These appeals, one filed by the assessee being ITA No.611/Hyd/2014 and the other filed by the Revenue being ITA No.518/Hyd/2014, are cross appeals which are directed against the order of the learned Dy. Commissioner of Income-tax Circle 16(2), Hyderabad dated 30.1.2014 passed under S.143(3) read with S.92CA red with S.144C(5) of the Income Tax Act,1961. ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 2

2. The assessee in the present case is a company, which is engaged in pharmaceutical business. The return of income for the year under consideration was filed by it on 30.9.2009 declaring total income of Rs.110,67,16,290, after claiming deduction under S.10B. In the draft assessment order passed on 26.3.2013, the Assessing Officer disallowing the claim of the assessee for deduction under S.10B and also proposing certain other additions/disallowances, worked out the total income of the assessee, as under- Profit of the business before exemption u/s. 10B : Rs.148,94,82,301 Add: Disallowance of claim on account of ESOP Scheme : Rs. 35,61,793 Add: Disallowance of deprecia- tion on non-compete fee : Rs. 13,23,670 Add; Adjustment u/s. 92CA : Rs. 12,38,95,227 Add: Disallowance of excess claim of weighted deduction : Rs. 2,71,59,649 Add: Interest on Income tax refund : Rs. 76,94,193 Rs. 16,36,34,532 Taxable Income Rs.165,31,16,833

3. Against the draft assessment proposed by the Assessing Officer, objections were filed by the assessee before the Dispute Resolution Panel. After considering the submissions made on behalf of the assessee as well as the material placed on record before it, the Dispute Resolution Panel found some of the objections raised by the assessee to be sustainable. Accordingly, the DRP gave directions to the Assessing Officer, vide order passed under S.144C(5) and as per the said directions, the Assessing Officer passed the final assessment order dated 30.1.2014 under S.143(3) ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 3 read with S.92CA and S.144C(5) of the Act, computing the total income of the assessee as under- Profit of the business before exemption u/s. 10B : Rs.148,94,82,301 Add: Disallowance of deprecia- tion on non-compete fee : Rs. 13,23,670 Rs. 2,85,12,590 Add; Disallowance of excess claim of weighted deduction : Rs. 2,71,59,649 Add: Interest on income-tax refund : Rs. 29,271 Total Rs.151,79,84,891 Less: Allowing of claim of Rs.2,05,11,647 under section 35(1)(i) of the Act being the R&D expenditure debited to Profit & Loss Account : Rs. 2,05,11,647 Taxable income Rs.149,74,83,244

4. Aggrieved by the order of the Assessing Officer passed as per the direction of the DRP, Revenue as well as the assessee are in appeal before the Tribunal.

5. In Revenues appeal, the solitary issue involved relates to deletion by the DRP of the addition of Rs.35,61,793 on account of expenditure incurred by the assessee towards Employees Stock Option Plan (ESOP).

6. At the time of hearing before us, the learned representatives of both the sides have agreed that similar issue was considered by the Tribunal in assessees own case and vide its order ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 4 dated 10.1.2014 passed in ITA No.66/Hyd/2013 for assessment year 2008-09, the mater was restored to the file of the Assessing Officer with a direction to examine the same afresh in the light of the decision of the Honble Special Bench of ITAT in the case of Biocon Limited V/s. DCIT (35.taxmann.com.355). As noted by the Assessing Officer in his impugned order, a similar direction was given by the DRP to the Assessing Officer to examine the claim of the assessee following the principles laid down by the Special Bench in the case of Biocon Ltd. (supra), and accordingly the claim of the assessee for ESOP expenditure of Rs.35,61,793 was found to be allowable by the Assessing Officer, as per the principles laid down by the Special Bench in the case of Biocon Ltd. (supra). This being the position, we hold that the direction of DRP on account of ESOP expenditure is fully justified and there is no justifiable reason to interfere with the same. We therefore, find no merit in the appeal of the Revenue and dismiss the same accordingly.

7. In its appeal, the assessee has raised the following grounds- (1) The Order of the Assessing Officer u/s. 143(30 r.w.s. 144C r.w.s. 92CA dt.30.01.2014 of the Income Tax Act,1961 is contrary to facts and law. (2) The Dispute Resolution Panel erred in confirming the order of the TPO in reducing the operating profits of the tax-payer by Rs.13,45,65,013 being the income from settlement of patent infringement suit credited to Profit & Loss Account. (3) The Dispute Resolution Panel erred in not directing the Assessing Officer to grant weighted deduction u/s. 35(2AB) of the Act in respect of expenditure incurred for registering patents outside India amounting to Rs.1,06,10,707. ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 5 (4) Without prejudice to aforesaid ground, the Dispute Resolution Panel erred in confirming the action of the Assessing Officer on denying deduction under sec.35(1)(i) & (iv) of the Act @ 100% of expenditure of Rs.2,53,36,687 in respect of amount not considered by the prescribed authority under sec.35(2AB) for weighted deduction. (5) The Dispute Resolution Panel erred in failing to direct Assessing Officer to allow the deduction of Rs.29,98,80,451 claimed u./s, 10B of the Act in respect of Export Oriented Undertaking situated at Jeedimetla (Unit 3.2) (6) The Dispute Resolution Panel erred in confirming the Assessing Officers order in rejecting the basis adopted by the tax-payer for apportionment of common corporate overhead expense to all the units of the company including 100% Export Oriented under-takings eligible for deduction. u/s. 10B of the Act and in the process reducing the benefit u/s. 10B by Rs.85,67,995 for Unit

3.2 situated at Jeedimetla. (7) The Dispute Resolution Panel erred in confirming the Assessing Officers order in not allowing- (a) depreciation at 25% amounting to Rs.6,67,420 on brought forward written down value of Rs.26,69,678 in respect of non-compete fee of Rs.200 lakhs paid to Medispan Ltd. by Medicorp Ltd. (amalgamating company ) in the previous year relevant to Asst. Year 2002-03. (b) depreciation @ 25% amounting to Rs.6,56,200 on brought forward written down value of Rs.26,25,000 in respect of non-compete fee of Rs.40,00,000 paid in Asst. Year 2007-08 to Sudhir Vaid in relation to Concord Biotech Limited. (8) The Appellant Craves leave to add to, to alter or to amend any of the aforementioned grounds.

8. As submitted by the learned counsel for the assessee, grounds No.1 and 8 raised by the assessee are general requiring no specific adjudication. ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 6

9. As regards ground No.2, the learned representatives of both the sides have agreed that the issue involved therein relating to reduction of operating profits of the tax payer by Rs.13.45 crores, being the income from settlement of Patent Infringement Suit, is squarely covered against the assessee and in favour of the Revenue by the decision of the Tribunal dated 10.1.2014 in assessees own case for the assessment year 2008-09 (supra), wherein a similar issue was decided against the assessee vide para Nos.15 and 16 thereof, which read as under- 15. We have considered the issue and examined the facts on record and the case law relied upon by the assessee. As per the note given as part of report of Transfer Pricing Report for assessment year 2007- 2008, it can be observed that receipts are in the nature of one time settlement in consideration for costs and liabilities incurred by Matrix as a consequence of ceasing its programme to develop and manufacture Perindopril made using the process. The entire amount of Rs.97.87 crores was offered as income in assessment year 2005-2006 based on receipt basis. As can be seen the amount of Rs.26.91 crores credited to the P& L account this year is only a notional deferred income whereas the actual income was received much earlier. As can be seen from the facts on record, the corresponding expenditure pertaining to development of Perindopril was spent much earlier i.e., much prior to assessment year 2005-

2006. Therefore, there is no corresponding expenditure in the relevant assessment year. Even if there are costs/ liabilities for developing the product on which the assessee received patent infringement compensation, the costs and liabilities does not pertain to the year under consideration.

16. Assessee relied on the decision of Honble Delhi High Court in the case of CIT vs. Desiccant Rotors s International Pvt. Ltd. (2012) 347 ITR 32 (Del.) (H.C.) wherein the issue was with reference to the claim of expenditure under section 37(1). In that context, the Honble Delhi High Court has analyzed the principles relating to patent infringement rights and held that they are purely compensatory in nature and confirmed the liability of amount under section 37(1) of the Act ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 7 and the ITAT order was accordingly confirmed by the Honble Delhi High Court. But as seen from the judgment, the issue is not with reference to the Transfer Pricing adjustments but with reference to the claim of amount paid towards patent infringement as revenue expenditure, where the revenue treated it as capital expenditure. In that context, the decision was given which allowed the amount as revenue in nature. The dispute before us is not with reference to the claim or receipt of the amount. There is no dispute as the amount was offered as revenue income. There is also no dispute that the amount offered in the P & L account was adjusted in the computation of income for the year as the same is already taxed in the earlier year. We are not considering either taxability of the amount or the allowability of the amount as a deduction/ expenditure. The issue pertains to the transfer pricing adjustments which operate under different mechanism. While arriving at the profits of an organization, the operating profits over the operating cost is considered as a basic principle to arrive at operating profits in an assessees case. As discussed in the later part of the order, there are two segments of income and different segments of profit source and different comparisons are required. While arriving at segmental profits, only those incomes pertains to that segment and cost pertain to that segment are allocated so as to arrive at the operational profits for comparison purposes. This exercise has nothing to do with the principles laid down under section 37(1) or the principles on patent infringement compensation. The simple issue to be examined is, whether the income accounted by the assessee will become operational income for the purpose of arriving at the operational profit. The Assessing Officer has excluded the same stating that the same is nothing but notional revenue. We agree with the finding of the Assessing Officer as held by the DRP that the income from settlement of patent infringement cannot become part of operating revenues either on bulk drug manufacturing (API) segment or on product development service (PDS) segment which are two different segments in which assessee is operating and accordingly we agree with the DRPs stand that this income falls under the category of other income and not operating revenue. Not only that the income does not pertain to the relevant financial year nor the costs are incurred in the year under consideration. If without the cost, the income is included in the computation of operational ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 8 profits, the same gets skewed because of inclusion of extraordinary items. It was decided in number of cases by the Tribunal that incomes of extraordinary nature are to be excluded and further extraordinary events in any company also make it non-comparable while doing exercise of FAR analysis for comparability purpose. For the reasons stated above, we agree with the Assessing Officer/DRP that this income from settlement of patent infringement cannot be considered as operational income while working out the segmental profits or as total profits of the assessee for the purpose of comparison. At best, it can be considered as another segment of income for which no expenditure was charged, but the same cannot be included in either of the segmental operations of the assessee. This ground is accordingly rejected.

10. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to assessment year 2008-09, we respectfully follow the decision of the Tribunal for assessment year 2008-09 and uphold the impugned order of the Assessing Officer, whereby he reduced the operating profit of the assessee by Rs.13.45 crores being the income from the settlement of patent infringement suit. Ground No.2 is dismissed.

11. As regards the issue involved in Ground no.3 relating to the assessees claim for weighted deduction under S.35(2AB) of the Act, in respect of expenditure incurred for registering patents outside India amounting to Rs.1,06,10,707, learned counsel for the assessee has invited our attention to the relevant portion of Form 3CL to point out that such expenditure eligible for weighted deduction is to the extent of Rs.73.67 lakhs. He has contended that the assessee therefore, is claiming weighted deduction only to that extent and has relied on Explanation to S.35(2AB), which reads as under- ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 9 S.35(1).. (2) (2AB) . Explanation : For the purposes of this clause, expenditure on scientific research in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).

12. When the learned counsel for the assessee was required by the Bench to clarify as to how the claim of the assessee is covered by the above Explanation, he has contended that the expenditure in question is incurred by the assessee for filing application for patent rights under patents Act, 1970. He has also submitted that the assessee is in a position to support and substantiate its claim by filing relevant documentary evidence and has urged that an opportunity may be given to the assessee for this purpose by sending the matter to the Assessing Officer. Since the learned Departmental Representative has not raised any objection in this regard, we restore this issue to the file of the Assessing Officer with a direction to examine the assessees claim for weighted deduction under S.35(2AB) in respect of expenditure incurred for registering patents outside India only to the extent of Rs.73.67 lakhs afresh, after giving assessee proper and sufficient opportunity to establish its case in accordance with Explanation to S.37(2AB). Ground No.3 is accordingly partly allowed for statistical purposes.

13. As regards Ground No.4, the learned representatives of both the sides have agreed that the issue involved therein relating to the claim of the assessee for deduction under S.35(1)(i) and (iv) ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 10 of the Act at 100% of expenditure of Rs.2,53,36,687 in respect of amount not considered by the prescribed authority under S.35(2AB) for weighted deduction is squarely covered in favour of the assessee by the order of the Tribunal dated 16.1.2014 in assessees own case for assessment year 2008-09 cited supra, wherein a similar issue was decided by the Tribunal in favour of the assessee vide paragraph 58 of its order, which reads as follows-

58. This ground is consequent to the earlier ground. Briefly stated the assessee has originally claimed weighted deduction on an amount of Rs.49,94,14,696/- consisting of actual expenditure of Rs.33,29,43,131/- in respect of approved three R & D units. The prescribed authority however certified the actual eligible expenditure for weighted deduction at Rs.32,73,07,418/-. The balance of expenditure at Rs.56,35,712/- (Rs.33,29,43,131/- (-) Rs.32,73,07,418/-) is not eligible for weighted deduction, but quantifies for deduction under section 35(1) at 100%. This amount however is not allowed. We do not see any reason in not allowing this amount. We are of the opinion that both Assessing Officer and DRP has not applied their mind to the amounts involved. Since the entire claim of the assessee was rejected summarily without examining the facts, we are of the opinion that this expenditure of Rs.56,35,712/- in respect of R & D expenditure is to be considered under section 35(1), if not for the weighted deduction under section 35(2AB). Assessing Officer is directed to examine the necessary expenditure and allow the claim. Ground No.17 is allowed for statistical purposes.

14. As the issue is covered by the decision of the Tribunal in assessees own case for preceding year, respectfully following the same, we direct the Assessing Officer to allow the claim of the assessee on this issue, after examination of the relevant expenditure as directed by the Tribunal in assessment year 2008- 09, and after giving reasonable opportunity of hearing to the assessee. This ground is accordingly allowed for statistical purposes. ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 11

15. As regards the issue involved in ground No.5 relating to the assessees claim for deduction under S.10B in respect of export oriented undertaking situated at Jeedimetla, it is observed that the same was considered and decided by the DRP vide paragraph No.5.10 of its order as under-

5.10 Objection No.16: The AO erred in denying deduction of Rs.29,98,80,451/- claimed u/s lOB of the Act in respect of Export Oriented Undertaking situated at Jeedimetla.

5.10.1 The assessee company is engaged in manufacture and sale of Active Pharmaceutical Ingredients (API) (also known as bulk drugs) and about to commence the business of formulations. The company has several units situatedat Kazipally, Jeedimetla, Pashamylaram, Vizianagaram and Nasik. Some of the units are approved as 100% export oriented undertakings. Unit situated at Jeedimetla (Unit 3.2) is said to be eligible for claiming deduction under sec.lOB of the Income tax Act, 1961.

5.10.2 In terms of sec. lOB of the Act, the assessee has obtained the necessary certificate in Form No. 56G and also furnished complete details of its export turnovers with copies of bank ad vices as proof for receipt of remittance. A detailed statement was attached computing the eligible income as well as the deduction under sec. lOB. Though the unit made certain deemed exports, the claim was restricted to only in respect of physical exports out of India. The assessee filed the following documents to state that the100% EOU situated at Jeedimetla unit in respect of which it is claiming deduction under sec. lOB of the Act, is duly approved under the provisions of Explanation to sec. lOB. 1 . Letter of Permission (LOP) under the EOU scheme was issued by the office of the Development Commissioner, Visakhapatnam Special Economic Zone, Department of Commerce, Government of India vide its letter No. PER:237/EOU/VSEZ/2004/3601 dated 19-9-2004. 2 . Green Card No. 454/VSEZ dated 14-09-2004 issued by the Development Commissioner for ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 12 and on behalf of the Secretary to the Government of India, Ministry of Commerce and Chairman, Board of Approval for 100% Export Oriented Units. 3 . Letter No. 8/EOU-l11/VSEZ/HYD/2010 dated 17-3-2010 from the office of Development Commissioner informing the assessee company that the LOP issued has been placed before the board of Approval and the same. Has been ratified by teh Board of Approval in its meeting held on 23-11- 2004 4 . the minutes of the meeting of the Board of Approval held on 23-11-2004; as conveyed to the Development Commissioner vide letter dated 9-12-2004 along with the Agenda forwarded by the Development Commissioner to the Board of Approvals vide formers letter dated 5-10-2004.

5.10.3 The Assessing officer, however, followed the order u/s 263 dated 30-12-2010 passed by the CIT-IV, Hyderabad. The Assessing officer declared that exemption has been withdrawn by the CIT in Ay 2005-06 on the following grounds: a) that the units are not newly established undertakings and pre-existed prior to the incorporation of provisions of section lOB thereby hit by the provisions of sub-section (2) of sec. lOB (b) that conditions laid down in Explanation 2(iv) to the section are not fulfilled (c) the units are not located in Export Processing Zone.

5.10.4 It is the submission of the assessee that the Assessing officer failed to appreciate that the CIT-IV was directed by the Honble AP High Court in WP No. 14776 of 2010 merely to examine the approvals granted to the eligible units of the assessee in terms of the policy regulations laid down in this behalf by Central Govt., to satisfy whether the approvals granted are in accordance with the explanation to 2(iv) to sec. lOB. The CIT-IV, however, raised new grounds for ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 13 denying the exemption, and the same has been once again disputed by the Assessee before the Honble AP High Court in WP No. 1398/2011 and the same has been admitted by the Honble AP High Court.

5.10.5 As can be seen above, this issue is subject to revision proceedings by the jurisdictional CIT and also writ litigation by the assessee before the Honble High Court of AP. As the mater is highly contested legally, we consider it fit not to interfere with the stand of the Department at this juncture. The AO is directed to follow the judgment of the Honble High Court of AP as and when it is received as this issue of deduction u/s. 10B applies to a number of years. On the above facts and circumstances, the demand arising on account of disallowance of this deduction shall be kept in abeyance till the decision of the Honble High Court is received.

A perusal of the relevant portion of the DRPs order reproduced above shows that a direction has been given by the DRP to the Assessing Officer to follow the judgment of the Honble Andhra Pradesh High Court in assessees own case for assessment year 2005-06 as and when it is received on the issue of assessees claim for deduction under S.10B. It is observed that a similar direction was given by the DRP in assessees own case for assessment year 2008-09 and the same was upheld by the Tribunal vide its order dated 16.1.2014 cited supra, thereby allowing the relevant ground of the assessees appeal on this issue for statistical purposes. Respectfully following the decision of the Tribunal on similar issue in assessees own case for assessment year 2008-09, we uphold the directions given by the DRP and allow the ground No.5 of the assessees appeal for statistical purposes. 16 As regards Ground No.6, the learned representatives of both the sides have agreed that the issue involved therein relating to the quantification of the deduction under S.10B, by reducing the benefit under S.10B by Rs.85,67,995 for Unit 3.2 situated at ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 14 Jeedimetla, is squarely covered in favour of the assessee by the order of the Tribunal dated 16.1.2014 in assessees own case for assessment year 2008-09 cited supra, wherein a similar issue was considered and decided by the Tribunal vide paras 42 to 45 thereof, which read as follows-

42. Ground No.14 reads as under : "The Dispute Resolution Panel erred in confirming the Assessing Officers order in rejecting the basis adopted by the tax payer for apportionment of common corporate overhead expense to all the units of the company including 100% Export Oriented undertakings eligible for deduction u/s.10B of the Act and in the process reducing the benefit u/s.10B by Rs.42,91,369/- for Unit 3.2."

43. This ground is on the quantification of amount eligible for deduction under section 10B and is linked to ground No.12 where eligibility itself was disputed and the matter is subjudice. However, Assessing Officer also quantified the deduction to be allowed in case the unit was considered as eligible for deduction under section 10B. while quantifying the amount the Assessing Officer allocated the corporate over-heads at Rs.5,65,28,509/- as against Rs.5,22,37,140/- apportioned by the assessee and thereby, reducing the profit eligible for benefit by an amount of Rs.42,91,369/-. The assessee is contesting the allocation. Since similar issue was pending in the earlier year the learned DRP. did not intervene with the issue.

44. It was submitted that Assessee has identified the corporate overheads on the basis of accepted cost accounting principles and also guidance note with reference to company law. It was submitted that the indirect manufacturing expenses are distributed over operating divisions on the basis of gross material cost and personal costs are distributed over operating divisions on the basis of staff strength in each operating division and selling administrative cost distributed over operating divisions on the basis of sales affected. It was contended that this allocation is consistent with the assessees allocation in earlier years and also in tune with the principles laid down under the cost accounting principles as well as guidance note issued by the Ministry of Company Affairs in the area of ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 15 indirect tax. A detailed note was also given to the Assessing Officer that out of manufacturing expenses unit relating to purchases were identified at Rs. 2.50 crores and allocated on the basis of salary cost on various employees and production, planning control of Rs.18.03 lakhs also on the basis of salary cost on employees and likewise commercial unit at Rs.57.24 lakhs on the same basis after identifying the amount aggregating to Rs.3.62 crores. These were identified and allocated on the basis of the value of cost purchase for each unit and accordingly, an amount of Rs.57.28 lakhs was allotted to unit 3.2 Jeedimetla with reference to the cost on corporate office these costs are debited on the basis of number of employees and the amount allocated to Jeedimetla was at Rs.1.50 crores. It was the contention that ignoring the scientific basis adopted by the assessee, the Assessing Officer allocated on the basis of turnover of the sales in each unit thereby, arriving at a different percentage and excess apportionment of common overhead costs to the tune of Rs.42.91 lakhs. The learned Counsel relied on the decision of ITA.No.66/Hyd/2013 Mylan Laboratories Ltd. (Formerly Matrix Laboratories Ltd.) Honble Delhi High Court in the case of S.T. Micro Electronics Pvt. Ltd. in ITA.No.928/2010 wherein the Honble High Court upheld the ITAT order and inturn of the learned CIT(A) order wherein the bifurcation of common expenses on the basis of ratio of employees head count was reasonable, conservative and justified. It was the contention that the rationale adopted by the assessee should be accepted.

45. We have considered the issue and examined the facts. Even though the issue was pending in earlier year, we are of the opinion that issue can be decided independently in this year. After considering the facts as stated in the objections before the DRP and also before us, we are of the opinion that assessee has allocated the corporate overheads on a rational basis based on the material cost of purchase and number of people worked for the unit and also on the basis of head account which is reasonable. Adopting sales turnover as the basis may result in skewed allocation. For example, if a particular unit is producing only high cost/ high price product, the effort and service cost for that unit will be less whereas, the profit margin will be more. If the unit is not producing much in the year and has lesser sales, allocation of amount on the basis of turnover may result in under allocation of service cost. Even in the case where the unit starts production only at the fag end of the year cost of working on that unit throughout the year for establishing / starting production may not result in allocation of actual expenditure if turn over is considered. In view of this, since ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 16 Assessing Officer has not given any rationale in adopting the turnover as the basis, ignoring the assessees method, we are of the opinion that allocation of expenditure as was done by the assessee is more rationale and is in tune with the principles laid down by the Institute of Cost Accountants and also for the purpose of Company Law. Therefore, considering the detailed objections raised by the assessee as placed in the objections to the DRP, we are of the opinion that the allocation by the assessee is to be upheld. Assessing Officer is directed to accept the assessees allocation of corporate overheads. Accordingly, ground No. 14 is allowed.

17. As the issue is covered by the decision of the Tribunal in assessees own case for preceding year, respectfully following the same, we uphold the allocation of corporate overheads by the assessee, and accordingly direct the Assessing Officer to accept the same and give appropriate relief to the assessee while re- computing the deduction under S.10B of the Act. This ground is accordingly allowed.

18. As regards Ground No.7, there are two issues involved therein. They are- (a) depreciation at 25% amounting to Rs.6,67,420 on brought forward written down value of Rs.26,69,678 in respect of non-compete fee of Rs.200 lakhs paid to Medispan Ltd. by Medicorp Ltd. (amalgamating company ) in the previous year relevant to Asst. Year 2002-03. (b) depreciation @ 25% amounting to Rs.6,56,200 on brought forward written down value of Rs.26,25,000 in respect of non-compete fee of Rs.40,00,000 paid in Asst. Year 2007-08 to ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 17 Sudhir Vaid in relation to Concord Biotech Limited.

19. As for the first issue, against (a) above, relating to depreciation @ 25% amounting to Rs.6,67,420 on brought forward written down value of Rs.26,69,678 in respect of non-compete fee of Rs.200 lakhs paid to Medispan Ltd. by Medicorp Technologies Ltd. (amalgamating company) in the previous year relevant to assessment year 2002-03, learned representatives of both the sides have agreed that this issue is squarely covered by the order of the Tribunal dated 16.1.2014 in assessees own case for assessment year 2008-09 cited supra, wherein a similar issue contained corresponding Ground no.15(a) in the appeal for that year, was considered and decided in favour of the Revenue and against the assessee, confirming the finding of the DRP, by the Tribunal, dealing with the corresponding ground, vide paras 48 to 52 thereof, which read as follows- 48. The next claim i.e., Ground No.15(a) is with reference to claim of depreciation at 25% amounting to Rs.8,75,000/- on brought forward written down value of Rs. 35 lakhs in respect of non-compete fee of Rs. 40 lakhs paid in relation to Concord Biotech Limited during the previous year relevant to financial year 2006-2007. Even though the assessee claims the depreciation was on brought forward amount, in the submissions to the Assessing Officer and as extracted in the objections to the DRP at page 102, it was stated that the said amount of Rs. 40 lakhs is capitalized as intangible asset in the books of accounts of the assessee during the year and depreciation at 25% is claimed under section 32 in the impugned assessment year. There is contradiction in this assessees claim. If the amount of Rs. 40 lakhs is capitalized during the year, the 25% claim of depreciation should come to Rs. 10 lakhs but not Rs.8,75,000/-. Without examining the year of payment or the year of capitalization, the Assessing Officer also records the same in his order vide para 8.1 in page 9 of the order wherein it was stated that assessee entered into an investment agreement with Concord Biotech Limited on 10.02.2006 and accordingly, as ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 18 per the terms of agreement, it paid an amount of Rs. 40 lakhs towards non-compete fee to one of the promoters i.e., Mr. Sudhir Vaid in the present assessment year i.e., 2008-

2009. Since the Assessing Officer has given the finding that amount is capitalized in this year, the assessees ground i.e., claim of depreciation on the brought forward written down value seems to be not correct. Be that as it may, we have proceeded to examine the issue as if the claim was made in this year only.

49. Before the Assessing Officer and DRP, the assessee relied on the decision of the CIT vs. Medicorp Technologies India Ltd. which was upheld by the ITAT, Chennai Bench (supra). The learned Assessing Officer relying on the decisions of the ITAT, Chennai Bench in the case of AB Mourya Pvt. Ltd. in ITA.No.1293/2006 dated 23.11.2007 and Guruji Entertainment Net Work Ltd. reported in 14 SOT 556 (Del.); M.M. Nissim & Co. vs. ACIT (2007) 18 SOT 274 (Mum.) and Motor Surveyors Pvt. Ltd. vs. ITO 32 SOT 268 (Chennai) rejected the claim of the assessee and DRP upheld the order of the AO.

50. Learned Counsel submitted that the issue is decided by the Coordinate Bench in assessees own case, accordingly, ITA.No.66/Hyd/2013 Mylan Laboratories Ltd. (Formerly Matrix Laboratories Ltd.) the same has to be upheld for the other amount also. As far as the claim of depreciation on carry forward non-compete fee is concerned, we have already directed the Assessing Officer to follow ITAT Orders given in that case which is binding, being the claim of depreciation on the written down value. However, for the fresh claim to be entertained on the payment made for Concord Biotech Limited to Mr. Sudhir Vaid, the issue has to be examined afresh.

51. After considering the rival submissions, we are of the opinion that the cases against the assessee are more in number and there is a consistent view of the ITAT in not allowing the depreciation on non-compete fee. This issue which was originally considered in the case of Tecumse India Pvt. Ltd. Addl. CIT 5 ITR TRIB 50 (Del.) wherein the proposition canvassed by the assessee that non-compete fee is revenue expenditure was rejected and held that non- compete fee for acquisition of business has been held as capital expenditure as the same was incurred for the initial outlay of the business. Following the above principles and the decision of the Honble Delhi High Court in the case of Hindustan Coco Beverages Pvt. Ltd. 331 ITR 192 (Del), the ITAT, Chennai Bench A in Arkema Peroxides India (P) Ltd. ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 19 vs. ACIT vide ITA.No.2212/Mad/2006 dated 13.01.2012 has held, as under : "From the decision of the honble Delhi High Court in the case of CIT v. Hindustan Coco Cola Beverages (P.) Ltd. [2011] 331 ITR 192 (Delhi) it is clear that business or commercial rights of similar nature are not manufactured or produced over-night, but are brought into existence by experience and reputation. The non-compete fee is outcome of an agreement entered into between two parties. It does not represent any intangible asset, such as, know-how, patents, copyrights, trade marks, licences, franchises, etc. Therefore, in view of decision of the honble Delhi High Court in the case of HindustanCoca Cola Beverages P. Ltd. non-compete agreement would not create an asset of intangible nature eligible for depreciation under section 32(1)(ii) of the Act. The decision of the Tribunal, Chennai Bench in the case of ITO (OSD) v. Medicorp Technologies India Ltd.[2010] 2 ITR (Trib) 367 (Chennai) was rendered prior to the decision of the honble Delhi High Court in the case of Hindustan Coca Cola Beverages P. Ltd. Hence it renders no help to the assessee. Therefore, we are not in agreement with the arguments of the assessee that non-compete fee is an intangible asset to which provisions of section 32(1)(ii) of the Act are applicable. Therefore, in our considered opinion, the depreciation cannot be allowed on amount of non- compete fee".

52. As can be seen from the above, the Tribunal has distinguished the decision in the case of Medicorp relied by the assessee itself, which is reported at (2010) 2 ITR (Trib.) 367 (Chennai). In view of this, we are of the opinion that the depreciation cannot be allowed on an amount of non- compete fee, which was in fact paid to the Managing Director of the Company for not taking any employment. This cannot be considered under section 32(1) as an intangible asset. Accordingly, the claim of depreciation on the item (a) is not allowed and to that extent ground is rejected.

Respectfully following the above decision of the Tribunal, we uphold the disallowance made by the Assessing Officer as per the direction of the DRP and reject this part of ground No.7 of the assessee in this appeal. ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 20

20. As for the second issue, against (b) above, relating to depreciation @ 25% amounting to Rs.6,56,250 on brought forward written down value of Rs.26,25,000 in respect of non-compete fee of Rs.40,00,000 paid in assessment year 2007-08 to Sudhir Vaid in relation to Concord Biotech Limited, learned representatives of both the sides have agreed that this issue is squarely covered in favour of the assessee and against the Revenue by the order of the Tribunal dated 16.1.2014 in assessees own case for assessment year 2008-09 cited supra, wherein a similar issue, raised by way of ground no.15(b), was considered and decided in favour of the assessee and against the Revenue, vide paras 47 thereof, which read as follows-

47. This ground is against the claim of depreciation on different amounts paid by the assessee. The sub ground(b) is with reference to the claim of depreciation of Rs.8,89,893/- on brought forward written down value of Rs.35,59,570/- in respect of non-compete fee paid to M/s. Medispan Ltd by Medicorp Technolgoies Ltd. in previous year relevant to assessment year 2002-2003. Consequent to merger of the Medicorp Technologies Ltd. with the assessee- company, the depreciation was claimed on the written down value. Even though the assessees claim was crystallized by the Orders of the ITAT in ITA.No.201/2004- 2005 dated 25.06.2007, wherein the payment of fee was considered eligible for depreciation, the Assessing Officer did not grant the depreciation on the reason that reference application is pending before the Honble High Court and the issue has not been finalized. This cannot be a reason for denying the depreciation claimed. Since, ITAT has already ordered the depreciation to be allowed in assessment year 2002-2003, consequently, depreciation has to be allowed by the Assessing Officer in this year. He is empowered to take rectification proceedings in case that order was not upheld by the Honble High Court. In view of this, to that extent of claim of depreciation amounting to Rs.8,89,893/- on brought forward written down value, Assessing Officer is directed to allow the depreciation after verifying the WDV figures. Part of the ground (b) is accordingly allowed.

Respectfully following the above decision of the Tribunal, we accept the contentions of the assessee on this issue, and direct the ITA No.518 & 611/Hyd/2014 M/s. Mylan Laboratories Limited (Formerly Matrix Laboratories Limited), Hyderabad 21 Assessing Officer to allow the claim of the assessee for depreciation @ 25% amounting to Rs.6,56,250 on brought forward written down value of Rs.26,25,000 in respect of non-compete fee of Rs.40,00,000 paid in assessment year 2007-08 to Sudhir Vaid in relation to Concord Biotech Limited. This part of ground No.7 of the assessee in this appeal is allowed.

21. In the result, assessees appeal is partly allowed and Revenue appeal is dismissed. Order pronounced in the court on 10 th December, 2014 Sd/- Sd/- (Asha Vijayaraghavan) (P.M.Jagtap) Judicial Member Accountant Member Dt/- 10 th December, 2014 Copy forwarded to: 1. M/s. Mylan Laboratories (Formerly Matrix Laboratories Limited), Plot No.564/A/22, Road No.92, Jubilee Hills, Hyderabad

2. Dy. Commissioner of Income-tax Circle 16(2), Hyderabad

3. Dispute Resolution Panel Hyderabad

4. Commissioner of Income-tax IV, Hyderabad

5. Departmental Representative, ITAT, Hyderabad. B.V.S