TMI Blog2021 (10) TMI 1403X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee, we have noted, was allowed by the ITAT in identical facts and circumstances in A.Y 2003-04. The claim of the assessee to write off of toothbrush also is therefore allowed Accordingly, the issues of disallowance of provision of stock obsolescence stands decided in favour of the assessee. Disallowance of 1/3rd of the expenditure on advertisement and promotion, holding that it results in promotion of brand name owned by the foreign company - HELD THAT:- Since the issue already stands adjudicated as above in the preceding assessment years, A.Y. 2005-06 2006-07 [ 2021 (7) TMI 1408 - ITAT CHANDIGARH] as held that it cannot simply be derived from the fact that assessee has incurred huge expenses on advertisement and sale promotion of products the brand of which belonged to another entity, considering the clear distinction in the end objective of the said expenses and the assessee consistently claiming that it had acquired the exclusive license to manufacture and sell the products in India and thus being the sole user of the brand name in India. These contentions of the assessee have remained uncontroverted. The entire benefit, in such circumstances, inured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said segment. By no stretch of imagination, the impugned expenditure, therefore, can be said to be capital in nature. The benefit, though made may be derived for a few years but is definitely not on capital account but on the contrary is on a revenue account to maintain its profitability only and not by way of enhancing it. The decision of the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd. cited before us strengthens the case of the assessee wherein product development expenses which were found to have been incurred not on capital account but on revenue account, though giving enduring benefit in future, were held to be revenue in nature and hence allowable. Disallowance of market research expense is directed to be deleted and we hold that the assessee is entitled to claim the same as revenue in nature. The assessee has alternately pleaded for allowance of depreciation which is of no relevance since the entire claim of expenses has been allowed treating it as revenue in nature - Decided in favour of assessee. Disallowance of post retirement medical benefit holding this expenditure as being in the nature of contingent liability - HELD THAT:- As gone throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred liability on account of VAT claims to be made by dealers which is to be discharged in the subsequent years, but, we find, no documentary evidence in this regard has been filed to substantiate its claim. In the absence of the same, we fail to understand how the liability arose in the impugned year or could be said to be present obligation of the assessee even though it was required to be discharged in future years. The facts regarding the claim itself are not clear and therefore, we are not inclined to agree with the contention of the assessee. However, the alternate claim of the assessee of reducing the said provision reversed in subsequent years from its taxable income is justifiable and the revenue authorities are directed to allow the same in accordance with law. Decided against assessee. Education cess falls within the scope of amounts not allowed as deduction u/s 40(a)(ii) Adjustment made on account of interest on receivable allegedly recharacterizing as on secured loans - treatment of the delayed payment of receivables as international transactions as defined u/s 92B - Determination of arms length price adjustment be made to the income of the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee be granted due opportunity of hearing in this regard. This issue therefore, is partly allowed for statistical purposes. - ITA No.242/Chd/2017, ITA No.219/Chd/2017, ITA No.225/Chd/2017 - - - Dated:- 26-10-2021 - ITA No.220/Chd/2017, ITA No.226/Chd/2017, ITA No.221/Chd/2017, ITA No.227/Chd/2017, ITA No.222/Chd/2017, ITA No.228/Chd/2017, ITA No.344/Chd/2017, ITA No.47/Chd/2018, ITA No.1500/Chd/2018, ITA No.1495/Chd/2019 SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER For the Assessee : Shri Ajay Vohra, Sr.Adv.,Shri Neeraj Jain, Adv. Shri Abhishek Aggarwal, CA For the Revenue : Smt.C.Chandrakanta, CIT (Hearing through Webex) Per Annapurna Gupta, Accountant Member: All the appeals relate to the same assessee and pertain to 9 assessment years i.e. A.Y. 2007-08 to 2015-16. For assessment years 2007-08 to 2010-11 cross appeals have been filed by the assessee and the department and the remaining, i.e. pertaining to assessment years 2011-12 to 2015-16, are appeals filed by the assessee. While the appeals for A.Y 200708 to 2011-12 and A.Y 2013-14, are against the separate orders of the Commissioner of Income Tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to Rs. 59,79,000/- has been denied for want of evidence. The write-offs claimed by the assessee relate to the following: Vaccines 37.33lacs Aquafresh toothbrush 12.46 lacs. Total 57.79 lacs The major write off claim evidently pertains to vaccines which, we find, the assessee consistently claimed had been nearing expiry and thus had no realizable value. Copies of emails exchanged within the assessee company seeking approval for release, write off and destruction of stock of vaccines nearing expiry mentioning specifically the stock of such vaccines, mails granting approval granting for the same, as also sample copies of stock write off sheets of the vaccines were filed to the CIT(A).Therefore it is not that the claim was entirely unsubstantiated. Further despite the repeated assertion of the assessee that the vaccines written off were nearing expiry, evidenced with emails so exchanged and the stock write off sheets so mentioning, the Revenue has not brought anything on record to controvert the said claim. Without pointing out any infirmity in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 227/Chd/2017 2 to 2.1 2011-12 228/Chd/2017 2 to 2.1 2012-13 344/Chd/2017 4 to 4.2 2013-14 47/Chd/2018 2 to 2.1 2014-15 1500/Chd/2018 4 to 4.1 2015-16 1495/Chd/2019 5 to 5.1 6. It was common ground that the issue was identical to that raised by the assessee in the appeals already heard pertaining to assessment years 2005-06 and 2006-07 vide ground No.2 and 2 to 2.4 respectively. 7. We have gone through the order of the ITAT for assessment years 2005-06 and 2006-07, and find the issue to have been adjudicated at para 11 of the order as under: 11. We have heard both the parties. We are convinced with the arguments of the Ld. Counsel for the assessee that there was no reason/basis at all for holding that the advertisement /promotion expenses benefited the parent AE and hence a portion of it was liable to be disallowed as having not been incurred wholly and exclusively for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to Rs.8,94,33,333/- Ground of appeal No. 2 is allowed. 8. Since the issue already stands adjudicated as above in the preceding assessment years, A.Y. 2005-06 2006-07, the decision rendered therein will apply to the issues in all the remaining years concerned. Accordingly, the issues of disallowance of 1/3rd of advertisement and promotion expenses stands decided in favour of the assessee. Issue No.3: Disallowance of purchase of vaccine of GlaxoSmithkline Biological S.A. u/s 40(a)i) of the Act raised in assesse s appeal for following A.Y. Assessment Year ITA No. Ground No. 2007-08 242/Chd/2017 2 to 2.4 2008-09 225/Chd/2017 1 to 1.4 2009-10 226/Chd/2017 1 to 1.4 2010-11 227/Chd/2017 1 to 1.4 2011-12 228/Chd/2017 1 to 1.4 2012-13 344/Chd/2017 3 to 3.5 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement had been placed on record. It was also pointed out that in terms of the DTAA with Belgium, there was no fixed place PE of GSK Biologicals SA in India as it did not have any such place at its disposal. That conducting clinical trials did not constitute the core activity of GSK Biologicals SA, which was engaged in manufacturing vaccines. That neither GSK Pharma nor the assessee were acting as agents of GSK Biologicals SA, and that in terms of DTAA, PE did not include maintaining premises for research and development. That without prejudice to the aforestated arguments, even if there was a PE of GSK Biologicals, no purchases made by the assessee of vaccines were attributable to the PE and therefore also no profits on account of the said purchases were taxable in India, therefore requiring no taxes to be deducted at source. None of these factual and legal contentions we find have been dealt with by the Ld. CIT(A). On the contrary it was brought to our notice that the AO s findings were based on data/information extracted from websites none of which was related to the assessee. That even the information extracted regarding conducting of clinical trials at pages 39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 to 4.1 2011-12 228/Chd/2017 5 to 5.1 2012-13 344/Chd/2017 7 to 7.1 2013-14 47/Chd/2018 5 to 5.1 2014-15 1500/Chd/2018 7 2015-16 1495/Chd/2019 8 to 8.2 12. It was common ground that the issue was identical to that raised by the assessee in the appeal already heard pertaining to assessment year 2006-07 vide ground Nos.4 to 4.2. 13. We have gone through the order of the ITAT for assessment year 2006-07 and find the issue to have been adjudicated at para 33 as under: 33. We have heard both the parties. Admittedly identical issue arose in the preceding year also in the case of the assessee and the ITAT deemed it fit to restore it back to the AO for adjudication afresh after examining the nature and impact of the expenses vis a vis the existing business of the assessee. In the present case also the Revenue has decided the issue based on general observations without examining the nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned expenses were capital in nature giving enduring benefit to the assessee having been incurred on products which were yet to be launched. 16. At the outset itself, Ld. counsel for the assessee pointed out that the issue is covered by the order of the Tribunal in the case of GlaxoSmithKline Consumer Healthcare Ltd. for assessment year 1998-99 to 2001-02 and 2002-03, 2003-04 and 2004-05 to 2008-09, 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14. Our attention was drawn to the relevant findings in the said case as under : In this background we may peruse the expenses incurred by the appellant under the head 'Promotional and Trade Marketing expenses'. Such expenditure has been incurred on existing products of the appellant and includes cost of presentation items, gifts, etc. given to the customers on the sale of the product, expenditure on advertisement material etc. The expenditure can be viewed as in actuality discount in kind allowed to the customers and expenditure on advertisement of the existing products of the appellant. Clearly the expenses incurred are of revenue nature. The expenses in question have merely facilitated the carrying on the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned expenditure incurred on development, introduction and launching of newer products is an advantage in the revenue filed or not. In our humble opinion, the expenditure in question has merely enabled the appellant to remain competitive in the market and retain the customer preferences and loyalty towards its brand of products. The said advantage certainly is not limited to the period under consideration but spills over to the future also. So however this is not conclusive to hold that the expenditure in question is a capital expenditure-The parity of reasoning laid down by the apex court in the case of Empire Jute Co. Ltd. (supra) discussed by us in the earlier paragraph is squarely applicable with respect to such expenditure also. xxxxx xxxxx In conclusion, we hold that having regard to the aforesaid discussion the claim of the appellant for allowability of impugned expenditure as revenue expenditure is justified. We, therefore set aside the order of the CIT(A) and direct the Assessing officer to delete the addition. 17. Referring to the aforesaid decision, ld. counsel for the assessee pointed out that it had been held in the said decision that expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue authorities for holding the impugned expenditure falls flat. 19. The ld. DR on the other hand heavily relied on the order of the CIT(A) supporting his findings that the impugned expenses were capital in nature and hence had been rightly disallowed. 20. We have heard both the parties and we have also gone through the decision of the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd.(supra) cited before us. The issue relates to disallowance of Market Research Expenses treating them to be capital in nature on account of the fact that they provide enduring benefit, are incurred for launching new products and are not recurring in nature. It is not denied that the assessee is a FMCG company catering to the needs of consumers in the fast moving goods category. As rightly pointed out by the Ld.Counsel for the assessee, the demands in these type of companies are continuously changing and evolving and there is cut throat competition involved in it. Such circumstances, require regular, continuous research and development of the products being marketed so as to remain relevant and competitive in the market. These facts cannot be denied. In the light of these facts, the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the balance sheet of the assessee that the assessee had made provision for employees benefit which included provision for post retirement medical benefits liability. The AO disallowed the same holding that such provisions were not allowable, which was upheld by the ld. CIT(A) holding that the impugned provision is only a contingent liability. 23. Before us, at the outset it was pointed out that identical issue of disallowance of provision for post retirement benefits to employees had been adjudicated by the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd. for assessment year 2007-08 to 2013-14 wherein the Tribunal had held as under : In the facts of the present case before us the appellant had recognised and accounted for the post retirement benefit due to its employees, in terms of the scheme of employment and also in terms of the revised/ change in Accounting Standard!5 issued by ICAI which was to be followed during the year, is an allowable deduction in the hands of the appellant. The said claim being based on the valuation of the actuary is both scientific and one of the recognised method of accounting and quantifying the said post retiremental medi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended that the impugned provision had been rightly claimed by the assessee. 26. The ld. DR on the other hand relied on the order of the authorities below. 27. We have heard both the parties. We have also gone through the orders of the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd.(supra) and have noted that the issue of allowability of provision created for meeting medical expenses of the employees post retirement had been adjudicated in the said case wherein the ITAT had allowed the said provision on noting that it had been created on scientific basis by actuary in terms of and recognizing the scheme of employment and also the Accounting Standard-15 issued by the ICAI in this regard. Considering the same, the ITAT had held that the said provision could not be, therefore, said to be contingent in nature and was duly allowable, being recognized method of accounting. In the impugned case also, we find, that the assessee had claimed the provision, valued by an actuary, created in terms of the scheme of employment and the Accounting Standard-15 of the ICAI, which facts have not been controverted by the revenue before us. Therefore, the issue, we find, stands squarel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have heard both the parties. The CENVAT credit write off claimed by the assessee has been denied by the Revenue holding it to be not in trading nature. The facts relating to the claim, not disputed by the Revenue, is that they represented the input service tax paid by the assessee for various services availed, which was accounted for separately, to be adjusted against out-put service tax to be paid. That it was claimed as a write off in the Profit Loss Account on account of orders passed by the Service Tax Authorities denying benefit of set off to the said claim. In the backdrop of these undisputed facts, it is clear that the CENVAT Credits represented cost of services availed, which was not claimed in the relevant years since they were eligible to be set off against output service tax to be paid by the assessee. On this claim of set off being judicially held to be not allowable, we agree with the Ld.Counsel for the assessee, the impugned CENVAT Credits partook the character of cost of services and did so in the year in which the order holding them as not eligible for setoff against output tax, was passed. Till then they merely represented asset by way of service tax credit ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim was allowable. Alternatively, he contended that the amount of market claim which was added to the income of the assessee in subsequent years on reversal may be directed to be reduced from the same if the claim is held not allowable in the impugned year. 34. The ld. DR on the other hand relied on the orders of the authorities below. 35. We have heard both the parties. There is no dispute vis- vis the proposition of law, that an ascertained liability which is a present obligation determined on a reasonable and scientific basis, is to be allowed as deduction even if the outflow for the same, to settle the obligation, arises in a future date. What is important is the incurrence of the liability. In the present case, the assessee has contended that it has incurred liability on account of VAT claims to be made by dealers which is to be discharged in the subsequent years, but, we find, no documentary evidence in this regard has been filed to substantiate its claim. In the absence of the same, we fail to understand how the liability arose in the impugned year or could be said to be present obligation of the assessee even though it was required to be discharged in future years. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which deals with Grounds which may be taken in appeal, permits raising of additional grounds by appellants, being other than those raised in the memorandum of appeal, subject to the same being heard by the leave of the Tribunal. The Rule further permits the Tribunal to not confine itself to the grounds raised while deciding an appeal. Reading the above together, there is no restriction to the power of the Tribunal in entertaining an additional ground raised before it for adjudication. As long as all facts are available on record all additional grounds, including those raised for the first time can be adjudicated by the ITAT. This issue stands settled by the apex court in the case of NTPC Limited (supra) where on the question whether the Tribunal has jurisdiction to examine a question of law not raised before the lower authorities, it was categorically held that the power of the ITAT in dealing with appeals has been expressed in the statute in the widest possible terms. That there is no restriction of its power to deal only with those issues which arise from the CIT(A) s order and any question of law,facts relating to which are on record,can be raised before the Tribunal for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AAC observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. the AAC should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also. 5. The view that the Tribunal is confined only to issues arising out of the appeal be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be uncovered or even verified or investigated. There is no finding of fact to be recorded vis a vis the impugned issue and hence no impediment to the ITAT in adjudicating the issue. Therefore we find there is no reason to restore it for adjudication to the CIT(A). The contention of the Ld. D.R. therefore that the additional ground raised should be restored to the CIT(A) is accordingly dismissed. Now coming to the issue to be adjudicated, whether the education cess paid by the assessee and calculated as proportion of the income tax, is allowable as expenditure. This issue arises in the context of the provisions of section 40(a)(ii) of the Act which deals with certain amounts which are not allowable while computing the income under the head business and profession and sub-clause(ii) thereof mentions taxes paid on profits and gains of business and profession as not allowable. The relevant provisions of section reproduced as under: 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , (a) in the case of any assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which is headed as Income- tax and supertax provides in sub-s. (1) that income-tax and super-tax shall be charged at the rates specified in Parts I and II of the First Schedule respectively and that in cases to which certain paragraphs of those parts apply these taxes shall be increased by a surcharge for the purpose of the Union. According to sub-s. (2) where the total income of an assessee not being a company includes any income chargeable under the head Salaries income-tax and super-tax payable by the assessee on the salary portion of the total income shall be the proportionate amount payable according to the rates provided in the Finance Act, 1963. Under s. 2 of the Finance Act, 1963, income-tax was to be charged at the rates specified in Part I of the First Schedule and super-tax at the rates specified in Part II of that Schedule. The income-tax was to be increased in the cases mentioned by a surcharge and additional surcharge for the purpose of the Union and a special surcharge. The super-tax was, however, to be increased by a surcharge for the purpose of the Union and a special surcharge. It will be noticed that s. 2(2) of the Finance Act, 1964, did not contain mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eights, and taxes on income, respectively. In the proviso to s. 137 the Federal legislature was empowered to increase at any time any of the duties or taxes leviable under that section by a surcharge for Federal purposes and the whole proceeds of any such surcharge were to form part of the revenues of the federation. Sub-s. (3) of s. 138 which dealt with taxes on income related to imposition of a surcharge. Under the Government of India Act, 1935, the surcharge was levied for the first time by the Indian Finance No. 2 Act, 1940. Sec. 3(1) of that Act read : Subject to the provisions of this section, the rates of income-tax and rates of super-tax...imposed by sub-s. (1) of s. 7 of the Indian Finance Act, 1940, shall, in respect of the year beginning on the first day of April, 1940, be increased by a surcharge for the purposes of the Central Government. Similar phraseology was employed in respect of surcharge on super-tax. The provisions relating to surcharge were omitted in the Finance Acts of 1946 to 1950. It was reintroduced in the Finance Act of 1951 and the same has been continued in the Finance Acts of subsequent years. Special surcharge came to be levied in the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be charged was to be increased by a surcharge for the purposes of the Union. The word surcharge has thus been used to either increase the rates of income-tax and super-tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term income-tax as used in s. 2 includes surcharge. 8. According to Art. 271, notwithstanding anything in Arts. 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles by a surcharge for the purposes of the Union and the whole proceeds of any such surcharge shall form part of the consolidated fund of India. Art. 270 provides for taxes levied and collected by the Union and distributed between the Union and the States. Clause (1) says that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided in cl. (2). Art. 269 deals with taxes levied and collected by the Union but assigned to the States. The provisions of Art. 268 which is the first one under the heading Distribution of revenue between the Union and the States relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four different rates which may be described as : (i) the basic charge or rate (In Part I of the First Schedule); (ii) surcharge; (iii) special surcharge; and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way, the additional charges form a part of the income-tax and super-tax. It is possible to argue, and that argument has been commended on behalf of the Revenue, that the word surcharge has been used in Art. 271 for the purpose of separating it from the basic charge of a tax or duty for the purpose of distributing the proceeds of the same between the Union and the States. The proceeds of the surcharge are exclusively assigned to the Union. Even in the Finance Act itself it is expressly stated that the surcharge is meant for the purpose of the Union. 11. It would appear that, since the Finance Act, 1943, upto the Finance Act, 1967, a provision was made for taxing the income under the head Salaries according to the provisions of the Finance Act of the preceding year rather than of the current year if the assessee had any income in addition to his income by way of salary. According to the Tribunal this was done because if the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apex court in K. Srinivasan (supra) read with the Finance Bill levying education cess. We therefore hold that education cess falls within the scope of amounts not allowed as deduction u/s 40(a)(ii) of the Act. The additional grounds raised by the assessee are, therefore, dismissed. In view of the same, this issue is admitted for adjudication in all the appeals wherein raised and decided against the assessee. Issue No.10: Adjustment made on account of interest on receivable allegedly recharacterizing as on secured loans raised in the following appeals of the assessee. ITA No.344/Chd/2017 ITA No.1500/Chd/2018 ITA No.1495/Chd/2019 A.Y.2012-13 A.Y.2014-15 A.Y. 2015-16 Ground No.2 to 2.7 Ground No.2 to 2.7 Ground No.3 to 3.6 39. Briefly stated, the TPO treated the delayed receipts of payments for receivables beyond 30 days as international transactions and bench marked the same applying SBI base rate plus 300 basis points, determining thereby the adjustment to the income of the assessee on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asia Pvt. Ltd. Vs. DCIT reported at 398 ITR 120. The Ld. DR was unable to bring our notice any contrary decision of any High Court on the issue. 43. In view of the same, therefore, the above interpretation by the Hon ble Delhi High Court, of the explanation inserted to section 92B of the Act defining the international transactions, will prevail. Following the decision of the Hon'ble Delhi High Court and applying it to the issue before us, we hold that for characterizing the receivables as international transactions, the same could not have been done automatically and the TPO ideally should have studied the pattern in the accounts of the assessee regarding recovery of the amounts receivables and determined from the same thereafter whether the same reflected a pattern indicating an arrangement enduring to the benefit of the AE. 44. In the facts of the cases before us relating to assessment years 2012-13, 2013-14 and 2014-15, we find, no such exercise has been done by the TPO but in fact he has only proceeded to characterize the receivables outstanding for recovery of payment beyond a specific period as international transactions. Therefore, the basis of characterizing the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, for A.Y. 2012-13, amounting to Rs.14,819/- is directed to be deleted. 47. In the remaining years i.e. assessment years 2014-15 and 2015-16 the facts as above relating to the recovery of receivables are not there before us, therefore, the issue needs to be restored back to the TPO to determine the characterization of outstanding receivables as international transactions in accordance with the observations of the Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra). 48. We have also noted from the order of the Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra) that it has been held that the delay in recovery of receivables would have an impact on the working capital of the assessee which also needs to be studied. In the decision of the ITAT in the case of Kusum Healthcare Pvt. Ltd. vs ACIT in ITA No.6814/Del/2014, relied upon by the Ld.Counsel for the assessee before us, we have noted that the adjustment on account of outstanding receivables was deleted holding that the working capital adjustment would take into account the impact of delayed recovery of debtors as also any account payable mechanism adopted by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), as per a Memorandum of Understanding entered into with it, free of cost for elimination of lymphatic filariasis disease from endemic countries. The assessee also objected to the inclusion of certain comparables. The DRP dismissed all the contentions of the assessee holding in paras 3.3 to 3.5 of its order as under: 3.3 Having considered the submission of the assessee, we are of the view that the subsequent action of the AE is not material to decide the arm's length price of exports to the AE. The very fact that in the TP study the profit margin of the transaction has been benchmarked shows that the arguments of the transaction being not for commercial purposes does not hold any ground, and must be rejected. 3.4 The assessee has objected to rejection of certain companies by the TPO from the set of comparables in the TP study. The following companies were rejected by the TPO on the grounds that they were not appearing in the search portal based on accept/reject matrix of the assessee: (i) Celebrity Biopharma Ltd. (ii) Elysium Pharmaceutical Ltd (iii) Strides Pharma Science Ltd 3.4.2 The Financial statements submitted by the assessee has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted adjustment made by the TPO with respect to the difference in the arm's length price of international transaction related of sale of goods to the associated enterprise is not sustainable and liable to be deleted for the following reasons submitted as under: Re: The transaction of sale of goods was not for commercial purposes and the AEs have further donated the goods to WHO without any charge It is submitted that in terms of Memorandum of Understanding entered by the associated enterprise with World Health Organization ('WHO'), the associated enterprise agreed to provide Albendazole 400 mg tablets required by WHO for implementation of program for elimination of Lymphatic Filariasis disease from each endemic country. The said Albendazole 400 mg tablets were agreed to be provided by the associated enterprise to WHO with any charge. However, the associated enterprise has assured the appellant, an arm's length return of 9% (approx.) on direct and indirect expenses incurred in manufacturing such Albendazole 400 mg tablets and supplying to WHO on its behalf. Accordingly: the appellant, during the year under consideration, has entered into i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.49% 16 NGL Fine Chem Ltd. 14.04% 17 Hikal Limited- Pharma Segment 18.05% 18 Shilpa Medicare Limited 23.27% 19 IOL Chemicals and Pharmaceuticals Limited-Bulk Drugs Segment 25.03 20 Kothari Phytochemicals Inds.Ltd.- Bulk Drugs segment 31.42% 21 Harman Finochem Ltd. 38.43% 22 Suven Life Sciences Ltd.- Manufacturing Segment 56.02% 35th Percentile 2.30% 65th Percentile 13.49% Accordingly, it was submitted that since the operating profit margin earned by appellant at 9.59% is within the arm's length range of 2.30%- 13. 4-9%. no adjustment ought to be made in the arm's length price of international transaction of export of goods. Re: Incorrect exclusion of comparable by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rointestinal, respiratory system nervous system, musculoskeletal, hematology system and vitamins. The product name listed above are the name of the compositions only and not the commercial name under which it is sold. In fact, as per the website of the company, it is providing services to following medical companies, which are engaged in commercializing and selling such products after further processing: In view of the aforesaid, the company ought to be ns in the final set of comparable companies. Final Set of comparable companies After considering analysis, the range of average operating margin of the final list of comparable companies works out to 2.30% to 11.40% as under: S.No. Company Adjusted OP/OC 1. Strides Pharma Science Ltd. -24.7% 2. Celebrity Biopharma Ltd. -10.0% 3. Zim Laboratories Ltd. 2.10% 4. Panchsheel Organics Ltd. 2.23% 5. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly discussed and dealt with two comparables i.e. Celebrity Biopharma Ltd. and Zim Laboratories Ltd. while rejecting the entire comparables pointed out by the assessee as above, as having been wrongly excluded by the TPO. Even vis- -vis the reasons given for rejecting Zim Laboratories Ltd. as being not functionally comparables, the findings of the DRP that the product names are formulation and composition which are sold to pharmaceutical companies for final production of drugs and medicines, we find, has not considered the facts relating to the company as pointed out to us wherein the assessee has mentioned the products manufactured by said company as including tablets, capsules, etc. which cater to various therapeutic segments. How this has been read to mean only formulations and composition sold for final production of drugs, we fail to understand. 58. Since we find the DRP has not applied its mind completely to the contention of the assessee before it, we consider it fit to restore the issue back to the TPO for reconsideration of the contention of the assessee regarding exclusion of certain comparables from the list of comparables selected by the TPO. The TPO is directed to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment takes place including but not limited to CDMCI and BDS1, Bangalore under Article 5(1) of the DTAA; b. Premises used as a sales outlet or for receiving or soliciting orders with respect to vaccines under Article 5(2)(i) of the DTAA; c. CDMCI, Bangalore under Article 5(2)(c) of the TAA; d: BDSl, Bangalore under Article 5(2)(c) of the DTAA; and e. Dependent agent PE in the form of the appellant under Article 5(4) of the DTAA. 2.3 That the CIT(A) erred on facts and in law in alternatively holding that the assessee constituted business connection with GSK Bio within the meaning of section 9(1)(i) of the Act. 2.4 Without prejudice, the CIT(A) erred on facts and in law in determining the profit attributable to the alleged PE in India at 23% of the net profits of GSK, Bio, as against 15.38% determined by the appellant on the basis of functions, asset and risk analysis of the appellant vis-a-vis GSK, Bio, 61. The issue involved in the above grounds stands adjudicated by us above at Issue No.3 in para 10 to 11 of our order above. Accordingly, this ground is allowed for statistical purposes. 3. That the CIT(A) erred on facts and in law in sustaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 13 to 14 of our order above. Accordingly, this ground is allowed for statistical purposes 5. That the CIT(A) erred on facts and in law in suo-moto disallowing market research expenses amounting to Rs. 1,26,83,000 allegedly holding that the said expenditure incurred on market surveys, market research for the products which are to be launched and party for existing products, are capital in nature and gave enduring benefit to the appellant. 5.1 That while the CIT(A) has categorically held that the disallowance of the said expense on adhoc basis by the AO is not tenable, he has erred on facts and in law in suo-moto treating the same to be capital in nature without appreciating the fact that the AO has never treated the said expense to be capital in nature. 5.2 That the CIT(A) erred on facts and in law in sustaining the said disallowance on a ground different than raised by the assessing officer without issuing an enhancement notice to the appellant. 5.3 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said market research expenses by treating the same as capital in nature. 64. The issue involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) holding that they were in the nature of business loss incidental to the business of the assessee and as such covered u/s 37(1) of the Act. 69. The Department has challenged this allowance of claim by the Ld.CIT(A) before us. In this regard the Ld.Counsel for the assessee has pointed out that the issue is covered in favour of the assessee by the direction of the DRP in assessee s own case for assessment year 2006-07. 70. We have gone through the orders of the authorities below and see no reason to interfere in the order of the Ld.CIT(A). The fact that the advances written off relate to outstanding claim of vendors has not been disputed by the Revenue. In the light of this fact, the finding of the Ld.CIT(A) that the irrecoverability of the same tantamounted to trading/business losses to the assessee, we find, is correct. Moreover even the DRP has decided this issue in favour of the assessee in assessment year 2006-07. Therefore, we do not find any merit in the ground raised by the Revenue and dismiss the same. iii) On the facts and circumstances of the case and in law, the Ld. CIT{A) has erred in deleting the disallowance of Rs. 29,42,500/- on account of discount on sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind, has also noted that the assessee couriered these details to the AO but they were still not considered by him. These facts have remained uncontroverted before us. In the light of the above facts, since adequate opportunity had not been given to the assessee to furnish the details and the facts demonstrating that the assessee made every possible effort to file the same during assessment proceedings, the admission of the additional evidences by the Ld.CIT(A), we hold, are in accordance with Rule 46A of the Income Tax Rules,1962, which require admission of the additional evidences by the CIT(A) in the absence of adequate opportunity given during assessment proceedings. In view of the above, we do not find any merit in the ground raised by the Revenue and dismiss the same. 74. In effect appeal of the Revenue is partly allowed for statistical purposes. A.Y 2008-09 ITA No.225/Chd/2017 Assessment Year : 2008-09 (Assessee s Appeal) 1. That the Commissioner of Income-tax (Appeals) ['ClT(A)'] erred on facts and in law in sustaining disallowance of Rs. 1,53,69,881 under section 40(a)(i) of the Act, with respect to purchase of vaccine amounting to Rs. 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is the exclusive licensee authorized to manufacture and sell products under the brand name in India and since the expenditure was incurred in the course of carrying on of its business, it was allowable deduction as business expenditure. 76. The issue involved in the above grounds stands adjudicated by us above at Issue No.2 in para 7 to 8 of our order above. Accordingly, this ground is allowed. 3 That the CIT(A) erred on facts and in law in sustaining the disallowance of market research expenses amounting to Rs. 1,86,45,000 allegedly holding that the said expenditure incurred on market surveys, market research for the products which are to be launched and party for existing products, are capital in nature and gave enduring benefit to the appellant. 3.1 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said market research expenses by treating the same as capital in nature. 3.2 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said market research expenses incurred for the earlier assessment year, i.e. AY 2007-08, by treating the same as capital in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81. The assessee has also raised additional ground as under: 1. That on the facts and circumstances of the case and in law. the assessing officer ought to have allowed, in pursuance to law clarified by the Hon'ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Ltd vs JCIT: D.B. 1TA No.52/2018 and Hon'ble Bombay High Court in the case of Sesa Goa Ltd vs JCIT: 117 taxmann.com 96 (Bom HC), deduction of Rs. 2,55,04,589, being education cess computed on returned income, paid by the Appellant before the due date of filing return of income for the subject assessment year. 2. That on the facts and circumstances of the case and in law, pursuant to law clarified in the case of Chambal Fertilisers and Chemicals Ltd (supra) and Sesa Goa Ltd (supra), the assessing officer also ought to have allowed further deduction in respect of any additional amount paid by the Appellant towards education cess during the financial year relevant lo the subject assessment year. 82. The admission adjudication of the above grounds has been dealt in issue No.9 at para 38 of our order above The additional ground accordingly is admitted for adjudication and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 24,16,16,000 made from GlaxoSmithKline Biological S.A. ('GSK, Bio'), Belgium, allegedly holding that the appellant has failed to deduct tax at source from such payment. 1.1 That the CIT(A) erred on facts and in law in allegedly holding that GSK Bio has outsourced its core activity to the appellant and all the activities are undertaken under direct supervision and control of GSK Bio and thereby establishing that there is a constant touch between the appellant and GSK Bio for R D activities 1.2 That the CIT(A) erred on facts and in law in holding that clinical trial activities constitute permanent establishment of GSK Bio in India within the meaning of Double Taxation Avoidance Agreement (DTAA) between India and Belgium on account of the following: a. Fixed place of business in the form of place where clinical trials and research and development takes place including but not limited to CDMCI and BDSI, Bangalore under Article 5(1) of the DTAA; b. Premises used as a sales outlet or for receiving or soliciting orders with respect to vaccines under Article 5(2)(i) of the DTAA; c. CDMCI, Bangalore under Article 5(2)(c) of the DTAA; d. BD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue No.5 in para 20 to 21 of our order above. Accordingly, this ground is allowed in said terms. 4 That the CIT(A) erred on facts and in law in sustaining the disallowance of product development expenses amounting to Rs. 18,07,000 (after allowing depreciation @25% p.a. on expense of Rs, 24,09,000) allegedly holding that the said expenditure is in relation to pre-launch of a product and therefore, capital in nature. 4.1 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said product development expenditure incurred for the earlier assessment years, i.e. AY 2006-07, 2007-08 and 200809, by treating the same as capital in nature. 90. The issue involved in the above grounds stands adjudicated by us above at Issue No.4 in para 13 to 14 of our order above. Accordingly, this ground is allowed for statistical purposes. 5 That the CIT(A) erred on facts and in law in sustaining the disallowance on account of provision for post-retirement medical benefit given to employees of amounting to Rs. 8,88,780 allegedly holding that the these provision are in the nature of contingent liability and thus not subject to deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss computed on returned income, paid by the Appellant before the due date of filing return of income for the subject assessment year. 2. That on the facts and circumstances of the case and in law, pursuant to law clarified in the case of Chambal Fertilisers and Chemicals Ltd (supra) and Sesa Goa Ltd (supra), the assessing officer also ought to have allowed further deduction in respect of any additional amount paid by the Appellant towards education cess during the financial year relevant lo the subject assessment year. 96. The admission adjudication of the above grounds has been dealt in Issue No.9 at para 38 of our order above The additional ground accordingly is admitted for adjudication and dismissed. 97. In effect appeal of the assessee is partly allowed for statistical purposes. ITA No.221/Chd/2017 Assessment Year : 2009-10 (Revenue s Appeal) i) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance from Rs. 24,16,16,000/- to Rs.1,77,16,251/- made u/s 40(a)(ia) of the Act on account of payment made to Glaxo Smith Kline Biological SA at Belgium for purchase of Vaccine without deducting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant and GSK Bio for R D activities 1.2 That the CIT(A) erred on facts and in law in holding that clinical trial activities constitute permanent establishment of GSK Bio in India within the meaning of Double Taxation Avoidance Agreement (DTAA) between India and Belgium on account of the following: a. Fixed place of business in the form of place where clinical trials and research and development takes place including but not limited to CDMCI and BDSI, Bangalore under Article 5(1) of the DTAA; b. Premises used as a sales outlet or for receiving or soliciting orders with respect to vaccines under Article 5(2)(i) of the DTAA; c. CDMCI, Bangalore under Article 5(2)(c) of the DTAA; d. BDSI, Bangalore under Article 5(2)(c) of the DTAA; and e. Dependent agent PE in the form of the appellant under Article 5(4) of the DTAA. 1.3 That the CIT(A) erred on facts and in law in alternatively holding that the assessee constituted business connection with GSK Bio within the meaning of section 9(1 )(i) of the Act. 1.4 Without prejudice, the CIT(A) erred on facts and in law in determining the profit attributable to the alleged PE in India at 23% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts and in law in not allowing depreciation @ 25% on the said product development expenditure incurred for the earlier assessment years, i.e. AY 2006-07, 2007-08, 2008-09 and 2009-10, by treating the same as capital in nature. 104. The issue involved in the above grounds stands adjudicated by us above at Issue No.4 in para 13 to 14 of our order above. Accordingly, this ground is allowed for statistical purposes. 5. That the CIT(A) erred on facts and in law in sustaining the disallowance on account of provision for post-retirement medical benefit given to employees amounting to Rs. 3,34,000 allegedly by holding that the these provision are in the nature of contingent liability and thus not subject to deduction under income tax. 105. The issue involved in the above grounds stands adjudicated by us above at Issue No.6 in para 27 of our order above. Accordingly, this ground is allowed 6. That the CIT(A) erred on facts and in law in sustaining disallowance of provision of market claims amounting to Rs. 1,96,24,000 allegedly holding that the appellant has failed to establish with supporting evidence the nature of liability for which provision has been created a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 and F.Y. 2014-15 respectively and do not apply to A.Y. 2010-11. 109. It was common ground that the issue raised above was connected to Ground No.1 to 1.4 of the assesses appeal in ITA No.227/Chd/2017 for the impugned year. Since the said issue has been restored back to the AO at para 101 of our order above, this issue also stands restored to the AO with the direction to the AO to decide the same alongwith the said grounds 2 to 2.4 of the assesses appeal. Ground of appeal No.i is allowed for statistical purposes. 110. In effect appeal of the Revenue is allowed for statistical purposes A.Y 2011-12 ITA No.228/Chd/2017 Assessment Year : 2011-12 (Assessee s Appeal) 1. That the Commissioner of Income-tax (Appeals) ['CIT(A)'] erred on facts and in law in sustaining disallowance of Rs. 1,37,82,000 under section 40(a)(i) of the Act, with respect to purchase of vaccine amounting to Rs. 47,32,96,000 made from GlaxoSmithKline Biological S.A. ('GSK, Bio'), Belgium, allegedly holding that the appellant has failed to deduct tax at source from such payment. 1.1 That the CIT(A) erred on facts and in law in allegedly holding that GSK Bio has o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in the above grounds stands adjudicated by us above at Issue No.2 in para 7 to 8 of our order above. Accordingly, this ground is allowed. 3 That the CIT(A) erred on facts and in law in sustaining disallowance of market research expenses amounting to Rs. 4,57,28,250 (after allowing depreciation @ 25% p.a. on expense of Rs. 6,09,71,000) allegedly holding that the said expenditure incurred on market surveys, market research for the products which are to be launched and party for existing products, are capital in nature and gave enduring benefit to the appellant. 3.1 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said market research expenses incurred for the earlier assessment year, i.e. AY 2007-08, 200809, 2009-10 and 2010-11, by treating the same as capital in nature. 113. The issue involved in the above grounds stands adjudicated by us above at Issue No.5 in para 20 to 21 of our order above. Accordingly, this ground is allowed in said terms. 4. That the CIT(A) erred on facts and in law in sustaining the disallowance on account of provision for post-retirement medical benefit given to employees of am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses. A.Y 2012-13 ITA No.344/Chd/2017 Assessment Year : 2012-13 (Assessee s Appeal) 1. That the assessing officer erred on facts and in law in completing the assessment under section 143(3) of the Income Tax Act ('the Act') at an income of Rs. 2,18,45,08,400 as against the returned income of Rs.1,75,46,21,920. The above ground is general in nature and needs no adjudication 2. That the assessing officer erred on facts and in law in making an adjustment of Rs. 14.819 to the arm's length price of alleged 'international transactions' of accounts receivable undertaken with the associated enterprise, on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer (TPO'). 2.1 That the Dispute Resolution Panel ('DRP') erred on facts and in law in upholding the order of the TPO, wherein, it was held that the alleged delay in receipt of receivables as unsecured loans advance to the associated enterprise which is as an international transaction in terms of section 92B of the Act. 2.2 That the DRP/TPO erred on facts and in law in not appreciating that delay in receipt of receivable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct tax at source from such payments. 3.1 That the assessing officer erred on facts and in law in holding that GSK, SA had a permanent establishment in India and was, therefore, taxable in India in as much as all activities of vaccine development, including clinical trials and R D of GSK, SA are being carried out through the fixed place of business in India and under direct supervision and control of GSK, SA. 3.2 That the assessing officer erred on facts and in law in holding that the appellant was responsible for undertaking any clinical trial as well as research and development activities on behalf of GSK, SA, the resultant new/ improved product of which belongs to GSK Biological SA. 3.3 That the assessing officer erred on facts and in law in holding that clinical trial activities constitute permanent establishment of GSK Biological SA in India within the meaning of Article 5 of Double Taxation Avoidance Agreement (DTAA) between India and Belgium on account of the following: a. Fixed place of business in the form of place where clinical trials and research and development takes place including but not limited to CDMCI and BDSI, Bangalore under Article 5( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,11,000 i.e. Rs. 1,76,02,750) on the alleged ground that the said expenditure was capital in nature and gave enduring benefit to the appellant. 5.1 Without prejudice, that the assessing officer erred on facts and in law in not allowing depreciation @ 25% on the said market research expenses incurred for the earlier assessment year, i.e. AY 2007-08 to 2011-12, by treating the same as capital in nature. 122. The issue involved in the above grounds stands adjudicated by us above at Issue No.5 in para 20 to 21 of our order above. Accordingly, this ground is allowed in said terms. 6. That the assessing officer erred on facts and in law in making addition of Rs. 5,86,661 with respect to provision of medial reimbursement to retired employees allegedly holding that the expenditure was contingent in nature and the amount has not been actually paid thus not allowed as deduction. 123. The issue involved in the above grounds stands adjudicated by us above at Issue No.6 in para 27 of our order above. Accordingly, this ground is allowed. 7. That the assessing officer erred on facts and in law in disallowing product development expenses amounting to Rs. 2,74,98,750(after a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 40(a)(i) of the Act, with respect to purchase of vaccine amounting to Rs. 73,41,73,000 made from GlaxoSmithKline Biological S.A. ('GSK, Bio'), Belgium, allegedly holding that the appellant has failed to deduct tax at source from such payment. 1.1 That the CIT(A) erred on facts and in law in allegedly holding that GSK Bio has outsourced its core activity to the appellant and all the activities are undertaken under direct supervision and control of GSK Bio and thereby establishing that there is a constant touch between the appellant and GSK Bio for R D activities. 1.2 That the CIT(A) erred on facts and in law in holding that clinical trial activities constitute permanent establishment of GSK Bio in India within the meaning of Double Taxation Avoidance Agreement (DTAA) between India and Belgium on account of the following: a. Fixed place of business in the form of place where clinical trials and research and development takes place including but not limited to CDMCI and BDSI, Bangalore under Article 5(1) of the DTAA; b. Premises used as a sales outlet or for receiving or soliciting orders with respect to vaccines under Article 5(2)(i) of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The issue involved in the above grounds stands adjudicated by us above at Issue No.5 in para 20 to 21 of our order above. Accordingly, this ground is allowed in said terms. 4.That the CIT(A) erred on facts and in law in sustaining the disallowance on account of provision for post-retirement medical benefit given to employees of amounting to Rs. 20,00,628 allegedly holding that the these provision are in the nature of contingent liability and thus not subject to deduction under come tax. 132. The issue involved in the above grounds stands adjudicated by us above at Issue No.6 in para 27 of our order above. Accordingly, this ground is allowed. 5. That the CIT(A) erred on facts and in law in sustaining the disallowance of product development expenses amounting to Rs. 5,35,81,500 (after allowing depreciation @ 25% p.a. of expense of Rs. 7,14,42,000) allegedly holding that the said expenditure is in relation to pre-launch of a product and therefore, capital in nature. 5.1 Without prejudice, that the CIT(A) erred on facts and in law in not allowing depreciation @ 25% on the said product development expenditure incurred for the earlier assessment year, i.e. AY 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of alleged 'international transactions' of accounts receivable undertaken with the associated enterprise, on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing officer (TPO') and sustained by Dispute Resolution Panel ('DRP'). 2.1 That the DRP/ TPO erred on facts and in law in recharacterizing the alleged transaction of delay in receipts of receivables as unsecured loans advanced to the associated enterprises. 2.2 That the DRP/ TPO erred on facts and in law in not appreciating that delay in receipt of receivable is not an 'international transaction', per se, under section 92B of the Act but is a consequence of an 'international transaction' undertaken in the form of services rendered to the associated enterprise. 2.3 That the DRP/TPO erred on facts and in law in holding that the non- realization of invoice value beyond the period of 60 days is a separate international transaction, whose arm's length price is required to be determined separately. 2.4 Without prejudice, that the DRP/ TPO erred on facts and in law in not accepting that in any case the transaction of delay in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India within the meaning of Double Taxation Avoidance Agreement (DTAA) between India and Belgium on account of the following: a. Fixed place of business in the form of place where clinical trials and research and development takes place including but not limited to CDMCI and BDSI, Bangalore under Article 5(1) of the DTAA; b. Premises used as a sales outlet or for receiving or soliciting orders with respect to vaccines under Article 5(2){i) of the DTAA; c. CDMCI, Bangalore under Article 5(2)(c) of the DTAA; d. BDSI, Bangalore under Article 5(2)(c) of the DTAA; and e. Dependent agent PE in the form of the appellant under Article 5(4) of the DTAA. 3.3 That the DRP/ AO erred on facts and in law in alternatively holding that the appellant constituted business connection with GSK Bio within the meaning of section 9(1 )(i) of the Act. 3.4 Without prejudice, the DRP/ AO erred on facts and in law in determining the profit attributable to the alleged PE in India at 22.5% of the net profits of GSK, Bio, as against 15.38% determined by the appellant on the basis of functions, asset and risk analysis of the appellant vis-a-vis GSK, Bio. 139. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1 Without prejudice, that the DRP/ AO erred on facts and in law in not allowing depreciation @ 25% on the said product development expenditure incurred for the earlier assessment year, i.e. AY 2006-07 to 2013-14, by treating the same as capital in nature. 143. The issue involved in the above grounds stands adjudicated by us above at Issue No.4 in para 13 to 14 of our order above. Accordingly, this ground is allowed for statistical purposes. 144. The assessee has also raised additional ground as under: 1. That on the facts and circumstances of the case and in law. the assessing officer ought to have allowed, in pursuance to law clarified by the Hon'ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Ltd vs JCIT: D.B. 1TA No.52/2018 and Hon'ble Bombay High Court in the case of Sesa Goa Ltd vs JCIT: 117 taxmann.com 96 (Bom HC), deduction of Rs. 2,55,04,589, being education cess computed on returned income, paid by the Appellant before the due date of filing return of income for the subject assessment year. 2. That on the facts and circumstances of the case and in law, pursuant to law clarified in the case of Chambal Fertilisers a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for sale of Albendazole tablets. 2.4 That the TPO/ DRP erred on facts and in law in rejecting Triochem Products Ltd as comparable from the final set of comparable companies allegedly holding that complete financial information is not available in public domain. 2.5 That the TPO/ DRP erred on facts and in law in rejecting Zim Laboratories Ltd. as comparable from the final set of comparable companies allegedly holding that the company is functionally dissimilar to the appellant. 149. The issue involved in the above grounds stands adjudicated by us above at Issue No.11 in para 55 to 58 of our order above. Accordingly, this ground is allowed for statistical purposes. 3. That the assessing officer erred on facts and in law in making an adjustment of Rs. 18,98,270 to the arm's length price of alleged 'international transactions' of accounts receivable undertaken with the associated enterprise, on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing officer ('TPO') and sustained by Dispute Resolution Panel ('DRP'). 3.1 That the DRP/ TPO erred on facts and in law in recharacterizing the alleged transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.1 That the DPR/ AO erred on facts and in law in allegedly holding that GSK Bio has outsourced its core activity to the appellant and all the activities are undertaken under direct supervision and control of GSK Bio and thereby establishing that there is a constant touch between the appellant and GSK Bio for R D activities. 4.2 That the DRP/ AO erred on facts and in law in holding that clinical trial activities constitute permanent establishment of GSK Bio in India within the meaning of Double Taxation Avoidance Agreement (DTAA) between India and Belgium on account of the following: a. Fixed place of business in the form of place where clinical trials and research and development takes place including but not limited to GDMCI and BDSI, Bangalore under Article 5(1) of the DTAA; b. Premises used as a sales outlet or for receiving or soliciting orders with respect to vaccines under Article 5(2)(i) of the DTAA; c. CDMCI, Bangalore under Article 5(2)(c) of the DTAA; d. BDSI, Bangalore under Article 5(2)(c) of the DTAA; and e. Dependent agent PE in the form of the appellant under Article 5(4) of the DTAA 4.3 That the DRP/ AO erred on facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove at Issue No.6 in para 27 of our order above. Accordingly, this ground is allowed. 8. That the DRP/ AO erred on facts and in law in sustaining the disallowance of product development expenses amounting to Rs. 2,15,76,000 (after allowing depreciation @ 25% p.a. of expense of Rs. 2,87,68,000) allegedly holding that the said expenditure is in relation to pre-launch of a product and therefore, capital in nature. 8.1 Without prejudice, that the DRP/ AO erred on facts and in law in not appreciating that even if the expenditure incurred on product development is considered to be in the nature of capital expenditure, the said expenditure ought to be allowed deduction under section 35(1 )(iv) of the Act. 8.2 Without prejudice, that the DRP/ AO erred on facts and in law in not allowing depreciation @ 25% on the said product development expenditure incurred for the earlier assessment year, i.e. AY 2006-07 to 2013-14, by treating the same as capital in nature. 155. The issue involved in the above grounds stands adjudicated by us above at Issue No.4 in para 13 to 14 of our order above. Accordingly, this ground is allowed for statistical purposes. 156. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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