9911796707
TMI Blog2022 (9) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... available. The argument of the assessee that it has not incurred any cost of borrowing does not have any relevance. The second argument of the assessee is that that the advances given to the two of the recipient subsidiaries have utilize the money advanced to them by the assessee for further investment in the shares of step down subsidiaries of the assessee company and therefore the advances are quasi equity and no interest is required to be charged. The advances given to the subsidiaries. The subsidiaries might have utilize the funds for any purpose but for the purpose of benchmarking of the interest the transaction is that assessee has given a loan to its associated enterprise. Further when we looked at the RBI permissions for overseas direct investment it is coupled with equity and loan. It cannot be said that it is a quasi equity. With respect to the rate of interest we find that AO charged the interest at the rate of 14.39% which is been reduced by the CIT- A to 8.25%. Loans are given in foreign jurisdiction. LIBOR +200 points is the correct benchmarking for the interest. Accordingly, we direct TPO to benchmark the interest as directed. Allowance of depreciation on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Associated Enterprises as well as unrelated parties both are in South Africa, quantity sold as is more or less and some sales are also pertaining to the same period and the overall different between the average price charged to Associated Enterprises and non-Associated Enterprises is merely 1.74%. Therefore, benchmarking the analysis of the assessee was upheld. Further, the Associated Enterprises supplies the goods to the local Government on tender basis for which the price are fixed. Therefore, there is no reason to uphold that benchmarking analysis by the assessee adopting CUP method is not proper. We do not find any infirmity in the order of the learned CIT (A). Hence, ground of the appeal of the learned Assessing Officer is dismissed. Benchmarking of interest on interest free advances good to the subsidiary companies - HELD THAT:- CUP method is required to be applied where the services are supplied in similar conditions. In the present case, the cost borrowing of the assessee does not have any relevance. Associated Enterprises have made the borrowing in foreign jurisdiction, therefore, the cost of borrowing of the assessee in India cannot be held to be an internal CUP. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t free advances to subsidiaries - Accordingly ground number one of the appeal is partly allowed. - ITA No. 8120/Mum/2010 And ITA No. 8084/Mum/2010 And ITA No. 3267/Mum/2015 And ITA No. 2493/Mum/2015 And ITA No. 3597/Mum/2016 And ITA No. 3811/Mum/2016 And ITA No. 7511/Mum/2010 And ITA No. 2815/Mum/2015 - - - Dated:- 29-8-2022 - ITA No. 3691/Mum/2016 And ITA No. 5227/Mum/2016 Shri Prashant Maharishi, AM And Shri Pavan Kumar Gadale, JM For the Assessee : Shri F.V. Irani, AR For the Revenue : Shri Sumit Kumar, DR ORDER PER PRASHANT MAHARISHI, AM: 01. This is the bunch of 10 appeals pertaining to M/s IPCA Laboratories Limited (the appellant/ assessee) for A.Ys. 200506 to 2010-11 filed by the assessee as well as cross appeals by the learned Assessing Officer, involving common grounds. The parties argued the lead appeal for AY 2008-09 filed by the assessee as well as the Asst. Commissioner of Income tax, LTU, Mumbai (the learned Assessing Officer). The issues in other years of appeals of both the parties are more or less on identical facts. Therefore, appeals for AY 2008-09 are taken as lead appeal. All these appeals are disposed of by this common order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant and therefore the same is eligible for deduction. 3. Deduction u/s.80IC of the Act- Dehradun Unit Both the CIT (A) and the AO erred in not considering income of Rs.13,13,310/- being sale of empty containers as profit of industrial undertaking for the purpose of deduction u/s. 801C. The appellant submits that the sale of empty containers are directly related to the profits derived from the business of industrial undertaking of the appellant and therefore the same is eligible for deduction. 5. Each of the above grounds is without prejudice to one another. 04. In ITA No. 2815/Mum/2015 , the learned AO has raised following grounds of appeal:- 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in reducing the rate of interest to 8.25% as against calculated by the TPO @ 14.39% on account of interest free advances advanced by the assessee to its wholly owned subsidiaries ignoring the high risk involved in granting such advanced and also ignoring the fact that, the rate applied by the TPO was not just an estimation but was supported by scientific calculation based on the norms of CRISIL, a well known and leading c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,095/-. This return was revised on 30th March 2010 at ₹65,67,13,877/-. The reason for revision of the return was that assessee reduced the acquisition cost of capital assets and claimed additional depreciation and withdraws the claim of cost of employee s stock option scheme. The return of the assessee was picked up for scrutiny. As assessee has entered into the international transaction of purchase of pharmaceutical products of ₹201.14 lacs, sales of pharmaceuticals products of ₹4,328.53 lacs, unsecured loan advanced to AEs without charging interest of ₹327.34 lacs, investment in shares of ₹2.52 lacs and dividend receipt of ₹155.85 lacs, reference was made to the learned Addl. Commissioner of Income Tax, TPO (1)(3), Mumbai (the learned Transfer Pricing Officer) for computation of Arms Length Price of above international transactions as shown in form no.3CEB. The assessee benchmarked the purchase and sale of pharmaceuticals products adopting Comparable Uncontrolled Price [CUP] method. The learned Transfer Pricing Officer accepted all other transactions except sale of pharmaceuticals products. 06. The assessee has sold pharmaceuticals products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven to subsidiaries in Mauritius, USA and Brazil. He adopted that this Associated Enterprises will be categorized in the BB category for which rate of interest is 14.39% and accordingly, adjustment on account of non-charging of interest on advances to Associated Enterprises was computed ₹50,70,842/-. Accordingly, he passed an order under Section 92CA(3) of the Act proposing total addition of ₹1,83,96,321/- as an adjustment on account of international transaction vide order dated 21st October, 2011 under Section 92CA(3) of the Income-tax Act, 1961 (the Act). 09. The learned Assessing Officer passed consequent to that assessment order under Section 143(3) read with section 144C of the Act on 2nd February 2012. The learned Assessing Officer further made following addition; i. Assessee is claiming deduction in respect of expenditure on scientific and research on account of capital expenditure and Revenue expenditure. It claimed deduction under Section 35(2AB) of the Act at the rate of 150% on capital expenditure and additional 50% on revenue expenditure. The Assessing Officer noted that form No.3CL dated 6th April, 2009 issued by Ministry Of Science And Technology, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... February 2012. 011. Assessee being aggrieved with the same preferred the appeal before the learned Commissioner of Income tax (Appeals). He passed an order on 11th February 2015. The learned CIT (A) held that; i. With respect to the transfer pricing adjustment of sale of finished products and rejected the contention of the assessee and accepted the approach of the learned Transfer Pricing Officer. He rejected the basket product approach and upheld the determination of Arms Length Price of individual products i.e. Product By product basis. He confirmed the balance transfer pricing adjustment of ₹1,27,40,126/-. ii. However, with respect to Pacimol tablets sold by assessee to National Druggist Pvt. Ltd, which was supply to local government on tender basis as per agreed rates, he deleted the addition of ₹17,67,638/- for the reason that assessee was not free to price its products at Arm s Length Price. iii. With respect to the interest on interest free advances given to the subsidiary companies, he upheld the action of the learned Transfer Pricing Officer but determines the rate of interest at 8.25% and direct the Transfer Pricing Officer to compute the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that with the regular product sold to the associated enterprises anti malarial products are pushed into that market. He referred to the sample invoices raised by the Associated Enterprises in foreign jurisdiction to other parties. It was submitted that that as it was a basket product approach where this products are sold together therefore, the assessee adopted these approach for benchmarking the arm s length price. He referred to the detailed chart submitted to demonstrate the same. He referred to statements no.1 of annexure C of Form no.3CEB. He submitted that assessee has sold 20 products to its Associated Enterprises. He submitted that assessee sold various products to IPCA Pharma Nigeria Ltd and the Arms Length Price on basket approach was derived at ₹12,33,20,805/- against the actual sale price of ₹14,81,54,453/-. He submitted that in the chart out of 20 items, six items were found to be individually less than Arm s Length Price but the other 14 items were transacted at far above the Arm s Length Price. He submitted that if these products are taken together then transaction price is higher by ₹2.5corres than the actual FOB Arm s Length Price derived by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Arms Length Price. 015. The learned Departmental Representative vehemently supported the order of the learned lower authorities and submitted that in the comparability, analysis of each transaction is required to be tested for Arms Length Price and there is no provision in the Indian tax laws, which permit the basket product approach for determination of Arms Length Price in CUP method. Therefore, according to the learned Departmental Representative there is no infirmity in the orders of the lower authorities. 016. We have carefully considered the rival contentions and perused orders of lower authorities. The issue here is that assessee with respect to its international transaction filed form number 3CEB wherein as per annexure C it was stated that assessee has sold pharmaceutical products to IPCA Pharma Nigeria Limited of Rs. 1666 lakhs and arm s-length price the same is determined at ₹ 1398.18 lakhs adopting cup method, thus the transaction is at arm s-length. To demonstrate the CUP method statement 1 of annexure C shows that assessee has sold 20 products to that entity amounting to ₹ 1 66 6 lakhs. The assessee benchmarked these transactions determining FO be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018. OECD guidelines of 22 July 2010 were also pressed to state that business strategies are also required to be considered. The market penetration scheme needs to be considered where a taxpayer penetrating a market or to increase its market share my temper a really charge a price for its products that is lower than the price charged or otherwise comparable products in the same market. Therefore, the market strategy of the assessee is to push antimalarial drugs into of written market along with the other products, the combined arm slength price of the 20 products required to be benchmarked. 019. For basket approach the assessee relied upon judicial precedent of Toyota Kirloskar motors private limited versus ACIT 828/Bangalore/2010 dated 2011 -2012, Godrej Sara Lee Ltd versus additional CIT 598/M/2013 dated 11/3/2015. 020. On careful examination of the facts, it is clear that according to rule 10 A (d) transactions include a number of closely linked transactions. Therefore, it is clear that if the transactions are closely linked transactions they should be benchmark together. 021. OECD transfer pricing guidelines for multinational enterprises and tax administration Janua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their marketability may be affected. In the present case before us to independent products, which does not have any correlation with each other, i.e. antimalarial as well as other pharmaceutical products are no way connected with each other. There is no evidence placed before us that both these medicines are always used together. It is also not shown that the use of such products is also made together. The only reason given is that assessee is also producing antimalarial drugs which are required to be pushed into Nigerian market and therefore it is a market penetration effort made by the assessee along with the other sales of pharmaceutical products and hence they should be benchmarked on basket of product approach. We do not find any rational to accept the argument of the assessee. The assessee has to show that the sale of each of the product is interdependent on each other. The transaction of sale of one product is inextricably linked with the sale of another product. Unless that is shown, the basket of product approach deserves to be rejected. 025. The decisions relied upon before us were also carefully perused but they do not support the case of the assessee. 026. Even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther entities, he submitted that 600 USD, which advanced for pre incorporation, expenses in USA and ₹8,15,410/- is the investment in Brazil Unit. He further referred to the annual accounts of both the Mauritius subsidiaries. In the end, he submitted the learned Transfer Pricing Officer has made an addition at the rate of 14.39% whereas the learned CIT (A) reduced it to 8.25%. He submitted that as the advances have been given to the parties in foreign jurisdiction only Libor Plus appropriate points can be applied at the most. 030. The learned Departmental Representative vehemently supported the order of the learned Transfer Pricing Officer and the learned CIT (A), he submitted that assessee has given advances and loan to its subsidiary companies, no independent party would have invested in its subsidiary without charging any interest and therefore, same is correctly charged. 031. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case, undoubtedly assessee has given advances to its four associated enterprises the learned transfer-pricing officer rejected the contention of the assessee that the concerned loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... un unit which is eligible for deduction under Section 80IC of the Act. The learned Assessing Officer held that this income is not eligible for deduction in view of the decision of Hon'ble M P High Court in case of Alpine Solvex Ltd 176 taxmann 285. The learned CIT (A) also upheld the action of the learned Assessing Officer. The assessee has submitted that Madhya Pradesh High Court decision was with respect to another section and Tribunal in assessee s own case for AY 1990-91 vide order dated 12th September 2002 allowed similar claim under Section 80HH of the Act. The learned CIT (A) held that sale of scrap is not in the nature of turnover and confirmed the action of the learned Assessing Officer. 035. The learned Authorized Representative submitted that sale of empty containers is part of eligible income under Section 80IB as well as 80IC of the Act. 036. The learned Departmental Representative vehemently supported the order of the learned lower authorities. 037. We have carefully considered the rival contention and perused the orders of the lower authorities. Apparently, assessee earned receipt of sale of empty containers. Undisputedly, the unit at Silvassa and Dherad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision of Section 43(1) of the Act. The learned CIT (A) held that provisions of Section 43A of the Act cannot be invoked in the case of the assets are acquired from India. It is applicable only in case of assets acquired from outside India. Hence, the disallowance of depreciation was deleted. The learned Departmental Representative supported the order of the learned Assessing Officer, whereas the learned Authorized Representative supported the order of the learned Commissioner of Income tax (Appeals). 042. We have carefully considered the rival contentions and perused the orders of the lower authorities. Undisputedly, assessee has earned foreign exchange fluctuation gain at the time of actual payment of external commercial borrowing, which was taken for acquisition of capital assets in India. As there is no acquisition of capital assets from outside India, there is no application of the provision of Section 43A of the Act. Therefore, foreign exchange fluctuation gain cannot be reduced from the actual cost of assets purchase in India. Accordingly, there is no infirmity in the order of he learned Commissioner of Income tax (Appeals). Accordingly, ground no. 2 of the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in [2021] 133 taxmann.com 149 (Kar.), wherein the decision of the Special Bench of ITAT in case of Biocon Limited (supra) has been upheld. In view of this, we do not find any infirmity in the order of the learned CIT (A) in allowing the claim of the assessee on deduction of employees stock option scheme discount. Ground no.4 of the appeal is dismissed. 049. In the result, appeal of the learned Assessing Officer is dismissed. 050. In the result, appeals for A.Y. 2008-09 filed by the learned Assessing Officer are dismissed and appeal of the assessee is partly allowed. A.Y. 2005-06 ITA No.8120 7511/Mum/2010 051. ITA No. 8120/Mum/2010 is filed by assessee and ITA No.7511/Mum/2010 is filed by the learned Assessing Officer against the order passed by the learned CIT (A)-15, Mumbai, dated 27th August, 2010. The assessee has raised solitary ground of appeal with respect to transfer pricing adjustment of interest loan given to subsidiary companies. 052. In ITA No.7511/Mum/2010 the learned Assessing Officer has raised following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on tender basis whose price are fixed, the assessee had to honour the tender price irrespective of its margin. Since, the transaction was on a marginal cost method, the assessee considered appropriate to charge what it charges to other unrelated parties under similar circumstances and similar markets. According to this export of ₹570.70 lacs was benchmarked using CUP method and determining Arms Length Price at ₹580.64 lacs. The difference being 1.75% of the transactional value which is within the permissible limit of 5%, it was stated that transactions are at arm s length. The learned Transfer Pricing Officer adopted the cost plus margin method (CPM) as the most appropriate method and proposed an adjustment of ₹58,89,000/-. The learned Assessing Officer further fund that assessee has given interest free advances of ₹2.66 crores to three different entities on which interest is not charged. It was stated that these are hundred percent subsidiaries of the assessee. The learned Transfer Pricing Officer applied the rate of Libor Plus 300 basis points for working of interest and made a transfer pricing adjustment of ₹37,69,098/-. Accordingly, adjustment of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales are also pertaining to the same period and the overall different between the average price charged to Associated Enterprises and non-Associated Enterprises is merely 1.74%. Therefore, benchmarking the analysis of the assessee was upheld. Further, the Associated Enterprises supplies the goods to the local Government on tender basis for which the price are fixed. Therefore, there is no reason to uphold that benchmarking analysis by the assessee adopting CUP method is not proper. We do not find any infirmity in the order of the learned CIT (A). Hence, ground no. 1 of the appeal of the learned Assessing Officer is dismissed. 058. The second ground of appeal of the learned Assessing Officer and only ground of appeal of the assessee are with respect to the benchmarking of interest on interest free advances good to the subsidiary companies. The fact shows that the assessee has given an advance to subsidiaries of ₹2.66 crores on which no interest has been charged. The learned Transfer Pricing Officer held that no independent party would have given interest free advances even to its 100% subsidiaries. Therefore, the learned Transfer Pricing Officer adopted Libor plus 300 basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) that interest is required to be computed only for the period the money is advanced and not for the full year. Accordingly, ground no. 2 of the appeal of the learned AO is partly allowed and ground no. 1 of the appeal of the assessee is dismissed. 062. Accordingly, appeal for Assessment Year 2005-06 filed by the assessee is dismissed and filed by the learned AO is partly allowed. AY 2006-07 ITA NO 8084/M/2010 063. ITA no. 8084/Mum/2010 is filed by the assessee against the order of the learned Assessing Officer passed under Section 143(3) read with Section 144C(13) of the Act on 9th September, 2010. Assessee has raised the following grounds of appeal: 1. The Deputy Commissioner of Income-tax (LTU), Mumbai (AO), erred in making addition of ₹ 29,62,754/- u/s.92CA(4) of the Act on account of adjustment in Arms Length Price (ALP) pursuant to directions of Dispute Resolution Panel (DRP) u's.144C(5) of the Act, dated 05.08.2010 and the order of Joint Commissioner of Income-tax, Transfer pricing 1(1), Mumbai (TPO), u/s.92CA(3) of the Act, dated 30.10.2009 in respect of the following transactions: (i) Adjustment of ALP in respect of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/ . As the assessee has entered into international transaction, the learned Assessing Officer referred the matter for determination of arm's length price to the Jt. Commissioner of Income Tax, Transfer Pricing, 1(1), Mumbai. The international transactions of the assessee were with respect to purchase and sale of pharmaceutical products and interest free advances given to its companies. With respect to purchase of pharmaceutical products, the assessee adopted CUP method for sale of Pharmaceutical products by National Drugs (Pty) Ltd, it adopted CUP method and for sale of pharmaceuticals products to Activa Pharmaceutical it adopted cost plus method. With respect to the purchase of pharmaceutical products, the learned Assessing Officer accepted the benchmarking by the assessee and made no adjustment. With respect to the sale of pharmaceutical products, the learned Transfer Pricing Officer noted that assessee in Form No.3CEB has given copy of details for the sale of various products stating book price of sale of products as well as Arms Length Price. Thereafter, it has also offered an adjustment contending that by a basket product approach the book price is higher than the sale pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Dispute Resolution Panel no.2 which gave the direction on 5th August, 2010. It upheld the addition on sale of products to its associated enterprises. Therefore, adjustment proposed by the learned Assessing Officer of ₹17,30,115. However, with respect to the interest it directed to the learned Assessing Officer/ Transfer Pricing Officer to compute the interest at the rate of Libor plus 200 basis points. Based on this assessment order was passed on 9th September, 2010. The learned Assessing Officer made the addition of ₹24,18,705/- on account of Arms Length Price on sale of pharmaceutical products. Against the interest addition of ₹6,18,679/- it was computed at 5,44,049/-. Accordingly, the total income of the assessee was assessed at ₹20,16,57,112/-. The assessee is aggrieved with that order as per ground no.1 and ground no.2, only transfer pricing adjustments are under challenge before us. The learned Authorised Representative with respect to the addition of ₹24,18,705 on sale of finished goods reiterated the same argument as were advanced before us on this ground for A.Y. 2008-09. With respect to the second issue in appeal on account of adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the addition of Rs.1,17,44,223/- made by the AO by making adjustment to transaction of exports to Ipca Pharma Nigeria Ltd. by comparing ALP and appellant's price on a product by product basis and not on set of transactions with the AE and failed to follow principles of aggregation which is well established rule in transfer pricing analysis and the OECD Guidelines which advocates aggregation of transactions under certain circumstances. 1.2 The CIT (A) erred in confirming addition of Rs.49,55,079/- made by the AO by way of adjustment on account of interest in respect of interest free advances made by the appellant to its 100% subsidiaries by computing notional interest at Libor + 300% rate of interest without considering the submissions made by the appellant. 2. Deduction u/s.80IB of the Act - Piparia (Silvassa Unit) Both the CIT (A) and the AO erred in not considering income of Rs.4,40,458/- being sale of empty containers as profit of industrial undertaking for the purpose of deduction u/s. 801B. The appellant submits that the sale of empty containers are directly related to the profits derived from the business of industrial undertaking of the appellant an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee own cost of borrowing is only 6.25%. he adopted the interest at the Libor plus 300 basis point, considering the number of days of loans were given made an adjustment of ₹49,55,079/-. Accordingly, the order under Section 92CA(3) of the Act was passed on 29th October, 2010 proposing the total transfer pricing adjustment of ₹1,66,99,302/-. 072. Income of the assessee was assessed under Section 143(3) of the Act vide order dated 14th February, 2011, wherein over and above the transfer pricing adjustment the learned Assessing Officer made the following disallowances; i. Deduction under Section 35(2AB) of the Act was reduced by ₹7,54,500/- on account of different in form no. 3CL. ii. The assessee has earned exempt income of ₹80,97,777/-, the learned Assessing Officer disallowed ₹13,54,153/- by invoking the provisions of Section 14A of read with Rule 8D of the Rules. iii. The assessee is entitled to deduction under Section 80IB of the Act of Silvassa unit which was reduced by 71,90,276 on account of DEPB and further ₹4,40,558/- on account of empty container sale as they are not derived from the industrial undertaking. iv. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest rate of Libor plus 200-basis market, similarly we direct the learned Transfer Pricing Officer/ Assessing Officer to adopt the interest rate of Libor plus 200 basis point. Accordingly, ground no.1 of the appeal is partly allowed. 076. Ground no.2 and 3 is with respect to the deduction under Section 80IB and 80IC of the Act wherein the learned Assessing Officer did not grant the benefit of deduction on sales of empty containers. This ground is also identical to ground of appeal of the assessee for A.Y. 2008-09, wherein we have held that sale of empty containers is part of the profit derived from the business of the undertaking and therefore, is eligible for deduction under these respective sections. Accordingly, we allow the ground no.2 and 3 of the appeal of the assessee and directing the learned Assessing Officer to grant deduction on account of sale of empty containers under Section 80IB and 80IC of the Act. 077. Ground no.4 of the appeal is with respect to the disallowance under Section 40A (3) of the Act. The fact shows that the above disallowance is made on account of payment made to government agencies such as road tax and attestation charges to various embas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ethod although the appellant had filed certificate by the Auditors in respect thereof during the course of assessment proceedings. 1.3 The CIT (A) erred in confirming addition made by the AO by way of adjustment on account of interest in respect of interest free advances made by the appellant to its 100% subsidiaries by directing the AO to recompute notional interest by applying LIBOR without considering the submissions made by the appellant. 2. Deduction u/s.801C of the Act - Dehradun Unit Both the CIT (A) and the AO erred in not considering income of Rs.10,27,691/- being sale of empty containers as profit of industrial undertaking for the purpose of deduction u/s. 80IC. The appellant submits that the sale of empty containers are directly related to the profits derived from the business of industrial undertaking of the appellant and therefore the same is eligible for deduction. 3. Disallowance of Additional Depreciation of Rs.2,84,75,543/ The CIT(A) erred in confirming disallowance of Rs.2,84,75,543/- made by AO in respect claim of additional depreciation u/s 32(1)(a) of the Act towards balance depreciation related to the assets put to use in the previous year relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of ₹ 23,935,240/ and sales of pharmaceutical products of ₹ 535,832,634/ . The assessee adopted the CUP method as the most appropriate method. With respect to the interest free unsecured loan with no repayment schedules of ₹ 7,297,346/ no interest was charged. The learned transfer pricing officer did not accept the benchmarking methodology for sale of pharmaceutical products as well as noncharging of interest on unsecured loan to its subsidiaries. 085. With respect to the sale of pharmaceutical products the assessee has sold finished goods to its AE during the year. Assessee has benchmarked the sale of pharmaceutical products by employing CUP as the most appropriate method and stated that transaction of sale is are higher than the amount of arm s-length price determined according to that method and therefore the international transactions are at arm s-length. As per annexure attached to the audit report in form number 3 CEB, assessee benchmarked the sale of pharmaceutical products to income Pharma Nigeria Ltd. The assessee states that there are 14 pharmaceutical products which are exported to that company. Assessee has sold finished drug formulations amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected a basket of products approach. The assessee was asked to submit the reply with respect to product wise ALP. The assessee submitted that as in the past years 2007 08 and 2008 09 the assessing officer has adjusted the arm s-length price in respect of this view products when the price charged to the associated enterprise was lower than the arm s-length price ignoring the overall profitability of the business with the associated enterprises. The aggregate transaction approach, basket approach was ignored. Therefore this led to reconsideration by the ld assessee with respect to the method to be followed. Assessee submitted that from assessment year 2000 11 assessee has followed the profit split method for determining the arm s-length price for transaction with this particular AE. Assessee also submitted a report of the profit split method and stated that 80% of the profit on the basis of the function is to the assessee and balance 20% profit is attributable to the associated enterprises. The learned assessing officer considered the reply of the assessee and stated that assessee has followed the CUP method earlier year also. This CUP method has been accepted by the TPO al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated enterprises for the number of days and worked out the interest amount of ₹ 2,250,380/ as arm s-length price of the interest. The assessee has not charged any interest and therefore the adjustment was made. 088. Consequently order u/s 92CA (3) of the act was passed on 15/1/2013 proposing total adjustment of ₹ 23,210,396/ . 089. The AO passed the assessment order u/s 143 (3) read with Section 144C (3) read with Section 144C (4) of the act on 9/file/2013 wherein over and above the transfer pricing adjustment he made the disallowance of additional depreciation of ₹ 28,475,543 with respect to the plant and machinery acquired before 31/3/2008 on which the balance depreciation of 10% was claimed in assessment year 2009 10. 090. Deduction u/s 80 IC and 80 IB was also restricted by an amount of ₹ 1,027,691 Under 80 IC and ₹ 294,280 u/s 80 IB on empty containers sale, which were not eligible for deduction Under the respective sections. Accordingly total income was assessed at ₹ 331,392,165 against the returned income of ₹ 278,678,540/-. 091. The assessee aggrieved with assessment order preferred an appeal before the learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be made in CUP method on product by product basis. Further we have held that there is no relationship between the different products put into one basket by the assessee. Accordingly, we uphold the transfer pricing adjustment of ₹ 20,960,016 made by the learned assessing officer and confirmed by the learned CIT A. 094. Furthermore, with respect to the adoption of profit split method, we are of the opinion that there is no dispute with respect to the most appropriate method with respect to determination of arm s-length price of sale of pharmaceutical products to the associated enterprises. The assessee has continuously adopted the CUP method and the learned transfer pricing officer has also accepted the CUP method. The only dispute is with respect to the determination of the comparability. The assessee is pressing for comparing prices by adopting the basket of product approach whereas the learned transfer pricing officer is adopting product by product approach. Therefore, when both the parties have agreed consistently over several years that the CUP is the most appropriate method, there is no reason to adopt the profit split method. Therefore, this claim is correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons given in our order for assessment year 2008 09, we direct the learned assessing officer to grant the additional depreciation is claimed by the assessee amounting to ₹ 28,475,543/ accordingly ground number 3 of the appeal is allowed. 099. Accordingly appeal of the assessee is partly allowed. 0100. Now we come to the appeal of the learned assessing officer. Ground number 1 of the appeal of the assessee is with respect to the rate of interest applied by the learned transfer pricing officer at 8.58% rejected by the learned CIT A and held that LIBOR must be applied. This ground of appeal is connected to ground number one of the appeal of the assessee, wherein we have upheld that interest should be benchmarked by adopting LIBOR +200 basis points. Therefore ground number one of the appeal deserves to be rejected. 0101. Ground number 2 is with respect to the allowing deduction in respect of the employee stock option scheme. We find that this issue is squarely covered in favour of the assessee by the decision of the honourable Karnataka High Court in case of Biocon Limited wherein the decision of special bench is approved. We have already dealt with this issue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings. 1.3 The CIT (A) erred in confirming the addition of ₹ 407,852/ made by the TPO/AO by making adjustment of transaction of exports to IP pharmaceutical incorporation USA by comparing arm s-length price and appellant s price on a product by product basis and not on set of transaction with the associated enterprises while applying the CUP method and failed to follow the principles of aggregation which is a well-established rule in transfer pricing analysis and the OECD guidelines which advocates aggregate son of transactions Under certain circumstances. 1.4 The CIT (A) order in not adjudicating ground number 2.6 of grounds of appeal with respect to the addition of ₹ 142,355/ made by AO by way of adjustment on account of interest in respect of interest free advances made by the appellant to its 100 % subsidiaries 1.5 The AO/TPO erred in making adjustment of ₹ 142,355/ without considering the submissions made by the appellant during the course of assessment. The impugned addition of ₹ 142,355/ made by the AO/TPO are based on reasons which are contrary to law and facts . 2. Deduction Under Section 80 IB of the act Piparia [ Silvasa] U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its return of income on 30/9/2010 declaring a total income of ₹ 1,062,947,822/ . The return was picked up for scrutiny. As assessee has entered into international transaction of sale of pharmaceutical products as a last year to its associated enterprises in Nigeria, which was benchmarked adopting profit split method holding that the sale of pharmaceutical products of 1500.77 lakhs has arm s-length price of ₹ 1422.33 lakhs and therefore the sale of pharmaceutical products to Ipca Pharma Nigeria Ltd is at arm s-length. Similarly Ipca pharmaceutical incorporation USA was sold pharmaceutical products of 721.94 lakhs, arm s-length price of the same was determined at 637.85 lakhs by adopting basket of product approach holding that there is no adjustment warranted. 0107. The learned assessing officer rejected the profit split method as the most appropriate method holding that for working out profit split method the assessee is to work out the cost of production of each drug separately and further there is no basis of why 20% is given to the assessee for direct cause and what is the rationale behind adopting the profit split ratio. Therefore, the AO adopted the CUP method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing the total income of the assessee at ₹ 107,78,85,040/ . 0110. The assessee preferred appeal before the learned CIT A who upheld the adjustment of ₹ 13,120,299 in respect of goods sold to associated Enterprises and further did not adjudicate on the issue of chargeability of interest to the associated enterprises on interest for loans of ₹ 142,355. Further he also confirmed the action of the assessing officer in disallowing the deduction u/s 80 IB and 80 IC of the act on sale of empty containers. Therefore, the assessee is aggrieved with the order of the learned CIT capital has preferred an appeal before us. 0111. Both the parties confirmed that there is no change in the facts and circumstances of the case as compared to the assessment year 2009 10 except to the fact that with respect to the sale of pharmaceutical products, the assessee in this year has adopted the profit split method whereas the learned transfer pricing officer has adopted the CUP method and comparability analysis was made on product by product basis. The learned authorised representative further submitted that the learned CIT capital has not at all adjudicate on the adjustment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in case of CIT versus Biocon Ltd [2020] 121 taxmann.com 351 (Karnataka) wherein it has been held as Under:- 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal is whether the tribunal is correct in holding that discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of options is allowable as a deduction under section 37 of the Act. Before proceeding further, it is apposite to take note of section 37(1) of the Act, which reads as under: Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, Profits and Gains of Business or Profession . 7. Thus, from perusal of section 37(1) of the Act, it is evident that the aforesaid provision permits deduction for the expenditure laid out or e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital. The tribunal therefore, in paragraphs 9.2.7 and 9.2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deduction under section 37(1) of the Act subject to fulfilment of the condition. 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of account, which has been prepared in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. 12. So far as reliance place by the revenue in the case of Infosys Technologies Ltd.(supra) is concerned, it is noteworthy that in the aforesaid decision, the Supreme Court was dealing with a proceeding un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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