TMI Blog2013 (1) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... IT v. Finley Mills Ltd. [1951 (10) TMI 1 - SUPREME COURT] that an expenditure incurred in registering for the first time its trademark, then by registration the owner is merely absolved thereafter from obligation to prove his ownership of trademark. Thus the expenditure is neither for the creation of an asset nor an advantage for ever - in favour of assessee. Weighted deduction for expenditure on Scientific Research u/s. 35(2AB) in respect of Clinical Trial and Bio-equivalence Study disallowed - Held that:- From the contents of the explanation of Section 25(2AB) it is found that not only the expenditure incurred on clinical drug trial but the expenditure incurred for obtaining approval from any regulatory authority under any Central, State or Provincial Act and also the expenditure incurred for filing an application for a patent under the Patent Act 1970 are stated to be covered within the definition of expenditure on scientific research. For a clinical drug trial, the first stage is to enroll volunteers and/or patient into small pilot studies and subsequently large scale studies are carried out on patients and such clinical drug trial may be in one country or in multiple countr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - As decided in CIT Vs Varanasi Auto Sales Pvt. Ltd. [2010 (1) TMI 19 - ALLAHABAD HIGH COURT ] even if the trucks are in the name of the Director, depreciation is allowable to the assessee because the trucks were purchased in the name of the Director just for the convenience but the funds have been invested by the assessee company and hiring rent received from such tucks have been credited by the company in their account. As in the present case there is no finding by the authorities below on the aspect whether the car in question was used for the business purpose the assessee and disallowance was made merely on this basis that the car in question is in the name of the Director of the assessee company - restore this matter back to the file of the A.O. for a fresh decision & burden is on the assessee to establish the business use of this car and, thereafter, the A.O. should pass necessary order - in favour of assessee for statistical purpose. Restricting the deduction u/s. 80IC & 80IB - Held that:- The stand of the A.O. cannot be approved because it is not a reasonable basis for computation of profit of an eligible unit. The profit has to be computed on the basis of selling price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dabad dated 27.09.2011. 2. Ground No.1 of the appeal is as under: "1. That the learned Assessing Officer erred in law and on facts in making an addition of Rs. 3,65,18,252/- by holding that the Product Registration Expenses and reimbursement of expenses for Product Registration Support Services were capital in nature, merely eligible for depreciation u/s. 32 and liable to be disallowed as business revenue expenses. 2. That the learned Assessing Officer erred in law and on facts in making an addition of Rs. 1,69,53,133/- by holding that the Trademark Registration Fees and Patent Registration Fees incurred by the appellant were capital in nature, merely eligible for depreciation u/s. 32 and liable to be disallowed as business revenue expenses." 2.1 It was submitted by the Ld. A.R. that both these issues are covered in favour of the assessee by the Tribunal decision in the assessee's own case for the assessment year 2006-07 in I.T.A. No. 3140/Ahd/2010 dated 25.05.2012. He drawn our attention to para 3 to 3.12 of the tribunal order which are available on page 6-16 of this tribunal order. Copy of this tribunal order was also submitted. 2.2 Ld. D.R. of the revenue supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. Both the grounds No.1 2 of the assessee are allowed. 3. Ground No.3 is as under: "3. That the learned Assessing Officer erred in law and on facts in making an addition of Rs. 23,90,72,7887- by holding that the appellant was not entitled to the weighted deduction for expenditure on Scientific Research u/s. 35(2AB) in respect of Clinical Trial and Bio-equivalence Study." 3.1 It was submitted by the Ld. A.R. that this issue is also covered in favour of the assessee by the same Tribunal order in the assessee's own case for the assessment year 2006-07 and our attention was drawn to para No.4-4.8 of this tribunal order which is available on pages 16-26 of this tribunal order. 3.2 In reply, it was submitted by the Ld. D.R. that the Tribunal order in the case of Concept Pharmaceuticals Ltd. v. ACIT as reported in 43 SOT 423, is against the assessee and in favour of the revenue. He also submitted a copy of this tribunal order which is available on pages 48-54 of the paper book submitted by the Ld. D.R. He also placed reliance on the judgement of Hon'ble Gujarat High Court rendered in the case of CIT v Claris Lifesciences Ltd. as reported in 326 ITR 251 (Guj.). It was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his position had also been clarified in the Explanation to section 35(2AB). The expenditure should therefore be eligible for weighted deduction. It has also been argued that in case the expenditure is held not allowable the Explanation would lose its relevance. 2.6 We are unable to accept the arguments raised by the Learned AR of the assessee. Under the provisions of section 35(2AB)(1), the expenditure incurred on scientific research on in-house research and development facility is eligible for weighted deduction. It is very clear from the plain reading of the provision that for an expenditure to be eligible for weighted deduction it must be incurred on (i) scientific research and (ii) on in-house research and development facility approved by the prescribed authority. The phraseology used is "on in-house research or development facility" and not "by in-house research and development facility" and therefore only the expenditure incurred on in-house research can be allowed under section 35(2AB) and not any expenditure incurred outside such facility. What the Explanation to section 35(2AB)(1) has clarified is that expenditure incurred on clinical trial in relation to drugs and pharm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on the judgment of Hon'ble High Court of Gujarat in case of Claris Lifesciences Lid. (supra). The said case in our view is distinguishable and not applicable to the issue raised in this appeal. In that case, in-house research and development facility had been approved with effect from 27-2-2001. The Assessing Officer in the assessment order held only the expenditure incurred from 27-2-2001 would be eligible for deduction. On appeal the Tribunal held that the intention of the Legislature was clear that entire expenditure incurred on in-house research and development facility if approved has to be allowed. It was accordingly held that once the approval had been granted the assessee will be entitled for deduction in respect of the entire expenditure but not only the expenditure incurred after 27-2-2001. There was no issue before the Tribunal as to whether expenditure incurred outside the approved in-house R D facility can be allowed. The Learned AR has also placed reliance on the decision of Tribunal in case of Bharat Bio Tech International (P.) Ltd. (supra). In that case expenditure on clinical trials conducted outside the approved authorities had been claimed for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inical drug trial but the expenditure incurred for obtaining approval from any regulatory authority under any Central, State or Provincial Act and also the expenditure incurred for filing an application for a patent under the Patent Act 1970 are stated to be covered within the definition of expenditure on scientific research as per sub-section (1) to Section 35(2AB). Now, the question is as to whether these expenditure such as clinical trial expenditure, expenditure for obtaining approval from any regulatory authority and expenditure for filing application for a patent under the Patent Act 1970 are also required to be incurred in house or whether it is sufficient that these expenses are incurred in relation to the scientific research carried out in house. The tribunal in that case held that clinical drug trial expenditure is to be incurred in-house without examining this aspect for remaining two expenditures without examining as to whether these three expenses can be incurred in-house or not. When we examine the other expenditure included in the explanation i.e. expenditure for obtaining approval from any regulatory authority and expenditure for an application for a patent under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rne by the sponsor, which may be a governmental organization or a pharmaceutical or biotechnology company. When the diversity of required support roles exceeds the resources of the sponsor, a clinical trial is managed by an outsourced partner, such as a contract research organization or a clinical trials unit in the academic sector." 3.6 From the above definition of clinical trial, it comes out that for a clinical drug trial, the first stage is to enroll volunteers and/or patient into small pilot studies and subsequently large scale studies are carried out on patients and such clinical drug trial may be in one country or in multiple countries. Carrying out drug trial is essential for approval of the drug in question to be sold in the public and hence, in our considered opinion, clinical drug trial cannot be carried out inside an in-house research facility i.e. usually the laboratory. Hence, in our considered opinion, this explanation to Section 35(2AB)(1) does not require that these expenses which are included in this explanation are essentially to be incurred inside an in-house research facility because in our considered opinion, it is not possible to incur these expenses inside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order, the assessee preferred an appeal before the Ld. CIT(A) who upheld the action of the A.O. The assessee then filed appeal before the tribunal and the tribunal held that since the facility is approved, the entire expenditures incurred has to be allowed as provided by Section 35AB(2). Against this Tribunal order, appeal was filed by the revenue before the Hon'ble Gujarat High Court and under these facts, it was held by Hon'ble Gujarat High Court that the assessee is eligible for weighted deduction in respect of the entire expenditure incurred by the assessee u/s 35AB(2) of the Act. Hence, we find that this judgment of Hon'ble Gujarat High Court is in fact in favour of the assessee and not in favour of the revenue. Moreover, the issue involved was different as to whether even if approval is granted by the Ministry of Science Technology from a particular date, deduction is allowable for the entire expenditure or for only those expenses which are incurred on or after the date of approval. In the present case, the dispute is not such and hence, this judgement of Hon'ble Gujarat High Court is not applicable in the present case. We also find that in that case, the dispute w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... becomes eligible for deduction u/s 35(2AB)(1). Hence, we are of the considered opinion that the Tribunal order rendered in the case of Concept Pharmaceuticals Ltd. (supra) does not lay down a binding precedent and, therefore, we decide this issue in favour of the assessee by respectfully following the Tribunal decision in assessee's own case for assessment year 2006-07. This ground is also allowed. 4. Ground No.4 is as under: "4. That the learned Assessing Officer erred in law and on facts in making a disallowance of Rs. 5,00,37,043/- u/s. 14A." 4.1 It was submitted by the Ld. A.R. that the tribunal has restored this matter back to the file of the A.O. for a fresh decision in the light of the judgment of Hon'ble Bombay High court rendered in the case of Godrej Boyce Manufacturing Co. Ltd. v. DCIT as reported in 328 ITR 81. In this regard, he drawn our attention to para 5.5 on page 33 of the Tribunal order in assessee's own case for assessment year 2006-07 as per which, this issue was restored back by the tribunal to the file of the A.O. for a fresh decision in the light of this judgement of Hon'ble Bombay High Court. He submitted that in the present year also, the matter m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LHD to RHD and US$2200 on account of shipping charges and US$2876 on account of suppression in the price of car for claiming it to be second hand car. In this manner, the A.O. worked out the total unexplained investment at US$25,876 and by adopting a conversion rate of Rs. 44.97 per US$, the A.O. worked out addition at Rs. 11,63,644/-. 5.2 It was submitted by the Ld. A.R. that there is no suppression in the value of the car because the vehicle was sent to Thailand for conversion for which the concerned party's bill of U$20,800 was not paid till date because the car was having some defects. He further submitted that no evidence could be brought out on record by the Revenue to show that US$20,800 was in fact paid by the assessee. Regarding other two amounts also, it was submitted that these are mere objections without any supporting evidence and hence, no addition on this account is justified. Regarding the payment of custom duty on this car after including cost of conversion etc, it was submitted that irrespective of price paid by the assessee for importing the car or any other item, custom duty has to be paid as per the valuation done by the custom authorities and only because cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is US$ 2200 on account of shipping charges. Regarding this amount, it is explained that for this payment of shipping charge also, no evidence has been brought on record by the A.O. that this amount was actually paid by the assessee and hence, in our considered opinion, the addition of this amount is also not justified u/s 69 of the Income tax Act, 1961. As per the above discussion, ground No.5 of the assessee's appeal is allowed. 6. Now, we consider the allowability of depreciation on this Hummar H2 motorcar. First of all, we would like to observe that the revenue is taking a contradictory stand. When the A. O. has alleged extra payment for this very car, he has made addition in the hands of the assessee company for the alleged unaccounted payment/investment but when the question of depreciation is being decided by the A.O., it is held that the assessee company is not eligible for depreciation on this car because Mr. Pankaj Patel is the owner of this car. Secondly, we also find that reliance has been placed by the Ld. A.R. on the judgement of Hon'ble Allahabad high court rendered in the case of CIT Vs Varanasi Auto Sales Pvt. Ltd. as reported in 326 IT 182 where, it was held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee by the same Tribunal decision in assessee's own case for the assessment year 2006-07 and he drawn our attention to para 6-10.13 on pages 34-77 of this tribunal order. As against this, it was submitted by the Ld. D.R. that even if the issue was decided by the tribunal in earlier year in favour of the assessee, the Tribunal can take a different view if it is found that some judicial precedence which were not brought to the notice of the Tribunal in such earlier year or provisions of law or correct interpretation of law came to its knowledge subsequently. He submitted that in this view of the matter, the issue in dispute should be decided on merit afresh. In support of this contention, reliance was placed on the judgement of Hon'ble Madras Bench of the Tribunal rendered in the case of Shriram Transport and Finance Co. Ltd. v. ACIT as reported in 70 ITD 406. Reliance was also placed on one more decision of the tribunal rendered by Special bench of the Tribunal in the case of ACIT v. Gold Mine Shares Pvt. Ltd. as reported in 113 ITD 209 (Ahd.) (S.B.). It was submitted that it was held by the Special bench of the Tribunal in that case that when the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.4 on page 62 of the tribunal order where it is observed by the tribunal that segregation between 80% and 6% was not on account of any evidence through which it can independently be established that the major portion of the profit could be attributed to the assessee company and rest of the profit could only be attributed to the Baddi Unit. In this regard, it was submitted by the Ld. A.R. that the A.O. has proved the same and in this regard, our attention was drawn to para 9.7, 9.11 and 9.12-9.23 of the assessment order. 7.6 He has also objected to some of other findings of the tribunal in its order in the earlier year and the first objection is this that it is stated by the tribunal in para 10.3 of the earlier year that A.O. is not empowered to disturb the computation of profit. In this regard, it was submitted by him that he A.O. has to compute profit and gain of eligible unit on reasonable basis as he may deem fit as per proviso to Section 80-IA(8). 7.7 He further submitted that it is observed by the Tribunal in Para 10.8 of the tribunal order that if there is no intercorporate transfer then the A.O. has no right to determine the fair market value of such goods or to compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted by him in this regard that the Tribunal has accepted segregation of profit to find out eligible profit for the purpose of deduction allowable u/s 80-IC but for the reasons given in the later part of this para of the tribunal order it did not accept the stand of the A.O. He further submitted that the reasons enumerated by the tribunal in the order for the assessment year 2006-07 are factually incorrect and are also based on incomplete reading of the provisions of the Act. It was his main submissions that the eligible unit in Baddi unit who has transferred certain goods to the company who is a non eligible entity and therefore, the A.O. invoked the provisions of Section 80-IA (8) and proceeded to find the profit of the eligible unit on reasonable basis as per the provisions of Section 80-IA(8). Ld. D.R. has submitted para-wise comments on the findings of the tribunal in its order for A. Y. 2006-07 on the issue of deduction u/s 80-IC. The same are available on pages 8-15 of the written submissions filed by the Ld. D.R. For the sake of ready reference, the same is reproduced below: "Paragraph wise comments on the findings of the ITAT in the order for AY 2006-07, on the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Baddi unit, which is incorrect in view of section 80IA(8) and the definition of 'market value' given in Explanation there under. 10.3/60 Whether the AO is empowered to disturb the computation of profit is subject matter of controversy. It is settled position that the AO can disturb the computation of profit while examining the deduction claimed in scrutiny proceedings if the claim is not as per the Act. The P L account of Baddi unit was prepared for Income-tax purpose for claiming the deduction, as an attachment to form 10CCB. The found that there is a defect in total receipts credited to such P L account. The defect needs to be removed following the provisions of section 80IA(8), the proviso and the Explanation given there under. 10.4/61 The facts of the case of Rolls Royce PLC v. DDIT 19SOT 42 relied by the AO are different. In that case: there was PE in India, section 9(1) was applied, there was no separate account in India, the word business connection was considered, circular 23 of CBDT was also applied. Rolls Royce case has been later confirmed by the Delhi High court, 339 ITR 147(Del) AO relied on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the question is that what is the profit of such an eligible business? On careful reading of this sub-section, it transpires that the said eligible profit should be the only source of income. If we examine the separate profit loss account of Baddi Unit, then it is apparent that the only source of income was the sales of the qualified products. Manufacture and sale of pharmaceuticals as a whole is not the eligible business. In the present case eligible undertaking is Baddi unit and the eligible business is 'manufacture of pharmaceuticals by Baddi Unit'. In other words, it is the profit derived by 'Baddi unit from the manufacture of pharmaceuticals' is only eligible for deduction u/s.80IC. 10.6/65 This section do not suggest that the eligible profit should be computed first by transferring the product at an imaginary sale price to the head office and then the head office should sale the product in the open market. There is no such concept of segregation of profit. Section 80IA(8) lays down that the profits of eligible unit have to be found out strictly as the word used is "derived from" which has a restricted meaning. Pandian Chemicals 262 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble business unit to the non eligible business (here the company as a whole), Act requires that the same has to be transferred at market value, which in other words a line has to be drawn by passing entries at market value as on that date. The question raised by the AR is against the provisions of section 80IA(8) 10.8/67 It 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. Transfer does not always mean by 'sale'. Transfer can be without sale. When the goods are transferred from one unit of the assessee to another unit, it may be just a branch transfer. When there is such transfer as mentioned, Act lays down that the market value of such goods has to be taken as on that date. 10.8/67 If there is no inter-corporate 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. Section 80IA(8) deals with a situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned, a consistent method was adopted keeping in mind the several factors, depending upon the market situation, we have been informed. But if the assessee is compelled to deviate from the consistent method of pricing, then any other suggestion shall not be workable because no imaginary line of profit can be drawn, precisely pleaded before us. Accounting method followed by the assessee consistently can be deviated, if it is found to be not as per the tax law. Practice of accounting cannot overrule tax law. The accounting practice for calculating its profit followed by the assessee and accepted by the revenue for 30 years could not be treated as sanctioned by law and was not acceptable for tbe purpose of computation of taxable income. B.S.C. (footwear Ltd. v. Ridgway (Inspector of Taxes) [1972] 83 ITR 26s). Matter of taxability cannot be decided on the basis of entries which the assessee may choose to make in his accounts, but has to be decided in accordance with the provisions of Income tax Act. CIT v. Mogul Line Ltd 46 ITR 590 (Bom) and Sutlej Cotton Mills Ltd 116 ITR 1 (SC) 10.9/68 And why at all this complex working of computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is accrued where a transaction is closed, meaning thereby the profit arises solely at the time of sale. In that case, assessee contended that a part of the profits derived from sales in British India of the oil manufactured at Raichur was attributable to the manufacturing operations at Raichur. The opinion expressed was very specific that a profit can accrue in respect to that part of a business only when apportionment is possible. In that case, the transaction was closed at Bombay, though manufacturing was at Raichur. However it was accepted that the apportionment was possible and it was implied there in EPT. Here in our case also (1) apportionment is required by the Act under section 80IA(8) and (2) it is possible as the eligible unit has to be deemed as separated unit for the deduction purposes. The conclusion of the ITAT that the assessee has computed the profit of the Baddi Unit on the basis of the well accepted principle of accountancy is not correct under the law laid down by Supreme Court. Accounting practice cannot override section 56 or any other provision of the Act. Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT 227 ITR 172 (SC) CIT v. Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or we should decide independently and contrary to the tribunal order in the earlier year or whether we should refer the matter to the Special bench of the Tribunal. Hence, we first decide the issue in dispute independently as under: 7.12 When we go through the assessment order and the order of DRP, we find that the objection of the A.O. is this that prior to manufacture of the product at the Baddi unit i.e. when product was being manufactured either through P2P supplier or at the formulation unit at Morauya, the assessee was having margin of about 80.12% from all the products taken together which has increased to about 86.32%. He has observed that by setting up the manufacturing unit at Baddi, the assessee earned further profit of 6.2% on overall basis. On this basis, it is held that only additional 6.2% profit had been earned due to this unit at Baddi and therefore, the profit derived form Baddi unit was worked out to 6.2% on total turnover of Baddi unit and in this manner, he has worked out deduction allowable to the assessee u/s 80-IC in respect of Baddi unit at Rs. 14,44,65,492/-. 7.13 Now, we examine the legal provisions in this regard and hence, we reproduce provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning (i) on the 23rd day of December, 2002 and ending before the 1st day of April, [2007], in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States. (3) The deduction referred to in sub-section (1) shall be (i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year; (ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with the scheme framed and notified by the Central Government; (iv) "Industrial Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; (v) "Initial assessment year" means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion; (vi) "Integrated Infrastructure Development Centre" means such centre, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; (vii) "North-Eastern States" means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura; (viii) "Software Technology Park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry; (ix) "Substantial expansion" means increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for such transfer as recoded in the books of the eligible business, the price adopted do not correspond to the market value of such goods or services as on the date of transfer then for the purpose of deduction under this section, the profits and gains of such eligible business should be computed by considering the transfer at the market value of such goods or services as on the date of transfer. As per the provisions of sub-section (8) of Section 80-IA where in the opinion of the A.O., the computation of profits and gains of eligible business in this manner presents exceptional difficulty, the A.O. may compute such profit and gains on such reasonable basis as he may deem fit. Hence, in order to invoke the provisions of this proviso to sub-section (8) of Section 80-IA, it is necessary for the A.O. to establish that some goods or services have been transferred by the eligible unit to some other unit of the assessee or by some other unit of the assessee to the eligible unit and then he has to further establish that for recording such transfer, the value adopted for recoding in the books is not as per market value of such goods or services and then he has to establish that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d even then, if the A.O. establishes that there is exceptional difficulty in finding out market value of such goods then only, the A.O. can proceed to compute the profits of the eligible unit on reasonable basis. In the present case, the A.O. has not established that there is any transfer of goods or services by the Baddi unit to any other unit of the assessee company. Secondly, this is not a finding of the A.O. that any transfer entry has been made at Baddi unit at some price and such price adopted by the assessee is not market value of the goods transferred from the Baddi unit. Thirdly, it is not established by the A.O. that even if it amounts to transfer of goods by Baddi unit to some other unit of the assessee company then there is exceptional difficulty in computing the profits as per the provisions of sub-section (8) of Section 80IA by adopting fair market value of the goods so transferred and therefore, the A.O. has to adopt computation of such profit and gains of Baddi unit on reasonable basis. Lastly, the basis adopted by the A.O. has to be reasonable basis and in the facts of the present case, it is not so in our opinion. 7.17 In the absence of any transfer of goods by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st assessee has to be considered as profit of the distributors, stockiest, whole sellers, retailers etc. whose role had been undertaken by the first assessee which were not undertaken by the second assessee. In our considered opinion, this bifurcation of profit is ridiculous and without any sanctity in the eyes of law. 7.19 The third instance may be that one of the assessee is selling the goods locally and other assessee is exporting the goods and earning higher profit and is an eligible unit but the profit of the eligible unit of this assessee cannot be considered at more than the profit of the first assessee who is selling the goods locally because it can be said that the extra profit is on account of export and not on account of manufacturing activity of the eligible unit. 7.20 The next instance could be that on the date of sale of goods to an outside buyer, the rate of dollar was Rs. 40 per dollar but at the time when the remittance was received in India and converted into rupees, the dollar price rose to Rs. 50/dollar and hence, such additional profit on account of increase in price of dollar is not the profit of eligible unit but this profit is on account of increase in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd moreover, the basis adopted by the A.O. is also not a reasonable basis. Moreover, there is no other objection of the A.O. about allowability of this deduction or regarding commutation of the amount of this deduction such as non allocation or wrong allocation of expenses to the eligible unit. Hence, these grounds of the assessee are allowed. 8. Regarding grounds No.9 10, it was submitted by the Ld. A.R. that the same are not pressed and accordingly, these grounds are rejected as not pressed. 9. Ground No.11 is as under: "11. That the learned Assessing Officer erred in law and on facts in disallowing the mark to market exchange loss on foreign exchange derivatives of Rs. 28,06,887/-." 9.1 It was submitted by the Ld. A.R. that this issue is covered in favour of the assessee by the Tribunal decision rendered in the case of DCIT v. Bank of Bahrain Kuwait as reported in 41 SOT 290 (Mum.). He further submitted a copy of this judgement which is available on page 34-38 of the paper book submitted by the assessee. 9.2 Ld. D.R. supported the order of authorities below but it could not be pointed out as to how, this issue is not covered in favour of the assessee by this decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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