ACIT, CHENNAI V. M/s. Chemech Laboratories Limited, CHENNAI

ITA 1338/CHNY/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5409 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-02-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 15-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Section: 143(3); 10

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CHENNAI. . , . !' !' !' !' , # # # # $ $ $ $ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.1338/MDS/2012 # ' %' / ASSESSMENT YEAR:2003-04 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), CHENNAI 600 034. VS. M/S. CHEMECH LABORATORIES LIMITED, CHEMECH HOUSE, 5, 10 TH SECTOR, 65 TH STREET, K.K. NAGAR WEST, CHENNAI 600 078. [PAN : AAACC4678F] ( &' &' &' &' / APPELLANT ) ( ()&' ()&' ()&' ()&' / RESPONDENT ) &' * + / APPELLANT BY : SHRI N. MADHAVAN, JCIT ()&' * + / RESPONDENT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVOCATE * , / DATE OF HEARING : 20.02.2014 -% * , /DATE OF PRONOUNCEMENT : 27.02.2014 . . . . / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, CHENNAI, DATED 16.03.2012 RELEVANT TO THE ASSESSMENT YEAR 2003-04. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS AND TRADING OF PHARMACEUTICAL PRODUCTS. TH E ASSESSEE FILED ITS I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.13 1313 1338 3838 38/M/ /M/ /M/ /M/1 11 12 22 2 2 RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003-04 AD MITTING TOTAL INCOME OF ` .39,01,754/-. THE ASSESSMENT WAS COMPLETED UNDER SE CTION 143(3) ON 27.12.2006 BY DETERMINING TOTAL INCOME AT ` .2,52,44,789/- AFTER MAKING ADDITION OF NON-COMPETE FEE AT ` .4.00 CRORES UNDER THE HEAD INCOME FROM BUSINESS ETC. IN THIS CASE, THE ASSESSEE HAD ENTER ED INTO A BRAND ACQUISITION AGREEMENT WITH M/S. SOLVAY PHARMA (I) L TD. FOR A CONSIDERATION OF ` .6.00 CRORES AND HAD RECEIVED ` .4.00 CRORES DURING THE ASSESSMENT YEAR 2003-04 AND CLAIMED LONG TERM CAPITAL GAINS. THE BA LANCE AMOUNT OF ` .2.00 CRORES WAS TO BE PAID ONLY ON FULFILLING CERTAIN CO NTRACTUAL OBLIGATIONS. 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFIC ER, THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(APPEALS) AND THE LD. C IT(APPEALS) HAS OBSERVED THAT THE ENTIRE SALE CONSIDERATION OF ` .6.00 CORES AS RECEIPTS FOR THE ASSESSMENT YEAR 2003-04 ITSELF AND HE FURTHER BIFUR CATED THE RECEIPTS BETWEEN THE HEADS LONG TERM CAPITAL GAINS AND PR OFITS AND GAINS OF BUSINESS. AS AGAINST THIS ORDER, THE ASSESSEE WENT IN FURTHER APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL IN ORDER IN I.T.A. NO . 2216/MDS/2006 DATED 01.06.2007 PARTLY ALLOWED THE ASSESSEES APPEAL. TH EREAFTER, THE ASSESSEE FILED A M.A AND SUBSEQUENTLY THE TRIBUNAL HAS PASSE D ANOTHER ORDER DATED 17.10.2007 AND THE TRIBUNAL HAS HELD AS UNDER: 3. BOTH THE PARTIES AGREED THAT THESE GROUNDS WER E NOT ADJUDICATED AT THE TIME OF HEARING. IN ORDER TO DECIDE THE AFOR ESAID ISSUES ALL THE FACTUAL DETAILS NEED TO BE EXAMINED. REQUEST WAS MA DE TO RESTORE THE ISSUES TO THE FILE OF THE ASSESSING OFFICER. WE, TH EREFORE, SET ASIDE THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.13 1313 1338 3838 38/M/ /M/ /M/ /M/1 11 12 22 2 3 IMPUGNED ORDER AND RESTORE THE AFORESAID ISSUES TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE SA ME IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORTUNITY TO TH E ASSESSEE OF BEING HEARD. 4. THEREAFTER, THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS ASKED THE AS SESSEE TO FILE DETAILS OF PAYMENTS OR CONSIDERATION IN CONNECTION WITH THE BR AND TRANSFER. IN RESPONSE TO THE ABOVE, THE ASSESSEE FILED WRITTEN SUBMISSION S DATED 29.12.2008, WHEREIN IT HAS SUBMITTED THAT THE ASSESSEE HAS INCU RRED BY WAY OF NON- RECOVERY OF MANY OF THE AMOUNTS FROM ITS STOCKISTS AND HAD ALSO PAID DAMAGES AND CLAIMS FOR NON-MOVEMENT OF STOCK HELD B Y VARIOUS AGENTS, CLAIMS TOWARDS EXPIRY STOCK, BREAKAGES, SHORTAGES, RATE DIFFERENCE, IN RESPECT OF SALES OF THESE PRODUCTS FOR WHICH THE BR ANDS WERE SOLD. THE ASSESSEE HAS SUBMITTED THAT IT HAS INCURRED TOTAL E XPENDITURE OF ` .1.87 CRORES PAID TO AGENTS, STOCKISTS BEFORE CLAIM THE S ALE CONSIDERATION. THE ASSESSING OFFICER, AFTER CONSIDERING THE EXPLANATIO N OF THE ASSESSEE HAS OBSERVED THAT THE ASSESSEE HAS NOT CLAIMED THESE EX PENSES IN THE RETURN OF INCOME AND WHATEVER EXPENSES INCURRED BY THE ASSESS EE IN CONNECTION WITH TRANSFER OF BRAND NAME AND TECHNICAL KNOW-HOW, ETC. HAS ALREADY BEEN ALLOWED IN THE ASSESSMENT YEARS 2004-05 AND 2005-06 AND THE CLAIM OF THE ASSESSEE IS ONLY AFTER THOUGHT AND THE ASSESSING OF FICER HAS DENIED THE CLAIM OF THE ASSESSEE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.13 1313 1338 3838 38/M/ /M/ /M/ /M/1 11 12 22 2 4 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(APPEALS). THE LD. CIT(APPEALS) HAS OBSERVED THA T THE ITAT HAS DIRECTED TO EXAMINE THE CORRECTNESS OF THE EXPENDITURE INCUR RED IN THE ASSESSMENT YEAR 2003-04 AND ALLOW THE SAME IF IT RELATES TO TH E GIVEN ADVANCES BY AN ORDER. THE LD. CIT(APPEALS), BY FOLLOWING THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF J.K. INDUSTRIES LTD. A ND ANR. V. UNION OF INDIA AND ORS IN 213 CTR 301 AND ALLOWED THE CLAIM OF THE ASSESSEE AND RELEVANT PORTION IS REPRODUCED AS UNDER: 4.7 THE ITAT HAD SET ASIDE THE ASSESSMENT WITH A LIMITED PURPOSE TO EXAMINE THE CLAIMS OF EXPENDITURE AND IF FOUND TO B E CORRECT THE SAME SHOULD BE SET OFF AGAINST PROFITS IN A.Y.2003-04 IT SELF. THE UNDERLYING PRINCIPLE OF MATCHING THE INCOME AGAINST EXPENDITUR E, EXPRESSED BY THE HON'BLE APEX COURT IN THE CASE OF CALCUTTA CO. LTD. IS FOUND TO BE APPLICABLE TO THE FACT SITUATION IN THE PRESENT CAS E. THE ADDITIONAL GAINS OF RS.2 CRORES HAD NOT ARISEN IN F.Y.2002-03 RELEVA NT FOR AY. 2003-04, BUT ONLY ACCRUED. UNDER MERCANTILE SYSTEM OF ACCOUN TING, THE ACCRUED LIABILITY CORRESPONDING TO THE GAINS SHOULD ALSO NE CESSARILY GET ADJUSTED AGAINST INCOME IN THE YEAR THE RECEIPTS ARE TAXED, ON ACCRUAL BASIS. INCOME AND CORRESPONDING EXPENDITURE HAVE TO BE ACC OUNTED IN THE SAME ACCOUNTING YEAR. RELIANCE IS PLACED ON THE JUD GMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF J.K. INDUSTRIE S LTD. AND ANR. V. UNION OF INDIA AND ORS, IN 213 CTR 301. PARAGRAPH 8 2 OF THE SAID JUDGMENT IS REPRODUCED HEREINBELOW: '82. MATCHING CONCEPT IS BASED ON THE ACCOUNTING PE RIOD CONCEPT. THE PARAMOUNT OBJECT OF RUNNING A BUSINESS IS TO EARN PROFIT. IN ORDER TO ASCERTAIN THE PROFIT MADE BY TH E BUSINESS DURING A PERIOD, IT IS NECESSARY THAT 'REVENUES' OF THE PERIOD SHOULD BE MATCHED WITH THE COSTS (EXPENSES) OF THAT PERIOD. IN OTHER WORDS, INCOME MADE BY THE BUSINESS DURING A P ERIOD CAN BE MEASURED ONLY WITH THE REVENUE EARNED DURING A P ERIOD IS COMPARED WITH THE EXPENDITURE INCURRED FOR EARNING THAT REVENUE. ' I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.13 1313 1338 3838 38/M/ /M/ /M/ /M/1 11 12 22 2 5 FOLLOWING THE RATIO OF DECISIONS OF THE HON'BLE SUP REME COURT IN THE CASES OF CALCUTTA CO. LTD AND J.K. INDUSTRIES LTD ( SUPRA), THE A.O.IS DIRECTED TO ALLOW THE EXPENDITURE OF RS.1.87 CRORES SPENT IN F.Y.2003- 04 BY TREATING IT AS COST OF ASSET FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS U/S 48 OF THE I.T. ACT, 1961. THE GRO UND IS ALLOWED. 6. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BE FORE THE TRIBUNAL. 7. THE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT FILED ANY DETAILS BEFORE THE ASSESSING OFFICER WITH REGARD TO THE PAY MENTS MADE TO THE AGENTS, STOCKISTS AND THEREFORE THE CLAIM OF THE AS SESSEE IS NOT GENUINE AND SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER . 8. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE HAS SUBMITTED THAT ONCE THE ASSESSING OFFICER HAS ASSESSED THE EN TIRE INCOME AND CORRESPONDING EXPENDITURE ALSO HAS TO BE ADVANCED A ND ALLOWED. HE STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT( APPEALS). 9. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS EE HAD ENTERED INTO BRAND ACQUISITION AGREEMENT WITH M/S. SOLVAY PHARMA (I) LTD. FOR A CONSIDERATION OF ` .6.00 CRORES AND RECEIVED ` .4.00 CRORES DURING THE ASSESSMENT YEAR 2003-04 AND REMAINING BALANCE OF ` .2.00 CRORES WAS TO BE PAID ONLY ON FULFILLING CERTAIN CONTRACTUAL OBLIGAT IONS. HOWEVER, THE ASSESSING OFFICER HAS ASSESSED THE ENTIRE ` .6.00 CRORES IN THE YEAR UNDER CONSIDERATION AND WHEN THE MATTER FINALLY REACHED ITAT, THE ITAT IN I.T.A. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.13 1313 1338 3838 38/M/ /M/ /M/ /M/1 11 12 22 2 6 NO.2216/MDS/2006 DATED 01.06.2007 CONFIRMED THE ORD ER PASSED BY THE ASSESSING OFFICER, THE ENTIRE SUM OF ` .6.00 CRORES IS ASSESSABLE TO TAX IN THE YEAR UNDER CONSIDERATION. SUBSEQUENTLY, BY ORDER DATED 17.10.2007, THE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO CONS IDER THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE IN ACCORDANCE WITH L AW. THE ASSESSING OFFICER, AS PER THE DIRECTIONS OF THE ITA T VIDE ORDER DATED 17.10.2007 HAS GIVEN AN OPPORTUNITY AND CALLED THE ASSESSEE TO FILE DETAILS IN RESPECT OF PAYMENTS OF ` .1.80 CRORES WITH REGARD TO PAYMENTS TO AGENTS, STOCKISTS, ETC. INSPITE OF FILING THE DE TAILS, THE ASSESSEE HAS SUBMITTED A DETAILED REPLY DATED 29.12.2008. THERE IS NOTHING ON RECORD TO SHOW THE DETAILS AS STATED TO HAVE BEEN F ILED BY ASSESSEE BEFORE THE ASSESSING OFFICER WITH REGARD TO THE EXP ENSES INCURRED TOWARDS PAYMENTS TO AGENTS, STOCKISTS, ETC. WHEN TH E ENTIRE SALE PROCEEDS ARE ADVANCED, THE EXPENDITURE SHOULD BE AD VANCED AFTER FULFILLING THE CONDITIONS AND ENTIRE DETAILS OF EXP ENDITURE SHOULD HAVE BEEN FILED BEFORE THE ASSESSING OFFICER. EVEN THE O RDER OF THE LD. CIT(APPEALS) IS SILENT ABOUT THE DETAILS. THEREFORE , WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(APPEALS) AND REMIT THE MATTER BACK TO THE LD. CIT(APPEALS) WITH THE DIRECTION TO EXAMINE THE DETAILS AS STATED TO HAVE BEEN FILED BY THE ASSESSEE IN RESPECT OF THE E XPENDITURE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.13 1313 1338 3838 38/M/ /M/ /M/ /M/1 11 12 22 2 7 AMOUNTING TO ` .1.80 CRORES AND DECIDE THE ISSUE AFRESH IN ACCORDA NCE WITH LAW. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 27 TH OF FEBRUARY, 2014 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 27.02.2014 VM/- TO: THE ASSESSEE/A.O./CIT(A)/CIT/D.R.