SUN PHARMACEUTICALS INDUSTRIES LTD.,,VADODARA vs. THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCEL-1,, VADODARA

आदेश / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned cross-appeals have been filed at the instance of the Revenue and Assessee against the separate orders of the Commissioner of Income Tax (Appeals)–2, Ahmedabad [CIT(A) in short] dated 30/01/2017 and 23/02/2017 relevant to assessment years (AYs) 2010- 11& 2012-13 respectively.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 2 - 2. Since all these appeals are inter-connected, therefore these are being disposed-off by way of this consolidated order for the sake of convenience.

The Appellant raises the following grounds, which are mutually exclusive, independent of and without prejudice to one another: 1. The order passed by the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘the learned CIT(A)'] is bad in law and on facts 2. Re: Addition on account of Corporate Guarantee provided to associated enterprises Sun Pharmaceutical Bangladesh Ltd. - Rs. 8,94,313/-. 2.1 The learned CIT(A) has grossly erred in upholding the additions of Assessing Officer/TPO who failed to appreciate the fact the Corporate Guarantee provided to associated enterprises is not covered under the definition of international transaction as envisaged under sec. 92B. 2.2 Without prejudice to the above,the learned CIT(A) has grossly erred in upholding the addition made by the Assessing Officer/TPO for benchmarking the Guarantee fees without appreciating that the Appellant giving corporate guarantee is shareholder's activity and not a service transaction. 2.3 Without prejudice to the above,the learned CIT(A) grossly erred in upholding the addition made by the Assessing Officer/TPO who has applied the yield method not being a prescribed method under the Indian Transfer Pricing provisions for benchmarking the transaction. 2.4 Without prejudice to the above,the learned CIT(A) grossly erred in rejecting the Comparable Uncontrolled Price method followed by the Appellant whereby the Appellant benchmarked the guarantee transaction @ 0.25% as commission charged by the banks for issue of guarantees obtained by the Appellant in its regular business activity and the same view is supported by case law of M/s Everest Kanto Cylinder DCIT [2015] 58 taxmann.com 254 (Bom HC).

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 3 - 2.5 Without prejudice to the above,on the facts and in the circumstances of the case and in-law, the learned CIT(A) grossly erred in sustaining the addition at the rate of 2% towards Corporate Guarantee commission which is excessive and ought to be substantially reduced. 3. Re: Addition on account of Sale of Pantoprazote to Sun Pharma Global BVI and Sun Pharma Global FZE - Rs. 3,61,21,85,376/-: 3.1 The learned CIT(A) has grossly erred in upholding the order of TPO who erred in rejecting the benchmarking done by the Appellant as a contract manufacturer having regard to the functions carried, the assets deployed and risks undertaken by the Appellant in the transaction. 3.2 The learned CIT(A) has grossly erred in upholding the order of TPO who erred in classifying the sales made by the Appellant without appreciating the fact that the US PDA Para under which the product is filed is irrelevant for the Appellant who is a contract manufacturer. 3.3 Without prejudice to the above,the learned CIT(A) has grossly erred in upholding the order of TPO , who has wrongly applied profit split method as the most appropriate method without referring to any external comparable benchmarks. 3.4 Without prejudice to the above,the learned CIT(A) has grossly erred in enhancing the profit allocation to Appellant from 50:50 to 80:20 without understanding the nature of the transaction and by making arbitrary allocations under completely mistaken beliefs by ignoring the fact that the Appellant was merely a contract manufacturer. 3.5 Without prejudice to the above,the learned CIT(A) has grossly erred in not appreciating that the IPR belonged to the AE and having regard to the fact that the product was Para IV product the AE was exposed to significant risks inherent in the transaction and accordingly the profit allocation for the IPR to the AE was extremely low and unjustified. 3.6 Without prejudice to the above,even if the profit split method is to be followed, the Assessing Officer grossly erred in upholding the order of the TPO who made addition without appreciating the fact that there is nil profit to be attributed to the Appellant since the entire profit earned by the AE on the sale of the Products in USA is wiped off on account of subsequent infringement claim of USD 506 Mn. 3.7 Without Prejudice to the above,the learned CIT(A) grossly erred in upholding the order of Assessing Officer/TPO who made addition without appreciating the fact the full infringement loss ought to be deducted against the profits of the AE derived from the sale of Para IV products and only the profits / loss after such adjustment, if any should be split between the Appellant and the AE. 3.8 Without prejudice to the above,the learned CIT(A) grossly erred in not allowing the relief of infringement claim of Rs. 1,42,52,16,938/- given by TPO while working out the profit from the transaction for the purpose of profit split.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 4 -

3.9 Without prejudice to the above,if profit split method is to be followed, the ratios of 50:50 ought to be adopted for benchmarking of sales of products. 4. Re: Addition on account of Sale of Para IV products other than Pantoprazole to Sun Pharma Global BVI and Sun Pharma Global FZE - Rs. 1,16,85,18,972/-: 4.1 The learned CIT(A) has grossly erred in upholding the order of TPO who erred in rejecting the benchmarking done by the Appellant as a contract manufacturer having regard to the functions carried, the assets deployed and risks undertaken by the Appellant in the transaction. 4.2 The learned CIT(A) has grossly erred in upholding the order of TPO who erred in classifying the sales made by the Appellant having regard to the relevant Para of the US FDA under which the approval was sought without appreciating the fact that the US FDA Para under which the product is filed is irrelevant for the Appellant who is a contract manufacturer. 4.3 Without prejudice to the above,the learned CIT(A) has grossly erred in upholding the order of TPO who has wrongly applied profit split method as the most appropriate method without referring to any external comparable benchmarks. 4.4 Without prejudice to the above,the learned CIT(A) has erred in not appreciating that the IPR belonged to the AE along with the possible risk attached thereto and so the AE was exposed to significant transaction risks and accordingly the profit allocation for the IPR to the AE was extremely low and unjustified. 4.5. Without prejudice to the above, the learned CIT(A) has grossly erred in upholding the order of TPO who has benchmarked the sales of Para IV product (other than sale of Pantaprazole) in ratio of 80:20 without appreciating that the Appellant is a contract manufacturer. 4.6 Without prejudice to the above, if profit split method is to be followed, the ratios of 50:50 ought to be adopted for benchmarking of sales of products. 5. Re: Addition on account of Sale of Non-Para IV products to Sun Pharma Global BVI and Sun Pharma Global FZE - Rs. 21,34,71,777/-: 5.1. The learned CIT(A) has grossly erred in upholding the order of TPO who erred in rejecting the benchmarking done by the Appellant as a contract manufacturer having regard to the functions carried, the assets deployed and risks undertaken by the Appellant in the transaction. 5.2. The learned CIT(A) has grossly erred in upholding the order of TPO who erred in classifying the sales made by the Appellant having regard to the relevant Para of the US FDA under which the approval was sought without appreciating the fact that

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 5 - the US FDA Para under which the product is filed is irrelevant for the Appellant who is a contract manufacturer. 5.3. Without prejudice to the above, the learned CIT{A) has grossly erred in upholding the order of TPO who has wrongly applied profit split method as the most appropriate method without referring to any external comparable benchmarks. 5.4. Without prejudice to the above, the learned CIT(A) has erred in not appreciating that the IPR rests with the AE and the AE was exposed to significant risks inherent in the transaction and accordingly the profit allocation for the IPR to the AE was extremely low and unjustified. 5.5. Without prejudice to the above, the learned CIT(A) has grossly erred in upholding the order of TPO who has benchmarked the sales of Non-Para IV products in ratio of 80:20 without appreciating that Appellant is merely a contract manufacturer. 5.6. Without prejudice to the above, if profit split method is to be followed, the ratios of 50:50 ought to be adopted for benchmarking of sales of products. 6. Re: Non-allowance of weighted deduction u/s 35(2AB): 6.1. On the facts arid in the circumstances of the case the learned CIT(A) grossly erred in not allowing the claim of the Appellant of weighted deduction u/s 35(2AB) on the ground that Appellant had not claimed the deduction in the return of income without appreciating that the jurisdiction of the appellate authorities to consider a fresh or new ground or claim is not restricted and that the Appellant can take up additional grounds at any stage during the assessment proceedings. 6.2. On the facts and in circumstances of the case, the learned CIT(A) grossly erred in denying the additional claim of weighted deduction on the ground that the issue was a question of facts and not a question of law. 6.3. On the facts and in circumstances of the case, the learned CIT(A) failed to appreciate that once R&D facilities were approved, entire expenditure incurred for R&D activities towards in house research and development was eligible for weighted deduction under section 35(2AB). 7. Re: Disallowance on account of R&D expenses incurred by the Appellant alleged to have been incurred for products manufactured by partnership firms Sun Pharmaceutical Industries (SPI) and Sun Pharma Sikkim (SPS) debited in the books of the Appellant: 7.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) grossly erred in upholding the actions of the Assessing Officer relating to allocation of R&D expenditure, without appreciating that:

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 6 - 1 The product technologies developed are completely owned by the Appellant and that no part of the ownership of the product technologies or processes developed during such R&D work is pertains to any other party; 2 The decision to manufacture a product at a particular location was based on business and commercial expediency and the manufacturing of the same at the factory of SPI and SPS was part of the obligation undertaken by the Appellant under the partnership deed as a working partner; 3 The Appellant being an active partner, in pursuance of the obligation undertaken by the Appellant under the partnership deed, had provided technical assistance in relation to the manufacturing activities and that no R&D activity was carried out for SPI and SPS. The Appellant was receiving remuneration and share in profit from SPI and SPS for the services rendered by it. 7.2 Without prejudice to the above,the learned C1T(A) grossly erred in allocating proportionate R&D expenditure incurred to SPI and SPS without appreciating that the same is allowable to the Appellant u/s 35(2AB). 7.3 Without prejudice to the above,learned CIT(A) erred in not following the CIT(A) order passed in the case of Appellant for earlier years where it was considered that since the Appellant already has its infrastructure in place, only the incremental expenditure incurred by the Appellant after partnership firm came into existence ought to be disallowed. 7.4 Without prejudice to the above,the CIT(A) grossly erred in computing the amount of research and development expenditure attributable to the development of formulation drugs for the domestic market at Rs. 6343.53 lakhs against the correct amount of Rs. 2332.84 lakhs 7.5 Without prejudice to the above, similar issue has been considered by the Assessing Officer at the time of tax assessment of partnership firms SPI and SPS wherein the disallowance was restricted to Rs. 35.13 lakhs in case of SPI and Nil in case of SPS, and accordingly in the case of Appellant disallowance ought to be restricted on the same. * 7.6 Without prejudice to the above,the R&D expense should not be allocated on the basis of domestic formulation turnover as both the entities operate in different market segments with different underlying facts. 7.7 Without prejudice to the aboveand without accepting any disallowance of the expenses, the Assessing Officer should have restricted the disallowance towards expenses as provided u/s 14A read with Rule 8D. 7.8 Without prejudice to the above, the disallowance ought to be substantially reduced. 7.9 Without prejudice to the above, the deduction u/s. 10B ought to be increased on account of allocation of R&D expenses to SPI.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 7 -

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 8 - 1 The income earned by the appellant on its investment in partnership firm was not exempt andhence was not to be considered for disallowance under section 14A; 2 Section 14A was not applicable in instant case since Assessing Officer failed to establishsatisfaction as to how the claim of the Appellant was incorrect; 3 Provisions of section 14A could not be made applicable to investments which are capable ofgenerating taxable income; 4 The Appellant had sufficient interest free funds to carry out investments and hence no borrowedfunds were utilized for purpose of investments; 5 Provisions of section 14A could not be made applicable to the investments in partnership firm asthey been strategic investments. 11.2 Without prejudice to the above, the learned CIT (A) grossly erred in riot rectifying the errors made by the Assessing Officer while computing the disallowance under section 14A read with rule 8D. 12. Re: Addition of expense disallowed u/s 14A for computing book profit u/s 115JB: 12.1 On the facts and in the circumstances of the case and in law, the learned CIT (A) grossly erred in considering the amount disallowed under section 14A for investment in partnership firm while computing book profit under section 115JB, without appreciating that: 1 The income earned by the appellant on its investment in partnership firm was not exempt andhence was not to be considered for disallowance under section 14A; 2 Section 14A was not applicable in instant case since Assessing Officer failed to establishsatisfaction that expenditure has been incurred for earning exempt income; 3 Provisions of section 14A could not be made applicable to investments which are capable ofgenerating taxable income; 4 The Appellant had sufficient interest free funds to carry out investments and hence no borrowedfunds were utilized for purpose of investments; 5 Provisions of section 14A could not be made applicable to the investments in partnership firm asthey been strategic investments; 12.2 The CIT(A) failed to appreciate that in absence of direct and specific expenditure incurred for earning the exempt income no addition of the amount disallowed u/s. 14A read with Rule 8D to the book profit was warranted. 12.3 The CIT(A) failed to appreciate that the provisions of sec.115JB and sec. 14A are deeming provisions enacted under the Income Tax Act which have are to be

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 9 - made operative only to the extent of the deeming fiction created therein. The CIT(A) ought to have appreciated that both sec. 115JB and sec. 14A are mutually exclusive and there ought not to be any disallowance of amount disallowed u/s. 14A while computing the book profit u/s. 115JB. 12.4 Without prejudice to the above, the learned CIT (A) grossly erred in importing provisions of subsection (2) and (3) of section 14A into explanation to section 115JB without appreciating the decided case laws on the subject. 13. Re: Addition of Selling and Distribution expense incurred on behalf of Sun Pharmaceutical Industries ("SPI") disallowed u/s 14A: 13.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in disallowing Selling and Distribution expenditure incurred by the Appellant u/s. 14A on the ground that the said expenditure is directly incurred by the Appellant for the partnership firm without appreciating that: 1 Selling and distribution expenditure were directly incurred by the Appellant for the purposes of itsbusiness activities and it could not be termed and categorized to be directly incurred for earningthe exempt income under Rule 8D; 2 The selling and distribution expenditure to be disallowed as worked out by the Assessing Officer isdetermined arbitrarily in the ratio of turnover and has no direct nexus towards the exemptincome earned by the Appellant; 3 The CIT(A) has failed to substantiate and demonstrate its claim that the said expenditure isdirectly incurred by the Appellant towards earning of exempt income; 4 . The said expenditure was incurred by the Appellant for the purpose of the business of theAppellant and not merely for the purposes of earning profit; 5 The provisions of section 14A could not be made applicable to investments which are capable ofgenerating taxable income; and 6 The investment made by the Appellant in the partnership firm Is strategic in nature and not forthe purpose of earning exempt income. 13.2 Without Prejudice to the above, the CIT(A) grossly erred in disallowing the selling and distribution expenses u/s. 14A without appreciating the fact that the CIT(A) himself has during the appellateproceedings enhanced the income of the Appellant by re-characterizing the remuneration earned by the Appellant as royalty income. The CIT(A) ought to have appreciated that if the income was sought to be re-characterized as royalty, then the expenditure incurred to earn such income ought to be allowed as deduction. 13.3 Without prejudice to the above, the disallowance u/s. 14A ought to be substantially reduced.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 10 - 14. Initiation of penalty proceedings u/s 271(l)(c): 14.1 On the facts and in the circumstances of the case and in law, the learned CIT (A) grossly erred in initiating penalty proceedings u/s. 271(1)(c) on various grounds on which the enhancement was made, 15. The Appellant craves leave to add to, alter, amend or delete any ground of appeal at or before the hearing of this appeal.

6.1 The facts of the case are that the assessee in the present case is a limited company and engaged in the business of manufacturing, trading, and exports of pharmaceutical drugs, formulations, leasing of equipment and financing. The assessee during the year has given a corporate guarantee to banks on behalf of its various associated enterprises as detailed below:

Particulars Guarantee Amount as on Guarantee amount 31st March 2010 (Rs. In utilized as on 31st March crores of Guarantee) 2010 (Rs. in crores) Sun Pharma Global Inc 250.88 NIL BVI Sun Pharma Italia S.R.L 1.57 NIL

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 11 - Sun Pharma De Mexico 13.44 NIL Sun Pharma Bangladesh 13.44 2.32 Ltd. 279.33

However, only one associate enterprise of the assessee has availed the loan against the corporate guarantee provided by the assessee namely sun pharmaceutical (Bangladesh) Ltd. But the assessee has not charged any commission/fees from such associated enterprise. The assessee for not charging commission/fees has submitted that: i) It has not incurred any expense for providing the corporate guarantee to the banks on behalf of the associated enterprise. As such the corporate guarantee was provided as a measure of long-term commitment towards the subsidiary companies. Accordingly, the assessee has shifted its burden of providing financial resources to its associated enterprise to the banks.

ii) It is an undisputed fact that the subsidiary company availing the loan from the bank is an associated concern of the assessee. Thus there exist an implicit guarantee which is always available to the associated enterprise. As such there was no impact on the loan provided by the bank on account of explicit guarantee provided by it. It is because the associate enterprise was capable of availing the loan facilities from the bank. There was also no benefit to the associate enterprise on account of the credit rating of the assessee.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 12 - iii) There were sufficient tangible assets available with the associate enterprises, and the assessee will be liable to make the payment to the bank in the event of default by the associated enterprise. As there were sufficient tangible assets with the associate enterprise, then there was no risk upon the assessee on account of furnishing the corporate guarantee to the bank.

iv) There was no economic benefit received by the assessee against the corporate guarantee provided to its associated enterprise. Thus the cost for such corporate guarantee will remain nil.

v) The nature of the liability on account of furnishing the corporate guarantee is a notional liability which was disclosed in the annual accounts. The bank has not invoked the corporate guarantee provided by it to the associate enterprise during the year.

vi) In case any addition is warranted on account of profit, then it should not exceed more than 0.25% per annum. Thus the rate proposed by the TPO i.e. 3.85% which is based on the difference between the AA rated US bonds and the BB-rated US bond was not correct.

vii) Without prejudice to the above, the assessee also submitted that the AO in the assessment year 2008-09 had charged such

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 13 - corporate guarantee commission at the rate of 2% per annum. Thus the rate for the corporate guarantee in the year under consideration should not exceed more than 2% per annum.

9.1 The ground of appeal raised by the Revenue read as under:

“2. On the facts and in the circumstances of the case, Ld.CIT (A) erred in law and facts in reducing the adjustment on account of ALP for Corporate Guarantee Fees from 2.96% to 2% since ALP for each year is assessed on the basis of risk factor of that particular year and said ALP was worked out on the basis of Country and foreign exchange risk.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 14 -

“18. Before us, the ld. Senior Counsel drew our attention to the relevant findings of the Tribunal for A.Y. 2008-09 and the relevant findings read as under:-

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 15 - 33. Following our own findings given in A.Y. 2007-08 in ITA No. 2076 & 2067/Ahd/2013, we set aside this issue to the file of the ld. CIT(A) (to avoid any issue of limitation to give effect to ITAT order as apprehended by ld. CR) with a direction that this issue may be decided in accordance with Hon’ble Jurisdictional High Court of Gujarat and after giving adequate of hearing to the assessee . Ground no. 4 is accordingly treated as allowed for statistical purpose. 19. Respectfully following the findings of the Co-ordinate Bench (supra), we hold accordingly. Ground no. 5 is treated as allowed for statistical purpose.”

13.1. As facts in the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the same we restore this issue to the file of ld. CIT-A for fresh adjudication as per the provision of law.

13.2 Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the ld. DR has not brought anything on record contrary to the argument advanced by the ld. Counsel for the assessee.

13.3 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.) wherein it was held as under: "No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 16 - such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities. If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly if a Division Bench differs from the view taken by another Division Bench it does not express disagreement and pronounce its different views, but has the matter posted before a Fuller Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal, so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more members for which there is provision in the IT Act itself."

13.4 In the light of the ratio decidendi above we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength.The ld. DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. Hence the ground of appeal of the assessee and the Revenue are allowed for statistical purposes.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 17 - 15.1 The assessee in the year under consideration has made sales of its medicine namely Pantoprazole to its AE namely Sun Pharma FZE amounting to Rs. 42.43 crores. The assessee to benchmark this transaction and to justify ALP has submitted certain details as enumerated below: i. The product's technology is owned by the AE. ii. The AE wanted to sell the products in the regulated market of the USA and Europe etc. iii. The AE approached the assessee to develop the medicine in the capacity as contract research & manufacturing services (for short CRAMS) on its behalf on the agreed consideration. iv. The assessee treated itself as a tested party as a contract manufacturer and worked out its margins at 35.43%. v. The assessee has compared its margin with an independent entity namely Eliy Lily to which it sold the same drug as contract manufacturer and earned margin at the rate of 14.43%. vi. The assessee also claimed that it cannot enjoy a high profit margin on the manufacturing of drug for its AE as it is acting in the capacity of a manufacturing contractor. vii. The assessee also submitted that the drug falls under Chapter IV of federal food, drug, and Cosmetic Act, (in short FD&C Act) which is subject to legal risk which is to be borne by the AE. As such the assessee is not subject to such legal risk as it is acting merely as a contract manufacturer. The assessee further

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 18 - submitted that its AE had suffered a huge loss on account of patent infringement. 15.2 However, the TPO during the proceedings observed certain facts as enumerated below:

i. The drug, Pantoprazole falls under chapter IV of the FD&C Act, in the preceding year. But in the year under consideration, it was sold as a generic drug. Therefore there was no risk to the AE in the year under consideration on account of the infringement of the patent.

ii. The assessee has earned a margin at the rate of 13.86% on the sale to AE as per the accounts of the AE whereas the AE has earned profit margin at the rate of 87.45% on sale which is representing 4186% on the cost of the drug. As per the TPO, such a huge margin is not natural considering the FAR analysis. The TPO was of the view that such huge margin has been shifted to its AE as it is located in tax heaven zone.

iii. The AE has sold this drug in the US market through the company namely CARACO which is the AE of the assessee. There was the agreement between the assessee and the CARACO dated 29th January 2008 for the distribution of the drug in the USA. In such agreement there was no reference

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 19 - of the AE (FZE)/(BVI) of the assessee though the assessee claimed that the technology for Pantoprazole is with the AE (FZE)/(BVI). The TPO also noted that the litigation risk was to be borne by the assessee which is also supported with the annual report filed by the CARACO with US Securities and Exchange Commission (for short SEC). In the sale bills raised by the assessee to the sun global BVI/(FZE), the name of Caraco was appearing as consignee which suggests that the AE has not performed even the marketing function.

iv. The normal legal risk was born by the associated enterprises namely sun FZE/BVI. As such the assessee and the sun global (FZE)/(BVI) were bearing together the market/litigation risk. However, the ultimate risk was of the assessee in the light of the distribution and marketing agreement with the Caraco.

v. The assessee has contributed entirely towards the functions and the assets.

vi. The risk carried by the associated enterprises has already been factored in the sale of the drug by the assessee to the AE. 15.3 In view of the above, the TPO proposed by issuing show cause notice to apply the profit-sharing method in the ratio of 50% each after

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 20 - considering the function, assets and the risk involved between the assessee and its AE.

15.4 In compliance to the show cause notice issued by the TPO, the assessee vide letter dated 9 December 2013 submitted that it has carried out the manufacturing activity as per the specifications provided by its AE. The assessee in support of its claim filed the copy of the agreement with SUN BVI. It has employed the assets, i.e. US FDA Compliant factory in doing the job work on behalf of its AE. It did not bear any risk while carrying out manufacturing activity on behalf of its AE.

15.5 On the other hand, its AE was performing the function to coordinate with the assessee for getting its product manufactured and supplying the same to the buyers.

15.6 The AE has employed its assets, i.e. ANDA license manufacture the products.

15.7 The AE was carrying significant risk for getting the product manufactured at the premises of the assessee. These risks can be categorized as under:

“Risks borne:- • Since the owner of the IPRs is the SPG FZE, the substantial risks related to the product are borne by the SPG FZE • The risks borne by the SPG FZE are as follows: � Litigation risks and cost

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 21 - � Penalties � Chargebacks � Shelf Stock Adjustments � Product Returns and Other Allowances � Infringement issues � Loss of profit claims by the original patent holder in the event the patent claim is rejected. In the present case since the product is para IV product the same is subjected to huge litigations. The expenses/damage that can arise out of the litigations are as follows:- • Lost profits due to diminished sales because of infringement of patents • Lost profits due to the necessity of having to reduce price to compete with the infringing party • Lost profits due to overall reduction in business attributable to the need to divert resources because of infringement • Lost future profits due to depressed prices that cannot now again be raised. • Projected Lost profits for future competition with infringer because infringer established a market position.”

15.8 The assessee further submitted that its AE on account of such risk had incurred a loss of Rs. 506 million USD which has been allocated over a period of 3 years as detailed under:

“Without prejudice to the above even if the profit split method is sought to be applied, then in the calculation of the profitability the deduction of the payment made on account of infringement claim of USD 505 Million ought to be allowed. As per the following table it is evident that the entire profitability on account of sale of this product is wipped of on account of infringement claim: Particulars AY 08-09 AY 09-10 AY 10-11 Gross Sales 420.00 93.12 248.87 Less: Returns, 160.00 53.75 122.38 Chargebacks, etc. Net Sales 260.00 39.37 126.49 Less : Other 10.54 9.73 26.03 expenses Profitability 249.46 29.64 100.46 Infringement Claim 506 Million USD

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 22 -

Since the entire profitability is wipped off, there is nil profit to be attributed to the entities on account of profit split method. In view of this there ought to be no addition on account of profit split method on sale of Pantaprazole by the Assessee.”

15.9 In view of the above, the assessee submitted that the AE being the owner of IPR is a very complex entity whereas the assessee being a mere contract manufacturer is a less complex entity. Therefore the assessee should be treated as the test party.

15.10The assessee further submitted that the entire profit of its associated enterprises Sun BVI has been wiped off due to the loss on account of infringement of the patent which is resulting in nil profit to it. Therefore there cannot be any reason to apply the profit split method to share the profit of the AE with the assessee.

15.11 Regarding the agreement with the Caraco dated 29th of January 2008, the assessee submitted that it was made on behalf of its associated companies and there was a necessary disclosure made by the Caraco in its annual report for carrying out the transactions with the assessee and its associated enterprise sun BVI/FZE.

15.12 However, the TPO disagreed with the contention of the assessee by observing as under: i. The assessee is not acting as a mere contract manufacturer as claimed by it. The Sun BVI/FZE while making an application for the registration of the technology under ANDA has to

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 23 - furnish the details of the factories where such technology was developed. As the assessee has sufficient infrastructure facilities which have been approved by the US FDA, therefore it is implied that there was an active role of the assessee in getting the product approved from ANDA.

The agreement between the assessee and Caraco dated 29th of ii. January 2008 further evidence that there was the active role of the assessee in the distribution and sale of the product.

iii. The loss incurred by the AE-Sun BVI/FZE on account of infringement of a patent is routine business activities. The Sun BVI/FZE may incur a loss in some of the drugs which will certainly be compensated with the profit of other drugs.

iv. The assessee is also performing other functions as detailed under:

“-as a person developing the ANDA documentation-as a manufactuerer creating the entire infrastructure as per theUSFDA standards for production of the drug (creation of USDFDA approved facility- as a manufacturer getting the facility approved by USFDA- as a person whose selling and marketing network was utilized,- as a distributor who handled dispatch of the goods to US (although the bills were in the name of Sun Global, the dispatch was to Caraco Pharma Inc, USA)- SPIL which has entered into the agreement with Caraco for distribution of the product and had assumed the entire risk (in spite of the fact that risk indeed has been shared by Sun Global),- as a person engaged in finer nuances of sales and marketing, literature and documentation (Sun Global BVI does not have sufficient infrastructure of this nature)- SPIL as an ultimate risk holder (as evident from the sale and distribution agreement with Caraco filed with US SEC)- it is clear that SPIL cannot be termed as mere contract manufacturer eligible

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 24 - for a mere 0.75% profits while rest of the 99.25% profits are given to Sun Global BVI with reference to the total sale value. The decision arrived at in the preceding year, being on the same issue, is to be followed in the current year. In its reply to the SCN, the assessee has not elaborated on this issue nor offered any further justification.”

15.13 In view of the above, the TPO modified the FAR analysis of the assessee as well as its associated enterprise as detailed on pages 66 to 68 of its order.

15.14 Accordingly, the TPO applied the residual profit split method in respect of pantoprazole drug to determine the profit of the assessee and its associated enterprise. The relevant extract of the order of the TPO is extracted below:

“8.10 Since it was found fit to use residual profit split method, the global profits on account of the transaction was required to be computed. The assessee was directed to separately produce the details of sale made by SPIL to SPG FZE and the subsequent sale of these drugs to final destinations. The details have been submitted by the assessee company. The relative accounts of SPIL with reference to sales made by these two entities is reproduced below:

Sr. No. Particulars Sun Pharma [SPIL] Sun FZE [@] Amount in Rs. Amount in US$ Amount in US$ 1 Sale Value 24,67,71,030 51,99,345 24,88,69,605 2 Cost 15,44,53,988 51,99,345 3 Manufacturing Overheads 4,91,07,435 0 4 Gross Profit 4,32,09,607 24,36,70,260 5 Other expenses ( R&D , 90,07,143 2,60,28,248 corporate & other exs.)

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 25 - 6 Profit 3,42,02,465 21,76,42,012 7 Additional credit allowed on account of Return of goods 7a Rate difference accounted in F Y 8,68,81,314 2009-2010 7b Returns / Short receipts 51,04,992 accounted in F Y 2009-2010 7c Rate difference accounted in F Y (20,85,381) 2010-2011 7d Returns / Short receipts 3,24,83,034 accounted in F Y 2010-2011 Recovery of Expenses accounted 0 in FY 201 0-2011 8 Additional expenses [ litigation ] 0 incurred by the company 9 Remaining profit [ 6 minus 7 9,52,58,053 minus 8 ] 10 Shared in equal ration by both 2,25,76,15,859 2,25,76,15,859 associates Usd rate = Ind Rs. 47.40 47.40

8.11. It is seen that SPG FZE has earned huge profits in sale of this drug. However, the of the assessee company with respect to significant risks involved in such sales is evident in the costs incurred by SPG FZE on sales return, rebates and litigationcosts. The assessee has claimed that due to the 'sale of pantoprazole' related costs, Sun BVI has suffered losses in the preceding years. It has claimed that during the current year, an amount of US$ 506 million has been paid to the patent owners for patent infringement in respect of sales made in the assessment years 08-09, 09-10 and 10- 11. The claim of the assessee is that the entire profits generated out of the sale of this product has been wiped out on account of this payment. Since the infringement amount has been on account of pantoprazole sale which spans three years, the assessee has bifurcated the payment over three years on the basis of sales made in these years. The claim made is that if profits of the company are to be shared, the losses also should be shared by SPIL. The contention of the assessee company is closely examined. Sun BVI is being paid dominantly for the risk being carried by it and to some extent marketing functions being performed. The main risk carried by it relates to the goods return, rebates, litigation costs and damage costs in suits filed by the patent holders. Since Sun BVI has already been compensated for the risks being carried by its @ 50% of the profits on sale of this drug, no further compensation is found necessary with respect to its legal expenses. It is clarified that the additional expenditure on litigation incurred by the company will not be available for set off as it is precisely for this reason that the AE has been allowed 50% share in profits.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 26 - 8.12 However, in earlier discussions, it has been held by the undersigned that while majority of the risk is being undertaken by SPG FZE, and most of the other functions/assets are being performed/contributed by SPIL resulting in a profit split of 50:50, some portion of risk is also being taken up by SPIL as evident from thedistribution agreement. Sun Global is remunerated only for its risk and hence it is liable to suffer major portion of the risk. As admitted by the assessee company and also evident from sale of other para IV drugs, Sun Global gets high margins in such drugs while some drugs may lead to litigation and subsequent infringement costs. Higher margins of other drugs would meet such eventualities which are duly factored in pricing the products in order to obviate such risks. As mentioned above, since Sun Global exists to take major portion of the risk while only some portion of the risk is to be adopted by SPIL, it would not be necessary for SPIL to bear any residual burden in respect ofinfringement payout of a particular product although it carries all the responsibilities as an ultimate parent. It would be sufficient if it is attributed a limited risk in addition to its major functions/assets to justify the profit split of 50:50. In light of the above discussion,it is found reasonable to attribute 80% of the risk to Sun Global and 20% risk toSPIL. Thetotal infringement payout is apportioned for the present year in ratio of turnover and 20% of such apportionment amounting to Rs 142,52,16,938/- is allowed as deductionfrom the amount of Rs 225,76,15,860/- suggested as adjustment in the case ofpantoprazole sale.

8.13 In light of the above discussion, an upward adjustment of Rs 83,23,98,920/- is made to the profits of the assessee company with reference to benchmarking of the transaction of sale of pantoprazole to SPG BVI and SPG FZE.”

“On careful consideration of submission of the Ld.Authorised Representative and the facts on record, I find that appellant company has sold pharmaceutics Is products worth Rs. 44.72 Crs to SPG BVI and worth Rs. 42.43 Crs to SPG FZE, both AEs, during the year under consideration which included sales of Pahtoprazoie at Rs. 24,67,71,030/-. The net margins have been disclosed by the appellant on these sales at 13,86% while the AEs have disclosed net margins on resale of the same products in USA at 87.45%. These facts have been clearly brought on record in the order of TPO. It has been clearly established with supporting documentary evidences that the AEs have earned huge margins on Pantoprazole resale without any value addition and accordingly aggregate residual profitarising from International Transactions was apportioned in 80:20 ratios in A.Y. 2008-09 by the CIT(A) on the basis of detailed FAR analysis. Accordingly, respectfully following the order of CIT(A)-IV, Ahmedabad, I hold that aggregate residual profit arising from sale of Pantoprazole amounting to Rs.451,52,31,720/- has to be apportioned in the ratio of 80:20 between the appellant and the AEs and the profit pertaining to the appellant company, thus, comes to Rs.361,21,85,376/-. The Assessing Officer has already

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 27 - made an addition of Rs.83,23,98,920/- on account of upward adjustment computed by the TPO after allowing deduction for patent infringement pay out at Rs. 142,52,16,938/-. I find that for patent infringement litigation, out of court settlement Agreement was entered into on 11.06.2013 and hence the liability, if any, has been crystaiized only in the subsequent year. Moreover, as a result of demerger of therapeutic business including Pantoprazole of AE w.e. from 01.05.2013 and merger of the same with appellant, the infringement losses have been ultimately taken over by the appellant. Hence appellant is not entitled to claim any infringement pay out loss in the year under consideration and accordingly, the same is rejected. Since the upward adjustment to Arm's Length Price works out to out to Rs. 361,21,85,376/- and hence income of the appellant is enhanced by Rs.277,97,86,456/- (Rs. 361,21,85,376-Rs.83,23,98,920). In view of the above discussion, Ground No. 5pertaining to the upward adjustment in respect of sale of Pantoprazole is dismissed. Since the appellant has furnished inaccurate particulars of income in respect of the enhancement made in upward adjustment to Arm’s Length Price amounting to Rs.277,97,86,456/-, penalty proceedings u/s.271(1)(c) r.w. Explanation-7 are also initiated for which I am satisfied.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 28 - circumstances in the own case of the assessee’s (supra), the ITAT deleted the addition made by the TPO/AO. The relevant extract of the order is reproduced as under:

“26.We have given a thoughtful consideration to the orders of the authorities below. We agree with the contention of the ld. Senior Counsel that no new facts have been considered by the lower authorities. The facts are identical to the facts considered by the Tribunal in A.Y. 2008-09 in ITA No.3297 & 3420/Ahd/2014. The relevant part of the judgment of the Tribunal read as under:- 76. SPG BVI purchased the Technology to manufacture Pantoprazole Sodium from Sun Pharma Advance Research Company Ltd. (SPARC). SPARC was incorporated on 01.03.2006 as a research company. With effect from 28.02.2007, the appellant company demerged its Innovative Research and Development business to SPARC. This is supported by the order of the Hon'ble High Court of Gujarat exhibited at pages 475 to 518 of the paper book. On 28.10.2007, SPARC sold a basket of 38 Technologies to SPG including ANDA for Pantoprazole Tablet,the consideration of which was USD 3 million for U.S. Market and USD 1.4 million for Europe Market. This is supported by the agreement for sale exhibited at pages 519 to 536 of the paper book. 77.By virtue of this agreement for sale, the Technology was purchased by SPG in the month of October, 2007 and immediately thereafter in the month of November, 2007, SPG enters into an agreement with appellant for manufacturing. Copy of supply agreement between SPG and SPIL is exhibited at pages 648 to 659 of the paper book. Relevant clauses of the supply agreement read as under:- AND WHEREAS SPGI is the owner of the various abbreviated new drug applications and is interested to market the products in United States of America and in Europe and is therefore interested to buy various products from side approved by US FDA. 1. SUPPLY AND PURCHASE ARRANGEMENTS. SPIL hereby agrees to sell and supply the Products to SGI and SPGI hereby agrees to Purchase the Products from SPIL with the terms and conditions of this Agreement. It is understood by the parties that this Agreement in no way obliges SPGI to purchase or take any or all the said products or any part of SPGI's requirements thereof, manufactured. Processed and/or packed by SPIL only and does not preclude SPGI from making similar or alternative arrangements with one or more other parties at its sole discretion. 2.1 SPIL agrees to sell and supply the product to SPGI at prices as agreed to between the parties. SUN will dispatch consignment of the PRODUCT within 45 (forty-five) days of acceptance by SUN of purchase order from SPGI or within such other time as may be mutually agreed upon. SPGI shall not be entitled to cancel any

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 29 - order placed by it and accepted by SPIL unless other wise agreed upon by the parties. 2.2 SPGI agrees to provide a forecast on agreed format to SPIL so as to facilitated SPIL to carry out production planning of the Products for sale and supply as per terms of this Agreement. 2.3 SPGI will be required to make payments in US Dollars against supplies of the PRODUCT within 75 days of the receipt of goods for the invoices raised by SPIL in this regard or within such other time as may be mutually agreed upon in this regard. 2.4 At the request of SPGI, SPIL shall supply the product ordered by SPGI by such carrier or carriers as SPGI may designate. Such delivery instructions shall be submitted by SPGI to SPIL well in advance SPIL agrees to dispatch at the cost of SPGI, the finished Product to SPGI or to its nominees within the time frames stipulated by SPGI from time to time as per the orders placed by SPGI and accepted by SPIL. SPIL further undertakes to supply the product with adequate packing and coverage to ensure that the Product reaches SPGI or its nominee adequately packed and acceptable as per CGMP guidelines. 3.1 SPGI's Technical Assistance,, SPGI shall supply on a continuing basis all necessary information relating to the manufacturing of the Products, including, but not limited to product specifications, packaging and labeling practices and processes regarding the production of Products, and such other information as SPGI deems to be reasonable and necessary, From time to time, SPGI at its own expense may send a representative to visit SPIL to provide such technical knowledge as shall be mutually agreed to by SPGI and SPIL. 3.2 Intellectual Property Representation: Except for the rights expressly under the terms of the Agreement this Agreement does not transfer any intellectual property rights, specifically with respect to the Products from SPGI to SPIL. SPGI represents and warrants that, to the best of the knowledge and belief of SPI, SPIL's fulfillment of the terms of this agreement to the' manufacturing of the Products will not infringe any third party intellectual property rights. Nevertheless, in case SPIL would be or named as a formal party by reason of an infringement of third party rights for the Products, SPIL shall promptly inform SPGI thereof. SPGI shall conduct any defense of such suit at its own expense and SPGI shad indemnify and hold SPIL harmless from and against any loss, claim, damage, expense or liability if any resulting from any such suit in accordance with Section 5. However, in any such litigation suit SPIL agrees to assist SPGI, without assuming any monetary obligation. 4.3 Legal Compliance. SPIL hereby undertakes to comply with all requirements of law for obtaining various licenses, approvals, permissions and no objection certificates for meeting all legal obligations in respect of any matter whatsoever,

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 30 - enabling it lawfully, to properly manufacture the Products Vibe execution, delivery and performance of this agreement by SPIL does not and will not violate any provision of applicable law or of any regulation, order decree of any court, arbitration or/.governmental authority or any other agreement to which SPIL Is a party, SPIL hereby indemnifies SPGI from any consequences whatsoever of any failure or lapses, or gross neglect or damage etc. on its part on account of legal liabilities or otherwise. SPGI hereby also undertakes to indemnify SPIL wherever found appropriate, on account of any failure or lapses, or neglect or damage etc. on its part on account of legal liabilities or otherwise arising out of non meeting its all legal obligation in respect of any matter whatsoever. 4.4 Quality control. If mutually agreed in writing, SPIL may conduct itself quality control tests pursuant to specifications, policies and/or procedures provided by SPGI in writing No production batch shall be released for sale unless it conforms to the SPGI specifications, practices and stipulations referred to in Section 4.1. SPGI will facilitate SPIL in curing deficiencies, to the extent acceptable to SPGI, of lots or batches of Product not meeting with SPGI specifications, practices or stipulations. 4.5 SPIL Warranty, SPIL warrants that the Finished Products manufactured and delivered to SPGI hereunder shall conform to the product specifications communicated by SPGI to SPIL. SPGI shall notify SPIL of any non-conforming manufactured Products within sixty days after receipt of Products or within sixty (60) days after any hidden defects are discovered. Any notification or non- conformance under this section shall include proof of non-conformity/defect. SPIL may, at its discretion, have the defective Product tested at any other reputable laboratory and SPGI shall accept the report thereof. In case of a disputed result by such laboratory, the Product will be tested with an independent laboratory reasonably acceptable to both parties whose result shall be binding on both parties. SPIL shall replace all non-attributable to SPIL. SPIL shall also bear & reimburse to SPGI the cost of freight and insurance for such non-conforming Products Upon SPIL's instructions, SPGI shall destroy or return to SPIL at SPIL's cost, all non-conforming Finished Products. 4.6.4 SPIL agrees to invoice and dispatch at SPGI's cost and risk, the finished products to SPGI or its nominees as specified by SPGI according to the orders placed by SPGI and instructions given by SPGI and accepted by SPIL. 5.1 SPGI Indemnification. SPGI shall indemnify and hold SPIL harmless from and against any loss, claim, damage, expense or liability, resulting from any misrepresentation, egligence, or intentional misconduct by SPGI in performing this agreement including for any claim, demand or suit alleging that the Product infringes any third party's patent, copyright, trademark, trade secret or other intellectual property right or any product liability. Notwithstanding anything to the contrary in this Agreement, in no event shall SPGI be liable to SPIL for any incidental, indirect, exemplary, special or consequential damages whatsoever (including, but not limited to, lost profits, loss of goodwill, or interruption of business) that may be suffered or incurred by SPIL as a result of SPGI's violation of this representation.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 31 - 5.2 SPIL Indemnification. SPIL shall indemnify- and hold SPGI harmless from and gainst any loss, claim, damage, expense or liability resulting from any misrepresentation, negligence or intentional misconduct by SPIL in performing this Agreement; provided however, that SPIL's obligation of indemnification shall not extend to any loss, claim, damage or expense or liability, resulting from SPGI's gross negligence or misconduct. Notwithstanding anything to the contrary in this Agreement, in no event shall SPIL be liable to SPGI for any incidental indirect,exemplary, special or consequential damages whatsoever (including but not limited to, lost profits, loss of goodwill, any patent/trademark infringement or interruption of business) that may be suffered or incurred by SPGI as a result of SPIL's violation of this representation. Notwithstanding anything to the contrary in this Agreement, it is agreed that SPIL's liability for indemnificatio under this Agreement will be limited for the Product containing manufacturing defect or the Product fist conforming to the product specifications communicated by SPGI to SPIL under this Agreement. 7.1.6 SPIL Shall not claim any right, title, or interest to the Products, product names and the rights attached with them under any of the trademarks, or patent laws, SPIL shall not manufacture and/or sell for sale in the market of United. States of America and in Europe during the term of this Agreement any Products under a trademark connected with the Products or under a name phonetically or otherwise similar to trade names connected with the products as mentioned in Appendix A. 7.1.7 SPIL shall not subcontract or delegate to any other persons, firm or body corporate the whole or any part of the manufacture, of the Products or assign this Agreement or any part thereof or deal in any manner whatsoever with the rights, benefits or obligations created hereunder without the prior consent in writing by SPGI. 78. Appendix-A of this agreement reads as under;- No. NAME OF THE PRODUCT BULK PRODUCT (Active Ingredient) 1 Pantoprazole Sodium Delayed Pantoprazole Release Tablets 20Mg., 40mg. Sodium 2 Amifostine Inj. 500mg. Amifostine

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 32 - "It is the task of the court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not adopt a dissecting approach. All tax planning is not illegal or illegitimate or impermissible".

81.The Hon'ble Supreme Court further held. :- (iv)The Income-tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence of companies as economic entities with legal independence vis-a-vis their shareholders or participants. Consequently, the entities subject to income-tax are taxed on profits derived by them on stand-alone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders or participants. Furthermore, shareholders or participants, that are subject to (personal or corporate) income-tax, are generally taxed on profits derived in consideration of their shareholding or participations, such as capital gains. It is fairly well settled that for tax treaty purposes a subsidiary and its parent are also totally separate and distinct taxpayers. The fact that a parent company exercises a shareholder's influence on its subsidiaries does not generally imply that the subsidiaries are to be deemed residents of the State in which the parent company resides. Where the subsidiary's executive directors' competences are transferred to other persons or bodies or where the subsidiary's executive directors' decision-making has become fully subordinate to the holding company with the consequence that the subsidiary's executive directors are no more than puppets then the turning point in respect of the subsidiary's place of residence comes about. Whether a transaction is used principally as a colourable device for the distribution of earnings, profits and gains, is determined by a review of all the facts and circumstances surrounding the transaction. (v) Holding structures are recognized in corporate as well as tax laws. Special purpose vehicles and holding companies have a place in legal structures in India, be it in company law, the takeover code under the Securities and Exchange Board of India or even under the income-tax law. When it comes to taxation of a holding structure, at the threshold, the burden is on the Revenue to allege and establish abuse, in the sense of tax avoidance in the creation and/or use of such structures. In the application of a judicial anti-avoidance rule, the Revenue may invoke the "substance over form" principle or "piercing the corporate veil" test only after it is able to establish on the basis of the facts and circumstances surrounding the transaction that the transaction in question is a sham or tax avoidant. (vi) The legal position of any company incorporated abroad is that its powers, functions and responsibilities are governed by the law of its incorporation. Though it may be advantageous for parent and subsidiary companies to work as a group, each subsidiary will look to see whether there are separate commercial interests which should be guarded. Whether the parent company has "power" over the subsidiary depends on the facts of each case. In the case of multinationals their subsidiaries have a great deal of autonomy in the country concerned except where subsidiaries are created or used as a sham. The directors of the subsidiary under their articles

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 33 - are the managers of the companies. They are not to be dictated by the parent company if it is not in the interests of those companies (subsidiaries). The fact that the parent company exercises shareholder's influence on its subsidiaries cannot obliterate the decision-making power or authority of its (subsidiary's) directors. The decisive criteria is whether the parent company's management has such steering interference with the subsidiary's core activities that the subsidiary can no longer be regarded to perform those activities on the authority of its own executive directors.(vii) A typical large business corporation consists of sub-incorporates. Such division is legal and recognized by company law, laws of taxation, takeover codes. The parent is the only group member that normally discloses financial results. Below the parent company are the subsidiaries which hold operational assets of the business and which often have their own subordinate entities that can extend layers. Subsidiaries are often created for tax or regulatory reasons. They at times come into existence from mergers and acquisitions. As group member, subsidiaries are financially interlinked. Such grouping is based on the principle of internal correlation. 82. A thought full consideration of the aforementioned decision of the Hon'ble Supreme Court would show that even the Apex court have recognized that multinationals and multi entities group companies constitute subsidiaries in furtherance to their objects and to carry on their business smoothly in a competitive world. Moreover no person would arrange its affairs in such a manner which would culminate into huge losses to the extent of USD 506 millions as was suffered by the assessee group in this transaction. 83. Having established that the ownership of IPR/ANDA rights of Pantoprazole Sodium was with SPG BVI, now let us examine the applicability of the most appropriate method for determining the arm's length price. 84. OFCD guidelines for profits spilt method (PSM) states as under:- C. Transactional profit split method C.1 In general 2.108 The transactional profit split method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction (or in controlled transactions that are appropriate to aggregate under the principles of paragraphs 3.9-3.12) by determining the division of profits that independent enterprises would have expected to realise from engaging in the transaction or transactions. The transactional profit split method first identifies the profits to be split for the associated enterprises from the controlled transactions in which the associated enterprises are engaged (the "combined profits"). References to "profits" should be taken as applying equally to losses. See paragraphs 2.124- 2.131 for a discussion of how to measure the profits to be split. It then splits those combined profits between the associated enterprises on an economically valid basis that approximates the division of profits that would have been anticipated and reflected in an agreement made at arm's length. See paragraphs 2.132 -2.145 for a discussion/6f how to split the combined profits.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 34 - C.2 Strengths and weaknesses 2.109 The main strength of the transactional profit split method is that it can offer a solution for highly integrated operations for which a one-sided method would not be appropriate. For example, see the discussion of the appropriateness and application of profit split methods to the global trading of financial instruments between associated enterprises in Part III, Section C of the Report on the Attribution of Profits to Permanent Establishments.2 A transactional profit split method may also be found to be the most appropriate method in cases where both parties to a transaction make unique and valuable contributions (e.g.contribute unique intangibles) to the transaction, because in such a case independent parties might wish to share the profits of the transaction in proportion to their respective contributions and a two-sided method might be more appropriate in these circumstances than a one-sided method. In addition, in the presence of unique and valuable contributions, reliable comparables information might be insufficient to apply another method. On the other hand, a transactional profit split method would ordinarily not be used in cases where one party to the transaction performs only simple functions and does not make any significant unique contribution (e.g. contract manufacturing or contract service activities in relevant circumstances), as in such cases a transactional profit split method typically would not be appropriate In view of the functional analysis of that party. See paragraphs 3.38-3.39 for a discussion of limitations in available comparables.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 35 - 87. The relevant agreement which is placed on record and has been dealt elsewhere clearly establishes that the appellant company SPIL is nothing but a contract manufacturer of SPG BVI. Now let us examine the relevant provisions of the Act read with Rules. Determination of arm's length price under section 92C. 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction --[or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:- d) profit split method, which may be applicable mainly in international transactions --[or specified domestic transactions]involving transfer or unique intangibles or in multiple international transactions [or specified domestictransactions] which are so interrelated that they cannot be evaluated separately for the purpose of determining the arm's length price of any one transaction, by which- i) the combined net profit of the associated enterprises arising from the international transaction --[or the specified domestic transaction] in which they are engaged, is determined; (ii) the relative contribution made by each of the associated enterprises to the earning of such combined net profit, is then evaluated on the basis of the functions performed, assets employed or to be employed and risks assumed by each enterprise and on the basis of reliable external market data which indicate how such contribution would be evaluated by unrelated enterprises performingcomparable functions in similar circumstances; (iii) the combined net profit is then split amongst the enterprises in proportion to their relative contributions, as evaluated under sub-clause (ii); (iv) the profit thus apportioned to the assessee is taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction] : Provided that the combined net profit referred to in sub-clause (i) may, in the first instance, be partially allocated to each enterprise so as to provide it with a basic return appropriate for the type of international transaction --[or specified domestic transaction] in which it is engaged, with reference to market returns achieved for similar types of transactions by independent enterprises, and thereafter, the residual net profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution in the manner specified under sub-clauses (ii) and (iii), and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual net profit apportioned to that enterprise on the basis of its relative contribution shall be taken to be the net profit arising to that enterprise from the international transaction --[or the specified domestic transaction];

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 36 - (e) Transactional net margin method, by which,-- (i) the net profit margin realized by the enterprise from an international transaction[or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realized by the enterprise and referred to in sub-clause(i) is established to be the same as the net profit margin referred to in sub-clause(iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction]; 88. PSM is applicable when the international transaction involved transfer of unique intangibles (in the case in hand there is no such transfer from SPG BVI to SPIL), or in multiple international transaction which are so inter related that they cannot be evaluated separately for the purpose of determining the arm's length price of any one transaction. This is also absent (in the case in hand as the appellant company has done only manufacturing of Pantoprazole Tablets for SPG BVI). 89. Coming to the application of TNMM, we find that the profit margin benchmark by the assessee at 21.57% on sales transactions is much higher than the margin shown by the assessee with Eli Lily. 90. The revenue authorities have compared the agreements of SPIL with Eli Lily and SPIL with SPG BVI and have come to the conclusion that a conspectus reading of the relevant clauses show that the assessee is not a contract manufacturer in the case of SPG BVI. This finding of the revenue authorities is not acceptable for the simple reason that they have compared the clauses of the respective agreements without considering the nature of work done by SPIL. It may be possible that certain terms and conditions may be absent in the agreement between the assessee and SPG BVI but that itself would not deny the assessee, the status of contract manufacturer. In our considered opinion, the assessee has performed only one function and that is manufacturing ofPantoprazole Sodium and for this, the demonstrative evidence is exhibited at pages 569 and 570 of the paper book, and as mentioned elsewhere, clearly establishes the ownership of ANDA with Sun Pharma Global. For the sake of completeness, it would not be out of place to mention that the print out of these documents were taken from the Website on 28.09.2011 and 27.09.2011 and the order of the First Appellate Authority is 14.10.2014 and yet the FAA has observed that the assessee did not furnish ANDA related documents filed by SPG. SPGmay not have done any filing related to Pantoprazole Sodium patent to US FDA but the fact of the matter and which have been demonstrated successfully by the appellant

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 37 - company is that the IPR/ANDA rights became the property of SPG BVI by virtue of the agreement for sale between SPARC and SPG. 91. Adverting to assessee's alternate and without prejudice contention that even if PSM is he ld to be the most appropriate method for a moment than also the same has to be considered in the light of the sequence of events starting from the manufacturing and sales of the drug Pantoprazole and ending with the out ofcourt settlement and the payment of settlement compensation of USD 506 million The settlement is based on the cumulative profits earned by the AE till the date of settlement. here is no dispute and it has been accepted by both the lower authorities that after the out of court settlement of the litigation the assessee group has suffered losses which were based on the aggregate of profits earned by the group over all the year. With the settlement based on aggregate of yearly profits then even if the Profit Split Method is applied than the set off of each year losses has to be given for the corresponding year. The undisputed compensation being settled on the base of all yearly profits made by the AE during the exclusivity period PSM cannot be worked by divorcing the business realities. The contention of revenue that it is not concerned with the settlement which is pass event is untenable. Even if the PSM is applied the relatable losses which were so apparent by the time assessment was framed cannot be given a go by on unsustainable revenue stand. In such eventuality even the ALP offered by assesse as a contract manufacturer also will be wiped out. The PSM application may actually result in reduction of returned ALP working. Thus, considering the issues from all possible angles, the assessee has, undisputedly and as accepted by revenue, ultimately suffered losses which are not claimed in its books or tax purposes. Even the alternative application of PSM fails and would do no good to the Revenue . 92. To summarize in nutshell , by the order of the Hon'ble High Court Innovative Research and Development /division of the appellant company was demerged and given to Sun Pharma Advance Research company (SPARC) subsequently SPARC transferred ANDA rights to SPG BVI. SPG BVI has been entered into an agreement with the appellant company SPIL for the manufacturing of Pantoprazole. Pursuant to this agreement assessee manufactured Pantoprazole and sold the same to Caraco Ltd on the directions of SPG BVI. On such sale transaction, the appellant company had shown a net margin of 21.57% bench mark the same on transactional net margin method which was dismissed by the revenue authorities questioning firstly, the ANDA rights with SPG BVI and secondly, comparing the contract manufacturing agreement of SPIL with SPG BVI and SPIL with ELI Lily. The revenue authorities ultimately applied profit spilt method and made the upward adjustment. 93. As demonstrated elsewhere, the IPR/ANDA rights were very much with SPG BVI who entered into an agreement with the appellant company for the manufacturing of the said drug. The application of Transactional Net Margin Method is the most appropriate method in such sale transaction and has been benchmarked by the assessee by showing it to be higher than the margin earned from the sales made to Eli Lily. 94. Considering the facts in totality in the light of the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. (supra) and on conspectus understanding of the facts as discussed elsewhere, we do not find any merit in the findings of the First AppellateAuthorityin accepting theapplication of PSM as the MAM , in our understanding of the facts TNMM is the MAM on the

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 38 - given facts and the same is accepted as such. We set aside the findings of the ld. CIT(A) and direct to delete the addition of Rs. 612,03,39,468/-. Ground no. 5 of the assesse is allowed. 27.As mentioned elsewhere, the facts are identical; therefore, we do not find any reason why the findings of the Tribunal (supra) should not be followed. Respectfully following the findings, we direct the AO to delete the addition of Rs. 103,87,52,830/-. Ground no. 6 is accordingly allowed.

21.1 Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the ld. DR has not brought anything on record contrary to the argument advanced by the ld. counsel for the assessee.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 39 - 21.2 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract has been reproduced in the preceding paragraph. In the light of the ratio decidendi in the above said judgment we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. In view of the above and respectfully following the ITAT order as discussed above, we set aside the order of the Ld.CIT (A). Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.

22.1. The issue, in this case, relates to the two types of drugs as detailed under: i. Drugs under the category of Para VI other than Pantoprazole. ii. Drugs not falling under the category of Para VI

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 40 - 22.2 The facts of the case are similar to the drug sold by the assessee namely Pantoprazole which has been elaborately discussed in the preceding paragraph. The only difference is in the ratio adopted by the TPO in applying the profit split method for determining the ALP in respect of Drugs not falling under the category of Para VI. As such the TPO has applied the profit split method in the ratio of 80:20 in respect such drugs. The assessee share was determined in the ratio of 80% whereas the share of the AE was determined in the ratio of 20% after considering the FAR analysis.

22.3 However, the AO in applying the profit split method for determining the ALP in respect of the Drugs under the category of Para VI other than Pantoprazole adopted the ratio of 50% each between the assessee & its AE as used in the case of Pantoprazole drug. The TPO determined the said of ration under profit split method after considering the FAR analysis.

In view of the above, the TPO made an upward adjustment of Rs. 73,03,24,358 in respect of drug falling under the category of Para-IV other than Pantoprazole and Rs. 21,34,71,777.00 in respect of drug falling under the category of Non-Para-IV. Thus the AO made the addition of Rs. 94,37,96,134.00 in aggrgate to the total income of the assessee.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 41 - 23. Aggrieved assessee preferred an appeal to the Ld.CIT (A) who enhanced the addition in the order of the AO/TPO after having a reliance on the order of his predecessor for the assessment year 2008-09 by observing as under: “8.3.9. On careful consideration of the material available on record, it is noticed that the TPO has applied Residual Profit Split Method and accordingly determined adjusted profit from Para-IV filing drugs at Rs.73,03,24,357/-and from generic drugs at Rs.21,34,71,777/- (Total Rs.94,37,96,134/-) by apportioning the profit in the ratio of 50:50 in case of Para-IV filing and 80:20 in case of generic drugs, between the appellant and its AEs. It is also noticed that the appellant has adopted same methodology as in the case of Pantoprazole in respect of sale of other formulations to its AEs by considering itself a contract manufacturer. As already discussed, the FAR analysis carried out under the similar facts and circumstances of the case in A.Y. 2008-09 by the CIT(A)-IV, Ahmedabad, revealed that the appellant has deployed substantial assets in the form of US PDA approved manufacturing setup, played a substantial rolein preparation of ANDA and drawing marketing plans in USA. The only function performed outside was to provide market support. These findings are squarely applicable to the international transactions in respect of other drugs too. It is also noticed that no activities were carried out by the AEs for value addition in the drugs and accordingly, I hold that the Residual Profit Split Method was rightly applied by the AO/TPO In determining the ALP in respect of the International Transactions of other products. However, it is noticed that in respect of sale of generic drugs, the ratio of 80:20 has been applied for apportionment of the residual profit between appellant and AEs by the TPO/AO which is hereby confirmed. In my considered view, the same ratio has to be applied in respect of Para-IV filing drugs also because functions performed, assets deployed and risks assumed by the appellant are same as in the case of generic drugs. Moreover, it is also noticed the other drugs under Para IV filing category are transacted under the facts and circumstances which are identical to the sale of Pantoprazole, and hence on this account also, ratio of 80:20 needs to be applied for apportionment of residual profits between, the appellant and AEs. Accordingly, an enhancement was proposed in theALP of other products under Para-IV filing drugs resulting into a further upward adjustment of Rs.43,81,94,615/- vide notice dated 17.01.2017. This Notice has already been reproduced in para 8.3.2 above. 8.3.10. Incompliance to the above, the Ld. Authorized Representative, has furnished a written submission dated 25.01.2017, the synopsis of which has already been reproduced in para 8.3.3 above. 8.3.11. It is noticed that the contentions made above are almost similar to those which have been made in response to the enhancement notice pertaining to sale of Pantoprazoie. For the similar reasons and the reasons discussed above in para 8.3.8 & 8.3.9, the same are rejected. The only difference pointed out by the Ld. AR is that the business of other products under Para IV filing namely Amifostine, Oxaliplatin &

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 42 - Nicardipine has been retained by SPG FZE and hence the risk of infringement was not transferred to appellant as in the case of Pantoprazole. However, I find that these drugs were not manufactured and marketed under exclusive right andhence there was hardly any risk of infringement cost. Further no evidence is brought on record by the appellant to show that any cost has also been incurred on this account by the AEs. Accordingly, keeping in view the entire facts and modus operand!" adopted by the appellant to shift huge profits to tax havens, I enhance the income by Rs.43,81,94,615/- by making a further adjustment to ALP of other products under Chapter IV filing drugs by apportioning the residual profit in the ratio of 80:20 between the appellant and AEs. Accordingly, the addition made by the AO/TPO on this account at Rs.94,37,96,134/- is confirmed along with enhancement of income by Rs.43,81,94,615/-. Thus, appellant fails on this account. I am also satisfied that the appellant has furnished inaccurate particulars of income in respect of furtherUpward adjustment of Rs.43,81,94,615/- and accordingly the penalty proceedings u/s.271(1)(c) r.w. Explanation-7 are hereby initiated.” 24. Being aggrieved by the order of Ld.CIT (A), the Assessee is in appeal before us.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 43 - the addition made by the TPO/AO. The relevant extract of the order is reproduced as under:

“34.We have given a thoughtful consideration to the orders of the authorities below qua the issue. As mentioned elsewhere, the reasoning given for making the addition are underline with the reasonings given for making similar additions in A.Y. 2008-09 for the sale of pantoprazole. The only distinguishing fact relates to the sale of certain drugs which are outside the Para IV filing drugs. It is seen that in respect of sales made to SPG BVI, Amifostine & Venlafaxine are sold in US under Chapter IV filing. Similarly, in respect of sales made to SPG FZE, Gemicitabin is a Chapter IV drug. It is seen that the methodology followed in sale of these drugs is similar to the methodology followed in respect of pantoprazole which has been discussed elaborately by the Bench in A.Y. 2008-09 qua ground no. 5 of that appeal in ITA Nos. 3927 & 3420/Ahd/2014. 35.The relevant findings of the Tribunal have been elaborately extracted while deciding ground no. 6 of the present appeal. Therefore, to avoid repetition, . A.Y. 2009-10 respectfully following the findings given while deciding ground no. 6 of the present appeal. We direct the A.O. to delete the addition of Rs. 123577944/-. Ground nos. 7 & 8 are accordingly allowed.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 44 -

28.1 Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the ld. DR has not brought anything on record contrary to the argument advanced by the ld. Counsel for the assessee.

28.2 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract has been reproduced in the preceding paragraph. In the light of the ratio decidendi in the above-said judgment, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune to maintain the judicial discipline and decorum. In view of the above and respectfully following the ITAT order as discussed above, we set aside the order of the Ld.CIT (A). Accordingly, we direct the AO/TPO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 45 - 29. The issue raised by the assessee in the ground no. 6 is that the Ld.CIT (A) erred in not allowing the weighted deduction under section 35(2AB) of the Act in respect of certain expenses.

30.1. However, the AO disregarded the contention of the assessee by observing that it has not claimed the weighted deduction under section 35(2AB) of the Act in the books of accounts. Moreover, the assessee should have filed the revised return of income for claiming the weighted deduction under section 35(2AB) of the Act, but the assessee has not done so. Thus the AO disallowed the weighted deduction claimed by the assessee.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 46 - 31.1 The assessee before the Ld.CIT (A) submitted that it has omitted to claim the weighted deduction under section 35(2AB) of the Act in respect of the expenses for Rs. 689.37 lacs inadvertently in the return of income. But it is a fact that the deduction was claimed under section 35(2AB) of the Act at the rate of a hundred percent. Thus it is not a case where the assessee has not claimed the deduction in the return of income.

31.2 The assessee further submitted that it can claim deduction during assessment proceedings in view of the judgment of the Hon’ble Gujarat High Court in the case of Claris life sciences Ltd reported in 326 ITR 251.

31.3 The assessee also submitted that it is not necessary to get the research and development expenses approved by the DSIR.

31.4 However, Ld.CIT (A) rejected the claim of the assessee by observing that the weighted deduction was not claimed in the income tax return and no revised return was filed for the claim of such weighted deduction.

31.5 The Ld.CIT (A) also observed that the argument of the assessee is not relevant to the effect that it is not necessary to get the expenses certified by the DSIR to claim the weighted deduction as the plea of the assessee was rejected on the preliminary ground i.e. the weighted deduction was not claimed in the income tax return.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 47 -

31.6 In view of the above the ld. CIT-A rejected the claim of the assessee and confirmed the order of the AO.

32.1 The ground of appeal no. 10 raised by the Revenue stands as under:

“10. On the facts and in the circumstances of the case, learned CIT(A) erred in law and facts in directing to allow weighted deduction on the R&D expenses which was not certified by DSIR without appreciating that as per provisions of section 35(2AB), the assessee is eligible to for weighted deduction only in respect of the amount which is certified by the prescribe authority i.e. Secretary, Department of Scientific and Industrial research, government of India.”

32.2 The Ld. AR before us submitted that in the identical facts and circumstances this ITAT in the own case of the assessee in ITA No. 1666/AHD/2016 vide order dated 08-09-2017 has allowed the deduction under section 35(2AB) of the Act.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 48 -

“41.After giving a thoughtful consideration, we find force in the contention of the ld. Senior Counsel. There is no dispute that all the factual details were available before the lower authorities. The claim made by the assessee was purely legal claim as it is eligible for weighted deduction as per the provisions of Section 35(2AB) of the Act. Merely because the same was not claimed in the return of income nor through a revised return of income, the same cannot be denied. The relevant portion of Section 35(2AB) reads as under:- 35[2AB] (1) where a company engaged in the business of [bio-technology or in [any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule]] incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of [a sum equal to [two] times of the expenditure] so incurred. [Explanation.- For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority . A.Y. 2009-10 under any Central, State or Provincial Act and filing an application for a patent under the patents Act, 1970 (39 of 1970).] 42.A perusal of the aforementioned section clearly establishes that expenditure on scientific research is also eligible for weighted deduction. Considering the facts in totality in the light of the provision, we set aside the findings of the ld. CIT(A) and direct the A.O. to allow weighted deduction. Ground Nos. 9 & 10 are accordingly allowed.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 49 - 36. As the facts in the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the same we set aside the order of ld. CIT-A. Accordingly, we direct the AO to Allow the weighted deduction u/s 35(2AB) of the Act as claimed by the assessee. Hence the ground of appeal of the assessee is allowed.

Now coming to the Revenue ground of appeal as discussed above.

37.1 Regarding this we note that the identical issue was also there in the own case of the assessee in ITA No. 1390/AHD/2016 pertaining to the AY 2009-10 which was decided vide order dated 22-12-2016 as held under:

“6. We have heard both the parties. Case file perused. There does not appear to be any dispute that the assessee is admittedly an entity running the specified in house research and development facilities. The prescribed authority in the instant case is the "DSIR" i.e. Department of Scientific & Industrial Research, Ministry of Science & Technology, Government of India. This prescribed authority has undisputedly issued "Order of approval of in house Research & Development Facility u/s.35(2AB) of the Income Tax Act, 1961" in Form 3CM on 11.06.2009 as pertaining to the previous year relevant to the impugned assessment year. It further contains a list of assessee's various in house research & development facilities. Ld. PCIT's case as made out in his above extracted findings is that the assessee has failed to produce Form 3CL with respect to approval of its impugned revenue and capital expenses. His view is that the Assessing Officer ought not to have accepted assessee's weighted deduction in absence of the above approval Form 3CL.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 50 -

“5. Having heard Ld. Counsel for the parties and having perused the orders on record, we are broadly in agreement with the view of the Tribunal. Undisputedly, the research and development facility set up by the assessee was approved by the prescribed authority and necessary approval was granted in the prescribed format. The communication in Form 3CM was thereafter, between the prescribed authority and the department. If the same was not so, surely, the assessee cannot be made to suffer. To this extent, the Tribunal was perfectly correct and the Commissioner was not, in observing that in absence of such certification, claim of deduction under section 35(2AB) was not allowable.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 51 - However, neither the prescribed authority nor the Assessing Officer has applied the mind as to the expenditure, be it revenue or or capital in nature, actually incurred in developing the in-house research and development facility. To the limited extent, the Commissioner desired the Assessing Officer to verify such figures, we would allow the Assessing Officer to do so. In other words, in principle, we accept the Tribunal's reasons and conclusions. Merely because the prescribed authority failed to send intimation in Form 3CL, would not be reason enough to deprive the assessee's claim of deduction under section 35(2AB) of the Act. However, in facts of the present case, it would be open for the Assessing Officer to verify the actual expenditure incurred by the assessee.”

37.3 Thus respectfully, following the same, we do not find any reason to interfere in the order of the Ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed.

38.1 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract has been reproduced in the preceding paragraph. In the light of the ratio decidendi in the above-said judgment, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 52 - order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. In view of the above and respectfully following the ITAT order as discussed above, we allow the ground of appeal of the assessee and dismiss the ground of appeal of the Revenue.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 53 - Accordingly, the AO was of the view that the research and development expenses incurred by the assessee on the drugs manufactured by the partnership firms should be allocated to these partnership firms. Thus the AO worked out the research and development expenses pertaining to the firms for Rs. 58,07,48,088/- on the basis of the turnover of the formulations and disallowed the same by adding to the total income of the assessee.

“12,1. Similar disallowance was made in A.Y. 2008-09 after reopening the proceedings u/s. 147. The order u/s. 143(3) r.w.s. 147 for A.Y. 2008-09 was passed by the Assessing Officer on 14.02.2014. The above mentioned issue was challenged before the CIT(A)-2, Vadodara. The appeal of the assessee has been decided by my predecessor vide order dated 31.03.2015 contained in Appeal No. CAB/(A)- 2/387/14~15 (A.Y. 2008-09) and his findings recorded in para-7.3 to7.5.2 are reproduced as under:- "7.3 I have considered the appellant's submission and the AO's observations. The appellant's main contention are that that the product technology developed are completely owned by it and no part of ownership of the product technology or processes developed during such R & D work is for any other party. Besides being a working partner, the appellant in pursuance of the obligation undertaken under the partnership deed had provided these services in relations to the manufacturing activities of the firm and that no R & D activity was carried out for SPI. In relation to the these claims, the appellant has also stated that it has received remuneration and share of profit from SPI, credits of which are available to it to the corresponding debit in the books of accounts of the SPI, and hence the profit were not understated. Another related claim made by the appellant is that the expenditure incurred by it for the partnership firm is as good as its own expenditure because ultimately the appellant is going to be the major beneficiary of any profit earned by the partnership firm as a result of this R & D expenditure.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 54 -

7.3.1 These claims of the appellant are to be examined in view of the different provisions of the IT Act 1961. The share of profit received by the appellant from the firm is exempt from the Income Tax. The remuneration is received from the firm is taxable under the head income from business and profession, as per the provision of clause (v) of section 23 of the IT Act 1961. But the proviso to this section says that where such remuneration or part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted. Now as per the provisions of section 40(b)(i), any payment of salary, bonus, commission or remuneration to any partner who is not a working partner is not allowed as a deduction in computation of the total income of the firm. The explanation 4 to clause (b) says that working partner means an individual who is actively engaged in conducting the business.or provision of the firm of which he is a partner. Hence, the appellant being a company cannot be a working partner of a firm for the purposes of provisions of Income Tax Act 1961. Accordingly, any remuneration paid to the appellant is not allowable as a deduction in the computation of the total income of the firm and at the same time such remuneration will not form part of total income of the appellant. Thus, both the share of profit and remuneration received by the appellant from the firm will not form part of its total income and accordingly any expenditure incurred by the appellant for earning such share of profit or remuneration cannot be allowed as a deduction in computation of its total income. Hence it is held that the AO has rightly disallowed the R & D expenditure incurred by the appellant, the results of which have been given by the appellant to the firm SPI in the capacity of its partner for manufacturing drugs by this firm. Hence this contention of the appellant is rejected. Y . 7.4 The other contention of the appellant is that as per section 35, R & D expenditure has been incurred by it for its own business and hence same cannot be debited in the books of accounts of SPI. But as already stated, once it is proved that part of such expenditure has been incurred by the appellant for the purpose of earning of share of profit and remuneration from the firm which is not forming part of its own total income, such expenses cannot be allowed as a deduction in computation -of its total income. The AO has disallowed such expenditure only and it is not a case where such expenses have been directed to be debited in the books of accounts of the firm, SPI. Hence, this contention is nlso rejected. 7.5 The other contentions of the appellant are related to the method adopted by the AO for the purposes of allocation of such R & D expenses to the manufacturing activitiesundertaken by the appellant and the manufacturing activity undertaken by the firm SPI. In this regard, the appellant has submitted that it had submitted working on unit profitability statement before AO during the course of assessment proceedings vide letter dated 21/11/2011 whereby the bifurcation .of turnover between domestic/export and formulation/bulk is clearly evident. These workings have been submitted by the appellant during the course of the current appellate proceedings also and the same are being utilized for the purpose of deciding this issue.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 55 - 7.5.1 The first contention of the appellant is that the partnership firm and the appellant company cater to the different sections of business with underline facts. These differences have been submitted by the appellant which have already been reproduced above. The first difference pointed out is that the partnership firm is only into production of formulation drugs for the domestic market, whereas appellant incurred R & D expenditure on bulk drug segment and formulation segment both and that too for domestic market as well as international market and regulated market. It has been submitted that the partnership firm has sold its product in domestic market only. In this regard, the appellant has also submitted the copy of Financial statement for FY 2007-08 of Sun Pharmaceutical Industries. As per this, the turnover of this firm is 1086.2 crore, which is the same figure as adopted by the Ad in his order. Besides in Clause ‘8' of the Notes on Financial Statement, it has been mentioned that the firm operates in one reportable geographical segment i.e. "within India". On the basis of details furnished by the appellant it is seen that the firm is not into bulk drug formulations. Hence, R & D expenditure related to bulk formulation are not to be allocated towards the expenditure for the firm SPI and the AO has also accepted this contention. But the AO has allocated entire R & D expenditure for formulation drugs in the ratio of total turnover of the appellant and of the firm M/s. SPI. The appellant's claim that R & D expenditure Incurred for export formulations should not be allocated to SPI is found to be correct as SPI has not exported any drug during the FY 2007-08. But at the same time if this method is adopted, then the export turnover of the appellant will have to be reduced from its total turnover for the purposes of computing the allocation of expenses on R & D for formulation drugs. Besides, the appellant's claim is that only an amount of 1651.48 lakhs have been incurred pertaining to domestic formulation business. From the details submitted by the appellant before the AO it is seen that the expenses incurred under different Heads are as follows:- Department Description of department Rs. in Remarks Lacs FDD1 Formulation Anriexure 1651.48 Mainly Domestic market- Development of Oral - 1 mfg at Silvassa, Dadra, Jammu, Halol, LL & 3rt Solids/tablets/capsules {for Domestic, US & Rest Party of the world market) FDD2 Annexure 2 2193.40 Formulation Development of Manufactured by SPIL at Halol or at 3rd party/LL but not by Injectibles {Syringe/Nasal Spray Cream} SPI Mahakali Annexure 3 1618.62 Formulation & Analytical Mainly for US, Europe & Rest Development (For Regulated of the world market. market-US & Europe) Domestic may be negligible. Orgainic Organic synthesis (basic) for Annexure 4 873.62 Only for Bulk Drug/API Only Annexure 5 for Bulk Drug/API Synthesis bulk drugs Organic synthesis 1065.83 Process 7402.95 (process) for bulk drugs Total R & D Expenditure dept. wise

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 56 -

.• 217.96 Regulatory/O Annexure 6 Expenses on accounts a) verseas of Products Registration, Expenses Clinical Trails, Subscription etc. for product for overseas market. 500.89 b) Expenses on accounts Clinical Trails for Domestic market. R & D 4751.79 a) Expenses for Professional Professional Charges for products for Fees overseas market. 167.71 b) Expenses for Professional Charges for products for Domestic market. 62.90 Other.- miscellaneous expenditure 13104.19 Grand Total R & D Expenditure

Thus, the total expenses for formulation drug for domestic market is 1651.48,+ 2193.40 + 167.61 +.62.90 = 4075.49 lakhs. The balance expenditure of 9028.7 lakhs is for the purpose of overseas market. The appellant's claim that only 1651.48 lakhs of expenditure should be considered for allocation to SPI is not acceptable due to lack of proper details filed by it before the AO or during the current appellate proceedings. The Domestic formulations turnover of SPIL is Rs. 1451.25 crores andthat of SPI is Rs.1086.2 crores. Hence, the R & D expenditure related to formulation drug fordomestic purposes is to be allocated in the ratio of these two turnovers. Hence,

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 57 - the R & D expenditure related to the formulationproduction made by the SPI comes to 1086.2/2537.45x 4075.49 =Rs.1744.56 lakhs. 7.5.2 Accordingly, the AO is directed to restrict the disallowance out of - R&D expenses to this figure of Rs.1744.56 lakhs. The appellant gets part relief accordingly."

12.2. It is noticed that the appellant has furnished similar written submission in this year also and the details of various expenses incurred under different heads submitted before the Assessing Officer are as fellows:- Department Description of department Rs. In Lacs Remarks FDD1 Annexure 1 2332.84 Formulation Development of Mainly Domestic market-mfg Oral - Solids/tablets/capsules el Silvassa, Dadra, Jammu, Halo), LL & 3rd Party {for Domestic, US & Rest of the world market) FDD2 Annexure 2 3201.08 Formulation Development of Manufactured by SPIL at Injectibles {Syringe/Nasal lialol or at 3rd party/LL but not Spray Cream} b/ SPI Mahakali Annexure 3 2816.97 Formulation & Analytical Mainly for US, Europe a. Development (For Regulated Rest of the world market. market-US & Europe) Domestic may be negligible. Orgainlc Organic synthesis (basic) for Annexure 4 1142.87 Only for Bulk Drug/API Only 10997.61 Annexure 5 for Bulk Drug/API Synthesis bulk drugs Organic synthesis Process (process) for bulk drugs Total R & D Expenditure dept. wise 812.71 . Regulatory/0 Annexure 6 Expenses on acox'rfc a) verseas of Products Registration, Expenses C".rfJc:.'.~.> Trails, Subscription cLc. for | product for overseas market,, , 1 194.80 b.) Expenses on accounts Clinic:1 Trails for Domestic market R . & : D 640.65 Expenses for Professional Professional Charges for products for Fees overseas market

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 58 - 130.68 b) Expenses for Professional Charges for product for Domestic market — Other miscellaneous . . expenditure Grand Total R & D Expenditure j 12776.45

Since the facts are identical in this year a/so, I respectful/y following the order of my predecessor in appellant's own case as mentioned above, hold that the R&D expenses incurred by the appellant admittedly are also pertaining to SPI/SPS and hence the same are required to be allocated in the ratio of turnover of appellant and SPI/SPS. I also agree with the views of my predecessor that the expenses incurred for Development of Formulation Drugs for domestic market are to be considered only because SPI/SPS has no business outside the country. As per the details furnished the R&D expenses for Development of Formulation drugs for domestic market are Rs.3201.08 + 2816.97 + -194.80+ 130.68 = Rs,6343.53 lacs. Accordingly, the Assessing Officer is directed to work outthe disallowance of R&D expenses out of Rs. 6343.53 lacs in the ratio of domestic turnover of SPI/SPS and SPIL i.e. appellant, after necessary verification of the figures. Thus, appellant succeeds partly in respect of Ground No. 9.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 59 -

“2. On the facts and in the circumstances of the case, learned CIT(A) erred in law and facts in restricting the disallowance of R&D expenses after excluding the export turnover of the assessee for the purpose of computing the allocation of R & D expenses without appreciating that the AO had applied the same pro-rata method of allocating the R & D expenditure which the assessee itself was applying for allocation of the R & D expenditure within the assessee itself was applying for allocation of the R & D expenditure within its units in the ratio of their turnover.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 60 - anything on record which could suggest that the expenditures have not been incurred for the purposes of business. Be it assessee's business or the business of the partnership firm where the assessee is a majority stake holder. In our understanding of the law an expenditure is allowable if it is incurred for the purposes of the business of the assessee. Finding that the assessee is having 97.5% share in the profits of the firm SPI, we do not find any merit in the disallowance made by the A.O. and confirmed by the First Appellate Authority. We, accordingly, direct the A.O. to delete the addition of Rs. 5,30,29,5255/-. Ground no. 12 is accordingly allowed”

“137. Similar issue has been considered and decided by us in assessee's appeal (supra) vide ground nos. 9 to 11 of that appeal. For our detailed discussion therein, ground no. 11 is dismissed.”

49.1 Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the ld. DR has not brought anything on record contrary to the argument advanced by the ld. Counsel for the assessee and the finding of the ld. CIT-A.

49.2 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract has been reproduced in the preceding paragraph. In the light of the ratio decidendi in the

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 61 - above-said judgment, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. In view of the above and respectfully following the ITAT order as discussed above, we allow the ground of appeal of the assessee and dismiss the ground of appeal of the Revenue.

51.1. Accordingly, the assessee claimed that such remuneration is not taxable in its hands as per proviso to section 28(v) r.w.s. 40(b) of the Act. The assessee further submitted that such remuneration cannot also be

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 62 - subject to tax under the section of 115JB of the Act. The assessee accordingly reduces the amount of remuneration while working out the tax liability under the provisions of section 115JB of the Act.

51.2. However, the AO disagreed with the contention of the assessee and held that the amount of share of profit from the partnership is exempted from tax under section 10(2A) of the Act. There is no exemption under section 10 of the Act in respect of the remuneration received from the partnership firm. Accordingly, the AO rejected the claim of the assessee and made the addition of the remuneration while determining the book profit under section 115JB of the Act.

“14. Ground No. 11 is against the action of the Assessing Officer in not considering "remuneration" received from partnership firm (SPI) as share of profit to which provisions of section 10(2A) apply for the purpose of working of book profit u/s. 115JB. This issue has been discussed by the Assessing Officer in paras-6.1.3 and 6.1.4 of the assessment order. The appellant has claimed to have received remuneration of Rs. 15,07,27,535/-from partnership firm, Sun Pharmaceutical Industries (SPI) which was deducted while working out the book profit u/s. 115JB by the appellant. On verification of the facts and material in records, the Assessing Officer held that only the share profit received from the firm can be excluded from the book profit.

14.1. This issue was also involved in A.Y. 2008-09 in the case of appellant. The CIT(A)-IV, Ahmedabad after considering the submission o. the appellant, has upheld the findings of the Assessing Officer. She has elaborately recorded her decision in paras-17.3 to 17.3.13 of the appellate order dated 14.10.2014. On the basis of various decisions of the Hon’ble Courts/Tribunal, it has been held in A.Y. 2008-09 that the computation of book profit is to be done strictly as per Explanation-1 to section 1153B and no assistant from any other section of the Act can be taken for

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 63 - that purposes. In other words, other provisions of the Act applicable to taxable profit would not apply for computation of "book profit". It has been furtherheld that the appellant has to cake net profit from the Profit & Loss Account prepared in accordance Part-II arid III of Schedule-VI of Companies Act, 1956, which is to be increased or reduced by the amounts mentioned in Explanation-1 in order to arrive at book profit. Since the facts are identical in this year also including the submission of the Ld. Authorized Representative, I respectfully following the order of CIT(A)-IV, Ahmedabad, hold that remuneration of Rs. 15,07,27,535/- cannot be deducted while computing the book profit u/s. 115JB. Circular No.8/2014 dated 31.03.2014 relied upon by the appellant is entirely on different issue. Accordingly, the action of Assessing Officer in this regard is upheld and Ground No. 11 is dismissed.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 64 -

“60. This issue was also involved in the case of the appellant in A.Y. 2008-09 wherein the claim of deduction of remuneration received from the partnership firm SPI for the determination of Book Profits u/s. 115JB was denied by the revenue authorities. We find that when the matter was agitated before the Tribunal, the Tribunal also declined to interfere with the findings of the ld. CIT(A). The relevant findings of the Tribunal read as under:- 110. We have considered the facts, circumstances, relevant provisions and rival submissions,. A harmonious reading of the provisions of section 115JB of the Act reflects that in the case of a company subject to the provisions of Section 115JB of the Act has to prepare P&L statement in accordance with the provisions of part (ii) of Schedule (vi) of the Companies Act. 111. The relevant clause of Explanation 1 reads as under:- Explanation [1]- For the purposes of this section, "book profit" means the [profit] as shown in the [statement of profit and loss] for the relevant previous year prepared under sub-section (2), as increased by - (f) the amount or amounts of expenditure relatable to any income to which [section 10(other than the provisions contained in clause (38) thereof) or [***] section 11 or section 12 apply; or] 112. And as reduced by :- (ii) the amount of income to which any of the provisions of [section 10 (other than the provisions contained in clause (38) thereof) or [***] section 11 or section 12 apply, if any such amount is credited to the [statement of profit and loss]; or 113. And section 10(2A) of the Act says that in the case of a person being a partner of a firm which is separately assessed as such his share in the total . A.Y. 2009-10 income of the firm will not form part of total income. Explanation to Section 10(2A) provides that the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding, anything contained in any other law, to be an amount which bears to the total income of the firm, the same proportion as the amount of a share in the profits of the firm in accordance with the partners deed bears to such profits. 114. Thus, it is clear that firstly the profit and loss account of the company should be in accordance with the relevant provisions of the Companies Act. Secondly, only specified items have to be added back as provided in various clauses to Explanation 1 and reduced by specific items provided thereon. The only specific amount of income which has to be reduced is the income to which provisions of Section 10, 11 or 12 apply, if any such amount is credited to the Profit and Loss account and Section 10(2A) defines such income as the share of profit of a partner from the partnership firm, the language is clear and unambiguous and needs no other insertion or deletion. The remuneration to partner may have the color of appropriation of profit of a partnership firm as held by the Hon'ble Supreme Court

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 65 - and Hon'ble High Courts in various decisions relied upon by the ld. Senior Counsel but as mentioned elsewhere, Section 115JB is a complete code in itself. Therefore, if the remuneration is credited by the appellant company in its Profit and Loss account then the same could be reduced it specifically provided under the Explanation to Section 115JB of the Act which we find missing from the relevant provisions. We, therefore, do not find any merit in this claim of the assessee and accordingly we confirm the findings of the First Appellate Authority. Ground no. 9 is dismissed.” 57. As facts in the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the finding of the tribunal (supra), we direct the AO accordingly. Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the Ld. AR has not brought anything on record contrary to the finding of the Ld. CIT-A.

57.1 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract has been reproduced in the preceding paragraph. In the light of the ratio decidendi in the above-said judgment, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. In view of the above and respectfully following the ITAT order as discussed above, the ground of appeal of the assessee is dismissed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 66 -

“16.2. I have carefully considered the facts on records and submission of the Ld.Authorized Representative. In respect of proportionate disallowance of deduction u/s.10B on unrealized sale proceeds of Rs.40,64,118/- from both the eligible units, I find that the appellant has failed to prove that these sale proceeds have been realized within the stipulated time period including the time extended by the competent authority. As per provisions of section 10(3), the deduction shall not be admissible in respect of the sale proceeds which are not received in or brought into India in convertible foreign exchange within the period of six month from the end of previous year or within such further period as the competent authority may allow in this

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 67 - behalf. No proof of extension of time by competent authority was available with the appellant at the relevant time. Since the appellant has not complied with the requirements of this section, I uphold the disallowance made by the Assessing Officer. It may also be mentioned here that under the similar facts and circumstances of the case, CIT(A)-IV, Ahmedabad has also confirmed the disallowance vide para 21.3 of the order in A.Y. 2008-09. In view of the above discussion, Ground No.13 is dismissed.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 68 -

“87.We have considered the facts in issue carefully. The Tribunal in its order for A.Y. 2008-09 in ITA Nos. 3297 and 3420/Ahd/2014 had considered a similar issue vide ground no. 14 of that appeal and held as under:- 138. An identical issue was considered by the Bench in assessee's own case in ITA No. 1558/Ahd/2006 qua ground no. 3 of that appeal. The relevant findings read as under:- Ground no. 3 relates to the reduction of unrealized export proceeds of Rs. 638.82 lacs from export turnover for the purpose of deduction u/s. 80HHC. 6. The ld. Counsel stated that an identical issue has been considered by the Tribunal in assessee's own case for A.Y. 2001-02 wherein the issue has been set aside to the files of the A.O. The ld. counsel prayed for a similar direction should be given for the year under consideration also. The ld. D.R. did not object to this. We find that an identical issue was considered by the Tribunal in assessee's own case for A.Y. 2001- 02 at Para 6 on page 12 of ITA Nos. 3289 & 3434/Ahd/2003 and at Para 6.3 the Tribunal had directed the A.O to apply the provisions of section 155(13) of the Act and decide the issue afresh. 7. Respectfully, following the decision of the co-ordinate Bench, we direct the A.O. accordingly. Ground no. 3 is treated as allowed for statistical purposes. 139.Respectfully following the same, we direct the A.O. accordingly. Ground no. 18 is treated as allowed for statistical purpose

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 69 - 65.1 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract has been reproduced in the preceding paragraph. In the light of the ratio decidendi in the above-said judgment, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. In view of the above and respectfully following the ITAT order as discussed above, the ground of appeal of the assessee is allowed for statistical purposes.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 70 - Sr. No. Location Name of the party Voucher No. Repairing expenses Amount Rs.

1 Halol EOU Mutech Engineers 313PUA0018 1,04,719/-

2 Halol EOU H 3 International 313PUA3154 4,00,000/- 3 Karkhadi Vam Services 403PUA0553 2,50,267/- 4 Karkhadi Iron Exchange Services 403PUA2126 26,520/- Ltd 5 Silvassa Soatce Engineers Mktg 07ePUA6828 2,38,474/- Pvt. Ltd.

6 Panoli A P Engineering & 075PUA3527 11,94,050/- Fabrications

7 Panoli Pradip PowerTech Pvt. 075PUA5619 3,82,438/- Ltd., Total... 25,96,468/-

68.1. In relation to labor charges for HDPE pipeline assessee claimed that such expenses were incurred by it to discharge the effluent generated from the plants for compliance of the requirement of the GPCB as well as GIDC authorities. These expenses do not bring any commercial

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 71 - advantage to the assessee as well as there is no additional benefit derived by it as compared to the original mode of discharge of effluent.

68.2 However, the AO disregarded the contention of the assessee by treating the said revenue expense as capital. Accordingly, the AO disallowed the expenses after giving the benefit of depreciation on the said capital expenses. Thus the AO disallowed the remaining amount of Rs. 18,27,185/- and added the same to the total income of the assessee.

“17.2. I have carefully considered the facts on records and submission of the Ld. Authorized Representative. The issue under consideration is as to whether expenditure made by the appellant for purchase of various items will amount to creation of new assets with an enduring benefit to the company. In this regard/ it is worthwhile to refer to the ratio laid down by the Hon'ble Supreme Court in the case of Daimia Jain & Go. Ltd. Vs. CIT (1971) 81 ITR 754 wherein it has been held that "in deciding whether a particular expenditure is a capital in nature, what the Courts have to see as to whether the expenditure in question was incurred to create any new assets or was incurred for maintaining the business of the company, if it is the former, it is capital expenditure. If it is the latter, it is revenue f expenditure". In this background, the items purchased by the appellant company have to be dealt with accordingly. (a) Purchases of Rs.1,04,719/-- from Mutech Engineers:- It is noticed that,the appellant has purchased panel boards for MCC (Motor Control Centre)which is in the nature of replacement of a part of larger machine. It is not, also capable of being used as an independent machinery and hence has to be treated as revenue expenditure. The Assessing Officer is directed accordingly. (b) Purchases of Rs.4,00.OOP from H.3. International;- It is noticed that, the appellant has purchased Copeland compressor used for refrigerating and hence it is a part of refrigerator. The compressor cannot be used as an independent machine and hence the same has to be treated as revenue expenditure. The Assessing Officer is directed accordingly.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 72 - (c) Purchases of Rs.2,50,267/- from Vam Services:- It is noticed that, the appellant has purchased a low temperature heat exchanger which can beused as an independent machine and hence the expenditure on this account has to be treated as capital expenditure. The Assessing Officer is directed accordingly. (d) Purchases of Rs.26,520/- Iron Exchange Service Limited;- It is noticed that, the appellant has purchased rota-meter which is a part of major machine used in IMAOH line. It cannot be used as an independent machine and hence the same has to be treated as revenue expenditure. The Assessing Officer is directed accordingly. (e) Purchases of Rs.2,38,474/- from Solace Marketing Private Ltd.:- It Isnoticed that, the appellant has purchased B & R make PLC system which is capable of being used as an independent machine and hence the expenditure on this account has to be treated as capital expenditure. The Assessing Officer is directed accordingly. (f) Purchases of Rs. 11,94,050/- from A P Engineers & Fabrications;- It isnoticed that, the appellant has incurred this expenditure towards laying of pipe line from factory of the assessee to GIDC pumping station. Since a new asset of enduring nature has been created, the expenditure has to be treated as capital in nature. The Assessing Officer is directed accordingly. (g) Purchases of Rs.3,82,438/- from Pradip Powertech Pvt. Ltd.:- It isnoticed that, the appellant has purchased a vacuum circuit breaker which is a part of larger machine and hence the same has to be treated as revenue expenditure. The Assessing Officer is directed accordingly.

17.3. In view of the above discussion, Ground No. 14 is partly allowed.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 73 - 72. We have heard the rival contentions and perused the materials available on record. At the outset, we note that the impugned issue is not covered in favor of the assessee as claimed by the Ld.AR of the assessee. The relevant extract of the ITAT order (supra) is extracted below:

“93.We have carefully considered the orders of the authorities below. We find that following expenses were incurred by the assessee - (a)Kiran Pumps for Rs. 1,59,000/-:- The assessee has purchased LUTZ Pump FLP single motor which is capable of functioning independently without assistance of any other plant & machinery. Therefore, it can be said that a new capital assets has come into existence and hence the expenditure is treated as capital expenditure. (b) Martin Christ GMBH of Rs. 5,53,436/-:- the appellant has purchased Freeze Dryer Beta with accessories for the purposes of drying process of organic solvents. The assessee has also incurred labour charges on installation of this dryer. The factual matrix shows that new capital assets . A.Y. 2009-10 have come into existence and, therefore, the purchase cost and labour charges are treated as capital expenditure. (c) Communica Aids of Rs. 1,52,250/-:- The appellant has purchased Tata Make IOX 160 EPBAX System with 16 trunk lines and 4 E &M Circuits. The configuration of this machine itself shows that it is capable of being used as independently and a new asset has come into existence the same has to be treated as capital expenditure. (d) Purchases from Mutech Engineering & Ushail Sales and Services amounting to Rs. 2,33,734/-, Rs. 9,35,550/- and Rs. 2,05,441/-:- The appellant company has purchased Copper Busbar 1 MTR for 3000 KVA Transformer and 2 panel boards for MCC (Motor Contrl Centre). The details show that these items have been purchased to replace the electrical items damaged in fire. All these items form part of 3000 KVA Transformer and has no used independently. Therefore, the same have to be treated as revenue in nature. 94.We, accordingly, direct the A.O. to treat Rs. 13,74,725/- as revenue expenditure and the balance is confirmed as capital expenditure. The A.O. is directed to re- compute the claim of depreciation as per the provisions of the law. Ground no. 19 is partly allowed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 74 - AR for the assessee, we do not find any reason to disturb the finding of the ld. CIT-A. Hence the ground of appeal of the assessee is dismissed.

75.1 On a question by the AO, the assessee claimed that it had not incurred any interest expense for earning such exempt income. The assessee further submitted that it had earned net interest income of Rs. 1047.70 million during the year under consideration. The assessee also claimed that it has sufficient owned fund exceeding the investment.

75.2. There is no direct and active involvement in the purchase and sale of tax-free investments. The assessee has investments in its overseas subsidiaries, mutual fund, and capital of partnership firms.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 75 - 75.3. In case of partnership firm, the profit accrued to it was not exempted in the hands of the partnership firm. The partnership has credited only the share of profit which is not the income in the hands of the partners but credit to partner’s capital account. Further assessee earned interest income and remuneration from partnership firm which is taxable. Thus the provision of section 14A does not apply to the investment in a partnership firm.

75.4. However, the AO disregarded the contention of the assessee and worked out the disallowance in the manner provided under section 14A read with rule 8D of Income Tax Rule as given below:

Disallowance of interest expenses Rs. 5,82,987/- Disallowance of administrative expenses Rs. 4,17,40,201/-

“19. Ground No. 16 pertains to disallowance made u/s. 14A read with Rule 8D amounting to Rs.4,23,23,188/-. This issue has been discussed by the Assessing Officer in para-13 of the assessment order. The Assessing Officer noticed that the assessee company has incurred interest expenditure of Rs.44,2S/222/- during the year under consideration. Since the company has earned exempted income of Rs.634.29 crores from the partnership firm, the Assessing Officer invoked the provisions of section 14A read with Rule 8D and worked out consequential disallowance of a sum Of Rs,5,82,987/- out of the interest expenditure. The Assessing Officer has further disallowed a sum of Rs.4,17,40,201/- being 0.5% of average value of investment of Rs. 834,80,40,2297- resulting into exempt income. The similar disallowance was also made in A.Y. 2008-09 and the CIT(A)-IV, Ahmedabad vide paras 25.2 to 25.3 of order dated 14.10.2014 has confirmed the disallowance made by the Assessing Officer with the direction that the remuneration which was treated as exempt income, should be excluded while computing the disallowance since the

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 76 - remuneration had been separately taxed as fee for usage of brand/patent/trademark. The facts and circumstances of the disallowance are identical in this year also and hence the disallowance made by the Assessing Officer is confirmed following the above order of CIT(A)-IV, Ahmedabad. However, the Assessing Officer is directed to recalculate the disallowance after excluding the remuneration of Rs.15,07,27,535/- which had been separately taxed as fees for usage of brand/patent/trademark only if the same has been considered for computation of disallowance u/s.14A. Thus, Ground No.16 is stands partly allowed.”

“99.After considering the facts in issue before us. We find that a similar issue was decided by the Tribunal in ITA Nos. 3297 and 3420/Ahd/2014 vide ground no. 17 of that appeal. The relevant findings read as under:- 153. A similar issue was considered by the Bench in A.Y. 2007-08 in ITA No. 2076 & 2067/Ahd/2013, and the relevant findings read as under:-

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 77 - 52. Coming to the disallowance made u/s. 14A by the First Appellate Authority, it is an undisputed fact that the assessee was having sufficient own funds for making the investment in the partnership firm. It is also true that the assessee was on a contractual obligation to look after the marketing and distribution activities of the firm SPI as per the partnership deed read along with the supplementary deed to earn remuneration from the partnership firm. However, it is equally true that a reasonable disallowance of expenditure should be made for earning the exempt income so far as the share of profit from the partnership firm SPI is concerned. We are conscious about the fact that Rule 8D is not applicable for the year under consideration but at the same time for the computation of disallowance for administrative expenditures, the formula given under Rule 8D is the most appropriate method for the computation of the disallowance. We accordingly direct the A.O. to compute the disallowance so far as administrative expenditures are concerned as per Rule 8D of the ITAT Rules r.w.s. 14A of the Act. We accordingly set aside the disallowance of Rs. 27,55,18,783/- made by the First Appellate Authority and direct the A.O. to re-compute the disallowance as directed hereinabove. Ground no. 8 is allowed in part for statistical purpose. 154. The only distinguishing fact for the year under consideration is that Rule 8D in fact is applicable for the year under consideration and, therefore, we direct the A.O. to compute the disallowance for administrative expenditure as per the formula given under Rule 8D. Ground no. 17 is treated as allowed for statistical purpose.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 78 - 82. The issue raised by the assessee in the ground of 12 is that the Ld.CIT (A) erred in confirming the addition made by AO of the expenses disallowed u/s 14A of the Act for computing the book profit u/s 115JB of the Act.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 79 -

“104. The Tribunal in A.Y. 2008-09 in ITA No. 3297 & 3420/Ahd/2014 had the occasion to consider the dispute vide ground no. 10 of that appeal and held as under:- 119. We have considered the orders of the authorities below and have given a thoughtful consideration to the order of the Hon'ble Jurisdictional High Court in the case of Alembic Ltd. The Hon'ble High Court was seized, interalia, with the following substantial question of law:- (iii) whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that adjustment made on account of disallowance u/s 14A of the Act in computation of book profit u/s 115JB of the Act is not as per law without appreciating that the amount disallowable under section 14A is covered under clause (f) of Explanation to section 115JB(2) and, thus, said amount has to be added back while computing amount of book profits? 120. Relevant findings of the Hon'ble High Court read as under:- 7. So far as issue Nos. (iii) and (iv) are concerned, the learned counsel for the assessee has relied on the decision of this court in the case of Commissioner of Income-tax-1 v. Gujarat State Fertilizers & Chemicals Ltd., reported in (2013) . A.Y. 2009-10 358 ITR 323 (Gujarat) where this court has held in paragraph Nos. 6 to 6.5 this court has observed as under: "6. So far as the fourth question is concerned, it pertains to addition of Rs.1,14,43,0407- under Section 115JB of the Act being the expenditure estimated on earning of dividend income under Section 14A of the Act. 6.1 The Assessing Officer on referring to the said provision of Section 115JB(2) of the Act added the said amount considering that any amount of expenditure relatable to the income exempted under Section 10 of the Act shall need to be added in the profit shown in the 'Profit and Loss Account'. 6.2 When the matter travelled to the CIT (Appeals), since it deleted the addition of Rs. 1,14,43,040/- while deciding the question no. 1, it consequently deleted such addition under section 115JB of the Act on the ground that this would not serve any purpose. 6.3 The Tribunal decided the said issue as follows:

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 80 - "94. We have considered the rival submissions and we find that similar issue was raised by Revenue as per ground No.3 above in respect of regular assessment of income and while deciding that ground, we have already upheld that disallowance of Rs.5 lakh in respect of administrative expenses will meet the ends of justice and no disallowance is called for in respect of interest expenditure. Hence, for the purpose of computing book profit u/s 115 JB of the Act also, we hold accordingly and confirm the addition of Rs.5 lakh. This ground of Revenue's appeal is partly allowed." 6.4 As rightly held by both, the CIT (Appeals) and the Tribunal, this issue has a direct correlation with the first question. It was argued by the Revenue that while computing the book profit under Section 115JB of the Act, the disallowance of interest expenditure on exempt income was wrongly negative by both the authorities on the ground that it was not the liability for expenses, but a liability relating to assets. 6.5 We find no fault in the approach adopted by both the authorities. The addition under section 115JBof the Act of a sum of Rs. 1,14,43,040/- when was made as an expenditure estimated on earning of dividend income under Section 14A of the Act, without reiterating the rationale of confirming deletion of such amount as has been elaborately done at the time of deciding question no. 1, this deletion requires to be confirmed." 8. Taking into consideration the evidence on record and considering the division of this court in the case of Commissioner of Income-tax-1 vs. Gujarat State Fertilizers & Chemicals Ltd. (supra), we are of the opinion that issue Nos. (iii) and (iv) required to be answered in favour of the assessee and against the revenue. In . A.Y. 2009-10 that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal of revenue is dismissed. 121. Respectfully following the decision of the Hon'ble Jurisdictional High Court (supra), we direct the A.O. to delete the addition of expense disallowed u/s. 14A for computing book profit u/s. 115JB of the Act. 105. Respectfully following the findings of the Tribunal (supra), we direct the A.O. to delete the addition of expenses disallowed u/s. 14A for computing book profit u/s. 115JB of the Act. Our view is also fortified by the decision of the Special Bench in the case of Vireet Investment (P) Ltd. 82 taxmann.com 415. Ground no. 21 is accordingly allowed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 81 - tribunal (supra), we direct the AO accordingly to delete the addition of expenses disallowed u/s 14A while computing the book profit u/s 115JB of the Act. Hence the ground of appeal of the assessee is allowed.

91.1. The ld. CIT-A also observed that Hon’ble ITAT has decided the similar issue in assessee’s own case for AY 2004-05, ITA no 1193 & 1287/AHD/2008 dated 22-02-2016, in favor of it on the ground that the expenses incurred for business.

91.2. However the Ld.CIT (A) was of the view that this expenditure of Rs. 74,11,66,808/- have been incurred for earning the exempt income from the partnership firms in view of the undisputed facts that the assessee has earned income from partnership firm at Rs. 634.29 crores as share profit which is not forming part of the total income. Therefore these expenses cannot be allowed as a deduction under section 14A of the Act.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 82 - Hence the ld. CIT-A made the addition of Rs. 74,11,66,808/- u/s 14A r.w.r. 8D and added to the total income of the assessee.

“64.On finding similarity of facts, we have no hesitation in following the decision of the Tribunal given in earlier year and the relevant findings read as under:- 153. A similar issue was considered by the Bench in A.Y. 2007-08 in ITA No. 2076 & 2067/Ahd/2013 and the relevant findings read as under:- 52. Coming to the disallowance made u/s. 14A by the First Appellate Authority, it is an undisputed fact that the assessee was having sufficient own funds for making the investment in the partnership firm. It is also true that the assessee was on a contractual obligation to look after the marketing and distribution activities of the firm SPI as per the partnership deed read along with the supplementary deed to earn

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 83 - remuneration from the partnership firm. However, it is equally true that a reasonable disallowance of expenditure should be made for earning the exempt income so far as the share of profit from the partnership firm SPI is concerned. We are conscious about the fact that Rule 8D is not applicable for the year under consideration but at the same time for the computation of disallowance for administrative expenditures, the formula given under Rule 8D is the most appropriate method for the computation of the disallowance. We accordingly direct the A.O. to compute the disallowance so far as administrative expenditures are concerned as per Rule 8D of the ITAT Rules r.w.s. 14A of the Act. We accordingly set aside the disallowance of Rs. 27,55,18,783/- made by the First Appellate Authority and direct the A.O. to re-compute the disallowance as directed hereinabove. Ground no. 8 is allowed in part for statistical purpose.”

96.1 Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the Ld. DR has not brought anything on record contrary to the argument advanced by the Ld. Counsel for the assessee.

96.2 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract of the order has already been reproduced above. In the light of the ratio decidendi in the said order, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 84 - with full strength. The ld. DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. Hence the ground of appeal of the assessee is allowed for statistical purpose.

Now we take up the Revenue’s appeal in ITA No.922/Ahd/2017 for AY 2010-11

“1. On the facts and in the circumstances of the case, and in law, earned CIT(A) erred in educing the addition on account of interest on loans to AEs and on account of 0% OFCD by 1% ignoring the facts that 100 basis point increase was required on account of Country and foreign exchange risk keeping in view substantial foreign exchange risk involved on account of loan to the AE in dollar & severe fluctuations in the foreign exchange. 2. On the facts and in the circumstances of the case, learned CIT(A) erred in law and facts in reducing the adjustment on account of ALP for Corporate

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 85 - Guarantee Fees from 2,96% to 2% since ALP for each year is assessed on the basis of risk factor of that particular year and said ALP was worked out on the basis of Country and foreign exchange risk 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the addition on account of price difference on sales made to Sun Pharma Indusiries, even when the assessee has not been able to controvert the finding of the AO that raw materials were being sold to related concern at a rate lower than being sold to third parties. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and fads in deleting the addition weighted deduction made u/s.35(2AB) on trade mark registration charges and overseas product registration expenses of Rs.2,17,24,945/- by holding me capital expenditure as expenditure revenue disregarding the facts of enduring benefits. 5. On the facts and in the circumstances of the case, learned CIT(A) erred in I:A and facts in deleting the addition on account of lunch & refreshment and Brokerage on property when expenses do not relates to any R&D activity. 6. On the facts and in the circumstances of the case, the Ld. CIT (A) erred in law and on facts in restricting the disallowance of R & D expenses after excluding the export turnover of the assessee for the purpose of computing the allocation of R & D expenses without appreciating that the AO had applied the same pro-rata method of allocating the R&D expenditure which the assessee itself was applying for allocation of the R&D expenditure within its units in the ratio of their turnover. 7. On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the addition on account of provision of Wealth tax for computation of book profit u/s 115JB without considering the fact that provision for Wealth tax forms part of Income Tax Act, 1961 1 and, therefore, provision of Wealth tax is to be added for the purpose of determination of book profit u/s 115JB. 8. On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in not accepting the assessing officer's decision to disallow w.r.t. section 801 A(4) of the Act and ignored the law as well as fact that the said amount was not for infra structural development by an undertaking as is provided u/s. 80IA(4) (i) read with explanation (a) to (d) or (iv) of the said section. 9. On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the addition on account of disallowance of expenditure incurred on behalf of its sister concern without appreciating the fact that the assessee has used the said arrangements to shift the profit and which is not allowable u/s.37 of the I.T.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 86 - 10. On the facts and in the circumstances of the case, learned CIT(A) erred in law and facts in directing to allow weighted deduction on the R&D expenses which was not certified by DSIR without appreciating that as per provisions of section 35(2AB), the assessee is eligible to for weighted deduction only in respect of the amount which is certified by the prescribe authority i.e. Secretary, Department of Scientific and Industrial research, government of India.”

101.1 However, the assessee in reply to the notice submitted that the outstanding OFCD as on 01-04-2009 have been converted into equity shares in the year 2010-11 and filed the details as under:

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 87 -

OFCD outstanding as on 1st April, 224.93 crores 2009 OFCDs converted into equity shares 202.54 crores on 5th March, 2010 on following terms: [Face Value of USD 1/Rs45 and Premium of USD 45/Rs.2025] The OFCDs have been converted at the rates decided under the OFCD terms that are enclosed for Your Honours’ reference. OFCD Outstanding as on 1st April, 22.39 crores 2010 Which are converted into equity shares in FY 10-11

101.2 Assessee received 9,78,260 share at the price of Rs. 2070 which much lower than the book value of shares. Thus the assessee was compensated by way of shares issue at a lower rate.

101.3 However, the TPO rejected the contention of the assessee by observing that until OFCD are converted into equity, it should be treated as debt. Accordingly, the TPO computed the interest on investment in OFCD of Sun Pharma Global BVI by applying interest rate at 12-month Libor (i.e., 1.28%) plus spread 4.15% aggregating to 5.43% and worked out the amount of Rs. 11,24,64,144/- and added to the total income of the assessee.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 88 -

“6.3. Since the facts were identical in A.Y. 2009-10 and the appellant had also furnished identical submission during the course of appellate proceedings, I had held that the OFCDs remained debt until they are converted into equity on a future date at an option of the investor. Accordingly, Arm's Length predetermined by TPO was upheld in A.Y. 2009-10, subject to 1% reduction in interest rate benchmarked for I exchange fluctuation risks. However, now this issue stands decided in 1 the favour of appellant, vide order dated 10.05.2016 of Hon'ble ITAT, Ahmedabad contained in ITA No. 1589 & 1592/AHD/2011 (A.Y. 2006-07). In that case the TPO made following adjustments:- (i) Interest on loan to AEs at LOBOR plus rate allowed to AEs Rs. 7,83,82,483/- (ii) Interest on 9% OFCD Rs.21,08,42,301/- The relevant portion of order of Hon'ble ITAT is reproduced as under:- "7. Assessee carried the matter before the Ld. CIT(A) and reiterated its claim. After considering the facts and the submissions, the Id. CIT(A) reduced the interest to LIBOR+0.25% from LIBOR+2%. The assessee is disputing the LIBOR+0.25% and the revenue is in dispute for the deletion of 1.75%. 8. We have heard the rival contentions and have carefully perused the orders of the authorities below. At the very outset, we have to state that the revenue has no power to re-characterize the transaction. The Hon'ble High Court of Delhi in the case of Cotton Naturals India Pvt. Ltd. 276 CTR 445 at para 17 of its order has held that Chapter X and Transfer Pricing rules do not permit the Revenue authorities to step into the shoes of the assessee and decide whether or not a transaction should not be entered. It is for the assessee to take commercial decisions and decide how to conduct and carry on its business. Actual business transactions that are legitimate cannot be restructured. A similar view was taken by the Hon'ble Delhi High Court in the case of EKL Appliances Ltd. 345 ITR 241. 9. On identical set of facts, the Co-ordinate Bench had the occasion to consider similar issue in the case of Cadila Healthcare Ltd. in ITA No. 2430/Ahd/12 with C.O. No. 242/Ahd/12 in 146 ITR 502 wherein the first ground related to the adjustment made on account of notional interest on Optionally Convertible Debenture to Foreign Subsidiary. The Tribunal considered the following facts :- 4. During the course of assessment proceedings, Assessing Officer noticed that Assessee had subscribed to Optionally Convertible Loan of U.S. $ 27 Million issued by Zydus International Pvt. Ltd., Ireland. Accordingly reference under Section 92CA of the Act for computing of arms length price in relation to the transaction was made to transfer Pricing Officer (TPO), TPO noted that the Assessee had entered into an agreement with Zydus International Pvt. Ltd. on 09.10.2007 for a convertible loan of U.S $ 27 Million which was subsequently utilized by the Ireland Company for acquiring shares in Zydus Healthcare, Brazil. As per the terms of agreement,

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 89 - 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 loan as on 31.03.2008 was Rs.108.32 crore. It was also noticed that Assessee has not shown any income from the aforesaid loan. In response, Assessee interalia submitted that Assessee had not opted for conversion of the loan during the year and therefore it was loan for the year and as per the terms of agreement, no interest accrued to the Assessee and therefore no income 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 agreement and thereafter considered the rate of interest to be @ 7.38% and accordingly 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 Assessing Officer and the addition of Rs.3,99,74,426/- was made to the income. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee decided the issue in favour of Assessee. 10. And the Tribunal held as under:- 7. We have heard the rival submissions and perused the material on record. CIT(A) while deleting the addition has noted that as 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 into equity, no interest accrued or become payable. He further noted that the funds were provided by the Assessee as per RBI guidelines and in the immediately next year, the entire loan given to subsidiary was converted into equity shares of Zydus International Pvt. Ltd. He has further held that since the Assessee has converted the loan into equity in the immediate next year, there was no question of taxing notional interest. He has further held that Assessee had not. granted interest free loan but invested in optionally convertible loan i with a clause of interest in case, Conversion option was not exercised and further held the Assessee's transaction with subsidiary was at arms length. Before us, the Revenue could not controvert the findings of CIT(A) by bringing any contrary material on record. In view of these facts, we find no reason to interfere with the order of CIT(A). 11. Respectfully following the findings of the Hon'ble High Court (supra) and the Co-ordinate Bench (supra), we direct the A.O, to delete the impugned additions^ Ground no. 2 is accordingly allowed." 6.4 Since the facts are identical in this year also, I respectfully following the order of Hon'ble ITAT which is binding on me, direct the A.O. to delete the addition made on this account. Thus, Ground No. 3 is allowed.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 90 -

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 91 - whereas in the case in hand, the assessee has not produced comparable data to justify that OFCDs were issued at arm's length price. It is strongly contended that since these facts have not been brought on record, therefore, the Bench should not follow its earlier decision. 20. Shri Soparkar ld. senior counsel replying to the submissions of revenuestated that the decision of the Hon'ble Supreme Court in the case of Sahara India Real Estate (Civil Application) No. 9813 of 2011 relied upon by the learned DR is not applicable to the issue before the Hon'ble ITAT. Even if it is held that OFCD is a hybrid instrument as laid down by the Supreme Court, in applying the Transfer Pricing Provisions, the entire instrument has to be considered and the same cannot be re-characterized partly as loan and partly as equity so as to enable any transfer pricing adjustment for the same. In this regard, we rely on the decisions cited earlier, which have been appropriately followed by the Hon'ble ITAT in A.Y. 2007-08 and the decision of the Supreme Court (supra) cited by the ld. DR does not in any way justify any departure from the decision laid down in A.Y. 2007-08. 21. Adverting to ld. DR's contention that the terms of OFCDs and comparables have not been submitted, it is contended that the terms of OFCDs were duly submitted before the lower authorities in the form of Annexure B which is part of the PB. Similarly the allegation that assessee has not brought on record any comparable transactions to show that non-charging of interest was at arms- length and it got compensated by favorable terms similar to that offered by uncontrolled entities is also strongly refuted. It is contended all the relevant details and comparable were furnished as Annexure B in which it has been submitted that the conversion of OFCD into equity shares at a price of USD 21- USD 51 per share as against the net asset value of the shares at the relevant point in time being USD 87 per share. Thus it is clear that the OFCDs were convertible into shares at significant discount to the prevailing book value of the shares giving rise to sizeable benefit on OFCDs. It is also submitted that the OFCDs have been converted into equity shares in the subsequent years; hence, the question of payment of any interest on the OFCDs would not arise, as the same is fully towards capital account. The Ld Senior counsel continued by saying that the Hon'ble ITAT in A.Y. 2007-08 and in earlier years has not committed any error whatsoever in coming to the conclusion, which is duly supported by other decisions and the position prevailing under Law. Hence no departure is called for much less due to the decision of Supreme Court in Sahara (supra). 22. We have given a thoughtful consideration to the rival submissions qua the issue. Adverting to the claim of revenue that in the earlier year, the bench has not considered certain facts while relying upon the decision of the Co-ordinate Bench in the case of Cadila Healthcare. 23. The Hon'ble High Court in the case of A.P.V. Kokkiliagada Meerayya, Masud Khan has laid down the following : 28. There can be no dispute with respect to the settled legal proposition that a judgment of this Court is binding, particularly, when the same is that of a coordinate Bench, or of a larger Bench. It is also correct to state that, even if a particular issue

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 92 - has not been agitated earlier, or a particular argument was advanced, but was not considered, the said judgment does not lose its binding effect, provided that the point with reference to which an argument is subsequently advanced, has actually been decided. The decision therefore would not lose its authority, "merely because it was badly argued, inadequately considered or fallaciously reasoned". The case must be considered taking note of the ratio decidendi of the same i.e. the general reasons, or the genera! grounds upon which the decision of the court is based, or on the test or abstract, of the specific peculiarities of the particular case, which finally gives rise to the decision.(Vide Somawanti v. State of Punjab, Ballabhadas Mathurdas Lakhani v. Municipal Committee, Matkapui, Ambika Prasad Mishra v. State of U.P and Director of Settlements v. M.R. Apparao.) 24. The Hon'ble Jurisdictional High Court of Gujarat in the case of Core Healthcare Ltd. 251 ITR 61 has observed as under:- As laid down by the apex court in the case of Ambika Prasad Mishra v. State of U.P., AIR 1980 SC 1762 ; [1980] 3 SCC 719 (page 1764 of AIR 1980 SC): "Every new discovery or/argumentative novelty cannot undo or compel econsideration of a binding precedent . . . a decision does not lose its authority 'merely because it was badly argued, inadequately considered and fallaciously reasoned' . . ." Similarly in the case of Kesho Ram and Co. v. Union of India [1989] 3 SCC 151, it is stated by the Supreme Court thus (page 160): "The binding effect of a decision of this court does not depend upon whether a particular rgument was considered or not, provided the point with reference to which the argument is advanced subsequently was actually decided in the earlier decision ..." 25. A similar view is again taken by the Hon'ble Jurisdictional High Court of Gujarat in th case of Nirma Industries Ltd. 283 ITR 402. Coming to the facts of the year under consideration, we do not find any distinction from the decision taken in earlier assessment year by the Bench and the relevant findings read as under:- 8. We have heard the rival contentions and have carefully perused the orders of the authorities below. At the very outset, we have to state that the revenue has no power to re-characterize the transaction. The Hon'ble High Court of Delhi in the case of Cotton Naturals India Pvt. Ltd. 276 CTR 445 at para 17 of its order has held that Chapter X and Transfer Pricing rules do not permit Revenue authorities to step into the shoes of the assessee and decide whether or not a transaction should not be entered. It is for the assessee to take commercial decisions and decide how to conduct and carry on its business. Actual business transactions that are legitimate cannot be restructured. A similar view was taken by the Hon'ble Delhi High Court in the case of EKL Appliances Ltd. 345 ITR 241. 9. On identical set of facts, the Co-ordinate Bench had the occasion to consider similar issue in the case of Cadila Healthcare Ltd. in ITA No. 2430/Ahd/12 with C.O. No. 242/Ahd/12 in 146 ITR 502 wherein the first ground related to the adjustment

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 93 - made on account of notional interest on Optionally Convertible Debenture to Foreign Subsidiary. The Tribunal considered the following facts:- 4. During the course of assessment proceedings, Assessing Officer noticed that Assessee had subscribed to Optionally Convertible Loan of U.S. $ 27 Million issued by Zydus International Pvt. Ltd., Ireland. Accordingly reference under Section 92CA of the Act for computing of arms length price in relation to the transaction was made to Transfer Pricing Officer (TPO). TPO noted that the Assessee had entered into an agreement with Zydus International Pvt. Ltd. on 09.10.2007 for a convertible loan of U.S $ 27 Million which was subsequently utilized by the Ireland Company for acquiring shares 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 loan as on 31.03.2008 was Rs. 108.32 crore. It was also noticed that Assessee has not shown any income from the aforesaid loan. In response, Assessee interalia submitted that Assessee had not opted for conversion of the loan during the year and therefore it was loan for the year and as per the terms of agreement, no interest accrued to the Assessee and therefore no income 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 agreement and thereafter considered the rate of interest to be @ 7.38% and accordingly 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 Assessing Officer and the addition of Rs. 3,99,74,4267- was made to the income. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee decided the issue in favour of Assessee. 10. And the Tribunal held as under:- 7. We have heard the rival submissions and perused the material on record. CIT(A) while deleting the addition has noted that as 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 into equity, no interest accrued or become payable. He further noted that the funds were provided by the Assessee as per RBI guidelines and in the immediately next year, the entire loan given to subsidiary was converted into equity shares of Zydus International Pvt. Ltd. He has further held that since the Assessee has converted the loan into equity in the immediate next year, there was no question of taxing notional interest. He has further held that Assessee had not granted interest free loan but invested in optionally convertible loan with a clause of interest in case, Conversion option was not exercised and further held the Assessee's transaction with subsidiary was at arms length. Before us, the Revenue could not controvert the findings of CIT(A) by bringing any contrary material on record. In view of these facts, we find no reason to interfere with the order of CIT(A). 11. Respectfully following the findings of the Hon'ble High court (supra) and the Co-ordinate Bench (supra), we direct the A.O to delete the impugned additions. Ground no. 2 is accordingly allowed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 94 -

107.1 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.) wherein it was held as under: "No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 95 - If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly if a Division Bench differs from the view taken by another Division Bench it does not express disagreement and pronounce its different views, but has the matter posted before a Fuller Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal, so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more members for which there is provision in the IT Act itself."

107.2 In the light of the ratio decidendi above we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR before us has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. Hence the ground of appeal of the Revenue is dismissed.

108.1 An identical issue has been considered and decided by us in assessee's appeal in ITA 929/AHD/2017 vide ground no. 2 and in Para 13 of this order. Thus respectfully following the same as discussed in detail

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 96 - therein, we order accordingly. Hence the ground of appeal of the Revenue is treated as allowed for statistical purpose.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 97 - 4) There was no credit risk involved in respect of transaction with related concerns. 5) Other similar factors like the low volume of sale to third/outside parties.

111.1. The assessee has not received any amount over and above the price charge from the related concerns. Further, the Provisions of section 40A(2)(b) are applicable only concerning the expenses and not the income.

111.2. However, the AO rejected the contention of the assessee and worked out the disallowance due to price difference at Rs. 3,50,78,887/- and added to the total income of the assessee.

“15.1 Under the identical facts and circumstances of the case, the addition was also made in A.Y. 2008-09 and CIT(A)-IV, Ahmedabad, had allowed part relief to the appellant on the ground that the difference in the sales price within the normal range of variation cannot be treated as diversion of profit. However, during the course of appellate proceedings of A.Y.2009-10, the Ld. Authorized Representative have filed copy of order of Hon'ble ITAT, Ahmedabad in the appellant's own case dated 22.02.2016 contained in ITA Nos. 1558 & 1676/Ahd/2006 (A.Y. 2002-03), ITA Nos. 1513 & 1701/Ahd/2007 (A.Y. 2003-04) and ITA Nos. 1193 & 1287/Ahd/2008 (A.Y. 2004-05), wherein the similar issue in A.Y. 2004-05, has been decided in the favour of appellant The Hon'ble ITAT has held that the authorities below have not pointed out any specific provisions under which such addition can be made. Moreover, the provisions of section 40A(2) are applicable only in respect of the payments made to the related parties. It has been further held that the Assessing Officer has not brought on record any claim u/s. 80IB made by the assessee and hence there was no justification for making the addition.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 98 -

“114. Since, the First Appellate Authority has followed the order of the Tribunal in ITA Nos. 1589/Ahd/2011 and 2430/Ahd/2009, therefore, we do not find any error or infirmity in the findings of the ld. CIT(A). Ground no. 3 is accordingly dismissed.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 99 - 116.1 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract of the order has already been reproduced above. In the light of the ratio decidendi in the said order, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. Hence the ground of appeal of the Revenue is dismissed.

117.1 During assessment proceedings the AO found that the assessee has claimed the weighted deduction in respect of R & D expenses @ 150% on the following amounts: Trademark registration charges Rs. 67,10,905/- Overseas product registration charges Rs. 3,67,38,983/-

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 100 - 35(2AB) of the Act. Accordingly, the AO held that no weighted deduction in respect of such expenses could be claimed under section 35(2AB) of the Act. Thus the AO disallowed the excess weighted deduction claimed by the assessee amounting to Rs. 2,17,24,495/- and added to the total income of the assessee.

“10. Ground No. 7 is against the action of the Assessing Officer in holding that the trade mark registration charges of Rs.67,10,905/- and overseas product registration charges of Rs.3,67,38,983/- are not eligible for weighted deduction-and accordingly, the Assessing Officer disallowed a sum of Rs.2,17,24,945/- being weighted deduction u/s 35(2AB). This issue has been discussed by the Assessing Officer in para-5 of the assessment order. I find that basis of disallowance and submissions of the appellant are similar to the A.Y. 2008-09, In A.Y. 2008-09, the CIT(A)-IV, Ahmedabad vide paras-9.3 to 9.7 of order dated 14.10.2014 after elaborately discussing these issues has held that these expenses although are necessary for products marketing and sale overseas, but they have nothing to do with scientific research or in-house R&D. Accordingly, the disallowance of weighted deduction has been upheld. However, now the Hon'ble ITAT, Ahmedabad vide order dated 10.05.2016 contained In ITA No. 1589 & 1592/AHD/2011 (A.Y. 2006-07) under the identical facts, has directed the Assessing Officer to allow the deduction u/s 35(2AB) on Trade mark registration charges and Overseas product registration charges to the appellant. Since the facts are identical in this year also, I respectfullyfollowing the order of Hon'ble ITAT, Ahmedabad in A.Y. 2006-07 which Is binding on me, h-old that the appellant in entitled to claim weighted deduction u/s 35(2AB) on Trade mark registration charges and Overseas product registration charges and hence the Assessing Officer is directed to allow the same. Thus, appellant succeeds in respect of Ground No. 7.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 101 -

“47.After carefully perusing the orders of the authorities below, we find force in the contention of the ld. Senior Counsel. The Tribunal has considered an identical issue vide ground no. 6 of the appeal in ITA No. 3297 & 3420/Ahd/2014 and the relevant findings of the Tribunal read as under:-

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 102 - . A.Y. 2009-10 counsel for the assessee stated that the Tribunal in assessee's own case in earlier years has decided this issue in favour of the assessee and against the revenue in ITA No. 1558/Ahd/2006. The ld. D.R. could not bring any distinguishing decision in favour of the revenue. 14. We have given a thoughtful consideration to the order of the Tribunal in earlier years; we find that the Tribunal while deciding the issue in favour of the assessee has followed the decision of the Co-ordinate Bench, Mumbai in the case of USV Ltd. 54 SOT 615. Findings of the Tribunal read as under:- 24. We have carefully perused the orders of the authorities below. We find that the ld. CIT(A) has simply followed the findings of his predecessor for A.Y. 2000-01. We also find that the assessment order for A.Y. 2000-01 has been quashed by the Tribunal vide a ITA Nos. 1199 & 1279/Ahd/2006, which means that the basis for upholding the disallowance has been removed. We further find that on identical set of facts, the Mumbai Bench in the case of USV Ltd. (supra) has allowed the claim of the assessee in respect of expenditure incurred in respect of patent application. Respectfully, following the findings of the co-ordinate Bench (supra), we direct the A.O to delete the disallowance of Rs. 44,71,906/-. Ground no. 10 is accordingly allowed. 15. Respectfully following the detailed findings given, we direct the A.O to allow the impugned weighted deduction. Ground no. 3 is accordingly allowed. 35.We direct accordingly. Ground no. 6 is allowed. 48.As no distinguishing fact has been considered by the lower authorities, respectfully following the decision of the Tribunal (supra), we direct the A.O. to allow weighted deduction. Ground no. 11 is allowed”. 123. As facts in the case on hand are identical to the facts of the case as discussed above, therefore we are inclined not to disturb the finding of the Ld.CIT (A). Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the ld. DR has not brought anything on record against the finding of the ld. CIT-A, and the argument advanced by the ld. Counsel for the assessee.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 103 - 123.1 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract of the order has already been reproduced above. In the light of the ratio decidendi in the said order, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. Hence the ground of appeal of the Revenue is dismissed.

124.1 The assessee in respect of research and development expenses has claimed weighted deduction under section 35(2AB) of the Act. However, the AO on perusal of the details of research and development expenses found that it has incurred certain expenses which are not eligible for weighted deduction. The details of such expenses are reproduced as under:

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 104 - Lunch & Refreshment Expenses Rs.5,09,964/- Brokerage for Property Rs. 31,000/-

127.1 However, the AO disagreed with the submission of the assessee by observing that the expenses do not relate with the research and development activities. Accordingly, the AO held that no weighted deduction in respect of such expenses can be claimed under section

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 105 - 35(2AB) of the Act. Thus the AO disallowed the excess weighted deduction claimed by the assessee amounting to Rs. 2,70,482/- and added to the total income of the assessee.

“11. Vide Ground No. 8, the appellant has challenged disallowance of weighted deduction u/s. 35(2AB) on expenditure pertaining to lunch and refreshment at Rs.5,09,964/- and brokerage on property at Rs.31,000/-. This issue has been discussed by the Assessing Officer in para-11,1 and 11.2 of the assessment order. I find that the facts pertaining to this issue as well as submission of the appellant are similar to A,Y. 2008-09 where the similar disallowance was also made. The CIT(A)- IV, Ahmedabad vide her order dated 14.10.2014, allowed the weighted deduction after elaborately discussing the facts and reasons in para-10.3 and 12.4 of the order. Since, these expenses relating to lunch and refreshment were pertaining to the employees engaged in R&D activities and brokerage was paid for the property used in R&D Centre, it was held that these expenses qualify for weighted deduction at 150%, Since the facts are identical in this year also, I respectfully following the order of CIT(A)-IV, Ahmedabad, direct the Assessing Officer to allow weighted deduction at 150% on lunch and refreshment and brokerage for property. Thus, Ground No. 8 is allowed.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 106 - 1663/AHD/2016, the ITAT deleted the addition made by the AO. The relevant extract of the order is reproduced as under:

“118. The denial of the weighted deduction u/s. 35(2AB) of the Act has been allowed by the ld. CIT(A) by following the findings of his predecessor given for A.Y. 2008-09. The order of the ld. CIT(A) for A.Y. 2008-09 has been confirmed by the Tribunal in ITA No. 3420/Ahd/2014. The relevant findings read as under:- 159. At the very outset, the ld. Senior Counsel for the assessee brought to our notice that these issues have been considered and decided by the Bench in favour of the assessee and against the revenue in ITA No. 2067/Ahd/2013. We find force in the contention of the ld. Senior Counsel. The Co-ordinate Bench in ITA No. 2067/Ahd/2013 has decided the impugned issues as under:- 69. Ground no.1 relates to the deletion of the disallowance of Rs. 67,620/- claimed as weighted deduction u/s. 35(2AB) of the Act on gift expenses incurred for R & D employees. 70. This issue has been decided in favour of the assessee and against the revenue by the Co-ordinate Bench in ITA No. 1592/Ahd/2011 qua ground no. 2 of that appeal. The relevant part reads as under:- Ground no. 2 relates to the weighted deduction u/s. 35(2AB) on account of gifts to R & D employees on occasion of marriage. 44. We find that an identical issues has been decided in favour of the assessee and against the revenue in the case of Claries Lifesciences Ltd. 112 ITD 307 (Ahd.) which decision has been followed by the ld. CIT(A). The said decision of the Tribunal has been confirmed by the Hon'ble . A.Y. 2009-10 Jurisdictional High Court in Tax Appeal No. 383 of 2008. Now, that the decision of the First Appellate Authority is well supported by the decision of the Hon'ble Jurisdictional High Court. No interference is called for. Ground no. 2 is dismissed. 71. Respectfully following the same, ground no. 1 is dismissed. 72. Ground no. 2 relates to the deletion of the disallowance of Rs. 42,46,000/- claimed u/s. 35(2AB) of the Act on repairs and municipal taxes paid for building utilized for R & D activity. 73. An identical issue was considered by the Co-ordinate Bench in ITA No. 1592/Ahd/2011 qua ground nos. 2 & 3 of that appeal. In ground no. 1 of the present appeal, we have extracted the relevant part of the decision of the Co- ordinate Bench. For the reasons given therein, ground no. 2 is also dismissed. 74. Ground no. 3 relates to the deletion of the disallowance of Rs. 7,91,222/- claimed u/s. 35(2AB) of the Act incurred for lunch, refreshment and brokerage paid for property used by R & D unit employees. 119. Respectfully following the findings of the Co-ordinate Bench (supra), ground no. 5 is dismissed”.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 107 - 131.2 As facts in the case on hand are identical to the facts of the case as discussed above, therefore we are inclined not to disturb the finding of the Ld.CIT (A). Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the ld. DR has not brought anything on record against the finding of the Ld. CIT-A, and the argument advanced by the Ld. Counsel for the assessee.

131.3 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract of the order has already been reproduced above. In the light of the ratio decidendi in the said order, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. Hence the ground of appeal of the Revenue is dismissed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 108 - 131A We have already decided the impugned issues against the Revenue and in favor of the assessee in the ground of appeal bearing no. 7 vide Para No.42 to 45 of this order in ITA 929/AHD/2017. Thus respectfully following the same, we do not find any reason to disturb the finding of the ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed.

133.1 The assessee while calculating book profit u/s 115JB of the Act has not added back the provision for wealth tax of Rs. 10,33,413/-.

133.2 On a question by Assessing Officer, the assessee submitted that provision for wealth tax does not fall under any of the adjustment of clause (a) to (i) of the explanation to section 115JB (2) of the Act.

133.3 Further, submitted that clause (a) of the said explanation refers to the amount of income tax paid or payable and the provision thereof. Though income tax and wealth tax are a direct tax their nature and computation are not similar at all.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 109 - should also be added to book profit for the calculation of MAT. Thus the AO added the provision for wealth tax for Rs 10,33,413/-to the book profit u/s 115JB of the Act.

“13. Ground No.10 is against the action of the Assessing Officer in adding the provisions of Wealth-tax of Rs.10,33,413/- to the book profit for computation u/s.115JB. This issue has been discussed by the Assessing Officer in para-6.1.1 and 6.1.2 of his order and it has been held that the Wealth-tax is of same nature as Income-tax. This issue was also involved in the case of appellant ion A.Y. 2008-09 and the CIT(A)-IV, Ahmedabad vide para-16.2 to 16.2.2 of the appellate order has allowed the appeal of the appellant on this account holding that the Wealth-tax paid, payable or a provision thereof, cannot be treated on par with Income-tax and accordingly the provisions for Wealth-tax was not required to be added to the book profit u/s.115JB. Respectfully following the order of CIT(A)-IV, Ahmedabad, I also direct the Assessing Officer to exclude the provisions of Wealth-tax from the book profit computation u/s.115JB. Thus, appellant succeeds in respect of Group No.10.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 110 -

“129. The ld. CIT(A) followed the decision of his predecessor for A.Y. 2008- 09 and directed the A.O. to exclude the provision of wealth tax from the computation of book profit u/s. 115JB. We find that the order of the ld. CIT(A) was confirmed by the Tribunal in ITA Nos. 3297 & 3420/Ahd/2014 vide ground no. 5 of that appeal. The relevant findings read as under:- 167. There is no dispute that Wealth Tax Act, 1957 imposes the charge of Wealth Tax on the 'net wealth' of every individual, HUF/company as on the valuation date. While Income-tax is tax on income. Both Income-tax and Wealth Tax are governed by separate and distinct legislated laws. It is true that under the Explanation to Section 115JB of the Act, certain items have been mentioned which have to be added back for the computation of book profit. It is equally true that there is no mention of Wealth Tax provision. The provisions of the act are clear and unambiguous and require no addition/deletion of any items other than those mentioned in the provisions. We, therefore, do not find any infirmity in the findings of the ld. CIT(A). Ground no. 5 is dismissed. 130. Respectfully following the findings of the Tribunal (supra), ground no. 8 is dismissed.

138.1 As facts in the case on hand are identical to the facts of the case as discussed above, therefore we are inclined not to disturb the finding of the Ld.CIT (A). Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the ld. DR has not brought anything on record against the finding of the ld. CIT-A, and the argument advanced by the ld. Counsel for the assessee.

138.2 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract of the order has already been reproduced above. In the light of the ratio decidendi in the

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 111 - said order, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. Hence the ground of appeal of the Revenue is dismissed.

139.1 The assessee in the year under consideration has not claimed a deduction of Rs. 75,37,561/-u/s 80IA(4) of the Act in its return and the revised return of income as there was no positive income in the computation of income. But the assessee claimed that it has the right to claim the deduction u/s 80IA(4) of the Act as and when necessary as per the provision of law.

139.2 All the units engaged in the business of the electricity, maintain separate books of account of each unit and same is audited under the Act. The assessee further submitted that the sale of such unit becomes the purchases of other units. As such the profit derived by the said unit is included in the total income of the assessee.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 112 - 139.3 However, the AO disagreed with the submission of the assessee by observing that the income of the assessee turn positive due to various addition being made in the assessment. The assessee nowhere added the profit of the undertaking in the gross total income or computation of the income of the company. Therefore assessee failed to fulfill the primary condition. Thus the claim of Rs. 1,83,99,656/-u/s 80IA(4) is disallowed.

“18. Ground No.15 is against the action of Assessing Officer in disallowing deduction u/s.80IA(4) of the Act amounting to Rs.1,83,99,656/- in respect of power generation unit used for captive purposes. This issue has been discussed by the Assessing Officer in para-12 of the assessment order. The Assessing Officer has made the disallowance on the similar ground on which the disallowance was made in A.Y. 2008-09. The CIT(A)-IV, Ahmedabad vide para 24.2 to 24.2.4 has allowed the claim of appellant. Since the facts are identical in this year also, I respectfully following the order of CIT(A)-IV, Ahmedabad, hold that the appellant is eligible for deduction u/s.80IA(4) in respect of income of Captive Power generation unit and hence the Assessing Officer is directed to allow the same after correctly computing the income of eligible unit. Thus, appellant succeeds in respect of Ground No.15.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 113 - vide order dated 8-9-2017, the ITAT deleted the addition made by the TPO/AO. The relevant extract of the order is reproduced as under:

“The A.O. made the impugned disallowance following the action of his predecessor for A.Y. 2008-09 and the ld. CIT(A) deleted the disallowance following the decision of his predecessor for A.Y. 2008-09. We find that the Tribunal in ITA Nos. 3297 & 3420/Ahd/2014 has confirmed the findings of the First Appellate Authority vide ground no. 8 of that appeal. The relevant findings read as under:-

C) Less: Items allowable/ Exempt Depreciation 7,92,565 9,19,853 10,92,925 22,68,015 1,12,34,536 allowable Total C 7,92,565 9,19,853 10,92,925 22,68,015 1,12,34,536

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 114 - Net Profit 43,64,129 (16,009) 90,55,535 71,30,868 (54,87,240) Previous Year (16,009) Profit / (Loss) Amount claimed 43,48,120 - 90,55,535

143.2 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract of the order has already been reproduced above. In the light of the ratio decidendi in the said order, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR has not brought any decisions varying from

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 115 - similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. Hence the ground of appeal of the Revenue is dismissed.

144.1 The AO on verification of the partnership deed between assessee and SPI found that the assessee provides certain services like marketing of the product, advising on technical matters, advising on product stability and positioning, etc. The assessee for such services is entitled to receive 5% remuneration of the net profit of SPI.

144.2 During the year under consideration, assessee received 5% of net profit of SPI, i.e. Rs. 15,07,27,535/- under the head remuneration.

144.3 However, the SPI had not debited this remuneration in its profit & loss account because of section 40(b) of the Act. The AO was of the view that as per the explanation of section working partners mean an individual who actively engaged in the business of the firm. In the present case assessee is not an individual but a company. Thus the provisions of the section do not apply to the remuneration paid to the

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 116 - company. Therefore the remuneration was not debited in the profit& loss account.

144.4 Thus, the assessee has not offered such remuneration to tax because of section 28(v) of the Act. However, the expenses incurred by the assessee on behalf of the SPI duly debited in its profit & loss accounts which are not incurred exclusively for the business as per section 37 of the Act. On a question by the AO assessee submitted that the assessee already had a well-established marketing and distribution network and required personnel for carrying out such activities. The assessee is an established pharmaceuticals player in the industry for a long time and is having a large pool of field force comprised various divisions across the country to market the pharmaceutical product successfully. It was a good synergy for the assessee to take this opportunity of marketing SPI and SPS’s products by utilizing this existing field force without extra efforts and costs. No additional expenses have been incurred by the assessee, for the services rendered by it to the firms.

144.5 Without prejudice to the above, the assessee also submitted that SPI has also incurred certain selling & distribution expenses amounting to Rs. 224.30 lakhs.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 117 - 144.6 Without prejudice to the above, any expenses incurred to earn the remuneration would be deductible as expenses incurred in the course of carrying on the business.

145.1 These expenses divided into three concerns in their turnover ratio. The ratio of both partnership firms are 37.21 % (SPI 16.49% + SPS 20.72%) accordingly Rs, 74,11,66,808/- expenses are disallowed u/s 37 of the Act, as incurred on behalf of them by the assessee.

“21.3. This issue was also involved in A.Y. 2008-09 and the CIT(A)-IV, Ahmedabad vide order dated 14.10.2014 after considering the submission of the appellant which is similar to submission filed in this year, has confirmed the disallowance after elaborately discussing the same in paras-40.4 to 20.4.5.10 of the appellate order.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 118 - Howerver, subsequently to the order of CIT(A0-IV, Ahmedabad in A.y. 2008-09, the Hon’ble ITAT, Ahmedabad has decided the appeal of the appellant for A.y. 2004-05 wherein the similar disallowance was made for the first time. The copy of the order of Hon’ble ITAT dated 22.02.2016 contained in appeal No.1193 & 1287/AHD/2008 has also been filed by the Ld.Authorized Representative during the course of appellate proceedings and it has been vehemently submitted that this issue now stands covered in the favour of appellant.”

“132. A perusal of the order of the Co-ordinate Bench for earlier years shows that the Bench has considered similar issue in ITA Nos. 3297 & . A.Y. 2009-10 3420/Ahd/2014 and has decided this issue in favour of the assessee and against the revenue. The Tribunal while deciding this issue had followed the decision of the Co- ordinate Bench in assessee's own case in ITA Nos. 1589 & 1592/Ahd/2011 wherein the decision given in ITA No. 2430/Ahd/2009 was followed. The relevant part reads as under; XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 87. We have given a thoughtful consideration to the orders of the authorities below. We agree with the contention of the ld. counsel that no specific section has been mentioned in the assessment order for making the impugned additions. A perusal of the assessment order show that the additions have been made by treating the transactions u/s. 40A(2) of the Act. In that case, we have to state that provisions

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 119 - of section 40A(2) are applicable only in respect of payments made to related parties mentioned therein. But the transaction before us is of credit in nature i.e. sales so provisions of section 40A(2) are not at all applicable. 27. Respectfully following the findings of the Tribunal (supra), we direct the A.O to delete the addition of Rs. 21,25,278/-. Ground no. 9 is allowed. 124. Respectfully following the same, we direct the A.O. to delete the addition of Rs. 2,75,07,070/-. Ground no. 11 is allowed. . 125. Ground no. 12 relates to the disallowance of Rs. 62,15,78,070/- made u/s. 37 of expenses incurred on behalf of Sun Pharmaceutical Industries. 126 An identical issue was considered by the Bench in assessee's own case in ITA NO. 1589/Ahd/2011 and ITA No. 2430/Ahd/2009. The relevant part of ITA No. 2430/Ahd/2009 has been extracted in ground no. 11 of this appeal. For similar reasons, we direct the A.O. to delete the disallowance of Rs. 62,15,78,070/-. 133. Respectfully following the decisions of the Co-ordinate Bench (supra), we decline to interfere. Ground no. 9 is dismissed.

149.1 As facts in the case on hand are identical to the facts of the case as discussed above, therefore we are inclined not to disturb the finding of the Ld.CIT (A). Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. It is also important to note that the ld. DR has not brought anything on record against the finding of the ld. CIT-A, and the argument advanced by the ld. Counsel for the assessee.

149.2 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract of the order has already been reproduced above. In the light of the ratio decidendi in the

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 120 - said order, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. Hence the ground of appeal of the Revenue is dismissed.

150.1 At the outset, we note that we have adjudicated the issue raised by the Revenue along with ground of appeal of the assessee's appeal in ITA 929/AHD/2017 vide ground no. 6 vide Para no. 35 of this order. Thus respectfully, following the same, we do not find any reason to interfere in the order of the Ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 121 -

The Appellant raises the following grounds, which are mutually exclusive, independent of and without prejudice to one another: 1. The order passed by the Learned Commissioner of Income-tax (Appeals) [hereinafter referred to as 'the Ld. CIT(A)'] is bad in law and on facts. 1. Re: Addition on account of Sale of Pantoprazole to Sun Pharma Global FZE -Rs. 94,73,729/-: 1.1 The Ld. CIT(A) has grossly erred in upholding the order of Assessing Officer ('AO'}/ Transfer Pricing Officer ('TPO') who erred in rejecting the benchmarking done by the Appellant as a contract manufacturer having regard to the functions performed, the assets deployed and risks undertaken by the Appellant in the transaction. The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who erred in classifying the sales made by the Appellant having regard to the relevant Para of the US PDA under which the approval was sought without appreciating the fact that the US PDA Para under which the product is filed is irrelevant for the Appellant who is a contract manufacturer. The Ld. CIT(A) has grossly erred in sustaining the additions made by the TPO by recharacterizing the transaction undertaken by the appellant based on peculiar interpretation of the past & unpredictable future events. The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who erred in arbitrary adoption of residual profit split method (PSM) as the same cannot be applied to the transaction under review as neither there is any transfer of unique intangibles nor multiple interrelated transactions requiring separate evaluation. Without prejudice to the above, the Ld. C!T(A) failed to appreciate that if at all PSM is adopted as the most appropriate method, the determination of ALP had to be in accordance with Rule 10B(1)(d)(ii) on the basis of "reliable external market data" which was totally nonexistent, hence application of PSM method would fail. Without prejudice to the above, even if PSM is to be followed, the Ld. CtT(A) has grossly erred in not appreciating that the IPR belonged to the AE, AE was exposed to significant risks (having regard to the fact that the Para IV product had inherent risk) and accordingly the profit allocation to the AE ought io be high. Without prejudice to the above, even if PSM is to be followed, the Ld. CIT(A) grossly erred in upholding the order of AO/TPO without appreciating the fact that the profits of the AE derived from sale of Pantoprazole ought to be split between the Appellant and the AE after deducting the infringement claim of USD 506 million which was discharged by AE. Without prejudice to the above, if the PSM is to be followed, the ratio of 50:50 ought to be adopted for benchmarking sale of the product.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 122 - 2. Re: Addition on account of Sale of Para IV products other than Pantoprazole to Sun Pharma Global FZE - Rs. 94,76,59,251/-: 2.1 The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who erred in rejecting the benchmarking done by the Appellant as a contract manufacturer having regard to the functions performed, the assets deployed and risks undertaken by the Appellant in the transaction. 2.2 The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who erred in classifying the saies made by the Appellant having regard to the relevant Para of the US PDA under which the approval was sought without appreciating the fact that the US PDA Para under which the product is filed is irrelevant for the Appellant who is a contract manufacturer. 2.3 The Ld. CIT{A) has grossly erred in sustaining the additions made by the TPO by recharacterizing the transaction undertaken by the appellant based on peculiar interpretation of the past & unpredictable future events. 2.4 Without prejudice to the above, the Ld, CIT{A), has grossly erred in upholding the order of AO/TPO and further enhancing the adjustment merely by placing reliance on the order of CIT(A) for AY 2008-09 which covered Pantoprazole drug without appreciating the evidently distinguishable facts relevant for other Para IV products. 2.5 The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who erred in arbitrary adoption of residual PSM as the same cannot be applied to the transaction under review as neither there is any transfer of unique intangibles nor multiple interrelated transactions requiring separate evaluation, 2.6 Without prejudice to the above, the Ld. CIT(A) failed to appreciate that if at all PSM is adopted as the most appropriate method, the determination of ALP had to be in accordance with Rule 10B(1)(d)(ii) on the basis of "reliable external market data" which was totally nonexistent, hence application of PSM method would fail. 2.7 Without prejudice to the above, even if PSM is to be followed, the Ld. CIT(A) has grossly erred in not appreciating that the IPR belonged to the AE, AE was exposed to significant risks (having regard to the fact that the Para IV product had inherent risk) and accordingly the profit allocation to the AE ought to be high. 2.8 Without prejudice to the above, even if PSM is to be followed, the Ld. C1T(A) has grossly erred in enhancing the attribution of profits for Para IV product (other than Pantoprazole) from 50:50 to 80:20 which having regard to the facts of the case is unwarranted. 3. Re: Addition on account of Sale of Non Para IV products to Sun Pharma Global FZE -Rs. 107,77,95,776/-: 3.1 The Ld. C1T(A) has grossly erred in upholding the order of AO/TPO who erred in rejecting the benchmarking done by the Appellant as a contract

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 123 - manufacturer having regard to the functions performed, the assets deployed and risks undertaken by the Appellant in the transaction. 3.2 The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who erred in classifying the sales made by the Appellant having regard to the relevant Para of the US TDA under which the approval was sought without appreciating the fact that the US PDA Para under which the product is filed is irrelevant for the Appellant who is a contract manufacturer. 3.3 The Ld. CIT(A) has grossly erred in sustaining the additions made by the TPO by recharacterizing the true nature of the transaction undertaken by the appellant based on peculiar interpretation of the past & unpredictable future events. 3. Without prejudice to the above, . the Ld. CIT(A), has grossly erred in upholding the order of AO/TPO and sustaining the additions merely by placing reliance on the order of CIT(A) for AY 2008-09 which covered Pantoprazole drug without appreciating the evidently distinguishable facts relevant for Non Para IV products. 3.5 The Ld. CIT(A) has grossly erred in upholding the order of AO/TPO who erred in arbitrary adoption of residual PSM as the same cannot be applied to the transaction under review as neither there is any transfer of unique intangibles nor multiple interrelated transactions requiring separate evaluation. 3.6 Without prejudice to the above, the Ld. CIT(A) failed to appreciate that if at all PSM is adopted as the most appropriate method, the determination of ALP had to be in accordance with Rule 10B(1)(d)(ii) on the basis of "reliable external market data" which was totally nonexistent, hence application of PSM method would fail. 3.7 Without prejudice to the above, the Ld. CIT{A) has erred in not appreciating that the IPR rests with the AE and the AE was exposed to significant risks inherent in the transaction and accordingly the profit allocation for the IPR to the AE was extremely low and unjustified. 3.8 Without prejudice to the above, if PSM is to bo followed, the ratio of 50:50 ought to be adopted for benchmarking sale of the products. 4. Non-deduction of Remuneration received from Partnership firm for determination of Book Profits u/s 115JB - Rs. 201,23,42,044/-: 4.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering the remuneration receivable from the partnership firm as an income to which the provisions of section 10 apply for the limited purpose of computing book profits u/s 115JB without appreciating that remuneration received from partnership firm is nothing but an appropriation of profit. 4.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the entire mechanism of computing book profits is based on normal commercial profits having regard to the relevant accounting framework prescribed in Companies Act and thus remuneration is eligible to be deducted for computing book profits as per clause (ii) to Explanation to section 115JB (2) read with Chapter III of the Act. 4.3 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have appreciated that the income not chargeable to tax by virtue of section 28(v) under normal provisions of the Act cannot be considered while computing book profits u/s 115JB. 4.4 On the facts and in the circumstances of the case and in law, the action of the Ld. CIT(A) in upholding the addition has resulted in double taxation of the same

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 124 - income, once in the hands of the partnership firm and again in the hands of the Appellant contrary to position expressed by the CBDT Circular No. 8/2014. 5. Disallowance of expenditure incurred for doctors towards business promotion - Rs. 7,56,90,473/-: 5.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in disallowing selling and distribution expenditure allegedly incurred on doctors/medical practitioners without appreciating that the same is for the promotion of the business and was in furtherance of its business objectives and further erred in: 1 Not appreciating that the provisions of Indian Medical Council Regulations, 2002, are not applicable to the pharmaceutical companies and hence any expenditure incurred on sales promotion would be allowed as business expenditure u/s 37(1) being in furtherance of its business objectives. 2 Relying on the CBDT Circular No. 5/2012 while disallowing the amount of expenditure without appreciating that department circular are not binding on the Appellant. 5.2 Without prejudice to the above, the Ld. CIT(A) has already upheld disallowance of selling and distribution expenditure allegedly incurred on behalf of Sun Pharmaceutical Industries ('SPS') and Sun Pharma Sikkim ('SPS') u/s 14A, therefore, the amount to be disallowed under this ground ought to be reduced by the amount already disallowed under the other ground. 6. Disallowance of expenditure incurred on repairs treating them as expenditure - Rs, 28,93,787/-: 6.1 On the facts and in the circumstances of the case, the Ld. CIT(A) grossly erred in confirming the disallowance of expenditure incurred amounting to Rs. 28,93,787/- treating the same as capital expenditure without appreciating that the same were incurred as part of routine repairs and maintenance and did not result into creation of any new asset or any benefit of an enduring nature. 7. Disallowance of selling and distribution expenditure incurred on behalf of Sun Pharmaceutical Industries ('SPl') and Pharma Sikkim ('SPS') u/s 14A: Rs. 170,95,96,941/- 7.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in disallowing selling and distribution expenditure incurred by the Appellant u/s 14A on the ground that the said expenditure is directly incurred by the Appellant for earning exempt income without appreciating that: .1 Selling and distribution expenditure incurred by the Appellant is wholly and exclusively for the purposes and in furtherance of its business activities and in absence of any cogent evidence to the contrary, it could not be presumed to have been directly incurred for earning exempt income; .2 Remuneration received from the partnership firm is not an exempt income covered under chapter III rather a receipt which is not liable to tax in the hands of partner by virtue of interplay between provisions of section 28(v) and 40(b) since it has been indirectly charged in the hands of the partnership firm and therefore, application of section 14A is ruled out; .3 Provisions of section 14A cannot be applied to investments which are strategic in nature or capable of generating taxable income;

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 125 - 7.2 Without prejudice to the above, the selling and distribution expenditure to be disallowed has been determined arbitrarily in the ratio of turnover having no direct nexus with the exempt income earned by the Appellant. 7.3 Without prejudice to the above, disallowance under this ground ought to be restricted in terms of section 14A read with clause (iii) to rule 8D(2) or ought to be substantially reduced. 7.4 Without prejudice to the above, the Ld. CIT(A) grossly erred in disallowing the selling and distribution expenses u/s 14A without appreciating that Ld. CIT(A) himself, has recharacterized the remuneration received by the Appellant as royalty. The Ld. CIT(A) ought to have appreciated that if the income was sought to be re- characterized as royalty, then the expenditure incurred to earn such income ought to be allowed as deduction. 8. Re: Disallowance u/s 14A read with rule 8D- Rs. 7,1G,20,195/- 8.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of Rs. 7,16,20,195/- u/s 14A by invoking rule 8D of the Income-tax Rules, 1962 without appreciating that: .1 The AO has mechanically invoked rule 8D without first recording its satisfaction regarding the correctness of the claim made by the Appellant; .2 The income earned by the Appellant from the partnership firm is not an exempt income covered under chapter III of the Act and hence section 14A could not be invoked to that extent; .3 Since the Appellant had sufficient interest free funds to make the investments, presumption ought to be made that investments were made from interest free funds and not borrowed funds; .4 Provisions of section 14A cannot be applied to investments which are strategic in nature or capable of generating taxable income; .5 No disallowance u/s 14A read with rule 8D(2)(ii) could be made when in fact the Appellant has earned net interest income. 8.2 Without prejudice to the above, the Ld. CIT(A) has committed errors while computing the disallowance under section 14A read with rule 8D. 9. Re: Addition of expense disallowed u/s 14A for computing book profit u/s 115JB: 9.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in considering the amount disallowed u/s 14A under normal provisions, as amount to be added for computing book profit u/s 115JB without appreciating that the provisions of section 115JB and section 14A are mutually exclusive, deeming provisions enacted under the Income-tax Act which are to be made operative only to the extent of the deeming fiction created therein. The Ld. CIT(A) grossly erred in importing the deeming provisions of sub-section (2) and (3) of section 14A into Explanation to section 115JB. 9.2 Without prejudice to the above, the Ld. CIT(A) erred in adding an amount of Rs. 7,16,20,195/- u/s 115JB read with section HAread with rule 8D without appreciating that: .1 In absence of direct and specific expenditure incurred for earning exempt income, no addition of the amount disallowed u/s 14A read with Rule 8D in computing book profits is warranted.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 126 - .2 The Assessing Officer has mechanically invoked Rule 8D without first recording its satisfaction regarding the correctness of the claim made by the Appellant; .3 The income earned by the Appellant fro:n the partnership firm is not an exempt income covered under chapter 111 of the Act and hence section 14A could not be invoked to that extent; .4 Since the Appellant had sufficient interest free funds to make the investments, presumption ought to be made that investments were made from interest free funds and not borrowed funds; .5 Provisions of section 14A cannot be applied to investments which are strategic in nature or capable of generating taxable income; .6 No disallowance u/s 14A read with rule 8D(2){ii) could be made when in fact the Appellant has earned net interest income. 9.3 Without prejudice to the above, the Ld. CIT(A) grossly erred in not rectifying the errors made by the AO while computing the amount of disallowance under section 14A read with rule.8D. 10. Disallowance of R&D expenses (revenue) allegedly incurred on behalf of partnership firms of SPI and SPS - Rs.117,70,04,468/-: 10.1 On the facts and in the circumstances of the case and in law, the Ld. CIT{A) grossly erred in allocating R&D expense (revenue) incurred by the Appellant to the partnership firms of SPI and SPS without appreciating that: .1 The Appellant had carried out the R&D as part of its own business activities and that all the IPRs arising out of the said R&D activity remained with the Appellant; .2 The decision to manufacture the products at the factory of SPI and SPS was based on business and commercial expediency and in pursuance of the obligation on the Appellant under the partnership deed in lieu of which it was entitled to receive remuneration; .3 The Appellant being a working partner was obliged to provide technical and other information to partnership firm and hence the incurrence of R&D (revenue) expenses, if any, was in furtherance of its obligation under the partnership deed and therefore, allowable u/s 37(1). 10.2 Without prejudice to the above, the Ld. CIT (A) grossly erred in allocating proportionate R&D expenditure incurred to SPI and SPS without appreciating that the deduction on account of R&D expenses claimed by the Appellant was in accordance with provisions of section 35(2AB) and the same did not require the expenditure to be expended wholly and exclusively for the purposes of business. 10.3 Without prejudice to the above, the Ld. CIT{A) grossly erred in exceeding its jurisdiction in making the said disallowance without appreciating that specific powers were granted to DSIR in this regard and the fact that Department of Scientific and Industrial Research (DSIR) has already approved the entire revenue expenditure. 10.4 Without prejudice to the above, Assessing Officer has undisputedly accepted that R&D expenses are futuristic in nature, and under such circumstances, R&D expenditure incurred during the year under consideration cannot be associated to the turnover of the said assessment year for the purpose of disallowance.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 127 - 10.5 Without prejudice to the above, the Assessing Officer grossly erred in allocating total R&D cost incurred by the Appellant in the ratio of domestic formulations turnover without appreciating that only cost of raw materials consumed shall be allocated between the Appellant and the partnership firm, as held by the Honorable ITAT for AY 2005-06, 2004-05 and 2002-03. 10.6 Without prejudice to the above, the Ld. CIT(A) grossly erred in not accepting the segment wise expenditure incurred by the domestic formulation department amounting to Rs 3053.29 Lakhs and ought to have disallowed the R & D expenses only relating to the domestic formulation activity. 10.7 Without prejudice to the above, the R&D expense should not be allocated on the basis of domestic formulation turnover as both the entities operate in different market segments with different underlying facts. 10.8 Without prejudice to the above, the disallowance of the R&D expenditure should be restricted only , a part of the actual amount incurred by the Appellant on the products that are manufactured by the partnership firms (i.e., SPI and SPS). 10.9 Without prejudice to the above, and without accepting any disallowance of the expenses, the Assessing Officer should have restricted the disallowance towards expenses as provided u/s 14A read with Rule 8D and that no further disallowance was then warranted. 10.10 Without prejudice to the above, the amount of disallowance ought to be substantially reduced. 11. Re: Disallowance of R&D expenses (capital) allegedly incurred on behalf of SPI and SPS-Rs.17,71,22,520/-: 11.1 The Ld. CIT(A) grossly erred in allocating capital R&D expenditure amounting to Rs. 17,71,22,520/- incurred by the Appellant to SPS and SPI on the ground that the Appellant had incurred R&D expenses for and on behalf of SPS and SPI without appreciating that the assets acquired were actually owned by the Appellant and used for conducting R&D activities in the Appellant's facilities which were approved by the DSIR and this is also duly certified by the statutory auditors of the Appellant Company. 11.2 The Ld. CIT(A) failed to appreciate the fact that capital expenditure was solely for the benefit of Appellant and ownership of all products and facilities was exclusively with the Appellant and not SPS and SPI. 11.3 The CIT(A) grossly erred in disallowing the expenditure incurred by the Appellant on the capital assets without appreciating that the said deduction was allowable by virtue of the enabling provisions of section 35{2AB) and 35(1 )(iv) and the Appellant had fulfilled all the conditions relating to section 35(2AB) and 35(1)(iv) and hence there could not have been any allocation of R&D expenditure to SPI and SPS. 11.44 Without prejudice to the above, the Ld. CIT(A) grossly erred in exceeding its jurisdiction in confirming the said disallowance without appreciating that specific powers were granted to DSIR and hence the Assessing Officer / CIT(A) could not have disallowed the same. 11.5 Without prejudice to the above, CIT(A) ought to have appreciated that as per the partnership deed, the Appellant, being the working partner was obliged to provide technical and other information to partnership firm in lieu of

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 128 - which it was entitled to receive remuneration and hence the utilization of the capital R&D equipment for the activities of the partnership firm, if any, was only in the furtherance of its obligation under the partnership deed. 11.6 Without prejudice to the above and without accepting any disallowance of the expenses, the Ld. CIT(A) should have restricted the disallowance towards expenses as provided u/s 14A read with Rule 8D. 12. Addition on account of re-characterizing remuneration from SPI and SPS (partnership firms) as consideration for use of Trademarks, Brands etc. - Rs 201,23,42,044/-: 12.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in upholding the recharacterization of the remuneration received from the partnership firms, which is not taxable by virtue of the proviso to section 28(v) read with section 40{b) of the Act. In doing so, the Ld. CIT(A) erred in arbitrarily re-characterizing the receipt of partner's remuneration as royalty holding it to be a consideration for use of brand name and trade mark of the Appellant by the partnership firm which allegations are based on mere surmises and conjectures disregarding the actual terms of the partnership deed entered into by the Appellant. 12.2 The Ld. CIT(A) failed to appreciate that- .1 That there is no provision under Act which permits the Income-tax Authorities to recharacterize any transaction or to change the nature of income earned by the Appellant; .2 That contractual agreements entered into by appellant cannot be rewritten unless there is any illegality or infirmity in the contractual agreement; .3 The remuneration was paid to the Appellant in accordance with the terms of the partnership deed and in lieu of the services and functions rendered in its capacity as working partner of the Firm; .4 That addition of royalty income on account of use of trademark and brand name is on notional basis and was never realized by the Appellant; 12.3 Without prejudice to the above contention, the Ld. CIT(A) grossly erred in upholding the allegations that the transaction with SPI was entered into with a motive to avoid tax as SPI was entitled to deduction u/s 80IB without appreciating the fact that deduction claimed by SPI u/s 80IB was limited to only 25% percent of profits earned and that SPI continued to pay tax on the balance income. 12.4 Without prejudice to the above, the order of the CIT{A) for AY 2008-09, the very basis on which the Ld. CIT{A) / AO has relied, has been rendered inexistent. The Hon'ble C!T(A) while adjudicating for AY 2008-09 in Appellant's case had in turn relied on the decision of the Hon'ble CIT(A) in case of SPI for AY 2008-09. However, the Hon'ble Amritsar ITAT in case of SPI has decided the case in favour of the Appellant and hence no addition on account of re-characterization of remuneration on this basis can be held tenable. 12.5 Without prejudice to the above contention that the said receipt is not royalty income, the Ld. CIT(A) grossly erred in not allowing the selling and distribution and other expenditure incurred by the Appellant on behalf of SPI

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 129 - / SPS without appreciating that the same was incurred for earning royalty income and hence, ought to allowed as a deduction from royalty income. 12.6 Without Prejudice to the above, the Ld. CIT(A) ought to have appreciated that only Rs. 86,63,96,134/- being remuneration from SPS accruing in the current year should have been considered and remuneration of Rs. 96,27,96,704/- pertaining to past years cannot be included for the purpose of computing disallowance under this ground. 12.7 Without prejudice to the above and without admitting that the remuneration amounts to royalty, the Ld. CIT(A) ought to have appreciated that in any case, the entire remuneration cannot be held to be received for permitting use of trademarks, brand name but is for a wide range of functions / services performed by the Appellant in its capacity as working partner. 13. Re: Disallowance of R&D Expense not approved by DSIR of Rs. 36,93,69,000/-: 13.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in setting aside the issue to the AO on the ground that details of the expenses have not been furnished whereas in fact the relevant details have been duly submitted to the AO as well as the Ld. CIT{A) as part of the paperback. 14. Taxability of interest on Income Tax Refund u/s 244A - Rs. 5,99,53,963/-: 14.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in upholding the addition on account of interest on income tax refund. 14.2 Without prejudice to the above, the Ld. CIT(A) grossly erred in not restricting the amount of addition to Rs. 3,62,78,819/- being the amount of interest on income tax refund granted to ;he Appellant. 14.3 Without prejudice to the above, the Ld. CIT(A) grossly erred in taxing Rs. 3,62,78,819/-without appreciating that the same have been offered to tax in in AY 2015-16 and AY 2016-17 respectively. 15. Non-granting of relief u/s 10(15) on Interest on tax free bonds wrongly offered to tax-Rs. 99,93,951/- 15.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not granting relief u/s 10(15) on interest income received in respect of tax free bonds and taxing it as taxable which is otherwise exempt under the provisions of the Act thereby not considering the CBDT Circular No. 14 (XL-35) dated 11.04.1955.”

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 130 - 153.1 We have already decided the impugned issue in favor of the assessee in ITA 929/AHD/2017 in the ground of appeal bearing no. 3 vide Para No. 20 & 21of this order. Thus respectfully following the same, we set aside the order of the Ld.CIT (A). Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.

154.1 We have already decided the impugn issue in favor of the assessee in order in ITA 929/AHD/2017 in the ground of appeal bearing no. 4 and 5 vide Para No. 27 & 28 of this order. Thus respectfully following the same, we set aside the order of the Ld.CIT (A). Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 131 - 155.1 We have already decided the impugned issue against the assessee in ITA 929/AHD/2017 in the ground of appeal bearing no. 8 vide Para No. 56 & 57 of this order. Thus respectfully following the same, the ground of appeal of the assessee is dismissed.

156.1 The assessee has shown Rs. 2424.3 million on account of selling & distribution expenses which includes Rs. 8,41,89,667/- on account of the distribution of gifts and providing hospitality services to the doctors/ medical practitioners. 156.2 However, the AO was of the view that the said expenditure is prohibited under the guidelines issued by the medical council of India (MCI). Therefore the same is not allowable under section 37(1) of the Act.

156.3 However, the assessee submitted the breakup of Rs. 8,41,89,667/- as under:

Sr.No. Particulars Amount 1. Business Promotion 7,27,99,029/- expenses 2. Conference fees & 84,99,194/- Sponsorship 3. Accommodation 28,91,444/-

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 132 - (lodging & Boarding) Total 8,41,89,667/-

156.4 The assessee further contended that such expenses were incurred to gain regular development in the medical field and valuable inputs in the form of feedback from doctors. The company considers medical fraternity a very important partner in the overall drug development to retain its leadership position in the industry.

156.5 Assessee further submitted that it had provided Clinical/hospital pieces of equipment to medical practitioner amounting to Rs. 7,27,99,029/- with a view to have the brand value of its business. These pieces of equipment help the doctor to provide better services and early detection of diseases.

156.6 The assessee further submitted that it has incurred conference fee & sponsorship expenses amounting to Rs. 84,99,194/- by way of the reimbursement of fees for conference, seminars, and sponsorship. The doctors gain knowledge about the various disease which is shared with the assessee. The doctors also provide feedback which helps the assessee to improve/develop its product and research and development.

156.7 The assessee has also reimbursed the accommodation expenses to the doctors amounting to Rs. 28,91,444/- which is incurred by the doctors for their stay to attend the conference and seminars.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 133 - 156.8 The assessee also submitted that IMC regulation does not apply to it as assessee is a pharmaceutical company and not a medical practitioner.

156.9 The assessee also contended that circular issued by the CBDT bearing no. 5/2012 does not apply to it as held in various judicial pronouncements.

157.1 Further, CBDT also in this regard issued circular No. 5/2012 dated 1-8-2012 which highlight that any expense incurred in the nature of freebees to a medical practitioner is to be disallowed. Accordingly, the AO disallowed the sum of Rs. 8,41,89,667/- and added to the total income of the assessee.

23.2 I have careful considered the facts on record and submission of the ''Ld. Authorized Representative. Admittedly, the appellant has incurred expenditure of Rs.8,41,89,667/- as detailed above on gift and reimbursement of lodging and boarding and conference expenses incurred / by the Doctors/medical practitioners.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 134 - As is evident from the written \ submission, the business promotion expenses of Rs.7,27,99,029/-are pertaining to the equipment provided to various medical j practitioners as gifts. Claim of indirect business gain as a result of gifts/ provided to the medical practitioners is irrelevant for alfowabifity of these expenses. The appellant has also argued that the amendment to Indian Medical Council (Professional Conduct, Etiquette & Ethics) Regulation 2002 on 10.12.2009 and CBDT Circular No. 5/2012 dated 01.08.2012 are not applicable in the case of appellant since they are applicable to the Doctors/ Medical Practitioners accepting freebies.. This argument of Ld. Authorized Representative is also not acceptable. Undisputedly, Medical Council of India has amended Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 with effect from 10.12.2009 prohibiting from accepting of gifts, travel facility or hospitality, from any pharmaceutical company or the health care industry by the doctors/medical professionals. Thus regulation is issued by the statutory body created under the Act of Parliament i.e. Medical Council Act, 1956. CBDT has also Issued a Circular No. 5 of 2012 in this regard stating that expenditure on freebies given to medical professionals and their professional associations in violation of the regulation issued by the Medical Council of India which is a regulatory body constituted under Medical Council Act, 1956, will not be allowed as expenditure in view of the Explanation below section 37(1). The validity of this circular is also been upheld by the Hon'ble High Court of Himachai Pradesh vide order dated 26.12.2012 in CWP No. 10793 of 2012. Since Medical Council of India has prohibited expenditure on freebies given to the medical professional with effect from 10,12.2009, in my considered view, the Circular No. 5 of CBDT dated 01.08.2012 only reasserts the legal position and hence the expenditure on freebies will not be allowable u/s. 37(1) being an expenditure prohibited by law. Accordingly, I hold that expenditure on gifts to the-extent of Rs.7,27,99,029/- shall not be deemed to have been incurred for the purposes of business or profession and hence the disallowance to this extent is confirmed. 23.2.1. As regards the balance expenditure on Accommodation (Lodging & Boarding) at Rs.28,91,444/- and Conference fees and sponsorship at Rs.84,99,194/-, the appellant has submitted that these expenses pertained to reimbursement of accommodation expenses to the Doctors and medical " practitioner during their stay to attend the conference and seminars , organized in furtherance of business objections of upgrading the medical ! knowledge. Similarly, conference fees and sponsorship has been also stated to be reimbursement of fees for conference and seminars held in India and abroad. It has further been claimed that conference and seminars were organized to gain the knowledge by the medical practitioner which is, then shared with the appellant for improving the product quality and Research and Development. From the submission of appellant itself, it is crystal clear that the reimbursement of accommodation expenses have directly benefited the medical practitioner and Doctor and hence the same is in the nature of gift hit by Circular No. 5/2012 and amended guidelines of Medical Council of India. Accordingly, I hold that accommodation expenses at Rs.28,91,444/- are also deserves to be disallowed being freebies. The conference fees and sponsorship expenses since were incurred for sharing the knowledge in the medical field which may help in improving the product and Research and Development activity of (appellant, in my considered

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 135 - view, it is not hit by the Circular No. 5/2012 and amended MCI Guidelines. Further they appears to be in the nature of remuneration for services rendered by the Medical Professionals in the conference and seminars. Accordingly, the disallowance to the extent .of Rs.84,99,194/- being conference fees and sponsorship is directed to be deleted and balance amount of disallowance is confirmed. Thus, appellant succeeds partly in respect of Ground No. 20.

“We have heard both the parties. Mr. Soparkar is very fair in pointing out at the outset that this tribunal's decision in Asstt. CIT v. Liva Healthcare Ltd. [2016] 161 ITD 63/73taxmann.com 171 (Mum. - Trib.) upholding such a disallowance in case of pharmaceutical companies offering free samples to doctor post introduction of the

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 136 - relevant product in market after establishing end use; is hit by Section 37(1) explanation. He however refers to another co-ordinate bench decision in Macleods Pharmaceuticals Ltd. v. Addl. CIT [2016] 161 ITD 291/74taxmann.com 250 (Mum. - Trib.) holding that the above Board's circular dated 01.08.2012 would not have any retrospective effect since not operating in assessment years 2010-11. He further quotes another co-ordinate bench decision in Dy. CIT v. PHL Pharma (P.) Ltd. [2017] 163 ITD 10/78taxmann.com 36 (Mum. - Trib.) distinguishing the above case law in Revenue's favour whilst deleting an identical disallowance on the ground that such business promotion expenses are allowable as business expenditure not hit u/s. 37(1) explanation. We afforded ample rebuttal opportunity to the Revenue. Learned Departmental Representative fails to indicate any distinguishing features therein. We find that the above latter co-ordinate bench has elaborately discussed all case laws, IMC regulations as well as Board's circular in deciding the issue. We therefore adopt the very reasoning herein as well to delete the impugned disallowance. The assessee succeeds in its instant substantive ground”

161.2 The facts of the case on hand are identical to the facts of the case as discussed above. Therefore respectfully following the same, we allow the ground of appeal of the assessee and dismiss the ground of appeal of the Revenue.

162.1 We have already decided the impugned issue in favor of the Revenue in ITA 929/AHD/2017 in the ground of appeal bearing no. 10 vide Para No. 72 & 73 of this order. Thus respectfully following the same, the ground of appeal of the assessee is dismissed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 137 - expenses amounting to Rs. 1,70,95,96,941/- incurred on behalf of SPI and SPS u/s 14A of the Act.

163.1 We have already decided the impugned issues by restoring the appeal to the file of the AO in ITA 929/AHD/2017 in the ground of appeal bearing no. 13 vide Para No. 95 & 96 of this order. Thus respectfully following the same, the ground of appeal of the assessee is allowed for statistical purpose.

164.1 We have already decided the impugned issues by restoring the appeal to the file of the AO in ITA 929/AHD/2017 in the ground of appeal bearing no. 11 vide Para No. 80 & 81 of this order. Thus respectfully following the same, the ground of appeal of the assessee is allowed for statistical purpose.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 138 - 165.1 We have already decided the impugned issue in favor of the assessee in ITA 929/AHD/2017 in the ground of appeal bearing no. 12 vide Para No. 88 & 89 of this order. Thus we direct the AO accordingly to delete the addition of expenses disallowed u/s 14A while computing the book profit u/s 115JB of the Act. Hence the ground of appeal of the assessee is allowed.

166.1 We have already decided the impugned issue in favor of the assessee in ITA 929/AHD/2017 in the ground of appeal bearing no. 7 vide Para No. 64 & 65 of this order. Thus we direct the AO accordingly to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 139 - 167.1 The assessee in the year under consideration has received remuneration from the partnership firm namely SPI amounting to Rs. 18,31,49,206/- and from SPS amounting to Rs. 1,82,91,92,838/-which has been reduced in computing the taxable profit under the normal provision of the Act. The assessee claimed that the remuneration paid to it by the firm was not allowed as a deduction in the hands of the partnership as mentioned earlier.

167.2 Accordingly, the assessee claimed that such remuneration is not taxable in its hands as per proviso to section 28(v) r.w.s. 40(b) of the Act.

21.1. As per the existing Agreement, the appellant company has permitted user of trademark/brands by SPI/SPS for a token consideration of Rs.1/- for the period of 5 years. The Assessing Officer, in the assessment order of SPI has discussed this issue and he has valued the royalty of Jammu and Dadra plant at a substantial sum, and

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 140 - consequently has reworked out the eligible deduction u/s. 80IB. It has been also noticed that the SPI has not paid any management fees to the appellant I company although three of its Directors and Key Management personnel | viz. Shri Dilip Sanghvi, Shri Sudhir Valia and Shri Shailesh Desai, have been i looking after the business of appellant as well as SPI/SPS. Accordingly, the I management fees for Jammu & Dadra and Sikkim units, respectively, was | estimated and accordingly was reduced from the profit of SPI/SPS for computation of deduction u/s. SGlBj-.w.s, 80IB(13). As a matter of fact, the appellant has not charged any royalty from SPI/SPS for allowing use off | various trademark/brands and technology. A copy of Trademark license/user Agreement dated 10.04.2003 between the appellant and SPI was collected and examined during the course of appellate proceedings for A.Y. 2008-09 by the CIT(A)-IV, Ahmedabad. After considering the terms of the agreement, it has been held in A.Y. 2008-09 that the so called "remuneration" was nothing but it was fee for permitting use of all present and future trademark/brands and technology to SPI. The relevant findings are recorded by the CIT(A)-IV, Ahmedabad in this regard in paras-20.5 to 20.5.1. Following the order of CIT(A)-IV, Ahmedabad and also considering the factual and legal position in this regard, in A.Y. 2009-10, I also held that the appellant company had received a sum of Rs.57,49,50,297/- from SPI as consideration for permitting use of all present and future trademark/brands, in the entire world/ for the period of 5 years and for providing other managerial services. Thus, the so called "remuneration" as claimed by the appellant does not represent the remuneration at all but fee for above mentioned services and accordingly income was enhanced by Rs.57,49,50,297/-. The business arrangements of appellant with SPS firm are identical to SPI. 21.2. Since the facts are identical in this year also, I respectfully following the order of CIT(A)-IV, Ahmedabad in A.Y. 2008-9 and my own order in A.Y.2009-10, hold that Assessing Officer is justified in treating the remuneration of Rs.201,23,42,044/- as consideration received for use of trademark/brands and accordingly assessing the same under normal provisions of the Act. Thus Ground No. 18 is dismissed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 141 -

72.This issue was considered by the Tribunal in ITA Nos. 3297 & 3420/Ahd/2014 vide ground no. 13 of that appeal and the relevant findings of the Tribunal read as under:- 128. We have given a thoughtful consideration to the facts in issue. It is an undisputed fact that the remuneration has been paid by the firm SPI as per the partnership deed read with supplementary partnership deed. It is also an undisputed fact that the said partnership deed read with supplementary deed has not been treated as sham or unlawful deeds. The First Appellate Authority emphasized on the entire transaction as a device of tax evasion. The partnership firm SPI has claimed Rs. 40.12 crores as remuneration to the assessee company but at the same time, it did not claim the same as deduction as it was not paid to a whole time partner as provided in the Act. It is true that the appellant company has also not offered the same for taxation taking a shelter behind the provisions of Section 28(v) of the Act. No doubt, the profits of the partnership firm are exempt u/s. 80IB(4) of the Act. Even, if the partnership firm had not charged Rs. 40.12 crores as remuneration to the appellant company, the profits of the firm would have increased by this amount. Since the assessee is holding 97.5% share in the profits of the partnership firm, this amount of 40.12 crores would have otherwise come to the assessee in the firm of share of profit which again is exempt from taxation u/s. 10(2A) of the Act. Therefore, in our considered opinion, the allegation that it is a case of tax evasion is ill-founded. The fact of the matter is that such payments were never re-characterized as royalty in earlier assessment years and the action of the First Appellate Authority in the year under consideration is nothing but based upon assumptions and presumptions. No addition can be sustained which are based upon assumptions, surmises or conjectures. We, therefore, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the amount of Rs. 40.12 crores re-characterized by the First Appellate Authority. Ground no. 13 is allowed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 142 - 73.As no distinguishing fact emerge from the orders of the authorities below, respectfully following the findings of the Tribunal (supra), we direct the A.O. to delete the addition of Rs. 57,49,50,297/-. Ground no. 15 is allowed.”

173.1 As the facts in the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the same we set aside the order of ld. CIT-A. Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.

173.2 Moreover, we are bound to follow the order of this Tribunal in the own case of the assessee in the earlier year as the facts are identical in the impugned issue before us. Therefore respectfully following the same we delete the addition made the AO.

173.3 We also place our reliance on the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.). The relevant extract has been reproduced in the preceding paragraph. In the light of the ratio decidendi in the above-said judgment, we are of the considered opinion that the view adopted by the co-ordinate bench as discussed above shall be applied in the case on hand with full strength. The ld. DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. In view of the above and

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 143 - respectfully following the ITAT order as discussed above, the ground of appeal of the assessee is allowed.

174.1 Assessee has shown Rs. 18959.69 lacs (16,558.41 as revenue expenditure and Rs. 2401.28 as capital expenditure excluding land & building) on account of research and development expenses in house research facility. The assessee on these expenses has claimed weighted deduction u/s 35(2AB) of the Act amounting to Rs. 37919.39/-. However the AO found that the Department of Scientific and Industrial research (for short DSIR) approved the amount of Rs. 2313.05 as capital expenditure and Rs. 14599.65 as revenue expenditure totaling to Rs. 16,971.70 lacs (excluding land and building) in the form 3CL dated 11- 07-2014 issued by it. Accordingly, the AO issued the notice to assessee to reconcile the excess deduction claimed by it u/s 35(2AB) of the Act.

174.2 The assessee in compliance to it submitted the detail of deduction claimed by the assessee on revenue expenditure as well as capital expenditure in the return of income as detailed under: Detail of revenue expenditure as under:

Particulars Amount a.Total Revenue R & D Expenditure dbited to P &L 16,566.24

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 144 - b.Inadmissible amount of R &D expenditure out of (a) above 7.83 c.Revenue R&D Expenditure admissible @ 200% out of (a) above 33,116.82 (16,558.42*2)

174.3 Detail of capital expenditure as under:

Particulars Amount a.Total Capital Expenditure (Net) 3,521.04 b.Inadmissible amount of R &D expenditure out of (a) above 1,050.79 c.Revenue R&D Expenditure admissible @ 100% out of (a) 60.37 above[35(1)(iv)] d.Less Sale Proceed on sale of Assets (8.40) e.R&D Expenditure admissible @200% out of a (a) above 4,802.56 (2,401.28*2)

174.5 The assessee further filed the reconciliation statement of the difference between the expenditure (both Revenue & Capital) claimed by it and the expenditure approved by the DSIR:

174.6 Reconciliation statement for revenue expenditure as under:

I. Revenue R &D expenditure

Particulars Amount Amount (Rs. In lacs) (Rs.in lacs) Gross Amount of Revenue R &D on which 16,566.24 weighted deduction is claimed Less: Amount Inadmissible 1.Less on Sale of Fixed Assets 2.Sale Proceed on sale of Assets (7.83) (8.40) (16.23) Net Amount of Revenue R & D on which 16,550.01 weighted deduction is claimed by the Assessee in the return of income Less Expenses not included above 1.Foreign Patent (20.92) 2.Repairs on building (88.20)

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 145 - 3.Muncipal Taxes (33.39) 4.Painting-Building (7.93) 5.Rates Taxes (13.81) 6.Clinical Trial on Side (204.05) 7.Overseas Clinical Trails (307.28) 8.Staff Canteen (75.10) 9.Laundry Cleaning (10.80) 10.Training Centre Expenses (0.01) 11.Customer Entertainment (16.64) 12.Advertisement (1.71) 13.Rent (0.27) 14.Product Registration Charges (230.83) 15.Contract Labour Charges (219.81) 16.Foreign Professional Fees (719.61) Total expenditure for which deduction is 14,599.64 approved by DSIR

174.7 Reconciliation statement for capital expenditure as under: II. Capital R & D Expenditure

Particulars Amount Amount (Rs. In lacs) (Rs.in lacs) Amount of Capital R &D on which weighted 3,521.04 deduction is claimed by the Assessee in the retutn of income Less:Inadmissible capital expenditure 1.Land (1,050.79)

(16.23) Less: Amount claimed @100% u/s.35(i)(iv) 16,550.01 1.Buiding (60.57) Net Amount of Revenue R &D on which 2,409.68 weighted deduction is claimed by the Assessee in the return of income Less: Amount not considered by DSIR 1.R&D vehicle (96.63) Total expenditure for which deduction is approved by DSIR 2,313.05

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 146 - 174.8 The assessee also submitted that the expenditure not approved by the DSIR is also eligible for weighted deduction u/s 35(2AB) of the Act. The submission of the assessee can be categorized as under: 1) Foreign patent filing expenditure and overseas product registration charges amounting to Rs. 20.92 lacs and Rs. 230.83 lacs respectively. The assessee required to take approval from various authorities e.g. US FDA, ANDA, etc, for launching the product in overseas market.

2) During the year assessee has claimed the expenses incurred on building repair and maintenance etc, amounting to Rs.100.15 lacs detailed as under:

Sr.No. Particulars Amount 1. Repairs on Bilding 88.20 2. Painting Building 7.93 3. Munciupal Taces 33.39 4. Rates and Taxes 13.81 5. Rent 0.27 Total 143.6

The assessee in response to the notice issued by the AO explained that the word “expenditure in the nature of cost of any land or building” used in section 35(2AB) of the Act relates to the purchase of any land or building. But the expenses claimed by it are in the nature of wear & tear expenses which are not capital in nature for the land or building. Therefore the repair and

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 147 - maintenance charges cannot be considered as the cost of the building. These expenses were incurred for wear & tear and maintenance of the building. These expenses are not bringing the building into existence or to put to use for work. Therefore expenses are not in the nature of capital.

Repair of building expenses incurred for the building in which the research and development activity carried out. Therefore expeses are eligible for deduction u/s 35(2AB) of the Act.

3) During the year under consideration the assessee has incurred the expenses towards clinical trial activity carried outside the approved facilities and in the overseas countries amounting to Rs. 511.33 lacs as detailed under:

Sr.No. Particulars Amount 1. Clinical Trail outside the approved 204.05 facility 2. Overseas Clinical Trails 307.28 Total 511.33

Assessee further submitted that the clinical trial is an integral part of the R&D activity. The products on which the R&D activities carried out in the approved R&D facility of the company are subject to further trial on humans for bio-equivalent etc, which are done on volunteers who are the patient of the disease for which medicines are developed. The ld. CIT-A allowed the weighted

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 148 - deduction in respect to similar expenditure in the AY 2008-09 u/s 35(2AB) of the Act.

4) The assessee has incurred expenses amounting to Rs. 102.55 lacs for providing facility to employees during the year under consideration. The details of such expenses stand under:

Sr.No. Particulars Amount 1. Staff Canteen 75.10 2. Laundry & Cleaning 10.80 3. Training Centre Expenses 0.01 4. Customer Entertainment 16.64 Total 102.55

These expenses are in the nature welfare of employees who are working in the approve R&D facility. All these facility provided by the company to it employees to retain them and for better productivity of employees.

5) The assessee has incurred the advertisement expense amounting to Rs. 1.71 lacs on which it claimed deduction u/s 35(2AB) of the Act. Such advertisement expenses paid by the Tandalja R&D unit to find out volunteers for the purpose of carrying out clinical trial which is integral part of the R&D activities.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 149 - 6) The assessee has incurred expenses towards foreign professional fees amounting to Rs. 719.61 lacs. The professional fees incurred by the assessee for getting the advice relating to patents, violation or infringement on the existing patent of various pharmaceutical product.

7) The assessee has incurred contract labour charges during the year under consideration amounting to Rs. 219.81 lacs and claimed weighted deduction u/s 35(2AB) of the Act for Rs. 439.62 lacs. These payments made to contractors who provide the employee on temporary basis. This payment is equal to salary payment made to employee. There the same is eligible for deduction. 8) The assessee has incurred capital expenses towards purchase vehicle amounting to Rs. 96.63 lacs during the year under consideration. Such vehicles are used for the transportation of the employee of the R&D unit. These expenses are integral part of the R&D activity.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 150 - decision is not yet settled. Thus excess deduction claimed by the assessee amounting to Rs. 3,693.69 lacs is disallowed and added to total income of the assessee.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 151 - 3) Accordingly the AO was directed that the expense not certified by the DSIR should be examined individually whether expenses pertain to in house R&D facility. 4) The building maintenance, municipal tax paid, and rent pertaining to building exclusively used for the purpose of R&D activity are eligible for the deduction.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 152 - without appreciating that in accordance with the Scheme of Section 35(2AB) of the Act, the approval of expenditure on Scientific research is the guiding factor for the A.O. to determine the allowance or otherwise of the weighted deduction u/s. 35(SAB) of the Act claimed by the assessee. 17 Whether on the facts and Circumstances of the case and in law, the Ld. C.I.T. (A) was justified in directing the A.O. to verify each and every item of the expenses not certified by D.S.I.R. included in Rs. 2046.99 lacs and then allow consequential relief without appreciating that "It is competent authority which has to decide whether a particular expenditure is eligible for deduction u/s. 35(2AB) or not, but not the A.O. " as held by the Hon'ble I.T.A.T. Vishakapatnam Bench in the case of Effronics Ssytems (P) Ltd. vs. A.C..I.T. Range-2, Vijaywada reported in [2016] 75 taxmann.com. 275 (Vishakaptnam-Trib)

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 153 - ld. CIT-A allowed the ground of the assessee for statistical purpose after having reliance of the order of his predecessor for the AY 2008-09. We further note that the assessee against the order of the Ld. CIT-A preferred an appeal before the Tribunal in ITA No. 3297/AHD/2014 which was decided in favor of the assessee vide order dated 16-6-2017. The relevant extract is reproduced below.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 154 - 3 wherein the Bench has followed its earlier decision in ITA No.2430/Ahd/2009. The findings thereon read as under:- Ground no. 4 relates to the disallowance of trade mark registration an do verse as product registration charges u/s. 35(2AB). 11. On perusing the details of R & D expenditure, the A.O found that the assessee has claimed weighted deduction @ 150% on (a) Trade Mark Registration Charges 2,42,S6,296/ (b) Overseas Product Registration Charges : 2,00,00,508/- 12. The assessee was asked to justify its claim. Assessee filed a detailed reply justifying its claim of weighted deduction. It was explained that the expenditure incurred for product registration although named as Product Registration Expenditure is not merely an expenditure for registration of the product, but in large measure constitutes expenditure for validation and confirmation of the Research carried out The A.O did not accept the claim of the assessee holding that these expenses were incurred for registration of drug patents in foreign countries. The A.O accordingly withdrew the weighted deduction and allowed only 100% of the same as revenue 13. Assessee carried the matter before the Id. CIT(A) but without any success. While dismissing the grievance of the assessee, the Id. CIT(A) followed the findings of his predecessor given in A. Y. 2002-03 to 2004- 05. Before us, the Id. counsel for the assessee stated that the Tribunal in assessee's own case in earlier years has decided this issue in favour of the assessee and against the revenue in ITA No. 1558/Ahd/2006. The Id. D.R, could not bring any distinguishing decision in favour of the reven ue. 14. We have given a thoughtful consideration to the order of the Tribunal in earlier years; we find that the Tribunal while deciding the issue in favour of the assessee has followed the decision of the Co- ordinate Bench, Mumbai in the case of USV Ltd. 54 SOT 615. Findings of the Tribunal read as under:- 24. We have carefully perused the orders of the authorities below. We find that the Id. CIT(A) has simply followed the findings of his predecessor for A.Y. 2000-01. We also find that the assessment order for A. Y. 2000-01 has been quashed by the Tribunal vide a ITA Nos.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 155 - 1199 & 1279/Ahd/2006, which means that the basis for upholding the disallowance has been removed. We further find that on identical set of facts, the Mumbai Bench in the case of USV Ltd. (supra) has allowed the .claim of the assessee in respect of expenditure incurred in respect of patent application. Respectfully, following the findings of the co- ordinate Bench (supra); we direct the A.O to delete the disallowance of Rs.44,71,906/- Ground no. 10 is accordingly allowed. , 15. Respectfully following the detailed findings given, we direct the A.O to allow the impugned weighted deduction. Ground no. 3 is accordingly allowed. 35,We direct accordingly. Ground no. 6 is allowed. 97. Respectfully following the same, we direct accordingly. Ground ho. 6 is allowed. 98.6round no. 7 relates to the denial of weighted deduction u/s. 35{2AB) on expenses incurred on Corporate Advertisement. 99.The issue is identical to the issues raised vide ground no. 6 (supra). For , similar reasons, we direct the A.O. to allow the weighted deduction. , Ground no. 7 is allowed. 100. Ground no. 8 relates to the denial of weighted deduction u/s. 35(2AB) on revenue expenditures. 101. Once again, the issues are same as raised vide ground no. 6 hereinabove. For our detailed discussion therein, we direct accordingly. Ground no. 8 is allowed. , 102. Ground no. 9 relates to the claim of deduction of remuneration received from partnership firm for determination of book profit u/s. 115JB. 103. Facts in issue are that the appellant company has claimed to have (received remuneration of Rs. 40.12 crs from partnership firm Sun Pharma (Industries (SPI) which was deducted while working: out profit u/s. 115JB of the Act. It was claimed by the assessee that remuneration was nothing but

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 156 - an appropriation of the profit of the firms which should be deducted by treating the same as part of exempt income to which provision of Section 10 of the Act applies. This contention of the assessee did not find any favour with the A.O. who refused to allow deduction of remuneration of Rs. 40.12 crores while computing book profit u/s. 115JB of the Act. 183.1 Besides the above, we also place our reliance on the order ITAT in the own case in ITA No. 1663/AHD/2016 wherein it was held as under:

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 157 - 74. Ground no. 3 relates to the deletion of the disallowance of Rs. 7,91,222/- claimed u/s. 35(2AB) of the Act incurred for lunch, refreshment and brokerage paid for property used by R & D unit employees.

183.2. Further the relevant extract of the judgment of the Torrent pharmaceuticals ltd bearing ITA No. 4343 & 4356/Ahd/2007 for the AY 2002-03 vide order dated 31-01-2011 are reproduced as under:

At the outset Ld. Counsel for the assessee stated that this issue is squarely covered in favour of assessee and against the Revenue by the decision of this Tribunal in the case of ACIT v. Torrent Pharmaceuticals Ltd. in ITA No.3569 /Ahd/2004 & CO No.18/Ahd/2005 for assessment year 2001-02 vide order dated 13-11-2009, wherein the Tribunal has held in para-10:- "10. In view of the above facts and circumstances, we are of the view that it is only the expenditure which will only be allowed, whereas the assessee vide the copy of the letter reproduced hereinabove has very clearly explained as to how the entire expenditure claimed by the assessee is allowable. Thus there was no justification in harping upon the figure contained in Form No.3CL as is done by the Assessing Officer. The provisions of the Act it does not contain any specific conditions for the allowance of expenditure to the effect that it will be restricted that contained in Form No.3CL. Needless to point out that such allowable expenditure etc. is reported by the DSIR to DG (Income-tax Exemption), Kolkata without giving an opportunity of being heard to the assessee wherever he quantifies the expenditure which is less than that claimed by the assessee. We further find that the assessee has included a sum of Rs.51.26 lakhs as eligible expenditure being Revenue expenditure relating to building and another sum of Rs.133.92 lakhs being revenue expenditure other than building, which was considered as revenue by the assessing officer himself. These items clearly are within the purview of allowable u/s 35(2AB) of the Act as weighted deduction. The security expenses are also directly related to in-house research as proper security is required to avoid leakage and only in-house staff will have assessed to building. Accordingly, this expenditure are for preserving the research which is completed and its clinical trial is pending. As regards to the environmental issue, the assessee-company has set up an affluent plant and as is widely accepted the vegetation, i.e. trees have contained the pollution. This expenditure of gardening and plantation have been done for the perseverance of environment and this is directly related to R & D facilities. As regards to salary paid to Dr. C.Dutt amounting to Rs.58.54 lakhs, he is in-charge of R & D Centre at Bhatt. He is the person through whom all co-ordination of technical scientists and other technical persons are carried out. The entire reporting of the research activity to the management has been taken to the Board of Directors through him only and for this the salary is paid.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 158 -

Accordingly, the assessee has rightly paid the entire expenditure of Rs.133.92 lakhs and building repairs Rs.37.55 lakhas on which weighted deduction u/s.35(2AB) of the Act is allowable. In view of the above discussion, we allow ITA No.333 & 346/A/06 & 4343, 4356/A/07 A.Ys 02-03 & 04-05 Torent Pharmaceuticals P. Ltd. v ACIT/DCIT Cir-8 A'bd Page 38 the claim of the assessee and this issue of the Revenue's appeal is dismissed and that of the assessee's CO is allowed. "

183.3. The facts of the case on hand are identical to the facts of the case as discussed above. The ld. DR has also not brought anything on record contrary to the finding of ld. CIT-A, and the argument advanced by the Ld. AR for the assessee. Therefore respectfully following the same, we do not want to disturb the finding of ld. CIT-A.

183.4 However, we note that the AO has made the disallowance of the expenses not certified by the DSIR. As such the issue of the verification of the expenses pertaining to R & D facility is not arising from the order of the AO. However the ld. CIT-A allowed the relief to the assessee subject to the direction that the AO shall verify whether the expenditure claimed by the assessee belongs to the R & D facility of the assessee. However, we note that there are certain expenses which were disallowed by the AO treating them not connected with the R & D facility of the assessee.

183.4 The details of such expenses stand as under:

(a) Patent and Trade 38.30 Mark

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 159 - Registration Charges (b) Overseas product 230.83 registration expenses (c) Repairs to 88.20 building (d) Municipal taxes 33.39 (e) Lunch & 9.47 refreshment expenses (f) Brokerage for 0.10 property

183.5. The above disallowance made by the AO reveals the fact that the AO has verified such expenses. It is also important to note that the part of the aforesaid expenses was also disallowed by the AO to the extent not certified by DSIR. Thus it is transpired that the AO verified the R & D facility expenses. Hence the ground of appeal of the assessee is allowed and the ground of appeal of the Revenue is dismissed.

184.1 On the basis of AIR data/ ITS detail, the AO found that the assessee has received interest on income tax refund u/s 244A of the Act of Rs. 5,99,53,963/- for AY 2009-10 & 2011-12 vide letter dated 21-09-

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 160 - 2015. However, the assessee has not disclosed it in the return of income. Accordingly, assessee was sought to explain for the same.

184.2 In reply to the question of AO, the assessee filed a letter dated 22- 02-2016 by stating that it has not accounted for such income during the year under consideration.

185.3 In view of the above, the AO accordingly added the amount of Rs. 5,99,53,963/- to the total income of the assessee.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 161 -

“In view of the above discussion, we are of the view that interest on refund under section 244A(1) would be assessable in the year in which it is granted and not in the year in which proceedings under section 143(1)(a) attain finality.”

In view of the we do not find any reason to interfere in the finding of the Ld.CIT(A). Hence the ground of appeal of the assessee is dismissed.

190.1 The ground raised by the assessee is legal in nature which can be admitted at any stage of the proceedings. For this proposition we find support and guidance from the judgement of Hon’ble Supreme Court in case of CIT Vs. Sinhgad technical education society reported in 397 ITR 344 wherein it was held as under: “The Tribunal permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the Tribunal that as per the provisions of section 153C, incriminating material which was seized had to pertain to the assessment years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four assessment years. Since this requirement under section 153C is essential for assessment under that provision, it becomes a jurisdictional fact. This reasoning appears to be logical and valid, having regard to the provisions of section 153C. Order of the Tribunal reveals that the Tribunal had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to assessment year 2004-05 or thereafter. After taking note of the material and discussing it, it was specifically recorded that the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, the respondent, argued that notice in respect of assessment years 2000-01 and 2001-02 was even time barred.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 162 - The Tribunal thus, rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is therefore without any blemish. Further, in view of aforementioned findings, it is not necessary to enter into this controversy. Thus, there is no merit in these appeals The implication of the fact that the assessment order passed by the Assessing Officer covers eight assessment years is to be noted. The assessment done in six assessment years is under section 153C. Assessment order is set aside only in respect of four such assessment years that too on the technical ground, noted above. The objection pertaining to the four assessment years in question does not relate to the other two assessment years, namely, 2004-05 and 2005-06. Likewise, this decision has no bearing in respect of assessment done qua assessment year 1999-2000 as well as assessment year 2006-07. The necessary consequence would be that insofar as the conclusions of the Assessing Officer in his assessment order regarding the activities of the trust not being genuine and not carried out in accordance with the trust deed or cancellation of registration, denial of benefits of sections 11 and 12 etc. are concerned, the same would not be affected by this judgment. It is, thus, clarified that this Court has not dealt with the matter on merits insofar as incriminating material found against the assessee or N is concerned. Pithily put, this Court has not given any clean chit to the assessee insofar as the finding of the Assessing Officer to the effect that the assessee had been indulging in profiteering and collecting capitation fee is concerned. Whatever other repercussions are there, based on these findings, they can follow.”

In view of the above, we admit the additional ground raised by the assessee and restore the matter to the file of AO for fresh adjudication. Hence the ground of appeal of the assessee is allowed for statistical purposes.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 163 - A.Es of Rs. 13,43,79,010/-without appreciating that till the amount advanced by the assesee to its Associated Enterprise, was adjusted towards equity capital, the amount remained in the form of advance and hence for that period of time the assessee ought to have charged interest on loan advanced to its A.E. 2. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) was justified in directing the A.o. to delete the addition on account of interest on loan to A.Es of Rs. 13,43,79,010/-without appreciating that the assesee did not establish the commercial expediency of not charging interest on loan/advance to A.E. and without appreciating that though susbstantial substantial foreign exchange risk was involved on account of severe foreign exchange fluctuation, the assessee did not charge interest on loan to A.E. when the A.E. of the assesee did not provide security for the loan/advance received. 3. Whether on the facts and circumstances of the case and in law was justified in directing the A.O. to allow weighted deduction u/s. 35(2AB) of the Act on trade mark registration charges and overseas product registration charges without appreciating that the A.O. had correctly disallowed the assesee's claim of weighted deduction u/s. 35(2AB) of the Act since the the expenses on trade mark registaration charges and overseas product registration charges were incurred by the assessee outside India and hence the same could not be considered for the purpose of allowance of weighted deduction u/s. 35(2AB) of the Act. 4. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) was justified in directing the A.O. to allow weighted deduction on expenses relating to building repairs and Muncipal Taxes amounting to Rs. 1,21,59,206/-without appreciating that the A.O. had correctly disallowed expenditure on repair to building and municipal taxes u/s. 35(2AB) of the Act since the assesee did not establish as to how expenditure on repair to building and municipal tadaes lead to improvement in R & D activitities carried on by the assessee. 5. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) was justified in directing the A. O. to allow weighted deduction at 200% on lunch and refreshment and brokerage for property without appreciating that the A.O. had correctly disallowed expenses on lunch and refreshement u/s. 35(2AB) of the Act, sicne the expenses incurred by the assessee for guest and others were outside the R & D Centers, and expenses on brokerage had no direct nexus with the R & D activity carried on by the assessee. 6. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) was justified in allowing weighted deduction u/s. 35(2AB) of the Act on the expenses related to trade mark registration charges, overseas product registration charges, repairs to building & municipal taxes, lunch and refreshment expenses, brokerage charges for property without appreciating that in accordance with the provision of section 35(2AB) of the Act, weighted deduction u/s. 35(2AB) is allowable only if the expenditure incurred on scientific research is approved by the prescribed Authority i.e. Secretary, D.S.I.R. Govt of India as is evident from the discussion made in the assessment

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 164 - order, the assesee did not establish that the Secretary, D.S.I.R. had approved the above referred expenditure for the purpose of weighted deduction u/s. 35(2AB) of the Act. 7. Whether on the facts and circumstances of the case and in law, the Ld. CI.T. (A) was justified in holding that " The appellant company has incurred the expenditure of Rs. 1,70,95,96,941/- also for the purpose of its business through the partnership firm and accordingly disallowance u/s, 37 is not called for" without appreciating that the A.O. had correctly disallowed the expenditure on selling and distribution expenses incurred by the assessee u/s. 37(1) of the Act, since the assessee had debited the expenses on selling and distribution expenses on behalf of separate entity i.e. SPI and hence the assessee did not incur expenses wholly and exclusively for the purpose of its own business. 8. Whether on the facts and circumstances of the case and in law, the Ld. CI.T. (A) was justified in holding that " The appellant company has incurred the expenditure of Rs. 1,70,95,96,941/- also for the purpose of its business through the partnership firm and accordingly disallowance u/s. 37 is not called for" without appreciating that the assessee in its books of account had debited the selling & distribution expenses incurred on behalf of S.P.I, with the sole intention of reducing its profit with an intention to minimise its tax liability. 9. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T. (A) ws justified in holding that " The appellant is eligible for deduction u/s. 80IA(4) in respect of income of Captive Power Generation Unit and hence the Assessing Officer is directed to allow the same after correctly computing the income of eligible unit " without appreciating that the A.O. by relying on the provision of 80A(4) 80AB, SOB 80IA(1) of the Act had correctly disallowed assessee's claim of deduction u/s. 80IA(4) of the Act. 10. Whether on the facts and circumstances of the case and in law, the Ld. C.I.T, (A) was justified in holding that " The appellant is eligible for deduction u/s. 80IA(4) in respect of income of Captive Power Generation Unit and hence the Assessing Officer is directed to allow the same after correctly computing the income of eligible unit", without appreciating that the assessee did not substantiate its claim with facts and figures to prove that it had included profit of the Undertaking derived from utilization of captive power Genertion Unit in the gross total income. 11. Whether On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) was justified in holding that "The R & D expenses incurred by the appellant are required to be allocated in the ratio of turnover of appellant and SPI/SPS" without appreciating that the A.O. had correctly allocated R & D expenses in the ratio of turnover of formulations manufactured in SPIL, SPI and SPS, since products manufactured in units under SPI and SPS were formulations whereas both Formulation and bulk drugs were manufactured by units under SPIL and the product manufactured in Units under S.P.I, and SPS were developed at the R 85 D facilties of SPIL, in whose books of accounts such R 85 D expenses

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 165 - 12. Whether on the facts and in circumstances of the case and in law, the Ld. C.I.T. (A) erred in holding that "The expenses incurred for development of Formulation Drug for domestic market are to be considered only because SPI and has no business outside the country" without appreciating the factual finding recorded by the A.O. in the assessment order to the effect that "Further both SPIL and the partnership firms i.e. SPI and SPS are selling products overseas as well as in local market" 13. Whether on the facts and circumstances of the case and in law the Ld. C.I.T. (A) was justified in directing the AO. to the disallowance to the extent of Rs.84,99,194/- being conference fees and sponsorship, without appreciating that the A.O, had correctly disallowed the expenses on conference fees and sponsorship, since the said expenses incurred by the assessee were in the nature of freebies/gift to the medical practineers, thereby assessee had violated the Regulations laid down by Medical Council of India. 14. Whether on the facts and circumstances of the case and in law the Ld. C.I.T. (A) was justified in directing the A.O. to verify each and every item of the expenses not certified by D.S.I.R. included in Rs. 2046.99 lacs and then allow consequential relief without appreciating that the A.O. had correctly disallowed assessee's claim of weighted deduction u/s. 35(2AB) of the Act to the extent of Rs. 2046.99 lacs since the A.O. has no power to allow weighted deduction u/s. 35(2AB) of the Act in excess of what has been approved by D.S.I.R. in accordance with the provision of section 35(2AB) of the Act. 15. Whether on the facts and Circumstances of the case and in law, the Ld. C.I.T. (A) was justified in directing the A.O. to verify each and every item of the expenses not certified by D.S.I.R. included in Rs. 2046.99 lacs and then allow consequential relief without appreciating that it was for the assesee to approach the Secretary, D.S.I.R. for reconsideration of approval of expenditure on scientific rsearch to the extent of Rs. 2046.99 lacs not considered in certificate issued by the Secretary, D.S.I.R.. for the purpose of weighted deduction u/s. 35(2AB) of the Act.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 166 - Ssytems (P) Ltd. vs. A.C..I.T. Range-2, Vijaywada reported in [2016] 75 taxmann.com. 275 (Vishakaptnam-Trib)

193.1 We have already decided the impugned issues against the Revenue in the ground of appeal bearing no. 1 vide Para No.106 & 107 of this order in ITA 922/AHD/2017. Thus respectfully following the same, we are inclined not to disturb the finding of the Ld.CIT (A). Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed.

194.1. We have already decided the impugned issues against the Revenue in the ground of appeal bearing no. 4 vide Para No.122 & 123 of this order in ITA 922/AHD/2017. Thus respectfully following the same, we are inclined not to disturb the finding of the Ld.CIT (A). Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 167 - 195. The issue raised by the Revenue in ground number 4 is that the Ld.CIT (A) erred in deleting the addition of weighted deduction made under section 35(2AB) of the Act on building repairs and municipal taxes expenses of Rs. 1,21,59,206/-.

195.1 During the year under consideration, assessee has incurred expenses on repairs to building amounting to Rs. 88,20,437/- and municipal taxes amounting to Rs. 33,38,769/-. The assessee in respect of such expenses claimed the weighted deduction on repair to building amounting to Rs. 1,76,40,873/-and municipal taxes amounting to Rs. 66,77,538/-only.

196.1 The assessee in response to the notice issued by the AO explained that the word “expenditure in the nature of cost of any land or building” used in section 35(2AB) of the Act relates to the purchase of any land or building. But the expenses claimed by it are in the nature of wear & tear expenses which are not capital in nature for the land or building. Therefore the repair and maintenance charges cannot be considered as the cost of the building. These expenses were incurred for wear & tear and maintenance of the building. These expenses are not bringing the

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 168 - building into existence or to put to use for work. Therefore expenses are not in the nature of capital.

196.2 Repair of building expenses incurred for the building in which the research and development activity carried out.

196.3 However, the AO rejected the contention of the assessee by observing that the repair and maintenance and municipal tax expenses incurred by the assessee pertaining to the building in which R&D activities carried out. Therefore on these expenses only 100% deduction allowable not weighted deduction.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 169 - 198. Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us.

200.1 The facts of the case on hand are identical to the facts of the case as discussed above. The ld. DR has also not brought anything on record contrary to the finding of ld. CIT-A, and the argument advanced by the ld. AR for the assessee. Therefore respectfully following the same, we do not want to disturb the finding of ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 170 -

201.1 We have already decided the impugned issues against the Revenue in the ground of appeal bearing no. 5 vide Para No. 131 of this order in ITA 922/AHD/2017. Thus respectfully following the same, we are inclined not to disturb the finding of the Ld.CIT (A). Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed.

202.1 At the outset, we note that we have adjudicated the issue raised by the Revenue along with ground of appeal of the assessee bearing no. 13 vide Para no. 150.1 of this order in ITA 1237/AHD/2017. Thus respectfully, following the same, we do not find any reason to interfere in the order of the Ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 171 - 203. The issue raised by the Revenue in ground number 7 and 8 is that the Ld.CIT (A) erred in deleting the addition made by AO under section 37 of the Act for Rs. 1,70,95,96,941/-on account of expenses incurred on behalf of its sister concerns.

203.1 At the outset, we note that we have adjudicated the similar issue raised by the Revenue in ground bearing no. 9 vide Para no. 149 of this order in ITA 922/AHD/2017. Thus respectfully, following the same, we do not find any reason to interfere in the order of the Ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed.

204.1. At the outset, we note that we have adjudicated the similar issue raised by the Revenue in ground bearing no. 8 vide Para no. 143 of this order in ITA 922/AHD/2017. Thus respectfully, following the same, we do not find any reason to interfere in the order of the Ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 172 - 205.1 At the outset, we note that we have adjudicated the issue raised by the Revenue along with ground of appeal of the assessee bearing no. 6 vide Para no. 131-A of this order in ITA 922/AHD/2017. Thus respectfully, following the same, we do not find any reason to interfere in the order of the Ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed.

206.1 At the outset, we note that we have adjudicated the issue raised by the Revenue along with ground of appeal of the assessee bearing no. 5 vide Para no. 161 of this order in ITA 1237/AHD/2017. Thus respectfully, following the same, we do not find any reason to interfere in the order of the Ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed.

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 173 - 207.1 At the outset, we note that we have adjudicated the issue raised by the Revenue along with ground of appeal of the assessee bearing no. 13 vide Para no. 183 of this order in ITA 1237/AHD/2017. Thus respectfully, following the same, we do not find any reason to interfere in the order of the Ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed.

207.2 In the result the appeal of the Revenue is dismissed.

This Order pronounced in Open Court on 29/03/2019

-Sd- -Sd- (WASEEM AHMED) (MS.MADHUMITA ROY) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 29/03/2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS/ Manish

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

ITA Nos.922 & 1234/Ahd/2017 (By Revenue) and ITA Nos.929 & 1237/Ahd/2017 (By Assessee) DCIT vs. Sun Pharmaceuticals Inds.Ltd.vs. DCIT Asst.Years – 2010-11 & 2012-13 - 174 - अपीलाथ� / The Appellant 1. ��यथ� / The Respondent. 2. संबं�धत आयकर आयु�त / Concerned CIT 3. आयकर आयु�त(अपील) / The CIT(A)-2, Baroda 4. �वभागीय ��त�न�ध,आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. गाड� फाईल / Guard file. 6. आदेशानुसार/BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad