A.C.I.T. CENTRAL CIRCLE 34, MUMBAI V. INDOCO REMEDIES LTD., MUMBAI

ITA 4478/MUM/2012

• Counselvise Citation: 447819914 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 01-10-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 02-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: SHRI
• Keywords: Gift; Business income; Depreciation
• Section: 37; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI , ! '# $## #% , & ! ' BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 4478 / / 2012 A.Y. 2009-10 ITA NO. : 4478/MUM/2012 (ASSESSMENT YEAR: 2009-10) ACIT CC 34, R. NO. 104, FIRST FLOOR, AAYAKAR BHAVAN, MUMBAI -400 020 VS M/S. INDOCO REMEDIES LTD., 166, CST ROAD, SANTACRUZ(E), MUMBAI -400 098 .: PAN: AAACI 0380 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI O.P. SINGH RESPONDENT BY : SHRI PANKAJ JAIN /DATE OF HEARING : 03-10-2013 !' / DATE OF PRONOUNCEMENT : 09-10-2013 + O R D E R $## #% , : PER VIVEK VARMA, JM: THE APPEAL ARISES FROM THE ORDER OF CIT(A), 41, MUM BAI, DATED 23.04.2012, WHEREIN, THE DEPARTMENT RAISED THE FOLL OWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ENTIRE DISALLO WANCE OF EXPENSES OF RS. 21,40,123/- ON ACCOUNT OF ARTICLES PRESENTED TO DOCTORS HOLDING THAT SIMILAR ADDITIONS MADE BY ASSESSING OFFICER IN ASSE SSMENT YEAR 2003- 04 HAS NOT BEEN UPHELD BY ITAT WHEREAS IN FACT IN T HAT YEAR, ITAT HAS UPHELD 15% OF THE DISALLOWANCE ON THIS ISSUE. 2. (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW, CIT(A) HAD ERRED IN HOLDING THAT FOR COMPUTING AMOUNT OF DEDUCTION UNDER SECTION 80IC OF THE INCOME TAX ACT FOR BADDI UNIT, COMMON EXPENSES OF HEAD OFFICE OF ASSESSEE DO NOT REQUIRE REALLOCATION BY FOLLOWING THE DECISIONS OF ITAT IN A.Y. 2003-04 AN BY FOLLOWING THE DECISION OF THE PREDECESSOR CIT(A) IN A.Y. 2007-08 WHEN ASSESSEE ITSELF ADMITTED THE FACT THAT THESE EXPENSES ARE NOT PROPE RLY ALLOCATED AND ASSESSEE HAS FURTHER ADMITTED THAT THESE EXPENSES C ANNOT BE RELATED WITH REASONABLE ACCURACY TO ANY SPECIAL ACTIVITY. M/S. INDOCO REMEDIES LTD. ITA NO. 4478/MUM/2012 2 (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, CIT(A) IS JUSTIFIED IN FOLLOWING THE DECISI ONS OF ITAT IN AY 2003- 04 FOR DELETING ADJUSTMENT TO THE CLAIM OF THE ASSE SSEE FOR DEDUCTION UNDER SECTION 80IC OF THE INCOME TAX FOR BADDI UNIT WHEN THERE CANNOT BE PRECEDENT ON FACTS AS HELD BY SUPREME COURT IN W ILLE SLANEY V. STATE OF MADHYA PRADESH {1995} 2SCR 1140 AND HENCE CASE H AS TO BE DECIDED EACH YEAR ON FACTS. (C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, CIT(A) IS JUSTIFIED IN FOLLOWING THE DECIS ION OF CIT(A) FOR THE BLOCK PERIOD 1.4.96 TO 24.09.2002, WHEN THE SAME HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL OF THE DEPARTMENT IS PEND ING BEFORE ITAT (IT(SS) 75/M/2005). 2. THE FIRST GROUND PERTAINS TO DISALLOWANCE OF EXP ENSES OF RS. 21,40,123/-, ON ACCOUNT OF ARTICLES PRESENTED TO DO CTORS. 3. AT THE TIME OF HEARING, THE AR SUBMITTED THAT TH E ISSUE IS COVERED BY THE DECISION IN ITS OWN CASE IN ASSESSMENT YEAR 200 3-04 BY THE COORDINATE BENCH OF THE ITAT IN MA PROCEEDINGS. 4. ON PERUSAL OF THE ORDER OF THE COORDINATE BENCH IN ITA NO. 7373/MUM/2011, WE FIND THAT THE COORDINATE BENCH HA D SUSTAINED THE DISALLOWANCE AT 15% ON ACCOUNT OF UNVERIFIABLE AND UNAVOIDABLE ELEMENT INVOLVED IN THE SAID EXPENSES. IN THE MISCELLANEOUS PETITION FILED BY THE ASSESSEE AGAINST THIS FINDING, THE COORDINATE BENCH RECTIFIED THE ORDERS BY HOLDING, AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERAT ION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO ASSE SSMENT YEARS 2001-02 TO 2004-05, WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR THE SAID YEARS AND HOLD THAT THE EXPENSES INCURRED BY THE AS SESSEE ON GIFTS TO DOCTORS CANNOT BE DISALLOWED BY INVOKING EXPLANATIO N TO SECTION 37(1) OF THE ACT. WE THEREFORE DIRECT THE A.O. TO CONSIDE R THE ALLOWABILITY OF THE SAID EXPENSES UNDER THE PROVISIONS OF SECTION 37 OF THE ACT AFTER NECESSARY VERIFICATION. GROUND NO. 1 OF REVENUES A PPEAL IS ACCORDINGLY DISMISSED. 5. SINCE THE ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO IN ASSESSMENT YEARS 2001-02, 2002-03 & 2008-09, RESPECTFULLY FOLL OWING THE ORDER, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RES TORE THE ISSUE TO THE FILE OF THE AO, TO CONSIDER THE ALLOWABILITY OF EXPENSES AF TER NECESSARY VERIFICATION AND ALSO TO KEEP CONTINUITY AND CONSISTENCY. 6. GROUND NO. 1 IS, THEREFORE, ALLOWED FOR STATISTI CAL PURPOSES. 7. GROUND NO. 2 PERTAINS TO THE ISSUE OF ALLOCATION OF CERTAIN EXPENSES AS HO AND UNIT ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80I C. M/S. INDOCO REMEDIES LTD. ITA NO. 4478/MUM/2012 3 8. THE FACTS ARE THAT THE ASSESSEE SET UP ITS UNIT AT BADDI, ON WHICH IT CLAIMED THE DEDUCTION U/S 80IC. THE AO IN THE ASSES SMENT PROCEEDINGS ALLOCATED CERTAIN EXPENSES, WHICH RESULTED IN THE R EDUCTION OF PROFIT, THEREBY REDUCING THE QUANTUM OF DEDUCTION CLAIMED. ACCORDIN G TO THE AO, THE ASSESSEE IN REPLY STATED THAT THE COMMON EXPEN SES INCURRED AT H 0 NAMELY PACKING AND DELIVERY, R & D., ADVERTISEMENT AND SALES PROMOTION AND DEPRECIATION ON HEAD OFFICE ASSETS CAN NOT BE ALLOC ATED WITH REASONABLE ACCURACY TO ANY SPECIFIC TURN OVER OR ACTIVITY OF T HE COMPANY, AS THESE ARE FOR THE ENTIRE COMPANY AS A WHOLE, THEREFORE, THE ALLOC ATION OF THESE EXPENSES WERE MADE UNDER BASIS OF TOTAL TURNOVER OF TIME COMPANY AND NOT ON ANY SPECIFIC TURNOVER. ACCORDINGLY, THE APPORTIONMENT OF SELLING , ADMINISTRATIVE AND FINANCE COST IN THE PROPORTION OF SALES THESE HAS BEEN ACCE PTED IN THE PAST BY THE ASSESSING AUTHORITY. THE ASSESSEES CONTENTION HAS BEEN EXAMINED. IT IS HOWEVER SEEN THAT THE COMMON EXPENSES HAS NOT BEEN APPORTIONED ON PRO-RATA BASIS. THE ASSESSEE ON ITS OWN ACCEPTED THAT IT IS NOT POSSIBLE TO APPORTION ON ANY ACTUAL BASIS AND CONSEQUENTLY THE APPORTIONMENT ON THE BASIS OF PERCENTAGE OF SALES WOULD HAVE BEEN THE PROPER ALTE RNATIVE IT IS SEEN FROM THE DETAILS OF SALES FOR THE YEAR THAT AS AGAINST TOTAL SALES OF RS.350.63 CRORE, THE SALE OF BADDI UNIT IS RS.139.43 CRORE I.E. IT CONST ITUTES 40% OF THE TOTAL SALES. ACCORDINGLY THE COMMON EXPENSES HAVE TO BE APPORTIO NED TO THE BADDI UNIT AT 40% OF THE EXPENSES. THE ALLOCATION OF VARIOUS EXPE NSES IS ACCORDINGLY WORKED OUT AS UNDER:- EXPENSES % APPLI ED TOTAL EXPENSES ALLOCATION TO BADDI UNIT EXPENSES SHOWN EXCESS (SHORTAGE) PACKING & DELIVERY CHARGES 40% 12,59,34,679 5,03,73,872 4,48,27,598 55,46,274 R&D EXPENSES 40% 9,23,49,270 3,69,39,708 0 3,69,39,708 ANALYTICAL EXP. 40% 1,87,65,837 75,06,335 40,87,873 34,18,462 DEPRECIATION ON HO ASSETS 40% 2,01,81,633 80,72,653 0 80,72,653 5,39,77,097 9. THE AO, THEREFORE, ADDED TO THE EXPENSES ALLOCAT ED TOWARDS EXPENSES INCURRED BY THE BADDI UNIT, THEREBY REDUCING THE EL IGIBLE PROFITS FOR THE PURPOSES OF SECTION 80IC. 10. THE ASSESSEE APPROACHED THE CIT(A), WHO PLACED RELIANCE ON THE DECISION OF HIS PREDECESSOR IN ASSESSMENT YEAR 2007 -08, WHEREIN, HE HAD RELIED ON THE DECISION OF THE COORDINATE BENCH IN A SSESSMENT YEAR 2003-04 AND ORDERED THE DELETION OF EXPENSES IN BLOCK ASSES SMENT PROCEEDINGS. THE ITAT AND SUBSEQUENTLY THE CIT(A) IN ASSESSMENT YEAR 2007-08 DIRECTED THE AO NOT TO REALLOCATE THE INDIRECT EXPENSES TO BADDI UNIT AND TO ACCEPT THE WORKING OF THE ASSESSEE. IN THE INSTANT APPEAL, THE CIT(A) FOLLOWED THE ORDERS OF HIS PREDECESSOR AND DELETED THE ALLOCATION MADE BY THE AO. M/S. INDOCO REMEDIES LTD. ITA NO. 4478/MUM/2012 4 11. AGAINST THIS DECISION, THE DEPARTMENT IS IN APP EAL BEFORE THE ITAT. 12. BEFORE US, THE DR POINTED OUT THAT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD NOT ALLOCATED R&D EXPENSES AND THE AO WAS CORRECT TO ALLOCATE THE EXPENSES IN PROPORTION TO TURNOVER, OF BADDI UNIT, WHICH WAS 40% OF THE TOTAL TURNOVER. THE DR ALSO SUBMITTED TH AT THE ITAT ORDER IN 2003-04 AND SUBSEQUENTLY THE HIGH COURT ORDER PERTA INED TO FACTS WHICH DID NOT PERTAIN TO BADDI UNIT. DR POINTED OUT THAT THE AO WAS CORRECT TO ALLOCATE THE EXPENSES TO BADDI UNIT. 13. THE AR ON THE OTHER HAND CONTESTED THE ARGUMENT S OF THE DR AND SUBMITTED THAT THE ISSUE FOR ALLOCATION HAS ATTAINE D FINALITY AT CIT(A) STAGE, AS HELD BY THE HONBLE BOMBAY HIGH COURT DECISIONS, WH EREIN, THE HONBLE HIGH COURT HAD DISCUSSED THE APPEAL FILED BY THE DEPARTM ENT. MOREOVER, THE ISSUE SQUARELY STANDS COVERED BY THE DECISION OF THE COOR DINATE BENCH IN ASSESSMENT YEAR 2008-09 IN ITA NO. 7371, 7372 & 737 3/MUM/2011, WHEREIN THE COORDINATE BENCH HAD GIVEN THE RELIEF T O THE ASSESSEE. EVEN ON FACTS, THE AR POINTED OUT TO THE TABLE REPRODUCED B Y THE AO IN THE ASSESSMENT YEAR THAT THE ASSESSEE HAD SUO MOTO ALLOCATED EXPENSES TOWARDS PACKING & DELIVERY CHARGES AND ANALYTICAL EXPENSES. HE FURTHER SUBMITTED THAT R&D EXPENSES AND DEPRECIATION COULD NOT BE AND WOULD NOT BE ALLOCABLE BECAUSE THESE WERE INDEPENDENT EXPENSES AND SINCE S EPARATE BOOKS HAVE BEEN MAINTAINED, THESE EXPENSES ARE UNIT/HO BASED. IN ANY CASE, THE ALLOCATIONS SUO MOTO DONE ARE ON ONE TO ONE BASIS. 14. THE DR, IN THE REJOINDER SUBMITTED THAT R&D EXP ENSES AND DEPRECIATION THOUGH INCURRED BY THE HO ARE ULTIMATE LY GETS THE ADVANTAGE TO THE ELIGIBLE UNITS AS WELL. 15. WE HAVE HEARD THE RIVAL ARGUMENTS AND HAVE PERU SED THE ORDERS PASSED BY THE REVENUE AUTHORITIES AND THE FACTS AS NOTED BY THE AO AND AS SUBMITTED BY THE DR. 16. ON GOING THROUGH THE VARIOUS DETAILS AND SUBMIS SIONS, WE ARE OF THE CONSIDERED VIEW THAT THOUGH THE ASSESSEE HAS ALLOCA TED PACKING & DELIVERY CHARGES AND ANALYTICAL EXPENSES, THERE IS A DIFFERE NCE IN THE ALLOCATION MADE BY THE ASSESSEE AND THE AO. ALSO WE FIND THAT R&D E XPENSES AND M/S. INDOCO REMEDIES LTD. ITA NO. 4478/MUM/2012 5 DEPRECIATION HAVE NOT BEEN ALLOCATED AT ALL BY THE ASSESSEE. WE ARE AWARE THAT THE ASSESSEE HAS MAINTAINED SEPARATE BOOKS FOR HO AND BADDI UNIT, AND R&D UNIT, WHICH WOULD BENEFIT THE BUSINESS AS SUCH, LIKE WISE DEPRECIATION WOULD ALSO HAVE SOME ELEMENT OF COMMONALITY OF THE HO AND R&D UNIT AND ELIGIBLE UNIT AT BADDI. WE ARE ALSO AWARE, CONSISTE NTLY THE COORDINATE BENCHES HAVE BEEN ALLOWING THE CLAIM OF THE ASSESSEE, BUT T O IRON OUT THE DOUBTS IN THE MIND OF THE AO, IT IS NECESSARY THAT THE AO MUS T FACTUALLY GET SATISFIED THAT THE ASSESSEE HAS ALLOCATED EXPENSES WHEREVER N ECESSARY AND NOT ALLOCATED WHEREVER IT WAS NOT FOUND TO BE NOT NECES SARY. BOTH THE PARTIES HAVE NO OBJECTION IF THE MATTER IS RESTORED TO THE AO FOR VERIFICATION. WE, THEREFORE, RESTORE THE ISSUE TO THE FILE OF THE AO, WHO SHALL EXAMINE THE ALLOCABILITY OF EXPENSES OF R&D AND DEPRECIATION IF AT ALL, RELYING ON THE BOOKS AS MAINTAINED BY THE VARIOUS UNITS. 17. GROUND NO. 2 IS THEREFORE, ALLOWED FOR STATISTI CAL PURPOSES. 18. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER, 2013. SD/- SD/- ( ) ( $## #% ) ! ! (RAJENDRA SINGH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 9 TH OCTOBER, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) & & ' ( ) - 41, MUMBAI / THE CIT (A)-41, MUMBAI. 4) & & ' , . -III, )*+, / THE CIT, CENTRAL -III, MUMBAI, 5) -./ 0 & , & 0 , ), / THE D.R. I BENCH, MUMBAI. 6) /1 2 COPY TO GUARD FILE. M/S. INDOCO REMEDIES LTD. ITA NO. 4478/MUM/2012 6 &34 / BY ORDER / / TRUE COPY / / [ 5 / 6 7 & 0 , ), DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *9:6 . . * CHAVAN, SR. PS