DCIT CIR 7(3)(2), MUMBAI V. PIRAMAL ENTERPRISES LTD, MUMBAI

ITA 1832/MUM/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8025 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 30-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHISHIR DHAMIJA
• Assessee Lawyers: J D MISTRI; MADHUR AGGARWAL AR S
• Keywords: Gift; Business income; Depreciation; Transfer pricing; Opportunity of being heard; Rule of consistency; Earning of tax free income; Retrospective amendment; Question of law; Competent authority; Notional interest; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 43B; 143(3); 14A; 115JB; 37(1); 80IC; 80IC; 13; 32; 147; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J, BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.1754/MUM/2015 ( ASSESSMENT YEAR: 2010-11 ) PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED) PIRAMAL TOWER GANPATRAO KADAM MARG LOWER PAREL MUMBAI-400 013 VS. ADDL.CIT, RANGE-7(3) AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AAAC N4538P ( APPELLANT ) .. ( RESPONDENT ) & ITA NO.1832/MUM/2015 ( ASSESSMENT YEAR: 2010-11 ) DCIT,CIRCLE-7(3)(2) 622, AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 VS. PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED) PIRAMAL TOWER GANPATRAO KADAM MARG LOWER PAREL MUMBAI-400 013 PAN/GIR NO. AAACN4538P ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI J.D.MISTRI & SHRI MADHUR AGGARWAL , AR S REVENUE BY SHRI SHISHIR DHAMIJA, DR DATE OF HEARING 15 /10/2019 DATE OF PRONOUNCEME NT 15 / 01/2020 / O R D E R PER G.MANJUNATHA (A.M) : ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 2 THESE CROSS APPEALS FILED BY THE ASSESSEE, AS WELL AS THE REVENUE ARE DIRECTED AGAINST FINAL ASSESSMENT ORDER PASSED BY THE LD. AO U/S. 143(3) R.W.S. 144C(13) OF THE I.T.ACT, 1961, IN PURSUANT TO DIRECTIONS ISSUED U/S 144C(5) OF THE I.T.ACT, 19 61 BY THE LD. DISPUTE RESOLUTION PANEL III, MUMBAI, DATED 30/12/ 2014 FOR THE AY 2010-11. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD T OGETHER AND ARE DISPOSED-OFF, BY THIS CONSOLIDATED ORDER. ITA.NO.1754/MUM/2015:- 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- GROUND NO- I: DISALLOWANCE OF PAYMENTS MADE TO PIRA MAL CORPORATE SERVICES LTD (FORMERLY KNOWN AS PIRAMAL ENTERPRISES LTD) (PCSL) OF RS.2,03,08,000/- 1. ON, THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW. THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF DISP UTE RESOLUTION PANEL ( THE DRP') IN DISALLOWING PART OF PAYMENT MADE TO PC SL OF RS 2,03,08,000/- ON THE ALLEGED GROUND THAT SAME IS NO T WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 2. THE APPELLANT PRAYS THAT DISALLOWANCE OF PAYMENT S MADE TO PCSL AMOUNTING TO RS.2,03,08,000/- BE DELETED. GROUND NO. II: DISALLOWANCE OF SOFTWARE EXPENSES AMOUNTING TO RS. 25,01,579/- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN L AW THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF DRP I N DISALLOWING SOFTWARE EXPENSES CLAIMED UNDER THE HEAD 'REPAIRS - COMPUTER - OTHERS' AND 'REPAIRS - COMPUTER - ANNUAL MAINTENANCE' ON THE AL LEGED JOCUND THAT THE SAID EXPENSES ARE CAPITAL IN NATURE AND HAS LON G TEMM BENEFITS. 2' THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO TREAT EXPENDITURE INCURRED ON SOFTWARE AS REVENUE EXPENDITURE. 3. WITHOUT PREJUDICE, THE AO IS DIRECTED TO ALLOW DEPRECIATION @ 69% ON THE SOFTWARE EXPENSES INCURRED. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 3 ROUND NO. ILL: DISALLOWANCE OF DEDUCTION UNDER SECT ION 35(2AB) OF THE ACT IN RESPECT OF ENNORE UNIT AND GOREGAON UNIT AMOUTNING TO RS. 15,26,91 ,093/- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW. THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF DRP IN DISALLO WING THE WEIGHTED DEDUCTION CLAIMED U/S, 35(2AB) IN RESPECT OF R& D EXPENSES (REVENUE AND CAPITAL) RELATED TO ENNORE UNIT AND GOREGAON UN IT AMOUNTING TO RS.15,26,91,093/- ON THE ALLEGED GROUND THAT NO APP ROVAL IS GRANTED BY APPROPRIATE AUTHORITY FOR THESE UNITS IN FORM 3CM, 2. THE AO FAILED TO APPRECIATE AND OUGHT TO HAV E HELD THAT APPROVAL GRANTED BY DSIR (DEPARTMENT OF SCIENTIFIC AND INDUS TRIAL RESEARCH) IS SUFFICIENT FOR CLAIMING DEDUCTION U/S 35(2 AB) OF T HE ACT, 3. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLOW WEIGHTED DEDUCTION AS CLAIMED U/S 35(2AB)OF THE ACT. GROUND NO. IV: DISALLOWANCE OF THE CLAIM OF DEPRECIATION ON ADDITIONS TO COMPUTER SOFTWARE AMOUNTING TO RS. 2,82,05,985/- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF THE DRP IN REC ALCULATING DEPRECIATION ON COMPUTER SOFTWARE @ 25% INSTEAD OF @ 60% AS CLAI MED BY THE APPELLANT AND THEREBY DISALLOWED THE EXCESS DEPRECI ATION OF RS, 2,82,05,985/- ON THE ALLEGED GROUND THAT SOFTWARE PURCHASED SEPARATELY AND INDEPENDENT FROM COMPUTER PURCHASES AMOUNTS TO 'INTANGIBLE ASSETS''. 2. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLOW DEPRECIATION @60% ON COMPUTER SOFTWARE AS CLAIMED BY THE APPELL ANT 3. WITHOUT PREJUDICE TO THE ABOVE, IF THE AO IS RIGHT IN SAYING THAT THE EXPENDITURE ON COMPUTER SOFTWARE HAS RESULTED ONLY IN GRANTING A RIGHT TO USE SOFTWARE THEN, THE AO BE DIRECTED TO A LLOW THE SAID EXPENDITURE AS REVENUE EXPENDITURE. GROUND NO. V: DISALLOWANCE OF CLAIM OF DEPRECIATION PERTAINING TO BOEHRINGER MANNHEIM INDIA LTD. (BM1L) , PIRAMAL HOLDINGS LTD. (PHL) AND GLASS AND BULK DRUG DIVISION (GBDD) AMOUNTING TO RS.94,43,089/- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE EASE A ND IN LAW, THE AO ERRED IN NOT FOLLOWING THE DIRECTION OF THE DRP IN ALLOWING DEPRECIATION AS CLAIMED IN RESPECT OF ASSETS OF BOEHRINGER MANNH EIM INDIA LIMITED ('BMIL') MERGED WITH THE APPELLANT ON THE ALLEGED G ROUND THAT THE APPELLANT HAS NOT PROVIDED WORKING OF DEPRECIATION. 2. THE AO FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT THE DEPRECIATION CHART FOR AY 1997-98 WAS SUBMITTED BE FORE HIM. 3. ON THE FEELS AND IN THE CIRCUMSTANCES OF THE EASE A ND IN LAW, THE AO ERRED IN MEWING THE ERRONEOUS DIRECTION OF THE DRP IN RECOMPUTING DEPRECIATION ALLOWABLE IN RESPECT OF ASSETS OF PHAR MA DIVISION TAKEN ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 4 OVER FROM PIRAMAL HOLDINGS LTD. IN A MANNER DIFFERE NT FROM THE ONE CALCULATED BY THE APPELLANT. 4. THE AO FURTHER ERRED IN REDUCING FROM THE BLOCK OF ASSETS THE SALE VALUE AS RECORDED IN THE BOOKS OF PURCHASING COMPAN Y PERTAINING TO GLASS DIVISION AND BULK DRUG DIVISION SOLD IN A.Y, 1999-00 ON SLUMP SALE BASIS ON THE ALLEGED GROUND THAT THE AO HAS CO NSIDERED IT AS ITEMIZED SALE OF ASSETS. 5. THE APPELLANT PAYS THAT THE AO BE DIRECTED TO ALLOW DEPRECIATION AS CLAIMED IN RETURN OF INCOME. GROUND NO. VI: ADJUSTMENT OF INVENTORV AS PER SECTI ON 145A OF THE ACT AMOUNTING TO RS. 1,20,83,000/-: 1. ON THE FACTS AND CIRCUMSTANCES OF THE EASE AND I N LAW, THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF THE DRP IN RE -COMPUTING VALUE OF CLOSING STOCK AT RS. 17,939,52 LAKHS AS AGAINST RS. 17,018 LAKHSE AND OPENING STOCK AT RS 15,654.69 LAKHS AS AGAINST RS. . 14, 834 LAKHS ON THE GROUND THAT THE APPELLANT IS FOLLOWING EXCLUSIV E METHOD OF ACCOUNTING FOR MODVAT WITH REGARDS TO INVENTORY. 2. THE AO FAILED TO UNDERSTAND AND OUGHT TO HAVE H ELD THAT, IRRESPECTIVE OF WHETHER THE APPELLANT FOLLOWS INCLUSIVE OR EXCLUSIV E METHOD OF VALUATION OF STOCK, THE AMOUNT OF UNUTILIZED MODVAT CREDIT HAS N O IMPACT ON THE PROFITS OF THE APPELLANT 3. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO D ELETE THE ADJUSTMENT OF RS. 1,20,83,000/- MADE U/S 145A OF THE ACT. GROUND NO. VII DISALLOWANCE UNDER SECTION I4A OF THE ACT REAB WITH RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES) AMOUNTING TO RS. 4,55,36,000/-. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF THE D RP IN DISALLOWING A SUM OF RS.4,55,36,000/- AS EXPENDITURE ATTRIBUTABL E TO EARNING EXEMPT DIVIDEND INCOME, U/S. 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 ('THE RULES'). 2. THE APPELLANT HUMBLY PRAYS THAT THE DISALLOWA NCES U/S. 14A OF RS. 4,55,36,00/- BE DELETED OR BE APPROPRIATELY BE RED UCED. 3. WITHOUT PREJUDICE, THE APPELLANT PRAYS THAT T HE DISALLOWANCE BE APPROPRIATELY REDUCED. GROUND NO. VIII: DISALLOWANCE OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES AMOUNTING TO RS. 30,47,33,208/- 1. ON THE FACTS AND CIRCUMSTANCES OF THE EASE AN D IN LAW, THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF THE DRP IN DI SALLOWING A SUM OF RS. 30,47,33,208/- BEING 50% OF CERTAIN EXPENSES OUT O F ADVERTISING AND BUSINESS PROMOTION EXPENSES ON THE ALLEGED GROUND T HAT THESE EXPENSES ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF THE BUSINESS AND ARE INADMISSIBLE U/S 37(1) OF THE ACT, BEING AN EX PENSE PROHIBITED BY LAW. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 5 2. THE APPELLANT PRAYS THAT THE ENTIRE EXPENDITU RE INCURRED TOWARDS ADVERTISING AND BUSINESS PROMOTION BE ALLOWED AS DE DUCTION, GROUND NO. IX: ADDITION OF RS. 21,25,00,000/- TOTAL INCOME AND REDUCTION OF DEDUCTION UNDER S ECTION 80IC AMOUNTING TO RS.22,25,00,000 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF THE DRP IN RED UCING DEDUCTION U/S. 801C BY ALLOCATING RESEARCH AND DEVELOPMENT EXPENDITURE OF RS.11,23,00,000/- AND INTEREST EXPENDITURE OF RS. 1 1,02,00,000/- TO FEE BADDI UNIT ELIGIBLE FOR DEDUCTION U/S. 80IC ON THE ALLEGED GROUND THAT SUCH EXPENDITURE ARE ATTRIBUTABLE TO THE SAID BADDI UNIT. 2. THE AO FAILED TO APPRECIATE AND OUGHT TO HAVE HE LD THAT THE RESEARCH AND DEVELOPMENT EXPENDITURE ARC INCURRED M AINLY ON PROCESS DEVELOPMENT FOR CUSTOMS MANUFACTURING (PDG) AND IT HAS NO CONNECTION DIRECTLY OR INDIRECTLY WITH THE MANUFACTURING ACTIVITY CARRIED OUT AT BADDI UNIT. THE ASSESSES HAS NOT MADE ANY BORROWING SPECIFICAL LY FOR THE PURPOSE OF SETTING BADDI UNIT AND IT WORKING CAPITAL REQUIREME NT IS MET BY THE CASH OR FUND GENERATED IN THE UNIT. THE APPELLANT PRAYS THAT THE AO BE DIRECTED NOT TO ALLOCATE RESEARCH AND DEVELOPMENT EXPENDITURE OF RS.. 11, 2 3 ,00,000/- AND INTEREST EXPENDITURE OF RS. 11,02,00,000/- TO THE BADDI UNI T. GROUND NO. X : ELIGIBILITY OF DEDUCTION UNDER SECT ION 80IC OF THE ACT; 1., ON THE FACTS SAD CIRCUMSTANCE OF THE EASE AND I N LAW, THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF THE DRP IN DIS ALLOWING THE DEDUCTION OF RS, 373.57,78,443/- CLAIMED U/S. 80IC IN RESPECT O F BADDI UNIT ON THE ALLEGED GROUND THAT THE BADDI UNIT IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IC RELYING ON THE ORDER FOR AY 2008-09. 2. THE AO FAILED TO APPRECIATE AND OUGHT TO HAVE HE LD THAT THE BADDI UNIT HAD BEEN FORMED IN AY 2007-08 BY INTRODUCING FRESH CAPI TAL AND PURCHASING NEW PLANT AND MACHINERY AND IT HAD BEEN NOT FORMED BY S PLITTING OF THE EXISTING BUSINESS OF THE APPELLANT. 3. THE APPELLANT PRAYS THAT THE AO BE DIRECTED 10 A LLOW DEDUCTION U / E 80IC OF THE ACT. GROUND NO. XI: ADDITION ON ACCOUNT OF TRANSFER PRIC ING ADJUSTMENT OF NOTIONAL INTEREST ON LOAN ADVANCED AMOUNTING TO RS. 5,01,48,284/- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF THE DRP IN MAKING AN ADJUSTMENT OF RS, 5,01,48,284/- ON ACCOUNT OF INTEREST CHARGED ON LOAN GIVEN TO ASSOCIATED ENTERPRISES. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 6 2. THE AO FAILED TO APPRECIATE THAT: A. THE RATE OF INTEREST CHARGED FROM THE ASSOCIAT ED ENTERPRISES ARE HIGHER THAN LIBOR AND THEREFORE ALREADY AT ARM'S L ENGTH. B. LIBOR IS AN APPROPRIATE BASE FOR BENCHMARKING AS COMPARED TO THE INDIAN BANKS RATE OF INTEREST CONSIDERING THE DIFFE RENT STAGE OF ECONOMIC DEVELOPMENT OF TWO ECONOMIES. 3. THE APPELLANT PRAYS THAT THE ADDITION AMOUNTING TO RS. 5,01,48,284/- MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF N OTIONAL INTEREST ON LOAN ADVANCED BE DELETED. GROUND NO. XII: ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF GUARANTEE COMMISSION AMOUNTIN G TO RS. 19,15,10,985/- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF THE D RP IN MAKING AN ADJUSTMENT OF RS 19,15,16,985/- ON ACCOUNT OF COMMI SSION ON CORPORATE GUARANTEE PROVIDED ON BEHALF OF ITS ASSOCIATED ENTE RPRISE (AE'). THE TPO HAS CHARGED COMMISSION @ 1.75% NORMALLY CHARGED BY BANKS FOR GUARANTEES AND 1.25% CHARGED FOR RISK INVOLVED ON A CCOUNT OF EXCHANGE RATE RISK, COUNTRY SPECIFIC RISK AND AE RISK INVOLV ED IN GIVING GUARANTEE ON LOANS. 2. THE AO FAILED TO APPRECIATE AND OUGHT TO HAVE H ELD THAT, THE TRANSACTIONS OF A CORPORATE GUARANTEE IS NOT AN INT ERNATIONAL TRANSACTION OF A CORPORATE GUARANTEE IS NOT AN INTERNATIONAL T RANSACTION. 3. WITHOUT PREJUDICE, THE AO BE DIRECTED TO RESTRICT THE ADDIT ION TO 0.5% I.E, THE RATE AT WHICH THE APPELLANT HAS RECOVERED GUAR ANTEE COMMISSION FROM AES. GROUND NO. XIII: ADDITION OF DISALLOWANCE UN0ER 0EC T1ON 14A BF THE ACT TO COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT AMOUNTING TO RS. 4,55,36, 000/- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE AO ERRED IN FOLLOWING THE ERRONEOUS DIRECTION OF THE DRP IN ADD ING BACK THE AMOUNT DISALLOWED U/S. 14A TO THE BOOK PROFIT COMPUTED U/S , 115JB OF THE ACT. 2. THE AO FAILED TO APPRECIATE AND OUGHT TO HAVE HE LD THAT THE DISALLOWANCE MADE UNDER SUBSECTIONS (2) AND (3) OF SECTION 14A IS NOT TO BE ADDED WHILE COMPUTING THE BOOK PROFITS U/S 115 JB OF THE ACT IN THE ABSENCE OF ANY EXPRESS PROVISION FOR THE SAME' IN SECTION 115JB. 3. THEREFORE, THE APPELLANT PRAYS THAT THE AO BE DI RECTED NOT TO ADD THE EXPANSES COMPUTED U/S 1 4A OF THE ACT TO THE BOOK PROFIT U/S.115JB. GROUND NO. XIV: GENERAL ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 7 APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND/OR DELETE ANY/ALL OF THE ABOVE GROUND OF APPEAL. 3. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.1 OF ASSESSEE APPEAL IS DISALLOWANCES OF PAYMENT S MADE TO PIRAMAL CORPORATE SERVICES LIMITED (PCSL) OF RS. 2, 03,08,000/-. THE RELEVANT FACTS OF THE IMPUGNED DISPUTES ARE THA T PCSL IS THE FLAGSHIP COMPANY OF THE PIRAMAL GROUP AND IS RESPON SIBLE FOR MAINTAINING AND FURTHERING THE IMAGE OF THE GROUP A ND ENSURING CONSISTENT QUALITY OF MANAGEMENT OF THE GROUP COMPA NIES, INCLUDING THE ASSESSEE COMPANY. PURSUANT TO AN AGREEMENT, DAT ED 29/04/1995, PCSL IS TO PROVIDE CERTAIN SERVICES AGA INST REIMBURSEMENT OF ACTUAL EXPENSES BY THE GROUP CONC ERNS UNDER CLAUSE 5(B) OF THE AGREEMENT. THE ASSESSEES SHARE COMES TO 53.24 PERCENT AND SUCH PROPORTION OF THE TOTAL EXPENSES I NCURRED BY PCSL AMOUNTING TO RS. 963 LACS WAS APPORTIONED TO THE AS SESSEE. IN ADDITION, PCSL UNDER CLAUSE 5(A) OF THE SAME AGREEM ENT WAS TO RECEIVE A ROYALTY AT A RATE NOT EXCEEDING 0.5% OF T HE TOTAL TURNOVER. THE ASSESSE HAS MADE A TOTAL PAYMENT OF RS. 10 CROR ES TO PCSL DURING THE PERIOD UNDER CONSIDERATION, WHICH CONSIS T OF A SUM OF RS. 9.63 CRORES TOWARDS REIMBURSEMENT OF EXPENSES AND A SUM OF RS. 0.37 CRORES WAS CLAIMED BY THE ASSESSEE AS A PAYMEN T TOWARDS ROYALTY UNDER CLAUSE 5(A) OF THE AGREEMENT. THE LD. AO, ON THE BASIS OF INFORMATION FURNISHED BY THE ASSESSEE WAS OF THE OPINION THAT PCSL HAS INCURRED AN AMOUNT OF RS. 18.09 CRORES, TO WARDS CORPORATE SERVICES EXPENDITURES, WHEREAS A TOTAL OF RS. 22.70 CRORES HAS BEEN COLLECTED FROM ALL THE GROUP CONCERNS. THE REFORE, HE OPINED THAT THE ASSESSEE HAS MADE EXCESSIVE PAYMENT S TO PCSL AND ACCORDINGLY, DETERMINED DISALLOWANCES OF RS. 2, 03,08,000/- OUT OF TOTAL AMOUNT PAID TO PCSL TOWARDS REIMBURSEMENT OF ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 8 PROPORTIONATE EXPENSES, AS WELL AS ROYALTY, AS PER AGREEMENT DATED 29/04/1995. 4. THE LD. AR FOR THE ASSESSES, AT THE TIME OF HEAR ING SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF ITAT, MUMBAI K BENCH IN ASSESSEES OW N CASE FOR AY 2008-09 REPORTED IN (2018) 97 TAXMANN.COM 352, WHER E THE TRIBUNAL UNDER IDENTICAL SET OF FACTS DELETED ADDITIONS MADE BY THE LD. AO TOWARDS PROPORTIONATE REIMBURSEMENT OF EXPENSES, AS WELL AS ROYALTY PAYMENT, AS PER AGREEMENT DATED 29/04/1995. THE LD. DR PRESENT FOR THE REVENUE, FAIRLY ACCEPTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT FOR AY 2008-09. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF ITAT, MUMBAI IN ASSESSEES OWN CASE FOR AY 2008-09 AND AFTER CONSIDERING RELEVANT FACTS, INCLUDING AGREEME NT BETWEEN THE PARTIES DATED 29/04/1995 HELD THAT THE LD. AO IS UN DER A MISCONCEPTION OF FACT HAS DISALLOWED PAYMENT MADE T O PCSL TOWARDS REIMBURSEMENT OF EXPENSES, AS WELL AS PAYME NT OF ROYALTY, ON THE GROUND THAT PCSL HAS CHARGED MORE TO THE ASS ESSEE, THEN WHAT IS CONTEMPLATED IN THE AGREEMENT. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 21. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. ON A READING OF THE AGREEMENT DATED 29TH AP RIL 1995 WITH PEL A COPY OF WHICH IS AT PAGE859 OF THE PAPER BOOK, IT IS NOTICED THAT IN ADDITION TO THE REIMBURSEMENT OF EXPENSES INCURRED BY PEL ON BEHALF OF THE ASSESSEE, THE ASSESSEE WAS ALSO REQUIRED TO PAY TO PEL ROYALTY @ NOT EXCEEDING 0.5% OF HIS TURNOVER OF GOODS MANUFAC TURE AND TRADED. THUS, IT IS EVIDENT THAT THE PAYMENT MADE OF `822 C RORE TO PEL CONSTITUTES ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 9 BOTH REIMBURSEMENT OF EXPENSES AND ROYALTY. THIS FA CT IS ALSO CLEAR FROM THE WORKING OF REIMBURSEMENT OF EXPENSES AND ROYALT Y AT PAGE237 OF THE PAPER BOOK, WHICH INDICATES THAT AN AMOUNT OF ` 6.75 CRORE WAS FOR REIMBURSEMENT OF EXPENSES AND `1.47 CRORE TOWARDS R OYALTY. FROM THE ASSESSMENT ORDER, PRIMAFACIE, IT APPEARS THAT THE ASSESSING OFFICER WHILE CONCLUDING THAT PEL HAS CHARGED MORE TO THE A SSESSEE TOWARDS REIMBURSEMENT OF EXPENSES THAN WHAT IS CONTEMPLATED IN THE AGREEMENT IS UNDER A MISCONCEPTION OF FACT. HOWEVER, IN THE O RDER GIVING EFFECT TO THE DIRECTION OF THE COMMISSIONER (APPEALS), THE ASSESS ING OFFICER HAS ALLOWED THE PAYMENT MADE TOWARDS EXPENDITURE FULLY AND DISALLOWED THE AMOUNT OF ` 1.47 CRORE TOWARDS ROYALTY. WHEN THE TE RMS OF THE AGREEMENT SPECIFICALLY PROVIDE FOR PAYMENT OF ROYALTY AND ROY ALTY WAS PAID IN COMPLIANCE TO SUCH TERM, THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF ROYALTY PAYMENT. DISALLOWANCE MADE IS DELETED. 6. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH V IEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD. AO TO DELETE A DDITIONS MADE TOWARDS DISALLOWANCES OF PAYMENT MADE TO PCSL. 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM GROUND NO. 2 OF ASSESSEE APPEAL IS DISALLOWANCES OF SOFTWA RE EXPENSES AMOUNTING TO RS. 25,01,579/-. THE FACTS WITH REGARD TO THE IMPUGNED DISPUTES ARE THAT DURING THE YEAR UNDER CONSIDERATI ON, THE ASSESEE HAS DEBITED CERTAIN EXPENSES INCURRED IN RELATION T O PURCHASE OF SOFTWARE LICENSE, AS A REVENUE EXPENDITURE UNDER TH E HEAD REPAIRS COMPUTERS AND OTHERS. THE LD. AO HAS DISALLOWED SOF TWARE EXPENDITURE, ON THE GROUND THAT THEY ARE IN THE NAT URE OF CAPITAL EXPENDITURE, BUT ALLOWED DEPRECIATION TO THE ASSESS EE AT THE RATE APPLICABLE TO SOFTWARE. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSE BY THE DECISION OF ITAT, MUMBAI IN ASSESSEES OWN CASE FOR AY 2009-10 IN ITA NO. 1257/ MUM/2014, WHERE UNDER IDENTICAL SET O F FACTS, THE TRIBUNAL HELD THAT EXPENDITURE INCURRED TOWARDS PUR CHASE OF SOFTWARE LICENSES ARE IN THE NATURE OF REVENUE EXPENDITURE AND THUS, ARE ALLOWABLE AS DEDUCTION U/S 37(1) OF THE I.T.ACT, 19 61. THE LD. DR, ON ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 10 THE OTHER HAND FAIRLY ACCEPTED THAT THIS ISSUE IS C OVERED IN FAVOUR OF THE ASSESSEE, HOWEVER HE STRONGLY SUPPORTED FINDING S OF THE LD. AO, AS WELL AS THE LD. DRP. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THIS ISSUE HAS BEEN SUBJECT MAT TER OF DELIBERATION BY THE CO-ORDINATE BENCH OF ITAT, MUMBAI J BENCH IN ASSESSEES OWN CASE FOR AY 2009-10 IN ITA NO. 1257/MUM/2014, W HERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL BY FOLLOWING T HE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RA YCHEM RPG LTD. (2012) 346 ITR 138 HELD THAT EXPENDITURE INCUR RED ON PURCHASE OF A SOFTWARE AND LICENSES ARE IN THE NATURE OF REV ENUE EXPENDITURE DEDUCTIBLE U/S 37(1) OF THE I.T.ACT, 1961. THE RELE VANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 11. WE HAVE DELIBERATED AT LENGTH ON THE ISSUE UNDE R CONSIDERATION AND ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO TH E VIEW TAKEN BY THE LOWER AUTHORITIES. WE FIND THAT THE ISSUE THAT EXPE NSES INCURRED BY AN ASSESSEE ON PURCHASE OF A SOFTWARE WHICH BROUGHT GR EATER EFFICIENCY IN FUNCTIONING OF ITS BUSINESS HAD BEEN HELD BY THE HO N BLE HIGH COURT OF BOMBAY IN THE CASE OF PCIT VS. HOLICIN SERVICES (SO UTH ASIA) LTD. (2018) 93 TAXMANN.COM 270 (BOM), AS ALLOWABLE AS A REVENUE EXPENDITURE. FURTHER, THE HON BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. RAYCHEM RPG LTD. (2012) 346 ITR 138 (BOM) HAD OBSER VED THAT THE EXPENDITURE INCURRED BY AN ASSESSEE ON PURCHASE OF A SOFTWARE WHICH FACILITATED ITS TRADING OPERATIONS OR ENABLED THE M ANAGEMENT TO CONDUCT ITS BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY WO ULD NOT FORM PART OF THE PROFIT MAKING APPARATUS OF THE ASSESSEE AND WOULD B E ALLOWABLE AS A REVENUE EXPENDITURE. ALSO, WE FIND THAT A SIMILAR V IEW HAD ALSO BEEN TAKEN BY THE HON BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. AMWA Y INDIA ENTERPRISES (2012) 346 ITR 341 (DEL). IN THE AFORESAID CASE, IT WAS OBSERVED BY THE HIGH COURT THAT THE EXPENDITURE INC URRED BY THE ASSESSEE ON PURCHASE OF SOFTWARE APPLICATION AND PA YMENT MADE FOR ACQUIRING LICENSE TO USE THOSE APPLICATIONS WAS TO BE ALLOWED AS A REVENUE EXPENDITURE. IN THE BACKDROP OF THE AFORESA ID SETTLED POSITION OF LAW, WE ARE OF THE CONSIDERED VIEW THAT AS THE AFOR ESAID SOFTWARE PURCHASED BY THE ASSESSEE DID NOT FORM PART OF ITS PROFIT MAKING APPARATUS AND ONLY FACILITATED CARRYING ITS BUSINES S MORE EFFICIENTLY, ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 11 THEREFORE, THE SAME WAS RIGHTLY CLAIMED BY IT AS A REVENUE EXPENDITURE. WE THUS IN TERMS OF OUR AFORESAID OBSERVATIONS DIRE CT THE A.O TO ALLOW THE SOFTWARE EXPENSES OF RS.14,00,800/- AS CLAIMED BY T HE ASSESSEE. THE GROUND OF APPEAL NO. I IS ALLOWED. DISALLOWANCE OF DEDUCTION UNDER SEC.35(2AB) IN RESPECT OF ENNORE UNIT & GOREGAON UN IT: RS.24,89,50,211/-: 9. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH V IEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD. AO TO ALLOW DE DUCTIONS TOWARDS SOFTWARE EXPENSES AS REVENUE IN NATURE. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.3 OF ASSESSEE APPEAL IS DISALLOWANCES OF DEDUCTI ON CLAIMED U/S 35(2AB) IN RESPECT OF ENNORE UNIT, GOREGAON UNIT, A MOUNTING TO RS. 15,26,91,093/-. THE FACTS WITH REGARD TO THE IMPUGN ED DISPUTES ARE THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 35(2AB) TOWARDS R& D EXPENDITURE INCURRED IN ITS GOREGOAN AND ENNORE UNI TS. THE LD. AO HAS DISALLOWED WEIGHTED DEDUCTION CLAIMED U/S 35(2A B), ON THE GROUND THAT THE ASSESEE HAD FAILED TO PLACED ON REC ORD FORM 3CM ISSUED BY THE DSIR FOR APPROVAL AND QUANTIFICATION OF EXPENDITURE INCURRED FOR RESEARCH AND DEVELOPMENT ACTIVITIES. 11. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEA RING SUBMITTED THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF ITAT, MUMBAI BENCHES FOR AY 2008-09 AND 2009-10, WHERE UNDER IDE NTICAL SET OF FACTS, THE ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE LD. AO FOR PROVIDING OPPORTUNITY TO THE ASSESSE TO FURNISH REQ UIRED APPROVAL IN FORM NO. 3CM. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF THE LD. AO AND DIRECT HIM TO FOLLOW THE DIRECTIONS GIVEN BY THE ITAT FOR EARLIER ASSESSMENT YEARS. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 12 12. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT FOR AY 2008-09 AND 2009-10 THE ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE LD. AO TO PROVIDE AN OPPORTUNITY TO THE ASSESEE TO FURNISH REQUIRED APPROVAL IN FORM 3CM FROM THE COMP ETENT AUTHORITY. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 13. ADMITTEDLY, THE ISSUE PERTAINING TO THE ENTITLE MENT OF THE ASSESSEE TOWARDS CLAIM OF WEIGHTED DEDUCTION UNDER SEC. 35(2 AB) IS A RECURRING ISSUE WHICH WAS ALSO INVOLVED IN ITS CASE FOR THE I MMEDIATELY PRECEDING YEAR I.E A.Y 2008-09. WE FIND THAT THE TRIBUNAL WHI LE DISPOSING OFF THE APPEAL OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDIN G YEAR I.E A.Y. 2008- 09, HAD AFTER CONSIDERING THE CONTENTION OF THE ASS ESSEE THAT IT HAD APPLIED FOR APPROVAL IN FORM 3CM WHICH WAS STILL PENDING, RESTORED THE ISSUE TO THE A.O FOR PROVIDING AN OPPORTUNITY TO TH E ASSESSEE TO FURNISH THE APPROVAL OF THE COMPETENT AUTHORITY IN THE PRES CRIBED MANNER FOR CLAIMING THE DEDUCTION UNDER SEC. 35(2AB) OF THE I- T ACT. IN FACT, THE LD. A.R BY TAKING SUPPORT OF THE OBSERVATIONS OF THE TR IBUNAL IN THE ASSESSES OWN CASE FOR A.Y. 2008-09, HAD REQUESTED THAT THE M ATTER AS REGARDS THE ENTITLEMENT OF THE ASSESSEE TOWARDS THE CLAIM OF DE DUCTION UNDER SEC. 35(2AB) MAY BE RESTORED TO THE FILE OF THE A.O IN T HE SAME TERMS, WITH A DIRECTION TO THE A.O TO PROVIDE AN OPPORTUNITY TO T HE ASSESSEE TO FURNISH THE APPROVAL OF THE COMPETENT AUTHORITY IN THE PRES CRIBED FORM IN SUPPORT OF ITS AFORESAID CLAIM. WE ARE OF THE CONSIDERED VI EW THAT FOLLOWING THE ORDER OF THE TRIBUNAL IN THE ASSESSES OWN CASE FOR A.Y. 2008-09, THE MATTER AS REGARDS ITS ENTITLEMENT TOWARDS CLAIM OF DEDUCTION UNDER SEC. 35(2AB) IN ALL FAIRNESS REQUIRES TO BE RESTORED TO THE FILE OF THE A.O. NEEDLESS TO SAY, THE A.O WHILE ADJUDICATING THE ENT ITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION UNDER SEC.35(2A B) SHALL AFFORD AN OPPORTUNITY TO THE ASSESSEE TO FURNISH THE APPROVAL OF THE COMPETENT AUTHORITY IN THE PRESCRIBED MANNER IN SUPPORT OF IT S SAID CLAIM. THE MATTER IS RESTORED TO THE FILE OF THE A.O IN TERMS OF OUR AFORESAID OBSERVATIONS. THE GROUND OF APPEAL NO. II IS ALLOWED FOR STATISTI CAL PURPOSES. DISALLOWANCE OF THE CLAIM OF DEPRECIATION ON ADDITI ONS TO COMPUTER SOFTWARE : RS.17,63,425/- 13. FOR THE YEAR UNDER CONSIDERATION FACTS ARE PARA MATERIA WITH THE FACTS ALREADY CONSIDERED BY THE TRIBUNAL FOR EA RLIER ASSESSMENT YEARS. THEREFORE, CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH FOR EARLIER YEARS , WE RESTORED THIS ISSUE TO THE FILE OF THE LD. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 13 AO AND DIRECT HIM TO FOLLOW THE DIRECTIONS GIVEN BY THE TRIBUNAL FOR AY 2008-09 AND 209-10, WHILE ADJUDICATING THE ISSUE . 14. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 4 OF ASSESSEE APPEAL IS DISALLOWANCES OF CLAIM OF DEPRECIATION ON ADDITIONS TO COMPUTER SOFTWARE OF RS. 2,82,05,98 5/-. THE FACTS WITH REGARD TO THE IMPUGNED DISPUTES ARE THAT DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO NOTICED THAT THE ASSESEE HAD INCURRED SOFTWARE EXPENSES ON UP GRADATION OF ITS E XISTING SOFTWARE NAMELY MFGPRO, MS-OFFICE, ETC AND CLAIMED DEPRECIAT ION @ 60% AS APPLICABLE TO COMPUTER SOFTWARE. THE LD. AO WAS OF THE OPINION THAT AS PER RULE 5 OF THE I.T.RULES, 1962 ONLY COM PUTERS, INCLUDING SOFTWARE WERE ELIGIBLE FOR DEPRECIATION @ 60%, WHE N THE COMPUTERS WERE PURCHASED ALONG WITH SOFTWARE. IN CASE, THE SO FTWARE IS PURCHASED SEPARATELY, THEN THE SAME WOULD BE AN ACQ UISITION OF INTANGIBLE ASSETS AS ENVISAGED IN PART- B OF DEPREC IATION SCHEDULE AND SUCH INTANGIBLE ASSET IS ENTITLED FOR DEPRECIAT ION @ 25%. ACCORDINGLY, DISALLOWED EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE. 15. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS ALSO SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF ITAT, MUMBAI BENCH IN ASSESSEES OWN CASE FOR AY 2009-10, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HELD THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION @ 60% ON UP GRADATION OF SOFTWARE . THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED THAT THE ISSUE IS C OVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT FOR EARLIER Y EARS. BUT, HE STRONGLY SUPPORTED THE FINDINGS OF THE LD. AO, AS W ELL AS THE LD.DRP. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 14 16. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE CO-ORDINATE BENCH HAD CONSIDERED AN IDENTI CAL ISSUE FOR AY 2009-10 AND AFTER CONSIDERING RELEVANT FACTS AND AL SO, BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT, IN THE C ASE OF CIT VS SARASWATH INFOTECH LTD. IN ITA NO. 124 OF 2012 DATE D 15/01/2013 HELD THAT THE ASSESEE IS ENTITLED FOR 60% DEPRECIAT ION ON COMPUTER SOFTWARE AND UP GRADATION OF EXISTING SOFTWARE. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 15. WE FIND THAT THE ISSUE BEFORE US IS AS TO WHETH ER AN INDEPENDENT PURCHASE OF SOFTWARE WHICH ADMITTEDLY FORMED PART O F THE PROFIT MAKING APPARATUS OF THE ASSESSES BUSINESS AND WAS CAPITALI ZED IN ITS BOOKS OF ACCOUNTS WOULD BE ENTITLED FOR DEPRECIATION @ 60% (AS CLAIM ED BY THE ASSESSEE) OR @25% (AS ALLOWED BY THE AO). ADMITTEDL Y, THE CLAIM OF THE ASSESSEE TOWARDS DEPRECIATION ON COMPUTER SOFTWARE @ 60% WAS ALLOWED BY THE CIT(A) IN ITS OWN CASE FOR A.Y 2008- 09. THE REVENUE HAD NOT CARRIED THE AFORESAID ORDER OF THE CIT(A) ANY F URTHER IN APPEAL BEFORE THE TRIBUNAL, WHICH THUS HAD ATTAINED FINALITY. BE THAT AS IT MAY, WE FIND THAT THE ITAT, MUMBAI IN THE CASE OF OWENS AND CORN ING (INDIA) P. LTD. VS. ACIT, RANGE 7(3)(I), MUMBAI (2018) 93 TAXAMANN. COM 223 (MUM), HAD OBSERVED THAT THE REVENUE WAS IN ERROR IN RESTR ICTING THE ASSESSES CLAIM OF DEPRECIATION ON COMPUTER SOFTWARE @ 60% TO 25%. IN FACT, THE TRIBUNAL WHILE CONCLUDING AS HEREINABOVE, HAD TAKEN SUPPORT OF THE JUDGMENT OF THE HON BLE HIGH COURT BOMBAY IN THE CASE OF CIT VS. SARASWAT INFOTECH LTD. [ITA (L) NO. 1243 OF 2012; D ATED 15.01.2013]. APART THERE FROM, WE FIND THAT FURTHER IN THE FOLLO WING CASES ALSO THE COORDINATE BENCHES OF THE TRIBUNAL HAD CONCLUDED TH AT DEPRECIATION ON SOFTWARE EXPENSES IS ALLOWABLE @ 60%: (I) SRINIOVA SA RSORTS VS. ACIT (41 TAXMANN.COM 350) (HYD-TRIB) (II). USHODAYA ENTE RPRISES LIMITED 938 ITR (T) 148 ) (HYD-TRIB) (III). ACIT VS. ZYDUS INFR ASTRUCTURE (P) LTD. (72 TAXMANN.COM 199) (AHDTRIB) 16. WE ARE PERSUADED TO SUBSCRIBE TO THE VIEW TAKEN BY THE AFORESAID COORDINATE BENCHES OF THE TRIBUNAL AND RESPECTFULLY FOLLOW THE SAME. FURTHER, AS OBSERVED HEREINABOVE, THE ASSESSES CLAI M OF DEPRECIATION ON SOFTWARE EXPENSE @ 60% WHICH WAS ALLOWED BY THE CIT (A) HAD ALSO BEEN ACCEPTED BY THE REVENUE AND THE SAME HAD ALSO NOT BEEN CARRIED ANY FURTHER IN APPEAL BEFORE THE TRIBUNAL. IN TERMS OF OUR AFORESAID OBSERVATIONS, WE ARE OF THE CONSIDERED VIEW THAT TH E ASSESSEE HAD RIGHTLY CLAIMED DEPRECIATION ON COMPUTER SOFTWARE @ 60%. WE THUS SET ASIDE THE ORDER OF THE CIT(A) IN CONTEXT OF THE ISSUE UND ER CONSIDERATION AND VACATE THE DISALLOWANCE OF RS.17,63,425/- MADE BY T HE A.O ON THE SAID ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 15 COUNT. THE GROUND OF APPEAL NO. III IS ALLOWED. DIS ALLOWANCE OF CLAIM OF DEPRECIATION ON ASSETS OF BMIL AND PHL : RS. 68,75, 396/- : 17. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD. AO TO ALLOW DE PRECIATION AS CLAIMED BY THE ASSESSE. 18. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.5 OF ASSESEE APPEAL IS DISALLOWANCES OF CLAIM OF DEPRECIATION PERTAINING TO BMIL AND PHL OF RS. 94,43,089/-. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF ITAT FOR AY 2008-09 AND 2009-10, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HA S ALLOWED THE CLAIM OF THE DEPRECIATION PERTAINING TO BMIL AND PHL UNIT S. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUN AL FOR EARLIER YEARS. BUT, HE STRONGLY SUPPORTED ORDER OF THE LD.A O, AS WELL AS THE LD. DRP. 19. WE HAVE HEAD BOTH THE PARTIES, PERUSED THE MA TERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THIS ISSUE WAS SUBJECT MATTER OF DELIBERATIONS BY THE CO-ORDINATE BENCH OF ITAT, MUMBAI J BENCH IN ASSESSEES OWN C ASE FOR AY 2009-10, WHERE UNDER IDENTICAL SET OF FACTS, THE TR IBUNAL ALLOWED CLAIM OF DEPRECIATION. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 18. INSOFAR THE DISALLOWANCE OF THE CLAIM OF DEPREC IATION PERTAINING TO BMIL IS CONCERNED, WE FIND THAT THE SAME BEING A RE CURRING ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN THE ASSESSE S OWN CASE FOR A.Y. 2008-09 IN FAVOUR OF THE ASSESSEE. WE FIND THAT THE TRIBUNAL WHILE DISPOSING OFF THE APPEAL OF THE ASSESSEE FOR A.Y. 2 008-09, HAD OBSERVED THAT IT WAS AN ADMITTED FACT THAT BMIL BEFORE ITS M ERGER HAD NOT CLAIMED ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 16 DEPRECIATION ON THE ASSETS IN THE A.Y. 1995-96 & A. Y 1996-97. IN FACT, THE ASSESSEE HAD CLAIMED DEPRECIATION FOR THE FIRST TIM E ON THE ASSETS TAKEN OVER FROM BMIL. IT WAS OBSERVED BY THE TRIBUNAL THA T AS PER THE PROVISIONS OF SEC. 32 OF THE I-T ACT APPLICABLE TO THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE WAS FREE TO EITHER CLAIM OR NOT CLAIM DEPRECIATION, AS PER ITS OWN OPTION. ON THE BASIS OF THE AFORESAID D ELIBERATIONS, IT WAS CONCLUDED BY THE TRIBUNAL THAT THE A.O WAS NOT JUST IFIED IN NOTIONALLY REDUCING THE DEPRECIATION FOR A.Y 1995-96 & A.Y 199 6-97 FROM THE WDV OF THE ASSETS OF BMIL WHILE QUANTIFYING THE DEPRECI ATION IN THE HANDS OF THE ASSESSEE. AS A MATTER OF FACT, THE TRIBUNAL WHI LE CONCLUDING AS HEREINABOVE HAD RELIED ON A SIMILAR VIEW TAKEN BY A COORDINATE BENCH IN THE ASSESSES OWN CASE VIZ. ADDITIONAL CIT VS. NICHO LAS PIRAMAL INDIA LTD. (2012) 150 TTJ 1 (MUM). IN THE SAID CASE THE TRIBUN AL DRAWING SUPPORT FROM THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. MAHENDRA MILLS (2000) 159 CTR (SC) 381, HAD CONCLUD ED THAT IN THE ABSENCE OF A CLAIM OF DEPRECIATION BY THE ASSESSEE, THE SAME COULD NOT HAVE BEEN THRUST UPON IT EVEN IF THE PARTICULARS WE RE AVAILABLE WITH THE AO. WE HAVE PERUSED THE ORDER OF THE TRIBUNAL FOR A .Y. 2008-09 AND FINDING NO REASON TO TAKE A DIFFERENT VIEW, RESPECT FULLY FOLLOW THE SAME. APART THERE FROM, WE ARE ALSO IN AGREEMENT WITH THE LD. A.R THAT NOW WHEN THE DRP WHILE DISPOSING OFF THE OBJECTIONS FIL ED BY THE ASSESSEE HAD SPECIFICALLY DIRECTED THE A.O TO ALLOW CLAIM OF DEPRECIATION AS WAS RAISED BY THE ASSESSEE IN RESPECT OF BMIL, THEREFOR E, THERE WAS NO REASON FOR THE A.O TO HAVE NOT FOLLOWED SUCH DIRECT IONS WHILE PASSING THE FINAL ASSESSMENT ORDER U/S 143(3) R.W.S 144C(13), D ATED 28.01.2014. IN TERMS OF OUR AFORESAID OBSERVATIONS, WE DIRECT THE A.O TO ALLOW THE ASSESSES CLAIM OF DEPRECIATION INSOFAR THE ASSETS O F BMIL ARE CONCERNED. 19. AS REGARDS THE CLAIM OF DEPRECIATION RAISED BY THE ASSESSEE ON THE ASSETS OF PHL WHICH W.E.F 01.06.1996 WERE TAKEN OVE R BY THE ASSESSEE UNDER A SCHEME OF ARRANGEMENT DULY SANCTIONED BY TH E HON BLE HIGH COURT OF BOMBAY, VIDE ITS ORDER DATED 14.08.1997, W E FIND THAT THE ASSESSEE SUBSEQUENT TO THE TAKEOVER HAD TAKEN THE W DV ON THE BASIS OF THE INCOME TAX RECORDS OF PHL. AS IS DISCERNIBLE FR OM THE ORDERS OF THE LOWER AUTHORITIES AND ADMITTED BY THE ASSESSEE IN I TS OBJECTIONS RAISED BEFORE THE DRP, THOUGH PHL HAD NOT CLAIMED DEPRECIA TION ON ITS ASSETS, HOWEVER, THE A.O WHILE FRAMING THE ASSESSMENT IN IT S HANDS FOR A.Y 1996-97 HAD ALLOWED THE SAME. APART THERE FROM, THE ASSESSEE HAD DURING THE YEAR RELEVANT TO A.Y 1999- 2000 SOLD ITS TWO DIVISIONS VIZ. (I). GLASS DIVISION (GGL); AND (II). BULK DRUG DIVISION (BDD) ON A SLUMP SALE BASIS. AS SUCH, THE ASSESSEE COMPANY IN A.Y 1999-20 00 WHILE COMPUTING THE DEPRECATION HAD DROPPED THE WDV OF TH E AFORESAID TWO UNDERTAKINGS FROM THE RESPECTIVE BLOCK OF ASSETS ON THE DATE OF SUCH SLUMP SALE . AS OBSERVED HEREINABOVE, THE A.O DECLINED TO ACCE PT THE CLAIM OF THE ASSESSEE THAT IT WAS A SLUMP SALE TRANSACTION AND CONSIDERED THE SAME AS AN ITEMISED SALE OF ASSETS. ON THE BASIS OF HIS AFORESAID OBSERVATIONS, THE A.O WORKED OUT THE WDV OF THE BLOCK OF ASSETS BY TAKING THE VALUES OF THE ASSETS AS WERE RECORDE D IN THE BOOKS OF ACCOUNTS OF THE PURCHASING COMPANY, AS THE SALE VALUE, AND REDUCED THE SAME FROM THE DIFFERENT BLOCK OF ASSETS . IN THE BACKDROP OF HIS ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 17 AFORESAID REWORKING OF THE WDV THE A.O SCALED DOWN THE ASSESSES CLAIM OF DEPRECIATION IN RESPECT OF ASSETS OF PHL. 20. ON A PERUSAL OF THE RECORDS, WE FIND THAT IT IS THE CLAIM OF THE ASSESSEE THAT THE CIT(A) WHILE DISPOSING OFF ITS AP PEAL FOR A.Y 1999- 2000 HAD OBSERVED THAT THE SALE OF TWO DIVISIONS VI Z. (I). GLASS DIVISION (GGL); AND (II). BULK DRUG DIVISION (BDD) BY THE AS SESSEE WAS RIGHTLY CLAIMED AS SLUMP SALE TRANSACTION. HOWEVER, AS IS DISCERNIBLE FROM THE ORDER OF THE DRP, THE ISSUE AS TO WHETHER THE SALE OF THE AFORESAID TWO DIVISIONS WAS TO BE CONSTRUED AS ITEMIZED SALE OF A SSETS OR SLUMP SALE IS PENDING BEFORE THE ITAT IN THE PRECEDING YEARS OF T HE ASSESSEE. ACCORDINGLY, THE DRP HAD DIRECTED THE A.O TO ALLOW DEPRECIATION TO THE ASSESSEE ON THE BASIS OF THE OUTCOME OF THE MAIN AP PEAL REGARDING SLUMP SALE VS. ITEMIZED SALE. IN THE BACKDROP OF TH E AFORESAID FACT SITUATION, NOW WHEN THE MATTER AS TO WHETHER THE SA LE OF THE AFORESAID TWO DIVISIONS BY THE ASSESSEE IS TO BE TREATED AS A N ITEMIZED SALE OR A SLUMP SALE IS PENDING IN THE CASE OF THE ASSESSEE F OR THE PRECEDING YEARS, THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE DRP WHO HAD RIGHTLY DIRECTED THE A.O TO ALLOW DEPRECIATION TO T HE ASSESSEE ON THE BASIS OF THE OUTCOME OF THE MAIN APPEAL. IN TERMS OF OUR AFORESAID OBSERVATIONS THE GROUND OF APPEAL NO. IV RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 20. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD. AO TO ALLOWED DEPRECIATION AS CLAIMED BY THE ASSESSEE ON BMIL AND PHL UNITS. 21. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 6 OF ASSESSE APPEAL IS ADJUSTMENT OF VALUATION OF INVENTORY AS PER SECTION 145A OF THE I.T.ACT, 1961 FOR RS. 1,20, 83,000/-. THE LD. AR, FOR THE ASSESSE, AT THE TIME OF HEARING, SUBMIT TED THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF ITAT, J BENCH IN ASSESSEES CASE FOR AY 2009-10, WHERE THE ISSUE HAS BEEN RESTORED B ACK TO THE FILE OF THE LD. AO TO VERIFY THE CLAIM OF THE ASSESSEE THAT THE IMPACT OF GROSSING UP OF TAX, DUTY, CESS, ETC., BY RESTATING THE VALUES OF PURCHASES AND INVENTORIES BY INTER ALIA , INCLUDING THE EFFECT OF CENVAT CREDIT WOULD BE NIL SUBJECT TO SECTION 43B T HAT THE DUTY, TAXES, CESS, ETC IS PAID BEFORE THE DUE DATE OF FIL ING THE RETURN OF INCOME. THE LD. DR, ON THE OTHER HAND STRONGLY SUPP ORTED ORDER OF THE LD. AO, AS WELL AS THE LD. DRP. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 18 22. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT A SIMILAR ISSUE HAS BEEN CONSIDERED BY THE CO- ORDINATE BENCH FOR AY 2009-10 AND AFTER CONSIDERING RELEVANT FACTS HAS RESTORED THE MATTER BACK TO THE FILE OF THE LD. AO TO VERIFY THE CLAIM OF THE ASSESSEE THAT IMPACT OF GROSSING UP OF TAX, DUTY, C ESS, ETC BY REVALUING THE PURCHASES AND INVENTORIES BY INTER ALIA INCLUDING THE EFFECT OF CENVAT CREDIT WOULD BE NILL. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 22. WE HAVE DELIBERATED AT LENGTH ON THE ISSUE UNDE R CONSIDERATION AND FIND THAT THE ASSESSEE FOR THE PURPOSE OF ITS STATU TORY ACCOUNTS HAD FOLLOWED THE AS-2 ON VALUATION OF INVENTORIES, AND THE GUIDANCE NOTE ON ACCOUNTING TREATMENT OF MODVAT/CENVAT ISSUED BY THE ICAI. ACCORDINGLY, THE ASSESSEE HAD FOLLOWED THE EXCLUSIV E METHOD FOR ACCOUNTING PURPOSES. HOWEVER, FOR THE PURPOSES OF I NCOME-TAX IT HAD WORKED OUT THE IMPACT OF GROSSING UP OF TAX, DUTY, CESS ETC. BY RESTATING THE VALUES OF PURCHASES AND INVENTORIES BY INCLUDIN G INTER ALIA THE CENVAT CREDIT. THE ADJUSTMENT REQUIRED U/S 145A OF THE I.T ACT WAS REFLECTED IN CLAUSE 12(B) OF THE TAX AUDIT REPORT O F THE ASSESSEE. AS PER CLAUSE 12(B) THE ADJUSTMENT U/S 145A WORKED OUT AT NIL. IT IS THE CLAIM OF THE ASSESSEE THAT THE AMOUNT REFLECTED IN CLAUSE 12 (B) OF THE TAX AUDIT REPORT SHALL BE TREATED AS THE ADJUSTMENT REQUIRED U/S 145A, AND IN SUPPORT THEREOF HAD RELIED ON THE ORDER OF THE ITAT , MUMBAI IN THE CASE OF HAWKINS COOKERS LTD. VS. ITO (2008) 14 DTR 206 ( MUM). WE HAVE PERUSED CLAUSE 12(B) (PAGE 61 OF APB ) OF THE TAX AUDIT REPORT OF THE ASSESSEE AND FIND THAT IT IS THE CLAIM OF THE ASSES SEE THAT THE IMPACT OF GROSSING UP OF TAX, DUTY, CESS ETC. BY RESTATING TH E VALUES OF PURCHASES AND INVENTORIES BY INTER ALIA INCLUDING THE EFFECT OF CENVAT CREDIT WILL BE NIL, SUBJECT TO SEC. 43B THAT THE DUTY, TAXES, CESS ETC. IS PAID BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME. AS THE LD. D.R HAD SUBMITTED THAT THE AFORESAID WORKING OF THE ASSESSEE WOULD RE QUIRE TO BE VERIFIED, WE THEREFORE, IN ALL FAIRNESS RESTORE THE MATTER TO THE FILE OF THE A.O FOR READJUDICATION. NEEDLESS TO SAY, THE A.O SHALL IN T HE COURSE OF THE SET ASIDE PROCEEDINGS AFFORD A REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE, WHO SHALL REMAIN AT A LIBERTY TO SUBSTANT IATE ITS CLAIM BEFORE HIM. THE GROUND OF APPEAL NO. V IS ALLOWED FOR STAT ISTICAL PURPOSES. 23. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN ALL FAIRNESS, WE RESTORED THE MATTER TO THE FILE OF ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 19 THE LD. AO FOR RE-ADJUDICATION IN LIGHT OF THE CLAI M OF THE ASSESSEE THAT IMPACT OF GROSSING UP OF TAX WOULD BE NIL TO P ROFIT AND LOSS FOR THE YEAR, IF TAXES ARE PAID BEFORE THE DUE DATE OF FILI NG THE RETURN OF INCOME. 24. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 7 OF ASSESSE APPEAL IS DISALLOWANCES OF EXPENDI TURE, IN RELATION TO EXEMPT INCOME U/S 14A OF THE I.T.ACT, 1961 FOR R S. 4,55,36,000/-. THE FACTS WITH REGARD TO THE IMPUGNED DISPUTES ARE THAT THE ASSESSE HAS EARNED TAX FREE INCOME BEING DIVIDEND FROM SHAR ES, BUT HAS NOT DECLARED ANY EXPENSES ATTRIBUTABLE TO THE EARNING O F EXEMPT INCOME. THE LD. AO HAS DETERMINED DISALLOWANCES CONTEMPLATE D U/S 14A BY INVOKING RULE 8D(2)(II) & (III) OF I.T.RULES, 1962 AND HAS WORKED OUT TOTAL DISALLOWANCES OF RS. 4,55,36,000/-. THE CLAIM OF THE ASSESSEE BEFORE THE AUTHORITIES WAS THAT WHEN, OWN FUNDS IS IN EXCESS OF INVESTMENTS MADE IN SHARES AND SECURITIES, WHICH YI ELD EXEMPT INCOME, THEN INTEREST EXPENSES CANNOT BE DISALLOWED UNDER RULE 8D(II) OF I.T.RULES, 1962. INSOFAR AS, DISALLOWANCE S OF OTHER EXPENSES, ONLY THOSE INVESTMENTS, WHICH YIELD EXEMP T INCOME CAN BE CONSIDERED, WHILE COMPUTING THE AVERAGE VALUE OF INVESTMENTS IN ORDER TO DETERMINE TOTAL DISALLOWANCES REQUIRED TO BE MADE UNDER RULE 8D(2)(III) OF I.T.RULES, 1962. 25. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEA RING SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE AS SESSEE BY THE DECISION OF ITAT, J BENCH FOR AY 2009-10, WHERE T HE TRIBUNAL UNDER IDENTICAL SET OF FACTS HAS HELD THAT IF, ASSESSEE I S ABLE TO PROVE OWN FUNDS IN EXCESS OF INVESTMENTS MADE IN SHARES AND S ECURITIES, WHICH YIELD EXEMPT INCOME, THEN THERE COULD NOT BE ANY DI SALLOWANCES OF ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 20 EXPENDITURE, HOWEVER RESTORED THE MATTER BACK TO TH E FILE OF THE LD. AO TO VERIFY, WHETHER THERE IS SUFFICIENT OWN FUNDS TO COVER-UP THE VALUE OF INVESTMENTS. SIMILARLY, IN RESPECT OF DISA LLOWANCES OF OTHER EXPENDITURES, THE TRIBUNAL HAS HELD THAT ONLY THOSE INVESTMENTS, WHICH YIELD EXEMPT INCOME CAN BE CONSIDERED, WHILE COMPUTING DISALLOWANCES AS REQUIRED UNDER RULE 8D(2)(III) OF I.T.RULES, 1962. 26. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEES BY THE DECISION OF ITAT, MUMBAI J BENCH FOR AY 2009-10. BUT, HE STRONGLY SUPPORTE D ORDER OF THE LD. AO, AS WELL AS LD. DRP. 27. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MA TERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE CO-ORDINATE BENCH HAD AN OC CASION TO CONSIDER AN IDENTICAL ISSUE AND BY FOLLOWING THE DE CISIONS OF HONBLE BOMBAY HIGH COURT, IN THE CASE OF HDFC BANK LTD. V S DCIT (260) (383 ITR 529) (BOM) HELD THAT IF, OWN FUNDS ARE MOR E THAN THE AMOUNT OF INVESTMENTS IN SHARES AND SECURITIES, WH ICH YIELD EXEMPT INCOME, THEN THERE COULD NOT BE ANY DISALLOWANCES T OWARDS INTEREST EXPENDITURE. SIMILARLY, THE TRIBUNAL FURTHER HELD T HAT INSOFAR AS, DISALLOWANCES OF OTHER EXPENDITURE, ONLY THOSE INVE STMENTS, WHICH YIELD EXEMPT INCOME COULD BE CONSIDERED, WHILE COMP UTING AVERAGE VALUE OF INVESTMENTS. THE RELEVANT FININGS OF THE T RIBUNAL ARE AS UNDER:- 24. WE HAVE DELIBERATED ON THE ISSUE UNDER CONSIDER ATION AND ARE PERSUADED TO SUBSCRIBE TO THE CONTENTIONS ADVANCED BY THE LD. A.R. INSOFAR DISALLOWANCE OF INTEREST EXPENDITURE U/S 14 A R.W. RULE 8D(2)(II) IS CONCERNED, WE ARE IN AGREEMENT WITH THE LD. A.R THA T IN CASE AN ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS WHICH W OULD EXPLAIN THE ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 21 SOURCE OF THE INVESTMENTS MADE IN THE EXEMPT INCOME YIELDING ASSETS, THEN NO DISALLOWANCE OF ANY PART OF THE INTEREST EX PENDITURE CAN BE MADE U/S 14A R.W RULE 8D(2)(II). OUR AFORESAID VIEW IS F ORTIFIED BY THE JUDGMENTS OF THE HON BLE HIGH COURT OF BOMBAY IN THE CASE OF (I) HDFC BA NK LTD VS. DCIT (2016) 383 ITR 529 (BOM); (II) CIT VS. HDF C BANK LTD (2014) 366 ITR 505 (BOM); AND (III) CIT VS. RELIANCE UTILI TIES & POWER LTD. (2009) 313 ITR 340 (BOM). IN FACT, A SIMILAR ISSUE HAD CAME UP BEFORE THE TRIBUNAL IN THE ASSESSES OWN CASE FOR THE IMMED IATELY PRECEDING YEAR I.E A.Y 2008-09 VIZ. M/S PIRAMAL ENTERPRISES LTD. V S. ASST. CIT (ITA NO. 5471/MUM/2017, DATED 30.07.2018). THE TRIBUNAL AFTE R DELIBERATING ON THE ISSUE UNDER CONSIDERATION, HAD DIRECTED THE A.O TO VERIFY THE ASSESSES CLAIM OF AVAILABILITY OF SUFFICIENT INTERE ST FREE FUNDS FOR THE PURPOSE OF MAKING INVESTMENTS IN EXEMPT INCOME YIEL DING ASSETS, AND IF THE SAID CLAIM WAS FOUND TO BE IN ORDER, THEN NO DI SALLOWANCE OF INTEREST EXPENDITURE U/RULE 8D(2)(II) COULD BE MADE. WE THUS RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE TRIBUNAL IN THE ASS ESSES OWN CASE FOR A.Y 2008-09 IN THE BACKDROP OF THE AFORESAID SETTLED PO SITION OF LAW, THUS DIRECT THE A.O TO VERIFY THE CLAIM OF AVAILABILITY OF SUFFICIENT INTEREST FREE FUNDS WITH THE ASSESSEE. AFTER VERIFICATION, IF THE ASSESSES CLAIM IS FOUND TO BE IN ORDER, THEN THE DISALLOWANCE OF THE INTERE ST EXPENDITURE MADE IN ITS HANDS U/S 14A R.W 8D(2)(II) SHALL BE DELETED. 25. AS REGARDS THE DISALLOWANCE OF ADMINISTRATIVE E XPENDITURE U/RULE 8D(2)(III) OF RS. 524.83 LACS IS CONCERNED, WE ARE PERSUADED TO BE IN AGREEMENT WITH THE CLAIM OF THE LD. A.R THAT WHILE COMPUTING THE DISALLOWANCE ONLY THE INVESTMENTS WHICH HAD YIELDED EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION VIZ. A.Y 2009-1 0 WERE TO BE CONSIDERED FOR WORKING OUT THE AVERAGE VALUE OF IN VESTMENTS. OUR AFORESAID VIEW IS FORTIFIED BY THE ORDER OF THE SP ECIAL BENCH OF THE ITAT, DELHI IN THE CASE OF ACIT VS. VIREET INVESTMENTS PV T. LTD. (2017) 165 ITD 27 (DEL)(SB). IN FACT, THE TRIBUNAL WHILE DISPOSING OFF THE APPEAL IN THE ASSESSES OWN CASE FOR THE IMMEDIATELY PRECEDING YEA R I.E A.Y 2008-09 IN M/S PIRAMAL ENTERPRISES LTD. VS. ASST. CIT (ITA NO. 5471/MUM/2017, DATED 30.07.2018), HAD DIRECTED THE A.O TO EXCLUDE THE INVESTMENTS WHICH HAD NOT YIELDED ANY EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR FOR COMPUTING THE DISALLOWANCE U/RULE 8D(2)(II I). THE LD. A.R HAD DURING THE COURSE OF HEARING OF THE APPEAL FURNISHE D BEFORE US THE WORKING OF THE DISALLOWANCE OF ADMINISTRATIVE EXPEN SES U/S 14A R.W RULE 8D(2)(III). AS PER THE SAID WORKING THE DISALLOWANC E WORKS OUT AT RS. 20,730.26. THE A.O IS DIRECTED TO EXAMINE THE WORKI NG OF THE ASSESSEE AND DECIDE THE ISSUE ACCORDINGLY AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND OF APPEAL NO. VI IS ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR AFORESAID OBSE RVATIONS. 28. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE RESTORED THE ISSUE BACK TO TH E FILE OF THE LD. AO AND DIRECT HIM TO FOLLOW THE DIRECTIONS GIVEN B Y THE TRIBUNAL FOR AY 2008-09 AND 2009-10, WHILE COMPUTING DISALLOWANC ES OF ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 22 EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U /S 14A OF THE I.T.ACT, 1961. 29. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 8 OF ASSESSEES APPEAL IS DISALLOWANCES OF ADV ERTISEMENT AND BUSINESS PROMOTION EXPENSES OF RS. 30,47,33,208/-. THE FACTS WITH REGARD TO THE IMPUGNED DISPUTES ARE THAT THE ASSESS EE HAS DEBITED ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES BROAD LY UNDER THREE HEADS, I.E (I) KEY ACCOUNTANT MANAGER EXPENSE S (II) CUSTOMER RELATION MANAGER EXPENSES (III) GIFT ARTICLES. THE LD. AO HAS DISALLOWED 50% OF THE SAID EXPENSES FOR THE REASONS THAT THE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF BUSINESS AND ALSO, BEING IN THE NATURE OF EXPENS ES INCURRED FOR ANY PURPOSE, WHICH IS PROHIBITED BY ANY LAW IN FOR CE AND ARE INADMISSIBLE U/S 37(1) OF THE I.T.ACT, 1961. THE L D. AO HAD ALSO TAKEN SUPPORT FROM CIRCULAR OF CBDT NO.05/2012 AND ALSO, PROVISIONS OF INDIAN MEDICAL COUNCIL ( PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 AND HELD THAT ANY EXPENDITURE IN VIOLATION OF THE ABOVE ACT IS IN THE NATURE OF EXPENDITURE INCURRED FOR THE PURPOSE, WHICH IS PRO HIBITED BY LAW AND ACCORDINGLY, DISALLOWED 50% OF SAID EXPENDITURE. 30. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEA RING SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF ITAT, MUMBAI J BENCH IN ASSESSEES OW N CASE FOR AY 2009-10, WHERE UNDER IDENTICAL SET OF FACTS, THE TR IBUNAL AFTER CONSIDERING RELEVANT FACTS HAS DELETED ADDITIONS MA DE BY THE LD. AO TOWARDS DISALLOWANCES OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 23 31. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT, MUMBAI J BENCH FOR AY 2009-10. BUT, HE STRONGLY SUPPORTE D FINDINGS OF THE LD. AO, AS WELL AS THE LD. DRP. 32. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF ITAT, IN ASSESSEES OWN CASE FOR AY 2009-10 AND AFTER CONSIDERING RELEVANT FACTS, INCLUDING FACTS BROUGH T OUT BY THE LD. AO, IN LIGHT OF MEDICAL COUNCIL OF INDIA REGULATION S, 2002, AND CIRCULAR OF CBDT NO. 05/2012, HELD THAT THE MEDICAL COUNCIL REGULATIONS, 2002 HAS NO APPLICATION TO THE COMPANI ES AND ACCORDINGLY, EXPENDITURE INCURRED TOWARDS ADVERTISE MENT AND BUSINESS PROMOTION ARE DEDUCTIBLE U/S 37(1) OF THE I.T.ACT, 1961. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 29. WE HAVE HEARD THE AUTHORISED REPRESENTATIVES FO R BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD AND THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THEM. IT IS THE CLAIM OF THE ASSESSEE THAT THE LOWER AUTHORITIES MI SCONCEIVING THE FACTS AND THE SETTLED POSITION OF LAW HAD WRONGLY DISALLO WED THE AFOREMENTIONED EXPENSES, WHICH WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. THE EXPENSES INCURRED BY THE ASSESSEE COMPRISED OF VIZ. (I) KEY ACCOUNT MANAGER (KAM) EXP ENSES; (II) CUSTOMER RELATION MANAGER (CRM) EXPENSES; AND (III) GIFT ARTICLES. THE ASSESSEE HAS ASSAILED THE INADMISSIBILITY OF THE EX PENSES U/S 37(1) OF THE I.T ACT ON THE PART OF THE LOWER AUTHORITIES. IT WA S SUBMITTED BY THE LD. A.R THAT THE A.O/DRP HAD ERRED IN MOST ARBITRARILY REST RICTING THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF THE AFOREMENTIONED EXPENSES TO THE EXTENT OF RS.27,90,84,346/- I.E 50% OF RS.55,81,68, 692/-. WE FIND THAT THE ASSESSEE HAS OBJECTED TO THE OBSERVATIONS OF THE LO WER AUTHORITIES, WHICH HAD DISALLOWED THE SAID EXPENSES FOR TWO REASONS VI Z. (I) THAT THE EXPENSES CLAIMED BY THE ASSESSEE WERE NOT VERIFIABL E; AND (II) THAT THE EXPENSES INCURRED BY THE ASSESSEE TOWARDS GIVING VA RIOUS FREEBIES TO DOCTORS FOR PROMOTION OF ITS BUSINESS WAS INADMISSI BLE UNDER SEC. 37(1), ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 24 AS INCURRING OF SUCH AN EXPENSE WAS PROHIBITED BY L AW. IN THE BACKDROP OF THE OBJECTIONS RAISED BY THE LD. A.R BEFORE US, WE FIND THAT THE ADVERSE INFERENCES DRAWN BY THE LOWER AUTHORITIES AS REGARD S THE ADMISSIBILITY OF THE AFORESAID EXPENSES HAS BEEN ASSAILED BY THE ASS ESSEE BEFORE US ON MULTIPLE GROUNDS VIZ. (I) THAT THE MEDICAL COUNCIL REGULATIONS, 2002 WOULD THOUGH APPLY TO MEDICAL PRACTITIONERS, HOWEVER, THE SAME WERE NOT APPLICABLE TO THE PHARMACEUTICAL COMPANIES; (II) TH AT AS THE CBDT CIRCULAR NO. 5 OF 2012, DATED 01.08.2012 IMPOSING P ROHIBITION ON THE MEDICAL PRACTITIONERS AND THEIR PROFESSIONAL ASSOCI ATIONS FROM TAKING ANY GIFTS, TRAVEL FACILITY, HOSPITALITY, CASH OR MONETA RY GRANT FROM THE PHARMACEUTICAL AND ALLIED HEALTHCARE SECTOR INDUSTR IES WAS APPLICABLE PROSPECTIVELY, THEREFORE, THE SAME WAS NOT APPLICAB LE IN THE CASE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION I.E A.Y. 2009-10; (III) THAT IN ANY CASE THE MCD GUIDELINES WHICH CAME INTO EFFECT FROM 10.12.2009 ITSELF WERE NOT APPLICABLE IN THE YEAR UNDER CONSID ERATION; (IV) THAT THE CIRCULAR ISSUED BY THE CBDT CANNOT IMPOSE AN OBLIGA TION ADVERSE TO AN ASSESSEE; AND (V) THAT THE SAMPLES, EXPENSES INCURR ED ON CONFERENCE ETC. BY THE ASSESSEE WERE NOT IN THE NATURE OF FREE BIES. 30. WE HAVE DELIBERATED AT LENGTH ON THE ISSUE UNDE R CONSIDERATION AND FIND THAT THE ISSUE THAT THE EXPENSES INCURRED BY A N ASSESSEE WHICH IS A PHARMACEUTICAL COMPANY WOULD NOT BE HIT BY THE EXPL ANATION 1 TO SEC. 37 OF THE I.T. ACT, IS COVERED BY THE ORDER OF A COORD INATE BENCH OF THE TRIBUNAL I.E ITAT A BENCH, MUMBAI IN THE CASE OF ARISTO PHARMACEUTICALS PVT. LTD. VS. ACIT (ITA NO. 6680/MU M/2012, DATED 26.07.2018).THE TRIBUNAL AFTER EXHAUSTIVE DELIBERAT IONS IN THE AFORESAID CASE, HAD OBSERVED THAT A PERUSAL OF THE PROVISIONS OF THE INDIAN MEDICAL COUNCIL ACT, 1956, REVEALED THAT THE SCOPE AND AMBI T OF THE STATUTORY PROVISIONS RELATING TO PROFESSIONAL MISCONDUCT OF R EGISTERED MEDICAL PRACTITIONERS UNDER THE INDIAN MEDICAL COUNCIL ACT, 1956, IS RESTRICTED ONLY TO THE PERSONS REGISTERED AS MEDICAL PRACTITIONERS WITH THE STATE MEDICAL COUNCIL AND WHOSE NAME IS ENTERED IN THE INDIAN MED ICAL REGISTER MAINTAINED UNDER SEC. 21 OF THE SAID ACT. FURTHER, IT WAS OBSERVED THAT THE SCHEME OF THE INDIAN MEDICAL COUNCIL ACT, 1956 NEITHER DEALS WITH NOR PROVIDES FOR ANY CONDUCT OF ANY ASSOCIATION/SOCIETY , AND DEALS ONLY WITH THE CONDUCT OF INDIVIDUALS REGISTERED MEDICAL PRACT ITIONERS AND NOT THE PHARMACEUTICAL COMPANIES OR ALLIED HEALTH SECTOR IN DUSTRIES. APART THERE FROM, THE TRIBUNAL IN ITS SAID ORDER HAD ALSO DRAWN SUPPORT FROM THE ORDER OF THE HON BLE HIGH COURT OF DELHI IN THE CASE OF MAX HOSPITAL ., PITAMPURA VS. MEDICAL COUNCIL OF INDIA [CWP NO. 133 4/2013, DATED 10.01.2014]. IN THE AFORESAID CASE THE MEDICAL COUN CIL OF INDIA HAD FILED AN AFFIDAVIT BEFORE THE HIGH COURT, WHEREIN IT WAS DEPOSED BY T HE COUNCIL THAT ITS JURISDICTION WAS LIMITED ONLY TO T AKE ACTION AGAINST THE REGISTERED MEDICAL PROFESSIONALS UNDER THE INDIAN M EDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002, AND IT HAS NO JURISDICTION TO PASS AN ORDER AFFECTING THE RIGHTS/INTEREST OF THE PETITIONER HOSPITAL. IN THE BACKDROP OF ITS EXHAUST IVE DELIBERATIONS, THE TRIBUNAL HAD CONCLUDED THAT EVEN IF THE ASSESSEE HA D INCURRED EXPENDITURE ON DISTRIBUTION OF FREEBIES TO DOCTORS AND MEDICAL PRACTITIONERS, THE SAME THOUGH MAY NOT BE IN CONFOR MITY WITH THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AN D ETHICS) REGULATIONS, ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 25 2002, HOWEVER AS THE SAME ONLY REGULATES THE CODE O F CONDUCT OF THE MEDICAL PRACTITIONERS/DOCTORS, THEREFORE, IN THE AB SENCE OF ANY PROHIBITION ON THE PHARMACEUTICAL COMPANIES IN INCURRING OF SUC H SALES PROMOTION EXPENSES, IT CANNOT BE HELD TO HAVE INCURRED AN EXP ENDITURE FOR A PURPOSE WHICH IS AN OFFENCE OR IS PROHIBITED BY LAW . THE TRIBUNAL WHILE CONCLUDING AS HEREINABOVE, HAD OBSERVED AS UNDER: 20. WE HAVE HEARD THE AUTHORISED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHOR ITIES AND THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT OUR INDULGENCE IN THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE HAS BEEN SOUGHT FOR ADJUDICATING THE ALLOWABILITY OF THE SALES PROMOTION EXPENSES INCURR ED BY THE ASSESSEE ON THE DISTRIBUTION OF ARTICLES TO THE STOCKISTS, DIST RIBUTORS, DEALERS, CUSTOMERS AND DOCTORS, IN THE BACKDROP OF THE CBDT CIRCULAR N O. 5/2012, DATED 01.08.2012 AND THE MCI REGULATIONS. WE FIND THAT IT IS THE CASE OF THE REVENUE THAT AS PER THE CBDT CIRCULAR NO. 5/2012, D ATED 01.08.2012 ANY EXPENSE INCURRED BY A PHARMACEUTICAL OR ALLIED HEAL TH SECTOR INDUSTRY IN PROVIDING ANY FREEBIES TO MEDICAL PRACTITIONERS O R THEIR PROFESSIONAL ASSOCIATIONS IN VIOLATION OF THE REGULATION ISSUED BY MEDICAL COUNCIL OF INDIA WHICH IS A REGULATORY BODY CONSTITUTED UNDER THE MEDICAL COUNCIL ACT, 1956, WOULD BE LIABLE TO BE DISALLOWED IN THE HANDS OF SUCH PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTRY OR ANY OTHER ASSESSEE WHICH HAD PROVIDED SUCH FREEBIES AND CLAIMED THE SAME AS A DEDUCTIBLE EXPENSE AGAINST ITS INCOME IN THE ACCOUNTS. 21. WE HAVE DELIBERATED AT LENGTH ON THE ISSUE UNDER CONSIDERATION AND AFTER P ERUSING THE REGULATIONS ISSUED BY THE MEDICAL COUNCIL OF INDIA, FIND THAT THE SAME LAYS DOWN THE CODE OF CONDUCT IN RESPECT OF THE DOCTORS AND OTHER MEDICAL PROFESSIONALS REGISTERED WITH IT, AND ARE NOT APPLI CABLE TO THE PHARMACEUTICALS OR ALLIED HEALTH SECTOR INDUSTRIES. RATHER, A PERUSAL OF THE PROVISIONS OF THE INDIAN MEDICAL COUNCIL ACT, 1 956, REVEALS THAT THE SCOPE AND AMBIT OF STATUTORY PROVISIONS RELATING TO PROFESSIONAL CONDUCT OF REGISTERED MEDICAL PRACTITIONERS UNDER THE INDIAN M EDICAL COUNCIL ACT, 1956 IS RESTRICTED ONLY TO THE PERSONS REGISTERED A S MEDICAL PRACTITIONERS WITH THE STATE MEDICAL COUNCIL AND WHOSE NAME ARE E NTERED IN THE INDIAN MEDICAL REGISTER MAINTAINED UNDER SEC. 21 OF THE SA ID ACT. WE ARE OF THE CONSIDERED VIEW THAT THE SCHEME OF THE INDIAN MEDIC AL COUNCIL ACT, 1956 NEITHER DEALS WITH NOR PROVIDES FOR ANY CONDUCT OF ANY ASSOCIATION/SOCIETY AND DEALS ONLY WITH THE CONDUCT OF INDIVIDUAL REGIS TERED MEDICAL PRACTITIONERS. IN THE BACKDROP OF THE AFORESAID FAC TS, IT EMERGES THAT THE APPLICABILITY OF THE MCI REGULATIONS WOULD ONLY COV ER INDIVIDUAL MEDICAL PRACTITIONERS AND NOT THE PHARMACEUTICAL COMPANIES OR ALLIED HEALTH SECTOR INDUSTRIES. INTERESTINGLY, THE SCOPE OF THE APPLICABILITY OF THE MCI REGULATIONS WAS LOOKED INTO BY THE HON BLE HIGH COURT OF DELHI IN THE CASE OF MAX HOSPITAL, PITAMPURA VS. MEDICAL COUNCIL OF INDIA (CWP NO. 1334/2013, DATED 10.01.2014). IN THE AFOREMENTIONED CASE THE MCI HAD FILED AN AFFIDAVIT BEFORE THE HIGH COURT, WHEREIN IT WAS DEPOSED BY T HE COUNCIL THAT ITS JURISDICTION IS LIMITED ONLY TO TA KE ACTION AGAINST THE REGISTERED MEDICAL PROFESSIONALS UNDER THE INDIAN M EDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002, AND IT HAS NO JURISDICTION TO PASS ANY ORDER AFFECTING THE RIGHTS/INTEREST OF THE PETITIONER HOSPITAL. WE ARE OF THE CONSIDERED VIEW THAT ON THE BASIS OF THE AFORESAID DEPOSITION OF MCI THAT ITS JURISDICTION S TANDS RESTRICTED TO THE ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 26 REGISTERED MEDICAL PROFESSIONALS, IT CAN SAFELY BE CONCLUDED THAT THE MCI REGULATIONS WOULD IN NO WAY IMPINGE ON THE FUNCTION ING OF THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFAC TURING AND SALE OF PHARMACEUTICAL AND ALLIED PRODUCTS. WE THUS, IN THE BACKDROP OF OUR AFORESAID DELIBERATIONS ARE OF THE CONSIDERED VIEW THAT THE CODE OF CONDUCT ENSHRINED IN THE MCI REGULATIONS ARE SOLELY MEANT TO BE FOLLOWED AND ADHERED BY MEDICAL PRACTITIONERS/DOCTORS, AND S UCH A REGULATION OR CODE OF CONDUCT WOULD NOT COVER THE PHARMACEUTICAL COMPANY OR HEALTHCARE SECTOR IN ANY MANNER. WE ARE FURTHER OF THE VIEW THAT IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS, AS THE MEDI CAL COUNCIL OF INDIA DOES NOT HAVE ANY JURISDICTION UNDER LAW TO PASS AN Y ORDER OR REGULATION AGAINST ANY HOSPITAL, PHARMACEUTICAL COMPANY OR ANY HEALTHCARE SECTOR, THEN ANY SUCH REGULATION ISSUED BY IT CANNOT HAVE A NY PROHIBITORY EFFECT ON THE MANNER IN WHICH THE PHARMACEUTICAL COMPANY L IKE THE ASSESSEE CONDUCTS ITS BUSINESS. ON THE BASIS OF OUR AFORESAI D OBSERVATIONS, WE ARE UNABLE TO COMPREHEND THAT NOW WHEN THE MCI HAS NO J URISDICTION UPON THE PHARMACEUTICAL COMPANIES, THEN WHERE COULD THER E BE AN OCCASION FOR CONCLUDING THAT THE ASSESSEE COMPANY HAD VIOLAT ED ANY REGULATION ISSUED BY MCI. WE THUS, IN TERMS OF OUR AFORESAID O BSERVATIONS ARE OF THE CONSIDERED VIEW THAT EVEN IF THE ASSESSEE HAD INCUR RED EXPENDITURE ON DISTRIBUTION OF FREEBIES TO DOCTORS AND MEDICAL P RACTITIONERS, THE SAME THOUGH MAY NOT BE IN CONFORMITY WITH THE INDIAN MED ICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002 (AS AMENDED ON 10.12.2009), HOWEVER, AS THE SAME ONLY R EGULATES THE CODE OF CONDUCT OF THE MEDICAL PRACTITIONERS/DOCTORS, TH EREFORE, IN THE ABSENCE OF ANY PROHIBITION ON THE PHARMACEUTICAL COMPANIES IN INCURRING OF SUCH SALES PROMOTION EXPENSES, THE LATTER CANNOT BE HELD TO HAVE INCURRED AN EXPENDITURE FOR A PURPOSE WHICH IS AN OFFENCE OR IS PROHIBITED BY LAW. IN THIS REGARD WE ARE REMINDED OF THE MAXIM EXPRESSIO UNIUS EST EXCLUSIO ALTERIUS, WHICH PROVIDES THAT IF A PARTICULAR EXPR ESSION IN THE STATUTE IS EXPRESSLY STATED FOR A PARTICULAR CLASS OF ASSESSEE , THEN BY IMPLICATION WHAT HAS NOT BEEN STATED OR EXPRESSED IN THE STATUT E HAS TO BE EXCLUDED FOR OTHER CLASS OF ASSESSES. THUS, NOW WHEN THE MCI REGULATIONS ARE APPLICABLE TO MEDICAL PRACTITIONERS REGISTERED WITH THE MCI, THEN THE SAME CANNOT BE MADE APPLICABLE TO PHARMACEUTICAL COMPANI ES OR OTHER ALLIED HEALTHCARE COMPANIES. 22. WE SHALL NOW ADVERT TO THE CBDT CIRCULAR NO. 5/ 2012, DATED 01.08.2012. WE FIND THAT THE AFORESAID CBDT CIRCULA R READS AS UNDER:- INADMISSIBILITY OF EXPENSES INCURRED IN PROVIDING FREEBEES TO MEDICAL PRACTITIONER BY PHARMACEUTICAL AND ALLIED HEALTH SE CTOR INDUSTRY CIRCULAR NO. 5/2012 [F.NO. 225/142/2012-ITA.II], DATED 1-8-2 012 IT HAS BEEN BROUGHT TO THE NOTICE OF THE BOARD THAT SOME PHARMA CEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES ARE PROVIDING FREEBIES (FR EEBIES) TO MEDICAL PRACTITIONER AND THEIR PROFESSIONAL ASSOCIATIONS IN VIOLATION OF THE REGULATIONS ISSUED BY MEDICAL COUNCIL OF INDIA (THE COUNCIL ) WHICH IS A REGULATORY BODY CONSTITUTED UNDER THE MEDICAL COUNC IL ACT, 1956 2. THE COUNCIL IN EXERCISE OF ITS STATUTORY POWERS AMENDED THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS ) REGULATIONS, 2002 (THE REGULATIONS) ON 10-12-2009 IMPOSING A PROHIBIT ION ON THE MEDICAL PRACTITIONER AND THEIR PROFESSIONAL ASSOCIATIONS FR OM TAKING ANY GIFT, ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 27 TRAVEL FACILITY, HOSPITALITY, CASH OR MONETARY GRAN T FROM THE PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES. 3. SECTION 37(1) OF INCOME TAX ACT PROVIDES FOR DED UCTION OF ANY REVENUE EXPENDITURE (OTHER THAN THOSE FAILING UNDER SECTION S 30 TO 36) FROM THE BUSINESS INCOME IF SUCH EXPENSE IS LAID OUT/EXPENDE D WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSI ON. HOWEVER, THE EXPLANATION APPENDED TO THIS SUB-SECTION DENIES CLA IM OF ANY SUCH EXPENSES, IF THE SAME HAS BEEN INCURRED FOR A PURPO SE WHICH IS EITHER AN OFFENCE OR PROHIBITED BY LAW. THUS, THE CLAIM OF ANY EXPENSE INCURRED IN PROVIDIN G ABOVE MENTIONED OR SIMILAR FREEBEES IN VIOLATION OF THE PROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002 SHALL BE INADMISSIBLE UNDER SECTION 37(1) OF THE INCOME TAX ACT BEING AN EXPENSE PROHIBITED BY THE LAW. THIS DISALLOWANCE SHALL BE M ADE IN THE HANDS OF SUCH PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTR IES OR OTHER ASSESSEE WHICH HAS PROVIDED AFORESAID FREEBEES AND CLAIMED I T AS A DEDUCTIBLE EXPENSE IN ITS ACCOUNTS AGAINST INCOME. 4. IT IS ALSO CLARIFIED THAT THE SUM EQUIVALENT TO VALUE OF FREEBEES ENJOYED BY THE AFORESAID MEDICAL PRACTITIONER OR PR OFESSIONAL ASSOCIATIONS IS ALSO TAXABLE AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES AS THE CASE MAY BE DEPENDING ON THE F ACTS OF EACH CASE. THE ASSESSING OFFICERS OF SUCH MEDICAL PRACTI TIONER OR PROFESSIONAL ASSOCIATIONS SHOULD EXAMINE THE SAME A ND TAKE AN APPROPRIATE ACTION. THIS MAY BE BROUGHT TO THE NOTICE OF ALL THE OFFICE RS OF THE CHARGE FOR NECESSARY ACTION. WE MAY HEREIN OBSERVE THAT A PERUSAL OF THE AFORESA ID CBDT CIRCULAR REVEALS THAT THE FREEBIES PROVIDED BY THE PHARMAC EUTICAL COMPANIES OR ALLIED HEALTH SECTOR INDUSTRIES TO MEDICAL PRACTITI ONERS OR THEIR PROFESSIONAL ASSOCIATIONS IN VIOLATION OF THE PROVISIONS OF INDI AN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002 SHALL BE INADMISSIBLE UNDER SEC. 37(1) OF THE INCOME TAX ACT , 1961, AS THE SAME WOULD BE AN EXPENSE PROHIBITED BY THE LAW. WE ARE O F THE CONSIDERED VIEW THAT AS OBSERVED BY US HEREINABOVE, THE CODE O F CONDUCT ENSHRINED IN THE NOTIFICATIONS ISSUED BY MCI THOUGH IS TO BE STRICTLY FOLLOWED AND ADHERED BY MEDICAL PRACTITIONERS/DOCTORS REGISTERED WITH THE MCI, HOWEVER THE SAME CANNOT IMPINGE ON THE CONDUCT OF T HE PHARMACEUTICAL COMPANIES OR OTHER HEALTHCARE SECTOR IN ANY MANNER. WE FIND THAT NOTHING HAS BROUGHT ON RECORD WHICH COULD PERSUADE US TO CO NCLUDE THAT THE REGULATIONS OR NOTIFICATIONS ISSUED BY MCI WOULD AS PER THE LAW ALSO BE BINDING ON THE PHARMACEUTICAL COMPANIES OR OTHER AL LIED HEALTHCARE SECTOR. RATHER, THE CONCESSION MADE BY THE MCI BEFO RE THE HON BLE HIGH COURT OF DELHI IN THE CASE OF MAX HOSPITAL VS. MCI (CWP NO. 1334/2013, DATED 10.01.2014) FORTIFIES OUR AFORESAID VIEW THAT MCI HAS NO JURISDICTION TO PASS ANY ORDER OR REGULATION AGAINST ANY HOSPITA L, PHARMACEUTICAL COMPANY OR ANY HEALTHCARE SECTOR. WE FURTHER FIND T HAT MCI HAD BY ADDING PARA 6.8.1 TO ITS EARLIER NOTIFICATION ISSUE D AS INDIAN MEDICAL COUNCIL PROFESSIONAL (CONDUCT, ETIQUETTE AND ETHICS ) REGULATIONS, 2002 HAD EVEN PROVIDED FOR ACTION WHICH SHALL BE TAKEN A GAINST MEDICAL PRACTITIONERS IN CASE THEY CONTRAVENE THE PROHIBITI ONS PLACED ON THEM. WE FIND FROM A PERUSAL OF PARA 6.8.1 THAT IN CASE OF R ECEIVING OF ANY GIFT FROM ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 28 ANY PHARMACEUTICAL OR ALLIED HEALTH CARE INDUSTRY A ND THEIR SALES PEOPLE OR REPRESENTATIVES, ACTION STANDS RESTRICTED TO THE MEMBERS WHO ARE REGISTERED WITH THE MCI. IN OTHER WORDS THE CENSURE /ACTION AS HAD BEEN SUGGESTED ON THE VIOLATION OF THE CODE OF CONDUCT I S ONLY FOR THE MEDICAL PRACTITIONERS AND NOT FOR THE PHARMACEUTICAL COMPAN IES OR ALLIED HEALTH SECTOR INDUSTRIES. WE ARE THUS OF THE CONSIDERED VI EW THAT THE REGULATIONS ISSUED BY MCI ARE QUA THE DOCTORS/MEDICAL PRACTITIO NERS REGISTERED WITH MCI, AND THE SAME SHALL IN NO WAY IMPINGE UPON THE CONDUCT OF THE PHARMACEUTICAL COMPANIES. AS A LOGICAL COROLLARY TO IT, IF THERE IS ANY VIOLATION OR PROHIBITION AS PER MCI REGULATION IN T ERMS OF EXPLANATION TO SEC. 37(1), THEN THE SAME WOULD DEBAR THE DOCTORS O R THE REGISTERED MEDICAL PRACTITIONERS AND NOT THE PHARMACEUTICAL CO MPANIES AND THE ALLIED HEALTHCARE SECTOR FOR CLAIMING THE SAME AS A N EXPENDITURE. 31. APART THERE FROM, WE ARE ALSO IN AGREEMENT WITH THE ALTERNATIVE CONTENTION ADVANCED BY THE LD. A.R THAT THOUGH A BE NEVOLENT CBDT CIRCULAR MAY APPLY RETROSPECTIVELY, BUT A CIRCULAR IMPOSING A BURDEN HAS TO APPLY PROSPECTIVELY ONLY. AS A RESULT THEREOF, N OW WHEN THE CBDT CIRCULAR NO, 5/2012 WAS ISSUED ONLY AS ON 01.08.201 2, THEREFORE, THE SAME WOULD NOT BE APPLICABLE TO THE CASE OF THE ASS ESSEE BEFORE US I.E FOR THE PERIOD RELEVANT TO A.Y 2009-10. IN FACT, TH E AFORESAID ISSUE AS REGARDS THE PERIOD OF APPLICABILITY OF THE CBDT CIR CULAR NO. 5/2012, DATED 01.08.2012 WAS ALSO LOOKED INTO BY THE ITAT A BEN CH, MUMBAI, IN THE AFOREMENTIONED CASE OF ARISTO PHARMACEUTICALS PVT. LTD. VS. ACIT (ITA NO. 6680/MUM/2012, DATED 26.07.2018), WHEREIN IT WA S OBSERVED AS UNDER : 25. WE THUS, IN THE BACKDROP OF THE AFORESAID SETT LED POSITION OF LAW AS REGARDS THE PROSPECTIVE APPLICABILITY OF AN OPPRESS IVE CIRCULAR, ARE OF THE CONSIDERED VIEW THAT AS THE CBDT AS PER ITS CIRCULA R NO. 5/2012, DATED 01.08.2012 HAD ENLARGED THE SCOPE OF INDIAN MEDICAL COUNCIL REGULATION, 2002, AND HAD MADE THE SAME APPLICABLE TO THE PHARM ACEUTICAL COMPANIES, THUS THE SAME CANNOT BE RECKONED TO HAVE A RETROSPECTIVE EFFECT. WE FIND THAT A COORDINATE BENCH OF THE TRIB UNAL VIZ. ITAT, MUMBAI IN THE CASE OF SYNCOM FORMULATIONS (I) LTD. VS. DCI T-8(3), MUMBAI (ITA NO. 6428 & 6429/MUM/2012, DATED 23.12.2015) FOR A.Y S 2010-11 AND 2011-12 HAD CONCLUDED THAT THE AFORESAID CBDT CIRCU LAR NO. 5/2012, DATED 01.08.2012 WOULD NOT BE APPLICABLE TO THE A.Y S 2010-11 AND 2011- 12, AS THE SAME WAS INTRODUCED W.E.F. 01.08.2012. W E THUS, IN TERMS OF OUR AFORESAID OBSERVATIONS ARE OF THE CONSIDERED VI EW THAT THE AFOREMENTIONED CBDT CIRCULAR NO. 5/2012, DATED 01.0 8.2012 WOULD NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE BEFORE US FOR A.Y. 2011-12. 32. WE ARE FURTHER OF THE CONSIDERED VIEW THAT EVEN OTHERWISE THE ENLARGEMENT OF THE SCOPE OF MCI REGULATION TO THE P HARMACEUTICAL COMPANIES BY THE CBDT IS DE HORS ANY ENABLING PROVI SION EITHER UNDER THE INCOME TAX ACT OR UNDER THE INDIAN MEDICAL COUN CIL REGULATIONS. IN OUR CONSIDERED VIEW, THOUGH THE CBDT CAN TONE DOWN THE RIGOURS OF LAW IN ORDER TO ENSURE A FAIR ENFORCEMENT OF THE PROVIS IONS BY ISSUING CIRCULARS FOR CLARIFYING THE STATUTORY PROVISIONS, HOWEVER, I T IS DIVESTED OF ITS POWERS TO CREATE A NEW IMPAIRMENT ADVERSE TO AN ASSESSEE O R TO A CLASS OF ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 29 ASSESSES WITHOUT ANY SANCTION OR AUTHORITY OF LAW. WE FIND THAT THE ASPECT THAT THE CBDT IS DIVESTED OF IT POWERS TO ENLARGE T HE SCOPE OF MCI REGULATION BY EXTENDING THE SAME TO PHARMACEUTICAL COMPANIES, WITHOUT ANY ENABLING PROVISION EITHER UNDER THE INCOME TAX ACT OR THE INDIAN MEDICAL REGULATIONS, WAS ALSO DELIBERATED UPON BY T HE TRIBUNAL IN THE CASE OF ARISTO PHARMACEUTICALS PVT. LTD. VS. ACIT ( ITA NO. 6680/MUM/2012, DATED 26.07.2018), WHEREIN IN CONTEX T OF THE ISSUE UNDER CONSIDERATION IT WAS OBSERVED AS UNDER : 23. WE FIND THAT THE CBDT AS PER ITS CIRCULAR NO . 5/2012, DATED 01.08.2012 HAD ENLARGED THE SCOPE AND APPLICA BILITY OF INDIAN MEDICAL COUNCIL REGULATION, 2002, BY MAKING THE SAM E APPLICABLE EVEN TO THE PHARMACEUTICAL COMPANIES OR ALLIED HEALTHCAR E SECTOR INDUSTRIES. WE ARE OF THE CONSIDERED VIEW THAT SUCH AN ENLARGEM ENT OF THE SCOPE OF MCI REGULATION TO THE PHARMACEUTICAL COMPANIES BY T HE CBDT IS WITHOUT ANY ENABLING PROVISION EITHER UNDER THE INCOME TAX ACT OR UNDER THE INDIAN MEDICAL COUNCIL REGULATIONS. WE ARE OF A STR ONG CONVICTION THAT THE CBDT CANNOT PROVIDE CASUS OMISSUS TO A STATUTE OR NOTIFICATION OR ANY REGULATION WHICH HAS NOT BEEN EXPRESSLY PROVIDED TH EREIN. STILL FURTHER, THOUGH THE CBDT CAN TONE DOWN THE RIGOURS OF LAW IN ORDER TO ENSURE A FAIR ENFORCEMENT OF THE PROVISIONS BY ISSUING CIRCU LARS FOR CLARIFYING THE STATUTORY PROVISIONS, HOWEVER, IT IS DIVESTED OF IT S POWER TO CREATE A NEW IMPAIRMENT ADVERSE TO AN ASSESSEE OR TO A CLASS OF ASSESSEE WITHOUT ANY SANCTION OR AUTHORITY OF LAW. WE ARE OF THE CONSIDE RED VIEW THAT THE CIRCULARS WHICH ARE ISSUED BY THE CBDT MUST CONFIRM TO THE TAX LAWS AND THOUGH ARE MEANT FOR THE PURPOSE OF GIVING ADMINIST RATIVE RELIEF OR FOR CLARIFYING THE PROVISIONS OF LAW, BUT THE SAME CANN OT IMPOSE A BURDEN ON THE ASSESSEE, LEAVE ALONE CREATING A NEW BURDEN BY ENLARGING THE SCOPE OF A REGULATION ISSUED UNDER A DIFFERENT ACT SO AS TO IMPOSE ANY KIND OF HARDSHIP OR LIABILITY ON THE ASSESSEE. WE THUS, ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE RIGOURS CONTEMPLATED IN THE CBDT CIRCULAR NO. 5/2012, DATED 01.08.2012, WHICH WE WOULD NOT HE SITATE TO OBSERVE, DESPITE ABSENCE OF ANYTHING PROVIDED BY THE MCI IN ITS REGULATIONS ISSUED UNDER THE MEDICAL COUNCIL ACT, 1956, CONTEMPLATING THAT THE REGULATION OF CODE OF CONDUCT WOULD ALSO COVER THE PHARMACEUTICAL COMPANIES AND HEALTHCARE SECTOR, HOWEVER PROVIDES THAT IN CASE A PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTRY INCURS ANY EXPENDITUR E IN PROVIDING ANY GIFT, TRAVEL FACILITY, CASH, MONETARY GRANT OR SIMILAR FR EEBIES TO MEDICAL PRACTITIONERS OR THEIR PROFESSIONAL ASSOCIATIONS IN VIOLATION OF THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AN D ETHICS) REGULATIONS, 2002, THE EXPENDITURE INCURRED ON THE SAME SHALL BE DISALLOWED IN THE HANDS OF SUCH PHARMACEUTICAL OR A LLIED HEALTH SECTOR INDUSTRY. WE ARE OF THE CONSIDERED VIEW THAT THE BU RDEN IMPOSED BY THE CBDT VIDE ITS AFORESAID CIRCULAR NO. 5/2012, DATED 01.08.2012 ON THE PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTRIES, DESPITE ABSENCE OF ANY ENABLING PROVISION UNDER THE INCOME TAX LAW OR UNDE R THE INDIAN MEDICAL COUNCIL REGULATIONS, CLEARLY IMPINGES ON THE CONDUC T OF THE PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES IN CARRYING OUT ITS BUSINESS. WE THUS, IN THE ABSENCE OF ANY SANCTION O R AUTHORITY OF LAW ON THE BASIS OF WHICH IT COULD SAFELY BE CONCLUDED THA T THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY ON SALES PROMOTION EXPENSES BY WAY OF DISTRIBUTION OF ARTICLES TO THE STOCKISTS, DISTR IBUTORS, DEALERS, CUSTOMERS ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 30 AND DOCTORS, IS IN THE NATURE OF AN EXPENDITURE WHI CH HAD BEEN INCURRED FOR ANY PURPOSE WHICH IS EITHER AN OFFENCE OR PROHI BITED BY LAW, THUS CONCLUDE THAT THE SAME WOULD NOT BE HIT BY THE EXPL ANATION TO SEC. 37(1) OF THE ACT. 33. WE THUS IN TERMS OF OUR AFORESAID OBSERVATIONS AND RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE COORDINATE BENCH OF THE TRIBUNAL I.E ITAT A BENCH, MUMBAI, IN THE CASE OF ARISTO PHARMACEUT ICALS PVT. LTD. VS. ACIT (ITA NO. 6680/MUM/2012, DATED 26.07.2018), ARE OF THE CONSIDERED VIEW THAT THE EXPENDITURE OF RS. 55,81,68,692/- INC URRED BY THE ASSESSEE TOWARDS ADVERTISEMENT AND ITS BUSINESS PROMOTION UN DER THREE HEADS VIZ. (I) KEY ACCOUNT MANAGER (KAM) EXPENSES; (II) CUSTOM ER RELATION MANAGER (CRM) EXPENSES; AND (III) GIFT ARTICLES WOU LD NOT BE HIT BY THE EXPLANATION TO SEC. 37 OF THE I-T ACT. 34. INSOFAR THE OBSERVATIONS OF THE LOWER AUTHORITI ES THAT THE ASSESSEE HAD NOT BEEN ABLE TO FULLY SUBSTANTIATE ITS CLAIM O F EXPENSES, WE ARE UNABLE TO SUBSCRIBE TO THE SAME. AS A MATTER OF FAC T, THE A.O IN THE COURSE OF THE ASSESSMENT PROCEEDINGS HAD VIDE HIS L ETTER DATED 06.03.2013 DIRECTED THE ASSESSEE TO FILE SAMPLE BIL LS OF EXPENSES IN RESPECT OF (I) KEY ACCOUNT MANAGER (KAM) EXPENSES; (II) CUSTOMER RELATION MANAGER (CRM) EXPENSES; AND (III) GIFT ART ICLES, WHICH ADMITTEDLY WERE FILED BY THE ASSESSEE. THEREAFTER, THE A.O WITHOUT POINTING OUT ANY SPECIFIC INSTANCE WITH REFERENCE T O ANY SUCH SAMPLE BILL OR HAD MADE A GENERAL OBSERVATION, THAT THE ASSESSE E BESIDES THE STATEMENT THAT WAS MADE BY IT IN THE LEDGER THAT A CERTAIN AMOUNT WAS GIVEN TO CRM/KAM MANAGER, HAD NO OTHER PRIMARY EVID ENCE. FURTHER, IT IS ALSO OBSERVED BY HIM THAT AS IN CERTAIN CASES IT WAS ALSO NOT KNOWN AS TO WHO WAS THE BENEFICIARY OF THE AMOUNT THAT WAS G IVEN AND WHAT WAS THE BENEFIT THAT WAS ACCORDED, THEREFORE, THE EXPEN SES CLAIMED BY THE ASSESSEE CANNOT BE CONSIDERED AS ESTABLISHED TO HAV E BEEN INCURRED BY IT WHOLLY AND EXCLUSIVELY IN THE COURSE OF ITS BUSI NESS. WE ARE UNABLE TO PERSUADE OURSELVES TO ENDORSE THE AFORESAID OBSERVA TIONS OF THE A.O FOR DRAWING OF ADVERSE INFERENCES AS REGARDS THE AFORES AID EXPENSES INCURRED BY THE ASSESSEE. AS A MATTER OF FACT, AS I S DISCERNIBLE FROM THE ASSESSMENT ORDER, THE A.O EXCEPT FOR DIRECTING THE ASSESSEE TO FURNISH SAMPLE BILLS, HAD AT NO STAGE CALLED UPON IT TO SUB STANTIATE THE SAME ON THE BASIS OF ANY FURTHER MATERIAL. AT LEAST, NO SUC H EXERCISE CARRIED OUT BY THE A.O CAN BE GATHERED FROM THE ORDERS OF THE LOWE R AUTHORITIES. APART THERE FROM, NOTHING HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. D.R IN THE COURSE OF HEARING OF THE APPEAL WHICH WOULD HAVE PE RSUADED US TO HAVE ARRIVED AT A DIFFERENT VIEW. BE THAT AS IT MAY, WE FIND THAT THE A.O EVEN AT THE TIME OF DISALLOWING 50% OF THE EXPENSES I.E RS. 27,90,84,346/-, HAD OBSERVED THAT THE SAME WERE BEING DISALLOWED AS MAJ ORITY OF THE EXPENSES WERE INCURRED FOR GIVING FREEBIES TO DOC TORS FOR PROMOTION OF ASSESSES BUSINESS WHICH WAS INADMISSIBLE U/S 37(1) OF THE I-T ACT, BEING AN EXPENSE PROHIBITED BY LAW. WE THUS ON THE BASIS OF OUR AFORESAID OBSERVATIONS, BEING OF THE CONSIDERED VIEW THAT THE A.O/DRP HAD ERRED IN MAKING AN ADHOC DISALLOWANCE OF RS. 27,90,84,346/- I.E 50% OF THE ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES, THER EFORE, DELETE THE SAME. THE GROUND OF APPEAL NO. VII IS ALLOWED IN TE RMS OF OUR AFORESAID OBSERVATIONS. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 31 33. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD. AO TO DELETE A DDITIONS MADE TOWARDS DISALLOWANCES OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES. 34. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.9 OF ASSESSE APPEAL IS ADDITION OF RS. 22.25 CRO RES TO THE TOTAL INCOME AND REDUCTION OF DEDUCTION CLAIMED U/S 80IC OF THE I.T.ACT, 1961. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF H EARING SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF ITAT , MUMBAI J BENCH IN ASSESSEES OWN CASE FOR AY 2009-10, WHERE UNDER IDENTICAL SET OF FACTS, THE ISSUE HAS BEEN RESTORED BACK TO THE F ILE OF THE LD. AO FOR RE-ADJUDICATION. THE LD. DR, ON THE OTHER HAND, FAI RLY ACCEPTED THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE LD. A O TO RECONSIDER, IN LIGHT OF THE FINDINGS GIVEN BY THE TRIBUNAL FOR AY 2008-09 AND 2009- 10. 35. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF ITAT FOR AY 2008-09 AND 2009-10, WHERE THE ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE LD. AO FOR RE-ADJU DICATION FOR THE REASONS STATED THEREIN. THE RELEVANT FINDINGS OF TH E TRIBUNAL ARE AS UNDER;- 40. WE HAVE DELIBERATED ON THE AFORESAID CLAIM OF T HE ASSESSEE AND ARE OF THE CONSIDERED VIEW THAT BYPASSING THE SPECIFIC CLAIM OF THE ASSESSEE, THE A.O HAD CARRIED OUT PART ALLOCATION OF THE INTE REST & R&D EXPENDITURE TO ITS BADDI UNIT, ONLY FOR THE REASON THAT THERE W AS A DISPARITY BETWEEN ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 32 THE PROFIT RATE OF BADDI UNIT AND THE OTHER UNITS. AS IS DISCERNIBLE FROM THE RECORDS, THE DEPARTMENT HAD FAILED TO PLACE ON RECO RD ANY COGENT AND IRREFUTABLE MATERIAL WHICH WOULD CONCLUSIVELY ESTAB LISH THAT THE BORROWED FUNDS WERE UTILISED IN SETTING UP THE BADDI UNIT AN D FURTHER THE R&D EXPENDITURE INCURRED WAS IN CONTEXT OF THE MANUFACT URING ACTIVITY CARRIED OUT AT THE BADDI UNIT. APART THERE FROM, THERE IS A LSO NO CLARITY ON THE FACT WHETHER THE ASSESSEE HAD MAINTAINED UNIT WISE ACCOU NTS AND THE EXPENDITURE CLAIMED IS AS PER THE ACCOUNTS. IN NUT SHELL, THERE IS NO EVIDENCE WHICH WOULD JUSTIFY ATTRIBUTION AND ALLOCA TION OF THE INTEREST EXPENDITURE AND THE R&D EXPENDITURE TO THE BADDI UN IT OF THE ASSESSEE. WE FIND THAT SIMILAR FACTS WERE INVOLVED AS REGARDS ALLOCATION OF THE AFORESAID EXPENSES VIZ. (I). INTEREST EXPENDITURE; AND (II). R&D EXPENSES, IN THE ASSESSES OWN CASE FOR THE IMMEDIATELY PRECED ING YEAR I.E A.Y 2008-09 BEFORE THE TRIBUNAL VIZ. M/S PIRAMAL ENTERP RISES LTD. VS. ADDL.CIT, CIRCLE-7(1), MUMBAI. THE TRIBUNAL OBSERVI NG THAT AS THE REVENUE HAD FAILED TO BRING ON RECORD ANY COGENT MA TERIAL TO ESTABLISH THAT THE BORROWED FUNDS WERE UTILISED IN SETTING-UP THE BADDI UNIT AND FURTHER THE R&D EXPENDITURE INCURRED WAS RELATED TO MANUFACTURING ACTIVITY CARRIED OUT AT THE BADDI UNIT, HAD THUS IN ALL FAIRNESS RESTORED THE ISSUE TO THE FILE OF THE A.O FOR FRESH ADJUDICATION , AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AS THE FACT SITUATION IN CONTEXT OF THE ISSUE BEFORE US REMAINS THE SAME, TH EREFORE, RESPECTFULLY FOLLOWING THE ORDER PASSED BY THE TRIBUNAL IN THE A SSESSES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR I.E A.Y 2008-09, WE RESTORE THE MATTER TO THE FILE OF THE A.O FOR FRESH ADJUDICATION. NEEDLES S TO SAY, THE A.O SHALL IN THE COURSE OF THE SET ASIDE PROCEEDINGS AFFORD A RE ASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND OF APPEA L NO. IX IS ALLOWED FOR STATISTICAL PURPOSES. 36. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE RESTORED THE MATTER BACK TO T HE FILE OF THE LD. AO AND DIRECT HIM TO FOLLOW THE FINDINGS GIVEN BY T HE TRIBUNAL FOR AY 2008-09 AND 2009-10, WHILE ADJUDICATING THE ISSUE. 37. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM GROUND NO. 10 OF ASSESSEE APPEAL IS ELIGIBILITY OF DEDUCTI ON CLAIMED U/S 80IC OF THE I.T.ACT, 1961. THE LD. AR FOR THE ASSESSEE S UBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESEE BY T HE DECISION OF ITAT, J BENCH FOR AY 2009-10, WHERE UNDER IDENTI CAL SET OF FACTS, IT WAS HELD THAT ELIGIBILITY CRITERIA FOR CLAIMING DED UCTION U/S 80IC OF THE ACT, NEEDS TO BE EXAMINED IN THE YEAR OF FORMATION. THE LD. DR, ON ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 33 THE OTHER HAND, FAIRLY ACCEPTED THAT THE ISSUE IS C OVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT FOR AY 2009-10 . BUT, HE STRONGLY SUPPORTED ORDER OF THE LD. AO, AS WELL AS THE LD. DRP. 38. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT A SIMILAR ISSUE HAS BEEN CONSIDERED BY THE CO- ORDINATE BENCH OF ITAT J BENCH FOR AY 2009-10, WHERE UNDER IDENTICA L SET OF FACTS, IT WAS HELD THAT ELIGIBILITY CRITERIA FOR CLAIMING DED UCTION U/S 80IC OF THE ACT, NEEDS TO BE EXAMINED IN THE YEAR OF FORMATION, AS ENVISAGED U/S 80 IC (4) OF THE ACT, 1961. THE RELEVANT FINDINGS O F THE TRIBUNAL ARE AS UNDER:- 50. IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS T HAT THE SATISFACTION OF THE CONDITIONS PRESCRIBED IN SEC. 80IC(4) ARE REQUI RED TO BE SATISFIED ONLY IN THE YEAR OF FORMATION, WE SHALL NOW DELIBERATE ON THE FACTS INVOLVED IN THE CASE BEFORE US. ADMITTEDLY, THE ASSESSEE HAD SE T-UP ITS BADDI UNIT ON 10.06.2006, BEING THE DATE ON WHICH PRODUCTION HAD COMMENCED IN THE SAID UNIT. THE SAID DATE OF FORMATION OF THE BADD I UNIT IS DISCERNIBLE FROM THE CERTIFICATE ISSUED BY A CHARTERED ACCOUNTANT IN FORM NO. 10CCB FOR A.Y 2007-08, WHEREIN AT COL NO. 8 THE DATE OF COMME NCEMENT OF OPERATION ACTIVITY BY THE UNDERTAKING OR ENTERPRISE IS STATED AS JUNE 10, 2006. FURTHER, THE ASSESSEE IN THE COURSE OF ITS A SSESSMENT FOR A.Y 2007-08 HAD VIDE ITS LETTER DATED 24.09.2009 (PAGE 524 OF APB ) FURNISHED WITH THE A.O VIZ. (I). COPY OF THE CERTIF ICATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION ISSUED BY THE GOVERNMENT OF H IMACHAL PRADESH, DEPARTMENT OF INDUSTRIES (ANNEXURE 35 OF THE REPLY) . APART THERE FROM, THE ASSESSEE HAD ALSO VIDE ITS AFORESAID LETTER SUBMITT ED BEFORE THE A.O THAT IT HAD SET-UP A NEW MANUFACTURING UNDERTAKING AT BA DDI IN THE STATE OF HIMACHAL PRADESH, WHICH HAD BEGUN PRODUCTION OF PHA RMACEUTICAL PRODUCTS DURING THE PERIOD RELEVANT TO A.Y 2007-08. FURTHER, THE COMPLETE DETAILS OF THE 87 PHARMACEUTICAL PRODUCTS VIZ. THEI R PRODUCT DESCRIPTION ALONGWITH THEIR PRODUCT CODES WAS ALSO PLACED ON TH E RECORD OF THE A.O (PAGE 526 OF APB ). ALSO, THE COMPLETE DETAILS OF THE ADDITIONS TO T HE PLANT & MACHINERY OF A VALUE OF RS. 83,32,03,012/- THAT WAS MADE BY THE ASSESSEE AT ITS BADDI UNIT DURING THE F.Y 2006-07 W AS ALSO FILED WITH THE A.O. (PAGE 529 541 OF APB ). THE ASSESSEE HAD VIDE ITS LETTER DATED 08.12.2009, IN REPLY TO THE QUERY RAISED BY THE A.O IN THE COURSE OF ITS ASSESSMENT PROCEEDINGS FOR A.Y 2007-08 AS REGARDS I TS CLAIM OF DEDUCTION U/S 80- IC, HAD JUSTIFIED THE ALLOCATION OF EXPENSES TO ITS BADDI UNIT. IN THE BACKDROP OF THE AFORESAID FACTS, IT CA N SAFELY BE CONCLUDED ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 34 THAT THE BADDI UNIT OF THE ASSESSEE WAS SET-UP/FORM ED ON 10.06.2006 I.E THE PERIOD RELEVANT TO A.Y 2007-08. IN FACT, THE A. O WHILE FRAMING THE ASSESSMENT OF THE ASSESSEE FOR A.Y 2007-08 HAD AFTE R MAKING NECESSARY VERIFICATIONS AS REGARDS SATISFACTION OF THE REQUIS ITE CONDITIONS, HAD ALLOWED THE ASSESSES CLAIM OF DEDUCTION U/S 80IC OF RS. 114,53,66,695/-. AS A MATTER OF FACT, THE A.O WHILE FRAMING THE ASSE SSMENT IN THE CASE OF THE ASSESSEE U/S 143(3), DATED 18.12.2009 FOR A.Y 2 007-08 HAD SPECIFICALLY OBSERVED THAT THE ASSESSEE HAD COMMENC ED PRODUCTION AT ITS NEW UNIT AT BADDI, OBSERVING AS UNDER (PAGE 294 OF APB ) : DURING THE YEAR THE ASSESSEE HAS COMMENCED PRODUCTION AT A NEW UNIT AT BADDI, HIMACHAL PRADESH WHICH IS ENTITLED TO DEDUCTION U/S 80IC APART THERE FROM, THE A.O HAD REOPENED THE CASE OF THE ASSESSEE FOR A.Y 2007-08 UNDER SEC. 147 FOR THE PURPOSE OF REALLOCAT ING CERTAIN EXPENSES TO ITS BADDI UNIT, WHICH HE WAS OF THE VIEW THAT TH E ASSESSEE COMPANY HAD ALLOCATED TO ITS SAID UNIT ON THE LOWER SIDE. H OWEVER, AT NO STAGE THE CLAIM OF DEDUCTION RAISED BY THE ASSESSEE FOR THE S AID INITIAL YEAR I.E THE YEAR OF FORMATION OF THE BADDI UNIT WAS SOUGHT TO BE DECLINED OR DISLODGED ON THE GROUND THAT AS THE ASSESSEE HAD FA ILED TO HAVE SATISFIED THE CONDITIONS PRESCRIBED IN SEC. 80IC(4), THUS IT WAS NOT ELIGIBLE FOR THE SAME. ON THE BASIS OF OUR AFORESAID OBSERVATIONS, W E ARE OF THE CONSIDERED VIEW THAT NOW WHEN ADMITTEDLY THE BADDI UNIT WAS FORMED BY THE ASSESSEE ON 10.06.2006 I.E THE PERIOD RELEVANT TO A.Y 2007-08, THEREFORE, IN THE BACKDROP OF THE SETTLED POSITION OF LAW AS HAD BEEN DELIBERATED BY US AT LENGTH HEREINABOVE, THE SATISF ACTION OF THE CONDITIONS PRESCRIBED IN SEC. 80IC(4) WAS CONFINED TO THE INIT IAL YEAR I.E YEAR OF FORMATION VIZ. A.Y 2007-08. IN FACT, WE ARE OF TH E CONSIDERED VIEW THAT NOW WHEN THE A.O HAD VIDE HIS ASSESSMENT FRAMED U/S 143(3), DATED 18.12.2009 FOR A.Y 2007-08, HAD ALLOWED THE ASSESSE S CLAIM OF DEDUCTION U/S 80IC, THEREFORE, THERE COULD HAVE BEE N NO REASON FOR HIM TO HAVE DRAWN ADVERSE INFERENCES AS REGARDS THE ELIGIB ILITY OF THE ASSESSES TOWARDS CLAIM OF SUCH DEDUCTION DURING THE YEAR UND ER THE CONSIDERATION VIZ. A.Y 2009-10 I.E THE 3RD YEAR OF ITS OPERATION, ON THE GROUND THAT THE ASSESSEE HAD VIOLATED THE CONDITIONS OF CONSTITUTIO N/FORMATION AS ENVISAGED IN SEC. 80IC(4). BE THAT AS IT MAY, AS TH E SATISFACTION OF THE CONDITIONS PRESCRIBED IN SEC. 80IC(4) IS REQUIRED T O BE LOOKED INTO IN THE YEAR OF FORMATION, THEREFORE, WE ARE PERSUADED TO SUBSCRIBE TO THE CONTENTIONS ADVANCED BY THE LD. A.R THAT NO ADVERSE INFERENCES AS REGARDS THE ELIGIBILITY OF THE CLAIM OF DEDUCTION F OR THE ALLEGED NONSATISFACTION OF THE CONDITIONS THEREIN PROVIDED COULD HAVE BEEN VALIDLY DRAWN IN THE HANDS OF THE ASSESSE WHILE FRAMING ITS ASSESSMENT FOR THE YEAR UNDER CONSIDERATION VIZ. A.Y 2009-10 I.E THE 3 RD YEAR OF OPERATION. 39. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW TH AT THE LD. AO WAS ERRED IN DISALLOWED DEDUCTION CLAIMED U/S 80IC OF THE I.T.ACT, 1961, ON EXAMINATION OF ELIGIBILITY CRITERIA FOR CL AIMING SAID DEDUCTION ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 35 WITHOUT APPRECIATING THE FACT THAT ELIGIBILITY CRIT ERIA FOR CLAIMING DEDUCTION NEEDS TO BE EXAMINED IN THE YEAR OF FORMA TION OF THE UNIT. HENCE, WE ARE IN AGREEMENT WITH THE CLAIM OF THE AS SESSEE THAT THE ELIGIBILITY CRITERIA SHALL BE EXAMINED ONLY IN THE YEAR OF CONSTITUTION/ FORMATION OF THE UNITS AS ENVISAGED IN SECTION 80IC (4) OF THE I.T.ACT, 1961. 40. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM GROUND NO. 11 OF ASSESSEE APPEAL IS TRANSFER PRICING ADJUS TMENT (TPA) ON ACCOUNT OF INTEREST ON LOAN AMOUNTING TO RS. 5,01,4 8,284/-. THE LD. AR, FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS S QUARELY COVERED, IN FAVOUR OF THE ASSESSE BY THE DECISION OF ITAT, M UMBAI, K BENCH IN ASSESSEES OWN CASE FOR AY 2008-09, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HELD THAT WHEN, LOAN IS GIVEN I N FOREIGN CURRENCY, THE APPROPRIATE METHOD FOR BENCH MARKING THE INTERE ST RATE IS BY APPLYING LIBOR OR EUROBOR RATE. THEREFORE, THE ARMS LENGTH PRICE (ALP) OF INTEREST CHARGEABLE TO THE AE CANNOT BE DETERMINED BY APPLYING INDIAN PLR, AS LOAN GIVEN WAS NOT IN IN DIAN CURRENCY. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE FOR AY 2008-09. 41. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE CO- ORDINATE BENCH OF ITAT, MUMBAI, IN ASSESSEE OWN CASE FOR AY 2008-09, WHERE UNDER IDENTICAL SET OF FACTS, IT WAS HELD THAT WHEN, LOAN IS ADVANCED IN FOREIGN CURRENCY, THE APPROPRIATE METHOD FOR BENCH MARKING RATE OF INTEREST IS BY APPLYING EITHER LIBOR OR EUROBOR RAT E AND THEREFORE, THE ALP OF INTEREST CHARGEABLE TO THE AE CANNOT BE ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 36 DETERMINED BY APPLYING INDIAN PLR. THE RELEVANT FIN DINGS OF THE TRIBUNAL ARE AS UNDER;- 70. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. UNDISPUTEDLY, THE AE OF THE ASSESSEE IS LOC ATED IN SWITZERLAND AND THE LOAN AVAILED BY THE AE IS ALSO IN THE CURRE NCY OF ITS RESIDENCE. IT IS WELL SETTLED, IN CASE OF SUCH LOAN AVAILED BY TH E AE IN FOREIGN CURRENCY, THE APPROPRIATE METHOD FOR BENCH MARKING THE INTERE ST RATE IS BY APPLYING EITHER LIBOR OR EUROBOR. THEREFORE, THE ARM'S LENGT H PRICE OF INTEREST CHARGEABLE TO THE AE CANNOT BE DETERMINED BY APPLYI NG INDIAN PLR AS THE LOAN GIVEN WAS NOT IN INDIAN CURRENCY. THIS VIE W OF OURS GETS SUPPORT FROM THE DECISIONS CITED BY THE LEARNED SR. COUNSEL . IN CASE OF TATA AUTOCOMP SYSTEMS LTD. (SUPRA), THE HON'BLE JURISDIC TIONAL HIGH COURT HELD THAT WHEN THE AE IS SITUATED IN GERMANY, RATE OF INTEREST ON THE LOAN ADVANCED TO THE AE HAS TO BE DETERMINED ON THE BASI S OF RATE OF INTEREST PREVAILING IN GERMANY WHERE THE LOAN HAS BEEN CONSU MED. THE HON'BLE DELHI HIGH COURT IN COTTON NATURALS (I) PVT. LTD. ( SUPRA) HAS ALSO EXPRESSED SIMILAR VIEW. THE OTHER DECISIONS RELIED UPON BY THE LEARNED SR. COUNSEL ARE ALSO IN THE SAME LINE. KEEPING IN V IEW THE RATIO LAID DOWN IN THE AFORESAID DECISIONS, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). ACCORDINGLY, WE UPH OLD THE SAME BY DISMISSING THE GROUND RAISED BY THE REVENUE. 42. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD.AO TO DELETE AD DITIONS MADE TOWARDS TP ADJUSTMENT ON ACCOUNT OF INTEREST ON LOA N GIVEN TO AES AMOUNTING TO RS. 5,01,48,284/-. 43. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 12 OF ASSESSE APPEAL IS TP ADJUSTMENT ON ACCOUN T OF CORPORATE GUARANTEE COMMISSION AMOUNTING TO RS. 19,15,10,985/ -. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT K BENCH I N ASSESSEES OWN CASE FOR AY 2008-09, WHERE THE TRIBUNAL HAS DIRECTE D THE LD. AO TO RESTRICT CORPORATE GUARANTEE COMMISSION TO 0.5% OF TOTAL GUARANTEE ISSUED BY THE ASSESSEE TO ITS AE. THE LD. DR, ON TH E OTHER HAND, FAIRLY ACCEPTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 37 44. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE CO-ORDINATE BENCH OF ITAT, MUMBAI IN ASSES SEES OWN CASE HAD CONSIDERED THE ISSUE FOR AY 2008-09 AND 2009-10 , WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HAS DIRECTED T HE LD. AO TO RESTRICT GUARANTEE COMMISSION TO 0.5% OF TOTAL GUARANTEE ISS UED TO AES. THEREFORE, CONSISTENT WITH VIEW TAKEN BY THE CO-ORD INATE BENCH, WE DIRECT THE LD. AO TO RESTRICT TP ADJUSTMENT ON ACCO UNT OF GUARANTEE COMMISSION TO 0.5% OF CORPORATE GUARANTEE ISSUED TO THE AES. 45. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM GROUND NO.13 OF ASSESEE APPEAL IS RE-COMPUTATION OF BOOK P ROFIT U/S 115JB, IN RESPECT OF DISALLOWANCES OF EXPENDITURE, IN RELA TION TO EXEMPT INCOME U/S 14A OF THE I.T.ACT, 1961. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF ITA T, MUMBAI IN ASSESSEES OWN CASE FOR AY 2009-10 AND AFTER CONSID ERING RELEVANT FACTS AND ALSO, BY FOLLOWING THE DECISION OF HONBL E BOMBAY HIGH COURT, IN THE CASE OF CIT VS BENGAL FINANCE AND IN VESTMENTS PVT.LTD. IN ITA NO. 337 OF 2013 HELD THAT DISALLOWA NCES MADE U/S 14A IS NOT TO BE CONSIDERED FOR THE PURPOSE OF COMP UTING THE BOOK PROFIT U/S 115JB OF THE I.T.ACT, 1961. WE, FURTHER NOTED THAT THE ITAT, BENCH IN THE CASE OF ACIT VS VIREET INVESTMENTS PVT .LTD. HAD CONSIDERED A SIMILAR ISSUE AND AFTER CONSIDERING RE LEVANT FACTS HELD THAT COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) IS TO BE MADE WITHOUT RESORTING TO COMPUTA TION AS CONTEMPLATED U/S 14A R.W.RULE 8D OF THE I.T.RULES, 1962. THEREFORE, BY RESPECTFULLY FOLLOWING THE DECISION OF HONBLE B OMBAY HIGH COURT, IN THE CASES DISCUSSED HEREINABOVE, WE DIRECT THE L D. AO TO DELETE ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 38 ADDITIONS MADE TOWARDS BOOK PROFIT COMPUTED U/S 115 JB OF THE ACT, IN RESPECT OF DISALLOWANCES MADE U/S 14A OF THE I.T .ACT, 1961. 46. IN THE RESULT, APPEAL FILED BY THE ASSESSE IS A LLOWED FOR STATISTICAL PURPOSE. ITA NO.1832/MUM/2015: 47. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE /ACTS AND CIRCUMSTANCES OF THE CASE AND IN TAW, THE HONBLE DRP ERRED IN DIRECTING THE AO TO ALLOW THE CLAIM OF DEDUCTION OF RS. 2,42,85,714/- U/S. 35A, RELATING TO AMORTIZATIO N OF EXPENSES ON ACCOUNT OF TRADEMARKS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HON'BLE DRP ERRED IN DIRECTING THE AO TO ALLOW THE CLAIM O/ DED UCTION OF RS. 2,42,85,714/- U/S. 35A, RELATING TO AMORTIZATION T O EXPENSES ON ACCOUNT OF TRADEMARKS, FAILING TO APPRECIATE THAT SECTION 3 5A IS APPLICABLE TO PATENTS AND COPYRIGHTS AND NOT TO TRADEMARKS AND TH ESE CONCEPTS ARE TOTALLY DIFFERENT AND OPERATE IN SEPARATE DOMAINS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE WHILE DIRECTING AS ABOVE, THE HONBLE DRP ERRED IN RELYIN G ON THE ORDER DATED 15.05.2007 OF THE ITAT IN ASSESSEES OWN CASE FOR A .YS.1999- 2000,2000-01 AND 2001-02, WHEREAS SUBSEQUENT TO THE ABOVE ORDER, THE HON'BLE BOMBAY HIGH COURT, VIDE ORDER DATED 14.09.2 011, KEPT THE QUESTION OF LAW RELATING TO APPLICABILITY OF SECTIO N 35A OF THE INCOME TAX ACT 1961, TO TRADEMARKS, OPEN TO BE DECIDED IN AN A PPROPRIATE CASE. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OF ADD A NEW GROUND WHICH MAY BE NECESSARY. 48. THE ONLY ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUE APPEAL IS DELETION OF DISALLOWANCES U/S 35( A) RELATING TO AMORTIZATION OF EXPENSES ON ACCOUNT OF TRADEMARKS RELATED TO SSPL. THE LD. AR FOR THE ASSESEE, AT THE TIME OF HE ARING SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR O THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI, J BENCH FOR AY 2009-10, WHERE UNDER IDENTICAL SET ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 39 OF FACTS, THE ADDITIONS MADE BY THE LD. AO TOWARDS DISALLOWANCES OF AMORTIZATION OF EXPENSES ON ACCOUNT OF TRADEMARKS H AS BEEN DELETED BY THE TRIBUNAL. THE LD. DR, ON THE OTHER H AND, STRONGLY SUPPORTED ORDER OF THE LD. AO, AS WELL AS THE LD. D RP. 49. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT AN IDENTICAL ISSU E HAD BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF ITAT, IN ASS ESSEE OWN CASE FOR AY 2008-09 AND 2009-10 AND AFTER CONSIDERING RE LEVANT FACTS HAS DELETED ADDITIONS MADE BY THE LD. AO TOWARDS DISALL OWANCES OF AMORTIZATION OF EXPENSES ON ACCOUNT OF TRADE MARKS. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 27. WE HAVE PERUSED THE OBSERVATIONS OF THE LOWER A UTHORITIES AND DELIBERATED ON THE CONTENTIONS ADVANCED BY THE AUTH ORISED REPRESENTATIVES FOR BOTH THE PARTIES BEFORE US. ADM ITTEDLY, THE ISSUE AS REGARDS ALLOWABILITY OF THE ASSESSES CLAIM OF DEDUC TION U/S 35A IN RESPECT OF TRADEMARKS UNDER CONSIDERATION, HAD CAME UP BE FORE THE ITAT, MUMBAI IN THE ASSESSES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR VIZ A.Y 2008-09. IT WAS OBSERVED BY THE TRIBUNAL THAT SPPL HAD PAID AN AMOUNT OF RS. 34 CRORE TOWARDS PURCHASE OF TRADEMAR K FROM ASE, AS PER AGREEMENT DATED 03.10.1997. AFTER MAKING THE SAID PAYMENT, S PPL AND THEREAFTER THE ASSESSEE HAD AMORTIZED THE EXPEN DITURE AND CLAIMED DEDUCTION OF 1/14TH OF RS. 34 CRORES PAID, IN EACH SUBSEQUENT YEAR, WHICH WAS ALLOWED BY THE CIT(A) AND THE TRIBUNAL IN THE S AID PRECEDING YEARS. IT WAS NOTICED BY THE TRIBUNAL THAT DESPITE THE FACT T HAT THE A.O HAD ACCEPTED THAT IN THE PRECEDING YEARS CIT(A) AND THE TRIBUNAL HAD ALLOWED THE ASSESSES CLAIM FOR DEDUCTION U/S 35A, HOWEVER, HE HAD DISALLOWED THE CLAIM OF DEDUCTION FOR THE YEAR BEFORE HIM I.E A.Y 2008-09 BY FOLLOWING THE VIEW TAKEN BY HIS PREDECESSOR IN THE SAID EARLIER YEARS. APART THERE FROM, IT WAS NOTICED BY THE TRIBUNAL TH AT AS WAS DISCERNIBLE FROM THE ORDER OF THE HON BLE HIGH COURT OF BOMBAY WHILE DECIDING THE REVENUE S APPEAL ON THE SAID ISSUE IN THE CASE OF SPPL FO R A.Y 1998- 99, THE TRIBUNAL HAD ALLOWED THE APPEAL OF THE ASSE SSEE ON THE SAID ISSUE ON TWO GROUNDS VIZ. (I). THAT AS TRADE MARK IS NOT ALIEN TO PATENT RIGHT AS THERE IS A DIRECT LINK BETWEEN PATENT RIGHT AND TRA DE MARK, THUS THE ASSESSEE WAS ELIGIBLE TO CLAIM DEDUCTION U/S 35A; A ND (II). ALTERNATIVELY, THAT IF THE CLAIM OF DEDUCTION U/S 35A WAS NOT ALLO WABLE, STILL THE DEDUCTION HAS TO BE ALLOWED U/S 37 OF THE I-T ACT IN VIEW OF THE JUDGMENT OF THE HON BLE APEX COURT IN ALEMBIC CHEMICALS WORKS CO. LTD. VS. CIT (1988) 177 ITR 377 (SC). IT WAS OBSERVED BY THE TRIBUNAL T HAT THE REVENUE IN ITS ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 40 AFORESAID APPEAL BEFORE THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SPPL FOR A.Y 1998-99, BEING CONSCIOUS OF THE F ACT THAT IF IT SUCCEEDED ON THE GROUND OF ENTITLEMENT OF THE ASSES SEE TOWARDS DEDUCTION U/S 35A ON THE TRADE MARKS, THEN THE DEDU CTION OF THE ENTIRE EXPENDITURE OF RS. 34 CRORE IN TERMS OF THE OBSERVA TIONS OF THE TRIBUNAL HAD TO BE ALLOWED IN ONE GO U/S 37 OF THE I-T ACT, WHICH WOULD THUS PUT IT IN A MUCH MORE DISADVANTAGEOUS POSITION, HAD THUS F OR THE SAID REASON NOT PRESSED ITS APPEAL BEFORE THE HIGH COURT ON THE ISSUE OF ALLOWABILITY OF CLAIM OF DEDUCTION U/S 35A OF THE I.T ACT. IN TH E BACKDROP OF THE AFORESAID FACTS, THE TRIBUNAL WHILE DISPOSING OFF T HE APPEAL OF THE ASSESSEE FOR THE PRECEDING YEAR I.E A.Y 2008-09 OBS ERVED THAT AS THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 35A WAS ALL OWED IN THE PRECEDING YEARS, THUS APPLYING THE RULE OF CONSISTENCY ALLOWE D THE SAME DURING THE YEAR BEFORE THEM. WE HAVE GIVEN A THOUGHTFUL CONSID ERATION AND ARE OF THE CONSIDERED VIEW THAT AS THE ASSESSES CLAIM OF D EDUCTION U/S 35A HAD CONSISTENTLY BEEN ALLOWED BY THE TRIBUNAL IN THE PR ECEDING YEARS, THEREFORE, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE TRIBUNAL WHILE DISPOSING OFF THE APPEAL OF THE ASSESSEE FOR A.Y 20 08-09, THE DISALLOWANCE MADE BY THE A.O/DRP U/S 35A OF RS. 2,4 2,85,714/- DURING THE YEAR UNDER CONSIDERATION VIZ. A.Y 2009-10 IS VA CATED. THE GROUND OF APPEAL NO. VII IS ALLOWED. 50. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR EARLIE R YEARS, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) WAS RIG HT IN DELETION OF ADDITIONS MADE BY THE LD. AO TOWARDS DISALLOWANCES OF AMORTIZATION OF EXPENSES ON ACCOUNT OF TRADEMARKS U/S 35A OF TH E I.T.ACT, 1961. HENCE, WE ARE INCLINED TO UPHOLD THE ORDER OF THE L D.CIT(A) AND DISMISSED APPEAL FILED BY THE REVENUE. 51. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. 52. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSE AND APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NOS.1754 & 1832/MUM/2015 PIRAMAL ENTERPRISE LIMITED (FORMERLY KNOWN AS PIRAMAL HEALTHCARE LIMITED. 41 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 /01 /2020 SD/- (MAHAVIR SINGH) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 15/ 01//2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//