TMI Blog2023 (11) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2014-15 as held we direct the AO/TPO to consider LIBOR +300 basis point to benchmark interest on receivables from Associated Enterprises. Further, while computing credit period, the credit period allowed by AE's to be considered and only on net credit period interest needs to be charges.' D.R. could not show us any reason to deviate from the aforesaid order and no change in facts and law were alleged in the relevant assessment year. Thus, respectfully following the order passed by the Co- ordinate Bench of the Tribunal in assessee's own case cited supra, we direct the Assessing Officer/TPO to consider LIBOR plus 300 basis point to compute the interest on advances recoverable from the A.Es. We further direct that while computing the interest, the credit period allowed by the A.Es to be considered and only on net credit period interest needs to be charged. Disallowance u/s 14A - HELD THAT:- As only those investments which yield exempt income needs to be considered for computation of average value of investments. In this case, we notice that the Assessee has himself disallowed an amount which has not been found to be accepted by the AO or the DRP. Facts with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the deduction under section 35 (2AB). Short credit of TDS not been granted by AO despite making a rectification application - HELD THAT:- We direct the learned assessing officer to dispose of the application of rectification in accordance with the law. This is also the request of the assessee. Accordingly, ground number eight of the appeal is allowed with above direction. - Shri Prashant Maharishi, AM And Shri Sandeep Singh Karhail, JM For the Assessee : Shri Nishant Gandh, AR For the Revenue : Ms Samruddhi Hande SR DR, Aditya M Rai Sr AR, Suresh Gaikwad SR AR ORDER PER PRASHANT MAHARISHI, AM: 1. This Appeal, ITA No. 1004/Mum/2021 for assessment Year 2016-17 is filed by Strides Pharma Science Ltd. [The Assessee/ Appellant] against the assessment order passed u/s 143(3) r.w.s 144C of the Income Tax Act (hereinafter the Act ), dated 31.10.2019 determining the total income of the assessee at Rs. 673,72,86,723/-/. 2. The assessee is aggrived with the obove order and has preferred order before us, raising following 10 grounds; I Transfer Pricing 1 The learned Assessing Officer ( AD ), the learned Transfer Pricing Officer ( TPO ) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42 [Page 3 and 4 of the Final Assessment Order] The learned AO/ the learned TPO and the Hon'ble DRP erred in facts and in law in imputing the interest on the advance recoverable, and in doing so have grossly erred: 3.1 In failing to appreciate: 3.1.1 that re-characterization of the transactions is not permissible under the transfer pricing provisions 3.1.2 the fact that only real income can be brought within the ambit of taxation and imputing interest on unearned income is unwarranted and unjustified. 3.2 In ignoring the fact that advance recoverable is on account of delay in receipt of amounts referred above and hence, such amounts recoverable cannot be deemed/ considered as granting of loan. II Corporate Tax 4 Disallowance under Section 14A of the Act amounting to INR 15,34,55,236 [Page 4 to 8 of the Final Assessment Order] 4.1 The Hon'ble DRP and the learned AO erred in law and on facts by invoking Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ( the Rules ) while determining expenditure in relation to earning of exempt income. 4.2 The Hon'ble DRP and the learned AO ought to have appreciated: 4.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 5.2.4 that the Appellant has suo-motu disallowed 10% as administrative expenses under section 14A of the Act and hence, further disallowance towards employee cost, audit cost, communication expenses, building expenses, etc. under Section 36, Section 37 and Section 38 of the Act is not warranted. 5.3 In stating the fact that the Appellant has not provided the rationale behind arriving at such suo motu adjustment. 5.4 In disallowing the interest on borrowing under Section 36(1)(ii) of the Act without appreciating the fact that the investments were made during the current/past years out of its own funds/ internal accruals. 6 Re-computation of book profits under Section 115JB of the Act INR 15,34,55,236 [Page 4 to 8 of the Assessment Order] 6.1 The Hon'ble DRP and the learned AO grossly erred in re-computing the book profit under Section 11518 of the Act by making addition of an amount of INR 15,34,55,236 towards expenditure incurred for earning exempt income under section 14A of the Act. 6.2 The Hon'ble DRP and the learned AO has failed to appreciate that the disallowance as prescribed in clause (f) of Explanation 1 to Section 1151B of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were incurred on scientific research in the in house R D facility approved by DSIR, there should not be any disallowance against the weighted deduction claimed under Section 35(2AB) of the Act by the Appellant. 7.2 In disregarding the various other binding judgements of the ITAT and Hon'ble High Court which squarely applies to the Appellant's case with regard to allowability of weighted deduction under section 35(2AB) which are in relation to expenses incurred by DSIR approved R D facility. 8. Credit for Tax Deducted at Source ( TDS ) and Advance Tax has been granted short by INR 50,12,376 and INR 5,50,00,000 respectively [Refer Income tax computation Form along with Final Assessment Order] 8.1 The Hon'ble DRP and the learned AO erred in granting short credit for TDS and Advance tax amounting to INR 50,12,376 and INR 5,50,00,000 respectively in the Final Assessment Order. 8.2 The Hon'ble DRP and the learned AO erred in not considering the tax credit as provided under TDS and Advance Tax in Form 26AS of AY 2016-17. 9. Erroneous levy of interest under Section 2348 of the Act amounting to INR 3,46,58,553 [Refer Income tax computation Form a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital financing. Assessee submitted that it has not charged interest on advances from non-associated enterprises as well. It further stated that the learned Dispute Resolution Panel for assessment year 2014 15, 13 14 and 11 12 has deleted the similar adjustment made by the TPO with respect to the export receivables. Assessee stated that if at all an interest is to be imputed, interest rate should be calculated with reference to LIBOR only. The learned TPO rejected the contention of the assessee and held that it is an international transaction under section 92B of the act and as per clause ( c) of the explanation, it specifically covers all type of advances/payments/deferred payments etc. in the course of the business and therefore these international transactions are required to be benchmarked appropriately. The learned TPO further held that as the facts in this case are similar to the earlier year, the adjustment on account of interest is worked out as per the date direction of the DRP on the basis of Bloomberg rate applicable for the respective country and currency. The learned TPO found that Bloomberg rate with respect to the various subsidiaries such as Cyprus, Singapore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be made where own funds utilized for making investment, (2) no disallowance of expenditure in the absence of the actual expenditure incurred by the company, (3) nexus between the exempt income and expenditure disallowed under section 14 A of the act needs to be established and the assessee has disallowed on its own , ₹ 6,996,212 which is computed on a rational basis and therefore the disallowance should be accepted. Assessee on 23/12/2019 without prejudice has also submitted the detail submission about the disallowance. The learned that ld AO computed the disallowance under rule 8D holding that circular number 5/2014 clarifies that even if there is no exempt income earned by the assessee in the year under consideration, disallowance under section 14 A is to be made, computed disallowance of ₹ 16,40,51,448/ . As assessee has offered the disallowance of ₹ 6,996,212/ disallowance under section 14 A of ₹ 153,455,236 was made. ii. Alternatively, the learned AO held that above sum of ₹ 153,455,236/ is disallowable under section 37 (1) under section 36 (1) (iii) and section 38 of the act. iii. The AO found that assessee is engaged in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to the deduction of ₹107,88,86,992 and the difference of ₹ 175,478,992/ was disallowed. The assessee stated that prior to 1/7/2016 form number 3CL had no legal sanctity and it is only with effect from 1/7/2016 the amendment to rule 6 (7A) (b) of the rules that the quantification of the weighted deduction has any significance. Therefore the claim of the assessee before the learned assessing officer was that it is the impugned assessment year 2016 17 wherein disallowance under section 35 (2AB) of the act cannot be made on the basis of form number 3CL issued by DSIR. vi. The learned assessing officer also noted that the book profit shown by the assessee under section 115JB of ₹ 1,529,452,860 which is also required to be increased by the disallowance on account of section 14 A ₹ 153,455,236/ and accordingly the net book profit was computed at ₹ 1,622,908,042/ . 7. Accordingly, the draft assessment order under section 144C of the income tax act was passed on 28/12/2019 wherein the income of the assessee was computed as per the normal computation at ₹ 980,205,253. The book profit was determined at ₹ 1,622,908,042/ . 8. Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income total disallowance of ₹ 424,777,318/ was made. The assessee before us along with the adjustment to the book profit challenged the same. 10. The Ld. Authorised Representative has submitted a chart. accroding to that chart, all the issues in this appeal are covered by decision of Cordinate Bench in assessee s own case for earlier years. 11. It was further stated that grounds no 9 is not pressed and ground no. 10 is prematured. In view of this, we dismissed grounds no. 9 and 10 of the appeal. 12. The ground no. 1 of the appeal merely challenges the transfer pricing adjustment and is general in nature, as each Ground has been dealt with separately on merits, this ground of appeal is dismissed. 13. Ground number 2 of the appeal of the assessee is against the interest imputation on share application money paid to the associated enterprises. The learned authorized representative submitted that the identical issue arose in case of the assessee which has also been referred to by the learned dispute resolution panel wherein the coordinate bench when the assessment order travelled to the tribunal, for assessment year 2014 15 and 2015 16 has decided this issue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invested the share application money in following A.Es which was outstanding as on 31-3-2014. Sl. No. Name of A.E. Amount outstanding as on 31st March 2014 1. StridesPharma Asia Pte. Ltd., Singapore Rs. 144,48,94,320 2. Aglia Specialties Ltd., Cyprus Rs. 141,35,85,582 3. Strides Arolab International Ltd. U.K. Rs. 14,55,61,515 5. The Assessing Officer made a reference to the Transfer Pricing Officer ( TPO ) for determination of arm's length price of international transactions entered into by the assessee. During the proceedings before the TPO, the assessee was asked to show cause as to why there should not be any interest imputation on the share application money. In reply, the assessee submitted that the funds remitted to A.Es for share application money was for the sole purpose of obtaining the shares and it was never intended to be a loan. The assessee further submitted that the A.Es have refunded/set-off the share application money during the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve for the assessee ( learned A.R. ) submitted that similar issue has been decided by the Co-ordinate Bench of the Tribunal in assessee's own case. 8. On the other hand, Ms. Vatsalaa Jha, learned Departmental Representative ( learned D.R. ) vehemently relied on the orders passed by the lower authorities. 9. We have considered the rival submissions and perused the material available on record. We find that the Co-ordinate Bench of the Tribunal in assessee's own case in StridesPharmaScienceLtd. v. Dy. CIT [IT Appeal No. 7370 (Mum.) of 2018, dated 7-2-2020], has decided the issue in favour of the assessee by observing as under : '14. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below along with case laws cited by the ld. AR for the assessee. At the outset, it needs mention that it has been held by the Hon'ble Bombay High Court in the case of DIT v. Besix Kier Dabhol - (2012) 210 Taxman 151 (Bombay) that the Revenue has no power to re-characterize a transaction entered into by the Assessee. Therefore admittedly, the AO or the TPO are not empowered to convert and re-characterize a transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions on behalf of the Revenue. So far as the availability of alternative remedy is concerned, the petitioner has at the beginning of today's hearing itself undertaken to withdraw its objection on the issue of jurisdiction before the Dispute Resolution Panel. This was accepted by us before considering the issue on the merits. Moreover, this petition was filed on April 24, 2013, challenging the impugned orders dated January 30, 2013, of the Transfer Pricing Officer and the draft assessment order dated March 28, 2014, of the Assessing Officer, on the issue of jurisdiction. This issue has been decided in Vodafone IV and would be binding on all authorities within the State till the apex court takes a different view on it. Therefore, in view of the fact that the Revenue does not dispute that the issue on the merits stands covered by the decision of Vodafone IV it would serve no useful purpose by directing the petitioner to prosecute its objections before the Dispute Resolution Panel and the Dispute Resolution Panel disposing of the same in accordance with Vodafone IV. Thus, in the present facts the distinction sought to be made on the ground of alternative remedy is not such as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ganization but there has been a mere change in the shareholding of different shareholders of the petitioner. However, in the present facts we need not examine this for the reason that even if it is assumed that it is an international transaction, the jurisdictional requirement for Chapter X of the Act to be applicable is that income must arise. In this case, admittedly following Vodafone IV no income has arisen. Thus, the jurisdictional requirement for application of Chapter X of the Act is not satisfied. 12. As held in Vodafone IV, the jurisdiction to apply Chapter X of the Act would occasion only when income arises out of international transaction and such income is chargeable to tax under the Act. The issues raised in the present petition are identical to the issues which arose for consideration before this court in Vodafone IV. Therefore, following the aforesaid decision we set aside the order dated January 30, 2013, of the Transfer Pricing Officer to the extent it holds that the arm's length price of issue of equity shares is Rs. 183.44 per share as against Rs. 10 per share as declared by the petitioner and consequent deemed interest brought to tax on the amount not rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if there is income which is chargeable to tax under the normal provisions of the act, then alone Chapter X of the act could be invoked. Further, since there is no income arising from the transaction of issue of shares, the provisions of chapter X would not apply. The Hon'ble Bombay High Court in the said case has quashed and set aside as Being without jurisdiction, null and void, the reference made by the TPO, and the order of the TPO making a transfer pricing adjustment on issue of shares. Respectfully following the decision of the jurisdictional Bombay High Court, the adjustment proposed by the' TPO on account of issue of shares is deleted. Accordingly, ground of objection number 16 of the assessee is allowed. 20. We, therefore, respectfully following the ratio laid down by the Hon'ble Bombay High Court, reverse the direction of DRP and direct the AO to delete the addition on account of notional interest of Rs. 2,44,20,173/-. 15. Similar view is also taken in other judgments relied on by the Ld. AR. Since, no contrary judgments have been brought to our notice, relying on the above stated judgments, we direct the AO to delete the impugned adjustment made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has advances recoverable from the foreign A.Es amounting to Rs. 14,06,59,329. It was further noted that the assessee has not charged any interest on any of these advances outstanding as on 31-3-2015. Accordingly, the assessee was asked to explain the same. In reply, the assessee submitted that the payment of advances was only incidental to normal course of business and thus not a separate transaction by itself. The assessee further submitted that the advances were neither loan nor in the nature of loan and, therefore, no interest was charged from the A.Es. Similarly, no interest was also charged from the non-A.Es on advances. The TPO vide order dated 25-10-2018, noted that the adjustment on account of delayed realization of advance recoverable was also made in assessment year 2014-15, wherein the delayed receipt of advances were treated as loan and interest was imputed thereon. The TPO further noted that the DRP in earlier year has held that the adjustment in respect of advances recoverable should be calculated after allowing the credit period of 180 days as per the agreement. Following the approach, which was followed in earlier years (as per the directions issued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the learned Authorised Representative that the interest free advances to the overseas subsidiary on account of reimbursement of expenditure is not an international transactions and the transfer pricing provisions are not applicable, we are not convinced with the same. On a reference to section 92B of the Act, it is observed that after amendment effected vide Finance Act, 2012, with retrospective effect from 1st April 2002, the definition of international transactions IT A No. 8614/Mum/2011 as provided under the Explanation (i) to section 92B, has been expanded to include the following transactions. ?Explanation.--For the removal of doubts, it is hereby clarified that-- (i) the expression ?international transaction shall include (a) the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licenses, franchises, customer li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have entered into such transaction with unrelated parties. If the facts on record suggest that the assessee would not have entered into such type of transactions with unrelated parties, then the transaction between the related parties cannot be considered to be at arm's length. There is no dispute to the fact that while the assessee has incurred cost by availing credit facility it has advanced interest free funds by not charging interest on the expenditure incurred on behalf of the subsidiaries. Therefore, certainly, a benefit has accrued to the subsidiary on account of the assessee whereas a part of the profit base of the assessee on account of cost incurred on credit facility has been shifted to the subsidiary which otherwise could have been avoided if the surplus funds were available with it. In these circumstances, the principle of commercial expediency would not come into play. Therefore, in our view, as the assessee has not charged interest on outstanding receivables from the overseas subsidiaries, arm's length price of the same has to be determined. Having held so, it is necessary to quantify the rate of interest of such transaction. It is observed, the Transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged in the relevant assessment year. Thus, respectfully following the order passed by the Co- ordinate Bench of the Tribunal in assessee's own case cited supra, we direct the Assessing Officer/TPO to consider LIBOR plus 300 basis point to compute the interest on advances recoverable from the A.Es. We further direct that while computing the interest, the credit period allowed by the A.Es to be considered and only on net credit period interest needs to be charged. Accordingly, ground no. 3, raised in assessee's appeal is allowed for statistical purpose. 20. As the learned departmental representative could not distinguish the above decision and further as per the chart submitted by the assessee as per ground number 3 it is also the player that the issue has been covered by the above decision, we set-aside this ground of appeal with similar direction as given for assessment year 2015 16 to consider it in the similar manner. Accordingly, ground number 3 of the appeal is allowed with above directions. 21. Ground number 4 is with respect to the disallowance under section 14 A of the act the learned authorized representative submitted that the identical issue arose in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operations and not from loan funds. The assessee further submitted that it has not incurred any interest or any other expenditure for making the aforesaid investment. The assessee also submitted that it has not earned any exempt income from its equity investments during the year. The assessee further submitted that the disallowance under section 14A of the Act should not exceed the actual expenditure incurred by the assessee (and debited to Profit Loss Account) for earning the exempt income. The assessee on without prejudice basis has suo motu disallowed an amount of Rs. 46,77,100, which was computed on a rational basis and was offered as disallowance under section 14A of the Act. The Assessing Officer vide draft assessment order dated 20-12-2018, rejected the contentions of the assessee and made disallowance of Rs. 2,94,18,763, under section 14A of the Act r/w rule 8D of the Rules. 21. The DRP vide directions dated 30-9-2019, inter-alia, rejected the objections filed by the assessee. The DRP, however, directed the Assessing Officer to allow suo-motu disallowance of Rs. 46,77,100, made by the assessee under section 14A of the Act. Being aggrieved, the assessee is in appeal be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deem it appropriate to restore this issue to the file of the Assessing Officer for denovo adjudication in accordance with the directions of the Co-ordinate Bench of the Tribunal in the order cited supra and the law applicable after consideration of the submissions of the assessee. Needless to mention that before passing the order on this issue, adequate opportunity of hearing shall be provided to the assessee. Accordingly, ground no. 4, raised in assessee's appeal is allowed for statistical purpose. 24. In view of the similar facts and circumstances, and as it is claimed that issue is covered in favour of the assessee by the decision of the coordinate bench in assessee s own case which has not been disputed by the learned CIT DR, we restore this ground of appeal back to the file of the learned assessing officer with similar direction as were given by the coordinate bench in case of the assessee for assessment year 2015 16. Accordingly, ground number 4 of the appeal is allowed as above. 25. Ground number 5 is the alternative disallowance under section 36 (1) (iii) made by the learned assessing officer with respect to the disallowance of interest and other expenditure ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 ITR 379 362015 TAXMANNCOM BOMBAY 60 3032015 TAXMAN BOMBAY 234 1332015 ITR BOMBAY 379 36 ], therefore the issue squarely covered in favour of the assessee, therefore ground number six of the appeal is allowed and the learned AO is directed to delete the increase of the book profit under section 115JB of the act by the disallowance under section 14 A of the act. 29. Ground number 7 is with respect to the disallowance of deduction under section 35 (2AB) of the act. The facts relevant to the issue have already been narrated earlier. Undisputedly assessee has the infrastructure facility approved for research and development. The facility are also eligible for deduction under section 35 (2AB) of the act. The necessary form number 3CL are also issued to the assessee. It is not the case of the revenue that any of the expenditure incurred by the assessee has not been accounted for. The only issue is that assessee is entitled to weighted deduction at the rate of 200% expenditure incurred for the research and development facilities. The assessee has incurred revenue expenditure of ₹ 514,737,350 and capital expenditure of ₹ 112,445,642 totalling to ₹ 627,182,992 on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 and prior to that there was no such requirement. The coordinate benches relied on the decision of the Pune bench of the tribunal in case of Cummins India Ltd (2018) 96 taxmann.com 576, the decision of the coordinate bench in the case of ultratech cement limited versus deputy Commissioner of income tax (2022) 139 taxmann.com 151 and the decision of the coordinate bench in assessee s own case in earlier assessment year, directed the learned assessing to delete the disallowances. Therefore respectfully following the decision of the coordinate bench in assessee s own case, the decision of the Pune tribunal and other decisions cited before us, we allow ground number 7 of the appeal of the assessee and direct the learned assessing officer to grant the deduction under section 35 (2AB) of the act. 30. Ground number 8 of the assessee is with respect to the short credit of tax deduction at source of ₹ 5,012,276 which has not been granted by the learned assessing officer despite making a rectification application dated 19 August 2021 and 29 April 2022. In view of the above fact, after hearing both the parties we direct the learned assessing officer to dispose of the application o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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