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

ITA 1663/AHD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8644 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 05-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 17-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R M TIWARI
• Keywords: Capital asset; Gift; Depreciation; Transfer pricing; International transaction; Earning of tax free income; Question of law; Initiation of penalty proceedings; Wholly owned subsidiary; Avoidance of tax; Notional interest; Capital receipt; Revised return; Revenue expenditure; Capital expenditure
• Section: 92C; 133A; 14A; 115JB; 80IB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NOS: 1666 & 1663/AHD/2016 (ASSESSMENT YEAR: 2009-10) SUN PHARMACEUTICAL INDUSTRIES LTD. SPARC, TANDALJA, BARODA-20 DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2(1)(1), BARODA V/S V/S DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2(1)(1), BARODA SUN PHARMACEUTICAL INDUSTRIES LTD. SPARC, TANDALJA, BARODA-20 (APPELLANT) (RESPONDENT) PAN: AADCS3124K APPELLANT BY : SHRI S. N. SOPARKAR , VAR TIK CHOKSI WITH PAR IN SHAH RESPONDENT BY : SHRI R. M. TIWARI, CIT/ DR ( )/ ORDER DATE OF HEARING : 05 -07-201 7 DATE OF PRONOUNCEMENT : 08 -09-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 2 1. ITA NOS. 1666 & 1663/AHD/2016 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE PREFERRED AGAINST THE VERY SAME ORDER OF TH E LD. CIT(A)- 2,VADODARA DATED 31.03.2016 PERTAINING TO A.Y. 2009 -10. 2. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE DISP OSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. 3. AT THE VERY OUTSET, THE LD. SENIOR COUNSEL STATED T HAT THE UNDERLYING ISSUES IN THIS CROSS APPEALS ARE IDENTICAL TO THE ISSUES D ECIDED BY THE TRIBUNAL IN EARLIER YEARS. THE LD. D.R. FAIRLY CONCEDED TO THIS . ON SUCH CONCESSION, WE PROCEED TO TAKE UP ASSESSEES APPEAL FIRST. 4. GROUND NOS. 1 & 2 IS OF GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDICATION. 5. GROUND NO. 3 RELATES TO THE ADDITION ON ACCOUNT OF SHARE APPLICATION MONEY ADVANCED TO SUN PHARMA GLOBAL INC (SPGI) AMOUNTING TO RS. 4,00,64,965/-. 6. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE AO/TPO NOTICED THAT AS ON 31.03.2009 THE SHARE APPLICATION MONEY PENDING ALLOTMENT WAS RS. 50.85 CRORES. THE AO/TPO WAS OF T HE OPINION THAT THE ASSESSEE SHOULD HAVE CHARGED INTEREST AT LIBOR PLUS BASIS. THE ASSESSEE STRONGLY OBJECTED TO THIS PROPOSITION FOR TP ADJUST MENT STATING THAT TILL THE AMOUNT ADVANCED FOR SHARES IS ACTUALLY ADJUSTED TOW ARDS ALLOTMENT OF EQUITY SHARES, THE AMOUNT IS TO BE TREATED AS ADVAN CE TOWARDS SHARE ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 3 APPLICATION MONEY AND THE SHARE APPLICATION MONEY S HOWN AS OUTSTANDING AS ON 31.03.2009 WAS SUBSEQUENTLY CONVERTED INTO EQ UITY IN A.Y. 2010-11. IT WAS STRONGLY CONTENDED THAT THE ASSESSEE HAD SOURCE D THE APPLICATION MONEY TO ITS AE OUT OF THE EXCESS FUNDS LYING IDLE OUT OF THE ISSUE OF FCCB. THE CONTENTIONS OF THE ASSESSEE DID NOT FIND ANY FA VOUR WITH THE AO/TPO WHO COMPUTED THE ARMS LENGTH INTEREST RATE AT AVERA GE LIBOR PLUS 3.95% WHICH INCLUDED FOREIGN EXCHANGE RISK OF 1%. 7. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT( A) WHO AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS OBSERVED AT PARA 5.3 OF HIS ORDER THAT THE FACTS IN THIS YEAR ARE IDENTICAL TO THE FACTS OF A. Y. 2008-09. HOWEVER, AT THE SAME TIME, THE LD. CIT(A) WAS OF THE OPINION THAT N O ADJUSTMENT IS REQUIRED ON ACCOUNT OF FOREIGN EXCHANGE RISK AND ACCORDINGLY REDUCED THE ARMS LENGTH INTEREST RATE BY 1% AND CONFIRMED THE ADDITI ON TO THE EXTENT OF RS. 3,37,65,436/-. 8. BEFORE US, THE LD. SENIOR COUNSEL DREW OUR ATTENTIO N, THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 3297 & 3 420/AHD/2014 VIDE ORDER DATED 16.06.2017 AND POINTED OUT THAT THE ISS UE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE BENCH. WE FIND FORCE IN THE CONTENTION OF THE LD. SENIOR COUNSEL. A SIMI LAR ISSUE WAS DECIDED BY THE TRIBUNAL (SUPRA), AND THE RELEVANT FINDINGS REA D AS UNDER:- 13. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO TH E RIVAL CONTENTIONS QUA THE FACTS IN ISSUE BEFORE US. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 4 14. THE CRUCIAL FACT RELATES TO THE BALANCE AS AT 31 ST MARCH, 2007 SHOWN UNDER THE HEAD ADVANCES AS SHARE APPLICATION MONEY TO SUN PHARMA GLOBAL INC. BVI AT RS. 1469.7 MILLION AND THE SAME HAS BEEN REFLECTED AS ON 31.03.2008 AT RS. 1007.4 MILLION. IF THESE FIGURES ARE CONSIDERED IT EMERGES THAT SHARES WORTH 462.3 MILLION WERE ALLOTTED TO THE ASSESSEE COMPANY DURIN G THE YEAR UNDER CONSIDERATION AND THE BALANCE WERE ALLOTTED IN THE SUBSEQUENT FINANCIAL YEARS. THIS MEANS THAT THE BALANCE OF THE APPLICATION MONE Y REMAINED SO PENDING ALLOTMENT. IN OUR CONSIDERED VIEW, RELEVANT PROVISI ONS OF INDIAN COMPANIES ACT WILL NOT BE APPLICABLE TO THIS CASE AND DEFERENT CO UNTRIES HAVE SEPARATE LAWS/ REGULATION ON SUCH ISSUE. ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST ON SHARE APPLICATION MONEY WHICH IS NOT DISPUTED BE TO BE SO ARE NOT LIABLE TO BE RE- CHARACTERIZED AS LOANS ONLY BECAUSE THERE WAS A DEL AY IN ALLOTMENT OF SHARE IS NOT JUSTIFIABLE, MORE SO WHEN ASSESSE HAS GIVEN PLAUSIB LE REASON FOR SUCH DELAY TO AVOID REPETITIVE DOCUMENTATION AND OTHER REGULATORY EXIGENCIES. THERE IS NO DISPUTE THAT THE AE IS A 100% SUBSIDIARY OF THE APP ELLANT COMPANY AND THE APPELLANT COMPANY IN ITS CAPACITY AS SOLE OWNER OF THE SUBSIDIARY NY SUBSCRIBING TO SHARE CAPITAL IS BENEFICIARY OF ALL THE GAINS OF THE SUBSIDIARY COMPANY. MERELY, BECAUSE ALLOTMENT OF SHARES IS DELAYED AND IN BOOKS SHARE APPLICATION MONEY IS REFLECTED AS ADVANCE FOR SHARE APPLICATION MONEY TI LL THE ALLOTMENT WOULD NOT ALTER THE CHARACTERIZATION TO THE PREJUDICE OF ASSE SSEES POSITION ANYWAY. IN OUR CONSIDERED VIEW, THE PERCENTAGE OF OWNERSHIP IS THE ONLY MATERIAL FACTOR WHICH REMAINS AT 100% PRIOR TO ALLOTMENT AND ALSO POST AL LOTMENT. AS THE ASSESSEE IS THE ONLY SHAREHOLDER IN ITS 100% OWNED SUBSIDIARY COMPANY SPG BVI IT SHOULD NOT MAKE ANY DIFFERENCE MERELY BECAUSE PART OF THE SHARE APPLICATION MONEY IS CONVERTED INTO EQUITY SHARES AND THE BALANCE WERE A LLOTTED IN SUBSEQUENT ASSESSMENT YEARS. WE, THEREFORE, DO NOT FIND ANY ME RIT IN THE SUBMISSIONS OF REVENUE IN THIS BEHALF. THIS PROPOSITION, IS REINFO RCED BY THE DECISION OF THE CO- ORDINATE BENCH IN THE CASE OF STERLING OIL RESOURCE S (P.) LTD. IN ITA NO. 1791/MUM/2014. THE RELEVANT PART READS AS UNDER:- ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 5 9. THERE IS ONE MORE ASPECT OF THE MATTER. IN THE P RESENT CASE, ALLOTMENT OF SHARES DOES NOT MAKE ANY CHANGE TO THE POSITION OF THE ASSESSEE, AS THE SUBSIDIARY' IS ADMITTEDLY A WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE. A DELAY IN ALLOTMENT OF SHARES BY THE SUBSIDIARY COMPANY, AS L ONG AS THE SUBSIDIARY IS A WHOLLY OWNED SUBSIDIARY, DOES NOT PREJUDICE THE INT ERESTS OF THE ASSESSEE. IT IS, THEREFORE, WRONG TO EVEN ALLEGE THAT AN ASSESSEE DO ES NOT BEHAVE IN A COMMERCIALLY RATIONALE MANNER, AS EXPECTED IN AN AR M'S LENGTH SITUATION, WHEN THE ASSESSEE DOES NOT ASK FOR PAYMENT OF INTEREST F OR THE PERIOD OF DELAY IN ALLOTMENT OF SHARES. WE HAVE NOTED THAT THE TPO'S S TAND THAT SINCE THE ASSESSEE WAS NOT ISSUED SHARES DURING THE PERIOD, THE ASSESS EE DID NOT DERIVE ANY BENEFIT FROM THIS INVESTMENT AND, FOR THIS REASON, THE ARM' S LENGTH PRICE ADJUSTMENT HAS BEEN MADE FOR NOTIONAL INTEREST FOR THE MONEY WHICH SHOULD BE ASSESSEE'S REWARD FOR THE INVESTMENT. WHAT THE TPO AND DRP HAVE OVERL OOKED IS THAT SINCE THE ASSESSEE WAS ONLY SHAREHOLDER OF THE SUBSIDIARY COM PANY, THE FRUITS OF THIS INVESTMENT BELONG TO THE ASSESSE ONLY AND IN ENTIRE TY. ON GIVING THIS MONEY TO THE SUBSIDIARY AND ON USE OF THIS MONEY BY THE SUBS IDIARY, THE ASSESSEE, IN ITS CAPACITY AS SOLE OWNER OF THE SUBSIDIARY, IS BENEFI CIARY OF ALL THE GAINS OF THE SUBSIDIARY COMPANY. WHETHER THE ASSESSEE WAS ALLOTT ED THESE SHARES OR NOT, THE ASSESSEE WAS THE ONLY SHAREHOLDER OF THE SUBSIDIARY COMPANY AND BENEFICIAL OWNER OF ALL THE EARNINGS AND ALL THE ASSETS OF THE COMPANY. NON ALLOTMENT OF THESE SHARES, DURING THE PERIOD OF PAYMENT OF SHARE APPLICATION MONEY TILL THE ACTUAL DATE OF ALLOTMENT, DID NOT, THEREFORE, PREJU DICE ASSESSEE'S POSITION ANYWAY. ALL THE EARNINGS OF THE SUBSIDIARY COMPANY BELONGED TO THE ASSESSEE IN ANY SITUATION. FOR EXAMPLE, IF THE FUNDS AVAILABLE FOR DIVIDEND DISTRIBUTION FOR THIS YEAR WERE SAY RS 1,00,000 AND THE ASSESSEE HAD 100 SHARES BEFORE NEW ALLOTMENT OF SHARES AND 1000 SHARES AFTER THE ALLOTMENT, THE ASSESSEE WOULD BE ENTITLED TO RS 1,00,000 ONLY THE EITHER WAY- WHETHER AS RS 1,00 0 PER SHARE FOR 100 IN PRE NEW ALLOTMENT SITUATION OR WHETHER AS RS 100 PER SH ARE FOR 1,000 SHARES IN POST NEW ALLOTMENT SITUATION. IN ABSOLUTE TERMS, THE DIV IDENDS REMAIN THE SAME. WHETHER THE ASSESSEE IS ALLOTTED MORE SHARES OR NOT IS WHOLLY ACADEMIC AS THE ASSESSEE IS A SINGLE SHAREHOLDER OF THE SUBSIDIARY COMPANY AND THE FACE VALUE OF SHARES DOES NOT AFFECT THE ACTUAL BENEFITS OF THE A SSESSEE, THE PERCENTAGE OF OWNERSHIP IS THE ONLY MATERIAL FACTOR- WHICH REMAIN S AT 100% PRE NEW ALLOTMENT AS ALSO POST NEW ALLOTMENT. IN THE CASE OF CH V, EK L APPLIANCES LTD. [2012] 345 ITR 241/209 TAXMAN 200/24 TAXMANN.COM 199 (DELHI). HON'BLE DELHI HIGH COURT HAS, THOUGH IN A VERY DIFFERENT CONTEXT AND WHICH I S MATERIALLY DIFFERENT FROM A SITUATION IN WHICH THE PAYMENT IS MADE FOR SUBSCRIP TION OF SHARE CAPITAL- AS IN THIS CASE, HELD THAT RE-CHARACTERIZATION OF A TRANSACTIO N IS POSSIBLE IN ONLY TWO ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 6 SITUATIONS - I.E. (I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM ITS FORM AND (II) WHERE THE FORM AND SUBSTANCE OF THE T RANSACTION ARE THE SAME BUT ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, V IEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPEN DENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER. NONE OF THESE CO NDITIONS IS SATISFIED IN THE PRESENT CASE. THE FORM AND SUBSTANCE OF THE TRANSAC TIONS ARE THE SAME. THE ASSESSEE HAS BEHAVED IN A COMMERCIALLY RATIONAL MAN NER INASMUCH AS WHETHER THE NEW SHARES ARE ALLOTTED AT X POINT OF TIME OR Y POINT OF TIME, IT DOES NOT MAKE A DIFFERENCE TO THE POSITION OF THE SHAREHOLDER SO FAR AS THE SUBSIDIARY IS WHOLLY OWNED BY A SINGLE SHAREHOLDER- AS IS THE FACTUAL PO SITION IN THIS CASE. THE NOMINAL VALUE OF SHARES, AS LONG AS ALL THE SHARES ARE HELD BY THE ASSESSEE IS ENTIRELY BENEFIT NEUTRAL FROM A COMMERCIAL POINT OF VIEW. TH E VERY FOUNDATION OF THE ADJUSTMENT MADE BY THE ASSESSING OFFICER IS, THEREF ORE, WHOLLY DEVOID OF LEGALLY SUSTAINABLE MERITS AND FACTUALLY CORRECT ASSUMPTION S. 15. CONSIDERING THE FACTS IN TOTALITY, WE SET ASI DE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 6 ,56,60,828/-. GROUND NO. 2 IS ALLOWED. 9. CONSIDERING THE FACT THAT THE FIRST APPELLATE AUTHO RITY HIMSELF HAS OBSERVED THAT THE FACTS ARE IDENTICAL, WE DO NOT FIND ANY RE ASON TO DEVIATE FROM THE FINDINGS GIVEN BY THE BENCH IN A.Y. 2008-09. WE, AC CORDINGLY DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 4,00,64,965/-. GROUND NO. 3 IS ALLOWED. 10. GROUND NO. 4 RELATES TO THE ADDITION ON ACCOUNT OF INTEREST ON FULLY CONVERTIBLE OPTIONAL DEBENTURES SUBSCRIBED TO SUN P HARMA GLOBAL INC (SPGI). 11. THE AO/TPO HAS MADE ADDITION OF RS. 17.32 CRORES BEING THE AMOUNT OF INTEREST ON 0% OFCD SUBSCRIBED TO IN SPGI. THE AO/T PO HAS MADE THE ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 7 UPWARD ADJUSTMENT ON THE BASIS OF AVERAGE SIX MONTH LIBOR OF 2.69% + SPREAD OVER LIBOR OF 3.95% TOTALING TO 6.64%. 12. WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT(A). AT PARA 6.3, THE FIRST APPELLATE AUTHORITY OBSERVED THAT THE FACTS ARE IDE NTICAL TO THE FACTS OF A.Y. 2008-09 AND THE APPELLANT HAS ALSO FURNISHED IDENTI CAL SUBMISSIONS DURING THE COURSE OF PRESENT APPELLATE PROCEEDINGS. FOLLOW ING THE FINDINGS OF HIS PREDECESSOR FOR A.Y. 2008-09, THE FIRST APPELLATE A UTHORITY CONFIRMED THE UPWARD ADJUSTMENT AFTER GIVING A RELIEF ON ACCOUNT OF 1% REDUCTION IN RATE. 13. BEFORE US, THE LD. SENIOR COUNSEL STATED THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN A.Y. 2008-09 VIDE ORDER DATED 16.06.2017 IN ITA NOS. 3297 & 3420/AHD/2014. WE FIND FORCE IN THE CON TENTION OF THE LD. COUNSEL. THE TRIBUNAL HAS CONSIDERED THIS ISSUE VID E GROUND NO. 3 OF THE APPEAL WHEREIN THE TRIBUNAL HAD FOLLOWED THE ORDER OF THE CO-ORDINATE BENCH FOR EARLIER YEARS. THE RELEVANT FINDINGS OF T HE TRIBUNAL READS AS UNDER:- 19. SHRI G.C. SHRIVASTAVA REFERRED TO THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF SAHARA INDIA REAL ESTATE CORPORATION LTD. IN CIVIL APPEAL NO. 9813 OF 2011. IT IS CONTENDED THAT THE HONBLE SUPREME C OURT HAS EXPLAINED THE NATURE OF OFCDS AND HAVE HELD THAT OFCDS ARE HYBRID SECURI TIES WHICH REMAINED IN THE NATURE OF DEBENTURES TILL THEY ARE CONVERTED INTO E QUITY, AFTER WHICH THEY TAKE FORM OF EQUITY. COUNSEL FURTHER POINTED OUT THAT IN THE EARLIER ASSESSMENT YEARS, THE BENCH HAS DRAWN SUPPORT FROM THE DECISION IN TH E CASE OF CADILA HEALTHCARE IN ITA NO. 2430/AHD/2012 WITHOUT APPRECIATING THE F ACT THAT IN THAT CASE, THE ASSESSEE HAS PRODUCED COMPARABLE DATA TO SHOW THAT INDEPENDENT PARTIES HAD ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 8 ENTERED INTO AGREEMENTS WITH SIMILAR TERMS (BENEFIT S) AND NOT CHARGED ANY INTEREST THEREON WHEREAS IN THE CASE IN HAND, THE A SSESSEE HAS NOT PRODUCED COMPARABLE DATA TO JUSTIFY THAT OFCDS WERE ISSUED A T ARMS LENGTH PRICE. IT IS STRONGLY CONTENDED THAT SINCE THESE FACTS HAVE NOT BEEN BROUGHT ON RECORD, THEREFORE, THE BENCH SHOULD NOT FOLLOW ITS EARLIER DECISION. 20. SHRI SOPARKAR LD. SENIOR COUNSEL REPLYING TO THE SUBMISSIONS OF REVENUE STATED THAT THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF SAHARA INDIA REAL ESTATE (CIVIL APPLICATION) NO. 9813 OF 2011 RE LIED UPON BY THE LEARNED DR IS NOT APPLICABLE TO THE ISSUE BEFORE THE HON'BLE ITAT . EVEN IF IT IS HELD THAT OFCD IS A HYBRID INSTRUMENT AS LAID DOWN BY THE SUPREME COU RT, IN APPLYING THE TRANSFER PRICING PROVISIONS, THE ENTIRE INSTRUMENT HAS TO BE CONSIDERED AND THE SAME CANNOT BE RE-CHARACTERIZED PARTLY AS LOAN AND PARTL Y AS EQUITY SO AS TO ENABLE ANY TRANSFER PRICING ADJUSTMENT FOR THE SAME. IN THIS R EGARD, WE RELY ON THE DECISIONS CITED EARLIER, WHICH HAVE BEEN APPROPRIATELY FOLLOW ED BY THE HON'BLE ITAT IN A.Y. 2007-08 AND THE DECISION OF THE SUPREME COURT (SUPR A) CITED BY THE LD. DR DOES NOT IN ANY WAY JUSTIFY ANY DEPARTURE FROM THE DECI SION LAID DOWN IN A.Y. 2007-08. 21. ADVERTING TO LD. DRS CONTENTION THAT THE TER MS OF OFCDS AND COMPARABLES HAVE NOT BEEN SUBMITTED, IT IS CONTENDED THAT THE T ERMS OF OFCDS WERE DULY SUBMITTED BEFORE THE LOWER AUTHORITIES IN THE FORM OF ANNEXURE B WHICH IS PART OF THE PB. SIMILARLY THE ALLEGATION THAT ASSESSEE HAS NOT BROUGHT ON RECORD ANY COMPARABLE TRANSACTIONS TO SHOW THAT NON-CHARGING O F INTEREST WAS AT ARMS- LENGTH AND IT GOT COMPENSATED BY FAVORABLE TERMS SI MILAR TO THAT OFFERED BY UNCONTROLLED ENTITIES IS ALSO STRONGLY REFUTED. IT IS CONTENDED ALL THE RELEVANT DETAILS AND COMPARABLE WERE FURNISHED AS ANNEXURE B IN WHICH IT HAS BEEN SUBMITTED THAT THE CONVERSION OF OFCD INTO EQUITY S HARES AT A PRICE OF USD 21- USD 51 PER SHARE AS AGAINST THE NET ASSET VALUE OF THE SHARES AT THE RELEVANT POINT IN TIME BEING USD 87 PER SHARE. THUS IT IS CL EAR THAT THE OFCDS WERE CONVERTIBLE INTO SHARES AT SIGNIFICANT DISCOUNT TO THE PREVAILING BOOK VALUE OF THE SHARES GIVING RISE TO SIZEABLE BENEFIT ON OFCDS. I T IS ALSO SUBMITTED THAT THE ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 9 OFCDS HAVE BEEN CONVERTED INTO EQUITY SHARES IN THE SUBSEQUENT YEARS; HENCE, THE QUESTION OF PAYMENT OF ANY INTEREST ON THE OFCD S WOULD NOT ARISE, AS THE SAME IS FULLY TOWARDS CAPITAL ACCOUNT. THE LD SENIO R COUNSEL CONTINUED BY SAYING THAT THE HON'BLE ITAT IN A.Y. 2007-08 AND IN EARLI ER YEARS HAS NOT COMMITTED ANY ERROR WHATSOEVER IN COMING TO THE CONCLUSION, WHICH IS DULY SUPPORTED BY OTHER DECISIONS AND THE POSITION PREVAILING UNDER LAW. HE NCE NO DEPARTURE IS CALLED FOR MUCH LESS DUE TO THE DECISION OF SUPREME COURT IN S AHARA (SUPRA). 22. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO TH E RIVAL SUBMISSIONS QUA THE ISSUE. ADVERTING TO THE CLAIM OF REVENUE THAT IN T HE EARLIER YEAR, THE BENCH HAS NOT CONSIDERED CERTAIN FACTS WHILE RELYING UPON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF CADILA HEALTHCARE. 23. THE HONBLE HIGH COURT IN THE CASE OF A.P.V. KOKKILIAGADA MEERAYYA, MASUD KHAN HAS LAID DOWN THE FOLLOWING : 28. THERE CAN BE NO DISPUTE WITH RESPECT TO THE SE TTLED LEGAL PROPOSITION THAT A JUDGMENT OF THIS COURT IS BINDING, PARTICULA RLY, WHEN THE SAME IS THAT OF A COORDINATE BENCH, OR OF A LARGER BENCH. I T IS ALSO CORRECT TO STATE THAT, EVEN IF A PARTICULAR ISSUE HAS NOT BEEN AGITA TED EARLIER, OR A PARTICULAR ARGUMENT WAS ADVANCED, BUT WAS NOT CONSI DERED, THE SAID JUDGMENT DOES NOT LOSE ITS BINDING EFFECT, PROVIDED THAT THE POINT WITH REFERENCE TO WHICH AN ARGUMENT IS SUBSEQUENTLY ADVA NCED, HAS ACTUALLY BEEN DECIDED. THE DECISION THEREFORE WOULD NOT LOSE ITS AUTHORITY, 'MERELY BECAUSE IT WAS BADLY ARGUED, INADEQUATELY CONSIDERE D OR FALLACIOUSLY REASONED'. THE CASE MUST BE CONSIDERED TAKING NOTE OF THE RATIO DECIDENDI OF THE SAME I.E. THE GENERAL REASONS, OR THE GENERA ! GROUNDS UPON WHICH THE DECISION OF THE COURT IS BASED, OR ON THE TEST OR ABSTRACT, OF THE SPECIFIC PECULIARITIES OF THE PARTICULAR CASE, WHICH FINALLY GIVES RISE TO THE DECISION. (VIDE SOMAWANTI V. STATE OF PUNJAB, BALLABHADAS MAT HURDAS LAKHANI V. MUNICIPAL COMMITTEE, MATKAPUI, AMBIKA PRASAD MISHRA V. STATE OF U.P AND DIRECTOR OF SETTLEMENTS V. M.R. APPARAO.) 24. THE HONBLE JURISDICTIONAL HIGH COURT OF GUJA RAT IN THE CASE OF CORE HEALTHCARE LTD. 251 ITR 61 HAS OBSERVED AS UNDER:- ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 10 AS LAID DOWN BY THE APEX COURT IN THE CASE OF AMBIK A PRASAD MISHRA V. STATE OF U.P., AIR 1980 SC 1762 ; [1980] 3 SCC 719 (PAGE 176 4 OF AIR 1980 SC): EVERY NEW DISCOVERY OR/ARGUMENTATIVE NOVELTY CANNO T UNDO OR COMPEL RECONSIDERATION OF A BINDING PRECEDENT . . . A DECISION DOES NOT LOSE ITS AUTHORITY 'MERELY BECA USE IT WAS BADLY ARGUED, INADEQUATELY CONSIDERED AND FALLACIOUSLY REASONED' . . .' SIMILARLY IN THE CASE OF KESHO RAM AND CO. V. UNION OF INDIA [1989] 3 SCC 151, IT IS STATED BY THE SUPREME COURT THUS (PAGE 160): 'THE BINDING EFFECT OF A DECISION OF THIS COURT DOES NOT DEPEND UPON WHETHER A PARTICULAR ARGUMENT WAS CONSIDERED OR NOT , PROVIDED THE POINT WITH REFERENCE TO WHICH THE ARGUMENT IS ADVANCED SU BSEQUENTLY WAS ACTUALLY DECIDED IN THE EARLIER DECISION 25. A SIMILAR VIEW IS AGAIN TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF NIRMA INDUSTRIES LTD. 283 IT R 402. COMING TO THE FACTS OF THE YEAR UNDER CONSIDERATION, WE DO NOT FIND ANY DI STINCTION FROM THE DECISION TAKEN IN EARLIER ASSESSMENT YEAR BY THE BENCH AND T HE RELEVANT FINDINGS READ AS UNDER:- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE CA REFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. AT THE VERY OUTSET, WE HAVE TO STATE THAT THE REVENUE HAS NO POWER TO RE-CHARACTERIZE THE TRANSACTION. THE HO NBLE HIGH COURT OF DELHI IN THE CASE OF COTTON NATURALS INDIA PVT. LTD. 276 CTR 445 AT PARA 17 OF ITS ORDER HAS HELD THAT CHAPTER X AND TRANSFER PRICING RULES DO N OT PERMIT THE REVENUE AUTHORITIES TO STEP INTO THE SHOES OF THE ASSESSEE AND DECIDE WHETHER OR NOT A TRANSACTION SHOULD NOT BE ENTERED. IT IS FOR THE AS SESSEE TO TAKE COMMERCIAL DECISIONS AND DECIDE HOW TO CONDUCT AND CARRY ON IT S BUSINESS. ACTUAL BUSINESS TRANSACTIONS THAT ARE LEGITIMATE CANNOT BE RESTRUCT URED. A SIMILAR VIEW WAS TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES LTD. 345 ITR 241. 9. ON IDENTICAL SET OF FACTS, THE CO-ORDINATE BENC H HAD THE OCCASION TO CONSIDER SIMILAR ISSUE IN THE CASE OF CADILA HEALTHCARE LTD. IN ITA NO. 2430/AHD/12 WITH C.O. NO. 242/AHD/12 IN 146 ITR 502 WHEREIN THE FIRS T GROUND RELATED TO THE ADJUSTMENT MADE ON ACCOUNT OF NOTIONAL INTEREST ON OPTIONALLY CONVERTIBLE DEBENTURE TO FOREIGN SUBSIDIARY. THE TRIBUNAL CONSI DERED THE FOLLOWING FACTS:- ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 11 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASS ESSING OFFICER NOTICED THAT ASSESSEE HAD SUBSCRIBED TO OPTIONALLY CONVERTI BLE LOAN OF U.S. $ 27 MILLION ISSUED BY ZYDUS INTERNATIONAL PVT. LTD., IR ELAND. ACCORDINGLY REFERENCE UNDER SECTION 92CA OF THE ACT FOR COMPUTI NG OF ARMS LENGTH PRICE IN RELATION TO THE TRANSACTION WAS MADE TO TR ANSFER PRICING OFFICER (TPO). TPO NOTED THAT THE ASSESSEE HAD ENTERED INT O AN AGREEMENT WITH ZYDUS INTERNATIONAL PVT. LTD. ON 09.10.2007 FOR A C ONVERTIBLE LOAN OF U.S $ 27 MILLION WHICH WAS SUBSEQUENTLY UTILIZED BY THE I RELAND COMPANY FOR ACQUIRING SHARES IN ZYDUS HEALTHCARE, BRAZIL. AS PE R THE TERMS OF AGREEMENT, NO INTEREST WAS PAYABLE IF THE AMOUNT WA S CONVERTED INTO EQUITY. HOWEVER, IF THE SAME IS REDEEMED, INTEREST WAS PAYABLE AT LIBOR PLUS 290 BPS AND THE INTEREST WAS TO BE COMPUTED AT ANNUAL RATES AND PAYABLE AT MATURITY THAT IS 5 YEARS FROM THE DATE O F FIRST DISBURSEMENT. THE RUPEE VALUE OF THE AMOUNT OF LOAN AS ON 31.03.2 008 WAS RS. 108.32 CRORE. IT WAS ALSO NOTICED THAT ASSESSEE HAS NOT SH OWN ANY INCOME FROM THE AFORESAID LOAN. IN RESPONSE, ASSESSEE INTERALIA SUBMITTED THAT ASSESSEE HAD NOT OPTED FOR CONVERSION OF THE LOAN D URING THE YEAR AND THEREFORE IT WAS LOAN FOR THE YEAR AND AS PER THE T ERMS OF AGREEMENT, NO INTEREST ACCRUED TO THE ASSESSEE AND THEREFORE NO I NCOME WAS CONSIDERED. THE TPO DID NOT FIND THE CONTENTION OF THE ASSESSEE ACCEPTABLE. HE CONSIDERED THE OPTIONALLY FULLY CONVERTIBLE LOAN AS DEBT AND CONSIDERING THE AVERAGE SIX MONTH EURO LIBOR RATE FOR THE YEAR @ 4.48% TO WHICH HE ADDED THE INTEREST RATE OF 2.90 BASIS POINT AS PER THE AGREEMENT AND THEREAFTER CONSIDERED THE RATE OF INTEREST TO BE @ 7.38% AND ACCORDINGLY COMPUTED THE INTEREST ON RS. 108.32 CRORE FOR 171 D AYS AT 7.38%. THE AFORESAID ADJUSTMENT MADE BY THE TPO WAS CONSIDERED BY THE ASSESSING OFFICER AND THE ADDITION OF RS. 3,99,74,4267- WAS M ADE TO THE INCOME. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISS IONS MADE BY THE ASSESSEE DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. 10. AND THE TRIBUNAL HELD AS UNDER:- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS NOTE D THAT AS PER THE AGREEMENT, THE INTEREST WAS PAYABLE ONLY IF THE CON VERSION OPTION WAS NOT EXERCISED ON THE EXPIRY OF 5 YEAR PERIOD. IF AT ANY TIME DURING THE 5 YEAR PERIOD CONVERSION OPTION WAS EXERCISED AND THE LOAN WAS CONVERTED INTO ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 12 EQUITY, NO INTEREST ACCRUED OR BECOME PAYABLE. HE F URTHER NOTED THAT THE FUNDS WERE PROVIDED BY THE ASSESSEE AS PER RBI GUID ELINES AND IN THE IMMEDIATELY NEXT YEAR, THE ENTIRE LOAN GIVEN TO SUB SIDIARY WAS CONVERTED INTO EQUITY SHARES OF ZYDUS INTERNATIONAL PVT. LTD. HE HAS FURTHER HELD THAT SINCE THE ASSESSEE HAS CONVERTED THE LOAN INTO EQUI TY IN THE IMMEDIATE NEXT YEAR, THERE WAS NO QUESTION OF TAXING NOTIONAL INTEREST. HE HAS FURTHER HELD THAT ASSESSEE HAD NOT GRANTED INTEREST FREE LOAN BUT INVESTED IN OPTIONALLY CONVERTIBLE LOAN WITH A CLAUSE OF INT EREST IN CASE, CONVERSION OPTION WAS NOT EXERCISED AND FURTHER HELD THE ASSES SEE'S TRANSACTION WITH SUBSIDIARY WAS AT ARMS LENGTH. BEFORE US, THE REVEN UE COULD NOT CONTROVERT THE FINDINGS OF CIT(A) BY BRINGING ANY C ONTRARY MATERIAL ON RECORD. IN VIEW OF THESE FACTS, WE FIND NO REASON T O INTERFERE WITH THE ORDER OF CIT(A). 11. RESPECTFULLY FOLLOWING THE FINDINGS OF THE HO NBLE HIGH COURT (SUPRA) AND THE CO-ORDINATE BENCH (SUPRA), WE DIRECT THE A.O TO DEL ETE THE IMPUGNED ADDITIONS. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 26. THUS, THE DISTINGUISHING FACTS AS CANVASSED BY THE SHRI SHRIVASTAVA DO NOT CULMINATE IN TO ANY PROPOSITION SO AS TO CONVINCE U S TO TAKE ANY DIVERGENCE FROM EARLIER FINDINGS AND THE JUDICIAL DISCIPLINE ALSO G UIDES US TO FOLLOW THE DECISION OF THE CO-ORDINATE BENCH IN THE LIGHT OF THE RATIO LAI D DOWN BY THE HONBLE SUPREME COURT AND THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT (SUPRA) AND CONSIDERING THE FACT THAT THE OFCD WERE ON BENEFICI AL TERMS AS PER FACTS MENTIONED ABOVE. CONSEQUENTLY, WE HAVE NO HESITATIO N TO FOLLOW EARLIER JUDGMENT IN ASSESSEES OWN CASE AS A RESULT WE DELE TE THE IMPUGNED ADDITIONS. GROUND NO. 3 OF ASSESSEE IS ALLOWED 14. FINDING PARITY IN THE FACTS, RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO- ORDINATE BENCH, WE DIRECT THE A.O. TO DELETE THE AD DITION OF RS. 17,32,96,800/-. GROUND NO. 4 IS ACCORDINGLY ALLOW ED. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 13 15. GROUND NO. 5 RELATES TO THE ADDITION ON ACCOUNT OF CORPORATE GUARANTEE PROVIDED TO ASSOCIATED ENTERPRISES SUN PHARMACEUTIC AL BANGLADESH LTD. AMOUNTING TO RS. 21,90,400/-. 16. THE AO/TPO NOTICED THAT THE ASSESSEE HAS PROVIDED C ORPORATE GUARANTEE TO ITS AE SUN PHARMACEUTICAL BANGLADESH LTD WITHOUT CHARGING ANY GUARANTEE FEES. TREATING THE SAME AS AN INTERNATION AL TRANSACTION UPWARD ADJUSTMENT OF RS. 21,90,400/- WAS MADE. 17. ASSESSEE ASSAILED THE ADDITION BEFORE THE LD. CIT(A ) AND THE FIRST APPELLATE AUTHORITY AT PARA 7.3 OF HIS ORDER OBSERVED THAT TH E FACTS ARE IDENTICAL TO THE FACTS OF A.Y. 2008-09 AND IN THE SAME PARAGRAPH , THE FIRST APPELLATE AUTHORITY FURTHER OBSERVED THAT SINCE THE FACTS ARE SIMILAR IN THIS YEAR ALSO IN ORDER TO MAINTAIN CONSISTENCY HE FOLLOWED THE F INDINGS GIVEN BY HIS PREDECESSOR IN A.Y. 2008-09. 18. BEFORE US, THE LD. SENIOR COUNSEL DREW OUR ATTENTIO N TO THE RELEVANT FINDINGS OF THE TRIBUNAL FOR A.Y. 2008-09 AND THE RELEVANT F INDINGS READ AS UNDER:- 33 . FOLLOWING OUR OWN FINDINGS GIVEN IN A.Y. 2007-08 IN ITA NO. 2076 & 2067/AHD/2013, WE SET ASIDE THIS ISSUE TO THE FILE OF THE LD. CIT(A) (TO AVOID ANY ISSUE OF LIMITATION TO GIVE EFFECT TO ITA T ORDER AS APPREHENDED BY LD. CR) WITH A DIRECTION THAT THIS ISSUE MAY BE DECIDED IN ACCORDANCE WITH HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT A ND AFTER GIVING ADEQUATE OF HEARING TO THE ASSESSEE . GROUND NO. 4 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 14 19. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA), WE HOLD ACCORDINGLY. GROUND NO. 5 IS TREATED AS ALLOWE D FOR STATISTICAL PURPOSE. 20. GROUND NO. 6 RELATES TO THE ADDITION ON ACCOUNT OF SALE OF PANTOPRAZOLE TO SUN PHARMA GLOBAL BVI AND SUN PHARMA GLOBAL FZE AMO UNTING TO RS. 103,87,52,830/-. 21. DURING THE COURSE OF THE TRANSFER PRICING PROCEEDIN GS, IT CAME TO THE NOTICE OF THE TPO THAT THE ASSESSEE (SPIL) HAS SOLD MEDICI NE VALUED AT RS. 1507.50 LACS TO ITS AE, SPG BVI AND PRODUCTS WORTH RS. 2101 .77 LACS TO SPG FZE. IN THE EARLIER YEAR, SPG BVI WAS ENGAGED IN THE MARKET ING OF PHARMACEUTICALS FORMULATIONS MANUFACTURED BY THE ASSESSEE COMPANY, A NEW COMPANY HAS BEEN INCORPORATED IN DUBAI AS A 100% SUBSIDIARY OF SPG BVI. THE ENTIRE MARKETING BUSINESS OF SPG BVI HAS BEEN TRANSFERRED TO THIS CONCERN ON A GOING CONCERN BASIS IN THE MONTH OF DECEMBER, 2008. SPIL HAS BEEN TREATED AS THE CONTRACT MANUFACTURER. THE ASSESSEE AS TESTE D PARTY CONDUCTED A TNMM ANALYSIS AND HAS CONCLUDED THAT THE MARGIN EAR NED BY SPIL IS AT ARMS LENGTH AS A CONTRACT MANUFACTURER AND HENCE T HE TRANSACTION IS AT ARMS LENGTH. 22. THE BASIS OF ADOPTING TNMM AS THE MOST APPROPRIATE METHOD WAS THAT SPG BVI AND SUBSEQUENTLY SPG FZE ARE THE TECHNOLOGY OWN ERS AND ARE GETTING MEDICINES MANUFACTURED BY THE ASSESSEE COMPANY. THE AE WAS IN POSSESSION OF CERTAIN PRODUCT TECHNOLOGIES AND WANT ED TO SELL PRODUCTS IN THE REGULATED MARKETS OF USA, EUROPE ETC. HENCE, IT APPROACHED SPIL TO ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 15 WORK ON A CONTRACT RESEARCH & MANUFACTURING SERVICE S (CRAMS) BASIS. THE ASSESSEE IN ITS TRANSFER PRICING STUDY REPORT CLAIM ED THAT ON THE SALE TRANSACTIONS WITH SPG, THE NET PROFIT MARGIN EARNED IS 14.84%. TO SUBSTANTIATE ITS CLAIM, EXTERNAL TNMM WAS SHOWN AT 13.96%. THE TPO RUBBISHED THE CLAIM OF MOST APPROPRIATE METHOD AS T NMM AND ADOPTED PROFITS SPLIT METHOD (PSM) BECAUSE HE WAS OF THE ST RONG BELIEF THAT PSM IS APPLIED MAINLY TO INTERNATIONAL TRANSACTIONS INVOLV ING TRANSFER OF UNIQUE INTANGIBLES. THE TPO AS OF THE BELIEF THAT THE TECH NOLOGY TO MANUFACTURE PANTOPRAZOLE SODIUM WAS ORIGINALLY DEVELOPED BY THE ASSESSEE AND WAS SUBSEQUENTLY TRANSFERRED TO SPG INDIRECTLY. THEREFO RE, THE RELEVANT INTERNATIONAL TRANSACTIONS INVOLVE TRANSFER OF UNIQ UE INTANGIBLES. THE TPO WAS OF THE OPINION THAT A TRANSACTIONAL PROFIT SPLI T METHOD MAY BE THE MOST APPROPRIATE METHOD IN CASES WHERE BOTH PARTIES TO A TRANSACTION MAKE UNIQUE AND VALUABLE CONTRIBUTION TO THE TRANSACTION , BECAUSE IN SUCH A CASE INDEPENDENT PARTIES MIGHT WISH TO SHARE THE PROFITS IN PROPORTION TO THEIR RESPECTIVE CONTRIBUTIONS AND A TWO-SIDED METHOD MIG HT BE MORE APPROPRIATE THAN A ONE SIDED METHOD. 23. THE ASSESSEE STRONGLY OBJECTED TO THE FINDINGS OF T HE TPO/AO BEFORE THE LD. CIT(A) AND REITERATED ITS CLAIM OF TNMM AS THE MOST APPROPRIATE METHOD. 24. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) AT PARA 8.4 OF HIS ORDER OBSERVED THAT THE FACTS ARE IDENTICAL IN THIS YEAR ALSO AND ACCORDINGLY FOLLOWED THE ORDER OF LD. CIT(A)-IV, AH MEDABAD AND HELD THAT THE ASSESSEE WAS NOT A CONTRACT MANUFACTURER AND HENCE FOR ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 16 BENCHMARKING OF THE MARGIN, TNMM CANNOT BE APPLIED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDING TO THE LD. CIT (A), THE RESIDUAL PROFIT SPLIT METHOD IS THE MOST APPROPRIATE METHOD. THE LD . CIT(A) OBSERVED THAT THE TPO WHILE ALLOCATING THE PROFIT BETWEEN THE APP ELLANT AND ITS AES APPLIED 50:50 RATIO IN SPLITTING THE RESIDUAL PROFI T. HOWEVER, TAKING A LEAF OUT OF THE FINDINGS OF THE LD. CIT(A), DURING THE COUR SE OF THE APPELLATE PROCEEDINGS FOR A.Y. 2008-09, THE LD. CIT(A) ISSUED A NOTICE OF ENHANCEMENT TO DISTURB THE SHARING RATIO FROM 50:50 TO 80:20 A ND AT PARA 8.8 OF HIS ORDER, THE LD. CIT(A) FOLLOWED THE FINDINGS OF HIS PREDECESSOR FOR A.Y. 2008- 09 AND ENHANCED THE UPWARD ADJUSTMENT TO ARMS LENG TH PRICE WORKS OUT TO RS. 103,87,52,830/-. 25. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE L D. SENIOR COUNSEL VEHEMENTLY STATED THAT THE ENTIRE ISSUE RELATING TO THE SALE OF PANTOPRAZOLE DRUG TO SPG BVI HAS BEEN CONSIDERED AT LENGTH BY TH E TRIBUNAL IN A.Y. 2008- 09 WHEREIN THE TRIBUNAL REJECTED THE ALLEGATION OF BRUTAL TAX EVASION BY THE APPELLANT COMPANY. THE LD. SENIOR COUNSEL STATE D THAT THE STAND OF THE ASSESSEE IS SIMILAR TO WHAT HAS BEEN TAKEN DURING T HE COURSE OF THE PROCEEDINGS OF A.Y. 2008-09 AND AS THERE ARE NO NEW FACTS BROUGHT ON RECORD BY THE REVENUE AUTHORITIES. THE FINDINGS OF THE TRIBUNAL DESERVE TO BE FOLLOWED. 26. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE AGREE WITH THE CONTENTION OF THE LD. SENI OR COUNSEL THAT NO NEW FACTS HAVE BEEN CONSIDERED BY THE LOWER AUTHORITIES . THE FACTS ARE ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 17 IDENTICAL TO THE FACTS CONSIDERED BY THE TRIBUNAL I N A.Y. 2008-09 IN ITA NO. 3297 & 3420/AHD/2014. THE RELEVANT PART OF THE JUDG MENT OF THE TRIBUNAL READ AS UNDER:- 76. SPG BVI PURCHASED THE TECHNOLOGY TO MANUFACTUR E PANTOPRAZOLE SODIUM FROM SUN PHARMA ADVANCE RESEARCH COMPANY LTD. (SPAR C). SPARC WAS INCORPORATED ON 01.03.2006 AS A RESEARCH COMPANY. W ITH EFFECT FROM 28.02.2007, THE APPELLANT COMPANY DEMERGED ITS INNOVATIVE RESEA RCH AND DEVELOPMENT BUSINESS TO SPARC. THIS IS SUPPORTED BY THE ORDER O F THE HONBLE HIGH COURT OF GUJARAT EXHIBITED AT PAGES 475 TO 518 OF THE PAPER BOOK. ON 28.10.2007, SPARC SOLD A BASKET OF 38 TECHNOLOGIES TO SPG INCLUDING A NDA FOR PANTOPRAZOLE TABLET, THE CONSIDERATION OF WHICH WAS USD 3 MILLION FOR U. S. MARKET AND USD 1.4 MILLION FOR EUROPE MARKET. THIS IS SUPPORTED BY THE AGREEM ENT FOR SALE EXHIBITED AT PAGES 519 TO 536 OF THE PAPER BOOK. 77.BY VIRTUE OF THIS AGREEMENT FOR SALE, THE TECHNO LOGY WAS PURCHASED BY SPG IN THE MONTH OF OCTOBER, 2007 AND IMMEDIATELY THEREAFT ER IN THE MONTH OF NOVEMBER, 2007, SPG ENTERS INTO AN AGREEMENT WITH A PPELLANT FOR MANUFACTURING. COPY OF SUPPLY AGREEMENT BETWEEN SPG AND SPIL IS EXHIBITED AT PAGES 648 TO 659 OF THE PAPER BOOK. RELEVANT CLAUSE S OF THE SUPPLY AGREEMENT READ AS UNDER:- AND WHEREAS SPGI IS THE OWNER OF THE VARIOUS ABBREV IATED NEW DRUG APPLICATIONS AND IS INTERESTED TO MARKET THE PRODUC TS IN UNITED STATES OF AMERICA AND IN EUROPE AND IS THEREFORE INTERESTED TO BUY VA RIOUS PRODUCTS FROM SIDE APPROVED BY US FDA. 1. SUPPLY AND PURCHASE ARRANGEMENTS. SPIL HEREBY AGREES TO SELL AND SUPPLY THE PRODUCTS TO SGI AND SPGI HEREBY AGREES TO PURCHASE THE PRODUCTS FROM SPIL WITH THE TERMS A ND CONDITIONS OF THIS AGREEMENT. IT IS UNDERSTOOD BY THE PARTIES THAT THI S AGREEMENT IN NO WAY OBLIGES SPGI TO PURCHASE OR TAKE ANY OR ALL THE SAID PRODUC TS OR ANY PART OF SPGIS REQUIREMENTS THEREOF, MANUFACTURED. PROCESSED AND/O R PACKED BY SPIL ONLY AND DOES NOT PRECLUDE SPGI FROM MAKING SIMILAR OR ALTER NATIVE ARRANGEMENTS WITH ONE OR MORE OTHER PARTIES AT ITS SOLE DISCRETION. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 18 2.1 SPIL AGREES TO SELL AND SUPPLY THE PRODUCT TO S PGI AT PRICES AS AGREED TO BETWEEN THE PARTIES. SUN WILL DISPATCH CONSIGNMENT OF THE PRODUCT WITHIN 45 (FORTY-FIVE) DAYS OF ACCEPTANCE BY SUN OF PURCHASE ORDER FROM SPGI OR WITHIN SUCH OTHER TIME AS MAY BE MUTUALLY AGREED UPON. SPGI SHA LL NOT BE ENTITLED TO CANCEL ANY ORDER PLACED BY IT AND ACCEPTED BY SPIL UNLESS OTHER WISE AGREED UPON BY THE PARTIES. 2.2 SPGI AGREES TO PROVIDE A FORECAST ON AGREED FOR MAT TO SPIL SO AS TO FACILITATED SPIL TO CARRY OUT PRODUCTION PLANNING OF THE PRODUC TS FOR SALE AND SUPPLY AS PER TERMS OF THIS AGREEMENT. 2.3 SPGI WILL BE REQUIRED TO MAKE PAYMENTS IN US DO LLARS AGAINST SUPPLIES OF THE PRODUCT WITHIN 75 DAYS OF THE RECEIPT OF GOODS FOR THE INVOICES RAISED BY SPIL IN THIS REGARD OR WITHIN SUCH OTHER TIME AS MAY BE MUT UALLY AGREED UPON IN THIS REGARD. 2.4 AT THE REQUEST OF SPGI, SPIL SHALL SUPPLY THE P RODUCT ORDERED BY SPGI BY SUCH CARRIER OR CARRIERS AS SPGI MAY DESIGNATE. SUCH DEL IVERY INSTRUCTIONS SHALL BE SUBMITTED BY SPGI TO SPIL WELL IN ADVANCE SPIL AGRE ES TO DISPATCH AT THE COST OF SPGI, THE FINISHED PRODUCT TO SPGI OR TO ITS NOMINE ES WITHIN THE TIME FRAMES STIPULATED BY SPGI FROM TIME TO TIME AS PER THE OR DERS PLACED BY SPGI AND ACCEPTED BY SPIL. SPIL FURTHER UNDERTAKES TO SUPPLY THE PRODUCT WITH ADEQUATE PACKING AND COVERAGE TO ENSURE THAT THE PRODUCT REA CHES SPGI OR ITS NOMINEE ADEQUATELY PACKED AND ACCEPTABLE AS PER CGMP GUIDEL INES. 3.1 SPGI'S TECHNICAL ASSISTANCE,, SPGI SHALL SUPPLY ON A CONTI NUING BASIS ALL NECESSARY INFORMATION RELATING TO THE MANUFACTURING OF THE PRODUCTS, INCLUDING, BUT NOT LIMITED TO PRODUCT SPECIFICATIONS, PACKAGIN G AND LABELING PRACTICES AND PROCESSES REGARDING THE PRODUCTION OF PRODUCTS, AND SUCH OTHER INFORMATION AS SPGI DEEMS TO BE REASONABLE AND NECESSARY, FROM TIM E TO TIME, SPGI AT ITS OWN EXPENSE MAY SEND A REPRESENTATIVE TO VISIT SPIL TO PROVIDE SUCH TECHNICAL KNOWLEDGE AS SHALL BE MUTUALLY AGREED TO BY SPGI AN D SPIL. 3.2 INTELLECTUAL PROPERTY REPRESENTATION: EXCEPT FO R THE RIGHTS EXPRESSLY UNDER THE TERMS OF THE AGREEMENT THIS AGREEMENT DOES NOT TRAN SFER ANY INTELLECTUAL PROPERTY RIGHTS, SPECIFICALLY WITH RESPECT TO THE P RODUCTS FROM SPGI TO SPIL. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 19 SPGI REPRESENTS AND WARRANTS THAT, TO THE BEST OF T HE KNOWLEDGE AND BELIEF OF SPI , SPILS FULFILLMENT OF THE TERMS OF THIS AGREEMENT TO THE' MANUFACTURING OF THE PRODUCTS WILL NOT INFRINGE ANY THIRD PARTY INTELLEC TUAL PROPERTY RIGHTS. NEVERTHELESS, IN CASE SPIL WOULD BE OR NAMED AS A F ORMAL PARTY BY REASON OF AN INFRINGEMENT OF THIRD PARTY RIGHTS FOR THE PRODUCTS , SPIL SHALL PROMPTLY INFORM SPGI THEREOF. SPGI SHALL CONDUCT ANY DEFENSE OF SUC H SUIT AT ITS OWN EXPENSE AND SPGI SHAD INDEMNIFY AND HOLD SPIL HARMLESS FROM AND AGAINST ANY LOSS, CLAIM, DAMAGE, EXPENSE OR LIABILITY IF ANY RESULTING FROM ANY SUCH SUIT IN ACCORDANCE WITH SECTION 5. HOWEVER, IN ANY SUCH LITIGATION SUIT SPIL AGREES TO ASSIST SPGI, WITHOUT ASSUMING ANY MONETARY OBLIGATION. 4.3 LEGAL COMPLIANCE. SPIL HEREBY UNDERTAKES TO COM PLY WITH ALL REQUIREMENTS OF LAW FOR OBTAINING VARIOUS LICENSES, APPROVALS, PERM ISSIONS AND NO OBJECTION CERTIFICATES FOR MEETING ALL LEGAL OBLIGATIONS IN R ESPECT OF ANY MATTER WHATSOEVER, ENABLING IT LAWFULLY, TO PROPERLY MANUFACTURE THE P RODUCTS VIBE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT BY SPIL DOES NOT AND WILL NOT VIOLATE ANY PROVISION OF APPLICABLE LAW OR OF ANY REGULATIO N, ORDER DECREE OF ANY COURT, ARBITRATION OR/.GOVERNMENTAL AUTHORITY OR ANY OTHER AGREEMENT TO WHICH SPIL IS A PARTY, SPIL HEREBY INDEMNIFIES SPGI FROM ANY CONSEQ UENCES WHATSOEVER OF ANY FAILURE OR LAPSES, OR GROSS NEGLECT OR DAMAGE ETC. ON ITS PART ON ACCOUNT OF LEGAL LIABILITIES OR OTHERWISE. SPGI HEREBY ALSO UNDERTAK ES TO INDEMNIFY SPIL WHEREVER FOUND APPROPRIATE, ON ACCOUNT OF ANY FAILURE OR LAP SES, OR NEGLECT OR DAMAGE ETC. ON ITS PART ON ACCOUNT OF LEGAL LIABILITIES OR OTHE RWISE ARISING OUT OF NON MEETING ITS ALL LEGAL OBLIGATION IN RESPECT OF ANY MATTER W HATSOEVER. 4.4 QUALITY CONTROL. IF MUTUALLY AGREED IN WRITING, SPIL MAY CONDUCT ITSELF QUALITY CONTROL TESTS PURSUANT TO SPECIFICATIONS, POLICIES AND/OR PROCEDURES PROVIDED BY SPGI IN WRITING NO PRODUCTION BATCH SHALL BE RELEAS ED FOR SALE UNLESS IT CONFORMS TO THE SPGI SPECIFICATIONS, PRACTICES AND STIPULATI ONS REFERRED TO IN SECTION 4.1. SPGI WILL FACILITATE SPIL IN CURING DEFICIENCIES, T O THE EXTENT ACCEPTABLE TO SPGI, OF LOTS OR BATCHES OF PRODUCT NOT MEETING WITH SPGI S PECIFICATIONS, PRACTICES OR STIPULATIONS. 4.5 SPIL WARRANTY, SPIL WARRANTS THAT THE FINISHED PRODUCTS MANUFACTURED AND DELIVERED TO SPGI HEREUNDER SHALL CONFORM TO THE PR ODUCT SPECIFICATIONS COMMUNICATED BY SPGI TO SPIL. SPGI SHALL NOTIFY SPI L OF ANY NON-CONFORMING MANUFACTURED PRODUCTS WITHIN SIXTY DAYS AFTER RECEI PT OF PRODUCTS OR WITHIN SIXTY (60) DAYS AFTER ANY HIDDEN DEFECTS ARE DISCOVERED. ANY NOTIFICATION OR NON- CONFORMANCE UNDER THIS SECTION SHALL INCLUDE PROOF OF NON-CONFORMITY/DEFECT. SPIL MAY, AT ITS DISCRETION, HAVE THE DEFECTIVE PRODUCT TESTED AT ANY OTHER REPUTABLE LABORATORY AND SPGI SHALL ACCEPT THE REPORT THEREOF . IN CASE OF A DISPUTED RESULT ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 20 BY SUCH LABORATORY, THE PRODUCT WILL BE TESTED WITH AN INDEPENDENT LABORATORY REASONABLY ACCEPTABLE TO BOTH PARTIES WHOSE RESULT SHALL BE BINDING ON BOTH PARTIES. SPIL SHALL REPLACE ALL NON-ATTRIBUTABLE TO SPIL. SPIL SHALL ALSO BEAR & REIMBURSE TO SPGI THE COST OF FREIGHT AND INSURANCE FOR SUCH NON-CONFORMING PRODUCTS UPON SPILS INSTRUCTIONS, SPGI SHALL DESTR OY OR RETURN TO SPIL AT SPILS COST, ALL NON-CONFORMING FINISHED PRODUCTS. 4.6.4 SPIL AGREES TO INVOICE AND DISPATCH AT SPGIS COST AND RISK, THE FINISHED PRODUCTS TO SPGI OR ITS NOMINEES AS SPECIFIED BY SP GI ACCORDING TO THE ORDERS PLACED BY SPGI AND INSTRUCTIONS GIVEN BY SPGI AND A CCEPTED BY SPIL. 5.1 SPGI INDEMNIFICATION. SPGI SHALL INDEMNIFY AND HOLD SPIL HARMLESS FROM AND AGAINST ANY LOSS, CLAIM, DAMAGE, EXPENSE OR LIABILI TY, RESULTING FROM ANY MISREPRESENTATION, NEGLIGENCE, OR INTENTIONAL MISCO NDUCT BY SPGI IN PERFORMING THIS AGREEMENT INCLUDING FOR ANY CLAIM, DEMAND OR S UIT ALLEGING THAT THE PRODUCT INFRINGES ANY THIRD PARTYS PATENT, COPYRIGHT, TRAD EMARK, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT OR ANY PRODUCT LIABILIT Y. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL S PGI BE LIABLE TO SPIL FOR ANY INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL OR CONSEQU ENTIAL DAMAGES WHATSOEVER (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF GOODWILL, OR INTERRUPTION OF BUSINESS) THAT MAY BE SUFFERED OR INCURRED BY SPIL AS A RESULT OF SPGIS VIOLATION OF THIS REPRESENTATION. 5.2 SPIL INDEMNIFICATION. SPIL SHALL INDEMNIFY- AN D HOLD SPGI HARMLESS FROM AND AGAINST ANY LOSS, CLAIM, DAMAGE, EXPENSE OR LIABILI TY RESULTING FROM ANY MISREPRESENTATION, NEGLIGENCE OR INTENTIONAL MISCON DUCT BY SPIL IN PERFORMING THIS AGREEMENT; PROVIDED HOWEVER, THAT SPIL'S OBLIG ATION OF INDEMNIFICATION SHALL NOT EXTEND TO ANY LOSS, CLAIM, DAMAGE OR EXPENSE OR LIABILITY, RESULTING FROM SPGI'S GROSS NEGLIGENCE OR MISCONDUCT. NOTWITHSTAND ING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL SPIL BE LIABLE TO SPGI FOR ANY INCIDENTAL INDIRECT, EXEMPLARY, SPECIAL OR CONSEQUENTIAL DAMAG ES WHATSOEVER (INCLUDING BUT NOT LIMITED TO, LOST PROFITS, LOSS OF GOODWILL, ANY PATENT/TRADEMARK INFRINGEMENT OR INTERRUPTION OF BUSINESS) THAT MAY BE SUFFERED O R INCURRED BY SPGI AS A RESULT OF SPIL'S VIOLATION OF THIS REPRESENTATION. NOTWITH STANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IT IS AGREED THAT SPIL S LIABILITY FOR INDEMNIFICATION UNDER THIS AGREEMENT WILL BE LIMITED FOR THE PRODUC T CONTAINING MANUFACTURING DEFECT OR THE PRODUCT FIST CONFORMING TO THE PRODUC T SPECIFICATIONS COMMUNICATED BY SPGI TO SPIL UNDER THIS AGREEMENT. 7.1.6 SPIL SHALL NOT CLAIM ANY RIGHT, TITLE, OR INT EREST TO THE PRODUCTS, PRODUCT NAMES AND THE RIGHTS ATTACHED WITH THEM UNDER ANY O F THE TRADEMARKS, OR PATENT LAWS, SPIL SHALL NOT MANUFACTURE AND/OR SELL FOR SA LE IN THE MARKET OF UNITED ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 21 STATES OF AMERICA AND IN EUROPE DURING THE TERM OF THIS AGREEMENT ANY PRODUCTS UNDER A TRADEMARK CONNECTED WITH THE PRODUCTS OR UN DER A NAME PHONETICALLY OR OTHERWISE SIMILAR TO TRADE NAMES CONNECTED WITH THE PRODUCTS AS MENTIONED IN APPENDIX A. 7.1.7 SPIL SHALL NOT SUBCONTRACT OR DELEGATE TO ANY OTHER PERSONS, FIRM OR BODY CORPORATE THE WHOLE OR ANY PART OF THE MANUFACTURE, OF THE PRODUCTS OR ASSIGN THIS AGREEMENT OR ANY PART THEREOF OR DEAL IN ANY M ANNER WHATSOEVER WITH THE RIGHTS, BENEFITS OR OBLIGATIONS CREATED HEREUNDER W ITHOUT THE PRIOR CONSENT IN WRITING BY SPGI. 78. APPENDIX-A OF THIS AGREEMENT READS AS UNDER;- NO. NAME OF THE PRODUCT BULK PRODUCT (ACTIVE INGREDIENT) 1 PANTOPRAZOLE SODIUM DELAYED RELEASE TABLETS 20MG., 40MG. PANTOPRAZOLE SODIUM 2 AMIFOSTINE INJ. 500MG. AMIFOSTINE 79. COPY OF ORANGE BOOK REFLECTED TITLE OF ANDA OF PANTOPRAZOLE SODIUM WITH SPG BVI IS EXHIBITED AT PAGES 569 & 570 OF THE PAPE R BOOK WHICH CONCLUSIVELY PROVES THAT THE ANDA RIGHTS WERE WITH SPG BVI. 80. ADVERTING TO THE ALLEGATIONS OF LD SHRI SHRIVASTAVA THAT THESE ARRANGEMENTS BY THE ASSESSEE IS A BRUTAL FORM OF TAX EVASION , THE HONBLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B.V. VS . UNION OF INDIA AND ANOTHER REPORTED IN 341 ITR 1 HAS LAID DOWN THE RATIO : IT IS THE TASK OF THE COURT TO ASCERTAIN THE LEGAL NATURE OF THE TRANSACTION AND WHILE DOING SO IT HAS TO LOOK AT THE ENTIRE TRANSAC TION AS A WHOLE AND NOT ADOPT A DISSECTING APPROACH. ALL TAX PLANNING IS NOT ILLEGA L OR ILLEGITIMATE OR IMPERMISSIBLE. 81.THE HONBLE SUPREME COURT FURTHER HELD. :- ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 22 (IV)THE INCOME-TAX ACT, 1961, IN THE MATTER OF CORP ORATE TAXATION, IS FOUNDED ON THE PRINCIPLE OF THE INDEPENDENCE OF COMPANIES AS E CONOMIC ENTITIES WITH LEGAL INDEPENDENCE VIS-A-VIS THEIR SHAREHOLDERS OR PARTIC IPANTS. CONSEQUENTLY, THE ENTITIES SUBJECT TO INCOME-TAX ARE TAXED ON PROFITS DERIVED BY THEM ON STAND- ALONE BASIS, IRRESPECTIVE OF THEIR ACTUAL DEGREE OF ECONOMIC INDEPENDENCE AND REGARDLESS OF WHETHER PROFITS ARE RESERVED OR DISTR IBUTED TO THE SHAREHOLDERS OR PARTICIPANTS. FURTHERMORE, SHAREHOLDERS OR PARTICIP ANTS, THAT ARE SUBJECT TO (PERSONAL OR CORPORATE) INCOME-TAX, ARE GENERALLY T AXED ON PROFITS DERIVED IN CONSIDERATION OF THEIR SHAREHOLDING OR PARTICIPATIO NS, SUCH AS CAPITAL GAINS. IT IS FAIRLY WELL SETTLED THAT FOR TAX TREATY PURPOSES A SUBSIDIARY AND ITS PARENT ARE ALSO TOTALLY SEPARATE AND DISTINCT TAXPAYERS. THE FACT T HAT A PARENT COMPANY EXERCISES A SHAREHOLDER'S INFLUENCE ON ITS SUBSIDIARIES DOES NOT GENERALLY IMPLY THAT THE SUBSIDIARIES ARE TO BE DEEMED RESIDENTS OF THE STAT E IN WHICH THE PARENT COMPANY RESIDES. WHERE THE SUBSIDIARY'S EXECUTIVE DIRECTORS ' COMPETENCES ARE TRANSFERRED TO OTHER PERSONS OR BODIES OR WHERE THE SUBSIDIARY' S EXECUTIVE DIRECTORS' DECISION- MAKING HAS BECOME FULLY SUBORDINATE TO THE HOLDING COMPANY WITH THE CONSEQUENCE THAT THE SUBSIDIARY'S EXECUTIVE DIRECTO RS ARE NO MORE THAN PUPPETS THEN THE TURNING POINT IN RESPECT OF THE SUBSIDIARY 'S PLACE OF RESIDENCE COMES ABOUT. WHETHER A TRANSACTION IS USED PRINCIPALLY AS A COLOURABLE DEVICE FOR THE DISTRIBUTION OF EARNINGS, PROFITS AND GAINS, IS DET ERMINED BY A REVIEW OF ALL THE FACTS AND CIRCUMSTANCES SURROUNDING THE TRANSACTION . (V) HOLDING STRUCTURES ARE RECOGNIZED IN CORPORATE AS WELL AS TAX LAWS. SPECIAL PURPOSE VEHICLES AND HOLDING COMPANIES HAVE A PLACE IN LEGAL STRUCTURES IN INDIA, BE IT IN COMPANY LAW, THE TAKEOVER CODE UNDER THE S ECURITIES AND EXCHANGE BOARD OF INDIA OR EVEN UNDER THE INCOME-TAX LAW. WHEN IT COMES TO TAXATION OF A HOLDING STRUCTURE, AT THE THRESHOLD, THE BURDEN IS ON THE REVENUE TO ALLEGE AND ESTABLISH ABUSE, IN THE SENSE OF TAX AVOIDANCE IN T HE CREATION AND/OR USE OF SUCH STRUCTURES. IN THE APPLICATION OF A JUDICIAL ANTI-A VOIDANCE RULE, THE REVENUE MAY INVOKE THE 'SUBSTANCE OVER FORM' PRINCIPLE OR 'PIERCI NG THE CORPORATE VEIL' TEST ONLY AFTER IT IS ABLE TO ESTABLISH ON THE BASIS OF THE FACTS AND CIRCUMSTANCES SURROUNDING THE TRANSACTION THAT THE TRANSACTION IN QUESTION IS A SHAM OR TAX AVOIDANT. (VI) THE LEGAL POSITION OF ANY COMPANY INCORPORATED ABROAD IS THAT ITS POWERS, FUNCTIONS AND RESPONSIBILITIES ARE GOVERNED BY THE LAW OF ITS INCORPORATION. THOUGH IT MAY BE ADVANTAGEOUS FOR PARENT AND SUBSID IARY COMPANIES TO WORK AS A GROUP, EACH SUBSIDIARY WILL LOOK TO SEE WHETHER T HERE ARE SEPARATE COMMERCIAL INTERESTS WHICH SHOULD BE GUARDED. WHETHER THE PARE NT COMPANY HAS 'POWER' OVER THE SUBSIDIARY DEPENDS ON THE FACTS OF EACH CA SE. IN THE CASE OF ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 23 MULTINATIONALS THEIR SUBSIDIARIES HAVE A GREAT DEAL OF AUTONOMY IN THE COUNTRY CONCERNED EXCEPT WHERE SUBSIDIARIES ARE CREATED OR USED AS A SHAM. THE DIRECTORS OF THE SUBSIDIARY UNDER THEIR ARTICLES ARE THE MANA GERS OF THE COMPANIES. THEY ARE NOT TO BE DICTATED BY THE PARENT COMPANY IF IT IS NOT IN THE INTERESTS OF THOSE COMPANIES (SUBSIDIARIES). THE FACT THAT THE PARENT COMPANY EXERCISES SHAREHOLDER'S INFLUENCE ON ITS SUBSIDIARIES CANNOT OBLITERATE THE DECISION-MAKING POWER OR AUTHORITY OF ITS (SUBSIDIARY'S) DIRECTORS. THE DECISIVE CRITERIA IS WHETHER THE PARENT COMPANY'S MANAGEMENT HAS SUCH STEERING I NTERFERENCE WITH THE SUBSIDIARY'S CORE ACTIVITIES THAT THE SUBSIDIARY CA N NO LONGER BE REGARDED TO PERFORM THOSE ACTIVITIES ON THE AUTHORITY OF ITS OW N EXECUTIVE DIRECTORS. (VII) A TYPICAL LARGE BUSINESS CORPORATION CONSISTS OF SUB-INCORPORATES. SUCH DIVISION IS LEGAL AND RECOGNIZED BY COMPANY LAW, LA WS OF TAXATION, TAKEOVER CODES. THE PARENT IS THE ONLY GROUP MEMBER THAT NOR MALLY DISCLOSES FINANCIAL RESULTS. BELOW THE PARENT COMPANY ARE THE SUBSIDIAR IES WHICH HOLD OPERATIONAL ASSETS OF THE BUSINESS AND WHICH OFTEN HAVE THEIR O WN SUBORDINATE ENTITIES THAT CAN EXTEND LAYERS. SUBSIDIARIES ARE OFTEN CREATED F OR TAX OR REGULATORY REASONS. THEY AT TIMES COME INTO EXISTENCE FROM MERGERS AND ACQUISITIONS. AS GROUP MEMBER, SUBSIDIARIES ARE FINANCIALLY INTERLINKED. S UCH GROUPING IS BASED ON THE PRINCIPLE OF INTERNAL CORRELATION. 82. A THOUGHT FULL CONSIDERATION OF THE AFOREMENTIO NED DECISION OF THE HONBLE SUPREME COURT WOULD SHOW THAT EVEN THE APEX COURT H AVE RECOGNIZED THAT MULTINATIONALS AND MULTI ENTITIES GROUP COMPANIES CONSTITUTE SUBSIDIARIES IN FURTHERANCE TO THEIR OBJECTS AND TO CARRY ON THEIR BUSINESS SMOOTHLY IN A COMPETITIVE WORLD . MOREOVER NO PERSON WOULD ARRANGE ITS AFFAIRS IN SUC H A MANNER WHICH WOULD CULMINATE INTO HUGE LOSSES TO TH E EXTENT OF USD 506 MILLIONS AS WAS SUFFERED BY THE ASSESSEE GROUP IN T HIS TRANSACTION . 83. HAVING ESTABLISHED THAT THE OWNERSHIP OF IPR/ ANDA RIGHTS OF PANTOPRAZOLE SODIUM WAS WITH SPG BVI , NOW LET US EXAMINE THE APPLICABILITY OF THE MOST APPROPRIATE METHOD FOR DETERMINING THE ARMS LENGTH PRICE. 84. OFCD GUIDELINES FOR PROFITS SPILT METHOD (PSM) STATES AS UNDER :- C. TRANSACTIONAL PROFIT SPLIT METHOD C.1 IN GENERAL ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 24 2.108 THE TRANSACTIONAL PROFIT SPLIT METHOD SEEKS T O ELIMINATE THE EFFECT ON PROFITS OF SPECIAL CONDITIONS MADE OR IMPOSED IN A CONTROLLED TRANSACTION (OR IN CONTROLLED TRANSACTIONS THAT ARE APPROPRIATE TO AGG REGATE UNDER THE PRINCIPLES OF PARAGRAPHS 3.9-3.12) BY DETERMINING THE DIVISION OF PROFITS THAT INDEPENDENT ENTERPRISES WOULD HAVE EXPECTED TO REALISE FROM ENG AGING IN THE TRANSACTION OR TRANSACTIONS. THE TRANSACTIONAL PROFIT SPLIT METHOD FIRST IDENTIFIES THE PROFITS TO BE SPLIT FOR THE ASSOCIATED ENTERPRISES FROM THE CONTR OLLED TRANSACTIONS IN WHICH THE ASSOCIATED ENTERPRISES ARE ENGAGED (THE 'COMBINED P ROFITS'). REFERENCES TO 'PROFITS' SHOULD BE TAKEN AS APPLYING EQUALLY TO LOS SES. SEE PARAGRAPHS 2.124- 2.131 FOR A DISCUSSION OF HOW TO MEASURE THE PROFI TS TO BE SPLIT. IT THEN SPLITS THOSE COMBINED PROFITS BETWEEN THE ASSOCIATED ENTER PRISES ON AN ECONOMICALLY VALID BASIS THAT APPROXIMATES THE DIVISION OF PROFI TS THAT WOULD HAVE BEEN ANTICIPATED AND REFLECTED IN AN AGREEMENT MADE AT A RM'S LENGTH. SEE PARAGRAPHS 2.132 -2.145 FOR A DISCUSSION/6F HOW TO SPLIT THE C OMBINED PROFITS. C.2 STRENGTHS AND WEAKNESSES 2.109 THE MAIN STRENGTH OF THE TRANSACTIONAL PROFIT SPLIT METHOD IS THAT IT CAN OFFER A SOLUTION FOR HIGHLY INTEGRATED OPERATIONS F OR WHICH A ONE-SIDED METHOD WOULD NOT BE APPROPRIATE. FOR EXAMPLE, SEE THE DISC USSION OF THE APPROPRIATENESS AND APPLICATION OF PROFIT SPLIT METHODS TO THE GLOB AL TRADING OF FINANCIAL INSTRUMENTS BETWEEN ASSOCIATED ENTERPRISES IN PART III, SECTION C OF THE REPORT ON THE ATTRIBUTION OF PROFITS TO PERMANENT ESTABLISHME NTS. 2 A TRANSACTIONAL PROFIT SPLIT METHOD MAY ALSO BE FOUND TO BE THE MOST APPRO PRIATE METHOD IN CASES WHERE BOTH PARTIES TO A TRANSACTION MAKE UNIQUE AND VALUABLE CONTRIBUTIONS (E.G. CONTRIBUTE UNIQUE INTANGIBLES) TO THE TRANSACTION, BECAUSE IN SUCH A CASE INDEPENDENT PARTIES MIGHT WISH TO SHARE THE PROFITS OF THE TRANSACTION IN PROPORTION TO THEIR RESPECTIVE CONTRIBUTIONS AND A TWO-SIDED METHOD MIGHT BE MORE APPROPRIATE IN THESE CIRCUMSTANCES THAN A ONE- SIDED METHOD. IN ADDITION, IN THE PRESENCE OF UNIQUE AND VALUABLE CONTRIBUTIONS, RELIABLE COMPARABLES INFORMATION MIGHT BE INSUFFICIENT TO APPLY ANOTHER METHOD. ON THE OTHER HAND, A TRANSACTIONAL PROFIT SPLIT METHOD WOULD ORDINARILY NOT BE USED IN CASES WHERE ONE PARTY TO THE TRANSACTION PERFORMS ONLY SIMPLE FUNCT IONS AND DOES NOT MAKE ANY SIGNIFICANT UNIQUE CONTRIBUTION (E.G. CONTRACT MANU FACTURING OR CONTRACT SERVICE ACTIVITIES IN RELEVANT CIRCUMSTANCES), AS IN SUCH C ASES A TRANSACTIONAL PROFIT SPLIT METHOD TYPICALLY WOULD NOT BE APPROPRIATE IN VIEW O F THE FUNCTIONAL ANALYSIS OF THAT PARTY. SEE PARAGRAPHS 3.38-3.39 FOR A DISCUSSI ON OF LIMITATIONS IN AVAILABLE COMPARABLES. 85. UNITED NATIONS PRACTICAL MANUAL ON TRANSFER P RICING STATES AS UNDER:- ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 25 6.3.13. PROFIT SPLIT METHOD 6.3.13.1. THE PROFIT SPLIT METHOD IS TYPICALLY APPL IED WHEN BOTH SIDES OF THE CONTROLLED TRANSACTION CONTRIBUTE SIGNIFICANT INTAN GIBLE PROPERTY. THE PROFIT IS TO BE DIVIDED SUCH AS IS EXPECTED IN A JOINT VENTURE R ELATIONSHIP. 6.3.13.2. THE PROFIT SPLIT METHOD SEEKS TO ELIMINAT E THE EFFECT ON PROFITS OF SPECIAL CONDITIONS MADE OR IMPOSED IN A CONTROLLED TRANSACT ION (OR IN CONTROLLED TRANSACTIONS THAT IT IS APPROPRIATE TO AGGREGATE) B Y DETERMINING THE DIVISION OF PROFITS THAT INDEPENDENT ENTERPRISES WOULD HAVE EXP ECTED TO REALIZE FROM ENGAGING IN THE TRANSACTION OR TRANSACTIONS. 86. A PERUSAL OF THE AFOREMENTIONED GUIDELINES SH OWS THAT PSM CAN OFFER A SOLUTION FOR HIGHLY INTEGRATED OPERATIONS FOR WHICH A ONE SIDED METHOD WOULD NOT BE APPROPRIATE. PSM MAY ALSO FOUND TO BE THE MOST A PPROPRIATE METHOD IN CASES WHERE BOTH PARTIES TO A TRANSACTION MAKE UNIQUE AND VALUABLE CONTRIBUTIONS TO THE TRANSACTION. CONSIDERING THE FUNCTIONS PERFORME D BY THE APPELLANT COMPANY TO SPG BVI, IT IS CLEAR THAT SPIL HAS PERFORMED ONL Y ONE SIMPLE FUNCTION AND THAT IS MANUFACTURING OF PANTOPRAZOLE TABLETS. EXCEPT FOR THIS, THERE IS NO SIGNIFICANT UNIQUE CONTRIBUTION BY SPIL. FOR SUCH SIMPLE FUNCTI ONS AS PER OECD GUIDELINES FOR TRANSACTION PROFIT SPILT METHOD TYPICALLY WOULD NOT BE APPROPRIATE OF THE FUNCTIONAL ANALYSIS OF THAT PARTY. 87. THE RELEVANT AGREEMENT WHICH IS PLACED ON RE CORD AND HAS BEEN DEALT ELSEWHERE CLEARLY ESTABLISHES THAT THE APPELLANT CO MPANY SPIL IS NOTHING BUT A CONTRACT MANUFACTURER OF SPG BVI. NOW LET US EXAMIN E THE RELEVANT PROVISIONS OF THE ACT READ WITH RULES. DETERMINATION OF ARM'S LENGTH PRICE UNDER SECTION 9 2C. 10B. (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SEC TION 92C, THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION [OR A SPECIFIED DOMESTIC TRANSACTION] SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS , BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY:- (D) PROFIT SPLIT METHOD, WHICH MAY BE APPLICABLE MA INLY IN INTERNATIONAL TRANSACTIONS [OR SPECIFIED DOMESTIC TRANSACTIONS]I NVOLVING TRANSFER OR UNIQUE INTANGIBLES OR IN MULTIPLE INTERNATIONAL TRANSACTIO NS [OR SPECIFIED DOMESTIC ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 26 TRANSACTIONS] WHICH ARE SO INTERRELATED THAT THEY C ANNOT BE EVALUATED SEPARATELY FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRI CE OF ANY ONE TRANSACTION, BY WHICH- (I) THE COMBINED NET PROFIT OF THE ASSOCIATED ENTE RPRISES ARISING FROM THE INTERNATIONAL TRANSACTION [OR THE SPECIFIED DOMEST IC TRANSACTION] IN WHICH THEY ARE ENGAGED, IS DETERMINED; (II) THE RELATIVE CONTRIBUTION MADE BY EACH OF THE ASSOCIATED ENTERPRISES TO THE EARNING OF SUCH COMBINED NET PROFIT, IS THEN EVALUA TED ON THE BASIS OF THE FUNCTIONS PERFORMED, ASSETS EMPLOYED OR TO BE EMPLO YED AND RISKS ASSUMED BY EACH ENTERPRISE AND ON THE BASIS OF RELIABLE EXTERN AL MARKET DATA WHICH INDICATES HOW SUCH CONTRIBUTION WOULD BE EVALUATED BY UNRELAT ED ENTERPRISES PERFORMING COMPARABLE FUNCTIONS IN SIMILAR CIRCUMSTANCES; (III) THE COMBINED NET PROFIT IS THEN SPLIT AMONGS T THE ENTERPRISES IN PROPORTION TO THEIR RELATIVE CONTRIBUTIONS, AS EVALUATED UNDER SUB-CLAUSE (II); (IV) THE PROFIT THUS APPORTIONED TO THE ASSESSEE IS TAKEN INTO ACCOUNT TO ARRIVE AT AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIO NAL TRANSACTION [OR THE SPECIFIED DOMESTIC TRANSACTION] : PROVIDED THAT THE COMBINED NET PROFIT REFERRED TO I N SUB-CLAUSE (I) MAY, IN THE FIRST INSTANCE, BE PARTIALLY ALLOCATED TO EACH ENTERPRISE SO AS TO PROVIDE IT WITH A BASIC RETURN APPROPRIATE FOR THE TYPE OF INTERNATIONAL TR ANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] IN WHICH IT IS ENGAGED, WITH REFERENCE TO MARKET RETURNS ACHIEVED FOR SIMILAR TYPES OF TRANSACTIONS BY INDEP ENDENT ENTERPRISES, AND THEREAFTER, THE RESIDUAL NET PROFIT REMAINING AFTER SUCH ALLOCATION MAY BE SPLIT AMONGST THE ENTERPRISES IN PROPORTION TO THEIR RELA TIVE CONTRIBUTION IN THE MANNER SPECIFIED UNDER SUB-CLAUSES (II) AND (III), AND IN SUCH A CASE THE AGGREGATE OF THE NET PROFIT ALLOCATED TO THE ENTERPRISE IN THE FIRST INSTANCE TOGETHER WITH THE RESIDUAL NET PROFIT APPORTIONED TO THAT ENTERPRISE ON THE BASIS OF ITS RELATIVE CONTRIBUTION SHALL BE TAKEN TO BE THE NET PROFIT AR ISING TO THAT ENTERPRISE FROM THE INTERNATIONAL TRANSACTION [OR THE SPECIFIED DOMEST IC TRANSACTION]; (E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, (I) THE NET PROFIT MARGIN REALIZED BY THE ENTERPRIS E FROM AN INTERNATIONAL TRANSACTION [OR A SPECIFIED DOMESTIC TRANSACTION] E NTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRE D OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAV ING REGARD TO ANY OTHER RELEVANT BASE; (II) THE NET PROFIT MARGIN REALIZED BY THE ENTERPRI SE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUM BER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE; ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 27 (III) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLA USE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION [OR THE SPECI FIED DOMESTIC TRANSACTION] AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEE N THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFE CT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET; (IV) THE NET PROFIT MARGIN REALIZED BY THE ENTER PRISE AND REFERRED TO IN SUB-CLAUSE (I) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE (III); (V) THE NET PROFIT MARGIN THUS ESTABLISHED IS THE N TAKEN INTO ACCOUNT TO ARRIVE AT AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIO NAL TRANSACTION [OR THE SPECIFIED DOMESTIC TRANSACTION]; 88. PSM IS APPLICABLE WHEN THE INTERNATIONAL TRA NSACTION INVOLVED TRANSFER OF UNIQUE INTANGIBLES (IN THE CASE IN HAND THERE IS NO SUCH TRANSFER FROM SPG BVI TO SPIL), OR IN MULTIPLE INTERNATIONAL TRANSACTION WHI CH ARE SO INTER RELATED THAT THEY CANNOT BE EVALUATED SEPARATELY FOR THE PURPOSE OF D ETERMINING THE ARMS LENGTH PRICE OF ANY ONE TRANSACTION. THIS IS ALSO ABSENT ( IN THE CASE IN HAND AS THE APPELLANT COMPANY HAS DONE ONLY MANUFACTURING OF PA NTOPRAZOLE TABLETS FOR SPG BVI). 89. COMING TO THE APPLICATION OF TNMM, WE FIND THA T THE PROFIT MARGIN BENCHMARK BY THE ASSESSEE AT 21.57% ON SALES TRANSA CTIONS IS MUCH HIGHER THAN THE MARGIN SHOWN BY THE ASSESSEE WITH ELI LILY. 90. THE REVENUE AUTHORITIES HAVE COMPARED THE AGRE EMENTS OF SPIL WITH ELI LILY AND SPIL WITH SPG BVI AND HAVE COME TO THE CONCLUSI ON THAT A CONSPECTUS READING OF THE RELEVANT CLAUSES SHOW THAT THE ASSES SEE IS NOT A CONTRACT MANUFACTURER IN THE CASE OF SPG BVI. THIS FINDING O F THE REVENUE AUTHORITIES IS NOT ACCEPTABLE FOR THE SIMPLE REASON THAT THEY HAVE COM PARED THE CLAUSES OF THE RESPECTIVE AGREEMENTS WITHOUT CONSIDERING THE NATUR E OF WORK DONE BY SPIL. IT MAY BE POSSIBLE THAT CERTAIN TERMS AND CONDITIONS M AY BE ABSENT IN THE AGREEMENT BETWEEN THE ASSESSEE AND SPG BVI BUT THAT ITSELF WOULD NOT DENY THE ASSESSEE, THE STATUS OF CONTRACT MANUFACTURER. IN O UR CONSIDERED OPINION, THE ASSESSEE HAS PERFORMED ONLY ONE FUNCTION AND THAT I S MANUFACTURING OF ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 28 PANTOPRAZOLE SODIUM AND FOR THIS, THE DEMONSTRATIVE EVIDENCE IS EXHIBITED AT PAGES 569 AND 570 OF THE PAPER BOOK, AND AS MENTION ED ELSEWHERE, CLEARLY ESTABLISHES THE OWNERSHIP OF ANDA WITH SUN PHARMA G LOBAL. FOR THE SAKE OF COMPLETENESS, IT WOULD NOT BE OUT OF PLACE TO MENTI ON THAT THE PRINT OUT OF THESE DOCUMENTS WERE TAKEN FROM THE WEBSITE ON 28.09.2011 AND 27.09.2011 AND THE ORDER OF THE FIRST APPELLATE AUTHORITY IS 14.10.201 4 AND YET THE FAA HAS OBSERVED THAT THE ASSESSEE DID NOT FURNISH ANDA RELATED DOCU MENTS FILED BY SPG. SPG MAY NOT HAVE DONE ANY FILING RELATED TO PANTOPRAZOLE SO DIUM PATENT TO US FDA BUT THE FACT OF THE MATTER AND WHICH HAVE BEEN DEMONSTR ATED SUCCESSFULLY BY THE APPELLANT COMPANY IS THAT THE IPR/ANDA RIGHTS BECAM E THE PROPERTY OF SPG BVI BY VIRTUE OF THE AGREEMENT FOR SALE BETWEEN SPARC A ND SPG. 91. ADVERTING TO ASSESSEES ALTERNATE AND WITHOUT PREJUDICE CONTENTION THAT EVEN IF PSM IS HELD TO BE THE MOST APPROPRIATE METH OD FOR A MOMENT THAN ALSO THE SAME HAS TO BE CONSIDERED IN THE LIGHT OF THE S EQUENCE OF EVENTS STARTING FROM THE MANUFACTURING AND SALES OF THE DRUG PANTOPRAZOL E AND ENDING WITH THE OUT OF COURT SETTLEMENT AND THE PAYMENT OF SETTLEMENT COMP ENSATION OF USD 506 MILLION. THE SETTLEMENT IS BASED ON THE CUMULATIVE PROFITS EARNED BY THE AE TILL THE DATE OF SETTLEMENT. HERE IS NO DISPUTE AND IT H AS BEEN ACCEPTED BY BOTH THE LOWER AUTHORITIES THAT AFTER THE OUT OF COURT SETTL EMENT OF THE LITIGATION THE ASSESSEE GROUP HAS SUFFERED LOSSES WHICH WERE BASED ON THE AGGREGATE OF PROFITS EARNED BY THE GROUP OVER ALL THE YEAR. WITH THE SET TLEMENT BASED ON AGGREGATE OF YEARLY PROFITS THEN EVEN IF THE PROFIT SPLIT METHO D IS APPLIED THAN THE SET OFF OF EACH YEAR LOSSES HAS TO BE GIVEN FOR THE CORRESPOND ING YEAR. THE UNDISPUTED COMPENSATION BEING SETTLED ON THE BASE OF ALL YEARL Y PROFITS MADE BY THE AE DURING THE EXCLUSIVITY PERIOD PSM CANNOT BE WORKED BY DIVORCING THE BUSINESS REALITIES. THE CONTENTION OF REVENUE THAT IT IS NOT CONCERNED WITH THE SETTLEMENT WHICH IS PASS EVENT IS UNTENABLE. EVEN IF THE PSM I S APPLIED THE RELATABLE LOSSES WHICH WERE SO APPARENT BY THE TIME ASSESSMENT WAS F RAMED CANNOT BE GIVEN A GO BY ON UNSUSTAINABLE REVENUE STAND. IN SUCH EVENT UALITY EVEN THE ALP OFFERED ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 29 BY ASSESSE AS A CONTRACT MANUFACTURER ALSO WILL BE WIPED OUT. THE PSM APPLICATION MAY ACTUALLY RESULT IN REDUCTION OF RET URNED ALP WORKING. THUS, CONSIDERING THE ISSUES FROM ALL POSSIBLE ANGLES, TH E ASSESSEE HAS, UNDISPUTEDLY AND AS ACCEPTED BY REVENUE, ULTIMATELY SUFFERED LOS SES WHICH ARE NOT CLAIMED IN ITS BOOKS OR TAX PURPOSES. EVEN THE ALTERNATIVE APP LICATION OF PSM FAILS AND WOULD DO NO GOOD TO THE REVENUE . 92. TO SUMMARIZE IN NUTSHELL , BY THE ORDER OF TH E HONBLE HIGH COURT INNOVATIVE RESEARCH AND DEVELOPMENT /DIVISION OF THE APPELLANT COMPANY WAS DEMERGED AND GIVEN TO SUN PHARMA ADVANCE RESEARCH COMPANY (S PARC) SUBSEQUENTLY SPARC TRANSFERRED ANDA RIGHTS TO SPG BVI. SPG BVI H AS BEEN ENTERED INTO AN AGREEMENT WITH THE APPELLANT COMPANY SPIL FOR THE M ANUFACTURING OF PANTOPRAZOLE. PURSUANT TO THIS AGREEMENT ASSESSEE M ANUFACTURED PANTOPRAZOLE AND SOLD THE SAME TO CARACO LTD ON THE DIRECTIONS O F SPG BVI. ON SUCH SALE TRANSACTION, THE APPELLANT COMPANY HAD SHOWN A NET MARGIN OF 21.57% BENCH MARK THE SAME ON TRANSACTIONAL NET MARGIN METHOD WH ICH WAS DISMISSED BY THE REVENUE AUTHORITIES QUESTIONING FIRSTLY, THE ANDA R IGHTS WITH SPG BVI AND SECONDLY, COMPARING THE CONTRACT MANUFACTURING AGRE EMENT OF SPIL WITH SPG BVI AND SPIL WITH ELI LILY. THE REVENUE AUTHORITIES ULT IMATELY APPLIED PROFIT SPILT METHOD AND MADE THE UPWARD ADJUSTMENT. 93. AS DEMONSTRATED ELSEWHERE, THE IPR/ANDA RIGH TS WERE VERY MUCH WITH SPG BVI WHO ENTERED INTO AN AGREEMENT WITH THE APPELLAN T COMPANY FOR THE MANUFACTURING OF THE SAID DRUG. THE APPLICATION OF TRANSACTIONAL NET MARGIN METHOD IS THE MOST APPROPRIATE METHOD IN SUCH SALE TRANSACTION AND HAS BEEN BENCHMARKED BY THE ASSESSEE BY SHOWING IT TO BE HIG HER THAN THE MARGIN EARNED FROM THE SALES MADE TO ELI LILY. 94. CONSIDERING THE FACTS IN TOTALITY IN THE LIGH T OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B.V. (SUPRA) AND ON CONSPECTUS UNDERSTANDING OF THE FACTS AS DISCUSS ED ELSEWHERE, WE DO NOT FIND ANY MERIT IN THE FINDINGS OF THE FIRST APPELLATE AU THORITY IN ACCEPTING THE ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 30 APPLICATION OF PSM AS THE MAM , IN OUR UNDERSTANDIN G OF THE FACTS TNMM IS THE MAM ON THE GIVEN FACTS AND THE SAME IS ACCEPTED AS SUCH. WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT TO DELETE THE ADDITION OF RS. 612,03,39,468/-. GROUND NO. 5 OF THE ASSESSE IS ALLOWED. 27. AS MENTIONED ELSEWHERE, THE FACTS ARE IDENTICAL; TH EREFORE, WE DO NOT FIND ANY REASON WHY THE FINDINGS OF THE TRIBUNAL (SUPRA) SHOULD NOT BE FOLLOWED. RESPECTFULLY FOLLOWING THE FINDINGS, WE DIRECT THE AO TO DELETE THE ADDITION OF RS. 103,87,52,830/-. GROUND NO. 6 IS ACCORDINGLY ALLOWED. 28. GROUND NOS. 7 & 8 RELATES TO THE ADDITION ON ACCOUN T OF SALE OF DRUGS TO SPG BVI AND SPG FZE. 29. FACTS IN ISSUE RELATE TO THE SALE OF PHARMACEUTICAL PRODUCTS OTHER THAN PANTOPRAZOLE TO ITS AES SPG BVI AND SPG FZE. THESE PHARMACEUTICAL PRODUCTS CONSISTED OF PARTLY PARA-IV FILING DRUGS A ND PARTLY GENERICS DRUGS. THE RELEVANT FINDINGS OF THE TRANSFER PRICING OFFIC ER READS AS UNDER:- '9. BENCHMARKING OF TRANSACTIONS RELATED TO SALE OF OTHER FORMULATIONS TO SPG BVI AND -SPG FZES IN ADDITION TO THE SALE OF PANTOPRAZOLE SODIUM TABLETS, SPIL HAS SOLD OTHER FORMULATIONS TO ITS AES SUN BVI AND SUN FZE. IT IS SEEN THAT THE METHOD OLOGY RELATING TO SALE OF SUCH FORMULATIONS IS SIMILAR AS DISCUSSED AT PARA 8 IN RESPECT OF PANTOP RAZOIE. SUN BVI AND SUN FZE HAVE BEEN TREATED AS TECHNOLOGY OWNERS AND SPIL AS CONTRACT MANUFACTU RER. THE DRUGS HAVE BEEN SUPPLIED BY SPIL AT FIXED PRE-DECLDED MARGINS AND THE ENTIRE REMAINING PROFIT HAS BEEN APPROPRIATED BY THE FOREIGN ENTITY. IT IS SEEN THAT THE MARGINS EARNED IN RESPE CT OF THESE DRUGS BY THESE COMPANIES IS OVER 90% AND 35% IN RESPECT OF SPG BVI AND SPG FZE RESPECTIV ELY AS COMPARED TO 14.84% IN RESPECT OF SPIL. 9.1 REJECTION OF FAR AND TP STUDY CONDUCTED BY THE ASSESSEES. THE FUNCTIONS PERFORMED, RISKS ASSUMED AND ASSETS DEPLOYED BY BOTH THE COMPANIES H AVE BEEN EXAMINED. IT IS SEEN THAT SPIL HAS DEPLOYED SUBSTANTIAL ASSETS IN THE FORM OF APPROVED MANUFACTURING SETUP WITHOUT WHICH SALES COULD NOT HAVE BEEN EFFECTED. FURTHER, IT HAS PLAYE D SUBSTANTIAL ROLE IN PREPARATION OF ANDA AS ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 31 WELL AS DRAWING UP THE SALES PLAN IN US IN COLLABOR ATION WITH CARACO AND OTHER ENTITIES. FURTHER, THE FUNCTIONS PERFORMED BY' OUTSIDE ENTITIES MERELY RELATE TO MARKETING SUPPORT. IN LIGHT OF THIS THE TRANSFER PRICING STUDY CONDUCTED BY THE ASSESSE E COMPANY TREATING SPIL AS A MERE CONTRACT MANUFACTURER AND CONDUCTING A TNMM TO BENCHMARK ITS PROFIT MARGIN IS NOT FOUND TO BE IN LINE WITH THE INTENT OF SECTION 92C AND THE RULES FRAMED RELATED TO TRANSFER PRICING. ACCORDINGLY, THE TRANSFER PRICING STUDY CONDUCTED BY THE ASSESSEE WI TH REFERENCE TO BENCHMARKING OF THE SALE OF DRUGS TO SUN BVI AND SUN FZE (OTHER THAN PANTOPRAZO LE) IS NOT FOUND TO BE CORRECT AND IS REJECTED U/S 29C(3) OF THE INCOME TAX ACT. 10 ADOPTION OF PROFIT SPLIT METHOD FOR BENCHMARKING: DURING THE YEAR, THE ASSESSEE HAS SOL D ALENDRONALE, AMIFOSTINE AND VENLAFAXINE TO SUN BVI AND ALENDRONALE, LEUPROLIDE AND GEMCITABINE TO SUN FZE. VENLAFAXINE APPEARS TO HAVE BEEN WITHDR AWN SUBSEQUENTLY AS EVIDENT FROM THE P&L ACCOUNT SUBMITTED BY THE ASSESSEE. SINCE THE FUNCTI ON-ASSET-RISK PROFILE RENDERS TNMM AS AN UNSUITABLE METHOD FOR BENCHMARKING. THE BENCHMARKIN G STUDY CONDUCTED BY THE ASSESSEE IN RESPECT OF THIS TRANSACTION IS FOUND TO BE UNRELIAB LE AND HENCE IS REJECTED U/S 92C(3). THE ASSESSEE WAS ISSUED A SHOW CAUSE NOTICE ON THE ISSUE OF REJE CTION OF TNMM STUDY CONDUCTED BY THE ASSESSEE AND ADOPTION OF ANOTHER METHOD FOR CONDUCT ING THE BENCHMARKING STUDY. THE PROFIT SPLIT METHOD IS FOUND TO BE MORE SUITABLE TO THE NATURE O F THESE TRANSACTIONS. ACCORDINGLY, THE METHOD EMPLOYED BY THE ASSESSEE COMPANY IS REJECTED AND PR OFIT SPLIT METHOD IS FOLLOWED FOR BENCHMARKING THE TRANSACTIONS. FOLLOWING POINTS ARE NOTED WITH RESPECT TO EXPORT SALE OF THESE DRUGS. 10.1 SASE OF PARA IV DRUGS: IT IS SEEN THAT IN RESPECT OF SALES MADE TO SPG BVI , AMIORSTINE AND VELAFAXINE ARE SOLD IN US UNDER CHAPTER IV FILING. SIMILARLY, IN RESPECT OF SALES MADE TO SPG FZE, GEMCITABINE IS A CHAPTER IV DRUG. THE ISSUE RELATED TO THESE DRUGS HAS BEEN EXAMINED AND IT IS SEEN THAT THE METHODOLOGY FOLLOWED IN SALE OF THESE DRUGS IS SIMILAR TO THE METHODOLOGY FOLLOWED IN RESPECT OF PANTOPRAZOLE WHICH HAS BEEN DISCUSSED ELABORATELY IN THE PRECEDING PARAGRAPHS. HENCE, THE FUNCTION, ASSET AND RISK ANALYSIS CARRIE D OUT FOR THE DRUG PANTOPRAZOLE APPLIES VERBATIM TO THESE DRUGS ALSO. ACCORDINGLY, THE APPORTIONING OF PROFIT IS CARRIED OUT IN THE MATTER DISCUSSED EARLIER. THE PROFIT EARNED BY BOTH THE FOREIGN AES IN RESPECT OF CHAPTER IV DRUGS IS APPORTIONED IN THE RATIO OF 50:50 IN LIGHT OF THE FAR OF THE TWO C OMPANIES, THE FOREIGN AE BEING COMPENSATED DOMINANTLY FOR THE RISK COVERAGE. 10.2 SALE OF OTHER DRUGS: ALENDRONALE, SOLD TO SUN BVI ANDALENDRONALE AND LEU PROLIDE SOLD TO UN FZE BELONG TO THIS CATEGORY. FOR SALE OF THESE DRUG S IN FOREIGN COUNTRIES, ESPECIALLY IN US, THEY NEED TO BE MANUFACTURED IN AN US FDA APPROVED FACIL ITY. THE ASSESSEE, AT SIGNIFICANT COST, BOTH INITIAL AND OPERATIONAL, HAS CREATED SUCH FACILITY FOR MANUFACTURING OF THESE DRUGS. THE MARKETING SETUP OF SPIL IS BEING USED AS THE SALE IS GENERALL Y THROUGH THE LOCAL SUBSIDIARY OF SPIL WITH ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 32 UNDERLYING GUARANTEE OF SPIL. HENCE, THE ROLE PLAYE D SPIL IN SALE OF SUCH DRUGS IS MUCH HIGHER. WHILE SPIL HAS HIGHER FUNCTIONAL AND ASSET RELATED RESPONSIBILITY, SUN BVI/FZE DO NOT HAVE TO CARRY THE RISK THEY WERE CARRYING IN THE CASE OF CHAPTER IV DRUGS. THESE COMPANIES ALSO DO NOT CARRY ANY SIGNIFICANT FUNCTIONAL RESPONSIBILITY OR USE SUBSTA NTIVE ASSETS EXCEPT PROBABLY THE FINANCIAL EXPOSURE. TO THIS EXTENT, SPIL IS FOUND TO BE THE M AIN PARTY CONTRIBUTING ASSETS TO THE TRANSACTION. 10.3 IN ADDITION, ALTHOUGH THE SALE AGREEMENT SHAVE BEEN ENTERED INTO BY SUN BVI/FZE, THE GUARANTEES IN THE SALE AGREEMENTS AS WELL AS IN THE FILINGS BEFORE US PDA HAVE BEEN ENTERED INTO BY SPIL SIGNIFYING ITS SIGNIFICANT RISK. SINCE SPIL IS THE MANUFACTURER, IT CARRIES THE ASSOCIATED RIS K AS ANY PROBLEM ASSOCIATED WITH THE DRUG WILL HAVE T O BE BORNE BY SPIL THESE DRUGS ARE NOT CHAPTER IV DRUGS AND HENCE THERE IS HARDLY ANY LITI GATION AND ASSOCIATED RISK BEING CARRIED BY THE SELLER. HENCE, EXCEPT A SMALL PORTION OF MARKETING RISK BEING CARRIED BY SUN BVI/FZE, MOST OF THE RISK IS BEING CARRIED BY SPIL. SPIL NEEDS TO BE REW ARDED ACCORDINGLY. IN THE CASE OF PANTOPRAZOLE, SINCE THE LITIGATION RISK WAS QUITE HIGH, SUN BVI H AD BEEN COMPENSATED AT A HIGHER LEVEL. HERE, THE COMPENSATION WILL ALSO BE QUITE LOW. 10.4 THE MAIN FUNCTION IN THE ENTIRE SEQUENCE OF MANUFACTURING AND SAIE OF THE DR UG IS BEING PERFORMED BY SPIL, AS SEEN FROM THE DOCUME NTS SUBMITTED BY THE ASSESSEE, IT MANUFACTURES THE DRUG AND SENDS THE CONSIGNMENT TO THE LOCATION OF SALE DIRECTLY WITHOUT SPG BVI/FZE EVEN LOOKING AFTER LOGISTICS AND OTHER ASSO CIATED FUNCTIONS. THE ONLY POSITIVE CONTRIBUTION OF THE SPG BVI/FZE IS THE OWNERSHIP OF AN DA IN THE IR NAMES. THE FUNCTIONAL ANALYSIS HAS BEEN ELABORATED IN DETAIL AT PARA 8 WHILE DISCUSSING THE SALE OF PANTOPRAZOLE AND IT IS SIMILAR IN THE CASE OF THESE DRUGS ALSO. HENCE, IT IS FOUND THAT THE MA JOR FUNCTIONS ARE BEING PERFORMED BY SPIL AND NOT THE OTHER COMPANIES. 10.5 THE FAR ANALYSIS CONDUCTED EARLIER IS APPLICAB LE TO THESE TRANSACTIONS ALSO MINUS THE RISK ELEMENT. WHILE THE ASSOCIATE ENTERPRISES WERE EXPOS ED TO CONSIDERABLE RISK ON ACCOUNT OF LITIGATION POTENTIAL OF CHAPTER IV DRUGS, IN THE GE NERIC DRUGS, THERE IS NO SUCH RISK. THE ENTIRE WORK INCLUDING ANDA EXPLOITATION, MANUFACTURING, USFDA A PPROVAL OF MANUFACTURING FACILITY, DOMINANT CONTRIBUTION TO SALES AND MARKETING, WAREHOUSING, L OGISTIC SUPPORT, R&D ETC., ALL THESE ACTIVITIES ARE BEING CONDUCTED BY THE ASSESSEE COMPANY ONLY. I T IS SEEN THAT IN THE CASE OF OTHER PHARMACEUTICAL COMPANIES, A PROFIT SPLIT RATION OF 80:20 IS BEING FOLLOWED IN SUCH CASES. THIS RATIO IS FOUND ACCEPTABLE AND REASONABLE. HENCE, IN THIS CASE ALSO, A PROFIT SHARING RATIO OF 80:20 FOR THE MANUFACTURER - MARKETING ENTITY IS ADOPTED AS A REA SONABLE WAY TO ALLOCATE THE TOTAL PROFITS OF THE DRUG SALE. 10.6 THE COMPUTATION OF PROFIT IN LINE WITH ABOVE DISCUS SION IS AS BELOW: A: SALE OF DRUGS TO SUN PHARMA GLOBAL BVI: ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 33 SR. NO. PARTICULARS SUN PHARMA [SPIL] SUN PHARMA GLOBAL BVI AMOUNT IN USD AMOUNT IN RS. AMIFOSTINE VENLAFAXIN E PARA IV TOTAL ALENDRON AT NON PARA IV TOTAL PARA IV PARA IV 1 TOTAL SALE VALUE OF OTHER FORMULATIONS SOLD 106947162 9495979 63898127 73394106 929989 929989 2 COST OF OTHER FORMULATIONS SOLD 66114735.55 98757 2213389 2312146 186609 186609 3 MANUFACTURING OVERHEADS 20876086.02 0 0 0 0 0 4 GROSS PROFIT 19956340.43 9397222 61684738 71081960 743379.9 5 743380 5 OTHER EXPENSES ( R&D , CORPORATE & OTHER EXS.) 4085381.588 550720 3705777 4256497 53935 53935 6 PROFIT 15870958.84 8846502 57978961 66825463 689445 689445 7 ADDITIONAL CREDIT ALLOWED ON ACCOUNT OF RETURN OF GOODS 0 7A STATE DIFFERENCE/RETUR NS ACCOUNTED IN F Y 2008-2009 - 18849.64 61572863 61554013.3 6 62008 62008 7B RATE DIFFERENCE ACCOUNTED IN FY 2009-2010 0 0 0 0 0 7C RETURNS / SHORT RECEIPTS ACCOUNTED IN F Y 2009-2010 0 2325264 2325264 0 0 7D RATE DIFFERENCE ACCOUNTED IN FY 2010-2011 0 0 0 0 0 ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 34 7E RETURNS / SHORT RECEIPTS ACCOUNTED IN F Y 2010-2011 0 0 0 0 0 8 ADDITIONAL EXPENSES [ LITIGATION ] INCURRED BY THE COMPANY 0 0 0 0 0 9 REMAINING PROFIT [ 6 MINUS 7 MINUS 8 ] 8865352 - 5919166 2946185 62 7437 627437 10 REMAINING PROFIT IN RS. (@ 45.95) 135347749 28824463 05$ RATE = 45.94 45.94 PROFIT APPORTIONED TO SPIL 67673875 23059571 LESS PROFIT OFFERED BY SPIL 7342699 948449 NET PROFIT APPORTIONED TO SPIL 60331176 22111122 SR. NO, PARTICULARS [SPIL] < SUN PHARMA GLOBAL F2E - ~> AMOUNT IN RS. GEMCITABIN E PARA IV TOTAL LEUPROLIDE ALENDRON AT E NON PARA IV TOTAL AMOUNT IN US$ 1 TOTAL SALE VALUE OF OTHER FORMULATIONS SOLD 187196713 1081301 1081301 176378 22511 198889 2 COST OF OTHER FORMULATIONS SOLD 85211944 528090 528090 55777.5 13923 69700.5 3 MANUFACTURING OVERHEADS 26900168 0 0 0 0 0 ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 35 4 GROSS PROFIT 75084602 553211 55 3211 120600.5 8588 129188.5 5 OTHER EXPENSES ( R&D CORPORATE & OTHER EXS.) 5260227.6 198760.9 198760.9 32421.17 4137.891 36559.06 6 PROFIT 69824374 354450.1 354450,1 88179.33 4450.109 92629.44 7 RATE DIFFERENCE ACCOUNTED IN FY 2010-2011 0 0 3448 0 3448 9 REMAINING PROFIT [ 6 MINUS 7 MINUS 8 ] 354450 354450 84731 4450 89181 10 SHARED IN EQUAL RATION BY BOTH ASSOCIATES 16283439 4096995 USD RATE = IND RS.45.94 45.94 45. 94 AMOUNT ATTRIBUTED TO SPIL 8141720 3277596 LESS PROFIT ALREADY OFFERED BY SPIL 6277211 1323870 NET PROFIT APPORTIONED TO SPIL 1864509 1953726 THE TOTAL ADJUSTMENT TO THE PROFITS OF SPIL IS COMP UTED AS BELOW: CHAPTER IV GENERIC TOTAL SUN PHARMA GLOBAL BVI 60331176 22111122 82442298 SUN PHARMA GLOBAL FZE 1864509 1953726 3818235 TOTAL 62195685 24064848 86260533 ACCORDINGLY, AN UPWARD ADJUSTMENT OF RS.8,62,60,533 /- IS RECOMMENDED ON ACCOUNT OF BENCHMARKING OF SALE OF OTHER DRUGS TO SUN PHARMA G LOBAL BVI AND SUN PHARMA GLOBAL FZE.' 30. THE APPELLANT COMPANY STRONGLY AGITATED THIS UPWARD ADJUSTMENT BEFORE THE FIRST APPELLATE AUTHORITY. IT WAS STRONGLY CONT ENDED THAT THE TECHNOLOGY ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 36 FOR MANUFACTURING OF THESE DRUGS PERTAINED TO THE A ES AND ENTIRE MARKETING HAS BEEN ALSO DONE BY THE AES AND ACCORDINGLY, THE APPELLANT BEING A CONTRACT MANUFACTURER, THE PREFIXED MARGINS HAVE BE EN CHARGED. 31. THE SUBMISSIONS OF THE ASSESSEE WERE SIMILAR TO THE SUBMISSIONS MADE BY IT AND OBJECTING THE UPWARD ADJUSTMENT IN RESPECT OF S ALE OF PANTOPRAZOLE. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E FIRST APPELLATE AUTHORITY OBSERVED THAT THE CLAIM OF APPELLANT THA T IS HAS MANUFACTURED PHARMA PRODUCTS AS CONTRACT MANUFACTURER IN ITS US FDA PLANT AS PER SPECIFICATIONS OF SPG AES AND ALSO USING TECHNOLOGY OWNED BY SPG ONLY WAS FOUND TO BE INCORRECT IN DETAIL ANALYSIS DONE IN A. Y. 2008-09 BY THE LD. CIT(A)-4, AHMEDABAD. THE LD. CIT(A) FURTHER OBSERVE D THAT THE FACTS ARE IDENTICAL IN THE YEAR UNDER CONSIDERATION TO THAT O F A.Y. 2008-09. ACCORDINGLY, THE ARGUMENTS OF THE APPELLANT HEREBY REJECTED RELYING UPON THE FINDINGS OF THE LD. CIT(A)-IV, AHMEDABAD. THE R ELEVANT FINDINGS OF THE LD. CIT(A) READ AS UNDER;- 8.12. ON CAREFUL CONSIDERATION OF THE MATERIAL AVAI LABLE ON RECORD, IT IS NOTICED THAT THE TPO HAS APPLIED RESIDUAL PROFIT SPLIT METHOD AND ACCORDINGLY DETERMINED ADJUSTED PROFIT FROM PARA-IV FILING DRUG S AT RS.6,21,95,685/- AND FROM GENERIC DRUGS AT RS.2,40,64,8487-BY APPORTIONING TH E PROFIT IN THE RATIO OF 50:50 IN CASE OF PARA-IV FILING AND 80:20 IN CASE OF GENE RIC DRUGS, BETWEEN THE APPELLANT AND ITS AES, IT IS ALSO NOTICED THAT THE APPELLANT HAS ADOPTED SAME METHODOLOGY AS IN THE CASE OF PANTOPRAZOLE IN RESPE CT OF SALE OF OTHER FORMULATIONS TO ITS AES BY CONSIDERING ITSELF A CONTRACT MANUFACTURER. AS ALREADY DISCUSSED, THE FAR ANALYSIS CARRIED OUT UND ER I THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE IN A.Y. 2008-09 BY THE CI T(A)-IV, AHMEDABAD, REVEALED THAT THE APPELLANT HAS DEPLOYED / SUBSTANTIAL ASSETS I N THE FORM OF US ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 37 PDA APPROVED/ MANUFACTURING SETUP, PLAYED A SUBS TANTIAL ROLE IN PREPARATION OF ANDA AND DRAWING MARKETING PLANS IN USA. THE ONL Y FUNCTION PERFORMED OUTSIDE WAS TO PROVIDE MARKET SUPPORT. THESE FINDINGS ARE SQUARELY APPLICABLE TO THE INTERNATIONAL TRANSACTIONS IN RESPECT OF OTH ER DRUGS TOO. IT IS ALSO NOTICED THAT NO ACTIVITIES WERE CARRIED OUT BY THE AES FOR VALUE ADDITION IN THE DRUGS AND ACCORDINGLY, I HOLD THAT THE RESIDUAL PROFIT SPLIT METHOD WAS RIGHTLY APPLIED BY THE AO/TPO IN DETERMINING THE ALP IN RESPECT OF THE INTERNATIONAL TRANSACTIONS OF OTHER PRODUCTS. HOWEVER, IT IS NOTICED THAT IN RESP ECT OF SALE OF GENERIC DRUGS, THE RATIO OF 80:20, HAS BEEN APPLIED FOR APPORTIONMENT OF THE RESIDUAL PROFIT BETWEEN/ APPELLANT AND AES BY THE TPO/AO WHICH IS H EREBY CONFIRMED. IN ANY CONSIDERED VIEW, THE SAME RATIO HAS TO BE APPLIED I N RESPECT OF PARA-IV FILING DRUGS ALSO BECAUSE FUNCTIONS PERFORMED, ASSETS DEPL OYED AND RISKS ASSUMED BY THE APPELLANT ARE SAME AS IN THE CASE/OF GENERIC DR UGS. MOREOVER, IT IS ALSO NOTICED THE OTHER DRUGS UNDER PARA IV FILING CATEGORY ARE TRANSACTED UNDER THE FACTS AND CIRCUMSTANCES WHICH ARE IDENTICAL TO THE SALE OF PANTOPRAZOIE, AND HENCE ON THIS ACCOUNT ALSO, RATIO OF 80:20 NEEDS TO BE APPLIED FOR APPOINTMENT OF AGGREGATE PROFITS BETWEEN THE APPELLANT AND AES. ACCORDINGLY, AN ENHANCEMENT WAS PROPOSED IN THE ALP OF OTHER PRODUC TS UNDER PARA-IV FILING DRUGS RESULTING INTO A FURTHER UPWARD ADJUSTMENT OF RS. 3,73,17,411/- VIDE NOTICE DATED 29.03.2016. 32. ASSESSEE FILED A DETAILED REPLY TO THE NOTICE OF EN HANCEMENT WHICH WAS CONSIDERED BY THE LD. CIT(A) WHO OBSERVED AT PARA 8 .12.2 THE CONTENTIONS MADE ABOVE ARE ALMOST SIMILAR TO THOSE WHICH HAVE B EEN MADE IN RESPONSE TO THE ENHANCEMENT NOTICE PERTAINING TO SALE OF PAN TOPRAZOLE. FOR THE SIMILAR REASONS AND THE REASONS DISCUSSED ABOVE IN PARA 8.11 & 8.12, THE SAME REJECTED. THE LD. CIT(A) CONCLUDED BY ENHANCIN G THE INCOME BY RS. 3,73,17,411/- BY MAKING A FURTHER ADJUSTMENT TO ALP OF OTHER PRODUCTS ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 38 UNDER CHAPTER IV FILING DRUGS BY APPORTIONING THE A GGREGATE PROFIT IN THE RATIO OF 80:20 BETWEEN THE APPELLANT AND AES. ACCOR DINGLY, THE ADDITION MADE BY THE AO/TPO ON THIS ACCOUNT AT RS. 8,62,60,5 33/- WAS CONFIRMED ALONG WITH ENHANCEMENT OF INCOME BY RS. 3,73,17,411 /-. 33. BEFORE US, THE LD. SENIOR COUNSEL PUT FORTH THE SAM E ARGUMENTS WHICH WERE MADE FOR THE SALE OF PANTOPRAZOLE. IT IS THE SAY OF THE LD. COUNSEL THAT ON IDENTICAL SET OF FACTS, THE TRIBUNAL IN A.Y. 2008-0 9 HAS NOT ONLY DELETED THE ADDITIONS MADE BY THE AO/TPO BUT HAS ALSO DELETED T HE ENHANCED INCOME. 34. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW QUA THE ISSUE. AS MENTIONED ELSEWHERE, THE RE ASONING GIVEN FOR MAKING THE ADDITION ARE UNDERLINE WITH THE REASONIN GS GIVEN FOR MAKING SIMILAR ADDITIONS IN A.Y. 2008-09 FOR THE SALE OF P ANTOPRAZOLE. THE ONLY DISTINGUISHING FACT RELATES TO THE SALE OF CERTAIN DRUGS WHICH ARE OUTSIDE THE PARA IV FILING DRUGS. IT IS SEEN THAT IN RESPECT OF SALES MADE TO SPG BVI, AMIFOSTINE & VENLAFAXINE ARE SOLD IN US UNDER CHAPT ER IV FILING. SIMILARLY, IN RESPECT OF SALES MADE TO SPG FZE, GEMICITABIN IS A CHAPTER IV DRUG. IT IS SEEN THAT THE METHODOLOGY FOLLOWED IN SALE OF THESE DRUGS IS SIMILAR TO THE METHODOLOGY FOLLOWED IN RESPECT OF PANTOPRAZOLE WHI CH HAS BEEN DISCUSSED ELABORATELY BY THE BENCH IN A.Y. 2008-09 QUA GROUND NO. 5 OF THAT APPEAL IN ITA NOS. 3927 & 3420/AHD/2014. 35. THE RELEVANT FINDINGS OF THE TRIBUNAL HAVE BEEN ELA BORATELY EXTRACTED WHILE DECIDING GROUND NO. 6 OF THE PRESENT APPEAL. THEREF ORE, TO AVOID REPETITION, ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 39 RESPECTFULLY FOLLOWING THE FINDINGS GIVEN WHILE DEC IDING GROUND NO. 6 OF THE PRESENT APPEAL. WE DIRECT THE A.O. TO DELETE THE AD DITION OF RS. 123577944/-. GROUND NOS. 7 & 8 ARE ACCORDINGLY ALLO WED. 36. GROUND NOS. 9 & 10 RELATES TO THE DENIAL OF THE C LAIM OF WEIGHTED DEDUCTION U/S. 35(2AB) OF REVENUE EXPENDITURE OF RS . 6.81 CRORES ON EXPENSES INCURRED ON CLINICAL TRIALS, PATENT, TRADE MARK REGISTRATION CHARGES. 37. BRIEFLY STATED THE FACTS OF THE ISSUE ARE THAT THE APPELLANT COMPANY HAS CLAIMED TOTAL R&D EXPENSES AT RS. 12389.29 LACS . O UT OF WHICH RS. 11699.11 LACS HAVE BEEN CLAIMED AS ELIGIBLE OF WEIG HTED DEDUCTION 150% U/S. 35(2AB). DURING THE COURSE OF THE ASSESSMENT P ROCEEDINGS, THE ASSESSEE HAS MADE A FRESH CLAIM THAT THE EXPENSES T O THE TUNE OF RS. 6.81 CRORES ARE ALSO ELIGIBLE FOR DEDUCTION AT 150%. THE A.O. DISALLOWED THE SAME MAINLY ON THE GROUND THAT THIS CLAIM WAS NOT MADE I N THE RETURN OF INCOME AND THE ASSESSEE HAS ALSO NOT REVISED THE RETURN FO R CLAIMING WEIGHTED DEDUCTION AT 150%. 38. BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE ONCE AGAIN CLAIMED WEIGHTED DEDUCTION ON R&D EXPENSES OF RS. 6.81 CROR ES. THE CLAIM OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE LD. CIT(A ) WHO WAS OF THE OPINION AS TO WHETHER FRESH CLAIM CAN BE MADE WITHOUT FILIN G OF REVISED RETURN OF INCOME. THE LD. CIT(A) ACCORDINGLY DENIED THE CLAIM OF WEIGHTED DEDUCTION. 39. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT THE LEGAL CLAIM MADE BY THE ASSESSEE WAS BASED UPON THE FACTS WHICH WERE ALREADY ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 40 ON RECORD. THEREFORE, THERE IS NO REASON WHY THE AS SESSEE SHOULD NOT BE ALLOWED SUCH LEGAL CLAIM. STRONG RELIANCE WAS PLACE D ON THE DECISION OF THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF MITES IMPEX 46 TAXMANN.COM 30. 40. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE FIRST APPELLATE AUTHORITY. 41. AFTER GIVING A THOUGHTFUL CONSIDERATION, WE FIND FO RCE IN THE CONTENTION OF THE LD. SENIOR COUNSEL. THERE IS NO DISPUTE THAT AL L THE FACTUAL DETAILS WERE AVAILABLE BEFORE THE LOWER AUTHORITIES. THE CLAIM M ADE BY THE ASSESSEE WAS PURELY LEGAL CLAIM AS IT IS ELIGIBLE FOR WEIGHTED D EDUCTION AS PER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT. MERELY BE CAUSE THE SAME WAS NOT CLAIMED IN THE RETURN OF INCOME NOR THROUGH A REVIS ED RETURN OF INCOME, THE SAME CANNOT BE DENIED. THE RELEVANT PORTION OF SECT ION 35(2AB) READS AS UNDER:- 35[2AB] (1) WHERE A COMPANY ENGAGED IN THE BUSINESS OF [BIO-TECHNOLOGY OR IN [ANY BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY A RTICLE OR THING, NOT BEING AN ARTICLE OR THING SPECIFIED IN THE LIST OF THE ELEVE NTH SCHEDULE]] INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPEN DITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEVE LOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY, THEN, THERE SHALL BE A LLOWED A DEDUCTION OF [A SUM EQUAL TO [TWO] TIMES OF THE EXPENDITURE] SO INCURRE D. [EXPLANATION.- FOR THE PURPOSES OF THIS CLAUSE, EX PENDITURE ON SCIENTIFIC RESEARCH, IN RELATION TO DRUGS AND PHARMACEUTICALS , SHALL INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL, OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 41 UNDER ANY CENTRAL, STATE OR PROVINCIAL ACT AND FILI NG AN APPLICATION FOR A PATENT UNDER THE PATENTS ACT, 1970 (39 OF 1970).] 42. A PERUSAL OF THE AFOREMENTIONED SECTION CLEARLY EST ABLISHES THAT EXPENDITURE ON SCIENTIFIC RESEARCH IS ALSO ELIGIBLE FOR WEIGHTED DEDUCTION. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF T HE PROVISION, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO ALLOW WEIGHTED DEDUCTION. GROUND NOS. 9 & 10 ARE ACCORDINGLY ALLOW ED. 43. GROUND NO. 11 RELATES TO THE DISALLOWANCE OF WEIGHT ED DEDUCTION U/S. 35(2AB) ON TRADE MARK CHARGES, OVERSEAS PRODUCT REG ISTRATION CHARGES . 44. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED WEIGHTED DEDUCTION FOR TRADE M ARK REGISTRATION CHARGES OF RS. 47,32,015/- AND OVERSEAS PRODUCT REG ISTRATION CHARGES OF RS. 2,03,95,126/-. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE IS NOT ELIGIBLE FOR WEIGHTED DEDUCTION AND ACCORDINGLY DISALLOWED A SUM OF RS. 1,25,63570/-. 45. WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT(A), THE LD. CIT(A) OBSERVED AT PARA 10 OF HIS ORDER THAT THE BASIS OF DISALLOWA NCE AND SUBMISSIONS OF THE APPELLANTS ARE SIMILAR TO A.Y. 2008-09 AND SINCE TH E FACTS ARE IDENTICAL IN THIS YEAR ALSO, RESPECTFULLY FOLLOWING THE ORDER OF LD. CIT(A)-IV, AHMEDABAD IN A.Y. 2008-09, THE ACTION OF THE A.O. WAS UPHELD. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 42 46. BEFORE US, THE LD. SENIOR COUNSEL DREW OUR ATTENTIO N TO THE DECISION OF THE TRIBUNAL IN A.Y. 2008-09 AND POINTED OUT THAT THE T RIBUNAL HAS ALLOWED THE CLAIM OF WEIGHTED DEDUCTION TO THE ASSESSEE. 47. AFTER CAREFULLY PERUSING THE ORDERS OF THE AUTHORIT IES BELOW, WE FIND FORCE IN THE CONTENTION OF THE LD. SENIOR COUNSEL. THE TRIBU NAL HAS CONSIDERED AN IDENTICAL ISSUE VIDE GROUND NO. 6 OF THE APPEAL IN ITA NO. 3297 & 3420/AHD/2014 AND THE RELEVANT FINDINGS OF THE TRIB UNAL READ AS UNDER:- 96. AN IDENTICAL ISSUE WAS CONSIDERED BY THE BEN CH IN ASSESSEES OWN CASE IN ITA NOS. 2076 & 2067/AHD/2013 WHEREIN THE BENCH HAS FOL LOWED THE FINDINGS OF THE CO-ORDINATE BENCH IN ITA NO. 1589/AHD/2011 AND THE SAME READS AS UNDER:- 34. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 1589/AHD/2011 QUA GR OUND NO. 3 WHEREIN THE BENCH HAS FOLLOWED ITS EARLIER DECISION IN ITA NO. 2430/AHD/2009. THE FINDINGS THEREON READ AS UNDER:- GROUND NO. 4 RELATES TO THE DISALLOWANCE OF TRADE M ARK REGISTRATION AND OVERSEAS PRODUCT REGISTRATION CHARGES U/S. 35(2AB). 11. ON PERUSING THE DETAILS OF R & D EXPENDITURE, T HE A.O FOUND THAT THE ASSESSEE HAS CLAIMED WEIGHTED DEDUCTION @ 150% ON (A) TRADE MARK REGISTRATION CHARGES : 2,42,56,296/- (B) OVERSEAS PRODUCT REGISTRATION CHARGES : 2,00,00,508/- 12. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM. A SSESSEE FILED A DETAILED REPLY JUSTIFYING ITS CLAIM OF WEIGHTED DEDUCTION. IT WAS EXPLAINED THAT THE EXPENDITURE INCURRED FOR PRODUCT REGISTRATION ALTHOUGH NAMED AS PRODUCT REGISTRATION EXPENDITURE IS NOT MERELY AN EXPENDITURE FOR REGIST RATION OF THE PRODUCT, BUT IN LARGE MEASURE CONSTITUTES EXPENDITURE FOR VALIDATIO N AND CONFIRMATION OF THE RESEARCH CARRIED OUT. THE A.O DID NOT ACCEPT THE CL AIM OF THE ASSESSEE HOLDING THAT THESE EXPENSES WERE INCURRED FOR REGISTRATION OF DRUG PATENTS IN FOREIGN COUNTRIES. THE A.O ACCORDINGLY WITHDREW THE WEIGHTE D DEDUCTION AND ALLOWED ONLY 100% OF THE SAME AS REVENUE EXPENDITURE. 13. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT (A) BUT WITHOUT ANY SUCCESS. WHILE DISMISSING THE GRIEVANCE OF THE ASSESSEE, THE LD. CIT(A) FOLLOWED THE FINDINGS OF HIS PREDECESSOR GIVEN IN A.Y. 2002-03 T O 2004-05. BEFORE US, THE LD. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 43 COUNSEL FOR THE ASSESSEE STATED THAT THE TRIBUNAL I N ASSESSEES OWN CASE IN EARLIER YEARS HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSES SEE AND AGAINST THE REVENUE IN ITA NO. 1558/AHD/2006. THE LD. D.R. COULD NOT BRING ANY DISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. 14. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO TH E ORDER OF THE TRIBUNAL IN EARLIER YEARS; WE FIND THAT THE TRIBUNAL WHILE DECI DING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS FOLLOWED THE DECISION OF THE CO-ORDINA TE BENCH, MUMBAI IN THE CASE OF USV LTD. 54 SOT 615. FINDINGS OF THE TRIBUNAL RE AD AS UNDER:- 24. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. WE FIND THAT THE LD. CIT(A) HAS SIMPLY FOLLOWED THE FI NDINGS OF HIS PREDECESSOR FOR A.Y. 2000-01. WE ALSO FIND THAT THE ASSESSMENT ORDER FOR A.Y. 2000-01 HAS BEEN QUASHED BY THE TRIBUNAL VIDE A ITA NOS. 11 99 & 1279/AHD/2006, WHICH MEANS THAT THE BASIS FOR UPHOLDING THE DISALL OWANCE HAS BEEN REMOVED. WE FURTHER FIND THAT ON IDENTICAL SET OF F ACTS, THE MUMBAI BENCH IN THE CASE OF USV LTD. (SUPRA) HAS ALLOWED THE CLA IM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RESPECT OF PATEN T APPLICATION. RESPECTFULLY, FOLLOWING THE FINDINGS OF THE CO-ORDI NATE BENCH (SUPRA), WE DIRECT THE A.O TO DELETE THE DISALLOWANCE OF RS. 44 ,71,906/-. GROUND NO. 10 IS ACCORDINGLY ALLOWED. 15. RESPECTFULLY FOLLOWING THE DETAILED FINDINGS G IVEN, WE DIRECT THE A.O TO ALLOW THE IMPUGNED WEIGHTED DEDUCTION. GROUND NO. 3 IS AC CORDINGLY ALLOWED. 35.WE DIRECT ACCORDINGLY. GROUND NO. 6 IS ALLOWED. 48. AS NO DISTINGUISHING FACT HAS BEEN CONSIDERED BY TH E LOWER AUTHORITIES, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL (SUPRA), WE DIRECT THE A.O. TO ALLOW WEIGHTED DEDUCTION. GROUND NO. 11 IS ALLOWED. 49. GROUND NO. 12 RELATES TO THE DISALLOWANCE ON ACCOUN T 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 T HE ASSESSEE IS THE ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 44 FLAGSHIP COMPANY OF SUN PHARMA GROUP AND IT IS CARR YING OUT THE RESEARCH AND DEVELOPMENT WORK FOR THE ENTIRE SUN PHARMA GROU P WHICH INCLUDES RESEARCH & DEVELOPMENT OF THE PRODUCTS WHICH ARE MA NUFACTURED BY A FIRM CALLED SUN PHARMACEUTICALS INDUSTRIES (SPI) HAVING MANUFACTURING UNITS AT JAMMU AND DADRA. THE A.O. FOUND THAT THE ASSESSEE I S HOLDING 97.5% SHARE OF THE SAID FIRM SPI. 51. ON PERUSAL OF THE RETURNS OF INCOME FILED BY THE PA RTNERSHIP FIRM SPI, 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. T HAT 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 F IRM IS EXEMPT FROM TAX. THEREFORE, THE ASSESSEE HAS DEBITED ALL THE EXPENDI TURE IN ITS BOOKS OF ACCOUNTS WHEREAS THE PARTNERSHIP FIRM HAS NOT DEBIT ED 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 ALL OWED 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 ASS ESSEE 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 ASSESSEE. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 45 54. THE CONTENTIONS OF THE ASSESSEE WERE DISMISSED BY T HE 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 H AS SUBSTANTIAL INTEREST. FURTHER, THE SUBSTANTIAL PROFIT RECEIVED FROM THE F IRM SPI IS EXEMPT, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD R&D ACTIVITY COULD NOT BE SAID TO HAVE BEEN INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE A.O. C ONCLUDED BY DISALLOWING RS. 5,3,02,95,255/-. 55. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 56. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT IN EARLIER YEARS ALSO, SIMILAR REASONING WERE GIVEN FOR DISALL OWING CERTAIN EXPENDITURES ON THE ALLEGATION THAT THE EXPENDITURE S WERE INCURRED ON BEHALF OF SUN PHARMACEUTICALS INDUSTRIES. THE LD. C OUNSEL POINTED OUT THAT THE TRIBUNAL HAD DELETED THOSE ADDITIONS WHILE DECI DING THE APPEAL FOR A.Y. 2002-03, 2003-04 & 2004-05. 57. PER CONTRA, THE LD. D.R. SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 58. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FAC TS IN ISSUE BEFORE US. THERE IS NO DISPUTE THAT THE ASSESSEE DID INCURRED EXPENDITURE UNDER THE HEAD RESEARCH & DEVELOPMENT ACTIVITY. THE ONLY DI SPUTE RELATES TO THE ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 46 ALLEGATION THAT PART OF SUCH EXPENDITURE BELONG TO THE BUSINESS ACTIVITY OF THE PARTNERSHIP FIRM SPI. THERE IS ALSO NO DENYING BY THE LOWER AUTHORITIES THAT THE ENTIRE RESEARCH AND DEVELOPMENT ACTIVITIES ARE DONE BY THE APPELLANT COMPANY ONLY BEING THE FLAGSHIP COMPANY O F SUN PHARMA GROUP. IN OUR UNDERSTANDING OF THE FACTS, THE APPELLANT CO MPANY HAD ASSISTED THE PARTNERSHIP FIRM IN CARRYING ON ITS BUSINESS BY USI NG ITS NETWORK FOR MARKETING THE PHARMACEUTICALS PRODUCTS SUCCESSIVELY . SINCE THE ASSESSEE IS HOLDING 97.5% OF SHARE IN THE PARTNERSHIP FIRM, SPI IT BECOMES THE DUTY OF THE ASSESSEE TO PROMOTE THE BUSINESS OF THE PARTNER SHIP FIRM IN THE CAPACITY OF THE MAJORITY STAKE HOLDERS. INCIDENTALL Y, THE REVENUE AUTHORITIES HAVE NOT BROUGHT ANYTHING ON RECORD WHICH COULD SUG GEST THAT THE EXPENDITURES HAVE NOT BEEN INCURRED FOR THE PURPOSE S OF BUSINESS. BE IT ASSESSEES BUSINESS OR THE BUSINESS OF THE PARTNERS HIP FIRM WHERE THE ASSESSEE IS A MAJORITY STAKE HOLDER. IN OUR UNDERST ANDING OF THE LAW AN EXPENDITURE IS ALLOWABLE IF IT IS INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. FINDING THAT THE ASSESSEE IS HAVING 97.5% SHARE IN THE PROFITS OF THE FIRM SPI, WE DO NOT FIND ANY MERIT IN THE DI SALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE FIRST APPELLATE AUTHORITY . WE, ACCORDINGLY, DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 5,30,29,5255 /-. GROUND NO. 12 IS ACCORDINGLY ALLOWED. 59. GROUND NO. 13 RELATES TO THE CLAIM OF DEDUCTION OF REMUNERATION RECEIVED FROM PARTNERSHIP FIRM FOR DETERMINATION OF BOOK PRO FITS U/S. 115JB OF THE ACT. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 47 60. THIS ISSUE WAS ALSO INVOLVED IN THE CASE OF THE APP ELLANT IN A.Y. 2008-09 WHEREIN THE CLAIM OF DEDUCTION OF REMUNERATION RECE IVED FROM THE PARTNERSHIP FIRM SPI FOR THE DETERMINATION OF BOOK PROFITS U/S. 115JB WAS DENIED BY THE REVENUE AUTHORITIES. WE FIND THAT WHE N THE MATTER WAS AGITATED BEFORE THE TRIBUNAL, THE TRIBUNAL ALSO DEC LINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THE RELEVANT FINDIN GS OF THE TRIBUNAL READ AS UNDER:- 110. WE HAVE CONSIDERED THE FACTS, CIRCUMSTANCES, RELEVANT PROVISIONS AND RIVAL SUBMISSIONS,. A HARMONIOUS READING OF THE PROVISION S OF SECTION 115JB OF THE ACT REFLECTS THAT IN THE CASE OF A COMPANY SUBJECT TO T HE PROVISIONS OF SECTION 115JB OF THE ACT HAS TO PREPARE P&L STATEMENT IN ACCORDAN CE WITH THE PROVISIONS OF PART (II) OF SCHEDULE (VI) OF THE COMPANIES ACT. 111. THE RELEVANT CLAUSE OF EXPLANATION 1 READS AS UNDER:- EXPLANATION [1]- FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT MEANS THE [PROFIT] AS SHOWN IN THE [STATEMENT OF PROFIT AND LOSS] FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED BY (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH [SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR [***] SECTION 11 OR SECTION 12 APPLY; OR] 112. AND AS REDUCED BY :- (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVI SIONS OF [SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREO F) OR [***] SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE [STATEMENT OF PROFIT AND LOSS]; OR 113. AND SECTION 10(2A) OF THE ACT SAYS THAT IN THE CASE OF A PERSON BEING A PARTNER OF A FIRM WHICH IS SEPARATELY ASSESSED AS S UCH HIS SHARE IN THE TOTAL ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 48 INCOME OF THE FIRM WILL NOT FORM PART OF TOTAL INCO ME. EXPLANATION TO SECTION 10(2A) PROVIDES THAT THE SHARE OF A PARTNER IN THE TOTAL INCOME OF A FIRM SEPARATELY ASSESSED AS SUCH SHALL, NOTWITHSTANDING, ANYTHING CONTAINED IN ANY OTHER LAW, TO BE AN AMOUNT WHICH BEARS TO THE TOTAL INCOME OF THE FIRM, THE SAME PROPORTION AS THE AMOUNT OF A SHARE IN THE PROFITS OF THE FIRM IN ACCORDANCE WITH THE PARTNERS DEED BEARS TO SUCH PROFITS. 114. THUS, IT IS CLEAR THAT FIRSTLY THE PROFIT AN D LOSS ACCOUNT OF THE COMPANY SHOULD BE IN ACCORDANCE WITH THE RELEVANT PROVISION S OF THE COMPANIES ACT. SECONDLY, ONLY SPECIFIED ITEMS HAVE TO BE ADDED BAC K AS PROVIDED IN VARIOUS CLAUSES TO EXPLANATION 1 AND REDUCED BY SPECIFIC IT EMS PROVIDED THEREON. THE ONLY SPECIFIC AMOUNT OF INCOME WHICH HAS TO BE REDUCED I S THE INCOME TO WHICH PROVISIONS OF SECTION 10, 11 OR 12 APPLY, IF ANY SU CH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT AND SECTION 10(2A) DEFINES SUCH INCOME AS THE SHARE OF PROFIT OF A PARTNER FROM THE PARTNERSHIP FIRM, THE LANGUAGE IS CLEAR AND UNAMBIGUOUS AND NEEDS NO OTHER INSERTION OR DELETIO N. THE REMUNERATION TO PARTNER MAY HAVE THE COLOR OF APPROPRIATION OF PROF IT OF A PARTNERSHIP FIRM AS HELD BY THE HONBLE SUPREME COURT AND HONBLE HIGH COURTS IN VARIOUS DECISIONS RELIED UPON BY THE LD. SENIOR COUNSEL BUT AS MENTIO NED ELSEWHERE, SECTION 115JB IS A COMPLETE CODE IN ITSELF. THEREFORE, IF THE REM UNERATION IS CREDITED BY THE APPELLANT COMPANY IN ITS PROFIT AND LOSS ACCOUNT TH EN THE SAME COULD BE REDUCED IT SPECIFICALLY PROVIDED UNDER THE EXPLANATION TO S ECTION 115JB OF THE ACT WHICH WE FIND MISSING FROM THE RELEVANT PROVISIONS. WE, T HEREFORE, DO NOT FIND ANY MERIT IN THIS CLAIM OF THE ASSESSEE AND ACCORDINGLY WE CO NFIRM THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. GROUND NO. 9 IS DISMISSED. 61. AS NO DISTINGUISHING FACTS EMERGE FROM THE ORDER OF THE AUTHORITIES BELOW, RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL (SUPRA), WE DECLINE TO INTERFERE. GROUND NO. 13 IS ACCORDINGLY DISMISSED. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 49 62. GROUND NO. 14 RELATES TO THE ADDITION OF SELLING AN D DISTRIBUTION EXPENSES INCURRED ON BEHALF OF SPI DISALLOWED U/S. 14A. 63. WHILE CONFIRMING THE ADDITION MADE BY THE A.O., T HE LD. CIT(A). AT PARA 18.3 OF HIS ORDER OBSERVED THAT THIS ISSUE WAS ALSO INVOLVED IN A.Y. 2008-09. THE LD. CIT(A) FURTHER OBSERVED THAT THIS ISSUE WAS ALSO CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1193 & 1 287/AHD/2008. 64. ON FINDING SIMILARITY OF FACTS, WE HAVE NO HESITATI ON IN FOLLOWING THE DECISION OF THE TRIBUNAL GIVEN IN EARLIER YEAR AND THE RELEVANT FINDINGS READ AS UNDER:- 153. A SIMILAR ISSUE WAS CONSIDERED BY THE BENC H IN A.Y. 2007-08 IN ITA NO. 2076 & 2067/AHD/2013 AND THE RELEVANT FINDINGS READ AS UNDER:- 52. COMING TO THE DISALLOWANCE MADE U/S. 14A BY THE FIRST APPELLATE AUTHORITY, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENT IN THE PARTNERSHIP FIRM. IT I S ALSO TRUE THAT THE ASSESSEE WAS ON A CONTRACTUAL OBLIGATION TO LOOK AFTER THE M ARKETING AND DISTRIBUTION ACTIVITIES OF THE FIRM SPI AS PER THE PARTNERSHIP D EED READ ALONG WITH THE SUPPLEMENTARY DEED TO EARN REMUNERATION FROM THE PA RTNERSHIP FIRM. HOWEVER, IT IS EQUALLY TRUE THAT A REASONABLE DISALLOWANCE OF E XPENDITURE SHOULD BE MADE FOR EARNING THE EXEMPT INCOME SO FAR AS THE SHARE OF PR OFIT FROM THE PARTNERSHIP FIRM SPI IS CONCERNED. WE ARE CONSCIOUS ABOUT THE FACT T HAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION BUT AT THE SAME TI ME FOR THE COMPUTATION OF DISALLOWANCE FOR ADMINISTRATIVE EXPENDITURES, THE F ORMULA GIVEN UNDER RULE 8D IS THE MOST APPROPRIATE METHOD FOR THE COMPUTATION OF THE DISALLOWANCE. WE ACCORDINGLY DIRECT THE A.O. TO COMPUTE THE DISALLOW ANCE SO FAR AS ADMINISTRATIVE EXPENDITURES ARE CONCERNED AS PER RULE 8D OF THE IT AT RULES R.W.S. 14A OF THE ACT. WE ACCORDINGLY SET ASIDE THE DISALLOWANCE OF RS. 27 ,55,18,783/- MADE BY THE FIRST APPELLATE AUTHORITY AND DIRECT THE A.O. TO RE-COMPU TE THE DISALLOWANCE AS DIRECTED HEREINABOVE. GROUND NO. 8 IS ALLOWED IN PA RT FOR STATISTICAL PURPOSE. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 50 154. THE ONLY DISTINGUISHING FACT FOR THE YEAR UNDER CONSIDERATION IS THAT RULE 8D IN FACT IS APPLICABLE FOR THE YEAR UNDER CONSIDE RATION AND, THEREFORE, WE DIRECT THE A.O. TO COMPUTE THE DISALLOWANCE FOR ADMINISTRA TIVE EXPENDITURE AS PER THE FORMULA GIVEN UNDER RULE 8D. GROUND NO. 17 IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSE. 65. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL (SUPRA), WE DIRECT THE A.O. ACCORDINGLY. GROUND NO. 14 IS TREATED AS ALLOW ED FOR STATISTICAL PURPOSE. 66. GROUND NO. 15 RELATES TO THE ADDITION ON ACCOUNT OF RE-CHARACTERIZING REMUNERATION AS ALLEGED ROYALTY INCOME FROM SPI FOR USE OF TRADE MARK, BRAND AND TECHNOLOGY AMOUNTING TO RS. 57,49,50,297/ -. 67. TAKING A LEAF OUT OF THE ORDER OF THE LD. CIT(A) FO R A.Y. 208-09, THE FIRST APPELLATE AUTHORITY ISSUED AN ENHANCEMENT NOTICE FO R TREATING THE REMUNERATION OF RS. 5,74,950297/- AS CONSIDERATION RECEIVED FOR USE OF TRADE MARK/BRAND AND ACCORDINGLY DIRECTED THE A.O. TO CONSIDER THE SAME UNDER NORMAL PROVISIONS OF THE ACT. 68. ASSESSEE VEHEMENTLY CHALLENGED THE ENHANCEMENT NOTI CE BUT WITHOUT ANY SUCCESS. 69. THE FIRST APPELLATE AUTHORITY HELD AS UNDER:- 18.9. SINCE THE FACTS ARE IDENTICAL IN THIS YEAR AL SO, I RESPECTFULLY FOLLOWING THE ORDER OF CIT(A)-IV, AHMEDABAD AND ALSO CONSIDERING THE FACTUAL AND LEGAL POSITION ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 51 IN THIS REGARD, HOLD THAT THE APPELLANT COMPANY HAS RECEIVED A SUM OF RS.57,49,50,297/- FROM SPI AS CONSIDERATION FOR PERMITTING USE OF ALL PRESENT AND FUTURE TRADEMARK/BRANDS, IN THE ENTIRE WORLD, F OR THE PERIOD OF 5 YEARS AND FOR PROVIDING OTHER MANAGERIAL SERVICES. THUS, THE SO CALLED 'REMUNERATION' AS CLAIMED BY THE APPELLANT DOES NOT REPRESENT THE REM UNERATION AT ALL. FURTHER, THIS AMOUNT HAS NO CORRELATION WITH THE EXPENSES INCURRE D BY THE APPELLANT ON BEHALF OF THE SPI AND HENCE NO SET OFF CAN BE GIVEN AGAINS T THE EXPENSES DISALLOWED OUT OF SELLING AND DISTRIBUTION EXPENSES AND SALARY AND ALLOWANCE TO THE FIELD STAFF. ACCORDINGLY, I FURTHER HOLD THAT THE SO CALLED 'REM UNERATION' RECEIVED BY THE APPELLANT FROM SPI REPRESENT THE TAXABLE INCOME OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION AND ACCORDINGLY THE AMOUNT OF R S.57,49,50,297/- IS TREATED AS THE INCOME OF THE APPELLANT FOR THE YEAR. SINCE THE ASSESSING OFFICER HAS ADDED THE REMUNERATION ONLY FOR THE PURPOSES OF COM PUTATION OF BOOK PROFIT, HE IS DIRECTED TO INCLUDE THE SAME UNDER REGULAR PR OVISIONS OF THE INCOME-TAX ACT RESULTING INTO ENHANCEMENT OF TOTAL INCOME BY R S.57,49,50,297/-. THE INCOME IS ACCORDINGLY ENHANCED. SINCE THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF INCOME M THIS REGARD, THE PENALTY PROCEEDINGS U/S. 271(L)(C) ARE HEREBY INITIATED IN RESPECT OF A SUM OF RS.57,49,50 ,297/-. 70. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 71. THE LD. SENIOR COUNSEL DREW OUR ATTENTION TO THE DE CISION OF THE TRIBUNAL FOR A.Y. 2008-09 AND POINTED OUT THAT THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. WE ALSO FIND THAT THE FIRST APPELLATE AUTHORITY HAS FOLLOWED THE FINDINGS OF HIS PREDECES SOR GIVEN IN A.Y. 2008- 09. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 52 72. THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ITA NO S. 3297 & 3420/AHD/2014 VIDE GROUND NO. 13 OF THAT APPEAL AND THE RELEVANT FINDINGS OF THE TRIBUNAL READ AS UNDER:- 128. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION T O THE FACTS IN ISSUE. IT IS AN UNDISPUTED FACT THAT THE REMUNERATION HAS BEEN PAID BY THE FIRM SPI AS PER THE PARTNERSHIP DEED READ WITH SUPPLEMENTARY PARTNERSHI P DEED. IT IS ALSO AN UNDISPUTED FACT THAT THE SAID PARTNERSHIP DEED READ WITH SUPPLEMENTARY DEED HAS NOT BEEN TREATED AS SHAM OR UNLAWFUL DEEDS. THE FIRST APPELLATE AUTHORITY EMPHASIZED ON THE ENTIRE TRANSACTION AS A DEVICE OF TAX EVASION. THE PARTNERSHIP FIRM SPI HAS CLAIMED RS. 40.12 CRORES AS REMUNERATI ON TO THE ASSESSEE COMPANY BUT AT THE SAME TIME, IT DID NOT CLAIM THE SAME AS DEDUCTION AS IT WAS NOT PAID TO A WHOLE TIME PARTNER AS PROVIDED IN THE ACT. IT IS TRUE THAT THE APPELLANT COMPANY HAS ALSO NOT OFFERED THE SAME FOR TAXATION TAKING A SHELTER BEHIND THE PROVISIONS OF SECTION 28(V) OF THE ACT. NO DOUBT, THE PROFITS OF THE PARTNERSHIP FIRM ARE EXEMPT U/S. 80IB(4) OF THE ACT. EVEN, IF THE PARTNE RSHIP FIRM HAD NOT CHARGED RS. 40.12 CRORES AS REMUNERATION TO THE APPELLANT COMPA NY, THE PROFITS OF THE FIRM WOULD HAVE INCREASED BY THIS AMOUNT. SINCE THE ASSE SSEE IS HOLDING 97.5% SHARE IN THE PROFITS OF THE PARTNERSHIP FIRM, THIS AMOUNT OF 40.12 CRORES WOULD HAVE OTHERWISE COME TO THE ASSESSEE IN THE FIRM OF SHARE OF PROFIT WHICH AGAIN IS EXEMPT FROM TAXATION U/S. 10(2A) OF THE ACT. THEREF ORE, IN OUR CONSIDERED OPINION, THE ALLEGATION THAT IT IS A CASE OF TAX EV ASION IS ILL-FOUNDED. THE FACT OF THE MATTER IS THAT SUCH PAYMENTS WERE NEVER RE-CHAR ACTERIZED AS ROYALTY IN EARLIER ASSESSMENT YEARS AND THE ACTION OF THE FIRST APPELL ATE AUTHORITY IN THE YEAR UNDER CONSIDERATION IS NOTHING BUT BASED UPON ASSUMPTIONS AND PRESUMPTIONS. NO ADDITION CAN BE SUSTAINED WHICH ARE BASED UPON ASSU MPTIONS, SURMISES OR CONJECTURES. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE AMOUNT OF RS. 40.12 CRORES RE-CH ARACTERIZED BY THE FIRST APPELLATE AUTHORITY. GROUND NO. 13 IS ALLOWED. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 53 73. AS NO DISTINGUISHING FACT EMERGE FROM THE ORDERS OF THE AUTHORITIES BELOW, RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL (SUPRA), WE DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 57,49,50,297/-. GROUND NO. 15 IS ALLOWED. 74. WITH GROUND NO. 16, THE ASSESSEE OBJECTS TO THE SET OFF OF BUSINESS LOSS AGAINST PROFITS OF THE ELIGIBLE UNDERTAKING BEFORE ALLOWING DEDUCTION U/S. 10B OF THE ACT. 75. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E A.O. NOTICED THAT THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S. 10B OF THE ACT AT RS. 126.79 CRORES IN RESPECT OF INCOME OF PANOLI AS WELL AS HA LOL EXPORT ORIENTED UNITS. THE A.O. FURTHER NOTICED THAT THERE WAS A BUSINESS LOS OF RS. 56.59 CRORES AND, THEREFORE, WAS OF THE OPINION THAT THE DEDUCTI ON SHOULD HAVE BEEN CLAIMED AFTER SETTING OFF OF THE BUSINESS LOSS RESU LTING INTO TOTAL INCOME AT RS. 70.20 CRORES. THE A.O. ACCORDINGLY REDUCED THE CLAIM OF DEDUCTION U/S. 10B OF THE ACT. 76. THE ASSESSEE AGITATED THE MATTER BEFORE THE LD. CIT (A) BUT WITHOUT ANY SUCCESS. 77. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT THE IMPUGNED DISPUTE HAS NOW BEEN SETTLED BY THE HONBL E SUPREME COURT IN THE CASE OF YOKOGAWA INDIA LTD IN CIVIL APPEALS NO. 8498 OF 2013 77 TAXMANN.COM 41. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 54 78. THE LD. D.R. COULD NOT BRING ANY DISTINGUISHING DEC ISION IN FAVOUR OF THE REVENUE. 79. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THE DISPUTE RELATES TO WHETHER THE LOSS SHOU LD BE SET OFF FIRST BEFORE ALLOWING THE CLAIM OF DEDUCTION U/S. 10B OF THE ACT . WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. HONBLE SUPREME COUR T IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) HAD THE OCCASION TO CON SIDER A SIMILAR DISPUTE AFTER THE AMENDMENT OF SECTION 10A BY FINANCE ACT 2 000 WITH EFFECT FROM 01.04.2001 AND THE HONBLE SUPREME COURT HELD AS UN DER:- FROM A READING OF THE RELEVANT PROVISIONS OF SECTIO N 1OA IT IS MORE THAN CLEAR THAT THE DEDUCTIONS CONTEMPLATED THEREIN IS QUA THE ELIG IBLE UNDERTAKING OF AN ASSESSEE STANDING ON ITS OWN AND WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON- ELIGIBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. THE BENEFIT OF DEDUCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANT LY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CONTEMPORANEOUS CIRCU LAR NO. 794. DATED 9-8- 2000. [PARA 16] IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIRS T PROVISO TO SECTIONS 10A(1); 10A(1A) AND 10A(4) THAT THE UNIT THAT IS CONTEMPLAT ED FOR GRANT OF BENEFIT OF DEDUCTION IS THE ELIGIBLE UNDERTAKING AND THAT IS A LSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO.794 DATED 9-8-2000) UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUC TION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HAS TO BE M ADE INDEPENDENTLY AND, THEREFORE. IMMEDIATELY AFTER THE STAGE OF DETERMINA TION OF ITS PROFITS AND GAINS. AT THAT STAGE THE AGGREGATE OF THE INCOMES UNDER OT HER HEADS AND THE PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 WOULD BE PREMATURE FOR APPLICATION. THE DEDUCTIONS UNDER SEC TION 10A THEREFORE WOULD, BE PRIOR TO THE COMMENCEMENT OF THE EXERCISE TO BE UND ERTAKEN UNDER CHAPTER VI ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 55 FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FR OM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION TOTAL INC OME OF THE ASSESSEE' IN SECTION 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO UNFOLDED BY THE PROVISIONS OF SECTION 10A THE AFORE SAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION 'TOTAL INCOME OF TH E ASSESSEE' IN SECTION 10A AS 'TOTAL INCOME OF THE UNDERTAKING'. [PARA 17] FOR THE AFORESAID REASONS IT IS HELD THAT THOUGH SE CTION 10A, AS AMENDED, IS A PROVISION FOR DEDUCTION, THE STAGE OF DEDUCTION WOU LD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDE R CHAPTER IV AND NOT AT THE STAGE OF COMPUTATION OF THE TOTAL INCOME UNDER CHAP TER VI. [PARA 18] 80. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT (SUPRA), WE DIRECT THE A.O. TO ALLOW THE CLAIM OF DEDUCTION U/S. 10B OF THE ACT. BEFORE SETTING OFF OF BUSINESS LOSS OF RS. 56.59 CR ORES. GROUND NO. 16 IS ALLOWED. 81. GROUND NO.L7 RELATES TO THE NON ENHANCEMENT OF DEDU CTION U/S.10B ON ACCOUNT OF R&D EXPENSES ALLOCATED TO SUN PHARMA IND USTRIES. 82. VIDE GROUND NO. 12 OF THE PRESENT APPEAL, WE HAVE D IRECTED THE A.O. TO DELETE THE DISALLOWANCE OF EXPENDITURE OF THE APPEL LANT COMPANY ALLEGED TO HAVE BEEN INCURRED FOR PRODUCTS MANUFACTURED BY SUN PHARMA INDUSTRIES DEBITED IN THE BOOKS OF THE APPELLANT. SINCE THE DI SALLOWANCE HAVE BEEN DIRECTED TO BE DELETED. THE PRESENT GRIEVANCE BECOM ES INFRUCTUOUS. GROUND NO. 17 IS DISMISSED AS INFRUCTUOUS. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 56 83. GROUND NO. 18 RELATES TO THE NON CONSIDERATION OF U N-REALIZED EXPORT PROCEEDS FOR COMPUTATION OF DEDUCTION U/S. 10B OF T HE ACT. 84. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE COMPANY COULD NOT REALIZE THE SALES PROCEEDS IN FOR EIGN EXCHANGE BEFORE THE PRESCRIBED DATE AMOUNTING TO RS. 2,71,420/- AND RS. 9,39,896/- RESPECTIVELY IN RESPECT OF PANOLI AND HALOL UNITS. ACCORDINGLY, ON EXPORT SALE PROCEEDS WHICH WAS NOT REALIZED, THE A.O. MADE DISA LLOWANCE OF DEDUCTION U/S. 10B AMOUNTING TO RS. 4,46,557/-. 85. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT( A) WHO WHILE DISMISSING THE GRIEVANCE OF THE ASSESSEE AT PARA 19.21 OF HIS ORDER OBSERVED THAT UNDER THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CA SE, CIT-IV, AHMEDABAD HAS ALSO CONFIRMED THE DISALLOWANCE VIDE PARA21.3 O F THE ORDER IN A.Y. 2008-09. 86. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DREW OU R ATTENTION TO THE ORDER OF THE TRIBUNAL IN A.Y. 2008-09 AND POINTED OUT THA T THE TRIBUNAL HAS RESTORED THE MATTER TO THE FILES OF THE A.O. WITH A DIRECTION TO APPLY THE PROVISIONS OF SECTION 115(13) OF THE ACT AND DECIDE THE ISSUE AFRESH. 87. WE HAVE CONSIDERED THE FACTS IN ISSUE CAREFULLY. TH E TRIBUNAL IN ITS ORDER FOR A.Y. 2008-09 IN ITA NOS. 3297 AND 3420/AHD/2014 HAD CONSIDERED A SIMILAR ISSUE VIDE GROUND NO. 14 OF THAT APPEAL AND HELD AS UNDER:- ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 57 138. AN IDENTICAL ISSUE WAS CONSIDERED BY THE BE NCH IN ASSESSEES OWN CASE IN ITA NO. 1558/AHD/2006 QUA GROUND NO. 3 OF THAT APPE AL. THE RELEVANT FINDINGS READ AS UNDER:- GROUND NO. 3 RELATES TO THE REDUCTION OF UNREALIZED EXPORT PROCEEDS OF RS. 638.82 LACS FROM EXPORT TURNOVER FOR THE PURPOSE OF DEDUCT ION U/S. 80HHC. 6. THE LD. COUNSEL STATED THAT AN IDENTICAL ISSUE H AS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2001-02 WH EREIN THE ISSUE HAS BEEN SET ASIDE TO THE FILES OF THE A.O. THE LD. COUNSEL PRAY ED FOR A SIMILAR DIRECTION SHOULD BE GIVEN FOR THE YEAR UNDER CONSIDERATION ALSO. TH E LD. D.R. DID NOT OBJECT TO THIS. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY T HE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2001-02 AT PARA 6 ON PAGE 12 OF ITA N OS. 3289 & 3434/AHD/2003 AND AT PARA 6.3 THE TRIBUNAL HAD DIRECTED THE A.O T O APPLY THE PROVISIONS OF SECTION 155(13) OF THE ACT AND DECIDE THE ISSUE AFR ESH. 7. RESPECTFULLY, FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH, WE DIRECT THE A.O. ACCORDINGLY. GROUND NO. 3 IS TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. 139.RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE A.O. ACCORDINGLY. GROUND NO. 18 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 88. WE DIRECT ACCORDINGLY. 89. GROUND NO. 19 RELATES TO THE DISALLOWANCE OF EXPEND ITURE ON REPAIRS OF RS. 8,64,686/- AND TREATING THEM AS CAPITAL EXPENDITURE . 90. DURING THE ASSESSMENT PROCEEDINGS, THE A.O NOTICED THAT THE APPELLANT COMPANY HAS CLAIMED REPAIRING EXPENSES OF RS. 27,81 ,584/-. THE A.O. AFTER VERIFYING THE DETAILS FORMED A BELIEF THAT THE SAME ARE OF CAPITAL IN NATURE AND AFTER ALLOWING DEPRECIATION MADE NET ADDITION O F RS. 22,28,930/-. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 58 91. BEFORE THE LD. CIT(A), THE ASSESSEE CLAIMED THAT T HE EXPENDITURE WAS INCURRED DUE TO NORMAL WEAR AND TEAR OF THE MACHINE RY AND HENCE THE SAME WAS REVENUE IN NATURE. AFTER CONSIDERING THE F ACTS AND THE SUBMISSIONS AND AFTER VERIFYING/EXAMINING THE RELA TED INVOICES/BILLS, THE LD. CIT(A) FOUND THAT ONLY EXPENDITURE TOTALING TO RS. 13,74,725/- ARE OF REVENUE IN NATURE AND DIRECTED THE A.O. TO TREAT T HE SAME AS SUCH AND CONFIRMED THE BALANCE AS CAPITAL EXPENDITURE. 92. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. 93. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW. WE FIND THAT FOLLOWING EXPENSES WERE INCURRED BY THE ASSESS EE (A)KIRAN PUMPS FOR RS. 1,59,000/-:- THE ASSESSEE HA S PURCHASED LUTZ PUMP FLP SINGLE MOTOR WHICH IS CAPABLE OF FUNCTIONING IN DEPENDENTLY WITHOUT ASSISTANCE OF ANY OTHER PLANT & MACHINERY. THEREFOR E, IT CAN BE SAID THAT A NEW CAPITAL ASSETS HAS COME INTO EXISTENCE AND HENC E THE EXPENDITURE IS TREATED AS CAPITAL EXPENDITURE. (B) MARTIN CHRIST GMBH OF RS. 5,53,436/-:- THE APPE LLANT HAS PURCHASED FREEZE DRYER BETA WITH ACCESSORIES FOR THE PURPOSES OF DRYING PROCESS OF ORGANIC SOLVENTS. THE ASSESSEE HAS ALSO INCURRED LA BOUR CHARGES ON INSTALLATION OF THIS DRYER. THE FACTUAL MATRIX SHOW S THAT NEW CAPITAL ASSETS ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 59 HAVE COME INTO EXISTENCE AND, THEREFORE, THE PURCHA SE COST AND LABOUR CHARGES ARE TREATED AS CAPITAL EXPENDITURE. (C) COMMUNICA AIDS OF RS. 1,52,250/-:- THE APPELLAN T HAS PURCHASED TATA MAKE IOX 160 EPBAX SYSTEM WITH 16 TRUNK LINES AND 4 E &M CIRCUITS. THE CONFIGURATION OF THIS MACHINE ITSELF SHOWS THAT IT IS CAPABLE OF BEING USED AS INDEPENDENTLY AND A NEW ASSET HAS COME INTO EXISTEN CE THE SAME HAS TO BE TREATED AS CAPITAL EXPENDITURE. (D) PURCHASES FROM MUTECH ENGINEERING & USHAIL SALE S AND SERVICES AMOUNTING TO RS. 2,33,734/-, RS. 9,35,550/- AND RS. 2,05,441/-:- THE APPELLANT COMPANY HAS PURCHASED COPPER BUSBAR 1 MTR FOR 3000 KVA TRANSFORMER AND 2 PANEL BOARDS FOR MCC (MOTOR CONTR L CENTRE). THE DETAILS SHOW THAT THESE ITEMS HAVE BEEN PURCHASED TO REPLAC E THE ELECTRICAL ITEMS DAMAGED IN FIRE. ALL THESE ITEMS FORM PART OF 3000 KVA TRANSFORMER AND HAS NO USED INDEPENDENTLY. THEREFORE, THE SAME HAVE TO BE TREATED AS REVENUE IN NATURE. 94. WE, ACCORDINGLY, DIRECT THE A.O. TO TREAT RS. 13,74 ,725/- AS REVENUE EXPENDITURE AND THE BALANCE IS CONFIRMED AS CAPITAL EXPENDITURE. THE A.O. IS DIRECTED TO RE-COMPUTE THE CLAIM OF DEPRECIATION AS PER THE PROVISIONS OF THE LAW. GROUND NO. 19 IS PARTLY ALLOWED. 95. GROUND NO. 20 RELATES TO THE DISALLOWANCE MADE U/S. 14A READ WITH RULE 8D AMOUNTING TO RS. 4,63,12,589/-. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 60 96. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E A.O. NOTICED THAT THE ASSESSEE COMPANY HAS INCURRED INTEREST EXPENDITURE OF RS. 2,77,23,736/- DURING THE YEAR UNDER CONSIDERATION. THE A.O. FURTH ER FOUND THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 1034.31 CR ORES FROM THE PARTNERSHIP FIRM. THE A.O. WAS OF THE FIRM BELIEF T HAT DISALLOWANCE U/S. 14A READ WITH RULE 8D HAS TO BE MADE. THE A.O. ACCORDIN GLY COMPUTED THE DISALLOWANCE OF RS. 40,34,830/- OUT OF THE INTERES T EXPENDITURE AND FURTHER DISALLOWED A SUM OF RS. 4,22,77,759/- BEING 0.5% OF AVERAGE VALUE OF INVESTMENT RESULTING INTO EXEMPT INCOME. 97. WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT(A). THE LD. CIT(A) OBSERVED THAT A SIMILAR DISALLOWANCE WAS ALSO MADE IN A.Y. 2 008-09 AND THE LD. CIT(A)-IV, AHMEDABAD VIDE PARA 25.2 TO 25.3 OF ORDE R DATED 14.10.2014 HAS CONFIRMED THE DISALLOWANCE MADE BY THE A.O. TAKING A LEAF OUT OF THE FINDINGS GIVEN IN A.Y. 2008-09, THE LD. CIT(A) CONF IRMED THE ACTION OF THE A.O. WITH A DIRECTION TO EXCLUDE THE REMUNERATION O F RS. 57,49,50,297/- WHICH HAS BEEN SEPARATELY TAXED. 98. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DREW OU R ATTENTION TO THE DECISION OF THE TRIBUNAL FOR A.Y. 2008-09 AND POINT ED OUT THAT THE TRIBUNAL HAS SET ASIDE THE MATTER TO THE FILES OF THE A.O. W ITH CERTAIN DIRECTIONS AND PRAYED FOR A SIMILAR DIRECTION. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 61 99. AFTER CONSIDERING THE FACTS IN ISSUE BEFORE US. WE FIND THAT A SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN ITA NOS. 3297 AND 34 20/AHD/2014 VIDE GROUND NO. 17 OF THAT APPEAL. THE RELEVANT FINDINGS READ AS UNDER:- 153. A SIMILAR ISSUE WAS CONSIDERED BY THE BENCH IN A.Y. 2007-08 IN ITA NO. 2076 & 2067/AHD/2013 AND THE RELEVANT FINDINGS READ AS UNDER:- 52. COMING TO THE DISALLOWANCE MADE U/S. 14A BY THE FIRST APPELLATE AUTHORITY, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENT IN THE PARTNERSHIP FIRM. IT I S ALSO TRUE THAT THE ASSESSEE WAS ON A CONTRACTUAL OBLIGATION TO LOOK AFTER THE M ARKETING AND DISTRIBUTION ACTIVITIES OF THE FIRM SPI AS PER THE PARTNERSHIP D EED READ ALONG WITH THE SUPPLEMENTARY DEED TO EARN REMUNERATION FROM THE PA RTNERSHIP FIRM. HOWEVER, IT IS EQUALLY TRUE THAT A REASONABLE DISALLOWANCE OF E XPENDITURE SHOULD BE MADE FOR EARNING THE EXEMPT INCOME SO FAR AS THE SHARE OF PR OFIT FROM THE PARTNERSHIP FIRM SPI IS CONCERNED. WE ARE CONSCIOUS ABOUT THE FACT T HAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION BUT AT THE SAME TI ME FOR THE COMPUTATION OF DISALLOWANCE FOR ADMINISTRATIVE EXPENDITURES, THE F ORMULA GIVEN UNDER RULE 8D IS THE MOST APPROPRIATE METHOD FOR THE COMPUTATION OF THE DISALLOWANCE. WE ACCORDINGLY DIRECT THE A.O. TO COMPUTE THE DISALLOW ANCE SO FAR AS ADMINISTRATIVE EXPENDITURES ARE CONCERNED AS PER RULE 8D OF THE IT AT RULES R.W.S. 14A OF THE ACT. WE ACCORDINGLY SET ASIDE THE DISALLOWANCE OF RS. 27 ,55,18,783/- MADE BY THE FIRST APPELLATE AUTHORITY AND DIRECT THE A.O. TO RE-COMPU TE THE DISALLOWANCE AS DIRECTED HEREINABOVE. GROUND NO. 8 IS ALLOWED IN PA RT FOR STATISTICAL PURPOSE. 154. THE ONLY DISTINGUISHING FACT FOR THE YEAR UNDER CONSIDERATION IS THAT RULE 8D IN FACT IS APPLICABLE FOR THE YEAR UNDER CONSIDE RATION AND, THEREFORE, WE DIRECT THE A.O. TO COMPUTE THE DISALLOWANCE FOR ADMINISTRA TIVE EXPENDITURE AS PER THE FORMULA GIVEN UNDER RULE 8D. GROUND NO. 17 IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSE. 100. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL (SUPRA), WE DIRECT ACCORDINGLY. GROUND NO. 20 IS TREATED AS ALLOWED FO R STATISTICAL PURPOSE. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 62 101. GROUND NO. 21 RELATES TO THE ADDITION OF EXPENSES D ISALLOWED U/S. 14A FOR COMPUTING BOOK PROFIT U/S. 115JB AMOUNTING TO RS. 4,63,12,589/-. 102. THE A.O. WHILE MAKING DISALLOWANCE U/S. 14A READ WI TH RULE 8D ALSO CONSIDERED THE DISALLOWANCE FOR THE COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT. 103. THE LD. CIT(A) TAKING A LEAF OUT OF THE DECISION OF HIS PREDECESSOR GIVEN IN A.Y. 2008-09 CONFIRMED THE ACTION OF THE A .O. 104. THE TRIBUNAL IN A.Y. 2008-09 IN ITA NO. 3297 & 3420 /AHD/2014 HAD THE OCCASION TO CONSIDER THE DISPUTE VIDE GROUND NO . 10 OF THAT APPEAL AND HELD AS UNDER:- 119. WE HAVE CONSIDERED THE ORDERS OF THE AUTHOR ITIES BELOW AND HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDER OF THE HONBL E JURISDICTIONAL HIGH COURT IN THE CASE OF ALEMBIC LTD. THE HONBLE HIGH COURT WAS SEIZED, INTERALIA, WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW:- (III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT WAS JUSTIFIED IN HOLDING THAT ADJUSTMENT MADE ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE ACT IN COMPUTATION OF BOOK PROFIT U/ S 115JB OF THE ACT IS NOT AS PER LAW WITHOUT APPRECIATING THAT THE AMOUNT DISALLOWAB LE UNDER SECTION 14A IS COVERED UNDER CLAUSE (F) OF EXPLANATION TO SECTION 115JB(2) AND, THUS, SAID AMOUNT HAS TO BE ADDED BACK WHILE COMPUTING AMOUNT OF BOOK PROFITS? 120. RELEVANT FINDINGS OF THE HONBLE HIGH COUR T READ AS UNDER:- 7. SO FAR AS ISSUE NOS. (III) AND (IV) ARE CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION OF THIS COURT I N THE CASE OF COMMISSIONER OF INCOME-TAX-1 V. GUJARAT STATE FERTILIZERS & CHEMICA LS LTD., REPORTED IN (2013) ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 63 358 ITR 323 (GUJARAT) WHERE THIS COURT HAS HELD IN PARAGRAPH NOS. 6 TO 6.5 THIS COURT HAS OBSERVED AS UNDER: '6. SO FAR AS THE FOURTH QUESTION IS CONCERNED, IT P ERTAINS TO ADDITION OF RS.1,14,43,0407- UNDER SECTION 115JB OF THE ACT BEI NG THE EXPENDITURE ESTIMATED ON EARNING OF DIVIDEND INCOME UNDER SECTION 14A OF THE ACT. 6.1 THE ASSESSING OFFICER ON REFERRING TO THE SAID PROVISION OF SECTION 115JB(2) OF THE ACT ADDED THE SAID AMOUNT CONSIDERING THAT ANY AMOUNT OF EXPENDITURE RELATABLE TO THE INCOME EXEMPTED UNDER SECTION 10 O F THE ACT SHALL NEED TO BE ADDED IN THE PROFIT SHOWN IN THE PROFIT AND LOSS A CCOUNT. 6.2 WHEN THE MATTER TRAVELLED TO THE CIT (APPEALS), SINCE IT DELETED THE ADDITION OF RS. 1,14,43,040/- WHILE DECIDING THE QUESTION NO . 1, IT CONSEQUENTLY DELETED SUCH ADDITION UNDER SECTION 115JB OF THE ACT ON THE GROUND THAT THIS WOULD NOT SERVE ANY PURPOSE. 6.3 THE TRIBUNAL DECIDED THE SAID ISSUE AS FOLLOWS: 94. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT SIMILAR ISSUE WAS RAISED BY REVENUE AS PER GROUND NO.3 ABOVE IN RESPE CT OF REGULAR ASSESSMENT OF INCOME AND WHILE DECIDING THAT GROUND, WE HAVE ALRE ADY UPHELD THAT DISALLOWANCE OF RS.5 LAKH IN RESPECT OF ADMINISTRAT IVE EXPENSES WILL MEET THE ENDS OF JUSTICE AND NO DISALLOWANCE IS CALLED FOR IN RES PECT OF INTEREST EXPENDITURE. HENCE, FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115 JB OF THE ACT ALSO, WE HOLD ACCORDINGLY AND CONFIRM THE ADDITION OF RS.5 LAKH. THIS GROUND OF REVENUE'S APPEAL IS PARTLY ALLOWED.' 6.4 AS RIGHTLY HELD BY BOTH, THE CIT (APPEALS) AND THE TRIBUNAL, THIS ISSUE HAS A DIRECT CORRELATION WITH THE FIRST QUESTION. IT WAS ARGUED BY THE REVENUE THAT WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF TH E ACT, THE DISALLOWANCE OF INTEREST EXPENDITURE ON EXEMPT INCOME WAS WRONGLY N EGATIVE BY BOTH THE AUTHORITIES ON THE GROUND THAT IT WAS NOT THE LIABI LITY FOR EXPENSES, BUT A LIABILITY RELATING TO ASSETS. 6.5 WE FIND NO FAULT IN THE APPROACH ADOPTED BY BOT H THE AUTHORITIES. THE ADDITION UNDER SECTION 115JB OF THE ACT OF A SUM OF RS. 1,14,43,040/- WHEN WAS MADE AS AN EXPENDITURE ESTIMATED ON EARNING OF DIVI DEND INCOME UNDER SECTION 14A OF THE ACT, WITHOUT REITERATING THE RATIONALE O F CONFIRMING DELETION OF SUCH AMOUNT AS HAS BEEN ELABORATELY DONE AT THE TIME OF DECIDING QUESTION NO. 1, THIS DELETION REQUIRES TO BE CONFIRMED. 8. TAKING INTO CONSIDERATION THE EVIDENCE ON RECORD AND CONSIDERING THE DIVISION OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX-1 VS. GUJARAT STATE FERTILIZERS & CHEMICALS LTD. (SUPRA), WE ARE OF THE OPINION THAT ISSUE NOS. (III) AND (IV) REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSES SEE AND AGAINST THE REVENUE. IN ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 64 THAT VIEW OF THE MATTER, WE ANSWER QUESTIONS (III) AND (IV) REFERRED TO US IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE APPEAL OF REVENUE IS DISMISSED. 121. RESPECTFULLY FOLLOWING THE DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT (SUPRA), WE DIRECT THE A.O. TO DELETE THE ADDITION OF EXPENSE DISALLOWED U/S. 14A FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. 105. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL (SUPRA), WE DIRECT THE A.O. TO DELETE THE ADDITION OF EXPENSES DISALLO WED U/S. 14A FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. OUR VI EW IS ALSO FORTIFIED BY THE DECISION OF THE SPECIAL BENCH IN THE CASE OF VI REET INVESTMENT (P) LTD. 82 TAXMANN.COM 415. GROUND NO. 21 IS ACCORDINGLY AL LOWED. 106. GROUND NO. 22 RELATES TO THE INITIATION OF PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. THIS GRIEVANCE IS PREMATURE A ND IS ACCORDINGLY DISMISSED. 107. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 1663/AHD/2016 REVENUES APPEAL 108. GROUND NO. 1 RELATES TO THE PART RELIEF GIVEN IN RE SPECT OF 0% OFCD BY 1% ON ACCOUNT OF COUNTRY AND FOREIGN EXCHANGE RISK. 109. THIS ISSUE HAS BEEN DECIDED BY US IN ASSESSEES APP EAL VIDE GROUND NO. 4 (SUPRA). FOR OUR DETAILED DISCUSSION THEREIN, GROUND NO. 1 IS DISMISSED. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 65 110. GROUND NO. 2 RELATES TO THE REDUCTION ON ACCOUNT OF ALP FOR CORPORATE GUARANTEE FEES FROM 2.95% TO 2%. 111. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEES APPEAL VIDE GROUND NO. 5. FOR OUR DETAIL ED DISCUSSION THEREIN, WE DIRECT ACCORDINGLY. GROUND NO. 2 IS TREATED AS ALLO WED FOR STATISTICAL PURPOSE. 112. GROUND NO. 3 RELATES TO THE DELETION OF THE ADDITIO N ON ACCOUNT OF PRICE DIFFERENCE ON SALES MADE TO SUN PHARMA INDUST RIES. 113. A.O. HAS MADE THE ADDITION OF RS. 28169944/- ON ACC OUNT OF SALES EFFECTS BY THE APPELLANT TO SPI AT LOWER PRICE. WHI LE DECIDING THIS ISSUE, THE LD. CIT(A) HAS FOLLOWED THE ORDER OF THE TRIBUNAL I N ASSESSEES OWN CASE WHEREIN THE SIMILAR ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE. 114. SINCE, THE FIRST APPELLATE AUTHORITY HAS FOLLOWED T HE ORDER OF THE TRIBUNAL IN ITA NOS. 1589/AHD/2011 AND 2430/AHD/200 9, THEREFORE, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). GROUND NO. 3 IS ACCORDINGLY DISMISSED. 115. GROUND NO. 4 RELATES TO THE DELETION OF THE ADDITIO N BY HOLDING THE CAPITAL EXPENDITURE AS REVENUE EXPENDITURE. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 66 116. THIS ISSUE HAS BEEN DECIDED BY US IN ASSESSEES APP EAL VIDE GROUND NO. 19 (SUPRA). FOR OUR DETAILED DISCUSSION THEREIN , GROUND NO. 4 IS DISMISSED. 117. GROUND NO. 5 RELATES TO DELETION OF THE DISALLOWANC E OF LUNCH AND REFRESHMENT AND BROKERAGE PAID FOR PROPERTY AGENTS FOR ASSISTING AND HELPING R&D UNIT EMPLOYEES U/S. 35(2AB). 118. THE DENIAL OF THE WEIGHTED DEDUCTION U/S. 35(2AB) O F THE ACT HAS BEEN ALLOWED BY THE LD. CIT(A) BY FOLLOWING THE FIN DINGS OF HIS PREDECESSOR GIVEN FOR A.Y. 2008-09. THE ORDER OF THE LD. CIT(A) FOR A.Y. 2008-09 HAS BEEN CONFIRMED BY THE TRIBUNAL IN ITA NO. 3420/AHD/2014. THE RELEVANT FINDINGS READ AS UNDER:- 159. AT THE VERY OUTSET, THE LD. SENIOR COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THESE ISSUES HAVE BEEN CONSIDERED AND D ECIDED BY THE BENCH IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN ITA NO. 2067/AHD/2013. WE FIND FORCE IN THE CONTENTION OF THE LD. SENIOR COUNSEL. THE CO -ORDINATE BENCH IN ITA NO. 2067/AHD/2013 HAS DECIDED THE IMPUGNED ISSUES AS UN DER:- 69. GROUND NO.1 RELATES TO THE DELETION OF THE DIS ALLOWANCE OF RS. 67,620/- CLAIMED AS WEIGHTED DEDUCTION U/S. 35(2AB) OF THE A CT ON GIFT EXPENSES INCURRED FOR R & D EMPLOYEES. 70. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE AND AGAINST THE REVENUE BY THE CO-ORDINATE BENCH IN ITA NO. 1592/AHD/2011 Q UA GROUND NO. 2 OF THAT APPEAL. THE RELEVANT PART READS AS UNDER:- GROUND NO. 2 RELATES TO THE WEIGHTED DEDUCTION U/S. 35(2AB) ON ACCOUNT OF GIFTS TO R & D EMPLOYEES ON OCCASION OF MARRIAGE . 44. WE FIND THAT AN IDENTICAL ISSUES HAS BEEN DECID ED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN THE CASE OF CLA RIES LIFESCIENCES LTD. 112 ITD 307 (AHD.) WHICH DECISION HAS BEEN FOLLOWED BY THE LD. CIT(A). THE SAID DECISION OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE HONBLE ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 67 JURISDICTIONAL HIGH COURT IN TAX APPEAL NO. 383 OF 2008. NOW, THAT THE DECISION OF THE FIRST APPELLATE AUTHORITY IS WELL S UPPORTED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT. NO INTERF ERENCE IS CALLED FOR. GROUND NO. 2 IS DISMISSED. 71. RESPECTFULLY FOLLOWING THE SAME, GROUND NO. 1 IS DISMISSED. 72. GROUND NO. 2 RELATES TO THE DELETION OF THE DISALLOWANCE OF RS. 42,46,000/- CLAIMED U/S. 35(2AB) OF THE ACT ON REPAIRS AND MUNI CIPAL TAXES PAID FOR BUILDING UTILIZED FOR R & D ACTIVITY. 73. AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO- ORDINATE BENCH IN ITA NO. 1592/AHD/2011 QUA GROUND NOS. 2 & 3 OF THAT APPEAL. IN GROUND NO. 1 OF THE PRESENT APPEAL, WE HAVE EXTRACTED THE RELEVANT PART OF THE DECISION OF THE CO- ORDINATE BENCH. FOR THE REASONS GIVEN THEREIN, GROU ND NO. 2 IS ALSO DISMISSED. 74. GROUND NO. 3 RELATES TO THE DELETION OF THE DISALLOWANCE OF RS. 7,91,222/- CLAIMED U/S. 35(2AB) OF THE ACT INCURRED FOR LUNCH, REFRESHMENT AND BROKERAGE PAID FOR PROPERTY USED BY R & D UNIT EMPLOYEES. 119. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA), GROUND NO. 5 IS DISMISSED. 120. GROUND NO. 6 RELATES TO THE DELETION OF THE ADDITIO N ON ACCOUNT OF FOREIGN EXCHANGE GAIN. 121. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THERE WAS A FOREIGN EXCHANGE FLUCTUATION GAIN OF RS. 8.84 CRORES. THE ASSESSEE CONTENDED THAT THIS GAIN WAS PERTAINING TO THE ASSE TS/LIABILITIES BEING PART OF FIXED CAPITAL AND THEREFORE WAS NOT LIABLE TO BE TAXED. THE A.O. WAS NOT CONVINCED WITH THE CONTENTION OF THE ASSESSEE AND T REATED THE GAIN OF RS. 8.84 CRORES AS TAXABLE INCOME. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 68 122. WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT(A), THE LD. CIT(A) FOUND THAT AN IDENTICAL ISSUE WAS DECIDED BY HIS PR EDECESSOR IN FAVOUR OF THE ASSESSEE IN A.Y. 2008-09. TAKING A LEAF OUT OF THE FINDINGS OF HIS PREDECESSOR, THE LD. CIT(A) DELETED THE ADDITION. W E FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ITA NOS. 20 76 & 2067/AHD/2013 FOR A.Y. 2007-08 IN ASSESSEES OWN CASE. THE RELEVANT F INDINGS OF THE TRIBUNAL READ AS UNDER:- 61. IN OUR CONSIDERED OPINION PROFITS ACCRUED TO THE ASSESSEE IS NOT IN THE COURSE OF ANY TRADING ACTIVITY BUT ON ACCOUNT OF APPRECIAT ION ON ACCOUNT OF HEDGING IN FOREX EVEN IF THE SAME HAS BEEN HELD FOR INVESTMENT PURPOSES. THEREFORE, SUCH GAINS HAVE TO BE TREATED AS CAPITAL RECEIPT. FOR T HIS PROPOSITION, WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE HIGH COURT OF BOMB AY IN THE CASE OF HOMI MEHTA SONS PVT. LTD. 222 ITR 528. WE FIND THAT THE FORWARD CONTRACT IN RESPECT OF INVESTMENT IN CARACO AND OFCD IN GLOBAL ARE ON CAPI TAL ACCOUNT AND ANY PROFITS RECEIVED BY ASSESSEE ON CANCELLATION OF FORWARD CON TRACT WOULD NOT CHANGE ITS CHARACTER SAME BEING IN CONNECTION WITH A CAPITAL A SSET AND, THEREFORE, HAS TO BE TREATED AS CAPITAL RECEIPT. FOR THIS PROPOSITION, W E DRAW SUPPORT FROM THE DECISION GIVEN IN THE CASE OF MAHINDRA & MAHINDRA L TD. 5 SOT 217 (MUM.). 62. CONSIDERING THE FACTS IN TOTALITY IN THE LIGH T OF THE NATURE OF CONTRACT ENTERED INTO BY THE ASSESSEE, WE DO NOT FIND ANY MERIT IN T HE FINDINGS OF THE FIRST APPELLATE AUTHORITY. WE SET ASIDE THE SAME AND DIRE CT FOR THE DELETION OF THE ADDITION OF RS. 14,33,80,289/-. GROUND NO. 9 IS ALL OWED. 123. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA), WE DECLINE TO INTERFERE. GROUND NO. 6 IS DISMISSED. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 69 124. GROUND NO. 7 RELATES TO THE DELETION OF THE DISALLO WANCE OF RS. 20,97,048/- WITH RESPECT TO SECTION 80IA(4) OF THE ACT. 125. THE A.O. MADE THE IMPUGNED DISALLOWANCE FOLLOWING T HE ACTION OF HIS PREDECESSOR FOR A.Y. 2008-09 AND THE LD. CIT(A) DEL ETED THE DISALLOWANCE FOLLOWING THE DECISION OF HIS PREDECESSOR FOR A.Y. 2008-09. WE FIND THAT THE TRIBUNAL IN ITA NOS. 3297 & 3420/AHD/2014 HAS CONFI RMED THE FINDINGS OF THE FIRST APPELLATE AUTHORITY VIDE GROUND NO. 8 OF THAT APPEAL. THE RELEVANT FINDINGS READ AS UNDER:- 178. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION T O THE ORDERS OF THE AUTHORITIES BELOW AND THE REASONS GIVEN BY THE A.O. AS MENTIONE D ELSEWHERE. THE DETAILS OF YEAR-WISE PROFITS GENERATED IN CAPTIVE POWER PLANT ARE AS UNDER:- STATEMENT OF WORKING OF DEDUCTION U/S 801A PANOLI CPP 08-09 PANOLI CPP 07-08 PANOLI CPP 06-07 PANOLI CPP 05-06 PANOLI CPP 04-05 A PROFIT BEFORE TAX AS PER PROFIT & LOSS A/C 32,79,235 (9,53,471) 82,89,195 75,41,568 43,51,772 B) ADD: ITEMS DISALLOWED / CONSIDERED SEPARATELY DEPRECIATION 18,57,315 18,57,315 18,57,315 18,57,315 13,95,524 DISALLOWANCE U/S 43 B-BONUS 20,144 DISALLOWANCE U/S 43 B-EARNED LEAVE - - 1,950 - - TOTAL B 18,77,459 18,57,315 18,59,265 18,57,315 13,95,524 ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 70 C) LESS: ITEMS ALLOWABLE/ EXEMPT DEPRECIATION ALLOWABLE 7,92,565 9,19,853 10,92,925 22,68,015 1,12,34,536 TOTAL C 7,92,565 9,19,853 10,92,925 22,68,015 1,12,34,536 NET PROFIT 43,64,129 (16,009) 90,55,535 71,30,868 (54,87,240) PREVIOUS YEAR PROFIT / (LOSS) (16,009) AMOUNT CLAIMED 43,48,120 - 90,55,535 179. WE FURTHER FIND THAT THE FIRST APPELLATE AU THORITY HAS CLEARLY DISTINGUISHED THE FACTS OF THE CASE IN HAND QUA THE FACTS IN THE CASE OF CHETTINAD CEMENT CORPORATION LTD. RELIED UPON BY THE A.O. SINCE THE GROUNDS ON WHICH THE A.O. DENIED THE CLAIM HAVE BEEN DEMOLISHED BY THE FACTUA L AND LEGAL ASPECT RELATING TO THE FACTS IN ISSUE, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). GROUND NO. 8 IS ACCORDINGLY DISMISSED. 126. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA), WE DECLINE TO INTERFERE. GROUND NO. 7 IS DISMISSED. 127. GROUND NO. 8 RELATES TO THE DELETION OF THE PROVISI ON OF WEALTH TAX FOR COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT. 128. WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE A CT, THE A.O. WAS OF THE OPINION THAT THE WEALTH TAX IS OF SAME NATUR E AS INCOME TAX. TAKING A ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 71 LEAF OUT OF HIS PREDECESSOR IN A.Y. 2008-09, THE A. O. CONSIDERED WEALTH TAX FOR THE COMPUTATION OF BOOK PROFIT U/S. 115JB OF TH E ACT. 129. THE LD. CIT(A) FOLLOWED THE DECISION OF HIS PREDECE SSOR FOR A.Y. 2008- 09 AND DIRECTED THE A.O. TO EXCLUDE THE PROVISION O F WEALTH TAX FROM THE COMPUTATION OF BOOK PROFIT U/S. 115JB. WE FIND THAT THE ORDER OF THE LD. CIT(A) WAS CONFIRMED BY THE TRIBUNAL IN ITA NOS. 32 97 & 3420/AHD/2014 VIDE GROUND NO. 5 OF THAT APPEAL. THE RELEVANT FIND INGS READ AS UNDER:- 167. THERE IS NO DISPUTE THAT WEALTH TAX ACT, 195 7 IMPOSES THE CHARGE OF WEALTH TAX ON THE NET WEALTH OF EVERY INDIVIDUAL, HUF/COMPANY AS ON THE VALUATION DATE. WHILE INCOME-TAX IS TAX ON INCOME. BOTH INCOME-TAX AND WEALTH TAX ARE GOVERNED BY SEPARATE AND DISTINCT LEGISLATE D LAWS. IT IS TRUE THAT UNDER THE EXPLANATION TO SECTION 115JB OF THE ACT, CERTAI N ITEMS HAVE BEEN MENTIONED WHICH HAVE TO BE ADDED BACK FOR THE COMPUTATION OF BOOK PROFIT. IT IS EQUALLY TRUE THAT THERE IS NO MENTION OF WEALTH TAX PROVISION. T HE PROVISIONS OF THE ACT ARE CLEAR AND UNAMBIGUOUS AND REQUIRE NO ADDITION/DELET ION OF ANY ITEMS OTHER THAN THOSE MENTIONED IN THE PROVISIONS. WE, THEREFORE, D O NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). GROUND NO. 5 IS DISMISS ED. 130. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL (SUPRA), GROUND NO. 8 IS DISMISSED. 131. GROUND NO. 9 RELATES TO THE DELETION OF THE ADDITIO N ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE INCURRED ON BEHALF OF I TS SISTER CONCERN. 132. A PERUSAL OF THE ORDER OF THE CO-ORDINATE BENCH FOR EARLIER YEARS SHOWS THAT THE BENCH HAS CONSIDERED SIMILAR ISSUE I N ITA NOS. 3297 & ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 72 3420/AHD/2014 AND HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE TRIBUNAL WHILE DECIDING TH IS ISSUE HAD FOLLOWED THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NOS. 1589 & 1592/AHD/2011 WHEREIN THE DECISION GIVEN IN ITA N O. 2430/AHD/2009 WAS FOLLOWED. THE RELEVANT PART READS AS UNDER;- 25. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A .O FOUND THAT THE ASSESSEE HAS SOLD RAW MATERIALS/PRODUCTS TO SISTER CONCERN AT LO WER RATES. ASSESSEE WAS ASKED TO EXPLAIN THE TRANSACTIONS WITH ITS SISTER CONCERN , SUN PHARMACEUTICAL INDUSTRIES. ASSESSEE FILED A DETAILED REPLY GIVING EXHAUSTIVE L IST OF ALL THE RAW MATERIALS/PRODUCTS BEING SOLD TO ITS SISTER CONCERN VIS--VIS THIRD PARTIES ALONG WITH THE RATES AND QUANTITY SOLD. THE A.O WAS OF TH E FIRM BELIEF THAT THE ASSESSEE HAS BEEN SELLING PRODUCTS TO ITS SISTER CONCERN AT A RATE LOWER THAN SOLD TO THIRD PARTIES. THE A.O OBSERVED THAT SINCE THE ASSESSEE I S HOLDING 95% SHARE IN ITS SISTER CONCERN AND THE SISTER CONCERN IS CLAIMING 100% DED UCTION U/S. 80IB ON ITS PROFITS. THEREFORE, IN EFFECT THE ASSESSEE IS INDULGED IN DI VERSION OF PROFIT AND AVOIDANCE OF TAX BY SUPPRESSING THE SALE PRICE. THE A.O ACCOR DINGLY MADE AN ADDITION OF RS. 21,25,278/-. 26. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT (A) BUT WITHOUT ANY SUCCESS. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN EARLIER ASSESSMENT YE ARS IN ITA NO. 1193/AHD/2008 AND HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL QUA GROUN D NO. 12 AS UNDER:- GROUND NO. 12 RELATES TO THE ADDITION MADE ON ACCOU NT OF SALES TO SUN PHARMACEUTICAL INDUSTRIES. 83. THIS ISSUE HAS BEEN CONSIDERED BY THE A.O AT PA RA 12 OF HIS ORDER. A SURVEY U/S. 133A OF THE ACT WAS CONDUCTED ON THE ASSESSEE AS WELL AS ITS SISTER CONCERN SUN PHARMACEUTICAL INDUSTRIES WHICH IS A PARTNERSHI P FIRM. DURING THE COURSE OF THE SURVEY OPERATIONS, IT WAS NOTICED THAT THE ASSE SSEE HAS BEEN SELLING CERTAIN ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 73 RAW MATERIALS /PRODUCTS TO ITS SISTER CONCERN AT A LOWER RATE THAN WAS SOLD TO THIRD PARTIES AND THEREBY DIVERTING THE PROFITS. AS SESSEE WAS ASKED TO EXPLAIN ITS STAND. ASSESSEE FILED A DETAILED REPLY GIVING DETAI LS OF RAW MATERIALS/PRODUCTS BEING SOLD TO ITS SISTER CONCERN AND TO THIRD PARTI ES ALONG WITH RATES AND QUANTITY SOLD. ON ANALYSIS OF THE REPLY, THE A.O FOUND THAT THERE WERE CERTAIN RAW MATERIALS/PRODUCTS WHICH WERE BEING SOLD TO THE SIS TER CONCERN AT A LOWER RATE THAN SOLD TO THIRD PARTIES. THE A.O PROCEEDED BY CO MPUTING AN ADDITION OF RS. 19,49,930/- ON ACCOUNT OF UNREASONABLY LOW SELLING PRICE ON SALE OF RAW MATERIALS/PRODUCTS SOLD TO ITS SISTER CONCERN. 84. AGGRIEVED BY THIS, ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 85. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT IT IS NOT CLEAR UNDER WHICH PROVISION OF THE ACT ADDITIONS HAVE BEEN MADE . FURTHER THE COUNSEL STATED THAT NO 80IB DEDUCTION HAS BEEN CLAIMED BY IT WHICH COULD JUSTIFY THE ACTION OF THE A.O. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTE D THE FINDINGS OF THE REVENUE AUTHORITIES. 87. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. WE AGREE WITH THE CONTENTION OF THE LD. COUN SEL THAT NO SPECIFIC SECTION HAS BEEN MENTIONED IN THE ASSESSMENT ORDER FOR MAKI NG THE IMPUGNED ADDITIONS. A PERUSAL OF THE ASSESSMENT ORDER SHOW THAT THE ADD ITIONS HAVE BEEN MADE BY TREATING THE TRANSACTIONS U/S. 40A(2) OF THE ACT. I N THAT CASE, WE HAVE TO STATE THAT PROVISIONS OF SECTION 40A(2) ARE APPLICABLE ON LY IN RESPECT OF PAYMENTS MADE TO RELATED PARTIES MENTIONED THEREIN. BUT THE TRANS ACTION BEFORE US IS OF CREDIT IN NATURE I.E. SALES SO PROVISIONS OF SECTION 40A(2) A RE NOT AT ALL APPLICABLE. 27. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRI BUNAL (SUPRA), WE DIRECT THE A.O TO DELETE THE ADDITION OF RS. 21,25,278/-. GROUND N O. 9 IS ALLOWED. 124. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 2,75,07,070/-. GROUND NO. 11 IS ALLOWED. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 74 125. GROUND NO. 12 RELATES TO THE DISALLOWANCE O F RS. 62,15,78,070/- MADE U/S. 37 OF EXPENSES INCURRED ON BEHALF OF SUN PHARMACEUT ICAL INDUSTRIES. 126 AN IDENTICAL ISSUE WAS CONSIDERED BY THE BEN CH IN ASSESSEES OWN CASE IN ITA NO. 1589/AHD/2011 AND ITA NO. 2430/AHD/2009. TH E RELEVANT PART OF ITA NO. 2430/AHD/2009 HAS BEEN EXTRACTED IN GROUND NO. 11 OF THIS APPEAL. FOR SIMILAR REASONS, WE DIRECT THE A.O. TO DELETE THE D ISALLOWANCE OF RS. 62,15,78,070/-. 133. RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO-ORDI NATE BENCH (SUPRA), WE DECLINE TO INTERFERE. GROUND NO. 9 IS DISMISSED. 134. GROUND NO. 10 RELATES TO THE RESTRICTION OF THE DIS ALLOWANCE OF R&D EXPENSES AFTER EXCLUDING EXPORT TURNOVER FOR THE PU RPOSE OF COMPUTING ALLOCATION OF R&D EXPENSES. 135. THE IMPUGNED ISSUE HAS BEEN CONSIDERED AT LENGTH IN ASSESSEES APPEAL VIDE GROUND NOS. 9 TO 11 (SUPRA). FOR OUR DE TAILED DISCUSSION THEREIN, WE DO NOT FIND ANY REASON TO INTERFERE. GROUND NO. 10 IS DISMISSED. 136. GROUND NO. 11 RELATES TO THE DIRECTION TO ALLOW WEI GHTED DEDUCTION ON THE R&D EXPENSES OF RS. 1124.60 LAKH. 137. SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEES APPEAL (SUPRA) VIDE GROUND NOS. 9 TO 11 OF THAT APP EAL. FOR OUR DETAILED DISCUSSION THEREIN, GROUND NO. 11 IS DISMISSED. ITA NOS. 166 6 & 1663/AHD/2016 . A.Y. 2009-10 75 138. GROUND NO. 12 IS OF GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDICATION. 139. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 08 - 09- 20 17 SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 08/09/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD