Sun Pharmaceuticals Industries Ltd., Baroda V. The Dy.CIT., Cent.Circle-1, Baroda

ITA 2076/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6177 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 23-01-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 06-08-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM MOHAN TIWARI
• Assessee Lawyers: S N SOPARKAR PARIN S HAH
• Keywords: Related party transaction; Capital asset; Gift; Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Earning of tax free income; Retrospective amendment; Question of law; Wholly owned subsidiary; Reasonable cause; Avoidance of tax; Notional interest; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 43B; 92B; 133A; 14A; 260A; 115JB; 80IB; 37(1); 10B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH (BEFORE SHRI R.P. TOLANI, VICE PRESIDEN T & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NOS: 2076 & 2067/AHD/2013 (ASSESSMENT YEAR: 2007-08) SUN PHARMACEUTICAL INDUSTRIES LTD. SPARC, TANDALJA, BARODA-20 DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, BARODA V/S V/S DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, BARODA SUN PHARMACEUTICAL INDUSTRIES LTD. SPARC, TANDALJA, BARODA-20 (APPELLANT) (RESPONDENT) PAN: AADCS 3124K APPELLANT BY : SHRI S.N. SOPARKAR, PARIN S HAH & VARTIK CH OKSI, A.R. RESPONDENT BY : SHRI RAM MOHAN TIWARI, CIT/DR ( )/ ORDER DATE OF HEARING : 12 -04-201 7 DATE OF PRONOUNCEMENT : 27 -04-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 2 1. ITA NOS. 2076 & 2067/AHD/2013 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE PREFERRED AGAINST THE VERY SAME ORDER OF TH E LD. CIT(A)-IV, AHMEDABAD DATED 20.05.2013 PERTAINING TO A.Y. 2007- 08. 2. AS BOTH THESE APPEALS WERE HEARD TOGETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. 3. WE HAVE HEARD THE SUBMISSIONS OF THE REPRESENTATIVE S FROM BOTH SIDES AT LENGTH AND WITH THE ASSISTANCE OF THE LD. SENIOR CO UNSEL, WE HAVE GONE THROUGH THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD IN THE FORM OF A PAPER BOOK AND THE RELEVANT JUDICIAL DECISIONS RELIED UPON IN THE LIGHT OF RULE 18(6) OF THE ITAT RULES. ITA NO. 2076/AHD/2013 ASSESSEES APPEAL FOR A.Y. 20 07-08 4. THE FIRST GROUND IS OF GENERAL IN NATURE AND CALLS FOR NO ADJUDICATION. 5. GROUND NO. 2 RELATES TO THE ADDITION OF RS. 5,21,70 ,765/- ON ACCOUNT OF INTEREST ON LOANS GIVEN TO SUN PHARMA GLOBAL INC. 6. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, WHEN A.O. FOUND THAT CERTAIN INTERNATIONAL TRANSACTIONS HAVE TO BE CONSIDERED BY THE TPO, THE MATTER WAS REMITTED TO THE TRANSFER PRICING OFF ICER WHO PROPOSED TO MAKE FOLLOWING ADDITIONS IN RESPECT OF INTERNATIONA L TRANSACTIONS RELATING TO LOANS TO ASSOCIATED ENTERPRISES: ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 3 (1) INTEREST ON LOAN TO AES AT LIBOR PLUS RATE RS. 5,34,26,484/- (2) INTEREST ON 0% OFCD RS. 33, 16, 53, 612/- (3) CORPORATE GUARANTEE FEES RS. 39,48,000/- 7. TAKING A LEAF OUT OF THE PROPOSED ADDITIONS FROM T HE ORDER OF THE TPO, THE A.O. MADE THE IMPUGNED ADDITIONS. 8. ASSESSEE ASSAILED THE ADDITIONS BEFORE THE FIRST AP PELLATE AUTHORITY BUT COULD NOT SUCCEED. 9. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY T HE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 1589 & 1592/AHD/2011 FOR A.Y. 2006-07 IN SO FAR THEY RELATE TO THE ADDITION ON ACCOUNT OF IN TEREST ON LOAN TO AE AT LIBOR PLUS RATE AND INTEREST ON 0% OFCD IS CONCERNE D AND THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE. THE RELEVANT PART OF THE ORDER READS AS UNDER:- 3. GROUND NO. 2 RELATES TO THE ADDITION ON ACCOUNT OF INTEREST ON LOANS GIVEN TO SUN PHARMA GLOBAL INC. & SUN PHARMACEUTICAL INDUSTR IES INC. AS WELL AS OPTIONALLY FULLY CONVERTIBLE DEBENTURES SUBSCRIBED TO IN SUN P HARMA GLOBAL INC. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PR OCEEDINGS, WHEN A.O FOUND THAT CERTAIN INTERNATIONAL TRANSACTIONS HAVE TO BE CONSIDERED BY THE TPO, THE MATTER WAS REMITTED TO THE TRANSFER PRICING OFFICER WHO PROPOSED TO MAKE FOLLOWING ADDITIONS IN RESPECT OF INTERNATIONAL TRA NSACTIONS RELATING TO INVESTMENT/LOANS TO ASSOCIATED ENTERPRISES- (1) INTEREST ON LOAN TO AES AT LIBOR PLUS RATE ALLO WED TO AES RS. 7,83,82,483/- (2) INTEREST ON 9% OFCD RS. 21,08,42,301 /- TOTAL RS. RS. 28,92,24,784/- ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 4 5. ASSESSEE WAS ASKED TO EXPLAIN WHY THIS AMOUNT SHOULD NOT BE ADDED TO THE TOTAL INCOME. ASSESSEE FILED A DETAILED REPLY EXPLA INING THAT THE ASSESSEE HAD SOURCED THE LOANS TO AE OUT OF THE EXCESS FUNDS LYI NG IDLE OUT OF THE ISSUE OF FCCBS. CERTAIN PORTION OF THE FCCB PROCEEDS WERE DE PLOYED IN FIXED DEPOSITS IN OVERSEAS BANKS. IT WAS BROUGHT TO THE NOTICE OF THE A.O THAT THE ASSESSEE HAS CHARGED INTEREST TO THE AES AT 3.81% BEING THE 12 M ONTH LIBOR RATE. THE ASSESSEE STRONGLY OBJECTED TO THE CHARGE OF LIBOR+ RATE OF INTEREST. IN SO FAR AS, THE MONEY RAISED THROUGH FOREIGN CURRENCY CONVERTIB LE BONDS, IT WAS EXPLAINED THAT SINCE MONEY RAISED THROUGH FCCB WAS NOT PERMIT TED TO BE PARKED/BROUGHT IN INDIA UNLESS IT WAS ACTUALLY DEPLOYED FOR PERMITTED CAPITAL EXPANSIONS/ACQUISITIONS, THEREFORE, IT WAS DECIDED TO INVEST MONEY ON THE WHOLLY OWNED SUBSIDIARY BEING AN ASSOCIATED ENTERPRISE. 6. THE CLAIM OF THE ASSESSEE ON BOTH THESE COUNTS WAS DISMISSED BY THE A.O WHO PROCEEDED BY MAKING AN ADDITION OF RS. 28,92,24,784 /-. 7. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A ) AND REITERATED ITS CLAIM. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) REDUCED THE INTEREST TO LIBOR+0.25% FROM LIBOR+2%. THE ASSESSEE IS DISPUTIN G THE LIBOR+0.25% AND THE REVENUE IS IN DISPUTE FOR THE DELETION OF 1.75%. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE C AREFULLY 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. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 5 9. ON IDENTICAL SET OF FACTS, THE CO-ORDINATE BEN CH 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:- 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 ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 6 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 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). ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 7 11. RESPECTFULLY FOLLOWING THE FINDINGS OF THE H ONBLE 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. 10. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT BY T HE LD. D.R. IN FAVOUR OF THE REVENUE, RESPECTFULLY FOLLOWING OUR OWN DECISIO N GIVEN IN A.Y. 2006-07 (SUPRA). WE DIRECT THEA.O.TO DELETE THE IMPUGNED AD DITION. GROUND NO. 2 IS ALLOWED. 11. GROUND NO. 3 RELATES TO THE ADDITION ON ACCOUNT OF INTEREST ON SHORT TERM BUSINESS ADVANCES TO SUN PHARMACEUTICALS U.K. LTD., SUN PHARMACEUTICALS LTD., SUN PHARMACEUTICALS PERU SAC, RS. 12,55,719/- . 12. THE A.O. NOTICED THAT THE ASSESSEE HAS NOT CHARGED INTEREST ON THESE ADVANCES. IN SUPPORT ITS CLAIM, THE ASSESSEE CONTEN DED THAT ADVANCES WERE SHORT TERM BUSINESS ADVANCES AND WERE EXCLUSIVELY F OR BUSINESS PURPOSES AND FOR MUTUAL BENEFIT, THEREFORE NO INTEREST WAS C HARGED. IT WAS PLEADED THAT THE BUSINESS GROWTH OF THESE AES WILL FURTHER RESULT IN GREATER BUSINESS OPPORTUNITIES FOR THE ASSESSEE IN THE YEARS TO COME . THE LONG TERM COMMERCIAL BENEFITS WILL OUTWEIGH THE SMALLER INTER EST THAT THE ASSESSEE WOULD HAVE CHARGED TO THESE AES. IT WAS EXPLAINED T HAT ULTIMATELY IT IS THE ASSESSEE WHICH WOULD DERIVE THE BENEFITS OF GROWTH OF SUBSIDIARIES IN THE FORM OF APPRECIATION OF ITS SHAREHOLDINGS PARTICULA RLY SINCE THE ASSOCIATED ENTERPRISES ARE WHOLLY OWNED SUBSIDIARIES OF THE AS SESSEE. THIS CONTENTION OF THE ASSESSEE WAS DISMISSED BY THE A.O. WHO PROCE EDED BY MAKING ADDITION OF RS. 12,55,719/- ON THIS ACCOUNT. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 8 13. THE ASSESSEE COULD NOT CONVINCE THE FIRST APPELLATE AUTHORITY AND THE ADDITIONS WERE CONFIRMED. 14. WHILE DISMISSING THE APPEAL OF THE ASSESSEE, THE LD . CIT(A), INTERALIA, OBSERVED AS UNDER:- 5.4.10 THE TPO IS OF THE CONSIDERED VIEW THAT THE A SSESSEE HAS CHARGED LOWER INTEREST RATE FROM ITS SUBSIDIARY BY CHARGING INTER EST AT LIBOR RATE OR NIL RATE WHEREAS PREVAILING RATE AT THAT POINT OF TIME LIBOR PLUS SHOULD HAVE BEEN CHARGED. THE RATE PREVAILING AT THAT POINT OF TIME WAS LIBOR RATE I.E. 5.401% + 200 BASIS POINT WHICH COMES TO 7.401%. THIS RATE IS ALMOST EQUAL TO THE PRIME INTEREST RATE OR AMERICAN BANK LENDING RATE. THE PR IME INTEREST RATE IS THE INTEREST RATE CHARGED BY BANKS TO THEIR MOST CREDIT WORTHY CUSTOMERS AND THIS RATE IS ALMOST THE SAME AMONGST THE MAJOR BANKS. ACCORDI NGLY BY APPLYING INTEREST RATE OF LIBOR 5.401% + 2% (7.401%), TOTAL UPWARD AD JUSTMENT HAS BEEN DETERMINED BY THE TPO AT RS.5,34,26,4847-. THE TPO HAS NOT SPECIFICALLY FACTORED THE FOREIGN EXCHANGE RISK IN THE ABOVE LOAN TRANSAC TIONS CONSIDERING THE FACT THAT THERE HAS BEEN SEVERE FLUCTUATIONS IN THE FOREIGN E XCHANGE AND THE FOREIGN EXCHANGE RISK HAS BEEN SUBSTANTIAL. A 100 BASIS POI NT INCREASE ON ACCOUNT OF COUNTRY AND FOREIGN EXCHANGE RISK IS FOUND TO BE NO RMAL. HOWEVER, IT IS NOTED THAT INTEREST DETERMINED BY THE TPO AT LIBOR + 2% W OULD TAKE CARE OF SUCH FOREIGN EXCHANGE RISK ALSO 15. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT AT THE MOST CHARGEABLE INTEREST SHOULD BE @ LIBOR. IT IS T HE SAY OF THE LD. COUNSEL THAT THERE IS NO JUSTIFICATION IN FURTHER ADJUSTING THE LIBOR RATE WITH ADDITIONAL BASIS POINT. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 9 16. PER CONTRA, THE LD. D.R. SUPPORTED THE ORDERS OF TH E REVENUE AUTHORITIES. 17. WE HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUES BE FORE US. WE FIND THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE FIRS T APPELLATE AUTHORITY HIMSELF HAS TAKEN THE INTEREST RATE AT LIBOR PLUS 0 .25%. WE ALSO FIND THAT EVEN THAT PLUS RATE TAKEN BY THE FIRST APPELLATE AU THORITY DID NOT FIND ANY FAVOUR WITH THE TRIBUNAL IN ITA NO. 1589/AHD/2011. TAKING A LEAF OUT OF THE FINDINGS OF THE CO-ORDINATE BENCH IN A.Y. 2006-07, IN OUR CONSIDERED OPINION, UPWARD ADJUSTMENT AT LIBOR RATE SHOULD MEE T THE ENDS OF JUSTICE. WE, ACCORDINGLY, DIRECT THE A.O. TO CHARGE INTEREST AT LIBOR RATE. THIS GROUND IS PARTLY ALLOWED. 18. GROUND NO. 4 RELATES TO THE ADDITION ON ACCOUNT OF INTEREST ON OPTIONALLY FULLY CONVERTIBLE DEBENTURES SUBSCRIBED TO IN SUN P HARMA GLOBAL INC. AMOUNTING TO RS. 33,16,53,612/-. 19. WE FIND THAT THIS ISSUE HAS BEEN ALREADY SETTLED BY THE CO-ORDINATE BENCH IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN I TA NO. 1589 & 1592/AHD/2011. THE RELEVANT PART READS 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 ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 10 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:- 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 ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 11 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 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). ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 12 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. 20. AS THE DISPUTE STANDS SETTLED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE CO-ORDINATE BENCH (SUPRA), RESPECTFULLY FOLLOWI NG THE SAME. WE DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 33,16,53,612 /-. GROUND NO. 4 IS ALLOWED. 21. GROUND NO. 5 RELATES TO THE ADDITION ON ACCOUNT OF CORPORATE GUARANTEE PROVIDED TO ASSOCIATED ENTERPRISES SUN PHARMACEUTIC ALS INDUSTRIES INC. AND SUN PHARMACEUTICALS BANGLADESH LTD. AMOUNTING TO RS . 39,48,000/-. 22. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS GIVEN CORPORATE GUARANTEES TO BANKS ON BEHALF OF ASSOCIATED ENTERPR ISES SUN PHARMACEUTICALS INDUSTRIES INC. AND SUN PHARMACEUTI CALS BANGLADESH LTD. THE ASSESSEE HAD CONTENDED THAT SINCE IT HAS NOT IN CURRED ANY EXPENSES/LOSSES ON ACCOUNT OF GIVING CORPORATE GUAR ANTEES, THEREFORE, IT HAS NOT CHARGED ANY COMMISSION/FEE TO THE SUBSIDIAR IES. THE CORPORATE GUARANTEES WERE GIVEN TO PROMOTE AND NURTURE SUBSID IARIES AND IT WAS IN THE INTEREST OF THE APPELLANT AS IT WOULD SECURE LO NG TERM COMMERCIAL ADVANTAGES. THE TRANSFER PRICING OFFICER BRUSHED AS IDE THE SUBMISSIONS MADE BY THE ASSESSEE AND HELD THAT 2% OF CORPORATE GUARANTEE SHOULD BE CHARGED AS FEES/COMMISSION FOR GIVING GUARANTEES. T AKING A LEAF OUT OF THIS, THE A.O. HAD MADE THE IMPUGNED ADDITIONS. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 13 23. BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE STRONGLY OBJECTED TO THE ADDITIONS MADE ON ACCOUNT OF CORPORATE GUARANTEE PR OVIDED BY IT. IN ALTERNATIVE, IT WAS CONTENDED THAT THE ADDITION OF 2% OF CORPORATE GUARANTEE IS EXCESSIVE AND SHOULD BE SUBSTANTIALLY REDUCED. 24. IT WAS BROUGHT TO THE NOTICE OF THE FIRST APPELLATE AUTHORITY THAT THE ASSESSEE IS A CASH RICH COMPANY. IT DOES NOT HAVE A NY MAJOR DEBTS IN ITS BALANCE SHEET. IN THE PRESENCE OF HUGE CASH SURPLUS AND LIQUID ASSETS, THERE WAS NO NEED FOR THE ASSESSEE TO INCUR ANY COSTS IN RESPECT OF GUARANTEES GIVEN NOR WAS IT AFFECTING ANY BORROWING LIMITS OF THE ASSESSEE. IT WAS FURTHER BROUGHT TO THE NOTICE OF THE LD. CIT(A) THA T NO CHARGES HAVE BEEN LEVIED BY THE BANKS TO THE ASSESSEE FOR PROVIDING T HE GUARANTEES. IT WAS ALSO SUBMITTED THAT THE GUARANTEES PROVIDED TO THE AE AR E ONLY A NOTIONAL LIABILITY FOR THE ASSESSEE. THE ASSESSEE WOULD BE R EQUIRED TO MEET ITS OBLIGATION ONLY IN THE EVENT OF A DEFAULT BY THE AE . 25. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) WAS OF THE OPINION THAT AFTER THE RETROSPECTIVE AMENDMENT OF S ECTION 92B BY INSERTING EXPLANATION, IN PARTICULAR CLAUSE (C) OF EXPLANATIO N TO THIS SECTION VIDE FINANCE ACT 2012 MADE APPLICABLE W.E.F. 01.04.2002, SUCH CORPORATE GUARANTEE IS CLARIFIED TO BE AN INTERNATIONAL TRANS ACTION IN TERMS OF SECTION 92B OF THE ACT. DRAWING SUPPORT FROM THIS AMENDMENT , THE FIRST APPELLATE AUTHORITY OBSERVED THAT THE BUSINESS PRUDENCE OR NE CESSITY OF PROVIDING SUCH GUARANTEE TO ITS AES IS NOT RELEVANT FOR COMPU TING ARMS LENGTH PRICE IN UNRELATED PARTY TRANSACTIONS. THE LD. CIT(A) FUR THER OBSERVED THAT SINCE ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 14 THE ASSESSEE HAS NOT CHARGED ANY FEE FROM ITS AE, T HE TRANSACTION HAS TO BE TESTED WITH A SITUATION, HAD THE ASSESSEE PROVIDED THE GUARANTEE ON BEHALF OF AN UNRELATED THIRD PARTY AND THEREBY THE INCOME, WHICH WOULD HAVE BEEN EARNED BY THE ASSESSEE IS EXPECTED TO HAVE BEE N EARNED FROM THE TRANSACTION OF PROVIDING CORPORATE GUARANTEE ON BEH ALF OF ITS AES. SINCE THE ASSESSEE HAS NOT BENCH MARKED THE TRANSACTIONS RELA TING TO PROVIDING THE CORPORATE GUARANTEE ON BEHALF OF ITS AE, THE FIRST APPELLATE AUTHORITY CONFIRMED THE UPWARD ADJUSTMENT OF RS. 39,48,000/- MADE BY THE TPO/AO BY CHARGING 2% GUARANTEE FEE ON THE TOTAL AMOUNT OF GUARANTEE GIVEN BY THE ASSESSEE TO ITS AES. 26. HAVING HEARD THE RIVAL SUBMISSIONS, WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS IN ISSUES BEFORE US. IT IS TRUE THAT BY FINANCE ACT OF 2012, THE LEGISLATURE HAS INSERTED EXPLANATION T O SECTION 92B OF THE ACT GIVING IT A RETROSPECTIVE EFFECT FROM 01.04.2002. I N OUR CONSIDERED OPINION, THE ASSESSEE CANNOT BENCH MARK ITS TRANSACTION RETR OSPECTIVELY. THE TRANSACTION RELATES TO THE ASSESSMENT YEAR UNDER CO NSIDERATION WHEREAS THE AMENDMENT WAS BROUGHT BY FINANCE ACT OF 2012. 27. LEX NON COGIT AD IMPOSSIBILIA MEANING THEREBY THAT THE LAW CANNOT POSSIBLY COMPEL A PERSON TO DO SOMETHING WHICH IS I MPOSSIBLE TO PERFORM. THE ASSESSEE CANNOT BENCH MARK A TRANSACTION WHICH HAS BEEN DONE DURING THE YEAR UNDER CONSIDERATION WHEN THE AMENDMENT IS BROUGHT BY FINANCE ACT OF 2012. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 15 28. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF MICRO INKS LTD. IN ITA NO. 2873/AHD/2010 157 ITD 132. THE LD. D.R. VEHEMENTLY STATED THAT SI NCE THERE ARE CONFLICTING DECISIONS OF THE CO-ORDINATE BENCHES ON THIS ISSUE, THE SAME MUST BE TRANSFERRED TO A SPECIAL BENCH FOR ITS DETERMINATIO N. IN SUPPORT, THE LD. D.R. SUBMITTED A REQUEST FOR THE CONSTITUTION OF A SPECI AL BENCH TO DECIDE THIS ISSUE. 29. WE WILL FIRST ADHERE TO THE FORMAL REQUEST MADE BY THE LD. D.R. WE FIND THAT IN ONE OF THE EARLIER OCCASION, A SIMILAR REQUEST W AS DECLINED BY THE CO- ORDINATE BENCH MADE IN THE CASE OF MICRO INKS LTD. (SUPRA). THE RELEVANT PART OF THE ORDER OF THE CO-ORDINATE BENCH READS AS UNDER:- 47. HOWEVER, WITHIN LESS THAN FOUR MONTHS OF THIS D ECISION HAVING BEEN RENDERED, THE FINANCE ACT 2012 CAME UP WITH AN EXPLANATION TO SECTION 92B STATING THAT 'FOR THE REMOVAL OF DOUBTS', AS WE HAVE NOTED EARLI ER IN THIS DECISION, 'CLARIFIED' THAT INTERNATIONAL TRANSACTIONS INCLUDE, INTER ALIA , CAPITAL FINANCING BY WAY OF GUARANTEE. THIS LEGISLATIVE CLARIFICATION DID INDEE D GO WELL BEYOND WHAT A COORDINATE BENCH OF THIS TRIBUNAL HELD TO BE THE LE GAL POSITION AND WE ARE BOUND BY THE ESTEEMED VIEWS OF THE COORDINATE BENCH. WE A RE, THEREFORE, OF THE OPINION THAT THE EXPLANATION TO SECTION 92B DID INDEED ENLA RGE THE SCOPE OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B, AND IT DID SO WITH RETROSPECTIVE EFFECT. IF, FOR ARGUMENT SAKE, IT IS ASSUMED THAT T HE INSERTION OF EXPLANATION TO SECTION 92B DID NOT ENLARGE THE SCOPE OF DEFINITION , THERE CANNOT OBVIOUSLY BE ANY OCCASION TO DEVIATE FROM THE DECISION THAT THE COOR DINATE BENCH TOOK IN FOUR SOFT LTD. CASE (SUPRA), BUT IF THE SCOPE OF THE PROVISIO N WAS INDEED ENLARGED, AS IS OUR OPINION, THE QUESTION THAT REALLY NEEDS TO BE ADDRE SSED WHETHER, GIVEN THE PECULIAR NATURE AND PURPOSE OF TRANSFER PRICING PRO VISION, IS IT AT ALL A WORKABLE ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 16 IDEA TO ENLARGE THE SCOPE OF TRANSFER PRICING PROVI SIONS WITH RETROSPECTIVE EFFECT THERE CAN BE LITTLE DOUBT ABOUT THE LEGISLATIVE COM PETENCE TO AMEND TAX LAWS WITH RETROSPECTIVE EFFECT, AND, IN ANY CASE, WE ARE NOT INCLINED TO BE DRAWN INTO THAT CONTROVERSY EITHER. ON THE ISSUE OF IMPLEMENTI NG THE AMENDMENT IN TRANSFER PRICING LAW WITH RETROSPECTIVE EFFECT, IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA), A COORDINATE BENCH HAD OBSERVED AS FOLLOWS: '34. THERE IS ONE MORE ASPECT OF THE MATTER. THE EXP LANATION TO SECTION 92B HAS BEEN BROUGHT ON THE STATUTE BY THE FINANCE ACT 2012 . IF ONE IS TO PROCEED ON THE BASIS THAT THE PROVISIONS OF EXPLANATION TO SECTION 92B ENLARGES THE SCOPE OF SECTION 92B ITSELF, EVEN AS IT IS MODESTLY DESCRIBE D AS 'CLARIFICATORY' IN NATURE, IT IS AN ISSUE TO BE EXAMINED WHETHER AN ENHANCEMENT OF S COPE OF THIS ANTI AVOIDANCE PROVISION CAN BE IMPLEMENTED WITH RETROSPECTIVE EFF ECT. UNDOUBTEDLY, THE SCOPE OF A CHARGING PROVISION CAN BE ENLARGED WITH RETROS PECTIVE EFFECT, BUT AN ANTI- AVOIDANCE MEASURE, THAT THE TRANSFER PRICING LEGISL ATION INHERENTLY IS, IS NOT PRIMARILY A SOURCE OF REVENUE AS IT MAINLY SEEKS CO MPLIANT BEHAVIOUR FROM THE ASSESSEE VIS-A-VIS CERTAIN NORMS, AND THESE NORMS C ANNOT BE GIVEN EFFECT FROM A DATE EARLIER THAN THE DATE NORMS ARE BEING INTRODUC ED. HOWEVER, AS WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON MERI TS AND EVEN AFTER TAKING INTO ACCOUNT THE AMENDMENTS BROUGHT ABOUT BY FINANCE ACT 2012, WE NEED NOT DEAL WITH THIS ASPECT OF THE MATTER IN GREATER DETAIL.' 48. IN THE PRESENT CASE, WE HAVE HELD THAT THE ISSU ANCE OF CORPORATE GUARANTEES WERE IN THE NATURE OF SHAREHOLDER ACTIVITIES- AS WA S THE UNCONTROVERTED CLAIM OF THE ASSESSEE, AND, AS SUCH, COULD NOT BE INCLUDED I N THE 'PROVISION FOR SERVICES' UNDER THE DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B OF THE ACT. WE HAVE ALSO HELD, TAKING NOTE OF THE INSERTION OF EXPLANATION TO SECTION 92B OF THE ACT, THAT THE ISSUANCE OF CORPORATE GUARANTEES IS COVERED BY THE RESIDUARY CLAUSE OF THE DEFINITION UNDER SECTION 92B OF THE A CT BUT SINCE SUCH ISSUANCE OF CORPORATE GUARANTEES, ON THE FACTS OF THE PRESENT C ASE, DID NOT HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASSETS', IT DID NOT CONS TITUTE AN INTERNATIONAL ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 17 TRANSACTION, UNDER SECTION 92B, IN RESPECT OF WHICH AN ARM'S LENGTH PRICE ADJUSTMENT CAN BE MADE. IN THIS VIEW OF THE MATTER, AND FOR BOTH THESE INDEPENDENT REASONS, WE HAVE TO DELETE THE IMPUGNED AEP ADJUSTMENT. THE QUESTION, WHICH WAS RAISED IN BHARTI AIRTEL'S CASE (SUPRA) BUT LEFT UNANSWERED AS THE ASSESSEE HAD SUCCEEDED ON MERITS, REAMINS UNANS WERED HERE AS WELL. HOWEVER, WE MAY ADD THAT IN THE CASE OF KRISHNASWAM Y SPD V. UNION OF INDIA [2006] 281 ITR 305/151 TAXMAN 286 (SC), WHEREIN THE IR LORDSHIPS HAD, INTER ALIA, OBSERVED THAT 'THE LAW DOES NOT COMPEL A MAN TO DO W HAT HE CANNOT POSSIBLY PERFORM. THE LAW ITSELF AND ITS ADMINISTRATION IS U NDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL APHORISMS, ALL INTENTION OF COMPELLI NG IMPOSSIBILITIES, AND THE ADMINISTRATION OF LAW MUST ADOPT THAT GENERAL EXCEP TION IN THE CONSIDERATION OF PARTICULAR CASES. IT WAS FOR THIS REASON THAT A COO RDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF C 'HUMID GUIDE INDIA LTD. V. ASSTT. CIT [2012] 139 ITB 49/25 TAXMANN.COM 25 (MUM.), HELD THAT EVEN THOUGH THE AS SESSEE HAD NOT DEDUCTED THE APPLICABLE TAX AT SOURCE UNDER SECTION 195, THE DISALLOWANCE COULD NOT BE MADE UNDER SECTION 40(A)(I) SINCE THE TAXABILITY WA S UNDER THE PROVISIONS WHICH WERE AMENDED, POST THE PAYMENT HAVING BEEN MADE BY THE ASSESSEE, WITH RETROSPECTIVE EFFECT. ALL THIS ONLY SHOWS THAT EVEN WHEN LAW IS SPECIFICALLY STATED TO HAVE EFFECT FROM A PARTICULAR DATE, ITS BEING IM PLEMENTED IN A FAIR AND REASONABLE MANNER, WITHIN THE FRAMEWORK OF JUDGE MA DE LAW, MAY REQUIRE THAT DATE TO BE TINKERED WITH. WHEN A PROVISO IS INTRODU CED WITH EFFECT FROM A PARTICULAR DATE SPECIFIED BY THE LEGISLATURE, THE J UDICIAL FORUMS, INCLUDING THIS TRIBUNAL, AT TIMES READ IT AS BEING EFFECT FROM A D ATE MUCH EARLIER THAN THAT TOO. ONE SUCH CASE, FOR EXAMPLE, IS CIT V. ANSAL LANDMAR K TOWNSHIP (P.) LTD. [2015] 377 ITR 635/234 TAXMAN 825/61 TAXMANN.COM 45 (DELHI ), WHEREIN HON'BLE DELHI HIGH COURT CONFIRMED THE ACTION OF THE TRIBUNAL IN HOLDING THAT THE PROVISION, THOUGH STATED TO BE EFFECTIVE FROM 1ST APRIL 2013 M UST BE HELD TO BE EFFECTIVE FROM 1ST APRIL 2005. WHETHER SUCH AN EXERCISE CAN B E DONE IN THE PRESENT CASE IS, OF COURSE, SOMETHING TO BE EXAMINED AND OUR OBSERVA TIONS SHOULD NOT BE ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 18 CONSTRUED AS AN EXPRESSION ON MERITS OF THAT ASPECT OF MATTER. GIVEN THE FACT THAT THE ASSESSEE HAS SUCCEEDED ON MERITS IN THIS CASE, IT WOULD NOT REALLY BE NECESSARY TO DEAL WITH THAT ASPECT OF THE MATTER. 49. THE SECOND ISSUE IS THIS. WE MUST DEAL WITH THE QUESTION WHETHER IN THIS CASE THE MATTER SHOULD HAVE BEEN REFERRED TO A LARGER BE NCH. THE PARTIES BEFORE US WERE OPPOSED TO THE MATTER BEING SENT FOR CONSIDERA TION BY THE SPECIAL BENCH, AND AT LEAST ONE OF THE REASONS FOR WHICH THE GRIEV ANCE OF THE ASSESSEE IS UPHELD, I.E. GUARANTEES BEING IN THE NATURE OF SHAREHOLDER ACTIVITY AND EXCLUDIBLE FROM THE SCOPE OF SERVICES FOR THAT REASON ALONE, IS AN AREA WHICH HAD COME UP FOR CONSIDERATION FOR THE FIRST TIME. IN EFFECT. THEREF ORE, THERE WAS NO CONFLICT ON THIS ISSUE OF AND THE OTHER ISSUES, GIVEN DECISION ON TH E SAID ISSUE, WERE WHOLLY ACADEMIC. IT CANNOT BE OPEN TO REFER THE ACADEMIC Q UESTIONS TO THE SPECIAL BENCH. NO DOUBT, SOME DECISIONS OF THE COORDINATE BENCHES WHICH HAVE REACHED THE DIFFERENT CONCLUSIONS. THERE IS, HOWEVER, NO CONFLI CT IN THE REASONING. FOUR SOFT LTD. DECISION (SUPRA] HAD DECIDED THE ISSUE IN FAVO UR OF THE ASSESSEE BUT THAT WAS WITH RESPECT TO THE LAW PRIOR TO INSERTION TO EXPLA NATION TO SECTION 92B. AS FOR THE POST-AMENDMENT LAW AND THE IMPACT OF AMENDMENT IN T HE DEFINITION OF 'INTERNATIONAL TRANSACTION', THE MATTER WAS AGAIN D ECIDED IN FAVOUR OF THE ASSESSEE BY BHARTI AIRTEL LTD. DECISION (SUPRA] ON THE PECULIAR FACTS OF THAT CASE. THE DECISIONS LIKE EVEREST KENTO CYLINDERS LTD. (SU PRA) AND ADITYA BIRLA MINACS WORLDWIDE (SUPRA) WERE DECISIONS IN WHICH THE ASSES SEE HAD CHARGED THE FEES AND, FOR THAT REASON, SUCH CASES ARE COMPLETELY DIS TINGUISHABLE AS DISCUSSED ABOVE. IN PROLIFIC CORP LTD. CASE (SUPRA), AS INDEE D IN ANY OTHER CASE SO FAR, IT WAS NOT THE CASE OF THE ASSESSEE THAT CORPORATE GUARANT EES ARE QUASI-CAPITAL, OR SHAREHOLDER ACTIVITY, IN NATURE, AND, FOR THAT REAS ON, EXCLUDIBLE FROM CHARGEABLE SERVICES, EVEN IF THESE ARE HELD TO BE SERVICES IN NATURE. THAT PLEA HAS BEEN SPECIFICALLY ACCEPTED IN THE PRESENT CASE. THEREFOR E, THE QUESTION WHETHER ISSUANCE OF CORPORATE GUARANTEE PER SE IN GENERAL C ONSTITUTES A 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B WOULD HAVE BEEN SOME WHAT ACADEMIC QUESTION ON ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 19 THE FACTS OF THIS CASE. IN ANY EVENT, IN PROLIFIC' CORP LTD. CASE (SUPRA), AN EARLIER CONSIDERED DECISION ON THE SAME ISSUE BY COORDINATE BENCH OF EQUAL STRENGTH WAS SIMPLY DISREGARDED AND THAT FACT TAKES THIS DECISIO N OUT OF THE AMBIT OF BINDING JUDICIAL PRECEDENTS. WE HAVE ALSO NOTED THAT IN VIE W OF THE DECISION A COORDINATE BENCH, IN THE CASE OF JKT FABRICS V. DY. CIT (2005] 4 SOT 84 (MUM.) AND FOLLOWING THE FULL BENCH DECISION OF HON'BLE AP HIGH COURT IN THE CASE OF CIT V. BR CONSTRUCTIONS [1993] 202 ITR 222 [1994] 73 TAXMAN 4 73 (AP), A DECISION DISREGARDING AN EARLIER BINDING PRECEDENT ON THE IS SUE IS PER INCURIUM. SUCH DECISIONS CANNOT BE BASIS FOR SENDING THE MATTERS T O SPECIAL BENCH SINCE OCCASION FOR REFERENCE TO SPECIAL BENCH ARISES WHEN BINDING AND CONFLICTING JUDICIAL PRECEDENTS FROM COORDINATE BENCHES COME UP FOR CONS IDERATION. THAT WAS NOT THE CASE HERE. ALL THESE FACTORS TAKEN TOGETHER, IN OUR CONSIDERED VIEW, IT WAS NOT POSSIBLE IN THIS CASE TO REFER THE MATTER FOR CONST ITUTION OF A SPECIAL BENCH. IN ANY CASE, WHATEVER WE DECIDE IS, AND SHALL ALWAYS REMAI N, SUBJECT TO THE JUDICIAL SCRUTINY BY HON'BLE COURTS ABOVE AND OUR ENDEAVOUR IS TO FACILITATE AND EXPEDITE, WITHIN OUR INHERENT LIMITATIONS, THAT PROCESS OF SU CH A JUDICIAL SCRUTINY, IF AND WHEN OCCASION COMES, BY ANALYZING THE ISSUES IN A C OMPREHENSIVE AND HOLISTIC MANNER. 50. IN THE LIGHT OF THE DETAILED DISCUSSIONS ABOVE, AND FOR THE DETAILED REASONS SET OUT ABOVE, WE UPHOLD THE GRIEVANCE RAISED BY THE AS SESSEE. THE IMPUGNED ALP ADJUSTMENT OF RS 2,23,62,603, THUS STANDS DELETED. AS WE DO SO, HOWEVER, WE MUST ADD THAT, IN OUR CONSIDERED VIEW, THE WAY FORW ARD, TO AVOID SUCH ISSUES BEING LITIGATED AND TO ENSURE SATISFACTORILY RESOLU TION OF THESE DISPUTES, MUST INCLUDE A CLEAR AND UNAMBIGUOUS LEGISLATIVE GUIDANC E ON THE TRANSFER PRICING IMPLICATIONS OF THE CORPORATE GUARANTEES AS ALSO ON THE METHODOLOGY OF DETERMINING ITS ALP, IF NECESSARY. OF COURSE, NO MA TTER HOW GOOD IS THE LEGISLATIVE FRAMEWORK, THE IMPORTANCE OF A VERY COMPREHENSIVE A NALYSIS, IN THE TRANSFER PRICING STUDY, OF THE NATURE OF CORPORATE GUARANTEE S ISSUED BY THE ASSESSEES, CAN NEVER BE OVEREMPHASIZED. THE SWEEPING GENERALIZATIO NS, VAGUE STATEMENTS AND ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 20 EVASIVE APPROACH IN THE TRANSFER PRICING STUDY REPO RTS, WHICH ARE QUITE COMMON IN MOST OF THE TRANSFER PRICING REPORTS, CANNOT DO GOOD TO A REASONABLE CAUSE. WHEN JUDICIAL CALLS ON THE COMPLEX TRANSFER PRICING ISSUES ARE TO BE TAKEN, UTMOST CLARITY IN THE LEGISLATIVE FRAMEWORK AND A COMPREHE NSIVE ANALYSIS OF RELEVANT FACTS, IN THE TRANSFER PRICING DOCUMENTATION, ARE B ASIC INPUTS. UNFORTUNATELY, BOTH OF THESE THINGS LEAVE A LOT TO BE DESIRED. WE CAN O NLY HOPE, AND WE DO HOPE, THAT THINGS WILL CHANGE FOR BETTER. 30. WE FIND THAT THE REVENUE HAS PREFERRED AN APPEAL U/ S. 260A OF THE ACT BEFORE THE HONBLE HIGH COURT OF GUJARAT AND THE SA ME HAS BEEN ADMITTED IN TAX APPEAL NO. 567 OF 2016. THE RELEVANT SUBSTAN TIAL QUESTION OF LAW ADMITTED BY THE HONBLE HIGH COURT READS AS UNDER:- [B] WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ITAT IS RIGHT IN DELETING THE ADDITION (I.E. ADJUSTMENT) TO THE ARM S LENGTH PRICE OF INTERNATIONAL TRANSACTION AMOUNTING TO RS. 2,32,62,603/- AS CORPO RATE GUARANTEE NOT AMOUNTING TO INTERNATIONAL TRANSACTIONS AND NOT LIA BLE FOR UPWARD ADJUSTMENT ? 31. A PERUSAL OF THE ABOVE CLEARLY SHOWS THAT THE REJEC TION OF THE REQUEST FOR THE CONSTITUTION OF LARGER BENCH WAS NEVER CHALLENG ED BEFORE THE HONBLE HIGH COURT. WE, THEREFORE, DO NOT FIND ANY REASON W HY THIS ISSUE HAS BEEN RAISED ONCE AGAIN BEFORE US WHEN THE SAME HAS NOT B EEN CHALLENGED BEFORE THE HONBLE HIGH COURT. MOREOVER, WHEN A SUPERIOR C OURT IS SEIZED WITH A SUBSTANTIAL QUESTION OF LAW ON THIS VERY ISSUE, IT WOULD BE IMPROPER FOR AN INFERIOR COURT TO CONSTITUTE A SPECIAL BENCH TO DEC IDE THE SAME ISSUE. 32. CONSIDERING THE ISSUE IN TOTALITY IN THE LIGHT OF T HE ADMISSION OF THE APPEAL BEFORE THE HONBLE HIGH COURT OF GUJARAT, IN ALL FA IRNESS, IN OUR CONSIDERED ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 21 VIEW AND UNDERSTANDING OF THE LAW, WE RESTORE THIS ISSUE TO THE FILES OF THE A.O. WITH A DIRECTION THAT THE SAME MUST BE CONSIDE RED AFRESH AFTER THE DECISION FROM THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT AND AFTER GIVING A FRESH OPPORTUNITY OF BEING HEARD TO THE AS SESSEE. GROUND NO. 5 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 33. THE NEXT GROUND RELATES TO THE DISALLOWANCE OF THE WEIGHTED DEDUCTION CLAIMED U/S. 35(2AB) ON TRADE MARK CHARGES AND OVER SEAS PRODUCT REGISTRATION CHARGES. 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 ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 22 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. 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. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 23 36. GROUND NO. 7 RELATES TO THE NON ALLOWANCE OF WEIGHT ED DEDUCTION U/S. 35(2AB) ON EXPENSES INCURRED ON CORPORATE ADVERTISE MENT AMOUNTING TO RS. 27,000/-. 37. WITHOUT GOING INTO THE MERITS OF THIS ISSUE, THE LD . SENIOR COUNSEL FAIRLY CONCEDED THAT DUE TO THE SMALLNESS OF THE AMOUNT IN VOLVED HE IS NOT PRESSING THIS GRIEVANCE. THEREFORE THE SAME IS DISM ISSED AS NOT PRESSED. 38. GROUND NO. 8 RELATES TO THE DISALLOWANCE OF RS. 27, 55,18,784/- U/S. 14A OF EXPENSES INCURRED ON BEHALF OF SUN PHARMACEUTICAL I NDUSTRIES. 39. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS AND ON PERUSAL OF THE COPY OF PARTNERSHIP DEED BETWEEN THE ASSESSEE A ND SUN PHARMACEUTICALS INDUSTRIES (SPI) ALONG WITH A COPY OF SUPPLEMENTARY PARTNERSHIP DEED DATED 15.04.2003, THE A.O. NOTICE D THAT AS PER THE IMPUGNED DEEDS, THE ASSESSEE WAS LIABLE TO PERFORM THE FOLLOWING FUNCTIONS ON BEHALF OF SPI: SPI WILL PROVIDE THE TECHNICAL ASSISTANCE IN THE MA NUFACTURING ACTIVITIES CARRIED OUT AND/OR TO BE CARRIED OUT AT THE FIRMS PLANTS AND ADVICE ON THE PRODUCTS STABILITY AND PRODUCT POSITIONING OF THE P RODUCTS MANUFACTURED/ TO BE MANUFACTURED BY THE PARTNERSHIP FIRM. IN ADDITIO N THE PARTY OF THE FIRST PART SHALL LOOK AFTER THE ENTIRE MARKETING AND DIST RIBUTION OF THE PRODUCTS OF THE PARTNERSHIP FIRM WITHOUT ANY ADDITIONAL COST OF THE FIRM . ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 24 40. THE A.O. FURTHER FOUND THAT THE ASSESSEE WAS ENTITL ED TO DRAW YEARLY REMUNERATION OF 15%/5% [REVISED AFTERWARDS] OF THE NET PROFITS OF THE PARTNERSHIP FIRM. IT WAS OBSERVED THAT THE ASSESSE E HAD RECEIVED 5% OF NET PROFITS OF SPI I.E. RS. 29,79,26,967/- AS PER THE A GREEMENT UNDER THE HEAD REMUNERATION. 41. HOWEVER, SPI DID NOT DEBIT THIS REMUNERATION TO ITS PROFIT AND LOSS ACCOUNT BECAUSE OF THE PROVISIONS OF SECTION 40(B) OF THE A CT QUA EXPLANATION 4 WHICH SAYS THAT WORKING PARTNER MEANS AN INDIVIDU AL. THOUGH, THE ASSESSEE WAS A WORKING PARTNER OF SPI BUT BECAUSE O F THE EXPLANATION IT WAS NOT ENTITLED FOR REMUNERATION AS IT IS NOT AN INDIV IDUAL. THEREFORE, SUCH REMUNERATION PAID TO THE WORKING PARTNER COULD NOT HAVE BEEN ALLOWED AS DEDUCTION U/S. 40(B) OF THE ACT. 42. TAKING RECOURSE TO SECTION 28(V) OF THE ACT, SINCE THE REMUNERATION WAS NOT ALLOWABLE IN THE HANDS OF THE SPI, THE ASSESSEE HAD NOT OFFERED THE SAME FOR TAXATION. THE A.O. WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS AVOIDED PAYING TAX ON THE AMOUNT OF RS. 29,79,26,967/-. THE A.O. WAS ALSO OF THE OPINION THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON BEHALF OF SPI WHICH IT HAS DEBITED IN ITS BOOKS OF ACCOUNTS. TAKING RECOUR SE TO THE PROVISIONS OF SECTION 37 OF THE ACT, THE A.O. WAS OF THE OPINION THAT ONLY THOSE EXPENSES ARE ALLOWABLE TO BE DEDUCTED WHICH ARE INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF RUNNING OF ITS BUSINESS AND SINCE TH E ASSESSEE HAS DEBITED THOSE EXPENSES WHICH HAVE BEEN INCURRED ON BEHALF O F A SEPARATE ENTITY I.E. SPI, THEREFORE, THE SAME IS NOT ALLOWABLE AS DEDUCT ION. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 25 43. THE A.O. FOUND THAT THE FOLLOWING EXPENDITURES WERE DIRECTLY RELATED TO THE FUNCTIONS PERFORMED BY THE ASSESSEE ON BEHALF OF SP I- (I) SELLING AND DISTRIBUTION EXPENSES RS. 71,09,3 2,484/- (II) SALARY AND ALLOWANCE TO FIELD STAFF RS. 46,1 8,42,352/- TOTAL RS. 1,17,27,74,836/- 44. THE A.O. DIVIDED THE ABOVEMENTIONED TOTAL EXPENDITU RE BETWEEN THE ASSESSEE AND SPI IN THE RATIO OF TOTAL TURNOVER OF BOTH THE CONCERNS AND CAME TO THE CONCLUSION THAT RS. 47,18,93,873/- HAS TO BE DISALLOWED U/S. 37 OF THE ACT. 45. ASSESSEE ASSAILED THE ASSESSMENT BEFORE THE LD. CIT (A). IT WAS STRONGLY CONTENDED THAT IN RESPECT OF MARKETING AND DISTRIBU TION OF THE PRODUCTS MANUFACTURED BY THE FIRM, THE ASSESSEE HAS NOT INCU RRED ANY EXPENSES FOR THE PARTNERSHIP FIRM NOR FOR DISCHARGING THE SAID R OLE SINCE THE ENTIRE ACTIVITY WAS ALREADY WELL ESTABLISHED FOR ITS OWN B USINESS. IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THE ASSESSEE MERE LY FACILITATED THE BUSINESS OF THE FIRM IN ITS CAPACITY AS A WORKING PARTNER OF THE FIRM. IN OTHER WORDS, THE MAIN CONTENTION OF THE ASSESSEE WAS THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR THE FIRM SINCE THE ENTIRE MARKETING ACTIVITY WAS ALREADY PART OF ITS PRE EXISTING SET UP. 46. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND CONSIDERING THE ALLOWABILITY OF DEDUCTION U/S. 37(1) OF THE ACT, TH E LD. CIT(A) WAS CONVINCED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE AS A PARTNER ON BEHALF OF ITS ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 26 FIRM FOR LOOKING AFTER THE BUSINESS OF THE FIRM IS FOR THE PURPOSE OF BUSINESS AND IS THEREFORE AN ALLOWABLE EXPENDITURE AND CONSE QUENTIAL DISALLOWANCE MADE BY THE A.O. U/S. 37 OF THE ACT IS NOT JUSTIFIE D. HOWEVER, THE LD. CIT(A) WAS OF THE OPINION THAT ON THE GIVEN FACTS DISALLOW ANCE HAS TO BE MADE U/S. 14A OF THE ACT FOR EARNING INCOME WHICH IS EXEMPT F ROM TAX. ACCORDINGLY, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE, ASKIN G IT TO SHOW CAUSE WHY DISALLOWANCE U/S. 14A SHOULD NOT BE MADE SINCE EXPE NDITURE HAS BEEN INCURRED FOR EARNING NON-TAXABLE INCOME. 47. THE ASSESSEE VEHEMENTLY CHALLENGED THE PROPOSED DIS ALLOWANCE U/S. 14A OF THE ACT CLAIMING THAT IT HAS LARGE NETWORK AND OWN FUNDS RUNNING INTO CRORES OF RUPEES AND HENCE THE INVESTMENT IN THE PA RTNERSHIP FIRM IS OUT OF OWN FUNDS. IT WAS CONTENDED THAT SINCE NO BORROWED FUNDS HAVE BEEN UTILIZED, NO DISALLOWANCE U/S. 14A IS WARRANTED. T HE CONTENTIONS OF THE ASSESSEE WERE DISMISSED BY THE FIRST APPELLATE AUTH ORITY WHO WAS OF THE OPINION THAT THE OBJECT OF SECTION 14A IS TO ENSURE THAT SO MUCH OF THE EXPENDITURE INCURRED FOR EARNING INCOME THAT DO NOT CONSTITUTE TOTAL INCOME OF THE ASSESSEE SHOULD NOT BE ALLOWED, WHEN INCOME IS OUTSIDE THE TAX NET, EXPENDITURE INCURRED FOR EARNING SUCH INCO ME ALSO SHOULD NOT BE ALLOWED TO BE SET OFF IN THE COMPUTATION OF TAXABLE INCOME. THE LD. CIT(A) WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS EARNED SHARE OF PROFIT WHICH IS EXEMPT U/S. 10(2A) OF THE ACT AS WELL AS REMUNERATI ON WHICH WAS TAXED AS BUSINESS INCOME U/S. 28(V) OF THE ACT. THEREFORE, P ROPORTIONATE DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING EX EMPT INCOME HAS TO BE MADE U/S. 14A OF THE ACT. THE LD. CIT(A) WAS CONVIN CED THAT THE EXPENDITURE ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 27 INCURRED BY THE ASSESSEE FOR EARNING OF SHARE OF PR OFIT/REMUNERATION FROM THE FIRM IS AT RS. 27,55,18,783/- AS AGAINST RS. 47 ,18,93,873/- DETERMINED BY THE A.O. THE LD. CIT(A) CONFIRMED THE DISALLOWAN CE TO THE EXTENT OF RS. 27,55,18,783/-. 48. BEFORE US, THE LD. SENIOR COUNSEL ONCE AGAIN CONTEN DED THAT SECTION 14A HAS NO APPLICATION ON THE FACTS OF THE CASE. IT IS THE SAY OF THE LD. SENIOR COUNSEL THAT REMUNERATION PAID TO THE PARTNER IS NO T AN EXEMPT INCOME IN ITS HAND. LD. SENIOR COUNSEL FURTHER POINTED OUT TH AT IN THE HANDS OF THE ASSESSEE BECAUSE OF THE SPECIFIC PROVISIONS OF SECT ION 40(B) OF THE ACT READ WITH EXPLANATION, THE REMUNERATION WAS DISALLOWED I N THE HANDS OF THE PARTNERSHIP FIRM AND, THEREFORE, IT WAS NOT OFFERED FOR TAXATION IN THE HANDS OF THE ASSESSEE. INSOFAR AS THE SHARE OF PROFIT IS CONCERNED, THE LD. COUNSEL REITERATED THAT THE ASSESSEE HAD SUFFICIENT OWN FUN DS FOR MAKING THE INVESTMENT IN THE PARTNERSHIP FIRM. THEREFORE, THE DISALLOWANCE MADE BY THE LD. CIT(A) U/S. 14A OF THE ACT IS UNCALLED FOR. 49. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE A.O. IN ALTERNATIVE, THE LD. D.R. CLAIMED THAT THE ALTERNAT IVE DISALLOWANCE MADE BY THE FIRST APPELLATE AUTHORITY IS CORRECT IN LAW. 50. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE ORDE RS OF THE AUTHORITIES BELOW, IN OUR CONSIDERED OPINION, SO FAR AS THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER IS CONCERNED, WE FIND THAT THIS I SSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE CO-ORDINATE BENCH IN ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 28 ASSESSEES OWN CASE IN ITA NO. 2430 & 2400/AHD/2009 WHEREIN THE BENCH HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN EARLIE R ASSESSMENT YEARS IN ITA NO. 1193/AHD/2008. THE RELEVANT PART IN ITA NO. 119 3/AHD/2008 IS AS UNDER:- GROUND NO. 13 RELATES TO THE DISALLOWANCE OF EXPENS ES INCURRED ON BEHALF OF SUN PHARMACEUTICAL INDUSTRIES. 88. THIS ISSUE HAS BEEN DISCUSSED BY THE A.O AT P ARA 13 OF HIS ORDER WHEREIN HE HAS MENTIONED THAT DURING THE COURSE OF SURVEY OPER ATIONS. A COPY OF PARTNERSHIP DEED BETWEEN THE ASSESSEE AND SUN PHARMACEUTICAL IN DUSTRIES (SPI) WAS FOUND ALONG WITH A COPY OF SUPPLEMENTARY PARTNERSHIP DEED . THE A.O FURTHER OBSERVED THAT AS PER THE PARTNERSHIP DEED, THE ASSESSEE WAS ENTITLED TO DRAW YEARLY REMUNERATION OF 15% OF THE NET PROFITS OF THE PARTN ERSHIP FIRM. THE A.O FURTHER OBSERVED THAT THE ASSESSEE HAD RECEIVED 15% OF NET PROFITS OF SPI RS. 15,75,55,219/- AS PER THE AGREEMENT OF PARTNERSHIP. HOWEVER, THE A.O NOTICED THAT THE PARTNERSHIP FIRM HAS NOT DEBITED THIS REMU NERATION PAID TO THE ASSESSEE BY TAKING RECOURSE TO THE PROVISIONS OF SECTION 40( B) WHEREIN REMUNERATION IS ALLOWED TO A WORKING PARTNER WHO IS AN INDIVIDUAL. 89. THE A.O FURTHER NOTICED THAT THOUGH THE REMUNER ATION WAS NOT OFFERED FOR TAXATION BY THE ASSESSEE BUT IT HAS DEBITED THE EXP ENDITURE INCURRED ON BEHALF OF THE PARTNERSHIP FIRM IN ITS BOOKS OF ACCOUNT. THE A .O WAS OF THE FIRM BELIEF THAT THESE EXPENDITURES ARE NOT RELATED TO THE EARNING O F INCOME AND ACCORDINGLY DISALLOWED (A) SELLING AND DISTRIBUTION EXPENSES 25,68,21,928/- SALARY AND ALLOWANCE TO FIELD STAFF 24,12,98,724/- TOTALING TO RS. 49,81,20,652/-. THE A.O PROCEEDED BY DISALLOWING RS. 8,49,79,383/- BASED ON THE RATIO OF THE TOTAL TURNOVER OF THE ASSESSEE AND THE PARTNERSHIP FIRM S PI. 90. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MA TTER BEFORE THE LD. CIT(A). LD. CIT(A) HAS CONSIDERED THIS GRIEVANCE AT PARA 26 VID E GROUND NO. 25 BEFORE HIM. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) WAS OF THE OPINION THAT THE ASSESSEE ALREADY HAD AN EXISTING SALES AND DISTRIBUTION NETWORK IN THE ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 29 FORM OF C & F AGENT, ETC. THEREFORE THE ASSESSEE WA S NOT REQUIRED TO INCUR ANY ADDITIONAL/EXTRA EXPENSES FOR UNDERTAKING THE MARKE TING FUNCTION FOR AND ON BEHALF OF PARTNERSHIP FIRM. THE LD. CIT(A) FURTHER OBSERVED THAT MOST OF THE EXPENSES INCURRED BY THE ASSESSEE FOR THE SALES WER E IN THE NATURE OF FIXED EXPENSES. HOWEVER, THERE WERE SIMILAR ADDITIONAL EX PENSES INCURRED BY THE ASSESSEE FOR CARRYING OUT THE SALES FOR AND ON BEHA LF OF THE PARTNERSHIP FIRM. THE LD. CIT(A) FINALLY CONCLUDED BY HOLDING THAT THE IN CREMENTAL EXPENSES INCURRED BY THE ASSESSEE IN EXCESS WHAT WAS INCURRED IN THE PRE CEDING YEAR TOWARDS THE MARKETING AND DISTRIBUTION SHOULD BE ALLOCATED AND ACCORDINGLY DIRECTED THE A.O TO RECALCULATE THE DISALLOWANCE. 91. AGGRIEVED BY THIS FINDING OF THE LD.CIT(A) B OTH ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. THE LD. D.R. STRONGLY STATED T HAT SINCE THE ASSESSEE HAS NOT SHOWN ANY INCOME FROM REMUNERATION FROM THE PARTNER SHIP FIRM. THE ASSESSEE WAS NOT ENTITLED FOR THE CLAIM OF DEDUCTION. THE LD . D.R. FURTHER STATED THAT NO BIFURCATION HAVE BEEN PROVIDED BY THE ASSESSEE TO S HOW THE EXPENSES INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE PARTNERSHIP FIRM AND FOR THE ASSESSEE COMPANY. THE D.R. CONCLUDED BY SAYING THAT THERE IS NO ERROR IN THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESS EE REITERATED THE CLAIM AND STATED THAT THERE IS NO BASIS FOR ALLOCATING THE EX PENSES PRO RATA. THE LD. COUNSEL FURTHER STATED THAT THE FIRST APPELLATE AUTHORITY F URTHER ERRED IN DISALLOWING THE EXPENDITURE ON PRO RATA BASIS ONLY ON INCREMENTAL E XPENSES. IT IS THE SAY OF THE LD. COUNSEL THAT THE DISALLOWANCE IS UNJUSTIFIABLE. 92. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AU THORITIES BELOW. WE HAVE ALSO GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMI SSIONS. THERE IS NO DENYING THAT THE PARTNERSHIP DEED HAS A PROVISION FOR THE P AYMENT OF REMUNERATION TO THE WHOLE TIME WORKING PARTNER BY VIRTUE OF WHICH THE A SSESSEE WAS ENTITLED FOR THE REMUNERATION. THERE IS ALSO NO DENYING THAT AS PER THE PROVISIONS OF SECTION 40(B) OF THE ACT, THE REMUNERATION IS PAYABLE TO A WHOLE TIME WORKING PARTNER WHO IS AN INDIVIDUAL AND THE ASSESSEE IS A LIMITED COMPANY . THEREFORE THE ASSESSEE COULD ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 30 NOT HAVE SHOWN THIS REMUNERATION AS PART OF ITS COM PUTATION OF INCOME. IT IS ALSO A FACT THAT THE PARTNERSHIP FIRM HAS ALSO NOT DEBIT ED THIS REMUNERATION TO ITS PROFIT AND LOSS ACCOUNT. HOWEVER, THE ASSESSEE COMP ANY USING ITS NETWORK HAS INCURRED CERTAIN EXPENDITURE WHICH ACCORDING TO THE REVENUE AUTHORITIES ARE NOT DIRECTLY RELATED TO EARNING OF INCOME. IN OUR UNDER STANDING OF THE LAW AN EXPENDITURE IS ALLOWABLE IF IT IS INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND NOT FOR THE PURPOSES OF EARNING PROFIT . AS PER THE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND THE PARTNERSHIP FI RM, THE ASSESSEE HAD ASSISTED THE PARTNERSHIP FIRM IN CARRYING ON ITS BU SINESS BY USING ITS NETWORK FOR MARKETING THE PHARMACEUTICALS PRODUCTS SUCCESSIVELY . THUS, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT FO R THE PURPOSES OF ITS BUSINESS. SINCE THE ASSESSEE IS HOLDING 95% IN THE PARTNERSHI P FIRM IT BECOMES THE DUTY OF THE ASSESSEE TO PROMOTE THE BUSINESS OF THE PARTNER SHIP FIRM, IN THE CAPACITY OF THE MAJORITY STAKE HOLDER. INCIDENTALLY, THE REVENU E AUTHORITIES HAVE NOT BROUGHT ANYTHING ON RECORD WHICH COULD SUGGEST THAT THE EXP ENDITURES HAVE NOT BEEN INCURRED FOR THE PURPOSES OF BUSINESS. BE IT ASSESS EES BUSINESS OR THE BUSINESS OF THE PARTNERSHIP FIRM WHERE THE ASSESSEE IS A MAJORI TY STAKE HOLDER. THEREFORE, IN OUR CONSIDERED OPINION, THE EXPENDITURES INCURRED B Y THE ASSESSEE COMPANY DESERVES TO BE ALLOWED AND WE DIRECT THE A.O TO DEL ETE THE ADDITION OF RS. 8,49,79,383/-. 51. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA), NO DISALLOWANCE SHOULD BE MADE U/S. 37 (1) OF THE ACT. 52. COMING TO THE DISALLOWANCE MADE U/S. 14A BY THE FIR ST APPELLATE AUTHORITY, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE WAS HAVI NG SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENT IN THE PARTNERSHIP FIRM. IT IS ALSO TRUE THAT THE ASSESSEE WAS ON A CONTRACTUAL OBLIGATION TO LOOK AF TER THE MARKETING AND ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 31 DISTRIBUTION ACTIVITIES OF THE FIRM SPI AS PER THE PARTNERSHIP DEED READ ALONG WITH THE SUPPLEMENTARY DEED TO EARN REMUNERATION FR OM THE PARTNERSHIP FIRM. HOWEVER, IT IS EQUALLY TRUE THAT A REASONABLE DISALLOWANCE OF EXPENDITURE SHOULD BE MADE FOR EARNING THE EXEMPT I NCOME SO FAR AS THE SHARE OF PROFIT FROM THE PARTNERSHIP FIRM SPI IS CO NCERNED. WE ARE CONSCIOUS ABOUT THE FACT THAT RULE 8D IS NOT APPLIC ABLE FOR THE YEAR UNDER CONSIDERATION BUT AT THE SAME TIME FOR THE COMPUTAT ION OF DISALLOWANCE FOR ADMINISTRATIVE EXPENDITURES, THE FORMULA GIVEN UNDE R RULE 8D IS THE MOST APPROPRIATE METHOD FOR THE COMPUTATION OF THE DISAL LOWANCE. WE ACCORDINGLY DIRECT THE A.O. TO COMPUTE THE DISALLOW ANCE SO FAR AS ADMINISTRATIVE EXPENDITURES ARE CONCERNED AS PER RU LE 8D OF THE ITAT 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 AUTHORIT Y AND DIRECT THE A.O. TO RE-COMPUTE THE DISALLOWANCE AS DIRECTED HEREINABOVE . GROUND NO. 8 IS ALLOWED IN PART FOR STATISTICAL PURPOSE. 53. GROUND NO. 9 RELATES TO THE FOREIGN EXCHANGE FLUCTU ATION GAIN AS TAXABLE INCOME AMOUNTING TO RS. 14,33,80,289/-. 54. WHILE SCRUTINIZING THE REVISED COMPUTATION OF NORMA L BUSINESS INCOME, THE A.O. NOTICED THAT THE ASSESSEE HAS TREATED EXCHANGE RATE GAIN OF RS. 30,87,40,379/- AS A CAPITAL RECEIPT. THE ASSESSEE W AS ASKED TO SHOW CAUSE WHY THE SAME SHOULD NOT BE TAXED AS NORMAL BUSINESS INCOME. THE ASSESSEE STRONGLY OBJECTED TO THE PROPOSED ACTION O F THE A.O. IN SUPPORT OF ITS CONTENTION, THE ASSESSEE RELIED UPON THE VARIOU S DECISIONS NAMELY HOMI ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 32 MEHTA SONS PVT. LTD. 22 ITR 528 (BOM.), SUTLEJ COTT ON MILLS LTD. 116 ITR 1 (SC), TATA IRON & STEEL CO. LTD. 231 ITR 285 (SC), PADAMJEE PULP & PAPER MILLS LTD. 210 ITR 801 (BOM.) 55. THE CONTENTIONS OF THE ASSESSEE WERE DISMISSED BY T HE A.O. WHO WAS OF THE FIRM BELIEF THAT THE RECEIPT IN THE CASE ON HAND IS NOTHING BUT A REVENUE RECEIPT. THE A.O. ACCORDINGLY TAXED THE SAME AS REV ENUE RECEIPT. 56. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED WHAT HAS BEEN STATED DURING THE COURSE OF THE ASSESSMENT PRO CEEDINGS. 57. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) WAS OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS ENTERED IN TO FORWARD CONTRACTS TO SAFEGUARD THE VALUE OF INVESTMENTS MADE BY THE ASSE SSEE IN ITS SUBSIDIARY AGAINST THE ADVERSE FOREX FLUCTUATION AND TO THAT E XTENT THE LD. CIT(A) RESTRICTED THE ADDITION TO RS. 14,33,80,289/-. 58. INSOFAR AS THE LOANS RECEIVED BY WAY OF ECG/FCCB, T HE LD. CIT(A) WAS OF THE OPINION THAT THESE BORROWINGS WERE FOR THE PURPOSE OF CAPITAL EXPANSION OF THE BUSINESS SINCE THE PROCEEDS CAN BE USED FOR CAP ITAL PURPOSES ONLY. THEREFORE, THERE IS NO CASE FOR ANY ADDITION ON ACC OUNT OF FOREX GAIN IN RESPECT OF REINSTATEMENT OF FCCB AND CONVERSION OF FCCB INTO EQUITY SHARES AS WELL AS REPAYMENT OF ECB SINCE THESE GAINS/RECEI PTS ARE HELD AS CAPITAL RECEIPT ONLY. THE LD. CIT(A) CONFIRMED THE ADDITION OF RS. 14,33,80,289/- ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 33 BEING FOREX GAIN IN RESPECT OF ROLLING OVER OF FORW ARD CONTRACT FOR SAFEGUARDING INVESTMENT IN CARACO AND OFCD IN GLOBA L. 59. BEFORE US, THE LD. SENIOR COUNSEL ONCE AGAIN HEAVIL Y RELIED UPON THE VERY SAME DECISIONS WHICH WERE RELIED UPON BEFORE THE LO WER AUTHORITY. PER CONTRA, THE LD. D.R. SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 60. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FAC TUAL MATRIX. THE MAIN PARTICULARS OF FOREIGN EXCHANGE GAIN ARE AS UNDER:- S. NO. PARTICULARS OF F OREIGN EXCHANGE GAIN AMOUNT (RS.) (I) FORWARD CONTRACTS IN RESPECT OF INVESTMENT IN CARAC O AND OFCD IN GLOBAL 14,33,80,289/ - (II) REINSTATEMENT OF FCCB AND EXCHANGE GAIN ON CON VERSION OF FCCB INTO EQUITY SHARES 29,62,23,740/- (III) REPAYMENT OF ECB 1 3,78,089/ - THE OTHER PARTICULARS RELATING TO FOREIGN EXCHANGE LOSS ARE ON ACCOUNT OF REINSTATEMENT OF BANK BALANCE/BANK DEPOSIT OUT OF FCCB PROCEEDS AND REINS TATEMENT OF LOAN GIVEN TO SUBSIDIARIES OUT OF FCCB PROCEEDS/REINSTATEMENT OF INVESTMENT IN MUTUAL FUNDS OUT OF FCCB PROCEEDS. THE APPELLANT HAS TREATED THE FOREX LOSS IN RESPECT OF THE ABOVE ALSO AS CAPITAL LOSS. THUS, THE NET FOREX GAIN TREATED AS CAPITAL RECEIPT IS REPORTED AT RS. 31,03,51,524/-. 61. IN OUR CONSIDERED OPINION PROFITS ACCRUED TO THE AS SESSEE IS NOT IN THE COURSE OF ANY TRADING ACTIVITY BUT ON ACCOUNT OF AP PRECIATION 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 THIS PROPOSITION, WE DRAW SUPPORT FROM THE DECISION OF T HE HONBLE HIGH COURT OF BOMBAY 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 ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 34 GLOBAL ARE ON CAPITAL ACCOUNT AND ANY PROFITS RECEI VED BY ASSESSEE ON CANCELLATION OF FORWARD CONTRACT WOULD NOT CHANGE ITS CHARACTER SAME BEING IN CONNECTION WITH A CAPITAL ASSET AND, THERE FORE, HAS TO BE TREATED AS CAPITAL RECEIPT. FOR THIS PROPOSITION, WE DRAW SUPP ORT FROM THE DECISION GIVEN IN THE CASE OF MAHINDRA & MAHINDRA LTD. 5 SOT 217 (MUM.). 62. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF T HE NATURE OF CONTRACT ENTERED INTO BY THE ASSESSEE, WE DO NOT FIND ANY ME RIT IN THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. WE SET ASIDE THE SAME AN D DIRECT FOR THE DELETION OF THE ADDITION OF RS. 14,33,80,289/-. GROUND NO. 9 IS ALLOWED. 63. GROUND NO. 10 RELATES TO THE REDUCTION OF UNREALIZE D EXPORT PROCEEDS OF RS. 6,35,631/- FROM EXPORT TURNOVER FOR PURPOSE OF DEDU CTION U/S. 10B OF THE ACT. 64. BOTH SIDES AGREED THAT AN IDENTICAL ISSUE WAS CONSI DERED AND DECIDED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 1558/AHD/2006 QUA GROUND NO. 3 OF THAT APPEAL. ON SUCH CONCESSION, WE HAVE CONSIDERED THE DECISION OF THE CO-ORDINATE BENCH (SUPRA). THE RELE VANT PART READS 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 DEDUCTION U /S. 80HHC. 6. THE LD. COUNSEL STATED THAT AN IDENTICAL ISSU E HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2001-02 WHEREIN THE IS SUE HAS BEEN SET ASIDE TO THE FILES OF THE A.O. THE LD. COUNSEL PRAYED FOR A SIMILAR DIREC TION SHOULD BE GIVEN FOR THE YEAR UNDER CONSIDERATION ALSO. THE LD. D.R. DID NOT OBJECT TO THIS. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR A.Y. 2001-02 AT PARA 6 ON PAGE 12 ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 35 OF ITA NOS. 3289 & 3434/AHD/2003 AND AT PARA 6.3 TH E TRIBUNAL HAD DIRECTED THE A.O TO APPLY THE PROVISIONS OF SECTION 155(13) OF THE ACT AND DECIDE THE ISSUE AFRESH. 7. RESPECTFULLY, FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH, WE DIRECT THE A.O. ACCORDINGLY. GROUND NO. 3 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 65. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH, WE DIRECT ACCORDINGLY. THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 66. GROUND NO. 11 RELATES TO THE DISALLOWANCE OF PROVIS ION FOR LEAVE ENCASHMENT U/S. 43B OF THE ACT AMOUNTING TO RS. 1,8 3,33,509/-. 67. ONCE AGAIN BOTH SIDES CONCEDED THAT THE HONBLE SUP REME COURT IS SEIZED WITH AN IDENTICAL ISSUE IN THE CASE OF EXIDE INDUST RIES LTD. THEREFORE, IT WOULD BE APPROPRIATE TO RESTORE THIS ISSUE TO THE F ILES OF THE A.O. THE A.O. IS DIRECTED TO DECIDE THIS ISSUE AFRESH AFTER THE DECI SION OF THE HONBLE SUPREME COURT AND AFTER GIVING A REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 11 IS ALLOWED FOR STATISTI CAL PURPOSE. 68. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 2067/AHD/2013 REVENUES APPEAL 69. GROUND NO.1 RELATES TO THE DELETION OF THE DISALLOW ANCE OF RS. 67,620/- CLAIMED AS WEIGHTED DEDUCTION U/S. 35(2AB) OF THE A CT ON GIFT EXPENSES INCURRED FOR R & D EMPLOYEES. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 36 70. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE BY THE CO-ORDINATE BENCH IN ITA NO. 1592/AH D/2011 QUA GROUND NO. 2 OF THAT APPEAL. THE RELEVANT PART READS AS UN DER:- 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 CLARIES LIFE SCIENCES 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 JURISDIC TIONAL HIGH COURT IN TAX APPEAL NO. 383 OF 2008. NOW, THAT THE DECISION OF T HE FIRST APPELLATE AUTHORITY IS WELL SUPPORTED BY THE DECISION OF THE HONBLE JURIS DICTIONAL HIGH COURT. NO INTERFERENCE IS CALLED FOR. GROUND NO. 2 IS DISMISS ED. 71. RESPECTFULLY FOLLOWING THE SAME, GROUND NO. 1 IS DI SMISSED. 72. GROUND NO. 2 RELATES TO THE DELETION OF THE DISALLO WANCE 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-ORDINAT E 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 THEREI N, GROUND NO. 2 IS ALSO DISMISSED. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 37 74. GROUND NO. 3 RELATES TO THE DELETION OF THE DISALLO WANCE 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 EMPL OYEES. 75. THIS ISSUE IS IDENTICAL TO THE ISSUES COVERED BY GR OUND NOS. 1 & 2 HEREINABOVE. FOR THE REASONS GIVEN THEREIN, GROUND NO. 3 IS DISMISSED. 76. GROUND NO. 4 RELATES TO THE DELETION OF THE DISALLO WANCE OF DEPRECIATION ON MOTOR CAR @ 30% INSTEAD OF 15% AS PER PROVISIONS OF LAW. 77. THE ASSESSEE HAS CLAIMED DEPRECIATION ON CERTAIN MO TOR VEHICLES OWNED BY IT ON HIRE. THE ASSESSEE HAS CLAIMED DEPRECIATION O N SUCH MOTOR VEHICLES @ 30% AMOUNTING TO RS. 34,69,434/- . SINCE THE ASSESS EE IS NOT IN THE BUSINESS OF GIVING MOTOR VEHICLES ON HIRE, THE A.O. ALLOWED DEPRECIATION @ 15% ACCORDINGLY EXCESS DEPRECIATION AMOUNTING TO RS. 17 ,34,717/- WAS DISALLOWED. 78. BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE REITERATED ITS CLAIM OF DEPRECIATION @ 30%. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) FOUND THAT THE MAIN BUSINESS OF THE ASSE SSEE IS MANUFACTURING OF BULK DRUGS AS WELL AS FORMULATION PRODUCTS. HOWEVER , THE LD. CIT(A) FOUND THAT THE ASSESSEE IS ALSO IN THE BUSINESS OF LEASIN G AND FINANCING ACTIVITY. THE LD. CIT(A) WAS CONVINCED THAT THE ASSESSEE HAS FULFILLED ALL THE BASIC REQUIREMENTS FOR CLAIMING HIGHER DEPRECIATION @ 30% . THE LD. CIT(A) ACCORDINGLY DIRECTED THE A.O. TO ALLOW HIGHER RATE OF DEPRECIATION. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 38 79. BEFORE US, THE LD. D.R. SUPPORTED THE ASSESSMENT OR DER AND THE LD. SENIOR COUNSEL REITERATED WHAT HAS BEEN STATED BEFORE THE FIRST APPELLATE AUTHORITY. IT IS TRUE THAT THE MAIN BUSINESS OF THE ASSESSEE IS MANUFACTURING OF BULK DRUGS AS WELL AS FORMULATION PRODUCTS. IT I S EQUALLY TRUE THAT THE ASSESSEE IS ALSO IN THE BUSINESS OF LEASING AND FIN ANCE ACTIVITY. THERE IS NO DISPUTE THAT THE HIRE CHARGES HAVE BEEN ASSESSED AS BUSINESS INCOME. THEREFORE, WE DO NOT FIND ANY REASON WHY THE HIGHER RATE OF DEPRECIATION SHOULD NOT BE ALLOWED. IN OUR CONSIDERED OPINION, O NCE THE BASIC CONDITIONS ARE DULY SATISFIED, THERE IS NO BAR FOR CLAIMING HI GHER DEPRECIATION. MOREOVER, THIS ISSUE IS NOW WELL SETTLED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE HONBLE SUPREME COURT IN THE CASE OF ICDS LTD. 350 ITR 527. WE DECLINE TO INTERFERE. GROUND NO. 4 IS DISMISSED. 80. GROUND NO. 5 RELATES TO THE ALLOWANCE OF DEDUCTION OF FBT PROVISION OF RS. 1,09,77,278/- WHILE CALCULATING BOOK PROFIT U/S. 11 5JB OF THE ACT. 81. WE FIND THAT IN IDENTICAL ISSUE WAS CONSIDERED BY T HE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 1592/AHD/2011 QUA GR OUND NO. 7 OF THAT APPEAL AND THE SAME READS AS UNDER:- GROUND NO. 7 RELATES TO THE EXCLUSION OF PROVISION FOR FBT FOR COMPUTING BOOK PROFIT. 54. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF ASB INTERNATIONAL P. LTD. 26 TAXMANN .COM 87. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE HIGH COURT (S UPRA), WE CONFIRM THE DIRECTIONS OF THE LD. CIT(A). GROUND NO. 7 IS DISMI SSED. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 39 82. RESPECTFULLY FOLLOWING THE SAME, WE DECLINE TO INTE RFERE. GROUND NO. 5 IS DISMISSED. 83. GROUND NO. 6 RELATES TO THE DELETION OF THE ADDITIO N OF RS. 66,18,485/- MADE ON ACCOUNT OF EXCESS DEDUCTION WHILE CALCULATING BO OK PROFIT U/S. 115JB FOR DEDUCTION U/S. 10B OF THE ACT. 84. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCE EDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CONSIDERED THE AMOUNT OF RS. 5,11,63,871/- FOR DETERMINATION OF BOOK PROFITS U/S. 115JB OF THE ACT . THE A.O. WAS OF THE OPINION THAT THE CORRECT FIGURE SHOULD HAVE BEEN 4, 45,45,386/-. THE ASSESSEES CONTENTION WAS THAT THE AMOUNT OF INCOME TO WHICH PROVISIONS OF SECTION 10, 10A, 10B APPLY, IF ANY SUCH AMOUNT I S CREDITED TO THE PROFIT AND LOSS ACCOUNT IS TO BE REDUCED WHILE COMPUTING T HE BOOK PROFITS UNDER EXPLANATION 2 SECTION 115JB (2) OF THE ACT AND, THE REFORE, RS. 5,11,63,871/- OUGHT TO HAVE BEEN REDUCED BY THE A.O. THE CONTENTI ON OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE A.O. WHO DISALLOWED TH E CLAIM OF EXCESS DEDUCTION OF RS. 66,18,485/- AND ADDED BACK IN THE WORKING OF BOOK PROFIT U/S. 115JB OF THE ACT. 85. THE ASSESSEE SUCCEEDED BEFORE THE LD. CIT(A) BECAUS E OF WHICH THE REVENUE IS BEFORE US. WE FIND THAT THIS ISSUE IS NO MORE RE S INTEGRA BECAUSE THE HONBLE SUPREME COURT IN THE CASE OF AJANTA PHARMA LIMITED 327 ITR 305 HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE. THE HONBLE SUPREME COURT HAS LAID DOWN THE RATIO T HAT 100% OF THE EXPORT ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 40 PROFITS EARNED BY THE ASSESSEE AS COMPUTED U/S. 80H HC(3) WAS ELIGIBLE FOR DEDUCTION UNDER CLAUSE (IV) OF THE EXPLANATION TO S ECTION 115JB OF THE ACT. 86. RESPECTFULLY FOLLOWING THE SAME, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 6 I S DISMISSED. 87. GROUND NO. 7 RELATES TO THE DELETION OF THE ADDITIO N OF RS. 1,16,56,762/- MADE ON ACCOUNT OF SALES TO SUN PHARMA INDUSTRIES. 88. BOTH SIDES AGREED THAT A SIMILAR ISSUE WAS CONSIDER ED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 1589/AHD/20 11. WE FIND THAT THE CO-ORDINATE BENCH IN ITA NO. 1589/AHD/2011 HAS FOLL OWED THE FINDINGS GIVEN IN ITA NO. 2430/AHD/2009, THE RELEVANT PART R EADS 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. CI T(A) BUT WITHOUT ANY SUCCESS. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT AN IDENTICAL ISSUE WAS ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 41 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 PARA 1 2 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 RAW MATERIALS /PRODUCTS TO ITS SISTER CONCERN AT A LOWER RATE THAN WAS SOLD TO THIRD PARTIES AND THEREBY DIVERTING THE PROFITS. ASSESSEE WAS ASKED TO EXPLAIN ITS STAND. ASSESSEE FILED A DETAILED REPLY GIVING DETAILS OF R AW MATERIALS/PRODUCTS BEING SOLD TO ITS SISTER CONCERN AND TO THIRD PARTIES ALONG WI TH RATES AND QUANTITY SOLD. ON ANALYSIS OF THE REPLY, THE A.O FOUND THAT THERE WER E 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 SUPPORTED TH E 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 MAKING T HE IMPUGNED ADDITIONS. A PERUSAL OF THE ASSESSMENT ORDER SHOW THAT THE ADDIT IONS 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 ONLY IN RESPECT OF PAYMENTS MADE TO ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 42 RELATED PARTIES MENTIONED THEREIN. BUT THE TRANSACT ION 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 TR IBUNAL (SUPRA), WE DIRECT THE A.O TO DELETE THE ADDITION OF RS. 21,25,278/-. GROUND N O. 9 IS ALLOWED. 89. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 7 IS DISMISSED. 90. GROUND NO. 8 RELATES TO RESTRICTING OF THE ADDITION TO THE EXTENT OF RS. 27,55,18,783/- MADE ON ACCOUNT OF SELLING & DISTRIB UTION EXPENSES ON BASIS OF RATIO OF TURNOVER OF ASSESSEE AND SUN PHARMA IND USTRIES. 91. A SIMILAR ISSUE WAS CONSIDERED BY THE CO-ORDINATE B ENCH IN ITA NO. 1589/AHD/2011 WHEREIN THE BENCH HAS FOLLOWED ITS EA RLIER DECISION IN ITA NO. 2430/AHD/2009. A RELATED ISSUE HAS BEEN CONSIDE RED BY US IN ASSESSEES APPEAL IN ITA NO. 2076/AHD/2013 (SUPRA) QUA GROUND NO. 8 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, T HIS GROUND IS DISMISSED. 92. GROUND NO.9 RELATES TO THE DELETION OF THE ADDITION OF RS. 29,76,01,829/- MADE ON ACCOUNT OF FOREIGN EXCHANGE GAIN. 93. A RELATED ISSUE HAS BEEN CONSIDERED BY US IN ASSESS EES APPEAL IN ITA NO. 2076/AHD/2013 QUA GROUND NO. 9 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, WE DECLINE TO INTERFERE. GROUND NO. 9 IS DISMISSED. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 43 94. GROUND NO. 10 RELATES TO THE DELETION OF THE DISALL OWANCE OF RS. 4,26,71,216/- MADE ON ACCOUNT OF EXPENSES U/S. 40(A )(IA) OF THE ACT. 95. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY T HE CO-ORDINATE BENCH IN ITA NO. 1589/AHD/2011 VIDE GROUND NO. 11 OF THAT AP PEAL. THE RELEVANT PART READS AS UNDER:- GROUND NO. 11 RELATES TO THE DISALLOWANCE U/S. 40(A )(IA) FOR NON DEDUCTION OF TAX ON FOREIGN PAYMENTS. 37. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASS ESSEE DREW OUR ATTENTION TO THE APPELLATE ORDER DATED 29.05.2009 PASSED BY THE CIT( A)-31, MUMBAI FOR A.Y. 2006- 07 IN THE CASE OF SUN PHARMACEUTICAL INDUSTRIES LTD . IT IS THE SAY OF THE LD. COUNSEL THAT ON IDENTICAL SET OF FACTS APPEAL IS PENDING BE FORE THE TRIBUNAL MUMBAI BENCHES . 38. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO TH E CONTENTIONS OF THE LD. COUNSEL. WE ACCORDINGLY RESTORE THIS ISSUE TO THE F ILES OF THE A.O. THE A.O IS DIRECTED TO DECIDE THE ISSUE AFRESH AFTER CONSIDERI NG THE DECISION OF THE TRIBUNAL MUMBAI BENCHES AND AFTER AFFORDING AN OPPORTUNITY O F BEING HEARD. GROUND NO. 11 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 96. AS THE CO-ORDINATE BENCH HAS RESTORED THE ISSUE TO THE FILES OF THE A.O., WE DIRECT THE A.O. TO FOLLOW THE SIMILAR DIRECTION IN THIS YEAR ALSO. GROUND NO. 10 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 97. GROUND NO. 11 RELATES TO THE DELETION OF THE DISALL OWANCE OF RS. 23,68,918/- CLAIMED AS REVENUE EXPENSES. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 44 98. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. F OUND THAT THE ASSESSEE HAS INCURRED RS. 224.7 MILLION TOWARDS REPAIRING EX PENSES. ON SCRUTINIZING THE LEDGER COPIES OF THE SAID REPAIRING EXPENSES, T HE A.O. WAS OF THE OPINION THAT CERTAIN REPAIRING EXPENSES NEED TO BE CAPITALIZED. THEREFORE, THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY SUCH REPAI RING EXPENSES SHOULD NOT BE CAPITALIZED AND ADDED BACK TO THE TOTAL INCO ME. 99. THE ASSESSEE FILED A DETAILED REPLY EXPLAINING THE NATURE OF EXPENDITURE AND CONTENDING THAT ALL THE IMPUGNED EXPENDITURES ARE I N THE NATURE OF REPAIRS AND MAINTENANCE AND, THEREFORE, SHOULD BE ALLOWED A S REVENUE EXPENDITURE. THE DETAILED SUBMISSION OF THE ASSESSE E DID NOT FIND ANY FAVOUR WITH THE A.O. WHO WAS OF THE OPINION THAT OU T OF TOTAL REPAIRING EXPENSES, AMOUNT OF RS. 28,51,291/- HAS TO BE DISAL LOWED AS CAPITAL EXPENDITURE. THE A.O. ALLOWED DEPRECIATION AS PER T HE PROVISIONS OF THE LAW AND MADE DISALLOWANCE OF RS. 23,68,918/-. 100. ASSESSEE STRONGLY AGITATED THE ISSUE BEFORE THE LD. CIT(A). AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) WAS OF THE OPINION THAT THE A.O. HAS MERELY GIVEN THE FINDING IN RESPE CT OF VARIOUS EXPENDITURES FOR PURCHASE OF VARIOUS ITEMS THAT THE ITEMS PURCHASED ARE CAPITAL ASSETS. THE LD. CIT(A) FOUND THAT THE A.O. HAS NOT GIVEN ANY REASONS AS TO HOW THE PURCHASE OF VARIOUS ITEMS MADE BY THE ASSESSEE HAS RESULTED INTO BRINGING ANY NEW ASSET INTO EXISTENCE OR OBTAI N A NEW ADVANTAGE. THE LD. CIT(A) ACCORDINGLY DELETED THE DISALLOWANCE OF RS. 23,68,918/-. ITA NOS. 207 6 & 2067/AHD/2013 . A.Y. 2007-08 45 101. BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE ASSE SSMENT ORDER. THE LD. SENIOR COUNSEL DREW OUR ATTENTION TO THE DETAIL S OF THE RELEVANT EXPENDITURES AND STRONGLY CONTENDED THAT THE EXPEND ITURES ARE OF REVENUE IN NATURE. 102. WE HAVE CAREFULLY PERUSED THE FACTUAL MATRIX. WE HA VE ALSO GONE THROUGH CAREFULLY THE DETAILS OF THE EXPENDITURES. IN OUR CONSIDERED OPINION, THE IMPUGNED EXPENDITURES ARE FOR THE PURPOSE OF PR ESERVING AND MAINTAINING THE ALREADY EXISTING ASSETS. THE EXPEND ITURES ARE FOR THE PURPOSE OF REPLACEMENT OF DEFECTIVE PARTS OF MAIN M ACHINE OR THEY ARE INCURRED ON REPAIRS AND MAINTENANCE AND HAVE NOT RE SULTED INTO CREATION OF ANY NEW ASSET LEADING TO ANY NEW ADVANTAGE. INSOFAR AS THE PURCHASE OF 206 BATTERIES FOR UPS IS CONCERNED, SUCH BATTERIES ARE USED IN THE NORMAL COURSE OF BUSINESS AND ARE REQUIRED TO BE REPLACED AFTER REGULAR INTERVAL FOR EFFICIENT FUNCTIONING OF THE UPS. THEREFORE, THE PU RCHASE OF BATTERIES CANNOT BE CONSIDERED AS CREATION OF ANY NEW ASSET. CONSIDERING THE FACTS IN TOTALITY, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). GROUND NO. 11 IS ACCORDINGLY DISMISSED. 103. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 27 - 04- 20 17 SD/- SD/- (R. P. TOLANI) (N. K. BILLAIYA) VICE PRESIDENT TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 27/04/2017