TMI Blog2016 (2) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act in as much as under chapter 10, the TPO/A.O. has to see whether the international transaction entered by the assessee is at arm’s length or not. There are other provisions in the act wherein the A.O. can test the genuineness of the transaction but in any case not under Chapter 10 of the Act. As mentioned elsewhere, no comparable case have been brought on record which could justify that the payment of 3% + 1% overriding commission is not at arm’s length, we set aside the findings of the ld. CIT(A) and direct the A.O. to delete the entire transfer pricing adjustment made by it Disallowance of investment written off in MJPL for computing profits u/s. 115JB - Held that:- . There is no doubt that the assessee has written off the investments made in MJPL. Thus, it can be said with certainty that no provision has been made and it is a case of write off only. Therefore in our considered opinion, the amended provisions do not apply on the facts of the case. Accordingly, we set aside the findings of the ld. CIT(A) and direct the A.O to delete while computing the book profit u/s. 115JB of the Act. Inter unit transactions cannot be considered as sales to form part of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . for computing deduction u/s. 80HHC. 3. At the very outset, the ld. counsel for the assessee conceded that the issue should go against the assessee. On such concession, ground no. 1 is dismissed. Ground No. 2 relates to the inclusion of Exchange Rate Fluctuation of ₹ 32,01,000/- in total turnover for the purpose of deduction u/s. 80HHC. 4. The ld. counsel brought to our notice the decision of the Tribunal in assessee s own case in ITA No. 3289 3434/Ahd/2003 dated 26.03.2015. It is the say of the ld. counsel that on identical set of facts, this issue has been decided in favour of the assessee and against the revenue. The ld. D.R. could not bring any distinguishing decision in favour of the Revenue. We have carefully perused the order of the Tribunal (supra). We find that an identical issue was considered by the Tribunal at Para 4 on page 9 of its order and at Para 4.2 the Tribunal has followed the decision of the co ordinate Bench for A.Y. 1999-2000 2000-01 and allowed this grievance in favour of the assessee. 5. Respectfully, following the findings of the co-ordinate Bench, we direct the A.O to exclude the Exchange Rate Fluctuation from the total turnover for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. We find that the ld. CIT(A) has considered the issue at Para 6 of its order. We also find that the ld. CIT(A) has confirmed the action of the A.O following his own order for A.Y. 2000-01. We find that when the matter travelled up to the Tribunal, the Tribunal in ITA Nos. 1199 1279/Ahd/2006 has quashed the reopened assessment holding that re-assessment proceedings were bad in law. It is the say of the ld. counsel that the Hon ble Supreme Court in the case of Micro Labs Ltd. has referred the matter to a larger bench since there was a dissent between the Hon ble Judges as one of the Judge followed the decision of the Hon ble Bombay High Court given in the case of Associated Capsules Pvt. Ltd. 322 ITR 42. While another Judge followed the decision of the Hon ble Delhi High Court in the case of Great Eastern Exports 332 ITR 14. The ld. counsel prayed that the matter may be restored to the files of the A.O to be decided in line with the decision of the Hon ble Supreme Court. The D.R. strongly objected to this stating that the issue is squarely covered in favour of the revenue by the decision of the jurisdictional High Court in the case of Atul Intermediates 45 Taxman.com 275 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on expenses as carried out by the assessee should be restored for determining profits of the new industrial undertaking u/s. 80IB and Section 10B of the Act. 15. We have carefully perused the orders of the authorities below. We find that the ld. CIT(A) has simply followed the findings given by his predecessor in the appellate order for A.Y. 2000-01. As mentioned elsewhere, the reopened order for A.Y. 2000-01 has been quashed by the Tribunal in ITA Nos. 1199 1279/Ahd/2006. Findings of the ld. CIT(A) do not survive. A perusal of the record show that the assessee has allocated the expenses on the basis of turnover which is the most preferred method for allocating selling and distribution expenses. It is a fallacy to say that bulk drugs are not raw material for the formulation division. Any expenditure incurred for the raw materials (bulk drugs) have to be considered for the final product formulation . We therefore do not find any error in the allocation made by the assessee. We accordingly set aside the findings of the ld. CIT(A) and direct the A.O to accept the methodology of the assessee. Ground no. 7 is accordingly allowed. Ground no. 8 relates to the disallowance of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been wrongly shown as Amalgamation expenses. Assessee filed a detailed reply stating that it has incurred ₹ 7.50 lacs towards registration charges for the increase in authorized capital and has also incurred 13,55,120/- towards stamp duty charges for amalgamation of M/s. Milmet Laboratories with effect from 01.04.1998. It was brought to the notice of the A.O that these expenditures have been amortized and only 1/5th has been claimed during the year under consideration. The A.O. was of the firm belief that these expenditures have been incurred for increasing the authorized capital and, therefore, not allowable as revenue expenditure. The A.O. accordingly made disallowance of ₹ 14,33,746/- + 4,21,754/- totaling to ₹ 18,55,500/-. 20. Assessee carried the matter before the ld. CIT(A). The ld. CIT(A) has considered this issue at Para 20 on page 14 of his order and at Para 20.1 the ld. CIT(A) held that similar ground has been decided against the assessee in the appellate order for A.Y. 2000-01 and accordingly confirmed the disallowance. Before us, the ld. counsel for the assessee stated that the assessment order for A.Y. 2000-01 has been quashed by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), we direct the A.O to delete the disallowance of ₹ 44,71,906/-. Ground no. 10 is accordingly allowed. Ground no. 11 relates to the disallowance of overriding commission paid to Associated Enterprise. 25. This issue relates to the transfer pricing adjustment and hence has been considered by the TPO in its order dated 24.03.2005 made u/s. 92CA(3) of the Act. 26. During the course of transfer pricing assessment proceedings, the TPO noticed that the assessee has paid importing commission towards associate entity amounting to ₹ 335.63 lacs. The associate entity M/s. Sun Pharma Global Inc is a subsidiary of the assessee company and is a tax resident of British Virgin Islands. The assessee claimed that the associate entity provided marketing and promotion to the assessee s products in the export market on a global basis. In its transfer pricing study report, the assessee contended that the commission paid is comparable to the commission paid by it to non-related parties. It was brought to the notice of the TPO that the weighted average rate of commission works out to 7.84% on total sales and on similar arrangement in India, the assessee has paid commission @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) discussed the submissions made by the assessee and after considering the functions performed by the AE and at Para 23.09 of his order, the ld. CIT(A) observed that the assessee has submitted copy of agreement in relation to the nature of services rendered by the AE, certain e-mail messages to prove the nature of transaction which has not been proved false by the TPO. The ld. CIT(A) agreed that the TPO is legally and factually wrong in treating as if no transaction has taken place. After considering the range of commission, the ld. CIT(A) finally was of the opinion that the commission up to 3% was reasonable and at arm length and requires no adjustment and directed the A.O to delete the addition of ₹ 1,43,43,210/-. 29. However, on the point of overriding commission, the ld. CIT(A) was of the opinion that the overriding commission is to be allowed on the sales made through AE, overriding commission is also to be allowed on the sales made through non -related parties where commission is paid @ 3% and overriding commission is not to be allowed where commission is more than 3% to the non- related enterprises. 30. Aggrieved by this findings of the ld. CIT(A) both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by it. Ground no. 11 is accordingly allowed. Ground no. 12 relates to the computation of deduction u/s. 80HHC on the basis of book profit for computing MAT. 32. The A.O has considered this issue at Para 14A on page 35 of his order and at page 36, the A.O followed the decision of the ld. CIT(A) given in earlier years. Ld. CIT(A) has considered the grievance of the assessee at Para 25 on page 37 of his order wherein he has followed the findings given in A.Y. 2001-02. Before us, the ld. counsel for the assessee stated that for the assessment year 2001-02, the Tribunal has decided this issue in favour of the assessee and against the revenue. The ld. D.R. could not bring any distinguishing decision in favour of the revenue. We find that the Tribunal in ITA No. 3289 3434/Ahd/2003 has considered an identical issue at Para 1.2 of its order wherein the Tribunal has followed the decision given in assessee s own case in the past for A.Y. 1999-2000 in ITA No. 3047 3272/Ahd/2002 wherein the co-ordinate Bench has followed the decision of the Hon ble Supreme Court in the case of Ajanta Pharma 327 ITR 305, Bhari Information Tech Systems (P) Ltd. 340 ITR 593 and Syncome Formulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 ITR 59 (Karnataka). The ld. D.R. strongly contended that in view of introduction of Clause (i) of Explanation 1 to section 115JB to by Finance Act, 2009 adjustment claimed on account of provision for diminution in value of investment was not tenable. On the other hand the ld. counsel for the assessee strongly stated that the revenue authorities have failed to appreciate the facts in the right perspective. It is the say of the ld. counsel that the said amendment referred by the ld. D.R. is not applicable to the facts of the case and simultaneously, the decisions relied upon by the ld. D.R. are misplaced. 37. We have given a thoughtful consideration to the facts in issue. There is no doubt that the assessee has written off the investments made in MJPL. Thus, it can be said with certainty that no provision has been made and it is a case of write off only. Therefore in our considered opinion, the amended provisions do not apply on the facts of the case. Accordingly, we set aside the findings of the ld. CIT(A) and direct the A.O to delete ₹ 2,63,76,778/- while computing the book profit u/s. 115JB of the Act. Ground no. 15 is accordingly allowed. Ground no. 16 18 are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales- tax from turnover. 41. While computing the assessed income, the A.O has included excise duty and sales tax in the total turnover for calculating deduction u/s. 80HHC of the Act. When the matter was agitated before the ld. CIT(A), the ld. CIT(A) directed the A.O to exclude excise duty and sales tax from the turnover following the appellate order given in A.Y. 2001-02. We find that the appellate order for A.Y. 2001-02 was confirmed by the Tribunal in ITA Nos. 3289 3434/Ahd/2003. We find that the Tribunal has followed the decision of the Hon ble Supreme Court given in the case of Laxmi Machine Works 290 ITR 667. Respectfully, following the findings of the co-ordinate Bench which is in line with the decision of the Hon ble Supreme Court (supra), we confirm the findings of ld. CIT(A), ground no. 1 is accordingly dismissed. Ground No. 2 relates to the grant of deduction u/s. 80HHC without including insurance claim in total turnover. 42. The A.O has discussed this issue at Para 4F on page 7 of his order wherein he has included the insurance claim as part of the total turnover. The ld. CIT(A) has considered this grievance at Para 11 on page 5 of his order and at Para 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manufacturing Co. Ltd. 219 ITR 521, in the case of Mihir Textiles Ltd. 256 ITR 528 which have been followed in the case of Akme Electronics Control (P) Ltd. 267 ITR 396. Ground no. 8 is accordingly dismissed. 48. In the result, the appeal filed by the revenue is partly allowed. ITA No. 1513 assessee s appeal for A.Y. 2003-04. Ground no. 1 relates to the treatment of balance under EEFC account as part of total turnover. 49. An identical issue was decided by us in A.Y. 2002-03 vide ITA No. 1558/Ahd/2006 qua ground no. 2 of that appeal. Respectfully, following our own decision, we set aside the findings of the ld. CIT(A) and allow this ground of appeal in favour of the assessee and against the revenue. 50. Ground no. 2 has not been pressed before us and the same is dismissed as not pressed. Ground no. 3 relates to the inclusion of sale of scrap in total turnover for computing deduction u/s. 80HHC. 51. An identical issue has been considered by us in appeal for A.Y. 2002-03 in ITA No. 1558/Ahd/2006 qua ground no. 17 of that appeal. Respectfully, following our own decision given in that appeal, this ground is decided accordingly. Similar is the issue taken up in groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales-tax from turnover. 61. Similar issue has been decided in A.Y. 2002-03 in ITA NO. 1676/Ahd/2006 qua ground no. 1 wherein we have followed the decision of the Hon ble Supreme Court in 290ITR 667. For our detailed discussion therein ground no. 1 is decided accordingly. Ground no. 2 relates to the grant of deduction u/s. 80HHC excluding insurance claim in total turnover. 62. Similar issue has been decided by us in ITA No. 1676/Ahd/2006 vide ground no. 2 of that appeal. For similar reasons this ground is decided accordingly. Ground no. 3 relates to the consideration of net lease rent instead of gross lease rent for computing deduction u/s. 80HHC. 63. Similar issues are decided in ITA No. 1676/Ahd/2006 qua ground no. 3 of that appeal. Respectfully, following our own decision this ground is decided accordingly. Ground no. 4 relates to the grant of deduction u/s. 80HHC by netting interest income. 64. An identical issue has been considered by us in A.Y. 2002-03 in ITA No. 1676/Ahd/2006 qua ground no. 4 of that appeal. For similar reasons this ground is decided accordingly. Ground no. 5 relates to not treating the Inter unit sales as Turnover for computing de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Panoli and Ahmednagar unit u/s. 10B. 69. An identical issue was considered by us in ITA No. 1558/Ahd/2006 qua ground no. 18 of that appeal. Following our own findings therein, we decide this ground accordingly. Ground no. 10 relates to the direction to the A.O not to exclude interest on Overdue bills from gross sales for computation of deduction u/s. 80IB of the Act. 70. In our considered opinion, this issue is squarely covered in favour of the assessee and against the revenue by the decision of the Hon ble jurisdictional High Court in the case of Nirma Ltd. 283 ITR 403. Respectfully, following the same, we decide this issue accordingly in favour of the assessee and against the revenue. 71. Ground no. 11 12 are of general in nature and needs no separate adjudication. 72. In the result, the appeal filed by the revenue is partly allowed. ITA No. 1193/Ahd/2008 assesee s appeal for A.Y. 2004-05. 73. Ground no. 1 is of general in nature and needs no separate adjudication. Ground no. 2 relates to the transfer pricing adjustments on account of overriding commission paid to Associated Enterprise. 74. This issue has been discussed by us in detail in ITA No. 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its sister concern Sun Pharmaceutical Industries which is a partnership firm. During the course of the survey operations, it was noticed that the assessee has been selling certain raw materials /products to its sister concern at a lower rate than was sold to third parties and thereby diverting the profits. Assessee was asked to explain its stand. Assessee filed a detailed reply giving details of raw materials/products being sold to its sister concern and to third parties along with rates and quantity sold. On analysis of the reply, the A.O found that there were certain raw materials/products which were being sold to the sister concern at a lower rate than sold to third parties. The A.O proceeded by computing an addition of ₹ 19,49,930/- on account of unreasonably low selling price on sale of raw materials/products sold to its sister concern. 84. Aggrieved by this, assessee carried the matter before the ld. CIT(A) but without any success. 85. Before us, the ld. counsel for the assessee stated that it is not clear under which provision of the act additions have been made. Further the counsel stated that no 80IB deduction has been claimed by it which could justify t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O was of the firm belief that these expenditures are not related to the earning of income and accordingly disallowed (a) selling and distribution expenses 25,68,21,928/- salary and allowance to field staff 24,12,98,724/- totaling to ₹ 49,81,20,652/-. The A.O proceeded by disallowing ₹ 8,49,79,383/- based on the ratio of the total turnover of the assessee and the partnership firm SPI. 90. Aggrieved by this, the assessee carried the matter before the ld. CIT(A). Ld. CIT(A) has considered this grievance at para 26 vide ground no. 25 before him. After considering the facts and the submissions, the ld. CIT(A) was of the opinion that the assessee already had an existing sales and distribution network in the form of C F agent, etc. Therefore the assessee was not required to incur any additional/extra expenses for undertaking the marketing function for and on behalf of partnership firm. The ld. CIT(A) further observed that most of the expenses incurred by the assessee for the sales were in the nature of fixed expenses. However, there were similar additional expenses incurred by the assessee for carrying out the sales for and on behalf of the partnership firm. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership firm in carrying on its business by using its network for marketing the pharmaceuticals products successively. Thus, it cannot be said that the expenditure incurred by the assessee are not for the purposes of its business. Since the assessee is holding 95% in the partnership firm it becomes the duty of the assessee to promote the business of the partnership firm, in the capacity of the majority stake holder. Incidentally, the revenue authorities have not brought anything on record which could suggest that the expenditures have not been incurred for the purposes of business. Be it assessee s business or the business of the partnership firm where the assessee is a majority stake holder. Therefore, in our considered opinion, the expenditures incurred by the assessee company deserves to be allowed and we direct the A.O to delete the addition of ₹ 8,49,79,383/-. 93. In the result, ground no. 13 of assessee s appeal is allowed and simultaneously, ground no. 14 of revenue s appeal is dismissed. Ground no. 14 relates to the adjustment of brought forward depreciation of Phlox Pharmaceuticals u/s. 72 while computing profits of the business for the purpose of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net lease rent instead of gross lease rent for computing deduction u/s. 80HHC of the Act. 102. An identical issue was considered by us in revenue s appeal for A.Y. 2002-03 in ITA No. 1676/Ahd/2006 qua ground no. 3 of that appeal. For the reasons given therein, this ground is decided accordingly. Ground no. 9 relates to the inclusion of interest on overdue bills from gross sales for computing u/s. 80IB. 103. As mentioned elsewhere, this issue is squarely covered in favour of the assessee and against the revenue by the decision of the Hon ble jurisdictional High Court in the case of Nirma Ltd. 283 ITR 403. Respectfully following the same, this ground is dismissed. Ground no. 10 relates to not treating inter unit sales as turnover for computing deduction u/s. 80HHC. 104. An identical issue has been decided by us in revenue s appeal for A.Y. 2003-04 in ITA No. 1701/Ahd/2007 qua ground no. 5 of that appeal. For our detailed discussion therein, this ground is decided accordingly. Ground no. 11 relates to the unabsorbed loss of amalgamating company. 105. This issue is principally covered by ground no. 11 of ITA No. 1558/Ahd/2006. We direct accordingly. 106. Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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