M/s. Apex Laboratories P. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2487/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7532 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 08-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 26-08-2016
• Court: TRIBUNAL
• Department Lawyers: SIVA SRINIVAS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Gift; Business income; Earning of tax free income; Proportionate interest; Question of law; Competent authority; Revenue expenditure; Capital expenditure
• Section: 14A; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU R.L REDDY, JUDICIAL MEMBER ./ ITA NO.:2487/MDS/2016 / ASSESSMENT YEAR : 2011-12 M /S. APEX LABORATORIES P LTD., 76, C.P. RAMASWAMY ROAD, ALWARPET, CHENNAI 600 018 PAN: AAACA5174G V. THE ASST. COMMISSIONER OF INCOME TAX, LTU(APPEALS)-II CHENNAI 600101. ( /APPELLANT) ( /RESPONDENT) & ./ ITA NO.:2524/MDS/2016 / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT-2 CHENNAI 600101. V. M/S. APEX LABORATORIES P LTD., 76, C.P. RAMASWAMY ROAD, ALWARPET, CHENNAI 600 018 PAN: AAACA5174G ( /APPELLANT) ( /RESPONDENT) /ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE /REVENUE BY : SHRI SIVA SRINIVAS, JCIT, D.R /DATE OF HEARING : 08.02.2017 /DATE OF PRONOUNCEMENT : 15.03.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER : 2 I.T.A. NO. 2487 & 2524/MDS/2016 THESE CROSS APPEALS ARE AGAINST THE ORDER OF THE LD . CIT(A)-17, CHENNAI DATED 30.03.2016 PASSED U/S.143(3) OF THE A CT FOR ASSESSMENT YEAR 2011-12. FIRST, LET US TAKE UP ASSESSEE S APPEAL IN ITA N O.2487/MDS./2016 AS UNDER : 2. THE FIRST ISSUE IN ITS APPEAL IS WITH REGARD TO SUSTENANCE OF DISALLOWANCE OF SCIENTIFIC RESEARCH AND DEVELOPMENT EXPENSES OF ` 4,19,14,375/- AS NOT ELIGIBLE FOR WEIGHTED DEDUCTIO N U/S.35(2AB) OF THE ACT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A MANUFACTURER OF PHARMACEUTICALS FORMULATIONS AND THE ASSESSMENT FO R ASSESSMENT YEAR 2011-12 WAS COMPLETED U/S.143(3) OF THE ACT ON 14.0 3.2014. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE AO HAS CLAIMED WEIGHTED DEDUCTION U/S.35(2AB) OF THE ACT ON THE R& D EXPENDITURE INCURRED RUING THE ASSESSMENT YEAR UNDER CONSIDERAT ION. FOR THE PURPOSE OF ALLOWABILITY OF THE CLAIM, THE ASSESSE E WAS ASKED TO PRODUCE THE APPROVAL OF THE EXPENDITURE BY THE COM PETENT AUTHORITY AS PER THE PROVISIONS OF THE SECTION 35(2AB) OF THE ACT. THE ASSESSEE SUBMITTED FORM NO.3CL DATED 22.12.2011 ISSUED BY TH E COMPETENT AUTHORITY I.E. DEPARTMENT OF SCIENTIFIC AND INDUSTR IAL RESEARCH IN WHICH THE FOLLOWING R& D EXPENDITURE HAS BEEN APPROVED FO R ASSESSMENT YEAR 2011-12. 3 I.T.A. NO. 2487 & 2524/MDS/2016 SL NO. EXPENDITURE A.Y 2011-12 ( ` IN LAKHS) 1 LAND AND BUILDINGS NIL 2 CAPITAL EQUIPMENT 526.20 3 ELIGIBLE REVENUE EXPENSES (EXCLUDING ALDN AND BUILDING) NIL TOTAL R&D EXPENDITURE 526. 20 THE AO FOUND THAT THE ASSESSEE HAD CLAIMED EXCESS D EDUCTION OF ` 4,19,14,375/- AND THE AO HAD DISALLOWED THAT AMOUNT ON THE GROUND THAT FORM 3CL GIVEN BY THE AUTHORITY DID NOT HAVE T HE APPROVAL FOR THE REVENUE EXPENDITURE, THOUGH IT HAD APPROVAL FOR THE CAPITAL EXPENDITURE. BASED ON THE COMPUTATION STATEMENT FUR NISHED BY THE ASSESSEE AND FORM NO.3CL, THE AO DISALLOWED THE AM OUNT OF EXCESS CLAIM AS FOLLOWS:- SL. NO. EXPENDITURE CLAIMED ALLOWABLE DISALLOWED 1 CAPITAL EXPENDITURE 10,75,86,149 10,52,40,000 23 ,46,149 2 REVENUE EXPENDITURE 7,91,36,451 3,95,68,226 3,95 ,68,226 TOTAL R& D EXPENDITURE 18,67,22,600 14,48,08,226 4,19,14,375 AGAINST THIS, THE ASSESSEE CARRIED THE APPEAL BEFOR E THE LD.CIT(A). 3. ON APPEAL, THE LD.CIT(A) OBSERVED THAT AS PER T HE PROVISIONS OF THE SECTION 35(2AB), IN-HOUSE R&D IS PERMITTED AND THE AMOUNT SPENT OF IN-HOUSE R&D IS ALLOWABLE SUBJECT TO THE APPROVA L BY THE PRESCRIBED AUTHORITY. ACCORDING TO LD.CIT(A), IN ASSESSEES CA SE, OUT OF THE TOTAL R&D EXPENSES OF ` 9.33,61,300/- CLAIMED BY ASSESSEE DURING THE FINANCIAL YEAR 2010-11, THE COMPETENT AUTHORITY (DS IR) APPROVED ONLY 5,26,20,000/- AND HAS NOT APPROVED THE BALANCE OF ` 4,07,41,300/- (I.E. 4 I.T.A. NO. 2487 & 2524/MDS/2016 R&D CAPITAL EXPENSES OF 11,73,074/- AND R&D REVENUE EXPENSES OF 3,95,68,226/-) CLAIMED BY THE ASSESSEE. 3.1 THE ABOVE DEDUCTIONS OF R&D EXPENSES ARE SPECIALLY ALLOWED BENEFITS TO THE ASSESSEE AND ARE SUBJECT TO VARIOUS TERMS AN D CONDITIONS. THE ASSESSEES ARE REQUIRED TO OBTAIN THE APPROVAL OF TH E R&D EXPENSES EVERY YEAR FROM THE DSIR. THE DSIR EXAMINES THE EXPENSES AN D THE NATURE OF R&D AND APPROVES THE R&D EXPENSES FOR THE PURPOSES OF S EC.35(2AB) OF THE ACT. IN THE INSTANT CASE THE DSIR HAS CLEARLY APPROVED THE APPELLANTS CLAIM OF R&D EXPENSES TO THE EXTENT OF RS.14,48,08,226/- ONL Y. IN OTHER WORDS, THE BALANCE OF RS.4,19,14,375/-, WHICH WAS NOT APPROVED BY THE DSIR, IS TOTALLY OUTSIDE THE PURVIEW OF THE PROVISIONS OF SEC.35(2AB ) OF THE ACT, FOR THE PURPOSE OF WEIGHTED DEDUCTION. IF THE CLAIM OF THE A PPELLANT THAT EVEN IF THE CLAIM OF R&D EXPENSES ARE NOT APROVED BY THE DSIR IN THE CONCERNED YEAR, STILL THE WEIGHTED DEDUCTION U/S.35(2AB) OF THE ACT IS TO BE ALLOWED AS LONG AS THE R&D FACILITY IS APPROVED, IS TO BE ACCEPTED, IT WILL DEFEAT THE VERY PURPOSE OF THE ENACTMENT OF THE PROVISIONS OF SEC.35(2AB) A ND THE STIPULATIONS AND THE RESTRICTIONS IMPOSED THEREIN. THIS WILL ALSO RE NDER THE REQUIREMENT OF ASSESSEES SUBMITTING THE DETAILS EXPENSES IN R&D TO THE DSIR IN THE PRESCRIBED FORMAT AND OBTAINING THE NECESSARY APPRO VALS FOR THE SAME, TOTALLY IRRELEVANT. THIS IS NOT THE INTENTION OF THE LEGISL ATURE. THE REQUIREMENT OF ASSESSEE FURNISHING THE DETAILS OF EXPENSES OF R&D TO THE DSIR AND OBTAINING NECESSARY APPROVAL, ITSELF SHOWS THAT THE WEIGHTED DEDUCTION IS AVAILABLE ONLY ON FULFILLING THESE REQUIREMENTS. THEREFORE, IF THE CONDITIONS STIPULATED IN THE 5 I.T.A. NO. 2487 & 2524/MDS/2016 SAID STATUES ARE NOT FULFILLED, THE AMOUNTS WILL BE COME INELIGIBLE FOR THE WEIGHTED DEDUCTION, TO BE CLAIMED AGAINST THE BUSIN ESS INCOME OF THE YEAR. 3.2 THUS, IN VIEW OF THE ABOVE REASONS, THE WEIGHTED D EDUCTION OF 200% U/S.35(2AB) OF THE INCOME TAX ACT IS AVAILABLE ONLY ON APPROVAL BY THE DSIR AND THAT TOO ON THE R&D EXPENSES CERTIFIED IN THE FORM NO.3CL. ANY EXPENDITURE IS NOT ELIGIBLE FOR WEIGHTED DEDUCTION. HOWEVER, THE OTHER R&D EXPENDITURE (I.E. WHICH IS NOT APPROVED BY THE DSIR ), WHICH IS REVENUE IN NATURE, IS ALLOWABLE FOR NORMAL DEDUCTION @ 100K U /S.35(1) OF THE ACT. NO CAPITAL EXPENSES INCURRED FOR R&D IS ALLOWABLE U/S. 35 OF THE INCOME TAX ACT. 3.3 ACCORDING TO LD.CIT(A), THE TOTAL R&D EXPENDITURE E LIGIBLE FOR WEIGHTED DEDUCTION U/S.35(2AB) OF THE ACT IS ` 5,26,20,000/- AND THE WEIGHTED DEDUCTION AVAILABLE TO THE APPELLANT IS ` 10,52,40,000/-. THE BALANCE OF R&D EXPENDITURE OF ` 4,07,41,300/- (I.E. R&D CAPITAL EXPENDITURE OF ` 11,73,074 AND R&D REVENUE EXPENDITURE OF ` 3,95,68,226) WHICH WAS NOT APPROVED BY THE DSIR IS NOT_ELIGIBLE FOR WEIGHTE D DEDUCTION U/S.35(2AB) OF THE ACT. THE UNAPPROVED R&D CAPITAL EXPENDITURE OF ` 11,73,074/- IS NOT AN ALLOWABLE DEDUCTION UNDER ANY OF THE PROVISIONS OF THE ACT. HOWEVER, THE R&D REVENUE EXPENDITURE IS ELIGIBLE FOR NORMAL (100 %) DEDUCTION U/S.35(1) OF THE ACT. THEREFORE, THE ASSESSING OFFICERS DISALLO WANCE OF THE WEIGHTED DEDUCTION TO THE EXTENT OF ` 4,19,14,375/- IS CONFIRMED BY THE LD.CIT(A) . AGAINST THIS ASSESSEE IS IN APPEAL BEFORE US. 6 I.T.A. NO. 2487 & 2524/MDS/2016 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THERE IS NO DISPUTE THAT THE ASSESSEE INCURRED A SUM OF ` 4,19,14,375/- FOR THE PURPOSE OF R&D, WHICH IS CAP ITAL IN NATURE TO THE EXTENT OF LD.CIT(A) AGREED. HOWEVER, SINCE IT IS A CAPITAL EXPENDITURE, HE DISALLOWED THE SAME. IN OUR OPINION, A PART OF EXPE NDITURE INCURRED BY THE ASSESSEE TOWARDS UNAPPROVED R&D FACILITIES WAS NOT ENTITLED FOR DEDUCTION U/S.35(2B) OF THE ACT AND THAT ITSELF CANNOT BE A R EASON TO DISALLOW THE SAME U/S.35(1)(IV) OF THE ACT. 100% OF THE DEDUCTION ON THE CAPITAL EXPENDITURE INCURRED ON THE R&D ACTIVITY WAS TO BE ALLOWED. ONC E THE REVENUE AUTHORITIES ACCEPTED THAT THE EXPENDITURE WAS INCURRED TOWARDS R&D AND IT WAS DISALLOWED U/S.35(2AB) OF THE ACT ON THE REASON OF NON-APPROVAL BY THE DSIR, THEN IT SHOULD BE CONSIDERED U/S.35(1)(IV) OF THE A CT, BEING SO, IN OUR OPINION, THE LD.CIT(A) IS NOT JUSTIFIED IN DISALLOWING THE S AME. FOR THIS PURPOSE, WE PLACED RELIANCE IN THE JUDGEMENT OF CO-ORDINATE BE NCH OF HYDERABAD IN THE CASE OF DCIT VS. RELIANCE CELULOSE PRODUCTS LTD. IN (2013) 36 CCH (HYD. TRIB) WHEREIN HELD THAT MERELY BECAUSE PART OF THE EXPEND ITURE INCURRED BY THE APPROVED R&D FACILITIES IS NOT CONSIDERED FOR WEIGH TED DEDUCTION U/S.35(2AB) OF THE ACT WOULD NOT RENDER THAT EXPENDITURE IS NOT TOWARDS R&D OR NOT FOR THE PURPOSES OF THE BUSINESS. ALLOWABILITY OF SUCH EXPENDITURE U/S.35(1) OR UNDER OTHER APPROPRIATE PROVISIONS WILL HAVE TO BE CONSIDERED. 4.1 IN VIEW OF THE JUDGEMENTS, WE HOLD THAT UNAPPRO VED R&D CAPITAL EXPENDITURE OF ` 11,73,074/- AND REVENUE EXPENDITURE OF ` 3,95,68,226/- IS NOT ENTITLED FOR WEIGHTED DEDUCTION U/S.35(2AB) OF THE ACT, HOWEVER, 7 I.T.A. NO. 2487 & 2524/MDS/2016 UNAPPROVED R&D CAPITAL EXPENDITURE OF ` 11,73,074/- TO BE CONSIDERED U/S.35(1)(IV) OF THE ACT. IF THE ASSESSEE FULFILLS THE CONDITION IN TERMS OF EXPLANATION BELOW THE PROVISIONS 35(1) OF THE ACT AS HELD BY THE P&H HIGH COURT IN THE CASE OF CIT VS. FCS MARKETING PVT LTD. , IN 283 ITR 32. ACCORDINGLY, WE HOLD THAT THE MATTER IS REQUIRED TO BE REFERRED BY THE AO TO THE PRESCRIBED AUTHORITY AND ONLY ON THE BASIS OF S UCH ORDER FROM THE PRESCRIBED AUTHORITY, AS MAY BE PASSED, THAT THE A O HAS TO MAKE ANY DISALLOWANCE. ACCORDINGLY, THIS ISSUE IS REMITTED T O THE FILE OF AO FOR ANY FURTHER ACTION AS MAY BE DEEMED FIT IN ACCORDANCE W ITH LAW, TO MAKE DISALLOWANCE OUT OF THE R&D EXPENDITURE CLAIMED BY THE ASSESSEE. THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5. THE NEXT GROUND OF APPEALS IS REGARDING THE ASS ESSING OFFICERS ACTION OF DISALLOWANCE MADE U/S.14A OF THE ACT R.W.R. 8D O F THE INCOME TAX RULES, RELATING TO THE EXPENSES PERTAINING TO THE EXEMPTED INCOME. 5.1 THE FACTS OF THE ISSUE ARE THAT THE ASSESSING OFFICER IN HIS ORDER NOTICED THAT THE APPELLANT, DURING THE FINANCIAL YE AR 2010-11 RELEVANT TO THE A.Y. 2011-12, MADE SUBSTANTIAL AMOUNTS OF INVESTMEN TS IN PURCHASE OF SHARES/MUTUAL FUNDS, THE INCOME FROM WHICH IS EXMPT FROM TAX IN THE HANDS OF THE ASSESSEE. HOWEVER, THE ASSESSEE HAS NOT SEG REGATED ANY EXPENDITURE PERTAINING TO THE EARNING OF THE SAID EXEMPTED INCO ME FROM THE INVESTMENTS MADE IN SHARES AND MUTUAL FUNDS. THEREFORE, THE AO INVOKED THE PROVISIONS OF THE SECTION 14A OF THE ACT R.W.R. 8D OF THE INCO ME TAX RULES AD WORKED OUT THE EXPENSES IN EARNING THE SAID EXEMPTED INCOM E FROM THE FIRM BY 8 I.T.A. NO. 2487 & 2524/MDS/2016 ADOPTING THE FORMULA CONTAINED UNDER THE RULE 8D AT 8,75,216/- AND DISALLOWED THE SAME. AGAINST THIS, THE ASSESSEE CA RRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) CONFIRMED THE ACTI ON OF THE LD. ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF LOWER AUTHORITIE S, THE ASSESSEE IS IN APPEAL BEFORE US. 6. BEFORE US, LD.A.R SUBMITTED THAT THIS SHOULD BE RESTRICTED TO THE EXTET OF EXEMPTED INCOME AS HELD BY THE JURISDICTIONAL HI GH COURT IN THE CASE OF M /S.REDINGTON (INDIA) LTD. VS. ACIT IN T.C NO.520 OF 2016 DATED 23.12.2016 HELD THAT:- 13. RELIANCE IS ALSO PLACED ON A DECISION OF THE JU RISDICTIONAL HIGH COURT IN THE CASE OF BEACH MINERALS COMPANY PVT. LTD. VS. ASSISTANT COMMISSIONE R OF INCOME TAX IN TCA NO.681 OF 2013, DATED 2.12.2013. IN THAT CASE, PAYMENTS OF IN TEREST BY THE ASSESSEE WERE SOUGHT TO BE DISALLOWED INVOKING THE PROVISIONS OF S.14A ON THE PREMISE THAT THE SAME RELATED TO BORROWINGS THAT HAD BEEN INVESTED AND WOULD YIELD E XEMPT RETURNS. THE ASSESSEE CONTESTED THE DISALLOWANCE U/S 14A ON MULTIPLE GROUNDS. IT WA S CONTENDED THAT THERE WERE SUFFICIENT RESERVES AND SURPLUSES AVAILABLE FOR THE PURPOSE OF INVESTMENTS, AND BORROWED FUNDS, FOR WHICH THE PAYMENT OF INTEREST HAD BEEN INCURRED, HA D NOT BEEN INVESTED. THE ASSESSEE SOUGHT TO DRAW A NEXUS BETWEEN THE BORROWED FUNDS A ND THE INTEREST PAYMENTS, HIGHLIGHTING THE POSITION THAT THE QUANTUM OF AVAILABLE FREE FUN DS WAS FAR IN EXCESS OF THE INVESTMENTS MADE. THE BENCH, IN THE LIGHT OF THE ABOVE SUBMISSI ONS, REMANDED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO BE CONSIDERED DE NOVO AND AFTE R CONDUCTING A PROPER ENQUIRY. INTER ALIA A DIRECTION WAS ISSUED TO THE ASSESSEE TO TENDER A PR OPER EXPLANATION FOR THE INTEREST PAYMENTS. THE OPEN REMAND WAS MADE IN THE FACTS AND CIRCUMSTANCES OF THAT CASE AND NO CONCLUSION WAS DRAWN BY THE BENCH ON THE POSITION O F LAW INVOLVED. IN FACT, THE SUBSTANTIAL QUESTION OF LAW RAISED IN THAT CASE FOR THE CONSIDE RATION OF THE COURT WAS COUCHED IN GENERAL TERMS AS FOLLOWS 9 I.T.A. NO. 2487 & 2524/MDS/2016 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE. THE INCOME TAR APPELLATE TRIBUNAL IS RIGHT IN LAW IN CONFIRMING THE DISALLOW ANCE UNDER SECTION 11.1 OF THE INCOME TAX ACT, OF AN AMOUNT OF RS.55,00.000/- IN RELATION TO ASSESSMENT YEAR 2007- 2008? 14. NOTHING MUCH TURNS ON THE USE OF THE WORD INCL UDABLE AND THE PHRASE UNDER THE ACT IN S. 14A AND WE ARE NOT PERSUADED TO ACCEPT THE EMPHA SIS LAID OR THE INTERPRETATION OF THE SAME BY THE REVENUE. AN ASSESSMENT IN TERMS OF THE INCOME TAX ACT IS SPECIFIC TO AN ASSESSMENT YEAR AND THE RELATED PREVIOUS YEAR. S.4 OF THE ACT, WHICH IMPOSES THE CHARGE TO TAX READS THUS: CHARGE OF INCOME-TAX 4. (1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME TA X SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATES, INCOME-TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN ACCORDANCE WITH AND SUBJEC T TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEVY OF ADDITIONAL INCOME-TAX) O F, THIS ACT IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON: PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF T HIS ACT INCOME-TAX IS TO BE CHARGED IN RESPECT OF THE INCOME OF A PERIOD OTHER THAN THE PREVIOUS YEAR, INCOME TAX SHALL BE CHARGED ACCORDINGLY. THUS, WHERE THE STATUTE INDENTED THAT INCOME SHALL BE RECOGNIZED FOR TAXATION IN RESPECT OF ANY PREVIOUS OTHER THAN THAT IMMEDIATELY PRECEDING THE RELEVANT ASSESSMENT YEAR, THE PROVISION SHALL EXPRESSLY STATE SO. THE PROVISIONS OF S.1O IN CHAPTER III OF THE ACT DEALING WITH INCOMES NOT INCLUDED IN TOTAL INCOME COMMENCES WI TH THE PHRASE IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR, ANY INCOME FALLING WITHI N ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED. 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE OTHER AND CONSEQUENT LY THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN T HE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A YEAR WHER E THERE IS NO EXEMPT INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH ASSUMED INCOME. (MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. CIT (225 ITR 802). THE LANGUAGE OF S.14A(1) SHOULD BE READ IN THE CONTEXT AND SUCH THAT IT ADVA NCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. 16. IN CONCLUSION, WE ARE OF THE VIEW THAT THE PRO VISIONS OF THE SECTION 14A R.W.RULE 8D OF THE RULES CANNOT BE MADE APPLICABLE IN A VACUUM I.E. IN THE ABSENCE OF EXEMPT INCOME. THE QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT AND THE APPEAL ALLOWED. NO COSTS 10 I.T.A. NO. 2487 & 2524/MDS/2016 BEING SO, WE DIRECT THE ASSESSING OFFICER TO DISALL OW THE EXPENDITURE U/S.14A TO THE EXTENT OF EXEMPTED INCOME ONLY. THIS GROUND OF APPEAL OF ASSESSEE IS PARTLY ALLOWED. 7. THE COMMON GROUND IN BOTH THE APPEALS IS WITH R EGARD TO PARTLY CONFIRMING THE DISALLOWANCE U/S.37(1) BEING GIFT O F GOLD COINS TO DOCTORS/MEDICAL PRACTITIONERS. 7.1 THE FACTS OF THE ISSUE ARE THAT THE AO DISALLO WED SALES PROMOTION AND OTHER SELLING EXPENSES OF ` 5,19,37,891/- U/S.37(1) OF THE ACT. THE AO FOUND THAT THE ASSESSEE INCURRED SALES PROMOTION EXPENSE S OF ` 3,18,49,500/- AND OTHER SELLING EXPENSES OF ` 6,64,51,614/-. OUT OF THESE EXPENSES, ` 2,14,71,297/-(UNDER SALES PROMOTION EXPENSES ) AN D ` 3,04,66,594/- ( UNDER OTHER SELLING EXPENSES ) ARE BY WAY OF FREEBIES A ND GIFTS TO THE DOCTORS AND MEDICAL PRACTITIONERS, IN THE FORM OF GOLD COINS, L APTOS, LCD TVS. REFRIGERATORS ETC. THE AO OPINED THAT AS PER MEDICAL COUNCIL (PR OFESSIONAL CONDUCT, ETIQUETTE AND ETHICS ) REGULATIONS, 2002, THESE EXP ENSES ARE PROHIBITED EXPENSES AND THE AO INVOKED THE PROVISIONS OF THE S ECTION 37(1) OF THE ACT AND DISALLOWED THE SALES PROMOTIONS EXPENSES OF ` 2,14,71,297/- AND OTHER SELLING EXPENSES OF ` 3,04,66,594/-, TOTALING TO ` 5,19,37,891/-. AGRRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 7.2 DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE S COUNSEL SUBMITTED BEFORE THE LD.CIT(A) THAT THE APPELLANT COMPANY, DU RING APPELLATE HEARINGS, SUBMITTED THAT THE COMPANY WAS ENGAGED IN THE MANUF ACTURING OF MAINLY ZINCOVIT, A HEALTHCARE SUPPLEMENT, BUT NOT A PHAR MACEUTICAL PRODUCT. IN 11 I.T.A. NO. 2487 & 2524/MDS/2016 ORDER TO CREATE AWARENESS OF THE PRODUCT AND POPULA RIZE IT, THE BEST PERSONS WERE THE MEDICAL PRACTITIONERS ONLY. THE COMPANY AL SO CLAIMED THAT THE ABOVE SALES PROMOTIONS EXPENSES AND OTHER SELLING EXPENSE S ARE MAINLY IN THE FORMS OF REFRIGERATORS, LCD TVS, LAPTOPS, GOLD COINS ETC, WHICH ARE MAINLY INTENDED TO DISSEMINATE THE INFORMATION TO THE MEDICAL PRACT ITIONERS AND FROM THEM TO THE ULTIMATE CONSUMERS. THEREFORE, THESE EXPENSES A RE ESSENTIALLY ADVERTISEMENT EXPENSES FOR CREATING AWARENESS AND T O PROMOTE SALES. THE APPELLANT FURTHER CLAIMED THAT IT IS NEITHER ENGAGE D IN THE MANUFACTURING OF ANY PHARMACEUTICAL PRODUCT NOR PROHIBITED BY ANY LA W FROM INCURRING SUCH EXPENSES. HENCE THE APPELLANT CLAIMED THAT THE ABOV E EXPENSES, WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS SHOULD BE ALLOWED AS ALLOWABLE EXPENSES. THE LD.CIT(A) OBSERVED THAT ONE OF THE MAIN SUBMISSIONS OF THE APPELLANT IS THAT IT IS NOT ENGA GED IN THE MANUFACTURING OF ANY PHARMACEUTICAL PRODUCT AND HENCE THE PROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS ) REGULATIONS 2002, HAVE NO APPLICATION IN ITS CASE AND THEREFORE, THIS CLAI M IS NOT ACCEPTABLE. ACCORDING TO LD.CIT(A), THE AFORESAID PROHIBITION IS NOT ONLY RELATING TO THE MANUFACTURING OF ANY PHARMACEUTICAL PRODUCTS, BUT A LSO INCLUDES ALL ALLIED PRODUCTS. THE APPELLANTS PRODUCT IS A HEALTHCARE P RODUCT AND IS COVERED BY THE SECOND LIMB I.E. ALLIED PRODUCTS. FURTHER, THE PROVISO TO SECTION 37(1) IS RELATING THE NATURE OF THE EXPENSES WHICH ARE PAID TO THE DOCTORS AND MEDICAL PRACTITIONERS. ANY EXPENSES PAID BY THE MANUFACTURE RS OF ANY PHARMACEUTICAL PRODUCTS AND ALLIED PRODUCTS, TO THE DOCTORS AND ME DICAL PRACTITIONERS, BY WAY OF FREEBIES AND GIFTS, ARE WITHIN THE SCOPE OF THE PROVISO. THEREFORE, THIS 12 I.T.A. NO. 2487 & 2524/MDS/2016 CONTENTION OF THE APPELLANT STANDS REJECTED. THERE FORE, THE LD.CIT(A) CONFIRMED THE ACTION OF THE LD. ASSESSING OFFICER A ND DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS DISTRIBUTION OF GOLD C OINS TO THE DOCTORS AND MEDICAL PRACTITIONERS INCLUDED IN THE ABOVE AMOUNT. AGAINST THE ORDER OF LD.CIT(A), BOTH THE ASSESSEE AND THE REVENUE IS PRE FERRED APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THE MEDICAL COUNCIL (PROFESSIONAL C ONDUCT, ETIQUETTE AND ETHICS ) REGULATIONS, 2002 PROHIBITS THE DISTRIBUTION OF G IFT TO THE DOCTORS AND MEDICAL PRACTITIONERS. ACCORDINGLY, THIS GROUND RAISED BY T HE ASSESSEE IS DISMISSED AND THE BY THE REVENUE IS ALLOWED. 9. THE NEXT GROUND RAISED IN REVENUES APPEAL IS W ITH REGARD TO ALLOWING THE DIFFERENTIAL INTERESTS ON BORROWED FUNDS DIVERT ED FOR NON BUSINESS PURPOSES. 9.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASS ESSEE DURING THE FINANCIAL YEAR 2010-11, ADVANCED MORE THAN ` 28 CRORES BY WAY OF INTER-CORPORATE DEPOSITS TO SOME OF ITS GROUP CONCERNS AND THE INTE REST CHARGED ON THE LOAN IS ONLY @ 10%. HOWEVER, THE AO FOUND THAT THE ASSESSE E BORROWED SUBSTANTIAL AMOUNTS OF INTEREST BEARING LOANS, WHERE THE RATE OF INTEREST PAID IS 13.5% AND THE TOTAL AMOUNT OF INTEREST PAID DURING THE YE AR WAS ` 5.6 CRORES. HENCE, THE AO OPINED THAT THERE WAS DIVERSION OF INTEREST BEARING FUNDS FOR ADVANCING LOANS FOR LESSER INTEREST RATES. HENCE, THE INVOKED THE PROVISIONS OF THE SECTION 36(1)(III) OF THE ACT AND DISALLOWED PROPORTIONATE INTEREST OF 3.5%, BEING THE DIFFERENCE IN THE INTEREST PAID @ 13.5 % AND THE IN TEREST RECEIVED @ 10%, 13 I.T.A. NO. 2487 & 2524/MDS/2016 AMOUNTING TO ` 33,15,053/-. AGGRIEVED, THE ASSESSEE CARRIED THE A PPEAL BEFORE THE LD.CIT(A). 9.2 THE ASSESSEE COMPANY, DURING APPELLATE PROCEE DINGS, SUBMITTED THAT THE INTER-CORPORATE DEPOSITS WERE FROM ITS OWN INTEREST - FREE FUNDS. THE APPELLANT FURTHER EXPLAINED THAT THE INTER-CORPORATE DEPOSITS WERE A STRATEGIC INVESTMENT TO PROTECT THE INTERESTS OF THE ASSESSEE. HENCE, TH E APPELLANT STATED THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING P ROPORTIONATE INTEREST U/S.36(1)(III) OF THE ACT. THE LD.CIT(A) OBSERVED T HAT THE ASSESSEES EXPLANATION IS THAT THE INTER-CORPORATE DEPOSITS TO THE GROUP CONCERNS IS A STRATEGIC INVESTMENT AND HENCE SHOULD NOT BE CONSID ERED FOR THE PURPOSE OF DETERMINING THE DISALLOWANCE OF PROPORTIONATE INTER EST U/S. U/S.36(1)(III) OF THE ACT, HAS LITTLE MERITS. STRATEGIC INVESTMENTS MEANS THE INVESTMENTS IN OTHER CONCERNS WITH WHICH THE ASSESSEE HAS CLOSE AND IMME DIATE BUSINESS TRANSACTIONS AND THE INVESTMENTS SHOULD DIRECTLY BE NEFIT THE ASSESSEE, BY WAY REDUCTION IN THE COST OF PRODUCTION OR INCREASE IN THE PROFITABILITY ETC. ALSO, THE STRATEGIC INVESTMENT MEANS THE INVESTMENTS WHICH AR E REQUIRED TO BE INVESTED IN ORDER TO PROTECT THE INTERESTS OF THE BUSINESS, AND IF SUCH INVESTMENTS ARE NOT MADE THE BUSINESS WILL SUFFER ADVERSELY. HOWEVE R, IN THE PRESENT CASE, THE ASSESSEE HAS NOT PROVED ANY SUCH INEVITABILITY/ REQ UIREMENT BEFORE MAKING THE ABOVE INTER-CORPORATE DEPOSITS. THEREFORE, THE LOAN S ADVANCED BY THE APPELLANT, BY WAY OF INTER-CORPORATE DEPOSITS, IN T HE GROUP CONCERNS ETC CANNOT BE CONSIDERED AS STRATEGIC INVESTMENT / BUSI NESS EXIGENCY. 9.3 ACCORDING TO LD.CIT(A), AS COULD BE SEEN FROM THE BALANCE SHEET OF THE FINANCIAL YEAR, THE TOTAL ACCUMULATED CAPITAL A S ON 31.03.2011 WAS 14 I.T.A. NO. 2487 & 2524/MDS/2016 ` 38.43 CRORES (SHARE CAPITAL OF ` 1.37 CRORES AND RESERVES AND SURPLUS OF ` 37.06 CRORES). IN ADDITION THERE IS AN INTEREST FRE E DEFERRED TAX RESERVE OF ` 6.70 CRORES. THUS THERE ARE INTEREST FREE FUNDS OF ABOUT ` 45 CRORES AVAILABLE WITH THE COMPANY. THEREFORE THE ABOVE INTER- CORPOR ATE DEPOSITS OF ` 28 CRORES CAN SAFELY PRESUMED TO BE OUT OF THE ABOVE INTEREST FREE FUNDS OF ` 45 CRORES. ONCE THE INTEREST FREE FUNDS ARE MORE THAN THE AMOU NT OF LOANS GIVEN, IT IS NOT POSSIBLE TO PRESUME THAT THERE IS A DIVERSION OF IN TEREST BEARING FUNDS. UNDER SUCH CIRCUMSTANCES, THE ASSESSEE IS FREE TO DECIDE ITS OWN RATE OF INTEREST TO BE CHARGED, THE AO IS NOT EMPOWERED TO DISALLOW ANY PROPORTIONATE INTEREST. THEREFORE, THE ASSESSING OFFICERS ACTION OF INVOKI NG THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT AND DISALLOWING THE PROPORTIO NATE INTEREST @ 3.5% (BEING THE DIFFERENCE BETWEEN THE RATE OF INTEREST PAID AN D THE INTEREST RECEIVED) ON ACCOUNT OF THE SO CALLED DIVERSION OF INTEREST BEAR ING FUNDS FOR INVESTING IN INTER-CORPORATE DEPOSITS, IS NOT JUSTIFIED. THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER IS LEGALLY UNTENABLE AND THEREFOR E DELETED. AGGRIEVED WITH THE ORDER OF LD.CIT(A), THE REVENUE IS IN APPEAL BE FORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE CASE LAW CITED BY THE LD.A.R. LD.A.R SUBMITTED THAT THE ASSESSEE IS HAVING ` 45 CRORES INTEREST FREE FUNDS OUT OF ` 28 CRORES ADVANCED BY WAY OF INTER-CORPORATE DEPOSITS TO SOME OF ITS G ROUP CONCERNS. ACCORDING TO LD.A.R, THERE CANNOT BE ANY DISALLOWANCE FOR THIS P URPOSE. HE RELIED ON THE JUDGMENT OF CIT VS. BHARTI TELEVENTURE LTD. IN (201 1) 331 ITR 0502 (DELHI) AND JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS. HOTEL SAVERA IN (1999) 239 ITR 0795(MAD.) AND ALSO RELIED IN THE CASE OF WOOLCOMBERS 15 I.T.A. NO. 2487 & 2524/MDS/2016 OF INDIA LTD. IN 134 ITR 219 (CAL). LD.D.R SUBMITT ED THE ASSESSEE IS HAVING HUGE BORROWING ON WHICH IT HAS PAID INTEREST , AS SUCH DISALLOWANCE IS CONFIRMED. 11. IN THIS CASE, THE COMMISSIONER OF INCOME-TAX(AP PEALS) DELETED THE ADDITION ON THE REASON THAT THE ASSESSEE IS HAVING ACCUMULATED OWN FUND AT ` 38.43 CRORES AS PER THE BALANCE SHEET DATED 31.03.2 011 AND ALSO INTEREST FREE DEFERRED TAX RESERVE AT ` 6.70 CRORES, TOTALLY ` 45 CRORES AND THE AMOUNT WAS ADVANCED FROM ITS OWN FUNDS. THE ASSESSEE CLAI MED DEDUCTION TOWARDS INTEREST PAID TO VARIOUS LOANS AT ` 5.60 CRORES. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DIVERTED THE FUNDS OF ` 28 CRORES TO ITS SISTER CONCERN AS ADVANCE FREE OF INTEREST. THE ASSESSING OFFICER WA S OF THE OPINION THAT THE PROPOSED INTEREST ON THE AMOUNT INVESTED LIKE THIS IS NOT FOR THE PURPOSE OF BUSINESS AND THE SAME WAS DISALLOWED PROPORTIONATEL Y. AS PER PROVISIONS OF SECTION 36(1)(III) OF THE ACT, THE INTEREST ON LOAN S RAISED BY THE ASSESSEE FOR BUSINESS PURPOSES ARE AVAILABLE. ONCE THE ASSESSE E CLAIMS ANY SUCH INTEREST AS DEDUCTION IN THEIR BOOKS OF ACCOUNT THE ONUS ALW AYS WILL BE ON THE ASSESSEE TO SATISFY THE ASSESSING OFFICER THAT WHATEVER LOAN S WERE RAISED BY THE ASSESSEE WERE FOR THE PURPOSE OF BUSINESS. IF IN THE PROCESS OF EXAMINATION OF GENUINENESS OF SUCH DEDUCTION, IF IT TRANSPIRES THA T THE ASSESSEE HAS ADVANCED CERTAIN FUNDS TO ITS GROUP CONCERN CHARGING NO INTE REST, THERE WOULD BE A VERY HEAVY ONUS ON THE ASSESSEE TO DISCHARGE BEFORE THE ASSESSING OFFICER TO THE EFFECT THAT IN SPITE OF OUTSTANDING LOANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST, THERE WOULD BE NO JUSTIF ICATION TO ADVANCE THE LOANS TO GROUP CONCERN FOR NON-BUSINESS PURPOSES WITHOUT CHA RGING ANY INTEREST. 16 I.T.A. NO. 2487 & 2524/MDS/2016 15. ENTIRE MONEY IN A BUSINESS ENTITY COMES IN A C OMMON KITTY. THE MONIES RECEIVED AS SHARE CAPITAL, AS TERM LOAN, AS WORKING CAPITAL LOAN, AS SALE PROCEEDS ETC. DO NOT HAVE ANY DIFFERENT COLOUR. WH ATEVER ARE THE RECEIPTS IN THE BUSINESS, WHICH HAVE THE COLOUR OF BUSINESS REC EIPTS AND HAVE NO SEPARATE IDENTIFICATION? THE ONLY THING SUFFICIENT TO DISALL OW THE INTEREST PAID ON THE BORROWING TO THE EXTENT THE AMOUNT IS LENT TO GROUP CONCERN WITHOUT CARRYING ANY INTEREST FOR NON-BUSINESS PURPOSES WOULD BE THA T THE ASSESSEE HAS SOME LOANS OR OTHER INTEREST BEARING DEBTS TO BE REPAID. IN CASE THE ASSESSEE HAD SOME SURPLUS AMOUNT WHICH, ACCORDING TO HIM, COULD NOT BE REPAID PREMATURELY TO ANY LENDER, STILL THE SAME IS EITHER REQUIRED TO BE CIRCULATED AND UTILISED FOR THE PURPOSE OF BUSINESS OR TO BE INVES TED IN A MANNER IN WHICH IT GENERATES INCOME AND NOT THAT IT IS DIVERTED TO GRO UP CONCERN FREE OF INTEREST. THIS WOULD RESULT IN NOT PRESENTING TRUE AND CORREC T PICTURE OF THE ACCOUNTS OF THE ASSESSEE AS AT THE COST BEING INCURRED BY THE A SSESSEE, THE SISTER CONCERN WOULD BE ENJOYING THE BENEFITS THEREOF. IT CANNOT POSSIBLY BE HELD THAT THE FUNDS TO THE EXTENT DIVERTED TO GROUP CONCERN OR OT HER PERSONS FREE OF INTEREST WERE REQUIRED BY THE ASSESSEE FOR THE PURPOSE OF IT S BUSINESS AND LOANS TO THAT EXTENT WERE REQUIRED TO BE RAISED. WE DO NOT SUBSCRIBE TO THE THEORY OF DIRECT NEXUS OF THE FUNDS BETWEEN BORROWINGS OF THE FUNDS AND DIVERSION THEREOF FOR NON-BUSINESS PURPOSES. RATHER, THERE SHOULD BE NEXUS OF USE OF BORROWED FUNDS FOR THE PURPOSE OF BUSINESS TO CLAIM DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. THAT BEING THE POSITION, THE RE WOULD BE NO ESCAPE FROM THE FINDING THAT INTEREST BEING PAID BY THE ASSESSE E TO THE EXTENT THE AMOUNTS ARE DIVERTED GROUP CONCERN ON INTEREST FREE BASIS A RE TO BE DISALLOWED. 17 I.T.A. NO. 2487 & 2524/MDS/2016 16. IF THE PLEA OF THE ASSESSEE IS ACCEPTED THAT TH E INTEREST FREE ADVANCES MADE TO GROUP CONCERN FOR NON-BUSINESS PURPOSES WAS OUT OF HIS OWN FUNDS IN THE FORM OF CAPITAL INTRODUCED IN BUSINESS, THAT AG AIN WILL SHOW A CAMOUFLAGE BY THE ASSESSEE AS AT THE TIME OF RAISING OF LOAN, THE ASSESSEE WILL SHOW THE FIGURES OF CAPITAL INTRODUCED BY IT AS A MARGIN FOR LOANS BEING RAISED AND AFTER THE LOANS ARE RAISED, WHEN SUBSTANTIAL AMOUNT IS DI VERTED TO GROUP CONCERN FOR NON-BUSINESS PURPOSES WITHOUT INTEREST, A PLEA WOUL D BE RAISED THAT THE AMOUNT ADVANCED WAS OUT OF ITS CAPITAL, WHICH IN FA CT STOOD EXHAUSTED IN SETTING UP OF THE UNIT. SUCH A PLEA MAY BE ACCEPTA BLE AT A STAGE WHEN NO LOANS HAD BEEN RAISED BY THE ASSESSEE AT THE TIME O F DISBURSEMENT OF FUNDS. THIS WOULD DEPEND ON FACTS OF EACH CASE. 17. THE VIEW THAT WHERE THE AMOUNT IS ADVANCED FRO M A MIXED ACCOUNT OR SHARE CAPITAL OR SALE PROCEEDS OR PROFITS, IT WOULD NOT BE DEEMED AS DIVERSION OF BORROWED CAPITAL OR THAT THE REVENUE HAD NOT BEE N ABLE TO ESTABLISH NEXUS OF THE FUNDS ADVANCED TO GROUP CONCERN WITH THE BOR ROWED FUNDS IS NOT CORRECT. ONCE IT IS BORNE OUT FROM THE RECORD THAT THE ASSESSEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PAY TAX IS BEIN G INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAD BEEN ADVANCED TO ITS GROU P CONCERN OR OTHERS WITHOUT CARRYING ANY INTEREST AND WITHOUT ANY BUSIN ESS PURPOSE, THE INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CAR RYING ANY INTEREST IS TO BE DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. ACCORDINGLY, WE ARE OF THE OPINION THAT THE ASSESSEE USED CERTAIN AMOUNTS TO A DVANCE GROUP CONCERN AS INTEREST FREE AND THAT PORTION OF INTEREST CANNOT B E ALLOWED WHILE COMPUTING 18 I.T.A. NO. 2487 & 2524/MDS/2016 THE BUSINESS INCOME OF THE ASSESSEE. BEING SO, WE CONFIRM THE ORDER OF THE AO AND REVERSE THE ORDER OF THE COMMISSIONER OF INC OME-TAX(APPEALS) ON THIS ISSUE. 17. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. AND THE APPEAL OF REVENUE IS ALLOWED. ORDER PRONOUNCED ON 15 TH MARCH, 2017 AT CHENNAI. SD/- SD /- ( (( ( ) )) ) ( ) (DUVVURU R.L REDDY) (CHAN DRA POOJARI) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, /DATED, THE 15 TH MARCH, 2017. KSSUNDARAM. /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. /GF.