2012 (6) TMI 13 - ITAT AHMEDABAD

Expenditure on Scientific Research - deduction u/s 35(2AB) - Revenue denied weighted deduction in respect of Clinical Trial and Bio-equivalence Study on ground that research were not incurred by the assessee in the approved in-house facility - Held that:- The term "in-house" means, in the present context, that by utilizing the staff of an organization or by utilization of resources of the organization if a research is conducted within the organization; rather than utilization of external resources or staff; then it can be called as in-house research. Language of Section do not suggest that the research is to be conducted within four walls of an undertaking. To conduct the research, data may be collected from several resources, both, within the premises or outside the premises and then researched upon in in-house research facility. Once the scientific research facility is approved, then the expenditure incurred on research and development facility has to be allowed for weighted deduction u/s.35(2AB) - Decided in favor of assessee.

Restriction of deduction u/s 80IC on ground that assessee had shown abnormally higher profit of Baddi Unit to claim deduction - AO suggested that, sales of Baddi Unit must be recorded at arm's length price for internal transfer and not the ultimate sale price - Held that:- This is a case where manufacturing products were sold through C&F in the market. Even this is not the case that first sales were made by the Baddi Unit in favour of the head office or the marketing unit and thereupon the sales were executed by the head office to the open market. Once it was not so, then the fixation of market value of such good is out of the ambits of this section. If there is no intercorporate transfer, then the AO has no right to determine the fair market value of such goods or to compute the arm's length price of such goods. Statute do not subscribe such deemed inter-corporate transfer but subscribe actual earning of profit, then the impugned suggestion of the AO do not have legal sanctity in the eyes of law

Regarding AO's proposition of segmentation of eligible profit of the manufacturing unit it is held that when the method of accounting as applicable under the Statute do not require segregation or bifurcation of profit of a unit into manufacturing profit and trading/marketing profit, it is no correct on the part of AO to resort to such segregation or bifurcation. There is no such concept of segregation of profit. Rather, the profit of an undertaking for section 80IA deduction purposes should be computed as a whole by taking into account the sale price of the product in the market.

Legal and professional expenses incurred for expansion of business - dis-allowance - Revenue contending the same to be pre-operative expenses of a capital nature - Held that:- It has been demonstrated that the expenditure in question was not for setting up a new line of business but for the setting up a new production unit for expansion of the same line of business already in existence hence allowable as revenue expenditure - Decided in favor of assessee.

Product Registration Expenses, Trademark Registration Fees, Patent Registration Fees and reimbursement of expenses for Product Registration Support Services - dis-allowance - Revenue contending the same to be intangible assets eligible for depreciation u/s 32 - Held that:- Payments in question are inextricably linked with the working of the assessee's business. By incurring those expenditure the assessee has not acquired any new right of permanent character. The licenses or the registrations are required to be renewed and therefore part of the day to day running expenditure of the business. In the absence of creation of any new asset we hereby held that such an enduring benefit may not tantamount to rendering of capital expenditure - Decided in favor of assessee.

Dis-allowance u/s 14A - Held that:- In present case, on one hand the direct nexus of utilization of assessee's own funds towards investment in the impugned equity shares was not established and on the other hand from the side of the Revenue equally it was not placed on record that having regard to the accounts of the assessee the A.O. was not satisfied with the claim by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income. Matter restored back to file of AO.

Transfer Pricing - adjustment to ALP - eligibility for availability of benefit of variation between ALP and price determined u/s 92C(2) - Held that:- The matter requires reconsideration at the level of the AO only to examine the correctness of the computation as suggested by the assessee and if any relief is permissible, then the same can be granted but as per law. partial relief provided by DRP by allowing mark-up @ 2% is not disturbed.

MAT - provision for doubtful debt not added to the book profit for computing income u/s 115JB - Held that:- Provision for doubtful debt to be added to the book profit for computing income u/s 115JB - Decided against the assessee.

Benefit of carry forward of MAT credit u/s 115JAA - Held that:- Since the necessary facts are yet to be examined, therefore, we refer this ground back to the stage of the Assessing Officer to decide accordingly.