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2018 (4) TMI 709

or work in progress of ₹ 2,47,76,337/- due to renovation and modernization in assessee’s factory premises. The Ld. CIT(A) has noted after going through the audited P&L Account and the Balance Sheet wherein it was discernible that the assessee had renovated and modernized the factory, which fact could not be controverted by the Ld. DR before us and since the amount of loan has been utilized for the purpose of business which qualifies to be allowed u/s. 36(1)(iii)/Sec. 37 of the Act and, therefore, the Ld. CIT(A) has rightly allowed the claim of the assessee which does not call for any interference from our part and, therefore, we dismiss this ground of appeal of the revenue. - Addition of legal and professional expenses - Held that:- The professionals appointed were experts in their respective fields, and that their services were retained to groom and train the new recruits as no suitable replacement was readily available. We note that the assessee has discharged the initial onus casted upon it to claim the expenditure by submitting the name, address, PAN etc, (of the professionals) the AO could not have added the amounts back without further verification and ought not to .....

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erse material and unless the assessee had an opportunity to cross examine the person who has deposed on behalf of M/s. Subhalakshmi Enterprise, the internal communication received by the AO cannot be a ground to find fault with the veracity of the claim/invoices/bills/bank statement etc. produced by the assessee to discharge the onus to show that it has purchased the gift (SS Dinner set) from M/s. Subhalakshmi Enterprise - the assessee has not given the list of recipients of gifts i.e. distributors/dealers when asked for by the Ld. CIT(A)/AO, therefore, we are inclined to disallow 30% of the claim. The AO is directed to restrict the claim to 30% of its claim and the assessee gets partial relief. Accordingly, this ground of cross objection of assessee is partly allowed. - I.T.A. No. 133/Kol/2016, C.O. No.15/Kol/2016 - Dated:- 11-4-2018 - Shri J. Sudhakar Reddy, AM And Shri A. T. Varkey, JM For the Revenue Shri Arindam Bhattacharjee, Addl. CIT, Sr. DR For the Respondent Shri Ravi Tulsiyan, FCA ORDER Per Shri A.T.Varkey, JM This appeal filed by the revenue and the Cross Objection filed by the assessee are against the order of Ld. CIT(A)-10, Kolkata dated 10.11.2015 for AY 2011-12. Sin .....

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t and, therefore, the Ld. CIT(A) has rightly allowed the claim of the assessee which does not call for any interference from our part and, therefore, we dismiss this ground of appeal of the revenue. 4. Ground no.2 of the revenue s appeal is against the action of the Ld. CIT(A) in deleting the addition of ₹ 28,75,927/- which was claimed on account of legal and professional expenses which was disallowed by the AO. On this issue also the AO compared the expenses incurred by the assessee in the immediate preceding year which was to the tune of ₹ 14,08,257/- and whereas for this assessment year the assessee has claimed legal and professional charges of ₹ 28,75,927/- which according to AO was double when the expenditure compared to that of the last year. Since according to AO, satisfactory explanations could not be given, he disallowed ₹ 28,75,927/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), which was allowed by the Ld. CIT(A) against which the revenue is before us. 5. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee in this year has claimed expenditure on account of legal .....

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y in various fields wherein strict statutory compliances are required to be fulfilled like, Companies Act, Sale of Goods Act, Contract Act etc and therefore company s involvement in litigation cannot be a ground to disallow the claim of the professional expenses claimed by the assessee, which we agree with the Ld. CIT(A). We note that the assessee has retained the service of four persons, who had expertise in audit, laws (pertaining to statutory compliances of factories etc.), management etc. So, the AO erred in holding that since there was no litigation, no expenditure could have been incurred by the assessee on this account cannot be countenenced. It has to be kept in mind that nomenclature of any activity given by assessee shall not determine the character of the activity. We agree with the Ld. CIT(A) that the professionals appointed were experts in their respective fields, and that their services were retained to groom and train the new recruits as no suitable replacement was readily available. We note that the assessee has discharged the initial onus casted upon it to claim the expenditure by submitting the name, address, PAN etc, (of the professionals) the AO could not have a .....

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turnover in the succeeding years. We note that the export turnover of ₹ 11,13,816/- for the instant AY, increased to ₹ 1,33,72,874/- for AY 2014-15. Though gradual, there is certainly increase in export turnover. Invoice copies kept from page 64 to 78 of paper book reveals the import of various pharmaceutical manufacturing machines which are pursuant to the visit of the research scholar and these machineries are required to up-grade the manufacturing machines with advanced technology and compete in the business with others who are engaged in the same kind of business. The Ld. CIT(A) has allowed the travelling expense i.e. air ticket of ₹ 3,60,545/-, however, restricted the claim of ₹ 6,39,000/- which was claimed to have been expended on account of boarding and lodging. The Ld. CIT(A) taking into account the element of personal expenditure sustained 20% of the disallowance which works out to ₹ 1,26,000/- and thus assessee got a relief of ₹ 8,64,545/-. Against the action of Ld. CIT(A) only revenue is in appeal. Considering the discussion given above, in the facts and circumstances of the case, we are of the view that Mrs. Zhu Xintian the research m .....

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any way the claim of expense of payment of ₹ 58,77,566/- to M/s. STP Pharmaceuticals cannot be allowed because it is hit by sec. 40(a)(ia) of the Act for non-deduction of tax u/s. 194C(1) of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to allow it. Aggrieved, the revenue is before us. 12. We have heard both parties and perused the records. We have already noted the gist of the reasons given by AO for not allowing the claim of the assessee, so the same is not repeated for the sake of brevity. We note that the assessee in the capacity as consignor has executed a contract with M/s. Franco Indian Pharmaceuticals on 27.02.2001 (paper book 108-111) as a consignee, for consignment sale with all kind of accountability to effect sales and for undertaking such responsibility commission to the tune of ₹ 15,95,355/- was paid by the assessee to it. In order to boost the sales of Sorbiline , the assessee decided to give physician sample of this product. Realising that its factory did not had the capacity to produce the physician sample and for water shortage in its plant, the assessee got into an agreement with M/s. STP Pharmaceuticals o .....

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or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of customer by using material purchased from a person, other than such customer." 13. Sec.194C of the Act stipulates that when the assessee in pursuance of a contract between the assessee and the contractor carry out any work through a contractor (including supply of labour for carrying out any work), makes the payment to the contractor shall deduct tax at source as specified in the section. Definition of work for the purpose of this section is important to ascertain the legislative intent. 14. As per clause (e) of Explanation (iv) of sec. 194C of the Act, itself excludes manufacture or supply of a product according to the requirement or specification of a customer (assessee) by using material which is purchased from a person other than such customer (assessee), from the ambit of section 194C. 15. We note that clause (e) as introduced contains a positive affirmation that the expression "work" will cover manufacturing or supplying a pro .....

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se, we note that Ld. CIT(A) on this issue has made a factual finding. We note that due to restriction of production of liquids in the factory premises by the land lord of the assessee, due to effluent water problem, the production of SORBILINE was shifted to backward area as ancillary costs for manufacturing the said product are low. In this regard, the assessee entered into an agreement with M/s.STP Pharmaceuticals Pvt. Ltd. according to which M/s. STP will manufacture the pharmaceutical products in the brand name "Sorbiline" by using materials from its own source and sell the same to the assessee on "principal to principal" basis. Therefore, undoubtedly the provisions of clause (e) of Explanation (iv) of sec. 194C gets attracted in the instant case and as such, the entire expenditure of ₹ 58,77,566/- being paid to M/s.STP Pharmaceuticals Pvt. Ltd for purchase of "Sorbiline" does not come under the ambit of sec. 194C, therefore, the AO erred on this issue, which has been rightly corrected by the Ld. CIT(A), which calls for no interference, so we confirm the order of Ld. CIT(A). 18. Coming to the CO of assessee. The assessee is aggrieved by the o .....

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reover, he took note of the fact that of an internal information he received from the survey/search conducted at the business premises of M/s. Subhlakshmi Enterprises of Mumbai confirmed that they were providing accommodation entries and, therefore, the assessee company s claim that it had purchased gift material (SS dinner sets) from M/s. Subhlakshmi Enterprises worth ₹ 20,97,900/- is not real and so is a bogus entry. In the light of the said statement of the seller of the gift material, the AO concluded that the assessee is only a beneficiary of the bogus entry given by the accommodation provider and thus, he disallowed the claim of the assessee. On appeal, the Ld. CIT(A) confirmed the action of the AO. Aggrieved, the assessee is before us has assailed the decision of the Ld. CIT(A) on the ground that the internal communication of the seller of the gift material M/s. Subhlakshmi Enterprises has never been confronted with the assessee company and they were kept in dark of the said statement which has been recorded behind the back of the assessee company and has been relied on for forming adverse conclusion which has raised suspicion in the mind of the AO/CIT(A). According to .....

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