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TMI Blog2022 (8) TMI 1443X X X X Extracts X X X X X X X X Extracts X X X X ..... 33 - GUJARAT HIGH COURT] in own case of the assessee. But we are also conscious to latest development on the issue on hand as discussed above. Therefore, we direct the AO to also consider the judgment of Hon ble Madras High court [ 2020 (12) TMI 516 - MADRAS HIGH COURT] at the time of fresh adjudication. Hence, the ground of appeal raised by both the assessee and Revenue is hereby allowed for statistical purposes. MAT computation - denying the deduction of remuneration received from partnership firm while computing book profit under section 115JB - HELD THAT:- The definition of the income as discussed above under clause (ve) of section 2(24) of the Act has also made reference to the income chargeable to tax under clause (v) of section 28 of the Act. Thus, there remains no ambiguity to the fact that the amount of remuneration not allowed as deduction in the hands of the partnership firm cannot be made subject to tax in the hands of the partner. Thus, once the receipt is not taxable then the same cannot be made subject to tax under the provisions of MAT while calculating the profit under section 115JB of the Act. In view of the above, we do not find any reason to uphold the finding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omotion expense incurred in connection with doctors - AO was of the view that the above expenditure are not allowable under explanation 1 to section 37(1) of the Act as the same is incurred in violation of guideline issued by the Medical Council of India - HELD THAT:- We find that the issue on hand is covered in favour of the assessee by order of this tribunal in own case of the assessee for A.Y. 2010-11 [ 2019 (4) TMI 868 - ITAT AHMEDABAD] . However we find that recently Hon ble Supreme Court in case of Apex Laboratories (P.) Ltd. [ 2022 (2) TMI 1114 - SUPREME COURT] held that freebies provided to the doctor by the assessee engaged in pharmaceuticals business are covered under the explanation to section 37(1) of the Act being expenditure incurred which is prohibited by the law. Hence we deviate from the finding of the coordinate bench of this tribunal in own case of the assessee for earlier years and held that the assessee is not entitled to claim the deduction of the impugned expenses. Deduction of the cess paid - HELD THAT:- As per amendment under the provisions of section 40(a)(ii) of the Act wherein an explanation has been inserted with retrospective effect i.e. assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with subsidiary was at arms length. Decided against revenue. Upward adjustment on account profit attributed to the product Pantoprazole and other product - HELD THAT:- As decided in the own case of the assessee for AY 2008-09 no merit in the findings of the First Appellate Authority in accepting the application of PSM as the MAM , in our understanding of the facts TNMM is the MAM on the given facts and the same is accepted as such. We set aside the findings of the ld. CIT(A) and direct to delete the addition. Disallowance of weighted deduction u/s 35(2AB) - AO was of the view that benefit under section 35(2AB) is only available for the expenditure incurred in product registration in India whereas assessee incurred Trademark registration and overseas product registration charges outside India - HELD THAT:- Similarly the issue of eligibility of weighted deduction under section 35(2AB) of the Act, on expenses related to building repair, municipal tax, brokerage expenses and lunch and refreshment expenses is also covered in favour of the assessee by the order of this tribunal in own case of the assessee for A.Y. 2007-08 [ 2017 (4) TMI 1434 - ITAT AHMEDABAD] Disallowances of selling an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the given facts circumstances, we feel that ad-hoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the adhoc disallowance of Rs. 20 lacs as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restricted the disallowance 1% of the exempted income in other cases involving identical facts and circumstances in order to comply the clause (f) to Explanation-1 of Sec. 115JB of the Act. But we note that the assessee in the present case has earned exempted income more than Rs. 1000 crores and the disallowance will be worked out at 10 crores which appears not in commensurate as per the mandate provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore, we are of the view that the ad hoc disallowance as discussed above will render justice to the assessee and the revenue. Disallowances of R D expenditure incurred on behalf of partnership firm - HELD THAT:- As decided in own case AY 2009-10 bearing ITA No. 1663 1666/Ahd/2016 [ 2017 (9) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be open for the Assessing Officer to verify the actual expenditure incurred by the assessee. Upward adjustment on account of on account of product development services to AEs. - HELD THAT:- Price charged by the assessee from the associated enterprises at cost +10% is treated as at arm length price and therefore no adjustment is warranted. Hence, we reverse the order of the authorities below and direct the AO/TPO to delete the addition made by him considering the principles of consistency. Hence, the ground of appeal of the assessee is allowed. Downward adjustment in TP on account of power supplied to domestic AE - what should be the rate of the electricity generated by the assessee and supply for captive consumption? - HELD THAT:- We set aside the finding of the learned CIT (A) and direct the AO to delete the downward adjustment in transfer pricing report in pursuance to the finding of this ITAT in the case of Gujarat Fluorochemicals Ltd. [ 2018 (8) TMI 857 - ITAT AHMEDABAD] DR at the time of hearing has not brought anything on record contrary to the arguments advanced by the ld. AR for the assessee. Thus the ground of appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ntee commission which is excessive and ought to be substantially reduced. 2.6 Without prejudice to the above, if an adjustment is to be upheld, the guarantee fee should be charged at 1%, in line with the prevalent safe harbor rules. 3. Re: Deduction of Remuneration received from Partnership firms of M/s Sun Pharmaceutical Industries ('SPI') of Rs. 6.19.63,711/- & M/s Sun Pharma Sikkim ('SPS') of Rs. 67.25.69,731/- aqqreqatinq to Rs 73,45.33,442/- for determination of Book Profits under section 115JB: 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) / Ld. AO erred in not considering remuneration received from the partnership firms as an income to which the provisions of section 10 apply for the limited purpose of computing book profits u/s 115JB without appreciating that remuneration received from partnership firm is nothing but appropriation of profits. 3.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the entire mechanism of computing book profits is based on normal commercial profits having regard to the relevant accounting framework prescribed in Companies Act and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information received from Department of Sales Tax, Maharashtra without considering the evidences and explanations provided by the Appellant and without giving the basis for such allegations and an opportunity to cross examine the defaulting parties to the Appellant. 5.2 The Ld. CIT(A) ought to have appreciated that non-compliance of VAT law by the sellers cannot be the sole basis for sustaining addition in case of the Appellant. 6. Re: Disallowance of expenditure incurred for doctors for promotion of business Rs. 4.75.64.950/-: 6.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in disallowing expenses allegedly incurred towards providing gifts and freebies to the doctors / medical practitioners by invoking the provisions of Indian Medical Regulations, 2002, without appreciating that the same are not applicable to pharmaceutical companies and hence, there cannot be any violation in the first place to attract the rigours of Explanation 1 to section 37(1) of the Act. 6.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the said expenses have been incurred for the promotion an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009-10 and 2010-11 and the matter travelled up-to the ITAT in all these year in ITA Nos. 3297 & 3420/Ahd/2014, 1666 & 1663/Ahd/2016 and 922 & 1234/Ahd/2016 respectively. The ITAT in all these appeal set aside the issue to the file of the learned CIT(A). Accordingly it was prayed that the issue for the year under consideration should also be set aside to the file of the AO. 9. The ld. DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. Both the ld. AR and DR vehemently supported the stand of the authorities below as favourable to them. 10. We have heard the rival contention of both the parties and perused the materials available on record. At the outset, we find that in the identical facts and circumstances in the own case of the assessee for A.Y. 2007-08 bearing ITA No. 2076 & 2067/Ahd/2013, the ITAT has restored the issue for fresh adjudication to the file of the AO. However, the ITAT following in subsequent assessment years being A.Y. 2008-09, 2009-10 and 2010-11 restored the issue to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case of default, Guarantor has to fulfil the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on noncharging any commission from Associated Enterprise as a commercial principle. Further, it has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s AE, a subsidiary company. In view of the above discussion, appeal does not raise any substantial question of law and it is dismissed 10.5 Now, the question arises what should be the ALP rate of the commission on corporate guarantee? In this regard we find that The Tribunal in several cases has considered 0.50% (of corporate guarantee given) as ALP rate of Corporate Guarantee commission. Some of these cases are as under: (i) Videocon Industries Ltd. v. Dy. CIT [2017] 79 taxmann.com 216 (Mumbai - Trib.), Parent company charged commission at 0.25 %. The ALP was determined by the Tribunal at 0.50%. (ii) Hindalco Industries Ltd. v. Addl. CIT [2015] 62 taxmann.com 181 (Mum.), Parent company charged commission at 0.50% which was considered as at ALP. (iii) Manugraph India Ltd. v. Dy. CIT [2015] 62 taxmann.com 347 (Mum. - Trib.), The corporate guarantee was not treated as international transaction by the parent company but the Tribunal 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artnership firm while computing book profit under section 115JB of the Act. 12. The assessee is a partner in the firm namely Sun Pharma Industries (SPI) and Sun Pharma Sikkim (SPS) from where it received remuneration of Rs. 6,19,63,711/- and Rs. 67,25,69,731/- which was not taxable in hand of the assessee under normal provision of the Act. However, the assessee while computing the book profit under section 115JB also reduced the same. However, the AO added back the same to book profit by holding that remuneration received by assessee to a non-working partner is distinguishable from receipt of share from firm. On appeal learned CIT (A) also confirmed the finding of the AO. 13. Being aggrieved by the finding of the learned CIT (A) the assessee is in appeal before us. 14. The learned AR before us contended that ITAT in the own case of the assessee in the earlier years has decided the issue against it. However, there is change in the provisions of law by virtue of the judgment of Hon'ble Calcutta High Court in the case of PCIT vs. M/s Ankit Metal & Power Ltd. reported in 416 ITR 591 wherein it was held that the receipt which are not income under section 2(24) of the Act, the same ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (38) thereof) or [***] section 11 or section 12 apply, if any such amount is credited to the [statement of profit and loss]; or 113. And section 10(2A) of the Act says that in the case of a person being a partner of a firm which is separately assessed as such his share in the total income of the firm will not form part of total income. Explanation to Section 10(2A) provides that the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding, anything contained in any other law, to be an amount which bears to the total income of the firm, the same proportion as the amount of a share in the profits of the firm in accordance with the partners deed bears to such profits. 114. Thus, it is clear that firstly the profit and loss account of the company should be in accordance with the relevant provisions of the Companies Act. Secondly, only specified items have to be added back as provided in various clauses to Explanation 1 and reduced by specific items provided thereon. The only specific amount of income which has to be reduced is the income to which provisions of Section 10, 11 or 12 apply, if any such amount is credited to the Profit and Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the assessee was not allowed as deduction in the hands of the partnership firm. Thus, the same cannot be added to the total income of the assessee by virtue of the proviso to clause (v) of section 28 of the Act which reads as under: v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ; 16.3 At this juncture we also refer the provisions of section 2(24) of the Act where the word income has been defined. The relevant clause (ve) of section 2(24) of the Act reads as under: (24) "income" includes-- (ve) any sum chargeable to income-tax under clause (v) of section 28; 16.4 The definition of the income as discussed above under clause (ve) of section 2(24) of the Act has also made reference to the income chargeable to tax under clause (v) of section 28 of the Act. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore learned CIT (A) and reiterated its contention as made during assessment proceeding. 21. However, the learned CIT(A) confirmed the disallowances of repair and maintenance expenses to the extent of Rs. 35,13,250/- in part by observing as under: "18.2. I have carefully considered the facts on records and submission of the Ld. Authorized Representative. The issue under consideration is as to whether expenditure incurred by the appellant for purchase of various items will amount to creation of new assets with an enduring benefit to the company. In this regard, it is worthwhile to refer to the ratio laid down by the Hon'ble Supreme Court in the case of Dalmia Jain & Co. Ltd. Vs. CIT (1971) 81 ITR 754 wherein it has been held that "in deciding whether a particular expenditure is a capital in nature, what the Courts have to see as to whether the expenditure in question was incurred to create any new assets or was incurred for maintaining the business of the company, if it is the former, it is capital expenditure. If it is the latter, it is revenue expenditure". In this background, the items purchased by the appellant company have to be dealt with accordingly. a) Ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classified as fixed assets by the Revenue actually represents the part of the larger machines. As these items cannot function independently and thus such expense represents the repairs and maintenance expenses. The ld. AR reiterated the submissions as made before the authorities below. 22.2 On the other hand the learned DR vehemently supported the order of the authority below. 23. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note there was identical disallowances made by the AO in own case of the assessee in A.Y. 2010-11 where the coordinate bench of this tribunal in ITA No. 922& 1234/Ahd/2017 decided the issue against the assessee by observing as under: 73. The Ld. AR before us has also not pointed out any defect in the order of the Ld. CIT-A. Thus in the absence of any argument by the ld. AR for the assessee, we do not find any reason to disturb the finding of the ld. CIT-A. Hence the ground of appeal of the assessee is dismissed. 23.1 At the time of hearing before us for the year under consideration also the learned AR for the assessee was not able to pinpoint any defect on the finding of the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expected that the assessee will show the bogus purchases from such parties. 29. On the other hand, the learner DR vehemently supported the order of the authorities below. 30. We have heard the rival contentions of both the parties and perused the materials available on record. It has been contended by the assessee before the AO that above parties were active at the time of purchases made by it and this fact has nowhere been doubted by the authorities below. Thus, the assessee cannot be penalized if the other parties being the seller are de-registered from the Maharashtra VAT department. There was no clue or information available with the income tax Department suggesting that the assessee has made bogus purchases. The entire thrust of the Revenue was based on the fact that the other parties were held as bogus by the Maharashtra VAT department. To our understanding, based upon the information received from the 3rd party, until and unless it is confronted to the assessee, no adverse inference can be drawn. There can be various reasons for the cancellation of the registration such as non-payment of VAT by the party, non-filing of VAT return, non-maintenance of requisite records but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not apply to it as assessee is a pharmaceutical company and not a medical practitioner. Therefore, explanation 1 to section 37(1) will not apply. 32.3 However, AO disregarded the contention of the assessee and held that MCI is a statutory body which discharges its function under the Medical Council Act 1956. Therefore, any violation of the guidelines would be covered under the prohibition of law as mentioned in explanation 1 to section 37(1). Further, CBDT also in this regard issued circular No. 5/2012 dated 1-8-2012 which highlight that any expense incurred in the nature of freebies to a medical practitioner is to be disallowed. Accordingly, the AO disallowed the sum of Rs. 6,64,27,499/- and added to the total income of the assessee. 33. On appeal, the learned CIT(A) provided relief in part to the assessee by observing as under: "27.2. I have carefully considered the facts on records and submission of the appellant. I find that the Assessing Officer has not examined nature of expenditure in detail and he has simply disallowed the entire expenditure incurred on accommodation, business promotion and conference fees & sponsorship. As is evident from the submission of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to medical professionals and their professional associations in violation of the regulation issued by the Medical Council of India which is a regulatory body constituted under Medical Council Act, 1956, will not be allowed as expenditure in view of the Explanation below section 37(1). The validity of this circular is also been upheld by the Hon'ble High Court of Himachal Pradesh vide order dated 26.12.2012 in CWP No. 10793 of 2012. Since Medical Council of India has prohibited expenditure on freebies given to the medical professional with effect from 10.12.2009, in my considered view, the Circular No. 5 of CBDT dated 01.08.2012 only reasserts the legal position and hence the expenditure on freebies will not be allowable u/s. 37(1) being an expenditure prohibited by law. Accordingly, I hold that expenditure on gifts to the extent of Rs. 7,27,99,029/- shall not be deemed to have been incurred for the purposes of business or profession and hence the disallowance to this extent is confirmed. 23.2.1. As regards the balance expenditure on Accommodation (Lodging & Boarding) at Rs. 28,91,444/- and Conference fees and sponsorship at Rs. 84,99,194/-, the appellant has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wledge in the medical field which may help in improving the product and Research and Development activity of appellant, in my considered view, it is not hit by the Circular No. 5/2012 and amended MCI Guidelines. Further they appear to be in the nature of remuneration for J services rendered by the Medical Professionals in the conference and seminars. 27.2.2. The Ld. Authorized Representatives have also argued that the Circular No. 5/2012 is applicable to the Doctors/Medical practitioner only but not to the companies offering gifts/freebies. This argument is not acceptable because if accepting/demanding of illegal gratification is bad, then paying of the same is also bad. This view gets support from the ratio laid down in the following cases:- i) CIT Vs. Kap Scan and Diagnostic Centre (P) Ltd. (2012) 344 ITR 476 (P&H) In this case, the assessee company was doing the business of CT Scan, Ultra Sound and X-rays and it had debited certain amount of expenditure on account of commission paid to the practicing doctors who referred the patients to the assessee for various tests. It was held that the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. At the outset, we find that the issue on hand is covered in favour of the assessee by order of this tribunal in own case of the assessee for A.Y. 2010-11 bearing ITA No. 922 & 1234/Ahd/2017. However we find that recently Hon'ble Supreme Court in case of Apex Laboratories (P.) Ltd. vs. DCIT reported in 135 taxmann.com 286 held that freebies provided to the doctor by the assessee engaged in pharmaceuticals business are covered under the explanation to section 37(1) of the Act being expenditure incurred which is prohibited by the law. The relevant observation of the Hon'ble Supreme Court is extracted as under: "Thus, pharmaceutical companies gifting freebies to doctors, etc. is clearly "prohibited by law", and not allowed to be claimed as a deduction under section 37(1). Doing so would wholly undermine public policy. The well-established principle of interpretation of taxing statutes - that they need to be interpreted strictly - cannot sustain when it results in an absurdity contrary to the intentions of the Parliament. [Para 33]" 37.1 Thus in view of above finding of the Hon'ble supreme court, we deviate from the finding of the coordinate bench of this tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard, CBDT Circular No. 91/58/66ITJ(19) dated 18-05-1967, states that the effect of the omission of the word 'cess' from section 40(a)(ii) of the Act is that only taxes paid are to be disallowed and not cess. The said position is also upheld by decisions of Hon'ble Rajasthan High Court in case of Chambal Fertilisers and Chemicals Limited vs. JCIT (D.B. Income Tax Appeal No. 52/2018) (Dated 3107-2018) as well as recent decision of the Hon'ble Bombay High Court in the case of Sesa Goa Ltd. v. JCIT [2020] 117 taxmann.com 96. Accordingly, the Appellant seeks to raise additional ground for claiming deduction of cess paid in computing total income of the Appellant. 4. In order to claim its rightful entitlement, the Appellant feels the urge to raise an additional ground before the Hon'ble Tribunal. The Appellant seeks to raise additional ground in view of the Hon'ble Supreme Court's decision in case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) and the decision of Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. v. CIT [1993] 66 Taxman 27 (Bombay)." 39. The assessee in the additional ground of appeal has claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the Transfer Pricing adjustment made on account of sale of Pantaprazole and Para IV drugs, to Sun Pharma Global FZE, without appreciating the facts and reasons mentioned by the AO in the assessment order, and by the TPO in his order. 6. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the Transfer Pricing adjustment made on account of sale of other products to Sun Pharma Global FZE, without appreciating the facts and reasons mentioned by the AO in the assessment order, and by the TPO in his order. 7.1 On the facts and circumstances of the case and in law, CIT(A) erred in directing the A.O. to allow weighted deduction u/s. 35(2AB) of the Act on trade mark registration charges and overseas product registration charges without appreciating the facts and reasons mentioned by the AO in the assessment order. 7.2 On the facts and circumstances of the case and in law, CIT(A) erred in directing the A.O. to allow weighted deduction u/s. 35(2AB) of the Act on trade mark registration charges and overseas product registration charges without appreciating that the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investments were actually made out of interest free funds, and the disallowance deserved to be upheld following the decision of the Hon'ble High Court in Avon Cycles Ltd. (2015) 53 taxmann.com 297 (P&H). 12. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition to book profit u/s 115JB relating to disallowance u/s 14A without appreciating the facts and reasons mentioned by the AO in the assessment order, and without considering that this amount was required to be added to the book profit as per clause (f) to Explanation 1 of section 115JB(2). 13. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of proportionate R & D revenue expenses incurred by the assessee on behalf of Sun Pharmaceutical Industries and Sun Pharma Sikkim the firms without appreciating the facts and reasons mentioned by the AO in the assessment order. 14. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of proportionate R & D capital expenses incurred by the assessee on behalf of Sun Pharmaceutical Industries and Sun Pharma Sikkim the firms without appreciatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleting the upward adjustment under the provision of Transfer Pricing for Rs. 1,39,76,444/- on account of interest free loans to AE. 45. During the course of assessment proceedings, the TPO noticed that the assessee has provided interest free advances to the AE namely Sun Pharma Global BVI in earlier year out of which an amount of Rs. 134.4 crores was carried forward in the year consideration. The AO/TPO was of the opinion that the assessee should have charged interest at LIBOR plus basis. The assessee strongly objected to this proposition for TP adjustment stating that the amount was advanced for shares and the same has been adjusted towards allotment of equity shares in the year consideration. Therefore the amount is to be treated as advance towards share application money. However, the TPO was dissatisfied with the contention of the assessee and computed the arm length interest rate at 3.60% and accordingly made upward adjustment of Rs. 1,39,76,444/- only. 46. On appeal by the assessee, the learned CIT(A) found that addition made in the year under consideration is identical to the upward adjustment made in the A.Y. 2008-09 in the own case of the assessee against which assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant company and the appellant company in its capacity as sole owner of the subsidiary ny subscribing to share capital is beneficiary of all the gains of the subsidiary company. Merely, because allotment of shares is delayed and in books share application money is reflected as advance for share application money till the allotment would not alter the characterization to the prejudice of assessee's position anyway. In our considered view, the percentage of ownership is the only material factor which remains at 100% prior to allotment and also post allotment. As the assessee is the only shareholder in it's 100% owned subsidiary company SPG BVI it should not make any difference merely because part of the share application money is converted into equity shares and the balance were allotted in subsequent assessment years. We, therefore, do not find any merit in the submissions of revenue in this behalf. This proposition, is reinforced by the decision of the Coordinate Bench in the case of Sterling Oil Resources (P.) Ltd. in ITA No. 1791/Mum/2014. The relevant part reads as under:- 9. There is one more aspect of the matter. In the present case, allotment of shares does not make a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee, the percentage of ownership is the only material factor- which remains at 100% pre new allotment as also post new allotment. In the case of CH v, EKL Appliances Ltd. [2012] 345 ITR 241/209 Taxman 200/24 taxmann.com 199 (Delhi). Hon'ble Delhi High Court has, though in a very different context and which is materially different from a situation in which the payment is made for subscription of share capital- as in this case, held that re-characterization of a transaction is possible in only two situations - i.e. (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner. None of these conditions is satisfied in the present case. The form and substance of the transactions are the same. The assessee has behaved in a commercially rational manner inasmuch as whether the new shares are allotted at x point of time or y point of time, it does not make a difference to the position of the shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the own case of the assessee for AY 2008-09 allowed the appeal of the assessee. 54. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 55. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order. 56. On the other hand the learned AR before us submitted that identical upward adjustment was also made in AY 2008-09, 2009-10 and in 2010-11 where the matter travelled up-to ITAT in ITA No. 3297/Ahd/20154, ITA No. 1663 & 1666/Ahd/2016 and ITA No. 922 & 1234/Ahd/2017 respectively. The ITAT in all these appeal allowed the issue in favour of the assesse. 57. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue on hand is covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for the AY 2008-09 bearing ITA No. 3297/Ahd/2014. The relevant finding of the coordinate bench reads as under: 19. Shri G.C. Shrivastava referred to the decision of the Hon'ble Supreme Court in the case of Sahara India Real Estate Corporation Ltd. in Civil Appeal No. 9813 of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annexure B in which it has been submitted that the conversion of OFCD into equity shares at a price of USD 21- USD 51 per share as against the net asset value of the shares at the relevant point in time being USD 87 per share. Thus it is clear that the OFCDs were convertible into shares at significant discount to the prevailing book value of the shares giving rise to sizeable benefit on OFCDs. It is also submitted that the OFCDs have been converted into equity shares in the subsequent years; hence, the question of payment of any interest on the OFCDs would not arise, as the same is fully towards capital account. The Ld Senior counsel continued by saying that the Hon'ble ITAT in A.Y. 2007-08 and in earlier years has not committed any error whatsoever in coming to the conclusion, which is duly supported by other decisions and the position prevailing under Law. Hence no departure is called for much less due to the decision of Supreme Court in Sahara (supra). 22. We have given a thoughtful consideration to the rival submissions qua the issue. Adverting to the claim of revenue that in the earlier year, the bench has not considered certain facts while relying upon the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the facts of the year under consideration, we do not find any distinction from the decision taken in earlier assessment year by the Bench and the relevant findings read as under:- 8. We have heard the rival contentions and have carefully perused the orders of the authorities below. At the very outset, we have to state that the revenue has no power to re-characterize the transaction. The Hon'ble High Court of Delhi in the case of Cotton Naturals India Pvt. Ltd. 276 CTR 445 at para 17 of its order has held that Chapter X and Transfer Pricing rules do not permit the Revenue authorities to step into the shoes of the assessee and decide whether or not a transaction should not be entered. It is for the assessee to take commercial decisions and decide how to conduct and carry on its business. Actual business transactions that are legitimate cannot be restructured. A similar view was taken by the Hon'ble Delhi High Court in the case of EKL Appliances Ltd. 345 ITR 241. 9. On identical set of facts, the Co-ordinate Bench had the occasion to consider similar issue in the case of Cadila Healthcare Ltd. in ITA No. 2430/Ahd/12 with C.O. No. 242/Ahd/12 in 146 ITR 502 wherein the first groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleting the addition has noted that as per the agreement, the interest was payable only if the conversion option was not exercised on the expiry of 5 year period. If at any time during the 5 year period conversion option was exercised and the loan was converted into equity, no interest accrued or become payable. He further noted that the funds were provided by the Assessee as per RBI guidelines and in the immediately next year, the entire loan given to subsidiary was converted into equity shares of Zydus International Pvt. Ltd. He has further held that since the Assessee has converted the loan into equity in the immediate next year, there was no question of taxing notional interest. He has further held that Assessee had not granted interest free loan but invested in optionally convertible loan with a clause of interest in case, Conversion option was not exercised and further held the Assessee's transaction with subsidiary was at arms length. Before us, the Revenue could not controvert the findings of CIT(A) by bringing any contrary material on record. In view of these facts, we find no reason to interfere with the order of CIT(A). 11. Respectfully following the findings of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have manufactured the medicine namely "Pantoprazole Sodium Delayed Release" and other medicine on contract basis for its AE namely Sun Pharma Global BVI (SPG-BVI) until December 2008 and thereafter for Sun Pharma Global FZE (SPG-FZE) a 100% subsidiary of SPG-BVI. As per the assessee SPG-BVI from 2009 onward SPG-FZE is the owner of the technology of the impugned drug and undertaking. The functions like marketing, distribution, credit risk, product litigation liability, inventory holding cost, sales return, charges back etc. As such it (the assessee) has only manufactured the medicine at its US-FDA plant on contract manufacturing basis and earned profit margin of 36.05% which is far more than the ALP of 4.06% determined using TNMM. 61.1 However, the AO/TPO disagreed with the contention of the assessee and held that the drugs was originally developed by assessee and transferred to its AE indirectly which amount to transfer of unique intangibles. Therefore, the profit split method will be appropriate method to determine ALP because assessee was not just manufacturer of the product. The AO/TPO further found that learned CIT(A) for AY 2008-09 while upholding the Profit Split Method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for sale, the Technology was purchased by SPG in the month of October, 2007 and immediately thereafter in the month of November, 2007, SPG enters into an agreement with appellant for manufacturing. Copy of supply agreement between SPG and SPIL is exhibited at pages 648 to 659 of the paper book. Relevant clauses of the supply agreement read as under:- AND WHEREAS SPGI is the owner of the various abbreviated new drug applications and is interested to market the products in United States of America and in Europe and is therefore interested to buy various products from side approved by US FDA. 1. SUPPLY AND PURCHASE ARRANGEMENTS. SPIL hereby agrees to sell and supply the Products to SGI and SPGI hereby agrees to Purchase the Products from SPIL with the terms and conditions of this Agreement. It is understood by the parties that this Agreement in no way obliges SPGI to purchase or take any or all the said products or any part of SPGI's requirements thereof, manufactured. Processed and/or packed by SPIL only and does not preclude SPGI from making similar or alternative arrangements with one or more other parties at its sole discretion. 2.1 SPIL agrees to sell and supply the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellectual property rights. Nevertheless, in case SPIL would be or named as a formal party by reason of an infringement of third party rights for the Products, SPIL shall promptly inform SPGI thereof. SPGI shall conduct any defense of such suit at its own expense and SPGI shad indemnify and hold SPIL harmless from and against any loss, claim, damage, expense or liability if any resulting from any such suit in accordance with Section 5. However, in any such litigation suit SPIL agrees to assist SPGI, without assuming any monetary obligation. 4.3 Legal Compliance. SPIL hereby undertakes to comply with all requirements of law for obtaining various licenses, approvals, permissions and no objection certificates for meeting all legal obligations in respect of any matter whatsoever, enabling it lawfully, to properly manufacture the Products Vibe execution, delivery and performance of this agreement by SPIL does not and will not violate any provision of applicable law or of any regulation, order decree of any court, arbitration or/.governmental authority or any other agreement to which SPIL Is a party, SPIL hereby indemnifies SPGI from any consequences whatsoever of any failure or lapse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performing this agreement including for any claim, demand or suit alleging that the Product infringes any third party's patent, copyright, trademark, trade secret or other intellectual property right or any product liability. Notwithstanding anything to the contrary in this Agreement, in no event shall SPGI be liable to SPIL for any incidental, indirect, exemplary, special or consequential damages whatsoever (including, but not limited to, lost profits, loss of goodwill, or interruption of business) that may be suffered or incurred by SPIL as a result of SPGI's violation of this representation. 5.2 SPIL Indemnification. SPIL shall indemnify- and hold SPGI harmless from and against any loss, claim, damage, expense or liability resulting from any misrepresentation, negligence or intentional misconduct by SPIL in performing this Agreement; provided however, that SPIL's obligation of indemnification shall not extend to any loss, claim, damage or expense or liability, resulting from SPGI's gross negligence or misconduct. Notwithstanding anything to the contrary in this Agreement, in no event shall SPIL be liable to SPGI for any incidental indirect, exemplary, special or conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders or participants. Furthermore, shareholders or participants, that are subject to (personal or corporate) income-tax, are generally taxed on profits derived in consideration of their shareholding or participations, such as capital gains. It is fairly well settled that for tax treaty purposes a subsidiary and its parent are also totally separate and distinct taxpayers. The fact that a parent company exercises a shareholder's influence on its subsidiaries does not generally imply that the subsidiaries are to be deemed residents of the State in which the parent company resides. Where the subsidiary's executive directors' competences are transferred to other persons or bodies or where the subsidiary's executive directors' decisionmaking has become fully subordinate to the holding company with the consequence that the subsidiary's executive directors are no more than puppets then the turning point in respect of the subsidiary's place of residence comes about. Whether a transaction is used principally as a colourable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver codes. The parent is the only group member that normally discloses financial results. Below the parent company are the subsidiaries which hold operational assets of the business and which often have their own subordinate entities that can extend layers. Subsidiaries are often created for tax or regulatory reasons. They at times come into existence from mergers and acquisitions. As group member, subsidiaries are financially interlinked. Such grouping is based on the principle of internal correlation. 82. A thought full consideration of the aforementioned decision of the Hon'ble Supreme Court would show that even the Apex court have recognized that multinationals and multi entities group companies constitute subsidiaries in furtherance to their objects and to carry on their business smoothly in a competitive world . Moreover no person would arrange its affairs in such a manner which would culminate into huge losses to the extent of USD 506 millions as was suffered by the assessee group in this transaction. 83. Having established that the ownership of IPR/ANDA rights of Pantoprazole Sodium was with SPG BVI, now let us examine the applicability of the most appropriate method fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, a transactional profit split method would ordinarily not be used in cases where one party to the transaction performs only simple functions and does not make any significant unique contribution (e.g. contract manufacturing or contract service activities in relevant circumstances), as in such cases a transactional profit split method typically would not be appropriate In view of the functional analysis of that party. See paragraphs 3.38-3.39 for a discussion of limitations in available comparables. 85. United Nations practical manual on transfer pricing states as under:- 6.3.13. Profit Split Method 6.3.13.1. The Profit Split Method is typically applied when both sides of the controlled transaction contribute significant intangible property. The profit is to be divided such as is expected in a joint venture relationship. 6.3.13.2. The Profit Split Method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction (or in controlled transactions that it is appropriate to aggregate) by determining the division of profits that independent enterprises would have expected to realize from engaging in the transaction or tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (iii) the combined net profit is then split amongst the enterprises in proportion to their relative contributions, as evaluated under sub-clause (ii); (iv) the profit thus apportioned to the assessee is taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction] : Provided that the combined net profit referred to in sub-clause (i) may, in the first instance, be partially allocated to each enterprise so as to provide it with a basic return appropriate for the type of international transaction --[or specified domestic transaction] in which it is engaged, with reference to market returns achieved for similar types of transactions by independent enterprises, and thereafter, the residual net profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution in the manner specified under sub-clauses (ii) and (iii), and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual net profit apportioned to that enterprise on the basis of its relative contribution shall be taken to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is not a contract manufacturer in the case of SPG BVI. This finding of the revenue authorities is not acceptable for the simple reason that they have compared the clauses of the respective agreements without considering the nature of work done by SPIL. It may be possible that certain terms and conditions may be absent in the agreement between the assessee and SPG BVI but that itself would not deny the assessee, the status of contract manufacturer. In our considered opinion, the assessee has performed only one function and that is manufacturing of Pantoprazole Sodium and for this, the demonstrative evidence is exhibited at pages 569 and 570 of the paper book, and as mentioned elsewhere, clearly establishes the ownership of ANDA with Sun Pharma Global. For the sake of completeness, it would not be out of place to mention that the print out of these documents were taken from the Website on 28.09.2011 and 27.09.2011 and the order of the First Appellate Authority is 14.10.2014 and yet the FAA has observed that the assessee did not furnish ANDA related documents filed by SPG. SPG may not have done any filing related to Pantoprazole Sodium patent to US FDA but the fact of the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oprazole. Pursuant to this agreement assessee manufactured Pantoprazole and sold the same to Caraco Ltd on the directions of SPG BVI. On such sale transaction, the appellant company had shown a net margin of 21.57% bench mark the same on transactional net margin method which was dismissed by the revenue authorities questioning firstly, the ANDA rights with SPG BVI and secondly, comparing the contract manufacturing agreement of SPIL with SPG BVI and SPIL with ELI Lily. The revenue authorities ultimately applied profit spilt method and made the upward adjustment. 93. As demonstrated elsewhere, the IPR/ANDA rights were very much with SPG BVI who entered into an agreement with the appellant company for the manufacturing of the said drug. The application of Transactional Net Margin Method is the most appropriate method in such sale transaction and has been benchmarked by the assessee by showing it to be higher than the margin earned from the sales made to Eli Lily. 94. Considering the facts in totality in the light of the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. (supra) and on conspectus understanding of the facts as discussed elsewhe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ientific research ( not being expenditure in the nature of cost of any land or building in-house research and development facility as approved " . Since such repairs and municipal taxes were pertaining to building which is utilized for R D activity, the weighted deduction claimed by the assessee on " Repairs Building " and "Municipal Taxes" is disallowed and only 100% of the same is allowed as revenue expenditure." 67.4 The AO similarly disallowed the weighted deduction on lunch & refreshment expenses and property brokerage expenses for Rs. 8,92,819/- and Rs. 19,500/- by holding these expenses were either incurred outside the approved facility or having no relation with R&D activity. 68. On appeal by the assessee, the learned CIT(A) found that addition made in the year under consideration is identical to the addition made in the AY 200809 in the own case of the assessee against which assessee was in appeal before ITAT in ITA No. 3297/Ahd/2014 where the Hon'ble ITAT decided the issue in favour of the assessee and same was also followed in A.Y. 2009-10. Thus the learned CIT (A) following the order of the ITAT in own case of the assessee for A.Y. 2008-09 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same as revenue expenditure. 13. Assessee carried the matter before the ld. CIT(A) but without any success. While dismissing the grievance of the assessee, the ld. CIT(A) followed the findings of his predecessor given in A.Y. 2002-03 to 2004-05. Before us, the ld. counsel for the assessee stated that the Tribunal in assessee's own case in earlier years has decided this issue in favour of the assessee and against the revenue in ITA No. 1558/Ahd/2006. The ld. D.R. could not bring any distinguishing decision in favour of the revenue. 14. We have given a thoughtful consideration to the order of the Tribunal in earlier years; we find that the Tribunal while deciding the issue in favour of the assessee has followed the decision of the Co-ordinate Bench, Mumbai in the case of USV Ltd. 54 SOT 615. Findings of the Tribunal read as under:- 24. We have carefully perused the orders of the authorities below. We find that the ld. CIT(A) has simply followed the findings of his predecessor for A.Y. 2000-01. We also find that the assessment order for A.Y. 2000-01 has been quashed by the Tribunal vide a ITA Nos. 1199 & 1279/Ahd/2006, which means that the basis for upholding the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of assessee, we uphold the finding of the learned CIT(A). Thus, the ground of appeal raised by the Revenue is hereby dismissed. 73. The next issue raised by the Revenue in ground No. 10 of its appeal is that the learned CIT(A) erred in deleting the disallowances of selling and distribution expenses pertaining to sister concerns i.e. Sun Pharmaceutical Industries and Sun Pharma Sikkim. 74. The assessee is a partner in the firm namely Sun Pharmaceutical Industries (SPI) and Sun Pharma Sikkim (SPS) for 97.5% of share of profit. The assessee is looking after the marketing of product on behalf of firm, providing advice on technical matter and product stability and position to firms for which assessee was entitled to withdraw 5% of net profit earned by the firm in form of partner remuneration. 74.1 Based on the above the AO was of the view that assessee is incurring marketing, distribution and other technical expenses on behalf of the firm and against which receiving remuneration which is exempt in its hand. Therefore, such expenses incurred by the assessee on behalf of firm needs to be disallowed. Accordingly, the AO disallowed the selling and distributing expenses along with sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the assessee and Sun Pharmaceutical Industries (SPI) was found along with a copy of supplementary partnership deed. The A.O further observed that as per the partnership deed, the assessee was entitled to draw yearly remuneration of 15% of the net profits of the partnership firm. The A.O further observed that the assessee had received 15% of net profits of SPI Rs. 15,75,55,219/- as per the agreement of partnership. However, the A.O noticed that the partnership firm has not debited this remuneration paid to the assessee by taking recourse to the provisions of section 40(b) wherein remuneration is allowed to a working partner who is an individual. 89. The A.O further noticed that though the remuneration was not offered for taxation by the assessee but it has debited the expenditure incurred on behalf of the partnership firm in its books of account. The A.O was of the firm belief that these expenditures are not related to the earning of income and accordingly disallowed - (a) selling and distribution expenses 25,68,21,928/- salary and allowance to field staff 24,12,98,724/- totaling to Rs. 49,81,20,652/. The A.O proceeded by disallowing Rs. 8,49,79,383/- based on the ratio of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also no denying that as per the provisions of section 40(b) of the act, the remuneration is payable to a whole time working partner who is an individual and the assessee is a limited company. Therefore the assessee could not have shown this remuneration as part of its computation of income. It is also a fact that the partnership firm has also not debited this remuneration to its Profit and Loss account. However, the assessee company using its network has incurred certain expenditure which according to the revenue authorities are not directly related to earning of income. In our understanding of the law an expenditure is allowable if it is incurred for the purposes of the business of the assessee and not for the purposes of earning profit. As per the agreement between the assessee company and the partnership firm, the assessee had assisted the partnership firm in carrying on its business by using its network for marketing the pharmaceuticals products successively. Thus, it cannot be said that the expenditure incurred by the assessee are not for the purposes of its business. Since the assessee is holding 95% in the partnership firm it becomes the duty of the assessee to promote the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of administrative expenses as per rule 8D(iii) whereas deleted the other disallowances made under section 14A r.w. rule 8D of the Act. Thus the learned CIT (A) following the order of the ITAT in own case of the assessee for A.Y. 2008-09 and 2009-10 deleted the disallowances made by the AO on account of direct expenses under rule 8(i) and interest expenses under rule 8D(ii) of income tax rule. 83. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal before us. 84. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order. 85. On the other hand, the learned AR before us submitted that identical disallowance was also made in AY 2008-09 and 2009-10 and the matter travelled up-to the ITAT in ITA No. 3297/Ahd/20154 and ITA No. 1663 & 1666/Ahd/2016 respectively. The ITAT in all these appeals allowed the issue in favour of the assesse. 86. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue of disallowances under section 14A read with rule 8D of income tax rule is covered partly in favour of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be the subject matter of disallowances while determining the net profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below: "In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962." 86.4 The ratio laid down by the Hon'ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act. 86.5 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue. Thus the ground of appeal of the Revenue is partly allowed. 87. The next issue raised by the Revenue in ground No. 13 & 14 of its appeal is that the learned CIT (A) erred in deleting the disallowances of R & D expenditure incurred on behalf of partnership firm. 88. The AO found that the assessee is partner in the firm namely Sun Pharmaceutical Industries (SPI) and Sun Pharma Sikkim (SPS) in ratio 97.5% and drawing huge exempted profit. The AO also found that both the firm are eligible for exemption under section 80IC/80IB of the Act but both the firm has not debited R&D expenses. Therefore, the AO was of the view that the entire R&D activity was carried out by the assessee for both firm and proposed to allocate the R&D expenses in the ratio of turnover to the assessee and firm. The proposition of allocation of R&D expenses was opposed by the assessee at length. However the AO disregarded the contention of the assessee and made disallowances of Rs. 87,56,00,900/- on account of allocation of R&D expenses being revenue in nature and further an amount of Rs. 15,63,71,515/- being capital expenditure to the Firm SPI and SPS after giving detailed reasoning. 89. On appeal by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's business or the business of the partnership firm where the assessee is a majority stake holder. In our understanding of the law an expenditure is allowable if it is incurred for the purposes of the business of the assessee. Finding that the assessee is having 97.5% share in the profits of the firm SPI, we do not find any merit in the disallowance made by the A.O. and confirmed by the First Appellate Authority. We, accordingly, direct the A.O. to delete the addition of Rs. 5,30,29,5255/-. Ground no. 12 is accordingly allowed. 93.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we uphold the finding of the learned CIT(A). Thus, the ground of appeal raised by the Revenue is hereby dismissed. 94. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in the own case of the assessee for AY 2008-09 bearing ITA Nos. 3297 & 3240/Ahd/2014. The relevant finding of the coordinate bench reads as under: 128. We have given a thoughtful consideration to the facts in issue. It is an undisputed fact that the remuneration has been paid by the firm SPI as per the partnership deed read with supplementary partnership deed. It is also an undisputed fact that the said partnership deed read with supplementary deed has not been treated as sham or unlawful deeds. The First Appellate Authority emphasized on the entire transaction as a device of tax evasion. The partnership firm SPI has claimed Rs. 40.12 crores as remuneration to the assessee company but at the same time, it did not claim the same as deduction as it was not paid to a whole time partner as provided in the Act. It is true that the appellant company has also not offered the same for taxation taking a shelter behind the provisions of Section 28(v) of the Act. No doubt, the profits of the partnership firm are exempt u/s. 80IB(4) of the Act. Even, if the partnership firm had not charged Rs. 40.12 crores as remuneration to the appellant company, the profits of the firm would have increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.Y. 2007-08 and A.Y. 2009-10 in own case of the assessee and the matter travelled up-to ITAT where the Hon'ble ITAT decided the issue in favour of the assessee. Thus, the learned CIT (A) following the order of the ITAT in the own case of the assessee for A.Y. 2007-08 and 2009-10 allowed the appeal of the assessee. 104. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal before us. 105. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order. 106. On the other hand, the learned AR before us submitted that the identical addition was also made in AY 2009-10 which was deleted the ITAT in ITA No. 1663 & 1666/Ahd/2016 and thus the issue was allowed in favour of the assesse. 107. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue on hand is covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for AY the 2007-08 bearing ITA No. 2076 & 2067/Ahd/2013. The relevant finding of the coordinate bench reads as under: 61. In our considered opinion profits accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deleting the disallowance made the AO for the weighted deduction claimed under section 35(2AB) of the Act on account of expenses not approved by the DSIR. 111. The assessee during the year under consideration claimed weighted deduction under section 35(2AB) of the Act on account of Revenue R&D expenditure of Rs. 13548.51 lakh and on account of capital expenditure of Rs. 2303.34 lakh. However, the DSIR approved the Revenue expenses of Rs. 11973.91/- only and capital expenses of Rs. 2278/- lakh only. The assessee submitted that as per the order of the jurisdiction High court of Gujarat in case of Claris Lifescience Ltd (326 ITR 251) where it was held that entire expenditure incurred in connection with the approved in-house facility of R&D will be eligible for weighted deduction under section 35(2AB) of the Act irrespective of expenses approved by the DSIR in form 3CL. 111.1 The AO disagreed with the contention of the assessee and held that from the plain reading of the provisions of section 35(2AB) of the Act it is clear that the assessee will be eligible for weighted deduction on the amount of expenditure approved by the prescribed authority i.e. DSIR. Further, the Hon'ble Guja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 3CL to the Director General (Income Tax Exemptions) within 60 days of its granting approval. The same is merely in the form of intimation to be sent from prescribed authority's end to the department. An assessee engaged in such Research & Development activity having already obtained Form 3CM approval of its facility has no role to play in such correspondence. We notice that a co-ordinate bench of this tribunal in ACIT v. Torrent Pharmaceuticals [IT Appeal No. 3569/AHD/2004, dated 13.11.2009] holds that the impugned weighteddeduction is not to be restricted to the extent of the amount of the necessary expenditure incurred stated in such Form 3CL. We further find that hon'ble jurisdictional High court's decision in CIT v. Claris Lifesciences Ltd. [2010] 326 ITR 251/[2008] 174 Taxman 113 (Guj.) upholds this tribunal's decision in the very assessee's case observing that expenses incurred before Form 3CM approval cannot be denied for the purpose of Section35(2AB) weighteddeduction. We follow the very reasoning to opine that facts of the instant case rather go a step further wherein the appellant has only claimed those expenses which relate to the time period as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al by the Assessee or A.Y. 2013-14 119. The assessee has raised the following grounds of appeal: "The Appellant raises the following grounds, which are mutually exclusive, independent of and without prejudice to one another: 1. On the facts and in the circumstances of the case and in law, the order passed by the Learned Commissioner of Income-tax (Appeals) [the 'Ld. CIT(A)'] erroneously affirming the findings of the learned Assessing Officer [the 'Ld. AO'] is unsustainable and ought to be quashed. 2. Re: Addition on account of Product Development Services given to AE - Rs. 99,88,000/-: 2.1. The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who rejected benchmarking carried out by Appellant and considered Cost Plus Method ("CPM") as most appropriate method inspite of there being direct comparable consideration methodology for Product Development rendered by the other JV partner Merck to MSD Sun FZ LLC (JV) on same terms as 10% markup on cost. 2.2. The Ld. CIT(A) has grossly erred in considering that the services rendered by SPIL to MSD Sun FZ LLC and Taro are similar in nature. 2.3. The Ld. CIT(A) has grossly erred in not appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'SPS') as an income to which the provisions of section 10 apply for the limited purpose of computing book profits u/s 115JB without appreciating that remuneration received from partnership firm is nothing but appropriation of profits. 3.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the entire mechanism of computing book profits is based on normal commercial profits having regard to the relevant accounting framework prescribed in Companies Act and thus, remuneration is eligible to be deducted for computing book profits as per clause (ii) to Explanation to section 115JB (2) read with Chapter III of the Income-tax Act, 1961 ('Act'). 3.3 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have appreciated that the income not chargeable to tax by virtue of section 28(v) under normal provisions of the Act cannot be brought to tax by virtue of Minimum Alternate Tax ('MAT') provisions. 5. Disallowance of expenditure incurred on repairs treating them as capital expenditure - Rs. 45,77,088/-: 5.1 On the facts and in the circumstances of the case and in law, the Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of the Ld. Authorized Representative. Undisputedly, the appellant company has provided Product Development Services to MSD Sun FZ LLC, a JV between Sun Pharma Group and Merck Group, and received a payment of Rs.3103,71 lakhs. In its transfer pricing study, the appellant has stated that the payment for service charge has been received following Cost Plus Method with 10% markup. In the same TP report, it has been also mentioned that the appellant has also carried out Pilot Pivotal Study for TARO USA and benchmarked the transaction under TNMM with an average margin of comparables at 14.56%. Since the transaction and nature of work was similar in both the transactions being contact research, the TPO was of the view that the same margin should have been marked up in the transaction with MSD. Accordingly, the TPO held that the correct margin in the comparables submitted by the appellant for benchmarking of transaction with TARO USA is 13.54%, which was wrongly mentioned in show cause notice at 14.56%. Accordingly, the TPO has worked out the cost of transaction with MSD at Rs.2821.55 crores and then marked up ALP at 13.54% resulting into addition of Rs.99,88,000/-. From the discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e services rendered to the JV. Therefore, the same cannot be adopted as comparable to benchmark the transaction. The learned AR in support of his contention has drawn our attention about the different services rendered to Taro USA and to the jointventure which are placed on pages 362 to 364 of the paper book. 125.2 The learned AR further contended that the assessee has adopted cost plus method for determining the ALP which has been substituted by the AO/TPO to TNMM without assigning any reason. 126. On the other hand, the learned DR vehemently supported the order of the authorities below. 127. We have heard the rival contentions and perused the materials available on record. The assessee along with the other party has made JV as detailed in the preceding paragraph. Both the assessee and other party of the jointventure are rendering services relating to the development of the project at the cost +10% markup. The issue arises in the present case whether the markup charged by the assessee is at the arm length price. Before we dwell upon the issue arising from the order of the authorities below, we note that the assessee has carried out the identical transaction with its associated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P adjustment is computed as under: SN Particulars Units Rs. Lacs Rate ALP Rate ALP Rs. Lacs 1 Ankleshwar BD 6690018 468.00 7.00 3.36 224. 7S 2 Holol 20562045 1438.33 7.00 3.36 690.99 3 Panoli BD-CPP 1(125) 2230545 156.38 7.01 3.36 74.956 4 Panoli BD-CPP 2 (131) 6252618 445.76 7.13 3.36 210.09 Grand Total 2508.77 1200.70 ADJUSTMENT 1308.07 48. Thus the transactions of sale of electricity by CPP to manufacturing units are revised down by Rs. 13,08,07,000. Being an inter Unit captive sale the Total Income of the assessee company is not impacted. However the AO should take into account this revision in the computation of losses of CPP in AY 2013-14 and on computation of deduction in the years ahead. 130. Aggrieved assessee preferred an appeal to the learned CIT (A) who also confirmed the order of the AO/TPO by observing as under: "8.2. I have carefully considered the facts on records and submission of the Ld. Authorized Representative, I find that the appellant has benchmarked the transaction of power supply by CPP at Rs.7.00 to 7.13 per unit without any comparable instances. However, the TPO has worked out the ALP on the basis of two extern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that Rs. 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs. 4.17 per unit which was the cost of electricity generation and Rs. 0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of Rs. 4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term "Market Value" is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of Rs. 4.51 per unit of electricity only represented cost of electricity generation to the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the assessee is hereby allowed. 137. The next issue raised by the assessee in ground no. 5 of its appeal is that the learned CIT(A) erred in confirming the disallowances of repair and maintenance expenses by treating the same as capital expenditure. 138. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the assessee in ITA No. 1462/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITA No. 1462/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 23 to 23.1 of this order against the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the assessee is hereby dismissed. 139. The assessee vide letter dated 26-10-2020 filed additional grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of Chambal Fertilisers and Chemicals Limited vs. JCIT (D.B. Income Tax Appeal No. 52/2018) (Dated 31-07-2018) as well as recent decision of the Hon'ble Bombay High Court in the case of Sesa Goa Ltd. v. JCIT [2020] 117 taxmann.com 96. Accordingly, the Appellant seeks to raise additional ground for claiming deduction of cess paid in computing total income of the Appellant. 4. In order to claim its rightful entitlement, the Appellant feels the urge to raise an additional ground before the Hon'ble Tribunal. The Appellant seeks to raise additional ground in view of the Hon'ble Supreme Court's decision in case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) and the decision of Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. v. CIT [1993] 66 Taxman 27 (Bombay)." 140. The assessee in the additional ground of appeal has claimed the deduction of the cess paid on the income tax on the reasoning that same is revenue expenditure. However, we note that there is an amendment under the provisions of section 40(a)(ii) of the Act wherein an explanation has been inserted with retrospective effect i.e. assessment year 2005-06. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, CIT(A) erred in directing the A.O. to allow weighted deduction u/s. 35(2AB) of the Act on trade mark registration charges and overseas product registration charges without appreciating that the trade mark registration charges and overseas product registration charges were incurred by the assessee outside India and therefore, could not be considered for the purpose of allowance of weighted deduction u/s 35(2AB). 6. On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in allowing weighted deduction u/s 35(2AB) on expenses relating to building repairs and municipal taxes without appreciating the facts and reasons mentioned by the AO in the assessment order. 7. On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in allowing weighted deduction u/s 35(2AB) on lunch and refreshment and brokerage expenses without appreciating the facts and reasons mentioned by the AO in the assessment order. 8. On the facts and circumstances of the case and in law, the CIT(A) erred in partly deleting the disallowance u/s 14A without appreciating the facts and reasons mentioned by the AO in the assessment order, and without considering that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by D.S.I.R. 13.2 That on the facts and circumstances of the case and in law the CIT(A) erred in directing the A.O. to verify the expenses not certified by D.S.I.R. and to allow consequential relief by relying on a decision of the Hon'ble Gujarat High Court, without appreciating that this decision pertained to disallowance of weighted deduction u/s. 35(2AB) due to non-certification of expenditure on scientific research by the DSIR, whereas in the present case, the DSIR has specifically excluded the excess expenditure as per norms. 14. The appellant craves leave to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal." 144. The issue raised by the Revenue in ground no. 1 of its appeal is general in nature and not requiring separate adjudication. Hence the same is dismissed being infructuous. 145. The next issue raised by the Revenue in ground no. 2 of its appeal is that the learned CIT (A) erred in deleting the upward adjustment under the provisions of Transfer Pricing for Rs. 17,72,09,793/- on account of interest free loan to AE. 146. At the outset, we note that the issues raised by the Revenue in its grounds of appeal for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the Revenue is hereby dismissed. 151. The next issue raised by the Revenue in ground Nos. 8 and 9 are that the learned CIT(A) erred in deleting the disallowances made under section 14A and further addition under 115JB of the Act. 152. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the A.Y. 2013-14 are identical to the issues raised by the Revenue in ITA No. 1519/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITA No. 1519/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 86 to 86.7 of this order partly in favour of the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the Revenue is hereby partly allowed. 153. The next issue raised by the Revenue in ground Nos. 10 & 11 of its appeal is that the learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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