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M/s. Cadila Pharmaceuticals Ltd. Versus DCIT, Range-1/Circle-1 (1) (2) , Ahmedabad

DEPB income in computing Section 80HHC deduction without taking into account net profit element therein - Held that:- As decided in Topman Exports case (2012 (2) TMI 100 - SUPREME COURT OF INDIA) holding the field till date that only the net profit component is to be taken as income. It further emerges that hon’ble jurisdictional high court’s judgment in Avani Exports vs. CIT (2012 (7) TMI 190 - GUJARAT HIGH COURT) has quashed retrospective operation of the above Section 80HHC amendments (supra) .....

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velling charges, research and other expenses - Held that:- Both the lower authorities are fair enough in not disputing assessee’s basic plea that it had received the impugned bills only in the relevant previous year. The assessee’s case therefore is that all the said expenses have crystallized in the impugned assessment year. AO holds that there is no such evidence of crystallization of the expenses in question. We observe in these peculiar facts that the assessee could not have paid or claimed .....

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PCIT vs. Adani Enterprises [2016 (7) TMI 1250 - GUJARAT HIGH COURT] holds that such prior period expenses ought not to be disallowed if an assessee is assessed at the same rate in the two sets of assessment years. We adopt the same analogy herein as well to delete the impugned disallowance. - Transfer pricing adjustment - Held that:- We adopt the very course of action herein as well to restore the instant issue back to the Assessing Officer for afresh decision as finalized in preceding two .....

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lowing Section 80G deduction claim - Held that:- Both the lower proceedings on the ground that assessee did not file the relevant receipts of donations as well as their nexus with its business as stipulated u/s.31of the Act. The very factual position continues herein as well. We therefore reject assessee’s instant last substantive ground. - TPA - corporate guarantee adjustment - Held that:- Case file indicates that a co-ordinate bench in assessee’s appeal itself for assessment year 2010-11 h .....

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allowance of interest in assessee’s strategic interest free advances made to its sister concerns. This second substantive ground is accordingly accepted. - Section 35(2AB) deduction disallowance deleted as relying on assessee own case for assessment year 2006-07 - Amount spent on clinical trial/research & development - Total weighted deduction - Held that:- It is evident that the DRP has worked out the impugned disallowance merely because the assessee has mentioned in its reconciliation .....

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the very sum is eligible for the impugned weighted deduction as well since there is no stipulation incorporated in the Act that the same would be allowable only to the extent of relevant figures stated in Form no. 3CL . This is admittedly not the Revenue’s case that the assessee has not incurred the impugned expenditure for the above specified purpose u/s.35(2AB) of the Act. We therefore draw support from the above co-ordinate bench finding in assessee’s appeal for assessment year 2007-08 for di .....

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tantive ground as well as main ground pleaded herein partly succeed - Section 80IB deduction disallowance - Held that:- We treat assessee’s above excise refund component to be an income eligible for Section 80IB deduction. - Allocation of research and development expenses in proportion to turn over in Jammu unit - house R&D - Held that:- The assessee admittedly has three production divisions at Jammu, Ankleshwar and Dholka; respectively. Case records indicate the same to be operating exc .....

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y maintaining each and every minute detail pertaining to these three units in question. It thus emerges that the authorities below have adopted adhocism in applying the above turnover formula for allocating the impugned expenditure. Hon’ble Bombay high court’s decision in Zhandu Pharmaceutical Works Ltd. vs. CIT (2012 (9) TMI 620 - BOMBAY HIGH COURT ) deletes similar disallowance in absence of non establishment of any nexus between R&D facilities and other units. We find that the authorities bel .....

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ls only in manufacturers’ cases though they could be both with regard to sales and purchases, such hedging contracts need not succeed the contract for sale and actual delivery of goods manufactured, but the latter could be subsequently entered into within reasonable time not exceeding the relevant assessment year in normal circumstances and such transactions should not exceed the total stock of the raw material or merchandise on hand including existing stocks as well as that acquired under the f .....

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And 848/Ahd/2016 And ITA No. 918/Ahd/2016 - Dated:- 11-9-2017 - SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER For The Assessee : Shri S. N. Soparkar with Bandish Soparkar & Parin Shah, A.R. For The Revenue : Shri O. P. Sharma, CIT. DR. ORDER PER S. S. GODARA, JUDICIAL MEMBER This batch of three appeals pertains to assessment years 2004-05 & 2011-12. Former assessment year 2004-05 involves assessee s appeal ITA No. 1117/Ahd/2012 preferred against the CIT(A)- .....

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r 2004-05 (Assessee s appeal ITA No. 117/Ahd/2012) 2. The assessee s first substantive ground pleads that both the lower authorities have erred in law as well as on facts in disallowing its Section 80HHC deduction claim of ₹ 18,85,093/-. There is no dispute that the Assessing Officer as well as the CIT(A) reject the above deduction claim by placing reliance upon legislative amendment in Section 80HHC by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 01.04.1998 inser .....

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red the facts of the case; assessment order and appellant s submission. Assessing Officer disallowed appellant s claim of deduction under section 80HHC on the ground that after reducing DEPB income, the export profits were negative and hence no deduction was allowable. It is not in dispute that appellant had negative profit of business if DEPB income etc is reduced. On DEPB income, as per the amended provisions of section 80 HHC, the deduction is allowable only if the export turnover is less tha .....

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in not allowing deduction under section 80 HHC on DEPB and other income. This ground is dismissed. 4. Heard both sides. Relevant finding perused. It emerges first of all from the CIT(A) above extracted findings that he has considered assessee s DEPB income in computing Section 80HHC deduction without taking into account net profit element therein. His conclusion therefore goes contrary to hon ble apex court s decision in Topman Exports case (2012) 342 ITR 49 (SC) holding the field till date tha .....

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by computing the same as per law after affording it adequate opportunity of hearing. This first substantive ground is accepted for statistical purposes. 5. We move on to assessee s second substantive ground now seeking to delete prior period expenditure disallowance of ₹ 10,83,885/- as upheld in lower appellate proceedings. The said amount comprises of various heads of advertisement, processing fees, sample fees, membership subscription, maintenance, finished goods purchases, travelling ch .....

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e; assessment order and appellant s submission. Prior period expenses are allowable in the year in which the same are crystallized. Assessing Officer allowed opportunities to the appellant to give details of prior period expenses and to prove as to how these expenses were crystalized during the year. Appellant has not given details to the AO. No such details were filed in the appeal hearing also. Only mention of certain items of expenses is there. In absence of details and vouchers etc, one cann .....

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d upon by the appellant clearly indicate that only those expenses which are crystallized during the year are to be allowed. Therefore there is no dispute over this. In the absence of any evidence to prove that these expenses were crystallized during the year, I find no reason to interfere with the AO's order. Appellant's argument of reducing prior period income from these expenses is not correct because the nature of income and expenses are different and the same cannot be netted. Wherea .....

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have heard rival submissions. Both the lower authorities are fair enough in not disputing assessee s basic plea that it had received the impugned bills only in the relevant previous year. The assessee s case therefore is that all the said expenses have crystallized in the impugned assessment year. The Assessing Officer holds that there is no such evidence of crystallization of the expenses in question. We observe in these peculiar facts that the assessee could not have paid or claimed the impug .....

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al No. 566/2016 PCIT vs. Adani Enterprises holds that such prior period expenses ought not to be disallowed if an assessee is assessed at the same rate in the two sets of assessment years. We adopt the same analogy herein as well to delete the impugned disallowance. This second substantive ground is therefore accepted. 8. The assessee s third substantive ground seeks to delete transfer pricing adjustment addition of ₹ 38,14,000/- as proposed in the transfer pricing officer TPO s order date .....

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he same. He applied cost plus method. He then adopted average PLI @37.53% to arrive at the impugned arm s length adjustment of ₹ 38.14lacs as affirmed right upto lower appellate proceedings. 9. The assessee s only plea before us is that this tribunal s order in preceding two assessment years 2002-03 & 2003-04 has remitted the very issue back to the CIT(A) for a reasoned adjudication as per law. The Revenue fails to indicate any distinction in the impugned assessment year. This is furth .....

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opt the very course of action herein as well to restore the instant issue back to the Assessing Officer for afresh decision as finalized in preceding two assessment years. We are well conscious of the fact that our earlier remand order had restored the impugned ALP issue to the CIT(A). We however feel that the Assessing Officer needs to re-adjudicate the issue instead of the CIT(A) to avoid multiplicity of proceedings before the assessing authority and the CIT(A) since we have already restored f .....

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ld the CIT(A) s action affirming an identical disallowance. We therefore adopt judicial consistency to reject assessee s instant substantive ground. 11. The assessee s fifth substantive ground avers that the CIT(A) has erred in law and on facts in confirming Assessing Officer s action disallowing Section 35(2AB) deduction claim of ₹ 5,34,000/-. We notice in Form no. 35 that the assessee had raised its corresponding ground no.8 to this effect in lower appellate proceedings. The CIT(A) obser .....

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proceedings on the ground that it did not file the relevant receipts of donations as well as their nexus with its business as stipulated u/s.31of the Act. The very factual position continues herein as well. We therefore reject assessee s instant last substantive ground. Its appeal ITA No.1117/Ahd/2012 is partly accepted. Assessment year 2011-12 (assessee s and Revenue s cross appeals ITA Nos. 848 & 918/Ahd/2016 13. We come to assessee s appeal. Its first grievance therein challenges upward .....

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me in the impugned assessment year as it was in preceding assessment year 2010-11. Both the lower authorities make the impugned adjustment by drawing support from their respective orders in said earlier assessment year. Case file indicates that a co-ordinate bench in assessee s appeal itself ITA No.694/Ahd/2015 for assessment year 2010-11 decided on 03.03.2017 has already deleted the said corporate guarantee adjustment after concluding that the same is not an international transaction u/s.92B of .....

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mount of ₹ 5,40,74,507/- to its nine domestic and overseas sister concerns namely M/s. Casil Health Products Ltd., CPL Infrastructure Ltd., Apollo Hospitals International Ltd., Kadera Yakuhin Ltd., IRM Enterprise Pvt. Ltd., SOHL (UK), Cadila Pharmaceuticals (Ethopia) PLC, CPL Holdings Pvt. Ltd. and CPL Agro Products Ltd. The Assessing Officer observed in assessment order that it may be true that the nature of advances are strategic investments for the purpose of job work or any other purpo .....

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vir Synthetics (2013) 354 ITR 222 (Guj), CIT vs. Dalmia Cements Pvt. Ltd. (2002) 254 ITR 377 (Delhi), S A Builders Ltd. vs. CIT (2007) 288 ITR 1(SC) to delete identical disallowance(s) in assessment years 2006-07 & 2007-08. Hon ble jurisdictional high court has upheld the same in Tax Appeal no. 39/2015 decided on 23.01.2015. The Revenue fails to dispute all the above facts as well as legal developments. We therefore conclude that both the lower authorities have erred in invoking the impugned .....

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016 seeks to revive the remaining disallowance as well to the tune of ₹ 1,94,85,000/- pertaining to clinical trial expenditure incurred outside the inhouse facility in question. We find that the Revenue s instant grievance has no merit as the assessee has already succeeded on the very issue before hon ble jurisdictional high court in its own case Tax Appeal no. 39/2015 upholding tribunal s order deleting identical disallowance in ITA No.1146/Ahd/2011 for assessment year 2006-07. Revenue s .....

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ssessee has not advanced any specific arguments on this issue. It reiterated submissions dated 15.02.2015 vide point no 18 and point no 21 and dated 16.02.2015 vide point no 21, before the AO and furnished the revised reconciliation in this regard as under: Annexure No Particular Amount. Rs Comment 1 Weighted Deduction for Capital Expenditure as per Auditor's Certificate in Appendix II To Annexure IV as per DSIR Guidelines 79,30,754 2 Weighted Deduction for Capital Expenditure approved as pe .....

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2AB)as per assessee's own case (Cadila Pharma VS ACIT (2012) 147 TTJ 49(Ahd) 7=(4-5-6) Difference not approved in Form 3CL by DSIR 4,24,63,913 8=( 2+5+6) Weighted Deduction for Capital & Revenue Expenditure approved u/s 35{2AB) as per Form 3CL including expenditure incurred in Clinical Trial Shown Separately In Form 3CL 20,88,23,930 9 Weighted Deduction for Revenue & Capital Expenditure claimed u/s 35(2AB) in Income Tax Return of FY 2010-11 (Net claimed after reducing Income from CRO .....

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the copy of 3CL issued by the DSIR reducing the weighted claim in AY 2009- 10 for the amount of ₹ 10,53,64,250/-Submitted vide Annexure 27 in Reply dated 15.02.2015 12 Plus: Depreciation offered to tax being incorrect amount claimed in Return 34,48,037 13=(10-11+12) Difference To be Disallowed In The Assessment (As Per Form 3CL Issued By The DSIR) 4,67,54,326 7.1.2 Assessee's submissions are on the following lines: (i) The assessee has not worked out any disallowance of ₹ 4,67,5 .....

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nd Directions of DRP: 7.2.1 The DRP has considered the submissions of the assessee. The assessee in this revised reconciliation table itself worked out the difference to be disallowed in the assessment ( as per Form 3CL issued by DSIR) ₹ 4,67,54,326/-. Therefore the addition proposed by AO is confirmed to this extent. 7.2.2 The issue on account of amount incurred on the clinical trial expenditure has been decided by the Hon'ble ITAT, Ahmedabad in favour of the assessee in its own case. .....

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r weighted deduction? 7.2.3 The Hon'ble Gujarat High Court dealt with the issue as under: On question (A), discussion by the 'tribunal is from paragraphs 10, 11 and 11.1, which is reproduced herein below:- 10. Ground NO. 5 is against the disallowance of the expenses for scientific research u/s 35(2AB) of the Act amounting to ₹ 3,59,500/-. The ld. Counsel for the assessee submitted that the AO disallowed the expenditure on the basis that the clinical trial expenses was not within th .....

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the issue is squarely covered by the judgment of Hon'ble High Court of Gujarat in the case of CIT vs. Cadila Healthcare Ltd. (supra). 11. We have heard the rival submission, perused the material available on record and gone through the orders of the authorities below. The Hon 'ble High Court of Gujarat in the case of CIT vs. Cadila Healthcare Ltd. (supra) has held as under:- 11. Revenue has also suggested following question: D. Whether the Appellate Tribunal has substantially erred in ho .....

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ther the assessee who has incurred expenditure for scientific research, which was not in the in-home facility, could be covered for deduction under section 35(2AB) of the Income Tax Act, 1961. 11.1 The Hon'ble High Court- of Gujarat after examining the entire issue, came to the conclusion that the Tribunal committed no error. Respectfully following the judgement of Jurisdictional High Court in the- case of CIT vs. Cadila Healthcare Ltd. (supra), we hereby direct the AO to follow the claim of .....

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present appeal, as canvassed. 7.2.4 In view of the above, the AO is directed to delete the proposed disallowance of ₹ 1,94,85,000/-. 18. Heard both the learned representatives. Relevant findings perused. It is evident that the DRP has worked out the impugned disallowance merely because the assessee has mentioned in its reconciliation an amount of ₹ 4,67,54,326/- is to be disallowed as per DSIR s form 3CL. There is therefore no independent adjudication. It emerges that the assessee s .....

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igible for the impugned weighted deduction as well since there is no stipulation incorporated in the Act that the same would be allowable only to the extent of relevant figures stated in Form no. 3CL . This is admittedly not the Revenue s case that the assessee has not incurred the impugned expenditure for the above specified purpose u/s.35(2AB) of the Act. We therefore draw support from the above co-ordinate bench finding in assessee s appeal for assessment year 2007-08 for directing the Assess .....

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e any additional evidence. Relevant facts are already on record. We therefore reject Revenue s objections to admission of above additional ground. 20. Both the learned representatives inform us very fairly that a coordinate bench in assessment year 2007-08 has already restricted an identical disallowance to the extent of exempt income amount. We therefore follow the very course of action herein as well to restrict the impugned disallowance to ₹ 5,808/- only. The assessee s additional subst .....

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me derived from the eligible industrial undertaking. We find that earlier co-ordinate bench in assessment year 2007-08(supra) had followed hon ble apex court s recent decision in CIT vs. Meghalaya Steels Ltd. Civil Appeal no 7622/2014 in holding that such a refund by way of an incentive subsidy results in reimbursement of cost of production as covered u/s.28 of the Act. The Revenue fails to rebut this factual and legal position. We therefore treat assessee s above excise refund component to be a .....

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ts of its research were very well available as a whole while including its Jammu unit since the assessee had clarified the above expenditure to be not pertaining any particular unit. The Assessing Officer thereafter adopted turnover formula to allocate the impugned expenditure . 23. The DRP affirms the above allocation as under; 11.2.3 Regarding the allocation of R&D expenditure of ₹ 8,21,86,990 on turnover basis, the assessee has merely made an assertions that Common expenses have bee .....

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s not discharged its onus. The assessee has allocated the entire expenditure on R&D of ₹ 32.27 crore to units other than J&K unit though as pointed out by the AO the results of the research are available to J&K unit also. In case of Nitco Tiles 30 SOT 47 Hon'ble ITAT Mumbai observed as under: Provisions of s. 80-IA(5) are distinct, deemed and overriding provisions and they, m the combination of s. 80-IB(1), advocate for special computation of 'profits and gains of the e .....

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with its overriding application, prescribe for the special model manner of computation of the profits and gains of the eligible business, which must be computed as if it the only source of income. When such computation is undertaken as per the same, all the expenses of the business including the indirect or common or head office expenses have to be booked to all the ongoing projects, if not to the s. 80- IB projects exclusively.- 11.2.4 In view of this, the DRP is of the considered opinion that .....

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assessee pleaded before the DRP at page 409 that it had not done any research and development for any of the formulation product manufactured in Jammu unit in relevant previous year. The same has neither been specifically rebutted nor accepted in DRP s directions. Nor is there any specific material quoted to disturb assessee s accounts separately maintaining each and every minute detail pertaining to these three units in question. It thus emerges that the authorities below have adopted adhocism .....

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e succeeds in its substantive ground. 25. The assessee s next substantive ground seeks to delete foreign currency loss of ₹ 25,39,60,000/- as disallowed by the lower authorities to be in the nature of speculation loss. The Assessing Officer as well as the DRP invoke Section 43(5) of the Act to conclude that the above loss is speculative instead of business loss since not involving any actual delivery therein. We notice that the DRP s elaborately discusses the instant issue as under: 12 Gro .....

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o fulfill the conditions, it suffers losses in multiple of 2 million USD hence he held that such an activity, can never be called as hedging and is purely speculative in nature. 12.1.2 The AO further found that as per the copies of export bill payment advice obtained from the 2 banks Corporation Bank and Bank of Baroda, where the assessee had submitted these bills, the assessee has booked each and every export bill at the forward rate of exchange for the maturity/due date of export documents thu .....

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ontracts entered into with the banks and settled on maturity by issue of debit/credit advice by the banks. Therefore as per explanation to clause (d) of section 43(5) of the Act, was not an eligible transaction, and hence speculative loss not allowable as business expenditure The assessing officer thus disallowed foreign currency loss of ₹ 25,39,60,000/- treating the same as speculation loss . 12.2 Assessee's Submission: 12.2.1 The Assessee has submitted that it has earned a foreign ex .....

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against the loss on account of Foreign Currency rate fluctuation. The claim of the assessee is that the Assessee has devised a Risk Management Policy for mitigating the risk arising out of fluctuation in Foreign Currency transactions which is duly approved by its Board of Directors and it was the requirement of the Reserve Bank of India as well as Corporate Guidelines wherein it was made mandatory for all companies to have Foreign Exchange Risk Management Policy in place. The assessee has submi .....

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cuments (FSBU)-Corporation Bank 97,90,51,235 Lodgment Certificate attached Vide Annexure 6 D (A+B) Total Lodgment value during the yearjAs per the certificates from respective Bank) All lodgments have taken place with above banks as when export have taken place i.e throughout the months over twelve months 2,21,62,08,652 Export Exposure SBI per Year (4 Million USD per Month'12 Month ),this exposures have taken place at the end of each month thus hedging over the above operations of the assess .....

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e Tax Act. 12.2.3 The assessee further claimed that fluctuation loss or gain incurred by it falls under the provisions of clause (a) of Section 43(5) which reads as under: Section 43 (5) 24 speculative transaction 25 means a transaction in which a contract for the purchase or sale of any commodity25, including stocks and shares25, is periodically or ultimately25 settled25 otherwise than by the actual delivery25 or transfer of the commodity or scrips: Provided that for the purposes of this clause .....

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The assessee thus submitted that the fluctuation loss or gain arising out of foreign currency transactions have arisen during the course of Exports business for which lodgments to the tune of ₹ 221.62 Crores as against the total exports of ₹ 225.75 Crores (with FOB value of ₹ 210.80 Crores) have been placed with the Bank of Baroda and Corporation Bank as stated above in the statement shared above, which shows that loss on foreign currency fluctuation has been incurred during th .....

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y25, including stocks and shares25, is periodically or ultimately25 settle25 otherwise than by the actual delivery25 or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold b .....

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each and every export bill at the forward rate of exchange for the maturity/due date of export documents and that the bank had remitted the amount which includes premium/gain as on the date of remittance i.e. along with the foreign currency gain/loss. He has clearly brought on record the fact that the loss has occurred on account of an independent Put Call contracts with SBI where underlying exposure for export turnover was 2 million USD which was not dependent on actual delivery25 or transfer .....

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its foreign currency exposure in import/export transactions with public sector banks to cover fluctuation risk upto ₹ 200crores. One of the bank namely Bank of Baroda is stated to have issued a certificate dated 12.02.2015 claiming realization of ₹ 123,71,57,417/- which could be realized to the tune of ₹ 111,72,18,092/- as on 31.03.2011. Its SBI contract enabled it to book losses against the above unrealized bills. Lower authorities as well as learned Departmental Representativ .....

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ision in CIT vs. Friends & Friends Shipping Pvt. Ltd. (2013) 35 taxmann.com 553 (Guj) holds losses arising from similar foreign exchange contracts to be business losses than speculative ones. Their lordships conclude that such exchange transactions are hedging transactions instead of being speculative transactions in nature. Next comes hon ble Bombay high court s decision in CIT vs. D. Chetan & Co. (2016) 75 taxmann.com 300 (Bom.) holding that forward contracts in the nature of hedging t .....

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to sales and purchases, such hedging contracts need not succeed the contract for sale and actual delivery of goods manufactured, but the latter could be subsequently entered into within reasonable time not exceeding the relevant assessment year in normal circumstances and such transactions should not exceed the total stock of the raw material or merchandise on hand including existing stocks as well as that acquired under the firms contract of purchases in order to be genuine and valid hedging co .....

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arned DRP s discussion as under: 13.2.1 The DRP has considered the submissions of the assessee company on this issue, the legal position under the I.T. Act 1961. 13.2.2 In this regard, reference may be made to the CBDT's Circular No. 5/2012 dated 1 Aug 2012, which clearly states that freebies in the nature of gift, travel facility, hospitality, cash or monetary grant received by medical practitioners and their professional associations from the pharmaceutical and allied health sector are to .....

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s are providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the 'Council') which is a regulatory body constituted under the Medical Council Act, 1956. 2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their pro .....

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ch expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall he made in the hands of such pharmaceutical or allied heal .....

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he same and take an appropriate action. This may be brought to the notice of all the officers of the charge for necessary action. 13.2.3 The assessee has submitted that a circular beneficial to the assessee will be applicable retrospectively, while an oppressive circular will be made operational prospectively and in absence of any specific mention of its effective date of application, the circular is effective from its date of issue i.e. from the financial year 2012-13 relevant to the A.Y.2013-1 .....

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im of deduction by the assessee the panel finds that the assessee was asked to submit supporting evidence by the assessee vide order sheet entry, and it made a detailed submission before the AO to justify the claim of expenditure and further furnished the following details: Particulars Total Amount Rs. Nature of Expense Expenditure related to Business Conference 10,19,12,419 Expenditure incurred on Employees, Speakers & Faculties for attending business related conferences and seminars. This .....

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dia Regulations 2009 13.2.5 The details furnished as above shows that the expenditure has been incurred on employees, speakers & faculties for attending business related conferences and seminars, which also includes expenses for skill upgradation workshop, and further for post market surveillance. However the facts that clearly emerge from the assessment order are that the assessee failed to submit supporting evidence to support the claim before the AO inspite of repeated opportunity. It is .....

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: A medical practitioner shall not accept any travel facility inside the country or outside, including rail, air, ship, cruise tickets, paid vacations etc. from any pharmaceutical or allied healthcare industry or their representatives for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc as a delegate. 13.2.6 Here, the clause 6.8.1(g) of the IMC Guidelines also becomes relevant again which states as under: (g) Affiliation: A medical practit .....

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e the claim of the assessee is not bonafide and hence rejected. 13.2.8 The Hon'ble High Court of Karnataka in the case of J.K.Panthaki & Co. Vs. ITO reported in(2012) 246 CTR 0059 : (2011) 64 DTR 0283 : (2012) 344 ITR 0329 has held that if the assessee commits an offence under any law in the course of his business and incurs expenditure for any purpose in connection with the said offence, the said amount is not deductible under Section 37 of the I.T. Act 1961. The relevant excerpts of th .....

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unt received had to be returned. The assessee should have returned the said money to the person who paid it i.e., the company. Therefore, payment by the assessee is of an amount legally liable to be returned to the company. Instead of returning to the company, same may be taken as returned to directors for/on behalf of the company. Therefore, in law, the assessee was legally bound to restore the difference in price to the person who paid the said amount. Therefore what is repaid by the assessee .....

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to be eligible for being deducted in arriving at income of the assessee under the bead 'Profits and gains of business or profession', because it is not an expenditure laid down or expended fully and exclusively for the purpose of business. (Para 18) Yet another way of looking at things is, there is a clear case of collusion between the directors of the company and the assessee. In the tender which is floated, they have submitted prices which are higher than the normal price. Accordingly .....

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(Para 19) The Explanation to s. 37 declares that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. The word offence has not been defined under the Act, However, Chapter XXII deals with offences and prosecutions. It refers to various sections under the Act and noncompliance with thos .....

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reach of the law can be said to be an amount wholly and exclusively laid for the purpose of the business. Anything done which is an infraction of the law and is visited with a penalty cannot on grounds of public policy be said to be a commercial expense for the purpose of a business or a disbursement made for the purposes of earning the profits of such business. Penalties which are incurred for infraction of the law are not a normal incident of business and they fall on the assessee in some char .....

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g either express or implied, would be illegal and unenforceable if they are entered into in contravention of the statute. When a contract is expressly or by implication forbidden by statute, no Court will lend its assistance to give effect to such contract. A distinction is sometimes made between contracts entered into with the object of committing an illegal act and contracts expressly or impliedly prohibited by statute. The distinction is that in the former class one has only to look and see w .....

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of legal principles and prior decisions. Contention that if what is paid by way of commission is held to be bribe, it is only receipt of bribe or payment of bribe to a public servant which is an offence and it is not an offence if paid or received by a person other than public servant, and therefore it does not fall within the mischief of the Explanation to s. 37 is not sustainable. The consideration or object of an agreement is lawful unless the Court regards it as immoral or opposed to public .....

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immoral. Though law is different from morality, in the case of illegal gratification payable under an agreement there is convergence of views. There are laws in the country expressly declaring payment of bribe and receipt of bribe by public servants as an offence and punishable under the criminal law of the country. The civil law has wider application and it declares that such payment of bribe is immoral and the agreement is void ab initio. In this context the phrase prohibited by law used in th .....

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stablished, not for the benefit of either of the parties to the litigation, but is founded on the principles of public policy, which will not assist a party who has paid over money, or handed over property, in pursuance of an illegal or immoral contract, to recover it back; for 'the Courts will not assist an illegal transaction in any respect'. The maxim is therefore, intimately connected with the more comprehensive rule of law, ex turpi causa non oritur actio, on account of which no Cou .....

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l acts have been accepted as a normal practice and the attempt to prevent, let alone eradicate corruption, is beyond reach. If the Courts were to accord their approval to such transactions, that would be the end of the rule oj law and amounts to upholding immoral actions by law Courts. Such an action gets credibility and respect and it will be perpetuated with the support of the Court orders. When receipt of bribe and payment of bribe by public servants is held to be an offence and the Parliamen .....

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cts cannot be construed as expenditure incurred for the purpose of profits and gains of business or profession and the benefit of deduction or allowance under the Parliamentary legislation cannot be extended to such persons or to such expenditure. Such a question would fall within the Explanation-of s. 37 and is not deductible under s. 37.- J.K Panthaki & Co. vs. ITO (2011) 57 DTR (Bang) (Trib) 233 : (2011) 139 TTJ (Bang) 337 affirmed. (Para 45) 13.2.9 In view of the discussion as above, the .....

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s Pharmaceuticals Ltd. vs. ACIT (2016) 161 ITD 291 (Mum) holding that the above Board s circular dated 01.08.2012 would not have any retrospective effect since not operating in assessment years 2010- 11. He further quotes another co-ordinate bench decision in DCIT vs. PHL Pharma Pvt. Ltd. (2017) 184 TTJ 1(Mum) distinguishing the above case law in Revenue s favour whilst deleting an identical disallowance on the ground that such business promotion expenses are allowable as business expenditure no .....

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