GALDERMA INDIA P.LTD, MUMBAI V. ACIT 8(1), MUMBAI

ITA 5734/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2427 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 16-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 19-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

GALDERMA INDIA PVT LTD ITA NO. 5 7 34 /MUM/20 1 3 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G , MUMBAI , , BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTAN T MEMBER ITA NO. : 5 7 34 /MUM/20 1 3 ( ASSESSMENT YEAR: 20 1 0 - 11 ) GALDERMA INDIA PVT LTD , 23, STEELMADE INDL. ESTATE, 2 ND FLOOR, MAROL VILLAGE, ANDHERI(E), MUMBAI - 400 059 .: PAN: A AACG 8660 M VS ASST . COMMISSIONER OF INCOME TAX - 8(1) , AAYAKAR BH AVAN, 2 ND FLOOR, M K ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPAK JAIN RESPONDENT BY : SHRI ABANI KANTA NAYAK /DATE OF HEARING : 16 - 11 - 20 1 5 / DATE OF PRONOUNCEMENT : 16 - 11 - 201 5 ORDER , . . : PER AMIT SHUKLA, J M : THE AFORESAID APPEAL HA S BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 1 2.0 7 .2013 , PASSED BY CIT(A) - 16 , MUMBAI FOR THE Q UANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 20 1 0 - 11 , ON THE FOLLOWING GROUND S : - 1. THE LEARNED CIT(A) ERRED IN LAW IN DISALLOWING THE DEDUCTION ON ACCOUNT OF PROVISION FOR DAMAGED/EXPIRED GOODS AMOUNTING TO RS. 36,77,034/ - . 2. THE LEARNED CIT(A) ERRED IN LAW IN ADDING THE ABOVE DISALLOWANCE OF RS. 36,77,034/ - TO BOOK PROFIT THEREBY INCREASING THE BOOK PROFIT TO RS. 4,77,62,601/ - . 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LEARNED CIT(A) BE SET ASIDE AND BE DIRECTED TO ALLOW THE D EDUCTION OF PROVISION FOR DAMAGED / EXPIRED GOODS. GALDERMA INDIA PVT LTD ITA NO. 5 7 34 /MUM/20 1 3 2 4. THE APPELLANT PRAYS THAT THE ORDER OF THE LEARNED CIT(A) BE SET ASIDE AND BE DIRECTED TO DELETE THE ADDITIONS TO THE BOOK PROFIT OF RS. 36,77,034/ - . 2. AT THE OUTSET, THE LD. COUNSEL SUBMITTED THAT T HE ISSUE OF DISALLOWANCE OF PROVISION FOR DAMAGED / EXPIRED GOODS IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER S FOR THE EARLIER YEARS IN ASSESSEES OWN CASE. IN SUPPORT, HE FILED THE COPY OF THE ITAT ORDER DATED 11.04.2013 PASSED IN ITA NO. 6 503 AND 6504/MUM/2010 FOR THE ASSESSMENT YEARS 2006 - 07 & 2007 - 08 AND ALSO THE COPY OF ORDER DATED 16.09.2014 IN ITA NO. 4856/MUM/2012 FOR THE ASSESSMENT YEAR 2009 - 10. 3. THE BRIEF FACT QUA THE ISSUE IN THE IMPUGNED APPEAL IS THAT, ASSESSEE COMPANY IS ENGA GED IN THE BUSINESS OF MARKETING AND TRADING OF DERMATOLOGY PRODUCTS. DURING THE YEAR, THE ASSESSEE HAS CLAIMED PROVISION OF RS.36,77,034/ - FOR DAMAGED/EXPIRED GOODS. THE AO BASED ON THE PRECEDENCE OF THE EARLIER YEAR S REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY SUCH A PROVISION SHOULD NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE HAS FILED DETAILED SUBMISSION DATED 10.11.2012, HOWEVER, THE AO REJECTED THE SAID CONTENTION ON THE GROUND THAT, ALREADY THIS ISSUE HAS BEEN DECIDED AFTER GIVING DETAILED REASO NING IN THE ASSESSMENT ORDERS IN THE ASSESSMENT YEAR S 2006 - 07 TO 2008 - 09 , WHEREIN THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE AND ALSO UPHELD BY THE CIT(A). 4. FROM THE PERUSAL OF THE ORDER FOR THE ASSESSMENT YEAR 2009 - 10 BY THE TRIBUNAL, WE FIND TH AT THE TRIBUNAL HAS DISCUSSED THIS ISSUE IN THE FOLLOWING MANNER : 5. THE CASE OF THE ASSESSEE BEFORE LEARNED CIT(A) WAS THAT ON THE BASIS OF HISTORIC DATA AVAILABLE, A QUANTUM OF EXPIRED/DAMAGED GOODS IS WORKED OUT WHICH IS BASED ON CERTAIN PERCENTAGE OF SALE. IT WAS ALSO SUBMITTED THAT IT HAS BECOME INDUSTRY - WISE PRACTICE ON THE PRINCIPLE OF MATCH ALL REVENUE WITH EXPENSES AND THE ENTIRE PHA RM A INDUSTRY FOLLOWS THE SAME METHODOLOGY TO ARRIVE AT THE TRUE PROFITS, UNDER MERCANTILE SYSTEM OF ACCOUNTING. A SSESSEE COMPANY HAS ALSO PROVIDED DETAILS OF PROVISIONS MADE AND ACTUAL GALDERMA INDIA PVT LTD ITA NO. 5 7 34 /MUM/20 1 3 3 CLAIM MADE FROM F.Y. 2000 ONWARDS AND RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. VS. CIT (314 ITR 62) WHEREIN, HON'BLE APEX COURT OBSERVED THAT ANY PROVISION WHICH CAN BE MEASURED BY USI N G IN SUBSTANTIAL DEGREE OF ESTIMATION, SUCH LIABILITY CANNOT BE SAID TO BE PROVISION FOR CONTINGENT LIABILITY AND IT SHOULD BE TREATED ON PAR WITH ASCERTAINED LIABILITY. 6. LEARNED CIT(A) HOWEVER REJECTED THE CLAIM OF THE ASSESSEE, CONSISTENT WITH THE VIEW TAKEN BY HIM IN THE ASSESSEE'S OWN CASE FOR EARLIER YEARS. OPERATIVE PORTION OF THE ORDER PASSED BY LEARNED CIT(A) READS AS UNDER : - 'I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE APPELLANT AND ALSO CAREFULLY GONE THROUGH THE DOCUMENTS AVAILABLE ON RECORD. I FIND THAT THE SIMILAR ISSUE AROSE FOR MY CONSIDERATION IN A. Y. 2008 - 09, WHEREIN I FIND THAT IN THE APPELLANT'S OWN CASE FOR A.Y. 2006 - 07 AND 2007 - 08, MY L D . PREDECESSOR HAS REJECTED THE CLAIM OF THE APPELLANT. FOLLOWING THE DECISION OF MY ED. PREDECESSOR AND MY OWN DECISION IN A. Y. 2008 - 09, THE APPEAL OF THE APPELLANT IS DISMISSED.' 7. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 8. LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE PLACED BEFORE US A COPY OF THE ORDER PASSED BY ITAT 'G' BENCH, MUMBAI IN ASSESSEE'S OWN CASE FOR A.Y. 2006 - 07 TO 2008 - 09 (ITA NOS. 6503 86 6504/MUM/2010 86 7633/MUM/2011 DATED 11.4.2014) WHEREIN, THE BENCH OBSERVED THAT IN THE CASE OF MEDICINE S ESTIMATION IS DONE ON THE BASIS OF EMPIRICAL DATA AND IT CANNOT BE TERMED AS CONTINGENT LIABILITY. THUS THE BENCH ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER : - WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND HAVE CONSIDER ED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL EVIDENCES BROUGHT ON RECORD BEFORE US. IT IS NOT IN DISPUTE THAT IN THIS LINE OF TRADE, THE MEDICINES COME WITH EXPIRY DATE AND MANY A TIMES THE MEDICINES GET EXPIRED WHILE REMAINING IN THE SHELVES. IT IS ALSO AN UNDISPUTED FACT THAT SUCH MEDICINES HAVE TO BE REPLACED FREE OF COST. THEREFORE, ANY PROVISION MADE FOR THESE EXPIRED MEDICINE'S CANNOT BE SAID TO BE A CONTINGENT LIABILITY MEANING THEREBY THAT EVERY MEDICINES SOLD HAS A CORRESPONDING OBLIGATION OF REPLACEMENT, SUCH OBLIGATION IS ATTACHED WITH THE SALE OF MEDICINES ITSELF THEREFORE, AN PROVISION MADE ON ACCOUNT OF REPLACEMENT/ DAMAGED MEDICINES CANNOT BE TERMED AS A CONTINGENT LIABILITY AS THE REPLACEMENT IS GALDERMA INDIA PVT LTD ITA NO. 5 7 34 /MUM/20 1 3 4 BOUND TO OCCUR. THUS, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE, WE HOLD THAT THE PROVISION FOR EXPIRED / DAMAGED GOODS IS NOT A CONTINGENT LIABILITY NOW THE ONLY THING REMAINS TO BE DECIDED IS THE QUANTIFICATION OF SUCH PROVISION. IN OUR CONSIDERED VIEW, THE ENTRIES BY WHICH SUCH P ROVISION WAS CREATED HAVE NOT BEEN VERIFIED/EXAMINED BY THE AO AT THE ASSESSMENT STAGE. WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE ASSESSEE IS DIRECTED TO SUBSTANTIATE ITS CLAIM BY EXPLAINING THE NECESSARY ENTRIES PASSED IN ITS BOOK S OF ACCOUNT. THE AO IS DI RECTED TO VERIFY THESE ENTRIES IN THE LIGHT OF THE OB SERVATION OF THE DR THAT SUCH ENTRIES AMOUNT TO DOUBLE DEDUCTION OF THE SAME AMOUNT IF SATISFIED WITH THE QUANTIFICATION OF THE PROVISION, THE ASSESSING OFFICER IS DIRECTED TO A LLOW THE SAME. NEEDLESS TO MENTION, THE ASSESSING OFFICER IS EXPEC TED TO GIVE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DECIDING THE ISSUE AFRESH IN THE LIGHT OF OUR DIRECTION GIVEN HEREINABOVE.' 9. LEARNED COUNSEL SUBMITTED THAT IN T HE LIGHT OF THE DECISION CITED SUPRA, THE FIRST ISSUE IN THE APPEAL BEFORE US DESERVES TO BE SET ASIDE AND THE SECOND ISSUE BEING CONSEQUENTIAL, THE SAME WOULD ALSO NEED TO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION AFRESH. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, FAIRLY ADMITTED THAT THE ISSUES STAND COVERED BY THE AFORECITED DECISION. 10. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE, WE RESPECTFULLY FOLLOW THE DECISION OF THE ITAT, CITED SUPRA, AND RESTORE THE ISS UE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUES AFRESH, IN THE LIGHT OF THE DIRECTIONS GIVEN IN THE CASE (CITED SUPRA) ACCORDINGLY APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE . THUS, CONSISTENT WITH THE VIEW TAKEN IN EARLIER YEARS, WE DECIDE THE ISSUE ACCORDINGLY , INTER ALIA BY HOLDING THAT THE PROVISION MADE ON ACCOUNT OF REPLACEMENT/DAMAGED MEDICINES CANNOT BE TERM ED AS CONTINGENT LIABILITY AS THE REPLACEMENT IS BOUND TO OCCUR IN THE DRUGS DU E TO DAMAGES ETC. HOWEVER F OR THE PURPOSE OF QUANTIFICATION OF SUCH PROVISION, THE MATTER IS RESTORED BACK TO THE FILE OF THE AO. ACCORDINGLY, GROUND NO. 1 AND 3 ARE DISPOSED OFF IN THE AFORESAID MANNER. GALDERMA INDIA PVT LTD ITA NO. 5 7 34 /MUM/20 1 3 5 5. SO FAR AS ISSUE RAISED VIDE GROUND NO. 2 & 4, TH E SAME RELATES TO CALCULATION OF BOOK PROFIT ON ACCOUNT OF PROVISION OF DAMAGES OF EXPIRED GOODS. AS ADMITTED BY BOTH THE PARTIES, THIS ISSUE IS PURELY CONSEQUENTIAL AND WILL HAVE THE EFFECT ON THE BOOK PROFIT AFTER QUANTIFICATION OF THE AMOUNT AS DIRECTED ABOVE. THUS, GROUND NO. 2 & 4 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER , 2015. SD/ - SD/ - ( ) ( ) (RAMIT KOCHAR ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATE: 1 6 TH NOVEMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 16 , MUMBAI. 4 ) THE CIT 8 , MUMBAI. 5 ) , , / THE D.R. G BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS