AVENTIS PHARMA LTD, V. DY CIT RG 8(1),

ITA 4180/MUM/2003

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7588 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 07-02-2013
• Assessment Year: 1999-2000
• Appeal Filed On: 29-05-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K JAIN; MRS SASMITA MISRA
• Assessee Lawyers: SANJIV M SHAH; J D MISTRI
• Keywords: Capital asset; Depreciation; Earning of tax free income; Fair market value; Valuation report; Revised return; Revenue expenditure; Capital expenditure
• Section: 80HHC; 14A; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO.: 4180/MUM/2003 ASSESSMENT YEAR: 1999-2000 AVENTIS PHARMA LTD. (FORMERLY HOECHST MARION ROUSSEL LTD.) HOECHST CENTRE 54/A, SIR MATHURADAS VASANJI ROAD, CHAKALA, ANDHERI (EAST), MUMBAI 400 093 PAN NO.: AAACH 2736 F DY. COMMISSIONER OF INCOME-TAX, CIR-8(1), MUMBAI (APPELLANT) VS. (RESPONDENT) ITA NO.: 4485/MUM/2003 ASSESSMENT YEAR: 1999-2000 ASST. COMMISSIONER OF INCOME-TAX, CIR-8(1), MUMBAI AVENTIS PHARMA LTD. (FORMERLY HOECHST MARION ROUSSEL LTD.) HOECHST CENTRE 54/A, SIR MATHURADAS VASANJI ROAD, CHAKALA, ANDHERI (EAST), MUMBAI 400 093 PAN NO.: AAACH 2736 F (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI J.D. MISTRI & SHRI SANJIV M. SHAH RESPONDENT BY : SHRI A.K. JAIN & MRS. SASMITA MISRA DATE OF HEARING : 07.02.2013 DATE OF PRONOUNCEMENT : 20.02.2013 ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 2 ORDER PER BENCH : THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 20.03.2003 OF CIT(A) FOR THE ASSESSMENT YEAR 1999-2000. THESE AP PEALS WHICH WERE HEARD TOGETHER ARE BEING DISPOSED OFF BY A SINGLE CONSOLI DATED ORDER FOR SAKE OF CONVEYANCE. ITA NO. 4180/MUM/2003 2. WE FIRST TAKE UP THE APPEAL OF THE ASSESSEE IN I TA NO. 4180/MUM/2003. IN THIS APPEAL, THE ASSESSEE HAS RAISED DISPUTES ON NI NE DIFFERENT GROUNDS WHICH HAVE BEEN DEALT WITH IN THE SUCCEEDING PARAS. 2.1 1 ST GROUND IS REGARDING COMPUTATION OF INCOME FROM HOU SE PROPERTY IN RESPECT OF THE PROPERTY AT FIFTH FLOOR OF HOECHST HOUSE. TH E ASSESSEE FOR THE PURPOSE OF COMPUTATION OF INCOME FROM HOUSE PROPERTY HAS ADOPT ED THE MUNICIPAL RATEABLE VALUE HAS THE ANNUAL VALUE. ON THE GROUND THAT THE PAYMENT WAS COVERED UNDER THE RENT CONTROL ACT. THE AO, HOWEVER, FOLLOWING THE DE CISION IN EARLIER YEAR HELD THAT ANNUAL VALUE HAS TO BE THE SUM FOR WHICH THE PROPER TY MIGHT REASONABLY BE EXPECTED LAID FROM YEAR TO YEAR. HE COMPUTED THE FAIR VALUE AT RS.150 PER SQ.FT. AND ACCORDINGLY DETERMINED THE HOUSE PROPERTY INCOME AT RS.1,00,46,700/-. IN CIT(A) HELD THAT THE ANNUAL RATEABLE VALUE OF THE FLAT HAS TO BE TAKEN AT RS.24 LACS. AGGRIEVED, THE ASSESSEE IS IN APPEAL TO THE TRIBUNA L. 2.1.1 AT THE TIME OF HEARING, BOTH THE PARTIES AGRE ED THAT THE ISSUE WAS COVERED IN THE FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBU NAL IN THE ASSESSEES OWN CASE THE A.Y. 1994-95, IN ITA NO. 5867/MUM/1999 IN WHICH THE TRIBUNAL FOLLOWING THE DECISION IN THE EARLIER YEAR ALLOWED THE CLAIM OF T HE ASSESSEE TO TAKE MUNICIPAL ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 3 RATEABLE VALUE ALL THE ANNUAL VALUE. NO DISTINGUISH ING FEATURES INCLUDING ANY CHANGES IN THE MAHARASHTRA RENT CONTROL ACT HAS BEEN BROUGH T TO OUR NOTICE SO AS TO TAKE A DIFFERENT VIEW IN THE MATTER. THEREFORE, RESPECTFUL LY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE A.Y. 1994-95 (SUPRA) WHICH HAS ALSO BEEN FOLLOWED SUBSEQUENT YEARS I.E. A.Y. 1996-97 AND 1998-99, THE ORDER OF THE CIT (A) IS SET ASIDE AND CLAIM OF THE ASSESSEE IS ALLOWED. 2.2 THE SECOND DISPUTE IS REGARDING ADDITION MADE B Y THE AO U/S 92 OF THE INCOME-TAX ACT, IN RESPECT OF PURCHASE OF CEFOTAXIM E SODIUM AND ROXITHROMYCIN. THE AO NOTED THAT THE ASSESSEE WHO WAS MANUFACTURIN G PHARMACEUTICAL FORMULATIONS HAD BEEN INCURRING LOSSES FROM YEAR TO YEAR ON CERT AIN FORMULATIONS BY INFLATING THE PURCHASE PRICE OF RAW MATERIAL I.E. CEFOTAXIME SODI UM AND ROXITHROMYCIN. THE AO COMPUTED THE EXCESS PRICE PAID IN RESPECT OF CEFOTA XIME SODIUM @ RS.42,380 PER KG. AND IN CASE OF ROXITHROMYCIN @ RS.28,585 PER KG . THE AO BEFORE DISALLOWED EXCESS EXPENDITURE ON ACCOUNT OF THE SAID RAW MATER IALS AT RS.23,23,66,204 UNDER THE PROVISION OF SECTION 92 OF THE INCOME-TAX ACT. THE ASSESSEE DISPUTED THE DECISION OF THE AO AND SUBMITTED BEFORE CIT(A), THA T THE PURCHASES COULD BE DISALLOWED AS EXCESSIVE U/S 92 OF INCOME-TAX ACT ON LY IF, THERE WAS ANY EXCESS EXPENDITURE ON ACCOUNT OF ANY ARRANGEMENT BETWEEN T HE RESIDENT AND THE NON- RESIDENT. CIT(A) DID NOT ACCEPT THE CONTENTIONS RAI SED AND OBSERVED THAT FOR THE PURPOSE OF ADDITION U/S 92 TAX AVOIDANCE WAS NOT RE QUIRED TO BE PROVED BY THE REVENUE. CIT(A), THEREFORE, UPHELD THE ORDER OF AO WITH SOME MODIFICATION OF EXCESS RATE APPLIED BY HIM. AGGRIEVED BY THE DECISION OF T HE CIT(A), THE ASSESSEE IS AN APPEAL BEFORE TRIBUNAL. 2.2.1 BEFORE US, BOTH THE PARTIES AGREED THAT THE I SSUE WAS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE I.E. A.Y. 19 98-99 IN ITA NO. 4919/MUM/2001 IN WHICH THE TRIBUNAL FOLLOWING THE DECISION IN ASS ESSMENT YEARS 1996-97 AND 1997- ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 4 98 IN ASSESSEES OWN CASE HELD THAT THE TRANSACTION BETWEEN THE ASSESSEE AND NON- RESIDENT OF COMPANY WAS NOT AN ARRANGED TRANSACTION . THE TRIBUNAL ALSO HELD THAT THE ASSESSEE HAD NOT PAID ANY EXCESS PRICE FOR THE PURCHASE OF RAW MATERIAL. THE TRIBUNAL, THEREFORE, HELD THAT THE PROVISIONS OF SE CTION 92 COULD NOT BE APPLIED. NO DISTINGUISHING FEATURES HAVE BEEN BROUGHT TO OUR NO TICE THIS YEAR BY THE LD.D.R. AND, THEREFORE, THE FOLLOWING DECISION OF TRIBUNAL IN A. Y. 1998-99 (SUPRA) WE SET ASIDE THE ORDER OF CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE . 2.3 THE THIRD DISPUTE IS REGARDING DISALLOWANCE OF COMPUTER SOFTWARE EXPENSES AS CAPITAL EXPENDITURE. THE ASSESSEE HAD DEBITED A S UM OF RS.1,07,20,907/- ON ACCOUNT OF COMPUTER SOFTWARE. THE ASSESSEE SUBMITTE D BEFORE AO THAT THE ASSESSEE HAD ONLY LICENCE TO USE THE SOFTWARE AND THEREFORE, IT WAS NOT A CAPITAL ASSET. THE AO HOWEVER, AFTER DETAILED EXAMINATION TREATED THE SUM OF RS.37,29,907/- OUT OF THE TOTAL EXPENDITURE, AS CAPITAL IN NATURE WHICH WAS D ISALLOWED AND DEPRECIATION @ RS.12.5% I.E. RS.4,65,113 WAS ALLOWED. IN APPEAL CI T(A) GAVE RELIEF OF RS.3,90,704/- BY TREATING THE SAME REVENUE EXPENDITURE AND DIRECT ED, THE AO TO TREAT THE BALANCE SUM OF RS.33,30,203/- AS CAPITAL EXPENDITURE. AGGRI EVED BY THE DECISION OF CIT(A), THE ASSESSEE IS AN APPEAL BEFORE TRIBUNAL. 2.3.1 BEFORE US, THE LD.A.R. FOR THE ASSESSEE SUBMI TTED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TR IBUNAL IN ASSESSEES OWN CASE IN A.Y. 1995-96 IN ITA NO.70/MUM/2001 AS WELL AS BY TH E JUDGEMENT OF HONBLE HIGH COURT OF DELHI IN CASE OF CIT VS. AMWAY INDIA ENTERPRISES (2012) (346 ITR 341) AND THE JUDGEMENT IN THE CASE OF ASAHI INDIA SAFETY GLASS LTD (2012) (346 ITR 329). THE LD.D.R. FAIRLY CONCEDED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE. 2.3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED TH E MATTER CAREFULLY. WE FIND THAT SIMILAR EXPENDITURE ON ACQUISITION OF SOFTWARE HAS BEEN TREATED BY THE TRIBUNAL AS REVENUE EXPENDITURE IN CASE OF THE ASSESSEE IN A .Y. 1995-96 (SUPRA). THE NATURE OF EXPENDITURE ON ACQUISITION SOFTWARE HAS ALSO BEE N EXAMINED IN DETAIL BY THE ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 5 HONBLE HIGH COURT OF DELHI IN CASE OF THE AMWAY INDIA ENTERPRISES (SUPRA) AND IN CASE OF THE ASAHI INDIA SAFETY GLASS LTD (SUPRA). IN CASE OF ASAHI INDIA SAFETY GLASS LTD., EXPENDITURE HAD BEEN INCURRED ON ACQUISITION OF APPLICATION SOFTWARE FOR EXECUTING TASK IN THE FIELD OF ACCOUNTS, PURCHASES AND INVENTORY MAINTENANCE. THE HIGH COURT HELD THAT THE EXPENDITURE HAD NOT CREATE D ANY NEW ASSET OR NEW SOURCE OF INCOME. IT WAS HELD THAT EXPENDITURE WAS REVENUE IN NATURE. RESPECTFULLY FOLLOW THESE JUDGEMENT INCLUDING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 1995-96 (SUPRA), WE SET ASIDE THE O RDER OF CIT(A) AND ALLOWED THE CLAIM OF THE ASSESSEE. 2.4 THE GROUND NO.4 IS REGARDING THE DISALLOWANCE O F ESTIMATED DEPRECIATION ON OBSOLETE ASSETS. THE ASSESSEE HAD CONSIDERED CERTAI N ASSETS AS OBSOLETE TOTAL VALUE OF WHICH DURING THE YEAR INCLUDED IN THE BLOCK OF A SSET WAS RS.5,39,073/-. THE ASSESSEE HAD CLAIMED DEPRECIATION ON THESE ASSETS. THE ASSESSING OFFICER, HOWEVER DISALLOWED THE DEPRECIATION ON THE GROUND THAT THE ASSET HAD NOT USED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE DISPUTED THE DECI SION OF AO AND SUBMITTED BEFORE THE CIT(A) THAT DEPRECIATION IS ALLOWABLE ON THE BL OCK OF ASSETS ON THE BASIS OF WRITTEN DOWN VALUE OF THE BLOCK TILL THE OBSOLETE A SSETS ARE SOLD ON DISCARDED. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE TRI BUNAL IN CASE OF INDUCTOTHERM INDIA LTD (73 ITD 529). THE CIT(A) HOWEVER DID NOT ACCEPT THE EXPLANATION GIVEN AND OBSERVED THAT DEPRECIATION CANNOT BE ALLOWED IN RESPECT OF ASSETS NOT USED. HE, THEREFORE, CONFIRMED THE DISALLOWANCE AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.4.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE R ECORDS AND CONSIDERED THE MATTER CAREFULLY. WE FIND THAT THE SAME ISSUE HAS A LREADY BEEN CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN A.Y. 1998-99 (SUPRA). IN THAT YEAR ALSO, THE DEPRECIATION HAD BEEN DISALLOWED ON OBSOLETE ASSETS . THE TRIBUNAL HOWEVER FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF G.R. SHIPPING COMPANY IN ITA NO. ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 6 822/MUM/2005 HELD THAT AFTER AMENDMENT WITH EFFECT FROM 01.04.1988, NEW ASSET LOOSES ITS IDENTITY AND FOR THE PURPOSE OF ALLOWING THE DEPRECIATION ONLY THE BLOCK OF ASSET HAD TO BE CONSIDERED. THE TRIBUNAL, THEREFORE , HELD THAT THE DEPRECIATION WAS ALLOWABLE ON OBSOLETE ASSETS TO THE ASSESSEE. FACTS THIS YEAR ARE IDENTICAL. THEREFORE, RESPECTFULLY, FOLLOWING THE DECISION OF THE TRIBUNA L IN A.Y. 1998-99 (SUPRA), WE SET ASIDE THE ORDER OF CIT(A) AND ALLOW THE CLAIM OF AS SESSEE. 2.5 THE FIFTH DISPUTE IS REGARDING DETERMINATION O F FAIR MARKET VALUE OF THE PROPERTY AS ON 01.04.1981 FOR THE PURPOSE OF COMPUT ATION OF LONG TERM CAPITAL GAIN ON SALE OF R&D CENTER LAND. THE ASSESSEE IN THE ORI GINAL RETURN OF INCOME HAD TAKEN THE VALUE OF INDUSTRIAL LAND AS ON 01.04.1981 @ RS. 60 PER SQ.FT. SUBSEQUENTLY DURING THE ASSESSMENT PROCEEDINGS, THE RATE WAS REVISED TO RS.75 PER SQ.FT. BASED ON VALUATION REPORT. THE AO OBSERVED THAT THE ASSESSEE COULD MAKE A FRESH CLAIM ONLY BY WAY OF A REVISED RETURN THE TIME LIMIT FOR WHICH HAD EXPIRED. HE ALSO OBSERVED THAT IN RESPECT OF PART OF THE SAME LAND, CIT(A) IN THE IMMEDIATE PROCEEDING YEAR HAD ADOPTED THE RATE OF RS.23.52 PER SQ.FT. AS ON 0 1.04.1981. HE, ADOPTED THE SAID RATE AND COMPUTED CAPITAL GAIN ACCORDINGLY, WHICH I N APPEAL WAS CONFIRMED BY CIT(A) AGGRIEVED BY WHICH THE ASSESSEE IN APPEAL BE FORE TRIBUNAL. 2.5.1 AT THE TIME OF HEARING OF APPEAL BEFORE US, B OTH THE PARTIES AGREED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE DEPARTMENT BY TH E DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 1998-99 (SUPRA). I N THE SAID YEAR, THE TRIBUNAL NOTED THAT THE AO HAD TAKEN THE FAIR RENT AS ON 01. 04.1981 ON THE BASIS OF 2 ACTUAL SALE INSTANCES IN THE AREA AND THE ASSESSEE COULD N OT GIVE ANY REASON AS TO HOW THE DVO HAD REJECTED THE ACTUAL SALE INSTANCES TAKEN BY AO. THE TRIBUNAL, THEREFORE, CONFIRMED THE RATE ADOPTED BY AO. FACTS THIS YEAR A RE IDENTICAL. THEREFORE, RESPECTFULLY, FOLLOWING THE DECISION OF TRIBUNAL IN A.Y. 1998-99 (SUPRA). WE CONFIRM THE ORDER OF CIT(A). ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 7 2.6 THE DISPUTE RAISED IN GROUND NO. 6(A) IS REGARD ING THE DISALLOWANCE OF EXPENSES U/S 14A OF THE INCOME-TAX ACT, IN RELATION TO TAX FREE INCOME FROM INVESTMENT OF RS.25.03 LAC. THE LD.A.R. FOR THE ASS ESSEE SUBMITTED THAT THESE INVESTMENTS IN SHARES OF COMPANIES WERE COMING FROM EARLIER YEARS AND THE TRIBUNAL IN ASSESSEES OWN CASE A.Y. 1990-91 IN THE ITA NO.1 625/BOM/1994 HAD DELETED THE DISALLOWANCE. THE LD.D.R. FAIRLY CONCEDED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE. WE, THEREFORE, SET ASIDE THE ORDER OF CIT (A) AND ALLOW THE CLAIM OF THE ASSESSEE IN RELATION TO INVESTMENT OF RS.25.03 LACS . 2.7 THE DISPUTE RAISED IN GROUND NO. 6(B) IS REGARD ING DISALLOWANCE OF INTEREST ATTRIBUTED TO TAX FREE INCOME FROM INVESTMENT OF RS .4.90 CR. MADE DURING THE YEAR IN PURCHASE OF SHARES OF CHIRON BEHRING VACCINES PRIVA TE LIMITED. THE ASSESSEE HAD EXPLAINED THAT THE INVESTMENT HAD BEEN MADE OUT OF OWN FUND AND THEREFORE, NO DISALLOWANCE CAN BE MADE. THE AO HOWEVER DID NOT EX CEPT THE EXPLANATION AND DISALLOWED INTEREST PROPORTIONATE TO THE INVESTMENT MADE. IN APPEAL, THE ASSESSEE SUBMITTED THAT INVESTMENTS HAD BEEN MADE OUT OF THE SALE PROCEEDS OF FIXED ASSETS AMOUNTING TO RS.19.03 CR. CIT(A) ACCEPTED THE CLAIM THAT THE ASSESSEE HAD RECEIVED THE SALE PROCEEDS BUT THE SAME WAS 20 DAYS AFTER TH E DATE OF INVESTMENT. HE, THEREFORE, RESTRICTED THE DISALLOWANCE OF INTEREST FOR 22 DAYS AGGRIEVED BY WHICH THE ASSESSEES IS IN APPEAL BEFORE THE TRIBUNAL. 2.7.1 BEFORE US, THE LD.A.R. OF THE ASSESSEE SUBMIT TED THAT THE CIT(A) HAD NOT GIVEN ANY FINDING THAT INVESTMENT HAD NOT BEEN MADE OUT OF BORROWED FUNDS. HE HAD CONFIRMED THE DISALLOWANCE FOR 22 DAYS ONLY ON THE GROUND THAT SALE PROCEEDS HAD BEEN RECEIVED LATER. IT WAS, THEREFORE, URGED THAT THE ADDITION SHOULD BE DELETED. THE LD.D.R. PLACED RELIANCE ON THE ORDER OF CIT(A). 2.7.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED TH E MATTER CAREFULLY. CIT(A), HAS CONFIRMED THE DISALLOWANCE ONLY FOR 22 DAYS. THERE IS NO CLEAR FINDING EMERGING FROM THE ORDER OF CIT(A) THAT THE ASSESSEE HAD BORROWED FUNDS FOR MAKING PAYMENTS FOR ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 8 22 DAYS. IN THE ABSENCE OF CLEAR NEXUS BETWEEN INVE STMENT AND THE BORROWING THE DISALLOWANCE CAN NOT BE UPHELD. WE THEREFORE, SET A SIDE THE ORDER OF CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE. 2.8 THE DISPUTE RASIED IN GROUND NO. 6(C) IS REGARD ING THE DISALLOWANCE OF INTEREST ATTRIBUTABLE TO TAX FREE INCOME FROM INVESTMENT OF RS.22,000 MADE DURING THE YEAR ON PURCHASE OF EQUITY SHARES OF BHARUCH ENVIRO INFRA STRUCTURE LTD. THE AO HAD MADE DISALLOWANCE ON THE GROUND THAT INCOME FROM INVESTM ENT WAS TAX FREE. THE ASSESSEE SUBMITTED BEFORE CIT(A) THAT THE PURCHASE OF SHARES IN THE SAID COMPANY HAD GIVEN ASSESSEE THE RIGHT OF DISPOSAL FOR SOLID EFFLUENT G ENERATED IN THE MANUFACTURING UNITS. THE INVESTMENT WAS THEREFORE, FOR THE PURPOSE OF BU SINESS AND NOT FOR EARNING OF EXEMPT INCOME AND IT WAS, ACCORDINGLY, URGED THAT A DDITION SHOULD BE DELETED CIT(A) DID NOT ACCEPT THE CONTENTIONS RAISED AND CONFIRMED THE DISALLOWANCE AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 2.8.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE R ECORDS AND CONSIDERED THE MATERIAL CAREFULLY. NO MATERIAL HAS BEEN PLACED ON RECORD TO CONTROVERT THE CLAIM OF THE ASSESSEE THAT INVESTMENT WAS FOR THE PURPOSE OF BUSINESS AS IT GAVE RIGHTS TO THE ASSESSEE OF DIAPOSAL OF SOLID EFFLUENT GENERATED IN MANUFACTURING UNITS. THEREFORE, NO DISALLOWANCE CAN BE MADE U/S 14A OF INCOME-TAX A CT. THE ORDER OF CIT(A) IS, THEREFORE, SET ASIDE THE CLAIM OF THE ASSESSEE IS A LLOWED. 2.9 THE SEVENTH DISPUTE IS REGARDING ADDITION ON AC COUNT OF MODVAT CREDIT IN RESPECT OF CLOSING STOCK U/S 145A OF INCOME-TAX ACT . THE AO NOTED THAT THE ASSESSEE HAD INCREASED THE VALUE OF OPENING STOCK COMPARED T O LAST YEAR BY RS.11,18,39,683. IT WAS OBSERVED BY HIM THAT THE OPENING STOCK HAD T O BE THE SAME AS CLOSING STOCK OF LAST YEAR IN VIEW OF JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MELMOULD CORPORATION VS, COMMISSIONER OF INCOME-TAX (202 ITR 789), AND THEREFORE, HE ADDED THE SUM OF RS.11,18,39,683 ON T HIS ACCOUNT. CIT(A) HELD THAT THE AO HAD MADE ADDITION ON ACCOUNT OF OPENING STOC K UNDER THE MISTAKEN BELIEF ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 9 THAT THE ASSESSEE HAD INCREASED THE OPENING STOCK. IT WAS ALSO HELD BY HIM ADDITION U/S 145A HAD TO BE MADE TO CLOSING STOCK ON ACCOUNT OF MODVAT CREDIT TO THE TUNE OF RS.5,95,20,573. HE, THEREFORE, CONFIRMED THE ADDITI ON TO THE EXTENT OF RS.5,95,20,573 AND GAVE RELIEF OF RS.5,23,19,110. A GGRIEVED BY THE DECISION OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL. 2.9.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED RECOR DS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADJUSTMENT ON A CCOUNT OF MODVAT CREDIT U/S 145A OF THE INCOME-TAX ACT. UNDER THE SAID PROVISION, VA LUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY HAS TO BE MADE ON THE BASIS OF METHOD OF ACCOUNTING REGULARLY FOLLOWED AND FURTHER ADJUSTMENT IS REQUIRED TO BE M ADE TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS TO BRING THE GOODS TO THE PLACE OF ITS LOCATION CONDITION ON THE DATE OF THE VALUATION. THEREFORE, UNDER THE PROVISION U/S 1 45A ADJUSTMENT ON ACCOUNT OF TAX, DUTY ETC HAS TO BE MADE AT ALL STAGES THAT IS, OPEN ING STOCK, PURCHASES AND SALES AND CLOSING STOCK. IT HAS BEEN HELD BY THE HONBLE HIGH COURT OF DELHI IN CASE OF MAHAVIR ALUMINIUM LTD. (295 ITR 77) THAT ADJUSTMENT U/S 145A HAS TO BE MAD E BOTH TO THE OPENING STOCK AND CLOSING STOCK. THIS ISSUE THEREFO RE IN OUR VIEW REQUIRES FRESH EXAMINATION. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A), AND RESTORE THE MATTER TO AO FOR PASSING A FRESH ORDER AFTER ALLOWING OPPORTU NITY OF HEARING TO ASSESSEE. 2.10 THE ISSUE RAISED IN GROUND NO. 8 IS REGARDING REDUCTION OF 90% OF PROCESSING CHARGES, SALE TAX REFUND AND SET OFF FROM THE PROFI T OF BUSINESS IN TERMS OF EXPLANATION (BAA) OF U/S 80HHC. THE ASSESSEE HAD REC EIVED PROCESSING CHARGES OF RS.89.03 LAC FOR MANUFACTURING PRODUCTS ON BEHALF O F OTHER PARTIES. THIS HAD BEEN TAKEN AS COVERED BY EXPLANATION (BAA) AND 90% OF THE SAME HAD BEEN DEDUCTED FROM PROFIT OF BUSINESS BY THE AO WHILE COMPUTING D EDUCTION U/S 80HHC. SIMILARLY, SALES TAX SETOFF AND SALES TAX REFUND HAD ALSO BEEN TAKEN BY AO AS PER EXPLANATION (BAA). IN APPEAL CIT(A) HELD THAT THESE RECEIPTS CO ULD NOT BE CONSIDERED AS PART OF TURNOVER AND, THEREFORE, COULD NOT BE INCLUDED IN P ROFIT OF BUSINESS AND ACCORDINGLY, ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 10 90% OF THE SAME, HAS TO BE EXCLUDED AS PER EXPLANATI ON (BAA). AGGRIEVED BY THE DECISION OF CIT(A), THE ASSESSEE IS IN APPEAL BEFOR E TRIBUNAL. 2.10.1 BEFORE US, THE LD.A.R. FOR THE ASSESSEE SUBM ITTED THAT THE RECEIPTS UNDER REFERENCE COULD NOT BE CONSIDERED AS PER EXPLANATION (BAA) AS THESE WERE INTEGRAL PART OF BUSINESS OPERATION OF THE ASSESSEE, RELIANC E WAS PLACED ON THE JUDGEMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF PFIZER LTD. (330 ITR 62). IT WAS ALSO SUBMITTED THAT IN CASE, THESE WERE CONSIDERED AS PE R EXPLANATION (BAA), ONLY NET RECEIPT SHOULD BE CONSIDERED FOR EXCLUSION HAS HELD BY HONBLE SUPREME IN CASE OF ACG ASSOCIATED CAPSULES P. LTD VS. CIT (343 ITR 89) THE LD.D.R. ON THE OTHER HAND PLACE RELIANCE ON THE JUDGEMENT OF HONBLE HIGH COU RT OF BOMBAY IN THE CASE OF CIT VS. DRESSER RAND INDIA PVT. LTD. (323 ITR 429). HE ALSO REFERRED THE JUDGEMENT OF HONBLE SUPREME COURT IN CASE OF RAVINDRANATHAN NAIR (295 ITR 228). 2.10.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE MATTER CAREFULLY. THE DISPUTE IS REGARDING APPLICABILITY OF PROVISION OF EXPLANATI ON (BAA) TO PROCESSING CHARGES AND SALES TAX REFUND AND SETOFF. AS REGARDS THE PROCESS ING CHARGES, THE ISSUES IS COVERED BY THE JUDGEMENT OF HONBLE SUPREME COURT IN CASE O F RAVINDRANATHAN NAIR (295 ITR 228) IN WHICH IT HAS BEEN HELD THAT THE PROCESSING CHARG ES FORM AN INDEPENDENT ITEM OF INCOME LIKE COMMISSION RENT ETC. AND, THEREFORE, 90% OF THE SAME IS REQUIRED TO BE REDUCED FROM PROFIT OF BUSINESS AS PER EXPLANATIO N (BAA). WE THEREFORE HOLD THE PROCESSING CHARGES WILL BE COVERED BY EXPLANATION (B AA). THE ISSUE OF APPLICABILITY OF PROVISION OF EXPLANATION (BAA) TO SEALS TAX REFUND H AD BEEN CONSIDERED BY THE HONBLE HIGH COURT OF BOMBAY IN CASE OF DRESSER RAND (322 ITR 449) IN WHICH IT HAS BEEN HELD THAT RECEIPTS LIKE RECOVERY OF FREIGHT IN SURANCE, PACKING CHARGES, SALES TAX REFUND AND SERVICE INCOME WILL NOT BE PART OF BUSIN ESS PROFIT AND HAS TO BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA). S UBSEQUENTLY, HOWEVER HONBLE HIGH COURT IN CASE OF PFIZER LTD. (330 ITR 62) AFTE R REFERRING TO THE JUDGEMENT OF IN CASE OF DRESSER RAND (SUPRA) HELD THAT INSURANCE CLAIM ON STOCK IN TRADE WAS NOT AN INDEPENDENT ITEM OF INCOME AND THEREFORE HAS TO BE CONSIDERED AS INTEGRAL PART OF ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 11 BUSINESS PROFIT. HOWEVER, SINCE THE SALES TAX REFUN D HAS BEEN SPECIFICALLY CONSIDERED BY THE HONBLE HIGH COURT IN CASE OF DRESSER RAND (SUPRA) RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT SALES TAX REFUND AND SE T OFF WILL BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA). FURTHER, THE ALT ERNATE CLAIM OF THE ASSESSEE THAT ONLY THE NET RECEIPT SHOULD BE CONSIDERED FOR REDUC TION AS PER EXPLANATION (BAA) IS COVERED BY THE JUDGEMENT OF HONBLE SUPREME COURT I N CASE OF ACG ASSOCIATED CAPSULES P. LTD. V. CIT (343 ITR 89) . WE THEREFORE DIRECT THE ASSESSING OFFICER ONLY THE NET RECEIPT AFTER DEDUCTING EXPENDITURE INCURRE D FOR EARNING OF SUCH INCOME, WILL BE CONSIDERED FOR REDUCTION AS PER EXPLANATION (BAA) . 2.11 THE GROUND NO. 8 IS REGARDING THE ISSUE WHETHE R HYDERABAD SALES OFFICE EXPENSES ARE ATTRIBUTABLE TO EXPORT OF TRADING GOOD S. THE AO HAD TREATED ALL THE EXPENSES OTHER THAN DIRECT MATERIAL COST AS INDIREC T COST FOR THE PURPOSE OF COMPUTATION OF BUSINESS PROFIT FOR EXPORT OF TRADIN G GOODS. THE AO TREATED THE HYDERABAD SALES OFFICE EXPENSES AS PART OF INDIRECT COST. UNDER THE PROVISION U/S 80HHC, THE PROFIT OF BUSINESS IN CASE OF TRADING EX PORT IS REQUIRED TO BE COMPUTED AFTER REDUCING THE DIRECT COST AND INDIRECT COST FR OM THE EXPORT VALUE. IN APPEAL CIT(A), DID NOT AGREE WITH THE AO THAT ALL THE EXPE NSES OTHER THAN MATERIAL COST HAVE TO TAKEN AS PART OF INDIRECT COST. CIT(A) NOTED THA T THE ASSESSEE HAD EXPORTED TRADING GOODS THAT WERE PROCURED FROM THE BRANCHES AT HYDER ABAD OR MUMBAI. THE ASSESSEE HAD BRANCHES AT BOTH THE PLACES IN ADDITION TO HEAD OFFICE IN MUMBAI. THE ASSESSEE CLAIMED THAT THE JOB OF PROCURING TRADING GOODS WAS BEING DONE FROM HEAD OFFICE AND THE BRANCHES WERE NOT INVOLVED CIT(A) DID NOT ACCEP T THE CLAIM IN RELATION TO HYDERABAD OFFICE AND HELD THAT ALL EXPENSES OTHER T HAN THOSE DIRECTLY RELATED TO DOMESTIC SALES HAVE TO BE CONSIDERED AS PART OF IND IRECT COST. AGGRIEVED BY THE SAID DECISION, THE ASSESSEE IN APPEAL FOR TRIBUNAL. 2.11.1 BEFORE US, THE LD.A.R. SUBMITTED THAT THE IS SUE WAS COVERED BY THE DECISION OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 1998-9 9 (SUPRA). HOWEVER, HE ARGUED THAT THERE WAS NO EXPORT SALE AT HYDERABAD AND, THE REFORE, THERE WAS NO QUESTION OF ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 12 INCURRING ANY INDIRECT COST FROM HYDERABAD BRANCH. THE LD.D.R ON THE OTHER HAD SUBMITTED THAT THE ISSUE WAS COVERED IN THE FAVOUR OF DEPARTMENT BY THE DECISION OF TRIBUNAL IN A.Y. 1998-99 (SUPRA). 2.11.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE MATTER CAREFULLY. THE DISPUTE IS REGARDING COMPUTATION OF INDIRECT COST WHILE COM PUTING DEDUCTION U/S 80HHC IN RESPECT OF EXPORT OF TRADING GOODS. THE ASSESSEE WA S PROCURING GOODS AT BOTH BRANCHES I.E. HYDERABAD BRANCH AND MUMBAI BRANCH FO R THE PURPOSE OF EXPORT. THE DISPUTE IS WHETHER THE EXPENSES AT THE HYDERABAD BR ANCH COULD BE CONSIDERED AS PART OF INDIRECT COST. THE CASE OF THE ASSESSEE IS THAT THERE WAS NO EXPORT AT HYDERABAD AND, THEREFORE, EXPENSES INCURRED AT HYDE RABAD COULD NOT BE CONSIDERED AS PART OF INDIRECT COST. WE, HOWEVER FIND THAT THE SAME ISSUE HAD COME UP FOR CONSIDERATION BEFORE TRIBUNAL IN A.Y. 1998-99 IN IT A NO. 4173/MUM/20113. IN THAT YEAR, CIT(A) HAD HELD THAT EXPENDITURE INCURRED AT THE BRANCH OFFICE AT HYDERABAD WHICH HAD NO CONNECTION OR LINK WITH EXPORT COULD N OT BE CONSIDERED AS PART OF INDIRECT COST. THE TRIBUNAL HOWEVER DID NOT UPHOLD THE VIEW TAKEN BY CIT(A) AND HELD THAT THE INDIRECT COST TO BE CONSIDERED FOR TH E PURPOSE OF SECTION 80HHC WOULD BE THE TOTAL INDIRECT COST INCURRED FOR THE TOTAL T URNOVER AND NOT ONLY RELATING TO THE EXPORT TURNOVER. THEREFORE THE EXPENSES INCURRED AT HYDERABAD BRANCH NOT DIRECTLY RELATED TO DOMESTIC SALES HAVE TO BE CONSIDERED AS PART OF INDIRECT COST. THE ORDER OF CIT(A) IS THEREFORE UPHELD. 3 ITA NO. 4485/MUM/2003, THE APPEAL OF THE REVENUE. WE NOW TAKE UP THE APPEAL OF THE DEPARTMENT IN ITA NO. 4485/MUM/2003. IN THIS APPEAL, THE REVENUE HAS RAISED DISPUTES ARE EV EN DIFFERENT GROUNDS. 3.1 THE DISPUTES RAISED IN GROUND NOS. 1 AND 2 RELA TE TO COMPUTATION OF INCOME FROM HOUSE PROPERTY IN RESPECT OF HOECHST HOUSE AND ADDITION ON ACCOUNT OF PURCHASES U/S 92 OF THE INCOME-TAX ACT. THESE ISSUE S WE HAVE ALREADY DEALT WITH ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 13 WHILE DECIDING THE APPEAL OF THE ASSESSEE AND AS HE LD THE EARLIER ISSUES ARE COVERED IN FAVOUR ASSESSEE. THEREFORE, THE APPEALS OF THE R EVENUE ON THESE ISSUES ARE DISMISSED. 3.2 THE GROUND NO. 3 IS REGARDING THE DISALLOWANCE OF AMALGAMATION EXPENSES. DURING THE IMMEDIATE PRECEDING YEAR, ROUSE INDIA PV T. LTD. HAD AMALGAMATED WITH THE ASSESSEE COMPANY, WHICH WAS DULY APPROVED BY HO NBLE HIGH COURT OF BOMBAY. THE EXPENDITURE INCURRED ON AMALGAMATION HAD BEEN C LAIMED AS REVENUE EXPENDITURE. THE ASSESSEE RELIED ON THE JUDGEMENT O F HONBLE HIGH COURT OF BOMBAY IN CASE OF CIT VS. BOMBAY DYEING & MANUFACTURING CO. LTD. (219 ITR 521). THE AO, HOWEVER, DISALLOWED THE CLAIM. IN APPEAL, THE ASSES SEE SUBMITTED THAT PART OF AMALGAMATION EXPENDITURE HAD ALSO BEEN CLAIMED IN A .Y. 98-99 WHICH WAS DISALLOWED BY AO BUT IN APPEAL HAD BEEN ALLOWED BY CIT(A). CIT (A) AGREED WITH THE SUBMISSION OF ASSESSEE AND HELD THAT CLAIM WAS ALLOWABLE IN VI EW OF THE JUDGEMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF BOMBAY DYEING & MANUFACTURING CO. LTD. (SUPRA) , HE THEREFORE, ALLOWED THE CLAIM AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3.2.1 AT THE TIME OF HEARING BEFORE US, BOTH PARTIE S AGREED, THAT THE ISSUE WAS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN A.Y. 1998-99 (SUPRA) IN WHICH THE TRIBUNAL FOLLOWING THE JUDGEME NT OF HONBLE SUPREME COURT IN CASE OF BOMBAY DYEING & MANUFACTURING CO. LTD. (SUP RA) ALLOWED THE CLAIM. THE FACTS THIS YEAR ARE IDENTICAL. THEREFORE, RESPECTFU LLY FOLLOWING THE DECISION OF TRIBUNAL IN A.Y. 1998-99 (SUPRA) WERE CONFIRMED THE ORDER OF CIT(A). 3.3 THE FOURTH DISPUTE IS REGARDING DISALLOWANCE OF INTEREST ATTRIBUTABLE TO TAX FREE INCOME FROM INVESTMENT IN CHIRON BEHRING VACCINES P RIVATE LIMITED. THE ASSESSEE HAD MADE INVESTMENT OF RS.4.90 CR IN EQUITY SHARES OF CHIRON BEHRING VACCINES PRIVATE LIMITED AND THE SOURCES OF INVESTMENT HAD B EEN EXPLAINED AS SALE PROCEEDS OF RS.19 CR FROM SALE OF ASSETS TO THE SAID COMPANY . CIT(A) ACCEPTED THE CLAIM OF ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 14 SALE PROCEEDS BUT CONFIRMED DISALLOWANCE OF INTERES T FOR 20 DAYS AS THERE WAS TIME GAP OF 20 DAYS BETWEEN DATE OF INVESTMENT AND DATE OF RECEIPT. NO MATERIAL IS PLACED ON RECORD BEFORE US TO CONTROVERT THE CLAIM OF THE ASSESSEE REGARDING AVAILABILITY OF SALE PROCEEDS. FURTHER WHILE DEALING WITH THE APPEA L OF THE ASSESSEE WE HAVE DELETED THE DISALLOWANCE OF INTEREST EVEN FOR 20 DAYS UPHEL D BY CIT(A). THEREFORE, THE APPEAL FILED BY THE REVENUE DESERVES TO BE DISMISSE D. THE ORDER OF CIT(A) IS UPHELD. 3.4 THE DISPUTE IN GROUND NO. 5 IS REGARDING INCLUS ION OF EXCISE DUTY IN THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 80HHC. THE A O HAD INCLUDED EXCISE DUTY IN THE TOTAL TURNOVER WHEREAS CIT(A) HAS EXCLUDED, AGG RIEVED BY THE DECISION OF CIT(A) REVENUE IS IN APPEAL. 3.4.1 WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT ISSUE IS COVERED BY THE JUDGMENT OF HONBLE SUPREME IN CASE OF CIT VS. LAKSHMI MACHINE WORKS (2007) (290 ITR 667) IN WHICH IT HAS BEEN HELD THAT EXCISE DUTY, DOES NOT CONTAIN AN ELEMENT TURNOVER AND THEREFORE IS REQUIRED TO BE EXCLUDED F ROM TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. WE TH EREFORE CONFIRM ORDER OF CIT(A) GIVING RELIEF TO THE ASSESSEE. 3.5 THE GROUND NO. 6 IS REGARDING RE-COMPUTATION OF INDIRECT COST ATTRIBUTABLE TO EXPORT OF TRADING GOODS. THIS ISSUE WE HAVE ALREADY DECIDED WHILE DEALING WITH GROUND NO. 9 OF THE ASSESSEES. THE SAME ISSUE HAD B EEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1998-99 IN WHICH TH E ISSUE WAS DECIDED IN FAVOUR OF THE REVENUE TO WHICH THE BOTH THE PARTIES AGREED. W E THEREFORE DIRECT THE AO TO COMPUTE THE INDIRECT COST IN THE LIGHT OF DECISION OF TRIBUNAL IN THE A.Y. 1998-99 (SUPRA). 3.6 THE DISPUTE RAISED IN GROUND NO. 7 IS REGARDING ADJUSTMENT U/S 145A OF THE INCOME-TAX ACT. THE SAME ISSUE WE HAVE ALREADY CONS IDERED WHILE DEALING WITH THE GROUND NO. 7 OF THE ASSESSEE. FOLLOWING OUR DECISIO N IN PARA NO. 2.9.1 THIS ISSUE IS ITA NO.: 4180/MUM/2003 AVENTIS PHARMA LTD. ASSESSMENT YEAR: 1999-2000 15 RESTORED TO THE FILE OF AO FOR FRESH DECISION AFTER FOLLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 4. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF FEBRUARY 2013. SD/- SD/- (I.P. BANSAL) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 20.02.2013 RASIKA* COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T., CONCERNED MUMBAI 4. CIT (A) CONCERNED MUMBAI 5. THE DR, - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI