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TMI Blog2017 (1) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's own case. The ld. D.R. fairly conceded to this. On such concession, we have heard the rival contentions and have carefully perused the orders of the authorities below. We have also the benefit of the order of the Tribunal in assessee's own case in earlier years. We accordingly decide these appeals. ITA No 2430/Ahd/2009 for A.Y. 2005-06. 1st ground is of general in nature and needs no separate adjudication. Ground no. 2 relates to the disallowance of overriding commission paid to Associated Enterprise pursuant to the order of the Transfer Pricing Officer. 3. While scrutinizing the return of income, the A.O noticed that the assessee has paid export commission of Rs. 5,17,21,555/- to M/s. Sun Pharma Global Inc., an associate enterprise of the assessee. This issue was referred to the Transfer Pricing Officer for determination of Arm's Length Price under section 92CA(1) of the Act. The TPO vide order dated 17.03.2008 has determined ALP at Nil. Thus, the difference amount of Rs. 5,17,21,555/- was treated as excess commission paid by the assessee to its AE which needs to be disallowed. Assessee was asked to explain the nature of transactions and whether the payment is within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .During the course of transfer pricing assessment proceedings, the TPO noticed that the assessee has paid importing commission towards associate entity amounting to Rs. 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 nonrelated 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 @ 11% . Therefore the payment is at arm's length. After considering the facts and the submissions, the TPO observed that the assessee has not submitted any documentary evidence in respect of its arrangements with any of these persons. The TPO also observed that the assessee had failed to establish the arms length nature of the transaction under the CUP method. Accordingly, the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed 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 Rs. 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 assessee and the revenue are in appeal before us. The ld. counsel for the assessee vehemently stated that the action of the revenue authorities is beyond the scope of the provisions contained in Chapter 10 of the Act. It is the say of the ld. counsel that under Chapter 10 the only power of the revenue authorities is to see whether the international transaction entered into by the assessee are at arm's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance of deduction u/s. 10B of the Act in respect of Ahmednagar Unit. 7. While scrutinizing the return of income, the A.O noticed that the assessee has claimed exemption of income u/s. 10B of the Act amounting to Rs. 28,25,01,313/- in respect of Ahmednagar, Panoli and Chennai Units. Vide notice dated 02.08.2007, the assessee was asked to explain the claim of deduction u/s. 10B qua the order of the Development Officer as SEEPZ,SEZ dated 25.07.2006 in which LOP for claiming deduction u/s. 10B has been cancelled. 8. Vide letter dated 24.08.2007 was explained that the said order of the Development Commissioner has cancelled LOP for Ahmednagar Unit only. Further, it was brought to the notice of the A.O that the assessee has preferred an appeal against the said order of the Development Commissioner. 9. Taking a leaf out of this reply of the assessee, the A.O disallowed the claim of deduction u/s. 10B in respect of Ahmednagar Unit amount to Rs. 23,45,24,639/-. 10. Assessee carried the matter before the ld. CIT(A) but without any success. The ld. CIT(A) while deciding this grievance of the assessee observed that his predecessor has allowed the claim of exemption in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue expenditure. 13. Assessee carried the matter before the ld. CIT(A) but without any success. While dismissing the grievance of the assessee, the ld. CIT(A) followed the findings of his predecessor given in A.Y. 2002-03 to 2004-05. Before us, the ld. counsel for the assessee stated that the Tribunal in assessee's own case in earlier years has decided this issue in favour of the assessee and against the revenue in ITA No. 1558/Ahd/2006. The ld. D.R. could not bring any distinguishing decision in favour of the revenue. 14. We have given a thoughtful consideration to the order of the Tribunal in earlier years; we find that the Tribunal while deciding the issue in favour of the assessee has followed the decision of the Co-ordinate Bench, Mumbai in the case of USV Ltd. 54 SOT 615. Findings of the Tribunal read as under:- 24. We have carefully perused the orders of the authorities below. We find that the ld. CIT(A) has simply followed the findings of his predecessor for A.Y. 2000-01. We also find that the assessment order for A.Y. 2000-01 has been quashed by the Tribunal vide a ITA Nos. 1199 & 1279/Ahd/2006, which means that the basis for upholding the disallowance has been remov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down by the Hon'ble Supreme Court in the case of Liberty India 317 ITR 218. Ground no. 17 is accordingly allowed. 18. Respectfully following the decision of the Tribunal (supra), we direct the A.O accordingly. Ground no. 5 is treated as allowed statistical purpose. Ground no. 6 relates to the reallocation of R & D expenses @ 12.5% for computing deduction u/s. 80IB. 19. While scrutinizing the return of income, the A.O found that the assessee has claimed R & D Revenue Expenditure of Rs. 110,99,69,871/- and R & D Capital Expenditure of Rs. 59,79,84,814/- totaling to Rs. 170,79,54,685/-. The A.O further found that the assessee has allocated only Rs. 4,34,25,000/- on account of R & D expenses in Silvassa II Unit. The A.O was not convinced with the allocation and accordingly asked the assessee to explain why the expenses should not be reallocated in the ratio of turnover. Assessee explained that it has allocated the revenue expenditure across all its units whether manufacturing bulk drugs or formulation drugs and whether claiming any special deduction under the Act or not. Assessee filed a detailed working of the allocation of expenses. The reply of the assessee did not find any favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. Undisputedly, the question related to the raw materials and not to all the items of expenditure under this head. In our considered opinion one cannot carry out the allocation on the basis of pick and choose method. We accordingly direct the A.O to restrict the re-allocation only to the raw material, assessee gets partial relief. 21. As observed by the First Appellate Authority, there is no change in the facts and circumstances. Therefore, respectfully following the decision of the Co-ordinate Bench (supra), we hold accordingly. Ground no 6 is treated as allowed for statistical purpose. 22. With ground no. 7, the assessee claims that the ld. CIT(A) erred in not admitting and adjudicating grievance relating to the treatment of foreign exchange fluctuation gain. The ld. counsel straightway drew our attention to the decision of the Tribunal given in ITA No. 1558/Ahd/2006 and pointed out that since in earlier years also. The ld. CIT(A) has not adjudicated on this issue and unless the issue is adjudicated upon in earlier years. There cannot be any separate finding for the year under consideration. We find that the Tribunal at para 38 of its order has made the following observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O was of the firm belief that the assessee has been selling products to its sister concern at a rate lower than sold to third parties. The A.O observed that since the assessee is holding 95% share in its sister concern and the sister concern is claiming 100% deduction u/s. 80IB on its profits. Therefore, in effect the assessee is indulged in diversion of profit and avoidance of tax by suppressing the sale price. The A.O accordingly made an addition of Rs. 21,25,278/-. 26. Assessee carried the matter before the ld. CIT(A) but without any success. Before us, the ld. counsel for the assessee stated that an identical issue was considered by the Tribunal in earlier assessment years in ITA No. 1193/Ahd/2008 and has decided the issue in favour of the assessee and against the revenue. This issue has been considered by the Tribunal qua ground no. 12 as under:- Ground no. 12 relates to the addition made on account of sales to Sun Pharmaceutical Industries. 83. This issue has been considered by the A.O at Para 12 of his order. A survey u/s. 133A of the Act was conducted on the assessee as well as its sister concern Sun Pharmaceutical Industries which is a partnership firm. During the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further found that the assessee has received 15% of net profits of SPI as per the partnership deed. However, the A.O found that SPI has not debited this remuneration to its Profit and Loss account in the light of explanation 4 to Section 40B of the Act. The A.O further noticed that the assessee has also not offered this remuneration claiming that the remuneration would be chargeable to tax only if the same is allowed as deductible from the profits of the firm and since the same is not allowed in the hands of the firm, the same cannot be taxed in the hands of the assessee. The A.O found that though the remuneration has not been included by the assessee but it has debited all the related expenditure in its books of account. The A.O accordingly disallowed the expenditure so debited treating the same as expenditure not incurred wholly or exclusively for the purpose of business. 29. Assessee carried the matter before the ld. CIT(A). After considering the facts and circumstances and drawing support from the findings given in A.Y. 2004-05 directed the A.O to recalculate the disallowance. 30. Aggrieved by this, the assessee is before us. Ld. counsel for the assessee pointed out that an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired 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. CIT(A) finally concluded by holding that the incremental expenses incurred by the assessee in excess what was incurred in the preceding year towards the marketing and distribution should be allocated and accordingly directed the A.O to recalculate the disallowance. 91. Aggrieved by this finding of the ld.CIT(A) both assessee and the revenue are in appeal before us. The ld. D.R. strongly stated that since the assessee has not shown any income from remuneration from the partnership firm. The assessee was not entitled for the claim of deduction. The ld. D.R. further stated that no bifurcation have been provided by the assessee to show the expenses incurred for the purpose of the business of the partnership firm and for the assessee company. The D.R. concluded by saying that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y deserves to be allowed and we direct the A.O to delete the addition of Rs. 8,49,79,383/-. 31. Respectfully following the findings of the Co-ordinate Bench, we direct the A.O to delete the addition of Rs. 13,35,61,482/-. Ground no. 10 is accordingly allowed. 32. In the result, the appeal filed by the Assessee is allowed in part for statistical purpose. ITA No. 2400/Ahd/2009 Revenue's appeal for A.Y. 2005-06 Ground no. 1 relates to the direction to rework Arm's Length Price with regard to commission paid to AE. 33. An identical issue has been decided by us in favour of the assessee and against the revenue in assessee's appeal in ITA No. 2430/Ahd/2009 qua ground no. 2 of that appeal. For our detailed discussion therein, ground no. 1 is dismissed. Ground no. 2 relates to the direction to grant of exemption u/s. 10B in respect of Panoli Unit. 34. We find that the First Appellate Authority has followed the findings given in A.Y. 2002-03 to 2004-05 which have been confirmed by the Tribunal in ITA No. 1287/Ahd/20008. The Tribunal has decided this issue qua ground no. 2 in that appeal as under:- Ground no. 2 relates to the grant of exemption u/s. 10B to Panoli and Ahmednagar u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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