9911796707
TMI Blog2019 (6) TMI 1450X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A)'] is bad in law and on facts. 2. Re: Notice issued u/s. 148 t.w.s. 147 was bad in law and needs to be quashed as void ab initio: 2.1. The Learned CIT(A) has grossly erred in upholding the order of Assessing Officer who has reopened the Assessment under section 147 without appreciating that there is a mere change of opinion on issues which had akeady been considered in the assessment order framed u/s 143(3). 3. Re: Addition on account of transfer of Technology to Foreign Subsidiary- Rs. 45.35.30.353/-: 3.1. In the facts and circumstances of the case and in law, the learned CIT(A) grossly erred in upholding the order of the Assessing Officer in adding income to the extent of Rs,45,35,30,553/-on sale of technology by Sun PharmaGlobal, Inc. (hereinafter referred to as "SPG"), to Caraco without appreciating that: .1 die said technologies have been developed by Unimed Technologies Limited (hereinafter referred to as "UTL") and M.J. Pharmaceuticals Limited (hereinafter referred to as "MJPL") who are both independent companies (and also not subsidiary companies of SPIL as alleged by the Assessing Officer) not covered as related parties u/s. 40A(2)(b) by their indep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the Assessing Officer relating to allocation of R&D expenditure, without appreciating that: 2.1.1 The product technologies developed are completely owned by the Appellant and that no part of the ownership of the product technologies or processes developed during such R&D work is for any other party; 2.1.2 The Appellant being a working partner had in pursuance of the obligation undertaken by the Appellant under the partnership deed, had provided these services in relation to the manufacturing activities and that no R&D activity was carried out for SPI. For the services rendered by the Appellant it was receiving remuneration and share in profit from SPI. 2.2 Without prejudice to the above, the learned CIT(A) grossly erred in rejecting the Appellant's contention, that only expenditure amounting to Rs. 13.49 lakhs incurred for specific products manufactured in SPI ought to have been disallowed and in further stating that specific details of expenditure was not available during the course of appellate proceedings. 2.3 Without prejudice to the above, the learned CIT(A) grossly erred in considering Rs. 4075.49 lakhs as allocable R&D expenditure without appre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bai. 6. During the survey, a large number of incriminating documents (master formula, executive summary, master formula card, etc.) were found and impounded. Thus based on the survey report the case was reopened by issuing a notice u/s 148 of the Act dated 28/03/2013. The AO during the proceedings observed certain facts as detailed under: 1. The assessee had several subsidiaries in India and outside India. One of the subsidiary company of the assessee namely SUN BVI transferred certain technologies to CARACO, the USA over a certain period. The SUN BVI acquired these technologies from Unimed technologies Ltd/MJ Pharmaceuticals Ltd (in short UTL/MJPL), and UTL/MJPL acquired these technologies from SPIL. 2. The cost of technologies in the hand of SUN BVI was very nominal in comparison to the value at which SUN BVI transferred it to CARACO. As such the SUN BVI earned huge profit margin ranging from 95% to 97% on these transactions which is exempt from tax as SUN BVI is located in a tax heaven zone. 3. The dossiers and other technical details found during the survey about these technologies show that these were developed at the premises of the assessee. Furthermore, at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions were not recorded in the books of accounts of the assessee. 3. UTL/MJPL are not related party as per section 40A(2)(b) of the Act and not even as per AS-18 issued by the ICAI. Both of them are independent party and separately assessed to tax and orders u/s 143(3) have been passed on both of them. It means the transactions in their books have been accepted in the year under consideration and earlier years. Therefore, these entities cannot be said as mere name lenders. 4. Both the entities have their own dedicated and exclusive R&D facility having requisite infrastructure, resources, and dedicated staff to carry out the research. UTL is in the field of Pharma manufacturing & selling for the last 20 years. 5. Further, these entities have accessed and utilized the advanced R&D facility of the assessee to carry out their research in pursuance of an agreement entered with the assessee dated 04.04.2007. These parties paid the consideration to the assessee for the use of R&D Facility of the assessee in the form of facilitation charges. 6. AO incorrectly observed that MJPL ceased to exist from F.Y. 2001-02. As such MJPL was merged with the assessee in the 2001-02 and ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration was in shares which were fixed in the agreement entered in the year 2002. At the time of the agreement the price of shares was very low. The value of technologies changed with the fluctuation in the price of the shares. It is also important to note in 2002, the price was USD 1.10(low) and USD 4.96(high). In year 2011 $4.18(low) and $6.93(high) with the peak price at $18.70 in 2009. 14. The consideration in shares was the part of long term strategic decision to increase the stake in the company for investment in the US market. The transfer of technology for shares was only a milestone established by the parties. In both the agreement (first between SPIL and CARACO on 21/04/97 and second between SUN global and CARACO on 21/11/02) the consideration in the number of shares was uniform at 5,44,000 shares for each technology. 15. It is wrong to compare the rates of purchase of the technologies from UTL and the value of shares recorded by SUN BVI received from CARACO on the transfer of technology as it was recorded by it on the fair value. 16. With regard to observation of AO that prior to 2002 SPIL directly transferred technologies to CARACO, it was submitted that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19,362/- to CARACO. 3. CARACO, a 100% subsidiary of assessee had earlier the same agreement with the SPIL (assessee). In the given circumstances and being a close connection between the concerns UTL/MJPL and the assessee as sister concerns and without proper and sufficient R&D facility, there is a strong reason to believe that they have not actually developed these technologies. As such SPIL actually developed the products. 4. As per the agreement in 1997, the assessee had to invest $7.5 million in stock which was to be issued as a consideration of technology transfer. However, it was mentioned that till Dec, 31, 2003 SPIL had delivered only 13 formulas and became the beneficiary owner for approximately 48% of the total shares. Assessee also submitted that after expiration of agreement in 1997 a new agreement in Nov 2002 with SUN BVI was entered. Therefore, there is contradiction in the submission of assessee itself that 2002 agreement was made after the expiration of 1997 whereas on the other side it is claiming that agreement was continued till Dec. 2003 and even as on that date all the technologies could not be transferred. 5. The argument of the assessee to avoid the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The AO correctly held that the new agreement was nothing but the extension of old agreement as there was already an old agreement of same nature which could not be complied with. This new agreement was made between CARACO and 100% subsidiary company of same group, which is in the tax heaven after acquiring 48% of shares of CARACO. 2. Assessee's contention is right that nothing is mentioned in statement that they were not co-operating, hence oath taken is meaningless. But the fact remains same that the clause (iii) of section 133A authorizes an IT authority to record statement of any person which may be useful. The Hon'ble Apex court also in the case of S. Khader khan has held that statement can be used by department in conjunction with other documents impounded during the course of survey proceedings. 3. In the present circumstances after considering the nature of the transactions, the finding of AO is very much correct that these were only carried out to transfer the income in the hand of SUN BVI, located in a tax heaven. 4. If the contention of assessee had been correct, then the name of UTL should have mentioned on these documents instead of CARACO. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Unit-1, Baroda on 21.3.2011. The difference in value was highly excessive and unbelievable that the technologies was sold by Unimed to Sun BVI for US$ 4,00,000 & Sun BVI sold to CARACO for US$ 1,17,19,362 which raises serious doubt as to the genuineness of the transaction and further strengthens the fact that actual vendor was none other than SPIL. The Caraco, a 100% subsidiary of the assessee, was earlier having an agreement with assessee for purchase of formula of generic products and subsequently it had another agreement with another 100% subsidiary of the assessee which is Sun BVI for purchase of generic products and it has claimed to have purchased such formula from two of the subsidiaries of the assessee which apparently did not have sufficient R&D facility for developing such products and hence it is believed that R&D facility of the assessee have been used for developing the products which have been purchased by Sun BVI form Unimed and other subsidiary of the assessee. Since both the concerns i.e. Unimed and M J Pharmaceuticals were sister concerns of the assessee at the given point of time and these concerns did not had proper and sufficient R&D facility to develop su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable income of the appellant for this year. 1.3. Remarks: The decision of the Ld.CIT (A) was not accepted by the Department. The Ld CIT(A) erred in holding that hire charges received from M/s. UTL is a part of consideration receivable from M/s. Caraco USA whereas the AO has only taxed the income receivable on account of transfer of technology to Caraco by Sun BVI and which did not include profit earned by the Unimed Technologies Ltd. It has been clearly mentioned by the AO that the technologies had been sold by Unimed Technologies Ltd. to Sun BVI for US$ 4,00,000 and Sun BVI sold the same technologies to Caraco for US$ 1,17,19,362. Accordingly, the AO held that the assessee diverted its profit and suppressed the actual value of transaction which resulted into the taxation of profit in India, as tabulated hereunder: Thus, the AO has not taxed any income earned by M/s. Unimed Technologies Ltd. on account of aforesaid transaction (US$ 4,00,000) as mentioned above and also the said hire charges was not part of consideration which was brought to tax in the hands of assessee on account of aforesaid transaction. 1.3.1. Further regarding nature of such receipts on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of pharmaceutical products as manufacturers, dealers, job workers, processors, sellers, retailers, wholesalers, importers and exporters. UTL sells pharmaceutical products in domestic and overseas market. UTL also has its own dedicated and exclusive research and development facility having requisite infrastructure, | personnel and resources. 1.3 With respect to the question pertaining to the manner in which the valuation of shares was carried out to discharge the consideration paid by Caraco Pharmaceuticals Laboratories Ltd. ('Caraco'), it is submitted that pursuant to the agreement entered in to between the Caraco and SPG BVI, for each of the product delivered, SPG BVI was entitled to receive 5,44,000 shares as consideration.' The number of shares as consideration were determined considering the long-term strategic interests serving dual purpose of (i) transfer of technology and (ii) increase in the stake in Caraco. The agreement determining the consideration in form of shares was entered in the year 2002. It was further agreed that the consideration was to become due as on such time when the respective product passed its applicable bioequivalency studies. The fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation. In the present case, the learned assessing officer has not recorded any satisfaction regarding the Appellant's non-co-operation during the course of Survey proceedings. Thus, the statement recorded, which is itself not as per law, cannot be considered as relevant for the purpose of determining the case. Also, it is settled legal principle that the statement recorded u/s. 133A of the Act in themselves have no evidentiary value. Hence, in the facts of the present case, no substantial relevance should be placed upon the statements recorded u/s. 133A of the Act. 2.1.2 Also, it is the contention of the Id. DR that Dr. T. Rajmannar being executive director of the R&D operations of the Appellant, is supposed to be in knowledge of the entire affairs of the Appellant including the contract entered into with UTI. In this regard, it is submitted that it is not at all practical to say that the Dr. T. Rajmannar, being executive director of the R&D activities, is supposed to be aware about the entire affairs of the Appellant. The Appellant carries out the business operations on a very extensive and large-scale basis. In such a scenario, it is not possible that a person respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Pantaprazole Sodium tablets by SPG BVI to Caraco was raised by the Transfer Pricing Officer (TPO) in connection to the ownership of SPG BVI over the IPRs / ANDAs rights of the products in question. Against the order of the TPO as further enhanced by the CIT (A), the Appellant had preferred an appeal before the Hon'ble Bench of this Tribunal. The Hon'ble Bench after verifying the documents and duly considering the submissions made I by the Appellant and Revenue in this regard, had come to the finding that the ownership of IPR/ANDA rights was with SPG BVI. Thus, the fact that the ownership of the IPR / ANDA vested with UTL has also been confirmed by the Hon'ble Tribunal which is being the final fact-finding authority under the Act. Thus, the arguments made by the Id. DR questioning the asset base of SPG BVI are repetitive and devoid of merit. Hence, the argument raised by the .Id. DR in connection to the statement given by Shri Dilip Shanghvi is not at all relevant in the facts and circumstances of the present case. SPG BVI does exist in substance as it possessed significant number of intangibles like IPR / ANDA rights and other assets in its name. 2.3 The Id. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, on reading the said agreement in its entirety it can be concluded that the intellectual property rights shall belong to UTL and the Appellant shall be having no rights whatsoever on the dossiers developed in its premises. 2.5 It is also the argument of the Id. DR that the consideration payable by UTL to the Appellant was vague and not specifically stated in the said agreement. The Id. DR also highlighted the clause in the said agreement wherein it has been mentioned that both the parties would mutually decide upon the consideration from time to time. 2.5.1 In this regard, it is submitted that the Id. DR has once again failed to read and consider the entire agreement. The relevant clause 3 of the said agreement which deals with the consideration explicitly specified the price which shall be charged by the Appellant to UTL. Attention is invited to the clause 3 of the said agreement. The relevant extract is reproduced for ready reference: "For consideration of carrying out of research and development activities for the Products for UTL by SPIL and transfer of the know-how for manufacturing of the same to UTL by SPIL, SPIL has agreed to charge the price being estimated cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. Relevant extract is reproduced as under for ready reference: "SPIL agrees to carry out such pharmaceutical research and development activities as may be mutually agreed y UTL and SPIL from time to time, for development of various pharmaceutical products ....... at SPIL's Research Centres at 17/B, Mahal Industrial Estate, Mahakali Caves Road, Andheri (E), Mumbai- Maharashtra 400 093 and at SPIL, Tandalja, Vadodara - 390 020, Gujarat. " [Emphasis supplied] Thus, the argument raised by the Id. DR cannot be considered since it is factually incorrect. 2.7 The Id. DR has also pointed out that the SPG BVI has no risk appetite to absorb any losses of claims arising on account of the litigation. In this regard, it is submitted that SPG BVI by acquiring these technologies has been subjected to very high risk. Risk is a very subjective term and depends upon the several factors. It is not at all pragmatic to judge risk appetite of an entity carrying on business as it depends on several factors and which varies from case to case. At this juncture, attention is also invited to the fact which is well in public domain that SPG BVI had to face severe litigation for some of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II. Whether the statement of Dr. T. Rajamannar, Hemang Seth recorded under section 131 of the Act was valid. III. Whether the SUN BVI is a paper company IV. Whether the impugned transaction is a Colourable Device V. Whether the Sale Consideration received by SUN BVI belongs to the assessee I. Whether UTL was a name lender in the impugned transactions, 12. The AO in his order has held that there was no infrastructure facility owned by the UTL for the development of the technologies as discussed above. As such UTL has not developed the technologies as claimed by the assessee. The ld. CIT-A also confirmed the view of the AO. Regarding this finding of the lower authorities the assessee submitted as under: i) The infrastructure facility of assessee was given on rental basis to M/s UTL for the development of the technologies. ii) UTL is a 20 years old company having expert knowledge in the development of technology as discussed above. iii) The technologies developed by UTL were directly sold to BVI and the consideration received by it was recorded in its books of accounts which was offered to tax. iv) There was also an assessment under section 143(3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment with SUN BVI dated 03/04/2007 which is available on record. As such we are of the view that the assessee has discharged its onus by furnishing the details as discussed above. In this regard, we find the support and the guidance from the judgment of Hon'ble Supreme Court in the case of PCIT Vs. Adamine Constructions Pvt. Ltd. reported in 99 taxmann.com 45 wherein the head note reads as under: "Commissioner (Appeals) as well as Tribunal deleted said addition holding that relevant enquiry based upon materials furnished by assessee had not been made - High Court also found that assessee had discharged onus initially cast upon it by providing basic details which were not suitably enquired into by Assessing Officer - Accordingly, High Court upheld order passed by Tribunal - Whether, on facts, SLP filed against order of High Court was to be dismissed - Held, yes [Para 4] [In favour of assessee]" II. Whether the statement of Dr. T. Rajamannar, Hemang Seth recorded under section 131 of the Act was valid. 18. The 1st question arises whether the statement recorded under section 131 of the Act during the course of survey has any evidentiary value. Regarding this we note that the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied by the learner DR as detailed under: i. Raj Hans Towers (P) Ltd. Vs. CIT reported in 56 taxmann.com 67 ii. Pr.CIT Vs. Avinash Kumar Setia reported in 395 ITR 235. iii. Pebble Investment & Finance Ltd. Vs. ITO reported in 98 DTR 247 18.3. In the above cases, we find that the issue was in relation to the statement recorded under section 133A of the Act. But in the case before us there is no doubt that the statement was recorded under section 131 of the Act. Therefore, in our considered view the principles laid down by the Hon'ble Court in the cases cited above cannot be relied upon as the facts are different with the facts of the case of the assessee. 18.4. In view of the above we disagree with the finding of the learned CIT (A) that the statement recorded under section 131 of the Act during survey under section 133A of the Act can be used in conjunction with the materials found during the survey operation. Accordingly we conclude that no reference can be made to the statement recorded under section 131 of the Act while framing the assessment for the year under consideration. 18.5. It is established law that the statement recorded on oath under section 131 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement furnished under section 131 of the Act dated 8-11-2011 was retracted by way of filing an affidavit dated 11-11-2011 immediately after 3 days. III. Whether the SUN BVI is a paper company i) There is no doubt that BVI was registered company in tax heaven in British Virgin Islands. ii) There were several transactions carried out by the assessee with the BVI which was subject matter of transfer pricing adjustments in the proceedings framed under section 143(3) read with section 92CA(3) of the Act. iii) The income of SUN BVI can be taxed in India if the residential status of SUN BVI is determined as resident of India as per the provisions of section 6(3) of the Act. However, none of the authorities below has alleged that M/s SUN BVI is resident of India. iv) If the transaction for the sale of technology is treated as international transaction between the associated enterprises as per the provisions of section 92C of the Act, then the same needs to be determined as per the arm length as per the provisions of law. But the Revenue in the case on hand has not invoked the provisions of transfer pricing adjustments. v) SUN BVI cannot be treated as the paper company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the state government. Therefore the assessee did not collect the sales tax on such excise duty. It is pertinent to note that the Hon'ble SC before the amendment in the rules 76 & 79 decided the issue in favor of the assessee reported in 1 SCR 914 dated 25-10-1976. Thus the assessee defaulted to complying the amended distillery rules 76 & 79 w.e.f. 4- 8-1981. Thus the Hon'ble Apex Court decided the issue in favor of Revenue. Hence we are of the considered view that the principles laid down by the Hon'ble Apex Court cannot be applied in the case before us as the facts are different. 18.11. It is also pertinent to note here that the Hon'ble apex court in case of Union Of India And Anr vs. Azadi Bachao Andolan (263 ITR 705) discussed the case McDowell & Co. Ltd vs. Commercial tax officer (supra) in detail and distinguished from it by observing as under: "We may in this connection usefully refer to the judgment of the Madras High Court in M.V.Vallipappan and others v. ITO , which has rightly concluded that the decision in McDowell cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of doing any trade, activity or planning his affairs with circumspection, within the frame work of law, unless the same fall in the category of colorable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. It was with this consciousness that the Court has used these expressions while depreciating the schemes of tax avoidance in the name of tax planning. All the expressions used by their Lordships in depreciating the methodology of tax avoidance through tax planning of resorting to 'colorable device', 'dubious methods or subterfuge' have special significance in legal world. In the context of the present discussion, the meaning assigned to 'colorable' in Brown's Judicial Dictionary has been defined as 'reverse of bona fide'. Black's Law Dictionary explain 'colorable' to mean 'that which is in appearance only, and not in reality, what it purports to be, hence, counterfeit, feigned having the appearance of truth'. So also a device. The context in which the expression device has been used in its ordinary dictionary meaning as per Shorter Oxford Dictionary mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transactions have concealed or hidden any fact and/or whether what is shown to be done could have actually happened in different time or at different place; Ans: Regarding the facts of the transactions, we note that all the necessary facts were duly disclosed by the assessee, UNIMED, Sun BVI in the financial statements. The following facts were duly disclosed: a) the sale price of the technologies by the UNIMED to sun BVI were duly disclosed in the income tax return which was also accepted by the Revenue in the assessment framed under section 143(3) of the Act. b) The fact that UTL used the premises the assessee for the development of the lodges against the rental payment was disclosed in the income tax return of the assessee as well as UTL which was also accepted by the Revenue in the assessment framed under section 143(3) of the Act. c) The aforesaid transactions were duly supported on the basis of the agreements which are available on record. Thus, we are of the view no facts were concealed or hidden. (ii) whether it could be a normal business practice; Ans: In today's time the entire world has become a Global village for the business. The business men wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Rights Privileges and Preferences, Series B Preferred Stock No. Par Value ("Certificate of Determination") of Caraco (the form of which is attached hereto) (the "Preferred Shares"). The consideration will become due with respect to each Product and such time as such Product passes the applicable bioequivalency study or studies (the "Target Date"). Caraco shall notify Sun Global when a Target Date has been triggered. Sun Global shall then notify Caraco as to when, where and in whose name (Sun Global's or an affiliate's) Sun Global wishes the Preferred Shares to be issued. Within fifteen business days of Caraco's receipt of such notice from Sun Global, it shall, as applicable, either directly issue and deliver such Preferred Shares to Sun Global and/or its affiliates or send to its transfer agent an instruction directing such transfer agent to issue and deliver such Preferred Shares to Sun Global and/or its affiliates promptly after the transfer agent's receipt of such notice from Caraco. 4.2. Validity Issued Preferred Shares. The Preferred Shares issued and delivered by Caraco to Sun Global pursuant to this Section 4, when issued shall be duly authorized and validly issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UN BVI is the AE as per the provisions of Act, therefore, to avoid the TP provisions, the assessee involved third party i.e. UTL for the development of such technology. But we note that the AO has accepted the transaction of sale by the UTL to SUNBVI and the payment of rent to SPIL in the assessment framed under section 143(3) of the Act vide order dated 29-10-2010. Similarly, the rent income received by the assessee from UTL for allowing the use of Infrastructure facility to UTL has been accepted by the Revenue. Therefore, we are of the view that no addition can be made on the basis any doubt unless it is based on some documentary evidence. Regarding this we place our reliance on the order of Hon'ble Supreme Court in the case of Union Of India And Anr vs. Azadi Bachao Andolan (263 ITR 705)wherein it was held as under: "134. We may also refer to the judgment of Gujarat High Court in Banyan & Berry v. CIT [1996] 222 ITR 831/ 84 Taxman 515 where referring to McDowell & Co. Ltd.'s case (supra), the Court observed: ". . . The court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mportant to note that the Revenue has not invoked the provisions of section 92 of the Act to determine the arm length price for the impugned transaction. Thus we are of the considered view that there is no provision under the Act to tax the international transaction between the 2 associated enterprises other than the provisions contained under section 92 of the Act. In our considered view the revenue has erred by not referring the impugned transaction to the TPO for determining the arm length price. 18.13. Once the reassessment proceedings have been initiated against the assessee, the AO was empowered to refer the matter the TPO for determining the price at Arm's length. But the AO has not done so. Once the matter has not been referred to the TPO for determining the arm length price, then normal provisions of the Act will be applied. Under the normal provisions of the Act the purchase and sale price between the associated enterprises cannot be disturbed even these are not at Arm's length price. In this regard we find support and guidance from the judgment of Hon'ble Gujarat High Court in the case of Marghabhai Kishabhai Patel & Company Vs. CIT reported in 108 ITR 54 wherein it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he partners. 18.14. We further note that even if we assume that SUNBVI is the paper company which was created only to divert the income of the assessee, then the transaction for the sale of transaction will be treated between the assessee and CARACO. Thus such transactions will be governed under the provisions of section 92C of the Act for determining the ALP. But the AO failed to invoke the provisions of the transfer pricing under section 92 of the Act. 18.15. It is also important to note that the assessee has shown rental income received from UTL which has been duly accepted by the Revenue as income of the assessee. Thus we note that the revenue has taken contradictory stand while holding the transaction between the assessee, UTL & sun BVI as colorable device. In our considered view once the transaction has held as colorable device then the assessee should not suffer tax on the income disclosed by it by way of rent from UTL. 18.16. Regarding the contention of the ld. DR for the use of the R & D facility at Baroda, we note that there was also the rent agreement for the use of both the facility for carrying out R&D process as evident from page 2 of agreement placed on page 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing units at ' Jammu and Dadra. The A.O. found that the assessee is holding 97.5% share of the said firm SPl. 51.On perusal of the returns of income filed by the partnership firm SPl, it was observed that it is showing huge profit margins and claiming deductions u/s. 80IC of the Act. It was observed by the A.O. that substantial part of this profit is coming back to the assessee. The A.O. was of the opinion that since the huge profit received by the assessee from the firm is exempt from tax. Therefore, the assessee has debited all the expenditure in its books of accounts whereas the partnership firm has not debited any expenditure under the head 'Research & Development'. 52.The A.O. was of the firm belief that the entire R&D expenditure claimed by the assessee in its books of accounts cannot be allowed in the hands of the assessee. 53.. The assessee strongly objected to this proposition on the ground that R&D facility is wholly and exclusively owned by the assessee and is approved by the DCIR u/s. 35(2AB) of the Act. and the products developed by this R&D facility are owned up by the assessee. 54.The contentions of the assessee were dismissed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable if it is incurred for the purposes of the business of the assessee. Finding that the assessee is having 97.5% share in the profits the firm SPI, we do not find any merit in the disallowance made by the A.O. and confirmed by the First Appellate Authority. We, accordingly, direct the A.O. to delete the addition of Rs. 5,30,29,5255/-. Ground no. 12 is accordingly allowed." 24. As the facts of the case on hand or identical to the facts of the case as discussed above, therefore respectfully following the same the ground of appeal of the assessee is allowed and the ground of appeal of the Revenue is dismissed. 25. The issue raised by the assessee in ground No. 5 is consequential in nature and therefore no separate adjudication is required for the same. Accordingly we dismiss the same. 26. In the result, the appeal filed by the assessee is partly allowed. Now we take up Revenue's appeal in ITA No.1689/Ahd/2015 for AY 2008-09 27. The Revenue has raised the following grounds of appeal: 1. "On the facts and in the circumstances of the case, the Ld. CIT (A) erred in law and on facts in holding that hire charges received from M/s. UTL is a part of consideration receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on in-house research can be allowed under section 35(2AB) and not any expenditure incurred outside such facility and explanation to section 35(2AB)(1) has only clarified that expenditure incurred on clinical trial in relation to drugs and pharmaceuticals will be part of the expenditure on scientific research and the said explanation no where states that expenditure incurred on clinical trials outside the in-house research and development facility can be allowed. 6. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal The order of the CIT(A) on the issues raised in the aforesaid Grounds be set aside and that of the Assessing Officer be restored. 28. The 1st issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for rupees 660.7 lacs on account of hire charges income received from UTL. 29. At the outset, we note that the issue raised by the assessee regarding the addition of Rs. 45,35,30,353.00 crores in ITA 1659/AHD/2015 vide Para -11 to 18 of this order has been decided in favour of the assessee. Accordingly, the addition deleted by the ld. CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. At the outset we note that the impugned has been decided in favour of the assessee by the Hon'ble Jurisdictional High Court in the case of CIT Vs Cadila Healthcare Ltd. reported in 214 taxman 672 wherein it was held as under: 14.In our opinion, the Tribunal committed no error. Section 35(2AB) of the Act provides for deduction to a company engaged in business of biotechnology or the business of manufacture or production of any article or thing notified by the Board towards expenditure of scientific research development facility approved by the prescribed authority. Such deduction at the relevant time was one-and-a-half times expenditure which has now been increased to twice the eligible expenditure. We may notice that explanation to section 35(2AB)(1) which was introduced by the Finance Act 2001 with effect from 1.4.2002 reads as under: "Explanation - For the purposes of this clause, "expenditure on scientific research" in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic research. In the context, certain observations made by the Bench may be of some relevance. "25. It can thus be seen that the term scientific research in the context of the deduction allowable under section 35(1) of the Act would include wide variety of activities. It can also be appreciated that every scientific research need not necessarily result into the ultimate goal with which it may have been undertaken. Often times in the field of research and invention, the efforts undertaken may or may not yield fruitful results. What is to be ascertained is whether any scientific research was undertaken and not whether such scientific research resulted into the ultimate aim for which such research was undertaken. It can be easily envisaged that the scientific research undertaken often times would completely fail to achieve desired results. That by itself does not mean that no scientific research was undertaken. What the Legislature desired to encourage by granting deduction under section 35(1) of the Act was a scientific research and not necessarily only the successful scientific research undertaken by an assessee." 18. We are, therefore, of the opinion that the Tribunal committe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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