ITO 2(1)(1), MUMBAI V. ABBOTT INDIA LTD, MUMBAI

ITA 4881/MUM/2010

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3235 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 26-03-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 11-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HN SINGH SHRI RAJAT MITTAL
• Keywords: Rule of consistency; Earning of tax free income; Wholly owned subsidiary; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 80HHC; 14A; 80IB; 37(1)

Judgement Text

1 ABBOTT INDIA LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI SHRI G MANJUNATHA (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA NO. A.Y. APPELLANT RESPONDENT 6606/M/02 1999-2000 ABBOTT INDIA LTD (FORMERLY KNOWN AS KNOLL PHARMACEUTICALS LTD), 17, R KAMANI MARG, BALLARD ESTATE, BALLARD PIER, MUMBAI 400 001. PAN:AAACB5170B ACIT, CIR.2(2), MUMBAI 5625/M/05 2001-02 -DO- DY.CIT, CIR.2(2), MUMBAI 7824/M/04 2000-01 -DO- ADDL.CIT, RANGE 2(2), MUMBAI 5099/M/07 2002-03 -DO- DY.CIT, CIR.2(1), MUMBAI 5922/M/10 2003-04 -DO- ACIT, CIR.2(1), MUMBAI 3362/M/10 2004-05 -DO- ITO-2(1)(1), MUMBAI 6192/M/10 2005-06 -DO- ADDL.CIT, RANGE 2(1), MUMBAI 6150/M/02 1999-2000 DY.CIT, CIR.2(2), MUMBAI ABBOTT INDIA LTD (FORMERLY KNOWN AS KNOLL PHARMACEUTICALS LTD), 17, R KAMANI MARG, BALLARD ESTATE, BALLARD PIER, MUMBAI 400 001. 8130/M.04 2000-01 DY.CIT, CIR.2(1), MUMBAI -DO- 4367/M/05 2001-02 -DO- - DO- 5154/M/07 2002-03 ACIT, CIR.2(1), - DO- 2 ABBOTT INDIA LTD MUMBAI 5988/M/10 2003-04 DY.CIT, CIR.2(1), MUMBAI -DO- 4881/M/10 2004-05 ITO-2(1)(1), MUMBAI -DO- ASSESSEE BY SHRI MADHUR AGARWAL / SHRI YOGESH THAR REVENUE BY SHRI HN SINGH / SHRI RAJAT MITTAL DATE OF HEARING 02 -07-2018 DATE OF PRONOUNCEMENT 24-08-2018 O R D E R PER BENCH : THIS BUNCH OF 13 APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST SEPARATE, BUT IDENTICAL ORDERS OF CIT(A), MUMBAI PASSED ON DIFFERENT DATES FOR ASSESSMENT YEARS 1999-2000, 2000-01, 2001-02, 2002-03, 2003-04, 2004-05 & 2005-06. SINCE, FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THESE APPEALS WERE HEARD TOGETHE R AND ARE DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF C ONVENIENCE. 2. THE ASSESSEE AS WELL AS THE REVENUE HAVE RAISED MORE OR LESS COMMON GROUNDS OF APPEAL FOR ALL ASSESSMENT YEARS. THE ASSESSEE, VIDE ITS GROUNDS OF APPEAL HAS CHALLENGED ADDITION SUSTAINED BY THE LD.CIT(A) IN RESPECT OF DISALLOWANCE ON ACCOUNT OF ADJUSTMENT TO CLOSING STOCK TOWARDS UNUTILIZED MODVAT CREDIT, TREATMENT O F CAPITAL EXPENDITURE ON BRAND EPILEX, EXCLUSION OF 90% OF OTHER INCOME WHILE CALCULATING DEDUCTION U/S 80HHC, DISALLOWANCE OF INTEREST INCOM E AND CASH 3 ABBOTT INDIA LTD DISCOUNT WHILE GRANTING DEDUCTIONS U/S 80I & 80IA, DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPTION INCOM E U/S 14A OF THE INCOME-TAX ACT, 1961, AND DISALLOWANCE OF COMPUTER SOFTWARE EXPENSES BEING CAPITAL IN NATURE. THE REVENUE, VIDE ITS GRO UNDS OF APPEAL HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN ALLOWING DEDUCTIONS TOWARDS PROFESSIONAL FEES PAID TO DSP MERRYLL LYNCH WHILE C ALCULATING DEDUCTION U/S 35AB OF THE INCOME-TAX ACT, 1961 AND CALCULATIO N OF SALES TURNOVER EXCLUSIVE OF SALES-TAX, EXCISE DUTY, TRADE DISCOUNT , ETC. WHILE CALCULATING DEDUCTION U/S 80HHC OF THE INCOME-TAX ACT, 1961. 3. THE BRIEF FACTS OF THE CASE EXTRACTED FROM ITA N O.6606/M/2002 FOR AY 1999-2000 ARE THAT THE ASSESSEE IS A COMPANY ENG AGED IN THE BUSINESS OF MANUFACTURING PHARMACEUTICALS, FILED IT S RETURN OF INCOME FOR AY 1999-2000 ON 28-12-1999 DECLARING TOTAL INCOME O F RS.24,44,46,730. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTICES, THE A UTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FILED VARIOUS DETAILS, AS CALLED FOR. THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) ON 04-01-2002 DETERMINING TOTAL INCOME AT RS .26,08,92,689 BY MAKING VARIOUS ADDITIONS. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY THE LD.CIT(A) , FOR THE DETAILED REASONS RECORDED IN HIS APPELLATE ORDER DATED 27-08 -2002, PARTLY ALLOWED 4 ABBOTT INDIA LTD APPEAL FILED BY THE ASSESSEE WHEREIN HE HAS DELETED ADDITIONS MADE BY THE AO TOWARDS DISALLOWANCE OF PROFESSIONAL FEES PA ID TO DSP MERRYLL LYNCH WHILE COMPUTING DEDUCTION U/S 35AB OF THE INC OME-TAX ACT, 1961 AND CALCULATION OF SALES TURNOVER EXCLUSIVE OF TAX, DUTY, TRADE DISCOUNT, ETC. WHILE CALCULATING DEDUCTION U/S 80HHC OF THE I NCOME-TAX ACT, 1961. THE LD.CIT(A); HOWEVER, CONFIRMED ADDITION MADE BY THE AO TOWARDS EXCLUSION OF 90% OF OTHER INCOME WHILE CALCULATING DEDUCTION U/S 80HHC, DISALLOWANCE OF INTEREST INCOME WHILE CALCUL ATING DEDUCTIONS U/S 80I AND 80IA OF THE INCOME-TAX ACT, 1961. THE LD.C IT(A) ALSO ENHANCED ASSESSMENTS IN RESPECT OF DISALLOWANCE ON ACCOUNT O F UNUTILIZED MODVAT CREDIT TO MAKE ADJUSTMENT TOWARDS VALUE OF CLOSING STOCK INCLUSIVE OF UNUTILIZED MODVAT CREDIT AND ALSO TREATMENT OF CAPI TAL EXPENDITURE ON BRAND EPILEX. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE US. ITA NO.6606/MUM/2002 & ITA NO. 6150/M/02 (AY 1999-2 000) 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IS DISALLOWANCE ON ACCOUNT OF UNUTILIZED MOD VAT CREDIT. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARING SUBM ITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF ITAT, MUMBAI BENCH C IN ASSESSEES OWN CASE FOR AY 1998-99 IN ITA NO.1421/MUM/2002 DATED 14-05-2008 WHERE THE ITAT, B Y FOLLOWING THE 5 ABBOTT INDIA LTD DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS INDO NIPPON CHEMICALS CO LTD 245 ITR 384 (BOM) DELETED T HE ADDITION MADE BY THE AO TOWARDS ADDITION ON ACCOUNT OF REVALUATIO N OF CLOSING STOCK INCLUDING UNUSED MODVAT CREDIT. THE LD.DR PRESENT FOR THE REVENUE FAIRLY ACCEPTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI BENCH C IN ASSESSEES OW N CASE FOR AY 1998-99. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE ISSUE OF ADDITION TOWARDS REVALUATI ON OF CLOSING STOCK INCLUDING UNUTILIZED MODVAT CREDIT HAS BEEN CONSIDE RED BY THE CO- ORDINATE BENCH IN THE LIGHT OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS INDO NIPPON CHEMICALS CO LTD (SU PRA) AND HELD THAT WHERE IN THE CLOSING STOCK, UNUTILIZED MODVAT CREDI T IS ADJUSTED, SIMILAR ADJUSTMENT SHOULD BE MADE TO OPENING STOCK ALSO. T HE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW:- 26. ON THIS ISSUE, WE NOTE THAT THE ID. COMMISSIONE R OF INCOME TAX (APPEALS) HAS DECIDED THE ISSUE IN FAVOUR OF THE AS SESSEE BY PLACING RELIANCE UPON THE HON'BLE BOMBAY HIGH COURT DECISIO N IN THE CASE OF CIT VS. INDO NIPPON CHEMICAL CO. LTD. [2000] 245 ITR 384 (BOM). HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE ID. COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THE ORDER OF THE ID. COMMISSIONER OF INCOME TAX (APPEALS) IN THIS RE GARD MAY BE GAINFULLY REFERRED AS UNDER: 10. AS CLEARLY MENTIONED IN THE ASSESSMENT ORDER FO R THE ASSESSMENT YEAR 98-99, THE CASE OF THE APPELLANT IS COVERED BY THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF C IT VS. INDO NIPPON CHEMICAL CO. LTD. 245 ITR 384 (BOMBAY). THE ADDITION 6 ABBOTT INDIA LTD IN THIS REGARD WAS MADE IN THIS YEAR JUST TO KEEP T HE ISSUE ALIVE. THE FACTS ARE IDENTICAL IN EARLIER THREE YEARS TOO. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE HON'BLE JUR ISDICTIONAL HIGH COURT, THE ADDITION MADE IN THIS REGARD IN ALL THE FOUR YEARS IS DELETED. 27. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. C OMMISSIONER OF INCOME TAX (APPEALS). 6. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH T HE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW TH AT THE AO WAS ERRED IN MAKING ADJUSTMENT TOWARDS UNUTILIZED MODVAT CRED IT ONLY IN RESPECT OF CLOSING STOCK. THEREFORE, WE SET ASIDE THE ISSUE T O THE FILE OF THE AO TO MAKE NECESSARY ADJUSTMENTS TOWARDS OPENING STOCK AS WELL AS CLOSING STOCK. 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM ASSESSEES APPEAL IS TREATMENT OF CAPITAL EXPENDITURE ON BRAND EPILEX. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARING SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT, MUMBAI BENCH C IN ASSESSEES OWN CASE IN ITA NO.1421/MU M/2002 DATED 14- 05-2008 FOR AY 1998-99 WHEREIN THE ITAT HAS DELETED ENHANCEMENT MADE BY THE LD.CIT(A) TOWARDS TREATMENT OF CAPITAL EXPENDITURE ON BRAND EPILEX. THE LD.AR FURTHER SUBMITTED THAT T HE LD.CIT(A) ALSO DELETED ADDITION MADE BY THE AO TOWARDS PROFESSIONA L CHARGES PAID TO DSP MERYLL LYNCH FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 35AB OF THE INCOME-TAX ACT, 1961. WE FIND THAT THE CO-O RDINATE BENCH OF ITAT 7 ABBOTT INDIA LTD HAS CONSIDERED SIMILAR ISSUE FOR AY 1998-99 AND BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS GLENNMARK PHARMACEUTICALS LTD (2013) 30 TAXMANN.COM 167 HELD AS UNDER:- 22. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE ID. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE NE EDS TO BE DECIDED IN FAVOUR OF THE ASSESSEE AS THE SAME IS COVERED BY T HE HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS. GLENMARK PHARMACEUTICAL LTD. [2013] 30 TAXMANN.COM 167 (BOM). 23. PER CONTRA, THE ID. DEPARTMENTAL REPRESENT ATIVE RELIED UPON THE ORDERS OF THE ID. COMMISSIONER OF INCOME TAX (APPEAL S). 24. UPON CAREFUL CONSIDERATION, WE FIND THAT THE IS SUE IN DISPUTE IS THE ID. COMMISSIONER OF INCOME TAX (APPEALS)'S DECISION THAT MARKETING KNOWHOW CANNOT BE TREATED AS KNOWHOW FOR THE PURPOS E OF CLAIM OF DEDUCTION U/S. 35AB. HENCE, HE HAS HELD THAT THE MA RKING KNOWHOW SHOULD BE EXCLUDED WHILE COMPUTING THE DEDUCTION U/ S. 35AB AND, HENCE, HE HAD ORDERED THE ENHANCEMENT. WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GLENMARK PHARMACEUTICALS LTD. (SUPRA) HAS HELD THAT WHERE MARKETING KNOW-HOW AGRE EMENT LED TO AN IMPROVEMENT IN ASSESSEE'S EXISTING BUSINESS RESULTI NG IN HIGHER SALES AND, CONSEQUENTLY, HIGHER PROFITABILITY, THE AMOUNTS SPE NT ON MARKETING KNOW-HOW WOULD RESULT IN IMPROVING PROFITS OF BUSIN ESS ON ACQUIRED BRANDS AS THIS KNOWLEDGE WOULD ASSIST IN IMPROVING MARKETING STRATEGY, EXPENSES INCURRED BY ASSESSEE FOR ACQUIRING MARKETI NG KNOW-HOW WOULD BE REVENUE, AND MERELY BECAUSE IT WAS OUTSOURCED, I T WOULD NOT CEASE TO BE REVENUE EXPENDITURE. HERE WE FIND THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ABOVE SAID MARKETING KNOWHOW HAS N OT LEAD TO INCREASE IN SALES AND HIGHER PROFITABILITY AS EXPOUNDED BY T HE HON'BLE BOMBAY HIGH COURT AS ABOVE. IN SUCH CIRCUMSTANCES, WHEN T HE ASSESSEE ONLY CLAIMS DEDUCTION U/S. 35AB, THE SAME CANNOT BE DEN IED BY THE ID. COMMISSIONER OF INCOME TAX (APPEALS) BY HOLDING IT T O BE A CAPITAL EXPENDITURE NOT QUALIFYING FOR DEDUCTION. WHEN THE ENTIRE EXPENDITURE IS ALLOWABLE NO STRETCH OF IMAGINATION, THE CLAIM O F AMORTIZATION ALLOWED BY THE ASSESSING OFFICER NEEDS TO BE SET ASIDE. HEN CE, WE SET ASIDE THE ORDER OF THE ID. COMMISSIONER OF INCOME TAX (APPEAL S) AND HOLD THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED I N ENHANCING THE ASSESSMENT BY EXCLUDING THE COST OF DEDUCTION AMOUN TING TO RS.4,84,50,000/- FOR THE PURPOSE OF ALLOWING DEDUCT ION U/S. 35AB. AS REGARDS, THE ID. COMMISSIONER OF INCOME TAX (APPEALS )'S DISCUSSION TO INCLUDE THE PAYMENT MADE TO DSP MERRYLL LYNCH FOR TH E PURPOSE OF COMPUTATION OF DEDUCTION U/S. 35AB, WE FIND OURSELV ES IN AGREEMENT 8 ABBOTT INDIA LTD WITH ID. COMMISSIONER OF INCOME TAX (APPEALS)'S REA SONING. HENCE, WE UPHOLD THAT ASPECT OF THE DECISION WHICH HAS BEEN C HALLENGED BY THE REVENUE. 8. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH T HE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW TH AT THE LD.CIT(A) WAS ERRED IN MAKING ENHANCEMENTS TOWARDS TREATMENT OF C APITAL EXPENDITURE INCURRED ON BRAND EPILEX. HENCE, WE DIRECT THE A O TO DELETE ENHANCEMENT MADE BY THE LD.CIT(A). 9. INSOFAR AS COMPUTATION OF DEDUCTION U/S 35AB EXC LUDING PROFESSIONAL FEES PAID TO DSP MERRYLL LYNCH, THE IT AT HAS HELD THAT PAYMENT MADE TO DSP MERRYLL LYNCH TOWARDS PROFESSIO NAL FEES FOR ACQUIRING BRAND EPILEX IS PART OF EXPENDITURE INC URRED AND THE SAME IS REQUIRED TO BE AMORTISED AS PER THE PROVISIONS OF S ECTION 35AB OF THE INCOME-TAX ACT, 1961. ACCORDINGLY, WE DIRECT THE A O TO DELETE ADDITION MADE TOWARDS DISALLOWANCE OF PROFESSIONAL CHARGES W HILE COMPUTING DEDUCTION U/S 35AB OF THE INCOME-TAX ACT, 1961. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IS EXCLUSION OF 90% OF OTHER INCOME WHILE CO MPUTING DEDUCTION U/S 80HHC OF THE INCOME-TAX ACT, 1961. THE AO HAS EXCLUDED 90% OF OTHER INCOME BEING INSURANCE CLAIM AND SALE OF SCRA P FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE INCOME-TA X ACT, 1961. IT IS THE CLAIM OF THE ASSESSEE THAT INSURANCE CLAIM RECE IVED ON TRANSIT 9 ABBOTT INDIA LTD INSURANCE IS PART OF CORE BUSINESSES ACTIVITY OF TH E ASSESSEE, THEREFORE, IT SHOULD BE PART OF RECEIPTS FORMING PART OF DEDUCTIO N U/S 80HHC OF THE ACT. THE ASSESSEE FURTHER CLAIMS THAT SALE OF SCRA P IS GENERATED ON SALES OF RAW MATERIALS AND PACKING MATERIALS WHICH IS ALSO PART OF CORE BUSINESS ACTIVITY AND WHATEVER REVENUE GENERATED FR OM SUCH SALE NEEDS TO BE INCLUDED IN COMPUTING DEDUCTION U/S 80HHC OF THE ACT. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE OF INSURANCE CLAIM RECEIVED O N TRANSIT INSURANCE FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80H HC IS NO LONGER RES INTEGRA. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS PFIZER LTD 330 ITR 62 (BOM) HAS CONSIDERED SIMILAR ISSUE IN TH E LIGHT OF DEDUCTION U/S 80HHC AND HELD THAT INSURANCE CLAIM FOR LOSS OF STOCK IN TRADE MUST STAND ON THE SAME FOOTING AS THE INCOME THAT WOULD HAVE BEEN REALIZED BY THE ASSESSE ON SALE OF STOCK IN TRADE. INSURANC E CLAIM ON ACCOUNT OF THE STOCK IN TRADE DOES NOT CONSTITUTE AN INDEPENDE NT INCOME OR A RECEIPT OF ANY OTHER SIMILAR NATURE TO BROKERAGE, I NTEREST, RENT OR CHARGES AS LONG AS SUCH A RECEIPT WOULD NOT BE SUBJECT TO D EDUCTION OF 90% UNDER EXPLANATION TO SECTION 80HHC OF THE ACT. SIM ILARLY, ON THE ISSUE OF SALE OF SCRAP, THE HONBLE HIGH COURT IN THE CAS E OF BANGALORE CLOTHING CO VS CIT 260 ITR 371 (BOM) HELD THAT REVE NUE GENERATED FROM SALE OF SCRAP WAS AKIN TO MANUFACTURING ACTIVI TIES RELATING TO EXPORT 10 ABBOTT INDIA LTD BUSINESS CARRIED ON BY THE ASSESSEE, DID NOT FALL W ITHIN THE SCOPE OF EXPLANATION TO SECTION 80HHC AND, THEREFORE, 90% OF SUCH RECEIPTS COULD NOT BE EXCLUDED FROM BUSINESS PROFITS WHILE C OMPUTING DEDUCTION U/S 80HHC OF THE ACT. EVEN THE LD. CIT(A) FOR AY 2 001-02 IN ASSESSEES OWN CASE HAS DELETED ADDITION MADE BY TH E AO TOWARDS RE- COMPUTATION OF ELIGIBLE PROFIT U/S 80HHC BY EXCLUDI NG INSURANCE CLAIM AND SALE OF SCRAP AND SUCH DECISION HAS BEEN ACCEPT ED BY THE DEPARTMENT AND NO APPEAL HAS BEEN FILED BEFORE THE ITAT. ONCE, THE DEPARTMENT HAS ACCEPTED THE FACT THAT THESE TWO ITE MS ARE PART OF OTHER INCOME ELIGIBLE FOR INCLUSION IN THE COMPUTATION OF DEDUCTION U/S 80HHC, THEN BY FOLLOWING THE RULE OF CONSISTENCY, THE DEPA RTMENT OUGHT TO HAVE ACCEPTED THE ASSESSEES CLAIM FOR CURRENT YEAR. TH EREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN EXCLUDING 90% OF OTHER INCOME BEING INSURANCE CLAIM AND SALE OF SCRAP FOR THE PUR POSE OF COMPUTATION OF ELIGIBLE PROFIT U/S 80HHC OF THE INCOME-TAX ACT, 1961. HENCE, WE DIRECT THE AO TO DELETE ADDITION MADE TOWARDS RE-CO MPUTATION OF ELIGIBLE PROFIT U/S 80HHC EXCLUDING INSURANCE CLAIM AND SALE OF SCRAP. 12. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERAT ION IS DISALLOWANCE OF INTEREST INCOME AND CASH DISCOUNT WHILE COMPUTIN G DEDUCTIONS U/S 80I & 80IA OF THE INCOME-TAX ACT, 1961. THE LD.AR FOR THE ASSESSEE AT THE TIME OF HEARING SUBMITTED THAT THIS ISSUE INSOFAR A S INTEREST FROM 11 ABBOTT INDIA LTD CUSTOMERS IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF ITAT, MUMBAI BENCH C IN ASSESSEES OWN CASE FOR AY 1998 -99 ITA NO.1421/MUM/2002 WHEREIN THE ITAT, BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS VID YUT CORPORATION 324 ITR 221 (BOM) HELD THAT INTEREST FROM CUSTOMERS QUALIFIED FOR BEING ELIGIBLE FOR COMPUTATION OF DEDUCTIONS U/S 80I & 80 IA. THE LD.AR FURTHER SUBMITTED THAT EVEN THOUGH THE ASSESSEE HAS NOT CON SIDERED OTHER RECEIPTS FOR AY 1998-99, BECAUSE THE ASSESSEE DID N OT PRESS THE ISSUE, BUT FACT REMAINS THAT CASH DISCOUNT RECEIVED FROM C USTOMERS FORMS PART OF RECEIPTS ELIGIBLE FOR DEDUCTION U/S 80I & 80IA A S THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS MADRAS MOTORS 257 ITR 60 HAS CONSIDERED SIMILAR ISSUE AND HELD THAT CASH DISCOUN T IS PART OF RECEIPTS BEING ELIGIBLE FOR DEDUCTIONS U/S 80I & 80IA OF THE INCOME-TAX ACT, 1961. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATE RIAL AVAILABLE ON RECORD. THE ITAT HAS CONSIDERED INTEREST FROM CUST OMERS ON DELAYED PAYMENTS IN THE LIGHT OF PROVISIONS OF SECTIONS 80I & 80IA AND BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS VIDYUT CORPORATION (SUPRA) HELD THAT INTEREST FR OM CUSTOMERS IS ELIGIBLE FOR COMPUTATION OF DEDUCTIONS U/S 80I& 80I A OF THE INCOME-TAX ACT, 1961. INSOFAR AS CASH DISCOUNT IS CONCERNED T HOUGH THE ISSUE HAS COME UP FOR OUR DISCUSSION FOR FIRST TIME DURING TH E YEAR UNDER 12 ABBOTT INDIA LTD CONSIDERATION, FACT REMAINS THAT THE ASSESSEE HAS F AILED TO FURNISH EVIDENCE TO PROVE THAT CASH DISCOUNT IS PART OF ITS CORE BUSINESS ACTIVITY OF INCOME ELIGIBLE FOR DEDUCTIONS U/S 80I & 80IA OF INCOME-TAX ACT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A O WAS RIGHT IN DISALLOWING CASH DISCOUNT WHILE COMPUTING DEDUCTION S U/S 80I & 80IA OF THE INCOME-TAX ACT, 1961. ACCORDINGLY, WE UPHOLD D ISALLOWANCE MADE BY THE AO AND REJECT GROUND TAKEN BY THE ASSESSEE. 14. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM DEPARTMENTAL APPEAL IS DISALLOWANCE OF PROFESSIONAL FEES PAID TO DSP MERRYLL LYNCH WHILE COMPUTING DEDUCTION U/S 35AB OF THE ACT. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARING SUBM ITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF ITAT, MUMBAI BENCH C IN ASSESSEES OWN CASE FOR AY 1998-99 IN ITA NO.1421/MUM/2002 WHERE UNDER SIMILAR CIRCUMSTANCES, THE ITAT UPHELD FINDINGS OF THE LD.CIT(A) DELETING ADDITION MADE BY THE AO TOWARDS DISALLOWANCE OF PROFESSIONAL CHARGES PAID T O DSP MERRYLL LYNCH FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 35A B OF THE INCOME-TAX ACT, 1961. WE FIND THAT THE ITAT HAS CONSIDERED SI MILAR ISSUE FOR AY 1998-99 AND HELD THAT PROFESSIONAL FEES PAID TO DSP MERRYLL LYNCH SHOULD BE INCLUDED WHILE COMPUTING DEDUCTION U/S 35 AB OF THE ACT. FACTS REMAIN UNCHANGED. THE REVENUE FAILS TO BRING ON RECORD ANY 13 ABBOTT INDIA LTD CONTRARY EVIDENCE AGAINST THE FINDINGS GIVEN BY THE ITAT FOR AY 1998-99. THEREFORE, CONSISTENT WITH THE VIEW TAKEN BY THE CO -ORDINATE BENCH, WE DIRECT THE AO TO INCLUDE PROFESSIONAL FEES PAID TO DSP MERRYLL LYNCH WHILE COMPUTING DEDUCTION U/S 35AB OF THE ACT. 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUES APPEAL IS CALCULATION OF SALES TURNOVER EXCLUSIVE O F SALES-TAX, EXCISE DUTY, TRADE DISCOUNT, ETC. WHILE COMPUTING DEDUCTIO N U/S 80HHC OF THE ACT. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HE ARING SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF ITAT, MUMBAI BENCH C IN ASSESSEES OWN CASE FOR A Y 1998-99, WHEREIN THE ITAT, BY FOLLOWING THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SUDARSHAN CHEMICALS IND USTRIES LTD 245 ITR 769 (BOM) HELD THAT FOR THE PURPOSE OF DETERMINATIO N OF SALES TURNOVER FOR CALCULATING DEDUCTION U/S 80HHC SALES-TAX, EXCI SE DUTY, TRADE DISCOUNT, ETC. SHALL BE EXCLUDED. WE FIND THAT SIM ILAR ISSUE HAS BEEN CONSIDERED BY THE ITAT IN THE LIGHT OF JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SUDARSHAN CHEMICAL S INDUSTRIES LTD (SUPRA) AND HELD THAT FOR THE PURPOSE OF DETERMINAT ION OF SALES TURNOVER FOR CALCULATING DEDUCTION U/S 80HHC SALES-TAX, EXCI SE DUTY, TRADE DISCOUNT, ETC. SHALL BE EXCLUDED. THE RELEVANT POR TION OF THE ORDER IS EXTRACTED BELOW:- 14 ABBOTT INDIA LTD 28. ON THIS ISSUE WE NOTE THAT THE LD.COMMISSIONER OF INCOME TAX (APPEALS) HAS DECIDED THE ISSUE BY PLACING RELIANCE UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SUDARSHAN CHEMICAL INDUSTRIES LTD. 245 ITR 769 (BOM). HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE ID. COMMISSIONER OF INCOME TAX (APPEALS). THE ORDER OF THE ID. COMMISSIONER OF INC OME TAX (APPEALS) IN THIS REGARD MAY BE GAINFULLY REFERRED AS UNDER: 13. THE APPELLANT HAD EXCLUDED SALES-TAX, EXCISE DU TY AND TRADE DISCOUNT FROM'' THE TOTAL TURNOVER IN WORKING OUT T HE PROFITS DERIVED FROM THE EXPORT IN ACCORDANCE WITH THE APPO RTIONMENT FORMULA LAID DOWN IN SECTION 80HHC(3). THE A.O. HOW EVER INCLUDED THESE ITEMS IN THE TOTAL TURNOVER AND THUS REDUCED THE PROFITS DERIVED FROM THE EXPORT BY INCREASING THE D ENOMINATOR IN THE FORMULA. THE ISSUE REGARDING EXCLUSION OF SALES TAX AND EXCISE DUTY FROM THE TOTAL TURNOVER FOR THE PURPOSE OF SEC TION 80HHC IS SQUARELY COVERED BY THE JURISDICTIONAL HIGH COURT D ECISION IN THE CASE OF CIT VS. SUDARSHAN CHEMCIAL INDUSTRIES LTD. 245 ITR 769 (BOM). IN THIS DECISION IT WAS HELD THAT IT IS ONLY THE ACTUAL SALE PRICE WHICH IS RELEVANT TO THE TOTAL TURNOVER AND T HE PROFITS DERIVED FROM THE EXPORT CANNOT BE REDUCED ARTIFICIA LLY BY INCLUDING IN THE DENOMINATOR SUCH LEVIES AS SALES T AX AND EXCISE DUTY. THE HIGH COURT HAS FURTHER HELD THAT IN VIEW OF THE USE OF COMMON WORD 'TURNOVER' IN EXPORT TURNOVER AS WELL A S TOTAL TURNOVER, THE TWO MUST HAVE COMMON INGREDIENTS. SIN CE NO DISCOUNT IS AVAILABLE IN RESPECT OF EXPORT TURNOVER , THERE IS NO RATIONALE FOR INCLUDING IN THE TOTAL TURNOVER THE T RADE DISCOUNT OBTAINED IN RESPECT OF LOCAL TURNOVER. TRADE DISCOU NT DOES NOT REPRESENT ACTUAL SALE PROCEEDS. THIS GROUND THEREFO RE SUCCEED. THE A.O. IS DIRECTED TO RE-WORK THE DEDUCTION U/S. 80HHC ACCORDINGLY. 29. ACCORDINGLY, WE CONFIRM THE ORDER OF THE ID . COMMISSIONER OF INCOME TAX (APPEALS). 16. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW TH AT THE AO WAS ERRED IN INCLUDING SALES-TAX & EXCISE DUTY AND ALSO TRADE DISCOUNT WHILE COMPUTING SALES TURNOVER FOR THE PURPOSE OF DETERMI NATION OF DEDUCTION 15 ABBOTT INDIA LTD U/S 80HHC OF THE INCOME-TAX ACT, 1961. THE LD.CIT( A), AFTER CONSIDERING RELEVANT SUBMISSIONS HAS RIGHTLY DELETE D ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR IN THE ORDER OF L D.CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD.CIT(A ) AND REJECT GROUND TAKEN BY THE REVENUE. 17. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO.7824/MUM/2004 & ITA NO.8130/MUM/2004 (AY 200 0-01) 18. THE FIRST ISSUE CAME UP FOR OUR CONSIDERATION F ROM ASSESSEES APPEAL IS DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A OF THE INCOME-TAX ACT, 1961. THE AO HAS DISALLOWED INTEREST EXPENDIT URE OF RS.17,02,063 ON THE GROUND THAT THE ASSESSEE HAS INVESTED INTERE ST BEARING FUNDS IN INVESTMENTS WHICH YIELDED EXEMPT INCOME, BUT FAILED TO DISALLOW INTEREST ATTRIBUTABLE TO SUCH INVESTMENTS IN VIEW OF SPECIFI C PROVISIONS PROVIDED U/S 14A OF THE ACT. THEREFORE, HE WORKED OUT PROPO RTIONATE INTEREST DEBITED TO P&L ACCOUNT AND MADE ADDITION OF RS.17,0 2,063. IT IS THE CLAIM OF THE ASSESSEE BEFORE THE AO THAT ITS OWN FU NDS IN THE FORM OF SHARE CAPITAL AND RESERVES PLUS INTEREST FREE FUNDS ARE MORE THAN THE AMOUNT OF INVESTMENTS IN SHARES AND SECURITIES WHIC H YIELDED EXEMPT INCOME. THEREFORE, NO DISALLOWANCE COULD BE MADE T OWARDS INTEREST EXPENDITURE WHEN ITS OWN FUNDS ARE MORE THAN THE AM OUNT OF 16 ABBOTT INDIA LTD INVESTMENTS. IN THIS REGARD, RELIED UPON THE DECIS ION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD 366 ITR 505 (BOM) AND ALSO CIT VS RELIANCE UTILITIES & POWER LTD 313 ITR 340 ( BOM). 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED CASE LAWS RELIED UPON BY THE ASSESS EE. THE ISSUE OF DISALLOWANCE OF INTEREST U/S 14A WHEN MIXED FUNDS A RE MORE THAN THE AMOUNT OF INVESTMENTS IN SHARES AND SECURITIES WHIC H YIELDED EXEMPT INCOME IS NO LONGER RES INTEGRA. THE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS HDFC BANK LTD (SUPRA) HAS CONSIDERED THE ISSUE AND HELD THAT WHEN MIXED FUNDS, I.E. INTEREST FREE AND INTEREST B EARING FUNDS ARE USED TO MAKE INVESTMENT IN SHARES AND SECURITIES, WHICH YIELDED EXEMPT INCOME, THEN A PRESUMPTION IS DRAWN THAT INVESTMENT S IN SHARES AND SECURITIES IS OUT OF ITS OWN FUNDS AND NO PART OF I NTEREST EXPENDITURE COULD BE DISALLOWED U/S 14A OF THE I.T. ACT. THIS LEGAL PROPOSITION IS FURTHER STRENGTHENED BY THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD ( SUPRA) WHEREIN THE RATIO LAID DOWN IN CIT VS HDFC BANK LTD HAS BEEN RE -ITERATED. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ONCE ASSESSEE PROVED WITH NECESSARY EVIDENCE THAT ITS OWN FUNDS INCLUDIN G INTEREST FREE FUNDS ARE MORE THAN THE AMOUNT OF INVESTMENTS, THEN NO IN TEREST COULD BE 17 ABBOTT INDIA LTD DISALLOWED U/S 14A OF THE ACT. BUT, THE FACTS ARE NOT EMERGING FROM THE ORDERS OF THE LOWER AUTHORITIES THAT THE ASSESSEE H AS FILED EVIDENCE TO PROVE THAT ITS INTEREST FREE FUNDS ARE MORE THAN TH E AMOUNT OF INVESTMENTS IN SHARES AND SECURITIES. THEREFORE, W E SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO CAUSE NECES SARY ENQUIRY TO ASCERTAIN THE POSITION OF FUNDS AS ON THE DATE OF I NVESTMENT AND IF FOUND THAT THE ASSESSEE IS HAVING ITS OWN FUNDS, THEN NO DISALLOWANCE COULD BE MADE TOWARDS INTEREST EXPENDITURE U/S 14A OF THE AC T. 20. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF DEDUCTION CLAIMED U/S 35AB IN RESPECT OF PAYMENT OF MARKETING KNOW HOW FOR BRAND EPILEX. WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN BY US IN PRECE DING PARAGRAPHS IN ITA NO.6606/MUM/2002 SHALL MUTATIS MUTANDIS APPL Y TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT TH E AO TO DELETE ADDITION MADE TOWARDS PAYMENT OF MARKETING KNOW HOW FOR BRA ND EPILEX. 21. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DEDUCTION U/S 80I & 80IB IN RESPECT OF SALE OF SCRAP. WE HAVE C ONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN B Y US IN PRECEDING PARAGRAPHS IN ITA NO.6606/MUM/2002 SHALL MUTATIS MU TANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO FOLLOW THE REASONS GIVEN BY US IN ITA NO.6606/MUM/2 002 FOR THIS APPEAL, 18 ABBOTT INDIA LTD TOO. 22. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADJUSTMENT TO CLOSING STOCK TOWARDS UNUTILIZED MODVAT CREDIT. WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.6606/MUM/2002 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO M AKE ADJUSTMENT TOWARDS UNUTILIZED MODVAT CREDIT TO OPENING STOCK AS WELL A S CLOSING STOCK TO ASCERTAIN DIFFERENCE, IF ANY, TO MAKE ADJUSTMENT TO RETURNED INCOME. 23. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUES APPEAL IS EXCLUSION OF PROFESSIONAL FEES PAID TO DS P MERRYLL LYNCH WHILE COMPUTING DEDUCTION U/S 35AB OF THE ACT. WE HAVE C ONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN B Y US IN PRECEDING PARAGRAPHS IN ITA NO.6606/MUM/2002 SHALL MUTATIS MU TANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO DELETE ADDITION MADE TOWARDS PROFESSIONAL FEES PAID TO DSP MERRYLL LYNCH. 24. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUES APPEAL IS SALES-TAX, EXCISE DUTY, TRADE DISCOUNT, E TC. TO BE INCLUDED IN TOTAL TURNOVER FOR COMPUTATION OF DEDUCTION U/S 80H HC OF THE ACT. WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/20 02. THE REASONS 19 ABBOTT INDIA LTD GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.6606/ MUM/2002 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREF ORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO EXCLUDE SALES-TAX, EXC ISE DUTY, TRADE DISCOUNT, ETC. WHILE COMPUTING TOTAL TURNOVER FOR C OMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. 25. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND APPEAL FILED BY THE REVENUE IS DISMISSED. ITA 5625/MUM/2005 & ITA 4367/MUM/2005 (AY 2001-02) 26. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION IS DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A OF THE ACT. WE HAVE C ONSIDERED SIMILAR ISSUE IN ITA NO.7824 /MUM/2004. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.78214 /MUM/2004 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO TO ASCERTAIN WHETHER THE ASSE SSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS IN EXCESS OF AMOUNT INVESTED IN SHARES & SECURITIES WHICH YIELDED EXEMPT INCOME AND DIRECT H IM TO DELETE ADDITIONS MADE TOWARDS DISALLOWANCE OF INTEREST EXP ENDITURE IF ASSESSEE PROVES THAT INTEREST FREE FUNDS ARE MORE THAN THE A MOUNT OF INVESTMENT . 27. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DENIAL OF DEDUCTION U/S 35AB IN RESPECT OF PAYMENT OF MARKETI NG KNOW HOW FOR BRAND EPILEX. WE HAVE CONSIDERED SIMILAR ISSUE I N ITA 20 ABBOTT INDIA LTD NO.6606/MUM/2002. THE REASONS GIVEN BY US IN PRECE DING PARAGRAPHS IN ITA NO.6606/MUM/2002 SHALL MUTATIS MUTANDIS APPL Y TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT TH E AO TO DELETE ADDITION TOWARDS DISALLOWANCE OF DEDUCTION U/S 35AB IN RESPE CT OF PAYMENT OF MARKETING KNOW HOW FOR BRAND EPILEX. 28. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DEDUCTION U/S 80IB IN RESPECT OF SALE OF SCRAP. WE HAVE CONSIDER ED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN BY US IN P RECEDING PARAGRAPHS IN ITA NO.6606/MUM/2002 SHALL MUTATIS MU TANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO FOLLOW THE FINDINGS GIVEN BY US IN ITA NO.6606/MUM/ 2002 FOR THIS YEAR ALSO. 29. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE ON COMPUTER SOFTWARE EXPENSES ON THE GROUND THAT IT IS IN THE NATURE OF CAPITAL EXPENDITURE. THE AO HAS DISALLOWED EXPENDI TURE INCURRED UNDER THE HEAD COMPUTER SOFTWARE EXPENSES OF RS.19,97,050 ON THE GROUND THAT THE ASSESSEE HAS OBTAINED ADVANTAGE OR BENEFIT OF ENDURING NATURE BY ACQUIRING COMPUTER SOFTWARE. IT IS IMMATERIAL T HAT SUCH SOFTWARE MAY BECOME OBSOLETE AFTER SOME TIME AND ASSESSEE MAY HA VE TO DEVELOP NEW SOFTWARE. SOFTWARE PROCURED BY THE COMPANY WAS INTENDED TO PROVIDE BENEFIT OVER A PERIOD OF TIME. THEREFORE, HE OPINED THAT SOFTWARE 21 ABBOTT INDIA LTD EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE WHICH CANNOT BE ALLOWED U/S 37(1) OF THE I.T. ACT, 1961. IT IS THE CONTENTION OF THE ASSESSEE THAT EXPENDITURE INCURRED UNDER THE HEAD SOFTWARE EXPENSES IS A ROUTINE EXPENSE PAID FOR ACQUIRING LICENCE TO USE SOFTWARE WHICH FACILITATE SMOOTH CARRYING ON OF BUSINESS OPERATION S. ASSESSEE ALSO PAID FEES FOR ANNUAL MAINTENANCE EXPENSES OF CERTAIN SOF TWARE WHICH ARE IN THE NATURE OF REVENUE EXPENDITURE. THEREFORE, THE AO WAS ERRED IN DISALLOWING SOFTWARE EXPENDITURE. 30. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATE RIAL AVAILABLE ON RECORD. ANY EXPENDITURE TO BE QUALIFIED FOR DEDUCT ION U/S 37(1) OF THE ACT IT SHOULD BE EXPENDED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF BUSINESS OF THE ASSESSEE AND IT SHOULD NOT BE IN TH E NATURE OF PERSONAL EXPENSES OR CAPITAL EXPENSES. IF ANY EXPENDITURE I NCURRED IS IN THE NATURE OF CAPITAL EXPENDITURE WHICH GIVES ENDURING BENEFIT TO THE ASSESSEE, THEN SUCH EXPENDITURE NEEDS TO BE CAPITAL IZED. IN THIS CASE, THE CLAIM OF THE ASSESSEE IS THAT EXPENDITURE INCUR RED UNDER THE HEAD SOFTWARE EXPENSES ARE ROUTINE EXPENSES PAID FOR ACQ UIRING LICENCE TO USE SOFTWARE AND ALSO IN THE NATURE OF ANNUAL MAINT ENANCE EXPENSES, THEREFORE, THE AO WAS INCORRECT IN DISALLOWING SUCH EXPENDITURE ONLY ON THE GROUND THAT THESE ARE IN THE NATURE OF CAPITAL EXPENDITURE. WE FIND THAT THE ASSESSEE HAS INCURRED SOFTWARE EXPENSES, W HICH ARE IN THE 22 ABBOTT INDIA LTD NATURE OF COST OF SERVICE OF PERSONNEL, LICENCE FEE S FOR SOFTWARE AND AMC EXPENSES FOR VARIOUS SOFTWARES INCLUDING SOFTWARE F OR ACCOUNTING SALES AND DEBTORS, SOFTWARE SUPPORT FOR PAY ROLL DIVISION , SOFTWARE MAINTENANCE AND SUPPORT FOR MARKETING ROYALTY OBLIGATIONS AND O THER DAY TO DAY OBLIGATIONS, WHICH ARE IN THE NATURE OF REVENUE EXP ENDITURE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN DISALLOWING SOFTWARE EXPENSES ON THE GROUND THAT IT IS IN THE N ATURE OF CAPITAL EXPENDITURE WHICH GIVES ENDURING BENEFIT TO THE ASS ESSEE. FURTHER, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RAI CHEM RPG LTD 346 ITR136 (BOM) HAS CONSIDERED SIMILAR ISSUE AND HELD THAT AMOUNT PAID FOR ACQUIRING LICENCE TO USE SOFTWARES WHICH FACILI TATE SMOOTH CARRYING ON OF BUSINESS OPERATION, FEES PAID FOR SAID LICENCE W AS REVENUE EXPENDITURE ALLOWABLE U/S 37(1) OF THE INCOME-TAX A CT, 1961. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RAICHEM RPG LTD (SUPRA), WE DIRECT THE AO TO DEL ETE ADDITION MADE TOWARDS SOFTWARE EXPENSES. 31. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUES APPEAL IS DEDUCTION U/S 35AB ON PROFESSIONAL FEES P AID TO DSP MERRYLL LYNCH. WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO. 6606/MUM/2002. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA 23 ABBOTT INDIA LTD NO.6606/MUM/2002 SHALL MUTATIS MUTANDIS APPLY TO TH IS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO DELETE ADDITION MADE TOWARDS PROFESSIONAL FEES PAID TO DSP MERRYLL LYNCH . 32. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS INCLUSION OF SALES-TAX, EXCISE DUTY, TRADE DISCOUNT, ETC. IN TOT AL TURNOVER WHILE COMPUTING DEDUCTION U/S 80HHC OF THE INCOME-TAX ACT , 1961. WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.6606/MUM/20 02 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO FOLLOW THE FINDINGS GIVEN BY US IN ITA NO.6606/MUM/2002 FOR THIS YEAR ALSO. 33. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSE AND APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO.5099/MUM/2007 & ITA NO.5154/MUM/2007 (AY 200 2-03) 34. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION IS DISALLOWANCE OF INTEREST U/S 14A OF THE I.T. ACT, 1961. WE HAVE C ONSIDERED SIMILAR ISSUE IN ITA NO.7824/MUM/2004 FOR AY 2000-01. THE REASON S GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.7824 /MUM/2004 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH SIMILAR DIRECT IONS. 35. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF 24 ABBOTT INDIA LTD MARKETING KNOW HOW PAID FOR BRAND EPILEX. WE HAV E CONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN B Y US IN PRECEDING PARAGRAPHS IN ITA NO.6606/MUM/2002 SHALL MUTATIS MU TANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO DELETE ADDITION TOWARDS DISALLOWANCE OF DEDUCTION U /S 35AB IN RESPECT OF PAYMENT OF MARKETING KNOW HOW FOR BRAND EPILEX A ND PROFESSIONAL FEES PAID TO DSP MERRYLL LYNCH. 36. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS EXCLUSION OF 90% OF OTHER INCOME BEING INSURANCE CLAIM AND SALE OF SCRAP WHILE COMPUTING DEDUCTION U/S 80HHC OF THE INCOME-TAX ACT , 1961. WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.6606/MUM/20 02 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO FOLLOW THE FINDINGS GIVEN BY US IN ITA NO.6606/MUM/2002 FOR THIS YEAR ALSO. 37. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF INTEREST INCOME FOR COMPUTATION OF DEDUCTION U/S 80 I & 80IA OF THE INCOME-TAX ACT, 1961. WE HAVE CONSIDERED SIMILAR I SSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN BY US IN PRECE DING PARAGRAPHS IN ITA NO.6606/MUM/2002 SHALL MUTATIS MUTANDIS APPL Y TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT TH E AO TO INCLUDE INTEREST 25 ABBOTT INDIA LTD INCOME FROM CUSTOMERS ON LATE PAYMENTS FOR DETERMIN ATION OF DEDUCTIONS U/S 80I & 80IA OF THE INCOME-TAX ACT, 19 61. 38. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF COMPUTER SOFTWARE EXPENSES. WE HAVE CONSIDERED SIM ILAR ISSUE IN ITA NO.5625/MUM/2005. THE REASONS GIVEN BY US IN PRECE DING PARAGRAPHS IN ITA NO.5625/MUM/2005 FOR AY 2001-02 SHALL MUTATI S MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASON S, WE DIRECT THE AO TO DELETE ADDITION MADE TOWARDS COMPUTER SOFTWARE EXPE NSES. 39. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUES APPEAL IS INCLUSION OF SCRAP SALES AS PART OF PROFI T ELIGIBLE FOR DEDUCTION U/S 80IB OF THE INCOME-TAX ACT, 1961. WE HAVE CONS IDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN BY US I N PRECEDING PARAGRAPHS IN ITA NO.6606/MUM/2002 FOR AY 1999-2000 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO FOLLOW THE FINDINGS GIVEN BY US IN ITA NO.6606/MUM/2002 FOR THIS YEAR ALSO. 40. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE AND APPEAL FILED BY THE DEPARTMENT IS DISMI SSED. ITA 5922/MUM/2010 & ITA 5988/MUM/2010 (AY 2003-04) 41. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM ASSESSEES APPEAL IS DISALLOWANCE OF COMPUTER SOFTWARE EXPENSE . WE HAVE 26 ABBOTT INDIA LTD CONSIDERED SIMILAR ISSUE IN ITA NO.5625 /MUM/2002. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.5625/MUM/20 05 FOR AY 2001- 02 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO . THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO DELETE ADDITIO N MADE TOWARDS COMPUTER SOFTWARE EXPENSES. 42. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF DEDUCTION U/S 35AB IN RESPECT OF PAYMENT OF MARKETI NG KNOW HOW FOR BRAND EPILEX AND PROFESSIONAL FEES PAID TO DSP ME RRYLL LYNCH. WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.6606/MUM/20 02 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO RECOMPUTE DEDUCTION U/S 35AB IN RE SPECT OF PAYMENT OF MARKETING KNOW HOW FOR BRAND EPILEX AND PROFESSI ONAL FEES PAID TO DSP MERRYLL LYNCH. 43. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IS DEDUCTION U/S 80IB IN RESPECT OF OTHER IN COME BEING INTEREST ON HOUSING LOAN TO EMPLOYEES, INTEREST ON CAR LOAN, IN TEREST OTHERS AND OTHER INTEREST INCLUDING SUNDRY RECEIPTS. THE LD.A R FOR THE ASSESSEE, AT THE TIME OF HEARING, SUBMITTED THAT HE DID NOT WANT TO PRESS THE GROUND AND HENCE, GROUND TAKEN BY THE ASSESSEE IS DISMISSE D, AS NOT PRESSED. 44. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUE 27 ABBOTT INDIA LTD APPEAL IS DEDUCTION U/S 80M IN RESPECT OF DIVIDEND DECLARED FOR RS.1,68,13,000. THE FACTS WITH REGARD TO THE IMPUG NED DISPUTE ARE THAT DURING THE YEAR, THE ASSESSEE COMPANY HAS RECEIVED DIVIDEND INCOME OF RS.1,68,13,000 FROM WHOLLY OWNED SUBSIDIARY COMPANY . THE ASSESSEE ALSO DECLARED DIVIDEND OF RS.18,33,61,200. THE ASS ESSEE HAS CLAIMED DEDUCTION U/S 80M IN RESPECT OF DIVIDEND INCOME OF RS.1,68,13,000, SINCE IT HAS DECLARED DIVIDEND IN THE YEAR UNDER CO NSIDERATION. THE AO HAS DISALLOWED DEDUCTION CLAIMED U/S 80M ON THE GRO UND THAT DEDUCTION CLAIMED U/S 80M IS NOTPERMISSIBLE BECAUSE THE ASSES SEE HAS DECLARED DIVIDEND ON OR AFTER 01-04-2003 AND PAID DIVIDEND D ISTRIBUTION TAX U/S 115-O(1) OF THE INCOME-TAX ACT, 1961. IT IS THE CL AIM OF THE ASSESSEE THAT WHERE THE GROSS TOTAL INCOME OF A DOMESTIC COM PANY IN ANY PREVIOUS YEAR INCLUDES ANY INCOME BY WAY OF DIVIDEN D INCOME FROM OTHER DOMESTIC COMPANY, THERE SHALL BE IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED IN COMPUTING THE TOTAL INCOME OF SUCH DOMESTIC COMPANY A DEDUCTION BY AN AMOUNT EQUA L TO SO MUCH OF THE AMOUNT OF INCOME BY WAY OF DIVIDEND INCOME OF A NOTHER DOMESTIC COMPANY AS IT DOES NOT EXCEED THE AMOUNT OF DIVIDEN D DISTRIBUTED BY THE DOMESTIC COMPANY ON OR BEFORE THE DUE DATE. THE AS SESSEE FURTHER CLAIMED THAT IT HAS RECEIVED DIVIDEND INCOME OF RS. 1,68,13,000, WHEREAS IT DISTRIBUTED DIVIDEND OF RS. 18,33,61,200 ON OR B EFORE DUE DATE OF 28 ABBOTT INDIA LTD FURNISHING RETURN OF INCOME AND HENCE, ELIGIBLE FOR DEDUCTION U/S 80M OF THE INCOME-TAX ACT, 1961. 45. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATE RIAL AVAILABLE ON RECORD. AS PER THE PROVISIONS OF SECTION 80M OF IN COME-TAX ACT, 1961 WHERE ANY DOMESTIC COMPANY RECEIVES DIVIDEND INCOME FROM ANOTHER DOMESTIC COMPANY AND DISTRIBUTES DIVIDEND DURING TH E YEAR, THEN AN AMOUNT EQUAL TO THE AMOUNT RECEIVED FROM ANOTHER DO MESTIC COMPANY SHALL BE DEDUCTED FROM TOTAL INCOME OF THE COMPANY U/S 80M OF THE INCOME-TAX ACT, 1961. IN THIS CASE, THE ASSESSEE H AS RECEIVED DIVIDEND INCOME OF RS.1,68,13,000 AND DISTRIBUTED DIVIDEND O F RS. 18,33,61,200. THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE IS LES S THAN THE AMOUNT OF DIVIDEND DECLARED BY THE ASSESSEE IN THE YEAR UN DER CONSIDERATION. THEREFORE, AS PER THE PROVISIONS OF SECTION 80M, TH E ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80M TO THE EXTENT OF DIVIDEND INC OME RECEIVED OR DIVIDEND INCOME DECLARED, WHICHEVER IS LESS. SINCE THE ASSESSEE HAS DISTRIBUTED DIVIDEND MORE THAN THE AMOUNT OF DIVIDE ND INCOME RECEIVED FOR THE YEAR UNDER CONSIDERATION, IT HAS RIGHTLY CL AIMED DEDUCTION U/S 80M TO THE EXTENT OF DIVIDEND INCOME RECEIVED OF RS.1,6 8,13,000. THIS PROPOSITION IS FURTHER SUPPORTED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AGROVET LTD VS DCIT (20 10) 323 ITR 97 (BOM) AND ALSO THE DECISION OF ITAT, PUNE BENCH IN THE CASE OF JAIHIND 29 ABBOTT INDIA LTD INVESTMENTS PVT LTD VS ACIT IN ITA 1222/PN/2009. T HEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ELIGIBLE F OR DEDUCTION U/S 80M IN RESPECT OF DIVIDEND RECEIVED FROM WHOLLY OWNED S UBSIDIARY COMPANY. HENCE, WE DIRECT THE AO TO DELETE ADDITION MADE TOW ARDS DISALLOWANCE U/S 80M OF THE ACT. 46. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO.6192/MUM/2010 (AY 2005-06) 47. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION IS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U /S 14A OF THE ACT. THE AO HAS DETERMINED DISALLOWANCE OF EXPENDITURE I NCURRED IN RELATION TO EXEMPT INCOME U/S 14A OF THE ACT, BY INVOKING RU LE 8D(2) OF I.T. RULES, 1962. THE AO HAS DETERMINED DISALLOWANCE OF RS1,60,488 U/R 8D(2)(I) AS PER THE WORKING FURNISHED BY THE ASSESS EE, VIDE ITS LETTER DATED 24-11-2008. THE AO ALSO DETERMINED DISALLOWA NCE OF INTEREST EXPENSES OF RS.7,61,589. THE AO FURTHER DISALLOWED A SUM OF RS.97,00,341 @0.5% OF THE AVERAGE VALUE OF INVESTME NTS AS PER RULE 8D(2)(III). IT IS THE CLAIM OF THE ASSESSEE THAT R ULE 8D(2)(II) & 8D(2)(III) & SECTION 14A ARE PROSPECTIVE IN NATURE AND, THEREFOR E, FOR YEARS PRIOR TO SUCH INSERTION, DISALLOWANCE TO BE MADE ON REASONAB LE BASIS WITHOUT RESORTING TO PROVISIONS OF RULE 8D(2) OF INCOME-TAX RULES, 1962. THE 30 ABBOTT INDIA LTD ASSESSEE FURTHER CONTENDED THAT IN RESPECT OF DIREC T EXPENSES, THERE IS NO DISPUTE BECAUSE IT HAS SUO MOTO FILED A STATEMEN T FOR DISALLOWANCE OF DIRECT EXPENSES INCURRED IN RELATION TO EXEMPT INCO ME. IN RESPECT OF INTEREST EXPENSES, THE ASSESSEE CLAIMS THAT SINCE I TS OWN FUNDS ARE MORE THAN THE AMOUNT OF INVESTMENT, NO DISALLOWANCE COULD BE MADE TOWARDS INTEREST EXPENSES. AS REGARDS OTHER ADMINI STRATIVE EXPENSES, THE ASSESSEE PLEADS FOR A REASONABLE DISALLOWANCE W ITHOUT RESORTING TO THE PROVISIONS OF RULE 8D(2) OF I.T. RULES, 1962. 48. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE PROVISIONS OF RULE 8D(2) ARE NOT APPLICABLE TO THE YEARS PRIOR TO ASSESSMENT YEAR 2008-09. THIS PROPOSITION HAS BEEN LAID DOWN BY TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GODREJ BOYCE & MFG CO LTD 328 ITR 81 (BOM). THEREFORE, WITHOUT GOING INTO PROVISIONS OF RULE 8D(2), THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME N EEDS TO BE DETERMINED HAVING REGARD TO THE QUANTUM OF EXEMPT I NCOME EARNED BY THE ASSESSEE AND EXPENDITURE INCURRED IN RELATION T O SUCH EXEMPT INCOME. IN THIS CASE, THE ASSESSEE HAS SUO MOTO FI LED A STATEMENT INSOFAR AS DIRECT EXPENSE IS CONCERNED AND DETERMIN ED AN AMOUNT OF RS.1,60,488. THEREFORE, WE ARE OF THE CONSIDERED V IEW THAT THE AO WAS RIGHT IN DISALLOWING DIRECT EXPENSES ATTRIBUTABLE T O EXEMPT INCOME OF 31 ABBOTT INDIA LTD RS.1,60,488. INSOFAR AS INTEREST EXPENSES, WE FIND THAT A SIMILAR ISSUE HAS BEEN CONSIDERED FOR EARLIER YEARS IN THE LIGHT OF CLAIM OF THE ASSESSEE THAT ITS OWN FUNDS ARE MORE THAN THE AMOUN T OF INVESTMENTS IN SHARES AND SECURITIES WHICH YIELD EXEMPT INCOME. I N SUCH CASE, INTEREST EXPENSE COULD NOT BE DISALLOWED. THEREFORE, IN RES PECT OF INTEREST EXPENSES, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO TO ASCERTAIN THE AVAILABILITY OF INTEREST FREE FUNDS AS ON THE DATE OF INVESTMENTS IN THE LIGHT OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS HDFC BANK LTD (SUPRA). AS REGARDS DISALLOWANCE OF OTHER EXPENSES @0.5% OF THE AVERAGE VALUE OF INVESTMENTS, WE FIND THAT THE PROVISIONS OF RULE 8D(2) HAS NO APPLICATION PRIOR TO AY 2008-09. HENC E, DISALLOWANCE CONTEMPLATED U/S 14A HAS TO BE DETERMINED ON REASON ABLE BASIS HAVING REGARD TO THE QUANTUM OF DIVIDEND INCOME EARNED AND RELATED EXPENDITURE INCURRED FOR THE YEAR UNDER CONSIDERATI ON. THE ASSESSEE CLAIMS THAT VARIOUS COURTS AND TRIBUNALS HAVE DIREC TED THE AO TO ESTIMATE 1 TO 2% OF EXEMPT INCOME TOWARDS EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE ASSESSEE HAS RELIED UPON THE DECISION OF ITAT, MUMBAI IN THE CASE OF GREAVES LEASING FINA NCE LTD 52 SOT 22, WHERE THE ITAT HAS RESTRICTED DISALLOWANCE TO T HE EXTENT OF 1% OF EXEMPT INCOME. THE HONBLE DELHI HIGH COURT IN THE CASE OF ORIENTAL STRUCTURE ENGINEERS PVT LTD IN IT 605 OF 2012 HAS D IRECTED THE AO TO 32 ABBOTT INDIA LTD RESTRICT DISALLOWANCE TO 2% OF EXEMPT INCOME. ALTH OUGH THE COURTS HAVE CONSIDERED VARIOUS RATES FOR THE PURPOSE OF DETERMI NATION OF DISALLOWANCE CONTEMPLATED U/S 14A, YET, THE FACT RE MAINS THAT PRIOR TO AY 2008-09 DISALLOWANCE SHOULD BE WORKED OUT ON REASON ABLE BASIS HAVING REGARD TO THE QUANTUM OF DIVIDEND INCOME EARNED BY THE ASSESSEE AND EXPENDITURE INCURRED FOR THE RELEVANT PERIOD. IN T HIS CASE, THE ASSESSEE HAS EARNED HUGE DIVIDEND INCOME OF RS.6,84,37,043, THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CAS E AND ALSO KEEPING IN VIEW OF VARIOUS JUDICIAL PRECEDENTS, WE ARE OF THE CONSIDERED VIEW THAT 5% OF EXEMPT INCOME TOWARDS EXPENSES INCURRED IN RE LATION TO EXEMPT INCOME WOULD MEET THE ENDS OF JUSTICES. THEREFORE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE DETERMINED TOWARDS OTHER EXPENSES AT 5% OF EXEMPT INCOME. 49. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DEDUCTION U/S 80IB IN RESPECT OF INTEREST FROM CUSTOMERS AND CASH DISCOUNT. WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.6606/MUM/20 02 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO FOLLOW OUR DIRECTIONS ISSUED EARLI ER. 50. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSE. 33 ABBOTT INDIA LTD ITA NOS 3362/M/2010 & ITA NO. 4881/M/2010 (AY 2004 -05) 51. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM ASSESSES APPEAL IS DISALLOWANCE OF SOFTWARE EXPENSES. WE HAV E CONSIDERED SIMILAR ISSUE IN ITA NO.5625 /MUM/2005. THE REASON S GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.5625 /MUM/2005 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO FOLLOW OUR DIRECTIONS ISSUED EARLIER. 52. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IS DISALLOWANCE OF EXPENDITURE INCURRED IN R ELATION TO EXEMPT INCOME U/S 14A OF THE ACT. WE HAVE CONSIDERED SIMI LAR ISSUE IN ITA NO.6192 /MUM/2010. THE REASONS GIVEN BY US IN PREC EDING PARAGRAPHS IN ITA NO.6192 /MUM/2010 SHALL MUTATIS MUTANDIS APP LY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT TH E AO TO FOLLOW OUR DIRECTIONS ISSUED EARLIER. 53. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUES APPEAL IS DEDUCTION U/S 35AB OF THE ACT, IN RESPECT OF PAYMENT OF MARKETING KNOW HOW FOR BRAND EPILEX AND PROFESSI ONAL CHARGES PAID TO DSP MERRYLL LYNCH. WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO.6602 /MUM/2002. THE REASONS GIVEN BY US IN PRECEDING PA RAGRAPHS IN ITA NO.6602/MUM/2002 SHALL MUTATIS MUTANDIS APPLY TO TH IS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO FOLLOW OUR DIRECTIONS 34 ABBOTT INDIA LTD ISSUED EARLIER. 54. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUES APPEAL IS DISALLOWANCE OF ADVERTISEMENT EXPENDITURE . THE AO HAS DISALLOWED ADVERTISEMENT EXPENDITURE INCURRED BY TH E ASSESSEE ON THE GROUND THAT THE SAME WAS NOT SPENT WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND ALSO SUCH E XPENDITURE HAS BENEFITED THE PARENT COMPANY OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT ALTHOUGH THE ASSESSEE HAS CLAIMED ADV ERTISEMENT EXPENSES AFTER NETTING OFF OF REIMBURSEMENT RECEIVE D FROM ITS PARENT COMPANY, FAILED TO FILE NECESSARY EVIDENCE TO JUSTI FY EXPENDITURE INCURRED IN RESPECT OF MEDICAL CONFERENCE EXPENSES OF RS.1,7 6,07,027 AND GIVEAWAYS OF RS.2,89,30,776. THE ASSESSEE WAS ALSO NOT ABLE TO JUSTIFY THE EXPENDITURE WITH ANY SUPPORTING EVIDENCE. THER EFORE, HE DISALLOWED NET ADVERTISEMENT EXPENSE OF RS.3,42,24,626 (RS.9,5 7,98,037 RS.6,15,73,411). IT IS THE CLAIM OF THE ASSESSEE T HAT EXPENDITURE INCURRED UNDER THE HEAD ADVERTISEMENT & PUBLICITY ARE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND NO PART OF THE EXPENSE IS INCURRED TO BENEFIT THE PARE NT COMPANY. THE EXPENDITURE INCURRED UNDER THE HEAD ADVERTISEMENT & PUBLICITY MAINLY RELATES TO PROMOTING SALES OF THE ASSESSEE WHICH IN CLUDES MEDICAL CONFERENCE, GIVEAWAYS AND OTHER EXPENSES. OUT OF T HE TOTAL EXPENSES 35 ABBOTT INDIA LTD OF RS.9,57,98,037, A SUM OF RS. 6,15,73,411 HAS BEE N REIMBURSED BY M/S NAVNORDISK WHICH HAS BEEN CREDITED TO THE ADVER TISEMENT EXPENDITURE ACCOUNT. THEREFORE, MERELY FOR THE REA SON THAT THE ASSESSEE IS MARKETING ITS PRODUCTS UNDER THE BRAND NAME OF ITS PARENT COMPANY, THE PARENT COMPANY IS DERIVING BENEFIT OUT OF EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS ADVERTISEMENT EXPE NDITURE IS INCORRECT. 55. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE AO HAS DISALLOWED NET ADVERTISEMENT EXPENSES ON TWO GROUNDS, I.E. THE EXPENDITURE WAS NOT INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, SECONDLY, THE BRAND NAME OWNED BY THE PARENT COMPANY OF THE ASSESSEE AND THE ASSESSEE WAS ONLY PAYING ROYALTY. THEREFORE, ANY EXPENDITURE IN CURRED TOWARDS PUBLICITY AND ADVERTISEMENT IS INDIRECTLY BENEFITTE D THE PARENT COMPANY AND HENCE, THE SAME CANNOT BE CONSIDERED AS EXPENDE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE. IT IS THE CLAIM OF THE ASSESSEE THAT EXPENDITURE INCURRED UNDER THE HEAD PUBLICITY & ADVERTISEMENT IS WHOLLY AND EXCLUSIVELY INCURRED F OR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND THE SAME CANNOT BE DIS ALLOWED MERELY ON THE GROUND THAT THE SAID EXPENSES WERE INDIRECTLY B ENEFITTED THE PARENT COMPANY OF THE ASSESSEE. 36 ABBOTT INDIA LTD 56. HAVING HEARD BOTH THE SIDES, WE FIND THAT ALTHO UGH THERE IS MERIT IN THE CLAIM OF THE ASSESSEE THAT MERELY THE PARENT CO MPANY OF THE ASSESSEE DERIVES CERTAIN BENEFIT OUT OF ADVERTISEME NT EXPENSES INCURRED BY THE ASSESSEE, SUCH EXPENSES CANNOT BE DISALLOWED WHEN THE ASSESSEE HAS FILED NECESSARY EVIDENCES TO PROVE THA T THE SAME HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE. IN THIS CASE, IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS UNDERTAKEN TO PROMOTE THE BRAND NAME OF THE PAR ENT COMPANY BY SPENDING ON PUBLICITY & ADVERTISEMENT. WHATEVER EXPENSES INCURRED ON BEHALF OF THE PARENT COMPANY, HAS BEEN REIMBURSE D TO THE ASSESSEE AND THE SAME HAS BEEN CREDITED TO ADVERTISEMENT EX PENDITURE ACCOUNT WHICH IS EVIDENT FROM THE FACT THAT THE AO HAS ACCE PTED THIS FACT AND MADE ADDITION TO ONLY NET ADVERTISEMENT EXPENDITURE INCURRED BY THE ASSESSEE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN DISALLOWING ADVERTISEMENT & PUBLICITY EXPE NSES INCURRED BY THE ASSESSEE ON THE GROUND THAT SUCH EXPENDITURE HAS IN DIRECTLY BENEFITTED THE PARENT COMPANY OF THE ASSESSEE. 57. COMING TO THE SECOND OBSERVATION OF THE AO. THE AO HAS DISALLOWED ADVERTISEMENT & PUBLICITY EXPENSES ON TH E GROUND THAT THE ASSESSEE HAS FAILED TO FILE ANY EVIDENCES TO JUSTIF Y MEDICAL CONFERENCE EXPENSES AND GIVEAWAYS. THE AO FURTHER OBSERVED TH AT THE ASSESSEE 37 ABBOTT INDIA LTD WAS NOT ABLE TO JUSTIFY THE EXPENDITURE AND ALSO FA ILED TO CLARIFY THE BREAK OF SUCH HUGE AMOUNT WITH PROPER SUPPORTING EVIDENCE S. ALTHOUGH THE ASSESSEE CLAIMS TO HAVE FILED VARIOUS DETAILS BEFOR E THE AO TO JUSTIFY ADVERTISEMENT EXPENDITURE INCURRED FOR THE YEAR, TH E FACT REMAINS THAT THE AO HAS RECORDED CATEGORICAL FINDING ANY THAT AS SESSEE FAILED TO FILE ANY EVIDENCE TO JUSTIFY SUCH EXPENDITURE. THEREFOR E, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO BE RE-EXAMI NED BY THE AO IN THE LIGHT OF CLAIM OF THE ASSESSEE THAT IT HAS FURNISHE D NECESSARY EVIDENCE TO PROVE ADVERTISEMENT EXPENSES. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO CONSIDER THE EXPLANATIO N OF THE ASSESSEE IN THE LIGHT OF OUR DISCUSSION IN PRECEDING PARAGRAPHS . IF THE ASSESSEE IS ABLE TO FILE NECESSARY EVIDENCE WITH PROPER JUSTIFI CATION FOR INCURRING SUCH EXPENSES, THEN THE AO IS DIRECTED TO ALLOW ADVERTIS EMENT EXPENSES INCURRED BY THE ASSESSEE. 58. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION TOWARDS DISALLOWANCE OF DEFERRED SALES-TAX LIABILIT Y. THE AO HAS DISALLOWED DEFERRED SALES-TAX LIABILITY UNDER THE H EAD LIABILITIES ON THE GROUND THAT THE ASSESSEE HAS SOLD JEJURI UNDERTAKIN G IN FY 2002-3 AND AS PER THE TERMS OF AGREEMENT DATED 19-06-2002, SAL ES-TAX, IF ANY, PAYABLE INCLUDING ALL OTHER OUT OF POCKET EXPENSES IN CONNECTION WITH AND RELATING TO THE TRANSFER OF SAID UNDERTAKING SH ALL BE BORNE AND PAID 38 ABBOTT INDIA LTD BY BRIOCIA ALONE. THE AO FURTHER OBSERVED THAT THO UGH THE ASSESSEE HAS TRANSFERRED THE UNDERTAKING, DEFERRED TAX LIABI LITY RELATES TO SUCH UNDERTAKING IS CONTINUED TO BE IN THE BOOKS OF ACCO UNT OF THE ASSESSEE, THEREFORE, OPINED THAT SUCH LIABILITY IS NO LONGER PAYABLE AND ACCORDINGLY MADE ADDITION U/S 41(1) OF THE INCOME-TAX ACT, 1961 . IT IS THE CLAIM OF THE ASSESSEE THAT DEFERRED SALES-TAX LIABILITY IS R ELATED TO JEJURI UNDERTAKING WAS PAID BY THE ASSESSEE EVEN AFTER TRA NSFER OF UNDERTAKING TO ANOTHER COMPANY AND THE AO HAS MISCONSTRUED THE PROVISIONS OF CLAUSES OF AGREEMENT DATED 19-06-2002 TO COME TO TH E CONCLUSION THAT DEFERRED SALES-TAX LIABILITY IS NO LONGER PAYABLE. THE ASSESSEE FURTHER CONTENDED THAT SUCH LIABILITY HAS BEEN PAID BY THE ASSESSEE AND PROOF OF SUCH PAYMENT HAS BEEN FURNISHED BEFORE THE AO. THE REFORE, THE AO WAS INCORRECT IN MAKING ADDITION TOWARDS DEFERRED S ALES-TAX LIABILITY EVEN THOUGH THE SAID LIABILITY IS CONTINUED TO EXIST IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. 59. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS AN UNDISPUTED FACT THAT DEFERRED SALES-TAX LIABILITY SHOWN UNDER THE HEAD CURRENT LIABILITIES PERTAIN TO JE JURI UNDERTAKING OF THE ASSESSEE AND THIS FACT HAS BEEN ACCEPTED BY THE AO. THE AO HAS MADE ADDITION TOWARDS DEFERRED SALES-TAX LIABILITY ONLY FOR THE REASON THAT THE SAID UNDERTAKING HAS BEEN TRANSFERRED TO ANOTHE R UNDERTAKING W.E.F 39 ABBOTT INDIA LTD 19-06-2002 AND AS PER THE CLAUSES OF AGREEMENT DATE D 19-06-2002 ANY TAXES, CESSES, LEVIES OF ANY NATURE, WHATSOEVER OF THE JEJURI UNDERTAKING SHALL BE BORNE AND PAID BY THE PURCHASER OF THE UNI T. 60. HAVING CONSIDERED MATERIAL AVAILABLE ON RECORD, WE DO NOT FIND ANY MERIT IN THE FINDINGS OF THE AO FOR THE REASON THAT THE ASSESSEE HAS TRANSFERRED JEJURI UNDERTAKING TO ANOTHER UNDERTAKI NG VIDE AGREEMENT DATED 19-06-2002. AS PER THE SAID AGREEMENT, IT WA S AGREED BETWEEN THE PARTIES THAT ALL TAXES, CESS, LEVIES OF ANY NAT URE, WHATSOEVER OF THE JEJURI UNDERTAKING UPTO THE DATE OF TRANSFER SHALL BE BORNE AND PAID BY THE ASSESSEE. WE FURTHER OBSERVE THAT ONE MORE CO NDITION EMBEDDED IN THE AGREEMENT AT PARA 11 SAYS THAT SALES-TAX, IF ANY, PAYABLE AND ALL OTHER OUT OF POCKET EXPENSES IN CONNECTION WITH AND RELATING TO THE TRANSFER OF THE SAID UNDERTAKING SHALL BE BORNE AND PAID BY THE PURCHASER. THE AO HAS MISCONSTRUED THE FACTS TO CO ME TO THE CONCLUSION THAT SALES-TAX, IF ANY, PAYABLE IN RELAT ION TO THE TRANSFER OF THE SAID UNDERTAKING SHALL MEAN WHATEVER TAXES PAYABLE UPTO THE DATE OF TRANSFER OF THE UNDERTAKING. ON THE OTHER HAND, T HE ASSESSEE HAS FILED NECESSARY EVIDENCE TO PROVE THAT SUCH LIABILITY CON TINUE TO EXIST IN ITS BOOKS OF ACCOUNT, EVEN AFTER TRANSFER OF JEJURI UND ERTAKING AND ALSO THE SAID LIABILITY HAS BEEN DISCHARGED BY THE ASSESSEE TO THE DEPARTMENT IN SUBSEQUENT PERIOD. THEREFORE, WE ARE OF THE CONSID ERED VIEW THAT THE 40 ABBOTT INDIA LTD AO WAS ERRED IN MAKING ADDITION TOWARDS DEFERRED SA LES-TAX LIABILITY U/S 41(1) WHEN SUCH LIABILITY IS EXISTING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THEREFORE, WE DIRECT THE AO TO DELETE AD DITION MADE TOWARDS DEFERRED SALES-TAX LIABILITY U/S 41(1) OF THE I.T. ACT, 1961. 61. THE NEXT ISSUE THAT CAME FOR OUR CONSIDERATION FROM REVENUES APPEAL IS EXCLUSION OF INTEREST INCOME AND SALE OF SCRAP FOR THE PURPOSE OF DETERMINATION OF DEDUCTION U/S 80IB OF THE ACT. WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO.6606/MUM/2002. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS IN ITA NO.6606/MUM/2002 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE AO TO FOLLOW OUR DIRECTIONS ISSUED EARLIER. 62. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSE AND APPEAL FILED BY THE REVENUE IS ALSO PARTLY ALLOWED, FOR STATISTICAL PURPOSE. 63. AS A RESULT, APPEALS FILED BY THE ASSESSEE FOR AYS 2002-03 & 2003- 04 ARE ALLOWED; APPEALS FILED BY THE ASSESSEE FOR A LL OTHER YEARS ARE PARTLY ALLOWED, FOR STATISTICAL PURPOSE; AND APPEAL S FILED BY THE REVENUE FOR AYS 2002-03 & 2003-04 ARE DISMISSED; APPEAL FIL ED BY THE REVENUE FOR AY 2004-05 IS PARTLY ALLOWED, FOR STATISTICAL P URPOSE; AND APPEALS FILED BY THE REVENUE FOR ALL OTHER YEARS ARE PARTLY ALLOWED. 41 ABBOTT INDIA LTD ORDER PRONOUNCED IN THE OPEN COURT ON _____ AUGUST , 2018. (RAVISH SOOD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : AUGUST, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI