Revenue’s 15-Ground Appeal Fails as ITAT Upholds Consistency on Tax and Transfer Pricing Issues

ACIT Vs Zydus Lifesciences Limited (ITAT Ahmedabad)

Revenue Fires a 15-Ground Salvo, but Past Precedents & Missing Proof Sink the Appeal — ITAT Applies Consistency u/ss 14A, 35(2AB), 36(1)(va), 40(a)(i) & 92B

A Familiar Battle Returns

The Revenue challenged the order of the CIT(A), which had granted substantial relief to Zydus Lifesciences Ltd. against various additions made in the assessment completed u/s 143(3) r.w.s. 144C. The appeal contained as many as 15 substantive grounds, covering transfer-pricing adjustments, payments to non-residents, research expenditure, registration expenses, depreciation, disallowance u/s 14A, partner’s remuneration, alleged unaccounted foreign-currency receipts & employees’ PF/ESI contributions.

However, the Assessee demonstrated that most of these issues were no longer res integra. They had already been decided in its favour in its own cases for earlier or subsequent AYs. The Revenue could neither point out any material distinction in facts nor dispute the applicability of those precedents.

Corporate Guarantee & Convertible Loans: Consistency Carries the Day

The first three grounds related to a transfer-pricing adjustment of ₹18.95 crore towards corporate guarantee commission. Grounds four & five concerned an adjustment of ₹9.38 crore towards interest on convertible loans advanced to associated enterprises.

The Assessee submitted that the corporate-guarantee issue had already been decided against the Revenue for AYs 2009-10, 2010-11 & 2012-13 to 2015-16. Similarly, the convertible-loan issue stood covered in its favour for AYs 2008-09 to 2010-11 & 2012-13 to 2015-16.

Since the Revenue did not establish any distinguishing feature for the year under consideration, the ITAT followed its earlier orders & dismissed these grounds. An issue consistently decided on identical facts cannot be endlessly reopened merely by changing the AY.

Non-Resident Payments & Registration Expenditure

The disallowance of ₹7.23 crore u/s 40(a)(i) concerning payments made to non-residents had already been decided in the Assessee’s favour for AY 2010-11, with the Tribunal’s view subsequently confirmed by the Gujarat High Court.

Likewise, product-registration expenses of ₹4.76 crore had consistently been treated as revenue expenditure in the Assessee’s own cases for AYs 2006-07 to 2010-11 & 2012-13 to 2016-17. Trademark-registration & patent fees of ₹7.50 crore were also covered by the decisions for the same years.

The Revenue’s contention that these payments created enduring commercial or statutory rights eligible only for depreciation u/s 32 was, therefore, rejected by following the binding history of the Assessee’s own litigation.

R&D Deduction & the Director’s Hummer

The dispute regarding weighted deduction u/s 35(2AB) on R&D expenditure of ₹49.01 crore was similarly covered against the Revenue by earlier Tribunal orders.

The depreciation of ₹10.75 lakh on a Hummer car registered in the name of a director also survived the Revenue’s challenge. The issue had already been decided in the Assessee’s favour by the Gujarat High Court. The Tribunal accordingly dismissed grounds one to ten without reinventing the wheel—or, in this case, without stopping the Hummer.

Section 14A Cannot Travel Overseas Where Dividend Is Taxable

The AO had made an additional disallowance of ₹3.98 crore u/s 14A r.w. Rule 8D by including investments in foreign companies, namely Zydus International Pvt. Ltd. & Onconova Therapeutics, USA.

The CIT(A) observed that dividends received from foreign companies were taxable in India. Section 14A could be invoked only in relation to expenditure incurred for earning income not forming part of total income. Investments yielding taxable foreign dividends could not enter the Rule 8D computation.

The CIT(A) had merely directed the AO to recompute the disallowance after considering only eligible investments yielding exempt income & after verification of records. Finding no infirmity in this direction, the ITAT dismissed the Revenue’s ground.

₹170-Crore Partner’s Remuneration

The AO had added ₹170 crore representing remuneration received by the Assessee as a partner, questioning the application of the proviso to section 28(v). This issue had already been decided against the Revenue in the Assessee’s own case for AY 2012-13. With no change in the governing facts, the Tribunal followed that decision & deleted the addition.

Japanese Yen Receipt: Suspicion Is Not Evidence

The AO treated ₹1,00,83,884, representing receipts in Japanese Yen from Zydus Pharma Japan, as unaccounted income. The CIT(A) found that the Assessee had explained that all such receipts were duly recorded in its books & offered to tax. In fact, the aggregate receipts accounted for were higher than the figure mentioned in the show-cause notice.

Despite being specifically afforded an opportunity during remand proceedings, the AO failed to furnish any evidence establishing the source or basis of the disputed addition. As the Assessee had discharged its onus while the AO’s allegation remained unsupported, the ITAT upheld the deletion. An unexplained allegation cannot become an unexplained credit.

PF/ESI: No Double Disallowance

Out of the total disallowance of ₹12.09 lakh u/s 36(1)(va) r.w.s. 2(24)(x), the Assessee had already suo motu disallowed ₹1.82 lakh. The AO nevertheless disallowed the same amount again. The CIT(A) deleted this duplication while sustaining the balance ₹10.26 lakh, which had admittedly been deposited late.

The ITAT held that the deletion rested on a clear factual finding & refused to permit double disallowance of the same sum.

The Final Whistle

The remaining grounds concerning MAT computation & general relief required no separate adjudication. Consequently, the Revenue’s appeal was dismissed in its entirety.

The ruling reinforces that judicial consistency, taxable character of foreign dividends, proof-based additions & prohibition against double disallowance are not matters of departmental discretion. Once facts remain identical & earlier rulings squarely cover the controversy, repeated litigation only changes the appeal number—not the result.

Cases Discussed

• Commissioner Of Income Tax- I Vs. Cadila Healthcare Ltd.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, AHMEDABAD

This appeal has been filed by the Assessee against the order dated 23.12.2025 passed by the Ld. Commissioner of Income Tax (Appeals), Ahmedabad-13 (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2011-12.

2. The Revenue in the present appeal has raised following grounds of Appeal:-

“1) “The Ld. CIT(A) erred in law and on facts in deleting the adjustment/addition of Rs. 18,95,02,413/-on account of the guarantee fee charges.

2) The Ld. CIT(A) erred in law and on facts in holding that a guarantee did not a service u/s 92C of the Act and the same does not required to be benchmarked.

3) The Ld. CIT(A) erred in law and on facts in holding that the transaction of the providing corporate guarantee have resulted in increases the asset base and tax base in India and hence no adjustment warranted which is contrary to the provisions of section 92B and Rule 10B & 10C of Income Tax Rules.

4) The Ld. CIT(A) erred in law and on facts in deleting the adjustment/addition of Rs. 9,38,03,720/-on account of interest on convertible loans.

5) The Ld. CIT(A) erred in law and on facts in holding that the transaction of interest on convertible loans have resulted in increases the asset base and tax base in India and hence no adjustment warranted which is contrary to the provisions of section 92B and Rule 10B & 10C of Income Tax Rules.

6) The Ld. CIT(A) erred in law and on facts in deleting the disallowance of Rs.7,23,13,636/ made u/s 40(a)(i) of the Act, without examining the taxability of payments made to non-residents under section 195 and the applicable DTAA provisions.

7) The Ld. CIT(A) erred in law and on facts in treating the product registration expenditure as revenue in nature, disregarding the AO’s finding that it created enduring business/commercial rights qualifying as intangible assets u/s 32(1)(ii).

8) The Ld. CIT(A) erred in deleting the addition of Rs. 7,50,24,581/- by incorrectly treating trademark and patent registration fees as revenue expenditure and erred to appreciate that such registration confers exclusive statutory rights, constituting intangible assets eligible only for depreciation u/s 32(1)(i), and not full revenue deduction.

9) The Ld. CIT(A) erred in in law and on facts by allowing weighted deduction u/s 35(2AB) without verifying whether the expenditure was incurred within the approve in-house R&D facility and certified by DSIR and also ignored the mandatory requirement of Form 3CL certification and failed to reconcile the claimed amount with the DSIR-approved expenditure.

10) The Ld. CIT(A) erred in law and on facts in allowing depreciation on a vehicle registered in the name of a director, without establishing the assessee’s legal or beneficial ownership u/s 32.

11) The Ld. CIT(A) erred in law and on facts in directing re-computation of disallowance u/s 14A r.w. Rule 8D by excluding investments in foreign companies on the erroneous ground that dividends there from are taxable and also erred to appreciate that Rule 8D applies to all investments that could potentially yield exempt income, not only those that actually yielded such income in the relevant year.

12) The Ld. CIT(A) erred in law and on facts in deleting the addition of Rs. 170 crores by misinterpreting the proviso to section 28(v) and also erred in verifying whether the identical sum was conclusively disallowed in the firm’s assessment for AY 2011-12, as required under law.

13) The Ld. CIT(A) erred in law and on facts in deleting the addition of Rs. 1,00,83,884/-without independent verification of the unexplained JPY receipt and also erred to examine bank statements, FIRCs, and ledger accounts to reconcile the specific receipt of JPY 2,10,08,091.

14) The Ld. CIT(A) erred in law and on facts in partially deleting the disallowance of delayed PF/ESI deposits without contribution-wise verification of due dates and deposit dates.

15) The Ld. CIT(A) erred in law and on facts in treating the MAT computation as settled without first determining the correct income under normal provisions.

16) The Revenue craves leave to add/alter/armed and/on substitute any or all of the grounds of appeal.”

3. The present appeal arises out of the assessment order dated 21.05.2015 by DCIT-1(1)(2), Ahmedabad passed u/s 143(3) r.w.s. 144C of the Income-tax Act, 1961 and pursuant impugned order passed by ld. CIT(A).

4. We have heard the parties and perused the records.

5. Ld. CIT-DR has relied upon the orders of the Assessing Officer (hereinafter referred to as “the AO”) during his argument; on the other hand, Ld. AR appearing for the Assessee submits that the majority of the grounds urged in the present appeal preferred by the Revenue have already been decided against the department in the case of the Assessee itself for earlier Assessment Years. He has submitted the ground-wise status of the issues involved as under:

Grounds No.1 to 10 and 12:-

4. Ld. AR submits that the issues above are covered against the Revenue. This fact has not been disputed by the ld. CIT-DR. As the facts of the present year is not different from the facts obtained in previous Assessment Years covering the issue remains the same has not been disputed by the Ld. CIT-DR. Accordingly, Ground Nos. 1 to 10 and 12 urged by the Revenue are dismissed, respectfully following the earlier decisions as detailed above.

5. This leaves us with Ground Nos. 11, 13, and 14, to be adjudicated.

Ground No. 11:-

6. In Ground No. 11, the issue involved is additional disallowance of Rs. 3,98,65,292/- u/s 14A of the Act. Ld. CIT(A) has decided this issue as follows:

“10.5 I have carefully perused the facts of the case, grounds of appeal, impugned AO/TPO order, submission uploaded by the appellant and judicial decision relied upon by the appellant. Having considered the facts of the case and the aforesaid submissions of the appellant, I find that the contention of the appellant is correct and justified, keeping in view the provisions of section 14A, which can be invoked only in respect of investments which yield income which is exempt from income-tax. The contention of the appellant is that while computing the disallowance u/s. 14A read with rule 8D, AO has wrongly taken the value of foreign investments made with Zydus International Pvt. Ltd. And Onconova Therapeutics USA as income arises from investments made with these companies being dividend received from the foreign companies are taxable. The computations submitted on record clearly show that the AO erred in computing disallowance under Rule 8D even in respect of the investment in shares of foreign companies, the dividend income from which is liable to tax.

10.6 In view of the above factual matrix of the case, AO is directed to recompute the disallowance made u/s. 14A r.w.r. 8D of the Act taking into consideration only the eligible investments which yield exempt income and accordingly additional disallowance may be computed on this issue after due verification of records. During verification process, proper opportunities of being heard should be given the appellant. Hence, Ground No.7raised by the appellant is partly allowed.”

6.1 We do not find any infirmity in the reasoning given by Ld. CIT(A). Additionally, the AO has been given opportunity to verify the correctness of the claim made by the Assessee by the ld. CIT(A) by way of setting aside the matter to the AO to review after taking into consideration eligible investments which yielded exempt income. Hence, the Ground No. 11 raised by the Revenue is, therefore, dismissed.

Ground No. 13:-

7. Ground No. 13 relates to deletion of Rs. 1,00,83,884/- representing income in Japanese Yen (JPY) treating as unaccounted income. Ld. CIT(A) has decided this issue as follows:

“12.9 I have carefully perused the facts of the case, grounds of appeal, impugned AΟ/ΤΡΟ order and submission uploaded by appellant. Having considered the facts of the case and the aforesaid submissions of the appellant, I find force in the submissions of the appellant. On due verification of the facts on record, it is evident that the AO has not been able to support or justify by way of any evidence, the source or basis for treating the amount of Rs.1,00,83,884/- (JPY 2,10,08,091) as undisclosed income, although a specific opportunity was given to him to produce the same under his remand report.

12.10 On the other hand, the appellant has logically explained that all its receipts in JPY from its subsidiary Zydus Pharma Japan have been duly accounted and offered to tax in its Return of Income. Appellant also having pointed out that such receipts in JPY in fact aggregate to amounts higher than what the AO had mentioned in his show cause notice and therefore, there was no justification in making the alleged addition, more so by way of undisclosed income. The appellant had duly discharged its onus of explaining the receipts in JPY reflected in its books of accounts and under the circumstances there is no case for invoking the provision of unexplained credit. HE TAX DEPAR

12.11 In view of the above factual matrix of the case, AO is directed to delete the addition of Rs.1,00,83,884/-treating the receipt of Royalty in Japanese Yen as unaccounted income of the appellant. Hence, Ground No.9raised by the appellant is allowed.”

7.1 Ld. CIT(A), after considering submissions of the Assessee as well as objections raised by the AO as per the facts on record, came to the conclusion that all its receipts in JPY from its subsidiary Zydus Pharma Japan have been duly accounted and offered to tax in its return of income. On the other hand, the AO in its remand report was not able to support or justify the source or basis for treating the amount of Rs. 1,00,83,884/- (JPY 21,08,091/-) as undisclosed income despite the opportunity provided to him by way of remand. Revenue could not dispute this finding of fact recorded by ld. CIT(A).

7.2. In view of the aforesaid circumstances, we are not inclined to interfere with the decision of Ld. CIT(A) on this issue and hence, the Ground No. 13 raised by the Revenue is dismissed.

Ground No. 14:-

8. Ground No. 14 relates to disallowance of Rs. 1,82,469/- out of total additional amount of Rs. 12,09,358/- u/s 36(1)(va) read with Section 2(24)(x). Ld. CIT(A) has decided this issue as under:

“13.9 I have carefully perused the facts of the case, grounds of appeal, impugned AO/TPO order, submission uploaded by the appellant and judicial decision relied upon by the appellant. On due consideration of the same, I hold that there should not be any dispute in regard to the amount of Rs.1,82,469/-which has already been disallowed by the appellant, but stands repeated in the disallowance made by the AO. Therefore, I hold that the appellant is entitled to relief for this ground to the extent of Rs.1,82,469/-.

allowed to an 13.10As regards the balance of Rs. 10,26,886/-, it is not disputed that the date of clearance for the said payments was beyond the grace period employer. While the appellant has attempted to rely on the CBDT circular and decision of Madras High Court (supra) in support of its contention that the date of tender should be considered as the valid date upon realization of cheque, I find that the above are in regard to the general provisions for treatment of tax being paid in time and for purposes of computation of penal interest under the provisions of the Act. They specifically do not deal with the provisions of section 36(1)(va) and therefore, the contention of the appellant does not squarely cover the dispute before me.

13.11In view of the above factual matrix of the case, AO is directed to delete the addition of Rs.1,82,469/- which has already been disallowed suo-moto by the appellant under section 36(1)(va) r.w.s. 2(24)(x) of the Act. The balance amount of Rs. 10,26,886/-, which has been deposited late by the appellant is rightly disallowed by the AO and addition is sustained. Hence, Ground No.10 raised by the appellant is partly allowed.”

8.1 Ld. CIT(A) on facts has held the addition of Rs. 1,82,468/- although suo motu disallowed by the Assessee, however, Ld. AO had made the same disallowance in his Assessment Order. This being a finding of fact, we are not inclined to interfere with the findings of the Ld. CIT(A). Accordingly, the Ground No. 14 raised by the Revenue is dismissed.

Ground No. 15 and 16:

9. Ground No. 15 and 16 are general in nature and requires no adjudication. MAT computation will be settled in terms of income assessed under normal provisions.

10. In the result, the appeal filed by the Revenue is dismissed.

The order pronounced on 03.09.2026.