TMI Blog2022 (8) TMI 1443X X X X Extracts X X X X X X X X Extracts X X X X ..... GUJARAT HIGH COURT] in own case of the assessee. But we are also conscious to latest development on the issue on hand as discussed above. Therefore, we direct the AO to also consider the judgment of Hon ble Madras High court [ 2020 (12) TMI 516 - MADRAS HIGH COURT] at the time of fresh adjudication. Hence, the ground of appeal raised by both the assessee and Revenue is hereby allowed for statistical purposes. MAT computation - denying the deduction of remuneration received from partnership firm while computing book profit under section 115JB - HELD THAT:- The definition of the income as discussed above under clause (ve) of section 2(24) of the Act has also made reference to the income chargeable to tax under clause (v) of section 28 of the Act. Thus, there remains no ambiguity to the fact that the amount of remuneration not allowed as deduction in the hands of the partnership firm cannot be made subject to tax in the hands of the partner. Thus, once the receipt is not taxable then the same cannot be made subject to tax under the provisions of MAT while calculating the profit under section 115JB of the Act. In view of the above, we do not find any reason to uphold the findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance of business promotion expense incurred in connection with doctors - AO was of the view that the above expenditure are not allowable under explanation 1 to section 37(1) of the Act as the same is incurred in violation of guideline issued by the Medical Council of India - HELD THAT:- We find that the issue on hand is covered in favour of the assessee by order of this tribunal in own case of the assessee for A.Y. 2010-11 [ 2019 (4) TMI 868 - ITAT AHMEDABAD] . However we find that recently Hon ble Supreme Court in case of Apex Laboratories (P.) Ltd. [ 2022 (2) TMI 1114 - SUPREME COURT] held that freebies provided to the doctor by the assessee engaged in pharmaceuticals business are covered under the explanation to section 37(1) of the Act being expenditure incurred which is prohibited by the law. Hence we deviate from the finding of the coordinate bench of this tribunal in own case of the assessee for earlier years and held that the assessee is not entitled to claim the deduction of the impugned expenses. Deduction of the cess paid - HELD THAT:- As per amendment under the provisions of section 40(a)(ii) of the Act wherein an explanation has been inserted with retrospec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d further held the Assessee's transaction with subsidiary was at arms length. Decided against revenue. Upward adjustment on account profit attributed to the product Pantoprazole and other product - HELD THAT:- As decided in the own case of the assessee for AY 2008-09 no merit in the findings of the First Appellate Authority in accepting the application of PSM as the MAM , in our understanding of the facts TNMM is the MAM on the given facts and the same is accepted as such. We set aside the findings of the ld. CIT(A) and direct to delete the addition. Disallowance of weighted deduction u/s 35(2AB) - AO was of the view that benefit under section 35(2AB) is only available for the expenditure incurred in product registration in India whereas assessee incurred Trademark registration and overseas product registration charges outside India - HELD THAT:- Similarly the issue of eligibility of weighted deduction under section 35(2AB) of the Act, on expenses related to building repair, municipal tax, brokerage expenses and lunch and refreshment expenses is also covered in favour of the assessee by the order of this tribunal in own case of the assessee for A.Y. 2007-08 [ 2017 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orkout/ determine the expenses with respect to the exempted income. Therefore, in the given facts circumstances, we feel that ad-hoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the adhoc disallowance of Rs. 20 lacs as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restricted the disallowance 1% of the exempted income in other cases involving identical facts and circumstances in order to comply the clause (f) to Explanation-1 of Sec. 115JB of the Act. But we note that the assessee in the present case has earned exempted income more than Rs. 1000 crores and the disallowance will be worked out at ₹10 crores which appears not in commensurate as per the mandate provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore, we are of the view that the ad hoc disallowance as discussed above will render justice to the assessee and the revenue. Disallowances of R D expenditure incurred on behalf of partnership firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the assessee's claim of deduction under section 35(2AB) of the Act. However, in facts of the present case, it would be open for the Assessing Officer to verify the actual expenditure incurred by the assessee. Upward adjustment on account of on account of product development services to AEs. - HELD THAT:- Price charged by the assessee from the associated enterprises at cost +10% is treated as at arm length price and therefore no adjustment is warranted. Hence, we reverse the order of the authorities below and direct the AO/TPO to delete the addition made by him considering the principles of consistency. Hence, the ground of appeal of the assessee is allowed. Downward adjustment in TP on account of power supplied to domestic AE - what should be the rate of the electricity generated by the assessee and supply for captive consumption? - HELD THAT:- We set aside the finding of the learned CIT (A) and direct the AO to delete the downward adjustment in transfer pricing report in pursuance to the finding of this ITAT in the case of Gujarat Fluorochemicals Ltd. [ 2018 (8) TMI 857 - ITAT AHMEDABAD] DR at the time of hearing has not brought anything on record contrary to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case and in law, the learned CIT(A) grossly erred in upholding the order of Assessing Officer / TPO making an addition of 5.41% towards Corporate Guarantee commission which is excessive and ought to be substantially reduced. 2.6 Without prejudice to the above, if an adjustment is to be upheld, the guarantee fee should be charged at 1%, in line with the prevalent safe harbor rules. 3. Re: Deduction of Remuneration received from Partnership firms of M/s Sun Pharmaceutical Industries ('SPI') of Rs. 6.19.63,711/- M/s Sun Pharma Sikkim ('SPS') of Rs. 67.25.69,731/- aqqreqatinq to Rs 73,45.33,442/- for determination of Book Profits under section 115JB: 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) / Ld. AO erred in not considering remuneration received from the partnership firms as an income to which the provisions of section 10 apply for the limited purpose of computing book profits u/s 115JB without appreciating that remuneration received from partnership firm is nothing but appropriation of profits. 3.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case and in law, the Ld. CIT(A) grossly erred in disallowing purchases made from M/s M.R. Corporation and M/s Savita International as bogus purchases based on the information received from Department of Sales Tax, Maharashtra without considering the evidences and explanations provided by the Appellant and without giving the basis for such allegations and an opportunity to cross examine the defaulting parties to the Appellant. 5.2 The Ld. CIT(A) ought to have appreciated that non-compliance of VAT law by the sellers cannot be the sole basis for sustaining addition in case of the Appellant. 6. Re: Disallowance of expenditure incurred for doctors for promotion of business Rs. 4.75.64.950/-: 6.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in disallowing expenses allegedly incurred towards providing gifts and freebies to the doctors / medical practitioners by invoking the provisions of Indian Medical Regulations, 2002, without appreciating that the same are not applicable to pharmaceutical companies and hence, there cannot be any violation in the first place to attract the rigours of Explanation 1 to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, and by the TPO in his order. 8. The learned AR for the assesse before us file paper book running from pages 1 to 459 and submitted that identical upward adjustment was also made in A.Y. 2008-09, 2009-10 and 2010-11 and the matter travelled up-to the ITAT in all these year in ITA Nos. 3297 3420/Ahd/2014, 1666 1663/Ahd/2016 and 922 1234/Ahd/2016 respectively. The ITAT in all these appeal set aside the issue to the file of the learned CIT(A). Accordingly it was prayed that the issue for the year under consideration should also be set aside to the file of the AO. 9. The ld. DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. Both the ld. AR and DR vehemently supported the stand of the authorities below as favourable to them. 10. We have heard the rival contention of both the parties and perused the materials available on record. At the outset, we find that in the identical facts and circumstances in the own case of the assessee for A.Y. 2007-08 bearing ITA No. 2076 2067/Ahd/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g we find that the Hon ble Madras High Court in the case of PCIT vs. Redington (India) Ltd. reported in 122 taxmann.com 136 has held that corporate guarantee is covered under the limb of international transaction and having bearing on profit and loss account. The relevant finding of the Hon ble court reads as under: The concept of bank Guarantees and Corporate Guarantees was explained in the decision of the Hydrabad Tribunal in the case of Prolifics Corpn. Ltd v. Dy. CIT [2015] 55 taxmann.com 226/68 SOT 104 (URO). In the said case, the revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is and additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of section 92B does not enlarge the scope of the term 'international transaction' to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfil the liability and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner TPO has done. The comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion, appeal does not raise any substantial question of law and it is dismissed 10.5 Now, the question arises what should be the ALP rate of the commission on corporate guarantee? In this regard we find that The Tribunal in several cases has considered 0.50% (of corporate guarantee given) as ALP rate of Corporate Guarantee commission. Some of these cases are as under: (i) Videocon Industries Ltd. v. Dy. CIT [2017] 79 taxmann.com 216 (Mumbai - Trib.), Parent company charged commission at 0.25 %. The ALP was determined by the Tribunal at 0.50%. (ii) Hindalco Industries Ltd. v. Addl. CIT [2015] 62 taxmann.com 181 (Mum.), Parent company charged commission at 0.50% which was considered as at ALP. (iii) Manugraph India Ltd. v. Dy. CIT [2015] 62 taxmann.com 347 (Mum. - Trib.), The corporate guarantee was not treated as international transaction by the parent company but the Tribunal treated it as intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reby allowed for statistical purposes. 11. The next issue raised by the assessee in ground no. 3 of its appeal is that the learned CIT(A) erred in confirming the order of the AO by denying the deduction of remuneration received from partnership firm while computing book profit under section 115JB of the Act. 12. The assessee is a partner in the firm namely Sun Pharma Industries (SPI) and Sun Pharma Sikkim (SPS) from where it received remuneration of Rs. 6,19,63,711/- and Rs. 67,25,69,731/- which was not taxable in hand of the assessee under normal provision of the Act. However, the assessee while computing the book profit under section 115JB also reduced the same. However, the AO added back the same to book profit by holding that remuneration received by assessee to a non-working partner is distinguishable from receipt of share from firm. On appeal learned CIT (A) also confirmed the finding of the AO. 13. Being aggrieved by the finding of the learned CIT (A) the assessee is in appeal before us. 14. The learned AR before us contended that ITAT in the own case of the assessee in the earlier years has decided the issue against it. However, there is change in the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (other than the provisions contained in clause (38) thereof) or [***] section 11 or section 12 apply; or] 112. And as reduced by :- (ii) the amount of income to which any of the provisions of [section 10 (other than the provisions contained in clause (38) thereof) or [***] section 11 or section 12 apply, if any such amount is credited to the [statement of profit and loss]; or 113. And section 10(2A) of the Act says that in the case of a person being a partner of a firm which is separately assessed as such his share in the total income of the firm will not form part of total income. Explanation to Section 10(2A) provides that the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding, anything contained in any other law, to be an amount which bears to the total income of the firm, the same proportion as the amount of a share in the profits of the firm in accordance with the partners deed bears to such profits. 114. Thus, it is clear that firstly the profit and loss account of the company should be in accordance with the relevant provisions of the Companies Act. Secondly, only specified items have to be added back as provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under Section 115 JB of the Income Tax Act, 1961. 16.2 It is an admitted fact that amount of remuneration received by the assessee was not allowed as deduction in the hands of the partnership firm. Thus, the same cannot be added to the total income of the assessee by virtue of the proviso to clause (v) of section 28 of the Act which reads as under: v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ; 16.3 At this juncture we also refer the provisions of section 2(24) of the Act where the word income has been defined. The relevant clause (ve) of section 2(24) of the Act reads as under: (24) income includes (ve) any sum char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumable are capital assets. Thus the AO disallowed the repair and maintenance expenses of Rs. 35,29,755/- and made an addition of Rs. 26,47,073/- after providing the setoff of the depreciation for Rs. 8,82,682/- only. 20. The aggrieved assessee carried the matter before learned CIT (A) and reiterated its contention as made during assessment proceeding. 21. However, the learned CIT(A) confirmed the disallowances of repair and maintenance expenses to the extent of Rs. 35,13,250/- in part by observing as under: 18.2. I have carefully considered the facts on records and submission of the Ld. Authorized Representative. The issue under consideration is as to whether expenditure incurred by the appellant for purchase of various items will amount to creation of new assets with an enduring benefit to the company. In this regard, it is worthwhile to refer to the ratio laid down by the Hon'ble Supreme Court in the case of Dalmia Jain Co. Ltd. Vs. CIT (1971) 81 ITR 754 wherein it has been held that in deciding whether a particular expenditure is a capital in nature, what the Courts have to see as to whether the expenditure in question was incurred to create any new assets o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine and accordingly the expenditure has to be treated as capital in nature. Accordingly, the action of Assessing Officer on this account is confirmed. 22. Being aggrieved by the order of the learned CIT(A), the assesse is in appeal before us. 22.1 The learned AR before us contended that the items classified as fixed assets by the Revenue actually represents the part of the larger machines. As these items cannot function independently and thus such expense represents the repairs and maintenance expenses. The ld. AR reiterated the submissions as made before the authorities below. 22.2 On the other hand the learned DR vehemently supported the order of the authority below. 23. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note there was identical disallowances made by the AO in own case of the assessee in A.Y. 2010-11 where the coordinate bench of this tribunal in ITA No. 922 1234/Ahd/2017 decided the issue against the assessee by observing as under: 73. The Ld. AR before us has also not pointed out any defect in the order of the Ld. CIT-A. Thus in the absence of any argument by the ld. AR for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d registered with the Maharashtra VAT department. The payment against the purchases was made through the banking channel. Furthermore, considering the total purchases shown by the assessee in the year under consideration for ₹ 945 crores, the amount of impugned purchases are of negligible value. As such, it cannot be expected that the assessee will show the bogus purchases from such parties. 29. On the other hand, the learner DR vehemently supported the order of the authorities below. 30. We have heard the rival contentions of both the parties and perused the materials available on record. It has been contended by the assessee before the AO that above parties were active at the time of purchases made by it and this fact has nowhere been doubted by the authorities below. Thus, the assessee cannot be penalized if the other parties being the seller are de-registered from the Maharashtra VAT department. There was no clue or information available with the income tax Department suggesting that the assessee has made bogus purchases. The entire thrust of the Revenue was based on the fact that the other parties were held as bogus by the Maharashtra VAT department. To our underst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wable under explanation 1 to section 37(1) of the Act as the same is incurred in violation of guideline issued by the Medical Council of India. 32.2 The assessee in support of its claim contended that such expenses were incurred to gain regular development in the medical field and valuable inputs in the form of feedback from doctors. The company considers medical fraternity a very important partner in the overall drug development to retain its leadership position in the industry. Therefore, the same were incurred wholly and exclusively for the purpose of business and allowable as deduction. The assessee also submitted that IMC regulation does not apply to it as assessee is a pharmaceutical company and not a medical practitioner. Therefore, explanation 1 to section 37(1) will not apply. 32.3 However, AO disregarded the contention of the assessee and held that MCI is a statutory body which discharges its function under the Medical Council Act 1956. Therefore, any violation of the guidelines would be covered under the prohibition of law as mentioned in explanation 1 to section 37(1). Further, CBDT also in this regard issued circular No. 5/2012 dated 1-8-2012 which highlight that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edical Practitioners accepting freebies. This argument of Ld. Authorized Representative is also not acceptable. Undisputedly, Medical Council of India has amended Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 with effect from 10.12.2009 prohibiting from accepting of gifts, travel facility or hospitality, from any pharmaceutical company or the health care industry by the doctors/medical professionals. Thus regulation is issued by the statutory body created under the Act of Parliament i.e. Medical Council Act, 1956. CBDT has also issued a Circular No. 5 of 2012 in this regard stating that expenditure on freebies given to medical professionals and their professional associations in violation of the regulation issued by the Medical Council of India which is a regulatory body constituted under Medical Council Act, 1956, will not be allowed as expenditure in view of the Explanation below section 37(1). The validity of this circular is also been upheld by the Hon'ble High Court of Himachal Pradesh vide order dated 26.12.2012 in CWP No. 10793 of 2012. Since Medical Council of India has prohibited expenditure on freebies given to the medical profes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that reimbursement of the | accommodation expenses has directly benefited the medical practitioner and j doctors and hence the same is in the nature of gifts/freebies. Similarly j various equipments gifted to the doctors debited under the head business ' promotion expenses also fall under the category of freebies. Accordingly, I further hold that accommodation expenses as well as business promotion ; expenses are hit by the Circular No. 5/2012 and amended guidelines of MCI. \ Accordingly, the action of Assessing Officer in this regard is upheld. However, conference fees and sponsorship expenses since were incurred for l sharing the knowledge in the medical field which may help in improving the product and Research and Development activity of appellant, in my considered view, it is not hit by the Circular No. 5/2012 and amended MCI Guidelines. Further they appear to be in the nature of remuneration for J services rendered by the Medical Professionals in the conference and seminars. 27.2.2. The Ld. Authorized Representatives have also argued that the Circular No. 5/2012 is applicable to the Doctors/Medical practitioner only but not to the companies offering gifts/freebie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dical practitioners. 35. The learned AR for the assesse before us submitted that identical disallowance was also made in the immediate previous assessment year being A.Y. 2010-11. The issue travelled to the ITAT in ITA No. 922 1234/Ahd/2017 where the Hon ble bench vide order dated 29-03-2019 decided the issue in favour of the assessee. Therefore, in the year under consideration, the same needs to be deleted. 36. On the other hand, the learned DR contended that the impugned expenses are not eligible for deduction under the explanation to section 37 of the Act. 37. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue on hand is covered in favour of the assessee by order of this tribunal in own case of the assessee for A.Y. 2010-11 bearing ITA No. 922 1234/Ahd/2017. However we find that recently Hon ble Supreme Court in case of Apex Laboratories (P.) Ltd. vs. DCIT reported in 135 taxmann.com 286 held that freebies provided to the doctor by the assessee engaged in pharmaceuticals business are covered under the explanation to section 37(1) of the Act being expenditure incurred which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s disclosed under SI No. 6(c) of Schedule DOT in the ITR 6 as Annexure-1 and Annexure-2 respectively. 3. Section 40(a)(ii) of the Act, provides, inter alia, for disallowance of any rate or tax levied on profits or gains of any business or profession in computing the total income of a taxpayer. Section 10 of the Income Tax Act, 1922 which is pari-materia with section 40(a)(ii) of the Act, provided for disallowance of any cess, rate or tax levied on...... . The word cess was present in the section 10(4) of the Income Tax Act, 1922. The said word was omitted from provisions of section 40(a)(ii) of the Act. In this regard, CBDT Circular No. 91/58/66ITJ(19) dated 18-05-1967, states that the effect of the omission of the word 'cess' from section 40(a)(ii) of the Act is that only taxes paid are to be disallowed and not cess. The said position is also upheld by decisions of Hon'ble Rajasthan High Court in case of Chambal Fertilisers and Chemicals Limited vs. JCIT (D.B. Income Tax Appeal No. 52/2018) (Dated 3107-2018) as well as recent decision of the Hon'ble Bombay High Court in the case of Sesa Goa Ltd. v. JCIT [2020] 117 taxmann.com 96. Accordingly, the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in law, the Ld. C.I.T. (A) erred in deleting the transfer pricing addition of Rs. 27,60,411/- towards interest on 0% Optionally Fully Convertible Debentures (OFCD), without appreciating the facts and reasons mentioned by the AO in the assessment order, and by the TPO in his order. 4. On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in not confirming the transfer pricing addition of Rs. 9,95,440/- towards corporate guarantee provided to AE on which no guarantee fee was charged, without appreciating the facts and reasons mentioned by the AO in the assessment order, and by the TPO in his order. 5. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the Transfer Pricing adjustment made on account of sale of Pantaprazole and Para IV drugs, to Sun Pharma Global FZE, without appreciating the facts and reasons mentioned by the AO in the assessment order, and by the TPO in his order. 6. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the Transfer Pricing adjustment made on account of sale of other products to Sun Pharma Global FZE, without appreciating the facts and reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to the disallowance made u/s 14A. 10.3 Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in restricting the disallowance u/s 14A and in not directing computation of the disallowance in terms of all the three limbs of Rule 8D. 11. On the facts and circumstances of the case and in law, the CIT(A) erred in partly deleting the disallowance u/s 14A without appreciating the facts and reasons mentioned by the AO in the assessment order, and without considering that the assessee had failed to produce any evidence to controvert the findings of the AO, and failed to demonstrate that investments were actually made out of interest free funds, and the disallowance deserved to be upheld following the decision of the Hon'ble High Court in Avon Cycles Ltd. (2015) 53 taxmann.com 297 (P H). 12. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition to book profit u/s 115JB relating to disallowance u/s 14A without appreciating the facts and reasons mentioned by the AO in the assessment order, and without considering that this amount was required to be added to the book profit as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s. 35(2AB) due to non-certification of expenditure on scientific research by the DSIR, whereas in the present case, the DSIR has specifically excluded the excess expenditure as per norms. 19. The appellant craves leave to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal. 43. The issues raised by the Revenue in ground No. 1 and 19 of its appeal are general in nature and thus the same do not require any separate adjudication. Hence the same are dismissed as infructuous. 44. The next issue raised by the Revenue in ground No. 2 of its appeal is that the learned CIT (A) erred in deleting the upward adjustment under the provision of Transfer Pricing for Rs. 1,39,76,444/- on account of interest free loans to AE. 45. During the course of assessment proceedings, the TPO noticed that the assessee has provided interest free advances to the AE namely Sun Pharma Global BVI in earlier year out of which an amount of Rs. 134.4 crores was carried forward in the year consideration. The AO/TPO was of the opinion that the assessee should have charged interest at LIBOR plus basis. The assessee strongly objected to this propositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is means that the balance of the application money remained so pending allotment. In our considered view, relevant provisions of Indian Companies Act will not be applicable to this case and deferent countries have separate laws/ regulation on such issue. Adjustment on account of notional interest on share application money which is not disputed be to be so are not liable to be recharacterized as loans only because there was a delay in allotment of share is not justifiable, more so when assesse has given plausible reason for such delay to avoid repetitive documentation and other regulatory exigencies. There is no dispute that the AE is a 100% subsidiary of the appellant company and the appellant company in its capacity as sole owner of the subsidiary ny subscribing to share capital is beneficiary of all the gains of the subsidiary company. Merely, because allotment of shares is delayed and in books share application money is reflected as advance for share application money till the allotment would not alter the characterization to the prejudice of assessee s position anyway. In our considered view, the percentage of ownership is the only material factor which remains at 100% prior t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For example, if the funds available for dividend distribution for this year were say Rs 1,00,000 and the assessee had 100 shares before new allotment of shares and 1000 shares after the allotment, the assessee would be entitled to Rs 1,00,000 only the either way- whether as Rs 1,000 per share for 100 in pre new allotment situation or whether as Rs 100 per share for 1,000 shares in post new allotment situation. In absolute terms, the dividends remain the same. Whether the assessee is allotted more shares or not is wholly academic as the assessee is a single shareholder of the subsidiary company and the face value of shares does not affect the actual benefits of the assessee, the percentage of ownership is the only material factor- which remains at 100% pre new allotment as also post new allotment. In the case of CH v, EKL Appliances Ltd. [2012] 345 ITR 241/209 Taxman 200/24 taxmann.com 199 (Delhi). Hon'ble Delhi High Court has, though in a very different context and which is materially different from a situation in which the payment is made for subscription of share capital- as in this case, held that re-characterization of a transaction is possible in only two situations - i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion that OFCDs being hybrid instrument convertible at the option of the investor is in the nature of debt and required to be determined at arm length. Thus the TPO computed the arm length interest rate at 3.60% and accordingly made upward adjustment of Rs. 27,60,411/- only. 53. On appeal by the assessee, the learned CIT(A) found that the adjustment made in the year under consideration is identical to the adjustment made in the AY 2008-09 in the own case of the assessee against which assessee was in appeal before ITAT in ITA No. 3297/Ahd/2014 where the Hon ble ITAT decided the issue in favour of the assessee. Thus, the learned CIT (A) following the order of the ITAT in the own case of the assessee for AY 2008-09 allowed the appeal of the assessee. 54. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 55. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order. 56. On the other hand the learned AR before us submitted that identical upward adjustment was also made in AY 2008-09, 2009-10 and in 2010-11 where the matter travelled up-to ITAT in ITA No. 3297/Ahd/2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the ld. DR does not in any way justify any departure from the decision laid down in A.Y. 2007-08. 21. Adverting to ld. DR s contention that the terms of OFCDs and comparables have not been submitted, it is contended that the terms of OFCDs were duly submitted before the lower authorities in the form of Annexure B which is part of the PB. Similarly the allegation that assessee has not brought on record any comparable transactions to show that non-charging of interest was at armslength and it got compensated by favorable terms similar to that offered by uncontrolled entities is also strongly refuted. It is contended all the relevant details and comparable were furnished as Annexure B in which it has been submitted that the conversion of OFCD into equity shares at a price of USD 21- USD 51 per share as against the net asset value of the shares at the relevant point in time being USD 87 per share. Thus it is clear that the OFCDs were convertible into shares at significant discount to the prevailing book value of the shares giving rise to sizeable benefit on OFCDs. It is also submitted that the OFCDs have been converted into equity shares in the subsequent years; hence, the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion does not lose its authority 'merely because it was badly argued, inadequately considered and fallaciously reasoned' . . . Similarly in the case of Kesho Ram and Co. v. Union of India [1989] 3 SCC 151, it is stated by the Supreme Court thus (page 160): The binding effect of a decision of this court does not depend upon whether a particular argument was considered or not, provided the point with reference to which the argument is advanced subsequently was actually decided in the earlier decision 25. A similar view is again taken by the Hon ble Jurisdictional High Court of Gujarat in the case of Nirma Industries Ltd. 283 ITR 402. Coming to the facts of the year under consideration, we do not find any distinction from the decision taken in earlier assessment year by the Bench and the relevant findings read as under:- 8. We have heard the rival contentions and have carefully perused the orders of the authorities below. At the very outset, we have to state that the revenue has no power to re-characterize the transaction. The Hon ble High Court of Delhi in the case of Cotton Naturals India Pvt. Ltd. 276 CTR 445 at para 17 of its order has held that Chapter X a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he added the interest rate of 2.90 basis point as per the agreement and thereafter considered the rate of interest to be @ 7.38% and accordingly computed the interest on Rs. 108.32 Crore for 171 days at 7.38%. The aforesaid adjustment made by the TPO was considered by the Assessing Officer and the addition of Rs. 3,99,74,4267- was made to the income. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee decided the issue in favour of Assessee 10. And the Tribunal held as under:- 7. We have heard the rival submissions and perused the material on record. CIT(A) while deleting the addition has noted that as per the agreement, the interest was payable only if the conversion option was not exercised on the expiry of 5 year period. If at any time during the 5 year period conversion option was exercised and the loan was converted into equity, no interest accrued or become payable. He further noted that the funds were provided by the Assessee as per RBI guidelines and in the immediately next year, the entire loan given to subsidiary was converted into equity shares of Zydus International P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set we note issue raised by the Revenue in its ground of appeal has been adjudicated along with the assessee s ground of appeal in ITA No. 1462/Ahd/2018, where we have vide paragraph no. 10 to 10.6 of this order in set aside the issue to the file of the AO for fresh adjudication as per law. Thus ground of appeal raised by the Revenue is hereby allowed for statistical purposes. 60. The next issue raised by the Revenue in ground No. 5 and 6 of its appeal is that the learned CIT (A) erred in deleting the upward adjustment under the provision of Transfer Pricing made on account profit attributed to the product Pantoprazole and other product. 61. The assessee company claimed to have manufactured the medicine namely Pantoprazole Sodium Delayed Release and other medicine on contract basis for its AE namely Sun Pharma Global BVI (SPG-BVI) until December 2008 and thereafter for Sun Pharma Global FZE (SPG-FZE) a 100% subsidiary of SPG-BVI. As per the assessee SPG-BVI from 2009 onward SPG-FZE is the owner of the technology of the impugned drug and undertaking. The functions like marketing, distribution, credit risk, product litigation liability, inventory holding cost, sales return, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture Pantoprazole Sodium from Sun Pharma Advance Research Company Ltd. (SPARC). SPARC was incorporated on 01.03.2006 as a research company. With effect from 28.02.2007, the appellant company demerged its Innovative Research and Development business to SPARC. This is supported by the order of the Hon ble High Court of Gujarat exhibited at pages 475 to 518 of the paper book. On 28.10.2007, SPARC sold a basket of 38 Technologies to SPG including ANDA for Pantoprazole Tablet, the consideration of which was USD 3 million for U.S. Market and USD 1.4 million for Europe Market. This is supported by the agreement for sale exhibited at pages 519 to 536 of the paper book. 77. By virtue of this agreement for sale, the Technology was purchased by SPG in the month of October, 2007 and immediately thereafter in the month of November, 2007, SPG enters into an agreement with appellant for manufacturing. Copy of supply agreement between SPG and SPIL is exhibited at pages 648 to 659 of the paper book. Relevant clauses of the supply agreement read as under:- AND WHEREAS SPGI is the owner of the various abbreviated new drug applications and is interested to market the products in United States of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Products, and such other information as SPGI deems to be reasonable and necessary, From time to time, SPGI at its own expense may send a representative to visit SPIL to provide such technical knowledge as shall be mutually agreed to by SPGI and SPIL. 3.2 Intellectual Property Representation: Except for the rights expressly under the terms of the Agreement this Agreement does not transfer any intellectual property rights, specifically with respect to the Products from SPGI to SPIL. SPGI represents and warrants that, to the best of the knowledge and belief of SPI , SPIL s fulfillment of the terms of this agreement to the' manufacturing of the Products will not infringe any third party intellectual property rights. Nevertheless, in case SPIL would be or named as a formal party by reason of an infringement of third party rights for the Products, SPIL shall promptly inform SPGI thereof. SPGI shall conduct any defense of such suit at its own expense and SPGI shad indemnify and hold SPIL harmless from and against any loss, claim, damage, expense or liability if any resulting from any such suit in accordance with Section 5. However, in any such litigation suit SPIL agrees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l replace all nonattributable to SPIL. SPIL shall also bear reimburse to SPGI the cost of freight and insurance for such non-conforming Products Upon SPIL s instructions, SPGI shall destroy or return to SPIL at SPIL s cost, all non-conforming Finished Products. 4.6.4 SPIL agrees to invoice and dispatch at SPGI s cost and risk, the finished products to SPGI or its nominees as specified by SPGI according to the orders placed by SPGI and instructions given by SPGI and accepted by SPIL. 5.1 SPGI Indemnification. SPGI shall indemnify and hold SPIL harmless from and against any loss, claim, damage, expense or liability, resulting from any misrepresentation, negligence, or intentional misconduct by SPGI in performing this agreement including for any claim, demand or suit alleging that the Product infringes any third party s patent, copyright, trademark, trade secret or other intellectual property right or any product liability. Notwithstanding anything to the contrary in this Agreement, in no event shall SPGI be liable to SPIL for any incidental, indirect, exemplary, special or consequential damages whatsoever (including, but not limited to, lost profits, loss of goodwill, or inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of Ld Shri Shrivastava that these arrangements by the assessee is a brutal form of tax evasion , the Hon ble Supreme Court in the case of Vodafone International Holdings B.V. vs. Union of India and Another reported in 341 ITR 1 has laid down the ratio : It is the task of the court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not adopt a dissecting approach. All tax planning is not illegal or illegitimate or impermissible . 81. The Hon ble Supreme Court further held. :- (iv)The Income-tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence of companies as economic entities with legal independence vis-a-vis their shareholders or participants. Consequently, the entities subject to income-tax are taxed on profits derived by them on standalone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders or participants. Furthermore, shareholders or participants, that are subject to (personal or corporate) income-tax, are generally taxed on profits derived in cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except where subsidiaries are created or used as a sham. The directors of the subsidiary under their articles are the managers of the companies. They are not to be dictated by the parent company if it is not in the interests of those companies (subsidiaries). The fact that the parent company exercises shareholder's influence on its subsidiaries cannot obliterate the decision-making power or authority of its (subsidiary's) directors. The decisive criteria is whether the parent company's management has such steering interference with the subsidiary's core activities that the subsidiary can no longer be regarded to perform those activities on the authority of its own executive directors. (vii) A typical large business corporation consists of sub-incorporates. Such division is legal and recognized by company law, laws of taxation, takeover codes. The parent is the only group member that normally discloses financial results. Below the parent company are the subsidiaries which hold operational assets of the business and which often have their own subordinate entities that can extend layers. Subsidiaries are often created for tax or regulatory reasons. They at times co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppropriateness and application of profit split methods to the global trading of financial instruments between associated enterprises in Part III, Section C of the Report on the Attribution of Profits to Permanent Establishments. 2 A transactional profit split method may also be found to be the most appropriate method in cases where both parties to a transaction make unique and valuable contributions (e.g. contribute unique intangibles) to the transaction, because in such a case independent parties might wish to share the profits of the transaction in proportion to their respective contributions and a two-sided method might be more appropriate in these circumstances than a one-sided method. In addition, in the presence of unique and valuable contributions, reliable comparables information might be insufficient to apply another method. On the other hand, a transactional profit split method would ordinarily not be used in cases where one party to the transaction performs only simple functions and does not make any significant unique contribution (e.g. contract manufacturing or contract service activities in relevant circumstances), as in such cases a transactional profit split method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or in multiple international transactions [or specified domestic transactions] which are so interrelated that they cannot be evaluated separately for the purpose of determining the arm s length price of any one transaction, by which- (i) the combined net profit of the associated enterprises arising from the international transaction [or the specified domestic transaction] in which they are engaged, is determined; (ii) the relative contribution made by each of the associated enterprises to the earning of such combined net profit, is then evaluated on the basis of the functions performed, assets employed or to be employed and risks assumed by each enterprise and on the basis of reliable external market data which indicates how such contribution would be evaluated by unrelated enterprises performing comparable functions in similar circumstances; (iii) the combined net profit is then split amongst the enterprises in proportion to their relative contributions, as evaluated under sub-clause (ii); (iv) the profit thus apportioned to the assessee is taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable when the international transaction involved transfer of unique intangibles (in the case in hand there is no such transfer from SPG BVI to SPIL), or in multiple international transaction which are so inter related that they cannot be evaluated separately for the purpose of determining the arm s length price of any one transaction. This is also absent (in the case in hand as the appellant company has done only manufacturing of Pantoprazole Tablets for SPG BVI). 89. Coming to the application of TNMM, we find that the profit margin benchmark by the assessee at 21.57% on sales transactions is much higher than the margin shown by the assessee with Eli Lily. 90. The revenue authorities have compared the agreements of SPIL with Eli Lily and SPIL with SPG BVI and have come to the conclusion that a conspectus reading of the relevant clauses show that the assessee is not a contract manufacturer in the case of SPG BVI. This finding of the revenue authorities is not acceptable for the simple reason that they have compared the clauses of the respective agreements without considering the nature of work done by SPIL. It may be possible that certain terms and conditions may be absent i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a go by on unsustainable revenue stand. In such eventuality even the ALP offered by assesse as a contract manufacturer also will be wiped out. The PSM application may actually result in reduction of returned ALP working. Thus, considering the issues from all possible angles, the assessee has, undisputedly and as accepted by revenue, ultimately suffered losses which are not claimed in its books or tax purposes. Even the alternative application of PSM fails and would do no good to the Revenue. 92. To summarize in nutshell , by the order of the Hon ble High Court Innovative Research and Development /division of the appellant company was demerged and given to Sun Pharma Advance Research company (SPARC) subsequently SPARC transferred ANDA rights to SPG BVI. SPG BVI has been entered into an agreement with the appellant company SPIL for the manufacturing of Pantoprazole. Pursuant to this agreement assessee manufactured Pantoprazole and sold the same to Caraco Ltd on the directions of SPG BVI. On such sale transaction, the appellant company had shown a net margin of 21.57% bench mark the same on transactional net margin method which was dismissed by the revenue authorities questionin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Repairs of buildings Rs. 54,58,900/- Municipal taxes Rs. 19,93,648/- Lunch Refreshment expenses Rs. 8,92,819/- Brokerage for property Rs. 19,500/- 67.2 The AO was of the view that benefit under section 35(2AB) is only available for the expenditure incurred in product registration in India whereas assessee incurred Trademark registration and overseas product registration charges outside India. Hence disallowed the weighted deduction of Rs. 4,22,57,443/- on the same. 67.3 The AO further disallowed the weighted of Rs. 54,58,900/- and Rs. 19,93,648/- claimed on building repair expenses and municipal tax respectively by holding as under: I have carefully gone through the reply of the assessee but I do not find it convincing and satisfactory. Regarding Repairs to Building and [Municipal Taxes incurred for R D facility, it is specifically stated in section |35(2AB) of the Income Tax Act, 1961 that ..... any expenditure on scientific research ( not being expenditure in the nature of cost of any land or building in- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has followed its earlier decision in ITA No. 2430/Ahd/2009. The findings thereon read as under:- Ground no. 4 relates to the disallowance of trade mark registration and overseas product registration charges u/s. 35(2AB). 11. On perusing the details of R D expenditure, the A.O found that the assessee has claimed weighted deduction @ 150% on (a) Trade Mark Registration Charges : 2,42,56,296/- (b) Overseas Product Registration Charges : 2,00,00,508/- 12. The assessee was asked to justify its claim. Assessee filed a detailed reply justifying its claim of weighted deduction. It was explained that the expenditure incurred for product registration although named as Product Registration Expenditure is not merely an expenditure for registration of the product, but in large measure constitutes expenditure for validation and confirmation of the Research carried out. The A.O did not accept the claim of the assessee holding that these expenses were incurred for registration of drug patents in foreign countries. The A.O accordingly withdrew the weighted deduction and allowed only 100% of the same as revenue expenditure. 13. Assessee carried the matter before the ld. CIT(A) but wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch in ITA No. 1592/Ahd/2011 qua ground nos. 2 3 of that appeal. In ground no. 1 of the present appeal, we have extracted the relevant part of the decision of the Co-ordinate Bench. For the reasons given therein, ground no. 2 is also dismissed. 74. Ground no. 3 relates to the deletion of the disallowance of Rs. 7,91,222/- claimed u/s. 35(2AB) of the Act incurred for lunch, refreshment and brokerage paid for property used by R D unit employees. 75. This issue is identical to the issues covered by ground nos. 1 2 hereinabove. For the reasons given therein, ground no. 3 is dismissed. 72.2 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in own case of assessee, we uphold the finding of the learned CIT(A). Thus, the ground of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on record. At the outset, we find that the issue on hand is covered in favour of the assessee by order of this tribunal in the own case of the assessee for A.Y. 2007-08 bearing ITA No. 2076 2067/Ahd/2013 and the same was also followed in subsequent years. The relevant finding of the coordinate bench reads as under: 50. After giving a thoughtful consideration to the orders of the authorities below, in our considered opinion, so far as the disallowance made by the Assessing Officer is concerned, we find that this issue has been decided in favour of the assessee and against the revenue by the Co-ordinate Bench in assessee s own case in ITA No. 2430 2400/Ahd/2009 wherein the bench has followed the decision of the Tribunal in earlier assessment years in ITA No. 1193/Ahd/2008. The relevant part in ITA No. 1193/Ahd/2008 is as under:- Ground no. 13 relates to the disallowance of expenses incurred on behalf of Sun Pharmaceutical Industries. 88. This issue has been discussed by the A.O at para 13 of his order wherein he has mentioned that during the course of survey operations. A copy of partnership deed between the assessee and Sun Pharmaceutical Industries (SPI) was found a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee has not shown any income from remuneration from the partnership firm. The assessee was not entitled for the claim of deduction. The ld. D.R. further stated that no bifurcation have been provided by the assessee to show the expenses incurred for the purpose of the business of the partnership firm and for the assessee company. The D.R. concluded by saying that there is no error in the findings of the A.O. Per contra, the ld. counsel for the assessee reiterated the claim and stated that there is no basis for allocating the expenses pro rata. The ld. counsel further stated that the First Appellate Authority further erred in disallowing the expenditure on pro rata basis only on incremental expenses. It is the say of the ld. counsel that the disallowance is unjustifiable. 92. We have carefully perused the orders of the authorities below. We have also given a thoughtful consideration to the rival submissions. There is no denying that the partnership deed has a provision for the payment of remuneration to the whole time working partner by virtue of which the assessee was entitled for the remuneration. There is also no denying that as per the provisions of section 40(b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of appeal raised by the Revenue is hereby dismissed. 80. The next issue raised by the Revenue in ground No. 11 12 is that the learned CIT (A) erred in partly deleting the addition made under section 14A instead of confirming in full under normal provisions of the Act and MAT provision specified under S.115JB of the Act. 81. The assessee during the year claimed exempted income on account of share of profit from the partnership firm and dividend income amounting to Rs. 1099,81,09,217/- and Rs. 2,820/- respectively. Thus, the AO invoked the provision of section 14A read with rule 8D of Income Tax Rule and worked out the disallowances of Rs. 3,71,89,198/- consisting of Rs. 6,15,128/- on account of interest expenditure and Rs. 3,65,74,067/- on account of administrative expenses. 82. On appeal by the assessee, the learned CIT(A) found that the addition made in the year under consideration is identical to the addition made in the AY 2008-09 and 2009-10 in the own case of the assessee which was agitated before the ITAT where the Hon ble ITAT decided the issue in partly in favour of the assessee by confirming the disallowances of administrative expenses as per rule 8D(iii) whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrative expenditures are concerned as per Rule 8D of the ITAT Rules r.w.s. 14A of the Act. We accordingly set aside the disallowance of Rs. 27,55,18,783/- made by the First Appellate Authority and direct the A.O. to recompute the disallowance as directed hereinabove. Ground no. 8 is allowed in part for statistical purpose. 86.1 Thus in view of finding of the coordinate bench we are of the view that the only disallowances of administrative expenses need to be made as per rule 8D(iii) which has already been done. Hence we do not find any infirmity in the order of the learned CIT (A) as far as issue of disallowances under section 14A is concern. 86.2 Coming to next controversy where the AO while computing the book profit under section 115JB of the Act made addition by the amount of disallowances made under section 14A of the Act in pursuance to the clause (f) of explanation 1 to section 115JB of the Act. 86.3 However, we note that in the recent judgment of Special Bench of Hon ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore, in the given facts circumstances, we feel that ad-hoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the adhoc disallowance of Rs. 20 lacs as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restricted the disallowance 1% of the exempted income in other cases involving identical facts and circumstances in order to comply the clause (f) to Explanation-1 of Sec. 115JB of the Act. But we note that the assessee in the present case has earned exempted income more than Rs. 1000 crores and the disallowance will be worked out at ₹10 crores which appears not in commensurate as per the mandate provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore, we are of the view that the ad hoc disallowance as discussed above will render justice to the assessee and the revenue. Thus the ground of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 1663 1666/Ahd/2016. The relevant finding of the coordinate bench reads as under: 58. We have given a thoughtful consideration to the facts in issue before us. There is no dispute that the assessee did incurred expenditure under the head Research Development activity. The only dispute relates to the allegation that part of such expenditure belong to the business activity of the partnership firm SPI. There is also no denying by the lower authorities that the entire Research and Development activities are done by the appellant company only being the flagship company of Sun Pharma Group. In our understanding of the facts, the appellant company had assisted the partnership firm in carrying on its business by using its network for marketing the pharmaceuticals products successively. Since the assessee is holding 97.5% of share in the partnership firm, SPI it becomes the duty of the assessee to promote the business of the partnership firm in the capacity of the majority stake holders. Incidentally, the revenue authorities have not brought anything on record which could suggest that the expenditures have not been incurred for the purposes of business. Be it assessee s busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned CIT(A) found that the addition made in the year under consideration is identical to the addition made in the AY 2008-09 and AY 2009-10 in own case of the assessee against which assessee was in appeal before ITAT in ITA No. 3297Ahd/ 2014 and ITA No. 1666 1663/Ahd/2014, where the Hon ble ITAT decided the issue in favour of the assessee. Thus, the learned CIT (A) following the order of the ITAT in own case of the assessee for AY 2008-09 and 2009-10 allowed the appeal of the assessee. 97. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 98. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order. 99. On the other hand the learned AR before us submitted that identical addition was also made in A.Y. 2008-09 by the AO and the matter travelled upto the ITAT in ITA No. 3297 3240/Ahd/2014 where the issue was allowed in favour of the assessee. 100. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue on hand is covered in favour of the assessee by the order of this Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we uphold the finding of the learned CIT(A). Thus, the ground of appeal raised by the Revenue is hereby dismissed. 101. The next issue raised by the Revenue in ground No. 16 of its appeal is that the learned CIT (A) erred in deleting the addition made on account of foreign exchange gain. 102. The assessee while computing the income reversed the amount of gain on foreign currency exchange of Rs. 14,87,19,890/- only. The assessee contended that this gain was pertaining to the assets/liabilities being part of fixed capital assets and therefore was not liable to be taxed. The AO was not convinced with the contention of the assessee and treated the gain of Rs. 14,87,19,890/- as taxable income on the reasoning that loan to AE or investment are made in course of business. Therefore, the same is in nature of revenue. 103. On appeal by the assessee the learned CIT(A) found that addition made in the year under consideration is identical to the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we uphold the finding of the learned CIT(A). Thus, the ground of appeal raised by the Revenue is hereby dismissed. 108. The next issue raised by the Revenue vide ground No. 17 of its appeal is that the learned CIT(A) erred in deleting the disallowances of Freebies to doctor. 109. At the outset we note issue raised by the Revenue in its ground of appeal has been adjudicated along with the assessee s ground of appeal in ITA No. 1462/Ahd/2018, where we have decided the issue vide paragraph no. 37 to 37.1 of this order in favour of the Revenue and against the assessee. Thus ground of appeal raised by the Revenue is hereby allowed. 110. The next issue raised by the Revenue vide ground No. 18 of its appeal is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the assessee in its own case bearing ITA No. 1390/Ahd/2016 which was also confirmed by the Hon ble Gujarat high court on appeal by the revenue in Tax appeal No 541 of 2017 reported in 85 taxmann.com 80. 116. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue on hand is covered in favour of the assessee by the order this tribunal in own of the assessee bearing ITA No. 1390/Ahd/2016. The relevant finding of the coordinate bench reads as under: 7. We have given our thoughtful consideration to rival contentions as well as ld. PCIT's concern expressed in order revising the above regular assessment. We deem its appropriate at this stage to throw some light on the nature and ambit of Form 3CL. The same comes under Rule 6(7A) of the Income Tax Rules, 1962 framed under the provisions of the Act. The above sub-rule is relevant for approval of expenditure incurred on in house research development facility by a company u/s. 35(2AB). Subclause (b) thereof is the specific provision thereto stipulating that the prescribed authority shall submit its report in relation to the approval of in ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 35(2AB) was not allowable. However, neither the prescribed authority nor the Assessing Officer has applied the mind as to the expenditure, be it revenue or or capital in nature, actually incurred in developing the in-house research and development facility. To the limited extent, the Commissioner desired the Assessing Officer to verify such figures, we would allow the Assessing Officer to do so. In other words, in principle, we accept the Tribunal's reasons and conclusions. Merely because the prescribed authority failed to send intimation in Form 3CL, would not be reason enough to deprive the assessee's claim of deduction under section 35(2AB) of the Act. However, in facts of the present case, it would be open for the Assessing Officer to verify the actual expenditure incurred by the assessee. 116.2 Therefore respectfully following the above finding of the coordinate bench in own case of the assessee and subsequent confirmation by the Hon ble high court we do not find any infirmity in the order of the AO. Hence the ground of appeal raised by the Revenue is hereby dismissed. 117. In the result appeal of the Revenue is hereby partly allowed for statistical purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/-: 3.1 The CIT(A) has grossly erred in upholding the order of the AO/TPO who grossly erred in rejecting the benchmarking carried out the Appellant and determined the Arm's Length Price by taking average of two rates i.e. rate fixed by GERC and the market clearing price (as per I EX). 3.2 Without prejudice to the above, the Ld. AO/TPO grossly erred in adopting the rate at which distribution entity purchases power from CPP unit without appreciating that the power was generated by the Appellant for captive consumption and not for sale to any distribution entity. 3.3 Without prejudice to the above, the Ld. AO/TPO grossly erred in ignoring the fact that there is only one prime seller in Appellant's region i.e. GEB, therefore, the open market rate for such power at which all these buyers are paying to GEB/Distribution Companies should be considered. 4. Re: Deduction of Remuneration received from Partnership firm for determination of Book Profits under section. 115JB - Rs 8.29.23.691/: 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering remuneration received from the partnership firms of M/s Sun Pharmaceu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt venture (JV) of Sun Pharma Group and Merck Group (MSD Group) and as per the joint venture agreement both group were providing product development services to JV and charging fee at cost plus 10% markup. 122.1 The TPO from the TP report of the assessee observed that in similar transaction of pilot pivotal study done for TARO USA was benchmarked by the assessee under TNMM with average margin of comparable at cost plus 13.54%. Accordingly TPO proposes to benchmark the impugned transaction at cost plus 13.54%. 122.2 The assessee in response submitted that the margin rate of cost plus 10% markup was decided at the initial stage of JV between two independent parties being assessee group and MSD group, therefore ALP should be taken at cost plus 10% only. It was further submitted that pivotal study done for TARO USA are different from product development services provided to JV. 122.3 However, the TPO found that assessee has not submitted independent comparables, therefore taking the margin rate worked out for TARO USA i.e. cost plus 13.54% made upward adjustment of Rs. 99,88,000/- 123. On appeal by the assessee, the learned CIT(A) confirmed the finding of the AO/TPO by obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at under TNMM margin are calculated on gross sales and if such margins are converted into Cost Plus Mark up, then the percentage will be even higher. For example, 25% margin under TNMM is equivalent to 33.33% in Cost Plus Method. Therefore, by adopting 13.54% margin of TNMM under Cost Plus Method, the TPO has not over estimated the upward adjustment in any manner. Thus, considering the above mentioned factual and legal position, I uphold upward adjustment of . Rs.99,88,000/- made in respect of transaction of Product Development / Services with AE. Hence Ground No. 3 is dismissed. 124. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 125. The learned AR before us submitted that the other partner in the JV being M/s Merck was also charging the markup of 10% on cost on the same terms as provided in the agreement. The learned AR also filed the copy of the JV agreement which is available on record. According to the learned AR cost +10% markup can be taken as one of the internal comparable for the purpose of benchmarking. 125.1 The learned AR further contended that the rate adopted by the authorities below at 13.54% is not correct. It is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT-A erred in confirming the downward adjustment for Rs. 13,08,07,000/- in TP on account of power supplied to domestic AE. 129. The assessee is having a power generating undertaking which is eligible for deduction under section 80IC of the Act. The electricity generated form from captive power plant was also supplied to domestic AE and the assessee in the year under consideration has shown the sale price of the power generated by it at Rs. 7 per unit to its domestic AE. However, the AO/TPO found that the assessee is charging excessive rate for the electricity generated by it despite the fact that it is used for captive consumption and there is no cost for its transmission/distribution of the electricity. Thus the AO reduced the sale price of the electricity generated by the assessee by observing as under: 47. In view of the above discussion the ALP of the transaction is determined in line with the reasoning given in the show cause. The assessee company has failed to submit any agreement between the CPP and the distribution / transmission company for the, evacuation of excess power produced by the CPP. In view of this the ALP rate of power is determined to the mean of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross profit of the appellant, but the same are eligible for deduction u/s. 80IA. However, since there was gross loss in CPP units, the appellant has not claimed any deduction u/s. 80IA and accordingly no addition/disallowance is called for during the year under consideration. Accordingly, the Assessing Officer is directed to delete the addition made on this account and hence appellant succeeds in respect of Ground No. 5. However, the downward adjustment worked out by the TPO in profit of CPP has to be considered while carrying forward loss for the adjustment against profit of these units in the following assessment years. The Assessing Officer is directed accordingly. 131. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us. 132. The learned AR before us contended that the Tribunal in the case of Gujarat Fluorochemicals Ltd in ITA No. 805/Ahd/2017 has held that the price at which Gujarat electricity Board (GEB) is charging from customer would be taken at market rate for captive power plant also. 133. On the other hand, the learned DR vehemently supported the order of the authorities below. 134. We have heard the rival contentions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, to our mind, committed no error. It can be easily seen that if the assessee were to supply such electricity or was allowed to do so in the open market, surely it would not fetch Rs. 4.51 per unit but Rs. 5 per unit as was being charged by GEB. Since the excise duty component thereof would not be retained by the assessee, Tribunal reduced the said figure by the nature of excise duty and came to the figure of Rs. 4.90 to ascertain the market value of electricity generated by the eligible unit and supplied to non eligible business of the assessee. No error was committed by the Tribunal. No question of law therefore, arises. Tax Appeal is dismissed. 134.1 The facts of the case on hand are identical to the facts of the case as discussed above. Accordingly, we set aside the finding of the learned CIT (A) and direct the AO to delete the downward adjustment in transfer pricing report in pursuance to the finding of this ITAT in the case of Gujarat Fluorochemicals Ltd. (supra). The ld. DR at the time of hearing has not brought anything on record contrary to the arguments advanced by the ld. AR for the assessee. Thus the ground of appeal of the assessee is allowed. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a ('Ld. AO') vide its order dated 31.01.2017 passed under section 143(3) r.w.s. 92CA r.w.s. 144C(3) of the Income-tax Act, 1961 ('the Act') in its capacity as jurisdictional Assessing Officer of the Appellant Company. Aggrieved by the order, the Appellant has preferred an appeal before Commissioner of Incometax (Appeals) [CIT(A)]. The Hon'ble CIT(A) has also decided the appeal vide its order dated 30.03.2018. In response thereto, the Appellant has preferred the captioned appeal before the Hon'ble Income-tax Appellate Tribunal (Tribunal') vide ITA no. 1463/Ahd/2018. 2. During the year under consideration, the Appellant has incurred expenses for education cess and secondary higher education cess (collectively referred to as 'cess'). The amount of cess incurred as tax liability can be very well reflected in the tax computation sheet issued by the Ld. AO along with its order giving effect to order of CIT(A) dated 31.07.2018 whereas cess levied on account of payment of Dividend Distribution Tax under section 115-O of the Act is disclosed [ included in total payment ] in clause 29 in the FORM 3CD as Annexure-1 and Annexure-2 respectively . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim the deduction of the cess by treating the same as revenue expenditure. Thus, we do not find any merit in the additional ground of appeal raised by the assessee. Hence, the additional ground of appeal raised by the assessee is hereby dismissed. 141. In the result, the appeal of the assessee is hereby partly allowed. 142. Coming to ITA No. 1520/Ahd/2018 an appeal by the Revenue for AY 2013-14 143. The Revenue has raised the following grounds of appeal: 1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred ' in allowing relief to the assessee and in not confirming the additions made by the AO on these issues. 2. On the facts and circumstances of the case and in law, the Ld, C.I.T. (A) erred in deleting the transfer pricing addition of Rs.17,72,09,7937- towards interest on loans given to Associated Enterprise (AE) on which no interest was charged, without appreciating the facts and reasons mentioned by the AO in the assessment order, and by the TPO in his order. 3. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the Transfer Pricing adjustment made on account of sale of Pantaprazole and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and in law, the CIT(A) erred in deleting the addition to book profit u/s 115JB relating to disallowance u/s 14A without appreciating the facts and reasons mentioned by the AO in the assessment order, and without considering that this amount was required to be added to the book profit as per clause (f) to Explanation 1 of section 115JB(2). 10. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of proportionate R D revenue expenses incurred by the assessee on behalf of Sun Pharmaceutical Industries, Sun Pharma Sikkim, the firms, and Sun Pharma Laboratories Ltd. without appreciating the facts and reasons mentioned by the AO in the assessment order. 11. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of proportionate R D capital expenses incurred by the assessee on behalf Sun Pharmaceutical Industries, Sun Pharma Sikkim, the firms, and Sun Pharma Laboratories Ltd. without appreciating the facts and reasons mentioned by the AO in the assessment order, 12. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition made towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the Revenue is hereby dismissed. 147. The next issue raised by the Revenue in ground no. 3 and 4 of its appeal is that the learned CIT (A) erred in deleting the upward adjustment in TP made on account profit attribution of product Pantoprazole and other product. 148. At the outset, we note that the issues raised by the Revenue in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the Revenue in ITA No. 1519/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITA No. 1519/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 66 to 66.1 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given in ITA No. 1519/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 93 to 93.1 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the Revenue is hereby dismissed. 155. The next issue raised by the assessee vide ground no. 12 of its appeal is that the learned CIT(A) erred in deleting the addition made on account of recharacterization of remuneration received from firm. 156. At the outset, we note that the issues raised by the Revenue in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the Revenue in ITA No. 1519/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITA No. 1519/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 100 to 100.1 of this order against the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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