TMI Blog2013 (6) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been made to the other parties and what is the difference between the sale price made to the subsidiary. Therefore, looking to the entirety of the facts the issue is to be remitted to the file of the AO for examining the price difference which has been sold to the third parties as per the actual sales of the products and the sale price made to the subsidiary company & verify the actual expenditure attributable to the products and the sale made to the subsidiary will take into consideration the fact that the assessee had shown cost plus 15% mark-up. Provisions for Executive Retirement Scheme (ERS) disallowed as it is only contingent liability - Held that:- AO directed to allow the said expenses on the basis of actual payment made during the relevant assessment year as business expenses. Disallowance on account of MODVAT credit - Held that:- This issue stands covered in favour of the assessee as relying on CIT v/s Indo Nippon Chemicals Co. Ltd. [ 2003 (1) TMI 8 - SUPREME Court] wherein held that view of the AO that merely because Modvat credit is an irreversible credit available to the manufacturers upon purchase of duty paid raw material, it would amount to income which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party are common and the assessee being same in all these appeals, therefore, these appeals were clubbed together and, as a matter of convenience, were heard together and are being disposed off by way of this consolidated order. We now proceed to dispose off all these appeals on merit one by one. We first take up assessee s appeal in ITA no.349/Mum./2001, for assessment year 1997-98. 2. Ground no.1, relates to addition on account of sales made to Johnsons Johnsons Exports Ltd., which is a 100% subsidiary of the assessee company. 3. Brief facts of the case are that, the assessee is 75% subsidiary of Johnsons Johnsons, U.S.A., and it also holds 100% share in one of the company namely - Johnsons Johnsons Exports Ltd. (for short JJE ). Thus, the JJE is a 100% subsidiary of the assessee company. The assessee is engaged in the business of manufacturing and marketing of various consumer care, health care and diagnostic products as well as surgical instruments material, etc. The assessee has disclosed its total turnover from its various divisions at ₹ 450.60 crores out of which, sale of 4,31,82,151, represents the sale of finished products to JJE. During the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being written off as a matter of routing which is built-in- feature,. however, the way the assessee is preparing its account, it does not give a true picture; secondly; slashing of the cost leads to lowering of the turnover of the assessee and thereby also lowering of the profit and the chargeable income of the year. In other words, the increase in the books generate loss without disclosing the same; and thirdly; such a technique of accounting as adopted by the assessee is against the principles laid down by the Hon'ble Supreme Court in CIT v/s British Paints India Ltd., [1991] 188 ITR 044 (SC). Insofar as the elements of excise duty and trade discount are concerned, the Assessing Officer accepted that the same will not have material effect as the subsidiary is 100% export unit and goods and merchandise exported by that unit is not liable for excise duty and trade discount is also acceptable because the sale to the subsidiary does not take place in competitive market. However, other cost factors like advertisement and sales promotion expenses, bonus, sales and distribution expenses, competition from other brands, price sensitivity of the product and price that market can bear a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious over heads. The Assessing Officer required the assessee to furnish working of the value of goods sold mainly in three broad categories, which was furnished by the assessee vide its letter dated 16th February 2000. As per this working, the assessee has sold adhesive tape and sanitary pads to the subsidiary at ₹ 52,69,869 and ₹ 22,013 respectively over and above the cost of production of these items. It, however, sold the sutures to its subsidiary at ₹ 3,72,69,567 below the cost of production. Therefore, according to the Assessing Officer, the assessee has generated net loss of ₹ 3,1,77,685 on its sales to the subsidiary during the year. The Assessing Officer has also dealt upon the capital structure of the subsidiary company, that the subsidiary company made its purchases over whelmingly from the assessee company and also that the subsidiary company being 100% export company gets full income tax exemption under section 80HHC and its profits flow back to the assessee company by way of dividend which is also exempt from income tax under section 80M in the hands of the assessee company. It was thus observed that the assessee company has under priced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary was sutures which itself has many sub-products the cost of which varies from ₹ 91 to ₹ 8,501 per dozen. If the average sale price of the entire category sutures is taken into consideration, then it will give absurd results. If any disallowance is called for, then cost has to be worked out after considering the individual cost of products per item actually sold to the subsidiary and not on the basis of average cost of all the products. The other main argument was that the disallowance, if at all needed cannot exceed, ₹ 1,61,70,643, as per the working given before the Assessing Officer. Further, from this working certain expenditure which would have been incurred in relation to the sales made to the other parties are not required for making a sale to the subsidiary and the same should be deducted. Such types of expenses were illustrated as under:- Freight Transportation Shipping expenses @ 2.83% of sales ₹ 16,81,668 Selling expenses @ 8.10% of sales ₹ 48,12,968 Merchandising Expenses @ 1.31% of sales ₹ 7,78,694 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary company. It is submitted that it does not have to incur freight, transportation and shipping expenses on the sales made to the subsidiary company as the subsidiary company is responsible for collection of the sold goods from the appellate company s respective units. I have considered this claim and it is acceptable to the extend that as the goods are collected by the subsidiary from the units (as claimed by the assessee) only direct freight expenses in the same proportion as incurred for transporting the goods from the assessee s unit to the premises of the other parties to whom the sales are made need to be set-off. The A.O. may, therefore, allow set-off for only direct freight expenses on the sales made to the subsidiary and this set-off may be calculated by first calculating percentage of such expenses to the sales in respect of the sales made to the other parties and then applying the same percentage to the sales made by the assessee to the subsidiary company. For this purpose, the sales figure will have to be taken at ₹ 5,94,19,356. For this purpose, the sales figure will have to be taken at ₹ 5,94,19,356. If the assessee is not able to provide the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in place of addition of ₹ 3,19,77,685. This addition is definitely called for as these transactions are not at arm s length and the sales have been made to the subsidiary company at a price which is less than the price which is charged for similar products from the other parties. 3.27 Thus, for the reasons given in the assessment order, I agree with the A.O. that the assessee has taken a number of steps by which taxable profits in the hands of the company have been artificially and unduly reduced. However, I do not agree with the quantum of loss which has been calculated in the assessment order at ₹ 3,19,77,685 and for the reasons given in the preceding paras, it is directed that this loss may be calculated by allowing set off for freight and advertisement expenses in respect of the sales to the subsidiary companies from ₹ 1,62,37,205. Accordingly, against disallowance of ₹ 3,19,77,685 I uphold disallowance calculated in the aforesaid manner. 10. Learned Counsel, appearing on behalf of the assessee, submitted that the assessee had no export division, therefore, it has made a wholly owned subsidiary company dealing in 100% exports. The tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer can verify the actual expenditure related to the sales to the subsidiary and then if at all any disallowance is called for, then the same can be made. 13. The learned Departmental Representative, on the other hand, submitted that it is not disputed in this case that in respect of pricing of 204 items sold to the subsidiary company, there is a difference between sale price charged from the subsidiary company and from the other third parties. The assessee itself has worked out the difference of ₹ 1.61 crores. He submitted that there cannot be a differential pricing between the third party and subsidiary because it militates the very principle of accounting. All the expenses debited in the Profit Loss account are subject to deduction under section 37(1) and it goes to reflect in all the products. For e.g., he submitted that the learned Commissioner (Appeals) went wrong in allowing the expenses relating to advertisement expenses because the same is embedded in the brand value. Even when the subsidiary is making an export, it is exporting a product which has a brand value and in which advertisement expenses are most essential part. The preferential rate adopted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 3,19,77,685. The assessee before the Assessing Officer without prejudice to its claim has worked out the difference at ₹ 1,61,70,643, as the working of the Assessing Officer by taking the average sale price of the entire products were erroneous. Before the learned Commissioner (Appeals), it was claimed that there were various expenses which needs to be deducted after working of the disallowance of ₹ 1,61,70,643, which were enumerated as under:- Freight Transportation Shipping expenses @ 2.83% of sales ₹ 16,81,668 Selling expenses @ 8.10% of sales ₹ 48,12,968 Merchandising Expenses @ 1.31% of sales ₹ 7,78,694 Advertising and sales promotion expenses @ 12.04% of sales ₹ 71,54,090 Other Administrative Expenses @ 5.28% of sales ₹ 31,37,342 16. The learned Commissioner (Appeals) has agreed that the expenses mentioned at serial no.1 and 4 i.e., freight, transportation and shipping expenses and advertisement and sales promotion expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales made to the subsidiary company. However, the basis of such adjustment of expenses has to be demonstrated so far as possible on actual expenses whether they are directly or indirectly embedded in the cost of products. At the same time, it is undisputed that the assessee has under priced its sales made to the subsidiary as there cannot be a huge differential of pricing of the same product sold to the subsidiary on one hand and to the other parties on the other hand. On perusal of the orders passed by the Assessing Officer as well as by the Commissioner (Appeals), it is seen that no one has examined as to what is the price margin on which the sales have been made to the other parties and what is the difference between the sale price made to the subsidiary. The assessee s contentions also cannot be brushed aside that certain adjustment of expenses are required to be made for determining the sale price made to the subsidiary vis- -vis to the other parties. Therefore, looking to the entirety of the facts, we are of the opinion that the entire matter needs to be restored back to the file of the Assessing Officer for examining the price difference which has been sold to the third par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme is not on allowable expenditure, the actual payments made should be allowed as a deduction. According to Id. counsel, during the previous year, the assessee added back ₹ 1,99,971/- in computation of total income since it represents adhoc provisions made. It was therefore, submitted that since as and when the provision is made, the sum is offered for taxation, the payment of ₹ 1,72,013/- made out of much provision should be allowed as the said expenditure is incurred by the assessee wholly and exclusively for the purposes of the business as laid down in sec. 37 (1) of the act. Shri Mansukhani submitted that expenses of agreement does not bound the Assessing Officer to allow the expenditure. It is the duty of the assessee to prove the bonafide of the claim and to establish clear out nexus between the payment and the business expediency. To support the contention, he relied on some precedents. We have heard the rival submissions in the light of material placed before us and the precedents relied upon. In regard to the disallowance of the claim, we do not find any sufficient discussion in the impugned order. However, on perusing the details, we find that the liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, it is not proper to disallow total foreign travel expenses for both Mr. Mallar Mrs. Mallar. Foreign travel expenses only in respect of Mrs. Mallar need to be disallowed. As such, disallowance is restricted to ₹ 1,68,597 (i.e., half of ₹ 3,37,194). 24. After considering the findings of the Assessing Officer as well as of the Commissioner (Appeals) and also various orders passed by the Tribunal, we find that in assessment years 1984-85 and 1991-92, the Tribunal has decided the issue in favour of the assessee whereas in the assessment years 1985-86 and 1988-89, this issue has been decided against the assessee and in assessment year 1993-94 in ITA no.6477/Mum./1998, which is the latest order, this issue has been decided against the assessee after considering the earlier years decision o the ground that in the earlier years, the Tribunal has followed Special Bench decision in Glaxo (supra), which is no more relevant in view of the subsequent decision of the Jurisdictional High Court in Bhor Industries Ltd., 284 ITR 319 (Bom.). The relevant observations and findings of the Tribunal in ITA no.6477/Mum./1998, assessment year 1993-94, are as follows:- The nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis Disallowed by JCIT (Rs. ) Conference Expenses on meals 63,75,832 35% 22,31,541 Conference Expenses on give aways complementary 8,30,476 100% 8,30,476 Training Learning Expenses on meals 22,45,176 50% of 35% 3,92,905 Misc. Business Exp. 20,87,511 100% 20,87,511 Give aways and complements 63,59,540 100% 63,59,540 28. The Commissioner (Appeals) has confirmed most of the disallowances after following the order passed for assessment year 1995-96 in assessee s own case after observing and holding as under:- 8.2 I have considered the facts of the case and the submissions of the appellant and have also gone through order dated 31.3.1998 passed by the CIT(A) in the case of the appellant for A.Y. 1995-96. In agreement with the same, it is held that disallowances made with regard to :- (i) Conference expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of ₹ 33,64,733 under the head Training and learning expenses . The AO observed that that the most of the expenses were incurred on hotel expenses and very little expense was incurred on actual training of the employees. He estimated 35% of the total expenses on account of entertain-ment. This issue arises in the AY 1995-96. In our opinion, no disallowance is warranted since the entire expenditure is related to the training of the employees. The entertainment expenditure in respect of employees is otherwise allowable deduction. Therefore the disallowance made by the AO and sustained by the learned CIT(A) on this account is deleted. 33. Consistent with the aforesaid view taken by the Tribunal in assessee s own case, we set aside the impugned order passed by the Commissioner (Appeals) and allow the ground raised by the assessee. 34. With regard to the disallowance of expenditure incurred on account of give-aways and complimentary of ₹ 63,59,540, it has been submitted by the learned Counsel that the same has been allowed by the Tribunal in assessee s own case for assessment year 1948-85, 1985-86 and 1988-89. 35. After going through the decision of the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. As far as conference expenses and Miscellaneous expenses are concerned the disallowance sustained by the learned CIT(A) appears to be reasonable. However, some amount of deduction is allowable on account of employees participation. The tribunal is taking the view that 20% to 25% of the expenditure is allowable in this regard. On the facts of the case, we further allow 20% of the expenditure sustained by the Learned CIT(A) in respect of Misc. expenses and conference expenses. The order of CIT(A) is therefore modified accordingly. The AO is directed to recompute the disallowance considering the provisions of 37(2)/37(2A) of the Act. 39. Thus, consistent with the view taken therein, ground no.4 is partly allowed as per the observations made herein above. 40. Ground no.5, relates to deduction under section 80IA of the Act. 41. Rival contentions heard. Both the parties agree before us that this issue has been decided against the assessee in assessee s own case by the Tribunal for assessment year 1993-94 and 1995-96. 42. After carefully going through the order passed by the Tribunal in assessment year 1995-96 in ITA no.6633/Mum./1988, we find that this issue has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal administrative and overhead expenses claimed by the appellant. Accordingly, deduction u/s. SCM was reduced by ₹ 15,17,980J. 10.1. Against the aforesaid disallowance, the appellant had submitted that during the year they have not incurred any expenditure for the purpose of investment in the subsidiary company. It has therefore, been submitted that the disallowance is not warranted. But on without prejudice basis it has been submitted that the reduction from the dividend income for computation of income u/s. 80M is on the higher side and should be substantially reduced. 10.2. I have considered the facts of the case and the submissions of the appellant. The appellant is entitled to reduction u/s 80M not on the gross dividend but on the dividend after deducting the expenditure incurred for earning the dividend income. Therefore, the main submission of the appellant for deduction u/s. 80M for gross amounts of dividend cannot be accepted. As the appellant is not maintaining any accounts separately for managing the investment portfolio, such expenses have to be estimated as has been done by the AO. Keeping in view the facts of the case, ad-hoc estimate of expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erdraft facility for purchase of shares and had paid interest of ₹ 45,469 on the overdraft and incurred other expenses to the tune of ₹ 24,900 which were debited to the profit and loss account and taken into account for arriving at a profit of ₹ 81,718. The Income-tax Officer computed the net dividend income in accordance with the provisions of sections 56, 57 and 58 and proceeded to allow 60 per cent. deduction under section 80M on the income so computed. The Commissioner (Appeals) held that the assessee was a dealer in shares. Both the interest paid on the amount borrowed for the purchase of shares and other expenses incurred by the company and allocated to the dividend income were held to be allowable under the head Business and not under the head Other sources . He accordingly directed the Incometax Officer to allow deduction under section 80M on the gross dividend. The Tribunal confirmed this order. On a reference : Held, that the interest on the overdraft and the expenses were related to the business of trading in shares and ought to be allowed as computed income under the head Business . The said expenses could not once again be deducted from the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be exhibited in various TV channels along with various TV serials, etc. These advertisements create a brand awareness which has enduring benefit and, therefore, they cannot be treated as revenue expenditure and disallowed the same by treating it as capital expenditure. The Tribunal, in assessee s own case for assessment year 1991-92, in ITA no.1146/Mum./1997, has discussed this issue in detail and allowed the claim of the assessee as revenue expenditure after observing and holding as under:- Coming to the next ground (Ground No. 10) it is directed against the order of the CIT (A) in deleting the addition made to the tune of ₹ 1 crore out of TV advertisement cost of ₹ 3,81,13,673 for the reason that the expenses incurred on the production of advertisement film is Revenue expenditure and further cinematographic films are entitled for 100% depreciation, oveiworking the fact that the expenditure incurred on production of advertisement films are capital in nature resulting enduring benefit and further only raw stock is entitled for 100% depreciation and not the films produced. This issue has been dealt with by the CIT (A) vide para 53 at page 24 of his order. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) the Hon ble Supreme Court held there may be where expenditure even if incurred for obtaining an advantage of enduring benefit may nonetheless, be on Revenue account and the test of enduring benefit may broke down. It is not an advantage of enduring nature agreed by the assessee that bring the case within the principal laid down in this test. What is material to consider is the nature of advantage in and it is only whether the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consisted merely in facilitating assesses trading operations or enabling the management and conduct of assesses business to be carried on more efficiently or more profitably while leaving fixed capital untouched, the expenditure would be on Revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is therefore, not a certain or conclusive test and it can t be applied blindly and mechanically with regard to particular facts and circumstances of a given case. Their Lordships further held what is on going of capital and what is outgoing on account of Revenue depends on what the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in favour of the assessee in assessment year 1991-92 in ITA no.1146/Mum./1997, the Tribunal has decided this issue after observing and holding as under:- Second Ground by the assessee is directed against the order of the CIT(A) in confirming the action of the AO in not allowing a separate claim of the assessee company in respect of excise duty which was actually paid during the year under consideration but included in the valuation of finished stock of ₹ 30,24,814. It is submitted that a separate claim made by the assessee in the return of income in respect of excise duty which was actually paid during the year but included in the valuation of the finished stock be allowed. This issue has been dealt with CIT(A) vide page 4 para 10 of his order. It is seen that this issue is covered in assessee s favour of the decision of tribunal in assessee s own case for AY 1990-91 in ITA no.3976/Mum/ 94 vide page 13 para 19 of its order. 64. Moreover, this issue also stands covered in favour of the assessee and against the Revenue by the judgment of Hon'ble Supreme Court in CIT v/s Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275 (SC). Respectfully following the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ITA no.349/Mum./2001, for assessment year 1997-98. In view of our findings given therein, we set aside the impugned order passed by the learned Commissioner (Appeals) and direct the Assessing Officer to allow the said expenses on the basis of actual payment made during the relevant assessment year as business expenses. Accordingly, ground no.2, raised by the assessee is partly allowed. 75. In ground no.3, the assessee has challenged the action of reducing ₹ 4,05,72,619 to ₹ 3,95,23,602 under section 80IA. 76. Rival contentions heard. As admitted by both the parties, this issue is similar to the issue raised in ground no.5, by the assessee in its appeal in ITA no.349/Mum./2001, for assessment year 1997-98. Thus, in view of the decision given therein, wherein the issue has been decided against the assessee, following the earlier year s order passed by the Tribunal in assessee s own case, we dismiss this ground no.3, of the assessee also. 77. In ground no.4, the assessee has challenged the disallowance of expenditure for earning the dividend income on ad-hoc basis being 2% of the dividend income. 78. Rival contentions heard. As admitted by both the parties, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in ground no.3, by the Revenue in ITA no.145/Mum./2001, for assessment year 1997-98, wherein, the same is dismissed for the reasons given therein. Consistent with the view taken by us, ground no.3, raised by the Revenue stands dismissed. 88. Ground no.4, relates to exclusion of excise duty and trade discount from the total turnover for deduction under section 80HHC. 89. Rival contentions heard. Both the parties agree before us that this issue is covered in favour of the assessee and against the Revenue by the judgment of Hon'ble Supreme Court in CIT v/s Lakshmi Machine Works, [2007] 290 ITR 667 (SC), wherein, Their Lordships observed and held as follows:- Section 80HHC of the Income-tax Act, 1961, is a beneficial section : it was intended to provide incentive to promote exports. The intention was to exempt profits relatable to exports. Just as commission received by the assessee is relatable to exports and yet it cannot form part of turnover for the purposes of section 80HHC, excise duty and sales tax also cannot form part of turnover . Just as interest, commission, etc., do not emanate from the turnover so also excise duty and sales tax do not emanate from s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 94. Rival contentions heard. As admitted by both the parties, this issue is similar to the issue raised in ground no.1, by the assessee in its appeal in ITA no.349/Mum./2001, for assessment year 1997-98. Thus, in view of the decision given therein, wherein the issue has been set restored to the file of the Assessing Officer, similar directions are issued on this ground also. We order accordingly. Thus, ground no.1, raised by the assessee is allowed for statistical purposes. 95. Ground no.2, relates to disallowance of ₹ 1,80,92,623, on account of MODVAT credit. 96. Rival contentions heard. After hearing both the parties, we find that though this issue is similar to the issue raised in earlier years, however, provisions of section 145A, has been brought on statute w.e.f. 1st April 1999. Therefore, the same will be applicable in the assessment year 1999-2000. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer for denovo adjudication in the light of the provisions of section 145A. The Assessing Officer is also directed to give corresponding benefit in the opening sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has been consistently following the said accounting system which was never in dispute. However, the Assessing Officer disallowed the entire amount. 105. The learned Commissioner (Appeals) held that insofar as the actual payment to the extent of ₹ 67,61,136, the same should be allowed and the balance amount of ₹ 10,43,091 should be disallowed. 106. Before us, the learned Counsel for the assessee, relying upon the judgment of Hon'ble Supreme Court in Rotork Controls India Pvt. Ltd. v/s CIT, [2009] 314 ITR 062 (SC), submitted that such a provision should be allowed as deduction under section 37 of the Act. 107. On the other hand, the learned Departmental Representative relied on the order passed by the learned Commissioner (Appeals). 108. After carefully considering the findings of the learned Commissioner (Appeals) as well as by the Assessing Officer, it is seen that the assessee has been making the provisions for discount to the customers who makes the payment within the stipulated time. These provisions are mostly made in the month of March. If these observations have also arisen in the past, such a provisions can be allowed if the assessee has act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of business or profession , was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business. Decision of the Bombay High Court reversed. Decision of the Delhi High Court affirmed. Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC) relied on. CIT v. Shri Ram Honda Power Equip [2007] 289 ITR 475 (Delhi) approved. CIT v. Asian Star Co. Ltd. [2010] 326 ITR 56 (Bom) impliedly overruled. The decisions of the Bombay and Delhi High Courts are printed below. Civil Appeal No. 1914 of 2012 is from the judgment and order dated August 6, 2010, of the Bombay High Court in I. T. A. (L.) No. 1276 of 2010. Civil Appeal No. 4534 of 2008 is from the judgment and order dated January 19, 2007, of the Delhi High Court in I. T. A. No. 541 of 2006. The judgment of the Bombay High Court (Dr. D. Y. Chandrachud and J. P. Devadhar JJ.) ran as follows : JUDGMENT This appeal by the Revenue arises out of an order of the Income-tax Appellate Tribunal dated December 15, 2009, for the assessment year 2003-04, Four questions of law have been formulated by the Revenue, which are as follows : '1. Whether, on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment of the court delivered on June 29, 2010, in CIT v. Kalpataru Colours and Chemicals(Income-tax Appeal (L) No. 2887 of 2009)-since reported in [2010] 328 ITR 451 (Bom). According to the Assessing Officer shall on remand decide the issue before him after having due regard to the judgment of this court in the case of Kalpataru Colours and Chemicals [2010] 328 ITR 451 (Bom). As regards the third and fourth questions, the Tribunal has remanded the proceedings back to the Assessing Officer. In view thereof, it is not necessary for this court to entertain the appeal, save and except to clarify that upon remand the Assessing Officer shall dispose of the issue in accordance with law, having due regard to the judgment of this court in CIT v. Asian Star Company Limited(Income-tax Appeal No. 200 of 2009 decided on March 18/19, 2010-since reported in [2010] 326 ITR 56 (Bom)). Both the learned counsel are agreed to the aforesaid direction The appeal is accordingly disposed of. There shall be no order as to costs. The judgment of the Delhi High Court (Vikramajit Sen and Dr. S. Muralidhar JJ.) ran as follows : JUDGMENT By order dated August 18, 2006, after hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer for adjudication afresh. Thus, ground no.1, is allowed for statistical purposes. 121. Ground no.2, relates to disallowance of expenditure on production of advertising films by treating the same as revenue expenditure by the learned Commissioner (Appeals). 122. Rival contentions heard. Both the parties agree before us that this issue is similar to the issue raised in ground no.2, in ITA no.145/Mum./2001, for assessment year 1997-98, wherein the ground raised by the Revenue is dismissed for the reasons given therein. Consistent with the view taken by us, the ground no.2, raised by the Revenue is dismissed. 123. Ground no.3, relates to allowance of provisions of cash discount of ₹ 67,61,136. 124. After hearing both the parties, we find that this issue is similar to the issue raised in ground no.6, raised by the assessee in its appeal in ITA no.2680/Mum./2003, for assessment year 1999-2000, wherein it has been held that the actual amount paid should be allowed. The learned Commissioner (Appeals) has given a very categorical finding that the sum of ₹ 67,61,136, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 17th May 2005, from NPPA, it came to be noticed by the Assessing Officer that the assessee has deposited an amount of ₹ 1.50 crores with the NPPA as per the directions of the Delhi High Court and such an amount did not reflect in the details of deposit. In view of this, the case was re-opened for the second time vide notice dated 23rd March 2005. 129. With regard to the addition of ₹ 1.50 crores made by the Assessing Officer, the facts noted by the learned Commissioner (Appeals) in Para-1.1, which are very relevant, are reproduced herein below:- 1.1 The relevant facts relating to this addition are that the appellant is a company engaged in the manufacturing of drugs. In order to control the prices of certain drugs, Central Govt. has passed act called Essential Commodity Act, 1955 (ECA). Under ECA Act, Central Govt. has the power to control the prices of certain drugs which are known as scheduled drugs. Under the provisions of ECA, Central Government has issued Drug prices and control order 1995 (DPCO). National Pharmaceutical Pricing Authority (NPPA) is the authority responsible for the implementation of various provisions of DPCO. Under para 8 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure is prohibited by law, it is not to be allowed as deduction. 130. Before the learned Commissioner (Appeals), the assessee submitted that the same is to be allowed under section 37(1) of the Act as the liability to pay the amount crystallized during the year under consideration, the moment the order of the DPCO was passed by the NPPA during the year under consideration and alternatively the same should be allowed as business loss under section 28. The learned Commissioner (Appeals) rejected the assessee s contentions and upheld the findings of the Assessing Officer after detail discussion and came to the conclusion as under:- In view of above, it is held that deduction claimed by the appellant can not be allowed for following reasons:- (i) the liability to pay the amount crystallizes in the earlier year and not in the year under consideration (ii) during the year under consideration, by charging price over and above the amount fixed by the NPPA under Para 8 of the DPCO, appellant has violated the provisions of law and expenditure is not allowable as deduction u/s 37(1) of the income tax act. (iii) The amount deposited can not be allowed as deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India discontinues manufacturing of Raricap Tablets. 4. 24th September 1998 Notice from the NPPA determining total overcharged amount of ₹ 5.32 crores from the period of August 1996 to August 1998. 5. 14th October 1998 Filed a Writ Petition with the Delhi High Court. 6. 15th October 1998 Delhi High Court asked J J India to file submissions with NPPA. 7. 23rd November 1998 Delhi High Court passed interim order and directed J J India to deposit a sum of ₹ 1.5 crores with the NPPA till the disposal of the petition. 8. 10th December 1998 Payment of ₹ 1.5 crores to NPPA based on the interim order of Dlehi High Court. 9. 1st November 2002 Revised order from NPPA determining total overcharged amount of ₹ 1,56,06,224 for the period 28th August 1998 to 31st March 1997 and interest of ₹ 50,38,024. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 7th August 19996, fixing the revised price of Raricap tablet at ₹ 16.24. Immediately thereafter, the assessee on 19th August 1996, filed a detail reply that price of ₹ 25, was approved under DPCO, 1987 and, therefore, requested the Government to furnish the cost data so that the revised application can be filed. Subsequently, on 30th March 1997, the assessee discontinued to manufacture Raricap tablet. On 24th September 1998, a notice was issued from NPPA determining the total over charged amount of ₹ 5.32 crores from the period of August 1996 to August 1998. Against the said notice, the assessee filed Writ Petition before the Delhi High Court. The Delhi High Court, vide its judgment dated 23rd November 1998, passed an interim order and directed the assessee to deposit ₹ 1.50 crores with NPPA till the disposal of the Petition. On 10th December 1998, payment of ₹ 1.50 crores was paid to NPPA based on such interim order of the High Court. From the records, it is seen that the assessee has been regularly filing replies to the NPPA for giving justification for reducing the price and the working of the cost. However, without reverting to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
