TMI Blog2016 (5) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... Charged, Overseas Product Registration Charges - Held that:- We direct the A.O to delete the disallowance. See Sun Pharmaceutical Industries Ltd Versus Asst. Commissioner of Income Tax Central Circle-1, Baroda and Vica-varsha [2017 (1) TMI 1109 - ITAT AHMEDABAD]. Allocation of R & D expenses for determining profits of the new industrial undertaking u/s. 80IB - Held that:- The question related to the raw materials and not to all the items of expenditure and, therefore, the revenue authorities have erred in generalizing the statement of the Senior Vice President. We have given a thoughtful consideration to the findings of the lower authorities. We have also considered the statement of Dr. T. Rajamannar. Undisputedly, the question related to the raw materials and not to all the items of expenditure under this head. In our considered opinion one cannot carry out the allocation on the basis of pick and choose method. We accordingly direct the A.O to restrict the re-allocation only to the raw material, assessee gets partial relief. Provision for doubtful debts and advances while calculating book profits u/s. 115JB - Held that:- We restore this issue to the files of the A.O to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o proposed to make following additions in respect of International Transactions relating to investment/loans to Associated Enterprises- (1) Interest on Loan to AEs at LIBOR plus rate allowed to AEs ₹ 7,83,82,483/- (2) Interest on 9% OFCD ₹ 21,08,42,301/- Total Rs. ₹ 28,92,24,784/- 5. Assessee was asked to explain why this amount should not be added to the total income. Assessee filed a detailed reply explaining that the assessee had sourced the loans to AE out of the excess funds lying idle out of the issue of FCCBs. Certain portion of the FCCB proceeds were deployed in fixed deposits in overseas banks. It was brought to the notice of the A.O that the assessee has charged interest to the AEs at 3.81% being the 12 month LIBOR rate. The assessee strongly objected to the charge of LIBOR+ rate of interest. In so far as, the money raised through Foreign Currency Convertible Bonds, it was explained that since money raised through FCCB was not permitted to be parked/brought in India unless it was actually deployed for permitted capital expansion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, no interest was payable if the amount was converted into equity. However, if the same is redeemed, interest was payable at Libor Plus 290 bps and the interest was to be computed at annual rates and payable at maturity that is 5 years from the date of first disbursement. The rupee value of the amount of loan as on 31.03.2008 was ₹ 108.32 crore. It was also noticed that Assessee has not shown any income from the aforesaid loan. In response, Assessee interalia submitted that Assessee had not opted for conversion of the loan during the year and therefore it was loan for the year and as per the terms of agreement, no interest accrued to the Assessee and therefore no income was considered. The TPO did not find the contention of the Assessee acceptable. He considered the Optionally Fully Convertible loan as debt and considering the average six month Euro Libor rate for the year @ 4.48% to which he added the interest rate of 2.90 basis point as per the agreement and thereafter considered the rate of interest to be @ 7.38% and accordingly computed the interest on ₹ 108.32 Crore for 171 days at 7.38%. The aforesaid adjustment made by the TPO was considered by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. The assessee was asked to justify its claim. Assessee filed a detailed reply justifying its claim of weighted deduction. It was explained that the expenditure incurred for product registration although named as Product Registration Expenditure is not merely an expenditure for registration of the product, but in large measure constitutes expenditure for validation and confirmation of the Research carried out. The A.O did not accept the claim of the assessee holding that these expenses were incurred for registration of drug patents in foreign countries. The A.O accordingly withdrew the weighted deduction and allowed only 100% 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. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allocation of expenses. The reply of the assessee did not find any favour with the A.O who was of the firm belief that R D expenses are basically pertaining to the head office expenses which are not directly relatable to a particular unit. According to the A.O, if the expenses are not scientifically distribute, it may lead to excess deduction u/s. 80IB or 10A or 10B of the Act. Taking a leaf out of the earlier assessment years, the A.O reallocated further expenses of ₹ 4,27,59,003/- to the Silvassa II Unit. 20. Assessee carried the matter before the ld. CIT(A) and reiterated its claim of deduction. However, the ld. CIT(A) followed the findings of his predecessor given in earlier assessment years holding that there is no change in the facts and circumstances of the case during the year under appeal. Before us, the ld. counsel for the assessee drew our attention to the decision of the Tribunal given in earlier assessment years and requested for a similar view. We have carefully considered the facts in issue in this ground of appeal. We have also gone through the findings of the Tribunal given in earlier assessment years in ITA No. 1558/Ahd/2006. We find that an identic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and reserves and heavily relying upon the decision of the Hon ble Supreme Court given in the case of Apollo Tyres Ltd. 255 ITR 273. It was strongly contended that the A.O has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. 20. The contention of the assessee did not find favour with the A.O The A.O was of the opinion that since the said section has been amended the assessee should have added back the provision while computing the book profit also. The A.O relied upon the amended provisions and further drawing support from the decision of the Hon ble Madras High Court 244 ITR 256 added back ₹ 50,68,982/- to the book profit u/s. 115JB. 21. Assessee carried the matter before the ld. CIT(A) but without any success. Before us, the ld. counsel for the assessee heavily relied upon the decision of Hon ble Karnataka High Court given in the case of Yokogawa Ltd. The ld. D.R. supporting the findings of the revenue authorities, drew our attention to various judicial decisions. 22. We have considered the rival contentions and the judicial dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dentical issue has been considered and decided by us in favour of the assessee in ITA No. 2430/Ahd/2009 qua ground no. 9 of that appeal. Respectfully following our own decision, we direct the A.O to delete the impugned additions on account of sales made to Sun Pharmaceutical Industries. Ground no. 7 is allowed. 30. Ground no. 8 relates to the disallowance of expenses incurred on behalf of Sun Pharmaceutical Industries. 31. An identical issue has been considered and decided by us in ITA No. 2430/Ahd/2009 qua ground no. 10 of that appeal. For our detailed discussion therein, we direct the A.O to delete the impugned disallowance of expenses. Ground no. 8 is allowed. 32. Ground no. 9 relates to the Foreign Exchange Fluctuation Gain. 33. After perusal the orders of the authorities below qua the issue, in our considered opinion, this issue has to go back to the A.O as the matters have been resorted to the files of the A.O in earlier years. The A.O is directed to decide the issue afresh as per the directions given in earlier years and after giving an opportunity of being heard to the assessee. Ground no. 9 is treated as allowed for statistical purpose. 34. Ground no. 10 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 is also dismissed. 47. Ground no. 4 relates to the deduction of interest on overdue bills for computation of deduction u/s. 80IB of the Act. 48. An identical issue has been considered and decided by us in ITA No. 2400/Ahd/09 qua ground no. 3 of that appeal. Respectfully following our own decision, ground no. 4 is dismissed. 49. Ground no. 5 relates to the deletion of the addition made on account of allocation of R D expenses. 50. An identical issue has been decided by us in ITA No. 2430/Ahd/09 qua ground no. 6 of that appeal. For similar reasons, ground no. 5 is dismissed. 51. Ground no. 6 relates to the deletion of the addition of ₹ 6,80,281 made on account of depreciation. 52. In our considered opinion, this issue has been decided in favour of the assessee and against the revenue in the light of the decision of the Hon ble Supreme Court given in the case of ICDS Ltd. 350 ITR 527. No interference is called for. 53. Ground no. 7 relates to the exclusion of provision for FBT for computing book profit. 54. An identical issue has been considered by the Hon ble High Court of Bombay in the case of ASB International P. Ltd. 26 taxmann.com 87. Respectfull ..... X X X X Extracts X X X X X X X X Extracts X X X X
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