TaxTMI 
TaxTMI 
2021 (12) TMI 583
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....Mumbai {CIT(A)} dated 04/09/2018 in the matter of assessment framed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s. 144C(3) on 20/03/2014. The Ld. AO has passed the order after incorporating certain Transfer-Pricing (TP) Adjustments as proposed by Ld. Transfer Pricing Officer-I(8), Mumbai (TPO) in its order u/s 92CA(3) dated 24/01/2014. The assessment order has subsequently been rectified by Ld. AO u/s 154 on 24/12/2014 to rectify certain errors. Though the assessee preferred further appeal before Ld.CIT(A), however, the appeal was partly allowed in impugned order dated 04/09/2018. Aggrieved, the assessee as well as revenue is in further appeal before us. 1.3 The grounds raised by the assessee read as under: - DETERMINATION OF ALP W.R.T PRODUCTS SOLD TO AE-FDC INTERNATIONAL LTD. UK 1) The Ld CIT(A) erred in holding that the Ld AO did not reject the Cost Plus Method as the Most Appropriate Method adopted by the Assessee in arriving at the Arms Length Price (ALP) for products sold to FDC International Limited, UK, (the Assessee's Associated Enterprise (AE)) and further failed to appreciate that the Cost Plus Method is the most appropriate method to arrive at ....
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....ve Form 3CM without appreciating that no proper opportunity of hearing was given and Form 3CM is not a mandatory requirement in the facts of the present case and hence, deduction u/s 35(2AB) may be granted. 8) The Ld.CIT(A) erred in not adjudicating that deduction u/s 35(2AB) of Rs. 3,29,67,717 pertained to current year and not earlier years. DEDUCTION U/S 35(2AB) W.R.T. ROHA AND GOA UNIT-III R & D UNITS 9) The Ld CIT(A) erred in not admitting additional evidence u/r 46A w.r.t. claim of weighted deduction u/s 35(2AB) of Rs. 1,13,99,619/- on total expense of Rs. 75,99,745/- pertaining to R & D at Roha unit. 10) The Ld. CIT(A) erred in not admitting claim of weighted deduction u/s 35(2AB) of Rs. 39,93,818/- on total expense of Rs. 26,62,545/- pertaining to R & D at Goa Unit-Ill. 11) The Ld CIT(A) erred in not granting weighted deduction u/s 35(2AB) on Roha and Goa Unit-Ill R & D units on the ground that there is no Form 3CM without appreciating that as R & D activity was being carried out and DSIR Approval was in existence and thus in the facts of the present case Form 3 CM was not a mandatory requirement and hence deduction u/s 35(2AB) ma....
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....ited to party's A/c, stock register, dispatch advice along with lorry receipts and distribution of articles so purchased in its normal course of business, and hence the disallowance may be deleted. 17.1) The Ld CIT(A) erred in disallowing genuine purchases of Rs. 7,31,027/- from Shakti Trading Company having valid TIN as on 31st March 2010 since its TIN cancellation date was w.e.f. 30.11.2010. ALLOCATION OF CERTAIN CORPORATE EXPENSES TO S.80IB/ 80IC UNITS 18) The Ld. CIT(A) erred in holding that interest to others of Rs. 95,83,830/- needs to be partly allocated to S. 80IB / 80IC units without appreciating that entire interest expenses pertains to Head Office and no allocation is called for. 19) The Ld. CIT(A) erred in holding that depreciation on factory building, plant and machinery [excluding ETP] and pallet trucks of Rs. 11,08,126/- needs to be allocated to S. 80IB / 80IC units without appreciating that said depreciation pertains to Head Office exclusively and no allocation is called for. DEDUCTION U/S 80IB / 80IC ON SCRAP SALES AND EXPORT INCENTIVES 20) The Ld. CIT(A) erred in not granting deduction u/s 80IB/ 80IC on scr....
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.... for granting the adjustment. 5. Whether on the facts and circumstances of the case and in the law, the Ld.CIT(A) erred in granting the adjustment pertaining to functional differences without taking notice of the act that as per the agreement produced by the assessee, no instances were found wherein it was mentioned that the assessee is going to give discount / adjustment on account of product license and lab analysis cost and these expenses are part of business of the AE and any adjustments on account of these expenses will impact the profitability of the AE. 6. Whether on the facts and in the circumstances of the case and in law, was Ld.CIT(A) right in allowing depreciation on intangible asset of Rs. 2,19,78,478/- commencing from A.Y.2010-11 when such depreciation is not claimed by the assessee in the grounds of appeal? 7. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) is right in allowing depreciation on intangible asset for A.Y.2010-11 when the asset was acquired and put to use in A. Y. 2004-05. 1.5 The assessee, vide letter dated 26/12/2020, has raised certain additional grounds of appeal which read as under: - ....
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.... Depreciation on intangible assets 1.8 The Ld. AR placed on record ground-wise chart to assail the additions as sustained in the appellate order. The Ld. CIT-DR, on the other hand, pleaded for dismissal of assessee's appeal. The Ld. DR also assailed the relief granted by Ld. CIT(A) in the impugned order. For the same, reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. 1.9 We have carefully heard the rival submissions and perused relevant material on record. We have also deliberated on various judicial pronouncements as cited before us during the course of hearing. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. 1.10 The assessee being resident corporate assessee is stated to be engaged in manufacturing of drugs. As per return of income, the assessee has paid taxes on Book-Profits u/s 115JB. While framing the assessment, the assessee has been saddled with Transfer-Pricing Adjustments of Rs. 817.56 Lacs as proposed by Ld. Transfer Pricing Officer (TPO) as well as various other additions / disallowances which is the subject matter of cross-appeal before us. The same are enum....
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....e same has been tabulated on para-7 of Ld. TPO's order. The product-wise margins on sales were computed by deducting total cost per unit from selling price. Certain adjustments were then made to per unit margin and %age margin on cost was computed which has been tabulated in para-8 of Ld. TPO's order. However, the assessee was asked to submit detailed working of the Arm's Length price (ALP) by comparing selling price of products exported to AE in comparison to products sold in local market by considering selling price of product sold in local market as the starting point and giving reasons for difference in adjustments. In other words, benchmarking was sought to be done as per Comparable Uncontrolled Price method (CUP). Taking product wise selling price of non-AE sales as the base, the assessee adjusted the same for various factors and arrived at Arm's Length Selling Price per unit and compared the same with actual selling price to AE. In para-9, the adjustment made in domestic selling price of a product namely Sodium Cromoglicate Eye-drops 13.5 ml was tabulated which were then compared with selling price per unit of AE sales. The selling price was adjusted for various factor....
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....IT(A). Few of the adjustments were allowed whereas few of the adjustments were denied which has led to cross-appeal before us. The adjudication to the adjustments by Ld. CIT(A) was as under:- (i) Non-variable cost The assessee submitted that change in packing size would affect cost of packing and packing material and would require change in machinery, tools, dies etc. The Ld. TPO held that in case of change in packing size, these costs would not change substantially unless evidenced by the assessee. The Ld. CIT(A) confirmed the action of Ld. TPO on account of lack of data based evidence. (ii) Functional difference The Ld. TPO refused to grant this adjustment. However, Ld. CIT(A), allowed the same by observing that these were part of contract between the assessee and the AE and therefore, the adjustment was to be granted. (iii) Marketing Costs The Ld. TPO did not grant this adjustment. However, Ld. CIT(A) concurred that the reasons supplied by assessee were valid. The nature of marketing would be different in different geographical locations. Marketing costs also vary. (iv) Sales Return The assessee factored sales return in cost of sale which was denied by Ld....
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....efore us. Therefore, the adjustment of this component has rightly been allowed by Ld. CIT(A). (ii) Marketing Costs This adjustment was granted by Ld. CIT(A) by observing that the nature of marketing would be different in different geographical locations. Marketing costs also vary. The Ld. AR has submitted that marketing cost is actually incurred by the assessee for local as well as export sales to non-AEs. However, in case of sales to AE, the selling expenses were to be borne by AE and not the assessee. The marketing costs differ with geographical conditions. Sales in local markets are prescription drugs and therefore, sale promotion forms major expenses. In exports, the marketing expenses are not as high as compared to local markets as the sale would be made to fixed distributors. Marketing costs may not vary with pack size but it would vary with selling price as marketing costs are calculated as percentage of selling price. Since Ld. TPO is comparing local sale price with that of export sale price, the adjustment of marketing expenses need to be allowed as the same are already incorporated in the selling price since expenses incurred in local markets would be high and there....
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....fically quantifying the competition effect. The assessee has also produced invoices raised by the AE to its customers to prove competition effect. In UK, National Health Service determines reimbursement price of each drug and reimburses the same to retailers. The assessee has also submitted its value chain of UK drug market and functions performed by each party in value chain to justify its margins and arm's length price. In the absence of any adverse findings by lower authorities, we concur with these submissions and accordingly, the assessee's plea is to be accepted. Accordingly, we direct Ld. AO / TPO to grant this adjustment. 2.8 In the result, Ground No.2 of assessee's appeal stand allowed which render ground no.1 as infructuous. Ground Nos.1 to 5 of revenue's appeal stands dismissed. Corporate Issues 3. Wrong claim of R & D Deduction u/s 35(2AB) for Jogeshwari Unit 3.1 The assessee claimed weighted deduction u/s 35(2AB) for Research & Development (R&D) expenditure at 3 units viz. (i) Jogeshwari Unit; (ii) Roha Unit; & (iii) Goa Unit. Upon perusal of details, it transpired that the expenses claimed for Jogeshwari Unit include expenditure of Rs. 219.78 Lacs towar....
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....ears, however, for commercial feasibility the technology had to be scaled up from 5 liters to 15 liters fermentation scale. Thus, further R&D work was involved. Till such time, the assessee debited all the related expenditure as 'Work-in-progress' and reflected the same in the Balance Sheet. It is undisputed fact that no deduction whatsoever has been claimed by the assessee against this expenditure in earlier years. During this year, the assessee's formulated protein received permission from Director General of Health Services (Page 389 of paperbook-2; letter dated 10/07/2009) for containerization of experimental batches of recombinant protein Filgrastim in pre-filled syringes from third party and the technology acquired by the assessee would be made available in market on containerization. Since, in this year, the asset was ready for use, the assessee capitalized the same and claimed weighted deduction of 150% u/s 35(2AB). The Ld. AO denied the same on the ground that the deduction was to be claimed in the year in which the expenditure was incurred and the assessee did not give any proof that the technology became operative in this year. During appellate proceedings, the asses....
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.... Gujarat High Court in CIT V/s Claris Lifesciences Ltd. (326 ITR 251) would squarely apply in favor of the assessee. In this decision, it has been held by Hon'ble Court that the approval of R&D facility by DSIR is sufficient to claim deduction u/s 35(2AB). This decision has been followed by coordinate bench of Mumbai Tribunal in Advance Enzyme Technologies P Ltd V/s ACIT (2020; 116 Taxmann.com 498) wherein it has been held that once existence of R&D facility was not disputed and expenditure for that purpose was genuine in nature and recognition to facility was valid during relevant period, then merely for reason of non-issuance of approval for certain period in prescribed Form 3CM by competent authority, weighted deduction as claimed u/s 35(2AB) could not be denied. Similar is the view of Pune Tribunal in Minilec India (P.) Ltd. V/s ACIT (2018; 93 Taxmann.com 213) wherein it was observed by the bench that non-receipt of Form No. 3CM is at best a procedural lapse and is not fatal for denial of claim of deduction u/s 35(2AB). Therefore, considering the entirety of facts and circumstances, we reverse the adjudication of Ld. CIT(A) and direct Ld. AO to grant weighted deduction u/s 35(2....
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.... at these units, the assessee submitted additional evidences which were in the shape of DSIR approval for in-house R & D activities at these units for the period 01/04/2010 to 31/03/2015, patents filed for products developed at Roha unit, affidavit of persons clarifying their earlier statements and confirming that R&D activity took place outside Jogeshwari unit also. However, Ld.AO, in the remand report, taking a new ground, stated that the disallowance was justified in the absence of Form No. 3CM for these R&D units. For the same reason, Ld. CIT(A) rejected the affidavits and confirmed the stand of Ld. AO. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4.5 During the course of hearing, Ld. AR submitted that there were ample evidences in support of the fact that R & D activities were being carried out at both the units. It was also pleaded that deduction was denied merely on the basis of statement recorded during survey. These statements recorded u/s 133A, in terms of various judicial pronouncements, would not have any evidentiary value. As against this, the assessee had filed additional evidences in the shape of DSIR approval for in-hou....
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....st this, it is quite evident that the assessee, during the course of proceedings before lower authorities, furnished ample evidences to substantiate its claim. These evidences were as follows: - (i) DSIR Approval for in-house R&D activity at Roha and Goa Unit III for the entire period from 01/04/2007 to 31/03/2010 and from 01/04/2010 to 31/03/2015 (ii) Patent filed for products developed at Roha R&D namely Amlodipine and Lornoxicam. (iii) R&D Activity chart along with explanatory notes. (iv) Scheme of DSIR for granting recognition and registration to in-house R&D units. (iv) Diagrammatic representation of the flow of R&D activities. (v) Photos of R&D facility at Roha and Goa Unit III. (vi) List of equipments available at Roha Unit to carry out R&D activities. (vii) List of equipments available at Goa Unit III to carry out R&D activities. The copies of all these documents have also been placed before us on page nos. 439 to 452 and 480 to 494 of the paperbook. Upon perusal of the same, it could be concluded that the assessee has sufficiently demonstrated the carrying out of R & D Activities at Roha as well as Goa-II....
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....or medical professionals only and these rules would otherwise be applicable only from 01/08/2012 i.e. from the date on which the circular was issued. 5.3 However, rejecting assessee's submissions, Ld.AO opined that the Circular would apply to the assessee w.e.f. 10/12/2009 i.e. the date on which the Medical Council of India imposed the prohibition. Finally, the following publicity expenses incurred by the assessee from 10/12/2009 to 31/03/2010 were held to be illegal and inadmissible u/s 37(1): - No. Particulars Amt. (Rs.) 1. Books, Journals, reference articles Rs. 13.74 Lacs 2. Prescription pad /chit block Rs. 35.27 Lacs 3. Calendars, New year Diaries Rs. 10.42 Lacs 4. Items given for use in dispensary (stethoscope, BP apparatus, Thermometers) Rs. 21.54 Lacs 5. Promotional / Recall items with product names embossed on them Rs. 633.13 Lacs Total Rs. 714.12 Lacs In addition, another expenditure of Rs. 137.61 Lacs stated to be incurred on promotional items given to stockiest as incentive was also disallowed on the allegation that these items were distributed to doctors and no supporting documents were filed b....
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.... industry is prohibited from advertising its products and the biggest customer for this industry is practicing doctors who in the course of professional practice prescribe medicines for consumption by patients. Due to existence of competition in the market because of availability of pharmaceuticals from different suppliers, it would be necessary for the assessee to ensure awareness and visibility of its products amongst doctors as against advertising its products. In other words, the assessee has to ensure that maximum number of doctors is made aware of the existence of the assessees' products as well as its availability. Therefore, it would be necessary for the assessee to incur such publicity expenditure so as to bring awareness and knowledge of the existence of its product range to doctors. The same is supported by the fact that the company's logo and product names are embossed on all the items distributed as gifts and therefore, these items were also intended to serve as retentive reminder of brand name of assessee's products and not to influence the decision of the doctors. The nature and the type of items distributed amongst doctors are not the type which can be considere....
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....ly to AY 2010-11 as it was issued on 01/08/2012 and the same is not applicable retrospectively. The Mumbai Tribunal in Syncom Formulations (I) Ltd. V/s DCIT (ITA Nos. 6429/Mum/2012 & ors.; 23/12/2015 for AYs 2010-11 and 2011-12) has concluded that the aforesaid CBDT Circular No. 5/2012, dated 01/08/2012 would not be applicable to AYs 2010-11 & 2011-12 since the same was introduced only w.e.f. 01/08/2012. Similar is the view in Aristo Pharmaceuticals Pvt. Ltd. Vs. ACIT (ITA No.6680/Mum/2012 & ors.; AYs 2009-10, 2011-12 & 2012-13; 26/07/2018) wherein it has been held that MCI regulations would not be applicable to pharmaceutical companies. Further CBDT circular enlarging the scope of Indian Medical Council Regulation, 2002 could not be reckoned to have a retrospective effect. In this decision, the bench has referred to another decision of Tribunal in DCIT V/s PHL Pharma Ltd. [2017; 78 Taxmann.com 36). In the decision of ICPA Health Product Ltd. (ITA Nos.6244-45/M/2017; 20/04/2018) it has been held by the bench as under: "The expenditure on distributing glass, face mask, pen, writing pad, towel set, wall clock, paper cups except Voltas Cooler and stabilizer cannot be regar....
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.... - J.B. Chemicals & Pharmaceuticals Ltd (ITA No. 6075/Mum/2014) - Eisai Pharmaceuticals India Pvt. Ltd V/s DCIT (ITA No. 1381/Mum/2016) - Macleods Pharmaceuticals Ltd. Vs. ACIT (2016) 48 CCH 0298 (Mumbai ITAT) - DCIT V/s Bayer Pharmaceuticals Pvt. Ltd. (ITA No. 6222/Mum/2018) - India Medtronic Pvt. Ltd. V/s DCIT (ITA No. 1246/Mum/2016) - Troikaa Pharmaceuticals Ltd. V/s DCIT (ITA No. 2458/Ahd/2017) - Emcure Pharmaceuticals V/s DCIT (ITA No. 1532/Pun/2015) - Aishika Pharma (P.) Ltd. V/s ITO (106 taxmann.com 192; Delhi - Trib.) - Serum Institute of India Ltd. V/s DCIT (ITA No. 549/Pun/2016) 5.10 Therefore, considering the ratio of all the above decisions, we would hold that CBDT circular was not applicable to the assessee during this year. Accordingly, the promotional / recall items being distributed to doctors for Rs. 633.13 Lacs would not be hit by cited CBDT circular and therefore, these expenses would be an allowable deduction. We order so. 5.11 So far as the remaining items viz. books, journals, reference articles, prescription pad / chit block, calendars / new-year dairies & items given for u....
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....e in law. By deleting the same, we allow ground nos. 14 to 16 of assessee's appeal. 6. Addition on account of alleged bogus purchases 6.1 Pursuant to receipt of certain information from Sales Tax Department, Maharashtra, it transpired that the assessee made suspicious purchases aggregating to Rs. 65.56 Lacs from 5 entities as detailed in para 5.1 of the assessment order. Notices issued u/s 133(6) to all the suppliers did not elicit any satisfactory response. Though the assessee supplied copies of invoices & other documents, however, many deficiencies were noted by Ld.AO in the same. The perusal of suppliers' bank statements established that there were huge cash withdrawals from their bank accounts at regular intervals. In the light of all these observations, these purchases were disallowed and added back to the income of the assessee. 6.2 During appellate proceedings, to substantiate these purchases, the assessee furnished Good Inward Transaction Report, Stock statement reflecting receipt and dispatch of goods, Lorry receipts, bank statements etc. These were subjected to remand proceedings. However, Ld. AO brushed aside these evidences and justified the additions. The Ld. ....
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....ich are as under: - Sr. No. Particulars Amount (Rs.) 1 Operating Expenses 1,51,74,178/- 2 Finance Expenses 1,10,51,559/- 3 Depreciation 98,52,309/- Total 3,60,78,046/- 7.4 It was noted by Ld.AO that R&D salary was booked by assessee in corporate office account only. However, R&D activity was done to enhance the profitability of manufactured goods. Therefore, the weighted deduction claimed on R&D revenue expenses as well as capital expenses were to be allocated amongst the manufacturing units on the basis of SVOP ratio. The activities like purchase for resale and loan licensee could not be linked with any R&D activity. Therefore, weighted deduction on R&D formulation, R&D biotech and other R&D was allocated on the basis of SVOP ratio which has been given in para 7.5 of the order. 7.5 The segmental results of the three units also contained receipts in the nature of sale of scrap of packing material and raw material which could not be said to be derived from industrial activity and therefore, the same was to be excluded while computing the deduction u/s 80-IB / 80-IC. Similarly, export incentives as well as excess provision of ....
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....,854/- Allowed by CIT(A) Total 98,52,309/- In this regard, it is the limited submission of Ld. AR that depreciation (other than ETP) as directed to be allocated by Ld. CIT(A) as mentioned at Serial Nos. C-1 to 3 above pertains to Head Office Plant & Machinery and the same has no connection with Sec. 80-IB/80-IC units. Similarly, it is the submission of Ld. AR that the Interest expense should not be allocated as the assessee has not made any specific borrowings for setting up of 80-IB / 1C unit and its working capital requirement is met by the funds generated from the profits made by the unit. 8.2 Finding strength in the aforesaid arguments, we direct Ld. AO to re-consider the factual matrix as submitted before us and re-adjudicate the issue of allocation of deprecation as mentioned at Serial Nos. C-1 to 3 and interest expenditure as mentioned at serial no.B-2. 8.3 Regarding allocation of R&D expenses of Rs. 1022.62 Lacs to Sec.80-IB / 1C units, we find that the assessee has R&D centers at Jogeshwari, Roha and Goa Unit-III. The R&D expenses pertain to formulations, synthesis and foods. The drugs being developed by R&D formulations is manufacture....
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.... assessee was for the purpose of manufacture of steel forging, transmission gears and part and accessories of motor vehicles and the scrap of these items was stated to be a by product of manufacturing process. The activity of forging was "manufacturing" within the ambit of section 80IB. It was immaterial that the assessee was doing the job of forging also for customers and was charging them on job work basis or on the basis of labour charges. It would still be qualified as carrying on eligible business under Section 80-IB. The activities of the assessee were in giving heat treatment for which it had earned labour charges and job work charges. It could thus be said that the assessee had done a process on the raw material which was nothing but a part and parcel of the manufacturing process of the industrial undertaking. These receipts could not be said to be independent income of the manufacturing activities of the undertaking of the assessee and thus could not be excluded from the profits and gains derived from the industrial undertaking for the purpose of computing deduction under Section 80-IB. These were gains derived from the industrial undertaking and so entitled for the purpos....
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....d. (262 ITR 341). The Ld. AR further submitted that the disallowance u/s 14A could not be adjusted in the Book-Profits computed u/s 115JB as per the decision of Special Bench of Delhi Tribunal in ACIT V/s Vireet Investment (P) Ltd. (165 ITD 27) as well as the recent decision of Hon'ble Karnataka High Court in Sobha Developers Ltd. V/s DCIT (2021; 125 Taxmann.com 72). 9.3 Upon perusal of assessee's financial statements as placed on record, it could be gathered that the assessee has sufficient opening and closing free funds in the shape of share capital and reserves to make the investments. The free funds are way more than the investments made by the assessee and therefore, as per cited decisions, the presumption would run in assessee's favor that the investments were made out of free funds available with the assessee. Further, in terms of cited decision of special bench, no such disallowance could be made while computing Book-Profits u/s 115JB. Therefore, the additional disallowance as made by Ld. AO while computing income under normal provisions as well as while computing Book-Profits u/s 115JB is not sustainable in law. The Ld. AO is directed to delete the same. This ground sta....
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....n Kwality Biscuits Ltd. (supra) rendered in 1999 (holding that assessee was not required to pay advance tax on book profits) was holding the field. Similarly, Mumbai Tribunal in Rockline Developers Pvt. Ltd. V/s ITO (ITA No. 6595/Mum/2014; 01/01/2016) held as under: "We have heard the rival submissions and perused the material before us. We find that the levy of interest u/s. 234B and 234C in case of companies governed by MAT provisions was finally settled by the Hon'ble Apex Court on 7.1.2011, that before that the assessees were under bona-fide belief that they had not to pay adv tax as per the provisions of Sec.207/208 of the Act, that after 07.1.2011 position became very clear that the assessees to be taxed u/s.115 JB would also have to pay advance tax. Considering the peculiar facts and circumstances of the case, we are of the opinion that interest should be levied for the default of March installment only and not for the earlier three instalments. The AO is directed to recalculate the interest accordingly." 11.2 Finding considerable strength in the above arguments, we admit this ground of appeal. Accordingly, we direct Ld. AO to bring on record the relevant fac....
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....ODUCTS EMBOSSED ON ITEMS AND DISALLOWANCE OF GIFT ON OCCASSIONS 8) The Ld CIT(A) erred in disallowing promotional items given to stockists of Rs. 2,47,23,103/- u/s 37(1) without appreciating that said expenses are incurred wholly and exclusively for business and Assessee has proved that same are incurred for business purpose and hence, disallowance may be deleted. 8.1) Without prejudice to the above, the Ld CIT(A) erred in disallowance of entire expense on promotional items given to stockists of Rs. 2,47,23,103/- u/s 37(1) though he accepted that same were legally allowable. 9) The Ld CIT(A) erred in disallowing promotional items given to doctors with name of Assessee's products embossed on them of Rs. 21,34,34,269/- and gifts on occasions of Rs. 13,71,745/- u/s 37(1) without appreciating that said expenses are incurred wholly and exclusively for business and Assessee has proved that same are incurred for business purpose and hence, disallowance may be deleted. 9.1) Without prejudice to above, the Ld CIT(A) erred in disallowing entire expense on promotional items given to doctors with name of Assessee's products embossed on them and gifts....
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....nd in the circumstances of the case, the disallowance, imposition of tax and interest with reference thereto, the quantification of taxable income and the tax liability, has been grossly unjustified, erroneous and unsustainable and necessary direction be given to the Ld. AO to give appropriate relief in accordance with law. 2.0 That on the facts and in the circumstances of the case, Education Cess & Secondary and Higher Education Cess on Income Tax and Dividend Distribution Tax may kindly be allowed as a deduction in computing total income under the normal provisions of the Act. 3.0 That on the facts and in the circumstances of the case, the Ld. A.O. ought not to have made proportionate disallowance pertaining to interest u/s 14A under the normal provisions of the Act since the appellant had sufficient interest free funds available to make such tax free investment. 4.0 That on the facts and in the circumstances of the case, disallowance u/s 14A made under the provisions of section 115JB of the Act may kindly be allowed. 5.0 That on the facts and in the circumstances of the case, export incentives received under Focus Product Scheme (FPS)/Market L....
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....iven to our employees 35,33,411 -do- 4. Misc. items given at contests, sales promotion camps & others 4,94,828 -do- Total(I) 3,52,00,236 II. Promotional items given to Doctors 1. Printed literature and booklets containing product information 3,39,98,677 Allowed subject to verification by AO 2. Prescription pad/ Chit block 98,70,631 Allowed subject to verification by AO 3. Diwali gifts & sweets 94,20,602 No decision 4. Books/Journals/Reference article 66,08,454 Allowed subject to verification by AO 5. Calendars/ New Year Diaries /Greeting Cards 45,81,960 -do- 6. Gift given for child patients 47,18,880 -do- 7. Product sample box 6,29,715 No decision 8. Pens 98,10,215 Allowed subject to verification by AO 9. Gifts on occasion 13,71,745 -do- 10. Medical Utility Items given for use in Dispensary 1,35,13,014 -do- 11. Brand Reminders 21,34,34,269 Disallowed Total (II) 30,79,58,162 Grand Total (I + II) 34,31,58,398 The assessee has also ....
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....35.90 Lacs was also furnished in the said reply. The expense of Rs. 64.48 Lacs has been spent on Market Research and Report, the details of which was also furnished. The expense of Rs. 35.33 Lacs was spent on promotional items given to the employees. The amount of Rs. 94.20 Lacs has been spent on Diwali Gifts and Sweets. After going through the nature of these expenses, it could very well be observed that these expenses were incurred to promote the business of the assessee and are eligible for deduction u/s 37(1). The complete detail of the expenditure was furnished before lower authorities along with requisite documentary evidences. In such an eventuality, the disallowance of the same could not be held to be justified, from any angle. Therefore, we direct Ld.AO to allow the deduction of these expenses. 15.5 In nutshell, the disallowance of Rs. 3483.26 Lacs as made by Ld.AO is not sustainable. By deleting the same, we allow ground nos.8 to 10 of the appeal. 16. Gr. No.11 : Addition on account of alleged bogus purchases 16.1 Similar to AY 2010-11, the assessee has been saddled with addition of Rs. 103.12 Lacs of suspicious purchases pursuant to receipt of certain informatio....
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....r appeal before us. 19.2 This issue is quite identical as adjudicated by us in AY 2010-11. Therefore, taking the same, the additional disallowance of Rs. 19.06 Lacs as made by Ld. AO in normal income as well as while computing Book- Profits u/s 115JB stands deleted. The ground stand allowed. 20. Claim of Education Cess 20.1 In this additional ground, the assessee seek deduction of education cess and secondary & higher education cess amounting to Rs. 87.64 Lacs in terms of the decision of Hon'ble Bombay High Court in Sesa Goa Ltd. Vs. JCIT (117 Taxmann.com 96) and the decision of Hon'ble Rajasthan High Court in Chambal Fertilizers and Chemicals Ltd. V/s JCIT (ITA No.52/2018 dated 31/07/2018). 20.2 As directed in AY 2010-11, the issue is admitted and restored back to the file of Ld.AO on similar directions. The Ld. AO is directed to verify the claim of the assessee and allow the deduction in terms of the cited decisions. This ground stand allowed for statistical purposes. 21. Deduction of Export Incentives 21.1 It has been submitted by Ld. AR that the assessee has credited to its Profit & Loss Account, certain export incentives in the form of Focus Market Scheme (FM....