2016 (5) TMI 157 - ITAT DELHI

Transfer pricing adjustment - Held that:- Appeal is allowed with a direction that overseas associated enterprises are accepted as ‘tested party’ being the least complex of the transacting entity for the year for comparability analysis of international Transactions of the assessee- appellant. As we have already decided the first step of comparability analysis in ground no 2.2 of the appeal we set aside othergrounds no. 2 to 7 except 2.2 to the file of TPO to compute ALP of the international transactions accordingly. Needless to say that ld. TPO/ AO shall give due weightage to the Advance pricing agreement signed by the assessee with CBDT on other issues also ( other than the issue of ‘ selection of tested Party’) for determination of ALP and in case of any divergent view, the assessee shall be granted an adequate opportunity to substantiate any claim/ arguments on the manner of determination of ALP.

Disallowance being deferred employees compensation debited to the profit and loss account pursuant to company’s Employees’Stock Option Scheme - Held that:- The issue is now squarely covered in favour of the assesse by the decision of Honourable Madras high court in CIT Vs. PVP Ventures (2012 (7) TMI 696 - MADRAS HIGH COURT ) ,where in it is held that amount of difference between the market value of the shares issue under ESOP allotted to the employees debited to the profit and loss account in accordance to SEBI guidelines is an ascertain liability and allowable as revenue expenditure u/s 37(1) of the Act. Ld. AO has further held that even otherwise this deduction is hit by provision of section 40a (ia) of the act and as no tax is deducted on this payment it is disallowable. No such provision for deduction of tax at sources on this expenditure has been brought to our notice. Therefore we hold that provisions of section 40a(ia) does not apply to ‘payment of salaries’ for the year under appeal. Hence, this argument of the revenue is also rejected. - Decided in favour of assessee

Disallowance of deduction of contribution to Ranbaxy Community Healthcare Society and Ranbaxy Science Foundation u/s 35/ 37 - Held that:- We reverse the decision of the AO and direct to delete the disallowance of ₹ 47 lacs and ₹ 1250000/- of contribution made by appellant to Ranbaxy Community Healthcare Society and Ranbaxy Science Foundation. Furthermore 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.

Disallowance u/s 14A by applying the formula prescribed under Rule 8D - Held that:- No disallowance over and above what is admitted by the assessee can be made. - Decided in favour of assessee

Upward adjustment while computing the book profit u/s 115JB - AO has imputed the addition u/s 115JB of the Act as disallowance computed u/s 14A read with Rule 8D of the Income Tax Rule 1962 - Held that:- As we have already deleted the disallowance as per ground No.10 of the appeal wherein we have held that the amount of disallowance cannot be worked out by ld. AO without recording satisfaction on examination of books about the correctness of disallowance made by the assesse which in this case has been made by assessee of ₹ 3311708/-. We have also held that disallowance cannot exceed the amount of exempt income. Hence, now no disallowance survives u/s 14A of the act so far as normal computation of total incomeof the appellant. The AO has added to the book profit amount of expense disallowed u/s.14A applying rule 8D of the Income tax act. As per our considered view, no addition u/s.115JB is warranted for amount of disallowance u/s.14A of the IT Act.

Disallowance of deduction u/s 80IB and 80IC - Held that:- As the deduction with respect to Goa Plant u/s 80IB which is in the 7th year of its claim out of 10 years, has earned eligible profit of ₹ 300682774/- and deduction thereon is claimed at the rate of 30% thereof amounting to ₹ 90204832/- and New Tablet Plant-I u/s 80IC for which this is the 4th year of the claim and assesse has claimed 100% of the eligible profit amounting to ₹ 220579510/- as deduction, cannot be disallowed in this year.

Coming to the second argument that the revenue should follow the consistency and where position has been accepted and determined by the department after examination of the facts and where there is no change either in the facts or in law than the earlier decision taken by the revenue should be adhered to. Ld. DR did not point out any changes in the facts and/or law in the year in which deductions granted in earlier years with respect to impugned year. We have carefully considered the argument of the ld. AR and we do not see any dispute on the principle of consistency as it has already been propounded by Hon’ble Supreme Court and various other Hon’ble High Courts. Therefore, following this principal also we are of the view that deduction for the year claimed by the assesse with respect to itsGoa Unit and New Tablet Plant-I cannot be disturbed on the principle of consistency also. Further, this argument cannot be taken shelter regarding the claim of the assesse for New Tablet Plant-II, SGC Plant and New Tablet Plant-III.

It is to be noted in present era of technological evolution that old age notions of the maintenance of accounts and business records do not survive and business entity today survives on real time information on each aspect of its business process. In this era when an entity maintains its accounting and business records on Enterprise Resource Planning system, which is a standard procedure or program to optimize all business processes including Sales, Logistics, Production, Quality, Finance of an entity and SAP is a name of software product and it's a company name too which a leading provider of these solutions, it is rather incorrect to say that separate books of accounts are not maintained by the assessee. Evidence led before ld. AO in the form of profit and loss accounts, before ld. DRP in the form of the profit and loss account and complete balance sheets of the undertaking, before ‘accountant’ who certified the deduction of the units, its balance sheet and profit and loss accounts and before us all these records are attached in the form of paper book which are quoted by us above. In view of such overwhelming evidence, we reject contention of ld. AO and Ld. DRP that assessee has not maintained separate books of accounts. We hold that assessee has maintainedseparate books of accounts from which correct profit can be deduced at any time of the each of the eligible undertaking.

Coming to the computation of the eligible income of the assessee for all the eligible units, Ld. AO could not point out any error except dealt with by us which are not on the issue of facts of the case but all of them are on legal grounds, which we have answered in preceding paragraphs of this order. In view of claim of the assessee supported by the audited certificate as provide u/s 80 IA (7) of the act read with rule 18 BBB and supported by the profit and loss account and balance sheets of the assesse, allocation of all the expenses based on the accepted formula which the assessee is applying for last several years and which has also not been disputed by the ld. AO in past years and allocation key of ‘sales’ of the units is also not disputed, it deserves to be accepted. We are also of the view that allocation of the expenses are on rational basis and accepted by revenue in earlier years with respect to eligible units claiming deduction for those years. Therefore, along with the old units i.e. Goa Plant and new tablet plant –I of the assessee along with the new tablet plant No –II and III and new SCG plant deduction u/s 80 IB and 80 IC is allowable as computed by the assessee.

Non adjudicating the claim of deduction u/s 35(2AB) of the Act on the cost of the assets provided to the employees working in approved R&D facilities and engaged in research and development activities - Held that:- We have carefully considered the rival contentions and we are of the view that the issue is squarely covered in favour of the appellant by decision of ITAT in assessee’s own case. However, neither the AO nor the ld. DRP has applied its mind to the facts of this case and has not adjudicated on the issue. Facts of this expenditure with adequate details are also not record before us. Therefore we set aside this ground of appeal to the file of AO to verify the claim made by the assesse and if the facts and circumstances are similar to the issue decided by the ITAT in case of assesse for earlier years same may be allowed.

Disallowance of demand raised under the Drug Price Control Order, 1979 - Held that:- Respectfully following the decision of Honourable Mumbai high court IN Commissioner of Income-tax v. Geoffrey Manners & Co. Ltd [2014 (6) TMI 958 - BOMBAY HIGH COURT] we are of the view that claim of the assessee on account of amount payable under Drug price Control Equalization is prima facie allowable. Further, we also agree with the argument of ld. AR that when the claim is made by the assesse by way of note then the ld. AO as well as DRP should have considered the claim of the assesse on merits. Not considering the issue and not adjudicating thereon is an injustice to the claim to which the assesse is eligible. In view of this, we direct the Ld. AO to verify the claim and, if found in accordance with the decision of Honourable Bombay high court it may be allowed.

Non adjustment of exchange fluctuation on external commercial borrowing, hedging contract - Held that:- We set aside this ground of appeal to the file of AO to verify the amount of expenditure incurred by the assesse on account of fluctuation of foreign exchange; and if they are on capital account related to acquisition of asset then to grant depreciation thereon in accordance with the provisions of law. In case if this expenditure is found to be of revenue,nature then allows the same u/s 37(1) of the Act.

Adjustment made u/s 115JB to the book profit by ₹ 9853213/- on account of provision for diminution in value of current investment return back - Held that:- We fully agree with the submission of ld. AR that when the provision was made in the last year which was added back to the book profit of that assesse for that year and when the same provision is reversed in the current year the amount of reversal which is credited to the book profit for this year cannot be taxed once again as it results into double taxation. In the result, we direct the AO to reduce the book profit u/s 115JB of the Act by the amount of reversal of the provision of ₹ 98.53 lacs, which was out of provision made of ₹ 23.9 crores added to the book profit in AY 2007-08.