The Dy. Commissioner of Income Tax, Circle-2(1)(1), Baroda V. M/s. Sun Pharmaceuticals Industries Limited, Vadodara

ITA 1089/AHD/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9364 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-09-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 01-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Assessee Lawyers: PARIN SHAH ARS; S N SOPARKAR
• Keywords: Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI KUL BHARAT , JUDICIAL MEMBER & SHRI WASEEM AHMED , ACCOUNTANT MEMBER ITA NO. 1089 /AHD/201 8 (ASSESSMENT YEAR : 2010 - 11 ) D.C.I.T., CIRCLE - 2(1)(1), BARODA. VS. SUN PHARMACEUTICAL INDUSTRIES LTD., SPARC, TANDALJA, VADODARA 390 020. [ PAN NO. AADCS 3124 K ] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI KISHAN VYAS, CIT.D.R . RESPONDENT BY : SHRI S.N. SOPARKAR & SHRI PARIN SHAH, A.RS DATE OF HEARING 30 / 0 9 / 2019 DATE OF PRONOUNCEMENT 03 / 10 / 201 9 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER : THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 2, VADODARA DATED 15/02/2018 ( IN SHORT LD.CIT(A) ) ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3) R.W.S. 263 OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DT.08 / 12/2016 RELEVANT TO THE ASSESSMENT YEAR 2010 - 2011. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: L(I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE OF CAPITAL RESEARCH AND DEVELOPMENT ITA NO. 1089 /AHD/201 8 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2010 - 11 - 2 - EXPENDITURE ALLOCATED TO SPI AND SPS BY HOLDING THAI 'THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY ON R & D FOR THE PURPOSE OF PARTNERSHIP FIRMS CANNOT BE DISALLOWED SINCE THE SAME WAS INCURRED FOR THE PURPOSE OF BUSINESS BEING MAJORITY STAKE HOLDER IN THE FIRM ' WITHOUT APPRECIATING THAT THE ISSUE INVOLVED IN THE ASSESSMENT ORDER PERTAINED TO DISALLOWANCE OF CAPIT AL R & D EXPENDITURE FOR THE PURPOSE OF WEIGHTED DEDUCTION U/S. 35(2AB) OF THE ACT, BASED ON THE FINDINGS DURING THE SURVEY AS PER WHICH THE ASSESSEE ITSELF HAS ALLOCATED THE R & D EXPENDITURE WITHIN ITS UNITS ON ACCOUNT OF FORMULATIONS AND BULK DRUGS IN T HE RATIO OF 75% AND 25% RESPECTIVELY, AND HENCE, THE ASSESSEE BEING THE MAJORITY SHARE HOLDER IS NOT RELEVANT IN THIS CASE, SINCE BOTH ARE INDEPENDENT ENTITY AS PER I.T. ACT, 1961. L(II) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A ) ERRED IN DELETING DISALLOWANCE OF CAPITAL RESEARCH AND DEVELOPMENT EXPENDITURE ALLOCATED TO SPI AND SPS WITHOUT APPRECIATING THAT THE CAPITAL R & D EXPENDITURE WAS CORRECTLY ALLOCATED IN THE RATIO OF TURNOVER OF FORMULATIONS MANUFACTURED IN SPIL, SPI AND SPS, SINCE ENTIRE R & D ACTIVITY OF SPI & SPS WERE TAKING PLACE IN THE R & D CENTRE OF THE ASSESSEE COMPANY, AND THE PRODUCTS MANUFACTURED BY THE PARTNERSHIP FIRM WERE FORMULATION, WHEREAS THE PRODUCTS MANUFACTURED IN UNIT UNDER SPIL WERE BOTH FORMULATION AND BULK DRUGS 2(I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE A.O. TO DELETE THE DISALLOWANCE OF EXCESS WEIGHTED DEDUCTION U/S. 35(2AB) OF THE ACT BY RELYING ON THE DECISION OF GUJARAT HIGH COURT VI DE ORDER DATED 14.08.2017 IN TAX APPEAL NO. 541 OF 2017 AND THE I.T.A.T. VIDE ORDER DATED 22.12.2016 IN ITA NO. 1390/AHD/ 2016 WITHOUT APPRECIATING THAT THE SAID DECISION OF HON'BLE GUJARAT HIGH COURT & ITAT WAS ON ACCOUNT OF ALLOWANCE OF WEIGHTED DEDUCTIO N U/S. 35(2AB) OF THE ACT ARISING DUE TO LACK OF CERTIFICATION OF EXPENDITURE ON SCIENTIFIC RESEARCH BY THE SECRETARY DSIR NEW DELHI, WHEREAS IN THE PRESENT CASE, THE DSIR HAS SPECIFICALLY EXCLUDED THE EXCESS EXPENDITURE AS PER THE NORMS WHICH IS AS PER TH E MANDATE OF THE STATUTE IN THIS REGARD. 2(II) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DECISION OF CIT(A) ON THE ISSUE OF EXCESS CLAIM OF WEIGHTED DEDUCTION U/S. 35(2AB) OF THE ACT IS CONTRARY IN AS MUCH ON THE ONE HAND THE CIT(A) DIRECTED THE A.O. TO DELETE THE DISALLOWANC E MADE AND ON THE OTHER HAND HELD THAT 'SUITABLE DISALLOWANCE MAY BE MADE IF THE EXPENSES ARE NOT IN INCURRED ON R & D FACILITY, AFTER VERIFYING THE DETAILS OF EXPENSES NOT MENTIONED INFORM 3CL'. 3(I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE ADDITION OF BY RS.15,07,27,535/ - BEING REMUNERATION RECEIVED FROM PARTNERSHIP FIRM AS ROYALTY WITHOUT APPRECIATING THAT THE ITA NO. 1089 /AHD/201 8 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2010 - 11 - 3 - ASSESSEE RECEIVED ROYALTY FROM THE PARTNERSHIP FIRM IN THE GUISE OF EXEMPTED PARTNERSHIP PROFI T. 3(II) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE ADDITION OF BY RS.15,07,27,535/ - BEING REMUNERATION RECEIVED FROM PARTNERSHIP FIRM AS ROYALTY WITHOUT APPRECIATING THAT THE ASSESSEE HAD DELIBERATELY CHAR ACTERIZED THE ROYALTY AS REMUNERATION, WHEN THE CHARGES FOR PERMITTING ASSESSEE'S TRADE MARK/BRAND BY THE PARTNERSHIP FIRMS I.E. SPI AND SPS WAS IN THE NATURE OF ROYALTY. 4. THE APPELLANT CRAVES LEAVE TO ADD, MODIFY, AMEND OR ALTER ANY GROUNDS OF APPEAL A T THE TIME OF, OR BEFORE, THE HEARING OF APPEAL. RELIEF CLAIMED IN APPEAL IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) ON THE ABOVE ISSUES BE SET ASIDE AND THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 2. A T THE OUTSET THE LEARNED AR FOR THE ASSESS EE BROUGHT TO OUR NOTICE THAT THERE WAS THE ASSESSMENT UNDER SECTION 143(3)OF THE ACT DATED 28 MARCH 2014 DETERMINING THE INCOME UNDER NORMAL COMPUTATION AT 419,46,64,278 AND BOOK PROFIT AT RS. 292,69,94,247 UNDER SECTION 115 JB OF THE ACT. 3. SUBSEQUENTLY, THE PCIT CONSIDERED THE IMPUGNED ASSESSMENT ORDER AS ERRONEOUS INSOFAR PREJUDICIAL TO THE INTEREST OF REVENUE UNDER SECTION 263 OF THE ACT FOR THE REASONS AS DISCUSSED BELOW: I. THE AO HAS MADE THE DISALLOWANCE OF R & D REVENUE EXPENDITURE IN T HE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT BUT THERE WAS NO DISALLOWANCE WITH REGARD TO THE R & D CAPITAL EXPENDITURE AMOUNTING TO RS. 22,93,81,646.00 ITA NO. 1089 /AHD/201 8 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2010 - 11 - 4 - II. THE ASSESSEE HAS CLAIMED EXCESS WEIGHTED DEDUCTION OF 12,99,26,499.00 UNDER SECTION 35(2AB) OF THE ACT AND THE SAME WAS ALLOWED BY THE AO IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT. III. THE ASSESSEE HAS SHOWN RECEIPT OF RS. 44,09,54,508 AS REMUNERATION FROM THE PARTNERSHIP FIRM NAMELY M/S SUN PHARMACEUTICAL INDUSTRIES THOUGH THE SAME REPRESENTS THE INCOME RECEIVED AGAINST THE SERVICES PROVIDED TO SUCH PARTNERSHIP FORM. FOR THE ABOVE REASONS, THE LEARNED CIT HELD THAT THE ASSESSMENT ORDER FRAMED UNDER SECTION 143(3) OF THE ACT IS ERRONEOUS INSOFAR PREJUDICIAL TO THE INTEREST OF REVENU E VIDE ORDER DATED 28 TH MARCH 2016. 4. IN VIEW OF THE ABOVE THE AO FRAMED THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 263 OF THE ACT VIDE ORDER DATED 8 DECEMBER 2016 WHEREIN THE FOLLOWING ADDITIONS WERE MADE: TOTAL INCOME AS PER ASSESSMENT OR DER U/S.143(3) DATED 28/03/2014 RS.419,46,64,278 ADD: 1.ALLOCATION OF CAPITAL R &D EXPENSES TO PARTNERSHIP FIRMS AS PER PARA 7.1 RS.7,54,54,137/ - 2.DIFFERENCE OF R & D EXPENSES AS PER FORM 3CL RS.12,99,26,449/ - ITA NO. 1089 /AHD/201 8 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2010 - 11 - 5 - AND CLAIMED BY THE ASSESSEE 3.REMUNERATION RECEIVED FROM PARTNERSHIP FORM AS PER PARA 7.3 RS.15,07,27,535/ - REVISED TOTAL INCOME RS.455,07,72,399/ - 5. THE ASSESSEE, BEING AGGRIEVED, CARRIED THE MATTER TO THE LEARNED CIT (A) WHO DELETED THE ADDITION MADE BY THE AO VIDE ORDER DATED 15 TH FEBRUARY 2018. THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT - A PREFERRED AN APPEAL BEFORE US. 6. HOWEVER, THE LEARNED AR BEFORE ARGUING THE MATTER ON MERIT FURTHER BROUGHT TO OUR NOTICE THAT THE ASSESSEE CHALLENGED THE ORDER OF THE LD. PCIT PASSED UNDER SECTION 263 OF THE ACT DATED 28 TH MARCH 2016 BEFORE THE ITAT BEARING ITA NO. 1417/AHD/2016 WHICH HAVE ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 17 TH MAY 2019. THE LEARNED AR IN SUPPORT OF HIS CLAIM ALSO FILED THE COPY OF THE ITAT ORDER. ACCORDINGLY, THE LEARNED AR SUBMITTED THAT ONCE THE ITAT HAS DELETED THE ADDITION PROPOSED TO BE MADE BY THE LEARNED PCIT UNDER SECTION 263 OF THE ACT, THEN THE ADDITIONS MADE BY THE AO IN CONSEQUENCE TO THE DIRECTION ISSUED BY THE LEARNED PCIT UNDER SECTION 263 OF THE ACT DO NOT SURVIVE. ITA NO. 1089 /AHD/201 8 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2010 - 11 - 6 - 6.1 ACCORDINGLY HE SUBMITTED THAT THE IMPUGNED APPEAL FILED BY THE REVENUE IS INFRUCTUOUS AND LIABLE TO BE DISMISSED. 7. ON THE OTHER HAND THE LEARNED DR HAS NOT ADVANCED ANY ARGUMENT AGAINST THE CONTE NTIONS RAISED BY THE LEARNED AR FOR THE ASSESSEE. HOWEVER HE RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. INDEED, THE ISSUES INVOLVED IN THE PRESEN T APPEAL ARE EMANATING FROM THE ORDER OF THE LEARNED PCIT PASSED UNDER SECTION 263 OF THE ACT AND THE SAME DOES NOT SURVIVE IN VIEW OF THE ORDER OF THE ITAT BEARING ITA NO. 1417/AHD/2016 DATED 17 MAY 2019 WHICH IS PLACED ON RECORD. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE RELEVANT FACTS IN TOTALITY, WE HOLD THAT THE IMPUGNED APPEAL PREFERRED BY THE REVENUE DOES NOT SURVIVE AS THE MOTHER ORDER OF THE LEARNED PCIT HAS BEEN ALLOWED IN FAVOUR OF THE ASSESSEE BY THE ITAT. HENCE, WE DISMISS THE APPEAL OF TH E REVENUE WITHOUT GOING INTO THE MERIT OF THE CASE. THUS THE APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 0 3 / 10 /201 9 - SD - - SD - ( KUL BHARAT ) ( WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) AHMEDABAD; DATED 03 /10 /201 9 MANISH