9911796707
TMI Blog2024 (4) TMI 1140X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue of their taxability in India both as per the domestic law and as per DTAA with the respective countries, considering all arguments/ contentions made by the assessee. The ground of appeal raised by the assessee is therefore allowed for statistical purposes. Weighted deduction u/s 35(2AB) - expenses incurred, both capital and Revenue in inhouse research and development activity - HELD THAT:- When the specified authority itself had approved the incurrence of the capital expenditure for the purpose of carrying out in-house R D facility, there was no question for the AO to have doubted the same. We, therefore, agree with the ld.CIT(A) that there was no basis for the AO to arrive at a finding that the capital expenditure was not incurred in the R D facility of the assessee. We agree with the CIT(A) that the assessee had sufficiently evidenced the said facts to the authorities below. The ld.CIT(A), we hold, as rightly denied the disallowance made by the AO of the weighted deduction claimed by the assessee on the same. Disallowance of clinical trial expenses and analytical and testing expense not incurred in-house facility but testing R D facility - DR was unable to controvert in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance made under section 40(a)(i). Nature of expenses - product registration expenses - HELD THAT:- No reason to interfere in the order of the ld.CIT(A) deleting the disallowance of product registration expenses noting that this issue had been decided in favour of the assessee by the Hon ble jurisdictional High Court in Asst.Year 2006-07 [ 2015 (1) TMI 1348 - GUJARAT HIGH COURT] and also by the ITAT in assessee s own case for Asst.Year 2011-12 [ 2017 (9) TMI 727 - ITAT AHMEDABAD] Interest disallowance u/s 36(1)(iii) - disallowance was made with respect to loans advances given by the assessee to one to be sister concerns of the assessee - AO found that no business purpose was demonstrated by the assessee for making aforesaid advances - HELD THAT:- CIT(A) noted that identical disallowance of interest made on advances made to CHPL had been deleted by the ITAT in the case of the assessee for Asst.Year 2006-07 in [ 2014 (7) TMI 684 - ITAT AHMEDABAD] finding the advance to have been made for business purpose. Also noted from the facts demonstrated by the assessee that it had sufficient owned funds by way of shareholders fund for making impugned advances, therefore, following the ratio la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made u/s 115JB of the Act in respect of disallowance u/s 14A of the Act - HELD THAT:- CIT(A) restricted the disallowance made under section 14A to the extent of exempt income, which has been confirmed by us in the grounds no.8 9 of appeal raised by the Revenue. Therefore, the adjustment, if any, under section 115JB of the Act is to be restricted to this extent. Even otherwise, we have noted that the ld.CIT(A) deleted the entire adjustment made, finding the issue to be covered by the decision of Gujarat State Fertilizers Chemicals Ltd [ 2013 (7) TMI 701 - GUJARAT HIGH COURT] and also noting that the ITAT had ruled in favour of the assessee on an identical issue in Asst.Year 2006-07. - SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER For the Assessee : Shri Bandish Soparkar, and Shri Parin Shah, Ars. For the Revenue : Dr. Darsi Suman Ratnam, CIT-DR Shri Chetram Meena, Sr.DR ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER These cross-appeals by the assessee and the Revenue are against the orders passed by the Commissioner of Income Tax (Appeals)-10, Ahmedabad (in short referred to as ld.CIT(A) ) of even dated i.e. 7.11.2019 passed under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were taxable in India and withholding taxes provisions applicable. He therefore disallowed the entire amount as noted by him above, paid to nonresidents amounting to Rs.67,33,167/- under section 40(a)(i) of the Act. 6. The matter was carried in appeal before the ld.CIT(A) who found that the payments made to resident of USA ,amounting in all to Rs.30,68,538/-, detailed out at page no.50 of his order was not liable to tax in India in terms of DTAA with USA, since Article 12 of the said DTAA between India and USA restricted the scope of FTS to such services which make available any technical knowledge, skill or know-how etc. and in the present case, noting the fact that the legal professional services incurred by the assessee in the said case was in relation to the registration of products in foreign countries which did not involve transfer of technical knowledge, know-how or skill,he held that impugned amounts were not liable to tax in India, and therefore, no disallowance with respect to the same could be made for non-deduction of tax at source under section 40(a)(i) of the Act. Accordingly, the disallowance made by the AO with respect to the payment made to non-resident USA for pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualify as independent personal services, they were to be considered as business services, and their taxability therefore to be determined in terms of the Article 7 of the DTAA; that as per the Article 7, the amounts were taxable in the source country only if the entities had permanent establishment in the said country, and undoubtedly, these independent entities did not have permanent establishment in India. 11. Briefly put, the contention of the ld.counsel for the assessee before us was to the effect that the payment to Clifford Chance CIS Ltd., Russia of Rs.16,05,388/- and Esjay Corporate Service P.Ltd., Sri Lanka of Rs.11,809/- was (i) not in the nature of fee for technical services and taxability thereon in India could not be read with reference to the Article in the DTAA dealing with FTS, and (ii) that it qualified as independent personal services and its taxability in India was to be read with respect to Article 14 of the DTAA with respective countries, as per which, it could be taxed in India, only if the person had an permanent presence in India; that alternatively, if it did not qualify for taxation under Article 14 of DTAA its taxability is to be considered in terms of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to first cull out all the relevant facts relating to the impugned expenses and thereafter adjudicate the issue of their taxability in India both as per the domestic law and as per DTAA with the respective countries, considering all arguments/ contentions made by the assessee. The ground of appeal raised by the assessee is therefore allowed for statistical purposes. 15. In effect appeal of the assessee is allowed for statistical purposes. 16. Now we take up the Revenue s cross appeal, being ITA No.73/Ahd/2020 for Asst.Year 2008-09. 17. It was common ground that ground no.1 to 4 of the Departmental appeal related to the issue of claim of weighted deduction of expenses incurred, both capital and Revenue in inhouse research and development activity in terms of provisions of section 35(2AB) of the Act. The assessee had claimed weighted deduction under section 35(2AB) of the Act of Rs.34,84,27,179/- being 150% of capital and revenue expenses on account of following capital and revenue expenses: Capital Expenditure : Rs.6,49,23,731/- Revenue Expenditure : Rs.16,73,61,055/- 150% of the above claimed u/s 35(2AB) of the Act : Rs.34,84,27,179/- 18. The break-up of the expenses found mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nent of weighted deduction on revenue expenses not approved by the DSIR which it had added back in its computation of income to the tune of Rs.3,21,25,867/-. This claim of the assessee was allowed by the ld.CIT(A). 22. Aggrieved by the above decision of the ld.CIT(A), the Revenue has raised the following four grounds of appeal before us - all pertaining to the issue of disallowance made by the AO under section 35(2AB) of the Act. (1) The CIT(A) has erred in law and In facts in directing the AO to allow the claim of Rs.7,26,22,384/- u/s 35(2AB) of the Act ignoring the serious discrepancies brought out by the AO. (2) The CIT(A) has erred in law and in facts in deleting the disallowance of analytical and testing expenses of Rs.2,72,33,452/-without considering that the AO is entitled to verify such expenses and the assessee ought to have produced such evidences. (3) The CIT(A) has erred in law and in facts in deleting the disallowance of clinical trial expenses of Rs.6,41,494/-. (4) The CIT(A) has erred in law and in facts in directing the AO to allow the deduction of Rs.3,27,25,867/- u/s 35(2AB) of the Act despite the fact that no such claim was made in the return of income and does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,22,834/-. 25. The finding of the AO at para 4 to 4.8 of the order reads as under: 26. The ld.CIT(A), however, was convinced with the explanation of the assessee. He noted that the essential condition for claim of deduction under section 35(2AB) is that the asset should be used for the purpose of in-house R D facility. He further took note of the fact that the assessee had filed the evidence of shifting of these asses to its R D facility. Further taking note of the fact that this expenditure has been approved by the Auditor in its certificate on R D expenditure, accordingly, he deleted the disallowance made by the AO of weighted deduction claimed on capital expenditure on R D amounting to Rs.1,26,22,834/-. His findings in this regard are at para-7.4. to 7.5 of his order as under: 7.4 Decision: I have considered the assessment order the submission of the appellant and the materials available on record. The AO observed that during the year under consideration, certain items of capital expenditure of Rs.2,52,45,668/- claimed by the appellant under section 35(2AB) were delivered to corporate office or other premises, and not to the approved R D facility. The AO held that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r,shifted to R D centre. The ground no.3 of appeal is therefore allowed. 27. Before us, the ld.DR relied on the order of the AO, while the ld.counsel for the assessee, besides relying on the finding of the ld.CIT(A) that the assessee had evidenced the shifting of capital items to its R D units and the entire capital expenditure was approved by the Auditor. He drew our attention to the DSIR certified issued in Form No.3CL placed before us at page No.75-76, pointing out that the DSIR had approved capital expenses of Rs.649.24 lakhs which was the entire amount of capital expenditure claimed by the assessee to have been incurred on in-house R D activity. 28. We have heard contentions of both the parties. We have gone through the orders of the Revenue authorities and documents referred to before us. We have noted that solitary basis for denial of weighted deduction to capital equipment purchased by the assessee for its R D facility under section 35(2AB) of the Act by the AO was that the invoices were not raised at its R D facility address, but elsewhere, and the AO was not convinced with the explanation of the assessee that majority of the items delivered elsewhere were for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurrence of expenses to the tune of Rs.12,82,988/- in the in-house R D facility. He accordingly denied the assessee s weighted deduction at the rate of 50% thereof on the same, which amounted to Rs.6,41,494/-. 34. With respect to the analytical and testing expenses, the AO noted that these were specialized expenses on analysis results requiring specialized scientific equipments and specified persons for conducting the analytical studies. Since the assessee could not produce any evidence to show that these expenses were incurred inhouse, he held that the assessee was not entitled to weighted deduction on the same. He further found that the assessee was unable to substantiate with evidence of the incurrence of these expenses. Accordingly, he denied the entire deduction claimed on analytical and testing at the rate of 150% therefor, under section 35(2AB) of the Act amounting to Rs.2,72,33,4552/-. The amount of expenditure incurred on analytical and testing by the assessee was Rs.1,81,55,635/-, the assessee had claimed weighted deduction thereon under section 35(2AB) of the Act at the rate of 150% thereof amounting to Rs.2,72,33,452/-, and this entire amount was disallowed by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as RD results derived analytical and testing needed to be carried out. The assessee contended that the R D facility in the form trial batch, pivot project, scale up batch exhibit batch necessarily needed to be to go through analytical and testing batch to achieve complete R D result. The assessee contended that all the desired properties of a medicine/formulation needs to be analysised, tested and documented; that the R D activity could not be carried out without incurring analytical and testing expenses, and his explanation in this regard is reproduced at para 10.2 (page no.19( of the CIT(A) s order. The ld.CIT(A) appreciated the contentions of the assessee, and held that the considering the nature of the activity and taking note of the fact that the assessee had adduced relevant evidences of incurring the same, the claim of the assessee to the weighted deduction on the analytical and testing expenditure to the tune of Rs.2,72,33,452/- was allowable in law. His finding in this regard at para 8.5 of his order are as under: 8.5 Further, with respect to allowability of weighted deduction under section 35(2AB), the appellant has submitted that the expenditure is incurred for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and ITA No.848/Ahd/2016 and 918/Ahd/2016 for Asst.Year.2011-12. 42. Before us, the ld.counsel for the assessee pointed out that the Hon ble jurisdictional High Court had confirmed the order of the ITAT in Asst.Year 2006-07 in its order in Tax Appeal No.39 of 2015 dated 23.1.2015. Copy of the order was placed before us. The ld.DR was unable to controvert the above. In view of the same, deletion of disallowance of 6,41,494/- by the ld.CIT(A) is upheld. Ground no.3 is dismissed. 43. Ground No.4 of the Revenue challenges admission of claim of deduction under section 35(2AB) made by the assessee during the appellate proceedings before the ld.CIT(A) and allowance of the same by me. The amount of deduction was allowed by the ld.CIT(A) amounting to Rs.3,21,25,867/-. 44. Facts of the matter being that the assessee had incurred total expenses on in-house R D facility including both capital and revenue expenditure to the tune of Rs.23.22 crores comprising of Rs.6.49 crores capital expenditure and Rs.16.73 crores revenue expenditure. The authority specified for approval under section 35(2AB) of the Act i.e. DSIR furnished a certificate in Form No.3CL mentioning the capital expenditure approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e various decisions in this regard, as also CBDT Circular No.14(XL-35) dated 11-4-1955 instructing the AO to grant eligible refund/benefit to the assessee even when the said benefit is not claimed by the assessee. Before the ld.CIT(A), the assessee has cited decision of the ITAT, Ahmedabad Bench in the case of ACIT Vs. Amrapali Capital and Financial Services Ltd., ITA No.1836/Ahd/2011 wherein it was that taking note of Hon ble Gujarat High Court decision in the case of S.R. Koshit Vs. CIT, 276 ITR 165 (Gj), which had held that the authority under the Act are under an obligation to act in accordance with law, and if a taxpayer under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. Based on this order of the Hon ble Gujarat High Court, the ITAT in the said case had upheld the CIT(A) s entertaining of claim made for the first before the ld.CIT(A). The assessee had also cited decision in this regard of the ITAT, Mumbai Bench in the case of Chicago Pneumatic India Ltd. Vs. DCIT, (2007) 15 SOT 252 (Mum)(ITAT), and the decision of ITAT, Delhi Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable on record. With respect to various remittances made by the appellant, I hold as under: Sr No. Party Name Country Name Amount in Rs. 1 CPL Inc USA 10,66,763 2 CPL Inc USA 4,94,950/- 3 Morrison Foester LLP USA 13,50,084 4 Morisson Foerster LLP USA 1,56,741/- Total 1,56,741/- The appellant has submitted that it has obtained legal and professional services from the non-residents in respect of registration of its products with e foreign regulatory authorities for sales in those countries. In this regard, e appellant has contended that in view of the sub-clause (b) of section 1)(vii) of the Act, the amount payable by the resident to non-resident towards fees for technical services is not taxable in India, if the said services are railed for earning income from any source outside India. The said provisions section 9(i)(vii) are reproduced below: (2) The following incomes shall be deemed to accrue or arise in India : (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledge, skill or know-how . The ld.CIT(A) noted that the assessee having obtained legal or professional services towards registration of products in foreign country, it did not involve any technical knowledge, skill or knowhow, and therefore, the same is not liable to tax in India. The ld.DR was unable controvert any of the findings of the ld.CIT(A) as above, both with respect to the fact of services rendered not involving any transfer of technical knowledge, skill or know-how etc. as also with respect to Article 12 of the DTAA between India and USA restricting the scope of FTS such services which made available technical knowledge, skill or know-how etc. 55. In view of the same, we see no reason to interfere in the order of the ld.CIT(A) deleting the disallowance made under section 40(a)(i) of the Act to the tune of Rs.30,68,538/- pertaining to legal and professional services rendered from entities based in USA. Ground no.5 of appeal is accordingly dismissed. 56. Ground No.6 reads as under: (6) The CIT(A) has erred in law and in facts in deleting the product registration expenses of Rs.1,03,29,379/- which are capital in nature . 57. The issue relates to product registration of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of Abhishek Industries Vs. CIT, 286 ITR 1 (P H), he disallowed interest in relation to this advance calculated at the rate of 9.5% on the same amounting to Rs.1,34,22,838/-. The ld.CIT(A) noted that identical disallowance of interest made on advances made to CHPL had been deleted by the ITAT in the case of the assessee for Asst.Year 2006-07 in ITA No.1146/Ahd/2011 ITA No.1518/Ahd/2011 finding the advance to have been made for business purpose. 63. He also noted, the Revenue s appeal against the said decision of the ITAT have been dismissed by the Hon ble jurisdictional High Court in Tax Appeal Tax Appeal No.200-201 of 2018 vide order dated 4.4.2018. Further, he noted from the facts demonstrated by the assessee that it had sufficient owned funds by way of shareholders fund to the tune of Rs.162.61 crores for making impugned advances both the CHPL and Apollo Hospitals Ltd. which amounted in all to Rs.19.12 crores, and therefore, following the ratio laid down by various Hon ble High Courts including the decision of Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities, 313 ITR 340, Ashok Commercial Enterprises, ITA(L) No.2985 of 2009, Hotel Savera, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the ITAT, and following the decision of the ITAT in the said year, he restricted the disallowance under section 14A to the extent of exempt income earned amounting to Rs.29,926/-. 70. Before us, the ld.DR was unable to rebut the finding of the ld.CIT(A). 71. In view of the above, we see no reason to interfere in the order of the ld.CIT(A) in restricting the disallowance under section 14A to the extent of exempt income earned by the assessee and thus allowing he assessee to withdraw suo moto disallowance made by it to the tune of Rs.1,00,86,493/-. Ground nos.8 and 9 raised by the Revenue are dismissed. 72. Ground Nos.10 and 11 relate to the issue of adjustment made to book profits of the assessee under section 115JB of the Act on account of provision for bad and doubtful debts and provision for diminution in value of investments as per Explanation 1(1) to Section 115JB of the Act. The grounds read as under: (10) The CIT(A) has erred in law and in facts in deleting the adjustment of Rs.36,53,255/- made u/s 115JB of the Act in respect of provision for doubtful debts which are clearly not allowable as per law. (11) The CIT(A) has erred in law and in facts in deleting the adjustment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits of the assessee. 77. The AO had made adjustment to the book profits of the assessee of all the disallowance made under section 14A of the Act. The disallowance computed by him under section 14A of the Act to the tune of Rs.2,71,00,172/-, and the ld.CIT(A) restricted the disallowance made under section 14A to the extent of exempt income amounting to Rs.29,926/, which has been confirmed by us in the grounds no.8 9 of appeal raised by the Revenue. Therefore, the adjustment, if any, under section 115JB of the Act is to be restricted to this extent. 78. Even otherwise, we have noted that the ld.CIT(A) deleted the entire adjustment made, finding the issue to be covered by the decision of Hon ble jurisdictional High Court in the case of CIT Vs. Gujarat State Fertilizers Chemicals Ltd., and also noting that the ITAT had ruled in favour of the assessee on an identical issue in Asst.Year 2006-07. Since the ld.DR was unable to controvert the submissions of the assessee, no interference in his order on the issue is warranted. Ground No.12 is rejected. 79. In the result, the appeal of the Revenue for Asst.Year 2008-09 in ITA No.73/Ahd/2020 is dismissed. 80. ITA No.52/Ahd/2020 (Assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of Rs.61,42,607/- (Rs.58,23,895/- + Rs.3,18,712/-) towards foreign remittances u/s 40(a) (i) of the Act. (4) The CIT(A) has erred in law and in facts in deleting the product registration expenses of Rs.1,40,43,154/- which are capital in nature. (5) The CIT(A) has erred in law and in facts in deleting the interest disallowance of Rs.1,47,97,350/-- u/s 36(1) (iii) of the Act. (6) The CIT(A) has erred in law and in facts in-restricting the addition of Rs.1,86,24,986/- made by the AO u/s 14A to Rs.29,926/-. 86. A perusal of the above grounds would emerge the following scenario - o Ground No.1 and 2 are similar to ground no.1 and 2 of the Department s appeal for Asst.Year 2008-09; o Ground No.3 is similar to ground no.1 of the assessee s appeal and ground no.5 of Department s appeal for Asst.Year 2008-09; o Ground No.4 is similar to ground no.6 of Department s appeal for Asst.Year 2008-09; o Ground No.5 is similar to ground no.7 of the Department s appeal for Asst.Year 2008-09; o Ground No.6 is similar to ground no.8 of the Department s appeal for Asst.Year 2008-09; o Ground no.7 is similar to ground no.9 of the Department s appeal for Asst.Year 2008-09; o Ground no.8 is similar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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