Appeal details
Counselvise Citation
[2023] 102 COUNSELVISE.COM (IT) 1190 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 2 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-09-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
C
Next Hearing Date
25-06-2023
Assessment Year
2016-2017
Appeal Filed On
28-06-2020
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI SANDEEP SINGH KARHAIL, JM ITA No. 3736/MUM/2019 (Assessment Year 2015-16) ITA No. 1620/MUM/2020 (Assessment Year 2016-17) Pf ize r Lim i ted T he Capital, 1802/ 1901, Plot No. C-70, G Bloc k, Ban dra Kur la Com ple x, Band ra ( E) Mum bai-400051 Vs. ACIT- 14(2)(2) Room No. 461, Fourth Floor, Aaykar Bhavan, MK Road, Mumbai-400020 (Appellant) (Respondent) PAN No.AAACP3334M ITA No. 3694/MUM/2019 (Assessment Year 2015-16) ITA No. 1777/MUM/2020 (Assessment Year 2016-17) ACIT- 14(2)(2) Room No. 461, Fourth Floor, Aaykar Bhavan, MK Road, Mumbai-400020 Vs. Pf ize r Lim i ted T he Capital, 1802/ 1901, Plot No. C-70, G Bloc k, Ban dra Kur la Com ple x, Band ra ( E) Mum bai-400051 (Appellant) (Respondent) PAN No.AAACP3334M Assessee by : Shri Jeet Kamdar, Advocate Revenue by : Shri K. C. Selvamani CIT DR Date of hearing: 26.06.2023 Date of pronouncement : 22.09.2023 O R D E R PER PRASHANT MAHARISHI, AM: Page | 2 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 01. These are 4 cross appeals in case of one assessee Pfizer Ltd for assessment year 2015 – 16 involving common grounds of appeal involving same facts and circumstances. Both the parties argued identically for both the years, therefore, all these four appeals are disposed of by this common order. 02. For assessment year 2015 – 16 Pfizer Ltd (the assessee/appellant) in ITA number 3736/M/2019 and The Deputy Commissioner Of Income Tax – 14 (2) (2), Mumbai (The Learned AO) in ITA number 3694/M/2019 have preferred appeal against the appellate order passed by The Commissioner Of Income Tax (Appeals) – 22, Mumbai (The Learned CIT – A) dated 19/3/2019 wherein appeal filed by the assessee against the assessment order passed under section 143 (3) of The Income Tax Act, 1961 (The Act) dated 31/12/2017 passed by the learned assessing officer was partly allowed. Both the parties are aggrieved by that order and therefore are in appeal before us. 03. Assessee has preferred ITA number 3736/M/2019 raising following grounds of appeal: – ITA No. 3736/MUM/2019 (A.Y. 2015-16) “ADDITION OF UNRECONCILED TRANSACTIONS APPEARING IN THE ANNUAL INFORMATION RETURN ('AIR') - Rs. 18,27,523/- Page | 3 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 1. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) [CIT(A)] erred in upholding an addition of Rs 18,27,523/- in respect of transactions appearing in the AIR statement remaining unreconciled and treating the same as income of the Appellant. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in ignoring that the reconciliation of transactions reported in the AIR statement could not be accomplished by the Appellant in the absence of details and information from the third parties. DISALLOWANCE OF DEPRECIATION ON OPENING BLOCK OF INTANGIBLE ASSETS - Rs. 203,72,25,000/- 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the disallowance of Rs. 203,72,25,000/- in respect of depreciation on intangible assets comprising of goodwill. 4. On the facts and in the circumstances of the case and in law, directions may be issued to the Assessing Officer (AO) to allow depreciation on the closing written down value of the block of intangible assets as finally assessed in AY 2014-15. 5. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in observing that the sole purpose of the amalgamation of Wyeth Limited Page | 4 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD with the Appellant appears to be tax avoidance without any visible benefits accruing to the Appellant DISALLOWANCE OF DEPRECIATION IN RESPECT OF ASSETS AT THANE PLANT- Rs. 3,43,00,000/- 6. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the disallowance of book depreciation amounting to Rs 3,43,00,000/- as depreciation claimed under section 32 of the Income-tax Act, 1961 (the Act) pertaining to assets at the Appellant's Thane plant which was temporarily suspended due to labour unrest 7. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating the fact that the concept of "block of assets", the user must be satisfied at the time the asset enters the block of assets and thereafter, the individual assets lose their identity.” 8. The learned CIT(A) erred in not appreciating that the Hon'ble Jurisdictional Bombay High Court in the Appellant's own case (ITA No. 6776 of 2010) in relation to its plant located at Ankleshwar has decided the said in issue in favour of the Appellant in earlier years DISALLOWANCE OF EXPENSES RELATED TO THANE PLANT-Rs. 12,00,81,338/- Page | 5 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 9. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the disallowance under section 37(1) of the Act of an amount of Rs 12,00,81,338/- in connection with expenses related to the Thane plant of the Appellant 10. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the payment of Rs. 9,50,00,000/- to Bharatiya Kamgar Karmachari Mahasangh (BKKM) was capital in nature which was not related to the business requirements of the Appellant 11. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the Appellant should have deducted tax at source under section 192 of the Act in respect of the payment made to BKKM 12. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that expenses amounting to Rs. 2,50,81,338/- towards fees for legal action and opinions for labour litigation are capital in nature as they were incurred for reducing the Appellant's recurring liabilities towards workmen on a permanent basis and hence capital in nature 13. On the facts and in the circumstances and in law, the learned CIT(A) erred in holding that the Appellant failed to furnish documents relating to the aforesaid expenditure amounting to Rs 50,81,338/- which included service tax paid under reverse charge Page | 6 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD mechanism on legal services provided by M/s Sandeep Puri amounting to Rs. 2,00,00,000/- DISALLOWANCE UNDER SECTION 40(a)(ia) OF THE ACT IN RESPECT OF PURCHASES OF FINISHED GOODS FROM MEDREICH LTD. MEDREICH"]- Rs. 6,11,78,695/- 14. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the disallowance of an amount of Rs. 6,11,78,695/- under section 40(a)(ia) of the Act being 30% of the purchases of finished goods under the Supply Agreement from Medreich to Rs. 20,39,28,984/- 15. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating the fact that the purchases of finished goods from Medreich under supply agreement were not liable to deduction of tax at source under section 194C of the Act in light of the specific exclusion under the explanation to section 194C of the Act. 16. The learned CIT(A) erred in not appreciating the fact that this issue has been settled in favour of the Appellant by the Hon'ble Jurisdictional Bombay High Court in the Appellant's own case (ITA No. 1390 of 2013) and by various appellate authorities in the earlier years which has also been accepted by the Department. 17. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the Page | 7 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD reason for entering into loan license agreements was to avoid payment of government duties and circumvent the provisions of law to derive price advantage by getting goods manufactured through small companies.” 04. The learned AO aggrieved with the appellate order has preferred appeal in ITA number 3694/M/2019 raising following grounds of appeal: – ITA No. 3694/Mum/2019 A.Y. 2015-16 ”1. "On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance made out of business promotion expenses ignoring the fact that the disallowance was made as the said expenses are inadmissible u/s 37(1) read with its explanation being the expenses incurred for a purpose which is either an offence or prohibited by law". 2. "On facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance ignoring the fact that the case of assessee for AY 2015-16 on the issue of allowability of business promotion expenses, which were not allowable as per the amended provisions of Indian Medical Council (Professional Conduct. Etiquette and Ethics) Regulations 2002, and which imposes a prohibition on such expenses in any form by the assessee company.” Page | 8 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 3. "On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance without appreciating the fact that the contents of CBDT Circular relied upon by the AO pertains not only to the freebies to professionals/ professional associations but any forms of cash or monetary grant from pharmaceutical company like assessee and its allied health sector industries.” 4. "On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance without appreciating the fact that from the details filed, it was noticed by the Assessing Officer that the said payments were made to various officials/concerns for business promotion and, therefore, the contents of said Circular is applicable to the facts of assessee's case for the business promotion expenses claimed by it". 5. “The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 6. “The appellant craves leave to amend, or alter any grounds or add a new ground, which may be necessary."” 05. For assessment year 2016 – 17 the assessee has raised following grounds of appeal in ITA number 1620/M/2020:- ITA No. 1620/Mum/2020 [ AY 2016-17] Page | 9 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD Ground No. 1-Addition of unreconciled amounts as per Individual Transaction Statement ("ITS") details-Rs. 36,17,072 1.1 The learned CIT(A) erred in relying on the order passed by his predecessor and upholding the addition of Rs. 36,17,072 towards unreconciled amounts as per ITS, without appreciating the facts and merits of the case. 1.2 The learned CIT(A) erred in holding that the onus is on the appellant to reconcile the difference of transactions appearing in AIR as the third parties have provided AIR information on the basis of transactions entered with the appellant. 1.3 The learned CIT(A) erred in not following the decision of the Hon'ble Mumbai ITAT in the appellant's own case for previous assessment years, rendered on similar set of facts. 1.4 The learned CIT(A) erred in not appreciating that the reconciliation of the transactions reflected in the ITS is fully dependent on the availability of the information from the relevant parties and could not be accomplished by the appellant without obtaining details and information from them. Ground No. 2 Disallowance of depreciation on opening block of intangible assets Rs. 1527918,750 Page | 10 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 2.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the disallowance of Rs. 1,52,79,18,750 made by the learned AO towards opening WDV of the 'intangible assets' comprising of goodwill, generated as a result of the merger of Wyeth Limited with the appellant. 2.2. The learned CIT(A) erred in simply relying on the order of his predecessor for AY 2015-16 and thereby, confirming the disallowance made by the learned AO, without appreciating the facts and merits of the case. 2.3. The learned CIT(A) erred in not appreciating that the sixth proviso to section 32(1) of the Act is not applicable in the instant case and depreciation on opening block of intangible assets ought to be allowed to the appellant. 2.4 The learned CIT(A) erred in not appreciating that under section 32 of the Act, depreciation is required to be computed on the opening written down value of the 'block of asset' and once an asset has entered the block, depreciation under section 32 cannot be denied. 2.5 The learned CIT(A) also erred in not appreciating the decision of the Hon'ble Supreme Court in the case of Smifs Securities Limited (348 ITR 302) which states that goodwill is an intangible asset and eligible for depreciation under section 32 of the Act. Page | 11 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 2.6 Without prejudice to the above, on the facts and in the circumstances of the case and in law, directions may be issued to the learned AO to allow depreciation closing written down value of the block on "intangible assets" as finally assessed in AY 2015-16. Ground No. 3-Disallowance of depreciation in respect of assets at Thane plant- Rs. 69,32,278 3.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the disallowance of book depreciation amounting to Rs. 69,32,278 as depreciation claimed under section 32 of the Act pertaining to assets at the Appellant's Thane Plant which was temporarily suspended due to labour unrest. 3.2 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating the fact that under the concept of "block of assets, the user test must be satisfied at the time the asset enters the block of assets and thereafter, the individual assets lose their identity. 3.3 The learned CIT(A) erred in not appreciating that the Hon'ble Bombay High Court in the appellant's own case (ITA no. 6776 of 2010) has decided the aforesaid issue in favour of the appellant in relation to its plant located at Ankleshwar in earlier years. Page | 12 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD Ground No. 4- Disallowance under section 40(a)(ia) of the Act in respect of purchases of finished goods from Medreich Limited (Medreich")- Rs. 5,61,19,497 4.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the disallowance of an amount of Rs. 5,61,19,497 made by the AO under section 40(a)(ia) of the Act, being 30 percent of the purchases of finished goods under the Supply agreement from Medreich aggregating to Rs. 18,70,64,989. 4.2 The learned CIT(A) erred in simply relying on the order of his predecessor for AY 2015-16 and thereby, confirming the disallowance made by the learned AO, without appreciating the facts and merits of the case. 4.3 The learned CIT(A) erred in not appreciating the fact that the purchases of finished goods from Medreich under the supply agreement were not liable to deduction of tax at source under section 194C of the Act in the light of specific exclusion under the explanation to section 194C of the Act. 4.4 The learned CIT(A) also erred in not relying on the guidelines issued by the CBDT Circular No. 681 dated 8 March 1994 which clearly states that the provisions of section 194C of the Act would not be applicable in case of contracts for sale of goods. Page | 13 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 4.5 The learned CIT(A) erred in not appreciating that the issue for non-deduction of taxes on of finished goods has been duly examined in the earlier years and decided in favour of the appellant by the Hon'ble jurisdictional Bombay High Court in the appellant's own case (ITA No. 1390 of 2013) and various appellate authorities. Ground No. 5- Deduction in respect of education cess 5.1 The learned CIT(A) erred in not allowing the claim made by the appellant (by way of additional ground) towards deduction of education cess on income tax paid during the year, without appreciating the facts and merits of the case. 5.2 Without prejudice to the above, the learned CIT(A) ought to have allowed the deduction of the amount of education cess, as computed by the learned AO in the assessment order. 06. The learned assessing officer has also filed an appeal in ITA number 1777/M/2020 for assessment year 2016-17 raising following grounds:- ITA No. 1777/Mum/2020 A.Y. 2016-17 1. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the payments made u/s 37 of Rs. 12,54,23,688/- made to Doctors in alleged violation of India Medical Council Page | 14 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD Regulations, 2002. The Ld. CIT(A) ignored the fact that such that such payments are illegal in nature and hence disallowable under the Act. 2. "The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal." 3. "The appellant prays that the order of CIT(A)-22, Mumbai on the above ground be set aside and that of the Assessing Officer be restored." 07. First we state brief facts for AY 2015 – 16 shows that assessee is a domestic company engaged in the business of manufacturing, sale and pharmaceuticals including OTC pharmaceuticals, cosmetics allowed consumer products and trading of pharmaceuticals. It filed its return of income on 30/11/2015 declaring a total income of ₹ 1,996,466,610/–. This return was revised on 31/3/2017 and the total income was shown at Rs. 215,66,98,620. The return was picked up for scrutiny. Assessment order under section 143 (3) of the act was passed on 31/12/2017 by The Assistant Commissioner Of Income Tax Circle – 14 (2) (2), Mumbai determining total income of the assessee at ₹ 464,39,54,789. This assessment order was challenged before the learned CIT – A which is the subject matter of appeal before us. 08. We first take up ITA number 3736/M/2019 filed by the assessee. The ground no. 1 and 2 of appeal is with Page | 15 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD respect to the addition of unreconciled transactions appearing in the annual information return of ₹ 1,827,523/–. As per the ITS details pertaining to the assessee, it was found that there are certain items which are not reconciled with the books of accounts of the assessee but appearing in the income tax database. During the course of assessment proceedings, the assessee could not give the reconciliation but has merely stated that assessee has written to the concerned parties asking the nature and other supporting evidences in respect of the transactions. Therefore the learned assessing officer found that assessee could not give any explanation with respect to the difference and therefore he made an addition of ₹ 1,935,842/-. 09. Assessee approached the learned CIT – A who decided this issue by paragraph number 4.3. The learned CIT – A noted that assessee has filed an additional evidences wide letter dated 29/1/2019 where by the assessee claimed that the erroneous reporting transaction of ₹ 108 lakhs. In 19 out of the total unreconciled figure of ₹ 1,935,842 which is also accepted by the learned assessing officer in the remand report and accordingly addition to that extent was deleted. The balance addition of ₹ 1,827,523/– was confirmed. Therefore, assessee is in appeal before us. 010. Before us, assessee reiterated all the submissions made before the lower authorities and stated that still the assessee does not have any confirmation from the other parties. Assessee also stated that in the earlier years Page | 16 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD identical issue arose in case of the assessee for assessment year 2008- 2009. The submission made at paragraph number 1.8 before the learned CIT – A was also reiterated and several judicial precedents were cited. It was stated that the aforesaid addition made solely on the basis of the amount remaining unreconciled as per the annual information return statement deserves to be deleted. 011. The learned departmental representative vehemently supported the order of the learned lower authorities and stated that when the assessee could not reconcile the difference between the information available with the income tax department and its return of income, the lower authorities have correctly made the addition. 012. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that in case of Pfizer Ltd sum of ₹ 1,912,889 remained unreconciled before the learned assessing officer and in case of Wyeth Ltd a sum of ₹ 22,953/– could not be reconciled and therefore amount of ₹ 1,934,842/– was added by the learned assessing officer. When the matter reached before the learned CIT – A, assessee could produce the confirmation of ₹ 10,800,319 with respect of the bank of Baroda that it has been inadvertently mentioned in the name of the assessee and therefore this addition was deleted. There is no other confirmation available with respect to the other parties. Looking at the details of the parties we find that out of the 8 different Page | 17 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD entities, five parties are the banks and two parties are Pfizer products India private limited and Pfizer animal health India Ltd. In case of all three entities in Wythe Ltd are the banks. With respect to the two related concern namely Pfizer products India private limited and Pfizer animal health India Ltd, the assessee could have obtained the confirmation from above parties. However, assessee has not obtained any confirmation. Even the same were not submitted before us. At least when the parties are of the same group, the assessee could have substantiated before the assessing officer that the data mentioned in 26AS by the parties furnishing the information is not correct. Identical issue also arose in the case of assessee where in we have set aside the issue back to the file of ld AO. In view of the above facts, we set-aside the whole issue back to the file of the learned assessing officer with a direction to the assessee that at least with respect to the group concerns the assessee must submit the confirmation before the learned assessing officer and with respect to the banks, assessee should submit the Ledger account stating that no such income is received in this assessment year. The learned assessing officer, if still is not satisfied with the explanation of the assessee, he is duty-bound to make an independent enquiry before making any addition in the hands of the assessee. Form number 26AS is the data populated by the parties deducting tax at source, there is no control of the assessee on such data. Therefore if the data is punched by the parties populated such data and inadvertently mentions the permanent account Page | 18 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD number of the assessee wrongly , naturally, such entries will be found in the name of assessee. However, merely because somebody has wrongly punched the data, it cannot result into income accruing or arising in the hands of the assessee, unless, such data was found to be sacrosanct. To prove that such data are sacrosanct, the learned assessing officer should have made an independent enquiry with those parties. If on enquiry such data is found correct, the addition deserves to be made in the hands of assessee. However, if such data is not correct, it cannot result into addition in the hands of the assessee. Therefore, learned assessing officer if not satisfied should make an enquiry independently with those parties whose PAN and TAN are available with the AO. If the data is found correct, after giving an opportunity of hearing to the assessee, addition deserves to be made. However if the facts prove otherwise, the learned assessing officer should initiate action against the parties who have furnished incorrect information u/s 271H (1) (b) of the Act. This is so because, the furnishing of incorrect information in the statement by those parties have put the assessee to great inconvenience and further it has also misled income tax department. Accordingly, ground number 1 and 2 of the appeal are restored back to the file of the learned AO with above direction to the parties. 013. Similarly for assessment year 2016 – 17 in ITA number 3736/M/2019 the addition on account of unreconciled Page | 19 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD amount of ₹ 3,617,072/– is been made by the learned assessing officer and confirmed by the learned CIT – A. This is challenged as per ground number 1 of the appeal of the assessee for assessment year 2016 – 17. In the appellate proceedings before us, the assessee also submitted that the facts are identical to the ground number 1 of the appeal of the assessee for assessment year 2015 – 16. As we have set-aside ground number 1 of the appeal of the assessee for assessment year 2015 – 16, with similar directions, we also set-aside this ground of appeal of the assessee to the file of the learned assessing officer. Accordingly, ground number 1 of the appeal of the assessee for assessment year 2016 – 17 is also allowed accordingly. 014. Ground no 3 to 5 of appeal for assessment year 2015 – 16 is with respect to the disallowance of depreciation on opening block of intangible assets amounting to ₹ 2,037,225,000/– being intangible assets comprising of goodwill generated because of merger of Wyeth Limited with the assessee. 015. Similar grounds raised for assessment year 2016 – 17 also as per ground number 2 where the opening block of intangible asset is computed at ₹ 1,527,918,750/– and the learned assessing officer has disallowed the depreciation. 016. During the course of assessment proceedings, the learned assessing officer noted that as per annexure – 4 of form number 3 CD that the depreciation on goodwill of the Page | 20 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD above sum is claimed by the assessee company. The goodwill was stated as generated as a result of merger of Wyeth Limited with Pfizer Ltd which was as per the scheme of amalgamation approved by the honourable High Court of Bombay wherein seven equity shares of Pfizer Ltd were allotted against 10 equity shares of Wyeth Ltd and accordingly total consideration of ₹ 1313.79 crore was determined. Assessee has allotted shares to the shareholders of the amalgamating company. It was the claim of the assessee that assessee has acquired goodwill on amalgamation by filing a revised return. The learned AO noted that there was no sufficient material available on record for the quantification of goodwill and therefore depreciation was disallowed. Assessee approached the learned CIT – A raising ground number 4. The learned CIT – A as per ground number 6.3 confirmed the above disallowance. The learned CIT – A noted that the company Wyeth Ltd did not hold any capital asset like trademarks or goodwill as on 1/4/2013 in its books of accounts. Therefore, its actual cost is to be adopted at Rs. Nil. He specifically referred to the provisions of section 43 (1) of the act. He further referred to the assessment proceedings for assessment year 2014 – 15 and appellate order of CIT – A dated 24/1/2018 for assessment year 2014 – 15. Quoting extensively from that appellate order, he specifically held that prima facie it appears to him that the basis of valuation of trademark and goodwill is not clear and has been arrived at only after netting of other assets from the sales consideration. Accordingly the Page | 21 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD learned CIT – A held that the claim for depreciation of ₹ 2,037,225,000 on trademark and goodwill claimed to have been acquired during assessment year 2014 – 15 is prima facie not allowable on the facts of the case and in law and he dismissed this ground of appeal confirming the action of the learned AO. 017. The assessee aggrieved with that has preferred appeal before us. 018. The bench specifically asked about the status of assessment year 2014 – 15 of the appellate order passed by the learned CIT – A which is referred to in his appellate order for this year. The counsel submitted that the issue is pending before coordinate bench in ITA number 2132/M/2018. We find that whether the assessee has acquired a capital asset eligible for depreciation on the amalgamation of Pfizer Ltd with Wyeth Ltd as an intangible asset is required to be examined in the year in which the amalgamation took place. That year is assessment year 2014 – 15, which is decided by the coordinate bench in ITA No 2138/M/2018 setting aside the issue back to the file of the ld AO. For this year, depreciation would be granted on the opening written down value of that block. Therefore, in this year, it is not required to be decided with respect to whether assessee has acquired any depreciable asset on the scheme of amalgamation. As that issue is pending now before the ld AO for assessment year 2014 – 15, we set aside this issue back to the file of the learned AO as whatever is Page | 22 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD decided in assessment year 2014 – 15 would give opening written down value of the block of intangible asset on which assessee may be eligible for depreciation for this year. The learned AO is directed to consider the opening written down value of that block of intangible assets as decided in assessment year 2014-15. For this year only the quantum of depreciation is required to be determined, therefore, there is no reason to keep this appeal pending before us. Accordingly, ground numbers 3-5 of the appeal are allowed with above direction. 019. Similarly, for assessment year 2016 – 17 the assessee has categorically stated that ground number 2 of that appeal is identical to ground number 2 of the appeal for assessment year 2015 – 16. Therefore with similar reasons and to determine only the quantum of depreciation, we set-aside this ground also to the file of the learned AO. 020. Ground number 6 to 8 are with respect to disallowance of depreciation in respect of assets at Thane plant amounting to ₹ 343 lakhs. Similar ground of appeal is also raised for assessment year 2016 – 17 wherein ground number 3 contests the disallowance of depreciation on assets at Thane plant amounting to ₹ 6,932,278/–. Therefore, both these grounds for both the assessment years are having identical facts and circumstances. This is also the statement of the assessee in the return submission made. 021. During the course of assessment proceedings, the learned assessing officer noted that assessee’s Thane plant was Page | 23 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD not operational since financial year 2013 – 14. Assessee was asked that why the depreciation should not be disallowed as the assets is not used for any business operations. Assessee submitted that honourable Bombay High Court in assessee’s own case in ITA number 6776 of 2010 dated 23/10/2012 allowed depreciation on shutdown of plant at Ankleshwar. The facts are identical so, depreciation should be allowed to asseessee. However, the learned assessing officer also held that merely because an individual asset has lost its identity after being subsumed in the block of assets, assessee’s claim for depreciation is not automatic and unchallenged. The assessee must still satisfy the requirement of assets being used for the purposes of the business to claim the benefit of depreciation as an allowance. Accordingly he find that depreciation of ₹ 3.43 crore has been claimed for that plant which has not been used during the year. The learned AO further noted that conflicting decisions exist of the Honourable jurisdictional Bombay High Court on this issue. Accordingly, he disallowed the same. 022. On appeal before the learned CIT – A, wherein he noted that from the records it appears that assessee had every intention to not to start that plant again since it had already acquired facility of manufacturing at Goa and it also had the benefit of manufacturing facilities of Wyeth Ltd plus the loan and license manufacturing facilities under which it could get its products manufactured at different facilities. He further noted that assessee has sold its Page | 24 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD manufacturing plant at Thane to another company for ₹ 186 crores in assessment year 2016 – 17. Thus it was crystal clear that assessee did not want to restart its manufacturing at that plant and never started it, but sold off to another company. The learned CIT (A) therefore held that the decision of the honourable Bombay High Court in assessee’s own case with respect to Ankleshwar manufacturing facilities is not applicable. He further relied upon the decision of the honourable Calcutta High Court and Honourable Supreme Court and held that depreciation is not allowable on assets ( Thane Plant ) , which were not used for the purposes of the business of the company. Accordingly, he confirmed the order of the learned AO. 023. The learned authorized representative referred to the submissions made before the learned CIT – A placed at page number 51 of appellate order. It was the claim of the assessee that for assessment year 2001 – 02, honourable Bombay High Court on similar issue has decided the issue in favour of the assessee with respect to the different manufacturing facility. Further, the coordinate bench in assessee’s own case for assessment year 2002 – 03 and 2003 – 04 and 2005 – 06 has also decided in favour of the assessee. Therefore, this issue is squarely covered in favour of the assessee, Lower authorities failed to appreciate the identical facts and circumstances. 024. The learned departmental representative strongly supported the order of the learned lower authorities and Page | 25 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD stated that the facts are quite distinct and different from what is claimed by the assessee. He specifically referred to the order of the learned CIT – A. He submitted that assessee has not used the plant for the whole year , it also did not have any intention to start the production at that facility, subsequently it is sold, and therefore it is apparent that no depreciation is allowable to the assessee for the year, as it has failed to satisfy the user test. It was further submitted that merely because an asset has entered into a block of asset, being a whole manufacturing facility at one plant, it cannot be said that it has blurred its identity and the concept of user test is thrown to the winds. 025. We have carefully considered the rival contention and perused the orders of the lower authorities. The learned assessing officer has categorically noted that assessee is not using the facility at Thane manufacturing plant. Subsequently this plant is sold in assessment year 2016 – 17. The learned CIT – A has also categorically noted that assessee did not want to restart this plant because of the availability of other manufacturing facilities. No evidences produced before us to show that there is a temporary lull in the business, the assets were not used because of some compulsions on part of the assessee. The conduct of the assessee of selling of these assets in subsequent year clearly shows that this plant was not used for the purposes of the business for the current year and the assessee had an intention to sale this plant and therefore the manufacturing facilities were stopped. However as the Page | 26 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD issue of depreciation on Thane unit , there is principle laid down by the Honourable High court and coordinate benches that once the assets enter the block of assets, in the subsequent year, each assets forming part of that block cannot be tested that whether the assets bare used for the business sor not. 026. Further, the reliance upon the case of honourable Bombay High Court in assessee’s own case for assessment year 2001 – 02 is also relevant. 027. Even the facts stated in ground number 4 of the appeal of the assessee for assessment year 2015 – 16 clearly shows that thane plant was never used by the assessee for the year and was not even intended to be use. The assessee has actively started making an effort to get out of that particular manufacturing facility. Even the labour force was also to be terminated or terminated. The labour unions are also cajoled foreclosure of that unit. Therefore, that unit was neither used non-intended to be used but is to be sold only. However, as the thane plant has entered block of assets, respectfully following the decisions of honourable High courts , we reverse the orders of lower authorities and direct ld AO to allow depreciation on Thane Plant. 028. Assessee has relied upon several judicial precedents which are dealt with as under:- i. CIT versus Travancore chemicals and manufacturing Co Ltd (2005) ITA number 33 of 2000) Kerala High Page | 27 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD Court, the learned counsel of the assessee raised a contention that though the factory was under lock out so as long as the Buildings, Plant and Machinery and other fixed assets relating to that factory formed an integral part of the Block of Assets owned by the assessee company, depreciation is allowable on such assets. The test of actual user is to be applied only in the year of purchase i.e. when the new asset is first put to use. Subsequently, on its merger into the Block of Assets, depreciation is allowable irrespective of the fact whether individual items in the Block has been put to use or not. ii. CIT versus Oswal Agro Mills Ltd (2011) 238 CTR 113 Delhi in this case the Bhopal unit plant of the assessee was ready for use. iii. CIT versus vallabh glass works Ltd [2013] 38 taxmann.com 177 (Gujarat) ITA number 677 of 2013 wherein the facts were that an amount of Rs.4,27,868/- added by the Assessing Officer towards depreciation of the units on the ground that the factory at Vallabh Vidyanagar had remained closed and, therefore, such claim was not justified. The assessee aggrieved by such approach challenged the same before CIT(A), which relying upon the decision of the Jabalpur Bench in the case of Packwell Printers v. Asstt. CIT [1996] 59 ITD 340 held that the depreciation needs to be allowed Page | 28 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD on the entire block of assets instead of each individual asset. iv. CIT versus Sonic Biochem Extractions Private Limited [INCOME TAX APPEAL NO. 2088 OF 2013] of the Bombay High Court was also with respect to that the refinery plant was ready for use but was not used and therefore the honourable High Court held that even the passive user of the asset is also a user of that particular asset. Para no 9 of the order of the ITAT [2013] 35 taxmann.com 463 (Mumbai - Trib.) shows the facts. 029. Even otherwise when the plant is sold , short-term capital gain is charged, assessee is granted deduction of written down value of the plant. Depreciation and short-term capital gain are also charged at the same rate. 030. Accordingly, we reverse the orders of the learned lower authorities in denying depreciation to the assessee with respect to the Thane plant for both the years. Accordingly, ground numbers 6 to 8 of the appeal of the assessee for Ay 2015-16 and Ground no 3 for AY 2016-17 are allowed. 031. For assessment year 2015 – 16, Ground number 9-13 are with respect to the disallowance of expenses related to Thane plant of ₹ 120,081,338/–. Brief facts shows that the assessee has incurred one-time expenses of ₹ 95,000,000 towards contribution for workmen, ₹ 22,938,494/- as fees and ₹ 2,142,929 towards legal and Page | 29 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD labour litigation fee in connection with the closure of Thane plant. The assessee was asked to justify why this one-time expenses related to Thane plant closure should be allowed as business expenditure. Assessee did not furnish any concrete explanation beyond reiterating the fact that those are bona fide business expenses. Assessee did not produce any supporting copies of the agreement, memorandum of understanding etc for contribution for workmen labour and litigation fees. Assessee also did not show the deduction of tax at source on the contribution for workmen payment either. The AO further noted that plant has been shutdown in financial year 2013 – 14 and therefore these expenses are even otherwise disallowable as prior period expenditure. Accordingly the learned assessing officer disallowed ₹ 120,081,338/– under section 37 (1) of the act. 032. This issue was agitated before the learned CIT – A, he decided this issue as per paragraph number 8.3 of his order. During the course of appellate proceedings, the additional evidences were furnished which was sent to the learned assessing officer for his remand report. On submission of the remand report, the explanation of the assessee was called for. After detailed discussion the learned CIT – A held that:- i. disallowance of ₹ 9.5 crores is a contribution made to BKKM a labour union was confirmed for the reason that assessee has neither filed evidence of payment of money and a plausible explanation for incurring Page | 30 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD those expenditure. The CIT – A was also of the view that even if this expenditure is stated to be incidental to the running of the business of the plant, that plant was already shutdown and never started again and therefore this expenditure is not allowable. ii. With respect to the legal expenditure of professional fees of ₹ 2 crores to SD Puri and ₹ 5,081,338 for other expenses, the learned CIT – A confirmed disallowance for the reason that the assessee wanted to ultimately close down the plant as it has already shifted some of its manufacturing facilities to different place. Though these expenses were incurred for the business needs of the company, they were incurred for reducing companies recurring liabilities towards worker on a permanent basis and therefore as it was relatable to a reduction of liability of permanent basis, this expenditure were held to be capital in nature. 033. Before us assessee submitted that an expenditure of ₹ 9.50 crores is paid to Bhartiya Kamgar Karmchari Mahasangh [ BKKM] with a view to arrive at amicable settlement with Thane plant workers for successfully concluding the voluntary retirement scheme proposed by the assessee through the support of that organization and to continue the business operation of the assessee in a peaceful and a profitable manner. As was informed to the Bombay stock exchange lock out notice dated 1 August 2014, the lockout pursuant to labour unrest had no impact Page | 31 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD on the business operations of the assessee. This expenditure was incurred purely out of commercial expediency and to continue assessee’s business operations smoothly and profitability. Accordingly the expenditure ought to be allowed as revenue expenditure under section 37 (1) of the act. The assessee placed reliance on the decision of the honourable Gujarat High Court in case of CIT versus Raipur Manufacturing Company Ltd.*84 ITR 508 wherein it was held that the payment made to ensure smooth working of the factory and elimination of unrest among its employees is to be considered as incurred for business purposes. The assessee also placed reliance on the decision of the honourable Karnataka High Court reported in CIT V Margarine & Refined Oils Co. Ltd. 282 ITR 576 and coordinate bench in Knight Riders Sports (P.) Ltd. V ACIT 193 TTJ 313. 034. With respect to the legal expenditure of ₹ 22,938,409 paid to M/s Sandeep Puri and associates and similar legal fees amounting to ₹ 2,142,929 paid to other advocates, it was submitted that these legal costs were incurred in connection with labour matters and have a direct Nexus with the business of the assessee and thereby constitutes expenditure incurred out of commercial expediency. The assessee placed reliance on the decision of the honourable Bombay High Court in case of CIT versus Airlines Hotel Private Limited 346 ITR 33 ( Bom) wherein it was held that legal payment incurred for settling on resolving dispute to be allowed as business expenditure. Accordingly Page | 32 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD the claim of the assessee that the lower authorities have incorrectly disallowed the above expenditure. 035. The learned departmental representative vehemently supported the order of the learned CIT – A and submitted that with respect to the expenditure of ₹ 9.5 crores the assessee has not submitted any receipt or any evidence of incurring those expenses to show that its incurred wholly and exclusively for the purposes of the business. In absence of any evidence placed by the assessee, there is no clarity on nature of payment and its purpose and resultant business need Therefore, expenditure has rightly been disallowed. He further stated that in absence of any evidence that how that particular organization help the assessee to close down its plant was also not placed on record. With respect to legal fees he supported the order of the learned CIT – A and submitted that those expenses are capital in nature. 036. We have carefully considered the rival contention and perused the orders of the lower authorities. The assessee has incurred an expenditure of ₹ 120,081,338 during the year with respect to the closure of a manufacturing plant comprising of contribution to a labour union amounting to ₹ 9.5 crores and professional fees for litigation relating to workmen compensation of ₹ 25,081,338/–. The learned assessing officer disallowed the claim of the assessee because of the reason that a. assessee did not deduct any tax at source, Page | 33 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD b. Expenses were related to a closed plant c. there was no business activity relating to manufacturing of goods with respect to that plant, d. expenditure was a one-time payment e. no evidences were available with respect to the payment of ₹ 9.5 crores to a labour union 037. Learned CIT – A confirmed the disallowance of expenditure with respect to labour union stating that assessee did not file any evidence of payment or any explanation with any documentary evidences for incurring the expenditure showing that it was the necessity of the business or the purpose of such expenditure. With respect to the other expenditure, the learned CIT(A) held that these are capital in nature. 038. With respect to the payment of ₹ 9.5 crores made to a labour union, we do not find any infirmity in the order of the lower authority as no evidences showing the purpose of such payment, any agreement with the labour union, or any other evidence to even remotely suggest that these expenditure are related to the employees of the assessee company at the closed unit. Accordingly, in absence of any documentary evidence, such payment cannot be allowed. Mere submission of a lockout notice dated 1 August 2014 submitted to a stock exchange does not help in claiming that expenditure is allowable. No commercial expediency was demonstrated by showing any minutes with the labour Page | 34 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD union, it was also not shown that how the labour union has helped the assessee in closure of the plant. 039. We do not find that the decision of the honourable Gujarat High Court in case of CIT versus Raipur manufacturing Co Ltd 84 ITR 50 has the facts anywhere near the facts of the case before us. In that case, there was a resolution of the board of directors, there was an agreement, payment was made to a co-operative society promoted by the assessee, therefore, and it was held that there is a business Nexus between the amount of payment and business of the assessee. In the present case there is no document available, therefore, it is impossible to establish any business connection between the business of the assessee and the nature of payment made. Even the assessee could not establish that why the payment was made to a labour union. Even the receipt was also not produced. 040. In the decision of honourable Karnataka High Court in CIT versus Migraine And Refined Oils Co Ltd [282 ITR 576] the payment was made to the employees of the company who are retrenched. Therefore, there was a direct Nexus between the employment of those employees with the assessee company and retrenchment compensation paid to them. 041. Assessee failed to establish before us that how the decision of the coordinate bench in case of Knight Riders sports private limited versus ACIT [193 TTJ 313] helps the Page | 35 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD case of the assessee. In that case, at the direction of the contracting parties the payment was made to police welfare fund for security of IPL matches. Here no such facts are placed before us. 042. Therefore, the disallowance of ₹ 9.5 crores made by the assessee to a labour union namely Bhartiya kamgar Karmchari Mahasangh is correctly confirmed by the ld Lower authorities. Thus, Ground no 9 is allowed partly, Ground no 10 and 11 are dismissed. 043. Coming to the second issue of the payment of legal fees, we find that assessee has submitted that these were the legal cost incurred in connection with the labour matters and have the direct Nexus with the business of the assessee and therefore constitute the expenditure incurred out of commercial expediency. We find that the payment made by the assessee is with respect to the business of the assessee. Thane unit was one of the business units of the assessee. The payment was made to an advocate. The learned assessing officer has not doubted that this expenditure was not incurred for the legal fees. Therefore according to us, the assessee is entitled to deduction of these expenditure as business expenditure under section 37 (1) of the act. However, the learned assessing officer has disallowed it for one more reason that no taxes been deducted at source on such payment. As the learned CIT – A has confirmed the disallowance holding that it is a capital expenditure, there was no occasion before the learned CIT – A to examine this issue. Therefore, we set- Page | 36 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD aside this issue back to the file of the learned assessing officer to examine whether the assessee has deducted tax at source on payment made of ₹ 22,938,409/– to M/s Sandeep Puri & associates and similar legal fees paid to others of ₹ 2,342,929/-.. If the assessee has deducted tax at source, no disallowance should be made. The learned AO should also grant an opportunity to the assessee to substantiate that those parties have deposited tax on the above income in their hands in accordance with the law. If the assessee satisfies the learned assessing officer with this aspect, the addition maybe deleted. 044. In the result ground number 12 is allowed of the appeal for assessment year 2015 – 16 is partly allowed. 045. Ground number 14-17 are with respect to the disallowance under section 40 (a) (ia) of the act in respect of purchase of finished goods from Medriech Ltd amounting to ₹ 61,178,695. 046. Similar ground is raised by the assessee for assessment year 2016 – 17 where the disallowance made by the learned assessing officer and confirmed by the learned CIT – A on identical facts and circumstances is ₹ 56,119,497/– . 047. For assessment year 2015 – 16, fact shows that during the course of assessment proceedings the assessee was repeatedly asked to show a difference between its contract manufacturing and principal manufacturing arrangements. Assessee only produced the legal agreements of contract Page | 37 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD and principal manufacturing partners. The learned assessing officer also issued notices under section 133 (6) to the manufacturing party to know the real nature of agreement. The response was received with technical instructions and details for both the scenario are which did not show any material difference. Therefore the learned assessing officer reached at a conclusion that assessee could not differentiate between the principal manufacturer and the contract manufacturing arrangement. The AO therefore found that 30% of the principal manufacturing expenses of ₹ 203,928,984/– incurred with the above accompany are disallowed under section 40 (a) (ia) of the act for non-deduction of tax at source. The assessee approached the learned CIT – A, who confirmed action of the learned assessing officer. Therefore, assessee is in appeal before us. 048. The learned authorized representative submitted that the honourable Bombay High Court in the assessee’s own case for assessment year 2007 – 08 held that the transaction of purchase of goods does not partake the character of works contract and therefore no taxes are required to be deducted at source. Therefore, this issue is squarely covered in favour of the assessee. 049. The learned departmental representative vehemently submitted that assessee has not submitted any evidence such as invoices etc, therefore it cannot be asserted that whether the issue is covered in favour of the assessee or not. Unless the assessee submitted those details, it cannot Page | 38 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD be said that assessee has given a contract manufacturing agreement or principal manufacturing. 050. We have carefully considered the rival contention and perused the orders of the lower authorities. Facts clearly shows that during the relevant assessment year the assessee had two separate agreements with the supplier, one for manufacture of finished goods under loan license agreement and another for purchase of finished goods under supply agreement. The learned assessing officer blurred the distinction between these two agreements and held that contract for purchase of finished goods under the Supply agreement is identical to the contract of an effect of finished goods under loan license agreement. Accordingly, the learned assessing officer held that assessee should have deducted tax at source. The learned AO did not disallow the whole amount but held that 30% of the amount of purchase of finished goods is related to service, labor charges and tax should have been deducted thereon. The learned CIT – A further held that as the assessee has a practice of obtaining goods manufactured by several small industries because of several benefits available to them and therefore these contracts are loan and license agreement of manufacturing. We failed to understand that how the Supply agreement has been considered by the lower authorities as license manufacturing contract agreement. Identical issue arose in case of the assessee for assessment year 2007 – 08 wherein it has been held that purchase of goods does not Page | 39 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD partake the character of the works contract. In this case, also the learned AO has failed to establish that the contract for supply of goods is in the nature of works contract. If the case of the learned assessing officer is to be considered as correct, then instead of disallowing 30%, he should have disallowed 100 % percent of such expenditure as tax has not been deducted on the whole amount of payment made to the contract. In view of this, we do not find ourselves in agreement with the findings of the lower authorities. Accordingly we direct the learned assessing officer to delete the disallowance of 30% of total purchases of ₹ 203,928,984/– amounting to ₹ 61,178,695/–. Accordingly, ground numbers 14-17 are allowed. 051. Identical ground is raised in appeal of the assessee for assessment year 2016 – 17 as per ground number 4. There are no changes in the facts and circumstances of the case. The addition/disallowances also made by the learned AO on identical reasoning. The learned first appellate authority also confirmed the same on the same reasoning. Therefore, for the similar reasons as we provided for allowing ground number 5 of the appeal of the assessee for assessment year 2015 – 16, we allow ground number 4 of the appeal of the assessee for assessment year 2016 – 17 and direct the learned lower authorities to delete the disallowance of ₹ 56,119,497. Page | 40 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 052. Ground no 5 of AY 2016-17 is on the issue of allowability of education cess which was not pressed before us, hence, dismissed. 053. This leaves us with the additional ground raised by the assessee for assessment year 2016 – 17 with respect to applicability of the DTAA rate for dividend distribution tax. 054. For assessment year 2016 – 17 the assessee has raised an additional ground of appeal by letter dated 1 September 2021 as under:- 1. On the facts and in the circumstances of the case and in law, the dividend distribution tax (DDT) paid by the appellant on dividend distributed to its non- resident shareholders (i.e. Pfizer East India BV, Netherlands and John Wyeth brothers Ltd UK) or to be charged at the rate prescribed under the double taxation avoidance agreement (DTAA) between India and the country of residency of the respective non-resident shareholders as against the rate as per the provisions of section 115O of the income tax act, 1961 (the act) at the rate of 20.358 percentage 2. on the facts and in the circumstances of the case and in law the refund in respect of the tax paid under section 115O of the act in excess of the rate prescribed under the DTAA ought to be granted to the appellant. Page | 41 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 055. In the application for admission of the additional ground assessee submitted that the additional ground of appeal raised by the appellant are purely legal issue, facts are already on the record, it was only during the course of their discussion with that consultant, the assessee was advised to raise the additional ground of appeal. The failure to do so originally was neither deliberate nor contumacious therefore essential to be adjudicated in the interest of justice. Assessee relied upon the judicial precedents of the honourable Supreme Court in case of National Thermal Power Co Ltd versus CIT (1998) 29 ITR 383 (SC), Jute Corporation Of India Ltd (1991) 187 ITR 688 (SC), Ahmedabad Electricity Co Ltd (1993) 199 ITR 351 (Bombay) (FB). Therefore, it deserves to be admitted. 056. The learned departmental representative vehemently objected the application for admission of the additional ground. He’s objection was twofold. He objected that the issue is squarely covered against the assessee by the decision of special bench of the tribunal in case of TOTAL OIL LTD. The second objection was that that issue does not arise from the records available. The facts are required to be investigated. In the return of income they assessee has not disclosed the shareholding of the shareholder entities. Therefore, additional ground of appeal cannot be admitted where the facts are required to be investigated. 057. The learned authorized representative submitted that issue is purely a legal issue and therefore the admission of the additional ground is justified. The learned authorized Page | 42 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD representative submitted that assessee has paid a dividend aggregating to ₹ 571,863,174/– to its shareholders on 5 May 2015. Out of the total dividend paid during the year, ₹ 227,329,175 was paid to Netherlands entity and ₹ 11,025,000 was paid to United Kingdom entity. It was further stated that Netherlands entity holds 39.75% and UK entity holds 1.93% of equity in the assessee company. The details of shareholding are appearing at note number 4 of the financial statement and further the detail of dividend paid per share is appearing at note number 5 of the financial statements. Therefore, the details of the shareholding as well as the dividend paid are evident from the records and documents already submitted by the assessee before the lower authorities. The assessee further placed reliance on several judicial precedents of the coordinate benches wherein the additional ground was admitted. Therefore, the additional ground deserves to be admitted. 058. We have carefully considered the rival contention and perused the orders of the lower authorities. Application for admission of the additional ground raised by the assessee is also perused. All the judicial precedents cited before us by both the parties are also considered. In case of Assessee, identically we admitted additional ground for AY 2014-15 in ITA No 2132/ M/2018. After Admission, we dismissed that ground after recording arguments of both the parties. We do not find any reason to deviate from Page | 43 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD those reasons. Thus, Additional ground is admitted and then on merits it is dismissed. 059. In the result appeals of the assessee for AY 2015-16 and 2016-17 are partly allowed. 060. Now we come to the appeal of the learned assessing officer for assessment year 2015 – 16 wherein the solitary ground of the appeal was with respect to the disallowance of payment made to the Drs in alleged violation of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. The brief fact shows that the assessee company during the year has debited a sum of ₹ 756,131,000 as advertisement expenses. The assessee was asked to furnish the details of nature and quantum of expenditure incurred i.e. nature of payment mentioned in Indian market Council regulation 2002. The assessee company in its letter dated 26/12/2017 submitted the details of such expenditure. As per the information furnished, assessee incurred following expenditure:- serial number particulars amount remarks A Brand reminder, customer gifts 7,96,50,472 Nominal value having the intention of brand recall and accordingly do not amount to gifts Page | 44 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD B Product promotion through samples 8,49,66,499 Sample provided to enable HCP to get familiarized and/or tested the product not covered by MCI C Purchase of medical books journals 2,99,73,704 Medical textbooks/journals are provided to HCP with a view to disseminate knowledge and education. Hence it does not fall within circular D Conference expenses 1 Expenses on seminars 7,31,85,943 Meetings are attended by consultants appointed by Pfizer, no delegate fees are paid to consultants for attending the seminar. Speaker fees are paid to consultants to participate as because in such seminars. Page | 45 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD Hence, not covered by MCI regulations. 2 Travelling and hotel charges 1,07,72,389 Incurred only for consultant and not for other HCP 3 For charges 25,83,911 Incurred for providing means to HCP during Pfizer hosted seminars/conference subject to monetary Cap. The learned assessing officer after considering the submission of the assessee held that expenditure related to brand reminder/customer gifts amounting to ₹ 79,650,472/–, purchase of medical books and journals amounting to ₹ 29,973,704 are not allowable. Accordingly ₹ 109,624,176/– was disallowed. The assessee approached the learned CIT – A who in turn deleted the disallowance following the decision of the first appellate authority in assessee’s own case for assessment year 2014 – 15. Therefore, the learned assessing officer is aggrieved with the same and is in appeal before us. 061. The learned departmental representative submitted that this issue is squarely covered against the assessee by the decision of the honourable Supreme Court in case of Apex Page | 46 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD laboratories Ltd [2022] 135 taxmann.com 286 (SC)/[2022] 286 Taxman 200 (SC). He submitted that there is no relaxation granted by the honourable Supreme Court with respect to any quantum of expenditure and any nature of such expenditure. There is no advantage given to any appellate authority to deviate from the order of honourable Supreme Court. Granting the relief to the assessee under one pretext or another pretext with respect to either quantum or with respect to any nature of expenditure is a violation of the decision of the honourable Supreme Court. Everybody is duty-bound to follow the decision of the honourable Supreme Court in its letter and spirit. The decision of the learned CIT – A following the earlier decision of his own wherein relying on the decision of the honourable Bombay High Court relief was given to the assessee is now reversed by the honourable Supreme Court. Therefore, the order of the learned CIT – A is not sustainable and is deserves to be reversed. 062. The learned authorized representative submitted that that the amount of the expenditure and the nature of items distributed by the assessee are of very low and of an insignificant value for item unlike the distribution of laptops, gold coins etc. which were the fact before the honourable Supreme Court. The coordinate bench in case of Wyeth Ltd has remanded the matter to the AO to examine the details of expenses in light of the judgment of the honourable Supreme Court. Therefore, the matter should be sent back to the AO. Page | 47 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 063. The learned departmental representative vehemently objected to the fact and stated that there is no reason that this appeal should be set aside to the file of the learned assessing officer. He submitted that tribunal is only authorized to set aside in case where the facts are not available on record. Here the complete facts are available on the record and therefore it would be a great injustice to the revenue, if the tribunal despite having the decision of the honourable Supreme Court does not decide the issue here but set-aside back to the file of the learned AO. He submitted that the tribunal is duty-bound to decide the issues on the facts of the case if available. Here the facts are clearly mentioned in the assessment order. The assessee has not controverted any of the facts. It was further submitted that on what basis the assessee is claiming that small and insignificant values of items given to the Drs should not be disallowed. It was the claim of the revenue that there is no distinction between small items and big items in the decision of the honourable Supreme Court. The learned authorized representative could not point out anything in the decision of the honourable Supreme Court which makes such distinction. 064. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that the learned assessing officer has categorically mentioned the details of expenditure, which are disallowable. The assessee itself has given those details and therefore there Page | 48 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD is no reason to set-aside the issue back to the file of the learned assessing officer. In the decision of ITA number 1778/M/2020, the issue is set-aside to the file of the learned assessing officer for the simple reason that details were not available on record. Here the details are available in the record and we have reproduced them in our order in a tabular from hereinabove. Therefore, we reject the argument of the assessee to set-aside back to the file of the learned assessing officer to determine in accordance with the decision of the honourable Supreme Court. Even otherwise we do not have an authority to set-aside back to the file of the AO are particular ground when the adequate details are available before us. Furthermore, the issue here is squarely covered against the assessee by the decision of the honourable Supreme Court. We also find that the honourable Supreme Court has not made any distinction with respect to the nature of expenditure or quantum of expenditure. In Assessee’s own case for AY, 2014-15 identical disallowance deleted by the ld CIT (A) is reversed and confirmed. Reasoning given there in also squarely applies to this AY also. Therefore, in view of the decision of the honourable Supreme Court in case of Apex laboratories 442 ITR 1 (SC) we reverse the order of the learned CIT – A and restore the order of the learned assessing officer confirming the disallowance of ₹ 109,624,176/– . Accordingly this Ground of appeal of the learned AO is allowed for assessment year 2015 – 16. Page | 49 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD 065. For assessment year 2016 – 17 the AO is aggrieved in ITA number 1777/M/2020 wherein the learned CIT – A on identical facts and circumstances deleted the disallowance made by him of ₹ 125,423,688/–. Both the parties confirmed that the facts are identical and their arguments are similar as were made in assessment year 2015 – 16. In view of this, for the reasons given by us while deciding the solitary ground of appeal of the learned assessing officer for assessment year 2015 – 16, we allow this ground of appeal and also confirmed the disallowance of ₹ 125,423,688/– made by the learned assessing officer and reverse the order of the learned CIT – A. 066. In the result appeal of the ld AO for assessment year 2015-16 and 2016-17 are allowed. Order pronounced in the open court on 22.09 .2023. Sd/- Sd/- (SANDEEP SINGH KARHAIL) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated 22. 09.2023 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Page | 50 ITA No. 3694 & 3736/Mum/2019 & ITA No. 1620 & 1777/Mum/2020 A.Y.2015-16 & 2016-17 M/S PFIZER LTD Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai
AI Insights
The case involves multiple appeals by Pfizer Ltd against the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals) concerning various disallowances related to income tax assessments for the years 2015-16 and 2016-17. The primary issues included the addition of unreconciled transactions, disallowance of depreciation on intangible assets, and disallowances related to expenses at the Thane plant. The Tribunal examined each issue in detail, considering the arguments and evidence presented by both parties, and made determinations based on legal precedents and the specifics of the case.
