TMI Blog2021 (4) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... that in absence of specific section under which the tax is required to be deducted on such contribution without their being any service rendered by the recipient of the contribution disallowance u/s 40a(ia) also cannot be made TP Adjustment - Erred in not considering overseas associated enterprise as tested party being the least complex of the transacting entities and instead considering assessee as tested party thus violating basic principles of transfer pricing - HELD THAT:- As relying on own case [ 2019 (9) TMI 438 - ITAT DELHI] we restore this issue to the file of the TPO for fresh adjudication considering A.E s. as tested party. Therefore, this ground of appeal of the assessee is allowed for statistical purposes. Disallowance u/s 14A - HELD THAT:- Respectfully following the decision of the Hon ble High Court of Gujarat in the case of Corrtech Energy Ltd. [ 2014 (3) TMI 856 - GUJARAT HIGH COURT] wherein held that in case no dividend income is claimed as exempt no disallowance is to be made u/s. 14A of the Act. Therefore, following the decision of Hon ble Gujarat High Court as cited above, this ground of appeal of the assessee is allowed. Disallowance of deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of the FCCB. Therefore, payment of interest in the form of premium which is incurred wholly and exclusively for the purpose of business is to be allowed in the year in which it is incurred. Therefore we consider that premium on redemption of debenture is in the nature of interest allowable as deduction under the provision of the act, therefore, this ground of appeal of the assessee is allowed. Disallowing weighted deduction u/s. 35(2AB) merely on account of failure to produce form 3CL - HELD THAT:- As relying on own case 2016 (12) TMI 1539 - ITAT AHMEDABAD] we direct the Assessing Officer to allow the claim of the assessee after verification of the necessary particulars as directed in the above decision of the ITAT. Therefore, this ground of appeal of the assessee is allowed. Weighted deduction u/s. 35(2AB) on cost of assets provided to employees working in approved R D facilities and engaged in execution of R D activities) - HELD THAT:- The ground raised before us is identical to the issue raised before Delhi ITAT in the case no. [ 2016 (5) TMI 157 - ITAT DELHI] . Hence taking the same view on such issue, we set aside the order of ld. CIT-A to the AO for fresh a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(2) of the Act was issued on 6th August, 2012. The assessee was having international transaction with associated enterprise as per form 3CEB report. Therefore, the case was referred to the transfer pricing officer and the TPO had passed order u/s. 92CA(3) of the Act on 30th January, 2015. The assessee company was engaged in the business of manufacturing and sale of pharmaceutical products. The assessee company has also carried out R D activities for developing new drugs and involved in quality control process etc. The company was also engaged in trading activity. In the case of the assessee, draft assessment order u/s. 143(3) r.w.s.144C of the Income Tax Act, 1961 was passed and computed the total income at ₹ 9,16,04,08,572/-. Against the draft assessment order, the assessee has filed objections before the DRP. The DRP has issued direction vide their order u/s. 144C(5) of the Act on 23rd No, 2015. Thereafter, taking into consideration, the direction issued by the DRP, the Assessing Officer has passed assessment order u/s. 143(3) r.w.s. 92CA r.w.s. 144C(3) of the Act on 26th Jan, 2016 and total income was determined at ₹ 9,38,19,42,897/- against the order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer grossly erred in disallowing the amount by misconstruing the directions of the DRP without appreciating that in previous year the DRP had allowed the claim of the Appellant u/s 37(1), however the amount was eventually disallowed on the ground of non deduction of TDS u/s 40(a)(ia). 2.3 Without prejudice to the above, the Ld. Assessing Officer / DRP ought to have appreciated that since the payments had already been made during the year under consideration and nothing was payable as at the end of the relevant year, the provisions of section 40(a)(ia) of the Act were not applicable and consequently the entire amount was allowable as deduction u/s 37(1). 2.4 Without prejudice to the above, that the Ld. AO / DRP failed to appreciate that since the payments were not taxable in the hands of RCI IS, there was no requirement to make any disallowance under the provisions of section 40(a)(ia) of the Act. 2.5 Without prejudice to the abvoe, the Ld. AO / DRP grossly erred in not allowing deduction under section HOG in respect of contribution made to RCHS. 3. Re: Addition on aecount Transfer Pricing ₹ 1,808,200,000/-: 3.1 The Ld. DRP erred both on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng income, i. The AO grossly erred in disregarding the specific directions of Ld. DRP and considering unclaimed balance written back (23.1 Cr) and reversal of deferred employee compensation (0.33 Cr) as part of non-operating income. The AO ought to have appreciated that directions of ld. DRP are binding on AO. c. In starting afresh the process of determining the comparables, without appreciating that the Appellant had carried out its supplementary analysis diligently and based on the available records, hence the same cannot be rejected. d. In considering companies which are dissimilar in function in the final list of comparables. c. In disregarding the approach adopted by the Appellant of using the multiple year/ prior available year's data in the supplementary economic analysis and holding that current year (I.e. Financial Year 2010 11) data for comparable companies should be used despite the fact that [he same was not necessarily available to the Appellant at the time of preparing TP documentation, Further, in disregarding the CBDT Notification No. 83/2015 dated 19 October, 2015, allowing the Appellant to use multiple year data while carrying out comparabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year. The Ld. DRP ought to have appreciated that AO had misinterpreted the applicable legal provisions while proposing the disallowance of entire deduction under sections 8O-IB and 80-1C of the Act. 5.2 The AO grossly erred in stating that Appellant had not submitted balance sheet and profit and loss and hence was not eligible to claim deduction as per S. 80IA(7) of the Act r.w.r. 18BBB(2) of the Income Tax Rules, 1962, without appreciating that revised certificate in Form 10CCB submitted by Appellant already contained the requisite information and therefore requirement of S. 801A(7) of the Act r.w.r. 1 8BBB(2) of the Income Tax Rules, 1962 was fulfilled. 5.3 The Ld. DRP erred in law in upholding the actions of AO to deny the deduction u/s 80- IB 80 1C of the Act, without appreciating that AO had exceeded jurisdiction and that on identical facts, deduction had always been allowed in the earlier year(s) (except for assessment years 2008 09, 2009-10 and 2010-11). The ld. DRP ought to have appreciated that determination of eligibility for allowance of deduction u/s 80-IB 80-10 of the Act is relevant only in the first year and not in subsequent years of claim. 5.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment years. 7. Re: Disallowance of Non-Compete fees (Expense)- ₹ 10,00,000/- 7.1 The Ld. DRP erred both on facts and in law in in disallowing ₹ 10,00,000/- being the amount of non-compete fee (expense) on the ground that it is capital in nature without appreciating that amount paid was for carrying out its business more efficiently and effectively. 8. Re: Disallowance of Premium paid on FCCB- ₹ 5,945,459,801/- 8.1 The Ld. DRP erred both on facts and in law in disallowing the premium paid on redemption of Xero Coupon Convertible Bonds ( FCCB ) amounting as capital expenditure without appreciating that treatment given in books of accounts as per provisions of Companies Act cannot be considered as the basis for deciding the allowability of premium on FCCBs under the- Income Tax Act, 1961. 8.2 The Ld. DRP ought to have appreciated that the FCCBs were in nature of debt and once they were not converted into equity shares, any premium paid on redemption would be allowable as revenue expenditure and accordingly the action of the At) in treating the premium on the redemption of FCCB as akin to dividend on equity shares is completely contrary t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal assets provided to R D employees. 11. Re: Non-adjudication of claim of hedging charges incurred ₹ 13,25,11,156/- 11.1 The Ld. DRP erred both on facts and in law in not adjudicating the claim of ₹ 10,00,30,513/- being hedging charges towards investment made by the Company in overseas subsidiary expenses incurred to protect against foreign exchange rate volatility as deductible under section 37(1) of the Act, without giving any cogent reason for same.. 11.2 The Ld. DRP erred both on facts and in law in not adjudicating the claim of ₹ 3,24,80,643/- on account of adjustment of hedging charges pertaining to the cost of fixed assets against their cost and allowing depreciation thereon under the provisions of the Act. 11.3 Without prejudice to the above, hedging charges amounting to ₹ 10,00,30,513/- incurred towards investment made by the Company in overseas subsidiary companies should be adjusted to the cost of acquisition of such investment. 12. Re: Double taxation of Income from Capital gains and other sources.: 12.1 The Assessing Officer grossly erred in taxing the long term capital gains of Rs, 14,27,71,965/- and income from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Hon ble Jurisdictional High Court and other courts. The ld. Departmental Representative is fair enough not to controvert these undisputed facts reported by the ld. counsel in its submission that all issues contested in the grounds of appeal are covered by the decision of ITAT and other courts in its favour. Taking into consideration the aforesaid facts and circumstances, the various grounds of appeal filed by the assessee and revenue are adjudicated as under:- ITA No. 702/Ahd/2016 A.Y. 2011-12 filed by assessee 4. Ground No. 1 is of general nature of ground of appeal not specifically contested by the assessee, therefore, the same stands dismissed. Ground No. 2.1 to 2.2 (contribution to Ranbaxy Community Healthcare Society (RCHS) of ₹ 30,992,839/- u/s. 37(1) of the Act and disallowing on the ground of non-deduction of TDS u/s. 40(a)(ia) of the Act) 5. During the year under consideration, the assessee has made contribution of ₹ 3,09,92,839/- to Ranbaxy Community Healthcare Society (RCHS). The assessee submitted before the Assessing Officer that this expenditure has been incurred for promoting its business, therefore, the same may be allowed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this ground of appeal is covered by the aforesaid cited decision of the ITAT. With the assistance of ld. representatives we have gone through the aforesaid cited decision of the Co-ordinate Bench of the ITAT and the relevant part of the decision is reproduced as under: - 23. The issue raised by the assessee in ground no 7 is that the Ld. DRP erred in confirming the disallowance of deduction in respect of contribution of ₹ 22,50,000/- and ₹ 50,00,000/- made to Ranbaxy community healthcare society ( for short RCHS) and Ranbaxy Science Foundation (for short RCF). 24. The assessee company made a contribution of ₹ 22,50,000/ to RCHS and ₹ 50,00,000/- to RSF and claimed as deduction u/s 80G but the deduction has not been set off due to a loss in the return. 24.1. Further, the assessee claimed the same as business expenditure u/s 37/35 of the Act. The assessee in this connection submitted that the Hon ble ITAT, New Delhi on the same issue in the assessee s case had held that contribution made to RCF RCHS are expenditure for the purpose of promoting the business of the company and is allowable as business expenditure u/s 37 of the Act. 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40a(ia) also cannot be made. In the result ground no.9 of the appeal is allowed. 30. In view of the identical issue raised before us in the ground of appeal no. 7 which has already been considered by the ITAT Delhi as discussed above, we are taking the same view. Accordingly, we allow the ground of appeal of the assessee. Respectfully following the decision of the Co-ordinate Bench of the ITAT on identical issue as cited above after taking the same view, we allow this ground of appeal of the assessee. In the result, this ground of appeal is allowed. Ground No. 3 ( Erred in not considering overseas associated enterprise as tested party being the least complex of the transacting entities and instead considering assessee as tested party thus violating basic principles of transfer pricing) 6. During the course of assessment, the Assessing Officer stated that as per audit report in form no. 3CEB filed by assessee, the total value of international transaction entered into with its overseas AE s were more than prescribed limit. Therefore, according to the provisions of section 92CA(1), the case of the assessee was referred to the additional director of income tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty is usually the party participating in a transaction for which profitability most reliably can be ascertained and for which the reliable data of comparables can be found and the tested party will typically be the party with least intangibles. 20. As per section 92C(1) of the Act, ALP of the international transact is required to be determined using any of the profit based prescribed methods, being the Most Appropriate method (MAM) having regard to the nature of transaction or class of transactions. However, in order to determine the MAM for determining the ALP, it is first necessary to select the 'tested party'. The transfer pricing legislation in India does not provide any guidance on the concept of 'tested party'; however, there are some decisions on this issue, which can be of great help. 21. In order to understand the concept of tested party, one need to refer to the transfer pricing legislations of developed countries where the principles of transfer pricing have been in use for a long time and act as a guiding force for all the developing economies. The transfer pricing guidelines issued by the US Internal revenue services under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficient data on comparables is furnished to the tax administration and vice versa in order for the latter to be able to verify the selection and application of the transfer pricing method. 24. The OECD guidelines at Para no.3.18 provides as under:- 3.18 When applying a cost plus, resale price or transactional net margin method as described in Chapter II, it is necessary to choose the party to the transaction for which a financial indicator (mark-up on costs, gross margin, or net profit indicator) is tested. The choice of the tested party should be consistent with the functional analysis of the transaction. As a general rules, the tested party is the one to which a transfer pricing method can be applied in the most reliable manner and for which the most reliable comparables can be found i.e. it will most often be the one that has the less complex functional analysis. 3.19 This can be illustrated as follows. Assume that company a manufactures two types of products, P1 and P2 that it sells to company B, an associated enterprise in another country. Assume that A is found to manufacture P1 products using valuable, unique intangibles that belong to B and following te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Para, 1(F) of that agreement tested party means associated parties as listed in Appendix 1. According to the annexure-1, it has been agreed between the parties that the TNMM with PLI of operating profit margin computed based on audited financials of AE, being the tested party, shall be the method to benchmark the covered transactions in the case. In order to select the comparables regional benchmarking shall be applied in case country-by-country benchmarking is not feasible the same shall be preferred over regional bench marking. In that appendix, CBDT has agreed to benchmark South African, Ireland and Romania AEs benchmarking region as Europe. In case of Nigeria, Malaysia and Morocco the regional benchmarking has been accepted of Asia. In case of South Africa, Peru the benchmarking of Europe and in case of Egypt, Brazil and Thailand benchmarking of Asia is accepted. According to Parano.5, it is also emphatically mentioned that foreign AEs are the tested parties. It is also important to notice that how this agreement has been reached between the parties. Page No 500 where in it is held that applicant i.e. appellant is an entrepreneur manufacturer where in the functions performed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax base. Need for Advance pricing agreements are emerging out of current global complex economic situations and its impact on revenue of tax compelling governments to intensify and streamline their transfer pricing compliance efforts to reduce the disadvantage in staking their claim for tax. Higher risk of disputes may be reduced by the advance pricing agreements. On the same intentions and objects, the ld. TPO is also required to compute the ALP of the International transactions of the Assessee for this year. Therefore, the agreement entered into by CBDT with the assessee, which has considered all the aspects of the manner of determination of ALP which are also similar for the this year, should be given highest sanctity and therefore mechanism suggest in that agreement should be necessarily followed in determining ALP of the transactions for this year. 29. Though in the APA signed by the assessee there is no roll back provisions for the year under appeal, however we analyses the circumstances, which provides for applying that rule. Rule 10MA of the Income tax Rules 1962 provides for the roll back provisions as under :- '10MA. (1) Subject to the provisions of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide that if the International Transactions are same in the year of APA and in the past year than both the parties, assessee and CBDT may agree for applying the agreements contained in APA agreed. In the present case, it is not disputed that the international transactions in both the years are not same. Therefore, we draw support from Rule 10 MA of Income tax Rules 1962 in applying the methodology as accepted in APA for the impugned year in appeal. 30. As the FAR Analysis of the year under APA as well as the year under appeal are similar and it is also an established fact that the tested parties selected by the APA i.e. foreign AEs are least complex and adequate financial data for comparison on region basis/country basis are available and further the financial transactions are same, we hold that based on APA for A Y 2014-15 the selection of tested party should be taken as Foreign AE for the current year too. 31. On looking at the TP Study report of the assessee placed at page Nos. 409 to 478 of Paper Book Volume-II as well as the order of TPO it is apparent that assessee has also adopted region based analysis and also country by country analysis of comparable w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case, the question came up for consideration before the earlier Bench of this Tribunal was as to whether a minute examination of functional profile is necessary for the selection of comparables and the answer given was that functional profile must be first examined and after that proceed to select the comparable. In this case, the comparables chosen by the assessee were discussed by the TPO and those were discarded for the basic reason that the companies those quoted by the assessee were dealing in product distribution whereas the TPO was of the view that the AE was nothing but 'front office' of the assessee and simply engaged in marketing activity. After due consideration of the issue, the Hon'ble Bench had observed thus: 16.1 (on page 47) It is clear that arm's length price is to be determined by taking result of comparable transactions and those transactions must be in comparable circumstances. It is therefore required to have a proper study of specific characteristics of controlled transaction. It is also required that there should be proper study of functions performed to match the identical situations under which functions have been perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y India (P.) Ltd. v. Dy. CIT [2008] 114 ITD 448/315 ITR 150 (Delhi): The issue before the Tribunal was that the CIT (A) had confirmed the adjustments to the international transactions of the assessee with its AEs based at Bahamas, USA without considering the submissions and the financial of the AEs explaining the facts etc. In case of the merits of the case for international transactions entered by the assessee with TKC, the submission made on behalf of the assessee was as under: 26, 1 to 3** ....4. TKS is the entrepreneur company and has created significant marketing intangibles over the years. It uses its marketing intangibles to generate the work and assumes all the market, price and product risks. TKC came out the work on its own, only parts of the job are sub-contracted to the assessee for its convenience. Futher, being an entrepreneur company, it is difficult to determine the profits of ATKC with respect to work downloaded to India (as the revenue received for work off-shored to India cannot be separately identified). Further, the revenue generated from the services provided by the assessee would form only a small part of the entire operations. The value of en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties are available, it may not be right to eliminate them from consideration because they look to be complex. If the taxpayer wishes to take foreign AE as a tested party, then it must ensure that it is such an entity for which the relevant data for comparison is available in public domain or is furnished to the tax administration. The taxpayer is not then entitled to take a stand that such data cannot be called for or insisted upon from the taxpayer. In substance, a foreign entity (a foreign AE) could also be taken as a tested party for comparison. 11.2. At this juncture, we would like to refer to the United Nation's Practical Manual on Transfer Pricing for Developing Countries wherein the selection of the tested party has been dealt with. This Manual has been the work of many authors which included India, Norway, Nigeria, Italy, USA, Netherlands, Brazil, China, OECD, Japan etc. For ready reference, the relevant portion of it observation is extracted as under: 5.3.3. Selection of the Tested Party: 5.3.3.1. When applying the Cost Plus Method, Resale Price Method or Transactional Net Margin Method (see further Chapter 6) it is necessary to choose the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or selecting GMDAT as the tested party by citing a reason that there was no reliable data available for both GMDAT and comparables and, therefore, GMDAT cannot be taken as the 'tested party', however, on the same breath, as rightly highlighted by the assessee, the TPO had taken GMDAT as the tested party while making adjustment to transaction relating to payment of royalty by GMI to GMDAT. 11.2.4 Rebutting the Revenue's allegation made during the course of proceedings that the segmental financial statement of GMDAT was not reliable, the assessee reiterates that the segmental data relied upon for benchmarking international transactions relating to import of CKD Kits and components was completely reliable and was based on sound allocation keys. To substantiate its claim, the assessee has also furnished a report on factual findings certified by the statutory auditors Deloitte Anjin LLC. 11.2.5 Moreover, we find that the DRP had not considered in great detail the plea of the assessee as to why GMDAT should not be selected as the tested party for analyzing the inter-company transactions. Instead, the DRP had, in a cryptic manner, concluded that the results of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lent loans to its AEs stationed at USA, Singapore and Bahrain. The assessee had claimed that the said loans as working capital advanced to its 100% subsidiary outside India. When the issue was referred to TPO, the TPO took a view that as in a third party comparable situation, advances would bear interest and, therefore, need to charge a markup as per CUP method. Accordingly, the TPO proposed to benchmark the loans at dollar denominated LIBO [London Inter Bank Operative] rate plus mark up of 3%. When the issue landed up before the DRP, the DRP had, after analyzing the issue, directed the AO/TPO to compute the interest on loans to AE @ 14% per annum thereby enhanced the transfer pricing adjustment. Aggrieved assessee took up the issue with the Tribunal. The Hon'ble Tribunal, after due consideration of the issue in depth and for the reasons recorded therein, directed the AO/TPO to determine the arm's length interest at Libor plus 2% on the monthly closing balance of advances during the FY. We have, with due regards, perused the issue and the findings of the Hon'ble Bench in detail. Ironically, the main issue before the Bench was the percentage of the interest to be calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, therefore, repelled. With have duly perused the findings of the Hon'ble Bench cited supra. In this connection, we would like to point out that various Tribunals have taken divergent views in respect of selection of 'tested party'. To illustrate, the earlier Bench of this Tribunal in the case of Mastek Limited ITA No.3096/Ahd/2010 (AY- 2006-07) (supra) had stressed that (at the cost of repetition) we are of the view that in order to determine the most appropriate method for determining the arm's length price, first it is necessary to select the 'tested party' and such a selected party should be least complex and should not be unique, so that prima facie cannot be distinguished from potential uncontrolled comparables . The Hon'ble Calcutta Tribunal in the case of Development Consultants (P.) Ltd. (supra) had recorded its findings that 33. Based on facts and our findings of the case, after due consideration of all the facts, we conclude that the analysis undertaken by the assessee to determine the arm's length price of the international transaction with Datacore USA is correct and on the basis of the analysis it is seen that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. Needless to say that ld. TPO/AO shall give due weightage to the Advance pricing agreement signed by the assessee with CBDT on other issues also (other than the issue of 'selection of tested Party') for determination of ALP and in case of any divergent view, the assessee shall be granted an adequate opportunity to substantiate any claim/arguments on the manner of determination of ALP. 10. 1. As the facts in the case on hand are identical to the facts of the case as discussed above, therefore we are bound to follow the same. We cannot change the stand with the view taken by the ITAT in the own case of the assessee. Regarding this we find support guidance from the judgment of Hon ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.) wherein it was held as under: No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant protective armour for land reform laws. Even here, we must state that while we do refer to the range of constitutional immunity Art. 31Aconfers on agrarian reform measures we do not rest our decision on that provision. Independently of Art. 31A, the impugned legislation can withstand constitutional invasion and so the further challenge to Art. 31A itself is of no consequence. The comprehensive vocabulary of that purposeful provision obviously catches within its protective net the present Act and, broadly speaking, the antiseptic effect of that Article is sufficient to immunise the Act against invalidation to the extent stated therein. The extreme argument that Art. 31A itself is void as violative of the basic structure of the Constitution has been negatived by my learned brother, Bhagwati, J. in a kindred group of cases of Andhra Pradesh. The amulet of Art. 31A is, therefore, potent, so far as it goes, but beyond its ambit it is still possible, as counsel have endeavoured, to spin out some sound argument to nullify one section or the other. Surely, the legislature cannot run amok in the blind belief that Art. 31A is omnipotent. We will examine the alleged infirmities in due co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the order of the ITAT Delhi Bench I New Delhi bearing ITA No. 196/DEL/2013 for the AY 2008-09. The relevant proposed question of law as framed before the Hon ble Court reads as under: [1] Whether on the facts and circumstances of the case and in law, the ITAT was justified in directing to delete the addition of ₹ 238.16 crores holding that overseas Associated Enterprise can be accepted as tested party where there is no instances of transactions between unrelated parties ? 10.4 Thus the impugned issue is pending before the Hon ble Gujarat High Court, therefore we do not find any reason to refer the matter to the Special Bench as argued by the ld. AR for the assessee. 10.5 In view of the identical issue raised before us in the ground of appeal no. 2 which has already been considered by the ITAT Delhi, we are taking the same view and accordingly the ground of appeal of the assessee is allowed for statistical purposes. 10.6 As we have restored the issue to the file of the TPO for fresh adjudication considering the AE s as tested party, other grounds nos. 3 and 4 do not require to be adjudicated separately. Therefore, we dismiss the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt and the assessee has itself admitted during the course of assessment that the investment in shares of Indian companies would yield dividend income that is exempt u/s. 10(34) of the act. 8. During the course of appellate proceedings before us, the ld. counsel submitted that assessee has not earned any dividend income during the year under consideration, therefore, no further disallowance u/s. 14A is required to be made in the case of the assessee as held by the Hon ble High Court of Gujarat in the case of Corrtech Energy ltd. 372 ITR 97 (Guj). The ld. Departmental Representative could not controvert this undisputed finding of the Hon ble High Court of Gujarat as contended by the ld. counsel. Respectfully following the decision of the Hon ble High Court of Gujarat in the case of Corrtech Energy Ltd. 372 ITR 97 (Guj) wherein held that in case no dividend income is claimed as exempt no disallowance is to be made u/s. 14A of the Act. Therefore, following the decision of Hon ble Gujarat High Court as cited above, this ground of appeal of the assessee is allowed. Ground No. 5 (disallowance of deduction claimed u/s. 80IBand 80ICof the Act of ₹ 819,857,681) 9. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly NIUs as against losses in the NIUs set up earlier is incorrect which can be evidenced from the table below: S.No New Industrial Undertaking(s) Year of Establish ment Year or claim Prof it/ [loss] for the year Deduction claimed Percentage Amount 1 GOA Plant (New Clock) Y.E 31.03.2012 10lh 383,342,225 30% 115,002,668 2 New Tablet Plant-1 Y.E 31.03.2005 Y.E. (79,196,235) 30 % NIL 3 New Tablet Plant- II Y.E 31.03.2005 6 th (766,213,342) 30 % NIL 4 New SCG Plant Y.E 31.03.2007 5 th 702,849,827 100% 702,849,827 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain this figure of 30% is without any basis and bonafide evidence. The assessee has merely claimed the figure at 30% without attaching any Justification or basis for the same). 10.2.1 RULE 186BBB(2) AND FORM MO,1OCCB: The Rule 18BB8(2) of the I.T. Rules, 1962 mandates as under for submitting the Form 10CCB: A separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction u/s 80IB/IC and shall be accompanied by the P L Account and Balance Sheet of the undertaking or enterprise as if the undertaking or enterprise were a distinct entity . 10.2.2 It is seen that the assessee has only submitted a self-serving Income arid Expenditure Account and not submitted the Balance Sheet and P L Account of the undertaking as mandated by the prescribed Rules and mandatory report of the Auditor under Form lOCCB. Thus the claim submitted by the assessee is completely unreliable and devoid of merits. The Income Expenditure Account casted for the submission of the claim is based an approximations, unreasonably less allocation of expenses by using magic figures of 75% and 30% without any bonafide evidence, basis and justification. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xiii. It was observed that the sales from 801B/1C units were not recorded within the meaning of provision of Sec. 801 A(5), applicable to compute deductions xiv. The assesses has a huge selling and a distribution network which itself is a profit centre in its own right and existence and to include its profits as profits of manufacturing activity will be completely irrational. Therefore, why the same should not be excluded xv. Why the income from export incentives (₹ 645.63 million) and PDA provision written back (Rs, 1026 million) have not been netted in the common head common expense from other divisions . These are common expenses and there is no reason why they should also not be pro rata attributed to the units claiming deduction u/s 80 IB. xvi. Why, while claiming allocable office expenses the expense under the head legal, secretarial, corporate affairs etc are excluded. These are common expenses and should also be pro rata allocated to the units claiming deduction u/s801B. xvii. Clarify as to on what basis the common expenses of other divisions and head office expenses have been debited to the account of various plants which have staked claim for dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits and gains derived from such industrial undertaking: Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfillment of the condition that it begins to manufacture or produce articles or things or to'operate its cold storage plant or plants during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2004 Unquote We would like to submit that the eligible unit of Assesses Company is entitled to claim deduction u/s 80IB of the Act, since the eligible unit satisfies the conditions provided by the section i.e. The eligible units of the assessee firm manufactures Pharma products, not being any article or thing specified in the Eleventh Schedule to the Act. The eligible units of the assessee company hove been set up in an industrially backward State specified in the Eighth Schedule to the Act. The eligible unit has commenced production on 30th September 2001 i.e. within the period required under the sold section. Further, we would like to submit that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of an assessee includes any profits and gains derived by an undertaking or on enterprise from any business 'referred to in sub-sections (2), there shall, in accordance with and subject to the provisions of this section, be allowed. In computing the total income of the assessee, a deduction from such profits and gains as specified in subsection (3). (2) This section applies to any undertaking or enterprise:- (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any ankle or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning (i).............................. (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any Export Processing Zone or integrated infrastructure Development Centre or industrial Growth Centre or Industrial Estate or industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n these certificates, the auditors have also attached a schedule of notes which forms an integral part of the computation of profit of Undertaking as per which the assessee company has claimed deduction u/s 80-IC of the Act. These schedules provide assumptions and basis for computation of the profit of these undertakings. These certificates provide all the relevant data / information and basis relating to the deduction claimed u/s 80-IC of the Act. It is humbly submitted before your good self .that the company has been claiming such deduction in earlier years and the same have been duly allowed after verifying the facts during assessment proceedings of these years except for assessment years 2008-09 and 2009-10. There is no change in the facts and circumstances during the year under consideration with regard to deduction claimed u/s 80-IC of the Act. Query (II) Details of products manufactured u/s. 8OIB/IC Please find attached in Annexure-1 fa) l(b), the list of products which arc manufactured by the Company during the year under consideration in its units eligible for deduction u/s 80-1B 80-1C of the Act. Query (III) Why expenses which are indirect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 to 15 yenrs and the cost related to these activities, i.e., discovery and development is more than USD 250 Million. Therefore, the expenditure incurred during the previous year by the R D centers of the assessee for innovation of new molecules/drugs, has no relationship with the production of the existing pharmaceutical products in the industrial undertakings eligible u/s 80IB /'80IC. The NIUs are manufacturing products which were developed years back and have already been under production. However, some times, the R D laboratories are assisting in improvement of the process or the existing products manufactured in the eligible industrial undertakings and therefore, 30% of the revenue expenses are considered to be reasonable and are accordingly apportioned to the existing industrial undertakings. It may kindly be noted that during assessment years 2001-02 and 2002-03, one of the reasons for reopening the. assessment u/s 147 was that while allowing deduction under section 80-I8/ 1C, the asscssee company had apportioned 30 percent of R D expenditure whereas 100 percent of such expenditure was required to be apportioned. However, after verifying the factual position in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine in its packaged form is referred to as Stock Keeping Unit ('SKU'). Your goodself may note that each batch of SKU's manufactured by the Company is allotted a unique batch number and related details of sales arid material cost are identified based on batch number find plant wise SKU codes, in view of the system employed by the Company, all the transactions (e.g. costs, revenues, etc.) for each product arid each level, viz. Business Area, Plant, etc are separately identifiable. In this regard, it may be noted that total cost inter alia includes the following: Direct costs i.e. cost directly related to manufacturing the product, Such costs include raw material cost, labor cost, packaging cost and excise duty. Your good self may note that such direct costs in majority of the eases form more than 60% of the total expenses during the year under consideration. b) Common Manufacturing costs Cost of common utilities made use of by manufacturing blocks located at a plant location are allocated to each block on the basis of raw material consumption/ value of assets. Such costs include the following: Power, fuel, boiler related expenses, stores and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive units. In this connection, we would like to submit that the assessee company is engaged into the business of manufacturing Pharmaceuticals products at its units located at places eligible for deduction u/s 801B/ 80IC [referred to as New Industrial Units '('NIU')]. It may be noted that the assessee has to buy various types of raw material, packing material etc- which is being supplied by the suppliers in corrugated boxes, MS drums, plastic drums, glass bottles, polythene, jute bags, etc. Further, during the manufacturing process, side cuttings of aluminum foils, defective tubes, plastic bottles, plastic caps are also generated. The aforesaid packing material as well as scrap generated during manufacturing process is not reusable, therefore, the same is sold and the realizations there against arc accounted for in the books as sale of scrap. Your goodself would appreciate that scrap is an incidental result of the activities carried on by the industrial undertaking and integrally forms part of the manufacturing activity of the industrial unit. The Company further submits that unclaimed balances written back and excess provision written back relate to expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e computing eligible profits of the NIUs for the purpose of claiming deduction under section 801B/1C of the Act. As rightly pointed out above by your goodself; we would like to confirm that the basis adopted by the company for calculating the deduction is by considering profits from the manufacturing activities of the eligible units independently and does not include other income (other than scrap sales, unclaimed balances / excess provisions written back and power rebates etc.) / pure trading income. Query (xiv) It was observed that the sales from 80IB/IC units were not recorded within the meaning of provision of Sec. 80IA(5), applicable to compute deductions Response The provisions of section 801A[5} of the Act have been reproduced hereundcr for ready reference : Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unction is note separate business segment/undertaking to be taxed separately, since it is only facilitating the operations within the company and no separate income is earned by it from performance of Service to any third party. The term 'Undertaking' has only been defined in explanation 1 ro section 2(19AA) of the Act. The explanation defines 'undertaking' in an inclusive manner but in the context of demerger: ...include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity From a careful reading of the above section, it appears that an undertaking is a self-sustained business activity which can run in an independent commercial manner. To be an independent commercial entity, it should be able to generate profits if run in isolation and its output should have ready commercial market and buyer. Additionally an analogy can be drawn from the meaning provided in legal dictionary, in the absence of specific definition of the terminology in the Act, Law Lexicon, a legal dictionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trary to the facts, standard business principles and accordingly totally unreasonable and uncalled for. Also, just because the S D function has customer interface for a limited purpose of selling the manufactured products of the company, it cannot be considered as n separate business function. Accordingly it is submitted that the S D function of the company is an integral function of the NIUs, therefore is not a separate profit center. Interdependence of the functions We submit that there is total and complete unity, Interlacing, Interdependence and Interconnection of management, financial, administrative and marketing aspects amongst all departments. Accordingly, all the departments constitute part and parcel of the same business of the company as a whole. Since the S D function is a support function to the manufacturing units, none of the conditions mentioned above are satisfied for the S D function to be considered as a separate business function or a profit center. In view of the above, kindly appreciate that selling and a distribution S D function is not a separate business segment/undertaking to be taxed separately, since it is only facilitatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of a business carried on by a non-resident in India. The assessee further submits that costs incurred in relation to Mergers Acquisition ('M A'), Legal and Secretarial, Corporate Affairs, etc. do not .have a direct nexus with the NIUs and arc accordingly not considered for determination of eligible profits. In this regard, your goodself may note that the Legal and Secretarial function looks after the following major activities: Shareholders servicing - Listing of shares at various Stock Exchanges Filing of periodical returns and other documents with Registrar of Companies, SEBI etc. - Arranging meetings of Board of Directors and Shareholders'; Ensuring other compliances in respect of various legal requirements. The above are independent activities and have no connection with the activities of the eligible industrial undertakings. Similarly, the Corporate Affairs expenses are incurred for the purpose of building and maintaining image of the company in the eyes of shareholder banks financial institutions and general public, which have no relationship with the activities of the NIUs. Further, the M A expenses re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-03 90204832 Profit for year is ₹ 300682774/- and deduction is claim @ 30% of the eligible profit. New Tablet Plant-I 80 IC 31.03.2005 4th 2005-06 ₹ 220579510 It is eligible for deduction @100% of profit for the year New Tablet Plant-II 80IC 31.03.2006 3rd 2006-07 ₹ 156142930 It is eligible for deduction @100% of profit for the year New SGC plant 80IC 31.03.2007 2nd 2007-08 ₹ 376385228 It is Eligible for deduction @100% of profit for the year New tablet plant-III 80IC 31.03.2008 1st 2008-09 ₹ 523509006 It is eligible for deduction @100% of profit for the year 69. In case of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. The contention of the revenue that this is the first year in which the methodology of claim of deduction of the assessee is being verified is not accordance with the previous assessment orders passed by the AO with respect to deduction u/s 80IB with respect to Goa plant and deduction u/s 80IC of the Act for New Tablet Plant-I. On perusal of those orders, it is apparent that these deductions claimed by the assessee in the initial year of this industrial undertaking have been examined in detail and then allowed by the revenue after making enquiry. In view of this, the argument of the revenue cannot be accepted that these deductions have not been examined. For this finding, we have material on record the assessment history in the form of assessment orders of the assessee for those years. However in case of New Tablet Plant-II and New SGC plant it is apparent that in absence of positive gross total income no deduction was claimed for AYs 2006-07 and 2007-08 and therefore the claim of deduction by the assessee for these two plants is the first year of examination of claim. Obviously new Tablet Plant-III has been set up during this year only and therefore AY 2008-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange which would justify the change in view. 71. The Supreme Court in the case of RadhasoamiSatsang (supra) has held that unless there is a material change in justifying the revenue to take a different view the earlier view which has been settled and accepted of a several years should not be disturbed. The relevant extract from the said judgment is quoted below:- We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a Unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for the assessment year 1973-74 was allowed by the Income Tax Appellate Tribunal. The effect thereof was that the assessee was granted the requisite deduction under Section 80J of the Act for the assessment year 1973-74. The Department has sought reference under Section 256(1) of the Act which reference application was also rejected by the Tribunal. Likewise, for the assessment years 1974-75 and 1975-76, the claims of the assessee were allowed. The assessee, once given the deduction under Section 80J of the Act is entitled to such a deduction for a period of 5 years. If the assessee has been allowed the benefit of Section 80J in the last three preceding years, there is no reason to deny the same for the instant assessment year. We, therefore, answer this issue also in favour of the assessee and against the revenue. 74. In the present case, the claim of the assessee under section 80-I of the Act was examined and allowed by the Assessing officer for three years preceding the assessment year 1991-1992. It is relevant to note that assessments in the earlier years i.e. relating to assessment year 1988-89, 1989-1990 and 1990-1991 has not been disturbed by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 80-I of the Act occur in the previous year relevant to the initial assessment year and have to be examined in the initial assessment year. In such cases, where the facts on the basis of which the deductions are claimed are subject matter of an earlier assessment year and do not arise in the current assessment year, it would not be possible for an Assessing Officer to take a different view in the current assessment year without altering or reopening the assessment proceedings in which the eligibility to claim the deduction has been established. 76. In cases where deduction is granted under Section 80-I of the Act, the applicability of the Section is determined in the year in which the new industrial undertaking is established. The qualification as to whether any industrial undertaking fulfills the condition as specified under Section 80-I of the Act has to be determined in the year in which the new industrial undertaking is established. Although the deduction under Section 80-I of the Act is available for the assessment years succeeding the initial assessment year, the conditions for availing the benefit are inextricably linked with the previous year relevant to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the ITO cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted. 79. The Division Bench of the Bombay High Court in the case of Paul Brothers (supra) has also adopted the view expressed by the Gujarat High Court in the case of Saurashtra Cement Chemical Industries (supra).' For the sake of brevity, we do not reproduce other decisions cited by ld. AR that reiterates the same principles that in absence of any change in facts / law etc. during intervening period the deduction granted after examination in initial year of a tax holiday period it cannot be questioned in subsequent years. 75. Therefore, we hold that as the deduction with respect to Goa Plant u/s 80IB which is in the 7th year of its claim out of 10 years, has earned eligible profit of ₹ 300682774/- and deduction thereon is claimed at the rate of 30% thereof amounting to ₹ 90204832/- and New Tablet Plant-I u/s 80IC for which this is the 4th year of the claim and assessee has claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. 30. Reference was also made to Parashuram Pottery Works Ltd. v. ITO [1977] 106 ITR 1 (SC) and then it was held: We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter - and if there was no change it was in support of the assessee - we do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.01.2012 Yes 1000-1012 New SCG Plant 31.01.2012 Yes 1013-1025 New Tablet Plant-III 31.01.2012 Yes 1026-1038 79. On examination of the above stated balance sheet and profit and loss account of the above industrial undertaking where the claim of the deduction of the assessee is worked out and certified by the Independent accountant is prepared based on similar accounting policies and practices. It is also apparent that the profit and loss and the balance sheet have been prepared on rational basis after allocation of proper expenditure, which has been followed by the assessee consistently and based on the accounting practices followed in earlier years. The main reason for asking of separate books of accounts of the eligible undertaking is only to verify that whether the assessee has computed the eligible profits for deduction has some sanctity or not. Assessee has consistently followed allocation of 75% of head office expenses to the individual undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80. Rule 18BBB of the Income tax rules governing the certificate by an accountant provides as under :- 98 [Form of audit report for claiming deduction under section 80-I or 80-IA or 99[80-IB or section 80-IC]. 18BBB . (1) The report of the audit of the accounts of an assessee, which is required to be furnished under sub-section (7) of section 80-IA or sub-section (7) of section 80-I, except in the cases of multiplex theatres as defined in sub-section (7A) of section 80-IB or convention centres as defined in sub-section (7B) of section 80-IB 1[or hospitals in rural areas as defined in sub-section (11B) of section 80-IB], shall be in Form No. 10CCB. (2) A separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction under section 80-I or 80-IA or 80-IB1[or 80-IC] and shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. (3) In the case of an enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining an infrastructure facility, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that the assessee has not maintained the accounts for manufacture of yarn actually produced as a part of industrial undertaking. Consequently, the Assessing Officer worked out, on his own, the manufacturing account, as indicated in his Order, giving a bifurcation in terms of quantity of raw wool produced. On Appeal before hon'ble court it was held as under :- 4. In our view, the findings given by ITAT and the High Court are findings of fact. In this case, we are not concerned with the interpretation of Section 80IA of the Act. On facts, we find that the assessee ought to have maintained a separate account in respect of raw material which it had sold during the assessment year. If the assessee had maintained a separate account, then, in that event, a clear picture would have emerged which would have indicated the income accrued from the manufacturing activity and the income accrued on the sale of raw material. We do not know the reason why separate accounts were not maintained for the raw material sold and for the income derived from manufacture of yarn. On reading of the above decision, it is apparent that the main purposes of the maintenance of separate accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any provision of the Act is only to enable the assessing officer to verify that deduction under any particular provision has been correctly computed. If from any system/ software, identified and separate accounts relatable to any particular unit/ undertaking are discernible and are capable of being generated, the same, in our view, is sufficient compliance with the requirement of maintenance of separate books of account, if any. However, it is to be noted in present era of technological evolution that old age notions of the maintenance of accounts and business records do not survive and business entity today survives on real time information on each aspect of its business process. In this era when an entity maintains its accounting and business records on Enterprise Resource Planning system, which is a standard procedure or program to optimize all business processes including Sales, Logistics, Production, Quality, Finance of an entity and SAP is a name of software product and it's a company name too which a leading provider of these solutions, it is rather incorrect to say that separate books of accounts are not maintained by the assessee. Evidence led before ld. AO in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Crs, (ii) export Incentives of ₹ 78.93 crores, (iii) sundries and miscellaneous income ₹ 33.74 Cr and Income from trading activity of ₹ 94.25 Crores totalling to ₹ 225.83 Crs. It was stated that the gross total income of the assessee is ₹ 178.64 Crores and if the above stated income are excluded i.e. of ₹ 225.83 Crores the total income of the assessee will result in to loss and therefore there is no profit in manufacturing activity of the assessee and hence no deduction is allowable to the assessee. On this aspect we have carefully perused the computation of total income filed by the assessee which is at page no 1145 to 1155 of the paper book where the gross total income of the assessee is ₹ 3347340467 and claim of the deduction u/s 80 IB/IC of the act of ₹ 1366821506/-. Therefore, it is apparent that assessee's deduction is not exceeding the gross total income of the assessee. We have perused the provision of section 80A of the act which provides as under :- Deductions to be made in computing total income. 80A. (1) In computing the total income of an assessee, there shall be allowed from his gross total income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) Ltd.(supra) where in allocation of expenses based on head counts and turnover is upheld to stress that there is no bar in law for common expenses to be allocated on a scientific/ rational basis to the eligible unit has held as under :- '10. The provisions of sub-section (4) of section 10A, relied upon by the Assessing Officer, apply for the purpose of segregating the profits of the business into export profits and domestic profits. It is a statutory formula for ascertaining what are profits derived from the export of the eligible items. It has to be read with sub-section (1). It says that the export profits have to be apportioned on the basis of the ratio which the export turnover bears to the total turnover of all the businesses of the eligible undertaking. We are not in the present case concerned with sub-section (4). That sub-section will apply when the combined profits - profits of the exempt unit and those of the non-exempt unit - have been ascertained; the next step will be to apportion them on the basis of the ratio which the export turnover bears to the total turnover. What we are concerned herein is the stage before that. We are concerned herein with the method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. Further, in the present cases, we find from the various statements produced before us, that the entire exercise, arising out of change of method from the completed contract method to deferred revenue expenditure, is revenue neutral. Therefore, we do not wish to interfere with the impugned judgment of the High Court. In the light of the observations of the Supreme Court in Hukam Chand Mills Ltd. (supra), in a case where alternative methods of apportionment of the expenses are recognized and there is no statutory or fixed formula, the endeavour can only be towards approximation without any great precision or exactness. If such is the endeavour, it can hardly be said that there is an attempt to distort the profits. On the contrary, as we have already pointed out, distortion of profits may arise if the consistently adopted and accepted method of apportionment is sought to be disturbed in a few years, especially in a case such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8) of the Act on this issue. 87. It is one of the contention of revenue that selling and distribution activity is itself a separate profit center and therefore whatever services have been provided by the selling and distribution arm of the company to the eligible undertaking should have been charged and reduced from the profit of the industrial undertaking after valuing service of selling and distribution arm of the company at market rate. At present assessee has allocated it at cost. Therefore, ld. AO has invoked provisions of section 80 IA (8) of the act. It is not dispute that that products manufactured by these industrial units are sold by selling and distribution arm of the assessee and the cost incurred is allocated to these respective units on the basis of appropriate allocation key of 'sales'. Ld. AR of the appellant relying on the decision of coordinate bench of Cadila Healthcare Ltd. (supra) has submitted that there cannot be any specific demarcation between manufacturing and selling activities of the assessee and profit accrues only at the time of sales of the goods only. Therefore, the contention of the revenue that selling and distribution function of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch undertakings only. He has again drawn our attention that the only source of income should be the eligible source of income and not other sources of income, such as, profits of marketing division or profits on account of established brand. For the allocation of profit of manufacturing unit the mandate is very clear because Income Tax Rule, 1962 contains Rule 18BBB wherein as per subrule( 2) a separate report is to be furnished by each undertaking and that report shall be accompanied by a profit loss account and balance-sheet of that Undertaking as if the Undertaking is a distinct entity. He has therefore argued that the allocation of the profit of a manufacturing unit should be made on stand alone basis. He has questioned that how the sale price of the products of the Baddi Unit were determined and recorded. Because of the brand value the sale price must have been determined by the management as if the profit is earned by the assessee-company on sale of the products of the Baddi Unit. It was recorded on the presumption that the sales were executed by the Head Office by charging brand value, the name of the product and the goodwill of the Company. In any case, according to Ld. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) . 10.2 The 'business' is prescribed in sub-section (2) in the following manner : (2) This section applies to any undertaking or enterprise (a) which has begun or begins to manufacture or produce any Article or thing Therefore, 'manufacturing' is the first criteria for the eligibility of the 'business' to qualify for the deduction. Hence the 'profits' are required to be derived from a manufacturing undertaking which is producing the specified article. That 'profit' is inclusive in the 'gross total income'. As already noted, the terminology profit has not been defined in this Act therefore we have taken the help of other resources. The basic question is that what is the profit of a manufacturing unit? Firstly, the term Profit implies a comparison between the stage of a business at two specific dates separated by an interval of a year. Thus fundamentally the meaning is that the amount of gain made by the business during the year. This can be ascertained by a comparison of the assets of the business at the two dates. To determine the profit of a manufacturing Unit the accounting standard has given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the profit before tax i.e. ₹ 116,82,91,400/-. 10.3 It is not in dispute that for Baddi Unit the assessee has maintained separate books of accounts and therefore drawn a separate profit and loss account. In such a situation, whether the AO is empowered to disturb the computation of profit, is always a subject matter of controversy. From the side of the assessee, reliance was placed on Addl. CIT v. Delhi Press PatraPrakashan [2006] 10 SOT 74 (Delhi) (URO). In this case, the assessee was claiming deduction u/s.80IA in respect of a Unit No.4. The said Unit was showing profit @ 62%. As against that, AO has noticed that a margin of profit shown by the assessee as a whole was only to the extent of 10%. The AO has therefore recomputed the profit of the said Unit by applying sub-section (10) of section 80IA and restricted the profit of the said Unit to 10% only. While dealing this issue, the Respected Coordinate Bench has concluded that it was not justified to disturb the working of profit merely because the profit rate of eligible unit was substantially higher than overall rate of profit of other Units of the assessee, more so when separate books were maintained by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness connection has to be real and intimate and through which income must accrue or arise whether directly or indirectly to the non-resident. On those facts, since it was found that R D activities were carried out by the assessee, therefore, 15% of the profit was allocated to the R D activities and balance of the profit was attributable to the marketing activities in India. The said decision was entirely based upon the connectivity of the marketing operations with the profits. The CBDT Circular No.23 of 1969 dated 23/07/1969 was also taken into account wherein it was opined that where a non-resident's sales to Indian customers are secured through the services of an agent in India then that profit is attributable to the agent's services. Meaning thereby because of the close connection of the agent's marketing activity the proportionate profit was attributed to the said activity. Contrary to this, there was no finding that upto the extent of 80%, the profit was attributed to the assessee-company. The segregation between 80% and 6% was not on account of any evidence through which it could independently be established that the major portion of the profit could be attribute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult of efficient marketing net work plus due to the brand name of the company. Only 6% was the manufacturing profit, per A.O. It is true that section 80IC does recognized the provisions of section 80IA. Refer, Subsection (7) of section 80IC which prescribes as follows:- Section 80IC(7) : The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section. Due to this reason, our attention was drawn on the provisions of section 80IA(5) of IT Act; reads as under:- Section 80IA(5) : Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t will then be a subject of dispute and shall be an issue of controversy. On the contrary, if the sale price is recorded at the market price, which is easily ascertainable, that was recorded in the Baddi Unit account, the scope of controversy gets minimal. Rather, the intense contention of the Ld.AR is that the facts of the case have explicitly demonstrated that the goods manufactured at Baddi Unit were transported to various C F agents across the country for sale purpose. Therefore, the eligible business is the manufacturing of pharmaceutical products and the only source of income was the profit earned on sale of the products. 10.8 An interesting argument was raised by ld. Special Counsel that the provisions of section 80IA(8) prescribes the segregation of profit in case of transfer of goods from one Unit to another Unit. But section 80IA(8) reads as follows:- 'Section 80IA(8) : Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods [or services] held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate transfer, then the AO has no right to determine the fair market value of such goods or to compute the arm's length price of such goods. The AO has suggested two things; first that there must be inter-corporate transfer, and second that the transfer should be as per the market price determined by the AO. Both these suggestions are not practicable. If these two suggestions are to be implemented, then a Pandora box shall be opened in respect of the determination of arm's length price vis a vis a fair market and then to arrive at reasonable profit. Rather a very complex situation shall emerge. Specially when the Statute do not subscribe such deemed intercorporate transfer but subscribe actual earning of profit, then the impugned suggestion of the AO do not have legal sanctity in the eyes of law. 10.9 A very pertinent question has been raised by ld.AR Mr. Patel that what should be the line of demarcation to determine the sale price of a product if not the market price. As far as the present system of fixation of sale price of the product is concerned, a consistent method was adopted keeping in mind the several factors, depending upon the market situation, we have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific activity. In the case of Liberty India (supra) it was observed that the IT Act broadly provides two types of tax incentives, namely, investment linked incentives and profit linked incentives. The Court was discussing Chapter VIA which provides incentive in the form of tax deductions to the category of profit linked incentives . The incentive is linked with generation of 'operational profit'. Therefore, the respected Parliament has confined the grant of deductions only derived from eligible business. Each eligible business constitutes a stand alone item in the matter of computation of profit. The Court has said that because of this reason the concept of segment reporting was introduced in Indian Accounting Standards. Ld. Counsel Mr. Srivastava has argued that the deduction u/s.80IC is a profit linked incentive. Only the Operational Profit has to be claimed for 80IC deduction. According to him, each of the eligible business constitutes a stand alone item in the matter of computation of profit. For the computation of profit of an eligible business the word used is derived in section 80IC which is a narrower connotation, as compared to the word attributable . In oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitute the part of the business. One of the Hon'ble Judges has said that the activities which the assessee carried on at Raichur was certainly a business of the assessee. On one hand, it was argued that the accrual of profit must necessarily be at the place where the sale proceeds are received or realized. But on the other hand, it was argued that the profits received relate (i) firstly to his business as a manufacture, (ii) secondly to his trading operations and (iii) thirdly to his business of export. On that basis, it was opined that the profit or loss has to be apportioned between these businesses in a business like manner and also according to well established principle of accountancy. This apportionment of profits between a number of businesses which are carried on by the same person at different places determines also the place of accrual of profit. The act of sale is the mode of realizing the profits. If the goods are sold to a third person at Mill premises, one could have said that the profits arose by reason of sale. The Profit would only be ascribed to the business of manufacture and would arise at the Mill Premises. Merely because a Mill owner has started another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d proviso to section 5 could be invoked. The manufacturing activity of making ground-nut oil was carried out at Raichur (Hyderabad) which was treated as a separate business within the meaning of the said proviso and thereupon it was claimed as exempt being carried out within the territorial jurisdiction of Indian State. So the Court has observed that to succeed in their claim, it is incumbent upon the assessee to show that there was in fact a part of a business and that the profit had actually accrued or arose in that part of an Indian State. The Court has clearly stated in para-41 that both the elements should found exist and then only the business could be treated as a separate business. However, the said proviso has propounded only deeming provisions, as is apparent from the language of the section itself. For the purpose of the said section, it was deemed to be a separate business. The whole of the profits of which accrue in an Indian State and the other part of the business be deemed to be a separate business. In para-44, the Hon'ble Court has discussed the problem with reference to certain decisions of English Courts and then made an observation that it had been held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether such profit accrue only at the place where the manufacture are sold. To answer this question, the Hon'ble Court has commented in para-49 that there was no express direction as to apportionment in the third proviso to section-5 of EPT Act. The opinion expressed was very specific that a profit can accrue in respect to that part of a business only when apportionment is possible. The Hon'ble Court has said that only on the said assumption that apportionment was possible the said proviso was based upon that presumption only. If no apportionment can be made in respect of the process of a particular business, then that will not be considered to be a part of the business at all and held that the proviso will not apply. It was concluded that the principle of apportionment was implied therein. After this detailed discussion, we thus arrive at the conclusion that the principle of apportionment was the criteria for segregating the manufacturing profit if it was feasible to do so. As against that in the present case the assessee has computed the profit of the Baddi Unit on the basis of the well accepted principle of accountancy that a profit is accrued where a transaction is clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for working out the eligible profit for deduction, has been decided. Ld. DR could not point out any other contrary judgment to the decision cited by the Ld. AR. Therefore, we respectfully following the above decision of coordinate bench hold that provisions of section 80IA(8) of the act does not apply to the assessee on transfer of services of marketing division of the company to the eligible industrial undertaking whose profits are claimed as deductible. 88. Further ld. AO has also given one of reason that the claim of the assessee is not admissible because of the reason that along with Form NO.10CCB assessee was required to file the balance sheet and profit and loss account of the eligible undertaking. It is admitted fact that assessee did not file balance sheet along with Form No.10CCB but has filed profit and loss accompanied with that audit report. Subsequently, before ld. DRP, those were filed and were available with ld. DRP as well as with AO at the time of framing final assessment order. Hence it is contended by the ld. AR that substantial compliances has been made by the assessee by filing the profit and loss account and complete compliance before passing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way available with ld. DRP and Ld. AO at the time of finalization of the assessment order. In the decision cited before us HonourableDelhi high court has held that even if the audit report is not filed then also the deduction cannot be denied if same is filed before finalization of assessment. Therefore case of the assessee stands on the better footing. No other contrary decision was put before us by revenue. Hence, we do not wish to agree to the contention of the revenue that as the balance sheets were not filed by the assessee of those eligible industrial undertaking whole of the deduction is not allowable to the assessee. 89. Coming to the computation of the eligible income of the assessee for all the eligible units, Ld. AO could not point out any error except dealt with by us which are not on the issue of facts of the case but all of them are on legal grounds, which we have answered in preceding paragraphs of this order. In view of claim of the assessee supported by the audited certificate as provide u/s 80IA(7) of the act read with rule 18BBB and supported by the profit and loss account and balance sheets of the assessee, allocation of all the expenses based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to, whereas in the present case only a different provision of the same enactment has to be considered. Therefore, I see no reason as to why the plea of the ld. D.R. cannot be accepted. In the present case, of course, the department is the appellant unlike in the case of Hukumchand Mills Ltd. (supra). But, in my view, it makes no difference. The department is aggrieved by the deletion of disallowance of expenditure which disallowance was made under one particular provision. The subject-matter of the appeal was whether the expenditure claimed by the assessee was allowable or not. If it was not disallowable under one particular provision but is disallowable under any other provision, the subject-matter, viz., the allowability of expenditure remains the same. There are a number of decisions in which it has been held that the Tribunal can base its decision on a ground not raised before the appellate authority or in the grounds of appeal before it but is not bound to do so. It is not precluded from considering a point which arises out of the appeal merely because such point had not been raised or urged by either party at the earlier stage of the proceedings. Some of these decisions, only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the ld. J.M. to hold that the plea raised by the ld. D.R. is to be accepted and the matter is to be remanded to the Assessing Officer for considering the claim of the assessee for claiming deduction of unaccounted expenditure under section 37(1) of the Act.' In the above case the issue as set aside to the file of the ld. AO to decide and examine the facts in the course of hearing before the Tribunal, the revenue raised a fresh plea that the Assessing Officer should have invoked the provisions of section 37(1) and requested the Bench to remit back the matter to the file of the Assessing Officer to consider the allowability or otherwise of the expenditure under section 37(1). We do not find that any such fresh plea is raised by the revenue during the course of hearing which is not taken by the LD. AO or Ld. DRP. On factual points, nothing has been alleged by revenue, which remains to be examined, which is brought to our notice. In absence of any fresh plea by the revenue, we are afraid that we cannot agree with the contention of revenue. Our this reason also gets the support from the decision of coordinate bench in Zuari Leasing Finance Corpn. Ltd. v. ITO [2008] 112 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts as supra, we allow this ground of appeal of the assessee after taking the same view for the reasons elaborated in the findings of the Co-ordinate Bench as above. Accordingly, this ground of appeal is allowed. Ground No. 6 (Market to market gain of ₹ 1706.33 million as taxable income totally inconsistent/contradictory to disallowance of market to market loss made while completing assessment year 2009-10) 11. During the course of assessment, the Assessing Officer noticed that the assessee has executed forward contracts, hedging contracts, on various accounts such as protecting export realization against purchase of plant and machinery and other capital investment etc. The Assessing Officer has asked the assessee to clarify why the market to market losses should not be treated as notional losses on open contract as opposed to crystalised losses. These loses being contingent liabilities are not available for deduction u/s. 37(1). Therefore, why these expenditure should not be added back to income for the relevant accounting period. In this regard, the assessee has made the following submission. In this regards, the Company would like to submit before yo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thai fact was important. It indicated the double standard adopted by the department. 13. The word expenditure is not defined 'in the 1961 Act. The word expenditure is, therefore, required to be understood in the context in which it is used. Section 37 enjoins that any expenditure not being expenditure of the nature described in Sections 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head profits and gains of business . In Sections 30 to 36, the expressions expenses incurred as well as allowances and depreciation has also been used. For example, depreciation and allowances are dealt with in Section 32. Therefore, Parliament has used the expression any expenditure in Section 37 to cover both. Therefore, the expression expenditure as in Section 37 may, in the circumstances, of a particular case, cover an amount which is really a loss even though the said amount has not gone out from the pocket, of the assessee. The quantum of allowances permitted to be deducted under diverse heads under Sections 30 Lo 43C from the income, profits and gains of a busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tstanding liability relating to import of raw materials using closing rate of exchange. Any difference, loss or gain arising on conversion of the said liability at the closing rate, should be recognised in the profit and loss account for the reporting period. (emphasis supplied) Kind attention in this regard is further invited to the decision of the Supreme Court in the case of Sutlej Cotton Mills Limited, v. CIT: 116 ITR 1, wherein the apex Court propounded the following test to determine the character of loss/gain arising due to exchange fluctuations: The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of an asset, on conversion into another currency, such profit or loss would, ordinarily, be trading profit or loss if the asset is held by the assessee on revenue account or as part of circulating capital embarked in the business. But, if on the other hand, the asset is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. Following the aforesaid decision of Supreme Court in case of .Woodward Governor (supra), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of prudence as considered by the Hon'ble Supreme Court in the case of Woodward Governor of India Pvt. Ltd. (supra). The revenue's main contention is that liability can arise only when the contract matures. This pica, in our humble opinion, is completely divorce of the principles of commercial accounting and, therefore, cannot be accepted. Both legal obligation and commercial principles have to be taken into consideration for deciding such issues. 44. Prom the above discussion, it is evident that the anticipated losses on account of nature of expenditure/accrued liability, have to be taken into account while preparing financial statements. xxxxxxx 58. In view of the above discussion, we allow the assessee's appeal for the following reasons:- I) A binding obligation accrued against the assessee the minute it entered into forward foreign exchange contracts. II) A consistent method of accounting followed by assessee cannot be disregarded only on the ground that a better method could be adopted. iii) The assessee has consistently followed the same method of accounting in regard to recognition of profit or loss both, in respect of forward forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the allowability of the loss on actual payment in A. Y. 2009-10 has been made subject to the alienability of the Loss for AY. 2008-09. This stand of the DRP itself negates the observations of assessing officer that it is a notional loss and establishes that it is a business loss incurred by the assesses on mercantile system which method is consistently followed by the assesses. Under these circumstances, we are inclined to allow the foreign exchange fluctuation loss to assesses in this year. This ground of the assessee is allowed. (emphasis supplied) In a surfeit of Judicial pronouncements, the Tribunals have consistently held that the loss/gainarising as a result of restatement of the unmatured forward contracts entered into in the normal course of business at the end of the accounting period, on account of mark to market is allowable business deduction. It is respectfully submitted that the Company continues to bonafidely believe, in view of the aforesaid judicial pronouncements, that MTM gains/ losses on forward contracts represents crystallised gains/ losses and are, therefore, taxable/ allowable as deduction in the relevant year. The company has, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to market gain credited to the P L A/c would not be taxable as income. However, without giving specific reasoning the ld. DRP has upheld the action of the Assessing Officer. During the course of appellate proceedings, the ld. counsel has submitted that this issue in the instant appeal was decided in favour of the assessee vide ITA No. 781/Del/2015 for assessment year 2010-11 on 05-09-2019 by ITAT Ahmedabad in the case of the assessee itself. The relevant part of the decision is reproduced as under:- 96. The issue raised by the assessee in the ground no. 10 and the additional ground is that the Ld.DRP erred in confirming the action of the AO by treating the MTM gain of ₹ 1983,86,34,040/- as taxable income under the normal provision of tax, and ₹ 1969,12,65,001/- u/s 115JB of the Act. 97. At the outset, we note that the provision was created by the assessee for ₹ 3331.61 crores on account of MTM loss in the immediately preceding assessment year 2009-10 which was not allowed as a deduction in the assessment framed under section 143(3) r.w.s. 144C of the Act vide dated 30-1-2014 under normal computation of income. Similarly the provision for ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same as contingent liability, carried forward business loss and unabsorbed depreciation was reduced and available b/f loss for set off u/s.72 was restricted during AY 10-11 at ₹ 9,20,46,46,935/-. Base on the above remarks the taxable income of the assessee is computed under the normal provisions as well as for calculating the books profits u.s.155JB for AY 10-11 where by the MTM gain which is taxable during the year as well as the MTM loss of the earlier year is treated as contingent liabilkty. 99. From the above, we note that the amount written back by the assessee has already suffered the tax in the immediate preceding AY 2009-10. Accordingly, we hold that the amount written back by the assessee cannot be subject to tax either under normal computation of income or under section 115JB of the Act in the year under consideration. However, we find that the provision for ₹ 1431.63 crores was suffered to tax under section 115JB of the Act in the immediate preceding AY 2009-10 whereas it has been written back in the year under consideration for ₹ 1969.13 crores. Thus the difference between amount of provision disallowed under section 115JB of the Act in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonds as per offering Circular A. 1 .issue of Bonds The issue was of US$ 440 mn in aggregate principal amount of Zero Coupon Convertible Bondson 17l!'March 2006. These Bonds are constituted by a Trust Deed dated 17rhMareh 2006 made between the assessee company and the Bank of New York [BONY]as trustee for the holders of the Bonds. The assessee company entered into Agency Agreement with BONY whereby it was appointed as Principle Paying, Conversion and Transfer Agent and Registrar for the issue. The bonds were issued in registered form in denomination of USS 100,000 and integral multiples of US$ 1,000 thereof. A. 2 Status of Bonds As per the offering circular, the Bonds constituted direct, unsubordinated, unconditional unsecured obligations of the assessee company and shall at all Limes rank paripassu and without any preference or priority among themselves. The payment obligations of the assessee company shall, save for such exceptions as provided, at all times rank at least equally with all of its present and future direct, unsubordinated, unconditional and unsecured obligation. A 3 Conversion of Bonds The Bonds were convertible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Annual Date immediately preceding the date fixed for redemption as set out below, per USS 1000. Semi Annual Date Amount Early Redemption (US$) 17'h September 2006 1,024.00 17th March 2007 1,048.58 17th September 2007 1,073.74 17th March 2008 1,099.51 17th September 2008 1,125.90 17th March 2009 1,152.92 17th September2009 1,180.59 17th March 2010 1,208.93 17th September 2010 1,237,94 r= 4.80 percent d= number of days from and including the immediately preceding Semi-,Annual Dote to but excluding the date fixed for redemption.) calculated on the basis of 360 day year consisting of 12 months of 30 days each and in case of an incomplete month, the number of days elapsed. p=180 A.5 Utilization of proceeds of Bonds The n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11; the holders of bonds had an option to redeem the FCCBs at a premium of 26.725% above the issue price or to convert the FCCBs into equity shares of the Company. As per the Paying, Conversion and Transfer Agency Agreement, BONY will act as a Principal Paying and Conversion Agent. In order to provide for the payment of the principal and redemption premium in respect of the bonds as the same shall become due, the company shall unconditionally pay to the Principal Agent. Subsequently, the Principal Agent will pay to the clearing systems for the benefit of bond holders. On the date of maturity none of bond holders, exercised the option to convert the FCCBs into equity shares and hence the bonds were redeemed by the assessee company at the stated premium. The assesses company has claimed the premium on redemption of FCCB in the year of redemption only and no such claim for any proportionate amount of premium was made in any of the preceding assessment years as (here was uncertainty as to various events viz. (i) conversion of bonds into shares at time during the conversion period at stated prices (ii) adjustment, to conversion price in case of conversion of bonds into sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in the share capital of a company. On the other hand, debenture is an instrument of debt executed by the Company acknowledging its liability to repay the amount represented therein at a specified rate of interest. Jn other words, a debenture is a certificate of loan or a bond evidencing the fact that the Company is liable to pay an amount specified with interest. Though the amount raised by a Company through debentures becomes a part of its capital structure, it does not becomes part of its share capital. Given the above, FCCB issued by the Company are debt instruments issued by the assessees acknowledging its liability to repay the debt amount. These bonds are distinguishable from shares since bonds forms part of the loan and does not represents ownership in share capital. Further, it meets are the characteristics of a debenture as outlined by Rajas than High Court in Shree Rajasthan Syntax (269 ITR 461] and Tribunal in the case of Enjay Sons vs 1TO [32 TTJ 340 -Hyderabad): Debenture denotes one of the modes for borrowing money by any company in exercise of its borrowing powers. Debenture is an acknowledgement of its indebtness. Debenture is an equiva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer has not accepted the reply submitted by the assessee. The Assessing Officer was of the view that the interest on convertible debenture was akin to dividend as the intent for issuance on satisfactory convertible debenture was to always issue equity share which in turn was part of share capital which confers a right either to the whole or part of the any residue of any profit or to the whole or part of any residue of any or remaining for distribution after satisfying the claim of any other organization whose rights to participate therein was limited. Against the draft assessment order, the assessee has filed objection before the DRP. The DRP has sustained the action of the Assessing Officer. Consequently, as per the direction of DRP an addition of ₹ 5,945,459,801/- was made to the total income of the assessee. 15. During the course of appellate proceedings as reported above, the ld. counsel has referred the decision of Hon ble Supreme Court in the case of Taparia Tools Ltd. 372 ITR 605 (SC) and submitted that identical issue on similar facts has been decided by the Hon ble High Court of Bombay in the case of CIT vs. Rayond Ltd. vide 23 taxman.com 427 in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have also perused the judicial pronouncement in the case of Taparia Tolls Ltd vs. Joint CIT (2015) 55 taxmann.com 361 (SC) wherein the assessee has paid interest on debenture issued for a period of five year and the Hon ble Supreme Court held that assessee would be entitled to deduction on entire expenditure in the year in which the amount was actually paid. It is clear from the aforesaid facts and finding that bond holders were having the option of conversion the bond into equity share or seek redemption of the bonds on maturity rate. In the case of the assessee on the maturity of bonds none of the bond holders exercised the option of conversion into equity share, therefore, premium was paid to the bond holder on redemption of the bonds. It is observed that ld. DRP has dismissed the objection filed by the assessee after referring the provision of section 78 of the Companies Act, 1956 which pertained to the application of the premium received on issue of shares. However, the ld DRP has not considered the specific fact in the case of the assessee and the submission of the assessee that its case is pertained to redemption of FCCB or bonds and the assessee claimed deduction of premiu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that assessee has not filed form No. 3CL. The Assessing Officer was of the view that according to the provision of rule 6(7A) approval of expenditure incurred on in house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the submission of report in relation to the approval of in house research and development facility in form no. 3CL to the Director General of the Income Tax Act exemption within sixty days of its approval. The Assessing Officer stated that assessee has not filed form 3CL therefore it was not eligible u/s. 35(2AB) of the Act. Consequently, the claim of deduction u/s. 35(2AB) of 413,47,54,496/- was disallowed and added to the total income of the assessee. The assessee has filed objection before the DRP. The DRP has dismissed the objection of the assessee on the ground that it has not filed form no. 3CL for claiming deduction u/s. 35(2AB). 17. During the course of appellate proceedings before us, the ld. counsel submitted that similar issue on identical facts in the case of the assessee itself has been adjudicated in favour of the assessee by ITAT Ahmedabad vide ITA No. 1390/Ahd/2016 dated 22nd December, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority s end to the department. An assessee engaged in such Research Development activity having already obtained Form 3CM approval of its facility has no role to play in such correspondence. We notice that a co-ordinate bench of this tribunal in ACIT vs. M/s. Torrent Pharmaceuticals ITA No.3569/Ahd/2004 decided on 13.11.2009 holds that the impugned weighted deduction is not to be restricted to the extent of the amount of the necessary expenditure incurred stated in such Form 3CL. We further find that hon ble jurisdictional high court s decision in CIT vs. CLARIS LIFESCIENCES Ltd. (2010) 326 ITR 251 (Gujarat) upholds this tribunal s decision in the very assessee s case observing that expenses incurred before Form 3CM approval cannot be denied for the purpose of Section 35(2AB) weighted deduction. We follow the very reasoning to opine that facts of the instant case rather go a step further wherein the appellant has only claimed those expenses which relate to the time period as approved in the Form 3CM. We accordingly hold that the assessee is very much entitled for claiming the above capital and revenue expenses incurred on in house research and development amounting to ₹ 237 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hyderabad bench s decision in Electronics Corporation of India Ltd. not taking into consideration the above hon ble jurisdictional high court s decision which is accordingly distinguished. We thus decline Revenue s arguments. 9. This assessee s appeal is allowed. In the light of the above facts and findings of the ITAT, Ahmedabad in the case of the assessee itself as supra, we direct the Assessing Officer to allow the claim of the assessee after verification of the necessary particulars as directed in the above decision of the ITAT. Therefore, this ground of appeal of the assessee is allowed Ground No. 10 ( Erred in not adjudicating claim of weighted deduction u/s. 35(2AB) on cost of assets provided to employees working in approved R D facilities and engaged in execution of R D activities) 18. During the course of appellate proceedings before us, at the outset, the ld. counsel has brought to our notice that the identical issue on similar facts has been set aside to the Assessing Officer for fresh adjudication by the ITAT in the case of the assessee itself for assessment year 2010-11 vide ITA No. 781/Del/2015. The relevant part of the decision of the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 10 by the ITAT vide ITA No. 1782/Del/2014 and for assessment year 2010- 11 vide ITA No. 781/Del/2015. With the assistance of ld. representatives, we have gone through the aforesaid decision of the Co-ordinate Bench of the ITAT in the case of the assessee itself and noticed that similar issue on identical facts has been set aside to the Assessing Officer for fresh adjudication. In this regard, the relevant part of the decision of ITAT Ahmedabad for assessment year 2009-10 vide 1781/Del/2015 is reproduced as under:- 79. This issue raised before us by the assessee has already been adjudicated by the Delhi ITAT in its case vide case no 196/Del/2013 by observing as under. We have carefully considered the rival contentions and we set aside this ground of appeal to the file of AO to verify the amount of expenditure incurred by the assessee on account of fluctuation of foreign exchange; and if they are on capital account related to acquisition of asset then to grant depreciation thereon in accordance with the provisions of law. In case if this expenditure is found to be of revenue, nature then allows the same u/s 37(1) of the Act. In the result ground No.15 of the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction for the cess paid by the assessee without appreciating that (i) the said cess is revenue expenditure (ii) the said cess is not rate or tax debarred by seciton40(a)(ia) of the act.) 24. The assessee has filed additional ground of appeal on the issue that it has incurred expenses for education cess and secondary and higher education cess. The assessee has further submitted that the cess word was present in section 10(4) of the income Tax Act, 1922 and the same was omitted from provisions of section 40(a)(ia)(ii) of the act. In this regard, the assessee has also referred CBDT circular no. 91/58/61-ITJ (19) dated 18th May, 1967 stating that the effect of the omission of the word contains from section 40(a)(ia) of the is that only taxes paid are to be disallowed and not cess. The assessee has also placed reliance on the decision of Hon ble Rajasthan High Court in the case of Chambal Fertilizers Chemical Ltd. vs. DCIT (D.B. I.T. Appeal 52/2018 dated 31st July, 2018) and also on the latest decision of Hon ble Bombay High Court in the case of Sesa Goa Ltd. vs. DCIT (2020) 117 taxmann.com 96. 25. Heard both the sides on this issue. The similar issue on identical facts was ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee which in this case has been made by assessee of ₹ 3311708/-.We have also held that disallowance cannot exceed the amount of exempt income. Hence, now no disallowance survives u/s 14A of the act so far as normal computation of total income of the appellant. The AO has added to the book profit amount of expense disallowed u/s.14A applying rule 8D of the Income tax act. As per our considered view, no addition u/s.115JB is warranted for amount of disallowance u/s.14A of the IT Act. Our view is supported by following decisions :- (i) Cadila Healthcare Ltd. v. Addl. CIT [2012] 21 taxmann.com 483/67 SOT 110 (URO)(Ahd. - Trib.); (ii) Reliance Industrial Infrastructure Ltd. [IT Appeal Nos. 69 70 (Mum) of 2009, dated 5-4-2013]; (iii) EssarTeleholdings Ltd. [IT Appeal No. 3850 (Mum.) of 2010, dated 29-7-2011]; (iv) J.K. Paper Ltd. [IT Appeal Nos. 979 (Ahd.) of 2006 4027 4080 (Ahd.) of 2008]; (v) National Commodity Derivatives Exchange Ltd. [IT Appeal No. 2923 (Mum) of 2010, dated 26-8-2011]; and (vi) Quippo Telecom Infrastructure Ltd. [IT Appeal No. 4931 (De1hi) of 2010, dated 18-2-2011]. Respectfully following the propositions laid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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