Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 2242 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 10 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-06-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Assessment Year
2008-2009
Appeal Filed On
09-06-2015
Judgement Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNT AN T MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER 1. ./ ITA NO. 1659/AHD/2015 2. ./ ITA NO. 1689/AHD/2015 ( / ASSESSMENT YEAR : 2008 - 09 ) 1. SUN PHARMACEUTICALS INDUSTRIES LTD. SPARC TANDALJA BARODA 20 2. THE ACIT CENTRAL CIRCLE - 1 BARODA / VS. 1. THE ACIT CEN.CIR - 1 2. SUN PHARMACEU - TICAL S INDUSTRIES LTD. BARODA. ./ ./ PAN/GIR NO. : AADCS 3124K ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S.N. SOPARKAR, AR / RESPONDENT BY : SHRI R.C. PANDAY, CIT - DR / DATE OF HEARING 28 /0 3 /2019 / DATE OF PRONOUNCEMENT 20 /0 6 /201 9 / O R D E R PER WASEEM AHMED , ACCOUNTANT MEMBER : THE CAPTIONED CROSS - APPEAL S HA VE BEEN FILED AT THE INSTANCE OF THE ASSESSEE AND R EVENUE AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) 2 , VADODARA [CIT (A) IN SHORT] VIDE APPEAL NO. CAB/(A) - 2/387/2014 - 15 DATED 31/03/2015 ARISING IN THE A SSESSMENT ORDER PASSED UNDER S. 143(3) R.W.S.147 OF THE INCOME TAX ACT, 1961( HEREINAFTER REFERRED TO AS 'THE ACT') DATED 14/02/2014 RELEVANT TO ASSESSMENT YEAR (AY) 2008 - 09. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 2 2. FIRST , WE TAKE UP ASSESSEE S APPEAL IN ITA NO.1659/AHD/2015 FOR AY 2008 - 09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: THE APPELLANT SUBMITS THE FOLLOWING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER: 1. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS 'THE LEARNED CIT(A)'] IS BAD IN LAW AND ON FACTS. 2. RE: NOTICE ISSUED U/S. 148 T.W.S. 147 WAS BAD IN LAW AND NEEDS TO BE QUASHED AS VOID AB INITIO: 2.1. THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE ORDER OF ASSESSING OFFICER WHO HAS REOPENED THE ASSESSMENT UNDER SECTION 147 WITHOUT APPRE CIATING THAT THERE IS A MERE CHANGE OF OPINION ON ISSUES WHICH HAD AKEADY BEEN CONSIDERED IN THE ASSESSMENT ORDER FRAMED U/S 143(3). 3. RE: ADDITION ON ACCOUNT OF TRANSFER OF TECHNOLOGY TO FOREIGN SUBSIDIARY - RS. 45.35.30.353 / - : 3.1 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) GROSSLY ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN ADDING INCOME TO THE EXTENT OF RS,45,35,30,553/ - ON SALE OF TECHNOLOGY BY SUN PHARMAGLOBAL, INC. (HEREINAFT ER REFERRED TO AS 'SPG'), TO CARACO WITHOUT APPRECIATING THAT: .1 DIE SAID TECHNOLOGIES HAVE BEEN DEVELOPED BY UNIMED TECHNOLOGIES LIMITED (HEREINAFTER REFERRED TO AS 'UTL') AND M.J. PHARMACEUTICALS LIMITED (HEREINAFTER REFERRED TO AS 'MJPL') WHO ARE BOTH INDEPENDENT COMPANIES (AND ALSO NOT SUBSIDIARY COMPANIES OF SPIL AS ALLEGED BY THE ASSESSING OFFICER) NOT COVERED AS RELATED PARTIES U/S. 40A(2)(B) BY THEIR INDEPENDENT EFFORT AND ALSO ON THE BASIS OF FACILITIES OBTAINED ON HIRE FROM SPIL; .2 SPG HAD ACQ UIRED THESE TECHNOLOGIES FROM UTL AND MJPL AND HENCE THE QUESTION OF SPG NOT HAVING R&D FACILITIES AND/OR FIXED ASSETS WAS NOT RELEVANT TO THE ISSUE BEFOREHAND; .3 THE INCOME STATEMENTS OF SPG WERE EXAMINED IN DETAIL DURING THE COURSE OF ASSESSMENT BY TH E TRANSFER PRICING OFFICER (TPO) WHEREIN THESE TRANSACTIONS WERE DULY REFLECTED; ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 3 .4 THE ALLEGED STATEMENTS MADE BY THE TECHNICAL PERSONNEL OF SPIL DURING THE COURSE OF SURVEY PROCEEDINGS CANNOT BE RELIED UPON WITH REGARD TO FINANCIAL TRANSACTIONS WHICH A RE DULY REFLECTED IN THE BOOKS OF ACCOUNTS AND ACCEPTED BY THE TAX AUTHORITIES . 3.2 WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN CONSIDERING THE VALUE OF THE SHARES OF CARACO ISSUED IN FAVOUR OF SPG AS THE BASIS FOR THE VALUATION OF THE TECHNOLOGY WITHOUT APPRECIATING THAT THE SHARES WERE ISSUED UNDER PRE - AGREED ARRANGEMENT BASED ON MILESTONES AGREED BETWEEN THE PARTIES AND THAT THE HIGHER MARKET VALUE OF THE SHARES AT THE TIM E OF COMPLETION OF THESE MILESTONES CANNOT BE THE BASIS FOR THE VALUATION OF THE TECHNOLOGY. THE CIT(A) GROSSLY ERRED IN NOT APPRECIATING THAT THE VALUE OF EACH OF THE PRODUCT TECHNOLOGY COULD NOT HAVE BEEN SAME. 3.3 WITHOUT PREJUDICE TO THE ABOVE , THE CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER WHO HAS FAILED TO APPRECIATE THE FACT THE APPELLANT IS NOT IN THE BUSINESS OF SALE OF TECHNOLOGY AND THEREFORE, THE ALLEGED CONSIDERATION RECEIVED ON SALE OF TECHNOLOGY IS A CAP ITAL RECEIPT AND THEREBY NOT CHARGEABLE TO TAX AS NO COST HAS BEEN INCURRED BY THE APPELLANT FOR THE SAME. 3.4 WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER WHO HAS CARRIED OUT THE ADJUS TMENT AND HAS MADE ADDITION TO THE INCOME OF THE APPELLANT WITHOUT REFERRING THE TRANSACTION TO THE TPO OR BENCHMARKING THE SAID TRANSACTION IN ACCORDANCE WITH THE METHOD PRESCRIBED UNDER THE TP REGULATIONS. 4. RE: DISALLOWANCE ON ACCOUNT OF R&D EX PENSES INCURRED BY THE APPELLANT ALLEGED TO HAVE BEEN INCURRED FOR PRODUCTS MANUFACTURED BY SPI DEBITED IN THE BOOKS OF THE APPELLANT - RS 1744.56 LAKHS: 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) GROSSLY E RRED IN UPHOLDING THE ACTIONS OF THE ASSESSING OFFICER RELATING TO ALLOCATION OF R&D EXPENDITURE, WITHOUT APPRECIATING THAT: 2.1.1 THE PRODUCT TECHNOLOGIES DEVELOPED ARE COMPLETELY OWNED BY THE APPELLANT AND THAT NO PART OF THE OWNERSHIP OF THE PRODUC T TECHNOLOGIES OR PROCESSES DEVELOPED DURING SUCH R&D WORK IS FOR ANY OTHER PARTY; 2.1.2 THE APPELLANT BEING A WORKING PARTNER HAD IN PURSUANCE OF THE OBLIGATION UNDERTAKEN BY THE APPELLANT UNDER THE PARTNERSHIP DEED, HAD PROVIDED THESE SERVICES IN RE LATION TO THE MANUFACTURING ACTIVITIES AND THAT NO ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 4 R&D ACTIVITY WAS CARRIED OUT FOR SPI. FOR THE SERVICES RENDERED BY THE APPELLANT IT WAS RECEIVING REMUNERATION AND SHARE IN PROFIT FROM SPI. 2.2 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) GROSSLY ERRED IN REJECTING THE APPELLANT'S CONTENTION, THAT ONLY EXPENDITURE AMOUNTING TO RS 13.49 LAKHS INCURRED FOR SPECIFIC PRODUCTS MANUFACTURED IN SPI OUGHT TO HAVE BEEN DISALLOWED AND IN FURTHER STATING THAT SPECIFIC DETAILS OF EX PENDITURE WAS NOT AVAILABLE DURING THE COURSE OF APPELLATE PROCEEDINGS. 2.3 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) GROSSLY ERRED IN CONSIDERING RS 4075.49 LAKHS AS ALLOCABLE R&D EXPENDITURE WITHOUT APPRECIATING THAT ONLY RS 1651.48 LAKH S OUGHT TO HAVE BEEN CONSIDERED AS EXPENDITURE TO BE ALLOCATED BETWEEN THE APPELLANT AND THE SAID PARTNERSHIP FIRM. 2.4 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) GROSSLY ERRED IN UPHOLDING THE ACTIONS OF THE ASSESSING OFFICER RELATING TO A LLOCATION OF R&D EXPENDITURE, WITHOUT APPRECIATING THAT THE ALLOCATION OF EXPENDITURE INCURRED BY THE APPELLANT AS A WORKING PARTNER FOR SPI WAS ALREADY A SUBJECT MATTER OF APPEAL AND HENCE WAS BEYOND THE JURISDICTION OF THE ASSESSING OFFICER AS PER THIRD PROVISO TO S. 147. 2.5 WITHOUT PREJUDICE TO THE ABOVE, THE DEDUCTION U/S. 10B OUGHT TO BE INCREASED ON ACCOUNT OF ALLOCATION OF R&D EXPENSES TO SPI. 5. RE: WRONG COMPUTATION OF INTEREST U/S. 234D: 1.1 THE CIT( A) HAS GROSSLY ERRED NOT ADJUDICATING IN COMPUTING THE INTEREST U/S. 234D FROM THE DATE OF GRANT OF REFUND TO THE DATE OF THE REASSESSMENT ORDER PASSED U/S. 143(3) R.W.S 147. 5.2 THE CIT(A) HAS GROSSLY ERRED NOT ADJUDICATING THE ACTION OF THE ASSESSING OFFICER HAS WRONGLY CONSIDERED THE DATE OF REASSESSMENT ORDER FOR COMPUTATION OF INTEREST U/S. 234D INSTEAD OF THE DATE OF REGULAR ASSESSMENT WITHOUT APPRECIATING THAT THE AMOUNT OF EXCESS REFUND HAS BEEN DULY PAID BY THE APPELLANT ON PASSING OF THE ORDER UNDER REGULAR ASSESSMENT. 6. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEND OR DELETE ANY GROUND OF APPEAL AT OR BEFORE THE HEARING OF THIS APPEAL. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THE GROUND NO. 1 IS GENERAL AND THEREFORE NO SEP ARATE ADJUDICATION IS REQUIRED FOR THE SAME. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 5 3. THE SECOND ISSUE RAISED BY THE ASSESSEE IN THE GROUND NO. 2 WAS NOT PRESSED. THEREFORE WE DISMISS THE SAME AS NOT PRESSED. THE THIRD ISSUE RAISED BY THE ASSESSEE IN THE GROUND NO. 3 IS THAT THE LD. CIT - A ERRED IN PARTLY CONFIRMING THE ADDITION MADE BY THE AO FOR RS. 45,35,30,553.00 ONLY ON ACCOUNT OF TRANSFER OF TECHNOLOGY TO A FOREIGN SUBSIDIARY. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED C OMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING, T RADING , AND EXPORTER OF FORMULATIONS & BULK D RUGS AND PHARMACEUTICAL PRODUCTS, FINANCE & LEASING OF EQUIPMENTS. THE ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT WAS FRAMED ON 19/12/2011 FOR THE YEAR UNDER CONSIDERATION. 5. THERE WAS A SURVEY OPERATION U/S 133A OF THE ACT ON 08.11.2011 AT THE SIX BUSINESS PREMISES OF THE ASSESSEE LOCATED AT MUMBAI. 6. DURING THE SURVEY , A LARGE NUMBER OF INCRIMINATING DOCUMENTS (MASTER FORMULA, EXECUTIVE SUMMARY, MASTER FORMULA CARD , ETC.) WERE FOUND AND IMPOUNDED. THUS BASED ON THE SURVEY REPORT THE CASE WAS REOPENED BY ISSUING A NOTICE U/S 148 OF THE ACT DATED 28/03/2013. THE AO DURING THE PROCEEDINGS OBSERVED CERTAIN FACTS AS DETAILED UNDER: ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 6 1. THE A SSESS EE HAD SEVERAL SUBSIDIARIES IN INDIA AND OUTSIDE INDIA. ONE OF THE SUBSIDIARY COMPANY OF THE ASSESSEE NAMELY SUN BVI TRANSFERRED CERTAIN TECHNOLOGIES TO C ARACO , THE USA OVER A CERTAIN PERIOD . THE SUN BVI A CQUIRED THESE TECHNOLOG IES FROM UNIMED TECHNOLO GIES LTD/MJ PHARMACEUTICALS LTD ( IN SHORT UTL/MJPL ) , AND UTL/MJPL ACQUIRED THESE TECHNOLOGIES FROM SPIL. 2. THE COST OF TECHN OLOGIES IN THE HAND OF SUN BVI WA S VERY NOMINAL IN COMPARISON TO THE VALUE AT WHICH SUN BVI TRANSFERRED IT TO CARACO . AS SUCH THE SUN BVI EARNED HUGE PROFIT MARGIN RANGING FROM 95% TO 97% ON THESE TRANSACTIONS WHICH IS EXEMPT FROM TAX AS SUN BVI IS LOCATED IN A TAX HEAVEN ZONE . 3. THE DOSSIERS AND OTHER TECHNICAL DETAILS FOUND DURING THE SURVEY ABOUT THESE TECHNOLOGIES SHOW THAT THESE WERE DE VELOPED AT THE PREMISES OF THE ASSESSEE . FURTHERMORE , AT THE TIME OF DEVELOPING THESE TECHNOLOGIES ITSELF, IT WAS KNOWN AND RECORDED THAT THESE WERE TO BE USED BY C ARACO , USA. THE DETAILS OF TECHNOLOGY AND RELATED DOCUM ENTS ARE AVAILABLE ON PAGES 3, 4 AND 5 OF THE AO ORDER. 6.1. THESE DETAILS WERE CONFRONTED TO DR. T. RAJAMANNAR (NOW DIRECTOR OF SPARC LTD BUT DURING THE RELEVANT TIME HE WAS ACTING AS IN - CHARGE OF ORGANIC CHEMISTRY TEAM IN SPIL) DURING THE COURSE OF HIS STATEMENT ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 7 RECORDED U/S 131 OF THE ACT WHEREIN HE ADMITTED THAT SPIL DEVELOPED THE SAID TECHNOLOGIES FOR THE USE OF C ARACO . THE RELEVANT EXTRACT OF THE STATEMENT IS AVAILABLE ON PAGES 5 TO 8 OF THE AO ORDER. 6.2. DURING THE COURSE OF THE SURVEY , SHRI DILIP SANGHVI CHAIRMAN OF SU N PHARMA GROUP IN HIS STATEME NT ADMI TTED THAT SUN BVI HAD NO FIXED ASSETS, FACTORY, MANUFACTURING FACILITY OR R&D FACILITY . THERE WAS NOT ANY VALUE ADDITION IN THE SAID TECHNOLOGIES ACQUIRED FROM THE SPIL. THE RELEVANT EXTRACT IS AVAILABLE ON PAGES 9 & 10 OF THE ORDER OF THE AO . 6.3. THE BRIEF HISTORY OF THE CASE IS THAT SPIL BEFORE 2002 , I.E. AGREEMENT BETWEEN SUN BVI & UTL DIRECTLY TRANSFERRED THESE TECHNOLOGIES TO CARACO . AFTER THAT SUN BVI ENTERED INTO AN AGREEMENT WITH CARACO DATED 21 - 11 - 2002 TO DEVELOP AND TRANSFER OF THESE TECHNOLOGIES. HOWEVER , THESE TECHNOLOGIES WERE DEVELOPED AT THE R&D FACILITY OF ASSESSEE LOCATED AT BARODA & MUMBAI. 6.4. ON THE BASIS OF THE ABOVE, THE AO WAS OF THE VIEW THAT THE PROFIT OF S UN BVI ON THE TRANSFER OF THESE TECHNOLOGIES F OR RS. 45,35,30,553/ - IS TAXABLE IN INDIA IN THE HANDS OF THE ASSESSEE. IT IS BECAUSE OF ALL THESE ARRANGEMENTS BETWEEN SUN BVI, UTL, CARACO WERE MADE TO EVADE THE TAXES IN INDIA. T HEREFORE THE SAME SHOULD BE TAXABLE IN THE HANDS OF THE ASSESSEE. ACCORDINGLY , THE AO SOUGHT CLARIFICATION FROM THE ASSESSEE. 6.5. IN RESPONSE , THE ASSESSEE SUBMITTED ITS REPLY AS DETAILED UNDER: ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 8 1. THE LIST OF TECHNOLOGIES FOUND DURING THE SURVEY IS REPRESENTING THE DETAILS OF THE TECHNOLOGIES DEVELOPED B Y THE U TL AS PER THE AGREEMENT BETWEEN THE SUN BVI AND U TL DATED 21 - 11 - 2002 . THE SUN BVI AFTER ACQUIRING THE TECHNOLOGIES FROM U TL TRANSFERRED THE SAME TO CARACO . AS SUCH ALL THESE DETAILS WERE ON THE LETTERHEAD OF SUN BVI. 2. IT IS ONLY A PRESUMPTION OF AO THAT UTL/MJPL ACQUIRED THESE TECHNOLOGIES FROM SPIL. IN FACT , THESE TECHNOLOGIES WERE DEVELOPED BY THEM , AND THE SAME WERE SHOWN IN THEIR BOOKS OF A CCOUNTS. AS SUCH THESE TRANSACTIONS WERE NO T RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 3. UTL/MJPL A RE NOT RELATED PARTY AS PER SEC TION 40A(2)(B) OF THE ACT AND NOT EVEN AS PER AS - 18 ISSUED BY THE ICAI . BOTH OF THEM ARE INDEPENDENT PARTY AND SEPARATELY ASSESSED TO TAX AND ORDERS U/S 143(3) HAVE BEEN PASSED ON BOTH OF THEM. IT MEANS THE TRANSACTIONS IN TH EIR BOOKS HA VE BEEN ACCEPTED IN THE YEAR UNDER CONSIDERATION AND EARLIER YEARS . THEREFORE, THESE ENTITIES CAN NOT BE SAID AS MERE NAME LENDERS. 4. BOTH THE ENTITIES HAVE THEIR OWN DEDICATED AND EXCLUSIVE R&D FACILITY HAVING REQUISITE INFRASTRUCTURE, RESOURCE S, AND DEDICATED ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 9 STAFF TO CARRY OUT THE RESEARCH. UTL IS IN THE FIELD OF PHARMA MANUFACTURING & SELLING FOR THE LAST 20 YEARS . 5. FURTHER, THESE ENTITIES HAVE ACCESSED AND UTILIZED THE ADVANCED R&D FACILITY OF THE ASSESSEE TO CARRY OUT THEIR RESEARCH IN PURSUANCE OF AN AGREEMENT ENTERED WITH THE ASSESSEE DATED 04.04.2007 . THESE PARTIES PAID THE CONSIDERATION TO THE ASSESSEE FOR THE USE OF R& D FACILITY OF THE ASSESSEE IN THE FORM OF FACILITATION CHARGES . 6. AO INCORRECTLY OBSERVED THAT MJPL CEASED TO EXIST F ROM F.Y. 2001 - 02. AS SUCH MJPL WAS MERGED WITH THE ASSESSEE IN THE 2001 - 02 AND ACCORDINGLY LOST ITS IDENTITY . B UT AT THE SAME TIME, A COMPANY FORMERLY KNOWN AS SIBAI PHARMACEUTICALS LTD HAD CHANGED ITS NAME TO MJPL WHICH IS STILL IN EXISTENCE AND THE RELEV ANT TRANSACTIONS WERE CARRIED OUT WITH THIS COMPANY. 7. MJPL BEFORE 2001 - 02 HAD TWO UNDERTAKINGS ONE AT HALOL IN FORMULATION BUSINESS AND ANOTHER AT ANKLESHWAR ENGAGED IN THE BULK DRUG BUSINESS. THE BIFR, N EW DELHI VIDE ITS ORDER NO. 309/2000 DATED 17.05.02 APPROVED/SANCTIONED THE DEMERGER OF HALOL UNIT OF MJPL INTO A NEW COMPANY SIBAI PHARMACEUTICALS LTD. T HE RESIDUAL BUSINESS OF MJPL MERGED WITH ASSESSEE W.E.F . 01.01.02 . THIS HALOL UNIT OF NEW MJPL WAS ALS O GRANTED THE RECOGNITION BY DSIR IN 2007. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 10 8. IT IS A FACT THAT THESE TECHNOLOGIES WERE DEVELOPED AT ASSESSEE R &D FACILITY AT MUMBAI/BARODA AND AT THE TIME OF DEVELOPING THESE TECHNOLOGIES , IT WAS KNOWN THAT SAME IS FOR THE USE BY CARACO . 9. T HE ASSESSEE ALLOWED THESE CONCERNS TO USE ITS R & D FACILITY AGAINST THE HIRE CHARGES WHICH WERE DULY ACCOUNTED IN THE BOOKS OF ACCOUNTS OF ALL THE PARTIES. AS IT WAS DEVELOPED AT THE SITE OF ASSESSEE, THE NAME OF THE ASSESSEE W AS WRITTEN ON THE DOSSIERS. 10. THE LIST O F 25 TECHNOLOGIES WAS PREPARED AT THE TIME OF SURVEY AT THE INSISTENCE OF THE SURVEY TEAM. BUT THE HEADING OF SUCH LIST DOES NOT INDICATE/DECISIVE THAT SPIL SOLD THESE TECHNOLOGIES TO CARACO . AS SUCH THESE TECHNOLOGIES WERE TRANSFERRED B Y UT L/MJPL FROM MUM BAI/BARODA DIRECTLY TO CARACO AS PER THE INSTRUCTION OF SUN BVI. 11. DR. T. RAJAMANNAR IS NOT FROM THE FIELDS OF ACCOUNTS , SO HE WAS NOT AWARE OF THE DEAL BETWEEN THE SPIL & UTL AND THE FACT THAT THE R & D FACILITY HAS BEEN RENTED OUT TO UTL FOR DEVELOPING THE TECHNOLOGIES FOR SUN BVI. HE ONLY KNEW THAT IT IS GETTING DEVELOP ED AT THE R & D CENT ER OF THE ASSESSEE FOR CARACO . ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 11 ACCORDINGLY , HE HAS GIVEN HIS STATEMENT UNDER SECTION 131 OF THE ACT . 12. THE ALLEGA TION OF THE AO IS BASED ON THE PRESUMPTION THAT THE TRANSACTION WAS ROUTED THROUGH UTL/ MJPL TO EVADE THE TAX WHICH IS BASED ON THE IMPOUNDED DOCUMENTS . BUT THE AO IGNORED THE OTHER RELEVANT DOCUMENTS SUCH AS THE AGREEMENT BETWEEN THE SUN BVI AND UTL, AGRE EMENT BETWEEN UTL AND SPIL, TRANSACTIONS RECORDED IN THE BOOKS AND WITHOUT FINDING OUT ANY DEFECT THEREIN . IT IS THE SETTLED LAW THAT THERE CANNOT BE ANY PRESUMPTION WHILE EXERCISING JURISDICTION U/S 147 OF THE ACT . 13. THE PROFIT MARGIN IS HIGH BECAUSE CONSID ERATION WAS IN SHARES WHICH WERE FIXED IN THE AGREEMENT ENTERED IN THE YEAR 2002 . AT THE TIME OF THE AGREEMENT THE PRICE OF SHARES W AS VERY LOW. THE VALUE OF TECHNOLOGIES CHANGE D WITH THE FLUCTUATION IN THE PRICE OF THE SHARES. IT IS ALSO IMPORTANT T O NOTE IN 2002, THE PRICE WAS USD 1.10(LOW) AND USD 4.96(HIGH). IN YEAR 2011 $4.18(LOW) AND $6.93(HIGH) WITH THE PEAK PRICE AT $18.70 IN 2009. 14. THE CONSIDERATION IN SHARES WAS THE PART OF LONG TERM STRATEGIC DECISION TO INCREASE THE STAKE IN THE COMPANY FOR INVESTMENT IN THE US MARKET. THE TRANSFER OF TECHNOLOGY FOR SHARES WAS ONLY A MILESTONE ESTABLISHED BY THE PARTIES. IN BOTH THE AGREEMENT (FIRST ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 12 BETWEEN SPIL AND CARACO ON 21/04/97 AND SECOND BETWEEN SUN GLOBAL AND CARACO ON 21/11/02) THE CONSI DERATION IN THE N UMBER OF SHARES WAS UNIFORM AT 5,44,000 SHARES FOR EACH TECHNOLOGY . 15. IT IS WRONG TO COMPARE THE RATES OF PURCHASE OF THE TECHNOLOGIES FROM UTL AND THE VALUE OF SHARES RECORDED BY SUN BVI RECEIVED FROM CARACO ON THE TRANSFER OF TECHNOLOGY AS IT WAS RECORDED BY IT ON THE FAIR VALUE. 16. WITH REGARD TO OBSERVATION OF AO THAT PRIOR TO 2002 SPIL DIRECTLY TRANSFERRED TECHNOLOGIES TO CARACO , IT WAS SUBMIT TED THAT ASSESSEE COULD TRANSFER ONLY 13 OUT OF 25 TECHNOLOGIES AS PER THE AGREEMENT MADE IN TH E YEAR 1997 . THEREFORE, AFTER A THOROUGH REVIEW OF THE ENTIRE ARRANGEMENT AND WORKLOAD OF THE ASSESSEE IT WAS CONSIDERED THAT THE PROCESS OF TECHNOLOGY BE BROADENED. ACCORDINGLY, A NEW AGREEMENT WAS ENTERED B ETWEEN THE CARACO AND SUN GLOBAL BVI TO ACQUIRE THESE FROM THE THIRD INDEPENDENT PART Y I.E. UT L . ALL THESE ARRANGEMENTS WERE MADE WITH THE VIEW T O FASTEN THE PROCESS OF TECHNOLOGY DEVELOPMENT AND NOT AS A TAX PLANNING. 17. THERE WAS NO ESCAPEMENT OF PROFIT IN INDIA AS THE ASSESSEE HAS DISCLOSED ALL ITS INCOME AND PAID THE DUE TAXES. SUN BVI IS A FOREIGN ENTITY , AND ITS PROFIT CANNOT BE TAXED IN INDIA. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 13 18. THE TECHNOLOGIES TRANSFERRED WERE SUBJECT TO A VERY HIGH RATE OF LITIGATION FROM ANY ESTABLISHED PHARMA PLAYERS. CONSIDERING THIS POTENTIAL LITIGATION THR EAT AND THE FACT THAT UNDER THE FIRST AGREEMENT SPIL COULD NOT DEVELOP ALL THE TECHNOLOGIES, IT WAS STRATEGICALLY DECIDED NOT TO DEVELOP ALL THESE TECHNOLOGIES BY THE SPIL. AS SUCH I N THE PAST SPIL AS WELL AS SPG BVI HAD UNDERGO NE SIGNIFICANT LITIGATION FO R SOME OF THE PRODUCTS AND IT (SPIL & SPG BVI) HAD TO PAY FOR THE INFRINGEMEN T AMOUNTING TO USD 550 MILLION I N THE CASES WHERE SPIL HAS DEVELOPED THESE TECHNOLOGIES . 19. WITHOUT PREJUDICE, EVEN IF IT IS ASSUMED THAT T HE SPIL HAS TRANSFERRED TECHNOLOGIES TO C ARACO THE WHOLE RECEIPT IS A CAPITAL RECEIPT . 20. WITH REGARD TO CONFRONTATION WITH SHRI DILIP SANGHVI IT IS TO SUBMIT THAT SUN BVI NEVER CLAIMED IT HA D DEVELOPED THESE TECHNOLOGIES. 21. ANY VISIT OF THE PERSONNEL OF THE ASSESSEE TO CARACO SHOULD NOT BE MIXED WITH SALE AND TRANSFER OF TECHNOLOGY BY SPG BVI. THE STATEMENT WAS WITH REGARD TO TRAVELLING FOR TRANSFER OF TECHNOLOGIES TRANSFERRED BY THE ASSESSEE DURING THE PERIOD OF 1997 TO 2002. MERELY, ON THE BASIS OF GENERAL STATEMENT IT ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 14 CANNO T BE PRESUMED THAT ALLEGED TECHNOLOGIES WERE TRANSFERRED BY THE SPIL. 6.6. HOWEVER, THE AO DISREGARDED THE CONTENTION OF ASSESSEE BY OBSERV ING AS UNDER: 1. AS PER THE INFO RMATION AVAILABLE WITH THIS OFFICE UT L WAS PRIMARILY FUNCTIONING AS A JOB WORKER OF ASSESSEE THEREFORE, THERE IS NO REASON TO BELIEVE THAT IT HAD PROPER R&D FACILITIES TO DEVELOP SUCH A SOPHISTICATED GENERIC PRODUCT. 2. THE DIFFERENCE IN RATE IS VERY HIGH I.E. IT WAS SOLD BY U T L FOR $4,00,000 TO SUN BVI WHICH WAS SUBSEQUENTLY SOLD AS $1,17, 19,362/ - TO CARACO. 3. CARACO , A 100% SUBSIDIARY OF ASSESSEE HAD EARLIER THE SAME AGREEMENT WITH THE SPIL ( ASSESSEE ) . IN THE GIVEN CIRCUMST ANCES AND BEING A CLOSE CONNECTION BETWEEN THE CONCERNS UT L/MJPL AND THE ASSESSEE A S SISTER CONCERNS AND WITH OUT PROPER AND SUFFICIENT R&D FACILITY, THERE IS A STRONG REASON TO BELIEVE THAT THEY HAVE NOT ACTUALLY DEVELOPED THESE TECHNOLOGIES. AS SUCH SPIL ACTUALLY DEVELOPED THE PRODUCTS. 4. AS PER THE AGREEMENT IN 1997, THE ASSESSEE HAD TO INVEST $7.5 MILLION IN STOCK WHICH WAS TO BE ISSUED AS A CONSIDERATION OF TECHNOLOGY TRANSFER. HOWEVER, IT WAS MENTIONED THAT TILL DEC, 31 , 2003 SPIL HAD DELIVERED ONLY 13 FORMULAS AND BECAME THE BENEFICIARY OWNER FOR APPROXIMATELY 48% OF THE TOTAL SHARES. ASSESSEE ALSO SUBMITTED THAT AFTER EXPIRATION OF AGREEMENT IN 1997 A NEW AGREEMENT IN NOV 2002 WITH SUN BVI WAS ENTERED. THEREFORE, THERE IS CONTRADICTION IN THE SUBMISSION OF ASSESSEE ITSELF THAT 2002 AGREEMENT WAS MADE AFTER THE EXPIRATION OF 1997 WHEREAS ON THE OTHER SIDE IT IS CL AIMING THAT AGREEMENT WAS CONTINUED TILL DEC. 2003 AND EVEN AS ON THAT DATE ALL THE TECHNOLOGIES COULD NOT BE TRANSFERRED. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 15 5. THE ARGUMENT OF THE ASSESSEE TO AVOID THE LITIGATION IS NOT BASED ON ANY MATERIAL. AS SUCH SUN BVI WOULD NOT HAVE SOURCED THE TECHNO LOGIES FROM THESE COMPANIES WHICH DO NOT HAVE ESTABLISHED REPUTATION RATHER THE SPIL. 6.7. THE AO IN VIEW OF THE ABOVE CONCLUDE D THAT THE PROFIT ON TRANSFER OF TECHNOLOGIES FROM SUN BVI TO CARACO , USA IS TAXABLE IN THE HANDS OF ASSESSEE . A CCORDINGLY TH E AO ADDED A SUM OF RS. 45,35,30,353/ - TO THE TOTAL INCOME OF THE ASSESSEE. 7. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CIT (A) WHERE IT SUBMITTED AS UNDER: 1. THE AO W HILE RECORDING THE STATEMENTS NEITHER RECORD ED THE SATISFACTION U/S 133A (6) OF THE ACT NOR TOOK PRIOR APPROVAL OF JOINT DIRECTOR. THE AO ERRED IN RELYING ON STATEMENT RECORDED U/S 131 AS THE SAME WAS RETRACTED ON A LATER STAGE WHICH IS NOT VALID IN THE EYES OF LAW. THUS, THE SOLE BASIS OF REASSESSMENT WAS STATEMENT WHICH CANNOT BE RELIED UPON, CONSEQUENTLY, THE SANCTITY OF ADDITION IS QUESTIONABLE. 2. THE A SSESSMENT HAS BEEN DONE IN THE HANDS OF UTL WH ERE THE TRANSACTIONS WITH THE ASSESSEE WERE ACCEPTED. F URTHER, UTL HAS NOT BEEN CONFRONTED DURING THE COURSE OF THE SURVEY. 3. THE INCOME ADDED BY THE AO IN THE HANDS OF ASSESSEE DOES NOT ACCRUE IN ITS HAND . ONLY THE REAL INCOME OF THE ASSESSEE CAN BE TAXED I N IT S HANDS. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 16 4. QUESTION OF PROVIDING LOOK THROUGH IN THE STATUTE OR TREATY IS A MATTER OF POLICY. IT CANNOT BE IMPLIED OR BROUGHT BY C ONSTRUCTION OR INTERPRETATION TO BRING THE INCOME TO TAX IN THE HANDS OF THE ASSESSEE . 5. SPIL HAD AN INTEREST IN THE BUSINESS OF CARACO , AND HENCE THE TECHNICAL TEAM OF SPIL VISITED CARACO FOR VARIOUS OTHER BUSINESS PURPOSES. 6. WITHOUT PREJUDICE , THE ASSESSEE SUBMITTED THAT IT HAS OFFERED TO TAX A SUM OF RS. 646.07 LACS RECEIVED FROM UTL AS FACILITY CHARGES . I N CASE ANY ADDITION IS MADE TO THE TOTAL INCOME OF THE ASSESSEE THEN THE DEDUCTION FOR THE SAME SHOULD BE ALLOWED. 7. WITHOUT PREJUDICE , THE ASSESSEE ALSO SUBMITTED THAT PRICE PER SHARE AS CONSIDERATION SHOULD BE TAKEN AS ON THE DAY OF THE AGREEMENT BECAUSE AT THAT TIME THE CONSIDERATION WAS FIXED. 8. APART FROM ABOVE ASSESSEE ALSO REITERATED ITS MOST OF SUBMISSION MADE BEFORE AO. 7.1. IN VIEW OF ABOVE SUBMISSION , ASSESSEE PRAYED BEFORE LD. CIT(A) TO DELETE THE ADDITION MADE BY AO. 7.2. HOWEVER, LD. CIT (A) DISREGARDED THE SUBMISSION MADE BEFORE HIM AND PARTLY CONFIRMED THE ADDITION MADE BY AO BY MAKING FOLLOWING OBSERVATION: ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 17 1. THE AO CORRECTLY HELD THAT THE NEW AGREEMENT WAS NOTHING BUT THE EXTENSION OF OLD AGREEMENT AS THERE WAS ALREADY AN OLD AGREEMENT OF SAME NATURE W HICH COULD NOT BE COMPLIED WITH. T HIS NEW AGREEMENT WAS MADE BETWEEN CARACO AND 100% SUBSIDIARY COMPANY OF SAME GR OUP, WHICH IS IN THE TAX HEAVEN AFTER ACQUIRING 4 8 % OF SHARES OF CARACO . 2. ASSESSEE S CONTENTION IS RIGHT THAT NOTHING IS MENTIONED IN STATEMENT THAT THEY WERE NOT CO - OPERATING, HENCE OATH TAKEN IS MEANINGLESS. BUT THE FACT REMAINS SAME THAT THE CLAUSE (II I) OF SECTION 133A AUTHORIZES AN IT AUTHORITY TO RECORD STATEMENT OF ANY PERSON WHICH MAY BE USEFUL. T HE HON BLE A PEX COURT ALSO IN THE CASE OF S. KHADER KHAN HAS HELD THAT STATEMENT CAN BE USED BY DEPARTMENT IN CONJUNCTION WITH OTHER DOCUMENTS IMPOUNDED D URING THE COURSE OF SURVEY PROCEEDINGS. 3. IN THE PRESENT CIRCUMSTANCES AFTER CONSIDERING THE NATURE OF THE TRANSACTIONS , THE FINDING OF AO IS VERY MUCH CORRECT THAT THESE WERE ONLY CARRIED OUT TO TRANSFER THE INCOME IN THE HAND OF SUN BVI, LOCATED IN A TAX H EAVEN. 4. IF THE CONTENTION OF ASSESSEE HAD BEEN CORRECT, THEN THE NAME OF UTL SHOULD HAVE MENTIONED ON THESE DOCUMENTS INSTEAD OF CARACO . SIMILARLY, T HE PRICE CHARGED BY SUN BVI IS ALSO VERY HIGH AS COMPARED TO THE PRICE PAID BY SUN BVI TO UTL AND THE HIRE C HARGES BY UTL TO ASSESSEE. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 18 5. THE NATURE OF RECEIPT CANNOT BE HELD AS CAPITAL AS THIS IS NOT THE CASE THAT TRANSFERRED TECHNOLOGY WERE ALREADY OWNED BY THE ASSESSEE RATHER IT WAS DEVELOPED BY THE ASSESSEE IN PURSUANCE OF AGREEMENT. 6. THE CONSIDERATION VALUE OF SHARES CANNOT BE TAKEN ON THE DATE OF AGREEMENT AS NOWHERE IT IS DEMONSTRATED BY THE ASSESSEE ON THE BASIS OF DOCUMENTARY EVIDENCE OR AGREEMENT PROVIDING SUCH CLAUSE THAT VALUE OF TECHNOLOGIES SHOULD BE COMPUTED ON THE DAY OF AGREEMENT. 7. THE CONTENTION OF A SSESSEE THAT WITHOUT DISTURBING THE COMPLETED ASSESSMENT OF UTL, NO ADDITION CAN BE MADE IN THE HANDS OF ASSESSEE , T HE SAME CONTENTION WAS RAISED IN THE WRIT PETITION FILED BEFORE THE HON BLE GUJRAT HC WHICH WAS REJECTED. 8. THE A LTERNATE CONTENTION OF ASSESSEE THAT DEDUCTION OF HIRE CHARGES OF RS. 660.7 LAKHS IS ADMISSIBLE, WHICH HAVE ALREADY BEEN OFFERED TO TAX BY THE ASSESSEE. IN VIEW OF THE ABOVE THE LD. CIT - A PARTLY CONFIRMED THE ORDER OF THE AO. AGGRIEVED BY THE ORDER OF LD. CIT(A) , ASSESSEE IS I N APPEAL BEFORE US. 8. THE LD. AR BEFORE US FILED A PAPER BOOK RUNNING FORM PAGES 1 TO 566 AND REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW . 9. ON THE OTHER HAND T HE LD. D R BEFORE US SUBMITTED AS UNDER: ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 19 1. DIVERSION OF PROFITS ON TRANSFER OF T ECHNOLOGY TO CARACO THROUGH SUN GLOBAL BVI: 1.1 THE ASSESSEE COMPANY HAD TRANSFERRED THE TECHNOLOGY TO CARACO BY SUN GLOBAL BVI (SUN BV I) WHICH WAS ACQUIRED FROM UNIMED TECHNOLOGIES LTD. (UNIMED). AS PER THE INFORMATION AVAILABLE WIT H THIS OFFICE, UNIMED WAS PRIMARILY FUNCTIONING AS A JOB WORKER FOR THE ASSESSEE AND THERE ARE REASONS T O BELIEVE THAT IT DID NOT HAVE PROPER R&D FACILITIES TO RESEARCH AND DEVELOP SUCH A SOPHISTICATED GENERIC PRODUCTS, THE FORMULA OF WHICH H AVE BEEN CLAIMED TO HAVE BEEN PURCHASED BY SUN BVI. FURTHER IT HAS BEEN NOTED THAT THE RATE OF SALE OF FORMULA FOR GENERIC PRODUCTS FROM UNIMED TO SUN BVI IS VERY LESS AS COMPARED TO THE RATE CHARGED BY SUN BVI TO CARACO. IT IS AN ADMITTED FACT THAT SUN BV I WAS NOT MAKING ANY VALUE ADDITION TO THE PRODUCT AS SUN BVI DID NOT HAVE R&D FACILITY WHICH WAS DULY ACCEPTED BY SHRI SUDHIR VALIA, THE DIRECTOR OF SUN INDIA AND SUN BVI (UPTO FY.2006 - 07) IN THE STATEMENT RECORDED U/S 131 BEFORE THE ADIT (INV.) UNIT - 1, B ARODA ON 21.3.2011. THE DIFFERENCE IN VALUE WAS HIGHLY EXCESSIVE AND UNBELIEVABLE THAT THE TECHNOLOGIES WAS SOLD BY UNIMED TO SUN BVI FOR US$ 4,00,000 & SUN BVI SOLD TO CARACO FOR US$ 1,17,19,362 WHICH RAISES SERIOUS DOUBT AS TO THE GENUINENESS OF THE TRAN SACTION AND FURTHER STRENGTHENS THE FACT THAT ACTUAL VENDOR WAS NONE OTHER THAN SPIL. THE CARACO, A 100% SUBSIDIARY OF THE ASSESSEE, WAS EARLIER HAVING AN AGREEMENT WITH A SSESSEE FOR PURCHASE OF FORMULA OF GENERIC PRODUCTS AND SUBSEQUENTLY IT HAD ANOTHER AGREEMENT WITH ANOTHER 100% SUBSIDIARY OF THE ASSESSEE WHICH IS SUN BVI FOR PURCHASE OF GENERIC PRODUCTS AND IT HAS CLAIMED TO HAVE PURCHASED SUCH FORMULA FROM TWO OF THE SUBSIDIARIES OF THE ASSESSEE WHICH APPARENTLY DID NOT HAVE SUFFICIENT R&D FACILITY FOR DEVELOPING SUCH PRODUCTS AND HENCE IT IS BELIEVED THAT R&D FACILITY OF THE ASSESSEE HAVE BEEN USED FOR DEVELOPING THE PRODUCTS WHICH HAVE BEEN PURCHASED BY SUN BVI FORM UNIMED AND OTHER SUBSIDIARY OF THE ASSESSEE. SINCE BOTH THE CONCERNS I.E. UNIMED AND M J PHARMACEUTICALS WERE SISTER CONCERNS OF THE ASSESSEE AT THE GIVEN POINT OF TIME AND THESE CONCERNS DID NOT HAD PROPER AND SUFFICIENT R&D FACILITY TO DEVELOP SUCH PRODU CTS THERE WAS A REASON TO BELIEVE STRONGLY THAT THEY HAD NOT BUT SPIL ACTUALLY HAD DEVELOPED THE PRODUCTS PURCHASED BY SUN GLOBAL BVI. SECONDLY A SURVEY OPERATION U/S 133A WAS CONDUCTED IN THE CASE OF SPIL BY THE ASST. DIRECTOR OF INCOME TAX (INV.), UNIT - VII(L), MUMBAI ON 08.11.2011 AT THE SIX BUSINESS PREMISES BELONGING TO THE ABOVE ASSESSEE. LARGE NUMBER OF INCRIMINATING DOCUMENTS WERE FOUND AND IMPOUNDED DURING THE COURSE OF SURVEY OPERATION AND THE SAME WERE FORWARD TO THIS OFFICE ALONG WITH THE SURVEY REPORT. ON ANALYSIS OF THE IMPOUNDED MATERIAL AND AFTER GOING THROUGH THE SURVEY REPORT, IT WAS HELD BY THE AO THAT IT IS A DEVICE ADOPTED BY THE ASSESSEE TO EVADE TAX IN INDIA AND SHOW PROFIT IN THE CASE OF A SUBSIDIARY COMPANY SUN BVI BASED IN BRITISH V IRGIN ISLAND, A TAX HEAVEN. THEREFORE ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 20 THE PROFIT OF SUN J BVI ON THE TRANSFER OF THESE 25 TECHNOLOGIES IS HELD AS TAXABLE IN INDIA WHICH IS TABULATED HEREUNDER FOR THE ASSESSMENT YEAR UNDER CONSIDERATION: SR. NO. ASST. YEAR AMOUNT IN USD AVERAGE RATE O F US DOLLAR FOR THE YEAR AMOUNT IN RS. 1 2008 - 09 112,70,640 40.24 45,35,30,553 IN VIEW OF THE ABOVE INFORMATION AND EVIDENCES, THE AO HELD THAT THE ASSESSEE HAS ADOPTED DUBIOUS DEVICES AND DIVERTED ITS PROFIT AND THEREBY INCOME TO THE EXTENT OF RS. 45,35,30,553 / - AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 1.2 DECISION OF LD.CIT (APPEALS) - 2, VADODARA: DURING THE APPELLATE PROCEEDING LD.CIT(APPEALS) UPHELD THE INFERENCE DRAWN BY THE AO THAT THE SECOND AGREEMENT BETWEEN SUN BVI CARACO U SA WAS AN EXTENSION OF THE ORIGINAL AGREEMENT BETWEEN ASSESSEE AND CARACO USA & THAT IT HAD DIVERTED THE PROFIT TO THE SUN BVI, WHICH IS NOT PAYING ANY TAX. HENCE, ON THE BASIS OF THESE DISCUSSIONS, IT IS HELD THAT THE AO HAS RIGHTLY TAXED THE INCOME RECEI VABLE ON ACCOUNT OF TRANSFER OF TECHNOLOGY TO CARACO BY SUN BVI IN THE HANDS OF THE APPELLANT. SO FAR AS THE ALTERNATE CONTENTION OF THE APPELLANT THAT IF THE ENTIRE CONSIDERATION IS TAXED IN ITS HANDS, THEN THE HIRE CHARGES RECEIVED FROM M/S. UTL SHOULD BE REDUCED FROM THE INCOME OF THE APPELLANT IS CONCERNED, THE SAME IS ACCEPTABLE. THE HIRE CHARGES OF RS. 660.7 LAKHS SHOWN BY THE APPELLANT IN ITS INCOME AS HAVING RECEIVED FROM UTL, IS A PART OF CONSIDERATION WHICH WAS RECEIVABLE BY THE APPELLANT FROM M/ S. CARACO USA. HENCE, THE AO IS DIRECTED TO REDUCE THIS AMOUNT WHILE I COMPUTING THE TAXABLE INCOME OF THE APPELLANT FOR THIS YEAR. 1 . 3. REMARKS: THE DECISION OF THE LD.CIT (A) WAS NOT ACCEPTED BY THE DEPARTMENT. THE LD CIT(A) ERRED IN HOLDING THAT HIRE CHARGES RECEIVED FROM M/S. UTL IS A PART OF CONSIDERATION RECEIVABLE FROM M/S. CARACO USA WHEREAS THE AO HAS ONLY TAXED THE INCOME RECEIVABLE ON ACC OUNT OF TRANSFER OF TECHNOLOGY TO CARACO BY SUN BVI AND WHICH DID NOT INCLUDE PROFIT EARNED BY THE UNIMED TECHNOLOGIES LTD. IT HAS BEEN CLEARLY MENTIONED BY THE AO THAT THE TECHNOLOGIES HAD BEEN SOLD BY UNIMED TECHNOLOGIES LTD. TO SUN BVI FOR US$ 4,00,000 AND SUN BVI SOLD THE SAME TECHNOLOGIES TO CARACO FOR US$ 1,17,19,362. ACCORDINGLY, THE AO HELD THAT THE ASSESSEE DIVERTED ITS PROFIT AND SUPPRESSED THE ACTUAL VALUE OF TRANSACTION WHICH RESULTED INTO THE TAXATION OF PROFIT IN INDIA, AS TABULATED HEREUNDER : ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 21 SR. NO. ASST. YEAR AMOUNT IN USD AVERAGE RATE OF US DOLLAR FOR THE YEAR AMOUNT IN RS. 1 2008 - 09 112,70,640 40.24 45,35,30,553 THUS, THE AO HAS NOT TAXED ANY INCOME EARNED BY M/S. UNIMED TECHNOLOGIES LTD. ON ACCOUNT OF AFORESAID TRANSACTION (US$ 4,00,000) AS MENTIONED ABOVE AND ALSO THE SAID HIRE CHARGES WAS NOT PART OF CONSIDERATION WHICH WAS BROUGHT TO TAX IN THE HANDS OF ASSESSEE ON ACCOUNT OF AFORESAID TRANSACTION. 1.3.1. FURTHER REGARDING NATURE OF SUCH RECEIPTS ON ACCOUNT OF SALE OF TECHNOLOGY, THE ID. CIT (A) HELD THAT THE ASSESSEE HAS DEVELOPED THESE TECHNOLOGIES FOR M/S. CARACO, USA AS PER THE AGREEMENT ENTERED IN THIS REGARD. THIS IS NOT A CASE WHERE THE ASSESSEE HAS TRANSFERRED A TECHNOLOGY ALREADY OWNED BY IT TO M/S. CARACO USA. UNDER SUCH CIRCUMSTANCES, THE ASSESSEE'S CLAIM THAT THE RECEIPT FROM CARACO USA IS IN THE NATURE OF CAPITAL RECEIPT IS NOT CORRECT AND IS ACCORDINGLY REQUIRED TO BE REJECTED. SUCH SALE OF TEC HNOLOGY IS IN THE NATURE OF REVENUE RECEIPT. 1.3.2. FURTHER REGARDING THE CLAIM OF THE ASSESSEE REGARDING COMPUTATION OF CONSIDERATION IS CONCERNED, THE ID. CIT(A) HELD THAT THE ASSESSEE HAS NOWHERE DEMONSTRATED THAT THE AGREEMENT PROVIDED FOR COMPUTATIO N OF CONSIDERATION ON THE BASIS OF THE PRICE OF SHARES OF CARACO, USA ON THE DATE OF AGREEMENT ITSELF. IN THE ABSENCE OF ANY SUCH CONDITION, THE CONSIDERATION HAS BEEN RIGHTLY COMPUTED BY THE AO ON THE BASIS OF SHARE PRICE OF CARACO USA PREVAILING ON THE D ATE OF TRANSFER OF TECHNOLOGY TO C ARACO USA. HENCE, THESE CONTENTIONS OF THE ASSESSEE ARE ALSO REQUIRED TO BE REJECTED. 9 . 1 THE LD. DR ALSO CONTENDED THAT IT IS NOT POSSIBLE FOR UTL TO CARRY OUT R& D PROCESS AT THE BARODA FACILITY OF THE ASSESSEE WHEN ONLY MUMBAI FACILITY IS MENTIONED IN THE AGREEMENT. 9 . 2 THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 10. THE LEARNED AR FOR THE ASSESSEE IN HIS REJOINDER SUBMITTED AS UNDER: ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 22 1. ADDITIONAL SUBMISSIONS THE ABOVE MATTER WAS HEARD BY THE HON'BLE BENCH FROM TIME TO TIME. WE ARE EXTREMELY OBLIGED TO THE HON'BLE BENCH FOR THE PATIENT HEARING GRANTED IN THE ABOVE MATTER. AS DIRECTED BY THE BENCH WIT H RESPECT TO CERTAIN QUERIES ON UNIMED TECHNOLOGIES LTD (UTL), THE APPELLANT, AFTER OBTAINING CERTAIN FACTUAL INFORMATION FROM UTL, WISHES TO STATE AND SUBMIT AS UNDER: 1.1 UTL IS A PUBLIC LIMITED COMPANY, BEARING CIN NUMBER U65999GJ1988PLC 010304. I T WAS INCORPORATED AS UNIMED TECHNOLOGIES PRIVATE LIMITED' ON JANUARY 27, 1988. FURTHER IT WAS CONVERTED TO PUBLIC COMPANY AS 'UNIMED TECHNOLOGIES LIMITED' ON APRIL 3, 1996 UNDER THE PROVISIONS OF COMPANIES ACT, 1956. THE REGISTERED OFFICE OF UTL IS SITUAT ED AT SURVEY NO. 22&24, VILLAGE UJETI POST BASKA, BASKA - UJETI ROAD, DIST. PANCHMAHAL, HALOL - 389350, GUJARAT. UTL HAD 4 DIRECTORS ON ITS BOARD FOR THE YEAR UNDER CONSIDERATION. 1.2 UTL IS ENGAGED IN THE BUSINES S OF PHARMACEUTICAL PRODUCTS AS MANUFACTUR ERS, DEALERS, JOB WORKERS, PROCESSORS, SELLERS, RETAILERS, WHOLESALERS, IMPORTERS AND EXPORTERS. UTL SELLS PHARM ACEUTICAL PRODUCTS IN DOMESTIC AND OVERSEAS MARKET. UTL ALSO HAS ITS OWN DEDICATED AND EXCLUSIVE RESEARCH AND DEVELOPMENT FACILITY HAVING REQUIS ITE INFRASTRUCTURE, | PERSONNEL AND RESOURCES. 1.3 WITH RESPECT TO THE QUESTION PERTAINING TO THE M ANNER IN WHICH THE VALUATION OF SHARES WAS CARRIED OUT TO DISCHARGE THE CONSIDERATION PAID BY CARACO PHARMACEUTICALS LABORATORIES LTD. ( ' CARACO'), IT IS SUBMITTED THAT PURSUANT TO THE AGREEMENT ENTERED IN TO BETWEEN THE CARACO AND SPG BVI, FOR EACH OF THE PRODUCT DELIVERED, SPG BVI WAS ENTITLED TO RECEIVE 5,44,000 SHARES AS CONSIDERATION. ' THE NUMBER OF SHARES AS CONSIDERATION WERE DETERMINED CONSIDERING THE LONG - TERM STRATEGIC INTERESTS SERVING D UAL PURPOSE OF (I) TRANSFER OF TECHNOLOGY AND (II) I NCREASE IN THE STAKE IN CARACO . THE AGREEMENT DETERMINING THE CONSIDERATION IN FORM OF SHARES WAS ENTERED IN THE YEAR 2002. IT WAS FURTHER AGREED THAT THE CONSIDERATION WAS TO BECOME DUE AS ON SUCH TIME WHEN THE RESPECTIVE PRODUCT PASSED ITS APPLICABLE BIO - ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 23 EQUIVALENCY STUDIES. THE FAIR VALUE OF SUCH SHARES IS BASED UPON AN INDEPENDENT VALUATION AND ITS INCLUDES A DISCOUNT FOR MARKETABILITY. 1.4 WITH RESPECT TO THE DETAILS REQUIRED BY YOUR HONOURS PERTAINING TO THE R&D FACILITIES, IT IS SUBMITTED THAT THE UTL HAD R&D FACILITY, LOCATED IN PANCHMAHAL DISTRICT, HALOL, GUJARAT. THE R&D FACILITY HAD A STRENGTH OF AROUND ITPERSONNEL ENGAGED IN PERFORMING VARIOUS ACTIVITIES IN THIS R&D FACILITY. THE R&D FACILITY IS HAVING REQUISITE EQUIPMENT AND APPARATUS LIKE HPL C SYSTEM, ANALYSER, OSMO METER, MOISTURE ANALYSER, TESTER, TABLET COATING MACHINE, RMG ETC. THE R&D FACILITY WAS PRIMARILY ENGAGED IN CONDUCTING RESEARCH AND DEVELOPMENT IN THE FIELD OF DEVELOPMENT OF PHARMACEUTICAL FORMULATIONS AND PRODUCTS FOR CAPTIVE US E AND OTHERS. IN ITS FACILITY, UTL HAS UNDERTAKEN R&D ACTIVITY FOR DEVELOPMENT OF THE PRODUCT TECHNOLOGIES AND ALSO INCLUDED ANALYSIS, SCALING - UP, VALIDATION, EXHIBITING BATCHES ETC. FURTHER, IT IS SUBMITTED THAT UTL HAS NOT UNDERTAKEN ANY R&D ACTIVITY FO R THE APPELLANT. HOWEVER, IT HAD TAKEN SOME S UPPORT FROM THE APPELLANT FOR PERFORMING CERTAIN R&D OPERATIONS. 2. REBUT TAL TO ARGUMENTS RAISED BY LD. D R IN RESPONSE TO THE CERTAIN ARGUMENTS RAISED BY THE ID. DR, THE APPELLANT WISHES TO STATE AND SUBMIT AS UNDER: 2.1 IT IS THE CONTENTION OF THE ID. DR THA T THE STATEMENT GIVEN BY DR. T. RAJMANNAR IS EXTREMELY RELEVANT AS HE, BEING THE EXECUTIVE DIRECTOR OF THE R&D OPERATIONS OF THE APPELLANT, IS SUPPOSED TO BE IN KNOWLEDGE OF THE ENTIRE AFFAI RS OF THE APPELLANT INCLUDING THE CONTRACT ENTERED INTO WITH UTL. 2.1.1 IN RESPONSE TO THE ABOVE CONTENTION, AT THE VERY OUTSET, IT IS SUBMITTED THAT THE STATEMENT OF DR. T. RAJAMANNAR WAS RETRACTED BY HIM AND HENCE RELIANCE PLACED ON SAME IS UNCALLED FOR. FURTHER, IT IS SUBMITTED THAT THE STATEMENT RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS IS ILLEGAL AND HENCE CANNOT BE RELIED UPON. IN THIS ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 24 REGARD, IT IS SUBMITTED THAT THE POWER TO RECORD STATEMENT OF EMPLOYEES AND DIRECTORS ON OATH IS AVAILABL E UNDER SECTION 131 READ WITH SECTION'133(6) OF THE INCOME - TAX ACT, 1961 ('THE ACT'). AS PER THE SAID PROVISIONS OF THE ACT, THE POWER CAN BE EXERCISED ONLY IN CASE WHERE THE ASSESSEE HAS NOT AFFORDED FACILITY TO INCOME - TAX AUTHORITY TO INSPECT BOOKS OF AC COUNT OR OTHER DOCUMENTS OR TO CHECK OR VERIFY ANY CASH, STOCK OR OTHER VALUABLE ARTICLE OR THING OR TO FURNISH ANY INFORMATION. IN THE PRESENT CASE, THE LEARNED ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION REGARDING THE APPELLANT'S NON - CO - OPERATION DURING THE COURSE OF SURVEY PROCEEDINGS. THUS, THE STATEMENT RECORDED, WHICH IS ITSELF NOT AS PER LAW, CANNOT BE CONSIDERED AS RELEVANT FOR THE PURPOSE OF DETERMINING THE CASE. ALSO, IT IS SETTLED LEGAL PRINCIPLE THAT THE STATEMENT REC ORDED U/S. 133A OF T HE ACT IN THEMSELVES HAVE NO EVIDENTIARY VALUE. HENCE, IN THE FACTS OF THE PRESENT CASE, NO SUBSTANTIAL RELEVANCE SHOULD BE PLACED UPON THE STATEMENTS RECORDED U/S. 133A OF THE ACT. 2.1.2 ALSO, IT IS THE CONTENTION OF THE ID. DR THAT DR. T. RAJMANNAR B EING EXECUTIVE DIRECTOR OF THE R&D OPERATIONS OF THE APPELLANT, IS SUPPOSED TO BE IN KNOWLEDGE OF THE ENTIRE AFFAIRS OF THE APPELLANT INCLUDING THE CONTRACT ENTERED INTO WITH UTI. IN THIS REGARD, IT IS SUBMITTED THAT IT IS NOT AT ALL PRACTICAL TO SAY THAT THE DR. T. RAJMANNAR, BEING EXECUTIVE DIRECTOR OF THE R&D ACTIVITIES, I S SUPPOSED TO BE AWARE ABOUT THE ENTIRE AFFAIRS OF THE APPELLANT. THE APPELLANT CARRIES OUT THE BUSINESS OPERATIONS ON A VERY EXTENSIVE AND LARGE - SCALE BASIS. IN SUCH A SCENARIO, IT IS NOT POSSIBLE THAT A PERSON RESPONSIBLE FOR LOOKING AFTER THE R&D OPERAT IONS WILL BE AWARE ABOUT ALL THE AGREEMENTS ENTERED IN TO BY THE APPELLANT IN ITS ENTIRETY. HE MAY POSSESS DETAILED KNOWLEDGE ABOUT THE R&D OPERATIONS CARRIED OUT BY THE APPELLANT BUT MAY HAVE VERY LIMITED KNOWLEDGE IN RESPECT OF THE AGREEMENTS ENTERED IN TO BY THE APPELLANT PURSUANT TO WHICH SUCH R&D OPERATIONS ARE CARRIED OUT. ALSO, BEING A SCIENTIST, HE SHALL NOT BE EXPECTED TO POSSESS DETAILED UNDERSTANDING ABOUT THE LEGAL, FINANCE, ACCOUNTING AND TAX IMPLICATIONS OF EACH AND EVERY TRANSACTION UNDERTAKE N BY THE APPELLANT. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 25 FURTHER, THE STATEMENT WAS RECORDED IN SUCH AN ATMOSPHERE WHERE HE WAS PRESSURED WAS TO ACCEPT AND CONFIRM THE FACTS TO WHICH HAD VERY LIMITED UNDERSTANDING. ALSO, THE STATEMENTS WERE RECORDED WHEN HE WAS EXTREMELY TIRED AND FATIGUED W HICH IS CLEARLY EVIDENT FRO M THE AFFIDAVIT FILED BY DR. T. RAJMANNAR RETRACTING HIS STATEMENT DATED 11 TH NOVEMBER, 2011. (PAGE NO. 259 TO 262 OF PAPER BOOK). THUS, IN THE PRESENT CIRCUMSTANCES, THE STATEMENT GIVEN BY DR. T. RAJMANNAR SHOULD NOT BE CONSIDERED AS MATERIAL FOR THE PURPOSE OF ; ADJUDICATING UPON THE CASE. 2.2 THE ID. DR ALSO REFERS TO THE STATEMENT GIVEN BY SHRI DILIP SHANGHVI, CHAIRMAN, WHO HAS ACCEPTED THAT SPG BVI DOES NOT HAVE ANY IMMOVABLE ASSETS AND ANY R&D FA CILITY OF ITS OWN. 2.2.1 IN THIS REGARD, IT IS SUBMITTED THAT THE SPG BVI HAD ACQUIRED THE TECHNOLOGIES FROM UTL. IT WAS NEVER CLAIMED BY THE APPELLANT THAT SPG BVI WAS HAVING ITS OWN R&D FACILITY AND IMMOVEABLE ASSETS. THUS, THE QUESTION OF SPG BVI HA VING IMMOVABLE ASSETS AND R&D FACILITY OF ITS OWN IS NOT EVEN RELEVANT AS THE TECHNOLOGIES WERE ACQUIRED BY SPG BVI FROM UTL. 2.2.2 FURTHERMORE, IT IS NOT THE CASE THAT SPG BVI, AS A COMPANY, DOES NOT OWN ANY ASSETS OF ITS OWN. SPG BVI IS AN ENTITY ENGA GED IN THE PHARMA BUSINESS AND THAT IPS CONSTITUTES ITS MAJOR ASSETS BASE. HENCE THE ARGUMENT RAISED BY THE ID. DR THAT SPG BVI DOES NOT OWN ANY ASSETS IS FALSE AS IT OWNS VARIOUS IPRS / ANDAS RIGHT. THUS, SPG BVI OWNS THE MOST IMPORTANT ASSETS THAT DRIVE THE GENERICS PHARMA BUSINESS I.E., ANDA APPROVAL UNDER THE PARA IV FILING OF THE PRODUCT IPRS AND THAT IT ALSO FACES THE BIGGEST RISK OF PROLONGED LITIGATION ARISING THEREFROM. IN SUPPORT OF OUR ABOVE ARGUMENT, WE WOULD ALSO LIKE TO HIGHLIGHT THE FACT TH AT FOR THE YEAR UNDER CONSIDERATION, THE ISSUE IN CONNECTION TO THE SALE OF THE PANTAPRAZOLE SODIUM TABLETS BY SPG BVI TO CARACO WAS RAISED BY THE TRANSFER PRICING OFFICER (TPO) IN CONNECTION TO THE OWNERSHIP OF SPG BVI OVER THE IPRS / ANDAS RIGHTS OF THE PRODUCTS IN ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 26 QUESTION. AGAINST THE ORDER OF THE TPO AS FURTHER ENHANCED BY THE CIT (A), THE APPELLANT HAD PREFERRED AN APPEAL BEFORE THE HON'BLE BENCH OF THIS TRIBUNAL. THE HON'BLE BENCH AFTER VERIFYING THE DOCUMENTS AND DULY CONSIDERING THE SUBMISSIONS MAD E I BY THE APPELLANT AND REVENUE IN THIS REGARD, HAD COME TO THE FINDING THAT THE OWNERSHIP OF IPR/ANDA RIGHTS WAS WITH SPG BVI. THUS, THE FACT THAT THE OWNERSHIP OF THE IPR / ANDA VESTED WITH UTL HAS ALSO BEEN CONFIRMED BY THE HON'BLE TRIBUNAL WHICH IS B EING THE FINAL FACT - FINDING AUTHORITY UNDER THE ACT. THUS, THE ARGUMENTS MADE BY THE ID. DR QUESTIONING THE ASSET BASE OF SPG BVI ARE REPETITIVE AND DEVOID OF MERIT. HENCE, THE ARGUMENT RAISED BY THE .ID. DR IN CONNECTION TO THE STATEMENT GIVEN BY SHRI DI LIP SHANGHVI IS NOT AT ALL RELEVANT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. SPG BVI DOES EXIST IN SUBSTANCE AS IT POSSESSED SIGNIFICANT NUMBER OF INTANGIBLES LIKE IPR / ANDA RIGHTS AND OTHER ASSETS IN ITS NAME. 2.3 THE ID. DR HAS ALSO BE EN PLACING RELIANCE ON THE STATEMENTS GIVEN BY DR. T. RAJAMANNAR TO ESTABLISH THAT THE UTL IS A PART OF THE APPELLANT GROUP OF COMPANIES. 2.3.1 IN RESPONSE TO THIS, BASED ON THE AFORE - MENTIONED SUBMISSIONS IN POINT 2.1, IT IS REITERATED THAT STATEMENT GIV EN BY DR. T. RAJAMANNAR SHOULD NOT BE CONSIDERED AS RELEVANT FOR THE PURPOSE OF DECIDING THE PRESENT CASE. 2.3.2 WITHOUT PREJUDICE TO THE ABOVE, IT IS HER EBY CLARIFIED THAT UTL AND THE APPELLANT ARE INDEPENDENT ENTITIES. THEY ARE NOT EVEN RELATED IN CONTEXT OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. SHAREHOLDING PATTERN OF UT L IS ATTACHED VIDE ANNEXURE - B. FURTHER, THE APPELLANT IS A LISTED COMPANY WHICH IS R EQUIRED TO FOLLOW VARIOUS | ACCOUNTING STANDARDS ('AS') ISSUED BY T HE INSTITUTE OF CHARTERED , ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 27 ACCOUNTANTS OF INDIA. ACCORDINGLY, THE APPELLANT IS MANDATED TO FOLLOW AS - 18 - RELATED PARTY DISCLOSURES WHICH IS MUCH WIDER IN ITS SCOPE AND APPLICATION AS COMPARED TO PROVISIONS OF SECTION 40(A)(2)(B) OF THE ACT. HO WEVER, EVEN AS PER THE ENLARGED SCOPE OF DEFINITION OF THE TERM 'RELATED PARTY' AS STATED IN AS - 18, UTL IS NOT RELATED PARTY OF THE APPELLANT. THUS, BY NO INSTANCE IT CAN BE SAID THAT THE UTL IS A PART OF APPELLANT GROUP OF COMPANIES. 2.4 THE ID. DR HAS REFERRED CERTAIN CLAUSES OF THE AGREEMENT DATED 4.4.2007 ENTERED IN TO BETWEEN UTL AND THE APPELLANT (THE 'SAID AGREEMENT') (PAGE NO. 283 TO 290 OF THE PAPER BOOK) TO POINT OUT THAT THE TECHNOLOGIES ARE DEVELOPED AND OWNED BY THE APPELLANT. 2.4.1 A T THIS JUNCTURE, IT IS IMPORTANT TO HIGHLIGHT THE CLAUSE 11 OF THE SAID AGREEMENT WHICH SPECIFICALLY STATES THAT THE INTELLECTUAL PROPERTY RIGHTS BELONG TO UNIMED TECHNOLOGIES LTD. AND THE APPELLANT SHALL BE HAVING NO RIGHTS WHATSOEVER ON THE DOSSIERS DEVE LOPED IN ITS PREMISES. THE RELEVANT EXTR ACT IS REPRODUCED AS UNDER: '.... ANY AND ALL INFORMATION, INVENTIONS AND DISCOVERIES, WHETHER OR NOT PATENTABLE, WHETHER COMPLETE OR INCOMPLETE, WHICH SPIL DEVELOPS AND/OR MAKES AS THE RESULT OF SERVICES PERFORMED BY SPIL UNDER THIS AGREEMENT, UTL SHALL BE THE SOLE AND EXCLUSIVE PROPERTY OF THE CLIENT AND SHALL BE ASSIGNED/TRANSMITTED TO UTL ON TERMINATION/EXPIRY OF THE RESPECTIVE WORK OR ON REQUEST BY UTL. IT IS A PRIMARY RULE THAT FIRSTLY, ENTIRE AGREEMENT IS TO BE READ AND SECONDLY, IT IS TO BE INTERPRETED IN THE WAY PARTIES INTEND IT TO BE. THUS, ON READING THE SAID AGREEMENT IN ITS ENTIRETY IT CAN BE CONCLUDE D THAT THE INTELLECTUAL PROPERTY RIGHTS SHALL BELONG TO UTL A ND THE APPELLANT SHALL BE HAVING NO RIGHTS WHATSOEVER ON THE DOSSIERS DEVELOPED IN ITS PREMISES. 2.5 IT IS ALSO THE ARGUMENT OF THE ID. DR THAT THE CONSIDERATION PAYABLE BY UTL TO THE APPE LLANT WAS VAGUE AND NOT SPECIFICALLY STATED IN THE SAID AGREEMENT. THE ID. DR ALSO HIGHLIGHTED THE CLAUSE IN THE SAID AGREEMENT ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 28 WHEREIN IT HAS BEEN MENTIONED THAT BOTH THE PARTIES WOULD MUTUALLY DECIDE UPON THE CONSIDERATION FROM TIME TO TIME. 2.5.1 IN THIS REGARD, IT IS SUBMITTED THAT THE ID. DR HAS ONCE AGAIN FAILED TO READ AND CONSIDER THE ENTIRE AGREEMENT. THE RELEVANT CLAUSE 3 OF THE SAID AGREEMENT WHICH DEALS WITH THE CONSIDERATION EXPLICITLY SPECIFIED THE PRICE WHICH SHALL BE CHARGED BY THE APPEL LANT TO UTL. ATTENTION IS INVITED TO THE CLAUSE 3 OF THE SAID AGREEMENT. THE RELEVANT E XTRACT IS REPRODUCED FOR READY REFERENCE: 'FOR CONSIDERATION OF CARRYING OUT OF RESEARCH AND DEVELOPMENT ACTIVITIES FOR THE PRODUCTS FOR UTL BY SPIL AND TRANSF ER OF THE KNOW - HOW FOR MANUFACTURING OF THE SAME TO UTL BY SPIL, SPIL HAS AGREED TO CHARGE THE PRICE BEING ESTIMATED COST OF CARRYING OUT SUCH RESEARCH AND DEVELOPMENT ACTIVITIES AS INCREASED BY THE MARGIN NOT EXCEEDING 15% OF SUCH ESTIMATED COST WHICH W OULD BE MUTUALLY AGREED UPON BY BOTH THE PARTIES FROM TIME TO TIME.' [EMPHASIS SUPPLIED] IT MAY BE NOTED THAT WHAT WAS AGREED TO BE DECIDED FROM TIME TO TIME WAS THE PERCENTAGE OF THE MARGIN WHICH SHALL BE CHARGED BY THE APPELLANT TO UTL AND NOT THE ENTIRE CONSIDERATION. THE CONSIDERATION WAS FIXED WHICH WAS ESTIMATED COST OF CARRYING OUT RESE ARCH AND DEVELOPMENT ACTIVITIES + MARGIN (%). THUS, THE ID. DR HAS ONCE AGAIN FAILED TO INTERPRET THE TERMS OF THE AGREEMENT I N RIGHT PERSPECTIVE. 2.5.2 WITHOUT PREJUDICE TO THE ABOVE, IT IS ALSO SUBMITTED THAT IN THE PRESENT CASE, THE TERMS AGREED UPON BETWEEN THE PARTIES ARE COMMERCIALLY ACCEPTED AND ARE ALSO QUITE NORMAL UNDER THE ORDINARY COURSE OF BUSINESS. FURTHER, IT IS AT THE SOLE DISCRETION OF THE PARTIES TO DECIDE THE TERMS OF AGREEMENT. IN CASE WHERE A COMMERCIAL AGREEMENT IS ENTERED INTO BETWEEN THE TWO ENTITIES CARRYING ON BUSINESS, THE REVENUE CANNOT ENTER INTO THE ARRANGEMENT AND DICTATE AS TO WHAT SHOULD BE THE TERMS OF THE AGREEMENT. IT IS FOR THE ENTITIES TO DECIDE WHAT KIND OF AGREEMENT TO BE EXECUTED AFTER TAKING INTO CONSID ERATION, QUESTIONS OF COMMERCIAL ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 29 EXPEDIENCY. IT IS NOT OPEN FOR ANYONE ELSE TO QUESTION OR DECIDE THE BEST BUSINESS STRATEGY FOR THE PARTIES CARRYING ON THE BUSINESS. ALSO, IT HAS BEEN TIME AND AGAIN UPHELD BY THE JUDICIAL AUTHORITIES THAT THE ASSESSING O FFICER CANNOT STEP INTO THE SHOES OF THE BUSINESSMAN TO DECIDE UPON HOW THE BUSINESS IS TO BE CONDUCTED. THUS, IN THE PRESENT CASE, THE REVENUE HAS NO POWER TO QUESTION THE TERMS OF THE AGREEMENT ENTERED IN TO BY THE APPELLANT WHICH ARE NORMAL UND ER ORDI NARY COURSE OF BUSINESS. 2.6 IT IS THE ARGUMENT OF THE ID. DR THAT THE AP PELLANT HAD LET OUT THE R&D FACILITY LOCATED AT MUMBAI TO UNIMED TECHNOLOGIES LTD. WITHOUT ANY AGREEMENT. IN THIS REGARD, IT IS SUBMITTED THAT THE ARGUMENT RAISED BY T HE ID. DR IS FACTUALLY INCORRECT. THE ID. DR HAS PROCEEDED ON THE WRONG UNDERSTANDING OF FACTS OF THE CASE. THE AGREEMENT ENTERED IN TO WITH UNIMED TECHNOLOGIES LTD. SPECIFICALLY STATES THAT THE RESEARCH AND DEVELOPMENT ACTIVITIES SHALL BE CARRIED OUT AT B OTH THE RESEARCH FACILITIES LOCATED AT MUMBAI AND BARODA ; PREMISES RESPECTIVELY. ATTENTION IS INVITED TO THE CLAUSE 1 OF THE SAID AGREEMENT. RELEVANT EXTRACT IS REPRODUCED AS UNDER FOR READY REFERENCE: 'SPIL AGREES TO CARRY OUT SUCH PHARMACEUTICAL RESEAR CH AND DEVELOPMENT ACTIVITIES AS MAY BE MUTUALLY AGREED Y UTL AND SPIL FROM TIME TO TIME, FOR DEVELOPMENT OF VARIOUS PHARMACEUTICAL PRODUCTS ....... AT SPIL'S RESEARCH CENTRES AT 17/B, MAHAL INDUSTRIAL ESTATE, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI - MAHARASHTRA 400 093 AND AT SPIL, TANDALJA, VADODARA - 390 020, GUJARAT. ' [EMPHASIS SUPPLIED] THUS, THE ARGUMENT RAISED BY THE ID. DR CANNOT BE CONSIDERED SINCE IT IS FACTUALLY INCORRECT. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 30 2.7 THE ID. DR HAS ALSO POINTED OUT THAT THE SPG BVI HAS NO RISK APPETITE TO ABSORB ANY LOSSES OF CLAIMS ARISING ON ACCOUNT OF THE LITIGATION. IN THIS REGARD, IT IS SUBMITTED THAT SPG BVI BY ACQUIRING THESE TECHNOLOGIES HAS BEEN SUBJECTED TO VERY HIGH RISK. RISK IS A VERY SUBJECTIVE TERM AND DEP ENDS UPON THE SEVERAL FACTORS. IT IS NOT AT ALL PRAGMATIC TO JUDGE RISK APPETITE OF AN ENTITY CARRYING ON BUSINESS AS IT DEPENDS ON SEVERAL FACTORS AND WHICH VARIES FROM CASE TO CASE. AT THIS JUNCTURE, ATTENTION IS ALSO INVITED TO THE FACT WHICH IS WELL IN PUBLIC DOMAIN THAT SPG BVI HAD TO FACE SEVERE LITIGATION FOR SOME OF THE PRODUCTS REGISTERED IN ITS NAME. THE LITIGATION SUBSEQUENTLY RESULTED INTO SIGNIFICANT AMOUNT OF INFRINGEMENT CLAIMS ARISING WHICH WERE BORNE AND PAID BY SPG BVI. IT IS SUBMITTED TH AT THE ARGUMENTS RAISED BY THE ID. DR HAVE ALREADY BEEN RAISED BEFORE AND ALSO BEEN SUBJECT MATTER OF DISCUSSION BEFORE THE HON'BLE BENCH OF THIS TRIBUNAL FOR THE YEAR UNDER CONSIDERATION. THE HON'BLE BENCH WAS DEALING WITH THE ISSUE OF APPLICABILITY OF AL P AND THE MOST APPROPRIATED METHOD THAT OUGHT TO HAVE BEEN APPLIED ON SALE OF PANTAPRAZOLE PRODUCT. IN THE ARGUMENTS RAISED BY THE REVENUE THEN, IT WAS ONE OF ITS MAIN CONTENTION THAT THE SPG BVI HAS NOT ASSUMED ANY RISK NOR DID IT HAVE OWNERSHIP OF IPRS / ANDAS AND ACCORDINGLY IT WAS THE CLAIM THAT THE PROFITS FROM TRANSACTION FROM SALE OF PRODUCT/S BY SPG BVI TO CARACO WERE TO BE ATTRIBUTED TO THE APPELLANT IN THE RATIO OF 80:20. THE SAID CONTENTION HAVE BEEN DEALT WITH AND DISCUSSED BY THIS HON'BLE BENCH AND AFTER DELIBERATION THEREON THE MATTER HAD BEEN DECIDED IN FAVOR OF THE APPELLANT. THUS, THE ID. DR BY THE ARGUMENTS RAISED IN THE PRESENT MATTER IS TRYING TO MAKE SAME ARGUMENTS AS HAVE BEEN MADE BEFORE AND WHICH HAS BEEN EXPLICITLY DISCUSSED AND DISM ISSED, DECIDING THE MATTER IN FAVOR OF APPELLANT AND ALSO UPHOLDING THAT SPG BVI HAD SIGNIFICANT SUBSTANCE, IT WAS HOLDING SUBSTANTIAL ASSETS AND BEARING VARIOUS RISKS ASSOCIATED THERETO. THUS, THE ARGUMENTS RAISED BY THE ID. DR ARE REPETITIVE AND DEVOID O F MERITS. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 31 THUS, THERE IS NO BASE IN THE ARGUMENT RAISED BY THE ID. DR TO SAY THAT THE SPG BVI HAS NO RISK APPETITE TO ABSORB LOSSES OF CLAIMS ARISING O N ACCOUNT OF THE LITIGATION. HOPE THE ABOVE SUBMISSIONS SUFFICE YOUR HONOURS REQUIREMENT. IN CASE YOU R HONOURS REQUIRES ANY FURTHER INFORMATION AND/OR CLARIFICATION IN RELATION TO THE ABOVE, WE SHALL BE PLEASED TO FURNISH THE SAME. 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION , WE NOTE THAT THE AO HAS FRAMED VARIOUS ALLEGATIONS AGAINST THE ASSESSEE WHICH HAVE ALREADY BEEN DISCUSSED IN DETAIL IN THE PRECEDING PARAGRAPH. THEREFORE, WE ARE NOT INCLINED TO REPEAT THE SAME FOR THE SAKE OF BREVITY AND CONVENIENCE. NOW TO ADJUDICATE THE ISSUE AS DISCUSSED ABOVE CERTAIN QUESTION S EMERGE S AS DETAILED UNDER: I. WHETHER UTL WAS A NAME LENDER IN THE IMPUGNED TRANSACTIONS, II. WHETHER THE STATEMENT OF DR. T. RAJAMANNAR, HEMANG SETH RECORDED UNDER SECTION 131 OF THE ACT WAS VALID . III. WHETHER THE SUN BVI IS A PAPER COMPANY IV. WHETHER THE IMPUGNED TRANSACTION IS A COLOURABLE DEVICE V. WHETHER THE SALE CONSIDERATION RECEIVED BY SUN BVI BELONGS TO THE ASSESSEE I. WHETHER UTL WAS A NAME LENDER IN THE IMPUGNED TRANSACTIONS, ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 32 12. THE AO IN HIS ORDER HAS HELD THAT THERE WAS NO INFRASTRUCTURE FACILITY OWNED BY THE UTL FOR THE DEVELOPMENT OF THE TECHNOLOGIES AS DISCUSSED ABOVE. AS SUCH UTL HAS NOT DEVELOPED THE TECHNOLOGIES AS CLAIMED BY THE ASSESSEE. THE LD. CIT - A ALSO CONFIRMED THE VIEW OF THE AO . REGARDING THIS FINDING OF THE LOWER AUTHORITIES THE ASSESSEE SUBMITTED AS UNDER : I) THE INFRASTRUCTURE FACILITY OF ASSESSEE WAS GIVEN ON RENTAL BASIS TO M/S UTL FOR THE DEVELOPMENT OF THE TECHNOLOGIES. II) UTL IS A 20 YEARS OLD COMPANY HAVING EXPERT KNOWLEDGE IN THE DEVELOPMENT OF TECHNOLOGY AS DISCUSSED ABOVE. III) THE TECHNOLOGIES DEVELOPED BY UTL WERE DIRECTLY SOLD TO BVI AND THE CONSIDERATION RECEIVED BY IT WAS RECORDED IN ITS BOOKS OF ACCOUNTS WHICH WAS OFFERED TO TAX. IV) THERE WAS ALSO AN ASSESSMENT UNDER SECTION 143(3) OF THE ACT IN THE CASE OF UTL WHERE THE TRANSACTION OF SALE TO BVI AND THE PAYMENT OF RENT TO THE ASSESSEE WERE DULY ACCEPTED BY THE REVENUE. 13. REGARDING THE OBSERVATION OF THE REVENUE, WE NOTE THAT THE ASSESSEE HAS FURNISHED ALL THE NECESSARY DETAILS ABOUT UTL DURING THE ASSESSMENT PROCEEDINGS . THESE DETAILS INCLUDE AGREEMENT FOR USING THE FACILITY OF THE ASSESSEE , COPY OF THE ASSESSMENT ORDER FOR THE AY 2008 - 09 WHICH ARE PLACED ON PAGES 283 TO 290 A ND 559 TO 566 OF THE PAPER BOOK. IN RESPECT OF THESE DOCUMENTS , THERE WAS NO DEFECT POINTED OUT BY THE REVENUE. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 33 14. THERE IS NO DISPUTE TO THE FACT THAT THE IMPUGNED TECHNOLOGIES WERE DEVELOPED AT THE PREMISES OF THE ASSESSEE. THUS THE ISSUE WHETHER UTL OWNS ANY INFRASTRUCTURE FACILITY DOES NOT HA S MUCH RELEVANCE IN THE GIVEN FACTS AND CIRCUMSTANCES. THE ISSUE WHICH NEEDS TO BE ADDRESSED IS WHETHER UTL HAS DEVELOPED THESE TECHNOLOGIES OR THESE WERE DEVELOPED BY THE ASSESSEE. 15. ALL THE NECESSARY D ETAILS ABOUT THE UTL WERE FURNISHED BY THE ASSESSEE TO THE AO DURING THE ASSESSMENT PROCEEDINGS. THEREFORE IN CASE OF ANY DOUBT ABOUT THE INFRASTRUCTURE FACILITY OWNED BY THE UTL, THE AO SHOULD HAVE VERIFIED FROM THE UTL BY ISSUING NOTICE UNDER SECTION 133 (6) OF THE ACT. BUT THE AUTHORITIES BELOW FAILED TO DO THE SAME. 16. THE LEARNED AR FOR THE ASSESSEE DURING HEARING BEFORE US HAS ALSO FILED THE DETAILS OF THE PERSONS WHO VISITED THE INFRASTRUCTURE FACILITY OF THE ASSESSEE IN CONNECTION WITH THE DEVE LOPMENT OF THE IMPUGNED TECHNOLOGIES. THE CORRESPONDENCE BY UTL TO THE ASSESSEE AND THE LIST OF THE PERSONS IS AVAILABLE ON RECORD. 16.1. SIMILARLY, THE LEARNED AR ALSO SUBMITTED THAT UTL IS NOT AN ASSOCIATED PARTY IN PURSUANCE TO THE PROVISIONS OF SECT ION 40A(2)(B) OF THE ACT. THE DETAILS FILED BY THE ASSESSEE IN A NNEXURE 2 ARE AVAILABLE ON RECORD. 17. WE ALSO NOTE THAT AO IN HIS ASSESSMENT ORDER HAS MADE THE OBSERVATION AS DETAILED UNDER: AS PER THE INFORMATION AVAILABLE WITH THIS OFFICE UNIMED WA S PRIMARILY WAS FUNCTIONING AS JOB WORKER. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 34 17.1. FROM THE ABOVE OBSERVATION OF THE AO, IT IS TRANSPIRED THAT UTL WAS VERY MUCH ENGAGED IN THE DEVELOPMENT ACTIVITY OF THE TECHNOLOGY BUT INDIRECTLY AS JOB WORKER . THUS THE ROLE OF UTL IN THE DEVELOPMENT OF THE TECHNOLOGY CANNOT BE RULED OUT COMPLETELY AS ALLEGED BY THE REVENUE. 17.2. WE ALSO NOTE THAT UTL HAS DEVELOPED THE TECHNOLOGIES IN PURSUANCE TO THE AGREEMENT WITH SUN BVI DATED 03/04/2007 WHICH IS AVAILABLE ON RECORD. AS SUCH WE ARE OF THE VIEW THAT THE ASSESSEE HAS DISCHARGED ITS ONUS BY FURNISHING THE DETAILS AS DISCUSSED ABOVE. IN THIS REGARD , WE FIND THE SUPPORT AND THE GUIDANCE FROM THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF PCIT VS. ADAMINE CONSTRUCTIONS PVT. LTD. REPORTED IN 99 TAXMANN.COM 45 WHEREIN THE HEAD NOTE READS AS UNDER: COMMISSIONER (APPEALS) AS WELL AS TRIBUNAL DELETED SAID ADDITION HOLDING THAT RELEVANT ENQUIRY BASED UPON MATERIALS FURNISHED BY ASSESSEE HAD NOT BEEN MADE - HIGH COURT ALSO F OUND THAT ASSESSEE HAD DISCHARGED ONUS INITIALLY CAST UPON IT BY PROVIDING BASIC DETAILS WHICH WERE NOT SUITABLY ENQUIRED INTO BY ASSESSING OFFICER - ACCORDINGLY, HIGH COURT UPHELD ORDER PASSED BY TRIBUNAL - WHETHER, ON FACTS, SLP FILED AGAINST ORDER OF HI GH COURT WAS TO BE DISMISSED - HELD, YES [PARA 4] [IN FAVOUR OF ASSESSEE] II. WHETHER THE STATEMENT OF DR. T. RAJAMANNAR, HEMANG SETH RECORDED UNDER SECTION 131 OF THE ACT WAS VALID. 18. THE 1 ST QUESTION ARISES WHETHER THE STATEMENT RECORDED UNDER SECTION 131 OF THE ACT DURING THE COURSE OF SURVEY HAS ANY EVIDENTIARY VALUE. REGARDING THIS WE NOTE THAT THE R EVENUE CAN RECORD THE STATEMENT UNDER ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 35 SECTION 131 (1) OF THE ACT IF THE ASSESSEE DOESN T COO PE RATE DURING THE SURVEY AND AFTER TAKING THE APPROVAL FROM THE APPROPRIATE AUTHORITY. HOWEVER , WE NOTE THAT THERE WAS NO ALLEGATION OF THE R EVENUE THAT THE ASSESSEE DID NOT CO - OPERATE DURING THE SURVEY PROCEEDINGS. THUS WE ARE RELUCTANT TO PLACE OUR RELIA NCE ON THE STATEMENT RECORDED UNDER SECTION 131 OF THE ACT. REGARDING THIS WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. S. KHAD ER KHAN SON REPORTED IN 300 ITR 157 WHEREIN IT WAS HELD AS UNDER: AN ADMISSION IS EXTREMELY AN IMPORTANT PIECE OF EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE; AND IT IS OPEN TO THE PERSON WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT. THE WORD 'MAY' USED IN SECTION 133A(3)( III ), VIZ. , 'RECORD THE STATEMENT O F ANY PERSON WHICH MAY BE USEFUL FOR, OR RELEVANT TO, ANY PROCEEDING UNDER THIS ACT', MAKES IT CLEAR THAT THE MATERIALS COLLECTED AND THE STATEMENT RECORDED DURING THE SURVEY UNDER SECTION 133A ARE NOT CONCLUSIVE PIECE OF EVIDENCE BY THEMSELVES. THE STATEM ENT OBTAINED UNDER SECTION 133A WOULD NOT AUTOMATICALLY BIND UPON THE ASSESSEE. SECTION 133A DOES NOT EMPOWER ANY ITO TO EXAMINE ANY PERSON ON OATH. IN CONTRADISTINCTION TO THE POWER UNDER SECTION 133A, SECTION 132(4) ENABLES THE AUTHORIZED OFFICER TO EXAM INE A PERSON ON OATH AND ANY STATEMENT MADE BY SUCH PERSON DURING SUCH EXAMINATION CAN ALSO BE USED IN EVIDENCE UNDER THE INCOME - TAX ACT. ON THE OTHER HAND, WHATEVER STATEMENT IS RECORDED UNDER SECTION 133A IS NOT GIVEN AN EVIDENTIARY VALUE. THE STATEMENT OBTAINED UNDER SECTION 133A WOULD NOT AUTOMATICALLY BIND UPON THE ASSESSEE. THEREFORE, ADMISSION MADE DURING SUCH STATEMENT CANNOT BE MADE THE BASIS OF ANY ADMISSION. 1 8 . 1. I T IS ALSO IMPORTANT TO NOTE THA T THE ABOVE JUDGMENT OF HON BLE MADRAS HIGH C OURT WAS UPHELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. S. KHADER KHAN SON (2013) 352 ITR 480 (SC) WHEREIN THE HEAD NOTE READS AS UNDER: ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 36 SECTION 133A OF THE INCOME ACT, 1961 - SURVEY - WHETHER SECTION 133A DOES NOT EMPOWER ANY ITO TO EXAMINE A NY PERSON ON OATH; SO STATEMENT RECORDED UNDER SECTION 133A HAS NO EVIDENTIARY VALUE AND ANY ADMISSION MADE DURING SUCH STATEMENT CANNOT BE MADE BASIS OF ADDITION - HELD, YES [IN FAVOUR OF ASSESSEE] 18.2. NOW COMING TO THE CASE LAW RELIED BY T HE LEARNER DR AS DETAILED UNDER : I. RAJ HANS TOWERS (P) LTD. VS. CIT REPORTED IN 56 TAXMAN N .COM 67 II. P R. CIT VS. AVINASH KUMAR SETIA REPORTED IN 395 ITR 235 . III. PEBBLE INVESTMENT & FINANCE LTD. VS. ITO REPORTED IN 98 DTR 247 18.3. IN THE ABOVE CASES , WE FIND THAT THE ISSUE WAS IN RELATION TO THE STATEMENT RECORDED UNDER SECTION 133 A OF THE ACT. BUT IN THE CASE BEFORE US THERE IS NO DOUBT THAT THE STATEMENT WAS RECORDED UNDER SECTION 131 OF THE ACT. THEREFORE , IN OUR CONSIDERED VIEW THE PRINCIPLES LAID DOWN BY THE H ON BLE COURT IN THE C ASE S CITED ABOVE CANNOT BE RELIED UPON AS THE FACTS ARE DIFFERENT WITH THE FACTS OF THE CASE OF THE ASSESSEE. 18.4. IN VIEW OF THE ABOVE WE DISAGREE WITH THE FINDI NG OF THE LEARNED CIT (A) THAT THE STATEMENT RECORDED UNDER SECTION 131 OF THE ACT D URING SURVEY UNDER SECTION 133A OF THE ACT CAN BE USED IN CONJUNCTION WITH THE MATERIALS FOUND DURING THE SURVEY OPERATION. ACCORDINGLY WE CONCLUDE THAT NO REFERENCE CAN BE MADE TO THE STATEMENT RE CORDED UNDER SECTION 131 OF THE ACT WHILE FRAMING THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 37 1 8 . 5 . IT IS ESTABLISHED LAW THAT THE STATEMENT RECORDED ON OATH UNDER SECTION 131 OF THE ACT CANNOT BE THE BASIS OF ANY DISALLOWANCE/ADDITION UNTIL AND UNLESS IT IS SUPPORTED ON THE BASIS OF SOME TANGIBLE MATERIAL. HERE IT IS PERTINENT TO NOTE THAT THE CBDT HAS DISCOURAGED TO ITS OFFICERS TO MAKE THE ADDITION ON THE BASIS OF THE STATEMENTS AND WITHOUT BRINGING ANY TANGIBLE MATERIALS FOR ANY ADDITION/DISA LLOWANCE. THE RELEVANT EXTRACT OF CBDT INSTRUCTIONS ISSUED VIDE F. NO. 286/98/2013 - IT(INV.II) DATED 18TH OF DECEMBER 2014 READS AS UNDER: - INSTANCES/COMPLAINTS OF UNDUE INFLUENCE/COERCION HAVE COME TO NOTICE OF THE CBDT THAT SOME ASSESSEES WERE COERCED TO ADMIT UNDISCLOSED INCOME DURING SEARCHES/SURVEYS CONDUCTED BY THE DEPARTMENT. IT IS ALSO SEEN THAT MANY SUCH ADMISSIONS ARE RETRACTED IN THE SUBSEQUENT PROCEEDINGS SINCE THE SAME ARE NOT BACKED BY CREDIBLE EVIDENCE. SUCH ACTIONS DEFEAT THE VERY PURPOSE OF SEARCH/SURVEY OPERATIONS AS THEY FAIL TO BRING THE UNDISCLOSED INCOME TO TAX IN A SUSTAINABLE MANNER LEAVE ALONE LEVY OF PENALTY OR LAUNCHING OF PROSECUTION. FURTHER, SUCH ACTIONS SHOW THE DEPARTMENT AS A WHOLE AND OFFICERS CONCERNED IN POOR LIGHT. 2. I A M FURTHER DIRECTED TO INVITE YOUR ATTENTION TO THE INSTRUCTIONS/GUIDELINES ISSUED BY CBDT FROM TIME TO TIME, AS REFERRED ABOVE, THROUGH WHICH THE BOARDS HAS EMPHASIZED UPON THE NEED TO FOCUS ON GATHERING EVIDENCES DURING SEARCH/SURVEY AND TO STRICTLY AVOID OBTAINING ADMISSION OF UNDISCLOSED INCOME UNDER COERCION/UNDUE INFLUENCE. 3. IN VIEW OF THE ABOVE, WHILE REITERATING THE AFORESAID GUIDELINES OF THE BOARD, I AM DIRECTED TO CONVEY THAT ANY INSTANCE OF UNDUE INFLUENCE/COERCION IN THE RECORDING OF THE STATE MENT DURING SEARCH/SURVEY/OTHER PROCEEDING UNDER THE IT ACT, 1961 AND/OR RECORDING A DISCLOSURE OF UNDISCLOSED INCOME UNDER UNDUE PRESSURE/COERCION SHALL BE VIEWED BY THE BOARD ADVERSELY. 18.6. FROM THE ABOVE CIRCULAR , IT IS CLEAR THAT THE CBDT HAS EMPHASIZED TO ITS OFFICERS TO FOCUS ON GATHERING EVIDENCES DURING SEARCH/SURVEY OPERATIONS AND STRICTLY DIRECTED TO AVOID OBTAINING ADMISSION OF UNDISCLOSED INCOME UNDER COERCION/ UNDUE INFLUENCE. KEEPING IN VIEW ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 38 THE GUIDELIN ES ISSUED BY THE CBDT FROM TIME TO TIME REGARDING THE STATEMENTS OBTAINED DURING SEARCH AND SURVEY OPERATION, IT IS UNDISPUTEDLY CLEAR THAT THE LOWER AUTHORITIES HAVE NOT COLLECTED ANY OTHER EVIDENCE TO PROVE THE IMPUGNED TRANSACTION AS BOGUS OTHER THAN TH E STATEMENT. 18.7. IT IS ALSO IMPORTANT TO NOTE THAT THE STATEMENT FURNISHED UNDER SECTION 131 OF THE ACT DATED 8 - 11 - 2011 WAS RETRACTED BY WAY OF FILING AN AFFIDAVIT DATED 11 - 11 - 2011 IMMEDIATELY AFTER 3 DAYS. III. WHETHER THE SUN BVI IS A PAPER COMPANY I) THERE IS NO DOUBT THAT BVI WAS REGISTERED COMPANY IN TAX HEAVEN IN BRITISH VIRGIN ISLANDS. II) THERE WERE SEVERAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE WITH THE BVI WHICH WAS SUBJECT MATTER OF TRANSFER PRICING ADJUSTMENTS IN THE PROCEEDINGS FRAMED UNDER SECTION 143(3) READ WITH SECTION 92CA(3) OF THE ACT. III) THE INCOME OF SUN BVI CAN BE TAXED IN I NDIA IF THE RESIDENTIAL STATUS OF SUN BVI IS DETERMINED AS RESIDENT OF INDIA AS PER THE PROVISIONS OF SECTION 6(3) OF THE ACT. HOWEVER, NONE OF THE AUTHORITIES BELOW HAS ALLEGED THAT M/S SUN BVI IS RESIDENT OF INDIA. IV) IF THE TRANSACTION FOR THE SALE OF TE CHNOLOGY IS TREATED AS INTERNATIONAL TRANSACTION BETWEEN THE ASSOCIATED ENTERPRISES AS PER THE PROVISIONS OF SECTION 92C OF THE ACT , THEN THE SAME NEEDS TO BE DETERMINED AS PER THE ARM LENGTH AS PER THE ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 39 PROVISIONS OF LAW. BUT THE REVENUE IN THE CASE ON HAND HAS NOT INVOKED THE PROVISIONS OF TRANSFER PRICING ADJUSTMENTS. V) SUN BVI CANNOT BE TREATED AS THE PAPER COMPANY MERELY ON THE FACT THAT IT DOESN T OWN ANY FACTORY, FIXED ASSETS, AND INFRASTRUCTURE FAC ILITY. IT IS BECAUSE SUN BVI HAS BEEN DEALING WITH THE ASSESSEE ON VARIOUS PURCHASE AND SALES TRANSACTIONS WHICH HAVE BEEN SUBJECT MATTER OF DISPUTE UNDER TRANSFER PRICING REGULATIONS. VI) THERE IS NO DTAA BETWEEN BRITISH VIRGIN ISLANDS AND THE GOVERNMENT OF INDIA WHICH GOVERNS THE TRANSACTION BETWEEN THESE 2 COUNTRIES. THUS THE TRANSACTIONS BETWEEN THE ASSESSEE AND SUN BVI WILL BE GOVERNED AS PER THE PROVISIONS OF THE INCOME TAX ACT. THERE IS NO PROVISION UNDER THE ACT UNDER WHICH THE INCOME OF SUN BVI CAN B E TAXED IN INDIA. VII) THE SUN BVI OWES IPR AND SOME SAMPLES SHOWING THE REGISTRATION WITH THE USFDA ARE AVAILABLE ON RECORD. IV. WHETHER THE IMPUGNED TRANSACTION IS A COLOURABLE DEVICE 18.8. THE ALLEGATION OF THE REVENUE IS THAT THE SALE OF TECHNOLOGY BY UTL TO THE SUN BVI IS NOTHING BUT A COLORABLE DEVICE. AS SUCH THE ASSESSEE AFTER THE INVOLVEMENT OF UTL AND BVI HAS MADE THE SALE OF THE TECHNOLOGY TO THE CARACO IN THE USA TO AVOID THE TAX LI ABILITY. HOWEVER, IF THE TRANSACTIONS ARE TREATED AS COLORABLE DEVICE TO ESCAPE FROM THE TAX LIABILITY THEN IT SHOULD BE TREATED IT IN ITS ENTIRETY MEANING THEREBY THE PART OF THE TRANSACTION CANNOT BE TREATED AS GENUINE AND PART AS NON - GENUINE. AS SUCH TH E REVENUE HAS TREATED THE PART OF THE TRANSACTION OF SALE OF THE TECHNOLOGY BY THE UTL TO SUN BVI AS COLORABLE DEVICE WHEREAS THE PART OF TRANSACTION I.E. THE RENTAL CHARGES ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 40 FROM UTL AS INCOME UNDER THE HEAD BUSINESS AND PROFESSION OF THE ASSESSEE HAS BEEN ACCEPTED . 18.9. THE MAIN ALLEGATION/FINDING OF THE AO, WHICH WAS LATER CONFIRMED BY THE LD. CIT(A), THAT ASSESSEE HAS USED THIS TRANSACTION AS A COLORABLE DEVICE TO REDUCE ITS TAX LIABILITY BY DIVERTING THE INCOME. REGARDING THIS WE NOTE THAT HONORABLE SUPREME COURT IN CASE OF MCDOWELL & CO. LTD VS. COMMERCIAL TAX OFFICER (154 ITR 148) DATED 17 - 4 - 1985 WHEREIN APEX COURT OBSERVED THAT TAX PLANNING WITHIN THE LAW IS PERMITTED, BUT COLORABLE DEVICES CANNOT BE PART OF TAX PLANNING. 18.10. IN THE CASE OF MCDOWELL & CO, THE ASSESSEE WAS NOT COLLECTING THE SALES TAX LIABILITY ON THE EXCISE DUTY EVEN AFTER THE AMENDMENT IN THE DISTILLERY RULES 76 & 79 W.E.F. 4 - 8 - 1981. AS SUCH BEFORE THE AMENDMENT IN THE RULES, I.E., DISTILLERY RULES 76 & 79 W.E .F. 4 - 8 - 1981, THE BUYERS WERE LIABLE TO DEPOSIT THE EXCISE DUTY DIRECTLY TO THE STATE GOVERNMENT. THEREFORE THE ASSESSEE DID NOT COLLECT THE SALES TAX ON SUCH EXCISE DUTY. IT IS PERTINENT TO NOTE THAT THE HON BLE SC BEFORE THE AMENDMENT IN THE RULES 76 & 79 DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE REPORTED IN 1 SCR 914 DATED 25 - 10 - 1976. THUS THE ASSESSEE DEFAULTED TO COMPLYING THE AMENDED DISTILLERY RULES 76 & 79 W.E.F. 4 - 8 - 1981. THUS THE HON BLE APEX COURT DECIDED THE ISSUE IN FAVOR OF REVENUE. HENCE W E ARE OF THE CONSIDERED VIEW THAT THE PRINCIPLES LAID DOWN BY THE HON BLE APEX COURT CANNOT BE APPLIED IN THE CASE BEFORE US AS THE FACTS ARE DIFFERENT. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 41 18.11. IT IS ALSO PERTINENT TO NOTE HERE THAT THE HON BLE APEX COURT IN CASE OF UNION OF INDIA AND ANR VS. AZADI BACHAO ANDOLAN (263 ITR 705) DISCUSSED THE CASE MCDOWELL & CO. LTD VS. COMMERCIAL TAX OFFICER (SUPRA) IN DETAIL AND DISTINGUISHED FROM IT BY OBSERVING AS UNDER: WE MAY IN THIS CONNECTION USEFULLY REFER TO THE JUDGMENT OF THE MADRAS HIGH COURT IN M.V.VALLIPAPPAN AND OTHERS V. ITO , WHICH HAS RIGHTLY CONCLUDED THAT THE DECISION IN MCDOWELL CANNOT BE READ AS LAYING DOWN THAT EVERY ATTEMPT AT TAX PLANNING IS ILLEGITIMATE AND MUST BE IGNORED, OR THAT EVERY TRANSACTION OR ARRANGEMENT WHICH IS PERFECTLY PERMISSIBLE UNDER LAW, WHICH HAS THE EFFECT OF REDUCING THE TAX BURDEN OF THE ASSESSEE, MUST BE LOOKED UPON WITH DISFAVOUR. THOUGH THE MADRAS HIGH COURT HAD OCCASION TO REFER TO THE JUDGMENT OF THE PRIVY COUNCIL IN IRC V. CHALLENGE CORPORATION LTD. , AND DID NOT HAVE THE BENEFIT OF THE HOUSE OF LORDS'S PRONOUNCEMENT IN CRAVEN , THE VIEW TAKEN BY THE MADRAS HIGH COURT APPEARS TO BE CORRECT AND WE ARE INCLINED TO AGREE WITH IT. 18.2. FURTHER, WE A LSO NOTE THAT HON BLE JURISDICTIONAL HIGH COURT IN CASE OF BANYAN AND BERRY VS. COMMISSIONER OF INCOME TAX (222 ITR 831) HELD THAT TAX PLANNING WITHIN THE LAW IS PERMISSIBLE AND ONLY IF ANY TRANSACTION WHICH IS REDUCING THE TAX LIABILITY CANNOT BE REGARDED AS A COLORABLE DEVICE. THE COURT ALSO DISCUSSED THE MEANING OF COLORABLE DEVICE AND CASE OF MCDOWELL & CO. LTD VS. COMMERCIAL TAX OFFICER (SUPRA) IN DETAIL. THE RELEVANT EXTRACT OF THE ORDER IS READ AS UNDER: FROM THE AFORESAID, IT IS APPARENT THAT ON THE FACTUAL ASPECT THE COURT WAS CONSIDERING THE CASE WHERE IN A GOING BUSINESS A LIABILITY TO PAY DUTY WHICH WAS LEGALLY OF THE ASSESSEE AND WHICH ON SUCH PAYMENT WAS TO BECOME PART OF ITS COST OF COMMODITY SOLD BY IT AND TO BECOME PAR T OF ITS SELLING PRICE TO THE BUYERS, WAS AS A RESULT OF ARRANGEMENT BETWEEN THE SELLER AND BUYER SPLIT INTO TWO, NAMELY - DUTY SO FAR PAID SEPARATELY DIRECTLY TO THE TAX AUTHORITIES AND THE BALANCE SO PAID TO THE SELLER; THE ARRANGEMENT WAS EXISTING SOLE LY FOR THE PURPOSE OF NOT PAYING THE TAX AND IT IS NOT A TRANSACTION IN REALITY OF ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 42 RECEIVING LESS PRICE THAN THE ONE ON WHICH IT WAS MARKETING. THE COURT NO WHERE SAID, THAT EVERY ACTION OR INACTION ON THE PART OF THE TAXPAYER WHICH RESULTS IN REDUCT ION OF TAX LIABILITY TO WHICH HE MAY BE SUBJECTED IN FUTURE, IS TO BE VIEWED WITH SUSPICION AND BE TREATED AS A DEVICE FOR AVOIDANCE OF TAX IRRESPECTIVE OF LEGITIMACY OR GENUINENESS OF THE ACT; AN INFERENCE WHICH UNFORTUNATELY, IN OUR OPINION, THE TRIBUNAL APPARENTLY APPEARS TO HAVE DRAWN FROM THE ENUNCIATION MADE IN MCDOWELL'S CASE (SUPRA). RATIO OF ANY DECISION HAS TO BE UNDERSTOOD IN THE CONTEXT IT HAS BEEN MADE. THE FACTS AND CIRCUMSTANCES WHICH LED TO MCDOWELL'S DECISION (SUPRA) LEAVES US IN NO DOUBT THAT THE PRINCIPLE ENUNCIATED IN THE ABOVE CASE HAS NOT AFFECTED THE FREEDOM OF CITIZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIREMENTS, HIS WISHES IN THE MANNER OF DOING ANY TRADE, ACTIVITY OR PLANNING HIS AFFAIRS WITH CIRCUMSPECTION, WITHIN TH E FRAME WORK OF LAW, UNLESS THE SAME FALL IN THE CATEGORY OF COLORABLE DEVICE WHICH MAY PROPERLY BE CALLED A DEVICE OR A DUBIOUS METHOD OR A SUBTERFUGE CLOTHED WITH APPARENT DIGNITY. IT WAS WITH THIS CONSCIOUSNESS THAT THE COURT HAS USED THESE EXPRESSIONS WHILE DEPRECIATING THE SCHEMES OF TAX AVOIDANCE IN THE NAME OF TAX PLANNING. ALL THE EXPRESSIONS USED BY THEIR LORDSHIPS IN DEPRECIATING THE METHODOLOGY OF TAX AVOIDANCE THROUGH TAX PLANNING OF RESORTING TO 'COLORABLE DEVICE', 'DUBIOUS METHODS OR SUBTERF UGE' HAVE SPECIAL SIGNIFICANCE IN LEGAL WORLD. IN THE CONTEXT OF THE PRESENT DISCUSSION, THE MEANING ASSIGNED TO 'COLORABLE' IN BROWN'S JUDICIAL DICTIONARY HAS BEEN DEFINED AS 'REVERSE OF BONA FIDE'. BLACK'S LAW DICTIONARY EXPLAIN 'COLORABLE' TO MEAN 'THAT WHICH IS IN APPEARANCE ONLY, AND NOT IN REALITY, WHAT IT PURPORTS TO BE, HENCE, COUNTERFEIT, FEIGNED HAVING THE APPEARANCE OF TRUTH'. SO ALSO A DEVICE. THE CONTEXT IN WHICH THE EXPRESSION DEVICE HAS BEEN USED IN ITS ORDINARY DICTIONARY MEANI NG AS PER SHORTER OXFORD DICTIONARY MEANS 'INNEUITY, SOMETHING DEVICE, ARRANGEMENT, PLAN, CONTRIVANCE, A PLOT OR A TRICK. BLACK'S DICTIONARY REFERS TO DEVICE AS CONTRIVANCE, A SCHEME, TRICK. SUBTERFUGE - ACCORDING TO ORDINARY MEANING AS PER THE SHORTER OXFORD ENGLISH DICTIONARY - MEANS THAT TO WHICH ONE REFERS FOR ESCAPE OR CONCEALMENT. SUBTERFUGE ON HISTORICAL PRINCIPLES MEANS, AN ARTICLE OR DEVICE TO WHICH A PERSON ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 43 REFERS IN ORDER TO ESCAPE THE FORCE OF AN ARGUMENT, AN EXCUSE WITH WHICH CONCEALS A CLU E. SO ALSO THE EXPRESSION DUBIOUS REFERS TO A DOUBTFUL OR OF QUESTIONABLE CHARACTER. THAT IS TO SAY WHAT HAS BEEN DEPRECATED AS TAX PLANNING FOR AVOIDANCE OF TAX ARE THOSE ACTS WHICH HAVE DOUBTFUL, OR QUESTIONABLE CHARACTER AS TO THEIR BONA FIDE AND RIGHT EOUSNESS. NOT ALL LEGITIMATE ACTS OF A TAXPAYER WHICH IN ORDINARY COURSE OF CONDUCTING HIS AFFAIRS A PERSON DOES AND ARE UNDER LAW HE IS ENTITLED TO DO, CAN BE BRANDED OF QUESTIONABLE CHARACTER ON THE ANVIL OF MCDOWELL (SUPRA). WE ARE UNABLE TO READ IN THE AFORESAID DECISION THAT ANY ACT OF AN ASSESSEE WHICH RESULTS IN REDUCTION OF HIS TAX LIABILITY OR EXPECTATION OF TAX BENEFIT IN FUTURE AMOUNTS TO COLORABLE DEVICE, A DUBIOUS METHOD OR SUBTERFUGE TO AVOID TAX AND CAN BE IGNORED IF THE ACTS ARE UNAM BIGUOUS AND BONA FIDE, MERELY ON THE GROUND THAT TREATING THOSE AS DELIBERATE WOULD RESULT IN TAX LIABILITY IN FUTURE. WHILE THE PLANNING ADOPTED AS A DEVICE TO AVOID TAX HAD BEEN DEPRECATED, PRINCIPLE CANNOT BE READ AS LAYING DOWN THE LAW THAT A PERSON IS TO ARRANGE HIS AFFAIRS SO AS TO ATTRACT MAXIMUM TAX LIABILITY, AND EVERY ACT WHICH RESULTS IN TAX REDUCTION, EXEMPTION OF TAX OR NOT ATTRACTING TAX AUTHORISED BY LAW IS TO BE TREATED AS DEVICE OF TAX AVOIDANCE. 18.3. IT IS ALSO PERTINENT TO MENTION HERE THAT WHENEVER ASSESSEE HAS TWO OPTIONS, ANY LAYMAN WILL ALWAYS GO FOR ONE WHICH REDUCES ITS TAX LIABILITY BUT TO HOLD THAT THE TRANSACTION AS A COLORABLE DEVICE REVENUE NEEDS TO SEE IT IN ENTIRETY, AS HELD BY THE HON BLE GUJARAT HIGH COURT IN THE ABOVEMENTIONED CASE. 18.4. HOWEVER , WE FURTHER NOTE THAT BEFORE APPLYING THE AFORESA ID PRINCIPLES LAID DOWN BY THE H O N BLE APEX COURT IN CASE OF MCDOWELL (SUPRA) TO THE CASE ON HAND CERTAIN FACTS NEEDS TO BE CONSIDERED FOR ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 44 ARRIVING AT A FINDING W HETHER A PARTICULAR SERIES OF THE TRANSACTIONS IS A COLOURABLE DEVICE OR NOT THE ONUS IS ON THE AO TO FIND OUT: (I) WHETHER THE PARTIES TO THE TRANSACTIONS HAVE CONCEALED OR HIDDEN ANY FACT AND/OR WHETHER WHAT IS SHOWN TO BE DONE COULD HAVE ACTUALLY HAPPENED IN DIFFERENT TIME OR AT DIFFERENT PLACE; ANS: R EGARDING THE FACTS OF THE TRANSACTIONS, WE NOTE THAT ALL THE NECESSARY FACTS WERE DULY DISCLOSED BY THE ASSESSEE, UNIMED, SUN BVI IN THE FINANCIAL STATEMENTS. THE FOLL OWING FACTS WERE DULY DISCLOSED : A) THE SALE PRICE OF THE TECHNOLOGIES BY THE UNIMED TO SUN BVI WERE DULY DISCLOSED IN THE INCOME TAX RETURN WHICH WAS ALSO ACCEPTED BY THE R EVENUE IN THE ASSE SSMENT FRAMED UNDER SECTION 143( 3 ) OF THE ACT. B) THE FACT THAT UTL USED THE PREMISES THE ASSESSEE FOR THE DEVEL OPMENT OF THE LODGES AGAINST THE RENTAL PAYMENT WAS DISCLOSED IN THE INCOME TAX RETURN OF THE ASSESSEE AS WELL AS UTL W HICH WAS ALSO ACCEPTED BY THE R EVENUE IN THE ASSE SSMENT FRAMED UNDER SECTION 143( 3 ) OF THE ACT. C) THE AFORESAID TRANSACTIONS WERE DULY SUPPORTED ON THE BASIS OF THE AGREEMENTS WHICH ARE AVAILABLE ON RECORD. THUS , WE ARE OF THE VIEW NO FACTS WERE CONCEALED OR HIDDEN. (II) WHETHER IT COULD BE A NORMAL BUSINESS PRACTICE; ANS: IN TODAY S TIME THE ENTIRE WORLD HAS BECOME A GLOBAL VILLAGE FOR THE BUSINESS. THE BUSINESS MEN WITH THE HELP OF THE TECHNOLOGY ARE ABLE TO WORK EFFECTIVELY WORLDWIDE. THE GOVERNMENT OF ALL THE COUNTRIES ARE ALSO PROMOTING THE SAME. BUT AT THE SAME TIME TH ERE ARE MANY THREATS TO THE GOVERNMENTS FOR CHARGING THE TAX ON THE INCOME OF THE BUSINESS MEN HAVING BUSINESSES IN THE DIFFERENT PART OF THE ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 45 WORLD. THEREFORE THERE ARE FREQUENT OF CHANGES UNDER THE INCOME TAX PROCEDURE WORLDWIDE INCLUDING INDIA SUCH AS TR ANSFER PRICING, POEM, GAAR, AND BEPS ETC TO MEET SUCH CHALLENGES. (III) E VEN WHERE INDIVIDUAL TRANSACTIONS OF THE DEVICE ARE LEGAL OR LEGITIMATE, WHETHER COMBINATION OF THESE STEPS CREATES AN EFFECT WHICH IS ABNORMAL IN THE BUSINESS WORLD AND COULD NOT HAVE BEEN OTHERWISE UNDERTAKEN IN NORMAL CIRCUMSTANCES; ANS. IN THE PRESENT CASE THERE WAS NO REFERENCE MADE BY THE AUTHORITIES BELOW SUGGESTING THAT THE TRANSACTION IS CARRIED ILLEGALLY. AS THE TRANSACTION IN THE INSTANT CASE WERE WITHIN THE AMBIT OF THE LAW AS NOTHING BEING ILLEGAL/ILLEGITIMATE WAS BROUGHT TO OUR NOTICE. (IV) T HESE INDIVIDUAL TRANSACTIONS CREATE AN EFFECT WHICH IS CONTRARY TO HUMAN PROBABILITIES; ANS. THE TRANSACTIONS CARRIED OUT BY THE PARTIES W ERE VERY MUCH NORMAL TRANSACTION. (V) WHETHER ACTIONS OF THE PARTIES FINALLY ARE AT VARIANCE WITH THE TERMS OF THE AGREEMENT; ANS. THERE WAS NO VARIANCE IN THE IMPUGNED TRANSACTION WITH REGARD TO THE TERMS OF THE AGREEMENT. 18.5. IN VIEW OF THE ABOVE WE HOLD THAT THE IMPUGNED TRANSACTION CANNOT BE REGAR DED AS COLORABLE DEVICE MERELY ON THE REASONING THAT THERE IS NO TAX LIABILITY ARISING IN THE HANDS OF THE ASSESSEE. V. WHETHER THE SALE CONSIDERATION RECEIVED BY SUN BVI BELONGS TO THE ASSESSEE ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 46 18.6. WE ALSO NOTE THAT THE CONSIDERATION BETWEEN SUN BVI AND CARACO , USA WAS FIXED IN KIND I.E . THE CARACO WAS UNDER THE OBLIGATION TO ISSUE THE SHARES TO SUN BVI A GAINST THE SUPPLY OF THE TECHNOLOG Y IN PURSUANCE TO THE AGREEMENT DATED 21 - 11 - 2002 . THE RELEVANT EXTRACT OF THE AGREEMENT STANDS AS UNDER: 2002 AGREEMENT BETWEEN CARACO AND SUN BVI: 4. CONSIDERATION 4.1. CONSIDERATION . IN CONSIDERATION OF THE OBLIGATIONS OF SUN GLOBAL SET FORTH IN SECTION 1 AND SECTION 3, FOR EACH PRODUCT DELIVERED BY SUN GLOBAL TO CARACO SUN GLOBAL SHALL RECEIVE FIVE HUNDRED FORT - FOUR THOUSAND (544,000) SHARES OF CONVERTIBLE PREFERRED STEEL CONTAI NING THOSE ITEMS AND CONDITIONS AS SET FORTH IN THAT CERTAIN CERTIFICATE OF DETERMINATION OF RIGHTS PRIVILEGES AND PREFERENCES, SERIES B PREFERRED STOCK NO. PAR VALUE ( CERTIFICATE OF DETERMINATION ) OF CARACO (THE FORM OF WHICH IS ATTACHED HERETO) (THE PREFERRED SHARES ). THE CONSIDERATION WILL BECOME DUE WITH RESPECT TO EACH PRODUCT AND SUCH TIME AS SUCH PRODUCT PASSES THE APPLICABLE BIOEQUIVALENCY STUDY OR STUDIES (THE TARGET DATE ). CARACO SHALL NOTIFY SUN GLOBAL WHEN A TARGET DATE HAS BEEN TRIGGER ED. SUN GLOBAL SHALL THEN NOTIFY CARACO AS TO WHEN, WHERE AND IN WHOSE NAME (SUN GLOBAL S OR AN AFFILIATE S) SUN GLOBAL WISHES THE PREFERRED SHARES TO BE ISSUED. WITHIN FIFTEEN BUSINESS DAYS OF CARACO S RECEIPT OF SUCH NOTICE FROM SUN GLOBAL, IT SHALL, A S APPLICABLE, EITHER DIRECTLY ISSUE AND DELIVER SUCH PREFERRED SHARES TO SUN GLOBAL AND/OR ITS AFFILIATES OR SEND TO ITS TRANSFER AGENT AN INSTRUCTION DIRECTING SUCH TRANSFER AGENT TO ISSUE AND DELIVER SUCH PREFERRED SHARES TO SUN GLOBAL AND/OR ITS AFFILIA TES PROMPTLY AFTER THE TRANSFER AGENT S RECEIPT OF SUCH NOTICE FROM CARACO. 4.2. VALIDITY ISSUED PREFERRED SHARES. THE PREFERRED SHARES ISSUED AND DELIVERED BY CARACO TO SUN GLOBAL PURSUANT TO THIS SECTION 4, WHEN ISSUED SHALL BE DULY AUTHORIZED AND VALI DLY ISSUED, FULLY PAID AND NON - ASSESSABLE AND NOT SUBJECT TO ANY PREEMPTIVE OR SIMILAR RIGHTS. 18.7. WE FURTHER NOTE THAT AT T HE RELEVANT TIME WH EN THE AGREEMENT WAS MADE BETWEEN SUN BVI AND CARACO THE SHARE PRICE OF CARACO WAS LOW THAN THE PRICE W HEN THE TECHNOLOGY WAS ACTUALLY DELIVERED TO THE ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 47 CARACO. THUS , BY THE TIME WHEN THESE TECHNOLOGIES WERE TRANSFERRED BY SUN BVI TO CARACO USA, THE SHARE PRICE HAS INCREASED MANY FOLDS. AS A RESULT , THE TRANSACTION OF SUPPLYING THE TECHNOLOGY TO CARACO RESUL TED HUGE PROFIT TO SUN BVI. HOWEVER, IT IS IMPORTANT TO NOTE THAT IT WAS NOT POSSIBLE TO FORECAST/ PREDICT THE PRICE OF THE SHARES IN FUTURE AT THE TIME OF ACTUAL DELIVERY OF THE TECHNOLOGIES. THEREFORE, THE INCREASE IN THE PRICE OF THE SHARES CANNOT BE HE LD AS COLOURABLE DEVICE IN THE HANDS OF THE SUN BVI. AS SUCH THERE WAS NO ROLE OF THE ASSESSEE IN THE MARKET PRIC E OF THE SHARES OF CARACO USA WHICH IS REGULATED BY THE STOCK EXCHANGE. 18.8. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT IT IS NOT POSSIBLE TO PREDICT PROFIT IN 2002 I.E. ON THE DATE OF AGREEMENT FOR THE FUTURE YEARS . FURTHERMORE, IT IS ALSO NOT POSSIBLE TO PLAN THE PROFIT ON TRANSACTIONS WHICH WILL BE DUE O N FUTURE DATE . IT IS BECAUSE THE CONSIDERATION IN SHARES BUT ITS VALUE CANNOT BE FIXED . AS SUCH THE VALUE OF SHARES AT THE TIME OF ACTUAL DELIVERY CAN FLUCTUATE DOWNWARDS ALSO AND THUS IN THE EVENT OF DOWNWARD FLUCTUATION IN THE PRICE, THE LOSS WOULD N OT BE ALLOWED BY THE REVENUE . 18.9. IN VIEW OF THE ABOVE , WE ARE OF THE PRIMA FACIE OPINION THAT IT IS NOT POSSIBLE THAT A PERSON CAN PREDICT THE PROFIT FOR A FUTURE DATE ON THE DATE OF AGREEMENT ITSELF SPECIALLY, WHEN THE CONSIDERATION IS IN SHARES WHOSE PRICE IS NOT FIXED. BUT AT THE SAME TIME WE ARE ALSO OF THE VIEW THAT IN THE LONG RUN ON THE BASIS OF PAST HISTORY I.E. TECHNOLOGIES TRANSFERRED IN ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 48 PURSUANT OF 1997 IT IS POSSIBLE FOR THE ASSESSEE TO PREDICT/FORECAST THESE TRANSACTIONS AND USE THEM AS A COLORABLE DEVICE TO SHIFT THE PROFIT FROM INDIA TO BVI, A TAX HEAVEN , . IN THIS REGARD WE HAVE ALREADY RAISED A SPECIFIC QUERY FROM THE BENCH TO THE LD. DR AS DISCUSSED IN PRECEDING PARA, BUT THERE WAS NO REPLY FROM THE LD. DR . 18.10. IT IS ALSO IMPORTANT TO NOTE THAT THE NEW AGREEMENT I.E. BETWEEN THE SUN BVI & CARACO IS ALMOST SAME AS OLD ONE EXCEPT THE PARTY I.E. ASSESSEE HAS BEEN REPLACED BY THE SUN BVI. FURTHER THE DOUBT ARISES THAT SINCE SUN BVI IS THE AE AS PER THE PROVISIONS OF ACT, THEREF ORE, TO AVOID THE TP PROVISIONS, THE ASSESSEE INVOLVED THIRD PART Y I.E. UTL F OR THE DEVELOPMENT OF SUCH TECHNOLOGY. BUT WE NOTE THAT THE AO HAS ACCEPTED THE TRANSACTION OF SALE BY THE UTL TO SUNBVI AND THE PAYMENT OF RENT TO SPIL IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 29 - 10 - 2010. SIMILARLY, THE RE NT INCOME RECEIVED BY THE ASSESSEE FROM UTL FOR ALLOWING THE USE OF INFRASTRUCTURE FACILITY TO UTL HAS BEEN ACCEPTED BY THE REVENUE. THEREFORE, WE ARE OF THE VIEW THAT NO ADDITION CAN BE MADE ON THE BASIS ANY DOUBT UNLESS IT IS BASED ON SOME DOCUMENTARY EV IDENCE. REGARDING THIS WE PLACE OUR RELIANCE ON THE ORDER OF HON BLE SUPREME COURT IN THE CASE OF UNION OF INDIA AND ANR VS. AZADI BACHAO ANDOLAN (263 ITR 705)WHEREIN IT WAS HELD AS UNDER: 134. WE MAY ALSO REFER TO THE JUDGMENT OF GUJARAT HIGH COURT IN BANYAN & BERRY V. CIT [1996] 222 ITR 831/ 84 TAXMAN 515 WHERE REFERRING TO MCDOWELL & CO. LTD.'S CASE ( SUPRA ), THE COURT OBSERVED: '. . . THE COURT NOWHERE SAID THAT EVERY ACTION OR INACTION ON THE PART OF THE TAXPAYER WHICH RESULTS IN REDUCTION OF TAX LIABILITY TO WHICH HE MAY BE ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 49 SUBJECTED IN FUTURE, IS TO BE VIEWED WITH SUSPICION AND BE TREATED AS A DEVICE FOR AVOIDANCE OF TAX IRRES PECTIVE OF LEGITIMACY OR GENUINENESS OF THE ACT; AN INFERENCE WHICH UNFORTUNATELY, IN OUR OPINION, THE TRIBUNAL APPARENTLY APPEARS TO HAVE DRAWN FROM THE ENUNCIATION MADE IN MCDOWELL CASE [1985] 154 ITR 148 (SC) . THE RATIO OF ANY DECISION HAS TO BE UNDERSTOOD IN THE CONTEXT IT HAS BEEN MADE. THE FACTS AND CIRCUMSTANCES WHICH LEAD TO MCDOWELL'S DECISION LEAVE US IN NO DOUBT THAT THE PRINCIPLE ENUNCIATED IN THE ABOVE CASE HAS NOT AFFECTED THE FREEDOM OF THE CITIZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIREMENTS, HIS WISHES IN THE MANNER OF DOING ANY TRADE, ACTIVITY OR PLANNING HIS AFFAIRS WITH CIRCUMSPECTION, WITHIN THE FRAMEWORK OF LAW, UNLESS THE SAME FALL IN THE CATEGO RY OF COLOURABLE DEVICE WHICH MAY PROPERLY BE CALLED A DEVICE OR A DUBIOUS METHOD OR A SUBTERFUGE CLOTHED WITH APPARENT DIGNITY.' (P. 850) THIS ACCORDS WITH OUR OWN VIEW OF THE MATTER. 18.11. FURTHER, THE AO ALSO OBSERVED THAT ASSESSEE USED THE NAME OF UTL BEING A RELATED PARTY OF ASSESSEE, THEREFORE, IT WAS NOT VERY MUCH DIFFICULT FOR ASSESSEE TO ENTER INTO ALL THESE TRANSACTIONS. HOWEVER, THE ASSESSEE CATEGOR IC ALLY DENIED THE FACT THAT UTL IS A RELATED PA RTY NOT EVEN AS PER AS - 18 OF THE ASSESSEE WHICH IS MUCH WIDER THAN SECTION 40A(B)(2) OF THE ACT. IN THIS REGARD WE RAISED A QUERY FROM THE BENCH TO THE LD. COUNSEL WHO HAS FURNISHED THE SHAREHOLDING PATTERN OF UTL FOR THE YEAR UNDER CONSIDERATION AND CONTE NDED THAT UTL IS NOT A RELATED PARTY AS PER THIS SHAREHOLDING. THE COPY OF THE SHAREHOLDING PATTERN AND THE SPECIFIED PERSON IS AVAILABLE ON RECORD. THE LD. DR HAS NOT BROUGHT ANYTHING ON RECORD TO CONTROVERT THE ARGUMENT OF THE LD. AR FOR THE ASSESSEE. 18.12. EVEN ASSUMING THAT THE IMPUGNED TECHNOLOGIES WERE DEVELOPED BY THE ASSESSEE, THE QUESTION ARISES HOW TO TAX THE INCOME OF THE ASSESSEE. IF IT IS SO THEN THE TRANSACTION FOR THE SALE OF TECHNOLOGICAL WILL BE TREATED ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 50 BETWEEN THE ASSESSEE AND THE S UN BVI BEING THE ASSOCIATED ENTERPRISE. IT IS SETTLED LAW THE INTERNATIONAL TRANSACTION S BETWEEN THE 2 ASSOCIATED ENTERPRISES ARE GOVERNED BY THE PROVISIONS OF TRANSFER PRICING AS PER SECTION 92 OF THE ACT. THUS THE IMPUGNED TRANSACTION BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES CAN BE DETERMINED AT THE ARM LENGTH PRICE UNDER THE PROVISIONS OF SECTION 92 OF THE ACT. HOWEVER IT IS IMPORTANT TO NOTE THAT THE R EVENUE HAS NOT INVO KED THE PROVISIONS OF SECTION 9 2 OF THE ACT TO DETERMINE THE ARM LENGTH PR ICE FOR THE IMPUGNED TRANSACTION. THUS WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO PROVISION UNDER THE ACT TO TAX THE INTERNATIONAL TRANSACTION BETWEEN THE 2 ASSOCIATED ENTERPRISES OTHER THAN THE PROVISIONS CONTAINED UNDER SECTION 9 2 OF THE ACT. IN OUR CONSIDERED VIEW THE REVENUE HAS ERRED BY NOT REFERRING THE IMPUGNED TRANSACTION TO THE TPO FOR DETERMINING THE ARM L ENGTH PRICE. 18.13. ONCE THE REASSESSMENT PROCEEDINGS HAVE BEEN INIT IATED AGAINST THE ASSESSEE, THE AO WAS EMPOWERED TO REFER THE MATTER THE TPO FOR DETERMINING THE PRICE AT ARM S LENGTH. BUT THE AO HAS NOT DONE SO. ONCE THE MATTER HAS NOT BEEN REFERRED TO THE TPO FOR DETERMINING THE ARM LENGTH PRICE, THEN NORMAL PROVISIONS OF THE ACT WILL BE APPLIED. UNDER THE NORMAL PROVISIONS OF THE ACT THE PURCHASE AND SALE PRICE BETWEEN THE ASSOCIATED ENTERPRISES CANNOT BE D ISTURBED EVEN THESE ARE NO T AT ARM S LENGTH PRICE. IN THIS REGARD WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF MARGHABHAI KISHABHAI PATEL & COMPANY VS. CIT REPORTED IN 108 ITR 54 WHEREIN IT WAS HELD AS UNDER: ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 51 IN VIEW OF THE DECISION OF THIS HIGH COURT IN CIT V. KESHAVLAL CHANDULAL [1966] 59 ITR 1 20 , UNLESS IT HAS BEEN SHOWN THAT THE TRANSACTION IN QUESTION WAS A SHAM ONE OR UNLESS THE VALUE SHOWN WAS NOT THE VALUE IN THE BOOKS OF ACCOUNTS OR UNLESS IT WAS NOT A BONA FIDE TRANSACTION, IT WAS NOT OPEN TO THE TAXING AUTHORITIES TO DISREGARD THE FIGU RES OF THE TRANSACTIONS SHOWN IN THE BOOKS OF ACCOUNT OF THE FIRM. IN THE INSTANT CASE, IT WAS NOBODY'S CASE THAT THE TRANSACTIONS OF SALE FROM THE PARTNERS AND 'C' TO THE ASSESSEE WERE NOT BONA FIDE TRANSACTIONS NOR WAS IT THE CASE OF THE DEPARTMENT THAT THEY WERE SHAM TRANSACTIONS OR THAT THE PRICE PAID IN RESPECT OF EACH OF THESE TRANSACTIONS BY THE ASSESSEE - FIRM WAS OTHER THAN THE ONE SET OUT IN THE BOOKS OF ACCOUNT OF THE FIRM. UNDER THESE CIRCUMSTANCES IT APPEARED THAT THE TAXING AUTHORITIES HAD NO RI GHT TO SUBSTITUTE EITHER THE MARKET PRICE OR THE AVERAGE PRICE IN PLACE OF THE PRICE OR VALUE AGREED TO BETWEEN THE PARTIES TO THE TRANSACTION, SINCE THE TRANSACTION HAD NOT BEEN SHOWN TO BE A SHAM ONE NOR HAD IT BEEN SHOWN THAT THE VALUE WAS NOT THE VALUE IN THE BOOKS OF ACCOUNT. FURTHER, IT WAS NOT CLEAR HOW THE ITO ARRIVED AT THE FIGURES OF ADDITION BACK FOR EACH OF THESE ASSESSMENT YEARS WITHOUT COMPARING THE PREVAILING MARKET PRICE OF THE TOBACCO OF THE PARTICULAR QUALITY PURCHASED FROM THE PARTNERS AN D 'C' ON THE DATES OF PURCHASE WITH THE PURCHASE PRICE ACTUALLY PAID TO THE PARTNERS AND 'C'. THE QUALITIES OF TOBACCO DIFFER VERY WIDELY AND ALSO THERE MAY BE FLUCTUATIONS IN THE MARKET FROM TIME TO TIME AND STRIKING AN AVERAGE OF THE PRICE OF ALL TOBACCO PURCHASED DURING THE ENTIRE SEASON IRRESPECTIVE OF QUALITIES AND IRRESPECTIVE OF THE FLUCTUATIONS IN THE MARKET RATES, WAS A VERY UNSCIENTIFIC METHOD FOLLOWED BY THE DEPARTMENT IN ARRIVING AT ITS CONCLUSION BUT IN ANY EVENT HE HAD NO RIGHT TO DEPART FROM THE PRICES SHOWN IN THE BOOKS OF ACCOUNT UNLESS HE FOUND THE TRANSACTION NOT TO BE A BONA FIDE ONE OR TO BE SHAM ONE OR UNLESS HE FOUND THAT THE PRICES PAID WERE NOT WHAT WAS SHOWN IN THE BOOKS OF ACCOUNT AND SINCE NONE OF THESE THREE CONCLUSIONS HAD BEEN REACHED BY HIM, HE HAD NO RIGHT TO DEPART FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE. IT WAS, THEREFORE, HELD THAT THE TRIBUNAL WAS NOT JUSTIFIED IN DISALLOWING A PART OF THE ACTUAL PRICE OF TOBACCO PAID TO THE PARTNERS. 18.14. WE FURTHER NOTE THAT EVEN IF WE ASSUME THAT SUN BVI IS THE PAPER COMPANY WHICH WAS CREATED ONLY TO DIVERT THE INCOME OF THE ASSESSEE, THEN THE TRANSACTION FOR THE SALE OF TRANSACTION WILL BE TREATED BETWEEN THE ASSESSEE AND C ARACO. T HUS SUCH TRANSACTIONS WILL BE GOVERNED UNDER THE PROVISIONS OF SECTION 92C OF THE ACT FOR DETERMINING ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 52 THE ALP . BUT THE AO FAILED TO INVOKE THE PROVISIONS OF THE TRANSFER PRICING UNDER SECTION 92 OF THE ACT. 18.15. I T IS ALSO IMPORTANT TO NOTE THAT T HE ASSESSEE HAS SHOWN RENTAL INCOME RECEIVED FROM UTL WHICH HAS BEEN DULY ACCEPTED BY THE R EVENUE AS INCOME OF THE ASSESSEE. THUS WE NOTE THAT THE REVENUE HAS TAKEN CONTRADICTORY STAND WHILE HOLDING THE TRANSACTION BETWEEN THE ASSESSEE, UTL & SUN BVI AS CO LORABLE DEVICE. IN OUR CONSIDERED VIEW ONC E THE TRANSACTION HAS HELD AS COLORA BLE DEVICE THEN THE ASSESSEE SHOULD NOT SUFFER TAX ON THE INCOME DISCLOSED BY IT BY WAY OF RENT FROM UTL. 18.16. REGARDING THE CONTENTION OF THE LD. DR FOR THE USE OF THE R & D FACILITY AT BARODA, WE NOTE THAT THERE WAS ALSO THE RENT AGREEMENT FOR THE USE OF BOTH THE FACILITY FOR CARRYING OUT R&D PROCESS AS EVIDENT FROM PAGE 2 OF AGREEMENT PLACED ON PAGE 284 OF THE PAPER BOOK. 18.17. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, WE REVERSE THE ORDER OF THE AUTHORITIES BELOW AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 19. THE NEXT ISSUE RAISED BY T HE ASSESSEE IN GROUND NO. 4 IS THAT THE LD. CIT - A ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE DISALLOWANCE OF 1744. 156 LAKHS ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENSES. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 53 20. THE REVENUE HAS ALSO RAISED THE ISSUE IN GROUND NUMBER 2 C ONNECTED TO THE ABOVE GROUND OF APPEAL OF THE ASSESSEE. THEREFORE, WE CLUBBED BOTH THE GROUNDS OF APPEAL OF THE ASSESSEE AND THE R EVENUE FOR THE SAKE OF CONVENIENCE AND THE ADJUDICATION. 21. THE ISSUE RAISED BY THE R EVENUE IN GROUND NO. 2 READS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN LAW AND ON 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 EXPENS ES 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 ITS UNITS IN THE RATIO OF THEIR TURNOVER. 22. BOTH THE LEARNED AR AND THE DR BEFORE US RELIED ON THE ORDER OF THE AUTHORITIES BELOW AS FAVOURABLE TO THEM. 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN ITS OWN CASE IN ITA NO. 1666/AHD/2016 DATED 8 TH SEPTEMBER 2017 . THE LEARNED DR HAS ALSO NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE ARGUMENT ADVANCED BY THE LEARNED AR FOR THE ASSESSEE. THE RELEVANT EXTRA CT OF THE ORDER IS REPRODUCED BELOW: ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 54 49. NO. 12 RELATES TO THE DISALLOWANCE ON ACCOUNT OF R&D EXPENSES INCURRED BY THE ASSESSEE FOR PRODUCTS MANUFACTURED BY SUN PHARMACEUTICALS INDUSTRIES. 50.DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND SURVEY OPERATION CONDUCTED U/S. 133A OF THE ACT, IT WAS FOUND THAT THE ASSESSEE IS THE FLAGSHIP COMPANY OF SUN PHARMA GROUP AND IT IS CARRYING OUT THE RESEARCH AND DEVELOPMENT WORK FOR THE ENTIRE SUN PHARMA GRO UP WHICH INCLUDES RESEARCH & DEVELOPMENT OF THE PRODUCTS WHICH ARE MANUFACTURED BY A FIRM CALLED SUN PHARMACEUTICALS INDUSTRIES (SPL) HAVING MANUFACTURING UNITS AT ' JAMMU AND DADRA. THE A.O. FOUND THAT THE ASSESSEE IS HOLDING 97.5% SHARE OF THE SAID FIRM SPL. 51.ON PERUSAL OF THE RETURNS OF INCOME FILED BY THE PARTNERSHIP FIRM SPL, IT WAS OBSERVED THAT IT IS SHOWING HUGE PROFIT MARGINS AND CLAIMING DEDUCTIONS U/S. 80IC OF THE ACT. IT WAS OBSERVED BY THE A.O. THAT SUBSTANTIAL PART OF THIS PROFIT IS COMING BACK TO THE ASSESSEE. THE A.O. WAS OF THE OPINION THAT SINCE THE HUGE PROFIT RECEIVED BY THE ASSESSEE FROM THE FIRM IS EXEMPT FROM TAX. THEREFORE, THE ASSESSEE HAS DEBITED ALL THE EXPENDITURE IN ITS BOOKS OF ACCOUNTS WHEREAS THE PARTNERSHIP FIRM HAS NOT DE BITED ANY EXPENDITURE UNDER THE HEAD 'RESEARCH & DEVELOPMENT'. 52.THE A.O. WAS OF THE FIRM BELIEF THAT THE ENTIRE R&D EXPENDITURE CLAIMED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS CANNOT BE ALLOWED IN THE HANDS OF THE ASSESSEE. 53 . . THE ASSESSEE STRONGLY OBJECTED TO THIS PROPOSITION ON THE GROUND THAT R&D FACILITY IS WHOLLY AND EXCLUSIVELY OWNED BY THE ASSESSEE AND IS APPROVED BY THE DCIR U/S. 35(2AB) OF THE ACT. AND THE PRODUCTS DEVELOPED BY THIS R&D FACILITY ARE OWNED UP BY THE ASSE SSEE. 54.THE CONTENTIONS OF THE ASSESSEE WERE DISMISSED BY THE A.O. WHO WAS OF THE FIRM BELIEF THAT THE ASSESSEE IS INCURRING EXPENSES AT R&D ACTIVITY ON BEHALF OF THE PARTNERSHIP FIRM SPI IN WHICH THE ASSESSEE HAS SUBSTANTIAL INTEREST. FURTHER, THE SUB STANTIAL PROFIT RECEIVED FROM THE FIRM SPI IS EXEMPT, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD R&D ACTIVITY COULD NOT BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE A.O. CONCLUDED BY DISALLOWING RS. 5,3,02,95,255/ - . 55.AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE ID. CIT(A) BUT WITHOUT ANY SUCCESS. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 55 56.BEFORE US, THE ID. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHOR ITIES. IT IS THE SAY OF THE ID. COUNSEL THAT IN EARLIER YEARS ALSO, SIMILAR REASONING WERE GIVEN FOR DISALLOWING CERTAIN EXPENDITURES ON THE ALLEGATION THAT THE EXPENDITURES WERE INCURRED ON HALF OF SUN PHARMACEUTICALS INDUSTRIES. THE ID. C OUNSEL POINTED OUT THAT IHTRIBUNAL HAD DELETED THOSE ADDITIONS WHILE DECIDING THE APPEAL FOR A.Y. 2 - 03, 2003 - 04 & 2004 - 05. 57 . PER CONTRA, THE ID. D.R. SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 58.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 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 ARID DEVELOPMENT ACTIVITIES ARE DONE BY THE APPELLANT COMPANY ONLY BEING THE FL AGSHIP 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 H OLDING 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 I S 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 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 TH E A.O. TO DELETE THE ADDITION OF RS. 5,30,29,5255/ - . GROUND NO. 12 IS ACCORDINGLY ALLOWED. 24. A S THE FACTS OF THE CASE ON HAND OR IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, THEREFORE RESPECTFULLY FOLLOWIN G THE SAME THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED AND THE GROUND OF APPEAL OF THE R EVENUE IS DISMISSED . ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 56 25. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 5 IS CONSEQUENTIAL IN NATURE AND THEREFORE NO SEPARATE ADJUDICATION IS REQUIRED FOR THE SA ME. ACCORDINGLY WE DISMISS THE SAME. 26. IN THE RESULT , THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. NOW WE TAKE UP REVENUE S APPEAL IN ITA NO.1689/AHD/2015 FOR AY 2008 - 09 27. THE R EVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN HOLDING THAT HIRE CHARGES RECEIVED FROM M/S. UTL IS A PART OF CONSIDERATION RECEIVABLE FROM M/S. CARACO USA WHEREAS THE AMOUNT TAXED BY THE AO WAS ONLY THE INCOME RECEIVABLE ON ACCOUNT OF TRANSFER OF TECHNOLOGY TO CARACO BY SUN BVI, USA AN D WHICH DOES NOT INCLUDE PROFIT EARNED BY THE UNIMED TECHNOLOGIES LTD. ' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN LAW AND ON 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 ITS UNITS IN THE RATIO OF THEIR TURNOVER. 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE AO HAS NOT MENTIONED THE FACTS REGARDING ISSUANCE OF NOTICE U/S. 154 AND DIRECTLY GONE INTO MAKING THE DISALLOWANCE IN THE ASSESSMENT ORDER WITHOUT APPRECIATING THAT THE ISSUE BEING DEBATABLE IS OUTSIDE THE PURVIEW OF PROCEEDING U/S 154 OF THE IT ACT AND THAT THE AO HAD DROPPED THE RECTIFICATION PROCEEDINGS VIDE ORDER U/S. 154 OF THE ACT DATED 23.09.2013 MENTIONING CLEARLY THE FACT THAT ISSUE ARISEN IN THE NOTICE U/S. 154 IS THE SUBJECT MATTER OF REASSESSMENT PROCEEDINGS AND WOULD BE LOOKED INTO AT THE TIME OF FINALIZING THE RE - ASSESSMENT PROCEEDINGS.' ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 57 4 . 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. C IT (A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE EXPENSES INCURRED ON CLINICAL TRIAL OUTSIDE APPROVED FACILITY IS ELIGIBLE FOR WEIGHTED DEDUCTION WITHOUT APPRECIATING THE FACT THAT EXPENDITURE INCURRED FOR IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY ONLY IS ENTITLED FOR DEDUCTION U/S. 35(2AB) READ WITH EXPLANATION TO SECTION 35(2AB) OF THE ACT, WHICH FINDS SUPPORT FROM THE DECISION OF I.T.A.T. MUMBAI BENCH 'C' IN THE CASE OF CONCEPT PHARMACEUTICALS LTD. V. CIT[2011] 43 SOT 423 (MUM.) 5 . 'ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN RELYING UPON THE JUDGEMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CADILA HEALTH CARE LTD. 214 T A XMANN 672 (GUJ.), WITHOUT APPRECI ATING THAT THE PHRASEOLOGY USED IS 'ON IN - HOUSE RESEARCH OR DEVELOPMENT FACILITY AND NOT 'BY IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY' AND, THEREFORE, ONLY THE EXPENDITURE INCURRED ON IN - HOUSE RESEARCH CAN BE ALLOWED UNDER SECTION 35(2AB) AND NOT ANY EX PENDITURE INCURRED OUTSIDE SUCH FACILITY AND EXPLANATION TO SECTION 35(2AB)(1) HAS ONLY CLARIFIED THAT EXPENDITURE INCURRED ON CLINICAL TRIAL IN RELATION TO DRUGS AND PHARMACEUTICALS WILL BE PART OF THE EXPENDITURE ON SCIENTIFIC RESEARCH AND THE SAID EXPLA NATION NO WHERE STATES THAT EXPENDITURE INCURRED ON CLINICAL TRIALS OUTSIDE THE IN - HOUSE RESE A RCH AND DEVELOPMENT FACILITY CAN BE ALLOWED. 6. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR ALTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. RELI EF CLAIMED IN APPEAL THE ORDER OF THE CIT(A) ON THE ISSUES RAISED IN THE AFORESAID GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 28. THE 1 ST ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RUPEES 660.7 LACS ON ACCOUNT OF HIRE CHARGES INCOME RECEIVED FROM UTL. 29. AT THE OUTSET , WE NOTE THAT THE ISSUE RAISED BY THE ASSESSEE REGARDING THE ADDITION OF RS. 45 ,35,30,353.00 CRORES IN ITA 1659/AHD/2015 VIDE PARA - 11 TO 18 OF THIS ORDER HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE ADDITION DELETED BY THE LD. CIT (A) FOR 660.7 LAKHS ON ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 58 ACCOUNT OF HIGHER CHARGES WILL BE RESTORED IN THE HANDS OF THE ASSESSEE IN VIEW OF THE ABOVE ORDER. HENCE THE GROUND OF APPEAL OF THE REVENUE IS ALLOWED. 30. THE ISSUE RAISED BY THE R EVENUE GROUND NO. 2 IS THAT LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO IN PART ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENSES. 31. AT THE OUTSET , IT WAS NOTE D THAT WE HAVE ALREADY ADJUDICATED THE IMPUGNED ISSUE RAISED BY THE REVENUE ALONG WITH THE GROUND OF APPEAL OF THE AS SESSEE BEA RING NUMBER 1659/AHD/2015 V IDE P ARA NO. 23 & 24 OF THIS ORDER WHEREIN THE GROUND OF APPEAL OF THE REVENUE WAS ALLOWED. 32. ACCORDINGLY, WE ALLOW THE GROUND OF APPEAL RAISED BY THE REVENUE. 33. THE R EVENUE IN GROUND NO. 3 IS THAT THE LD. CIT( A) ERRED IN HOLDING THAT PROCEEDINGS INITIATED UNDER SECTION 154 OF THE ACT ARE SUBJECT MATTER OF REASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT. AT THE OUTSET WE NOTE THAT THE ISSUE RAISED BY THE REVENUE IN THE ABOVE GROUND OF APPEAL HAS ALREADY BEEN ADJUDICATED BY US ON MERIT IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE VIDE PARA NO. 37 OF THE THIS ORDER. ACCORDINGLY WE HOLD THAT THE ISSUE RAISED BY THE REVENUE BECOMES INFRUCTUOUS. HENCE WE DISMISS THE SAME. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 59 THE ISSUE RAISED BY THE R EVENUE IN GROUND NO. 4 AND 5 IS THAT THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO F OR RS. 2,50,44,500.00 ON ACCOUNT OF THE WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. 34. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS CLA IMED THE WEI GHTED DEDUCTION FOR RS. 250. 445 LACS IN RESPECT OF EXPENSES INCURRED IN CONNECTION WITH THE CLINICAL TRIAL CONDUCTED OUTSIDE THE APPROVED R&D FACILITY . HOWEVER THE AO WAS OF THE VIEW THAT THE EXPENDITURE INCURRED OUTSIDE THE APPROVED FACILITY WILL NOT BE ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. THEREFORE THE AO DISALLOWED T HE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3 5. AGGRIEVED ASSES S EE PREFERRED AN APPEAL TO THE LD. CIT - A WHO ALLOWED THE WEIGHTED DEDUCTION IN RESPECT OF THE EXPENDITURE AS DISCUSSED ABOVE UNDER SECTION 35(2AB) OF THE ACT. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT - A, THE REVENUE IS IN APPEAL BEFOR E US. 36. BOTH THE LEARNED DR AND THE AR BEFORE US RELIED ON THE ORDER OF THE AUTHORITIES BELOW AS FAVOURABLE TO THEM. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 60 37 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE IMPUGNED HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HON BLE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT VS CADILA HEALTHCARE LTD. REPORTED IN 214 TAXMAN 672 WHEREIN IT WAS HELD AS UNDER: 14. IN OUR OPINION, THE TRIBUNAL COMMITTED NO ERROR. SECTION 35(2AB) OF THE ACT PROVIDES FOR DEDUCTION TO A COMPANY ENGAGED IN BUSINESS OF BIO - TECHNOLOGY OR THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING NOTIFIED BY THE BOARD TOWARDS EXPENDITURE OF SCIENTIFIC RESEARCH DEVELOPMENT FACILITY APPROVED BY THE PRESCRIBED AUTHORITY. SUCH DEDUCTION AT THE RELEVANT TIME WAS ONE - AND - A - HALF TIMES EXPENDITURE WHICH HAS NOW BEEN INCREASED TO TWI CE THE ELIGIBLE EXPENDITURE. WE MAY NOTICE THAT EXPLANATION TO SECTION 35(2AB)(1) WHICH WAS INTRODUCED BY THE FINANCE ACT 2001 WITH EFFECT FROM 1.4.2002 READS AS UNDER: 'EXPLANATION - FOR THE PURPOSES OF THIS CLAUSE, 'EXPENDITURE ON SCIENTIFIC RESEARCH' IN RELATION TO DRUGS AND PHARMACEUTICALS, SHALL INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL, OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CENTRAL, STATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATENT UNDER THE PATENTS ACT, 197 0 (39 OF 1970).' 15. SUCH EXPLANATION THUS PROVIDES THAT FOR THE PURPOSE OF SAID CLAUSE, I.E. CLAUSE (1) OF SECTION 35(2AB), EXPENDITURE ON SCIENTIFIC RESEARCH IN RELATION TO DRUGS AND PHARMACEUTICALS SHALL INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIA L, OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER THE CENTRAL, STATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATENT UNDER THE PATENTS ACT, 1970. 16. THE WHOLE IDEA THUS APPEARS TO BE TO GIVE ENCOURAGEMENT TO SCIENTIFIC RESEARCH. BY THE VER Y NATURE OF THINGS, CLINICAL TRIALS MAY NOT ALWAYS BE POSSIBLE TO BE CONDUCTED IN CLOSED LABORATORY OR IN SIMILAR IN - HOUSE FACILITY PROVIDED BY THE ASSESSEE AND APPROVED BY THE PRESCRIBED AUTHORITY. BEFORE A PHARMACEUTICAL DRUG COULD BE PUT IN THE MARKET, THE REGULATORY AUTHORITIES WOULD INSIST ON STRICT TESTS AND RESEARCH ON ALL POSSIBLE ASPECTS, SUCH AS POSSIBLE REACTIONS, EFFECT OF THE DRUG AND SO ON. EXTENSIVE CLINICAL TRIALS, THEREFORE, WOULD BE AN INTRINSIC PART OF DEVELOPMENT OF ANY SUCH NEW PHARMACE UTICAL DRUG. IT CANNOT BE IMAGINED THAT SUCH CLINICAL TRIAL CAN BE CARRIED OUT ONLY IN THE LABORATORY OF THE PHARMACEUTICAL COMPANY. IF WE GIVE SUCH RESTRICTED MEANING TO THE TERM EXPENDITURE INCURRED ON IN - HOUSE ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 61 RESEARCH AND DEVELOPMENT FACILITY, WE WOULD ON ONE HAND BE COMPLETELY DILUTING THE DEDUCTION ENVISAGED UNDER SUB - SECTION (2AB) OF SECTION 35 AND ON THE OTHER, MAKING THE EXPLANATION NOTED ABOVE QUITE MEANINGLESS. WE HAVE NOTICED THAT FOR THE PURPOSE OF THE SAID CLAUSE IN RELATION TO DRUG AND PHARMA CEUTICALS, THE EXPENDITURE ON SCIENTIFIC RESEARCH HAS TO INCLUDE THE EXPENDITURE INCURRED ON CLINICAL TRIALS IN OBTAINING APPROVALS FROM ANY REGULATORY AUTHORITY OR IN FILING AN APPLICATION FOR GRANT OF PATENT. THE ACTIVITIES OF OBTAINING APPROVAL OF THE A UTHORITY AND FILING OF AN APPLICATION FOR PATENT NECESSARILY SHALL HAVE TO BE OUTSIDE THE IN - HOUSE RESEARCH FACILITY. THUS THE RESTRICTED MEANING SUGGESTED BY THE REVENUE WOULD COMPLETELY MAKE THE EXPLANATION QUITE MEANINGLESS. FOR THE SCIENTIFIC RESEARCH IN RELATION TO DRUGS AND PHARMACEUTICALS MADE FOR ITS OWN PECULIAR REQUIREMENTS, THE LEGISLATURE APPEARS TO HAVE ADDED SUCH AN EXPLANATION. 17. IN THE CASE DY. CIT V. MASTEK LTD. [2012] 210 TAXMAN 432/25 TAXMANN.COM 133 (GUJ.) AND CONNECTED MATTERS, A DIVISION BENCH OF THIS COURT HAD TOUCHED ON THE ASPECT OF WHAT CAN BE TERMED AS SCIENTIFIC RESEARCH. IN THE CONTEXT, CERTAIN OBSERVATIONS MADE BY THE BENCH MAY BE OF SOME RE LEVANCE. '25. IT CAN THUS BE SEEN THAT THE TERM SCIENTIFIC RESEARCH IN THE CONTEXT OF THE DEDUCTION ALLOWABLE UNDER SECTION 35(1) OF THE ACT WOULD INCLUDE WIDE VARIETY OF ACTIVITIES. IT CAN ALSO BE APPRECIATED THAT EVERY SCIENTIFIC RESEARCH NEED NOT NECESS ARILY RESULT INTO THE ULTIMATE GOAL WITH WHICH IT MAY HAVE BEEN UNDERTAKEN. OFTEN TIMES IN THE FIELD OF RESEARCH AND INVENTION, THE EFFORTS UNDERTAKEN MAY OR MAY NOT YIELD FRUITFUL RESULTS. WHAT IS TO BE ASCERTAINED IS WHETHER ANY SCIENTIFIC RESEARCH WAS U NDERTAKEN AND NOT WHETHER SUCH SCIENTIFIC RESEARCH RESULTED INTO THE ULTIMATE AIM FOR WHICH SUCH RESEARCH WAS UNDERTAKEN. IT CAN BE EASILY ENVISAGED THAT THE SCIENTIFIC RESEARCH UNDERTAKEN OFTEN TIMES WOULD COMPLETELY FAIL TO ACHIEVE DESIRED RESULTS. THAT BY ITSELF DOES NOT MEAN THAT NO SCIENTIFIC RESEARCH WAS UNDERTAKEN. WHAT THE LEGISLATURE DESIRED TO ENCOURAGE BY GRANTING DEDUCTION UNDER SECTION 35(1) OF THE ACT WAS A SCIENTIFIC RESEARCH AND NOT NECESSARILY ONLY THE SUCCESSFUL SCIENTIFIC RESEARCH UNDERTA KEN BY AN ASSESSEE.' 18. WE ARE, THEREFORE, OF THE OPINION THAT THE TRIBUNAL COMMITTED NO ERROR. MERELY BECAUSE THE PRESCRIBED AUTHORITY SEGREGATED THE EXPENDITURE INTO TWO PARTS, NAMELY, THOSE INCURRED WITHIN THE IN - HOUSE FACILITY AND THOSE CAN WERE INCURRED OUTSIDE, IN OUR OPINION, BY ITSELF WOULD NOT BE SUFFICIENT TO DENY THE BENEFIT TO THE ASSESSEE UNDER SECTION 35(2AB) OF THE ACT. IT IS NOT AS IF THAT THE SAID AUTHORITY WAS ADDRESSING THE ISSUE FOR DEDUCTION UNDER SECTION 35(2AB) OF THE ACT IN REL ATION TO THE QUESTION ON HAND. THE CERTIFICATE ISSUED WAS ONLY FOR THE PURPOSE OF LISTING THE TOTAL EXPENDITURE UNDER THE RULES. THEREFORE, NO QUESTION OF LAW ARISES. ITA NOS.1659/AHD/2015 (BY ASSESSEE) AND ITA NO.1689/AHD/2015 (BY REVENUE) SUN PHARMACEUTICALS IND USTRIES LTD. VS. ACIT ASST.YEAR - 2008 - 09 62 IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT - A. ACCORD INGLY WE DIRECT THE AO TO ALLOW THE WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT IN RESPECT OF THE EXPENDITURE DISCUSSED ABOVE. HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 37 . IN THE RESULT , THE APPEAL OF THE R EVENUE IS PARTLY ALLOWED. 38 . IN THE COMBINED RESULT , THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE R EVENUE IS PARTLY ALLOWED THIS ORDER PRONOUNCED IN OPEN COURT ON 20 / 06 / 201 9 - SD - - SD - ( MS.MADHUMITA ROY ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER A HMEDABAD; DATED 20 / 0 6 /20 19 . . , . . . / T.C. NAIR, SR. PS
Other Referred Cases
-
Laws Referred To
-
1:1 Consultation on Tax Litigation
₹1
1:1 Consultation on SME Listing
₹0
1:1 Consultation on Business Development
₹1
Startup Valuation Certificate
₹0
Sales Forecasting Sheet
₹100
Why Meesho got ₹1,500 Crore Tax Demand ?
Team Counselvise - March 09, 2026
Minimum Alternate Tax (MAT): Comprehensive Overview and Key Changes under Finance Bill, 2026
Team Counselvise - February 06, 2026
SEBI Resets Mutual Fund Rules: A Structural Shift for Investors
Team Counselvise - March 13, 2026