TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 414
X X X X Extracts X X X X
X X X X Extracts X X X X
....15 & 3354/Ahd/15 -Do- 2009-10 30.09.2015 22.01.2015 143(3) r.w.s. 263 r.w.s. 153(3) of the Act 2512 & 2549/Ahd/15 -Do- 2010-11 12.06.2015 26.02.2013 143(3) of the Act 2513 & 2550/Ahd/15 -Do- 2011-12 -Do- 31.12.2013 -Do- 2. At the time of hearing, it was informed by both the sides that cross appeals of the Revenue and the assessee captioned above involve common and repetitive issues in various assessment years. Accordingly, all the matters were heard together for consolidated disposal of appeals listed above. 3. We shall now take up each appeal for adjudication as under; ITA No. 3049/Ahd/2014 (Assessee's appeal) - AY 2008-09 3. Ground No.1 concerns disallowance of Rs. 5,85,148/- under s.14A of the Act r.w. Rule 8D of the Income Tax Rules. 3.1 The learned AR for the assessee submitted at the outset that the exempt income stand at Rs. 4000/- only and therefore, the disallowance under s.14A of the Act cannot exceed the aforesaid amount. 3.2 We find merit in the plea of the assessee in view of the decision of the Hon'ble Gujarat High court in the case of CIT vs. Corrtech Energy Pvt. Ltd. 372 ITR 97; DCIT vs. TGB Banquets Hotels Ltd. in Tax Appeal No. 470 of 2012 d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issue has been decided against the assessee by the Hon'ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation [2014] 366 ITR 170 (Guj). Therefore, the grievance of the assessee is answered in negative and against the assessee. 6.2 In the result, Ground No.4 is accordingly dismissed. 7. Ground No.5 concerns adjustment to the book profit computed under s.115JB of the Act towards provision of wealth tax of Rs. 34,940/-. 7.1 The assessee seeks to claim that wealth tax is not a tax defined under Explanation 2 to Clause (a) of Explanation 1 to Section 115JA of the Act. In parity with the decision of the co-ordinate bench in ASB International (P.) Ltd. 26 taxmann.com 87 (Mum) and CIT vs. Echjay Forgings (P.) Ltd. 251 ITR 15 (Bom.), the AO is directed to exclude the provision for wealth tax for the purposes of computation of book profit. 7.2 In the result, Ground No.5 is accordingly allowed. 8. In the result, appeal of the assessee in ITA No.3049/Ahd/2014 is partly allowed. ITA No. 2548/Ahd/2015 (Revenue's appeal) - AY 2009-10 9. The grounds of appeal raised by the Revenue read as under: "1. On the facts and circumstances of the case the Ld.CIT(A) er....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... interest earned by the assessee company from various resources and paid to Sun Pharma. 10.2 In the first appeal against the aforesaid addition, the CIT(A) reversed the action of the AO and found merit in the plea of the assessee that the interest expenses were incurred for business purposes. The CIT(A) accordingly deleted the addition towards disallowance of interest. The relevant operative para of the order of the CIT(A) is reproduced hereunder: "4.14 With regard to the issue regarding disallowance of interest of Rs. 26,19,62,722/-, the AO in the assessment order has mentioned that interest Income earned by the appellant was routed back to Sun Pharma for claiming deduction u/s 80IC. The same stand has been taken by the AO in his remand report also. In this regard, the AR of the appellant as per his submission dated 18/01/2013 has stated that the SPIL did not have any income during the year under consideration which was entitled to deduction u/s 80IC. In other words, no deduction of any income in the case of SPIL was claimed u/s 80IC. Thus, as per the AR the very basis and foundation of the AO in making the disallowance was erroneous and flimsy. I agree with this submission of A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as nothing but an arrangement to somehow claim deduction u/s 80IC. if someone goes by this logic of the AO, then no any payment would be made by a person to another person in whose case deduction under chapter VIA of the Income Tax Act is claimed as such payment would be considered to be an arrangement for getting deduction. As discussed in earlier paragraphs of this appeal order that the case of the appellant is not covered by the provisions of section 40A(2) of the Act and therefore it can be said that payment of interest is made by the appellant to non related parties. In my humble opinion, even If the case of the appellant is covered by the provisions of section 40A(2) and the appellant company and SPIL and SPI are related party, then also this entire payment of interest expenditure cannot be disallowed. This is in view of the fact that when there are two related parties in terms of provisions of section 40A(2)(b), then in such case reasonableness of payments made by one party to another party is required to be seen and this is not that entire payment is required to be disallowed. In the case of the appellant, the payments of interest have been made to SPIL and SPI @ 9% only wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ween the assessee and Sun Pharma and the transactions are not covered by the provision of Section 40A(2) of the Act. 10.5 The learned DR, on the other hand, submitted that while the issue is apparently decided in favour of the assessee by the Tribunal in preceding assessment years, one cannot lose sight of the fact that both the concerns are related as revealed from the facts which came to light in survey proceedings under s.133A of the Act. 10.6 We have carefully considered the rival submissions. We find that the issue is no longer res integra and adjudicated in favour of the assessee in its own case in AYs. 2005-06 & 2006-07 in ITA No.1665 & 1666/Ahd/2009 (supra). The relevant operative para of the order is reproduced hereunder for ready reference: "4. Now before us an order of the ITAT "D" Bench Ahmedabad in assessee's own case bearing ITA No.3974/Ahd/2007 pertaining to AY 2004-05 titled as "The Dy.CIT vs. Aditya Medisales Ltd." dated 4th February, 2011 has been cited, wherein the issue of interest disallowance u/s.36(1)(iii) has been decided in favour of assessee by following few orders of the Tribunal also decided in assessee's own case in its favour in the past. In....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the assessee for AY 2004-05 (ITA No.3974/Ahd/2007-supra) vide an order dated 04/02/2011, it was noted that the issue has already been decided in favour of assessee by ITAT "D" Bench Ahmedabad in a consolidated order relevant for A.Y. 1999-2000 to 2003-04 bearing ITA Nos. ITA Nos.3272/Ahd/2002, 1623/Ahd/2003, 1353 & 2180/Ahd/2005 and ITA No.08/Ahd/2007-supra order dated 30/09/2010. In the said order of the Tribunal, ITAT "D" Bench followed an earlier order; pronounced in assessee's own case for A.Y. 1997-98 in ITA No.492/Ahd/2001 dated 28/03/2008, wherein it was held that onus for application of the provisions of section 40A(2)(a) is on the Revenue and that there was no basis for holding that an excessive rate of interest was paid. It is also worth to mention that there was an order of the Hon'ble Gujarat High Court in assessee's case (CIT vs. Aditya Medisales Ltd. - Tax Appeal No.559 of 2009 dated 4.5.2010), wherein it was opined that the CIT(A) as well as Tribunal have upon appreciation of the evidence found that the Revenue has not been able to make out any case for applying the provisions of section 40A(2)(a) and that interest earned on unsecured borrowings is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., doctors, other customers & medicine stockiest etc. are not purchasing medicines from the assessee company per se but from C&F agents. The AO accordingly observed that in business practices, the discount is given by the seller to its purchaser, whereas, in the instant case, the discount has been given by the assesse to various parties who have no direct transaction with the company. It was also alleged that the payment is in the nature of illicit gratitude to doctors for promotion of Sun Pharma Group product. It was held that such discount expenses incurred is not a business expense wholly and exclusively attributable to the assessee company. Consequently, the expenses towards discount to the tune of Rs. 7,34,80,655/- was disallowed. 11.2 Aggrieved, the assessee preferred appeal before the CIT(A). 11.3 The CIT(A) re-visited the facts and circumstances of the case and found the claim of the assessee towards discount expenses to customers of the C&F agents to be in order except payments to doctors. The CIT(A) accordingly reversed the action of the AO and directed him to allow the discount expenses incurred. The relevant operative para of the order of the CIT(A) in this regard is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mentioned by the AO in the assessment order for making disallowance of claim of Rs. 7,34,80,655/-. The AO in remand report has merely mentioned that the appellant is not paying discount to its purchaser i.e. C & F agent. It is mentioned by the AO in the remand report that while finalizing assessment it was found after verification that the appellant had made payment mostly towards Doctors through DDs and the same has been claimed as discount, As per the AO the Doctors are not purchasing medicines from the assessee company and therefore expenses are not incurred wholly and exclusively for business. However, the AO in his remand report has not controverted the submission of AR of the appellant that the payments on account of discount made to the Doctors were only Rs. 9 lacs. The AO in his remand report has also not controverted the submission of the AR that the remaining amounts of Rs. 7.26 crore (i.e. Rs. 7.35 crores - Rs, 9 lacs) are paid to the Dealers, Stockists, Distributors and Retailers etc. who are 11.4 The CIT(A), for the reasoning noted above, thus allowed the payment on account of discount made to the stockiest, distributor, dealers and retailers. But, however, disallowan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....octors amounting to Rs. 8.956Lakhs, the learned AR pointed out that the supply of medicines have been made to the Doctors also by the C&F agents by way of sale and not on any promotional offer and therefore, no distinction can be drawn for discount bestowed to Doctors qua other stockiests/distributors/dealers etc. The learned AR thus submitted that the appeal of the Revenue thus deserves to be rejected whereas the appeal of the assessee requires to be allowed on this score. 11.8 The learned DR, on the other hand, relied upon the order of the AO. 11.9 We have carefully considered the rival submissions on the issue. The maintainability of discount on sales is in question. It is the case of the Revenue that the assessee is supplying medicines to its C&F agents for its ultimate sale in the market for consumption. The discounts were given by the assessee company to the distributors, retailers, dealers, Doctors associated to C&F agent and who were not directly dealing with assessee and therefore expenses incurred towards discount payment by the assessee has no nexus with the sales made by it to the C&F agents. The AO accordingly is of the view that such indirect discounts to the custo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....O in the course of assessment observed that assessee company has paid Rs. 11 lakhs to Vision Foundation of India and claimed deduction under s.80G of the Act for such donation. It was however observed by the AO that the cheque was paid on behalf of Shri Dilip Sanghvi and only at instruction from him and also thanks were conveyed by the recipient to Shri Dilip Sanghvi for his kind gesture. It was further noticed that the receipt and tax exemption certificate were sent to Shri Dilip Sanghvi and not to the assessee. It was thus held by the AO that the donation actually relates to Shri Dilip Sanghvi and therefore, the assessee company is not eligible for deduction under s.80G of the Act. 12.2 The first appellate authority, however, reversed the aforesaid action of the AO on account of undisputed fact that donation has been made by the assessee company from its bank account and the receipt of donation is also in the name of the assessee company. In the given facts, we completely endorsed the view taken by the CIT(A) in this regard. The payment made on instruction of Shir Dilip Sanghvi, receipt of thanks by Shri Dilip Sanghvi and receipt sent to Shri Dilip Sanghvi are wholly irrelevant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns disallowance of discount of Rs. 15,44,119/- paid to Doctors. As noted earlier concerning AY 2009-10, the AO in the impugned AY 2010-11 has restricted the disallowance of discount paid to the Doctors only whereas discount paid to stockiests, distributors and other customers of C&F agents have been accepted. The CIT(A) in AY 2009-10 had also rejected the similar claim of discount inter alia paid to Doctors. The CIT(A) in AY 2010-11 has simply followed its finding in AY 2009-10 but however deleted the disallowance on payments to doctor which is glaringly inconsistent with findings in AY 2009-10. Having followed the findings in AY 2009-10, the CIT(A) ought to have confirmed the action of the AO. Therefore, while the Revenue is in appeal against the deletion inadvertently made by the CIT(A), the assessee has also challenged the action of the CIT(A) as a measure of abundant caution in ITA No.2512/Ahd/2015. Having noted the aforesaid position, we do not find any merit in the disallowance made by the AO towards discount paid to the Doctors as discussed in relation to AY 2009-10 (supra). We thus agree with the conclusion drawn by the CIT(A) despite wrong reasoning. The Ground no.2 of Rev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ary. The Revenue authorities, in our view, have also rightly invoked formula under Rule 8D(2)(iii) for disallowance of management and general expenses deemed to be attributable to tax free income. However, the disallowance is required to be computed having regard to the investments which has actually yielded exempt income instead of gross investments in consonance with the decision of the Special Bench in Vireet Investments (supra) as placed on behalf of the assessee. The issue is therefore remitted back to the file of the AO for re-computation of disallowance under Rule 8D(2)(iii) of the Rules. In terms of the averments made above, the Ground No.3 of the Revenue's appeal is dismissed whereas cross ground no.2 of the assessee's appeal on this score is allowed in part. 19. In the result, appeal of the Revenue in ITA No. 2549/Ahd/2015 is dismissed. ITA No. 2512/Ahd/2015 (Assessee's appeal) - AY 2010-11 20. Ground No.1 of the assessee's appeal towards disallowance of discount of Rs. 15,44,119/- is stated to be out of caution on account of error committed by the CIT(A) as discussed in para 17 (supra). However, as concluded in Revenue's appeal for the AY 2010-11, the aforesaid disco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lt, appeal of the Revenue in ITA No. 2550/Ahd/2015 is dismissed. ITA No. 2513/Ahd/2015 (Assessee's appeal) - AY 2011-12 28. Ground No.1 concerns disallowance of Rs. 17,24,542/- on account of discount given to Doctors who have purchased medicines from C&F agents of the assessee. In sync with the observations in the earlier years as discussed above, the grievance of the assessee is merited. Ground No.1 of the assessee's appeal is accordingly allowed. 29. Ground No.2 of the assessee's appeal is allowed in part in terms of directions noted in the corresponding Revenue's appeal. 30. Ground No.3 concerns suo motto disallowance of Rs. 50,000/-. We decline to interfere with the action of the AO in view of the discussion in AY 2010-11 (supra). Ground No.3 of the assessee's appeal is dismissed. 31. In the result, appeal of the assessee in ITA No.2513/Ahd/2015 is allowed in part. ITA No. 3415/Ahd/2015 (Assessee's appeal) - AY 2009-10 & ITA No. 3354/Ahd/2015 (Revenue's appeal) - AY 2009-10 32. Both the appeals give rise to common issue of disallowance under s.14A of the Act in pursuance of assessment order passed under s.143(3) r.w.s. 263 of the Act. With the assistance of the learn....