Appeal Details
Counselvise Citation
[2019] 115 COUNSELVISE.COM (IT) 2909 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 6 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
04-03-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
Not Allotted
Assessment Year
2013-2014
Appeal Filed On
16-08-2016
Judgement Text
ITA NO.: 2114 AND 2294/AHD/16 ASSESSMENT YEAR: 2013-14 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM: JUSTICE P P BHATT, PRESIDENT AND PRAMOD KUM AR VICE PRESIDENT] ITA NO.: 2114/AHD/16 ASSESSMENT YEAR: 2013-14 LINCON PHARMACEUTICALS LIMITED .....APP ELLANT LINCON HOUSE, SCIENCE CITY ROAD, SOLA, AHMEDABAD 380 060 [PAN: AAACL2711N] VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(2), AHMEDABAD ..........RESPONDENT ITA NO.: 2294/AHD/16 ASSESSMENT YEAR: 2013-14 DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(2), AHMEDABAD .....APPELLAN T VS. LINCON PHARMACEUTICALS LIMITED .......... RESPONDENT LINCON HOUSE, SCIENCE CITY ROAD, SOLA, AHMEDABAD 380 060 [PAN: AAACL2711N] APPEARANCES BY TUSHAR HEMANI, FOR THE ASSESSEE LALIT P JAIN FOR THE REVENUE DATE OF CONCLUDING THE HEARING : DECEMBER 6, 2018 DATE OF PRONOUNCEMENT : MARCH 4, 2019 O R D E R PER PRAMOD KUMAR, VP: 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORD ER DATED 25 TH FEBRUARY 2016 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTIO N 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2010-11. 2. IN THE APPEAL FILED BY THE ASSESSEE, GRIEVANCE R AISED IS AS FOLLOWS: ITA NO.: 2114 AND 2294/AHD/16 ASSESSMENT YEAR: 2013-14 PAGE 2 OF 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, IT IS MOST RESPECTFULLY SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED BY CONF IRMING THE DISALLOWANCE OF THE CLAIM OF RS 19,62,000 UNDER SECTION 35(2AB) OF THE INCOME TAX ACT, 1961. 3. THE ASSESSEE HAS ALSO RAISED TWO ADDITIONAL GROU NDS, AND SOUGHT OUR LEAVE TO PURSUE THE SAME. HAVING PERUSED THE PETITION SEEKING ADMIS SION OF ADDITIONAL GROUNDS OF APPEAL, AND HAVING HEARD THE PARTIES THEREON, WE ARE INCLINED T O ADMIT THESE GROUNDS OF APPEALS AND DEAL WITH THE SAME ON THE MERITS. ONE OF THESE ADDITIONA L GROUNDS OF APPEAL, I.E. GROUND NO. 2, IS LINKED WITH THE ABOVE GROUND OF APPEAL, AND MUST BE TAKEN UP ALONG WITH THE SAME. THIS ADDITIONAL GROUND OF APPEAL IS AS FOLLOWS: ALTERNATIVELY AND WITHOUT PREJUDICE TO THE CLAIM OF DEDUCTION UNDER SECTION 35(2AB) OF THE ACT, THE REVENUE EXPENSES FORMING PA RT OF SUCH CLAIM MAY BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT , AND DEPRECIATION UNDER SECTION 32 OF THE ACT MAY BE ALLOWED ON THE CAPITAL EXPENDITURE FORMING PART OF SUCH CLAIM. 4. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE A SSESSEE BEFORE US IS ENGAGED IN THE BUSINESS OF MANUFACTURING DRUGS AND PHARMACEUTICALS . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 35(2AB) AMOUNTING TO RS 3,88,55,801 ON RESE ARCH AND DEVELOPMENT. AS HE PROBED THE MATTER FURTHER, HE DISCOVERED THAT OUT OF TOTAL REVENUE EXPENDITURE OF RS 263.99 LAKHS, DSIR (DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEA RCH, GOVERNMENT OF INDIA) HAD CERTIFIED ELIGIBILITY OF DEDUCTION FOR RS 251.73 LAKHS. THE B ALANCE AMOUNT OF RS 12.26 LAKHS WAS DECLINED FOR CERTIFICATION BY DSIR. SIMILARLY, AS R EGARDS CAPITAL EXPENDITURE OF RS 120.22 LAKHS CLAIMED FOR 200% DEDUCTION, DSIR CERTIFIED EL IGIBILITY OF ONLY RS 117.20 LAKHS AND CAPITAL EXPENDITURE OF RS 4.34 LAKHS FOR 100% DEDUC TION, DSIR DID NOT CERTIFY ELIGIBILITY OF ANY AMOUNT AT ALL. ON THE BASIS OF THIS DSIR CERTIF ICATIONS, THE AMOUNTS OF RS 12.26 LAKHS, RS 3.02 LAKHS AND RS 4.34 LAKHS WERE NOT ALLOWED AS DE DUCTION FOR RESEARCH AND DEVELOPMENT EXPENDITURE UNDER SECTION 35(2AB). A DISALLOWANCE O F RS 19.62 LAKHS WAS ACCORDINGLY MADE BY THE ASSESSING OFFICER. AGGRIEVED, ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISF IED AND IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 6. WHEN THIS ISSUE CAME UP FOR HEARING BEFORE US, W ITHOUT PREJUDICE TO LEARNED COUNSELS ARGUMENTS ON MERITS OF ORIGINAL CLAIM, IT WAS SUBMI TTED THAT THE EXPENSES BEING IN BONAFIDE FURTHERANCE OF ITS LEGITIMATE BUSINESS INTERESTS IS NOT IN DOUBT, AND, THEREFORE, THE ASSESSING OFFICER SHOULD AT BEST RESTRICT THE DISALLOWANCE TO CAPITAL EXPENDITURE BUT ALLOW DEPRECIATION THEREON NEVERTHELESS. IT WAS ALSO SUBMITTED THAT SO FAR AS REVENUE EXPENDITURE IS CONCERNED, THE ASSESSING OFFICER SHOULD CONSIDER ITS DEDUCTIBI LITY UNDER SECTION 37(1). LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT HE HAS N OT OBJECTION TO THE CLAIM OF THE ASSESSEE BEING RE-EXAMINED IN THIS LIGHT BUT PRAYED THAT THE MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION SO THAT TH E MATTER MAY BE PROPERLY EXAMINED. LEARNED COUNSEL FOR THE ASSESSEE DOES NOT OPPOSE TH IS SUBMISSION. IN THE LIGHT OF THESE DISCUSSIONS, AND BEARING IN MIND ENTIRETY OF THE CA SE, WE DEEM IT FIT AND PROPER TO REMIT THE ITA NO.: 2114 AND 2294/AHD/16 ASSESSMENT YEAR: 2013-14 PAGE 3 OF 4 MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRE SH ADJUDICATION IN ACCORDANCE WITH THE LAW, BY WAY OF A SPEAKING ORDER, IN THE LIGHT OF THE ABO VE OBSERVATIONS AND AFTER GIVING YET ANOTHER OPPORTUNITY OF HEARING TO THE ASSESSEE. ORDERED, AC CORDINGLY. 7. THE ONLY OTHER ISSUE IN THIS APPEAL, I.E. FIRST ADDITIONAL GROUND OF APPEAL BY THE ASSESSEE, IS AS FOLLOWS: THE LEARNED CIT(A) HAS ERRED, BOTH IN LAW AND ON FA CTS, IN PARTLY CONFIRMING THE DISALLOWANCE OF THE SALES PROMOTION EXPENSES TO THE TUNE OF RS 10,57,363 BEING 12.5% OF TOTAL SALES PROMOTION EXPENSES OF RS 84,58 ,904. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ENTIRE DISALLOWANCE OUGH T TO HAVE BEEN DELETED. 8. IN A CONNECTED GRIEVANCE RAISED IN THE A PPEAL FILED BY THE ASSESSING OFFICER, WHICH WE MUST TAKE UP ALONGWITH THE ABOVE GROUND OF APPEAL, GRIEVANCE RAISED IS AS FOLLOWS: THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE OF MADE UNDER SECTION 37(1) OF THE ACT TO RS 10,57, 363 AS AGAINST RS 85,58,904, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL ON RECORD. 9. THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS , AS PUT BY THE ASSESSING OFFICER HIMSELF IN THE ASSESSMENT ORDER, THE ASSESSEE HAS SHOWN RS 84 ,58,904 AS GIFT ITEMS TO CHEMISTS, RETAILERS AND RETAILERS. AS THE ASSESSING OFFICER HIMSELF PUTS IT, THE ASSESSEE WAS ASKED, VIDE ORDER SHEET ENTRY DATED 27.01.2016, TO SUBMIT THE N AMES, ADDRESSES AND DETAILS OF THE GIFT ITEMS TO CHEMISTS, STOCKISTS AND RETAILERS AS CLAIM ED BY THE ASSESSEE AND THE VARIOUS SCHEMES UNDER WHICH THE SAME HAVE BEEN GIVEN AND THE DESCRI PTION OF GIFTS THAT HAVE BEEN GIVEN. IT WAS NOTED THAT SOME OF THESE GIFTS WERE THINGS LIKE GOLD RINGS AND GOLD CHAINS AND THAT DESPITE SEVERAL OPPORTUNITIES, THE ASSESSEE HAS NO T SUBMITTED COMPLETE NAMES AND ADDRESSES OF VARIOUS STOCKISTS, RETAILERS AND CHEMISTS TO WHO M THE GIFTS HAVE BEEN GIVEN DURING THE YEAR. THE ASSESSING OFFICER THUS PROCEEDED ON THE PRESUMPTION THAT THESE GIFTS WERE ACTUALLY GIVEN TO THE DOCTORS AND WERE INADMISSIBLE AS DEDUC TION UNDER SECTION 37(1) BEING IN VIOLATION OF THE MEDICAL COUNCIL OF INDIA GUIDELINE S. THE DISALLOWANCE OF RS 84,58,904 WAS ACCORDINGLY MADE. IN APPEAL, LEARNED CIT(A) NOTED T HAT COMPLETE DETAILS OF RECIPIENTS WERE PLACED ON RECORD BY THE ASSESSEE, NO WERE DISCREPAN CIES FOUND THEREIN AND THE DISALLOWANCE WAS MADE ON THE BASIS OF A PRESUMPTION RATHER THAN FACTUAL FINDING. ON A RATHER CONTRADICTORY NOTE, HOWEVER, HE ALSO OBSERVED THAT FOR WANT OF V ERIFICATION DUE TO IMPROPER MAINTENANCE OF ACCOUNTS IN SUPPLY OF GIFT ARTICLES, IT WOULD BE FA IR AND REASONABLE TO CONFIRM THE DISALLOWANCE @ 12.5% OF THE PURCHASE AND THE SAME IS CONFIRMED, WHICH COMES TO RS 10,57,363. NONE OF THE PARTIES IS SATISFIED. WHILE ASSESSING OFFICER I S AGGRIEVED OF THE DISALLOWANCE BEING RESTRICTED TO RS 10,57,363, THE ASSESSEE IS AGGRIEV ED OF THE DISALLOWANCE OF RS 10,57,363. BOTH THE PARTIES ARE IN APPEAL BEFORE US. 10. HAVING HEARD THE RIVAL CONTENTIONS AND HA VING PERUSED THE MATERIAL ON RECORD, WE ARE UNABLE TO FIND ANY JUSTIFICATION, SAVE AND EXCEPT F OR THE SUSPICION THAT THESE GIFTS MAY HAVE FOUND THEIR WAY TO THE DOCTORS, FOR THE IMPUGNED DI SALLOWANCE. THE SCHEME UNDER WHICH THE GIFTS WERE GIVEN WERE PLACED ON RECORD EVEN BEFORE THE ASSESSING OFFICER AND NO DEFECTS WERE POINTED OUT THEREIN. WE HAVE ALSO NOTED THAT COMPLE TE DETAILS OF THE RECIPIENTS WERE ON RECORD BEFORE THE CIT(A) AND NO PERVERSITY IS EVEN ALLEGED IN THESE FACTUAL FINDINGS OF THE CIT(A). ITA NO.: 2114 AND 2294/AHD/16 ASSESSMENT YEAR: 2013-14 PAGE 4 OF 4 IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VI EW THAT THE DISALLOWANCE OF RS 64,58,904 OUGHT TO HAVE BEEN DELETED IN ENTIRETY. WE, THEREFO RE, REJECT THE GRIEVANCE OF THE ASSESSING OFFICER AND ACCEPT THAT OF THE ASSESSEE. THE DISALL OWANCE STANDS DELETED IN ENTIRETY AND THE ASSESSEE WILL GET FURTHER RELIEF, BY WAY OF DEDUCTI ON OF RS 10,57,363, ACCORDINGLY. 11. IN THE RESULT, THE APPEAL OF THE ASSES SEE IS PARTLY ALLOWED, AS ABOVE, AND THE APPEAL OF THE ASSESSING OFFICER IS DISMISSED. PRONOUNCED IN T HE OPEN COURT TODAY ON THE 4 TH DAY OF MARCH, 2019 SD/- SD/- JUSTICE P P BHATT PRAMOD KUMAR (PRESIDENT) (VI CE PRESIDENT) AHMEDABAD, DATED THE TH DAY OF MARCH, 2019 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD
Mehul