Commissioner Of Income Tax – Ltu v. M/S. Glenmark Pharmaceuticals Ltd

R.M. AMBERKAR (Private Secretary) IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J.INCOME TAX APPEAL (IT) NO. 834 OF 2016 Commissioner of Income Tax – LTU ..Appellant Versus M/s. Glenmark Pharmaceuticals Ltd..Respondent ................... Mr. Tejveer Singh for the Appellant Mr. Tejveer Singh for the Appellant Mr. Nitesh Joshi a/w Mr. Atul Jasani for the RespondentMr. Nitesh Joshi a/w Mr. Atul Jasani for the Respondent ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : DECEMBER 10, 2018. P.C.: 1.This appeal under Section 260A of the Income Tax Act,1961 (“the Act” for short) challenges the order dated27.2.2015 passed by the Income Tax Appellate Tribunal,Mumbai (“the Tribunal” for short). This appeal relates to the Assessment Year 2009-10. 2.The Revenue has urged following questions of law forour consideration:-our consideration:- (1) Whether on the facts and circumstances of the case, theTribunal was correct in deleting the TP adjustment madeby TPO to the extent of 3% of the amount of guaranteeTribunal was correct in deleting the TP adjustment madeby TPO to the extent of 3% of the amount of guarantee given by the assessee on behalf of AE? (2) Whether on the facts and in the circumstances of the caseand in law, the Tribunal was right in deleting theenhancement of income made by CIT(A) and holding theclaim of the assessee of weighted deduction u/S. 35(2AB)on whole R&D expenditure justifiable and at the same timesetting aside the issue of allocation of R&D expenses toBaddi unit for computation of deduction u/S 80-IC to therecord of Assessing Officer for finding out whether R&Dexpenditure incurred has any direct nexus to Baddi unitwhen both these issues are interlinked?and in law, the Tribunal was right in deleting theenhancement of income made by CIT(A) and holding theclaim of the assessee of weighted deduction u/S. 35(2AB)on whole R&D expenditure justifiable and at the same timesetting aside the issue of allocation of R&D expenses toBaddi unit for computation of deduction u/S 80-IC to therecord of Assessing Officer for finding out whether R&Dexpenditure incurred has any direct nexus to Baddi unitwhen both these issues are interlinked? (3) Whether on the facts and in circumstances of the case andin law, the Tribunal was right in deleting the enhancementof income made by CIT(A) by setting it aside even thoughthe assessee has wrongly claimed double deduction ofR&D expenditure of amount Rs. 5,64,26,552/- against bothBaddi unit and Maharashtra units?in law, the Tribunal was right in deleting the enhancementof income made by CIT(A) by setting it aside even thoughthe assessee has wrongly claimed double deduction ofR&D expenditure of amount Rs. 5,64,26,552/- against bothBaddi unit and Maharashtra units? -3.Regarding Question No. (1): (a). We note that the impugned order of the Tribunalallowed the appeal of the respondent – assessee holding thatArm's Length Price of corporate guarantee cannot bedetermined on the basis of the Bank Guarantee. This byfollowing its order dated 13.11.2013 in respect of the samerespondent – assessee for the assessment year 2008-09. (b) Mr. Tejveer Singh, the learned counsel for the Revenue,very fairly points out that being aggrieved by the aboveorder dated 13.11.2013 of the Tribunal for the assessmentyear 2008-09, Revenue had fled an appeal to this Courtbeing Income Tax Appeal No. 1302 of 2014. The appeal ofthe Revenue on this issue was dismissed by the order dated2.2.2017 by this Court as it did not give rise to anysubstantial question of law. (c)No distinguishing feature in fact or in law in this appealfrom that in Income Tax Appeal No. 1302 of 2014 is shown tous. (d) Therefore, for the reasons recorded in our order dated2.2.2017, this question also does not give rise to anysubstantial question of law. Thus, not entertained. 4.Regarding Question No. (2) & (3):- (b) Mr. Tejveer Singh, the learned counsel for the Revenue,very fairly points out that being aggrieved by the aboveorder dated 13.11.2013 of the Tribunal for the assessmentyear 2008-09, Revenue had fled an appeal to this Courtbeing Income Tax Appeal No. 1302 of 2014. The appeal ofthe Revenue on this issue was dismissed by the order dated2.2.2017 by this Court as it did not give rise to anysubstantial question of law. (c)No distinguishing feature in fact or in law in this appealfrom that in Income Tax Appeal No. 1302 of 2014 is shown tous. (d) Therefore, for the reasons recorded in our order dated2.2.2017, this question also does not give rise to anysubstantial question of law. Thus, not entertained. 4.Regarding Question No. (2) & (3):- (a) The respondent – assessee has units at Baddi inHimachal Pradesh and at Mahape and Sinnar in Maharashtra.So far as the unit in Himachal Pradesh is concerned, it was entitled to deduction under Section 80-IC of the Act while theunits in Maharashtra were entitled to deduction underSection 35(2AB) of the Act. (b) The respondent assessee while claiming deductionunder Section 80-IC of the Act for its Baddi unit, hadallocated R&D expenditure to the tune of Rs. 5.64 crores onpro-rata basis of total turnover. Thereafter, on that basisclaimed the deduction under Section 80-IC of the Act in itsreturn. (c) However, during the assessment proceedings, therespondent claimed that there was no R&D facility atHimachal Pradesh unit, thus expenses incurred on R&Dfacility at Maharashtra unit could not be allocated on pro ratabasis to the Himachal Pradesh Unit. Therefore, the deductionunder Section 80IC of the Act be given to Himachal Pradeshunit after adding back the above expenses. This was notaccepted by the Assessing OfÏcer. On the contrary, by orderdated 30.11.2011 pursuant to Section 143(3) of the Act,enhanced the allocation of R&D expenses to its Himachal Pradesh unit from Rs. 5.64 crores to Rs. 8.46 crores. Thus,reducing the relief under Section 80-IC of the Act. (d) Being aggrieved by the order of the Assessing OfÏcer,the respondent filed an appeal to the Commissioner ofIncome Tax (Appeals) [CIT(A)]. By an order dated23.10.2012, the CIT(A) enhanced the profit eligible fordeduction under Section 80-IC of the Act to the HimachalPradesh unit by 50% of Rs. 5.64 crores. However, heenhanced the income by Rs. 5.64 crores (Rs. 8.46 crores lessRs. 2.82 Crores) by disallowing the weighted deduction underSection 35(2AB) of the Act to the units in Maharashtra. (e) Being aggrieved, the respondent filed further appeal toTribunal. By the impugned order dated 27.2.2015, theTribunal found that the CIT(A) proceeded on the wrongassumption of facts as well as on law in respect of deductionunder Section 35(2AB) of the Act. This is because the R&Dexpenditure was incurred in R&D facilities at Maharashtraunits duly approved by the Department of Scientific andIndustrial Research. It held that merely because the (e) Being aggrieved, the respondent filed further appeal toTribunal. By the impugned order dated 27.2.2015, theTribunal found that the CIT(A) proceeded on the wrongassumption of facts as well as on law in respect of deductionunder Section 35(2AB) of the Act. This is because the R&Dexpenditure was incurred in R&D facilities at Maharashtraunits duly approved by the Department of Scientific andIndustrial Research. It held that merely because the respondent had allocated the proportionate expenditure tothe Baddi unit situated in Himachal Pradesh cannot lead tothe conclusion that expenditure on R&D was incurred at or inrespect of Baddi unit in Himachal Pradesh. When admittedly,there is no R&D facility at Baddi unit, then there is noquestion of incurring R&D expenditure relating to Baddi unit.Thus the impugned order held that the withdrawal of theweighted deduction under Section 35(2AB) of the Act is notjustified and the appeal of the respondent was allowed. Italso noted that merely because the respondent had allocatedR&D expenditure on pro rata basis to its Himachal Pradeshunit, it would not operate a bar to raise a claim subsequently,if otherwise it is correct in law. It placed reliance upon thedecision of this Court in Zandu Pharmaceuticals WorksLtd Vs CIT 350 ITR 366 wherein it has been held that theexpenses incurred on R&D work cannot be appropriated to aunit which does not itself incur R&D expenditure. Thus, onthe above facts, the Tribunal by the impugned order dated27.2.2015 set aside the issue of allocation of R&D expensesto the unit in Himachal Pradesh i.e Baddi for computingdeduction under Section 80IC of the Act to the Assessing OfÏcer. This after directing him to give a definite finding asto whether any part of the expenditure for R&D has anynexus to the Baddi unit in Himachal Pradesh and thereafterfollow the decision of this Court in Zandu PharmaceuticalsWorks Ltd (supra). (f) The grievance of the Revenue is to the issue beingrestored to the Assessing OfÏcer with the above directions. (g) We find that the grievance of the Revenue is notjustified. All that the impugned order of the Tribunal did wasto follow the binding decision of this Court in ZanduPharmaceuticals Works Ltd (supra). We note that whilefollowing the above decision of this Court, the Tribunalobserved as under:- “.......... There is no quarrel on the point that for the purpose ofdeduction under Section 80IC, the profit of undertaking has tobe computed on stand alone basis and only the income as wellas expenditure of eligible units are to be taken into accountwhich has direct nexus with the eligible undertaking. The R&Dexpenditure incurred by the assessee in respect of the R&Dfacility situated at different undertaking in the State ofMaharashtra prima facie has no direct nexus with the Baddiunit. Therefore, even the assessee has allocated the R&Dexpenditure on pro rata basis of turnover to Baddi unit, the same will not operate as bar or prohibition for raising a claim ifotherwise the subsequent claim raised by the assessee is asper the provisions of the Act. The assessing authority has toassess the correct income to tax under the provisions of the Actand cannot take advatage of any excess income offered by theassessee to tax erroneously.......” (h) We are informed that consequent to the impugned order of the Tribunal on 31.3.2017, the Assessing OfÏcerpassed an order in compliance with impugned order dated27.2.2015 passed by the Tribunal in respect of assessmentyear 2009-10. (i) In the above view, both the questions as proposed doesnot give rise to substantial question of law. It merelyrestored the issue for the Assessing OfÏcer to determinefacts and apply the law in accordance with the bindingdecision of this Court in Zandu Pharmaceuticals Works Ltd(supra). Thus, both the questions are not entertained. (h) We are informed that consequent to the impugned order of the Tribunal on 31.3.2017, the Assessing OfÏcerpassed an order in compliance with impugned order dated27.2.2015 passed by the Tribunal in respect of assessmentyear 2009-10. (i) In the above view, both the questions as proposed doesnot give rise to substantial question of law. It merelyrestored the issue for the Assessing OfÏcer to determinefacts and apply the law in accordance with the bindingdecision of this Court in Zandu Pharmaceuticals Works Ltd(supra). Thus, both the questions are not entertained. 5. Accordingly, appeal dismissed. No order as to costs. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]