TMI Blog2020 (8) TMI 442X X X X Extracts X X X X X X X X Extracts X X X X ..... f Bombay in the case of Merck Ltd. [ 2016 (8) TMI 561 - BOMBAY HIGH COURT] pleased to hold the entire transfer pricing agreement becomes unsustainable in law in not adopting one of the mandatorily prescribed methods to determine the ALP in respect of fees of technical services payable by the assessee therein to its AE. The Hon ble High Court of Bombay held the view taken by the Tribunal in deleting the adjustment made by the TPO without applying any of the method prescribed u/s. 92C to determine ALP is a possible view. TPO has to confine himself to one of the prescribed methods for determination of the ALP of international transaction, for which mechanism has been prescribed in Rule 10B of the Income-tax Rules, 1962. Further, it held the ALP of an international transaction can be determined only by applying one of the prescribed methods given under section 92C(1) of the Act and the ALP is determined by TPO by not applying any method at all or by choosing a method which is not prescribed u/s.92C(1) of the Act, then such a determination of ALP frustrates the transfer pricing addition and deleted the transfer pricing addition made thereon by holding the methods prescribed for dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. He argued that the AO/TPO basing on the similar issues for A.Ys. 2009-10 and 2010-11 treated the ALP of Management Support fees at Nil without applying method. Further, he submits that the finding of TPO/DRP is incorrect in respect of that the assessee did not prefer an appeal for A.Ys. 2009-10 and 2010-11 regarding the issue on hand and referred to page 164 of the paper book to show the information regarding filing of appeal for A.Y. 2010-11 in Annexure 5 and brought our attention at Point No. 7 and submitted that filing of appeal has been brought to the notice of TPO. 6. The ld. AR placed reliance on the decisions of Hon ble Bombay High Court in the case of Commissioner of Income Tax Vs. Johnson Johnson Ltd. reported in [2017] 80 taxmann.com 269 (Bom) and Commissioner of Income Tax Vs. Merck Ltd. reported in [2016] 73 taxmann.com 23 (Bom) and argued that the Hon ble High Court of Bombay in the case of Johnson Johnson Ltd. (supra) held that the transfer pricing adjustment done by the AO/TPO without determining the ALP is bad under law. Further, he referred to the order of this Tribunal in the case of INA Bearings India (P.) Ltd. Vs. Deputy Commissioner of Income Tax rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justment on account of sales promotion and publicity expenses being payable by the assessee to its parent company M/s. Johnson Johnson, USA. The TPO did not follow any method prescribed u/s. 92C(1) of the Act r.w.s. 10B made adjustment. The Hon ble High Court of Bombay was pleased to hold that the TPO is obliged under the law to determine the ALP by following any one of the prescribed methods of determining the ALP as detailed in section 92C(1) of the Act and upheld the order of Tribunal in allowing assessee s appeal by deleting the addition made on account of sales promotion and publicity expenses. 10. Further, the Hon ble High Court of Bombay in the case of Merck Ltd. (supra), the Hon ble High Court of Bombay was pleased to hold the entire transfer pricing agreement becomes unsustainable in law in not adopting one of the mandatorily prescribed methods to determine the ALP in respect of fees of technical services payable by the assessee therein to its AE. The Hon ble High Court of Bombay held the view taken by the Tribunal in deleting the adjustment made by the TPO without applying any of the method prescribed u/s. 92C to determine ALP is a possible view. 11. Further, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that issue is covered by the order of this Tribunal in the case of M/s. East West Seeds Ltd. in ITA No. 179/PUN/2018 for A.Y. 2014-15 wherein this Tribunal while placing reliance on the decision of Ahmedabad Bench of Tribunal in the case of Torrent Pharmaceuticals Ltd. in ITA No. 3569/AHD/2004 allowed the claim of weighted deduction u/s. 35(2AB) of the Act. The ld. AR placed on record above order dated 06-08-2019 and drew our attention to the paras 3 to 6. 16. Further, he placed on record subsequent decision following the above order in the case of Bharat Forge Ltd. in ITA No. 1229/PUN/2017 for A.Y. 2014-15 wherein we find this Tribunal allowed the similar weighted deduction in favour of the assessee therein by following the decision of A.Y. 2012-13. For ready reference paras 16 and 17 is reproduced here-inbelow: 16. We have heard the rival submissions and perused the material on record. The issue in the ground Nos.2.1 to 2.6 is with respect to disallowance of weighted deduction u/s 35(2AB) of the Act. We find that Pune Tribunal in ITA No.805/PUN/2017, order dated 04.09.2019 for A.Y. 2012-13 on identical facts in assessee s own case has decided the issue in assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of capital expenditure, is to be allowed to research association, university, college or other institution; for which an application in the prescribed form and manner is to be made to the Central Government for the purpose of grant of approval or continuation thereto. Before granting the approval, the prescribed authority has to satisfy itself about the genuineness of activities and make enquiries in this regard. Under sub-section (2B) to section 35 of the Act, a company engaged in the specified business as laid there on, if it incurs expenditure on scientific research or inhouse Research Development facility also needs to be approved by the prescribed authority, is entitled to deduction, provided the same is approved by the prescribed authority. 39. Now, coming to sub-section (2AA) to section 35 of the , it talks about granting of approval by the prescribed authority but the approval to the expenditure being incurred is missing under the said section. Similar is the position in sub-section (2A). Further in subsection (2AB), it is provided that facility has to be approved by the prescribed authority, then there shall be allowed deduction of expenditure incurred whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority has to furnish electronically its report (i) in relation to approval of in-house R D facility in part A of form No.3CL and (ii) quantifying the expenditure incurred on in-house R D facility by the company during the previous year and eligible for weighted deduction under sub-section 2AB of section 35 of the Act in part B of form No.3CL. In other words the quantification of expenditure has been prescribed vide IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016. Prior to this amendment, no such power was with DSIR i.e. after approval of facility. 41. Under the amended provisions, beside maintaining separate accounts of R D facility, copy of audited accounts have to be submitted to the prescribed authority. These amendments to rules 6 and 7a are w.e.f. 01.07.2016 i.e. under the amended rules, the prescribed authority as in part A give approval of the facility and in part B quantify the expenditure eligible for deduction under section 35(2AB) of the Act. 42. The issue which is raised before us relates to preprovisions and question is where the facility has been approved by the prescribed authority, can the deduction be denied to the assessee under section 35(2A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behind above enactment and observed that to boost up R D facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 10. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under s. 35(2AB) of the Act by the assessee. 44. The Hon‟ble High Court of Delhi in CIT Vs. Sandan Vikas (India) Ltd. (2011) 335 ITR 117 (Del) on similar issue of weighted deduction under section 35(2AB) of the Act held that the condition precedent was the certificate from DSIR, but the date of certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below. 46. The Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on in-house R D facility as weighted deduction under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by ₹ 6,75,000/-. Thus, grounds of appeal No.10.1, 10.2 and 10.3 are allowed. 18. The issue arising before us is similar to the issue in Cummins India Ltd. Vs. DCIT (supra) and follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, ground Nos. 4 to 4.2 raised by the assessee are allowed. 18. In the result, the appeal of assessee is allowed. ITA No. 3054/PUN/2017, (A.Y. 2013-14) 19. Both the sides are unanimous in stating that the facts and the ground Nos. 1 to 3.5 of appeal except the amount raised in ITA No. 3054/PUN/2017 is identical to the grounds raised in ITA No. 469/PUN/2016. Thus, in view of the fact that the issue in the appeal is identical and is arising from same set of facts the findings given by us while adjudicating the ground Nos. 1 to 3.5 of appeal in ITA No. 469/PUN/2016 would mutatis mutandis apply to the ground Nos. 1 to 3.5 of the appeal in ITA No. 3054/PUN/2017, as well. Accordingly, the ground Nos. 1 to 3.5 of the appeal in ITA No. 3054/PUN/2017 are allowed. 20. Since the ground Nos. 4, 5 and 5.1 of the appeal in ITA No. 3054/PUN/2017 are identical to the ground Nos. 4 to 4.2 of the appeal in ITA No. 702/PUN/2017, our decision for ITA No. 702/PUN/2017 shall apply mutatis mutandis for ITA No. 3054/PUN/2017, as well. Accordingly, the ground Nos. 4, 5 and 5.1 are allowed. 21. In the result, the appeal of assessee is allowed. 22. To sum up, all the appeals of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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