The DCIT, Central Circle-1, Baroda V. M/s. Sun Pharmaceuticals Industries Ltd., Baroda

ITA 1592/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1594 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-04-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 09-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R I PATEL
• Keywords: Gift; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Bad and doubtful debts; Notional interest; Revenue expenditure; Capital expenditure
• Section: 115JB; 80IB; 10B; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 1589 & 1592/AHD/2011 (ASSESSMENT YEAR: 2006-07) SUN PHARMACEUTICALS IND. LTD, SPARC, TANDALJA, BARODA DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, BARODA V/S V/S ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE- 1, BARODA SUN PHARMACEUTICALS IND. LTD, SPARC, TANDALJA, BARODA (APPELLANT) (RESPONDENT) PAN: AADCS3124K APPELLANT BY : SHRI S.N. SOPARKAR, A.R. RESPONDENT BY : SHRI R.I. PATEL, CIT/D.R. ( )/ ORDER DATE OF HEARING : 28 -04-201 6 DATE OF PRONOUNCEMENT : 10-05-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 2 1. THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE REV ENUE PREFERRED AGAINST THE VERY SAME ORDER OF LD. CIT(A)-IV, AHMED ABAD DATED 31.03.2011 PERTAINING TO A.Y. 2006-07. BOTH THESE A PPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. ITA NO. 1589/AHD/2011 ASSESSEES APPEAL FOR A.Y. 2 006-07 2. 1 ST GROUND IS OF GENERAL IN NATURE AND NEEDS NO SEPARA TE ADJUDICATION. 3. GROUND NO. 2 RELATES TO THE ADDITION ON ACCOUNT OF INTEREST ON LOANS GIVEN TO SUN PHARMA GLOBAL INC. & SUN PHARMACEUTICA L INDUSTRIES INC. AS WELL AS OPTIONALLY FULLY CONVERTIBLE DEBENTURES SUBSCRIBED TO IN SUN PHARMA GLOBAL INC. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, WHEN A.O FOUND THAT CERTAIN INTERNATIONAL TRANSACTIONS HAVE TO BE CONSIDERED BY THE TPO, THE MATTER WAS REMITTED TO THE TRANSFER PR ICING OFFICER WHO PROPOSED TO MAKE FOLLOWING ADDITIONS IN RESPECT OF INTERNATIONAL TRANSACTIONS RELATING TO INVESTMENT/LOANS TO ASSOCI ATED ENTERPRISES- (1) INTEREST ON LOAN TO AES AT LIBOR PLUS RATE ALLO WED TO AES RS. 7,83,82,483/- (2) INTEREST ON 9% OFCD RS. 21,08,42,301 /- TOTAL RS. RS. 28,92,24,784/ - 5. ASSESSEE WAS ASKED TO EXPLAIN WHY THIS AMOUNT SHOUL D NOT BE ADDED TO THE TOTAL INCOME. ASSESSEE FILED A DETAILED REPL Y EXPLAINING THAT THE ASSESSEE HAD SOURCED THE LOANS TO AE OUT OF THE EXC ESS FUNDS LYING IDLE OUT OF THE ISSUE OF FCCBS. CERTAIN PORTION OF THE F CCB PROCEEDS WERE DEPLOYED IN FIXED DEPOSITS IN OVERSEAS BANKS. IT WA S BROUGHT TO THE NOTICE OF THE A.O THAT THE ASSESSEE HAS CHARGED INT EREST TO THE AES AT ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 3 3.81% BEING THE 12 MONTH LIBOR RATE. THE ASSESSEE S TRONGLY OBJECTED TO THE CHARGE OF LIBOR+ RATE OF INTEREST. IN SO FAR AS, THE MONEY RAISED THROUGH FOREIGN CURRENCY CONVERTIBLE BONDS, IT WAS EXPLAINED THAT SINCE MONEY RAISED THROUGH FCCB WAS NOT PERMIT TED TO BE PARKED/BROUGHT IN INDIA UNLESS IT WAS ACTUALLY DEPL OYED FOR PERMITTED CAPITAL EXPANSIONS/ACQUISITIONS, THEREFORE, IT WAS DECIDED TO INVEST MONEY ON THE WHOLLY OWNED SUBSIDIARY BEING AN ASSOC IATED ENTERPRISE. 6. THE CLAIM OF THE ASSESSEE ON BOTH THESE COUNTS WAS DISMISSED BY THE A.O WHO PROCEEDED BY MAKING AN ADDITION OF RS. 28,9 2,24,784/-. 7. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM. AFTER CONSIDERING THE FACTS AND THE SUBMISSI ONS, THE LD. CIT(A) REDUCED THE INTEREST TO LIBOR+0.25% FROM LIBOR+2%. THE ASSESSEE IS DISPUTING THE LIBOR+0.25% AND THE REVENUE IS IN DISPUTE FOR THE DELETION OF 1.75%. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE CAREFU LLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. AT THE VERY OUTSET , WE HAVE TO STATE THAT THE REVENUE HAS NO POWER TO RE-CHARACTERIZE TH E TRANSACTION. THE HONBLE HIGH COURT OF DELHI IN THE CASE OF COTTON N ATURALS INDIA PVT. LTD. 276 CTR 445 AT PARA 17 OF ITS ORDER HAS HELD T HAT CHAPTER X AND TRANSFER PRICING RULES DO NOT PERMIT THE REVENUE AU THORITIES TO STEP INTO THE SHOES OF THE ASSESSEE AND DECIDE WHETHER O R NOT A TRANSACTION SHOULD NOT BE ENTERED. IT IS FOR THE ASSESSEE TO TA KE COMMERCIAL DECISIONS AND DECIDE HOW TO CONDUCT AND CARRY ON IT S BUSINESS. ACTUAL BUSINESS TRANSACTIONS THAT ARE LEGITIMATE CANNOT BE RESTRUCTURED. A SIMILAR VIEW WAS TAKEN BY THE HONBLE DELHI HIGH CO URT IN THE CASE OF EKL APPLIANCES LTD. 345 ITR 241. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 4 9. ON IDENTICAL SET OF FACTS, THE CO-ORDINATE BENCH HA D THE OCCASION TO CONSIDER SIMILAR ISSUE IN THE CASE OF CADILA HEALTH CARE LTD. IN ITA NO. 2430/AHD/12 WITH C.O. NO. 242/AHD/12 IN 146 ITR 502 WHEREIN THE FIRST GROUND RELATED TO THE ADJUSTMENT MADE ON ACCO UNT OF NOTIONAL INTEREST ON OPTIONALLY CONVERTIBLE DEBENTURE TO FOR EIGN SUBSIDIARY. THE TRIBUNAL CONSIDERED THE FOLLOWING FACTS:- 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASS ESSING OFFICER NOTICED THAT ASSESSEE HAD SUBSCRIBED TO OPTIONALLY CONVERTI BLE LOAN OF U.S. $ 27 MILLION ISSUED BY ZYDUS INTERNATIONAL PVT. LTD., IR ELAND. ACCORDINGLY REFERENCE UNDER SECTION 92CA OF THE ACT FOR COMPUTING OF ARMS LENGTH PRICE IN RELATION TO THE TRANSACTION WAS MADE TO TRANSFER PRICING OFF ICER (TPO). TPO NOTED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH ZY DUS INTERNATIONAL PVT. LTD. ON 09.10.2007 FOR A CONVERTIBLE LOAN OF U.S $ 27 MILLION WHICH WAS SUBSEQUENTLY UTILIZED BY THE IRELAND COMPANY FOR AC QUIRING SHARES IN ZYDUS HEALTHCARE, BRAZIL. AS PER THE TERMS OF AGREEMENT, NO INTEREST WAS PAYABLE IF THE AMOUNT WAS CONVERTED INTO EQUITY. HOWEVER, IF T HE SAME IS REDEEMED, INTEREST WAS PAYABLE AT LIBOR PLUS 290 BPS AND THE INTEREST WAS TO BE COMPUTED AT ANNUAL RATES AND PAYABLE AT MATURITY TH AT IS 5 YEARS FROM THE DATE OF FIRST DISBURSEMENT. THE RUPEE VALUE OF THE AMOUNT OF LOAN AS ON 31.03.2008 WAS RS. 108.32 CRORE. IT WAS ALSO NOTICE D THAT ASSESSEE HAS NOT SHOWN ANY INCOME FROM THE AFORESAID LOAN. IN RESPON SE, ASSESSEE INTERALIA SUBMITTED THAT ASSESSEE HAD NOT OPTED FOR CONVERSIO N OF THE LOAN DURING THE YEAR AND THEREFORE IT WAS LOAN FOR THE YEAR AND AS PER THE TERMS OF AGREEMENT, NO INTEREST ACCRUED TO THE ASSESSEE AND THEREFORE NO INCOME WAS CONSIDERED. THE TPO DID NOT FIND THE CONTENTION OF THE ASSESSEE ACCEPTABLE. HE CONSIDERED THE OPTIONALLY FULLY CONVERTIBLE LOAN AS DEBT AND CONSIDERING THE AVERAGE SIX MONTH EURO LIBOR RATE FOR THE YEAR @ 4.48% TO WHICH 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 D AYS 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 M ADE TO THE INCOME. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 5 AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISS IONS 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 A S 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 INT O EQUITY, NO INTEREST ACCRUED OR BECOME PAYABLE. HE FURTHER NOTED THAT TH E FUNDS WERE PROVIDED BY THE ASSESSEE AS PER RBI GUIDELINES AND IN THE IM MEDIATELY NEXT YEAR, THE ENTIRE LOAN GIVEN TO SUBSIDIARY WAS CONVERTED INTO EQUITY SHARES OF ZYDUS INTERNATIONAL PVT. LTD. HE HAS FURTHER HELD THAT SI NCE THE ASSESSEE HAS CONVERTED THE LOAN INTO EQUITY IN THE IMMEDIATE NEX T YEAR, THERE WAS NO QUESTION OF TAXING NOTIONAL INTEREST. HE HAS FURTHE R HELD THAT ASSESSEE HAD NOT GRANTED INTEREST FREE LOAN BUT INVESTED IN OPTI ONALLY CONVERTIBLE LOAN WITH A CLAUSE OF INTEREST IN CASE, CONVERSION OPTION WAS NOT EXERCISED AND FURTHER HELD THE ASSESSEE'S TRANSACTION WITH SUBSIDIARY WAS AT ARMS LENGTH. BEFORE US, THE REVENUE COULD NOT CONTROVERT THE FINDINGS O F CIT(A) BY BRINGING ANY CONTRARY MATERIAL ON RECORD. IN VIEW OF THESE FACTS , WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A). 11. RESPECTFULLY FOLLOWING THE FINDINGS OF THE HONBLE HIGH COURT (SUPRA) AND THE CO-ORDINATE BENCH (SUPRA), WE DIREC T THE A.O TO DELETE THE IMPUGNED ADDITIONS. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 12. GROUND NO. 3 RELATES TO THE WEIGHTED DEDUCTION U/S. 35(2AB) ON TRADE MARK CHARGED, OVERSEAS PRODUCT REGISTRATION C HARGES. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 6 13. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY US IN ITA NO. 2430/AHD/2009 QUA GROUND NO. 4 OF THAT APPEAL WHERE IN WE HELD AS UNDER:- GROUND NO. 4 RELATES TO THE DISALLOWANCE OF TRADE M ARK 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. A SSESSEE FILED A DETAILED REPLY JUSTIFYING ITS CLAIM OF WEIGHTED DEDUCTION. I T WAS EXPLAINED THAT THE EXPENDITURE INCURRED FOR PRODUCT REGISTRATION ALTHO UGH NAMED AS PRODUCT REGISTRATION EXPENDITURE IS NOT MERELY AN EXPENDITU RE FOR REGISTRATION OF THE PRODUCT, BUT IN LARGE MEASURE CONSTITUTES EXPENDITU RE FOR VALIDATION AND CONFIRMATION OF THE RESEARCH CARRIED OUT. THE A.O D ID NOT ACCEPT THE CLAIM OF THE ASSESSEE HOLDING THAT THESE EXPENSES WERE INCUR RED FOR REGISTRATION OF DRUG PATENTS IN FOREIGN COUNTRIES. THE A.O ACCORDIN GLY WITHDREW THE WEIGHTED DEDUCTION AND ALLOWED ONLY 100% OF THE SAME AS REVE NUE EXPENDITURE. 13. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CI T(A) BUT WITHOUT ANY SUCCESS. WHILE DISMISSING THE GRIEVANCE OF THE ASSE SSEE, THE LD. CIT(A) FOLLOWED THE FINDINGS OF HIS PREDECESSOR GIVEN IN A .Y. 2002-03 TO 2004-05. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS HAS DECIDED TH IS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN ITA NO. 1558/AH D/2006. THE LD. D.R. COULD NOT BRING ANY DISTINGUISHING DECISION IN FAVO UR OF THE REVENUE. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 7 14. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO TH E ORDER OF THE TRIBUNAL IN EARLIER YEARS; WE FIND THAT THE TRIBUNAL WHILE DECI DING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS FOLLOWED THE DECISION OF THE CO-OR DINATE BENCH, MUMBAI IN THE CASE OF USV LTD. 54 SOT 615. FINDINGS OF THE TR IBUNAL READ AS UNDER:- 24. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. WE FIND THAT THE LD. CIT(A) HAS SIMPLY FOLLOWED THE FINDING S OF HIS PREDECESSOR FOR A.Y. 2000-01. WE ALSO FIND THAT THE ASSESSMENT ORDE R FOR A.Y. 2000-01 HAS BEEN QUASHED BY THE TRIBUNAL VIDE A ITA NOS. 1199 & 1279/AHD/2006, WHICH MEANS THAT THE BASIS FOR UPHOLDING THE DISALLOWANCE HAS BEEN REMOVED. WE FURTHER FIND THAT ON IDENTICAL SET OF FACTS, THE MU MBAI BENCH IN THE CASE OF USV LTD. (SUPRA) HAS ALLOWED THE CLAIM OF THE ASSES SEE IN RESPECT OF EXPENDITURE INCURRED IN RESPECT OF PATENT APPLICATI ON. RESPECTFULLY, FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENCH (SUPRA), WE D IRECT THE A.O TO DELETE THE DISALLOWANCE OF RS. 44,71,906/-. GROUND NO. 10 IS A CCORDINGLY ALLOWED. 14. RESPECTFULLY FOLLOWING THE DETAILED FINDINGS GIVEN , WE DIRECT THE A.O TO ALLOW THE IMPUGNED WEIGHTED DEDUCTION. GROUN D NO. 3 IS ACCORDINGLY ALLOWED. 15. GROUND NO. 4 RELATES TO THE ALLOCATION OF R & D EXP ENSES FOR DETERMINING PROFITS OF THE NEW INDUSTRIAL UNDERTAKI NG U/S. 80IB. 16. A SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN FAVOUR OF THE ASSESSEE IN ITA NO. 2430/AHD/2009 QUA GROUND NO. 6 OF THAT APPEAL WHEREIN WE HELD AS UNDER:- GROUND NO. 6 RELATES TO THE REALLOCATION OF R & D E XPENSES @ 12.5% FOR COMPUTING DEDUCTION U/S. 80IB. 19. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O FOUND THAT THE ASSESSEE HAS CLAIMED R & D REVENUE EXPENDITURE OF R S. 110,99,69,871/- AND ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 8 R & D CAPITAL EXPENDITURE OF RS. 59,79,84,814/- TOT ALING TO RS. 170,79,54,685/-. THE A.O FURTHER FOUND THAT THE ASS ESSEE HAS ALLOCATED ONLY RS. 4,34,25,000/- ON ACCOUNT OF R & D EXPENSES IN S ILVASSA II UNIT. THE A.O WAS NOT CONVINCED WITH THE ALLOCATION AND ACCORDING LY ASKED THE ASSESSEE TO EXPLAIN WHY THE EXPENSES SHOULD NOT BE REALLOCATED IN THE RATIO OF TURNOVER. ASSESSEE EXPLAINED THAT IT HAS ALLOCATED THE REVENU E EXPENDITURE ACROSS ALL ITS UNITS WHETHER MANUFACTURING BULK DRUGS OR FORMU LATION DRUGS AND WHETHER CLAIMING ANY SPECIAL DEDUCTION UNDER THE ACT OR NOT . ASSESSEE FILED A DETAILED WORKING OF THE ALLOCATION OF EXPENSES. THE REPLY OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE A.O WHO WAS OF THE FIR M BELIEF THAT R & D EXPENSES ARE BASICALLY PERTAINING TO THE HEAD OFFIC E EXPENSES WHICH ARE NOT DIRECTLY RELATABLE TO A PARTICULAR UNIT. ACCORDING TO THE A.O, IF THE EXPENSES ARE NOT SCIENTIFICALLY DISTRIBUTE, IT MAY LEAD TO E XCESS DEDUCTION U/S. 80IB OR 10A OR 10B OF THE ACT. TAKING A LEAF OUT OF THE EAR LIER ASSESSMENT YEARS, THE A.O REALLOCATED FURTHER EXPENSES OF RS. 4,27,59,003 /- TO THE SILVASSA II UNIT. 20. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT (A) AND REITERATED ITS CLAIM OF DEDUCTION. HOWEVER, THE LD. CIT(A) FOLLOWED THE FINDINGS OF HIS PREDECESSOR GIVEN IN EARLIER ASSESSMENT YEARS HOLDING THAT THER E IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE DURING THE YEAR UNDER APPEAL. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE DECISION OF THE TRIBUNAL GIVEN IN EARLIER ASSESSMENT YEARS AND REQUESTED FOR A SIMILAR VIEW. WE HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUE IN THIS GRO UND OF APPEAL. WE HAVE ALSO GONE THROUGH THE FINDINGS OF THE TRIBUNAL GIVEN IN EARLIER ASSESSMENT YEARS IN ITA NO. 1558/AHD/2006. WE FIND THAT AN IDENTICAL IS SUE WAS CONSIDERED QUA GROUND NO. 6 BY THE TRIBUNAL AND THE FINDINGS READ AS UNDER:- GROUND NO. 6 RELATES TO THE ALLOCATION OF R & D EXP ENSES FOR DETERMINING PROFITS ELIGIBLE FOR DEDUCTION U/S. 80IB AND SECTIO N 10B OF THE ACT. 12. WE FIND THAT WHILE CONFIRMING THE ACTION OF THE A.O, THE LD. CIT(A) HAS FOLLOWED THE ORDER OF THE FIRST APPELLATE AUTHORITY GIVEN FOR A.Y. 2000-01. AS ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 9 MENTIONED ELSEWHERE IN GROUND NO. 5 ABOVE REOPENED ASSESSMENT ORDER OF 2000-01 HAS BEEN QUASHED BY THE TRIBUNAL IN ITA NOS . 1199 & 1279/AHD/2006. THE VERY BASIS FOR CONFIRMING THE AC TION OF THE A.O HAS BEEN REMOVED BY THE TRIBUNAL. WE FIND THAT THE DISPUTE A ROSE BECAUSE OF THE ANSWER GIVEN BY DR. T.RAJAMANNAR, SENIOR VICE PRESI DENT OF SPARC, BARODA. IN HIS STATEMENT GIVEN ON OATH U/S. 131 OF THE ACT, IT WAS ADMITTED THAT THERE IS AN INCREASE IN THE EXPENDITURE FOR R & D FROM 10 TO 15%. 13. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUB MITTED THAT THE QUESTION RELATED TO THE RAW MATERIALS AND NOT TO ALL THE ITE MS OF EXPENDITURE AND, THEREFORE, THE REVENUE AUTHORITIES HAVE ERRED IN GE NERALIZING THE STATEMENT OF THE SENIOR VICE PRESIDENT. WE HAVE GIVEN A THOUG HTFUL CONSIDERATION TO THE FINDINGS OF THE LOWER AUTHORITIES. WE HAVE ALSO CON SIDERED THE STATEMENT OF DR. T. RAJAMANNAR. UNDISPUTEDLY, THE QUESTION RELA TED TO THE RAW MATERIALS AND NOT TO ALL THE ITEMS OF EXPENDITURE UNDER THIS HEAD. IN OUR CONSIDERED OPINION ONE CANNOT CARRY OUT THE ALLOCATION ON THE BASIS OF PICK AND CHOOSE METHOD. WE ACCORDINGLY DIRECT THE A.O TO RESTRICT THE RE-ALLOCATION ONLY TO THE RAW MATERIAL, ASSESSEE GETS PARTIAL RELIEF. 17. RESPECTFULLY FOLLOWING OUR OWN DECISION, WE DIRECT THE A.O TO REALLOCATE AS PER THE DIRECTIONS GIVEN IN THAT APPE AL. GROUND NO. 4 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 18. GROUND NO. 5 RELATES TO THE ADDITION OF PROVISION F OR DOUBTFUL DEBTS AND ADVANCES WHILE CALCULATING BOOK PROFITS U /S. 115JB. 19. ON PERUSAL OF THE REVISED COMPUTATION OF NORMAL BUS INESS INCOME, THE A.O FOUND THAT THE ASSESSEE HAS ADDED B ACK FOR DOUBTFUL DEBTS AND ADVANCES OF RS. 50,68,982/-. HOWEVER, THE A.O FOUND THAT WHILE CALCULATING THE BOOK PROFIT U/S. 115JB, THE A SSESSEE HAS NOT ADDED BACK THE SAID PROVISION FOR DOUBTFUL DEBTS AN D ADVANCES OF RS. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 10 50,68,982/-. THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME. ASSESSEE FILED A DETAILED REPLY EXPLAINING THE PROVISIONS AN D RESERVES AND HEAVILY RELYING UPON THE DECISION OF THE HONBLE SU PREME COURT GIVEN IN THE CASE OF APOLLO TYRES LTD. 255 ITR 273. IT WA S STRONGLY CONTENDED THAT THE A.O HAS ONLY THE POWER OF EXAMIN ING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES U NDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANC E WITH THE COMPANIES ACT. 20. THE CONTENTION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE A.O THE A.O WAS OF THE OPINION THAT SINCE THE SAID SECT ION HAS BEEN AMENDED THE ASSESSEE SHOULD HAVE ADDED BACK THE PRO VISION WHILE COMPUTING THE BOOK PROFIT ALSO. THE A.O RELIED UPON THE AMENDED PROVISIONS AND FURTHER DRAWING SUPPORT FROM THE DEC ISION OF THE HONBLE MADRAS HIGH COURT 244 ITR 256 ADDED BACK R S. 50,68,982/- TO THE BOOK PROFIT U/S. 115JB. 21. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. BEFORE US, THE LD. COUNSEL FOR THE ASS ESSEE HEAVILY RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT G IVEN IN THE CASE OF YOKOGAWA LTD. THE LD. D.R. SUPPORTING THE FINDINGS OF THE REVENUE AUTHORITIES, DREW OUR ATTENTION TO VARIOUS JUDICIAL DECISIONS. 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE JU DICIAL DECISIONS RENDERED TO BY THE RIVAL PARTIES, THERE A RE CONFLICTING DECISIONS BUT, IRONICALLY, THERE IS NO DECISION OF THE JURISDICTIONAL HIGH COURT. HOWEVER, WE FIND THAT THE DECISION OF THE TR IBUNAL AHMEDABAD BENCH GIVEN IN THE CASE OF VODAFONE ESSAR GUJARAT L TD. IN ITA NO. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 11 1999/AHD/2008 IS PENDING BEFORE THE HONBLE JURISDI CTIONAL HIGH COURT OF GUJARAT. 23. IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTOR E THIS ISSUE TO THE FILES OF THE A.O TO BE DECIDED AFRESH IN THE LI GHT OF THE DECISION GIVEN BY THE HONBLE HIGH COURT OF GUJARAT IN THE C ASE OF VODAFONE ESSAR GUJARAT LTD. GROUND NO. 5 IS TREATED AS ALLOW ED FOR STATISTICAL PURPOSE. 24. GROUND NO. 6 RELATES TO THE NON CONSIDERATION OF BO OK PROFITS FOR DEDUCTION U/S. 10B FOR DETERMINING OF BOOK PROFITS U/S. 115JB. 25. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, A.O FOUND THAT THE ASSESSEE HAS CLAIMED /REDUCED/CLAIME D PROFIT OF 100% EOU UNIT U/S. 10B FOR PDCL EOU UNIT. THE A.O FURTHE R FOUND THAT WHILE WORKING OF BOOK PROFITS U/S. 115JB, THE ASSESSEE HA S REDUCED INCOME EXEMPTED U/S. 10B FOR PCL EOU UNIT. THE ASSESSEE WA S ASKED TO JUSTIFY ITS CLAIM. THE ASSESSEE FILED A DETAILED RE PLY WHICH DID NOT FIND FAVOUR WITH THE A.O WHO DECLINED THE EXCESS DEDUCTI ON OF RS. 62,10,351/- AND REDUCED THE SAME AND ADDED BACK IN THE WORKING OF BOOK PROFIT U/S. 115JB. 26. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. BEFORE US, THE LD. COUNSEL FOR THE AS SESSEE STATED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE SUPREME COURT 327 IT R 305 IN THE CASE OF AJANTA PHARMA LTD. PER CONTRA, THE LD. D.R. STA TED THAT THE LD. CIT(A) HAS SUCCESSFULLY DISTINGUISHED THE SAID DECI SION OF THE HONBLE SUPREME COURT. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 12 27. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE CAREFU LLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT GIVEN IN THE CASE OF AJANTA PHARMA 327 ITR 305. WE DO NOT FIND ANY JUSTIFIABLE REASON GIVEN BY THE LD. CIT(A). WE ACCORDINGLY DIRECT THE A.O TO CO NSIDER THE DEDUCTION U/S. 10B FOR DETERMINATION OF BOOK PROFIT. GROUND N O. 6 IS ACCORDINGLY ALLOWED. 28. GROUND NO. 7 RELATES TO THE ADDITIONS MADE ON ACCOU NT OF SALES MADE TO SUN PHARMACEUTICAL INDUSTRIES. 29. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN FAVOUR OF THE ASSESSEE IN ITA NO. 2430/AHD/2009 QUA GROUND NO. 9 OF THAT APPEAL. RESPECTFULLY FOLLOWING OUR OWN DECISI ON, WE DIRECT THE A.O TO DELETE THE IMPUGNED ADDITIONS ON ACCOUNT OF SALE S MADE TO SUN PHARMACEUTICAL INDUSTRIES. GROUND NO. 7 IS ALLOWED. 30. GROUND NO. 8 RELATES TO THE DISALLOWANCE OF EXPENSE S INCURRED ON BEHALF OF SUN PHARMACEUTICAL INDUSTRIES. 31. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ITA NO. 2430/AHD/2009 QUA GROUND NO. 10 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, WE DIRECT THE A.O TO DELETE THE IMPUGNED DISALLOWANCE OF EXPENSES. GROUND NO. 8 IS ALLOWED. 32. GROUND NO. 9 RELATES TO THE FOREIGN EXCHANGE FLUCTU ATION GAIN. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 13 33. AFTER PERUSAL THE ORDERS OF THE AUTHORITIES BELOW Q UA THE ISSUE, IN OUR CONSIDERED OPINION, THIS ISSUE HAS TO GO BACK T O THE A.O AS THE MATTERS HAVE BEEN RESORTED TO THE FILES OF THE A.O IN EARLIER YEARS. THE A.O IS DIRECTED TO DECIDE THE ISSUE AFRESH AS PER T HE DIRECTIONS GIVEN IN EARLIER YEARS AND AFTER GIVING AN OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. GROUND NO. 9 IS TREATED AS ALLOWED FOR ST ATISTICAL PURPOSE. 34. GROUND NO. 10 RELATES TO THE REDUCTION OF UNREALIZE D EXPORT PROCEEDS FROM EXPORT TURNOVER FOR THE PURPOSE OF DE DUCTION U/S. 10B. 35. THIS ISSUE HAS ALSO TO GO BACK TO THE A.O FOR FRESH CONSIDERATION IN THE LIGHT OF THE PROVISIONS OF SECTION 155(11A) OF THE ACT. WE ORDER ACCORDINGLY. 36. GROUND NO. 11 RELATES TO THE DISALLOWANCE U/S. 40(A )(I) FOR NON DEDUCTION OF TAX ON FOREIGN PAYMENTS. 37. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSE E DREW OUR ATTENTION TO THE APPELLATE ORDER DATED 29.05.2009 P ASSED BY THE CIT(A)-31, MUMBAI FOR A.Y. 2006-07 IN THE CASE OF S UN PHARMACEUTICAL INDUSTRIES LTD. IT IS THE SAY OF THE LD. COUNSEL T HAT ON IDENTICAL SET OF FACTS APPEAL IS PENDING BEFORE THE TRIBUNAL MUMBAI BENCHES. 38. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE CON TENTIONS OF THE LD. COUNSEL. WE ACCORDINGLY RESTORE THIS ISSUE TO THE FILES OF THE A.O. THE A.O IS DIRECTED TO DECIDE THE ISSUE AFRESH AFTER CONSIDERING THE DECISION OF THE TRIBUNAL MUMBAI BENCHES AND AFT ER AFFORDING AN OPPORTUNITY OF BEING HEARD. GROUND NO. 11 IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSE. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 14 39. GROUND NO. 12 IS OF GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDICATION. 40. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 1592/AHD/2011 REVENUES APPEAL FOR A.Y. 2 006-07 41. GROUND NO. 1 RELATES TO THE INTEREST CHARGED. 42. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEES APPEAL (SUPRA) QUA GROUND NO. 2. FOR OUR DETAILED DISCUSSION THEREIN, THIS GROUND IS DISMISSED. 43. GROUND NO. 2 RELATES TO THE WEIGHTED DEDUCTION U/S. 35(2AB) ON ACCOUNT OF GIFTS TO R & D EMPLOYEES ON OCCASION OF MARRIAGE. 44. WE FIND THAT AN IDENTICAL ISSUES HAS BEEN DECIDED I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN THE CASE OF CLA RIES LIFESCIENCES LTD. 112 ITD 307 (AHD.) WHICH DECISION HAS BEEN FOL LOWED BY THE LD. CIT(A). THE SAID DECISION OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT IN TAX APPEAL NO. 383 OF 2008. NOW, THAT THE DECISION OF THE FIRST APPELLATE AUTHORITY IS WELL SUPPORTED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT. NO INTERFERENCE IS CALLED FOR. GROUND NO. 2 IS DISMISSED. 45. GROUND NO. 3 RELATES TO THE CLAIM OF WEIGHTED DEDUC TION ON ACCOUNT OF REPAIRS & PAYMENT OF MUNICIPAL TAXES. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 15 46. FOR THE REASONS GIVEN IN GROUND NO. 2 HEREINABOVE, GROUND NO. 3 IS ALSO DISMISSED. 47. GROUND NO. 4 RELATES TO THE DEDUCTION OF INTEREST O N OVERDUE BILLS FOR COMPUTATION OF DEDUCTION U/S. 80IB OF THE ACT. 48. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ITA NO. 2400/AHD/09 QUA GROUND NO. 3 OF THAT APPEAL. RE SPECTFULLY FOLLOWING OUR OWN DECISION, GROUND NO. 4 IS DISMISS ED. 49. GROUND NO. 5 RELATES TO THE DELETION OF THE ADDITIO N MADE ON ACCOUNT OF ALLOCATION OF R & D EXPENSES. 50. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 2430/AHD/09 QUA GROUND NO. 6 OF THAT APPEAL. FOR SI MILAR REASONS, GROUND NO. 5 IS DISMISSED. 51. GROUND NO. 6 RELATES TO THE DELETION OF THE ADDITIO N OF RS. 6,80,281 MADE ON ACCOUNT OF DEPRECIATION. 52. IN OUR CONSIDERED OPINION, THIS ISSUE HAS BEEN DECI DED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN THE LIGH T OF THE DECISION OF THE HONBLE SUPREME COURT GIVEN IN THE CASE OF ICDS LTD. 350 ITR 527. NO INTERFERENCE IS CALLED FOR. 53. GROUND NO. 7 RELATES TO THE EXCLUSION OF PROVISION FOR FBT FOR COMPUTING BOOK PROFIT. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 16 54. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE HONB LE HIGH COURT OF BOMBAY IN THE CASE OF ASB INTERNATIONAL P. LTD. 26 TAXMANN.COM 87. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE HIGH COURT (SUPRA), WE CONFIRM THE DIRECTIONS OF THE LD. CIT(A ). GROUND NO. 7 IS DISMISSED. 55. GROUND NO. 8 RELATES TO THE EXCLUSION OF UNASCERTA INED LIABILITIES FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. 56. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O WA S OF THE OPINION THAT THE PROVISION FOR LEASE EQUALIZATION C HARGES IS THE PROVISION FOR UNASCERTAINED LIABILITIES. THERE IS N O ASCERTAINED LIABILITY AGAINST WHICH THE PROVISION IS REQUIRED TO BE MADE. WHEN THE MATTER IS AGITATED BEFORE THE LD. CIT(A), THE LD. CIT(A) OBSE RVED THAT IN ASSESSEES OWN CASE IN A.Y. 1998-99 & 1999-2000, TH E TRIBUNAL HAS DECIDED IN FAVOUR OF THE ASSESSEE IN ITA NOS. 323 & 324/AHD/05. THE LD. CIT(A) ACCORDINGLY DELETED THE ADDITION OF RS. 1,22,369/- MADE IN THE BOOK PROFIT. BEFORE US, NO DISTINGUISHING DECIS ION HAS BEEN BROUGHT IN FAVOUR OF THE REVENUE. WE, THEREFORE, DECLINE TO INTERFERE. GROUND NO. 8 IS DISMISSED. 57. GROUND NO. 9 RELATES TO THE DELETION OF THE ADDITIO N OF SALES TO SUN PHARMA INDUSTRIES. 58. A SIMILAR ISSUE HAS BEEN CONSIDERED BY US IN ASSESS EES APPEAL (SUPRA) QUA GROUND NO. 7. FOR OUR DETAILED DISCUSSI ON THEREIN, THIS GROUND IS ACCORDINGLY DISMISSED. ITA NOS. 158 9 & 1592/AHD/2011 . A.Y. 2006-0 7 17 59. GROUND NO. 10 RELATES TO THE DELETION OF DISALLOWAN CE OF UNRECOVERABLE EXPENDITURE INCURRED ON BEHALF OF SUN PHARMA INDUSTRIES. 60. A SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEES APPEAL QUA GROUND NO. 8. FOR OUR DETAILE D DISCUSSION THEREIN, THIS GROUND IS DISMISSED. 61. GROUND NO. 11 RELATES TO THE DELETION OF THE DISALL OWANCE OF EXPENSES OF RS. 2,95,71,520/- MADE U/S. 40(A)(I). 62. ON IDENTICAL SET OF FACTS, WE HAVE CONSIDERED THE G RIEVANCE OF THE ASSESSEE IN ASSESSEES APPEAL QUA GROUND NO. 11 . SINCE, WE HAVE RESTORED THE MATTER TO THE FILES OF THE A.O, IN THI S GROUND OF REVENUES APPEAL WE TAKE A SIMILAR VIEW AND DIRECT THE A.O TO DECIDE THIS ISSUE ALSO ALONG WITH THE GRIEVANCE OF THE ASSESSEE. GROU ND NO. 11 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 63. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS A LLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 10 - 05 - 20 16. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT.