DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), , HYDERABAD vs. MYLAN LABORATORIES LIMITED (FORMERLY KNOWN AS MATRIX LABORATORIES LIMITED), HYDERABAD, HYDERABAD

Brief facts of the case are that the assessee company, engaged in pharmaceutical business, filed its return of income for

Thereafter, he also considered that the assessee has entered into an investment agreement with Control Bio Tech Ltd on 10.02.2006 and as per the said agreement, it paid an amount of Rs.40,00,000 towards non-compete fee one of the promoters and capitalized the same as an intangible asset and claimed depreciation @25%. He also observed that similarly, in the case of Medicorp Technologies India Ltd (now amalgamated with Mylan Laboratories Ltd) also, the non-compete fee of Rs.2,00,00,000 was paid by the assessee and capitalized and the assessee had claimed depreciation @25% on the WDV. The AO disallowed both the claims on the ground that there is no prescription for allowance of depreciation in respect of non-compete fee as it is not covered under the phrase “any other business or commercial rights of similar nature” u/s 32(1)(ii) of the Act. The AO also observed that the assessee has claimed weighted deduction of expenditure u/s 35(2AB) at Rs.126,05,14,476. He allowed only the expenditure approved by the DSIR and the excess claim of Rs.2,62,55,082 was disallowed and brought to tax u/s 35(2AB) of the Act.

Aggrieved, by the disallowances and the consequential additions, the assessee preferred appeal before the CIT (A), who partly allowed the same. The CIT (A) confirmed the disallowance of depreciation in respect of non-compete fee paid to Shri Sudhir Vaid, whereas she deleted the disallowance of depreciation on non-compete fee paid to Medispan Ltd and also deleted the disallowance made u/s 14A of the I.T. Act. She also directed the AO to verify the allowability of the claim under sub section (ii) of section 35(1) in respect of the expenditure claimed towards scientific research. For coming to this conclusion, the CIT (A) followed the ITAT’s orders in assessee’s own case for the A.Y 2008-09. Aggrieved by the relief granted by the CIT (A), the Revenue is in appeal before us by raising the following grounds of appeal: “1. The CIT(A) erred in deleting the disallowance made u/s 14A of Rs.4,82,94,718. 2. The CIT(A) erred in ignoring CBDT’s Circular No.5 of 2014 dated 11.02.2014. 3. The CIT(A) erred in directing the AO to examine and allow deduction u/s 35(1)(i) in respect of expenditure that is not certified by the DSIR for weighted deduction. 4. The CIT(A) erred in ignoring the fact that Revenue’s appeal on identical issue of deduction u/s 35(1)(i), in assessee’s own case for A.Y 2008-09 is pending before the Hon'ble High Court. 5. The CIT (A) erred in allowing depreciation on non- compete fee. 6. The CIT (A) erred in ignoring the fact that Revenue’s appeal on identical issue of depreciation on non- compete fee, in assessee’s own case for A.Y 2008-09 is pending before Hon'ble High Court.

As regards grounds 1 & 2, we find that the CIT (A) has given a finding that the assessee has not earned any dividend income during the relevant A.Y and the Revenue has not been able to rebut these findings of the CIT (A). This issue is now covered in favour of the assessee by the decisions of the Hon'ble Delhi High Court in the case of Cheminvest Ltd reported in (2009) 121 ITD 0318 and also the decisions of the Coordinate Benches of the Tribunal and respectfully following the same, grounds 1 and 2 are rejected.

As regards grounds 3 & 4 also, we find that the Tribunal has set aside the issue to the file of the AO for verification and the CIT (A) has followed the orders of the Tribunal in the assessee’s own case for the earlier A.Y the Revenue, in its ground itself, has stated that the Department’s appeal is pending before the Hon'ble High Court. Since the Hon'ble High Court has not suspended the order of the Tribunal, we are inclined to follow the order of the Tribunal and we see no reason to interfere with the order of the CIT (A). Therefore, grounds 3 & 4 are rejected.

As regards grounds 5 & 6 also, we find that the Revenue itself has admitted that its appeal on the identical issue of depreciation on non-compete fee for the A.Y 2008-09 and the issue is before the Hon'ble High Court. For the reasons cited above, we do not see any reason to interfere with the order of the CIT (A) who has followed the decision of the Coordinate Bench of this Tribunal in the assessee’s own case for the A.Y 2008-09. Accordingly, grounds 5 & 6 are rejected.

In the result, Revenue’s appeal is dismissed.

The assessee is in appeal before us by raising the following grounds of appeal: “1. The Order of the CIT(A) dated 28.07.2017 passed u/s 250 of the Income Tax Act, 1961 " is contrary to facts and law. 2. The CIT(A) erred in not allowing the assessee's claim u/s 35(l)(i) of the Act @ 100% of expenditure of Rs.1 ,31 ,27,541/- in respect of amount not considered by the prescribed authority u/s 35(2AB) for weighted deduction, but instead, it was referred back to AO to examine the expenditure. 3. The CIT(A) erred in not directing the AO to allow the depreciation @ 24% amounting to Rs. 2,81,568/- on brought forward written down value of Rs·.11,26,271/- in respect of non-compete fee of Rs.40/- lakhs paid in A.Y. 2007-08 to Sudhir Vaid in relation to Concord Biotech Ltd. 4. The CIT(A) erred in not directing the AO to drop the penalty proceedings initiated u/s 271 (1)( c) of the Act. 5. The appellant craves leave to add to, to alter or amend any of the aforesaid grounds”.

Grounds 1 & 5 are general in nature and need no adjudication.

As regards Grounds No.2, it is fairly conceded by the learned Counsel for the assessee that the CIT (A) has remitted the issue to the file of the AO for verification and allowance of the assessee’s claim u/s 35(1)(i) of the Act. Therefore, ground No.2 is rejected.

As regards ground No.3, the learned Counsel for the assessee fairly admitted that this issue is covered in favour of the Revenue by the decision of the ITAT for the A.Y 2007-08, but in order to keep the issue alive, the assessee has raised this ground before us. Respectfully following the decision of the Coordinate Bench of the Tribunal, we do not see any reason to interfere with the order of the CIT (A). Therefore, this ground of appeal is also rejected.

Ground of appeal No.4 against the issuance of the penalty proceedings, being premature, is rejected.

In the result, assessee’s appeal is also dismissed.

To sum up, both the Revenue’s and assessee’s appeals are dismissed. Order pronounced in the Open Court on 29th June, 2018. Sd/- Sd/- (S.Rifaur Rahman) (P. Madhavi Devi) Accountant Member Judicial Member