TaxTMI 
TaxTMI 
2018 (11) TMI 285
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....ged 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 assessee is in appeal before us We shall first tak....
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..... 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 incomes are earned without incurring these expenses." Supplementary Ground to Ground -10. 10. "Disallowance of Selling & Distribution expenses have been partly set off against conti....
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....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 disallowance u/s.14A of the I.T. Act." 28. Further, Ld. AR for the assessee submitted that the above recorded satisfaction , is extremely general and it falls short of the legal requirement as provided in the judgement of Hon'ble Apex Court in the cas....
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.... 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 in non-equity scheme. In respect of investment in mutual funds, except for growth funds, the company receives tax free dividend. The amount of dividend received by the company is substantial. This is a clear case for application of Rule 8D. Hence, the contention of the assessee cannot be accepted.....
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....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 becomes an academic exercise. Therefore, the same are dismissed as academic." Therefore, on the technical grounds, the Ground No.1(a) raised by the assessee on the issue of satisfaction stands allowed in favour of the assessee. Ground No.1(b), being on merits of quantification of disallowable expenditure u/s.14A of the Act, is dismisse....
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....stantiate 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 depreciation @10% and 15% on some items under block of Plant and Machinery treating the same as Furniture. Before the CIT(A), the assessee submitted that this issue has been decided by the Tribunal for the A.Yrs. 2006-07 and 2007-08. The CIT(A) after considering the submissions of the assessee and the order of CIT(A) partly allowed the appeal of the assessee. Contents of ....
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....a 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. iii. While conducting such clinical trials, company's R&D personnel retail ultimate control over and remain responsible for the activities of clinical trial even if such activities are carried out by the external agencies outside the approved facilities. Assessee further submitted that the CIT(A) failed to take note of Explanation to section 35(2AB)(1) of the Act introduced by Finance Act, 2001 w.e.f. 01....
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.... 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's certificate required for the same; has entered into an agreement with the DSIR as required for sharing of technologies; and has also repeatedly requested for certification of the expenditure incurred by it. Under such circumstances, an isolated error in an application cannot result in the entire benefit itself being refused to the Petitioner resulting in it being deprived of the deduction as permissible under Section 35 (2AB). 44. In the....
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....ively 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 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 and held that the claim of Portfolio Management Fees is an allowable expenditure from such capital gain. 11.3 Ld. DR for the Revenue relied heavily on the orders of the AO/CIT(A). 11.4 On hearing both the sides and on perusing the decision of the Tribunal in the assessee's own case for the A....
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.... 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 Assessing Officer before making addition, then there is no warrant in making aforesaid addition in the hands of assessee merely on the basis of so called list of hawala dealers. There are other cases, where the Assessing Officer had received the statement of the persons who were hawala dealers and who had admitted to have just issued bills of sale without delivery of goods. In such circumstances, there is evidence against the respective assessee that where the seller of the goods, has admi....
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....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 section 133(6) of the Act, where hawala dealer was not traceable and in the absence of the assessee failing to file any documentary evidence of delivery of goods, addition is to be upheld in the hands of assessee on account of such bogus purchases. IV. The next instance is the case of goods which have been admittedly sold by the hawala dealer and has been received by the assessee, who in turn had maintained quantitative details and also evidence of its movement i.e. transportation details and quality cont....
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....rocess 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. Accordingly, the ground No.7 raised by the assessee on merits is allowed for statistical purposes. 13. Ground No.8 raised by the assessee relates to the addition made on account of rent paid for the property at Bungalow No.70, Koregaon Park amounting to Rs. 31,44,000/- and depreciation at Rs. 12,97,701/-. 13.1 Background facts of this issue include that there is house property at 70, Koregaon Park and the same is owned by Poonawalla Finvest and Agro Pvt. Ltd. The said property is occupied by Mr. Z.S. Poonawalla (Director of both Poonawa....
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....e 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 aside the order of the CIT(A). The ground raised by the assessee is accordingly allowed." 27. We find that the arguments raised by the Ld. DR for the Revenue are identically r....
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....d 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 : "26. In the present case it can be seen that the AO has disallowed the appellant's claim of accelerated depreciation on the civil foundation work of Rs. 14,20,32,000/-. Following the above cited ITAT order the AO may treat 60% of this as part of the windmill eligible for 80% depreciation and 40% as civil work eligible for normal rate of depreciation. The AO shall verify the details, apply the functional test as held by the honourable Tribunal and allocate the electric work also in a like fashion. The ground of appeal is allowed partly, subject to above discussion. As regards the claim of additional depreci....
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.... 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 given by the CIT(A) while concluding the issue in favour of the assessee and the same reads as under : "3.1.2 During the course of appellate proceedings, in respect of Ground No.1 for restricting the allowance of depreciation on wind mill foundation civil work which resulted in addition of Rs. 54,19,719, the Ld AR submitted that- a) Addition on account of disallowance of depreciation on Wind Mill for A.Y. 2009-10 is pending before Hon'ble ITAT is totally wrong. According, to the Ld AR there was no addition on account of disallowance of depreciation on Wind Mill and no appeal was filed before CIT(A) for A.Y. 2009-10 and no appeal is pending before ITAT. b) A....
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....ing 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'ble ITAT affirmed the findings given by the CIT(A) by holding as under:- "Without doing the civil construction work including foundation work, it was not possible to install the windmill. Similarly, the electric items, components and installation were necessary for the wind mill, because in the absence of these components and electric items it was not possible for the windmill to produce electricity. Therefore, it was also the integral part of the windmill." In this regard Hon'ble ITAT has also held that foundation of civil work is an integral part of windmill on which depreciation @ 80% is to be allowed. The above positions have been decided by Hon'ble ITAT, Pune in the case of Mayura Steels Pvt. Ltd. Vs. ACIT (Supra), in the c....
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....pra), 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 account of excess depreciation. With this ground No.1 stands adjudicated in favour of the appellant. 5.1 Further, we find the Pune Bench of the Tribunal in the case of ACIT Vs. Suma Shilpa Limited 44 CCH 0514 (Pune-Trib.) has held as under : Conclusion : Civil construction and electrical work are specifically designed for operation of windmills and are not separable, therefore, depreciation on these structures/fittings have to be applied at same rate, as is available to principle asset. Considering the binding precedents on this limited issue of allowing higher depreciation on the civil works linked to the foundation work of the windmill, we are of the opinion that the assessee is entitled to claim higher depreciation @80% on the civil structures of the windmi....
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....ers 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 notification of Medical Council of India. Since discounts on purchase of vaccines given to doctors do not violate any laws and hence, are not covered by Explanation u/s.37(1) of the Act. AO failed to appreciate that the Circular issued by CBDT No.5/2015 enlarges the scope of disallowance in the hands of Pharma Companies without any enabling Notification or circular of Medical Council of India. In support of its claim, Ld. Counsel relied on the following decisions : 1. M/s. Solvay Pharma India Ltd. VS. PCIT 89 taxmann.com 249 (Mum. ITAT) 2. DCIT Vs. PHL Pharma Pvt. Ltd. 78 taxmann.com 36 (Mum. ITAT) 3. Emcure Pharmaceuticals Ltd. Vs. DCIT - ITA No.1532/PUN/2015 15.4 On the other hand, Ld. DR for the Revenue relied on the orders of the AO/CIT(A). 15.5 We heard both the sides and perused the....
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....mputing 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 assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical 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........... 10. From the perusal of the nature of expenditure incurred 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 a....
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....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 into the Indian Medical Register maintained u/s 21 of the Act. 'Under the scheme of the Act. 19. Furthermore, there is no ambiguity of any kind in the scheme of the Indian Medical Council Act, 1956 that it neither deals with nor provides for any conduct of any association / society and deals only with the conduct of individual registered medical practitioners. There is no other interpretation, which is possible under the Act. 20. The intent of the applicability of the MCI Regulations was always to cover only individual medical practitioners, and not the 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/ so....
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....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 provision there is any offence or violation in incurring of such kind of expenditure. 23. Now coming to the Explanation to Section 37(1) invoked by the CIT, 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 assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical 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 fo....
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....ular 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 of 'Indian Medical Council Regulation, 2002' and made it applicable for the pharmaceutical companies. Therefore, such a CBDT circular cannot be reckoned to have retrospective effect. The free sample of medicine is only to prove the efficacy and to establish the trust of the doctors on the quality of the drugs. This again cannot be reckoned as freebies given to the doctors but for promotion of its products. The pharmaceutical company, which is engaged in manufacturing and marketing of pharmaceutical products, can promote its sale and brand only by arranging seminars, conferences and thereby 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 ....
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....ind 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 : "26. On hearing both the parties on this issue, we find the decision in the case of Usha Martin Industries Ltd. (supra) helps the assessee. For the sake of completeness, 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 incometax 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 Reve....
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....onfirming 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 offered as non business expenditure during search proceedings. 8. in confirming the action of A.O. for not directing the AO to reduce Wealth Tax paid of Rs. 27,74,198/- for computing book profit u/s.115JB. 9. in confirming the disallowance of the 'Provision for Leave Encashment' amounting o Rs. 1,39,65,575/- pertaining to 'DTA' unit ascertained on the basis of actuarial valuation for the specific employees of the Appellant Company. 10. 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." 18.1 The modified grounds raised by the assessee 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 asse....