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TMI Blog2020 (7) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... ing them, the Assessing Officer called upon the assessee to explain as to why the expenditure incurred towards purchase of software licenses should not be treated as capital expenditure and depreciation at the appropriate rate should not be allowed. Though, the assessee objected to the proposed action of the Assessing Officer, however, rejecting the submissions of the assessee, the Assessing Officer ultimately concluded that the expenditure incurred by the assessee towards purchase of software being a capital expenditure cannot be allowed as deduction. However, he allowed depreciation at the rate of 25% on such expenditure. Though, the assessee contested the aforesaid disallowance before learned Dispute Resolution Panel, however, the disallowance made was sustained. Shri J. D. Mistry, the learned counsel appearing for the assessee submitted, while deciding identical issue in assessee's own case in Assessment Years 2009-10 and 2010-11, the Tribunal has allowed assessee's claim of deduction as revenue expenditure. Without prejudice, he submitted, even if the expenditure is treated as capital, since, it relates to software, depreciation at the rate of 60% is allowable. In support of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, he found that the deduction clamed is in respect of expenses incurred in the Research and Development (R&D) units located at Ennore and Goregaon. Further, he observed, an approval for R&D units was granted by the competent authority up to 31.03.2011. Further, he observed, when the assessee was called upon to furnish approval of the competent authority in form 3CM for claiming weighted deduction, it expressed its inability to furnish the same for the impugned assessment year. Thus, in absence of form 3CM, the Assessing Officer disallowed assessee's claim of deduction under section 35(2AB) of the Act. The learned Dispute Resolution Panel also confirmed the aforesaid decision of the Assessing Officer. 9. The learned Counsel for the assessee submitted, while deciding identical issue in the preceding assessment years, the Tribunal has restored back the issue to the Assessing Officer for providing opportunity to the assessee to furnish the approval in from 3CM. Thus, he submitted, similar direction may be issued in the impugned assessment year. 10. The learned Departmental Representative has no objection against restoration of the issue to the Assessing Officer. 11. Having cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive relied upon the observations of the Assessing Officer and learned Dispute Resolution Panel. 16. We have considered rival submissions and perused the materials on record. Notably, while deciding identical claim made by the assessee in Assessment Year 2009-10 (supra), the Tribunal has held that the computer software purchased by the assessee is eligible for depreciation at the rate of 60%. The same view was reiterated while deciding assessee's appeal in Assessment Year 20099-10. Respectfully following the consistent view of the Tribunal in assessee's own case, we direct the Assessing Officer to allow depreciation on addition made to computer software at the rate of 60%. This ground is allowed. 17. In ground No.(iv), the assessee has challenged disallowance of expenditure under section 14A of the Act read with Rule 8D of the Rules amounting to Rs. 2,33,84,000/-. 18. Briefly stated facts are, during the assessment proceeding the Assessing Officer noticed that during the year the assessee had earned exempt income by way of dividend amounting to Rs. 58.27 crores. Whereas, it has not made any disallowance under section 14A of the Act read with Rule 8D of the Rules. Therefore, he c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nel which is evident from paragraph 8.3 of learned Dispute Resolution Panel's order. Further, learned Dispute Resolution Panel has not addressed the aforesaid contention of the assessee properly. Now, the legal position is fairly well settled by various judicial precedent including the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 and HDFC Bank Ltd. vs. DCIT (2016) 383 ITR 529 that in case assessee has sufficient interest free surplus funds available with it, no disallowance of interest expenditure can be made under Rule 8D(2)(ii). The aforesaid ratio laid down by the Hon'ble Jurisdictional High Court is not only binding on the Tribunal, but also on departmental authorities including learned Dispute Resolution Panel and the Assessing Officer. Therefore, in case the aforesaid claim of the assessee regarding availability of surplus interest free funds is found to be correct, no disallowance of interest expenditure under Rule 8(D)(2)(ii) can be made. Since, neither the Assessing Officer nor learned Dispute Resolution Panel have properly appreciated the aforesaid contention of the assessee and have not verified the factua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in violation of provisions of Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations, 2002, the Assessing Officer disallowed an amount of Rs. 11,44,22,171/- being 50% of the total expenditure incurred. While deciding assessee's objection on the issue, learned Dispute Resolution Panel also confirmed the disallowance. 24. The learned Counsel for the assessee submitted, identical disallowances were made in assessee's own case in assessment years 2009-10 and 2010-11. He submitted, while deciding the issue, the Tribunal allowed assessee's claim on the reasoning that firstly, the CBDT Circular referred to by the Assessing Officer is not retrospective, hence would not apply to the impugned assessment year and secondly, the Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations will apply to medical practitioners and not to pharma companies. Thus, he submitted, the issue is covered in favour of the assessee. Further, the learned Counsel relied upon a number of other decisions. 25. The learned Departmental Representative relied upon the observations of the Assessing Officer and learned Dispute Resolution Panel. 26. We have considered rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Baddi unit was set up with self-finance without utilizing any borrowed fund and further, the entire R&D expenditure was not related to the manufacturing activity of the Baddi Unit, however, rejecting the submissions of the assessee, the Assessing Officer allocated a part of interest and R&D expenditure to Baddi unit, thereby, reducing the deduction claimed under section 80IC of the Act to the extent of Rs. 34.63 crores. The learned Dispute Resolution Panel confirmed the aforesaid decision of the Assessing Officer while dealing with the objection of the assessee. 29. Reiterating the stand taken before the Departmental authorities, the learned Counsel submitted, no part of the borrowed fund was utilized for setting up the Baddi unit, hence, even a small portion of the expenditure cannot be allocated to the Baddi unit. Further, he submitted, the R&D expenditure incurred by the assessee is also not in connection with manufacturing activity in Baddi unit. He submitted, while deciding identical issue in preceding assessment years, the Tribunal has restored it to the Assessing Officer for considering assessee's claim keeping in view the material brought on record. Therefore, he submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute Resolution Panel also confirmed the disallowance while rejecting the objections of the assessee on the issue. 34. The learned Counsel submitted, the assessee has brought all facts and material on record to demonstrate that none of the conditions under section 80IC(4) of the Act were violated while setting up the Baddi unit. He submitted, without verifying the facts and materials on record, the Assessing Officer has disallowed the deduction by simply relying upon the earlier assessment orders passed on the issue. To demonstrate that the conditions of section 80IC(4) of the Act were satisfied, the learned Counsel drew our attention to various documentary evidences furnished in the paper book. Further, he submitted, while dealing with the issue of disallowance of deduction claimed under section 80IC of the Act in Assessment Year 2008-09, the Tribunal had deleted the disallowance though of course due to a technical reason. However, he submitted, in Assessment Years 2009-10 and 2010-11, the Tribunal has dealt with the merits of the issue and ultimately concluded that the assessee had fully complied with the conditions of section 80IC(4) of the Act, hence, is eligible to claim dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e this is the fourth year of claim of deduction and in the initial years the Tribunal has held that conditions of sub-section 4 of section 80IC of the Act have been fully complied with by the assessee. Accordingly, we allow assessee's claim of deduction under section 80IC of the Act. This ground is allowed. 37. In ground No. viii, assessee has challenged the addition made on account of transfer pricing adjustment of guarantee commission amounting to Rs. 12,67,15,700/-. 38. Briefly stated facts are, the overseas Associated Enterprises (AE's) of the assessee had availed certain term loans and credit facilities from foreign banks in their respective countries. In respect of such loans, the assessee had provided corporate guarantee and had charged guarantee commission at the rate of 0.50% from AEs. In course of proceeding before him, Transfer Pricing Officer after verifying the details, called upon the assessee to show cause as to why Arm's Length Price (ALP) of corporate guarantee commission should not be determined in line with the approach followed in Assessment Years 2008-09, 2009-10 and 2010-11 on the basis of information received from State Bank of India with a mark-up for risk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, the assessee while furnishing details of such cost incurred submitted, the amount was paid to 3 (three) doctors who had helped in various manner in negotiating the deal regarding the sale of shares and the ultimate execution of share purchase agreement with SRL. Thus, he submitted, in consideration of the services rendered by the three persons who are Doctors and associated with the assessee's diagnostic division, the amounts were paid as approved by a resolution adopted by the Board of Directors. The Assessing Officer, however, did not accept the explanation of the assessee. Referring to the notification issued by Medical Council of India amending the Regulations, the Assessing Officer held that such expenditure incurred by the assessee being in violation of the Indian Medical Council Regulations is not allowable. Accordingly, he disallowed assessee's claim of deduction. While considering the objections of the assessee on the issue, learned Dispute Resolution Panel accepting the decision of the Assessing Officer held that the expenditure claimed by the assessee cannot be allowed as the doctors to whom it was paid cannot be held to be having the expertise in brokering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection with the transfer. Thus, he submitted, the deduction claimed by the assessee has to be allowed. In support of such contention, the learned counsel relied upon the following decisions: - CIT v. R. Ramanathan Chettiar (152 ITR 489) (Madras High Court) CIT v. Shankuntala Kantilal (190 ITR 56) (Bom.HC) Mr. June Perrett V. ITO (298 ITR 268) (Kar. HC) CIT vs. Dr. P Rajendran (127 ITR 810) (Kerala HC) 45. The learned Departmental Representative submitted, though, it may be a fact that the factual aspect of the issue has not been properly verified in the earlier stages, however, various issues have not been properly explained by the assessee either. He submitted, since, the issue involves various loose ends which needs to be joined by properly examining the facts, it may be restored back to the Assessing Officer for fresh adjudication. 46. We have considered rival submissions and in the light of decisions relied upon and perused the materials on record. There is no dispute regarding the primary facts that the assessee has sold its stake (shares) in PDSPL, erstwhile subsidiary of the assessee engaged in medical diagnostic activities, by entering into a share purchase agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the relevant facts which are crucial for determining the issue. As discussed earlier, the assessee has ultimately sold its shares in the diagnostic division PDSPL to SRL. It has not been clarified either before us or before the departmental authorities as to why the assessee has to avail the services of three persons to ultimately conclude a deal with a single party and incurred such huge expenditure. When the deal is ultimately entered with SRL, it is not understood why three persons have to negotiate either individually or as a team and why it cannot be done by a single individual. It is further relevant to observe, Dr. Avinash Phadke and Dr. Bhavin Jhankaria were the shareholders of PDSPL and were also in the board of directors. They are also parties to the share purchase agreement with SRL. That being the case, it certainly raises a doubt regarding payment made to them when they are part of the board resolution approving such payment. It is further necessary to observe, what specific services are rendered by the concerned persons to broker the deal requiring such huge payment is not forthcoming from the facts on record. The mandate letters issued by the assessee to the concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer, if any, should also be confronted to the assessee and the assessee must be give a fair opportunity to counter/explain any adverse material brought on record as a result of such enquiry. The Assessing Officer must decide the issue after considering all the facts and materials on record, submissions of the assessee and only after providing due and reasonable opportunity of being heard to the assessee. Before parting, we must observe, we have consciously restrained ourselves from deliberating on the decisions cited by the learned counsel for the assessee simply for the reason that the issue has been restored back to the Assessing Officer due to lack of proper enquiry and factual verification of the issue in the earlier stages. This ground is allowed for statistical purposes. 49. In ground No. x, assessee has challenged the disallowance of exemption claimed in respect of interest on tax free bonds amounting to Rs. 8,25,13,638/-. 50. Briefly stated facts are, the assessee had made certain investment in tax free bonds, interest on such is exempt under section 10(15) of the Act. However, in the return of income filed for the impugned assessment year, the assessee wrongly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy assessee's claim and allow exemption under section 10(15) of the Act. 53. In ground No. xi, assessee has challenged disallowance made under section 14A read with Rule 8D of the Rules while computing book profit under section 115JB of the Act. 54. We have considered rival submissions and perused the materials on record. As could be seen, while deciding identical issue in Assessment Year 2008-09, the Tribunal following the decisions of the ITAT Special Bench Delhi in ACIT vs. Vireet Investment P. Ltd. (82 taxmann.com 415) has held that no adjustment/disallowance can be made under section 115JB of the Act with reference to section 14A read with Rule 8D of the Rules. However, the Tribunal has directed the Assessing Officer to compute the book profit in consonance with the provisions of section 115JB of the Act read with explanation (1)(f). Similar view has been expressed by the co-ordinate Bench while deciding the issue in assessee's own case in Assessment Years 2009-10 and 2010-11. Consistent with the view expressed by the Tribunal in the preceding assessment years, we direct the Assessing Officer to compute the book profit under section 115JB of the Act following the directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the very first year of claim of such deduction, the Assessing Officer continued to disallow the expenditure claimed on the reasoning that trademark does not come within the purview of section 35A of the Act, as it only speaks patents and copyrights. Following the reasoning of the Assessing Officer in the preceding assessment years, the Assessing Officer disallowed the expenditure in the impugned assessment year as well. However, as could be seen from the facts on the record, in all the preceding assessment years the Tribunal has allowed assessee's claim of deduction under Section 35A of the Act and in respect of some of these assessment years, Department's appeals challenging the decision of the Tribunal have been dismissed by the Hon'ble Jurisdictional High court. While deciding identical issue in assessee's own case in Assessment Year 2008-09 (supra), the co-ordinate Bench has held in the following manner: - "16. In ground no. IV, assessee has challenged the disallowance of Rs. 2,35,81,000, paid to Piramal Enterprises Ltd. (PEL). ........................................ 64. On a careful reading of the aforesaid extracted portion from the judgment of the Hon'ble Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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