2014 (7) TMI 684 - AT - Income Tax

Tax Appeal Outcome: Assessee partly successful, Revenue appeal dismissed. Specific disallowances upheld and deleted.

CADILA PHARMACEUTICALS LTD Versus ADDL COMMISSIONER OF INCOME TAX

CADILA PHARMACEUTICALS LTD Versus ADDL COMMISSIONER OF INCOME TAX - TMI Issues Involved:1. Disallowance of donation under section 80G.2. Disallowance towards late payment of ESI & PF.3. Disallowance of unpaid leave encashment under section 43B.4. Disallowance of prior period expenses.5. Disallowance of expenses for scientific research under section 35(2AB).6. Disallowance of interest claimed as diverted for non-business purposes.7. Disallowance under section 14A.8. Disallowance of depreciation on building and plant and machinery.9. Addition in calculation of adjusted book profit for MAT.10. Addition of prior period expenses in book profit for MAT.11. Disallowance under section 14A in calculation of adjusted book profit for MAT.12. Deletion of addition due to short deduction of TDS.13. Deletion of disallowance of product registration expenses treated as capital expenditure.14. Restriction of disallowance of interest to average cost of fund.Detailed Analysis:1. Disallowance of Donation under Section 80G:The assessee's appeal regarding the disallowance of Rs. 1,02,575 towards donation under section 80G was rejected as no evidence was provided to support the donation.2. Disallowance towards Late Payment of ESI & PF:The issue was restored to the AO for verification to determine if the payment was made within the grace period, referencing the judgment in CIT vs. Amoli Organics (P.) Ltd.3. Disallowance of Unpaid Leave Encashment under Section 43B:The disallowance of Rs. 2,04,973 was upheld as the expenditure was not incurred during the year and leave encashment is covered under section 43B.4. Disallowance of Prior Period Expenses:The issue was restored to the CIT(A) for fresh decision after verifying the claim that the book entry was reversed. The CIT(A) had not given a finding on the assessee's submission regarding the reversal of entry.5. Disallowance of Expenses for Scientific Research under Section 35(2AB):The disallowance of Rs. 3,59,500 was deleted following the judgment in CIT vs. Cadila Healthcare Ltd., which allowed weighted deduction for expenses incurred outside the approved R&D facility.6. Disallowance of Interest Claimed as Diverted for Non-Business Purposes:The disallowance of Rs. 17,06,566 was deleted, referencing the judgment in CIT vs. Raghuvir Synthetics Ltd., which held that advances made for business purposes should not be disallowed.7. Disallowance under Section 14A:The application of Rule 8D was found unjustified for AY 2006-07 as it is applicable from AY 2008-09. The issue was restored to the CIT(A) for a fresh decision regarding the investments vested by amalgamation. The disallowance of administrative expenses was deleted.8. Disallowance of Depreciation on Building and Plant and Machinery:The disallowance of Rs. 28,77,600 was deleted, following the judgment in ACIT vs. Ashima Syntex Ltd., which held that commencement of production entitles the assessee to depreciation.9. Addition in Calculation of Adjusted Book Profit for MAT:The addition of Rs. 52,59,803 was deleted, following the judgment in ACIT vs. Vodafone Essar Gujarat Ltd., which held that provision for bad and doubtful debts is in the nature of diminution in the value of asset.10. Addition of Prior Period Expenses in Book Profit for MAT:The addition of Rs. 23,27,520 was deleted, following the judgment in CIT vs. Meghmani Organics Ltd., which held that the AO could not vary the profit and loss account duly audited and prepared in terms of the Companies Act.11. Disallowance under Section 14A in Calculation of Adjusted Book Profit for MAT:The disallowance of Rs. 64,13,532 was deleted, following the judgment in Commissioner of Income Tax vs. Gujarat State Fertilizers & Chemicals Ltd., which held that the AO could not make adjustments to the audited profit and loss account.12. Deletion of Addition Due to Short Deduction of TDS:The deletion of Rs. 6,74,282 due to short deduction of TDS was upheld, following the judgment in CIT vs. S.K. Tekriwal, which held that shortfall in deduction does not warrant disallowance under section 40(a)(ia).13. Deletion of Disallowance of Product Registration Expenses Treated as Capital Expenditure:The deletion of Rs. 1,43,79,597 was upheld, following the judgment in Commissioner of Income Tax vs. Torrent Pharmaceuticals Ltd., which treated such expenses as revenue expenses.14. Restriction of Disallowance of Interest to Average Cost of Fund:The restriction of disallowance to 4% of the average cost of fund was upheld, as the issue was decided in favor of the assessee in the appeal.Conclusion:The appeal of the assessee was partly allowed for statistical purposes, whereas the appeal of the Revenue was dismissed.