IPCA LABORATORIES LTD, MUMBAI V. ASST CIT (LTU), MUMBAI

ITA 2493/MUM/2015

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1537 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: K
• Assessment Year: 2008-2009
• Appeal Filed On: 29-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Additional depreciation; Wholly owned subsidiary; Non-deduction of tax; Capital receipt; Commercial expediency; Capital expenditure; Rule 8D; Set aside
• Section: 40A(3); 143(3); 14A; 115JB; 80IB; 32(1)(iia); 133(6); 37(1); 201; 144C; 80IC; 80HH; 64; 80IC; 43; 48; 73; 72; 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM ITA No. 8120/Mum/2010 (Assessment Year 2005–06) ITA No. 8084/Mum/2010 (Assessment Year 2006–07) ITA No. 3267/Mum/2015 (Assessment Year 2007–08) ITA No. 2493/Mum/2015 (Assessment Year 2008–09) ITA No. 3597/Mum/2016 (Assessment Year 2009–10) ITA No. 3811/Mum/2016 (Assessment Year 2010–11) IPCA Laboratories Ltd. Natvarlal Vepari & CO Oricon House, 4 th Floor, 12 K Dubahsh Marg, Mumbai-400 023 Vs. Asst. CIT (LTU) 28 th Floor, Centre no.1, World Trade Centre, Cuffe Parade Mumbai-400 005 (Appellant) (Respondent) PAN No. AAACI1220M ITA No. 7511/Mum/2010 (Assessment Year 2005–06) ITA No. 2815/Mum/2015 (Assessment Year 2008–09) ITA No. 3691/Mum/2016 (Assessment Year 2009–10) ITA No. 5227/Mum/2016 (Assessment Year 2010–11) Page | 2 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 IPCA Laboratories Ltd. Natvarlal Vepari & CO Oricon House, 4 th Floor, 12 K Dubahsh Marg, Mumbai-400 023 Vs. Asst. CIT (LTU) 28 th Floor, Centre no.1, World Trade Centre, Cuffe Parade Mumbai-400 005 (Appellant) (Respondent) Assessee by : Shri F.V. Irani, AR Revenue by : Shri Sumit Kumar, DR Date of hearing: 22.07.2022 Date of pronouncement : 29.08.2022 O R D E R PER PRASHANT MAHARISHI, AM: 01. This is the bunch of 10 appeals pertaining to M/s IPCA Laboratories Limited (the appellant/ assessee) for A.Ys. 2005- 06 to 2010-11 filed by the assessee as well as cross appeals by the learned Assessing Officer, involving common grounds. The parties argued the lead appeal for AY 2008-09 filed by the assessee as well as the Asst. Commissioner of Income tax, LTU, Mumbai (the learned Assessing Officer). The issues in other years of appeals of both the parties are more or less on identical facts. Therefore, appeals for AY 2008-09 are taken as lead appeal. All these appeals are disposed of by this common order. For A.Y. 2008-09 ITA Nos. 2493 & 2815/Mum/2015 Page | 3 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 02. ITA No. 2493/Mum/2015 is filed by IPCA laboratories Limited (the assessee) and ITA No.2815/Mum/2015 filed by the Dy. Commissioner of Income-tax, large taxpayer unit-1, Mumbai (the learned AO) against the order of learned Commissioner of Income-tax (Appeals)-56, Mumbai [the learned CIT (A)] dated 11 th February, 2015. 03. In ITA No.2493/Mum/2015 assessee has raised following grounds of appeal:- “1. Addition on account of Arms Length Price (ALP) u/s 92CA (3) of the Act. The Commissioner of Income-tax (Appeals) - 56, Mumbai (CIT (A)] erred in confirming following additions made by the Assistant Commissioner of Income tax (LTU), Mumbai (AO) us. 92CA(4) of the Act on account of adjustment in Arm's Length Price (ALP) pursuant to order of the Additional Commissioner of Income-tax, Transfer Pricing 1(3), Mumbai (TPO), u/s. 92CA(3) of the Act dated 21st October 2011 in respect of the following transactions: (i) Adjustment of Rs. 1,27,40,126/-in respect of goods sold to AES. (ii) Adjustment of in respect of interest free advances at 8.25% to 100% subsidiaries of the appellant company. 1.1 The CIT(A) erred in confirming the addition of Rs. 1,27,40,126/- made by the AO by making adjustment to transaction of exports to Ipca Pharma Nigeria Ltd., and Ipca Pharmaceutical Inc USA by comparing ALP Page | 4 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 and appellant's price on a product by product basis and not on set of transactions with the AE and failed to follow principles of aggregation which is well established rule in transfer pricing analysis and the OECD Guidelines which advocates aggregation of transactions under certain circumstances. 1.2 The CIT (A) erred in confirming addition made by the AO by way of adjustment on account of interest in respect of interest free advances made by the appellant to its 100% subsidiaries by estimating notional interest at 8.25% without considering the submissions made by the appellant. 2. Deduction u/s. 801B of the Act - Piparia (Silvassa Unit) Both the CIT (A) and the AO erred in not considering income of Rs.4,19,430/- being sale of empty containers as profit of industrial undertaking for the purpose of deduction u/s. 80IB. The appellant submits that the sales of empty containers are directly related to the profits derived from the business of industrial undertaking of the appellant and therefore the same is eligible for deduction. 3. Deduction u/s.80IC of the Act- Dehradun Unit Both the CIT (A) and the AO erred in not considering income of Rs.13,13,310/- being sale of empty containers as profit of industrial undertaking for the purpose of deduction u/s. 801C. The appellant submits that the sale of empty containers are directly related to the profits derived from the business of industrial Page | 5 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 undertaking of the appellant and therefore the same is eligible for deduction. 5. Each of the above grounds is without prejudice to one another.”” 04. In ITA No. 2815/Mum/2015 , the learned AO has raised following grounds of appeal:- “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in reducing the rate of interest to 8.25% as against calculated by the TPO @ 14.39% on account of interest free advances advanced by the assessee to its wholly owned subsidiaries ignoring the high risk involved in granting such advanced and also ignoring the fact that, the rate applied by the TPO was not just an estimation but was supported by scientific calculation based on the norms of CRISIL, a well known and leading credit rating agency in India. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that, the disallowance of reduction of the depreciation claimed on assets purchased in India. is not supported by the relevant statutory provisions, ignoring the express provisions of section 43(1) of the Act and in allowing depreciation of Rs. 98,85,782/- to the assessee on account of Foreign Exchange Variation and also ignoring the fact that, as far as local assets are concerned foreign exchange gain is always required to be taken into account to determine the "actual cost" of fixed assets eligible for depreciation. Page | 6 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing something which is not permitted by law, to be specific in the case under consideration, allowing the claim of additional depreciation of Rs. 1,23,37,420/ on the assets acquired and installed during the FY 2006-07 (immediately preceding FY to the current FY under consideration) ignoring the express provisions of section 32(1)(iia) of the Act which specifically stats that additional depreciation shall be allowed only on assets acquired and installed during the previous year. 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction in respect of Employees Stock Option Scheme (ESOP) holding that discount on the issue of ESOP cannot be considered as an under recovery of share premium and it was a part of the package of remuneration to employees and that the obligation incurred in issuance of shares at a discount at a future date in lieu of the employees services is an allowable deduction u/s 37(1) of the Act. 5. The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the Assessing Officer restored. 6. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” 05. The brief facts of the case show that Assessee Company is engaged in the business of manufacturing and sale of Page | 7 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 pharmaceuticals products and bulk drugs in domestic market as well as export. Assessee filed its return of income on 29 th September 2008 at a total income of ₹95,26,93,222/- and offer book profit under Section 115JB of the Act of ₹176,56,03,095/-. This return was revised on 30 th March 2010 at ₹65,67,13,877/-. The reason for revision of the return was that assessee reduced the acquisition cost of capital assets and claimed additional depreciation and withdraws the claim of cost of employee’s stock option scheme. The return of the assessee was picked up for scrutiny. As assessee has entered into the international transaction of purchase of pharmaceutical products of ₹201.14 lacs, sales of pharmaceuticals products of ₹4,328.53 lacs, unsecured loan advanced to AEs without charging interest of ₹327.34 lacs, investment in shares of ₹2.52 lacs and dividend receipt of ₹155.85 lacs, reference was made to the learned Addl. Commissioner of Income Tax, TPO (1)(3), Mumbai (the learned Transfer Pricing Officer) for computation of Arms Length Price of above international transactions as shown in form no.3CEB. The assessee benchmarked the purchase and sale of pharmaceuticals products adopting Comparable Uncontrolled Price [CUP] method. The learned Transfer Pricing Officer accepted all other transactions except sale of pharmaceuticals products. 06. The assessee has sold pharmaceuticals products to its Associated Enterprises and adopting the CUP method, it benchmarked the same. The assessee has given details for the sale of various products to its associated enterprises. The assessee has given arm’s length price and the transaction Page | 8 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 price for the sale of products in the form of working in form no.3CEB. The basis adopted by the assessee was that it adopted ‘basket of products’ approach and stated that booked sales price is higher than ALP and therefore, the transactions are at arm’s length price. In nutshell, assessee contended that if ‘basket of products’ is adopted and multiple products are considered as one basket of such products and its sale value is compared with the arm’s length price, no adjustment is required. 07. The learned Transfer Pricing Officer held that under the Comparable Uncontrolled Price method, an item-by-item [product-by-product] comparison has to be made and this approach was adopted in the earlier year also and therefore, it is inappropriate to use a basket of product approach. Accordingly, he analyzed each of the products and compared it with the third party sales. He found that sale of 06 items showed that actual sale at FOB value and third party arm’s length sale at Fob value, there is a difference of ₹1,33,25,479/- and accordingly, adjustment was proposed of the above sum for the sale of export of products to the associated enterprises. 08. Assessee has also given loans to its associated enterprises on which no interest was charged. The learned Transfer Pricing Officer found that assessee has given loan to four entities on which no interest is charged. The learned Transfer Pricing Officer adopted the Comparable Uncontrolled Price (CUP) method and considered that interest is required to be benchmarked. It collected information under Section 133(6) Page | 9 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 of the Act from CRISIL and obtained interest rates for various ratings what interest should be charged. Accordingly, a show cause notice was issued to the assessee. Assessee submitted that the loan was given to 100% subsidiary of Assessee Company in different jurisdiction, no credit rating is available and further cost of borrowing of the assessee is 6.53% only. No cost has been incurred and therefore, no mark-up or interest is required to be charged. The learned Transfer Pricing Officer rejected the contention of the assessee and computed the interest on the advance given to subsidiaries in Mauritius, USA and Brazil. He adopted that this Associated Enterprises’ will be categorized in the BB category for which rate of interest is 14.39% and accordingly, adjustment on account of non-charging of interest on advances to Associated Enterprises was computed ₹50,70,842/-. Accordingly, he passed an order under Section 92CA(3) of the Act proposing total addition of ₹1,83,96,321/- as an adjustment on account of international transaction vide order dated 21 st October, 2011 under Section 92CA(3) of the Income-tax Act, 1961 (the Act). 09. The learned Assessing Officer passed consequent to that assessment order under Section 143(3) read with section 144C of the Act on 2 nd February 2012. The learned Assessing Officer further made following addition; i. Assessee is claiming deduction in respect of expenditure on scientific and research on account of capital expenditure and Revenue expenditure. It claimed deduction under Section 35(2AB) of the Act at the rate of 150% on capital expenditure and additional Page | 10 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 50% on revenue expenditure. The Assessing Officer noted that form No.3CL dated 6 th April, 2009 issued by Ministry Of Science And Technology, there were some variations. He found that the difference is of ₹2,15,000/- being excess scientific expenditure claimed by the assessee, therefore, he disallowed 50% thereof at ₹1,07,500/-. ii. Assessee is claiming deduction under Section 80IB of the Act in respect of profit of industrial undertaking at Silvassa amounting to ₹8,10,28,422/-. Assessee submitted separate profit and loss account as well as audit report in form no. 10CEB. The learned Assessing Officer noted that assessee has reduced the material cost of ₹1,44,10,984/- of export incentive. It is also received ₹4,19,430/- by way of empty container sales. Both these items are not eligible for deduction under Section 80IB of the Act and accordingly, the claim of the assessee was reduced by this amount and allowed to the extent of ₹6,61,98,008/-. iii. Assessee has also unit at Dheradun, which is eligible for deduction under Section 80IC of the Act, the deduction of ₹65,08,61,369/- was claimed. There is also Assessing Officer found that the incentive of ₹2,59,062 was reduced from material cost and further empty container sale of ₹13,13,310 was wrongly claimed. Therefore, 80IC of the Act deduction was allowed only to the extent of ₹64,92,88,997/-. iv. Assessee has earned foreign exchange gain of ₹11,66,12,250/- on foreign currency loan for purchase of fixed capital asset. The learned Assessing Officer Page | 11 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 noted that depreciation made by the assessee of ₹98,85,782/- is not allowable in view of this and same was disallowed. v. The assessee claimed additional depreciation of ₹1,23,37,420/- being 10% balance depreciation related to assets put in second half of assessment year 2007- 08. The learned Assessing Officer disallowed the same stating that there is no such provision in the law. vi. Further, an addition of ₹11,207/- was disallowed being amount debited on account of diminution in the value of investments. vii. While working out the booking profit, it was found that provision for doubtful debts of ₹68,05,647/- is not allowable as per clause (i) to explanation 1 to sub section 2 of section 115JB of the Act and therefore, same was added. 010. Accordingly, total income as per normal computation was determined at ₹71,38,54,894/- and book profit was computed at ₹177,24,08,742/- by order dated 2 nd February 2012. 011. Assessee being aggrieved with the same preferred the appeal before the learned Commissioner of Income tax (Appeals). He passed an order on 11 th February 2015. The learned CIT (A) held that; i. With respect to the transfer pricing adjustment of sale of finished products and rejected the contention of the assessee and accepted the approach of the learned Transfer Pricing Officer. He rejected the basket product approach and upheld the determination of Arms Length Page | 12 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 Price of individual products i.e. Product By product basis. He confirmed the balance transfer pricing adjustment of ₹1,27,40,126/-. ii. However, with respect to Pacimol tablets sold by assessee to National Druggist Pvt. Ltd, which was supply to local government on tender basis as per agreed rates, he deleted the addition of ₹17,67,638/- for the reason that assessee was not free to price its products at Arm’s Length Price. iii. With respect to the interest on interest free advances given to the subsidiary companies, he upheld the action of the learned Transfer Pricing Officer but determines the rate of interest at 8.25% and direct the Transfer Pricing Officer to compute the same. iv. With respect to the deduction under Section 80IB and 80IC of the Act, he upheld the disallowance to the extent of the sale of empty containers. He held that sale of scrap is not eligible for deduction as income derived from the industrial undertaking. v. With respect to the claim of depreciation disallowed of ₹98,85,782/- on account of foreign exchange fluctuation gain, he deleted the addition for the reason that the assets were not purchased outside India and therefore, provision of Section 43A of the Act do not apply. vi. With respect to the claim of additional depreciation of ₹1,23,37,420/- on account of assets put to use in second half of A.Y. 2007-08, relying on the decision of the co-ordinate bench in Cosmo Films Ltd. vs. DCIT in Page | 13 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 ITA No. 2508/Del/2007 dated 5 th August, 2011, he deleted the disallowance. 012. Before the learned Assessing Officer, the assessee raised an additional ground of appeal with respect to deduction of ₹2,89,90,715/-, with respect to discount on issue of shares under employees Stock option scheme. The fact shows that assessee has issued 1,10,000/- option to its employees under employees stock option scheme. Assessee alleged 88,750/- fully equity paid up shares of ₹10/- each at an exercise price of ₹200/- on 26 th November 2007 to the option grantees upon exercise of stock option on 23 rd September 2006. The amount of ₹2,89,90,715/- was debited to Profit and Loss account as part of employees cost. The learned CIT (A) directed the learned Assessing Officer to grant the above deduction following the decision of Special Bench of ITAT in case of Biocon Limited Vs. DCIT [2013] 35 taxmann.com 335 (Bangalore - Trib.) (SB) as well as the decision of Hon'ble Madras High Court in CIT vs. PVP Ventures Ltd [2012] 23 taxmann.com 286 (Mad.) dated 19 th June 2012. 013. Thus, the appeal was partly allowed and both the parties aggrieved with the order of the learned CIT (A) are in appeal before us. 014. We first take up appeal of assessee. Coming to the first ground of appeal of the assessee which is against the transfer pricing adjustment made in respect of goods sold to its associated enterprise of ₹1,27,40,126/-. The learned Authorized Representative submitted that assessee is selling the products along with its Anti malarial products to its Page | 14 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 associated enterprise in Nigeria. He submitted that with the regular product sold to the associated enterprises anti malarial products are pushed into that market. He referred to the sample invoices raised by the Associated Enterprises in foreign jurisdiction to other parties. It was submitted that that as it was a basket product approach where this products are sold together therefore, the assessee adopted these approach for benchmarking the arm’s length price. He referred to the detailed chart submitted to demonstrate the same. He referred to statements no.1 of annexure C of Form no.3CEB. He submitted that assessee has sold 20 products to its Associated Enterprises. He submitted that assessee sold various products to IPCA Pharma Nigeria Ltd and the Arms Length Price on basket approach was derived at ₹12,33,20,805/- against the actual sale price of ₹14,81,54,453/-. He submitted that in the chart out of 20 items, six items were found to be individually less than Arm’s Length Price but the other 14 items were transacted at far above the Arm’s Length Price. He submitted that if these products are taken together then transaction price is higher by ₹2.5corres than the actual FOB Arm’s Length Price derived by the assessee. He submits that the learned Transfer Pricing Officer has not disputed the Arm’s Length sales value of any of the products but he disregarded the basket approach. Wherever there is an excess of Arm’s Length Price compared to the actual sale price he has picked those items and made addition to that extent. Where the Arms Length Price is less than the actual sale price, the learned Transfer Pricing Officer has accepted the same. He referred to the OECD guidelines Page | 15 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 with respect to the comparability and referred to paragraph no.1.60 and submitted that business strategies could also include market penetration scheme. He submits that a taxpayer seeking to penetrate market to increase its market share might temporarily charged price of the product lower than comparison. Further, a taxpayer seeking to enter a new market or expand its market share may temporarily charge higher cost and achieved lower profits. He therefore submitted that the sale made in Nigeria, the assessee penetrate by supplying anti malarial drugs along with other regular and as a market strategy, the assessee sold these goods to its Associated Enterprises and in turn, associated enterprises also similarly sold the goods to their buyer in basket, the Arms Length Price is required to be computed as per basket approach. He therefore submitted that the addition made by the learned Transfer Pricing Officer on this count deserves to be deleted. For this proposition, he relied upon the decision of co-ordinate bench in case of Toyota Kirloskar Motors (P.) Ltd. vs. ACIT in ITA No.828/Bangalore/2010 dated 22 nd November, 2012, decision of the co-ordinate Bench in case of Godrej Sara Lee Ltd. vs. ACIT in ITA No. 598/Mum/2013 dated 11 th March, 2015. He also referred to the reply of the assessee dated 25 th July, 2011 made before the Transfer Pricing Officer. He submitted that even otherwise, the annual accounts of the Associated Enterprises were also submitted before the learned Transfer Pricing Officer to show that those entities have not earned any profit. He further show the price which the Associated Enterprises supply material to their buyers. Accordingly, he submitted Page | 16 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 that the business model of the assessee is required to be taken into consideration and basket approach should be adopted and on overall basis the net sales by the assessee to the Associated Enterprises is higher compared with the Arms Length Price. 015. The learned Departmental Representative vehemently supported the order of the learned lower authorities and submitted that in the comparability, analysis of each transaction is required to be tested for Arms Length Price and there is no provision in the Indian tax laws, which permit the basket product approach for determination of Arms Length Price in CUP method. Therefore, according to the learned Departmental Representative there is no infirmity in the orders of the lower authorities. 016. We have carefully considered the rival contentions and perused orders of lower authorities. The issue here is that assessee with respect to its international transaction filed form number 3CEB wherein as per annexure C it was stated that assessee has sold pharmaceutical products to IPCA Pharma Nigeria Limited of Rs. 1666 lakhs and arm’s-length price the same is determined at ₹ 1398.18 lakhs adopting cup method, thus the transaction is at arm’s-length. To demonstrate the CUP method statement 1 of annexure C shows that assessee has sold 20 products to that entity amounting to ₹ 1 66 6 lakhs. The assessee benchmarked these transactions determining FO be sale price per unit to other parties, made adjustment with respect to cost for additional credit period to the associated enterprise and Page | 17 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 reduced it by ECGC premium paid on sales to other parties. It also reduced the third party prices in some of the cases with the commission paid on sales to other parties. The resultant price was stated to be the arm’s-length price of pharmaceutical products on FOB basis per unit. The assessee then multiplied that third party prices with actual quantity sold to associated enterprises. It determined the arm’s-length sale value at OB price for all those 20 products and compared it with the actual FOB sale price charged to associated enterprise. Out of the 20 products in 14 products, the actual sale value charged to the associated enterprises was higher than the arm’s-length price determined. In six products, the actual sale value to associated enterprises was less than the arm’s-length price. However if all 20 products are taken together, the actual sale value is higher by Rs. 2,67,86,789/– to the arm’s-length price. Therefore, the claim of the assessee is that if all 20 products taken together as a basket of products, international transaction of the assessee are at arm’s-length. The learned transfer-pricing officer rejected the basket product approach stating that there is no provision in the statute to apply such methodology while computing arm’s-length price Under CUP method and only product-by- product comparison is required to be made. He therefore found that in the six products, the international transaction of sale of pharmaceutical products to the associated enterprises is less than the arm’s-length price; the adjustment was required to be made. Accordingly, he made the adjustment. 017. The fact also shows that assessee has pushed antimalarial products in Nigeria along with the other products. The Page | 18 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 antimalarial products were introduced in that geographical region. The invoices prepared by associated Enterprises to its customers in Nigeria were also containing in the same bill the details of other products as well as antimalarial products. Thus, in the invoice made by the associated enterprises on its customer’s antimalarial drugs and other products are also sold through same invoice. Therefore, assessee claimed that it is a basket of product, which should be considered for benchmarking this international transaction. 018. OECD guidelines of 22 July 2010 were also pressed to state that business strategies are also required to be considered. The market penetration scheme needs to be considered where a taxpayer penetrating a market or to increase its market share my temper a really charge a price for its products that is lower than the price charged or otherwise comparable products in the same market. Therefore, the market strategy of the assessee is to push antimalarial drugs into of written market along with the other products, the combined arm’s- length price of the 20 products required to be benchmarked. 019. For basket approach the assessee relied upon judicial precedent of Toyota Kirloskar motors private limited versus ACIT 828/Bangalore/2010 dated 2011 -2012, Godrej Sara Lee Ltd versus additional CIT 598/M/2013 dated 11/3/2015. 020. On careful examination of the facts, it is clear that according to rule 10 A (d) transactions include a number of closely linked transactions. Therefore, it is clear that if the transactions are closely linked transactions they should be benchmark together. Page | 19 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 021. OECD transfer pricing guidelines for multinational enterprises and tax administration January 2022 in paragraph number 3.9 to 3.12 deals with the valuation of taxpayer’s separate and combined transactions. This also accepts that ideally the transactions should be tested on a transaction-by-transaction basis. However, in certain circumstances if the transactions are closely linked on continuous that they cannot be evaluated adequately on a separate basis and when it is impracticable determine pricing for each individual product, in those circumstances it may be more reasonable to assess the ALP for the two items together rather than individually. It also considered the portfolio approaches wherein some products are marketed by taxpayer with a low profit or even at a loss in a portfolio. It also considers the cases where the sale of products is also part of the package deal. In those circumstances, it suggests that it is more practicable to adopt aggregate in those transactions and determine ALP on combined transaction basis. 022. Undisputedly the revenue as well as the assessee has adopted CUP method. The CUP method requires comparison of the price charged paid for property transferred. The property is defined in rule 10 A (b) to include goods, articles or things and intangible property. Therefore, there is no bar that the property may include a basket of product. 023. It is not unusual for taxpayers to negotiate their products altogether, regardless of their individual prices, as they aim to reach an overall profit. The price of a product is cut down to stimulate the purchase of a more profitable one among a Page | 20 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 group of products. In these cases, when the transactions are carried out between associated companies, the appropriate ascertainment of transfer prices and of the arm’s length principle should take into account the set of products as compared to a pack of similar products, which is referred to as the basket approach. Generally such approach would be suitable for the set of products traded as a whole or have their commercial application connected to each other or commercial proximity of the products in old in the basket such as prices or market is shown or in case the same are traded together. 024. However, it is important that basket of product must have greater rational to show that all the products in the basket are interlinked and they cannot be sold or there are not practicable is sold individually. If those are sold individually, their marketability may be affected. In the present case before us to independent products, which does not have any correlation with each other, i.e. antimalarial as well as other pharmaceutical products are no way connected with each other. There is no evidence placed before us that both these medicines are always used together. It is also not shown that the use of such products is also made together. The only reason given is that assessee is also producing antimalarial drugs which are required to be pushed into Nigerian market and therefore it is a market penetration effort made by the assessee along with the other sales of pharmaceutical products and hence they should be benchmarked on basket of product approach. We do not find any rational to accept the argument of the assessee. The assessee has to show that the Page | 21 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 sale of each of the product is interdependent on each other. The transaction of sale of one product is inextricably linked with the sale of another product. Unless that is shown, the basket of product approach deserves to be rejected. 025. The decisions relied upon before us were also carefully perused but they do not support the case of the assessee. 026. Even in the later years, i.e. assessment year 2009 – 10 and 2010 – 11 assessee himself stated that CUP method may not be appropriate and adopted profit split method for the reason that the basket of product approach is not acceptable to the revenue. Even in those cases, the learned transfer-pricing officer is applied CUP method. 027. Merely because invoices are prepared in a particular manner, they do not prove that goods sold in those products are inextricably linked with each other. 028. In view of this, we confirm the action of the lower authorities in making a transfer pricing adjustment with respect to sale of pharmaceutical products in Nigeria to associated enterprises amounting to ₹ 1,27,40,126/–. Thus, the ground number 1 of the appeal to that extent is dismissed. 029. With respect to second transfer pricing adjustments because of interest on interest free advances charged at 8.25%, the learned Authorized Representative submitted that these loans are given earlier years. He submitted that these are in the form of quasi equity and therefore, no interest should be charged. He further submitted chart to show that the business structure of the assessee showed that there were two wholly Page | 22 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 owned subsidiaries namely Solway Investment Limited Mauritius and Suuridge Investment limited Mauritius. These companies were holding 50% share each in IPCA Pharma Nigeria Limited and National Druggist Limited, South Africa. He submitted that 800 US dollar in each of these companies was given. Subsequently, both the Mauritius wholly owned subsidiaries were dissolved resulting into 100% equity of the assessee in Nigeria and South Africa entity. It is therefore, the equity investment of the assessee in those companies and if it is equity, no interest could have been charged on the same. The learned Authorized Representative further referred to the approval of Reserve Bank of India for investment in wholly owned subsidiary in foreign country. He submitted that RBI vide letter dated 10 th April, 2022 granted permission for equity investment of 10,000/- USD and a term loan of 75,000 USD in Solway Investment Limited. Similarly, identical permission was given for investment in Sunridge Management Limited. He placed both this permission in paper book at page no. 38 and 81 respectively. Accordingly, no interest could have been charged on the above sum. With respect to the other entities, he submitted that 600 USD, which advanced for pre incorporation, expenses in USA and ₹8,15,410/- is the investment in Brazil Unit. He further referred to the annual accounts of both the Mauritius subsidiaries. In the end, he submitted the learned Transfer Pricing Officer has made an addition at the rate of 14.39% whereas the learned CIT (A) reduced it to 8.25%. He submitted that as the advances have been given to the Page | 23 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 parties in foreign jurisdiction only Libor Plus appropriate points can be applied at the most. 030. The learned Departmental Representative vehemently supported the order of the learned Transfer Pricing Officer and the learned CIT (A), he submitted that assessee has given advances and loan to its subsidiary companies, no independent party would have invested in its subsidiary without charging any interest and therefore, same is correctly charged. 031. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case, undoubtedly assessee has given advances to its four associated enterprises the learned transfer-pricing officer rejected the contention of the assessee that the concerned loans had been sourced out of the cost free owned funds from internal accruals and on account of commercial expediency is and therefore the interest is not charged. According to us, the interest rate is required to be benchmarked looking at comparable prices. Only in the circumstances where there is no comparable prices available then only the interest can be benchmarked by the cost of borrowing by the lender. Admittedly, in this case assessee states that it has not incurred the cost for borrowing the above funds, which have been lent to the associated enterprises. However, here the comparable rates are available. Therefore, the argument of the assessee that it has not incurred any cost of borrowing does not have any relevance. The second argument of the assessee is that that the advances given to the two of the Page | 24 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 recipient subsidiaries have utilize the money advanced to them by the assessee for further investment in the shares of step down subsidiaries of the assessee company and therefore the advances are quasi equity and no interest is required to be charged. In the present case, the advances given to the subsidiaries. The subsidiaries might have utilize the funds for any purpose but for the purpose of benchmarking of the interest the transaction is that assessee has given a loan to its associated enterprise. Further when we looked at the RBI permissions for overseas direct investment it is coupled with equity and loan. Therefore, it cannot be said that it is a quasi equity. With respect to the rate of interest we find that AO charged the interest at the rate of 14.39% which is been reduced by the learned that CIT – A to 8.25%. According to us, the loans are given in foreign jurisdiction. Therefore, LIBOR +200 points is the correct benchmarking for the interest. Accordingly, we direct the learned transfer- pricing officer to benchmark the interest as directed. 032. Accordingly, ground number 1 of the appeal is partly allowed. 033. Ground no. 2 and 3 of the appeal with respect to not considering the sale of empty containers, etc. as profit industrial unit for the purpose of deduction under Section 80IB of the Act. 034. The brief facts shows that ₹4,19,430/- is the income of sale of containers of industrial undertaking at Silvassa unit which is eligible for deduction under Section 80IB of the Act and ₹13,13,310/- is the similar income for Dehradun unit which is eligible for deduction under Section 80IC of the Act. The Page | 25 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 learned Assessing Officer held that this income is not eligible for deduction in view of the decision of Hon'ble M P High Court in case of Alpine Solvex Ltd 176 taxmann 285. The learned CIT (A) also upheld the action of the learned Assessing Officer. The assessee has submitted that Madhya Pradesh High Court decision was with respect to another section and Tribunal in assessee’s own case for AY 1990-91 vide order dated 12 th September 2002 allowed similar claim under Section 80HH of the Act. The learned CIT (A) held that sale of scrap is not in the nature of turnover and confirmed the action of the learned Assessing Officer. 035. The learned Authorized Representative submitted that sale of empty containers is part of eligible income under Section 80IB as well as 80IC of the Act. 036. The learned Departmental Representative vehemently supported the order of the learned lower authorities. 037. We have carefully considered the rival contention and perused the orders of the lower authorities. Apparently, assessee earned receipt of sale of empty containers. Undisputedly, the unit at Silvassa and Dheradun are eligible undertakings income, which is eligible for deduction under Section 80IC and 80IB of the Act. Provision of Section 80IC of the Act allows deduction of profit and gains derived by undertaking from eligible business. It cannot said that sale of empty containers is altogether different business of the assessee. We further held that this issue is squarely covered in favour of the assessee by the decision of honourable Delhi High Court in case of CIT versus Sadhu forging Ltd 336 ITR 444 as well as Page | 26 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 the decision of the honourable Gujarat High Court in Tax Appeal No. 368 of 2008 DECEMBER 21, 2013 an Dy. CIT v. Harjivandas Juthabhai Zaveri [2002] 258 ITR 785/ [2003] 132 Taxman 923 (Guj.) In view of this, we find that lower authorities have erred in not allowing deduction under Section 80IB and 80IC of the Act on the above sum. Accordingly, ground no.2 and 3 of the appeal is allowed. 038. In the result, the appeal of the assessee is partly allowed. 039. Now we come to the appeal of learned Assessing Officer. The ground no.1 with respect to the Transfer Pricing adjustment with respect to advances given to the subsidiary companies where the Transfer Pricing Officer is charged interest at the rate of 14.39%, whereas, the learned CIT (A) has reduced it to 8.25%. This ground is connected with the ground of appeal no.1(ii) of the assessee’s appeal, wherein we have held that the interest is required to be charged at the rate of Libor plus and 200 points on the above advances. In view of this, the above ground of appeal of the learned Assessing Officer deserves to be deleted, hence dismissed. 040. The second ground of appeal is with respect to allowance of depreciation of ₹98,85,782/- to the assessee on account of foreign exchange Gain variance. 041. The brief facts of the case shows that during the period, assessee has earned foreign exchange fluctuation gain of ₹11.66 crores at the time of making actual payments of actual external commercial borrowing. The assessee for purchase of capital assets in India took this loan. The claim of Page | 27 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 the learned Assessing Officer is that the written down value (WDV) of the assets to the extent of foreign exchange gain should be reduced from the actual cost and consequent depreciation claim of the assessee is required to be reduced. Therefore, no depreciation of Rs. 98,85,782/- was disallowed in view of the provision of Section 43(1) of the Act. The learned CIT (A) held that provisions of Section 43A of the Act cannot be invoked in the case of the assets are acquired from India. It is applicable only in case of assets acquired from outside India. Hence, the disallowance of depreciation was deleted. The learned Departmental Representative supported the order of the learned Assessing Officer, whereas the learned Authorized Representative supported the order of the learned Commissioner of Income tax (Appeals). 042. We have carefully considered the rival contentions and perused the orders of the lower authorities. Undisputedly, assessee has earned foreign exchange fluctuation gain at the time of actual payment of external commercial borrowing, which was taken for acquisition of capital assets in India. As there is no acquisition of capital assets from outside India, there is no application of the provision of Section 43A of the Act. Therefore, foreign exchange fluctuation gain cannot be reduced from the actual cost of assets purchase in India. Accordingly, there is no infirmity in the order of he learned Commissioner of Income tax (Appeals). Accordingly, ground no. 2 of the appeal is dismissed. 043. Third ground of appeal is with respect to the additional depreciation of ₹1,23,37,420/- disallowed by the learned Page | 28 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 Assessing Officer but allowed by the learned Commissioner of Income tax (Appeals). 044. The facts show that the assessee has acquired certain assets, which were entitled for additional depreciation according to Section 32(1)(iia) of the Act in the second half of the immediately preceding year. As the assessee has put to use those assets for less than 180 days in the previous financial year, assessee is entitled to only 50% of the additional depreciation. The same was allowed to the assessee in that year. Assessee has claimed balance 50% of such depreciation in the current year, the learned Assessing Officer says that there is no such provision in the Act and therefore the same was disallowed. The learned CIT (A) following the decision of the co-ordinate Bench in case of Cosmo Films Ltd (supra) allowed the claim of the assessee. The learned Assessing Officer has challenged the same before us. 045. We have heard the rival parties; we find that the issue is squarely covered by the decision of the Hon'ble Madras High Court in CIT vs. Shri. TP Textiles Pvt. Ltd. 394 ITR 483 (Madras). In view of this, we do not find any infirmity in the order of the learned CIT (A) in deleting the disallowance. Accordingly, ground no. 3 of the appeal is dismissed. 046. Ground no. 4 is with respect to claim of the assessee in respect of Employees Stock Option Scheme under Section 37(1) of the Act. 047. Briefly stated facts shows that assessee has issued a stock option to selected employees under Employee's Stock Option Page | 29 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 Plan (ESOP) scheme and allowed 88,750/- equity shares at exercise price of ₹200. Accordingly, ₹2,89,90,715/- is debited to the profit and loss account as employee cost. The learned CIT (A), when such an additional ground was raised before him, admitted the additional ground and allowed deduction by following the decision of Hon'ble Madras High Court and Special bench of ITAT in case of Biocon Limited (supra). The learned Assessing Officer is aggrieved and has challenged as per ground no.4. 048. We have heard the rival parties and the order of the lower authorities. Now, we find that the issue is squarely covered in favour of the assessee by the decision of Hon'ble Karnataka High Court in [2021] 133 taxmann.com 149 (Kar.), wherein the decision of the Special Bench of ITAT in case of Biocon Limited (supra) has been upheld. In view of this, we do not find any infirmity in the order of the learned CIT (A) in allowing the claim of the assessee on deduction of employees stock option scheme discount. Ground no.4 of the appeal is dismissed. 049. In the result, appeal of the learned Assessing Officer is dismissed. 050. In the result, appeals for A.Y. 2008-09 filed by the learned Assessing Officer are dismissed and appeal of the assessee is partly allowed. A.Y. 2005-06 ITA No.8120 & 7511/Mum/2010 051. ITA No. 8120/Mum/2010 is filed by assessee and ITA No.7511/Mum/2010 is filed by the learned Assessing Officer Page | 30 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 against the order passed by the learned CIT (A)-15, Mumbai, dated 27 th August, 2010. The assessee has raised solitary ground of appeal with respect to transfer pricing adjustment of interest loan given to subsidiary companies. 052. In ITA No.7511/Mum/2010 the learned Assessing Officer has raised following grounds of appeal:- “1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition made on account of adjustment in respect of goods sold to National Drugs (Pty) Ltd. 2. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in deleting adjustments made on account of interest in respect of interest free advances made to 100% subsidiaries of the M/s IPCA Laboratories Ltd.” 053. In ITA No.8120/Mum/2010, assessee has raised following ground of appeal:- “1. (i) the Commissioner of Income-tax (Appeals)– 15, Mumbai [CIT(A)], erred in confirming the adjustment made by the Assistant Commissioner of Income–tax, Central Circle 13, Mumbai, (AO), on account of interest in respect of interest free advances made by the appellant to its subsidiaries at 3.38% being average cost of borrowings. (ii) The impugned addition made by the Assessing Officer and confirmed by the CIT (A) are based on reasons, which are contrary to law and facts. Page | 31 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 (iii) The Assessing Officer is not justified making addition on account of interest as the advances have been made by the appellant out of its own funds and its internal accrual. (iv) Without prejudice, the Assessing Officer is not justified in making addition on account of interest in respect of interest free advances made by the appellant to its 100% subsidiaries which are in the nature of quasi equity towards their working capital requirements.” 054. The learned Assessing Officer is aggrieved with respect to the adjustment on account of Arms Length Price of goods sold to National Drugs (Pty) Ltd. as well as the deletion of the adjustment on account of interest free advances to hundred percent subsidiaries at the rate of 3.38% only. 055. The brief facts of the case shows that assessee filed its return of income on 29 th October, 2005, declaring total income at ₹18,17,99,490/-. This return was further revised on 16 th December, 2006 at ₹18,23,83,300/-. During the course of assessment proceedings, it was found that assessee has entered into international transactions and therefore, such transactions were referred to the learned Transfer Pricing Officer for determining Arms Length Price. The learned Transfer Pricing Officer found that assessee has exported pharmaceutical products to National Drugs (Pty) Ltd. It considered the CUP as the most appropriate method. It was stated that as Associated Enterprises supply its goods to the local Government on tender basis whose price are fixed, the assessee had to honour the tender price irrespective of its margin. Since, the transaction was on a marginal cost Page | 32 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 method, the assessee considered appropriate to charge what it charges to other unrelated parties under similar circumstances and similar markets. According to this export of ₹570.70 lacs was benchmarked using CUP method and determining Arms Length Price at ₹580.64 lacs. The difference being 1.75% of the transactional value which is within the permissible limit of 5%, it was stated that transactions are at arm’s length. The learned Transfer Pricing Officer adopted the cost plus margin method (CPM) as the most appropriate method and proposed an adjustment of ₹58,89,000/-. The learned Assessing Officer further fund that assessee has given interest free advances of ₹2.66 crores to three different entities on which interest is not charged. It was stated that these are hundred percent subsidiaries of the assessee. The learned Transfer Pricing Officer applied the rate of Libor Plus 300 basis points for working of interest and made a transfer pricing adjustment of ₹37,69,098/-. Accordingly, adjustment of ₹96,58,078/- was proposed by the learned Transfer Pricing Officer. The learned Assessing Officer passed the assessment order under Section 143(3) of the Act on 31 st December, 2008 determining the total income of the assessee at ₹19,85,65,035/-. 056. On appeal before the learned CIT (A), he deleted the addition of ₹59,89,000/- with respect to sale of the assessee to its Associated Enterprises which in turn supplied goods to the local government on tender basis for which prices are fixed. With respect to interest on interest free advances, the learned CIT (A) directed the learned Assessing Officer to recompute the adjustment on account of interest to Associated Page | 33 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 Enterprises by taking average cost of borrowing and after considering the dates on which the money has been advanced. The learned Assessing Officer is aggrieved with the same and is in appeal before us. The assessee is aggrieved with respect to the direction of the learned CIT (A) to charge interest at the rate of 3.38% being average cost of borrowings. Therefore, assessee is in appeal before us. 057. Coming to the 1 st ground of appeal of adjustment in respect of goods exported to National Drugs (Pty) Ltd. We have heard the rival contentions and find that assessee has sold goods to National Drugs (Pty) Ltd. Assessee applied the CUP method as the most appropriate method. The facts were stated that the Associated Enterprises in turn supply products to the local government on tender basis price for which are fixed. Therefore, the honour to tender and in order to make penetration into the market, the goods was supplied to the associated enterprise. The transaction was at marginal cost. The assessee also submitted that rate charged to another party in South Africa is the same and therefore, the transaction is at arm’s length. The reason being the difference between the price charged to non-Associated Enterprises and Associated Enterprises as a marginal different of 1.74% which is within the permissible range of +/- 5%. The learned Transfer Pricing Officer rejected the CUP method but applied cost plus method and proposed the adjustment. The learned CIT (A) examined the transaction and upheld the CUP method. It is examined that assessee has sold Pacimol tablets to its Associated Enterprises as well as unrelated parties both are in South Africa, quantity sold as is more or less and some Page | 34 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 sales are also pertaining to the same period and the overall different between the average price charged to Associated Enterprises and non-Associated Enterprises is merely 1.74%. Therefore, benchmarking the analysis of the assessee was upheld. Further, the Associated Enterprises supplies the goods to the local Government on tender basis for which the price are fixed. Therefore, there is no reason to uphold that benchmarking analysis by the assessee adopting CUP method is not proper. We do not find any infirmity in the order of the learned CIT (A). Hence, ground no. 1 of the appeal of the learned Assessing Officer is dismissed. 058. The second ground of appeal of the learned Assessing Officer and only ground of appeal of the assessee are with respect to the benchmarking of interest on interest free advances good to the subsidiary companies. The fact shows that the assessee has given an advance to subsidiaries of ₹2.66 crores on which no interest has been charged. The learned Transfer Pricing Officer held that no independent party would have given interest free advances even to its 100% subsidiaries. Therefore, the learned Transfer Pricing Officer adopted Libor plus 300 basis points as the reasonable rate of interest thereon. Accordingly, an adjustment of ₹37,69,078/- was made. The claim of the assessee is that the appellant out of its own fund has made the advances and the cost of borrowing of the assessee is only 3.38%. Further, it was contended that the interest can be computed only if the period for which the advance were outstanding and not for the whole year. Based on these arguments, the learned CIT (A) directed the learned Assessing Officer to adopt the Page | 35 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 interest rate as 3.38% as it is an internal comparable rate for the purpose of adjustment of interest on account of interest paid advances to associate enterprises. Further, he also directed the learned Assessing Officer to recompute the adjustment considering the date on which the moneys have been advanced to its Associated Enterprises. The Assessing Officer is aggrieved with the order of the learned CIT (A) in directing him to adopt lower interest rate at the rate of 3.38% whereas, assessee is aggrieved with the direction of the learned CIT (A) to compute the interest at the rate of 3.38% on the amounts of advances. 059. The learned Authorised Representative reiterated the submission which were made before the learned CIT (A) and further stated that the amount of advances given to subsidiary companies are quasi equity and therefore, no interest is required to be charged. 060. The learned Departmental Representative in turn submitted that cost of borrowing of the assessee cannot be considered as an internal CUP. 061. We have carefully considered the rival contentions and perused the orders of the lower authorities. The CUP method is required to be applied where the services are supplied in similar conditions. In the present case, the cost borrowing of the assessee does not have any relevance. Associated Enterprises have made the borrowing in foreign jurisdiction, therefore, the cost of borrowing of the assessee in India cannot be held to be an internal CUP. The learned Transfer Pricing Officer has adopted the Libor plus 300 basis points for Page | 36 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 working of interest. We find that several judicial precedents at the appropriate interest rate uphold Libor plus 200 basis points. In view of this we confirm the order of the learned AO to charge interest on the advances given to foreign associate enterprise at Libor plus 200 basis point and confirmed the finding of the learned CIT(A) that interest is required to be computed only for the period the money is advanced and not for the full year. Accordingly, ground no. 2 of the appeal of the learned AO is partly allowed and ground no. 1 of the appeal of the assessee is dismissed. 062. Accordingly, appeal for Assessment Year 2005-06 filed by the assessee is dismissed and filed by the learned AO is partly allowed. AY 2006-07 ITA NO 8084/M/2010 063. ITA no. 8084/Mum/2010 is filed by the assessee against the order of the learned Assessing Officer passed under Section 143(3) read with Section 144C(13) of the Act on 9 th September, 2010. Assessee has raised the following grounds of appeal:– “1. The Deputy Commissioner of Income-tax (LTU), Mumbai (AO), erred in making addition of `29,62,754/- u/s.92CA(4) of the Act on account of adjustment in Arms Length Price (ALP) pursuant to directions of Dispute Resolution Panel (DRP) u's.144C(5) of the Act, dated 05.08.2010 and the order of Joint Commissioner of Income-tax, Transfer pricing 1(1), Mumbai (TPO), Page | 37 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 u/s.92CA(3) of the Act, dated 30.10.2009 in respect of the following transactions: (i) Adjustment of ALP in respect of sale of finished goods to associated enterprises (AEs) at 24,18,705/ (i) Adjustment made on account of interest free advances to 100% subsidiaries at 7,5,44,049/– 2. (i) The AO erred in making adjustment to the transaction of exports to AEs by comparing ALP and appellants price on a product by product basis and not on set of transactions with one particular AE and failed to follow principles of aggregation which is well established rule in transfer pricing analysis and the OECD guidelines which advocates aggregation of transactions under certain circumstances. (ii) The appellant submits that the AO ought to have considered the fact that the appellant is driven by commercial consideration of penetrative pricing when it tries to market its product in new overseas markets and therefore it prices such product lower in such markets while ensuring that, the other products compensate for the lower margin on such product. (iii) Without prejudice to the above the appellant submits that the AO ought not to have made adjustment of ALP in respect of transactions where the variation between the ALP determined by the AO and the actual sale price is less than 5% in accordance with the Second Proviso to Sub Section (2) of Section 92CA 3. (i) The AO erred in making adjustment of 7,5,44,049/- on account of interest in respect of interest Page | 38 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 free advances made by the appellant to its 100% subsidiaries by computing notional interest at Libor + 200% rate of interest as per the directions of DRP. (ii) The impugned addition of 2.5,44,049/- made by the AO are based on reasons which are contrary to law and facts. (iii) The AO is not justified making addition on account of interest as the advances have been made by the appellant out of its own funds and its internal accrual. (iv) Without prejudice, the AO is not justified in making addition on account of interest in respect of interest free advances made by the appellant to its 100% subsidiaries which are in the nature of quasi equity towards their working capital requirements. 4. Each of the above grounds is without prejudice to one another.” 064. Assessee has filed return of income on 29 th November, 2006, declaring total income of `18,78,55,637/– after claiming the deduction under Section 80IB of `30,66,334/–. The return was revised on 27 th March, 2008 at `19,06,13,100/–. As the assessee has entered into international transaction, the learned Assessing Officer referred the matter for determination of arm's length price to the Jt. Commissioner of Income Tax, Transfer Pricing, 1(1), Mumbai. The international transactions of the assessee were with respect to purchase and sale of pharmaceutical products and interest free advances given to its companies. With respect to purchase of pharmaceutical products, the assessee adopted CUP method Page | 39 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 for sale of Pharmaceutical products by National Drugs (Pty) Ltd, it adopted CUP method and for sale of pharmaceuticals products to Activa Pharmaceutical it adopted cost plus method. With respect to the purchase of pharmaceutical products, the learned Assessing Officer accepted the benchmarking by the assessee and made no adjustment. With respect to the sale of pharmaceutical products, the learned Transfer Pricing Officer noted that assessee in Form No.3CEB has given copy of details for the sale of various products stating book price of sale of products as well as Arms Length Price. Thereafter, it has also offered an adjustment contending that by a basket product approach the book price is higher than the sale price and no adjustments were warranted. The learned Transfer Pricing Officer is of the view that in the CUP Method product by product comparison has to be made and basket of product approach cannot be used. Thereafter, he computed the Arms Length Price of each product. In respect of the transaction with Ipca Pharma Nigeria Ltd., he found that assessee has sold 5 products and the actual sale value is less than the Arms Length Price and accordingly, made an adjustment of `17,33,115/-. He further considered transaction with National Drugs (Pty) Ltd and found actual sales value is less by `6,85,590/- from its Arms Length Price and therefore, adjustment was required. Accordingly, he proposed an adjustment of `24,18,705/- on sale of products to Associated Enterprises. 065. The learned Assessing Officer found that assessee has given interest free unsecured loans with no repayment dates to its Associated Enterprises. Assessee did not charged any interest Page | 40 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 on such loans stating that assessee is the holding company of the Associated Enterprises and the loans given by the assessee are in the nature of capital infusion. Therefore, these are part of shareholder activities. The learned Transfer Pricing Officer did not accept the explanation of the assessee and interest rate at libor + 300 basis points. Accordingly, with respect to amount of advance of `6,18,679/- was made. Accordingly, the order under Section 92CA(3) of the Act was passed on 30 th October, 2009. Consequently, a draft assessment order was passed on 25 th November, 2009. The learned Assessing Officer disallowed the deduction under Section 35(2AB) of the Act of ₹4,22,000/- on the basis of different in form no.3CL. Disallowance of expenses under Section 14A of the Act was also made as per Rule 8D of ₹4,68,977/- against the exemption of the income amounting to ₹73,43,364/-. The learned Assessing Officer further examine the deduction under Section 80IB for Silvassa unit and found that assessee is claimed deduction on export incentive of DEPB of ₹7190,276/- by reducing it from the cost of material consumed. According to learned Assessing Officer, the above income is not derived from industrial under taking and therefore, to that extent deduction is reduced. The total income was computed at ₹ 20,17,31,742/-. The assessee preferred he objection before the learned Dispute Resolution Panel no.2 which gave the direction on 5 th August, 2010. It upheld the addition on sale of products to its associated enterprises. Therefore, adjustment proposed by the learned Assessing Officer of ₹17,30,115. However, with respect to the interest it directed to the learned Assessing Officer/ Transfer Page | 41 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 Pricing Officer to compute the interest at the rate of Libor plus 200 basis points. Based on this assessment order was passed on 9 th September, 2010. The learned Assessing Officer made the addition of ₹24,18,705/- on account of Arms Length Price on sale of pharmaceutical products. Against the interest addition of ₹6,18,679/- it was computed at 5,44,049/-. Accordingly, the total income of the assessee was assessed at ₹20,16,57,112/-. The assessee is aggrieved with that order as per ground no.1 and ground no.2, only transfer pricing adjustments are under challenge before us. The learned Authorised Representative with respect to the addition of ₹24,18,705 on sale of finished goods reiterated the same argument as were advanced before us on this ground for A.Y. 2008-09. With respect to the second issue in appeal on account of adjustment of interest of ₹5,44,049/- similar arguments were advanced as were in appeal of the assessee for A.Y. 2008-09. 066. The learned Departmental Representative supported the order of the learned Assessing Officer as well as the direction of the learned Dispute Resolution Panel. 067. We have carefully considered the rival contentions and perused the orders of the lower authorities. Both the grounds of appeal have already been dealt with by us in appeals of the assessee for A.Y. 2008-2009. Therefore, respectfully following the decision in appeal of the assessee for A.Y. 2008-09, we confirm the addition of ₹17,33,115/- for sale of pharmaceutical products to Ipca Pharma Nigeria Limited and Page | 42 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 delete the addition of ₹6,85,590/- on account of sale of pharmaceutical products to National Drugs (Pty) Ltd. 068. With respect to the interest on loans and advances to the sister concern following the order for A.Y. 2008-09, we find that the interest has been charged at Libor plus 200% rate of interest for the number of days, the loans were given resulting into adjustment of ₹5,44,049/-. Accordingly, the order of the learned Assessing Officer is confirmed to that extent. Accordingly, appeal filed by the assessee is party allowed. 069. In the Result, appeals for A.Y. 2006-07 filed by the assessee is partly allowed. For A.Y. 2007-08 ITA No. 3267/Mum/2015 070. ITA No.3267/Mum/2015 is filed by assessee for A.Y. 2007-08 against the order passed by learned CIT (A)-15, Mumbai dated 12 th December, 2012. The assessee has raised the following grounds of appeal:- “1. Addition on account of Arms Length Price (ALP) u/s 92CA(3) of the Act. Rs.1,66,99,302/– The Commissioner of Income-tax (Appeals) (CIT (A)) erred in confirming the addition of Rs 1,68,99,302/-made by the Deputy Commissioner of Income-tax (LTU), Mumbai (AO) u/s 92CA(4) of the Act on account of adjustment in Arm's Length Price (ALP) pursuant to order Page | 43 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 of the Additional Commissioner of Income-tax, Transfer Pricing 1(1), Mumbai (TPO), us 92CA(3) of the Act dated 29 October 2010 in respect of the following transactions (i) Adjustment of Rs. 1,17,44,223 in respect of goods sold to Ipca Pharma Nigeria Ltd. (ii) Adjustment of Rs.49,55,079/- in respect of interest free advances to 100% subsidiaries of the appellant company. 1.1 The CIT(A) erred in confirming the addition of Rs.1,17,44,223/- made by the AO by making adjustment to transaction of exports to Ipca Pharma Nigeria Ltd. by comparing ALP and appellant's price on a product by product basis and not on set of transactions with the AE and failed to follow principles of aggregation which is well established rule in transfer pricing analysis and the OECD Guidelines which advocates aggregation of transactions under certain circumstances. 1.2 The CIT (A) erred in confirming addition of Rs.49,55,079/- made by the AO by way of adjustment on account of interest in respect of interest free advances made by the appellant to its 100% subsidiaries by computing notional interest at Libor + 300% rate of interest without considering the submissions made by the appellant. 2. Deduction u/s.80IB of the Act - Piparia (Silvassa Unit) Both the CIT (A) and the AO erred in not considering income of Rs.4,40,458/- being sale of empty containers as profit of industrial undertaking for the purpose of deduction u/s. 801B. The appellant submits that the sale Page | 44 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 of empty containers are directly related to the profits derived from the business of industrial undertaking of the appellant and therefore the same is eligible for deduction. 3. Deduction u/s.801Cof the Act-Dehradun Unit Both the CIT (A) and the AO erred in not considering income of Rs.4,54,631/- being sale of empty containers as profit of industrial undertaking for the purpose of deduction u/s. 801C. The appellant submits that the sale of empty containers are directly related to the profits derived from the business of industrial undertaking of the appellant and therefore the same is eligible for deduction. 4. Disallowance us 40A(3) of the Act Rs.1,56,365/ The CIT (A) erred in confirming the disallowance of Rs.1,56,365/- made by the AO u/s. 40A(3) of the Act on the ground that the same are not covered under the exceptions provided by Rule 6DD. 5. Each of the above grounds is without prejudice to one another. 6. The appellant craves leave to add, to alter, vary or cancel any of the above grounds of appeal.” 071. The assessee filed its return of income on 29 th October, 2007 at a total income of ₹62,98,47,014/-. The return was revised on 27 th March 2009 at a total income of ₹60,81,99,329/-. The learned Assessing Officer found that assessee has entered into the international transactions with respect to purchase and sale of pharmaceutical products, which benchmarked adopting the CUP method except in case of sale of products to Activa pharmaceutical where cost plus method is adopted. Page | 45 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 Assessee has given advanced free interest to four different Associated Enterprises on which no interest has been charged. The reference was made for determination of Arms Length Price of international transactions to the learned Addl. Commissioner of Income Tax, Transfer pricing, 1(1), Mumbai, who examined the international transaction. With respect to sale of pharmaceutical products, assessee has adopted the basket of products approach and stated that book price is higher than the sale price and therefore, the international transaction of sale of pharmaceutical products is at arm’s length. The learned Transfer Pricing Officer rejected the same and held that item-by-item comparison has to be done. Accordingly, he found that sale value and Arm’s Length Price of such products has a difference of ₹1,17,44,223/-. Therefore, he proposed the above adjustment. With respect to the loans, he rejected the contention of the assessee that it is a quasi equity and further assessee own cost of borrowing is only 6.25%. he adopted the interest at the Libor plus 300 basis point, considering the number of days of loans were given made an adjustment of ₹49,55,079/-. Accordingly, the order under Section 92CA(3) of the Act was passed on 29 th October, 2010 proposing the total transfer pricing adjustment of ₹1,66,99,302/-. 072. Income of the assessee was assessed under Section 143(3) of the Act vide order dated 14 th February, 2011, wherein over and above the transfer pricing adjustment the learned Assessing Officer made the following disallowances; Page | 46 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 i. Deduction under Section 35(2AB) of the Act was reduced by ₹7,54,500/- on account of different in form no. 3CL. ii. The assessee has earned exempt income of ₹80,97,777/-, the learned Assessing Officer disallowed ₹13,54,153/- by invoking the provisions of Section 14A of read with Rule 8D of the Rules. iii. The assessee is entitled to deduction under Section 80IB of the Act of Silvassa unit which was reduced by 71,90,276 on account of DEPB and further ₹4,40,558/- on account of empty container sale as they are not derived from the industrial undertaking. iv. The assessee is also entitled to deduction under Section 80IC of the Act for Dehradun unit which was reduced by the learned Assessing Officer by DEPV of ₹1,05,166/- and cash discount of ₹2,77,632/- and ₹4,54,631/- by sale of empty container. v. Depreciation allowance of ₹5,18,871/- was also reduced on account of foreign exchange gain. Disallowance of ₹1,56,365/- was made under Section 40A(3)of the Act. Accordingly, the total income was computed at ₹64,78,14,863/- by order dated 14 th February, 2011. 073. Assessee preferred the appeal before the learned CIT (A), who passed an order on 12 th December, 2011. The learned CIT (A) considering the transfer pricing adjustment of sale of pharmaceutical products as well as the interest adjustment on interest free advances to its subsidiaries were confirmed. The Page | 47 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 disallowance under Section 14A of the Act as per Rule 8D was also dismissed. With respect to the eligible units, the disallowance with respect to sale of empty containers, DEPV and cash discount was also confirmed. Disallowance under Section 40A (3) of the Act was also confirmed. Accordingly, the appeal of the assessee was dismissed and therefore, assessee has preferred this appeal before us. 074. The ground no.1 of the appeal with respect to the transfer pricing adjustment wherein adjustment of ₹1,17,44,223/- is made in respect of goods sold to IPCA Pharma Nigeria Ltd. the assessee benchmarked the above transactions adopting the basket approach which is rejected by the learned lower authorities. This ground is identical to ground of the assessee’s appeal for A.Y. 2008-09. As this issue has already been decided by us for A.Y. 2008-09, wherein we have confirmed the action of the learned Transfer Pricing Officer, as there is no change in the facts and circumstances, we confirm the action of the learned CIT (A) in confirming the addition of ₹1,17,44,223/- with respect to sale of pharmaceutical products to IPCA Pharma Nigeria Limited. 075. The addition of ₹49,55,079/- is made on account of Arms Length Price of interest to be charged on the interest free advances given to Associated Enterprises of the assessee by adopting Libor plus 300 basis point interest rate. We find that this ground is also identical to the ground of appeal of assessee in A.Y. 2008-09. As per our decision therein, where we have upheld the interest rate of Libor plus 200-basis market, similarly we direct the learned Transfer Pricing Page | 48 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 Officer/ Assessing Officer to adopt the interest rate of Libor plus 200 basis point. Accordingly, ground no.1 of the appeal is partly allowed. 076. Ground no.2 and 3 is with respect to the deduction under Section 80IB and 80IC of the Act wherein the learned Assessing Officer did not grant the benefit of deduction on sales of empty containers. This ground is also identical to ground of appeal of the assessee for A.Y. 2008-09, wherein we have held that sale of empty containers is part of the profit derived from the business of the undertaking and therefore, is eligible for deduction under these respective sections. Accordingly, we allow the ground no.2 and 3 of the appeal of the assessee and directing the learned Assessing Officer to grant deduction on account of sale of empty containers under Section 80IB and 80IC of the Act. 077. Ground no.4 of the appeal is with respect to the disallowance under Section 40A (3) of the Act. The fact shows that the above disallowance is made on account of payment made to government agencies such as road tax and attestation charges to various embassy’s’. We find that lifetime road tax of ₹25,810/- is paid to the government and therefore, it cannot be considered for disallowance. Further, the various attestation charges paid to foreign embassy amounting to ₹1,08,755/- which is covered under Rule 6DD(b) of the Income Tax, Rules 1962. Accordingly, the disallowance to the extent of ₹21,800/- out of total disallowance of ₹1,56,365/- is upheld and Assessing Officer is directed to delete the balance Page | 49 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 disallowance. Accordingly, ground no.4 of the appeal is partly allowed. 078. In the result, the appeal filed by the assessee for A.Y. 2007- 08 is partly allowed. For A.Y. 2009-10 ITA Nos. 3597 & 3691/Mum/2016 079. ITA No.3597/Mum/2016 is filed by the assessee and ITA No.3691/Mum/2016 is filed by the assessee against the order passed by the learned CIT (A)-56, Mumbai dated 29 th February, 2016. 080. In ITA No.3597/Mum/2016, the assessee has raised the following three grounds of appeal:- “1. Addition on account of Arms Length Price (ALP) u/s 92CA(3) of the Act. The Commissioner of Income-tax (Appeals) 56, Mumbai [CIT (A)] erred in confirming following additions made by the Assistant Commissioner of Income-tax (LTU), Mumbai (AO) us. 92CA(3) of the Act on account of adjustment in Arm's Length Price (ALP) pursuant to order of the Additional Commissioner of Income-tax, Transfer Pricing - 1(3), Mumbai (TPO), u/s.92CA(3) of the Act dated 15th January 2013 in respect of the following transactions: (i) Adjustment of Rs. 2,09,60,016/- in respect of goods sold to AE. Page | 50 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 (ii) Adjustment of Rs.22,50,380/- in respect of interest free advances at 8.58% to 100% subsidiaries of the appellant company. 1.1 The CIT(A) erred in confirming the addition of Rs. 2,09,60,016/- made by the AO by making adjustment to transaction of exports to Ipca Pharma Nigeria Ltd. by comparing ALP and appellant's price on a product by product basis and not on set of transactions with the AE and failed to follow principles of aggregation which is well established rule in transfer pricing analysis and the OECD Guidelines which advocates aggregation of transactions under certain circumstances. 1.2 Both the CIT (A) and the AO erred in not considering the alternate claim of the appellant determining ALP with respect to transactions with Ipca Pharma Nigeria Ltd. (AE) by profit split method although the appellant had filed certificate by the Auditors in respect thereof during the course of assessment proceedings. 1.3 The CIT (A) erred in confirming addition made by the AO by way of adjustment on account of interest in respect of interest free advances made by the appellant to its 100% subsidiaries by directing the AO to re- compute notional interest by applying LIBOR without considering the submissions made by the appellant. 2. Deduction u/s.801C of the Act - Dehradun Unit Both the CIT (A) and the AO erred in not considering income of Rs.10,27,691/- being sale of empty containers as profit of industrial undertaking for the purpose of deduction u/s. 80IC. The appellant submits that the sale of empty containers are directly related to the profits Page | 51 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 derived from the business of industrial undertaking of the appellant and therefore the same is eligible for deduction. 3. Disallowance of Additional Depreciation of Rs.2,84,75,543/ The CIT(A) erred in confirming disallowance of Rs.2,84,75,543/- made by AO in respect claim of additional depreciation u/s 32(1)(a) of the Act towards balance depreciation related to the assets put to use in the previous year relevant to assessment year 2008 09 on the ground that the assets are not acquired and installed during the year under consideration. 4. Each of the above grounds is without prejudice to one another. 5. The appellant craves leave to add, to alter, vary or cancel any of the above grounds of appeal.” 081. In ITA No. 3691/Mum/2016, the learned Assessing Officer has raised the following two grounds:- “1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing to re– compute the rate of interest on account of interest free advances advanced by the assessee to its wholly owned subsidiaries ignoring the high risk involved in granting such advances and also ignoring the fact that, the 8.58% rate as applied by the Transfer Pricing Officer was not just an estimation but was supported by scientific calculation based on the norms of CRISIL, as well known and leading credit rating agency in India? 2. On the facts and in the circumstances of the case and in law, the learned. CIT(A) has erred in allowing Page | 52 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 deduction in respect of Employees Stock Option Scheme (ESOP) holding that, discount of share premium and it was a part of the package of remuneration to employees and that the obligation incurred in insurance of shares at a discount at a future date in lieu of the employees services is an allowable deduction under Section 37(1) of the Act. 082. Assessee is a company engaged in the business of manufacturing and export of pharmaceuticals and bulk drugs and has offices and factories at various places. It has also associated enterprises in the form of 100 % wholly owned subsidiaries in foreign jurisdiction with assessee has entered into international transactions of purchase and sale of pharmaceutical products as well as of advancing loan. 083. Facts for assessment year 2009 – 10 was that assessee filed return of income on 30/9/2009 declaring total income of ₹ 278,678,540/–. The return was processed but selected for scrutiny. 084. As assessee has entered into international transactions the learned it assessing officer referred the matter to the additional Commissioner of income tax, transfer pricing officer – I (3), Mumbai (the learned transfer pricing officer) for determination of arm’s-length price. The assessee has entered into the international transactions of purchase of pharmaceutical products of ₹ 23,935,240/– and sales of pharmaceutical products of ₹ 535,832,634/–. The assessee adopted the CUP method as the most appropriate method. With respect to the interest free unsecured loan with no Page | 53 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 repayment schedules of ₹ 7,297,346/– no interest was charged. The learned transfer pricing officer did not accept the benchmarking methodology for sale of pharmaceutical products as well as noncharging of interest on unsecured loan to its subsidiaries. 085. With respect to the sale of pharmaceutical products the assessee has sold finished goods to its AE during the year. Assessee has benchmarked the sale of pharmaceutical products by employing CUP as the most appropriate method and stated that transaction of sale is are higher than the amount of arm’s-length price determined according to that method and therefore the international transactions are at arm’s-length. As per annexure attached to the audit report in form number 3 CEB, assessee benchmarked the sale of pharmaceutical products to income Pharma Nigeria Ltd. The assessee states that there are 14 pharmaceutical products which are exported to that company. Assessee has sold finished drug formulations amounting to ₹ 19.03 crores to this company. The assessee has determined the arm’s-length price on basket approach method comparing the price at which the assessee has sold the tracks to the associated enterprise and the average price at which the drugs has been sold to the third parties. While computing the price, at which it has sold them to the AES as well as to the third party, the assessee has made various adjustment to the price such as adjustment has been made in the sale price to the third party because of credit, export credit guarantee insurance claim premium et cetera. Similar adjustment have also been made to the sale price of the drugs to the AE -like product Page | 54 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 promotion expenses et cetera after these adjustments it is stated by assessee that the arm’s-length price of all the product sold to the associated enterprise is ₹ 17.86 crores whereas the price charged from the AE for this products is ₹ 19.03 crores and therefore the transaction is at arm’s-length. The assessee has adopted the CUP method for the sale of each products to its associated enterprises. For each drug, the sale price of a drug to the third party and to the associated enterprise has been analyzed. In some of the tracks the price at which it has sold to the associated enterprise is lower than the price at which it has been sold to the third party. The assessee submitted that it has adopted a basket of products approach or aggregate transactions approach and therefore the total price for which the drugs were sold to the associated enterprise is higher than the sale price at which it has been sold to the third parties, and therefore it is at arm’s-length. And no adjustment is warranted. In nutshell, the assessee has used a basket of products approach for comparison of sale prices Under CUP method. 086. The learned transfer pricing officer accepted the arm’s-length principle benchmarking by the assessee with respect to all other associated enterprises however questioned the sale to IPCA Pharma Nigeria Ltd. The learned assessing officer was of the opinion that Under the CUP method each product is different in the price of each product has to be complied with the similar product and Under the Indian transfer pricing regulations and item by item comparison has to be done. The same approach was taken by the transfer pricing officer in the earlier year also and therefore he rejected a basket of Page | 55 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 products approach. The assessee was asked to submit the reply with respect to product wise ALP. The assessee submitted that as in the past years 2007 – 08 and 2008 – 09 the assessing officer has adjusted the arm’s-length price in respect of this view products when the price charged to the associated enterprise was lower than the arm’s-length price ignoring the overall profitability of the business with the associated enterprises. The aggregate transaction approach, basket approach was ignored. Therefore this led to reconsideration by the ld assessee with respect to the method to be followed. Assessee submitted that from assessment year 2000 – 11 assessee has followed the profit split method for determining the arm’s-length price for transaction with this particular AE. Assessee also submitted a report of the profit split method and stated that 80% of the profit on the basis of the function is to the assessee and balance 20% profit is attributable to the associated enterprises. The learned assessing officer considered the reply of the assessee and stated that assessee has followed the CUP method earlier year also. This CUP method has been accepted by the TPO also however the only difference between the approach of the assessee and the TPO is that assessee in stating that basket of product approach should be taken where the TPO says that the comparison has to be made product wise i.e. each product separately. Therefore the basket of product approach was rejected. He further held that CUP has been historically treated as the most appropriate method by the assessee as well as the revenue and therefore the residual profit method deserves to be rejected. He compared the product by product Page | 56 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 the ALV against the actual sales and found that the ALV is higher than the actual sales value by ₹ 20,960,016/–. Accordingly such adjustment was made to the sale of pharmaceutical products to an AE. 087. The AO also found that assessee has given interest free advances to its subsidiaries of US dollar 1,58,283 on which no interest has been charged. He noted that in the past year the transfer pricing officer has applied the interest rate at the rate of 14.3%. The assessee submitted that that no advances have been made from interest-bearing funds, the advances are out of free reserve and therefore there is no justification. Assessee also stated that the amount advanced to subsidiaries is in the nature of quasi-equity as assessee is hundred percent parent of each of the subsidiaries. Without prejudice, assessee submitted that the weighted average interest cost to the assessee is 4.28%. The learned transfer pricing officer rejected the explanation of the assessee stating that assessee has raised funds at the rate of 5.96% and has advanced interest free loan to the associated enterprises. He therefore submitted advance in the loan associated enterprise is an international transaction and interest is required to be imputed. He rejected the applicability of London interbank offered rate. He therefore determined the credit rating of each of the associated enterprise is adopting the interest coverage ratio. He also applied the credit rating as per the debt equity ratio. Accordingly he found that the credit rating is required to be taken of associated enterprises CCC. He obtained the interest rate quotations from Crystal and held that 8.90% of the interest is proper rate being corporate bond spread. He Page | 57 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 also considered the LIBOR rate at 8.26% and average them out at 8.58%. He applied this rate on the amount of advance given to the associated enterprises for the number of days and worked out the interest amount of ₹ 2,250,380/– as arm’s-length price of the interest. The assessee has not charged any interest and therefore the adjustment was made. 088. Consequently order u/s 92CA (3) of the act was passed on 15/1/2013 proposing total adjustment of ₹ 23,210,396/–. 089. The AO passed the assessment order u/s 143 (3) read with Section 144C (3) read with Section 144C (4) of the act on 9/file/2013 wherein over and above the transfer pricing adjustment he made the 090. disallowance of additional depreciation of ₹ 28,475,543 with respect to the plant and machinery acquired before 31/3/2008 on which the balance depreciation of 10% was claimed in assessment year 2009 – 10. 091. Deduction u/s 80 IC and 80 IB was also restricted by an amount of ₹ 1,027,691 Under 80 IC and ₹ 294,280 u/s 80 IB on empty containers sale, which were not eligible for deduction Under the respective sections 092. Accordingly total income was assessed at ₹ 331,392,165 against the returned income of ₹ 278,678,540/-. 093. The assessee aggrieved with assessment order preferred an appeal before the learned CIT – A. The transfer pricing adjustment made by the learned assessing officer based on the order of the learned transfer pricing officer was confirmed Page | 58 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 sale of pharmaceutical products. With respect to the benchmarking of interest on interest free advances given to the associated enterprises he rejected the rate of interest adopted by the assessing officer at 8.58% and held that LIBOR must be adopted. Accordingly he directed the learned assessing officer to recompute the transfer pricing adjustment. The additional depreciation claimed by the assessee with respect to assets purchased in earlier years on which additional depreciation is allowable and claimed in that year to the extent of 50% was disallowed. With respect to the claim of deduction u/s 80 IC and 80 IB of the act on empty containers sale was also not allowed. During the appellate proceedings the assessee raised an additional ground of appeal with respect to the deduction of ₹ 21,574,527 in respect of issue of shares Under the employees stock option scheme. The learned CIT – A allowed the claim based on the decision of the honourable madras High Court as well as the decision of special bench and the reasons given for assessment year 2008 – 09 by the learned CIT – A. 094. Therefore assessee is aggrieved with the confirmation of the addition with respect to the arm’s-length price of the international transaction as well as the denial of deduction u/s 80 IC had 80 IB of the act on empty containers sale, disallowance of additional depreciation during the year for assets purchased in immediately preceding year. The learned AO is aggrieved with the order of the learned CIT – A on rejecting the interest rate of 8.58% on interest free advances given to the associated enterprises with respect to the international transaction and on allowability of deduction of Page | 59 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 ESOP by way of additional ground. Therefore both the parties are in appeal before us. 095. We first take up the appeal of the assessee. As per ground number 1 the assessee has challenged the adjustment of ₹ 20,960,016/– in respect of goods sold to associated enterprises. This ground is identical to the grounds of appeal of the assessee for assessment year 2008 – 09. While deciding that appeal we have upheld the approach of the learned transfer pricing officer in rejecting the basket of product approach. We have held that price comparability has to be made in CUP method on product by product basis. Further we have held that there is no relationship between the different products put into one basket by the assessee. Accordingly, we uphold the transfer pricing adjustment of ₹ 20,960,016 made by the learned assessing officer and confirmed by the learned CIT – A. 096. Furthermore, with respect to the adoption of profit split method, we are of the opinion that there is no dispute with respect to the most appropriate method with respect to determination of arm’s-length price of sale of pharmaceutical products to the associated enterprises. The assessee has continuously adopted the CUP method and the learned transfer pricing officer has also accepted the CUP method. The only dispute is with respect to the determination of the comparability. The assessee is pressing for comparing prices by adopting the basket of product approach whereas the learned transfer pricing officer is adopting product by product approach. Therefore, when both the parties have agreed Page | 60 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 consistently over several years that the CUP is the most appropriate method, there is no reason to adopt the profit split method. Therefore, this claim is correctly rejected by the lower authorities. 097. With respect to the interest chargeability of ₹ 2,250,380/– in respect of interest free advances, this issue is also identical to the transfer pricing issue in the appeal of the assessee for assessment year 2008 – 09 wherein we have held that the interest is required to be charged on the basis of LIBOR+200 basis point. Therefore the reject the chargeability of interest at the rate of 8.58% by the assessing officer. Accordingly the learned transfer pricing officer is directed to charge interest at the rate of labor+ 200 basis points. 098. Accordingly ground number 1 of the appeal is partly allowed. 099. Ground number 2 of the appeal is with respect to the allowability of deduction on empty containers sold of ₹ 1,027,691/– at Dehradun unit which is eligible for deduction u/s 80 IC o of the act. We find that this issue is identical to the appeal of the assessee for assessment year 2008 – 09 wherein we have held what is eligible for deduction under that section is the profits of the business of the eligible industrial undertaking. The empty containers sold are necessarily part of the business of the industrial undertaking. Therefore deduction u/s 80 IC on the same cannot be denied. 0100. Ground number 3 of the appeal is with respect to the disallowance of additional depreciation of ₹ 28,475,543. The learned CIT – A noted that the assessee had acquired certain Page | 61 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 assessee during the year 2008 and claimed the additional depreciation as per the provisions of Section 32 (1) (iia) of the act. As those concerned assessing put to use for less than hundred and 80 days in that period, only 50% of the allowable additional depreciation is been claimed by the assessee and allowed in assessment year 2008 – 09. The balance depreciation of 50% as claimed by the assessee during assessment year 2009 – 10 which is which was disallowed by the learned assessing officer. The learned CIT – A also disallowed the same holding that it is a wrong interpretation of the law. The claim of the assessee that identical claim has been allowed to the assessee in the past year as well as the issue is squarely covered by the decision of the coordinate bench in case of Cosmo films Limited. We have already decided this issue in favour of the assessee for assessment year 2008 – 09, this is identical to that issue. Therefore for the reasons given in our order for assessment year 2008 – 09, we direct the learned assessing officer to grant the additional depreciation is claimed by the assessee amounting to ₹ 28,475,543/– accordingly ground number 3 of the appeal is allowed. 0101. Accordingly appeal of the assessee is partly allowed. 0102. Now we come to the appeal of the learned assessing officer. Ground number 1 of the appeal of the assessee is with respect to the rate of interest applied by the learned transfer pricing officer at 8.58% rejected by the learned CIT – A and held that LIBOR must be applied. This ground of appeal is connected to ground number one of the appeal of the Page | 62 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 assessee, wherein we have upheld that interest should be benchmarked by adopting LIBOR +200 basis points. Therefore ground number one of the appeal deserves to be rejected. 0103. Ground number 2 is with respect to the allowing deduction in respect of the employee stock option scheme. We find that this issue is squarely covered in favour of the assessee by the decision of the honourable Karnataka High Court in case of Biocon Limited wherein the decision of special bench is approved. We have already dealt with this issue in appeal of the assessee for assessment year 2008 – 09 and upheld the order of the learned CIT – A granting the above deduction. Therefore, we confirm the action of the learned CIT – A in admitting the additional ground in granting the deduction of the same u/s 37 (1) of the act. Accordingly ground number 2 of the appeal of the AO is dismissed. 0104. Accordingly, for assessment year 2009–10, appeal of the assessee is partly allowed and appeal of the Assessing Officer is dismissed. For A.Y. 2010–11 0105. ITA Nos. 3811 & 5227/Mum/2016 0106. Assessee has preferred ITA number 3811/M/2016 for assessment year 2000 – 11 against the order passed by the Commissioner of income tax (appeals) – 56, Mumbai dated 28 th of March 2016 raising identical grounds of appeal as were raised in assessment year 2009 – 10 is Under:- 1. Addition on account of arm’s-length price (ALP) u/s 92CA (3) of the act. Page | 63 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 The Commissioner of income tax (Appeals) – 56, Mumbai (CIT (A)) erred in confirming following additions made by the Asst Commissioner of income tax (LTU), Mumbai (AO) u/s 92CA (3) of the act on account of adjustment in arm’s-length price (ALP) pursuant to the order of The Additional Commissioner Of Income Tax, Transfer Pricing – 1 (3), Mumbai (TPO), u/s 92CA (3) of the act dated 15 January 2014 in respect of the following transactions:- (i) adjustment of Rs. 1,31,20,299/– in respect of goods sold to associated enterprise (ii) adjustment of ₹ 1,42,355/– in respect of interest free advances to 100% subsidiaries of the appellant company 1.1 The CIT (A) erred in confirming the addition of ₹ 1,27,12,447/– made by the AO by making adjustment of transaction of exports to IPCA Pharma Nigeria Ltd by comparing a ALP and appellant’s price on a product by product basis and not on set of transactions with the associated enterprise and failed to follow principles of aggregation which is well-established rule in transfer pricing analysis and the OECD guidelines which advocates aggregation of transactions Under certain circumstances. 1.2 The CIT (A) and the AO erred in not considering the alternately of the appellant determining a alp with respect to the transactions with Ipca Pharma Nigeria Ltd (A) by profit split method although the appellant had filed a certificate by the auditors in respect thereof during the course of assessment proceedings. Page | 64 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 1.3 The CIT (A) erred in confirming the addition of ₹ 407,852/– made by the TPO/AO by making adjustment of transaction of exports to IP pharmaceutical incorporation USA by comparing arm’s-length price and appellant’s price on a product by product basis and not on set of transaction with the associated enterprises while applying the CUP method and failed to follow the principles of aggregation which is a well-established rule in transfer pricing analysis and the OECD guidelines which advocates aggregate son of transactions Under certain circumstances. 1.4 The CIT (A) order in not adjudicating ground number 2.6 of grounds of appeal with respect to the addition of ₹ 142,355/– made by AO by way of adjustment on account of interest in respect of interest free advances made by the appellant to its 100 % subsidiaries 1.5 The AO/TPO erred in making adjustment of ₹ 142,355/– without considering the submissions made by the appellant during the course of assessment. The impugned addition of ₹ 142,355/– made by the AO/TPO are based on reasons which are contrary to law and facts . 2. Deduction Under Section 80 IB of the act – Piparia [ Silvasa] Unit Both the CIT (A) and the AO erred in not considering income of ₹ 5,66,861 /– being sale of empty containers as profit of industrial undertaking for the purposes of deduction u/s 80 IB. The appellant submits that the sale of empty containers are directly related to the profits Page | 65 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 derived from the business of industrial undertaking of the appellant and therefore the same is eligible for deduction. 3. Deduction Under Section 80 IC of the act – Dehradun Unit both the CIT (A) and the AO erred in not considering income of ₹ 13,10,638 /– being sale of empty containers as profit of industrial undertaking for the purposes of deduction u/s 80 IC. The appellant submits that the sale of empty containers are directly related to the profits derived from the business of industrial undertaking of the appellant and therefore the same is eligible for deduction.” 0107. In ITA No.5227/Mum/2016 the learned Assessing Officer has raised following grounds of appeal:- “1. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in allowing deduction in respect of Employees Stock Option Scheme, (ESOP) holding that discount on the issue of ESOP cannot be considered as an under recovery of share premium and it was a part of the package of remuneration to employees and that the obligation incurred in issuance of shares at a discount future date in lieu of the employees services is an allowable deduction under Section 37(1) of the Act. 2. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in allowing deduction in respect of Employees Stock Option Scheme (ESOP) inspte of the fact that the loss due to the ESOP, is a notional loss to the extent of receipt of lesser Page | 66 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 amount towards share premium and the share premium as received bythe assessee is a capital receipt and not its income? 3. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in treating the expenses relating to Employees Stock Option Scheme (ESOP) as revenue expenditure, inspite of the fact that in ESOP, there is a short–receipt of the share premium and nowhere, the assessee has incurred any expenditure so as to claim the same as allowable under Section 37(1) of the I.T. Act?” 0108. Brief facts of the case shows that assessee filed its return of income on 30/9/2010 declaring a total income of ₹ 1,062,947,822/–. The return was picked up for scrutiny. As assessee has entered into international transaction of sale of pharmaceutical products as a last year to its associated enterprises in Nigeria, which was benchmarked adopting profit split method holding that the sale of pharmaceutical products of 1500.77 lakhs has arm’s-length price of ₹ 1422.33 lakhs and therefore the sale of pharmaceutical products to Ipca Pharma Nigeria Ltd is at arm’s-length. Similarly Ipca pharmaceutical incorporation USA was sold pharmaceutical products of 721.94 lakhs, arm’s-length price of the same was determined at 637.85 lakhs by adopting basket of product approach holding that there is no adjustment warranted. 0109. The learned assessing officer rejected the profit split method as the most appropriate method holding that for working out profit split method the assessee is to work out Page | 67 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 the cost of production of each drug separately and further there is no basis of why 20% is given to the assessee for direct cause and what is the rationale behind adopting the profit split ratio. Therefore, the AO adopted the CUP method as the most appropriate method and benchmark the products sold to the Nigerian entity and found that there is a difference between the transaction value and arm’s-length price of ₹ 12,712,447/- with respect to sale of pharmaceuticals to Nigerian associated enterprises. Similarly in case of sale of pharmaceuticals to IPCA USA adjustment was made of ₹ 4,007,852/– by adopting the product by product approach. Accordingly for the sale of pharmaceutical products total adjustment of ₹ 13,120,299/– was made. 0110. It was further found that the assessee has given an interest free loan to associated enterprises as in the earlier years however in this year the interest was charged at LIBOR +3.5% amounting to ₹ 87,577 with respect to the interest free advances given to Mexico, China and USA associated enterprises. Further with respect to the Nigeria associated enterprises the interest was charged the rate of 18% amounting to ₹ 1,794,252/–. For this year the transfer pricing officer questioned the benchmarking of the interest to the Mexico, China and USA associated enterprises stating that when Nigeria was charged at the rate of 18% by these units are charged at lesser rate of interest. The assessee explained the cost of borrowing to the AO. The AO/TPO held that loan to the associated enterprises are sourced in Indian rupees and the assessee being not a finance company has advance the fund in normal course of business, the prime lending rate Page | 68 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 should be applied. Accordingly he found that 11.75% is the SBI prime lending rate and therefore with respect to the interest charged to Mexico, China and USA unit he worked out the arm’s-length price of ₹ 229,932/– whereas the assessee has received interest only of ₹ 87,577/– and accordingly the adjustment of ₹ 142,355/– was made. 0111. Accordingly the order u/s 92CA (3) of the act was passed on 15/1/2014 proposing the total adjustment on account of the arm’s-length price of the international transaction of ₹ 1,32,62,654/– was made. The learned assessing officer passed an assessment order u/s 143 (3) read with Section 144C (3) read with Section 144C (4) of the act on 29/05/2014 wherein the disallowance of depreciation of ₹ 193,865 as well as the profit of the eligible industrial undertaking u/s 80 IC and 80 IB were reduced by the empty containers sales and thereby assessing the total income of the assessee at ₹ 107,78,85,040/–. 0112. The assessee preferred appeal before the learned CIT – A who upheld the adjustment of ₹ 13,120,299 in respect of goods sold to associated Enterprises and further did not adjudicate on the issue of chargeability of interest to the associated enterprises on interest for loans of ₹ 142,355. Further he also confirmed the action of the assessing officer in disallowing the deduction u/s 80 IB and 80 IC of the act on sale of empty containers. Therefore, the assessee is aggrieved with the order of the learned CIT – capital has preferred an appeal before us. Page | 69 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 0113. Both the parties confirmed that there is no change in the facts and circumstances of the case as compared to the assessment year 2009 – 10 except to the fact that with respect to the sale of pharmaceutical products, the assessee in this year has adopted the profit split method whereas the learned transfer pricing officer has adopted the CUP method and comparability analysis was made on product by product basis. The learned authorised representative further submitted that the learned CIT – capital has not at all adjudicate on the adjustment proposed by the learned transfer pricing officer with respect to the interest on advances to the Mexico, China and USA unit. 0114. We have carefully considered the rival contention and perused the orders of the lower authorities. With respect to the first addition on account of adjustment made to the sale of pharmaceutical products to the associated Enterprises of ₹ 13,120,299/– we find that the identical issue arose in the case of the assessee for assessment year 2009 – 10 wherein we have upheld the action of the learned transfer pricing officer of adopting the CUP as the most appropriate method and comparison of the product by product approach of the sale price. As the issue involved in this appeal is identical, we upheld the addition of ₹ 1,31,20,299/–. 0115. With respect to the second adjustment in respect of interest free advances 200% subsidiaries, we find that the interest of 18% charged to the Nigerian associated enterprises by the assessee or the SBI prime lending rate of 11.75% cannot be said to be the comparable price for Page | 70 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 charging of interest on loans from Mexico, China and USA unit. The loans were advanced to the associated enterprise in foreign jurisdiction and therefore the rate of interest should be applied as applicable in that jurisdiction. Therefore, assessee has correctly applied the LIBOR +350 base points. Accordingly we direct the learned transfer pricing officer to delete the adjustment on account of interest on interest free advances to subsidiaries amounting to 1,42,355/–. Accordingly ground number one of the appeal is partly allowed. 0116. Ground number 2 and 3 is with respect to the allowability of the claim of deduction u/s 80 IB and 80 IC on sale of empty containers. We find that identical ground has been decided by us in favour of the assessee by holding that assessee has derived the sale of empty containers from the business of the industrial undertaking. Accordingly ground number 2 and 3 of the appeal is allowed. 0117. In the result, appeals for A.Y. 2010–11 of the assessee’s appeal is partly allowed 0118. In ITA number 5227/M/2016 filed by the learned assessing officer the only issue that is raised is against the allowability of deduction in respect of employee stock option scheme. We find that this issue is squarely covered in favour of the assessee by the decision of the honourable Karnataka High Court in case of CIT versus Biocon Ltd [2020] 121 taxmann.com 351 (Karnataka) wherein it has been held as Under:- Page | 71 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 “6. We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal is whether the tribunal is correct in holding that discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of options is allowable as a deduction under section 37 of the Act. Before proceeding further, it is apposite to take note of section 37(1) of the Act, which reads as under: Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, "Profits and Gains of Business or Profession". 7. Thus, from perusal of section 37(1) of the Act, it is evident that the aforesaid provision permits deduction for the expenditure laid out or expended and does not contain a requirement that there has to be a pay out. If an expenditure has been incurred, provision of section 37(1) of the Act would be attracted. It is also pertinent to note that section 37 does not envisage incurrence of expenditure in cash. 8. Section 2(15A) of the Companies Act, 1956 defines 'employees stock option' to mean option given to the whole time directors, officers or the employees of the company, which gives such directors, officers or employees, the benefit or right to purchase or subscribe at a future rate the Page | 72 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 securities offered by a company at a free determined price. In an ESOP a company undertakes to issue shares to its employees at a future date at a price lower than the current market price. The employees are given stock options at discount and the same amount of discount represents the difference between market price of shares at the time of grant of option and the offer price. In order to be eligible for acquiring shares under the scheme, the employees are under an obligation to render their services to the company during the vesting period as provided in the scheme. On completion of the vesting period in the service of the company, the option vest with the employees. 9. In the instant case, the ESOPs vest in an employee over a period of four years i.e., at the rate of 25%, which means at the end of first year, the employee has a definite right to 25% of the shares and the assessee is bound to allow the vesting of 25% of the options. It is well settled in law that if a business liability has arisen in the accounting year, the same is permissible as deduction, even though, liability may have to quantify and discharged at a future date. On exercise of option by an employee, the actual amount of benefit has to be determined is only a quantification of liability, which takes place at a future date. The tribunal has therefore, rightly placed reliance on decisions of the Supreme Court in Bharat Movers supra and Rotork Controls India P. Ltd., supra and has recorded a finding that discount on issue of ESOPs is not a contingent liability but is an ascertained liability. Page | 73 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 10. From perusal of section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital. The tribunal therefore, in paragraphs 9.2.7 and 9.2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deduction under section 37(1) of the Act subject to fulfilment of the condition. 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of account, which has been prepared in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. 12. So far as reliance place by the revenue in the case of Infosys Technologies Ltd.(supra) is concerned, it is noteworthy that in the aforesaid decision, the Supreme Court was dealing with a proceeding under section 201 of the Act for non-deduction of tax at source and it was held that there was no cash inflow to the employees. The aforesaid decision Page | 74 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 is of no assistance to decide the issue of allowability of expenses in the hands of the employer. It is also pertinent to mention here that in the decision rendered by the Supreme Court in the aforesaid case, the Assessment Years in question was 1997-98 to 1999-2000 and at that time, the Act did not contain any specific provisions to tax the benefits on ESOPs. Section 17(2)(iiia) was inserted by Finance Act, 1999 with effect from 1-4-2000. Therefore, it is evident that law recognizes a real benefit in the hands of the employees. For the aforementioned reasons, the decision rendered in the case of Infosys Technologies is of no assistance to the revenue. The decisions relied upon by the revenue in A. Gajapathy Naidu,Morvi Industries Ltd. and Keshav Mills Ltd.(supra) support the case of assessee as the assessee has incurred a definite legal liability and on following the mercantile system of accounting, the discount on ESOPs has rightly been debited as expenditure in the books of account. We are in respectful agreement with the view taken in PVP Ventures Ltd. And Lemon Tree Hotels Ltd.'case (supra). 13. It is also pertinent to mention here that for Assessment Year 2009-10 onwards the Assessing Officer has permitted the deduction of ESOP expenses and in view of law laid down by Supreme Court in Radhasoami Satsang v. CIT, [1992] 60 Taxman 248/193 ITR 321, the revenue cannot be permitted to take a different stand with regard to the Assessment Year in question.” Page | 75 Ipca Laboratories ltd; A.Y. 2005:06 to 2010–11 0119. In the result, appeal filed by the learned assessing officer is dismissed. 0120. Accordingly, for assessment year 2010 – 11 appeal filed by the assessee is partly allowed and appeal filed by the learned assessing officer is dismissed. Order pronounced in the open court on 29.08.2022. Sd/- Sd/- (PAVAN KUMAR GADALE) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 29. 08.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai