Aditya Medisales Limited, Baroda V. The Dy.CIT, Circle-1(1), Baroda

ITA 3049/AHD/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9910 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 18-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business expenditure; Earning of tax free income; Proportionate interest; Avoidance of tax; Commercial expediency; Rule 8D; Set aside
• Section: 43B; 143(3); 14A; 115JB; 37

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NOS. 3049/AHD/2014, 2511 & 3415, 2512 & 2513/AHD/2015 ( ASSESSMENT YEARS : 2008-09, 2009-10, 2010-11 & 2011 -12) ADITYA MEDISALES LIMITED 402, 4 TH FLOOR, R K CENTER, FATEHGUNJ, BARODA - 390002 / VS. DY. COMMISSONER OF INCOME TAX CRICLE-1(1), BARODA ./ ./ PAN/GIR NO. : AABCA9317J ( APPELLANT ) .. ( RESPONDENT ) & ./ I.T.A. NOS. 2548, 3354, 2549 & 2550/AHD/2015 ( ASSESSMENT YEARS : 2009-10, 2010-11 & 2011-12) THE DCIT CRICLE-1(1)(1), VADODARA 1 ST FLOOR, AAYKAR BHAVAN, RACE COURSE CIRCLE, VADODARA - 390007 / VS. ADITYA MEDISALES LIMITED ADMINISTRATIVE OFFICE C/O M/S. SUN PHARMA LTD. 3 RD FLOOR, F.P. 145, RAM MANDIR ROAD, VILLE PARLE (EAST), MUMBAI - 400057 REGISTERED OFFICER 402, 4 TH FLOOR, R K CENTER, FATEHGUNJ, BARODA - 390002 ( APPELLANT ) .. ( RESPONDENT ) / ASSESSEE BY : SHRI S. N. SOPARKAR, A.R. / REVENUE BY : SHRI ANSHU PRAKASH, CITD.R. SHRI VINOD TANWANI, SR.D.R. ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 2 - DATE OF HEARING 26/03/2019 ! / DATE OF PRONOUNCEMENT 29/03/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS AT THE INSTANCE OF ASSESSEE & REVENUE ARISE FROM THE RESPECTIVE ORDERS OF THE COMMISSIONE R OF INCOME TAX (APPEALS)-I, BARODA (CIT(A)) AGAINST RESPECTIVE A SSESSMENT ORDERS FOR DIFFERENT ASSESSMENT YEARS AS TABULATED BELOW: ITA NOS. NAME OF ASSESSEE AY CIT(A)S ORDER DATED AOS ORDER DATED AOS ORDER UNDER SECTION 3049/AHD/14 ADITYA MEDISALES LIMITED 2008-09 01.09.2014 30.04.2010 143(3) OF THE INCOME TAX ACT, 1961 2511 & 2548/AHD/15 -DO- 2009-10 11.06.2015 30.12.2011 -DO- 3415 & 3354/AHD/15 -DO- 2009-10 30.09.2015 22.01.2015 143(3) R.W.S. 263 R.W.S. 153(3) OF THE ACT 2512 & 2549/AHD/15 -DO- 2010-11 12.06.2015 26.02.2013 143(3) OF THE ACT 2513 & 2550/AHD/15 -DO- 2011-12 -DO- 31.12.2013 -DO- 2. AT THE TIME OF HEARING, IT WAS INFORMED BY BOTH THE SIDES THAT CROSS APPEALS OF THE REVENUE AND THE ASSESSEE CAPTI ONED ABOVE INVOLVE COMMON AND REPETITIVE ISSUES IN VARIOUS ASSESSMENT YEARS. ACCORDINGLY, ALL THE MATTERS WERE HEARD TOGETHER FO R CONSOLIDATED DISPOSAL OF APPEALS LISTED ABOVE. 3. WE SHALL NOW TAKE UP EACH APPEAL FOR ADJUDICATIO N AS UNDER; ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 3 - ITA NO. 3049/AHD/2014 (ASSESSEES APPEAL) AY 2008 -09 3. GROUND NO.1 CONCERNS DISALLOWANCE OF RS.5,85,14 8/- UNDER S.14A OF THE ACT R.W. RULE 8D OF THE INCOME TAX RUL ES. 3.1 THE LEARNED AR FOR THE ASSESSEE SUBMITTED AT TH E OUTSET THAT THE EXEMPT INCOME STAND AT RS.4000/- ONLY AND THEREFORE , THE DISALLOWANCE UNDER S.14A OF THE ACT CANNOT EXCEED THE AFORESAID AMOUNT. 3.2 WE FIND MERIT IN THE PLEA OF THE ASSESSEE IN VI EW OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CI T VS. CORRTECH ENERGY PVT. LTD. 372 ITR 97; DCIT VS. TGB BANQUETS HOTELS LTD. IN TAX APPEAL NO. 470 OF 2012 DATED 21.06.2016 (GUJARA T) AND JOINT INVESTMENT PVT. LTD. VS. CIT (2015) 372 ITR 694 (DE LHI). WE ALSO NOTE THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. VISION FINSTOCK LTD. TAX APPEAL NO. 486 OF 2017 JUDGMENT D ATED 31.07.2017 HAS EXPRESSED THE SIMILAR VIEW AND HELD THAT DISALL OWANCE OF EXPENDITURE IN TERMS OF SECTION 14A R.W. RULE 8D CA NNOT EXCEED THE EXEMPT INCOME ITSELF. AS POINTED OUT ON BEHALF OF THE ASSESSEE, SLP(CIVIL) [DIARY NO. 13152/2018] FILED BY THE REVE NUE AGAINST THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN VISIO N FINSTOCK LTD. (SUPRA) HAS BEEN DISMISSED ON MERITS BY THE HONBLE SUPREME COURT VIDE ORDER DATED 07.05.2018. THEREFORE, THE ISSUE IS NO LONGER RES INTEGRA. THE AO IS ACCORDINGLY DIRECTED TO RESTRICT THE DISA LLOWANCE UNDER S.14A OF THE ACT TO THE EXTENT OF EXEMPT INCO ME. 3.3 IN THE RESULT, GROUND NO.1 OF THE ASSESSEES AP PEAL IS ALLOWED IN PART. ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 4 - 4. GROUND NO.2 CONCERNS ADDITION IN THE BOOK PROFIT COMPUTED FOR THE PURPOSES OF SECTION 115JB OF THE ACT ON ACCOUNT OF DISALLOWANCE UNDER S.14A OF THE ACT. 4.1 IN VIEW OF THE LONG LINE OF JUDICIAL PRECEDENTS INCLUDING THE DECISION OF SPECIAL BENCH IN ACIT VS. VIREET INVEST MENTS LTD. 165 ITD 27 (SB), WE FIND MERIT IN THE PLEA OF THE ASSES SEE. THE AO IS ACCORDINGLY DIRECTED TO DELETE ADJUSTMENTS MADE TO THE BOOK PROFIT ON THIS SCORE. 4.2 IN THE RESULT, GROUND NO.2 IS ALLOWED. 5. GROUND NO.3 CONCERNS DISALLOWANCE OF PROVISION F OR LEAVE ENCASHMENT OF RS.1,20,778/- AND PROVISION FOR GRATU ITY OF RS.49,138/- UNDER S.43B OF THE ACT. 5.1 IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE SAID LIABILITIES ARE NOT IN THE NATURE OF STATUTORY LIAB ILITIES AND ARE THUS NOT COVERED BY THE SPIRIT OF PROVISION OF SECTION 43B O F THE ACT. 5.2 WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSID ERATION BY THE CO- ORDINATE BENCH OF TRIBUNAL IN INTEGRATED COAL MININ G LTD. VS. DCIT (2016) 67 TAXMANN.COM 260 (KOL) WHEREIN THE ISSUE W AS SET ASIDE TO THE FILE OF THE AO TO PASS APPROPRIATE ORDER BASED ON THE OUTCOME OF THE MAIN APPEAL ON MERITS BY THE SUPREME COURT IN E XIDE INDUSTRIES LTD. IN PARITY, THE GRIEVANCE OF THE ASSESSEE AS P ER GROUND NO.3 IS SET ASIDE TO THE FILE OF THE AO. 5.3 IN THE RESULT, GROUND NO.3 IS ALLOWED FOR STATI STICAL PURPOSES. ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 5 - 6. GROUND NO.4 CONCERNS DISALLOWANCE ON ACCOUNT OF DELAYED PAYMENTS OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDE NT FUND OF RS.54,775/-. 6.1 THE AFORESAID ISSUE HAS BEEN DECIDED AGAINST TH E ASSESSEE BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. G UJARAT STATE ROAD TRANSPORT CORPORATION [2014] 366 ITR 170 (GUJ). THE REFORE, THE GRIEVANCE OF THE ASSESSEE IS ANSWERED IN NEGATIVE A ND AGAINST THE ASSESSEE. 6.2 IN THE RESULT, GROUND NO.4 IS ACCORDINGLY DISMI SSED. 7. GROUND NO.5 CONCERNS ADJUSTMENT TO THE BOOK PROF IT COMPUTED UNDER S.115JB OF THE ACT TOWARDS PROVISION OF WEALT H TAX OF RS.34,940/-. 7.1 THE ASSESSEE SEEKS TO CLAIM THAT WEALTH TAX IS NOT A TAX DEFINED UNDER EXPLANATION 2 TO CLAUSE (A) OF EXPLANATION 1 TO SECTION 115JA OF THE ACT. IN PARITY WITH THE DECISION OF THE CO- ORDINATE BENCH IN ASB INTERNATIONAL (P.) LTD. 26 TAXMANN.COM 87 (MUM) AND CIT VS. ECHJAY FORGINGS (P.) LTD. 251 ITR 15 (BOM.), THE AO IS DIRECTED TO EXCLUDE THE PROVISION FOR WEALTH TAX FOR THE PURPOS ES OF COMPUTATION OF BOOK PROFIT. 7.2 IN THE RESULT, GROUND NO.5 IS ACCORDINGLY ALLO WED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 3049/AHD/2014 IS PARTLY ALLOWED. ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 6 - ITA NO. 2548/AHD/2015 (REVENUES APPEAL) AY 2009- 10 9. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) ERRED IN ALLOWING THE INTEREST OF RS.261962722/- BY TREATING IT AS BUSINESS EXPENDITURE, IGNORING THE FACT ON RECORD T HAT THE TRANSACTION BETWEEN ADITYA MEDISALES LTD. & M/S. SU N PHARMACEUTICAL INDUSTRIES LTD. IS NOT A TRANSACTION BETWEEN 2 UNRELATED PARTIES AS THE CONTROLLING PERSON IN BOTH THE COMPANY IS SAME I.E. MR. DILIP SHANGHVI AS PER THE AUDIT RE PORT U/S.44AB IN FORM 3CD FOR A.Y. 2009-10 SUBMITTED BY THE ASSES SEE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE DISCOUNT CLAIM OF RS.73480655/- BY IGNORING THE FACT ON RECORD THAT T HE ASSESSEE HAS NOT GIVEN DISCOUNT TO ITS C&F AGENTS WHO ARE DIRECTLY PURCHASING MEDICINES FROM THE ASSESSEE COMPANY, BUT THE ASSESSEE HAS MADE PAYMENT TO OTHER PARTIES, WHICH C ANNOT BE ALLOWED AS BUSINESS EXPENDITURE AND ALSO FAILED TO ANALYZE THE PAYMENTS AND ITS ADMISSIBILITY UNDER THE INCOME TAX ACT,1961. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N N LAW, THE LD.CIT(A) HOS ERRED IN ALLOWING THE DISALLOWANC E OF DONATION OF RS.1100000/- BY IGNORING TAX EXEMPTION CERTIFICATE ISSUED BY TRUST AND THE REMARKS OF THE TRUST WHERE DONATION IS MADE THAT THE DONATION WAS MADE ON BEHALF OF SHRI DILIP SANGHVI, WHO IS THE MANAGING DIRECTOR OF M/S. SU N PHARMA INDUSTRIES LTD, THEREFORE THIS PAYMENT CAN NOT BE CONSIDERED AS EXPENDITURE RELATED TO ADITYA MEDISALES LTD. 10. AS PER GROUND NO.1 OF THE REVENUES APPEAL, THE AO HAS AGITATED THE ACTION OF THE AO IN ALLOWING INTEREST OF RS.26,19,62,722/- BY TREATING IT AS BUSINESS EXPENDITURE AND REVERSIN G THE POSITION TAKEN BY THE AO. 10.1 AS OBSERVED BY THE AO, THE ASSESSEE IS PRIMARI LY ENGAGED IN THE BUSINESS OF TRADING OF THE MEDICINES MANUFACTURED B Y SUN PHARMA INDUSTRIES LTD. (SUN PHARMA). THE AO NOTICED THAT T HE ASSESSEE HAS PAID/CREDITED INTEREST TO THE ACCOUNT OF SUPPLIER S UN PHARMA ON ITS ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 7 - OUTSTANDING CREDIT FOR DELAY IN DISCHARGE OF OUTSTA NDING LIABILITY. THE ASSESSEE, ON THE OTHER HAND, HAS NOT CHARGED ANY IN TEREST FROM ITS DEBTORS FOR SALES CARRIED OUT NOR DOES SUN PHARMA P AYS ANY INTEREST TO ITS CREDITOR FOR OUTSTANDING LIABILITIES. THE AO A CCORDINGLY HELD THAT PAYMENT OF INTEREST ON OUTSTANDING CREDIT TO SUN PH ARMA IS NOTHING BUT AN ARRANGEMENT WITH SUN PHARMA WHO ALSO ARE ALLEGED TO BE CONTROLLERS OF THE ASSESSEE COMPANY. THE AO ACCORD INGLY DISALLOWED THE AFORESAID INTEREST OF RS.26.59CRORES BEING THE DIFFERENCE BETWEEN INTEREST EARNED BY THE ASSESSEE COMPANY FROM VARIOU S RESOURCES AND PAID TO SUN PHARMA. 10.2 IN THE FIRST APPEAL AGAINST THE AFORESAID ADDI TION, THE CIT(A) REVERSED THE ACTION OF THE AO AND FOUND MERIT IN TH E PLEA OF THE ASSESSEE THAT THE INTEREST EXPENSES WERE INCURRED F OR BUSINESS PURPOSES. THE CIT(A) ACCORDINGLY DELETED THE ADDIT ION TOWARDS DISALLOWANCE OF INTEREST. THE RELEVANT OPERATIVE P ARA OF THE ORDER OF THE CIT(A) IS REPRODUCED HEREUNDER: 4.14 WITH REGARD TO THE ISSUE REGARDING DISALLOWAN CE OF INTEREST OF RS.26,19,62,722/-, THE AO IN THE ASSESSMENT ORDER H AS MENTIONED THAT INTEREST INCOME EARNED BY THE APPELLANT WAS ROUTED BACK TO SUN PHARMA FOR CLAIMING DEDUCTION U/S 80IC. THE SAME ST AND HAS BEEN TAKEN BY THE AO IN HIS REMAND REPORT ALSO. IN THIS REGARD, THE AR OF THE APPELLANT AS PER HIS SUBMISSION DATED 18/01/201 3 HAS STATED THAT THE SPIL DID NOT HAVE ANY INCOME DURING THE YEAR UN DER CONSIDERATION WHICH WAS ENTITLED TO DEDUCTION U/S 8 0IC. IN OTHER WORDS, NO DEDUCTION OF ANY INCOME IN THE CASE OF SP IL WAS CLAIMED U/S 80IC. THUS, AS PER THE AR THE VERY BASIS AND FO UNDATION OF THE AO IN MAKING THE DISALLOWANCE WAS ERRONEOUS AND FLI MSY. I AGREE WITH THIS SUBMISSION OF AR OF THE APPELLANT. IT IS FURTHER SUBMITTED BY THE AR THAT IN FACT THE SPI HAS TWO NEW INDUSTRIAL UNDERTAKING WHICH ARE ELIGIBLE FOR DEDUCTION U/S 80IC OF WHICH ONE IN DUSTRIAL UNDERTAKING WAS ENTITLED TO DEDUCTION @ 25% ONLY FO R THE YEAR UNDER CONSIDERATION. AS PER THE AR THE APPELLANT COMPANY HAS PAID THE SAME RATE OF INTEREST TO BOTH SPIL AND SPI AND ENTI RE INTEREST INCOME EARNED BY SPIL WAS TAXABLE IN ITS HAND AND PART OF THE INTEREST INCOME EARNED BY SPI WAS TAXABLE IN ITS HAND. THE F ACT IS THAT AN AMOUNT OF INTEREST OF RS. 17,75,28,370/- WAS PAID B Y THE APPELLANT TO SPIL AND INTEREST OF RS. 48,17,09,245/- WAS PAID BY THE APPELLANT TO ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 8 - SPI. THE AO IN THE ASSESSMENT ORDER HAS MENTIONED T HAT THOUGH THE APPELLANT HAD PAID INTEREST OF RS. 66,19,55,722/-, BUT IT HAD ALSO EARNED INTEREST INCOME OF RS. 39,99,93,000/- AND IN VIEW OF THIS ONLY THE DIFFERENCE BETWEEN THE INTEREST PAID AND INTERE ST EARNED HAS BEEN TREATED BY THE AO AS NON-BUSINESS EXPENSES AND WHIC H HAS BEEN DISALLOWED BY HIM. AS PER THE AO THIS DIFFERENCE OF INTEREST OF RS. 26,19,62,722/- (I.E. INTEREST PAID OF RS, 66,19,55, 722/- INTEREST EARNED OF RS. 39,99,93,000/- WAS NON-BUSINESS EXPEN DITURE AND THE SAME WAS ROUTED BACK TO SUN PHARMA FOR CLAIMING DED UCTION U/S 80IC. THUS, AS PER THE AO PAYMENT OF THIS AMOUNT OF INTEREST OF RS. 26,19,62,722/- WAS NOTHING BUT AN ARRANGEMENT TO SO MEHOW CLAIM DEDUCTION U/S 80IC ON INCOME EARNED BY THE APPELLAN T COMPANY BY THE CONTROLLERS OF THE APPELLANT COMPANY WHO WERE N ONE OTHER THAN THE DIRECTORS OF M7S, SUN PHARMA. BUT THIS INTEREST OF RS, 26,19,62,722/- INCLUDES INTEREST OF RS. 17,75,28,37 0/- WHICH WAS PAID BY THE APPELLANT TO SPIL AND IN THE CASE OF SPIL TH ERE WAS NO ANY CLAIM OF DEDUCTION U/S 80IC OF THE ACT. IN OTHER WO RDS, THIS ENTIRE AMOUNT OF RS. 17,75,28,370/- WAS TAXABLE IN THE HAN DS OF SPIL THUS, THE FINDING OF THE AO THAT THIS ENTIRE AMOUNT OF IN TEREST OF RS. 26,19,62,722/- WAS ROUTED BACK TO SUN PHARMA FOR CL AIMING DEDUCTION U/S 80IC IS NOT CORRECT, THE APPELLANT HA D PAID INTEREST OF RS. 8,44,34,352/- TO SPI AND EVEN IF IT IS CONSIDER ED THAT THE REMAINING AMOUNT OF THIS INTEREST OF RS. 8,44,34,35 2/-OR ANY PART OF THIS INTEREST AMOUNT AS RECEIVED BY THE SPI WAS CLA IMED AS DEDUCTION U7S 80IC, THEN ALSO THIS INTEREST EXPENDITURE CANNO T BE DISALLOWED IN THE HANDS OF THE APPELLANT MERELY BY HOLDING THAT T HIS PAYMENT OF INTEREST BY THE APPELLANT TO SPI WAS NOTHING BUT AN ARRANGEMENT TO SOMEHOW CLAIM DEDUCTION U/S 80IC. IF SOMEONE GOES B Y THIS LOGIC OF THE AO, THEN NO ANY PAYMENT WOULD BE MADE BY A PERS ON TO ANOTHER PERSON IN WHOSE CASE DEDUCTION UNDER CHAPTER VIA OF THE INCOME TAX ACT IS CLAIMED AS SUCH PAYMENT WOULD BE CONSIDERED TO BE AN ARRANGEMENT FOR GETTING DEDUCTION. AS DISCUSSED IN EARLIER PARAGRAPHS OF THIS APPEAL ORDER THAT THE CASE OF TH E APPELLANT IS NOT COVERED BY THE PROVISIONS OF SECTION 40A(2) OF THE ACT AND THEREFORE IT CAN BE SAID THAT PAYMENT OF INTEREST IS MADE BY THE APPELLANT TO NON RELATED PARTIES. IN MY HUMBLE OPINION, EVEN IF THE CASE OF THE APPELLANT IS COVERED BY THE PROVISIONS OF SECTION 4 0A(2) AND THE APPELLANT COMPANY AND SPIL AND SPI ARE RELATED PART Y, THEN ALSO THIS ENTIRE PAYMENT OF INTEREST EXPENDITURE CANNOT BE DI SALLOWED. THIS IS IN VIEW OF THE FACT THAT WHEN THERE ARE TWO RELATED PARTIES IN TERMS OF PROVISIONS OF SECTION 40A(2)(B), THEN IN SUCH CASE REASONABLENESS OF PAYMENTS MADE BY ONE PARTY TO ANOTHER PARTY IS REQU IRED TO BE SEEN AND THIS IS NOT THAT ENTIRE PAYMENT IS REQUIRED TO BE DISALLOWED. IN THE CASE OF THE APPELLANT, THE PAYMENTS OF INTEREST HAVE BEEN MADE TO SPIL AND SPI @ 9% ONLY WHICH IN MY OPINION IS VERY REASONABLE LOOKING TO THE RATE OF INTEREST IN THE MARKET. THUS , EVEN IF THE CASE OF THE APPELLANT IS COVERED U/S 40A(2)(B), THEN ALSO T HE REASONABLENESS OF INTEREST PAYMENTS AS MADE TO SPIL AND SPI IS REQ UIRED TO BE SEEN AND ENTIRE PAYMENT OF INTEREST CANNOT BE DISALLOWED .. THE AO HAS RAISED THE OBJECTION THAT THE APPELLANT COMPANY DID NOT CHARGE ANY ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 9 - INTEREST FROM ITS DEBTORS AND SUN PHARMA ALSO DID N OT PAY ANY INTEREST TO ITS CREDITORS. BUT THIS ALLEGATION OF T HE AO IS NOT FOUND TO BE TENABLE. TO CARRY OUT THE BUSINESS IS THE DOMAIN OF THE BUSINESSMAN AND THE AO CANNOT STEP INTO THE SHOES O F THE BUSINESSMAN AND DICTATE THE BUSINESS TERMS. I AGREE WITH THE SUBMISSION OF THE AR OF THE APPELLANT THAT THE AO C ANNOT QUESTION THE COMMERCIAL JUDGMENT OR BUSINESS PRUDENCE OF THE APPELLANT AND DISALLOW THE INTEREST PAID ON THE GROUND THAT THE O THER PARTY HAS BENEFITTED FROM IT WITHOUT FIRST ESTABLISHING HOW S UCH INTEREST PAYMENT WAS NOT IN ACCORDANCE WITH THE BINDING CONT RACTUAL AGREED TO BY THE APPELLANT COMPANY. IT CAN ALSO NOT BE SAI D THAT AS AND WHEN AN EXPENDITURE IS INCURRED AN ASSESSEE SHOULD EARN INCOME/PROFIT AS IT DOES NOT REQUIRE THE PRESENCE OF A RECEIPT ON TH E CREDIT SIDE TO JUSTIFY THE DEDUCTION OF AN EXPENSE. 4.15 CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF CASE OF THE APPELLANT AS DISCUSSED IN DETAIL IN PRECEDING PARAG RAPHS OF THIS APPEAL ORDER IT IS HELD THAT THE AO IS NOT CORRECT IN MAKING DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 26,19,6 2,722/- BY TREATING THE SAME AS NON BUSINESS EXPENDITURE AND ON THE GRO UND THAT THE SAME HAS BEEN ROUTED BACK TO SUN PHARMA FOR CLAIMIN G DEDUCTION U/S 80IC AND THEREFORE SUCH DISALLOWANCE OF INTEREST EX PENDITURE OF RS. 26,19,62,722/- IS HEREBY DELETED. THUS THE GROUND O F APPEAL NO. 2 OF THE APPELLANT IS ALLOWED. 10.3 AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 10.4 IN THE REVENUES APPEAL, THE LEARNED AR FOR TH E ASSESSEE POINTED OUT THAT IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNA L IN ITS OWN CASE IN ITA NOS. 1665 & 1666/AHD/2009 CONCERNING AYS. 2005- 06 & 2006- 07, WHEREIN AFORESAID ADDITION STOOD DELETED. THIS APART, THE LEARNED AR FOR THE ASSESSEE ADVERTED TO THE DETAILED WRITTE N SUBMISSION MADE BEFORE THE CIT(A), REMAND REPORT AND REPLY THERETO AS REPRODUCED BY THE CIT(A) IN ITS ORDER AND SUBMITTED THAT THERE IS NO RELATIONSHIP BETWEEN THE ASSESSEE AND SUN PHARMA AND THE TRANSAC TIONS ARE NOT COVERED BY THE PROVISION OF SECTION 40A(2) OF THE A CT. 10.5 THE LEARNED DR, ON THE OTHER HAND, SUBMITTED T HAT WHILE THE ISSUE IS APPARENTLY DECIDED IN FAVOUR OF THE ASSESS EE BY THE TRIBUNAL IN ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 10 - PRECEDING ASSESSMENT YEARS, ONE CANNOT LOSE SIGHT O F THE FACT THAT BOTH THE CONCERNS ARE RELATED AS REVEALED FROM THE FACTS WHICH CAME TO LIGHT IN SURVEY PROCEEDINGS UNDER S.133A OF THE ACT. 10.6 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. WE FIND THAT THE ISSUE IS NO LONGER RES INTEGRA AND ADJUDICATED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE IN AYS. 2005-06 & 2006-07 IN ITA NO.1665 & 1666/AHD/2009 (SUPRA). THE RELEVANT OPERATIVE PA RA OF THE ORDER IS REPRODUCED HEREUNDER FOR READY REFERENCE: 4. NOW BEFORE US AN ORDER OF THE ITAT 'D' BENCH AH MEDABAD IN ASSESSEE'S OWN CASE BEARING ITA NO.3974/AHD/2007 PE RTAINING TO AY 2004-05 TITLED AS 'THE DY.CIT VS. ADITYA MEDISALES LTD.' DATED 4TH FEBRUARY, 2011 HAS BEEN CITED, WHEREIN THE ISSUE OF INTEREST DISALLOWANCE U/S.36(1)(III) HAS BEEN DECIDED IN FAV OUR OF ASSESSEE BY FOLLOWING FEW ORDERS OF THE TRIBUNAL ALSO DECIDED I N ASSESSEE'S OWN CASE IN ITS FAVOUR IN THE PAST. IN THE PAST ITAT 'D ' BENCH HAS TAKEN A VIEW FOR AYS 1999-2000, 2000-01, 2001-02, 2002-03 & 2003-04 IN ITA NOS.3272/AHD/2002, 1623/AHD/2003, 1353 & 2180/A HD/2005 AND ITA NO.08/AHD/2007 RESPECTIVELY VIDE ORDER DATED 30 /09/2010 IN ASSESSEE'S FAVOUR AGAIN BY FOLLOWING THE ORDER OF T HE TRIBUNAL PRONOUNCED IN ASSESSEE'S OWN CASE FOR AY 1998-99 IN ITA NO.1233/AHD/2002, WHEREIN IT WAS HELD THAT THE ASSE SSEE HAD ITS OWN SUBSTANTIAL INTEREST-FREE FUNDS OUT OF WHICH ADVANC ES HAVE BEEN MADE. AN ANOTHER NOTING HAS BEEN MADE THAT THE REVE NUE HAD NOT MADE OUT A CASE THAT INTEREST BEARING BORROWED FUND S HAVE BEEN DIVERTED TO THE GROUP CONCERNS BY CHARGING LOWER RA TE OF INTEREST. FOR THE YEARS UNDER CONSIDERATION, IN THE ABSENCE O F ANY CONTRARY MATERIAL PLACED ON RECORD FROM THE SIDE OF THE REVE NUE, WE ARE LEFT WITH NO OPTION BUT TO FOLLOW THE PAST PRECEDENT AS HELD IN ASSESSEE'S FAVOUR VIDE SERIES OF ORDERS CITED SUPRA. THEREFORE , THE RESULT IS THAT THE GROUND AS RAISED BY THE REVENUE STOOD COVERED I N ASSESSEE'S FAVOUR, HENCE DISMISSED. 5. GROUND NO.2 FOR AYS 2005-06 & 2006-07 IS AGAIN I DENTICALLY WORDED; REPRODUCED BELOW:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DIFFERENTIAL AMOUNT OF INTEREST OF RS.4,79,22,795/- (FOR A.Y. 2006-07 OF RS.65,10,131/-) ON OVERDUE BILLS OF M/S. SUN PHARMACEUTICALS INDUSTRIES LTD. (SPIL), AN ASSOCIAT E CONCERN, PAID @ 15% WHEN THE ASSESSEE HAD CHARGED INTEREST O N ITS ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 11 - ADVANCES @ 9.5% TO 9% AND HAD PAID INTEREST TO THE BANKS @ 13% ONLY (FOR A.Y.2006-07 9% AND HAD PAID INTEREST TO THE BANKS @ 11% ONLY), WHICH CLEARLY REFLECTED COLLUSIV E NATURE OF PAYMENT OF EXCESSIVE AMOUNT IN THE FACE OF M/S.SPIL BEING ENTITLED TO DEDUCTION OF 100% PROFITS U/S.80IB, THU S RESULTING IN OVERALL AVOIDANCE OF TAX BY AN ARRANGEMENT BETWE EN THE ASSESSEE AND ITS ASSOCIATE CONCERN. 5.1. EVEN IN RESPECT OF THIS ISSUE, THE OBJECTION O F THE AO WAS THAT EXCESSIVE INTEREST WAS PAID TO SUN PHARMACEUTICAL I NDUSTRIES LTD. (SPIL) @ 15% ON OVERDUE BILLS. ACCORDING TO AO, THE ASSESSEE WAS NOT GIVING CONSISTENT TREATMENT IN RESPECT OF CHARG ING OF INTEREST AND PAYMENT OF INTEREST FOR LOANS TAKEN AND ADVANCES GI VEN. THE FIRST APPELLATE AUTHORITY HAD FOLLOWED HIS PREDECESSORS D ECISION FOR AY 2004-05 AND ALLOWED THE ISSUE IN ASSESSEE'S FAVOUR. 6. AS NOTED HEREINABOVE WHILE DECIDING THE APPEAL O F THE ASSESSEE FOR AY 2004-05 (ITA NO.3974/AHD/2007-SUPRA) VIDE AN ORD ER DATED 04/02/2011, IT WAS NOTED THAT THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF ASSESSEE BY ITAT 'D' BENCH AHMEDABAD IN A CONSOLIDATED ORDER RELEVANT FOR A.Y. 1999-2000 TO 2003-04 BEARIN G ITA NOS. ITA NOS.3272/AHD/2002, 1623/AHD/2003, 1353 & 2180/AHD/2 005 AND ITA NO.08/AHD/2007-SUPRA ORDER DATED 30/09/2010. IN THE SAID ORDER OF THE TRIBUNAL, ITAT 'D' BENCH FOLLOWED AN EARLIER OR DER; PRONOUNCED IN ASSESSEE'S OWN CASE FOR A.Y. 1997-98 IN ITA NO.4 92/AHD/2001 DATED 28/03/2008, WHEREIN IT WAS HELD THAT ONUS FOR APPLICATION OF THE PROVISIONS OF SECTION 40A(2)(A) IS ON THE REVEN UE AND THAT THERE WAS NO BASIS FOR HOLDING THAT AN EXCESSIVE RATE OF INTEREST WAS PAID. IT IS ALSO WORTH TO MENTION THAT THERE WAS AN ORDER OF THE HON'BLE GUJARAT HIGH COURT IN ASSESSEE'S CASE (CIT VS. ADIT YA MEDISALES LTD. - TAX APPEAL NO.559 OF 2009 DATED 4.5.2010), WHEREI N IT WAS OPINED THAT THE CIT(A) AS WELL AS TRIBUNAL HAVE UPON APPRE CIATION OF THE EVIDENCE FOUND THAT THE REVENUE HAS NOT BEEN ABLE T O MAKE OUT ANY CASE FOR APPLYING THE PROVISIONS OF SECTION 40A(2)( A) AND THAT INTEREST EARNED ON UNSECURED BORROWINGS IS ALWAYS H IGHER THAN THE RATE OF INTEREST PAID TO THE BANK ACCOUNT FROM WHER E LOAN RAISED; HENCE ACCEPTED THAT INTEREST PAID TO SUN PHARMACEUT ICALS @ 24% P.A. TO BE REASONABLE. WE THEREFORE HOLD THAT SINCE THE TRIBUNAL/HIGH COURT IS TAKING A CONSISTENT VIEW IN FAVOUR OF THE ASSESSEE IN THE PAST, THEREFORE RESPECTFULLY FOLLOWING THESE DECISI ONS FOR THE YEAR UNDER CONSIDERATION, WE HEREBY HOLD THAT THE REVENU E HAS NO FORCE IN THE GROUNDS RAISED FOR BOTH THE YEARS, HENCE DISMIS S THE SAME. 10.6 IN PARITY WITH THE DECISION OF THE CO-ORDINATE BENCH, WE ARE IN AGREEMENT WITH THE PLEA OF THE ASSESSEE THAT MERELY BECAUSE THE ASSESSEE COMPANY IS PAYING HUGE INTEREST ON OUTSTAN DING CREDIT BALANCE TO SUN PHARMA WHILE NO INTEREST IS BEING C HARGED BY THE ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 12 - ASSESSEE FROM ITS DEBTORS CANNOT BE THE JUSTIFIABLE REASON FOR RESORTING TO THE DISALLOWANCE OF INTEREST. AS POINTED OUT ON BEHALF OF THE ASSESSEE, WE ALSO NOTE THAT THE HONBLE GUJARAT HIG H COURT HAS ALSO APPROVED THE ORDER OF THE ITAT CONCERNING AYS 1997- 98 IN CIT VS. ADITYA MEDISALES LTD. TAX APPEAL NO. 559 OF 2009 JU DGMENT DATED 04.05.2010 TOWARDS DELETION OF DISALLOWANCE MADE ON ACCOUNT OF EXCESS INTEREST PAYMENT UNDER S.40A(2)(A) OF THE AC T. THUS, THE ISSUE STANDS CONCLUDED IN FAVOUR OF THE ASSESSEE BY THE J URISDICTIONAL HIGH COURT. THE ISSUE HAVING BEEN ALREADY EXAMINED IN T HE EARLIER YEARS, WE DO NOT SEE ANY REASON TO LOOK AFRESH. THEREFORE , WE DECLINE TO INTERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGA RD. CONSEQUENTLY, GROUND NO.1 OF THE REVENUES APPEAL IS DISMISSED. 11. GROUND NO.2 OF THE REVENUES APPEAL SEEKS TO AS SAIL THE ACTION OF THE CIT(A) IN ALLOWING DISCOUNT EXPENSES OF RS.7 ,34,80,655/- PAID TO VARIOUS CUSTOMERS OF ITS C&F AGENTS BY THE ASSES SEE. 11.1 BRIEFLY STATED, THE ASSESSEE CARRIES ON BUSINE SS OF DISTRIBUTOR OF PHARMACEUTICALS PRODUCTS AND ACCORDINGLY DEALS WITH C&F AGENTS, DEALERS, RETAILERS, DOCTORS ETC. FOR DISTRIBUTION O F PRODUCTS. DURING YEAR UNDER CONSIDERATION, THE ASSESSEE MADE SALES O F RS.1630.85 CRORES. ON THE SAID SALES, THE ASSESSEE CLAIMS TO HAVE GIVEN DISCOUNTS TO VARIOUS PERSONS AGGREGATING TO RS.7.35CRORES. T HE AO OBSERVED THAT THE ASSESSEE HAS NOT GIVEN DISCOUNT TO ITS C&F AGENTS WHO ARE DIRECTLY PURCHASING MEDICINES FROM THE ASSESSEE COM PANY. THE DISCOUNT HAS BEEN GIVEN TO THE ULTIMATE PURCHASER F ROM C&F AGENT. IT WAS THUS OBSERVED THAT THE ULTIMATE PURCHASERS VIZ. DEALERS, DOCTORS, OTHER CUSTOMERS & MEDICINE STOCKIEST ETC. ARE NOT P URCHASING MEDICINES FROM THE ASSESSEE COMPANY PER SE BUT FROM C&F AGENTS. THE AO ACCORDINGLY OBSERVED THAT IN BUSINESS PRACTI CES, THE DISCOUNT IS GIVEN BY THE SELLER TO ITS PURCHASER, WHEREAS, I N THE INSTANT CASE, THE ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 13 - DISCOUNT HAS BEEN GIVEN BY THE ASSESSE TO VARIOUS P ARTIES WHO HAVE NO DIRECT TRANSACTION WITH THE COMPANY. IT WAS ALSO A LLEGED THAT THE PAYMENT IS IN THE NATURE OF ILLICIT GRATITUDE TO DO CTORS FOR PROMOTION OF SUN PHARMA GROUP PRODUCT. IT WAS HELD THAT SUCH DI SCOUNT EXPENSES INCURRED IS NOT A BUSINESS EXPENSE WHOLLY AND EXCLU SIVELY ATTRIBUTABLE TO THE ASSESSEE COMPANY. CONSEQUENTLY, THE EXPENSE S TOWARDS DISCOUNT TO THE TUNE OF RS.7,34,80,655/- WAS DISALL OWED. 11.2 AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFOR E THE CIT(A). 11.3 THE CIT(A) RE-VISITED THE FACTS AND CIRCUMSTAN CES OF THE CASE AND FOUND THE CLAIM OF THE ASSESSEE TOWARDS DISCOUN T EXPENSES TO CUSTOMERS OF THE C&F AGENTS TO BE IN ORDER EXCEPT P AYMENTS TO DOCTORS. THE CIT(A) ACCORDINGLY REVERSED THE ACTIO N OF THE AO AND DIRECTED HIM TO ALLOW THE DISCOUNT EXPENSES INCURRE D. THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT(A) IN THIS R EGARD IS REPRODUCED HEREUNDER: 5.4 THE REASONS AS MENTIONED BY THE AO IN THE ASSE SSMENT ORDER FOR MAKING DISALLOWANCE OF DISCOUNT CLAIM OF RS, 7, 34,80,655/- AND HIS REMAND REPORT AS WELL AS SUBMISSION DATED 18/01 /2013 AND ALSO REBUTTAL/REPLY DATED 19/02/2015 OF THE AR OF THE AP PELLANT HAVE BEEN CONSIDERED. THE APPELLANT HAS CLAIMED DISCOUNT OF R S. 7,34,80,655/-, IT WAS NOTICED BY THE AO THAT THE APPELLANT HAD MAD E PAYMENT MOSTLY TOWARDS DOCTORS THROUGH DDS AND THE SAME WAS CLAIME D AS DISCOUNT. THE AO WAS OF THE VIEW THAT THESE DOCTORS WERE NOT PURCHASING THE MEDICINES FROM APPELLANT COMPANY AND THEREFORE DISC OUNT GIVEN TO THEM WAS NOT ALLOWABLE. THE AO IN THE ASSESSMENT OR DER HAS MENTIONED THAT THESE PAYMENTS TO DOCTORS WAS IN THE NATURE OF ELICIT GRATITUDE FOR PROMOTION OF SOME PHARMA GROUP PRODUC TS. THUS, THE AO HELD THAT THIS WAS NOT A BUSINESS EXPENSE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE APPELLANT COMPANY AND ACCOR DINGLY HE ADDED THIS AMOUNT OF RS. 7,34,80,655/- TO THE TOTAL INCOM E OF THE APPELLANT ON THE OTHER HAND, THE AR OF THE APPELLANT VIDE HIS SUBMISSION DATED 18/01/2013 HAS STATED THAT THE APPELLANT IS CARRYIN G ON THE BUSINESS OF DISTRIBUTOR OF SPIL AND ACCORDINGLY IT DEALS WIT H C & F AGENTS, DEALERS, RETAILERS, DOCTORS ETC, FOR DISTRIBUTION O F THE PRODUCT. AS PER THE AR THE APPELLANT DURING THE YEAR UNDER CONSIDER ATION MADE SALES OF RS, 1630.85 CRORES AND ON THE SAID SALES IT GAVE VARIOUS DISCOUNTS ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 14 - TO VARIOUS PERSONS AGGREGATING TO RS. 7.35 CRORES. THE AR HAS FURTHER MENTIONED IN HIS SUBMISSION DATED 18/01/201 3 THAT TOTAL DISCOUNTS ALLOWED TO THE DOCTORS AGGREGATE TO ONLY RS. 9 LACS OUT OF TOTAL AMOUNT OF DISCOUNT OF RS. 7.35 CRORES. THUS, AS PER THE AR ACCORDINGLY DISCOUNT ALLOWED TO THE DOCTORS CONSTIT UTES ONLY 1% OF THE TOTAL DISCOUNT AS ALLOWED. WITH RESPECT TO THE DISCOUNT ALLOWED TO THE DOCTORS OF RS. 8,96,508/- IT IS SUBMITTED BY TH E AR THAT THE SAME WAS ALLOWED IN THE NORMAL COURSE OF BUSINESS. IT IS PLEADED BY THE AR THAT DESPITE THE FACT THAT ONLY RS. 9 LACS WAS PAID TO THE DOCTORS AS DISCOUNT, THE AO HAS DISALLOWED THE WHOLE SUM OF RS . 7.35 CRORES. AS MENTIONED IN EARLIER PARAGRAPH OF THIS APPEAL ORDER THAT THE SUBMISSION DATED 18/01/2013 OF THE AR OF THE APPELL ANT WAS FORWARDED TO THE AO FOR HIS REMAND REPORT. THE AO I N HIS REMAND REPORT DATED 01/05/2014 AS SENT TO THIS OFFICE HAS ALMOST REITERATED THE SAME FACTS WHICH HAVE BEEN MENTIONED BY THE AO IN THE ASSESSMENT ORDER FOR MAKING DISALLOWANCE OF CLAIM O F RS. 7,34,80,655/-. THE AO IN REMAND REPORT HAS MERELY M ENTIONED THAT THE APPELLANT IS NOT PAYING DISCOUNT TO ITS PURCHAS ER I.E. C & F AGENT. IT IS MENTIONED BY THE AO IN THE REMAND REPO RT THAT WHILE FINALIZING ASSESSMENT IT WAS FOUND AFTER VERIFICATI ON THAT THE APPELLANT HAD MADE PAYMENT MOSTLY TOWARDS DOCTORS T HROUGH DDS AND THE SAME HAS BEEN CLAIMED AS DISCOUNT, AS PER T HE AO THE DOCTORS ARE NOT PURCHASING MEDICINES FROM THE ASSES SEE COMPANY AND THEREFORE EXPENSES ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS. HOWEVER, THE AO IN HIS REMAND REPORT HAS NOT CONTROVERTED THE SUBMISSION OF AR OF THE APPELLANT THAT THE PAYM ENTS ON ACCOUNT OF DISCOUNT MADE TO THE DOCTORS WERE ONLY RS. 9 LAC S. THE AO IN HIS REMAND REPORT HAS ALSO NOT CONTROVERTED THE SUBMISS ION OF THE AR THAT THE REMAINING AMOUNTS OF RS. 7.26 CRORE (I.E. RS. 7.35 CRORES - RS, 9 LACS) ARE PAID TO THE DEALERS, STOCKISTS, DIS TRIBUTORS AND RETAILERS ETC. WHO ARE 11.4 THE CIT(A), FOR THE REASONING NOTED ABOVE, THU S ALLOWED THE PAYMENT ON ACCOUNT OF DISCOUNT MADE TO THE STOCKIES T, DISTRIBUTOR, DEALERS AND RETAILERS. BUT, HOWEVER, DISALLOWANCE OF DISCOUNT PAYMENT MADE TO DOCTORS AMOUNTING TO RS.8,96,508/- WAS RETA INED HOLDING THE SAME TO BE IN THE NATURE OF ILLICIT GRATITUDE TO TH E DOCTORS FOR PROMOTION OF SUN PHARMA GROUP PRODUCTS. 11.5 AGGRIEVED BY THE ACTION OF THE CIT(A) IN GRANT ING PART RELIEF, BOTH REVENUE AS WELL AS ASSESSEE PREFERRED APPEAL B EFORE THE TRIBUNAL. ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 15 - 11.6 THE REVENUE IN THE PRESENT APPEAL HAS CHALLENG ED THE DISCOUNT ALLOWED IN RESPECT OF PAYMENTS TO STOCKIEST/DISTRIB UTORS/DEALERS/ RETAILERS ETC. WHEREAS THE ASSESSEE IN ITS CROSS AP PEAL IN ITA NO. 2511/AHD/2015 HAS CHALLENGED THE DISALLOWANCE OF DI SCOUNT OF RS.8,96,508/- RETAINED BY THE CIT(A) TOWARDS PAYMEN T TO DOCTORS. 11.7 WHEN THE MATTER WAS CALLED FOR HEARING, THE LE ARNED AR FOR THE ASSESSEE REFERRED TO THE PARTY-WISE DETAILS OF VARI OUS SMALL AMOUNTS SPREAD ALL OVER INDIA AGGREGATE TO RS.7.34CRORES AN D ALSO REFERRED TO ITS SUBMISSION MADE BEFORE THE CIT(A) IN THIS REGAR D. IT WAS CONTENDED THAT THE ASSESSEE HAS STANDARD AND STRUCT URED SYSTEM OF ALLOWING DISCOUNTS. THE ASSESSEE HAS APPOINTED VAR IOUS C&F AGENTS WHO SUPPLIES THE MEDICINES TO STOCKIESTS/DISTRIBUTO RS WHO, IN TURN, SUPPLY TO THE RETAILERS/PHARMACISTS. THE ELIGIBILI TY OF DISCOUNT IS CALCULATED ON THE BASIS OF QUANTITY LIFTED BY THESE PARTIES. IT WAS POINTED OUT THAT SUCH DISCOUNTS/INCENTIVE SCHEME FL OATED BY THE ASSESSEE ARE UNIVERSAL AND WITHOUT ANY DISCRIMINATI ON AND APPLICABLE TO ALL RETAILORS/PHARMACISTS/DOCTORS WHO HAVE PURCH ASED MEDICINES FROM ITS DESIGNATED C&F AGENTS. THE LEARNED AR SUB MITTED THAT THE PAYMENT OF DISCOUNT IS DULY EVIDENCED BY NECESSARY DOCUMENTATION IN THIS REGARD. IN THESE CIRCUMSTANCES, THE DISCOUNT GIVEN TO THE CUSTOMERS OF ITS C&F AGENTS BASED ON QUANTITY LIFTE D IS INTEGRALLY CONNECTED TO THE BUSINESS ACTIVITY OF THE ASSESSEE AND THEREFORE AN ALLOWABLE BUSINESS EXPENDITURE. THE LEARNED AR THE REAFTER REFERRED TO THE ORDER OF THE AO FOR SUBSEQUENT ASSESSMENT YEAR CONCERNING AY 2010-11 AND SUBMITTED THAT IN THE NEXT ASSESSMENT Y EAR, THE AO HIMSELF HAS ADMITTED THE CLAIM OF DISCOUNT MADE TO STOCKIESTS/CUSTOMERS ETC. AGGREGATING TO RS.10.90 C RORES AND ONLY THE DISCOUNT OF RS.15.44 LAKHS GIVEN TO DOCTORS WERE RE JECTED. IT WAS THUS CONTENDED THAT THE ORDER OF THE CIT(A) IS IN P ARITY WITH THE ACTION OF THE AO HIMSELF IN THE SUBSEQUENT YEAR AND THEREF ORE CANNOT BE ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 16 - ASSAILED BY THE REVENUE BY ANY MEANS. AS REGARD DI SCOUNT OFFERED TO THE DOCTORS AMOUNTING TO RS.8.956LAKHS, THE LEARNED AR POINTED OUT THAT THE SUPPLY OF MEDICINES HAVE BEEN MADE TO THE DOCTORS ALSO BY THE C&F AGENTS BY WAY OF SALE AND NOT ON ANY PROMOT IONAL OFFER AND THEREFORE, NO DISTINCTION CAN BE DRAWN FOR DISCOUNT BESTOWED TO DOCTORS QUA OTHER STOCKIESTS/DISTRIBUTORS/DEALERS ETC. THE LEA RNED AR THUS SUBMITTED THAT THE APPEAL OF THE REVENUE THUS DESERVES TO BE REJECTED WHEREAS THE APPEAL OF THE ASSESSEE REQUIRE S TO BE ALLOWED ON THIS SCORE. 11.8 THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AO. 11.9 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS ON THE ISSUE. THE MAINTAINABILITY OF DISCOUNT ON SALES IS IN QUES TION. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE IS SUPPLYING MEDIC INES TO ITS C&F AGENTS FOR ITS ULTIMATE SALE IN THE MARKET FOR CONS UMPTION. THE DISCOUNTS WERE GIVEN BY THE ASSESSEE COMPANY TO THE DISTRIBUTORS, RETAILERS, DEALERS, DOCTORS ASSOCIATED TO C&F AGENT AND WHO WERE NOT DIRECTLY DEALING WITH ASSESSEE AND THEREFORE EXPENS ES INCURRED TOWARDS DISCOUNT PAYMENT BY THE ASSESSEE HAS NO NEXUS WITH THE SALES MADE BY IT TO THE C&F AGENTS. THE AO ACCORDINGLY IS OF THE VIEW THAT SUCH INDIRECT DISCOUNTS TO THE CUSTOMERS OF ITS AGENTS A RE NOT ALLOWABLE EXPENDITURE. 11.10 WE DO NOT SEE ANY IOTA OF MERIT IN SUCH PLEA. THE DISCOUNTS GIVEN TO THE CUSTOMERS/ULTIMATE CONSUMER HAS DIRECT BEARING ON THE POTENTIAL TURNOVER OF THE COMPANY. IT IS WELL SETT LED THAT THE TEST OF THE COMMERCIAL EXPEDIENCY CANNOT BE REDUCED TO THE SHAPE OF A RITUALISTIC FORMULA NOR CAN IT BE PUT IN A WATER TI GHT COMPARTMENT. IT IS TRITE THAT THE REVENUE AUTHORITIES HAVE TO PLACE TH EMSELVES IN THE ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 17 - POSITION OF A BUSINESS AND FIND OUT WHETHER EXPENSE S INCURRED CAN BE SAID TO HAVE BEEN LAID OUT FOR THE PURPOSES OF BUSI NESSMAN. THE COMMERCIAL EXPEDIENCY AND PRUDENCE ARE INSEPARABLE. IF THE EXPENDITURE IS INCURRED TO FACILITATE CARRYING ON O F BUSINESS OF THE ASSESSEE AND IS SUPPORTED BY THE COMMERCIAL EXPEDIE NCY, IT DOES NOT MATTER THAT THE PAYMENT IS IN VOLUNTARILY OR NOT NE CESSARY OR THAT IT ALSO ENURES TO THE BENEFIT OF A THIRD PARTY. IF TH E OBJECT IS BUSINESS PROMOTION, THE EXPENDITURE CAN BE SAID TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE ASSESSEES BUSINESS. THE A SSESSEE IN THE INSTANT CASE DEMONSTRATED ON FACTS THAT PAYMENT OF SUCH DISCOUNTS ARE INTEGRALLY CONNECTED TO THE SALES/TURN OVER ACHIEVE D OR HAS POTENTIAL TO ACHIEVE. THE DISCOUNT EXPENSES HAVE THUS BEEN INCU RRED WITH THE OBJECT OF FURTHERING THE TRADE OR BUSINESS INTEREST OF THE ASSESSEE. THEREFORE, SUCH EXPENSE FALLS WITHIN THE EXPRESSION WHOLLY AND EXCLUSIVELY REFERRED TO IN SECTION 37 OF THE ACT. THEREFORE, WE HAVE NO HESITATION TO CONCUR WITH THE CONCLUSION DRAWN B Y THE CIT(A) FOR ALLOWABILITY OF DISCOUNTS GIVEN TO STOCKIESTS/DISTR IBUTORS ETC. HOWEVER, WE ARE UNABLE TO UNDERSTAND THE REASONING OF THE CIT(A) FOR DISCARDING THE CLAIM OF DISCOUNT EXPENDITURE PAID T O THE DOCTORS. WHEN THE TEST OF COMMERCIAL EXPEDIENCY APPLIED IN I TS NATURAL PERSPECTIVE, THERE IS NO REASON TO EXCLUDE DOCTORS PURCHASING MEDICINES FROM C&F AGENTS FOR THE PURPOSE OF ELIGIB ILITY OF DISCOUNT PAYMENTS. WE THUS SET ASIDE THE ACTION OF THE CIT( A) TO THIS EXTENT AND DIRECT THE AO TO ALLOW THE TRADE DISCOUNT PAID TO ALL PARTIES INCLUDING DOCTORS AS ORDINARY BUSINESS EXPENDITURE. THUS, GROUND NO.2 OF THE REVENUES APPEAL IS DISMISSED. AS A CO ROLLARY, GROUND NO.1 OF THE ASSESSEES APPEAL IN ITA NO. 2511/AHD/2 015 STANDS ALLOWED. 12. GROUND NO.3 OF THE REVENUES APPEAL SEEKS TO AS SAIL THE ACTION OF THE CIT(A) IN ALLOWING DONATION OF RS.11 LAKHS. ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 18 - 12.1 THE AO IN THE COURSE OF ASSESSMENT OBSERVED TH AT ASSESSEE COMPANY HAS PAID RS.11 LAKHS TO VISION FOUNDATION O F INDIA AND CLAIMED DEDUCTION UNDER S.80G OF THE ACT FOR SUCH D ONATION. IT WAS HOWEVER OBSERVED BY THE AO THAT THE CHEQUE WAS PAID ON BEHALF OF SHRI DILIP SANGHVI AND ONLY AT INSTRUCTION FROM HIM AND ALSO THANKS WERE CONVEYED BY THE RECIPIENT TO SHRI DILIP SANGHV I FOR HIS KIND GESTURE. IT WAS FURTHER NOTICED THAT THE RECEIPT A ND TAX EXEMPTION CERTIFICATE WERE SENT TO SHRI DILIP SANGHVI AND NOT TO THE ASSESSEE. IT WAS THUS HELD BY THE AO THAT THE DONATION ACTUALLY RELATES TO SHRI DILIP SANGHVI AND THEREFORE, THE ASSESSEE COMPANY I S NOT ELIGIBLE FOR DEDUCTION UNDER S.80G OF THE ACT. 12.2 THE FIRST APPELLATE AUTHORITY, HOWEVER, REVERS ED THE AFORESAID ACTION OF THE AO ON ACCOUNT OF UNDISPUTED FACT THAT DONATION HAS BEEN MADE BY THE ASSESSEE COMPANY FROM ITS BANK ACCOUNT AND THE RECEIPT OF DONATION IS ALSO IN THE NAME OF THE ASSESSEE COM PANY. IN THE GIVEN FACTS, WE COMPLETELY ENDORSED THE VIEW TAKEN BY THE CIT(A) IN THIS REGARD. THE PAYMENT MADE ON INSTRUCTION OF SHIR DI LIP SANGHVI, RECEIPT OF THANKS BY SHRI DILIP SANGHVI AND RECEIPT SENT TO SHRI DILIP SANGHVI ARE WHOLLY IRRELEVANT CONSIDERATIONS AS RIG HTLY OBSERVED BY THE CIT(A). IT IS THE ASSESSEE COMPANY WHICH IS EN TITLED TO DEDUCTION UNDER S.80G OF THE ACT FOR WHICH CONDITIONS LAID DO WN THEREIN ARE NOT SHOWN TO BE NOT FULFILLED. THEREFORE, WE DECLINE T O INTERFERE OF THE ORDER OF THE CIT(A). 12.3 IN THE RESULT, GROUND NO.3 OF THE REVENUES AP PEAL IS DISMISSED. 13. IN THE RESULT, APPEAL OF REVENUE IN ITA NO. 254 8/AHD/2015 IS DISMISSED. ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 19 - ITA NO. 2511/AHD/2015 (ASSESSEES APPEAL) AY 2009 -10 14. THE SOLITARY GROUND CONCERNS DISALLOWANCE OF DI SCOUNT OF RS.8,96,508/- PAID BY THE ASSESSEE TO THE DOCTORS P URCHASING MEDICINES FROM C&F AGENTS AUTHORIZED BY THE ASSESSE E. FOR THE DETAILED REASONS DISCUSSED IN PARA NO. 11.9 (SUPRA) , WE DO NOT SEE ANY WARRANT TO REJECT THE CLAIM OF THE ASSESSEE TOWARDS DISCOUNT EXPENSES PAID TO THE DOCTORS WHO ARE NO DIFFERENT FROM OTHER BUYERS; SUCH AS, RETAILERS, DISTRIBUTORS, STOCKIESTS ETC. THE AO IS ACCORDINGLY DIRECTED TO DELETE THE DISALLOWANCE OF THE AFORESAID AMOUNT. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO .2511/AHD/2015 IS ALLOWED. ITA NO. 2549/AHD/2015 (REVENUES APPEAL) AY 2010- 11 16. GROUND NO.1 OF REVENUES APPEAL CONCERNS DISALL OWANCE OF INTEREST AMOUNTING TO RS.8,62,78,759/- WHICH WAS RE VERSED BY THE CIT(A) HOLDING THE SAME AS EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. 16.1 IN THE INSTANT ASSESSMENT YEAR, THE ASSESSEE H AS DECLARED INTEREST INCOME OF RS.6,43,12,159/- WHEREAS INTEREST WERE AL SO SHOWN TO HAVE BEEN PAID TO SUN PHARMA GROUP AMOUNTING TO RS.15,05 ,90,918/-. THE AO DISALLOWED EXCESS INTEREST AMOUNT OF RS.8,62,78, 759/- ON THE SIMILAR GROUND WITH THAT OF AY 2009-10 (SUPRA). IT WAS ALLEGED BY AO THAT THE ASSESSEE HAS NOT CHARGED INTEREST ON ITS O UTSTANDING WITH OTHER PARTIES WHEREAS IT HAS PAID INTEREST ON OUTSTANDING PAYABLE TO SUN PHARMA WHICH IS ALLEGED TO BE THE CONNECTED CONCERN ED TO THE ASSESSEE IN TERMS OF 40A(2)(A) OF THE ACT. IDENTICAL ISSUE HAS BEEN DEALT WITH IN AY 2009-10 IN PARA NO. 10.1(SUPRA) WHICH, IN TUR N, REFERS TO THE ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 20 - EARLIER ASSESSMENT YEARS DEALING WITH IDENTICAL ISS UE. THUS, IN PARITY WITH THE VIEW TAKEN IN SEVERAL ASSESSMENT YEARS IN ASSESSEES OWN CASE, WE DO NOT SEE ANY MERIT IN THE GRIEVANCE OF T HE REVENUE ON THIS SCORE. WE THUS DECLINE TO INTERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGARD. 16.2 IN THE RESULT, GROUND NO.1 OF REVENUES APPEAL IS DISMISSED. 17. GROUND NO.2 CONCERNS DISALLOWANCE OF DISCOUNT O F RS.15,44,119/- PAID TO DOCTORS. AS NOTED EARLIER CONCERNING AY 2009-10, THE AO IN THE IMPUGNED AY 2010-11 HAS REST RICTED THE DISALLOWANCE OF DISCOUNT PAID TO THE DOCTORS ONLY W HEREAS DISCOUNT PAID TO STOCKIESTS, DISTRIBUTORS AND OTHER CUSTOMER S OF C&F AGENTS HAVE BEEN ACCEPTED. THE CIT(A) IN AY 2009-10 HAD A LSO REJECTED THE SIMILAR CLAIM OF DISCOUNT INTER ALIA PAID TO DOCTORS. THE CIT(A) IN AY 2010-11 HAS SIMPLY FOLLOWED ITS FINDING IN AY 20 09-10 BUT HOWEVER DELETED THE DISALLOWANCE ON PAYMENTS TO DOC TOR WHICH IS GLARINGLY INCONSISTENT WITH FINDINGS IN AY 2009-10. HAVING FOLLOWED THE FINDINGS IN AY 2009-10, THE CIT(A) OUGHT TO HAV E CONFIRMED THE ACTION OF THE AO. THEREFORE, WHILE THE REVENUE IS IN APPEAL AGAINST THE DELETION INADVERTENTLY MADE BY THE CIT(A), THE ASSESSEE HAS ALSO CHALLENGED THE ACTION OF THE CIT(A) AS A MEASURE OF ABUNDANT CAUTION IN ITA NO.2512/AHD/2015. HAVING NOTED THE AFORESAI D POSITION, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE MADE BY T HE AO TOWARDS DISCOUNT PAID TO THE DOCTORS AS DISCUSSED IN RELATI ON TO AY 2009-10 (SUPRA). WE THUS AGREE WITH THE CONCLUSION DRAWN B Y THE CIT(A) DESPITE WRONG REASONING. THE GROUND NO.2 OF REVENU ES APPEAL IS THUS DISMISSED. 18. AS PER GROUND NO.3, THE REVENUE SEEKS TO CHALLE NGE THE REVERSAL OF DISALLOWANCE OF RS.9,62,383/- MADE UNDER S.14A O F THE ACT. AS ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 21 - POINTED OUT ON BEHALF OF THE ASSESSEE, THE ASSESSEE HAS SUO MOTTO DISALLOWED EXPENSES TO THE EXTENT OF RS.50,000/- AS ATTRIBUTABLE TO EARNING OF EXEMPT DIVIDEND INCOME FROM INVESTMENT M ADE. THE AO HOWEVER RE-COMPUTED THE DISALLOWANCE UNDER S.14A OF THE ACT IN TERMS OF STATUTORY FORMULA PRESCRIBED UNDER RULE 8D OF THE INCOME TAX RULES. THE AO ACCORDINGLY COMPUTED DISALLOWANC E OF RS.50,000/- AS OFFERED BY THE ASSESSEE AS DIRECT E XPENDITURE UNDER RULE 8D(2)(I) OF THE IT RULES. SIMILARLY, PROPORTI ONATE INTEREST EXPENDITURE OF RS.3,65,850/- WAS DISALLOWED UNDER R ULE 8D(2)(II) AND RS.5,96,533/- WAS DISALLOWED TOWARDS ADMINISTRATIVE AND GENERAL EXPENSES UNDER RULE 8D(2)(III) OF THE RULES. 18.1 IN THE FIRST APPEAL, THE CIT(A) HAS DELETED TH E DISALLOWANCE OF PROPORTIONATE INTEREST EXPENDITURE OF RS.3,65,850/- COMPUTED UNDER RULE8D(2)(II) BUT HOWEVER DISALLOWANCE OF RS.50,000 /- UNDER RULE 8D(2)(I) AND RS.6,46,533/- UNDER RULE 8D(2)(III) OF THE RULES WERE RETAINED. 18.2 THE REVENUE HAS CHALLENGED THE ACTION OF THE C IT(A) FOR DELETING OF DISALLOWANCE OF INTEREST UNDER RULE 8D( 2)(II) WHEREAS THE ASSESSEE HAS ALSO CHALLENGED THE RETENTION OF DISAL LOWANCE UNDER RULE 8D(I) & 8D(2)(III) OF THE RULES. 18.3 ON APPRAISAL OF THE DOCUMENTARY EVIDENCES AND ON PERUSAL OF THE ORDER OF THE CIT(A), WE FIND THAT THE CIT(A) HAS RI GHTLY APPROACHED THE ISSUE AND DELETED THE PROPORTIONATE DISALLOWANC E OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) ON THE GROUND THAT INVESTMENT IN SHARES GIVING RISE TO EXEMPT INCOME IS FAR LOWER TH AN THE CORRESPONDING INTEREST FREE FUNDS AVAILABLE WITH TH E ASSESSEE BY WAY OF CAPITAL AND RESERVES. THEREFORE, A PRESUMPTION WOULD NATURALLY ARISE IN FAVOUR OF THE ASSESSEE FOR DEEMED UTILIZAT ION OF INTEREST FREE ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 22 - FUNDS FOR INVESTMENTS YIELDING TAX FREE INCOME IN P REFERENCE TO THE BORROWED FUNDS. THEREFORE, WE DO NOT SEE ANY INFIR MITY IN THE ORDER OF THE CIT(A). 18.4 TURNING TO THE CROSS GRIEVANCE OF THE ASSESSEE DISALLOWANCE SUSTAINED UNDER S.14A OF THE ACT, WE OBSERVE THAT T HE ASSESSEE SUO MOTU HAS DISALLOWED RS.50,000/- FOR EARNING OF EXEMPT I NCOME WHICH IS RIGHTLY RECKONED TO BE DIRECT EXPENDITURE UNDER RULE 8D(2)(I) OF THE RULES IN THE ABSENCE OF ANY SUPPORTING MATERIAL TO THE CONTRARY. THE REVENUE AUTHORITIES, IN OUR VIEW, HAVE ALSO RIGHTLY INVOKED FORMULA UNDER RULE 8D(2)(III) FOR DISALLOWANCE OF MANAGEMEN T AND GENERAL EXPENSES DEEMED TO BE ATTRIBUTABLE TO TAX FREE INCO ME. HOWEVER, THE DISALLOWANCE IS REQUIRED TO BE COMPUTED HAVING REGA RD TO THE INVESTMENTS WHICH HAS ACTUALLY YIELDED EXEMPT INCOM E INSTEAD OF GROSS INVESTMENTS IN CONSONANCE WITH THE DECISION O F THE SPECIAL BENCH IN VIREET INVESTMENTS (SUPRA) AS PLACED ON BE HALF OF THE ASSESSEE. THE ISSUE IS THEREFORE REMITTED BACK TO THE FILE OF THE AO FOR RE-COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2)(III ) OF THE RULES. IN TERMS OF THE AVERMENTS MADE ABOVE, THE GROUND NO.3 OF THE REVENUES APPEAL IS DISMISSED WHEREAS CROSS GROUND NO.2 OF TH E ASSESSEES APPEAL ON THIS SCORE IS ALLOWED IN PART. 19. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 2549/AHD/2015 IS DISMISSED. ITA NO. 2512/AHD/2015 (ASSESSEES APPEAL) AY 2010 -11 20. GROUND NO.1 OF THE ASSESSEES APPEAL TOWARDS DI SALLOWANCE OF DISCOUNT OF RS.15,44,119/- IS STATED TO BE OUT OF C AUTION ON ACCOUNT OF ERROR COMMITTED BY THE CIT(A) AS DISCUSSED IN PARA 17 (SUPRA). HOWEVER, AS CONCLUDED IN REVENUES APPEAL FOR THE A Y 2010-11, THE ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 23 - AFORESAID DISCOUNTS PAID TO DOCTORS IS ELIGIBLE FOR DEDUCTION AS BUSINESS EXPENDITURE WITHOUT ANY DEMUR. THE CONCLU SION OF CIT(A) THUS CANNOT BE FAULTED. IN TERMS OF OBSERVATION NO TED ABOVE, THE GROUND NO.1 OF THE ASSESSEES APPEAL ON RELIEF ALRE ADY GRANTED BY CIT(A) IS DISMISSED AS INFRUCTUOUS. 21. GROUND NO.2 OF THE ASSESSEES APPEAL RELATES TO DISALLOWANCE OF EXPENDITURE UNDER S.14A OF THE ACT. THE ISSUE HAS ALREADY BEEN DELIBERATED IN LENGTH IN REVENUES APPEAL. THEREFO RE, IN TERMS OF OBSERVATIONS NOTED IN PARA NO. 18 (SUPRA), THE ISSU E IS RESTORED FOR RE- COMPUTATION UNDER RULE 8D(2)(III) TO THE AO WITH RE FERENCE TO INVESTMENTS ACTUALLY YIELDING TAX FREE INCOME. ACC ORDINGLY, GROUND NO.2 IS ALLOWED IN PART. 22. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO .2512/AHD/2015 IS PARTLY ALLOWED. ITA NO. 2550/AHD/2015 (REVENUES APPEAL) AY 2011- 12 23. GROUND NO. 1 OF THE REVENUES APPEAL CONCERNS D ISALLOWANCE OF INTEREST EXPENDITURE OF RS.5,58,66,396/- PAID TO SU N PHARMA. IN CONSONANCE WITH OUR OBSERVATIONS IN AYS. 2009-10 & 2010-11 ON THE ISSUE, WE DO NOT SEE ANY MERIT IN THE GRIEVANCE OF THE REVENUE ON THIS CORE. GROUND NO.1 OF THE REVENUES APPEAL IS DISMI SSED. 24. GROUND NO.2 OF THE REVENUES APPEAL CONCERNS DI SCOUNT OF RS.17,24,524/- PAID TO DOCTORS FOR PURCHASE OF MEDI CINES FROM C&F AGENTS OF THE ASSESSEE. THE ISSUE HAS ALREADY BEEN DELIBERATED IN AYS. 2009-10 & 2010-11(SUPRA). OUR OBSERVATIONS IN AYS. 2009-10 & 2010- 11 SHALL APPLY MUTATIS MUTANDIS TO AY 2011-12 AS WELL IN THE ABSENCE ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 24 - OF ANY CHALLENGE IN FACTS. GROUND NO.2 OF THE REVE NUES APPEAL IS ACCORDINGLY DISMISSED. 25. GROUND NO.3 CONCERNS DISALLOWANCE OF RS.87,02,3 34/- UNDER S.14A OF THE ACT. THE DISALLOWANCE OF RS.81,55,801 /- TOWARDS PROPORTIONATE INTEREST EXPENDITURE UNDER RULE 8D(2) (II) HAS RIGHTLY BEEN REVERSED BY THE CIT(A) IN VIEW OF THE SUFFICIE NT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. AS REGARDS DISA LLOWANCE OF RS.5,96,533/- UNDER RULE 8D(2)(III), OUR OBSERVATIO NS IN ITA NO.2549/AHD/2015 (PARA NO. 18) SHALL APPLY MUTATIS MUTANDIS . THE ISSUE IS ACCORDINGLY RESTORED TO THE FILE OF THE AO FOR RE-COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2)(III) QUA THE INVESTMENTS WHICH HAVE ACTUALLY YIELDED TAX FREE INCOME. 26. GROUND NO. 3 OF THE REVENUES APPEAL IS THUS DI SMISSED WHEREAS GROUND NO.2 OF THE ASSESSEES APPEAL (TO FOLLOW) IS ALLOWED IN PART FOR THE AFORESAID REASONS. 27. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 2550/AHD/2015 IS DISMISSED. ITA NO. 2513/AHD/2015 (ASSESSEES APPEAL) AY 2011 -12 28. GROUND NO.1 CONCERNS DISALLOWANCE OF RS.17,24,5 42/- ON ACCOUNT OF DISCOUNT GIVEN TO DOCTORS WHO HAVE PURCH ASED MEDICINES FROM C&F AGENTS OF THE ASSESSEE. IN SYNC WITH THE OBSERVATIONS IN THE EARLIER YEARS AS DISCUSSED ABOVE, THE GRIEVANCE OF THE ASSESSEE IS MERITED. GROUND NO.1 OF THE ASSESSEES APPEAL IS A CCORDINGLY ALLOWED. 29. GROUND NO.2 OF THE ASSESSEES APPEAL IS ALLOWED IN PART IN TERMS OF DIRECTIONS NOTED IN THE CORRESPONDING REVENUES APPEAL. ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 25 - 30. GROUND NO.3 CONCERNS SUO MOTTO DISALLOWANCE OF RS.50,000/-. WE DECLINE TO INTERFERE WITH THE ACTION OF THE AO I N VIEW OF THE DISCUSSION IN AY 2010-11 (SUPRA). GROUND NO.3 OF T HE ASSESSEES APPEAL IS DISMISSED. 31. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO .2513/AHD/2015 IS ALLOWED IN PART. ITA NO. 3415/AHD/2015 (ASSESSEES APPEAL) AY 2009 -10 & ITA NO. 3354/AHD/2015 (REVENUES APPEAL) AY 2009- 10 32. BOTH THE APPEALS GIVE RISE TO COMMON ISSUE OF D ISALLOWANCE UNDER S.14A OF THE ACT IN PURSUANCE OF ASSESSMENT O RDER PASSED UNDER S.143(3) R.W.S. 263 OF THE ACT. WITH THE ASSISTANC E OF THE LEARNED AR FOR THE ASSESSEE, WE NOTE THAT THE AO MADE DISALLOW ANCE TOWARDS PROPORTIONATE INTEREST EXPENDITURE UNDER RULE 8D(2) (II) AND TOWARDS ADMINISTRATIVE AND GENERAL EXPENSES UNDER RULE 8D(2 )(III). THE ASSESSEE HAS SHOWN SUO MOTTO DISALLOWANCE OF RS.50,000/-. IN VIEW OF SUFFICIENT OWN FUNDS AVAILABLE (RS.30.35 CRORES) IN EXCESS OF CORRESPONDING INVESTMENT (RS.12.54 CRORES) GIVING R ISE TO EXEMPT INCOME, THERE IS NO WARRANT TO MAKE DISALLOWANCE UN DER RULE 8D(2)(II) IN VIEW OF THE DECISION IN PR.CIT VS. SINTEX INDUST RIES LTD. 82 TAXMANN.COM 171 (GUJ.); AND CIT VS. HDFC BANK LTD. 366 ITR 505 (BOM.). IDENTICAL VIEW HAS BEEN EXPRESSED IN OTHER YEARS OF THE ASSESSEES APPEALS DISCUSSED ABOVE. ACCORDINGLY, T HE AO IS DIRECTED TO DELETE THE DISALLOWANCE MADE UNDER S.8D(2)(II) O F THE IT RULES. 33. AS REGARDS DISALLOWANCE UNDER RULE 8D(2)(III), THE AO SHALL RE- COMPUTE THE DISALLOWANCE WITH REFERENCE TO INVESTME NTS WHICH HAVE ACTUALLY GIVEN RISE TO TAX FREE INCOME INSTEAD OF G ROSS INVESTMENTS AS ITA NO. 3049/AHD/14 &8 ORS. [ADITYA MEDISALES LTD.] - 26 - OBSERVED FOR OTHER ASSESSMENT YEARS. TO THIS EXTENT , THE ASSESSEE WOULD BE ENTITLED TO RELIEF. 34. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS REVENUES APPEAL IS DISMISSED. 35. IN THE COMBINED RESULT, ALL THE ASSESSEES APPE ALS ARE PARTLY ALLOWED WHEREAS REVENUES APPEALS ARE DISMISSED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 29/03/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- $. / REVENUE 2. / ASSESSEE &. '() * / CONCERNED CIT 4. *- / CIT (A) -. ./0 122()3 ()!3 45' / DR, ITAT, AHMEDABAD 6. 078 / GUARD FILE. BY ORDER / 3 /4 ()!3 45' THIS ORDER PRONOUNCED IN OPEN COURT ON 29/03/2019