Cadila Healthcare Ltd.,, Ahmedabad v. The Dy.CIT., (OSD) Range-1,, Ahmedabad

CO 242/AHD/2012 | 2008-2009
Pronouncement Date: 11-10-2013 | Result: Allowed

Appeal Details

RSA Number 24220523 RSA 2012
Assessee PAN AAACC6253G
Bench Ahmedabad
Appeal Number CO 242/AHD/2012
Duration Of Justice 9 month(s) 17 day(s)
Appellant Cadila Healthcare Ltd.,, Ahmedabad
Respondent The Dy.CIT., (OSD) Range-1,, Ahmedabad
Appeal Type Cross Objection
Pronouncement Date 11-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 11-10-2013
Date Of Final Hearing 26-08-2013
Next Hearing Date 26-08-2013
Assessment Year 2008-2009
Appeal Filed On 24-12-2012
Judgment Text
ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI D.K. TYAGI J.M. & SHRI ANIL CHATURVE DI A.M.) I.T. A. NO. 2430/AHD/2012 & CO. NO. 242/AHD/2012 (ASSESSMENT YEAR:2008-09) THE DCIT (OSD) RANGE-1 A WING ROOM NO. 309 3 RD FLOOR PRATYAKHA KAR BHAVAN AMBAWADI AHMEDABAD-380015. (APPELLANT) VS. M/S. CADILA HEALTHCARE LTD. ZYDUS TOWER OPP. ISCON TEMPLE SATELLITE CROSS ROAD AHMEDABAD 380015 (RESPONDENT) M/S. CADILA HEALTHCARE LTD. ZYDUS TOWER OPP. ISCON TEMPLE SATELLITE CROSS ROAD AHMEDABAD 380015 (APPELLANT) VS. THE DCIT (OSD) RANGE-1 A WING ROOM NO. 309 3 RD FLOOR PRATYAKHA KAR BHAVAN AMBAWADI AHMEDABAD-380015. (RESPONDENT) PAN: AAACC6253 G APPELLANT BY : SHRI O.P. VAISHNAV CIT D. R. RESPONDENT BY : SHRI MUKESH PATEL ( )/ ORDER DATE OF HEARING : 26-08-201 3 DATE OF PRONOUNCEMENT : 11-10 -2013 PER SHRI ANIL CHATURVEDI A.M. 1. THESE CROSS APPEALS ARE FILED AGAINST THE ORDER OF CIT(A)-6 AHMEDABAD DATED 09.08.2012 FOR ASSESSMENT YEAR 2008-09. ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 2 2. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUTHORITIES ARE AS UNDER. 3. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF PHARMACEUTICAL GOODS DIAGNOSTIC INSTRUM ENTS TRADING OF COSMETIC GOODS AND MEDICAL INSTRUMENTS. ASSESSEE FILED ITS R ETURN OF INCOME ON 29.08.2008 FOR A.Y. 2008-09 DECLARING TOTAL INCOME AT NIL. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT AN D THE TOTAL INCOME WAS DETERMINED AT RS. 177 09 75 283/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 09.08 2012 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFOR E US AND ASSESSEE HAS ALSO FILED CO. THE GROUNDS RAISED BY THE REVENUE R EADS AS UNDER:- 1. LD CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO BY WAY OF UPWARD ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST O N OFCD TO FOREIGN SUBSIDIARY BY HOLDING THAT OFCD TO BE 'OPTIONALLY C ONVERTIBLE LOAN'. 2. LD CIT(A) ERRED IN HOLDING THAT PRODUCT REGISTRA TION EXPENSES OF 43094280 ARE REVENUE IN NATURE WHEN THE 'PRODUCT R EGISTRATION EXPENSES MADE TO' DRUG REGULATORY AUTHORITIES IN VA RIOUS COUNTRIES GIVE ENDURING BENEFIT OF EXPORTING THE REGISTERED DRUGS FOR MANY YEARS. 3. LD CIT(A) ERRED IN HOLDING THAT TRADEMARK REGIST RATION FEE AND PATENT FEE ARE REVENUE EXPENSES WHEN THE EXPENSES WERE IN CURRED ON REGISTRATION OF TRADEMARK IN THAT COUNTRY AND ALSO FOR REGISTRATION OF PATENT WHICH ARE INTANGIBLE ASSETS UNDER SECTION 3 2(I)(II) OF THE ACT. 4. LD CIT(A) ERRED IN HOLDING THAT THAT THE EXPENSE S INCURRED OUTSIDE THE APPROVED R & D FACILITY WOULD ALSO GET WEIGHTED DED UCTION BASED ON THE WORD USED 'ON IN HOUSE' INTERPRETING CONTRADICTORIL Y TO THE FINDING OF ITAT MUMBAI IN CONCEPT PHARMACEUTICALS LTD. V/S ACIT (IT AT MUM) REPORTED AT 43 SOT 423. 5. LD CIT(A) ERRED IN HOLDING THAT EXPENSES INCURRE D OUTSIDE THE APPROVED R & D FACILITY ALSO ELIGIBLE FOR WEIGHTED DEDUCTION U/S 35 (2AB) PARTICULARLY IN VIEW OF THE FACT THAT DSIR ITSELF H AS CLASSIFIED EXPENDITURE CERTAIN AMOUNT AS INCURRED OUTSIDE THE APPROVAL FAC ILITY AND THE ASSESSE ITSELF DID NOT CLAIM WEIGHTED DEDUCTION U/S 35(2AB) ON SUCH EXPENSES SPENT OUTSIDE INDIA OUTSIDE THE APPROVED R &D. THER E IS NO DIFFERENCE BETWEEN EXPENSES INCURRED WITHIN INDIA OR OUTSIDE I NDIA ONCE THE SAME ARE OUTSIDE THE APPROVED R & D FACILITY. ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 3 6. LD CIT(A) ERRED IN HOLDING THAT THE ASSESSE IS E LIGIBLE FOR DEDUCTION U/S 80IC ON THE ENTIRE PROFIT 83.90 % INCLUDING THE AMO UNT OF PROFIT WHICH THE COMPANY WAS ALREADY EARNING FROM MARKETING OF THE S AME PRODUCTS AFTER PURCHASE FROM P2P MANUFACTURER. INCREASE IN PROFIT TO THE COMPANY IN THOSE PRODUCTS WAS ONLY 7.24% AFTER IT STARTED MANU FACTURING THE SAID PRODUCTS AT BADDI UNIT. 7. LD CIT(A) ERRED IN HOLDING THAT THE A.O. HAS NO RIGHT TO DETERMINE THE FAIR MARKET VALUE OF GOODS WHEN THERE IS NO-INTER-CORPO RATE TRANSFER OF GOODS DESPITE THE CLEAR PROVISIONS OF SECTION 80IA (8) WHICH APPLY TO 'INTRA-CORPORATE TRANSFER OF GOODS' FROM ELIGIBLE B USINESS UNIT TO OTHER NON- ELIGIBLE BUSINESS OF THE ASSESSEE. HERE IN THE CASE BADDI UNIT IS ELIGIBLE BUSINESS UNIT AND THE WHOLE COMPANY AS SUCH IS NOT AN ELIGIBLE BUSINESS. 8. LD CIT(A) ERRED IN NOT APPLYING THE PROVISIONS O F U/S 80IA(8) ALONG WITH THE PROVISO PLACED THERE UNDER HOLDING THAT ENTRIE S CANNOT BE PASSED IN BOOKS FOR INTERNAL TRANSFER OF GOODS FROM ELIGIBLE BADDI UNIT TO COMPANY AS SUCH WHICH IS NOT ELIGIBLE FOR 80IC DEDUCTION. 9. LD CIT(A) ERRED IN HOLDING THAT THE A.O. HAS NO AUTHORITY UNDER THE EXISTING PROVISIONS TO DISTURB THE CONSISTENT METH OD FOLLOWED BY THE ASSESSEE OF CREDITING THE 'FINAL SALE PRICE' OF PRO DUCTS OF BADDI TO P&L ACCOUNT PREPARED FOR INCOME TAX PURPOSES WHICH IS AGAINST THE PROVISIONS OF SECTION 80IA(8) WHICH MANDATES THE 'M ARKET VALUE' TO BE ADOPTED WHEN THERE IS TRANSFER OF GOODS FROM ELIGIB LE UNIT TO NON ELIGIBLE UNIT. 10. LD CIT(A) ERRED IN HOLDING THAT THE A.O. HAS NO RIGHT TO SEGREGATE PROFITS OF 80IB UNIT WHEN THERE IS TRANSFER OF GOODS FROM 80IB ELIGIBLE UNIT OF GOA TO COMPANY AS SUCH WHICH IS NON-ELIGIBLE HOLDI NG THAT THE AO DOES NOT HAVE LEGAL SANCTITY TO SEGREGATE THE PROFITS A GAINST THE VERY PROVISIONS OF SECTION 80IA(8) PROVISO AND EXPLANAT ION THERE UNDER. 11. LD CIT(A) ERRED IN DELETING THE ADDITION OF AMO UNT DISALLOWED U/S 14 MADE TO PROFIT U/S 115JB DESPITE THE SPECIFIC CLAU SE (F) OF EXPLANATION-1 TO 115JB. EXPENDITURE QUANTIFIED U/S 14A IS NOTHING BUT EXPENDITURE RELATABLE TO INCOME TO WHICH SECTION 10 OTHER THAN PROVISIONS OF CLAUSE (38) APPLY. GROUND NO. 1 IS WITH RESPECT TO ADJUSTMENT MADE ON ACCOUNT OF NOTIONAL INTEREST ON OPTIONALLY CONVERTIBLE DEBENTURE TO FOR EIGN SUBSIDIARY. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASS ESSING OFFICER NOTICED THAT ASSESSEE HAD SUBSCRIBED TO OPTIONALLY CONVERTIBLE L OAN OF U.S. $ 27 MILLION ISSUED BY ZYDUS INTERNATIONAL PVT. LTD. IRELAND. ACCORDINGLY REFERENCE UNDER SECTION 92CA OF THE ACT FOR COMPUTING OF ARMS LENGT H PRICE IN RELATION TO THE TRANSACTION WAS MADE TO TRANSFER PRICING OFFICER (T PO). TPO NOTED THAT THE ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 4 ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH ZYDUS I NTERNATIONAL PVT. LTD. ON 09.10.2007 FOR A CONVERTIBLE LOAN OF U.S $ 27 MILLI ON WHICH WAS SUBSEQUENTLY UTILIZED BY THE IRELAND COMPANY FOR ACQUIRING SHARE S IN ZYDUS HEALTHCARE BRAZIL. AS PER THE TERMS OF AGREEMENT NO INTEREST WAS PAYABLE IF THE AMOUNT WAS CONVERTED INTO EQUITY. HOWEVER IF THE SAME IS REDEEMED INTEREST WAS PAYABLE AT LIBOR PLUS 290 BPS AND THE INTEREST WAS TO BE COMPUTED AT ANNUAL RATES AND PAYABLE AT MATURITY THAT IS 5 YEARS FROM THE DATE OF FIRST DISBURSEMENT. THE RUPEE VALUE OF THE AMOUNT OF LOA N AS ON 31.03.2008 WAS RS. 108.32 CRORE. IT WAS ALSO NOTICED THAT ASSESSE E HAS NOT SHOWN ANY INCOME FROM THE AFORESAID LOAN. IN RESPONSE ASSESS EE INTERALIA SUBMITTED THAT ASSESSEE HAD NOT OPTED FOR CONVERSION OF THE L OAN DURING THE YEAR AND THEREFORE IT WAS LOAN FOR THE YEAR AND AS PER THE T ERMS OF AGREEMENT NO INTEREST ACCRUED TO THE ASSESSEE AND THEREFORE NO I NCOME WAS CONSIDERED. THE TPO DID NOT FIND THE CONTENTION OF THE ASSESSEE ACCEPTABLE. HE CONSIDERED THE OPTIONALLY FULLY CONVERTIBLE LOAN AS DEBT AND CONSIDERING THE AVERAGE SIX MONTH EURO LIBOR RATE FOR THE YEAR @ 4. 48% TO WHICH HE ADDED THE INTEREST RATE OF 2.90 BASIS POINT AS PER THE AG REEMENT AND THEREAFTER CONSIDERED THE RATE OF INTEREST TO BE @ 7.38% AND A CCORDINGLY COMPUTED THE INTEREST ON RS. 108.32 CRORE FOR 171 DAYS AT 7.38%. THE AFORESAID ADJUSTMENT MADE BY THE TPO WAS CONSIDERED BY THE AS SESSING OFFICER AND THE ADDITION OF RS. 3 99 74 426/- WAS MADE TO THE I NCOME. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER ASSESSEE CARRIED THE MA TTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS MADE BY TH E ASSESSEE DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER:- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE TPO.S ORDER AND APPELLANTS WRITTEN SUBMISSION. TPO MADE TWO TRANSFER PRICING A DJUSTMENTS IN THE CASE OF APPELLANT WHICH ARE (A) MARKUP ON PRODUCT R EGISTRATION SERVICES PAID TO FOREIGN SUBSIDIARY COMPANIES AND (B) NOTION AL INTEREST ON OPTIONALLY CONVERTIBLE LOAN OF FOREIGN SUBSIDIARY P ROVIDED BY THE APPELLANT. BOTH THE ADJUSTMENTS ARE SEPARATELY DEAL T WITH HERE UNDER:- . ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 5 (B) NOTIONAL INTEREST ON OPTIONALLY CONVERTIBLE LOAN OF FOREIGN SUBSIDIARY COMPANY- APPELLANT PROVIDED OPTIONALLY CONVERTIBLE LOAN TO ZYDUS INTERNATIONAL PRIVATE LIMITED ('ZIPL') AS PER THE L OAN AGREEMENT DATED 9 TH OCTOBER 2007. AS PER THE SAID AGREEMENT APPELLANT H AD AN OPTION TO CONVERT THE LOAN INTO CAPITAL OF ZIPL AT PAR VALUE AT ANY TIME DURING THE TENURE OF THE LOAN OF 5 YEARS. HOWEVER IN CASE APP ELLANT OPT FOR THE REPAYMENT OF LOAN THEN IT WILL BE ENTITLED TO INTE REST AT THE RATE OF 6 MONTHS LIBOR PLUS 290 BPS FROM THE DATE OF GRANTING OF LOA N ON THE AMOUNT WHICH IS NOT CONVERTED INTO EQUITY. FROM THIS AGREEMENT IT I S CLEAR THAT INTEREST IS PAYABLE ONLY IF CONVERSION OPTION IS NOT EXERCISED TILL THE EXPIRY OF FIVE-YEAR PERIOD. IF ANY TIME DURING THIS FIVE-YEAR PERIOD C ONVERSION OPTION IS EXERCISED AND LOAN IS CONVERTED IN TO EQUITY NO IN TEREST WILL ACCRUE OR BE PAYABLE. APPELLANT SUBMITTED THAT THESE KINDS OF IN STRUMENTS ARE GENERALLY ISSUED/ INVESTED BY SEVERAL PUBLIC LIMITED COMPANIE S WITH NON-AE INVESTORS. APPELLANT SUBMITTED DETAILS OF SOME OF THE COMPANIE S WHICH ISSUED ZERO COUPON OPTIONALLY CONVERTIBLE BONDS TO INDEPENDENT INVESTORS AT COMPLETELY ARMS LENGTH RELATIONSHIP. I HAVE GONE THROUGH THE D ETAILS OF SUCH CONVERTIBLE BOND ISSUES WHICH DID NOT HAVE PAYMENT OF INTEREST IF THE SAME IS CONVERTED TO EQUITY. THERE IS NO PROVISION FOR PAYMENT OF INT EREST ON SUCH INSTRUMENTS ANNUALLY SINCE INTEREST IS SUBJECT TO C ONVERSION OF DEBENTURE/LOAN INTO EQUITY. APPELLANT'S CASE IS NO DIFFERENT THAN THESE CASES. TPO MADE THE ADJUSTMENT IN RESPECT OF NOTION AL INTEREST FOR THE PERIOD THE OPTIONALLY CONVERTIBLE LOAN REMAINED OU TSTANDING DURING THE YEAR. TPO ALSO DISREGARDED THE TERMS OF AGREEMENT ON THE GROUND THAT THE SAME MAY NOT BE ENFORCEABLE. I AGREE WITH THE TPO THAT IF INTEREST FREE LOAN IS GIVEN BY AN INDIAN COMPANY TO FOREIGN SUBSIDIARY NOTIONAL INTEREST IS REQUIRE D TO BE ADJUSTED AS INCOME OF THE INDIAN COMPANY. HOWEVER IN THE CASE OF APPEL LANT WHAT WAS PROVIDED WAS NOT INTEREST FREE LOAN BUT OPTIONALLY CONVERTIB LE LOAN HAVING PROVISION FOR INTEREST IF THE OPTION IS NOT EXERCISED BY THE APPELLANT. THE FUNDS WERE PROVIDED BY THE APPELLANT AS PER RBI GUIDELINES. AT THE TIME OF PROVIDING FUNDS IT WAS BY WAY OF OPTIONALLY CON VERTIBLE LOANS. HOWEVER IMMEDIATELY NEXT YEAR AS PER SCHEDULE 20 (CLAUSE 10 A) OF PUBLISHED ANNUAL REPORT OF THE APPELLANT COMPANY FOR FY 2008-0 9 THE ENTIRE LOAN GIVEN TO SUBSIDIARY WAS CONVERTED INTO EQUITY SHARES OF ZYDUS INTERNATIONAL PRIVATE LTD. IN VIEW /OF THIS IT IS CLEAR THAT APPELLANT EXERCISED OPTION OF CONVERTING LOAN INTO EQUITY IN THE IMMEDI ATE NEXT YEAR AND ACCORDINGLY THERE IS NO QUESTION OF INTEREST ACCRUE D TO THE APPELLANT. IT IS NOT A CASE OF SIMPLY LOAN TRANSACTION WHEREIN ADJUSTMEN T IN RESPECT OF NOTIONAL INTEREST IS HELD TO BE JUSTIFIED ON ACCOUNT OF ARMS LENGTH RELATIONSHIP. IN THE CASE OF APPELLANT IT WAS INVESTMENT BY THE APPELLA NT IN ITS SUBSIDIARY IN THE FORM OF OPTIONALLY CONVERTIBLE LOAN IF THE CONVERS ION WOULD NOT HAVE TAKEN PLACE APPELLANT WOULD BE ENTITLED TO INTEREST AT T HE EXPIRY OF FIVE-YEAR PERIOD. SINCE APPELLANT HAS ALREADY CONVERTED THE L OAN INTO EQUITY IMMEDIATELY NEXT YEAR THERE IS NO QUESTION OF TAXI NG NOTIONAL INTEREST IN THE HANDS OF APPELLANT COMPANY. WHEN SEVERAL COMPANIES ARE ISSUING SIMILAR ZERO COUPON CONVERTIBLE LOANS TO INDEPENDENT ENTITI ES SUCH TRANSACTIONS WITH NON-AES HAVE TO BE TREATED AT ARM 'S LENGTH. APPELLANT HAS ALSO DONE THE SIMILAR TRANSACTION WITH ITS AE WHICH IS COMPLETELY AT ARMS LENGTH IN VIEW OF THE TERMS OF THE AGREEMENT WHICH IS SIMILAR TO THE AGREEMENTS ENTERED INTO BY MANY COMPANIES WITH NON- AES. ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 6 ADJUSTMENTS IN RESPECT OF NOTIONAL INTEREST ON SUCH OPTIONALLY CONVERTIBLE LOAN CANNOT BE MADE FOR MAKING SUCH TRANSACTION AT ARM'S LENGTH. SINCE INTEREST IS PAYABLE ON NORMAL LOAN WHICH IS NOT THE RE IN THE CASE OF CONVERTIBLE LOANS WHICH IS IN THE NATURE OF INVESTM ENT/ QUASI-EQUITY. SINCE APPELLANT HAD ENTERED INTO A VALID AGREEMENT WITH I TS SUBSIDIARY AND ONLY ON THE BASIS OF SUCH AGREEMENT FUNDS WERE REMITTED AB ROAD SUCH AGREEMENT CANNOT BE DISREGARDED. IN FACT APPELLANT CONVERTE D LOAN INTO EQUITY ONLY ON THE BASIS OF OPTION PROVIDED IN THE SAID AGREEMENT. THEREFORE THE TERMS OF THE AGREEMENT CANNOT BE DISREGARDED PARTICULARLY WH EN THE SAME ARE AT ARMS LENGTH AS DISCUSSED EARLIER. THE DECISION RE LIED UPON BY THE TPO IS IN RESPECT OF INTEREST FREE LOAN GRANTED TO THE FOR EIGN SUBSIDIARY WHICH IS NOT APPLICABLE HERE. APPELLANT HAS NOT GRANTED INTERES T FREE LOAN BUT INVESTED IN OPTIONALLY CONVERTIBLE LOAN OF THE SUBSIDIARY COMPA NY WITH A CLAUSE OF INTEREST IN CASE CONVERSION OPTION IS NOT EXERCISED . THEREFORE IT IS HELD THAT APPELLANTS TRANSACTION WITH ITS SUBSIDIARY IS AT A RMS LENGTH AND THEREFORE NO ADJUSTMENT IS REQUIRED ON ACCOUNT OF NOTIONAL INTER EST. 5. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US THE LEARNED D.R. RELIED ON THE FINDINGS OF TPO AND SUPPORTED HIS ORDER. 6. THE LEARNED A.R. ON THE OTHER HAND SUPPORTED THE ORDER OF CIT(A) AND FURTHER SUBMITTED THAT THE AFORESAID LOAN WAS CONVERTED INT O EQUITY IN F.Y. 08-09. HE THEREFORE SUBMITTED THAT NO ADDITION WAS CALLED FOR . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT A S PER THE AGREEMENT THE INTEREST WAS PAYABLE ONLY IF THE CONVERSION OPTION WAS NOT EXERCISED ON THE EXPIRY OF 5 YEAR PERIOD. IF AT ANY TIME DURING THE 5 YEAR PERIOD CONVERSION OPTION WAS EXERCISED AND THE LOAN WAS CONVERTED INT O EQUITY NO INTEREST ACCRUED OR BECOME PAYABLE. HE FURTHER NOTED THAT TH E FUNDS WERE PROVIDED BY THE ASSESSEE AS PER RBI GUIDELINES AND IN THE IMMED IATELY NEXT YEAR THE ENTIRE LOAN GIVEN TO SUBSIDIARY WAS CONVERTED INTO EQUITY SHARES OF ZYDUS INTERNATIONAL PVT. LTD. HE HAS FURTHER HELD THAT S INCE THE ASSESSEE HAS CONVERTED THE LOAN INTO EQUITY IN THE IMMEDIATE NEX T YEAR THERE WAS NO QUESTION OF TAXING NOTIONAL INTEREST. HE HAS FURTH ER HELD THAT ASSESSEE HAD ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 7 NOT GRANTED INTEREST FREE LOAN BUT INVESTED IN OPTI ONALLY CONVERTIBLE LOAN WITH A CLAUSE OF INTEREST IN CASE CONVERSION OPTION WAS N OT EXERCISED AND FURTHER HELD THE ASSESSEES TRANSACTION WITH SUBSIDIARY WA S AT ARMS LENGTH. BEFORE US THE REVENUE COULD NOT CONTROVERT THE FINDINGS O F CIT(A) BY BRINGING ANY CONTRARY MATERIAL ON RECORD. IN VIEW OF THESE FACT S WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A). 8. THUS THIS GROUND OF REVENUE IS DISMISSED. GROUND NO. 2 AND 3 ARE CONSIDERED TOGETHER. 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASS ESSING OFFICER NOTICED THAT ASSESSEE HAD DEBITED RS. 2 69 30 141 UNDER THE HEAD PRODUCT REGISTRATION EXPENSES AND RS. 4 78 94 568/- UNDER THE HEAD PROD UCT SUPPORT SERVICES. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM. THE AS SESSEE INTERALIA SUBMITTED THAT IT WAS REQUIRED TO OBTAIN REGISTRATION FOR ITS PHARMACEUTICAL PRODUCTS FROM THE GOVERNMENT DRUG REGULATORY AUTHORITIES. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD GOT VARIOUS PRODUCTS RE GISTERED IN VARIOUS COUNTRIES. IT HAD ALSO INCURRED EXPENSES FOR REGIST RATION OF PRODUCTS WITH LOCAL BODIES OF MEDICAL ASSOCIATIONS OF VARIOUS STATES IN INDIA. IT WAS FURTHER SUBMITTED THAT BY INCURRING EXPENDITURE ON PRODUCT REGISTRATION THE ASSESSEE HAS NEITHER ACQUIRED ANY FIXED ASSETS NOR THERE WAS ANY CHANGE IN FIXED CAPITAL AND THE EXPENSES WERE INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THEY WERE ALLOWABLE UNDER S ECTION 37(1) OF THE ACT. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER. HE WAS OF THE VIEW THAT ONCE TH E PRODUCT IS REGISTERED AND APPROVAL IS GRANTED BY A PARTICULAR COUNTRY THE AS SESSEE CAN CONTINUE TO EXPORT ITS GOODS OVER A LONG PERIOD OF TIME AND TH EREFORE THE REGISTRATION OF PRODUCT ENTITLES THE ASSESSEE TO A BENEFIT OF ENDUR ING NATURE IN THE FORM OF MARKETING RIGHTS IN THAT COUNTRY WHICH WAS IN THE F ORM OF INTANGIBLE ASSETS AND THEREFORE THE EXPENDITURE WAS CAPITAL IN NATURE. HE WAS FURTHER OF THE VIEW THAT BY FINANCE ACT 1998 SECTION 32 OF THE ACT HA S BEEN AMENDED AND ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 8 PROVISION HAS BEEN BROUGHT ON STATUTE FOR ALLOWANCE OF DEPRECIATION ON INTANGIBLE ASSETS INCLUDING BUSINESS OR COMMERCIAL RIGHTS LIKE MARKETING OR SELL RIGHTS. SINCE THE STATUTE PROVIDES FOR DEPRECI ATION THE EXPENSES RELATED TO ACQUISITION OF INTANGIBLE ASSETS CANNOT BE ALLOWED AS REVENUE EXPENSES. HE FURTHER NOTED THAT IN A.Y. 2006-07 & 2007-08 ON SIM ILAR ISSUE DISPUTE RESOLUTION PANEL HAD PASSED DIRECTIONS WHEREIN THE ISSUE OF DISALLOWANCE WAS CONFIRMED. HE ACCORDINGLY CONSIDERED THE AGGREG ATE AMOUNT OF RS. 7 48 24 709/- AS CAPITAL EXPENDITURE BUT HOWEVER AL LOWED DEPRECIATION UNDER SECTION 32 (1)(II) OF THE ACT. HE ACCORDINGLY MADE AN ADDITION OF RS. 4 30 94 280/- 10. ASSESSING OFFICER ALSO NOTICED THAT ASSESSEE HA D DEBITED RS. 4 20 49 275/- UNDER THE HEAD TRADE MARK REGISTRATION FEES AND PATENT FEES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM. THE ASSESSEE INTERALIA SUBMITTED THAT IT GETS TRADE MARK REGISTE RED WITH THE REGISTRAR OF TRADE MARKS UNDER THE TRADE MARK ACT FOR WHICH CERT AIN PRESCRIBED FEES ARE REQUIRED TO BE PAID. THE REGISTRATION OF TRADE MAR KS ENABLES THE ASSESSEE TO OBTAIN SPEEDY AND LESS EXTENSIVE REMEDY AGAINST THE INFRINGEMENT OF TRADE MARKS IT GIVES BENEFIT OF EXCLUSIVE RIGHT TO USE ITS TRADE MARK AND IS INCURRED FOR THE PROTECTION OF THE BUSINESS OF THE COMPANY A ND THUS WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE ASSE SSEES BUSINESS. WITH RESPECT TO PATENT REGISTRATION FEES IT WAS SUBMITT ED THAT THE EXPENSES WAS INCURRED FOR CARRYING OUT VARIOUS PATENT REGISTRATI ON FORMALITIES INCLUDING STATUTORY FEES PRESCRIBED IN DIFFERENT COUNTRIES. R EGISTRATION OF PATENTS GIVES BENEFIT OF EXCLUSIVE RIGHTS TO USE THE PATENTS AND WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESS ING OFFICER DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE. HE WAS OF THE VIE W THAT BY INCURRING THE EXPENSES OF TRADE MARK OF PATENT INTANGIBLE ASSETS IN THE FORM OF TRADE MARKS AND PATENTS ARE CREATED. FURTHER SECTION 32 OF THE ACT PROVIDES FOR ALLOWANCE OF DEPRECIATION OF INTANGIBLE ASSETS AND ONCE DEPRECIATION HAS BEEN PROVIDED UNDER SECTION 32 OF THE ACT THE SAME EXPENDITURE CANNOT BE ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 9 ALLOWED AS REVENUE EXPENSE UNDER SECTION 32 OF THE ACT. HE FURTHER NOTED THAT FOR A.Y. 2006-07 & 2007-08 ON IDENTICAL ISSUE DISPUTE RESOLUTION PANEL HAD CONFIRMED THE DISALLOWANCE. HE ACCORDINGLY DIS ALLOWED THE EXPENSES BUT HOWEVER ALLOWED DEPRECIATION ON THE SAME. HE ACCOR DINGLY WORKED OUT DISALLOWANCE OF RS. 2 79 60 159/-. 11. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER AS SESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) FOLLOWING THE ORDER OF ITAT IN THE ASSESSEES OWN CASE DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A) REVENUE IS NOW IN APPEAL BEFORE US. 12. BEFORE US AT THE OUTSET THE LEARNED A.R. SUBMI TTED THAT ON IDENTICAL ISSUE IN ASSESSEES OWN CASE THE MATTER HAS BEEN DECIDED IN ASSESSEES FAVOUR BY TRIBUNAL IN ASSESSMENT YEAR 2006-07 & 2007-08. HE F URTHER SUBMITTED THAT AGAINST THE ORDER OF HON. TRIBUNAL REVENUE HAD FIL ED APPEAL BEFORE HON. GUJARAT HIGH COURT FOR A.Y. 2006-07 AND HON. H.C. H AS HELD THAT NO QUESTION OF LAW ARISES AND THUS THE MATTER WAS DECIDED IN AS SESSEES FAVOUR. HE PLACED ON RECORD AT PAGE 130 131 THE COPY OF ORDER OF HON. GUJARAT HIGH COURT. HE FURTHER SUBMITTED THAT SINCE THE ISSUE HA S ALREADY BEEN DECIDED IN ASSESSEES FAVOUR THE SAME VIEW BE CONSIDERED IN T HE PRESENT CASE ALSO. THE LEARNED D.R. ON THE OTHER HAND RELIED ON THE OR DER OF ASSESSING OFFICER. 13. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT FOR A.Y. 2007-08 ON IDENTICAL ISSUE IN AS SESSEES OWN CASE IN ITA NO. 2902/AHD/2011 ORDER DATED 24.01.2013 THE ISSU E WAS DECIDED IN FAVOUR OF ASSESSEE BY THE CO-ORDINATE BENCH OF TRIBUNAL BY HOLDING AS UNDER: 2.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE TRIBUNAL DECISION CITED BY THE LD. A.R. WE FIND THAT IN ASSESSMENT YEAR 2006-07 RAISED BEFORE THE TRIBUNAL AS PER GROUNDS NO.2 & 3 AND BOTH THESE GROUNDS WERE DECIDED BY THE TRIBUNAL IN FAVOU R OF THE ASSESSEE AS PER PARA 3.12 OF THE TRIBUNAL ORDER WHICH IS REPROD UCED BELOW FOR THE SAKE OF READY REFERENCE: ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 10 '3.12. WE HEREBY HOLD THAT THE PAYMENTS IN QUESTION ARE INEXTRICABLY LINKED WITH THE WORKING OF THE ASSESSEE'S BUSINESS. BY INCURRING THOSE EXPENDITURE THE ASSESSEE HAS NOT ACQUIRED ANY NEW R IGHT OF PERMANENT CHARACTER. THE LICENSES OR THE REGISTRATIONS ARE RE QUIRED TO BE RENEWED AND THEREFORE PART OF THE DAY TO DAY RUNNING EXPEND ITURE OF BUSINESS [ACIT VERSUS VODAFONE ESSAR GUJARAT 38 SOT 51 ( AHD.). IF AN EXPENDITURE CAN GIVE A BENEFIT WHICH IS SAID TO BE ENDURED FOR ONE YEAR OR EVEN ANNUALLY YEAR AFTER YEAR THEN IT IS UNREASONAB LE TO HOLD THE ENDURING BENEFIT TAKEN PLACE TO THE ASSESSEE. [COSMAT MAX LT D. 29 SOT 6 (DEL.)]. AN EXPENDITURE INCURRED IN THE EXISTING LINE OF BUS INESS IT TO RUN THE BUSINESS SMOOTHLY THEN THOUGH THE BUSINESS MAY RUN IN FUTURE IN THE YEARS TO COME BUT IN THE ABSENCE OF CREATION OF ANY NEW A SSET WE HEREBY HELD THAT SUCH AN ENDURING BENEFIT MAY NOT TANTAMOUNT TO RENDERING OF CAPITAL EXPENDITURE. [DCIT VERSUS CORE HEALTHCARE 263 (GUJA RAT)]. A VERY IDENTICAL CASE LAW HAS ALSO BEEN CITED PRONOUNCED BY THE HON' BLE SUPREME COURT IN THE CASE OF CIT VERSUS FINLEY MILLS LTD. 20 1TR 475 AND THE OPINION EXPRESSED WAS THAT AN EXPENDITURE INCURRED IN REGIS TERING FOR THE FIRST TIME ITS TRADEMARK THEN BY REGISTRATION THE OWNER IS MERELY ABSOLVED THEREAFTER FROM OBLIGATION TO PROVE HIS OWNERSHIP OF TRADEMARK. AS PER THE HON. COURT THE EXPENDITURE IS NEITHER FOR THE CREAT ION OF AN ASSET NOR AN ADVANTAGE FOR EVEN. WE THEREFORE HOLD THAT THIS PR ECEDENT HAS DIRECT APPLICATION ON THE PRESENT ISSUE THEREFORE FOLLOWI NG THE SAME AND CONSIDERING THE TOTALITY OF THE FACTUAL MATRIX WE HEREBY ALLOW THE CLAIM. RESULTANTLY GROUND NOS. 2 AND 3 ARE ALLOWED. 2.3 SINCE NO DIFFERENCE IN FACTS COULD BE POINTED OUT BY THE LD. D.R. OF THE REVENUE WE FIND NO REASON TO TAKE A DIFFERENT VIEW IN THIS YEAR AND HENCE THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. BO TH THE GROUNDS NO. 1 AND 2 OF THE ASSESSEE ARE ALLOWED. 14. SINCE THE FACTS IN THE YEAR UNDER APPEAL ARE ID ENTICAL TO THAT OF EARLIER YEARS AS ADMITTED BY BOTH THE PARTIES WE RESPECTFULLY FO LLOWING THE ORDER OF CO- ORDINATE BENCH OF TRIBUNAL FOR A.Y. 07-08 DECIDE TH E ISSUE IN FAVOUR OF ASSESSEE. 15. THUS THIS GROUND OF REVENUE IS DISMISSED. GROUND NO. 4 AND 5 ARE WITH RESPECT TO DISALLOWANCE OF RS. 12 02 29 026/- ON ACCOUNT OF EXPENDITURE INCURRED ON SCIENTIFIC RE SEARCH UNDER SECTION 35(2AB) OF THE ACT. ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 11 16. ASSESSING OFFICER NOTICED THAT ASSESSEE HAD CLA IMED REVENUE EXPENSES ON ACCOUNT OF RESEARCH AND DEVELOPMENT TO THE TUNE OF RS. 9294.81 LAKHS AND HAS CLAIMED 150% OF THE SAME AS DEDUCTION UNDER SEC TION 35(2AB). FROM THE DETAILS SUBMITTED BY THE ASSESSEE ASSESSING OF FICER NOTICED THAT ASSESSEE HAS INCURRED BIO- STUDY EXPENSES OF RS. 24 04 58 052/- WHICH HAS BEEN INCURRED OUTSIDE THE APPROVED IN-HOUSE RESEARC H AND DEVELOPMENT FACILITIES BUT HAD CHARGED THE SAME UNDER THE HEAD RESEARCH AND DEVELOPMENT EXPENSES. ASSESSING OFFICER WAS OF THE VIEW THAT AS PER THE PROVISIONS OF SECTION 35(2AB) THE BENEFIT OF ENCHA NCED DEDUCTION WAS AVAILABLE ON EXPENDITURE ON SCIENTIFIC RESEARCH ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY. HE WAS OF THE VIEW THAT THE EXPENDITURE ON CLINICAL TRIALS INCURR ED OUTSIDE THE APPROVED FACILITIES CANNOT BE CONSIDERED TO HAVE BEEN INCURR ED IN HOUSE FOR THE PURPOSE OF THIS CLAUSE. HE ACCORDINGLY WITHDREW TH E ENHANCED 50% DEDUCTION AMOUNTING TO RS. 12 02 29 026/- ON CLINIC AL TRIAL EXPENSES. HE FURTHER NOTED THAT ON IDENTICAL ISSUE FOR A.Y. 2006 -07 & 07-08 THE DRP HAD CONFIRMED THE DISALLOWANCE. HE ACCORDINGLY DISALLO WED RS. 12 02 29 026/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DECIDE THE ISSUE IN FAVOUR O F ASSESSEE BY HOLDING AS UNDER:- 5.5 I HAVE CONSIDERED THE FACTS OF THE CASE ASSESSM ENT ORDER AND APPELLANTS WRITTEN SUBMISSION. APPELLANT SUBMITTE D THAT THIS GROUND IS DIRECTLY COVERED BY THE ORDER OF ITAT IN APPELLANTS OWN CASE IN ASSESSMENT YEAR 2006-07. THE ITAT HAS PASS ED ORDER IN ASSESSMENT YEAR 2006-07 IN ITA NO. 3140/AHD/2010 DA TED 25.05.2012. THE RELEVANT PART OF THE ORDER IS QUOTE D BELOW. THERE IS NO DISPUTE THAT FACTS ARE IDENTICAL THIS YEAR ALSO. ASSESSING OFFICER POINTED OUT DURING APPEAL HEARI NG THAT ITAT DID NOT CONSIDER THE DECISION OF ITAT MUMBAI IN THE CASE OF CONCEPT PHARMACEUTICALS LTD. VS ACIT (ITAT MUM) 43 SOT 423' IN WHICH WEIGHTED DEDUCTION ON SCIENTIF IC RESEARCH EXPENSES INCURRED OUTSIDE THE APPROVED FACILITY WAS NOT ALLOWED. ASSESSING OFFICER ALSO MENTIONED THAT APPELLANT DID NOT CLAIM WEIGHTED DEDUCTION ON RESEARCH EXPENSES INCUR RED OUTSIDE INDIA AND THERE IS NO DIFFERENCE BETWEEN EXPENSE IN CURRED OUTSIDE ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 12 APPROVED FACILITY AND EXPENSES INCURRED OUTSIDE IN DIA. APPELLANT SUBMITTED THAT DECISION IN THE APPELLANT'S OWN CASE BY JURISDICTIONAL ITAT IS BINDING ON CIT (A) AS COMPARED TO OTHER BEN CH OF ITAT. FURTHER ITAT AHMEDABAD IN ITS ORDER FOR ASSESSMENT YEAR 2006-07 ALLOWED WEIGHTED DEDUCTION FOR ENTIRE RESEARCH EXPE NSES INCLUDING EXPENSES INCURRED ABROAD. NOT CLAIMING WEIGHTED DED UCTION DURING THIS YEAR BY MISTAKE CANNOT BE PRESUMED THAT APPELLANT ACCEPTED THE NON-ALLOWABILITY OF WEIGHTED DEDUCTION FOR EXPENSES INCURRED' -OUTSIDE THE APPROVED RESEARCH FACILITY. SINCE THERE IS NO DECISION OF ITAT SPECIAL BENCH OR ANY HIGH COURT OR APEX COURT ON THIS ISSUE THE DECISION OF JURISDICTIONAL ITAT IN THE APPELLANT'S OWN CASE WILL BE BINDING ON THE UNDERSIGNED. CONSIDERIN G THE JUDICIAL DISCIPLINE CIT (A) CANNOT SIT IN THE JUDGMENT ON THE ORDER OF JURISDICTIONAL ITAT. RESPECTFULLY FOLLOWING THE AF ORESAID DECISION-IN THE APPELLANT'S OWN CASE ASSESSING OFFICER IS DIR ECTED TO ALLOW WEIGHTED DEDUCTION ON SCIENTIFIC RESEARCH EXPENSES CLAIMED BY THE APPELLANT. 17. AGGRIEVED BY THE ORDER OF CIT(A) REVENUE IS NO W IN APPEAL BEFORE US. 18. BEFORE US AT THE OUST THE LD. A.R. SUBMITTED THAT THE FACTS IN THE PRESENT GROUND ARE IDENTICAL TO THAT OF A.Y. 06-07 & 07-08 AND IN THOSE YEARS THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY THE HON. ITAT. HE PLACED ON RECORD THE ORDERS OF BOTH THE YEARS. HE FURTHER SU BMITTED THAT AGAINST THE AFORESAID ORDER OF TRIBUNAL THE REVENUE PREFERRED APPEAL BEFORE HON. H.C. HON. H.C. HAD DISMISSED THE APPEAL OF REVENUE BY HO LDING THAT NO QUESTION OF LAW ARISES. HE THEREFORE SUBMITTED THAT FOLLOWIN G THE DECISION OF EARLIER YEARS THE ISSUE BE DECIDED IN FAVOUR OF ASSESSEE. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF ASSESSING OFFICER. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CO-ORDINATE BENCH OF TRIBUNAL IN A.Y. 07- 08 (ORDER DATED 24.01.2013) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER:- 3.8 WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE BY THE TRIBUNAL DECISION RENDERED IN THE ASSESSEE'S OWN CA SE FOR THE ASSESSMENT YEAR 2006- ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 13 07 AND ONLY THIS ARGUMENT WAS MADE BY THE LD. D.R. THAT THE TRIBUNAL ORDER RENDERED IN THE CASE OF CONCEPT PHARMACEUTICALS LTD. (SUPRA) AND THE JUDGEMENT OF HON'BLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CLARIS L IFESCIENCES LTD. (SUPRA) SHOULD BE CONSIDERED AND WE HAVE ALREADY CONSIDERED THESE TWO JUDGMENTS CITED BY THE LD. D.R. AND WE HAVE FOUND THAT THE JUDGMENT OF HON'BLE GUJA RAT HIGH COURT IS NOT APPLICABLE IN THE PRESENT CASE WHEREAS IN THE TRIBUNAL DECISIO N RENDERED IN THE CASE OF CONCEPT PHARMACEUTICALS LTD.(SUPRA) THIS ASPECT WAS NOT DI SCUSSED EXAMINED AND DECIDED AS TO WHETHER CLINICAL DRUG TRIAL EXPENDITURE CAN BE I NCURRED INSIDE THE IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY OR NOT. WE HAVE S EEN THAT SUCH EXPENDITURE ON CLINICAL DRUG TRIAL CANNOT BE INCURRED INSIDE THE I N-HOUSE RESEARCH AND DEVELOPMENT FACILITY. WE HAVE SEEN THAT IN THE SAID TRIBUNAL OR DER RENDERED IN THE CASE OF CONCEPT PHARMACEUTICALS LTD. (SUPRA) THE OTHER TWO EXPENSE S INCLUDED IN THE RELEVANT EXPLANATION TO SECTION 35(2AB)(1) WERE NOT EXAMINED AT ALL BY THE TRIBUNAL TO FIND OUT WHETHER THOSE EXPENSES CAN BE INCURRED INSIDE T HE IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY OR NOT AND HENCE THIS ASPECT WAS NOT DISCUSSED AND DECIDED SPECIFICALLY AS TO WHETHER THE EXPLANATION ALSO REQ UIRES THAT THE EXPENDITURE INCLUDED IN THE EXPLANATION ARE ALSO TO BE INCURRED INSIDE T HE IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY OR NOT. WE HAVE SEEN THAT ALL THE THREE EXPENSES INCLUDED IN THE EXPLANATION ARE NOT CAPABLE OF BEING INCURRED INSID E THE IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AND. THEREFORE IN OUR CONSIDE RED OPINION FOR ALL THE EXPENDITURES INCLUDED IN THE EXPLANATION INCLUDING THE EXPENDITURE ON CLINICAL DRUG TRIAL IT IS NOT REQUIRED THAT THE SAME HAS TO BE INCURRED INSIDE THE IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY THE SAME BECOMES ELIGIBLE FOR DEDUCTION U/S 35(2AB)(1). HENCE WE ARE OF THE CONSIDERED OPINION THAT THE TR IBUNAL ORDER RENDERED IN THE CASE OF CONCEPT PHARMACEUTICALS LTD. (SUPRA) DOES N OT LAY DOWN A BINDING PRECEDENT AND THEREFORE WE DECIDE THIS ISSUE IN F AVOUR OF THE ASSESSEE BY RESPECTFULLY FOLLOWING THE TRIBUNAL DECISION IN ASS ESSEES OWN CASE FOR ASSESSMENT YEAR 06-07. THIS GROUND IS ALSO ALLOWED. 20. SINCE THE FACTS IN THE YEAR UNDER APPEAL ARE ID ENTICAL TO THAT A.Y. 06-07 & 07- 08 AS ADMITTED BY BOTH THE PARTIES AND SINCE THE RE VENUES APPEAL HAS BEEN DISMISSED BY HON. H.C. WE RESPECTFULLY FOLLOWING T HE ORDER OF CO-ORDINATE BENCH OF TRIBUNAL FOR A.Y. 07-08 DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AND THUS THIS GROUND OF REVENUE IS DISMISSED. GROUND NO. 6 TO 9 ARE WITH RESPECT TO DEDUCTION U NDER SECTION 80IC IN RESPECT OF BADDI UNIT. 21. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS SESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED RS. 170.61 CRORE AS DEDUCTION UNDER 80IC OF THE ACT ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 14 FOR ITS UNIT AT BADDI (H.P) BEING 100% OF THE PROFI T OF THE UNIT. ASSESSING OFFICER NOTICED THAT ASSESSEE HAD SHOWN ABNORMALLY HIGHER PROFIT FOR BADDI UNIT AT 54.49% OF THE TURNOVER AS COMPARED TO A PRO FIT OF 7.29% FOR ALL OTHER UNITS TAKEN TOGETHER THOUGH THE TURNOVER OF BADDI U NIT CONSTITUTED 17.87% OF THE TOTAL TURNOVER. THE ASSESSEE WAS ASKED TO JUST IFY ITS CLAIM AND THE ABNORMALLY HIGHER PROFIT OF BADDI UNIT AS COMPARED TO OTHER UNITS. THE ASSESSEE INTERALIA SUBMITTED THAT ON IDENTICAL FACT S IN EARLIER YEAR THE ASSESSEE HAS BEEN ALLOWED DEDUCTION BY DRP FOR A.Y. 06-07 & 07-08. THE ASSESSEE ALSO SUBMITTED A COMPARATIVE CHART SHOWING PROFIT MARGIN OF PRODUCTS MANUFACTURED AT BADDI IN F.Y. 07-08 IN COM PARISON TO THE CORRESPONDING PROFIT MARGIN EARNED ON SUCH PRODUCT WHEN THEY WERE NOT SO MANUFACTURED AT BADDI. THE SUBMISSIONS OF THE ASSE SSEE WERE NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER. HE WAS OF THE VIEW THAT IN THE YEAR PRIOR TO THE MANUFACTURE OF PRODUCTS AT BADDI UNIT THAT IS WHEN THE PRODUCTS WERE MANUFACTURED EITHER THROUGH PRINCIPAL TO PRINCIPAL SUPPLIER OR AT THE FORMULATIONS UNIT AT MORAIYA AND GOA THE ASSESSEE WAS HAVING GROSS MARGIN OF 76.65% FOR ALL THE PRODUCTS TAKEN TOGETHER WHICH HAS INCREASED TO ABOUT 83.90% IN THE CURRENT YEAR WHICH IN EFFECT MEANS TH AT BY SETTING UP MANUFACTURING UNIT AT BADDI THE ASSESSEE HAS EARNE D A FURTHER PROFIT OF 7.24% ON OVERALL BASIS. HE WAS FURTHER OF THE VIEW THAT THE PROFITS SHOWN AT BADDI UNIT COMPRISES OF PROFITS FROM THE MANUFACTUR ING ACTIVITY PROFIT EARNED DUE TO BRAND VALUE OWNED BY THE PARENT COMPANY AND THE PROFITS EARNED BY EXPLOITATION AND FREE USAGE OF THE MARKETING NETWOR K OF THE PARENT COMPANY. ACCORDINGLY THE PROFITS SHOWN FOR THE BADDI UNIT H AVE TO BE APPORTIONED TO ARRIVE AT THE TRUE PROFITS ELIGIBLE FOR DEDUCTION U NDER 80IC OF THE ACT. FROM THE DETAILS SUBMITTED BY THE ASSESSEE HE CONCLUDED THA T INCREASE IN ADDITIONAL PROFIT OF 7.24% (76.65% IN EARLIER YEARS AS COMPARE D TO 83.90% IN CURRENT YEAR) HAS BEEN EARNED DUE TO ITS UNIT AT BADDI AND THEREFORE THE PROFIT OF BADDI UNIT WAS WORKED OUT AT 7.24% OF THE TURNOVER. HE ACCORDINGLY RESTRICTED THE CLAIM OF DEDUCTION TO RS. 22 24 61 917/-. AGGR IEVED BY THE ORDER OF ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 15 ASSESSING OFFICER ASSESSEE CARRIED THE MATTER BEFO RE CIT(A). CIT(A) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER :- 8.5 I HAVE CONSIDERED THE FACTS OF THE CASE ASSESSMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. APPELLANT SUBMITTED THAT THIS GROUND IS DIRECTLY COVERED BY THE ORDER OF ITAT IN APPELLANT' S OWN CASE IN ASSESSMENT YEAR 2006-07. THE ITAT HAS PASSED ORDER IN ASSESSMENT YEAR 2006-07 IN ITA NUMBER 3140/AHD/2010 DATED 25-05-2012. THE RELEVANT PART OF THE ORDER IS QUOTED BELOW THERE IS NO DISPUTE THAT FACTS ARE IDENTICAL THIS Y EAR ALSO. ASSESSING OFFICER SUBMITTED HIS COMMENTS ON THE OBSERVATIONS /DECISION OF ITAT IN ITS ORDER FOR ASSESSMENT YEAR 2006-07. APPELLANT SUBMITTED THAT DECISION IN THE APPELLANT'S OWN CASE BY JURISDICTIO NAL ITAT IS BINDING ON C!T (A) BESIDES COMMENTING ON ASSESSING OFFICER'S R EPORT. DURING THE COURSE OF APPEAL HEARING ASSESSING OFFICER WAS SPEC IFICALLY ASKED IF THERE IS ANY DIFFERENCE ON FACTS BETWEEN ASSESSMENT YEAR 2006-07 AND ASSESSMENT YEAR 2008-09. ASSESSING OFFICER CONFIRME D THAT THERE IS NO DIFFERENCE AS FAR AS FACTS IN THESE TWO YEARS ARE C ONCERNED. ASSESSING OFFICER WAS ALSO ASKED TO SUBMIT ANY JUDICIAL DECIS ION FROM HIGHER FORUM I.E. ITAT SPECIAL BENCH HIGH COURT OR SUPREM E COURT ON THE ISSUE IN FAVOR OF REVENUE HOWEVER NO SUCH DECISION ON THE ISSUE COULD BE SUBMITTED. SINCE THERE IS NO DECISION OF ITAT SP ECIAL BENCH OR ANY HIGH COURT OR APEX COURT ON THIS ISSUE IN FAVOR OF REVENUE THE DECISION OF JURISDICTIONAL ITAT IN THE APPELLANT'S OWN CASE WILL BE BINDING ON THE UNDERSIGNED. CONSIDERING THE JUDICIAL DISCIPLINE CIT (A) CANNOT COMMENT ON THE CORRECTNESS OR OTHERWISE OF THE ORDE R OF JURISDICTIONAL ITAT HENCE NO DISCUSSION IS MADE ON THE COMMENTS OF THE ASSESSING OFFICER WHILE ANALYZING ITATS ORDER. RESPECTFULLY F OLLOWING THE AFORESAID DECISION IN THE APPELLANT'S OWN CASE IN T HE IDENTICAL FACTS ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION UN DER SECTION 80IC ON THE PROFIT OF BADDI UNIT CLAIMED BY THE APPELLANT. THIS GROUND IS ACCORDINGLY ALLOWED. 22. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US THE LEARNED D.R. RELIED ON THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND THE LEARNED A.R. SUBMITTED THAT THE FACT S IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF A.Y. 06-07 AND FOR A.Y. 06 -07 THE ISSUE HAS ALREADY BEEN DECIDED BY HON. ITAT IN FAVOUR OF ASSESSEE. H E THEREFORE SUBMITTED THAT SIMILAR VIEW BE TAKEN ON THE ISSUE IN THE YEAR UNDER APPEAL ALSO. ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 16 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE FACTS IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF A.Y. 06-07 & 07-08. THE CO-ORDINATE BENCH OF TR IBUNAL IN ITA NO. 3140/A/2010 ORDER DATED 25.05.2012 FOR A.Y. 06-07 D ECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER. THE RELEVAN T PART OF THE ORDER AS QUOTED BELOW: 8.5 I HAVE CONSIDERED THE FACTS OF THE CASE ASSESS MENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. APPELLANT SUBMITTED THAT THIS G ROUND IS DIRECTLY COVERED BY THE ORDER OF ITAT IN APPELLANT'S OWN CASE IN ASSESS MENT YEAR 2006-07. THE ITAT HAS PASSED ORDER IN ASSESSMENT YEAR 2006-07 IN ITA NUMBER 3140/AHD/2010 DATED 25-05-2012. THE RELEVANT PART O F THE ORDER IS QUOTED BELOW- 10.3 IT IS NOT IN DISPUTE THAT FOR BADDI UNIT THE A SSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS AND THEREFORE DRAWN A SE PARATE PROFIT AND LOSS ACCOUNT. IN SUCH A SITUATION WHETHER THE AO IS EMP OWERED TO DISTURB THE COMPUTATION OF PROFIT IS ALWAYS A SUBJECT MATTER O F CONTROVERSY. FROM THE SIDE OF THE ASSESSEE RELIANCE WAS PLACED ON ACIT V. DEL HI PRESS PATRA PRAKASHAN 103 TTJ 578 (DELHI). IN THIS CASE THE ASSESSEE WAS CLAIMING DEDUCTION U/S.80IA IN RESPECT OF A UNIT NO.4. THE SAID UNIT W AS SHOWING PROFIT @ 62%. AS AGAINST THAT AO HAS NOTICED THAT A MARGIN OF PR OFIT SHOWN BY THE ASSESSEE AS A WHOLE WAS ONLY TO THE EXTENT OF 10%. THE AO HA S THEREFORE RECOMPUTED THE PROFIT OF THE SAID UNIT BY APPLYING SUB-SECTION (10) OF SECTION 801A AND RESTRICTED THE PROFIT OF THE SAID UNIT TO 10% ONLY. WHILE DEALING THIS ISSUE THE RESPECTED BENCH HAS CONCLUDED THAT IT WAS NOT JUSTI FIED TO DISTURB THE WORKING OF PROFIT MERELY BECAUSE THE PROFIT RATE OF ELIGIBLE UNIT WAS SUBSTANTIALLY HIGHER THAN OVERALL RATE OF PROFIT OF OTHER UNITS OF THE ASSESSEE MORE SO WHEN SEPARATE BOOKS WERE MAINTAINED BY THE ASSESSEE IN RESPECT OF THE SAID ELIGIBLE UNIT. IN THE PRESENT CASE AS WELL THE AO HAS PROCEEDED TO DISTURB THE PROFIT OF THE BADDI UNIT AND HELD THAT ONLY 6% PROFIT IS ELIGIBLE FOR DEDUCTION U/S.80IC.WHILE DOING SO IDENTICALLY THE AO HAS NOT PINPOINTED ANY DEFECT IN THE WORKING OF THE 'PROFIT' OF THE BADDI UNIT. IN SUCH A SITUATION WE CAN SAY THAT THE LEGAL PROPOSITION AS LAID DOWN BY DELHI BENCH CAN ALSO BE APPLIED IN THE PRESENT APPEAL AS WELL WHEN THE METHOD OF ACCOUNTING AS APPLICABLE UNDER T HE STATUTE DO NOT SUGGEST SUCH SEGREGATION OR BIFURCATION THEN IT IS NOT FAIR TO DRAW AN IMAGINARY LINE TO COMPUTE A SEPARATE PROFIT OF THE BADDI UNIT. THE BADDI UNIT HAS IN FACT COMPUTED ITS PROFIT AS PER A SEPARATELY MAINTAINED BOOKS OF ACCOUNT OF THE ELIGIBLE MANUFACTURING ACTIVITY. TO IMPLEMENT THE METHOD OF THE COMPUTATION AT STAND ALONE BASIS AS CONVEYED BY TH E AO THE MANUFACTURING UNIT HAS PREPARED A PROFIT & LOSS ACCOUNT OF ITS MA NUFACTURING-CUM-SALE BUSINESS ACTIVITY. IF THE STATUTE WANTED TO DRAW SU CH LINE OF SEGREGATION BETWEEN THE MANUFACTURING ACTIVITY AND THE SAFE ACT IVITY THEN THE STATUTE SHOULD HAVE MADE A SPECIFIC PROVISION OF SUCH DEMAR CATION. BUT AT PRESENT ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 17 THE LEGAL STATUS IS THAT THE STATUTE HAS ONLY CHOSE N TO GIVE THE BENEFIT TO 'ANY BUSINESS OF DRUG MANUFACTURING ACTIVITY' WHICH IS I NCURRING EXPENDITURE ON RESEARCH ACTIVITY IS ELIGIBLE FOR THIS PRESCRIBED W EIGHTED DEDUCTION. THE SEGREGATION AS SUGGESTED BY THE AO HAS FIRST TO BE BROUGHT INTO THE STATUTE AND THEN TO BE IMPLEMENTED. WITHOUT SUCH LAW IN OU R CONSIDERED OPINION IF WAS NOT FAIR AS ALSO NOT JUSTIFIABLE ON THE PART OF THE AO FO DISTURB THE METHOD OF ACCOUNTING OF THE ASSESSEE REGULARLY FOLLOWED IN THE NORMAL COURSE OF BUSINESS IT IS TRUE THAT OTHERWISE NO FALLACY OR M ISTAKE WAS DEFECTED IN THE BOOKS OF ACCOUNTS OF BADD UNIT PREPARED ON STAND AL ONE BASIS THROUGH WHICH THE ONLY SOURCE OF INCOME/PROFIT WAS THE MANUFACTUR ING OF THE SPECIFIED PRODUCTS. WE THEREFORE HOLD THAT THE AO'S ACTION OF SEGREGATION WAS MERELY BASED UPON A HYPOTHESIS HENCE HEREBY REJECTED. THE SE TWO GROUNDS NOS.6 & 7 ARE ALLOWED. ' THERE IS NO DISPUTE THAT FACTS ARE IDENTICAL THIS Y EAR ALSO. ASSESSING OFFICER SUBMITTED HIS COMMENTS ON THE OBSERVATIONS /DECISIO N OF ITAT IN ITS ORDER FOR ASSESSMENT YEAR 2006-07. APPELLANT SUBMITTED THAT D ECISION IN THE APPELLANT'S OWN CASE BY JURISDICTIONAL ITAT IS BINDING ON CIT ( A) BESIDES COMMENTING ON ASSESSING OFFICER'S REPORT. DURING THE COURSE OF AP PEAL HEARING ASSESSING OFFICER WAS SPECIFICALLY ASKED IF THERE IS ANY DIFF ERENCE ON FACTS BETWEEN ASSESSMENT YEAR 2006-07 AND ASSESSMENT YEAR 2008-09 . ASSESSING OFFICER CONFIRMED THAT THERE IS NO DIFFERENCE AS FAR AS FAC TS IN THESE TWO YEARS ARE CONCERNED. ASSESSING OFFICER WAS ALSO ASKED TO SUBM IT ANY JUDICIAL DECISION FROM HIGHER FORUM I.E. ITAT SPECIAL BENCH. HIGH COU RT OR SUPREME COURT ON THE ISSUE IN FAVOR OF REVENUE HOWEVER NO SUCH DECIS ION ON THE ISSUE COULD BE SUBMITTED. SINCE THERE IS NO DECISION OF ITAT SPECI AL BENCH OR ANY HIGH COURT OR APEX COURT ON THIS ISSUE IN FAVOR OF REVENUE TH E DECISION OF JURISDICTIONAL ITAT IN THE APPELLANT'S OWN CASE WILL BE BINDING ON THE UNDERSIGNED . CONSIDERING THE JUDICIAL DISCIPLINE CIT (A) CANNOT COMMENT ON THE CORRECTNESS OR OTHERWISE OF THE ORDER OF JURISDICTI ONAL ITAT HENCE NO DISCUSSION IS MADE ON THE COMMENTS OF THE ASSESSING OFFICER WHILE ANALYZING ITATS ORDER. RESPECTFULLY FOLLOWING THE AFORESAID DECISION IN THE APPELLANT'S OWN CASE IN THE IDENTICAL FACTS ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION UNDER SECTION 80IC ON THE PROFIT OF BADDI UNIT CLAI MED BY THE APPELLANT. THIS GROUND IS ACCORDINGLY ALLOWED 24. FOR A.Y. 07-08 THE CO-ORDINATE BENCH OF TRIBUN AL IN ITA NO. 2902/A/2011 ORDER DATED 24.01.2013 HAS DECIDED THE ISSUE IN FAV OUR OF ASSESSEE BY HOLDING AS UNDER:- 7.12 WHEN WE GO THROUGH THE ASSESSMENT ORDER AND THE ORD ER OF DRP WE FIND THAT THE OBJECTION OF THE A.O. IS THIS THAT PRIOR TO MANUFACTURE OF THE PRODUCT THE BADDI UNIT I.E. WHEN PRODUCT WAS BEING MANUFACTURED EITHER THROUGH P2P SUPPLIER OR AT THE FORMULATION UNIT AT MORAUYA THE ASSESSEE WAS HAVIN G OF ABOUT ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 18 80.12% FROM ALL THE PRODUCTS TAKEN TOGETHER WHICH H AS INCREASED TO ABOUT 86.32%. HE HAS OBSERVED THAT BY SETTING UP THE MANUFACTURING UNIT AT BADDI THE ASSESSEE EARNE D FURTHER PROFIT OF 6.2% ON OVERALL BASIS. ON THIS BASIS IT IS HELD THAT ONLY ADDITIONAL 6.2% PROFIT HAD BEEN EARNED DUE TO THIS UNIT AT BADDI AND THEREFORE THE PROFIT DERIVED FORM BADDI UNIT W AS WORKED OUT TO 6.2% ON TOTAL TURNOVER OF BADDI UNIT AND IN THIS MANNER HE HAS WORKED OUT DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80-1C IN RESPECT OF BADDI UNIT AT RS. 14 44 65 492/-. 7.13 7.13 NOW WE EXAMINE THE LEGAL PROVISIONS IN THIS REGARD AND HENCE WE REPRODUCE PROVISIONS OF SECTION SO-1C . WHICH ARE AS UNDER:.. AS PER SUB-SECTION (D) OF SECTION 80-IC OF THE INCO ME TAX ACT. 1961 REPRODUCED ABOVE SUB-SECTION (5) AND SUB -SEC TIONS 7-12 OF SECTION 80-IA ARE ALSO APPLICABLE IN THE PRESENT CASE. THE A.O. HAS INVOKED THE PROVISIONS OF SUBSECTION (8) O F SECTION 80- IA OF THE INCOME TAX ACT 1961/AND THEREFORE. WE RE PRODUCE THE PROVISIONS OF SUB-SECTION (8) OF SECTION 80-IA ALON G WITH PROVISO WHICH ARE AS UNDER: .. 7.15 AS PER THE PROVISION OF SUB-SECTION (8) OF SECTION 80-IA FROM THE ELIGIBLE BUSINESS IF THE ASSESSEE HAS TRANSFERRED ANY GOODS OR SERVICES TO ANY OF THE BUSINESS CARRIED ON BY THE A SSESSEE AND VICE VERSA AND IF IT IS FOUND BY THE A.O THAT FOR SUCH TRANSFER AS RECORDED IN THE BOOKS OF THE ELIGIBLE BUSINESS THE PRICE ADOPTED DO NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF TRANSFER THEN FOR THE PURPOSE OF DEDUCTION UNDER THIS SECTION THE PROFITS AND GAINS OF SUCH E LIGIBLE BUSINESS SHOULD BE COMPUTED BY CONSIDERING THE TRAN SFER AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DA TE OF TRANSFER. AS PER THE PROVISIONS OF SUB-SECTION (8) OF SECTION 80- IA WHERE IN THE OPINION OF THE A.O.. THE COMPUTATIO N OF PROFITS AND GAINS OF ELIGIBLE BUSINESS IN THIS MANNER PRESE NTS EXCEPTIONAL DIFFICULTY THE A.O. MAY COMPUTE SUCH P ROFIT AND GAINS ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. HENCE IN ORDER TO INVOKE THE PROVISIONS OF THIS PROVISO TO S UB-SECTION (8) OF SECTION 80-IA IT IS NECESSARY FOR THE A.O. TO E STABLISH THAT SOME GOODS OR SERVICES HAVE BEEN TRANSFERRED BY THE ELIGIBLE UNIT TO SOME OTHER UNIT OF THE ASSESSEE OR BY SOME OTHER UNIT OF THE ASSESSEE TO THE ELIGIBLE UNIT AND THEN HE HAS T O FURTHER ESTABLISH THAT FOR RECORDING SUCH TRANSFER THE VAL UE ADOPTED FOR RECORDING IN THE BOOKS IS NOT AS PER MARKET VALUE O F SUCH GOODS OR SERVICES AND THEN HE HAS TO ESTABLISH THAT THERE IS EXCEPTIONAL DIFFICULTY IN COMPUTATION OF PROFIT OF ELIGIBLE UNI T AS PROVIDED IN SUB-SECTION (8) OF SECTION 80-IA AND THEN ONLY HE C AN PROCEED TO COMPUTE THE PROFITS OF ELIGIBLE UNIT ON A REASON ABLE BASIS AS ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 19 HE MAY DEEM FIT. EVEN IN SUCH CIRCUMSTANCES THE BA SIS ADOPTED BY THE A.O. SHOULD BE REASONABLE BASIS. 7.16 HENCE FIRST WE EXAMINE AS TO WHETHER THE BASIS AD OPTED BY THE A.O. IS PERMISSIBLE OR NOT. THE A.O. HAS PROCEEDED ON THIS BASIS THAT SINCE THE ASSESSEE COMPANY WAS EARNING AROUND 80% PROFIT BY PURCHASING THE GOODS AND SELLING THEM ON LY THE ADDITIONAL PROFIT EARNED BY THE ASSESSEE AFTER PUTT ING THE MANUFACTURING AT BADDI UNIT COULD ONLY BE STATED TO BE THE PROFIT OF BADDI UNIT WHICH IS AN ELIGIBLE UNIT AND FOR DOI NG THIS EXERCISE HE HAS NOT GIVEN A FINDING THAT THERE IS EXCEPTIONA L DIFFICULTY IN COMPUTING THE PROFIT AND GAIN OF BADDI UNIT IN THE MANNER SPECIFIED IN SUB-SECTION (8) OF SECTION 80-IA OF TH E ACT. SECONDLY REGARDING TRANSFER OF GOODS FROM ELIGIBLE UNIT TO A NON ELIGIBLE UNIT THE A.O. HAS STATED THAT BADDI UNIT HAS TRANSFERRED THE GOODS TO THE COMPANY WHO HAS SOLD SUCH GOODS IN THE MARKET AND THEREFORE IT IS A TRANSFER OF GOODS BY THE ELIGIBLE UNIT TO A NON ELIGIBLE UNIT. IN OUR CONSIDERED OPIN ION THE ACTION OR THE A.O. IS NOT JUSTIFIED ON ANY ASPECT. FIRST O F ALL IN THE PRESENT CASE THERE IS NO TRANSFER OF GOODS BY THE BADDI UNIT TO ANY OTHER UNIT OF THE ASSESSEE COMPANY AND HENCE T HE PROVISIONS OF SUB-SECTION (8) OF SECTION 80-IA ARE NOT APPLICABLE. WE HOLD SO BECAUSE IF BADDI UNIT IS MANUFACTURING T HE GOODS AND IT IS SOLD BY THE COMPANY IT CANNOT BE SAID TH AT THE GOODS WERE TRANSFERRED BY BADDI UNIT TO SOME OTHER UNIT. THE ASSESSEE AS A WHOLE CANNOT BE EQUATED WITH ANY OTHER BUSINES S CARRIED ON BY THE ASSESSEE. IN OUR CONSIDERED OPINION THE CONDITIONS OF SUB-SECTION (8) OF SECTION 80-IA WILL BE FULFILLED IF GOODS OR SERVICES ARE TRANSFERRED FORM ONE UNIT TO OTHER UNI T OF THE SAME ASSESSEE E.G. IF AN ASSESSEE IS HAVING A FLOUR MILL AND ALSO A BREAD MANUFACTURING UNIT AND THE FLOUR IS TRANSFERR ED FROM FLOUR MILL UNIT TO BREAD MANUFACTURING UNIT IT CAN BE SA ID THAT THERE IS TRANSFER OF GOODS BY ONE UNIT OF THE ASSESSEE TO OT HER UNIT OF THE ASSESSEE AND IF ONE OF THEM IS ELIGIBLE UNIT AND AN OTHER IS NON ELIGIBLE UNIT THEN IT HAS TO BE SEEN THAT PRICE AD OPTED FOR RECORDING SUCH TRANSFER OF GOODS IS MARKET VALUE OR NOT AND EVEN THEN IF THE A.O. ESTABLISHES THAT THERE IS EX CEPTIONAL DIFFICULTY IN FINDING OUT MARKET VALUE OF SUCH GOOD S THEN ONLY THE A.O. CAN PROCEED TO COMPUTE THE PROFITS OF THE ELIG IBLE UNIT ON REASONABLE BASIS. IN THE PRESENT CASE THE A.O. HAS NOT ESTABLISHED THAT THERE IS ANY TRANSFER OF GOODS OR SERVICES BY THE BADDI UNIT TO ANY OTHER UNIT OF THE ASSESSEE COMPAN Y. SECONDLY THIS IS NOT A FINDING OF THE A.O. THAT ANY TRANSFER ENTRY HAS BEEN MADE AT BADDI UNIT AT SOME PRICE AND SUCH PRICE ADO PTED BY THE ASSESSEE IS NOT MARKET VALUE OF THE GOODS TRANSFERR ED FROM THE BADDI UNIT. THIRDLY IT IS NOT ESTABLISHED BY THE A .O. THAT EVEN IF IT AMOUNTS TO TRANSFER OF GOODS BY BADDI UNIT TO SOME OTHER UNIT OF ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 20 THE ASSESSEE COMPANY THEN THERE IS EXCEPTIONAL DIFF ICULTY IN COMPUTING THE PROFITS AS PER THE PROVISIONS OF SUB- SECTION (8) OF SECTION 801A BY ADOPTING FAIR MARKET VALUE OF THE G OODS SO TRANSFERRED AND THEREFORE THE A.O. HAS TO ADOPT CO MPUTATION OF SUCH PROFIT AND GAINS OF BADDI UNIT ON REASONABLE B ASIS. LASTLY THE BASIS ADOPTED BY THE A.O HAS TO BE REASONABLE B ASIS AND IN THE FACTS OF THE PRESENT CASE IT IS NOT SO IN OUR OPINION. 7.17 IN THE ABSENCE OF ANY TRANSFER OF GOODS BY BADDI UN IT TO ANY UNIT OF THE ASSESSEE COMPANY THE PROVISIONS OF SECTION 80-IA(8) ARE NOT APPLICABLE AND THERE IS NO OCCASION FOR THE A.O . TO COMPUTE THE PROFITS OF BADDI UNIT ON REASONABLE BASIS. SECO NDLY NO PRICE HAD BEEN ADOPTED BY BADDI UNIT TO RECORD FOR ANY TR ANSFER OF GOODS BY IT TO SOME OTHER UNIT OF THE ASSESSEE COMP ANY AND HENCE THERE IS NO OCCASION TO EXAMINE AS TO WHETHE R SUCH PRICE ADOPTED BY THE BADDI UNIT IS AS PER THE MARKET VALU E OF SUCH GOODS OR NOT. ASSUMING THAT THAT THERE IS TRANSFER OF GOODS BY BADDI UNIT THE A. O. CAN FIND OUT THE MARKET VALUE OF GOODS ON THE DATE OF TRANSFER AND CAN ADOPT THE SAME TO WORK OUT PROFIT OF BADDI UNIT. THE BEST INDICATOR OF MARKET VALUE ON D ATE OF TRANSFER IS ACTUAL SALE PRICE AT WHICH THE GOODS AR E SOLD BY THE ASSESSEE COMPANY AND HENCE EVEN THIS EXERCISE WILL NOT ALTER THE PROFIT OF BADDI UNIT AS DECLARED BY THE ASSESSE E. EVEN IF WE ASSUME THAT THERE IS A CASE FOR THE A.O. TO COMPUTE THE PROFITS AND GAINS OF BADDI UNIT ON A REASONABLE BASIS THEN ALSO WE FIND THAT THE BASIS ADOPTED BY THE A.O. IS NOT A RE ASONABLE BASIS. THE BASIS ADOPTED BY THE A.O. IS THIS THAT S INCE 80% OF THE PROFIT WAS EARNED BY PURCHASING THE GOODS FORM OUTSIDE AND SELLING THE SAME ONLY PROFIT OVER AND ABOVE 80% HA S TO BE CONSIDERED AS PROFIT OF BADDI UNIT. IN OUR CONSIDER ED OPINION IT AMOUNTS TO SAY LIKE THIS THAT IF ONE UNIT HAS BEEN PUT UP BY ONE ASSESSEE BY USING OWN FUNDS AND OTHER SIMILAR UNIT IS PUT UP BY ANOTHER ASSESSEE BY USING BORROWED FUNDS THEN TO T HE EXTENT OF INTEREST PAYMENT BY THE 2 ND UNIT PROFITS OF THE FIRST UNIT IS NOT ON ACCOUNT OF THE PROFITS FROM THE ELIGIBLE UNIT BUT I S ON ACCOUNT OF INTEREST SAVINGS AND HENCE NOT ELIGIBLE FOR DEDUCT ION U/S 80-IC. . 7.22 AS PER ABOVE DISCUSSION WE HAVE SEEN THAT EVE N WHILE EXAMINING THE ISSUE IN DISPUTE INDEPENDENTLY WITHOU T CONSIDERING THE TRIBUNAL ORDER IN ASSESSMENT YEAR 2006-07 IN AS SESSEE'S OWN CASE WE HAVE REACHED TO THE SAME CONCLUSION AND HE NCE THIS GROUND OF THE ASSESSEE DESERVES TO BE ALLOWED EVEN WITHOUT FOLLOWING THIS TRIBUNAL ORDER IN ASSESSEE'S OWN CAS E FOR THE ASSESSMENT YEAR 2006-07. NO ARGUMENT HAS BEEN MADE BY THE LD. D.R. AS TO HOW THE A.O. IS FULFILLING THE PRE R EQUIREMENT OF SUB-SECTION (8) OF SECTION 80-IA EXCEPT THIS SUBMIS SION OF THE LD. ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 21 D.R. THAT GOODS WERE TRANSFERRED FORM BADDI UNIT TO THE COMPANY AND THEREFORE. SECTION 80-IA(8) IS APPLICABLE. WE HAVE ALREADY OBSERVED HEREINABOVE THAT THE COMPANY AS A WHOLE CA NNOT BE EQUATED WITH ANY OTHER BUSINESS CARRIED OUT BY THE ASSESSEE AND HENCE THE PRE REQUIREMENT FOR INVOKING PROVISION O F SECTION 80- IA(8) ARE NOT BEING FULFILLED IN THE PRESENT CASE A ND MOREOVER THE BASIS ADOPTED BY THE A.O. IS ALSO NOT A REASONABLE BASIS. MOREOVER THERE IS NO OTHER OBJECTION OF THE A.O. A BOUT ALLOWABILITY OF THIS DEDUCTION OR REGARDING COMMUTA TION OF THE AMOUNT OF THIS DEDUCTION SUCH AS NON ALLOCATION OR WRONG ALLOCATION OF EXPENSES TO THE ELIGIBLE UNIT. HENCE THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. 25. SINCE THE FACTS OF THE PRESENT GROUND ARE IDENT ICAL TO THAT OF EARLIER YEARS AS ADMITTED BY BOTH THE PARTIES. RESPECTFULLY FOLLOWIN G THE DECISION OF THE CO- ORDINATE BENCH FOR EARLIER YEARS AND FOR THE REASON S STATED BY THE CO-ORDINATE BENCH AND FOR SIMILAR REASONS WE DECIDE THE ISSUE IN FAVOUR OF ASSESSEE. THUS THESE GROUNDS OF REVENUE ARE DISMISSED. GROUND NO.10 IS WITH RESPECT TO DEDUCTION U/S.80IB TO GOA UNIT:- 26. ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLA IMED DEDUCTION UNDER 80IB IN RESPECT OF CONTRAST MEDIA UNIT AT GOA THE DEDUCTIO N OF RS. 1 21 30 200/- BEING 30% OF THE PROFIT. HE FURTHER NOTICED THAT AS SESSEE HAD SHOWN BOOK PROFIT OF RS. 4.04 CRORE AGAINST THE TURNOVER OF RS . 9.40 CRORE AND THEREFORE THE PROFIT WORKED OUT TO 42.71%. HE ALSO NOTICED T HAT GOA UNIT OWNED ONLY MANUFACTURING ASSETS BUT THE OTHER ASSETS IN THE FO RM OF BRAND VALUE AND MARKETING NETWORK WERE OWNED BY OTHER DIVISIONS. TH E ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF DEDUCTION. THE ASSESSEE INT ERALIA SUBMITTED THAT THE CURRENT YEAR WAS THE NINTH YEAR OF THE CLAIM UNDER 80IB. THE ASSESSEES CLAIM FOR DEDUCTION UNDER 80IB FOR THE YEARS UP TO A.Y. 05-06 WERE ALLOWED IN FULL. THE ASSESSING OFFICER DID NOT ACCEPT THE CONT ENTION OF THE ASSESSEE. HE APPLYING THE RATIONALE AS IN THE CASE OF BADDI UNIT HELD THAT THE PROFIT ELIGIBLE FOR DEDUCTION UNDER 80IB ARE ONLY THE MANUFACTURING PROFITS. ACCORDING TO HIM THE MANUFACTURING PROFITS WAS ABOUT 7.24% OF T HE TURNOVER AND ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 22 ACCORDINGLY THE RESTRICTED THE CLAIM OF DEDUCTION U NDER 80IB TO RS. 19 25 491/-. AGGRIEVED BY THE ORDER OF ASSESSING O FFICER ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) FOLLOWING THE DEC ISION OF HON. TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 06-07 DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER:- 9.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. APPELLANT SUBMITTED THAT THIS GROUND IS DIRECTLY COVERED BY THE ORDER OF ITAT IN APPELLANT'S OWN CAS E IN ASSESSMENT YEAR 2006-07. THE ITAT HAS PASSED ORDER IN ASSESSMENT YE AR 2006-07 IN ITA NUMBER 3140/AHD/2010 DATED 25-05-2012. THE RELEVANT PART OF THE ORDER IS QUOTED IN PARA-8.5 WHILE DEALING WITH GROUND NUMBER 7. THERE IS NO DISPUTE THAT FACTS ARE IDENTICAL THIS Y EAR ALSO AND THEREFORE THE ORDER OF ITAT IN THE APPELLANT'S OWN CASE IS BINDIN G ON THE UNDERSIGNED EVEN WHEN DEPARTMENT HAS PREFERRED APPEAL BEFORE HIGH CO URT. RESPECTFULLY FOLLOWING THE AFORESAID DECISION IN THE APPELLANT'S OWN CASE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION UNDER SECTION 80 IB IN RESPECT OF GOA UNIT AS CLAIMED BY THE APPELLANT. 27. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US THE LEARNED D.R. RELIED ON THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND THE LD. A.R. SUBMITTED THAT THE ISSUE HA S BEEN CONCLUSIVELY DECIDED BY HON. TRIBUNAL FOR A.Y. 06-07 & 07-08 IN FAVOUR OF THE ASSESSEE. 28. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT ON IDENTICAL ISSUE THE CO-ORDINATE BENCH HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE IN ITA NO. 2902/AHD/2011 BY HOLD ING AS UNDER: 7. GROUNDS NO. 7 AND 8 ARE INTERCONNECTED WHICH ARE AS UNDER: 7. THAT THE LEARNED ASSESSING OFFICER ERRED IN LA W AND ON FACTS IN RESTRICTING THE DEDUCTION U/S. 80IC IN RESPECT OF BADDI UNIT TO RS. 14.45 CRORES AS AGAINST THE APPELLANTS CLAIM OF RS. 133.45 CRORES. 8. THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN RESTRICTING THE DEDUCTION U/S. 80IB IN RESPECT OF GOA UNIT TO R S. 18 40 530/- AS AGAINST THE APPELLANTS CLAIM OF RS. 1 28 03 700/-. 7.22 AS PER ABOVE DISCUSSION WE HAVE SEEN THAT EVE N WHILE EXAMINING THE ISSUE IN DISPUTE INDEPENDENTLY WITHOUT CONSIDERING THE TRIBUNAL ORDER IN ASSESSMENT YEAR 2006-07 IN ASSESSEE'S OWN CASE WE HAVE REACHED TO THE SAME CONCLUSION AND HENCE THIS GROUND OF THE ASSES SEE DESERVES TO BE ALLOWED EVEN WITHOUT FOLLOWING THIS TRIBUNAL ORDER IN ASSESSEE'S OWN CASE FOR ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 23 THE ASSESSMENT YEAR 2006-07. NO ARGUMENT HAS BEEN M ADE BY THE LD. D.R. AS TO HOW THE A.O. IS FULFILLING THE PRE REQUIREMEN T OF SUB-SECTION (8) OF SECTION 80-IA EXCEPT THIS SUBMISSION OF THE LD. D.R . THAT GOODS WERE TRANSFERRED FORM BADDI UNIT TO THE COMPANY AND THE REFORE. SECTION 80-1A(8) IS APPLICABLE. WE HAVE ALREADY OBSERVED HEREINABOVE THAT THE COMPANY AS A WHOLE CANNOT BE EQUATED WITH ANY OTHER BUSINESS CAR RIED OUT BY THE ASSESSEE AND HENCE THE PRE REQUIREMENT FOR INVOKING PROVISI ON OF SECTION 80-IA(8) ARE NOT BEING FULFILLED IN THE PRESENT CASE AND MOREOVE R THE BASIS ADOPTED BY THE A.O. IS ALSO NOT A REASONABLE BASIS. MOREOVER THER E IS NO OTHER OBJECTION OF THE A.O. ABOUT ALLOWABILITY OF THIS DEDUCTION OR RE GARDING COMMUTATION OF THE AMOUNT OF THIS DEDUCTION SUCH AS NON ALLOCATION OR WRONG ALLOCATION OF EXPENSES TO THE ELIGIBLE UNIT. HENCE THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. 29. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS AN U NDISPUTED FACT THAT ASSESSEE HAS BEEN ALLOWED DEDUCTION U/S. 80IB IN RESPECT OF GOA UNIT IN EARLIER YEARS. IT IS ALSO A FACT THAT THE AFORESAID DEDUCTION IN EARL IER YEARS HAS NOT BEEN WITHDRAWN IN THE CASE OF ASSESSEE. FURTHER NOTHIN G HAS BEEN BROUGHT ON RECORD BY REVENUE THAT THERE WAS CHANGE IN FACTS WH ICH WARRANTS A DIFFERENT VIEW AS COMPARED TO EARLIER YEARS. FURTHER SINCE T HE FACTS OF THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEAR WE FO LLOWING THE DECISION OF CO- ORDINATE BENCH ALLOW THE APPEAL IN FAVOUR OF ASSESS EE. THUS THIS GROUND OF REVENUE IS DISMISSED. GROUND NO. 11 IS WITH RESPECT TO DISALLOWANCE UNDER 14A FOR COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB. 30. ASSESSING OFFICER NOTICED THAT THE INCOME UNDER SECTION 115JB HAS BEEN SHOWN AT RS. 21 08 92 115/- AND THE ASSESSEE HAS NO T ADDED PROVISION FOR DOUBTFUL DEBTS PROVISION FOR PRODUCT WARRANTY AND EXPENSES DISALLOWANCE UNDER SECTION 14A. THE ASSESSEE WAS ASKED TO JUSTI FY ITS CALCULATION. THE ASSESSEE INTERALIA WITH RESPECT TO ADDITION OF DISA LLOWANCE SUBMITTED THAT UNDER 14A THAT THERE WAS NO DEEMING PROVISIONS UNDE R EXPLANATION TO EXPLANATION 1 UNDER SECTION 115JB. ASSESSEE FURTHER RELIED ON THE DECISION IN THE CASE OF GOETZ (IND.) LTD VS. CIT 2009 32 SOT 10 1 (DEL). THE ASSESSING ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 24 OFFICER DID NOT ACCEPT THE SUBMISSIONS OF THE ASSES SEE. HE ALSO NOTED THAT FOR A.Y. 06-07 & 07-08 DRP HAD CONFIRMED THE ADDITI ON ADDED TO THE BOOK PROFIT THE EXPENSES OF RS. 6 05 91 025/- DISALLOWAB LE U/S 14A. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER ASSESSEE CARRIED TH E MATTER BEFORE CIT(A). CIT(A) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY F OLLOWING THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 06-07 BY H OLDING AS UNDER:- 11.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. APPELLANT SUBMITTED THAT THIS G ROUND IS DIRECTLY COVERED BY THE ORDER OF ITAT IN APPELLANT'S OWN CASE IN ASSESS MENT YEAR 2006-07. THE ITAT HAS PASSED ORDER IN ASSESSMENT YEAR 2006-07 IN ITA NUMBER 3140/AHD/2010 DATED 25-05-2012. THE RELEVANT PART O F THE ORDER IS QUOTED BELOW- '13. 1 THE SECOND LIMB OF THIS GROUND IS IN RESPECT OF EXPENSES DISALLOWED U/S. 14A OF IT ACT. THE AO'S VERSION WAS THAT IN VIEW OF CLAUSE (F) EXPLANATION- 1 TO SECTION 115JB THE SAID ADJUSTMENT SHOULD HAVE BEEN MADE. ACCORDING TO AO THE AMOUNT DISALLO WED U/S. 14A IS LIABLE TO BE ADDED AS PER THE PROVISION OF SEC. 115 JB R.W.EXPLANATION-1 CLAUSE (F) WHICH MANDATES THAT THE EXPENDITURE DEBI TED TO PROFIT & LOSS ACCOUNT A/C. INCURRED IN RELATION TO INCOME EXEMPT U/S. 10 IS TO BE ADDED FOR COMPUTATION OF BOOK PROFIT. HOWEVER THIS VERY ISSUE NOW STOOD SETTLED BY GOETZE LTD. 32 SOT 101 (DEI) WHER EIN IT WAS HELD AS UNDER : 'WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. WE MAY AT THE OUTSET CONSIDER THE PROVISIONS CONTAINED IN CLAUSE (F) OF THE EXPLANATION TO SECTION 115JA AND SUB-SECTION (1) OF SECTION 14A OF THE ACT. UNDER THE AFORESAID CLAUSE (F) THE AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH ANY OF THE PROVISIONS OF CHA PTER III APPLIES HAS TO BE ADDED TO THE BOOK PROFIT. UNDER THE PROVISION CONTAINED IN SECTION 14A NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF EX PENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME UNDER THIS ACT. SINCE WE ARE DEALING WITH T HE ISSUE OF EXPENDITURE RELATING TO DIVIDEND INCOME A MATTER F ALLING UNDER CHAPTER III IT BECOMES CLEAR ON PERUSAL OF THESE TWO PROVI SIONS THAT THEY ARE SIMILAR IN NATURE. CLAUSE(F) USES THE WORDS EXPEND ITURE RELATABLE TO ANY INCOME. WHILE SECTION 14A USES THE WORDS EXPENDIT URE INCURRED BY THE ASSESSEE IN RELATION TO INCOME. THESE WORDS HA VE THE SAME MEANING. WE MAY ALSO ADD HERE THAT SECTION 14A CONT AINS TWO MORE SUB-SECTIONS SUB-SECTIJON(2) AND SUBSECTION (3) W HICH DO NOT FIND A PLACE IN THE CLAUSE (F). THEREFORE IN SO FAR AS C OMPUTATION OF ADJUSTED ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 25 BOOK PROFIT IS CONCERNED PROVISIONS OF SUB-SECTION (2) AND SUB-SECTION (3) OF SECTION 14A CANNOT BE IMPORTED INTO CLAUSE ( F). ONCE THE RESPECTED BENCH HAS TAKEN A VIEW IN RESPEC T OF THESE VERY PROVISIONS OF THE ACT AS RAISED BEFORE US THEREFO RE FOLLOWING THE SAME THIS PART OF THE GROUND IS ALLOWED. RESPECTFULLY FOLLOWING THE AFORESAID DECISION IN AP PELLANTS OWN CASE IN IDENTICAL FACTS ASSESSING OFFICER IS DIRECTED NOT TO ADD DISALLOWANCE MADE UNDER SECTION 14A TO THE BOOK PROFIT UNDER SEC TION 115JB. THIS GROUND IS ACCORDINGLY ALLOWED. 31. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE I S NOW IN APPEAL BEFORE US. BEFORE US THE LEARNED D.R. RELIED ON THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND THE LD. A.R. SUBMITTED THAT ON IDENTICA L ISSUE IN THE CASE OF ASSESSEE. THE MATTER HAS BEEN DECIDED BY TRIBUNAL I N ITS FAVOUR. HE PLACED ON RECORD THE COPY OF ITAT ORDER FOR A.Y. 06-07 & 07-08. HE THEREFORE SUBMITTED THAT THE ISSUE MAY BE DECIDED IN FAVOUR O F ASSESSEE. 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IDENTICAL ISSUE WAS DECIDED BY THE CO- ORDINATE BENCH FOR A.Y. 07-08 IN ITA NO. 2902/AHD/2011 IN ASSESSEES FAVOUR BY HOLDING AS UNDER:- 11.1 IT WAS SUBMITTED BY THE LD. A.R. THAT THIS ISS UE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE CASE OF G OETZ (INDIA) LTD. VS CIT AS REPORTED IN 32 SOT 101 (DEL.). HE ALSO SUBMITTED TH AT THERE IS NO CONTRARY DECISION ON THIS ISSUE TILL DATE. LD. D.R. SUPPORTE D THE ORDER OF AUTHORITIES BELOW AND HE COULD NOT POINT OUT ANY CONTRARY DECIS ION OR ANY DIFFERENCE IN THE FACTS OF THE PRESENT CASE AS COMPARED TO THE FA CTS OF THE CASE OF GOETZ (INDIA) LTD. (SUPRA). WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW IN THE PRESENT CASE AND THEREFORE RESPECTFULLY FOLLOWING THIS TRIBUNAL DECISION RENDERED IN THE CASE OF GOETZ (INDIA) LTD. (SUPRA) WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALLOWED 33. SINCE THE FACTS THE YEAR UNDER ISSUE ARE IDENTI CAL TO THAT OF EARLIER YEARS. WE RESPECTFULLY FOLLOWING THE ORDER OF CO-ORDINATE BEN CH IN ASSESSEES OWN CASE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A ). THUS THIS GROUND OF REVENUE IS DISMISSED . ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 26 34. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. CO. NO. 242/AHD/2012 THE GROUNDS RAISED IN CO OF THE ASSESSEE READS AS U NDER:- 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ASSESSING OFFICERS ACTION OF DISALLOWANCE OF DEPRECIATION OF RS. 8 41 166/- ON THE COST OF HUMMER CAR. THAT THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE ASSESSEES CONTENTION THAT THE RATIO OF THE DECISION SUPREME C OURT IN THE CASE OF MYSORE MINERALS LTD. VS. CIT 239 ITR 775 (SC) IS CL EARLY APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE. 35. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS SESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED DEPRECIATION ON HUMMER CAR. HE FURTHER NOTICED THAT EVEN IN EARLIER YEARS THE DEPRECIATION WAS DISALLO WED FOR THE REASON THAT THE CAR WAS PURCHASED IN THE NAME OF DIRECTOR SHRI PANK AJ PATEL AND THE INVOICE OF THE CAR WAS ALSO IN HIS NAME BUT THE FUNDS WERE PROVIDED BY THE ASSESSEE. THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND ACC EPTABLE TO THE ASSESSING OFFICER AS HE WAS OF THE VIEW THAT THE AS SESSEE HAD NOT PRODUCED ANY EVIDENCE TO SHOW THAT THE VEHICLE WAS IN THE DO MINION OF THE COMPANY AND WAS ACTUALLY USED FOR THE BUSINESS OF THE COMPA NY. HE ALSO NOTICED THAT FOR A.Y. 07-08 DRP HAS CONFIRMED THE DISALLOWANCE. HE ACCORDINGLY HELD THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEPRECIATION ON VEHICLE AND ACCORDINGLY DISALLOWED THE CLAIM AMOUNTING TO RS. 8 41 166/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER ASSESSEE CARRIED TH E MATTER BEFORE CIT(A). CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSES SING OFFICER BY HOLDING AS UNDER:- 7.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. THE BASIC FACT IS THAT DIRECTOR OF THE COMPANY PURCHASED MOTOR CAR IN HIS NAME AND THE BILL FOR THE SAID PUR CHASE IS ALSO IN THE NAME OF DIRECTOR. THEREFORE APPELLANT COMPANY IS NOT THE LEGAL OWNER OF THE MOTOR ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 27 CAR. FOR CLAIM OF DEPRECIATION THE TWO CONDITIONS ARE TO BE FULFILLED NAMELY- APPELLANT MUST BE OWNER OF THE ASSET AND IT MUST BE USED TOR THE PURPOSE OF APPELLANT'S BUSINESS. IN THIS CASE APPELLANT IS NOT THE OWNER SINCE THE OWNERSHIP VESTS WITH THE DIRECTOR WHO IS SEPARATE E NTITY THAN THE APPELLANT COMPANY. AS REGARDS USE OF THESE CARS FOR THE PURPO SE OF BUSINESS THE SAME WERE NOT FURNISHED. THEREFORE USE OF CAR FOR T HE PURPOSE OF COMPANY'S BUSINESS IS NOT ESTABLISHED BY THE APPELLANT. ALTHO UGH THE ONUS TO PROVE THE USER OF ASSET WAS ON THE APPELLANT THE SAME WAS NO T DISCHARGED EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE UNDERSIG NED. CLAIM OF AN EXPENSE IN THE COMPANY ACCOUNTS IS NOT AN EVIDENCE TO PROVE THAT ASSET WAS USED FOR THE BUSINESS OF THE COMPANY. IN THE ABSENCE OF ANY TANGIBLE EVIDENCE TO PROVE THE BUSINESS USE OF THE MOTOR CAR PURCHASED IN THE NAME OF DIRECTOR IT IS HELD THAT THE MOTOR CAR WAS NOT USED FOR THE PUR POSE OF APPELLANT'S BUSINESS. COMING TO THE APPELLANT'S ARGUMENT OF BENEFICIAL OW NERSHIP APPELLANT SUBMITTED THAT PAYMENT FOR THE CAR WAS MADE BY THE COMPANY AND HENCE THE APPELLANT IS THE BENEFICIAL OWNER. PAYMENT WILL NOT DETERMINE THE OWNERSHIP SINCE PAYMENT CAN BE MADE BY WAY OF LOAN ALSO IN F ACT MAJOR PAYMENT IS MADE BY FINANCE COMPANY BUT IT IS NOT THE BENEFICIAL OWN ER. SINCE BOTH APPELLANT AND ITS DIRECTOR ARE SEPARATE ENTITIES AND DIRECTORS AR E NOT PERMANENT IT CANNOT BE SAID THAT APPELLANT COMPANY HAS GOT COMPLETE DOMINI ON OVER THE MOTOR CAR. SINCE MOTOR CAR IS IN POSSESSION AND CONTROL OF THE DIRECTOR IN WHOSE NAME THE SAME STAND THERE IS NO DOMINION_OR CONTROL OF THE APPELLANT COMPANY ON THE SAID MOTOR CARS. THOUGH PURCHASED FROM THE FUNDS PR OVIDED BY IT APPELLANT CANNOT BE SAID TO BE BENEFICIAL OWNER FOR THE PURPO SE OF CLAIMING DEPRECIATION. APPELLANT RELIED UPON THE DECISIONS OF !TAT AHMEDAB AD AND ALSO CERTAIN HIGH COURTS INCLUDING SUPREME COURT DECISION IN THE CASE OF MYSORE MINERALS LTD. IT WOULD BE VERY RELEVANT TO REFER THREE-MEMBER DEC ISION OF HONORABIE SUPREME COURT IN THE CASE OF TAMIL NADU CIVIL SUPPLIES CORP ORATION LTD VERSUS CIT REPORTED IN 249 ITR 214. IN THIS LARGER BENCH DECISION OF APEX COURT EARLIE R DECISION OF MYSORE MINERALS LTD WAS ALSO CONSIDERED . THE SAID DECISION WAS DISTINGUISHED ON FACTS AND IT WAS HELD THAT SINCE A SSESSEE HAS NOT ACQUIRED DOMINION OVER ASSET IN QUESTION CLAIM OF DEPRECIAT ION IS NOT ALLOWED. IN ANOTHER DECISION OF DELHI HIGH COURT IN THE CASE OF MM FISHERIES PRIVATE LTD VERSUS CIT 277 ITR 204 ON THE IDENTICAL ISSUE OF CLAIM OF DEPRECIATION ON VEHICLES REGISTERED IN THE NAME OF DIRECTORS THE S AME WAS DECIDED AGAINST THE ASSESSEE. IN THE LIGHT OF THESE TWO LANDMARK DECISI ONS THE ISSUE IS NOT HELD TO BE COVERED BY THE DECISION OF JURISDICTIONAL ITAT S INCE THESE DECISIONS WERE NOT CONSIDERED THEREIN. ONUS IS ON THE APPELLANT TO PRO VE THE DOMINION OVER THE ASSET AS WELL AS USE FOR THE PURPOSE OF BUSINESS. IF APPELLANT IS NOT ABLE TO PROVE EITHER IN THE LIGHT OF LARGER BENCH DECISION OF SUPREME COURT CLAIM OF DEPRECIATION ON ASSETS STANDING IN OTHERS NAME CANN OT BE ALLOWED. THE DECISIONS OF OTHER HIGH COURTS HAVE BEEN CONSID ERED. IN ALL THOSE DECISIONS THE. USER OF ASSET NAMELY TRANSPORT BUSES ETC WERE BY THE COMPANIES AND THE COMPANIES WERE DISCLOSING THE INC OME FROM HIRING THOSE VEHICLES. THE USER OF ASSET FOR THE PURPOSE OF BUSI NESS WAS PROVED IN ALL THESE CASES BEYOND DOUBT. WITH THE USER OF ASSET D OMINION AND CONTROL IS ALSO PROVED. THEREFORE CLAIM OF DEPRECIATION IN THE SE CASES WERE ALLOWED BY VARIOUS HIGH COURTS HOWEVER IN THE APPELLANT'S. CAS E USE FOR THE PURPOSE OF BUSINESS IS NOT AT ALL PROVED AND THE DOMINION A ND CONTROL ALSO REMAINED UNPROVED THEREFORE THESE DECISIONS DO NOT HELP THE APPELLANT. CONSIDERING ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 28 THE LARGER BENCH DECISION OF APEX COURT AND THE DEL HI HIGH COURT DECISION IN THE CASE OF MM FISHERIES PRIVATE LTD THE DECISION OF JURISDICTIONAL ITAT IS NOT FOLLOWED WHICH HAS NOT CONSIDERED THESE DECISIONS. IT IS THEREFORE HELD THAT THE DEPRECIATION CLAIMED BY THE APPELLANT IS CORREC TLY DISALLOWED BY THE ASSESSING OFFICER. 36. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US THE LEARNED A.R. SUBMITTED THAT ON IDENT ICAL FACTS FOR A.Y. 07-08 THE ASSESSEE HAD RAISED THE GROUND BEFORE HON. TRIBUNAL AND THE TRIBUNAL HAD RESTORED THE MATTER TO THE FILE OF ASSESSING OFFICE R BY HOLDING AS UNDER:- BUT THIS IS ALSO TO BE SEEN AS TO WHETHER THE CAR IN QUESTION WAS USED FOR THE BUSINESS PURPOSE THE ASSESSEE. IN FACT THIS IS ALS O TO BE SEEN AS TO WHETHER IT IS POSSIBLE TO USE THIS CAR FOR BUSINESS PURPOSE OF THE ASSESSEE COMPANY. THERE IS NO FINDING OF THE AUTHORITIES BELOW ON THI S ASPECT OF THE MATTER AND DISALLOWANCE WAS MADE MERELY ON THIS BASIS THAT THE CAR IN QUESTION IS IN THE NAME OF THE ASSESSEE COMPANY. IN OUR CONSIDERED OPI NION IF THE ASSESSEE IS ABLE TO ESTABLISH THAT THE CAR IN QUESTION WAS USE D BY THE ASSESSEE COMPANY FOR ITS BUSINESS PURPOSE THEN THE CLAIM OF THE ASS ESSEE REGARDING DEPRECIATION ON THIS CAR CANNOT BE REJECTED BUT IF THE ASSESSEE FAILS ON THIS ASPECT THEN OBVIOUSLY DEPRECIATION IS NOT ALLOWABL E IN THE PRESENT CASE. SINCE THIS ASPECT WAS NOT DECIDED BY THE AUTHORITIE S BELOW WE FEEL IT PROPER THAT THIS ISSUE SHOULD BE RESTORED BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. HENCE ON THIS ASPECT OF THE MATTER WE SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THE ISSUE TO THE FILE OF THE A.O . FOR A FRESH DECISION. THE BURDEN IS ON THE ASSESSEE TO ESTABLISH THE BUSINESS USE OF THIS CAR AND THEREAFTER THE A.O. SHOULD PASS NECESSARY ORDER AS PER LAW IN THE LIGHT OF OUR ABOVE DISCUSSION AFTER PROVIDING REASONABLE OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 6 IS ALLOWED FOR STATISTICAL PURPOSE 37. THE LEARNED A.R. THEREFORE SUBMITTED THAT THE M ATTER BE RESTORED TO THE FILE OF ASSESSING OFFICER FOR NECESSARY VERIFICATION. THE LEARNED D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF ASSESSING OFFICER AND C IT(A). 38. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CO-ORDINATE BENCH OF TRIBUNAL FOR A.Y. 07-08 HAD RESTORED THE MATTER TO THE FILE OF ASSESSING OFFICER FOR HIM TO EXAMINE AS TO WHETHER THE CAR IN QUESTION WAS USED FOR THE PURPOSE OF BUSINES S. SINCE THE FACTS OF THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEAR. WE THEREFORE FOLLOWING ITA NO 2430/A/2012 & CO NO.242/A/2012 . A.Y. 2008- 09 29 THE ORDER OF THE CO-ORDINATE BENCH AND FOR SIMILAR REASONS RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER WITH SIMILAR DIREC TIONS AND ALSO DIRECT HIM TO PASS THE NECESSARY ORDERS AFTER PROVIDING REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS GROUND IS ALLOWED FOR S TATISTICAL PURPOSES. 39. IN THE RESULT THE APPEAL OF REVENUE IS DISMISSE D AND C.O. OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 11 - 10 - 2013. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR. ITAT AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT AH MEDABAD