TMI Blog2015 (12) TMI 1373X X X X Extracts X X X X X X X X Extracts X X X X ..... us without any supporting evidence are not sufficient to decide the issue under consideration. The matter under the circumstances required to be examined afresh by the AO in the light of the observations made above and considering the evidences that may be submitted by the assessee to support its claim. Under the circumstances, we restore this issue to the file of the AO to examine the contentions raised by the assessee in this respect and to verify as to which manufacturing units of the assessee had got the benefit of R&D activity and to what extent from the Goa-PTD unit and thereafter to decide the issue a fresh and to accordingly allocate the expenditure of the Goa- PTD unit to such manufacturing units proportionately. Disallowance under section 14A - disallowance restricted by the Ld. CIT(A) to the extent of 5% of the dividend income as against the suo-moto disallowance offered by the assessee @ 2% of the dividend income - Held that:- different coordinate benches of this Tribunal have observed that in such cases certain percentage of exempt income can constitute a reasonable estimate for making disallowance for the years earlier to assessment year 2008-09. The Hon'ble Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the AO had called upon the invoices of ₹ 50,000/- and above. It is an admitted fact on the file that the assessee has no evidence to support the claim as the same has allegedly been destroyed in fire. The AO thus could not verify the said claim of expenditure. The AO, despite the above fact, considering the overall facts of the case, has allowed the claim but has retained only 5% adhoc disallowance for want of supporting evidences, which action seems to be quite justified. We do not find any infirmity in the order of the AO in this respect. Addition made by the AO on account of capital expenditure as against the assessee’s claim that the same was revenue expenditure - CIT(A) deleted the addition - Held that:- This issue has been discussed by the Ld. CIT(A) after thoroughly examining the nature of expenses and relying upon the various case laws, has observed that these expenses were allowable as revenue expenditure because no new asset was acquired by the assessee and the expenditure was incurred to preserve the existing assets. He therefore held that the expenditure was allowable as revenue expenditure. However, the depreciation allowed on the asset in relation to the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s computed by the appellant. 4. The assessee company is in the business of manufacturing and trading of Formulations and Bulk Drugs. The company has six manufacturing units located at different locations. Two Units i.e. Roha Unit and Pithampura Unit are engaged in manufacturing of Bulk Drugs whereas the other units manufacture Formulations. During the year under consideration, the company commenced commercial production of Formulations at its Baddi-II unit which is eligible for 80C deductions. The assessee claimed deduction for expenditure incurred on Research Development Units in Goa, Bangalore Jogeshwari (Mumbai). The dispute before us is regarding the allocation of expenditure incurred on research and development at Goa and Jogeshwari. The Assessing Officer (hereinafter referred to as the AO) has discussed this issue in the assessment order as under: In the course of assessment proceedings, two queries were raised in respect of allocation of expenditure to the different Units:- (i) Why the scientific expenditure of Goa R D Unit should be allocated to any other Unit; (ii) Why expenditure relating to Bulk Drugs in respect of R D Unit, Jogeshwari, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D Unit, Jogeshwari, has been allocated only to Roha Pithampur. In response to query as to why the said allocation has not been made to other Units, the Authorised Representative has replied vide letter dated 2212/2008, that this was done since Bulk Drugs are manufactured only at Roha Pithampur. This is consistent with the assessee's earlier submission that Roha Pithampur are engaged in the manufacture of Bulk Drugs whereas the other Units manufacture only Formulations. Against this backdrop, the question which now arises is why, under the given circumstances, should the scientific expenditure relating to Formulation in respect of R D Unit, Jogeshwari, be allocated to Roha Pithampur in the ratio of sales turnover. It is evident from the allocation chart that expenses of ₹ 11,86,436/- ₹ 1,71,61,924/- respectively in respect of Capital Revenue expenditure of Scientific Research Unit of Jogeshwari has been allocated to Roha Pithampur. The stand taken by the assessee during the course of discussion is that small amount of Formulation, in addition to Bulk Drug, is manufactured by Roha Pithampur Units. This stand, however, is not acceptable in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made by the appellant has been accepted in the assessment u/s 143(3) of the Act. 5. We may also mention that in the subsequent year (i .e. AY 2007- 08) the appellant's contention that the expenditure incurred at Goa- PTD should be allocated to all units in the turnover ratio of the respective units has also been accepted in the assessment u/s 143(3) of the Act. As there is no change in facts in relation to the basis of allocation of expenses of Goa PTD, the AO ought not to have disturbed the position accepted in the immediately preceding assessment year after due scrutiny. In any event, the benefit of formulation research is available to all the units, the allocation made by the appellant to all the units is proper and justified and the same ought to be accepted. In view of the above stated facts in law, Goa PTD being an independent research centre and not forming part of the Goa Undertaking, expenditure incurred at Goa PTD ought to be allocated to all the units in the ratio of turnover of the respective units. B. Excluding the turnover of Roha and Pithampur units from the total turnover, while computing the ratio of sales of various units for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion comes up for consideration for a later year, the Tribunal will be justified in placing reliance on the earlier decision to base its conclusion. Kerala High Court in CIT vs Kaltetta Estates Ltd (221 ITR 635) The principles of res judicata do not apply, but the Tribunal would be justified in placing reliance on earlier decision in the absence of any new material or change in the circumstances. Ahmedabad tribunal in Poonjabhai Vanmali Sons vs. ITO (33 TTJ 91) While appreciating the claim of an assessee for allowance of expenditure under s. 37(1) it is all the more necessary that the necessity and sufficiency of such expenditure be judged from the angle of a prudent business man. At the same time the nature of the expenditure claimed and the treatment given to the same by the Department in the past should also be taken into account. In doing that, no violence would be done to the doctrine of res judicata, which is, no doubt, not applicable to the proceedings under the Act. The reason for its non- applicability is that each assessment is quite independent of and separate from the other. But when a point or matter has been considered and adjudicated upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods manufactured based on that technology with manufacturing location. The details of some of the technologies developed by Goa-PTD and the manufacturing location: Products developed at Goa-PTD Unit manufacturing the product Anti-arrhythmic (Amiodarone tablets) Ghaziabad unit for Brazil Market Anti-fungal agents (Terbinafme tablets) Ghaziabad unit for Brazil Market Anti Histaminic (Cetirizine tablets) Goa unit for USA market Cardiovascular Agents Goa unit Anti-allergic Agents Goa unit Lipid lowering Agents Product dropped Anti Hypertensive (not yet commercialized) To be manufactured at Ghaziabad unit Sedative and Hyponotic Agents (not yet commercialized) To be manufactured at Ghaziabad unit Alfuzosin BPH (not yet commercialized) To be manufactured at Baddi U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity at Goa- PTD unit has benefited all the manufacturing units of the assessee during the year. Even as discussed above, the assessee has not allocated expenditure of Banglore R D unit on the ground that the assessee s formulation units were not deriving benefit from the activity carried in Bangalore unit, hence applying the same analogy, the issue in the light of observations made above is required to be relooked into by the AO. We further find that even the above explanation was not offered by the assessee before the AO. The explanation given vide letter dated 30.03.10 for the first time was offered to the Ld. CIT(A), who has also not discussed it in the impugned order. Thus the above submissions of the assessee that the benefit of R D activities of the assessee has been enjoyed by the other units manufacturing formulations have not been examined by either of the lower authorities. Even by the above submissions made before us without any supporting evidence are not sufficient to decide the issue under consideration. The matter under the circumstances required to be examined afresh by the AO in the light of the observations made above and considering the evidences that may be subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was very less or not in proportion to the investments made by the assessee for this purpose. Under such circumstances the different coordinate benches of this Tribunal have observed that in such cases certain percentage of exempt income can constitute a reasonable estimate for making disallowance for the years earlier to assessment year 2008-09. The Hon'ble Bombay High Court in the case of CIT vs. 'Godrej Agrovet Ltd.' (supra) has upheld the order of the Tribunal directing the AO to restrict the disallowance to the extent of 2% of the total exempt income earned by the assessee. Under the circumstances, the proposition of law which emerges from the order of the Hon ble High Court in the case of Godrej Agrovet (supra) is that certain percentage of exempt income can constitute a reasonable estimate for making disallowance for the years earlier to assessment year 2008-09 and not that in each every case, such percentage is to be restricted @2% only. The Ld. CIT(A), in the facts and circumstances of the case has restricted the disallowance @5% of the dividend income against ₹ 1,19,012/- which appears to be quite reasonable. We therefore do not find any infirmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was following Exclusive method in respect of raw material, packing material and spare parts and therefore adjustment on account of tax/duty is required to be made in respect of such items in the purchase/ sales, opening stock and closing stock. The auditors had computed the adjustment under section 145A at Nil as per clause 12(b) of the auditors report which has not been accepted by the AO without giving any reasons. The AO has made his own adjustment which does not give details of adjustment made in relation to opening stock, sales and closing stock in relation to items mentioned by him. The matter in our view requires fresh verification and AO is required to give specific finding as to how adjustment prepared by auditors was not found acceptable. We, therefore, set aside the order of CIT(A) and restore the matter to the file of AO for passing a fresh order after necessary examination in the light of our observations made above and after allowing opportunity of hearing to the assessee. 5. Since the matter in dispute before us is regarding similar facts which were in issue before the Ld. Co-ordinate Bench for the Assessment Year 2007-08 and we do not find any reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee could not substantiate its claim as discussed in the assessment order. In respect of Mumbai Unit, the AO had called upon the invoices of ₹ 50,000/- and above. It is an admitted fact on the file that the assessee has no evidence to support the claim as the same has allegedly been destroyed in fire. The AO thus could not verify the said claim of expenditure. The AO, despite the above fact, considering the overall facts of the case, has allowed the claim but has retained only 5% adhoc disallowance for want of supporting evidences, which action seems to be quite justified. We do not find any infirmity in the order of the AO in this respect. This ground is therefore dismissed. Now coming to the Revenue s appeal i.e. ITA No.4996 for A.Y. 2006-07. ITA No.4996/M/2011 for A.Y. 2006-07 17. The Revenue in this appeal has taken two effective grounds of appeal. Vide ground No.1, the Revenue has agitated the action of the AO in restricting the disallowance under section 14A to the extent of 5% of the dividend income as against the disallowance made by the AO under rule 8D. This issue has already been discussed and decided by us while adjudicating the ground No.2 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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