THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), VADODARA vs. M/S. SUN PHARMACEUTICALS INDUSTRIES LIMITED,, VADODARA

O R D E R PER BENCH These eight appeals filed by the assessee and the Department (i.e. 5 appeals by assessee and 3 appeals by Revenue) relate to the same assessee and pertain to different assessment years. While both the assessee and the Revenue are in appeal against the orders passed by the learned Commissioner of Income-tax (Appeals)-2, Vadodara [hereinafter referred to -113 & 116-118/Ahd/2020 Sun Pharmaceuticals Industries Ltd AY : 2005-06 to 2009-10 & 2011-12 2 as "CIT(A)" for short] in Assessment Years (AY) 2006-07 and 2011-12, the Department alone is in appeal against the order passed by the ld. CIT(A) pertaining to AY 2005-06; and the assessee alone is in appeal against the orders passed by the ld. CIT(A) pertaining to AYs 2007-08 to 2009-10.

“1. The Ld. Commissioner of Income-tax (A) erred in fact and in law in allowing the assessee’s appeal to claim “Foreign Exchange Fluctuation Gain” as capital receipt, when the same has to be treated as revenue receipt as per Accounting Standard-II, which provides that the exchange rate gain or loss is a normal business income/expenditure.”

It was stated that the issue had been restored back by the ITAT in the first round for determining the nature of foreign exchange gain earned, as to -113 & 116-118/Ahd/2020 Sun Pharmaceuticals Industries Ltd AY : 2005-06 to 2009-10 & 2011-12 4 whether capital or revenue, for the purposes of subjecting it to tax. That, in the second round the Assessing Officer treated it as revenue in nature but was held to be capital in nature by the ld. CIT(A) in both the years. It was pointed out that the ld. CIT(A) had held so noting that in AY 2007-08 identical Foreign Exchange Fluctuation Gain arising from the same set of investments as in the impugned year had been held by the ITAT to be capital in nature which had been confirmed by the Hon’ble jurisdictional High Court also. Our attention accordingly was drawn to the facts and findings of the ld. CIT(A) in AY 2006-07 which, it was pointed out, was identical to that in AY 2005-06 also, as contained in paragraph Nos. 7 & 7.2 of the order as under:-

“7. Ground No.3 pertains to consideration of foreign exchange fluctuation gain of Rs.24,01,43,981/-. Details are as under:

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I find amount of capital reflected in Balance sheet against Caraco, USA as under: As on 31.03.2005 - Rs. 1711.6 millions As on 31.03.2006 - Rs.303.9 millions (share holding reduced from 1,18,34,957 to 83,82,866 shares fully paid common shares of no par value) As on 31.03.2007 - Rs.303.9 millions Undisputedly, appellant is crediting gain in its books and debiting loss also in its books. However, for tax purposes it is doing vice versa in computation of income prepared under the normal provisions of the Act. This practice is being followed in further AYs as well. There is no change in facts as well. The Hon’ble Tribunal has already considered investment in Caraco as fixed capital in nature and not a working capital. Since there is no change in facts in AY under consideration hence I am of firm opinion to follow the order of the higher judicial forum. AO’s conclusion that order of the Jurisdictional HC has been challenged by the Revenue should not be bar in allowing this ground. Of course, decision of the Hon’ble SC is binding for all for all purposes. Accordingly, this issue goes in favour of appellant.”

“53. Ground no. 9 relates to the Foreign Exchange Fluctuation Gain as taxable income amounting to Rs. 14,33,80,289/-.

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55. The contentions of the assessee were dismissed by the A.O. who was of the firm belief that the receipt in the case on hand is nothing but a revenue receipt. The A.O. accordingly taxed the same as revenue receipt.

56. Assessee carried the matter before the ld. CIT(A) and reiterated what has been stated during the course of the assessment proceedings. 57.After considering the facts and the submissions, the ld. CIT(A) was of the considered opinion that the assessee has entered into forward contracts to safeguard the value of investments made by the assessee in its subsidiary against the adverse forex fluctuation and to that extent the ld. CIT(A) restricted the addition to Rs. 14,33,80,289/-. 58. Insofar as the loans received by way of ECG/FCCB, the ld. CIT(A) was of the opinion that these borrowings were for the purpose of capital expansion of the business since the proceeds can be used for capital purposes only. Therefore, there is no case for any addition on account of forex gain in respect of reinstatement of FCCB and conversion of FCCB into equity shares as well as repayment of ECB since these gains/receipts are held as capital receipt only. The ld. CIT(A) confirmed the addition of Rs. 14,33,80,289/- being forex gain in respect of rolling over of forward contract for safeguarding investment in Caraco and OFCD in Global. 59. Before us, the ld. Senior Counsel once again heavily relied upon the very same decisions which were relied upon before the lower authority. Per contra, the ld. D.R. supported the findings of the revenue authorities.

60. We have given a thoughtful consideration to the factual matrix. The main particulars of foreign exchange gain are as under:-

S. No. Particulars of Foreign Exchange gain Amount (Rs.) (i) Forward Contracts in respect of investment in 14,33,80,289/- Caraco and OFCD in Global (ii) Reinstatement of FCCB and Exchange gain on 29,62,23,740/- conversion of FCCB into equity shares (iii) Repayment of ECB 13,78,089/- The other particulars relating to foreign exchange loss are on account of reinstatement of bank balance/bank deposit out of FCCB proceeds and reinstatement of loan given to subsidiaries out of FCCB proceeds/reinstatement of investment in mutual funds out of FCCB proceeds. The appellant has treated the forex loss in respect of the above also as capital loss. Thus, the net forex gain treated as Capital receipt is reported at Rs. 31,03,51,524/-.

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Ground of appeal raised by the Revenue in this regard for both the years merit no consideration and is accordingly dismissed.

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“2. Reduction of unrealized export proceeds from export turnover for the purpose of deduction under section 10B - Rs. 1,70,28,337

2.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming the reduction of the export turnover for computing deduction under section 10B by Rs. 1,70,28,337/- without appreciating the fact that the goods were returned in next financial year and were reduced from sales while computing deduction under section 10B.

2.2 The Ld. CIT(A) grossly erred in confirming the reduction of the total export turnover for computing deduction under section 10B by doubting the genuineness of the transaction without appreciating that particular transaction cannot be questioned merely on basis of non-production of factual details.

2.3 The Ld. CIT(A) has questioned the transaction without appreciating that the accounts of the Appellant Company have been duly confirmed, certified and audited by the Auditors.

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2.4 The Ld. CIT(A) has grossly erred in exceeding his jurisdiction by enhancing the scope of directions given by the Hon'ble Tribunal.

2.5 Without prejudice to the above, the Ld. CIT(A) grossly erred in not directing the Ld. AO to consequently enhance the deduction in the subsequent year when the goods have been returned or the amount has been written off, as the case may be.”

16 The ld. DR supported the order of the ld. CIT(A).

In view of the same, ground of appeal No.2 of the assessee is dismissed.

“3. Addition of provision for doubtful debts and advances while calculating book profit u/s. 115JB of the Act Rs. 50,68,982: 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT (A) grossly erred in confirming the addition of provision for doubtful debts and advances while calculating book profit u/s 115JB of the Act. 3.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in observing that the Hon'ble High Court of Gujarat in the case of Vodafone Essar Gujarat Limited is yet to adjudicate upon the issue under consideration without appreciating that the larger bench of Hon'ble High Court of Gujarat has already decided the matter in 397 ITR 55, holding that provision for doubtful debts if in nature of write off, should not be added back while computing the book profit. 3.3 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the amount of provision of doubtful debts and advances actually constituted write-off and therefore deduction of same ought to be allowed under the provisions of section 115JB of the Act.

3.4 The Ld. CIT(A) has grossly erred in exceeding his jurisdiction by enhancing the scope of directions given by the Hon'ble Tribunal.”

“23. By way of culmination of above judicial pronouncements and statutory provisions, the situation that arises is that prior to the introduction of clause(i) to the explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems & Services Ltd. (supra), the then existing clause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. With insertion of clause (i) to the explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB of the Act. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset aside of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (i) of the explanation to section 115JB. The judgment in case of Deepak Nitrite Ltd. (supra) fell in the former category whereas from the brief discussion available in the judgment it appears that case of Indian Petrochemicals Corpn. Ltd. (supra), fell in the later category.”

In view of the same, we have no hesitation in holding that the provision for bad and doubtful debts amounting to Rs.50,68,982/- are not to be added to be book profit of the assessee for the purposes of Section 115JB of the Act.

Ground of appeal No.3 of the assessee is accordingly allowed.

“2 Reduction of unrealized export proceeds from export turnover for the purpose of deduction under section 10B - Rs. 6,35,631/-

2.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming the reduction of the export turnover for computing deduction under section 10B by Rs. 5,54,142/- without appreciating the fact that the goods were returned in next financial year and were reduced from sales while computing deduction under section 10B.

2.2 The Ld. CIT(A) grossly erred in confirming the reduction of the export turnover by Rs. 81,489/- for computing deduction under section 10B without appreciating the facts that the said amount was written off by the Appellant in the next financial year.

2.3 The Ld. CIT(A) grossly erred in confirming the reduction of the total export turnover for computing deduction under section 10B by doubting the genuineness of the transaction without appreciating that particular transaction cannot be questioned merely on basis of non-production of factual details.

2.4 The Ld. CIT(A) has questioned the transaction without appreciating that the accounts of the Appellant Company have been duly confirmed, certified and audited by the Auditors.

2.5 The Ld. CIT(A) has grossly erred in exceeding his jurisdiction by enhancing the scope of directions given by the Hon'ble Tribunal.”

Ground of appeal No.2 of the assessee is, therefore, dismissed.

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“3. Provision for Leave Encashment under section 43B - Rs. 1,83,33,509/- 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not allowing provision for leave encashment amounting to Rs. 1,83,33,509/-.

3.2 The Assessing Officer as well as Ld. CIT(A) by confirming the disallowance of provision for leave encashment, have grossly erred in disregarding the directions given by the Hon'ble Income tax Appellate Tribunal ('Tribunal') that the issue is to be decided afresh in light of decision of Hon'ble Supreme Court in the case of Exide Industries Limited.”

In view of the above admission of the ld. Counsel for the assessee, we see no reason to interfere in the order of the ld. CIT(A) confirming the disallowance of leave encashment u/s 43B of the Act amounting to Rs.1,83,33,509/- .

Ground of appeal No.3 is accordingly dismissed.

“4. Disallowance u/s 14A read with rule 8D – Rs.1,48,94,208/-: 4.1 'Value of investment' in case of investment in partnership firms: 4.1.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming the action of the Ld. AO to consider the balance in partners current account for the purpose of computing disallowance u/s. 14A read with rule 8D of the Income tax Rules, 1962 ('the Rules') in relation to investment in the partnership firm. 4.1.2 The Ld. CIT(A) failed to appreciate that it is only the fixed capital contributed in partnership firm which can be considered as 'value of investment for the purposes of computing disallowance u/s. 14A read with rule 8D. 4.1.3 The Ld. CIT(A) grossly erred in confirming the action of the AO to consider balance in partners current account without appreciating that the interest of the Appellant in the partnership firm was created pursuant to the initial contribution of capital in the fixed capital account. 4.1.4 The Ld. CIT(A) failed to appreciate that considering balance reflected in current account of partnership firm for the purpose of computing disallowance u/s. 14A read with rule 8D would result into absurdity and several discrepancies. 4.2 No disallowance in relation to investments from which no exempt income is earned. 4.2.1 The ld. CIT(A) grossly erred in confirming the action of Ld. AO to make disallowance under Section 14A in respect of investments other than investment in partnership firm Sun Pharmaceuticals Industries. 4.2.2 The Ld. CIT(A) failed to appreciate that the Ld. AO grossly erred in computing disallowance in respect of investments from which no exempt income is received.”

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“7.1. My predecessor has certified documents made by AO from the plain reading of the order of the tribunal. There is clear mandate to disallow @ 0.5% as administrative expenses under Rule 8D(iii) The AR argued that Rule 8D(iii) requires to be computed on average investment. If it is so, then the average investment has to be half of sum of opening and closing investment. The AR's arguments that only actual capital needs to be considered as investment cannot fit into the intention of tribunal while directing the AO to consider Rule 8D(iii) so far administrative expenditure is considered. The AR could not show in its own balance sheet as to where the profit from both the firms are taken as "receivables" and subsequently reflected in P/L. Once that -113 & 116-118/Ahd/2020 Sun Pharmaceuticals Industries Ltd AY : 2005-06 to 2009-10 & 2011-12 19 is not the case then entire profit earned by the firm stand exempt u/s 10(2A) without paying any tax. Admittedly, both the firms enjoying special deduction under Chapter-VIA of the Act. If AR's logic is adopted then on one hand neither the firm would pay any tax nor the partner. Obviously, no businessman shall invest its money in any firm for no profit. Of course, interest expenditure has already been calculated by the AO. Further relief not at all required in this case. The AO has rightly calculated average value of investment taking fixed capital and current capital account of both the firm. SPI and SPE. 7.2 Adjoining argument of the AR is that the appellant has rights on the balance reflected in the current account and share of interest is earned year on year on fixed capital hence value of investment should be taken as fixed capital. However, the AR's argument is not convincing. If value of investment is taken as fixed capital, then administrative expenses would be same in each year. In other words, till the firm is dissolved, administrative expenses under rule 8D should be constant because fixed capital remains the same. The AR being very qualified Chartered Accountant agreed that administrative expenses year on year cannot be constant. It is impossible under commercial/business prudence. Legislature has enacted Rule 8D (iii) with an intention to disallow same expenditure to safeguard the interest of the revenue. Neither the AO nor the CIT (A) has power to deviate from that rule. The Hon'ble Supreme Court in the case of SBI, Patiala (Supra) held that investment made even for strategic purposes in its AE attract section 14A r.w. Rule 8D. The intention of the assessee hardly makes any difference. Given the facts of the case, I do not find any infirmity in the AO’s action. Ground No.3 is accordingly, dismissed.”

34.1 We are not convinced with the contentions made by the ld. Counsel for the assessee. Undeniably, the amounts reflected in the fixed capital account and the current capital account are both capital accounts only. Their nature is the same, being by way of capital accounts. The only difference is that while the amount in the fixed capital account remains fixed with no frequent fluctuation in the same, that reflected in the current capital account shows frequent movement by way of addition and reduction on account of amounts being added to it by way of profits, interest or remuneration or any other amount earned by the partner and reduced on account of withdrawals made therefrom. It is basically the volatility of the capital account which is different in the two sets of accounts, but their nature is the same, i.e. reflecting the capital contribution of the different partners in the partnership firm. If that were not so and the amount reflected in the current capital account was not by way of capital, there was no occasion to name it as capital account. Besides, ld. Counsel for the assessee has not pointed out any distinction in the Partnership Act to the effect that the amounts shown in the current account have any priority in payments over the amounts reflected in the fixed capital account. The treatment of both appears to be at par with the partners eligible to the same, on settlement of accounts between the partners, to the -113 & 116-118/Ahd/2020 Sun Pharmaceuticals Industries Ltd AY : 2005-06 to 2009-10 & 2011-12 21 extent of residue remaining in the partnership firm to the extent of their capital contribution. Section 48 of the Indian Partnership Act, to which the ld. Counsel for the assessee drew our attention, nowhere makes any distinction in this regard with respect to the payment of amounts outstanding in current capital account and fixed capital account on the settlement of accounts between the partners. For the sake of clarity, the said section is being reproduced hereunder:-

“48. Mode of settlement of accounts between partners In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed: -- (a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits. (b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:-- (i) in paying the debts of the firm to third parties; (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; (iii) in paying to each partner rateably what is due to him on account of capital; and (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.”

Ground of appeal No.4 raised by the assessee is, therefore, dismissed.

“5. Addition on account of Corporate Guarantee provided to Associated Enterprise ('AE') - Rs. 49,48,000/- 5.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not deleting transfer pricing adjustment on corporate guarantee provided by Appellant to its AE's amounting to Rs. 39,48,000/-. 5.2 The Assessing Officer as well as Ld. CIT(A), by confirming the addition on account of corporate guarantee provided to AE, have grossly erred in disregarding the directions given by the Hon'ble Tribunal that the issue is to be decided afresh in light of decision of Hon'ble Gujarat High Court in the case of Micro Inks Limited.”

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Ground of appeal No.5 of the assessee is accordingly dismissed.

2.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming the reduction of the export turnover for computing deduction under section 10B by Rs. 67,216/- without appreciating the fact that the goods were returned in subsequent financial year and were reduced from sales while computing deduction under section 10B. 2.2 The Ld. CIT(A) grossly erred in confirming the reduction of the total export turnover for computing deduction under section 10B by doubting the genuineness of the transaction without appreciating that particular transaction cannot be questioned merely on basis of non-production of factual details. 2.3 The Ld. CIT(A) has questioned the transaction without appreciating that the accounts of the Appellant Company have been duly confirmed, certified and audited by the Auditors. 2.4 The Ld. CIT(A) has grossly erred in exceeding his jurisdiction by enhancing the scope of directions given by the Hon'ble Tribunal. 2.5 Without prejudice to the above, the Ld. CIT(A) grossly erred in not directing the Ld. AO to consequently enhance the deduction in the subsequent year when the goods have been returned.”

Ground of appeal No.2 is accordingly dismissed.

“3. Provision for Leave Encashment under Section 43B – Rs.39,98,673/- 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not allowing provision for leave encashment amounting to Rs.39,98,673/-.

3.2 The Assessing Officer as well as Ld. CIT(A) by confirming the disallowance of provision for leave encashment, have grossly erred in disregarding the directions given by the Hon'ble Income tax Appellate Tribunal ('Tribunal') that the issue is to be decided afresh in light of decision of Hon'ble Supreme Court in the case of Exide Industries Limited.”

Ground of appeal No.3 of assessee’s appeal is accordingly dismissed.

“4. Disallowance u/s 14A read with rule 8D – Rs.2,97,68,071/-:

4.1 'Value of investment' in case of investment in partnership firms:

4.1.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming the action of the Ld. AO to consider the balance in partners current account for the purpose of computing disallowance -113 & 116-118/Ahd/2020 Sun Pharmaceuticals Industries Ltd AY : 2005-06 to 2009-10 & 2011-12 26 u/s. 14A read with rule 8D of the Income tax Rules, 1962 ('the Rules') in relation to investment in the partnership firm.

4.1.2 The Ld. CIT(A) failed to appreciate that it is only the fixed capital contributed in partnership firm which can be considered as 'value of investment for the purposes of computing disallowance u/s. 14A read with rule 8D.

4.1.3 The Ld. CIT(A) grossly erred in confirming the action of the AO to consider balance in partners current account without appreciating that the interest of the Appellant in the partnership firm was created pursuant to the initial contribution of capital in the fixed capital account.

4.1.4 The Ld. CIT(A) failed to appreciate that considering balance reflected in current account of partnership firm for the purpose of computing disallowance u/s. 14A read with rule 8D would result into absurdity and several discrepancies.

4.2 No disallowance in relation to investments from which no exempt income is earned.

4.2.1 The ld. CIT(A) grossly erred in confirming the action of Ld. AO to make disallowance under Section 14A in respect of investments other than investment in partnership firm Sun Pharmaceuticals Industries.

4.2.2 The Ld. CIT(A) failed to appreciate that the Ld. AO grossly erred in computing disallowance in respect of investments from which no exempt income is received.”

Ground of appeal No.4 of assessee’s appeal is accordingly dismissed.

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No.5 reads as under:-

5. Addition on account of Corporate Guarantee provided to Associated Enterprise ('AE') - Rs. 23,88,000/- 5.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not deleting transfer pricing adjustment on corporate guarantee provided by Appellant to its AE's amounting to Rs23,88,000/-. 5.2 The Assessing Officer as well as Ld. CIT(A), by confirming the addition on account of corporate guarantee provided to AE, have grossly erred in disregarding the directions given by the Hon'ble Tribunal that the issue is to be decided afresh in light of decision of Hon'ble Gujarat High Court in the case of Micro Inks Limited.”

49. It was common ground and the issue raised in the said ground was identical to that raised by the assessee in its appeal for AY 2007-08 in in Ground No.5, which was been dealt with by us above in our order. Our decision rendered therein at paragraph Nos.39 of order above will squarely apply to this ground, following which the addition to the Arm’s Length Price of Corporate Guarantee of Rs.23,88,000/- is confirmed.

Ground of appeal No.5 of assessee’s appeal is accordingly dismissed.

ITA No. 112/Ahd/2020 : AY 2009-10

“2. Disallowance u/s 14A read with rule 8D – Rs.4,22,77,759/-: 2.1 'Value of investment' in case of investment in partnership firms: 2.1.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming the action of the Ld. AO to consider the -113 & 116-118/Ahd/2020 Sun Pharmaceuticals Industries Ltd AY : 2005-06 to 2009-10 & 2011-12 28 balance in partners current account for the purpose of computing disallowance u/s. 14A read with rule 8D of the Income tax Rules, 1962 ('the Rules') in relation to investment in the partnership firm. 2.1.2 The Ld. CIT(A) failed to appreciate that it is only the fixed capital contributed in partnership firm which can be considered as 'value of investment for the purposes of computing disallowance u/s. 14A read with rule 8D. 2.1.3 The Ld. CIT(A) grossly erred in confirming the action of the AO to consider balance in partners current account without appreciating that the interest of the Appellant in the partnership firm was created pursuant to the initial contribution of capital in the fixed capital account. 2.1.4 The Ld. CIT(A) failed to appreciate that considering balance reflected in current account of partnership firm for the purpose of computing disallowance u/s. 14A read with rule 8D would result into absurdity and several discrepancies.

2.2 No disallowance in relation to investments from which no exempt income is earned. 2.2.1 The ld. CIT(A) grossly erred in confirming the action of Ld. AO to make disallowance under Section 14A in respect of investments other than investment in partnership firm Sun Pharmaceuticals Industries. 2.2.2 The Ld. CIT(A) failed to appreciate that the Ld. AO grossly erred in computing disallowance in respect of investments from which no exempt income is received.”

Ground of appeal No.2 of assessee’s appeal is accordingly dismissed.

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54. Ground of appeal No.3 reads as under:-

“3. Addition on account of Corporate Guarantee provided to Associated Enterprise ('AE') - Rs. 21,90,400/- 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not deleting transfer pricing adjustment on corporate guarantee provided by Appellant to its AE's amounting to Rs.21,90,400/-.

3.2 The Assessing Officer as well as Ld. CIT(A), by confirming the addition on account of corporate guarantee provided to AE, have grossly erred in disregarding the directions given by the Hon'ble Tribunal that the issue is to be decided afresh in light of decision of Hon'ble Gujarat High Court in the case of Micro Inks Limited.”

Ground of appeal No.3 of assessee’s appeal is accordingly dismissed.

By Assessee

“Non-deduction of R&D Expenses not approved by DSIR – Rs.27,67,66,000/-

The Ld. CIT(A) grossly erred in not quashing the disallowance carried out by the Ld. AO without appreciating that the time limit to pass an order giving effect to the appeal of CIT(A) has expired.

On the facts and in circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that claim made by the Appellant was to be unconditionally allowed where the Ld. AO failed to pass the order within the time limit prescribed under the Income-tax Act, 1961.”

By Revenue

1. Whether on the facts and in the circumstance of the case and in law, the Commissioner of Income Tax(A) was justified in allowing the claim of the assessee u/s 35(2AB) of the Act without appreciating that the expenditure claimed is in excess to what is approved expenditure eligible as per the prescribed authority?

2. Whether on the facts and in the circumstance of the case and in law, the Commissioner of Income Tax(A) was justified in allowing the claim of the -113 & 116-118/Ahd/2020 Sun Pharmaceuticals Industries Ltd AY : 2005-06 to 2009-10 & 2011-12 31

assessee u/s 35(2AB) of the Act without appreciating that exemption provision is subject to strict interpretation and when there is ambiguity the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue (Supreme Court in Civil Appeal No. 3327 of 2007, in the case of Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar & Company & Others).”

61. In view of the above, since the denial of weighted deduction in the present case of Rs.27,67,66,000/- is solely for the reason that the amount was not approved by the DSIR, the disallowance, we hold, is not sustainable in view of the decisions cited by the ld. Counsel for the assessee before us. The disallowance made u/s 35(2AB) of the Act is, therefore, directed to be deleted. The assessee, therefore, succeeds in its appeal while the Revenue’s appeal is dismissed.

Order pronounced in the open Court on 24th April, 2024 at Ahmedabad.