TMI Blog2023 (2) TMI 1270X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 35(2AB) - HELD THAT:- A perusal of the order of CIT(A) shows that the facts in assessment year under appeal and in A.Y. 2008-09 are similar. AR of the assessee has prayed for deciding the issue instead of restoring it to AO. After examining the assessment order, we find that the AO has rejected the claim of assessee at the outset without verifying the veracity of quantum. In so far as admissibility of assessee s claim, we hold that in principle the assessee has merit in the claim. For the purpose of examining the expenditure and quantification the issue has to be restored to AO. Thus, following the order of Co-ordinate Bench, for A.Y. 2008-09 [ 2020 (4) TMI 30 - ITAT MUMBAI] the ground raised in appeal by the assessee is allowed for statistical purpose. Disallowance u/s 14A r.w.r 8D - HELD THAT:- It is no more res-integra that disallowance u/s 14A of the Act cannot exceed the exempt income earned during the relevant Financial Year. Hence, the AO is directed to restrict the disallowance u/s 14A i.e. the dividend income earned by assessee during the period relevant to assessment year under appeal. Ground no. 3 of appeal is thus, allowed protanto. Expenditure incurred o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds - CIT(a) deleted addition - HELD THAT:- CIT(A) has only allowed consequential relief in the impugned assessment year. Revenue has not disputed the fact that the relief is already granted to the assessee in earlier assessment year i.e. AY 2008-09 and it is only the consequent relief that has been allowed to the assesssee in the assessment year under appeal. Thus, in facts of the case, the ground no. 3 raised in appeal by Revenue is dismissed. Allocation of R D expenses for the purpose of section 80IB and 80IC to the qualifying units - HELD THAT:- We find that similar issue had come up before the Tribunal in assessee s own case in AY 2008-09 [ 2020 (4) TMI 30 - ITAT MUMBAI] wherein CIT(A) granted relief to the assessee by following the order of the Tribunal for various earlier years. TDS u/s 195 - Addition made u/s 40 (a)(i) - payments made to non-residents on account of pilot bio-study, clinical research - HELD THAT:- In AY 2008-09 [ 2020 (4) TMI 30 - ITAT MUMBAI] the Tribunal following the decisions rendered in AY 2006-07 [ 2019 (10) TMI 73 - ITAT MUMBAI] held that it was payment to non-resident for conducting bio equivalence study are not taxable in India and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.74,57,370/- IV. Disallowance of freebies u/s 37(1) amounting to Rs.70,89,734/-. V. Disallowance under section 14A under computation of book profits under section 115JB. The assessee has also raised an additional ground of appeal, the same reads as under: Additional I: Order passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 is barred by limitation. 1) On facts and circumstances of the case and in law, the Assessing Officer erred in passing the assessment order after expiry of time prescribed under section 153 of the Act and thus, the assessment order passed is barred by limitation and ought to be quashed. 2) The Appellant humbly prays that the order be quashed. 3. The Revenue in its appeal has assailed the findings of the CIT(A) on following grounds: 1. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition of Rs2.41.02.350/- representing upward adjustments on account of Guarantee Fee income received in relation to guarantee provided on loans to its AE in UK to ALP recommended by the Transfer Pricing Officer (TPO) without appreciating the fact that the Guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do so. 7. On the facts and in the circumstance of the case and in law, Ld. CIT(A) erred In deleting addition of Rs.323,96,93,037/- representing provision for marked to market (MTM) unrealised losses for calculation of book profit u/s 115JB 8. On the facts and in the circumstance of the case and in law, Ld. CIT(A) erred in deleting addition of Rs.99,96,694/- representing provision for gratuity for calculation of book profit u/s 115JB of the Act. 9. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 10. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored. 4. The brief facts of the case as emanating from records are: The assessee is engaged in the business of manufacturing and trading of pharmaceutical FDFs and APIs. Apart from India, the asssessee has its manufacturing facilities in US, UK, France and Ireland. During the period relevant to the assessment year under appeal, the assessee had entered into following international transactions with its Associate Enterprise (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, the assessee filed an appeal before the CIT(A). The First Appellate Authority vide impugned order accepted the appeal of assesse in part, hence, present cross appeals by the assessee and the Revenue. 6. In ground no. 1 of appeal, the assessee has assailed arm s length adjustment to interest income received on loans advanced to subsidiaries. The Revenue has raised corresponding ground in ground no. 2 of its appeal. During the period relevant to assessment year under appeal, the assessee has advanced loans to its subsidiaries. The details of loans advanced and the interest charged from subsidiaries/AEs is as under: Name of AE Amount of Loan Interest Amount Rs. Interest rate charged CUP used to Benchmark ES Pharma, Germany Euro 3019144 1,57,50,167 5.97 European Central Bank 5.16% CP Pharma, UK GBP 5215490 1,74,69,365 7.44 Bank of England 7.03% Wockardi-EU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st income @ 12.5% and works out interest of Rs. 10,56,96,252/- and accordingly suggested upward adjustment of Rs 4,31,73,109/ (Rs. 10,56,96,252/ minus Rs 6,25,23,143/-) On appeal before ld CIT (A), it was directed that if the loan period is three years and up to five years then the rated of interest be adopted as 6 month LIBOR plus 150 basis points and in case of average period of loan is more than five years, the rate is 6 month LIBOR plus 250 basis points may be adopted The Hon'ble jurisdictional High Court in CIT Vs Tata Autocomp (supra) held that where the assessee advances loans to its associated enterprises (AE's) situated in Germany, rate of interest was to be determined on the basis of rate prevailing in Germany where loan has been consumed. 10. Considering the decision of jurisdictional High Court the AO/TPO is directed to recompute the interest on the basis of rate prevalent in the countries where loan was received . In the result the ground of appeal raised by the assessee is allowed and resultantly the ground of appeal raised by the revenue has become infructuous. (Emphasized by us) 6.3 We find that addition made in respect of interest on loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. However, we have noted that in AY 2006-07, the Tribunal by following the order for AY 2007-08 restore the issue to the file of assessing officer by passing the following order. 6. We have considered rival submissions and perused the material on record. On a perusal of the impugned order of learned Commissioner (Appeals) and, more particularly, his finding in Para-8 to 8.4 of the impugned order, it is very much clear that he has fully allowed the claim of the assessee under section 35(2AB) of the Act. Therefore, we fail to understand how the assessee can be aggrieved with the decision of learned Commissioner (Appeals). Be that as it may, the Revenue has also challenged the decision of learned Commissioner (Appeals) on the issue of deduction claimed under section 35(2AB) of the Act. Undisputedly, the research and development activity in respect of which the assessee has claimed deduction under section 35(2AB) of the Act were not carried out in assessee's own in-house. research and development facility Therefore, the issue which arises for is, whether the expenditure incurred for carrying out research and development activity outside by way of out sourcing or other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee has prayed for deciding the issue instead of restoring it to AO. After examining the assessment order, we find that the AO has rejected the claim of assessee at the outset without verifying the veracity of quantum. In so far as admissibility of assessee s claim, we hold that in principle the assessee has merit in the claim. For the purpose of examining the expenditure and quantification the issue has to be restored to AO. Thus, following the order of Co-ordinate Bench, for A.Y. 2008-09 (supra) the ground no. 2 raised in appeal by the assessee is allowed for statistical purpose. No relief was granted by the CIT(A) to the assessee on this issue, hence, ground no. 5 raised in appeal by the Revenue is misconceived, hence, dismissed. 8. In ground no. 3 of appeal, the assessee has assailed disallowance u/s 14A of the Act. The assessee has received dividend income of Rs.18,450/- and the same was claimed to be exempt u/s 10(35) of the Act. The AO invoked provisions of Rule 8D for computing disallowance u/s 14A of the Act at Rs.74,75,317/-. The learned AR submits that disallowance u/s 14A be restricted to the extent of dividend income earned. 8.1 It is no more res-integ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Supreme Court is based on this very admission Nowhere in the said decision there appears any reference to the violation of law of IMC Regulations' to be in dispute The only dispute the Hon'ble Supreme Court was called upon to decide was whether IMC Regulations are applicable to pharmaceutical companies or not even prior to CBDT Circular i.e. from the date of amended IMC Regulations. 7. In the present case, no authority under IMC has proven any violation in Appellant's case till date. 8. It is a settled legal position that the decision of a court carries a precedence and is binding only in respect of issues which it was called upon to decide and not any other issue. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Court, divorced from the context of the question under consideration and treat it to be the complete law declared by the Court. A decision of the Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the Courts must carefully try to ascertain the true principle laid down by the decision of the Court and not to pi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 2009 i.e. from the date of amendment of MCI Regulations. The Hon ble Court further held that MCI Regulations apply to both i.e. medical practitioners and the pharmaceutical companies. The learned DR prayed for dismissing ground no. 4 of the appeal by assessee. 9.4 We have heard the submissions made by rival sides on the issue. The assessee has given freebies to the medical practitioners amounting to Rs.70,89,934/- in the period relevant to AY under appeal and has claimed the same as business expenditure u/s 37(1) of the Act. The AO/CIT(A) disallowed the same holdings that freebies to the medical practitioners cannot be allowed as expenditure as it is prohibited by CBDT Circular (supra) and MCI Guidelines. 9.5 Before deciding this issue in the instant case, it would be relevant to refer to the facts and decision in the case of Apex Laboratories (P) Ltd. (supra). In the said case the AO disallowed expenses claimed by assessee under the head Sales Promotion Expenses and Other Selling Expenses on the ground that the same were in the nature of gifts/freebies to the Medical Practitioners and the same were against the Medical Council Act, 1956 and amended MCI Regulations. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered in the case of Apex Laboratories (P) ltd., it is unambiguously clear that the amended MCI Regulations would not apply to the AY 2009-10. Hence, for the impugned AY the assessee s claim of deduction of freebies to the Medical Practitioners would be allowable u/s 37(1) of the Act as amendment to MCI Regulations is a subsequent event, effective from 14/12/2009. Ergo, the assessee succeeds on ground no. 4 of appeal on primary contention. The other propositions mooted by the AR of assessee have become academic at this stage. 10. In ground no. 5 of appeal, the assessee has assailed disallowance u/s 14A r.w.r. 8D cannot be made while computing book profit u/s 115 JB of the Act. In support of his submission, the learned AR placed reliance on following decisions: 1) CIT Vs. Bengal Finance and Investment Pvt. Ltd in ITA No.337 of 2013 decided by Hon ble Bombay High Court; 2) ACIT Vs. Vireet investment Pvt. Ltd. 165 ITD 27 (Special Bench) (Delhi) 10.1 The Special Bench of Tribunal in the case of Vireet Investment Pvt. Ltd (supra) has held that computation u/s 115JB(2), Explanation I (f) has to be made without resorting to computation of disallowance made u/s 14A r.w.r. 8D. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the regular bench. Let the matter come up for hearing on 14 November 2022, and issue notices for the same Ordered, accordingly. 12. In the result, appeal by the assessee is partly allowed. 13. In ground no.1 of appeal, the Revenue has assailed the findings of CIT(A) in deleting addition on account of corporate guarantee fee. The assessee has charged guarantee commission from its AE on corporate guarantees extended at the rate of 0.75% of the loan availed from HSBC Bank, UK. The TPO determined arm s length rate for guarantee commission at the rate of 2.847% per annum and made adjustment accordingly. The CIT(A) deleted the adjustment made by the TPO and restricted the guarantee commission to 0.75%. The learned DR vehemently defended the findings of the TPO and the AO. The learned DR submits that the law laid down in the case of Everest Kanto Cylinders Ltd. 378 ITR 57 (Bombay) of charging guarantee commission at 0.5% cannot be a standard mark. The contemporary data should be adopted for benchmarking the transactions. Per contra, the learned AR vehemently supported the findings of the CIT(A). 13.1 Both sides heard. We find that the assessee has charged guarantee commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal for various earlier years. We have noted that on similar ground of appeal the Tribunal in assessee's own case for AY 2007-07 passed the following order: 17. We have considered rival submissions and perused the material on record The learned Counsels appearing for the parties have agreed that the issue has been decided in favour of the assessee by the Tribunal in the preceding assessment years. It is noticed, identical dispute arose in assessee's own case for the assessment years 2001-02, 2002-03, 2003-04, 2004-05 and 2005-06. In the latest passed for the assessment year 2007-08, in ITA no 5557/ Mum./2012, dated 5th January 2018, the Tribunal, following its own decision for the earlier assessment years, has upheld the decision of learned Commissioner (Appeals) by dismissing the ground raised by the Revenue Facts being identical, respectfully following the consistent view of the Tribunal in the preceding assessment years in assessee's own case, we uphold the decision of learned Commissioner (Appeals) by dismissing the ground. 19. Considering the consistent view of the Tribunal on identical set of facts and respectfully following the view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-08. We find no infirmity in the findings of CIT(A) on this issue. Hence, ground no. 6 of appeal is dismissed. 17. In ground no. 7 of appeal, the Revenue has assailed the findings of CIT(A) in deleting addition with respect to provision for marked to market for calculation of book profits u/s 115JB. 17.1 The learned AR pointed that this issue is covered by Tribunal order for AY 2008-09 in assessee s case in appeal by the Revenue. We find that the Coordinate bench has decided identical issue in AY 2008-09 dismissing the ground raised in appeal by the Revenue. The relevant extract of Tribunal order is reproduced herein below: 29. We have considered the submissions of the parties and perused the order of the tax authorities below. The assessing officer while computing book profit added back provision of Rs, 51 Crore for marked to market loss without discussion or issuing show cause notice to the assessee. During the first appellate stage the assessee filed its detail submissions and relied on the decisions in CIT Vs Woodward Governor India (P) Ltd (supra) and Apollo Tyres Ltd Vs CIT (supra). The Id CIT(A) after considering the submissions of the assessee observed that ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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