Cadila Pharmaceuticals Ltd., Ahmedabad V. The Addl.CIT., Range-1, Ahmedabad

ITA 1146/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76873 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 18-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 18-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Non-deduction of tax; Bad and doubtful debts; Difference of opinion; Revenue expenditure; Capital expenditure
• Section: 43B; 14A; 115JB; 27

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD .., ! ! ! ! ' #$, BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER 1. !./ I.TA. NO.1146/AHD/2011 A.Y. 2006-07 2. !./ I.TA. NO.1518/AHD/2011 A.Y. 2006-07 1.CADILA PHARMACEUTICALS LTD. 708,SARKHEJ DHOLKA ROAD BHAT, AHMEDABAD-382 210 2. ADDL.CIT RANGE-1, AHMEDABAD / VS. 1. ADDL.CIT RANGE-1, AHMEDABAD 2. CADILA PHARMACEUTICALS LTD., AHMEDABAD & !./'( !./ PAN/GIR NO. : AAACC 6251 E ( &) / // / APPELLANTS ) .. ( *+&) / RESPONDENTS ) ASSESSEE BY: SHRI S.N.SOPARKAR, AR REVENUE BY: SHRI P.L.KUREEL, SR.DR ' , - $. / / / / DATE OF HEARING : 18/06/2014 /01 - $. / DATE OF PRONOUNCEMENT : 11/07/2014 2 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THESE CROSS-APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-VI, AHMEDABAD (CIT(A) IN SHORT) DATED 23/03/2011 PER TAINING TO ASSESSMENT YEAR (AY) 2006-07. THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED O RDER FOR THE SAKE OF CONVENIENCE. ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 2 - 2. FIRST, WE TAKE UP THE ASSESSEES APPEAL IN ITA N O.1146/AHD/2011 FOR AY 2006-07. THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & C IRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCES TO THE EXTENT OF R S.1,02,575/- TOWARDS THE PAYMENT OF DONATION UNDER SECTION 80G. THE DIS ALLOWANCE MAY BE CANCELLED. 2. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & C IRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCES TOWARDS LATE P AYMENT OF ESI & PF FOR RS.47,403/-. THE DISALLOWANCE MAY BE CANCELLED . 3. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & C IRCUMSTANCES OF THE CASE IN CONFIRMING THE UNPAID LEAVE ENCASHMENT UNDE R SECTION 43B OF THE IT ACT 1961 FOR RS.2,04,973/-. THE DISALLOWANC E MAY BE CANCELLED. 4. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & C IRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCES OF PRIOR PERIOD EX PENSES FOR RS.23,27,520. THE DISALLOWANCE MAY BE CANCELLED. 5. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & C IRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCES ON THE EXPENSE S FOR SCIENTIFIC RESEARCH U/S.35(2AB) FOR RS.3,59,500/-. THE DISALL OWANCE MAY BE CANCELLED. 6. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & C IRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCES TO THE EXTENT OF R S.17,06,566/- FOR INTEREST CLAIMED, AS CONSIDERED TO BE DIVERTED FOR NON-BUSINESS PURPOSES. THE DISALLOWANCE MAY BE CANCELLED. 7. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & C IRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCES U/S.14A OF THE INC OME TAX ACT, 1961 TO THE EXTENT OF RS.64,13,532/-. THE DISALLOWANCE MAY BE CANCELLED. 8. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE OF DEPRECIATION ON BUILDING AND PLANT AND MACHINERY FOR RS.28,77,600/-. THE DISALLOWANCE MAY BE CANCELLED. 9. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & CIRCUMSTANCES OF THE CASE IN CONFIRMING THE LD.ASSESSING OFFICER MAKING ADDITION OF ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 3 - RS.52,59,803/- IN CALCULATION OF ADJUSTED BOOK PROF IT FOR THE PURPOSE OF MAT CONSIDERED AS TOWARDS PROVISION FOR DOUBTFUL DE BT AND DIMUNITION IN THE VALUE OF INVESTMENT. THE ADDITIONS MAYBE CA NCELLED. 10. IRRESPECTIVE OF THE OUTCOME OF THE GROUND NO.4 , THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & CIRCUMSTANCES OF THE CA SE IN ADDING IN BOOK PROFIT FOR THE PURPOSE OF MAT, THE SUM OF RS.23,27, 520/- CONSIDERED AS PRIOR PERIOD EXPENSES. THE ADDITION MAY BE CANCELL ED. 11. THE LD.CIT(A) HAS ERRED IN LAW AND IN FACTS & C IRCUMSTANCES OF THE CASE IN CONFIRMING THE EXPENSES DISALLOWED U/S.14A OF RS.64,13,532/- IN CALCULATION OF ADJUSTED BOOK PROFIT AS PER MAT PROV ISIONS. THE DISALLOWANCE MAY BE CANCELLED. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER, MOD IFY, AMEND OR DELETE, ANY OF THE ABOVE GROUND/(S) EITHER BEFORE OR DURING THE APPEAL PROCEEDINGS. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME FOR AY 2006-07 DECLARING A TOTAL INCOME AT RS.7,13, 99,473/-. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSME NT AND THE ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 29/12/2009, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF CLAIM U/ S.80G OF THE ACT OF RS.1,02,575/-, DISALLOWANCE TOWARDS ESI & PF U/S.40 B OF RS.47,403/-, DISALLOWANCE OF UNPAID LEAVE ENCASHMENT U/S.43B OF THE ACT OF RS.2,04,873/-, DISALLOWANCE OF PRIOR PERIOD EXPENSE S OF RS.23,27,520/-, DISALLOWANCE U/S.40(A) OF RS.6,74,2 82/-, DISALLOWANCE OF RESEARCH & DEVELOPMENT EXPENSES OF RS.3,59,500/-, D ISALLOWANCE OF PRODUCT REGISTRATION EXPENSES OF RS.1,43,79,597/-, DISALLOWANCE OF INTEREST EXPENSES OF RS.30,93,151/-, DISALLOWANCE U /S.14A OF RS.64,13,532/-, ADDITION ON ACCOUNT OF BAD DEBTS OF RS.11,73,87,951/-, ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 4 - ADDITION ON ACCOUNT OF DEPRECIATION OF RS.28,77,600 /- AND CLAIM OF ADDITIONAL DEPRECIATION OF RS.1,10,62,481/-. WHILE COMPUTING THE BOOK PROFIT, THE AO MADE ADDITION ON PROVISION FOR DOUBT FUL DEBTS AND PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS AN D PRIOR PERIOD EXPENSES DISALLOWED U/S.14A OF THE ACT. AGAINST THIS, ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS PARTLY ALLOWED THE APPEAL. NOW, BOTH THE ASSESSEE AND REVENUE FEELING AGGRIEVED BY THE ORDER FO THE LD.CIT(A) HAVE PREFER RED THE PRESENT APPEALS. 3. GROUND NO.1 IS AGAINST THE DISALLOWANCE OF RS.1, 02,575/- TOWARDS THE PAYMENT OF DONATION U/S.80G OF THE ACT. DURING THE COURSE OF HEARING, LD.COUNSEL FOR THE ASSESSEE FAIRLY CONCEDE D THAT NO EVIDENCE IN SUPPORT OF THE DONATION WAS FILED. IN VIEW OF THE SUBMISSION MADE BY THE LD.COUNSEL FOR THE ASSESSEE, GROUND NO.1 IS REJECTE D. 4. GROUND NO.2 IS AGAINST THE DISALLOWANCES OF RS.4 7,403/- TOWARDS LATE PAYMENT OF ESI & PF. THE LD.COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE PAYMENT WAS MADE WITHIN THE GRACE PERIOD. HE P LACED RELIANCE ON THE JUDGEMENT OF THE HONBLE HIGH COURT RENDERED IN THE CASE OF CIT VS. AMOLI ORGANICS (P.) LTD. REPORTED AT (2014) 41 TAXM ANN.COM 149 (GUJ.). 4.1. ON THE CONTRARY, SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 5 - 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE R EQUIRES VERIFICATION WHETHER THE AMOUNT WAS PAID WITHIN THE GRACE PERIOD AND IF THE AMOUNT WAS PAID WITHIN THE GRACE PERIOD, THEN IT REQUIRES TO BE DELETED IN THE LIGHT OF THE JUDGEMENT OF HONBLE HIGH COURT RENDERED IN THE CASE OF AMOLI ORGANICS (P.)LTD.(SUPRA). THEREFORE, THIS ISSUE I S RESTORED BACK TO THE FILE OF AO FOR VERIFICATION AND GROUND OF ASSESSEE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 5.1. GROUND NO.3 IS AGAINST CONFIRMATION OF DISALLO WANCE OF THE UNPAID LEAVE ENCASHMENT U/S.43B OF THE ACT AMOUNTING TO RS .2,04,973/-. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTH ORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE DISALLOWANCE. ON THE CONTR ARY, LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW.THE AO HAS OBSERVED IN PARA-7.1 OF HIS ORDER THAT AS PER ANNEXURE-J(II) OF THE AUDITORS REPORT, A SUM OF RS .2,04,873/- HAS BEEN SHOWN AS AN AMOUNT INCURRED TOWARDS LEAVE ENCASHME NT PROVIDED FOR DURING THE YEAR WHICH HAS REMAINED UNPAID AT THE EN D OF THE YEAR. THE CONTENTION OF THE ASSESSEE BEFORE THE AUTHORITIES B ELOW WAS THAT LEAVE ENCASHMENT WAS NOT COVERED U/S.43B OF THE ACT. THE LD.CIT(A) HAS DECIDED THIS ISSUE VIDE PARA-5.3 OF HIS ORDER AS UN DER:- ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 6 - 5.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ASSE SSMENT ORDER AND APPELLANTS SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT DID NOT PAY LEAVE ENCASHMENT TO THE EXTENT OF RS.2,04,873. BY GRANTING LEAVE TO EMPLOYEES, LEAVE ENCASHMENT PROVISION CANNOT BE CLA IMED. THIS PROVISION IS SPECIFICALLY INCLUDED IN SECTION 43B A ND THEREFORE DISALLOWANCE CAN BE MADE IF PAYMENT IS NOT MADE BY THE ASSESSEE TILL DUE DATE OF FILLING RETURN. THERE IS NO REQUIREMEN T OF STATUTORY LIABILITY IN THIS SECTION THEREFORE APPELLANTS CLAIM IS NOT JUSTIFIED. SINCE SUCH CLAIMS ARE ALLOWABLE ONLY ON PAYMENT IN THE YEAR IN WHICH PAYMENT IS MADE, THE SAME IS NOT ALLOWABLE SINCE NO PAYMENT WA S MADE DURING THE YEAR OF THIS AMOUNT. ADDITION MADE BY THE ASSESSIN G OFFICER IS THEREFORE CONFIRMED. 6.1. BOTH THE AUTHORITIES HAVE GIVEN A FINDING ON F ACT THAT THE EXPENDITURE CLAIMED AMOUNTING TO RS.2,04,873/- AS L EAVE ENCASHMENT WAS NOT INCURRED DURING THE YEAR. THIS FACT IS NOT CONTROVERTED BY THE LD.COUNSEL FOR THE ASSESSEE BY PLACING ANY CONTRARY MATERIAL ON RECORD. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE RS OF THE AUTHORITIES BELOW, SAME IS HEREBY UPHELD. THIS GROUND OF ASSES SEES APPEAL IS REJECTED. 7. GROUND NO.4 IS AGAINST CONFIRMATION OF DISALLOW ANCE OF PRIOR PERIOD EXPENSES OF RS.23,27,520/-. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTI FIED IN MAKING THE DISALLOWANCE. HE SUBMITTED THAT THE COST OF RECOVE RY AND INTEREST IS NOT AN EXPENDITURE AT ALL. REVERSAL ENTRY OF EARLIER Y EAR BOOKING OF INCOME. HE PLACED RELIANCE ON THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. JAGAJIT INDUSTRIE S LTD. (339 ITR 382) AND DECISION OF BOMBAY HIGH COURT (221 TAXMAN 80). ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 7 - 8. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE LD.CIT(A) HAS DECIDED THIS ISSUE IN PARA-6.3.OF HIS ORDER BY OBSERVING AS UNDER:- 6.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ASSE SSMENT ORDER AND APPELLANTS SUBMISSION. APPELLANT CLAIMED PRIOR PE RIOD EXPENSES ON ACCOUNT OF INTEREST, SALES EXPENSES AND REVERSAL OF COST RECOVERY. THE AUDITOR OF THE APPELLANT CERTIFIED T HESE EXPENSES AS PRIOR PERIOD AND NOT RELATING TO PREVIOUS YEAR CONC ERNED. AS PER DECISION OF JURISDICTIONAL HIGH COURT, ONLY THOSE E XPENSES WHICH WERE CRYSTALISED DURING THE YEAR ARE ALLOWABLE. HO WEVER APPELLANT DID NOT SUBMIT ANY MATERIAL OR EVIDENCE T O PROVE THAT THESE EXPENSES WERE ACTUALLY CRYSTALLIZED DURING TH E YEAR. IN ABSENCE OF ANY EVIDENCE, THE FINDINGS OF THE AUDITO R TREATING THESE EXPENSES AS PRIOR PERIOD CANNOT BE NULLIFIED. ACCO RDINGLY THIS CLAIM IS NOT ALLOWED. 9.1. BEFORE THE ASSESSING OFFICER, THE CONTENTION O F THE ASSESSEE WAS THAT OUT OF RS.23,27,520/-, RS.35,927/- TOWARDS OUT OF POCKET EXPENSES OF SALES REPRESENTATIVE OF THE ASSESSEE-COMPANY AND RS .20,41,593/- WAS DEBITED IN THIS ACCOUNT IS ACTUALLY INTEREST RECORD ED IN THE YEAR ON 30/04/2005 TOWARDS INTEREST DEBIT NOTES ON DEBTS RE CEIVABLE OF THE COMPANY WHICH WHEN THE DEBTS BECAME BAD. THE RECOV ERY OF RELATED INTEREST ALSO REVERSED, BEING NOT EARNED. FACTUAL LY, THE ENTRY FOR RECORDING INTEREST ACCRUAL BASED ON DEBIT NOTE RECO RDED IN FINANCIAL BOOKS ON 30/4/2005 BEING THE EXTENDED FINANCIAL YEAR UNDE R COMPANY LAW LAST YEAR, THE REVERSAL OF THE SAID AMOUNTON 31/3/2006 W AS TREATED AS PRIOR PERIOD. THE AO REJECTED THE CONTENTION ON THE BAS IS THAT THE BAD DEBTS AS ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 8 - CLAIMED BY THE ASSESSEE HAVE BEEN REJECTED, THEREFO RE THE INTEREST COMPONENT CANNOT BE ALLOWED. 9.2. THE LD.CIT(A) CONFIRMED THE ADDITION ON THE B ASIS THAT THE AUDITOR OF THE APPELLANT CERTIFIED THESE EXPENSES AS PRIOR PERIOD AND NOT RELATING TO PREVIOUS YEAR CONCERNED. THE APPELLANT DID NOT SUBMIT ANY MATERIAL OR EVIDENCE TO PROVE THAT THESE EXPENSES WERE ACTUALLY CRYSTALISED DURING THE YEAR. THEREFORE, THE FINDINGS OF THE AUDITOR TRE ATING THESE EXPENSES AS PRIOR PERIOD CANNOT BE NULLIFIED. THE CONTENTION OF THE APPELLANT IS THAT THE INTEREST COMPONENT REPRESENTS THOSE EXPENDITURE WHICH WAS CLAIMED AS INTEREST ON DEBT. SINCE THE DEBT HAD BECOME BAD , THEREFORE THIS INTEREST AMOUNT WAS REVERSED IN THE BOOKS OF ACCOUNT. WE A LSO FIND THAT THE ASSESSEES SUBMISSION BEFORE THE LD.CIT(A) WAS THA T RS.35,927/- TOWARDS OUT OF POCKET EXPENSES OF SALES REPRESENTATIVE OF T HE ASSESSEE-COMPANY. THIS AMOUNT REPRESENTS THE ADVANCES GIVEN TO THE SA LES REPRESENTATIVE WHO SUBSEQUENTLY LEFT THE COMPANY AND DID NOT SETTL E THE ACCOUNT. IT WAS CONTENDED THAT AMOUNT OF RS.20,41,593/- DEBITED IN THAT ACCOUNT WAS ACTUALLY INTEREST WHICH WAS RECORDED IN THE YEAR ON 30/04/2005 TOWARDS INTEREST DEBIT NOTES ON DEBTS RECEIVABLE OF THE COM PANY, WHICH WHEN THE DEBTS BECAME BAD, THE RECOVERY OF RELATED INTEREST WAS ALSO REVERSED, BEING NOT EARNED. FACTUALLY, THE ENTRY FOR RECORD ING INTEREST ACCRUAL BASED ON DEBIT NOTE RECORDED IN FINANCIAL BOOKS ON 30/4/2005, BEING THE EXTENDED FINANCIAL YEAR UNDER COMPANY LAW LAST YEAR , THE REVERSAL OF THE SAID ON 31/3/2006 WAS TREATED AS PRIOR PERIOD IN TH E 11 MONTHS FINANCIAL ACCOUNTS UNDER THE COMPANY LAW FOR FY 05-06. HOWEV ER, FOR THE INCOME TAX PURPOSES THE SAID REPRESENTS REVERSAL FALLING W ITHIN THE YEAR, AND NOT REALLY PRIOR PERIOD. SIMILARLY, RS.2,50,000/- BEIN G ADJUSTMENT OF COST ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 9 - RECOVERY RECORDED ON 30/4/2005 IS REVERSED, NOT HAV ING THE CHARACTER OF PRIOR PERIOD FOR THE FINANCIAL YEAR 1/4/2005 TO 31/ 3/2006. THE LD.CIT(A) HAS NOT GIVEN ANY FINDING OF THE SUBMISSION OF THE ASSESSEE. THE LD.COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGEMENT OF THE HONBLE BOBMAY HIGH COURT RENDERED IN THE CASE OF C IT VS. MAHANAGAR GAR LTD. IN APPEAL NO.1978 OF 2011:: (2014) 42 TAXM ANN.COM 40 (BOMBAY) AND THE JUDGEMENT OF HONBLE DELHI HIGH CO URT RENDERED IN THE CASE OF CIT VS. JAGATJIT INDUSTRIES LTD. REPORT ED AT (2011) 339 ITR 382 (DELHI). IN BOTH THESE JUDGEMENTS THE ISSUE WA S WITH REGARD TO THE PRIOR PERIOD EXPENSES AND THE ISSUE WAS DECIDED ON THE BASIS OF CONSISTENCY. IN THE CASE IN HAND, IT IS NOT THE CA SE WHERE ASSESSEE HAS BEEN FOLLOWING PRACTICE IN PAST. HOWEVER, CONSIDER ING THE FACT THAT THE SUBMISSIONS OF THE ASSESSEE WITH REGARD TO THE REVE RSAL OF ENTRY IS NOT DECIDED BY THE LD.CIT(A). MOREOVER, THE LD.CIT(A) HAS ALLOWED THE CLAIM OF BAD DEBT OF THE ASSESSEE. THEREFORE, THE I SSUE IS RESTORED BACK TO THE FILE OF LD.CIT(A) TO DECIDE IT AFRESH AFTER VER IFYING THE CLAIM OF THE ASSESSEE THAT THE BOOK ENTRY WAS REVERSED. THUS, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED BUT FOR STATISTICAL PU RPOSES. 10. GROUND NO.5 IS AGAINST THE DISALLOWANCE OF THE EXPENSES FOR SCIENTIFIC RESEARCH U/S.35(2AB) OF THE ACT AMOUNTIN G TO RS.3,59,500/-. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO DISALLOWED THE EXPENDITURE ON THE BASIS THAT THE CLINICAL TRIAL EX PENSES WAS NOT WITHIN THE IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPRO VED BY THE PRESCRIBED AUTHORITY. THE LD.CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO ON THE BASIS THAT THE CONDITION ALLOWING OF WEIGHTED ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 10 - EXPENDITURE IS THAT THE IN-HOUSE RESEARCH SHOULD H AVE BEEN MADE. THE LD.COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. CADILA H EALTHCARE LTD. REPORTED AT (2013) 31 TAXMANN.COM 300 (GUJ.). THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVER ED BY THE JUDGEMENT OF HONBLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS . CADILA HEALTHCARE LTD.(SUPRA). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF CI T VS. CADILA HEALTHCARE LTD.(SUPRA) HAS HELD AS UNDER:- 11. REVENUE HAS ALSO SUGGESTED FOLLOWING QUESTION : 'D. WHETHER THE APPELLATE TRIBUNAL HAS SUBSTANTIALL Y ERRED IN HOLDING THAT THE EXPENSES INCURRED OUTSIDE THE APPR OVED R&D FACILITY WOULD ALSO GET WEIGHTED DEDUCTION BASED ON THE WORD UNDER 'ON IN HOUSE' INTERPRETING CONTRADICTORILY TO THE FINDING OF COORDINATE BENCH IN CONCEPT PHARMACEUTICALS LTD V. ACIT (ITAT, MUM) REPORTED AT 43 SOT 423?' 12. WE MAY RECORD THAT QUESTION E IN THE APPEAL MEMO IS AN ADDITIONAL QUESTION WHICH HAS AN ELEMENT OF ABOVE N OTED QUESTION. WE HAVE, THEREFORE, NOT SEPARATELY REPRODUCED THE SAME IN THIS ORDER. THE ISSUE IS WHETHER THE ASSESSEE WHO HAS INCURRED EXPE NDITURE FOR SCIENTIFIC RESEARCH, WHICH WAS NOT IN THE IN-HOUSE FACILITY, C OULD BE COVERED FOR DEDUCTION UNDER SECTION 35(2AB) OF THE INCOME TAX A CT, 1961. 11.1 THE HONBLE HIGH COURT OF GUJARAT AFTER EXAMIN ING THE ENTIRE ISSUE CAME TO THE CONCLUSION THAT THE TRIBUNAL COMM ITTED NO ERROR. RESPECTFULLY FOLLOWING THE JUDGEMENT OF JURISDICTIO NAL HIGH COURT IN THE ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 11 - CASE OF CIT VS. CADILA HEALTHCARE LTD.(SUPRA), WE H EREBY DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE. THUS, THIS GRO UND OF ASSESSEES APPEAL IS ALLOWED. 12. GROUND NO.6 IS AGAINST THE DISALLOWANCE OF INT EREST AMOUNTING TO RS.17,06,566/-. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO MADE DISALLOWANCE OF INTEREST ON THE BASIS THAT THE INTEREST FREE- LOANS/ADVANCES GIVEN BY THE ASSESSEE TO ITS SISTER- CONCERN, NAMELY, M/S.CASIL HEALTH PRODUCTS LTD. (CHPL). THE AO MADE ADDITION OF RS.30,93,151/- AS COMPARED TO, IN THE SAME AVERAGE RATE OF BORROWING I.E.7.25% APPLIED ON THE DAILY BALANCES OUTSTANDIN G. ON APPEAL, THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 4% OF THE AVERAGE COST OF FUND. THE LD.COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST-FREE FUNDS. THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGEMENT OF THE HONBLE GUJ ARAT HIGH COURT RENDERED IN THE CASE OF CIT-I VS. UTI BANK LTD. REP ORTED AT (2013) 32 TAXMANN.COM 370 (GUJARAT). HE ALSO PLACED RELIANCE ON THE JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. RAGHUVIR SYNTHETICS LTD. REPORTED AT (2013) 354 ITR 222(GUJ. ) 12.1. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE ADVANCES WERE GIVEN TO SISTER-CO NCERN FOR COMMERCIAL PURPOSES, THEREFORE, THERE IS NO APPLICABILITY OF S ECTION 36(1)(III) OF THE ACT. ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 12 - 13. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENTS RELIED UPON BY THE LD.COU NSEL FOR THE ASSESSEE. THE AO HAS MADE ADDITION ON THE BASIS THAT THE OUTS TANDING BALANCES IN RESPECT OF THE SISTER-CONCERN, NAMELY, M/S.CASIL HE ALTH PRODUCTS LTD.(CHPL IN SHORT) HAS BEEN CONTINUING OVER YEARS. THE AO OBSERVED THAT THE ASSESSEE HAS BEEN GETTING THE JOB-WORK DON E FROM CHPL AND ALSO MAKING PURCHASES FORM CHPL, BUT THE AMOUNT REMAINED PERPETUALLY OUTSTANDING DURING THE YEAR AND REJECTED THE CONTEN TION OF THE ASSESSEE THAT THE ADVANCES MADE FOR THE PURPOSE OF BUSINESS. ON APPEAL, THE LD.CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF 4% OF THE AVERAGE COST OF FUND ON THE BASIS THAT THE APPELLANT HAD BORROWE D FUNDS ON WHICH INTEREST WAS PAID, THEREFORE IT CANNOT BE SAID THAT THE APPELLANT HAD SUFFICIENT OWN FUNDS. THE LD.CIT(A) OBSERVED THAT THE AMOUNT OUTSTANDING AGAINST ASSOCIATE-COMPANY IS IN THE NAT URE OF ADVANCE SINCE APPELLANT HAS NOT RECOVERED THE SAME. IT THIS WAS B USINESS ADVANCE, THE SAME COULD HAVE BEEN RECOVERED OR ADJUSTED BY NOW B UT THE FACT THAT IT REMAIN OUTSTANDING FOR MANY YEARS CLEARLY SHOWS TH AT THIS IS INTEREST-FREE ADVANCES GIVEN OUT OF OVERALL BUSINESS FUND WHICH I NCLUDED BORROWED FUNDS ALSO. THE CONTENTION OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS TWO FOLDS; FIRSTLY, ADVANCES WERE GIVEN FOR BUS INESS PURPOSES, THEREFORE PROVISIONS OF SECTION 36(1)(III) CANNOT B E APPLIED AND SECONDLY, THE ASSESSEE WAS HAVING SUFFICIENT INTEREST-FREE FU NDS TO MAKE ADVANCES. THE JUDGEMENT RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE IN THE CASE OF CIT VS. RAGHUVIR SYNTHETICS LTD.(SUPRA), WHEREIN THE HONBLE HIGH COURT OF GUJARAT RELYING ON THE JUDGEMENT OF THE HO NBLE APEX COURT IN ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 13 - THE CASE OF S.A.BUILDERS LTD. VS. CIT REPORTED IN ( 2007) 288 ITR 01 (SC) ANSWERED THE QUESTION IN FAVOUR OF ASSESSEE. IN TH E PRESENT CASE, BOTH THE AUTHORITIES HAVE MADE ADDITION ON THE BASIS THAT TH E ADVANCES GIVEN HAVE BEEN CONTINUING FOR A LONG PERIOD OF TIME. BOTH TH E AUTHORITIES HAVE NOT GIVEN ANY FINDING WITH REGARD TO AVAILABILITY OF FU NDS WITH THE ASSESSEE FOR MAKING SUCH ADVANCES. HOWEVER, THE CONTENTION OF THE ASSESSEE IS THAT THE FACT IS NOT CONTROVERTED BY THE AUTHORITIE S BELOW THAT THE ADVANCES HAVE BEEN GIVEN FOR BUSINESS PURPOSES SINCE THE ASS ESSEE HAS BEEN MAKING PURCHASES AND GETTING JOB-WORK FROM THE ASSO CIATE-CONCERN. THIS GOES TO PROVE THAT ADVANCES WERE GIVEN FOR BUSINESS PURPOSE. THE HONBLE JURISDICTIONAL HIGH COURT HAS DECIDED THE I SSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE JUDGEMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF S.A.BUILDERS LTD. VS. CIT (SUPRA), W HEREIN IT HAS BEEN HELD THAT IF THE ADVANCES HAVE BEEN MADE FOR BUSINESS PU RPOSE, THEN DISALLOWANCE IS NOT CALLED FOR. THE HONBLE SUPREM E COURT IN THAT CASE HAS APPROVED THE JUDGEMENT OF HONBLE DELHI HIGH CO URT RENDERED IN THE CASE OF CIT VS. DALMIA CEMENT (B.) LTD. REPORTED AT (2002) 254 ITR 377 (DELHI), WHEREIN THE HONBLE DELHI HIGH COURT HAS HELD THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPEND ITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CL AIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABL E EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT. THE INCOME-TAX A UTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 14 - BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LO OK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESS MAN. AS ALREADY STATED ABOVE, WE HAVE TO SEE THE TRANSFER OF THE BO RROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDI ENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED F OR EARNING PROFITS. 13.1. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO L AID IN THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. RAGHUVIR SYNTHETICS LTD.(SUPRA), WE CANNOT UPHOLD THE ACTION OF THE AUTHORITIES BELOW. THEREFORE, THIS GROUND OF THE ASSESSEES AP PEAL IS ALLOWED. 14. GROUND NO.7 IS AGAINST CONFIRMATION OF DISALLOW ANCE MADE U/S.14A OF THE ACT AMOUNTING TO RS.64,13,532/-. TH E LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INVESTMENTS WERE STRATE GIC, INTEREST-FREE FUNDS WERE AVAILABLE AND RULE 8D WOULD NOT APPLY IN THE P RESENT YEAR. THE LD.COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE COORDINATE BENCH (ITAT J BENCH MUMBAI) RENDERED I N THE CASE OF M/S.JM FINANCIAL LIMITED VS. ADDL.CIT IN ITA NO.452 1/MUM/2012 FOR AY 2009-10, DATED 26/03/2014. THE LD.COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON THE JUDGEMENT OF THE HONBLE GUJ ARAT HIGH COURT RENDERED IN THE CASE OF CIT-I VS. UTI BANK LTD.(SUP RA) AND OF CIT-II VS. HITACHI HOME AND LIFE SOLUTIONS(I) LTD. REPORTED AT (2014) 41 TAXMANN.COM 540 (GUJ.). 14.1. ON THE CONTRARY, LD.SR.DR HAS SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 15 - 15. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENTS RELIED UPON BY THE LD.COU NSEL FOR THE ASSESSEE. THE AO OBSERVED THAT PRIMARILY THE INVESTMENTS BY T HE ASSESSEE ARE ON ACCOUNT OF SHARES IN CASIL INDUSTRIES LTD. HOWEVER , THERE ARE A FEW OTHER INVESTMENTS ALSO. THE ASSESSEE HAD SUBMITTED BEFOR E THE AO THAT THE SHARES HAVE COME BY WAY OF AMALGAMATION, HENCE THER E IS NO DIRECT COST INVOLVED. THE AO PLACED RELIANCE ON THE DECISION O F THE SPECIAL BENCH OF THE TRIBUNAL (ITAT DELHI-SB) RENDERED IN THE CAS E OF CHEMINVEST LTD. VS. ITO IN ITA NO.87/DEL/2008 AND APPLIED RULE 8D A ND MADE DISALLOWANCE OF RS.64,13,532/-. THE LD.CIT(A) RECO RDED THE SUBMISSIONS OF THE ASSESSEE IN PARA-11.2 OF HIS ORDER AND DECID ED THE ISSUE IN PARA- 11.3 OF HIS ORDER AS UNDER:- 11.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASS ESSMENT ORDER AND APPELLANTS SUBMISSION. IT IS NOT IN DISPUTE T HAT APPELLANT EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND ON INVESTMENT OF MORE THAN RS.1522 LAKHS. IT IS ALSO NOT IN DISPUTE THAT APPE LLANT BORROWED FUNDS ON WHICH INTEREST TO THE EXTENT OF RS.1527 LAKHS WE RE PAID. APART FROM THIS, SUBSTANTIAL ADMINISTRATIVE EXPENSES WERE INCU RRED, PART OF WHICH MAY RELATE TO INVESTMENT RESULTING IN EXEMPT INCOME . CONSIDERING THESE FACTS IT IS CLEAR THAT THERE ARE EXPENSES IN THE FO RM OF INTEREST AND OTHER ADMINISTRATIVE EXPENSES RELATABLE TO EARNING OF EXE MPT INCOME WHICH ARE TO BE DISALLOWED UNDER SECTION 14A. THEREFORE DISALLOWANCE UNDER SECTION 14A IS NECESSARY. COMING TO THE METHOD OF COMPUTING DISALLOWANCE UNDE R SECTION 14A, ASSESSING OFFICER DISALLOWED EXPENSES RELATABLE TO EXEMPT INCOME AS PER RULE 8D. UP TO 2007-08 THE METHOD TO ARRIVE AT DIS ALLOWABLE EXPENSE WAS ESTIMATION. THEREAFTER RULE 8D WAS FRAMED WHIC H GIVES FORMULA FOR DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME. FOR INTEREST, PROPORTIONATE EXPENSE IS DISALLOWABLE WHEREAS FOR O THER EXPENSES .5% OF INVESTMENT VALUE IS DISALLOWABLE. CONSIDERING T HE FACT THAT APPELLANT CLAIMED HUGE ADMINISTRATIVE AND OTHER EXPENSES, THE DISALLOWANCE OF ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 16 - ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFIC ER RUPEES 647007 IS QUITE REASONABLE AND THEREFORE THE SAME IS CONFIRME D. AS REGARDS INTEREST, APPELLANT SUBMITTED THAT IT WA S HAVING INTEREST FREE FUNDS AND PROFIT THEREFORE NO INTEREST IS RELATABLE TO INVESTMENT RESULTING IN EXEMPT INCOME. HOWEVER IT IS SEEN THAT APPELLAN T BORROWED SUBSTANTIALLY WHICH WAS USED IN BUSINESS PURPOSE AS WELL AS INVESTMENT. SINCE COMMON FUNDS ARE MAINTAINED AND APPELLANT COU LD NOT IDENTIFY THE IMMEDIATE SOURCE OF INVESTMENT. IN VIEW OF THI S, THE DECISIONS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE. CONSIDER ING THE FACT THAT EXPENSES RELATING TO EXEMPT INCOME ARE TO BE ESTIMA TED AND RULE 8D GIVES BASIS FOR COMPUTING SUCH DISALLOWANCE, THEREF ORE THE DISALLOWANCE UNDER SECTION 14A MADE BY THE ASSESSING OFFICER AS PER RULE 8D IS CONFIRMED. 15.1. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE REASONING GIVEN BY THE AUTHORITIES BELOW. SINCE THE YEAR INVOLVED IN AY 2006-07 AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG.CO.LTD. MUMBAI VS. DY.CIT REPORTED AT 328 ITR 81(BOM.) HAS HELD THAT THE RULE 8D IS APPLICABLE W.E.F. AY 2008-09, THEREFORE THE A UTHORITIES BELOW WERE NOT JUSTIFIED IN APPLYING THE RULE 8D FOR MAKING TH E DISALLOWANCE. IN THIS CASE, THE ASSESSEE HAS SHOWN EXEMPT INCOME OF RS.1,704/- FROM DIVIDEND. THE INVESTMENT OF CASIL HEALTH PRODUCTS LTD. IS VESTED INTO THE ASSESSEE-COMPANY UNDER THE AMALGAMATION AND ARRANGE MENT AS APPROVED BY THE HONBLE GUJARAT HIGH COURT, WHEREBY THE FOUR ERSTWHILE COMPANIES OF CADILA LABORATORIES LTD. BELONGING TO MODI GROUP AND PATEL GROUP WERE MERGED INTO TWO COMPANIES. DURIN G THE CURRENT YEAR, THE INCREMENTAL PREFERENCE SHARES RS.4.75 CRORES AR E VESTED BY THE HONBLE GUJARAT HIGH COURT ORDER FOR CASIL HEALTH P RODUCTS LTD. THIS FACT IS COMPLETELY IGNORED BY THE AUTHORITIES BELOW . NO FINDING IS GIVEN BY LD.CIT(A) ON THIS ASPECT. THEREFORE, IT REQUIRE S FRESH DECISION. IN ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 17 - RESPECT OF DISALLOWANCE TOWARDS ADMINISTRATIVE EXPE NSES RELIANCE HAS BEEN PLACED ON THE DECISION OF COORDINATE BENCH (IT A B BENCH AHMEDABAD) OF THIS TRIBUNAL IN THE CASE OF TORRENT POWER LTD. VS. DCIT [(2013) 33 TAXMANN.COM 287] IN ITA NOS.504 & 773 ( AHD.) OF 2008 FOR AY 2004-05, DATED 12/10/2012, WHEREIN THE COORDINAT E BENCH HAS HELD AS UNDER:- 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSING OFF ICER HAS DISALLOWED THE ADMINISTRATIVE EXPENSES PERTAINING T O SALARY OF STAFF, RENT, ETC., ON AD HOC BASIS. HE HAS NOT GIV EN A FINDING AS TO THE AMOUNT INCURRED BY THE ASSESSEE FOR EARNING EXE MPT INCOME. IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (2012 ) 347 ITR 272[2011] 203 TAXMAN 364/15 TAXMANN.COM 390(DELHI), THE HONBLE HIGH COURT HAS HELD THE EXPRESSION EXPENDI TURE INCURRED REFERS TO ACTUAL EXPENDITURE AND NOT TO S OME IMAGINED EXPENDITURE BUT THE ACTUAL EXPENDITURE THAT IS IN CONTEMPLATION UNDER SECTION 14A(1) IS THE ACTUAL EXPENDITURE IN RELATION TO OR IN CONNECTION WITH OR PERTAINING TO EXEMPT INCOME. THE COROLLARY TO THIS IS THAT IF NO EXPENDITURE IS INCURRED IN RE LATION TO EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE UNDER SECTION 1 4A. 11. WE FIND THAT THE ASSESSING OFFICER HAS ESTIMAT ED THE EXPENSES AT 1.5 PER CENT OF THE EXEMPTED INCOME. HE HAS NOT GIVEN ANY FINDING WITH RESPECT TO THE EXPENDITURE INCURRED ON ADMINISTRATIVE- HEAD BY THE ASSESSEE. THE ASSESSEE HAS SUBMITTED T HAT IT HAS INCURRED NO EXPENDITURE. IN VIEW OF THE TOTALITY O F FACTS AND RELYING ON THE DECISION OF THE HONBLE DELHI HIGH COURT WE ARE OF THE VIEW THAT NO DISALLOWANCE WITH RESPECT TO ADMINISTRATIVE EXPENSES CAN BE MADE IN THE PRESENT CASE. WE THUS DELETE THE DI SALLOWANCE. 15.2. WE DO NOT FIND ANY REASON TO TAKE A DIFFERENT VIEW, THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE B ENCH RENDERED IN THE CASE OF TORRENT POWER LTD. VS. DCIT IN ITA NOS.504 & 773 (AHD.) OF ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 18 - 2008, WE DIRECT THE AO DELETE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES. HOWEVER, THE ISSUE OF DISALLOWANCE OF INTEREST EXPENSES IS BEING RESTORED BACK TO THE FILE OF LD.CIT(A) TO GIVE A CLEAR FINDING AS TO HOW THE PR OVISIONS OF SECTION 14A OF THE ACT WOULD BE APPLICABLE UNDER THE FACTS WHEN THE INVESTMENTS ARE VESTED UNTO THE ASSESSEE-COMPANY BY WAY OF AMALGAMA TION AND ARRANGEMENT APPROVED BY THE HONBLE GUJARAT HIGH CO URT. THE ASSESSEE IS DIRECTED TO FURNISH THE RELEVANT MATERIAL BEFORE THE LD.CIT(A). NEEDLESS TO SAY THAT THE LD.CIT(A) WOULD AFFORD REA SONABLE OPPORTUNITY OF HEARING TO THE CONCERNED PARTIES. 16. GROUND NO.8 IS AGAINST CONFIRMATION OF DISALLOW ANCE OF DEPRECIATION OF RS.28,776,600/- ON BUILDING AND PLA NT & MACHINERY. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTH ORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWING THE CLAIM. HE PLACED RELI ANCE ON THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF ACIT VS. ASHIMA SYNTEX LTD. REPORTED AT 251 ITR 133. HE SUBMITTED THAT THE DETAILS WERE GIVEN WITH REGARD TO INSTALLATION OF THE MACHINERY AS WELL AS THE COMMENCEMENT OF THE PRODUCTION BY PRODUCING ELECTRI CITY POWER CONSUMPTION BILL, REGISTRATION OF EXCISE, ETC. HE SUBMITTED THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FACT THA T IT WAS NOT NECESSARY THAT THE PRODUCTION SO MADE SHOULD BE SOLD, IN FACT THE ASSESSEE HAD FURNISHED EVIDENCE OF COMMENCEMENT OF THE PRODUCTIO N. HE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF ACIT VS. ASHIMA SYNTEX LTD.(SUPRA). ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF T HE AUTHORITIES BELOW. ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 19 - HE SUBMITTED THAT THE ASSESSEE SHOULD HAVE GIVEN TH E COGENT EVIDENCE REGARDING USAGE OF THE PLANT PURCHASED FROM PFIZER LTD. AND ALSO PRODUCTION SO MADE. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENT RELIED UPON BY THE LD.COUN SEL FOR THE ASSESSEE. THE AUTHORITIES BELOW HAVE NOT DISPUTED THE FACT TH AT THE ASSESSEE HAS PURCHASED THE PLANT & MACHINERY AND INSTALLED THE S AME. THE AUTHORITIES BELOW HAVE ALSO NOT DISPUTED THE FACT THAT THE ASSE SSEE HAS FURNISHED THE ELECTRICITY BILL, ETC. AND ALSO THE SALARY PAID TO THE STAFF. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ACIT VS. ASHIMA S YNTEX LTD.(SUPRA) HAS HELD AS UNDER:- 39. WE ARE, THEREFORE, OF THE OPINION THAT WHEN THERE IS COMMENCEMENT OF BUSINESS BY WAY OF PRODUCTION OF THE ARTICLES, IT C AN BE SAID THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION. 40. IT IS REQUIRED TO BE NOTED THAT WHEN AN ENTREPRENE UR UNDERTAKES TO INVEST HUGE AMOUNT FOR THE MANUFACTURE OF THE PRODUCT, HE HAS TO PLAN IT PROPERLY. INSTALLATION OF MACHINERY OR PLANT AND MACHINERY IN THE BUILDING ITSELF IS NOT SUFFICIENT TO ATTRACT PROVISIONS CONTAINED IN S. 32 OF THE ACT. THERE MUST BE USE OF PLANT AND MACHINERY FOR THE PURPOSE OF BUSINESS AS CONTEMPLATED IN S. 32 OF THE ACT. THERE IS THUS A THIN LINE BETWEEN THE TRIA L RUN AND ACTUAL PRODUCTION, OR MANY A TIMES, THE WORD USED AS 'COMMERCIAL PRODU CTION'. IF THE MACHINES ARE INSTALLED PROPERLY AND IT GIVES GOOD RESULT, TH EN ONE NEED NOT WAIT FOR ANY RECTIFICATION IN THE SYSTEM. THERE MAY BE SOME CASE S WHEREIN AFTER COMMENCEMENT OF THE PRODUCTION, THE MACHINE MAY NOT GIVE PROPER RESULT MAY BE ON ACCOUNT OF FAILURE OF CERTAIN PARTS, MAY BE ON ACCOUNT OF REQUIREMENT OF CERTAIN ADDITIONAL MACHINERY, ETC. I N SUCH CASE, THE PRODUCTION OBTAINED AT THE INITIAL STAGE WOULD BE CONSIDERED A S TRIAL PART OR MACHINERY WITH A VIEW TO RUN THE ENTIRE UNIT. IT IS NOT THE C ASE SIMILAR TO THAT CASE WHERE BEFORE THE BOMBAY HIGH COURT THERE WAS NO PRODUCTIO N AND ONLY TOOLS WERE TESTED. THE PRESENT CASE IS NOT SIMILAR TO THAT OF SPECIALITY PAPER (SUPRA) WHERE WET PRESS WAS REQUIRED TO BE INSTALLED AND EV EN THEREAFTER ADDITIONAL ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 20 - MACHINERY WAS REQUIRED TO BE INSTALLED. IN THE INST ANT CASE, PLANT AND MACHINERY WERE INSTALLED AND IT WORKED SMOOTHLY. TH ERE MAY BE CERTAIN MACHINES, WHICH IN VIEW OF THE LATEST TECHNOLOGY, T HAT REQUIRE NO TRIAL RUN. IF SEPARATE PARTS ARE FITTED AND THE MACHINE IS BROUGH T IN EXISTENCE, IT MAY REQUIRE TRIAL RUN, BUT IF MACHINERY IS IMPORTED AND MERELY IT IS FIXED HERE, IT DOES NOT MEAN THAT THE MACHINE WOULD NOT WORK. ULTI MATELY, ON EVIDENCE, THE TRIBUNAL HAS FOUND THAT 2,68,412 MTRS. OF GREY CLOT H WAS MANUFACTURED. LAW DOES NOT REQUIRE THAT THERE MUST BE OPTIMUM PRODUCT ION FOR GRANTING THE BENEFIT. LAW ONLY REQUIRED THAT THERE MUST BE USE O F PLANT AND MACHINERY FOR THE PURPOSE OF BUSINESS. USE OF SUCH WORDS THAT PLA NT AND MACHINERY WAS RUN MORE EXTENSIVELY OR WAS REQUIRED TO BE USED FOR LAR GER PRODUCTION, IS NOT TO BE FOUND IN THE ACT OR RULES. WHETHER THE PLANT AND MA CHINERY WERE UPTO THE EXTENT OF ITS EFFICIENCY IS IRRELEVANT FOR THE PURP OSE OF DECIDING DEPRECIATION. THE TEST IS THAT BUILDING, PLANT AND MACHINERY ARE USED FOR THE PURPOSE OF BUSINESS. IT IS NOT EVEN NECESSARY THAT IN A YEAR I T MUST HAVE BEEN USED FOR A PARTICULAR NUMBER OF DAYS. IF THE INTENTION OF THE LEGISLATURE WAS THAT IF THE PLANT AND MACHINERY IS USED FOR A PARTICULAR NUMBER OF DAYS, ONLY THEN ONE IS ENTITLED TO GET THE BENEFIT OF DEPRECIATION, LEGISL ATURE WOULD HAVE MADE THAT PROVISION. EARLIER, RULES WERE TO THE AFORESAID EXT ENT. EVEN RECENTLY, WITH REGARD TO DEPRECIATION OF VEHICLES, LAW IS MADE CLE AR. THEREFORE, IT IS FOR THE LEGISLATURE TO MAKE A PROVISION IN THAT REGARD. UNL ESS AND UNTIL THAT PROVISION IS MADE, PLANT, MACHINERY AND BUILDING USED FOR THE PURPOSE OF BUSINESS IN A PARTICULAR YEAR IRRESPECTIVE OF NUMBER OF DAYS FOR WHICH IT WORKED, AND IF WORKED FOR THE PURPOSE OF BUSINESS, WOULD ATTRACT T HE PROVISIONS OF S. 32 OF THE ACT. 17.1. IN THE PRESENT CASE, THE ASSESSEE HAS PRODUCE D THE EVIDENCE OF ELECTRICITY POWER CONSUMPTION THAT GOES TO SHOW THA T THE PLANT WAS RUNNING AND THIS FACT IS NOT REBUTTED BY PLACING AN Y CONTRARY EVIDENCE ON RECORD BY THE REVENUE THAT THE ELECTRICITY SO CONSU MED FOR ANY OTHER PURPOSE. THEREFORE, RESPECTFULLY FOLLOWING THE RAT IO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AC IT VS. ASHIMA SYNTEX LTD.(SUPRA), WE HEREBY DELETE THE DISALLOWAN CE AND DIRECT THE AO TO ALLOW THE DEPRECIATION AMOUNTING TO RS.28,77,600 /- AS CLAIMED BY THE ASSESSEE. ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 21 - 18. GROUND NO.9 IS AGAINST THE ADDITION OF RS.52,59 ,803/- IN CALCULATION OF ADJUSTED BOOK PROFIT FOR THE PURPOSE OF MAT. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO M ADE ADDITION OF RS.52,59,402/- ON ACCOUNT OF PROVISION FOR DIMINUTI ON IN VALUE OF INVESTMENTS. THE LD.COUNSEL FOR THE ASSESSEE RELIE D ON THE DECISION OF COORDINATE BENCH (ITAT A BENCH AHMEDABAD) IN ITA NO.1999/AHD/2008 FOR AY 2003-04 RENDERED IN THE CAS E OF ACIT VS. VODAFONE ESSAR GUJARAT LTD., DATED 11/05/2012 AND A LSO THE JUDGEMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CAS E OF CIT VS. YOKOGAWA INDIA LTD. REPORTED AT (2012) 204 TAXMAN 3 05 (KARNATAKA). ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF T HE AUTHORITIES BELOW. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS RELIED UPON BY THE ASSESSE E. WE FIND THAT THE COORDINATE BENCH IN THE CASE OF ACIT VS. VODAFONE E SSAR GUJARAT LTD.(SUPRA) RELYING ON THE JUDGEMENT OF HONBLE KAR NATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD.(SUPRA) HAS DECIDED THE ISSUE BY OBSERVING AS UNDER:- 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, THE CASE LAWS CITED AND PERUSED THE DOCUMENTS ON RECORD. IT IS A FACT THAT THE ASSESSEE HAD MADE PROVISION FORBAD AND DOUBTFUL DEB TS AND THE SAME HAS BEEN CHARGED TO THE PROFIT AND LOSS ACCOUN T FOR THE YEAR ENDED 31 ST MARCH 2003. IN THE BALANCE SHEET AS ON 31 ST MARCH 2003 OF THE ASSESSEE, IT CAN BE SEEN THAT THE PROV ISION OF BAD AND DOUBTFUL DEBTS HAS BEEN REDUCED FROM THE GROSS DEBT ORS AND THE NET SUNDRY DEBTORS ARE SHOWN AS ASSET IN THE BALANCE SH EET. THUS THE PROVISION FOR BAD AND DOUBTFUL DEBTS CANNOT BE TERM ED AS A PROVISION FOR LIABILITY BUT IS IN THE NATURE OF DIM INUTION IN THE VALUE ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 22 - OF ASSET. IN VIEW OF THE AFORESAID FACTS, WE ARE O F THE VIEW THAT THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO THAT OF THE CASE OF YOKOGWA INDIA LTD (SUPRA). WE THEREFORE, RESPECTFU LLY FOLLOWING THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT VS. YOKOGWA INDIA LTD., (SUPRA) WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF CIT(A). ACCORDINGLY THE APPEAL OF THE REV ENUE IS DISMISSED. 19.1 RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE HONBLE COORDINATE BENCH, WE DELETE THE ADDITION OF RS.52,5 9,803/- AND ALLOW THE GROUND OF ASSESSEES APPEAL. 20. GROUND NO.10 IS AGAINST THE ADDITION OF RS.23,2 7,520/- FOR PRIOR PERIOD EXPENSES. THE LD.COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ACTION OF THE AUTHORITIES BELOW IS NOT JUSTIFIED. HE PLACED RELIANCE ON THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. MEGHMANI ORGANICS LTD. IN TAX APPEAL NO.109 OF 2010 . HE DREW OUR ATTENTION TOWARDS PAGE NOS.53-58 OF THE PAPER-BOOK. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BE LOW AND SUBMITTED THAT THERE IS NO ILLEGALITY IN THE ORDER OF THE LD.CIT(A ). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MEGHMANI ORGANICS LTD.(SUPRA), THE QUESTION NO.1(C) BEFORE THE HONBLE COURT WAS AS UNDER:- (C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE APPELLATE TRIBUNAL ERRED IN DIRECTING TO REDUCE THE PRIOR ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 23 - PERIOD EXPENSES OF RS.71,16,879/- FOR THE COMPUTATI ON OF TAXABLE INCOME U/S.115JA OF THE ACT, 1961? 21.1. THE HONBLE GUJARAT HIGH COURT ANSWERED THE Q UESTION IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER:- 10. IN THAT VIEW OF THE MATTER, AS RIGHTLY POINTE D OUT BY THE COUNSEL FOR THE ASSESSEE, IN VIEW OF THE DECISIONS OF THE APEX COURT IN THE CASE OF APOLLO TYRES LTD. VS. COMMISSIONER O F INCOME-TAX REPORTED IN (2002) 255 ITR 273 AND IN THE CASE OF C OMMISSIONER OF INCOME-TAX VS. HCL COMNET SYSTEMS AND SERVICES L TD. REPORTED IN (2008) 305 ITR 405(SC), THE ASSESSING O FFICER, COULD NOT HAVE VARIED THE PROFIT AND LOSS ACCOUNT OF THE COMPANY DULY AUDITED AND PREPARED IN TERMS OF THE PROVISIONS CON TAINED IN THE COMPANIES ACT. 12. WE HAVE, HOWEVER, PROCEEDED ON THE BASIS OF T HE FACTS RECORDED BY THE TRIBUNAL. MATERIAL ASPECT OF THE T RIBUNALS RECORDING THE FACT IS THAT THE AMOUNT OF RS.71 LAKH S WAS REDUCED BY THE ASSESSEE PASSED ON AFTER APPROVAL OF THE COM PANY IN ITS AGM, WHICH WAS ALSO ACCEPTED BY THE AUDITORS. IF T HAT BE SO, THE ASSESSING OFFICER THEREAFTER COULD NOT HAVE MADE AN Y FURTHER ADJUSTMENT DEHORS THE PROVISIONS OF SECTION 115JA O F THE ACT. HOWEVER, IF THESE FACTS ARE FOR SOME REASON TO CORR ECTLY RECORDED BY THE TRIBUNAL, SURELY, IT WOULD BE OPEN FOR THE R EVENUE TO APPROACH THE TRIBUNAL SEEKING RECTIFICATION OF ITS ORDER. ONLY FOR THIS PURPOSE, WE DO NOT FIND ANY REASON TO ENTERTAI N THE PRESENT TAX APPEAL. 21.2. WE, RESPECTFULLY FOLLOWING THE AFORESAID JUDG EMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. MEGHMANI ORGANICS LTD.(SUPRA) AND ALLOW THIS GROUND OF ASSESSEES APP EAL. ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 24 - 22. GROUND NO.11 IS AGAINST THE CONFIRMATION OF DIS ALLOWANCE MADE U/S.14A OF THE ACT OF RS.64,13,532/-. THE LD.COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE AO MADE ADDITION IN CALCULATION OF ADJUSTED BOOK PROFIT AND DISALLOWED U/S.14A OF THE ACT WHILE REL YING ON EXPLANATION(I)(F) OF SECTION 115JB OF THE ACT. THE LD.COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGEMENT OF THE HO NBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. GUJARAT STATE FERTILIZERS & CHEMICALS LTD. REPORTED AT (2013)358 ITR 323(GUJ.). ON THE CONTRARY,LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. GUJARAT STATE FERTIL IZERS & CHEMICALS LTD. HELD AS UNDER : 6.4 AS RIGHTLY HELD BY BOTH, THE CIT (APPEALS) AND THE TRIBUNAL, THIS ISSUE HAS A DIRECT CORRELATION WITH THE FIRST QUEST ION. IT WAS ARGUED BY THE REVENUE THAT WHILE COMPUTING THE BOOK PROFIT UN DER SECTION 115JB OF THE ACT, THE DISALLOWANCE OF INTEREST EXPENDITUR E ON EXEMPT INCOME WAS WRONGLY NEGATIVED BY BOTH THE AUTHORITIES ON TH E GROUND THAT IT WAS NOT THE LIABILITY FOR EXPENSES, BUT A LIABILITY REL ATING TO ASSETS. 6.5 WE FIND NO FAULT IN THE APPROACH ADOPTED BY BOT H THE AUTHORITIES. THE ADDITION UNDER SECTION 115JB OF THE ACT OF A SU M OF RS.1,14,43,040/- WHEN WAS MADE AS AN EXPENDITURE ES TIMATED ON EARNING OF DIVIDEND INCOME UNDER SECTION 14A OF THE ACT, WITHOUT REITERATING THE RATIONALE OF CONFIRMING DELETION OF SUCH AMOUNT AS HAS BEEN ELABORATELY DONE AT THE TIME OF DECIDING QUEST ION NO.1, THIS DELETION REQUIRES TO BE CONFIRMED. ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 25 - 23.1. SINCE THE LD.DR COULD NOT CONTROVERT ANYTHING BY PLACING MATERIAL ON RECORD, WE, RESPECTFULLY FOLLOWING THE AFORESAID JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT, ALLOW THIS GROUND OF AS SESSEES APPEAL. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. 25. NOW, WE TAKE UP THE REVENUES APPEAL IN ITA NO. 518/AHD/2011 FOR AY 2006-07. IN THIS APPEAL, THE REVENUE HAS RA ISED THE FOLLOWING GROUNDS:- 1. THE LD.CIT(A) ERRED IN LAW AND ON FATS IN DELET ING THE ADDITION OF RS.6,74,282/- ON ACCOUNT OF DISALLOWANCE U/S.40( A) DUE TO SHORT DEDUCTION OF TDS. 2. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE DISALLOWANCE OF RS.1,43,79,597/- BEING PRODUCT REGI STRATION EXPENSES TREATED AS CAPITAL EXPENDITURE, WITH A DIR ECTION TO WITHDRAW THE DEPRECIATION ALREADY ALLOWED. 3. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN RES TRICTING HE DISALLOWANCE OF INTEREST TO AVERAGE COST OF FUND DU RING THE YEAR (4%) INSTEAD OF AVERAGE RATE OF BORROWING (7.25%) A DOPTED BY THE AO THEREBY REDUCING THE DISALLOWANCE BY RS.13,8 6,585/-. 25.1. FIRST GROUND IS AGAINST THE DELETION OF ADDIT ION OF RS.6,74,282/- U/S.40(A) OF THE ACT DUE TO SHORTFALL IN DEDUCTION OF TDS. THE LD.SR.DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT TH E ACTION OF THE LD.CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION . ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSU E IS SQUARELY BY THE JUDGEMENT OF HONBLE CALCUTTA HIGH COURT RENDERED I N THE CASE OF CIT VS. M/S.S.K.TEKRIWAL IN GA NO.2069 OF 2012 DATED 03 /12/2012. HE SUBMITTED THAT THE DISALLOWANCE MADE ON THE BASIS O F SHOW DEDUCTION OF TAX. ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 26 - 26. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENT RELIED UPON BY THE LD.COUN SEL FOR THE ASSESSEE. WE FIND THAT THE LD.CIT(A) DELETED THE ADDITION IN PARA-7.3 OF HIS ORDER BY OBSERVING AS UNDER:- 7.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ASSE SSMENT ORDER AND APPELLANTS SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT DEDUCTED TDS AND ALSO DEPOSITED THE SAME IN GOVERNMENT ACCOUNT I N TIME. THE ONLY DIFFERENCE IS IN RESPECT OF DEDUCTING SURCHARGE. T HE RATE OF SURCHARGE WAS CHANGED BY FINANCE BILL 2005 WHICH BECAME ACT I N MAY 2005. TILL SUCH TIME IT BECAME ACT, APPELLANT DEDUCTED TDS BY CHARGING SURCHARGE AT THE RATE APPLICABLE PRIOR TO THE PASSING OF FINA NCE ACT 2005. AFTER MAY 2005, APPELLANT STARTED DEDUCTING TDS AT THE CO RRECT RATE OF SURCHARGE. THEREFORE THERE WAS NO SERIOUS DEFAULT ON THE PART OF APPELLANT. THE SHORTFALL IN DEDUCTION OF SURCHARGE IS THERE WITH VALID REASON AND THEREFORE ENTIRE EXPENSE CANNOT BE DISAL LOWED ON ACCOUNT OF SUCH NOMINAL SHORTFALL. ACCORDINGLY I DELETE THE A DDITION MADE BY THE ASSESSING OFFICER. 26.1. WE HAVE GONE THROUGH THE JUDGEMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. M/S.S.K.TEKRIWAL(SUPRA ), WHEREIN THE HONBLE HIGH COURT HELD THAT PROVISION OF SECTION 4 0(A)(IA) OF THE ACT HAS TWO LIMBS ONE IS WHERE, INTER ALIA, ASSESSEE HA S TO DEDUCT TAX AND THE SECOND WHERE AFTER DEDUCTING TAX, INTER ALIA, THE A SSESSEE HAS TO PAY INTO GOVERNMENT ACCOUNT. THERE IS NOTHING IN THE SAID S ECTION TO TREAT, INTER ALIA, THE ASSESSEE AS DEFAULTER WHERE THERE IS A SH ORTFALL IN DEDUCTION. WITH REGARD TO THE SHORTFALL, IT CANNOT BE ASSUMED THAT THERE IS A DEFAULT AS THE DEDUCTION IS NOT AS REQUIRED BY OR UNDER THE AC T, BUT THE FACTS IS THAT THIS EXPRESSION, ON WHICH TAX IS DEDUCTIBLE AT SOU RCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SU B-SECTION (1) OF SECTION ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 27 - 139. THIS SECTION 40(A)(IA) OF THE ACT REFERS ONL Y TO THE DUTY TO DEDUCT TAX AND PAY TO GOVERNMENT ACCOUNT. IF THERE IS ANY SHORTFALL DUE TO ANY DIFFERENCE OF OPINION AS TO THE TAXABILITY OF ANY I TEM OR THE NATURE O PAYMENTS FALLING UNDER VARIOUS TDS PROVISIONS, THE ASSESSEE CAN BE DECLARED TO BE AN ASSESSEE IN DEFAULT U/S.201 OF TH E ACT AND NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IN THE PRESENT CASE ALSO, IT IS NOT TH E CASE OF NON-DEDUCTION OF TAX OR AFTER DEDUCTION OF THE TAX THE SAME IS NOT D EPOSITED IN THE GOVERNMENT ACCOUNT, BUT IT IS A CASE WHERE THERE IS A SHORTFALL IN DEDUCTION OF TAX. THEREFORE, RESPECTFULLY FOLLOWIN G THE JUDGEMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. S.K.TEKRIWAL, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A ), SAME IS HEREBY UPHELD. THUS, THIS GROUND OF REVENUES APPEAL IS R EJECTED. 27. GROUND NO.2 IS AGAINST THE DELETION OF RS.1,43, 79,597/- BEING PRODUCT REGISTRATION EXPENSES TREATED AS CAPITAL EX PENDITURE WITH A DIRECTION TO WITHDRAW DEPRECIATION ALREADY ALLOWED. THE LD.SR.DR SUPPORTED THE ORDER OF THE AO. ON THE CONTRARY, TH E LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO ILLEGALITY IN T HE ORDER OF THE LD.CIT(). HE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. TORRENT PHARMACEUTICALS LTD. REPORTED AT (2013) 263 CTR 683(GUJ.):: (2013) 29 TAXMANN.COM 405(GUJARAT). 27.1. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 28 - THE LD.COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTEN TION TO THE QUESTION NO.(B) WHICH READS AS UNDER:- [B] WHETHER THE APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON ACTS IN DIRECTING THE ASSESSING OFFICER TO TREAT THE EXPEND ITURE OF RS.28,14,355/- INCURRED ON FOREIGN REGISTRATION FEE S AS REVENUE EXPENSES? 27.2. THE HONBLE GUJARAT HIGH COURT ANSWERED THE Q UESTION BY OBSERVING AS UNDER:- 5. THE FINDINGS OF THE TRIBUNAL ARE JUSTIFIED ON BOTH THE ISSUES. THE GARDEN EXPENDITURE WAS FOR THE PURPOSE OF MAINT AINING GARDEN TO CONTROL THE POLLUTION. THE COMPANY HAD PUT UP A N AFFLUENT TREATMENT PLANT AND POLLUTION USED TO GENERATE BECA USE OF RELEASE OF POLLUTANTS. THE MAINTAINING A GARDEN HELPED IN CONTROLLING POLLUTION ARISING FROM THE POLLUTANTS. IT CANNOT B E GAINSAID THAT THE EXPENSES FOR GARDEN HAD NEXUS WITH BUSINESS ACT IVITY. IT CAN WELL BE TREATED FOR BUSINESS PURPOSE AND CAN BE CLA IMED AS REVENUE EXPENDITURE. SIMILARLY THE EXPENSES FOR FO REIGN COUNTRY REGISTRATION WAS FOR BUSINESS PURPOSE ONLY, BECAUSE THE SAME HELPED THE ASSESSEE IN MARKETING ITS PRODUCTS IN TH E FOREIGN COUNTRIES AND PROMOTING THE SALES. 27.3. IN VIEW OF THE AFORESAID JUDGEMENT OF THE HON BLE JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THIS GROUND OF REVENU ES APPEAL IS REJECTED. 28. GROUND NO.3 IS AGAINST IN RESTRICTING THE DISAL LOWANCE OF INTEREST TO AVERAGE COST OF FUND @ 4% INSTEAD OF AVERAGE RATE O F BORROWING @ 7.25%, THEREBY REDUCING DISALLOWANCE OF RS.13,86,58 5/-. THIS ISSUE HAS BEEN DECIDED BY US IN FAVOUR OF ASSESSEE AS PER FIN DINGS CONTAINED IN ITA NO.1146/AHD/2011 (BY ASSESSE E) AND ITA NO.1518/AHD/2011(BY REVENUE) CADILA PHARMACEUTICALS LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 29 - PARA-13 & 13.1 OF THIS ORDER IN ASSESSEES APPEAL, I.E. ITA NO.1146/AHD/2011(SUPRA), THEREFORE, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 29. IN THE COMBINED RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, WHEREAS APPEAL OF THE RE VENUE IS DISMISSED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) (' #$) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 11 / 07 /2014 5..., .../ T.C. NAIR, SR. PS 2 - *$6 761$ 2 - *$6 761$ 2 - *$6 761$ 2 - *$6 761$/ COPY OF THE ORDER FORWARDED TO : 1. &) / THE APPELLANT 2. *+&) / THE RESPONDENT. 3. !! $ '8 / CONCERNED CIT 4. '8() / THE CIT(A)-VI, AHMEDABAD 5. 6 #9 *$ , , / DR, ITAT, AHMEDABAD 6. 9:; <, / GUARD FILE. 2' 2' 2' 2' / BY ORDER, +6$ *$ //TRUE COPY// = == =/ // / !' !' !' !' ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 23/24.6.14 & 2.7.14 (DICTATION-PAD 54 PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.6.14/4.7.14 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER 6. 7. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.11.7.14 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 11.7.14 9. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 10. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER..