Gujarat High Court Admits Revenue’s Appeal on Multiple Tax Issues in PCIT Vs Cadila Healthcare Limited
Background of the Appeal
The matter concerns an appeal filed by the Revenue under Section 260A of the Income Tax Act 1961 before the Gujarat High Court against an order of the Income Tax Appellate Tribunal, Ahmedabad “D” Bench, passed on 17th August 2021 in ITA No.954/Ahd/2017 for Assessment Year 2012-13. The respondent is Cadila Healthcare Limited (now known by a changed name as per the records of the Registrar of Companies).
At the hearing, both sides were represented by senior counsel – the Revenue by learned Senior Standing Counsel Mr. Varun K. Patel, and the assessee by learned Senior Advocate Mr. R.K. Patel, assisted by learned advocate Mr. Darshan R. Patel.
Amendment of Cause Title – Change of Name of Respondent
Draft amendment allowed
- The Revenue first moved a draft amendment application seeking correction in the name of the respondent-assessee.
- This was based on a Certificate issued by the Registrar of Companies evidencing change of name of the company with effect from 24th February 2022.
- The Court permitted the amendment as prayed for, directing that the change in name be incorporated in line with the draft and that the same be carried out immediately.
Note: This amendment is procedural in nature and does not affect the substantive issues raised in the appeal.
Issues Raised by the Revenue Under Section 260A
The Revenue, invoking Section 260A, proposed nine substantial questions of law arising out of the Tribunal’s order. Each question targets a distinct addition or disallowance deleted by the Tribunal in favour of the assessee.
The proposed substantial questions of law are as follows:
Question A – Guarantee Fee and Transfer Pricing
“[A] Whether on the facts and circumstances of the case and in law the Appellate Tribunal’s decision is ex-facie perverse because Appellate Tribunal has erred in deleting the addition made on account of the guarantee fee charge of Rs.10,45,32,855/- by ignoring the ALP determined by using external Comparable Uncontrolled Price (CUP) Method?”
The Revenue contends that the Tribunal wrongly deleted an adjustment of Rs.10,45,32,855/- relating to guarantee fee, alleging that the Tribunal ignored the arm’s length price determined using the external CUP method.
Question B – Interest on Convertible Loan
“[B] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in deleting the addition made on account of interest on convertible loan to ‘Zydus International Private Ltd.’ of Rs.9,97,52,504/- by holding that the assessee still had the option to convert the same into equity?”
Here, the dispute pertains to interest of Rs.9,97,52,504/- on a convertible loan advanced to “Zydus International Private Ltd.” and whether the Tribunal was correct in accepting the assessee’s plea that the continuing option to convert into equity was sufficient to negate the addition.
Question C – Export Commission and TDS under Section 195
“[C] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in deleting the addition made under section 40(a)(i) of the Act on account of non-deduction of TDS under section 195 of the Act in respect of payment of export commission?”
The Revenue questions the Tribunal’s decision to remove a disallowance under Section 40(a)(i) for alleged non-deduction of tax at source under Section 195 on export commission payments.
Question D – Product Registration Expenditure
“[D] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in deleting the addition made on account of Product registration expenditure considering the same as revenue?”