AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 1558
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....ness of manufacturing of vaccines, anti-sera, plasma and hormonal products. It filed its return of income on 30-10-2005 declaring total income of Rs. 32,40,22,220/-. The order u/s.143(3) was passed on 30-03-2007 determining the total income at Rs. 37,09,15,454/-. On the basis of the order passed by the CIT(A) on 26-03-2009 the order giving effect to CIT(A) was revised to Rs. 36,73,04,321/- vide order u/s.250 dated 06-11-2009. 5. Subsequently, an order u/s.263 was passed on 26-03- 2009 directing the Assessing Officer to check the deduction granted u/s.10B on export invoice of Rs. 5,26,58,037/-. The Assessing Officer passed order u/s.143(3) r.w.s. 263 on 07-11- 2009 without any change in the total income as determined vide order u/s.250 dated 06-11-2009 as mentioned above after examining the issue in the order passed u/s.263. 6. Subsequently, a search action u/s.132 of the Act was carried out in the case of Poonawalla group on 21-06-2011 of which the assessee company was one of the concerns. In the said search action the group had declared an amount of Rs. 54.44 crores for the A.Y. 2005-06 to 2012-13 as undisclosed income. The above disclosure includes disclosure of Rs. 10.80 c....
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....the following reasons : "I have gone through the assessee's replies. The submission of assessee is duly considered but not accepted on following grounds: i. The Asseessee in his submission made and discussed in preceeding paras, itself admitted that this amount represents the amount declared by Dr. Cyrus Poonawalla, the chairman of Serum Institute of India Ltd. in his statement u/s 132 dt. 20.07.2011. This has been declared with reference to page no. 10 of loose paper bundle no. 13 found at the office of Shri. Pannalal Kothari and with a view to honor the declaration made by Dr. C. S. Poonawalla u/s 132 on 20.07.2011, assessee has added the said sum of Rs. 1,17,88,000/- in connection with repairs & maintenance expenditure incurred for property at 70, Koregaon Park, Pune in the computation of income. Thus, it is apparent that assessee has not retracted from the disclosure made during search action in the case of assessee. ii. Assessee has taken stand that this is allowable business expenditure because it is forming the part of family arrangement as agreed upon between two brothers in order to ensure smooth functioning of the operations of the CSP group (Cyru....
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....iness from loses and damages arising out of family disputes and litigation. The assessee-company" has, however, contended that the same was agreed to be added back only to buy peace and avoid litigation. The assessee placed reliance on the following judicial decision : i. Chemosyn Ltd. Vs. ACIT 149 TTJ 294 (Mum) ii. Echjay Industries Ltd. Vs. DCIT ITA No.3103/Mum/1996 11. The assessee contended that the expenses are incurred for the office of the Director i.e. Mr. Zavaray Poonawala and therefore, if the expenditure is incurred on repairs/development of leased premises for the office of a Director, it is wholly and exclusively incurred for the purpose of business and such expenses on repairs of a leased premises for the use of a Director should be treated as revenue expenditure as it is prompted by commercial expediency as decided in the case of CIT Vs Sir Shadilal Enterprises Ltd (2009) 317 ITR 449 (All). It was contended that expenses incurred on leased premises be allowed as revenue expenditure and as the assessee did not acquire any capital asset alternatively depreciation will have to be allowed as the general principle is that expenditure on creation of....
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.... 1,17,88,000/-. The aforesaid bungalow belonged to the group of companies of the group i.e. Poonawala Finvest & Agro Pvt. Ltd and the appellant company claimed the said amount as expenditure on construction and repairs of the bungalow as business expenditure. Dr. Cyrus Poonawala, CMD of the appellant company in his statement recorded u/s 132(4) on 20-07-2011 declared the additional income of Rs. 1,17,88,000/- which is with reference to Page No 10 of loose paper bundle No 13 found at the office of Shri. Pannalal Kothari. The appellant has raised the issue that the said expenditure has been incurred to ensure smooth running of business without being affected by the disputes between CSP and ZSP group and the appellant being one of the parties, in the family settlement incurred the said expenses to protect the business from loss and damages arising out of family disputes and litigation. The appellant has filed the copy of the said family settlement/ or the family arrangement agreement dated 22-08-2002. On perusal of the said agreement it is noticed that the same has entered into in order to avoid differences and disputes in future of the next generation and in order to ensure a suitabl....
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....d exclusively for the purposes of business rather it is an expenditure only to earn personal gain and the appellant has failed to establish and demonstrate that the expenditure in question was incurred purely out of business consideration and for conducting the business out of business consideration and for conducting the business out of commercial expediency. In view of the above fact, I tend to agree to the observation of the Assessing Officer and the contention raised by the appellant does not appear to be convincing and hence the same is found to be not tenable. 3.8 In view of the above facts the ground of appeal No.1 raised by the appellant is dismissed." 14. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 15. The Ld. Counsel for the assessee strongly objected to the order of the CIT(A) in confirming the disallowance made by the Assessing Officer. He submitted that the Assessing Officer rejected the claim of deduction of Rs. 1,17,88,000/- as business expenditure for 3 reasons namely, (1) Chairman of the assessee company Dr. Cyrus Poonawalla had agreed in his statement u/s.132(4) and the same has not been retracted from the disclosure made ....
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.... books of PFAPL. In his statement Dr. C.S. Poonawalla has admitted this fact and has disclosed these amounts as incomes in the hands of the respective companies in the respective years. These receipts are not to be refunded to SIIL and PIIPL. Please explain as to why these receipts should not be considered as income in the hands of PFAPL. Ans. PFAPL owns a property at 70, Koregaon Park, Pune SIIL acquired it for its business purpose for which they have been paying PFAPL rent over the years which has been offered to tax by PFAPL. Over the years SIIL spent Rs. 9.62 cr on construction and PIIPL spent Rs. 7.21 cr thereon. Both these amounts are duly reflected in the books of accounts of the respective companies. PFAPL has also incurred expenditure on construction of the said property out of its own source. SIIL and PIIPL having agreed to withdraw their claim of right to use the said property and agreed not to claim the amount spent on the said property the benefit is now availed to PFAPL in the current financial year, i.e. F.Y. 2011-12 and hence the income is being offered in the hands of PFAPL of Rs. 16.83 crores for the F.Y. 2011-12 relevant to A.Y. 2012-13." 18. Referring t....
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.... circular the officers of the department must not take advantage of the ignorance of an assessee and to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. He submitted that admission by the Chairman of the assessee company is not binding on the assessee which was a pure question of law. This is very much an expenditure allowable as business expenditure. The assessee has not derived any benefit on capital account. The property does not belong to the assessee. By entering into the family arrangement, the shares held by other group were transferred to the CSP group and it is for the smooth running of the business. Therefore, this expenditure should be allowed as a business expenditure. 22. The Ld. Counsel for the assessee referring to the decision of the Pune Bench of the Tribunal in the case of DCIT Vs. Brahma Corp. Hotels & Resort Ltd. and batch of other appeals vide order dated 02-12-2014 submitted that the ....
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....urse of assessment proceedings submitted before the Assessing Officer that although an amount of Rs. 1,17,88,000/- was declared as additional income by Dr. Cyrus Poonawalla, Pune in his statement u/s.132(4), however, the same is allowable as business expenditure. It was also submitted that this amount of expenditure of Rs. 1,17,88,000/- has been offered to tax by Poonawalla Finvest and Agro Ltd, a ZSP group company. Therefore, again bringing to tax the said amount will amount to double taxation. Various decisions were also cited before the Assessing Officer to justify the claim as an allowable expenditure. It was further submitted that the expenditure of Rs. 1,17,88,000/- incurred for the repair and maintenance of the property at 70, Koregaon Park, Pune is a part of the family arrangement which was for smooth running of the business of the assessee company. However, we find the Assessing Officer rejected the argument of the assessee on the ground that the chairman of the assessee company Dr. Cyrus Poonawalla had agreed this amount as additional income in his statement recorded u/s.132(4) and the same has not been retracted. Further, the settlement was between two brothers and there....
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..... C.S. Poonawalla (CSP) and Shri Z.S. Poonawalla (ZSP) in which it was decided that a new bungalow would be constructed on the above premises and the expenditure would be incurred by SIIL. The intention was to provide for a separate office-cum-residence for Shri ZSP. Accordingly, SIIL had incurred the expenditure on construction of the bungalow amounting to Rs. 1080.84 lakhs over the years and M/s Poonawalla Investment & Industries Pvt. Ltd. (PIIPL) had incurred the expenditure of Rs. 721.20 lakhs. SIIL had claimed the above expenditure as a revenue expenditure in its books of account, while PIIPL. had capitalized the above expenditure and claimed depreciation thereon. The claim for the expenditure as a deduction was made by SIIL on the ground that it will have a right to use the bungalow for its business purposes as the bungalow belonged to PFAPL, the expenditure incurred-was claimed as a deduction in view of the decision of the Honble Supreme Court in the case of Associated Cement Company [172 ITR 257 (SC)] and L.H. Sugar Factory Ltd. [125 ITR 293 (SC)]. During the course of the search. Dr. CSP had agreed to withdraw the deduction claimed in the hands of SIIL and PIIPL over the y....
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....articulars before them indicate that some refund or relief is due to him. 31. We find the Hon'ble Bombay High Court in the case of CIT Vs. Pruthvi Brokers and Shareholders Ltd. (Supra) has held that the appellate authorities have power to consider claim not made in the return. The relevant observation of the Hon'ble High Court reads as under (Short notes) : "An assessee is entitled to raise not merely additional legal submissions before the appellate authorities but is also entitled to raise additional claims before them. The appellate authorities have the discretion to permit such additional claims to be raised. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The words "could not have been raised" must be construed liberally and not strictly. There may be several factors justifying the raising of a new plea in an appeal and each case must be considered on its own facts. Held, dismissing the appeal, that the orders of the Commissioner (Appeals) and the Tribunal clearly indicated that both th....
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....ment is a case of a statement made of a fact. Certain discrepancies in the sarki account were found by the ITO and the assessee was asked to reconcile-the same. The assessee expressed his inability to do so and agreed that the amount may be added to the income. The ITO recorded the same in the order sheet which was also signed by the partner of the assessee-firm. It was on these facts that the High Court held that the appeal to the AAC was not maintainable since the assessee had conceded before the AO that the discrepancies could not be reconciled and that the amount may be added to the income. This factual position was not resiled from by the assessee at any time thereafter before the ITO. The High Court, therefore, held that so long as the assessee's statement stood, it could not have a grievance in that behalf and was not entitled to appeal against the same. In our humble opinion, the judgment is not applicable where an admission or concession is made by the assessee on a pure question of law. No tax can be imposed or collected without the authority of law and merely because the assessee admits or concedes before the AO that a particular amount is taxable in law, there being....
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....d in 139 ITD 68 has held that expenditure incurred by the assessee company on payment of premium for purchase of its own shares from warring group of shareholders is revenue in nature and allowable as deduction. In that case, the shares of warring group of assessees who were creating problems in the smooth functioning of business were purchased by the assessee company at premium as per the orders of the Company Law Board and the said premium has been claimed as deductible expenditure being wholly and exclusively incurred for the purpose of business. The Assessing Officer disallowed the same. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer holding that the expenditure in question on payment of premium was incurred for the purpose of acquiring shares by a group of persons and not by the assessee company. He held that the said expenditure was of personal in nature and it cannot be said that the same was incurred for the purpose of the business of the assessee company. When the assessee challenged the order of the CIT(A) before the Tribunal the Tribunal held that the expenditure incurred for carrying on business of assessee smoothly is a deductible expenditure. On....
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.... between its two groups of shareholders spanning over six years. It also records that after the settlement of dispute in the financial year 2005-06 there was a substantial increase in the sales touching nearly Rs. 18 crores per annum. The impugned order of the Tribunal also notes that after settlement of the dispute new products were launched by the respondent-assessee-company. All this was evidence of the fact that the dispute between two groups of shareholders had affected the business of the company. 11. We find that the impugned order records a finding of fact that the amounts which were paid by the respondent assessee for the purpose of purchase of its shares, to its shareholder for subsequent cancellation was expenditure incurred only to enable smooth running of the business. Thus, the expenditure was incurred for carrying on its business smoothly and therefore, was a deductible expenditure. Thus, the impugned order of the Tribunal is essentially a finding of fact. The respondents have not been able to show that these findings are in any manner perverse or arbitrary. Therefore, questions nos. 3 to 5 does not give arise to any substantial question of law. Thus, question nos....
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....wn capital and free reserves of the assessee company are much more than the investment. Further, the Assessing Officer has not proved the nexus between the expenditure relatable to earning of exempt income. In the original assessment no disallowance was made u/s.14A. Referring to the decision of the Third Member of the Tribunal in the case of Wimco Seedlings Ltd. Vs. DCIT reported in 107 ITD 267 (Delhi) (TM) he submitted that the Tribunal has held that only expenditure which has been proved to have been incurred in relation to earning of tax free income can be disallowed and section 14A cannot be extended to disallow such expenditure which is assumed to have been incurred for the purpose of earning tax free income. Referring to the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. he submitted that the Hon'ble High Court in the said decision has held that if there were funds available both interest free and overdraft and or loans taken, then presumption would arise that investment would be out of the interest free funds generated or available with the company. If the interest free funds were sufficient to meet the investments, then i....