GLENMARK PHARMACEUTICALS LTD, MUMBAI V. ADDL CIT LTU, MUMBAI

ITA 4923/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7004 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 29-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR
• Keywords: Gift; Transfer pricing; Opportunity of being heard; Earning of tax free income; Rule 8D
• Section: 14A; 115JB; 133(6); 80IC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER IT A NO. 4923/MUM./2016 ( ASSESSMENT YEAR : 20 11 12 ) GLENMARK PHARMACEUTICALS LTD. GLENMARK HOUSE, HDO CORPORATE BLDG. WING A, B.D. SAWANT MARG, CHAKALA OPP. WESTERN EXPRESS HIGHWAY ANDHERI (E), MUMBAI 400 099 PAN AAACG2207L . APP ELL ANT V/S ADDL. COMMISSIONER OF INCOME TAX LARGE TAX PAYER UNIT 2, MUMBAI . RESPONDENT IT A NO. 4972/MUM./2016 ( ASSESSMENT YEAR : 20 11 12 ) ASSTT. COMMISSIONER OF INCOME TAX LARGE TAX PAYER UNIT 2, MUMBAI . APP ELL ANT V/S GLENMARK PHARMACEUTICALS LTD. GLENMARK HOUSE, HDO CORPORATE BLDG. WING A, B.D. SAWANT MARG, CHAKALA OPP. WESTERN EXPRESS HIGHWAY ANDHERI (E), MUMBAI 400 099 PAN AAACG2207L . RESPONDENT 2 GLENMARK PHARMACEUTICALS LTD. IT(TP) A NO. 5694/MUM./2016 ( ASSESSMENT YEAR : 20 12 13 ) ASSTT. COMMISSIONER OF INCOME TAX LARGE TAX PAYER UNIT 2, MUMBAI . APP ELL ANT V/S GLENMARK PHARMACEUTICALS LTD. GLENMARK HOUSE, HDO CORPORATE BLDG. WING A, B.D. SAWANT MARG, CHAKALA OPP. WESTERN EXPRESS HIGHWAY ANDHERI (E), MUMBAI 400 099 PAN AAACG2207L . RESPONDENT ASSESSEE BY : SHRI ANUJ KISNADWALA REVENUE BY : SHRI JAYANT KUMAR DATE OF HEARING 16 .0 7 .2019 DATE OF ORDER 31.07.2019 O R D E R PER SAKTIJIT DEY. J.M. THESE ARE A SET OF CROSS APPEALS FOR THE ASSESSMENT YEAR 2011 12 AND APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2012 13. ALL THESE APPEALS ARISE OUT OF TWO SEPARATE ORDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 56, MUMBAI. ITA NO.4923/MUM./2016 ASSESSEE S APPEAL A.Y. 2011 12 2 . THE LEARNED AUTHORISED REPRESENTATIVE HAS FILED A LETTER DATED 15 TH JULY 2019, STATING THAT THE ASSESSEE HAS INSTRUCTED HIM NOT TO 3 GLENMARK PHARMACEUTICALS LTD. CONTEST GROUNDS NO.1 TO 3. IN VIEW OF THE AFORESAID, WE DISMISS GROUNDS NO.1, 2 AND 3. 3 . THE ONLY SURVIVING EFFECTIVE GROUND , BEING GROUND NO.4, IS ON THE ISSUE OF DISALLOWANCE MADE UNDER SECTI ON 14A R/W RULE 8D. 4 . IT IS NECESSARY TO OBSERVE , THE REVENUE HAS ALSO CHALLENGED THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) ON THE VERY SAME ISSUE IN ITS APPEAL IN ITA NO.4972/MUM./2016 AND THE CORRESPONDING GROUND BEING GROUND NO.5 AND 6 . THEREFOR E, FOR THE SAKE OF CONVEN IENCE, WE PROPOSE TO DISPOSE OF BOTH THE GROUNDS TOGETHER. 5 . BRIEF FACTS ARE, IN THE C OURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND FROM SHARES AND MUTUAL FUNDS AMOUNTING TO ` 3,627. SINCE , THE DISALLOWANCE OF EXPENDITURE FOR EARNING OF EXEMPTION MADE BY THE ASSESSEE WAS NOT IN TERMS OF RULE 8D, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE SHOULD NOT BE COMPUTED BY APPLYING RULE 8D. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THAT FOLLOWING THE DECISION OF THE TRIBUNAL IN ITS OWN CASE IT HAS DISALLOWED 10% OF THE DIVIDEND INCOME. HENCE, NO FURTHER DISALLOWANCE SHOULD BE MADE. THE ASSESSING OFFICER, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND PROCEEDED TO DISALLOW AN AMOUNT OF ` 13,60,49,335. 4 GLENMARK PHARMACEUTICALS LTD. 6 . THE ASSESSEE CHALLENGED THE AFORESAID DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LEARNED COMMISSIONER (APPEALS) GRANTED PARTIAL RELIEF BY DI RECTING THE ASSESSING OFFICER TO EXCLUDE THE EXPENDITURE RELATING TO INVESTMEN T MADE IN THE SUBSIDIARY COMPANIES WHICH ARE FOR THE PURPOSE OF BUSINESS. 7 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D SHOULD NOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR. HE SUBMITTED , WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 11, THE TRIBUNAL HAS HELD THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT CANNOT EXCEED THE EXEM PT INCOME EARNED DURING THE YEAR. FURTHER, HE SUBMITTED , WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT, THE ADJUSTMENT IN TERMS OF EXPLANATION 1(F) SHOULD ALSO BE RESTRICTED TO THE EXEMPT INCOME EARNED DURING THE YEAR. 8 . THE LEARNED DEPARTMENT AL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER. 9 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS REGARDS THE DISALLOWANCE MADE UNDER SECTION 14A R/W RULE 8D UNDER THE NORMAL PROVISIONS OF THE ACT, IT IS RELEVANT TO OBSERVE THAT DURI NG THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD 5 GLENMARK PHARMACEUTICALS LTD. EARNED EXEMPT INCOME OF ` 3,267 ONLY. D IFFERENT HIGH COURTS HAVE HELD THAT DISALLOWANCE UNDER SECTION 14A R/W RULE 8D CANNOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR. IN THIS CONTEXT, WE MAY REFER TO THE FOLLOWING DECISIONS: I ) JOINT INVESTMENTS V/S CIT, 372 ITR 694 (DEL.); AND II ) PCIT V/S STATE BANK OF PATIALA, 393 ITR 476 (P&H). 10 . IN FACT, IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 11 , THE TRIBUNAL, WHILE DECIDING IDENTICAL ISSUE IN ITA NO.1654/MUM./2016, DATED 1 ST FEBRUARY 2019 HAS HELD THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS TO BE RESTRICTED TO THE EXEMPT INCOME EARNED DURING THE YEAR. IN VIEW OF THE AFORESAID, WE DIRECT THE ASS ESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D TO ` 3,267, I.E., THE EXEMPT INCOME BY THE ASSESSEE DURING THE YEAR. AS REGARDS THE ADJUSTMENT MADE TO THE BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT ON ACCOUNT OF EXPENDITU RE INCURRED FOR EARNING EXEMPT INCOME, THOUGH , WE AGREE WITH THE LEARNED AUTHORISED REPRESENTATIVE TH AT WHILE MAKING SUCH ADJUSTMENT THE ASSESSING OFFICER CANNOT INVOKE THE PROVISIONS OF SECTION 14A R/W RULE 8D, HOWEVER, IT IS EQUALLY TRUE THAT THE ASSESSI NG OFFICER CAN MAKE ADJUSTMENT TO THE BOOK PROFIT TOWARDS EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME AS PER EXPLANATION 1(F) OF SECTION 115JB OF THE ACT. THEREFORE, IN THE FACTS OF THE PRESENT CASE, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADJUS TMENT UNDER 6 GLENMARK PHARMACEUTICALS LTD. EXPLANATION 1(F) TO SECTION 115JB OF THE ACT TO THE AMOUNT OF EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR. GROUND NO.4 OF THE ASSESSEE S APPEAL AND GROUNDS NO. 5 AND 6 OF REVENUES APPEAL ARE ACCORDINGLY DISPOSED OF . 11 . IN THE RESULT, AS SESSEES APPEAL IS PARTLY ALLOWED. ITA NO.4972/MUM./2016 REVENUES APPEAL A.Y. 2011 12 12 . IN GROUND NO.1, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF ` 3,58,478, MADE BY THE ASSESSING OFFICER UNDER SECTION 41(1) OF THE ACT. 13 . BRIEF FACTS ARE, DURING THE ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER AFTER VERIFYING THE DETAILS RELATING TO SUNDRY CREDITORS FURNISHED BY THE ASSESSEE, FOUND THAT AN AMOUNT OF ` 3,58,478, PERTAINING TO 46 CREDITORS ARE PENDING FOR MORE THAN THREE YEARS. THUS, HE CONC LUDED THAT ASSESSEES LIABILITY WITH REGARD TO SUCH CREDITORS HAVE CEASED TO EXIST IN TERMS OF SECTION 41(1) OF THE ACT AND ACCORDINGLY, ADDED BACK TO THE INCOME OF THE ASSESSEE. WHILE DECIDING ASSESSEES APPEAL ON THE ISSUE, LEARNED COMMISSIONER (APPEALS) , FOLLOWING THE DECISION OF THE TRIBUNAL AND THE FIRST APPELLATE AUTHORITY IN ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEAR DELETED THE ADDITION. 7 GLENMARK PHARMACEUTICALS LTD. 14 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY REASON ON THE BASIS OF WHICH THE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITION UNDER SECTION 41(1) OF THE ACT IS, THEY ARE PENDING FOR MORE THAN THREE YEARS. HOWEVER, HE HAS NEITHER MADE ANY ENQUIRY OR BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE LIABILITY RELAT ING TO THE CONCERNED CREDITORS HAVE CEASED TO EXIST IN TERMS WITH THE CONDITIONS PRESCRIBED UNDER SECTION 41(1) OF THE ACT. IT IS FURTHER RELEVANT TO OBSERVE , WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010 11, THE TRIBUN AL, IN ITA NO.1654/MUM./2016, DATED 1 ST FEBRUARY 2019, HAS UPHELD THE DECISION OF LEARNED COMMISSIONER (APPEALS) DELETING SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER ON IDENTICAL REA SONING. THAT BEING THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE. THIS GROUND IS DISMISSED. 15 . IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF ` 5,44,38,514, ON ACCOUNT OF R & D EXPENSES ALLOCATED TO BADDI AND SOLAN UNITS OF THE ASSESSEE. 16 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER, WHILE VERIFYING ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT, FOUND THAT IN THE EARLIER ASSESSMENT YEAR ASSESSEE HAD ALLOCATED VARIOUS EXPENDITURE S INCLUDI NG R & D EXPENSES TO ITS 8 GLENMARK PHARMACEUTICALS LTD. BADDI AND SOLAN UNITS IN THE RATIO OF THEIR SALES TURNOVER. HOWEVER, IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAS NOT ALLOCATED ANY R & D EXPENSES TO ITS BADDI AND SOLAN UNITS AND ALL THE EXPENSES WERE ALLOCATED TO NON EXEMPT UNITS. HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN WHY R & D EXPENSES SHOULD NOT BE ALLOCATED TO BADDI AND SOLAN UNITS. THOUGH , THE ASSESSEE OBJECTED TO THE PROPOSED ACTION OF THE ASSESSING OFFICER, HOWEVER, REJECTING THE SUBMISSIONS OF THE ASSESSEE , THE ASSESSING OFFICER REDUCED A PART OF EXPENDITURE ALLOCATED TO THE OTHER UNIT S BY REALLOCATING THEM TO BADDI AND SOLAN UNITS. THIS RESULTED IN DISALLOWANCE OF R & D EXPENSES OF ` 8,54,86,997. THE ASSESSEE CHALLENGED THE AFORESAID DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. 17 . THE LEARNED COMMISSIONER (APPEALS) TAKING NOTE OF THE ORDER PASSED BY THE FIRST APPELLATE AUTHORITY IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 11 AN D VARIOUS OTHER DECISIONS, ULTIMATELY HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN APPORTIONING R & D EXPENSES INCURRED IN OTHER UNITS TO BADDI AND SOLAN UNITS. THUS, HE ALLOWED ASSESSEES CLAIM. 18 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. THE LEARNED AUTHORISED REPRESENTATIVE FAIRLY SUBMI TTED BEFOR US THAT THE TRIBUNAL WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 20 10 11 HAS RESTORED IT TO THE ASSESSING 9 GLENMARK PHARMACEUTICALS LTD. OFFICER WITH CERTAIN DIRECTIONS. HE SU BMITTED , SIMILAR DIRECTION MAY BE ISSUED IN THE IMPUGNED ASSESSMENT YEAR. 19 . THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREE D WITH THE AFORESAID SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE. 20 . HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE FIND THAT WHILE DECIDING IDENTICAL ISSUE IN ASSESSMENT YEAR 2010 11, THE TRIBUNAL IN ITA NO.1654/MUM./2016, DATED 1 ST FEBRUARY 2016, HAS RESTORED THE ISSUE TO THE ASSESSING OFFICER WITH THE FOLLOWING DIRECTIONS: 32. WE HAVE HEARD THE CONTENTIONS OF BOTH PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ITAT IN ASSESSEE'S OWN CASE FOR A.Y. 2009 - 20 HAS RESTORED IDENTICAL ISSUE TO THE FILE OF THE AO TO GIVE FINDING AS TO THE UTILIZATION OF R & D EXPENDITU RE WITH RESPECT TO THESE UNITS. IN THIS VIEW OF THE MATTER, IN OUR CONSIDERED OPINION, THE DOCTRINE OF STARE DECISIS MANDATES THAT WE FOLLOW THE ITATS ORDER OF EARLIER YEAR. ACCORDINGLY, FOLLOWING THE SAME FINDING OF THE ITAT IN THE EARLIER YEAR WE REMIT THE ISSUE TO THE FILE OF THE AO WITH DIRECTION TO THE AO TO DECIDE THE ISSUE AFTER GRANTING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 21 . FACTS BEING IDENTICAL, FOLLOWING THE AFORESAID DECISION OF THE CO ORDINATE BENCH, WE RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR DECIDING AFRESH IN TERMS WITH THE DIRECTIONS OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR AND ONLY AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 22 . IN GROUND NO.3, THE REVENUE HAS CHALLENGED THE DECISION OF THE FIRST APPELLATE AUTHORITY IN DELETING THE ADDITION OF ` 8,54,86,997, ON 10 GLENMARK PHARMACEUTICALS LTD. ACCOUNT OF INTEREST EXPENDITURE ALLOCATED BY THE ASSESSING OFFICER TO BADDI AND SOLAN UNITS WHILE COMPUTING DEDUCTION UNDER SECTION 80IC OF THE ACT. 23 . BRIEF FACTS ARE, WHILE VERIFYING ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD ALLOCATED INTEREST EXPENDITURE TO ITS BADDI AND SOLAN UNITS AS PER ACTUAL . HOWEVER, HE WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS GENERAL POOL OF FUNDS WHICH IS BEING UTILIZED BY ALL THE UNITS, THE ALLOCATION OF INTEREST SHOULD BE ON THE BASIS OF SALES TURNOVER OF EACH UNIT . ACCORDINGLY, HE ALLOCATED THE INTEREST EXPENDI TURE TO ALL THE UNITS ON THE BASIS OF THEIR RESPECT IVE SALES TURNOVER AND COMPUTED DEDUCTION UNDER SECTION 80IC OF THE ACT. THIS RESULTED IN A DISALLOWANCE OF ` 8,54,86,997. THE ASSESSEE CHALLENGED THE AFORESAID DISALLOWANCE BEFORE THE FIRST APPELLATE AUTH ORITY. 24 . A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF CERTAIN JUDICIAL PRECEDENTS AS REFERRED TO BY HIM, LEARNED COMMISSIONER (APPEALS) HELD THAT INTEREST EXPENDITURE CANNOT BE APPORTIONED ON THE BASIS OF SALES TURNOVER. ACCORDINGLY, HE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 1 1 GLENMARK PHARMACEUTICALS LTD. 25 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER. 26 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE IN THE ASSESSMENT YEAR 2010 11. 27 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN, THE ASSESSEE HAS ALLOCATED INTEREST EXPENDITURE ON THE BASIS OF UTILIZATION OF BORROWED FUNDS IN DIFFERENT UNITS. SINCE NO BO RROWED FUNDS WERE UTILIZED AT BADDI UNIT, WHICH IS IN EXISTENCE SINCE THE YEAR 2006 07, THE ASSESSEE HAD NOT ALLOCATED ANY INTEREST EXPENDITURE TO THE BADDI UNIT , WHILE ALLOCATING INTEREST EXPENDITURE TO OTHER TWO UNITS. IT IS APPARENT , BEFORE THE DEPARTME NTAL AUT HORITIES THE ASSESSEE HAS DEMONSTRATE THAT NO BORROWED FUNDS WERE UTILIZED AT BADDI UNIT. WHEREAS, W ITHOUT FACTUAL LY EXAMINING ASSESSEES CLAIM THE ASSESSING OFFICER H AS ARBITRARY ALLOCATED A PART OF INTEREST EXPENDITURE TO THE BADDI UNIT ON THE BA SIS OF SALES TURNOVER. IT IS RELEVANT TO OBSERVE , WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010 11, THE TRIBUNAL IN ITA NO.1654/MUM./2016, DATED 1 ST FEBRUARY 2019, HAS UPHELD THE DECISION OF LEARNED COMMISSIONER (APPEAL S) WITH THE FOLLOWING OBSERVATIONS: 12 GLENMARK PHARMACEUTICALS LTD. 38. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. UPON CAREFUL CONSIDERATION, WE FIND THAT THE FACTUAL DETAILS SUBMITTED CORROBORATE THAT THE BADDI UNIT HAD HUGE ACCUMULATED PROFIT. IN F ACT, ITS OPERATIONAL CASH FLOW IS BEING USED BY THE HEAD OFFICE. IN THE BALANCE SHEET, THE DEBIT BALANCE OF HEAD OFFICE ACCOUNT IS RS.2,470,281,148/ - AS ON 31.03.2010. THERE IS NO BORROWING SECURED OR UNSECURED FOR THIS UNIT. IN FACT, THE BALANCE SHEET SHO WS THAT THE UNIT HAS HUGE RESERVE AND SURPLUS AMOUNTING TO RS.3,920,730,627/ - COVERING THE ENTIRE ASSETS OF THE UNIT. 39. IN THESE CIRCUMSTANCES, WHEN NO LOAN IS THERE FOR BADDI UNIT AND THE UNIT IS GENERATING HUGE PROFITS, THE CASE LAW RELIED BY THE LD. COUNSEL OF THE ASSESSEE DULY SUPPORT THE PROPOSITION THAT ONLY THE INTEREST EXPENSES WHICH HAVE DIRECT NEXUS IN EARNING THE INCOME OF THE TAX EXEMPT UNIT SHOULD BE CONSIDERED. SINCE THE DOCUMENTARY EVIDENCE DULY SUPPORT THE PLEA THAT THERE IS NO DIRECT NEX US BETWEEN THE EXPENSES ALLOCATED BY THE A.O. TO THE UNIT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 28 . FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE CO ORDINATE BENCH IN ASSESSEES OWN CASE, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS). GROUND RAISED IS DISMISSED. 29 . IN GROUND NO.4, THE REVENUE HAS CHALLENGED THE DELETION OF DISALLOWANCE OF ` 15,30,84,266, MADE BY THE ASSESSING OFFICER ON THE REASONING THAT THE EXPENDITURE IS PROHIBI TED BY LAW AS PER INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATION, 2002. 30 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED TO THE PROFIT & LOSS ACCOUNT AN AMOUNT OF ` 15,30,84,266 TOWARDS EXPENDITURE INCURRED ON 13 GLENMARK PHARMACEUTICALS LTD. GIFT S, FREEBIES GIVEN TO D OCTORS AND MEDICAL PROFESSIONALS. AFTER CALLING FOR THE DETAILS OF EXPENDITURE, THE ASSESSING OFFICER OBSERVED THAT SUCH GIFTS AND FREEBIES PROVIDED TO D OCTORS AND MEDICAL PROFESSI ONALS IS IN VIOLATION OF CLAUSE 6.8 OF THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) AMENDMENT REGULATIONS 2009. FURTHER, HE OBSERVED , SUBSEQUENTLY THE CENTRAL BOARD OF DIRECT TAXES (CBDT) HAS ALSO ISSUED A CIRCULAR BEARING NO.5/2 012, DATE 1 ST AUGUST 2012, PROHIBITING ALLOWANCE OF DEDUCTION IN RESPECT OF EXPENDITURE INCURRED TOWARDS GIFT AND FREEBIES, TO D OCTORS AND MEDICAL PROFESSIONAL S IN VIOLATION OF INDIAN MEDICAL COUNCIL REGULATI ON. THUS, IN THE AFORESAID PREMISES , HE DISALLOW ED ASSESSEES CLAIM OF DEDUCTION. BEING AGGRIEVED WITH THE AFORESAID DISALLOWANCE, ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 31 . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD AS WELL AS THE CASE LAWS CITED BEFORE HIM, LEARNED COMMISSIONER (A PPEALS) HELD THAT THE PROHIBITION IMPOSED IN MEDICAL COUNCIL OF INDIA GUIDELINES APPLIES TO D OCTORS AND MEDICAL PROFESSIONALS AND NOT TO THE PHARMACEUTICAL COMPANIES . FURTHER, HE HELD THAT CBDT CIRCULA R NO.5, DATED 1 ST AUGUST 2012, WOULD BE APPLICABLE ONLY FROM ASSESSMENT YEAR 2013 14. ACCORDINGLY, HE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 14 GLENMARK PHARMACEUTICALS LTD. 32 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER. 33 . THE LEARNED AUTHORISED REPRESENTATIVE STRONGLY SUPPORTING THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) SUBMITTED , MEDICAL COUNCIL OF INDI A GUIDELINES ARE APPLICABLE TO D OCTORS AND MEDICAL PROFESSIONALS AND NOT TO PHARMACEUTICAL COMPANIES. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSIN ESS CANNOT BE DISALLOWED BY REFE RRING TO THE MEDICAL COUNCIL OF INDIA GUIDELINES. HE FURTHER SUBMITTED , THE CBDT CIRCULAR NO.5 DATED 1 ST AUGUST 2012, IS APPLICABLE PROSPECTIVELY AND NOT TO TH E IMPUGNED ASSESSMENT YEAR. HE SUBMITTED , WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 11, THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM. FURTHER, HE RELIED UPON THE DECISION OF THE TRIBUNAL IN ACIT V/S J.B. MEDICAL PHARMACEUTI CALS LTD., [2019] 199 TTJ (MUM.) 600. 34 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN, THE ASSESSING OFFICER REFERRING TO THE MEDICAL COUNCIL OF INDIA GUIDELINES AND REGULATIONS AS WELL AS CBDT CIRCULAR NO.5/2012, DATED 1 ST AUGUST 2012, HAS DISALLOWED THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS GIFTS TO D OCTORS AND MEDICAL PROFESSIONALS. UNDISPUTEDLY, THE GUIDELINES ISSUED BY THE MEDICAL COUNCIL OF INDIA AS WELL AS THE REGULATIONS FRAMED UNDER THE 15 GLENMARK PHARMACEUTICALS LTD. INDIAN MEDIC AL COUNCIL REGULATIONS ARE APPLICABLE TO D OCTORS AND MEDICAL PROFESSIONALS AND NOT TO PHARMACEUTICAL COMPANIES. THEREFORE, THOUGH , UNDER THE MEDICAL COUNCIL OF IND IA GUIDELINES AND REGULATIONS, D OCTORS AND MEDICAL PROFESSIONALS ARE PROHIBITED FROM ACCEPTIN G GIFTS, SUCH RESTRICTION DOES NOT APPLY TO T HE PHARMACEUTICAL COMPANIES. OF COURSE, CBDT CIRCULAR NO.5/2012, DATED. 1 ST AUGUST 2012, SPEAKS OF DISALLOWANCE OF EXPENDITURE INCURRED BY PHARMACEUTICAL COMPANIES TOWARDS GIFTS GIVEN TO D OCTORS AND MEDICAL PROF ESSIONALS. HOWEVER, THE SAID CIRCULAR WOULD APPLY PROSPECTIVELY FROM THE ASSESSMENT YEAR 2013 14 AND NOT TO THE IMPUGNED ASSESSMENT YEAR. IN FACT, CONSIDERING THE AFORESAID FACTUAL LEGAL POSITION, THE TRIBUNAL, WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010 11, VIDE APPEAL BEING ITA NO.2546/MUM./2017, DATED 23 RD AUGUST 2017, HAS UPHELD THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) IN ALLOWING THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS GIFTS TO D OCTORS AND MEDIC AL PROFESSIONALS. I N CASE OF J.B. MEDICAL AND PHARMACEUTICALS LTD. (SUPRA), THE TRIBUNAL HAS ALSO EXPRESSED SIMILAR VIEW. IN VIEW OF THE AFORESAID, RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL REFERRED TO ABOVE, WE UPHOLD THE ORDER OF THE LEARNED C OMMISSIONER (APPEALS) ON THE ISSUE. GROUND RAISED IS DISMISSED. 16 GLENMARK PHARMACEUTICALS LTD. 35 . IN GROUNDS NO.5 AN D 6, THE REVENUE HAS CHALLENGED THE DIRECTION OF LEARNED COMMISSIONER (APPEALS) IN RESPECT OF DISALLOWANCE MAD E UNDER SECTION 14A R/W RULE 8D WHILE COMPUTING THE IN COME UNDE R THE NORMAL PROVISION AS WELL AS UNDER SECTION 115JB OF THE ACT. 36 . WHILE DEALING WITH THE CORRESPONDING GROUND BEING GROUND NO.4, OF ASSESSEES APPEAL IN ITA NO.4923/MUM./2016 IN THE EARLIER PART OF THIS ORDER, WE HAVE HELD THAT DISALLOWANCE/ ADDITION RELATING TO EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME SHOULD BE RESTRICTED TO THE AMOUNTS OF EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR WHILE COMPUTING THE INCOME BOTH UNDER THE NORMAL PROVISION OF THE ACT AS WELL AS UNDER SECTION 1 15JB OF THE ACT. IN VIEW OF THE AFORESAID, THESE GROUNDS OF THE REVENUE HAVE BECOME REDUNDANT, HENCE, DISMISSED. 37 . IN GROUNDS NO.7 AND 8, THE REVENUE HAS CHALLENGED THE DECISION OF LEARNED COMMISSIONER (APPEALS) IN ACCEPTING THE ARMS LENGTH PRICE OF THE CO RPORATE GUARANTEE FEE @ 0.53% AS AGAINST 2.25% DETERMINED BY THE TRANSFER PRICING OFFICER. 38 . BRIEF FACTS ARE, THE TRANSFER PRICING OFFICER NOTICING THAT THE ASSESSEE HAD PROVID ED CORPORATE GUARANTEE TO ITS AE PROCEEDED TO DETERMINE THE ARMS LENGTH PRICE OF THE CORPORATE GUARANTEE FEE BY CALLING FOR INFORMATION UNDER SECTION 133(6) OF THE ACT FROM VARIOUS 17 GLENMARK PHARMACEUTICALS LTD. BANK S . ON THE BASIS OF INFORMATION OBTAINED FROM BANK S , THE TRANSFER PRICING OFFICER DETERMINED THE ARMS LENGTH PRICE OF CORPORATE GUARANTEE COMMISSION @ 2.25% WHICH RESULTED IN AN ADJUSTMENT OF ` 5,70,44,209. WHILE DECIDING ASSESSEES APPEAL ON THE ISSUE, LEARNED COMMISSIONER (APPEALS) HAVING NOTICED THAT THE TRIBUNAL IN ASSESSEES OWN CASE HAS ACCEPTED THE GUARANTEE COMMISSION FOR PROVIDI NG CORPORATE GUARANTEE TO THE AE @ 0.53% ACCEPTED THE ARMS LENGTH PRICE SHOWN BY THE ASSESSEE , THEREBY , DELETING THE ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER. WHILE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT NOT ONLY THE ISSUE IS COVERED BY THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE BUT THE DECISION OF THE TRIBUNAL HAS ALSO BEEN UPHELD BY THE HON'BLE J URISDICTIONAL HIGH COURT AND THE HON'BLE SUPREME COURT. 39 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, THIS IS A RECURRING DISPUTE BETWEEN THE PARTIES FROM THE PAST ASSESSMENT YEARS. IN FACT, IN ASSESSMENT YEAR 2008 09 AND 2009 10, THE MATTER WENT UP TO THE HON'BLE SUPREME COURT AND ULTIMATELY, THE HON'BLE SUPREME COURT UPHELD THE ARMS LENGTH PRICE OF GUARANTEE COMMISSION @ 0.5%. UNDISPUTEDLY, IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAS SHOWN THE ARMS LENGTH PRICE OF GUARANTEE COMMISSION BY APPLYING THE RATE OF 0.53% WHICH HAS BEEN 18 GLENMARK PHARMACEUTICALS LTD. ACCEPTED BY LEARNED COMMISSIONER (APPEALS). PERTINENTLY, WHILE DECIDING ASSESSEES APPEAL IN ASSESSMENT YEAR 2010 11, THE TRIBUNAL IN ITA NO.1654/MUM./2016, DATED 1 ST FEBRUARY 2019, HAS HELD THAT ARMS LENGTH PRICE OF GUARANTEE COMMISSION FOR ALL TYPES OF GUARANTEE SHOULD BE DETERMINED @ 0.53%. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE CO ORDINATE BENCH, WE UPHOLD THE ORDER OF LEARNED COMMISSIONER (A PPEALS) ON THE ISSUE. GROUNDS ARE DISMISSED. 40 . GROUNDS NO.9 AND 10, RELATES TO ARMS LENGTH PRICE OF COMF ORT GUARANTEE PROVIDED TO THE AE. 41 . THIS ISSUE IS IDENTICAL TO THE ISSUE RAISED IN GROUNDS NO.7 AND 8. AS OBSERVED EARLIER, WHILE DECIDING IDENTICAL ISSU E IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 11 CITED SUPRA, THE TRIBUNAL HAS HELD THAT GUARANTEE COMMISSION OF ALL TYPES OF GUARANTEE SHOULD BE FIXED @ 0.53%. IN FACT, AS COULD BE SEEN FROM THE FACTS ON RECORD, THE ASSESSEE HAS NOT CHARGED ANY GUARANT EE COMMISSION FOR PROVIDING COMFORT GUARANTEE. IN VIEW OF THE AFORESAID , SINCE THE TRANSFER PRICING OFFICER HAS CHARGED GUARANTEE COMMISSION @ 0.5% ON COMFORT GUARANTEE, THE DECISION OF THE TRANSFER PRICING OFFICER ON THE ISSUE DESERVES TO BE UPHELD. ACCOR DINGLY, THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) ON THE ISSUE IS REVERSED . GROUNDS NO.9 AND 10 ARE ALLOWED. 19 GLENMARK PHARMACEUTICALS LTD. 42 . IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. ITA NO.5694/MUM./2016 REVENUES APPEAL : A.Y. 2012 13 43 . GROUND NO.1, IS ON THE ISSUE OF ADDITION MADE UNDER SECTION 41(1) OF THE ACT. 44 . THIS ISSUE IS IDENTICAL TO THE ISSUE RAISED IN GROUND NO.1 OF ITA NO.4972/MUM./2016. FACTS BEING IDENTICAL, FOLLOWING OUR DECISION THEREIN, WE DISMISS THE GROUND RAISED. 45 . GROUNDS NO.2 TO 4, RELATE TO THE I SSUE OF DISALLOWANCE UNDER SECTION 14A R/W RULE 8D. 46 . THE ISSUE RAISED IN THESE GROUNDS IS IDENTICAL TO THE ISSUE RAISED IN GROUND NO.4 OF ASSESSEES APPEAL AND GROUNDS NO. 5 AND 6 OF REVENUES APPEAL FOR ASSESSMENT YEAR 2011 12 DECIDED BY US IN THE EARLIER PART OF THE ORDER . WHILE THE ASSESSING OFFICER COMPUTED DISALLOWANCE BY APPLYING RULE 8D, LEARNED COMMISSIONER (APPEALS) DIRECTED THE ASSESSING OFFICER NO T TO MAKE ANY DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) AS THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUND . AS REGARDS, DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III), LEARNED COMMISSIONER (APPEALS) DIRECTED THE ASSE SSING OFFICER TO COMPUTE DISALLOWANCE AFTER EXCLUDING 20 GLENMARK PHARMACEUTICALS LTD. THE INVESTMENTS MADE IN SUBSIDIARIES FROM THE AVERAGE VALUE OF INVESTMENT. 47 . HAVING CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) I N DELETING THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II), SINCE, THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUND. HOWEVER, WE ARE UNABLE TO APPROVE THE DIRECTION OF LEARNED COMMISSIONER (APPEALS) TO EXCLUDE INVESTMENT MADE IN SUBSIDIA RIES FOR COMPUTING DISALLOWANCE UNDER RULE 8D(2)(III) , IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF MAXOPP INVESTMENT LTD. V/S CIT, [2018] 402 ITR 640. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO COMPUTE DISALLOWANCE UNDER RULE 8D(2)(I II) BY CONSIDERING ONLY THOSE INVESTMENTS WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. FURTHER, WE MAKE IT CLEAR, THE DISALLOWANCE UNDER SECTION 14A SHOULD NOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION. IN SO FAR DISALLOWANCE OF EXPENDITURE FOR EARNING EXEMPT INCOME WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT, WE DIRECT THE ASSESSING OFFICER TO RESTRICT SUCH DISALLOWANCE TO THE EXEMPT INCOME EARNED DURING THE YEAR. THESE GROUN DS ARE PARTLY ALLOWED. 48 . GROUND NO.7, IS ON THE ISSUE OF DELETION OF ADDITION MADE ON ACCOUNT OF R & D EXPENDITURE ALLOCATED TO BADDI AND SOLAN UNITS. 21 GLENMARK PHARMACEUTICALS LTD. 49 . THIS GROUND IS IDENTICAL TO GROUND NO.2 OF ITA NO.4972/MUM./ MUM./2016. FOLLOWING OUR DECISION THEREIN, WE DISMISS THIS GROUND. 50 . GROUND NO.8, IS ON THE ISSUE OF DELETION OF ADDITION OF INTEREST EXPENDITURE ALLOCATED TO THE BADDI AND SOLAN UNITS ON THE BASIS OF SALES TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80IC OF THE ACT. 51 . THIS GROUND IS IDENTICAL T O GROUND NO.3 OF ITA NO.4972/MUM./ 2016. FOLLOWING OUR DECISION THEREIN, WE DISMISS THIS GROUND. 52 . GROUNDS NO.9 AND 10, RELATE TO THE ISSUE OF ARMS LENGTH PRICE OF GUARANTEE COMMISSION ON CORPORATE GUARANTEE AND COMFORT GUARANTEE RESPECTIVELY. 53 . AS COULD BE SEEN FROM THE FACTS ON RECORD, IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE ITSELF HAS CHARGED GUARANTEE COMMISSION ON CORPORATE GUARANTEE @ 1%. THEREFORE, FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEARS, WE UPHO LD THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THE ISSUE. 54 . AS REGARDS GUARANTEE COMMISSION ON COMFORT GUARANTEE , FOLLOWING OUR DE CISION IN ITA NO.4972/MUM./2016 IN RESPECT OF GORUND NO.9, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE ARMS LENGTH PR ICE 22 GLENMARK PHARMACEUTICALS LTD. OF C OMFORT GUARANTEE FEE @ 0.53%. THUS, GROUND NO.9 IS DISMISSED AND GROUND NO.10 IS ALLOWED. 55 . IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. 56 . TO SUM UP, ASSESSEES APPEAL AS WELL AS REVENUES APPEALS IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 31.07.2019 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 31.07. 2 0 1 9 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT , MUMBAI