ASST CIT (LTU)2, MUMBAI V. GLENMARK PHARMACEUTICAL LTD, MUMBAI

ITA 2546/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9841 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 12-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Assessee Lawyers: ANUJ KISANDWALA
• Keywords: Gift; Reassessment proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 2546 / MUM/20 1 7 ( ASSESSMENT YEAR : 2010 - 11 ) ASST. CIT (LTU 2) WORLD TRADE CENTRE, CENTRE 1, 29 TH FLOOR, CUFFE PARADE, MUMBAI 400 0 05 VS. M/S. GLENMARK PHARMACEUTICALS LTD., GLENMARK HOUSE, HDO CORPORATE BUILDING, WING A,B.D. SAWANT MARG, CHAKALA, OPP. WESTERN EXPRESS HIGHWAY, ANDHERI (E). MUMBAI 400 099 PAN/GIR NO. AAACG2207L APPELLANT ) .. RESPONDENT ) CO N O. 135/ MUM/20 17 ( ASSESSMENT YEAR : 2010 - 11 ) M/S. GLENMARK PHARMACEUTICALS LTD., GLENMARK HOUSE, HDO CORPORATE BUILDING, WING A,B.D. SAWANT MARG, CHAKALA, OPP. WESTERN EXPRESS HIGHWAY, ANDHERI (E). MUMBAI 400 099 VS. ASST. CIT (LTU 2) WORLD TRADE CENTRE, C ENTRE 1, 29 TH FLOOR, CUFFE PARADE, MUMBAI 400 005 PAN/GIR NO. AAACG2207L APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI V. VIDHYADHAR ASSESSEE BY SHRI ANUJ KISANDWALA DATE OF HEARING 01 / 08 /201 7 DATE OF PRONOUNCEME NT 23 / 08 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 56, MUMBAI DATED 26/12/2016 FOR ITA NO. 2546/MUM/2017 & CO 250/MUM/2017 M/S. GLENMARK PHA RMACEUTICALS LTD., 2 A.Y. 2010 - 11 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 1 47 OF THE IT ACT. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE: 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 2,99,27,462/ - HELD TO BE EXPENDITURE PROHIBITED BY LAW AS PER INDIAN MEDICAL COU NCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002, APPLICABLE FROM A.Y. 2010 - 11.' 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 4,24,31,990/ - BEING REDUCTION OF DEDUCTI ON U/S 80IC BY APPORTIONING R&D EXPENSES TO BADDI & SOLAN UNIT OF THE ASSESSEE.' 3. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) HAS ERRED IN HOLDING THAT SINCE THE ISSUE OF ALLOCATION OF EXPENSES OF R &D BETWEEN BADDI UNIT AND SO LAN UNIT WAS ALREADY SUBJECT MATTER OF APPEAL, THE AO CANNOT RE - OPEN THE ASSSESSMENT. THE LD. CIT(A) FAILED TO APPRECIATE THAT SINCE R&D EXPENSES ARE ALLOWED WEIGHTED DEDUCTION OF 150% U/S. 35(2AB), THE PROFIT OF THE UNIT ELIGIBLE FOR DEDUCTION U/S. 80IC W AS REQUIRED TO BE REDUCED BY 150%. AO HAD NOT NOTICED HIS FAILURE TO DO SO AND CONSEQUENT UNDERASSESSMENT COULD ONLY BE REMEDIAL THROUGH REASSESSMENT'. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE ID. CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. IN THE CROSS OBJECTION, ASSESSEE IS AGGRIEVED FOR REOPENING. HOWEVER, THE CO SO FILED WAS NOT PRESSED BY LEARNED AR, THE SAME IS THEREFORE DISMISSED AS NOT PRESSED. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. F ACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURING AND MARKETING PHARMACEUTICAL PRODUCTS AND THE RELATED RESEARCH AND DEVELOPMENT ACTIVITIES. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, T HE AO OBSERVED THAT THE ASSESSEE HAS INCU RRED EXPENSES TO THE TUNE OF RS.2,99,27,462 WHICH ARE ALLOWED IN THE ORIGINAL SCRUTINY ASSESSMENT BUT ARE COVERED BY IMC REGULATION AS WELL AS CIRCULAR NO.5 OF 2012 ISSUED BY CBDT (BOARD) AND HENCE NOT ITA NO. 2546/MUM/2017 & CO 250/MUM/2017 M/S. GLENMARK PHA RMACEUTICALS LTD., 3 ALLOWABLE. THE AO COMPLETED THE RE - ASSESSMENT BY MAKIN G DISALLOWANCE U/S.37(1) OF THE ACT OF INR 2,99,27,462/ - 5. BY THE IMPUGNED ORDER, CIT(A) ALLOWED ASSESSEES CLAIM FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE . THE PRECISE OBSERVATION OF CIT(A) WAS AS UNDER: - I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSION OF THE APPELLANT AND THE CONTENTIONS OF THE AO. I FIND THAT THIS ISSUE IS COVERED BY MY ORDER IN THE APPELLANT'S OWN CASE IN A.Y. 2011 - 12 AND 2012 - 13 BY OBSERVING AS UNDER: 'FURTHER, I AGREE WITH THE CONTENTION OF THE ASSESSEE THAT, 'RECEIVING OF GIFTS BY DOCTORS WAS PROHIBITED BY MCI GUIDELINES, GIVING OF THE SAME BY MANUFACTURER ARE NOT PROHIBITED UNDER ANY LAW FOR THE TIME BEING IN FORCE. FURTHER THE CBDT CIRCULAR WAS INTRODUCED W.E.F 01.08.2012 I.E. A.Y 2013 - 14 AND NOT FOR T HE YEAR UNDER APPEAL SIMILAR ISSUE WAS THERE BEFORE THE MUMBAI ITAT WHEREIN TRIBUNAL IN THE CASE OF OF DCIT VS. SYNCOM FORMULATIONS (I) LTD (ITAT MUMBAI) VIDE ITS JUDGMENT GIVEN ON 6 FEBRUARY 2016 (ITA 6429 & 6428/MUM/2012) HAS HELD AS UNDER: 'RECEIVING OF GIFTS BY DOCTORS WAS PROHIBITED BY MCI GUIDELINES, GIVING OF THE SAME BY MANUFACTURER ARE NOT PROHIBITED UNDER ANY LAW FOR THE TIME BEING IN FORCE. GIVING SMALL GIFTS BEARING COMPANY LOGO TO DOCTORS DOES NOT TANTAMOUNT TO GIVING GIFTS RO DOCTORS BUT IT IS REGARDED AS ADVERTISING EXPENSES. AS REGARDS SPONSORING DOCTORS FOR CONFERENCES AND EXTENDING HOSPITALITY, PHARMACEUTICALS COMPANIES HAVE BEEN SPONSORING PRACTICING DOCTORS TO ATTEND PRESTIGIOUS CONFERENCES SO THAT THEN GATHER CONTEMPORARY KNOWLEDGE ABOUT MANAGEMENT OF CERTAIN ILLNESS/DISEASE AND LEARN ABOUT NEWER THERAPIES. WE FOUND THAT THE DISALLOWANCE WAS MADE BY THE AO BY RELYING ON THE CBDT CIRCULAR DATED 01.08.2012 ONWARDS. HOWEVER, THE CIRCULAR WAS NOT APPLICABLE BECAUSE IT WAS INTRODUCED W.E.F. 0 I .08.2012. I.E. ASSESSMENT NEAR 2013 - 2014, WHEREAS THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION IS 2012 - 2013.' FURTHER IN A.Y 2011 - 12, THE CIT (A) HAS ALLOWED THE APPEAL BY FOLLOWING THE ABOVE MUMBAI I TAT DECISION. ITA NO. 2546/MUM/2017 & CO 250/MUM/2017 M/S. GLENMARK PHA RMACEUTICALS LTD., 4 THUS BY FOLLOWING THE MUMBAI ITAT DECI SION IN THE CASE OF SYNCOM FORMULATIONS (I) LTD. (SUPRA) AND ALSO FOLLOWING PRINCIPAL OF CONSISTENCY, I HOLD THAT CIRCULAR IS NOT APPLICABLE FOR THE YEAR UNDER APPEAL, AND ACCORDINGLY NO DISALLO W ANCE IS WARRANTED.' BY FOLLOWING THE ORDER OF A.Y. 2011 - 12 & 2012 - 13 AND MUMBAI TRIBUNAL DECISION IN THE CASE OF SYNCOM FORMULATIONS (I) LTD (SUPRA), I HOLD THAT CIRCULAR IS NOT APPLICABLE FOR THE YEAR UNDER APPEAL, AND ACCORDINGLY NO DISALLOWANCE IS WARRANTED. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 6. WE HA VE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL WHEREIN IT WAS HELD THAT CBDT CIRCULAR SO RELIED ON BY THE AO WAS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION, BECAUSE IT WAS INTRODUCED W.E.F. 01/08/2012 I .E. A.Y.2013 - 14. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR ALLOWING THE EXPENDITURE BY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH AS STATED ABOVE. 7. ASSESSEE HAS ALSO CLAIMED DEDUCTION U/S.80IC BY APPORTIONING R & D EXPENS ES AMONGST VARIOUS UNITS . AO DECLINED APPORTIONMENT AND REDUCED QUANTUM OF DEDUCTION U/S.80IC. BY THE IMPUGNED ORDER CIT(A) ALLOWED ASSESSEES CLAIM, AGAINST WHICH REVENUE IS IN FURTHER APPEAL BEFORE US. 8. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERU SED . THE ASSESSING OFFICER HAS DEALT WITH THIS ISSUE FROM PG NOS 16 TO 20 OF HIS ORDER. THE ASSESSEE HAS 5 MANUFACTURING UNITS I.E. BADDI, SOLAN & BADDI III AND 2 UNITS IN NASHIK AND GOA. OUT OF THE 5 MANUFACTURING UNITS, THE ASSESSEE IS CLAIMING DEDUCTION U/S 80IC OF THE ACT WITH RESPECT TO ITS 3 UNITS AT BADDI, SOLAN & BADDI III UNIT. THE R&D ACTIVITY OF THE ASSESSEE IS BEING CARRIED OUT FROM THEIR 2 INDEPENDENT R&D UNITS WHICH ARE LOCATED AT MAHAPE AND SINNAR. IN VIEW OF THE SAME, THE ASSESSEE DID ITA NO. 2546/MUM/2017 & CO 250/MUM/2017 M/S. GLENMARK PHA RMACEUTICALS LTD., 5 NOT AL LOCATE R&D EXPENDITURE TOWARDS OTHER UNITS SINCE NO R&D EXPENDITURE WAS CARRIED OUT FROM THOSE UNITS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS MADE PURCHASES OF TRADED GOODS AMOUNTING TO RS. 84,14,96,010 / - . HE WAS OF THE VIEW THAT APPORTIONMENT OF R&D EXPENDITURE SHOULD BE MADE AFTER EXCLUDING THE TRADING SALES. IT WAS SUBMITTED BEFORE AO THAT TRADING PURCHASES IN CASE OF ASSESSEE IS NOTHING BUT PURCHASE FROM THIRD PARTY BY USING ASSESSEE'S RESEARCH AND DE VELOPMENT ONLY. IN VIEW OF THE SAME, IT WAS SUBMITTED THAT TRADING SALES SHOULD NOT BE EXCLUDED BEFORE APPORTIONMENT OF R&D EXPENDITURE. THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTION OF ASSESSEE AND HELD THAT APPORTIONMENT OF R&D EXPENDITURE SHOU LD BE MADE AFTER EXCLUDING THE TRADING SALES AND ACCORDINGLY MADE A DISALLOWANCE TO THE TOTAL INCOME OF ASSESSEE. WHILE DISALLOWING R&D EXPENSES, THE ASSESSING OFFICER REDUCED 150% OF R&D EXPENSES WHILE CALCULATING PROFIT ELIGIBLE FOR DEDUCTION U/S 80IC SI NCE THEY ARE ALLOWED WEIGHTED DEDUCTION OF 150% U/S 35(2AB) OF THE ACT. THE UNIT SITUATE AT BADDI WAS ELIGIBLE FOR DEDUCTION U/S.80IC. WHILE ARRIVING AT DEDUCTION, U/S.80IC THE AO APPORTIONED R & D EXPENSES BETWEEN TWO UNITS EXCLUDING TRADE SALES FROM TOTA L TURNOVER OF THE ASSESSEE. THE AO OBSERVED THAT THERE WERE PURCHASE OF TRADING GOODS TO THE TUNE OF INR 84,14,96,010/ - WHICH WAS SHOWN IN THE NOTE; COST OF SALES UNDER THE HEAD PURCHASE OF TRADED GOODS AND ACCORDINGLY, THE ASSESSEE WAS GIVEN AN OPPORTUN ITY AS TO WHY THE APPORTIONMENT OF R & D EXPENSES SHOULD NOT BE MADE BY EXCLUDING TRADING SALES AND RE - COMPUTE THE DISALLOWANCE. 9. THE AO HAS NOTED THAT ASSESSEE HAS 5 MANUFACTURING UNITS, I.E. BADDI, SOLAN & BADDI III (3 UNITS ARE EXEMPTED) AND 2 UNITS, I.E NASIK &GOA WHICH ARE NOT EXEMPT). AT NONE OF THE 5 MANUFACTURING UNITS, R & D ITA NO. 2546/MUM/2017 & CO 250/MUM/2017 M/S. GLENMARK PHA RMACEUTICALS LTD., 6 ACTIVITIES IS BEING CARRIED OUT. IN FACT, ALL THE R & D ACTIVITIES ARE CARRIED OUT AT FROM THEIR 2 INDEPENDENTLY LOCATED R & D UNITS, WHICH ARE LOCATED AT MAHAPE, NAVI MUMBAI AND OTHER AT SINNAR, NASIK, MAHARASHTRA. IN THE ORIGINAL ASSESSMENT THE AO HAS ALLOCATED THE EXPENSES IN THE RATIO OF TURNOVER (INCLUDING TRADING SALES). THE SAID ALLOCATION HAS BEEN DELETED BY THE CIT (A) IN ENTIRETY. HOWEVER, IN THE REOPENING THE AO AGA IN ALLOCATED THE R&D EXPENSE IN THE RATIO OF 'TURNOVER (EXCLUDING TRADING SALES). 10. FROM THE RECORD, WE FOUND THAT CIT(A) HAS DELETED THE ADDITION / DISALLOWANCE MERELY BY STATING THAT ISSUE OF ALLOCATION OF R & D EXPENSES WAS SUBJECT MATTER OF APPEAL, HENCE AS PER THE PROVISO TO SECTION 147 OF THE ACT, THE ASSESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME, OTHER THAN INCOME INVOLVING WHICH ARE THE SUBJECT MATTERS OF ANY APPEAL, REFERENCE OR REVISION, WHICH IS CHARGEABLE TO TAX AND HENCE ESCAPED ASSES SMENT. 11. AGAINST THE ABOVE ORDER, REVENUE IS IN FURTHER APPEAL BEFORE US. 12. IT WAS ARGUED BY LEARNED AR THAT T HE ISSUE OF ALLOCATION OF R & D EXPENSES WAS ALREADY SUBJECT MATTER OF APPEAL BE F ORE CIT (A) WHO HAS ALREADY ADJUDICATED ON THIS ISSUE VIDE OR DER DATED 31.12.2015 . AS PER THIRD PROVISO TO SECTION 147 AO CANNOT RE - ASSESS THE INCOME WHICH WAS SUBJECT OF ANY APPEAL, REFERENCE OR REVISION. IT IS SUBMITTED THAT IN THE ASSESSEE 'S CASE, THE ISSUE OF ALLOCATION WAS SUBJECT MATTER OF CIT (A) AS MENTIONED IN THE FACTS OF THE CASE AND THE SAME IS IN APPEAL WITH ITAT, RE - ASSESSING THE SAME BY THE LATER AO IS NOT ALLOWED AND IS BAD IN LAW. 13. LEARNED AR ALSO PLACED RELIANCE ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF ICICI BANK LTD.,246 ITR 292 IN SU PPORT OF THE PRO POSITION THAT POWER TO ITA NO. 2546/MUM/2017 & CO 250/MUM/2017 M/S. GLENMARK PHA RMACEUTICALS LTD., 7 REOPEN THE ASSESSMEN T CANNOT BE EXERCISED I F THE SUBJECT MATTER OF AN APPEAL TO THE COMMISSIONER (APPEALS) . 14. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER PASSED BY THE AO. 15. WE HAVE CONSIDERED RIVAL CONTEN TIONS AND FOUND THAT DURING THE COURSE OF RE - ASSESSMENT PROCEEDINGS, AO FOUND THAT TRADING SALES HAS NO CONNECTION WITH THE R & D EXPENSES SO INCURRED BY THE ASSESSEE, ACCORDINGLY HE DIRECTED THAT THE APPORTIONMENT OF R & D EXPENDITURE SHOULD BE MADE AFT ER EXCLUD ING THE SALES. HOWEVER, IN THE COURSE OF ORIGINAL ASSESSMENT WHICH WAS SUBJECT MATTER OF APPEAL BEFORE THE CIT(A) ONLY APPORTIONMENT WAS DECLINED BY AO, WHEREAS IN THE RE - ASSESSMENT PROCEEDINGS, AO HAS PRECISELY EX CLUD ED THE TR ADING SALES BEFORE APPORTIONMENT OF R & D EXPENDITURE. HOWEVER, IN THE INSTANT APPEAL BEFORE US, THE CIT(A) HAS NOT DECIDED THE ISSUE ON MERIT. MOREOVER, THE JUDGMENT RELIED ON BY LEARNED AR IN CASE OF ICICI BANK LTD., ARE DISTINGUISHABLE ON FACTS IN SO FA R AS BOMBAY HIGH COURT WAS DEALING WITH THE 2 ND PROVISO TO SECTION 147 WHEREAS ASSESSEE IS ARGUING ON THIRD PROVISO TO SECTION 147. IN THE INTEREST OF JUSTICE, WE RESTORE THE MATTER BACK TO THE FILE OF THE CIT(A) FOR DECIDING THE ISSUE ON MERIT. WE DIRECT ACCORDINGLY. 16. IN THE RESULT, APPEAL OF REVENUE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE WHEREAS CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 23 / 08 /2017 S D/ - ( SANDEEP G OSAIN ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 23 / 08 /201 7 KARUNA SR. PS ITA NO. 2546/MUM/2017 & CO 250/MUM/2017 M/S. GLENMARK PHA RMACEUTICALS LTD., 8 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//