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TMI Blog2024 (2) TMI 1192X X X X Extracts X X X X X X X X Extracts X X X X ..... olve common issues arising out of a similar factual matrix, therefore these cross-appeals were heard together and are being decided by way of this consolidated order. With the consent of the parties, the cross-appeal for the assessment year 2006-07 is taken up as the lead case and the decision rendered therein shall apply mutatis mutandis to the cross-appeal for the assessment year 2007-08. ITA no.1332/Mum./2013 Assessee's Appeal - A.Y. 2006-07 3. In its appeal, the assessee has raised the following grounds:- "GROUND 1: Disallowance of payments made to Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd) u/s 40 A (2) (b): Rs.3,12,66,000/- 1. On the facts and in the circumstances of the case and in law, the CIT (A) erred in following his predecessor's order for AY 2005-06 by directing the AO to allow payments made to PEL for consultancy fees and directing the basis that if comparative payments made by Appellant are more than the payments made by other group companies. No the excess should be disallowed and turnover may be adopted as the basis for determining excessiveness. 2. The Appellant, prays that entire payment made to Piramal Corporate Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowing weighted deduction u/s. 35(2AB) in respect of R & D (Revenue and Capital) expenses related to Chennai-Ennore unit amounting to Rs.4,05,78,000/- as deduction claimed on the alleged ground that appellant had not provided any such formal approval in Form 3CM. 2. The Appellant prays that once approval is obtained through not in prescribed form, the Appellant is entitled to weighted deduction u/s 35(2AB) of the Act. 3. Without prejudice, the Appellant prays that the disallowance should be restricted to "weighted portion" of deduction u/s 35(2AB) to Rs.1,35,26,000/- instead of entire claim of Rs.4,05,78,000/-related to Chennai-Ennore unit. Ground V: Disallowance of excess claim of R & D Revenue Expenditure: Rs.9,63,000/- 1. On the facts and circumstances of the case and in law, the CIT (A) erred in directing the AO to look into the computation of the disallowance. 2. The Appellant prays that the computation was correctly done by the Appellant and hence the disallowance should be restricted to the amount computed by the Appellant. GROUND VI: Disallowance of depreciation on opening WDV of computer software: Rs.10,49,204/- 1. On the facts and circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elete the above ground of appeal." 4. The issue arising in ground no. 1, raised in assessee's appeal, pertains to the disallowance of payments made to Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd) u/s 40A(2)(b) of the Act. 5. The facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in the manufacturing and sale of pharmaceuticals. It deals in prescription and OTC products as well as bulk drugs, chemicals, and skincare products. For the year under consideration, the assessee filed its return of income on 31/10/2006 declaring a total income of Rs. Nil. The assessee declared book profit at Rs. 154,09,13,385 under section 115 JB of the Act. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, from the Tax Audit Report, it was observed that a no. of associated companies have been paid under different heads which are covered under section 40A(2)(b) of the Act. It was further observed that the assessee made payments of Rs. 381 lakh to Piramal Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed 25% of the payment made towards consultancy and professional charges. Accordingly, the AO made total disallowance of Rs. 3,12,66,000 under section 40A(2)(b) of the Act in respect of payment made to Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd). 6. The learned CIT(A), vide impugned order, following the order passed by its predecessor in assessee's own case for the assessment year 2005-06, directed the AO to verify the fair market value of services rendered by the sister concern for which the payment has been made by the assessee and restrict the addition to the extent the payment is found to be excessive. Being aggrieved, both the assessee as well as the Revenue are in appeal before us on this issue. 7. We have considered the submissions of both sides and perused the material available on record. On 29/04/1995, the assessee (earlier known as Nicholas Piramal India Ltd) entered into an agreement with Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd). Under the aforesaid agreement, Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd) agreed to provide services, such as taxation matters, fund management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payment of Royalty under the aforesaid agreement, by observing as under:- "21. We have considered rival submissions and perused materials on record. On a reading of the agreement dated 29th April 1995 with PEL a copy of which is at Page-859 of the paper book, it is noticed that in addition to the reimbursement of expenses incurred by PEL on behalf of the assessee, the assessee was also required to pay to PEL royalty @ not exceeding 0.5% of his turnover of goods manufacture and traded. Thus, it is evident that the payment made of ` 822 crore to PEL constitutes both reimbursement of expenses and royalty. This fact is also clear from the working of reimbursement of expenses and royalty at Page-237 of the paper book, which indicates that an amount of ` 6.75 crore was for reimbursement of expenses and `1.47 crore towards royalty. From the assessment order, prima-facie, it appears that the Assessing Officer while concluding that PEL has charged more to the assessee towards reimbursement of expenses than what is contemplated in the agreement is under a misconception of fact. However, in the order giving effect to the direction of the Commissioner (Appeals), the Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, we deem it appropriate to restore this issue to the file of the AO limited to examination of the aforesaid submission of the assessee. If upon examination it is found that both the companies are in the same tax bracket, then the addition on account of payment of consultancy and professional charges be deleted in the light of the aforesaid decision. 11. We further agree with the submissions of the learned Departmental Representative ("learned DR") that setting aside the matter to the file of the AO does not come within the purview of powers of the learned CIT(A) under section 251 of the Act. However, for examination of the aforesaid aspect, the issue of part disallowance of payment of consultancy and professional charges is restored to the file of the AO. With these directions, the impugned order is set aside, and ground No. 1 raised in assessee's appeal is allowed for statistical purposes. 12. The issue arising in ground No. 2, raised in assessee's appeal, pertains to the disallowance of legal and professional charges incurred for system development. 13. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that these expenses are incurred in relation to software support expenses and are in no way related to the purchase of software. It was further submitted that these expenses mainly include support and maintenance of different software like SAP, Lotus Notes at its different locations, and customisation of SAP as per the requirement of the assessee. It was also submitted that these expenses are incurred every year and are revenue in nature. The learned AR by placing reliance upon the decision of the coordinate bench in assessee's own case for the assessment year 2009-10 submitted that the expenses incurred for the purchase of software were held to be revenue expenditure. From the perusal of the order dated 07/05/2019 passed by the coordinate bench in assessee's own case for the assessment year 2009-10 in ITA No.1257/Mum/2014, we find that the expenditure incurred for the purchase of Lotus Notes web access license, purchase of antivirus software, purchase and implementation of Sapphire software, etc. was held to be revenue in nature by the coordinate bench. 16. We are of the considered view that it is for the assessee to prove that the expenditure incurred is for maintenance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvertisement and Business Promotion expenses incurred at all its locations in India and transactions involved are voluminous in quantity. The AO vide order passed under section 143(3) of the Act noted that the said soft copy is only showing no. of spreadsheets all under the same caption "Advertisement and Business Promotion" and there is no separate breakup of the expenditure, as required, has been made available. Accordingly, in view of the above, the AO considered the information available in respect of the FBT proceedings for deciding on the Advertisement and Business Promotion expenses. On the basis of the aforesaid information, the AO categorise the expenditure as under:- Sl No. Particulars Amount (in Rs.) 1. Business promotion expenses 6,07,95,906 2. Key account manager expenses 3,44,75,882 3. Customer Relation Management 2,74,75,699 4. Gift articles 10,46,54,178 5. Conference and meeting expenses 78,80,515 Total 23,52,82,100 19. After considering the submissions of the assessee, the AO came to the conclusion that the aforesaid expenditure is not incurred wholly and exclusively for the purpose of the business. On an estimated basis, the AO disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of complete information from the assessee regarding the particulars of these expenditures, the AO proceeded to place reliance upon the information available in the FBT proceedings and restricted the disallowance to 50% of the total expenditure of Rs. 23,52,82,100, as per the aforesaid information. We find that considering the submissions of the assessee that the AO did not call for any specific details or supporting documents for expenses amounting to Rs. 23.52 crore, the learned CIT(A) sought the remand report from the AO. Vide letter dated 25/10/2012, the AO submitted its report, which is reproduced as under:- "Sub : Remand report in the case of M/s. Nicholas Piramal India Ltd- 2006-07-reg:- Ref : CIT(A)-13/Report/2011-12 dated 11-07-2011. ------------------------------------- Kindly refer to the above. 2) In this case, during the course of assessment proceedings, the AD made a disallowance of Rs.11,76,41.050/- on account advertising and business promotion expenses. It was noticed that expenditure of Rs. 23,52,82,100/- was routed through CRM or KAM personnel on which there was no control of the assessee so as to ensure that the same is allowable u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, etc. to the doctors for the promotion of assessee's products. 24. Thus, the only issue which survives for adjudication is whether the expenditure incurred by the assessee is in violation of the guidelines issued by the MCI and consequently, whether the expenditure is not allowable under section 37(1), in view of the Circular No.5 of 2012. In this regard, the learned AR submitted that the amended guidelines of the MCI were published vide notification dated 14/12/2009 and therefore are applicable only with effect from the said date. Thus, it was submitted that the said guidelines are not applicable to the year under consideration, i.e. assessment year 2006-07. 25. We find that this issue came up for consideration before the coordinate bench of the Tribunal in Wockhardt Ltd v/s DCIT, in ITA No. 2633/Mum./2015. Vide order dated 10/02/2023, the coordinate bench after considering the decision of the Hon'ble Supreme Court in Apex Laboratories Pvt. Ltd. v/s DCIT, [2022] 442 ITR 1 (SC), came to the conclusion that the MCI Regulations as amended with effect from 14/12/2009, whereby Regulation 6.8 was inserted prohibiting Medical Practitioners to accept freebies, gifts, etc. from pharm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue before Hon'ble Supreme Court of India. The Hon'ble Apex Court affirming the decision of High Court inter alia held: - CBDT Circular 5/2012 dated 01/08/2012 is clarificatory in nature, and effective from the date of implementation of Regulation 6.8 of the 2002 Regulations, i.e. from 14/12/2009. - The Pharmaceutical companies gifting freebies to doctors etc. is clearly "prohibited by law" and not allowed to be claimed as a deduction u/s 37(1) of the Act. Thus, to sum up, view taken by the CIT(A) was approved by the Hon'ble Supreme Court of India. 9.6 Now, reverting to the facts of present case, the assessment year under appeal is 2009-10 relevant FY 2008-09. MCI Regulations were amended w.e.f. 14/12/2009, whereby Regulation 6.8 was inserted prohibiting Medical Practitioners to accept freebies, gifts etc. from pharmaceutical companies. The period in the instant appeal is prior to the amendment. The Hon'ble Supreme Court in the case of Apex Laboratories Ltd. (supra) has held that CBDT Circular 5/2012 being clarificatory would apply retrospectively from the date of amendment to MCI Regulations i.e. w.e.f. 14/12/2009. Thus, from the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide impugned order, dismissed the ground raised by the assessee on this issue and held that the action of the AO cannot be held as incorrect regarding the disallowance made in respect of deduction claimed under section 35(2AB) of the Act. In line with the finding of its predecessor in assessee's own case for the assessment year 2005-06, the learned CIT(A) held that the statutory Form no.3CM is a mandatory Form and the claim for deduction under the above section can only be granted if the Form is submitted before the AO. Accordingly, the action of the AO in denying the weighted deduction claimed under section 35(2AB) of the Act was upheld. The learned CIT(A) further directed the AO that the claim of deduction may be allowed to the assessee if the approval in Form No.3CM, which is a mandatory requirement, is submitted by the assessee. Being aggrieved, the assessee is in appeal before us. 30. We have considered the submissions of both sides and perused the material available on record. The assessee has two Research and Development (R&D)units, one at Mulund/Goregaon Unit, Mumbai, and other at Ennore Unit, Chennai. For the year under consideration, the assessee claimed weighted deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity shall be the Secretary, Department of Scientific and Industrial Research."; "(4) The application required to be furnished by a company under sub-section(2AB) of section 35 shall be in Form No.3CK."; "(5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3CM: Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application." 33. Therefore, from the aforesaid provisions, it is sufficiently evident that in order to claim weighted deduction under section 35(2AB) of the Act, the in-house R&D facility is required to be approved by the prescribed authority, which as per Rule 6 is the Secretary, DSIR. Further, for seeking the aforesaid approval, the assessee is required to furnish an application in Form No.3CK and once the prescribed authority is satisfied that the conditions of Rule 6 and section 35(2AB) of the Act are fulfilled, the order is to be passed by the prescribed authority in Form No. 3CM. Undisputedly, in the present case, the assessee has filed the application before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT v/s Meco Instruments (P) Ltd, [2010] 7 taxmann.com 24 (Mum.) we, from para-5 of the order, find that the prescribed authority, viz. Government of India, Ministry of Science and Technology, DSIR granted the approval in Form No. 3CM. However, in the present case, undisputedly the said approval by the prescribed authority in Form No.3CM is not available on the record. Therefore, we find the decisions relied upon by the assessee to be factually distinguishable. 36. We find that while deciding a similar issue in assessee's own case in Piramal Enterprises Ltd. (supra), for the assessment year 2008-09, the coordinate bench of the Tribunal vide order dated 30/07/2018, observed as under:- "27. We have considered rival submissions and perused materials on record. It is an undisputed fact that there is no approval by the competent authority in Form no.3CM in respect of the expenditure incurred towards the R&D facility. Section 35(2AB) of the Act mandates furnishing of approval in Form no.3CM for the purpose of availing deduction. It is the contention of the assessee that though, it has made application seeking approval in Form no.3CM, however, it is still awaited. As held by the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, the AO is directed to allow depreciation on computer software at 60% in line with the directions of the coordinate bench in the preceding year. As a result, grounds No. 6 and 7 raised in assessee's appeal are allowed for statistical purposes. 41. The issue arising in ground No. 8, raised in assessee's appeal, pertains to the addition on account of increase in the value of closing stock in relation to net unutilised MODVAT credit. 42. We have considered the submissions of both sides and perused the material available on record. During the assessment proceedings, upon perusal of the Tax Audit Report, the AO noted that the assessee follows the non-inclusive method of accounting for MODVAT credit with regard to inventory, purchases, and consumption. The AO held that in terms of the amended provisions of section 145A of the Act, irrespective of the method adopted by the assessee for the valuation of raw materials, inventory, and closing stock for the purpose of determining the profits arising during the year, such valuation shall not be accepted for the purpose of under the Act if they are not adjusted in accordance with section 145A of the Act. The AO held that it is not mand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the "closing stock. at Rs. 15,982.73 lacs as against Rs. 14,834 lacs and "opening stock. at Rs. 14,367.65 lacs as against Rs. 13,335 lacs, on the ground that the assessee is following exclusive method of accounting for MODVAT with regards to its inventory. It is the claim of the ld. A.R that irrespective of whether the assessee follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT shall have no bearing on the profits of the assessee. We find that the assessee had before the lower authorities objected to the aforesaid addition as was sought to be made by the A.O on three counts viz. (i) that requirement of valuing the purchases, sales and inventories for the purpose of determining the income under the head "Profits and gains of business or profession" was contrary to the accounting principles laid down by Accounting Standard-2 (for short "AS- 2"); (ii). that the ICAI had issued "Guidance Note on Tax Audit under Section 44AB of the I-T Act", which specifically requires the formats in which information as regards the valuation of purchases, sales and inventories under both inclusive and exclusive method are to be presented, M/s. Pira ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit. The adjustment required u/s 145A of the I.T Act was reflected in Clause 12(b) of the tax audit report of the assessee. As per Clause 12(b) the adjustment u/s 145A worked out at Nil. It is the claim of the assessee that the amount reflected in Clause 12(b) of the tax Audit report shall be treated as the adjustment required u/s 145A, and in support thereof had relied on the order of the ITAT, Mumbai in the case of Hawkins Cookers Ltd. Vs. ITO (2008) 14 DTR 206 (Mum). We have perused Clause 12(b) (Page 61 of „APB.) of the Tax Audit report of the assessee and find that it is the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by inter alia including the effect of CENVAT credit will be Nil, subject to Sec. 43B that the duty, taxes, cess etc. is paid before the due date. Of filing of the return of income. As the ld. D.R had submitted that the aforesaid working of the assessee would require to be verified, we M/s. Piramal Enterprises Ltd., therefore, in all fairness restore the matter to the file of the A.O for readjudication. Needless to say, the A.O shall in the course of the set aside proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admission of the aforesaid additional ground of appeal. Since the basic facts for deciding this issue are available on record, the prayer of the assessee vide aforesaid application is accepted. 47. The brief facts of the case pertaining to this issue are that the assessee made payments amounting to Rs. 88,45,947 to various parties as donations. Accordingly, it made a claim of deduction of Rs. 44,22,974 (i.e. 50%) under section 80G of the Act. However, the AO while passing the assessment order did not grant the deduction as claimed by the assessee under section 80G of the Act in its return of income. Subsequently, the assessee filed a rectification application under section 154 of the Act on this issue and furnished copies of receipts of donations. The AO vide order dated 09/02/2009, inter-alia, rejected the rectification application filed by the assessee on this issue on the basis that the assessee has not furnished the original receipts of the said donation. The assessee filed another rectification application under section 154 of the Act on 25/02/2009 furnishing the original donation receipts aggregating to Rs. 88,45,087 along with copy of exemption certificates under section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof. v. The Learned CIT(A) has erred on the facts and in Law in deleting the disallowance made by the 40 in respect of deduction of Rs. 24285714/- claimed u/s. 35A in respect of the acquisition of the trade mark by M/s. Sarabhai Piramal Pharmaceuticals Ltd. (since merged with the assessee company)". vi) The Learned CIT(A) has erred on the facts and in Law in deciding that the deduction u/s. 80HHC for the purpose of section 115JB is to be worked out on the basis of adjusted book profit following the decision of Mumbai ITAT in the case of Syncome Formulations India Ltd reported in 108 TTJ 105 (SB) without appreciating that the ITAT's decision has been overruled by the Bombay High Court in the case Ajanta Pharma Ltd 180 Taxmann 494." 51. In view of our findings rendered in assessee's appeal on the issue of disallowance under section 40A(2)(b) of the Act, grounds no. (i), (ii), and (iii) raised in Revenue's appeal are partly allowed for statistical purposes. 52. The issue arising in ground no. (iv), raised in Revenue's appeal, pertains to the allowance of depreciation in respect of assets transferred pursuant to the merger. 53. The brief facts of the case pertaining to this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal are as under:- 18. Insofar the disallowance of the claim of depreciation pertaining to BMIL is concerned, we find that the same being a recurring issue is covered by the order of the Tribunal in the assesses own case for A.Y. 2008-09 in favour of the assessee. We find that the Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09, had observed that it was an admitted fact that BMIL before its merger had not claimed depreciation on the assets in the A.Y. 1995-96 & A.Y 1996-97. In fact, the assessee had claimed depreciation for the first time on the assets taken over from BMIL. It was observed by the Tribunal that as per the provisions of Sec. 32 of the I-T Act applicable to the relevant assessment year, the assessee was free to either claim or not claim depreciation, as per its own option. On the basis of the aforesaid deliberations, it was concluded by the tribunal that the A.O was not justified in notionally reducing the depreciation for A.Y 1995-96 & Α.Υ 1996-97 from the WDV of the assets of BMIL while quantifying the depreciation in the hands of the assessee. As a matter of fact, the Tribunal while concluding as hereinabove had reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets. On the basis of his aforesaid observations, the A.O worked out the WDV of the block of assets" by taking the values of the assets as were recorded in the books of accounts of the purchasing company, as the sale value, and reduced the same from the different block of assets". In the backdrop of his aforesaid reworking of the WDV the A.O scaled down the assesses claim of depreciation in respect of assets of PHL. 20. On a perusal of the records, we find that it is the claim of the assessee that the CIT(A) while disposing off its appeal for A.Y 1999- 2000 had observed that the sale of two divisions viz. (i). Glass Division (GGL); and (ii). Bulk Drug Division (BDD) by the assessee was rightly claimed as „slump sale" transaction. However, as is discernible from the order of the DRP, the issue as to whether the sale of the aforesaid two divisions was to be construed as itemized sale of assets or slump sale is pending before the ITAT in the preceding years of the assessee. Accordingly, the DRP had directed the A.O to allow depreciation to the assessee on the basis of the outcome of the main appeal regarding slump sale vs. itemized sale. In the backdrop of the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/2020 (cited supra) decided this issue in favour of the assessee following the earlier decisions of the coordinate bench. The relevant findings of the coordinate bench, in the aforesaid decision, are reproduced as under:- "49. We have heard both the parties and perused the material available on record. We find that an identical issue had been considered by the co-ordinate bench of ITAT, in assessee own case for AY 2008-09 and 2009-10 and after considering relevant facts has deleted additions made by the Ld. AO towards disallowances of amortization of expenses on account of trade marks. The relevant findings of the Tribunal are as under:- 27. We have perused the observations of the lower authorities and deliberated on the contentions advanced by the authorised representatives for both the parties before us. Admittedly, the issue as regards allowability of the assesses claim of deduction u/s 35A in respect of "trademarks" under consideration, had came up before the ITAT, Mumbai in the assesses own case for the immediately preceding year viz A.Y 2008-09. It was observed by the Tribunal that "SPPL" had paid an amount of Rs. 34 crore towards purchase of trademark from "ASE", as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oughtful consideration and are of the considered view that as the assesses claim of deduction u/s 35A had consistently been allowed by the Tribunal in the preceding years, therefore, respectfully following the view taken by the Tribunal while disposing off the appeal of the assessee for A.Y 2008-09, the disallowance made by the A.O/DRP u/s 35A of Rs. 2,42,85,714/- during the year under consideration viz. A.Y 2009-10 is vacated. The Ground of appeal No. VII is allowed. 50. In this view of the matter and consistent with view taken by the co-ordinate bench in assessee's own case for earlier years, we are of the considered view that the Ld. CIT(A) was right in deletion of additions made by the Ld. AO towards disallowances of amortization of expenses on account of trademarks u/s 35A of the I.T.Act, 1961. Hence, we are inclined to uphold the order of the Ld.CIT(A) and dismissed appeal filed by the revenue." 59. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding assessment years. The learned DR could not show us any reason to deviate from the aforesaid decision and no change in facts and law was alleged in the relevant as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7(1) of the Act. Ground II: Disallowance of Software expenses amounting to: Rs.50,55,271/- 1. On the facts and in the circumstances of the case and in law, the CIT (A) erred in following his predecessor's order for AY 2005-06, by upholding the action of the AO of disallowing software expenses amounting to Rs.50,55,271/- on the alleged ground that the said expenditure gives enduring benefit and hence is a capital expenditure by treating the same as Intangibles assets.. 2. The Appellant, therefore, prays it be held that the aforesaid expenses are of revenue in nature and allowable u/s 37(1) of the Act and depreciation if any shall be allowed @ 60%. 3. Without prejudice, if the expenditure are held to be of enduring nature then the AO be directed to allow depreciation @ 60%. Ground III: Disallowance of deduction u/s 35(2AB) in respect of Ennore Unit & Goregaon Unit: Rs.46,76,39,032/- 1. On the facts and circumstances of the case and in law, the CIT (A) erred in following his predecessor's order for AY 2005-06, by confirming the action of the AO of disallowing weighted deduction u/s. 35(2AB) in respect of R & D (Revenue and Capital) expenses related to Ennor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D VIII: Depreciation on Technical Knowhow Capitalized in Assessment Year: 2003-04/- 1. On the facts and circumstances of the case and in law, the CIT(A) erred in stating that the issue relates to AY 2003-04 and not for the assessment year under appeal i.e. AY 2007-08. 2. The Appellant prays that the aforesaid claim was allowed by the AO in AY 2006-07 on filing of rectification by the Appellant u/s. 154 of the Act and hence should be allowed. GROUND IX: Deduction u/s 35DD allowed in Assessment Year: 2003-04/- 1. On the facts and circumstances of the case and in law, the CIT(A) erred in stating that the issue relates to AY 2003-04 and not for the assessment year under appeal i.e. AY 2007-08. 2. The Appellant prays that the aforesaid claim was allowed by the AO in AY 2006-07 on filing of rectification by the Appellant u/s. 154 of the Act and hence should be allowed. GROUND X: Deduction u/s 80G amounting to Rs.39,53,500/- 1. On the facts and circumstances of the case and in law, the CIT(A) erred in dismissing the ground as not maintainable and directed AO to decide the case on the basis facts before him in disposing the application filed u/s 154 by Appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore apportionment between the group members is to be restricted to Rs. 830 lakh out of which the share of the assessee will be in the same ratio as the original apportionment of Rs. 1348 lakh. Accordingly, the AO computed Rs. 563.39 lakh as the share of the assessee as per the terms of the agreement and disallowed the balance amount of Rs. 416.25 lakh paid to Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd). The AO further clarified that it is not interfering with the quantum of expenditure under section 40A(2)(b) of the Act and only implementing the terms of the agreement. 66. The learned CIT(A), vide impugned order, agreed with the findings of the AO in disallowing the expenditure, however, ultimately following the order passed by its predecessor in assessee's own case for the assessment year 2005-06, directed the AO to verify the fair market value of services rendered by the sister concern for which the payment has been made by the assessee and restrict the addition to the extent the payment is found to be excessive. Being aggrieved, both the assessee as well as the Revenue are in appeal before us on this issue. 67. We have considered the submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, in the year under consideration, we find that the assessee paid Royalty @0.05% of the turnover which is even less than the rate of 0.5% agreed under the agreement. Thus, it is evident that Royalty paid by the assessee is not in excess of the terms agreed amongst the parties. Therefore, in view of the above and respectfully following the aforesaid decision of the coordinate bench of the Tribunal, we find no basis in the disallowance of Royalty payment made by the AO and accordingly, the same is directed to be deleted. 71. We find that the assessee made the following submissions before the learned CIT(A) explaining the apportionment of corporate service charges by Piramal Corporate Services Ltd (formerly known as Piramal Enterprises Ltd):- "During the year under consideration, PEL has incurred total corporate service charges amounting to Rs.830 lakhs which comprises of Employee Cost. Administrative Expenses, Depreciation and Interest. This total corporate service charges incurred by PEL has been apportioned between group companies on the basis of various services rendered to them monthly by various departments. Hence, that portion of the corporate service charges rendered by P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee, we deem it appropriate to restore the issue of allowance of corporate service charges to the file of the AO for de novo adjudication after necessary verification of all the details. Since the matter is restored to the AO for fresh consideration, the assessee shall be at liberty to submit all the details in support of its claim along with the necessary supporting documentation to justify that the amount paid by the assessee towards corporate service charges is based on the proper allocation of expenses amongst the group companies. We further direct that if upon examination it is found that the assessee has only paid its share of allocated expenses as per the agreement then to that extent relief be granted to the assessee. 73. During the hearing, the assessee submitted that there is no restriction under the Act which prohibits the assessee from making the payment in excess of the agreed terms, and allowability of the same is to be determined in light of the commercial expediency. At the outset, it needs to be appreciated that the disallowance is not made under section 40A(2)(b) of the Act, and therefore for allowance of any expenditure it needs to be established t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atis mutandis. Accordingly, the AO is directed to allow depreciation on computer software at 60% in line with the directions of the coordinate bench in the preceding year. As a result, grounds no. 4 raised in assessee's appeal is allowed. 77. The issue arising in ground no. 5, raised in assessee's appeal, pertains to the addition on account of increase in the value of closing stock in relation to net unutilised MODVAT credit. Since a similar issue has already been decided in assessee's appeal for the assessment year 2006-07, therefore our findings/conclusions rendered therein shall apply mutatis mutandis. Since in the year under consideration also the working of the assessee is required to be verified, therefore, we deem it appropriate to restore this issue to the file of the AO to decide in the light of the directions as rendered by the Tribunal in the preceding year. Accordingly, ground no. 5 raised in assessee's appeal is allowed for statistical purposes. 78. The issue arising in ground no. 9, raised in assessee's appeal, pertains to the claim of deduction under section 35DD of the Act. During the hearing, the learned AR submitted that the coordinate bench of the Tribunal in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispose off the application u/s 154 in a time bound manner. ADDITIONAL GROUND NO. IV: DEPRECIATION AMOUNTING TO RS. 70.22,900/- ON TECHNICAL KNOWHOW CAPITALIZED IN AY 2003-04: 1. On the facts and circumstances of the case and in law, the ld. AO erred in not calculating depreciation @25% on amounts capitalized in AY 2003-04 paid to Danisco USA. Inc for acquiring technical know-how amounting to Rs. 7.61 crores. 2. The Appellant prays that the AO be directed to allow depreciation @25% amounting to Rs. 70,22,900/- for the year under consideration, on the opening WDV of aforesaid technical knowhow capitalized. 3. Alternatively, the Appellant prays that the AO be issued necessary directions to dispose off the application u/s 154 in a time bound manner. The Appellant craves leaves to add to, alter and / or delete the above grounds of appeal." 80. The assessee has made a similar submission as in its application for the assessment year 2006-07. Since the basic facts for deciding these issues are available on record, the prayer of the assessee vide aforesaid application is accepted. 81. The issue arising in additional ground no. 1 pertains to deduction under section 80G of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee regarding the claim of depreciation on goods capitalised as per law after necessary verification of all the details. Accordingly, additional ground no.2 raised by the assessee is allowed for statistical purposes, while grounds no. 6 raised in the present appeal is dismissed as infructuous. 85. The issue arising in additional ground no.3 pertains to depreciation on items capitalised in the assessment year 2005-06. 86. The brief facts of the case pertaining to this issue are that in the assessment year 2005-06, the assessee debited an amount of Rs. 8,85,400 under the head legal and professional fees and claimed the same as a revenue expenditure. However, in the assessment year 2005-06, the AO disallowed the claim of the assessee on the basis that the said expenses are incurred for the purchase of software and thus are capital in nature. The AO further directed that the depreciation be allowed @25% on the same. In further appeal, the learned CIT(A) directed the AO to verify the expenses and allow the same if they are in the nature of maintenance expenses, otherwise be treated as capital. Accordingly, in the year under consideration, the assessee made a claim for allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2007-08. The assessee submitted that similar ground has been allowed in its favour in the assessment year 2006-07 vide rectification order dated 09/02/2009. However, in the year under consideration, its rectification application filed under section 154 of the Act is still pending disposal before the AO. 90. We have considered the submissions of both sides and perused the material available on record. Since the rectification application filed by the assessee is already pending consideration before the AO, we direct the AO to consider the plea of the assessee regarding the claim of depreciation on technical know-how capitalised as per law after necessary verification of all the details. Accordingly, additional ground no.4 raised by the assessee is allowed for statistical purposes, while grounds no. 8 raised in the present appeal is dismissed as infructuous. 91. In the result, the appeal by the assessee for the assessment year 2007-08 is partly allowed for statistical purposes. ITA no.1281/Mum./2013 Revenue's Appeal - A.Y. 2007-08 92. In its appeal, the Revenue has raised the following grounds:- "i. The learned CIT(A) has erred on the facts and in law in di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r issue has already been decided in Revenue's appeal for the assessment year 2006-07, therefore our findings/conclusions rendered therein shall apply mutatis mutandis. Accordingly, ground no. (iv) raised in Revenue's appeal is dismissed. 95. The issue arising in ground no. (v), raised in Revenue's appeal, pertains to restricting the disallowance under section 35A of the Act in respect of the acquisition of trademark. Since a similar issue has already been decided in Revenue's appeal for the assessment year 2006-07, therefore our findings / conclusions rendered therein shall apply mutatis mutandis. Accordingly, ground no. (v) raised in Revenue's appeal is dismissed. 96. The issue arising in ground no. (vi), raised in Revenue's appeal, pertains to disallowance under section 14A of the Act while calculating the profits under the provisions of section 115 JB of the Act. 97. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee earned dividend from Indian companies of Rs. 1,89,46,800, which was claimed as exempt under section 10(34) of the Act. The assessee contended that section 14A is not attracted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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