PIRAMAL HEALTHCARE LTD,MUMBAI vs. DCIT 7(1), MUMBAI

P a g e | 1 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) IN THE INCOME TAX APPELLATE TRIBUNAL “J” Bench, Mumbai Before Shri G.S.Pannu, Vice President and Shri Ravish Sood, Judicial Member Piramal Healthcare Limited Deputy Commissioner of Income (Now known as Piramal Enterprises Ltd.) Tax- 7(1) Piramal Tower, Room No. 622, Aayakar Bhavan, Ganpatrao Kadam Marg, Vs. M.K. Road Lower Parel, Mumbai- 400 020 Mumbai – 400 013

PAN – AAACN4538P (Appellant) (Respondent) Deputy Commissioner of Income Piramal Healthcare Limited Tax- 7(1)Room No. 622, Aayakar (Now known as Piramal Enterprises Ltd.) Piramal Tower, Bhavan, M.K. Road Ganpatrao Kadam Marg, Mumbai- 400 020 Lower Parel, Vs. Mumbai – 400 013

PAN – AAACN4538P

Appellant by: Sh. J.D, Mistry, Senior Advocate & S/sh. Madhur Agarwal & Ronak Doshi, A.Rs Respondent by: S/sh. Bhupendra Kumar Singh & Jothilakshmi Nayak, D.Rs

Date of Hearing: 08.02.2019 Date of Pronouncement: 07.05.2019

P a g e | 2 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. )

O R D E R PER RAVISH SOOD, JM The present cross appeals filed by the assessee and the revenue are directed against the order passed by the AO under Sec.143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (for short „I-T Act‟), dated 28.01.2014 for Assessment Year 2009-10. As the issues involved in the present appeals are inextricably interlinked and interwoven and arise from a common impugned order, therefore, both the appeals are being taken up and disposed off together by way of a consolidated order. We shall first advert to the appeal filed by the assessee, wherein the following grounds of appeal have been raised before us:

“GROUND I: DISALLOWANCE OF SOFTWARE EXPENSES AMOUNTING TO Rs.14,00,800/- 1. On the facts and in circumstances of the case and in law the AO erred in following the erroneous direction of Dispute Resolution Panel ("the DRP") in disallowing software expenses claimed under the head "Repairs - Computer - Others" on the alleged ground that the said expenses are capital in nature and has long term benefits. 2. The Appellant prays that the A.O be directed to treat expenditure incurred on software as revenue expenditure. 3. Without prejudice, the AO be directed to allow depreciation @ 60% on the software expenses incurred. GROUND II: DISALLOWANCE OF DEDUCTION U/S 35(2AB) IN RESPECT OF ENNORE UNIT AND GOREGAON UNIT: Rs.24,89,50,211/- 1. On the facts and circumstances of the case and in law, the A.O erred in following the erroneous direction of Dispute Resolution Panel ("the DRP") in disallowing the weighted deduction claimed u/s. 35(2AB) in respect of R & D expenses (Revenue and Capital) related to Ennore Unit and Goregaon Unit amounting to Rs.24,89,50,211/- on the alleged ground that no approval is granted by appropriate authority for these units in Form 3CM. 2. The A.O failed to appreciate and ought to have held that approval granted by DSIR (Department of Scientific and Industrial Research) is sufficient for claiming deduction u/s 35(2AB) of the Act.

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P a g e | 4 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) GROUND V: ADJUST MENT OF INVENTORY AS PER SECTION 145A OF Rs.1,16,08,088/- 1. On the facts and circumstances of the case and in law, the AO erred in following the erroneous direction of the DRP in re-computing value of closing stock at Rs.15,982.73 lakhs as against Rs.14,834/- lakhs and opening stock at Rs.14,367.65 lakhs as against Rs.13,335 lakhs on the ground that the Appellant is following exclusive method of accounting for Modvat with regards to inventory. 2. The A.O failed to understand and ought to have held that, irrespective of whether the Appellant follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT credit has no impact on the profits of the Appellant. 3. The Appellant prays that the A.O be directed to delete the adjustment of Rs. 1 ,16,08,088/- made u/s 145A of the Act. GROUND VI: DISALLOWANCE U/S. 14A OF Rs.5,59,06,129/- 1. On the facts and in the circumstances of the case and in law, the A.O erred in following the erroneous direction of the DRP in disallowing a sum of Rs. 5,59,06,129/- as expenditure attributable to earning exempt dividend income, u/s. 14A read with Rule 8D of the Income Tax Rules, 1962 ("the Rules"). 2. The appellant humbly prays that the disallowance u/s. 14A of Rs.5,59,06,000/- be deleted or be appropriately be reduced. GROUND VII: DISALLOWANCE OF DEDUCTION CLAIMED U/S. 35A OF THE ACT Rs.2,42,85,714/- 1. On the facts and circumstances of the case and in law, the A.O erred in following the erroneous direction of the DRP in disallowing a deduction of Rs.2,42,85,714/- claimed u/s. 35A of the Act related to Sarahhai Piramal Pharmaceuticals Limited ("SPPL") which is merged with the Appellant on the alleged ground that such deduction has not been allowed in earlier years assessment orders of SPPL. 2. The A.O further erred in holding that the SPPL has Incurred expenditure on acquisition of trademark which does not find mention in section 35A of the Act. 3. The Appellant prays that the A.O be directed to allow deduction claimed u/s. 35A of the Act since the term trademark in the context of pharmaceutical medicine has similar meaning to that of a patent right. GROUND VIII: DISALLOWANCE OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES OF Rs.27,90,84,346/- 1. On the facts and circumstances of the case and in law, the AO erred in following the erroneous direction of the DRP in disallowing a sum of Rs. 27,90,84,346/- being 50% of certain expenses out of advertising and business promotion expenses on the alleged ground that these expenses are not incurred wholly and exclusively for the purpose of the business and are inadmissible u/s. 37 (1) of the Act, being an expense prohibited by law.

P a g e | 5 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) 2. The Appellant prays that the entire expenditure incurred towards advertising and business promotion be allowed as deduction. GROUND IX: ADDITION OF RS.23,59,00,000/- TO THE TOTAL INCOME AND REDUCTION OF DEDUCTION U/S. 801C BY Rs.23,59,00,000/- 1. On the facts and circumstance of the case and in law, the A.O erred in following the erroneous direction of the DRP in reducing deduction u/s. 80IC by allocating Research and development expenditure of Rs.12,28,00,000/- and interest expenditure of Rs. l1,31,00,000/- to the Baddi unit eligible for deduction u/s. 80IC on the alleged ground that such expenditure are attributable to the said Baddi Unit. 2. The A.O failed to appreciate and ought to have held that the: a) Research and development expenditure are incurred mainly on Process Development for customs manufacturing (PDG) and it has no connection directly or indirectly with the manufacturing activity carried out at Baddi unit. b) The assessee has not made any borrowing specifically for the purpose of setting Baddi unit and it working capital requirement is met by the cash or fund generated in the unit. 3. The Appellant prays that the A.O be directed not to allocate research and development expenditure of Rs. 12,28,00,000/- and interest expenditure of Rs. 11,31,00,000/- to the Baddi Unit. GROUND X: ELIGIBILITY OF DEDUCTION U/S. 80IC OF THE ACT 1. On the facts and circumstance of the case and in law, the A.O erred following the erroneous direction of the DRP in disallowing the deduction of Rs.2,74,14,16,642/- claimed u/s. 80IC in respect of Baddi Unit on the alleged ground that the Baddi Unit is not eligible for deduction u/s. 80IC relying on the order for AY 2008-09. 2. The A.O failed to appreciate an4 ought to have held that the Baddi unit had been formed in A.Y. 07-08 by introducing fresh capital and purchasing new plant and machinery and it had been not formed by splitting of the existing business of the Appellant. 3. The Appellant prays that the A.O be directed to allow deduction u/s 80IC of the Act. GROUND XI: DILLOWANCE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT 1. On the facts and in the circumstances of the case and in law, the A.O erred in following the erroneous direction of the DRP in making an adjustment of Rs. 18,87,62,465/- on account of commission on corporate guarantee provided on behalf of its Associated Enterprise ("AE"). The TPO has charged commission 1.75% normally charged by banks for guarantees and 1.25% charged for risk involved on account of exchange rate risk, country specific risk and AE risk involved in giving guarantee on loans.

P a g e | 6 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) 2. The Appellant prays that the A.O be directed to delete the adjustment made on account of corporate guarantee since the excess of interest charged by the Appellant from its AE over the Arms Length Price (ALP) is sufficient to cover the Arm‟s Length guarantee fee on the risk exposure. 3. Without prejudice, the A.O be directed to re-compute the addition on account of transfer pricing adjustment by taking Arm's Length Rate at 0.35% i.e the rate at which HDFC Bank had given a domestic guarantee on the behalf of the Appellant. GROUND XII: ADDITION OF DISALLOWANCE U/S. 14A TO THE COMPUTATION OF BOOK PROFIT U/S 115JB 1. On the facts and circumstances of the case and in law, the AO erred in following the erroneous direction of the DRP in adding back the amount disallowed u/s. 14A to the book profit computed u/s. 115JB of the Act. 2. The A.O failed to appreciate and ought to have held that the disallowance made under sub-sections (2) and (3) of section 14A is not to he added while computing the book profits u/s 115JB of the Act in the absence of any express provision for the same in section 115JB. 3. Therefore, the Appellant prays that the A.O be directed not to add the expenses of Rs.5,59,06,129/. computed u/s 14A of the Act to the book profit u/s. 115JB. GROUND XIII: GENERAL The Appellant craves leave to add, amend, alter and/or delete any/all of the above ground of appeal.” 2. Briefly stated, the assessee company which is engaged in the business of manufacturing and sale of pharmaceuticals had filed its return of income for A.Y. 2009-10 on 30.09.2009, declaring total income of Rs.7,64,65,737/- and had paid tax on the „Book Profit‟ of Rs.292,28,33,382/- under Sec.115JB of the I.T Act. The return of income filed by the assessee was processed as such under Sec.143(1) of the I-T Act on 13.08.2010. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2).

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Sr. No. Particulars Amount 1. Disallowance of Software expenses. Rs.14,00,000/- 2. Disallowance of deduction under Sec.35(2AB) in respect Rs.24,89,50,211/- of Ennore Unit and Goregaon Unit. 3. Disallowance of claim of depreciation of additions to Rs.17,63,425/- computer software. 4. Disallowance of claim of depreciation pertaining to Rs.68,75,396/- Boehringer Mannhem India Ltd. (“BMIL”) & Piramal Healthcare Ltd. (“PHL”). 5. Adjustment on inventory under Sec.145A. Rs.1,16,08,088/-. 6. Disallowance under Sec.14A. Rs.5,59,06,129/- 7. Disallowance of deduction claimed under Sec. 35A. Rs.2,42,85,714/- 8. Disallowance of advertisement and business promotion Rs.27,90,84,346/- expenses. 9. Addition on account of reduction of deduction under Rs.23,59,00,000/- Sec.80IC 10. Disallowance of the deduction under Sec.80IC by holding Rs.274,14,16,642/- the assessee as ineligible for claim of the same. 11. Disallowance on account of Transfer Pricing Adjustment Rs.18,87,62,465/- on account of provided to Associated Enterprises (“AE”). 12. Addition of disallowance under Sec.14A to the Rs.5,59,06,129/- computation of “Book Profit” under Sec.115JB.

On the basis of the aforesaid proposed additions/disallowances and modifications the A.O sought to assess the income of the assessee company at Rs. 339,12,59,090/- under the normal provisions and further worked out its „book profit‟ as per Sec.115JB at Rs. 316,75,01,976/-.

P a g e | 8 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) r.w.s. 144C(13), dated 28.01.2014 and assessed the income of the assessee at Rs.338,89,29,170/- as per the normal provisions and worked out the „book profit‟ as per Sec.115JB at Rs. 297,87,39,511/-. 6. The assessee being aggrieved with the order passed by the A.O under Sec. 143(3) r.w.s 144C(13), dated 28.01.2014, has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee Shri J.D. Mistry, Senior Advocate, took us through the facts leading to the additions/disallowances that were assailed by the assessee in its present appeal before us. The ld. A.R. took us through a „Chart‟ filed by the assessee and submitted that certain issues involved in the present appeal were squarely covered by the order passed by the Tribunal in the assesses own case for the immediately preceding year i.e A.Y. 2008-09 in ITA No. 5471 /Mum /2017; dated 30.07.2018. The ld. A.R taking us through the disallowances of software expenses aggregating to Rs.14,00,800/- submitted that the lower authorities had erred in disallowing the said expense by characterising the same as a „Capital expenditure‟ for the reason that the same has an enduring benefit. The ld. A.R took us through the relevant part of the assessment order in context of the issue under consideration. It was submitted by the ld. A.R that the A.O after characterising the expenditure incurred by the assessee towards purchase of various shrink wrap software, had allowed depreciation of Rs.3,50,200/- i.e @ 25% of their aggregate value of Rs.14,00,800/-. Insofar the purchase of last 3 items (as per the chart) viz. (i) Lotus Notes Web Access License; (ii) Lotus Note Web Access License; and (iii) Antivirus Software were concerned, it was submitted by the ld. A.R that no enduring benefit as regards the same did arise to the assessee. In support of his contention that the expenditure incurred by the assessee towards purchase of the aforesaid

P a g e | 9 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) softwares/licenses was in the nature of a revenue expenditure, the ld. A.R. relied on the judgments of the Hon‟ble High Court of Bombay in the case of CIT Vs. Raychem RPG Ltd. (2012) 346 ITR 138 (Bom) and PCIT Vs. Holcim Services (South Asia) (2018) 255 Taxman 392 (Bom). Further, support was also drawn by the ld. A.R from the judgment of the Hon‟ble High Court of Delhi in the case of CIT Vs. Amway India Enterprises (2012) 346 ITR 341 (Del). Alternatively, it was submitted by the ld. A.R. that in case his aforesaid contention was to be rejected and the expenditure incurred towards purchase of softwares/licenses was to be treated as a capital expenditure, then the assessee would be entitled for claim of depreciation on the value of the same @ 60% and not @ 25% as was allowed by the lower authorities. The ld. A.R further assailed the disallowance of the claim of deduction raised by the assessee under Sec. 35(2AB) in respect of its Ennore Unit and Goregaon Unit, aggregating to Rs.24,89,50,211/-. It was submitted by the ld. A.R that the aforesaid claim of deduction of the assessee was disallowed by the lower authorities for the reason that the assessee had failed to place on record the approval granted by the appropriate authority i.e Department of Scientific & Industrial Research (for short „DSIR‟). It was submitted by the ld. A.R that the said issue was squarely covered by the order of the Tribunal in the assesses own case for A.Y. 2008-09 (copy placed on record). It was submitted by the ld. A.R that the claim of the assessee under Sec. 35(2AB) in respect of R&D expenses for its aforesaid units that was disallowed by the lower authorities in the preceding year i.e A.Y 2008- 09, was however on appeal restored by the Tribunal to the file of the A.O for providing opportunity to the assessee to furnish the approval of the competent authority in the prescribed form. In order to fortify his aforesaid contention the ld. A.R took us through the relevant part of the aforesaid order of the Tribunal in the assesses own case for A.Y.

P a g e | 10 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) 2008-09. It was averred by the ld. A.R that as the assessee during the year under consideration could not file the approval in “Form No. 3CM”, therefore, in the same terms the matter may be restored to the file of the A.O for providing an opportunity to furnish the same in support of its aforesaid claim. As regards the disallowance of claim of depreciation on additions to computer software amounting to Rs.17,63,425/-, it was submitted by the ld. A.R that the lower authorities had erred in restricting the entitlement of the assessee towards its claim of depreciation on computer software @ 25% instead of 60% as was claimed by the assessee. It was submitted by the ld. A.R that a similar disallowance of the assesses entitlement towards claim of depreciation on computer software that was made by the A.O in the immediately preceding year i.e A.Y. 2008-09, was on appeal vacated by the CIT(A). It was submitted by him that the CIT(A) finding favour with the claim of the assessee had concluded that there was no question of denying depreciation @ 60% as per Appendix 1 to Rule 5 of the I.T Rules, 1962 r.w.s 32 on the computer software. The ld. A.R took us through the relevant observations recorded by the CIT(A) while disposing off the appeal of the assessee for A.Y 2008-09. It was submitted by the ld. A.R that the revenue had not assailed the said view of the CIT(A) in its appeal before the Tribunal for the said preceding year i.e AY. 2008-09. On the basis of the aforesaid facts, it was submitted by the ld. A.R that now when the assesses claim for depreciation on computer software @ 60% was accepted by the revenue pursuant to the order of the CIT(A) in AY. 2008-09, therefore, there was no reason on its part to have adopted an inconsistent approach and therein restrict its claim of depreciation to 25% during the year under consideration. It was submitted by the ld. A.R that some of the software forming part of the „block of assets‟ were brought forward from the earlier years, while for certain software were P a g e | 11 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) purchased by the assessee during the year under consideration. The ld. A.R further assailed the disallowance of the claim of depreciation on assets pertaining to Boehringer Mannheim India Limited (for short “BMIL”) & Piramal Holdings Ltd. (for short “PHL”), aggregating to Rs.68,75,396/-. Interestingly, it was submitted by the ld. A.R that though the DRP had directed the A.O to allow the claim of depreciation raised by the assessee in respect of BMIL, however, the A.O had declined to accept the said directions which were binding on him, and had in his final assessment order passed under Sec.143(3) r.w.s 144C disallowed the same. In order to fortify his aforesaid contention the ld. A.R took us through the observations of the DRP in context of the issue under consideration (Page 8-9 – Para 5.3). It was submitted by the ld. A.R that the DRP by referring to the assesses own case for A.Y. 2006-07 and A.Y. 2007-08, had directed the A.O to allow the depreciation in respect of assets of BMIL. Alternatively, it was submitted by the ld. A.R that even otherwise such claim of depreciation of the assessee was accepted by the Tribunal while disposing off its appeal for A.Y. 2008-09. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that that A.O be directed to follow the directions of the DRP and allow the assesses claim for depreciation pertaining to BMIL & PHL. Further, the ld. A.R assailing the adjustment of inventory as per Sec. 145A amounting to Rs.1,16,08,088/- that was made by the lower authorities, submitted that the said issue was tax neutral in nature. In order to buttress his aforesaid claim the ld. A.R took support of a Annexure “B” i.e a statement showing the change in profits on account of inclusion of excise duty in purchases and stocks, as per which there would be no consequential increase/decrease in the profits for the year under consideration. (Page 61) of the „Assesses Paper Book‟ (for short „APB‟). Insofar disallowance under Sec.14A of Rs.5,59,06,129/- made by the P a g e | 12 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) A.O was concerned, it was submitted by the ld. A.R that the lower authorities by misconceiving the facts and the settled position of law had made the said disallowance. It was submitted by the ld. A.R that as the assessee had own funds which were substantially more than the investments made in the exempt income yielding shares, therefore, no disallowance under Sec.14A r.w. Rule 8D(2)(ii) was called for in its hands. In support of his aforesaid contention the ld. A.R relied on the judgments of the Hon‟ble High Court of Bombay in the case of (i) HDFC Bank Ltd Vs. DCIT (2016) 383 ITR 529 (Bom); (ii) CIT Vs. HDFC Bank Ltd (2014) 366 ITR 505 (Bom); and (iii) CIT Vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom). In sum and substance, it was the contention of the ld. A.R that as the assessee had sufficient interest free funds which would explain the source of the investments in the exempt income yielding assets, thus no disallowance of any part of the interest expenditure could have been made u/Rule 8D (2)(ii). In order to fortify his contention that the assessee had substantial interest free funds, it was submitted by the ld. A.R that the Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09 had after taking cognizance of the said facts restored the matter to the file of the A.O, with a direction that in case if the claim of the assessee was found to be in order, then no disallowance would be called for U/rule 8D(2)(ii). Apart there from, it was submitted by the ld. A.R that the lower authorities had erred in failing to appreciate that the disallowance under Sec.14A r.w. Rule 8D was to be worked out only after considering the investments which had yielded exempt income during the year. In support of his aforesaid contention that the A.O was obligated to consider only the investments which had yielded exempt income during the year, the ld. A.R relied on the order of the „Special bench‟ of the ITAT, Delhi in the case of ACIT Vs. Vireet Investments (P) Ltd. (2017) 165 ITD 27 (Del) (SB).

P a g e | 13 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) It was submitted by the ld. A.R that as the assessee has substantial interest free funds, therefore, no disallowance under Rule 8D(2)(ii) was called for in its hands. Alternatively, it was averred by him that in case the contention as regards the availability of own funds was not accepted, then keeping in view the fact that the disallowance under Sec.14A was to be worked out only on the basis of the exempt income yielding investments, therefore, the disallowance under Rule 8D(2)(ii) would stand restricted to an amount of Rs.31.78 lacs. Insofar the disallowance under Rule 8D(2)(iii) was concerned, it was submitted by the ld. A.R that the same would be restricted to an amount of Rs.0.21 lacs. The ld. A.R in order to fortify his aforesaid contention had during the course of hearing of the appeal placed on record the working of the claim of disallowance under Sec.14A r.w. Rule 8D. It was further submitted by the ld. A.R that the settled position of law that disallowance under Rule 8D(2)(iii) was to be worked out after excluding the investments which had not yielded any exempt income during the year, was considered by the Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09. The ld. A.R adverting to the disallowance of the assesses claim of deduction under Sec.35A amounting to Rs.2,42,85,714/-, submitted that the said issue was squarely covered by the order of the Tribunal in the assesses own case for A.Y. 2008-09. The ld. A.R further in order to drive home his aforesaid contention took us through the relevant observations of the Tribunal, wherein the Tribunal had concluded that the assessee was eligible for claim of deduction under Sec. 35A. The ld. A.R adverted to the disallowance of advertisement and business promotion expenses aggregating to Rs.27,90,84,346/-. It was submitted by the ld. A.R that the lower authorities misconceiving the facts and the settled position of law had wrongly disallowed the aforementioned expenses which were incurred by the assessee wholly and exclusively for the purpose

P a g e | 14 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) of its business and were admissible under Sec.37(1) of the I-T Act. It was submitted by the ld. A.R that the DRP had erred in restricting the entitlement of the assessee towards claim of the aforementioned expenses to Rs.27,90,84,346/- i.e 50% of its aggregate claim of expenses of Rs. 55,81,68,692/- under the said head. It was submitted by the ld. A.R. that the aforementioned expenses comprised of viz. (i) Key Account Manager (KAM) Expenses; (ii) Customer Relation Manager (CRM) Expenses; and (iii) Gift Articles. The ld. A.R objected to the observations of the lower authorities which had disallowed the said expenses for two reasons viz. (i) that the expenses claimed by the assessee were not verifiable; and (ii) that the expenses incurred by the assessee towards giving various freebies to doctors for promotion of its business were inadmissible under Sec.37(1), as incurring of such an expense was prohibited by law. The ld. A.R objected to the adverse inferences drawn by the lower authorities as regards the eligibility of the aforesaid expenses on multiple grounds viz. (i) that the Medical Council Regulations, 2002 would though apply to medical practitioners, however, the same were not applicable to the pharmaceutical companies; (ii) that as the CBDT Circular No. 5 of 2012, dated; 01.08.2012 imposing prohibition on the medical practitioners and their professional associations from taking any gifts, travel facility, hospitality, cash or monetary grant from the pharmaceutical and allied healthcare sector industries was applicable prospectively, therefore, the same was not applicable to the case of the assessee for the year under consideration i.e A.Y. 2009-10; (iii) that in any case the MCD guidelines which came into effect from 10.12.2009 itself were not applicable in the year under consideration; (iv) that the circular issued by the CBDT cannot impose an obligation adverse to an assessee; and (v) that the samples, expenses incurred on conference etc. by the assessee were not in the nature of freebies. The P a g e | 15 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) ld. A.R in order to fortify his claim that the expenses incurred by the assessee which was a pharmaceutical company would not be hit by the Explanation 1 to Sec. 37 of the I.T. Act, relied on the order of ITAT, Mumbai “A” Bench in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018) Insofar, the reduction of the assesses claim of deduction under Sec. 80IC by an amount of Rs.23,59,00,000/- was concerned, it was submitted by the ld. A.R that the lower authorities by misconceiving the facts had wrongly dislodged the claim raised by the assessee under the aforesaid statutory provision. It was submitted by the ld. A.R that as no part of the R&D expenses incurred by the assessee were relatable to its eligible unit situated at Baddi, therefore, the assessee had rightly not allocated any part of such expenditure to the same. It was further submitted by the ld. A.R that as the interest expenditure incurred by the assessee during the year was in context of the borrowed funds utilised for the units (excluding Baddi unit), therefore, no part of such interest expenditure was allocated by the assessee to the said eligible unit. In fact, it was submitted by the ld. A.R. that as the unit at Baddi had substantial funds by way of internal accruals in the form of profits that would feed its financial requirements, therefore, no part of the borrowed funds were utilised or diverted to the said eligible unit. In sum and substance, it was the claim of the assessee that the allocation of R&D expenses and interest expenses was rightly done by the assessee, which however, merely on the basis of baseless assumptions had been dislodged by the lower authorities by attributing and/or relating the same to the eligible unit at Baddi. Apart there from, it was submitted by the ld. A.R that the aforesaid issue was also considered by the Tribunal while disposing off its appeal for A.Y. 2008-09 and the matter was restored to the file of the A.O for fresh adjudication after affording due opportunity of being

P a g e | 16 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) heard to the assessee. The ld. A.R further assailed the disallowance of the assesses claim of deduction under Sec. 80IC amounting to Rs.274,14,16,642/-. It was submitted by the ld. A.R that the lower authorities failing to appreciate that the assessee had duly satisfied the conditions envisaged in Sec.80IC(4), which therein entitled it to claim the deduction under the aforesaid statutory provision, had wrongly concluded that it was not eligible for claiming the same. The ld. A.R took us through the facts of the case and submitted that the eligible unit i.e. unit at Baddi was set up by the assessee in the F.Y. 2006-07 i.e on 10.06.2006, being the date on which production at the said unit had commenced. It was submitted by the ld. A.R that the A.O after making necessary verifications pertaining to the Baddi unit viz.(i) copy of certificate of commencement of commercial production issued by the Government of Himachal Pradesh; (ii) list of products manufactured; (iii) details of additions made to plant and machinery at Baddi; and (iv) details of plant and machinery along with date of capitalization (i.e date on which they were put to use), had allowed the assesses claim for deduction under Sec 80IC while framing the assessment for the initial year i.e A.Y 2007-08. It was submitted by him that though the case of the assessee was reopened for A.Y. 2007- 08 on some other grounds, however, the assesses eligibility for claim for deduction under Sec. 80IC was not disturbed. It was submitted by the ld. A.R that the A.O had declined to allow the claim for deduction under Sec. 80IC by merely relying on the order passed by his predecessor for the immediately preceding year i.e A.Y. 2008-09. Insofar the claim of the assessee under Sec.80IC for A.Y. 2008-09 was concerned, it was submitted by the ld. A.R that the A.O in the said year had in his „draft order‟ only dislodged the allocation of expenses by the assessee, but in the final assessment order passed by him the assessee was held as not eligible for claim of the said deduction under P a g e | 17 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) Sec. 80IC. It was submitted by the ld. A.R that the Unit at Baddi since the very year of its formation viz. A.Y 2007-08 was manufacturing 87 products. It was further submitted by him that a “Fill Form and Seal” machine (for short “FFS” machine) that was transferred from the Mulund Unit of the assessee was dispatched on 12.03.2008 and the same was finally installed and had commenced production at Baddi in the month of February, 2009. The ld. A.R submitted that the A.O had declined to allow the assesses claim for deduction under Sec. 80IC(2) for the reason that the assessee had not satisfied the requisite conditions and had rather violated the same. It was submitted by the ld. A.R, that as the value of the “FFS” machine on the date of transfer was substantially below 20% of the entire value of the plant and machinery, therefore, no violation on the part of the assessee on account of transfer of machinery or plant previously used for any purpose could have been drawn. It was further submitted by the ld. A.R, that the fact that the “FFS” machine was dismantled and dispatched from Mulund Unit on 12.03.2008, could safely be gathered from the fact that an entry in respect of transfer of the same to the Baddi unit was found recorded on the said date. In support of his aforesaid contention, the ld. A.R took us through Page 636 of the APB, wherein the aforesaid fact stood substantiated. It was further submitted by the ld. A.R that the CIT(A) while disposing off the appeal of the assessee for A.Y. 2008-09 had wrongly observed that the value of the “FFS machine BP 321 Mirror Welding Mould & Spa” was Rs.16,87,47,613/- [i.e Rs.12,27,36,893/- (+) Rs. 2,82,510/- (+) Rs.4,57,28,210/-]. It was submitted by him that the amount of Rs.4,57,28,210/- (supra) was the accumulated depreciation, which however was wrongly considered as a part of the cost of the “FFS” Machine by the CIT(A). It was submitted by the ld. A.R that in the backdrop of the correct factual position the cost of the “FFS” Machine

P a g e | 18 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) would work out to an amount of Rs. 7.87 crores [Rs.12,27,36,893/- (+) Rs. 2,82,510/-(-) Rs. 4,57,28,210/-]. In order to fortify his aforesaid claim, the ld. A.R drew our attention to Page 636 of APB. In sum and substance, it was the contention of the ld. A.R that as the value of the “FFS” machine that was dismantled from the Mulund Unit of the assessee and transferred to its Baddi Unit was substantially below 20% of the aggregate value of the total plant and machinery installed at the latter unit, therefore, the assessee on the said count could not be held to have violated the conditions envisaged in Sec.80IC(4) of the I-T Act. Alternatively, it was submitted by the ld. A.R that the revenue had not disturbed the assesses claim of deduction under Sec. 80IC of Rs. 114,53,66,695/- in the year of its “formation” i.e A.Y. 2007-08 and had rather accepted the same in the assessment framed u/s 143(3), dated 18.12.2009 for the said year. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that now when no adverse inference as regards the eligibility of the assessee for claim of deduction under Sec. 80IC was drawn in the „Initial year‟ i.e AY. 2007- 08, therefore, it was impermissible on the part of the revenue to have concluded that the assessee was not eligible for the said deduction during the year under consideration i.e A.Y 2009-10, which happened to be the third year of its operation. It was further submitted by the ld. A.R that certain qualifications are required to be satisfied by an eligible assessee for availing deduction under Sec.80IC only in the initial assessment year viz. (i) that the undertaking or enterprise is not formed by splitting up, or the reconstruction of a business already in existence; and (ii) that it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. However, as per the ld. A.R the entitlement of the assessee towards claim of deduction under Sec.80IC would not be affected if in the subsequent years there is a splitting up of the business or transfer of P a g e | 19 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) a machinery or plant which was previously used for any purpose. In sum and substance, it was the claim of the ld. A.R that the satisfaction of the condition envisaged in sub-section (4) to Sec.80IC viz. (i) that the undertaking or enterprise is not formed by splitting up or the reconstruction of a business already in existence; and (ii) that the undertaking or enterprise is not formed by the transfer to a new business of machinery or plant previously used for any purpose, were confined to the initial year in which the undertaking or enterprise was formed. In order to drive home his aforesaid contention the ld. A.R relied on the judgment of the Hon‟ble Supreme Court in the case of DCIT-Circle 11(1), Banglore, Vs. Ace Multi Axes Systems Ltd. (2018) 400 ITR 141 (SC). The ld. A.R taking us through the relevant observations of the court which though were rendered in context of Sec. 80IB, submitted, that it was observed by the Hon‟ble Apex Court that certain qualifications for claim of deduction under Sec. 80IB were required only in the initial assessment year viz. (i) requirement of initial constitution of the undertaking; and (ii) formation of the undertaking not by splitting of an existing business, transfer to a new business of machinery or a plant previously used. However, as observed by the Hon‟ble Apex Court there were certain other qualifications which have to continue to exist for claiming the said incentive viz. employment of particular number of workers as per sub- clause 4 (i) of Clause 2 in an assessment year. Apart there from, the industrial undertaking (other than a small scale industrial undertaking) not manufacturing or producing an article or thing specified in the 8th Schedule was a requirement of a continuing nature. In the backdrop of his aforesaid observations, it was the claim of the ld. A.R that as observed by the Hon‟ble Apex Court the qualifying conditions entitling the assessee for claim of deduction under Sec. 80IB could be compartmentalised into two parts viz. (i)

P a g e | 20 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) conditions which are required to be satisfied only in the initial assessment year; and (ii) the conditions which have to continue to exist from year to year for claiming the incentive. The ld. A.R taking support of his aforesaid contention tried to impress upon us that the similarly worded conditions envisaged in Sec. 80IC(4) viz. (i) that the undertaking or enterprise is not formed by splitting up or the reconstruction of a business already in existence; and (ii) that the undertaking or enterprise is not formed by transfer to a new business of machinery or plant previously used for any purpose, in the backdrop of the judgment of the Hon‟ble Supreme Court in the case of DCIT, Circle-11(1), Banglore Vs. Ace Multi Systems Ltd. (2018) 400 ITR 141 (SC), were to be similarly construed as the qualifications or conditions that were required to be satisfied by the assessee only in the initial year i.e the year in which it was formed. In sum and substance, the ld. A.R by drawing support from his aforesaid contention, submitted, that no adverse inferences for non-satisfaction of the conditions envisaged in sub-section (4) of Sec. 80IC by the assessee in the years subsequent to the year of formation could be drawn for divesting the latter of its entitlement towards claim of deduction under the said statutory provision. In order to fortify his aforesaid contention the ld. A.R relied on the order of the ITAT, Delhi Bench “C” in the case of Ganpati Herbalcare (P) Ltd. Vs. Pr. CIT, New Delhi (2018) 97 taxmann.com 575 (Del). It was submitted by the ld. A.R that in the aforementioned case the Tribunal had observed that for adjudicating the eligibility of an assessee for claiming deduction under Sec.80IC, investigation for ascertaining if the unit was newly set up or reconstructed is to be carried out in the initial year. On the basis of its aforesaid observations the Tribunal had concluded that the failure on the part of the A.O in not considering the said aspect in a year subsequent to the initial year would not render

P a g e | 21 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) the order as erroneous for the purpose of invoking the provisions of Sec.263 of the I.T Act. In the backdrop of his aforesaid contention, it was submitted by the ld. A.R that the lower authorities had erred in concluding that the assessee was not eligible for claim of deduction under Sec.80IC of the I.T Act. The ld. A.R further adverted to the transfer pricing adjustment of Rs.18,87,62,465/- that was carried out by the A.O/DRP on account of commission on corporate guarantee that was provided by the assessee on behalf of its „Associate Enterprise‟ (for short “AE”). It was averred by the ld. A.R that the TPO had charged commission @ 1.75%. It was submitted by the ld. A.R that as corporate guarantee is not an international transaction, therefore, the A.O/TPO had erred in making an adjustment of Rs. 18,87,62,465/- on account of commission on corporate guarantee provided by the assessee on behalf of its „AE‟. In support of his aforesaid contention the ld. A.R tried to draw support from the judgment of the Hon‟ble High Court of Bombay in the case of Vodafone India Services Pvt. Ltd. Vs. CIT (2014) 368 ITR 1 (Bom). It was submitted by him that since the guarantee was given by the assessee to its „AE‟ for its own benefit, therefore, the question of charging any guarantee commission did not arise at all. Alternatively, it was submitted by the ld. A.R that in the assesses own case for A.Y 2008-09 the Tribunal had in all fairness directed the A.O to determine the “Arms Length Price” (for short „ALP‟) of the Corporate guarantee by applying the commission rate of 0.5%. Further, the ld. A.R adverted to the claim of the assessee that the disallowance under Sec.14A was not to be considered for the purpose of computing the „book profit‟ under Sec.115JB of the I.T Act. It was submitted by the ld. A.R that the said issue was squarely covered in favour of the assessee by the order of the „Special bench‟ of the ITAT, Delhi in the case of ACIT Vs. Vireet Investments (P) Ltd. 82 taxmann.com 415 (Del) (SB) and the P a g e | 22 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) judgement of the Hon‟ble High Court of Bombay in the case of CIT Vs. Bengal Finance & Investments Pvt. ltd. (ITA No. 337/Mum/2013) (Bom). It was thus averred by the ld. A.R that the disallowance, if any, made under Sec.14A was not liable to be considered for the purpose of computing the „book profit‟ under Sec.115JB of the I.T Act. 7. Per contra, the ld. Departmental Representative (for short „D.R‟) adverting to ground of appeal no. 3 i.e disallowance of the assesses claim of depreciation on addition of computer software by restricting the entitlement of the assessee to 25% instead of 60% as claimed by it, relied on the order of the ITAT, Delhi in the case of Sony India (P) Ltd. Vs. Addl. CIT, Range 9(2011) 141 TTJ 432 (Del). The ld. D.R taking us through the aforesaid order, submitted, that it in the said case it was observed by the Tribunal that depreciation on license fees paid for use of computer software was to be restricted to 25%. The ld. D.R adverting to the adjustment of Rs.1,10,88,000/- made by the A.O under Sec. 145A of the I.T Act, submitted that as the assessee had claimed that a consequential adjustment to the value of the inventory as per Sec.145A would be tax neutral and had also placed on record a working in support thereof, thus the matter in all fairness in order to verify the veracity of the said claim was required to be restored to the file of the A.O. Insofar the entitlement of the assessee towards claim of deduction under Sec. 80IC was concerned, the ld. D.R relied on the order of the CIT(A). It was submitted by him that in order to verify the contention advanced by the assessee on merits viz. (i) that the value of the “FFS” machine that was transferred by the assessee from its Mulund Unit to its Baddi Unit was less than 20% of the total value of the plant & machinery deployed in the business of the said eligible unit, the matter may be restored to the file of the assessee. As regards

P a g e | 23 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) the contention advanced by the counsel for the assessee that the satisfaction by the assessee of the conditions prescribed in sub- section (4) of Sec. 80IC were confined to the initial year i.e the year of formation of the undertaking or enterprise, it was submitted by the ld. D.R that the said contention was absolutely misconceived and could not be accepted. 8. In rebuttal, the ld. A.R in support of his contention that the software purchased by the assessee was entitled for depreciation @ 60% relied on the order of the ITAT, Mumbai in the case of Owens Corning (India) P. Ltd. Vs. ACIT, Range 7(3)(4), Mumbai (2018) 93 taxman.com 223 (Mum). The ld. AR taking us through the aforesaid order submitted that the Tribunal in its said order had after relying on the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Saraswat Infotech Ltd. [ITA (L) No. 1243 of 2012; dated 15.01.2013], had concluded that depreciation on the computer software was allowable @ 60%. 9. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We shall advert to the issues assailed by the assessee in the present appeal in a chronological manner, as under:

Disallowance of software expenses: Rs.14,00,800/- 10. The assessee had during the year under consideration debited certain purchase of software license as a revenue expenditure, under the head “Repairs – Computers – Others”, as under:

REPAIRS – COMPUTERS – OTHERS A/C CODE 6286120 (B)

Purchase & implementation of „Sapphire‟ software used by Rs. 5,40,000 Quality Control Department Purchase of Lotus notes web access licenses from Lauren Rs. 98,000

P a g e | 24 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) Information Technologies Purchase of Lotus notes web access licenses from Lauren Rs. 6,02,000 Information Technologies Purchase of Anti Virus Software from Softcell Technologies Rs. 1,60,000 Total Rs.14,00,800

The A.O holding a conviction that the purchase of the aforesaid software licenses was in the nature of a capital expenditure, thus restricted the entitlement of the assessee towards claim of depreciation @ 25% of its value. In support of his aforesaid conviction, the A.O while concluding as hereinabove, was of the view that as a software license was a depreciable intangible asset under Sec.32(1)(ii) of the I.T Act, therefore, the same was only entitled for depreciation @ 25% under Part B of the depreciation schedule in the Appendix-1 of the I-T Rules 1962. In fact, the A.O observed that the treatment of the expenditure on purchase of computer software was to be looked into in the light of the amendment of Sec. 32 w.e.f 01.04.1998, which provided for grant of depreciation on knowhow, patent, copyrights, trade mark, license etc. acquired on or after 01.04.1998. It was observed by the A.O that as the purchase of computer software was in the nature of purchase of knowhow and a license to use the software, therefore, the explanation of the assessee that the expenditure incurred on the purchase of the same was in the nature of a revenue expenditure did not merit acceptance.

P a g e | 25 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) as a revenue expenditure. Further, the Hon‟ble High Court of Bombay in the case of CIT Vs. Raychem RPG Ltd. (2012) 346 ITR 138 (Bom) had observed that the expenditure incurred by an assessee on purchase of a software which facilitated its trading operations or enabled the management to conduct its business more efficiently or more profitably would not form part of the profit making apparatus of the assessee and would be allowable as a revenue expenditure. Also, we find that a similar view had also been taken by the Hon‟ble High Court of Delhi in the case of CIT Vs. Amway India Enterprises (2012) 346 ITR 341 (Del). In the aforesaid case, it was observed by the High Court that the expenditure incurred by the assessee on purchase of software application and payment made for acquiring license to use those applications was to be allowed as a revenue expenditure. In the backdrop of the aforesaid settled position of law, we are of the considered view that as the aforesaid software purchased by the assessee did not form part of its profit making apparatus and only facilitated carrying its business more efficiently, therefore, the same was rightly claimed by it as a revenue expenditure. We thus in terms of our aforesaid observations direct the A.O to allow the software expenses of Rs.14,00,800/- as claimed by the assessee. The Ground of Appeal No. I is allowed. Disallowance of deduction under Sec.35(2AB) in respect of Ennore Unit & Goregaon Unit: Rs.24,89,50,211/-: 12. The assessee had claimed deduction under Sec. 35(2AB) pertaining to its Goregaon & Ennore Units. In the course of the assessment proceedings, the assessee in order to substantiate its aforesaid claim of deduction under Sec. 35(2AB) furnished the copies of the approval obtained form DSIR. However, the A.O observing that the assessee had failed to place on record „Form 3CM‟ which was a P a g e | 26 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) separate approval from DSIR for claim of weighted deduction under Sec.35(2AB), thus declined to allow the said claim of deduction to the assessee. Insofar the copies of the approvals for DSIR were concerned, it was observed by the A.O that the same were only relevant for claiming the basic deduction under Sec. 35(1)(i) and 35(1) (iv) and were not approved for the purpose of claiming deduction under Sec.35(2AB). Accordingly, the A.O disallowed the assesses claim of weighted deduction under Sec. 35(2AB) of Rs.24,89,50,211/-. Further, the DRP vide its directions under Sec. 144C(5), dated 19.12.2013 upheld the order of the A.O in context of the issue under consideration. 13. Admittedly, the issue pertaining to the entitlement of the assessee towards claim of weighted deduction under Sec. 35(2AB) is a recurring issue which was also involved in its case for the immediately preceding year i.e A.Y 2008-09. We find that the Tribunal while disposing off the appeal of the assessee for the immediately preceding year i.e A.Y. 2008-09, had after considering the contention of the assessee that it had applied for approval in „Form 3CM‟ which was still pending, restored the issue to the A.O for providing an opportunity to the assessee to furnish the approval of the competent authority in the prescribed manner for claiming the deduction under Sec. 35(2AB) of the I-T Act. In fact, the ld. A.R by taking support of the observations of the Tribunal in the assesses own case for A.Y. 2008-09, had requested that the matter as regards the entitlement of the assessee towards the claim of deduction under Sec. 35(2AB) may be restored to the file of the A.O in the same terms, with a direction to the A.O to provide an opportunity to the assessee to furnish the approval of the competent authority in the prescribed form in support of its aforesaid claim. We are of the considered view that following the order of the Tribunal in P a g e | 27 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) the assesses own case for A.Y. 2008-09, the matter as regards its entitlement towards claim of deduction under Sec. 35(2AB) in all fairness requires to be restored to the file of the A.O. Needless to say, the A.O while adjudicating the entitlement of the assessee towards claim of deduction under Sec.35(2AB) shall afford an opportunity to the assessee to furnish the approval of the competent authority in the prescribed manner in support of its said claim. The matter is restored to the file of the A.O in terms of our aforesaid observations. The Ground of Appeal No. II is allowed for statistical purposes. Disallowance of the claim of depreciation on additions to computer software : Rs.17,63,425/- 14. The A.O during the course of the assessment proceedings observed that the assessee had during the year incurred software expenses on upgradation of its existing software viz. MFGPRO, MS Office etc. It was noticed by him that the assessee had claimed depreciation on the capitalized value of the software expenses @ 60%. The A.O was of the view that as per Rule 5 of the I-T Rules, 1962 only “computers including software” were eligible for depreciation @ 60%. In other words, the A.O held a conviction that in a case where the computers were purchased along with the computer software, then such software would form part of the “computer including software” and would be eligible for depreciation @ 60%. However, in a case where software was purchased separately and independent from the computer, then the same would be an acquisition of an “intangible asset” as envisaged in Part B of the depreciation schedule shown in Appendix-1 of the I-T Rules, 1962, which reads as under: “Know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature”.

P a g e | 28 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) On the basis of his aforesaid observations, the A.O holding a conviction that as the licence to use the software amounted to an “intangible asset” in the form of rights/licenses, therefore, the same would be entitled for depreciation @ 25% as against 60% that was claimed by the assessee. Further, the action of the A.O was upheld by the DRP vide its directions under Sec. 144C(5), dated 19.12.2013. 15. We find that the issue before us is as to whether an independent purchase of software which admittedly formed part of the profit making apparatus of the assesses business and was capitalized in its „books of accounts‟ would be entitled for depreciation @ 60% (as claimed by the assessee) or @25% (as allowed by the AO). Admittedly, the claim of the assessee towards depreciation on computer software @ 60% was allowed by the CIT(A) in its own case for A.Y 2008-09. The revenue had not carried the aforesaid order of the CIT(A) any further in appeal before the Tribunal, which thus had attained finality. Be that as it may, we find that the ITAT, Mumbai in the case of Owens and Corning (India) P. Ltd. Vs. ACIT, Range 7(3)(i), Mumbai (2018) 93 taxamann.com 223 (Mum), had observed that the revenue was in error in restricting the assesses claim of depreciation on computer software @ 60% to 25%. In fact, the Tribunal while concluding as hereinabove, had taken support of the judgment of the Hon‟ble High Court Bombay in the case of CIT Vs. Saraswat Infotech Ltd. [ITA (L) No. 1243 of 2012; dated 15.01.2013]. Apart there from, we find that further in the following cases also the coordinate benches of the Tribunal had concluded that depreciation on software expenses is allowable @ 60%: “(i) Sriniovasa Rsorts Vs. ACIT (41 taxmann.com 350) (Hyd-Trib) (ii). Ushodaya Enterprises Limited 938 ITR (T) 148 ) (Hyd-Trib) (iii). ACIT Vs. Zydus Infrastructure (P) Ltd. (72 taxmann.com 199) (Ahd- Trib)”

P a g e | 29 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) 16. We are persuaded to subscribe to the view taken by the aforesaid coordinate benches of the Tribunal and respectfully follow the same. Further, as observed hereinabove, the assesses claim of depreciation on software expense @ 60% which was allowed by the CIT(A) had also been accepted by the revenue and the same had also not been carried any further in appeal before the Tribunal. In terms of our aforesaid observations, we are of the considered view that the assessee had rightly claimed depreciation on computer software @ 60%. We thus set aside the order of the CIT(A) in context of the issue under consideration and vacate the disallowance of Rs.17,63,425/- made by the A.O on the said count. The Ground of appeal No. III is allowed. Disallowance of claim of depreciation on assets of BMIL and PHL : Rs. 68,75,396/- :

P a g e | 30 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) A.Y 1996-97, but was not claimed by it, was not reduced by the assessee from the WDV as on 31.03.1994. Similarly, the assessee company had taken over the assets of PHL w.e.f 01.06.1996 under a scheme of arrangement duly sanctioned by the Hon‟ble High Court of Bombay, vide its order dated 14.08.1997. In respect of the assets of PHL also the WDV was adopted by the assessee on the basis of the Income Tax records. Further, the assessee in the period relevant to A.Y. 1999-2000 had sold its glass division and bulk drug division. The A.O declined to accept the claim of the assessee that it was a slump sale transaction and considering the same as an itemised sale of assets worked out the WDV of the „block of assets‟ by reducing the sale value as recorded in the books of the purchasing company.

P a g e | 31 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) taken by a coordinate bench in the assesses own case viz. Additional CIT Vs. Nicholas Piramal India Ltd. (2012) 150 TTJ 1 (Mum). In the said case the Tribunal drawing support from the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. Mahendra Mills (2000) 159 CTR (SC) 381, had concluded that in the absence of a claim of depreciation by the assessee, the same could not have been thrust upon it even if the particulars were available with the AO. We have perused the order of the Tribunal for A.Y. 2008-09 and finding no reason to take a different view, respectfully follow the same. Apart there from, we are also in agreement with the ld. A.R that now when the DRP while disposing off the objections filed by the assessee had specifically directed the A.O to allow claim of depreciation as was raised by the assessee in respect of BMIL, therefore, there was no reason for the A.O to have not followed such directions while passing the final assessment order u/s 143(3) r.w.s 144C(13), dated 28.01.2014. In terms of our aforesaid observations, we direct the A.O to allow the assesses claim of depreciation insofar the assets of BMIL are concerned.

P a g e | 32 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) 2000 sold its two divisions viz. (i). Glass Division (GGL); and (ii). Bulk Drug Division (BDD) on a slump sale basis. As such, the assessee company in A.Y 1999-2000 while computing the deprecation had dropped the WDV of the aforesaid two undertakings from the respective „block of assets‟ on the date of such „slump sale‟. As observed hereinabove, the A.O declined to accept the claim of the assessee that it was a „slump sale‟ transaction and considered the same as an itemised sale of assets. On the basis of his aforesaid observations, the A.O worked out the WDV of the „block of assets‟ by taking the values of the assets as were recorded in the „books of accounts‟ of the purchasing company, as the sale value, and reduced the same from the different „block of assets‟. In the backdrop of his aforesaid reworking of the WDV the A.O scaled down the assesses claim of depreciation in respect of assets of PHL.

P a g e | 35 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) alia the CENVAT credit. The adjustment required u/s 145A of the I.T Act was reflected in Clause 12(b) of the tax audit report of the assessee. As per Clause 12(b) the adjustment u/s 145A worked out at Nil. It is the claim of the assessee that the amount reflected in Clause 12(b) of the tax Audit report shall be treated as the adjustment required u/s 145A, and in support thereof had relied on the order of the ITAT, Mumbai in the case of Hawkins Cookers Ltd. Vs. ITO (2008) 14 DTR 206 (Mum). We have perused Clause 12(b) (Page 61 of „APB‟) of the Tax Audit report of the assessee and find that it is the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by inter alia including the effect of CENVAT credit will be Nil, subject to Sec. 43B that the duty, taxes, cess etc. is paid before the „due date‟ of filing of the return of income. As the ld. D.R had submitted that the aforesaid working of the assessee would require to be verified, we therefore, in all fairness restore the matter to the file of the A.O for readjudication. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate its claim before him. The Ground of appeal No. V is allowed for statistical purposes. Disallowance under Sec. 14A r.w Rule 8D : Rs.5,59,06,129

P a g e | 36 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) and (ii) disallowance of „administrative expenses‟ U/rule 8D(2)(iii): Rs. 524.83 lacs. It is the claim of the assessee that the disallowance u/s 14A has been made by the A.O/DRP by misconceiving the facts and the settled position of law. Insofar the disallowance of interest expenditure u/s 14A r.w Rule 8D(2)(ii) is concerned, it was claimed by the ld. A.R that now when the assessee had interest free funds which were substantially more than the investments made in the exempt dividend income yielding shares, therefore, no disallowance of any part of the interest expenditure was called for in its hands under Sec.14A r.w. Rule 8D(2)(ii). In support of his aforesaid contention the ld. A.R had placed on record a “Chart”, as per which it is claimed that during the year, as against the total investments of 1,299,800,000/- the assessee had interest free funds aggregating to Rs. 9,578,000,000/- viz. (i). Share Capital :Rs. 418,000,000/-; (ii). Reserves & Surplus : Rs. 5,951,400,000/-; (iii). General Reserves : Rs. 3,208,600,000/-; and (iv). Profit & Loss a/c : Rs. 3,208,600,000/-. It was thus submitted by the ld. A.R that the disallowance of interest expenditure U/rule 8D(2)(ii) of Rs. 34.23 lacs made by the A.O/DRP could not be sustained and was liable to be vacated. Insofar the disallowance U/rule 8D(2)(iii) of administrative expenses of Rs. 524.83 lacs made by the A.O/DRP was concerned, it was averred by the ld. A.R that the same was to be computed only after considering those investments which had yielded exempt income during the relevant year for working out the average value of investments.

(2017) 165 ITD 27 (Del)(SB). In fact, the Tribunal while disposing off the appeal in the assesses own case for the immediately preceding year i.e A.Y 2008-09 in M/s Piramal Enterprises Ltd. Vs. Asst. CIT (ITA No. 5471/Mum/2017, dated 30.07.2018), had directed the A.O to exclude the investments which had not yielded any exempt income during the relevant previous year for computing the disallowance U/rule 8D(2)(iii). The ld. A.R had during the course of hearing of the appeal furnished before us the working of the disallowance of administrative expenses u/s 14A r.w Rule 8D(2)(iii). As per the said working the disallowance works out at Rs. 20,730.26. The A.O is directed to examine the working of the assessee and decide the issue accordingly after affording an opportunity of being heard to the assessee. The Ground of appeal No. VI is allowed for statistical purposes in terms of our aforesaid observations. Disallowance of deduction under Sec. 35A : Rs. 2,42,85,714/-

(1988) 177 ITR 377 (SC). It was observed by the Tribunal that the revenue in its aforesaid appeal before the Hon‟ble Jurisdictional High Court in the case of “SPPL” for A.Y 1998-99, being conscious of the fact that if it succeeded on the ground of entitlement of the assessee towards deduction u/s 35A on the trade marks, then the deduction of the entire expenditure of Rs. 34 crore in terms of the observations of the tribunal had to be allowed in one go u/s 37 of the I-T Act, which would thus put it in a much more disadvantageous position, had thus for the said reason not pressed its appeal before the High Court on the issue of allowability of claim of deduction u/s 35A of the I.T Act. In the backdrop of the aforesaid facts, the Tribunal while disposing off the appeal of the assessee for the preceding year i.e A.Y 2008-09 observed that as the claim of the assessee for deduction u/s 35A was allowed in P a g e | 41 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) the preceding years, thus applying the rule of consistency allowed the same during the year before them. We have given a thoughtful consideration and are of the considered view that as the assesses claim of deduction u/s 35A had consistently been allowed by the Tribunal in the preceding years, therefore, respectfully following the view taken by the Tribunal while disposing off the appeal of the assessee for A.Y 2008-09, the disallowance made by the A.O/DRP u/s 35A of Rs. 2,42,85,714/- during the year under consideration viz. A.Y 2009-10 is vacated. The Ground of appeal No. VII is allowed. Disallowance of advertisement and business promotion expenses : Rs.27,90,84,346/-

P a g e | 44 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) deliberations in the aforesaid case, had observed that a perusal of the provisions of the Indian Medical Council Act, 1956, revealed that the scope and ambit of the statutory provisions relating to professional misconduct of registered medical practitioners under the Indian Medical Council Act, 1956, is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name is entered in the Indian Medical Register maintained under Sec. 21 of the said Act. Further, it was observed that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society, and deals only with the conduct of individuals registered medical practitioners and not the pharmaceutical companies or allied health sector industries. Apart there from, the Tribunal in its said order had also drawn support from the order of the Hon‟ble High Court of Delhi in the case of MAX Hospital., Pitampura Vs. Medical Council of India [CWP No. 1334/2013, dated 10.01.2014]. In the aforesaid case the Medical Council of India had filed an „Affidavit‟ before the High Court, wherein it was deposed by the council that its jurisdiction was limited only to take action against the registered medical professionals under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and it has no jurisdiction to pass an order affecting the rights/interest of the petitioner hospital. In the backdrop of its exhaustive deliberations, the Tribunal had concluded that even if the assessee had incurred expenditure on distribution of „freebies‟ to doctors and medical practitioners, the same though may not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002, however as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies in incurring of such sales promotion expenses, it cannot be P a g e | 45 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) held to have incurred an expenditure for a purpose which is an offence or is prohibited by law. The Tribunal while concluding as hereinabove, had observed as under:

“20. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the cross appeals filed by the assessee and the revenue has been sought for adjudicating the allowability of the sales promotion expenses incurred by the assessee on the distribution of articles to the stockists, distributors, dealers, customers and doctors, in the backdrop of the CBDT Circular No. 5/2012, dated 01.08.2012 and the MCI regulations. We find that it is the case of the revenue that as per the CBDT Circular No. 5/2012, dated 01.08.2012 any expense incurred by a pharmaceutical or allied health sector industry in providing any “freebies” to medical practitioners or their professional associations in violation of the regulation issued by Medical Council of India which is a regulatory body constituted under the Medical Council Act, 1956, would be liable to be disallowed in the hands of such pharmaceutical or allied health sector industry or any other assessee which had provided such “freebies” and claimed the same as a deductible expense against its income in the accounts. 21. We have deliberated at length on the issue under consideration and after perusing the regulations issued by the Medical Council of India, find that the same lays down the code of conduct in respect of the doctors and other medical professionals registered with it, and are not applicable to the pharmaceuticals or allied health sector industries. Rather, a perusal of the provisions of the Indian Medical Council Act, 1956, reveals that the scope and ambit of statutory provisions relating to professional conduct of registered medical practitioners under the Indian Medical Council Act, 1956 is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name are entered in the Indian Medical Register maintained under Sec. 21 of the said Act. We are of the considered view that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society and deals only with the conduct of individual registered medical practitioners. In the backdrop of the aforesaid facts, it emerges that the applicability of the MCI regulations would only cover individual medical practitioners and not the pharmaceutical companies or allied health sector industries. Interestingly, the scope of the applicability of the MCI regulations was looked into by the Hon‟ble High Court of Delhi in the case of Max Hospital, Pitampura Vs. Medical Council of India (CWP No. 1334/2013, dated 10.01.2014). In the aforementioned case the MCI had filed an „Affidavit‟ before the High Court, wherein it was deposed by the council that its jurisdiction is limited only to take action against the registered medical professionals under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and it has no jurisdiction to pass any order affecting the rights/interest of the petitioner hospital. We are of the considered view that on the basis of the aforesaid deposition of MCI that its jurisdiction stands restricted to the registered medical professionals, it can safely be concluded that the MCI regulations would in no way impinge on the functioning of the P a g e | 46 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) assessee company which is engaged in the business of manufacturing and sale of pharmaceutical and allied products. We thus, in the backdrop of our aforesaid deliberations are of the considered view that the code of conduct enshrined in the MCI regulations are solely meant to be followed and adhered by medical practitioners/doctors, and such a regulation or code of conduct would not cover the pharmaceutical company or healthcare sector in any manner. We are further of the view that in the backdrop of our aforesaid observations, as the Medical Council of India does not have any jurisdiction under law to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector, then any such regulation issued by it cannot have any prohibitory effect on the manner in which the pharmaceutical company like the assessee conducts its business. On the basis of our aforesaid observations, we are unable to comprehend that now when the MCI has no jurisdiction upon the pharmaceutical companies, then where could there be an occasion for concluding that the assessee company had violated any regulation issued by MCI. We thus, in terms of our aforesaid observations are of the considered view that even if the assessee had incurred expenditure on distribution of “freebies” to doctors and medical practitioners, the same though may not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 (as amended on 10.12.2009), however, as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies in incurring of such sales promotion expenses, the latter cannot be held to have incurred an expenditure for a purpose which is an offence or is prohibited by law. In this regard we are reminded of the maxim “Expressio Unius Est Exclusio Alterius”, which provides that if a particular expression in the statute is expressly stated for a particular class of assessee, then by implication what has not been stated or expressed in the statute has to be excluded for other class of assesses. Thus, now when the MCI regulations are applicable to medical practitioners registered with the MCI, then the same cannot be made applicable to pharmaceutical companies or other allied healthcare companies. 22. We shall now advert to the CBDT Circular No. 5/2012, dated 01.08.2012. We find that the aforesaid CBDT Circular reads as under:- “Inadmissibility of expenses incurred in providing freebees to medical practitioner by pharmaceutical and allied health sector industry Circular No. 5/2012 [F.No. 225/142/2012-ITA.II], dated 1-8-2012 It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebies (freebies) to medical practitioner and their professional associations in violation of the regulations issued by Medical Council of India (the „Council‟) which is a regulatory body constituted under the Medical Council Act, 1956 2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional

P a g e | 47 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. 3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expenses, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductible expense in its accounts against income. 4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The assessing officers of such medical practitioner or professional associations should examine the same and take an appropriate action. This may be brought to the notice of all the officers of the charge for necessary action.” We may herein observe that a perusal of the aforesaid CBDT Circular reveals that the “freebies” provided by the pharmaceutical companies or allied health sector industries to medical practitioners or their professional associations in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 shall be inadmissible under Sec. 37(1) of the Income Tax Act, 1961, as the same would be an expense prohibited by the law. We are of the considered view that as observed by us hereinabove, the code of conduct enshrined in the notifications issued by MCI though is to be strictly followed and adhered by medical practitioners/doctors registered with the MCI, however the same cannot impinge on the conduct of the pharmaceutical companies or other healthcare sector in any manner. We find that nothing has brought on record which could persuade us to conclude that the regulations or notifications issued by MCI would as per the law also be binding on the pharmaceutical companies or other allied healthcare sector. Rather, the concession made by the MCI before the Hon‟ble High Court of Delhi in the case of Max Hospital Vs. MCI (CWP No. 1334/2013, dated 10.01.2014) fortifies our aforesaid view that MCI has no jurisdiction to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector. We further find that MCI had by adding Para 6.8.1 to its earlier

P a g e | 48 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) notification issued as “Indian Medical Council Professional (Conduct, Etiquette and Ethics) Regulations, 2002” had even provided for action which shall be taken against medical practitioners in case they contravene the prohibitions placed on them. We find from a perusal of Para 6.8.1 that in case of receiving of any gift from any pharmaceutical or allied health care industry and their sales people or representatives, action stands restricted to the members who are registered with the MCI. In other words the censure/action as had been suggested on the violation of the code of conduct is only for the medical practitioners and not for the pharmaceutical companies or allied health sector industries. We are thus of the considered view that the regulations issued by MCI are qua the doctors/medical practitioners registered with MCI, and the same shall in no way impinge upon the conduct of the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of Explanation to Sec. 37(1), then the same would debar the doctors or the registered medical practitioners and not the pharmaceutical companies and the allied healthcare sector for claiming the same as an expenditure.” 31. Apart there from, we are also in agreement with the alternative contention advanced by the ld. A.R that though a benevolent CBDT Circular may apply retrospectively, but a circular imposing a burden has to apply prospectively only. As a result thereof, now when the CBDT Circular No, 5/2012 was issued only as on 01.08.2012, therefore, the same would not be applicable to the case of the assessee before us i.e for the period relevant to A.Y 2009-10. In fact, the aforesaid issue as regards the period of applicability of the CBDT Circular No. 5/2012, dated 01.08.2012 was also looked into by the ITAT “A” Bench, Mumbai, in the aforementioned case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), wherein it was observed as under : “25. We thus, in the backdrop of the aforesaid settled position of law as regards the prospective applicability of an oppressive circular, are of the considered view that as the CBDT as per its Circular No. 5/2012, dated 01.08.2012 had enlarged the scope of Indian Medical Council Regulation, 2002, and had made the same applicable to the pharmaceutical companies, thus the same cannot be reckoned to have a retrospective effect. We find that a coordinate bench of the Tribunal viz. ITAT, Mumbai in the case of Syncom Formulations (I) Ltd. Vs. DCIT-8(3), Mumbai (ITA No. 6428 & 6429/Mum/2012, dated 23.12.2015) for A.Ys 2010-11 and 2011-12 had concluded that the aforesaid CBDT Circular No. 5/2012, dated 01.08.2012 would not be applicable to the A.Ys 2010-11 and 2011-12, as the same was introduced w.e.f. 01.08.2012. We thus, in terms of our aforesaid observations are of the considered view that the aforementioned CBDT

P a g e | 49 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) Circular No. 5/2012, dated 01.08.2012 would not be applicable to the case of the assessee before us for A.Y. 2011-12.” 32. We are further of the considered view that even otherwise the enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is de hors any enabling provision either under the Income Tax Act or under the Indian Medical Council Regulations. In our considered view, though the CBDT can tone down the rigours of law in order to ensure a fair enforcement of the provisions by issuing circulars for clarifying the statutory provisions, however, it is divested of its powers to create a new impairment adverse to an assessee or to a class of assesses without any sanction or authority of law. We find that the aspect that the CBDT is divested of it powers to enlarge the scope of MCI regulation by extending the same to pharmaceutical companies, without any enabling provision either under the Income tax Act or the Indian Medical Regulations, was also deliberated upon by the Tribunal in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), wherein in context of the issue under consideration it was observed as under :

“23. We find that the CBDT as per its Circular No. 5/2012, dated 01.08.2012 had enlarged the scope and applicability of Indian Medical Council Regulation, 2002, by making the same applicable even to the pharmaceutical companies or allied healthcare sector industries. We are of the considered view that such an enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provision either under the Income Tax Act or under the Indian Medical Council Regulations. We are of a strong conviction that the CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. Still further, though the CBDT can tone down the rigours of law in order to ensure a fair enforcement of the provisions by issuing circulars for clarifying the statutory provisions, however, it is divested of its power to create a new impairment adverse to an assessee or to a class of assessee without any sanction or authority of law. We are of the considered view that the circulars which are issued by the CBDT must confirm to the tax laws and though are meant for the purpose of giving administrative relief or for clarifying the provisions of law, but the same cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee. We thus, are unable to persuade ourselves to subscribe to the rigours contemplated in the P a g e | 50 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) CBDT Circular No. 5/2012, dated 01.08.2012, which we would not hesitate to observe, despite absence of anything provided by the MCI in its regulations issued under the Medical Council Act, 1956, contemplating that the regulation of code of conduct would also cover the pharmaceutical companies and healthcare sector, however provides that in case a pharmaceutical or allied health sector industry incurs any expenditure in providing any gift, travel facility, cash, monetary grant or similar freebies to medical practitioners or their professional associations in violation of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, the expenditure incurred on the same shall be disallowed in the hands of such pharmaceutical or allied health sector industry. We are of the considered view that the burden imposed by the CBDT vide its aforesaid Circular No. 5/2012, dated 01.08.2012 on the pharmaceutical or allied health sector industries, despite absence of any enabling provision under the Income Tax law or under the Indian Medical Council Regulations, clearly impinges on the conduct of the pharmaceutical and allied health sector industries in carrying out its business. We thus, in the absence of any sanction or authority of law on the basis of which it could safely be concluded that the expenditure incurred by the assessee company on sales promotion expenses by way of distribution of articles to the stockists, distributors, dealers, customers and doctors, is in the nature of an expenditure which had been incurred for any purpose which is either an offence or prohibited by law, thus conclude that the same would not be hit by the Explanation to Sec. 37(1) of the Act.” 33. We thus in terms of our aforesaid observations and respectfully following the view taken by the coordinate bench of the Tribunal i.e ITAT “A” Bench, Mumbai, in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), are of the considered view that the expenditure of Rs. 55,81,68,692/- incurred by the assessee towards advertisement and its business promotion under three heads viz. (i) Key Account Manager (KAM) Expenses; (ii) Customer Relation Manager (CRM) Expenses; and (iii) Gift Articles would not be hit by the “Explanation” to Sec. 37 of the I-T Act.

Disallowance of deduction u/s 80IC (on account of reallocation of expenses) : Rs.23,59,00,000

P a g e | 54 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) expenditure was allocated to the said eligible unit. In fact, we find that it is the claim of the assessee before the lower authorities as well as before us, that as the unit at Baddi had substantial funds by way of internal accruals i.e profits which were generated by it and would feed its financial requirements, hence, no part of the borrowed funds were utilised or diverted to the said eligible unit. In sum and substance, it has been the claim of the assessee that the allocation of R&D expenses and interest expenses was rightly done by it, which however, merely on the basis of baseless assumptions had been dislodged by the lower authorities by attributing and/or relating the same to its eligible unit at Baddi.

P a g e | 55 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) dated 14/11/2011 filed in the course of the assessment proceedings for A.Y 2008-09, as well as submissions made/provided during the course of the assessment proceedings of F.Y 2006-07 relevant to A.Y 2007-08 i.e the year of formation of the Baddi unit may also be considered in context of the issue under consideration. Insofar the R&D expenses were concerned, it was in clear and unequivocal terms stated by the assessee vide its reply dated 11/02/2013 that the expenses of R&D were incurred mainly on Process development for customs manufacturing. It was submitted by the assessee that as custom manufacturing had no connection directly or indirectly with the manufacturing activities carried out at Baddi unit, therefore, no part of such expenditure could be allocated to the said unit.

P a g e | 56 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) case for the immediately preceding year i.e A.Y 2008-09 before the Tribunal viz. M/s Piramal Enterprises Ltd. Vs. Addl.CIT, Circle-7(1), Mumbai. The Tribunal observing that as the revenue had failed to bring on record any cogent material to establish that the borrowed funds were utilised in setting-up the Baddi unit and further the R&D expenditure incurred was related to manufacturing activity carried out at the Baddi unit, had thus in all fairness restored the issue to the file of the A.O for fresh adjudication, after affording an opportunity of being heard to the assessee. As the fact situation in context of the issue before us remains the same, therefore, respectfully following the order passed by the Tribunal in the assesses own case for the immediately preceding year i.e A.Y 2008-09, we restore the matter to the file of the A.O for fresh adjudication. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee. The Ground of appeal No. IX is allowed for statistical purposes.

Disallowance of deduction u/s 80IC (on account of ineligibility of the assessee): Rs. 274,14,16,642/-

P a g e | 57 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) unit was rejected by his predecessor in A.Y 2008-09. In the backdrop of the aforesaid fact, the A.O while framing the assessment for the year under consideration called upon the assessee to explain as to why on the similar ground its claim of deduction u/s 80IC may not be disallowed. In its reply, it was submitted by the assessee that it had set-up its Baddi unit on 10.06.2006, being the date on which the production had commenced at the said unit. In order to fortify its aforesaid claim of having set-up the aforesaid unit in the period relevant to A.Y 2007-08, the assessee took support of the report of the Chartered accountant in „Form 10CCB‟ that was filed along with the return of income for A.Y 2007-08. It was the claim of the assessee that as it had fulfilled all the conditions specified in Sec. 80IC, therefore, the claim of deduction under the said statutory provision was rightly raised in the return of income for the year under consideration i.e A.Y 2009-10. In fact, it was the claim of the assessee that the A.O while deliberating on the assesses eligibility towards claim of deduction u/s 80IC for A.Y 2007-08, had examined all the details pertaining to the Baddi unit viz. (i). copy of certificate of commencement of commercial production issued by the Government of Himachal Pradesh; (ii). list of products manufactured; (iii). details of additions made to plant and machinery at Baddi; and (iv). details of plant and machinery along with the date of their capitalization (i.e put to use). It was the claim of the assessee that in the year of formation of the Baddi unit viz. A.Y 2007-08, there was no transfer of any used plant or machinery as prescribed in Sec. 80IB(4)(ii) r.w Explanation 2 to sub-section (3) of Sec. 80IA. It was the claim of the assessee that neither of the conditions specified in sub-section (4) of Sec. 80IC were violated in the year of formation. On the basis of its aforesaid submissions, it was the claim of the assessee that its claim for deduction u/s 80IC was allowable for the year under consideration i.e A.Y 2009-10 and the P a g e | 58 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) subsequent years. Apart there from, it was submitted by the assessee that during the year under consideration i.e A.Y 2009-10, the conditions specified in Sec. 80IC(4) were not applicable, as the said year was the 3rd year of operation of the Baddi unit. In sum and substance, it was the claim of the assessee that the conditions specified in Sec. 80IC were to be fulfilled only in the year of formation, which as verified by the A.O were duly satisfied by the assessee in the A.Y 2007-08 i.e the year of formation of its Baddi unit. Insofar transfer of “Form Fill and Seal” machine (hereinafter referred to as “FFS” machine) by the assessee from its Mulund unit, Mumbai to its Baddi unit, Himachal Pradesh was concerned, it was submitted by the assessee that the same was transferred in March, 2008. It was submitted by the assessee that the original cost of the “FFS” machine was Rs. 12.27 crores. Further, it was claimed by the assessee that the approximate „book WDV‟ and the „income-tax WDV‟ on 31.03.2008 of the “FFS” machine was Rs. 7.67 crore and Rs. 2.78 crore, respectively. In order to fortify its aforesaid claim, it was submitted by the assessee that its Baddi unit was sold by way of „slump sale‟ on 08.09.2010 to M/s Abbott Healthcare Pvt. Ltd, which had in its reply to a letter dated 09.01.2012 had submitted before the A.O that the „book value‟ of the “FFS” machine on the said date viz.08.09.2010 was 5.45 crore. On the basis of the aforesaid facts, it was submitted by the assessee that in any event the value of the “FFS” machine would be less than 20% of the value of the total plant and machinery that was installed and used at the Baddi unit. Apart there from, it was the claim of the assessee that though the “FFS” machine was transferred to Baddi unit in March, 2008, but the actual installation and use of the said machine took place much later. It was claimed by the assessee that in the previous year relevant to A.Y 2008-09 the “FFS” machine was not even installed, much the less put to use. On the basis of the aforesaid

P a g e | 59 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) contentions, it was submitted by the assessee that as its claim for deduction u/s 80IC was well in order, therefore, there was no reason for denying the same during the year under consideration i.e A.Y 2009-10. However, the A.O after deliberating on the contentions advanced by the assessee was not persuaded to accept the same. It was observed by the A.O that the assessee company did not fulfil all the conditions stipulated for an eligible undertaking to claim deduction u/s 80IC. In fact, the A.O was of the view that the Baddi unit was formed by splitting up or the reconstruction of the assesses business that was already in existence at Mulund, Mumbai. It was observed by the A.O that the shifting of the manufacturing facilities from Mulund unit to Baddi unit was in violation of the conditions envisaged in sub-section (4) of Sec. 80IC of the I-T Act. On the basis of his aforesaid observations, the A.O following the detailed facts and the reasoning given by his predecessor while framing the assessment in the case of the assessee for A.Y 2008-09, proposed to disallow the assesses claim of deduction u/s 80IC of Rs. 274,14,16,642/-, vide his draft assessment order passed u/s 143(3) r.w.s 144C, dated 28.03.2013. The assessee objected to the proposed disallowance of its claim of deduction u/s 80IC before the DRP. The DRP after deliberating on the facts of the case observed that the A.O had disallowed the assesses claim of deduction u/s 80IC by relying on the order passed by his predecessor in its case for A.Y 2008-09. The DRP was of the view that as the disallowance of the assesses claim of deduction u/s 80IC by the A.O during the year under consideration viz. A.Y 2009-10 was consistent with the findings given in the assessment order for A.Y 2008-09, therefore, no interference was required on its part. However, the DRP observed that as the issue pertaining to the disallowance of the assesses claim of deduction u/s 80IC for A.Y 2008-09 was pending before the first appellate authority,

P a g e | 60 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) therefore, allowability of the assesses claim of deduction u/s 80IC would be dependant on the final decision for A.Y 2008-09. The A.O on the basis of the aforesaid directions of the DRP passed the final assessment order u/s 143(3) r.w.s 144C(13), dated 28.01.2014 and disallowed the assesses entire claim of deduction u/s 80IC of Rs. 274,14,16,642/-.

P a g e | 61 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) unit. As the assessee did not file any objection before the DRP, therefore, on the expiry of the period prescribed u/s 144C(3) the A.O passed the final assessment order u/s 143(3) r.w. 144C(13), dated 29.02.2012. However, in the final assessment order the A.O disallowed the assesses entire claim of deduction u/s 80IC of Rs. 247,10,42,003/- by deviating from the draft assessment order, wherein there was no such proposal to disallow the entire claim of deduction by holding the assessee as ineligible to claim such deduction. The assessee challenged the disallowance of deduction claimed u/s 80IC before the CIT(A), both on the aspect of the jurisdiction of the A.O to do so in the final assessment order in variation to the drat assessment order, as well as on merit. However, the CIT(A) not being persuaded to accept the contentions of the assessee rejected its objection that the A.O had traversed beyond the scope of his jurisdiction by disallowing its entire claim of deduction u/s 80IC, despite the fact that there was no such proposal in the draft assessment order. Insofar the claim of the assessee on merit that it was eligible for deduction claimed u/s 80IC was concerned, the same also did not find favour with the CIT(A), who upheld the view taken by the A.O and concluded that the assessee had violated both the conditions prescribed in sub-section (4) of Sec. 80IC of the I-T Act. Aggrieved, the assessee carried the matter in appeal before the Tribunal. Insofar the assesses claim that the A.O while passing the final assessment order u/s 143(3) r.w.s 144C(13), dated 29.02.2012, had exceeded his jurisdiction by disallowing the assesses entire claim of deduction u/s 80IC, which though was not proposed in the draft assessment order was concerned, the same did find favour with the Tribunal. It was observed by the Tribunal that the disallowance of deduction u/s 80IC made by the A.O in the final assessment order, over and above the amount disallowed in the draft assessment order

P a g e | 62 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) could not be sustained and was liable to be deleted. As the disallowance of deduction u/s 80IC (except for the part disallowance made on account of reallocation of R&D expenditure and Interest expenditure to the eligible unit at Baddi) was deleted by the Tribunal on the aforesaid legal issue, therefore, it did not advert to the merits of such disallowance which was assailed by the assessee before it.

P a g e | 64 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) manufacturing activities including the research centre at Mulund site, had after selling the research centre and the Haemaccel plant to NPIL, had sold off the remaining site to developers who had put up commercial malls and residential complexes around the Haemaccel plant, as a result whereof there were complaints of smoke, noise from the residents, which were likely to increase in future. Apart there from, it was stated in the said letter that discussions were held with the Nicholas Employees union (i.e assesses employees union) for transfer of permanent workmen employed at Mulund to Baddi and arrangements for transfer were communicated to the employees union and transfer letters were also being issued to the permanent workmen. Further, it was stated in the said letter that the dismantling of the manufacturing facilities were to commence from 01.03.2008. 45. We find that the A.O acting on the basis of the information divulged by the „TEP‟, had thereafter after making certain verifications disallowed the assesses claim of deduction u/s 80IC while framing the assessment for A.Y 2008-09. As is discernible from the assessment order for A.Y 2008-09, the A.O was of the view that as there was a transfer of the “FFS” machine in the F.Y 2007-08 from the assesses Mulund unit, Mumbai to its Baddi unit, Himachal Pradesh, therefore, the formation of the Baddi unit by transferring of the old machinery clearly violated the mandate of Sec. 80IC(4)(ii) of the I-T Act. In fact, as stands gathered from the final assessment order passed by the A.O for A.Y 2008-09, the assesses was held as ineligible to claim deduction u/s 80IC for the following reasons:

(i). The assessee company has shifted the existing Haemaccel manufacturing facilities from its Mulund unit to Baddi unit. (ii). One of the major machine being “FFS” machine costing about Rs. 25 crore to Rs. 28 crore was transferred from the assesses Mulund unit to its Baddi unit.

P a g e | 65 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) (iii). The energy equipments at Mulund unit were used only for “FFS” machine. (iv). All the permanent workmen were transferred from the assesses Mulund unit to its Baddi unit and transfer letters were issued. On the basis of his aforesaid deliberations, it was concluded by the A.O while framing the assessment for A.Y 2008-09, that the Baddi unit was formed by “splitting up” or the “reconstruction” of a business already in existence i.e the business of the assessee at Mulund unit, Mumbai. As such, it was observed by the A.O that the shifting of the manufacturing facilities from Mulund unit, Mumbai to Baddi unit, Himachal Pradesh was in violation of the conditions envisaged in sub- section (4) of Sec. 80IC. Further, it was noticed by the A.O that as one of the major machinery viz. “FFS” machine that was transferred from the assesses Mulund unit to its Baddi unit would cost Rs. 25 crore to Rs. 28 crore, therefore, there may also be other used machineries transferred from other then its Mulund unit for which the assessee had evaded to give details. In the backdrop of his aforesaid observations, it was concluded by the A.O that the assessee had violated both the conditions contemplated in sub-section (4) of Sec. 80IC viz. (i). the undertaking or enterprise is not formed by splitting up, or the reconstruction, of a business already in existence; and (ii). the undertaking or enterprise is not formed by the transfer to a new business of machinery or plant previously used for any purpose. In sum and substance, as is discernible from the order of the CIT(A) for A.Y 2008-09, the A.O had disallowed the assesses claim for deduction u/s 80IC for two main grounds viz. (i). assessee had shifted the HAEMACCEL manufacturing facility from Mulund unit to its Baddi unit; and (ii). one of the major items of plant and machinery i.e “FFS” machine and allied equipment and accessories were transferred from Mulund unit to its Baddi unit, therefore the assessee had violated

P a g e | 66 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) both the conditions stipulated in sub-section (4) of Sec. 80IC of the I-T Act, 1961. 46. Aggrieved, the assessee had assailed the assessment order for A.Y 2008-09 in appeal before the CIT(A). In order to impress upon the CIT(A) that it was eligible for claim for deduction u/s 80IC, the assessee had raised multiple contentions before him, as under :

(i). That the conditions stipulated in Sec. 80IC(4) could be examined only in the year of “Formation” of the undertaking/unit. It was submitted by the assessee that as the Baddi unit was set-up by the assessee in F.Y 2006-07 on 10.06.2006, being the date on which the production had commenced at the said unit, therefore, satisfaction of the conditions envisaged in sub-section (4) of Sec. 80IC(4) were required to be satisfied in the said year of formation only. In order to fortify its claim that the Baddi unit was set-up on 10.06.2006, support was drawn by the assessee from the report of the Chartered Accountant in “Form 10CCB”, which was filed by the assessee along with its return of income for A.Y 2007-08 (i.e the first year).

(ii). The A.O while framing the assessment for A.Y 2007-08 (i.e the first year) had examined all the details pertaining to the Baddi unit and allowed the assesses claim of deduction u/s 80IC : It was claimed by the assessee that the A.O while framing the assessment for the first year of the assesses Baddi unit, had examined all the requisite documents and details viz. copy of certificate of commencement of commercial production issued by the Government of Himachal Pradesh; list of products manufactured; the details of additions to plant and machinery at Baddi; and the details of plant and machinery alongwith the dates of capitalisation (i.e put to use) and only after being satisfied with P a g e | 67 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) the due compliance by the assessee of the requisite conditions had allowed its claim of deduction u/s 80IC.

(iii). Alternatively, the value of the “FFS” machine which was transferred in the second year i.e in last month of March, 2008 was less than 20% of the value of total plant and machinery used in the business at the Baddi unit : It was submitted by the assessee that in the year of formation i.e during the period 10.06.2006 to 31.03.2007 relevant to A.Y 2007- 08, new plant and machinery worth Rs. 83.3 crores was added and put to use at the Baddi unit. The value of the “FFS” machine transferred (i.e “Book value”) at the time of transfer of machine to Abbot Healthcare Pvt. Ltd. (i.e company to whom the assessee had by way of „slump sale‟ sold its Baddi unit in September, 2010) was Rs. 5.45 crore (approx). The original cost of the machine when purchased by the assessee was 12.27 crores. As for the written down value as per the „books of accounts‟ and the written down value as per the Income-tax records as on 31.03.2008, the same was Rs. 7.67 crore and Rs. 2.78 crore, respectively. In the backdrop of the aforesaid facts, it was submitted by the assessee that in all the three scenarios viz. (i) the original cost (Rs. 12.27 crore); (ii) the „book w.d.v‟ (Rs. 7.67 crore); and (iii). the „income-tax w.d.v‟ (Rs. 2.78 crore), the value of the “FFS” machine transferred from the Mulund unit, Mumbai to Baddi unit, Himachal Pradesh worked out to less than 20% of the total value of plant & machinery used at the Baddi unit. It was thus the claim of the assessee that as the value of the “FFS” machine transferred to Baddi unit was less than 20%, therefore, as per Sec. 80IC(4) r.w. Explanation 2 of Sec. 80IA(3), the condition contemplated in Sec. 80IC(4)(ii) stood satisfied.

P a g e | 68 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) (iv). Alternatively, the “FFS” machine which was shifted from Mulund unit to Baddi unit was not installed or put to use in the year ended March 31,2007 (1st year) or March 31,2008 (2nd year) : It was the claim of the assessee that though the “FFS” machine was transferred to Baddi unit around March, 2008, however, the machine was installed and put to use only in February, 2009. In order to fortify his aforesaid claim the assessee had drawn support from certain documentary evidences/facts viz. (i). installation certificate that was signed by the Vice-President (Works); (ii). that the approval from the Assistant Drug Controller-Health and Family Welfare Department for products manufactured by using the “FFS” machine was received only on December 23, 2008; and (iii). that the intimation to the excise department for manufacturing of such products (i.e Haemaccel) was only on January 16, 2009. In the backdrop of the aforesaid facts, it was the claim of the assessee that now when it stood established that the “FFS” machine was only put to use at the fag end of the F.Y 2008-09 (i.e the 3rd year), therefore, the question of Baddi unit being “formed” by the transfer of such “FFS” machine could not arise.

Apart there from, it was submitted by the assessee that total 26 employees were transferred to its Baddi unit around March, 2008. However, the total number of employees at its Baddi unit prior to transfer was 446 employees and as on March, 2009, it was 571 employees. Thus, as per the assessee the transferred employees constituted 5.89% and 4.55% of the employees strength on 31.03.2008 and 31.03.2009, respectively.

P a g e | 71 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) 2008/January, 2009. On the basis of his aforesaid deliberations, it was concluded by the CIT(A) that the HAEMACCEL manufacturing plant was a separate unit by itself and the same had nothing to do with the manufacturing of the 87 medicines/drugs which as claimed by the assessee were being manufactured at its Baddi unit. Further, it was observed by the CIT(A) that as in the xerox copy of the “transfer memo” that was prepared by the assessee at the time of transferring the machine from its Mulund unit, Mumbai to its Baddi unit, Himachal Pradesh the value of the “FFS” machine with accessories was mentioned at Rs. 16.08 crore, therefore, the same supported the fact that the plant and machinery transferred by the assessee to its Baddi unit was of a value of Rs. 16,87,47,613/- (supra). It was thus observed by the CIT(A) that now when the assessee itself had adopted the value of the “FFS” machine along with accessories at Rs. 16.08 crores, therefore, there was no reason to rely on the third party details gathered from M/s Abbot Healthcare Pvt. Ltd. to whom the Baddi unit of the assessee was sold by way of „slump sale‟ in September, 2010 or any other third party statements. It was thus observed by the CIT(A) that as the value of the “FFS” machine transferred by the assessee from its Mulund unit, Mumbai to its Baddi unit, Himachal Pradesh was of a value of Rs. 16,87,47,613/- i.e in excess of Rs. 10.82 crores [20% of Rs. 54.13 crores i.e total value of plant and machinery], therefore, the assessee also did not satisfy the second condition envisaged in Sec. 80IC(2)(ii) of the I-T Act. On the basis of his aforesaid deliberations, it was observed by the CIT(A) that the assessee had violated both the conditions prescribed in Clause (i) and Clause (ii) of Sec. 80IC(4) of the I-T Act. Further, the CIT(A) also declined to accept the claim of the assessee that the conditions prescribed in Sec. 80IC(4) were required to be satisfied only in the year of “formation” of the unit and not in the subsequent years. It was observed by the P a g e | 72 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) CIT(A) that there was nothing available on the statute from where it could be gathered that the conditions prescribed in Sec. 80IC(4) were required to be satisfied only in the first assessment year and cannot be reviewed on year to year basis. In fact, it was observed by the CIT(A) that as in the case before him the basic conditions of the allowability of claim of deduction mandated in Sec. 80IC(4) regarding “splitting up and reconstruction” were not satisfied in the first year itself, therefore, the question of allowability of the claim of deduction u/s 80IC on the basis of new facts which have emerged during the previous year relevant to A.Y 2008-09 itself, were thus to be considered afresh not only for A.Y 2008-09 but for the earlier assessment year as well as the later assessment years i.e A.Y 2009-10 to A.Y 2011-12. In the backdrop of his aforesaid observations, the CIT(A) while disposing off the appeal of the assessee for the aforesaid preceding year viz. A.Y 2008-09 concurred with the view taken by the A.O that the assessee was not eligible to claim deduction u/s 80IC.

P a g e | 73 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) Mumbai to its Baddi unit does not exceed 20% of the total value of the machinery or plant used in its business at the Baddi unit, therefore, as per Sec. 80IC(4)(ii) r.w Explanation 2 of Sec. 80IA(3) the Baddi unit could not be held to have been formed by transfer of machinery or plant previously used for any purpose.

80-IC(4), Thus section applies to any undertaking or enterprise which fulfils all the following conditions, namely:- (i). it is not formed by splitting up, or the reconstruction, of a business already in existence. Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii). it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation – The provisions of Explanation 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (ii) of this sub- section as they apply for the purpose of clause (ii) of that sub-section.”

P a g e | 74 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) As is discernible from a perusal of the aforesaid statutory provision, both the two conditions therein prescribed refer to the stage of “formation” of the undertaking or enterprise. In sum and substance, the conditions envisaged in clause (i) and (ii) of Sec. 80IC(4) contemplates that the undertaking or enterprise should not be formed by splitting up or the reconstruction of a business already in existence ,or by way of transfer to a new business of machinery or plant previously used for any purpose. Be that as it may, both the two conditions refer only to the stage of “formation” of the undertaking or enterprise. As such, going by the rule of strict literal interpretation, we find substantial force in the contention of the ld. A.R that the satisfaction of the conditions contemplated in Sec. 80IC(4) are required to be looked into only in the initial year i.e the year of the “formation” of the undertaking or enterprise. In fact, the Hon‟ble Supreme Court in the case of DCIT, Circle 11(1), Bangalore Vs. ACE Multi Axes Systems Ltd. (2018) 400 ITR 141 (SC), while referring to similarly worded conditions envisaged in Sec. 80IB(2) regarding initial constitution of the industrial undertaking viz. (i). the industrial undertaking is not formed by splitting up, or the reconstruction, of a business already in existence; and (ii). it is not formed by the transfer to a new business of machinery or plant previously used for any purpose, had observed that these conditions are required only in the initial assessment year. However, as observed by the Hon‟ble Apex Court, there are certain other conditions that have to continue to exist for claiming the incentive, such as employment of particular number of workers or not manufacturing or producing an article or things specified in the 8th schedule by an industrial undertaking (other than small scale industrial undertaking). The Hon‟ble Supreme Court while concluding as hereinabove, had observed as under:

P a g e | 75 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) “No doubt, certain qualifications are required only in the initial assessment year, e.g. requirements of initial constitution of the undertaking. Clause 2 limits eligibility only to those undertakings as are not formed by splitting up of existing business, transfer to a new business of machinery or plant previously used. Certain other qualifications have to continue to exist for claiming the incentive such as employment of particular number of workers as per sub-clause 4(i) of Clause 2 in an assessment year. For industrial undertakings other than small scale industrial undertakings, not manufacturing or producing an article or things specified in 8th Schedule is a requirement of continuing nature.” We find that the conditions envisaged in clause (i) and (ii) of Sec. 80-IB pertaining to the initial constitution of an undertaking are the same as prescribed in clause (i) and (ii) of Sec. 80IC(4). In the backdrop of the spirit of the judgment of the Hon‟ble Apex Court, it can safely be concluded that the satisfaction of the conditions as envisaged in sub- section (4) of Sec. 80IC viz. (i) that the undertaking or enterprise is not formed by splitting up, or the reconstruction, of a business already in existence; and (ii). that the undertaking or enterprise is not formed by the transfer to a new business of machinery or plant previously used for any purpose, has to be satisfied by the assessee only in the year of “formation”. Our aforesaid view is further fortified by the order of a co- ordinate bench of the Tribunal viz. ITAT Delhi Bench „C‟ in the case of Ganpati Herbal Care (P) Ltd. Vs. PCIT, New Delhi (2018) 97 taxmann.com 575(Delhi). In the said order, the tribunal relying on the aforementioned judgment of the Hon‟ble Supreme Court in the case of DCIT, Circle 11(1), Bangalore Vs. ACE Multi Axes Systems Ltd. (2018) 400 ITR 141 (SC), had observed that on a parity with section 80-IB considered by the Hon‟ble Apex Court, when we turn to Sec. 80-IC of the I-T Act under consideration, it is found that sub- section (2) contains a condition that this section applies to an undertaking or enterprise viz. (a) which has begun or begins to manufacture or produce any article or thing, not being an article or thing specified in the Thirteenth Schedule etc. or (b) which has begun or begins to manufacture or produce any article or thing, specified in P a g e | 76 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) the Fourteenth Schedule. It was observed by the Tribunal that Sub- section (4) provides that this section applies to any undertaking or enterprise which fulfils all the following conditions, namely: - (i) it is not formed by splitting up, or the reconstruction, of a business already in existence....; (ii). it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. On an analogy drawn by the Tribunal from the aforesaid judgment of the Hon‟ble Supreme Court in Ace Multi Axes Systems Ltd. (supra), it was observed that the condition of manufacturing an article or thing viz. (a) not being an article specified in the Thirteenth Schedule or (b) any article or thing specified in the Fourteenth Schedule, needs to be fulfilled on year to year basis. Further, it was observed by the Tribunal that the condition of not formed by splitting up, or the reconstruction of a business already in existence or by transfer to a new business of machinery or plant previously used for any purpose, are required to be established in the initial year alone.

P a g e | 77 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) production issued by the Government of Himachal Pradesh, Department of Industries (Annexure 35 of the reply). Apart there from, the assessee had also vide its aforesaid letter submitted before the A.O that it had set-up a new manufacturing undertaking at Baddi in the State of Himachal Pradesh, which had begun production of pharmaceutical products during the period relevant to A.Y 2007-08. Further, the complete details of the 87 pharmaceutical products viz. their product description alongwith their product codes was also placed on the record of the A.O (Page 526 of „APB‟). Also, the complete details of the additions to the Plant & Machinery of a value of Rs. 83,32,03,012/- that was made by the assessee at its Baddi unit during the F.Y 2006-07 was also filed with the A.O. (Page 529 – 541 of „APB‟). The assessee had vide its letter dated 08.12.2009, in reply to the query raised by the A.O in the course of its assessment proceedings for A.Y 2007-08 as regards its claim of deduction u/s 80- IC, had justified the allocation of expenses to its Baddi unit. In the backdrop of the aforesaid facts, it can safely be concluded that the Baddi unit of the assessee was set-up/formed on 10.06.2006 i.e the period relevant to A.Y 2007-08. In fact, the A.O while framing the assessment of the assessee for A.Y 2007-08 had after making necessary verifications as regards satisfaction of the requisite conditions, had allowed the assesses claim of deduction u/s 80IC of Rs. 114,53,66,695/-. As a matter of fact, the A.O while framing the assessment in the case of the assessee u/s 143(3), dated 18.12.2009 for A.Y 2007-08 had specifically observed that the assessee had commenced production at its new unit at Baddi, observing as under (Page 294 of „APB‟) :

“During the year the assessee has commenced production at a new unit at Baddi, Himachal Pradesh which is entitled to deduction u/s 80IC”

P a g e | 78 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) Apart there from, the A.O had reopened the case of the assessee for A.Y 2007-08 under Sec. 147 for the purpose of reallocating certain expenses to its Baddi unit, which he was of the view that the assessee company had allocated to its said unit on the lower side. However, at no stage the claim of deduction raised by the assessee for the said initial year i.e the year of “formation” of the Baddi unit was sought to be declined or dislodged on the ground that as the assessee had failed to have satisfied the conditions prescribed in Sec. 80IC(4), thus it was not eligible for the same. On the basis of our aforesaid observations, we are of the considered view that now when admittedly the Baddi unit was “formed” by the assessee on 10.06.2006 i.e the period relevant to A.Y 2007-08, therefore, in the backdrop of the settled position of law as had been deliberated by us at length hereinabove, the satisfaction of the conditions prescribed in Sec. 80IC(4) was confined to the initial year i.e year of “formation” viz. A.Y 2007-08. In fact, we are of the considered view that now when the A.O had vide his assessment framed u/s 143(3), dated 18.12.2009 for A.Y 2007-08, had allowed the assesses claim of deduction u/s 80IC, therefore, there could have been no reason for him to have drawn adverse inferences as regards the eligibility of the assesses towards claim of such deduction during the year under the consideration viz. A.Y 2009-10 i.e the 3rd year of its operation, on the ground that the assessee had violated the conditions of constitution/formation as envisaged in Sec. 80IC(4). Be that as it may, as the satisfaction of the conditions prescribed in Sec. 80IC(4) is required to be looked into in the year of “formation”, therefore, we are persuaded to subscribe to the contentions advanced by the ld. A.R that no adverse inferences as regards the eligibility of the claim of deduction for the alleged non- satisfaction of the conditions therein provided could have been validly drawn in the hands of the assesse while framing its assessment for P a g e | 79 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) the year under consideration viz. A.Y 2009-10 i.e the 3rd year of operation. 51. As observed by us hereinabove, the A.O/DRP in the case of the assessee for the year under consideration viz. A.Y. 2009-10 had relied on the order passed by the A.O in the immediately preceding year i.e A.Y. 2008-09. Further, the DRP also while disposing off the objections of the assessee for A.Y 2009-10, had observed that the issue as regards the eligibility of the assessee towards claim of deduction under Sec. 80IC would be dependent on the final outcome of the said issue in the appeal of the assessee for A.Y 2008-09 as was then pending before the CIT(A). We find that the CIT(A) while disposing off the appeal of the assessee for A.Y. 2008-09, had observed that the HAEMACCEL manufacturing plant that was set-up by the assessee on 20.02.2009 was a separate unit by itself and it had nothing to do with the manufacturing of other 87 medicines/drugs claimed to have been manufactured by the assessee at its Baddi unit. The CIT(A) in order to fortify his aforesaid observations had drawn support from the fact that the assessee had shifted its „FFS‟ machine from Mulund unit to its Baddi plant on 12/24 March, 2008 and the same was installed on 20.02.2009. On the basis of the aforesaid facts, it was observed by the CIT(A) that the assessee could not have manufactured pharmaceuticals product “HAEMACCEL” on or before 20.02.2009. Further, in support, the CIT(A) had also relied on a newspaper item appearing in „business standard‟ wherein it was reported that the assessee company had acquired several brands including “HAEMACCEL” from a German pharmaceutical company in July, 2008, and an application for manufacturing 14 pharma products at Baddi, HP was made by it only after July, 2008. It was further observed by him that the license for manufacturing the aforesaid 14

P a g e | 80 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) Pharmaceuticals at Baddi, HP was granted to the assessee in December, 2008/January, 2009. In sum and substance, the CIT(A) in the backdrop of his aforesaid observations had tried to project that the manufacturing of the pharma product viz. “HAEMACCEL” had resulted into setting up of a new “HAEMACCEL” manufacturing plant, which was a separate unit by itself. We have given a thoughtful consideration to the aforesaid observations of the CIT(A) and are unable to persuade ourselves to subscribe to the same. As observed by us hereinabove, the Baddi Unit of the assessee which was set up/ formed on 10.06.2006 since the initial year i.e the period relevant to A.Y.2007-08 was into manufacturing of 87 medicines/drugs, complete details of which were furnished by the assessee in the course of the assessment proceedings for A.Y. 2007-08. In our considered view the manufacturing of a new pharmaceutical formulation viz. “HAEMACCEL” along with 14 new pharma products for which a license was granted to the assessee in December, 2008/January, 2009 cannot be construed as setting up of a new undertaking or enterprise by the assessee. We are of a strong conviction that the pharmaceutical unit of the assessee at Baddi, Himachal Pradesh which was already manufacturing 87 medicines/drugs since its formation on 10.06.2006, had merely diversified into manufacturing of the new pharmaceutical formulations viz. “HAEMACCEL” and 14 other new medicines/drugs. We are unable to persuade ourselves to accept the view taken by the CIT(A) that the assessee by diversifying into manufacturing of the new pharmaceutical formulation viz. “HAEMACCEL” had thus set up a separate unit by itself. In our considered view the date of “formation” as envisaged in Sec.80IC has to be construed in the backdrop of the fact as to on which date the undertaking or enterprise was set up by the assessee. Insofar the case before us is concerned, we are of the considered view that there is no reason for us to brush aside the fact

P a g e | 81 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) borne from the record that the pharmaceutical unit of the assessee at Baddi, Himachal Pradesh was set up as on 10.06.2006 i.e the period relevant to A.Y. 2007-08. At this stage, we may further observe that as had been held by the Hon‟ble Supreme Court in the case of Bajaj Tempo Ltd. Vs. CIT (1992) 196 ITR 188 (SC), in order that a new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of physically separate industrial unit which may exist on its own as a viable unit. On the basis of our aforesaid deliberations, we are of the considered view that the manufacturing of new pharmaceutical formulation viz. “HAEMACCEL” and 14 new medicines/drugs pursuant to diversification or venturing of the Baddi Unit of the assessee which is a pharmaceutical unit in existence since 10.06.2006, can in no way be construed as setting up of separate unit by the assessee. In the backdrop of our aforesaid deliberations, we find substantial force in the contention advanced by the ld. A.R that as the “formation” of the Baddi Unit of the assessee had taken place way back as on 10.06.2006 i.e during the period relevant to A.Y. 2007-08, therefore, the conditions envisaged in Sec.80IC(4) insofar satisfaction of the requirements viz. (i). that the undertaking or enterprise had not been formed by the splitting up, or the reconstruction of a business already in existence; and (ii). that the undertaking or enterprise is not formed by the transfer to a new business of machinery or plant previously used for any purpose, were required to be looked into in the year of such formation, i.e A.Y. 2007-08. As such, the adverse inferences drawn by the revenue in the hands of the assessee while framing the assessment for the year under consideration viz. A.Y. 2009-10 i.e its third year since formation cannot be sustained and is liable to be struck down on the said count itself.

P a g e | 82 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) 52. We though have vacated the adverse inferences drawn by the lower authorities as regards the eligibility of the assessee towards claim of deduction u/s 80IC on the ground that the satisfaction of the conditions envisaged in sub-section (4) of Sec. 80IC can only be looked into in the year of “formation” and not in the subsequent years, however, for the sake of completeness we shall also deliberate on the merits of the claim of the assessee towards deduction under Sec.80IC. As is discernible from the orders of the lower authorities, the assessee was held to be ineligible for claim of deduction under Sec.80IC for the reason that it had failed to have satisfied both of the conditions envisaged in sub-section (4) of Sec.80IC viz. (i). that the undertaking or enterprise is not formed by splitting up, or the reconstruction, of a business already in existence; and (ii) that the undertaking or enterprise is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Insofar the first condition is concerned, we are of the considered view that there is nothing discernible from the records which could persuade us to conclude that the Baddi Unit of the assessee was formed by splitting up, or the reconstruction, of a business already in existence. Admittedly, the “FFS” machine was transferred by the assessee from its Mulund Unit,Mumbai to its Baddi Unit, Himachal Pradesh on 12/24.03.2008. As observed by the CIT(A) the “FFS” machine prior to its transfer/shifting was being used at the Mulund Unit of the assessee for filling up liquid pharma product viz. “HAEMACCEL”. Further, as is discernible from the “note” dated 25.02.2008 prepared by Mr. A.B. Khot, General Manger, Manufacturing (HAEMACCEL), Mumbai, titled as “business exigencies for shifting HAEMACCEL manufacturing facility from Mulund, Mumbai, Baddi H.P.”, it was stated that the “FFS” machine which had a capacity to manufacture 40 lacs bottles per year was being underutilized at the Mulund unit,

P a g e | 83 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) for the reason that the demand for “HAEMACCEL” at the Mulund Unit had remained at around 18 lakhs bottles per year. Further, it was specifically stated in the „note‟ that the “FFS” machine could be better utilised insofar the new products were being manufactured at the Baddi Unit. In sum and substance, the purpose of transferring the “FFS” machine by the assessee from the Mulund unit to its Baddi unit cannot on a standalone basis be construed as setting up or formation of the unit at Baddi on the basis of splitting up, or the reconstruction of the existing business of the assessee at Mulund. Apart there from, we find that as observed by the CIT(A) while disposing off the appeal of the assessee for A.Y. 2008-09, the assessee company had acquired several brands including “HAEMACCEL” from a German Pharma Company in July, 2008 for manufacturing of the said pharma products at its Baddi Unit. On the basis of the aforesaid facts, it can safely be concluded that though the manufacturing of “HAEMACCEL” pharma product at Mulund Unit of the assessee was discontinued, however, merely for the reason that the Baddi Unit had thereafter started manufacturing of “HAEMACCEL” pharma product along with 14 new medicines/drugs after obtaining the license from the competent authority, it cannot be inferred that the Baddi unit for the said reason was to be held to have been formed by splitting up or the reconstruction of the business of the Mulund Unit of the assessee. Insofar the transfer of the “FFS” machine by the assessee from the Mulund unit to its Baddi Unit is concerned, the same in our considered view is a transfer of a machine which was earlier used at the Mulund Unit. Also, we are of a strong conviction that an undertaking or enterprise can be said to have been formed out of an existing business if the physical identity with the old unit is preserved, which is not the case before us. Be that as it may, in our considered view as the Baddi unit was formed way back on 10.06.2006 i.e the P a g e | 84 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) period relevant to A.Y. 2007-08, therefore, there is no occasion for us to infer that it was formed either by splitting up or the reconstruction of the Mulund Unit of the assessee during the year under consideration. As regards the satisfaction of the second condition envisaged in clause (ii) of Sec.80IC(4) viz. that the undertaking or enterprise should not be formed by the transfer to a new business of machinery or plant previously used for any purpose is concerned, we shall briefly deliberate on the facts to the extent relevant to the same. The CIT(A) while disposing off the appeal of the assessee for A.Y. 2008- 09 had observed that as per the xerox copy of a document No. 21000019,13, dated 12.03.2008, it was revealed that the assessee had claimed to have transferred “FFS machine BP 321-with mirror welding moulding & Spa costing to Rs.12,27,36,893/- to Rs.2,82,510/- & Rs.4,57,28,210/-”. In the backdrop of his aforesaid observation, the CIT(A) was of the view that the assessee had transferred plant & machinery from the Mulund unit, Mumbai to its Baddi unit, H.P of a value of Rs.16,87,47,613/- [Rs.12,27,36,893/-(+) Rs.2,82,510/- (+) Rs.4,57,28,210/-]. As such, the CIT(A) was of the view that as the opening WDV of plant and machinery during the period relevant to A.Y. 2008-09 at the Baddi unit was Rs.54.13 crore, therefore, the value of “FFS” Machine transferred by the assessee from the Mulund unit, Mumbai to its Baddi unit, H.P was more than Rs.10.82 crore i.e 20% of the total value of plant & machinery of Rs.54.13 crores. In the backdrop of his aforesaid deliberations, it was concluded by the CIT(A) that as the value of the old machinery viz. “FFS” machine transferred by the assessee from its Mulund unit, Mumbai to its Baddi unit was in excess of 20% of the total value of the machinery or plant used for the business at its Baddi Unit, thus the assessee had failed to satisfy the second condition contemplated in Sec.80IC(4) r.w. Explanation 2 of Sec.80IA(3) of the I.T Act. The ld. A.R rebutting the aforesaid

P a g e | 85 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. )

observations of the CIT(A), had claimed before us that the WDV of the “FFS” machine as per the books of accounts during A.Y. 2008-09 was Rs.7.87 crore and WDV as per Income-tax records was Rs.2.78 crores. Insofar, the observations of the CIT(A) that the value of the machinery as per the records of the assessee amounted to Rs.16,87,47,613/- was concerned, it was submitted by the ld. A.R that the same was based on misconceived and wrong facts/calculations. It was averred by the ld. A.R that the amount of Rs.4,57,28,210/-(supra) stated in the “xerox” copy was the aggregate amount of depreciation of the “FFS” machine, which the CIT(A) assuming the same as a part of the cost of the machine had wrongly added while working out the value of the said machine. It was thus submitted by the ld. A.R that the value of the “FFS” machine, whether the same be taken “at cost” or “as per the WDV on the basis of books of accounts” or the “WDV as per the income tax records”, was in either situation found to be substantially below 20% of the total value of plant & machinery used for business at the Baddi unit, both in the year of formation i.e A.Y. 2007-08 or in the year in which the same was transferred i.e A.Y. 2008-09. In order to substantiate his aforesaid contention the ld. A.R had placed on record a “chart” wherein the aforesaid factual position stands revealed, as under:

Particulars A.Y. 2007-08 A.Y. 2008-09 Cost Book I.T Cost Book I.T WDV WDV WDV WDV Total asset at Baddi 83.32 80.49 54.14 85.83 77.7 47.93

FFS 12.27 8.5 3.27 12.27 7.67 2.78

Total including FFS 95.59 88.99 57.41 98.1 85.37 50.71

% of FFS to total 13% 10% 6% 13% 9% 5% assets

P a g e | 86 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) In the backdrop of the aforesaid facts, it was averred by the ld A.R that as the value of the “FFS” machine transferred by the assessee from its Mulund unit to its Baddi unit was substantially below 20% of the total value of the machinery or plant used in its business at the Baddi Unit, therefore, the condition envisaged in clause (ii) of Sec.80IC(4) r.w. Explanation 2 of Sec.80IA(3) was duly satisfied by the assessee. 53. We have deliberated at length on the issue under consideration and are principally in agreement with the contention advanced by the assessee, that if the undertaking or enterprise is formed by transfer to a new business of machinery or plant previously used for any purpose of a value less than 20% of the total value of machinery or plant used in the business of such undertaking or enterprise, then as per Sec.80IC(4)(ii) r.w. Explanation 2 of Sec.80IA(3), it can safely be concluded that the said condition stands satisfied by the assessee. However, at the same time the aforesaid claim of the assessee that the amount of Rs.4,57,28,210/- (supra) did not from part of the cost of “FFS” machine, but was the accumulated depreciation of the said machine is not borne from the records and would require verification. Therefore, to the said extent the matter in all fairness is restored to the file of the A.O for making necessary verification. In case the claim of the assessee is found to be in order, then no adverse inferences as regards satisfaction of the second condition envisaged in Sec.80IC(4)(ii) would be drawn in its hands. The Ground of appeal No. X is allowed in terms of our aforesaid observations.

Addition towards „transfer pricing adjustment‟:Rs. 18,87,62,465/-

P a g e | 87 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) Enterprise‟ (for short “AE”), which has been assailed by the assessee before us. Briefly stated, the assessee company had given corporate guarantee for its „AE‟ viz. Piramal Healthcare Inc., USA. The A.O made a reference u/s 92CA(1) for determining the „Arms length price‟ (for short “ALP”) of the international transactions of the assessee to the Addl. CIT, Transfer Pricing Office-II(2), Mumbai (hereinafter referred to as “TPO”). In the course of proceedings, it was observed by the TPO that the assessee company had given corporate guarantee for its AE viz. Piramal Healthcare Inc., USA. Further, it was noticed by him that the assessee had not charged any guarantee commission from its aforementioned AE. The explanation of the assessee that the guarantee commission was built in the interest rates charged from the AE, however, did not find favour with the A.O. In fact, it was observed by the TPO that as the borrowing cost of the assessee was 10.24% against which it has charged a mark up of nearly 3.5% to cover itself against various risks, therefore, its contention that the guarantee commission was inbuilt in the rates charged from the AE did not merit acceptance. On the basis of his aforesaid observations the TPO worked out the „ALP‟ of the guarantee commission @3% and proposed an adjustment of Rs. 18,87,62,465/-. The A.O vide his draft order passed u/s 143(3) r.w.s 144C, dated 28.03.2013 proposed a TP adjustment of Rs. 18,87,62,465/- in respect of guarantee commission. Further, the A.O by his draft order also proposed addition of the TP adjustment of Rs. 18,87,62,465/- on account of corporate guarantee commission for the purpose of determining the „book profit‟ /s 115JB in the hands of the assessee. The assessee objected to the inclusion of the TP adjustment of 18,87,62,465/- for the purpose of determining its „book profit‟ u/s 115JB before the DRP. The DRP finding favour with the objection of the assessee directed the A.O not to make any addition of the TP adjustment arrived at by the TPO while working out the „book

P a g e | 88 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) profit‟ u/s 115JB in the case of the assessee. On the basis of the aforesaid directions of the DRP the A.O in its final assessment order passed u/s 143(3) r.w.s 144C(13), dated 28.01.2014, restricted the addition of the TP adjustment in respect of Corporate guarantee commission while computing the income of the assessee under the normal provisions only.

P a g e | 90 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) deliberations and drawing support from a host of judicial pronouncements in context of the issue under consideration had directed the A.O to charge commission on Corporate Guarantee @ 0.5%. As the facts involved in the case before us in context to the issue under consideration remains the same, therefore, we respectfully follow the view taken by the Tribunal in the case of the assessee for A.Y 2008-09 and direct the A.O to charge commission on Corporate Guarantee @ 0.5%. The Ground of appeal No. XI is partly allowed in terms of our aforesaid observations.

Addition of disallowance u/s 14A r.w Rule 8D for computing „book profits‟ under Sec. 115JB :

(2017) 165 ITD 27 (Del) (SB) and the order of the Hon‟ble High Court of Bombay in the case of CIT Vs. Bengal Finance & Investment Pvt. Ltd. [ITA No. 337 of 2013] (Bom). In terms of our aforesaid observations, we direct the A.O to not consider the disallowance made u/s 14A r.w Rule 8D while computing the „book profit‟ u/s 115JB of the I.T Act in the hands of the assessee. The Ground of appeal No. XII is allowed.

P a g e | 91 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) 60. As the Ground of appeal No. XIII being general, is therefore dismissed as not pressed.

“ (i). The Learned DRP has erred in facts and in law, in deleting the disallowance proposed by the Assessing Officer on account of claim of depreciation of Rs. 68,75,396/- without properly appreciating the factual and legal matrix of the case clearly brought out by the Assessing officer in the assessment order. (ii). The Learned DRP has erred in facts and in law, in directing the Assessing Officer that the depreciation not claimed by M/s Boehringer Mannhem India Ltd. and Piramal Holdings Ltd., should not be considered for the purpose of working out the written down value, to allow the depreciation thereof.” 63. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record and the judicial pronouncements relied upon by them. As is discernible from the records, the revenue by raising the aforesaid two grounds of appeal has assailed the deletion of the disallowance of the assesses claim of depreciation of Rs. 68,75,396/- on the assets which were taken over by it on merger from BMIL and PHL. In our considered view, the DRP had directed the A.O to allow the assesses claim of depreciation on the assets of BMIL. Insofar the claim of depreciation on assets of PHL were concerned, we find that the DRP had observed that as the issue as to whether the sale of assets of its „Glass division‟ and „Bulk Drug Division‟ was an itemized

P a g e | 92 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) sale or slump sale was on appeal by the revenue pending adjudication before the Tribunal. The DRP taking cognizance of the fact that in the preceding years directions were given to allow depreciation based on the outcome of the main appeal in context of the said issue under consideration, had followed the same during the year under consideration and given similar directions. We are of the considered view that the revenue in the present appeal had wrongly inferred that the DRP had directed the deletion of the entire disallowance of Rs. 68,75,396/-.

P a g e | 93 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. ) the depreciation on the assets of PHL, which as observed hereinabove is based on the issue as to whether the sale of assets of its two divisions viz. (i). Glass Division (GGL); and (ii). Bulk Drug Division (BDD) by the assessee is to be construed as an itemized sale of assets or slump sale is pending before the ITAT in the preceding year, therefore, on the same terms the A.O is directed to allow depreciation to the assessee on the basis of the outcome of the said appeal. The Grounds of appeal No. 1 & 2 are disposed off in terms of our aforesaid observations.

Order pronounced in the open court on 07/05/2019. (G.S.Pannu) JUDICIAL MEMBER भ ुंफई Mumbai; ददन ुंक 07.05.2019 Ps. Rohit

P a g e | 94 ITA No.1257 & 1486/Mum/2014 - AY. 2009-10 Piramal Healthcare Limited Vs. DCIT-7(1 DCIT-Circle 7(1) Vs. Piramal Enterprises Ltd. )

आदेश की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to : अऩीर थी / The Appellant 1. प्रत्मथी / The Respondent. 2. 3. आमकय आम क्त(अऩीर) / The CIT(A)- 4. आमकय आम क्त / CIT विब गीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भ ुंफई / 5. DR, ITAT, Mumbai ग र्ड प ईर / Guard file. 6. सत्म वऩत प्रतत //// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt.