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Cadila Pharmaceuticals Ltd. Versus DCIT, Range-1, Ahmedabad and Vice-Versa

2017 (1) TMI 1435 - ITAT AHMEDABAD

Leave encashment - Held that:- This tribunal in assessee’s case itself for preceding assessment year has upheld the very disallowance. He however points out that the impugned sum includes opening balance of the above leave encashment head amounting to ₹ 2,04,973/- as already disallowed in immediate preceding assessment year. The Revenue fails to rebut this factual position. We thus direct the Assessing Officer to pass consequential order ensuring that the very sum does not face double disa .....

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g herein as well to accept the instant substantive ground. - Addition of write of 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 tra .....

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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 for the purpose of expenditure prior to issuance of form 3CM. We repeat that the assessee’s case rather stands on a better footing since the impugned expenditure is post-facto form 3CM as approved in form 3CL .....

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ection 35(2AB) weighted deduction. The Assessing Officer shall accordingly frame consequential assessment. - Disallowance of section 80IB deduction - Held that:- Allow the assessee’s deduction claim under section 80IB of the Act on consequential assessment. - Disallowance of claim of deduction pertaining to non-compete fee paid to M/s.Apollo Hospitals Ltd. - Held that:- Non-compete fees results in acquisition of business of commercial right under section 32(1)(ii) of the Act entitled for .....

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limb of substantive ground in question. - Addition under section 115JB for disallowance u/s 14A by invoking explanation 1(f) of the former statutory provisions - Held that:- CIT Vs. Alembic Ltd. [2017 (1) TMI 513 - GUJARAT HIGH COURT] 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 con .....

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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 disallowanc .....

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(A) erred in law and on facts in confirming loss due to fire of ₹ 2, 34, 97, 227/- ignoring various evidences place on records by the appellant. Ld. CIT (A) ought to have deleted disallowance considering submissions of the appellant. It be so held now. 6. Ld. CIT (A) erred in law and on facts in confirming ₹ 1,14,785/- in respect of advances for expenses. Ld. CIT (A) ought to have allowed write off of same as per various judicial pronouncement. It be so held now. 7. (a) Ld. CIT (A) e .....

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000/- has already certified by DSIR being revenue expenditure eligible for weighted deduction in Form 3CL) on ground that necessary evidences not submitted by the appellant. Ld. CIT (A) ought to have allowed deduction as appellant submitted all details. It be so held now. 8. Ld. CIT (A) erred in law and on facts in disallowing ₹ 750/- of late payment of employees contribution to provident fund ignoring fact that out of which ₹ 414/- for the month of August 2006 was paid within 5 days .....

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eted disallowance considering fact that appellant has sufficient interest free funds and no expenses incurred for earning exempt income. It be so held now. 10. Ld. CIT (A) erred in confirming disallowance 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 r .....

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ng 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 ₹ 36,21,619/- (correct figure ₹ 36,27.619/-) as addition mentioned on page 27 of assessment order under head provision for di .....

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ve confirmed double addition made by the AO. (b)Ld. CIT (A) also erred law and on facts in confirming addition of ₹ 1,73,79,923/- disallowed u/s 14A by invoking Clause (f) to Explanation of section 115JB of the Act. 3. The assessee first substantive ground pleads that CIT(A) has erred in affirming Assessing Officer s action making leave encashment disallowance of ₹ 12,23,772/-. Shri Soparkar states very fairly that this tribunal in assessee s case itself ITA 1146/Ahd/2011 decided on .....

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. This first substantive ground is accordingly partly accepted for statistical purpose. 4. The assessee s second substantive ground is that the ld.CIT(A) has erred in restricting interest disallowance from 7.25% of the average cost of borrowing to the extent of 4% i.e. ₹ 37,72,463/- in respect of interest free advances to M/s.CHPL and Apollo Hospital Ltd. Shri Soparkar submits herein as well that the assessee has succeeded on the very issue before this tribunal in preceding assessment year .....

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erest 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 appreciate .....

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the nature of a provision made for doubtful debts. Both the lower authorities conclude that neither the assessee has written off these amounts nor considered the same in computing income of any preceding assessment year. The assessee then raises an alternative contention to treat the above sum as business loss under section 28 of the Act. The CIT(A) declines this plea after holding that the assessee has failed to discharge its onus in proving beyond doubt that the above loss was incidental to ru .....

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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. 7. The assessee s next substantive ground is that both the lower authorities have erred in confirming disallowance of loss caused due to fi .....

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ent received/receivable during 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 c .....

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ventory 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 in fire this year but when the inventory is insured, the loss can be determined only after the settlement of the claim by the insurance company. Before that there cannot be any loss. Even if the value of inventory is reduced due to fire, the difference has to be accounted for ag .....

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loss was of the insurance company and only after settlement of the claim; appellant is entitled to claim the difference as loss. Accordingly the disallowance made by the assessing officer is confirmed. 9. Heard both sides. Case files perused. Page no.28 of the paper book contains assessee s Notes on Account that it had charged the above amount of loss of material to profit & loss account pending its insurer s approval. Both the lower authorities hold that assessee s loss claim is yet to be .....

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held in Calcutta Company Ltd. v. CIT, 37 ITR 1 (SC) {followed in CIT v. Burhwal Sugar Mills C. Ltd., 82 ITR 784 (All.)}, it is settled law that when an assessee maintains his accounts on mercantile basis of accounting, the date on which the liability accrues is the date to be considered for the purpose of entering that liability in the accounts. That is so even though the liability is capable of estimate only. The difficulty in making the estimate does not convert the accrued liability into a co .....

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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 arise .....

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company has settled the claim is vacated. The Assessing Officer is directed to consider the claim of the assessee in this behalf in the year under appeal. 9. We find that both the authorities below have decided the issue on the short ground that the loss claimed by the assessee was not liable to be allowed in the year under appeal but in the year in which its claim is settled by the insurance company. They have however not adjudicated upon the correctness of the computation of loss/claim as subm .....

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g Officer is accordingly directed to allow the impugned claim of loss caused due to fire amounting to ₹ 2.34 crores in question. 10. The assessee s next substantive grounds assails correctness of both lower authorities action disallowing bad debts claim of ₹ 1,14,785/- in respect of advances for expenses. The Assessing Officer would narrate assessee s failure in explaining nature, allowability and business purpose thereof to make the impugned disallowance. We notice herein as well th .....

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ropriate to adopt the same course of action herein as well since the instant issue stands on the very footing. The Assessing Officer shall now verify nature of assessee s advances in order to 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 o .....

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olving 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 appellate order that the CIT(A) has rejected assessee s claim that once the very sum stand accepted as revenue expenditure .....

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from 1.4.2005 to 31.3.2007. This follows form 3CL (supra) approving expenses of ₹ 11.95 crores. We notice in this background that hon ble jurisdictional high court in CIT Vs. Claris Lifesciences (2010) 326 ITR 251 (Guj) holds in such circumstances that the impugned weighted deduction under section 35(2AB) would not be disallowed for the purpose of expenditure prior to issuance of form 3CM. We repeat that the assessee s case rather stands on a better footing since the impugned expenditure i .....

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nue expenditure disallowance for the purpose of section 35(2AB) weighted deduction. The Assessing Officer shall accordingly frame consequential assessment. 15. Assessee s next substantive ground challenges employee s provident fund disallowance of ₹ 750/- on the ground of its late payment. We find first of all the CIT(A) s order in para 11 page 42 that the assessee itself had not pressed this substantive ground in the lower appellate proceedings resulting in confirmation impugned disallowa .....

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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 protec .....

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exempt income. The same goes un-rebutted from Revenue s end. We thus direct the Assessing Officer to restrict the impugned disallowance of ₹ 1,09,56,337/- to the extent of exempt income of ₹ 7680/- only. The assessee s additional ground hereinabove is accordingly rendered academic. 19. The assessee s next substantive ground avers that both the lower authorities have erred in making disallowance of section 80IB deduction claim of ₹ 1,50,78,467/- representing excise refund recei .....

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ase file perused. There is hardly any quarrel that the assessee has claimed the impugned 80IB deduction qua the excise refund amount received. The CIT(A) treats it as a case of government scheme offering incentives. We notice in this factual background that hon ble apex court in a very recent judgement of CIT Vs. Meghalaya Steels Ltd. Civil Appeal No.7622/2014 decided on 9.3.2016 analysis all case laws including that of Liberty India (supra) to conclude that section 28(iii)(b) reads any income f .....

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rded the same in its P&L account. His case thus is that now the very cost stands reimbursed as treated in the nature of receipt in P& L account. Learned departmental representative fails to rebut all this. We draw supports from hon ble apex court decision herein in these circumstances and direct the Assessing Officer to allow the assessee s deduction claim under section 80IB of the Act on consequential assessment. 21. Assessees next substantive grounds pleads that the CIT(A) erred in con .....

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on 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 tre .....

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pt assessee s arguments and direct the Assessing Officer to allow depreciation claim on assessee s above non-compete fees as per law. 23. Assessee s next substantive ground no.12 has four components. The first one assails the correctness of the above appellate order confirming addition of ₹ 36,21,619/- (correct figure stated to be ₹ 36,27,619/-) of provision of doubtful debts by invoking section 115JB explanation 1 (i) of the Act. We find that hon ble jurisdictional high court in Tax .....

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bench decision and decide the same accordingly. This assessee s argument is accordingly accepted for statistical purpose. 24. Assessee s second limb of argument pertaining to this substantive ground pleads that the CIT(A) has erred in confirming addition of ₹ 36,06,638/- pertaining to provision of diminution in the value of security under section 115JB explanation 1(i) of the Act. Learned counsel fails to rebut application of the above specific clause in the facts of the case as pertaining .....

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