Glaxo Smithkline Pharmaceuticals Ltd., V. DCIT - 6(3),

CO 86/MUM/2003

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 3159 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 10 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 26-04-2012
• Assessment Year: misc
• Appeal Filed On: 24-04-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: NIRAJ SHET
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Retrospective amendment
• Section: 80HHC

Judgement Text

ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 1 OF 16 IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO.1631/MUM/2002 (ASSESSMENT YEAR: 1997-98) GLAXO SMITHKLINE PHARMACEUTICALS LTD (FORMERLY GLAXO INDIA LTD) DR.ANNIE BESANT ROAD VS DCIT 6(3) 522, AAYAKAR BHAVAN MK ROAD MUMBAI 400020 WORLI, MUMBAI 400025 PAN NO: AAACG4414B (APPELLANT) (RESPONDENT) ITA NO.2435/MUM/2002 (ASSESSMENT YEAR: 1997-98) DCIT 6(3) 522, AAYAKAR BHAVAN MK ROAD MUMBAI 400020 VS GLAXO SMITHKLINE PHARMACEUTICALS LTD (FORMERLY GLAXO INDIA LTD) DR.ANNIE BESANT ROAD WORLI, MUMBAI 400025 PAN NO: (APPELLANT) (RESPONDENT) C.O. NO.86/MUM/2003 (ARISING OUT OF ITA NO.2435/MUM/2002) GLAXO SMITHKLINE PHARMACEUTICALS LTD (FORMERLY GLAXO INDIA LTD) DR.ANNIE BESANT ROAD VS DCIT 6(3) 522, AAYAKAR BHAVAN MK ROAD MUMBAI 400020 WORLI, MUMBAI 400025 PAN NO: AAACG4414B (CROSS OBJECTOR) (RESPONDENT) ASSESSEE BY: SHRI NIRAJ SHET DEPARTMENT BY: SHRI B. JAYA KUMAR, DR DATE OF HEARING: 26/04/2012 DATE OF PRONOUNCEMENT: 04/05/2012 ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 2 OF 16 O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE AN D CROSS OBJECTIONS BY ASSESSEE FOR ASSESSMENT YEAR 1997-98 ARISING OUT OF THE CIT (A) ORDER DATED 14/02/2002 AGAINST THE ORDE R UNDER SECTION 143(3). 2. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED DEPARTMENTAL REPRESENTATIVE. LEARNED COUNSEL PLACED ON RECORD A PAPER BOOK AND A CHART INDICATING THE ISSUES WHICH ARE COVERED BY EARLIER ORDERS. THESE ARE CONSIDERED WHILE DISPOSIN G OF THESE APPEALS. ITA NO.1631/MUM/02: 3. GROUND NO.1 PERTAINS TO DISALLOWANCE OF ESTIMATED F OREIGN TRAVEL EXPENSES OF ` .38,218/- AS BEING INCURRED ON FOREIGN TRAVELS OF THE SPOUSE AT THE INSTANCE OF THE COMPANY. IT WAS T HE CLAIM THAT THIS IS BUSINESS EXPENDITURE, WHEREAS AO CONSIDERS IT NON-BUSINESS EXPENDITURE. THE CIT (A) CONFIRMED THE SAME DISTING UISHING THE FACTS IN EARLIER YEARS IN WHICH THE ITAT HAS GIVEN RELIEF. HE ACCORDINGLY CONFIRMED 50% OF THE DISALLOWANCE OUT O F CLAIM MADE BY ASSESSEE. IT WAS FAIRLY ADMITTED THAT THIS ISSUE WA S REMITTED TO THE FILE OF AO TO EXAMINE THE ACTUAL EXPENDITURE AND SU BMITTED SIMILAR DIRECTIONS MAY BE GIVEN IN THIS YEAR AS WELL. AS SE EN FROM THE ORDER ASSESSMENT YEAR 1994-95 BY THE ITAT IN ITA NO.4494/ MUM/1999, THE MATTER WAS RESTORED TO THE FILE OF AO BY HOLDIN G AS UNDER: 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD AND GONE THROUGH THE DECISIONS CITED. THE HONBLE JURISDICTIONAL HIGH CO URT IN THE CASE OF ZUARI FINANCE LTD. (SUPRA) HELD THAT IN THE ABSENCE OF FINDING REGARDING NECESSITY OF TRAVEL VI S-A-VIS BUSINESS, THE TRIBUNAL WAS NOT JUSTIFIED IN OBSERVI NG THAT THE MERE FACT NO TANGIBLE BUSINESS CAME OUT OF THE ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 3 OF 16 FOREIGN VISITS CANNOT BE A GROUND FOR DISALLOWING T HE FOREIGN TRAVEL EXPENDITURE. IT IS FURTHER OBSERVED THAT THE TRIBUNAL HAS NOT RECORDED ANY FINDING OF FACT AS TO WHETHER THE WIFE OF VICE-CHAIRMAN OF THE ASSESSEE COMPANY WAS REQUIRED TO TRAVEL ABROAD FOR THE BUSIN ESS OF THE COMPANY AND HAS NOT CONSIDERED ANY EVIDENCE FOR ALLOWING THE FOREIGN TRAVEL EXPENDITURE INCURRED ON HER. THE HONBLE HIGH COURT REMANDED THE MATTER BACK TO THE TRIBUNAL FOR RECORDING A FINDING WITH REASONS ON TH E QUESTION OF ALLOWABILITY OF FOREIGN EXPENSES. IN LI EU OF THE AFORESAID JUDGMENT OF THE JURISDICTIONAL HIGH COURT , WE, THEREFORE, FOLLOW THE ABOVE JUDGMENT OF THE JURISDI CTIONAL HIGH COURT AND IN THE LIGHT OF THAT WE FIND THAT SO ME FACTS RELATING TO THE ISSUES ARE REQUIRED TO BE VER IFIED FROM THE RECORD AND THE RELEVANT RECORD IS NOT READ ILY AVAILABLE AT THIS STAGE, WE SEND THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE ABOVE JUDGMENT OF THE JURISDICT IONAL HIGH COURT AFTER PROVIDING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE RESTO RE THE ISSUE TO THE FILE OF AO TO DECIDE THE ISSUE AFRESH AFTER GIV ING REASONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE. 4. GROUND NO.2 PERTAINS TO DISALLOWANCE UNDER SECTION 37(4) ON GUEST HOUSE EXPENSES. AO ARRIVED AT THE EXPENDITURE OF ` .8,89,337/- WHICH INCLUDE RATES AND TAXES, DEPRECIA TION, REPAIRS, INSURANCE, CANTEEN SUPPLY ETC. THE CIT (A) CONFIRME D THE SAME. IT WAS FAIRLY ADMITTED THAT THIS ISSUE IS PARTLY COVER ED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 1992-93 TO 1996-97 WHEREIN THE TRIBUNAL HAD ALLOWED THE DEDUCTION TO T HE EXTENT OF CANTEEN EXPENSES ONLY AND THE BALANCES WERE DISALLO WED. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSE D BY THE CIT (A) AND DIRECT AO TO ALLOW EXPENDITURE TO THE EXTEN T OF CANTEEN EXPENSES ONLY AS HAS BEEN DONE IN EARLIER YEARS. AS PER THE GROUND THE CANTEEN EXPENSES ARE TO THE EXTENT OF ` .2,28,557/-. AO IS DIRECTED TO EXAMINE THE DETAILS AND ALLOW ACCORDING LY FOLLOWING THE ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 4 OF 16 ORDERS OF THE ITAT IN EARLIER YEARS. THE GROUND IS CONSIDERED AS PARTLY ALLOWED. 5. GROUND NO.3 PERTAINS TO DEPRECIATION OF SHARE DILUT ION EXPENSES. THIS ISSUE ARISES ORIGINALLY IN ASSESSMEN T YEAR 1984-85 AND CONSEQUENT TO THE CAPITALIZATION OF THE AMOUNT IN THAT YEAR CONSEQUENTIAL DEPRECIATION BENEFITS ARE BEING CLAIM ED BY ASSESSEE. 5.1 BEFORE US BOTH THE COUNSELS AGREED THAT THE ISS UE OF DISALLOWANCE OF ON DEPRECIATION OF SHARE DILUTION E XPENSES IS COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVEN UE BY THE COORDINATE BENCH DECISIONS RENDERED IN ASSESSEES O WN CASE FOR ASSESSMENT YEARS 1984-85 TO 1996-97. CONSISTENT WIT H THE VIEW TAKEN THEREIN, WE DIRECT AO TO ALLOW THE DEPRECIATI ON ON THE ABOVE AMOUNT, WHICH IS CONSEQUENTIAL TO AMOUNT CAPITALIZE D IN ASSESSMENT YEAR 1984-85. 6. GROUND NO.4 PERTAINS TO THE UNUTILIZED MODVAT CREDI T AMOUNT OF ` .2.26 CRORES. 6.1 IT WAS FAIRLY ADMITTED THAT THIS ISSUE IS TO BE DECIDED AGAINST ASSESSEE AS NO SUCH ADDITION WAS MADE IN ASSESSMENT YEAR 1996- 97. THEREFORE, THE GROUND IS DISMISSED. 7. GROUND NO.5A AND 5B PERTAINS TO THE ISSUE OF REDUCT ION OF ESTIMATED WDV BLOCK OF ASSETS OF FPU TRANSFERRED IN ASSESSMENT YEAR 1995-96 FROM THE RESPECTIVE BLOCKS AND COMPUTA TION OF DEPRECIATION DISALLOWED IN EARLIER YEARS. AS PER TH E RECORD, THE FAMILY PRODUCT UNDERTAKING WAS TRANSFERRED AS A GOI NG CONCERN AT SLUMP PRICE OF ` .180 CRORES IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1995-96. BOTH THE PARTIES SUBMITTED THAT THE ISSUE HAS BEEN SET ASIDE BY THE TRIBUNAL IN ITA NO.1420/M UM/99 AND ITA NO.1594/MUM/99 VIDE ORDER DATED 16.6.2006 WHERE IN THE TRIBUNAL HELD THAT THE TRANSACTION WAS NOT EXIGIBLE TO THE CAPITAL GAIN TAX. FURTHER, AO WAS DIRECTED TO DEDUCT FROM S UCH BLOCK THE ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 5 OF 16 WDV OF ASSETS TRANSFERRED TO M/S HEINZ BEFORE ALLOW ING DEPRECIATION TO ASSESSEE. THIS DIRECTION WAS GIVEN AS THE TRIBUN AL HELD THAT OTHERWISE ASSESSEE WOULD CLAIM DEPRECIATION ON THE ASSETS WHICH WERE TRANSFERRED. ACCORDINGLY, WE RESTORE THE ISSUE BACK TO THE FILE OF AO TO DETERMINE CONSEQUENTIAL WDV IN THIS ASSESSMEN T YEAR AND ALLOW DEPRECIATION. WE ORDER ACCORDINGLY. 8. GROUND NO.5C PERTAINS TO DISALLOWANCE IN DEPRECIATI ON IN RESPECT OF PART OF BUILDING 72 LEASED TO M/S STOCK HOLDING CORPORATION OF INDIA. 8.1 THE CIT (A) HELD THAT THE SAID BUILDING HAS BEE N TAXED UNDER HEAD INCOME FROM HOUSE PROPERTY AND THEREFORE, DOES NOT FORM PART OF BLOCK ASSETS UNDER THE HEAD BUILDING IN BLOCK OF ASSETS OF ASSESSEE. SINCE THE LEASED ASSETS ARE NOT PART OF A SSESSEES BUSINESS, CIT(A) HELD THAT AO RIGHTLY DISALLOWED TH E CLAIM OF DEPRECIATION. IT WAS FAIRLY ADMITTED THAT THIS ISSU E WAS COVERED BY THE ORDERS OF THE ITAT IN ASSESSEES OWN CASE IN AS SESSMENT YEARS 1994-95, 1995-96 AND 1996-97. FOLLOWING THE ORDERS OF EARLIER YEARS, KEEPING IN VIEW OF THE ABOVE FINDINGS OF THE ITAT IN ASSESSEES OWN CASES IN EARLIER YEARS, ON THE REASO N THAT ASSESSEE HAD LEASED PART OF THE BUILDING, THE SAME WAS NOT U SED FOR THE PURPOSE OF BUSINESS, NO DEPRECIATION CAN BE ALLOWED . THEREFORE, THE ORDER OF THE CIT (A) IS CONFIRMED AND THE GROUND IS ACCORDINGLY REJECTED. 9. GROUND NO.6 PERTAINS TO THE ISSUE OF CLOSING STOCK OF DIESEL OIL AND COAL. 9.1 AO DISALLOWED THE CLAIM MADE BY ASSESSEE HOLDIN G THAT SINCE THE SAID ITEMS HAVE NOT BEEN CONSUMED IN THE YEAR, THE VALUE OF DIESEL OIL/ COAL UNUTILIZED ARE TO BE CONSIDERED AS CLOSING STOCK AND ADDED TO THE INCOME OF THE CURRENT YEAR. THE CIT (A ) FOLLOWING HIS ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 6 OF 16 EARLIER ORDERS IN ASSESSMENT YEARS 1994-95 TO 1996- 97 CONFIRMED THE SAME. 9.2 AFTER HEARING BOTH THE PARTIES AND ON PERUSAL O F THE RECORD AVAILABLE BEFORE US, WE FIND THAT THE ISSUE FOR OUR ADJUDICATION IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISIONS OF T HE MUMBAI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FROM ASSESSM ENT YEARS 1986- 87 TO 1996-97. SINCE THERE WAS A CHANGE OF METHOD O F ACCOUNTING IN ASSESSMENT YEAR 1986-87, WHICH WAS HELD TO BE A GEN UINE CHANGE OF METHOD OF ACCOUNTING, THE CONSUMABLE ITEMS LIKE COAL AND OIL WERE ALLOWED TO BE WRITTEN OFF IN THE YEAR OF PURCH ASE ITSELF. THEREFORE, CONSISTENT WITH THE VIEW TAKEN THEREIN, WE SET ASIDE THE IMPUGNED ORDER BY THE CIT (A) AND ALLOW THE GROUND RAISED BY ASSESSEE. 10. GROUND NO.7 PERTAINS TO THE CLAIM OF DEDUCTION UNDE R SECTION 80I AND 80IA. THE DISPUTE IS PERTAINING TO (A) ADJU STMENT OF INTEREST COST AGAINST INTEREST INCOME, (B) ALLOCATION OF ADD ITIONAL STAFF COST TO NASHIK UNITS AND (C) ALTERNATELY DISALLOWANCE IN TH E SAME PROPORTION AS THE HEAD OFFICE EXPENSES ALLOCATION. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND WE FIND THA T THIS ISSUE IS COVERED BY THE DECISION OF THE ITAT IN ASS ESSEES OWN CASE FOR ASSESSMENT YEAR 1989-90 AND 1991-92 IN ITA NOS.10002/BOM/92, 8341/BOM/93, AND 7742/BOM/94 VIDE PARA 31 TO 35 AND ITA NOS.4433 AND ITA NO.4434/BOM/96 FO R ASSESSMENT YEAR 1992-93 AND1993-94 IN REVENUE APPEA LS VIDE PARA 24. SINCE THE FACTS OF THE CASE UNDER CONSIDERATION ARE SAME TO THAT OF THE AFORESAID DECISIONS, RESPECTFULLY FOLLOWING THE DECISIONS (SUPRA) WE DIRECT AO TO ALLOW DEDUCTION UNDER SECTI ON 80I AND 80IA AS CLAIMED BY ASSESSEE, FOLLOWING THE DIRECTIONS IN EARLIER YEARS. IT WAS SUBMITTED THAT SECTION 80IA CLAIM INVOLVES VARI OUS ASSESSMENT YEARS SO, AO IS DIRECTED TO DETERMINE THE YEAR OF C LAIM WHILE ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 7 OF 16 ALLOWING THE DEDUCTION SO THAT NO DEDUCTION IS CLAI MED BEYOND THE ALLOWABLE PERIOD. GROUNDS ALLOWED. 12. GROUND NO.8 PERTAINS TO THE TREATMENT GIVEN TO INTE REST INCOME AS INCOME FROM OTHER SOURCES. BEFORE US, BOT H THE PARTIES AGREED THAT THIS ISSUE WAS EARLIER DECIDED BY THE T RIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 1989-90 TO 1991- 92, 1992-93 TO 1993-94, 1994-95 AND 1995-96 RESPECTIVEL Y, WHEREIN THE TRIBUNAL RESTORED THE ISSUE TO THE FILE OF ASSE SSING OFFICER FOR ADJUDICATION AFRESH BY OBSERVING AS FOLLOWS:- '57. LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT (A). WE HAVE CONSIDERED TH E RIVAL SUBMISSIONS AS ALSO THE JUDICIAL PRONOUNCEMEN TS RELIED UPON BY THE LEARNED DR. IN THE CASE OF SHREE KRISHNA POLYESTER LTD. (SUPRA), THE BOMBAY HIGH COU RT HELD THAT INTEREST INCOME FROM INVESTMENT IN SHORT- TERM DEPOSIT OF SURPLUS FUNDS ACQUIRED IN PUBLIC ISSUE O F SHARES, IS ASSESSABLE AS 'INCOME FROM OTHER SOURCES '. IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZER S LTD. (SUPRA), THE SUPREME COURT HELD THAT INTEREST ON INVESTMENT OF BORROWED FUNDS PRIOR TO COMMENCEMENT OF BUSINESS IS TO BE ASSESSED UNDER THE HEAD 'INCOME F ROM OTHER SOURCES'. THE DECISION OF PUNJAB & HARYANA HI GH COURT IN THE CASE OF RANI PALIWAL IS NOT RELEVANT A S THE HIGH COURT WAS CONCERNED WITH ONLY APPLICABILITY OF CLAUSE (BAA) OF THE EXPLANATION UNDER SECTION 8OHHC . IN THE CASE OF PANDIAN CHEMICALS LTD. (SUPRA) THE MADR AS HIGH COURT HELD THAT INTEREST ON DEPOSITS WITH ELEC TRICITY BOARD MADE OUT OF STATUTORY COMPULSION WAS NOT PROF IT DERIVED FROM INDUSTRIAL UNDERTAKING. THIS JUDGMENT HAS SINCE BEEN CONFIRMED BY THE SUPREME COURT (262 ITR 278). IN THE CASE OF AUTOKAST LTD., THE ASSESSEE CO MPANY BORROWED MONEY FOR PURCHASE OF PLANT AND MACHINERY AND EARNED INTEREST INCOME BY PLACING IT IN SHORT- TERM DEPOSITS WITH BANKS TILL PAYMENT WAS MADE FOR PLANT AND MACHINERY. THESE DEPOSITS WERE USED IN BILL DISCOUNTING. THE SUPREME COURT HELD THAT THE INTERE ST INCOME EARNED WAS TAXABLE AS INCOME FROM OTHER SOURCES. IN OUR VIEW, THE PRESENT ISSUE HAS TO BE CONSIDERED N THE LIGHT OF THE AFORESAID JUDGMENTS. THE RELEVANT PART OF THE ORDER OF THE CIT (A) FOR THE ASSESSMENT YEAR 1989-90 HAS BEEN REPRODUCED (SUPRA) . FOR THE ASSESSMENT YEARS 1990-91 AND 1991-92 ALSO T HE ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 8 OF 16 FACTS ARE SIMILAR. WE FIND THAT THE EXACT NATURE OF THE INTEREST 10 GLAXO INDIA LIMITED ITA NO. 6027/MUM./1999, INCOME IS NOT CLEAR FROM THE ORDERS OF THE REVENUE AUTHORITIES. IN OUR VIEW THIS ISSUE REQ UIRES RECONSIDERATION BY THE ASSESSING OFFICER AFTER BRIN GING ON RECORD THE CORRECT FACTUAL POSITION WITH REGARD TO THE NATURE OF THE INTEREST INCOME, AFTER ALLOWING OPPOR TUNITY TO THE ASSESSEE. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE ASSESSING OFFICER FOR RE-ADJUDICATION.' CONSISTENT WITH VIEW TAKEN, WE SET ASIDE THE ORDER OF AUTHORITIES AND RESTORE THE ISSUE TO THE FILE OF AO FOR ADJUDIC ATION AFRESH IN ACCORDANCE WITH LAW. THIS GROUND IS THUS, ALLOWED F OR STATISTICAL PURPOSES. 13. GROUND NO.9 PERTAINS TO DEDUCTION U/S 80HHC. THERE ARE THREE CONTENTIONS IN THIS GROUND. FIRST ONE (A) BEI NG THE TURNOVER TO EXCLUDE SCRAP. AO INCLUDED THE INCOME RECEIVED ON S ALE OF PRODUCT AS SCRAP TO THE TOTAL TURNOVER. IT IS FAIRLY ADMITT ED THAT THIS ISSUE IS HELD AGAINST ASSESSEE IN THE EARLIER YEARS CONSISTE NTLY FROM ASSESSMENT YEAR 1988-89 ONWARDS. CONSISTENT WITH TH E VIEW TAKEN BY TRIBUNAL IN ASSESSEES OWN CASE, WHICH WAS FAIRL Y ADMITTED BY THE LEARNED COUNSEL, WE DISMISS THE GROUND RAISED B Y ASSESSEE ON THIS ISSUE. 14. GROUND NO.9 (B & C) PERTAINS TO ADJUSTMENT OF LOSS IN TRADING EXPORTS AGAINST THE PROFIT IN EXPORT OF MANUFACTURE D GOODS AND FURTHER TRADING EXPORTS ARE TO BE CONSIDERED AS NIL FOR COMPUTING RELIEF UNDER SECTION 80HHC. SINCE THIS ISSUE IS COV ERED AGAINST ASSESSEE BY ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF IPCA LTD VS. CIT, WE HOLD THE ISSUE AGAINST ASSESSEE AND DISMISS THE GROUND. ACCORDINGLY GROUND NO.9 IS DISM ISSED. 15. GROUND NO.10 IS THE ADDITIONAL GROUND RAISED IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS VIDE LETTER DATED 9.8 .2007. THE FACTS LEADING TO THE PRESENT ISSUE ARE THAT DURING THE PR EVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1998-99, ASSESSEE RECEI VED A DEMAND ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 9 OF 16 DATED 10 TH J JUNE, 1997 FROM THE DEPARTMENT OF CHEMICALS & PETROCHEMICALS (DCP) AMOUNTING TO RS.1,90-,43,347/- TOWARDS OVERCHARGING OF PRICE IN RESPECT OF THE APPELLANTS PRODUCT BETNELAN TABS SOLD DURING THE PERIOD JANUARY 1995 TO JULY 19 95. THE DEMAND WAS REVISED TO RS. 1,20,42,312/-. INTEREST O F RS. 84,29,619/- UPTO 31.12.1999 WAS CHARGED ON THE DEMA ND AT THE RATE OF 15% PER ANNUM. AGGRIEVED BY THE DCPS ORDER , ASSESSEE FILED A WRIT PETITION BEARING NO. 1266 OF 1999 BEFORE THE DIVISION BENCH OF THE HONBLE HIGH COURT OF BOMBAY. THE DIVISION B ENCH, VIDE ORDER DATED 16.2.2004 UPHELD THE STAND OF THE DCP. THE DCP, SUBSEQUENTLY BY AN ORDER DATED 17/18.5.2004, REVISE D UPWARDS THE INTEREST DEMAND TO RS. 1,63,70,91 51-(TOTAL DEMAND: RS.2,84, 13,228/-). ASSESSEE HAS FILED A SPECIAL LEAVE PETI TION (CIVIL) NO. 6518 OF 2004 IN THE SUPREME COURT WITH PRAYER FOR I NTERIM RELIEF CHALLENGING THE ORDER OF THE DIVISION BENCH OF THE BOMBAY HIGH COURT. THE SAME IS PENDING BEFORE THE HONBLE SUPRE ME COURT FOR DISPOSAL. 16. ASSESSEE IS OF THE VIEW THAT THE LIABILITY PERTAINI NG TO THE ABOVE DEMAND WAS ALLOWABLE IN EACH OF THE YEARS TO WHICH THE DEMAND PERTAINS. THE YEAR-WISE BREAK-UP OF THE TOTA L DEMAND OF RS.2,84,13,228/- (INCLUSIVE OF INTEREST) IS GIVEN B ELOW: ASSESSMENT YEAR DEMAND PRODUCT BETNELAN ( ` `` ` ) INTEREST DEMAND ( ` `` ` .) 1995-96 14,59,674 47,891 1996-97 1,05,82,638 18,06,887 1997-98 - 18,06,887 1998-99 - 18,06,887 1999-2000 18,06,887 2000-01 18,06,887 2001-02 18,06,887 2002-03 18,06,887 2003-04 18,06,887 2004-05 18,06,887 2005-06 65,901 TOTAL 1,20,42,312 1,63,70,915 ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 10 OF 16 ASSESSEE HAS NOT DEBITED THE AFORESAID DEMAND (INCL UDING INTEREST) TO THE PROFIT & LOSS ACCOUNT. ASSESSEE HAS ALSO NOT PAID THE DEMAND. 17. ON THIS ISSUE, IT WAS FAIRLY ADMITTED THAT THE ISSU E IS RESTORED TO THE FILE OF AO FOR FRESH ADJUDICATION IN VIEW OF THE DIRECTIONS GIVEN IN ASSESSMENT YEAR 1995-96 ORDER DATED 30.11.2011 W HEREIN THE TRIBUNAL VIDE PARA 3 & 4 RESTORED THE ISSUE TO THE FILE OF AO FOR DE NOVO ADJUDICATION IN ACCORDANCE WITH THE LAW. CONSISTEN T WITH THE VIEW TAKEN THEREIN, WE DIRECT AO TO ADJUDICATE THE ISSUE AND CONSIDER THE ALLOWANCE OF THE ABOVE AMOUNT IN ACCOR DANCE WITH THE LAW AND FACTS. THE GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, APPEAL FILED BY ASSESSEE IS PARTLY A LLOWED. ITA NO; 2435/MUM/02 19. IN THIS REVENUE APPEAL, THE REVENUE HAS RAISED SIX GROUNDS. GROUND NO.1 PERTAINS TO THE ISSUE OF DISALLOWANCE A T 5% MADE BY AO ON THE DIVIDEND INCOME OF ` .79,15,000/-. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RECORDS AVAILABLE BEF ORE US, WE FIND THAT THIS ISSUE IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF ASSESSEE BY THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S GENERAL INSURANCE CORPORATION OF INDIA, (20 02) 254 ITR 204 (BOM.), AS WELL AS THE DECISION OF CHANDIGARH SPECI AL BENCH OF THE TRIBUNAL IN PUNJAB STATE INDUSTRIAL CORPORATION LTD ., (2006), 102 ITD 001 (CHANDI.). CONSISTENT WITH THE VIEW TAKEN B Y THE TRIBUNAL IN EARLIER ASSESSMENT YEARS, WE SET ASIDE THE IMPUG NED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND RESTORE TH E ISSUE TO THE FILE OF ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO CONSIDER ASSESSEE'S CLAIM IN THE LIGHT OF THE AFORESAID JURI SDICTION HIGH COURT'S JUDGMENT AS WELL AS THE DECISION OF THE CHA NDIGARH SPECIAL ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 11 OF 16 BENCH OF THIS TRIBUNAL. THIS GROUND IS, THUS, ALLOW ED FOR STATISTICAL PURPOSES. 20. GROUND NO.2 PERTAINS TO DISALLOWANCES UNDER SECTION 40A(9) ON PAYMENT OF ` .20,08,139/-. BEFORE US, BOTH THE PARTIES AGREE THA T THIS ISSUE WAS EARLIER DECIDED BY THE TRIBUNAL IN A SSESSEE'S OWN CASE FOR ASSESSMENT YEARS 1989-90 TO 1991- 92, 1992 -93 TO 1993- 94, 1994-95, 1995-96 AND 1996-97 RESPECTIVELY, WHER EIN THE TRIBUNAL ALLOWED THE DEDUCTION IN RESPECT OF PAYMEN T MADE TO M/S. GLAXO SPORTS CLUB. CONSISTENT WITH THE VIEW TAKEN B Y THE TRIBUNAL, WE UPHOLD THE ORDER PASSED BY THE COMMISSIONER (APP EALS) AND DISMISS THE GROUND RAISED BY THE REVENUE. 21. GROUND NO.3 PERTAINS TO THE CLAIM UNDER SECTION 80I AND 80IA ON THE DISALLOWANCES IN THE SAME PROPORTION AS HEAD OFFICE EXPENSES ALLOCATION. AFTER HEARING BOTH THE PARTIES AND ON P ERUSAL OF THE RECORDS AVAILABLE BEFORE US, WE FIND THAT AN IDENTI CAL ISSUE HAS BEEN DECIDED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN AN APPEAL FILED BY THE REVENUE IN ITA NO.8341/BOM./1993, FOR ASSESSMEN T YEAR 1990- 91, ORDER DATED 31ST JANUARY 2007, WHEREIN THE TRIB UNAL DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM MADE BY TH E ASSESSEE. THE CONCLUDING PARA-35, OF THE AFORESAID ORDER IS EXTRA CTED BELOW:- '35 AFTER CONSIDERING RIVAL SUBMISSIONS AND THE FAC TS AS ALSO THE LEGAL POSITION, IN OUR VIEW THE ASSESSEE M UST SUCCEED ON THIS POINT. IN THE ASSESSMENT YEAR 1989- 90, ONLY TRIAL PRODUCTION WAS CARRIED OUT AND THERE WER E NO PROFITS AND NO DEDUCTION UNDER SECTION 80I WAS ALLO WED. THE INITIAL ASSESSMENT YEAR IS, THEREFORE, THE ASSE SSMENT YEAR 1990-91. THIS VIEW IS SUPPORTED FROM THE CASES CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE PROVISIONS OF SUB-SECTION (6) ARE ABSOLUTELY CLEAR AND WOULD, THEREFORE, BE APPLICABLE TO THE ASSESSEE'S C ASE ONLY FROM ASSESSMENT YEAR 1991-92. WE, THEREFORE, D IRECT THE ASSESSING OFFICER NOT TO SET-OFF DEPRECIATION B ROUGHT FORWARD FROM THE ASSESSMENT YEAR 1989-90 AND RE- COMPUTE DEDUCTION ALLOWABLE ACCORDINGLY.' ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 12 OF 16 22. KEEPING IN VIEW THE AFORESAID CO-ORDINATE BENCH DEC ISION OF THIS TRIBUNAL, WE UPHOLD THE ORDER PASSED BY THE CO MMISSIONER (APPEALS) AND DISMISS THE GROUND RAISED BY THE REVE NUE. 23. GROUND NO.4 PERTAINS TO NETTING OF INTEREST ON THE ISSUE OF INDIRECT COST DEDUCTION UNDER SECTION 80HHC. AFTER HEARING BOTH THE PARTIES AND ON A PERUSAL OF THE RECORDS AVAILAB LE BEFORE US, WE FIND THAT THE HEAD OFFICE ADMINISTRATIVE EXPENSES, ETC., HAVE BEEN ALLOCATED TO ARRIVE AT THE INDIRECT COST IN THE CAS E OF EXPORT OF TRADING GOODS. THESE ISSUES HAVE BEEN DECIDED BY TH IS TRIBUNAL IN ASSESSEE'S OWN CASE IN ITAS NO.3464 & 3465/MUM./199 6, ETC., FOR ASSESSMENT YEARS 1992-93 AND 1993-94, ETC., ORDER D ATED 29TH MARCH 2007, WHEREIN THE TRIBUNAL, VIDE PARA-11, HEL D AS FOLLOWS:- '11. AFTER HEARING BOTH THE PARTIES, WE FIND THAT T HIS ASPECT OF THE ISSUE WAS NEVER ADJUDICATED BY THE ASSESSING OFFICER. NO DOUBT, THE ASSESSEE HAD GIVEN A NOTE REGARDING DEDUCTION U/S 80HHC VIS--VIS INDIRE CT COST IN RESPECT OF TRADING GOODS FOR EXPORT BUT THE ASSESSING OFFICER DID NOT RECORD ANY FINDING IN THI S REGARD AS HE WAS OF THE VIEW THAT THE ASSESSEE WAS NOT ELI GIBLE FOR DEDUCTION U/S 80HHC AS THERE WAS HUGE LOSS IN TRADING GROUND WHICH WAS MUCH MORE THAN PROFITS OF EXPORT OF MANUFACTURED GOODS. ON APPEAL, THE LEARNE D CIT(A) HAS HELD THAT LOSS IN TRADING GOODS COULD NO T BE ADJUSTED AGAINST THE PROFITS IN RESPECT OF EXPORT O F MANUFACTURED GOODS. IN VIEW OF THIS FINDING, THE LE ARNED CIT(A) PROCEEDED TO DISPOSE OF THE ISSUE REGARDING INDIRECT COST. ON THESE FACTS, WE ARE OF THE VIEW T HAT THIS ISSUE REQUIRES FRESH ADJUDICATION. THE LEGISLATURE HAS AMENDED THE PROVISIONS OF SECTION 80HHC WITH RETROSPECTIVE EFFECT. ACCORDING TO SUCH AMENDMENT, THE LOSS IN TRADING GOODS REQUIRES TO BE ADJUSTED AGAIN ST PROFITS FROM EXPORT OF MANUFACTURED GOODS. COMPUTAT ION OF INDIRECT COST IS NECESSARY INGREDIENT FOR COMPUT ING THE EXPORT PROFIT FROM TRADING GOODS AS WELL AS MANUFAC TURED GOODS. THE ASSESSING OFFICER HAS NOT MADE ANY OBSERVATION ON THIS ASPECT OF THE ISSUE. HOWEVER, S UCH EXERCISE MAY NOT BE REQUIRED TO BE MADE IF THE LOSS IN TRADED GOODS AS PER THE COMPUTATION OF ASSESSEE ITS ELF IS MORE THAN THE PROFITS FROM EXPORT OF MANUFACTURED G OODS IN AS MUCH AS IN SUCH SITUATION, THE ASSESSEE WOULD NOT ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 13 OF 16 BE ENTITLED TO DEDUCTION U/S 80HHC AS PER THE AMEND ED PROVISIONS. ON THE OTHER HAND, IF THE PROFITS FROM EXPORT OF MANUFACTURED GOODS, AS PER THE CALCULATION OF ASSES SEE, IS MORE THAN THE LOSS IN TRADED GOODS EXPORT, THEN THE ASSESSING OFFICER WOULD BE REQUIRED TO DETERMINE TH E INDIRECT COST. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON THIS ASPECT OF THE ISSUE AND REMI T THE MATTER TO THE FILE OF ASSESSING OFFICER FOR FRESH D EDUCTION FOR BOTH THE YEARS. THE ASSESSEE WOULD BE AT LIBERT Y TO FURNISH ALL THE DETAILS REGARDING THIS ASPECT OF TH E ISSUE.' 24. ALLOCATION OF OFFICE EXPENSES INCLUDING INTEREST AN D NETTING THEREOF TO EXPORT DIVISION FOR WORKING OUT COST REL ATING TO EXPORT OF TRADING GOODS HAS TO BE RE-DETERMINED AFTER EXAMINA TION. CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH OF THI S TRIBUNAL IN ASSESSEE'S OWN CASE FOR EARLIER ASSESSMENT YEARS, W E SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION AFRESH IN ACCORDANCE WITH LAW AND AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS, THUS, ALLOWED FOR STATISTICAL PURPOSES. 25. GROUND NO.5 PERTAINS TO INTEREST LIABILITY OF ` .117.66 CRORES WITH RESPECT TO DPEA LIABILITY. IT WAS FAIRLY ADMIT TED THAT THIS ISSUE IS TO BE HELD IN FAVOUR OF THE REVENUE AND AGAINST ASSESSEE IN VIEW OF THE ORDERS OF THE ITAT IN EARLIER YEARS. WE FIND FROM THE ORDER FROM ASSESSMENT YEAR 1996-97 THAT THE ITAT ORIGINAL LY IN ASSESSMENT YEAR 1986-87 CONSIDERED THAT: A) DPEA LIABILITY WILL BE ALLOWABLE, IN THE YEAR IN WH ICH SUCH LIABILITY ACCRUES. THE ORDERS OF THE LD. CIT (A) WI TH REGARD TO GROUND NOS. 4, 5 AND 5 OF THE DEPARTMENT, RESPECTIV ELY FUR THE ASSESSMENT YEARS 1986.87, 1987-88 AND 1988-89 ARE C ONFIRMED. B) REGARDING APPLICABILITY OF SECTION 43B, WE AGREE WI TH THE FINDING OF THE LEARNED CIT (A) FOR THE ASSESSMENT YEAR 1988 -89 THAT THIS LIABILITY IS NOT A TAX, DUTY, CESS OR FEE UNDER ANY LAW LEVIABLE. ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 14 OF 16 THEREFORE, WE UPHOLD THE ORDER OF THE LEARNED CIT ( A) ON THIS ISSUE FOR THE ASSESSMENT YEAR 1988-89. C) ADDITIONAL CLAIM FOR DPEA WOULD BE ADMISSIBLE ON TH E SAME FOOTING ON ACCRUAL BASIS. D) REGARDING DETERMINATION OF PROFITS FOR THE PURPOSE OF SECTION 80- I, AS AND WHEN ANY ORDER OF HIGHER JUDICIAL FORUM C OMES, THE ASSESSING OFFICER SHALL GIVE EFFECT TO SUCH ORDER. E) ENHANCED DPEA LIABILITY, AS PER ADDITIONAL GROUND O F APPEAL RAISED BY ASSESSEE FOR THE ASSESSMENT YEAR 1986-87 AND THE ASSESSEE'S C.O. FOR THE ASSESSMENT YEAR 1987-88, WO ULD BE ALLOWABLE ON ACCRUAL BASIS. F) INTEREST LIABILITY ACCRUES FROM YEAR TO YEAR AND, T HEREFORE, SUCH LIABILITY MAY BE ALLOWED ON THIS BASIS DURING EACH ASSESSMENT YEAR. G) THIS DISPOSES OF THE VARIOUS ISSUES MENTIONED ABOVE RAISED BY ASSESSEE AS ALSO BY THE DEPARTMENT WITH REGARD TO D PEA LIABILITY. 26. KEEPING IN VIEW OF THE ABOVE AFORESAID DECISION OF THE TRIBUNAL, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE CIT ( A) AND RESTORE THE ISSUE BACK TO THE FILE OF AO FOR DE NOVO ADJUDICATION IN ACCORDANCE WITH THE LAW. THUS THIS GROUND IS ALLOWE D FOR STATISTICAL PURPOSES. 27. GROUND NO.6 PERTAINS TO EXCISE DUTY FORMING THE PART FOR DEDUCTION UNDER SECTION 80HHC. THE LEARNED CIT (A) FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT V. SUDARSHAN CHEMICALS INDUSTRIES LTD. [2000] 245 ITR 769 HELD THAT EXCISE DUTY AND SALES TAX ARE NOT INCLUDIBLE IN THE TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 8 0HHC. THIS ISSUE IS NOW FAIRLY COVERED BY THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS 290 ITR 667 ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 15 OF 16 (SC) WHEREIN IT WAS HELD THAT EXCISE DUTY AND SALES TAX CANNOT FORM PART OF TOTAL TURNOVER UNDER SECTION 80HHC(3). RESP ECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF THE HON'BLE SUP REME COURT, WE REJECT THE GROUND OF THE REVENUE AND UPHOLD THE ORD ER OF THE CIT (A) ON THIS ISSUE. 28. IN THE RESULT REVENUE APPEAL IS ALSO PARTLY ALL OWED. CO NO.86/MUM/03: 29. IN THE CROSS OBJECTION ASSESSEE SUBMITS AS UNDE R: A) AOS ACTION OF NOT ALLOWING DEDUCTION OF THE IN TEREST LIABILITY OF ` .117.66 CRORES IN THE ASSESSMENT YEAR 1997-98 ON TH E FOOTING THAT THE INTEREST LIABILITY PERTAINS TO THE RESPECTIVE Y EARS IS UPHELD, THEN B) AO SHOULD BE DIRECTED TO ALLOW THE RESPONDENTS CLAI M FOR DEDUCTION OF ` .589.20 LAKHS BEING THE INTEREST FOR THE PERIOD 1.4.1996 TO 17.10.1996 AS PER LETTER/ORDER DATED 29 .10.1996 FROM THE GOVT. OF INDIA. C) AO BE DIRECTED THAT IN THE EVENT IF ANY LIABILITY F OR INTEREST IS IMPOSED AFTER 17.10.1996, THE INTEREST FOR THE PERI OD 18.10.1996 TO 31.3.1997 BE ALLOWED AS A DEDUCTION IN ASSESSMEN T YEAR 1997-98. 30. THE MAIN ISSUE OF INTEREST LIABILITY OF 117.66 CRORES WAS CONSIDERED IN REVENUE APPEAL AGAINST GROUND NO.5 AN D THE MATTER WAS RESTORED TO THE FILE OF AO TO CONSIDER ACCORDIN G TO THE FACTS AND IN THE LIGHT OF THE ORDERS IN EARLIER YEARS. ASSESS EES OBJECTION IS WITH REFERENCE TO THE CLAIM OF INTEREST DEDUCTION V IDE LETTER DATED 29.10.1996 AND IN THE EVENT ANY INTEREST LIABILITY WAS IMPOSED AFTER 17.10.1996 THE INTEREST HAS TO BE ALLOWED FUR THER IN THIS YEAR. SINCE THE MAIN ISSUE OF ALLOWABILITY OF LIABILITY I S RESTORED TO THE FILE OF AO FOR EXAMINATION AND DETERMINATION, AO IS DIRE CTED TO CONSIDER THE FACTS IN ITS ENTIRETY AND ALLOW THE AMOUNTS ACC ORDINGLY. THE C.O IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES AND THE MATTER IS ITA NOS.1631 AND 2435 & CO 86 GLAXO INDIA LTD MUMBAI-E BENCH PAGE 16 OF 16 RESTORED TO THE FILE OF AO IN LINE WITH THE FINDING S IN GROUND NO.5 IN REVENUE APPEAL. 31. IN THE RESULT ASSESSEES AND REVENUES APPEALS ARE PARTLY ALLOWED AND CROSS OBJECTION FILED BY ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH MAY, 2012. SD/- SD/- (VIVEK VARMA) (B. RAMAKOTAIAH) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATED 4 TH MAY, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI