9911796707
TMI Blog2022 (5) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... 15JB of the Income Tax Act 1961 was shown at Rs.12,78,45,729/-. The assessee's case was selected for scrutiny assessment and statutory notices under sections 143[2] and 142[1] were issued from time to time and the assessment was completed under section 143[3] on 28-12-2016 determining the total income at Rs. 21,13,60,890/- by making the following disallowances: a. Interest expenditure disallowed Rs.12,11,46,320 b. Discount paid to doctors Rs. 21,26,033 c. disallowance made under section 14 A Rs. 1,23,64,818 d. differential income as per 26AS Rs. 1,48,282 3. Aggrieved against the disallowances, the assessee filed an appeal before Commissioner of Income Tax [Appeals] 1, Vadodara. The learned CIT [A] by this impugned order allowed the interest expenditure following the earlier Appellate order passed for the assessment year 2012-13 in assessee's own case. On the issue of discount paid to doctors, the learned CIT [A] followed the earlier assessment year and confirmed the disallowances made by the assessing officer. On the disallowance made under section 14A, learned CIT [A] directed to delete interest expenses amounting to Rs.1.15 crores, however the disallowance of Rs.8,10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C&F agents who supplies the medicines to stockiests/distributors who, in turn, supply to the retailers/pharmacists. The eligibility of discount is calculated on the basis of quantity lifted by these parties. It was pointed out that such discounts/incentive scheme floated by the assessee are universal and without any discrimination and applicable to all retailors/pharmacists/doctors who have purchased medicines from its designated C&F agents. The learned AR submitted that the payment of discount is duly evidenced by necessary documentation in this regard. In these circumstances, the discount given to the customers of its C&F agents based on quantity lifted is integrally connected to the business activity of the assessee and therefore an allowable business expenditure. The learned AR thereafter referred to the order of the AO for subsequent assessment year concerning AY 2010-11 and submitted that in the next assessment year, the AO himself has admitted the claim of discount made to stockiests/customers etc. aggregating to Rs.10.90 Crores and only the discount of Rs.15.44 Lakhs given to Doctors were rejected. It was thus contended that the order of the CIT(A) is in parity with the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re integrally connected to the sales/turn over achieved or has potential to achieve. The discount expenses have thus been incurred with the object of furthering the trade or business interest of the assessee. Therefore, such expense falls within the expression 'wholly and exclusively' referred to in Section 37 of the Act. Therefore, we have no hesitation to concur with the conclusion drawn by the CIT(A) for allowability of discounts given to stockiests/distributors etc. However, we are unable to understand the reasoning of the CIT(A) for discarding the claim of discount expenditure paid to the Doctors. When the test of commercial expediency applied in its natural perspective, there is no reason to exclude Doctors purchasing medicines from C&F agents for the purpose of eligibility of discount payments. We thus set aside the action of the CIT(A) to this extent and direct 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." 6. In reply thereto the Ld.DR appearing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he file of AO with direction to re-compute the disallowance under Rule 8D(2)(iii) and consider only the investments which have actually yielded exempt income instead of gross investment. We are of the view that similar direction to the AO to decide the issue afresh in line with the directions of the Tribunal in AY 2013-14 would be just and appropriate in this assessment year also. We hold so and direct the AO accordingly. 11. So far as ground no.3 regarding allowance of deduction of education and secondary & higher education cess under section 37(1) of the Act is concerned, the same is NOT pressed, and hence no adjudication is required. 12. Ground No.4 is against levy of interest under section 234A of the Act for delay in filing return of income. As per the assessee, the assessee had furnished the return of income for year under consideration within the due date prescribed under section 139(1) of the Act. Though this interest is consequential in a nature, this issue is remitted back to the file of the AO to decide whether interest of Rs.1,97,584/- was in accordance with law or not. 13. In the result, appeal of the assessee is partly allowed for statistical purpose. 14. Now we t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harma. The entire profit earned by the assessee company was routed back to Sun Pharma mainly in the form of interest on delayed payments. Sun Pharma also did not pay any tax on this huge interest as it claimed deduction under section 80IC of the Act; the income otherwise to be taxed in the hands of the assessee, was intentionally and in planned manner transferred to a Sun Pharma which gets deduction under section 80IC. The AO also noted, when the assessee-company did not charge any interest on the debtors, but it pay interest on delayed payment to Sun Pharma, which was not justifiable. Therefore, it was an arrangement by the majority stake holders of the Sun Pharma to claim deduction on the income earned by the assessee-company. A show cause notice was accordingly issued to the assessee as to why the interest paid to M/s.Sun Pharma Ltd. should not be disallowed. 19. It was contended by the assessee, the assessee-company is sole distributor of all the products of Sun Pharma, and as per the terms of agreement, the assessee company has to make payment on delivery of the products within the stipulated time, otherwise, interest on overdue bills raised against purchase of the products a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. The explanation of the assessee did not found favour of the AO. The AO maintained his stand on the issue, and accordingly, worked out disallowance being the difference between the interest paid to the group minus interest earned, net interest of Rs.12,11,46,320/- was added to the total income of the assessee. 20. Assessee went in appeal before the ld.CIT(A), who after considering order of the AO and submissions of the assessee, found that similar claim for the Asst.Year 2012-13 made by the assessee, which though rejected by the AO, the ld.CIT(A) deleted the disallowance and allowed the appeal of the assessee. The short finding given by the assessee in para 5.4.1 of the impugned order reads as under: "5.4.1. Identical issue was involved in appellant's own case for AY.2012-13. The bases of disallowance made in the assessment order for AY.2012-13 was also the same as are involved in the year under consideration. In the appellate order CAB-1/30/2015-16 dated 01/02/2017 passed for AY.2012-13 similar disallowance made by the AO has been directed to be deleted. Following the order of my predecessor, the disallowance made in this year is also directed to be deleted. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 20% p.a. on its other borrowings, that is, the deposits from public and loans from financial institutions, It was contended on behalf of the assessee that the market rate for capital during the relevant period stood at 24% to 30% p.a. The Tribunal was of the view that even though no basis or material to indicate the said market rates had been laid by the assessee, normally if the interest rates from organized sources are in the range of 20% p.a., the interest rates from the general market would only be higher. According to the Tribunal even if the assessee's claim is discounted, the rate of interest at 24% p.a., which is the rate at which interest is paid by the assessee, is not beyond conception. The Tribunal had also found that the onus for the application of Section 40A(2)(a) of the Act is on the revenue, which was not discharged by it. (6) Thus both, Commissioner (Appeals) as well as the Tribunal have upon appreciation of the evidence on record found that the revenue has not been able to make out any case for applying the provisions of section 40A(2)(a); and that interest on unsecured borrowings is always higher than the rate of interest paid to the banks or financial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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