2012 (10) TMI 396 - AT - Income Tax

Tribunal Decision: Mixed outcome for assessee and revenue on various expense disallowances

M/s Glenmark Pharmaceuticals Ltd. Versus The Addl Commr of Income Tax, Cen Range VIII, Mumbai

M/s Glenmark Pharmaceuticals Ltd. Versus The Addl Commr of Income Tax, Cen Range VIII, Mumbai - TMI Issues Involved:1. Violation of principles of natural justice.2. Deduction of FCCB issue expenses.3. Deduction of repairs and maintenance expenses.4. Deduction of product development expenses.5. Addition of outstanding creditors under section 41(1).6. Disallowance under section 14A.7. Interest charges under sections 234B and 234C.8. Depreciation on royalty payments.9. Disallowance under section 43B for late payment of PF and ESIC.10. Deduction under section 35(1)(iv) for research and development expenses.Detailed Analysis:1. Violation of Principles of Natural Justice:The assessee did not press this ground, and it was dismissed as not pressed.2. Deduction of FCCB Issue Expenses:- The Assessing Officer (AO) disallowed the FCCB issue expenses, treating them as capital in nature.- The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction under section 37(1) but disallowed Rs. 1,31,18,249/- as it pertained to earlier years.- The Tribunal found that the expenses were booked in the year under consideration as the bills were received during that year. It held the disallowance by CIT(A) unjustified and deleted it.3. Deduction of Repairs and Maintenance Expenses:- The AO disallowed Rs. 79,76,021/- treating it as capital in nature.- CIT(A) restricted the disallowance to Rs. 14,35,542/-.- The Tribunal found that except for expenses related to the erection and commissioning of the effluent treatment plant, all other expenses were revenue in nature. It directed the AO to allow applicable depreciation on the effluent treatment plant expenses and deleted the rest of the disallowance.4. Deduction of Product Development Expenses:- The AO disallowed Rs. 13,00,86,333/- following the order for the assessment year 2005-06.- CIT(A) confirmed the disallowance.- The Tribunal noted that the issue was decided in favor of the assessee for the assessment year 2005-06 and followed the same, deciding the issue in favor of the assessee.5. Addition of Outstanding Creditors under Section 41(1):- The AO added Rs. 10,41,178/- under section 41(1) for creditors outstanding for more than three years.- CIT(A) confirmed the addition.- The Tribunal, following its decision for the assessment year 2005-06, deleted the addition, holding that mere passage of time does not prove cessation of liability.6. Disallowance under Section 14A:- The AO disallowed Rs. 34,52,466/- under section 14A by applying Rule 8D.- CIT(A) set aside the issue to the AO for recalculation as per the jurisdictional High Court's decision.- The Tribunal directed the AO to consider the availability of the assessee's own funds and the investment in foreign companies, noting that dividend from foreign companies is not exempt income.7. Interest Charges under Sections 234B and 234C:This issue was not separately discussed in detail in the judgment.8. Depreciation on Royalty Payments:- The AO disallowed depreciation on royalty payments.- CIT(A) allowed the claim following the order for the assessment year 2001-02.- The Tribunal, following its earlier decisions, confirmed the CIT(A)'s order, allowing depreciation on royalty payments.9. Disallowance under Section 43B for Late Payment of PF and ESIC:- The AO disallowed Rs. 8,31,399/- for late payment of PF and ESIC.- CIT(A) deleted the addition, noting the payments were within the grace period.- The Tribunal confirmed the CIT(A)'s order, following its earlier decisions.10. Deduction under Section 35(1)(iv) for Research and Development Expenses:- The AO disallowed the deduction for building expenses used for research and development.- CIT(A) allowed the deduction.- The Tribunal, following the jurisdictional High Court's decision, confirmed the CIT(A)'s order, allowing the deduction.Conclusion:The assessee's appeal was partly allowed, and the revenue's appeal was dismissed.