Cadila Pharmaceuticals Ltd., Ahmedabad V. The ACIT., Circle-1, Ahmedabad

ITA 2804/AHD/2007

• Counselvise Citation: 280420514 RSA 2007
• Duration Of Justice: 4 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-02-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 25-06-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional depreciation; Revenue expenditure
• Section: 80HHC; 234B

Judgement Text

ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI MUKUL KR.SHRAWAT JM & SHRI A. K. GAROD IA, A.M.) 1. ITA. NO.1440/ AHD/2006. 2. ITA NO. 2804/ AHD/2007 (ASSESSMENT YEARS: 2002 -03 AND 2003-04) CADILA PHARMACEUTICALS LTD., CADILA CORPORATE CAMPUS, BHAT, SARKHEJ DHOLKA ROAD, AHMEDABAD-382210. (APPELLANT) VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, AHMEDABAD. (RESPONDENT) PAN: AAACC 6251E APPELLANT BY : SHRI S.N. SOPARKAR, SR. ADV OCATE. RESPONDENT BY : SHRI SAMIR TEKRIWAL, SR. D.R. ( )/ ORDER DATE OF HEARING : 01-02-201 2 DATE OF PRONOUNCEMENT : 27 -04-2012 PER: SHRI A. K. GARODIA, ACCOUNTANT MEMBER. BOTH THESE APPEALS ARE ASSESSEES APPEALS DIRECTED AGAINST THE ORDER OF LD. CIT (A)-VI, AHMEDABAD DATED 22-3-2006 FOR ASSESSMENT YEAR 2002-03 AND AGAINST THE ORDER OF LD. CIT (A)-V , AHMEDABAD DATED 24-4-2007 FOR ASSESSMENT YEAR 2003-04. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THE SAME ARE DISPOSED OF F BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2002-03 I.E. ITA NO.1440/AHD/2006. GROUND NO.1 AND 2 READ AS UNDER:- ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 2 GROUND NO.1 . THE ASSESSMENT ORDER PASSED BY HONBLE CO MMISSIONER OF INCOME TAX (A) U/S.250 OF INCOME TAX ACT IS BAD IN LAW, ILLEGAL AND DESERVED TO BE CANCELLED. GROUND NO.2 . THE HONBLE CIT (A) HAS ERRED IN LAW AND ON THE FAC TS OF THE CASE IN CONFIRMING THE DISALLOWANCE MADE BY A.O. TOWARDS CONTRIBUTION TO P.F. ESIC RS. 3,95,172/-. 3. IT WAS SUBMITTED BY LD. AR OF THE ASSESSEE THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT O F HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS. ALOM EXTRUSI ONS LTD., (2009) (319 ITR306). THE LD. DR OF THE REVENUE SUPPORTED THE OR DERS OF AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDGMENT OF HONBLE APEX COURT CITED BY THE LD. AR OF THE ASSESSEE. WE FIND THAT IT IS NOTED BY THE LD. CIT ( A) IN PARAGRAPH 7 OF HIS ORDER THAT THE ASSESSEE HAD OBJECTED TO THE ADDITIO N IN RESPECT OF PF/ESI PAYMENTS WITHIN GRACE PERIOD. IN OUR CONSIDERED OPI NION, THE PAYMENT OF PF/ESI WITHIN GRACE PERIOD AS ALLOWABLE AS PER THE PROVISIONS OF RESPECTIVE ACT HAS TO BE ACCEPTED AS THE PAYMENT MA DE WITHIN DUE DATE. EVEN IF THE PAYMENT IS MADE AFTER THE GRACE PERIOD, BUT BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME, NO DISALLOW ANCE CAN BE MADE AS PER THIS DECISION OF HONBLE APEX COURT CITED BY TH E LD. AR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THIS JUDGMENT OF H ONBLE APEX COURT, ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 3 WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OF FICER. THEREFORE, THESE GROUNDS OF APPEAL ARE ALLOWED. 5. GROUND NO.3 IS AS UNDER:- THE HONBLE CIT (A) HAS ERRED IN LAW AND ION THE F ACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OF FICER TOWARD WEIGHTED DEDUCTION U/S. 35(2AB) OF THE I,.T. ACT, I N RESPECT OF SCIENTIFIC RESEARCH EXPENSES RS.36,80,491/-. THE DI SALLOWANCE MAY BE CANCELLED. 6. BRIEF FACTS TILL THE ASSESSMENT STAGE ARE NOTED BY THE LD. CIT (A) IN PARAGRAPH 6 OF HIS ORDER WHICH IS REPRODUCED AS UND ER:- 6. AS PER GROUND NO.5, THE ASSESSEE HAS OBJECTED T O THE ADDITION OF RS.36,80,491/- OUT OF WEIGHTED DEDUCTIO N ON EXPENSES CONNECTED WITH SECTION 35(2AB) FOR APPROVED R & D. IT WAS OBSERVED BY THE A.O. FROM THE ANNEXURE E-1 TITLED A S AMOUNT ADMISSIBLE U/AS. 35(1)(IV)/35(2AB)/35(AC)/35(2) OF 3CD REPORT, THAT THE ASSESSEE HAD CLAIMED SOME PAYMENTS MADE TO THE OUTSIDE INSTITUTES AND CLAIMED THE DEDUCTION ON THE SAME U/S. 35(2AB). THEREFORE, THE A.O. ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE BENEFIT OF SEC.35 (2AB) ON THE EXPENSES CLA IMED WHICH HAS NOT BEEN INCURRED ON ANY IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY SHOULD BE ALLOWED. IT WAS FURTHER NOTICED THAT ON THIS ISSUE DSIR (DEPT. OF SCIENTIFIC & INDUSTRIAL RESEARCH, GO VT. OF INDIA), THE PRESCRIBED AUTHORITY U/S. 35(2AB), HAS GIVEN ITS FI NDING IN THE FORM, NO.3CD,DATED 2.1.2004, IN WHICH THE ABOVE EXPENSES HAVE BEEN EXCLUDED FOR THE BENEFIT OF SEC. 35(2AB). AND SINCE THE BENEFIT OF THIS SECTION IS SUBJECT TO THE REPORT SUBMITTED BY THE PRESCRIBED AUTHORITY TO THE DIRECTOR GENERAL (INCOME TAX EXEMP TION) UNIFORM NO, 3C1, AND SINCE IN THIS REPORT ITSELF THE PRESCR IBED AUTHORITY HAS EXCLUDED THESE EXPENSES FROM THE CATEGORY OF EXPENS ES TO BE GIVEN BENEFIT UNDER THIS SECTION, THE SAME CANNOT B E ALLOWED TO THE ASSESSEE. THEREFORE, THE A.O. DISALLOWED AN AMOUNT OF RS.36,80,491/-. ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 4 7. BERING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD. CIT (A) BUT WITHOUT SUCCESS AND NOW THE ASS ESSEE IS IN FURTHER APPEAL TO US. 8. THE LD. AR OF THE ASSESSEE PLACED RELIANCE ON TH E TRIBUNAL DECISION RENDERED IN THE CASE OF ACIT VS. TORRENT P OWER LTD., IN ITA NO.3569/AHD/2004 & C.O. NO.18/AHD/2005 AND HE SUBMI TTED THE COPY OF THIS TRIBUNAL DECISION. HE ALSO PLACED RELIANCE ON ANOTHER TRIBUNAL DECISION RENDERED IN THE CASE OF CLARIS LIFE SCIE NCES LTD. VS. ACIT AS REPORTED IN 112 ITD 307 (AHD) AND HE ALSO PLACED RE LIANCE ON THE DECISION OF HONBLE GUJARAT HIGH COURT RENDERED I N THE SAME CASE OF CIT VS. CLARIS LIFE SCIENCES LTD.,(2010) 326 ITR 25 1 (GUJ.). IT WAS ALSO SUBMITTED THAT THE DISALLOWANCE OF THE CLAIM OF THE ASSESSEE REGARDING WEIGHTED DEDUCTION WAS REJECTED ON THE BASIS OF THE REPORT OF DSIR. IT IS ON THIS BASIS THAT THESE EXPENSES ARE NOT INCURRED FOR IN-HOUSE R & D FACILITY OF THE COMPANY AND THE PAYMENT TO INSTITUT ES ARE SPONSORED RESEARCH AND THAT FOR THE CLINICAL TRIALS UNDERTAKE N ETC., R & D IS NOT COVERED BY WEIGHTED DEDUCTION PROVISIONS AS PER SEC TION 35(2AB). IT WAS HIS SUBMISSION THAT THE A.O. HAS BASED HIS DECISION ON REPORT OF DSIR AND HELD THAT THESE EXPENSES ARE INCURRED NOT FOR I N HOUSE APPROVED R & D FACILITY OF THE COMPANY AND IT WAS HELD THAT TH E PAYMENTS TO INSTITUTES ARE SPONSORED RESEARCH AND THAT THE C LINICAL TRIALS ARE UNDERTAKEN OUTSIDE THE R & D. HE FURTHER CLARIFIED THAT THESE ARE ONLY A PART OF THE RESEARCH WORK FOR WHICH THE WORK OF NAT IONAL LABORATORIES GOVERNMENT INSTITUTION ARE AVAILED AND NOT REALLY S PONSORED RESEARCH AND THE NATURE OF THESE IS LIKE PROCESSING THE RESE ARCH MATERIAL FOR IN HOUSE RESEARCH WHICH IS VERY WELL IN HOUSE RESEARCH EXPENSES. IT WAS SUBMITTED THAT THE ISSUE ABOUT CLINICAL TRIAL IS CO VERED BY EXPLANATION TO SECTION 35(2AB) INSERTED FROM 1-4-2002 AND HENCE FO R CLINICAL TRIAL, IT IS ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 5 NOT NECESSARY TO BE IN HOUSE BECAUSE THE EXPLANATIO N INCLUDES EXPENSES INCURRED IN RESPECT OF OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CENTRAL, STATE OR PROVINCIAL AC T,1970 AND APPLIES FOR OBTAINING APPROVAL UNDER THE PATENTS ACT, 1970 AND THESE EXPENSES CANNOT BE IN HOUSE AND THEREFORE, THIS CONDITION OF IN HOUSE EXPENSE ALONE CANNOT BE APPLICABLE TO THESE EXPENSES AND SI NCE CLINICAL TRIAL IS ALSO INCLUDED IN THIS EXPLANATION, FOR ALL THESE EX PENDITURE COVERED BY THIS EXPLANATION, THE REQUIREMENT OF INCURRING ONLY IN HOUSE EXPENDITURE IS NOT APPLICABLE. HE ALSO SUBMITTED THAT CLINICAL TRIAL CANNOT BE CARRIED OUT IN HOUSE AND FOR THIS REASON ALSO, CLINICAL DRU G TRIAL HAVE TO BE CONSIDERED FOR WEIGHTED DEDUCTION U/S. 35 (2AB). A S AGAINST THIS LD. DR SUPPORTED THE ORDER OF AUTHORITIES BELOW. REGARDING RELIANCE PLACED BY THE LD. A.R. OF THE ASSESSEE ON THE DECISION IN THE CASE OF ACIT VS. TORRENT POWER LTD., IT WAS SUBMITTED THAT THE SAME IS FALLING IN A.Y. 2001-02 WHEREAS EXPLANATION HAS BEEN INSERTED W.E.F . A.Y. 2002-03 AND THEREFORE, THIS TRIBUNAL DECISION IS NOT APPLICABLE IN THE PRESENT CASE. HE ALSO SUBMITTED THAT EXPLANATION TO SEC. 35(2AB) OR TO ANY SECTION, IT ONLY EXPLAINS THE MAIN PROVISION AND DOES NOT ALTER OR M ODIFY THE MAIN PROVISION AND SINCE THERE IS CONDITION IN THE MAIN PROVISION FOR INCURRING THE EXPENDITURE IN HOUSE, AS PER EXPLANATION ALSO, THE EXPENDITURE INCURRED IN HOUSE ONLY IS ELIGIBLE FOR WEIGHTED DED UCTION. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND JUDGMENTS CITED BY THE LD. AR OF THE ASSE SSEE. WE FIND THAT IN THE CASE OF ACIT VS. TORRENT PHARMACEUTICALS LTD . (SUPRA), IT IS NOTED BY THE TRIBUNAL ON PAGE-10 OF THE TRIBUNAL THAT AN AMOUNT OF RS.51.26 LAKHS WAS INCURRED IN RESPECT OF THE EXPENSES RELAT ING TO CLINICAL TRIALS ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 6 OUTSIDE THE APPROVED FACILITY. THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL AS PER PARA 10 OF ITS ORDER WHICH IS REPRO DUCED BELOW:- 10. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT IS ONLY THE EXPENDITURE WHICH WILL ONL Y BE ALLOWED, WHEREAS THE ASSESSEE VIDE THE COPY OF THE LETTER RE PRODUCED HEREINABOVE HAS VERY CLEARLY EXPLAINED AS TO HOW TH E ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE IS ALLOWABLE. T HUS THERE WAS NO JUSTIFICATION IN HARPING UPON THE FIGURE CONTAIN ED IN FORM NO.3CL AS IS DONE BY THE ASSESSING OFFICER. THE PRO VISIONS OF THE ACT IT DOES NOT CONTAIN ANY SPECIFIC CONDITIONS FOR THE ALLOWANCE OF EXPENDITURE TO THE EFFECT THAT IT WILL BE RESTRICTED THAT CONTAINED IN FORM NO.3CL.NEEDLESS TO POINT OUT THAT SUCH ALLOWABLE EX PENDITURE IS REPORTED BY THE DSIR TO DG (INCOME TAX EXEMPTION),K OLKATA WITHOUT GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHEREVER HE QUANTIFIES THE EXPENDITURE WHICH IS LES S THAN THAT CLAIMED BY THE ASSESSEE. WE FURTHER FIND THAT THE A SSESSEE HAS INCLUDED A SUM OF RS.51.26 LAKHS AS ELIGIBLE EXPEND ITURE BEING REVENUE EXPENDITURE RELATING TO BUILDING AND ANOTHE R SUM OF RS.133.92 LAKHS BEING REVENUE EXPENDITURE OTHER THA N BUILDING, WHICH WAS CONSIDERED AS REVENUE BY THE ASSESSING OF FICER HIMSELF. THESE ITEMS CLEARLY ARE WITHIN THE PURVIEW OF ALLOWABLE U/S. 35(2AB) OF THE ACT AS WEIGHTED DEDUCTION. THE SECURITY EXPENSES ARE ALSO DIRECTLY RELATED TO IN-HOUSE RESE ARCH AS PROPER SECURITY IS REQUIRED TO AVOID LEAKAGE AND ONLY IN-H OUSE STAFF WILL HAVE ASSESSED TO BUILDING. ACCORDINGLY, THIS EXPEND ITURE IS FOR PRESERVING THE RESEARCH WHICH IS COMPLETED AND ITS CLINICAL TRIAL IS PENDING. AS REGARDS TO THE ENVIRONMENTAL ISSUE, THE ASSESSEE- COMPANY HAS SET UP AN AFFLUENT PLANT AND AS IS WIDE LY ACCEPTED THE VEGETATION, I.E. TREES HAVE CONTAINED THE POLLU TION. THIS EXPENDITURE OF GARDENING AND PLANTATION HAS BEEN DO NE FOR THE PERSEVERANCE OF ENVIRONMENT AND THIS IS DIRECTLY RE LATED TO R & D FACILITIES. AS REGARDS TO SALARY PAID TO DR. C. DUT T AMOUNTING TO RS.58.54 LAKHS, HE IS IN-CHARGE OF R & D CENTRE AT BHAT. HE IS THE PERSON THROUGH WHOM ALL CO-ORDINATION OF TECHNICAL SCIENTISTS AND OTHER TECHNICAL PERSONS ARE CARRIED OUT. THE ENTIRE REPORTING OF THE RESEARCH ACTIVITY TO THE MANAGEMENT HAS BEEN TAKEN TO THE BOARD OF DIRECTORS THROUGH HIM ONLY AND FOR THIS THE SALA RY IS PAID. ACCORDINGLY, THE ASSESSEE HAS RIGHTLY PAID THE ENTI RE EXPENDITURE OF RS.133.92 LAKHS AND BUILDING REPAIRS RS.37.55 LA KHS ON WHICH WEIGHTED DEDUCTION U/S. 35(2AB) OF THE ACT IS ALLOW ABLE. IN VIEW OF ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 7 THE ABOVE DISCUSSION, WE ALLOW THE CLAIM OF THE ASS ESSEE AND THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED AND THAT OF THE ASSESSEES CO IS ALLOWED. 10. FROM THE ABOVE PARAGRAPH OF THE TRIBUNAL, WE FI ND THAT EVEN PRIOR TO INSERTION OF EXPLANATION FROM ASSESSMENT YEAR 20 02-03, THE TRIBUNAL HAS ALLOWED WEIGHTED DEDUCTION TO THE ASSESSEE IN R ESPECT OF CLINICAL DRUG TRIALS ALSO. WE ALSO FIND THAT THE CLAIM OF TH E ASSESSEE IN THAT CASE, ALSO INCLUDED PROFESSIONAL FEES OF RS.48 LAKHS. IT WAS HELD BY THE TRIBUNAL THAT THE ENTIRE EXPENSE IS ALLOWABLE FOR W EIGHTED DEDUCTION. HENCE, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THIS TRIBUNAL DECISION BECAUSE IT IS NOT THE CASE MADE O UT BY THE AUTHORITIES BELOW THAT THE AMOUNT OF RS.68,60,981/- PAID TO VAR IOUS INSTITUTIONS ARE FOR CARRYING OUT FULL RESEARCH AND NOT ONLY A SMALL PART OF THE RESEARCH WORK AND NO EVIDENCE IS PLACED ON RECORD BEFORE US TO CONTROVERT THIS ASSERTION OF THE ASSESSEE THAT THESE EXPENDITURE ON ACCOUNT OF PAYMENT TO VARIOUS INSTITUTIONS IS NOT ON ACCOUNT OF FULL R ESEARCH DONE IT IS ONLY ON ACCOUNT OF PROCURING OF SOME MATERIAL OR SERVICE OR SMALL PORTION OF THE RESEARCH. BUT AT THE SAME TIME, NO CORROBORATIVE MA TERIAL IS PLACED BY THE LEARNED AR OF THE ASSESSEE IN SUPPORT OF THIS C LAIM AND ASSERTION. UNDER THESE FACTS, WE FEEL THAT THIS ISSUE SHOULD G O BACK FOR FRESH DECISION WITH REGARD TO ALLOWABILITY OF DEDUCTION U /S. 35(2AB) IN RESPECT OF PAYMENT OF RS.68,60,981/- TO VARIOUS INSTITUTION S AND IF IT IS FOUND THAT THE SAME IS NOT IN RESPECT OF FULL RESEARCH BUT ON LY IN RESPECT OF PROCURING OF SOME MATERIAL OR SERVICE THEN THE SAME SHOULD ALSO BE CONSIDERED FOR WEIGHTED DEDUCTION. WITH REGARD TO T HE AMOUNT OF RS.5 LAKHS SPENT BY THE ASSESSEE FOR CLINICAL TRIAL EXPE NSES, WE HOLD THAT THE SAME IS SQUARELY COVERED BY THE TRIBUNAL DECISION A ND IS ELIGIBLE FOR WEIGHTED DEDUCTION U/S. 35(2AB) OF THE ACT. ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 8 11. NOW WE DISCUSS THE CONTENTION OF THE LD. DR OF THE REVENUE THAT THIS SHOULD ALSO BE IN-HOUSE AS PER THE MAIN PROVIS IONS OF SECTION 35 (2AB) OF THE ACT. WE WOULD LIKE TO OBSERVE THAT FRO M THE MAIN SECTION 35 (2AB) AND EXPLANATION TO THIS SECTION, IT IS SEEN T HAT AS PER THE MAIN PROVISIONS, EXPENDITURE ON SCIENTIFIC RESEARCH ARE ELIGIBLE FOR WEIGHTED DEDUCTION WITH THE CONDITION THAT IT SHOULD BE INCU RRED ON IN HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY TH E PRESCRIBED AUTHORITY. AS PER THE EXPLANATION, EXPENDITURE ON S CIENTIFIC RESEARCH IN RELATION TO DRUG AND PHARMACEUTICALS SHALL INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL AND FOR OBTAINING APPROVAL F ROM VARIOUS AUTHORITIES . NOW THE QUESTION IS THIS THAT WHETHER SUCH EXPENDIT URE ON CLINICAL TRIAL AND OBTAINING APPROVAL FROM ANY REGULATORY AUTHORIT Y SHOULD BE INCURRED IN-HOUSE AS PER THE COMBINED READING OF MAIN SECTIO N AND ITS EXPLANATION BECAUSE ADMITTEDLY, THE EXPENDITURE TO BE INCURRED FOR OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY CA NNOT BE INCURRED IN- HOUSE AND IF THIS CONDITION REGARDING IN-HOUSE INCU RRING OF EXPENDITURE IS NOT APPLICABLE TO THIS PART OF EXPENDITURE COVERED BY THE EXPLANATION, IT CANNOT BE SAID THAT THE SAID CONDITION CAN BE APPLI ED TO CLINICAL DRUG TRIAL BECAUSE CLINICAL DRUG TRIAL ALSO CANNOT BE IN-HOUSE IN NORMAL COURSE BECAUSE CLINICAL DRUG TRIAL MEANS WHICHEVER DRUG IS INVENTED BY WAY OF RESEARCH, IT HAS TO BE TRIED FIRST ON ANIMALS AND T HEN ON HUMAN AND SUCH CLINICAL DRUG TRIAL IS FOR THE PURPOSE OF NOTING EF FECTIVENESS OF THE DRUG AND TO ENSURE THAT BY THE APPLICATION OF THE SAID D RUG, EITHER THERE IS NO SIDE EFFECT OF THESE DRUG OR SUCH SIDE EFFECT IS WI THIN ALLOWABLE LIMIT . 12. WE ARE OF THE CONSIDERED OPINION THAT SUCH CLIN ICAL DRUG TRIAL CANNOT BE IN-HOUSE IN MOST OF THE CASES AND THEREFO RE, IF IT IS INTERPRETED THAT CLINICAL DRUG TRIAL EXPENSES SHOULD ALSO BE IN CURRED FOR IN-HOUSE ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 9 CLINICAL DRUG TRIAL ONLY, THEN THERE WILL BE PRACTI CALLY NO CLINICAL DRUG TRIAL EXPENSES WHICH WOULD BE ELIGIBLE FOR WEIGHTED DEDUC TION AND HENCE, IT WILL RENDER THE EXPLANATION INOPERATIVE. IN OUR CO NSIDERED OPINION, THE RATIONAL INTERPRETATION OF THE PROVISIONS OF SECTIO N 35(2AB) AND ITS EXPLANATION SHOULD BE THIS THAT THESE EXPENSES WHIC H ARE INCLUDED IN EXPLANATION BEING EXPENDITURE FOR CLINICAL DRUG TRI AL AND FOR APPROVAL OF REGULATORY AUTHORITY ETC., SHOULD BE IN RELATION TO SCIENTIFIC RESEARCH CARRIED OUT IN-HOUSE RESEARCH & DEVELOPMENT FACILIT Y AND THE SAID EXPENSES SHOULD NOT BE IN RELATION TO RESEARCH RESU LT WHICH IS NOT OBTAINED FROM IN-HOUSE RESEARCH AND DEVELOPMENT FAC ILITY AND IT IS NOT NECESSARY THAT THE EXPENDITURE ITSELF ON CLINICAL DRUG TRIAL SHOULD BE INCURRED IN-HOUSE. FOR THE PURPOSE OF READY REFEREN CE, WE REPRODUCE BELOW SECTION 35 (2AB) AND ITS EXPLANATION WHICH AR E AS UNDER:- 35(2AB) WHERE A COMPANY ENGAGED IN THE BUSINESS OF [BIO- TECHNOLOGY OR IN [ANY BUSINESS OF MANUFACTURE OR PR ODUCTION OF ANY ARTICLE OR THING, NOT BEING AN ARTICLE OR THING SPE CIFIED IN THE LIST OF THE ELEVENTH SCHEDULE] ] INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPENDITURE IN THE NATURE OF CO ST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEVELOPMENT FACI LITY AS APPROVED BY THE PRESCRIBED AUTHORITY, THEN, THERE S HALL BE ALLOWED A DEDUCTION OF [A SUM EQUAL TO [ONE AND ONE-HALF] T IMES OF THE EXPENDITURE] SO INCURRED. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, EXP ENDITURE ON SCIENTIFIC RESEARCH, IN RELATION TO DRUGS AN PHARMA CEUTICALS, SHALL INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL , OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CE NTRAL, STATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATE NT UNDER THE PATENTS ACT, 1970 (39 OF 1970). 13. IN VIEW OF THE ABOVE DISCUSSION, WE FIND THAT T HE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) F OR ALLOWING WEIGHTED DEDUCTION IN RESPECT OF CLINICAL DRUG TRIAL IS UNWA RRANTED AND THEREFORE, ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 10 THE SAME IS DELETED AND WE DIRECT THE A.O. TO ALLOW WEIGHTED DEDUCTION IN RESPECT OF RS.5 LAKHS INCURRED BY THE ASSESSEE IN THE PRESENT CASE FOR CLINICAL DRUG TRIAL BECAUSE IT IS NOT THE CASE OF T HE A. O. THAT THE SAME IS NOT IN RELATION TO IN HOUSE RESEARCH. FOR THE SECON D EXPENSE WHICH IS NOT CONSIDERED FOR ALLOWING WEIGHTED DEDUCTION U/S. 35(2AB) I.E. FOR RS.68,60,981/- BEING THE PAYMENT TO VARIOUS INSTITU TIONS, WE SET ASIDE THE ORDER OF THE LD. CIT (A) AND RESTORE BACK THE M ATTER TO THE FILE OF THE A.O. FOR A FRESH DECISION IN THE LIGHT OF ABOVE DIS CUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . 14. THIS GROUND OF APPEAL IS ALLOWED, IN THE MANNE R INDICATED ABOVE. 15. GROUND NO.4 IS AS UNDER:- 4. THE HONBLE CIT (A) HAS ERRED IN LAW AND O THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE MADE BY THE A.O . TOWARDS FOREIGN EXCHANGE RATE FLUCTUATION RS.33,39,389/-.TH E DISALLOWANCE MAY BE CANCELLED. 16. BRIEF FACTS OF THIS ISSUE TILL THE ASSESSMENT S TAGE ARE NOTED BY THE LD. CIT(A) IN PARAGRAPH 4 OF HIS ORDER WHICH IS REP RODUCED BELOW:- 4. THE APPELLANT HAS OBJECTED TO THE ADDITION OF RS.33,39,389/- OUT OF FOREIGN EXCHANGE LOSS CONSIDERED AS CAPITAL. THE A.O. HAS DISCUSSED THIS ISSUE AT PAGE-20 & 21 OF THE ASSESSM ENT ORDER. IT WAS NOTICED BY THE A.O. THAT THE APPELLANT HAS DEBI TED ITS ACCOUNT ON ACCOUNT OF FOREIGN EXCHANGE LOSS (NET) OF RS.21, 07,127/-. IT WAS OBSERVED FROM THE DETAILS FILED BY THE APPELLANT TH AT THIS LOSS HAS ARISEN BECAUSE OF REPAYMENT OF PRINCIPAL AMOUNT AND ON CONVERSION OF IOB FCNRB LOAN TO UNION BANK OF INDIA LTD. IT WAS OBSERVED BY A.O. THAT IT IS ADMITTED FACT THAT IOB FCNRB LOAN WAS TAKEN FOR THE PURPOSE OF CERTAIN PLANT AND MACHINER Y. THEREFORE, CONSIDERING THE PROVISIONS OF SECTION 43A, THE A.O. TREATED IT AS PART OF BLOCK OF ASSETS AND ALLOWED DEPRECIATION. I T WAS FURTHER ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 11 OBSERVED THAT THE CONTENTIONS PUT-FORTH BY THE APPE LLANT THAT THE AMOUNT BEING REVENUE EXPENDITURE IS UNTENABLE. 17. BEING AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT (A) BUT WITHOUT SUCCES S AND NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 18. IT WAS FAIRLY ADMITTED BY THE LD. AR OF THE ASS ESSEE THAT THIS ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DEC ISION OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. WO ODWARD GOVERNOR INDIA PVT. LTD. (2007) (294 ITR 451)(DELHI). RESPEC TFULLY FOLLOWING THE SAID DECISION, WE DECLINE TO INTERFERE WITH THE ORD ER OF THE LD. CIT (A) ON THIS ISSUE BECAUSE THIS IS AN ADMITTED FACT IN THE PRESENT CASE THAT THIS EXPENDITURE WAS INCURRED BY THE ASSESSEE IN RESPECT OF LOAN FROM THE BANK WHICH WERE USED FOR ACQUISITION OF CERTAIN PLA NT AND MACHINERY. THIS GROUND OF THE ASSESSEE IS REJECTED. 19. GROUND NO.5 IS AS UNDER:- 5. THE HONBLE CIT (A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE MADE BY A.O. IN CALCULATING ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANS ACTION WITH ASSOCIATE ENTERPRISERS RS.1,39,10,552/-.THE DISALLO WANCE MAY BE CANCELLED. 20. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE LD. CIT (A) IN PARAGRAPH 11.2 WHICH IS REPRODUCED BELOW:- 11.2. I HAVE CONSIDERED THE SUBMISSION OF THE APP ELLANT. I HAVE ALSO PERUSED THE ORDER OF THE TPO DATE 28-2-20 05 AND I FIND THAT TPO HAS CONSIDERED THE OBJECTIONS RAISED BY TH E APPELLANT IN THE ORDER THOROUGHLY AND GIVEN VARIOUS REASONS FOR NOT ACCEPTING THE OBJECTION AND HAD CONCLUDED THAT THE INTERNATIO NAL TRANSACTIONS ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 12 WERE NOT AT ARMS LENGTH AND THEREFORE I FIND THAT T HE ADJUSTMENT MADE BY THE TPO/A.O. ARE BASED ON CORRECT APPRECIAT ION OF FACTS AND LAW. THEREFORE, THE ADDITION MADE BY THE A.O/TP O IS JUSTIFIED AND THE SAME IS CONFIRMED. 21. BOTH SIDES AGREED THAT THE ORDER OF LEARNED CI T (A) IS NOT A SPEAKING AND REASONED ORDER. CONSIDERING THIS ASPEC T THAT THE LD. CIT (A) HAS NOT PASSED SPEAKING AND REASONED ORDER, WE FEEL THAT IN THE INTEREST OF JUSTICE, THIS MATTER SHOULD GO BACK TO HIM FOR FRESH DECISION BY PASSING A SPEAKING AND REASONED ORDER. HENCE, WE RE STORE THIS ISSUE TO THE FILE OF CIT (A). HE SHOULD PASS SPEAKING AND WE LL REASONED ORDER AS PER LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEI NG HEARD TO BOTH THE PARTIES. 22. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 23. GROUND NO.6 IS AS UNDER:- THE HONBLE CIT (A) HAS ERRED IN LAW AND ON THE F ACTS OF THE CASE IN CONFIRMING DISALLOWANCE MADE BY A.O. TOWARD S CLAIM OF THE APPELLANT U/S. 80HHC OF THE I.T. ACT RS.18,08,316/- . THE DISALLOWANCE MAY BE CANCELLED. 24. IT WAS SUBMITT4ED BY THE LD. A.R. OF THE ASSESS EE THAT THERE ARE THREE ASPECTS OF THE MATTER REGARDING ALLOWING OF D EDUCTION TO THE ASSESSEE U/S. 80HHC. HE FURTHER SUBMITTED THAT FIRS T ASPECT IS REGARDING INCLUSION OF EXCISE DUTY AND SALES TAX IN TOTAL TU RNOVER AND THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE J UDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS. SRI JAY AJOTHI AND CO. LTD. 290 ITR 660 (SC). SECOND ASPECT IS REGARDING REDUCT ION OF 90% OF MISC. INCOME FROM THE BUSINESS PROFIT AS PER EXPLANATION (BAA) TO SECTION 80HHC. HE OBJECTED TO THIS TREATMENT GIVEN BY THE A UTHORITIES BELOW TO THE MISC. INCOME BUT HE COULD NOT BRING ON RECORD A NY MATERIAL TO SHOW ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 13 THAT THIS MISC. INCOME IS NOT COVERED BY CLAUSE (BA A) OF SECTION 80HHC AND HENCE, THIS ASPECT IS DECIDED AGAINST THE ASSES SEE. HE FURTHER STATED THAT THE THIRD ASPECT IS SET OFF OF NEGATIVE PROFIT AGAINST POSITIVE PROFIT BUT THIS ISSUE IS SQUARELY COVERED AGAINST T HE ASSESSEE BY THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CAS E OF IPCA LABORATORY AS REPORTED IN 266 ITR 521 AND HENCE, THIS ASPECT S HOULD BE ACCORDINGLY DECIDED. WE HOLD THAT ON THIS ASPECT ALSO, NO INTER FERENCE IS CALLED FOR IN THE ORDER OF LD. CIT (A).ACCORDINGLY, THIS GROUND O F THE ASSESSEE IS PARTLY ALLOWED I.E. THE ISSUE OF INCLUSION OF EXCISE DUTY AND SALES TAX IN TOTAL TURNOVER IS DECIDED IN FAVOUR OF THE ASSESSEE AND T HE REMAINING ASPECTS ARE DECIDED AGAINST THE ASSESSEE. THIS GROUND OF AP PEAL IS PARTLY ALLOWED. 25. GROUND NO.7 IS AS UNDER:- 7. THE HONBLE CIT (A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE A.O. IN NOT AL LOWING MAT CREDIT BEFORE CHARGING INTEREST U/S. 234B & 234C OF THE I.T. ACT. THE A.O. MAY BE DIRECTED TO ALLOW MAT CREDIT. 26. THE LD. AR OF THE ASSESSEE PLACED RELIANCE ON T HE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS. TULSYAN NEC LTD. AS REPORTED IN 330 ITR 226(SC). THE LD. D.R. SUPPORTE D THE ORDERS OF THE AUTHORITIES BELOW. 27. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW AND THE JUDGMENT CITED OF THE LD. A.R. OF THE ASSESSEE. WE FIND THAT IN THIS CASE, IT WAS HELD BY THE HONBLE APEX COURT THAT FOR THE PURPOSE OF COMPUTATION OF INTEREST PAYABLE BY THE ASSESSEE U/S . 234B AND 234C, ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 14 THE CREDIT OF TAX ALLOWABLE IN TERMS OF SECTION 115 JAA OF THE ACT, 1961 HAS TO BE SET OFF AGAINST THE ADVANCE TAX PAYABLE B EFORE CALCULATING SUCH INTEREST. WE DIRECT THE A.O. ACCORDINGLY. THIS GROUND OF THE ASSESSEE IS ALSO ALLOWED. 28. GROUND NO. 8 IS AS UNDER:- 8. THE HONBLE CIT (A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE LEVY OF INTEREST U/S. 234B AND 234C OF THE I.T. ACT. THE SAME SHOULD BE DELETED. 29. THIS GROUND IS CONSEQUENTIAL. 30. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, IN TERMS INDICATED ABOVE. 31. NOW WE TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2 003-04 ITA NO.2804/AHD/2007. 32. GROUND NO.1 IS GENERAL IN NATURE AND HENCE DO N OT REQUIRE ADJUDICATION. 33. GROUND NO.2 IS AS UNDER:- 2 (A) THE HONBLE CIT (A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DISALLOWING A SUM OF RS.30,79,807/- TOW ARDS FOREIGN EXCHANGE RATE FLUCTUATION. THE DISALLOWANCE MAY BE CANCELLED. 2(B). THE HONBLE CIT (A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT ALLOWING ADDITIONAL DEPRECIATION OF RS.6,36,635/- ON ACCOUNT OF DISALLOWANCE MADE IN ASSESSMENT YEAR 200 2-03 IN RESPECT OF FOREIGN EXCHANGE RATE FLUCTUATION. ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 15 34. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THI S ISSUE AS PER GROUND NO. 2 (A) IS IDENTICAL TO GROUND NO.4 IN ASSESSMENT YEAR 2002-03 AND CAN BE DECIDED ACCORDINGLY. IN THAT YEAR, WE HAVE H ELD THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. CIT (A). ACCORDINGLY, IN THE PRESENT YEAR ALSO, GROUND NO. 2(A) OF THE ASSES SEE IS REJECTED. FOR GROUND NO.2 (B), WE FEEL THAT THIS ISSUE SHOULD GO BACK TO THE A.O. FOR EXAMINING THE FACT AS TO WHETHER DEPRECIATION WAS A LLOWED IN THE PRESENT YEAR IN RESPECT OF OPENING WDV AFTER THE ADDITION M ADE IN THE LAST YEAR ON ACCOUNT OF FOREIGN EXCHANGE RATE FLUCTUATION AND IF THE SAME IS NOT ALLOWED, THE SAME SHOULD BE ALLOWED. WE SET ASIDE T HE ORDER OF LEARNED CIT (A) ON THIS ISSUE AND RESTORE BACK THIS MATTER TO THE FILE OF A.O. GROUND NO.2 (A) IS REJECTED AND GROUND 2(B) IS ALLO WED FOR STATISTICAL PURPOSE. 35. GROUND NO.3 IS AS UNDER:- 3. THE HONBLE CIT (A) HAS ERRED IN LAW AND ON THE FACTS IN DISALLOWING A SUM OF RS.31,07,000/- IN CALCULATING ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTION WITH ASSOCIATE ENTERPRISE. THE DISALLOWANCE MAY BE CANCELLED. 36. FOR THIS GROUND, WE FIND THAT LD. CIT (A) HAS F OLLOWED THE ORDER OF HIS PREDECESSOR IN ASSESSMENT YEAR 2002-03. IN THAT YEAR, WE HAVE RESTORED THE ISSUE TO THE FILE OF CIT(A) FOR PASSIN G SPEAKING AND WELL REASONS ORDER AND HENCE, IN THIS YEAR ALSO, WE RES TORE THIS ISSUE BACK TO THE FILE OF LD. CIT(A) FOR PASSING A SPEAKING AND W ELL REASONED ORDER AFTER PROVIDING SUFFICIENT AND PROPER OPPORTUNITY O F BEING HEARD TO BOTH SIDES. THIS GROUND IS ALLOWED FOR STATISTICAL PURPO SE. 37. GROUND NIO.4 IS AS UNDER:- ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 16 4. THE HONBLE CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DISALLOWING A SUM OF RS.6,59,192/- TOWARDS PRIOR PE RIOD EXPENSES. THE DISALLOWANCE MAY BE CANCELLED. 38. THE LD. A.R. OF THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE LD. CIT (A) ON PAGES 55 TO 70 OF THE PAP ER BOOK. THE LD. DR SUPPORTED THE ORDER OF THE A.O. 39. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORDS AND HAVE GONE THROUGH THE ORDERS OF AUTH ORITIES BELOW. WE FIND THAT AS PER THE DETAILS AVAILABLE ON PAGE 55, THE TOTAL PRIOR PERIOD EXPENSES OF RS.7,34,792/- INCLUDES THE AMOUNT OF RS .1,46,513/- ON ACCOUNT OF ADVERTISEMENT EXPENSES, RS.75,000/- FOR COST AUDIT FEE AND RS.5,12,679/- ON ACCOUNT OF RAW MATERIAL PURCHASED. REGARDING THE FIRST ITEM RS.1,46,513/-, IT WAS SUBMITTED BY THE LD. AR BEFORE THE LD. CIT (A) THAT THE PAYMENT OF THESE INVOICES WAS MADE IN THE YEAR UNDER CONSIDERATION. WE DO NOT FIND ANY FORCE IN THIS CON TENTION BECAUSE IT COULD NOT BE SHOWN THAT THE PAYMENT OF THESE INVOIC ES WAS IN DISPUTE AND HENCE, WE FIND NO REASON TO INTERFERE IN THE OR DER OF LEARNED CIT (A) ON THIS ASPECT. FOR RS.75,000/-, IT WAS THE SUBMISS ION OF THE ASSESSEE THAT IT IS IN RESPECT OF COST AUDIT FEE OF AHMEDABA D UNIT FOR F.Y. 2000-01 AND 2001-02 BUT THE INVOICES ARE RECEIVED ONLY IN T HE MONTH OF OCTOBER, 2002. COPY OF BILLS OF COST AUDIT FEES IS PLACED IN THE PAPER BOOK, AS PER WHICH, THESE EXPENSES ARE IN RESPECT OF COST AUDIT FEE FOR F.Y. 2000-01 AND 2001-02 AND BOTH THE BILLS ARE DATED 1-10-2002 AND 3-6-2002 BUT THERE IS NO EVIDENCE IN THIS REGARD THAT THE AUDIT ITSELF WAS CARRIED OUT AFTER THE END OF THESE YEARS I.E. IN THE PRESENT YE AR. THE AUDIT WAS CARRIED OUT IN THE EARLIER YEARS AND HENCE, EVEN IF THE BILL WAS NOT RECEIVED IN THE PREVIOUS YEAR, EXPENSES SHOULD HAVE BEEN CONSIDERED IN THE RESPECTIVE YEAR AND HENCE DEDUCTION IS NOT ALL OWABLE IN THE YEAR ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 17 UNDER CONSIDERATION. THE THIRD ADDITION PERTAINS T O RAW MATERIAL PURCHASED. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE LD. CIT (A) THAT AN AMOUNT OF RS.9,87,320/- WAS PENDING TO BE PAYA BLE TO M/S. DEVANSH PHARMACHEM SUPPLIER OF RAW MATERIAL. HOWEVE R AS PER SUPPLIERS ACCOUNT, AN AMOUNT OF RS.15 LAKHS WAS PA YABLE. IT IS ALSO SUBMITTED THAT THE ASSESSEE DISPUTED THIS DIFFERENC E AMOUNT AND SUCH DISPUTE WAS SETTLED IN THE PRESENT YEAR. THE ASSESS EE HAS FURNISHED A COPY OF LEDGER ACCOUNT WHICH INDICATE THAT THERE IS PENDING BALANCE OF RS.15 LAKHS AS ON 1-4-99 AND SAME WAS PENDING BALAN CE EVEN AS ON 1- 10-2002 AND THERE IS A PAYMENT OF THE SAME AMOUNT O N 19-10-2002. THERE IS NO EVIDENCE IN THIS REGARD THAT THERE WAS ANY DISPUTE AND THE DISPUTE IS SETTLED IN THE PRESENT YEAR. HENCE ON TH IS ASPECT ALSO, THE ASSESSEE COULD NOT MAKE OUT A CASE FOR DEDUCTION. I N VIEW OF ABOVE, WE DO NOT FIND ANY MERIT IN THIS GROUND AND THE SAME I S REJECTED. 40. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 41. IN THE COMBINED RESULT, APPEAL FOR A.Y. 2002-03 IS PARTLY ALLOWED AND APPEAL FOR A.Y. 2003-04 IS ALSO PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 27 - 04- 2012. SD./- SD./- (MUKUL KUMAR SHRAWAT) (A.K. GARODIA) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. ITA NO.1440/A /06 & 2804/AHD/2007 A.YRS. 2002-0 3 & 2003-04. 18 COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)- 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 15 - 3 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 29 / 3 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 27 - 04 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 27 - 04 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 7 -04 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..