Tribunal grants assessee's claims for depreciation, legal fees, staff welfare expenses. Revenue appeals dismissed.

The Tribunal allowed most of the claims made by the assessee, including depreciation on various assets, contributions to group gratuity scheme, legal and professional fees, foreign trip expenses, sales promotion expenses, staff welfare expenses, and others. The appeals of the revenue were dismissed due to the tax effect being below the prescribed limit. The Tribunal directed the AO to follow its directions and allow the claims accordingly.

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Issues Involved:
1. Depreciation on plant and machinery, building, furniture, and fixtures.
2. Depreciation on goodwill.
3. Disallowance of contribution to group gratuity scheme.
4. Disallowance of legal and professional fees.
5. Disallowance of sales commission.
6. Disallowance due to differences in ledger accounts.
7. Disallowance of foreign trip expenses.
8. Disallowance of sales promotion expenses.
9. Disallowance of convention and perfusion expenses.
10. Disallowance of capital expenditure.
11. Disallowance of staff welfare expenses.
12. Disallowance of non-compete fees.
13. Adjustment in opening stock.
14. Addition of notional commission income under transfer pricing regulations.
15. Disallowance of expenditure on gifts.
16. Disallowance of expenditure on catalogues and brochures.
17. Disallowance of expenditure on foreign trips of doctors.
18. Disallowance of expenditure on abandoned IT project.
19. Disallowance of software development expenses.
20. Addition due to ERP accounting system discrepancies.

Detailed Analysis:

Depreciation on Plant and Machinery, Building, Furniture, and Fixtures:
The Tribunal found that the assessee was entitled to depreciation on plant and machinery, building, furniture, and fixtures, even though the manufacturing operations were discontinued. The concept of block of assets allows depreciation on the aggregate WDV of all assets in the block. The Tribunal followed its earlier decisions in the assessee's own cases for previous years and deleted the disallowance made by the AO.

Depreciation on Goodwill:
The Tribunal allowed depreciation on goodwill, relying on the Supreme Court's ruling in CIT vs Smifs Securities Limited, which held that goodwill is a depreciable asset under Section 32(1)(ii) of the Act. The Tribunal directed the AO to allow depreciation on goodwill of INR 5,46,875.

Disallowance of Contribution to Group Gratuity Scheme:
The Tribunal allowed the deduction for contributions to the group gratuity scheme, noting that the gratuity trust maintained by the assessee had been granted approval with retrospective effect. The amount of INR 53,48,822 was allowed under Section 36(1)(v) of the Act.

Disallowance of Legal and Professional Fees:
The Tribunal allowed the legal and professional fees paid to Dr. Ashok N. Johari, except for INR 6,20,150, which was disallowed as it was not paid. The balance amount of INR 5,62,492, which was written back in the books, was directed not to be treated as income for AY 2006-07 to avoid double taxation.

Disallowance of Sales Commission:
The Tribunal confirmed the disallowance of sales commission of INR 11,19,811 as the assessee failed to provide evidence supporting the genuineness of the transaction.

Disallowance Due to Differences in Ledger Accounts:
The Tribunal upheld the disallowance of INR 22,48,672 due to differences between the General Ledger module and AR/AP modules, as the assessee failed to reconcile the differences.

Disallowance of Foreign Trip Expenses:
The Tribunal allowed the foreign trip expenses of INR 10,42,000 incurred by the director, noting that the trips were undertaken for business purposes. The Tribunal cited the decision in Sayaji Iron and Engg. Co. and held that the expenses were for the business of the company.

Disallowance of Sales Promotion Expenses:
The Tribunal allowed the sales promotion expenses, except for INR 9,201, which was not paid to Dr. Krishna. The Tribunal noted that the expenses were incurred in the normal course of business.

Disallowance of Convention and Perfusion Expenses:
The Tribunal allowed the entire convention and perfusion expenses, noting that the expenses were incurred for business purposes and were substantiated with supporting documents.

Disallowance of Capital Expenditure:
The Tribunal allowed the renovation expenses of INR 22,464 as revenue expenditure, noting that the amount was written back in the books and was revenue in nature.

Disallowance of Staff Welfare Expenses:
The Tribunal allowed the staff welfare expenses of INR 20,000, noting that the expenses were incurred wholly and exclusively for business purposes.

Disallowance of Non-Compete Fees:
The Tribunal allowed depreciation on non-compete fees, following its earlier decision in the assessee's own case for AY 2002-03, where it was held that non-compete fees are a capital expenditure eligible for depreciation.

Adjustment in Opening Stock:
The Tribunal directed the AO to allow the consequential adjustment in the opening stock of AY 2003-04 amounting to INR 36,34,884, following the order of the CIT(A).

Addition of Notional Commission Income Under Transfer Pricing Regulations:
The Tribunal restored the issue to the AO/Transfer Pricing Officer to determine the arm's length price using an appropriate method, following its earlier decision in the assessee's own case for AY 2002-03.

Disallowance of Expenditure on Gifts:
The Tribunal directed the AO to allow the entire expenditure incurred on gifts, following the reasoning given in AY 2003-04.

Disallowance of Expenditure on Catalogues and Brochures:
The Tribunal allowed the expenditure on catalogues and brochures, noting that the expenses were incurred under commercial expediency and were wholly and exclusively for business purposes.

Disallowance of Expenditure on Foreign Trips of Doctors:
The Tribunal allowed the expenditure on foreign trips of doctors, noting that the expenses were incurred wholly and exclusively for business purposes and no adhoc disallowance can be made.

Disallowance of Expenditure on Abandoned IT Project:
The Tribunal allowed the expenditure on the abandoned IT project as revenue expenditure, noting that it was a new venture undertaken by the existing business.

Disallowance of Software Development Expenses:
The Tribunal upheld the allowance of 60% depreciation on software development expenses by the CIT(A).

Addition Due to ERP Accounting System Discrepancies:
The Tribunal upheld the addition of INR 3,485 arising from discrepancies in the ERP accounting system, following the findings of the AO and CIT(A).

Conclusion:
The Tribunal allowed most of the claims made by the assessee, following its earlier decisions and relevant case laws. The appeals of the revenue were dismissed on the ground of tax effect being below the prescribed limit. The Tribunal directed the AO to follow its directions and allow the claims accordingly. The judgment was pronounced in the open court on 25/05/2017.

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