TMI Blog2019 (8) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 115JB to the amount of exempt income earned by the assessee during the year. Addition u/s 41(1) - sundry creditors pending for more than three years - HELD THAT:- AO neither made any enquiry or brought any material on record to demonstrate that the liability relating to the concerned creditors have ceased to exist in terms with the conditions prescribed under section 41(1). It is further relevant to observe, while deciding identical issue in assessee s own case for the assessment year 2010 11, the Tribunal [ 2019 (2) TMI 1067 - ITAT MUMBAI] has upheld the decision of learned CIT(A) deleting similar disallowance made by the AO on identical reasoning.That being the case, we do not find any reason to interfere with the decision of the learned CIT(A) on this issue. This ground is dismissed. Deduction u/s 80IC - Addition on account of R D expenses allocated to Baddi and Solan Units of the assessee - HELD THAT:- As relying on [ 2019 (2) TMI 1067 - ITAT MUMBAI] we restore the issue to the Assessing Officer for deciding afresh in terms with the directions of the Tribunal in the preceding assessment year and only after due opportunity of being heard to the assessee. This g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2010 11, [ 2017 (8) TMI 1255 - ITAT MUMBAI] has upheld the decision of the learned CIT(A) in allowing the expenditure incurred by the assessee towards gifts to doctors and medical professionals. Arm s length price of the corporate guarantee fee - CIT(A) in accepting it as @ 0.53% as against 2.25% determined by the TPO - HELD THAT:- Undisputedly, this is a recurring dispute between the parties from the past assessment years. In fact, in assessment year 2008 09 and 2009 10, the matter went up to the Hon'ble Supreme Court and ultimately, the Hon'ble Supreme Court upheld the arm s length price of guarantee commission @ 0.5%. Undisputedly, in the impugned assessment year, the assessee has shown the arm s length price of guarantee commission by applying the rate of 0.53% which has been accepted by learned CIT(A). Pertinently, while deciding assessee s appeal in assessment year 2010 11, the Tribunal in [ 2019 (2) TMI 1067 - ITAT MUMBAI] has held that arm s length price of guarantee commission for all types of guarantee should be determined @ 0.53%. Facts being identical, respectfully following the aforesaid decision of the Co ordinate Bench, we uphold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned Authorised Representative has filed a letter dated 15th July 2019, stating that the assessee has instructed him not to contest grounds no.1 to 3. In view of the aforesaid, we dismiss grounds no.1, 2 and 3. 3. The only surviving effective ground, being ground no.4, is on the issue of disallowance made under section 14A r/w rule 8D. 4. It is necessary to observe, the Revenue has also challenged the decision of the learned Commissioner (Appeals) on the very same issue in its appeal in ITA no.4972/Mum./2016 and the corresponding ground being ground no.5 and 6. Therefore, for the sake of convenience, we propose to dispose of both the grounds together. 5. Brief facts are, in the course of assessment proceedings the Assessing Officer noticed that during the year under consideration, the assessee has earned exempt income by way of dividend from shares and mutual funds amounting to ₹ 3,627. Since, the disallowance of expenditure for earning of exemption made by the assessee was not in terms of rule 8D, the Assessing Officer called upon the assessee to explain why disallowance should not be computed by applying rule 8D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricted to the exempt income earned during the year. In view of the aforesaid, we direct the Assessing Officer to restrict the disallowance under section 14A r/w rule 8D to ₹ 3,267, i.e., the exempt income by the assessee during the year. As regards the adjustment made to the book profit computed under section 115JB of the Act on account of expenditure incurred for earning exempt income, though, we agree with the learned Authorised Representative that while making such adjustment the Assessing Officer cannot invoke the provisions of section 14A r/w rule 8D, however, it is equally true that the Assessing Officer can make adjustment to the book profit towards expenditure incurred for earning exempt income as per Explanation 1(f) of section 115JB of the Act. Therefore, in the facts of the present case, we direct the Assessing Officer to restrict the adjustment under Explanation 1(f) to section 115JB of the Act to the amount of exempt income earned by the assessee during the year. Ground no.4 of the assessee s appeal and grounds no. 5 and 6 of Revenue s appeal are accordingly disposed of. 11. In the result, assessee s appeal is partly allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding R D expenses to its Baddi and Solan Units in the ratio of their sales turnover. However, in the impugned assessment year, the assessee has not allocated any R D expenses to its Baddi and Solan Units and all the expenses were allocated to non exempt Units. He, therefore, called upon the assessee to explain why R D expenses should not be allocated to Baddi and Solan Units. Though, the assessee objected to the proposed action of the Assessing Officer, however, rejecting the submissions of the assessee, the Assessing Officer reduced a part of expenditure allocated to the other units by reallocating them to Baddi and Solan Units. This resulted in disallowance of R D expenses of ₹ 8,54,86,997. The assessee challenged the aforesaid disallowance before the first appellate authority. 17. The learned Commissioner (Appeals) taking note of the order passed by the first appellate authority in assessee s own case in assessment year 2010 11 and various other decisions, ultimately held that the Assessing Officer was not justified in apportioning R D expenses incurred in other Units to Baddi and Solan Units. Thus, he allowed assessee s claim. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure to its Baddi and Solan Units as per actual. However, he was of the view that since the assessee has general pool of funds which is being utilized by all the Units, the allocation of interest should be on the basis of sales turnover of each unit. Accordingly, he allocated the interest expenditure to all the Units on the basis of their respective sales turnover and computed deduction under section 80IC of the Act. This resulted in a disallowance of ₹ 8,54,86,997. The assessee challenged the aforesaid disallowance before the first appellate authority. 24. After considering the submissions of the assessee in the light of certain judicial precedents as referred to by him, learned Commissioner (Appeals) held that interest expenditure cannot be apportioned on the basis of sales turnover. Accordingly, he deleted the disallowance made by the Assessing Officer. 25. The learned Departmental Representative relied upon the observations of the Assessing Officer. 26. The learned Authorised Representative submitted, identical issue has been decided in favour of the assessee in the assessment year 2010 11. 27. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. 29. In ground no.4, the Revenue has challenged the deletion of disallowance of ₹ 15,30,84,266, made by the Assessing Officer on the reasoning that the expenditure is prohibited by law as per Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002. 30. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has debited to the Profit Loss account an amount of ₹ 15,30,84,266 towards expenditure incurred on gifts, freebies given to doctors and medical professionals. After calling for the details of expenditure, the Assessing Officer observed that such gifts and freebies provided to doctors and medical professionals is in violation of clause 6.8 of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Amendment Regulations 2009. Further, he observed, subsequently the Central Board of Direct Taxes (CBDT) has also issued a circular bearing no.5/2012, date 1st August 2012, prohibiting allowance of deduction in respect of expenditure incurred towards gift and freebies, to doctors and medical professionals in violation of Indian Medical Counci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors and medical professionals are prohibited from accepting gifts, such restriction does not apply to the pharmaceutical companies. Of course, CBDT Circular no.5/2012, dated. 1st August 2012, speaks of disallowance of expenditure incurred by pharmaceutical companies towards gifts given to doctors and medical professionals. However, the said circular would apply prospectively from the assessment year 2013 14 and not to the impugned assessment year. In fact, considering the aforesaid factual legal position, the Tribunal, while deciding identical issue in assessee s own case for the assessment year 2010 11, vide appeal being ITA no.2546/Mum./2017, dated 23rd August 2017, has upheld the decision of the learned Commissioner (Appeals) in allowing the expenditure incurred by the assessee towards gifts to doctors and medical professionals. In case of J.B. Medical and Pharmaceuticals Ltd. (supra), the Tribunal has also expressed similar view. In view of the aforesaid, respectfully following the decisions of the Tribunal referred to above, we uphold the order of the learned Commissioner (Appeals) on the issue. Ground raised is dismissed. 35. In grounds no.5 and 6, the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute between the parties from the past assessment years. In fact, in assessment year 2008 09 and 2009 10, the matter went up to the Hon'ble Supreme Court and ultimately, the Hon'ble Supreme Court upheld the arm s length price of guarantee commission @ 0.5%. Undisputedly, in the impugned assessment year, the assessee has shown the arm s length price of guarantee commission by applying the rate of 0.53% which has been accepted by learned Commissioner (Appeals). Pertinently, while deciding assessee s appeal in assessment year 2010 11, the Tribunal in ITA no.1654/Mum./2016, dated 1st February 2019, has held that arm s length price of guarantee commission for all types of guarantee should be determined @ 0.53%. Facts being identical, respectfully following the aforesaid decision of the Co ordinate Bench, we uphold the order of learned Commissioner (Appeals) on the issue. Grounds are dismissed. 40. Grounds no.9 and 10, relates to arm s length price of comfort guarantee provided to the AE. 41. This issue is identical to the issue raised in grounds no.7 and 8. As observed earlier, while deciding identical issue in assessee s own case in assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in case of Maxopp Investment Ltd. v/s CIT, [2018] 402 ITR 640. Therefore, we direct the Assessing Officer to compute disallowance under rule 8D(2)(iii) by considering only those investments which have yielded exempt income during the year under consideration. Further, we make it clear, the disallowance under section 14A should not exceed the exempt income earned by the assessee during the year under consideration. In so far disallowance of expenditure for earning exempt income while computing book profit under section 115JB of the Act, we direct the Assessing Officer to restrict such disallowance to the exempt income earned during the year. These grounds are partly allowed. 48. Ground no.7, is on the issue of deletion of addition made on account of R D expenditure allocated to Baddi and Solan Units. 49. This ground is identical to ground no.2 of ITA no.4972/Mum./ Mum./2016. Following our decision therein, we dismiss this ground. 50. Ground no.8, is on the issue of deletion of addition of interest expenditure allocated to the Baddi and Solan Units on the basis of sales turnover while computing deduction under section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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