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2017 (1) TMI 1435

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..... business advances - Held that:- Lower authorities have not even adverted to nature of assessee’s advances as to whether the same amounts to a trading loss or business loss nor do they discuss each and every advance had recorded in books of accounts. The Revenue is fair enough in making a limited plea that the Assessing Officer could be directed in such facts to ascertain the true character of each and every transaction before coming a conclusion of allowability of trading or business loss. We thus direct the Assessing Officer to re-decide the issue afresh as per allow after affording adequate opportunity of hearing to the assessee. This ground is partly accepted for statistical purpose. Disallowance of loss caused due to fire - Held that:- The assessee is very much entitled to claim the impugned loss caused by fire in this assessment year itself and the same is indeed in the nature of an accrued liability. The Assessing Officer is accordingly directed to allow the impugned claim of loss caused due to fire amounting to ₹ 2.34 crores in question. Research and development expenses - Held that:- The impugned weighted deduction under section 35(2AB) would not be disallowed .....

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..... ANT MEMBER For The Appellant : Shri S.N. Soparkar with Shri Parin Shah, AR For The Respondent : Shri Jagdish, CIT-DR ORDER PER S.S. GODARA, JUDICIAL MEMBER The assessee and Revenue has instituted the instant cross appeals against CIT(A)-6, Ahmedabad s order dated 19.12.2011, in case no.CIT(A)- VI/DCIT.(OSD).R.1/2015/10-11 in proceedings under section 143(3) of the Income Tax Act, in short the Act . 2. We come to assessee s appeal first. It has filed the following concised/modified grounds. 1. General 2. Ld. CIT(A) erred in law and on facts in confirming ₹ 12, 23,772/- of leave encashment. Ld. CIT (A) also ought to have considered submission of the appellant and delete the balance disallowance. It be so held now. 3. Ld. CIT (A) erred in law and on facts in partially confirming disallowance of out of disallowance of interest of ₹ 37, 72,463/- by applying average cost of borrowing in respect of interest free advances given for business transaction. Ld. CIT (A) ought to have deleted disallowance as appellant has sufficient interest free funds. It be so held now. 4. Ld. CIT (A) erred in law and on facts in confirming write .....

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..... owance of ₹ 1,50,78,467/- of refund of excise duty out of total deduction of ₹ 10,98,90,328/- u/s 80IB of the Act. Ld. CIT (A) ought to have allowed same considering various judicial pronouncement. It be so held now. 11. Ld. CIT (A) erred in law and on facts in rejecting additional claim raised during assessment proceedings regarding allowance non -compete fees of ₹ 16,88,27,093/- paid to Apollo Hospitals International Ltd as revenue expenditure. Without prejudice to the above and in alternative, same is required to be allowed as capital expenditure and depreciation on same be allowed. It be so held now. 12. (a)(i)Ld. CIT (A) erred in law and on facts in confirming addition of ₹ 36,21, 619/- (correct figure ₹ 36,27,619/-) of provision of doubtful debts by invoking Clause (i) to Explanation of Section 115JB of the Act. (a)(ii) Ld. CIT (A) also erred in law and on facts in confirming addition of ₹ 36,06,638/- of provision for diminution in value of investment by invoking Clause (i) to Explanation of Section 115JB of the Act (a)(iii) Both the lower authorities erred in law and on facts in making double addition of ₹ .....

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..... e very issue before this tribunal in preceding assessment year (supra). This plea goes unrebutted from the Revenue s end. Learned departmental representatives, however, submits that the said co-ordinate bench had found commercial expediency on interest free advances pertaining to former entities only stated to be assessee s sister concern. Shri Soparkar invites our attention at this stage towards CIT(A) s finding accepting M/s.Apollo Hospital to be assessee s sister concern. He then takes us to assessee s stand before the lower authorities to have made interest free advances of ₹ 7.86 crores to M/s.Apollo Hospitals Ltd. in the nature of share application money to enhance its business. The assessee accordingly pleads that the same is in the nature a strategic investment involving commercial expediency. We notice in this background that the above coordinate bench relies upon a catena of case laws including CIT Vs. Raguvir Synthetics, (2013) 354 ITR 222 (Guj) holding that interest free advances in case of a sister concern have to be appreciated from commercial expediency point of view instead of maximum profits angle. We thus adopt the very reasoning herein as well to accept the .....

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..... g the year. The Assessing Officer further opined that the impugned claim was also not that of actual loss since the goods destroyed in the fire incident in question were duly insured. He also observed that the same would be crystalised in the succeeding assessment year after reimbursement of loss claim. 8. The CIT(A) upholds Assessing Officer s action as follows: 7.3 I have considered the facts of the case; assessment order and appellant's submission. Appellant claimed loss of inventory in fire. It is not in dispute that inventory was insured against loss by fire. The appellant was paying fire insurance premium which was claimed and allowed. Therefore in the event of any fire, the loss is to be borne by insurance company and not by the appellant. After the claim is lodged, there may be some difference not recovered from insurance company which can be claimed as loss. However, claiming the entire loss of inventory due to fire in the year even when the inventory was insured against fire is without any basis. Loss under section 28 can be claimed only when it is fully crystallized. If appellant did not have fire insurance then appellant could have claimed loss of inventory .....

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..... ard to all the circumstances of the case. 8. In the present case, the assessee has suffered loss on account of damage/destruction of stock by fire in the year under appeal and therefore the liability in this behalf has accrued in the year under appeal. The assessee has also entered liability to the aforesaid effect in its accounts for the year under appeal. Besides, the fact that the assessee has suffered loss is not disputed. Thus the loss suffered by the assessee is real. It cannot be said that the liability arising on account of damage/destruction of stock in the year under appeal is a contingent or conditional one. Therefore the liability is required to be considered for allowance in the year under appeal and in no other year. The mere fact that the insurance company has settled the claim in subsequent year is irrelevant as the loss has been suffered and therefore arisen in the year under appeal. The aforesaid view is well supported by the judgment of the Hon'ble Punjab High Court in CIT v. Tulsi Ram Karam Chand, 51 ITR 180 (Pun.) in which it has been held that the claim of loss of goods has to be considered in the year in which loss occurs and not in the year in whic .....

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..... o adjudicate its loss claim as per law. This substantive ground is partly accepted for statistical purposes. 12. Assessee s next substantive ground involves two components of research and development expenses towards capital account of ₹ 3,73,29,509/- and revenue account of ₹ 12,55,65,701/- (out of which ₹ 11,95,53,000/- already stands certified by the DISIR in form 3CL for the purpose of section 35(2AB) weighted deduction claim. The CIT(A) accepted assessee s contention in order to direct the Assessing Officer to allow the above deduction qua former head after examining its details. We however confirm assessing authority s action pertaining to latter head of revenue expenses. 13. Shri Soparkar restricts assessee s grievance qua the above latter head of revenue expenditure only involving total sum of ₹ 12,55,65,701/-. There is no dispute that the DSIR (Department of Scientific and Industrial Research ) has already approved a sum of ₹ 11,95,53,000/- out of the above gross sum in form 3CL issued on 5.2.2011. Relevant details are at page no.118 onwards upto page 147 of the paper book forming part of the instant case. We notice from the lower appel .....

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..... ue date of filing of return. We again repeat that the CIT(A) has issued no such direction at page 42 para 11 of his order. We accordingly reject both the corresponding substantive grounds for want of a valid locus. 17. Assessee s next substantive ground pleads that the CIT(A) has erred in agreeing with the Assessing Officer s finding making section 14A read with rule 8D disallowance of ₹ 1,09,56,337/- as pertaining its exempt income from dividend amounting to ₹ 7680/-. We further notice that the assessee has filed an additional ground as well on 23.1.2016 by quoting NTPC s case 229 ITR 383 (SC) that even its voluntary disallowance under section 14A of the Act amounting to ₹ 64,23,586/- made on protective basis is not sustainable since it had sufficient interest funds to be invested in yielding tax free income. 18. We have heard both parties. The assessee as well as Revenue have first of all argued vehemently qua admission of the above additional grounds. After arguing for some time, the learned counsel representing assessee quotes hon ble Delhi high court decision in 372 ITR 694 (Del) Join Stock Investment case upholding a similar plea that the impugned di .....

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..... er section 80IB of the Act on consequential assessment. 21. Assessees next substantive grounds pleads that the CIT(A) erred in confirming disallowance of claim of deduction of ₹ 16,88,27,000/- pertaining to non-compete fee paid to M/s.Apollo Hospitals Ltd. There does not appear to be any dispute that the assessee has indeed paid the above non-compete fee. The Assessing Officer declined assessee s deduction claim interalia on the ground that the above non-compete fee is not in the nature of expenditure relating to earning of any income so as to form revenue expenditure, the same is further not allowable for depreciation since non-compete clauses would not be treated as a right being restrictive covenant. The CIT(A) confirms the said view in the lower appellate order. 22. We have heard both the parties. Shri Soparkar submits not to press for assessee s claim qua the impugned claim of non-compete fee to be revenue expenditure despite the fact that the hon ble Madras high court in (2012) 26 taxmann.com 268 (Mad) Carborandum Universal Ltd. Vs. JCIT holds the same to be revenue expenditure. He rather seeks to treat assessee s non-compete fees as capital expenditure for pur .....

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..... nstant limb of assessee s substantive ground as well. 26. Assessee s last argument with respect to instant substantive ground is 4that the ld.CIT(A) has erred in confirming addition of ₹ 1,73,79,923/- under section 115JB for disallowance under section 14A by invoking explanation 1(f) of the former statutory provisions. Shri Soparkar quotes hon ble jurisdictional high court decision in Tax Appeal No.1249/2014 CIT Vs. Alembic Ltd. decided on 20.7.2016 upholding tribunal s view restricting the impugned addition to the extent of section 14A disallowance only. We repeat that we have confirmed the said disallowance to the extent of exempt income of ₹ 7680/- only. We thus direct the Assessing Officer to confine the impugned addition upto the sum involved of ₹ 7680/-. The assessee gets part relief in the instant substantive ground as well as its main appeal ITA 383/Ahd/2012. 27. We now advert to Revenue s appeal ITA No.544/Ahd/2012. Its latter remaining substantive ground challenges the CIT(A) s order holding assessee s product registration expenses of ₹ 1,53,17,558/- as revenue expenditure thereby reversing Assessing Officer s view treating the same as capita .....

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