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TMI Blog2023 (3) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(3) read with section 144C(13) of the Income tax Act, 1961 ("the Act"), for the aforesaid assessment year on the following among other grounds. 1:0 Transfer Pricing Adjustment of INR 20.00.44.704/ - to the international transaction relating to export of goods 1:1 The learned Assessing Officer ("AO")/ Transfer Pricing Officer ("TPO")/ Dispute Resolution Panel ("DRP") has erred in making an upward adjustment of INR 20,00,44,7047 - to the total income of the Appellant by holding that the international transaction relating to the export of goods entered into by the Appellant with its Associated Enterprise ("AE") was not at arm's length. 1:2 The learned AO/TPO/DRP erred in rejecting Transactional Net Margin Method ("TNMM") which was determined by the Appellant as the most appropriate method as per provisions of section 92C(1) of the Act. 1:3 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the international transaction relating to export of goods entered into by the Appellant with its AE was at arm's length and hence no adjustment in respect thereof was called for and the stand taken by the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 35(2AB) of the Act. 4:0 General 4:1 The Appellant craves leave to add, alter, amend and/or substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal." 3. Brief fact of the case is that Omni Active Health Technologies Limited assessee company is in the field of Natural APIs and Novel Delivery systems for nutrients and active ingredients. It is engaged in manufacturing of the patent protected Lutemax range Free Lutein and Lutein Esters for food fortification and dietary supplementation. During the assessment proceeding U/s 143(3) reference was made u/s 92CA (1) of the Act determined the ALP of international transactions entered into between OHTL and its associated enterprises (AEs) as reported in Form 3CEB and reply of the notice of TPO dated 20th September, 2019, 5th October, 2019 and 15th October, 2019. The assessee filed its TP study and Hon'ble Bench marking approach adopted by the assessee. The assessee adopted of TNMM as MAM related to transaction of export of goods amounting to Rs. 20,00,44,704/- but the TPO rejected the method of TP study of the assessee and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tyche Industries Ltd. 7.51% Mean 11.97% Median 8.83% 35th percentile 7.45% 65th Percentile 13.38% Omni Active's margin 22.63%s 4.2. We heard the rival submissions considered the documents available in the record, TNMM method selected by the appellant to benchmark transaction. The method was adopted by the TPO to bench mark the transaction CUP. Margin of the appellant in respect of AE transactions @23.27% but the margin of the appellant in respect of non AE transaction was @18.70%. On the other hand the margin related to external TNMM called for by the TPO the margin of appellant 22.63% and margin of the comparable (selected in TPSR for external TNMM on a corroborative basis): @11.97%. The TPO has taken the CUP method as MAM. The findings of the DRP, a similar to the earlier Assessment Year i.e. Assessment Year 2012-13 to 2014-15 and that they do not find any infirmity in the draft order of the AO/TPO in keeping the issue alive. 4.3. The selection of the TNMM, the assessee is relied on his own case ITA No. 638 & 4643/Mum/2017, date of order 06.03.2018 and 7284/Mum/2018 date of order 26.05.2020. The relevant para of the order in IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a does not apply to taxation proceedings, but it has fairly often been held by the higher courts including by the Hon'ble Apex Court, Radhasoami Satsang, 193 ITR 321 (SC) "13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." As per the Apex court, the consistency should be maintained in the assessment proceedings. A consistently applied method can be changed only if there is a change in facts and law. In the present case, we find that there is no such case has been made out. Rather the Transfer Pricing Officer has proceeded to examine the issue on the basis of TNMM method. He has ordered for updated data of comparable. Thereafter, when even on the basis of updated data, the international transaction was found to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent were made to supplier through banking channels which were duly reflected in the books of account and the assessee was in possession of purchase invoice. 5.2. During hearing, ld. CIT. DR vehemently argued and not making any strong objection against this issue. 5.3. The assessee has possession of the purchased documents and the payment was made through banking channels. So, this addition cannot be sustained u/s 69C. The ld. Counsel has submitted the catena of judgments with corelated fact of the case. The identity was proved as payment was made by banking channel. Possession of invoice has never been challenged. We find no infirmity in the transaction of assessee. Accordingly, the addition made by the AO is liable to be quashed. 5.4. In the result, the ground No. 2 of the appeal is allowed. "Ground No. 3 - 3 : 0 Disallowance of weighted deduction of INR 1,87,96,989/- under section 35[2AB] of the Act" 6. The issue is related to not granting the weighted deduction of Rs. Rs.1,87,96,989/- u/s 35 (2AB) of the Act. The ld. AO had sought granted the weighted deduction u/s 35(2B) of the Act by amounting to Rs.1,87,96,989/-, being the difference between the amount claimed in the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether 100%, 150% or 200% as prescribed from time to time. Clause (2) to section 35of the Act provides that no deduction shall be allowed in respect of expenditure mentioned in clause (1) under any provisions of the Act. Clause (3) further lays down that no company shall be entitled for deduction under clause (1) unless it enters into agreement with prescribed authority for co-operation in such R & D facility. The Finance Act, 2015 w.e.f. 01.04.2016 has substituted and provided that facility has to fulfil such condition with regard to maintenance of accounts and audit thereof and for audit of accounts maintained for that facility. 40. Under Rule 6 of Income Tax Rules, 1962 (in short 'the Rules), the prescribed authority for expenditure on scientific research under various sub-clauses has been identified. As per Rule 6(1B) of the Rules for the purpose of sub-section 2AB of section35 of the Act, the prescribed authority shall be the Secretary, Department of Scientific and Industrial Research i.e. DSIR. Under sub-rule (4), application for obtaining approval under section 35(2AB) of the Act is to be made in form No.3CK. Under sub-rule(5A) of rule 6 of the Rules, the prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act for non issue of form No.3CL by the said prescribed authority or the power is with the Assessing Officer to look into the nature of expenditure to be allowed as weighted deduction under section35(2AB)of the Act. The first issue which arises is the recognition of facility by the prescribed authority as provided in section 35(2AB) of the Act. 43. The Hon'ble High Court of Gujarat in CIT v. Claris Lifesciences Ltd. [2008] 174Taxman 113/[2010] 326 ITR 251 have held that weighted deduction is to be allowed under section 35(2AB) of the Act after the establishment of facility. However, section does not mention any cutoff date or particular date for eligibility to claim deduction. The Hon'ble High Court held as under:- "8. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of: (i ) development of facility; (ii ) incurring of expenditure by the assessee for development of such facility; (iii ) approval of the facility by the prescribed authority, which is DSIR; and (iv ) allowance of weighted deduction on the expenditure so incurred by the assessee. 9. The provisions nowhere suggest or imply tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not important, where the objective was to encourage research and development by the business enterprises in India. In the facts before the Hon'ble High Court of Delhi, the assessee had approached DSIR vide application dated 10.01.2015. The DSIR vide letter dated 23.02.2006 granted recognition to in-house research and development facility of assessee. Further, vide letter dated 18.09.2006, DSIR granted approval for the expenses incurred by the company on in-house research and development facility in the prescribed form No.3CM. The Assessing Officer in that case refused to accord the benefit of aforesaid provision on the ground that recognition and approval was given by DSIR in the next assessment year. The Tribunal allowed the claim of assessee relying on the decision of the Hon'ble High Court of Gujarat in Claris Lifesciences Ltd.'s case (supra ). The Hon'ble High Court of Delhi taking note of the decision of the Hon'ble High Court of Gujarat observed that it has been held that cut off date mentioned in the certificate issued by DSIR would be of no relevance where on certificate was issued by DSIR, then that would be sufficient to hold that the assessee had fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in curtailing the deduction u/s 35(2AB) in the pre amended period. Therefore,by deleting the impugned additions, we allow ground no. 3 of the appeal." 6.1. We heard the rival submissions and considered the documents available in the record. In the terms of provision 35(2AB) needs to be approved by DSIR. Research and Development Facility is approved and prescribed by the authority, DSIR in Form 3 CM then the expenses incurred by the assessee have to be allowed u/s 35(2AB) and the same cannot be curtailed. To the quantum approved in Form No. 3CL in the pre amendment period. 6.2. The ld. CIT-DR vehemently argued but unable to produce any contrary judgment against the order of coordinate bench in this factual aspect. 6.3. We are fully relied on the order of the coordinate bench. The first step was recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. The ld. AOcannot curtail the expenses which was contributed to R & D in pre amended period. Accordingly, the addition made by the ld. AO amount to Rs.1,87,96,989/- is liable to be quashed. 6.4. In the result, the Ground No.3 of the appeal is allowed. 7. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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