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TMI Blog2023 (2) TMI 1270X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to Rs.70,89,734/-. V. Disallowance under section 14A under computation of book profits under section 115JB. The assessee has also raised an additional ground of appeal, the same reads as under: "Additional I: Order passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 is barred by limitation. 1) On facts and circumstances of the case and in law, the Assessing Officer erred in passing the assessment order after expiry of time prescribed under section 153 of the Act and thus, the assessment order passed is barred by limitation and ought to be quashed. 2) The Appellant humbly prays that the order be quashed." 3. The Revenue in its appeal has assailed the findings of the CIT(A) on following grounds: "1. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition of Rs2.41.02.350/- representing upward adjustments on account of Guarantee Fee income received in relation to guarantee provided on loans to its AE in UK to ALP recommended by the Transfer Pricing Officer (TPO) without appreciating the fact that the Guarantee Commission is charged at the rate of 0.75% of loan amount by HSBC Mumbai, India." 2. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rs.323,96,93,037/- representing provision for marked to market (MTM) unrealised losses for calculation of book profit u/s 115JB" 8. On the facts and in the circumstance of the case and in law, Ld. CIT(A) erred in deleting addition of Rs.99,96,694/- representing provision for gratuity for calculation of book profit u/s 115JB of the Act." 9. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 10. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored." 4. The brief facts of the case as emanating from records are: The assessee is engaged in the business of manufacturing and trading of pharmaceutical FDFs and APIs. Apart from India, the asssessee has its manufacturing facilities in US, UK, France and Ireland. During the period relevant to the assessment year under appeal, the assessee had entered into following international transactions with its Associate Enterprise (AEs). Sr. No. Nature of Service Amount (Rs.) Method adopted by assessee FDF SEGMENT: 1 Regulatory Service Fees 2,94,87, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks/financial institutions follow the same practice in line with RBI guidelines. The TPO was not convinced with the submissions of the assesse. The TPO observed that the RBI has prescribed prime lending rate on year to year basis and the BPLR for the Financial Year 2008-09 was ranging between 12.5% to 12.75% for an unsecured loan of more than Rs.2,00,000/- . The TPO further observed that in an uncontrolled scenario when an Indian entity is advancing long term unsecured loans to an overseas entity, it has to take into account, the currency risks, entity risks, and sovereign risks. The TPO applied interest rate of 12.5% on the unsecured loans advanced by the assessee to its AE's and thus made upward adjustment of Rs.498,99,490/-. The CIT(A) following the decisions of its predecessor in AY 2008-09 decided the issue in similar terms. In AY 2008-09 CIT(A) had held that if the average maturity period of loans advanced to AEs is 3 years to 5 years than the rate of interest be adopted as 6 months LIBOR + 150 BP. And in case average maturity period of loans is more than 5 years, the rate of interest 6 months LIBOR + 250 BP be adopted. 6.2 We find that in AY 2008-09, the assesse carried thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores and Revenue expenditure of Rs.176.58 crores of inhouse R & D unit. The assessee had paid consultancy charges on clinical trials to third parties. The AO held that clinical trials and bio studies payments made to out siders would not qualify for weighted deduction at the rate of 150% of such expenditure. The CIT(A) following the decision of its predecessor in A.Y. 2008-09 dismissed this ground of appeal. The learned AR submitted that in AY 2008-09 the Tribunal after placing reliance on the decisions of the Hon'ble Gujrat High Court in the case of CIT Vs. Cadila Pharmaceuticals ltd in Tax Appeal No.39 of 2015 decided on 23/01/2015 and PCIT Vs. Sun Pharmaceuticals Industries ltd. in R/Tax Appeal No.92 of 2020 decided on 25/02/2020 had restored the issue to AO. The AO till date has not passed order giving effect to the Tribunal order, therefore, this issue be decided by the Tribunal instead of restoring it to AO. 7.2 We find that in A.Y. 2008-09, the issue was examined by the Tribunal and was restored back to the file of AO. The relevant extract of the findings of the Tribunal on this issue are as under: "22. We have considered the submission of the parties and perused the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue against the assessee. However, while deciding the same issue in assessee's own case in assessment year 2007-08, in ITA No.5557/Mum/ 2012, dated 5th January 2018, the Tribunal has restored the issue to the Assessing Officer for fresh adjudication keeping in view various decisions cited by the assessee including the decision of the Hon'ble Gujarat High Court in Cadila Healthcare Ltd (supra). Therefore, following the decision of the Tribunal in assessment year 2007-08, we are inclined to restore the issue to the Assessing Officer for de novo adjudication keeping in view the ratio laid down in the decisions to be cited by the assessee including the decision of the Hon'ble Gujarat High Court in Cadila Healthcare Ltd. (supra). While doing so, the Assessing Officer is also directed to examine the ratio laid down by the Hon'ble Supreme Court in Commissioner of Customs v/s Dilip Kumar & Co. & Ors. vide judgment dated 30th July 2018, in Civil Appeal no 3327 of 2007. Needless to mention, the Assessing Officer must afford reasonable opportunity of being heard to the assessee before deciding the issue. These grounds are allowed for purposes." 23. Considering the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed the same as expenditure allowable u/s 37(1) of the Act. The AO disallowed the aforesaid expenditure by placing reliance on CBDT Circular No. 5/2012 dated 01/08/2012 stating it to be expenditure prohibited by law. The learned AR submits that the 'Indian Medical Counsel' (Professional Conduct, Etiquette and Ethics) Regulations, 2022 (in short "MCI Regulations') were amended in 2009. By way of amendment clause 6.8 was inserted. The said clause prohibited medical practitioners to accept gifts, hospitality, cash or monetary grants etc. from pharmaceutical companies. The said amendment comes into force from publication of notification in the Official Gazette i.e. 14/12/2009. The said amendment is prospective in nature and thus, would have no application to the AY 2009-10. The learned AR asserted that any expenditure incurred by pharmaceutical companies towards gifts to medical practitioners prior to publication of amendment in Official Gazette would be allowable as expenditure u/s 37(1) of the Act. The learned AR placed reliance on the decision of Chennai Bench of the Tribunal in the case of Apex Laboratories (P) ltd. Vs. DCIT 164 ITD 81. 9.1 The learned AR to distinguish the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch violation. 10. For example, the income tax authorities under the Income-Act 1961 can 'alone' determine the violations of provisions of the Act, if any, on the part of any assessee and no other authorities/regulators. Similarly, for regulating the functions of Banking companies, it is the RBI who is the regulator, for securities compliance, it is the SEBI who is the regulator, for Insurance companies, it is the IRDA who is the regulator, for foreign exchange related aspects, it is the RBI who is the regulator. So on and so forth. If this is not so, then there was no need for these regulators, the penal provisions under the respective law etc. and the powers of such regulators would be just redundant." 9.2 Without prejudice to the primary submissions, the learned AR advanced an alternate proposition that Explanation 1 to section 37(1) of the Act, can be invoked only in respect of expenditure pertaining to an Act of assessee which has been established to be in violation of law or prohibited by law by the relevant authority under the governing law. To support his alternate contention, the learned AR placed reliance on following decisions. 1) Union of India Vs. B. V. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adesh High Court in the case of Confederation of India Pharmaceutical Industry (SSI) Vs. CBDT reported as 353 ITR 288 (HP) upheld the findings of CIT(A) and dismissed both the appeals vide order dated 29/01/2018. The assessee carried the issue further in appeal before the Hon'ble Madras high Court in Tax Case Appeal No. 723 of 2018. The Hon'ble High Court dismissed the appeal of assessee vide judgment dated 18/03/2019. The assessee further agitated the issue before Hon'ble Supreme Court of India. The Hon'ble Apex Court affirming the decision of High Court inter alia held: - CBDT Circular 5/2012 dated 01/08/2012 is clarificatory in nature, and effective from the date of implementation of Regulation 6.8 of the 2002 Regulations, i.e. from 14/12/2009. - The Pharmaceutical companies gifting freebies to doctors etc. is clearly "prohibited by law" and not allowed to be claimed as a deduction u/s 37(1) of the Act. Thus, to sum up, view taken by the CIT(A) was approved by the Hon'ble Supreme Court of India. 9.6 Now, reverting to the facts of present case, the assessment year under appeal is 2009-10 relevant FY 2008-09. MCI Regulations were amended w.e.f. 14/12/2009, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ......Therefore, so far as choice between a division bench decision of a non-jurisdictional High Court and a single judge bench of a non-jurisdictional High Court is concerned, it is clear that a simple objective criterion of choice will require the division bench decision to be preferred over the single judge bench decision. Therefore, even though the decision of the Hon'ble Madras High Court, in Vedanta Ltd's case (supra), cannot be said to per incuriam, for the simple reason that a Hon'ble High Court judgment does not constitute a binding precedent for any other Hon'ble High Court other than the Hon'ble High rendering such a judgment, the judgment of Hon'ble Andhra Pradesh High Court in the case of Zuari Cements Ltd (supra) being a division bench decision of Hon'ble non- jurisdictional High Court, is required to be followed even if it is contrary to a single bench judgment of another High Court in the case of Vedanta Ltd (supra). The impugned assessment order thus cannot be said to be barred by limitation. We uphold the impugned assessment order on this count, and decline to interfere in the matter on this jurisdictional ground. As we are deciding thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed consequential relief in the impugned assessment year. The Revenue has not disputed the fact that the relief is already granted to the assessee in earlier assessment year i.e. AY 2008-09 and it is only the consequent relief that has been allowed to the assesssee in the assessment year under appeal. Thus, in facts of the case, the ground no. 3 raised in appeal by Revenue is dismissed. 15. In ground no. 4 of appeal, the Revenue has assailed allocation of R & D expenses for the purpose of section 80IB and 80IC of the Act to the qualifying units. We find that similar issue had come up before the Tribunal in assessee's own case in AY 2008-09 (supra). The Tribunal decided the issue in favour of the assessee by observing as under: "18. We have considered the submissions of the parties and perused the order of the tax authorities below During the relevant period under assessment year the assessee the assessee claimed deduction under section 80IB of Rs. 23.36.103/ and under section 80IC of Rs.141,65,46,365/- respectively. On show cause notice on the issue, the assessee contended that similar deduction is allowed in the earlier years by Tribunal and furnished the copy of the orders f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 for AY 2008-09 decided on 09/03/2020. 16.1 We find that the issue raised in appeal by the Revenue is perennial. The Tribunal decided the issue in AY 2005-06 in ITA No.7383/MUM/2010 vide order dated 14/03/2012 and AY 2006-07 in ITA No.1875/MUM/2011 vide order dated 12/06/2019. In AY 2008-09, the Tribunal following the decisions rendered in AY 2006-07 held as under: "26. We have considered the submissions of the parties and perused the order of the tax authorities below. During the assessment the assessing officer noted that the assessee claimed expenses of Rs. 6,94,82,607/- on payment to non- resident on account of bio study, clinical research without deducting tax at source. The assessing officer after issuing show cause notice disallowed the expenditure by taking view that similar expenditure was disallowed in earlier years as the assessee is liable to deduct tax under section 195. The Id CIT(A) deleted the additions by following the order of Tribunal in AY 2007-08, wherein it was payment to non-resident for conducting bio equivalence study are not taxable in India and not subject to withholding tax under section 195 of the Act. We have seen that similar view was taken by Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissed. 18. The last ground in appeal by the Department is against deleting addition in respect of provision for gratuity for the purpose of calculating book profit u/s 115JB of the Act. The learned AR pointed that this issue is also decided by the Tribunal in AY 2008-09 in an appeal by the Department in assessee's case. 18.1 We find that the Tribunal has decided the issue in AY 2008-09. The relevant extract of the findings of Tribunal are as under: "32 We have considered the submissions of the parties and perused the order of the tax authorities below The assessing officer while computing book profit added back provision of gratuity of Rs 45,39,118/- without discussion or Issuing show cause notice to the assessee. During the first appellate stage the assessee filed its detail submissions and relied on the decisions Apollo Tyres Ltd Vs CIT (supra) The Id CIT(A) after considering the submissions of the assessee observed provisions of gratuity is based on the actuarial valuation and therefore ascertained liability. The assessing officer has not disputed actuarial valuation and cannot be treated unascertained liability as has been provided in clause (c) of Explanation-1 to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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