TaxTMI 
TaxTMI 
2023 (2) TMI 1312
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....r scrutiny by issuing notice u/s 143(2) of the Act on 13.06.2011. When the assessment was pending, search action took place in the hands of the assessee on 15.3.2012. Consequent thereto, the proceedings u/s 153A of the Act was initiated by issuing notice on 18-01- 2013 and the present assessment order came to be passed. 3. During the course of search proceedings, a statement u/s 132(4) of the Act was recorded from (a) Shri Mahesh R Sanur, the cashier of the assessee company. (b) Shri Kamal Kishore Sharma, Managing Director of M/s Lupin Ltd. During the course of operation of prohibitory order u/s 132(3) of the Act, a Statement was recorded u/s 132(4) from Shri Ramesh Swaminathan, President (Finance & Planning) also. Post search, a statement was recorded from Shri Ramesh Kumar Khaitan, Vice President (Taxation) u/s 131 of the Act on 10-05-2012. We are making reference to all these statements recorded, since the AO has placed reliance upon them. 4. Shri Mahesh R. Sanur, the cashier of the assessee company admitted in his statement that the company has given cheque payments to a commission agent named M/s Versatile Vintrade P Ltd and received cash back from the above said pers....
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....0 6 Amar Enterprises 242U400713V 5,02,401 7 Paras Vijay 08752706343 14,35,218 8 Paras Ice Factory 23223605480V 3,19,196 9 Parasnath Agencies 23804102092V 85,535 Grand Total 48,89,052 When questioned, the assessee submitted that it had booked bogus expenses by way of commission payments only and such commission payments have been duly offered in the return of income filed u/s 153A of the Act. It was submitted that the above said expenses aggregating to Rs.48,89,052/- are in the nature of actual expenses incurred under various heads and these expenses are not bogus in nature. It was submitted that these expenses have been wrongly taken as commission expenses at the time of search proceedings. It was submitted that these expenses are of general nature like consumables, laundry charges, spares, capital expenses etc. Accordingly, it was submitted that there was no requirement of surrendering Rs.48,89,052/- as the income of the assessee. The assessee contended that non-disclosure of Rs.48,89,052/- amounts to retraction from the statements given u/s 132(4) of the Act. 6.1 The AO did not accept the explanations given by the assessee. He noticed that ....
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.... all, there is no dispute that the amount of Rs.48,89,052/- is not in the nature of commission expenses, i.e., the assessee has admitted that it has booked bogus expenses by way of commission payments only. Secondly, it has furnished the details of materials purchased through these bills, delivery challans etc., to prove receipt of materials. The assessee has also explained the reason as to why these expenses were not added to the total income while computing total income. We notice that the tax authorities have ignored all these aspects on merits, but placed their reliance on the statement made u/s 132(4) of the Act. The provisions of sec.132(4) enables the assessing officer to presume that the admission made in the statement "may be" used in the assessment proceedings. It is well settled proposition of law that it is a rebuttable presumption, meaning thereby, the deponent could show that the admission made by him in the statement was wrong. In the instant case, in our view, the assessee has rebutted the admission by furnishing evidences in support of the expenses. The very same fact that a sum of Rs.9,86,470/- out of the above said expenditure amount of Rs.48,89,052/- represents ....
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....he return of income filed u/s 153A of the Act. 7.2 The AO did not accept the contentions of the assessee for the following reasons:- (a) The Investigation wing of department had investigated the transactions carried on by a person named Sri Naresh Kantilal Shah through various concerns in his name and in the name of his associates. He admitted in the statement recorded on 7.9.2021 that he has provided only accommodation entries through these concerns. It was noticed that the assessee herein has purchased materials from the concerns belonging to above said person to the tune of Rs.2.17 crores during the period from March, 2010 to February, 2011. (b) During the course of search operations, the assessee (Managing Director of the assessee) has offered Rs.58.80 crores towards bogus purchases made during the period from AY 2005-06 to 2012-13. This was also confirmed by the President (finance & planning). During the post search enquiries, the Vice President (Taxation) offered additional income of Rs.1,17,92,093/- in respect of purchases made from four parties belonging to Global Impex Group. (c) Placing reliance on the decision rendered by co-ordinate bench in the case of ....
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....r protest on 8th July, 2011, after Sales tax survey, since it would not get input VAT credit on the alleged bogus purchases. It is stated that on the basis or revised sales tax returns, it has agreed to surrender Rs.58.80 crores during the course of search towards bogus purchases in various years, which included Rs.10.00 crores pertaining to the year under consideration. However, it is stated that the assessee has noticed that the most of the vendors were not included in the final list of suspicious dealers published by MVAT authorities in its website. Hence, the assessee has re-revised its VAT returns after verification on 26th June, 2012, i.e., subsequent to the date of search. According to the assessee, the re-revised VAT returns has since been accepted by the VAT authorities. Accordingly, it was submitted that the surrender of income towards alleged bogus purchases was made on the basis of incomplete information and further on the reasons that the assessee was not able to prove the genuineness of purchases at that point of time. 7.4 With regard to the statement given by one of the vendors Shri Naresh Kantilal Shah, which was referred to by the AO, the assessee submitted that i....
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....ed with one more opportunity to prove the genuineness of purchases. Accordingly, this issue requires fresh examination at the end of the AO, since the AO has not examined these factual aspects. In order to prove the genuineness the assessee may also furnish documents/details, on sample basis, to show that the relevant goods have been received and used by it. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO for examining it afresh in the light of discussions made supra. 8. The next issue urged by the assessee relates to the claim for deduction expenses classified as "Prior Period Expenses" in the financial statements amounting to Rs.4,91,608/-. The details of Prior period expenses are given below:- Parekh Cargo Logistics P Ltd (Agency charges, Parcel charges, Certification charges, licence Registration charges) - 36,608 Khimji Kunverji & Co. (Intern....
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....ia) Ltd (supra) that its decision will not impinge the power of the Tribunal to admit additional ground. Since all the facts relating to this issue are available on record, we admit this ground and proceed to dispose of the same. 8.2 A perusal of the three expenses would show that they are in the nature of payment towards professional fees, meaning thereby, the corresponding professional services would have been availed by the assessee before the end of the relevant financial year. Hence, under the mercantile system of accounting, the assessee should have created provision for the expenses as at the yearend for all known expenses, even if the relevant bills have not been received by that point of time. The principle that the "liability accrued and crystallized during the year" would apply only to those cases, where the liability itself is in dispute and got finally settled in the subsequent years. Best example would be the dispute relating to "Wage increment", i.e., in the case of increase in wages, the liability to pay increment could be known only after settlement of dispute and hence it could be claimed only in the year in which the dispute is settled, i.e., an uncertainty shou....
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....assessee, the law relating to disallowance u/s 14A of the Act was at nascent stage and it has made disallowance as per its understanding at the relevant point of time. When the law on sec. 14A developed later, the assessee has sought correction of amount disallowed by it, as per the subsequent development of law. We find merit in the said claim of the assessee. 9.3 We notice that the assessee was having own funds of Rs.1124.62 crores and Rs.1421.23 crores as on 1.4.2008 and 31.3.2009 respectively. The value of investments stood at Rs.292.49 crores and Rs.473.87 crores as at the beginning and end of the year. Besides the above, the assessee has purchased and sold units of various mutual funds to the tune of Rs.133 crores. Thus, it can be seen that the own funds available with the assessee was more than the value of investments and hence it shall be presumed that the investments have been made out of own funds and in that case, there is no requirement of making any disallowance out of interest expenses as held by Hon'ble Bombay High Court in the case of HDFC Bank Ltd (2014)(366 ITR 505). Hence the interest disallowance made by the assessee is liable to be deleted. 9.4 With regard t....
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....eld that there is a specific provision in clause (i) to Explanation (1) to sec. 115JB of the Act to add back "any amount set aside as provision for diminution in the value of any assets", i.e., it is the view of the Ld CIT(A) that the "Provision for bad and doubtful debts" would fall under this category and hence, the assessee has rightly added the above said amount while computing book profit at the time of filing of return of income. Since the assessee has taken a different stand before the tax authorities, the Ld CIT(A) rejected the claim of the assessee. 10.2 It is the contention of the assessee that the "Provision for bad and doubtful debts" debited to the Profit and loss account has been reduced from "Sundry debtors" balance and the net amount of 'Sundry debtors balance' was only shown in the "assets side" of Balance Sheet. Relying upon following decisions rendered by Hon'ble High Courts, the ld A.R contended that the provision for bad and doubtful is not required to be added to net profit, if it is reduced from the amount of Sundry debtors, as it has been interpreted by Hon'ble High Courts that such kind of treatment would amount to write off and such kind of actual write o....
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....come" is computed in accordance with the provisions of Income tax Act and for computing "total income", the entries made in the books of accounts are not relevant. For computing "book profit" u/s 115JB of the Act, the annual accounts are required to be prepared as per the Companies Act, which require preparation of annual accounts as per established accounting policies, accounting standards. It is well settled that, under the accounting principles, the expression "Provision for bad and doubtful debts" and "write off of bad debts" connote two different meaning. The expression "write off of bad debts" represents actually writing of debts as bad in the books of account, meaning thereby, the debt itself is removed permanently from the accounts of the assessee. On the contrary, the expression "Provision for bad and doubtful debts" represents expected loss in realization of debts. Under the accounting concept of "Prudence", it is required to make provision for all known expenses and losses, even if has not been actually paid. Even if the actual amount is not known, it is necessary to make provision on estimated basis in order to make the accounts true and fair. All the companies make "Pr....
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....in the case of Yokogawa Ltd (supra) has expressed the view that the "Provision for bad and doubtful debts", if reduced from the amount of "Sundry debtors balance" in the assets side of Balance Sheet would amount to actual write off of bad debts and accordingly, it would not be hit by clause (i) of Explanation 1 to sec.115JB of the Act. Both the High Courts have followed the decision rendered by Hon'ble Supreme Court in the case of Vijaya Bank (323 ITR 166)(SC). The Hon'ble Apex Court was considering the provisions of sec.36(1)(vii) r.w.s 36(2) of the Act in the context of a banking company. Under the provisions of sec.36(1)(vii) of the Act, an assessee is eligible to claim deduction of "amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee". Explanation 1 to sec. 36(1)(vii) reads as under:- "Explanation 1:- For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee". The above said explanation recognized the distinction between "actual write off bad debts" and "Provi....
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....ts computed u/s 115JB of the Act. The AO did not accept the contentions of the assessee and accordingly added a sum of Rs.152.26 lakhs to the total income. The Ld CIT(A) directed the AO to restrict the disallowance to Rs.143.50 lakhs and rejected the claim of the assessee that the very same amount offered in AY 2010-11 should be excluded. Both the parties are aggrieved. 11.1 We heard the parties and perused the record. There should not be any dispute that the amount of disallowance cannot exceed the amount debited to the Profit and Loss account. During the year under consideration, the assessee has claimed a sum of Rs.143.50 lakhs as commission expenses. Hence the Ld CIT(A) was justified in holding that the disallowance should be restricted to Rs.143.50 lakhs. At the same, it is the claim of the assessee that the above said amount of Rs.143.50 lakhs has been inadvertently offered as income in AY 2010-11. If that is the case, there is merit in the submission of the assessee that it would result in double taxation of same item of income, which is not permitted under the law. 11.2 It is settled principle that each year is different and the income of one year cannot be taxed in anoth....
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....ontested by the revenue relates to the disallowance of mark to market loss of Rs.3,39,71,181/- made by the AO and deleted by Ld CIT(A). The assessee is supporting the decision rendered by Ld CIT(A) on this issue in the cross objections filed by it. The assessee had revalued the derivative contracts outstanding as at the yearend in respect of foreign exchange receivables. The same resulted in a loss of Rs.3.39 crores and it was claimed by the assessee has deduction. The AO disallowed the claim by placing reliance on CBDT Instruction no.3/2010 and holding it as notional loss. The Ld CIT(A) noticed that an identical disallowance made by the AO in AY 2008-09 has been deleted by the Tribunal in ITA No.7513 & 7274/Mum/2014 and the same has been affirmed by the Hon'ble Bombay High Court in ITA No.1532 of 2017 dated 2nd April, 2019. Accordingly, the Ld CIT(A) deleted this disallowance. The revenue is aggrieved. 13.1 We heard the parties on this issue and perused the record. It is the submission of the assessee that the forward contracts have been entered to cover future export receivables. The break-up details of above said loss are given as under by the assessee:- M to M Loss in relati....
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....--------- Net amount of claim 3,39,71,181 =========== 13.2 The Ld A.R submitted that an identical issue has been examined by the Tribunal in the assessee's own case in AY 2008-09 and it has been decided in favour of the assessee following the decision rendered by Hon'ble jurisdictional Bombay High Court in the case of CIT vs. M/s D Chetan & Co (ITA No.278 of 2014 dated 01-10-2016)( [2016] 75 taxmann.com 300 (Bombay)). We also notice that the decision rendered by the Tribunal in the assessee's own case....
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....f of the Revenue that the Respondent assessee should be called upon to explain the nature of its transactions. Thus, the submission now being made is without any foundation as the stand of the assessee on facts was never disputed. So far as the reliance on Accounting Standard-11 is concerned, it would not by itself determine whether the activity was a part of the Respondent-assessee's regular business transaction or it was a speculative transaction. On present facts, it was never the Revenue's contention that the transaction was speculative but only disallowed on the ground that it was notional. Lastly, the reliance placed on the decision in S. Vinodkumar Diamonds (P.) Ltd. (supra) in the Revenue's favour would not by itself govern the issues arising herein. This is so as every decision is rendered in the context of the facts which arise before the authority for adjudication. Mere conclusion in favour of the Revenue in another case by itself would not entitle a party to have an identical relief in this case. In fact, if the Revenue was of the view that the facts in S. Vinodkumar (supra) are identical/similar to the present facts, then reliance would have been placed by ....
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....assessee did not claim this amount as deduction u/s 35(2AB) of the Act in the return of income filed by it, but only appended a note explaining the details. Before the AO, during the course of assessment proceedings, the assessee claimed that the above said expenditure is eligible for weighted deduction u/s 35(2AB) of the Act. The AO noticed that the above said expenditure has not been approved by DSIR in Form No.3CL dated 11.7.2012 issued by it. Further, the assessee has put up this new claim without filing a revised return of income, which is against the decision rendered by Hon'ble Supreme Court in the case of Goetze (India) Ltd (supra). Accordingly, the AO rejected the claim of the assessee. 14.1 The Ld CIT(A) noticed that the Ahmedabad bench of Tribunal in the cases of Cadila Pharmaceuticals vs. ACIT (2012)(25 taxmann.com 519) and the Hon'ble Gujarat High Court in CIT vs. Cardila Healthcare Ltd (2013)(31 taxmann.com 300) has held that the term "in-house" research used in section 35(2AB) must be viewed in the context in which it has been used by the Legislature. If research is conducted within the organization through utilization of external use of resources or staff, it can b....
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....es of the Tribunal. However, Hon'ble Gujarat High Court has considered this issue as under in its decision reported in the case of Cadila Healthcare Ltd (2013)(31 taxmann.com 300)(Guj) as under:- "11.Revenue has also suggested following question : "D. Whether the Appellate Tribunal has substantially erred in holding that the expenses incurred outside the approved R&D facility would also get weighted deduction based on the word under "on in house" interpreting contradictorily to the finding of coordinate bench in Concept Pharmaceuticals Ltd. v. ACIT (ITAT, Mum) reported at 43 SOT 423?" 12. We may record that question 'E' in the appeal memo is an additional question which has an element of above noted question. We have, therefore, not separately reproduced the same in this order. The issue is whether the assessee who has incurred expenditure for scientific research, which was not in the in-house facility, could be covered for deduction under section 35(2AB) of the Income Tax Act, 1961. 13. More or less, facts are not in dispute. The assessee carried out scientific research in its facility approved by the prescribed authority. It incurred various expenditure includi....
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....any regulatory authority under the Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970. 16. The whole idea thus appears to be to give encouragement to scientific research. By the very nature of things, clinical trials may not always be possible to be conducted in closed laboratory or in similar in-house facility provided by the assessee and approved by the prescribed authority. Before a pharmaceutical drug could be put in the market, the regulatory authorities would insist on strict tests and research on all possible aspects, such as possible reactions, effect of the drug and so on. Extensive clinical trials, therefore, would be an intrinsic part of development of any such new pharmaceutical drug. It cannot be imagined that such clinical trial can be carried out only in the laboratory of the pharmaceutical company. If we give such restricted meaning to the term expenditure incurred on in-house research and development facility, we would on one hand be completely diluting the deduction envisaged under sub-section (2AB) of section 35 and on the other, making the explanation noted above quite meaningless. We have noticed that for the ....
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....AB) of the Act. It is not as if that the said authority was addressing the issue for deduction under section 35(2AB) of the Act in relation to the question on hand. The certificate issued was only for the purpose of listing the total expenditure under the Rules. Therefore, no question of law arises." It can be noticed that the Hon'ble Gujarat High Court, after making extensive discussion on the issue and after holding that the Tribunal has committed no error, refused to admit the issue by observing no question of law arises. The revenue has challenged before Hon'ble Supreme Court the decision of Hon'ble Gujarat High Court in holding that no question of law arises. The Hon'ble Apex Court, vide its order dated 14th October, 2015 passed in SLP (c) No.770/2015 has directed the Hon'ble Gujarat High Court to admit the question of law and hear the revenue. However, no other order, if any, passed by Hon'ble Gujarat High Court was brought to our notice on the issue under our consideration in pursuance of the directions given by Hon'ble Supreme Court. In this connection, we may gainfully refer to the decision rendered by co-ordinate bench of Hyderabad in the case of DCIT vs. Aurobindo Phar....
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....d that, in the instant case, the DSIR (Prescribed authority) has not certified the expenses incurred outside the in-house facility and the AO could not sit in judgment over the said report. Accordingly, the Ld D.R submitted that the unapproved expenses cannot be allowed deduction u/s 35(2AB) of the Act. 14.6 The next question is whether expenditure incurred prior to the date of approval could be allowed as deduction? Both these questions are answered together. 14.7 The legal sanctity of Form no.3CL was examined by the Pune bench of ITAT in the case of Cummins Ltd vs. DCIT (ITA No.309/Pun/2014 dated 15.5.2018 relating to AY 2009-10). It was held as under:- "45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R&D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No. 3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribe....
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....clusion, the Tribunal relied upon the judgment of Gujarat High Court in CIT v. Claris Lifesciences Ltd. 326 ITR 251 (Guj). In its decision the Hon'ble Gujarat High Court had held that the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assessee was in indulging in R&D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued, that would be sufficient to hold that the assessee fulfils the conditions laid down in the aforesaid provisions. The Hon'ble Delhi High Court followed the decision of the Hon'ble Gujarat High Court and upheld the decision of the Tribunal. The Hon'ble Delhi High Court quoted the following observations of the Hon'ble Gujarat High Court and agreed with the said view: "7. ... The lower authorities are reading more than what is provided by law. A plain and simple reading of the Act provides that on approval of the research and development facility, expenditure so incurred is eligible for weighted deduction. 8. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of : (i) developmen....
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....ct. 14.9 The next question is whether the deduction u/s 35(2AB) could be allowed in the absence of approval of scientific research in-house facility by DSIR? Under the provisions of sec.35(2AB) approval of in-house research facility is a mandatory condition for allowing deduction under that section. Accordingly, if no approval of scientific research facility is available, then the deduction u/s 35(2AB) is not allowable. 14.10 In the instant case, the Ld D.R took us to the copy of approvals placed in the paper book and submitted that approval of some of the research facilities are not available. Further, the assessee has not furnished the break-up details of scientific research expenses incurred in each of the research facility centre. Accordingly, we are of the view that these factual aspects require verification at the end of AO. Accordingly, we are restoring this issue to the file of AO for the limited purpose of obtaining the details of scientific research expenses incurred in each of the approved in-house facility and then examine the issue in the light of discussions made supra. 15. The next issue urged by the revenue relates to the claim for deduction of ESOP expenses. The....
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....ntification of liability, which takes place at a future date. The tribunal has therefore, rightly placed reliance on decisions of the Supreme Court in Bharat Movers supra and Rotork Controls India P. Ltd., supra and has recorded a finding that discount on issue of ESOPs is not a contingent liability but is an ascertained liability. 10. From perusal of section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital. The tribunal therefore, in paragraphs 9.2.7 and 9.2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deducti....