TaxTMI 
TaxTMI 
2018 (11) TMI 266
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.... There was search and seizure action u/s.132 of the Act on the assessee's group of cases on 21-06-2011. In response to notice u/s.153A of the Act, assessee filed the return of income on 15-10-2010 declaring total income of Rs. 42,12,57,021/-. During the said search action, various incriminating documents were found and seized/ by the Department in respect of entities connected with the group. Cash was also seized by the Department. During the assessment proceedings u/s.143(3) of the Act for the A.Y.2010-11, AO made various disallowances i.e. additions u/s.14A of the Act, EDP expenses, Foreign Travel Expenses, depreciation on plant and machinery, freight and insurance expense pertains to EOU unit, provision for leave encashment, repairs to building, plant and machinery and product development expenses, etc., apart from others. AO assessed the income of the assessee for the year under consideration at Rs. 158,31,61,728/-. CIT(A) partly allowed the appeal of the assessee relying on the decisions of his predecessor/Tribunal. 3. Aggrieved with the part relief given by the CIT(A), the Revenue is in appeal before the Tribunal. Further, aggrieved with the confirmation of additions, the....
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....office of Director of appellant company and depreciation of Rs. 15,26,708/- on the assets placed thereat. 9. in upholding the disallowance of purchases of Rs. 7,78,950/- by treating the same as 'Bogus purchases'. 10. in confirming the action of A.O. for not directing the AO to reduce Wealth Tax paid of Rs. 21,40,955/- for computing book profit u/s.115JB. 11. The appellant craves leave to add/alter/withdraw any of the 'Grounds of Appeal' at the time of appeal proceedings. Your appellant further submits that the grounds of appeal are, save as otherwise specified, notwithstanding and without prejudice to each other." 5.1 Assessee also filed modified grounds and the same read as under: "1a. The Ld.CIT(A) ought to have held that no disallowance u/s.14A(2) r.w.r.8D can be sustained in the absence of a specific recording of satisfaction by the A.O. based on cogent material and having regard to the accounts of the assessee, to the effect that the claim of the assessee is not correct. b. The Ld.CIT(A) failed to appreciate that the A.O. made the disallowance merely on the basis of observation that "salaries and other administrative expenses are debited to P&L A/c for both taxable ....
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....to the book of account of the assessee. Further, with similar kind of satisfaction in the case of Poonawalla Investment and Industries Pvt. Ltd. (supra), we hold that the same falls short of the requirement. For the sake of completeness, relevant paras are extracted as follows : "27. In connection with Ground No.1, Ld. Counsel for the assessee submitted that AO failed to record satisfaction which is required while invoking the provisions of section 14A of the Act r.w. Rule 8D of the I.T. Rules, 1962. Bringing our attention to the contents of Para No.5.1 of the assessment order, Ld. Counsel submitted that the AO failed to record the satisfaction before invoking the provisions u/s.14A of the Act. Further, Ld. AR read out the relevant lines from the said para of the assessment order. For the sake of completeness, we proceed to extract the same as under : "5.1. . . . . . . . It is difficult to accept the proposition that all the tax free income has been earned without incurring these expenditures and these expenditure were incurred only for earning taxable income. Therefore, I am satisfied that the assessee has not made adequate disallowance as mandated u/s.14A of the I.T. Act ....
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.... India Limited, (in the matter of iGate Computer Systems Limited, (formerly Patni Computer systems Limited amalgamated with iGate Global Solutions Limited and name changed) Vs. DCIT vide ITA Nos. 216 and 360/PUN/2015, order dated 25-01-2018 and allowed the issue in favour of the assessee. For the sake of completeness, relevant operational paras are extracted here as under : "34. We have heard the rival contentions and perused the record. The Assessing Officer while passing the assessment order in para 10 had observed that the assessee had earned significant amount of tax free dividends and in the computation of income, the assessee has disallowed sum of Rs. 50 lakhs under section 14A of the Act. Then, reference is made to the Note filed by the assessee on expenditure disallowable under section 14A of the Act. The Assessing Officer thereafter, takes note of the contents of said explanation and observed as under:- "I have gone through the submissions made by the assessee. It is observed that apart from investments in the overseas subsidiaries (where there is no tax-free income since the dividend is also taxable) the investments made by the assessee are in mutual funds. The enti....
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.... as earlier prevailing, would become applicable." (underline provided by us for emphasis) 36. The ratio laid down by the Hon'ble High Court of Delhi in Indiabulls Financial Services Ltd. Vs. DCIT (supra) is thus, not applicable. The ground of appeal No.3 raised by the Revenue is thus, dismissed." 32. From the above, we are of the view that the satisfaction recorded by the AO in Para No.5.1 is extremely based on the suspicion and surmises. The satisfaction arrived at by the AO with reference to the entries in the books of account of the assessee and also having regard to the correctness of the claim of the assessee. In that sense of the matter, the satisfaction recorded by the AO is extremely generic and which falls short of the legal requirement for assuming jurisdiction u/s.14A of the Act. Considering the above position, we are of the view that the AO failed to record the sustainable satisfaction before invoking the provisions of section 14A of the Act. Therefore, the disallowance made by the AO is unsustainable technically. Accordingly, this part of the argument of Ground No.1 is allowed. We find adjudication of the other issues of the said ground relating to merits bec....
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....On noting the fact, a similar issue was adjudicated, we proceed to extract relevant Para No.30 onwards from the order of Tribunal for the A.Y. 2009-10. The same reads as follows : "30. On hearing both the sides on this issue, we find the Tribunal in the assessee's own case vide ITA No.931/PUN/2013, dated 22-07-2016 for the A.Y.2008-09 has decided the issue against the assessee and the said finding is extracted here as under for the sake of completeness : "26. The seventh ground raised in the appeal by the assessee is against disallowance of foreign travel expenses of employees Rs. 25,77,069/-. The assessee had claimed the expenditure as revenue expenditure. The ld. AR of the assessee fairly admitted that in the earlier assessment year 2005-06 under identical circumstances the Tribunal has disallowed the capitalization of foreign travel expenditure of employees. The ld. AR placed on record a copy of the order of Tribunal in assessee's own case in ITA No. 1383/PN/2011 for assessment year 2006-07 decided on 22-02-2013. The Assessing Officer disallowed the foreign travel expenditure incurred on employees for finalizing the proposal of purchasing the plant and machinery. The assesse....
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....o be decided as to whether the impugned expenditure of Rs. 7,91,197/- on the foreign travel was to be allowed as a revenue expenditure or not. Quite clearly, the plea of the assessee has been that such expenditure has been incurred on foreign tours of the employees for the purpose of purchase of machinery. Since the purpose of travel admittedly, is purchase of machinery, the CIT(A), in our view, made no mistake in holding that the cost of such foreign travel was liable to be treated as part of cost of machinery. Ostensibly, the purchase of the machinery was not finalized in the particular year but the same has been purchased in subsequent year, as adverted by the assessee before the Assessing Officer. Therefore, it would be in the fitness of things that such expenditure would form part of cost of purchase of machinery as and when in the year in which the machinery is capitalized. On facts, therefore, the claim of the assessee for allowability of such expenditure as revenue expenditure is liable to be negated and on this aspect, we affirm the order of the Assessing Officer. In so far as the reliance placed by the assessee on the decision of the Tribunal for A.Y. 2002-03 is concern....
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....oses." 8.3 From the above, it is evident that the similar issue has been the bone of contention over the assessment years 2008-09 & 2009-10 too. Following the principle of consistency, we proceed to remit the issue to the file of AO with identical direction. Accordingly, the Ground No.2 is allowed for statistical purposes. 9. Ground No.3 relates to classification issues qua the depreciation rates. At the outset, Ld. Counsel for the assessee submitted that this issue stands covered by the order of Tribunal in the assessee's own case for the A.Yrs. 2008-09 and 2009-10. The following is the write up given by the Ld. Counsel for the assessee in the chart mentioned above: "The issue has been decided in favour of assessee in assessee's own case vide ITAT order of A.Y. 2009-10, dt. 08-06-2018 (Appeal No.1184/PUN/2015). "Please refer Page Nos.19-20, Para No.32-34 of the above order. 9.1 On hearing both the sides, we perused the relevant paragraphs 32 to 34 of the order of Tribunal for the A.Y. 2009-10 and find it appropriate to extract the same below : "32. Third issue: Ground No.3 raised by the assessee relates to classification of items of fixed assets amounting to Rs. 22,94,45....
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....iscussion given at Para No.18 has decided the issue against the assessee relying on the order of Tribunal for the A.Y. 2002-03 wherein the Tribunal relied on the judgment of Hon'ble Calcutta High Court in the case of Exide Industries Ltd. and Another Vs. Union of India 292 ITR 470 and the judgment of Hon'ble Bombay High Court in the case of Universal medicate Private Limited 324 ITR 263. For the sake of completeness, we proceed to extract the relevant finding given by the Tribunal (supra) and the same reads as under : "18. We have heard the submissions made by the ld. AR of the assessee and have perused the order of the Co-ordinate Bench in assessee's own case in ITA No.413/PN/2006 for assessment year 2002-03 decided on 24-02-2012. We find that the Co-ordinate Bench of the Tribunal has observed that this issue has been decided against the assessee by the Hon'ble Calcutta High Court in the case of Exide Industries Ltd. & ANR Vs. Union of India reported as 292 ITR470 and Hon'ble Bombay High Court in the case of Universal Medicare Private Limited reported as 324 ITR 263. The ld. AR of the assessee in the preceding assessment years has not pressed this ground. The ld. AR has ....
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....t charges. Aggrieved with the order of CIT(A), the assessee is in appeal before us. 45. Ld counsel for the assessee at the outset submitted that the issue stands decided in favour of the assessee by the decision of the Pune Bench of the Tribunal in the case of KRA Holding and Trading Pvt. Ltd. Vs. DCIT and vice-versa vide ITA No.703/PN/2012 & ITA No.665/PN/2012 order dated 19-09-2013 for A.Y. 2008-09 wherein it has been held that the claim of Portfolio Management Fees is an allowable expenditure from such capital gain. 46. Ld. DR for the Revenue relied heavily on the orders of the AO/CIT(A). 47. After hearing both the sides on this issue and on perusing the orders of the Revenue, we find this issue has to be decided in favour of the assessee by virtue of the decision of Pune Bench of the Tribunal in the case of KRA Holding and Trading Pvt. Ltd. (Supra) wherein the Tribunal observed as under: "9. In the appeal of the assessee, the solitary issue is with regard to the action of the CIT(A) in confirming the stand of the Assessing Officer that fees paid to ENAM Asset Management Company Pvt. Ltd. was not an allowable expenditure in computing appellant's income whether under the ....
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....pra) and noticed that the issue has been decided in favour of the assessee. Thereafter, the Tribunal noted that against the decision of the Tribunal dated 31st May, 2011 (supra), Revenue preferred an appeal before the Hon'ble Supreme Court only on the issue treatment of income from the sale of shares as 'capital gain' or 'business income' and that the Revenue had not preferred any appeal against the order of the Tribunal allowing the claim of deduction of expenditure by way of Portfolio Management Fee representing payments to ENAM Asset Management Company Pvt. Ltd. while computing the income under the head 'Capital Gains'. After noticing the aforesaid the Tribunal concluded as under in para 11 of its order dated 25.07.2012 : "11. The decision of the Mumbai Bench of the Tribunal in the case of Homi K. Bhabha vs. ITO was brought to our notice by the learned DR wherein it was held that Portfolio Management Scheme fees is not deductible against capital gains. The decision of the Pune Bench of the Tribunal in the case of KRA Holding & Trading was not followed by the Mumbai Bench in the above cited decision. The Mumbai Bench following other decisions of the coordinate Benches of the Tr....
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....ch of 6 kilometres from the company location. Details of breakup of the said expenditure are also given by the assessee. Assessee relied on the decision in the case of CIT Vs. Chowgule Chemicals Pvt. Ltd. 216 ITR 234. Assessee contended that assessee is engaged in the business of vaccine production and purified water is the main ingredient for running the business and hence the expenditure is to maintain the business and not to create an asset. Rejecting the explanations given by the assessee the AO treated the expenditure as capital expenditure and allowed depreciation @10%, as applicable to the intangible assets. Thus, the AO made net addition of Rs. 31,39,226. In the First Appellate proceedings, the CIT(A) upheld the addition made by the AO. While doing so, the CIT(A) distinguished the decision relied on by the assessee and held that the expenditure was incurred for laying a new water pipeline to the factory premises which belongs to the assessee, unlike in the case of CIT Vs. Chowgule Chemicals Pvt. Ltd. and such expenditure provides enduring benefit to the assessee over a period of time. Aggrieved with the order of CIT(A) the assessee is in appeal before us. 12.2 Before us, L....
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....ata Engineering and Locomotive Company Ltd. 201 ITR 1036. Contents of Para 4 of the said judgment are relevant and therefore, the same are extracted as under : "4. On a careful consideration of the facts of the present case, we find it difficult to accept the above contention. The various tests evolved from time to time by courts to determine whether an expenditure is a revenue expenditure or capital expenditure are too well known to need reiteration. Equally well known is the legal position that no test can be laid down for the purpose of universal application. The Supreme Court has also given a note of caution against indiscriminate application of the oft repeated tests like "once for all payments" and "enduring benefit test", and made it clear that these tests are not to be treated as something akin to statutory conditions. Whether an expenditure is revenue or capital will depend on the facts and circumstances of each case and on the application of the proper principles of law. As observed by this court in CIT v. Tata Engineering and Locomotive Co. Ltd. [1993] 201 ITR 1036 : "......One of the guiding factors should be the aim and object of the expenditure. The question, howe....
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.... rights constitute Revenue expenditure. Therefore, we are of the opinion that the expenditure incurred on laying of the water pipeline involving the land owned by Maharashtra Government constitutes Revenue expenditure. Accordingly, Ground No.7 raised by the assessee is allowed in favour of the assessee." 12.5 On the facts as well as on law, the issue is linked to the ones decided by us in A.Y.2009-10. Considering the settled nature of the issue and following the rule of consistency, we allow Ground No.6 in favour of the assessee. 13. Ground No.7 raised by the assessee relates to disallowance on account of selling and distribution expenses at Rs. 1,11,64,214/-. 13.1 Relevant facts on this issue include that, assessee during the year under consideration, launched various schemes for the doctors. On being asked as to why the expenditure on these schemes should not be disallowed u/s.37(1) of the Act, assessee furnished the reply. The AO rejected the submissions given by the assessee relying on the CBDT Circular No.5/2012, dated 01-08-2012. Eventually, the AO disallowed an amount of Rs. 2,21,01,193/- u/s.37(1) of the Act. However, the AO allowed the set off of the same against the ....
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....tical issue was the subject matter in the assessee's own case in ITA No.549/PUN/2016, dated 12-10-2018 for the A.Y. 2011-12 has been allowed in favour of the assessee. We therefore proceed to extract the finding given by the Tribunal here as under: "15.5 We heard both the sides and perused the orders of the Revenue and the decisions relied on by the Ld. Counsel for the assessee. We perused the decision of Pune Bench of the Tribunal in the case of Emcure Pharmaceuticals Ltd. decided on 29-01-2018 (supra) had an occasion to decide an identical issue in favour of the assessee. We proceed to extract the findings given by the Tribunal here as under for the sake of completeness : "8. We heard both the parties on the issue of requirement of making disallowance u/s.37(1) of the Act in respect of the companies, the giver of the gifts and the articles and others to the medical professionals. There is no dispute on the fact that claim of Rs. 76,28,622/- was by the assessee on the gifts and other benefits passed on to the medical professionals. There is also no dispute on the taxability of the same in the hands of the said medical professionals. The only dispute relates to the correct le....
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....ncurred by the assessee, it is seen that under the head "Customer Relationship Management", the assessee arranges national level seminar and discussion panels of eminent doctors and inviting of other doctors to participate in the seminars on a topic related to therapeutic area. It arranges lectures and sponsors knowledge upgrade course which helps pharmaceutical companies to make aware of the products and medicines manufactured and launched by it. Under Key Account Management, the assessee makes endeavour to create awareness amongst certain class of key doctors about the products of the assessee and the new developments taking place in the area of medicine and providing correct diagnosis and treatment of the patients. The said activities by the assessee are to make the doctors aware of its products and research work carried out by it for bringing the medicine in the market and its results are based on several levels of tests and approvals. Unless the pharmaceutical companies make aware of such kind of products to key doctors or medical practitioners, then only it can successfully launch its products/medicines. This kind of expenditure is definitely in the nature of sales and busine....
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....e pharmaceutical and medical device companies. Whether there is any contravention of the MCI Regulations or not is a matter which can be decided by the MCI itself and not by the Income-tax Department. Furthermore, the MCI has itself admitted that it has no jurisdiction whatsoever over any association/ society etc and its jurisdiction is confined only to the conduct of the registered medical practitioners. Furthermore, since the said MCI Regulations 2002 contains punitive "provisions, it has to be read strictly and consequently it can apply only to Medical Practitioners and Physicians and not to the pharmaceutical companies. Further, MCI Act, 1956 does not apply pharmaceutical companies and consequently MCI Regulations 2002 cannot apply to such companies. 21. CBDT Circular no. 5 of 2012 seeks to disallow expenditure incurred by pharmaceutical companies inter-alia in providing 'freebies' to doctors in violation of the MCI Regulations. The term "freebies' has neither been defined in the Income-tax Act nor in the MCI Regulations'. However, the expenditure so incurred by assessee does not amount to provision of 'freebies' to medical practitioners. The exp....
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....al company not to incur any development or sales promotion expenses. A law which is applicable to different class of persons or particular category of assessee, same cannot be made applicable to all. The regulation of 2002 issued by the Medical Council of India (supra), provides limitation/curb/prohibition for medical practitioners only and not for pharmaceutical companies. Here the maxim of 'Expressio Unius Est Exclusio Alterius' is clearly applicable, that is, if a particular expression in the statute is expressly stated for particular class of assessee then by implication what has not been stated or expressed in the statute has to be excluded for other class of assessee. If the Medical Council regulation is applicable to medical practitioners then it cannot be made applicable to Pharma or allied health care companies. If section 37(1) is applicable to an assessee claiming the expense then by implication, any impairment caused by Explanation 1 will apply to that assessee only. Any impairment or prohibition by any law/regulation on a different class of person/assessee will not impinge upon the assessee claiming the expenditure under this section. 24. We observe that the ....
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....by creating awareness amongst doctors about the new research in the medical field and therapeutic areas, etc. Every day there are new developments taking place around the world in the area of medicine and therapeutic, hence in order to provide correct diagnosis and treatment of the patients, it is imperative that the doctors should keep themselves updated with the latest developments in the medicine and the main object of such conferences and seminars is to update the doctors of the latest developments, which is beneficial to the doctors in treating the patients as well as the pharmaceutical companies." 9. The above judgmental laws are relevant for the proposition that the circular issued by the CBDT enlarging the scope of disallowance to the pharmaceutical companies is without any enabling notification or circular of the Medical Council of India. Considering the settled legal position on the issue, we are of the opinion that the issue now stands covered in favour of the assessee. The pharmaceutical company like the assessee is outside the scope of the circulars by the Medical Council of India or the CBDT. Therefore, the conclusions of the AO/CIT(A) in this regard are reversed. T....
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....ovation. At the end of the proceedings, the Tribunal allowed the ground raised by the assessee. We find it relevant to extract the relevant paras of the Tribunal (supra) and the same reads as under : "25. On this issue, Ld. Counsel for the assessee submitted that similar issue was adjudicated in assessee's own case for A.Y. 2005-06 in his favour. Bringing our attention to Para Nos. 35 to 37 of the order of the Tribunal in ITA No.1703/PN/2014 dated 30-11-2016, Ld. Counsel for the assessee submitted that the expenditure incurred on Repairs/Renovation of the Bungalow was allowed, as 'business expenditure' of the assessee. 26. On hearing both the sides on this issue, we perused the said paragraphs of the order of the Tribunal in assessee's own case dated 30-11-2016 and for the sake of completeness, we proceed to extract the relevant lines of the operational para. The same reads as under : "35. In view of the above discussion, we are of the considered opinion that the expenditure of Rs. 1,17,88,000/- incurred on repairs and renovation on bungalow located at 70, Koregaon Park, Pune has to be allowed as a business expenditure in the hands of the assessee company. We therefore set as....
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.... relates to disallowance of Rs. 7,78,950/- on account of bogus purchases. 15.1 Relevant facts on this issue include that AO disallowed Rs. 7,78,950/- being purchases made from B.S. Enterprises and the CIT(A) relying on the order of his predecessor for the A.Y. 2009-10 confirmed the disallowance made by the AO. Contract of Para No.16 of the order of CIT(A) are relevant. 15.2 Aggrieved with the order of CIT(A) on this issue, the assessee is in appeal before the Tribunal. 15.3 We heard both the sides and perused the orders of the Revenue. Considering the nature of the issue, we find the Pune Benches of the Tribunal has decided the issue in a series of decisions. We find the decision of the Tribunal in the case of M/s. Chhabi Electricals Pvt. Ltd. and others Vs. DCIT in ITA No.795/PUN/2014, relating to assessment year 2010-11, decided on 28-04-2017 is not available to the AO/CIT(A). In this case, the Tribunal analysed various beneficiaries of such bogus entry operators and depending on the submission of the evidences with regard to the trail of goods, payment etc. the Tribunal identified 4 types of categories. For the sake of completeness, we proceed to extract the said paragraphs....
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...., then total bogus purchases cannot be added in the hands of assessee, but GP rate of 10% is to be applied on bogus purchases. Where the assessee does not establish its case, then the complete bogus purchases are to be added as hawala purchases. Further, in cases, where the statements are recorded and copies of which have been supplied to the assessee and assessee established the case of receipt of goods and its onward transmission by way of sale bills, then the factum of purchases by the assessee stands established in such circumstances. However, the benefit of purchases being made from grey market, needs estimation in the hands of assessee. The Tribunal has already held that the addition be made by estimating the same @ 10% of the alleged hawala purchases. Accordingly, it is so held. In view thereof, the issues which emerge are as under:- I. In case no information is received by the Assessing Officer from the Sale Tax Department and no copy of statement recorded or any other evidence is received from the Sales Tax Department, then no addition is to be made on the basis of name of hawala dealer in the list prepared by the Sales Tax Department, where the assessee had asked for th....
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....ssessee. 41. Now, coming to the factual aspects of each of the appeal, which have already been referred to by the learned Authorized Representative for the assessee and also refer to the orders of authorities below, where none has appeared on behalf of the assessee. 42. The lead case is in the case of M/s. Chhabi Electricals Pvt. Ltd., where the grievance of the assessee is that the Assessing Officer before making the addition has not even supplied the copy of statement or any other evidence recorded by the Sales Tax Department to establish that the purchases made by the assessee were bogus. I have already decided this issue in M/s. Chetan Enterprises Vs. ACIT (supra) and held that in cases where the Assessing Officer has failed to supply such statement recorded by the Sales Tax Department or any other evidence justifying the addition, no addition is to be made in the hands of assessee. The grounds of appeal raised by the assessee are thus, allowed. The learned Authorized Representative for the assessee has further referred to various documents i.e. gate pass, GRN and issue pass establish its case of delivery of goods i.e. purchase from hawala dealer and its onwards consumption....
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....we perused the said decision of the Tribunal and find the discussion given in Para Nos. 7 & 8 are relevant. The Tribunal considered the relevant provisions of section 115JA(2) of the Act and held the provisions of Wealth Tax constitutes an ascertained liability. The relevant portion of the Tribunal order is extracted as under : "7. . . . . . . . . . . .We agree with the contention of the learned authorised representative of the assessee that a provision made for wealth-tax cannot be equated to any liability towards income-tax and accordingly, cannot be disallowed while computing the book profit by invoking Clause (a) of the Explanation to Section 115JA(2) of the Act. 27. In any case, this is the case where no incriminating material was seized by the Revenue during the search action connecting to the disallowability of Wealth Tax payment qua the book profits computation. Therefore, on both counts, the assessee is entitled to relief. Accordingly, Ground No.9 raised by the assessee is allowed. Thus, the Wealth Tax paid constitutes an allowable deduction as held by the Tribunal in assessee's own case for the A.Y. 2008-09. Considering the settled nature of the issue in favour of....