AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 1312
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....3-2011. Subsequently, it was selected for 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 Vint....
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....8 4 Apsara Power Laundry N.A.. 1,014 5 Pravin Electricals Pvt Ltd 27080276548V 5,07,620 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/- amou....
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.... for not disallowing these expenses on merits. In our view, the stand of the assessee, in the facts and circumstances of the case, merits acceptance. First of 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 furnishi....
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....es were proved to the extent of Rs.9,77,21,547/-. The assessee could not reconcile the balance amount of Rs.23,66,548/- for want of certain details. Hence the same was offered to tax in the 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 ad....
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.... - 7,90,83,655 The Ld CIT(A) has confirmed the above said disallowance. 7.3 We heard the parties on this issue and perused the record. We notice that the assessee has submitted that it has revised VAT returns under 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 f....
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....t is submitted that the entire foundation on which the surrender was made got demolished. It is also submitted that these suppliers are not included in the list of suspicious dealers by MVAT authorities. 7.7 Under these set of facts, we are of the view that the assessee may be provided 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)&n....
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....ed by Hon'ble Supreme Court in the case of Goetze (India) Ltd vs. CIT (284 ITR 323)(SC). 8.1 We notice that the assessee did not contest the decision of AO rendered on this issue before Ld CIT(A). Even though this claim has been made without filing revised return of income, the Hon'ble Supreme Court has held in the very same case of Goetze (India) 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 ....
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....ies on this issue and perused the record. Even though the assessee has voluntarily disallowed higher amount of expenditure u/s 14A of the Act, in our view, the same may be amended, if the disallowance made by the assessee is not in accordance with the mandate of law under the principle that there is no estoppels against the law. It is the submission of the 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 ....
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....ee took a different stand and contended that the "Provision for bad and doubtful debts" should not be added to the Net profit. Since a new claim was made without filing revised return of income, the AO rejected the same, following the decision rendered by Hon'ble Supreme Court in the case of Goetz (India) Ltd (supra). In the appellate proceedings, the Ld CIT(A) held 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 Balan....
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....ordingly, the Ld CIT-DR contended that the "Provision for bad and doubtful debts" squarely falls under the category of "Provision for diminution in the value of assets" and hence the same was rightly added by the assessee itself in its return of income and by the tax authorities also. 10.4 We heard rival contentions and perused the record. There should not be any dispute that the "total income" 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 "Provi....
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.... Rs.23.50 million was added to it and the closing balance was shown at Rs.53.50 million. Hence, in this case also, the assessee has kept separate ledger account for "Provision for bad and doubtful debts" and the same is carried forward year after year. 10.8 We notice that the Hon'ble Gujarat High Court in the case of CIT vs. Vodafone Essar Gujarat Ltd (supra) and the Hon'ble Karnataka High Court, 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 a....
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....143.50 lakhs only to the above said concern during the financial year 2008-09 relevant to the year under consideration. The assessee further submitted that the above said amount has been offered to tax by it in the succeeding assessment year 2010-11. It was also submitted that there is no requirement to make disallowance again, since the tax has been charged in both the years upon the assessee only on book profits 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....
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....record. Since the assessee is raising an altogether new issue, which has not been examined by the tax authorities, the ld D.R submitted that this claim of the assessee requires examination at the end of AO. We agree with the submission made by Ld D.R. Accordingly, we restore this issue to the file of AO for examining this claim of the assessee. 13. We shall now take up the appeal filed by the revenue. The first issue contested 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 Bo....
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....sp; 8,99,687 ----------------- Net amount of claim 3,39,71,181 &n....
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....verse in any manner. In fact, the Assessing Officer also in the Assessment Order does not find that the transaction entered into by the Respondent assessee was speculative in nature. It further holds that at no point of time did Revenue challenge the assertion of the Respondent assessee that the activity of entering into forward contract was in the regular course of its business only to safeguard against the loss on account of foreign exchange variation. Even before the Tribunal, we find that there was no submission recorded on behalf 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. ....
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....ose of verifying these factual aspects, we restore this issue to the file of the AO for examining this issue in the light of principles laid down by Hon'ble jurisdictional Bombay High Court in the case of D Chetan & Co (supra). 14. The second issue contested by the revenue relates to the disallowance of claim made u/s 35(2AB) of the Act. The assessee had incurred expenses amounting to Rs.42.58 crores on Clinical trials, Analytical charges and Bio Analysis and Bio Equalence studies outside its in-house approved/recorgnised R&D facility. The 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). Ac....
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....es outside the in-house facility is eligible for weighted deduction u/s 35(2AB) of the Act? (b) Whether the weighted deduction u/s 35(2AB) could be allowed during the year under consideration, even if the expenditure has not been certified by DSIR in Form no.3CL? (c) Whether expenditure incurred prior to the date of approval could be allowed as deduction? (d) Whether the deduction u/s 35(2AB) could be allowed in the absence of approval of scientific research in-house facility by DSIR? 14.4 With regard to the first question, conflicting views have been expressed by different benches 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)....
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....ads as under: "Explanation - For the purposes of this clause, "expenditure on scientific research" in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970)." 15. Such explanation thus provides that for the purpose of said clause, i.e. clause (1) of section 35(2AB), expenditure on scientific research in relation to drugs and pharmaceuticals shall include expenditure incurred on clinical drug trial, obtaining approval from 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 str....
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....letely fail to achieve desired results. That by itself does not mean that no scientific research was undertaken. What the Legislature desired to encourage by granting deduction under section 35(1) of the Act was a scientific research and not necessarily only the successful scientific research undertaken by an assessee." 18. We are, therefore, of the opinion that the Tribunal committed no error. Merely because the prescribed authority segregated the expenditure into two parts, namely, those incurred within the in-house facility and those can were incurred outside, in our opinion, by itself would not be sufficient to deny the benefit to the assessee under section 35(2AB) 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 questio....
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.... trials outside the approved in-house facility is eligible for weighted deduction u/s 35(2AB) of the Act. 14.5 The next question is Whether the weighted deduction u/s 35(2AB) could be allowed during the year under consideration, even if the expenditure has not been certified by DSIR in Form no.3CL?. The ld D.R placed her reliance on the decision rendered by Hon'ble Karnataka High Court in the case of Tejas Network Ltd (2015)(60 taxmann.com 309)(Kar), wherein it was held that the AO cannot sit in judgment over the report submitted by prescribed authority. Accordingly, the Ld D.R submitted that the AO has to necessarily follow the report given by the prescribed authority. The Ld D.R submitted 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 F....
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.....8 The question of allowing deduction u/s.35(2AB) of the Act was considered by the Hon'ble Delhi High Court in the case of CIT v. Sadan Vikas (India) Ltd. [2011] 335 ITR 117 (Del) where AO refused to accord the benefit of the weighted deduction to the assessee under s. 35(2AB) on the ground that recognition and approval was given by the DSIR in February/September, 2006, i.e., in the next assessment year and, therefore, the weighted deduction cannot be allowed. In this case, the CIT(A) confirmed the order of the AO. The Tribunal held that the assessee would be entitled to weighted deductions of the aforesaid expenditure incurred by the assessee in terms of the s. 35(2AB) of the Act and in coming to this conclusion, 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 asses....
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....nt of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction." From the above discussion it is clear that prior to 1-7-2016 Form 3CL had no legal sanctity and it is only w.e.f 1-7-2016 with the amendment to Rule 6(7A)(b) of the Rules, that the quantification of the weighted deduction u/s.35(2AB) of the Act has significance. Further, the date of approval shall not be cut off date for allowing scientific research expenditure u/s 35(2AB) of the Act. 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....
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....nly on tax authorities and it will not bind on the Courts. The Hon'ble Karnataka High Court has dealt with this issue as under in the case of Biocon Ltd (supra) as under:- "9. In the instant case, the ESOPs vest in an employee over a period of four years i.e., at the rate of 25%, which means at the end of first year, the employee has a definite right to 25% of the shares and the assessee is bound to allow the vesting of 25% of the options. It is well settled in law that if a business liability has arisen in the accounting year, the same is permissible as deduction, even though, liability may have to quantify and discharged at a future date. On exercise of option by an employee, the actual amount of benefit has to be determined is only a quantification 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 assesse....