TMI Blog2016 (8) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... others at ₹ 1,56,65,399/-. Net interest of ₹ 48,18,532/- is required to be considered for disallowance u/s. 14A. The same view was taken in ITAT Mumbai, in the case of Morgan Stanley India Securities Pvt Ltd Vis ACIT [2014 (1) TMI 1412 - ITAT MUMBAI]and ITAT Ahemdabad in the case ITO vs. Karnavati Petrochmem Pvt Ltd.[2014 (1) TMI 920 - ITAT AHMEDABAD ]. Thus the view taken by AO regarding netting of interest is a possible and legally tenable view which cannot be faulted by CIT. From the record, we also found that during the year the interest paid on the loans taken was for the purpose of business activities on bank overdraft limit. Interest was received on the deposits from the customers, from shareholders and directors and the bank commission is for other charges and not any expenditure was incurred for earning the exempted income. We also found that as per balance-sheet placed on record investment as on 31/3/09 is ₹ 15,91,91,128/-. However, the increase in investment is out of the fund received on sale of brand of ₹ 113 crores i.e. interest-free. No interest bearing funds has been invested for earning the exempted income. As the investment is made afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the Assessing Officer to look into the matter without pointing out any mistake or prejudice caused to revenue. He has simply directed the Assessing Officer, without satisfying himself, to verify whether the bifurcation made by assessee was with a view to reduce tax or not. No infirmity for offering the tax on sale of brands as LTCG. There is no merit in CIT’s observation for treating the same as business income. Claim of clinical support expenses - Held that:- Whatever the separate expenditure are incurred by the assessee was in relation to gather the data making aware of the product of the company and remaining in the market. From the order of CIT we observe that no where the CIT has pointed out as to how the treatment given by assessee was erroneous, i.e. not as per law and as a result of which prejudice was caused to revenue. The CIT has merely asked the Assessing Officer to look into the matter without pointing out any mistake or prejudice caused to revenue. He has simply directed the Assessing Officer, without satisfying himself, to verify whether the bifurcation made by assessee was with a view to reduce tax or not. From the record we found that the details with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing loss incurred on L & T shares. - I.T.A. No. 2765/Mum/2014, I.T.A. No. 2702/Mum/2014 - - - Dated:- 23-6-2016 - SHRI R. C. SHARMA, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER For The Appellant : Shri Vijay Mehta and Shri Anuj Kisnadwalla For The Respondent : Shri Sanjay Bahadur ORDER Per R. C. Sharma, A. M.: These are the appeals filed by the assessee against the order of CIT passed u/s. 263 for the Assessment Years (A.Ys.) 2009-10 and 2010-11. Common grounds have been taken by the assessee in both the year under consideration. Following grounds have been taken by the assessee in the A.Y. 2009-10: 1. On the facts and circumstances of the case, the order passed by the Ld. Commissioner of Income tax is bad in law, void ab initio without jurisdiction as the order u/s. 263 is passed by the Ld. CIT on the basis of audit objection memo dt: 02/04/2013. 2. On the facts and circumstances of the case, the order passed u/s 263 of the Act by Ld. CIT may be quashed and set aside on the ground that the Ld. CIT did not consider the argument taken by the appellant that the order passed by the AO u/s 143(3) is neither erroneous nor prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- Capital gain on sale of land and building. 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in manufacturing of pharmaceutical drugs and molecules. After assessments were completed u/s.143(3), the CIT invoked his jurisdiction u/s. 263. During the course of proceedings u/s. 263, the CIT observed that the assessee has incurred STT expenses to the tune of ₹ 19,42,671/-. This has been debited under the head Miscellaneous expenses . No enquiry has been carried out in this regard. The bifurcation of miscellaneous expenses is available on record but these details have not been examined properly by the A.O. The AO was required to consider how much STT has been paid for F O Transactions and how much STT has been paid on account of Purchase and Sale of L T shares which were on delivery basis. The AO ought to have considered these details for proper working of capita loss on L T shares as well as business income from F O. The Assessing Officer merely acted in a mechanical fashion in accepting the claim of assessee with regard to loss on L T shares and also profits from F O Transactions. Even for working out disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e justified. In absence of such evidence it would amount to showing business income as capital gains. Very little amount it seems have been offered for tax as business income for knowhow fee and Non Complete Fee and abnormally high amount as capital gains with regard to assignment of Trade Marks has been shown. The A.O was required to examine these vital aspects by independently getting opinion as to valuation of Trade Marks know how fee etc. As per CIT, the AO was also required to examine the claim of the assessee that these brands/trade marks were generated/developed by the assessee itself and not purchased by verifying with respect to expenditure incurred in the earlier years for registration of Trade Marks and Copy Right brand building and whether these were claimed as revenue expenditure or treated as capital expenditure. Without making any relevant inquiry the AO accepted the claim of the assessee. 7. With regard to the expenses incurred on clinical support, the CIT observed that the AO also failed to consider nature of expenses incurred under the head Clinical Support expenses without calling for these detail the AO cannot not come to any definite conclusion whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documentary evidence, however, being not convinced by the reply of the assessee, the CIT directed the A.O. to frame fresh assessment order. 12. The ld. AR argued that the A.O. after making the proper enquiry has made the relevant addition/disallowance. Merely because the A.O. has not reproduced each and every reply filed by the assessee and taken a conscious decision after judicial deliberation came to the legally tenable view cannot be faulted only because CIT was of the view that some other view was also possible. The ld. AR also invited our attention to the detailed replies filed by assessee along with evidences with respect to each and every quarry of AO and contended that before setting aside the order of AO for doing fresh assessment. CIT should have considered the justification so filed by the assessee along with documentary evidences. The ld. AR also placed on record the order giving effect passed by the A.O. u/s. 143(3) r/w s. 263 to contend that the Assessing Officer has also not properly appreciated the direction of the CIT and blindly made the addition. 13. On merits it was argued by ld. AR that issue with regard to disallowance of interest u/s.14A, when the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have considered the rival contentions and carefully gone through the order passed by the CIT u/s. 263 and the order by the Assessing Officer u/s.143(3) as well as order passed by AO giving effected to the order of the CIT u/s. 263. We had also considered the written submissions filed by the assessee before the A.O. during the original assessment proceeding as well as before the CIT in reply to quarries so raised by him while passing the order u/s. 263 respectively. We have also considered judicial pronouncements cited by ld. AR and ld. DR during the course of hearing before us, with reference to the factual matrix of the case. 18. From the record, we found that in the audit conducted by the internal audit party on 02.04.2013, certain objections were raised in as much as, according to them, there was 'incorrect disallowance of expenses u/s. 14A r.w.r. 8D of IT. Rules amounting to ₹ 30,74,312/-', under-assessments due to the treatment of profits from sale of brands of ₹ 112,26,98,800/- as capital gain, allowance of clinical support expenses of ₹ 1,86,72,348/-. In addition, according to the audit party, short-term capital loss of ₹ 41,38,87,308/were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the interest of revenue being no tax effect. Accordingly, there is no justification for the direction issued by CIT for disallowance of STT u/s. 14A. 20. With regard to CIT s direction for disallowance interest, we found that the assessee company has paid interest of ₹ 2,00,83,931/- which has been debited to P L A/c. During this year the assessee has also received the interest on deposits from banks and others at ₹ 1,56,65,399/-. Net interest of ₹ 48,18,532/- is required to be considered for disallowance u/s. 14A. The same view was taken in ITAT Mumbai, in the case of Morgan Stanley India Securities Pvt Ltd Vis ACIT and ITAT Ahemdabad in the case ITO vs. Karnavati Petrochmem Pvt Ltd. Thus the view taken by AO regarding netting of interest is a possible and legally tenable view which cannot be faulted by CIT. From the record, we also found that during the year the interest paid on the loans taken was for the purpose of business activities on bank overdraft limit. Interest was received on the deposits from the customers, from shareholders and directors and the bank commission is for other charges and not any expenditure was incurred for earning the exempted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as business income. The brand Anaforthan and Cefi are the apparatus of the business, they are the tools of the business, and they are the capital asset of the company built over the period of time and in fact they are not stock-in-trade of company. The company does not deals in the brands as a traders. 25. Provisions of section 55(2)(e) which deals with the computation of income from capital gains reads as under: a) in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business] [or a right to manufacture, produce or process any article or thing] [or right to carry 011 any business], tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and (ii) in any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 491, shall be taken to be nil; Once the act itself, takes the sale of the goodwill, trademark, brand name, as liable to capital gains the question of charging the same as business income do not arises. 26. In view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of clinical support expenses, from the details filed before CIT, we found that these expenses are incurred while launching the new product in the market and also for existing product for obtaining the feedback from the market and to get in touch with the doctors of all India to assemble the data base demographically, territorially, etc. It is normal feature for any pharmaceutical company to obtain the data, feedback from the medical fraternity and it is a necessary expenditure for the company to maintain the business relationship with the customer in turn with the medical fraternity. The circular of Medical Council of India as referred by the CIT speaks about the gift, travel facility, hospital, money granted however none of these facilities are given by assessee. In fact, whatever the separate expenditure are incurred by the assessee was in relation to gather the data making aware of the product of the company and remaining in the market. From the order of CIT we observe that no where the CIT has pointed out as to how the treatment given by assessee was erroneous, i.e. not as per law and as a result of which prejudice was caused to revenue. The CIT has merely asked the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f provision of section 94(8) we reproduce the same as under: (8) Where (a) any person buys or acquires any units within a period of three months prior to the record date; (b) such person is allotted additional units without any payment on the basis of holding of such units on such date; (c) such person sells or transfers all or any of the units referred to in clause (a) within a period of nine months after such date, while continuing to hold all or any of the additional units referred to in clause (b), then, the loss, if any, arising to him on account of such purchase and sale of all or any of such units shall be ignored for the purposes of computing his income chargeable to tax and notwithstanding anything contained in any other provision of this Act, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units referred to in clause (b) as are held by him on the date of such sale or transfer.] Explanation.-For the purposes of this section,- (a) interest includes a dividend; (aa) record date means such date as may be fixed by- (i) a company for the purposes of entitlement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax. As per the above section, Short Term Capital Loss incurred when Shares/Units are purchased within 3 Months prior to the date on which Dividend is declared and subsequently are sold within 3 Months/9 Months respectively after the record date is not to be allowed to the extent of the Dividend received on those Shares/Units. However in the assessee's case, though the Units are sold within 9 Months from the date on which Dividend is received, the same were purchased (19/9/2008) beyond 3 months prior (27/9/2008) to the date of declaration of dividend (26/12/2008). Therefore the provisions of section 94(7) are not applicable as both the conditions must be satisfied together for the provisions to apply. In assessee s case the purchase is prior to 3 months from the record date. 34. From the record we also found that during the course of original assessment proceedings, complete details were given to the Assessing Officer with regard to working of capital gains on sale of shares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was filed as it was noticed that while calculating long term capital gain on sale of land, inadvertently, no indexation was claimed on the cost of land. Whatever details and/or information were requisitioned for completion of the assessment were duly submitted which fact has also been acknowledged by AO in the order dated 20.03.2012 passed u/s, 143(3) of the Act, wherein the loss was determined at ₹ 45,89,04,220/- as against declared loss of ₹ 46,21,76,813/-. 41. In the audit conducted by the internal audit party on 02.04.2013, certain objections were raised in as much as, according to them, there was 'incorrect disallowance of expenses u/s. 14A r.w.r. 8D amounting to ₹ 24,39,606/-, under-assessments to the extent of ₹ 31,36,884/- as a result of acceptance of the claim for 'clinical support expenses of ₹ 31,36,884/- and u/s. 115JB of the Act. Armed with the report of the audit party the CIT passed order u/s. 263 dated 31.3.2015. The CIT, in his order passed u/s. 263 of the Act, directed the Assessing Officer to examine: i) whether STT expenses were incurred on F O transactions or sale of L T shares. ii) whether there was direct use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of capital gains with regard to the composite sale of factory building with land, the CIT observed that since the consideration received was for the factory building along with land, there was no justification for the Assessing Officer to allow the indexation on land and in computing the gains as long-term capital gain. 45. The issue under consideration is squarely covered by the decision of the Hon'ble jurisdictional High Court had in the case of CIT v. Citibank NA (261 ITR 570) wherein it was held that for the purpose of computation of capital gains, land and building are two separate and distinct assets, therefore profit arising from sale of land was required to be considered as long term capital gains, whereas profit arising from sale of building was required to be considered as short term capital gains. Further we found that the said finding was repeated by the Hon'ble jurisdictional High Court in CIT v. Cadbury India Ltd. (229 Taxman 5) and by the Hon'ble Delhi High Court in CIT v. I. K. International (P) Ltd. [206 Taxman 622 (Del]. In view of the above, we direct the A.O. to decide the issue afresh in terms of the judicial pronouncement discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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