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2017 (1) TMI 1390 - AT - Income TaxTPA - determining arm's length interest rate in international transactions - adopting interest rate of 14 per cent. as applicable to corporate bonds - TPO ignoring LIBOR as a benchmark for determining arm's length price - Held that:- In the assessee's own case for the assessment year 2006-07 the Tribunal has taken note of the LIBOR at 4.42 per cent. rate and has observed that the assessee has accepted 7 per cent. in earlier years which is equivalent to LIBOR+2 per cent. Therefore, the Tribunal has directed the Transfer Pricing Officer to adopt 7 per cent. For the year before us also, the facts and circumstances being similar, we direct that the Transfer Pricing Officer/Assessing Officer to adopt LIBOR +2 per cent. or 7 per cent. whichever is higher as the arm's length price interest. The assessee's ground of appeal No. 1 is therefore, treated as allowed for statistical purposes. Disallowing the claim for transitional liability of leave encashment - Held that:- We find that the actual payment made by the assessee towards the leave encashment to the employees is an allowable expenditure under section 43B(f) of the Act. Admittedly, the assessee has not paid a sum of ₹ 2,74,08,816 and has only debited it to the profit and loss appropriation account. As regards the sum of ₹ 5,42,92,558 which is claimed to have been paid to the employees, we deem it fit and proper to remand the issue to the file of the Assessing Officer for verification of the assessee's claim and if it is found to be correct, then the Assessing Officer shall allow the claim of the assessee. Accordingly ground No. 2 is treated as allowed for statistical purposes. Disallowing amortisation of deferred stock compensation (ESOP cost) on the ground that the expenditure is notional and capital in nature - Held that:- We find that this issue is covered in favour of the assessee by the decision of the Special Bench of the Tribunal in the case of Biocon Ltd. v. Deputy CIT (2013 (8) TMI 629 - ITAT BANGALORE ) wherein it was held that the ESOPs discount is a deductible discount at the time of vesting of the option. Thus the issue is remanded to the file of the Assessing Officer with a direction to work out the deduction keeping in mind the principles laid down by the Special Bench in the above case after giving an opportunity of hearing to the assessee. Disallowing the expenditure incurred in connection with cyto project - revenue or capital - Held that:- We find that the assessee is in the business of research development and manufacture of pharmaceuticals. The process of research includes trial run of a new drug. Therefore, the assessee's experiments on a new drug cannot be said to be a new line of business. We find that during the assessment year 1999-2000, the assessee had incurred pre-operative expenses on Biotechnology Division and the Assessing Officer therein had treated this expenditure as capital expenditure. We find that the facts in the present case are similar i.e. the expenses are for a new product in the existing diagnostic and formulation business and are not for a new business of the assessee. We hold that the expenditure incurred by the assessee towards cyto products is allowable as revenue expenditure. See Glaxo Smith Kline Consumer Healthcare Ltd. v. Asst. CIT [2007 (3) TMI 300 - ITAT CHANDIGARH-A]. This ground of appeal is therefore, is allowed Disallowing the expenditure incurred in connection with ADS issue - the expenditure is incurred in connection with increase in the capital base of the company and capital in nature - Held that:- we are of the opinion that the Assessing Officer and the Dispute Resolution Panel ought to have verified the said expenditure before making the disallowance. In view of the same, we deem it fit and proper to remand the issue to the file of the Assessing Officer for de novo consideration in accordance with the law, more particularly in view of the decision of the Delhi Bench of the Income-tax Appellate Tribunal in the case of Chinatrust Commercial Bank v. Addl. DIT (International Taxation) [2007 (1) TMI 293 - ITAT DELHI] and also case of India Cements Ltd. v. CIT [1965 (12) TMI 22 - SUPREME Court]. Therefore, the ground of Appeal No. 5 is partly allowed for statistical purposes. Payment to Institute of Life Sciences ("ILS") for research project - deduction claimed under section 35(1)(ii) - Held that:- The assessee has not brought on record either before the Dispute Resolution Panel or before this Tribunal as to how the assessee is being benefited in any way by the results of the research carried on by the ILS. Therefore, the commercial expediency of the donation to ILS has not been established by the assessee. In the assessee's own case for the assessment year 2003-04, the Tribunal, without giving elaborate reasons, has held that the donation given to the institutions mentioned therein are incurred in the course of business and allowable under section 37(1) of the Act. For the assessment year 2006-07, the Tribunal has only remanded the issue to examine the allowability of donation to ILS under section 37(1) of the Act. Therefore, there is no finding about the allowability of the same by the Tribunal. In view of the same, we do not see any reason to interfere with the assessment order on this issue and the ground of appeal No. 6 is rejected. Depreciation on goodwill - company by name American Remedies Ltd. had got merged with the assessee - Held that:- Having regard to the rival contentions and the material on record and respectfully following the decision of the Hon’ble Supreme Court in the case of CIT v. Smifs Securities Ltd. (2012 (8) TMI 713 - SUPREME COURT) wherein it has been held that goodwill is also an intangible asset eligible for depreciation thereon, we direct the Assessing Officer to allow depreciation on goodwill. Weighted deduction of 150 per cent. under section 35(2AB) in respect of expenditure on scientific research incurred by Perlecan in the assessee's facility - Held that:- As pointed out by the learned counsel for the assessee, the in-house research and development facility of the assessee is approved by the DSIR as provided under section 35(2AB). From page 485 of the paper book, it is seen that the expenditure approved by the DSIR includes a sum of ₹ 1054.314 lakhs on account of Perlecan Pharma Pvt. Ltd. Copy of Form 3CL is placed on record. By virtue of merger with effect from June 1, 2006, all the activities of the Perlecan are also the activities of the assessee. As the facility and also the expenditure has already been approved by the relevant authority, we are of the opinion that post merger, the said expenditure cannot be reduced while allowing the deduction under section 35(2AB) of the Act. Therefore, in our opinion, the deduction under section 35(2AB) is allowable even on the expenditure incurred on Perlecan Pharma after January 1, 2006 i.e. the date of its merger. Allowance of expenditure as per section 35(1)(i) and section 35(1)(iv) - Held that:- The assessee is eligible for deduction under section 35(1)(i) and 35(1)(iv) of the Act of 100 per cent. of the expenditure incurred by the assessee on research and development centres not approved by DSIR. In view of the same, we set aside the issue to the file of the Assessing Officer to reconsider the same in accordance with law. It has also been brought to our notice by the learned counsel for the assessee that for the assessment years 2003-04 and 2004-05, the Commissioner of Income-tax (Appeals) has allowed deduction on clinical trials by orders dated November 18, 2013 in the appeals filed by the assessee against the order under section 154 of the Act dated March 26, 2005. The Assessing Officer shall also consider these orders also while allowing the expenditure incurred by the assessee on clinical trials. Ground of appeal No. 9 is accordingly treated as allowed for statistical purposes. Disallowing the expenditure in connection with doctors, business promotion, gifts - whether the expenditure is incurred in connection with the business - Held that:- We set aside the issue to the file of the Assessing Officer with a similar direction to verify the nature of the expenditure and disallow only such expenditure which is not incurred for the business purposes of the assessee. This ground is accordingly treated as allowed for statistical purposes. TDS u/s 195 - payments towards technical services - non deduction of TDS - Held that:- Only providing final results to its Indian clients by using highly sophisticated bio-analytical know-how, without providing any access whatsoever to the clients to such know- how, fee received by it is business income and not fee for technical/included services or royalty and applicant having no permanent establishment in India, such income would not be taxable in India by virtue of relevant provisions of the Double Taxation Avoidance Agreement between India and Canada'. The amounts paid by the assessee-company for technical services are not taxable in India. That being so, there is no need for the assessee to deduct tax at source. Allocate corporate overhead while computing deduction under section 10B for Paidibhimavaram unit - Held that:- We find that in the assessee's own case for the assessment year 2006-07, the co-ordinate Bench of this Tribunal at Mumbai has considered this issue at paragraph 12.5 and following the decision of the assessee's own case for the assessment year 2003-04, this issue is set aside to the file of the Assessing Officer for re-examination of the claim on similar lines.The learned counsel for the assessee submitted that it is only the net expenditure and not the gross expenditure which should be allocated amongst all the units. We agree with the contention of the assessee and direct the Assessing Officer to allocate the only net expenditure of the corporate entity amongst all the units on the basis of the turnover. Thus, the alternate contention of the assessee is allowed. Addition of interest - loan to its subsidiary in Cyprus - Double Taxation Avoidance Agreement with Cyprus - Held that:- We deem it fit and proper to remand the issue to the file of the Assessing Officer to verify whether the taxpayer has paid tax on interest income in India and if so, to allow the deduction of the tax admitted to have been paid under article 25(2) of the Double Taxation Avoidance Agreement read with article 25(4) of the Act of the Double Taxation Avoidance Agreement. This ground of appeal is therefore, treated as allowed for statistical purposes. Nature of expenditure - expenditure of implementation of ERP package - Held that:- Expenses on ERP implementation has been held to be revenue . Laying of road, though it gives enduring benefit to the assessee, we find that it can only be for facilitating the assessee to carry on the business of the assessee effectively and hence is revenue in nature. Expenditure on furniture, the details of such furniture is not placed on record and therefore, it is not possible to give any finding on the nature of such expenditure. Further, the break-up of expenditure of roads as well as furniture is also not given. Therefore, with a finding that the ERP implementation charges and the laying of road be treated as revenue expenditure, the issue of the nature of expenditure on furniture only is set aside to the file of the Assessing Officer for de novo consideration.
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