Sun Pharmaceuticals Industries Ltd., Baroda V. The Pr.CIT, Vadodara-2, Vadodara

ITA 1521/AHD/2015

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7795 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 28-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A KHAN
• Assessee Lawyers: VARTIK CHOKSI A RS
• Keywords: Revision of order; Difference of opinion; Assessment record; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 80IC; 64; 80IC; 13; 37; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE JUSTICE P.P. BHATT, PRESIDENT AND WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO.1521/AHD/2015 / ASSTT. YEAR: 2009-2010 SUN PHARMACEUTICAL INDUSTRIES LTD., SPARC, TANDALJA, VADODARA-390020. PAN: AADCS3124K VS. PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA-2, VADODARA. (APPLICANT) (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR, SR. ADVOCATE WITH SHRI PARIN SHAH, & SHRI VARTIK CHOKSI, A.RS REVENUE BY : SHRI M.S.A. KHAN, CIT.D.R /DATE OF HEARING : 15/07/2021 /DATE OF PRONOUNCEMENT: 03/09/2021 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA, ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 263 OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2009-2010. ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER PASSED BY THE LEARNED PR. COMMISSIONER OF INCOME TAX [HEREINAFTER REFERRED TO AS 'THE LEARNED CIT] IS BAD IN LAW AND ON FACTS. 2. RE: ORDET ISSUED U/S. 263 WAS BAD IN LAW AND NEEDS TO BE QUASHED AS VOID AB INITIO: 2.1 THE LEARNED CIT GROSSLY ERRED IN INITIATING PROCEEDINGS U/S 263 WITHOUT APPRECIATING THAT THE ASSESSMENT ORDER OF THE ASSESSING OFFICER WAS NOT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 2.2 THE LEARNED CIT FAILED IN CONSIDERING THE FACT THAT DIE ASSESSING OFFICER WAS CONVERSANT WITH THE FACTS OF THE CASE IN COURSE OF THE ASSESSMENT PROCEEDINGS AND HAD CONSCIOUSLY AFTER HIS APPLICATION OF MIND DECIDED NOT TO MAKE ANY ADDITIONS ON ACCOUNT OF CAPITAL R&D. 2.3 THE LEARNED CIT FAILED TO APPRECIATE THAT DISALLOWANCE OF R&D EXPENSES WAS SUBJECT MATTER OF APPEAL AND THEREFORE ORDER COULD NOT HAVE BEEN REVISED AS PER EXPLANATION 1 TO S. 263. 2.4 THE LEARNED CIT GROSSLY ERRED IN EXCEEDING ITS JURISDICTION TO ALLOCATE CAPITAL R&D EXPENDITURE WITHOUT APPRECIATING THAT SPECIFIC POWERS WERE GIVEN TO DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR) U/S, 35(3) AND THEREBY THE ORDER COULD NOT HAVE BEEN REVISED U/S. 263. 3. RE: ADDITION OF CAPITAL R&D EXPENSES ALLOCATED TO SUN PHARMACEUTICAL INDUSTRIES (PARTNERSHIP FIRM) - RS 9.32.33.637: 3.1 THE LEARNED CIT HAS GROSSLY ERRED IN ALLOCATING THE CAPITAL R&D INCURRED BY THE APPELLANT TO SUN PHARMA INDUSTRIES (PARTNERSHIP FIRM), WITHOUT APPRECIATING THAT CAPITAL EXPENDITURE WAS ACTUALLY INCURRED FOR THE PURPOSE OF APPELLANT AND SAME WAS DULY AUDITED BY THE STATUTORY AUDITORS OF THE APPELLANT COMPANY AND APPROVED BY DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR). 3.2 THE LEARNED CIT OUGHT TO HAVE APPRECIATED THAT CAPITAL EXPENDITURE WAS SOLELY FOR THE BENEFIT OF APPELLANT AND OWNERSHIP OF ALL PRODUCTS AND FACILITIES WAS EXCLUSIVELY WITH THE APPELLANT AND NOT THE PARTNERSHIP FIRM. 3.3 THE LEARNED CIT OUGHT TO HAVE APPRECIATED THAT APPELLANT HAD FULFILLED ALL THE CONDITIONS RELATING TO S. 35(2AB) AND 35(L)(IV) AND HENCE THERE COULD NOT HAVE BEEN ANY ALLOCATION OF EXPENDITURE TO SPL 3.4 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT EXCEEDED ITS JURISDICTION TO PROPORTIONATELY ALLOCATE THE CAPITAL R&D, WITHOUT APPRECIATING THAT SPECIFIC POWERS WERE GRANTED TO DSIR IN THIS REGARDS AND THE FACT THAT DSIR HAS ALREADY APPROVED THE ENTIRE CAPITAL EXPENDITURE. 3.5 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT OUGHT TO HAVE APPRECIATED THAT AS PER THE PARTNERSHIP DEED THE APPELLANT BEING THE WORKING PARTNER WAS OBLIGED TO PROVIDE TECHNICAL AND OTHER INFORMATION TO PARTNERSHIP FIRM IN LIEU OF WHICH IT WAS ENTITLED ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 3 TO RECEIVE REMUNERATION AND HENCE THE UTILIZATION OF THE CAPITAL R&D EQUIPMENT FOR THE ACTIVITIES OF THE PARTNERSHIP FIRM, IF ANY WAS IN FURTHERANCE OF THE ITS OBLIGATION UNDER THE PARTNERSHIP DEED. . 3. THE ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED PRINCIPAL CIT ERRED IN HOLDING THAT THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT IS ERRONEOUS IN SO FAR PREJUDICIAL TO THE INTEREST OF REVENUE UNDER SECTION 263 OF THE ACT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LISTED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING, TRADING AND EXPORTS OF BULK DRUGS & FORMULATIONS LEASING OF EQUIPMENT AND FINANCING. THE ASSESSEE IS A FLAGSHIP COMPANY OF SUN PHARMA GROUP OF COMPANIES. IT COMPRISES VARIOUS OTHER BUSINESS ENTITIES AND FACTORIES INCLUDING PARTNERSHIP FIRMS NAMELY SUN PHARMACEUTICALS INDUSTRIES (SPI) AND SUN PHARMA SIKKIM (SPS) HAVING MANUFACTURING UNIT IN JAMMU AND SIKKIM. THIS PARTNERSHIP FIRMS WERE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IC OF THE ACT. 4.1 THE ASSESSEE IS ALSO CARRYING OUT RESEARCH AND DEVELOPMENT ACTIVITIES WHICH ARE USED BY THE ENTIRE GROUP OF SUN PHARMA INCLUDING THE PARTNERSHIP FIRM NAMELY SUN PHARMACEUTICALS INDUSTRIES AND IN SUBSEQUENT FOR SUN PHARMA SIKKIM AS WELL. THE ASSESSEE WAS INCURRING EXPENSES OF CAPITAL AND REVENUE NATURE WITH RESPECT TO ITS RESEARCH AND DEVELOPMENT ACTIVITIES. THE ASSESSEE, ON THE EXPENDITURES (CAPITAL AND REVENUE) INCURRED BY IT ON RESEARCH AND DEVELOPMENT ACTIVITIES, WAS CLAIMING THE DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. THE DETAILS OF THE EXPENDITURES INCURRED (CAPITAL AND REVENUE) WITH RESPECT TO ITS RESEARCH AND DEVELOPMENT ACTIVITIES ALONG WITH THE DEDUCTION CLAIMED UNDER SECTION 35(2AB) OF THE ACT ARE ENCLOSED ON PAGES 64 TO 66 OF THE PB. 4.2 THE AO DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT HAS HELD VIDE ORDER DATED 25 TH MARCH TO 13 THAT THE REVENUE EXPENSES INCURRED FOR FORMULATION OF BUSINESS BY THE ASSESSEE UNDER THE HEAD RESEARCH AND DEVELOPMENT SHOULD ALSO BE ALLOCATED TO ITS PARTNERSHIP FIRM NAMELY SUN PHARMA INDUSTRIES/ SUN ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 4 PHARMA SIKKIM BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IC OF THE ACT. AS PER THE AO, THE PARTNERSHIP FIRMS WAS ALSO ENJOYING THE BENEFIT OF THE RESEARCH AND DEVELOPMENT CARRIED OUT BY THE ASSESSEE. ACCORDINGLY THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE ACT AFTER ALLOCATING THE REVENUE EXPENSES INCURRED BY THE ASSESSEE TO THE ELIGIBLE UNITS IN THE RATIO OF THE TURNOVER. 4.3 SUBSEQUENTLY, THE LEARNED PRINCIPAL CIT ON PERUSAL OF THE ASSESSMENT RECORDS FOUND THAT THE ASSESSEE HAS ALSO CLAIMED WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT WITH RESPECT TO THE CAPITAL EXPENDITURE AT THE RATE OF HUNDRED PERCENT AND 150% AMOUNTING TO 3,69,16,598/- AND 27,11, 62,194/- RESPECTIVELY. HOWEVER THE AO IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT HAS NOT ALLOCATED THE CAPITAL EXPENDITURE CLAIMED BY THE ASSESSEE TO THE PARTNERSHIP FIRMS NAMELY SUN PHARMACEUTICALS INDUSTRIES. AS PER THE LEARNED PRINCIPAL CIT, THE CAPITAL EXPENDITURE SHOULD HAVE BEEN ALLOCATED BY THE AO IN THE MANNER IN WHICH THE REVENUE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD RESEARCH AND DEVELOPMENT HAS BEEN ALLOCATED TO THE PARTNERSHIP FIRMS. 4.4 IN VIEW OF THE ABOVE THE LEARNED PRINCIPAL CIT PROPOSED THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT BY THE AO AS ERRONEOUS INSOFAR PREJUDICIAL TO THE INTEREST OF REVENUE BY ISSUING A SHOW CAUSE NOTICE DATED 05-03-2015. 4.5 IN RESPONSE TO SUCH SHOW CAUSE NOTICE THE ASSESSEE SUBMITTED THAT IT HAS FILED ALL THE RELEVANT INFORMATION SUCH AS TAX AUDIT REPORT, DSIR REPORT IN FORM 3 CL AND BREAKUP OF THE EXPENSES BASED ON WHICH WEIGHTED DEDUCTION UNDER SECTION 35(2AB) AND UNDER SECTION 35 (1)(IV) OF THE ACT WAS CLAIMED. ACCORDINGLY, THE AO HAS VERIFIED THE CLAIM MADE BY THE ASSESSEE AFTER APPLYING HIS MIND AND THUS CONSCIOUSLY REACHED TO THE CONCLUSION THAT REVENUE EXPENSES SHOULD BE ALLOCATED TO THE PARTNERSHIP FIRM. ACCORDINGLY THE ASSESSEE CONTENDED THAT THE ORDER OF THE AO CANNOT BE REVISED UNDER SECTION 263 OF THE ACT IN THE GIVEN FACTS AND CIRCUMSTANCES OTHERWISE IT IS BASED ON THE CHANGE OF OPINION. ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 5 4.6 WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE ALSO CONTENDED THAT ALL THE EXPENSES WERE INCURRED FOR THE PURPOSE OF THE BUSINESS AND THEREFORE THE SAME ARE ALLOWABLE AS DEDUCTION UNDER SECTION 37 OF THE ACT. 4.7 HOWEVER, THE LEARNED PRINCIPAL CIT REJECTED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD RESEARCH AND DEVELOPMENT SHOULD ALSO BE ALLOCATED BY THE AO TO THE PARTNERSHIP FIRM AS DISCUSSED ABOVE IN THE TURNOVER RATIO. ACCORDINGLY THE LEARNED PRINCIPAL CIT (A) HELD THAT THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT IS ERRONEOUS INSOFAR PREJUDICIAL TO THE INTEREST OF REVENUE. 5. BEING AGGRIEVED BY THE ORDER OF THE LEARNED PRINCIPAL CIT, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 176 AND CONTENDED THAT THE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 1666 & 1663/AHD/2016 FOR THE SAME ASSESSMENT YEAR 2009-10 VIDE ORDER DATED 08-09- 2017 HAS HELD THAT THE REVENUE EXPENSES INCURRED BY THE ASSESSEE UNDER THE HEAD RESEARCH AND DEVELOPMENT CANNOT BE ALLOCATED TO THE PARTNERSHIP FIRM NAMELY SUN PHARMACEUTICALS INDUSTRIES. ACCORDINGLY, THE LEARNED AR WAS OF THE VIEW THAT ON THE SAME REASONING THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD RESEARCH AND DEVELOPMENT CANNOT BE ALLOCATED TO THE PARTNERSHIP FIRM AS DISCUSSED ABOVE. THE LEARNED AR IN SUPPORT OF HIS CONTENTION ALSO FILED THE COPY OF THE ITAT ORDER BEARING ITA NO. 1666 & 1663/AHD/2016 BEFORE US. THUS, THERE CANNOT BE REVISION UNDER SECTION 263 OF THE ACT ON THE REASONING THAT THERE IS AN ERROR CAUSING PREJUDICE TO THE INTEREST OF REVENUE IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT. 6.1 LEARNED AR ALSO SUBMITTED THAT THE IDENTICAL ISSUE WAS ALSO THERE IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR I.E. 2008-09 BUT THE ITAT IN ITA NO. 2514/AHD/2015 DATED 06/09/2019 VIDE ORDER DATED HAS DECIDED THE ISSUE IN FAVOR ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 6 OF THE ASSESSEE. THE LEARNED AR IN SUPPORT OF HIS CONTENTION ALSO FILED THE COPY OF THE ITAT ORDER IN ITA NUMBER ITA NUMBER 2514/AHD/2015 DATED 06/09/2019 BEFORE US. 7. ON THE OTHER HAND, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED PRINCIPAL CIT. 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY, THE AO IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT HAS ONLY ALLOCATED THE REVENUE EXPENSES TO THE PARTNERSHIP FIRM AS DISCUSSED ABOVE. HOWEVER, THE ORDER OF THE AO WAS SILENT WITH RESPECT TO THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD RESEARCH AND DEVELOPMENT. THUS IT SEEMS THE AO SHOULD HAVE ALSO APPLIED THE SAME RATIONAL WHILE FRAMING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WITH RESPECT TO THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD RESEARCH AND DEVELOPMENT. BUT THE AO, FOR THE REASONS BEST KNOWN TO HIM, HAS NOT DONE SO. THUS, TO THIS EXTENT THE ORDER OF THE LEARNED PRINCIPAL CIT UNDER SECTION 263 OF THE ACT APPEARS TO BE CORRECT UNDER THE PROVISIONS OF LAW. 8.1 HOWEVER, WE NOTE THAT THERE IS NO DISPUTE ABOUT THE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD RESEARCH AND DEVELOPMENT WHETHER THEY WERE CAPITAL OR REVENUE IN NATURE. THIS BIFURCATION OF EXPENSES BETWEEN THE CAPITAL AND REVENUE WAS MADE IN ACCORDANCE WITH THE REQUIREMENT SPECIFIED UNDER SECTION 35 OF THE ACT. OTHERWISE ALL THE EXPENSES BELONGS TO THE SAME BASKET I.E. RESEARCH AND DEVELOPMENT EXPENSES. THUS, THERE HAS TO BE SAME TREATMENT WITH RESPECT TO ALL THE EXPENDITURES UNDER THE HEAD RESEARCH AND DEVELOPMENT AS FAR AS ALLOCATION OF THE EXPENSES IS CONCERNED. 8.2 NEVERTHELESS, THE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 1666 & 1663/AHD/2016 FOR THE SAME ASSESSMENT YEAR 2009-10 VIDE ORDER DATED HAS REVERSED THE ORDER OF THE AO UNDER CONSIDERATION BY HOLDING THAT THERE CANNOT BE ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 7 ALLOCATION OF THE REVENUE EXPENSES TO THE PARTNERSHIP FIRM AS DISCUSSED ABOVE. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 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 . A.Y. 2009-10 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 BUSINESS OR THE BUSINESS OF THE PARTNERSHIP FIRM WHERE THE ASSESSEE IS A MAJORITY STAKE HOLDER. IN OUR UNDERSTANDING OF THE LAW AN EXPENDITURE IS ALLOWABLE IF IT IS INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. FINDING THAT THE ASSESSEE IS HAVING 97.5% SHARE IN THE PROFITS OF THE FIRM SPI, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE FIRST APPELLATE AUTHORITY. WE, ACCORDINGLY, DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 5,30,29,5255/-. GROUND NO. 12 IS ACCORDINGLY ALLOWED. 8.3 TO OUR MIND, ON THE BASIS OF ABOVE REASONING OF THE ITAT, CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE SHOULD ALSO NOT TO BE ALLOCATED OVER THE PARTNERSHIP FIRM AS DISCUSSED ABOVE. IT IS FOR THE SIMPLE REASON THAT WHETHER IT WAS CAPITAL OR REVENUE NATURE, THEY BELONG TO THE SAME BASKET AND DIFFERENT TREATMENT CANNOT BE GIVEN AS FAR AS ALLOCATION OF THE EXPENSES IS CONCERNED. 8.4 THE ORDER OF THE LEARNED PRINCIPAL CIT WAS PASSED UNDER SECTION 263 OF THE ACT DATED 27/03/2015 WHEREAS THE ORDER OF THE ITAT WAS PASSED DATED 08-09-2017. IN OTHER WORDS, THE ORDER OF THE ITAT WAS DELIVERED SUBSEQUENT TO THE DATE OF PASSING THE ORDER BY THE PRINCIPAL CIT. AS SUCH, THE ORDER OF ITAT DATED 8-09-2017 WAS NOT AVAILABLE AT THAT POINT OF TIME WITH THE PRINCIPAL CIT. HAD THIS ORDER BEEN AVAILABLE WITH THE LEARNED PRINCIPAL CIT AT THE TIME OF PASSING THE ORDER UNDER 263 OF THE ACT, THE FATE OF THE ISSUE ON HAND WOULD HAVE BEEN DIFFERENT. IT IS FOR THE REASON THAT THE ITAT BEING THE HIGHER FACT FINDING AUTHORITY, ITS DECISIONS ARE BINDING UPON THE AUTHORITIES BELOW. ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 8 8.5 IN DEED THE ORDER OF THE ITAT BEARING NO. 1666 & 1663/AHD/2016 FOR THE ASSESSMENT YEAR 2009-10 IS NOW AVAILABLE WITH US WHICH SAYS THAT THE REVENUE EXPENSES CANNOT BE ALLOCATED TO THE PARTNERSHIP FIRM. ON THE SAME REASONING, WE HOLD THAT THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD RESEARCH AND DEVELOPMENT CANNOT BE ALLOCATED TO THE PARTNERSHIP FIRM. ADMITTEDLY, THE ORDER OF THE AO HAS BEEN MERGED WITH THE ORDER OF THE ITAT WITH RESPECT TO THE ALLOCATION OF THE EXPENSES WHICH WILL PREVAIL OVER THE ORDER OF THE LEARNED PRINCIPAL CIT PASSED UNDER SECTION 263 OF THE ACT. 8.6 BESIDES THE ABOVE WE HOLD THAT THE ITAT IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO. 2514/AHD/2015 VIDE ORDER DATED 6-9-2019 INVOLVING IDENTICAL FACTS AND CIRCUMSTANCES HAS HELD THAT THE ORDER PASSED BY THE AO UNDER SECTION 143(3) OF THE ACT CANNOT BE REVISED UNDER SECTION 263 OF THE ACT. THE RELEVANT EXTRACT IS REPRODUCED AS UNDER: 6. WE HAVE HEARD THE PARTIES, WE HAVE PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ADDITION ON ACCOUNT OF CAPITAL RESEARCH & DEVELOPMENT ALLOCATED TO SUN PHARMACEUTICAL INDUSTRIES (PARTNERSHIP FIRM) HAS BEEN CHALLENGED BEFORE US. WE HAVE ALSO GONE THROUGH THE ORDER PASSED BY THE ITA NO.2514/AHD/2015 SUN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR -2008-09 CO-ORDINATE BENCH IN ITA NO.1417/AHD/2016 FOR A.Y. 2010- 11. WHILE DEALING WITH IDENTICAL ISSUE AND DECIDING THE SAME IN FAVOUR OF THE ASSESSEE, THE CO-ORDINATE BENCH OBSERVED AS FOLLOWS: '...7. GROUND NO.4 RELATES TO THE ADDITION ON ACCOUNT OF CAPITAL R&D EXPENSE ALLOCATED TO SUN PHARMACEUTICALS INDUSTRIES (PARTNERSHIP FIRM) OF RS.22,93,81,646/-. 8. AT THE VERY OUTSET OF HEARING OF THE INSTANT APPEAL, THE LEARNED SR. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN ASSESSEE'S OWN CASE PASSED BY THE CO- ORDINATE BENCH IN ITA NO.929/AHD/2017 FOR A.Y. 2010-11; COPY OF THE SAME WAS ALSO HANDED OVER TO US. HOWEVER, THE LEARNED DR FAILED TO CONTROVERT THE CONTENTION MADE BY THE LEARNED AR. 9. WE HAVE HEARD THE RESPECTIVE PARTIES, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE HAVE ALSO CAREFULLY CONSIDERED THE ORDER PASSED BY THE CO-ORDINATE BENCH DECIDING THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION THEREOF IS AS FOLLOWS: '39. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 7 IS THAT THE LD.CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO BY ALLOCATING THE RESEARCH AND DEVELOPMENT EXPENSES INCURRED BY IT TO THE OTHER PARTNERSHIP FIRMS AND ACCORDINGLY MADE THE DISALLOWANCE OF SUCH EXPENSES PROPORTIONATELY. 40. THE ASSESSEE IS A PARTNER IN TWO PARTNERSHIP FIRMS NAMELY SUN PHARMA INDUSTRIES AND SUN PHARMA SIKKIM (FOR SHORT SPI AND SPS). BOTH THE PARTNERSHIP FIRMS WERE ENGAGED IN MANUFACTURING THE DRUGS. HOWEVER, THE ASSESSEE WAS CARRYING OUT RESEARCH AND ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 9 DEVELOPMENT EXPENSES FOR THE DRUGS MANUFACTURED BY BOTH THE FIRMS. ACCORDINGLY, THE ASSESSEE CLAIMED THE DEDUCTION FOR ALL THE RESEARCH AND DEVELOPMENT EXPENSES INCURRED BY IT IN ITS BOOKS OF ACCOUNTS. 41. THE AO DURING THE ASSESSMENT PROCEEDING OBSERVED THAT BOTH THE PARTNERSHIP FIRM ARE CLAIMING DEDUCTION UNDER SECTION 80IC OF THE ACT. AS SUCH BOTH THE PARTNERSHIP FIRMS WERE SHOWING A HUGE AMOUNT OF PROFIT WHICH WAS ALLOCATED TO THE PARTNERS OF THE FIRM. THE ASSESSEE BEING A MAJOR SHAREHOLDER IN THE FIRMS RECEIVED A HUGE AMOUNT AS A SHARE OF PROFIT WHICH WAS CLAIMED AS EXEMPTED UNDER SECTION 10(2A) OF THE ACT. ACCORDINGLY, THE AO WAS OF THE VIEW THAT THE RESEARCH AND DEVELOPMENT EXPENSES INCURRED BY THE ASSESSEE ON THE DRUGS MANUFACTURED BY THE PARTNERSHIP FIRMS SHOULD BE ALLOCATED TO THESE PARTNERSHIP FIRMS. THUS THE AO WORKED OUT THE RESEARCH AND DEVELOPMENT EXPENSES PERTAINING TO THE FIRMS FOR RS.58,07,48,088/- ON THE BASIS OF THE TURNOVER OF THE FORMULATIONS AND DISALLOWED THE SAME BY ADDING TO THE TOTAL INCOME OF THE ASSESSEE. 42. THE AGGRIEVED ASSESSEE, PREFERRED AN APPEAL TO THE LD. CIT (A) WHO PARTLY CONFIRMED THE ORDER OF THE AO AFTER HAVING A RELIANCE ON THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEAR 2008-09 BY OBSERVING AS UNDER: '12.1. SIMILAR DISALLOWANCE WAS MADE IN A.Y. 2008-09 AFTER REOPENING THE PROCEEDINGS U/S. 147. THE ORDER U/S. 143(3) R.W.S. 147 FOR A.Y. 2008-09 WAS PASSED BY THE ASSESSING OFFICER ON 14.02.2014. THE ABOVE MENTIONED ISSUE WAS CHALLENGED BEFORE THE CIT(A)-2, VADODARA. THE APPEAL OF THE ASSESSEE HAS BEEN DECIDED BY MY PREDECESSOR VIDE ORDER DATED 31.03.2015 CONTAINED IN APPEAL NO. CAB/(A)- 2/387/14~15 (A.Y. 2008-09) AND HIS FINDINGS RECORDED IN PARA-7.3 TO7.5.2 ARE REPRODUCED AS UNDER:- '7.3 I HAVE CONSIDERED THE APPELLANT'S SUBMISSION AND THE AO'S OBSERVATIONS. THE APPELLANT'S MAIN CONTENTION ARE THAT THAT THE PRODUCT TECHNOLOGY DEVELOPED ARE COMPLETELY OWNED BY IT AND NO PART OF OWNERSHIP OF THE PRODUCT TECHNOLOGY OR PROCESSES DEVELOPED DURING SUCH R & D WORK IS FOR ANY OTHER PARTY. BESIDES BEING A WORKING PARTNER, THE APPELLANT IN PURSUANCE OF THE OBLIGATION UNDERTAKEN UNDER THE PARTNERSHIP DEED HAD PROVIDED THESE SERVICES IN RELATIONS TO THE MANUFACTURING ACTIVITIES OF THE FIRM AND THAT NO R & D ACTIVITY WAS CARRIED OUT FOR SPI. IN RELATION TO THE THESE CLAIMS, THE APPELLANT HAS ALSO STATED THAT IT HAS RECEIVED REMUNERATION AND SHARE OF PROFIT FROM SPI, CREDITS OF WHICH ARE AVAILABLE TO IT TO THE CORRESPONDING DEBIT IN THE BOOKS OF ACCOUNTS OF THE SPI, AND HENCE THE PROFIT WERE NOT UNDERSTATED. ANOTHER RELATED CLAIM MADE BY THE APPELLANT IS THAT THE EXPENDITURE INCURRED BY IT FOR THE PARTNERSHIP FIRM IS AS GOOD AS ITS OWN EXPENDITURE BECAUSE ULTIMATELY THE APPELLANT IS GOING TO BE THE MAJOR BENEFICIARY OF ANY PROFIT EARNED BY THE PARTNERSHIP FIRM AS A RESULT OF THIS R & D EXPENDITURE. 7.3.1 THESE CLAIMS OF THE APPELLANT ARE TO BE EXAMINED IN VIEW OF THE DIFFERENT PROVISIONS OF THE IT ACT 1961. THE SHARE OF PROFIT RECEIVED BY THE APPELLANT FROM THE FIRM IS EXEMPT FROM THE INCOME TAX. THE REMUNERATION IS RECEIVED FROM THE FIRM IS TAXABLE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION, AS PER THE PROVISION OF CLAUSE (V) OF SECTION 23 OF THE IT ACT 1961. BUT THE PROVISO TO THIS SECTION SAYS THAT WHERE SUCH REMUNERATION OR 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. NOW AS PER THE PROVISIONS OF SECTION 40(B)(I) , ANY PAYMENT OF SALARY, BONUS, COMMISSION OR REMUNERATION TO ANY PARTNER WHO IS NOT A WORKING PARTNER IS NOT ALLOWED AS A DEDUCTION IN COMPUTATION OF THE TOTAL INCOME OF THE FIRM. THE EXPLANATION 4 TO CLAUSE (B) SAYS THAT WORKING PARTNER MEANS AN INDIVIDUAL WHO IS ACTIVELY ENGAGED IN CONDUCTING THE BUSINESS OR PROVISION OF THE FIRM OF WHICH HE IS A PARTNER. HENCE, THE APPELLANT BEING A COMPANY CANNOT BE A WORKING PARTNER OF A FIRM FOR THE PURPOSES OF PROVISIONS OF INCOME TAX ACT 1961. ACCORDINGLY, ANY REMUNERATION PAID TO THE APPELLANT IS NOT ALLOWABLE AS A DEDUCTION IN THE COMPUTATION ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 10 OF THE TOTAL INCOME OF THE FIRM AND AT THE SAME TIME SUCH REMUNERATION WILL NOT FORM PART OF TOTAL INCOME OF THE APPELLANT. THUS, BOTH THE SHARE OF PROFIT AND REMUNERATION RECEIVED BY THE APPELLANT FROM THE FIRM WILL NOT FORM PART OF ITS TOTAL INCOME AND ACCORDINGLY ANY EXPENDITURE INCURRED BY THE APPELLANT FOR EARNING SUCH SHARE OF PROFIT OR REMUNERATION CANNOT BE ALLOWED AS A DEDUCTION IN COMPUTATION OF ITS TOTAL INCOME. HENCE IT IS HELD THAT THE AO HAS RIGHTLY DISALLOWED THE R & D EXPENDITURE INCURRED BY THE APPELLANT, THE RESULTS OF WHICH HAVE BEEN GIVEN BY THE APPELLANT TO THE FIRM SPI IN THE CAPACITY OF ITS PARTNER FOR MANUFACTURING DRUGS BY THIS FIRM. HENCE THIS CONTENTION OF THE APPELLANT IS REJECTED. 7.4 THE OTHER CONTENTION OF THE APPELLANT IS THAT AS PER SECTION 35 , R & D EXPENDITURE HAS BEEN INCURRED BY IT FOR ITS OWN BUSINESS AND HENCE SAME CANNOT BE DEBITED IN THE BOOKS OF ACCOUNTS OF SPI. BUT AS ALREADY STATED, ONCE IT IS PROVED THAT PART OF SUCH EXPENDITURE HAS BEEN INCURRED BY THE APPELLANT FOR THE PURPOSE OF EARNING OF SHARE OF PROFIT AND REMUNERATION FROM THE FIRM WHICH IS NOT FORMING PART OF ITS OWN TOTAL INCOME, SUCH EXPENSES CANNOT BE ALLOWED AS A DEDUCTION IN COMPUTATION -OF ITS TOTAL INCOME. THE AO HAS DISALLOWED SUCH EXPENDITURE ONLY AND IT IS NOT A CASE WHERE SUCH EXPENSES HAVE BEEN DIRECTED TO BE DEBITED IN THE BOOKS OF ACCOUNTS OF THE FIRM, SPI. HENCE, THIS CONTENTION IS ALSO REJECTED. 7.5 THE OTHER CONTENTIONS OF THE APPELLANT ARE RELATED TO THE METHOD ADOPTED BY THE AO FOR THE PURPOSES OF ALLOCATION OF SUCH R & D EXPENSES TO THE MANUFACTURING ACTIVITIES UNDERTAKEN BY THE APPELLANT AND THE MANUFACTURING ACTIVITY UNDERTAKEN BY THE FIRM SPI. IN THIS REGARD, THE APPELLANT HAS SUBMITTED THAT IT HAD SUBMITTED WORKING ON UNIT PROFITABILITY STATEMENT BEFORE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 21/11/2011 WHEREBY THE BIFURCATION .OF TURNOVER BETWEEN DOMESTIC/EXPORT AND FORMULATION/BULK IS CLEARLY EVIDENT. THESE WORKINGS HAVE BEEN SUBMITTED BY THE APPELLANT DURING THE COURSE OF THE CURRENT APPELLATE PROCEEDINGS ALSO AND THE SAME ARE BEING UTILIZED FOR THE PURPOSE OF DECIDING THIS ISSUE. 7.5.1 THE FIRST CONTENTION OF THE APPELLANT IS THAT THE PARTNERSHIP FIRM AND THE APPELLANT COMPANY CATER TO THE DIFFERENT SECTIONS OF BUSINESS WITH UNDERLINE FACTS. THESE DIFFERENCES HAVE BEEN SUBMITTED BY THE APPELLANT WHICH HAVE ALREADY BEEN REPRODUCED ABOVE. THE FIRST DIFFERENCE POINTED OUT IS THAT THE PARTNERSHIP FIRM IS ONLY INTO PRODUCTION OF FORMULATION DRUGS FOR THE DOMESTIC MARKET, WHEREAS APPELLANT INCURRED R & D EXPENDITURE ON BULK DRUG SEGMENT AND FORMULATION SEGMENT BOTH AND THAT TOO FOR DOMESTIC MARKET AS WELL AS INTERNATIONAL MARKET AND REGULATED MARKET. IT HAS BEEN SUBMITTED THAT THE PARTNERSHIP FIRM HAS SOLD ITS PRODUCT IN DOMESTIC MARKET ONLY. IN THIS REGARD, THE APPELLANT HAS ALSO SUBMITTED THE COPY OF FINANCIAL STATEMENT FOR FY 2007-08 OF SUN PHARMACEUTICAL INDUSTRIES. AS PER THIS, THE TURNOVER OF THIS FIRM IS 1086.2 CRORE, WHICH IS THE SAME FIGURE AS ADOPTED BY THE AD IN HIS ORDER. BESIDES IN CLAUSE ' 8' OF THE NOTES ON FINANCIAL STATEMENT, IT HAS BEEN MENTIONED THAT THE FIRM OPERATES IN ONE REPORTABLE GEOGRAPHICAL SEGMENT I.E. 'WITHIN INDIA'. ON THE BASIS OF DETAILS FURNISHED BY THE APPELLANT IT IS SEEN THAT THE FIRM IS NOT INTO BULK DRUG FORMULATIONS. HENCE, R & D EXPENDITURE RELATED TO BULK FORMULATION ARE NOT TO BE ALLOCATED TOWARDS THE EXPENDITURE FOR THE FIRM SPI AND THE AO HAS ALSO ACCEPTED THIS CONTENTION. BUT THE AO HAS ALLOCATED ENTIRE R & D EXPENDITURE FOR FORMULATION DRUGS IN THE RATIO OF TOTAL TURNOVER OF THE APPELLANT AND OF THE FIRM M/S. SPI. THE APPELLANT'S CLAIM THAT R & D EXPENDITURE INCURRED FOR EXPORT FORMULATIONS SHOULD NOT BE ALLOCATED TO SPI IS FOUND TO BE CORRECT AS SPI HAS NOT EXPORTED ANY DRUG DURING THE FY 2007-08. BUT AT THE SAME TIME IF THIS METHOD IS ADOPTED, THEN THE EXPORT TURNOVER OF THE APPELLANT WILL HAVE TO BE REDUCED FROM ITS TOTAL TURNOVER FOR THE PURPOSES OF COMPUTING THE ALLOCATION OF EXPENSES ON R & D FOR FORMULATION DRUGS. BESIDES, THE APPELLANT'S CLAIM IS THAT ONLY AN AMOUNT OF 1651.48 LAKHS HAVE BEEN INCURRED PERTAINING TO DOMESTIC FORMULATION BUSINESS. FROM THE DETAILS SUBMITTED BY THE APPELLANT BEFORE THE AO IT IS SEEN THAT THE EXPENSES INCURRED UNDER DIFFERENT HEADS ARE AS FOLLOWS:- ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 11 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX THUS, THE TOTAL EXPENSES FOR FORMULATION DRUG FOR DOMESTIC MARKET IS 1651.48,+ 2193.40 + 167.61 +.62.90 = 4075.49 LAKHS. THE BALANCE EXPENDITURE OF 9028.7 LAKHS IS FOR THE PURPOSE OFOVERSEAS MARKET. THE APPELLANT'S CLAIM THAT ONLY 1651.48 LAKHS OF EXPENDITURE SHOULD BE CONSIDERED FOR ALLOCATION TO SPI IS NOT ACCEPTABLE DUE TO LACK OF PROPER DETAILS FILED BY IT BEFORE THE AO OR DURING THE CURRENT APPELLATE PROCEEDINGS. THE DOMESTIC FORMULATIONS TURNOVER OF SPIL IS RS. 1451.25 CRORES ANDTHAT OF SPI IS RS.1086.2 CRORES. HENCE, THE R & D EXPENDITURE RELATED TO FORMULATION DRUG FORDOMESTIC PURPOSES IS TO BE ALLOCATED IN THE RATIO OF THESE TWO TURNOVERS. HENCE, THE R & D EXPENDITURE RELATED TO THE ITA NO.2514/AHD/2015 SUN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR -2008- 09 FORMULATIONPRODUCTIONMADE BY THE SPI COMES TO 1086.2/2537.45X 4075.49 =RS.1744.56 LAKHS. 7.5.2 ACCORDINGLY, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE OUT OF - R&D EXPENSES TO THIS FIGURE OF RS.1744.56 LAKHS. THE APPELLANT GETS PART RELIEF ACCORDINGLY.' 12.2. IT IS NOTICED THAT THE APPELLANT HAS FURNISHED SIMILAR WRITTEN SUBMISSION IN THIS YEAR ALSO AND THE DETAILS OF VARIOUS EXPENSES INCURRED UNDER DIFFERENT HEADS SUBMITTED BEFORE THE ASSESSING OFFICER ARE AS FELLOWS:- XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX SINCE THE FACTS ARE IDENTICAL IN THIS YEAR A/SO, I RESPECTFUL/Y FOLLOWING THE ORDER OF MY PREDECESSOR IN APPELLANT'S OWN CASE AS MENTIONED ABOVE, HOLD THAT THE R&D EXPENSES INCURRED BY THE APPELLANT ADMITTEDLY ARE ALSO PERTAINING TO SPI/SPS AND HENCE THE SAME ARE REQUIRED TO BE ALLOCATED IN THE RATIO OF TURNOVER OF APPELLANT AND SPI/SPS. I ALSO AGREE WITH THE VIEWS OF MY PREDECESSOR THAT THE EXPENSES INCURRED FOR DEVELOPMENT OF FORMULATION DRUGS FOR DOMESTIC MARKET ARE TO BE CONSIDEREDONLY BECAUSE SPI/SPS HAS NO BUSINESS OUTSIDE THE COUNTRY. AS PER THE DETAILS FURNISHED THE R&D EXPENSES FOR DEVELOPMENT OF FORMULATION DRUGS FOR DOMESTIC MARKET ARE RS.3201.08 - 10 -+ 2816.97 + -194.80+ 130.68 = RS,6343.53 LACS. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO WORK OUTTHE DISALLOWANCE OF R&D EXPENSES OUT OF RS. 6343.53 LACS IN THE RATIO OF DOMESTIC TURNOVER OF SPI/SPS AND SPIL I.E. APPELLANT, AFTER NECESSARY VERIFICATION OF THE FIGURES. THUS, APPELLANT SUCCEEDS PARTLY IN RESPECT OF GROUND NO. 9.' 43. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A), BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE IS IN THE APPEAL FOR THE ALLOCATION OF R&D EXPENSES TO SPI AND SPS WHEREAS THE REVENUE IS IN APPEAL AGAINST THE DIRECTION OF LD.CIT (A) TO ALLOCATE THE EXPENSES EXCLUDING EXPORT TURNOVER. 44. THE REVENUE HAS RAISED GROUND NO 6 REPRODUCED AS UNDER: '2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED CIT(A) ERRED IN LAW AND FACTS IN RESTRICTING THE DISALLOWANCE OF R&D EXPENSES AFTER EXCLUDING THE EXPORT TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE ALLOCATION OF R & D EXPENSES WITHOUT APPRECIATING THAT THE AO HAD APPLIED THE SAME PRO-RATA METHOD OF ALLOCATING THE R & D EXPENDITURE WHICH THE ASSESSEE ITSELF WAS APPLYING FOR ALLOCATION OF THE R & D EXPENDITURE WITHIN THE ASSESSEE ITSELF WAS APPLYING FOR ALLOCATION OF THE R & D EXPENDITURE WITHIN ITS UNITS IN THE RATIO OF THEIR TURNOVER.' ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 12 45. THE LD. AR BEFORE US SUBMITTED THAT IN THE IDENTICAL FACTS AND CIRCUMSTANCES THIS ITAT IN THE OWN CASE OF THE ASSESSEE AND REVENUE BEARING ITA NOS. 1666/AHD/2016 AND 1663/AHD/2016VIDE ORDER DATED 08-09-2017 DELETED THE ADDITION MADE BY AO. 46. BOTH THE LD. AR AND THE DR BEFORE US RELIED ON THE ORDER OF RESPECTIVE AUTHORITIES BELOW AS FAVORABLE TO THEM. 47. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORDS. AT THE OUTSET, WE FIND THAT IN THE IDENTICAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE'S (SUPRA), THE ITAT DELETED THE ADDITION MADE BY THE TPO/AO. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: '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 . A.Y. 2009-10 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 BUSINESS OR THE BUSINESS OF THE PARTNERSHIP FIRM WHERE THE ASSESSEE IS A MAJORITY STAKE HOLDER. IN OUR UNDERSTANDING OF THE LAW AN EXPENDITURE IS ALLOWABLE IF IT IS INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. FINDING THAT THE ASSESSEE IS HAVING 97.5% SHARE IN THE PROFITS OF THE FIRM SPI, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE FIRST APPELLATE AUTHORITY. WE, ACCORDINGLY, DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 5,30,29,5255/-. GROUND NO. 12 IS ACCORDINGLY ALLOWED' 48. REGARDING THE REVENUE APPEAL, THE RELEVANT FINDING OF THE ITAT IN ITA 1663/AHD/2016 IN ITS ORDER IS EXTRACTED BELOW: '137. SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEE'S APPEAL (SUPRA) VIDE GROUND NOS. 9 TO 11 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, GROUND NO. 11 IS DISMISSED.' 49. AS FACTS IN THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, THEREFORE RESPECTFULLY FOLLOWING THE FINDING OF THE TRIBUNAL (SUPRA), WE DIRECT THE AO ACCORDINGLY. 49.1 MOREOVER, WE ARE BOUND TO FOLLOW THE ORDER OF THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN THE EARLIER YEAR AS THE FACTS ARE IDENTICAL IN THE IMPUGNED ISSUE BEFORE US. IT IS ALSO IMPORTANT TO NOTE THAT THE LD. DR HAS NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE ARGUMENT ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE AND THE FINDING OF THE LD. CIT-A. 49.2 WE ALSO PLACE OUR RELIANCE ON THE JUDGMENT OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. L.G. RAMAMURTHI 1977 CTR (MAD.) 416 : [1977] 110 ITR 453 (MAD.). THE RELEVANT EXTRACT HAS BEEN REPRODUCED IN THE PRECEDING PARAGRAPH. IN THE LIGHT OF THE RATIO DECIDENDI IN THE ABOVE-SAIDJUDGMENT, WE ARE OF THE CONSIDERED OPINION THAT THE VIEW ADOPTED BY THE CO-ORDINATE BENCH AS DISCUSSED ABOVE SHALL BE APPLIED IN THE CASE ON HAND WITH FULL STRENGTH. THE LD. DR AND THE LD. AR HAS NOT BROUGHT ANY DECISIONS VARYING FROM SIMILAR OR IDENTICAL FACTS OR CIRCUMSTANCES. THEREFORE, THE RATIO DECIDENDI RENDERED BY THE EARLIER ORDER OF THE TRIBUNAL HAS NECESSARILY TO BE FOLLOWED BY US IN LINE AND TUNE WITH THE JUDICIAL DISCIPLINE AND DECORUM. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE ITAT ORDER AS DISCUSSED ABOVE, ITA NO.1521/AHD/2015 ASSTT. YEAR 2009-10 13 WE ALLOW THE GROUND OF APPEAL OF THE ASSESSEE AND DISMISS THE GROUND OF APPEAL OF THE REVENUE.' TAKING INTO CONSIDERATION THE ORDER PASSED BY THE CO-ORDINATE BENCH IN IDENTICAL ISSUE IN ASSESSEE'S OWN CASE AS DISCUSSED ABOVE, WE FIND NO REASON TO DISALLOW THE CLAIM OF THE ASSESSEE TOWARDS R & D EXPENDITURE ALLOCATED TO SUN PHARMA INDUSTRIES OF RS.22,93,81,646/-. WE, THEREFORE, RESPECTFULLY RELYING ON THE SAID ORDER PASSED BY THE CO- 8.7 IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, WE ARE OF THE VIEW THAT THERE IS NO ERROR IN THE ORDER OF THE AO REQUIRING REVISION UNDER SECTION 263 OF THE ACT. ACCORDINGLY WE HOLD THAT THE ORDER PASSED BY THE LEARNED PRINCIPAL CIT IS NOT SUSTAINABLE AND LIABLE TO BE QUASHED. ACCORDINGLY WE HOLD SO. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 03/09/2021 AT AHMEDABAD. SD/- SD/- (JUSTICE P.P.BHATT) (WASEEM AHMED) PRESIDENT ACCOUNTANT MEMBER (TRUE COPY) AHMEDABAD; DATED 03/09/2021 MANISH