ACIT 6(1), MUMBAI V. BOOTS PIRAMAL HEALTHCARE LTD, MUMBAI

ITA 1224/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2666 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 06-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 10-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3); 154

Judgement Text

ITA NO.1224/M/2011, AY 2007-0 8 BOOTS PIRAMAL HEALTHCARE LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH G, MU MBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.1224/MUM/2011 FOR A Y : 2007-08) ACIT, 6(1) , ROOM NO. 506, FIFTH FLOOR AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 VS. M/S BOOTS PIRAMAL HEALTHCARE LTD. PIRAMAL TOWERS, GANPATRO KADAM MARG, MUMBAI-400013 PAN AAACB5803B (APPELLANT) (RESPONDENT) ASSESSEE BY SH. J. D. MISTRY SR ADVOCATE WITH SH NIRAJ SHETH ADVOCATE REVENUE BY SH. JEEVAN LAL LAVEDIA - DR DATE OF HEARING 04.10.2016 DATE OF PRONOUNCEMENT 02.11.2016 ORDER U/S 254(1) OF INCOME TAX ACT PER PAWAN SINGH ,JUDICIAL MEMBER: 1. THIS APPEAL UNDER SECTION 253 OF THE INCOME TAX AC T (ACT) IS DIRECTED BY REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOM E TAX (APPEALS) 14, MUMBAI DATED 29 TH NOVEMBER 2010 FOR ASSESSMENT YEAR 2007 -08. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL; (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF EXPENDITURE O F RS.5,35,37,000/- IGNORING THE FACTS THAT THESE EXPENSES WERE CAPITAL IN NATUR E AND OCCURRED DUE TO DISCONTINUANCE OF BUSINESS. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT ADVERTISEMENT EXPENDITURE OF RS. 64,46,180/-MADE TO NICOLAS PIRAMAL INDIA LTD IS NOT LIABLE TO TDS . 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF IN PHARMACEUTICAL PRODUCT FILED RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 29 OCTOBER 2007 DECLARING TOTAL INCOME AT RS. 2,28,31,314/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) O F THE ACT, WHEREIN THE AO MADE THE DISALLOWANCE IN RESPECT OF CLAIM OF EXPEND ITURE/LOSS OF RS. 6,00,88,000/- AND FURTHER MADE ADDITION ON ACCOUN T OF CREDITS TO NICOLAS ITA NO.1224/M/2011, AY 2007-0 8 BOOTS PIRAMAL HEALTHCARE LTD 2 PIRAMAL INDIA LTD (NPIL) AT RS. 64,46,180/- HOLDIN G IT AS ADVERTISEMENT EXPENSES. AGGRIEVED BY THE ORDER OF AO THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY/ CIT (A). THE FIRST APPELLATE A UTHORITY AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE DISALLOWANCE OF LOSS AND THE ADDITION ON ACCOUNT OF ADVERTISEMENT EXPENSES. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE HAS FILED THIS SECOND APPEAL BEFORE THIS TRIBUNAL RAISING THE GROUNDS OF APPEAL MENTIONED ABOVE. 3. WE HAVE HEARD SH. JEEVANLAL LAVEDIA THE LD DEPART MENTAL REPRESENTATIVE (LD DR) FOR REVENUE AND SH. J.D. MISTRY SR ADVOCATE (LD AR) FOR ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRST GRO UND OF APPEAL RELATES TO DELETION OF DISALLOWANCE OF EXPENDITURE OF RS. 5,35 ,37,000/-. THE LEARNED DR FOR REVENUE ARGUED THAT THIS LOSS OF RS. 5,35,37,000/- RELATES TO CAPITAL EXPENDITURE AS APPEARING FROM THE DETAILS FILED BY THE ASSESSEE AN D WAS NOT ALLOWABLE AS REVENUE EXPENDITURE. THE ASSESSEE CLAIMED THAT IT O N ACCOUNT OF EXPENDITURE IN THE NATURE OF SHORTAGES/DAMAGE AND SPOILAGE OF THE PRODUCTS. THE ASSESSEE FAILED TO PROVE WHETHER THIS WAS AN ACTUAL LOSS OR NOTIONA L OR CAPITAL LOSS AS IN CASE OF PRODUCT DAMAGE EXPIRING, SHORTAGE THE SAME IS CLAIM ED SEPARATELY AND IS NOT ALLOWABLE. IT WAS FURTHER ARGUED THAT THE LEARNED C IT(A) APPEALS ALLOWED IT ON WRONG PREMISES. ON THE OTHER HAND THE LD AR FOR ASS ESSEE ARGUED THAT THE ASSESSEE SUFFERED A LOSS ON ACCOUNT OF DISCONTINUAN CE OF DEALING IN BRANDS OF BOOTS COMPANY PLC AND LOSS ON DAMAGES, EXPIRING OF PERIOD, SHORTAGE ETC. IT WAS FURTHER ARGUED THE AO FAILED TO APPRECIATE THAT THE AFORESAID EXPENDITURE IS BROADLY RELATED TO BUSINESS AND IS ALLOWABLE UNDER THE PROVISIONS OF THE ACT AS REVENUE EXPENDITURE AND NOT TO BE TREATED AS A CAPI TAL EXPENDITURE . THE ASSESSEE HAS NOT MADE SEPARATE LOSS IN THE PROFIT AND LOSS A CCOUNT. THE LD AR OF ASSESSEE TO BUTTRESS HIS SUBMISSION RELIED UPON THE DECISIO NS OF HONBLE KERALA HIGH COURT IN TRAVANCORE TEA ESTATE COMPANY LTD VS CIT ( 1992) 197 ITR 528 (KER), IN JOSNA BANK LTD VS CIT (1974) 97 ITR 72(K ERALA) AND MADRAS HIGH COURT IN CIT VERSUS PATHINEN GRAMA ARYA VYSYA BANK (1977) 109 ITR 788 (MADRAS) 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF LD. AR OF PARTIES AND PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO CONSIDERE D THE VARIOUS DECISIONS CITED BY THE LD AR OF THE ASSESSEE. WE HAVE NOTICED THAT INITIALLY AO DISALLOWED RS. 6,00,88,000/-, HOWEVER, IT WAS RESTRICTED TO RS.5,3 5,37,000/- VIDE ORDER U/S 154 DATED 11.02.2010,ON THE APPLICATION OF THE ASSESSEE COMPANY. THE AO WHILE MAKING DISALLOWANCE CONCLUDED THAT ASSESSEE FAILED TO CLARIFY WHETHER LOSS IS ACTUAL OR NOTIONAL OR CAPITAL LOSS BECAUSE IN CASE OF PRODUCT DAMAGE, EXPIRING, SHORTAGE IS CLAIMED AND ALLOWED SEPARATELY. BEFORE CIT(A) THE ASSESSEE SUBMITTED BIFURCATION/ BREAKUP OF CLAIMS AS UNDER: ITA NO.1224/M/2011, AY 2007-0 8 BOOTS PIRAMAL HEALTHCARE LTD 3 SR NO PARTICULAR AMOUN T (000) 1 UNALLOCATED EXPENSES 1,00,41 2 LOSS ON DISCONTINUANCE OF DEALING IN BOOTS COMPAN Y PLC BRANDS 3,51,50 3 LOSS ON DIFFERENCE IN RATES ON DISCONTINUANCE OF DEALING IN BOOTS COMPANY PLC BRANDS 56,34 4 RAW MATERIAL/PACKING MATERIAL WRITTEN OF 27,12 TOTAL 5,35,37 THE LD CIT (A) AFTER CONSIDERING THE CLAIM OF ASSES SEE CONCLUDED AS UNDER: 6. I HAVE CONSIDERED THE ABOVE SUBMISSION VERY CAR EFULLY AND DETAILS FILED BEFORE ME AS WELL AS THE ORDER OF ASSESSING OFFICER . AFTER A DETAILED PERUSAL OF THE SAME, THE CONTENTION OF THE ASSESSEE AS REGARD TO UNALLOCATED EXPENSES OF RS. 1,00,41,000/- THAT THESE EXPENSES ARE RECURRING EXPENSES INCURRED DURING THE DAY TO DAY BUSINESS AGE ACCEPTABLE AND ACCORDIN GLY ALLOWED. AS REGARD TO AMOUNT OF RS. 3,51,50,000/-, THIS RELATES TO SLOW MOVING, NON- MOVING AND INACTIVE EXISTING STOCK OF STRAPSIL, SWE ETEX, CLEARSIL ETC, WHICH HAD TO BE WRITTEN -OFF DUE TO DISCONTINUANCE OF ITS SAL E AND MARKETING BY THE APPELLANT. THE WRITE-OFF AROSE OUT OF AGREEMENT DAT ED 14 SEPTEMBER 2006 WHEREBY THE APPELLANTS MARKETING RIGHTS IN THESE B RANDS WERE TRANSFERRED TO RBIL. THE DETAILS OF THESE ARE GIVEN AT PAGE 55-56 OF THE PAPER BOOK. NPIL HAS RAISED DEBIT NOTES ON THIS COUNT. AFTER VERIFICATIO N OF THE DETAILS/DEBIT NOTES I AM OF THE VIEW THAT THE WRITE-OFF ON ACCOUNT OF TH E INACTIVE SLOW-MOVING AND NON-MOVING THE STOCK IS RELATED TO THE BUSINESS AND THEREFORE AND ALLOWABLE EXPENDITURE IN THE HANDS OF APPELLANT. THE LOSS ON ACCOUNT OF DIFFERENCE IN RATES TOWARDS DISCOUNT ON SALES OF RS. 56,34,000/- AND THE WRITE OFF OF RAW MATERIAL AND PACKING MATERIAL OF RS. 27,12,000/-IS SIMILARLY RELATED TO DISCONTINUANCE OF DEALING IN BOOTS COMPANY PLC BRAN DS. BASED ON DETAILS FILED AND THE SUBMISSIONS MA DE BY THE APPELLANT. I AM OF THE VIEW THAT THE WRITE OFF/LOSS OF RS.4,34,96,000/- IS RELATED TO THE BUSINESS CARRIED OUT BY THE APPELLANT AND ACCORDINGLY ALLOWABLE. THI S GROUND OF APPEAL IS ALLOWED. WE HAVE SEEN THAT THE CLAIMS RAISED BY THE ASSESSEE WERE PURELY FACTUAL IN NATURE. THE AMOUNT OF RS. RS. 1,00,41,000/- WAS IN CURRED DURING THE DAY TO DAY BUSINESS AND WAS ALLOWABLE EXPENSES. RS. 3,51,50, 000/-, RELATES TO SLOW MOVING, NON-MOVING AND INACTIVE EXISTING STOCK OF S TRAPSIL, SWEETEX, CLEARSIL ETC, WHICH WERE WRITTEN -OFF DUE TO DISCONTINUANCE OF THEIR SALE AND MARKETING BY THE APPELLANT. MOREOVER THE WRITE-OFF ARISE DUE AGR EEMENT DATED 14 SEPTEMBER 2006 WHEREBY THE APPELLANTS MARKETING RIGHTS IN TH ESE BRANDS WERE TRANSFERRED TO RBIL . THE LOSS ON ACCOUNT OF DIFFERENCE IN RATES TOWARDS DISCOUNT ON SALES OF ITA NO.1224/M/2011, AY 2007-0 8 BOOTS PIRAMAL HEALTHCARE LTD 4 RS. 56,34,000/- AND THE WRITE OFF OF RAW MATERIAL A ND PACKING MATERIAL OF RS. 27,12,000/- IS SIMILARLY RELATED TO DISCONTINUANCE OF DEALING IN BOOTS COMPANY PLC BRANDS, THESE EXPENSES ARE RECURRING EXPENSES WERE ALLOWABLE AS REVENUE EXPENSES AND ACCORD INGLY ALLOWED BY LD CIT(A). THUS WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER PASSED BY LD C IT(A). ACCORDINGLY THE GROUND OF APPEAL RAISED BY REVENUE IS DISMISSED. 5. GROUND NO.2 RELATES TO THE DELETION OF ADVERTISEMEN T EXPENSES REIMBURSED TO NICOLAS PIRAMAL INDIA LTD AT RS. 64,46,180/-. THE AO MADE THE DISALLOWANCE ON ACCOUNT OF ADVERTISEMENT EXPENSES FOR SARIDON BM E HOLDING THAT NO TDS IS DONE ON THESE EXPENSES. THE ASSESSEE EXPLAINED THAT TDS WAS DONE ON THESE EXPENSES BY NPIL AND THEREFORE THE ASSESSEE HAS NOT MADE TDS ON THESE CREDITS TO NPIL. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTE D AND THE AO DISALLOWED THE ENTIRE AMOUNT OF RS. 64,46,180/-. BEFORE FIRST APPE LLATE AUTHORITY ASSESSEE EXPLAINED THAT NPIL HAD MADE ADVERTISEMENT EXPENSES AND THE ASSESSEE REIMBURSED THE SAME AND HAS NPI L HAS DEDUCTED TAX AT SOURCE. THE AR FOR THE ASSESSEE ALSO PLACED ON RECORD THE CERTIFICATE OF C A CERTIFYING THAT TDS HAS BEEN DEDUCTED BY NPIL ON THE PAYMENTS OF RS. 64,46,180/- . THE FIRST APPELLATE AUTHORITY CONSIDERING THE CONTENTIONS OF THE ASSESS EE THE ORDER FOR EARLIER PASSED BY HIS PREDECESSOR FOR AY 2005-06 ACCEPTED THE CONT ENTION OF THE ASSESSEE AND DELETED THE DISALLOWANCE. 6. THE LD AR OF THE ASSESSEE ARGUED THAT IDENTICAL ADD ITION WAS MADE IN THE PAST IN AY 2005-06 AND AGAIN IN AY 2006-07 AND THE MATTER WAS TRAVEL TO THE TRIBUNAL. THE TRIBUNAL VIDE ITA NO. 3213/M/2009 AN D IN ITA NO 1054/M/2011 FOR AY 2005-06 AND FOR AY 2006-07 RESPE CTIVELY ADJUDICATED IN FAVOUR OF ASSESSEE. THE LD DR FOR REVENUE NOT DI SPUTED THE FACTUAL POSITION SUBMITTED BY LD AR FOR ASSESSEE. 7. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND PERUSED THE ORDER OF TRIBUNAL FOR AY 200506 IN ITA NO. 3213/M/009 DATED 18 FEB 2015 AND FOR AY 2006-07 IN ITA NO.1054/M/20114 DATED 12 AUGUST 2015. THE COORDINATE BENCH OF THIS TRIBUNAL WHILE CONSIDERING THE IDENT ICAL ISSUES HELD AS UNDER: 4. DURING THE PROCEEDING BEFORE US, AT THE OUTSET , EXPLAINING THE ABOVE GROUNDS, LD DR FOR THE REVENUE SUBMITTED THAT ASSES SEE CLAIMED THE FOLLOWING EXPENDITURE VIZ; RS. 1,87,12,487/-ON ACCOUNT OF ADV ERTISEMENT EXPENSES AND RS.3,91,447/- ON ACCOUNT OF SALARY EXPENDITURE PAID TO MR. NERUKAR, AN EMPLOYEE OF NICOLAS PIRAMAL INDIA LTD(NPIL). THE CA SE OF THE REVENUE IS THAT THE SAID EXPENDITURE WAS INCURRED BY THE GROUP COMP ANY OF THE ASSESSEE I.E. NPIL. THESE EXPENSES WERE ACTUALLY INCURRED BY THE SAID COMPANY AND RECOVERED THE SAME FROM THE ASSESSEE. THE AO DID NO T ALLOW THE CLAIM OF THE ASSESSEE ON THESE TWO ACCOUNTS BY INVOKING THE PROV ISIONS OF SECTION 40(A)(IA) OF THE ACT FOR FAILURE OF THE ASSESSEE TO MAKE TDS ON SAID PAYMENTS. SIMILAR ITA NO.1224/M/2011, AY 2007-0 8 BOOTS PIRAMAL HEALTHCARE LTD 5 ADDITION WAS MADE IN THE PAST I.E. AY 2005-06. IN T HIS REGARD, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE IDENTICAL ADDIT ION WAS MADE IN THE PAST AND THE MATTER WAS TRAVEL TO THE TRIBUNAL VIDE APPEAL I TA NO 3123/M 2009 AND OTHERS AND FOR AYS 2004-05 AND 2005-06, ORDER DATED 18.02.2015, THE ISSUE WAS ADJUDICATED BY THE TRIBUNAL IN FAVOUR OF ASSESS EE AND AGAINST THE REVENUE. BRINGING OUR ATTENTION TO PARA 26 OF THE S AID ORDER OF THE TRIBUNAL(SUPRA), LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE TRIBUNAL HELD THAT IN RESPECT OF THE PAYMENTS BY WAY OF REIM BURSEMENTS, THE PROVISIONS OF SECTION 40(A)(IA) DO NOT APPLY FOR FAILURE TO MA KE TDS. THE DECISION WAS TAKEN BY TRIBUNAL ACTUALLY IN RESPECT OF ADVERTISE MENT EXPENSES. FURTHER, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN PRINCIPL E THE SIMILAR ISSUE APPLIES WITH EQUAL FORCE TO THE SALARY OF MR NERULKAR, WH ICH IS REIMBURSED BY THE ASSESSEE TO THE NPIL. CONSIDERING THE SIGNIFICANCE OF THE AND ALSO FOR THE SAKE OF COMPLETENESS OF THIS ORDER THE SAID PARA 26 OF T HE CRIMINAL IS EXTRACTED AS UNDER: 26. BEFORE US, THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER, THE LD COUNSEL FOR THE ASSESSEE REITERATED THE SAME FAC TS WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. IT IS AN UNDISPUTED FACT THAT THE ADVERTISEMENT EXPENSES HAVE BEEN INCURRED BY THE NPIL. IT IS ALSO UNDISPUTED FACT THAT THE ASSESSEE HAS SI MPLY CREDITED IT TO THE ACCOUNT OF NPIL AS REIMBURSEMENT OF THE EXPENDI TURE. IT IS FURTHER FOUND THAT NPIL HAS MADE TDS ON THE ADVERTI SEMENT EXPENSES. ALL THAT BEING THE FACTS OF THE MATTER, W E DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF LD CIT(A). GROUND NO 3 IS ACCORDINGLY DISMISSED. 8. THUS RESPECTFULLY FOLLOWING THE DECISION OF COORDIN ATE BENCH AS STATED ABOVE, WE DIRECT THE AO TO ALLOW THE SIMILAR RELIEF TO ASSESS EE AFTER VERIFICATION, IF THIS YEAR THE TDS ON THE SAID PAYMENTS WAS DEDUCTED BY NPIL. WE DIRECT ACCORDINGLY. 9. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 ND NOV, 2016. SD/- SD /- (R.C.SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 02/11/2016 S.K.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT ITA NO.1224/M/2011, AY 2007-0 8 BOOTS PIRAMAL HEALTHCARE LTD 6 BY ORDER (ASSTT.RE GISTRAR) ITAT, MUM BAI 5. DR, ITAT, MUMBAI 6. GUARD FILE.