M/s Theon Pharmaceuticals Ltd., Chandigarh V. ACIT, C-5(1), Chandigarh

ITA 230/CHANDI/2019

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8584 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 06-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G S PHANI KISHORE
• Keywords: Gift; Depreciation; Business expenditure

Judgement Text

, , ' IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B, CHANDIGARH . . , , BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI SANJ AY GARG, JUDICIAL MEMBER ./ ITA NOS. 230 & 231/CHD/2019 ! / ASSESSMENT YEARS : 2014-15 & 2015-16 M/S THEON PHARMACEUTICALS LIMITED, C/O S. KUMAR GUPTA & ASSOCIATES, SCO 35FF, SECTOR 26, MADHYA MARG, CHANDIGARH VS. '# THE ACIT, CIRCLE 5 (1), CHANDIGARH $ % ./ PAN NO: AACCT2692J $&/ APPELLANT ()$& / RESPONDENT *+ , - / ASSESSEE BY : SH. ASHOK GOYAL, CA , - / REVENUE BY : SH. G.S. PHANI KISHORE, CIT DR . / , +0% / DATE OF HEARING : 26.03.2019 12! , +0% / DATE OF PRONOUNCEMENT : 08.04.2019 / ORDER PER SANJAY GARG, JUDICIAL MEMBER : THE PRESENT APPEALS HAVE BEEN PREFERRED BY THE ASSE SSEE AGAINST THE SEPARATE ORDERS DATED 31.01.2019 OF THE COMMISSIONE R OF INCOME TAX (APPEALS)-2, CHANDIGARH [HEREINAFTER REFERRED TO A S CIT(A)]. 2. SINCE COMMON GROUNDS / ISSUES ARE INVOLVED IN BO TH THE APPEALS OF THE ASSESSEE RELATING TO DIFFERENT ASSESSMENT YEARS , THEY WERE HEARD TOGETHER AND ARE BEING DECIDED BY THIS COMMON ORDER . FIRST, WE SHALL DEAL WITH ITA NO. 230/CHD/2019 RELATING TO ASSESSMENT YEAR 2014-15. ITA NOS.230 & 231--C-19- M/S THEON PHARMACEUTICALS LTD, PANCHKULA 2 3. AT THE OUTSET, THE LD. COUNSEL HAS SUBMITTED THA T THOUGH SIX GROUNDS HAVE BEEN RAISED IN THESE APPEAL, OUT OF WHICH, GR OUND NOS. 1 & 6 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY SPECIFIC A DJUDICATION. HENCE, THESE GROUNDS ARE DISMISSED. 4. IT HAS BEEN SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE INVOLVED IN GROUND NOS. 2 TO 4 OF THE APPEAL IS AS TO WHETHER THE ASSESSEE IS ENTITLED TO DEDUCTION AT THE RATE OF 10 0% OF THE ELIGIBLE PROFITS U/S 80IC OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') FOR ANOTHER FIVE YEARS IN THE CASE OF SUBSTANTIAL EXPANSION OF UNIT . IN OTHER WORDS, WHETHER THE YEAR IN WHICH THE SUBSTANTIAL EXPANSION IS CARR IED OUT IS TO BE TAKEN AS INITIAL ASSESSMENT YEAR FOR THE PURPOSE OF GRANT OF DEDUCTION U/S 80IC OF THE ACT. HE HAS FURTHER SUBMITTED THAT THE ISSUE R AISED IN THIS APPEAL HAS BEEN EARLIER ADJUDICATED BY THE HON'BLE H.P. HIGH C OURT IN THE CASE OF M/S STOVEKRAFT INDIA VS. CIT ITA NO. 20 OF 2015 DATED 28.11.2017, WHEREIN, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. HO WEVER, THE DEPARTMENT ON THE ISSUE OF SUBSTANTIAL EXPANSION WENT IN APPEA L BEFORE THE HON'BLE SUPREME COURT AND THE HON'BLE SUPREME COURT DECIDED THE ISSUE IN FAVOUR OF THE REVENUE BY THE DECISION DATED 20.8.2018 IN T HE GROUP OF CASES WITH THE LEAD CASE TITLED AS CIT VS. M/S CLASSIC BINDIN G INDUSTRIES, IN CIVIL APPEAL NO(S) 7208 OF 2018 DATED 20.08.2018. 5. THE LD. DR HAS FURTHER FAIRLY ADMITTED THAT THE ORDER OF THE HON'BLE SUPREME COURT IN M/S CLASSIC BINDING INDUSTRIES (SU PRA) HAS BEEN RECALLED IN A REVIEW PETITION FILED BY THE PETITIONERS AND P ROPOSITION OF LAW LAID DOWN BY THE HON'BLE H.P. HIGH COURT IN THE CASE OF M/S STOVEKRAFT INDIA VS. CIT ITA NO. 20 OF 2017 DATED 28.11.2017 HAS BE EN REAFFIRMED ITA NOS.230 & 231--C-19- M/S THEON PHARMACEUTICALS LTD, PANCHKULA 3 RECENTLY BY THE HON'BLE SUPREME COURT IN THE GROUP OF CASES WITH THE LEAD CASE IN PR. CIT VS. M/S AARHAM SOFTRONICS IN ITA NO. 1784 OF 2019 VIDE ORDER DATED 20.02.2019. 6. WE HAVE GONE THROUGH THE ORDER OF THE HON'BLE AP EX COURT IN THE CASE OF 'PR.CIT, SHIMLA VS. M/S AARHAM SOFTRONICS (SUPRA) AND FIND THAT THE HON'BLE APEX COURT DEALT WITH THE ENTIRE SCHEME OF THE ACT RELATING TO THE RELEVANT SECTION I.E. SECTION 80IC OF THE ACT, AND ARRIVED AT THE CONCLUSION THAT THE DEFINITION OF THE INITIAL ASSES SMENT YEAR CONTAINED IN CLAUSE (V) OF SUB-SECTION (8) OF SECTION 80IC OF TH E ACT CAN LEAD TO A SITUATION WHERE THERE CAN BE MORE THAN ONE INITIAL ASSESSMENT YEAR WITHIN THE SAID PERIOD OF TEN YEARS. THE RELEVANT FINDING OF THE HON'BLE APEX COURT AT PARA 19 OF ITS ORDER IS AS UNDER:- 19. HAVING EXAMINED THE SCHEME IN THE AFORESAID MA NNER, WE ARRIVE AT THE CONCLUSION THAT THE DEFINITION OF INITIAL ASSE SSMENT YEAR CONTAINED IN CLAUSE (V) OF SUB-SECTION (8) OF SECTION 80-IC CAN LEAD TO A SITUATION WHERE THERE CAN BE MORE THAN ONE INITIAL ASSESSMENT YEAR WITHIN THE SAID PERIOD OF 10 YEARS. AS PER SUB-SECTION (6), CAP IS ON THE 10 ASSESSMENT YEARS. IT IS NOT ON QUANTUM. WE HAVE ALSO TO KEEP I N MIND THE PURPOSE FOR WHICH SECTION 80-IC WAS ENACTED. THE PURPOSE WAS TO ESTABLISH THE BUSINESS OF THE NATURE SPECIFIED IN THE SAID PROVIS ION IN THE SPECIFIED STATES. THIS PROVISION WAS, THUS, AIMED AT ENCOURAG ING THE UNDERTAKINGS OR ENTERPRISES TO ESTABLISH AND SET UP SUCH UNITS I N THE AFORESAID STATES TO MAKE THEM INDUSTRIALLY ADVANCED STATES AS WELL. UND OUBTEDLY, THESE ARE DIFFICULT STATES AS MOST OF THESE STATES FALL IN HI LLY AREAS. THEREFORE, COST OF PRODUCTION AND TRANSPORTATION MAY ALSO GO UP. 20. WHEN WE KEEP IN MIND THESE OBJECTIVES FOR WHICH SECTION 80-IC WAS ENACTED, AN IRRESISTIBLE CONCLUSION WOULD BE TO GRA NT 100% DEDUCTION OF THE PROFITS AND GAINS EVEN FROM THE YEAR WHEN THERE IS SUBSTANTIAL EXPANSION IN THE EXISTING UNIT. AFTER ALL, THIS SUBSTANTIAL E XPANSION INVOLVES GREAT DEAL OF INVESTMENT WHICH HAS TO BE, AT LEAST 50% IN THE PLANT AND MACHINERY, OF THE BOOK VALUE THEREOF BEFORE TAKING DEPRECIATION I N ANY YEAR. WITH AN EXPANSION OF SUCH A NATURE NOT ONLY THERE WOULD BE INCREASE IN PRODUCTION BUT GENERATION OF MORE EMPLOYMENT AS WELL, WHICH WO ULD BENEFIT THE LOCAL POPULACE. IT IS FOR THIS REASON, CARRYING OUT SUBST ANTIAL EXPANSION BY ITSELF IS TREATED AS INITIAL ASSESSMENT YEAR. IT WOULD M EAN THAT EVEN WHEN AN OLD UNIT COMPLETES SUBSTANTIAL EXPANSION, SUCH A UN IT ALSO BECOMES ENTITLED TO AVAIL THE BENEFIT OF SECTION 80-IC. IF THAT IS THE PURPOSE OF THE ITA NOS.230 & 231--C-19- M/S THEON PHARMACEUTICALS LTD, PANCHKULA 4 LEGISLATURE, WE SEE NO REASON AS TO WHY 100% DEDUCT ION OF THE PROFITS AND GAINS BE NOT ALLOWED TO EVEN THOSE UNITS WHO HAD AV AILED THIS DEDUCTION ON SETTING UP OF A NEW UNIT AND HAVE NOW INVESTED HUGE AMOUNT WITH SUBSTANTIAL EXPANSION OF THOSE UNITS. 7. THE HON'BLE APEX COURT THEREAFTER CONCLUDED THAT A NEWLY SET UP UNDERTAKING OR ENTERPRISE IN THE STATE OF HIMACHAL PRADESH WOULD BE ENTITLED TO DEDUCTION @ 100% OF THE ACT ITS PROFITS FOR THE FIRST FIVE YEARS AND EVEN THEREAFTER IN THE CASE OF SUBSTANTIA L EXPANSION IS CARRIED OUT BY IT, WITH THE PREVIOUS YEAR IN WHICH SUBSTANT IAL EXPANSION IS UNDERTAKEN BECOMING THE INITIAL ASSESSMENT YEAR. TH AT IN ANY CASE THE PERIOD OF DEDUCTION U/S 80IC OF THE ACT WOULD NOT E XCEED 10 YEARS. THE CONCLUSION OF THE HON'BLE APEX COURT AT PARA 24 OF ITS ORDER IS AS UNDER: 24. THE AFORESAID DISCUSSION LEADS US TO THE FOLLO WING CONCLUSIONS: (A) JUDGMENT DATED 20TH AUGUST, 2018 IN CLASSIC BINDINGINDUSTRIES CASE OMITTED TO TAKE NOTE OF THE DEFINITION INITIA L ASSESSMENT YEAR CONTAINED IN SECTION 80-IC ITSELF AND INSTEAD BASED ITS CONCLUSION ON THE DEFINITION CONTAINED IN SECTION 80-IB, WHICH DOES N OT APPLY IN THESE CASES. THE DEFINITIONS OF INITIAL ASSESSMENT YEAR IN THE TWO SECTIONS, VIZ. SECTIONS 80-IB AND 80-IC ARE MATERIALLY DIFFERENT. THE DEFINITION OF INITIAL ASSESSMENT YEAR UNDER SECTION 80-IC HAS MADE ALL T HE DIFFERENCE. THEREFORE, WE ARE OF THE OPINION THAT THE AFORESAID JUDGMENT DOES NOT LAY DOWN THE CORRECT LAW. (B) AN UNDERTAKING OR AN ENTERPRISE WHICH HAD SET U P A NEW UNIT BETWEEN 7TH JANUARY, 2003 AND 1ST APRIL, 2012 IN STATE OF HIMACHALPRADESH OF THE NATURE MENTIONED IN CLAUSE (II) OF SUB-SECTION (2) OF SECTION 80-IC, WOULD BE ENTITLED TO DEDUCTION AT THE RATE OF 100% OF THE PR OFITS AND GAINS FOR FIVE ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSES SMENT YEAR. FOR THE NEXT FIVE YEARS, THE ADMISSIBLE DEDUCTION WOULD BE 25% (OR 30% WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS. (C) HOWEVER, IN CASE SUBSTANTIAL EXPANSION IS CARRI ED OUT AS DEFINED IN CLAUSE (IX) OF SUB-SECTION (8) OF SECTION 80-IC BY SUCH AN UNDERTAKING OR ENTERPRISE, WITHIN THE AFORESAID PERIOD OF 10 YEARS , THE SAID PREVIOUS YEAR IN WHICH THE SUBSTANTIAL EXPANSION IS UNDERTAKEN WO ULD BECOME INITIAL ASSESSMENT YEAR, AND FROM THAT ASSESSMENT YEAR THE ASSESSEE SHALL BEEN ENTITLED TO 100% DEDUCTIONS OF THE PROFITS AND GAIN S. (D) SUCH DEDUCTION, HOWEVER, WOULD BE FOR A TOTAL P ERIOD OF 10 YEARS, AS PROVIDED IN SUB-SECTION (6). FOR EXAMPLE, IF THE EX PANSION IS CARRIED OUT IMMEDIATELY, ON THE COMPLETION OF FIRST FIVE YEARS, THE ASSESSEE WOULD BE ITA NOS.230 & 231--C-19- M/S THEON PHARMACEUTICALS LTD, PANCHKULA 5 ENTITLED TO 100% DEDUCTION AGAIN FOR THE NEXT FIVEY EARS. ON THE OTHER HAND, IF SUBSTANTIAL EXPANSION IS UNDERTAKEN, SAY, IN 8TH YEAR BY AN ASSESSEE SUCH AN ASSESSEE WOULD BE ENTITLED TO 100% DEDUCTIO N FOR THE FIRST FIVE YEARS, DEDUCTION @ 25% OF THE PROFITS AND GAINS FOR THE NEXT TWO YEARS AND @ 100% AGAIN FROM 8 TH YEAR AS THIS YEAR BECOMES INITIAL ASSESSMENT YEAR ONCE AGAIN HOWEVER, THIS 100% DEDUCTION WOULD BE FO R REMAINING THREE YEARS, I.E., 8TH, 9TH AND 10TH ASSESSMENT YEARS. 25. IN VIEW OF THE AFORESAID, WE AFFIRM THE JUDGMEN T OF THE HIGH COURT ON THIS ISSUE AND DISMISS ALL THESE APPEALS OF THE REVENUE. LIKEWISE, APPEALS FILED BY THE ASSESSEES ARE HEREBY ALLOWED. 8. IN VIEW OF THE ABOVE, IT IS NOW SETTLED LAW THA T EVEN A NEW UNDERTAKING, WHICH HAS CLAIMED DEDUCTION OF ITS ELI GIBLE PROFITS @ 100% THEREOF FOR THE FIRST FIVE YEARS, IS ENTITLED TO CL AIM DEDUCTION @ 100% OF ITS PROFITS THEREAFTER ON ACCOUNT OF SUBSTANTIAL EX PANSION UNDERTAKEN BY IT. 9. SINCE IN THE PRESENT CASE THE FACT THAT THE ASSE SSEE HAD UNDERTAKEN SUBSTANTIAL EXPANSION IS NOT DISPUTED, THE ASSESSEE , WE HOLD, IS ENTITLED TO CLAIM DEDUCTION @ 100% OF ITS ELIGIBLE PROFITS E VEN IF IT HAS ALREADY CLAIMED DEDUCTION OF ITS PROFITS AT THE SAID RATE F OR FIVE YEARS, IN VIEW OF THE LAW LAID DOWN BY THE APEX COURT IN THIS REGARD IN ITS DECISION IN THE CASE OF M/S AARHAM SOFTRONICS(SUPRA). AS A RESUL T, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND GROUND NOS. 2 TO 4 ARE HEREBY ALLOWED. 10. GROUND NO.5 RAISED BY THE ASSESSEE READS AS UNDER:- 5. THAT THE WORTHY CIT(A) ERRED IN UPHOLDING 50% DISALLOWANCE OF EXPENSES IN THE NATURE OF BUSINESS PROMOTION AMOUNTING TO 10,00,000/- WHICH WERE IN THE NATURE OF REVENUE AND LEGITIMATE BUSINESS EXPENSES. ITA NOS.230 & 231--C-19- M/S THEON PHARMACEUTICALS LTD, PANCHKULA 6 11. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED EXPENDITURE TO THE TUNE OF 20 LACS ON ACCOUNT OF PURCHASE OF GOLD TROPHY AND OTHER GOLD ITEMS. ON BEING ASKED TO EXPL AIN, THE ASSESSEE SUBMITTED THAT THE AFORESAID EXPENDITURE WAS INCURR ED FOR GIFT ITEMS TO CERTAIN CUSTOMERS, ASSOCIATES AND OTHER PARTIES FOR THE PURPOSE OF PROCUREMENT AND ENHANCEMENT OF BUSINESS. THAT THIS TYPE OF EXPENDITURE ON GIFTS WERE COMMON AND CUSTOMARY IN THE REALMS OF BUSINESS WORLD. HOWEVER, NO DETAIL OF PERSONS / PARTIES TO WHOM THE SAID GIFTS GIVEN, WAS FURNISHED. THE ASSESSING OFFICER, THEREFORE, DISALL OWED AFORESAID EXPENDITURE OF 20 LACS INCURRED ON GIFTS ETC. 12. IN THE FIRST APPEAL, IT WAS SUBMITTED BEFORE TH E CIT(A) THAT THE DETAILS OF CUSTOMERS / ASSOCIATES TO WHOM THE GIFTS WERE GIVEN WERE NOT DISCLOSED ON ACCOUNT OF CONFIDENTIALITY POLICY OF T HE COMPANY WHICH WAS NECESSARY FOR THE BUSINESS ACTIVITY OF THE ASSESSEE . THAT IT DID NOT, IN ANY WAY, GIVE RISE TO CONCLUSION THAT THE SAID EXPENDIT URE WAS NOT INCURRED FOR BUSINESS ACTIVITY. THE LD. CIT(A) CONSIDERING T HE ABOVE SUBMISSIONS RULED THAT THOUGH THERE WAS SOME FORCE IN THE ARGUM ENTS OF THE ASSESSEE, HOWEVER, UNDER THE CIRCUMSTANCES PERSONAL ELEMENT I .E. EXPENDITURE WHICH IS NOT RELATED TO BUSINESS ACTIVITY FOR GIVIN G SUCH GIFTS WAS NOT RULED OUT. TAKING BOTH THE FACTS, THE CIT(A) RESTR ICTED THE DISALLOWANCE TO 50% OF THE SAID EXPENDITURE CLAIMED ON THIS ISS UE. THE ASSESSEE, THEREFORE, HAS COME IN APPEAL BEFORE US AGITATING T HE AFORESAID CONFIRMATION OF 50% OF DISALLOWANCE OF THE EXPENDIT URE CLAIMED. ITA NOS.230 & 231--C-19- M/S THEON PHARMACEUTICALS LTD, PANCHKULA 7 13. ADMITTEDLY, NO DETAIL OF CUSTOMERS / PARTIES / ASSOCIATES HAVE BEEN GIVEN BY THE ASSESSEE TO WHOM THE ALLEGED GOLD GIFT S WERE MADE. UNDER THE CIRCUMSTANCES, IN OUR VIEW, THE LD. CIT(A) TAKI NG BOTH THE FACTORS TOGETHER DISALLOWED 50% OF THE EXPENDITURE CLAIMED. WE DO NOT FIND ANY REASON TO INTERFERE IN THE AFORESAID ORDER OF THE C IT(A). EVEN OTHERWISE, SINCE WE HAVE ALREADY ALLOWED THE C LAIM OF THE ASSESSEE @100% OF DEDUCTION UNDER THE PROVISIONS O F SECTION 80IC OF THE ACT, THEREFORE, ANY DISALLOWANCE OF EXPENDITURE WILL GO ON TO INCREASE THE INCOME OF THE ASSESSEE, WHICH OTHERWIS E IS EXEMPT U/S 80IC OF THE ACT. HENCE, THE DISALLOWANCE IF ANY, CONFIRM ED BY THE CIT(A) IS TAX NEUTRAL. IN VIEW OF THE FINDINGS GIVEN ABOVE, GROUND NO.5 OF THE APPEAL IS DISMISSED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 231/CHD/2019 14. SINCE THE GROUNDS RAISED AS WELL AS FACT S AND ISSUES INVOLVED IN BOTH THE ASSESSMENT YEARS ARE IDENTICAL, HENCE, OU R FINDINGS ARRIVED AT WILL APPLY MUTATIS-MUTANDIS TO THIS ASSESSMENT YEAR ALSO. AS SUCH, GROUND NOS. 1 & 6, WHICH ARE GENERAL IN NATURE AND DO NOT REQUIRE SPECIFIC ADJUDICATION, STANDS DISMISSED, WHEREAS, G ROUND NOS. 2 TO 4 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. FURTHER, IN VIE W OF OUR FINDINGS GIVEN ABOVE, GROUND NO. 5 OF THIS APPEAL, WHICH IS IDENTI CAL TO GROUND NO.5 OF THE APPEAL FOR ASSESSMENT YEAR 2014-15, STANDS DISM ISSED. ITA NOS.230 & 231--C-19- M/S THEON PHARMACEUTICALS LTD, PANCHKULA 8 IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.04.2019 SD/- SD/- ( . . / N.K. SAINI) ( ! ' / SANJAY GARG) #$% / VICE PRESIDENT & ' / JUDICIAL MEMBER DATED : 08.04.2019 .. 3 , (+45 65!+ / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. ()$& / THE RESPONDENT 3. . 7+ / CIT 4. . 7+ ( )/ THE CIT(A) 5. 58 (+9 , 0 9 , :;<= / DR, ITAT, CHANDIGARH 6. < >/ / GUARD FILE 3 . / BY ORDER, ? / ASSISTANT REGISTRAR