Sun Pharmaceuticals Industries Ltd., Baroda V. Pr. Commissioner of Income Tax, Baroda

ITA 2514/AHD/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2015 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 07-08-2019
• Assessment Year: 2008-2009
• Appeal Filed On: 27-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PARIN SHAH ARS; S N SOPARKAR
• Section: 143(3); 201; 80IC; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED , ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER ITA NO. 2514 /AHD/201 5 (ASSESSMENT YEAR : 2008 - 09 ) SUN PHARMACEUTICAL INDUSTRIES LTD., SPARC, TANDALJA, VADODARA 390 020. VS. PR. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2, 2 ND FLOOR, AAYKAR BHAVAN ANNEX, RACE COURSE CIRCLE BARODA 390 007. [ PAN NO. AADCS 3124 K ] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI S. N. SOPARKAR, & SHRI PARIN SHAH A.R S . RESPONDENT BY : SHRI VINOD TANWANI, SR. D.R. DATE OF HEARING 0 7 / 0 8 / 2019 DATE OF PRONOUNCEMENT 06 / 0 9 / 201 9 O R D E R PER MS. MADHUMITA ROY - JM : THE INSTANT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31.03.2015 PASSED BY THE PR. COMMISSIONER OF INCOME TAX - 1 , VADODARA - 2, UNDER SECTION 263 O F THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ) FOR THE ASSESSMENT YEAR 2008 - 09 . 2. THE ASSESSEE , A PHARMACEUTICAL COMPANY FILE D ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.( - )32,08,64, 172/ - UNDER NORMAL PROVISIONS AND BOOK PROFIT U/S.115JB OF THE ACT OF RS.2,66,89,19,663/ - WHICH WAS FINALIZED U/S.143 (3) OF THE ACT DATED 19/12/2011 WHEREBY AND WHEREUNDER T HE INCOME OF ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 2 - THE ASSESSEE WAS ASSESSED AT RS.4,76,42,33,280/ - UNDER NORMAL PROVISION AND RS.3,14,81,31,195/ - AS BO OK PROFIT U/S.115JB OF THE ACT. FURTHER THAT ASSESSMENT ORDER WAS FINALIZED U/S.143(3) R.W.S 147 OF THE ACT ON 14.02.2014 DETERMINING TOTAL INCOME AT RS.5, 59,68,08,333/ - AND U/S.115JB OF THE ACT AT RS.3,14,81,31,195/ - 3 . THE LD.A CIT DISALLOWED RS.2,5 0,4 4,500/ - TOWARDS R & D EXPENSES . SUBSEQUENTLY LD. PR. CIT, U/S.263 OF THE ACT HELD THE ASSESSMENT ORDER DATED 14.02.2014 IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE TO THE EXTENT OF NON DISALLOWANCE OF R&D EXPENDITURE ALLOCATED TO SUN PHARMACEUTICAL INDUST RIES (PARTNERSHIP FIRM). THE SAID EXPENDITURE HAS BEEN ENHANCED AT RS.5,23,16,934/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE . HENCE, THE INSTANT APPEAL BEFORE US. 4 . AT TIME OF HEARING OF THE INSTANT APPEAL THE LD.SR.COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT ON MERIT THE ISSUE IS SQUARELY COVERED IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2010 - 11 BY THE CO - ORDINATE BENCH IN ITA NO. 1 417/AHD/2016 FOR A.Y. 2010 - 11 ; COPY WHEREOF HAS ALSO BEEN SUBMITTED BEFORE US. 5 . HOWEV ER, THE LD.D R, HAS ALSO NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE ARGUMENT ADVANCED BY THE LD.SR.COUNSEL APPEARING FOR THE ASSESSEE. 6 . WE HAVE HEARD THE PARTIES, WE HAVE PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD . WE FIND THAT THE ADDITION ON ACCOUNT OF CAPITAL R ESEARCH & DEVELOPMENT ALLOCATED TO SUN PHARMACEUTICAL INDUSTRIES (PARTNERSHIP FIRM) HAS BEEN CHALLENGED BEFORE US. WE HAVE ALSO GONE THROUGH THE ORDER PASSED BY THE ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 3 - CO - ORDINATE BENCH IN IT A N O.1417/AHD/2016 FOR A.Y. 2010 - 11 . W HILE DEALING WITH IDENTICAL ISSUE AND DECIDING THE SAME IN FAVOUR OF THE ASSESSEE , THE CO - ORDINATE BENCH OBSERVED AS FOLLOWS: 7. GROUND NO.4 RELATES TO THE ADDITION ON ACCOUNT OF CAPITAL R&D EXPENSE ALLOCATED TO SUN PHARMACEUTICALS INDUSTRIES (PARTNERSHIP FIRM) OF RS.22,93,81,646/ - . 8. AT THE VERY OUTSET OF HEARING OF THE INSTANT APPEAL, THE LEARNED SR. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN ASSESSEE S OWN CASE PASSED BY THE CO - ORDINATE BENCH IN ITA NO.929/AHD/2017 FOR A. Y. 2010 - 11; COPY OF THE SAME WAS ALSO HANDED OVER TO US. HOWEVER, THE LEARNED DR FAILED TO CONTROVERT THE CONTENTION MADE BY THE LEARNED AR. 9. WE HAVE HEARD THE RESPECTIVE PARTIES, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE HAVE ALSO CAREFULL Y CONSIDERED THE ORDER PASSED BY THE CO - ORDINATE BENCH DECIDING THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION THEREOF IS AS FOLLOWS: 39. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 7 IS THAT THE LD.CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO BY ALLOCATING THE RESEARCH AND DEVELOPMENT EXPENSES INCURRED BY IT TO THE OTHER PARTNERSHIP FIRMS AND ACCORDINGLY MADE THE DISALLOWANCE OF SUCH EXPENSES PROPORTIONATELY. 40. THE ASSESSEE IS A PARTNER IN TWO PARTNERSHIP FIRMS NAMELY SUN PH ARMA INDUSTRIES AND SUN PHARMA SIKKIM (FOR SHORT SPI AND SPS). BOTH THE PARTNERSHIP FIRMS WERE ENGAGED IN MANUFACTURING THE DRUGS. HOWEVER, THE ASSESSEE WAS CARRYING OUT RESEARCH AND DEVELOPMENT EXPENSES FOR THE DRUGS MANUFACTURED BY BOTH THE FIRMS. ACCORD INGLY, THE ASSESSEE CLAIMED THE DEDUCTION FOR ALL THE RESEARCH AND DEVELOPMENT EXPENSES INCURRED BY IT IN ITS BOOKS OF ACCOUNTS. 41. THE AO DURING THE ASSESSMENT PROCEEDING OBSERVED THAT BOTH THE PARTNERSHIP FIRM ARE CLAIMING DEDUCTION UNDER SECTION 80IC OF THE ACT. AS SUCH BOTH THE PARTNERSHIP FIRMS WERE SHOWING A HUGE AMOUNT OF PROFIT WHICH WAS ALLOCATED TO THE PARTNERS OF THE FIRM. THE ASSESSEE BEING A MAJOR SHAREHOLDER IN THE FIRMS RECEIVED A HUGE AMOUNT AS A SHARE OF PROFIT WHICH WAS CLAIMED AS EXEMP TED UNDER SECTION 10(2A) OF THE ACT. ACCORDINGLY, THE AO WAS OF THE VIEW THAT THE RESEARCH AND DEVELOPMENT EXPENSES INCURRED BY THE ASSESSEE ON THE DRUGS MANUFACTURED BY THE PARTNERSHIP FIRMS SHOULD BE ALLOCATED TO THESE PARTNERSHIP FIRMS. THUS THE AO WORK ED OUT THE RESEARCH AND DEVELOPMENT EXPENSES PERTAINING TO THE FIRMS FOR RS. ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 4 - 58,07,48,088/ - ON THE BASIS OF THE TURNOVER OF THE FORMULATIONS AND DISALLOWED THE SAME BY ADDING TO THE TOTAL INCOME OF THE ASSESSEE. 42. THE AGGRIEVED ASSESSEE, PREFERRED AN A PPEAL TO THE LD. CIT (A) WHO PARTLY CONFIRMED THE ORDER OF THE AO AFTER HAVING A RELIANCE ON THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEAR 2008 - 09 BY OBSERVING AS UNDER: 12.1. SIMILAR DISALLOWANCE WAS MADE IN A.Y. 2008 - 09 AFTER REOPENING THE PROCEEDINGS U/S. 147. THE ORDER U/S. 143(3) R.W.S. 147 FOR A.Y. 2008 - 09 WAS PASSED BY THE ASSESSING OFFICER ON 14.02.2014. THE ABOVE MENTIONED ISSUE WAS CHALLENGED BEFORE THE CIT(A) - 2 , VADODARA. THE APPEAL OF THE ASSESSEE HAS BEEN DECIDED BY MY PREDECESSOR VIDE ORDER DATED 31.03.2015 CONTAINED IN APPEAL NO. CAB/(A) - 2/387/14~15 (A.Y. 2008 - 09) AND HIS FINDINGS RECORDED IN PARA - 7.3 TO7.5.2 ARE REPRODUCED AS UNDER: - '7.3 I HAVE CONSIDER ED THE APPELLANT'S SUBMISSION AND THE AO'S OBSERVATIONS. THE APPELLANT'S MAIN CONTENTION ARE THAT THAT THE PRODUCT TECHNOLOGY DEVELOPED ARE COMPLETELY OWNED BY IT AND NO PART OF OWNERSHIP OF THE PRODUCT TECHNOLOGY OR PROCESSES DEVELOPED DURING SUCH R & D W ORK IS FOR ANY OTHER PARTY. BESIDES BEING A WORKING PARTNER, THE APPELLANT IN PURSUANCE OF THE OBLIGATION UNDERTAKEN UNDER THE PARTNERSHIP DEED HAD PROVIDED THESE SERVICES IN RELATIONS TO THE MANUFACTURING ACTIVITIES OF THE FIRM AND THAT NO R & D ACTIVITY WAS CARRIED OUT FOR SPI. IN RELATION TO THE THESE CLAIMS, THE APPELLANT HAS ALSO STATED THAT IT HAS RECEIVED REMUNERATION AND SHARE OF PROFIT FROM SPI, CREDITS OF WHICH ARE AVAILABLE TO IT TO THE CORRESPONDING DEBIT IN THE BOOKS OF ACCOUNTS OF THE SPI, AND HENCE THE PROFIT WERE NOT UNDERSTATED. ANOTHER RELATED CLAIM MADE BY THE APPELLANT IS THAT THE EXPENDITURE INCURRED BY IT FOR THE PARTNERSHIP FIRM IS AS GOOD AS ITS OWN EXPENDITURE BECAUSE ULTIMATELY THE APPELLANT IS GOING TO BE THE MAJOR BENEFICIARY OF A NY PROFIT EARNED BY THE PARTNERSHIP FIRM AS A RESULT OF THIS R & D EXPENDITURE. 7.3.1 THESE CLAIMS OF THE APPELLANT ARE TO BE EXAMINED IN VIEW OF THE DIFFERENT PROVISIONS OF THE IT ACT 1961. THE SHARE OF PROFIT RECEIVED BY THE APPELLANT FROM THE FIRM IS E XEMPT FROM THE INCOME TAX. THE REMUNERATION IS RECEIVED FROM THE FIRM IS TAXABLE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION, AS PER THE PROVISION OF CLAUSE (V) OF SECTION 23 OF THE IT ACT 1961. BUT THE PROVISO TO THIS SECTION SAYS THAT WHERE SUCH R EMUNERATION OR PART THEREOF HAS NOT BEEN ALLOWED TO BE DEDUCTED UNDER CLAUSE (B) OF SECTION 40, THE INCOME UNDER THIS CLAUSE SHALL BE ADJUSTED TO THE EXTENT OF THE AMOUNT NOT SO ALLOWED TO BE DEDUCTED. NOW AS PER THE PROVISIONS OF SECTION 40(B)(I), ANY PAY MENT OF SALARY, BONUS, COMMISSION OR REMUNERATION TO ANY PARTNER WHO IS NOT A WORKING PARTNER IS NOT ALLOWED AS A DEDUCTION IN COMPUTATION OF THE TOTAL INCOME OF THE FIRM. THE EXPLANATION 4 TO CLAUSE (B) SAYS THAT WORKING PARTNER MEANS AN INDIVIDUAL WHO IS ACTIVELY ENGAGED IN CONDUCTING THE BUSINESS OR PROVISION OF THE FIRM OF WHICH HE IS A PARTNER. HENCE, THE APPELLANT BEING A COMPANY CANNOT BE A WORKING PARTNER OF A FIRM FOR THE PURPOSES OF PROVISIONS OF INCOME TAX ACT 1961. ACCORDINGLY, ANY ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 5 - REMUNERATION PAID TO THE APPELLANT IS NOT ALLOWABLE AS A DEDUCTION IN THE COMPUTATION OF THE TOTAL INCOME OF THE FIRM AND AT THE SAME TIME SUCH REMUNERATION WILL NOT FORM PART OF TOTAL INCOME OF THE APPELLANT. THUS, BOTH THE SHARE OF PROFIT AND REMUNERATION RECEIVED BY THE APPELLANT FROM THE FIRM WILL NOT FORM PART OF ITS TOTAL INCOME AND ACCORDINGLY ANY EXPENDITURE INCURRED BY THE APPELLANT FOR EARNING SUCH SHARE OF PROFIT OR REMUNERATION CANNOT BE ALLOWED AS A DEDUCTION IN COMPUTATION OF ITS TOTAL INCOME. HENCE IT IS HELD THAT THE AO HAS RIGHTLY DISALLOWED THE R & D EXPENDITURE INCURRED BY THE APPELLANT, THE RESULTS OF WHICH HAVE BEEN GIVEN BY THE APPELLANT TO THE FIRM SPI IN THE CAPACITY OF ITS PARTNER FOR MANUFACTURING DRUGS BY THIS FIRM. HENCE THIS CONTENTION OF THE APPELLANT IS REJECTED. 7.4 THE OTHER CONTENTION OF THE APPELLANT IS THAT AS PER SECTION 35, R & D EXPENDITURE HAS BEEN INCURRED BY IT FOR ITS OWN BUSINESS AND HENCE SAME CANNOT BE DEBITED IN THE BOOKS OF ACCOUNTS OF SPI. BUT AS ALREADY STATED, ONCE IT IS PROVED THAT PART OF SUCH EXPENDITURE HAS BEEN INCURRED BY THE APPELLANT FOR THE PURPOSE OF EARNING OF SHARE OF PROFIT AND REMUNERATION FROM THE FIRM WHICH IS NOT FORMING PART OF ITS OWN TOTAL INCOME, SUCH EXPENSES CANNOT BE ALLOWED AS A DEDUCTION IN COMPU TATION - OF ITS TOTAL INCOME. THE AO HAS DISALLOWED SUCH EXPENDITURE ONLY AND IT IS NOT A CASE WHERE SUCH EXPENSES HAVE BEEN DIRECTED TO BE DEBITED IN THE BOOKS OF ACCOUNTS OF THE FIRM, SPI. HENCE, THIS CONTENTION IS ALSO REJECTED. 7.5 THE OTHER CONTENTIO NS OF THE APPELLANT ARE RELATED TO THE METHOD ADOPTED BY THE AO FOR THE PURPOSES OF ALLOCATION OF SUCH R & D EXPENSES TO THE MANUFACTURING ACTIVITIES UNDERTAKEN BY THE APPELLANT AND THE MANUFACTURING ACTIVITY UNDERTAKEN BY THE FIRM SPI. IN THIS REGARD, THE APPELLANT HAS SUBMITTED THAT IT HAD SUBMITTED WORKING ON UNIT PROFITABILITY STATEMENT BEFORE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 21/11/2011 WHEREBY THE BIFURCATION .OF TURNOVER BETWEEN DOMESTIC/EXPORT AND FORMULATION/BULK IS C LEARLY EVIDENT. THESE WORKINGS HAVE BEEN SUBMITTED BY THE APPELLANT DURING THE COURSE OF THE CURRENT APPELLATE PROCEEDINGS ALSO AND THE SAME ARE BEING UTILIZED FOR THE PURPOSE OF DECIDING THIS ISSUE. 7.5.1 THE FIRST CONTENTION OF THE APPELLANT IS THAT THE PARTNERSHIP FIRM AND THE APPELLANT COMPANY CATER TO THE DIFFERENT SECTIONS OF BUSINESS WITH UNDERLINE FACTS. THESE DIFFERENCES HAVE BEEN SUBMITTED BY THE APPELLANT WHICH HAVE ALREADY BEEN REPRODUCED ABOVE. THE FIRST DIFFERENCE POINTED OUT IS THAT THE PART NERSHIP FIRM IS ONLY INTO PRODUCTION OF FORMULATION DRUGS FOR THE DOMESTIC MARKET, WHEREAS APPELLANT INCURRED R & D EXPENDITURE ON BULK DRUG SEGMENT AND FORMULATION SEGMENT BOTH AND THAT TOO FOR DOMESTIC MARKET AS WELL AS INTERNATIONAL MARKET AND REGULATED MARKET. IT HAS BEEN SUBMITTED THAT THE PARTNERSHIP FIRM HAS SOLD ITS PRODUCT IN DOMESTIC MARKET ONLY. IN THIS REGARD, THE APPELLANT HAS ALSO SUBMITTED THE COPY OF FINANCIAL STATEMENT FOR FY 2007 - 08 OF SUN PHARMACEUTICAL INDUSTRIES. AS PER THIS, THE TURNOV ER OF THIS FIRM IS 1086.2 CRORE, WHICH IS THE SAME FIGURE AS ADOPTED BY THE AD IN HIS ORDER. BESIDES IN CLAUSE 8' OF THE NOTES ON FINANCIAL STATEMENT, IT HAS BEEN MENTIONED THAT THE FIRM OPERATES IN ONE REPORTABLE GEOGRAPHICAL SEGMENT I.E. ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 6 - 'WITHIN INDIA' . ON THE BASIS OF DETAILS FURNISHED BY THE APPELLANT IT IS SEEN THAT THE FIRM IS NOT INTO BULK DRUG FORMULATIONS. HENCE, R & D EXPENDITURE RELATED TO BULK FORMULATION ARE NOT TO BE ALLOCATED TOWARDS THE EXPENDITURE FOR THE FIRM SPI AND THE AO HAS ALSO ACCE PTED THIS CONTENTION. BUT THE AO HAS ALLOCATED ENTIRE R & D EXPENDITURE FOR FORMULATION DRUGS IN THE RATIO OF TOTAL TURNOVER OF THE APPELLANT AND OF THE FIRM M/S. SPI. THE APPELLANT'S CLAIM THAT R & D EXPENDITURE INCURRED FOR EXPORT FORMULATIONS SHOULD NOT BE ALLOCATED TO SPI IS FOUND TO BE CORRECT AS SPI HAS NOT EXPORTED ANY DRUG DURING THE FY 2007 - 08. BUT AT THE SAME TIME IF THIS METHOD IS ADOPTED, THEN THE EXPORT TURNOVER OF THE APPELLANT WILL HAVE TO BE REDUCED FROM ITS TOTAL TURNOVER FOR THE PURPOSES O F COMPUTING THE ALLOCATION OF EXPENSES ON R & D FOR FORMULATION DRUGS. BESIDES, THE APPELLANT'S CLAIM IS THAT ONLY AN AMOUNT OF 1651.48 LAKHS HAVE BEEN INCURRED PERTAINING TO DOMESTIC FORMULATION BUSINESS. FROM THE DETAILS SUBMITTED BY THE APPELLANT BEFORE THE AO IT IS SEEN THAT THE EXPENSES INCURRED UNDER DIFFERENT HEADS ARE AS FOLLOWS: - DEPARTMENT DESCRIPTION OF DEPARTMENT RS. IN LACS REMARKS FDD1 FORMULATION DEVELOPMENT OF ORAL - SOLIDS/TABLETS/CAPSULES {FOR DOMESTIC, US & REST OF THE WORLD MARKET) ANRIEXURE 1 1651.48 MAINLY DOMESTIC MARKET - MFG AT SILVASSA, DADRA, JAMMU, HALOL, LL & 3 RT PARTY FDD2 FORMULATION DEVELOPMENT OF INJECTIBLES {SYRINGE/NASAL SPRAY CREAM} ANNEXURE 2 2193.40 MANUFACTURED BY SPIL AT HALOL OR AT 3 RD PARTY/LL BUT NOT BY SPI MAHAKALI FORMULATION & ANALYTICAL DEVELOPMENT (FOR REGULATED MARKET - US & EUROPE) ANNEXURE 3 1618.62 MAINLY FOR US , EUROPE & REST OF THE WORLD MARKET . DOMESTIC MAY BE NEGLIGIBLE. ORGAINIC SYNTHESIS PROCESS ORGANIC SYNTHESIS (BASIC) FOR BULK DRUGS ORGANIC SYNTHESIS (PROCESS) FOR BULK DRUGS TOTAL R & D EXPENDITURE DEPT. WISE ANNEXURE 4 ANNEXURE 5 873.62 1065.83 7402.95 ONLY FOR BULK DRUG/API ONLY FOR BULK DRUG/API REGULATORY/ O VERSEAS EXPENSES ANNEXURE 6 A) 217.96 EXPENSES ON ACCOUNTS OF PRODUCTS REGISTRATION, CLINICAL TRAILS, ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 7 - SUBSCRIPTION ETC . FOR PRODUCT FOR OVERSEAS MARKET. B) 500.89 EXPENSES ON ACCOUNTS CLINICAL TRAILS FOR DOMESTIC MARKET. R & D A) 4751.79 EXPENSES FOR PROFESSIONAL PROFESSIONAL CHARGES FOR PRODUCTS FOR FEES OVERSEAS MARKET. B) 167.71 EXPENSES FOR PROFESSIONAL CHARGES FOR PRODUCTS FOR DOMESTIC MARKET. OTHER. - 62.90 MISCELLANEOU S EXPENDITURE GRAND TOTAL R & D EXPENDITURE 13104.19 THUS, THE TOTAL EXPENSES FOR FORMULATION DRUG FOR DOMESTIC MARKET IS 1651.48,+ 2193.40 + 167.61 +.62.90 = 4075.49 LAKHS. THE BALANCE EXPENDITURE OF 9028.7 LAKHS IS FOR THE PURPOSE OFOVERSEAS MARKET. THE APPELLANT'S CLAIM THAT ONLY 1651.48 LAKHS OF EXPENDITURE SHOULD BE CONSIDERED FOR ALLOCATION TO SPI IS NOT ACCEPTABLE DUE TO LACK OF PROPER DETAILS FILED BY IT BEFORE THE AO OR DURING THE CURRENT APPELLATE PROCEEDINGS . THE DOMESTIC FORMULATIONS TURNOVER OF SPIL IS RS. 1451.25 CRORES ANDTHAT OF SPI IS RS.1086.2 CRORES. HENCE, THE R & D EXPENDITURE RELATED TO FORMULATION DRUG FORDOMESTIC PURPOSES IS TO BE ALLOCATED IN THE RATIO OF THESE TWO TURNOVERS. HENCE, THE R & D EXPENDITURE RELATED TO THE ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 8 - FORMULATIONPRODUCTIONMADE BY THE SPI COMES TO 1086.2/2537.45X 4075.49 = RS.1744.56 LAKHS. 7.5.2 ACCORDINGLY, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE OUT OF - R&D EXPENSES TO THIS FIGURE OF RS.1744.56 LAKHS. THE APPELLANT GETS PART RELIEF ACCORDINGLY.' 12.2. IT IS NOTICED THAT THE APPELLANT HAS FURNISHED SIMILAR WRITTEN SUBMISSION IN THIS YEAR ALSO AND THE DETAILS OF VARIOUS EXPENSES INCURRED UNDER DIFFERENT HEADS SUBMITTED BEFORE THE ASSESSING OFFICER ARE AS FELLOWS : - DEPARTMENT DESCRIPTION OF DEPARTMENT RS. IN LACS REMARKS FDD1 FORMULATION DEVELOPMENT OF ORAL - SOLIDS/TABLETS/CAPSULES {FOR DOMESTIC, US & REST OF THE WORLD MARKET) ANNEXURE 1 2332.84 MAINLY DOMESTIC MARKET - MFG EL SILVASSA, DADRA, JAMMU, HALO), LL & 3 RD PARTY FDD2 FORMULATION DEVELOPMENT OF INJECTIBLES {SYRINGE/NASAL SPRAY CREAM} ANNEXURE 2 3201.08 MANUFACTURED BY SPIL AT LIALOL OR AT 3 RD PARTY/LL BUT NOT B/ SPI MAHAKALI FORMULATION & ANALYTICAL DEVELOPMENT (FOR REGULATED MARKET - US & EUROPE) ANNEXURE 3 2816.97 MAINLY FOR US, EUROPE A. REST OF THE WORLD MARKET . DOMESTIC MAY BE NEGLIGIBLE. ORGAINLC SYNTHESIS PROCESS ORGANIC SYNTHESIS (BASIC) FOR BULK DRUGSORGANIC SYNTHESIS (PROCESS) FOR BULK DRUGS TOTAL R & D EXPENDITURE DEPT. WISE ANNEXURE 4 ANNEXURE 5 1142.87 10997.61 ONLY FOR BULK DRUG/API ONLY FOR BULK DRUG/API REGULATORY/0 VERSEAS EXPENSES . ANNEXURE 6 A) 812.71 EXPENSES ON ACOX'RFC OF PRODUCTS REGISTRATION, C'.RFJC:.'.~.> TRAILS, SUBSCRIPTION ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 9 - CLC. FOR | PRODUCT FOR OVERSEAS MARKET, , , 1 B.) 194.80 EXPENSES ON ACCOUNTS CLINIC: 1 TRAILS FOR DOMESTIC MARKET R . & : D 640.65 EXPENSES FOR PROFESSIONAL PROFESSIONAL CHARGES FOR PRODUCTS FOR FEES OVERSEAS MARKET B) 130.68 EXPENSES FOR PROFESSIONAL CHARGES FOR PRODUCT FOR DOMESTIC MARKET OTHER MISCELLANEOU S EXPENDITURE . . GRAND TOTAL R & D EXPENDITURE 12776.45 SINCE THE FACTS ARE IDENTICAL IN THIS YEAR A/SO, I RESPECTFUL/Y FOLLOWING THE ORDER OF MY PREDECESSOR IN APPELLANT'S OWN CASE AS MENTIONED ABOVE, HOLD THAT THE R&D EXPENSES INCURRED BY THE APPELLANT ADMITTEDLY ARE ALSO PERTAINING TO SPI/SPS AND HENCE THE SAME ARE REQUIRED TO BE ALLOCATED IN THE RATIO OF TURNOVER OF APPELLANT AND SPI/SPS. I ALSO AGREE WITH THE VIEWS OF MY PREDECESSOR THAT THE EXPENSES INCURRED FOR DEVELOPMENT OF FORMULATION DRUGS FOR DOMESTIC MARKET ARE TO BE CONSIDEREDONLY BECAUSE SPI/SPS HAS NO BUSINESS OUTSIDE THE COUNTRY. AS PER THE DETAILS FURNISHED THE R&D EXPENSES FOR DEVELOPMENT OF FORMULATION DRUGS FOR DOMESTIC MARKET ARE RS.3201.08 ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 10 - + 2816 .97 + - 194.80+ 130.68 = RS,6343.53 LACS. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO WORK OUTTHE DISALLOWANCE OF R&D EXPENSES OUT OF RS. 6343.53 LACS IN THE RATIO OF DOMESTIC TURNOVER OF SPI/SPS AND SPIL I.E. APPELLANT, AFTER NECESSARY VERIFICATION O F THE FIGURES. THUS, APPELLANT SUCCEEDS PARTLY IN RESPECT OF GROUND NO. 9. 43. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A), BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE IS IN THE APPEAL FOR THE ALLOCATION OF R&D EXPENSES T O SPI AND SPS WHEREAS THE REVENUE IS IN APPEAL AGAINST THE DIRECTION OF LD.CIT (A) TO ALLOCATE THE EXPENSES EXCLUDING EXPORT TURNOVER. 44. THE REVENUE HAS RAISED GROUND NO 6 REPRODUCED AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEA RNED CIT(A) ERRED IN LAW AND FACTS IN RESTRICTING THE DISALLOWANCE OF R&D EXPENSES AFTER EXCLUDING THE EXPORT TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE ALLOCATION OF R & D EXPENSES WITHOUT APPRECIATING THAT THE AO HAD APPLIED THE SAME PRO - R ATA METHOD OF ALLOCATING THE R & D EXPENDITURE WHICH THE ASSESSEE ITSELF WAS APPLYING FOR ALLOCATION OF THE R & D EXPENDITURE WITHIN THE ASSESSEE ITSELF WAS APPLYING FOR ALLOCATION OF THE R & D EXPENDITURE WITHIN ITS UNITS IN THE RATIO OF THEIR TURNOVER. 45. THE LD. AR BEFORE US SUBMITTED THAT IN THE IDENTICAL FACTS AND CIRCUMSTANCES THIS ITAT IN THE OWN CASE OF THE ASSESSEE AND REVENUE BEARING ITA NOS. 1666/AHD/2016 AND 1663/AHD/2016VIDE ORDER DATED 08 - 09 - 2017 DELETED THE ADDITION MADE BY AO. 46. BOTH THE LD. AR AND THE DR BEFORE US RELIED ON THE ORDER OF RESPECTIVE AUTHORITIES BELOW AS FAVORABLE TO THEM. 47. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORDS. AT THE OUTSET, WE FIND THAT IN THE IDENTICAL F ACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE S (SUPRA), THE ITAT DELETED THE ADDITION MADE BY THE TPO/AO. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS IN ISSUE BEFORE US. THERE I S NO DISPUTE THAT THE ASSESSEE DID INCURRED EXPENDITURE UNDER THE HEAD 'RESEARCH & DEVELOPMENT' ACTIVITY. THE ONLY DISPUTE RELATES TO THE . A.Y. 2009 - 10 ALLEGATION THAT PART OF SUCH EXPENDITURE BELONG TO THE BUSINESS ACTIVITY OF THE PARTNERSHIP FIRM SPI. THERE IS ALSO NO DENYING BY THE LOWER AUTHORITIES THAT THE ENTIRE RESEARCH AND DEVELOPMENT ACTIVITIES ARE DONE BY THE APPELLANT COMPANY ONLY BEING THE FLAGSHIP COMPANY OF SUN PHARMA GROUP. IN OUR UNDER STANDING OF THE FACTS, THE APPELLANT COMPANY HAD ASSISTED THE PARTNERSHIP FIRM IN CARRYING ON ITS BUSINESS BY USING ITS NETWORK FOR MARKETING THE PHARMACEUTICALS PRODUCTS SUCCESSIVELY. SINCE THE ASSESSEE IS HOLDING 97.5% OF SHARE IN THE PARTNERSHIP FIRM, S PI IT BECOMES THE DUTY OF THE ASSESSEE TO PROMOTE THE BUSINESS OF THE PARTNERSHIP FIRM IN THE CAPACITY OF THE MAJORITY STAKE HOLDERS . INCIDENTALLY, THE REVENUE AUTHORITIES HAVE NOT BROUGHT ANYTHING ON RECORD WHICH COULD SUGGEST THAT THE EXPENDITURES HAVE ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 11 - N OT BEEN INCURREDFOR THE PURPOSES OF BUSINESS. BE IT ASSESSEE'S BUSINESS OR THE BUSINESS OF THE PARTNERSHIP FIRM WHERE THE ASSESSEE IS A MAJORITY STAKE HOLDER . IN OUR UNDERSTANDING OF THE LAW AN EXPENDITURE IS ALLOWABLE IF IT IS INCURREDFOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. FINDING THAT THE ASSESSEE IS HAVING 97.5 % SHARE IN THE PROFITS OF THE FIRM SPI, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE FIRST APPELLATE AUTHORITY. WE, ACCORDINGLY, DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 5,30,29,5255/ - . GROUND NO. 12 IS ACCORDINGLY ALLOWED 48. REGARDING THE REVENUE APPEAL, THE RELEVANT FINDING OF THE ITAT IN ITA 1663/AHD/2016 IN ITS ORDER IS EXTRACTED BELOW: 137. SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEE'S APPEAL (SUPRA) VIDE GROUND NOS. 9 TO 11 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, GROUND NO. 11 IS DISMISSED . 49. AS FACTS IN THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, THEREFORE RESPE CTFULLY FOLLOWING THE FINDING OF THE TRIBUNAL (SUPRA), WE DIRECT THE AO ACCORDINGLY. 49.1 MOREOVER, WE ARE BOUND TO FOLLOW THE ORDER OF THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN THE EARLIER YEAR AS THE FACTS ARE IDENTICAL IN THE IMPUGNED ISSUE BEF ORE US. IT IS ALSO IMPORTANT TO NOTE THAT THE LD. DR HAS NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE ARGUMENT ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE AND THE FINDING OF THE LD. CIT - A. 49.2 WE ALSO PLACE OUR RELIANCE ON THE JUDGMENT OF HON BLE MADRAS HIGH COURT IN THE CASE OF CIT V. L.G. RAMAMURTHI 1977 CTR (MAD.) 416 : [1977] 110 ITR 453 (MAD.). THE RELEVANT EXTRACT HAS BEEN REPRODUCED IN THE PRECEDING PARAG RAPH. IN THE LIGHT OF THE RATIO DECIDENDI IN THE ABOVE - SAIDJUDGMENT, WE ARE OF THE CONSIDERED OPINION THAT THE VIEW ADOPTED BY THE CO - ORDINATE BENCH AS DISCUSSED ABOVE SHALL BE APPLIED IN THE CASE ON HAND WITH FULL STRENGTH .THE LD. DR AND THE LD. AR HAS NO T BROUGHT ANY DECISIONS VARYING FROM SIMILAR OR IDENTICAL FACTS OR CIRCUMSTANCES. THEREFORE, THE RATIO DECIDENDI RENDERED BY THE EARLIER ORDER OF THE TRIBUNAL HAS NECESSARILY TO BE FOLLOWED BY US IN LINE AND TUNE WITH THE JUDICIAL DISCIPLINE AND DECORUM. I N VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE ITAT ORDER AS DISCUSSED ABOVE, WE ALLOW THE GROUND OF APPEAL OF THE ASSESSEE AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. TAKING INTO CONSIDERATION THE ORDER PASSED BY THE CO - ORDINATE BENCH IN IDENTI CAL ISSUE IN ASSESSEE S OWN CASE AS DISCUSSED ABOVE, WE FIND NO REASON TO DISALLOW THE CLAIM OF THE ASSESSEE TOWARDS R & D EXPENDITURE ALLOCATED TO SUN PHARMA INDUSTRIES OF RS.22,93,81,646/ - . WE, THEREFORE, RESPECTFULLY RELYING ON THE SAID ORDER PASSED BY THE CO - ITA NO. 2514 /AHD/201 5 S UN PHARMACEUTICAL INDUSTRIES LTD. VS. PCIT ASST.YEAR 2008 - 09 - 12 - ORDINATE BENCH, DELETE SUCH ADDITION MADE BY THE AUTHORITIES BELOW. HENCE, ASSESSEE S GROUND OF APPEAL IS ALLOWED 7 . RESPECTFULLY, RELYING UPON THE ORDER P ASSED BY THE CO - ORDINATE BENCH O N THE IDENTICAL ISSUE, IN THE ABSENCE OF ANY CHANGE OF FACTS AND CIRCUMSTANCES OF THE CASE , WE FIND NO REASON TO DISALLOW THE R & D EXPENDITURE ALLOCATED TO SUN PHARMACEUTICALS INDUSTRIES (PARTNERSHIP FIRM) TO THE EXTENT OF RS.5,23,16,934 / - . HENCE, THE ADDITION MADE BY THE AUTHORITIES BELOW IS FOUND TO BE DEVO ID OF ANY MERIT AND THUS DELETED. 8 . IN THE RESULT, ASSESSEE S APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 06 / 09 /201 9 - SD - - SD - ( WASEEM AHMED ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 06 /0 9 /201 9 MANISH