TaxTMI 
TaxTMI 
2018 (11) TMI 285
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....ntrol and management, which is mainly engaged in stud farm activities. 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 13-02-2012 declaring total income of Rs. 14,83,08,431/-. 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, AO made various disallowances 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 and finally assessed the income at Rs. 109,08,84,068/-. 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 assess....
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....sec. 32(1)(iia). 10. in confirming disallowance of Selling and Distribution expenses of Rs. 3,64,81,120/-. 11. in confirming the action of A.O. for not directing the AO to reduce Wealth Tax paid of Rs. 20,45,836/- for computing book profit u/s.115JB. 12. 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. 4.1 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 and tax free incomes, therefore it is difficult to accept that tax free ....
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....nd 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 and therefore, the case of the assessee is a fit case for computation of the said disallowanc....
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....uter 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 entire investment in mutual fund is ....
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...., 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....
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....se of machinery, needs to be verified by the AO, we find this issue needs to be remitted back to the file of AO for verification of correctness of the facts relating to this claim. AO is directed to verify the expenses in this regard after granting reasonable opportunity of being heard to the assessee. Assessee is directed to produce relevant documents to substantiate his claim. Accordingly, Ground No. 2 raised by the assessee is allowed for statistical purposes." 7.5 Following the same reasoning, we are of the view that this grounds needs to be remitted to the file of AO. Thus, Ground No.2 raised by the assessee is allowed for statistical purposes. 8. Ground No.3 raised by the assessee relates to classification of items of fixed assets amounting to Rs. 40,60,897/-. 8.1 Relevant facts of this issue include that the AO classified certain items as Furniture and allowed depreciation at the rate applicable to Furniture and certain items as Plant and Machinery and allowed depreciation at the rate applicable to them by applying functional test. Eventually, in the assessment made u/s.143(3) r.w.s. 153A of the Act, the AO made addition of Rs. 1,08,291/- being difference in depreci....
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....enue expenses should be available from 03-08-2010. Assessee submitted that section 35(2AB) was introduced with a view to encourage the R&D in industrial sector and nowhere it is mentioned R&D facility is to be approved from a particular date. For this proposition, he relied on the following decisions : 1. CIT Vs. Claris Life Sciences Ltd. 326 ITR 251 (Guj.) 2. Maruti Suzuki India Ltd. Vs. UOI 84 taxmann.com 45 (Delhi HC) 3. Banco Products (India) Ltd. Vs. DCIT 95 taxmann.com 132 (Gujarat). Ld. AR for the assessee further submitted that it carried out the scientific research in the facility approved by DSIR. Assessee incurred various expenditure which includes expenses on clinical trials for product development which are conducted out of the approved facility and the reasons behind the same are : "i. Clinical drug trial is an integral part of R&D activity carried by the approved R&D unit. ii. Due to peculiar nature of vaccines, practically of bringing subjects of clinical trials to the approved R&D facility and regulatory requirement of Ministry of Health, such trials are required to be necessarily carried out in the approved Government Hospitals. ....
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....t and this Court held that since the Petitioner had omitted to obtain the approval under Form 3CK, it is not entitled to the benefit of Section 35(2AB) since 2004. The facts of the present case are different and there has been no omission by the Petitioner herein to obtain approvals. The stage for approval arises after the recognition is granted by the DSIR, for which the application was filed right at inception by the Petitioner. Upon obtaining recognition, which was granted on 26th March 2014, the Form 3CK was filed on 31st March 2014. There has been no lapse of time, unlike in Apollo Tyres (supra) wherein the recognition was granted on 31st March, 2004 and the Form 3CK application was made only on 21st August, 2008. Thus the present case is clearly distinguishable from the facts in Apollo Tyres (supra). 43. In the present case, it could be true that there are some errors in the Petitioner's application dated 31st October, 2011, however, one cannot ignore that since 2011, the Petitioner has been candid with the DSIR about its expenses for the Gurgaon and Rohtak R&D Centres and has given the break-up of the expenditure incurred thereupon; has submitted the Auditor'....
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....he Tribunal in the case of Infosys Technologies Vs. JCIT 109 TTJ 631 (Bang.). Assessee contended that the said expenses has been incurred in the normal course of business and the dematerialization helped the assessee significantly in reducing the administrative costs. AO opined that the expenditure incurred for maintenance of share transactions from demat account is not to be allowed u/s.48 of the Act since the expenditure was not incurred wholly and exclusively in connection with such transfer or as the cost of acquisition and cost of improvement thereto and thus made the disallowance of sum of Rs. 4,28,524/-. While doing so, the AO relied on the decision of Kolkata Bench of the Tribunal in the case of ACIT Vs. Sri Raghupati Singhania - ITA No.1761/Kol/2010.The CIT(A) upheld the disallowance made by the AO relying on the earlier orders. Aggrieved with the order of CIT(A), the assessee is in appeal before us. 11.2 Ld counsel for the assessee at the outset submitted that the issue stands decided in favour of the assessee by virtue of the order of Tribunal in the assessee's own case for the A.Y. 2009-10. The Tribunal in the said order relied on the decision of the Pune Bench of th....
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....peal 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. 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 from the order of the Tribunal (supra) and the same read as under : "40. In view of the above said ratios, the present issue of bogus purchases is to be decided on the basis of facts of each case. The first aspect is the information received by the Assessing Officer from the Sales Tax Department in respect of alleged hawala dealers. In many cases, the Assessing Officer has not even received the copy of statement recorded or any other evidence from the Sales Tax Department, except the list of hawala dealers and on the basis of the said list, the assessment proceedings have been completed in the hands of assessee, who had made the purchases from the said parties. In case, no such evidence has been received by the Assessin....
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....0% 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 the said information during assessment proceedings. II. Where the Assessing Officer had received the statements of persons who had admitted to have just issued bills of sale without any delivery of goods. In view of such evidence, where the assessee had not entered into real transaction of purchase of goods and in the absence of any delivery of goods, the sales are bogus and the entire sales are to be added in the hands of assessee. Admittedly, the dealer had not even paid VAT against such passing of goods. III. The case where the Assessing Officer had confronted the information received from the Sales Tax Department and had supplied copies of statements recorded and had also issued notice under secti....
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....d 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 in the manufacturing process of the assessee. In such circumstances, where the assessee has established the trail of goods purchased to the final consumption, then there is no merit in the addition made by the Assessing Officer. Thus, the grounds of appeal raised by the assessee are allowed and appeal of the assessee is allowed." 12.7 Further, we find the said decision of the Tribunal is not available at the time of passing of order by the CIT(A) on 29-01-2016. In all fairness, we are of the opinion that the matter should be remanded to the file of CIT(A) for considering the above decision of the Tribunal and apply the ratio laid down to the facts of the present case. Accordi....
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....unal and the same reads as under : "54. We heard both the sides and perused the orders of the Revenue and the order of the Tribunal in the assessee's own case for the A.Yrs. 2006-07 and 2007-08. On perusal of the said order of the Tribunal (supra), it is evident that the ground raised in this appeal relates to rent as well as expenditure incurred on repairs and renovation. 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,....
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.... is allowed for statistical purposes. Thus, Ground No.8 is partly allowed for statistical purposes. 13.3 Considering the above, we are of the opinion that, with similar directions given in A.Y. 2009-10 (supra) this grounds is remanded to the file of AO for fresh adjudication. Accordingly, the Ground No.8 by the assessee is allowed for statistical purposes. 14. Ground No.9 relates to allowability of depreciation @80% on the cost and Electrical and Civil Works amounting to Rs. 20,82,47,820/-. 14.1 Relevant facts on this issue include that, during the impugned assessment year, assessee installed windmill and claimed depreciation @80% on the same. The AO relying on the decision of Tribunal in the case of Poonawalla Finvest and Agro (P) Ltd. Vs. ACIT 118 TTJ 68 allowed the depreciation at the rate of 10% and 15% on building/civil construction and transformer. In the First Appellate proceedings, the CIT(A) relying on the decision of Pune Bench of the Tribunal in the case of Ghodawat Energy Pvt. Ltd. in ITA No.1986/PN/2012, dated 14-07-2014 partly allowed the appeal of the assessee. We proceed to reproduce the operational para No.26 of the order of CIT(A) here as under : ....
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....2. The Tribunal has recorded finding of fact that windmill was erected in the desert area of Rajasthan which required special foundation of reinforced cement concrete and that the said reinforced cement concrete formed integral part of the windmill. The Tribunal has also followed the decision of this Court in the case of CIT Vs. Herdilla Chemicals Ltd. reported in (1005) 216 ITR 742 (Bom.) in allowing the claim of the assessee. In our opinion, the finding recorded by the Tribunal that RCC foundation forms integral part of the windmill is a finding of fact and no question of law arises from the same. Hence the appeal is dismissed with no order as to costs. 14.5 Further, we find the Pune Bench of the Tribunal also decided similar issue in catena of decisions. We find in the case of DCIT Vs. Shri Subhas Hastimal Lodha in ITA No.1078/PUN/2016 for the A.Y. 2011-12, dated 20-06-2018 held as under : "5. We heard both the sides on this limited issue of allowing of depreciation @80% for civil structures of the windmill. We also perused the orders of the Revenue authorities and the decisions relied on by both the representatives. We find it relevant to extract the discussion give....
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....d view it is a well settled legal position that expenses incurred on foundation should be considered as an integral part of the plant and machinery. This fact has been reiterated by the Hon'ble Supreme Court in the case of Challapalli Sugars Ltd. Vs. CIT (Supra) wherein it has been decided that "fixed assets should include all the expenditure necessary to bring such assets into existence and put them in working condition. During the course of the appellate proceedings Ld AR while referring the ratio of decision of CIT Vs. K. K. Enterprise (2014) reported at 108 DTR 0109 (Raj), Hon'ble Rajasthan High Court has observed that the civil work and foundation is necessary for strong foundation and no windmill could be installed without having a strong foundation. As such depreciation on investment for civil work and foundation at the rate which the depreciation is allowed to windmill is applicable for these items too. The electrical items, components and common power evacuation too are integral part of a wind mill as that could have not been operational without these items". The revenue challenged the decisions of the CIT(A) before the ITAT, Jodhpur be dismissed wherein the Hon....
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....iation on such investment was, therefore, rightly allowed." 3.1.4 Hon'ble Bombay High Court in the case of CIT-III, Pune Vs. Cooper Foundry Pvt. Ltd.(Supra) has also held that cement foundation is to be included in the cost of the windmill while granting depreciation @ 80%. Similar issue has been taken by Pune Bench "B" in the case of ACIT Vs. Western Precicast Pvt. Ltd. (Supra) and by Chennai Tribunal in the case of Kutti Spinners (P) Ltd. In view of the foregoing discussion and respectfully following the decisions of Bombay High Court in the case of CIT Vs. Great Eastern Shipping Co. Ltd. reported at 118 ITR 772 (Born) and Challapalli Sugars Ltd. Vs. CIT 98 ITR 167 (SC) and decision of Pune ITAT in the case of Mayura Steels Pvt. Ltd. Vs. ACIT (Supra), in the case of Dr. Santosh Kalmesh Prabhu Vs. ACIT (Supra) and in the case of ACIT Vs. Suma Shilipa Limited (Supra), I am of the considered view that higher depreciation is applicable in wind mill and also expenses incurred on civil structures are applicable in wind mill and therefore the amount of Rs. 54,19,719 disallowed by the AO on account of Hence, the AO is directed to delete the amount of Rs. 54,19,719/- on accou....
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....failed to appreciate the fact that the assessee company is one of the largest vaccine manufacturing company. During the year, assessee company launched various new products, such as Hibpro & Pentavac. In order to make the doctors aware of this innovation, assessee company conducted a campaign involving private doctors for encouraging the doctors to conduct vaccination on infants. In the process, a scheme was formulated offering discount on the basis of purchases made by them. He submitted that the AO failed in placing relying on the Notification issued by Medical Council of India dated 14-09-2009. The said circular prohibits medical practitioners, professional associates from taking any gift, travel facility, hospitality etc. AO failed to appreciate that the Pharma companies are not the members of Medical Council and hence, the notification is not applicable to them. AO failed to appreciate the facts on records that the expenditure incurred by the assessee company by giving discounts as incentive to the doctors are wholly & exclusively for the purpose of business. Passing of the discounts is a post-facto step, which cannot be equated with freebies, which are prohibited by the notif....
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.... that the code of conduct enshrined therein is meant to be followed and adhered by medical practitioners/doctors alone. It illustrates the various kinds of conduct or activities which a medical practitioner should avoid while dealing with pharmaceutical companies and allied health sector industry. It provides guidelines to the medical practitioners of their ethical codes and moral conduct. Nowhere the regulation or the notification mentions that such a regulation or code of conduct will cover pharmaceutical companies or health care sector in any manner. The department has not brought anything on record to show that the aforesaid regulation issued by Medical Council of India is meant for pharmaceutical companies in any manner........ The aforesaid provision applies to an assessee who is claiming deduction of expenditure while computing his business income. The Explanation provides an embargo upon allowing any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. This means that there should be an offence by an assessee who is claiming the expenditure or there is any kind of prohibition by law which is applicable to the asses....
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....e framing the assessment, AO has called for the detail of expenditure so incurred and examined the nature of expenditure and thereafter only AO has allowed the expenditure as having been incurred for the purpose of business. We had also carefully gone through the notification dated 11/03/2002 notifying the regulations issued by the Medical Council of India (MCI). The code of conduct laid down in the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 ('MCI Regulations') issued with effect from 10th December 2009 applies only to doctors and not to Pharmaceutical and Medical device companies. Accordingly, MCI Regulations are not applicable to assessee, the question of assessee incurring expenditure in alleged violation of the regulations does not arise. 18. On the plain and simple reading of the provision of the Indian Medical Council Act, 1956, it is apparent that the ambit of statutory provisions relating to professional conduct of registered medical practitioners under the Indian Medical Council Act, 1956 is restricted only to persons registered as medical practitioners with the State Medical Council and whose names are entered in....
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....egulation issued by Medical Council of India is meant for pharmaceutical companies in any manner. On the contrary, the assessee has brought to the notice of the bench the judgment of the Delhi High Court in the case of Max Hospital v. MCI in [WPC 1334 of 2013, dated 10- 1-2014], wherein the Medical Council of India admitted that the Indian Medical Council Regulation of 2002 has jurisdiction to take action only against the medical practitioners and not to health sector industry. From the aforesaid decision, it is ostensibly clear that the Medical Council of India has no jurisdiction to pass any order or regulation against any hospital or any health care sector under its 2002 regulation. So once the Indian Medical Council Regulation does not have any jurisdiction nor has any authority under law upon the pharmaceutical company or any allied health sector industry, then such a regulation cannot have any prohibitory effect on the pharmaceutical company like the assessee. If Medical Council regulation does not have any jurisdiction upon pharmaceutical companies and it is inapplicable upon Pharma companies like assessee then, where is the violation of any of law/regulation? Under which pr....
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....y provided therein. The CBDT can tone down the rigours of law and ensure a fair enforcement of the provisions by issuing circulars and by clarifying the statutory provisions. CBDT circulars act like 'contemporanea expositio' in interpreting the statutory provisions and to ascertain the true meaning enunciated at the time when statute was enacted. However the CBDT in its power cannot create a new impairment adverse to an assessee or to a class of assessee without any sanction of law. The circular issued by the CBDT must confirm to tax laws and for purpose of giving administrative relief or for clarifying the provisions of law and cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a different regulation issued under a different act so as to impose any kind of hardship or liability to the assessee. In any case, it is trite law that the CBDT circular which creates a burden or liability or imposes a new kind of imparity, same cannot be reckoned retrospectively. The beneficial circular may apply retrospectively but a circular imposing a burden has to be applied prospectively only. Here in this case the CBDT has enlarged the scope o....
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....assessee relates to allowability of deduction to the Wealth Tax paid by the assessee for the purpose of computing book profits u/s.115JB of the Act. AO denied the said payment of tax as not an allowable deduction. 16.1 Before us, Ld. Counsel for the assessee submitted that this issue is also covered in favour of the assessee by virtue of decision of Tribunal in the assessee's own case in ITA Nos. 1183 and 1537/PUN/2015, dated 28-11-2017 for the A.Y. 2008-09 as well as ITA No.1184/PUN/2016, dated 08-06-2018 for the A.Y. 2009-10. 16.1 On hearing both the sides, we find this issue needs to be decided allowed in favour of the assessee by virtue of orders of Tribunal (supra) in assessee's own case for the A.Yrs. 2008-09 and 2009-10. For the sake of completeness, we proceed to extract the finding given by the Tribunal for the A.Y. 2009-10 (supra) and the same reads as under : 59. On hearing both the sides, we find this issue has to be decided in favour of the assessee in view of the order of Tribunal (supra) in assessee's own case for the A.Y. 2008-09. For the sake of completeness, we proceed to extract the finding given by the Tribunal and the same reads as under : ....
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.... to Rs. 76,11,395/-. d. in not addressing towards addition of Rs. 76,11,395 to income in the computation inspite of it being set off in the amount declared in search action as "Non Business expenditure". 3. in directing the AO to classify items of fixed assets of Rs. 15,19,712/- like stainless steel tables, stools, racks etc. located in manufacturing unit into "Furniture and Fixtures' and 'Plant and Machinery'. 4. in not allowing the weighted deduction of expenditure incurred for clinical trials amounting to Rs. 5,23,17,132/-. 5. in not confirming the disallowance of "Demat charges" amounting to Rs. 7,52,744/- made by the Assessing Officer. 6. a. in not considering the 'cost of electrical work and civil work' of Rs. 1,22,83,188/- required to erect Windmill as integrated cost of Windmill eligible for @80% depreciation. b. in not granting additional depreciation on Windmills generation "Power for captive consumption inspite of complying the provisions of sec.32(1)(iia). 7. in confirming disallowance of Selling and Distribution expenses of Rs. 4,03,04,115/- (after setting of Rs. 2,48,88,605/- against the amount of income o....