SUN PHARMACEUTICAL INDUSTRIES,MUMBAI vs. JCIT 20(3), MUMBAI

PER WASEEM AHMED, AM :

These are the set of cross appeals filed by the assessee and revenue respectively against the separate orders of the Commissioner of Income-tax (Appeals)-37, Mumbai [“CIT(A)” in short]. Since these appeals involve some common issues, these were heard together and are being disposed of by this consolidated order for the sake of convenience.

ITA No.3980/Mum/2017 an appeal by the Assessee (Sun Pharma Sikkim) – A.Y. 2012-13

“1. Re: Disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) in respect of alleged price difference Rs.2,13,425/- on purchase from Sun Pharmaceutical Industries Limited (SPIL) & Sun Pharmaceutical Industries (SPI)

On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in upholding the invoking of the provisions of S.80IE(6) r.w.s. 80IA (10) and thereby upholding the disallowance of Rs.2,13,425/- on account of purchase of materials by the Appellant from SPIL & SPI.

(a) On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in upholding the assessment of interest on bank F.D., interest on loan to employees and other income under the head 'Income from other sources' instead of assessing the same under the head 'Profits and gains of business'.

(b) The learned CIT (A) also erred in not appreciating that all the above receipts/incomes are arising from business activities and hence derived from the business of industrial undertaking.”

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2.1 At the outset we note that the learned AR for the assessee before us submitted that he has been instructed by the assessee not to press the issue due to smallness of amount involved in dispute. Hence, the ground raised by the assessee is dismissed as not pressed.

3.1 The facts of the case are that the assessee in the present case was a partnership during the relevant time and engaged in the business of manufacturing of pharmaceutical products. The assessee is an eligible undertaking under section 80IA/80IE of the Act. The AO during the assessment proceeding found that the profit eligible for deduction under section 80IA/80IE of the Act claimed by the assessee included income of Rs. 14,54,919/- accrued on account of sale of scrap, interest and other income which are not arising from the business activity of the undertaking. As such, the same are taxable under the head income from other sources. Thus, the AO excluded the same from the computation of deduction u/s 80IA/80IE of the Act.

3.2 On appeal by the assessee, the learned CIT(A) also confirmed the exclusion of impugned amount by following the order of his predecessor in the own case of the assessee for AY 2011-12.

3.3 Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

3.4 The learned AR for the assessee before us filed paper a book running from pages 1 to 238 and submitted the issue on hand is covered by common order of the coordinate bench of this tribunal in own case of the assessee for A.Y. 2010-11 and 2011-12 bearing ITA Nos. 3377 & 215/Mum/2017.

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3.5 On the other hand, the learned DR before us vehemently supported the stand of the authorities below by reiterating the findings contained in the respective orders which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

Details of Other Income Amount (Rs.)

Interest - received from bank F.D. 1,42,269/-

Interest - received on loan to employees 1,8087-

Scrap sale 7,08,144/-

Miscellaneous Income 7,4807-

Total 8,59,701/-

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This direction is subject to our decision on the ground of appeal of the Revenue i.e. whether the assessee is entitled for any deduction under section 80IE. In view of the above discussion this ground of appeal is partly allowed.

4.1 Before us, no material has been placed on record either by the Revenue or by the learned AR for the assessee to demonstrate that the decision of Tribunal as discussed above has been set aside/stayed or overruled by the Higher Judicial Authorities. Before us, no material was placed on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we set aside the finding of the learned CIT(A) to the extent of amount of exclusion of income on account of scrap sale whereas we uphold the finding of the learned CIT(A). With regard to the exclusion of interest and other income as discussed above, we hold that such income is not eligible for deduction under section 80-IE of the Act. Thus, the ground of appeal raised by the Assessee is hereby partly allowed.

ITA No. 1397/AHD/2017 an appeal by the Revenue for the A.Y. 2012- 13(Sun Pharma Sikkim)

“I(a) On the facts and circumstances of the case and in law the learned CIT(A) has erred in allowing the assessee's ground on disallowance of deduction u/s 80IE of Rs.13,61,50,69,980/- without appreciating the fact that the assessee firm was formed by the splitting up and reconstruction of the existing business of SPI and the condition that old / used machinery is less than 20% of the stipulated limit has not been fulfilled by the assessee." I(b) On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in holding that rejection of books of accounts in this case is not legally tenable and hence rejection of books of accounts by the A.O could not be upheld without appreciating that as per the provision of section 145((3) of the Act, it is not mandatory for the A.O. to make assessment in the manner prescribed in section 144 of the Act. I(c) On the facts and circumstances of the case and in law the Ld. C.I.T. (A) erred in not. upholding the A.O's action of rejection books of accounts without appreciating that the assessee during the course of assessment proceedings did not furnish the details called for, and hence considering the facts of the case, the A.O. correctly rejected the books of accounts of the assessee and recorded satisfaction note in the assessment order.

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II(a) On the facts and circumstances of the case and in law the Ld. C.I.T. (A) erred in holding that the claim of the appellant in respect of deduction u/s. 80IE of the Act is within the purview of the provisions of the Act and the same is allowable without appreciating that in the absence of proper details and bills, it could not be ascertained as to whether plant and machinery were new and not used earlier, and without appreciating that that plant and machinery transferred by Sun Pharma Industries to Sun Pharma Sikkim was used by Sun Pharma Industries prior to put to use by Sun Pharma Sikkim and hence such plant and machinery could not be regarded as new plant and machinery.

II(b) On the facts and circumstances of the case and in law the Ld. C.I.T. (A) erred in holding that the claim of the appellant in respect of deduction u/s. 80IE of the Act is within the purview of the provisions of the Act and the same is allowable without appreciating that mere submission of journal entries generated in computer cannot be treated as authentic document for having purchased plant and machinery and accordingly the A.O. had clearly established that the assessee firm i.e. M/s. Sun Pharma Sikkim was constituted by reconstruction of existing business of M/s. Sun Pharma Industries.

II(c) On the facts and circumstances of the case and in law the Ld. C.I.T. (A) erred in holding that the claim of the appellant in respect of deduction u/s. 80IE of the Act is within the purview of the provisions of the Act without appreciating that the assessee could not substantiate its claim with authenticable and reliable documents and failed in establishing that it had satisfied all the conditions laid down in section 80IE, and accordingly the A.O. had correctly disallowed deduction u/s. 80IE of Rs.13,61,50,69,980/-

II(d) On the facts and circumstances of the case and in law the Ld. C.I.T. (A) erred in holding that the claim of the appellant in respect of deduction u/s. 80IE of the Act is within the purview of the provisions of the Act without appreciating the A.O's finding on the issue of period of use & depreciation of plant and machinery used by Sun Pharma Industries & M/s. Sun Pharma Sikkim.

III(a) On the facts and circumstances of the case and in law, the Ld. C.I.T.(A) erred in deleting, the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on apportionment of selling and distribution expenses of Rs.182,57,00,000/- incurred by the working partner without appreciating the fact that all the sales and distribution expenses were debited to SPIL and no allocation was made to SPI and SPS units as has been revealed during the proceedings of survey action u/s. 133A."

III(b) On the facts and circumstances of the case the Ld. C.I.T. (A) erred in deleting the disallowance of deduction u/s. 80IE In respect of selling and distribution expenses without appreciating the A.O's finding on supplementary partnership deed and without appreciating that that selling and distribution expenses cannot be considered in conjunction with remuneration and such charging of remuneration was not accordance with the spirit of section 40(b) of the Act.

IV(a) On the facts and circumstances of the case the Ld. C.l.T. (A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on apportionment of research and development expenses of Rs.30,40,000/- incurred by the working partner without appreciating the fact that expenditure related to R&D was debited only in the hands of SPIL but no allocation was made to SPI and SPS units as has been revealed during the proceedings of survey action u/s 133A and the working of allocation of R&D activity on the basis of turnover in the ratio of 3:1 is justifiable and reasonable.

IV(b) On the facts and circumstances of the case the Ld. C.l.T. (A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) in respect of research and development expenses without appreciating that R & D work require specialized skill and knowledge, and consequently payment towards R & D activity cannot be termed as remuneration but would be termed as professional payment

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V(a) On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on apportionment of royalty expenses of Rs.139,42,00,000/- without appreciating the fact that the assessee was using trademarks, brands and logo of SPIL for which neither any fee or royalty is charged and hence disallowance made @ 8% of sales (as in SPI) adopted by the Assessing Officer is justifiable and reasonable.

V(b) On the facts and circumstances of the case and in law, the learned CIT(A) erred in erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on apportionment of royalty expenses without appreciating that the assessee in the guise of payment in the nature of remuneration for technical services of the nature of royalty adopted device to inflate its non taxable income as is evident from the fact that assessee itself had admitted that it had included compensation for use of trademark, brand name etc as remuneration and that compensation could not be equated with remuneration.

VI(a) On the facts and circumstances of the case and in law The learned CIT(A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on apportionment of management fees of Rs.87,14,00,000/- without appreciating the fact that the affairs of the assessee were managed by SPIL, the working partner, and nothing is paid or charged by SPIL and hence disallowance made @ 5% of turnover adopted by the Assessing Officer is justifiable and reasonable.

VI(b) On the facts and circumstances of the case and in law the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on apportionment of management fees - without appreciating that the provision of the Supplementary Deed of partners if at all, applicable can be only from a date on or after 15th March, 2012, The assessee can not correct its mistakes or undone the anomaly by creating a retrospective charge by a written or otherwise instrument. Such type of the legal and binding written instruments or acts or rules at best can be made by a sovereign Parliaments or the Judiciary. The assessee has simply made a supplementary deed of partnership and tried to give the retrospective effect to its acts of omission and commission.

VII(a) On the facts and circumstances of the case and in law the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on remuneration to working partner of Rs. 86,63,97,628/- without appreciating the fact that the assessee had claimed remuneration paid to SPIL on the basis of supplementary deed of partnership dated 15-03-2012 and the same was not allowable in light of the provisions of section 40(b) of the Income-tax Act, 1961.

VII(b) On the facts and circumstances of the case and in law the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on remuneration to working partner of Rs. 86,63,97,628/- without appreciating the A.O's finding in the assessment order particularly with regard to assessee's reliance on supplementary partnership deed for inflating its profit for claiming higher deduction u/s. 80IE(6) r.w.s. 80IA(10) of the Act

7.1 The assessee during the year under consideration claimed deduction of 100% of gross profit amounting to Rs. 1361,50,69,980/- under section 80IE of the

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Act. However the AO following the finding of his predecessor for the A.Y. 2010-11 in the own case of the assessee held that the assessee firm came into existence by splitting of an existing business of Sun Pharma Industries (SPI), thus it violates the condition prescribed under sub-section 3 to section 80IE of the Act. Therefore, the AO held that the assessee is not eligible for deduction u/s 80IE of the Act and disallowed the claim of the deduction.

7.2 On appeal by the assessee, the learned CIT (A) allowed the appeal of the assessee by following the finding of his predecessor for the A.Y. 2010-11 and 2011-12 in own case of the assessee.

7.3 Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

7.4 The learned DR before us contended that the assessee by manipulating its accounts is showing high amount of profit as the same is eligible for deduction and diverting its expenses to its parent company which will be able to reduce its taxable profit. The learned DR vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

7.5 On the other hand, the learned AR before us submitted that issue of eligibility of the assessee under section 80IE of the Act arising from A.Y. 2010-11 which was the first year of the claim where the AO disallowed the claim of deduction/exemption. On appeal the learned CIT(A) deleted the disallowances made by the AO against which the Revenue was in appeal before the ITAT in ITA No. 3541/Mum/2015 which has been vide order dated 16th May 2019 decided in the favour of the assessee. Thus, once the eligibility of the assessee to claim deduction under section 80IE is upheld in the first year of claim, the same cannot be disputed in the subsequent year on the same ground. The ld. AR vehemently supported the order of the ld. CIT-A.

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Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 10

earmarked for production of export products could not be used for the purpose of domestic manufacture also. The assessee has further submitted that process of compliance with US FDI regulation is time consuming and spanned over 18 to 25 months. It demonstrated these facts before the ld.CIT(A) which have been noted on page no.10 as under: Dadra Unit:

• Date of application : May, 2008 • Date of acceptance (EOU authority): July, 2008 • Date of acceptance (US FDA authority): July, 2008 various compliances : during July 2008 to December 2009 • Date of actual export/s : January, 2010 and onwards

Jammu Unit:

• Date of application submitted to NSEZ; April 2009 • Date of US FDA application: April 2009 • Letter of Permission issued by the Development Commissioner NSEZ: June 2010 • Issue of license by Central Excise, Jammu: September 2010 • Commencement of production in EOU: October 2010

“4.2.6 With regard to the deduction under section 80IE, it is to be noted that the same is available to an 'industrial undertaking' and the deduction is available from the Initial assessment year'. 'Initial assessment year' is defined in section 80IE(7)(i) to mean that the assessment year in which the industrial undertaking begins to manufacture or produce. It is also an equally settled position of law that deduction is qua an undertaking and not qua an assessee. Circular F No.15/5/63- IT(A-l) dated 13.12.1963 of CBDT clarified that a new industrial undertaking taken over by another assessee before the expiry of five year the successor will be entitled to the benefit of unexpired period of five years provided the undertaking is taken over as a running concern. Given that section 84 and 80IE are in parimateria, such deduction is available to an undertaking that acquires a running concern for the unexpired period of deduction. Therefore, once the undertaking remains unaffected or unchanged by subsequent change in the ownership, it cannot be said that the business of the undertaking has been reconstructed. Adverting to the facts of the appellant's case, it can be seen that the appellant had acquired the undertaking from SPI. The only change which took place is the ownership of the undertaking i.e. from SPI to SPS. Everything else remains the same. SPI had also filed an application vide letter dated 5th March 2009 (enclosed in Pages 124 & 125 of the paper book) before the Assistant Commissioner, Central Excise surrendering its Central Excise Registration for the Sikkim unit and stating that ownership of the undertaking has changed and that the capital goods purchased were never installed by SPI. There is also no dispute of the fact that the undertaking was under construction at the time when SPI sold it to the Appellant. Accordingly, the unit is transferred before commencement of undertaking. Thus

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from the facts on record, the irresistible conclusion is that the undertaking at Sikkim is not formed by splitting up or reconstruction and is a new unit and therefore, is entitled to the claim of deduction under section 80-IE of the Act.

“4.2.10 The contentions of the appellant have been duly considered along with the findings AO. On perusal of the impugned order it is seen that while the AO, at the time of assessment noted that the appellant had furnished incomplete details of the addresses of suppliers to prevent verification, no such exercise was undertaken during remand proceedings when the appellant furnished the bills and vouchers for fresh verification. Test-check of the bills produced during these proceedings shows that the appellant's contention is borne out as follows:

Sr. No. Name of Vendor Bill Amount Observations Remarks Of AO

Duplicate Bill is dated 01/01/2007 and 122-6 &122- Suvidha 1,80,544/- pertains to HVAC System i.e. 7 Engineers India Heating, Air-conditioning and in list of Ltd. Ventilation system. duplicate bills 145-1 Meckins 2,00,000/- Xerox copy This is an original bill in list of Engineering for duplicate Design and bills Engineering services 145-6 Veedhi 3,47,906/- Xerox copy This is an original bill in list of International duplicate bills

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122-5 Suvidha 1,80f544/- LR not Bill is backed up by internal in list of Engineers available documentation in the form of bills where IndiaLtd. 'group inward memo (GIM)' LR etc. is and bears the stamp of not available lT&CT Division of Govt. of Sikkim. 37 HI Chem 24,856/- LR not Delivery challan is available, Distributors available GIM details recorded.

65 Ravi Kiran 3,93, 520/- LR not LR available Sikkim Check Industries available Post Stamp on bill

87 SaurashtraSysto 1,30,5S32/- LR not Bill pertains to Pack available Unique Bursting Strength Board Tester. LR available System Anatech 71,650/- LR not Delivery challan is available. 95. (India) P Ltd. available. TIN form shows registered in . TIN is of the name of Sikkim State SudhirValia - in the under the trade name 'Sun name of Pharmaceutical Sudhir V. Industries. ' Valla SudhirValia is Director in the Group. 112 Rushabh 58,088/- LR not Check post stamp present on Enterprises available bill.

164 Sainath 1,54,473/- LR not Bill for spare parts Pneumatics and available for Saizoner, platform for Boliers RMG2501 with railing. Delivery challan present 203 VigneshTechnoste 1,27,296/- LR not Bears Sikkim Check Post et available stamp for 25/12/2009 and entry stamp into SPS on 26/12/2009. 246 Print Electronic 1,07,100 LR not Bill for Oasys RF with Equipment available storage and in built UPS. Invoice cum delivery challan available.

4.2.11 After considering the submissions of the appellant and the observations of the AO in the remand report, I find that on the issue of duplicate bills the AO has not carried out any independent enquiry to establish that such bills pertained to machinery that had already been put to use prior to its installation in the appellant's unit. In my considered opinion, the mere fact that a particular piece of plant or machinery is supported by a duplicate bill, by itself does not prove that the said item is second hand or used. The appellant's contention that many a time the original bills are retained by the State Government Check Post authorities etc. is not without weight. The bills purchased in the prior period are seen to be pertaining to the infra structural part of the new unit and nothing has been brought on record to show that such installation was utilized prior to the commencement of commercial production by the appellant, It is also seen that in most cases where the bills are duplicate or photocopies, the appellant has made other purchases from the same parties also for which original bills are available. The availability of these original bills from the same vendors indicates that the these parties were regular entities and that transactions with them were not isolated purchases. Further there is nothing to establish that the machinery evidenced by duplicate/xerox bills was second hand, Also, in relation to the bills lost due to fire at Sikkim, it is seen that the appellant has supported the explanation with the press clippings and FIR. The ledger accounts of the parties from whom the said assets were made interalia indicate receipt of goods through

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valid bills for which payments are made by cheques. No enquiry was undertaken by the AO from these suppliers. As observed earlier, to my mind, simply the fact of supporting evidence existing In the form of duplicate bills, cannot lead to the conclusion that machinery was proven as old/used. In view of these facts, it cannot be concluded that the AO's computation of the value of machinery held to be old/second hand/used is based on fact. For these reasons, I find that it is not established that proportion of old machinery in Sikkim unit exceeded the stipulation of 20% as required by the Act and so the claim of the appellant cannot be on this ground.

4.2.12 The appellant has also given detailed submissions relating to the observations made by the AO in the assessment order for the succeeding year as regards the inferences drawn from the impounded papers. In the said order, the AO has noted that a 'final bill' from M/s Uksoms Engineering impounded during the survey proceedings indicates that the building in question was completed as on 31/02/2007 and therefore it can be concluded that SPI was carrying out business from the said premises from F.Y. 2007-08. In this regard, it has been submitted by the appellant that the bill in question is only for the completion of the outward structure housing the plant at Sikkim and does not in any way indicate the that commercial production had started. It is further stated that in the pharmaceutical industry, the initial phase of setting up of the plant involves considerable civil work including the installation of the Air Handling Unit (AHU) and that commercial production requires many other types of plant and machinery. On perusal of a copy of the said bill it is seen that same is clearly relating to civil construction work inasmuch as it details work relating to excavation, filling, steel reinforcement, masonry, plaster and water-proofing work. In its submissions the appellant has continuously been stating that work relating to the Sikkim unit was initially undertaken by SPI and that it was only at a later stage that the appellant firm was brought into existence and that the plant and machinery etc. was duly assigned to the appellant firm. That being the case, civil work would have certainly begun much prior to 2009 and the fact that M/s Yuksom Engineering Works has Issued the final bill dated 31/03/2007 can only be taken as proof for completion of the works Indicated therein and not as evidence to show commencement of commercial production as the mere existence of an outside structure cannot by itself be taken to indicate that commercial work was going on inside it.

4.2.12 The AO has further observed that the commencement certificate issued by the Dept. of Commerce & Industries, Govt. of Sikkim was issued on 14/12/2009 and from this fact inferred that the genuineness of the certificate was doubtful since while it gave the issue of date of commencement of production as 20/04/2009, it was issued 7 months later. In this regard the appellant has stated that the impounded certificate is issued by the appropriate State Govt. department and is signed by the Asst. Director of the said Apartment and is to be accepted in total, In these proceedings it has been emphasized that the date of commercial production given in the said certificate is confirmed by other records also. A perusal of the copy of the said certificate does not indicate any overwriting etc, that may be cause for any suspicion. The office address and telephone numbers of the issuing authority are clearly mentioned on the document but other than express doubt, the AO has not made any independent enquiry to bring on record any evidence to establish that the date of commencement mentioned in the said certificate was incorrect. Thus, the fact that the certificate itself is issued at a later date cannot be considered evidence of fabrication of date of commencement of commercial production particularly when such date of commencement is supported by other documents also.

4.2.13 The third aspect highlighted in A.Y. 2011-12 by the AO as giving rise to doubt, is that key components of plant and machinery including a clit mill, blister pack machine, fluid bed dryer and blender were found to be operational on dates

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after 20/04/2009 i.e. after the declared date of commercial production. In this regard the appellant has stated that the machines installed after 20/04/2009 were in addition to similar plant and machinery already installed and in use and therefore production could take place even before the additional machineries were installed during the period subsequent to April 2009. A perusal of the copies of papers relating to capitalisation of fixed assets impounded during survey show that the fluid bed dryer, clit mill, blister pack machine, blender, dissolution tester etc, were already installed as on 20/04/2009. Thus, in view of the fact that machinery required for these functions was already installed as on date of commencement of commercial production, it cannot be held that simply because additional units of similar machinery were installed subsequently, the appellant cannot have begun commercial production on the said date.

4.2.14 The AO has also drawn support from an impounded document issued by the Commercial Tax Division, Sikkim wherein it is mentioned that environmental liability for 2.4 crores is due from Sun Pharma Sikkim for the period October 2006 to March 2011. In this regard, the appellant has stated that the said notice was issued taking into account date of beginning of factory construction and that the appellant has only paid a fraction of the demand. From a perusal of the said document I find that it is merely a show cause which has been duly replied to by the appellant and that the document itself does reflect any adverse inference drawn by the Commercial Tax Division, Sikkim.

4.2.15 The AO has further sought to draw inference from the denial of deduction u/s 80IB(4) in the case of the sister concern Sun Pharma Industries Dadra Unit and Jammu Unit for A.Y. 2004-05 and 2005-06 to support his conclusions in the case of the appellant firm, stating that while the ITAT has decided the issue, the Department has not accepted the decision and the matter is pending adjudication before the High Court. A perusal of the orders passed by the Hon'ble ITAT in the case of SPI reveals that the Tribunal considered the issues related to disallowance of deduction u/s 80IB to SPI Jammu (on similar footing as in the present case), in detail in the orders passed for A.Y. 2005-06 (dated 11.06.2010 and 07.06.2012) and orders passed subsequently in relation to A.Yrs. 2004-05, 2006-07, 2007-08, 2008-09 and 2009-10 (dated 12/06/2012). The aspect of notional disallowances in respect of selling and distribution expenses etc. was also duly adjudicated upon. Subsequent to the passing of the ITAT orders, the matter is pending in appeal before the High Court. To my mind the fact that further appeal is pending does not by itself lend greater solidity to the AO's conclusion.

**** **** **** **** **** **** **** **** ****

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notional disallowances made by the AO on account of royalty, selling and distribution expenses etc. is adjudicated upon in the following paragraphs”

8.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authorities. Before us, the learned DR has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in the own case of assessee, we uphold the finding of the learned CIT(A). Thus, the ground of appeal raised by the Revenue is hereby dismissed.

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9.1 The AO during the assessment proceeding found that that the assessee firm showing net profit rate @ 67.85 and claiming 100% exemption/deduction under section 80IE of the Act whereas the majority partner of the assessee firm being Sun Pharma Industries Ltd (97.5%) not enjoying tax holiday and engaged in identical activity declaring NP ratio at 3.12% only. The AO compared the NP ratio declared by the other assessee engaged pharmaceutical industries and found that the average NP declared by those assessee comes at 15.65%. Thus in view of the above the AO was of the opinion that the assessee in order to show higher profit which is eligible for deduction in its books of account and to reduce the profitability of parent company SPIL diverts the its ( the assessee) expenses in the books of the SPIL. Therefore, the AO called for certain details which were not provided by the assessee.

9.2 The AO also found that there was survey proceeding under section 133A of the Act carried out in case of the assessee as on 08-11-2011 and it was revealed that expenses such as research and development, selling and distribution and marketing and royalty etc incurred on behalf/for the assessee are claimed by the SPIL in its books. Thus, the AO in view of the above held that correctness of the books result declared by the assessee is not reliable and accordingly the AO rejected the books of the assessee by invoking the provisions of section 145(3) of the Act.

9.3 On appeal by the assessee, the leaned CIT(A) quashed the action for rejecting the books of account under section 145(3) of the Act by observing as under:

”5.4 The provisions of section 145(3) of the Act empowers the AO to reject the books of account and estimate income in the manner as provided under section 144 only if he is not satisfied about the correctness and completeness of accounts of assessee or accounting standards notified have not been followed by the assessee. As seen from the order of the A.O., there are no findings as to the fact that the books of account of the assessee are not correct or complete. There is also no finding that the method of accounting followed by the assessee is not in accordance with the standards notified. The major plank for rejection of

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the books of account seems to be not furnishing details in the form and manner as asked for by the AO. Hence, instead of specific findings, there appears to be a presumption on the part of the AO that the books of account of the assessee are not correct or complete. In the case where the books of accounts of the assessee has been duly audited, it is expected that the Assessing Officer shall bring on record specific defects in the books of account of the assessee before invoking the provisions of Section 145(3) of the Act.

5.5 In CIT vs Amitbhai Gunvantbhai (1981) 129 1TR 573 (Guj) it was held by the Hon'ble High Court that the basic principle is the same in law relating to Income-tax as well as in civil law, namely if there is no challenge to the transaction j represented by the entries, then it is not open to the revenue or other side to I contend that what is shown by the entries is not real state of affairs. It therefore follows that when a return is furnished based on an account duly audited by the Auditor, the said account should be taken as the basis for assessment and that the account could not be rejected unless there are evidences brought on record so as to establish that the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee. In Lalchand Bhagat Ambica Ram vs CIT (1959) 37 1TR 288(SC) it was held by the Hon'ble Apex Court that there is no presumption of bad faith against an assessee unless there is sufficient material on record to establish and sustain bad faith. Further, in ACIT vs Roopchand Tharani (249 CTR 326(Chattisgarh High Court) it was held by the Hon'ble High Court that where the AO has not pointed out that any specific defect or discrepancy in the account books maintained by the assessee, which are duly audited by an independent chartered accountant, there was no justification in rejecting the books of account and making the addition to the declared income.

5.6 The Hon'ble ITAT, Agra in the case of ITO vs Mayur Agarwal(2010) 133 TTJ 1 (Agra) was held that the books of account of the assessee could not be rejected by invoking the provisions of section 145(3) of the Act when no specific defect is pointed out in the books of account regularly maintained by the assessee or the method of accounting regularly employed by the assessee. In CIT vs Jacksons House (2010) 195 Taxman 402 (Del.) that additions made by alleging imagined manipulation without verifying the material available through field enquiry, and only based on own judgement, was held to be not justified. In ITO v. Girish M Mehta (20081 296 ITR (.AT) 125 (Rajkot), it was pointed out, that the pre- condition for estimating business income of the assessee, where an assessee keeps accounts is that the assessee's books should have been found to be unreliable or otherwise not capable of proving the assessee's income. However, in this case, it is found that theAO has proceeded to compute the income of the assessee on the basis of book results shown by the assessee, after making specific disallowances, which in itself amounts to a finding that the books of account of the assessee could not be said as unreliable or otherwise not capable of proving the assessee's income. In CIT vs Paradise Holidays (2010) 325 ITR 13 (Delhi) it was held that Assessing Officer having made separate and distinct additions for ail the defects mentioned by him for rejection of books of account of the assessee, book result could not be rejected more so when the Assessing Officer has relied upon incomparable cases. Hence, the rejection of books of accounts cannot be sustained merely on the fact that the certain details were not filed in the manner and form as called for by the AO. Similarly, the system of accounting adopted by the assessee cannot be rejected merely on this ground more so when specific disallowances have been made and the total income of the assessee was computed on the basis of book result shown by the assessee after making specific additions and disallowances on the basis of the same.

5.7 In the case of Haridas Parikh V ITO [2009] 29 SOT 13 (30DH.)(URO), it was held by Hon'ble Tribunal that Unless the Assessing Officer is able to point out certain transactions which have been left to be entered in the books of account or that the assessee has sold some of the items at a price higher than what is disclosed in the books of account or if proper particulars, bills, vouchers, are not forthcoming etc., the books of account cannot be rejected without assigning specific reasons. Absence of vouchers or the supporting evidence in respect of a particular item of expenditure cannot by itself empower an Assessing Officer to invoke provision of Section 145(3) in rejecting the books of account.

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Amritsar Bench of the Hon'ble Tribunal in Ashok Kumar a Co. v. IT0110043 2 SOT 518 (Asr.) (SMC) held that rejection of books cannot be restored to simply on the basis of absence of some vouchers and failure to produce the same by the assessee. In other words, any such situation should only warrant a specific addition by the Assessing Officer if he comes to a conclusion that such expenditure had not been incurred or not verifiable. Instead of adopting this accepted approach if an Assessing Officer resorts to a convenient approach of rejecting the books in total such action would be illegal against the tenets of Law. In an identical case Kerala High Court in the case of CM. Francis & Co. (P.) Ltd. v. CIT held that where purchase vouchers for agricultural produce purchased from agriculturists could not be produced, books of account cannot be rejected in total on the basis of such finding. Allahabad High Court in another case of Imran Ahmed v. CIT 1982 Tax LR (NOC) 111 (All.) held that on account of mere absence of vouchers to substantiate entries for the accounts, account in total cannot be rejected. In this scenario a very general finding made by the Assessing Officer without any specific focus on any particular item of expenditure, entire accounts cannot be rejected under Section 145(3). Action of the Assessing Officer clearly demonstrates that he could not gather any details or find any irregularity in maintenance of the books so as to justify rejection of books in toto.

5.8 Further, It was held by the Madhya Pradesh High Court in the case of Hemraj Nebhomal & Sons v. C11120051 146 Taxman 345 (M.P.) that the assessee is not under obligation to satisfy the Assessing Officer as to the legitimacy and necessity of expenditure. The Nagpur Bench of the Tribunal in the case of Section Gurlal Singh Tu!l v. Asstt CIT [2000] 73 ITD 365 (Nag.) held it was the bounden duty of the Assessing Officer and Commissioner (Appeals) to verify and indicate the particulars of the expenditure which were not vouched. But here too it would be a good case for separate addition only and not for rejection of books of account. It is well-settled principle that the power of rejection of books of account should be reasonably and judicially exercised. The Hon'ble Allahabad high Court held in the case of CIT vs. Mascot (India) Tools & Forgings (P) Ltd. (2010) 36 DTR 336 that in the absence of any specific instances of mistakes in the books of account and other records, the book result cannot be rejected on the basis of any hypothetical calculations based on erroneous presumptions.

5.9 Hence, Simply stating that the expenditure is not verifiable because certain details were not filed before the details without pinpointing any specific defects in the books of account specifically when the assessee is disputing such a finding and is producing evidence to counter the findings of the Assessing Officer, could not be a valid reason for rejection of books, more so when the AO has proceeded to compute the taxable income of the assessee on the basis of book result shown by the assessee and not in the manner as prescribed in section 144 of the Act, In view of the facts and legal propositions as discussed above, it is held that the rejection of books of account in this case is not legally tenable and hence, rejection of books of account by the AO could not be upheld. Ground No. 2 is accordingly, allowed.”

9.4 Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

9.5 The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

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9.6 The ld. AR, on the other hand, submitted that the issue is covered in favour of the assessee by the order of the tribunal in ITA No 3377 & 3541/Mum/2017 in own case of the assessee for A.Y. 2010-11.

10.1 In this connection we found that the assessee has maintained proper books of account and furnished details as required by the assessee except certain detail with respect to that the assessee has submitted either those required detail not applicable in its case or some detail are at factory premises will be submitted at

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later stage if required. In these documentary evidence no defect was pointed out by the AO. Therefore, without bringing any corroborative material on record suggesting specific defect in the books of account the book result cannot be rejected merely for not providing certain detail which AO requires to verify. In holding so we draw support and guidance from the judgment of Hon’ble Allahabad High Court in case of Awadhesh Pratap Singh Adbul Rehman & Bros v/s. CIT 201 ITR 404(All) which reads as;

“It is difficult to catalogue the various types of defects in the account books of an assessee which may render rejection of account books on the ground that the accounts are not complete or correct from which the correct profit cannot be deduced. Whether presence or absence of stock register is material or not, would depend upon the type of the business. It is true that absence of stock register or cash memos in a given situation may not per se lead to an inference that accounts are false or incomplete. However, where a stock register, cash memos, etc., coupled with other factors like vouchers in support of the expenses and purchases made are not forthcoming and the profits are low, it may give rise to a legitimate inference that all is not well with the books and the same cannot be relied upon to assess the income, profits or gains of an assessee. In such a situation the authorities would be justified to reject the account books under section 145(3) and to make the assessment in the manner contemplated in these provisions.”

10.2 Without prejudice to the above, we also note that the AO after rejecting the books accounts has proceeded to disallow or recomputed the deduction under section 80IA of the Act on various different grounds. In other words, the AO has relied upon the same set of data/figures as shown by the assessee for making allowances or disallowances. As such, there was no iota of doubt on the genuineness of the other income and the expenses was brought on record by the AO. To our mind, once the books of accounts have been rejected, the AO has to estimate the profit and he has no right to make any individual addition or deletion to the total income of the assessee. However in the case on hand, the AO has not done so. In holding so we draw support and guidance from the judgment of this tribunal in case of Hynope Food and Oil Industries Pvt. Ltd reported in 48 ITD 202 where it was held as under:

Section 145 deals with two situations : (a) where the method of accounting is faulty, and (b) where the accounts are not correct or complete. In the case of the former, the Assessing Officer is empowered to compute the income upon such basis and in such manner as he may determine. So far as the latter is concerned, the Assessing Officer is empowered to make a best judgment assessment as provided in section 144, that is, after taking into account all relevant materials which he has gathered. Further, section 145(1) is an enabling provision. It is intended to enable the Assessing Officer to make the correct

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assessment which is the paramount object. It is not intended to confer any right or benefit upon an erring assessee. Thus, this section is intended to make the correct assessment in compliance with the law and not to by-pass the statutory provisions. It is a fair proposition that if an overall estimate of income has been made, there would not be any scope for making any disallowances and applying section 40A(3). This is not because the statutory provisions can be ignored or excluded but because they must be deemed to have been applied in making the estimate so that there is no scope for any further deductions. Thus, if an estimate is made on the basis of gross profit by using comparative instances, there would be no scope for further deductions applying section 40A(3). Therefore, all depended upon the manner of making the estimate. If it had been made in a way which covered the entire position regarding income and expenditure, naturally there would not be any scope for further deductions.

10.3 In view of the above and after considering the facts in totality, we do not find any infirmity in the order of the learned CIT (A). Accordingly, we uphold the same. Hence the ground of appeal of the revenue is dismissed.

11.1 The AO during the assessment proceeding found that that the assessee firm is an eligible entity for deduction under section 80IE of the Act which is managed &controlled by the M/s SPIL in such a way that resulted in shifting of taxable profit of M/s SPIL to the assessee firm which is exempted under section 80IE of the Act. The AO found that identical arrangement was also found in case of the sister concern of the assessee namely Sun Pharma Industries (SPI) in A.Y. 2004-05 to 2009-10 and taking leaf from the same, his predecessor in own case of the assessee for the A.Y. 2010-11 also found same modus operandi. Thus, the AO invoked the provision of section 80IA(10) read with section 80IE(6) of the Act and reduced the profit of the assessee firm by allocating the following expenses in turnover ratio which were assumed to be incurred by the parent company M/s SPIL on behalf/for the assessee.

(i) Selling and distribution expenses for Rs. 182.57 crore (ii) Research and development expenses for Rs. 30.4 crore

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11.2 Likewise the AO found that the assessee is using trade mark, brand and logo of M/s SPIL along with managerial services but no fee was paid by the assessee for the use of such trade mark, brand and logo or managerial services. The assessee also found that sister concern i.e. SPI also using the trade mark, brand and logo without paying royalty where the AO estimate the royalty at 8% of the turnover and managerial fees at 5% of turnover. Thus, following the same, the royalty fee of Rs. 139.42 crores allocated by the AO and also allocated the managerial fee for Rs. 87.14 crores being 5% of the turnover to the assessee firm.

11.3 The AO without prejudice to the above also found that the assessee is paying partner’s remuneration to M/s SPIL for 86,63,97,628/- and also similar remuneration was paid by SPI to M/s SPIL which was treated as taxable income of SPI under the provision of section of section 80IA(10) of the Act. Thus, following the same, the remuneration paid by the assessee to SPIL is taxable in the hand of the assessee.

11.4 On appeal by the assessee, the leaned CIT(A) following the order of his predecessor in own case of the assessee for the A.Y. 2010-11 and 2011-12 deleted the apportionment of the items as discussed above made by the AO.

11.5 Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

11.6 The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

11.7 On the other hand the learned AR before us submitted that identical apportionment of expenses was also made by the AO for A.Y. 2010-11 which was deleted by the learned CIT(A) and against which the Revenue was in appeal

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before the ITAT in ITA No. 3541/Mum/2015 which has been vide order dated 16th May 2019 decided in the favour of the assessee.

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and SPI are being noticed by the AO in the assessment order in para 10.2. We deem it appropriate to take note of the finding which reads as under:

“From the above it is clear that Research and Marketing activities relate to S & D of products manufactured both SPI & SPS {Assessee) are being done by SPIL and related expenditure are charged to SPIL account which reduces the profit of the SPIL. In other words the profit of 80IB and 801E units of SPI SPS are inflated. It is needless to say that assessee is just manufacturing pharmaceutical formulations and selling distribution and marketing expenses, Research etc. are done by SPIL and therefore, the expenses S & D marketing etc. should be borne by SPI and SPS (Assessee) and SPIL on the basis of turnover of each unit. In the circumstances Selling, Distribution and Marketing expenses are required to be allocated among all the units which is being done herein below:

A.Y. 2010-11 (Amount in Crores)

Name Turnover % age of Expenses debited on Total Proportionate Expenditure Turnover account of Expenses allocated on the basis debited of turnover

Selling & Personnel Distribution staff cost (D (2) (3) (4) -(5) (6) (7)

SPIL 1891.2 63% 122.3 76.9 199.2 132.8

SP1 496.5 16% 2.2 0 2.2 33.73

SPS 624 21% 9.4 0 9.4 44.27

Total 3011.7 100% 133.9 76.9 210.8 210.8

“4.4.2 I have considered the facts related to the issue as they emanate from the impugned order and the submissions made in these proceedings. As per the partnership deed of the appellant, SPIL is one of the partners of the appellant firm. There is no dispute the fact that SPIL has been engaged in the business of pharmaceuticals viz. sale of bulk drugs and formulations for several years and has a well-established marketing network all over India. Further, as per the original

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deed of partnership read with the supplementary deed dated 15.03.2012 it is evident that SPIL is to be remunerated for rendering various services to the appellant firm in the capacity of working partner. It is seen that the assertion of the AO that distribution and selling expenses are not incurred by the appellant is incorrect as appellant had debited Rs 9,4 crores to P&L A/c as selling and distribution expenses. Further, the AO has. placed heavy reliance on the statements recorded from Mrs. Kalyana Sundaram, CEO of SPIL and Shri Sanjay Sahai, GM (Strategic Marketing & Research) of SPILduring the survey proceedings. Both these persons have in the statements recorded stated that the marketing, selling and distribution activities are centralized functions. From the foregoing statement the AO inferred that the selling and distribution expenses incurred by the appellant are inadequate and that in actuality these are wholly incurred by SPIL and therefore, the profits of the appellant are overstated. However, as noted above, the inferences drawn by the AO suffer from factual inaccuracy inasmuch as the expenses incurred in relation to selling and distribution amounting to Rs, 9.4 crores and an amount of Rs. 6.3 crores is relating to commission on sales are duly to P&L Account by the appellant. It is also a matter of record that the appellant is paying 5% of its turnover to SPIL as remuneration for discharge of functions related to the appellant's business and that the said payment flows from the supplementary partnership deed as indicated above. Further, the AO considered the aggregate turnover of SPIL, SPI and appellant and apportioned the aggregate selling and distribution expenses incurred by the aforesaid 3 entities in the ratio of turnover. The AO has justified this allocation by stating that the expenses debited to P&.L A/c comprise of only commission on consignment sales and no expenses in the nature of market research, field personnel expenses, etc. are debited to P&.L A/c. As noted earlier, the appellant has incurred an amount of Rs. 6.3 crores as 'commission on sales' to M/s Aditya Medisales. Thus the total amount of expenses incurred by the appellant in relation to sales and distribution should be, the 15.7 crores (approx.). Further it is seen that similar disallowance in the case of SPI had been made by the AO for several A.Yrs. While deleting the said disallowance, the ITAT, Amritsar observed that the books of account of the appellant were duly audited and had not been rejected. The Tribunal further noted that selling and distribution expenses had to be considered in conjunction with the remuneration paid and that there could not be disallowance of expenses on notional basis. Thus after considering the facts related to the issue I find that the AO has not brought on record any empirical data to justify disallowance under this head over and above the expenses already incurred by the J appellant. Therefore, in view of the facts discussed, the disallowance made by the AO under this head cannot be sustained and the same is deleted. Accordingly, the ground raised by the appellant is allowed.

**** **** ****

4.5.2 I have considered the facts related to the issue at hand. The fact that, the development of products is carried out only by SPIL is not disputed. It is also a fact that in such product technologies are completely owned by SPIL and that neither the appellant firm nor SPI hold any rights of ownership. In the impugned order, the AO has placed heavy reliance on the statement recorded from Dr. T. Rajamannar to conclude that R & D activity carried out by SPIL pertains to the appellant firm as well as SPI which fact is not denied by the appellant at any point in time. The appellant has explained that the products manufactured at the appellant unit are generic products. On consideration of facts it is apparent that the AO did not take into account the fact that the drugs being manufactured by the appellant firm did not enjoy high brand value but-were prescription drugs where the quality was more important than the brand recall. The AO also disregarded the decision passed by the Hon'ble Amritsar ITAT bench deleting the aforesaid addition in the case of SPI. Thus, on the facts of the case, there is nothing to show that the appellant should have paid any amount for R & D work to

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SPIL, over and above the remuneration, Accordingly, the disallowance made cannot be sustained and is deleted. The ground raised by the appellant is therefore allowed.”

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“4.6.2 On consideration of the facts related to the issue, I find that the disallowance has been made by the AO only on the basis of the similar disallowances made in the assessments in the case of SPI. Disallowance made under this head in the case of SPI-was deleted by the ITAT vide its orders no.ITA No.345, 346, 13, 129 & 130 and ITA No.391, 392, 18, 107 & 312. As observed before, the trade marks etc. belong to SPIL only and the appellant firm and SPI do not have any ownership rights in this regard. It is a fact that-the appellant firm is only manufacturing generic drugs and there, has been payment of remuneration @5% of turnover as per supplementary deed. Further, the impugned order does not bring out any fact to show that any amount over and above the remuneration was due from SPS to SPIL as royalty. For these reasons, I find the disallowance made by the AO cannot be sustained and the same is deleted. Accordingly, the ground raised by the appellant is allowed.”

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for the reasons that this disallowance has been made on the basis of finding recorded in the case of SPI and that finding did not meet approval of ITAT in the case of SPI.

******************* 42. In the next ground of appeal, grievance of the Revenue is that the ld.CIT(A) has erred in deleting the disallowance of deduction under section 80IE(6) r.w.s. 80IA(10) on remuneration to working partner amounting to Rs.29,02,26,973/-.

“4.10.2 On consideration of the facts it is seen that the appellant had debited remuneration of Rs.29,02,26,973/- as quantified by the supplementary deed of partnership dated 15th March, 2012 but that the same has been disallowed suo- motu in the revised return / -.statement of income in view of Explanation 4 to S. 40(b) and accordingly the profits of the business were increased to that extent. However, the AO, relying on past assessments in the case of SPI, disallowed the same. In view of the fact that the appellant has already added back this amount in the revised computation, the disallowance made by the AO is deleted and the ground raised by the appellant is allowed.”

12.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authorities. Before us, the learned DR not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the

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order this tribunal in the own case of assessee, we uphold the finding of the learned CIT(A). Thus, the ground of appeal raised by the Revenue is hereby dismissed.

ITA No. 2596/Mum/2018 an appeal by the Assessee – A.Y. 2013-14 (Sun Pharma Sikkim)

“The Appellant submits the following grounds, which are without prejudice to one another: 1. Re: Disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) in respect of alleged price difference Rs.1,25,288/- on purchase from Sun Pharmaceutical Industries Limited (SPIL) On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred m upholding the invoking of the provisions of S.80IE(6) r.w.s. 80IA(10) and thereby upholding the disallowance of Rs.1,25,288/- on account of purchase of materials by the Appellant from SPIL. 2. Re: Assessing the interest & other income under the head Income from other sources' Rs. 12,49,847/-. (a) On the facts and in the circumstances of the case and m law, the Learned CIT(A) erred in upholding the assessment of interest on bank F.D., interest on loan to employees and Interest on income tax refund under the head 'Income from other sources' instead of assessing the same under the head 'Profits and gains of business'. (b) The learned CIT (A) also erred in not appreciating that all the above receipts/incomes are arising from business activities and hence cleaved from the business of industrial undertaking.

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17.1 At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the assessee in ITA No. 3980/Mum/2017 for the assessment year 2012-13. Therefore, the findings given in ITA No. 3980/Mum/2017 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2012-13 has been decided by us vide paragraph Nos. 4 to 4.1 of this order where the issue of interest and other income held against the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the ground of appeal filed by the assessee is hereby dismissed.

ITA No. 1468/Ahd/2018 an appeal by the Revenue – A.Y. 2013-14 (Sun Pharma Sikkim)

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3.2 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the assessee's ground on disallowance of deduction u/s 80IB of Rs.264,48,12,798/- without appreciating the fact that the assessee firm was formed by the splitting up and reconstruction of the existing business of SP1, and the condition that used machinery is less than 20% of the stipulated limit, has not been fulfilled by the assessee.

3.3 On the facts and circumstances of the case and in law, the Ld, C.I..T. (A) erred in holding that the claim of the appellant in respect of deduction u/s. 80IE of the Act is allowable without appreciating that in the absence of proper details and bills, it could not be ascertained as to whether plant and machinery were new and not used earlier, and without appreciating that plant and machinery transferred by Sun Pharma Industries to Sun Pharma Sikkim was used by Sun Pharma Industries prior to put to use by Sun Pharma Sikkim, and hence such plant and machinery could not be regarded as new plant and machinery.

3.4 On the facts and circumstances of the case and in law the Ld. C.I.T. (A) erred in holding that the claim of the appellant in respect of deduction u/s. 80IE of the Act is allowable without appreciating that mere submission of journal entries generated in computer cannot be treated as authentic document for having purchased plant and machinery and accordingly the A.O. had clearly established that the assessee firm i.e. M/s. Sun Pharma Sikkim was constituted by reconstruction of existing business of M/s. Sun Pharma Industries.

3.5 On the facts and circumstances of the case and in law the Ld. C.I.T. (A) erred in holding that the claim of the appellant in respect of deduction u/s. 80IE is within the purview of the provisions of the Act without appreciating that the assessee could not substantiate its claim with verifiable and reliable documents and failed in establishing that it had satisfied all the conditions laid down in section 80IE, and accordingly the A.O. had correctly disallowed deduction u/s. 80IE of Rs. 264,48,12,735/-.

3.6 On the facts and circumstances of the case and in law the Ld. C.I.T. (A) erred in holding that the claim of the appellant in respect of deduction u/s. 80IE of the Act is within the purview of the provisions of the Act without appreciating the A.O's finding on the issue of period of use & depreciation of plant and machinery used by Sun Pharma Industries & M/s. Sun Pharma Sikkim.

4.1 On the facts and circumstances of the case and in law, the Ld. C .I.T. (A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on apportionment of selling and distribution expenses of Rs.48,93,00,000/- incurred by the working partner without appreciating the fact that all the sales and distribution expenses were debited to SPIL and no allocation was made to SPI and SPS units, as has been revealed during the proceedings of survey action u/s. 133A.

4.2 On the facts and circumstances of the case the Ld. C.I.T. (A) erred in deleting the disallowance of deduction u/s. 80IE in respect of selling and distribution expenses without appreciating the A.O's finding on supplementary partnership deed and without appreciating that selling and distribution expenses cannot be considered in conjunction with remuneration and such charging of remuneration was not in accordance with the spirit of section 40(b) of the Act.

5.1 On the facts and circumstances of the case the Ld. C.I.T. (A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on apportionment of research and development expenses of Rs. 21,45,000/- incurred by the working partner without appreciating the fact that expenditure related to R&D was debited only in the hands of SPIL but no allocation was made to SPI and SPS units, as has been revealed during the proceedings of survey action u/s 133A, and the working of allocation of R&D activity on the basis of turnover in the ratio of 3:1 is justifiable and reasonable.

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5.2 On the facts and circumstances of the case the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) in respect of research and development expenses without appreciating that R & D work requires specialized skill and knowledge, and consequently payment towards R & D activity cannot be termed as remuneration but would be termed as professional payment.

6.1 On the facts and circumstances of the case and in law, the learned C1T(A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on apportionment of royalty expenses of Rs. 29,80,00,000/- without appreciating the fact that the assessee was using trademarks, brands and logo of SPIL for which neither any fee or royalty is charged and hence disallowance made @ 8% of sales (as in SPI) adopted by the Assessing Officer is justifiable and reasonable.

6.2 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on apportionment of royalty expenses without appreciating that the assessee in the guise of payment in the nature of remuneration for technical services of the nature of royalty adopted a device to inflate its non taxable income as is evident from the fact that assessee itself had admitted that it had included compensation for use of trademark, brand name etc as remuneration and that compensation could not be equated with remuneration.

8.1 On the facts and circumstances of the case and in law the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on remuneration to working partner of Rs. 18,55,46,564/- without appreciating the fact that the assessee had claimed remuneration paid to SPIL on the basis of supplementary deed of partnership dated 15-03-2012 and the same was not allowable in light of the provisions of section 40(b) of the Income-tax Act, 1961,"

8.2 On the facts and circumstances of the case and in law the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IE(6) r.w.s. 80IA(10) on remuneration to working partner of Rs. 18,55,46,564/- without appreciating the A.O's finding in the assessment order particularly with regard to assessee's reliance on supplementary partnership deed for inflating its profit for claiming higher deduction u/s 80IE(6) r.w.s. 80IA(10) of the Act.”

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this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 34

whatever will be the findings for the assessment year 2012-13 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

ITA No. 3507/Mum/2016 an appeal by the Assesse – A.Y. 2011-12 (Sun Pharma Industries)

(a) On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in confirming the disallowance u/s 80IB/10B in respect of and to the extent of interest on loan to employees amounting to Rs.71,284/- holding them to be not derived from the industrial undertaking.

(b) The learned CIT (A) also erred in not appreciating that the section 80IB/10B grants deduction in respect of 'any profits from any business' of the industrial undertaking. ]

(a) On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in confirming the disallowance u/s 80-IB in respect of and to the extent of interest on FDRs amounting to Rs.2,08,573/- holding them to be not derived from the industrial undertaking.

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(b) The learned CIT (A) also erred in not appreciating that the section 80IB grants deduction in respect of 'any profits from any business' of the industrial undertaking. 6. Re: Initiation of penalty proceedings u/s. 271(1)(c). On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in not striking down the initiation of penalty proceedings u/s 271(1)(c).

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33.1 The assessee during the year has shown interest income received on account advance given to the staff for Rs. 11,572/- and Rs. 71,284/- in Jammu unit and Dadra unit eligible under section 80IB/10B of the Act. Similarly, the assessee also earned interest income on FD maintained with bank for Rs. 2,08,573/- only. However, the AO found that such interest income is not arising out of business of undertaking eligible for deduction and this view has been consistently taken by his predecessor. Thus, the AO excluded the same from the computation of deduction u/s 80IB/10B of the Act.

33.2 On appeal by the Assessee the learned CIT(A) also confirmed the view of the AO.

33.3 Being aggrieved by the order of the learned CIT(A) the assessee is on appeal before us.

33.4 The learned AR before us submitted that the issue on hand is covered against the assessee by the order of the tribunal in own case for A.Y. 2010-11 bearing ITA No. 2465/Mum/2014.

33.5 On the other learned DR vehemently supported the order of the authority below.

“23. Ground No IV pertains to adjustment of delayed payments, staff advances and statutory/bank. The issue regarding interest on delayed payments from customers is covered in favour of the assessee. But the issues regarding interest on staff advances and

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FDRs are covered against the assessee by the orders of the Amritsar Tribunal passed in assessee's own cases pertaining to the financial years 2004-05, 2006-07, 2007-08, 2008- 09 and 2009-10. The relevant paras of the order passed by the Amritsar tribunal are reproduced as under:-

''51. As - regards ground No 3 of the Revenue, regarding disallowance of deduction under section 80-16 in respect of delayed payments from M/s Aditya Medisales Ltd. Amounting to Rs.48,20,32,772/-, the facts are identical to the facts in assessee's own case for the assessment year 2004-05 decided by us hereinabove. Following the same/ this ground of the Revenue is dismissed,"

"54. As regards ground No 5&6 of the assessee with respect to the interest on FDR amounting to Rs. 3,27,5997- (correct figure Rs. 2,27,599/-) and loan to employees with regard to disallowance of deduction u/s 80-IB, the facts of the issues in hand are identical to the facts decided by the tribunal in assessee's own case dated 11.06.210 in ITA No 184(Asr)/2009for the assessment year 2005-06. Following the same, the ground No 5&6 of the assessee are dismissed."

34.1 Thus, respectfully following the consistent view of Amritsar tribunal in the own case of the assessee, we do not find infirmity in the finding of the learned CIT(A). Hence the ground of appeal of the assessee is hereby dismissed.

ITA No. 4096/Mum/2016 an appeal by the Revenue – A.Y. 2011-12 (Sun Pharma Industries)

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37.1 The AO consistently from AY 2005-06 to the year under consideration i.e. A.Y. 2011-12 held that industrial undertaking of the appellant firm at Dadra claimed as eligible unit under section 80IB of the Act was formed by the splitting of existing business of M/s Sun Pharmaceuticals Industries Ltd. Thus, the assessee is not eligible to claim deduction u/s 80IB of the Act.

37.2 On appeal by the assessee, the view taken by the AO has been set aside by the learned CIT(A) in favour of the assessee.

37.3 Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

37.4 The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already

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adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

37.5 On the other hand learned AR before us submitted issue is covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for AY 2010-11 bearing ITA No. 2465/Mum/2014.

“15. So far as the department's appeal is concerned, ground No. I(a)&(b) of the appeal is covered in favour of the assessee by the order of the Amritsar Bench of the Tribunal passed in the assessee's own case ITA No 184/Asr/20097 pertaining to the financial year 2005-06. The identical ground i.e., Ground No 2(b) of the said appeal was that the Ld. CIT(A) erred in concurring with the findings of the assessing officer that the industrial undertaking of the appellant firm at Dader was formed by splitting up or reconstruction of the existing business of M/s Sun Pharmaceuticals Industries Ltd and the relevant paras of the findings are reproduced below:-

"24.1 In our considered opinion, these two factors are irrelevant Mere fact that production of SPIL has gone down does not lead us to conclude that thereby the appellant's business has borne out of splitting or reconstruction of the business. As to the second aspect, the fact that SPIL is a major partner is not a matter of dispute but as pointed out above, this is a matter of no consequence. Accordingly, Ground No 2(b) of the appeal is allowed and we hold that the business of the appellant assessee has not arisen from any splitting up or reconstruction of existing business".

"43.3 Keeping in view the facts and circumstances discussed above, we are of the considered opinion that undertaking formed by SPIL at Dadra was qualified for deduction under section 80IB and the first year is taken as assessment year 2002- 03 and the year under consideration become the fourth year of the undertaking and accordingly the benefit of deduction under section 80-IB needs to be allowed as per the provisions of the section and Circular of CBDT, referred to hereinabove”.

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38.1 Thus, respectfully following the consistent view of tribunal in the own case of the assessee we do not find any infirmity in the finding of the learned CIT(A). Hence, the ground of appeal raised by the Revenue is hereby dismissed.

41.1 At the outset we find that identical allocation of notional royalty fee, managerial fee and selling distribution expenses was made by the AO by invoking the provisions of section 80IB(13) r.w.s. 80IA(10) of the Act to the eligible unit of the assessee being Jammu and Dadra unit by the AO in AY 2010-11 and the issue reached to Mumbai Tribunal in ITA No. 2465/Mum/2014 where the coordinate

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bench by following the order of the Amritsar tribunal in case of the assessee for A.Y. 2005-06 to 2009-10 decided the issue against the Revenue. The relevant finding of the Mumbai bench for A.Y. 2010-11 reads as under:

“18. Ground No II(c)&(d) pertain to deleting adjustments made on account of royalty fees and notional management fees for Jammu and Dadra units. The Amritsar Bench of the ITAT has decided the identical issues in favour of the assessee and against Revenue in assessee's own case for the assessment year 2005-06. The operative part of the order is reproduced as under:-

"16.2 Therefore, in view of our decision hereinabove with respect of selling and distribution expenses, the remaining disallowance of expenses of royalty (of 8% of the turnover) of Rs. 14,15,34,442/- and management fee (of 1% of the turnover) of Rs.1,76,91805/- are also directed to be deleted, as the same has been notionally considered by the AO which in our view, is incorrect and not justified. Thus, ground No. 5 of the assessee is allowed and ground No. 2 of the Revenue is dismissed.'

41.2 Thus, respectfully following the consistent view of Amritsar & Mumbai Tribunal in the own case of the assessee for A.Y. 2005-06 to A.Y. 2010-11, we do not find infirmity in the finding of the learned CIT(A). Hence the ground of appeal raised by the Revenue is hereby dismissed.

42.1 During the year, the assessee received refund of central excise duty of Rs. 1,53,23,302/- in Jammu unit which was included in the income for the purpose of deduction u/s 80IB of the Act. However the AO held that the refund of central excise is not derived from the business activity of the eligible undertaking. In holding so, the AO given reasoning at length in his order and relied on various case laws. Thus the AO excluded/disallowed the same from the computation of deduction.

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42.2 On appeal by the assessee, the learned CIT(A) following the order of the Amritsar Tribunal in the own case of the assessee for AY 2004-05 to 2008-09 deleted the disallowance made by the AO.

42.3 Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

42.4 The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

42.5 On the other hand learned AR before us submitted issue is covered in favour of the assessee by the order of the tribunal in the own case of the assessee for AY 2010-11 bearing ITA No. 2465/Ahd/2014.

“22. Ground No.III pertains to disallowance of deduction u/s 80IB on account of Central Excise Duty refund. This issue has also been decided in favour of the assessee by the Amritsar Tribunal in assessee’s own case for the assessment year 2005-06 in ITA No.184(Asr)/2009, by following the ratio laid down by the Hon’ble High Court of J&K in case of Shree Balaji Alloys vs. CIT 333 ITR 335 (J&K). The said decision was followed by the Amritsar Tribunal in the assessee’s own case in the subsequent assessment years. We, therefore, respectfully following the decision of the ITAT Amritsar, dismiss this ground of the appeal of the Revenue.”

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43.1 Thus, respectfully following the consistent view of tribunal in own case of the assessee we do not find infirmity in the finding of the learned CIT(A). Hence the ground of appeal raised by the Revenue is hereby dismissed.

44.1 During the year the assessee received interest of Rs. 1,92,60,614/- which was included in the income for the purpose of deduction u/s 80IB of the Act. However the AO held that the interest income cannot be held as income as derived from the industrial undertaking. Thus, the AO excluded/disallowed the same from the computation of deduction.

44.2 On appeal by the assessee, the learned CIT(A) following the order of the Amritsar Tribunal in own case of the assessee for A.Y. 2004-05 to 2008-09 deleted the disallowances made by the AO.

44.3 Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

44.4 The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

44.5 On the other hand learned AR before us submitted issue is covered in favour of the assessee by the order of the tribunal in own case of the assessee for A.Y. 2010-11 bearing ITA No. 2465/Ahd/2014.

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covered in favour of the assessee by the order of the coordinate bench of Mumbai Tribunal in own case of the assessee for AY 2010-11 bearing ITA No. 2465/Mum/2014 where the coordinate bench by following the order of Amritsar Tribunal in own case of the assessee for AY 2005-06 to AY 2009-10 decided the issue in favour of the assessee. The relevant finding of the coordinate bench in ITA No. 2465/Mum2014 reads as under:

"54. As regards ground No 5&6 of the assessee with respect to the interest on FDR amounting to Rs. 3,27,599/- (correct figure Rs. 2,27,599/-) and loan to employees with regard to disallowance of deduction u/s 80-IB, the facts of the issues In hand are identical to the facts decided by the tribunal in assessee's own case dated 11.06.210 in ITA No 184(Asr)/2009 for the assessment year 2005-06. Following the same, the ground No 5&6 of the assessee are dismissed." 24. Following the orders of the decisions of the Amritsar Tribunal in the identical issues, we allow the assessee's claim of deduction under section 80-IB of the Act in respect of interest on delayed payments in question and direct the AO to delete the additions. However, we disallow the assessee's claim of deductions in respect of interest on staff advances & statutory/bank deposits.”

45.1 Thus respectfully following the consistent view of Tribunal in the own case of the assessee, we do not find any infirmity in the finding of the learned CIT(A). Hence, the ground of appeal raised by the Revenue is hereby dismissed.

46.1 During the year, the assessee firm claimed deduction of remuneration paid to partner for Rs. 6,19,63,741/- which was claimed in Jammu unit, Dadra unit as well as in Dadra EOU unit in following manner:

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Dadra Unit Jammu Unit Dadra-EOU Remuneration to Partners u/s Rs.2,02,55,937/- Rs.3,38,38,383/- Rs.78,69,391/- 40(b) *Disallowances u/s 43B on a/c of Rs.4,29,322/- Rs.1,22,763/- Rs.30,095/- earned leave & Bonus Total Rs.2,06,85,259 Rs.3,39,61,146/- Rs.78,99,486/- (* the assessee has already added back the same in its computation.)

46.2 The AO disallowed the deduction of partner remuneration under section 40(b)(i) of the Act for reason that remuneration was not paid to individual partner. Thus the profit of eligible unit being Dadra and Jammu unit increased due to disallowances of remuneration expenses. However the AO also excluded the amount of addition on account of partner’s remuneration disallowances from computation of deduction under section 80IB of the Act on reasoning that the disallowances of remuneration have no direct nexus with the activity of industrial undertaking.

46.3 On appeal by the assessee learned CIT(A) following the order of the Amritsar Tribunal in own case of the assessee for AY 2004-05 to 2008-09 deleted the disallowances made by the AO under section 80IB of the Act.

46.4 Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

46.5 The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

46.6 On the other hand learned AR before us submitted issue is covered in favour of the assessee by the order of the Tribunal in own case of the assessee for A.Y. 2010-11 bearing ITA No. 2465/Ahd/2014.

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Tribunal in own case of the assessee for A.Y. 2010-11 bearing ITA No. 2465/Mum/2014 where the coordinate bench by following the order of Amritsar tribunal in own case of the assessee for A.Y. 2005-06 to A.Y. 2009-10 decided the issue in favour of the assessee. The relevant finding of the coordinate bench in ITA No. 2465/Mum/2014 reads as under:

“26. Ground No V of the Revenue appeal, which pertains to adjustment on account of remuneration u/s 40(b) of the Act, is also covered in favour of the assessee by the orders of the Amritsar Bench passed in assessee's own case pertaining to the assessment years 2004-05, 2005-06 2006-07, 2007-08, 2008-09 and 2009-10. The Amritsar Tribunal has decided the identical issue in favour of the assessee in assessee’s own case for the assessment year 2009-10 following the decision passed in assessee's own case for the assessment year 2004-05. Ground No 4&5 of the Revenue appeal in the assessee's own case for the assessment year 2004-05 was pertaining to higher deduction u/s 80IB on account of disallowance of remuneration u/s 40(b) and disallowance of deduction u/s 43B respectively. The relevant para of the order of the Tribunal reads as under:- " Since the facts relating to these issues are identical to the facts in assessee's own case for the assessment year 2004-05 decided by us hereinabove, following the same, ground No.4&5 of the Revenue are dismissed.” 27. Respectfully following the findings of the Amritsar Tribunal we, dismiss this ground of appeal of the Revenue.”

47.1 Thus, respectfully following the consistent view of Tribunal in the own case of the assessee, we do not find any infirmity in the finding of the learned CIT(A). Hence the ground of appeal raised by the Revenue is hereby dismissed.

48.1 During the assessment proceeding the AO disallowed the deduction of earned leave for Rs. 5,82,180/- under the provision of section 43B of the Act by holding that the same has not been paid till the due date of furnishing the return of income. Thus the profit of eligible unit being Dadra and Jammu unit increased due to disallowances of the said expense. However, the AO also excluded the amount of addition on account above disallowance from computation of deduction claimed under section 80IB of the Act on reasoning that the disallowance of earned leave has no direct nexus with the activity of industrial undertaking.

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48.2 On appeal by the assessee, the learned CIT (A) following the order of the Amritsar Tribunal in own case of the assessee for AY 2004-05 to 2008-09 has deleted the disallowance made by the AO under section 80IB of the Act.

48.3 Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

48.4 The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

48.5 On the other hand, the learned AR before us submitted that the issue is covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for the AY 2010-11 bearing ITA No. 2465/Ahd/2014.

“28. Ground No VI relating to deletion of disallowances of deduction u/s 80-IB in respect of disallowances made u/s 28 to 44 of the Act is also covered in favour of the assessee by the orders of The Amritsar Tribunal in assesses own cases for the assessment years 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10. The Tribunal has decided the identical issue in assessee's own case for the assessment year 2004-05 by observing as under:- “18. As regards ground Nos. 4&5 of the Revenue regarding granting of higher deduction u/s 80IB on account of disallowance of remuneration/s 40(b) of the Act amounting to Rs.15,75,55,218/- and on account of disallowance of deduction u/s 43B amounting to Rs.12,92,626/-, it is observed that the issue is covered by the decision of the ITAT, Amritsar Bench, vide its order dated 11.06.2010

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in ITA No 184(Asr)/2009 in assessee's own case vide paras 37 to 40 at pages 67 to 69 (pages 190 to 192P8), wherein ITAT, Amritsar Bench, has allowed the claim of the assessee on the consequential higher amount eligible foe deduction under section 80IB of the Act. Following the said order of the Tribunal, dated 11.06.2010 these grounds of the Revenue are dismissed." 29. In view of the decisions of the Tribunal in assessee's own cases we uphold the findings of the Ld. CIT(A) and dismiss this ground of Revenue's appeal.”

49.1 Thus, respectfully taking the consistent view of tribunal in own case of the assessee, we do not find any infirmity in the finding of the learned CIT(A). Hence the ground of appeal raised by the Revenue is hereby dismissed.

50.1 During the assessment proceeding, the AO found that the assessee is engaged in the business of manufacturing and formulation of pharmaceutical products which requires R&D center for research and development activities. However, the assessee firm does not have any R&D center. In deed all the R&D activities are carried out from M/s Sun Pharmaceutical Industries Ltd (SIPL) which is controlling partner of the assessee firm. All the expenses incurred on R&D on behalf of the assessee firm are claimed by the SIPL only. Thus, this practice has resulted in profit shifting of SIPL to assessee firm which is enjoying tax holiday under 80IB of the Act for Jammu and Dadar unit. Thus the AO by invoking the provision of section 80IB(13) read with section 80IA(10) allocated the R&D expenses amounting to Rs. 44.80 crores to the eligible unit of the assessee in turnover ratio.

50.2 On appeal by the assessee learned CIT (A) deleted the allocation made by the AO by observing as under:

“16.4. I have carefully considered the facts relating to this issue as they emerge from the impugned assessment order and the submissions made in appeal. As stated above, the A.O. has made this disallowance holding that the profits of the appellant were overstated on account of no expenses being debited for R&.D facilities. The appellant has submitted that the reimbursement expenses were made to cover a host of facilities and services that were availed of from SPIL and that the expenses on account R&.D for products developed

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and launched were included in that, I find that the notional disallowance on account of R&.D expenses has been made on similar lines as the disallowances made for royalty, management fees and selling and distribution expenses. As discussed above, the said notional disallowances were found untenable by the Tribunal and were deleted in its order dated 12.06.2012. No additional facts have been brought on record to support the notional disallowance on account of R&.D expenditure.

16.5 Further in case of M/s. Sun Pharma Sikkim (SPS), sister concern of the appellant firm, similar disallowance was made by the AO for A.Y. 2010-11 on the basis of same facts and relying on the assessment done in the appellant's case. However, the CIT(A) in case of SPS decided the issue in favour of SPS. Relevant ara of CIT(A)'s order is reproduced herein below:

"4.5.2 I have considered the facts related to the issue at hand. The fact that the development of products is carried out only by SPIL is not disputed. It is a/so a fact that such product technologies are completely owned by SPIL and that neither the appellant firm nor SPI hold any rights of ownership. In the impugned order, the AO has placed heavy reliance on the statement recorded from Dr. T. Rajamannar to conclude that R&D activity carried out by SPIL pertains to the appellant firm as well as SPI which fact is not denied by the appellant at any point in time. The appellant has explained that the products manufactured at the appellant unit are generic products. On consideration of facts it is apparent that the AO did not take into account the fact that the drugs being manufactured by the appellant firm did not enjoy high brand value but were prescription drugs where the quality was more important than the brand recall. The AO also disregarded the decision passed by the Hon'ble Amritsar ITAT bench deleting the aforesaid addition in the case of SPI. Thus, on the facts of the case, there is nothing to show that the appellant should have paid any amount for R & D work to SPJL, over and above the remuneration. Accordingly, the disallowance made cannot be sustained and is deleted. The ground raised by the appellant is therefore allowed."

16.6 My predecessor in appellant's case for A.Y. 2010-11 has deleted the disallowances on R&D Expenses. Accordingly, following the rationale behind the Tribunal's decision and my predecessor's decision on the disallowances of royalty etc., the disallowance on R&D expenses is deleted and the ground raised by the appellant is allowed.”

50.3 Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

50.4 The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

50.5 On the other hand learned AR before us submitted issue is covered in favour of the assessee by the order of the tribunal in own case of the assessee for A.Y. 2010-11 bearing ITA No. 2465/Ahd/2014.

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“30. Ground No VII of the appeal pertains to adjustment in respect of R&D expenditure incurred by the working partner of the firm. The ld. CIT(A) has allowed the contention of the assessee that no disallowance is called for because clause 7-B of the partnership deed specifically provides for remuneration for technical assistance in the manufacturing activities and R&D facilities were included in the same. The Ld. CIT(A) has further based its findings on the ground that the notional disallowance on account of R&D expenses has been made by the AO on similar lines as have been made in respect of royalty, management fees and selling and distribution expenses and the said pounds were found not tenable by the Tribunal. Following the rationale behind the deletion in respect of royalty, management fees and selling and distribution expenses, by the ITAT Amritsar, we uphold the deletion made by the Ld. CIT(A) and dismiss this ground of appeal of the revenue.”

51.1 Thus, respectfully taking the consistent view of Tribunal in the own case of the assessee, we do not find any infirmity in the finding of the learned CIT(A). Hence the ground of appeal raised by the Revenue is hereby dismissed.

ITA No. 2595/Mum/2018 an appeal by the Assessee – A.Y. 2012-13 (Sun Pharmaceutical Industries)

“1. The orders of the lower authorities are arbitrary, not based on proper evidences, without proper reasons, invalid and also bad in law. 2. Re: "Initial assessment year" u/s 80-IB(14)(c) read with sec. 80-IB(2)(ii) (a) On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) [hereinafter referred to as Learned CIT (A)], while allowing the deduction under section 80-IB(4) in respect of profit from industrial undertaking at Dadra, erred by considering the previous year as 11th year of operation [i.e. after expiry of eligible period of 10 years] as against the assessee's claim of 9th year of operation.

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(b) The learned CIT (A) has not appreciated the facts in proper perspective and erred in not appreciating the legal position that, for the purpose of section 80-IB, the initial assessment year is to be reckoned from the date of commencement of "commercial production” and not from any earlier date. Holding the year under appeal as the 11th year for claiming deduction u/s 80IB(4) of the Act being bad in law, the claim of the appellant treating the year as the 9th year from the beginning with the initial assessment year needs to be allowed/accepted.

On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in upholding the invoking of the provisions of S- 80IB(13) r.w.s. 80IA(10) for the purpose of computing the deduction u/s. 80IB.

(a) On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in confirming the disallowance u/s 80IB/10B in respect of and to the extent of interest on loan to employees amounting to Rs.1,70,539/- holding them to be not derived from the industrial undertaking.

(b) The learned CIT (A) also erred in not appreciating that the section 801B/10B grants deduction in respect of 'any profits from any business' of the industrial under taking.

(a) On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in confirming the disallowance u/s 80-1 B in respect of and to the extent of interest on FDRs amounting to Rs.1,84,349/- holding them to be not derived from the industrial undertaking.

(b) The learned CIT(A) also erred in not appreciating that the section 80IB grants deduction in respect of 'any profits from any business' of the industrial undertaking.

On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in not striking down the initiation of penalty proceedings u/s 271 (1) (c).”

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Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 53

ITA No. 1466/Ahd/2018 an appeal by the Revenue – A.Y. 2012-13 (Sun Pharmaceutical Industries)

“1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee and in not confirming the additions made by the AO on these issues.

2.1 On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in holding that rejection of books of accounts in this case is not legally tenable without appreciating the facts and reasons mentioned by the AO in the assessment order.

2.2 On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in not upholding the A.O's action of rejection of books of accounts without appreciating that the assessee during the course of assessment proceedings did not furnish the details called for, and hence considering the facts of the case, the A.O. correctly rejected the books of accounts of the assessee.

3.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not upholding the A.O's action that the purchase of Industrial Undertaking at Dadra is the case of splitting up or reconstruction of business of SPIL.

4.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) on apportionment of royalty expenses of Rs. 38,06,09,798/- without appreciating the fact that the assessee was using trademarks, brands and logo of SPIL, a major partner, for which neither any fee or royalty is charged and hence disallowance made @ 8% of sales adopted by the Assessing Officer is justifiable and reasonable.

4.2 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) on apportionment of royalty expenses without appreciating that the assessee in the guise of payment in the nature of remuneration for technical services of the nature of royalty adopted a device to inflate its non taxable income as is evident from the fact that assessee itself had admitted that it had included compensation for use of trademark, brand name etc as remuneration and that compensation could not be equated with remuneration.

5.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) on apportionment of management fees of Rs. 23,78,81,123/- without appreciating the fact that the affairs of the assessee were managed by SPIL, the working partner, and nothing is paid or charged by SPIL and hence disallowance made @ 5% of turnover adopted by the Assessing Officer is justifiable and reasonable.

5.2 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s, 80IA(10) on apportionment of management fees without appreciating that the provision of the Supplementary Deed of partners if at all, applicable can be only from a date on or after 15th March, 2012. The assessee cannot correct its mistakes or undone the anomaly by creating a retrospective charge by a written or otherwise instrument. The assessee has simply made a supplementary deed of partnership and tried unjustifiably to give retrospective effect to its acts of omission and commission.

Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 54

6.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) on apportionment of selling and distribution expenses of Rs.64,40,00,000/- incurred by the working partner without appreciating the fact that all the sales and distribution expenses were debited to SPIL and no allocation was made to SPI and SPS units, as has been revealed during the proceedings of survey action u/s. 133A.

6.2 On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of deduction u/s. 80IB in respect of selling and distribution expenses without appreciating the A.O's finding on supplementary partnership deed and without appreciating that selling and distribution expenses cannot be considered in conjunction with remuneration and such charging of remuneration was not in accordance with the spirit of section 40(b) of the Act.

7.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the assessee's ground on disallowance of deduction u/s 80IB in respect of receipt of interest of Rs.6,02,63,146/- on delayed payments on sales without appreciating the facts and reasons mentioned by the AO in the assessment order.

7.2 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the assessee's ground on disallowance of deduction u/s 80IB in respect of receipt of interest on delayed payments on sales without appreciating the fact that this was not derived from manufacturing activity and the same was rightly disallowed by the AO.

8.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB on remuneration to working partner of Rs.15,53,28,841/- without appreciating the fact that the assessee had claimed remuneration paid to SPIL on the basis of supplementary deed of partnership dated 15-03- 2012 and the same was not allowable in light of the provisions of section 40(b) of the Income-tax Act, 1961.

8.2 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB on remuneration to working partner of Rs.15,53,28,841/- without appreciating the A.O's findings in the assessment order particularly with regard to assessee's reliance on supplementary partnership deed for inflating its profit for claiming higher deduction u/s. 80IB of the Act.

9.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) in respect of disallowance of Rs.15,52,384/- made u/s 43B of the Act without appreciating the facts that the AO has made addition on account of excise duty and earned leave due to non deposit of the same before the due date of furnishing return.

10.1 On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) on apportionment of research and development expenses of Rs.6,80,00,000/- incurred by the working partner without appreciating the fact that expenditure related to R&D was debited only in the hands of SPIL but no allocation was made to SPI and SPS units, as has been revealed during the proceedings of survey action u/s 133A, and the working of allocation of R&D activity on the basis of turnover in the ratio of 3:1 is justifiable and reasonable.

10.2 On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) in respect of research and development expenses without appreciating that R&D work requires specialized skill and knowledge, and consequently payment towards R&D activity cannot be termed as remuneration but would be termed as professional payment.”

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Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 56

under consideration i.e. AY 2012-13. Hence, the ground of appeal filed by the Revenue is dismissed.

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under consideration i.e. AY 2012-13. Hence, the ground of appeal filed by the Revenue is dismissed.

Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 58

ITA No. 2597/Mum/2018 an appeal by the Assessee – A.Y. 2013-14 (Sun Pharmaceutical Industries)

“1. The orders of the lower authorities are arbitrary, not based on proper evidences, without proper reasons, invalid and also bad in law. 2. Re: "Initial assessment year" u/s 80-IB(14)(c) read with sec. 80-IB(2)(ii) (a) On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income lax (Appeals) [hereinafter referred to as Learned CIT (A)], while allowing the deduction under section 80-IB(4) in respect of profit from industrial undertaking at Dadra, erred by considering the previous year as 12th year of operation [i.e. after expiry of eligible period of 10 years] as against the assessee’s claim of 10th year of operation. (b) The learned CIT (A) has nor appreciated the facts in proper perspective and erred in not appreciating the legal position that, for the purpose of section 80-IB, the initial assessment year is to be reckoned from the date of commencement of "commercial production" and not from any earlier date. Holding the year under appeal as the 12th year tor claiming deduction u/s 80113(4) of the Act being bad in law, the claim of the appellant treating the year as the 10th year from the beginning with the initial assessment year needs to be allowed/accepted.

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On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in upholding the invoking of the provisions of S. 80IB(13) r.w.s. 80IA(10) for the purpose of computing the deduction u/s. 80IB,

(a) On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in confirming the disallowance u/s 80IB/10B in respect of and to the extent of interest on loan to employees amounting to Rs.90324/- holding them to be not derived from the industrial undertaking.

(b) The learned CIT (A) also erred in not appreciating that the section 80IB/10B grants deduction in respect of 'any profits from any business' of the industrial undertaking.

(b) The learned CIT (A) also erred in not appreciating that the section 80IB grants deduction in respect of 'any profits from any business' of the industrial undertaking.

On the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in not striking down the initiation of penalty proceedings u/s 271 (1) (c).”

Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 60

consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph no. 30 of this order against the assesse. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the ground of appeal filed by the assessee is hereby dismissed.

ITA No. 1467/Ahd/2018 an appeal by the Revenue – A.Y. 2013-14(Sun Pharmaceutical Industries)

Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 61

“1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee and in not confirming the additions made by the AO on these issues.

2.1 On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in holding that rejection of books of accounts in this case is not legally tenable without appreciating the facts and reasons mentioned by the AO in the assessment order.

2.2 On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in not upholding the A.O's action of rejection of books of accounts without appreciating that the assessee during the course of assessment proceedings did not furnish the details called for, and hence considering the facts of the case, the A.O. correctly rejected the books of accounts of the assessee.

3.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not upholding the A.O's action that the purchase of Industrial Undertaking at Dadra is the case of splitting up or reconstruction of business of SPIL.

4.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) on apportionment of royalty expenses of Rs. 27,81,31,300/- without appreciating the fact that the assessee was using trademarks, brands and logo of SPIL, a major partner, for which neither any fee or royalty is charged and hence disallowance made @ 8% of sales adopted by the Assessing Officer is justifiable and reasonable.

4.2 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) on apportionment of royalty expenses without appreciating that the assessee in the guise of payment in the nature of remuneration for technical services of the nature of royalty adopted a device to inflate its non taxable income as is evident from the fact that assessee itself had admitted that it had included compensation for use of trademark, brand name etc as remuneration and that compensation could not be equated with remuneration.

5.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) on apportionment of management fees of Rs. 17,38,32,062/- without appreciating the fact that the affairs of the assessee were managed by SPIL, the working partner, and nothing is paid or charged by SPIL and hence disallowance made @ 5% of turnover adopted by the Assessing Officer is justifiable and reasonable.

6.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) on apportionment of selling and distribution expenses of Rs.62,56,00,000/- incurred by the working partner without appreciating the fact that all the sales and distribution expenses were debited to SPIL and no allocation was made to SPI and SPS units, as has been revealed during the proceedings of survey action u/s. 133A.

6.2 On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of deduction u/s. 80IB in respect of selling and distribution expenses without appreciating the A.O's finding on supplementary partnership deed and without appreciating that selling and distribution expenses cannot be considered in conjunction with remuneration and such charging of remuneration was not in accordance with the spirit of section 40(b) of the Act.

7.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the assessee's ground on disallowance of deduction u/s 80IB in respect of receipt of interest of Rs.5,03,91,648/- on delayed payments on sales without appreciating the facts and reasons mentioned by the AO in the assessment order.

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7.2 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the assessee's ground on disallowance of deduction u/s 80IB in respect of receipt of interest on delayed payments on sales without appreciating the fact that this was not derived from manufacturing activity and the same was rightly disallowed by the AO.

8.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB on remuneration to working partner of Rs.12,54,53,618/- without appreciating the fact that the assessee had claimed remuneration paid to SPIL on the basis of supplementary deed of partnership dated 15-03- 2012 and the same was not allowable in light of the provisions of section 40(b) of the Income-tax Act, 1961.

8.2 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB on remuneration to working partner of Rs.12,54,53,618/- without appreciating the A.O's findings in the assessment order particularly with regard to assessee's reliance on supplementary partnership deed for inflating its profit for claiming higher deduction u/s. 80IB of the Act.

9.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of deduction u/s 80IB(13) in respect of disallowance of Rs.7,22,191/- made u/s 43B of the Act without appreciating the facts that the AO has made addition on account of excise duty and earned leave due to non deposit of the same before the due date of furnishing return.

10.1 On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) on apportionment of research and development expenses of Rs.40,39,000/- incurred by the working partner without appreciating the fact that expenditure related to R&D was debited only in the hands of SPIL but no allocation was made to SPI and SPS units, as has been revealed during the proceedings of survey action u/s 133A, and the working of allocation of R&D activity on the basis of turnover in the ratio of 3:1 is justifiable and reasonable.

10.2 On the facts and circumstances of the case and in law, the Ld. C.I.T. (A) erred in deleting the disallowance of deduction u/s 80IB(13) r.w.s. 80IA(10) in respect of research and development expenses without appreciating that R&D work requires specialized skill and knowledge, and consequently payment towards R&D activity cannot be termed as remuneration but would be termed as professional payment.”

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ITA No. 4096/Mum/2016 for the assessment year 2011-12. Therefore, the findings given in ITA No. 4096/Mum/2016 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph no. 40 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the ground of appeal filed by the Revenue is dismissed.

Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 64

consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph no. 41 to 41.2 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 65

findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

Group Appeals – Sun Pharma Laboratories Ltd (Erstwhile M/s. Sun Pharma Sikkim) AY : 2011-12, 2012-13 & 2013-14 66

consideration i.e. AY 2013-14. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

S. No. Appeal No. Asst. Year Appellant Result 1. ITA No. 3980/Mum/2017 2012-13 Assessee Partly allowed

Order pronounced in the open Court on 24th August 2022 at Ahmedabad.

Sd/- Sd/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad, Dated 24/08/2022 आदेशक���त�ल�प�े�षत/Copy of the Order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent. 3. संबं�धतआयकरआयु�त/ Concerned CIT 4. आयकरआयु�त(अपील) / The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण/ DR, ITAT, 6. गाड�फाईल / Guard file. आदेशानुसार/BY ORDER, True Copy

उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपील�यअ�धकरण, अहमदाबाद / ITAT, Ahmedabad

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