year, still the TPO has taken a different view. Looking at the submission of the appellant and details therein it seems that the compensation paid to AEs @ 10% is justifiable. The view is also supported by Calcutta High Court in the 'case ofCIT V. ITC. Infotech India Limited (2016) 66 taxmann.com 106/237 Taxman 476/384 ITR 380 (Cal.) A.Y.2006-07, where in respect of marketing and administrative services rendered by AEs assessee adopted a revenue sharing model whereby assessee kept 75 per cent of revenue and paid 25 per cent of revenue to AEs, since said model was duly supported by relevant documents, impugned addition made to assessee's ALP by adopting reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but did not succeed, hence, before the Tribunal in second appeal. 88. As stated above, the ld. counsel for the assessee submitted that similar issue arose in the assessment years 2007-08 and 2008-09 wherein the Tribunal in ITA No. 907 and 1634/Ahd/2012 allowed the claim of the assessee. We also find this ground is similar to ground no. 4 of assessee's appeal in ITA No.1285/Ahd/2017 for the Asstt.Year 2009-10, which we have dealt in paragraph No. 28 of this order, wherein we have allowed the claim of the assessee. Therefore, since facts and circumstances in the present year are similar with that of earlier years, following the order of Co-ordinate Bench of the Tribunal cited (supra) in the assessee's own case, and also for the reasons stated hereinabove, we delete the impugned addition, and allow this ground of appeal of the assessee in this year as well. 89. Ground No.4 : By this ground, assessee challenges order of the ld. CIT(A), who has confirmed the action of the ld.AO in reducing the following income while computing deduction under section 80IC of the Income Tax Act, 1961. (d) Other income ₹ 76,774/- (e) Export Benefits ₹ 1,23,57,230/- (f) Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e heard the rival contention and perused the material available on record. The issue in the instant case is whether the miscellaneous income such as Penalty Received from Supplier, Discount Received from Vendors and Export Benefits are eligible for the deduction u/s 80IC of the Act. 73.1 It is an undisputed fact that all the aforesaid income or arising from the activities carried out by the industrial undertaking eligible for deduction under section 80IC of the Act. Therefore we are of the considered view all the incomes are eligible for deduction under section 80A of the Act. Regarding this we find support and guidance from the judgment of Hon'ble High Court in the case of Metrochem Industries Ltd (supra) wherein the head note of the judgment reads as under: "I Section 80-I of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings, etc., after a certain date (Computation of deduction) - Assessment years 1994-95, 1996-97 and 1997-98 - Deduction under section 80-I is allowable in respect of Kasar, discount and sales-tax set off [In favour of assessee] I Deduction under section 80-I is allowable in respect of Kasar, discount and sales-tax set off. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct but it can't do so to nullify the effect of order of the Hon'ble Supreme Court. In other words, the Parliament to nullify the effect of the Supreme Court judgment can bring the amendment but with prospective date. Accordingly such amendment was unconstitutional. The assessee also contended that at the time of filing the return of income the clause (iv) of explanation 1 to section 115JB of the Act was very much in force. The provisions of section 294 of the Act provides that the provisions specified under the statute as on 1st day of the assessment year shall be prevalent. As such, the clause (iv) of explanation 1 to section 115JB of the Act was very much in force as on the 1st day of the assessment year. Accordingly the assessee contended that it cannot be denied the benefit of the deduction provided under clause (iv) to section 115JB of the Act. 96.2. However, the AO disregarded the contention of the assessee by observing that the amendment by the Finance Act 2011 was brought under the statute with retrospective effect i.e. 1-4-2005 wherein the benefit given to the assessee under clause (iv) of explanation 1 of section 115JB of the Act was denied to the assessee. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) of explanation 1 to section 115JB of the Act which, before omission, reads as under: (iv ) the amount of profits eligible for deduction under section 80HHC , computed under clause (a) or clause (b) or clause (c ) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or 101.1. The above benefit to the assessee was denied by the Finance Act 2011 with retrospective effect 01-04-2005. Admittedly, at the time of filing the return of income the assessee was entitled for the benefit as discussed above. But on a later date there was an amendment by the finance Act 2011 which denied the benefit to the assessee with retrospective effect. The Hon'ble Supreme Court in the case of Star India Pvt. Ltd vs. Commissioner of Central Excise reported in 280 ITR 321 has held that the benefit granted under the statute to the assessee cannot be withdrawn by way of retrospective amendment. The relevant extract of the Judgment reads as under: It was clear from the language of the validation clause of section 148 of the Finance Act, 2002, that the liability was extended not by way of clarification but by way of amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the learned CIT(A) erred in rejecting the additional claim made in respect of provision for leave encashment. 103. At the outset, we note the learned AR at the time of hearing submitted that he has been directed by the appellant not to press this issue. Thus the same is dismissed being not pressed. 104. Ground No.7 & 8: The grievance of the assessee is that the learned CIT(A) erred in rejecting the additional claim that research and development should not be allocated to Baddi unit. 105. At the outset we note that the issue raised by the assessee in its ground of appeal for the AY 2010-11 is identical to the issue raised by the assessee vide ground no. 3 in ITA No. 1285/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1285/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2010-11. The appeal of the assessee for the assessment 2009-10 has been decided by us vide paragraph Nos. 25 of this order and allowed in favour of assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2010-11. Hence, the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue vide ground no. 1 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2010-11. The ground of appeal of the Revenue for the assessment 2009-10 has been decided by us vide paragraph Nos. 39 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2010-11. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 110. In ground no. 2, the grievance of the Revenue is that the ld. CIT(A) has erred in deleting disallowance of ₹ 53,34,875 being distribution expenses under the doctor sponsorship and ₹ 2,52,99,208/- being business advancement expenses. 111. At the outset, we note that issue raised by the Revenue in this ground of appeal has been decided along with assessee ground no. 1 in ITA No.1286/Ahd/2017 vide paragraph no. 80 of this order where ground of appeal of the Revenue has been dismissed. Hence the ground of appeal filed by the revenue is hereby dismissed. 112. In ground no. 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue for the assessment 2009-10 has been decided by us vide paragraph No. 56 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2010-11. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 118. In ground no. 6, the grievance of the Revenue is that the ld. CIT(A) has erred in deleting the disallowance of ₹ 3,82,800/- on account of capital investment subsidy. 119. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2010-11 is identical to the issue raised by the Revenue vide ground no. 6 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2010-11. The ground of appeal of the Revenue for the assessment 2009-10 has been decided by us vide paragraph No. 67 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid amount pertaining to the appellant's subsidiary viz., Zao Pharma, written off in the books of the appellant company during the financial year relevant to the assessment year under appeal, was not a deductible business loss. 2. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming transfer pricing upward adjustment of ₹ 9,57,520 in respect of Bank Guarantees given by the appellant company in respect of its subsidiary company. 3. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming the reallocation of administrative expenses amounting to ₹ 7,80,92,117 in respect of the Baddi Unit for the purposes of allowing deduction u/s. 80IC of the Incometax Act. 4. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming that the following items of income are required to be excluded from the income of the Baddi Unit for the purposes of allowing deduction u/s. 80-IC of the Income-tax Act: (a) Other Income 1,91,553 (b) Export benefits 3,50,73,115 (c) Insurance income 23,88,005 (d) Penalties recovered from suppliers. 4,79,471 5. On the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... represents capital account transaction. There is no provision under the statute for allowing the deduction to the assessee of such capital account transaction in the event the recovery of the same in doubt. 127.2. Likewise, the assessee cannot treat the impugned amount of advances provided to the associate enterprises as bad debts under the provision of section 36(1) (vii) of the Act. It is for the reason that, such amount of advances was never treated as income in the books of the assessee. For claiming the bad debts, it is one of the precondition that the amount which has been offered to tax as income can only be written off in the event of nonrecovery. 127.3. The contention of the assessee that it's AE was standing as debtors in the books of accounts against which the amount was due against the sale of the goods. As such the amount of loan was advanced to the AE in order to realize the outstanding amount against the sale of the goods. The AO rejected the contention of the assessee by holding that the character of the loan will not change merely on the reasoning that loan was advanced in order to realize the outstanding debtors. It is for the reason that such advance was not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan granted to the subsidiary company did not spring directly from the business of the assessee company or was incidental to it. On the facts of the case we find no reason to take a different view." Considering the decisions referred supra and facts of the case, it is held that disallowance made by AO for write off of loan of ZAO Pharma for ₹ 14,00,40,000/- does not suffer from any infirmity and accordingly action of AO is upheld . This ground of appeal is dismissed. 129. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 130. The learned AR before us contended that the loss was incurred by the assessee in the course of the business and therefore the same should be allowed as deduction. 131. On the contrary learned DR before us vehemently supported the order of the authorities below. 132. We have heard the rival contentions of both the parties and perused the materials available on record. The controversy in the present case relates whether the assessee is entitled for the deduction of the working capital loan written off in the books of accounts on the reasoning that the same was not recoverable. Before, we touch the issue raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of judgments suggesting that any loss incurred by the assessee in the course of the business is an allowable deduction. For holding so, we draw support and guidance from the judgment of Hon'ble Karnataka High Court in the case of ACE Designers Ltd. Vs. ACIT reported in 120 taxman.com 321 wherein it was held as under: "8. Thus, from perusal of the aforesaid facts, it is evident that the issue involved in this appeal is covered by decision of Bombay High Court in Colgate Palm Olive (India) Ltd. (supra), which has been upheld by the Supreme Court. The ratio of aforesaid decision is where the assessee makes investment in its 100% subsidiary for business purpose, loss or sale of investment has to be treated as business loss of the assessee. In the instant case, the assessee made investment in the shares of WOS for the business purpose i.e., for the enhancement of business activity of the assessee in global market which primarily related to business operation of the assessee. The WOS suffered losses and therefore the assessee wrote off the assessment of ₹ 3,41,23,200/- as business loss. The investment was made for the purpose of extension of business activity and not with a v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the VST industries Ltd was denied. On the contrary, the assessee on hand and its subsidiary company are engaged in the same line of business. In other words the subsidiary company of the assessee is one of the extended arm of the assessee and the existence of the same depends upon the existence of the assessee company. Admittedly, the assessee has earned huge profit from the subsidiary company over a period of time which was brought to tax and therefore on the same reasoning if any loss is arising to the assessee relating to the same subsidiary company, a different treatment by denying the loss cannot be adopted by the revenue. In the light of the above stated discussion, we hold that the loss claimed by the assessee is an allowable deduction. Thus, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed, 133. In ground no. 2, the grievance of the assessee is that the ld. CIT(A) has erred confirming the addition of ₹ 9,57,520/- made on corporate guarantee provided to AE. 134. At the outset we note that the issue raised by the assessee in its grounds of appeal for the AY 2011- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the assessee for the assessment 2010-11 has been decided by us vide paragraph Nos. 94 of this order in its favour. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2010-11 shall also be applied for the year under consideration i.e. AY 2011-12. Hence, the ground of appeal filed by the assessee is allowed. 139. In ground no. 5, the grievance of the assessee is that the learned CIT(A) erred in rejecting the ground no. 13 that research and development expenses should not be allocated to Baddi unit. 140. At the outset we note that the issue raised by the assessee in its ground of appeal for the AY 2011-12 is identical to the issue raised by the assessee vide ground no. 3 in ITA No. 1285/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1285/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2011-12. The appeal of the assessee for the assessment 2009-10 has been decided by us vide paragraph Nos. 25 of this order in its favour. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the A.O. on account of garden expenses." 2) "that the Ld. CIT(A) is right in law and on facts in granting relief of ₹ 13,35,93,41s/- on account of distribution expenses under the head "Doctor Sponsorship" and deleting the disallowance of ₹ 2,63,50,133/- made by the A.O. on account of business advancement expenses." 3) "that the Ld. CIT(A) is right in law and on facts in deleting the disallowance of ₹ 26,44,63, OOO/- made by the A. O. out of deduction claimed by the assesses u/.s 35(2AB) of the I. T. Act in respect of research and development expenditure." 4) "that the Ld. CIT(A) is right in law and on facts in allowing depreciation @50% in place of 15% on the basis of Notification No, 10/2009 dated 19.01.2009 issued by CBDT." 5) "that the Ld. CIT(A) is right in law and on facts in allowing depreciation @60% in place of 25% on computer and computer software." 6) "that the Ld. CIT(A) is right in law and on facts in deleting the disallowance of ₹ 3,25,125/- made by the A.O. on account of capital investment subsidy." 7) "that the Id. CIT(A) is right in law and on facts deleting the disallowance made u/s. 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Revenue is hereby dismissed. 154. In ground no. 3, the grievance of the Revenue is that the learned CIT(A) erred in deleting the disallowance made by the AO for the weighted deduction under section 35(2AB) of the Act for ₹ 26,44,63,000/- only. 155. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 is identical to the issue raised by the Revenue vide ground no. 3 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2011-12. The appeal of the Revenue for the assessment 2009-10 has been decided by us vide paragraph Nos. 48 to 50 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2011-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 156. In ground no. 4, the grievance of the Revenue is that the learned CIT(A) erred in deleting the disallowance of depreciation on the basis of CBDT notification no. 10/2009 dated 19-01-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2011-12. Hence, the grounds of appeal filed by the Revenue is hereby dismissed. 162. In ground no. 7, the issue raised by the revenue is that learned CIT(A) erred in deleting of disallowances made by the AO under section 80IC of the Act on account of allocation of R&D expenses, notice pay and sale of scrap. 163. At the outset, we note that the issue raised by the Revenue in its grounds of appeal for the AY 2011-12 is identical to the issue raised by the Revenue vide ground no. 7 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2011-12. The appeal of the Revenue for the assessment 2009-10 has been decided by us vide paragraph Nos. 69 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2011-12. Hence, the ground of appeal filed by the Revenue is hereby dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und and ESI contributions on the ground that these payments were made by the appellant company beyond the time limit prescribed under the relevant provisions of PF and ESIC Acts. 2. On the facts and in the circumstances of the case, the learned ClT(Appeals) erred in confirming transfer pricing adjustments as per TPO's order in respect of the following amounts: (a) Capital infusion 89,935 (b) Bank Guarantees given by the appellant company in respect of subsidiaries 11,07,739 (c) Interest on loan to Associate Enterprises 1,45,206 3. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming the reallocation of administrative expenses amounting to ₹ 8,44,58,039 in respect of the Baddi Unit for the purposes of allowing deduction u/s. 80IC of the Incometax Act. 4. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming that the following items of income are required to be excluded from the income of the Baddi Unit for the purposes of allowing deduction u/s. 80-IC of the Incometax Act: (a) Export benefits 2,10,27,531 (b) Insurance income 44,60,577 5. On the facts and in the circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is that the ld. CIT(A) has erred in confirming the upward adjustment of TP for ₹ 89,935/-, ₹ 11,07,739/- and ₹ 1,45,206 on account of capital infusion, corporate guarantee and loan and advances provided to AE. 173. At the outset we note that the issues of TP adjustment on account of corporate guarantee and loan and advances provided to the AE are identical to the issues raised by the assessee vide ground no. 1 in ITA No. 1285/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1285/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 2009-10 has been decided by us vide paragraph Nos. 12 & 18 of this order by allowing partly in favour of assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2012-13. Thus, the issue to the extent of commission on corporate guarantee and interest on loan to AE is partly allowed in the favour of the assessee 174. Now coming to the issue of upward adjustment on account capital infusion in AE. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant. The appellant has also made an alternative argument that if the contention of recharacterization is not accepted the adjustment should be confined only to 4 days i.e. The inordinate delay caused by Zao Torrent Pharma, Russia to allot the shares against the money contributed. Since in this case there is a delay of only 4 days in allotment of shares which is in contravention to the RBI guidelines, there is merit in the alternate argument of the appellant that if interest is to be charged it can be charged only for the period of delay. Accordingly, the interest is charged only for 4 days i.e. the delay beyond the permissible limit of 180 days which comes to ₹ 89,934/-\ (₹ 27,20,516/- / 121 x 4) . Hence, the addition on this account is restricted to ₹ 89,934/- This ground of appeal is accordingly partly allowe. 178. Being aggrieved by the order of the learned CIT(A) both the assessee and Revenue are in appeal before us. The assessee is in appeal against the confirmation of ₹ 89,934/- whereas the revenue is in appeal against deletion of the addition of ₹ 26,30,582/- made by the ld. CIT-A. 179. Both the ld. AR and DR before us vehemently relied on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inate delay' and not the entire period between the date of making the payment and date of allotment of shares. Even if ALP determination was to be done in respect of such deemed interest free loan on allotment of shares under the CUP method, as has been claimed to have been done in this case, it was to be done on the basis as to what would have been interest payable to an unrelated share applicant if, despite having made the payment of share application money, the applicant is not allotted the shares. That aspect of the matter is determined by the relevant statute. This situation is not in pari materia with an interest free loan on commercial basis between the share applicant and the company to which capital contribution is being made. On these facts, it was unreasonable and inappropriate to treat the transaction as partly in the nature of interest free loan to the AE. Since the TPO has not brought on record anything to show that an unrelated share applicant was to be paid any interest for the period between making the share application payment and allotment of shares, the very foundation of impugned ALP adjustment is devoid of legally sustainable merits. 180.1 In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is allowed. 185. Ground no. 5 In this ground of appeal, the grievance of the assessee is that the learned CIT(A) erred in confirming the disallowance of the weighted deduction under section 35(2AB) of the Act. 186. The assessee during the year under claimed deduction of ₹ 246,31,22,480/- under section 35(2AB) which is detailed as under: From the perusal of the statement of total income, it is noticed that the assessee has claimed deduction on account of R & D expenses u/s.35(2AB) of the I.T. Act, 1961 as under ( as per the Tax Audit Report):- Particulars Total R &D Expenses Claimed as per return (Rs.) Section under which deduction is claimed in Return Revenue expenses 114,95,84,033/- 229,91,68,066/- Section 35(2AB) Capital Expenses Building 46,49,281/- 46,49,281/- Section 35(1)(iv) Other than building 7,96,52,567/- 15,93,05,133/- Section 35(2AB) Total 123,38,85,881/- 246,31,22,480/- On the basis of the above, the assessee has claimed total deduction of ₹ 246,31,22,480/- in respect of expenditure on approved Research & Development facility. 186.1. The assessee on question by the AO submitted that its research center has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit has been approved by DSIR for in-house research activity and it also fulfills all the condition laid down under section 35(2AB) of the Act. Therefore, the weighted deduction under section 35(2AB) should be allowed for all expenditures incurred in connection with the research activity without restricting the same to the extent of amount approved by the DSIR in form 3CL. The requirement of getting the approval in form 3CL from DSIR is a procedural requirement only. The assessee further explained by stating that each item of expenditure which has been disapproved by the DSIR are directly connected with the activity of research and therefore the weighted deduction on the same should be allowed. 188. The learned CIT(A) after considering the facts in totality deleted the disallowance of the weighted deduction made by the AO except disallowances on account of interest on loan, labour & Job work charges, furniture and fixture and electrical equipment by observing as under: With regard to weighted deduction for interest on loan for ₹ 42.25 lakhs, Appellant has claimed that such funds were granted for specific project and same has been used for research activities. However, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. AY 2012-13. The appeal of the assessee for the assessment 2009-10 has been decided by us vide paragraph Nos. 25 of this order in favour of assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the ground of appeal filed by the assessee is allowed. 194. In ground no. 7, the grievance of the assessee is that the learned CIT(A) erred in not allowing the deduction with respect to provision for leave encashment. 195. At the outset we note that the issue raised by the assessee in its ground of appeal for the AY 2012-13 is identical to the issue raised by the assessee vide ground no. 6 in ITA No. 1396/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITA No. 1396/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 146 of this order against the assessee with the liberty to claim the deduction of the same on payment basis. The learned AR and the DR also agreed that whatever will be the findings fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) is light in law and on facts deleting the disallowance of ₹ 1,62,56,000/-made u/s. 80G of 'the Act." 10) "that the Ld. CIT(A) is right in law and on facts in deleting the addition amounting to ₹ 6,65,91,946/- made on account of upward adjustment u/s. 92 CA(1) of the Income Tax Act, 1961." 11) "that the Ld. CIT(A) is right in law and on facts in deleting the disallowance amounting to ₹ 91,72,392/- made by the A.O. u/s. 14A in book profit u/s. 115JB of the Income Tax Act, 1961." 199. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of garden expenses of ₹ 31,67,881/- only. 200. At the outset we note that the issue raised by the Revenue in its grounds of appeal for the AY 2012-13 is identical to the issues raised by the Revenue vide ground No. 1 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2012-13. The ground of appeal of the Revenue for the assessment 2009-10 has been dismissed by us vide paragraph Nos. 39 of this order. The learned AR and the DR befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in deleting the disallowances of depreciation on basis of CBDT notification no. 10/2009 dated 19-01-2009 206. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2012-13 is identical to the issue raised by the Revenue vide ground no. 2 in ITA No. 1327/AHD/2017 for the assessment year 2009-10. Therefore, the findings given in ITA No. 1327/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the Revenue for the assessment 2009-10 has been dismissed by us vide paragraph Nos. 42 of this order. Please refer the relevant paragraph for the detailed discussion. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 207. The issue raised in ground no. 5 by the Revenue is that the learned CIT(A) erred in deleting the disallowance of excess depreciation claimed by the assessee on computer software. 208. At the outset we note that the issue raised by the Revenue in its ground of appeal for the AY 2012-13 is id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der consideration i.e. AY 2012-13. The appeal of the Revenue for the assessment 2009-10 has been dismissed by us vide paragraph Nos. 69 of this order. Please refer the relevant paragraph for the detailed discussion. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the ground of appeal filed by the Revenue to this extent is hereby dismissed. 213. Coming to the issue of cash discount and miscellaneous income: 214. It was found that the amount of eligible profit for deduction under section 80IC of the Act includes cash discount of ₹ 2,00,147/- and miscellaneous income of ₹ 3713,939/-. 214.1. The assessee submitted that cash discount represent discount received from venders for making prompt payment against purchases which has been shown separately under the head other income instead of directly reducing the purchase cost. Thus it has direct nexus with manufacturing activity and eligible for deduction under section 80IC of the Act. 214.2. The assessee with respect to miscellaneous income of ₹ 37,13,939/- submitted that it includes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such recovery reduces the expenditure. The Appellant has shown such recovery as 'other income' which does not mean that such income is not eligible for deduction as such income is required to be reduced from expenditure incurred by Appellant which will in turn lead to increase in profit of eligible- unit. Similarly, when unit eligible for deduction under Section 80-IC is purchasing any material, related cost is debited in such unit and when Assessee recovers any amount for material mishandling or penalty for delay in supply of material or providing for inferior quality by supplier, it recovers such amount from concerned supplier/persons which reduces cost of eligible unit. Merely showing all such amounts as income separately does not lead to conclusion that such income is not eligible for deduction rather such income reduces cost of eligible unit hence it is held that Appellant is entitled for deduction under Section 80-IC for ₹ 37,16,408/- on the impugned miscellaneous income. 216. Being aggrieved by the order of learned CIT (A) the Revenue is in appeal before us 217. Both the learned DR and learned AR vehemently supported the order of the authority as favorable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not be any impact as far as deduction under section 80IC is concerned. Accordingly, we hold that such income are eligible for deduction under section 80IC of the Act. 218.4 Coming to the other income i.e. recovery of the cost from the employee of ₹ 1,553/- and other ₹ 670/-, we direct the AO take net income embedded in the impugned transaction. Thus the ground of appeal of the revenue to this extent is dismissed 219. Coming to the issue of Gain on Foreign Exchange. 219.1 The assessee submitted that gain/loss on foreign exchange is arising on account of difference in rate of foreign currency as on the date of transaction and on date of settlement or closing date of accounts. These transaction includes import of materials, purchase of equipment and supply of natural gas for generation of electricity as well as export of goods. Accordingly, the assessee claimed that all these transaction are ordinary business transaction. Hence, any gain arising from ordinary business transaction is allowable for deduction under section 80IC of the Act. The assessee in support has furnished the details of exchange gain/loss and placed reliance on various judgments. 219.2 The AO, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign exchange fluctuation and duty drawback is an income derived from industrial undertaking, eligible for deduction under sections 80-1 and 80-IA [In favour of appellant]" (ijj) Decision of HoiVble Guiarat High CourLJn the case of CIT vs ALPS Chemicals f P.I Ltd [[20151 55 taxmann.com 3881 dated 26.03.2014: "Section SO-IA of the Income-tax Act, 1961 - Deductions - Profit and gains from infrastructure undertakings - Amount received on account of fluctuation in rate of foreign exchange was entitled to special deduction under section 80-IA [In favour of appellant]" The fact that gain is from export of goods pertaining to eligible unit is not disputed hence ratio of above judgments of Jurisdictional High court is squarely applicable on facts of case at hand. Therefore, disallowance made by Assessing Officer for ₹ 7,16,13,391/- is deleted. 221. Being aggrieved by the by the order of the learned CIT(A) the Revenue is in appeal before us. 222. Before us both the learned DR and AR vehemently supported the order of the authorities below as favorable to them. 223. We have heard the rival contentions of both the parties and perused the material available on records. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 32,02,273/- and added to the total income of the assessee. 227. Aggrieved assesse preferred an appeal before the learned CIT(A) and reiterated its submission as made before the AO during the assessment proceedings. 227.1 The learned CIT (A) after considering the fact in totality deleted the disallowance of the depreciation made by the AO by observing as under: In the present case, items like trolley, mobile racks, pallets are used directly/indirectly for manufacturing process of equipment. Hon'ble Pune Tribunal in case of Serum Institute of India Ltd. (2012) 47 TTJ 594 (pune ) wherein has held as under: "Section 32 of the Income-tax Act, 1961 - Depreciation - Allowability/rate of ^ Assessment year 2001-02 - Assessee was engaged in manufacture of chemical and vaccines and for this purpose had laboratories - It purchased stools, tables, stainless steel racks, trolley, etc., as part of plant and machinery and claimed depreciation accordingly - Assessing Officer held that said assets were not 'plant and machinery' but 'furniture' and, accordingly, allowed depreciation - Whether Assessing Officer should have adopted functional test to decide whether said it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soned finding o CIT(A) needs no interference from our side. We uphold the same. In the result, th( appeal filed by the Revenue is dismissed." From the above facts it is clear that the trollys etc. are integral part of the manufacturing process and the fulfills the conditions for 'functional test1 as stipulated by the Hon'ble ITAT, Pune. Considering the fact tha the trollys, mobile racks, pallets are used in manufacturing process the same are held to be plant and machinery. Accordingly, the disallowance made by the Assessing officer for ₹ 32,02,273/- is deleted. The related ground of appeal is allowed. 228. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 229. Both the learned DR and AR before us vehemently supported the order of the authorities below as favourable to them. 230. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee during the year under consideration purchased certain Trolleys, Mobile Rackets and Pallets and treated the same as part and parcel of the plant and machinery and claimed depreciation accordingly whereas the AO treated the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal involved 3 different amount which are under: 1. Deletion of upward adjustment of ₹ 26,30,582/- on Capital infusion. 2. Deletion of upward adjustment of ₹ 50,95,310/- on Liaison service. 3. Deletion of upward adjustment of ₹ 5,88,66,054/- on Dossier Licensing Fee. 235. As far as issue of deletion of upward adjustment on account of capital infusion is concern, we note that the same has been adjudicated along with assessee appeal vide ground no. 2 in ITA No. 1397/Ahd/2018 for the AY 2012-12 where the issue has been has been decided against the revenue vide paragraph no. 180 of this order. Hence, the ground of the Revenue's appeal to this extent is dismissed. 236. Now coming the issue of deletion of upward adjustment on account of liaison service, we note that identical issues was raised by the assessee vide ground no. 2 in ITA No. 1286/Ahd/2017 for A.Y. 2010-11 Therefore, the findings given in ITA No. 1286/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the Assessee for the assessment 2010-11 has been decided by us vide paragraph Nos. 84 of this order against the revenue. Please refer the relevant pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue generating stream for the appellant company. As per clause 6 of the said agreement it has been agreed upon that the A.E. is obligated to source all the requirements of pharmaceutical product and bulk drugs from the appellant company only. Meaning thereby all the customers/ clients of the associated enterprise would have to get pharmaceutical products manufactured exclusively from the appellant company. It is further noticed that the Appellant company had earned more substantial margins from sale of pharmaceutical products to its A.E. On perusal of the workings submitted by the appellant it is noticed that it has earned margins (computed on cost plus basis) of 265.71% on the sales made to A.E. who inturn supplies the same to the licensees. As per Form 3CEB the appellant is a manufacturer of pharmaceutical products generating revenues and profit from manufacturing of pharmaceutical products was the key area. The appellant has followed cost plus method as the most appropriate method to benchmark sale of pharmaceutical products to its A.E. Appellant company has earned substantial margins on sa e of pharmaceutical products. Detailed working has also been provided by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be allocated to India. Detailed working of the same is i provided by the appellant. This factual issue has not been dealt with by | i TPO, On analysis of the above facts it is noticed that if the losses are attributed applying the PSM as per the prescribed Rules the appellant would be entitled to allocation of losses incurred by the AE. In that scenario the allocation of 25% of revenues of Dossier Licensing Fees would also fail. 17.6.5 Transfer Pricing Order further states that Torrent Pharrna Gmbh has incurred registration expenses of ₹ 12.70 crores for more than 40 drugs whereas the dossier licensing fee has been received only for two drugs namely Lamotrigin and Sertraline, On registration of these two drugs the expense incurred by the A.E. is only ₹ 17.41 lacs. Hence, as per TPO the profits of the combined entity should not be the parameter for computing the profits under the PSM. In this regard appellant contended that mere registration of products does not result into getting the Dossier Licensing Fees. It is after the products are registered the AE undertakes the function of marketing the said "I registrations and explores multiple opportunities in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the finding of the learned CIT-A. Thus the order of the learned CIT(A) is well reasoned and does not require any interference. Hence the ground of appeal of the revenue to the extent of TP adjustment on account of Dossier licensing fee is hereby dismissed. 242. Thus in view of the above ground of appeal of the revenue is hereby dismissed. 243. The issue raised in ground no. 11 by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO in book profit under section 115JB of the Act by the amount of disallowance made under section 14A of the Act under normal computation of income. 244. The AO while determining the book profit under the provisions of section 115JB of the Act has made the adjustment of the expenses for ₹ 91,72,392/- which was disallowed by the assessee under section 14A under normal computation of income. 245. Aggrieved assessee preferred an appeal to the learned CIT-A, who deleted the adjustments made by the AO while determining the book profit under the provision of section 115JB of the Act by observing as under: 15.3 I have carefully considered the facts of the case, Assessment Order and submissions made by the appellant. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,08,05,084/- representing interest expenditure, but this amount was towards interest to financial institutions and other processing charges. This expenditure according to the Id. CIT (A) pertains to the borrowing made during the current year, and it was added back in the computation of income, since it was felt not to be admissible under section 36(1)(iii). Therefore, this expenditure cannot be said to be falling under clause (f) of Explanation 1 to Section 115JB(2). According to the Id, CIT (A) investments were made in the earlier years and the alleged financial charges could not be considered with reference to any investments relatable to earlier years Interest expenditure and processing charges which have been worked out by the assessee and added back represent borrowings for the current year. This fact is discernible from the submissions made by the assessee and reproduced by the Id. CiT (A). The Special trench has also observed that while computing disallowance u/s.14A r.w.r. 8D those investment should be taken for considering average value of investment which have yield exempt income during this year. This finding is qua the computation for 14A r.w.r. 8D. As far as adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the book profit as mentioned under clause (f) to explanation 1 to section 115JB of the Act. 248.3. However, it is also clear that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- "We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept ..... X X X X Extracts X X X X X X X X Extracts X X X X
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