2023 (10) TMI 652 - ITAT AHMEDABAD

Disallowance of deduction u/s. 80IB in respect of Dadra unit - HELD THAT:- As identical issue was decided against the Assessee by the Co-ordinate Benches of the Tribunal in Asst. Years 2011-12 to 2013-14 [2022 (8) TMI 1443 - ITAT AHMEDABAD] where the coordinate bench held the A.Y. 2002-03 as initial year of claim u/s. 80IB(4) of the Act for Dadra business undertaking instead of initial year as A.Y. 2004-05 claimed by the assessee. The finding of the Amritsar tribunal has been followed in A.Y. 2004-05, 2006-07 to 2010-11. Therefore following the same we do not find any infirmity in the order of the learned CIT(A). Hence the ground of appeal of the assessee is hereby dismissed.

Disallowance of deduction u/s. 80IB/80-IE in respect of interest on staff advances and statutory/ bank deposits - HELD THAT:- As decided in assessee own case 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 in the case of CIT -Vs- Sterling Foods [1999 (4) TMI 1 - SUPREME COURT] and Liberty India [2009 (8) TMI 63 - SUPREME COURT]

Disallowance u/s 14A r.w. Rule 8D - assessee has claimed exempt income being share of profit from partnership firm and not made any disallowance u/s. 14A - A.O has observed that assessee has debited interest expenditure in profit & loss account along with other administrative expenditure and part of such expenditure is attributable to earning of exempt income - HELD THAT:- So far as proportionate interest disallowance is concerned, 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 direct the AO to verify whether the assessee has sufficient interest-free funds or not.

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.5 raised by the assessee is hereby allowed for statistical purpose.

Disallowance of Registrar of Company and Stamp Duty charges - HELD THAT:- It is an undisputed fact that assessee was Partner in two Partnership Firms which were converted into Private Limited Companies under Part–IX of the Companies Act, 1956 and both the companies were amalgamated with assessee company in the year under consideration. Due to such business re-organization, the authorized share capital of the company has been increased which is not in dispute. The expenditure incurred by the assessee is directly connected with such increase in authorized capital and such expenditure cannot be allowed in view of decision of Punjab State Industrial Development Corporation [1996 (12) TMI 6 - SUPREME COURT] and Brooke Bond India Limited [1997 (2) TMI 11 - SUPREME COURT]. Thus, the addition made by the Ld.AO is confirmed. This ground no. 6 raised by the of assessee is dismissed.

MAT computation - addition of the amortization of Intangibles while computing book profits u/s 115JB - HELD THAT:- We note that the intangible assets are acquired and owned by the assessee company pursuant to the approved Scheme. Furthermore, we note here that there is perpetual and irrevocable transfer of the intangible assets such as Trade Marks to the assessee company. The Bench had called for evidences showing transfer documents of Trade Marks from SPIL to the assessee company by the virtue of the spin off approved by Hon’ble HCs. The ld. Sr. Counsel of the assessee placed all these documents during course of hearing which have been perused by us. In light of this fact, we are unable to agree to the contention of the Ld. AO that there was no transfer of ownership of the assets to the assessee company.

Thus 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.

Non-consideration of refund of central excise duty as capital receipt under normal provisions - whether CIT(A) ought to have treated the central excise duty refund granted pursuant to the industrial policy of the State Government as a capital receipt not taxable under the Act? - HELD THAT:- Hon'ble Gujarat High court in the case of CIT Vs Tripti Menthol Industries [2013 (7) TMI 763 - GUJARAT HIGH COURT] held that Excise duty refund is capital receipt. Similar issue was also considered in the case of Hitachi Home & Life Solution (India) Ltd [2019 (3) TMI 1741 - ITAT AHMEDABAD] wherein as held that excise duty is capital receipt and application under Rule 27 of ITAT Rules filed by assessee was allowed. Respectfully following the same, refund of excise duty is held as capital receipt. Hence this Addl. Grounds of Appeal no.8 raised by the assessee is allowed.

MAT computation - As refund of central excise duty is a capital receipt in nature, this ground of appeal relating to non-taxability of such refund under the book profit u/s 115JB of the Act is allowed consequently. Hence, this Additional Ground No.9 raised by the assessee is allowed.

Disallowance of deduction u/s 80IE in respect to Sikkim Unit - Since the eligibility of deduction was upheld in the first year of claim being AY 2010-11, the same cannot 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 Coordinate bench in earlier year has been reversed or set aside by the higher authorities. Thus, respectfully following the order, we find no infirmity in the findings of Ld. CIT(A). This ground no.2 raised by the revenue is hereby dismissed.

Disallowance of deduction u/s 80-IB/80-IE in respect of interest on delayed payments - It is undisputed fact that during the year under consideration, the assessee has claimed deduction u/s. 80IB/80IE in respect of interest received from M/s. Aditya Medisales Ltd. and others being interest due on overdue payments outstanding as a result of trading liability. Similar issue was decided in the case of erstwhile firm M/s Sun Pharma Industries (now merged with the assessee company) for AY 2005-06 to 2009-10 which was subsequently followed in AY 2010-11 and 2011-12 wherein following the decision of Nirma Industries Ltd. [2006 (2) TMI 92 - GUJARAT HIGH COURT] and Rane Ltd. [1998 (2) TMI 68 - MADRAS HIGH COURT] wherein it has been held that interest received by the assessee from its trade debtor towards late payment of sale consideration is not required to be excluded from the profit of industrial undertaking for the purposes of computation of deduction u/s.80IB/80IE as the same is income derived from business of industrial undertaking.

Thus the assessee is entitled to claim deduction u/s. 80IB/80IE in respect of the interest earned on overdue payments being the debts arising from trading liability. Hence ground NO.3 raised by revenue is dismissed.

Disallowance of deduction u/s 80IB/80IE in respect of R & D expenses incurred by holding company by allocating the same to the eligible units in view of provisions of section 80IB(13)/80IE(6) r.w.s. 80IA(10) - Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Thus, respectfully following the order of the Co-ordinate Bench of the Tribunal in assessee’s own case, deduction u/s 80IB/80IE in respect of R & D expenses is allowed to the assessee. Hence this Ground No.4 raised by Revenue is dismissed.

Disallowance of selling and distribution expenses - AO has disallowed part of selling and distribution expenses after allocating such expenditure to SPI and SPS who have claimed deduction u/s 80-IB/80-IE - HELD THAT:- As decided in assessee own case [2022 (8) TMI 1443 - ITAT AHMEDABAD] assessee company using its network has incurred certain expenditure which according to the revenue authorities are not directly related to earning of income. In our understanding of the law an expenditure is allowable if it is incurred for the purposes of the business of the assessee and not for the purposes of earning profit. As per the agreement between the assessee company and the partnership firm, the assessee had assisted the partnership firm in carrying on its business by using its network for marketing the pharmaceuticals products successively - it cannot be said that the expenditure incurred by the assessee are not for the purposes of its business. Since the assessee is holding 95% in the partnership firm it becomes the duty of the assessee to promote the business of the partnership firm, in the capacity of the majority stake holder. Incidentally, the revenue authorities have not brought anything on record which could suggest that the expenditures have not been incurred for the purposes of business. Be it assessee’s business or the business of the partnership firm where the assessee is a majority stake holder. Therefore, in our considered opinion, the expenditures incurred by the assessee company deserves to be allowed and we direct the A.O to delete the addition.

Appeals filed both by the Assessee and the Revenue are partly allowed.