2021 (9) TMI 1164 - AT - Income Tax

TP Adjustment - upward adjustment made on account of international transaction with AE’s by treating it (the assessee) as a tested party - HELD THAT:- As t in the identical set of facts & circumstances, the ITAT Delhi Bench, in the own case of the assessee, in the AY 2008-09 being [2016 (5) TMI 157 - ITAT DELHI] has held that AE’s should be accepted as tested party being the least complex for comparability analysis of international transaction with the assessee.

We restore the issue to the file of the TPO for the determination of ALP of International Transactions with the AEs for fresh adjudication considering its AE’s as the tested party. Hence, the ground of appeal of the assessee is allowed for statistical purposes

Disallowance u/s 14A r.w.r. 8D - Suo moto disallowance made by assessee - HELD THAT:- As decided in own case [2016 (5) TMI 157 - ITAT DELHI] findings recorded by the CIT (A) and the Tribunal are appropriate and relevant. The clear findings are that the assessee had sufficient funds for making investments in shares and mutual funds. The said findings coupled with the failure of the Assessing Officer to hold and record his satisfaction clinches the issue in favour of the respondent assessee and against the Revenue.

Adjustment while computing the book profit under section 115JB of the Act taking the amount of disallowance made u/s 14A r.w.r. 8D - HELD THAT:- As decided in own case [2016 (12) TMI 1539 - ITAT AHMEDABAD] we set aside the finding of the ld. DRP and direct the AO to delete the adjustment made by him under section 115JB of the Act. Hence, the ground of appeal of the assessee is allowed.

Disallowance u/s 35(2AB) of the Act on the ground that the assessee had not filed form 3CL issued by the DSIR - HELD THAT:- As decided in own case [2016 (12) TMI 1539 - ITAT AHMEDABAD] expenses incurred before Form 3CM approval cannot be denied for the purpose of Section 35(2AB) weighted deduction. We follow the very reasoning to opine that facts of the instant case rather go a step further wherein the appellant has only claimed those expenses which relate to the time period as approved in the Form 3CM. We accordingly hold that the assessee is very much entitled for claiming the above capital and revenue expenses incurred on in house research and development

Deduction for the contribution made to Ranbaxy community healthcare society (for short RCHS) and Ranbaxy Science Foundation (for short RCF) - HELD THAT:- As decided in own case [2016 (5) TMI 157 - ITAT DELHI] we delete the disallowance of contribution made by appellant to Ranbaxy Community Healthcare Society and Ranbaxy Science Foundation - regarding failure to deduct tax on this sum, Ld. DR. could not point out particular section, which warrants deduction of tax at sources on this payment. Therefore, we also hold that in absence of specific section under which the tax is required to be deducted on such contribution without their being any service rendered by the recipient of the contribution disallowance u/s 40a(ia) also cannot be made.

Deduction u/s 80IB/IC - plants located in Goa and Himachal Pradesh - AO in addition to the above also observed that the assessee had not provided the financial statements of the eligible undertakings separately as required under rule 18BBB(2) of Income Tax Rules - assessee has just provided the income and expenditure account which is nothing but self-serving document. - HELD THAT:- As relying on assessee own case [2016 (5) TMI 157 - ITAT DELHI] the order of the ITAT Delhi where the deduction claimed by the assessee under section 80IB/80IC was allowed based on reasoning as discussed above. Hence the ground of appeal of the assessee is allowed.

Addition for the payment made by the assessee to Teva Pharmaceuticals, Israel by treating the payment made by the assessee to Teva Pharmaceuticals as clandestine payment - HELD THAT:- The revised agreement was entered by the assessee with TEVA USA to avoid the manufacturing rights being conferred to the TEVA as per the original agreement dated 7-12-2010. As such the assessee wanted to manufacture the product at its own in order to build its goodwill in the US Market.

We are also conscious to the fact that there was no clause in the original agreement dated 7th December 2010 under which the assessee could have opted to get out from such agreement. It was possible when the other party was not able to honour the conditions of the agreement whereas the other party has fulfilled all the conditions as prescribed in the agreement.

Whether the assessee was authorized to make the payment to TEVA Israel whereas the original agreement as well as the amended agreement dated 7th December 2010 and 7th December 2011 respectively were made between the assessee, RPI and TEVA USA? - As revenue cannot accept part of the agreement favouring to it and reject part of the agreement without assigning any valid reasons. The Revenue either should have accepted the entire agreement or should have rejected the same in entirety. It is not expected from the revenue to accept part of the agreement and reject part of the agreement which is not a good practice.

The settlement agreement which is giving rise to the compensation paid by the assessee was entered dated 7th of December 2011 i.e. within the financial year under consideration corresponding to the assessment year 2012-13. Therefore, it cannot be said that the liabilities incurred against such contracts/agreement by the assessee were contingent in nature. The learned DR at the time of hearing has relied on various judgments, but the same are distinguishable from the facts of the case on hand. In those judgments as well there was no denial for denying the deduction if the expenditure has been incurred for the purpose of the business.

We hold that the payment to the TEVA Israel has been made by the assessee as a matter of commercial expediency which is wholly and exclusively for the purpose of the business. Thus the ground appeal of the assessee is allowed.

Disallowance for settlement agreement AND Plea agreement under section 37 of the Act on account of payment made to US FDA for the settlement - HELD THAT:- There is no dispute to the fact that the assessee has been doing the business in the US market since many years. However, the business of the assessee came to halt once there was an Alert notice issued by the US FDA with regard to import of drugs/product manufactured at assessee certain facilities in India. In fact the assessee by making the impugned payment was able to resume its business. Therefore it cannot be said that the assessee has got any benefit of enduring nature. Therefore the impugned payment cannot be treated as capital in nature.

We also agree with the contention of the learned AR that the TPO and the AO has taken different stand with respect to the amount paid in dispute as discussed above. TPO while working out the profit level indicator of the assessee has treated the said amount y as operating expenses whereas the AO has disallowed the same is not eligible for deduction under section 37 of the Act. In our considered view the TPO and the AO are part of the income tax Department and therefore there has to be consistency in the approaches of both the authorities. As such the authorities should not take different stand while determining the taxable income of the assessee otherwise it would lead to the double addition which is not desirable under the provisions of the Act.

Assessee is entitled for the deduction for the payment made by it as a result of settlement agreements as discussed above under the provisions of section 37(1) of the Act. The impugned payment not be treated as penalty in the nature of provided under explanation 1 to section 37(1) of the Act. Hence the ground of appeal of the assessee is allowed.

Disallowance while computing the profit u/s 115JB of the Act by treating the payment made by the assessee to US FDA as unascertained liabilities - lower authorities have disallowed the provision made by the assessee in the books of account under section 115JB of the Act on reasoning that such provision is not ascertained liability - HELD THAT:- We have allowed the claim of the assessee treating the provisions as the cost incurred in the course of the business in the year under consideration under normal computation of income. Thus there remains no ambiguity to the fact that the amount was crystalized in the year under consideration. The reasoning for holding the amount was crystalized in the year under consideration has already been discussed in preceding paragraph of this order while dealing with ground no. 10 of the assessee. Accordingly we set aside the order of the ld. DRP and direct the AO to delete the disallowance made under section 115JB of the Act for the eligible amount as per the law. Hence, the ground of appeal of the assessee is allowed.

Addition of expenses incurred on doctors for promotion of business - HELD THAT:- Medical Council of India has no jurisdiction to pass any order or regulation against any hospital or any health care sector under its 2002 regulation as discussed above. So once the Indian Medical Council Regulation does not have any jurisdiction nor has any authority under law upon the pharmaceutical company or any Allied health sector industry, then such a regulation cannot have any prohibitory effect on the pharmaceutical company like the assessee. If Medical Council regulation does not have any jurisdiction upon pharmaceutical companies and it is not applicable upon Pharma companies, then, in our considered view, there was no violation of the provisions of section 37(1) of the Act.

As CBDT Circular No. 5/2012 dated 01.08.2012 is applicable for the assessment year 2013-14 whereas the year under consideration pertains to the assessment year 2012-13. Therefore the circular issued by the CBDT cannot be applied for the year under consideration -disallowance cannot be made in the year under consideration on account of freebies given to the medical practitioners being the AY 2012-13. Hence, the ground of appeal of the assessee is allowed.

Disallowing the hedging charges on hedging contracts and interest swap expenditure claimed by way of note to protect the ECB loans by treating it capital expenditure - HELD THAT:- In the present case the question of claiming the depreciation does not arise for the reason that the issue relates to the investment made in the foreign subsidiaries. As such the investment in shares of foreign subsidiary does not attract the provisions of section 32 of the Act.

We also note that the assessee in its submission before the AO has already made alternate contention to treat the hedging expenditure as capital expenditure which has been accepted by the Revenue. Thus it appears there is no grievance to the assessee. However, the interest swap requires reconsideration by the AO.

Disallowance of compensation on ESOP - as per assessee ESOP is a revenue expenses and incurred wholly and exclusively for the purpose of business - HELD THAT:- As relying on own case [2016 (5) TMI 157 - ITAT DELHI] we allow the deduction of the ESOP expenses