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TMI Blog2018 (5) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee engaged in manufacturing of pharmaceuticals, scientific research etc. was assessed u/s 143(3) at loss of Rs. 21.58 Crores under normal provisions after certain adjustments / disallowances as against revised returned loss of Rs. 24.36 filed by the assessee on 07/11/2006. As evident from grounds of appeal, the subject matter of the appeal is certain Transfer Pricing Adjustments [TP] as well as non-TP adjustments as confirmed by Ld. first appellate authority, which we shall deal in subsequent paragraphs. 3. Ground Numbers 1 & 2 are related with disallowance of prior-period royalty payments of Rs. 57.27 Lacs paid by the assessee to an entity namely Fujiwasa Pharmaceuticals Co. Ltd., Japan for use of trademark pursuant to license agreement dated 02/04/2003. The aforesaid payment pertained to sales made by the assessee during the month of March, 2004. As per the terms of the agreement, the royalty payment @3% against the same was payable within a period of 60 days from the end of the quarter. The assessee has not claimed the same in AY 2004-05 but claimed the same as prior period items in AY 2005-06 which has been denied by the revenue on the premise that the same had already c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the judgment of Hon'ble Bombay High Court rendered in DIT Vs. Bank of America NT & SA [ITA 177 of 2012 dated 03/07/2014] & order of Mumbai Tribunal rendered in Cynamid India Limited Vs. ITO [ITA No. 4561/Bom/1982 23/05/1984]. Per Contra, Ld. DR supported the stand taken by lower authorities. 4.3 Upon careful consideration, it is evident from the order of Ld. AO that the interest received by the assessee was assessable under the Head Income from other sources and the netting-off has been denied by the Ld. AO on the premise that the interest payment had no nexus with the interest earned by the assessee and the statute do not provided for such deduction. In our opinion, the assessee's claim could, at the most, fall u/s 57(iii). Upon perusal of the case laws, we find that present factual matrix is squarely covered by the cited decision of Hon'ble Bombay High court which has confirmed the stand of Tribunal in this regard. Upon perusal of Tribunal order which was under challenge before Hon'ble High Court, we find that the claim has been allowed by the Tribunal by making following observations:- 14. Ground No. 3 raised by the assessee reads as follows: "3.1 The CIT(Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly on the point. However, I must say that both the judgments do support the contention raised by the ld. Advocate. However, I tried with due respect, I could not persuade myself to follow those judgments on this point. The interest received from the department is assessable under the head "Other Sources". There is no dispute on this. The ld. Advocate did agree that the only head of income under which this interest was assessable was the head other sources. If this is settled, then, the only deduction that could be allowed were the deductions as stated in section 57 of the Income-tax Act. Obviously, the deductions referred to in clauses (i) (ia), (ii ) and (iia) are not relevant for the above purpose. Therefore, the only clause under which this deduction could be claimed is clause (iii) of section 57 the conditions for allowing any expenditure under this clause is that the expenditure should have been incurred wholly and exclusively for the purpose of making or earning such income. The assessee had paid interest to the department either for late payments or for short payments. That means, interest has been levied for one default or the other. Now can it be said that incurring such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id. On that account the Government paid interest under section 244.On the other hand, the assessee retained the Government money by delaying payment of tax and accordingly interest became payable by the assessee to the Government. If the interest paid by the assessee on delayed payment of tax could not be treated as business expenditure, as held by the Punjab and Haryana High Court in Orient Carpets's case (supra), interest received from Government on delayed payment of refund for the same reasons could not be treated as income from business. In fact both, the interest received and the interest paid are to be assessed under the head 'Income from other sources' although the ITO seems to have assessed the Government retained the assessee's money and paid interest thereon, the assessee, in the same way, retained the Government's money and paid interest thereon. Both had the same character and, therefore, if the interest received from the Government exceeded the interest paid by the assessee, then only net amount could be taxed. Similarly, if the interest received was less than the interest paid difference only should be allowed, while computing the income from othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Rs. 9.37 crore made by the assessee. Further the opening investments stood at Rs. 8.91 crores which demonstrate that fresh investment were marginal in the impugned AY and therefore, interest disallowance, in our opinion, is not justified. The expenses disallowance is estimated at 5% of exempt income earned by the assessee. The Ld. AO is directed to re-compute the same in the light of our decision. 6. Ground No. 8 is related with provision of leave encashment for Rs. 79.55 Lacs made by the assessee during the impugned AY. The same was initially suo-moto disallowed by the assessee u/s 43B(f) in computation of income but later on claimed during assessment proceedings in view of the judgment of Hon'ble Calcutta High Court rendered in Exide Industries Ltd. Vs. UOI & Ors. The same has been denied by the lower authorities since the revenue's appeal against the same was pending before Hon'ble Apex Court and the Hon'ble Court, by way of interim order, stayed the operation of the cited judgment of the Hon'ble Calcutta High Court. Both the representative converged on the point that suitable directions may be given to the lower authorities to apply the ruling whenever rendered by Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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