ACIT, CIR.-7(2)(2), MUMBAI V. N. R. JET ENTERPRISES LTD., MUMBAI

ITA 2589/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9701 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Revenue expenditure
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD , JUDICIAL MEMBER ITA NO. 2589/MUM/2016 : A.Y : 2010 - 11 ACIT, CIRCLE - 7(2)(2), MUMBAI (APPELLANT) VS. M/S. N.R. JET ENTERPRISES LTD. 64 - 66, SENAPATI BAPAT MARG, MAHIM, MUMBAI 400 076. PAN : AAACN5895K (RESPONDENT) APPELLANT BY : SHRI V. JUSTIN RESPONDENT BY : SHRI KIRIT KAMDAR DATE OF HEARING : 04/07/2017 DATE OF PRONOUNCEMENT : 31 /07/2017 O R D E R PER G.S. PANNU , AM : THE CAPTIONED APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) - 13 , MUMBAI DATED 12.1.2016 , PERTAINING TO THE ASSESSMENT YEAR 2010 - 11 , WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER DATED 25.2.2013 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN ITS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 2 M/S. N.R. JET ENTERPRISES LTD. ITA NO. 2589/MUM/2016 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN HOL DING THAT THE PRICE OVERCHARGED AS PER NPPA IS ALLOWABLE FOLLOWING THE DECISION OF THE HON'BLE ITAT IN THE ASSESSEES OWN CASE FOR EARLIER YEARS AND PLACING RELIANCE ON THE DECISION OF JOHNSON & JOHNSON LIMITED (ITA NO. 145/MUM/2001) WHICH HELD THAT THE PR ICE OVERCHARGED AS PER NPPA DOES NOT HAVE THE CHARACTER OF PENALTY FOR VIOLATION OF LAW. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD.CITA ON THE ABOVE GROUNDS BE CONFIRMED THE ORDER OF THE AO. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT THE RESPONDENT - ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER - ALIA , ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PHARMACEUTICALS FORMULATIONS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF A SUM OF RS.12,45,26,000/ - WHICH REPRESENTED PAYMENT OF DEMAND RAISED BY NATIONAL PHARMACEUTICAL PRICING AUTHORITY (NPPA). THE ASSESSING OFFICER NOTED THAT THE NPPA WAS AN AUTHORITY CONSTITUTED BY THE GOVERNMENT OF INDIA FOR FIXING OF PRICES OF PHARMACEUTICAL PRODUCTS AND WAS EMPOWERED TO IMPLEMENT THE DRUG (PRICE CONTROL) ORDER, 1995. THE ASSESSING OFFICER NOTED THAT ASSESSEE WAS FOUND OVERCHARGING ITS CUSTOMERS WHILE SELLING SOME DRUGS INSPITE OF FIXING OF PRIC ES BY THE NPPA. CONSIDERING THE SAME TO BE AN ILLEGALITY IN THE EYES OF LAW, THE ASSESSING OFFICER PROCEEDED TO DISALLOW THE AFORESAID EXPENDITURE ON THE GROUND THAT THE SAME REPRESENTED EXPENDITURE INCURRED FOR INFRACTION OF LAW, AND THUS DISALLOWABLE IN TERMS OF EXPLANATION (1) TO SEC. 37 OF THE ACT. IN COMING TO SUCH A CONCLUSION, THE ASSESSING OFFICER ALSO NOTED THAT SIMILAR DISALLOWANCE W AS MADE IN 3 M/S. N.R. JET ENTERPRISES LTD. ITA NO. 2589/MUM/2016 THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2004 - 05. THE CIT(A) HAS SINCE DELETED THE ADDITION NOTICI NG THAT THE TRIBUNAL , IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004 - 05 , VIDE ORDER DATED 25.3.2013 HAD ALLOWED THE CLAIM OF THE ASSESSEE. AGAINST SUCH A DECISION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2004 - 05 DATED 25.3.2013, WHICH HAS BEEN FOLLOWED BY THE CIT(A), CONTINUES TO HOLD THE FIELD AS IT HAS NOT BEEN ALTERED BY ANY HIGHER AUTHORITY. IT WAS ALSO A COMMON POINT BETWEEN THE PARTIES THAT THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2004 - 05 HAS SINCE BEEN FOLLOWED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 10 BY THE TRIBUNAL VIDE ORDER IN ITA NO. 71/MUM/2013 DATED 30.4.2015, A COPY OF WHICH HAS BEEN PLACED ON RECORD. 5. THE L D. DR DID NOT DISPUTE THE FACTUAL MATRIX, BUT RELIED ON THE ORDER OF THE ASSESSING OFFICER. 6. BEFORE PROCEEDING FURTHER, WE DEEM IT FIT AND PROPER TO REPRODUCE THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 25.3.2013 FOR ASSESSMENT YEAR 2004 - 05 WHICH BRINGS OUT THE CONTROVERSY : - 3.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF DEDUCTION ON ACCOUNT OF EXCESS PRICE CHARGED BY THE ASSESSEE FOR THE PERIOD AUGUST 1996 TO DE CEMBER 2001 OVER THE PRICE FIXED BY THE 4 M/S. N.R. JET ENTERPRISES LTD. ITA NO. 2589/MUM/2016 GOVERNMENT, WHICH THE ASSESSEE HAD TO REFUND IN VIEW OF THE ORDER DATED 7.8.2003 OF THE NATIONAL PHARMACEUTICAL PRICING AUTHORITY. THE AUTHORITY HAD ALSO LEVIED INTEREST U/S 7 (A) OF THE ESSENTIAL COMMODITY ACT 1955 AND HAD DIRECTED THE ASSESSEE TO PAY BOTH THE DEMANDS BY 6.9.2003. THE ASSESSEE HAD PAID THE PRINCIPAL DEMAND BUT HAD DISPUTED THE INTEREST PAYMENT. SUBSEQUENTLY, IT HAS BEEN CLAIMED BEFORE US, THAT THE ASSESSEE HAD WITHDREW ITS APPEAL FILED AGAINST THE DE MAND RAISED ON ACCOUNT OF INTEREST. THE AUTHORITIES BELOW HAVE OBSERVED THAT THE DEMAND RAISED BY THE ASSESSEE ON ACCOUNT OF PRICE OVERCHARGED WAS FOR INFRACTION OF LAW AND SIMILARLY THE INTEREST WHICH ALSO HAD THE SAME CHARACTER WAS ALSO FOR INFRACTION OF LAW. ACCORDINGLY BOTH THE DEMANDS WERE HELD NOT ALLOWABLE FOR DEDUCTION U/S 37(1) OF THE IT ACT. IT HAS ALSO BEEN HELD THAT THE LIABILITY ON ACCOUNT OF INTEREST HAD NOT CRYSTALLIZED DURING THE YEAR AS THE SAME WAS DISPUTED. WE FIND, THAT ISSUE OF DEDUCTIO N ON ACCOUNT OF REFUND OF THE PRICE OVERCHARGED HAD BEEN CONSIDERED BY THE TRIBUNAL IN CASE OF JOHNSON & JOHNSON LTD IN ASSESSMENT YEAR 1997 - 98 IN ITA NO. 145/MUM/2001. THE TRIBUNAL ON PERUSAL OF VARIOUS PROVISIONS OF ESSENTIAL COMMODITY ACT 1995 NOTED THA T THERE WERE SEPARATE CLAUSES FOR LEVY OF PENAL T Y AND INTEREST AND THEREFORE, HELD THAT THE PAYMENT OF THE PRINCIPAL BEING THE PRICE OVER CHARGED DID NOT HAVE THE CHARACTER OF PENALTY FOR VIOLATION OF LAW. THE TRIBUNAL ACCORDINGLY HELD THAT THE AMOUNT REFU NDED WAS ALLOWABLE AS REVENUE EXPENDITURE U/S 37(1) OF THE IT ACT. AS REGARD THE INTEREST, THE SAME HAD BEEN LEVIED IN THE SAME ORDER OF NPPA DATED 7.8.2003 AND IT ALSO HAD THE SAME CHARACTER AS THAT OF PRINCIPAL, WHICH HAS ALSO BEEN ADMITTED BY THE AUTHOR ITIES BELOW. THEREFORE THE INTEREST ALSO HAD NO PENAL CHARACTER IN VIEW OF THE DECISION OF THE TRIBUNAL ABOVE. MOREOVER THE ISSUE OF ALLOWABILITY OF INTEREST HAD ALSO BEEN SPECIFICALLY CONSIDERED BY THE TRIBUNAL IN CASE OF GLAXO INDIA LTD. IN ITA NO.959/MU M/90 FOR ASSESSMENT YEAR 1986 - 87 IN WHICH DEDUCTION ON ACCOUNT OF INTEREST HAS BEEN FOUND ALLOWABLE. AS REGARDS THE CRYSTALLIZATION OF LIABILITY, IT IS WELL SETTLED LEGAL POSITION THAT DEDUCTION ON ACCOUNT OF ANY EXPENDITURE HAS TO BE ALLOWED IN THE YEAR I N WHICH THE LIABILITY HAS BEEN INCURRED. IN THIS CASE THE LIABILITY HAD BEEN INCURRED IN THE YEAR IN WHICH THE ORDER HAD BEEN PASSED BY NPPA. THE LIABILITY HAD THEREFORE, ACCRUED ON THE DATE OF PASSING OF THE ORDER AS THE SAME IS LEGALLY 5 M/S. N.R. JET ENTERPRISES LTD. ITA NO. 2589/MUM/2016 ENFORCEABLE AND ME RELY BECAUSE THE ASSESSEE HAD DISPUTED THE LIABILITY, IT COULD NOT BE SAID THAT LIABILITY HAD NOT BEEN INCURRED. MOREOVER, IN THIS CASE IT HAS ALSO BEEN SUBMITTED THAT THE ASSESSEE SUBSEQUENTLY WITHDREW THE APPEAL DISPUTING THE LIABILITY ON ACCOUNT OF INTE REST. THEREFORE, IN OUR VIEW, THE LIABILITY ON ACCOUNT OF INTEREST HAD ACCRUED IN THE YEAR IN WHICH THE ORDER HAD BEEN PASSED. WE, THEREFORE, FOLLOWING THE DECISION OF TRIBUNAL (SUPRA) AND CONSIDERING THE FACTS OF THE CASE HOLD THAT THE CLAIM OF THE ASSESS EE IS ALLOWABLE. ACCORDINGLY WE SET ASIDE THE ORDER OF CIT(A) AND ALLOW THE CLAIM OF T HE ASSESSEE. 7. SINCE THE FACTS RELATING TO THE PAYMENT MADE IN PURSUANCE TO THE DEMAND RAISED BY THE NPPA OF RS.12,45,26,000/ - ARE SIMILAR TO THOSE CONSIDERED BY THE TRIBUNAL IN ASSESSMENT YEAR 2004 - 05, WE DEEM IT FIT AND PROPER TO HOLD THAT THE CIT(A) MADE NO MISTAKE IN ALLOWING THE CLAIM OF THE ASSESSEE FOLLOWING THE PRECEDENT IN ASSESSEES OWN CASE. THUS, THE APPEAL OF THE ASSESSEE IS LIABLE TO BE DISMISSED. WE HO LD SO. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 1 S T JULY, 2017. SD/ - SD/ - (RAVISH SOOD) JUDICIAL MEMBER ( G.S. PANNU ) ACCOUNTANT MEMBER MUMBAI, DATE : 3 1 S T JULY, 2017 * SSL * COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 6 M/S. N.R. JET ENTERPRISES LTD. ITA NO. 2589/MUM/2016 4) THE CIT CONCERNED 5) THE D.R, A BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI