TMI Blog2019 (4) TMI 414X X X X Extracts X X X X X X X X Extracts X X X X ..... nal in Integrated Coal Mining Ltd. vs. DCIT (2015 (12) TMI 1326 - ITAT KOLKATA) wherein the issue was set aside to the file of the AO to pass appropriate order based on the outcome of the main appeal on merits by the Supreme Court in Exide Industries Ltd.[2009 (5) TMI 894 - SUPREME COURT]. In parity, the grievance of the assessee as per Ground no.3 is set aside to the file of the AO. Payments of employees’ contribution towards provident fund - HELD THAT:- This issue has been decided against the assessee by the Hon’ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation [2014 (1) TMI 502 - GUJARAT HIGH COURT]. Therefore, the grievance of the assessee is answered in negative and against the assessee. Adjustment of provision of wealth tax for Book profit u/s 115JB - HELD THAT:- The assessee seeks to claim that wealth tax is not a tax defined under Explanation 2 to Clause (a) of Explanation 1 to Section 115JA of the Act. In parity with the decision of the co-ordinate bench in ASB International (P.) Ltd [2012 (8) TMI 335 - ITAT MUMBAI] and CIT vs. Echjay Forgings (P.) Ltd. [2001 (2) TMI 56 - BOMBAY HIGH COURT] AO is directed to exclude the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Decided against revenue. Disallowance of discount paid to Doctors - HELD THAT:- No merit in the disallowance made by the AO towards discount paid to the Doctors as discussed in relation to AY 2009-10. We thus agree with the conclusion drawn by the CIT(A) despite wrong reasoning. The Ground no.2 of Revenue’s appeal is thus dismissed. Disallowance u/s 14A for interest - HELD THAT:- CIT(A) has rightly approached the issue and deleted the proportionate disallowance of interest expenditure under Rule 8D(2)(ii) on the ground that investment in shares giving rise to exempt income is far lower than the corresponding interest free funds available with the assessee by way of capital and reserves. Therefore, a presumption would naturally arise in favour of the assessee for deemed utilization of interest free funds for investments yielding tax free income in preference to the borrowed funds. Therefore, we do not see any infirmity in the order of the CIT(A). Suo motu disallowance for earning of exempt income - The Revenue authorities, in our view, have also rightly invoked formula under Rule 8D(2)(iii) for disallowance of management and general expenses deemed to be attributable to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11 12.06.2015 26.02.2013 143(3) of the Act 2513 2550/Ahd/15 -Do- 2011-12 -Do- 31.12.2013 -Do- 2. At the time of hearing, it was informed by both the sides that cross appeals of the Revenue and the assessee captioned above involve common and repetitive issues in various assessment years. Accordingly, all the matters were heard together for consolidated disposal of appeals listed above. 3. We shall now take up each appeal for adjudication as under; ITA No. 3049/Ahd/2014 (Assessee s appeal) AY 2008-09 3. Ground No.1 concerns disallowance of ₹ 5,85,148/- under s.14A of the Act r.w. Rule 8D of the Income Tax Rules. 3.1 The learned AR for the assessee submitted at the outset that the exempt income stand at ₹ 4000/- only and therefore, the disallowance under s.14A of the Act cannot exceed the aforesaid amount. 3.2 We find merit in the plea of the assessee in view of the decision of the Hon ble Gujarat High court in the case of CIT vs. Corrtech Energy Pvt. Ltd. 372 ITR 97; DCIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f employees contribution towards provident fund of ₹ 54,775/-. 6.1 The aforesaid issue has been decided against the assessee by the Hon ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation [2014] 366 ITR 170 (Guj). Therefore, the grievance of the assessee is answered in negative and against the assessee. 6.2 In the result, Ground No.4 is accordingly dismissed. 7. Ground No.5 concerns adjustment to the book profit computed under s.115JB of the Act towards provision of wealth tax of ₹ 34,940/-. 7.1 The assessee seeks to claim that wealth tax is not a tax defined under Explanation 2 to Clause (a) of Explanation 1 to Section 115JA of the Act. In parity with the decision of the co-ordinate bench in ASB International (P.) Ltd. 26 taxmann.com 87 (Mum) and CIT vs. Echjay Forgings (P.) Ltd. 251 ITR 15 (Bom.), the AO is directed to exclude the provision for wealth tax for the purposes of computation of book profit. 7.2 In the result, Ground No.5 is accordingly allowed. 8. In the result, appeal of the assessee in ITA No.3049/Ahd/2014 is partly allowed. ITA No. 2548/Ahd/2015 (Revenue s appeal) AY 2009-10 9. The grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be controllers of the assessee company. The AO accordingly disallowed the aforesaid interest of ₹ 26.59Crores being the difference between interest earned by the assessee company from various resources and paid to Sun Pharma. 10.2 In the first appeal against the aforesaid addition, the CIT(A) reversed the action of the AO and found merit in the plea of the assessee that the interest expenses were incurred for business purposes. The CIT(A) accordingly deleted the addition towards disallowance of interest. The relevant operative para of the order of the CIT(A) is reproduced hereunder: 4.14 With regard to the issue regarding disallowance of interest of ₹ 26,19,62,722/-, the AO in the assessment order has mentioned that interest Income earned by the appellant was routed back to Sun Pharma for claiming deduction u/s 80IC. The same stand has been taken by the AO in his remand report also. In this regard, the AR of the appellant as per his submission dated 18/01/2013 has stated that the SPIL did not have any income during the year under consideration which was entitled to deduction u/s 80IC. In other words, no deduction of any income in the case of SPIL was claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SPI was claimed as deduction u7s 80IC, then also this interest expenditure cannot be disallowed in the hands of the appellant merely by holding that this payment of interest by the appellant to SPI was nothing but an arrangement to somehow claim deduction u/s 80IC. if someone goes by this logic of the AO, then no any payment would be made by a person to another person in whose case deduction under chapter VIA of the Income Tax Act is claimed as such payment would be considered to be an arrangement for getting deduction. As discussed in earlier paragraphs of this appeal order that the case of the appellant is not covered by the provisions of section 40A(2) of the Act and therefore it can be said that payment of interest is made by the appellant to non related parties. In my humble opinion, even If the case of the appellant is covered by the provisions of section 40A(2) and the appellant company and SPIL and SPI are related party, then also this entire payment of interest expenditure cannot be disallowed. This is in view of the fact that when there are two related parties in terms of provisions of section 40A(2)(b), then in such case reasonableness of payments made by one party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned AR for the assessee adverted to the detailed written submission made before the CIT(A), remand report and reply thereto as reproduced by the CIT(A) in its order and submitted that there is no relationship between the assessee and Sun Pharma and the transactions are not covered by the provision of Section 40A(2) of the Act. 10.5 The learned DR, on the other hand, submitted that while the issue is apparently decided in favour of the assessee by the Tribunal in preceding assessment years, one cannot lose sight of the fact that both the concerns are related as revealed from the facts which came to light in survey proceedings under s.133A of the Act. 10.6 We have carefully considered the rival submissions. We find that the issue is no longer res integra and adjudicated in favour of the assessee in its own case in AYs. 2005-06 2006-07 in ITA No.1665 1666/Ahd/2009 (supra). The relevant operative para of the order is reproduced hereunder for ready reference: 4. Now before us an order of the ITAT D Bench Ahmedabad in assessee's own case bearing ITA No.3974/Ahd/2007 pertaining to AY 2004-05 titled as The Dy.CIT vs. Aditya Medisales Ltd. dated 4th February, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest and payment of interest for loans taken and advances given. The first appellate authority had followed his predecessors decision for AY 2004-05 and allowed the issue in assessee's favour. 6. As noted hereinabove while deciding the appeal of the assessee for AY 2004-05 (ITA No.3974/Ahd/2007-supra) vide an order dated 04/02/2011, it was noted that the issue has already been decided in favour of assessee by ITAT D Bench Ahmedabad in a consolidated order relevant for A.Y. 1999-2000 to 2003-04 bearing ITA Nos. ITA Nos.3272/Ahd/2002, 1623/Ahd/2003, 1353 2180/Ahd/2005 and ITA No.08/Ahd/2007-supra order dated 30/09/2010. In the said order of the Tribunal, ITAT D Bench followed an earlier order; pronounced in assessee's own case for A.Y. 1997-98 in ITA No.492/Ahd/2001 dated 28/03/2008, wherein it was held that onus for application of the provisions of section 40A(2)(a) is on the Revenue and that there was no basis for holding that an excessive rate of interest was paid. It is also worth to mention that there was an order of the Hon'ble Gujarat High Court in assessee's case (CIT vs. Aditya Medisales Ltd. - Tax Appeal No.559 of 2009 dated 4.5.2010), wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The AO observed that the assessee has not given discount to its C F agents who are directly purchasing medicines from the assessee company. The discount has been given to the ultimate purchaser from C F agent. It was thus observed that the ultimate purchasers viz. dealers, doctors, other customers medicine stockiest etc. are not purchasing medicines from the assessee company per se but from C F agents. The AO accordingly observed that in business practices, the discount is given by the seller to its purchaser, whereas, in the instant case, the discount has been given by the assesse to various parties who have no direct transaction with the company. It was also alleged that the payment is in the nature of illicit gratitude to doctors for promotion of Sun Pharma Group product. It was held that such discount expenses incurred is not a business expense wholly and exclusively attributable to the assessee company. Consequently, the expenses towards discount to the tune of ₹ 7,34,80,655/- was disallowed. 11.2 Aggrieved, the assessee preferred appeal before the CIT(A). 11.3 The CIT(A) re-visited the facts and circumstances of the case and found the claim of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the whole sum of ₹ 7.35 crores. As mentioned in earlier paragraph of this appeal order that the submission dated 18/01/2013 of the AR of the appellant was forwarded to the AO for his remand report. The AO in his remand report dated 01/05/2014 as sent to this office has almost reiterated the same facts which have been mentioned by the AO in the assessment order for making disallowance of claim of ₹ 7,34,80,655/-. The AO in remand report has merely mentioned that the appellant is not paying discount to its purchaser i.e. C F agent. It is mentioned by the AO in the remand report that while finalizing assessment it was found after verification that the appellant had made payment mostly towards Doctors through DDs and the same has been claimed as discount, As per the AO the Doctors are not purchasing medicines from the assessee company and therefore expenses are not incurred wholly and exclusively for business. However, the AO in his remand report has not controverted the submission of AR of the appellant that the payments on account of discount made to the Doctors were only ₹ 9 lacs. The AO in his remand report has also not controverted the submission of the AR th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scount made to stockiests/customers etc. aggregating to ₹ 10.90 Crores and only the discount of ₹ 15.44 Lakhs given to Doctors were rejected. It was thus contended that the order of the CIT(A) is in parity with the action of the AO himself in the subsequent year and therefore cannot be assailed by the Revenue by any means. As regard discount offered to the doctors amounting to ₹ 8.956Lakhs, the learned AR pointed out that the supply of medicines have been made to the Doctors also by the C F agents by way of sale and not on any promotional offer and therefore, no distinction can be drawn for discount bestowed to Doctors qua other stockiests/distributors/dealers etc. The learned AR thus submitted that the appeal of the Revenue thus deserves to be rejected whereas the appeal of the assessee requires to be allowed on this score. 11.8 The learned DR, on the other hand, relied upon the order of the AO. 11.9 We have carefully considered the rival submissions on the issue. The maintainability of discount on sales is in question. It is the case of the Revenue that the assessee is supplying medicines to its C F agents for its ultimate sale in the market for consump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO to allow the trade discount paid to all parties including Doctors as ordinary business expenditure. Thus, Ground No.2 of the Revenue s appeal is dismissed. As a corollary, Ground No.1 of the assessee s appeal in ITA No. 2511/Ahd/2015 stands allowed. 12. Ground No.3 of the Revenue s appeal seeks to assail the action of the CIT(A) in allowing donation of ₹ 11 lakhs. 12.1 The AO in the course of assessment observed that assessee company has paid ₹ 11 lakhs to Vision Foundation of India and claimed deduction under s.80G of the Act for such donation. It was however observed by the AO that the cheque was paid on behalf of Shri Dilip Sanghvi and only at instruction from him and also thanks were conveyed by the recipient to Shri Dilip Sanghvi for his kind gesture. It was further noticed that the receipt and tax exemption certificate were sent to Shri Dilip Sanghvi and not to the assessee. It was thus held by the AO that the donation actually relates to Shri Dilip Sanghvi and therefore, the assessee company is not eligible for deduction under s.80G of the Act. 12.2 The first appellate authority, however, reversed the aforesaid action of the AO on account of undis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 2009-10 in para no. 10.1(supra) which, in turn, refers to the earlier assessment years dealing with identical issue. Thus, in parity with the view taken in several assessment years in assessee s own case, we do not see any merit in the grievance of the Revenue on this score. We thus decline to interfere with the order of the CIT(A) in this regard. 16.2 In the result, Ground No.1 of Revenue s appeal is dismissed. 17. Ground no.2 concerns disallowance of discount of ₹ 15,44,119/- paid to Doctors. As noted earlier concerning AY 2009-10, the AO in the impugned AY 2010-11 has restricted the disallowance of discount paid to the Doctors only whereas discount paid to stockiests, distributors and other customers of C F agents have been accepted. The CIT(A) in AY 2009-10 had also rejected the similar claim of discount inter alia paid to Doctors. The CIT(A) in AY 2010-11 has simply followed its finding in AY 2009-10 but however deleted the disallowance on payments to doctor which is glaringly inconsistent with findings in AY 2009-10. Having followed the findings in AY 2009-10, the CIT(A) ought to have confirmed the action of the AO. Therefore, while the Revenue is in appeal agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free funds for investments yielding tax free income in preference to the borrowed funds. Therefore, we do not see any infirmity in the order of the CIT(A). 18.4 Turning to the cross grievance of the assessee disallowance sustained under s.14A of the Act, we observe that the assessee suo motu has disallowed ₹ 50,000/- for earning of exempt income which is rightly reckoned to be direct expenditure under Rule 8D(2)(i) of the Rules in the absence of any supporting material to the contrary. The Revenue authorities, in our view, have also rightly invoked formula under Rule 8D(2)(iii) for disallowance of management and general expenses deemed to be attributable to tax free income. However, the disallowance is required to be computed having regard to the investments which has actually yielded exempt income instead of gross investments in consonance with the decision of the Special Bench in Vireet Investments (supra) as placed on behalf of the assessee. The issue is therefore remitted back to the file of the AO for re-computation of disallowance under Rule 8D(2)(iii) of the Rules. In terms of the averments made above, the Ground No.3 of the Revenue s appeal is dismissed whereas cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds available with the assessee. As regards disallowance of ₹ 5,96,533/- under Rule 8D(2)(iii), our observations in ITA No.2549/Ahd/2015 (para no. 18) shall apply mutatis mutandis. The issue is accordingly restored to the file of the AO for re-computation of disallowance under Rule 8D(2)(iii) qua the investments which have actually yielded tax free income. 26. Ground No. 3 of the Revenue s appeal is thus dismissed whereas Ground No.2 of the assessee s appeal (to follow) is allowed in part for the aforesaid reasons. 27. In the result, appeal of the Revenue in ITA No. 2550/Ahd/2015 is dismissed. ITA No. 2513/Ahd/2015 (Assessee s appeal) AY 2011-12 28. Ground No.1 concerns disallowance of ₹ 17,24,542/- on account of discount given to Doctors who have purchased medicines from C F agents of the assessee. In sync with the observations in the earlier years as discussed above, the grievance of the assessee is merited. Ground No.1 of the assessee s appeal is accordingly allowed. 29. Ground No.2 of the assessee s appeal is allowed in part in terms of directions noted in the corresponding Revenue s appeal. 30. Ground No.3 concerns suo motto disallowance of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
