M/s Aurobindo Pharma Limited, Hyderabad V. Asst.CIT, Central Cir-2, Hyderabad

ITA 1866/HYD/2012

• Counselvise Citation: 186622514 RSA 2012
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 28-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Keywords: Transfer pricing; International transaction; Source of fund; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1866/HYD/2012 ASSESSMENT YEAR : 2008-09 M/S AUROBINDO PHARMA LTD. HYDERABAD. PAN: AABCA7366H VS. ASST. COMMISSIONER OF INCOME- TAX OFFICER, CENTRAL CIRCLE 2, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.V.S.S. PRASAD REVENUE BY : SHRI P. SOMA SEKHAR REDDY DATE OF HEARING : 07-11-2013 DATE OF PRONOUNCEMENT : 29-11-2013 O R D E R PER B. RAMAKOTAIAH, A.M.: THIS IS AN APPEAL BY ASSESSEE DIRECTED AGAINST THE ORDERS OF THE AO U/S 143(3) READ WITH SECTION 92CA(3)/144C(13 ) OF THE ACT, DATED 03-03-2012. ASSESSEE HAS RAISED 7 GROUNDS IN ITS APPEAL. 2. BRIEFLY STATED, ASSESSEE IS ENGAGED IN MANUFACTU RE AND SALE OF BULK DRUGS/ APIS UNDER THE PHARMACEUTICAL PRODUCTS . FOR THE AY 2008-09, ASSESSEE DECLARED INCOME OF 175.20 CRORES ON 26-09-2008 AND A REVISED RETURN WAS FILED DECLARING THE INCOME OF RS. 128.42 CRORES. THE RETURN WAS PROCESSED AND WAS REFERRED T O TPO U/S 92CA(3). AO ALSO PROPOSED CERTAIN DISALLOWANCES WIT H RESPECT TO WEIGHTED DEDUCTION ON R&D EXPENSES, AMORTIZATION OF FCCB EXPENSES ETC. ASSESSEE OBJECTED TO THE DRAFT ORDER BEFORE THE DRP AND THE DRP, HYDERABAD IN ITS DIRECTIONS DATED 03-0 8-2012 2 ITA NO. 1866/HYD/2012 M/S AUROBINDO PHARMA LTD. CONSIDERED SOME OF THE ISSUES AND DIRECTED THE AO T O COMPLETE ORDERS ACCORDINGLY. ACCORDINGLY, ORDERS HAVE BEEN PASSED BY THE AO ON WHICH ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE LEARNED COUNSEL AND LEARNED DR IN DETAIL. WE HAVE ALSO PERUSED THE PAPER BOOKS PLACED ON RECO RD ALONG WITH DETAILED WRITTEN SUBMISSIONS AND COPIES OF THE ORDE RS RELIED UPON. GROUNDS ARE CONSIDERED AS UNDER: 4. GROUND NO. 2 IS WITH REFERENCE TO TRANSFER PRICI NG ADJUSTMENT MADE BY THE TPO ON THE LOANS GIVEN TO THE SUBSIDIAR IES. 4.1 ASSESSEE HAS GIVEN LOANS TO ITS SUBSIDIARIES, W HICH ARE AS UNDER: S.NO. NAME OF THE COMPANY INTEREST RECEIVED (INR) (A) AUROBINDO PHARMA USA 7,50,84,371 (B) AB FARMO INDUSTRIA FARMACEUTICA LTDA 11,06,386 (C) HELIX HEALTH CARE BV(GBP) 2,02,68,356 (D) HELIX HEALTH CARE (USD) 81,37,025 (E) HELIX HEALTH CARE B.V. (EURO) 1,31,20,314 (F) AUROBINDO TONGLING (DATAONG) 1,30,73,318 (G) AUROBINDO (DATAONG BIOPHARMA) 8,07,83,440 TOTAL INTEREST RECEIVED 19,84,99,892 ASSESSEE PROVIDED LOANS TO THE AES AFTER OBTAINING REQUISITE APPROVAL FROM RBI AND INTEREST HAS BEEN CHARGED ON THE BASIS OF LIBOR PLUS SPECIFIC PERCENTAGE POINTS, WHICH WERE APPROVED BY THE RBI. ASSESSEE WAS PAID 1% OR 2% MORE THAN THE LIBOR % ON MOST OF THE AMOUNTS ADVANCED. AS PER THE DETAILS FILED IN THE P APER BOOK AT PAGE 91, THE AMOUNTS ADVANCED TO AUROBINDO (DATAONG) BIO -PHARMA CO. LTD., ON THE BASIS OF LIBOR + 2.1% AND MOSTLY THE S OURCE STATED TO BE THE LOANS FROM EXIM BANK, FEDERAL BANK, INTERNAL AC CRUALS AND FCCB, WHICH ARE INTEREST FREE. FOR THE LOANS ADVANCED TO AUROBINDO PHARMA INDUSTRIA FARMACEUTICA LTDA, THE RATE OF INTEREST R ECEIVED WAS 13.60% AND LOANS ADVANCED IN AY 2003-04, ON WHICH, LIBOR + 3.25% INTEREST WAS PAID AND THE LOAN TO AUROBINDO PHAMRA USA., INC . LIBOR + 1% 3 ITA NO. 1866/HYD/2012 M/S AUROBINDO PHARMA LTD. OR 2% WAS PAID AND THE SOURCE OF FUNDS ARE FCCB FUN DS, WHICH ARE INTEREST FREE FOR HELIX HEALTHCARE B.V. THE AMOUNTS ADVANCED ARE OUT OF FCCB WHICH WERE STATED TO BE INTEREST FREE, AGAI N AT LIBOR + 1% OR 2%. THE TPO HAS CONSIDERED THE CORPORATE BONDS R ATE FOR CONSIDERING ADJUSTMENT UNDER THE TP PROVISIONS WHER EAS IT WAS SUBMITTED BY ASSESSEE THAT PRIME LENDING RATE IN VA RIOUS COUNTRIES HAVE VARIED IN THE YEAR AND SUBMITTED THE DATA AS U NDER: COUNTRY YEAR PRIME LENDING RATE CHINA 2007-08 6.8 USA 2007-08 4.0 BRAZIL 2007-08 12.0 NETHERLANDS 2007-08 3.85 HOWEVER, THE TPO ADOPTED CORPORATE BOND RATE OF 17. 26% TO MAKE ADJUSTMENT AND THE DRP APPROVED PARTLY. ASSESSEE FI LED AN APPLICATION U/S 154 TO DIRECT THE AO TO PASS ORDER AS PER THE OBSERVATIONS IN THEIR ORDER WHEREIN DRP HAS AGREED WITH THE OPINION OF LIBOR + % IS CORRECT METHODOLOGY FOR BENCHMARKIN G VALUATION OF CURRENT YEAR LOANS. DRP FURTHER OBSERVED THAT CHARG ING OF CORPORATE BONDS RATE IS INAPPROPRIATE IN THE FACT PATTERN OF ASSESSEE COMPANY. APPLICATION U/S 154 FILED BY ASSESSEE WAS NOT ACTED UPON. THE AO, DETERMINED THE ADJUSTMENT AT RS. 33,14,39,480/-. 4.2 THE LEARNED COUNSEL REITERATED THE FACTS AS STA TED BEFORE THE AUTHORITIES AND ALSO RELIED ON VARIOUS CASE LAW ON THE ISSUE TO SUPPORT THAT LIBOR + SPECIFIC PERCENTAGE POINTS CAN BE CONS IDERED AS ALP, WHEN ASSESSEE IS PAYING NO INTEREST AND CHARGING IN TEREST ON THE LOANS PROVIDED. 4.3 WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE F ACTS. WITH REFERENCE TO PRINCIPLE THAT LABOR + SPECIFIC PERCEN TAGE POINTS IS TO BE CONSIDERED AS ALP, THERE IS NO DISPUTE AS THIS ISSU E WAS DECIDED BY VARIOUS COORDINATE BENCHES OF TRIBUNAL IN VARIOUS C ASES. FEW OF THEM ARE AS UNDER: 4 ITA NO. 1866/HYD/2012 M/S AUROBINDO PHARMA LTD. 4.4 IN THE CASE OF SIVA INDUSTRIES & HOLDINGS LTD. 46 SOT 112 (CHENNAI) HELD THAT 'A PERUSAL OF THE ORDER OF THE TPO CLEARLY SHOWS TH AT THE ASSESSEE HAD RAISED THE FUNDS BY WAY OF ISSUANCE OF 0 PER CENT OPTIONAL CONVERTIBLE PREFERENTIAL SHARES. THUS IT IS NOTICED THAT THE FU NDS RAISED BY THE ASSESSEE COMPANY FOR GIVING THE LOAN TO INDIA TELECOM HOLDIN GS LTD., MAURITIUS, WHICH IS ITS ASSOCIATED ENTERPRISES AND WHICH IS THE SUBS IDIARY COMPANY, IS OUT OF THE FUNDS OF THE ASSESSEE COMPANY. IT IS NOT BORROW ED FUNDS. THE ASSESSEE HAS GIVEN THE LOAN TO THE ASSOCIATED ENTERPRISES IN US DOLLARS. THE ASSESSEE IS ALSO RECEIVING INTEREST FROM THE ASSOCI ATED ENTERPRISES IN INDIAN RUPEES. ONCE THE TRANSACTION BETWEEN THE ASSESSEE A ND THE ASSOCIATED ENTERPRISES IS IN FOREIGN CURRENCY AND THE TRANSACT ION IS AN INTERNATIONAL TRANSACTION, THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYING THE COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONA L TRANSACTION. IF THIS IS SO, THEN THE DOMESTIC PRIME LENDING RATE WOULD HAVE NO APPLICABILITY AND THE INTERNATIONAL RATE FIXED BEING LIB OR WOULD COME IN TO PLAY. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT LIB OR RATE WHICH HAS TO BE CONSIDERED WHILE DETERMINING THE ARM'S LENGTH INTER EST RATE IN RESPECT OF THE TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES. AS IT IS NOTICED THAT THE AVERAGE OF THE LIB OR RATE FOR 1-4 -2005 TO 31-3-2006 IS 4.42 PER CENT AND THE ASSESSEE HAS CHARGED INTEREST AT 6 PER CENT WHICH IS HIGHER THAN THE LLBOR RATE, WE ARE OF THE VIEW THAT NO ADDITION ON THIS COUNT IS LIABLE TO BE MADE IN THE HANDS OF THE ASSESSEE. IN THE CIRCUMSTANCES, THE ADDITION AS MADE BY THE ASSESSING OFFICER ON THIS C OUNT IS DELETED'. 4.5 IN THE CASE OF CLT VS. TECH MAHINDRA LTD. 46 SO T 141 (MUM) TRIBUNAL HELD THAT ' WHEN THERE IS A CHOICE BETWEEN THE INTEREST RATE OF A CURRENCY OTHER THAN THE CURRENCY IN WHICH TRANSACTION HAS TAKEN PL ACE AND THE INTEREST RATE IN RESPECT OF THE CURRENCY IN WHICH TRANSACTIO N HAS TAKEN PLACE, IN OUR CONSIDERED VIEW, THE LATTER SHOULD BE ADOPTED. IN SIVA INDUSTRIES & HOLDINGS LTD.'S CASE ( SUPRA ), CO-ORDINATE BENCH WAS MAKING A CHOICE BETWEEN THE PLR (PRIME LENDING RATE IN INDIA) AND T HE LIB OR (LONDON INTER BANK OFFERED RATE). THE CO-ORDINATE BENCH HEL D THAT 'ONCE THE TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES IS IN FOREIGN CURRENCY AND THE TRANSACTION IS AN INTERNAT IONAL TRANSACTION, THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APP LYING THE COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONAL TR ANSACTIONS', AND ACCORDINGLY PROCEEDED TO TAKE INTO ACCOUNT INTEREST RATE IN TERMS OF LLBOR BASIS. WE HAVE ADOPTED THE SAME APPROACH BY T AKING INTO ACCOUNT THE COMMERCIAL PRINCIPLES AND PRACTICES WIT H REGARD TO A US DOLLAR DENOMINATED EXTENDED CREDIT FOR ARRIVING AT THE BENCHMARK RATE, AND TAKE LIB OR AS THE BASE. ACCORDINGLY, THE LIBOR (US DOLLAR) HAS TO BE AS BENCHMARK FOR US DOLLAR TRANSACTIONS - RATHER THAN THE RATE OF INTEREST ON DOMESTIC BORROWINGS, EVEN WHICH IS LOWE R THAN THE INTEREST 5 ITA NO. 1866/HYD/2012 M/S AUROBINDO PHARMA LTD. RATE OF 10 PER CENT TAKEN AS ALP BY THE TPO, OR, FOR THAT PURP OSE, RATE OF INTEREST ON ANY OTHER CURRENCY LOANS.' 4.6 IN THE CASE OF M/S FOUR SOFT LTD VS DCIT CIRCL E-L(3), HYDERABAD, ITA NO. 1495/HYD/2010 TRIBUNAL HELD THAT 'WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE DO NOT FIND ANY MERIT IN TH E ARGUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WE FIND THAT THE ALP IS TO BE DETERMINED FOR THE INTERNATIONAL TRANSACTION, THAT IS, ON INTERNATIONAL LOAN AND NOT FOR THE DOMESTIC LOAN. HENCE, THE COMPARABL E, IN RESPECT OF FOREIGN CURRENCY LOAN IN THE INTERNATIONAL MARKET, IS TO BE LLBOR BASED WHICH IS INTERNATIONALLY RECOGNIZED AND ADOPTED. IN OUR CONSIDERED VIEW, THE DRP RIGHTLY DIRECTED THE ASSESSING OFFICER TO ADOPT THE LIB OR PLUS TOR THE PURPOSE OF TP ADJUSTMENT. OUR VIEW IS FORTI FIED BY THE DECISION OF THE MADRAS BENCH IN THE CASE OF SIVA INDUSTRIES'. 4.7 SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF TATA AUT O COMP SYSTEMS LIMITED VS. ACIT, ITAT MUMBAI, ITA NO. 7354/MUM/11( A. Y. 2007-08). 4.8 ON THE LEGAL PRINCIPLES THERE IS NO DISPUTE THA T LIBOR SPECIFIC PERCENTAGE POINTS HAS TO BE CONSIDERED AS ALP. THER E IS ALSO NO BASIS, AS RIGHTLY OBSERVED BY THE DRP, TO ADOPT COR PORATE BONDS RATE AT 17.26%. THEREFORE, IN PRINCIPLE WE AGREE WITH AS SESSEES CONTENTIONS THAT LIBOR + PERCENTAGE POINTS IS TO BE ACCEPTED. HOWEVER, IT IS SEEN FROM THE DETAILS FURNISHED AT PAGE 91 OF PAPER BOOK, FEW OF LOANS PROVIDED IN AY 2003-04 AND 2004-05 IN THE CAS E OF ARUBINDO AND ARUBINDO FARMO INDUSTRIA FARMACEUTICA LDTA AND LOANS OBTAINED FROM AXIS BANK AND FEDERAL BANK WHERE THE RATE OF I NTEREST PAID WAS LIBOR +2.1% AND LIBOR +3.25%. ON THESE LOANS ASSESS EE SEEMS TO HAVE ADVANCED AT LIBOR +3% TO AURBINDO WHEREAS RATE OF INTEREST RECEIVED IN AUROBINDO FARMO INDUSTRIA FARMACEUTICA LTDA IS 13.06%. THEREFORE, TO THE EXTENT OF ADVANCES WHICH WERE GIV EN AT A RATE LESSER THAN THE RATE AT WHICH THOSE ARE OBTAINED, THE AO I S DIRECTED TO EXAMINE AND IF SO, THE RATE OF INTEREST PAID SHOU LD BE CONSIDERED AS ALP IN ORDER TO DETERMINE THE INTEREST RECEIVED. WI TH THESE DIRECTIONS, THIS GROUND CONSIDERED PARTLY ALLOWED. 6 ITA NO. 1866/HYD/2012 M/S AUROBINDO PHARMA LTD. 5. GROUND NO. 3 & 4 ARE WITH REFERENCE TO THE CLAIM U/S 35D ON THE LOANS OBTAINED IN FOREIGN CURRENCY CONVERTIBLE POIN TS. 5.1 AO DID NOT ALLOW THE CLAIM OF 1/5 TH IN THIS YEAR ON THE REASON THAT SIMILAR ISSUE WAS PENDING IN EARLIER YEARS, EV EN THOUGH, THE DRP HAS DIRECTED THE AO TO ALLOW THE AMOUNT. AO ON THE BASIS OF DIRECTIONS OF DRP IN EARLIER YEARS MADE THE ADDITIO N. 5.2 AFTER CONSIDERING RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT BOTH LEGALLY AND FACTUALLY THE ADDITION CANNOT BE S USTAINED. FIRST OF ALL, AO IS BOUND TO FOLLOW THE DIRECTIONS OF THE DR P. CONSIDERING THE OBJECTIONS OF ASSESSEE AND LEGAL PRINCIPLES ON THE ISSUE DRP DIRECTED THE AO TO ALLOW THE CLAIM U/S 35D, WHICH I S A CONSEQUENTIAL CLAIM. AO CANNOT PASS THE ORDER AGAINST THE DIRECTI ONS OF DRP AS PER THE PROVISIONS OF LAW. THEREFORE, ON THIS POINT ALO NE GROUND IS TO BE ALLOWED AS DRP CLEARLY DIRECTED AO TO ALLOW THE CLA IM. BE THAT AS IT MAY, ON MERITS ALSO, ASSESSEES CLAIM IS ALLOWABLE AS THIS ISSUE IS IN FACT COVERED BY VARIOUS DECISIONS OF COORDINATE BEN CHES. THE COORDINATE BENCH IN THE CASE OF M&M LTD. VS. JCIT 3 6 SOT 348(MUM) HELD THAT 'IN THE CASE UNDER CONSIDERATION, THE CASE OF THE REVENUE IS THAT EXPENDITURE INCURRED BY THE ASS ESSEE ON ACCOUNT OF FOREIGN CURRENCY CONVERTIBLE BONDS ARE IN THE NATUR E OF SHARE ISSUE EXPENSES, WHICH IS CAPITAL IN NATURE. IN THIS REGAR D, THE LEARNED AR HAS RELIED ON THE JUDGMENT OF HON'BLE HIGH COURT OF RAJ ASTHAN IN THE CASE OF SECURE METERS LTD. (SUPRA) WHEREIN IT WAS HELD THAT DEBENTURES WHEN ISSUED IS A LOAN, WHETHER IT IS CONVERTIBLE OR NON- CONVERTIBLE, DOES NOT MILITATE AGAINST THE NATURE OF THE DEBENTURE BEING LOAN. THEREFORE, THE EXPENDITURE INCURRED WOULD BE ADMISSIBLE AS REVENUE EXPENDITURE IN THE LIGHT OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF INDIA CEMENTS LTD. (SUPRA). SINCE THE ISSUE UNDER CONSIDERATION IS DIR ECTLY COVERED BY THE JUDGMENT OF THE RAJASTHAN HIGH COURT AND THERE IS N O CONTRARY DECISION POINTED OUT BY THE REVENUE, WE RESPECTFULLY FOLLOW THE ABOVE JUDGMENT AND IN THE LIGHT OF THAT THE CLAIM OF THE ASSESSEE IS ALLOWED. 7 ITA NO. 1866/HYD/2012 M/S AUROBINDO PHARMA LTD. THE ISSUE IS IN FAVOUR OF ASSESSEE, THEREFORE, ON M ERITS ALSO, THE ISSUE IS TO BE DECIDED IN FAVOUR OF ASSESSEE. ACCOR DINGLY, GROUND NOS. 3 & 4 ARE ALLOWED. 6. GROUND NOS. 5 & 6 ARE PERTAINING TO THE ISSUE OF CLAIM U/S 10B. 6.1 THERE ARE TWO SUB ISSUES IN THESE GROUNDS, ONE BEING EXCLUSION OF FREIGHT CHARGES OF RS. 27,28,26,997/- FROM EXPOR T TURNOVER. IT WAS ASSESSEES CONTENTION THAT THIS AMOUNT IF EXCLUDED FROM THE EXPORT TURNOVER SHOULD BE EXCLUDED FROM THE TOTAL TURNOVER AS WELL. 6.2 AFTER CONSIDERING RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT IN CASE ANY AMOUNT IS EXCLUDED TO BE FROM EXPORT TU RNOVER, THE SAME IS REQUIRED TO BE EXCLUDED FROM THE TOTAL TURNOVER AS WELL. THE SPECIAL BENCH IN THE CASE OF SAKSOFT LTD., 30 SOT 55 (CHENN AI) HAS CLEARLY EXAMINED THIS ISSUE AND HELD THAT FOR THE PURPOSE O F APPLYING THE FORMULA U/S 10B(4), THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO DELIVERY OF ARTICLES OR THINGS OR C OMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FORE IGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA ARE TO B E EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVE R, WHICH ARE NUMERATOR AND DENOMINATOR RESPECTIVELY IN THE FORMU LA. RESPECTFULLY FOLLOWING THE ABOVE RATIO, WE DIRECT THE AO TO EXCL UDE THE AMOUNTS FROM TOTAL TURNOVER, IF THE SAME IS EXCLUDED FROM T HE EXPORT TURNOVER. 6.3 THE OTHER ISSUE CONTESTED IN THE GROUND IS WITH REFERENCE TO THE UNREALIZED EXPORT PROCEEDS OF RS. 34,04,922. HERE A LSO, IF THE AMOUNT IS EXCLUDED FROM EXPORT TURNOVER, THE SAME ALSO CAN NOT BE INCLUDED IN THE TOTAL TURNOVER. SO DIRECTIONS GIVEN ABOVE CLEAR LY APPLY TO THIS ISSUE ALSO. HOWEVER, THE ISSUE IS OF DIFFERENT NATU RE. AO EXCLUDED THE AMOUNT ON THE REASON THAT EXPORT PROCEEDS WERE NOT RECEIVED WITHIN 180 DAYS IGNORING THE FACT THAT RBI HAS PERMITTED T HE REPATRIATION OF THE AMOUNTS UP TO 360 DAYS IN CERTAIN SITUATIONS OF SOFTWARE 8 ITA NO. 1866/HYD/2012 M/S AUROBINDO PHARMA LTD. COMPANIES MOSTLY IN SPECIFIED ZONES. IT WAS THE OPI NION OF THE AO THAT THIS RBI CIRCULAR IS NOT APPLICABLE AND ACCORD INGLY THE AMOUNTS RECEIVED WITHIN 360 DAYS BUT BEYOND 180 DAYS TO THE ABOVE EXTENT WAS EXCLUDED WHILE COMPUTATION OF PROFITS U/S 10B. THIS ISSUE IS ALSO COVERED IN FAVOUR OF ASSESSEE BY THE VARIOUS DECISI ONS OF THE COORDINATE BENCHES. RBI AS A PART OF FOREIGN TRADE POLICY IN SEPTEMBER, 2004 ANNOUNCED BY GOVERNMENT OF INDIA HA D ISSUED A GENERAL CIRCULAR ON 01-11-2004 AS CIRCULAR NO. 25 W HEREIN IT HAS BEEN DECIDED THAT 100% EXPORT ORIENTED UNITS (EOUS) AND UNITS SET UP IN HARDWARE TECHNOLOGY PARKS (HTPS) AND SOFTWARE TE CHNOLOGY PARKS (STPS) AND BIO TECHNOLOGY PARKS (BTPS) SHOULD BE ALLOWED TO REALIZE AND REPATRIATE THE FULL VALUE OF EXPORT PRO CEEDS WITHIN A PERIOD OF 12 MONTHS FROM THE DATE OF EXPORT. THERE IS NO D ISPUTE WITH REFERENCE TO RBI BEING THE AUTHORITY AS FAR AS THE FOREIGN TRADE IS CONCERNED AND INCOME-TAX ACT ALSO PERMITS SUCH EXTE NDED PERIOD, IF DULY AUTHORIZED. THIS ISSUE HAS ALREADY BEEN DISCUS SED ELABORATELY BY VARIOUS COORDINATE BENCHES OF TRIBUNAL AND, THEREFO RE, THE AO IS DIRECTED NOT TO EXCLUDE THE EXPORT PROCEEDS RECEIV ED FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER, AS THE Y WERE RECEIVED WITH IN TIME PERMITTED BY RBI. 7. THE LAST ISSUE IS PERTAINING TO THE DENIAL OF BE NEFIT U/S 35. 7.1 ASSESSEE HAS CLAIMED WEIGHTED DEDUCTION ON R&D UNDER THE PROVISIONS OF SECTION 35. AO ANALYSED THE WEIGHTED DEDUCTION AND COMPUTED THE SAME ON THE BASIS OF CERTIFICATES ISSU ED IN THIS REGARD AND RESTRICTED WEIGHTED DEDUCTION TO AN EXTENT OF R S. 28,50,03,656/- IN THE DRAFT ORDER. ASSESSEE OBJECTED TO THE SAME B EFORE THE DRP AND FILED SOME MORE FORMS IN 3CL RECEIVED ON 23-03-2012 . DRP DIRECTED THE AO TO CONSIDER THE SAID FORMS AND ALLOW THE EXP ENDITURE ACCORDINGLY. IN THE CONSEQUENTIAL PROCEEDINGS, AO R ESTRICTED THE DISALLOWANCE BY RS. 16,76,16,325. IT WAS THE CONTEN TION THAT EVEN THOUGH WEIGHTED DEDUCTION IS NOT ALLOWED THE ABOVE AMOUNT IS ALSO 9 ITA NO. 1866/HYD/2012 M/S AUROBINDO PHARMA LTD. ALLOWABLE U/S 35(1)(IV). THE ADDITIONAL GROUND RAIS ED BEFORE THE DRP ON THIS ISSUE VIDE LETTER DATED 4 TH JUNE, 2012 WAS NOT CONSIDERED. BEFORE US, THE LEARNED COUNSEL FILED THE DETAILS OF THE CLAIM ALLOWED, RECONCILIATION OF VARIOUS FIGURES AND FINAL ORDER A S UNDER: STATEMENT SHOWING THE EXPENDITURE ON SCIENTIFIC RES EARCH WEIGHTED DEDUCTION CLAIM BY THE COMPANY; WEIG HTED DEDUCTION ALLOWABLE AS PER FORM NO. 3CL; BALANCE ALLOWABLE @ 100% PARTICULARS DEDUCTION ALLOWED AS PER FORM 3CL TOTAL ELIGIBLE AMOUNT ALLOWED IN THE ORDER DIFFERENCE AMOUNT TO BE ALLOWED SECTI - ON PERFOR MANCE ELIGIBLE AMT. @150% @100% CAPITAL TOTAL-A REVENUE IN-HOUSE - BUILDING RELATED (100%) - OTHER THAN BUILDING RELATED(150% OF 237805000) OUTSIDE IN-HOUSE TOTALB TOTAL(A+B) ADD: CAPITAL/REVENUE EXPENDITURE INCURRED AND CLAIMED BUT NOT CONSIDERED IN FORM NO. 3CL WHICH IS ALLOWABLE U/S 35(I)(IV) CAPITAL EXPENDITURE INCURRED (CLAIMED 150% IN THE COMPUTATION) 47813847 LESS:CAPITAL EXP.ALLOWED43799000 REVENUE EXP. INCURRED. 522193466 (CLAIMED 150% IN THE COMPUTATION) REVENUE EXP. INCURRED (CLAIMED 100% IN THE COMPUTATION) 8190356 530383822 LESS: REVENUE EXP. ALLOWED 510984000 43799000 43799000 4858000 237805000 268321000 510984000 554783000 65698500 65698500 - 356707500 - 356707500 422406000 - - 4 858000 268321000 273179000 27317900 (47813847*1 50%)= (47813847- 4379900)= (522193466* 150%)= (8190356* 100%)= (530383822- 510984000 ) 65,698,500 65,698,500 4858000 356707500 268321000 629886500 695585000 4014847 19399822 65,698,500 65,698,500 4858000 356707500 268321000 629886500 695585000 71720771 783290199 8190356 0 - - - - - - - 4014847 19399822 35 (1) (IV) 35 (1) (I) BALANCE EXPENDITURE TO BE ALLOWED 23414669 CLAIMED AS PER RETURN OF INCOME 863,201,326 ALLOWED BY DRP 695,585,000 DISALLOWANCE 167,616,326 7.2 IT WAS FURTHER CONTENDED THAT THE CLAIM IS ALLO WABLE UNDER THE PROVISIONS AND RELIED ON THE DECISIONS OF THE COORD INATE BENCH IN THE CASE OF AYUSHAKTI AYURVED (P) LTD. VS. ACIT 9(1) M UMBAI 37 SOT 10 ITA NO. 1866/HYD/2012 M/S AUROBINDO PHARMA LTD. 313 (MUM.) AND TRANSWEIGH (INDIA) LTD. VS. ITO, 22 SOT 338 (MUM.) WHEREIN THE EXPENDITURE INCURRED FOR THE PURPOSE OF RESEARCH AND DEVELOPMENT BEING CAPITAL IN NATURE WAS ALLOWABLE U /S 35(1)(IV) R.W.S. 35(2)(IA) 7.3 THE LEARNED DR, HOWEVER, RELIED ON THE ORDERS O F THE AUTHORITIES. 7.4 AFTER CONSIDERING RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT PRINCIPALLY THIS AMOUNT IS ALLOWABLE U/S 35 EVEN TH OUGH WEIGHTED DEDUCTION IS NOT ALLOWABLE AS ASSESSEE COULD NOT FU RNISH RELEVANT FORMS. AO/DRP HOWEVER DID NOT CONSIDER THE ACTUAL C LAIM OF ASSESSEE I.E. FIRST R&D EXPENDITURE AND THEN WEIGHT ED DEDUCTION THEREON. WHILE ALLOWING WEIGHTED DEDUCTION ON SOME OF THE AMOUNTS, THE BALANCE AMOUNT WAS TOTALLY IGNORED, WHICH IS TO BE CONSIDERED U/S 35(1)(IV). THE CASE LAW RELIED UPON (SUPRA) ARE ON THE ISSUE IN FAVOUR OF ASSESSEE. SINCE BOTH THE AO/DRP DID NOT EVEN CO NSIDER THE OBJECTIONS RAISED BY ASSESSEE IN THIS REGARD, IN TH E INTEREST OF JUSTICE, WE ARE OF THE OPINION THAT THE ISSUE IS TO BE EXAMI NED BY THE AO. IN CASE ASSESSEES CLAIM IS OF R&D EXPENDITURE FOR SCI ENTIFIC RESEARCH, THE SAME MAY BE ALLOWED U/S 35(1)(IV) AFTER VERIFYI NG THE DETAILS AS FURNISHED. WITH THESE DIRECTIONS, GROUND IS PARTLY SET ASIDE TO THE AO FOR EXAMINATION OF DETAILS FOR ALLOWING THE CLAIM U /S 35(1)(IV). 8. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2013. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMA KOTAIAH) JUDICIAL MEMBER ACCOU NTANT MEMBER HYDERABAD, DATED: 29 TH NOVEMBER, 2013. KV 11 ITA NO. 1866/HYD/2012 M/S AUROBINDO PHARMA LTD. COPY TO:- 1) M/S AUROBINDO PHARMA LTD. C/O SHRI P.V.S.S. PRAS AD, FLAT NO. 302, 3 RD FLOOR, H.NO. 8-2-699/1/302, K.R. TOWERS, ROAD NO. 12, BANJARA HILLS, HYDERABAD 500 034. 2) ACIT, CIRCLE-2(2), HYDERABAD. 3) DRP, HYDERABAD. 4) CIT CONCERNED 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A .T., HYDERABAD.