DCIT, New Delhi V. M/s Ozone Pharmaceuticals Ltd., New Delhi

ITA 3772/DEL/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8253 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 09-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: SSH RAKESH GUPT A
• Keywords: Business income; Depreciation; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Fair market value; Onus to prove; TDS; Rule 8D
• Section: 43B; 14A; 115JB

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH D, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NOS. 2935, 2936 & 2937/DEL/2015 ASSESSMENT YEARS: 2008-09, 2009-10 & 2010-11 OZONE PHARMACEUTICAL LTD., C/O M/S. RRA TAXINDIA, D-28, SOUTH EXTENSION, PART-I, NEW DELHI PAN- AAACO 0056H (APPELLANT) VS. ADDL. C.I.T., RANGE - 13, NEW DELHI. (RESPONDENT) ITA NOS. 3770, 3771 & 3772/DEL/2015 ASSESSMENT YEARS: 2008-09, 2009-10 & 2010-11 ADDL. C.I.T., RANGE - 13, NEW DELHI. (APPELLANT) VS. OZONE PHARMACEUTICAL LTD., 1 - LSC, BLOCK A-3, JANAKPURI, NEW DELHI. (RESPONDENT) A SSESSEE BY S/SH. RAKESH GUPTA & SOMIL AGGARWAL, ADV. RE VENUE BY SH. SURENDER PAL, SR. DR ORDER PER BENCH: THE AFORESAID CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST SEPARATE ORDERS OF LD. CIT(A)-7, N EW DELHI ALL DATED 03.03.2015 FOR THE ASSESSMENT YEARS 2008-09, 2009-1 0 AND 2010-11 DATE OF HEARING 25.02.2019 DATE OF PRONOUNCEMENT 15.04.2019 ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 2 RESPECTIVELY. THE GROUNDS RAISED BY BOTH THE PARTI ES IN THEIR RESPECTIVE APPEALS READ AS UNDER : GROUNDS RAISED BY ASSESSEE : A.Y. 2008-09: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING T HE ACTION OF LD. AO IN NOT ALLOWING THE STATUTORY CLAIM OF DEDUCTION U/S 8 0IC OF RS.56,78,153/- PERTAINING TO GUWAHATI UNIT AND HAS FURTHER ERRED I N RESTRICTING THE DEDUCTION TO THE EXTENT OF RS.4,90,68,559/- INSTEAD OF RS.5,47,46,712/- AS CLAIMED BY THE ASSESSEE AND THAT TOO BY RECORDING I NCORRECT FACTS AND FINDINGS AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING. 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN NOT ALLOWING THE STATUTORY CLAIM OF DEDUCTION U/S 80IC OF RS.56,78,153/- PERTAINING TO GUWAHATI UNIT AND HAS FURTHER ERRED IN RESTRICTING THE DEDUCTION TO THE E XTENT OF RS.4,90,68,559/- INSTEAD OF RS.5,47,46,712/- AS CLAIMED BY THE ASSES SEE IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. WITHOUT PREJUDICE TO THE ABOVE GROUND AND HAVIN G REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, DEDUCTION U/S 80IC SHOULD HAVE BEEN ALLOWED ON THE AMOUNT OF INCOME ASSESSED BY LD. AO. A.Y. 2009-10: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING T HE ACTION OF LD. AO IN NOT ALLOWING THE STATUTORY CLAIM OF DEDUCTION U/S 8 0IC OF RS. 1,09,81,936/- PERTAINING TO GUWAHATI UNIT AND HAS FURTHER ERRED I N RESTRICTING THE DEDUCTION TO THE EXTENT OF RS. 1,64,93,324/- INSTEA D OF RS.2,74,75,260/- AS CLAIMED BY THE ASSESSEE AND THAT TOO BY RECORDING I NCORRECT FACTS AND FINDINGS AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING. 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN NOT ALLOWING THE STATUTORY CLAIM OF ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 3 DEDUCTION U/S 80IC OF RS.1,09,81,936/- PERTAINING T O GUWAHATI UNIT AND HAS FURTHER ERRED IN RESTRICTING THE DEDUCTION TO T HE EXTENT OF RS. 1,64,93,324/- INSTEAD OF RS.2,74,75,260/- AS CLAIME D BY THE ASSESSEE IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF T HE CASE. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT DELETING THE DISALLOWANCE OF RS.10,55,810/- FULLY AS MADE BY LD. AO U/S 14A READ WITH RULE 8D AND HAS FURTHER ERRED IN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF RS.1,55,707/- UNDER RULE 8D(2)(III) OF INCOME TAX RULES, 1962. 4. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN NOT DELETING THE DISALLOWANCE OF RS.10,55,810/- FULLY AS MADE BY LD. AO U/S 14A READ WITH RULE 8D AND HAS FURTHER ERRED IN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF RS. 1,55,707/- UNDER RULE 8D(2)(III) IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. WITHOUT PREJUDICE TO THE ABOVE GROUND AND HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, DEDUCTION U/S 80IC SHOULD HAVE BEEN ALLOWED ON THE AMOUNT OF INCOME ASSESSED BY LD. AO. A.Y. 2010-11: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING T HE ACTION OF LD. AO IN REDUCING THE CLAIM OF DEDUCTION U/S 80IC TO THE EXT ENT OF RS.34,70,235/- INSTEAD OF RS. 1,45,58,026/- AS CLAIMED BY THE ASSE SSEE IN ITS RETURN OF INCOME AND THAT TOO BY RECORDING INCORRECT FACTS AN D FINDINGS AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING AND IN VIOLA TION OF PRINCIPLES OF NATURAL JUSTICE. 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN REDUCING THE CLAIM OF DEDUCTION U/S 80IC TO THE EXTENT OF RS.34,70,235/- INSTEAD OF RS. 1,45,58,026/- AS CLAIMED BY THE ASSESSEE IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING T HE ACTION OF LD. AO IN ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 4 DISALLOWING A SUM OF RS. 18,24,490/- ON ACCOUNT OF INTEREST OF FNCR WHICH WAS TO BE PAID TO THE BANK ON THE ACCRUAL BASIS AS PER LAW. 4. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN DISALLOWING A SUM OF RS. 18,24,490/- ON ACCOUNT OF INTEREST OF FNCR IS BAD IN LAW AND AG AINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT DELETING THE DISALLOWANCE OF RS.14,54,111/- FULLY AS MADE BY LD. AO U/S 14A READ WITH RULE 8D AND HAS FURTHER ERRED IN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF RS. 1,09,400/- UNDER RULE 8D(2)(III) OF INCOME TAX RULES, 1962. 6. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN NOT DELETING THE DISALLOWANCE OF RS.14,54,111/- FULLY AS MADE BY LD. AO U/S 14A READ WITH RULE 8D AND HAS FURTHER ERRED IN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF RS. 1,09,400/- UNDER RULE 8D(2)(III) IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. WITHOUT PREJUDICE TO THE ABOVE GROUND AND HAVIN G REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, DEDUCTION U/S 80IC SHOULD HAVE BEEN ALLOWED ON THE AMOUNT OF INCOME ASSESSED BY LD. AO. 2. FROM THE AFORESAID GROUNDS OF APPEAL, IT EMERGES OUT THAT THE ASSESSEE HAS CHALLENGED SUSTENANCE OF FOLLOWING ADDITIONS BY THE LD. CIT(A) IN ALL THE THREE ASSESSMENT YEARS UNDER CONSIDERATION : 2008-09 2009-10 2010-11 DEDUCTION U/S. 80IC 56,78,153 1,09,81,936 1,10,8 7,971 DEDUCTION U/S. 14A - 10,55,810 1 ,09,400 DISALLOWANCE OF INTT. ON FNCR - - 18,24,490 ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 5 GROUNDS RAISED BY REVENUE: A.Y. 2008-09: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,11,55,261/- MADE BY THE AO ON ACCOUNT OF 'SALES PROMOTION EXPENSES' WITHOUT APPRE CIATING THE FACTS THAT THE ASSESSEE FAILED TO SUBMIT THE DETAILS MATERIAL WITH EVIDENCE AND THE BILLS/VOUCHERS RELATING TO SALES PROMOTION EXPENSES WERE NOT FURNISHED IN FULL. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS.82,200/- CLAIMED AT A HIGHER RATE OF 60% ON UPS BY ASSESSEE COMPANY WITHOUT APPRECIATING THE FACTS THAT SINCE UPS CANNOT BE TREATED AS A PAR T OF COMPUTER SINCE THE TECHNOLOGY WHICH GOES INTO MAKING UPS IS NOT DEVELO PING SO RAPIDLY TO MAKE IT OBSOLETE IN THE SHORT SPAN, IT CAN BE TREAT ED AS 'PLANT AND MACHINERY'. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, ID CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF OUT OF FOREIG N TRAVELLING EXPENSE RS.7,69,757/- WITHOUT APPRECIATING THE FACTS THAT T HERE WAS NO DIRECT NEXUS OF THE EXPENDITURE INCURRED WITH THE BUSINESS OF THE ASSESSEE COMPANY AND ADDITION THAT THE EXPENSES WERE INCURRE D FOR EXCURSION AND ITS TRAVEL TO FRANCE AND NO MATERIAL EVIDENCE WAS A VAILABLE FOR SHOWING BUSINESS IN USA AND OR CHINA . A.Y. 2009-10: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,22,37,690/- MADE ON ACCOUNT OF 'SALES PROMOTION EXPENSES' WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE FAILED TO SUBMIT THE DETAILS MATERIALS WIT H EVIDENCE AND BILLS/VOUCHERS RELATING TO SALES PROMOTION EXPENSES WERE NOT FURNISHED IN FULL. ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 6 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS.9,0 0,103/- OUT OF TOTAL DISALLOWANCE OF RS.10,55,810/- MADE BY ASSESSING OF FICER U/S 14A R.W.R 8D(2(II) BY IGNORING THE MANDATORY PROVISIONS OF SU B-RULE 8D R.W.S.L4A OF THE INCOME TAX ACT, 1961. A.Y. 20010-11: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 13,86,656/- S INCE THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S 80IC ON THE PRODUCT S WHICH ARE BEING MANUFACTURED BY OTHER COMPANY WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE HAS FAILED TO SUBMIT THE DETAILS MATERIAL WITH EVIDENCE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,21,42,231/- ON ACCOUNT OF 'SALE PROMOTION EXPENSES' WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE COMPANY HAS FAILED TO SUBMIT THE DETAILS MATERIAL W ITH EVIDENCE AND THE BILLS /VOUCHERS RELATING TO SALE PROMOTION EXPENSES WERE NOT FURNISHED IN FULL. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 52,20,590/- M ADE ON ACCOUNT OF 'SALE PROMOTION EXPENSES' CLAIMED IN THE NAME OF SISTER C ONCERNS WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE COMPANY HA S NOT ESTABLISHED THAT THE EXPENDITURE ON SALE PROMOTION WITH REFERENCE TO THE FAIR MARKET VALUE OF SERVICES FOR WHICH THE PAYMENT HAS BEEN MADE TO SISTER CONCERN OF THE ASSESSEE COMPANY. 3. THE REVENUE BY WAY OF AFORESAID GROUNDS, HAS CHA LLENGED THE IMPUGNED ORDERS FOR DELETION OF FOLLOWING ADDITIONS IN ALL T HESE YEARS UNDER CONSIDERATION : 2008-09 2009-10 2010- 11 SALES PROMOTION EXPENSES 1,11,55,261 1,22,37,690 1,21,42,231 SALES PROMOTION EXPENSES ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 7 IN NAME OF SISTER CONCERN - - 52,20,590 EXCESS DEPRECIATION ON UPS 82,200 - - FOREIGN TRAVEL EXPENSES 7,69,757 - - DEDUCTION U/S. 14A - 9,00,103 - DEDUCTION U/S. 80IC - - 13,86,656 4. FOR THE SAKE OF CONVENIENCE AND BREVITY, WE FIRS T TAKE UP THE APPEALS OF THE ASSESSEE. THE FIRST ISSUE COMMON IN ALL THE APP EALS OF ASSESSEE IS WITH RESPECT TO DEDUCTION U/S. 80IC. WE TAKE UP THE FACT S FROM APPEAL FOR A.Y. 2008- 09, WHICH ARE SIMILAR TO OTHER APPEALS BARRING THE AMOUNT OF ADDITIONS. 5. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESS EE IS ENGAGED IN THE MANUFACTURING OF ALLOPATHIC MEDICINES. THE ASSESSEE CLAIMED DEDUCTION U/S. 80IC ON A SUM OF RS.5,47,46,712/- ON MANUFACTURING PROFIT DERIVED FROM EPIP, AMINGAON, GAUHATI ASSAM AND THE TAXES WERE PAID ONL Y ON BOOK PROFIT DECLARED U/S. 115JB OF THE IT ACT. IN THE ASSESSMEN T PROCEEDINGS, THE ASSESSING OFFICER NOTICED THE DEDUCTION CLAIMED BY ASSESSEE U/S. 80IC, INTER ALIA, INCLUDED A SUM OF RS. 56,78,153/-, WHICH WAS SHOWN IN THE PROFIT AND LOSS ACCOUNT AS OTHER INCOME UNDER THE GUWAHATI UNIT, TH E DETAILS OF WHICH ARE GIVEN IN THE ASSESSMENT ORDER. THE ASSESSING OFFICE R REFERRING TO THE PROVISIONS OF SECTION 80IC AND RELYING ON VARIOUS C ASE LAWS OBSERVED THAT THE DEDUCTION U/S. 80ICIS AVAILABLE ONLY FROM THE PROFI TS AND GAINS DERIVED FROM MANUFACTURE OR PRODUCE OF AN ARTICLE AND THING BY T HE UNDERTAKING AND NOT ON THE OTHER INCOME INCLUDING INTEREST INCOME AS DECLA RED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER, ACC ORDINGLY, DISALLOWED THE DEDUCTION OF RS.56,78,153/- AND RESTRICTED THE CLAI M OF ASSESSEE U/S. 80IC TO ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 8 RS.4,90,68,559/-. SIMILAR DISALLOWANCES ON THE IDEN TICAL REASONING WERE ALSO MADE TO THE TUNE OF RS.1,09,81,936/- & RS.1,10,87,9 71/- RESPECTIVELY FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11. IN APPEAL, TH E LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE PREMISE THAT THE AFORESAID INCOMES WERE NOT LINKED WITH THE MANUFACTURING ACTIVITY AND ARE NOT DERIVED FROM THE MANUFACTURING ACTIVITY OF THE UNDERTAKING. HE ALSO RELIED ON SEVERAL DECISIONS ON THE ISSUE. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, REI TERATING THE SUBMISSIONS MADE BEFORE THE LD. CIT(A), SUBMITTED THAT THE AFOR ESAID AMOUNTS PERTAIN TO THE BUSINESS ACTIVITIES OF THE ASSESSEE CARRIED OUT AT GUWAHATI AND AS SUCH THE DENIAL OF DEDUCTION U/S. 80IC ON SUCH INCOMES IS NO T JUSTIFIED. HOWEVER, THE LD. AR OF THE ASSESSEE FURTHER SUBMITTED IN HIS WRITTEN SYNOPSIS ON THIS ISSUE AS UNDER : IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT D EDUCTION UNDER SECTION 80IC OF THE ACT HAS BEEN DISALLOWED IN RESPECT OF T HE OTHER INCOMES OF THE APPELLANT, HOWEVER, IT INCLUDES INTEREST SUBSIDY, I NSURANCE SUBSIDY AND SIMILAR INCOMES WHICH ARE INEXTRICABLY LINKED TO TH E BUSINESS OF THE APPELLANT AND ARE ELIGIBLE FOR DEDUCTION U/S 80IC A S HELD IN THE DECISION OF HONBLE SUPREME COURT OF INDIA IN CASE OF CIT VS. ME GHALAYA STEELS LTD. 383 ITR 217(SC) DATED 09.03.2016, IT IS PERTINENT TO SUBMIT THAT HONBLE APEX COURT IN THE AFORESAID DECISION HAVE CONSIDERE D THEIR LORDSHIPS EARLIER DECISION IN THE CASE OF LIBERTY INDIA VS. C IT (2009) 317 ITR 218 (SC) AND ACCORDINGLY, IT IS SUBMITTED THAT SINCE TH E AFORESAID JUDGMENT WAS NOT AVAILABLE WHEN THE ORDERS OF THE LOWER AUTH ORITIES WAS PASSED, ISSUE RAISED IN THESE GROUNDS MAY PLEASE BE RESTORE D FOR EXAMINATION IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT OF I NDIA IN CASE OF CIT VS. MEGHALAYA STEELS LTD. 383 ITR 217 (SC). FURTHER, REL IANCE IS PLACED ON THE ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 9 WRITTEN SUBMISSION REPRODUCED IN THE ORDER OF LD.CI T (A) ON PAGE 5-6 OF THE APPELLATE ORDER. 7. THE LD. DR, ON THE OTHER HAND, SUPPORTING THE OR DERS OF THE AUTHORITIES BELOW, SUBMITTED THAT THE LD. AUTHORITIES BELOW ARE JUSTIFIED IN DISALLOWING THE IMPUGNED DEDUCTION WHICH WAS NOT IN CONSONANCE WITH THE PROVISIONS OF SECTION 80IC OF THE ACT. THEREFORE, THE DECISION RE ACHED BY THE LD. AUTHORITIES BELOW BASED ON VARIOUS JUDICIAL PRONOUNCEMENTS DOES NOT CALL FOR ANY INTERFERENCE. 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND PERU SED THE ENTIRE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE LD. AUTHORITIES BELOW HAVE MAINLY BASED THEIR CONCLUSIONS ON THE BASIS OF DECI SION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 3 17 ITR 218. THE CONTENTION OF THE ASSESSEE HAS BEEN THAT THE CLAIM OF ASSESSEE U/S. 80IC INCLUDED INTEREST SUBSIDY, INSURANCE SUBSIDY AND SIMILAR INCOMES WHIC H ARE INEXTRICABLY LINKED TO THE BUSINESS OF THE ASSESSEE AND THEREFORE, THE DEDUCTION U/S. 80IC IS AVAILABLE TO THE ASSESSEE ON SUCH INCOME IN VIEW OF THE DECISION IN THE CASE OF CIT VS. MEGHALAYA STEELS LTD. (SUPRA) WHERE THE HON BLE COURT HAS GIVEN DUE CONSIDERATION TO THEIR EARLIER DECISION IN THE CASE OF LIBERTY INDIA VS. CIT (SUPRA). THIS RECENT DECISION OF HONBLE APEX COURT WAS NOT AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS. AS PER SUBMISSIONS OF THE ASSESSEE, THE SUBSIDIES IN RESPECT OF INSURANCE, INTEREST AND SAL ES TAX REMISSION WERE GIVEN BY THE ASSAM GOVERNMENT WHICH ARE INCIDENTAL TO THE BUSINESS OF THE ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 10 ASSESSEE. BESIDES, THE ASSESSEE HAS ALSO GIVEN THE DETAILS OF INCOME ALLOCATED TO ITS HEAD OFFICE AS UNDER : PROFIT ON SALE OF ASSETS RS.99,765/- MISC. BAL. W/OFF RS.5,02,061/- CHEQUE DISHONOUR CHARGES RS.4,49,941/- INTEREST INCOME RS.2,50,053/- MISC. RECEIPTS RS.1,70,578 PENALTY INTEREST INCOME RS.2,99,791/- TAX REMISSION ASSAM ACCOUNT RS.9,11,729/- TESTING CHARGES INCOME RS.28,81,625/- RS.54,65,328/- A PERUSAL OF THE ASSESSMENT ORDER, AS ALSO CONTENDE D ON BEHALF OF THE ASSESSEE, WE FIND THAT THE ASSESSING OFFICER HAS NOT EXAMINED THESE INCOMES AS DETAILED ABOVE. IN PRESENCE OF ALL THESE FACTS, AND IN VIEW OF OUR AFORESAID DISCUSSION, WE THINK IT APPROPRIATE TO RESTORE THIS ISSUE TO TH E FILE OF ASSESSING OFFICER TO DECIDE THE SAME AFRESH AFTER EXAMINING ALL THE DETA ILS OF INCOME AND IN THE LIGHT OF RECENT DECISION OF HONBLE SUPREME COURT I N THE CASE OF CIT VS. MEGHALAYA STEELS LTD. (SUPRA). NEEDLESS TO SAY, THE ASSESSEE SHALL BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. ACCORDINGLY, GROUNDS NOS. 1 & 2 IN ALL THE THREE APPEALS OF THE ASSESSEE FOR A.YRS. 2008-0 9, 2009-10 AND 2010-11 ARE ALLOWED FOR STATISTICAL PURPOSES. GROUND NO.3 RAISE D IN A.Y. 2008-09 IS MISCONCEIVED AS NO DISALLOWANCE OF EXPENDITURE IS M ADE DURING THIS YEAR. 9. THE SECOND ISSUE INVOLVED IN APPEALS OF ASSESSEE FOR A. YRS. 2009-10 AND 2010-11 IS WITH RESPECT TO DISALLOWANCE U/S. 14A . THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAD MADE INVESTMENT IN SHARES OF RS. 3.14 CRORES IN ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 11 EQUITY, UNITS OF MUTUAL FUNDS AND PREFERENCE SHARE CAPITAL OF COMPANIES IN A.Y. 2009-10 AND OF RS. 85,15,314/- IN A.Y. 2010-11, OUT OF WHICH THE ASSESSEE EARNED DIVIDEND INCOME OF RS.2,775/- AND RS.1606/- RESPECTIVELY. SINCE THE ASSESSEE HAD EARNED EXEMPT INCOME OUT OF AFORESAID INVESTMENTS, THE AO OBSERVED THAT THE ASSESSEE WAS REQUIRED TO DISALLOW EXPENDITURE IN RELATION TO SUCH INVESTMENT, THE INCOME FROM WHICH DOES NOT FOR M PART OF THE TOTAL INCOME. THE CONTENTION OF THE ASSESSEE HAS BEEN THA T SINCE ALL THE ABOVE INVESTMENTS WERE MADE OUT OF DEPLOYMENT OF INTERNAL ACCRUALS OF THE COMPANY, I.E. OWN FUNDS, NO EXPENDITURE WAS INCURRE D BY THE ASSESSEE FOR EARNING EXEMPT INCOME, AS NO BORROWED FUNDS WERE UT ILIZED IN SUCH INVESTMENTS. THE AO, HOWEVER, CONCLUDED THAT THE AS SESSEE HAS MADE SUBSTANTIAL INVESTMENT FOR MAINTENANCE OF WHICH, IT IS ESSENTIAL TO INCUR EXPENDITURE. HE ACCORDINGLY DISALLOWED EXPENDITURE U/S. 14A, AS NOTED ABOVE, AFTER CALCULATING THE SAME AS PER FORMULA PRESCRIBE D U/R. 8D OF THE IT RULES. IN APPEAL BEFORE THE LD. CIT(A), THE FIRST APPELLATE A UTHORITY, AFTER CONSIDERING DETAILED WRITTEN SUBMISSIONS OF THE ASSESSEE, DELET ED THE DISALLOWANCE CALCULATED U/R. 8D(2)(II), BUT CONFIRMED THE DISALL OWANCE CALCULATED U/R. 8D(2)(III) IN BOTH THE YEARS, THEREBY GIVING RELIEF TO THE ASSESSEE OF RS. 9,00,103/- AND RS.13,44,711/- RESPECTIVELY FOR THE A.YRS. 2009-10 AND 2010- 11. 10. THE LD. AR, REITERATING THE SUBMISSIONS MADE BE FORE THE LD. CIT(A), FURTHER SUBMITTED A WRITTEN SYNOPSIS STATING THAT T HE DISALLOWANCE SHOULD BE LIMITED TO THE EXTENT OF EXEMPT INCOME IN VIEW OF T HE DECISION OF DELHI HIGH COURT IN JOINT INVESTMENT VS. CIT, 372 ITR 694. IT WAS ALSO SUBMITTED THAT IN ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 12 CASE DISALLOWANCE OUT OF EXPENSES INCURRED RELATING TO THE UNIT ELIGIBLE FOR DEDUCTION U/S. 80IC IS SUSTAINED, DEDUCTION U/S. 80 IC MAY BE ALLOWED WITH REGARD TO THE ENHANCED PROFIT AS PER CBDT CIRCULAR NO. 37/16 DATED 02.11.2016. 11. THE LD. DR, ON THE OTHER HAND, SUPPORTING THE O RDERS OF THE ASSESSING OFFICER, SUBMITTED AT THE OUTSET THAT THE LD. CIT(A ) WAS NOT JUSTIFIED IN GIVING PARTIAL RELIEF TO THE ASSESSEE WITHOUT CONSIDERING THE FINDINGS REACHED BY THE ASSESSING OFFICER ON THIS SCORE. IT WAS SUBMITTED T HAT IN ORDER TO MAKE INVESTMENT AND TO MANAGE IT, IT REQUIRES HIGH SKILL ED PERSONNEL AND DECISIONS AND THEREFORE, MANAGEMENT EXPENDITURE INCURRED IN S UCH INVESTMENTS CANNOT BE RULED OUT. THE ASSESSEE HAD FAILED TO THE DETAIL S TO SUBSTANTIATE ITS CONTENTION THAT ONLY OWN FUND WAS UTILIZED IN THE I NVESTMENTS. THE ASSESSEE HAS ALSO PAID INTEREST DURING THE YEAR, THEREFORE, THE AO HAS RIGHTLY DISALLOWED EXPENDITURE U/S. 14A BY APPLYING THE PROVISIONS OF RULE 8D. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GO NE THROUGH THE ENTIRE MATERIAL ON RECORD. WE NOTED FROM THE ORDER OF THE LD. CIT(A) THAT THE ASSESSEE HAD INVESTED IN SHARES ETC., INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IT IS ALSO NOTICED FROM ASSESSEES SUBMISSI ONS MADE BEFORE CIT(A) THAT ASSESSEE HAS ALSO EARNED RS.28,73,189.85 AS PR OFIT FROM PARTNERSHIP FIRM, NAMELY M/S. OZONE ARCHITECTURAL PRODUCTS FROM INVES TMENT OF RS.1,83,87,130/- IN A.Y. 2009-10. THE SHARE OF PROF IT FROM FIRM FALLS U/S. 10 AND EXEMPT FROM TAX. THIS FACT HAS NOT BEEN CONSIDE RED BY THE LD. CIT(A) WHILE ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 13 EXAMINING THE CONTENTION OF THE ASSESSEE THAT HE HA D EARNED EXEMPT INCOME ONLY TO THE EXTENT OF RS.2,725/-. HOWEVER, THE ASSE SSEE HAS NOT DECLARED IN HIS WRITTEN SUBMISSION BEFORE THE CIT(A) NOR BEFORE US WHETHER SAID EXEMPT INCOME WAS RECEIVED BY THE ASSESSEE IN A.Y. 2010-11 OR NOT. ONCE, THE ASSESSEE HAD EARNED SUBSTANTIAL EXEMPT INCOME OUT O F INVESTMENTS MADE IN THE PARTNERSHIP FIRM, THE CONTENTION OF THE ASSESSE E THAT HE HAD EARNED EXEMPT INCOME OF RS.2725/- IS NOTHING BUT MISLEADIN G ONE. 13. ADVERTING TO THE CALCULATIONS MADE U/R. 8D(2)(I I), WE FIND THAT THE ASSESSEE HAD SUBSTANTIAL MIXED FUNDS COMPRISING OF INTERNAL AND EXTERNAL FUNDS TO TAKE CARE OF THE IMPUGNED INVESTMENTS. THE REFORE, THE LD. CIT(A) WAS JUSTIFIED TO DELETE THE DISALLOWANCES MADE AS PER R ULE 8D(2)(II). HOWEVER, WHILE GOING THROUGH THE CALCULATION OF DISALLOWANCE MADE U/R. 8D(2)(III) BY THE AO, IT IS NOT CLEAR WHETHER AVERAGE VALUE OF IN VESTMENT TAKEN PERTAINS TO SUCH INVESTMENT, FROM WHICH THE ASSESSEE HAD EARNED EXEMPT INCOME OR NOT. IT IS ALSO NOT CLEAR WHETHER THE INVESTMENT MADE IN THE PARTNERSHIP FIRM FOR EARNING EXEMPT INCOME IS CONSIDERED IN IT OR NOT. I N PRESENCE OF THESE FACTS, THIS ISSUE ALSO DESERVES TO BE REMITTED BACK TO THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH AFTER EXAMINING TRUE FACTS AND FIGURES OF INVESTMENTS, AS NARRATED ABOVE AND AFTER CONSIDERIN G THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF JOINT INVE STMENT VS. CIT, 372 ITR 694 (DEL). WHILE DECIDING THIS ISSUE, THE AO SHALL ALSO CONSIDER THE ALTERNATIVE PLEA OF THE ASSESSEE THAT IN CASE DISALLOWANCE OUT OF EX PENSES INCURRED RELATING TO THE ELIGIBLE UNIT FOR DEDUCTION U/S. 80IC IS SUSTAI NED, THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 80IC WITH REGARD TO THE ENHANCED PRO FIT AS PER CBDT CIRCULAR ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 14 37/2016 DATED 2 ND NOVEMBER, 2016. ACCORDINGLY, GROUNDS NOS. 3 & 4 F OR A.Y. 2009-10 AND 5 & 6 FOR A.Y. 2010-11 ARE ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 5 IN A.Y. 2009-10 AND GROUND NO.7 IN A.Y . 2010-11 ALSO STAND DECIDED AS PER OUR ABOVE DISCUSSION. 14. THE LAST ISSUE INVOLVED IN ASSESSEES APPEAL FO R A.Y. 2010-11 IS DISALLOWANCE OF INTEREST ON FNCR. ON THIS ISSUE, TH E CONTENTION OF THE ASSESSEE AS MADE IN THE WRITTEN SYNOPSIS IS THAT THE ASSESSE E IS MAINTAINING BOOKS ON MERCANTILE BASIS AND THE INTEREST ON FCNR LOAN WAS PAID ON 09.08.2010, I.E., BEFORE DUE DATE OF FILING OF RETURN OF INCOME AND A CCORDINGLY, THIS AMOUNT MAY BE ALLOWED AS PER SECTION 43B OF THE ACT AND NECESS ARY DIRECTIONS MAY BE GIVEN FOR VERIFICATION BY THE ASSESSING OFFICER. HE ALSO SOUGHT RELIEF AS PER CBDT CIRCULAR NO. 37/2016 DATED 02.11.2016 IN CASE ANY DISALLOWANCE WITH RESPECT TO ELIGIBLE UNIT IS SUSTAINED. 15. THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AU THORITIES. 16. AFTER HEARING BOTH THE SIDES AND PERUSING THE R ECORD, WE FIND THAT AS PER ASSESSEE THE INTEREST ON FCNR WAS PAID ON 09.08.201 0 BEFORE FILING THE RETURN OF INCOME (DATE OF FILING OF RETURN MENTIONED IN AS ST. ORDER AS 31.03.2012) AND AS SUCH, THIS AMOUNT IS ALLOWABLE U/S. 43B OF THE A CT. THIS FACT REQUIRES VERIFICATION AT THE STAGE OF AO. IN CASE THE CONTEN TION OF THE ASSESSEE IS FOUND CORRECT, THEN THIS AMOUNT WOULD BE ALLOWABLE U/S. 4 3B OF THE ACT AND IN CASE IT ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 15 IS FOUND OTHERWISE, THE AO SHALL EXAMINE THE DISALL OWANCE ON THE ANVIL OF CBDT CIRCULAR NO. 37/2016 DATED 02.11.2016, AS CONT ENDED BY THE ASSESSEE ALSO IN ALTERNATE. ACCORDINGLY, THIS ISSUE IS ALSO RESTORED TO THE FILE OF AO TO DECIDE IT AFRESH AFTER GIVING REASONABLE OPPORTUNIT Y OF HEARING TO THE ASSESSEE. ACCORDINGLY, GROUND NO. 3 FOR A.Y. 2010-11 IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT, ALL THE APPEALS OF ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 18. NOW, WE COME TO THE APPEALS OF REVENUE. THE FIR ST COMMON ISSUE INVOLVED IN ALL THE THREE YEARS IS WITH RESPECT TO DELETION OF ADDITIONS MADE ON ACCOUNT OF SALES PROMOTION EXPENSES OF RS.1,11,55,2 61/-, RS.1,22,37,690/- AND RS.1,21,42,231/- RESPECTIVELY. WE FIRST TAKE UP THE APPEAL FOR A.Y. 2008- 09. 19. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSES SEE COMPANY HAS TWO UNITS ONE AT BADDI AND OTHER AT GUWAHATI. GAUHATI UNIT OF THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MEDICIN ES AND THAT OF BADDI IS IN MANUFACTURING AND SALE OF MEDICINES. THE PROFITS DE RIVED BY THE ASSESSEE FROM ITS GUWAHATI UNITS ARE ELIGIBLE FOR DEDUCTION U/S. 80IC OF THE IT ACT. IN THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAD DEBITED RS.14,87,36,813/- UNDER THE HEAD SALES PROMOTION AN D INCENTIVES IN THE PL ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 16 ACCOUNT. ON BEING ASKED FOR INFORMATION AND DETAILS ALONGWITH JUSTIFICATION OF THESE EXPENSES, THE ASSESSEE SUBMITTED THE DETAILS OF SALE PROMOTION EXPENSES WHERE TDS WAS APPLICABLE. IT WAS ALSO STATED THAT T HESE EXPENSES CONSIST OF MANY HEADS AND ARE BOOKED IN THOUSANDS OF ACCOUNTS. IT WAS ALSO STATED THAT IT IS NOT POSSIBLE TO ATTACH COPIES OF ALL THE ACCOUNT S AND THAT INCURRING OF THESE EXPENSES IS IMPERATIVE TO ASCERTAIN CONTINUOUS GROW TH OF THE COMPANY. THE AO WAS NOT SATISFIED WITH THE ASSESSEES REPLY AND OBSERVED THAT BILLS/VOUCHERS RELATING TO SALES PROMOTION EXPENSES WERE NOT FURNISHED FULLY. HE, THEREFORE, MADE LUMP SUM DISALLOWANCE OF 7.5% O F SUCH EXPENSES CLAIMED, AMOUNTING TO RS. 1,11,55,261/-. IN APPEAL, THE LD. CIT(A) DELETED THE ADDITION AFTER CONSIDERING DETAILED SUBMISSIONS MADE AND VAR IOUS CASE LAWS CITED BY THE ASSESSEE. THE LD. CIT(A) WHILE DELETING THE IMP UGNED ADDITION STATED THAT THE AO HAS NOT POINTED OUT ANY SPECIFIC EXPENDITURE WHICH WERE NOT VOUCHED OF GENUINE. 20. THE LD. DR SUPPORTED THE ORDER OF THE AO AND SU BMITTED THAT COMPLETE BILLS AND VOUCHERS WERE NOT PRODUCED BEFORE THE AO AND SOME OF THE EXPENDITURE WERE ALSO INCURRED IN CASH. MERE TAX DE DUCTION AT SOURCE DOES NOT PROVE ACTUAL EXPENDITURE INCURRED FOR THE BUSINESS PURPOSES. 21. THE LD. AR OF THE ASSESSEE, ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND SUPPORTED THE IMPUGN ED ORDER. HE ALSO SUBMITTED WRITTEN SYNOPSIS BEFORE US, STATING THAT THE EXPENDITURE IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IDE NTICAL DISALLOWANCE WAS ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 17 MADE IN ASSESSEES OWN CASE IN A.Y. 2006-07 AND THE TRIBUNAL DELETED THE DISALLOWANCE. IN ALTERNATE, IT WAS SUBMITTED THAT I N CASE DISALLOWANCE OUT OF EXPENSES INCURRED RELATING TO THE UNIT ELIGIBLE FOR DEDUCTION U/S. 80IC IS SUSTAINED, DEDUCTION U/S. 80IC MAY BE ALLOWED WITH REGARD TO THE ENHANCED PROFIT AS PER CIRCULAR NO. 37/2016 DATED 02.11.2016 . 22. AFTER HEARING BOTH THE PARTIES WE FIND THAT BEF ORE THE LD. CIT(A), IT WAS EMPHATICALLY SUBMITTED BY THE LD. COUNSEL FOR THE A SSESSEE THAT COMPLETE BOOKS OF ACCOUNTS ALONG WITH COMPLETE BILLS AND VOU CHERS WERE PRODUCED BEFORE THE AO. HOWEVER, ON PERUSAL OF THE ASSESSMEN T ORDER, IT REVEALS THAT THE AO HAS CATEGORICALLY AVERRED THAT COMPLETE BILLS/VO UCHERS WERE NOT PRODUCED. IT WAS ALSO STATED BEFORE THE LD. CIT(A) THAT THE A SSESSEE HAS BROUGHT COMPLETE ACCOUNTS ALONGWITH COMPLETE BILLS/VOUCHERS AND REQU ESTED THE CIT(A) TO VERIFY AT HIS OWN OR TO GET THEM VERIFIED FROM THE AO. BUT WHILE DELETING THE ENTIRE ADDITION, THE FINDINGS RECORDED BY LD. CIT(A ), NOWHERE DEMONSTRATE THAT THE IMPUGNED EXPENDITURE WERE VERIFIED BY THE LD. C IT(A) FROM BILLS/VOUCHERS ALLEGED TO HAVE BEEN PRODUCED BEFORE HIM OR ANY REM AND REPORT WAS CALLED FOR FROM THE ASSESSING OFFICER SO AS TO GET THEM VE RIFIED. THIS WAS INCUMBENT UPON THE LD. CIT(A) TO CALL FOR THE REMAND REPORT O F THE AO, PARTICULARLY WHEN THE AO HAD OBSERVED NON-PRODUCTION OF COMPLETE BILL S/VOUCHERS IN THE ASSESSMENT PROCEEDINGS. THEREFORE, DELETION OF ADDI TION MADE BY THE LD. CIT(A) DOES NOT APPEAR JUSTIFIED FOR WANT OF VERIFI CATION. WE, ACCORDINGLY, REMIT THIS ISSUE BACK TO THE FILE OF AO FOR DECIDIN G IT AFRESH AFTER MAKING PROPER AND THOROUGH VERIFICATION OF THE EXPENDITURE FROM THE BOOKS OF ASSESSEE AS WELL AS FROM BILLS AND SUPPORTING VOUCH ERS THEREOF. THE ASSESSEE IS ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 18 REQUIRED TO FURNISH COMPLETE BOOKS OF ACCOUNT AND B ILLS/VOUCHERS BEFORE THE AO FOR VERIFICATION. THE AO IS ALSO DIRECTED TO EXA MINE THE ALTERNATIVE CONTENTION OF ASSESSEE THAT IN CASE DISALLOWANCE OU T OF EXPENSES INCURRED RELATING TO THE UNIT ELIGIBLE FOR DEDUCTION U/S. 80 IC IS SUSTAINED, THEN THE DEDUCTION U/S. 80IC MAY BE CONSIDERED WITH REGARD T O ENHANCED PROFIT AS PER CIRCULAR NO. 37/2016 DATED 02.11.2016. NEEDLESS TO SAY, THE ASSESSEE SHALL BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. IN VIE W OF OUR THIS DISCUSSION, GROUND NO. 1 IN A.Y. 2008-09 AND 09-10 AND GROUND N O. 2 IN A.Y. 2010-11 ARE ALLOWED FOR STATISTICAL PURPOSES. 23. REGARDING NEXT ISSUE INVOLVED IN APPEAL FOR A.Y . 2008-09, WE FIND THAT THE AO HAS MADE ADDITION OF RS.82,200/- ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED @ 60% BY THE ASSESSEE ON COMPUTER UPS. THIS ISSUE STAND ALREADY DECIDED BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. BSES RAJDHANI POWERS LTD. DATED 31.08.2010 IN ITA NO. 1266/2010. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE COURT, WE DO NOT FIND ANY J USTIFICATION TO INTERFERE WITH THE ORDER OF LD. CIT(A) ON THIS COUNT. ACCORDINGLY , GROUND NO. 2 IN APPEAL FOR A.Y. 2008-09 IS DISMISSED. 24. GROUND NO. 3 RELATES TO FOREIGN TRAVELING EXPEN DITURE OF RS.7,69,757/- INCURRED BY MANAGING DIRECTOR SHRI S.C. SEHGAL ALON G WITH MR. PRAVEEN KUMAR MS. NEETA, EMPLOYEE OF THE COMPANY. THE AO DISALLOW ED THESE EXPENDITURES ON THE PREMISE THAT THE ASSESSEE FAILED TO ESTABLIS H ANY BUSINESS EXIGENCY IN ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 19 THIS REGARD. THE LD. CIT(A) DELETED THE ADDITION ON THE REASONING THAT THE AO DID NOT SPECIFY THE EXPENDITURE WITHOUT ANY BILL/VO UCHER. 25. THE LD. DR SUBMITTED THAT SINCE THE ASSESSEE FA ILED TO PROVE ANY BUSINESS EXIGENCY TO CONDUCT FOREIGN TRAVEL WITH OT HER EMPLOYEES, THE AO WAS JUSTIFIED TO DISALLOW THE SAME. 26. THE LD. AR, ON THE OTHER HAND, REITERATED THE S UBMISSIONS MADE BEFORE THE LD. CIT(A) AND SUPPORTED THE IMPUGNED ORDER. IN ALTERNATE, IT WAS SUBMITTED THAT IN CASE THESE EXPENDITURES ARE DISAL LOWED, THE ASSESSEES ENHANCED PROFIT FOR ELIGIBLE UNIT MAY BE CONSIDERED FOR DEDUCTION U/S. 80IC AS PER CBDT CIRCULAR NO. 37/2016 DATED 02.11.2016. 27. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES, WE FIND SUBSTANCE IN THE CONTENTION OF ASSESSEE. IT IS NOT THE CASE O F THE AO THAT THE IMPUGNED EXPENDITURE WERE NOT SUPPORTED BY ANY EVIDENCE OR W ERE NOT OPEN FOR VERIFICATION. SECONDLY, THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) WERE ALSO THAT THE ASSESSEE HAD INVESTED IN M/S. OZONE RESEAR CH FRONTIER LTD. IN USA, IN WHICH RESEARCH IN RESPECT OF PROTEIN SEQUENCE WAS B EING CARRIED OUT AND ALSO VISITED CHINA TO ATTEND THE TRADE FAIR. THESE SUBMI SSIONS OF ASSESSEE DO NOT STAND CONTROVERTED BY THE LD. DR. THEREFORE, IT CAN NOT BE SAID THAT THE AFORESAID VISITS WERE MADE FOR THE PURPOSE OTHER TH AN BUSINESS. WE, THEREFORE, REJECT THIS GROUND. ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 20 28. THE NEXT ISSUE INVOLVED IN APPEAL OF REVENUE FO R A.Y. 2009-10 IS WITH REGARD TO DELETION OF DISALLOWANCE U/S. 14A AMOUNTI NG TO RS.9,00,103/-. THIS ISSUE IS COVERED BY OUR DECISION ON GROUND NO. 3 & 4 OF ASSESSEES APPEAL FOR A.Y. 2009-10, WHEREBY THE IMPUGNED ISSUE HAS BEEN R ESTORED BACK TO THE FILE OF AO. ACCORDINGLY, THE PRESENT ISSUE ALSO STANDS R EMITTED BACK TO THE AO ON THE SIMILAR TERMS. THUS, GROUND NO. 2 OF REVENUES APPEAL FOR A.Y. 2009-10 STANDS ALLOWED FOR STATISTICAL PURPOSES. 29. IN REVENUES APPEAL FOR A.Y. 2010-11, GROUND NO . 1 PERTAINS TO DELETION OF ADDITION OF RS.13,86,656/- MADE ON ACCOUNT OF DE DUCTION U/S. 80IC. IN THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAD DISCLOSED TOTAL SALES OF RS.55,54,17,290/- FROM ITS GAUHATI UNIT AN D CLAIMED DEDUCTION ON PROFITS U/S. 80IC AT RS.1,45,58,026/-. THE AO FURTH ER NOTICED THAT THE ASSESSEE HAD PURCHASED MEDICINES OF RS.5,29,03,667/- FROM M/ S. OZONE AYURVEDICS. IN THIS REGARD, THE ASSESSEE SUBMITTED WRITTEN REPLY A S UNDER : WE HAVE PURCHASED VARIOUS KIND OF MEDICINES FOR RS .5,29,03,667/- FROM M/S. OZONE AYURVEDICS WHICH ARE EXCLUSIVELY MA NUFACTURED MEDICINES FOR OUR COMPANY. SUCH AS IITIS EYE WANISH CREAM, WANTO CAPSULES WHICH ARE OF AYURVEDIC IN NATURE AND WE SE LL THEM THROUGH OUR COMPANY. IN VIEW OF THE ABOVE EXPLANATION OF THE ASSESSEE, T HE AO OBSERVED THAT THE ABOVE PURCHASE OF AURVEDIC MEDICINES WERE NOT MANUF ACTURED BY THE ASSESSEES UNDERTAKING, BUT WERE MADE AS A RESULT O F TRADING ACTIVITIES, ON ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 21 WHICH NO DEDUCTION IS AVAILABLE U/S. 80IC. ACCORDIN GLY, THE DEDUCTION U/S. 80IC WAS DISALLOWED ON PROPORTIONATE PROFIT. IN APP EAL, THE LD. CIT(A) DELETED THE ADDITION AFTER CONSIDERING THE DETAILED SUBMISS IONS OF THE ASSESSEE. 30. WHILE THE LD. DR SUPPORTED THE ORDER OF THE AO, THE LD. AR OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND RELIED ON THE FINDINGS OF FIRST APPELLATE AUTHORITY. 31. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ENTIRE MATERIAL ON RECORD. THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) ON BEHALF OF THE ASSESSEE ON THIS ISSUE READ AS UNDER : GROUND NO. 4 AND 5 - DEALS WITH THE GRIEVANCE OF TH E APPELLANT AGAINST THE ACTION OF THE LD. AO IN FURTHER REDUCING THE DE DUCTION CLAIMED BY THE ASSESSEE U/S 80IC BY AN AMOUNT OF RS.13,86,656/- ON THE GROUND THAT DEDUCTION CANNOT BE ALLOWED ON TRADING ACTIVITY CAR RIED ON BY THE APPELLANT COMPANY FOR THE MEDICINES PURCHASED FROM ITS SISTER CONCERN M/S OZONE AYURVEDICS AS TRADING ACTIVITY IS NOT ELI GIBLE FOR DEDUCTION U/S 80IC OF THE ACT. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT A SSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF MEDICINES AS WELL AS IN TRADING OF MEDICINES. ASSESSEE COMPANY CLAIMS DEDUCTION U/S 80IC ON THE P ROFITS EARNED BY ITS MANUFACTURING UNIT SITUATED AT GUHAWATI. BESIDES HA VING ITS MANUFACTURING UNIT IN GUWAHATI, ASSESSEE COMPANY IS ALSO ENGAGED IN BUSINESS OF TRADING IN MEDICINES. FOR THE PURPOSES OF TRADING, APPELLANT COMPANY MAKES PURCHASES FROM DIFFERENT PARTIES AND IN TURN BOOKS SALES OF THESE MEDICINES IN ITS TRADING UNIT ONLY. IT IS SUBMITTED THAT 80IC UNIT OF THE APPELLANT COMPANY DOES NOT MAKE ANY PURCHASES F OR TRADING AND IS ENGAGED IN THE MANUFACTURING OF MEDICINES ONLY. LD. AO INADVERTENTLY PRESUMED THAT PURCHASES MADE FROM M/S. OZONE AYURVE DICS (AN ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 22 ASSOCIATED CONCERN OF THE ASSESSEE COMPANY) OF RS. 5 CRORES ARE FOR GUWAHATI UNIT, AND THESE ARE SOLD FROM GUWAHATI UNI T ONLY, WHEREAS, THE FACT IS THAT THESE MEDICINES WERE PURCHASED BY THE ASSESSEE COMPANY IN THE TRADING UNITS ONLY AND HAS NO CONCERN WITH THE PURCHASES MADE BY THE GUWAHATI UNIT, WHICH IS ALSO EVIDENT FROM THE RAW M ATERIAL PURCHASES SHOWN IN THE PROFIT & LOSS ACCOUNT OF GUWAHATI UNIT WHICH IS ONLY FOR A SUM OF RS.7,24,02,774/-. IT IS SUBMITTED THAT PURCH ASES MADE FROM M/S OZONE AYURVEDICS (SISTER CONCERN OF THE APPELLANT C OMPANY) IS FOR THE ITEMS WHICH ARE NOT MANUFACTURED BY THE APPELLANT C OMPANY AS THOSE ITEMS ARE GOT MANUFACTURED BY M/S OZONE AYURVEDICS ONLY AND ARE TRADED BY THE APPELLANT COMPANY. SINCE THESE ITEMS ARE NOT SOLD BY M/S OZONE AYURVEDICS TO ANY THIRD PARTY, AS SUCH, NO COMPARIS ON CAN BE MADE WITH ANY OTHER PARTY FOR SIMILAR PRODUCTS AS NO SUCH PRO DUCT IS MADE BY ANY OTHER PARTY. SINCE 80IC UNIT HAS NOT MADE ANY PURCH ASES OF ANY SUCH PRODUCT AND HAS ALSO NOT MADE ANY TRADING THEREOF T HE ADDITION HAS BEEN MADE BY LD. AO UNDER A MISCONCEPTION. THEREFORE, LD. AO MADE THE ADDITION UNDER A MISCONCEPTION. THEREFORE, THE ADDIT ION MADE OF RS. 13,86,656/- CONSIDERING PROPORTIONATE BASIS ON THE SALES MADE BY THE 80IC UNIT IS CONTRARY TO FACTS WHEN NO SUCH SALES INCLUD E ANY SUCH ITEM WHICH HAS BEEN DIRECTLY SOLD FROM THE 80IC UNIT. SINCE NO PURCHASES ARE MADE FOR ANY TRADING PURPOSE BY 80IC UNIT, THE ADDITION MADE ON MERE PRESUMPTIONS AND ON SURMISES MAY KINDLY BE DIRECTED TO BE DELETED. PB 18 IS COPY OF THE PROFIT AND LOSS A/C OF GUWAHAT I UNIT WHICH REVEAL THAT NO PURCHASES HAVE BEEN MADE BY THE GUHAWATI UN IT. PB 5 IS COPY OF THE COMPUTATION OF INCOME WHICH SHO WS THAT DEDUCTION U/S 80IC HAS BEEN CLAIMED BY THE ASSESSEE COMPANY ONLY ON PROFITS OF THE GUHAWATI UNIT. 32. ON THE STRENGTH OF ABOVE SUBMISSION, THE ASSESS EE HAS CLAIMED THAT THE AO WHILE DISALLOWING THE DEDUCTION U/S. 80IC, HAS W RONGLY TREATED THE ABOVE PURCHASES AND SALES OF MANUFACTURED MEDICINES BY TH E ELIGIBLE UNIT OF GUWAHATI, WHEREAS THE FACT IS THAT THE AFORESAID PU RCHASE AND SALES WERE MADE IN THE TRADING UNIT OF ASSESSEE AND NOT IN THE ACCOUNT OF ELIGIBLE UNIT OF ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 23 ASSESSEE. THIS FACT NEEDS VERIFICATION AT THE STAGE OF ASSESSING OFFICER. IN CASE THE ABOVE PURCHASE AND SALES OF MANUFACTURED MEDICI NE IS FOUND TO HAVE BEEN MADE BY ASSESSEES TRADING UNIT, NO DISALLOWANCE CA N BE MADE ON THE PROFIT OF ELIGIBLE UNIT ON THIS COUNT, BUT IF IT IS FOUND OTH ERWISE, THE AO SHALL BE AT LIBERTY TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW, AS IT I S AN ADMITTED FACT THAT THE IMPUGNED PURCHASES AND SALE PERTAIN TO THE AYURVEDI C MEDICINES WHICH WERE NOT MANUFACTURED BY ASSESSEE, BUT BY ITS SISTER CON CERN M/S. OZONE AYURVEDICS. ACCORDINGLY, THIS ISSUE IS REMITTED BA CK TO THE AO FOR DECIDING IT AFRESH IN THE LIGHT OF ABOVE VERIFICATION. NEEDLESS TO SAY, THE ASSESSEE SHALL BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. 33. THE LAST ISSUE INVOLVED IN APPEAL OF THE REVENU E FOR A.Y. 2010-11 IS WITH RESPECT TO SALES PROMOTION EXPENSES IN THE NAME OF SISTER CONCERN AMOUNTING TO RS.52,20,590/- MADE BY THE AO AND DELETED BY THE LD. CIT(A). THE BRIEF FACTS RELATING TO THIS ISSUE ARE THAT IN THE ASSESSMENT P ROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAD CLAIMED SALES PROMOTION EXPENSES I N THE PROFIT & LOSS ACCOUNT TO THE TUNE OF RS.16,18,96,408/-, OUT OF WH ICH A SUM OF RS.5,22,05,896/- HAD BEEN PAID TO THE FOLLOWING PAR TIES, WHICH ARE RELATIVES AS PER SECTION 40A(2)(B) OF THE IT ACT : (I). M/S. OZONE AYURVEDICS 3,75,02,642/- (II). M/S. FOURTH DIMENSION MEDIA P. LTD. 1,17,76, 015/- (III). M/S. FOURTH DIMENSION IMC P. LTD. 25,5 1,988/- (IV). M/S. OZONE MISSION 3,75,251/- --------------------- 5,22,05,896/- -------------------- ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 24 THE ASSESSEE WAS ASKED TO JUSTIFY THE GENUINENESS O F EXPENSES AND WHETHER THE EXPENSES ARE AT ARMS LENGTH. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THEY HAD PURCHASED MAGAZINES FROM M/S. FOURTH DIME NSION MEDIA PVT. LTD. AT MARKET RATE AND PAYMENTS TO OTHER PARTIES ALSO ON C OMPARABLE MARKET RATES, THEREFORE, THE PROVISIONS OF SECTION 40A(2)(B) ARE NOT APPLICABLE IN THIS CASE. THE AO BEING NOT SATISFIED WITH THE REPLY OF ASSESS EE, CONCLUDED THAT THE ASSESSEE FAILED TO PROVE THE PAYMENTS MADE TO THE S ISTER CONCERNS ARE NOT IN ARMS LENGTH. HE, THEREFORE, DISALLOWED A LUMP SUM EXPENDITURE TO THE TUNE OF RS. 52,20,590/- REPRESENTING TO 10% OF THE TOTAL PA YMENTS AS NOTED ABOVE BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B). IN AP PEAL BEFORE THE LD. CIT(A), THE ASSESSEE FILED A WRITTEN SUBMISSION STATING AS UNDER : GROUND NO. 7: THIS GROUND IS AGAINST THE ACTION OF LD. AO IN MAKIN G A DISALLOWANCE OF A SUM OF RS.52,20,590/- BY INVOKING PROVISIONS OF SEC TION 40A(2)(B) ON THE GROUND THAT ASSESSEE HAS CLAIMED SALES PROMOTION EX PENSES IN THE NAME OF ITS SISTER CONCERNS. ASSESSEE COMPANY HAS INCURRED AN EXPENDITURE OF RS. 16,18,96,408/- ON SALES PROMOTION EXPENSES. OUT OF THIS RS. 12,82,16, 537/- ARE CLAIMED IN RESPECT OF GUHAWATI UNIT. IN CASE ASSESSEE WOULD HA VE MADE EXCESS PAYMENT TO ITS ASSOCIATED CONCERNS IT WOULD MEAN TH AT ASSESSEE HAS CLAIMED EXCESS EXPENSES IN GUHAWATI UNIT AND MEANIN G THEREBY THE PROFITS OF GUHAWATI UNIT SHALL BE REDUCED. FIRST OF ALL IT IS SUBMITTED THAT THE ADDITION MADE OF RS.52,20,590/- MAY FIRST BE REDUCE D ON PRO RATA BASIS WHICH WORKS OUT (RS.52,20,590 X RS.12,82,16,537/-)/ RS.16,18,96,408/- = RS. 41,34,533/- IN RESPECT OF GUHAWATI UNIT. WHEREA S, THE FACT IS THAT NO EXCESS PAYMENT OF ANY NATURE IS MADE IN RESPECT OF THESE EXPENSES INCURRED WHICH IS EVIDENT FROM THE FOLLOWING FACT A ND EVIDENCES PLACED IN THE PAPER BOOK. ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 25 RESPECTFULLY SUBMITTED THAT ASSESSES COMPANY INCURR ED AN EXPENDITURE ON ADVERTISEMENT, PURCHASE OF MAGAZINES, AND DESIGNING WORK AND MADE PAYMENT TO ITS ASSOCIATED CONCERNS AS UNDER:- IN THIS REGARD, IT IS FURTHER SUBMITTED THAT ITEMS PURCHASED BY THE APPELLANT COMPANY FROM ITS ASSOCIATED CONCERN ARE N OT SOLD BY THESE ASSOCIATED CONCERNS TO ANY OTHER PARTY. 1) M/S OZONE AYURVEDICS - RS.3,75,02,642/-. ITEMS PURCHASED FROM M/S OZONE AYURVEDICS ARE EITHE R THE ITEMS OF SALES PROMOTION OR THE ITEMS FOR TRADING WHICH ARE EXCLUS IVELY FOR THE ASSESSEE COMPANY. NO SUCH ITEMS PURCHASED EITHER AS SAMPLE O R FOR TRADING OR FOR SALES PROMOTION ARE SOLD BY M/S OZONE AYURVEDICS TO ANY THIRD PARTY. 2) M/S FOURTH DIMENSION MEDIA PVT. LTD. - RS.L,17, 76,015/- FOURTH DIMENSION MEDIA PVT. LTD. PUBLISHED MAGAZINE S FOR THE PRODUCTS MANUFACTURED BY THE ASSESSEE COMPANY. THESE MAGAZINE S ARE SOLD IN THE MARKET BUT MARKET SALES ARE VERY NOMINAL. WHEREAS B ULK PURCHASES ARE MADE BY THE ASSESSEE COMPANY SINCE THESE MATERIALS (MAGAZINES) ARE PURCHASED BY THE ASSESSEE COMPANY FOR PROMOTING ITS SALES AS IT CONTAINS ADVERTISEMENT MATERIALS AND DESCRIBES THE PRODUCTS MANUFACTURED BY THE ASSESSEE. FOR THIS REASON, ASSESSEE PURCHASED BULK MAGAZINES AND THESE ARE AT LESSER PRICE AS COMPARED TO PRICE AT WHICH T HESE ARE SOLD TO OTHER VENDORS WHO PURCHASES THESE MAGAZINES IN SMALL QUAN TITIES. THEREFORE, WITHOUT APPRECIATING THESE FACTS THE ADDITION MADE BY LD. AO @ 10% IN AN AD HOC MANNER IS CONTRARY TO LAW AND WITHOUT APP RECIATING THE FACTS OF THE CASE. PB 92 - 118 ARE COPIES OF BILLS EVIDENCING THE RATE S AT WHICH MAGAZINES HAVE BEEN SOLD TO APPELLANT COMPANY AND TO THIRD PA RTIES BY M/S FOURTH DIMENSION. IN VIEW OF ABOVE SUBMISSIONS, IT IS HUMB LY PRAYED THE PROVISIONS OF SECTION 40A(2)(B) ARE NOT APPLICABLE IN THE CASE OF THE APPELLANT COMPANY. 3) M/S FOURTH DIMENSION IMC PVT. LTD. - RS.25,51,988/ - FROM THIS COMPANY, ASSESSEE GETS SOME DESIGNING WOR K DONE FOR ITS PRODUCTS. SINCE THIS WORK IS GOT DONE IN HOUSE FROM ASSOCIATED CONCERN IN ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 26 ORDER TO KEEP THE SECRECY OF THE BUSINESS NO COMPAR ABLE RATES COULD BE MADE AVAILABLE AS NO WORK IS GOT DONE FROM OUTSIDE OF THIS VERY NATURE. IN VIEW OF THE ABOVE SUBMISSIONS MADE, SINCE ASSESS EE HAS NOT INCURRED ANY EXPENSE AND HAS NOT INFLATED THE EXPENSE IN ANY MANNER AND FURTHER LD. AO HAS NOT BROUGHT ANY CONTRARY MATERIAL ON REC ORD TO DISPROVE THE CONTENTIONS OF THE APPELLANT COMPANY, THE ADDITION MADE IN THE AD HOC MANNER MAY KINDLY BE DIRECTED TO BE DELETED. 4) M/S OZONE MISSION - RS. 3,75,251/- ASSESSEE COMPANY GETS INCENSE STICKS (AGGARBATTIS) WHICH IS ALSO A SALES PROMOTION ITEM AND NO TRADING IS DONE EITHER BY THE APPELLANT COMPANY OR BY M/S OZONE MISSION IN THESE ITEMS. THESE ITEMS ARE PURCHASED BY THE ASSESSEE AT BEST AVAILABLE PRICE AND THERE CANNOT B E ANY COMPARABLE FIGURES. IT IS RESPECTFULLY SUBMITTED THAT TO PROVE CONTRARY THAT ASSESSES HAD PAID ANY EXCESS AMOUNT MORE THAN THE MARKET PRICE OF ANY ITEM IS FOR THE LD. AO TO PROVE. NO DISALLOWANCE CAN BE MADE JUST ON PR ESUMPTIONS AND WHIMS AND SURMISES AND JUST FOR THE PURPOSE THAT TH E SAME HAVE BEEN PURCHASED BY THE ASSESSEE FROM ITS SISTER CONCERN, THAT TOO WHEN NO SUCH ITEM IS AVAILABLE IN THE OPEN MARKET AND IT HAS BEE N EXCLUSIVELY MANUFACTURED AS PER THE SPECIFICATIONS AND FORMULA OF THE APPELLANT COMPANY. IN VIEW OF THE ABOVE, THE DISALLOWANCE MADE AT 10% IN AN AD HOC MANNER IS CONTRARY TO LAW AND FACTS OF THE CASE AND MAY KI NDLY BE DIRECTED TO BE DELETED. PB 54 - 55 IS ASSESSEE'S LETTER DATED 08-03-2013 FI LED BEFORE LD. AO GIVING SUBMISSIONS ON THE ABOVE ASPECT. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, IT IS R ESPECTFULLY SUBMITTED THAT IF DISALLOWANCE OF EXPENSES U/S 40A(2)(B) IS C ONFIRMED THEN WE MAY PLEASE BE ALLOWED DEDUCTION U/S 80IC VIS- A-VIS THA T AMOUNT. ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 27 THE LD. CIT(A), AFTER CONSIDERING THE AFORESAID WRI TTEN SUBMISSIONS DELETED THE ADDITION, OBSERVING THAT THE EXPENDITURE INCURRED W AS NEITHER EXCESSIVE NOR UNREASONABLE HAVING REGARDING TO THE FAIR MARKET VA LUE OF SERVICES FOR WHICH PAYMENTS WERE MADE. IT WAS ALSO OBSERVED THAT ALL T HE CORRESPONDENCE AND DETAILS OF PROFESSIONAL CHARGES PAID WERE GIVEN TO THE AO AND COPIES OF TDS, RETURNS AND STATEMENT OF ACCOUNT WERE SHOWN. THEREF ORE, TREATING THE IMPUGNED EXPENDITURE TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS, THE LD. CIT(A) DELETED THE ADDITION. 34. THE LD. DR SUPPORTED THE ORDER OF THE AO AND SU BMITTED THAT THE ASSESSEE FAILED TO PROVE THAT THE PAYMENT MADE FOR SERVICES/GOODS WERE AT ARMS LENGTH, WHICH WAS THE PRIMARY ONUS OF THE ASS ESSEE NOT BEING DISCHARGED. THEREFORE, THE AO WAS JUSTIFIED TO MAKE THE ADHOC ADDITION. THE CASE LAW RELIED BY ASSESSEE IS NOT APPLICABLE. 35. THE LD. AR ON THE OTHER HAND, REITERATED THE SU BMISSIONS MADE BEFORE THE CIT(A) AND SUBMITTED THAT THE LD. CIT(A) HAS RI GHTLY DELETED THE ADDITION AFTER CONSIDERING THE WRITTEN SUBMISSIONS OF THE AS SESSEE. IT WAS FURTHER SUBMITTED THAT THE ONUS TO PROVE THAT THE IMPUGNED EXPENDITURE WERE EXCESSIVE OR UNREASONABLE WAS ON THE ASSESSING OFFI CER, WHICH HE FAILED TO DISCHARGE WHILE MAKING THE ADHOC ADDITION. RELIANCE IS PLACED ON THE DECISION IN THE CASE OF S.K. ENGINEERING VS. JCIT, 103 ITD 9 7 (BANG. TRIBUNAL) AND ACIT VS. BOMBAY REAL ESTATE DEVELOPERS CO. PVT. LTD. (64 DTR 137) AND ANURAG AGARWAL VS. ACIT, ITA NO. 497/AGRA/2015. IN ALTERNA TE, THE LD. COUNSEL ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 28 SUBMITTED THAT IN CASE ANY ADDITION IS SUSTAINED ON THIS HEAD, THE ENHANCED PROFIT OF ELIGIBLE UNIT MAY BE CONSIDERED FOR DEDUC TION U/S. 80IC IN TERMS OF CIRCULAR NO. 37/2016 DATED 02.11.2016. 36. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE GONE THROUGH THE MATERIAL ON RECORD AND WE FIND SUBSTANCE IN THE CON TENTION OF THE ASSESSEE THAT ONCE, THE AO ALLEGES THAT THE IMPUGNED PAYMENT S TO RELATED ENTITIES WERE NOT IN ARMS LENGTH, THE ONUS WAS ON THE AO TO PROV E THE SAME, WHICH HE FAILED TO DISCHARGE. IT IS NOT IN DISPUTE THAT THE IMPUGNE D PAYMENTS WERE MADE FOR SALES PROMOTION OF THE ASSESSEE COMPANY. IN THE INS TANT CASE, THE AO HAS FAILED TO BRING ANY MATERIAL ON RECORD TO PROVE THAT SUCH EXPENDITURE MADE BY THE ASSESSEE ARE EXCESSIVE OR UNREASONABLE AS CONTEMPLA TED U/S. 40A(2)(B) OF THE ACT. THE ASSESSEE HAD PRODUCED COMPLETE DETAILS WIT H RESPECT TO THESE PAYMENTS BEFORE THE AO, AS NOTED BY THE LD. CIT(A) IN THE IMPUGNED ORDER. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFE RE WITH THE DECISION OF LD. CIT(A) WHILE DELETING THIS ADDITION U/S. 40A(2)(B). IT IS HOWEVER, STATED THAT THE PAYMENTS MADE BY ASSESSEE TO ITS ASSOCIATE CONC ERNS WORTH RS.5,22,05,896/- WERE INCLUDED IN THE TOTAL SALES P ROMOTION EXPENSES OF RS.16,18,96,408/- CLAIMED BY THE ASSESSEE, OF WHICH 7.5% HAS ALREADY BEEN DISALLOWED BY THE AO FOR WANT OF PROPER BILLS/VOUCH ERS ETC. AND THAT ISSUE HAS BEEN REMITTED BACK BY US TO THE AO FOR FRESH DECISI ON. THEREFORE, WHILE DECIDING THAT ISSUE, THE AO IS DIRECTED TO REDUCE T HIS PAYMENT OF RS.5,22,05,896/- FROM THE TOTAL SALES PROMOTION EXP ENSES OF RS.16,18,96,408/- AND THEN IF ANY DISALLOWANCE IS M ADE WITH RESPECT TO THE ELIGIBLE UNIT OF ASSESSEE, THE RESULTANT ENHANCED P ROFIT OF SUCH ELIGIBLE UNIT ITA NOS. 2935, 2936 & 2937 AND 3770, 3771 & 3772/DE L/2015 29 MAY BE CONSIDERED FOR DEDUCTION U/S. 80IC. ACCORDIN GLY, THIS GROUND OF REVENUE IS DISMISSED. 37. NO OTHER ISSUE IS INVOLVED IN ALL THESE APPEALS . 38. IN THE RESULT, THE APPEALS OF ASSESSEE ARE ALLO WED FOR STATISTICAL PURPOSES AND THOSE OF REVENUE ARE PARTLY ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15.04.2019. SD/- SD/- (AMIT SHUKLA) (L.P. S AHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15.04.2019 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI