Intas Pharmaceuticals Ltd., Ahmedabad V. ACIT, Circle-2(1)(1), Ahmedabad

ITA 400/AHD/2018

AI Insights

The case involves multiple appeals by Intas Pharmaceuticals Ltd. against the orders of the Commissioner of Income-Tax (Appeals) and the TPO, concerning transfer pricing adjustments and disallowances for the assessment years 2013-14 and 2014-15. The primary issues revolved around the arm's length pricing of advances to associate enterprises, the treatment of outstanding receivables, and the disallowance of expenses under sections 35(2AB) and 14A of the Act. The Tribunal examined the methods used for determining the arm's length price, the applicability of domestic transfer pricing provisions, and the compliance with statutory requirements for claiming deductions under section 35(2AB).

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133671 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 12-09-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 18-02-2018
• Other Referred Cases: CIT Vs. Adani Wilmar Limited, ACIT Vs. SS India Pvt. Ltd., Torrent Pharmaceuticals Ltd., Cadila Healthcare Ltd., Cadila Pharmaceuticals Ltd., Dr.Reddy's Laboratories Ltd. Vs. ACIT, GE India Technology Centre Private Limited, CIT vs. Toshoku Limited
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Permanent establishment; Notional interest; Commercial expediency; Capital expenditure; TDS; Rule 8D
• Section: 143(3); 14A; 40(a)(ia); 10B; 195; 80IC; 113; 80IC; 9(1); 9(1); 9(1)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘डी डीडी डी’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE MRS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No. 400/Ahd/2018 Assessment Year: 2013-14 Intas Pharmaceuticals Ltd., Intas Corporate House, Nr.Sola Bridge, SG Highway, Thaltej, Ahmedabad-380054 PAN : AAACI 5120 L Vs. ACIT, Circle 2(1)(1), Ahmedabad ITA No. 704/Ahd/2018 Assessment Year: 2013-14 ACIT, Circle 2(1)(1), Ahmedabad Vs. Intas Pharmaceuticals Ltd., Intas Corporate House, Thaltej, Ahmedabad-380054 ITA No. 46/Ahd/2019 Assessment Year: 2014-15 Intas Pharmaceuticals Ltd., Thaltej, Ahmedabad-380054 Vs. ACIT, Circle 2(1)(1), Ahmedabad ITA No. 484/Ahd/2019 Assessment Year: 2014-15 Jt. CIT (OSD), Circle 2(1)(1), Ahmedabad Vs. Intas Pharmaceuticals Ltd., 203, 2 nd Floor, Chinubhai Centre, Off. Nehru Bridge, Ashram Road, Ahmedabad-380009. ] अपीलाथ / (Appellant) यथ / (Respondent) Assessee by : Shri Dhinal Shah, AR Revenue by : Shri Sudhendu Das, CIT-DR स ु नवाई क तार ख/Date of He aring : 13. 09. 202 3 घोषणा क तार ख /Date of Prono un cem e nt: 31. 10. 202 3 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: These are two set of cross appeals filed by the assessee and Revenue for Assessment Years 2013-14 & 2014-15 and are directed 2 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 against respective orders dated 29.12.2017 and 10.12.2018 of the learned Commissioner of Income-Tax (Appeals)-2, Ahmedabad (hereinafter referred to as“CIT(A)”) passed u/s 250(6) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). 2. At the outset itself, it was pointed out that the issues raised in these cross-appeals were identical in both the years; therefore, both these cross-appeals were taken up together for hearing. The appeal pertaining to A.Y 2013-14 was agreed by both the parties to be considered as the lead case and the decision rendered therein to apply paripassu to identical issues raised in A.Y 2014-15. We shall first be dealing with Assesses appeal for A.Y 2013-14. ITA 400/Ahd/2018 A.Y 2013-14 : ASSESSEE’S APPEAL 3. Giving a brief background of the assessee, learned Counsel for the assessee pointed out that the assessee-company is engaged in the business of manufacturing of pharmaceutical products. That the pharmaceutical products manufactured by it were sold outside country, to facilitate which wholly owned subsidiaries of the assessee company were incorporated in various foreign jurisdiction. The modus operandi being that the assessee made export sales to these subsidiaries, who in turn sold the goods in the foreign jurisdiction by obtaining all necessary approvals and registrations as required as per the laws of those countries. That in the course of transactions carried out with such subsidiaries, which qualified as Associate Enterprises of the assessee in terms of transfer pricing provisions in Chapter X of the Act, the assessee made advances to such entities which the TPO found to be at low rate of interest as compared to the market rate and accordingly made adjustment on account of the difference in terms of the transfer 3 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 pricing provisions contained in Chapter X of the Act. That on account of sale made to the said Associate Enterprises, there were outstanding recoverables with the said parties, which the TPO noted to have exceeded the credit period allowed and accordingly he held the excess period of credit allowed to such AEs to tantamount to advancing loans to the said parties and, therefore made adjustment on account of interest chargeable on the same from the AEs ,again in terms of transfer pricing provisions as per Chapter-X of the Act. Learned Counsel for the assessee further pointed out that the assessee had also outsourced the manufacturing of its pharmaceutical products to a domestic /local contract manufacturer, being a partnership firm in which the assessee- company was one of the partners. The TPO noted that the domestic transfer pricing provisions applied to the transactions undertaken with the partnership firm of the assessee and finding that the purchases made from this partnership firm by the assessee were at a price higher than the market price, he made adjustment to the purchase price in terms of the domestic transfer pricing provisions in Chapter X of the Act. All the adjustments proposed so by the TPO were in turn made by the AO in his order passed u/s 143(3) of the Act. That all these issues were raised in appeal before the learned CIT(A), who majorly upheld all the adjustments made by the Assessing Officer in terms of the Transfer Pricing Order passed by the TPO in relation to both the international transactions and the domestic transactions undertaken by the assessee. Besides, he pointed out, several other additions/disallowances were made by the AO which were partly confirmed by the Ld.CIT(A). 4. Aggrieved by order of the Ld.CIT(A) the assessee has come up in appeal before us raising the Transfer Pricing issues in Ground No. 1(i) 4 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 to 1(iii) of the appeal. The remaining grounds i.e. 2 and 3, he pointed out related to Corporate Tax issues. The Revenue has challenged the additions deleted by the Ld.CIT(A), before us. Thereafter, he proceeded to deal with each ground raised before us. 5. Taking up first thegrounds raised relating to Transfer Pricing Adjustments made onaccount of interest on advances given to AEs our attention was drawn to ground No.1(i) which reads as under:- 1“i. Transfer pricing adjustment on interest on advances given to AEs – Rs.2,59,90,049/- a) In the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the upward adjustment by AO/TPO by charging interest on business advances given out of commercial expediency to wholly owned AEs for setting up business by registering products with local authorities, working capital etc. The learned CIT(A) has disregarded the fact that the Appellant had already charged interest on these advances. Further, the CIT(A) failed to appreciate the commercial expediency of granting advances to the AEs. b) That in the facts and circumstances of the case and in law, the learned CIT(A) has failed to appreciate that the appellant company has justified the arm’s length rate of interest on commercial advances under CUP methodology by comparing the interest charged by it to AEs at with rate of interest quoted to it by independent third party (Bank of Nova Scotia, Singapore) in the context of providing foreign currency loan. The learned CIT(A) has failed to appreciate that the internal comparables are to be preferred over the external comparable while determining the arm’s length price of the international transaction. c) That in the facts and circumstances of the case and in law, the learned CIT(A) ought to have appreciated that there was no parity between the comparable adopted by the AO/TPO and international transaction undertaken by the appellant company. d) Assuming but not accepting and without prejudice to above, the learned CIT(A) further erred in confirming ad-hoc addition of 100 5 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 basic points to the LIBOR/EURIOBOR spread towards forex risk adjustment.” 6. The issue raised in the above grounds relates to addition made to the income of the assessee by the AO of Rs.2,79,30,001/- , & confirmed by the Ld.CIT(A) to Rs. Rs.2,59,90,049/-, on account of upward adjustment towards interest on advances given by the assessee to the following associate enterprises: 7. The facts relevant to the case being that the assessee had charged interest on the outstanding amount of advances to the AE at the rate of 3.22% - derived on the basis of LIBOR + 260 basis points. The assessee had adopted the rate based on a quotation given to the assessee by Bank of Nova, Scotia (BNS), Singapore, on seeking loan from it . However, the TPO rejected the internal CUP taken by the assessee and proposed application of rate arrived at LIBOR/EURIPOR plus different mark ups and further addition of 100 basis points towards forex risk adjustment. The rates adopted by the TPO for different associate enterprises are as under: 6 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 8. The assessee contested the above adjustment, contending that the advance to the AEs had been made for commercially expedient purpose; that there was no reason to reject the internal CUP; that in any case the rate arrived at by the TPO by making markup over LIBOR/EURIPOR was highly exorbitant, and he also objected to the adjustment on account of foreign exchange risk made while computing the ALP interest rate by the TPO. The TPO however dismissed all the contentions of the assessee and applying the ALP of interest rates on the different advances made by the assessee to its AEs as above, made an upward adjustment towards interest on advances to the tune of Rs.2.79 crores. The matter was carried in appeal before the ld.CIT(A), who upheld the order of the TPO/AO but noting error in the calculation of addition to be made with respect to advances made to Accord Pharmaceutical Ltd. Brazil by the AO /TPO, he restricted the addition to Rs. 2.59 Crs 9. Before us, the ld.counsel for the assessee reiterated the arguments made before the lower authorities. Brief synopsis of the arguments made in writing was also filed before us. Briefly put, the limbs of the arguments made by the ld.counsel for the assessee against the upward adjustment was made as under: • The impugned advances have been made for the business purpose of the assessee, and they did not warrant any TP adjustment; • Internal CUP was applied by the assessee for determining the ALP of the transaction is a valid CUP and could not have been rejected; 7 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 • That internal comparables are to be preferred over the external comparables, and therefore, the external comparables adopted by the TPO is to be rejected; and the assessee’s internal comparable has to be accepted; • That the rate of interest to be applied for determining the ALP was to be the rate applicable to the currency in which the loan was taken or repaid and in the present case, being USD, the TPO had erred by adding mark ups to it based on the geographical location of the AE to which the advances were made; • That no adjustment on account of foreign exchange risk was required, and lastly; • The rate of interest charged by the assessee at 3.22% being higher than the LIBOR, the charging of interest at LIBOR has to be considered as ALP as held by various Courts that charging of interest at LIBOR is to be considered as ALP. 10. Taking up first the argument relating to internal comparable adopted by the assessee for benchmarking of its transactions of interest charged on advances to the AE, ld.counsel for the assessee drew our attention to the TP documents of the assessee placed before us at page no.68 to 186 of the PB-1. Referring to page no.125 (5.2.3) he pointed out the basis mentioned therein for treating 3.22% as ALP of the transaction as under: “During FY 2012-13, IPL has obtained foreign currency loan from Bank of Nova Scotia ('BNS'), Singapore for financing capital expenditure and general corporate usage. BNS is a leading financial services provider in over 55 countries and Canada's most international bank. Since, IPL has obtained a loan in foreign currency, the same can be adopted as a CUP for benchmarking the interest charged by IPL from its AEs in respect of the foreign currency loans provided to the AEs with similar terms. Based on the analysis, the arm's length rate of interest on comparable borrowings from BNS Singapore works out to 6M USD LIBOR + 2.60% 8 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 (Inclusive of flat fee of 0.40%) i.e. effective rate 3.22%. During the financial year ended 31 March 2013, IPL has advanced loans at the interest rate of 3.22% to its AEs. Since the amount charged from the AEs is same as that paid on the loan borrowed from unrelated party BNS Singapore, it can be concluded that the interest received on the said advances will satisfy the arm's length test from an Indian Transfer Pricing perspective. 11. Referring to the above, he pointed out that the assessee had adopted CUP method as most appropriate method for comparability analysis of the impugned transactions and had treated internal CUP as most appropriate; that internal CUP related to a proposal obtained by the assessee for foreign currency loan from the Bank of NovaScotia,Singapore, for financing capital expenditure and general corporate usage; that this proposed loan was in USD and borrowing rate proposed by BNS was six months USD LIBOR plus 2.6%. He contended that the loans given by the assessee to its AE also being in USD,internal CUP of the assessee was the most appropriate for benchmarking the impugned transaction of interest on loans to the AE’s. 12. Ld.Counsel for the assessee thereafter drew our attention to the basis of the TPO for rejecting the internal CUP of the assessee. He drew our attention to page no.6 of the TPO’s order wherein the TPO had noted that the AE’s being located in different geographical locations and internal comparablebeing located in one specific region only i.e. Singapore,thiswas not appropriate comparable since different geographical location of the AEs was not addressed by this comparable. He thereafter took us to the finding of the ld.CIT(A) for rejecting the internal CUP at page no.40 of the order para 3.7 & 3.8 as under: The appellant has argued that the internal CUP in the form of quotation obtained from Bank of Nova, Scotia (BNS), Singapore should be taken for benchmarking and relied upon various case laws including that of Honourable Gujarat High Court in the case of CIT Vs. Adani Wilmar Limited [363 !TR 338]. In the case before the 9 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 Honourable High Court of Gujarat in the above case was that the TPO adopted CUP method to benchmark international transactions. The assessee presented two sets of prices claiming them to be comparable to his transaction with the associated enterprises. One set of prices relied upon by the assessee was supplied by the Malaysian Palm Oil Board and the second set of prices was the quotation published by Oil Board and independent organisation. The TPO took into account the rates mentioned by Malaysian Palm Oil Board and disregarded the rates published by Oil Board. According to the TPO, the Malaysian Palm Oil Board was a statutory body of Malaysia, whereas the quotation published by Oil Board did not have any statutory authority. The Honourable High Court in that case held that the price publication are relevant material for the purposes of carrying out the comparability analysis in the course of application of CUP methods and as such price publication was authentic and reliable, the Honourable Court directed to adopt the price. In the present case, appellant has mereiy obtained a quotation from BSN, Singapore which reads as: "This is a proposal to be used as a basis for continued discussions, and does not constitute a commitment of the bank (the "Bank") to lend, arrange or syndicate a financing or an agreement by the bank to prepare, negotiate, execute or deliver such a commitment. The delivery of a commitment would be subject, amount other things, to fij the bank's satisfaction with the results of their due diligence and (iij satisfactory financing documentation. The terms and conditions of this proposal, including the amounts, interest rates' repayment of fees, may be modified or supplemented by the Bank in their sole discretion at any time and from time to time during the course of their due diligence and credit approval process or as a result of changed market conditions or otherwise. These terms and conditions and non - exhaustive and all other terms and conditions are subject to mutual agreement amongst the borrower and the Bank." 3.8. It is evident that the above quotation is not a publication and not interest charged or paid, as it does not reflect any actual transaction. The Honourable ITAT in the case of ACIT Vs. SS India Pvt. Ltd. reported in 123 TTJ 657 (Pune) has held that price quoted in a broker note cannot be said to be authentic and reliable as the information is not available on the public domain.” 13. Referring to the above, he stated that the basis for the ld.CIT(A) for rejecting the internal CUP was that it was not authentic, which was based on the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Adani Wilmar Limited, 363 ITR 338. The ld.counsel for the assessee contended that the reliance placed by the ld.CIT(A) on this decision was misplaced and distinguishable on facts. He stated that in the said case, the assessee had relied upon quotation published by the Oil Board, an independent organization, for benchmarking its international transactions adopting CUP method. Hon’ble High Court 10 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 in the case had held that publication was authentic and reliable and could be treated as comparable for CUP analysis. The ld.counsel for the assessee pointed out that relying upon the said decision, the ld.CIT(A) held that quotation relied upon by the assessee in the present case was not a publication, and therefore, could not be relied upon as authentic and reliable. The ld.counsel for the assessee contended that this quotation of the assessee in any case could not have been a public document because it is a quotation on account of private agreement being entered into with bank. Therefore, the distinction made by the ld.CIT(A) was irrelevant; that in any case, it was an internal CUP of the assessee which was to be treated as most comparable as compared to any other external CUP. The Ld.DR however supported the order of the Ld.CIT(A). 14. We have carefully heard the contentions of both the parties, gone through the orders of the authorities below and also considered the various case-laws referred to before us. On the issue raised of rejection of internal Comparable of the assessee, we find merit in the contention of the learned Counsel for the assessee that it wrongly rejected by the Ld.CIT(A). The internal comparable taken by the assessee,being the rate of interest quoted by the Bank of Nova Scotia, Singapore, on a proposal of USD loan to the assessee,was rejected for the reason that it was a mere quotation. The ld. CIT(A) has held that this is not a reliable document and has referred to the decision of the Hon’ble Gujarat High Court in the case of CIT v. Adani Wilmar Ltd., (2014) 363 ITR 338 (Guj.) in this regard. The reasoning borrowed by the ld. CIT(A) from the aforesaid judgement being that in the said case the Hon’ble Gujarat High Court had held 11 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 “publication” of rates by Oil Board has authentic and reliable; and, in the present case the quotation of the Bank of Nova Scotia, Singapore was not a publication, and therefore, could not be said to be reliable. This comparison drawn by the ld. CIT(A), we find, is of no relevance. How a publication is reliable, while a quotation is not has not been explained by the Ld.CIT(A). What can be derived from the order of the Hon’ble Gujarat High Court is that what is relevant for accepting an internal CUP is authenticity of the document from which it is derived. In the said case, it was a quotation which was published by the Oil Board and was held by the Hon’ble High Court to be an authentic document which could be relied upon. In the present case, we see no reason given by the authorities below, nor is there any finding by the Revenue Authorities below to the effect that quotation of the Bank of Nova Scotia, Singapore was, in any way, not authentic. There is no investigation or inquiry conducted by the Revenue Authorities with regard to the authenticity of the quotation, and the Bank of Nova Scotia, Singapore is a renowned bank having global operations. Therefore, there is no basis for doubting the authenticity of the quotation. Having said so, we agree with the ld. Counsel for the assessee that the decision of the Hon’ble Gujarat High Court in the case of Adani Wilmar (supra) supports the case of the assessee that the internal CUP being derived from an authentic document, cannot be rejected. In the light of the above, we hold that the basis with the ld. CIT(A) for rejecting the internal CUP of the assessee was not correct. Having held so, there is no doubt that the internal CUP is the best comparable which can be taken for comparability analysis as compared to external comparable and no deficiency having been found in the 12 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 internal CUP, the external CUPs taken by the AO/TPO are rejected as not applicable for comparability analysis in the present case. 15. Since we have rejected the external CUP taken by the authorities below for the aforesaid reason, we do not consider it fit to deal with the other arguments of the ld. Counsel for the assessee against the same. In view of the above, we hold that the transactions of loans advanced to AEs by the assessee was adequately demonstrated by the assessee to be at Arm’s Length Price based on the comparability analysis done with its internal comparable. That, therefore, no transfer pricing adjustment to the same was warranted and the transfer pricing adjustment made by the authorities below to the tune of Rs.2,59,90,049/- is directed to be deleted. Grounds of appeal Nos. 1i(a) to i(d) are allowed in above terms. 16. Ground No. 1(ii) raised by the assessee on the issue of transfer pricing adjustment on account of notional interest on outstanding receivables from AEs of Rs.3,10,02,967/- reads as under:- “ii. Transfer pricing adjustment on notional interest on outstanding receivables from AEs – Rs. 3,10,02,967/- a) In the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the upward adjustment made by AO/TPO towards charging of notional interest for excess credit period for realization of export sale proceeds of finished pharmaceutical products from AEs. The learned CIT(A) failed to appreciate that the receivables from AEs were not a separate international transaction but incidental and intrinsically linked to the international transaction of export of finished goods to AEs and the same was benchmarked by the appellant using Transaction Net Margin method (TNMM). 13 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 b) That in the facts and circumstances of the case and in law, the learned CIT(A) ought to have appreciated that the appellant had undertaken working capital adjustment while benchmarking the transaction of sale of goods which takes into account the impact of outstanding trade receivables. c) That in the facts and circumstances of the case and in law, the learned CIT(A) wholly erred while confirming upward adjustment carried out by AO/TPO by re-characterization of outstanding trade receivable as unsecured loans/capital financing advanced by the appellant company to its AEs. d) That in the facts and circumstances of the case, the learned CIT(A) has failed to appreciate that the appellant company does not charge any interest on outstanding receivables from, both AEs and non-AEs and therefore adjustment made by AO/TPO by imputing interest on such receivables from AEs should be deleted. e) Assuming but not accepting and without prejudice to above, the learned CIT(A) further erred in confirming ad-hoc addition of 100 basis points to the LIBOR/EURIOBOR spread towards forex risk adjustment.” 17. This ground was also vehemently argued by the learned Counsel for the assessee before us and, briefly put, his arguments against the adjustment so made were to the effect:- a) that the assessee had adopted TNMM method for determining the arm’s length price of its international transactions of purchase and sales to Associate Enterprises after making working capital adjustment to the PLI adopted by it. That having done so, no further adjustment on account of outstanding receivables for notional interest thereon was required as held by the Hon’ble Delhi High Court in the case of Pr. CIT vs. Kusum Healthcare Pvt. Ltd. vide order dated 25.04.2017 in ITA No. 765/2016 and by the decision of ITAT Ahmedabad Bench in the case of Micro Ink Ltd. Vs. ACIT, reported in [2016] 157 ITD 132 ( ITAT-Ahd). 14 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 b) Even otherwise the component of sales made by the assessee by way of exports to its AEs was 25% of the total sales turnover of the assessee and the receivables were outstanding for a period of only 45 days. The outstanding, therefore, clearly was not for substantial period and even otherwise could be attributed to commercial expediency, thus the outstanding could not be treated as loans or advances for the purposes of making any adjustment on account of notional interest to be charged by the assessee thereon. c) That the authorities below had relied on judgment of the ITAT which stood overruled by the decision of the Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra). 18. Taking us to the facts of the case, learned Counsel for the assessee first drew our attention to the fact that the assessee had adopted the TNMM method for arriving at arm’s length price of its international transactions of purchase and sales made with Associate Enterprises. For the said purpose, he drew our attention to the transfer pricing documentation of the assessee for the impugned year placed before us at paper-book page Nos. 68 to 186. Our attention was also drawn to the paper-book page Nos. 120 to 122 pointing out the fact that the assessee had adopted the TNMM method for determining the arm’s length price of its international transactions with AEs adopting the profit level indicator to operating cost. He drew our attention to paper-book page No. 172 being the annexure of the transfer pricing documentation containing summary of unadjusted margins of the assessee reflecting the PLI of the assessee at 30.76%. 15 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 19. He further drew our attention to Annexure-5 of the same documents placed at paper-book page No.171 being the summary of margins of comparable companies for manufacturing of FDFs reflecting weighted average of OP to OC at 16.95%. He, thereafter, drew our attention to the working capital adjusted margins of the assessee for the impugned year submitted to the TPO during the course of transfer pricing proceedings reflecting the average adjusted margins of comparables at 17.23% placed before us in the paper-book filed today at paper-book page Nos. 1 & 2. He, therefore, pointed out that the arm’s length price of the international transactions had been demonstrated to be at arm’s length by adopting the TNMM method and taking the working capital adjusted margins of the PLI. He, thereafter, drew our attention to the legal propositionlaid down by the Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra) and by the ITAT Ahmedabad Bench in the case of Micro Ink Ltd. (supra) stating that where the TNMM method has been adopted for determining arm’s length price of transactions after making working capital adjustment to the PLI, no further adjustment was required to be made on account of notional interest on outstanding receivables; the same having already been factored in by the working capital adjustment made to the profit level indicator of the comparables and the assessee while adopting the TNMM method for comparability analysis. 20. He thereafter drew our attention to the findings of the TPO at page No.41 of his order where the TPO began discussing the issue of benchmarking of receivables and finally to his findings at page No.52 wherein, drawing our attention to paragraph No.10.6 of his order, learned Counsel for the assessee pointed out that the TPO relied on the 16 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 decision of the ITAT Ahmedabad Bench in the case of Ameriprise India Pvt. Ltd. Vs. ACIT in ITA No. 2575/Del/2014, holding that the outstanding receivables were to be treated as separate international transactions rejecting the contention of the assessee that the same stood demonstrated as at arm’s length where TNMM method was adopted. 21. He thereafter drew our attention to the findings of the learned CIT(A) at page No.72, paragraph No.4.10 of the order pointing out that the learned CIT(A) relied on the order of the ITAT in the case of Bechtel India Pvt. Ltd. Vs. ACIT, in ITA No. 6530/Ahd/2016, upholding the findings of the TPO. 22. He pointed out that the decision relied upon by the TPO in the case of Ameriprise India Pvt. Ltd. (supra) stood reversed by the Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (surpa) and so also the decision of the ITAT Delhi Bench in the case of Bechtel India Pvt. Ltd. (supra) which was rendered without considering the decision of the Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (surpa). He, therefore, stated that the findings of both the TPO and the learned CIT(A) on the issue of adjustment on account of notional interest on outstanding receivables was contrary to the provisions of law with regard to the facts of the present case as demonstrated above. He also drew our attention to the order of the TPO wherein the TPO had noted that the outstanding receivables were overduefor a period of 45 days and calculated interest thereon as under:- (Rs. In Crores) Countr y Op Receivabl e Closing Receivabl e Avg Receivabl e Exces s Days Interes t Rate Interest Amount Accord 111.11 344.9 228.005 45 5.64% 1.5854155 17 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 UK 8 Accord US 271.26 313.49 292.375 45 3.63% 1.3084782 5 Balance AEs 32.63 59.61 46.12 45 3.63% 0.2064027 9 Total upward adjustment 3.1002966 4 23. The learned DR, on the other hand, relied on the order of the learned CIT(A). 24. We have heard both the parties and gone through the orders of the authorities below. The issue contested before us by the ld. Counsel for the assessee is the Arm’s Length Price adjustment made to the outstanding receivables of the assessee for the overdue period of outstanding by charging interest thereon treating them as in the nature of loans and advances made to the Associated Enterprises. 25. The proposition of law which prevails on the issue of Arm’s Length Price adjustment on outstanding trade receivables ,in lieu of the decision of the Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra) ,is that where the international transactions of sales has been demonstrated to be at arm’s length by adopting the TNMM method and after making working capital adjustment to the Profit Level Indicator (PLI), there remains no scope for making any further adjustment on account of overdue outstanding receivables on account of the very same sales transactions made to AEs. The reasoning being that the working capital adjustment made to the PLI take care of the overdue outstanding receivables. The ld. DR has been unable to point out any contrary decision on the issue of either the jurisdictional High Court or of the Hon’ble Apex Court; nor 18 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 was he able to distinguish the decision of the Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra) before us. 26. Having said so, we completely agree with the ld. Counsel for the assessee that the said decision squarely applies to the facts of the present case since the assessee in the present case had done the TP analysis of its international transactions using the TNMM method and after making working capital adjustment to its PLI. These facts were sufficiently demonstrated before us through relevant documents of the transfer pricing report as noted above by us and were not controverted by the ld. DR also before us. Therefore, in the present case, we hold that no upward adjustment of interest on the outstanding trade receivables of the assessee relating to its AEs was warranted in the present case and the adjustment, therefore, made amounting to Rs.3,10,02,967/- is directed to be deleted. 27. The decision relied upon by the ld. CIT(A) for supporting the adjustment made to the outstanding trade receivables pertaining to the AEs in the case of Bechtel India Pvt. Ltd.,(supra) we hold is of no consequence being decision of the ITAT, Ahmedabad Bench which stands overruled by the decision of the Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd.. Accordingly, ground of appeal No.1(ii) (a) to (e) is allowed in above terms. 28. Ground No. 3 relating to the transfer pricing adjustment made on account of specified domestic transactions undertaken with the AEs reads as under:- 19 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 “iii.Transfer pricing adjustment on specified domestic transactions undertaken with the AEs -Rs 192,84,97,000/- a) In the facts and circumstances of the case, the provisions of clause (i) of section 92BA relating to any expenditure in respect of which payment has been made or is to be made to a person referred in clause (b) of sub-section (2) of section 40A was omitted from the statute by Finance Act 2017, therefore it shall be deemed not to be on statute since beginning. Thus, on account of omission of clause (i) of section 92BA from statute, the transaction of purchases of finished goods of Rs.192,84,97,000/- by appellant company from its AE (M/s Intas Pharmaceuticals, herein after referred as "IP Firm") would not fall within the definition of specified domestic transaction. b) Assuming but not accepting and without prejudice to Ground No. iii (a) above, the CIT(A) has erred in not appreciating that in the facts of present case both appellant company and IP Firm were paying MAT and therefore in absence of tax arbitrage, the provisions of specified domestic transactions would not apply to transaction of purchase of finished goods from the IP Firm. c) Assuming but not accepting and without prejudice to Ground No. iii(a) and (b) above, in the facts and circumstances of the case and in law, the learned CIT(A) ought to have appreciatedthat IPL, which fulfilsthe conditions of selection of the tested party as laid down under Rule 10B of the Income Tax Rules and whose data regarding the comparable companies and the comparable uncontrolled transactions were more reliably available should be considered as a tested party d) That in the facts and circumstances of the case, the learned CIT(A) erred in not appreciating the fact that the AO/TPO has failed to find out appropriate comparable for IP Firm and benchmarked the IP Firm with entities whose Functions, Assets and Risk ('FAR') Analysis and business profile was more akin to the appellant company and which were used by the appellant company as comparable entity in its TP documentation. e) That in the facts and circumstances of the case and in law, the learned CIT(A) further erred in ignoring the fact that under secondary analysis, the appellant company has substantiated the ALP under internal Resale Price Method by benchmarking gross margin earned by it in reselling the products bought from IP Firm 20 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 vis a vis the gross margin earned by it in reselling the products bought from third parties.” 29. Giving brief background of the issue, the learned Counsel for the assessee contended that the assessee was a substantial partner in two partnership firms – one located in Dehradun and the other in Sikhim- from whom all purchases were made by the assessee in a sense these entities were the contract manufactures of the assessee. These two units were eligible for deduction under Section 80IC and 80IE of the Act respectively. The transactions of purchase undertaken by the assessee with them qualified as specified domestic transactions and the transactions with them were held by the TPO to qualify as specified domestic transactions and he found that the assessee had made purchases from them at a very high rate as compared to the arm’s length price of the transactions being more than 1/3 rd in excess. Accordingly, he proposed adjustment on account of these specified domestic transactions of purchases to the extent of Rs.192,84,97,000/-. 30. The learned Counsel for the assessee vehemently raised several contentions against the said adjustment which, briefly put, were to the following effect:- i) The impugned transactions did not qualify as specified domestic transactions as per Section 92BA of the Act since they were of the nature mentioned in 92BA(i) as entered into with persons specified under Section 40A(2) of the Act and which transactions had thereafter been omitted from the definition of specified domestic transactions by Finance Act, 2017 with effect from 01.04.2017. That this omission was held by the PCIT Vs. Hon’ble Karnataka High Court to have retrospective effect as if the said transaction never qualified 21 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 as specified domestic transactions in the case of Pr. CIT Vs. Texport Overseas (P.) Ltd., reported in [2020] 114 taxmann.com 568 (Karnataka). He also relied on the following case laws wherein the said proposition was followed,: a) Texport Overseas Pvt Ltd vs. DCIT (Bangalore ITAT), IT(TP)A 1722/Bang/2017 b) Yorkn Tech Pvt. Ltd. v DCIT (ITA No.635/Del/2021 ) c) SKM-UMSL JV vs ITO ITA 229/CTK/2019) d) Shree Sai Smelters (I) Ltd. vs ACIT 118 taxmann.com 350(Gauhati ITAT) e) Raipur Steel Casting India (P) Ltd v PCIT 117 taxmann.com 944 (Kolkatta Trib) f) Swastik Coal Corporation V PCIT ITA 486/Ind/2018 (Indore ITAT) ii) That it was a tax neutral transaction since both the entities had paid taxes under the alternative tax regime of Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) respectively. That therefore, there was no requirement for any adjustment to be made on account of the arm’s length price of the transactions. Reliance in this regard was placed on the decision of the Hon’ble Apex Court in the case of CIT vs. Glaxo Smithkline Asia (P.) Ltd, reported in 195 taxman 35 iii) That even otherwise the TPO had erred in taking the AE as the tested party since the data of comparables in the case of AE was not easily available and as per Rule 10C(2)(e) of the Income-tax Rules, 1962, such party whose comparables were not easily available could not be treated as a tested party. That even otherwise for determining the arm’s length price of international transaction with AE, the assessee had been taken as a tested party and thus clearly the TPO was adopting double standards taking assessee as a tested party in transactions for 22 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 determining the arm’s length price of international transactions and AE as a tested party for transactions entered into with domestic entities. iv) That the TPO despite taking the AE as a tested party had still gone on to take the same entities as comparables which the assessee had selected taking itself as a tested party. The learned Counsel for the assessee contended that the AE being a contract manufacturer the assessee’s comparables could not have been comparables of the AE of the assessee. v) That on a gross profit comparison on the transactions undertaken by the assessee with the AE and similar transactions undertaken by the independent parties, the assessee had earned more gross profit with its AE at 49.87% as opposed to the gross profit earned on transactions with third party at 47.58%. Thus, in the light of the same, no transfer pricing adjustment was warranted on account of these specified domestic transactions. 31. Having said so, the brief facts relating to the issue a find mention at page No.159, paragraph no. 5.3 of the learned CIT(A)’s order is that the TPO made adjustment of Rs.192,84,97,000/- towards specified domestic transactions in relation to purchases made from its associate enterprises M/s. Intas Pharmaceuticals. The assessee-company is a major partner in the partnership firm M/s Intas Pharmaceuticals purchasing the entire product amounting to Rs.463,06,96,161/- manufactured by M/s. Intas Pharma. The TPO accepted the most appropriate method TNMM selected by the assessee for determining the arm’s length price; took the profit level indicator of operating profit to operating cost as opposed to operating cost to operating sales taken 23 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 by the assessee; treated the AE as the tested party selecting comparablesand arrived at the average PLI of the comparables at 55.62% as mentioned in page No. 108 of the TPO’s order as under:- 32. Taking the arm’s length price PLI at 55.62% and applying the same to the operating cost of the assessee, the TPO thereafter computed the arm’s length price of the specified domestic transactions of purchases made by the assesseefrom the said entity and arrived at the excess price paid to the tune of Rs.192.84 crores as under:- Accordingly it was this adjustment which was made under Section 92BA of the Act to the income of the assessee. 24 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 33. Taking up the argument of the assessee that the impugned transaction was not covered u/s 92BA of the Act at all ,the contention is that the transaction qualifies as a specified transaction domestic transaction being an expenditure made to persons covered u/s 40a(2)(b) of the Act , as per section 92BA(i) of the Act , which clause was omitted from the statute by Finance Act 2017.That there was no saving clause provided in the statute for pending proceedings . And accordingly this omission was interpreted by courts as the relevant clause having never existed in the statute since the beginning. Reference was made to the decision of the Hon’ble Karnataka High Court in Pr. CIT Vs. Texport Overseas (P.) Ltd., reported in [2020] 114 taxmann.com 568 (Karnataka) holding the amendment to have retrospective effect as if the said transaction never qualified as specified domestic transactions . Reliance was also placed on the following case laws wherein the said proposition was followed,: vi) Texport Overseas Pvt Ltd vs. DCIT (Bangalore ITAT), IT(TP)A 1722/Bang/2017 vii) Yorkn Tech Pvt. Ltd. v DCIT (ITA No.635/Del/2021 ) viii) SKM-UMSL JV vs ITO ITA 229/CTK/2019) ix) Shree Sai Smelters (I) Ltd. vs ACIT 118 taxmann.com 350(Gauhati ITAT) x) Raipur Steel Casting India (P) Ltd v PCIT 117 taxmann.com 944 (Kolkatta Trib) xi) Swastik Coal Corporation V PCIT ITA 486/Ind/2018 (Indore ITAT) 34. On going through the facts of the case we find that the assessee had reported this transaction qualifying as specified domestic transaction u/s 92BA(i) of the Act as transactions relating to section 40A(2)(b) of the Act. The TPO has also accepted this fact which finds mention in his order.The proposition of law canvassed by the assessee 25 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 has remained uncontroverted before us. Ld.DR was unable to distinguish the decisions relied upon by the assessee before us. 35. In view of the same, following the proposition of law laid down by the Hon’ble Karnataka High Court in the case of Texport (supra), followed by various coordinate benches of the Tribunal, we hold that the impugned transaction of purchase by the assessee from its associate enterprise did not qualify as a specified transaction in terms of section 92BA of the Act. The entire exercise of determining its ALP in terms of section 92BA of the Act therefore fails. The adjustment made to the income of the assessee accordingly does not survive and is therefore directed to be deleted. The transfer pricing adjustment made on account of specified domestic transaction, of Rs.192,84,97,000/- is deleted. 36. Since we have deleted the adjustment for the above reason we do not consider it necessary to deal with the other arguments of the assessee. Ground of appeal No.1(iii) is allowed as above. Ground No.2 raised by the assessee reads as under: “2. In the facts and circumstances of the case, the learned CIT(A) has erred in disallowing claim of deduction under section 35(2AB) of the I. T. Act towards weighted portion relating to expenditure on exhibit batches and certain other expenses amounting to Rs.1613.21 lacs.” 37. The issue raised in the above ground relates to claim of deduction u/s 35(2AB) of the Act.As per provisions of section 35(2AB) of the Act, the assessees are entitled to weighted deduction of expenditure incurred on scientific research in in-house research and development facility, of a sum equivalent to two times of expenditure 26 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 so incurred.For the purpose of availing the said benefit of weighted deduction the in-house research facility needs to be approved by prescribed authority, which for the purpose of section 35(2AB) is the Department of Scientific & Industrial Research (“DSIR” for short). The prescribed authority is required to grant its approval for which two forms have been prescribed i.e. Form No.3CM and 3CL. In the case of the assessee, the AO restricted the claim of the assessee to weighted deduction under section 35(2AB) of the Ac to the extent of expenditure, as approved by the prescribed authority in Form No.3CL. 38. The facts relating to the Asst.Year 2013-14 are that the assessee had claimed expenditure under section 35(2AB) of the Act of Rs.12348 lakhs being revenue expenditure and Rs.869 lacs being capital expenditure. In the Form No.3CL, the DISR mentioned amount of Rs.8065 lakhs against revenue expenditure and Rs.64 lakhs against capital expenditure. The AO took cognizance of the amount mentioned in form No.3CL and allowed weighted deduction with respect to the same only. With respect to the balance, being an amount of Rs.4283 lakhs of Revenue expenditure and Rs.809 lakhs of capital expenditure claimed by the assessee, the AO denied weighted deduction on the same and accordingly disallowed an amount of Rs.5087 lakhs (Rs.4283/- lakhs plus Rs.809 lakhs). 39. The ld.CIT(A) noted that out of the amount of claim disallowed to the assessee , Rs.3474.70 lakhs pertained to clinical trial incurred to test and noting that this claim has been allowed to the assessee in its own appeal in the preceding assessment year right from A.Y 2007-08 to A.Y 2012-13, he allowed the claim of the assessee of weighted deduction on clinical trial expenses of Rs.3474.70 lakhs . With respect to the balance, he upheld the order of the AO on the same reasons as 27 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 that followed by the AO, that the said expenses had not been approved by the prescribed authority. 40. Both the assessee and the Revenue are aggrieved by order of the ld.CIT(A). 41. With respect to the contention made by the ld.counsel for the same, the same were to the following effect – i) The claim of weighted deduction under section 35(2AB) of the Act cannot be disallowed on the basis of the report submitted by the prescribed authority in Form No.3CL. In this regard, reliance was placed on the decision of the ITAT, Ahmedabad Bench in the case of Torrent Pharmaceuticals Ltd., ITA No.3569/Ahd/2004 dated 13.11.2009; Reliance was also placed on the following cases: a) Cadila Healthcare Ltd., 31 taxmann.com 300 (Guj) b) Cadila Pharmaceuticals ltd., 25 taxmann.com 519 (ITAT-Ahd); c) IT(SS)A.No.807 to 809/Ahd/2010 & 20/Ahd/2011; d) Claris Lifesciences Ltd., 174 taxman 113 (Guj); ii) that the claims denied by the AO were otherwise allowable as incurred on research and development activity . He pointed out that the claims disallowed related to the following: a) Exhibit Batches taken in plant area : Rs.701.93 lakhs b) Salary of R&D Personnel of Intas Bio-Pharma : Rs. 64.21 lakhs c) Capex no allowed by DSIR (Intangible of IBP) : Rs. 804.83 lakhs d) Certain other expenditure excluded : Rs. 42.24 lakhs 28 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 With respect to the exhibit batches expenses the contention was that they are in the nature of samples/prototype obtained for pilot studies. Based on these studies, dossiers were filed with the Drug Regulators for the commercialization of the products. ExhibitBatch, therefore, it was stated were linked to the R&D activities and hence should be allowed. “Other expenses”, it was contended included labour cost, staff training, travelling, staff recruitment and professional charges relating to the R&D units, and therefore were eligible for weighted deduction. With respect to the expenses incurred on salary of R&D personnel of Intas Biopharmaceuticals and CAPEX being held ineligible by DSIR as relating to intangibles of Intas Biopharmaceuticals (IBL), it was contended that IBL had amalgamated with the assessee w.e.f. 1-4-2012 and DSIR had disallowed the claim since Form No.3CM was filed in the name of the assessee, that therefore it did not relate to expense incurred by the assessee. Reliance was placed on the decision of ITAT, Hyderabad Bench in the case of Dr.Reddy’s Laboratories Ltd. Vs. ACIT, ITA No.2229/Hyd/2011 and 85/Hyd/2013 for the proposition that successor is eligible to claim the benefit of section 35(2AB) expenditure in the case of merger. 42. The argument of the department with respect to the above contentions was that the restriction of claim of the assessee to weighted deduction under section 35(2AB) of the Act to the extent approved by 29 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 the prescribed authority was in accordance with law. With respect to its grievance of the allowance of claim of weighted deduction to the expenditure incurred on clinical trial, the ld.DR reiterated its contentions that the assessee was only eligible to claim weighted deduction to the extent approved by the DSIR, and the ld.CIT(A), therefore had erred in allowing deduction to clinical trial which was not approved by the prescribed authority. 43. We have heard contentions of both the parties; perused he orders of the authorities below and gone through various case laws referred to before us. 44. The issue relates to claim of deduction on account of R&D expenditure incurred in in-house facility of the assessee; that the assessee is eligible to claim such weighted deduction is not disputed before us. The only issue in dispute is quantum to which the assessee is eligible. The claim of the department being that the assessee is eligible to claim deduction only on the expenditure approved by the prescribed authority in Form No.3CL and the assessee arguing otherwise. 45. We have gone through the provisions of section 35(2AB) of the Act, and the relevant Rule-6 of the Income Tax Rules, 1962 along with Form No.3CM and 3CL prescribed for the relevant sections. On going through of all the above, we find that for the impugned assessment year, the prescribed authority i.e. Department of Scientific and Industrial Research was only required, as per the section and Rules, to approve the in-house facility of the assessee. The order of the approval was required to be given in Form No.3CM and in Form No.3CL approval was to be forwarded by the prescribed authority to the concerned officer of the Department i.e. Director General of Income- 30 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 Tax(Exemption). Rule-6, sub-rule (7A) of the Rules clearly brings out this fact as under: 6. Prescribed authority for expenditure on scientific research. ........ ....... ........ [(7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to tt following conditions, namely:— (a) The facility should not relate purely to market research, sales promotion quality control, testing, commercial production, style changes, routine data collection or activities of a like nature; (b) The prescribed authority shall submit its report in relation to approval of in-house Research and Development facility in Form 3CL to the Director General (Income-tax Exemptions) within sixty day of its granting approval; (c) The company shall maintain a separate account for each approved facility; which shall be audited annually and a copy thereof shall I furnished to the Secretary, Department of Scientific and Industrial Research by 31st day of October of each succeeding year. Explanation: For the purposes of this sub-rule the expression "audited” means the audit of accounts by an accountant, as defined in Explanation below sub-section (2) of section 288 of the Income-tax A 1961; (d) Assets acquired in respect of development of scientific research development facility shall not be disposed of without the approval of the Secretary, Department of Scientific and Industrial Research.] 46. As is evident from Rule 6 clause(7A), the prescribed authority has to submit its report in relation to “approval of in-house facility”, which is to be submitted tothe DGIT in Form 3CL and this Form No.3CL is to be submitted within 60 days of granting approval. It is clear from the same, therefore, that the Form No.3CL is only for the purpose of intimating the concerned officer of the Department regarding grant of approval to an in-house R&D facility of assessee by the prescribed authority. The fact that this form no.3CL is required as per the Rule to be submitted to the DGIT within 60 days of grant of approval makes it clear that the only purpose is intimating the 31 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 concerned officer within a reasonable period of time of grant of approval to the concerned assessee. Since this form no.3CL is to be submitted only once, as per the Rules, within 60 day of grant of approval,there can be no question of the prescribed authority approving the quantum of expenditure incurred by the assessee in R&D eligible for deduction under section 35(2AB) of the Act. This expenditure is incurred on a continuous basis from year to year, and there is no requirement for the prescribed authority, either in the section or Rules for issuing Form no.3CL every year. As noted above, sub-Rule 7(A) of Rule 6 requires Form no.3CL to be submitted only once by the prescribed authority, that too, within 60 days of grant of approval. 47. We have also perused contents of Form No.3CL, and we find, the only reporting requirement therein is about cost of in-house R&D facility, giving break-up of expenditure of land & building. There is no requirement even in the Form No.3CL of mentioning the expenditure incurred by way of revenue or capital expenditure on research activity conducted. What is only to be reported by the prescribed authority is the cost of in-house research facility, mentioning specifically the expenditure incurred on land & building, since the expenditure on land & building is not eligible to weighted deduction as per section 35(2AB) of the Act. 48. Therefore, we are convinced with the contentions made by the ld.counsel for the assessee that the reporting by the prescribed authority in Form No.3CL of the revenue and capital expenditure incurred by the assessee can no way be relied upon and taken as that approved by the prescribed authority, restricting the assessee’s claim to 32 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 weighted deduction to the expenditure allegedly approval by the prescribed authority. 49. As noted above by us from the provisions of section and rules and form prescribed thereto, there is no requirement for the approval of any expenditure by the prescribed authority for the relevant assessment year i.e.Asst.Year 2013-14 and 2014-15. Therefore, we agree with the ld.counsel for the assessee that the AO could not have relied on the Form No.3CL for restricting the claim of the assessee to the extent allegedly approved by the DSIR. This view, we find has been taken by the ITAT in a number of decisions as cited by the Ld.Counsel for the assessee before us above. a) Cadila Healthcare Ltd., 31 taxmann.com 300 (Guj) b) Cadila Pharmaceuticals ltd., 25 taxmann.com 519 (ITAT-Ahd); c) IT(SS)A.No.807 to 809/Ahd/2010 & 20/Ahd/2011; d) Claris Lifesciences Ltd., 174 taxman 113 (Guj); The Ld DR was unable to either distinguish the said decisions nor did he draw our attention to any contrary decision of a higher judicial forum. 50. Considering the above, the Revenue’s contention of disallowing the assessee’s claim of weighted deduction on clinical trial amounting to Rs.3474.74 lakhs is dismissed, since solitary contention of the Revenue is that DSIR had not approved this expenditure in Form No.3CL. 51. Now coming to the claim denied by the ld.CIT(A) for the identical reason that they were not approved by the DSIR firstly since, we find, this reasoning of the ld.CIT(A) to be not in accordance with law, we hold that claim could not have been denied for this reason on 33 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 the remaining amount. Even otherwise, we find on merit that the assessee has reasonably demonstrated that the remaining expenditure were also in relation to R&D activity. It has been repeatedly contended by the assessee, even before the lower authorities that, the expenditure relating to salary of R&D person of IBPL and capital expenditure relating to intangible of IBPL, were all in relation to R&D activity of an entity which since had merged with the assessee. For all purposes therefore, this expenditure pertained to that incurred by the assessee only, and therefore, the assessee is entitled to claim weighted deduction on the same, we hold. The issue is squarely covered by the decision of the ITAT in the case of Dr.Reddy’s Laboratories Ltd. (supra) cited by the ld.counsel for the assessee before us. 52. As for the expenditure incurred on Exhibit Batches and other expenses, the explanation regarding nature of the expenditure being in relation to samples/prototype obtained for pilot studies and in relation to labour cost, staff training etc in the R&D units, they are all clearly incurred for the purpose of R&D activity only, and therefore are also eligible to claim weighted deduction. In view of the above,we hold that the entire claim of expenses u/s 35(2AB) were in accordance with law and called for no disallowance at all. Ground of appeal No.2 of the assessee is allowed. 53. Ground No.3 raised by the assessee reads as under: “3. In the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the AO's action who rejected the claim of deduction of expenditure of Rs.15,93,96,033/- under section 35(1)(iv) of the Act on the ground that the claim has been made by appellant company during the course of assessment proceedings and not in the Return of Income.” 34 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 54. The issue raised in the above grounds relates to disallowances of expenses claimed by the assessee in terms of section 35(1)(iv) of the Act. 55. Section 35(i)(iv) allows deduction of capital expenditure incurred on research and development. The assessee had not claimed the same in the return of income filed. But before the AO he filed a letter claiming deduction under section 35 of the Act. The AO denied the same stating that the same could only be claimed by way of revised return and not otherwise. The matter was carried in appeal before the ld.CIT(A) who upheld the order of the AO. He further noted that before the AO the assessee had claimed deduction under section 35(1)(i) of the Act, but before the ld.CIT(A) the assessee had claimed deduction as allowable under section 35(1)(iv). For this reason also he held that the claim of the assessee was not allowable. 56. We have heard both the parties. The contention of the ld.counsel for the assessee before us was that the claim of the assessee pertained to product developments expenses incurred in relation to three products and allowable as deduction under section 35(1)(iv) of the Act; that merely because the same was not made in the return of income, it could not be denied to the assessee. He contended that it was settled law that the assessee is entitled to make its claim which otherwise was not made originally before any appellate authority. We agree with the ld.counsel for the assessee that the assessee is entitled to claim, even not claimed in the original return of income filed by the assessee or even by way of revised return. This issue is settled by various decisions of Hon’ble High Courts and Hon’ble Apex Courts as under: 35 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 • CIT v Arvind Mills Ltd (Gujarat High Court) (Tax Appeal 1407 of 2011) (Refer page 695 to 698 of Legal Paperbook) • Dr. K. Nedunchezhian v DCIT (Madras High Court) (153 taxman 183) (Refer page 699 to 701 of Legal Paperbook) • Jute Corporation of India Ltd vs CIT (Supreme Court) (53 taxman 85) (Refer page 702 to 707 of Legal Paperbook) • CIT vs Kanpur Coal Syndicate (Supreme Court) (53 ITR 225) (Refer page 708 to 713 of Legal Paperbook) • CIT vs Pruthvi Brokers & Shareholders Pvt Ltd (Bombay High Court) (23 taxmann.com 23) (Refer page 714 to 723 of Legal Paperbook) 57. Therefore, both the authorities below have wrongly denied the assessee’s claim of deduction, for the simple reasoning that it does not make any difference that before the AO the assessee had made claim under section 35(1)(i), while before the ld.CIT(A) the assessee claimed under section 35(1)(iv) of the Act. What is pertinent is, whether the assessee is eligible to claim deduction in whichever section it qualifies. As long as the assessee is entitled to deduction, mere wrong quoting of section will not disentitle the claim of deduction. Further, the assessee has claimed the allowability ,as the expenses were incurred for product development and qualified as capital expenditure on research and development, eligible for reduction under section 35(1)(iv) of the Act. Since the facts relating to eligibility of the claim have not been properly verified by the authorities below, we admit the claim of the assessee and restore the issue back to the AO to verify eligibility of the assessee’s claim and thereafter allow the same in accordance with law. Ground of appeal No.3 is allowed for statistical purposes. In effect appeal of the assessee is allowed for statistical purposes. 36 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 58. We shall now be dealing with the Revenues appeal for A.Y 2013- 14. 59. ITA 704/Ahd/2018 A.Y 2013-14 : REVENUE’S APPEAL Ground No.1 raised by the Revenue reads as under: 1. The Ld CIT(A) had erred in law in directing the TPO to verify the assessee's study of comparables and computation to allow the adjustment of Excise, VAT, R&D Expenditure difference in direct manufacturing cost, local advantages etc as per Rule 10E(1)(e)(iii). The issue raised in the above ground relates to addition made on account of determination of ALP of the International Transaction of Advances to subsidiaries, which has been dealt with by us in assesses appeal above in Ground No.1(i) at para-14 of our order above, wherein we have deleted the entire adjustment made. The ground raised by the Revenue becomes infructuous and is therefore dismissed. Ground No.1 is dismissed Ground No.2raised by the Revenue reads as under: 2. The Ld CIT(A) had erred in law and on facts in deleting the disallowance of Weighted Deduction claim of the assessee U/s 35(2AB) in excess of that allowed by the DSIR in Form 3CL. 60. The issue raised in the above ground relates to denial of assesses claim of weighted deduction u/s 35(2AB) of the Act, which was partly allowed by the Ld.CIT(A). This issue has been dealt with by us in Ground No.2 raised by the assessee in its appeal, dealt with by us above at para 43-52, wherein we have held the assesses entire claim to be in accordance with law. The ground raised by the Revenue becomes infructuous and is therefore dismissed. Ground No.2 is dismissed 37 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 61. Ground No.3 raised by the Revenue reads as under: “3. The Ld CIT(A) had erred in deleting the disallowance of u/s.36(1)(iii) of the IT Act. “ 62. Briefly stated the AO noted substantial investment made by the assessee in capital work-in-progress (CWIP) increasing from Rs. 94.58 crs as at the beginning of the year to Rs.392.08 crs as at the end of the impugned year. He also found that the assessee had made huge payment of interest, to the tune of Rs.47.48 crs during the year. The assesses explanation of investment in CWIP being made out of own funds was rejected by the AO since the assessee failed to establish nexus and establish that borrowed funds were utilized for giving capital advances for the purpose of CWIP. Accordingly he held that borrowed funds had been used for investing in CWIP and computing the funds so allegedly deployed on CWIP on the average CWIP for the year he worked out the interest attributable to the same on proportionate basis amounting to Rs.15,11,66,895/-, which accordingly was disallowed in terms of section 36(1)(iii) of the Act. 63. The ld.CIT(A), however, noted that interest free funds owned by the assessee was much more than the interest free advances towards CWIP. He also noted, as a matter of fact, that the assessee company had earned sufficient profits for the purpose of making investment in CWIP during the year. Noting this fact and taking note of his decision rendered in the immediately preceding year in the case of the assessee for Asst.Year 2012-13, rendered in identical set of facts, he deleted the disallowance of interest made under section 36(1)(iii) of the Act. 64. Before us, the ld.DR was unable to controvert the factual finding of the ld.CIT(A) that the assessee’s own interest free funds were much 38 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 more than its investment made in CWIP during the year, as also the fact that even the profits earned during the year sufficed for the purpose of making investment in CWIP during the year. The Ld.CIT(A) ‘s factual finding in this regard are at para 7.5 of his order as under: “7.5. It is apparent that the appellant had shown the CWIP advances of Rs.392,08,80,000/- while it had the interest free own funds of Rs.229,67,01,075/- as on 31/03/2013 and Rs. 13,11,19,51,186/- as on 31/03/2012. Thus, the interest free funds owned by the appellant were much more than the interest free advances towards CWIP. Thus, no interest bearing funds have been utilized for the purpose of CWIP advances. Even otherwise also the advances given towards CWIP were fof the business purposes not for any other purposes. Further, during the year under consideration the appellant company had earned the profit after tax at Rs.547 crores during the year under consideration which was more than the total CWIP as on 31/03/2013.” Also the judicial proposition in this regard also stands settled by the decision of the Hon’ble Apex Court in the case of CIT Vs. Reliance Industries Ltd., 410 ITR 466(SC) holding that where mixed funds are available and where sufficient interest free funds are there the presumption is that the same were used for the purpose of making interest free investments, calling for no disallowance under section 36(1)(iii) of the Act. The Ld.DR was unable to point out any subsequent decision of the Hon’ble apex court unsettling the said proposition of law. 65. Since the Ld.DR was unable to controvert the findings of the Ld.CIT(A) both on facts as well as law we see no reason to interfere in the order of the ld.CIT(A) deleting the disallowance of interest amounting to Rs. 15,11,66,895/- made under section 36(1)(iii) of the Act. Ground of appeal No.3 is dismissed. 39 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 66. Ground of appeal No.4 reads as under: “4. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance u/s 14A of the IT Act 4.1 The Ld CIT(A) has failed to appreciate that the onus lies on the assessee to demonstrate that it had interest free funds available with it for making such investment/-and not other way around. 4.2 The Ld CIT(A) has failed to appreciate that in the case of mixed funds, theory of apportionment of interest is applicable. Reference in this regard is made to the decision of the Hon'ble Supreme Court in the case of Maxopp Investment ltd. Vs. CIT (Civil Application NO.104-109 of 2018). 4.3 The ld.CIT(A) has failed to appreciate that as per section 106 of Evidence Act, when any fact is especially within the knowledge of any person, the burden of proving the fact is upon him.” 67. The facts relating to the issue are that the assessee had suo moto made disallowance of Rs.48,57,942/- on account of expenses incurred for the purpose of earning exempt income as per section 14A of the Act. The AO, however, observed that the assessee had failed to prove that no interest bearing funds have been used for the purpose of making investment in shares, income from which is exempt income tax. Accordingly, he invoked Rule 8D of the Income Tax Rules 1962 for computing disallowance under section 14A and worked out a sum of Rs.1,01,24,606/- as disallowable u/s 14A of the Act comprising of Rs.76,81,058/- under Rule 8D(2)(ii) pertaining to interest and Rs.24,43,548/- under Rule 8D(2)(iii) pertaining to administrative expenses. Further noting that the assessee had suo moto made disallowance of Rs.48,57,942/- he restricted the disallowance to the balance amount of Rs.52,66,664/-. 40 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 68. The ld.CIT(A), however, deleted the disallowance made by the AO, noting that the assessee had sufficient interest free funds, calling for no disallowance of interest under Rule 8D(2)(ii). He also noted fact that no exempt had been earned by the assessee. Accordingly, he deleted the disallowance made by the AO pertaining to interest computed as per Rule 8D(2)(ii). Further, noting that the administrative expenses computed by the AO to be disallowed as per the Rule 8D(2)(iii) amounted to Rs.23,43,548/- while assessee had made a suo moto disallowance of Rs.48,57,942/- he held that no further disallowance was called for on the same. 69. The ld.DR before us was unable to controvert the factual finding of the ld.CIT(A) regarding availability of sufficient interest free owned funds with the assessee as also the fact that no exempt income was earned by the assessee. His findings in this regard at para 8.3 of the order is as under: “8.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The AO has computed disallowance u/s. 14A of Rs. 1,01,24,606/- under Rule 8D and made the addition of Rs.52,66,664/- as appellant on its own has made disallowance of Rs.48,57,942/-. The AO observed that the appellant has failed to prove that no interest bearing funds have been used in making investment in shares on which the income is exempt. AO accordingly made disallowances under Rule 8D(2)(ii) of Rs.76,81,058/- and under Rule 8D(2)(iii) of Rs.24,43,548/-. Appellant has submitted that it has not received any dividend income during the year and investment including investment in foreign companies which income is taxable has been made out of own fund. Appellant has submitted that the share capital and reserves and surplus as on 31/03/2013 is Rs.22,29,67,01,075/- as against investment of Rs.525,66,85,342/- which demonstrate that appellant has sufficient own fund. In view of the above, disallowance as per Rule 8D(2)(ii) is uncalled for.” 70. Further it was brought to our notice that the Hon’ble apex court has laid down the law that where sufficient own interest free funds are available no disallowance of interest is called for u/s 14A of the Act. In this regard our attention was drawn to the following decision of the Hon’ble Apex Court: 41 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 i) PCIT Vs. Sintex Industries Ltd., 93 taxmann.com 24 Since the Ld.DR was unable to controvert the findings of the Ld.CIT(A) both on facts and on law, we see no reason to interfere in the order of the ld.CIT(A) deleting the disallowance made by the AO of interest amounting to Rs.76,81,058/- made u/s 14A of the Act. 71. The Ld.CIT(A) deleted disallowance of administrative expenses u/s 14A of the Act noting that the assessee had suo moto disallowed expenses more than what was computed by the AO as disallowable.His findings in this regard at para 8.5 of the order is as under: “8.5 Further, the AO has made the disallowance of administrative expenses of Rs.23,43,548/- as per Rule 8D(2)(iii). However, as the appellant on his own has made disallowance u/s.14A of Rs.48,57,942/- no further disallowance is called.” 72. The Ld.DR was unable to controvert the factual finding of the Ld.CIT(A) as above. In view of the same the order of the Ld.CIT(A) deleting the disallowance made by the AO of administrative expenses u/s.14A of the Act calls for no interference . In view of the above, the grievance raised by the Revenue against the order of the Ld.CIT(A) deleting the entire disallowance of expenses made by the AO u/s 14A of the Act amounting to Rs..52,66,664/- is dismissed. Ground of appeal No.4 is dismissed. 73. Ground of Appeal No.5 reads as under: “The Ld. CIT(A) has erred in law and on facts in deleting the disallowance amounting to Rs. 151,10,093/- paid to the foreign commission agents. 42 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 5.1 The Ld. CIT(A) has erred in law on facts in deleting the disallowance u/s. 40(a)(ia) of the IT. Act on export commission payments made to the Non- resident Agents solely relying on the decision of the Hon'ble Supreme Court in the case of CIT vs. Toshuku Ltd. (1980) 125 ITR 525 (SC) which stands superseded by the subsequent amendments brought in IT. Act.” 74. The facts relating to the issue are that the assessee had made payment of commission to non-resident agents amounting to Rs.1,51,10,093/- and no tax was deducted thereon. Such agents were providing marketing and sale support for the overseas client of the assessee. The AO held that right to receive the commission by these agents arose in India when the order was executed by the assessee in India and therefore in terms of provisions of section 5(2)(b) read with section 9(1)(i) of the Act income earned by the assessee agents, by way of commission, accrued in India being sourced in India. He held that agents having rendered services abroad in the form of soliciting orders and even the fact that commission was to be remitted abroad, was wholly irrelevant for the purpose of determining the question of accrual of income. He relied on the decision of AAR in the case of Rajiv Malhotra, 284 ITR 564 and SKF Boilers & Driers P.Ltd., 18 taxmann 325 (2012). Accordingly, he held that since the commission was chargeable to tax in India and no TDS thereon was made by the assessee, the entire commission claimed by the assessee was liable to be disallowed in terms of provisions of section 40(a)(ia) of the Act. 75. The ld.CIT(A), however, noted the decision of the Hon’ble Apex Court in the case of CIT Vs. Toshoku Limited, 125 ITR 525 (SC) holding that commission earned by non-residents for acting as selling agent for Indian exporters cannot be said to accrue or arise in India when such non-resident was rendering services from outside India. Taking note of this proposition laid down by the Hon’ble Apex Court, he noted that 43 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 in the facts of present case, as per the evidence filed by the assessee, and as noted by the AO also, all services were rendered by the agents outside India. Applying the decision of Hon’ble Apex Court therefor to the facts of the present case, he held that no TDS was liable to be deducted on the same and the commission expenses, therefore, could not be disallowed in terms provisions of section 40(A)(ia) of the Act. He relied on several other decisions of the Hon’ble High Courts and ITAT while deleting the disallowance, which are noted at para 9.12 of the impugned order. 76. We have heard both the parties. The Ld.CIT(A) has examined and decided the issue on two aspects – i) Whether the commission paid to foreign agents is taxable in India as per domestic law; ii) Whether the assessee ought to have deducted tax as per section 195(2) of the Act and if the same was not deductible he ought to have obtained a certificate in this regard by the AO as per section 195(2) of the Act. Para 9.5 of the order states so as under: “9.5. Having considered the facts and submissions, the issues which are to be examined and decided are as under:- 1. Whether the commission paid to foreign agents is taxable in India by virtue of the provisions of section 5 (2)(b) read with section 9 (1) (i) of Income Tax Act. 2. Whether the provisions of section 195(2) were applicable on the appellant and he should have deducted tax and in case of no deduction he should have obtained a no deduction certificate from the AO. And” 77. Thereafter we find that the Ld.CIT(A) arrived at a factual finding that no services were rendered by the foreign agents in India after going through all evidences filed before him. Relying on the decision of the Hon’ble apex court in the case of Toshoku Limited(supra) he held 44 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 that such income cannot be said to have accrued or arisen in India. His findings in this regard at para 9.6 and 9.7 of the order are as under; “9.6. Regarding the first issue it is noted from the evidences given by the appellant as well as noted by the AO in his order that the services have been rendered by the foreign agents outside India. The sales were booked by them in their country or for the country for which they have been appointed as commission agents. None of the activities soliciting the clients and procuring the orders has taken place in India. The goods were being delivered by the appellant company in the other country. The activities of procuring the payment on behalf of the appellant company were also done abroad. The AO was therefore, incorrect to hold that the source of income lies in India as the sales have been made from India. The provisions of Income Tax Act clearly provide that the tax would be deducted on the income which is taxable in India. The activity of earning the income is not the sale but soliciting the sales by commission agents. Though this activity is linked to the sales of the company but it cannot be said that the income has been derived from sales which has been made from India. The income has been derived from the activity of soliciting the sales on behalf of the appellant company. The agents have carried out all the activity on the foreign soil and none of their activity is in India therefore, it cannot be said that the income has accrued or arisen in India and the source of income was in India. There is no fact brought out by the AO in the order as well as observed by me during the course of appellate proceedings to indicate that the services have been rendered in India. 9.7. The judgment of honourable Supreme Court in the case of CIT vs. Toshoku Limited [125 ITR 525 (SC)] is important on the issue, whereby it has been held that commission earned by the non-resident for acting as the selling agent for the Indian exporter, wherein such non-resident was rendering services from outside India does not accrue in India. In the present case before me also, the foreign selling commission agents were of foreign country, from where the procurement service had been provided for which the commission has been paid, and therefore, the issue is directly and squarely covered by the Apex Court decision.” He also dismissed the finding of the AO, that the income was deemed to accrue or arise in India in terms of section 9(1) of the Act, noting that neither any services were rendered by these agents in India nor did they have any business connection in India by way of permanent establishment or place of business in India. Reference was made to the decision of the Hon’ble apex court in the case of GE India Technology Centre Private Limited 327 ITR 456 (SC) in this regard. His findings are at para 9.8 and 9.9 of the order as under. “9.8. Regarding the observation of the AO that the income is deemed to accrue or arise in India by applying the provisions of section 9 (l)(i), it is seen that there is no fact on record to indicate that any of the agents had any permanent establishment in 45 ITA Nos. 400 & 704/Ahd/2018 AND ITA Nos. 46 & 484/Ahd/2019 Assessee :Intas Pharmaceuticals Ltd AY :2013-14 and 2014-15 India. All the agents had their offices on the foreign soil and nothing on record that they had PE in India. Further the assessing officer has also not pointed out any such fact in its order which indicate that there was any such office of the overseas agents in India which attract the deeming provisions. Further the observation that the source of income was in India is also not proper as it has clearly been discussed in the preceding paragraphs that none of the services have been rendered in India and source of income cannot be said to be in India as the source of income is the services rendered and not the sales. There is no business connection in India from which the income has been earned, there is no property through or from which the income has been earned. Therefore, the provisions of section 9 (l)(i) also cannot be applied. 9.9. Reliance is placed on the judgement of honourable Supreme Court in the case of GE India Technology Centre Private Limited 327 ITR 456 and the judgement of honourable ITAT Mumbai in the case of our Ardesi B Cursetjee& Sons Ltd. 115 TTJ 916.” 78. Based on the above, he held that the AO was incorrect in holding that the commission income accrued in India and hence was liable to tax in India. Before us Ld.DR was unable to controvert the findings of the Ld.CIT(A) both on facts and on law. 79. In view of the same, we see no reason to interfere in the order of the ld.CIT(A) deleting the disallowance of commission made under section 40(a)(ia) of the Act amounting to Rs.1,51,10,093/- Ground of appeal No.5 is dismissed. 80. In effect appeal of the Revenue is dismissed. 81. In the combined result, both the appeals of the assessee are allowed, and that of the Revenue’s are dismissed. Order pronounced in the open Court on 31 st October, 2023 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 31/10/2023 **bt/vk