TaxTMI 
TaxTMI 
2025 (4) TMI 386
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....while the revenue contests certain deletions granted by the CIT(A). As the grounds raised are common across the assessment years under appeal(s), we are disposing of these appeals by way of a consolidated order for convenience. Facts of the case: 2. The assessee-company is mainly engaged in the manufacture of drugs and pharmaceuticals, it also provides marketing and consultancy activities in respect of drugs and pharmaceuticals, fine chemicals, industrial glass containers, packing materials, electronic tests and measuring instruments, consumer electronic and industrial research. There are 15 divisions including service units catering to the needs of other units of corporate body. 2.1. The assessee filed return of income for the respective A. Y. and the cases were selected for scrutiny. The assessments were completed under section 143(3) of the Act. The AO made certain disallowances and additions in the income of the assessee for the respective A.Y.s. The details of the returns filed, and assessment completed are tabulated below: Particulars -> A.Y. 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Date of Filing Return of Income 31/10/2002 28/11....
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.... TIME OF AMALGAMATION OF SPL - RS. 1,38,840 (PARA 2 OF CIT (A) ORDER) 1.1 CIT(A) has erred in fact and in law by confirming disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with the appellants pursuant to Scheme of amalgamation. 1.2 That CIT(A) has failed to appreciate that the acquisition of the Undertaking and business of the amalgamating company is nothing but an acquisition of capital asset for the purpose of the appellants' business as is evident from the objects of the Scheme of Amalgamation. 1.3 That, therefore, the interest on Bonds is a revenue expenditure incurred wholly and exclusively for the purpose of business carried on by the appellants. 1.4 That CIT(A) has further failed to appreciate that the appellants is a going concern and that the expenditure of interest is incurred after the commencement of the business. 1.5 IN THE FACTS OF THE CASE, interest of Rs.1,38,840 on bonds issued at the time of amalgamation of SPL be directed to be allowed. 2. ADDITIONAL DISALLOWANCE U/S. 43B(b) IN RESPECT OF EMPLOYER'S CONTRIBUTION TO PF, FPF ETC. (....
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....y compensatory and partly penal in nature as has been held in a catena of decisions. 3.4 That CIT(A) has failed to appreciate that PF damages offered for disallowance in return of income was subject to the protest that the PF damages be allowed while determining total income for the year and that the same is not disallowable. 3.5 That appellants' alternate claim of allowing 40% of PF damages by treating it as compensatory nature was based on decisions of CIT(A) himself in earlier AY 1995- 96 to 1997-98 which are upheld by this Hon. ITAT and there is no basis or details given as regards treating 40% of the damages as compensatory in nature. That, therefore, there is no question of any details to be given by appellants as regards 40% of the damages to be treated as compensatory in nature. 3.6 IN THE FACTS OF THE CASE, a. Claim of PF damages be directed to be allowed. b. Alternatively, in case disallowance of claim of PF damages is upheld, then, 40% of PF damages be directed to be allowed following decisions of CIT(A) in earlier AY 1995-96 to 1997-98 which are upheld by this Hon. ITAT. 4. SALARIES AND WAGES OF PACKART PRESS DIV....
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....llowing his appellate order no. CAB-1/05/2014-15, dated 10.3.2015, para 15.12 to 15.25, of previous AY 2001-02. 5.2 That CIT(A) has grievously erred in fact and in law in relying upon decision of Hon. Mumbai ITAT in case of Blue Star Ltd. Vs. DCIT, 13 SOT 25, in his appellate order of previous AY 2001-02, justifying his stand that consideration received for transfer of marketing / distribution rights is revenue receipt, in as much as facts involved in that case are distinctly different from the facts in the given case. 5.3 That CIT(A) has grievously erred in fact and in law in not appreciating that the marketing / distribution rights in question were source of income for the appellants and, therefore, consideration received is capital receipt and cannot be taxed as revenue receipt. 5.4 IN THE FACTS OF THE CASE, it be held that further additional consideration of Rs.2 crores received for transfer, in previous AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is capital receipt not chargeable to tax. 6. DISALLOWANCE U/S.14A- (PARA 11 OF CIT(A) ORDER) 6.1 CIT....
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....w by confirming disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with the appellants pursuant to Scheme of amalgamation. 1.2 That CIT(A) has failed to appreciate that the acquisition of the Undertaking and business of the amalgamating company is nothing but an acquisition of capital asset for the purpose of the appellants' business as is evident from the objects of the Scheme of Amalgamation. 1.3 That, therefore, the interest on Bonds is a revenue expenditure incurred wholly and exclusively for the purpose of business carried on by the appellants. 1.4 That CIT(A) has further failed to appreciate that the appellants is a going concern and that the expenditure of interest is incurred after the commencement of the business. 1.5 IN THE FACTS OF THE CASE, interest of Rs.1,38,840 on bonds issued at the time of amalgamation of SPL be directed to be allowed. 2. DISALLOWANCE U/S. 43B(b) IN RESPECT OF EMPLOYER'S CONTRIBUTION TO PF, FPF ETC. PAID ON OR BEFORE DUE DATE FOR FILING RETURN OF INCOME - RS. 1,08,53,589 (PARA 4 OF CIT (A) ORDER) 2.1 CIT(A) has grievo....
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....claim of damages of Rs. 10,79,540 levied u/s.14B of the P.F, Act, 3.2 That CIT(A) has failed to appreciate that the P.F. damages are compensatory, and not penal, in nature. 3.3 That, even if it is held that P.F. damages are penal in nature, the entire amount of damages cannot be held as penal in nature and damages are partly compensatory and partly penal in nature as has been held in a catena of decisions. 3.4 That CIT(A) has failed to appreciate that PF damages offered for disallowance in return of income was subject to the protest that the PF damages be allowed while determining total income for the year and that the same is not disallowable. 3.5 That appellants' alternate claim of allowing 40% of PF damages by treating it as compensatory nature was based on decisions of CIT(A) himself in earlier AY 1995- 96 to 1997-98 which are upheld by this Hon. ITAT and there is no basis or details given as regards treating 40% of the damages as compensatory in nature. That, therefore, there is no question of any details to be given by appellants as regards 40% of the damages to be treated as compensatory in nature. 3.6 IN THE FACTS OF THE CASE....
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....evously erred in fact and in law in holding that further additional consideration of Rs.2 crores received for transfer, in previous AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is a revenue receipt taxable as business income u/s.28(ii)(c) under the Act. following his appellate order no. CAB-1/05/2014-15, dated 10.3.2015, para 15.12 to 15.25, of previous AY 2001-02. 5.2 That CIT(A) has grievously erred in fact and in law in relying upon decision of Hon. Mumbai ITAT in case of Blue Star Ltd. Vs. DCIT, 13 SOT 25, in his appellate order of previous AY 2001-02, justifying his stand that consideration received for transfer of marketing / distribution rights is revenue receipt, in as much as facts involved in that case are distinctly different from the facts in the given case. 5.3 That CIT(A) has grievously erred in fact and in law in not appreciating that the marketing / distribution rights in question were source of income for the appellants and, therefore, consideration received is capital receipt and cannot be taxed as revenue receipt. 5.4 IN THE FACTS OF THE CASE, it be ....
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.... not allowing entire amount of claim of PF damages, levied u/s.14B of the P.F, Act, and, instead, allowing claim of 40% of the damages by holding it as compensatory in the nature. 3.3 IN THE FACTS OF THE CASE, it be held that PF damages are compensatory in nature and disallowance of 60% of PF damages upheld by CIT(A) be directed to be allowed. 4. PENALTIES-BREACH OF CONTRACTUAL OBLIGATIONS - Rs. 1,29,080 (PARA 4.2.1 PAGE 3 OF APPELLATE ORDER) 4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of penalties paid to various parties for breach of contractual obligations as per the contracts entered in to by appellants with the parties though there can not be issue of breach of any statutory provisions in case of breach of contractual obligations. 4.2 IN THE FACTS OF THE CASE, disallowance of other penalties paid to various parties for breach of contractual obligations be directed to be disallowed. 5. SALARIES AND WAGES OF PACKART PRESS DIVISION- RS. 33,86,757 AND OTHER EXPENSES OF Rs.50,920 (PARA 4.4, PAGE 4 OF APPELLATE ORDER) 5.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of ....
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....66,928 - (PARA 4.8, PAGE 13 OF APPELLATE ORDER) 8.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of claim of bad debts and alternate claim of business loss u/s.28 of the Act without appreciating the facts and relevant materials placed on his record by appellants which very clearly establish that claim pertains to write off of outstandings on account of sale of goods, deposits etc. transactions entered into by appellants for the purpose of and in the course of business. 8.2 That CIT(A) has grievously erred in fact and in law in rejecting alternate claim of deduction as business loss u/s.28 on the ground that no evidence or details have been furnished in this regard even though such details and evidences were furnished and even though he not called for any further evidences and details in support of the alternate claim. 8.3 IN THE FACTS OF THE CASE: i. claim of bad debts be directed to be allowed Appellants' claim of bad debts in toto. Alternatively; ii. in the event it is held that claim of write off of outstandings is not allowable as bad debt u/s.36(1)(vii), claim of deduction under general provisions of ....
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....ce or details have been furnished in this regard even though such details and evidences were furnished and even though he had called for any further evidences and details in support of the alternate claim. 10.3 IN THE FACTS OF THE CASE, claim of deduction under general provisions of Sec. 28 r.w.s. 37(1) be directed to be allowed. 11. BOOK PROFIT U/S. 115JB - PROVISION FOR BAD AND DOUBTFUL DEBTS- Rs.6,04,47,760 (PARA 4.11, PAGE 31 OF APPELLATE ORDER) 11.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of provision for bad and doubtful debts for the purpose of computation of book profit u/s. 115JB of the Act. 11.2 CIT (A) has failed to appreciate that provision for bad and doubtful debts is not an amount set aside to provisions made for meeting any liabilities, but, provision for non-recoverability of the amount due to be payable to appellants. 11.3 IN THE FACTS OF THE CASE, provision for doubtful debt be directed to be allowed for the purpose of computing book profit u/s.115JB. II. Such other and further relief may please be granted as may be deemed expedient by this Hon. Tribunal in the facts and circum....
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....IGATIONS (PARA 4.2.1 PAGE 3 OF APPELLATE ORDER) 4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of penalties paid to various parties, included in other penalties of RS.9,49,096, for breach of contractual obligations as per the contracts entered in to by appellants with the parties though there not be issue of breach of any statutory provisions in case of breach of contractual obligations. 4.2 IN THE FACTS OF THE CASE, disallowance of penalties paid to various parties for breach of contractual obligations be directed to be deleted. 5. SALARIES AND WAGES - RS. 32,79,890 AND * OTHER EXPENSES - Rs.1,16,422 OF PACKART PRESS DIVISION- (PARA 4.4, PAGE 4 OF APPELLATE ORDER 5.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of salary and wages of employees and other expenses of appellants- Packart Press Unit. 5.2 CIT(A) has utterly failed to appreciate that order of industrial tribunal not allowing closure of the unit is still in force and the whole controversy is pending adjudication by Hon. High Court. 5.3 IN THE FACTS OF THE CASE, claim of salary and wages - and other expenses etc....
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....on. Tribunal. IV. Appellants most humbly pray that this Hon. Tribunal may be pleased to call for the records and proceedings of the case as may be deemed necessary. Assessee's Grounds of Appeal in ITA No. 1291/Ahd/2016 A.Y. 2006-07 (Appeal against order of CIT(A)-1, Vadodara dated 29/03/2016) I. MERITS 1. INTEREST ON BONDS ISSUED TO THE SHAREHOLDERS STANDARD PHARMACEUTICALS LTD. (SPL) AMALGAMATED WITH APPELLANT COMPANY - Rs.1,31,940 (PARA 4, PAGE 2 OF APPELLATE ORDER) 1.1 CIT(A) has grievously erred in fact and in law in confirming disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation. 1.2 IN THE FACTS OF THE CASE, interest on bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation be directed to be allowed as revenue expenditure incurred for the purpose of business. 2. DISALLOWANCE OF OTHER EXPENSES OF RS. 5,09,192 BEING 5% OF TOTAL OTHER EXPENSES OF RS.1,01,83,845 (PARA 4.1, PAGE 2 OF APPELLATE ORDER) 2.1 CIT(A....
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....claim of deduction under general provisions of Sec. 28 r.w.s. 37(1) be directed to be allowed. 5. REPAIRS-BUILDING - PARTITION IN MUMBAI OFFICE - Rs.2,96,490 AND PARTITION IN CHENNAI OFFICE RS. 1,43,173 - (PARA 4.5, PAGE 18 OF APPELLATE ORDER) 5.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of expenses of partition work at rented branch premises at Mumbai and Chennai branches. 5.2 CIT(A) has failed to appreciate that partition expenses included miscellaneous electrical repairing work of Rs.59,700 at Mumbai branch office premises and of Rs.28,000 at Chennai Branch office premises which could not be disallowed as partition expenses and which are allowable as current repairs. 5.3 IN THE FACTS OF THE CASE: i, expenses of partition work at rented branch premises at Mumbai and Chennai branch offices be directed to be allowed; ii. electrical repairs of Rs.59,700 in case of Mumbai branch office and of Rs. 28,000 in case of Chennai branch office be directed to be allowed in as much as such repairs are not partition expenses but current repairs. 6. SUNDRY DEBIT BALANCES WRITTEN OFF - RS. 71.91 LAKH - ....
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....ICALS LTD. (SPL) AMALGAMATED WITH APPELLANT COMPANY - Rs.1,31,940 (PARA 4, PAGE 2 OF APPELLATE ORDER) 1.1. CIT(A) has grievously erred in fact and in law in confirming 1.1 disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation. 1.2 IN THE FACTS OF THE CASE, interest on bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation be directed to be allowed as revenue expenditure incurred for the purpose of business. 2. DISALLOWANCE OF OTHER EXPENSES OF RS. 1,31,538 BEING 5% OF TOTAL OTHER EXPENSES OF RS.26,30,760 (PARA 4.1, PAGE 2 OF APPELLATE ORDER) 2.1 CIT(A). has grievously erred in fact and in law in upholding adhoc disallowance of 5% of 'other expenses'. 2.2 THAT CIT(A) has failed to appreciate that other expenses are . in the nature of conveyance, postal and revenue stamps expenses, listing fees, distribution sweets, diwali boni, conveyance, etc, which are clearly related to Appellants' business. 2.3 IN....
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....ce and the whole controversy is pending adjudication by Hon. High Court. 6.3 IN THE FACTS OF THE CASE, claim of salary and wages and other expenses etc. of Packart Press unit be directed to be allowed. II. Such other and further relief may please be granted as may be deemed expedient by this Hon. Tribunal in the facts and circumstances of the case. - III. Appellants crave leave to add, alter, amend or withdraw all or any of the grounds before the adjudication of appeal in finality by this Hon. Tribunal. IV: Appellants most humbly pray that this Hon. Tribunal may be pleased to call for the records and proceedings of the case as may be deemed necessary. Revenue's Grounds of Appeal in ITA No. 1594/Ahd/2016 - A.Y.2004-05 1. " On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the A.O in the assessment order, i.e. addition made on account of miscellaneous expenses, telephone expenses, vehicle expenses, as the assessee failed to substantiate his claim." 2. "On the facts and in the circumstances of the case and law, the Ld. CIT(A), erred in allowing the disallowa....
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....on account of miscellaneous expenses, telephone expenses, vehicle expenses despite the fact that the assessee failed to substantiate its claim." 2. "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing 40% of the disallowance made on account of P.F. damages u/s 14B of the PF Act and other penalties, without appreciating the findings brought by the AO in the assessment order and also ignoring the fact that the assessee has infringed the provisions of PF Act, which is not allowable as business expenditure u/s 37(1) of the I.T. Act and that the assessee had disallowed amount of Rs. 33,59,735/- itself in computation of income and taking in to account this fact, the AO had not made addition on this point. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting disallowances made of Rs. 9,49,096/- being other penalty by holding that the amount was added back by the assessee in return of income contrary to the fact on records where assessee had not added back this amount in return of income filed. 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A), deleted....
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....s of such expenses with its business." 3. "On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred, by allowing the claim of the assessee without appreciating the fact that the assesse had not claimed deduction/s 43B of Rs. 2,31,55,260/- either in the return or through filing of revised return as held in the decision of the Supreme Court in the case of Goetze [India] Ltd. vs. CIT 284 ITR 323(SC). 4. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored. 3.1. The grounds are consolidated and tabulated as follows for the sake of convenience: S r Common Issue ITA No. Assessment Year (A.Y.) Type of Appeal Amount (Rs. Specific Ground No. 1 Disallowance of Interest on Bonds Issued During Amalgamation 1772/Ahd/2015 2002-03 Assessee 1,38,840 1 1773/ Ahd/2015 2003-04 Assessee 1,38,840 1 1290/ Ahd/2016 2004-05 Assessee 1,40,213 1 1782/ Ahd/2016 2005-06 Assessee 1,31,940 ....
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....nce of Other Penalties (Contractual Obligation) 2066/Ahd/2016 2005-06 Revenue 9,49,096 3 1290/Ahd/2016 2004-05 Assessee 1,29,080 4 10 Disallowance u/s 14A 1772/Ahd/2015 2002-03 Assessee 33,75,000 6 11 Disallowance relating to Bad Debts 1290/ Ahd/2016 2004-05 Assessee 1,48,66,928 8 1291/Ahd/2016 2006-07 Assessee 2,63,025 4 2066/Ahd/2016 2005-06 Revenue 15,73,662 5 12 Disallowance of Sundry Balances written off 1290/Ahd/2016 2004-05 Assessee 58,35,000 10 1291/Ahd/2016 2006-07 Assessee 71,91,000 6 15 Write-off of Loan Liabilities as Taxable under Section 28(iv) 2066/Ahd/2016 2005-06 Revenue 3,66,67,734 7 13 Disallowance of Repair and Maintenance - Building 2066/ Ahd/2016 2005-06 Revenue 6,74,517 6 1291/ Ahd/2016 2006-07 Assessee 4,39,663 5 1783/ Ahd/2016 2007-08 Assessee 10,03,378 4 14 Disallowance of Repair and Maintenance - Plant & Machinery 1783/Ahd/2016 2007-08 Assessee 14,83,250 5 15 Grounds Relating to Disallowance of 5% Selling Expenses 2066/....
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.... the Authorised Representative (AR) of the assessee conceded that the Co-ordinate Bench in ITA No. 1771/ Ahd/2015 for the AY 2001-02 has decided against the assessee. The Departmental Representative (DR) relied on the orders of lower authorities. 7.1. It is noted that in previous assessment years the assessee's similar claims for interest on bonds issued during amalgamation were disallowed by the Assessing Officer. These disallowances were subsequently upheld by the CIT(A) and the co-ordinate bench, thereby establishing a consistent judicial stance on this matter. In the assessment years under consideration, the CIT(A) has adhered to the same position, disallowing the claim for interest on bonds as not allowable under the provisions of the Act. We observe that there has been no material change in the facts, or any new legal argument presented that would warrant a departure from this established position. 7.2. In light of the principle of judicial consistency and considering the treatment of similar claims in prior years, we find no reason to take a different view. We, therefore, uphold the disallowances as made by the Assessing Officer and confirmed by the CIT(A). 7.3.....
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.... AO, in line with the Co-ordinate Bench's consistent approach in the assessee's own case. 11. The assessee has raised ground relating to disallowance of Rs. 1,02,67,284 u/s 43B on account of employees' contribution of PF in ITA No. 1290/ Ahd/2016 for A.Y. 204-05. The decision of Hon'ble Jurisdictional High Court in case of CIT -II Vs. Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100 is against the assessee on this issue and the AR has conceded the same before us. Hence, the ground of the assessee is dismissed. Ground related to Disallowance of PF Damages under Section 14B of the PF Act 12. The assessee challenges the disallowance of damages paid under Section 14B of the PF Act, which were levied due to delays in remitting contributions to the Provident Fund (PF). The AO and CIT(A) treated these damages as penalties and disallowed them under Section 37(1) of the Act. 12.1. The issue of PF damages has been raised across multiple appeals as detailed below: ITA No. Assessment Year (A.Y.) PF Damages Disallowed (Rs.) 1772/ Ahd/2015 2002-03 9,83,308 1773/ Ahd/2015 2003-04 10,79,540 1290/ Ahd/2016 2004-05 17,....
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....ions. The DR, in case of revenue's appeal on this ground, also contended that the reliance on earlier decisions allowing 40% of damages as compensatory was misplaced, as no evidence was presented in the present case to substantiate such bifurcation. 16. We have heard the submissions of both parties and perused the material available on record, including the orders of the lower authorities and the decisions relied upon by the assessee. It is an established position, based on the Hon'ble Supreme Court's decision in the case of Swadeshi Cotton Mills Co. Ltd. vs. CIT [233 ITR 199 (SC)], that where a composite levy includes both compensatory and penal elements, the compensatory portion can be allowed as a deductible business expenditure under Section 37(1). In the assessee's own case for A.Y. 2001-02 (ITA No. 1771/ AHD/2015), the Co- ordinate Bench had upheld the CIT(A)'s decision to allow 40% of the damages under Section 14B of the Act as compensatory while treating the balance 60% as penal in nature and disallowing the same. This decision was in line with earlier years. Applying the principle of judicial consistency, we are inclined to follow the co-ordinate ben....
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.... business activity occurred, the expenses were deemed to lack a nexus with the business operations. 18. The CIT(A) noted that the Packart Press Unit was not entirely closed, as per the assessee's submission, but had no active sales or business operations during the year. The unit was kept in a ready-to-operate condition with fixed costs incurred for maintaining assets like rent, insurance, and bank accounts. The CIT(A) found that the closure had not been finalized, and thus the liability toward salary, wages, and other expenses could not be denied outright. The CIT(A) allowed the expenses for rent and insurance, recognizing them as necessary for maintaining the unit's assets and keeping it operational. Salary, wages, bonus, and PF contributions were disallowed due to the lack of evidence, non-crystallization of liabilities, and absence of any business operations in the Packart Press Unit during the relevant year. 19. The AR pointed out the facts argued before the co-ordinate bench in assessee's own case in earlier years which noted that the Packart Press Unit was not completely closed and continued to provide indirect support to other units by maintaining readines....
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....The AO is directed to give the assessee a reasonable opportunity of being heard and to decide the matter afresh in accordance with law, following the principles of natural justice. The ground of appeal is partly allowed for statistical purposes. Grounds Relating to Transfer of Marketing/Distribution Rights 22. The assessee has contested the addition made by the AO on account of additional consideration received for the transfer of marketing and distribution rights, which the AO and CIT(A) have treated as revenue income. The assessee claims that this receipt is capital in nature and should not be taxed as revenue income. The issue of marketing rights transfer has been raised in the following appeals: ITA No(s). Assessment Years (A.Ys.) Consideration Amount (Rs.) 1772/ Ahd/2015 2002-03 2,00,00,000 1773/ Ahd/2015 2003-04 2,00,00,000 1290/ Ahd/2016 2004-05 2,00,00,000 1782/ Ahd/2016 2005-06 2,00,00,000 23. During the course of the hearing, the AR fairly conceded that the issue is covered against the assessee by the decision of the Co-ordinate Bench in the assessee's own case for A.Y. 2001-02, decided in ITA No. 1771/Ahd/2015, wh....
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....66/ Ahd/2016 2005-06 Miscellaneous Expenses (5% adhoc) 521826 3,47,853 Revenue 1291/ Ahd/2016 2006-07 Other Expenses (5% adhoc) 1010079 5,09,192 Assessee 1783/ Ahd/2016 2007-08 Other Expenses (5% adhoc) 757187 1,31,538 Assessee 2067/ Ahd/2016 2007-08 Miscellaneous Expenses (5% adhoc) 757187 6,25,649 Revenue 27. The AO disallowed a portion of the expenses claimed under the Profit and Loss account on the grounds that they were either non-business in nature or lacked sufficient evidence to establish that they were incurred wholly and exclusively for business purposes. The assessee claimed certain expenses under the head "Miscellaneous Expenses," but could not provide detailed break-up or evidence to substantiate that these expenses were wholly and exclusively for business purposes. The AO specifically highlighted that some expenses, such as Diwali expenses, distribution of sweets, and boni, were of a personal or non-business nature. The AO determined that 5% of the miscellaneous expenses, amounting to Rs.1,31,538, were not verifiable or relatable to business purposes. The AO also identified some expenses on teleph....
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.... DR was unable to point out any distinguishing features in the facts of the current year vis-à-vis those in earlier years where the issue had already been decided in favour of the assessee. Following the consistent view of the Co-ordinate Bench in earlier years, we find no infirmity in the decision of the CIT(A) to delete the disallowance of telephone and vehicle expenses relating to the Directors. 31.2. The AO disallowed 5% of miscellaneous expenses on an ad hoc basis, citing unverifiability of some components such as Diwali expenses, distribution of sweets, and bonuses. The AO concluded that these expenses were not wholly and exclusively for business purposes. The CIT(A) upheld the disallowance, relying on the appellate order for A.Y. 1998-99, where a similar disallowance was sustained. 32. We note that the issue of disallowance of telephone and vehicle expenses, as well as miscellaneous expenses, has been adjudicated in the assessee's favour by the Co-ordinate Bench in the ITA No. 1461/ Ahd/2001 (A.Y. 1996-97), ITA No. 1597/ Ahd/2001 (A.Y. 1998-99), ITA No. 933/ Ahd/2016 (A.Y. 1999-2000). 32.1. We reproduce the relevant paras of the order of the Co-ordinate B....
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....t pertain to earlier years but were accounted for in the current year. 36. The AO disallowed Rs.3,42,683/- on the grounds that the expenses related to prior years and could not be allowed in the current year, as the assessee follows the mercantile system of accounting. The AO also noted that except for a short provision for bonus, other expenses such as interest, price differences, and disputes with creditors were ascertainable and quantifiable in the prior financial year itself. The AO concluded that these expenses could not be said to have crystallized during the year under consideration. 37. The CIT(A) deleted the disallowance made by the AO, holding that the liability crystallized during the year due to the resolution of disputes with parties and the receipt of bills/ debit notes during the current financial year. The CIT(A) noted that the expenses were allowable under the mercantile system of accounting in the year in which they crystallized, as per the principles laid down in the judgment of the Hon'ble Gujarat High Court in Saurashtra Cement & Chemical Industries vs. CIT (213 ITR 532). The CIT(A) also noted that the Similar disallowances in earlier years had been d....
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....ew business opportunities. 41.1. The AO disallowed 50% of the expenses on an adhoc basis, alleging insufficient documentation or potential personal use, without identifying specific expenses that were inadmissible. A portion of the expenses was deemed personal in nature (e.g., directors traveling with family), and therefore, not allowable as business expenditure. This ground has been raised by the assessee across following appeals: ITA No. Assessment Year (A.Y.) Amount Disallowed (Rs.) 1290/ Ahd/2016 2004-05 65,568 1782/ Ahd/2016 2005-06 90,262 1291/ Ahd/2016 2006-07 5,315 1783/ Ahd/2016 2007-08 1,96,130 42. During the course of assessment, the assessee has submitted details of foreign travel expenses. The purpose of the foreign travel was explicitly stated to be business-oriented, aimed at exploring new export markets, which ultimately resulted in exports. The AO disallowed 50% of the foreign travel expenses on an ad hoc basis, citing that an element of personal or non- business use could not be ruled out. However, the AO did not bring any specific findings or evidence on record to demonstrate non-business usage of the foreign tra....
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.... this amount to income while filing the return of income. In case of A.Y. 2005-06, the CIT(A) directed AO to delete the disallowance stating that the assessee has suo-moto disallowed and added back this amount to income while filing the return of income. 45. Therefore, both the assessee and revenue are in appeal before us. 46. During the course of hearing, the AR stated that the amounts of Rs. 1,29,080/- for the A.Y. 2004-05 and Rs. 9,49,096/ - represent the liquidated damages paid to various parties. In case of A.Y. 2005-06, the AR stated that the amount of Rs. 9,49,096/- is related to sales tax. The AR placed reliance on the following decisions of co-ordinate benches: 1. Mahavir Multitrade (P.) Ltd. v. DCIT - [2020] 113 taxmann.com 261 (Delhi - Trib.). 2. Nipro Medical India (P.) Ltd. v. DCIT - [2023] 146 taxmann.com 582 (Hyderabad - Trib.). 46.1. These rulings emphasize that payments for liquidated damages or breach of contractual obligations, if compensatory and arising from commercial requirements, qualify as deductible business expenses under Section 37(1) of the Act. 47. On the other hand, the DR relied on the orders of lower authorities. 48.....
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.... group's position in the pharmaceutical industry, and not for the primary purpose of earning dividend income. The assessee emphasized that dividend income was received passively without any direct involvement of human resources or management and Dividends were credited directly into the bank account, eliminating the need for any substantial administrative or operational efforts. The assessee also contended that the AO failed to establish a direct nexus between any expense and the exempt income. 51.1. CIT(A) observed that the disallowance appeared to be excessive and reduced it to Rs.33,75,000 (5% of the total dividend income). The CIT(A) acknowledged AO's contention that earning dividend income might involve some incidental expenses, such as administrative or management costs. 52. During the course of hearing before us, the AR reiterated the facts and stated that the dividend was received from an investment of Rs.22.50 Cr in SPPL which was made out of sale of Intellectual Properties to SPPL and no funds were borrowed for making this investment. The AR also pointed out that the own funds are greater than the investments which as on 31-3-2002 stood at Share Capital Rs.6....
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....o earn the exempt income. The CIT(A), without substantiating any specific basis, reduced the disallowance to Rs.33,75,000/ - (5% of the dividend income). 54.2. It is undisputed fact that the investments in SPPL were made in earlier years and not during the year under appeal. Courts have consistently held that no disallowance can be made for expenses related to investments made in earlier years unless specific evidence of expenditure during the year under appeal is provided. 54.3. It is also a fact that the dividend income was received passively, requiring no active management or administrative effort. Activities such as receiving and depositing dividend income in a bank account are incidental and do not involve substantial costs. 54.4. Judicial precedents concerning disallowance under Section 14A before Rule 8D consistently emphasize the following principles: - If the assessee's interest-free funds (e.g., share capital and reserves) exceed the investments in tax-exempt income-generating assets, courts presume that such investments were made out of interest-free funds. This presumption negates the need for disallowance of interest expenses. - Disall....
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....essee's Ground Relating to Disallowance of Bad Debts of Rs.1,48,66,928/- in ITA No. 1290/Ahd/2016 for A.Y. 2004-05 55. The assessee has challenged the disallowance of a claim for bad debts amounting to Rs.1,48,66,928, which was upheld by the CIT(A]. The assessee has also raised an alternate claim for treating the write-off as a business loss under Section 28 of the Act. The amounts written off pertains to outstanding on account of sales of goods, deposits, and other transactions undertaken by the assessee in the course of business. The claim was disallowed by the AO and upheld by the CIT(A) on the grounds of insufficient evidence and non- fulfilment of conditions under Section 36(1)(vii) for bad debt deduction. 56. During the course of hearing before us the AR stated that it is absolutely wrong on part of CIT(A) to hold that the assessee did not provide the details to show that these amounts were offered to tax in earlier years. The AR pointed out from the paper book that the details were submitted to both AO and CIT(A) which include list of amounts written off supported by ledger accounts in which narration clearly indicate invoice numbers, list of depot-wise details of ....
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.... Act. 59.1. The assessee's alternate plea to allow the deduction as a business loss under Section 28 was rejected by the CIT(A) on the grounds that the loss was not substantiated as having occurred in the relevant assessment year. The Co- ordinate Bench has decided in case of Jackie Shroff v. ACIT (supra) that Irrecoverable advances, if made for business expediency, may be allowed as business loss under Section 28 or Section 37(1) of the Act. 60. Considering the facts and circumstances, judicial precedents relied on, we conclude that the assessee has provided sufficient evidence to establish that the amount of Rs.1,48,66,928 was written off as irrecoverable in the books of accounts. The details submitted, including ledger accounts and depot-wise narrations, clearly indicate the amounts related to business transactions and were part of the income offered to tax in earlier years. Post-amendment (w.e.f. 1.4.1989), the act of writing off debts in the books is sufficient to claim deduction under Section 36(1)(vii) of the Act. The necessity to prove that the debts became bad is no longer applicable. The year of write-off determines the allowability of the deduction, irrespectiv....
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.... the Hon'ble Supreme Court in T.R.F. Ltd. v. CIT [2010] 323 ITR 397 (SC). Furthermore, if any part of the claim does not meet the technical requirements of Section 36(1)(vii) of the Act, it would still qualify as a business loss under Section 28 of the Act, as held in Harshad J. Choksi v. CIT [2012] 25 taxmann.com 567 (Bom HC) and Jackie Shroff v. ACIT [2019] 101 taxmann.com 455 (Mumbai ITAT). 62.1. Considering the judicial precedents relied upon and the similarity of facts, we conclude that the disallowance of Rs.2,63,025/ - is unwarranted. The assessee's claim under Section 36(1)(vii) for the bad debts written off is allowed. The AO is directed to allow the deduction of Rs.2,63,025/ -. The appeal of the assessee is allowed in toto. The Revenue has raised a ground related to Write Off of Bad Debts amounting to Rs. 15,73,662/- in ITA No. 2066/Ahd/2016 for the A.Y. 2005-06. 63. In the instant case the AO disallowed an amount of Rs. 15,73,662/- written off as bad debt by the assessee after concluding that the assessee failed to submit evidence regarding fulfilment of conditions of Sec. 36(1)(vii) of the Act. However, the CIT(A) allowed the claim of the assessee. The ....
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....y in the same. 66.1. In light of the above, the Revenue's appeal is devoid of merit and deserves to be dismissed. In the result, this ground of appeal of the Revenue is dismissed. Assessee's Ground relating to disallowance of Sundry Balances written off amounting to Rs.58.35 Lakhs in ITA No. 1290/Ahd/2016 for A.Y. 2004-05 67. The assessee had claimed a deduction of Rs. 58.35 lakh as a business loss, which comprised Sundry debit balances written off on account of sales of goods, aggregating Rs.21,09,182 and Other debit balances written off, including advances and deposits, aggregating Rs.37,26,818, incurred in the ordinary course of business. The AO disallowed the entire claim on the grounds that the write-off of advances and deposits could not be allowed under Section 36(1)(vii) of the Act or Section 37 of the Act and no evidence was furnished to substantiate the alternate claim under Section 28. The CIT(A) partially allowed the claim for Rs.21,09,182 as bad debt under Section 36(1)(vii) but upheld the disallowance of the balance amount of Rs. 37,26,818. The CIT(A) further held that the assessee failed to provide sufficient evidence to establish that the alternate ....
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....unt of Rs. 21,09,182 relating to sales of goods is allowable as a business loss under Section 28, as it pertains to irrecoverable amounts taxed in earlier years. The balance amount of Rs.37,26,818, representing irrecoverable deposits and advances made during the course of business, is also allowable as a business loss under Section 28, as it is incidental to the assessee's business operations. 70.1. In view of the above, we direct the AO to allow the entire claim of Rs. 58.35 lakh as a business loss under Section 28 of the Act. The appeal filed by the assessee is allowed. 71. Similar ground is raised by the assessee in respect of A. Y. 2006-07 in ITA No. 1291/ Ahd/2016. In the aforementioned appeal, the AO had disallowed a sum of Rs.71.91 lakh as sundry balances written off. However, the CIT(A) allowed the claim in its entirety as bad debts under Section 36(1)(vii) of the Act, relying on the decision of the Hon'ble Supreme Court in the case of T.R.F. Ltd. vs. CIT [2010] 190 TAXMAN 391 (SC). For the sake of clarity, the relevant extract from the order of the CIT(A) in A.Y. 2006-07 is reproduced below: "4.7.3 The appellant had provided details regarding these s....
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....ary in nature, making Section 28(iv) inapplicable. 4. The assessee relied on judicial precedents, including decisions of the Hon'ble Gujarat High Court in Chetan Chemicals Pvt. Ltd. (188 CTR 572). 74. The CIT(A) accepted the assessee's arguments and deleted the addition made by the AO. The CIT(A) also relied on the decision of Jurisdictional High Court in case of Gujarat State Fertilizers & Chemicals Ltd. (36 taxmann.com 230), which categorically held that waiver of a capital loan is not taxable. 75. During the course of hearing before us the AR explained the facts and placed reliance on judgement of Hon'ble Supreme Court in case of Mahindra and Mahindra [2018] 404 ITR. 76. The DR, on the other hand, relied on the order of AO. 77. We have heard the submissions of the rival parties and perused the material available on record. The facts on record establish that the loan in question was availed exclusively for the acquisition of a power plant. The purpose of the loan, being directly linked to the purchase of a capital asset, categorically classifies it as a capital liability. It is well-settled that waiver of a capital liability does not partake the c....
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....he AO. 78.2. As the Revenue has failed to substantiate its case with any additional arguments or evidence, we find no reason to interfere with the order of the CIT(A). This ground of revenue is dismissed. Grounds relating to Disallowance of Repair and Maintenance - Building 79. The issue concerns the disallowance of repair and maintenance expenses for building infrastructure. While the assessee has contested disallowances of certain expenses as capital expenditure, the Revenue has raised a ground challenging the allowance of certain repair expenses by the CIT(A). The grounds raised are summarized in the following table: ITA No. Assessment Year (A.Y.) Amount Disallowed/Challenged Type of Appeal 2066/ Ahd/2016 2005-06 Rs. 674517 /- Revenue 1291/ Ahd/2016 2006-07 Rs.2,96,490 (Mumbai) + Rs.1,43,173 (Chennai) Assessee 1783/ Ahd/2016 2007-08 Rs.10,03,378 Assessee 80. The Nature of disputed expenses claimed by the assessee as revenue expenditure is as follows: 80.1. In case of A.Y. 2005-06 - Waterproofing Rs. 2,83,931/-, Strengthening of beams and columns Rs. 1,66,765/- and Waterproofing work at the end stage Rs. 2,23,821 /- ....
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....nce is upheld as these expenses qualify as current repairs under Section 30 of the Act, necessary for the upkeep of rented premises. The AO failed to demonstrate how these repairs resulted in an enduring benefit or capital asset. 84. As a result, the Revenue's appeal is dismissed. A.Y. 2006-07 (ITA No. 1291/Ahd/2016 - Assessee's Appeal) 85. Out of the total repair and maintenance claim of Rs.11,28,165, disallowances of Rs.2,96,490 (Mumbai) and Rs.1,43,173 (Chennai) relate to partition work. These partitions were installed in rented premises to make the space operationally suitable for business needs. The expenditure does not result in the creation of any capital asset owned by the assessee, as the premises were rented. The expenses are routine and necessary for business use, aligning with the decision of the Hon'ble Bombay High Court in HEDE Consultancy (P.) Ltd. v. CIT [258 ITR 380], where similar repairs to rented premises were allowed as revenue expenditure. 85.1. As a result, the assessee's appeal is allowed. A.Y. 2007-08 (ITA No. 1783/Ahd/2016 - Assessee's Appeal) 86. The repair expenses (Rs.10,03,378) primarily involve partition work carr....
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....turing license. The AO treated these expenses as capital in nature, arguing that they resulted in enduring benefits. However, the repairs did not create a new asset or enhance the capacity of existing assets. Instead, they were aimed at maintaining the plant and machinery in working condition, qualifying as current repairs under Section 31. 91. We have noted the judicial precedents relied on. In case of CIT v. Manohar Lal Hira Lal Ltd.(supra) the Hon'ble Allahabad High Court decided that repairs to plant and machinery (such as replacement of tools, dies, and factory wall plaster) that do not extend the capacity or change the nature of the machinery are allowable as current repairs. Applying this precedent, the expenses incurred for slide valve repair and metalizing work qualify as revenue expenditure. In case of CIT v. TVS Motors Ltd. (supra) Hon'ble Madras High Court) decided that expenditure is considered as current repairs if its object is not to bring a new asset into existence or derive a new advantage. The repair work in this case aligns with this principle, as it was undertaken to maintain operational efficiency rather than create a new asset. 91.1. The AO'....
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....le computing book profit under Section 115JB. The details of grounds are tabulated as follows: ITA No. Assessment Year (A.Y.) Nature of Adjustment Amount (Rs. ) Type of Appeal 1290/ Ahd/2016 2004-05 Provision for Bad Debts Rs. 6,04,47,760/- Assessee 1594/ Ahd/2016 2004-05 Leave Encashment and Gratuity Rs. 3,26,49,000 And Rs. 1,75,648/- Revenue 96. The AO disallowed and added back provisions for bad debts, leave encashment, and gratuity while computing book profit under Section 115JB, on the grounds that these are unascertained liabilities as per Explanation 1(c) to Section 115JB. 96.1. The AO observed that these provisions relating to leave encashment and gratuity were made based on actuarial valuation, which he claimed does not render the liabilities ascertained. The AO classified them as amounts set aside to meet future liabilities and hence treated them as unascertained liabilities. Relating to provision for bad debts, the AO stated that this provision is not an ascertained liability but a reserve, which must be added back to book profits under Explanation 1(c). He held that such provisions are based on subjective parameters and....
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....) (TM) 99. The assessee has strongly contended that provisions relating to leave encashment and gratuity are based on actuarial valuations and comply with Accounting Standards issued by the ICAI. The provisions for gratuity and leave encashment are recognized liabilities, determined scientifically for services rendered by employees during the relevant period. In the landmark judgment in case of Bharat Earth Movers v. Commissioner of Income-Tax [2000] 245 ITR 428 (SC), the Hon'ble Supreme Court held that a liability arising from an obligation that has already accrued, though the payment may be deferred, is not a contingent liability. Such liabilities, if based on a scientific method like actuarial valuation, qualify as ascertained liabilities and are deductible. Therefore, the CIT(A) has rightfully deleted the addition relating to these provisions. 99.1. Regarding the provision for doubtful debts, the appellant cited judicial precedents such as CIT v. Yokogawa India Ltd. [2012] 17 taxmann.com 15 (Kar.) and Principal CIT v. Narmada Chematur Petrochemicals Ltd. [2021] 130 taxmann.com 522 (Guj.). These decisions established that provisions for doubtful debts, if simultaneousl....