TMI Blog2023 (1) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... bly apprehended litigation, in order to save losses in foreseeable future, for affecting economy in working which may pay dividends today or tomorrow, for increasing efficiency and working and for removing inefficiency in the working. When viewed from the angle of the tests formulated by the Hon'ble Gujarat High Court in Navsari Cotton (supra) it is clear that the amounts paid by the assessee to M/s. Atlantic Pharmaceuticals fall in the category of the expenditure incurred by the assessee to make it immune from the impending or reasonably apprehended litigation, and to save losses in foreseeable future in the shape of damage to the brand image in the market. With this view of the matter, we are of the considered opinion that the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee paid to one M/s. Atlantic Pharmaceuticals towards contractual breach, by holding that it was in the nature of penalty and Rs. 2,64,508/- towards the delay deposit of the provident fund collected from the employees, beyond the stipulated date to the Government account. 3. Aggrieved by such an action of the learned Assessing Officer, assessee preferred an appeal before the Ld. CIT(A) and contended that the payment of Rs. 3 crores made by the assessee was not in the nature of penalty or fine but it was the amount that was paid pursuant to the mutual agreement of the parties to terminate the civil suit and in accordance with the order of the Arbitrator, it is in the best interest of business of the assessee and, therefore, allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the said amount paid by the assessee cannot be said to be for the purpose of business of the assessee. 6. Per contra, it is the submission of the Ld. AR that the assessee was formed as 100% subsidiary of the Nipro Corporation in the financial year 2006-07 itself for the purpose of marketing and supply of Nipro products in India but it is only till the manufacturing activity of Nipro group started India, the trading activity the assessee was looked after by M/s. Nipro India Corporation Pvt. Ltd., and when once the manufacturing activity had started, all the trading assets and trading liabilities, including third party claims relating thereto, were transferred to the assessee, and therefore, the assessee is justified in making the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee paid the said amount, and claimed the same as business expenditure. 8. Insofar as the facts are concerned, absolutely there is no dispute. Though it is contended on behalf of the Revenue that the assessee was not conducting the trading activity in the financial year 2015-16, is not in dispute that such trading activity was conducted on behalf of the assessee by M/s. Nipro India Corporation Pvt. Ltd. It is not in dispute that the order of the Arbitrator was passed on 9/12/2015 by which date the assessee commenced the trading activities. It is the submission on behalf of the assessee that it was in the business interest of the assessee that the amount under the arbitration award was paid by the assessee which is the obligation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that there is no mention of any penal clause/action in the event of violation of any provisions of the agreement. Basing on this, Ld. CIT(A) concluded that the payment was towards discharge of the liability as contractual obligation and the transaction does not constitute any offence, nor is it prohibited by law. 11. Insofar as the argument that the assessee was not a party to the agreement said to have been breached, it could be seen from the record that the primary objective of the assessee is to carry on the trading activities of M/s. Nipro Corporation in India, and it is only till the commencement of the manufacturing activity, the avowed objective of the assessee was looked after by M/s. Nipro India Pvt. Ltd. As a matter of fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Gujarat High Court in Navsari Cotton (supra) it is clear that the amounts paid by the assessee to M/s. Atlantic Pharmaceuticals fall in the category of the expenditure incurred by the assessee to make it immune from the impending or reasonably apprehended litigation, and to save losses in foreseeable future in the shape of damage to the brand image in the market. With this view of the matter, we are of the considered opinion that the Ld. CIT(A) is right in his approach. As stated supra, by no stretch of imagination could it be said that the payment for breach of contractual obligation pursuant to an arbitration award in the pending litigation, cannot be said to have been incurred for any purpose which is an offence or which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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