TMI Blog2019 (11) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that it is only by coincidence that the penalty levied by EU is also exactly the same amount which is received by the assessee. Ld.DR argued that it is not disgorgement because though the receipt is from Niche, the payment by the assessee is to European Commission. Therefore, we agree with the Ld.DR that it cannot be treated as disgorgement or compensatory in nature. The next contention of the assessee is that without such payment and without such agreement, the assessee could not have carried out its business in EU and therefore it is towards commercial expediency and to carry on business of assessee, and, therefore, it is business loss. However, we find that the authorities below have not examined this aspect of the issue. Therefore, we are of the opinion that the question as to whether it is to be allowed as business loss particularly when assessee has offered the receipt as income in earlier AY and the revenue has accepted it as business income is to be examined by the AO. Therefore, for this limited purpose, we set aside the issue to the AO with a direction to allow it as business loss if the income has been offered to tax in the earlier A.Y. In the result ground no.2 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - DELHI HIGH COURT] that the disallowance u/s 14A rwr 8D is to be restricted to the exempt income earned during the year. The AY before us is AY 2014-15 and therefore, Rule 8D is very much applicable to the assessee. Further, in a number of cases, it has been held that only the average of the investments which have yielded exempt income is to be considered for computation of 14 A disallowance. Finding of the CIT(A) that goodwill has to be amortized over a period of 5 years cannot be sustained. Particularly, when there is no provision for such amortization of goodwill and allowability of depreciation thereon over a period of 5 years. Thus, revenue appeal is dismissed. - ITA No. 2335/Hyd./2018, ITA No. 12/Hyd./2019 - - - Dated:- 13-11-2019 - Smt. P. Madhavi Devi, Judicial Member And Shri S. Rifaur Rahman, Accountant Member For the Assesse : S/Sh. Sriram Seshadri, Padam Chand Kincha, Amit Mishra Ms.Amulya K, A.Rs. For the Revenue : Sh. YVST Sai, D.R. ORDER PER SMT. P. MADHAVI DEVI, J.M. Both are Cross Appeals for A.Y. 2014-15. The appeal is filed by the assessee while the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 32(1) of the Act on goodwill of ₹ 4.492 crores added to block of intangible assets. 3.4. On facts and in circumstance of the case and in law, the Ld. CIT(A) erred in disallowing depreciation on Rs.l,625 crores (out of total goodwill of ₹ 4.492 crores) as self-generated goodwill without appreciating that an actual consideration of ₹ 43,860 million in cash has been paid to acquire business along with the said goodwill.. 3.5. Without prejudice, the Ld. CIT(A) has failed to appreciate that depreciation on ₹ 1,625 crores is allowable under section 32 read with section 43(1). 3.6. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in disallowing depreciation of ₹ 183 Crores. on the erroneous understanding that Appellant had separately claimed depreciation on intangible assets of ₹ 1,464 crores in addition to depreciation on total goodwill of ₹ 4,492 Crores, resulting in double disallowance of depreciation on ₹ 183 crores. 3.7. The Ld. CIT(A) has erred in concluding that the intangible , assets quantified at ₹ 1,464 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential relief thereto. The grounds of appeal raised by the Appellant herein are without prejudice to each other. The Appellant craws leave to add to and/ or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 2.1 Grounds raised by the revenue in ITA 12/Hyd./18 are as under: 1. Ld.CIT(A) erred in directing the AO to allow amortization of the goodwill in respect of acquired goodwill over a period of 5 years without appreciating the fact that, as per sixth proviso to Sec.32(1) of the Act, the assessee is not entitled to claim depreciation/amortization on goodwill, since the WDV of goodwill in the balance sheet of amalgamating company is nil . 2. Any other ground that may be raised at the time of hearing. 3. Brief facts of the case are that the assessee company, engaged in pharmaceuticals business, filed its return of income for the A.Y. 2014-15 on 30.11.2014 admitting a total loss of ₹ 29,09,02,208/- under normal provisions of the Income Tax Act, 1961 (the Act) and book profit of ₹ 928,04,92,60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.4. The AO, therefore, issued a show cause notice to the Assessee as to why the litigation expenditure of ₹ 141,50,90,000/- claimed by assessee should not be disallowed under Explanation 1 to Sec.37(1) of the Act. The assessee filed its reply to the show cause notice stating that the payment is not towards fine, but that it is only a return back of the income received from Servier on account of the agreement for development of generic version of Perindopril tablets. For the sake of clarity and ready reference, the relevant portion is reproduced hereunder. 5.3. The assessee s reply to the SCN dated 21.12.2017 is reproduced as under. 1. With respect to your SCN dated 21.12.2017 requesting to justify why the fine paid to EU commission should not be disallowed u/s 37. Further to the above and the discussion had with our good selves in relation to claim of pay back to EU Commission of GBP 11.8 million income earned earlier under a settlement agreement between Matrix Laboratories (now Known as 'Mylan Laboratories Limited'), we submit as under,. 1. The taxpayer has developed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 in view of the EU commission order, the equivalent amount of GBP 11.8 million i.e 17.16 million was paid back to ED by Mylan. In this connection, we would reiterate that it will fall under the provisions of Sec 28. The same is extracted for your ready reference. 28. The following income shall be chargeable to income tax under the head 'profits and gains of business or profession'. (va) any sum, whether received or receivable, in cash or kind, under an agreement for (a) Not carrying out any activity in relation to any business; or (b) Not sharing out any know.-how, patent, copyright, trade-mark, license, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services; Provided that sub-clause (a) shall not apply to- (i) Any sum, whether received or receivable, in cash or kind, 011 account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an Offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction Or allowance shall be made in respect of such expenditure. b. The Explanation was introduced in 1998 and the amendment Was made retrospective from 01st April, 1962. The Memorandum Explaining the Provisions of the Finance Bill 1998 stated as follows: It is proposed to insert an explanation after sub-section (i) of section 37 to clarify that no allowance shall be made in respect of expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law. This proposed amendment will result in disallowance of the claim made by certain tax payers of payments on account of protection money, extortion, hafta, bribes, etc. as business expenditure. c. The disallowance under this Explanation, therefore, rests on the following conditions precedent: i. It should be an expenditure; and ii. It should have been incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper. g. Another noteworthy point is that the Explanation to section 37(1) is a deeming provision. It only creates a legal fiction. Next, the Explanation comes into play when expenditure, though incurred for business purpose, is coupled with purpose which is offence or prohibited by law. Here the purpose is to do business and there is no double purpose to do unlawful or illegal acts. h. The Andhra Pradesh High Court in CIT v. Hyderabad Allwyn Metal Works Ltd. [(1988) 172 I1R 113, 118-19](AP) has taken the view that the amount of such damages comprises both an element of penalty levy as well as compensatory payment. Therefore, the entire sum can neither be considered as mere penalty nor as mere interest. In that view of the matter, that portion out of the amount of such damages, which is held to be compensation, is an allowable deduction. i. It may be that a particular payment made by the assessee under a statutory provision, though called a penalty, is a composite one comprising both a penalty and a compensation for delayed payment. Under section 37( 1) , only that portion of such payment having composite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jointly develop the generic version of Perindopril tablets, for which the API would be supplied by the assessee and accordingly Niche filed the Dossiers for manufacture of Perindopril, at its Unichem facility, based on the supplies from the assessee. (c) that Perindopril is Servier Laboraties Limited s ( Servier ) most successful innovator product in the European Union ( EU ) region, for which it is the originator company/patent company. Niche , a competitor to Servier , was working with Matrix (now called as Mylan ) and Unichem Laboratores Limited for the generic entry of Perindopril in the EU region. (d) Servier , in February 2004, warned Niche about its existing patent protection for perindopril, and after a series of discussions, on 8th February, 2005, a Patent Settlement Agreement , was concluded by Servier with Niche. (e) As the assessee did not have capability to produce independently the final perindopril product, but only had the capability to produce an API and since it had no presence in the EU region, to apply for Market Authorization the assessee had to enter into a partnership with Niche and, therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving at the figure of profits and gains of the business of the assessee in a particular year, business expenditure of all types, whether specifically provided for or not, may be allowed u/s 28(i) of the Act itself. He also referred to Sections 30 to 43C of the Act, submitting that these sections expressly provide for the deductions in computing business income and if an expenditure comes within any of the enumerated classes of allowances, it can be considered under the appropriate provision. He further submitted that in assessing the amount of the profits and gains of the year, account must necessarily be taken of all losses incurred besides the expenditure allowable u/sec. 30 to 43C of the Act. In support of this contention, he placed reliance upon the decision of Hon ble Supreme Court in the case of Badridas Daga reported in (1958) 034 ITR 0010. He also submitted that in the A.Y. 2005-06, the assessee had received an amount of GBP ₹ 1.18 crores which was duly offered to tax and during the relevant AY, assessee was intimated that it would be required to pay back the entire amount received earlier, to the EU Commission and, therefore, it would constitute a loss to be deducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -06 and the same has been directed to be returned except to the extent of difference in foreign exchange fluctuation rate, and since it is a payment towards patent infringement or settlement, the same is compensatory in nature and cannot be disallowed, particularly because the expenditure is purely for commercial purposes. For this proposition, he placed reliance upon the decision of Hon ble High Court of Delhi in the case of Desiccant Rotors International (P) Ltd. Reported in 245 CTR 572 (2012). 6.3. Without prejudice to the above arguments, the Ld.Counsel for the assessee submitted that the word law referred to in Explanation 1 to Sec.37(1) of the Act is only the law of the land i.e. laws in force in India and violation of the provisions of the Treaty on the Functioning of the European Union (TFEU in short) cannot be considered as violation of the law under Explanation 1 to Sec.37(1) of the Act. He submitted that the treaty on the functioning of the EU (TEFU) is between the constituents of the EU i.e. 28 Member States that are located primarily in Europe and is applicable only within such states and is separate from International Law. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and confirmed by CIT(A) be deleted. 7. The Ld.DR, on the other hand, supported the orders of the authorities below and submitted that the assessee had resorted to Anti Competitive Practices by way of delaying the entry into market of certain generic medicines and this issue was investigated by the European Commission and the EC has levied the fine for infringement of EC Treaty Rules that outlaws cartels and other restrictive business practices as well as abuse of dominant position. He submitted that the EC levies fines as a measure of deterrence so that the companies do not resort to such type of anti-competitive behaviour, and that the General Court has also confirmed the levy of penalty imposed by EU Commission. Therefore, he argued that the amount is paid as penalty for breach of law and not as a compensatory settlement. He submitted that fine is not compensation but is a payment made for infringement of law and hence cannot be allowed under Explanation 1 to Sec. 37(1) of the Act. He also submitted that the same is also not allowable u/s 28(i) as the payment is made for infringement of law. In support of his contentions, he placed reliance upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of such expenditure. This amendment will result in disallowance of the claims made by certain assessees in respect of payments on account of protection money, extortion, hafta, bribes etc. as business expenditure. It is well decided that unlawful expenditure is not an allowable deduction in computation of income. 20.2. This amendment will take effect retrospectively from 1st April, 1962 and will, accordingly, apply in relation to the assessment year 1962-63 and subsequent years. 8.3. The General Clauses Act also defines an offence u/s 3(38) of the Act to mean any act or omission made punishable by law for the time being in force . 8.4. The Hon ble Allahabad High Court in the case of Abdul Hameed vs. Mohd. Ishaq cited (supra) had the occasion to deal with this provision of the General Clauses Act. The Hon ble High Court was dealing with the Provisions of U.P. (Temporary) Control of Rent and Eviction Act, 1947 and the applicability of Sec.7A of the Act, while dealing with the said provision, the Hon ble Court was considering the meaning of the word law and at Para 12 of its decision, has held as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tta High Court was considering the case of a person, who was an employee of Food Corporation of India at Calcutta, and on a visit to Switzerland, he was arrested by Swiss Police and later was convicted and sentenced to imprisonment for a period of eight days on a charge of repeated thefts. After release from imprisonment, the said person returned to India and resumed his duties. However, on receipt of information about the imprisonment and conviction in Switzerland, he was put under suspension under the CCS Rules. In this context, the Hon ble Calcutta High Court, after considering various provisions of the Constitution of India and also the Hon ble Supreme Court judgements on the issue, held that a reference to the word law is any law for the time being in force in Indian territory and not in the foreign country. For the sake of clarity and ready reference, the relevant para is reproduced hereunder. 4. The point that arises for consideration is whether the words offence , conviction and 'imprisonment occurring in Rule 10 (2)(b) also includes an offence , conviction and imprisonment under the penal law of a foreign country. In other words, whether, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant to the issue with which we are concerned. 8.6. Therefore, according to him, it is only laws of the land i.e. the laws in force in India, if violated, the extent of such violation is to be disallowed. 8.7. He also placed reliance on the decision of Hon ble Supreme Court in the case of Hari Shanker Jain vs. Sonia Gandhi dated 12th September, 2001 in CA no.4400/2000 wherein it has been held as under: Italian law is a foreign law so far as the Courts in India are concerned. U/s 57(1) of Indian Evidence Act, 1872, the Court shall take judicial notice of, inter alia, all laws in force in the territory of India. Foreign laws are not included therein. Sections 45 and 84 of Evidence Act permit proof being tendered and opinion of experts being adduced in evidence in proof of a point of foreign law. Under Order VI Rule 2 of the Code of Civil Procedure, 1908, every Pleading shall contain a statement in concise form of the material facts relied on by a party but not the evidence nor the law of which a Court may take judicial notice. But the rule against pleading law is restricted to that law only of which a Court is bound to take ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by law, such expenditure will not be deeded to have been incurred for the purpose of business. The Explanation does even imply that there must be a finding of a Competent Authority or Court that an offence was committed or that any law was infringed. In fact, there may be numerous situations where expenditure is incurred for a purpose, which is prohibited by law, but there may not necessarily be any order of any authority or Court to this effect. Payment of protection money, hafta money, ransom, etc. are examples of such expenditure. There may not be any order prohibiting a person from making payment of protection money but nonetheless the payment will be for a purpose prohibited by law and would not be allowable under Section 37 of the Act. 18. At the outset, we are inclined to accept the submission of the assessee that the paramount and governing consideration behind such a settlement/agreement can be to avoid the expenses and uncertainty of further litigation. It is a matter of common knowledge that litigation can turn out to be quite expensive and it cannot be even possible, what to talk of feasible, for a small time/middle level company in India like the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame manner using same patent which it has been using and marketing it in India or any other countries, which are not stipulated in the territory with respect to which only restraint is provided in the agreement. It is for this reason the assessee even today continues to manufacture those goods and is selling the products in this country. Once we find that the settlement has arrived at under the aforesaid circumstances, there is no room to hold that it was because of the reason that the assessee was violating the patent laws or the payment was made for an objective prohibited by law. This is our view even when we presume that the expression prohibited by law would include US laws and would not be confined to law in India. 20. Moreover, we also agree with the contention of the learned counsel for the assessee that the payment under the settlement is compensatory in nature. The remedy for infringement of patent involves civil action for compensating the damage to private properties. It may be noted that in the plaint filed by it, SEMCO has sought civil damages under Sections 284 and 285 of the US Paten Code (US 35). Criminal Suit is scored out in the plaint. The rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to that component which is compensatory in nature and refuse to give deduction to that component which is penal in nature. 23. It was an expenditure which was motivated purely by commercial purpose and would be allowable under Section 37(1) of the Act as held by the Apex Court in the case of Sri Venkata Satya Narayana Rice Mill Contractor Co. Vs. Commissioner of Income Tax [223 ITR 101]. 8.9. Thus, from the above decisions, it is clear that what has to be disallowed under Explanation 1 to Sec.37(1) of the Act is a payment made, for contravention of laws in force in India and not of any foreign country. The laws are specific to each of the countries according to their rules and regulations and an offence in one country may not be so in another country. Therefore, we agree with the contentions of Ld.Counsel for the assessee that it is only payment made for contravention of laws in force in India that disallowance under Explanation 1 to Sec.37(1) of the Act is to be made. 8.10. The next question before us is whether the payment is compensatory or penal in nature. 8.11. We find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over (B-C) = (1,068) Mn e) Intangible assets valued including goodwill As residual value = 43,860 (1068) Mn = 44,928 Mn. 10.1 In terms of the amalgamation scheme, the excess of investment made over the aggregate value of the net assets acquired and liabilities assumed, the intangibles including goodwill were depreciated @ 25% on WDV from the Financials submitted. The AO observed that the price of the intangible asset was in the form of goodwill has been introduced in the books of the assessee, only as a result of amalgamation undertaken by the company and also that goodwill does not exist in the books of ASPL prior to the amalgamation. In order to understand the introduction of goodwill in the books and tax implications thereon, AO issued a show cause notice dated 15/12/2017 to the assessee calling for its reply by 22/12/2017. Assessee vide its letter dated 22/12/2017 explained the transaction and also relied upon the decision of Hon ble Supreme Court in the case of Smiff Securities Ltd., [2012] 348 ITR 302, to argue that depreciation on goodwill is allowable. However, AO was of the opinion that since the goodwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t vide order dated 25th August, 2014. Thus, both the ASPL and OTL became part of the assessee with effect from 6th December, 2013. He submitted that pursuant to the scheme of amalgamation, the assets and liabilities of ASPL and OTL vested with the assessee with effect from 6th December, 2013 and both the Agila and Onco legally ceased to exist. As per the Accounting Standard 14, which deals with accounting for amalgamations and as per the Purchase Method , the amalgamating company is required to account for the amalgamation by allocating the consideration to individual identifiable assets and liabilities of the amalgamating company based on their fair values on the date of amalgamation and if the amount of the consideration is in excess of the fair value of the net assets taken over by the amalgamating company, such excess is to be accounted as good will arising on amalgamation under intangible assets. In case of a deficit, the shortfall is to be accounted as capital reserve under reserves and surplus. It is submitted that in the light of the above position, the assessee allocated the consideration of INR 55 crores as fair value of the identifiable assets and liabilities taken ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of allocation of depreciation otherwise allowable on the WDV of assets owned and carried by the amalgamating company whereby such depreciation gets allocated between the amalgamating and amalgamated company in the year of amalgamation and has no applicability for any new asset arising on account of the amalgamation in the hands of the amalgamated company. He also referred to the memorandum explaining the provisions of Finance Bill, 1996, introducing the six proviso to section 32(1) of the Act, to argue that the intent of the legislature behind introduction of the proviso was to cover within its ambit only those assets which were recorded in the books of account of the predecessor company and which are transferred pursuant to the amalgamation. He argued that sixth proviso was introduced to curb the practice of claiming depreciation on the same assets, by both the predecessor company and the successor company in the case of a merger or succession and therefore, the said proviso is not applicable to the assessee. He also tried to distinguish the facts between the case of the assessee and United Breweries Ltd. (supra). 12.4 The ld. Counsel for the assessee also submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of depreciation was INR 561 crore, whereas total disallowance made by the CIT(A) is of INR 745 crores. Therefore, he submitted that section 32 of the Act cannot be used to prescribe the value at which the asset is recorded for the purpose of claiming depreciation. He therefore, prayed that the depreciation claim by the assessee in ITR should be allowed in full. 13. The ld. DR, on the other hand, supported the orders of authorities below and submitted that the assessee acquired the shares of Agila Specialities Ltd. along with its wholly owned subsidiary Onco Therapies Ltd. on 05/12/2013. The net assets acquired were valued at Rs. (-) 106.8 crores after reducing the liabilities. He submitted that when the net asset value is negative, there cannot be any goodwill because no positive value can be attributed to a negative asset. He also submitted that the purchase of shares was part of global acquisition of the Strides Acro Lab Group and there was a global agreement prior to the acquisition of shares. He submitted that it is only after the shares were acquired and the assessee became 100% owner of M/s Agila Specialities Ltd that the amalgamation took place and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of ITAT, Mumbai Bench in the case of Toyo Engineering India Ltd. wherein it was held that when the purchase of goodwill is not proved by the assessee, depreciation on the same cannot be allowed. He also placed reliance on the decision of the ITAT, Bangalore in the case of United Breweries Ltd., [2016] 76 taxmann.com 103 and decision of ITAT Panaji Bench in the case of Chowgule Co. (P) Ltd., [2011] taxmann.com 224 (Panaji). 14. Having regard to the rival submissions and material on record, we find that on account of amalgamation, the consideration paid by the assessee to the vendor is much more than the net value of assets and liabilities taken over by the assessee. Such excess consideration paid by the assessee has been treated by the assessee as goodwill and has claimed depreciation thereon at the applicable rate. The finding of the AO that the goodwill cannot be self-generated and that the claim of the assessee is on account of self-generated goodwill is not correct. The consideration to be paid to Strides for acquisition of the shares of Agila and Onco is after negations between the assessee and Strides. It is an admitted fact that Strides is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with Scheme of Amalgamation of YSN Shares Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon'ble High Courts of Bombay and Calcutta) with retrospective effect from 1st April, 1998, assets and liabilities of YSN Shares Securities (P) Ltd were transferred to and vest in the company. In the process goodwill has arisen in the books of the company. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. 2 http://www.itatonline.org The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 [`Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: Explanation 3.-- For the purposes of this sub-section, the expressions `assets' and `block of assets' shall mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einabove. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee. Thus, it is clear that the Hon ble Supreme Court has considered the circumstances under which the goodwill has arisen on which depreciation was claimed. Therefore, the judgement in the case of Smiff Securities Ltd. is applicable to the facts of the case before us. The following decisions relied upon by the ld. Counsel for the assessee also hold that depreciation on goodwill is allowable.: 1. Zydus Wellness Ltd., 348 ITR 302 (SC) 2. Sri Krishna Drugs Ltd., TS-5874-ITAT-2011 (Hyd. Trib.) 3. AP Paper Mills Ltd., TS-5628-2009 (Hyd. Trib.) 4. Zuari Cement Ltd., TS-5823-ITAT-2016 (Hyd. Trib.) 5. MTANDT Rentals Ltd., TS-7175-ITAT-2018 ( Hyd. Trib.) 6. Dr. Reddy s Laboratories Ltd., 78 Taxmann.com 63 (Hyd.Trib.) 7. Cosmos Cooperative Bank Ltd., TS-47-ITAT-2014 (Pune Trib.) 8. Areva T D India Ltd. 345 ITR 421 (Del.) 9. Triune Energy Services (P) Ltd., 237 Taxmann 230 (Del.) 10. CLC sons Pvt. Ltd., 95 Taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in respect of the issue, which was never considered by the AO. He relied upon the provisions of section 251(1) of the Act, to argue that the enhancement is prohibited in respect of issues that were never considered by the AO during the assessment proceedings. In respect of his contention, he placed reliance upon the decision of Hon ble Apex Court in the case of Rai Bahadur Hardutroy Motilal Chamaria, [1967] 66 ITR 443 (SC). He submitted that various High Courts and Tribunals have held that CIT(A) does not have the power to question the taxability of income from a new source, which was not considered by the AO. In support of this submission, he placed reliance on the following other decisions: 1. Shapoorji Pallonji Mistry, 44 ITR 891 (SC) 2. Sardarilal co., 251 ITR 364 (Delhi) 3. Bikram singh, 48 ITR 689 4. Hari Mohan Sharma in ITA No. 2953/Del/2018 5. B.P. Sheraffudin, 23 SOT 227 (2008) 17.1 Further, he also submitted that CIT(A) cannot enhance an assessment unless the assessee has been given a reasonable opportunity of being heard. He submitted that no enhancement noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as a business receipt. Now, if his successor had expressed the same opinion for the assessment year 1947-48, then undoubtedly the Appellate Assistant Commissioner could have refused to accept that opinion and brought this amount to tax. In our opinion, therefore, it is clear that, under the circumstances of this case, the Appellate Assistant Commissioner was not competent to enhance the assessment of the assessee for the assessment year 1947-48 by a sum of ₹ 40,000. It is always wise to consider the practical effects of ones judgment and especially in matters of tax and revenue. It is not as if a court should come to a different conclusion was inescapable in law even though its decision may lead to serious difficulties in the way lead to loss of revenue or evasion of tax, it should hesitate before it comes to a particular conclusion. Now, in this case, our decision will not in any way put difficulties in the way of the taxing department. In this very case two remedies were open to the Department neither of which was resorted to. It was open to the Income-tax Officer to have proceeded against the assessee under the first part of section 34; or altern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward on behalf of the appellant as correct. It is true that the Income-tax Officer has referred to the remittance of ₹ 5,85,000 from the Calcutta branch, but the Income-tax Officer considered the despatch of this amount only with a view to test the Genuineness of the entries relating to ₹ 4,30,000 in the books of the Forbesganj branch. It is manifest that the Income-tax Officer did not consider the remittance of ₹ 5,85,000 in the process of assessment from the point of view of its taxability. It is also manifest that the Appellate Assistant Commissioner has considered the, amount of remit- tance of ₹ 5,85,000 from a different aspect, namely, the point of view of its taxability. But since the Income-tax Officer has not applied his mind to the question of the taxability or nontaxability of the amount of ₹ 5,85,000, the Appellate Assistant Commissioner had no jurisdiction, in the circumstances of the present case, to enhance the taxable income of the assessee on the basis of this amount of ₹ 5,85,000 or of any portion thereof. As we have already stated. it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income had been found. The court observed that there was no doubt that this view was also possible, but having regard to the provisions of sections 34 and 33B, which made provision for assessment of escaped income from new sources, the interpretation suggested on behalf of the revenue would be against the view which had held the field for nearly 37 years. In the case before us, the AO did not examine the allowability of the sum paid to settle the liabilities of Agila and Onco as part of the sale consideration. In fact, the AO accepted the payment. If the CIT(A) was of the opinion that the AO ought to have verified the genuineness of the same, the option available to the Department are under section 147 or under section 263 of the IT Act, but, CIT(A) could not have embarked on bringing a new source of income to tax. Therefore, respectfully following the above judicial precedents on the issue, we delete the income enhanced by the CIT(A) and brought to tax. The ground No. 4 is allowed. 20. The next issue is with regard to the addition of ₹ 3,11,70,470/- towards disallowance of expenditure u/s 14A of the Act. 21. Brief facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning exempt income and that before making a disallowance u/s 14A of the Act rwr 8D, it is necessary for the AO to peruse the accounts of the assessee and record a finding that he was not satisfied with the correctness of the claim of the assessee and that such an exercise was not done in this case. He further submitted that the assessee s income was taxed at book profit u/s 115JB and no disallowance u/s 14A can be made under MAT provisions. In support of his contention, he relied on the special bench decision of the ITAT, Delhi in the case of vireet Investments Pvt. Ltd. 23. The ld. DR, on the other hand, supported the orders of the authorities below and submitted that irrespective of whether the assessee has incurred any expenditure in earning of exempt income, the disallowance u/s 14A is required to be as per CBDT Circular No. 5/14. He prayed for the confirmation of the orders of authorities below on this issue. 24. Having regard to the rival contentions and material on record, we find that the assessee has earned exempt income of ₹ 3,86,52,685/- during the relevant AY whereas the disallowance made by the AO is of ₹ 3,11,70,470/- and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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