ACIT, Pune V. M/S SERUM INTERNATIONAL LTD, Pune

ITA 1618/PUN/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1912 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SANTO SH KUMAR
• Assessee Lawyers: R D ONKAR
• Keywords: Gift; Business income; Opportunity of being heard
• Section: 43B; 143(3); 37; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 1578 /PN/201 2 / ASSESSMENT YEAR : 20 0 8 - 0 9 SERUM INSTITUTE OF INDIA (ERSTWHILE SERUM INTERNATIONAL LTD.) SAROSH BHAVAN, 16 - B/1, DR. AMBEDKAR ROAD, PUNE 411001 . / APPELLANT PAN: AA CCS3929D VS. THE ADDL . COMMISSIONER OF INCOME TAX, RANGE 6, PUNE . / RESPONDENT . / ITA NO. 1618 /PN/201 2 / ASSESSMENT YEAR : 20 0 8 - 0 9 THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 6, PUNE . / APPELLANT VS. SERUM INSTITUTE OF INDIA (ERSTWHILE SERUM INTERNATIONAL LTD.) SAROSH BHAVAN, 16 - B/1, DR. AMBEDKAR ROAD, PUNE 411001 . / RESPONDENT PAN: AACCS3929D ASSESSEE BY : SHRI R.D. ONKAR R EVENUE BY : DR. SANTOSH KUMAR / DA TE OF HEARING : 09 . 0 3 .201 6 / DATE OF PRONOUNCEMENT: 29 . 0 4 .201 6 ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 2 / ORDER PER SUSHMA CHOWLA, JM: THE CROSS APPEAL S FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST ORDER OF CIT (A) - III , PUNE , DATED 2 3 . 12 .201 1 RELATING TO ASSESSME NT YEAR 200 8 - 0 9 AGAINST ORDER PASSED U NDER SECTION S 143(3) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT) . 2 . THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE O F CONVENIENCE. 3. THE ASSESSEE IN ITA NO.1578/PN/2012 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN: 1 . C ONFIRMING THE DISALLOWANCE OF THE PROVISION FOR LEAVE ENCASHMENT AM OUNTING TO RS.7,86,853/ - ASCERTAINED ON THE BASIS OF ACTUARIAL VALUATION FOR THE ELIGIBLE EMPLOYEES OF THE APPELLANT COMPANY. 2 . CONFIRMING THE DISALLOWANCE OF RS.50,96,657/ - OUT OF SALES PROMOTION EXPENSES AND IN ANY EVENT ENHANCING THE DISALLOWANCE BY RS .36,90,771/ - WITHOUT GIVING THE APPELLANT AN OPPORTUNITY OF BEING HEARD. 3 . CONFIRMING THE DISALLOWANCE FOR FOREIGN TRAVEL EXPENSES AMOUNTING TO RS.2,85,610/ - RS.2,85,610/ - 4 . THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER, AMEND, AMEND WITHDRAW ANY OF THE GROUNDS OF APPEA L MENTIONED ABOVE AT THE TIME OF APPEAL HEARING. 4. THE REVENUE IN ITA NO.1 618 /PN/2012 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 . THE ORDER OF THE LEA R NED CIT (APPEALS ) I S CONTRA R Y TO LAW AND TO THE FACTS AND C I RCUMSTANCES OF THE CASE . 2 . TH E COMMISSIONER OF INCO M E - TAX(APPEALS) ERRED ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW , IN HOLDING THAT THE INITIAL ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 3 ASSESSMENT YEAR FOR THE PU R POSE OF CLAIMING DEDUCTION U/S 80IA(2) OF THE ACT , WAS THE FIRST YEAR IN WHICH THE ASSESSEE MADE SUCH CLAIM AFTER EXERCISING THE OPTION , IGNORING THE PROVISIONS OF SECTION 80IA(2) ACCORDING TO WHICH THE F I RST YEAR WAS THE YEAR IN WHICH THE ASSESSEE STARTED GENERATING ELECTRICITY. STARTED GENERATING ELECTRICITY. 3 . THE COMMISSIONER OF I NCOME - TAX ( APPEALS) ERRED O N FACTS AND IN LAW I N HOLDING THAT WHEN THE ASSESSEE EXERCISES THE OPTION , ONLY THE LOSSES OF THE YEAR BEGINNING FROM THE INITIAL ASSESSMENT YEAR ARE TO BE BROUGHT FORWARD AND NOT THE LOSSES OF EARLIER YEARS , I GNORING SECTION 80IA(5) WHICH STIPULATES THAT FOR THE PURPOSE O F DETERMINING THE QUANTUM OF DEDUCT I ON UNDER SECTION 80IA(1) , PROFITS AND GAINS OF BUSINESS OF ' THE ASSESSEE IS TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO TH E INITIAL A SSESSMENT YEAR AND THE SUBSEQUENT ASSESSMENT YEAR . 4 . THE COMMISS I ONER OF INCOME - TAX (APPEALS) ERRED ON FACTS AND IN LAW IN FOLL O WING THE DECISION OF T H E JURISDICTIONAL ITAT IN THE ASSESSEE ' S LAW IN FOLL O WING THE DECISION OF T H E JURISDICTIONAL ITAT IN THE ASSESSEE ' S OWN CASE FOR EARLIER YEARS , WHEN THE EARL I ER DEC I S I ON OF I TAT , PUNE FAVOURING THE REVENUE ON THE SAME ISSUE WAS NOT BROUGHT TO THE NOTICE OF THE ITAT , PUNE AND THE BENCH D I D NOT HAVE THE BENEFIT OF THIS DECIS I ON WHILE RENDERING TH E DECISION IN THE ASSESSEE ' S OWN CASE FOR EARLIER YEA R S. 5 . FOR THIS AND SUCH OTHER REASONS AS MAY BE URGED AT THE TIME OF THE HEARING , THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESS I NG OFFICER BE R ESTORED. 6 . THE APPELLANT CRAVES LEAVE TO ADD , AMEND , ALTER OR DELETE ANY OF THE AB OVE G ROUNDS OF APPEAL DURING THE COURSE OF THE APPELLATE PROCEEDINGS BEFORE THE ITAT. 5. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1 BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF PROVISION MADE FOR LEAVE ENCASHMENT AMOUNTING TO RS. 7,86,853/ - . 6. BRIEF LY, THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD DEBITED SUM OF RS.41,19,961/ - TOWARDS LEAVE ENCASHMENT. OUT OF WHICH, SUM OF SUM OF RS.41,19,961/ - TOWARDS LEAVE ENCASHMENT. OUT OF WHICH, SUM OF RS.33,33,106/ - WAS ACTUALLY PAID DURING THE YEAR AND THE REMAINING SUM OF RS. 7,86,853/ - WAS ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT. THE CLAIM OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT THE SAID PROVISION WAS ASCERTAINED ON ACTUARIAL VALUATION BASIS, WHICH WAS DIFFERENT THAN THE ONE DESCRIBED IN SECTION 43B(F) OF THE ACT. AS PER THE ASSESSEE, THE SAID PROVISION WAS REQUIRED TO BE MADE AS PER ACCOUNTING STANDARD 15 ISSUED BY INSTITUTE OF WAS REQUIRED TO BE MADE AS PER ACCOUNTING STANDARD 15 ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) AND IN TERMS OF MERCANTILE ACCOUNTING ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 4 SYSTEM BEING FOLLOWED BY THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT A S PER SECTION 43B(F) OF THE ACT, DEDUCTION FOR LEAVE ENCASHMENT PAYABLE TO THE EMPLOYEES COULD BE ALLOWED ONLY ON ACTUAL BASIS. ACCORDINGLY, THE DEDUCTION CLAIMED AMOUNTING TO RS.7,86,853/ - WAS DISALLOWED. 7. BEFORE THE CIT(A), THE CLAIM OF ASSESSEE WAS THAT THE SAME PROVIDED BY IT WAS ON THE BASIS OF ACTUARIAL VALUATION, THEREFORE, THE PROVISIONS OF SECTION 43B(F) OF THE ACT WERE IN - APPLICABLE. IT WAS FURTHER ARGUED THAT THE LEAVE ENCASHMENT WAS NOT A STATUTORY LIABILITY UNLIKE PF, ESIC, ETC. AND SO LON G AS LEAVE ENCASHMENT WAS OF CONTRACTUAL LIABILITY BETWEEN THE EMPLOYER AND EMPLOYEE, THE PROVISIONS OF SECTION 43B(F) OF THE ACT WERE IN - APPLICABLE. THE CIT(A) ON THE OTHER HAND, WAS OF THE VIEW THAT UNDER SECTION 43B OF THE ACT, DEDUCTION IN RESPECT OF CERTAIN TYPES OF EXPENDITURE IS ALLOWABLE, IN COMPUTATION OF INCOME OF THE ASSESSEE, ONLY IN THE YEAR IN WHICH THE SAME AMOUNT IS ACTUALLY PAID, IRRESPECTIVE OF THE YEAR IN WHICH THE LIABILIT Y TO PAY SUCH AMOUNT HAD PAID, IRRESPECTIVE OF THE YEAR IN WHICH THE LIABILIT Y TO PAY SUCH AMOUNT HAD ARISEN, IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THE TYPES OF EXPENDITURE INCLUDE THE SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEES, AND CONTRIBUTION TO PROVIDENT / SUPERANNUATION/ GRATUITY FUNDS FOR WELFARE OF THE EMPLOYEES. THE FINANCE A CT, 2001 AMENDED SECTION 43B OF THE ACT BY INSERTING NEW CLAUSE W.E.F. 01.04.2002 WHICH STATES THAT ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER IN LIEU OF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE SHALL BE ALLOWED AS DEDUCTION ONLY ON ACTUAL PAYMENT BASIS . IN VIEW OF THE AMENDED PROVISIONS OF SECTION 43B(F) OF THE ACT, THE CIT(A) HELD THAT THE PROVISION FOR LEAVE ENCASHMENT WAS NOT TO BE ALLOWED AS DEDUCTION UNLESS THE AMOUNT WAS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE DUE DATE OF FILING THE RETURN OF INCOME. THE CIT(A) FURTHER NOTED THAT THE ASSESSEE HAD PLACED RELIANCE ON THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN EXCIDE INDUSTRIES LTD. & ANR VS. UOI (2007) 292 ITR 470 (CAL) , WHEREIN THE HONBLE ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 5 HIGH COURT HAD STRUCK DOWN INSERTION OF CLAUSE (F) IN SECTION 43B OF THE ACT, BUT THE CIT(A) HOWEVER, OBSERVED THAT THE SAID JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT HAS BEEN STAYED BY THE HONBLE SUPREME COURT VIDE ORDER DATED 25.09.2009 AS REPORTED IN ITAT ONLINE WEBSITE AND AS ON DATE, THE PROVISIONS OF SECTION 43B(F) OF THE ACT WERE IN FORCE AND APPLYING THE SAME, THE CIT(A) UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 8. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRL Y CONCEDED THAT THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1 IS TO BE DECIDED AGAINST THE ASSESSEE IN THE LIGHT OF AMENDED PROVISIONS OF SECTION 43B(F) OF THE ACT. 10. IN VIEW OF THE AMENDED PROVISIONS OF SECTION 43B OF THE ACT, WHEREIN CLAUSE (F) HAS BE EN INSERTED, WE FIND NO MERIT IN THE CLAIM OF ASSESSEE IN THIS CLAUSE (F) HAS BE EN INSERTED, WE FIND NO MERIT IN THE CLAIM OF ASSESSEE IN THIS REGARD TO THE PROVISION FOR LEAVE ENCASHMENT, WHICH WAS MADE BY THE ASSESSEE AS ON CLOSE OF THE YEAR, SINCE IT WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, THE SAID AMOUNT HAS NOT B EEN PAID TO THE EMPLOYEES BEFORE DUE DATE OF FILING THE RETURN OF INCOME AND HENCE, THE SAME IS TO BE DISALLOWED UNDER SECTION 43B(F) OF THE ACT. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE. 1 1 . THE ISSUE RA ISED VIDE GROUND OF APPEAL NO.2 IS AGAINST THE DISALLOWANCE MADE OUT OF SALES PROMOTION EXPENSES. 1 2 . THE ASSESSEE IS AGGRIEVED BY THE DISALLOWANCE MADE OF RS. 50,96,657/ - OUT OF SALES PROMOTION EXPENSES BY THE ASSESSING OFFICER, WHICH HAS BEEN ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 6 UPHELD BY THE CIT(A) AND FURTHER, DISALLOWANCE HAS BEEN ENHANCED BY RS. 36,90,771/ - . 1 3 . THE GRIEVANCE OF THE ASSESSEE BEFORE US IS THAT THE SAID ENHANCEMENT HAS BEEN MADE WITHOUT GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. 1 4 . THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED EXPENDITURE TO THE TUNE OF RS. 41,96,741/ - UNDER THE HEAD SALES PROMOTION EXPENSES. THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD SALES PROMOTION EXPENSES WA S RS. 1,37,93,473/ - WHICH INCLUDED THE ITEMS ON ACCOUNT OF GIFTS TOTALING RS.41,96,741/ - . THE ASSESSEE ALLOCATED THE EXPENDITURE INCURRED ON SALES PROMOTION ON BEHALF OF SISTER CONCERN SERUM INSTITUTE INDIA LTD. TO THE TUNE OF RS. 45,00,075/ - AND CLAIMED TH E EXPENDITURE OF RS. 92,93,398/ - IN ITS PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER IN THE FIRST INSTANCE CONSIDERED THE CLAIM LOSS ACCOUNT. THE ASSESSING OFFICER IN THE FIRST INSTANCE CONSIDERED THE CLAIM OF EXPENDITURE TO THE TUNE OF RS. 41,96,741/ - AND HELD THAT THE SAME WAS NOT ALLOWABLE AS IT RELATED TO GIFTS. IN RESPECT OF BAL ANCE EXPENDITURE, THE ASSESSING OFFICER WAS OF VIEW THAT THE ALLOCATION MADE TO SERUM INSTITUTE INDIA LTD. , A GROUP COMPANY WHOSE SALES WERE RS. 985.77 CRORES AS AGAINST THE TOTAL SALES OF THE ASSESSEE AT RS.36.16 CRORES, WAS NOT CORRECT. THE EXPLANATION O F THE ASSESSEE IN THIS REGARD WAS THAT THE ASSESSEE WAS ENGAGED IN TRADING OF GOODS IN A COMPET ITIVE LOCAL MARKET WHILE SIIL WAS THE MANUFACTURER OF VARIOUS VACCINES MAINLY FOR EXPORT PURPOSE, WAS REJECTED BY THE ASSESSING OFFICER. THE STAND OF THE ASSESS ING OFFICER WAS THAT THE ARRANGEMENT WAS AN ATTEMPT TO TRANSFER HUGE EXPENDITURE TO THE ASSESSEES ACCOUNT, WHERE THE PROFITS OF THE SISTER CONCERN WERE EXEMPT FROM TAX. ACCORDINGLY , THE ASSESSING OFFICER IN THE ORDER PASSED UNDER SECTION 143(3) OF THE AC T DISALLOWED RS. 88,05,304/ - BEING THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 7 THEREAFTER, PASSED AN ORDER UNDER SECTION 154 OF THE ACT, WHEREIN THE DISALLOWANCE MADE AT RS. 88,05,304/ - WAS REDUCED TO RS. 50,96,65 7 / - . THUS, THE TOTAL DISALLOWANCE CONSEQUENT TO THE ORDER PASSED UNDER SECTION 154 OF THE ACT WAS RS. 92,93,398/ - I.E. RS.41,96,741/ - PLUS RS.50,96,657/ - . 1 5 . THE CIT(A) IN THE FIRST INSTANCE, CONSIDERED THE EXPENDITURE OF RS. 41,96,741/ - AND VIDE PARA 5.3 HELD THAT THE ASSESSEE WAS ENTITLED TO THE CLAIM OF SAID EXPENDITURE. ADMITTEDLY, THE REVENUE IS NOT IN APPEAL AGAINST THE SAID EXPENDITURE. HOWEVER, AS AGAINST BALANCE ALLOCATION OF SALES PROMOTION EXPENSES TO SIIL, THE SISTER CONCERN, THE CIT(A) NOTED THAT THE T OTAL EXPENDITURE INCURRED ON ACCOUNT OF SALES PROMOTION WAS RS. 1,37,93,473/ - WHICH INCLUDED THE EXPENDITURE ON AFORESAID GIFT ITEMS OF RS. 41,96,741/ - , WHICH HAS BEEN HELD TO BE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND ALLOWABLE DEDUCTION UNDER SECTIO N 37 OF THE ACT , BY HIM. HOWEVER , IN RESPECT OF BALANCE AMOUNT OF RS.92,93,398/ - , THE CIT(A) NOTED THAT THE SAME WAS CLAIMED BY THE ASSESSEE IN RS.92,93,398/ - , THE CIT(A) NOTED THAT THE SAME WAS CLAIMED BY THE ASSESSEE IN ITS HANDS AS THE EXPENDITURE AND SUM OF RS. 45,00,075/ - WAS CLAIMED BY THE SISTER CONCERN AS EXPENDITURE. SINCE THE ASSESSEE HAS FAILED TO EXPLAIN THE BASIS ON WHICH ALLOCATION WAS MADE TO SIIL, THE SAME WAS NOT ACCEPTED AND THE BASIS FOR ALLOCATION OF EXPENSES WAS TAKEN TO B E THE TURNOVER OF TWO COMPANIES. T HE CIT(A) WAS OF THE VIEW THAT WHERE THE TURNOVER OF SII L DURING THE YEAR WAS RS. 985.78 CRORES, WHICH INCLUDED DOMESTIC TURNOVER OF RS. 222.40 CRORES AND EXPORT TURNOVER OF RS. 763.38 CRORES AS AGAINST THE TURNOVER OF ASSESSEE AT RS. 36.16 CRORES, THE ALLOCATION OF EXPENSES IS TO BE MADE ON THE BASIS OF TURNOVER A ND THE EXPENDITURE WHICH COULD BE APPORTIONED TO THE ASSESSEE WAS RS. 5,05,972/ - AND THE EXPENDITURE ATTRIBUTABLE TO SIIL WAS RS. 1,32,87,501/ - . ACCORDINGLY, THE REMAINING SALES PROMOTION EXPENSES OF RS. 87,87,426/ - I.E. RS. 1,32,87,501/ - - RS.45,00,075/ - WAS HELD TO BE ATTRIBUTABLE TO SIIL AND THE SAME WAS HELD TO BE NOT ALLOWABLE IN THE HANDS OF ASSESSEE . THUS, THE ADDITION ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 8 MADE ON THIS COUNT OF RS.50,96,657/ - AS REVISED BY THE ORDER PASSED UNDER SECTION 154 OF THE ACT WAS ENHANCED TO RS.87,87,426/ - . 1 6 . T HE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 1 7 . THE FIRST PLEA RAISED BY THE ASSESSEE BEFORE US IS THAT THE CIT(A) HAS WORKED OUT THE DISALLOWANCE INCORRECTLY. IN THE FIRST INSTANCE, HE ALLOWED THE GIFT ARTICLES OF ABOUT RS.41 LAKHS AND THEN DI SALLOWED RS.92 LAKHS I.E. 95% OF RS.92 LAKHS I.E. RS.87 LAKHS HAS BEEN DIS ALLOWED IN THE HANDS OF ASSESSEE. HE FURTHER, POINTED OUT THAT THE TURNOVER CRITERIA APPLIED BY THE CIT(A) WAS WRONGLY WORKED AND THE CLAIM OF THE ASSESSEE WAS THAT THE BALANCE EXPE NDITURE BE ALLOWED IN THE HANDS OF ASSESSEE. HE FURTHER POINTED OUT THAT THE CIT(A) HAD ALLOWED THE TOTAL EXPENDITURE OF RS.41 LAKHS, THEN ONLY BALANCE EXPENDITURE HAS TO BE CONSIDERED UNDER THE HEAD SALES PROMOTION EXPENSES. IN RESPECT OF THE NATURE O F EXPENDITURE, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE NATURE O F EXPENDITURE, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE COMPLETE DETAILS WERE FILED BEFORE THE AUTHORITIES BELOW AND IT MAY GO BACK FOR VERIFICATION OF EXPENSES. 1 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 1 9 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE TOTAL EXPENDITURE CLAIMED UNDER THE HEAD SALES PROMOTION EXPENSES WAS RS. 1,37,93,473/ - WHICH INCLUDED THE EXPENDITURE ON GI FT ARTICLES OF RS. 41,96,741/ - . OUT OF THE TOTAL EXPENDITURE OF RS.1,37,93,473/ - , THE ASSESSEE HAD APPORTIONED EXPENDITURE INCURRED ON SALES PROMOTION ON BEHALF OF SIIL TO THE TUNE OF RS. 45,00,075/ - AND CLAIMED TOTAL EXPENDITURE OF RS.92,93,398/ - . THE LEA RNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS PLACED ON RECORD THE ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 9 DETAILS OF SALES PROMOTION EXPENSES AT AGES 13 TO 22 OF THE PAPER BOOK, WHICH WAS CLAIMED TO HAVE FILED BEFORE THE AUTHORITIES BELOW. HOWEVER, THE NATURE OF EXPENSES HAVE NOT BEEN GO NE INTO BY ANY AUTHORITIES BELOW AND WHERE THE SAME ARE TO BE ALLOWED AS SALES PROMOTION EXPENSES, THE FIRST ASPECT TO BE KEPT IN MIND IS THAT THE CIT(A) HAS ALLOWED THE EXPENDITURE ON GIFT ARTICLES TOTALING RS.41,96,741/ - , AGAINST WHICH THE REVENUE IS NOT IN APPEAL, HENCE, OUT OF TOTAL EXPENDITURE OF RS.1,37,93,473/ - , EXPENDITURE OF RS.41,96,741/ - STANDS ALLOWED. 20 . THE QUESTION OF DISALLOWANCE RELATES TO THE BALANCE EXPENDITURE, THE CLAIM OF ASSESSEE BEFORE US IS THAT OUT OF TOTAL EXPENDITURE OF RS.1. 37 CRORES, ABOUT RS.45 LAKHS HAS BEEN APPORTIONED TO ITS SISTER CONCERN AND ONLY BALANCE EXPENDITURE OF RS.92,93,398/ - WAS CLAIMED BY IT IN ITS PROFIT & LOSS ACCOUNT. FURTHER, OUT OF BALANCE OF RS. 92,93,398/ - , SUM OF RS.41,96,741/ - HAS BEEN ALLOWED BY THE CIT(A) AND THE SAME IS NOT IN DISPUTE. THE ASSESSEE BEFORE US IS AGGRIEVED BY THE ENHANCEMENT MADE BY THE CIT(A) IN THIS REGARD. F OR IS AGGRIEVED BY THE ENHANCEMENT MADE BY THE CIT(A) IN THIS REGARD. F OR ADJUDICATION OF ISSUE, THE EXPENDITURE OF RS.1,37,93,473/ - HAS TO BE CONSIDERED AND AFTER EXCLUDING THE EXPENDITURE OF R S. 41,96,741/ - , THE BALANCE IS RS. 95,96,732/ - , WHICH IS THE EXPENDITURE TO BE SHARED BETWEEN T HE ASSESSEE AND ITS SISTER CONCERN SIIL. IN VIEW OF THE ADMISSION OF LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, WE REMIT THIS ISSUE BACK TO THE FILE OF A SSESSING OFFICER TO VERIFY THE CLAIM OF ASSESSEE VIS - - VIS ITS ALLOWABILITY IN THE HANDS OF ASSESSEE AND / OR ITS SISTER CONCERN AFTER VERIFYING THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE TO THE TUNE OF RS. 95,96,732/ - . THE ASSESSING OFFICER SHALL DETERMINE THE EXPENDITURE ALLOWABLE IN THE HANDS OF ASSESSEE AND THE AMOUNT APPORTIONED TO THE SISTER CONCERN SIIL AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS, ALLOWED FOR STA TISTICAL PURPOSES. ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 10 2 1 . THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 2 2 . THE ONLY ISSUE RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN HOLDING THAT FOR THE PURPOSE OF CLAIM OF DE DUCTION UNDER SECTION 80IA(2) OF THE ACT, THE SAME IS TO BE ALLOWED FROM THE YEAR IN WHICH THE ASSESSEE FIRST EXERCISED ITS OPTION IGNORING THE PROVISIONS OF SECTION 80IA(2) OF THE ACT, ACCORDING TO WHICH THE FIRST YEAR WAS THE YEAR IN WHICH THE ASSESSEE S TARTED GENERATING ELECTRICITY. CONSEQUENT ORDER OF CIT(A) IN THIS REGARD WAS THAT WHERE THE ASSESSEE EXERCISED THE OPTION, ONLY THE LOSSES OF YEAR BEGINNING FROM INITIAL ASSESSMENT YEAR ARE TO BE BROUGHT FORWARD AND NOT THE LOSSES OF EARLIER YEARS. 2 3 . T HE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IS AGGRIEVED BY THE SAID PROPOSITION OF CIT(A). 2 4 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS IN RESPECT OF CLAIM OF DEDUCTION UN DER SECTION 80IA(5) OF THE ACT IN RESPECT OF WINDMILL AMOUNTING TO RS. 57,30,229/ - , IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2004 - 05 TO 2006 - 07 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE ISSUE IS ALSO COVERED BY THE RECENT CIRCULAR ISSUED BY CBDT DATED 15.02.2016 I.E. CLARIFICATION OF THE TERM INITIAL ASSESSMENT YEAR IN SECTION 80IA(5) OF THE ACT. 2 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE H OWEVER, PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 11 2 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING AND DEALING IN PHARMACEUTICALS . FURTHER, THE ASSESSEE HAD SET UP TWO WINDMILLS FOR GENERATION OF POWER IN ASSESSMENT YEAR 2002 - 03 . THE ASSESSEE OPTED FOR ASSESSMENT YEAR 2004 - 05 AS THE FIRST YEAR FOR CLAIM OF DEDUCTION BY EXERCISING THE OPTION AVAILABLE UNDER SECTION 80IA(2) OF THE ACT. THE ASSESSING OFFICER HOWEVER, DENIED THE DE DUCTION CLAIMED UNDER SECTION 80IA(5) OF THE ACT, IN VIEW OF THE OPTION OF INITIAL ASSESSMENT YEAR. THE CBDT RECENTLY VIDE CIRC ULAR NO.1/2016 , DATED 15.02.2016 HAD CLARIFIED THE TERM INITIAL ASSESSMENT YEAR UNDER SECTION 80IA(5) OF THE ACT . THE CBDT HAS CLARIFIED THAT IT IS ABUNDANTLY CLEAR FROM SUB - SECTION 2 OF SECTION 80IA OF THE ACT THAT THE ASSESSEE HAS THE OPTION TO CHOOSE THE FIRST YEAR. IT IS ALSO CLARIFIED THAT INITIAL ASSESSMENT YEAR WOULD MEAN THE FIRST YEAR OPTED BY THE ASSESSEE FOR CLAIMING D EDUCTION UNDER SECTION 80IA OF THE ACT. THE CBDT HAS ALSO DIRECTED THE ASSESSING OFFICERS TO ALLOW DEDUCTION UNDER SECTION 80IA OF THE ACT IN ACCORDANCE WITH THIS CLARIFICATION. IT HAS ALSO UNDER SECTION 80IA OF THE ACT IN ACCORDANCE WITH THIS CLARIFICATION. IT HAS ALSO DIRECTED THAT PENDING LITIGATION ON ALLOWABILITY OF DEDUCTION UN DER SECTION 80IA OF THE ACT SHALL NOT BE PURSUED TO THE EXTENT IT RELATES TO INTERPRETING INITIAL ASSESSMENT YEAR AS MENTIONED IN SUB - SECTION 5 OF SECTION 80IA OF THE ACT. THE COPY OF CIRCULAR IS PLACED ON RECORD. FURTHER, SIMILAR ISSUE OF CLAIM OF INI TIAL ASSESSMENT YEAR AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2004 - 05 TO 200 6 - 0 7 AND THE TRIBUNAL IN ITA NO S . 290 TO 292/PN/2010, VIDE ORDER DATED 28.09.2011 ACCEPTED THE PLEA OF ASSESSEE AND HELD THAT THE ASSESSEE HAS T HE OPTION IN CHOOSING THE INITIAL ASSESSMENT YEAR I.E. 2004 - 05 IN THE INSTANT CASE AND HELD THAT ONLY THE LOSSES OF THE YEAR BEGINNING FROM INITIAL ASSESSMENT YEAR WERE TO BE BROUGHT FORWARD AND NOT THE LOSSES OF EARLIER YEAR WHICH HAD ALREADY BEEN SET OFF AGAINST THE OTHER INCOME OF ASSESSEE. IT WAS FURTHER HELD BY THE TRIBUNAL THAT THE REVENUE COULD NOT NOTIONALLY BRING FORWARD ANY LOSS OF EARLIER YEARS WHICH HAD ALREADY BEEN SET OFF ITA NO. 1578 /PN/201 2 ITA NO. 1618 /PN/201 2 SERUM INSTITUTE OF INDIA 12 AGAINST ANY OTHER INCOME OF THE ASSESSEE AND SET OFF THE SAME AGAINST T HE CURRENT INCOME OF THE ELIGIBLE BUSINESS. APPLYING THE SAID DECISION IN ASSESSEES OWN CASE AND IN VIEW OF THE CIRCULAR OF CBDT (SUPRA), WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 2 7 . IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF REVENUE IS DISMISSED. ORDER P RONOUNCED ON THIS 29 TH DAY OF APRIL , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 29 TH APRIL , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - III , PUNE ; 4. / THE CIT - III, PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE