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Pfizer Limited Versus ACIT Range 8 (2) , Mumbai

2015 (12) TMI 1170 - ITAT MUMBAI

Transfer pricing adjustment - international transactions of provision of support services in respect of Clinical Study Management and Monitoring Support Services - Held that:- While deciding this issue, the DRP has not given detailed reasoning to arrive at its conclusion. The real issues raised by the assessee in detailed submissions filed before the DRP have not been dealt with properly. It appears that the DRP could not properly appreciate the facts of the case and issues involved therein. It .....

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from the order of the DRP that no findings have been given with regard to the objections made by the assessee with respect to selection of comparables by the TPO. No proper decision has been given by the DRP on the merits of the case also. Therefore, in our considered opinion, this ground needs to go back to the file of the DRP to re-adjudicate the same - Decided in favour of assessee for statistical purposes.

Rental income from leased properties - AO taxing as as profit and gains of .....

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(a)(ia) - non deduction of TDS on payments made to manufactures towards purchase of finished goods - Held that:- The purchases have been made by the assessee from manufacturer/suppliers on principal to principal basis. The manufacturers/suppliers had also levied excise duty or sales tax or VAT, as was applicable. As per the terms of the agreement, title in these goods was transferred to the assessee at the time of delivery. It is further noted that the Central Board of Director Taxes had issued .....

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or deduction of TDS u/s 194C.- Decided in favour of assessee

Determination of Fair Market Value of Chandigarh property - reference to DVO - re computation of capital gains - Held that:- As in the case of Puja Prints (2014 (1) TMI 764 - BOMBAY HIGH COURT ), as per which the AO was empowered under the law to make a reference to DVO, if in his opinion the fair market value of the impugned property was more than the value as adopted by the assessee in the return of income on the basis of .....

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and the same is hereby deleted. - Decided in favour of assessee

Unexplained investment u/s 69 - Held that:- As gone through the material placed before us and the submissions made by the assessee. It is noted that no specific arguments were made, nor anything has been shown that this difference was duly reconciled.- Decided against assessee

Interest u/s 234C levied - Held that:- The facts narrated by Ld. Counsel remain undisputed. The property was sold after 15th March of t .....

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an High Court in the case of CIT vs. Smt. Premlata Jalani (2003 (7) TMI 62 - RAJASTHAN High Court ), wherein held interest is chargeable on delayed or deferred payment of advance tax, it shall be payable only with effect from the date the liability to pay advance tax in respect thereof has been incurred. There cannot be any interest prior to the date in respect of such liability when there was no liability to pay advance tax under any provisions of the Act. Interest has been levied ignoring the .....

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assessment of income and determine tax payable thereon. No tax can be collected except with the authority of law, as per clear mandate of our Constitution, as enshrined in article 265. The law does not intend to make unjust enrichment of the Government, at the cost of taxpayers. Therefore, in the interest of justice and in all fairness, we direct the AO to look into all these aspects and ensure that impugned interest income is taxed only once, in appropriate year. For this purpose, necessary re .....

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a particular year should be the opening stock of the next year. There can be no doubt or debate on this proposition. If this principal is not followed, it may give rise to absurd results, leading to excessive and unfair assessment of income in the hands of the assessee. Therefore, we direct the AO to adopt the value of closing stock of A.Y. 2006-07 as value of opening stock of assessment year 2007-08, in case the addition made by the AO in the closing stock of A.Y.2006-07 has attained finality. .....

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total expenditure u/s 35DD as has already been allowed to the assessee in A.Y. 2004-05. We direct the AO to maintain consistency, and follow the order for A.Y. 2004-05. - Decided in favour of assessee

Adjustment to Arms Length Price on account of interest on outstanding receivable - Held that:- This issue has been thrashed out by the Hon’ble Pune Bench in the case of iGATE Computer System Ltd. (supra), wherein it has been held that once the transaction between the assessee and its AE .....

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ational rates fixed by LIBOR, keeping in view the fact that amount was to be received back in US currency only. Thus, we hold that Indian prime lending rates cannot be applied and the international rate fixed by the LIBOR would come into play. In our considered view, as per as per the suggestions received from both the sides, the rate of interest should be LIBOR plus 150 basis points.

Period up to which adjustment on account of interest can be made to the income to the current year - .....

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lated from the due date till the last date of this F.Y. i.e. 31st March 2008. We direct the AO to give effect to our directions, accordingly. Thus, Ground no.2 is partly allowed as in terms of our directions as stated above.

Disallowance u/s 40(a)(ia) - non deduction of TDS on payment towards clinical trial expenditure - Held that:- As per the order passed by Ld. CIT(A), it has been held, in principle, that out of clinical trial expenses amounting to ₹ 3.56 crores, TDS was not r .....

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shall be deleted equivalent to this amount and balance amount of disallowance shall be sustained. Thus, assessee gets part relief - Decided in favour of assessee for statistical purposes.

Profit on sale of right to use the trademark/license pertaining to consumer health brands - short term capital gains OR long term capital gains - Held that:- real substance of the transactions is that the assessee company was rightful and legal owner of these assets since 1st December 2001 and has be .....

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nt of mismatch of individual transaction statement transactions with insurance companies - Held that:- The primary onus is upon shoulders of the AO to show that the transactions reported in AIR belong to the assessee. It is only thereafter, the onus of the assessee shall start to show that these transactions have been duly recorded in the books of account of the assessee, failing which the addition may be liable to be made. With these directions, this issue is sent back to the file of the AO wit .....

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ubmitted complete information showing proper reconciliation. These have been either ignored or not properly appreciated by the lower authorities. Both of these grounds are sent back to the file of the AO with our directions as have been given while disposing Ground no. 7 above. - Decided in favour of assessee for statistical purposes.

Credit of tax deducted at source - Held that:- It is noted that DRP has already given direction to the AO to verify the claim, and accordingly grant cre .....

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) For The Respondent : Shri N.K. Chand ( CIT DR) ORDER Per Ashwani Taneja (Accountant Member): These appeals are filed by the Assessee against the orders of Disputes Resolution Penal -II, Mumbai {In short, DRP }, for the assessment years 2007-08 & 2008-09. 2. During the course of hearing, arguments were made by Shri Shri Rajan Vora, Shri Kanchun Kaushal, Ms. Charul Toprani, Shri Aliasger Rampurwala & Ms. Chandni Shah, Authorised Representative (Ld. Counsel) on behalf of the Assessee and .....

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agement and Monitoring Support Services. We have heard both the sides on this issue, and also gone through the orders of lower authorities. 3.1. The brief background of the case is that during the year the assessee provided support services to its AE in relation to coordination and managing the clinical trial performed by third party institutions/hospitals/ Trust in India (investigators under the instructions of Pfizer Inc.). As per the assessee, the functions performed by it are as under: 1) Pr .....

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sessee s comparables vis-a-vis TPO s comparables: As per TP study Report OP/TC Using March 2007 data As per TPO OP/TC Nature of business Agrima consultants International Ltd. -2.42% 1.39% Engaged in providing business support services and assistance in feasibility study of projects. Cyber media events Ltd. 2.33% 8.73% Engaged in organizing conferences, exhibitions & Seminars and specially events. Hindustan Housing Co. Ltd. 10.33% 9.57% Engaged in rendering administrative and allied services .....

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high end contract research and testing activities. 3.3. The assessee has contended that it should be compared with support services providers rather than comparables engaged in providing high end clinical research and development activities. The assessee has further explained that its role is to identify and recommend the investigators who have capabilities to undertake the clinical trial base on parameters laid down by the AE. Once an Investigator is approved by the AE, then the assessee acts .....

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, the assessee has contended that the profit margin for provision of support services should be determined in its case by taking into consideration only the cost incurred by it to undertake intermediary functions i.e. own internal costs and that the payments to the investigator should be excluded from the cost while determining profit mark up. I f such pass through costs are excluded, the assessee s margin would be 12% and i f these pass through costs are not excluded its operating profit margin .....

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t is not warranted, as unlike those companies, the assessee acts as a risk free support service provider. The assessee also contended that the TPO has not provided the benefit of 5% range as prescribed in the Proviso to Section 92C(2) of the Act. 3.4. The assessee has relied on the decision of Mumbai Bench of the Tribunal in the case of Zydus Altana Healthcare Pvt. Ltd, wherein activity in the nature of coordinating / facilitating clinical trials carried out by various hospitals rather than perf .....

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the facts of the case and issues involved therein. It has been pointed out by the Ld. Counsel that some incorrect facts have been noted by the DRP in its order. It has been mentioned by the DRP that the assessee had sole right to decide investigator, whereas as per Ld. Counsel, the correct facts are that the assessee company has right to only monitor the progress of the investigator. In its letter dated 14.07.2011, addressed to the DRP, the assessee has made detailed submissions and also contes .....

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he DRP, after affording adequate opportunity of hearing to the assessee. The assesseee shall be granted opportunity by the DRP to enable it to submit all the details and evidences as may be considered appropriate, in support of its submissions. Thus, Ground No.1 is allowed for statistical purposes. 4. Ground No.2: This Ground is not pressed and therefore, dismissed as such. 5. Ground No.3: In this Ground, the assessee has challenged the action of AO in denying the (+/_) 5% range benefit availabl .....

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d at the outset by Ld. Counsel of the assessee that these issues are covered in favour of the assessee by the judgment of Hon ble Bombay High Court in assessee s own case. Our attention has been drawn by him upon the judgment of Hon ble High Court available at pages No. 7 to 8 of the paper book. This judgment is also reported as CIT vs. Pfizer Ltd 330 ITR 62. In this judgment, Hon ble High Court has affirmed the order of Tribunal holding that the rental income received by the assessee from sub-l .....

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ce premises situated at Express Towers, Nariman Point, Mumbai, which was owned by the Indian Express Group. The assessee company reduced the said rental income of ₹ 5,98,81,000/- from its income under the head Income from Business & Profession and shown the same under the head Income from House Property and taxed it accordingly. The Assessing Officer felt that assessee company was not the owner of the premises, and therefore he asked the assessee to show cause as to why the rental rece .....

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und fit by the assessee company, further, as the lease period exceeds 12 years, the assessee is the deemed owner of the leased premises in terms of the provisions of section 27(1)(iii)(b) r.w.s. 269UA(f) of the Act. But, the Assessing Officer rejected the assessee s plea, following the view taken by the Department in the assessments for earlier years that the assessee is a lessee of the property and not its owner. Following the view taken in earlier years, the Assessing Officer treated the renta .....

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ble High Court has allowed the assessee s claim. 6.4. But, surprisingly, the DRP refused to follow the order of Hon ble Jurisdictional High Court, given in assessee s own case and chose to follow the view taken by the AO, that too without pointing out any distinction in facts or law. The findings and observations given by the DRP in this regard are reproduced herein: We have considered the draft assessment order vis-à-vis the submissions and arguments put forth by the assessee in the cour .....

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wn case must have been followed, strictly and respectfully. The action of the DRP, disregarding the judgment was contemptuous in nature. Thus, respectfully following the judgment of jurisdictional High Court we decide this issue in favour of the assessee and direct the AO to assess the impugned rental income under the head, income from house property . Therefore, Ground no.4 is allowed. 7. Ground No.5 is not pressed by the Ld. Counsel. Accordingly, it is dismissed. 8. Ground No.6: In this ground .....

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der consideration, the assessee made payments to the third party manufacturers for purchase of finished goods amounting to ₹ 9166.75 lacs and for purchase of packaging material amounting to ₹ 4370.60 lacs. The assessee made the said payments without deduction of tax at source considering that the payments were made for contract of sale of goods and hence, not liable for deduction of tax at source. The AO, however, contended that the payment for purchase of finished goods and packing .....

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explanation to section 194C of the Act and hence held the same to be liable to deduction of tax at source. 8.3. Aggrieved by the same, the assessee is in appeal before Tribunal. During the course of hearing before us, Ld. Counsel has submitted that payment for purchase of goods and packing materials was not liable to deduction of tax at source u/s 194C of the Act. It has been further submitted that the assessee has entered into agreements with various third party manufacturers/suppliers for the .....

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e process to ensure that the goods are as per the specifications. For the purpose of packing its products, the assessee purchases packaging materials from various suppliers on a principal to principal basis. The packaging material is supplied as per the instructions given in the purchase order. The invoice raised for the supplies is inclusive of the Excise duty and Sales tax as in the case for normal purchase of material. The payments are made to these independent manufacturers/suppliers as per .....

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en made providing that, work does not include manufacturing or supplying a product according to the requirement or specification of the customers by using material purchased from a person, other than customer. Ld. Counsel submitted that there was ongoing litigation on this issue and therefore, aforesaid amendment has been made to section 194C for the purpose of bringing out clarity on this issue, in favour of the assessee. Further, reliance has been placed on the circular of CBDT, No. 681 dated .....

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urce on the purchase of finished goods and packing materials. 8.5. On the other hand, Ld. DR has supported the order of lower authorities. 8.6. We have gone through the submissions made by both the sides as well as material placed before us for our consideration and also the judgments of the Tribunal in assessee s own case for A.Y.2007-08, against the order passed u/s 201. The undisputed facts are that payments have been made for purchase of packing materials and finished goods, for which raw ma .....

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turing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. 8.7. It is further noted that in the Explanatory Memorandum to the Finance Bill, 2009, the background of the amendment has been explained as under: There is ongoing litigation .....

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supply of an article or thing (e.g. a construction contract). It is also proposed to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, within the definition of work . It is further proposed to provide that in such a case TDS shall be deducted on the invoice excluding the value of material purchased from such customer if such value is mentioned separately in the invoice. Where the material comp .....

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uction of tax at source in the cases of transactions of pure sale and purchase. Therefore, to remove this anomaly, this amendment was brought out, for the benefit of the assessee. Thus, in our view, the aforesaid amendment made in the definition of term works , in section 194C is clarificatory in nature, and therefore, assessee should get its benefit in assessment year 2007-08 also. 8.9. The facts of the present case are that, it is not the case of AO or DRP that material was supplied by the ass .....

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ccording to the specifications given by any person and the property in such article or thing passes to such person only after such article or thing is delivered, then contract will be a contract for sale and as such outside of the proviso of section 194C. Thus, in view this circular as well as amendment brought out by Finance Act, 2009, in our view the impugned transactions were not liable for deduction of TDS u/s 194C. 8.10. Lastly, it is noted by us that an order was passed in the case of asse .....

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Hon ble Bombay High Court has upheld the decision of the Tribunal and did not admit the appeal filed by the department. 8.11. Thus, when it has been held that the assessee was not liable for deduction of TDS on this transactions, question of making any disallowance u/s 40(a)(ia) of the Act, does not arise, and therefore, keeping in view the aforesaid discussion, facts and circumstances of the case and the position of law, we find that the disallowance made by the AO is illegal and the same is d .....

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ear ended 31 March 2007, the assessee had sold the property at Chandigarh for a total consideration of ₹ 2,74,73,00,000/-. Further, in the agreement to sell dated 1st September 2006, an amount of ₹ 2,72,98,00,000/- was allocated towards the Chandigarh land out of the aforesaid total consideration. In respect of the aforesaid land at Chandigarh, the assessee had obtained a Valuation report dated 30th May 2006, from a Government Registered Valuer, M/s Amol Sekhri & Associates, whic .....

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during the course of assessment proceedings asked the assessee to show cause as to why the FMV as on 1 April 1981 determined by the DVO should not be adopted for the purpose of computing capital gains on sale of Chandigarh Land. In response to the same, the assessee objected for adoption of DVO s report and also submitted its objections to the method adopted by the DVO in the said valuation report. The AO, however, continued with the value determined by the DVO in the assessment order passed. 9. .....

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s bad in law, and therefore ought to be quashed as null and void. On this issue, it was further elaborated by the Ld. Counsel by drawing our attention to the fact that a reference to the DVO under section 55A(a) of the Act could be made only if the AO is of the opinion that the value claimed by the assessee was less than the FMV. In the instant case, the value determined by the DVO was in fact, lower than that claimed by the assessee, i.e. the value as per the Registered Valuer. Hence, there was .....

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e DVO is invalid even under section 55A(b) of the Act. 9.6. Our attention was also invited to the fact that the amendment made to section 55A by the Finance Act 2012 has been made effective from 1st July, 2012 and was accordingly not applicable to the year under consideration i.e. AY 2007-08. 9.7. Lastly, it was submitted that legal position was well settled on this issue. Our attention was invited to the decision of the jurisdictional High Court in the case of CIT vs Puja Prints, 360 ITR 697 (B .....

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iple with regards to the applicability of section 55A(a) vis-a-vis section 55A(b): (a) Hiaben Jayantilal Shah v Income-tax Officer (Gui HC) (310 ITR 31) b) Ms. Rubab M. Kazerani v Joint Commissioner of Income-tax 97 TTJ 698 (Mum) c) Income-tax Officer vs Smt. Lalitaben Kapadia (115 TTJ 938) (Mum) (d) Smt. Sarla N. Sakraney v Income-tax Officer (Mum) (e) Sajjankumar M. Harlalka v Joint Commissioner of Incometax (102 TTJ 974) (Mum) (f) Smt. Krishnabai Tingre v Income-tax Officer (101 lTD 317) (Pun .....

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the assessee in the return of income or less than as stated by the assessee in the return of income. He has relied upon the judgments of Hon ble Gujarat High Court in the case of Hiaben Jayantilal Shah vs. ITO 310 ITR 31. He has also referred to the judgment of Puja Prints of Bombay High Court (supra) for making arguments that in these judgments, it was a case of reference made u/s 55A(a) whereas in the present case the reference has been made by the AO u/s 55A(b)(ii). 9.10. In reply Ld. Counsel .....

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no more open for discussion or debate, and he requested for following the order of Hon ble Jurisdictional High Court on this issue for holding that the reference made by the DVO was illegal and void ab initio. 9.11. We have gone through the facts of the case, arguments made and the judgments placed by both the parties, more particularly judgment of Hon ble Jurisdictional High Court. We have seriously pondered over the contentious issues. The issue before us is whether the AO has requisite powers .....

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ed to be more or less than the value claimed by the assessee in the return of income. 9.12. Before we apply our own analysis on this issue, we find it appropriate to refer to the judgment of Hon ble Jurisdictional High Court in the case of CIT vs. Puja Prints (supra) 360 ITR 697. The relevant abstract of this judgment is reproduced below: We find that Section 55A(a) of the Act very clearly at the relevant time provided that a reference could be made to the Departmental Valuation Officer only whe .....

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as made by respondent-assessee was higher than the fair market value, In the aforesaid circumstances, the invocation of Section 55A (a) of the Act is not justified. The contention of the revenue that in view of the amendment to Section 55A(a) of the Act in 2012 by which the words is less than the fair market value is substituted by the words is at variance with its fair market value is clarifactory and could be given retrospective effect. This submission is in face of the fact that the 2012 amen .....

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evenue that the reference to the Departmental Valuation Officer by the Assessing Officer is sustainable in view of Section 55A(b) (ii) of the Act is not acceptable. This is for the reason that Section 55A(b)of the Act very clearly states that it would apply in any other case i.e. a case not covered by Section 55A(a) of the Act. In this case, it is an undisputable position that the issue is covered by Section 55A(a) of the Act. Therefore, resort cannot be had to the residuary clause provided in S .....

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l Valuation Officer in exercise of its power under Sections 131, 133(6) and 142(2) of the Act is entirely based upon the decision of the Guwahati High Court in Smt. Amiya Bala Paul (supra). However, the Apex Court in Smt. Amiya Bala Paul (supra) has reversed the decision of the Guwahati High Court and held that if the power to refer any dispute with regard to the valuation of the property was already available under Sections 131(l), 136(6) and 142(2) of the Act, there was no need to specif icall .....

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ional High Court has also considered the amendment made under the law and held that the same is prospective and not retrospective in nature, and therefore, Revenue cannot be given the benefit of amendment. It has been further held by the Jurisdictional High Court that in all those cases which are covered by section 55A(a), resort cannot be made to the residuary clause provided in section 55A(b)(ii). In other words, reference u/s 55A(b)(ii) can be made only in those cases which are not covered by .....

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/s 55A (a), only. 9.15. Ld CIT DR argued that in this case reference was made by the AO u/s 55A(b)(ii). During the course of hearing we asked Ld. CIT DR to show this aspect from the order of lower authorities. In response, Ld. CIT DR submitted that there is no reference to clause (a), and therefore, it should be inferred from the order passed by the AO that reference was made under clause (b)(ii) of section 55A. He also submitted that same is discernible from the satisfaction of the AO as is mad .....

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t and contrary to law. 9.17. In our considered view, this issue has been clearly thrashed out by Hon ble Jurisdictional High Court in the case of Puja Prints (supra), as per which the AO was empowered under the law to make a reference to DVO, if in his opinion the fair market value of the impugned property was more than the value as adopted by the assessee in the return of income on the basis of report of its registered valuer. The facts of the present case are clearly covered with the judgment .....

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ry issue. At this stage, we refrain ourselves from going into the merits of the other arguments with respect to factual infirmities in the report of the DVO, since we have decided this issue on the primary ground itself. 10. Grounds No. 8 and 9 are not pressed and these are dismissed. 11. Ground No.10: In this ground the assessee has challenged the action of Ld. AO in adding a sum of ₹ 26,779/- towards in purchases as unexplained investment u/s 69 of the Act. In this regard, it was submitt .....

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g has been shown that this difference was duly reconciled. In view of the above, Ground No.10 is rejected. 12. Ground No.11: In this ground the assessee has challenged the action of Ld. AO in levying interest u/s 234C of the Act amounting to ₹ 2,11,33,619/-, by ignoring the proviso below section 234C(1)(b). It has been submitted that the assessee had sold property at Chandigarh on 16th March 2007, and accordingly, the capital gains had arisen after due date of payment of installment of adv .....

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upon the orders of lower authorities. 12.1. We have gone through the submissions made, material placed before us and judgments relied by both the sides. The facts narrated by Ld. Counsel remain undisputed. The property was sold after 15th March of the F.Y., and thus, capital gain arose to assessee after time for payment of advance tax had passed. The assessee could not have, apparently forecasted the amount of income accrued to it by way of aforesaid capital gains. The legislature has taken care .....

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dgment of Hon ble Rajasthan High Court, and therefore in the interest of justice, we send this issue back to the file of the AO to decide the same in terms of our directions as contained above. The AO shall decide this issue, and recomputed the amount of interest payable by the assessee, if any, keeping in view position of law as discussed above in juxtaposition of the facts of the case. Thus Ground no 11 is allowed for statistical purposes. 13. Ground No.12 (Additional ground): In this ground t .....

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sel by way of facts sheet submitted to the Bench. 1. During the financial year relevant to AY 2005-06, the appellant had received an intimation dated 30 March 2004 issued under section 143(1)(a) of the Act, wherein interest under section 244A amounting to ₹ 1,87,81,254 was granted for AY 2003-04 (refer compilation page no 132). The said interest income was credited to the Profit and Loss Account for the said year. 2. In the return of income for AY 2005-06, the said interest was not offered .....

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order). 4 Subsequently, vide order dated 10 March 2011 giving effect to the order passed by the Commissioner of Income-tax-(Appeals) [ CIT(A)] for AY 2003-04, interest under section 244A of the Act has been recomputed at ₹ 1,29,50,156/-. 5. A notice dated 26 March, 2012 was issued to the appellant, under section 148 of the Act for AY 2005-06 requiring the appellant to file a return of income within 30 days of the receipt of the same. 6. In the return of income filed pursuance to the notice .....

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ect)), had been reduced from the total income. 7. In response to the same, the AO vide notice dated 2 July 2012, issued the reasons for reopening the assessment for the aforesaid year stating that the appellant ought to have offered the interest income amounting to ₹ 1,87,81,254 to tax since the same had accrued in the hands of the appellant in the financial year relevant to AY 2005-06. 8. In response to the aforesaid reasons for reopening of the assessment, the appellant vide letter dated .....

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ing to ₹ 1,29,50,156 which was finally determined for AY 2003-04 ought to be taxed in AY 2005-06 as was offered by the Appellant in the return of income filed in pursuance of the notice issued under section 148 of the Act. (refer compilation page nos 252 to 255) 11. Accordingly, the interest income of ₹ 1,18,76,000 which has been taxed in A.Y.2007-08 has also been taxed in A.Y. 2005-06. 13.2. In view of the above facts and circumstances, it has been requested by the Ld. Counsel that, .....

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the submissions made by both the sides and copies of orders shown to us. In our considered view, the ground raised by the assessee is purely legal ground, and it can be decided on the basis of facts already held on records. Therefore, in view of judgment of Hon ble Supreme Court, the additional ground is admitted. 13.5. We find that assessment of the interest income u/s 244A has been done in such a manner that it has led to double taxation, as on date. We feel that the role of the income tax aut .....

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ate year. For this purpose, necessary rectification orders shall be passed, as per law. The assessee shall extend requisite cooperation to the AO by providing required details, information and documentary evidences. Thus, Ground no.12 is sent back to file of the AO, with our directions as contained above. 14. Ground No.13 (Additional Ground): In this ground, raised as additional ground, the assessee has sought directions to be issued for increasing the value of opening stock by ₹ 8,94,86,2 .....

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epartment s stand for A.Y.2006-07, the opening stock of A.Y.2007-08 ought to be increased and deduction should be granted to the said extent. In support, the reliance has been placed on the judgment of Hon ble Bombay High Court in the case of CIT vs. Mahalaxmi Glass Works (P) Ltd. 318 ITR 116 and decision of ITAT Mumbai in the case of Hawkins Cookers Limited vs. ITO (ITA No.505/Mum/2004 (14 DTR 206) 14.2. We have gone through the submissions made and cases relied upon by both the sides. This gro .....

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aw, the value of closing stock of a particular year should be the opening stock of the next year. There can be no doubt or debate on this proposition. If this principal is not followed, it may give rise to absurd results, leading to excessive and unfair assessment of income in the hands of the assessee. Therefore, we direct the AO to adopt the value of closing stock of A.Y. 2006-07 as value of opening stock of assessment year 2007-08, in case the addition made by the AO in the closing stock of A .....

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zer Limited, as per the provisions of section 35DD of the Act. 16.1. It has been argued that 1/5th of expenditure incurred in relation to amalgamation of Pharmacia Healthcare Limited with Pfizer Limited in A.Y. 2004-05 amounting to ₹ 13,06,200/- was allowed as deduction in A.Y. 2004-05 in accordance with the provisions of section 35DD of the Act, and therefore, consequently, to maintain consistency, similar amount should be allowed as a deduction in the impugned year also, and therefore di .....

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algamation takes place. 16.3. It was submitted that the A.Y. 2007-08 being the fourth year from the year in which amalgamation took place, the assessee was eligible for claiming the deduction of 1/5th of the expenditure under section 35DD of the Act, and accordingly, it was requested to grant deduction of ₹ 13,06,200/- under section 35DD of the Act. 16.4. We have gone through the submissions made by both the sides. As per law deduction has to be allowed equivalent to the amount of 1/5th of .....

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standing receivable for ₹ 5,62,836/-. 18.1. The brief facts are that the TPO made adjustment to the Arm s Length Price relating to the interest outstanding receivable and quantified the same @ of 16% per annum. The assessee contested this matter before the DRP, who upheld the adjustment in principle, but reduced the rate of Prime Lending Rate (PLR) of India at rate of 13.25% of per annum. 18.2 Being aggrieved the assessee has contested this matter before the Tribunal. Before us Ld. Counsel .....

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nario that the outstanding amount is received after 31st March 2008, the interest should be calculated from the due date till the last day of the relevant financial year i.e. 31st March, 2008. In support of his arguments Ld. Counsel has relied upon the judgment of Mumbai Bench of ITAT in the case of Tecnimont ICB House, (A.Y.2009-10 ITA No.487/Mum/2014, order dated 08.07.2015) for the proposition that interest can be charged only up to the end of the F.Y. With regard to the other proposition tha .....

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ints. 18.5. In reply, Ld. Counsel has submitted that if interest is leviable, it can be charged only till the end of the relevant financial year, as no direction can be given by the bench for the subsequent years, as only present year is open before the bench. 18.6. We have gone through the submissions made by both the sides and material placed before for our consideration. It is noted that this issue has been thrashed out by the Hon ble Pune Bench in the case of iGATE Computer System Ltd. (supr .....

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ce. 18.7. It is further noted by us that no serious objections have been raised by the Ld. CIT-DR for adoption of international rates fixed by LIBOR, keeping in view the fact that amount was to be received back in US currency only. Thus, keeping in view the peculiar facts and circumstances of the case and law as explained by Hon ble Pune Bench in the case of iGATE Computer System Ltd.(supra), we hold that Indian prime lending rates cannot be applied and the international rate fixed by the LIBOR .....

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hould be charged only up till the end of the F.Y. Thus, it is held that interest should be calculated from the due date till the date of realisation, if the outstanding amount has been received during the year. In case the outstanding amount has been received back after 31st March 2008, then interest will be calculated from the due date till the last date of this F.Y. i.e. 31st March 2008. We direct the AO to give effect to our directions, accordingly. Thus, Ground no.2 is partly allowed as in t .....

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he AO to follow our order of A.Y. 2007-08 on this issue. 20. Ground No.4: In this ground the assessee has challenged the action of Ld. AO in making disallowance u/s 40(a)(ia), on account of payments made to manufactures towards purchase of finished goods amounting to ₹ 69,14,21,000/- and purchase of packing materials amounting to ₹ 45,25,56,000/- by holding that these were liable for deduction of tax at source, under the provisions of section 194C of the Act. 20.1. We find that issue .....

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10,49,89,239 towards clinical trial expenditure in the profit and loss account. Out of the total expenditure of ₹ 10,49,89,239, the assessee had deducted tax at source on payments amounting to ₹ 6,84,47,188 and for ₹ 9,26,710, the assessee had submitted Nil withholding tax exemption certificates furnished by the recipients. For the balance amount of ₹ 3,56,15,341, the assessee stated that the said amount constitutes purchase of materials, expenses on food and travelling, .....

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d that purchase of materials, expenses on food and travelling, payment of regulatory fees were not reimbursement of expenses but first hand business expenditure on which tax was deductible at source. The DRP further held that the assessee had not furnished details for the amount of ₹ 3,56,15,341. The assessee filed an application for rectification before the DRP. The DRP vide order dated 31 December 2012 rejected the same on the ground that the same are not rectifiable issues. Aggrieved by .....

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T(A)-TDS has dismissed the appellant s appeal with regard to nondeduction of tax on clinical trial expenditure is incorrect in as much as the CIT (Appeals) - TDS had directed the AO to verify the break-up of clinical trial expenditure and grant relief accordingly. Attention is invited to the order dated 30 March 2013 passed by the CIT(A)-TDS for the year under consideration viz. AY 2008-09 wherein it has been held that tax is not deductible at source on the aforesaid items (refer compilation pag .....

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directed to delete the disallowance under Section 40(a)(ia) in respect of clinical trial expenditure amounting to ₹ 3,34,44,563/-. 21.3. Thus, in nut shell, the assessee submitted that disallowance to the extent of ₹ 21,70,778/- is not pressed and balance disallowance of ₹ 3,34,44,563/- should be deleted as the basis of the disallowance ceases to exist. 21.4. On the other hand, Ld. DR has relied upon the orders of the lower authorities. 21.5. We have gone through the orders of .....

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e purposes of requisite verification of facts as was claimed by the assessee, the matter was sent back to the file of AO. Thereafter the AO passed an order giving effect dated 31st December 2014. We, therefore, send this ground back to the file of the AO to examine these facts that out of total disallowance of ₹ 3.56 crores, how much amount has been deleted by the AO in the order dated 31.12.2014. The disallowance shall be deleted equivalent to this amount and balance amount of disallowanc .....

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are that during the year under consideration, the assessee had transferred its right to use the trademark/ license pertaining to consumer health brands (i.e., Listerine, Benadryl, Caladryl and Benylin) for a consideration of ₹ 2,10,60,10,000. The long term capital gain on account of the transfer of intellectual property rights was computed at ₹ 2,10,60,10,000. The AO, however, held that profit earned on sale of license/trademark was in the nature of short term capital gain as the sa .....

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e to the DRP, the DRP upheld the action of the AO by stating that the assessee has sold a depreciable asset, the gain/loss on which is to be treated as per the provisions of section 50 of the Act. The DRP rejected the claim of the appellant that the license/trademark got transferred to the assessee with effect from 01. 12.2001 on account of amalgamation of assessee company with Parke Davis India Limited and held that the license/trademark has been recognized for the first time in the books of ac .....

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gible assets. However, the application was rejected by the DRP on the ground that the matter was conclusively decided by the DRP. Aggrieved by the same, the assessee company filed an appeal before the Tribunal. 22.5. Before us the Ld. Counsel has made detailed arguments Following submissions have been made by the ld. Counsel on this issue, on the basis of Fact sheet submitted during the course of hearing: The appellant hereby submits that it was amalgamated with Parke Davis India Limited pursuan .....

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the AO upheld by the DRP suffers from error in as much as the fact that the said assets were neither capitalized in the accounts nor included under the block of Intangible Assets . Attention is invited to section 2(42A) of the Act which defines Short term capital asset as a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of transfer. In the instant case, the right to use the trademark/license pertaining to consumer health brands was held by th .....

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n ble Bombay High Court with effect from 1st December 2001 (refer compilation page nos 450 to 453), the said licenses were held by and used by the appellant for more than 3 years prior to the date of sale. Accordingly, there was no question of treating them as a short term capital asset and therefore no reason to charge them to tax as short term capital gains. The DRP has upheld that action of the AO on the ground that since the trademarks/ licences formed part of the block of assets and the sam .....

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fulfilled viz. (i) The capital asset should be an asset forming part of block of assets, and (ii) Depreciation should have been allowed on it under the Income tax Act. It is only on the fulfillment of both these conditions that the provisions of section 50 shall get attracted. 22.7. It was further submitted that it was evident from Annexure -6A of the Tax Audit Report submitted to the AO that the impugned trademarks/license were not part of block of assets. It was submitted by the Ld. Counsel t .....

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Delhi) 22.8. Summarizing his arguments, Ld. Counsel submitted that section 50 cannot be applied to an asset on which no depreciation has been claimed or allowed, it was requested that AO be directed to recompute the capital gains arising on sale of license/trademarks as long terms capital gains instead of short term capital gains. 22.9. On the other hand, Ld. DR has relied upon the orders of lower authorities. He has submitted that no value was recorded by the assessee in its books of accounts, .....

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of these assets as rightly been treated as short term capital gains. 22.10. We have gone through the submissions of both the sides and material placed before us for our consideration and also gone through the applicable position of law and judgment relied by the parties. In our considered view the action of the Ld. AO in treating the impugned asset as short term capital asset is not sustainable, on law and facts, for following reasons: 22.11. First of all it is noted on facts, which remains undi .....

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set forming part of a block of assets in respect of which depreciation has been allowed tinder this Act or under the Indian IT Act, 1922 (11 of 1922), the provisions of ss. 48 and 49 shall apply subject to the following modifications: (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of th .....

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the first para itself on this section it has been mentioned that to be covered within the provisions of this section, following two conditions are necessary i.e.: (i) The capital asset forms part of block of assets and (ii) Deprecation has been allowed on it under the Income Tax Act. It is noted from the facts on record that both the conditions are found to be missing, and therefore, there is no force in the arguments of Ld. CIT- DR that because these are depreciable assets, and therefore, by v .....

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a), wherein it was held that if no depreciation was ever claimed and allowed on the assets then the same cannot be covered u/s 50, merely on the ground that the said assets were depreciable asset. Similar view has been taken by Hon ble Bombay Bench in the case of Divine Construction Company vs. Assistant Commissioner of Income Tax (138 ITD 72), holding that in order to treat capital gain arising from the transfer of capital assets in the circumstances mentioned in section 50, it is necessary tha .....

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ee company, we have examined this issue from another angle also. It is well settled law that under the Income Tax Law, the concept of de-facto ownership of the assets/ properties is followed. It is also well settled law that entries in the books of accounts do not necessarily determine taxability or otherwise of the transaction, in the hands of the assessee. One has to look into the real substance of the transactions and not merely its form , to determine the taxability in the given facts of a c .....

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facts have not been disputed or denied by the lower authorities. 22.16. Hon ble Delhi High Court in the case of Mediworlds Publications (P) Ltd. (supra) held that trademarks, copy rights brand names goodwill etc. are capital assets and any gain arising on the transaction of these assets shall give rise to income taxable under the head of capital gain and not its business income. Now, under these facts and clear position of law it can be said, unhesitatingly, that the assessee company was holding .....

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accounts of a person, much less under the income tax law. 22.17. In the given facts of the case, real substance of the transactions is that the assessee company was rightful and legal owner of these assets since 1st December 2001 and has been holding these assets in the capacity of defacto as well as dejure owner. These are clearly long term assets under the income tax law, having been held for more than 36 months by the assessee. Therefore, in view of these facts and circumstances of the case, .....

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ment proceedings the AO had handed over to the assessee an AIR statement and asked the assessee to reconcile the transactions with the insurance companies as appearing in the said statement with its books of account. The assessee requested the AO to provide a further breakup of the amount involved since the name of the parties did not appear in the statement. However, as further information was not available within the system, the AO held the amount remained un-reconciled and proposed an additio .....

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d the AO to inquire into the matter with the departmental authorities as well as the insurance agencies and to carry out the proposed addition only if further verifiable and incriminating material is obtained against the assessee. However, as the assessment was getting time-barred, in the final order, the AO sought to make an addition without obtaining any incriminating and verifiable information against the assessee. 23.3. Aggrieved by the same, the assessee company filed appeal before the Trib .....

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osition that addition cannot be made merely on the basis of statement received through AIR: (i)A.F. Fergusson & Co. Vs. JCIT (ITA No.5037/Mum/2012) (ii) Shri S. Ganesh v. ACIT (ITA No.527/Mum/2010) (iii) Arati Raman v. DCIT (ITA No.245/Bang/2014 (iv) Aegis Limited vs. Addl. CIT (ITA No.1213/Mum/2014) Lastly, it has been submitted by the Ld. Counsel that the AO disregarded the instructions of DRP, to make available further verifiable information against the assessee, but AO repeated the addit .....

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he assessee. It is noted that this information has been compiled in a very casual and generalized manner. Assesseee contended that transactions with the insurance company are much more than what is reported in the AIR statement, and all these transactions are duly recorded in the books of accounts, and summary of the transactions was given by the assessee showing that total transactions were to the tune of ₹ 1,86,40,758/-, whereas amount included in these statements is amounting to ₹ .....

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t has been reflected by it in the books of accounts. The AIR statement does not even contain names of the parties. Under these circumstances, we find it appropriate to send this issue back to the file of the AO with the direction that the AO shall provide to the assessee complete information and adverse material with all requisite particulars. In response, the assessee shall provide complete books of accounts and requisite details and documents and other evidences to show that the amount reporte .....

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. It is only thereafter, the onus of the assessee shall start to show that these transactions have been duly recorded in the books of account of the assessee, failing which the addition may be liable to be made. With these directions, this issue is sent back to the file of the AO with further directions to grant adequate opportunity of hearing to the assessee. The assessee shall also extend requisite cooperation to the AO. This ground is allowed for statistical purposes. 24. Grounds No. 8 & .....

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