TaxTMI 
TaxTMI 
2024 (11) TMI 859
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs. 9,81,46,332/- 3. Ground No.3. Disallowance under section 14A read with Rule 8D -Rs.69,89,859/- 4. Ground No.4. Disallowance of amortization of Intangibles under section 115JB Rs 15,23,97,50,000/- 5. Ground No.5 Disallowance of stamp duty charges Rs. 28,00,000/- 6. Ground No.6 Disallowance u/s. 36(1)(va) r.w.s.2(24)(x) for delayed payment of employees' contribution to ESIC Rs. 34,083/- 7. Ground No.7 Loss on sale of land Rs. 49,80,848/- 8. Ground No.8 Deduction of education and secondary & higher education cess under section 37(1) 3. The Ground No.1 relates to disallowance of deduction u/s. 80IB/ 80-IE in respect of interest on staff advances and statutory/ bank deposits. Brief facts is the Ld AO observed that the Assessee is not entitled for deduction under Section 80-IB/80-IE on loan to employees and bank deposits as such interest income is not income derived from industrial undertaking as held by Hon'ble Supreme Court in the case of CIT -Vs- Sterling Foods reported in 237 ITR 579 and Liberty India -Vs- CIT reported in 317 ITR 218. The above disallowance of deduction was upheld by CIT (Appeal) in his order, wherein he has observed that identical issue has been de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts in assessee's own case for the assessment year 2004-05 decided by us hereinabove. Following the same/ this ground of the Revenue is dismissed," "54. As regards ground No 5&6 of the assessee with respect to the interest on FDR amounting to Rs. 3,27,5997- (correct figure Rs. 2,27,599/-) and loan to employees with regard to disallowance of deduction u/s 80-IB, the facts of the issues in hand are identical to the facts decided by the tribunal in assessee's own case dated 11.06.210 in ITA No 184(Asr)/2009for the assessment year 2005-06. Following the same, the ground No 5&6 of the assessee are dismissed." 24. Following the orders of the decisions of the Amritsar Tribunal in the identical issues, we allow the assessee's claim of deduction under section 80-IB of the Act in respect of interest on delayed payments in question and direct the AO to delete the additions. However, we disallow the assessee's claim of deductions in respect of interest on staff advances & statutory/bank deposits." 34.1 Thus, respectfully following the consistent view of Amritsar tribunal in the own case of the assessee, we do not find infirmity in the finding of the learned CIT(A). Hence t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eme Court in case of Apex Laboratories Limited 135 taxmann.com 286, freebies provided to Doctors cannot be allowed as revenue expenditure u/s. 37(1) of the Act. 6. We have heard the rival contentions, perused the materials available on record and given our thoughtful consideration. The assessee has claimed accommodation, business promotion and conference expenses incurred, which are mainly gifts and freebies to doctors. While passing the assessment order, the Ld. AO has verified the ledger account of such expenditure and found that such expenditure are freebies that include sponsorship for attending conferences, medical equipment, travel facilities and hospitality to be distributed to such medical practitioners, which is prohibited by Medical Council of India [MCI]. It is found that Ld. CIT(A) has confirmed the expenditure in nature of accommodation and business promotion but deleted Conference and Sponsorship expenses incurred for Doctors on the ground that same are incurred for sharing the knowledge in the medical field, which is not hit by Circular No.5/2012 and amended MCI guidelines. The Ld. CIT DR on the other hand placed reliance on the decision of the Supreme Court in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see is dismissed and relevant ground no.4 in Revenue's appeal is allowed. 7. The Ground of Appeal No. 3 relates to disallowance under Section 14A r.w. Rule 8D for Rs. 69,89,859/-. The Ld AO at para 7.1 of the assessment order has observed that assessee has claimed income of Rs. 1.59 crores as exempt u/s. 10[15] of the Act on account of interest arising from tax free bonds and not made any disallowance u/s. 14A of the Act. The A.O has observed that assessee on one hand debited interest amounting to Rs. 77,64,817/= in its P&L account and on the other hand has claimed interest arising from investment in tax free bonds as exempt even though the said investment may have been made from the interest bearing funds also. In addition the assessee must have incurred administrative expenditure and part of such expenditure is attributable to earning of exempt income. The Ld. AO has referred to the decision of Hon'ble Supreme Court in the case of Wallfort Shares & Brokers Ltd 310 ITR 421 and Godrej Boyce & Manufacturing Co. Ltd and observed that Rule 8D is applicable and he computed such disallowance at Rs. 69,89,859/-. The above disallowance was confirmed by CIT(A) in para 13.2 of his order o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at addition made by Ld. AO deserves to be upheld and relied upon the observation of the AO. 8. We have heard the rival contentions and perused the materials available on record and given our thoughtful consideration. The Ld AO has made disallowance u/s. 14A read with Rule 8D of Rs. 69,89,859/-. So far as proportionate interest disallowance is concerned, the Ld Senior Counsel contended that it is evident from audited financial statements that the assessee has sufficient interest-free funds, whereas the Ld. CIT(A) has given adverse findings in this regard. Considering these facts, we set aside this issue to the file of Ld. AO and direct him to verify whether the assessee has sufficient interest-free funds or not and workout the disallowance in accordance with law. 8.1. So far as the disallowance under Rule 8D(2)(iii) is concerned, considering the principle of natural justice, we direct the AO to verify the disallowance on the basis of facts of the case and provisions of the law. Thus, the ground no.3 raised by the assessee is hereby allowed for statistical purpose. 9. The Ground No. 4 of the Appeal relates to addition of the amortization of Intangibles of Rs. 1523,97,50,000/- whil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld that recording of Assets at Fair Value pursuant to Scheme of Arrangement and at time of initial recognition cannot be regarded as Revaluation of Assets and consequently no adjustment is required to made to book profit u/s. 115JB of the Act. Operative portion of the Co-ordinate Bench decision in ITA Nos.1464 & 1465/Ahd/2018 [wherein the JM was the Author of the decision] reads as follows: "... 15. We have heard the rival contentions and perused the materials available on records and given our thoughtful consideration. The Domestic Formulation Unit [DFU] of Sun Pharmaceutical Industries Ltd., the holding company, has been spunoff/transferred to the assessee company in term of Scheme of Arrangement ('Scheme') approved by Hon'ble Bombay High Court [pages 648 to 678 of the Paper Book] under sections 391 to 394 of Companies Act, 1956 vide order dated 03.05.2013 in Company claim Petition No. 283 of 2013 and also by the Hon'ble Gujrat High Court vide order dated 03.05.2013 [pages 679 to 682 of the Paper Book] in Company Petition No. 31 of 2013 connected with the Company Application No. 373 of 2012. The assets received by the assessee company have been recorded at fair ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....counting treatment in the books of the Transferee Company: a) Upon coming into effect of this scheme and upon the arrangement becoming operative, the Transferee Company shall record the assets transferred to and vested in them pursuant to this Scheme, at the estimated fair values of the respective assets as on the Appointed date. The decision of the Board of Directors of the Transferee Company in this regard shall be final and binding b) The sum total of assets recorded at fair values shall be credited to Capital Reserve Account in the books of the Transferee Company. The Capital Reserve shall be available for issue of bonus shares or such other application as may be permissible under the law." ... ... ... ... 15.6. In the above referred decision, Co-ordinate Bench of Delhi Tribunal had concluded the issue based on the reading of clause (j) of Explanation to section 115JB for calculation of book profit u/s. 115JB, provisions of Section 129 of the Companies Act, AS14 of the recognized accounting standard, keeping in view the fact that the revenue has not brought any tangible material to prove that the scheme is a colourable device to avoid taxes, keeping in view of the amalg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....financial statements prepared in accordance with the provisions of the Companies Act and certified by the statutory auditor. The action of the Ld. AO in the present case is therefore contrary to the provisions of the law and therefore the adjustment made by the Ld AO is hereby quashed. 16. It is relevant to place on record that the Institute of Chartered Accountants of India (ICAI) had come out with a Compendium of Accounting Standards, wherein they had specifically covered the impugned scenario and clarified that the accounting treatment prescribed by the High Court/ITAT shall have legal force. Further, as pointed out by the Ld. Sr Counsel that the assets received under restructuring are allowed to be recorded at fair value under various Accounting Standard namely AS-14 and AS-10 and it is a fundamental requirement that the accounts must present true and fair view. To re-iterate Paragraph 12 of AS-14, which is to be mandatorily followed by the assessee company, which permits the Transferee Company to record the assets and liabilities of the amalgamating companies, acquired under the scheme of amalgamation, at Fair Values as on the date of amalgamation. Therefore, recording of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt as stated supra. 16.3. Therefore in our considered opinion, in no way, this can be considered similar to the revaluation. The recording of intangibles at Fair Value in the books of accounts by the assessee company is part of the process of initial recognition of the assets and not revaluation of existing assets held by it. The LD Sr. Counsel has correctly referred to dictionary meaning of revaluation of assets which means that 'assessing the value of something again' which is not the case of the assessee. We are in absolute agreement with the principle that for revaluation, there must be an existing ownership in first place. It is a fundamental principle that revaluation requires an existing value that is sought to be revalued. In the case on hand, there was no previous ownership of the intangible assets with the assessee company, instead these assets were transferred to and acquired by the assessee company as a consequence to the Scheme of Arrangement approved by the Hon'ble High Court of Gujarat. The recording of these assets in the books of the assessee company at Fair Value is in accordance with the generally accepted accounting principles and cannot be treated as reva....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een acquired and recorded at fair value in A.Y. 2012-13 and the same has been accepted by the Ld. AO by way of order of scrutiny assessment order passed under section 143(3) of the Act dated 19-01-2015. Once the recording of the intangible assets at fair value have been accepted and not questioned in the relevant year being the initial year of recording i.e. A.Y. 2012-13 in the instant case, it is not open to the revenue authorities to question the same in succeeding years. 16.7. In view of the above, we set aside the findings of the lower authorities and direct the AO to delete the adjustment made by him to the book profit under section 115JB of the Act. Hence, the ground of the assessee company is allowed." 11.1. There is no change in the facts of the present case with that of the earlier asst years 2013-14 and 2014-15, the Co-ordinate Bench considered various judgements, Accounting Standard AS- 14, AS-10 and also provision of section 115JB of the Act and held that adjustment made by the Ld AO in the Book profit is liable to be deleted. Thus respectfully following the above decision of the Coordinate Bench dated 06-10-2023 in ITA Nos.1464 & 1465/Ahd/ 2018 and various other jud....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the original RoI nor in the Revised RoI filed by the assessee. During the assessment proceedings the assessee requested the AO to consider the inadvertent omission and allow LTCL. The Ld AO instead of allowing the loss, added back the amount of loss to the income of the assessee. Aggrieved against the addition assessee was on appeal and Ld CIT[A] though not allowed the LTCL, since the loss return was not filed u/s. 139[5] of the Act but deleted the addition made as income in the hands of the assessee by observing as follows: "22.2. I have carefully considered the facts on records and submission of the Ld. Authorized Representative. On perusal of submission made by the Appellant it is observed that the Appellant has already added LTCG of Rs. 369461/- (10438662 10069201) on sale of land while computing book profit u/s 115JB. However, with indexation appellant claimed LTCL of Rs. 49,80,848/- during assessment proceedings. The appellant has failed to record LTCL in ITR under normal provisions of the Act. The appellant has filed ITR on 28.11.2015 and revised its ITR u/s 139(5) on 30.03.2016. In both the ITRs filed, the appellant has not claimed Long Term Capital Loss of Rs. 49,80,84....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ircumstances of the case and in law, the learned CIT(A) has erred in allowing deduction u/s 80IE of Rs. 1013,01,69,988/- in respect of Sikkim Unit without appreciating the facts and reasons mentioned by the AO in the assessment order. 2.2 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing deduction u/s 80IE of Rs. 1013,01,69,988/- in respect of Sikkim Unit, without appreciating the facts and reasons mentioned by the AO in the assessment order of erstwhile firm Sun Pharma Sikkim (SPS), which after its conversion into a Part IX company, has amalgamated with the assessee company. 2.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing deduction u/s 80IE of Rs. 1013,01,69,988/- in respect of Sikkim Unit, without appreciating the fact that erstwhile Sun Pharma Sikkim was formed by the splitting up and reconstruction of the existing business of Sun Pharmaceutical Industries (SPI), and the condition that used machinery is less than 20% of the stipulated limit, has not been fulfilled by the assessee. 2.4 On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in holding that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uction u/s 80IB/80IE was rightly disallowed by the AO. 4.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 2,26,07,758/- in respect of conference fees and sponsorship under the head gift and freebies to doctors without appreciating the facts and reasons mentioned by the AO in the assessment order. 4.2 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 2,26,07,758/- in respect of conference fees and sponsorship under the head gift and freebies to doctors without appreciating the real nature of these expenses which were actually freebies and gifts to medical practitioners. 5.1 On the facts and circumstances of the case and in law, CIT(A) erred in deleting the addition of Rs. 69,89,859/- to Book Profit u/s. 115JB on the issue of disallowance u/s 14A, without appreciating the facts and reasons mentioned by the AO in the assessment order. 5.2 On the facts and circumstances of the case and in law, CIT(A) erred in deleting the addition of Rs. 69.82,659/- to Book Profit u/s. 115JB without appreciating the fact that the said amount was disallowed u/s. 14A and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... computation u/s 115JB, without appreciating the fact that the provision relating to Wealth tax forms part of Income Tax Act, 1961, and therefore, provision of wealth tax is to be added for the purpose of determination of book profit u/s 115JB. 10.1. On the facts and circumstances of the case and in law, CIT(A) erred in deleting the disallowance of management consultancy charges paid to Mckinsey & Company. without appreciating the findings of the AO in assessment order. 10.2 Without prejudice to the above, on the facts and circumstances of the case and in law, CIT(A) erred in deleting the disallowance of management consultancy charges paid to Mckinsey & Company, without appreciating the fact that the impugned expenses being arisen on account of merger of Ranbaxy & SPIL and therefore clearly attracts the provision of Section 35 DD of the Act. 11.1 On the facts and circumstances of the case and in law, CIT(A) erred in deleting the disallowance of expenses incurred towards consultancy charges to Makov Associates Ltd. amounting to Rs. 67,64,69,735/-, without appreciating the findings of the AO in assessment order and also the fact that the assessee company itself declared that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oncern' basis. The claim of deduction u/s 80IE was made for the first time by SPS in AY 2010-11. In the present case for the Asst. Year 2015-16, the AO has solely relied upon the findings of the Assessment Order for AY 2010-11 in the case of SPS. However, such order for AY 2010-11 was not confirmed by the higher authorities. It is observed that the Coordinate Bench in the case of erstwhile firm SPS for AY 2010-11 (subsequently followed in 2011-12 and 2012-13) has allowed such deduction by holding as under. The relevant finding of the Coordinate Bench for AY 2012-13 reads as under: "... 8. We have heard the rival contention of both the parties and perused the materials available on record. At the outset, we find that issue on hand is covered by the order of the coordinate bench of this tribunal in the own case of the assessee for AY 2010-11 in ITA Nos. 3541/Mum/2017, where the bench vide order dated 16th May 2019 held as under: ... ... 26. We have duly considered rival contentions and gone through the details. According to the AO, bills having value of Rs. 6.88 crores with regard to certain additions to plant & machinery were not furnished. Therefore, he presumed such machiner....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A). Thus, the ground of appeal raised by the Revenue is hereby dismissed.' 22.1. Since the eligibility of deduction was upheld in the first year of claim being AY 2010-11, the same cannot be disputed in the subsequent year of claim on the same ground of ineligibility. More particularly when the AO himself has observed that there is no change in facts and circumstances of the case during the year under consideration. Before us, no material has been brought on record by the Revenue to demonstrate the above decision of the Co-ordinate bench in earlier year has been reversed or set aside by the higher Judicial Forums. Thus, respectfully following the Coordinate Bench decision, we find no infirmity in the findings of Ld. CIT(A). This ground no.2 raised by the revenue is hereby dismissed. 23. Ground No. 3 of the Department's appeal relates to disallowance of deduction u/s 80-IB/80-IE in respect of receipt of interest of Rs. 24,49,60,959/-. The AO at para 5.5.5 of the assessment order has observed that interest income cannot be said to have been 'derived from' the Industrial undertaking as held by the Hon'ble Supreme Court. Aggrieved by the Assessment Order, the assessee fil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nate bench by following the order of Amritsar Tribunal in own case of the assessee for AY 2005-06 to AY 2009-10 decided the issue in favour of the assessee. The relevant finding of the coordinate bench in ITA No. 2465/Mum2014 reads as under: 23. Ground No IV pertains to adjustment of delayed payments, staff advances and statutory/bank. The issue regarding interest on delayed payments from customers is covered in favour of the assessee. But the issues regarding interest on staff advances and FDRs are covered against the assessee by the orders of the Amritsar Tribunal passed in assessee's own cases pertaining to the financial years 2004- 05, 2006-07, 2007-08, 2008-09 and 2009-10. The relevant paras of the order passed by the Amritsar tribunal are reproduced as under:- "51. As regards ground No .3 of the Revenue, regarding disallowance of deduction under section 80- IB in respect of delayed payments from M/s Aditya Medisales Ltd. Amounting to Rs. 48,20,32,772/-, the facts are identical to the facts in assessee's own case for the assessment year 2004-05 decided by us hereinabove. Following the same, this ground of the Revenue is dismissed." "54. As regards ground No 5&6 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t paragraphs 16.1 to 16.5 of the order, holding no adjustment be made in the Book Profit u/s. 115JB of the Act. Thus following the same principle this Ground No.5 raised by the Revenue is hereby dismissed. 26. Ground No.6 of Department's appeal relates to CIT(A) erred in deleting the addition of Rs. 89,39,883/= on account of disallowance made towards care protection plan for Apple i-pads ignoring the fact that same is valid for more than 12 to 24 months. The AO held the same as prepaid expenditure and the assessee contended that according to the mercantile system of accounting, a prepaid expenditure is one in respect of which the payment has been made prior to the arising of any liability. The ld CIT[A] in para 16.2.1. of his order directed to delete the addition by observing as follows: "16.2.1. After due deliberation to the contentions of the Appellant and on perusal of the purchase invoice, I am of the considered view that the liability in the present case arose in its entirety as soon as the agreement to purchase the protection plan had been entered into. The expenditure at-most ought to be regarded as 'deferred revenue expenditure' akin to advertisement, staff-train....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppellant and Neetnav, the Appellant was liable to pay security deposit of Rs. 8,75,00,000/- to Neetnav for the use of the specified area. It was also agreed by the parties that in case of failure to pay deposit within the stipulated time, the Appellant was liable to pay interest @ 9% p.a. Consequent to the said agreement. The Appellant defaulted in making timely payment of the security deposit thereby triggering the interest obligation on delayed payment of security deposit. As per the agreement, interest was to be levied at the rate of 9% p.a. for the period of delay in making the payment. Accordingly, for the period of delay of 232 days, interest amounting to Rs. 50,16,000/- was payable by the Appellant and the same was claimed as a deduction u/s 37(1) of the Income-tax Act, 1961 (the 'Act"). However, the Assessing Officer has disallowed the Appellant's claim questioning the Appellant's rationale and business expediency in failing to make a timely payment of the amount despite being cash rich. Further, the Assessing Officer has disallowed the interest expenditure on the ground that the entire arrangement is between group concerns. 17.2.2. From the above agreement it....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 17:2:5 In view of the several above decisions cited by the appellant as the transaction has actually taken place after complying with the applicable regulatory requirements and nothing contrary is brought by the Assessing Officer on record to prove otherwise, the expenditure in question need to be allowed as a deduction u/s 37(1) of the Act. The Assessing Officer is directed to allow the afore-mentioned relief. Addition of Rs. 50,16,000/- is hereby cancelled. Accordingly, Ground No.13 is allowed." 27.1. Perusal of the facts, the assessee paid interest of Rs. 50,16,000/- to M/s. Neetnav Real Estate Pvt Ltd. though being a related party u/s. 40A[2][b] of the Act, but the interest was subject to domestic transfer pricing provisions u/s. 92BA of the Act. Further as per FAR analysis of the transaction, it has been found that the rate of 9% p.a. paid by the Assessee company is in conformity with the Arm's Length Pricing and also much lesser than the prevailing interest rates in the market. It is undisputed fact that based on contractual obligation the late payment of 232 days has attracted the penal interest of Rs. 50,16,000/- which is to be allowed u/s. 37(1) of the Act. Thus t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hold that the software upgradation expenses are revenue in nature and thus eligible for deduction under section 37(1) of the Act. Addition of Rs. 1,49,62,413/- is deleted. Accordingly, Ground No. 14 is allowed." 28.1. Ld. D.R. appearing for the Revenue could not point out any error in the findings arrived by Ld. CIT(A) but supported the order passed by the AO. 28.2. Per contra Ld. Senior Counsel appearing for the Revenue supported the order passed by the Ld. CIT(A) and also relied upon various Judgments rendered by the Jurisdictional High Court namely CIT -vs- NJ (India) Invest Pvt. Ltd. reported in (2013) 32 taxmann.com 367 (Guj.) wherein it was held that software upgradation expenses are held to be Revenue in nature and allowable u/s. 37(1) of the Act observing as follows: "6. These services, thus essentially were in the nature of maintenance and support services providing essentially backup to the assessee, who had procured software for its purpose. These services, thus essentially did not give any fresh or new benefit in the nature of a software to be used by the assessee in the course of the business but were more in the nature of technical support and maintenance of the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yable or a provision thereof, cannot be treated on par with Income-tax and accordingly the provisions for Wealth-tax was not required to be added to the book profit u/s. 115JB. Following the above order, relief has been allowed in A.Y. 2010-11. Respectfully following the order of CIT(A)-IV, Ahmedabad, I also direct the Assessing Officer to exclude the provisions of Wealth-tax from the book profit computation u/s. 115JB. Addition of Rs. 3,20,000/- is hereby deleted. Thus, appellant succeeds in respect of Ground No. 16." 29.1. Ld. Sr. Counsel appearing for the assessee submitted that this issue is squarely covered in favour of the assessee by the Bombay High Court in the case of CIT -vs- Reliance Industries Ltd. reported in (2019) 102 taxmann.com 142 wherein it was held as follows: "4. Section 115JB of the Act pertains to special provision for payment of tax by certain companies As is well known, detailed provisions have been made to compute the book profit of the assessee for the purpose of the said provision. Explanation 1 contains list of amounts to be added while computing assessee's book profit under Section 115JB of the Act. Clause (a) thereof reads as under- "(a) To t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er would also impact the business and the support functions of the Assessee company. Accordingly, McKinsey & Co was hired to realize synergy benefits, reorganize business functions and extract maximum value from the acquisition streamline overlapping business functions, eliminate redundancies, suggest cost saving opportunities, rationalize product portfolio, alignment of marketing field force, etc., post happening of the merger so that the Assessee's and SPIL business can be carried out efficiently. 30.1. Further the assessee claimed that Mckinsey & Co. was hired to streamline common therapeutic verticals, identify and discard redundancies and duplications in business, identify and implement saving opportunities across high potential areas, rationalize product, alignment of marketing field force, adopt optimum marketing techniques and avail synergy benefits in order to facilitate the Assessee's business in the post-merger scenario. Thus the genuineness of the consultancy services rendered by Mckinsey & Co. is not questioned by the AO. Further, it is not even the case of the AO that entire consultancy expenditure for the Ranbaxy merger integration was borne by the Assessee.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....88] 172 ITR 257 (SC). The same has also been recently upheld in the case of Axis Bank Ltd. v. ACIT [2017] 185 TTJ 722 (Ahmedabad Trib.). What has to be seen is the nature of advantage in a commercial sense whether it is in the capital field or for the running of the business. If the advantage enables the assessee to undertake business efficiently without having impact on fixed capital, then such expenditure has to be reckoned on revenue account, even though the advantage may endure in future. This principle has been enshrined by the Hon'ble Apex Court in the decision of Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC). 23.4.3. In a similar facts and circumstance, the Hon'ble Madras High Court in case of CIT v. Crompton Engg. Co. Ltd. (2000) 242 ITR 317 held that - "The assessee with the intention of bringing about improvements in the way it did its business had sought and obtained report of the consultants, so that efficiency of the business could be increased by employing better methods and re-organising the business itself to the extent required. The fact that it sought such advice did not imply that it would accept all the advice....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... consultancy services rendered from Mckinsey and hence, ought to been allowed as a business deduction in computing the profit or gains from business or profession. 23.4.6. Under the above said facts and circumstance and following the above cited case laws, I am of the considered view that all the pre-requisites as established by section 37(1) are satisfied and therefore, I hold that the expenditure incurred towards the payment of consultancy fees to McKinsey & Co. are revenue in nature and have a direct nexus with the business of the Appellant and therefore, shall be allowed as a deduction under section 37(1) of the Act. The Assessing Officer is directed to delete the addition of Rs. 16,55,52,260/-. Accordingly, Ground No. 19 is allowed." 30.3. Ld. D.R. appearing for the Revenue could not point out any error in the findings arrived by Ld. CIT(A) therefore supported the order passed by the Ld AO. 30.4. Per contra Ld. Senior Counsel appearing for the Revenue supported the order passed by the Ld. CIT(A) and also relied upon various Judgments rendered by the Jurisdictional High Court namely (i) CIT-Vs-Gujarat State Fertilizers & Chemicals Ltd. 358 ITR 323 (Guj.), (ii) CIT-Vs-Gujara....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure as a result of CDR exercise and, therefore, it was of the opinion that all the expenses are to be treated as capital expenditure and the same were needed to be disallowed and added to the income of the assessee. The Assessing Officer relied upon the decision of the Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 and dismissed the plea of the assessee. 4.1 The assessee on being aggrieved by such order travelled to the CIT (Appeals), which considered this issue in detail. It noticed that the amount of Rs. 60.13 crore had been waived under the CDR and interest had also been reduced for the financial year 2003-2004. The CIT (Appeals) on discussing various cases held that the same cannot be considered to be having an enduring benefit. 4.2 The Tribunal on this very issue relied on the decision of the Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340 (SC), wherein the question arose, whereby the Supreme Court was deciding whether a particular expenditure was revenue expenditure incurred for the purpose of business or capital in nature. It held that such question needs to be determined on a consideration of all the facts and ci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing of a company was not having enduring benefit and as no asset was brought into existence on such expenses, said expenditure could not be capital in nature following Gujarat State Fertilizers & Chemicals Ltd. case law by observing as follows: "9. Before dilating further on this issue, a reference needs to be made in this regard to the decision in case of CIT v. Gujarat State Fertilizers & Chemicals Ltd. [2013] 358 ITR 323/217 Taxman 229/36 taxmann.com 230 (Guj.) wherein question was with regard to payment to financial consultants for professional services in connection with the corporation debt restructuring by negotiating with Banks and Financial Institutions. Such expenditure was considered for the purpose of business and allowable in entirety in the year in which it was incurred and it was held to be revenue in nature and not capital. 10. Reference to a decision of Supreme Court in case of Madras Industrial Investment Corpn. Ltd v. CIT, [1997] 225 ITR 802/91 Taxman 340 (SC) where the Apex Court was deciding whether a particular expenditure was revenue expenditure incurred for the purpose of business or capital in nature. Such question needs to be determined on a considerat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure made was at the best for continuing the benefit for one year. Resultantly, such payment cannot be categorized as capital in nature as no asset is brought into existence on account of such payment." 31.3. Further Hon'ble Karnataka High Court in the case of Telco Construction Equipment Co. Ltd. held that consultancy fee paid for the purpose of studying and preparing a strategy to reduce cost of production by the assessee, such study conducted was only improving the sales and profitability of the assessee and no new asset had come into existence, then the consultancy fee paid by the assessee was to be allowed only as a revenue expenditure by observing as follows: "9. So far as second substantial question of law is concerned, the Commissioner of Income-tax (Appeals) has deleted the addition holding that the expenditure was incurred towards cost reduction initiative for sustained profitability and the provisions of section 35D are not applicable to the case as it is not the case of pre initial activity or setting up of a new capital asset. The tribunal has affirmed the aforesaid finding in appeal and has held that consultancy fee paid by the assessee is for the purposes of studyi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the aforesaid Agreement read with the Addendum, Makov Associates has raised an invoice for USD 10 million (equivalent to Rs. 67.65 crores) towards consultancy services rendered by it during the year under consideration. However, the AO has disallowed the consultancy fees paid to Makov Associates merely on the basis that incurrence of the same will benefit the Assessee for an indefinite period without providing any evidence in support thereof. Further the AO treated the impugned expenditure as capital in nature on the ground that the same resulted in enduring benefit to the assessee thereby disallowed the consultancy charges paid to M/s. Makov Associates amounting to Rs. 67,64,69,735/- and added as the income of the assessee. 32.1. On appeal before Ld CIT[A] the assessee submitted that it hired the services of Makov Associates as a consultant with the main intention of bringing about improvements in the way it carried out its business so that efficiency could be achieved and at the same time, proper focus is maintained on growth prospects thereby facilitating strategic and business decision making by the top-level management. The functions of Makov Associates included the following....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in issue. The above principle laid down in Empire Jute Co. Ltd. (supra) has been reaffirmed by the Hon'ble Supreme Court while deciding the case of CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC) wherein the Court had remarked as under- "In the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, the Supreme Court observed that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the cost of enduring benefit may break down. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future." 24.2.5. The judgement of the Hon'ble Calcutta High Court in case of Singlo ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....incurred and claimed consultancy fees paid to Makov for obtaining identical nature of services like the one in this case, as a deduction while computing income for AY 2013-14 and AY 2015-16. During the assessment proceedings, the said issue was picked up for scrutiny by the then Assessing Officer for thorough examination. The said expenses were fully allowed as a deduction. The services rendered by Makov to the Appellant in the instant case are similar in nature as those rendered to the SPIL. Hence, there is no reason for not allowing the impugned payment as a deduction under section 37(1) of the Act. 24.2.8. Accordingly, following the principles laid down by the Hon'ble Supreme Court, I hold that the expenditure incurred towards the payment of consultancy fees to Makov Associated Ltd are revenue in nature and have a direct nexus with the business of the Appellant and therefore, shall be allowed as a deduction under section 37(1) of the Act. Accordingly, the Assessing Officer is directed to allow the afore-mentioned relief. Thus, Ground No. 20 is allowed." 33. Ld. D.R. appearing for the Revenue could not point out any error in the findings arrived by Ld. CIT(A) but supported....