9911796707
TMI Blog2022 (9) TMI 1594X X X X Extracts X X X X X X X X Extracts X X X X ..... d by law, no fault can be found on the part of assessee and then rejected a method accepted by both the parties over a time. TNMM adopted by TPO also saddled with several flaws for which there is no answer. Assessee claims that if the margins are corrected, margins of assessee is better than comparables is los not looked in to by ld TPO as well as Ld DRP. TPO did not provide basic working of all those 65 comparables and how these comparables are selected and what are the filters applied is also not shown. Therefore, there is no justification for adopting transactional net margin method where in earlier year as well as in subsequent year the cost plus method adopted by the assessee has been accepted. We therefore direct the ld AO/ ld TPO to delete the adjustment made in adopting entity level TNMM but accept CPM as MAM - principal ground of adopting CPM in determining arm s length price has been adjudicated in favour of the Assessee. Guarantee commission on account of corporate guarantees provided by the assessee to its associated enterprises - international transaction or not? - Assessee contended that providing corporate guarantee the associated enterprise cannot be an internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed the weighted deduction @150% u/s 35(2AB) - same was disallowed by the AO and the DRP stating that the no Form 3CL and 3CM was furnished and only a copy of registration certificate from the competent authority recognising the assessee s R D facility has been furnished - HELD THAT:- As stated that the delay in issuing Form No. 3CM and report in Form No. 3CL by the DSIR was due to their administrative reasons. AR also submitted that these forms were submitted with the AO and the DRP after the DRP order but before passing the final assessment order dated 30.10.2012. The learned AR also submitted that this Tribunal in assessee's own case in AY 2002-03 [ 2016 (1) TMI 752 - ITAT MUMBAI ] and in AY 2003-04 2004-05 [ 2016 (4) TMI 1316 - ITAT MUMBAI ] and [ 2018 (6) TMI 512 - ITAT MUMBAI ] for the assessment year 2007-08 allowed the deduction claimed by the assessee under Section 35(2AB) of the Act. Disallowance of the rental expenditure u/s. 40A(2)(b) - HELD THAT:- We find that the Co ordinate Bench of the Tribunal in assessee s own case in Strides Pharma Science Ltd. [ 2018 (6) TMI 512 - ITAT MUMBAI ] held that rent paid is not falling within the mischief of section 40A(2)(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO himself only in the normal computation and not from the MAT computation. Accordingly, we direct the AO to give the same treatment and delete the same from the MAT computation as well. Accordingly, ground no.13, raised in assessee s appeal is allowed in the favour of the assessee. Non-grant of tax credit on the distributed profits u/s 115O/115P and short grant of TDS Credit - As per the Ld AR, proper credit for DDT and TDS has not been granted by the AO. In view of the above, we direct the Assessing Officer to verify the tax credit and allow it as per the records. Accordingly, grounds raised in assessee s appeal is allowed for statistical purpose. Reworking of deduction under section 10B - HELD THAT:- We find that the Co ordinate Bench of the Tribunal in assessee s own case in Strides Pharma Science Ltd. [ 2018 (6) TMI 512 - ITAT MUMBAI ] had allowed the claim of the assessee. The learned D.R. could not show us any reason to deviate from the aforesaid order and no change in facts and law were alleged in the relevant assessment year. Thus we are of the view that the second proviso to Section 10B(1) of the Act was only for assessment year 2003-04 and not for other years. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider the entity level financial data for the purposes of conducting an analysis under TNMM. 3.4 in ignoring the fundamental tenets of transfer pricing law that any adjustment to the prices can be made only to the prices adopted in international transactions with Associated Enterprise ( AEs) and not the prices adopted in international transactions with independent third parties. While doing so, the learned AO/TPO has further erred in making adjustments to the transactions with third parties in domestic market and international markets. 3.5. Without prejudice to the above, the AO / TPO have erred in making an adjustment to all the segments of the Appellant Company instead of restricting it to manufacturing segment. 3.6. Without prejudice to the above, the AO/TPO have erred in including certain non-operating cost / expenses and one off items while computing the Operating Cost and Net Margin of the Appellant at entity level. 3.7 Without prejudice to the above, the AO / TPO have erred in excluding certain operating income / revenue while computing the Gross Revenue and Net Margin of the Appellant at entity level. 3.8 Without prejudice to the above, the AO / TPO have erred in incorrectl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of business interest and no benchmarking is required for determining the ALP in providing corporate comfort in the form of guarantee for which assessee has not incurred any real cost. In support of his contentions that application of 3% rate of guarantee commission cannot be upheld in the assessee's case. Therefore, charging a commission of 2.53% as corporate guarantee fee is unwarranted. 5. That on the facts and circumstances of the case, the learned AO and the learned TPO erred in taxing the investment made in subsidiaries, and in doing so have grossly erred: 5.1. in failing to appreciate that recharacterization of equity as loan is not permissible under the transfer pricing provisions i.e., Section 92-92F. 5.2 in failing to appreciate the fact that the investment in Starsmore Limited was made during the year for the first time and until the time the investment is made it cannot be termed as associated enterprise. 5.3 in failing to take into consideration the fact that the investment made in Starsmore Limited and Strides Arcolab International Limited, UK of Rs. 3,971,499,575/- and Rs. 2,048,136,286/- respectively was in the form of share application money. The Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of manufacture of pharmaceutical products by utilizing the said process in certain territories. 6.6 It is incorrect to state that selling of Dossier is license to manufacture. The Appellant is only an approved manufacturer of Products mentioned in the Dossiers. The Appellant does not have exclusive right for license to manufacture. 6.7 The Honorable DRP and the Ld. AO has erred in considering that the Appellant's activity comprises of development of a 'process which is neither an article nor thing, but only a method of manufacturing a product. 6.8 The Honorable DRP and the Ld. AO ought to have appreciated the fact that, preparation of dossier comprises capturing results of a series of activities carried out in the R D Facility which itself tantamount to production and qualifies for the purpose of deduction under section 108. 6.9 Without prejudice to above, the Honourable DRP and Ed. AO has erred in ignoring the fact that the Appellant has indeed manufactured the exhibit batches in respect of which results have been captured in the Dossier. The manufacture of exhibit batches being one of the key elements in the production of Dossier. 6.10 Notwithstanding above, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred. The Ld. AO would have allowed the weighted deduction in case Form 3CM and 3CL had been submitted. However, non submission of Form 3CM and Form 3CL is only a procedural requirements and which is beyond the control of the Appellant. Thus, the Appellant cannot be faulted and penalized for non-receipt of formal approval of DSIR, having fulfilled its obligation. 8.3 The Appellant has received the approval in Form 3CM and 3CL vide letter dated 7 September, 2012. The same has been submitted before the Honorable DRP and the Ld.AO on 21 September, 2012. However, the Ld. AO failed to take cognizance of the above and grant weighted deduction under section 35(2AB) for the approved amount and 100% for the balance amount as normal business expenditure. 8.4 The Honorable DRP and the Ld. AO have erred in not relying on the decision of the jurisdictional Tribunal in the case of Meco Instruments Pvt. Ltd. (2010-TIOL-563-ITAT-MUM) wherein the Tribunal held once approval is granted, relief cannot be denied on the ground of technicalities of procedure. 8.5 Without prejudice to the above, the Honorable DRP and the Ld. AO should have allowed 100% deduction in respect of capital expenditure incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.3 The Honorable DRP and the Ld. AO failed to appreciate the fact that FCCB's which are characterized as debt capital is distinct and separate from share capital. The Honorable DRP and the Ld. AO failed to appreciate that the FCCB funds were utilized wholly and exclusively for the purpose of business. 10.4. The Honorable DRP and the Ld. AD have further erred in holding that premium on redemption of FCCB is only a contingent liability without appreciating the fact that the Appellant has actually redeemed the FCCB amount, which comprised Principal sum as well as the Premium amount, in April, 2010 as per the terms stipulated in the offer document. 10.5 The Honorable DRP and the Ld. AO having accepted the fact that the same are expenditure in nature, failed to allow the same as deductible in the previous year citing the reason that as at this point of time, the expenditure is neither fructified nor ascertainable. 10.6 The Honorable DRP and the Ld. AO should have allowed the FCCB premium, which is nothing but in the nature of interest, in the respective years on accrual basis. 10.7. Without prejudice to the above, the premium on redemption of FCCB should be allowed as deduction i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome generated. 12.5 The learned AO has erred in concluding that, the investments made in Grandix was out of mix funds of assessee's own funds as well as interest bearing borrowed funds. 12.6. Without prejudice to the above, while invoking the provisions of rule 8D, the learned AO has erred in considering the entire amount of interest cost while computing the disallowance under clause (ii) of rule 8D. He ought to have observed that, only interest which is not directly attributable to any particular income or receipt shall have considered for the purpose of disallowance under section 14A. In the instant case, he ought to have appreciated the fact that, the entire cost is directly attributable to earning business income. 12.7 The Honorable DRP and the Ld. AO have erred in adding back Rs. 133,728,752/- as expenditure in relation to earning exempt income in computing the book profits u/s 115JB of the Act. 12.8 Without prejudice to the above, the disallowance computed by the Ld. AO is not correct. The actual disallowance on application of Rule 8D is only Rs. 2,626,787/-, being 0.5% of the average value of investments held in Grandix Pharmaceuticals Private Ltd. during the year (Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. AO has erred in levying interest under section 2348 of the Act amounting to Rs. 209,521,730/- which is consequential in nature. 16. Levy of interest under section 2340 of the Act: 16.1. The Ld. AO has erred in levying interest under section 2340 of the amounting to Rs. 1,320,245/- which is consequential in nature. 17. Tax on distributed Profits under section 115 0/P of the Act: 17.1. The Ld. AO has erred in levying Tax under section 115 OP of the Act amounting to Rs. 11,764,170/- plus interest of Rs. 573,741/- under section 244A of the Act. The tax on dividend for the financial year 2007 amounting to Rs. 11,880,963/- was paid on June 20, 2007, i.e. within the due date, which is duly reflected in Form 26 AS. 18. Tax Credit 18.1. The Ld. AO has erred in considering the TDS Credit which the Appellant Company is eligible to claim as Rs. 7,439,895/- as against Rs. 9,552,322/-. The appellant craves leave to add, alter and modify the aforesaid grounds during the course of the appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided. 03. The brief facts of the case are that the Assessee is a Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted Enterprises is 16.44% and thus concluded that the transaction is at arm s-length. 06. The learned transfer pricing officer objected to the method of CPM as most appropriate method for the reason that i. The basis for apportionment of profit and loss account into AE and Non AE segment s are not given ii. No/vouchers et cetera were produced to substantiate that profit and loss account drawn by the assessee for AE and non-AE segment are correct iii. AE and on a manufacturing is being done from the same factory using same resources of the assessee and the farmer has not demonstrated that separate books, stock register et cetera are maintained for AE and non-AE segment. This raises serious doubt about allocation of direct expenses by the assessee between a and non-AE segment iv. assessee s annual report does not mention any such segmentation in accounts v. quantitative analysis attached with the notes to accounts do not mention any such bifurcations vi. allocation of such expenses which move with the cost of material towards making of goods were also not explained not demonstrated to be accurate vii. The assessee has different activities within Pharma segment and drawing up differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO found that process of drug development is not a manufacturing process as there is no manufacture or production of an article or thing and export thereof therefore he disallowed the above deduction ii. he also found that assessee has debited research and development revenue expenditure amounting to ₹ 430,503,695/ which is required to be allocated to 3 eligible units entitled to deduction u/s 10 B of the act iii. he found that allocation of research and development revenue and research and development capital expenditure required to be allocated between non-10 B units of ₹ 123,118,812 and 10 B units of ₹ 329,364,636/ accordingly deduction u/s 35 (2AB) and 35 (2) is worked out. iv. The learned assessing officer further found that assessee has taken on rent the premises from persons specified u/s 40 A (2) (b) of the act. The rent paid was shown as ₹ 35,909,280/ out of which the payment to related party is 3,96,07,940. Therefore he found that rent paid to related concern is higher by 133% and accordingly he disallowed a sum of Rs 1 71,64,640/ . v. The AO found that assessee has also claimed 1/5 of FCCB premium amounting to ₹ 128,023,824 during the year a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to the rejection of the cost plus method adopted by the assessee by the learned TPO and adopting transactional net margin method as the most appropriate method for benchmarking the international transactions. The learned authorised representative submitted that the ld transfer pricing officer in the earlier assessment year i.e. assessment year 2007 08 and in subsequent assessment year assessment year 2009 10 has not disputed the cost plus method adopted by the assessee for determining the arm s-length price. He has only disturbed and rejected the most appropriate method adopted by the assessee for this year only. To prove his contention, the learned authorised representative referred to the show cause notice dated 15 February 2010 issued by the learned transfer pricing officer for assessment year 2007 08, the submission made by the assessee dated 13 August 2010 and order passed by the learned transfer pricing officer accepting the cost plus method as the most appropriate method for assessment year 2007 08. He further referred to the assessment proceedings for assessment year 2009 2010 wherein letter dated 21 January 2013 filed by the assessee in response to the show caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer page Nos. 165 to 166 and page No. 185 of the compilation) c. after adjusting the operating profit of the sale of formulation segment by the extraordinary factors like exchange fluctuations and loss of product sales for reasons stated therein Mycophenolate, the operating profit margin on AE transactions was 27.44% (refer page Nos. 166 to 168 and page Nos. 186 to 188 of the compilation) d. The aforesaid transactions were again summarized before the TPO vide letter dated 14 September 2011 (refer page Nos. 189 to 191 of the compilation) iv. The averments made by the TPO in his Order with Respect to CPM were also challenged submitting that : i. Basis of apportionment of the Profit Loss A/c. into Associated Enterprises (AE) non-AE segment is not given and no bills/ vouchers etc. were produced: The Appellant submitted a detailed statement of Gross Margin and Net Margin analysis vide letter dated 08 September 2011 (refer page Nos. 186 to 188 of the compilation). This working clearly provides detailed break up of sales and costs incurred into the identified segments such as Formulations, R D and trading. ii. While computing the margins, the Assessee has allocated sales and consumption o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turing batch. xii. All the raw material consumed in each of the sales invoices can be traced to a particular batch and can be easily identified based on the report specifically designed to identify the quantity of direct materials consumed in each batches. xiii. Since the cost of each of the direct material(s) is available in the computer system and the quantity consumed is made available as aforesaid, the direct cost involved in manufacturing is identifiable and hence there would be no need for any form of allocation. xiv. The Appellant has different activities within pharma segment and drawing up different Profit Loss A/c. segments reliably is not possible: xv. The TPO had proposed to make adjustments only with regard to formulations segment (defined as pharma segment in the TP order). The TPO has accepted the allocation in the R D and trading segment (since there is no upward adjustment made with regard to the said two segments). This also proves the fact that keys used by the Appellant for allocation of costs to formulation, R D, and trading segments has been correctly drawn and accepted by the TPO. xvi. Since the Appellant has applied the CPM method for benchmarking the R D an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y (refer page Nos. 336 and 337 of the compilation). xxiii. Likewise, operating income of Rs. 3,00,00,000/- forming part of 'Other income' has been erroneously excluded in the computation of margin of the Appellant. It refers Project management services provided by the Appellant to its subsidiaries. However, the expenditure incurred in earning the income has been considered (refer page Nos. 316, 318 to 325 of the compilation). xxiv. Average margin of the 62 comparable companies ought to be taken at 11.70% (refer letter dated 17 October 2012 (page Nos. 361 to 365 of the compilation) xxv. In case the correct margin of the 62 comparable companies is considered along with the adjustment vis- -vis the operating income and exchange fluctuation loss, the transaction will be at arm's length. xxvi. The adjustment made should be restricted to prices/margins adopted in the international transactions for AE only and not the prices/ margins adopted in transactions with non-AES. Reliance is placed on the following decisions:- i. CIT v/s. Hindustan Unilever Ltd. (2016) taxmann.com 325 (Bombay) - SLP filed by the Tax 72 Department rejected by the Supreme Court reported in (2018) 99 taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , merely saying that certain bill and vouchers with respect to cost is not provide , is merely an attempt to reject the study of assessee. Had that been the case, the ld TPO should have provided the instances and then justified rejection of working given by assessee. There is no requirement of maintaining segmental accounts with respect to AE and Non AEs, maintaining separate quantitative details with respect to quantity dealt with AE and Non AE, or maintaining separate books of accounts under any law applicable to assessee. If a particular requirement is not mandated by law, no fault can be found on the part of assessee and then rejected a method accepted by both the parties over a time. The TNMM adopted by ld TPO also saddled with several flaws for which there is no answer. Assessee claims that if the margins are corrected, margins of assessee is better than comparables is los not looked in to by ld TPO as well as Ld DRP. Ld TPO did not provide basic working of all those 65 comparables and how these comparables are selected and what are the filters applied is also not shown. Therefore, there is no justification for adopting transactional net margin method where in earlier year a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made. The learned dispute resolution panel confirmed the action of the learned transfer pricing officer. 024. The Ld AR contended that providing corporate guarantees to overseas AE s is not an international transaction. In support of the above contention, he relied upon the following decisions: i. Siro Clinpharm Pvt Ltd. v/s DCIT (ITA No. 2618/Mum/2014) ii. Bombay Dyeing Mfg. Co. Ltd. v/s. DCIT (2017)87 taxmann.com 213 (Mumbai Trib) iii. Micro Ink Ltd. v/s. ACIT (2015) 63 taxmann.com 353 (Ahmedabad - Trib.) iv. DCIT v/s. CCL Products (I) Pvt. Ltd. (ITA No. 191/Viz/2018) v. DCIT v/s. EIH Ltd. (2018) 89 taxmann.com 417 (Kolkata Trib) 025. The Ld AR further contended that providing corporate guarantees to overseas AE s is a shareholder activity and hence no transfer pricing adjustment on account of corporate guarantee is required. Reliance was placed on the following decisions: a. Tega Industries Ltd. v/s. DCIT (2016) 76 taxmann.com 24 (Kolkata Trib.) b. Bombay Dyeing Mfg. Co. Ltd. v/s. DCIT (2017) 87 taxmann.com 213 (Mumbai Trib) c. Micro Ink Ltd. v/s. ACIT (2015) 63 taxmann.com 353 (Ahmedabad - Trib.) 026. The Ld AR submitted the corporate guarantee should be charged @ 0.20% p.a. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is to be charged at that amount of Guarantee given and cannot be reduced to the extent of amount of borrowings by the AE as both are separate and distinct facts. Considering the various decisions in this regard, we direct the AO to limit the adjustment to 0.5% p.a. on the amount of corporate guarantee provided based on the period for which the guarantee was operative in respect of each of the AE s during the year under consideration. The learned transfer-pricing officer is directed to compute the arm s-length price of the corporate guarantee at the rate of 0.5%. Accordingly ground number 4 of the appeal is allowed with above directions. 031. The issues arising in ground no.5 in assessee s appeal is with regard to imputation of share application money paid to Associated Enterprises (AE s). The brief of the case pertaining to this issue as emanating from the record are, during the relevant assessment year , the assessee had invested towards Shares and share application money in the following entities: Particulars Nature of Investment Date from when they became a Subsidiary Nature of Subsidiary Int as per TPO A Investment in Overseas Subsidiaries 1 Starsmore Limited Equity 24-Jul-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d imputed interest on Shares as well as mentioned in the table above. The Assessee submitted that the amount of Rs. Rs. 9,17,88,750/- should be deleted since the interest pertains to shares allotted. ii. Further, the TPO had calculated the interest @ 8.16% p.a. on the investments (for both share application money as well as certain shares) ,the rate of interest being the cost of capital of the assessee as per the TPO. The Assessee submitted that interest should be calculated at LIBOR rate instead of cost of capital of the Assessee Company. iii. Further, the TPO had computed interest on the closing balance of investments as on March 31,2008 while ignoring the opening balances for computing the average balances. iv. The assessee further submitted on without prejudice basis that interest should be calculated on average balance (opening and closing balances) during the year or on actuals for the period which the amount was lying as share application money. v. The assessee further submitted that the impairment losses provided in the audited financials of FY 2007-08 should be excluded while considering the closing balance of investments as on March 31,2008. 033. The DRP, vide its directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the time the application money is converted into equity, it cannot be termed as an associated enterprise. c. The TPO, DRP and the AO failed to appreciate that only real income can be brought within the ambit of taxation. In this case, no income has been earned or can be said to have been earned by the Appellant and imputing interest on a hypothetical income would be unwarranted and unjustified. d. The TPO, DRP and the AO failed to appreciate that investment in equity is not always made with a view to earn a fixed return even in a transaction between independent third parties. e. that no interest should be charged on share application money, the TPO, DRP and the AO erred in considering the closing balances of share application money while computing deemed interest instead of average share application money during the year or based on actual date of making share application money. f. no interest should be charged on the share application money, the TPO, DRP and the AO erred in arbitrarily applying interest rate on the outstanding share application money. g. that if at all any interest is to be imputed , (i) the amount invested by the assessee in the form of shares are to be exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinate bench held as under :- 9. We have considered the rival submissions and perused the material available on record. We find that the Co-ordinate Bench of the Tribunal in assessee's own case in Strides Pharma Science Ltd. v/s DCIT, in ITA no.7370/Mum./2018, for the assessment year 2014-15, vide order dated 07.02.2020, has decided the issue in favour of the assessee by observing as under:- 14. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below along with case laws cited by the ld. AR for the assessee. At the outset, it needs mention that it has been held by the Hon'ble Bombay High Court in the case of DIT v/s Besix Kier Dabhol - (2012) 210 Taxman 151 (Bombay) = 2012-TII-46- HC-MUM-INTL that the Revenue has no power to recharacterize a transaction entered into by the Assessee. Therefore admittedly, the AO or the TPO are not empowered to convert and re-characterize a transaction of share application into a loan transaction. This aspect of the matter and this judgment has been overlooked by the DRP in its order for earlier year. As such, it could not be followed. Secondly, the remittance of the said sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue of jurisdiction before the Dispute Resolution Panel. This was accepted by us before considering the issue on the merits. Moreover, this petition was filed on April 24, 2013, challenging the impugned orders dated January 30, 2013, of the Transfer Pricing Officer and the draft assessment order dated March 28, 2014, of the Assessing Officer, on the issue of jurisdiction. This issue has been decided in Vodafone IV and would be binding on all authorities within the State till the apex court takes a different view on it. Therefore, in view of the fact that the Revenue does not dispute that the issue on the merits stands covered by the decision of Vodafone IV it would serve no useful purpose by directing the petitioner to prosecute its objections before the Dispute Resolution Panel and the Dispute Resolution Panel disposing of the same in accordance with Vodafone IV. Thus, in the present facts the distinction sought to be made on the ground of alternative remedy is not such as to warrant not entertaining the petition. 10. The second distinguishing feature from that of Vodafone IV, as canvassed by the Revenue, is that Form 3CEB in respect of the transaction of issue of shares to its a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an international transaction, the jurisdictional requirement for Chapter X of the Act to be applicable is that income must arise. In this case, admittedly following Vodafone IV no income has arisen. Thus, the jurisdictional requirement for application of Chapter X of the Act is not satisfied. 12. As held in Vodafone IV, the jurisdiction to apply Chapter X of the Act would occasion only when income arises out of international transaction and such income is chargeable to tax under the Act. The issues raised in the present petition are identical to the issues which arose for consideration before this court in Vodafone IV. Therefore, following the aforesaid decision we set aside the order dated January 30, 2013, of the Transfer Pricing Officer to the extent it holds that the arm's length price of issue of equity shares is Rs. 183.44 per share as against Rs. 10 per share as declared by the petitioner and consequent deemed interest brought to tax on the amount not received when benchmarked to the arm's length price. Accordingly, we set aside the draft assessment order dated March 30, 2013, to the extent it seeks to bring to tax the arm's length price of the share issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of chapter X would not apply. The Hon'ble Bombay High Court in the said case has quashed and set aside as Being without jurisdiction, null and void, the reference made by the TPO, and the order of the TPO making a transfer pricing adjustment on issue of shares. Respectfully following the decision of the jurisdictional Bombay High Court, the adjustment proposed by the' TPO on account of issue of shares is deleted. Accordingly, ground of objection number 16 of the assessee is allowed. 20. We, therefore, respectfully following the ratio laid down by the Hon'ble Bombay High Court, reverse the direction of DRP and direct the AO to delete the addition on account of notional interest of Rs. 2,44,20,173/-. 15. Similar view is also taken in other judgments relied on by the Ld. AR. Since, no contrary judgments have been brought to our notice, relying on the above stated judgments, we direct the AO to delete the impugned adjustment made by the TPO as affirmed by the DRP towards notional interest on share application money for belated allotment of equity shares. 10. The learned D.R. could not show us any reason to deviate from the aforesaid order and no change in facts and law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as goods and hence it falls within the definition of manufacture or production of article or thing and thus the same is eligible for claim of deduction under Section 10B of the Act. The AO and the DRP rejected the claim stating that, the preparation of the dossier is only regulatory and intermediary process and not an end - product in it self in so far as the assessee's main obligation is concerned. As the contracts indicate, the assessee is finally not selling the dossier (which is only a process of manufacture) but is granting the license in respect of the manufacture of pharmaceutical products by utilizing the process in certain territories. The deliverable under the contracts is granting of the license' and not the preparation of the dossiers. For example, the agreements are titled 'License and Supply Agreement', 'Co-operation and Supply Agreement', Development, Licensing and Supply Agreement' and these titles are tell-tale. 039. During the course of hearing, the learned A.R. submitted that identical issue was decided in favour of the assessee by the Co ordinate Bench of the Tribunal in assessee s own case for the preceding assessment year ie. AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 043. The issue arising in ground no.7, raised in assessee s appeal is with regard to reworking of the deduction claimed u/s. 10B of the Act on account of allocation of R D expenditure. During the course of hearing, the learned A.R. did not intended to press this ground. Consequently, ground no.7, raised by the assessee is dismissed as not pressed. 044. The issue arising in ground no.8, raised in assessee s appeal is with regard to disallowance of weighted deduction u/s. 35(2AB) of the Act. Briefly stated fact are that the assessee during the assessment year has incurred certain R D expenses and claimed the weighted deduction @150% under section 35(2AB) of the Act. The same was disallowed by the AO and the DRP stating that the no Form 3CL and 3CM was furnished and only a copy of registration certificate from the competent authority recognising the assessee s R D facility has been furnished. 045. The learned Counsel for the assessee stated that it has fulfilled all the conditions to claim weighted deduction in respect of expenditure claimed as provided under section 35(2AB) of the Act. It was stated that the delay in issuing Form No. 3CM and report in Form No. 3CL by the DSIR was due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the orders passed by the lower authorities. 050. We have considered the rival submissions and perused the material available on record. We find that the Co ordinate Bench of the Tribunal in assessee s own case in Strides Pharma Science Ltd. v/s DCIT, in ITA no.8614/Mum./2011, for the assessment year 2007 08, vide order dated 08.06.2018, deleted the said disallowance by observing as under: 32. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the entire cost of the construction of the building was borne by the related party as against only the cost of construction of bare structure by the outside party. The rental agreements with Outside party were entered into in May 2001 and the terms of the agreement were that the agreements were initially for a period of 7 years until October 2008 and rent payable in respect of the property was fixed with an option on the part of the owner increase up to a maximum of 15% once in 3 years. The amount of rent payable as agreed upon were at the then prevailing rates in that locality and since the locality where the property is situated were not so developed at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to AO, the premium of redemption is neither due nor incurred during the year and it is just a provision for liability arising in future. Accordingly, the AO disallowed the claim of deduction and the assessee carried the matter to DRP, who also confirmed by holding that the FCCB premium of redemption is just a provision for liability arising in future and therefore agreed that the AO i.e. premium of redemption cannot be allowed as deduction because the expenditure is neither fructified or ascertained. Further, as for the issue expenses it partakes the nature of capital expenditure. Aggrieved by the Order, the assessee is in appeal before the Tribunal. 053. We have heard the rival contentions and gone through the facts and circumstances of the case. The learned Counsel for the assessee explained the facts that the assessee company has issued FCCB (listed in Singapore Stock Exchange) to the extent of US$ 40 million. These bonds carry an interest rate of 0.5% p.a. and are redeemable on April 19, 2010 at 136.78 percent of the principal amount. Further, these bonds are convertible into shares by bond holders on or after May 18, 2005 and only at the option of bond holders. The total is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 057. The next ground in this appeal of assessee is ground no.12 is against the order of AO and the DRP in disallowing the expenses relatable to exempt income i.e. disallowance under section 14A of the Act r/w rule 8D of the I.T. Rules., 1962 ( Rules ). During the relevant assessment year, the assessee has earned tax exempt dividend of Rs. 2,29,96,317/-. During the course of assessment proceedings, the assessee was asked to explain as to why expenditure attributable to earning of exempt income should not be disallowed under section 14A of the Act r/w rule 8D of the Rules. In reply, the assessee submitted that it has made investment in domestic companies and mutual funds out of the cash generated from its business operations and not from loan funds. The assessee further submitted that it has not incurred any interest or any other expenditure for making the aforesaid investment. The assessee also submitted that it has not earned any exempt income from its equity investments during the year. Without prejudice to the above submission, the assessee further submitted that the disallowance under section 14A of the Act should not exceed the actual expenditure incurred by the assessee(an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice that the Assessee has himself disallowed an amount of Rs.21,27,797/- which has not been found to be accepted by the AO or the DRP. Further, the facts with regard to total investments and investments which yield exempt income is not readily available before us. We, therefore, are of the considered view that ends of justice would be met if the disallowance is made after re- computing average value of investment by considering only those investments which yield exempt income. Hence, the matter is restored to the AO to re-work the disallowance in line of our discussions given hereinabove. 062. The other related issue is the disallowance made under section 14A of the Act has also been added back to the profits while computing the book profit under section 115JB of the Act. 063. We have considered the rival submissions and perused the material available on record. We find that the Co ordinate Bench of the Tribunal in assessee s own case in Strides Pharma Science Ltd. v/s DCIT, in ITA no.7370/Mum./2018, for the assessment year 2014 15, vide order dated 07.02.2020 and 7992/Mum/2019, for the assessment year 2015-16, vide order dated 06.04.2022 has deleted the addition made to book prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are during the assessment proceedings, the AO has considered the provision for leave encashment as unascertained liability and added to the computation of book profits. Further, the amount of forex losses on forward contracts has been deleted from the normal computation vide the rectification order dated 05.03.2013 and accordingly, should have been deleted from the MAT computation as well. 067. The AR submitted that it is settled principle now that provision for leave encashment is based on scientific basis and therefore an ascertained liability. Further, the AR has also relied on the DRP Directions for the Assessment Years 2009-10 2010-11 in assessee s own case wherein the addition made to book profits vis- -vis provision for leave encashment has been directed by the DRP to be deleted. 068. We have heard the rival contentions of the counsels. Based on the facts and circumstances of this case, we are of the view that Provision for leave encashment is an ascertained liability and accordingly, direct the AO to delete the same for determining the book profits. Further, the amount of forex losses on forward contracts appears to be an oversight since it was rectified by the AO himself ..... X X X X Extracts X X X X X X X X Extracts X X X X
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