Deputy Commissioner of Income-tax, V. Serum Institute of India Ltd., Pune

ITA 606/PUN/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4034 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-08-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 04-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R S ABHYANKAR
• Keywords: Bogus purchase; Capital asset; Gift; Business income; Depreciation; Business expenditure; Rectification of order; Search and seizure; Rule of consistency; Retrospective amendment; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 153A; 14A; 115JB; 37(1); 154

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 548/PUN/2016 / ASSESSMENT YEAR: 2010-11 SERUM INSTITUTE OF INDIA LTD. SAROSH BHAVAN, 16-B/1, DR. AMBEDKAR ROAD, PUNE-411 001 PAN : AABCS4225M . /APPELLANT VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 1(1), PUNE . / RESPONDENT . / ITA NO. 606/PUN/2016 / ASSESSMENT YEAR: 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 1(1), PUNE . /APPELLANT VS. SERUM INSTITUTE OF INDIA LTD. 212/2, HADAPSAR, PUNE-411 028. PAN : AABCS4225M . / RESPONDENT ASSESSEE BY : SHRI R.S. ABHYANKAR REVENUE BY : SHRI RAJEEV KUMAR, CIT / DATE OF HEARING : 20.08.2018 / DATE OF PRONOUNCEMENT: 02.11.2018 / ORDER PER D. KARUNAKARA RAO, AM : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE R EVENUE AGAINST THE ORDER OF CIT (APPEALS)-11, PUNE, DATED 29-01- 2016 FOR THE ASSESSMENT YEAR 2010-11. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 2 2. BACKGROUND FACTS OF THE ASSESSEE INCLUDE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF LIFE SAVING DRUGS, VACCINES ETC. THE CASES OF POONAWALLA GROUP INCLUDE TWO SUB-GROUPS (1) INCLUDES FAMILY MEMBERS OF SHRI CYPRUS SOLI POONAWALLA (IN SH ORT CSP) AND THE GROUP CONCERNS UNDER HIS CONTROL AND MANAGEME NT (WITH M/S. SERUM INSTITUTE OF INDIA LTD. AS THE FLAGSHIP COMPANY; AND (2) OTHER SUB- GROUP INCLUDES FAMILY MEMBERS OF SHRI ZAVAREH SOLI POONAWALLA (IN SHORT ZSP) AND THE GROUP CONCERNS UNDER HIS CONTROL AND MANA GEMENT, WHICH IS MAINLY ENGAGED IN STUD FARM ACTIVITIES. THERE WAS SEARCH AND SEIZURE ACTION U/S.132 OF THE ACT ON THE ASSESSEES GROUP OF CASES ON 21-06-2011. IN RESPONS E TO NOTICE U/S.153A OF THE ACT, ASSESSEE FILED THE RETURN OF INCOME ON 15-10- 2010 DECLARING TOTAL INCOME OF RS.42,12,57,021/-. DURING THE SAID SEARCH ACTION, V ARIOUS INCRIMINATING DOCUMENTS WERE FOUND AND SEIZED/ BY THE DEP ARTMENT IN RESPECT OF ENTITIES CONNECTED WITH THE GROUP. CASH WAS A LSO SEIZED BY THE DEPARTMENT. DURING THE ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT FO R THE A.Y.2010-11, AO MADE VARIOUS DISALLOWANCES I.E. ADDITIONS U/S.14 A OF THE ACT, EDP EXPENSES, FOREIGN TRAVEL EXPENSES, DEPRECIATION O N PLANT AND MACHINERY, FREIGHT AND INSURANCE EXPENSE PERTAINS TO EOU UNIT, PROVISION FOR LEAVE ENCASHMENT, REPAIRS TO BUILDING, PLANT AND MACHINER Y AND PRODUCT DEVELOPMENT EXPENSES, ETC., APART FROM OTHERS. AO ASSESSE D THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AT RS.158 ,31,61,728/-. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE RELYING ON THE DECISIONS OF HIS PREDECESSOR/TRIBUNAL. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 3 3. AGGRIEVED WITH THE PART RELIEF GIVEN BY THE CIT(A), THE R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL. FURTHER, AGGRIEVED WITH THE CON FIRMATION OF ADDITIONS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT MOST OF THE GROUNDS RAISED BY THE REVENUE AND THE ASS ESSEE ARE COVERED ISSUES IN FAVOUR OF THE ASSESSEE. LD. COUNSEL FOR THE AS SESSEE SUBMITTED THAT THE FACTS, ISSUE ARE SAME AS THAT OF EARLIER ASSESSM ENT YEARS AND THE ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR T HE A.YRS. 2008-09 AND 2009-10. THEREFORE, WE PROCEED TO DECIDE THE ISSUES RAISED IN THESE APPEALS BASED ON THE SAID INFORMATION. WE SHALL FIRST TAKE UP THE APPEAL OF THE ASSESSEE. ITA NO.548/PUN/2016 BY ASSESSEE A.Y. 2010-11 5. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) ERRED IN : 1A. IN CONFIRMING THE DISALLOWANCE U/S.14A AMOUNTIN G TO RS.3,18,85,207/- AS PER RULE 8D. 2. IN CONFIRMING THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF EMPLOYEES AMOUNTING TO RS.6,77,682/- WHO TRAVELLED ABROAD. 3A. IN DIRECTING THE AO TO CLASSIFY ITEMS OF FIXED ASSETS OF RS.40,60,897/- LIKE STAINLESS STEEL TABLES STOOLS, RACKS ETC. LOCA TED IN MANUFACTURING UNIT INTO FURNITURE AND FIXTURES AND PLANT AND MACHINERY B. IN NOT APPLYING CORRECTLY THE FUNCTIONAL TEST TO THE FACTS OF THE CASE WHILE DECIDING WHETHER CERTAIN ITEMS LIKE STAINLESS STEEL TABLE, STOOLS, TROLLEYS ETC. CONSTITUTED PLANT OR NOT. 4. IN CONFIRMING THE DISALLOWANCE OF THE PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO RS.18,16,795/- PERTAINING TO DTA UNI T ASCERTAINED ON THE BASIS OF ACTUARIAL VALUATION FOR THE SPECIFIC EMPLO YEES OF THE APPELLANT COMPANY. 5. IN CONFIRMING THE DISALLOWANCE OF DEMAT CHARGES AMOUNTING TO RS.4,01,453/- MADE BY THE ASSESSING OFFICER. 6. IN NOT TREATING THE EXPENDITURE ON LAYING OF WAT ER PIPELINE AMOUNTING TO RS.31,39,226 AS REVENUE EXPENDITURE WHICH HAS BEE N LAID DOWN IN THE VICINITY AREA OF THE FACTORY TO FULFIL THE WATER RE QUIREMENT OF ITS MANUFACTURING PROCESS. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 4 7. IN CONFIRMING DISALLOWANCE OF SELLING AND DISTRI BUTION EXPENSES OF RS.1,11,64,214/- (GROSS DISALLOWANCE RS.2,21,01,193 /- LESS SET OFF AGAINST THE AMOUNT DECLARED AS NON BUSINESS. EXPENDITURE IN SEARCH ACTION- RS.1,09,36,979/-). 8. IN CONFIRMING DISALLOWANCE OF RENT PAID OF RS.30 ,00,000/- FOR BUNGALOW LOCATED AT 70, KOREGAON PARK, PUNE TAKEN O N LEASE (BELONGING TO M/S.POONAWALLA FINVEST & AGRO PVT. LTD. ZSP GROUP C OMPANY) FOR OFFICE OF DIRECTOR OF APPELLANT COMPANY AND DEPRECIATION OF R S.15,26,708/- ON THE ASSETS PLACED THEREAT. 9. IN UPHOLDING THE DISALLOWANCE OF PURCHASES OF RS .7,78,950/- BY TREATING THE SAME AS BOGUS PURCHASES. 10. IN CONFIRMING THE ACTION OF A.O. FOR NOT DIREC TING THE AO TO REDUCE WEALTH TAX PAID OF RS.21,40,955/- FOR COMPUTING BOO K PROFIT U/S.115JB. 11. THE APPELLANT CRAVES LEAVE TO ADD/ALTER/WITHDRA W ANY OF THE GROUNDS OF APPEAL AT THE TIME OF APPEAL PROCEEDINGS. YOUR APPELLANT FURTHER SUBMITS THAT THE GROUNDS OF APPEAL ARE, SAVE AS OTHERWISE S PECIFIED, NOTWITHSTANDING AND WITHOUT PREJUDICE TO EACH OTHER. 5.1 ASSESSEE ALSO FILED MODIFIED GROUNDS AND THE SAME READ AS UNDER: 1A. THE LD.CIT(A) OUGHT TO HAVE HELD THAT NO DISAL LOWANCE U/S.14A(2) R.W.R.8D CAN BE SUSTAINED IN THE ABSENCE OF A SPECI FIC RECORDING OF SATISFACTION BY THE A.O. BASED ON COGENT MATERIAL A ND HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, TO THE EFFECT THAT THE CL AIM OF THE ASSESSEE IS NOT CORRECT. B. THE LD.CIT(A) FAILED TO APPRECIATE THAT THE A.O. MADE THE DISALLOWANCE MERELY ON THE BASIS OF OBSERVATION THAT SALARIES A ND OTHER ADMINISTRATIVE EXPENSES ARE DEBITED TO P&L A/C FOR BOTH TAXABLE AN D TAX FREE INCOMES, THEREFORE IT IS DIFFICULT TO ACCEPT THAT TAX FREE INCOMES ARE EARNED WITHOUT INCURRING THESE EXPENSES. SUPPLEMENTARY GROUND TO GROUND -10. 10. DISALLOWANCE OF SELLING & DISTRIBUTION EXPENSE S HAVE BEEN PARTLY SET OFF AGAINST CONTINGENCY OFFERED, IF THE DISALLOWANC E IS DELETED BY HON. ITAT, AS A COROLLARY, THE ADDITION OF CONTINGENCY MAY ALS O BE DELETED IN VIEW OF DECISIONS OF EARLIER YEARS. 6. AFTER GOING THROUGH THE FACTS OF THE CASE AND HEARING BOTH THE COUNSELS, WE FIND THE ISSUES ARE COVERED ONES BY VIRTUE O F ORDER OF TRIBUNAL IN THE ASSESSEES OWN CASE IN THE EARLIER A.Y. 2009-10. FURTHER, WE FIND THERE IS NO ISSUE WHICH NEEDS SEPARATE ADJUDICATION IN TH E CROSS APPEALS. THEREFORE, WE PROCEED TO EXTRACT THE ISSUE WISE FINDINGS O F THE TRIBUNAL IN THE FOLLOWING PARAGRAPHS. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 5 7. GROUND NOS. 1 & MODIFIED GROUNDS (A) & (B) BY THE ASSESSEE RELATES TO THE ISSUE OF INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF TH E I.T. RULES, 1962. THE SAID GROUNDS AND MODIFIED GROUNDS RAISES THE ISSUE OF SATISFACTION OF THE AO AND ALSO RELATE TO THE MERITS OF TH E DISALLOWANCE U/S.14A R.W.RULE 8D OF THE ACT/RULES. IN THE ASSESSMENT, AO DISALLOWED SUM OF RS.3.19 CRORES (ROUNDED OFF). CIT(A) PARTLY ALLOWED THE APPEAL DIRECTING THE AO TO EXCLUDE THE INVESTMENTS MADE IN DEBT LINKED MUTUAL FUNDS. DEBT-LINKED MUTUAL FUNDS YIELD TAXABLE INCOME. IN TH E MODIFIED GROUNDS, ASSESSEE RAISED THE ISSUE OF RECORDING OF SATISFAC TION BEFORE INVOKING THE PROVISIONS OF SECTION 14A & RULE 8D. 7.1 BEFORE US, ASSESSEE FILED A CHART STATING THE FOLLOWING : 1. AO SHOULD COMPLY WITH MANDATORY REQUIREMENT OF SEC.14A(2) R.W.R 8D (1)(A) AND RECORD HIS SATISFACTION AS REQUIRED THER EUNDER. 2. THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE VIDE ORDER OF A.Y.2009-10 DT.08-06-2018 (ITA NO.1184/PUN/2015 SERUM INSTITU TE OF INDIA PVT. LTD. VS. DCIT, CC-1(1), PUNE) GIVEN IN ASSESSEES OWN CA SE. PLEASE REFER PARA NO. 20-25, PAGE NO.10 TO 15 OF T HE ABOVE ORDER. 7.2 ON HEARING THE LD. COUNSEL FOR THE ASSESSEE, WE FIND TH E FACTS ARE IDENTICAL. THEREFORE, OUR DECISION IN THE APPEAL FOR A.Y. 2009- 10 APPLY TO THE ISSUE RELATING TO THE SATISFACTION ISSUE. FOR THE SAKE OF COMPLETENESS, THE SAID PARAS ARE EXTRACTED AS FOLLOWS : 22. AFTER HEARING BOTH THE SIDES ON THIS ISSUE AND ON PERUSING THE ORDERS OF THE REVENUE, WE FIND THE AO DID NOT GIVE THE SATISF ACTION HAVING REGARD TO THE BOOK OF ACCOUNT OF THE ASSESSEE. FURTHER, WITH SIMI LAR KIND OF SATISFACTION IN THE CASE OF POONAWALLA INVESTMENT AND INDUSTRIES PV T. LTD. (SUPRA), WE HOLD THAT THE SAME FALLS SHORT OF THE REQUIREMENT. FOR THE SAKE OF COMPLETENESS, RELEVANT PARAS ARE EXTRACTED AS FOLLOWS : 27. IN CONNECTION WITH GROUND NO.1, LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT AO FAILED TO RECORD SATISFACTION WHI CH IS REQUIRED WHILE INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT R .W. RULE 8D OF THE I.T. RULES, 1962. BRINGING OUR ATTENTION TO THE CONTENT S OF PARA NO.5.1 OF THE ASSESSMENT ORDER, LD. COUNSEL SUBMITTED THAT TH E AO FAILED TO RECORD THE SATISFACTION BEFORE INVOKING THE PROVISI ONS U/S.14A OF THE ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 6 ACT. FURTHER, LD. AR READ OUT THE RELEVANT LINES F ROM THE SAID PARA OF THE ASSESSMENT ORDER. FOR THE SAKE OF COMPLETENESS , WE PROCEED TO EXTRACT THE SAME AS UNDER : 5.1. . . . . . . . IT IS DIFFICULT TO ACCEPT THE PROPOSITION THAT ALL THE TAX FREE INCOME HAS BEEN EARNED WITHOUT INCURRING THESE EXPENDITURE S AND THESE EXPENDITURE WERE INCURRED ONLY FOR EARNING TA XABLE INCOME. THEREFORE, I AM SATISFIED THAT THE ASSESSE E HAS NOT MADE ADEQUATE DISALLOWANCE AS MANDATED U/S.14A OF T HE I.T. ACT AND THEREFORE, THE CASE OF THE ASSESSEE IS A FI T CASE FOR COMPUTATION OF THE SAID DISALLOWANCE U/S.14A OF THE I.T. ACT. 28. FURTHER, LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ABOVE RECORDED SATISFACTION , IS EXTREMELY GENERAL AND IT FALLS SHORT OF THE LEGAL REQUIREMENT AS PROVIDED IN THE JUDGEMENT OF H ONBLE APEX COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPA NY LTD VS. DCIT 394 ITR 448 (SC). CONTENTS OF PARA NO.37 OF THE SA ID JUDGMENT IS RELIED HEAVILY AND PRAYED FOR DELETION OF THE ADDIT ION MADE BY THE AO INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. 29. LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE AO/CIT(A). 30. WE HEARD BOTH THE PARTIES ON THE ISSUE RELATING TO THE ISSUE OF RECORDING OF SATISFACTION AND PERUSED THE ABOVE EXT RACTED SATISFACTION RECORDED BY THE AO ON THIS ISSUE. WE FIND THE LEGA L POSITION WAS EXPLAINED BY THE HONBLE APEX COURT AND THE PARA NO .37 OF THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF GODRE J AND BOYCE MANUFACTURING COMPANY LTD. (SUPRA) ARE RELEVANT. H ONBLE SUPREME COURT EXPLAINED THE PROVISIONS OF SUB-SECTION (2) A ND (3) OF SECTION 14A OF THE ACT. FOR THE SAKE OF COMPLETENESS, WE PROCE ED THE EXTRACT THE SAME HERE AS UNDER : 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUAT ION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESS MENT YEAR 2002-03. SUB-SECTIONS (2) AND (3) OF SECTION 14A O F THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMUL A FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION T O INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISF IED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE A SSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE T HE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE . IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SEC TION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. (EMPHASIS SUPPLIED). 31. THE ABOVE RATIO WAS ADOPTED BY THE PUNE BENCH O F THE TRIBUNAL IN THE CASE OF CAPGEMINI TECHNOLOGY SERVICES INDIA LIMITED, (IN THE MATTER OF IGATE COMPUTER SYSTEMS LIMITED, (FORMERLY PATNI COMPUTER SYSTEMS LIMITED AMALGAMATED WITH IGATE GLOBAL SOLUTI ONS LIMITED AND NAME CHANGED) VS. DCIT VIDE ITA NOS. 216 AND 360/PU N/2015, ORDER DATED 25-01-2018 AND ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 7 FOR THE SAKE OF COMPLETENESS, RELEVANT OPERATIONAL PARAS ARE EXTRACTED HERE AS UNDER : 34. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ASSESSING OFFICER WHILE PASSING THE AS SESSMENT ORDER IN PARA 10 HAD OBSERVED THAT THE ASSESSEE HAD EARNED SIGNIFICANT AMOUNT OF TAX FREE DIVIDENDS AND IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS DISALLOWED SUM OF RS.50 LAKHS UNDER SECTION 14A OF THE ACT. THEN, REFERENCE IS M ADE TO THE NOTE FILED BY THE ASSESSEE ON EXPENDITURE DISALLOWA BLE UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICER THER EAFTER, TAKES NOTE OF THE CONTENTS OF SAID EXPLANATION AND OBSERV ED AS UNDER:- I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE AS SESSEE. IT IS OBSERVED THAT APART FROM INVESTMENTS IN THE OVER SEAS SUBSIDIARIES (WHERE THERE IS NO TAX-FREE INCOME SIN CE THE DIVIDEND IS ALSO TAXABLE) THE INVESTMENTS MADE BY T HE ASSESSEE ARE IN MUTUAL FUNDS. THE ENTIRE INVESTMENT IN MUTU AL FUND IS IN NON-EQUITY SCHEME. IN RESPECT OF INVESTMENT IN MUT UAL FUNDS, EXCEPT FOR GROWTH FUNDS, THE COMPANY RECEIVES TAX F REE DIVIDEND. THE AMOUNT OF DIVIDEND RECEIVED BY THE C OMPANY IS SUBSTANTIAL. THIS IS A CLEAR CASE FOR APPLICATION OF RULE 8D. HENCE, THE CONTENTION OF THE ASSESSEE CANNOT BE ACC EPTED. THE DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE BY APPL YING RULE 8D. AS PER THE WORKING OF DISALLOWANCE U/S 14A AS PER RULE 8D, THE AMOUNT OF DISALLOWANCE COMES TO RS.5,68,32, 323/-. THE ASSESSEE HAS ALREADY DISALLOWED RS.50,00,000/- IN THE COMPUTATION OF INCOME. 35. THE REQUIREMENT OF SECTION 14(2) OF THE ACT IS THAT THE ASSESSING OFFICER IS TO RECORD AS TO WHY THE DISALL OWANCE MADE BY THE ASSESSEE I.E. RS.50 LAKHS UNDER SECTION 14A OF THE ACT IS NOT CORRECT. THE ASSESSING OFFICER TAKES NOTE OF T HE DISALLOWANCE, CONSIDERS THE EXPLANATION OF ASSESSEE AND HOLDS THAT THE CONTENTION OF ASSESSEE CANNOT BE ACCEPTED. THE PRELIMINARY SATISFACTION TO BE RECORDED BY ASSESSING OFFICER, BEFORE MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES, IS MISSING IN THE CASE; IN THE ABSENCE OF THE SAME, THERE IS NO MERIT IN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN GODREJ & BOYCE MANUFAC TURING CO. LTD. VS. DCIT & ANR. (2017) 394 ITR 449 (SC). 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUAT ION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESS MENT YEAR 2002-03. SUB-SECTIONS (2) AND (3) OF SECTION 14A O F THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMUL A FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION T O INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISF IED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE A SSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE T HE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE . IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SEC TION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. (UNDERLINE PROVIDED BY US FOR EMPHASIS) ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 8 36. THE RATIO LAID DOWN BY THE HONBLE HIGH COURT O F DELHI IN INDIABULLS FINANCIAL SERVICES LTD. VS. DCIT (SUPRA) IS THUS, NOT APPLICABLE. THE GROUND OF APPEAL NO.3 RAISED BY TH E REVENUE IS THUS, DISMISSED. 32. FROM THE ABOVE, WE ARE OF THE VIEW THAT THE SAT ISFACTION RECORDED BY THE AO IN PARA NO.5.1 IS EXTREMELY BASE D ON THE SUSPICION AND SURMISES. THE SATISFACTION ARRIVED AT BY THE A O WITH REFERENCE TO THE ENTRIES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ALSO HAVING REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSES SEE. IN THAT SENSE OF THE MATTER, THE SATISFACTION RECORDED BY THE AO IS EXTREMELY GENERIC AND WHICH FALLS SHORT OF THE LEGAL REQUIREMENT FOR ASSUMING JURISDICTION U/S.14A OF THE ACT. CONSIDERING THE ABOVE POSITION, WE ARE OF THE VIEW THAT THE AO FAILED TO RECORD THE SUSTAINABLE SATISFACTION BEFORE INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. THEREFORE, T HE DISALLOWANCE MADE BY THE AO IS UNSUSTAINABLE TECHNI CALLY . ACCORDINGLY, THIS PART OF THE ARGUMENT OF GROUND NO .1 IS ALLOWED. WE FIND ADJUDICATION OF THE OTHER ISSUES OF THE SAID G ROUND RELATING TO MERITS BECOMES AN ACADEMIC EXERCISE. THEREFORE, TH E SAME ARE DISMISSED AS ACADEMIC. THEREFORE, ON THE TECHNICAL GROUNDS, THE GROUND NO. 1(A) RAISED BY THE ASSESSEE ON THE ISSUE OF SATISFACTION STANDS ALLOW ED IN FAVOUR OF THE ASSESSEE. 23..................... 24..................... 25. IN RESPONSE TO GROUND NO. 1(A), ON THE ISSUE OF SATISFACTION, WE HAVE ALREADY GRANTED RELIEF TO THE ASSESSEE. THEREFORE, THE GROUND NO.1(B) WHICH RELATES TO MERITS OF DISALLOWANCE, ITS ADJUDICATIO N BECOMES AN ACADEMIC EXERCISE. THUS, THIS GROUND NO.1(B) IS DISMISSED A S ACADEMIC. 7.3 IN THIS CASE, THE SATISFACTION RECORDED BY THE AO IS S AME ON THAT OF THE ONE RECORDED IN THE CASES DECIDED AND REFERRED TO ABOVE. CONSIDERING THE ABOVE LEGAL PROPOSITION ON ONE SIDE AND THE FACTS OF T HE PRESENT CASE ON HAND ON THE OTHER, WE FIND THE ASSESSEE IS ENTITLED TO R ELIEF ON THE ISSUE OF SATISFACTION RAISED IN THE ADDITION GROUND (1A). ACCORDINGL Y, THE SAID GROUND IS ALLOWED. CONSEQUENTLY, THE OTHER GROUND RAISED ON THE MERITS IS DISMISSED AS ACADEMIC. ACCORDINGLY, THE SAID GROUNDS ADJU DICATED AS ABOVE. 8. GROUND NO.2 BY THE ASSESSEE RELATES TO FOREIGN TRAVEL EXPENSES OF EMPLOYEES AMOUNTING TO RS.6,77,682/-. IN THE ASSESSMENT, AO HELD T HE ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 9 SAID EXPENSES AS CAPITAL IN NATURE. CIT(A) CONFIRMED THE SA ME. AGGRIEVED WITH THE ORDER OF CIT(A) ASSESSEE FILED THE PRESENT APPEAL WITH GROUND NO.2. 8.1 BEFORE US, LD. COUNSEL FILED A CHART GIVING THE FOLLOWING BA CKGROUND FACTS AND ARGUMENTS. WE PROCEED TO EXTRACT THE SAME BELOW : 1. IN THIS REGARD DETAILED SUBMISSIONS WERE MADE B EFORE THE CIT(A). 2. WITHOUT PREJUDICE TO CLAIM AS REVENUE EXPENDITUR E, AO HAS NOT ALLOWED DEPRECIATION ON THE SAME. 3. HOWEVER CONSIDERING THE FACTS WE WOULD LIKE TO C ONTEND THAT THESE EXPENSES ARE INCURRED UNDER NORMAL COURSE OF BUSINE SS. 4. WE ARE SUBMITTING TRAVEL REPORTS OF THE EMPLOYEE S WHOSE EXPENSES ARE DISALLOWED. THESE TRAVELLING EXPENSES DO NOT INCLU DE EXPENSES OF TRAVELLING OF DIRECTORS AND THEIR WIVES, BUT IT IS PURELY INCU RRED BY EMPLOYEES WHO HAVE TRAVELLED FOR BUSINESS PURPOSE. 5. THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE IN ITS OWN CASE VIDE ORDER FOR A.Y. 2009-10 (ITA NO.1184/PUN/2015 SERU M INSTITUTE OF INDIA PVT. LTD. VS. DCIT, CC-(1), PUNE), WHEREIN ISSUE HA S BEEN REMANDED BACK TO THE FILE OF AO FOR VERIFICATION OF FACTS OF EXPENSE S INCURRED OTHER THAN THE PURCHASE OF MACHINERY. 8.2 ON NOTING THE FACT, A SIMILAR ISSUE WAS ADJUDICATED, WE PROCEED TO EXTRACT RELEVANT PARA NO.30 ONWARDS FROM THE ORDER OF T RIBUNAL FOR THE A.Y. 2009-10. THE SAME READS AS FOLLOWS : 30. ON HEARING BOTH THE SIDES ON THIS ISSUE, WE FI ND THE TRIBUNAL IN THE ASSESSEES OWN CASE VIDE ITA NO.931/PUN/2013, DATED 22-07-2016 FOR THE A.Y.2008-09 HAS DECIDED THE ISSUE AGAINST THE ASSES SEE AND THE SAID FINDING IS EXTRACTED HERE AS UNDER FOR THE SAKE OF COMPLET ENESS : 26. THE SEVENTH GROUND RAISED IN THE APPEAL BY THE ASSESSEE IS AGAINST DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF EMPLOYEES RS.25,77,069/-. THE ASSESSEE HAD CLAIMED THE EXPEND ITURE AS REVENUE EXPENDITURE. THE LD. AR OF THE ASSESSEE FAI RLY ADMITTED THAT IN THE EARLIER ASSESSMENT YEAR 2005-06 UNDER I DENTICAL CIRCUMSTANCES THE TRIBUNAL HAS DISALLOWED THE CAPIT ALIZATION OF FOREIGN TRAVEL EXPENDITURE OF EMPLOYEES. THE LD. AR PLACED ON RECORD A COPY OF THE ORDER OF TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NO. 1383/PN/2011 FOR ASSESSMENT YEAR 2006-07 DE CIDED ON 22-02-2013. THE ASSESSING OFFICER DISALLOWED THE FO REIGN TRAVEL EXPENDITURE INCURRED ON EMPLOYEES FOR FINALIZING TH E PROPOSAL OF PURCHASING THE PLANT AND MACHINERY. THE ASSESSEE HA D CLAIMED EXPENDITURE AS REVENUE IN NATURE. THE ASSESSING OFF ICER HELD EXPENDITURE TO BE CAPITAL EXPENDITURE AND ALLOWED D EPRECIATION ON THE SAME. THEREFORE, ASSESSING OFFICER RECTIFIED HI S ORDER U/S. 154 AND DISALLOWED RS.25,77,069/-. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF ASSE SSING OFFICER. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 10 27. THE LD. DR VEHEMENTLY DEFENDED THE ORDER OF COM MISSIONER OF INCOME TAX (APPEALS) IN UPHOLDING THE EXPENDITURE I NCURRED TOWARDS FOREIGN TRAVEL OF EMPLOYEES AS CAPITAL IN N ATURE. 28. BOTH SIDES HEARD. THE ASSESSEE HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN UPHOLDING TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER AMOUNTIN G TO RS.25,77,069/- IN ORDER DATED 04-02-2011 PASSED U/S . 154 OF THE ACT. WE FIND THAT THE ASSESSEE HAD CLAIMED THE EXPE NDITURE AS REVENUE IN NATURE. HOWEVER, IN AN ALTERNATE SUBMISS ION BEFORE THE ASSESSING OFFICER, THE ASSESSEE PRAYED FOR TREATING THE FOREIGN TRAVEL COST AS PART OF COST OF MACHINERY AND ALLOW DEPRECIATION ON THE SAME. THE ASSESSING OFFICER ALLOWED THE CAPITAL IZATION OF EXPENDITURE AND ALSO ALLOWED DEPRECIATION ON THE SA ME AS ADMISSIBLE TO THE PLANT AND MACHINERY. SUBSEQUENTLY IN RECTIFICATION ORDER U/S. 154 THE ASSESSING OFFICER DISALLOWED RS.25,77,069/-. IN FIRST APPEAL BEFORE THE COMMISSIO NER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF ASSESSING OFFI CER. WE FIND THAT THE ISSUES RELATING TO CAPITALIZATION OF FOREI GN TRAVEL EXPENDITURE OF EMPLOYEES IN CONNECTION WITH THE FIN ALIZING THE PURCHASE OF MACHINERY HAD COME BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 679/PN/2009. THE TRIBUNAL UPHEL D THE ACTION OF ASSESSING OFFICER IN TREATING THE EXPENDITURE AS CAPITAL IN NATURE AND DISALLOWED UNRELATED EXPENDITURE. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ARE AS UNDER : 24. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. WE FIND THAT IN RESPONSE TO A SPECIFIC QUERY FROM THE ASSESSING OFFICER AS TO THE DETAILS OF EMPLOYEES WHO MADE FOR EIGN TOURS FOR THE PURPOSE OF PURCHASE OF MACHINERY, ASSESSEE FURNISHED DETAILS VIDE LETTER DATED 27-11-2008 WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER IN PARA 7 OF THE ASSESSMEN T ORDER. IN THE SAID PARA, THE ASSESSING OFFICER HAS ALSO REFER RED TO A LETTER OF THE ASSESSEE DATED 12-11-2008 WHEREIN IT WAS POI NTED OUT THAT THE MACHINERY WAS PURCHASED IN THE SUBSEQUENT YEAR. IN THIS BACKGROUND, THE POINT TO BE DECIDED AS TO WHET HER THE IMPUGNED EXPENDITURE OF RS. 7,91,197/- ON THE FOREI GN TRAVEL WAS TO BE ALLOWED AS A REVENUE EXPENDITURE OR NOT. QUITE CLEARLY, THE PLEA OF THE ASSESSEE HAS BEEN THAT SUC H EXPENDITURE HAS BEEN INCURRED ON FOREIGN TOURS OF THE EMPLOYEES FOR THE PURPOSE OF PURCHASE OF MACHINERY. SINCE THE PURPOSE OF TRAVEL ADMITTEDLY, IS PURCHASE OF MACHINERY, THE CIT(A), I N OUR VIEW, MADE NO MISTAKE IN HOLDING THAT THE COST OF SUCH FO REIGN TRAVEL WAS LIABLE TO BE TREATED AS PART OF COST OF MACHINE RY. OSTENSIBLY, THE PURCHASE OF THE MACHINERY WAS NOT F INALIZED IN THE PARTICULAR YEAR BUT THE SAME HAS BEEN PURCHASED IN SUBSEQUENT YEAR, AS ADVERTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. THEREFORE, IT WOULD BE IN THE FI TNESS OF THINGS THAT SUCH EXPENDITURE WOULD FORM PART OF COST OF PU RCHASE OF MACHINERY AS AND WHEN IN THE YEAR IN WHICH THE MACH INERY IS CAPITALIZED. ON FACTS, THEREFORE, THE CLAIM OF THE ASSESSEE FOR ALLOWABILITY OF SUCH EXPENDITURE AS REVENUE EXPENDI TURE IS LIABLE TO BE NEGATED AND ON THIS ASPECT, WE AFFIRM THE ORDER OF THE ASSESSING OFFICER. IN SO FAR AS THE RELIANCE PL ACED BY THE ASSESSEE ON THE DECISION OF THE TRIBUNAL FOR A.Y. 2 002-03 IS CONCERNED, WE FIND IT APPROPRIATE TO REPRODUCE OPER ATIVE PART OF THE ORDER OF THE TRIBUNAL CONTAINED IN PARA 13, WHI CH IS AS UNDER:- WE FIND THAT REVENUE HAS NOT MADE OUT A CASE TO DEMONSTRATE THAT THE SAID FOREIGN TRAVEL EXPENDITUR E WAS INCURRED IN CONNECTION WITH ANY CAPITAL ASSET. THER EFORE, ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 11 ASSESSING OFFICER FAILED TO DISCHARGE THE ONUS SUCCESSFULLY. WHEN ALLEGATION IS MADE BY AO, IT IS EXPECTED THAT HE SHOULD DEMONSTRATE WITH EVIDENCE AGAINST THE ASSESSEE. IN OUR OPINION, THE SAID JUDG MENTS ARE RELEVANT AND APPLICABLE TO THE FACTS OF THE CAS E. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE SHO ULD BE ALLOWED IN HIS FAVOUR. 25. A PERUSAL OF THE AFORESAID CLEARLY SHOWS THAT I N THE ASSESSMENT YEAR 2002-03, THE TRIBUNAL ALLOWED THE F OREIGN TRAVEL EXPENSES AS REVENUE EXPENDITURE PRIMARILY FO R THE REASON THAT REVENUE DID NOT MAKE OUT A CASE THAT THE FOREI GN TRAVEL EXPENDITURE WAS INCURRED IN CONNECTION WITH ANY CAP ITAL ASSET. HOWEVER, THE FACTUAL POSITION IN THE INSTANT YEAR I S QUITE DIFFERENT, INASMUCH AS WE HAVE NOTED EARLIER THAT T HE ASSESSEE ITSELF SUBMITTED BEFORE THE ASSESSING OFFICER VIDE LETTER DATED 27-11-2008 THAT THE EXPENDITURE ON FOREIGN TRAVEL I N QUESTION WAS UNDERTAKEN FOR PURCHASE OF MACHINERY, THOUGH TH E PURCHASE OF SUCH MACHINERY WAS FINALIZED IN SUBSEQU ENT YEAR. THEREFORE, THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR A.Y. 2002-03 DOES NOT HELP THE ASSESSE E IN THE INSTANT YEAR AND THUS ON THIS GROUND, ASSESSEE HAS TO FAIL. 29. THE LD. AR OF THE ASSESSEE HAS ADMITTED THAT TH E ISSUE IN THE PRESENT APPEAL IS IDENTICAL TO ONE ADJUDICATED BY T HE TRIBUNAL IN 19 ITA NOS. 914 & 931/PN/2013 ASSESSMENT YEAR 2005-06. THE REFORE, IN VIEW OF THE DECISION OF COORDINATE BENCH THIS GROUN D OF APPEAL IS DISMISSED. 31. HOWEVER, ON THE ISSUE OF CAPITALIZATION OF THE EXPENDITURE, IN VIEW OF THE ASSESSEES SUBMISSION THAT THE EXPENSES INCURRE D FOR THE PURPOSE OTHER THAN THE PURCHASE OF MACHINERY, NEEDS TO BE VERIFIE D BY THE AO, WE FIND THIS ISSUE NEEDS TO BE REMITTED BACK TO THE FILE OF AO F OR VERIFICATION OF CORRECTNESS OF THE FACTS RELATING TO THIS CLAIM. AO IS DIRECTE D TO VERIFY THE EXPENSES IN THIS REGARD AFTER GRANTING REASONABLE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. ASSESSEE IS DIRECTED TO PRODUCE RELEVANT DOCUMENTS TO SUBSTANTIATE HIS CLAIM. ACCORDINGLY, GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8.3 FROM THE ABOVE, IT IS EVIDENT THAT THE SIMILAR ISSUE HAS BEEN THE BONE OF CONTENTION OVER THE ASSESSMENT YEARS 2008-09 & 200 9-10 TOO. FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE PROCEED TO REMIT THE ISSUE TO THE FILE OF AO WITH IDENTICAL DIRECTION. ACCORDINGLY, THE GROUND NO.2 IS ALLOW ED FOR STATISTICAL PURPOSES. 9. GROUND NO.3 RELATES TO CLASSIFICATION ISSUES QUA THE DEPRECIATION RATES. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THIS ISSUE STANDS COVERED BY THE ORDER OF TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE A.YRS. 2008-09 AND 2009-10. THE FOLLOWING IS THE WRITE UP G IVEN BY THE LD. COUNSEL FOR THE ASSESSEE IN THE CHART MENTIONED ABOVE: ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 12 THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE I N ASSESSEES OWN CASE VIDE ITAT ORDER OF A.Y. 2009-10, DT. 08-06-2018 (AP PEAL NO.1184/PUN/2015). PLEASE REFER PAGE NOS.19-20, PARA NO.32-34 OF THE ABOVE ORDER. 9.1 ON HEARING BOTH THE SIDES, WE PERUSED THE RELEVANT P ARAGRAPHS 32 TO 34 OF THE ORDER OF TRIBUNAL FOR THE A.Y. 2009-10 AND FIND IT APPROPRIATE TO EXTRACT THE SAME BELOW : 32. THIRD ISSUE: GROUND NO.3 RAISED BY THE ASSESSEE RELATES TO CLASSIFICATION OF ITEMS OF FIXED ASSETS AMOUNTING T O RS.22,94,455/-. 33. RELEVANT FACTS OF THIS ISSUE INCLUDE THAT THE A O CLASSIFIED CERTAIN ITEMS AS FURNITURE AND ALLOWED DEPRECIATION AT THE RATE A PPLICABLE TO FURNITURE AND CERTAIN ITEMS AS PLANT AND MACHINERY AND ALLOWED DE PRECIATION AT THE RATE APPLICABLE TO THEM BY APPLYING FUNCTIONAL TEST. EV ENTUALLY, IN THE ASSESSMENT MADE U/S.143(3) R.W.S. 153A OF THE ACT, THE AO MADE ADDITION OF RS.1,44,126/- BEING DIFFERENCE IN DEPRECIATION @10% AND 15% ON SOME ITEMS UNDER BLOCK OF PLANT AND MACHINERY TREATING THE SAM E AS FURNITURE. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE FOR THE A.YRS. 2006-07, 2007-08 AND 2008-09. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ORDER OF CIT(A) FOR THE A.Y. 2008-09 PARTLY ALLOWED THE APPEAL OF THE A SSESSEE. CONTENTS OF PARA NO.13.3.3 OF THE ORDER OF CIT(A) ARE RELEVANT. 34. AFTER HEARING BOTH THE SIDES, WE FIND THIS ISSU E HAS ALREADY BEEN ADJUDICATED BY US AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE WHILE DEALING WITH THE APPEAL OF THE REVENUE. CONSIDERI NG THE SAME, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 9.2 FROM THE ABOVE, IT IS EVIDENT THAT SIMILAR ISSUE NOW STA NDS IN FAVOUR OF THE ASSESSEE VIDE THE DECISION OF THE TRIBUNAL IN THE ASS ESSEES OWN CASE FOR THE A.Y. 2009-10. CONSIDERING THE SAME, GROUND NO.3 RA ISED BY THE ASSESSEE STANDS ALLOWED. 10. GROUND NO.4 BY THE ASSESSEE RELATES TO DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT. 10.1 BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN THE ASSESSEES OW N CASE FOR THE A.Y. 2009-10. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 13 10.2 ON HEARING BOTH THE SIDES, WE FIND THIS ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY VIRTUE OF THE ORDER OF TRIBUNAL IN THE AS SESSEES OWN CASE FOR THE A.Y. 2009-10. WE THEREFORE PROCEED TO REPRODUCE THE RELEVANT PARAGRAPHS FROM THE ORDER OF TRIBUNAL (SUPRA) AND THE SAME READ AS U NDER : 35. FOURTH ISSUE: GROUND NO.4 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE MADE BY THE AO ON ACCOUNT OF PROVISIO N FOR LEAVE ENCASHMENT AMOUNTING TO RS.96,47,634/-. 36. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.931/PN/2013, DATED 22-07-2016 FO R THE A.Y.2008-09. 37. AFTER HEARING BOTH THE SIDES ON THIS ISSUE, WE FIND THE TRIBUNAL VIDE THE DISCUSSION GIVEN AT PARA NO.18 HAS DECIDED THE ISSU E AGAINST THE ASSESSEE RELYING ON THE ORDER OF TRIBUNAL FOR THE A.Y. 2002- 03 WHEREIN THE TRIBUNAL RELIED ON THE JUDGMENT OF HONBLE CALCUTTA HIGH COU RT IN THE CASE OF EXIDE INDUSTRIES LTD. AND ANOTHER VS. UNION OF INDIA 292 ITR 470 AND THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF UNIVERS AL MEDICATE PRIVATE LIMITED 324 ITR 263. FOR THE SAKE OF COMPLETENESS, WE PROCEED TO EXTRACT THE RELEVANT FINDING GIVEN BY THE TRIBUNAL (SUPRA) AND THE SAME READS AS UNDER : 18. WE HAVE HEARD THE SUBMISSIONS MADE BY THE LD. AR OF THE ASSESSEE AND HAVE PERUSED THE ORDER OF THE CO-ORDIN ATE BENCH IN ASSESSEES OWN CASE IN ITA NO.413/PN/2006 FOR ASSES SMENT YEAR 2002-03 DECIDED ON 24-02-2012. WE FIND THAT THE CO- ORDINATE BENCH OF THE TRIBUNAL HAS OBSERVED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. & ANR VS. UNION OF INDIA REPORTED A S 292 ITR470 AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PRIVATE LIMITED REPORTED AS 324 ITR 263. THE LD. AR OF THE ASSESSEE IN THE PRECEDING ASSESSMENT YEARS HAS NOT PRESSED THIS GRO UND. THE LD. AR HAS FAIRLY CONCEDED THAT THE ISSUE MAY BE DECIDED I N LINE WITH THE EARLIER ORDER OF THE TRIBUNAL. ACCORDINGLY, GROUND NO. 4 RAISED IN THE APPEAL BY THE ASSESSEE IS DISMISSED. CONSIDERING THE SAME, THE GROUND NO.4 RAISED BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 10.3 FROM THE ABOVE, IT IS EVIDENT THAT THE ISSUE RELATING TO PROVISION FOR LEAVE ENCASHMENT STANDS DECIDED AGAINST THE ASSESSEE . CONSIDERING THE SAME, THIS GROUND NO.4 RAISED BY THE ASSESSEE IS DISMISSED. 11. GROUND NO.5 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF DEMAT CHARGES AMOUNTING TO RS.4,01,453/-. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 14 11.1 AS SEEN FROM THE CHART FURNISHED BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND THIS ISSUE IS ALSO A DECIDED ISSUE IN FAVOUR OF THE AS SESSEE BY VIRTUE OF THE ORDER OF TRIBUNAL IN THE ASSESSEE OWN CASE FOR T HE A.Y. 2009-10. ON HEARING BOTH THE SIDES ON THIS ISSUE, WE FIND IT RELEVANT TO EXTRACT THE RELEVANT PARAS FROM THE ORDER OF TRIBUNAL (SUPRA) AND THE SAME READS AS UNDER : 43. SIXTH ISSUE : GROUND NO.6 RAISED BY THE ASSESSEE RELATES TO ADDIT ION OF RS.1,10,605/- U/S.48 OF THE ACT MADE ON ACCOUNT OF DEMAT CHARGES WHICH WAS CLAIMED AS EXPENDITURE INCURRED FOR EARNING INC OME FROM CAPITAL GAINS. 44. RELEVANT FACTS ON THIS ISSUE INCLUDE THAT ASSES SEE DEBITED THE SAID SUM TO THE PROFIT AND LOSS ACCOUNT AND CLAIMED THAT THE SAME SHOULD BE ALLOWED WHILE COMPUTING THE CAPITAL GAINS. ASSESSE E RELIED ON THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF INFO SYS TECHNOLOGIES VS. JCIT 109 TTJ 631 (BANG.). ASSESSEE CONTENDED THAT THE S AID EXPENSES HAS BEEN INCURRED IN THE NORMAL COURSE OF BUSINESS AND THE D EMATERIALIZATION HELPED THE ASSESSEE SIGNIFICANTLY IN REDUCING THE ADMINIST RATIVE COSTS. AO OPINED THAT THE EXPENDITURE INCURRED FOR MAINTENANCE OF SH ARE TRANSACTIONS FROM DEMAT ACCOUNT IS NOT TO BE ALLOWED U/S.48 OF THE AC T SINCE THE EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTI ON WITH SUCH TRANSFER OR AS THE COST OF ACQUISITION AND COST OF IMPROVEMENT THERETO AND THUS MADE THE DISALLOWANCE OF SUM OF RS.1,10,605/-. THE CIT(A) D EFINED THE EXPRESSION WHOLLY AND EXCLUSIVELY IN HIS ORDER. THE CIT(A ) ALSO DISTINGUISHED THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF INFOSYS TECHNOLOGIES LIMITED (SUPRA) AND HELD THAT THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AND UPHELD THE DIS ALLOWANCE MADE BY THE AO ON ACCOUNT OF DEMAT CHARGES. AGGRIEVED WITH THE OR DER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 45. LD COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBM ITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING AND TRADING PVT. LTD. VS. DCIT AND VICE-VERSA VIDE ITA NO.703/PN/2012 & ITA NO.665/PN/ 2012 ORDER DATED 19- 09-2013 FOR A.Y. 2008-09 WHEREIN IT HAS BEEN HELD T HAT THE CLAIM OF PORTFOLIO MANAGEMENT FEES IS AN ALLOWABLE EXPENDITURE FROM SU CH CAPITAL GAIN. 46. LD. DR FOR THE REVENUE RELIED HEAVILY ON THE OR DERS OF THE AO/CIT(A). 47. AFTER HEARING BOTH THE SIDES ON THIS ISSUE AND ON PERUSING THE ORDERS OF THE REVENUE, WE FIND THIS ISSUE HAS TO BE DECIDED I N FAVOUR OF THE ASSESSEE BY VIRTUE OF THE DECISION OF PUNE BENCH OF THE TRIB UNAL IN THE CASE OF KRA HOLDING AND TRADING PVT. LTD. (SUPRA) WHEREIN THE T RIBUNAL OBSERVED AS UNDER: 9. IN THE APPEAL OF THE ASSESSEE, THE SOLITARY ISS UE IS WITH REGARD TO THE ACTION OF THE CIT(A) IN CONFIRMING THE STAND OF THE ASSESSING OFFICER THAT FEES PAID TO ENAM ASSET MANAGEMENT COM PANY PVT. LTD. WAS NOT AN ALLOWABLE EXPENDITURE IN COMPUTING APPEL LANTS INCOME WHETHER UNDER THE HEAD BUSINESS OR UNDER THE HEAD CAPITAL GAINS. 10. IN THIS REGARD, THE ASSESSING OFFICER NOTICED T HAT ASSESSEE HAD INCURRED EXPENDITURE OF RS.2,79,31,009/- REPRESENTI NG PAYMENTS TO ENAM ASSET MANAGEMENT COMPANY PVT. LTD. AS PORTFOLI O MANAGEMENT FEES IN TERMS OF AN INVESTMENT MANAGEMENT AGREEMENT DATED 01.01.2005. FOLLOWING HIS DECISION FOR THE EARLIER ASSESSMENT YEARS ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 15 I.E. ASSESSMENT YEAR 2004-05 TO 2007-08, THE ASSESS ING OFFICER DISALLOWED THE EXPENSE AGAINST WHICH ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) NOTED THAT SIMILAR ISSUE FOR ASSESSMENT YEARS 2004-05 TO 2006-07 WAS ADJUDICATED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE VIDE ORDER DATED 31 ST MAY, 2011 (SUPRA). HOWEVER, THE CIT(A) NOTICED THA T SUBSEQUENTLY MUMBAI BENCH OF THE TRIBUNAL IN THE CA SE OF ONE SHRI HOMI K. BHABHA VS. ITO IN ITA NO. 3287/MUM/2009 DEC IDED A SIMILAR ISSUE AGAINST THE ASSESSEE AND THEREFORE HE HELD TH E ISSUE AGAINST THE ASSESSEE. IN VIEW OF THE AFORESAID, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 11. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR STAND OF THE CIT(A) IN THE A SSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 CAME UP BEFORE THE TRIB UNAL IN ITA NO. 356 & 240/PN/2011 DATED 25.07.2012 AND AFTER CONSID ERING THE DIVERGENT VIEW OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHRI HOMI K. BHABHA (SUPRA) WHICH HAS BEEN RELIED UPON B Y THE CIT(A), THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. I T WAS, THEREFORE, CONTENDED THAT THE ISSUE IS ACCORDINGLY LIABLE TO B E DECIDED IN FAVOUR OF THE ASSESSEE. 12. THE LEARNED CIT(DR) APPEARING FOR THE REVENUE H AS NOT CONTROVERTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED COUNSEL SO HOWEVER SHE HAS RELIED UPON THE ORDER OF THE CIT(A) IN SUPPORT OF THE CASE OF THE REVENUE. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND ALSO THE PRECEDENT IN THE ASSESSEES OWN CASE BY WAY OF THE ORDER OF THE TRIBUNAL DATED 25.07.2012 (SUPRA). IN THE SAID CASE , THE TRIBUNAL CONSIDERED THE ALLOWABILITY OF EXPENDITURE INCURRED BY WAY OF PAYMENT OF FEES OF ENAM ASSET MANAGEMENT COMPANY PVT. LTD. IN TERMS OF THE INVESTMENT AGREEMENT DATED 01.01.2005, WHICH IS PRE CISELY THE ISSUE BEFORE US ALSO. THE TRIBUNAL REFERRED TO ITS EARLIE R DECISION IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 VID E ORDER DATED 31 ST MAY, 2011 (SUPRA) AND NOTICED THAT THE ISSUE HAS B EEN DECIDED IN FAVOUR OF THE ASSESSEE. THEREAFTER, THE TRIBUNAL NO TED THAT AGAINST THE DECISION OF THE TRIBUNAL DATED 31 ST MAY, 2011 (SUPRA), REVENUE PREFERRED AN APPEAL BEFORE THE HONBLE SUPREME COUR T ONLY ON THE ISSUE TREATMENT OF INCOME FROM THE SALE OF SHARES A S CAPITAL GAIN OR BUSINESS INCOME AND THAT THE REVENUE HAD NOT PREF ERRED ANY APPEAL AGAINST THE ORDER OF THE TRIBUNAL ALLOWING THE CLAI M OF DEDUCTION OF EXPENDITURE BY WAY OF PORTFOLIO MANAGEMENT FEE REPR ESENTING PAYMENTS TO ENAM ASSET MANAGEMENT COMPANY PVT. LTD. WHILE COMPUTING THE INCOME UNDER THE HEAD CAPITAL GAINS . AFTER NOTICING THE AFORESAID THE TRIBUNAL CONCLUDED AS UNDER IN PA RA 11 OF ITS ORDER DATED 25.07.2012 : 11. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUN AL IN THE CASE OF HOMI K. BHABHA VS. ITO WAS BROUGHT TO OUR N OTICE BY THE LEARNED DR WHEREIN IT WAS HELD THAT PORTFOLIO M ANAGEMENT SCHEME FEES IS NOT DEDUCTIBLE AGAINST CAPITAL GAINS . THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF KRA HOLDING & TRADING WAS NOT FOLLOWED BY THE MUMBAI BE NCH IN THE ABOVE CITED DECISION. THE MUMBAI BENCH FOLLOWIN G OTHER DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL DECLINED TO FOLLOW THE DECISION IN THE CASE OF KRA HOLDING & TR ADING (SUPRA). IT IS THE SETTLED PROPOSITION OF LAW THAT WHEN TWO VIEW ARE POSSIBLE ON THE SAME ISSUE THE VIEW WHICH IS FA VOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. [CIT VS. VEGETABLE PRODUCTS 88 ITR 192 (SC)]. FURTHER, IN THE INSTANT CASE THE TRI BUNAL IN ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 16 ASSESSEES OWN CASE HAS ALREADY TAKEN A VIEW IN FAV OUR OF THE ASSESSEE. SINCE THE AO & CIT(A) HAVE FOLLOWED THE O RDER FOR EARLIER YEAR IN THE CASE OF THE ASSESSEE AND SINCE THE ORDER OF CIT(A) FOR EARLIER YEAR HAS BEEN REVERSED BY THE TR IBUNAL, THEREFORE, UNLESS AND UNTIL THE DECISION OF THE TRI BUNAL IS REVERSED BY A HIGHER COURT, THE SAME IN OUR OPINION SHOULD BE FOLLOWED. IN THIS VIEW OF THE MATTER, WE RESPECTFUL LY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FO R A.Y. 2004- 05 ALLOW THE CLAIM OF THE PORTFOLIO MANAGEMENT FEES AS AN ALLOWABLE EXPENDITURE. THE GROUND RAISED BY THE ASS ESSEE IS ACCORDINGLY ALLOWED. 14. FOLLOWING THE AFORESAID PRECEDENT, WHICH HAS CO NSIDERED THE SIMILAR OBJECTIONS OF THE CIT(A), IN OUR CONSIDERED OPINION, THE ORDER OF THE CIT(A) IN THE PRESENT CASE IS UNTENABLE AND WE ACCORDINGLY SET- ASIDE THE SAME AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TR IBUNAL, WE REVERSE THE ORDER OF CIT(A). THE DEMAT EXPENDITURE OF RS.1,10,605/- IS ALLOWABLE U/S.48 OF THE ACT. THE GROUND NO.6 RAISED BY THE ASSESSEE. ACCO RDINGLY, GROUND NO.6 RAISED BY THE ASSESSEE IS ALLOWED. 11.2 ON PERUSING THE FINDING GIVEN BY THE TRIBUNAL, IT IS APPA RENT THAT THIS GROUND RELATING TO DEMAT EXPENDITURE STANDS DECIDED IN FAVOUR OF THE ASSESSEE. CONSIDERING THE ABOVE AS WELL AS THE COMMONALIT Y OF THE FACTS OF THE CASE IN HAND, WE ALLOW THE GROUND NO.5 RAISED BY THE ASSESSEE . 12. GROUND NO.6 BY THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENDITURE RELATING TO LAYING OF WATER PIPELINES AMOUNTING TO RS.31,39,226/-. 12.1 RELEVANT FACTS ON THIS ISSUE INCLUDE THAT THE ASSESSE E CLAIMED THE SAID EXPENDITURE AS REVENUE EXPENDITURE. ASSESSEE EXPLA INED THAT THE EXPENDITURE HAS BEEN BOOKED UNDER SCHEDULE-6 ADDITION T O FIXED ASSETS IN RESPECT OF BUILDING TOTALLING TO RS.2,20,19,566/-. ASSESSEE A LSO EXPLAINED THAT ASSESSEE ENTERED INTO LEAVE AND LICENSE AGREEMENT WITH THE EXECUTIVE ENGINEER, KHADAKWASLA IRRIGATION DIVISION ON 11-02-2008 FOR LAYING THE PIPELINE AT A STRETCH OF 6 KILOMETRES FROM THE COMPANY LOCA TION. DETAILS OF BREAKUP OF THE SAID EXPENDITURE ARE ALSO GIVEN BY THE AS SESSEE. ASSESSEE RELIED ON THE DECISION IN THE CASE OF CIT VS. CHOWGULE CHEMIC ALS PVT. LTD. 216 ITR 234. ASSESSEE CONTENDED THAT ASSESSEE IS ENG AGED IN THE BUSINESS ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 17 OF VACCINE PRODUCTION AND PURIFIED WATER IS THE MAIN INGREDIE NT FOR RUNNING THE BUSINESS AND HENCE THE EXPENDITURE IS TO MAINTAIN TH E BUSINESS AND NOT TO CREATE AN ASSET. REJECTING THE EXPLANATIONS GIV EN BY THE ASSESSEE THE AO TREATED THE EXPENDITURE AS CAPITAL EXPENDITURE AND A LLOWED DEPRECIATION @10%, AS APPLICABLE TO THE INTANGIBLE ASSETS. THUS, THE AO MADE NET ADDITION OF RS.31,39,226. IN THE FIRST APPELLATE PROCEEDING S, THE CIT(A) UPHELD THE ADDITION MADE BY THE AO. WHILE DOING SO, THE CI T(A) DISTINGUISHED THE DECISION RELIED ON BY THE ASSESSEE AND H ELD THAT THE EXPENDITURE WAS INCURRED FOR LAYING A NEW WATER PIPELINE T O THE FACTORY PREMISES WHICH BELONGS TO THE ASSESSEE, UNLIKE IN THE CASE OF CIT VS. CHOWGULE CHEMICALS PVT. LTD. AND SUCH EXPENDITURE PROVIDES ENDURING BENEFIT TO THE ASSESSEE OVER A PERIOD OF TIME. AGGRIEVED WITH THE ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 12.2 BEFORE US, LD. COUNSEL FOR THE ASSESSEE DREW THE ATT ENTION TO THE CHART AND SUBMITTED THAT THIS ISSUE WAS THE SUBJECT MA TTER IN THE ASSESSEES OWN CASE FOR THE A.Y. 2009-10 AND THE TRIBU NAL DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THEREFORE, LD. COUNSEL PRA YED FOR ALLOWING THIS GROUND IN FAVOUR OF THE ASSESSEE. 12.3 LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF AO/CIT(A). 12.4 WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS O F THE REVENUE AND THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FO R THE A.Y. 2009-10. WE PROCEED TO EXTRACT THE OBSERVATION MADE BY THE TR IBUNAL AND THE SAME READS AS UNDER : 51. WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF THE REVENUE AS WELL AS THE CITED BINDING JUDGMENT IN THE CASE OF C IT VS. CHOWGULE CHEMICALS PVT. LTD. 216 ITR 234. THERE IS NO DISPUTE ON THE FACTS THAT THE ASSESSEE SPENT RS.72.96 LAKHS (ROUNDED OFF) ON THE PROJECT O F LAYING WATER PIPELINE TO CARRY THE WATER FROM THE SOURCE-POND/RESERVOIR TO T HE FACTORY PREMISES FOR CONTINUOUS SUPPLY OF WATER TO THE COMPANY FOR ITS B USINESS PURPOSES. THE WHOLE OF THE PROJECT INVOLVES A NUMBER OF OBLIGATIO NS OR UNDERTAKINGS GIVEN TO ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 18 THE IRRIGATION DEPARTMENT OF MAHARASHTRA GOVERNMENT IT INVOLVES NUMBER OF CONTROLS AND DISCRETION OF GOVERNMENT OF MAHARASHTR A IN MATTERS PERTAINING TO SUPPLY OF WATER, RIGHTS ON LAND USED FOR CANAL AND ALSO THE ENTIRE CONTINUATION OF THE PROJECT. AS SUCH, THE ASSESSEE IS NOT THE OWNER OF THE LAND THROUGH WHICH THE WATER IS CARRIED TO THE FACTORY P REMISES BUT ONLY HAS THE LEASED RIGHTS. ASSESSEE IS ALSO UNDER OBLIGATION T O PROVIDE WATER TO THE SURROUNDING VILLAGES AS A CONDITION FOR OBTAINING T HE PERMISSION OF THE MAHARASHTRA GOVERNMENT. WATER IS AN ESSENTIAL RAW MATERIAL FOR THE SERUM INSTITUTE AND THE QUALITY OF WATER IS SPECIFIED. T HERE IS NO DISPUTE ON THESE FACTS. FROM THIS POINT OF VIEW, ASSESSEE IS NOT TH E OWNER OF THE LAND/WATER UNDER ANY LAW. ON THE ABOVE FACTS, WE HAVE TO DE CIDE WHAT LAW SHOWN IN THE CASE OF CHOWGULE CHEMICALS PVT. LTD. (SUPRA). ON PERUSAL OF THE SAID JUDGMENT OF JURISDICTIONAL HIGH COURT, WE FIND THE SAID ASSESSEE ALSO INCURRED EXPENDITURE FOR LAYING A NEW PIPELINE FOR SUPPLYING WATER TO THE FACTORY PREMISES OF THE ASSESSEE DURING THE YEAR 1978-1979. ON THE ISSUE OF CAPITAL/REVENUE NATURE OF THE SAID EXPENDITURE, THE HONBLE HIGH COURT HELD IN FAVOUR OF THE ASSESSEE RELYING ON ITS OWN JUDGME NT IN THE CASE OF CIT VS. TATA ENGINEERING AND LOCOMOTIVE COMPANY LTD. 201 IT R 1036. CONTENTS OF PARA 4 OF THE SAID JUDGMENT ARE RELEVANT AND THEREF ORE, THE SAME ARE EXTRACTED AS UNDER : 4. ON A CAREFUL CONSIDERATION OF THE FACTS OF THE PRESENT CASE, WE FIND IT DIFFICULT TO ACCEPT THE ABOVE CONTENTION. T HE VARIOUS TESTS EVOLVED FROM TIME TO TIME BY COURTS TO DETERMINE WH ETHER AN EXPENDITURE IS A REVENUE EXPENDITURE OR CAPITAL EXP ENDITURE ARE TOO WELL KNOWN TO NEED REITERATION. EQUALLY WELL KNOWN IS THE LEGAL POSITION THAT NO TEST CAN BE LAID DOWN FOR THE PURP OSE OF UNIVERSAL APPLICATION. THE SUPREME COURT HAS ALSO GIVEN A NOT E OF CAUTION AGAINST INDISCRIMINATE APPLICATION OF THE OFT REPEA TED TESTS LIKE 'ONCE FOR ALL PAYMENTS' AND 'ENDURING BENEFIT TEST', AND MADE IT CLEAR THAT THESE TESTS ARE NOT TO BE TREATED AS SOMETHING AKIN TO STATUTORY CONDITIONS. WHETHER AN EXPENDITURE IS REVENUE OR CA PITAL WILL DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE AND ON THE APPLICATION OF THE PROPER PRINCIPLES OF LAW. AS OBSERVED BY THIS C OURT IN CIT V. TATA ENGINEERING AND LOCOMOTIVE CO. LTD. [1993] 201 ITR 1036 : '......ONE OF THE GUIDING FACTORS SHOULD BE THE AIM AND OBJECT OF THE EXPENDITURE. THE QUESTION, HOWEVER, WILL HAVE TO BE DECIDED BY LOOKING AT THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE FROM THE POINT OF VIEW OF A PRACTICAL AND PRUDENT BUSINESSMAN RATHER THAN FROM THE ANGLE OF A TAX GATHERER UPON STRICT JURISTIC CLASSI FICATION OF THE LEGAL RIGHTS, IF ANY, SECURED IN THE PROCESS. IN OTHER WO RDS, IN ORDER TO ARRIVE AT A JUST AND PROPER CONCLUSION, ONE MUST LOOK AT T HE TYPE, NATURE AND CHARACTER OF THE ADVANTAGE IN A COMMERCIAL SENSE (W ITHOUT GIVING UNDUE EMPHASIS TO THE FORM THEREOF OR THE TERMINOLO GY USED) IN THE LIGHT OF THE SURROUNDING CIRCUMSTANCES AND IN THE L ARGER CONTEXT OF NECESSITY AND EXPEDIENCY. IF THE EXPENDITURE IS SO RELATED TO THE CARRYING ON OR CONDUCT OF THE BUSINESS THAT IT MAY BE REGARDED AS AN INTEGRAL PART OF THE PROFIT MAKING PROCESS AND NOT FOR ACQUISITION OF AN ASSET OR A RIGHT OF PERMANENT CHARACTER, THE EXPEND ITURE MAY BE REGARDED AS REVENUE EXPENDITURE EVEN THOUGH THE ADV ANTAGE MAY ENDURE FOR SOME INDEFINITE FUTURE. WHAT IS RELEVANT IS THE PURPOSE OF THE OUTLAY AND ITS INTENDED OBJECT AND EFFECT, CONS IDERED IN A COMMONSENSE WAY, HAVING REGARD TO THE BUSINESS REAL ITIES. IN A GIVEN CASE, THE TEST OF 'ENDURING BENEFIT' MIGHT BREAK DO WN......' 5. IT WAS HELD IN THE ABOVE CASE : 'THE 'PURPOSE OF THE OUTLAY', 'ITS INTENDED OBJECT AND EFFECT', CONSIDERED IN A COMMONSENSE WAY, HAVING REGARD TO THE BUSINESS REALITIES, ARE MORE RELEVANT FACTORS FOR DETERMINING WHETHER A PAR TICULAR OUTLAY IS ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 19 CAPITAL OR REVENUE. IN A GIVEN CASE, IF THE SITUATI ON SO REQUIRES, THE TEST OF 'ENDURING BENEFIT' MIGHT EVEN BREAK DOWN UNDER T HE WEIGHT OF THESE CONSIDERATIONS.' 6. APPLYING THE ABOVE PRINCIPLES TO THE FACTS OF T HE PRESENT CASE, WE ARE OF THE CLEAR OPINION THAT THE EXPENDITURE IN CURRED BY THE ASSESSEE WAS A REVENUE EXPENDITURE AND NOT AN EXPEN DITURE OF CAPITAL NATURE AND THE TRIBUNAL WAS JUSTIFIED IN HOLDING SO AND ALLOWING THE DEDUCTION TO THE ASSESSEE IN THE COMPUTATION OF ITS INCOME ON ACCOUNT THEREOF. FROM THE ABOVE, IT IS EVIDENT THAT THE HONBLE HIGH COURT HAS CATEGORICALLY HELD UNDER THE WEIGHT OF OTHER BUSINESS CONSIDERATI ONS, THE TEST OF ENDURING BENEFIT MIGHT EVEN BREAK DOWN. THE SAID VIEW HAS S TRENGTH OF THE SUPREME COURT JUDGMENT IN THE CASE OF DALMIA JAIN AND COMPA NY LTD. VS. CIT 81 ITR 754 AS WELL WHICH IS RELEVANT FOR THE PROPOSITION T HAT CERTAIN LITIGATION EXPENDITURE RELATING TO THE LEASEHOLD RIGHTS CONSTI TUTE REVENUE EXPENDITURE. THEREFORE, WE ARE OF THE OPINION THAT THE EXPENDITURE INCURRED ON LAYING OF THE WATER PIPELINE INVOLVING THE LAND OWN ED BY MAHARASHTRA GOVERNMENT CONSTITUTES REVENUE EXPENDITURE. ACCORDINGLY, GROUND NO.7 RAISED BY THE ASSESSEE IS ALLOWED IN FAVOUR OF THE ASSESSEE. 12.5 ON THE FACTS AS WELL AS ON LAW, THE ISSUE IS LINKED TO THE ONES DECIDED BY US IN A.Y.2009-10. CONSIDERING THE SETTLED NATURE OF THE ISSUE AND FOLLOWING THE RULE OF CONSISTENCY, WE ALLOW GROUND NO.6 IN FAVOU R OF THE ASSESSEE. 13. GROUND NO.7 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE ON ACCOUNT OF SELLING AND DISTRIBUTION EXPENSES AT RS.1,11,64,214/-. 13.1 RELEVANT FACTS ON THIS ISSUE INCLUDE THAT, ASSESSEE D URING THE YEAR UNDER CONSIDERATION, LAUNCHED VARIOUS SCHEMES FOR THE DOC TORS. ON BEING ASKED AS TO WHY THE EXPENDITURE ON THESE SCHEMES SHO ULD NOT BE DISALLOWED U/S.37(1) OF THE ACT, ASSESSEE FURNISHED THE REPLY . THE AO REJECTED THE SUBMISSIONS GIVEN BY THE ASSESSEE RELYING ON THE CBDT CIRCULAR NO.5/2012, DATED 01-08-2012. EVENTUALLY, THE AO DISALLOWED AN AMOUNT OF RS.2,21,01,193/- U/S.37(1) OF THE ACT. HOWEVER, T HE AO ALLOWED THE SET OFF OF THE SAME AGAINST THE ADDITIONAL INCOME DISCLOS ED BY THE ASSESSEE ON NON-BUSINESS EXPENDITURE/OTHER EXPENSES/C ONTINGENCY AT RS.2.25 CRORES. THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A O. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 20 13.2 AGGRIEVED WITH THE CONFIRMATION OF DISALLOWANCE BY THE C IT(A) ON THIS ISSUE, THE ASSESSEE IS IN APPEAL BEFORE US. 13.3 BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE COMPANY IS ONE OF THE LARGEST VACCINE MANUFACTURING COMPANY. DURING THE YEAR, ASSESSEE COMPANY LAUNCHED VARIOUS NEW PRODUCTS, SUCH AS HIBPRO & PENTAVA C. IN ORDER TO MAKE THE DOCTORS AWARE OF THIS INNOVATION, ASSESSEE COMP ANY CONDUCTED A CAMPAIGN INVOLVING PRIVATE DOCTORS FOR ENCOURAGING THE DOC TORS TO CONDUCT VACCINATION ON INFANTS. IN THE PROCESS, A SCHEME WAS FORM ULATED OFFERING DISCOUNT ON THE BASIS OF PURCHASES MADE BY THEM. HE SUBMITTED THAT THE AO FAILED IN PLACING RELYING ON THE NOTIFICATION ISSUED BY MED ICAL COUNCIL OF INDIA DATED 14-09-2009. THE SAID CIRCULAR PROHIBITS MEDICA L PRACTITIONERS, PROFESSIONAL ASSOCIATES FROM TAKING ANY GIFT, TRAVEL FACILITY, HOS PITALITY ETC. AO FAILED TO APPRECIATE THAT THE PHARMA COMPANIES ARE NO T THE MEMBERS OF MEDICAL COUNCIL AND HENCE, THE NOTIFICATION IS NOT APPLICABLE T O THEM. AO FAILED TO APPRECIATE THE FACTS ON RECORDS THAT THE EXPEN DITURE INCURRED BY THE ASSESSEE COMPANY BY GIVING DISCOUNTS AS INCENTIVE TO THE DOCTORS ARE WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. PASSING OF THE DISCOUNTS IS A POST-FACTO STEP, WHICH CANNOT BE EQUATED WITH FREEBIE S, WHICH ARE PROHIBITED BY THE NOTIFICATION OF MEDICAL COUNCIL OF INDIA. SIN CE DISCOUNTS ON PURCHASE OF VACCINES GIVEN TO DOCTORS DO NOT VIOLATE ANY LAWS AND HENCE, ARE NOT COVERED BY EXPLANATION U/S.37(1) OF THE ACT. AO FA ILED TO APPRECIATE THAT THE CIRCULAR ISSUED BY CBDT NO.5/2015 ENLARGES THE SCOPE OF DISALLOWANCE IN THE HANDS OF PHARMA COMPANIES WITHOUT ANY ENABLING NOTIFICATION OR CIRCULAR OF MEDICAL COUNCIL OF INDIA. IN SUPPORT OF ITS CLAIM, LD. COUNSEL RELIED ON THE FOLLOWING DECISIONS : 1. M/S. SOLVAY PHARMA INDIA LTD. VS. PCIT 89 TAXMANN.C OM 249 (MUM. ITAT) ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 21 2. DCIT VS. PHL PHARMA PVT. LTD. 78 TAXMANN.COM 36 (MU M. ITAT) 3. EMCURE PHARMACEUTICALS LTD. VS. DCIT ITA NO.1532/ PUN/2015 13.4 ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE AO/CIT(A). 13.5 ON HEARING BOTH THE PARTIES AND THE ORDERS OF THE REVENUE. WE FIND IDENTICAL ISSUE WAS THE SUBJECT MATTER IN THE ASSESSEE S OWN CASE IN ITA NO.549/PUN/2016, DATED 12-10-2018 FOR THE A.Y. 2011-12 HAS BEEN ALLOWED IN FAVOUR OF THE ASSESSEE. WE THEREFORE PROCEED T O EXTRACT THE FINDING GIVEN BY THE TRIBUNAL HERE AS UNDER: 15.5 WE HEARD BOTH THE SIDES AND PERUSED THE ORDER S OF THE REVENUE AND THE DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. WE PERUSED THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF EMCURE PHARMACEUTICALS LTD. DECIDED ON 29-01-2018 (SUPRA) HAD AN OCCASION TO DECIDE AN IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE . WE PROCEED TO EXTRACT THE FINDINGS GIVEN BY THE TRIBUNAL HERE AS UNDER FOR TH E SAKE OF COMPLETENESS : 8. WE HEARD BOTH THE PARTIES ON THE ISSUE OF REQUI REMENT OF MAKING DISALLOWANCE U/S.37(1) OF THE ACT IN RESPECT OF THE COMPANIES, THE GIVER OF THE GIFTS AND THE ARTICLES AND OTHERS TO THE MEDICAL PROFESSIONALS. THERE IS NO DISPUTE ON THE FACT THAT CLAIM OF RS.76,28,622/- WAS BY THE ASSESSEE ON THE GIFTS AND OTHER BENEFITS PASSED ON TO THE MEDICAL PROFESSIONALS. THERE IS AL SO NO DISPUTE ON THE TAXABILITY OF THE SAME IN THE HANDS OF THE SAID MED ICAL PROFESSIONALS. THE ONLY DISPUTE RELATES TO THE CORRECT LEGAL POSIT ION WITH REGARD TO DISALLOWABILITY OF THE SAME U/S.37(1) OF THE ACT IN THE CASES OF PHARMACEUTICAL COMPANIES. WE FIND THIS ISSUE IS NOW SQUARELY COVERED BY THE DECISIONS OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. PHL PHARMA PVT. LTD.DECIDED ON 12-01-2017 AND I N THE CASE OF M/S. SOLVAY PHARMA INDIA LTD. VS. PR.CIT DECIDED ON 11-01-2018. FOR THE SAKE OF COMPLETENESS OF THE ORDER, WE PROCEED T O EXTRACT THE OPERATIONAL FINDING FROM THE AFORESAID ORDERS OF TH E TRIBUNAL. FINDING FROM PHL PHARMA PVT. LTD. '6. ON A PLAIN READING OF THE AFORESAID NOTIFICATIO N, WHICH HAS BEEN HEAVILY RELIED UPON BY THE DEPARTMENT, IT IS QUITE APPARENT THAT THE CODE OF CONDUCT ENSHRINED THEREIN IS MEANT TO BE FO LLOWED AND ADHERED BY MEDICAL PRACTITIONERS/DOCTORS ALONE. IT ILLUSTRA TES THE VARIOUS KINDS OF CONDUCT OR ACTIVITIES WHICH A MEDICAL PRACTITION ER SHOULD AVOID WHILE DEALING WITH PHARMACEUTICAL COMPANIES AND ALLIED HE ALTH SECTOR INDUSTRY. IT PROVIDES GUIDELINES TO THE MEDICAL PRA CTITIONERS OF THEIR ETHICAL CODES AND MORAL CONDUCT. NOWHERE THE REGULA TION OR THE NOTIFICATION MENTIONS THAT SUCH A REGULATION OR COD E OF CONDUCT WILL COVER PHARMACEUTICAL COMPANIES OR HEALTH CARE SECTO R IN ANY MANNER. THE DEPARTMENT HAS NOT BROUGHT ANYTHING ON RECORD T O SHOW THAT THE AFORESAID REGULATION ISSUED BY MEDICAL COUNCIL OF I NDIA IS MEANT FOR PHARMACEUTICAL COMPANIES IN ANY MANNER........ ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 22 THE AFORESAID PROVISION APPLIES TO AN ASSESSEE WHO IS CLAIMING DEDUCTION OF EXPENDITURE WHILE COMPUTING HIS BUSINE SS INCOME. THE EXPLANATION PROVIDES AN EMBARGO UPON ALLOWING ANY E XPENDITURE INCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS A N OFFENCE OR WHICH IS PROHIBITED BY LAW. THIS MEANS THAT THERE SHOULD BE AN OFFENCE BY AN ASSESSEE WHO IS CLAIMING THE EXPENDITURE OR THERE I S ANY KIND OF PROHIBITION BY LAW WHICH IS APPLICABLE TO THE ASSES SEE. HERE IN THIS CASE, NO SUCH OFFENCE OF LAW HAS BEEN BROUGHT ON RE CORD, WHICH PROHIBITS THE PHARMACEUTICAL COMPANY NOT TO INCUR A NY DEVELOPMENT OR SALES PROMOTION EXPENSES. A LAW WHICH IS APPLICABLE TO DIFFERENT CLASS OF PERSONS OR PARTICULAR CATEGORY OF ASSESSEE, SAME CANNOT BE MADE APPLICABLE TO ALL. THE REGULATION OF 2002 ISSUED BY THE MEDICAL COUNCIL OF INDIA (SUPRA), PROVIDES LIMITATION/CURB/PROHIBIT ION FOR MEDICAL PRACTITIONERS ONLY AND NOT FOR PHARMACEUTICAL COMPA NIES........... 10. FROM THE PERUSAL OF THE NATURE OF EXPENDITURE I NCURRED BY THE ASSESSEE, IT IS SEEN THAT UNDER THE HEAD 'CUSTOMER RELATIONSHIP MANAGEMENT', THE ASSESSEE ARRANGES NATIONAL LEVEL S EMINAR AND DISCUSSION PANELS OF EMINENT DOCTORS AND INVITING O F OTHER DOCTORS TO PARTICIPATE IN THE SEMINARS ON A TOPIC RELATED TO T HERAPEUTIC AREA. IT ARRANGES LECTURES AND SPONSORS KNOWLEDGE UPGRADE CO URSE WHICH HELPS PHARMACEUTICAL COMPANIES TO MAKE AWARE OF THE PRODUCTS AND MEDICINES MANUFACTURED AND LAUNCHED BY IT. UNDER KE Y ACCOUNT MANAGEMENT, THE ASSESSEE MAKES ENDEAVOUR TO CREATE AWARENESS AMONGST CERTAIN CLASS OF KEY DOCTORS ABOUT THE PROD UCTS OF THE ASSESSEE AND THE NEW DEVELOPMENTS TAKING PLACE IN T HE AREA OF MEDICINE AND PROVIDING CORRECT DIAGNOSIS AND TREATM ENT OF THE PATIENTS. THE SAID ACTIVITIES BY THE ASSESSEE ARE T O MAKE THE DOCTORS AWARE OF ITS PRODUCTS AND RESEARCH WORK CARRIED OUT BY IT FOR BRINGING THE MEDICINE IN THE MARKET AND ITS RESULTS ARE BASE D ON SEVERAL LEVELS OF TESTS AND APPROVALS. UNLESS THE PHARMACEUTICAL C OMPANIES MAKE AWARE OF SUCH KIND OF PRODUCTS TO KEY DOCTORS OR ME DICAL PRACTITIONERS, THEN ONLY IT CAN SUCCESSFULLY LAUNCH ITS PRODUCTS/M EDICINES. THIS KIND OF EXPENDITURE IS DEFINITELY IN THE NATURE OF SALES AND BUSINESS PROMOTION, WHICH HAS TO BE ALLOWED...... FINDING FROM M/S. SOLVAY PHARMA INDIA LTD. '17. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREF ULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO DE LIBERATED ON THE JUDICIAL PRONOUNCEMENTS CITED BY LEARNED AR AND DR DURING THE COURSE OF HEARING BEFORE US AS WELL AS REFERRED BY CIT IN HIS ORDER PASSED U/S.263 OF THE IT ACT, IN THE CONTEXT OF FACTUAL MA TRIX OF THE CASE. IN THIS CASE, WE FOUND FROM RECORD THAT THE ASSESSEE I S ENGAGED IN THE MANUFACTURING OF PHARMACEUTICAL PRODUCTS. IN THE CO URSE OF ITS BUSINESS IT HAS INCURRED EXPENDITURE ON ADVERTISEME NT AND PUBLICITY. WHILE FRAMING THE ASSESSMENT, AO HAS CALLED FOR THE DETAIL OF EXPENDITURE SO INCURRED AND EXAMINED THE NATURE OF EXPENDITURE AND THEREAFTER ONLY AO HAS ALLOWED THE EXPENDITURE AS H AVING BEEN INCURRED FOR THE PURPOSE OF BUSINESS. WE HAD ALSO C AREFULLY GONE THROUGH THE NOTIFICATION DATED 11/03/2002 NOTIFYING THE REGULATIONS ISSUED BY THE MEDICAL COUNCIL OF INDIA (MCI). THE C ODE OF CONDUCT LAID DOWN IN THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CO NDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 ('MCI REGULATIONS') I SSUED WITH EFFECT FROM 10TH DECEMBER 2009 APPLIES ONLY TO DOCTORS AND NOT TO PHARMACEUTICAL AND MEDICAL DEVICE COMPANIES. ACCORD INGLY, MCI REGULATIONS ARE NOT APPLICABLE TO ASSESSEE, THE QUE STION OF ASSESSEE INCURRING EXPENDITURE IN ALLEGED VIOLATION OF THE R EGULATIONS DOES NOT ARISE. 18. ON THE PLAIN AND SIMPLE READING OF THE PROVISIO N OF THE INDIAN MEDICAL COUNCIL ACT, 1956, IT IS APPARENT THAT THE AMBIT OF STATUTORY ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 23 PROVISIONS RELATING TO PROFESSIONAL CONDUCT OF REGI STERED MEDICAL PRACTITIONERS UNDER THE INDIAN MEDICAL COUNCIL ACT, 1956 IS RESTRICTED ONLY TO PERSONS REGISTERED AS MEDICAL PRACTITIONERS WITH THE STATE MEDICAL COUNCIL AND WHOSE NAMES ARE ENTERED INTO TH E INDIAN MEDICAL REGISTER MAINTAINED U/S 21 OF THE ACT. 'UNDER THE S CHEME OF THE ACT. 19. FURTHERMORE, THERE IS NO AMBIGUITY OF ANY KIND IN THE SCHEME OF THE INDIAN MEDICAL COUNCIL ACT, 1956 THAT IT NEITHE R DEALS WITH NOR PROVIDES FOR ANY CONDUCT OF ANY ASSOCIATION / SOCIE TY AND DEALS ONLY WITH THE CONDUCT OF INDIVIDUAL REGISTERED MEDICAL P RACTITIONERS. THERE IS NO OTHER INTERPRETATION, WHICH IS POSSIBLE UNDER TH E ACT. 20. THE INTENT OF THE APPLICABILITY OF THE MCI REGU LATIONS WAS ALWAYS TO COVER ONLY INDIVIDUAL MEDICAL PRACTITIONERS, AND NOT THE PHARMACEUTICAL AND MEDICAL DEVICE COMPANIES. WHETHER THERE IS ANY CONTRAVENTION OF THE MCI REGULATIONS OR NOT IS A MA TTER WHICH CAN BE DECIDED BY THE MCI ITSELF AND NOT BY THE INCOME-TAX DEPARTMENT. FURTHERMORE, THE MCI HAS ITSELF ADMITTED THAT IT HA S NO JURISDICTION WHATSOEVER OVER ANY ASSOCIATION/ SOCIETY ETC AND IT S JURISDICTION IS CONFINED ONLY TO THE CONDUCT OF THE REGISTERED MEDI CAL PRACTITIONERS. FURTHERMORE, SINCE THE SAID MCI REGULATIONS 2002 CO NTAINS PUNITIVE 'PROVISIONS, IT HAS TO BE READ STRICTLY AND CONSEQU ENTLY IT CAN APPLY ONLY TO MEDICAL PRACTITIONERS AND PHYSICIANS AND NO T TO THE PHARMACEUTICAL COMPANIES. FURTHER, MCI ACT, 1956 DO ES NOT APPLY PHARMACEUTICAL COMPANIES AND CONSEQUENTLY MCI REGUL ATIONS 2002 CANNOT APPLY TO SUCH COMPANIES. 21. CBDT CIRCULAR NO. 5 OF 2012 SEEKS TO DISALLOW E XPENDITURE INCURRED BY PHARMACEUTICAL COMPANIES INTER-ALIA IN PROVIDING 'FREEBIES' TO DOCTORS IN VIOLATION OF THE MCI REGULATIONS. THE TERM 'FREEBIES' HAS NEITHER BEEN DEFINED IN THE INCOME-TAX ACT NOR IN T HE MCI REGULATIONS'. HOWEVER, THE EXPENDITURE SO INCURRED BY ASSESSEE DO ES NOT AMOUNT TO PROVISION OF 'FREEBIES' TO MEDICAL PRACTITIONERS. T HE EXPENDITURE INCURRED BY IT IS IN THE NORMAL COURSE OF ITS BUSINESS FOR T HE PURPOSE OF MARKETING OF ITS PRODUCTS AND DISSEMINATION OF KNOW LEDGE ETC AND NOT WITH A VIEW TO GIVING SOMETHING FREE OF CHARGE TO T HE DOCTORS. THE ACT OF GIVING SOMETHING FREE OF CHARGE IS INCIDENTAL TO TH E MAIN OBJECTIVE OF PRODUCT AWARENESS. ACCORDINGLY, IT DOES NOT AMOUNT TO PROVISION OF FREEBIES. CONSEQUENTLY, THERE IS NO QUESTION OF CON TRAVENTION OF THE MCI REGULATIONS AND APPLICABILITY OF CIRCULAR NO. 5 OF 2012 FOR DISALLOWANCE OF THE EXPENDITURE. 22. THE DEPARTMENT HAS NOT BROUGHT ANYTHING ON RECO RD TO SHOW THAT THE AFORESAID REGULATION ISSUED BY MEDICAL COUNCIL OF INDIA IS MEANT FOR PHARMACEUTICAL COMPANIES IN ANY MANNER. ON THE CONTRARY, THE ASSESSEE HAS BROUGHT TO THE NOTICE OF THE BENCH THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF MAX HOSPITAL V. MCI IN [WPC 1334 OF 2013, DATED 10-1-2014], WHEREIN THE MEDICAL COUNCIL OF INDIA ADMITTED THAT THE INDIAN MEDICAL COUNCIL REGULATION OF 2002 HAS JURISDICTION TO TAKE ACTION ONLY AGAINST THE MEDICAL PRACTITIONERS AND NOT TO HEALTH SECTOR INDUSTRY. FROM THE AFORESAID DECISION, IT IS OSTENSIBLY CLEAR THAT THE MEDICAL COUNCIL OF INDIA HAS NO JURISDICTION TO PASS ANY ORDER OR REGULATION AGAINST ANY HOSPITAL OR ANY HEALTH CARE SECTOR UNDER ITS 2002 REGULATION. SO ONCE THE INDIAN MEDICAL COUNCIL REGULATION DOES NOT HAVE ANY JURISDICTION NOR HAS ANY AUTHORITY UND ER LAW UPON THE PHARMACEUTICAL COMPANY OR ANY ALLIED HEALTH SECTOR INDUSTRY, THEN SUCH A REGULATION CANNOT HAVE ANY PROHIBITORY EFFEC T ON THE PHARMACEUTICAL COMPANY LIKE THE ASSESSEE. IF MEDICA L COUNCIL REGULATION DOES NOT HAVE ANY JURISDICTION UPON PHAR MACEUTICAL COMPANIES AND IT IS INAPPLICABLE UPON PHARMA COMPAN IES LIKE ASSESSEE THEN, WHERE IS THE VIOLATION OF ANY OF LAW /REGULATION? UNDER ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 24 WHICH PROVISION THERE IS ANY OFFENCE OR VIOLATION I N INCURRING OF SUCH KIND OF EXPENDITURE. 23. NOW COMING TO THE EXPLANATION TO SECTION 37(1) INVOKED BY THE CIT, THE EXPLANATION PROVIDES AN EMBARGO UPON ALLOWING A NY EXPENDITURE INCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS A N OFFENCE OR WHICH IS PROHIBITED BY LAW. THIS MEANS THAT THERE SHOULD BE AN OFFENCE BY AN ASSESSEE WHO IS CLAIMING THE EXPENDITURE OR THERE I S ANY KIND OF PROHIBITION BY LAW WHICH IS APPLICABLE TO THE ASSES SEE. HERE IN THIS CASE, NO SUCH OFFENCE OF LAW HAS BEEN BROUGHT ON RE CORD, WHICH PROHIBITS THE PHARMACEUTICAL COMPANY NOT TO INCUR A NY DEVELOPMENT OR SALES PROMOTION EXPENSES. A LAW WHICH IS APPLICABLE TO DIFFERENT CLASS OF PERSONS OR PARTICULAR CATEGORY OF ASSESSEE, SAME CANNOT BE MADE APPLICABLE TO ALL. THE REGULATION OF 2002 ISSUED BY THE MEDICAL COUNCIL OF INDIA (SUPRA), PROVIDES LIMITATION/CURB/PROHIBIT ION FOR MEDICAL PRACTITIONERS ONLY AND NOT FOR PHARMACEUTICAL COMPA NIES. HERE THE MAXIM OF 'EXPRESSIO UNIUS EST EXCLUSIO ALTERIUS' IS CLEARLY APPLICABLE, THAT IS, IF A PARTICULAR EXPRESSION IN THE STATUTE IS EXPRESSLY STATED FOR PARTICULAR CLASS OF ASSESSEE THEN BY IMPLICATION WH AT HAS NOT BEEN STATED OR EXPRESSED IN THE STATUTE HAS TO BE EXCLUD ED FOR OTHER CLASS OF ASSESSEE. IF THE MEDICAL COUNCIL REGULATION IS APPL ICABLE TO MEDICAL PRACTITIONERS THEN IT CANNOT BE MADE APPLICABLE TO PHARMA OR ALLIED HEALTH CARE COMPANIES. IF SECTION 37(1) IS APPLICAB LE TO AN ASSESSEE CLAIMING THE EXPENSE THEN BY IMPLICATION, ANY IMPAI RMENT CAUSED BY EXPLANATION 1 WILL APPLY TO THAT ASSESSEE ONLY. ANY IMPAIRMENT OR PROHIBITION BY ANY LAW/REGULATION ON A DIFFERENT CL ASS OF PERSON/ASSESSEE WILL NOT IMPINGE UPON THE ASSESSEE CLAIMING THE EXPENDITURE UNDER THIS SECTION. 24. WE OBSERVE THAT THE CBDT CIRCULAR DATED 1-8-201 2 (SUPRA) IN ITS CLARIFICATION HAS ENLARGED THE SCOPE AND APPLICABIL ITY OF 'INDIAN MEDICAL COUNCIL REGULATION 2002' BY MAKING IT APPLICABLE TO THE PHARMACEUTICAL COMPANIES OR ALLIED HEALTH CARE SECTOR INDUSTRIES. SUCH AN ENLARGEMENT OF SCOPE OF MCI REGULATION TO THE PHARMACEUTICAL CO MPANIES BY THE CBDT IS WITHOUT ANY ENABLING PROVISIONS EITHER UNDE R THE PROVISIONS OF INCOME TAX LAW OR BY ANY PROVISIONS UNDER THE INDIA N MEDICAL COUNCIL REGULATIONS. THE CBDT CANNOT PROVIDE CASUS OMISSUS TO A STATUTE OR NOTIFICATION OR ANY REGULATION WHICH HAS NOT BEEN E XPRESSLY PROVIDED THEREIN. THE CBDT CAN TONE DOWN THE RIGOURS OF LAW AND ENSURE A FAIR ENFORCEMENT OF THE PROVISIONS BY ISSUING CIRCULARS AND BY CLARIFYING THE STATUTORY PROVISIONS. CBDT CIRCULARS ACT LIKE 'CONT EMPORANEA EXPOSITIO' IN INTERPRETING THE STATUTORY PROVISIONS AND TO ASC ERTAIN THE TRUE MEANING ENUNCIATED AT THE TIME WHEN STATUTE WAS ENA CTED. HOWEVER THE CBDT IN ITS POWER CANNOT CREATE A NEW IMPAIRMEN T ADVERSE TO AN ASSESSEE OR TO A CLASS OF ASSESSEE WITHOUT ANY SANC TION OF LAW. THE CIRCULAR ISSUED BY THE CBDT MUST CONFIRM TO TAX LAW S AND FOR PURPOSE OF GIVING ADMINISTRATIVE RELIEF OR FOR CLARIFYING T HE PROVISIONS OF LAW AND CANNOT IMPOSE A BURDEN ON THE ASSESSEE, LEAVE ALONE CREATING A NEW BURDEN BY ENLARGING THE SCOPE OF A DIFFERENT REGULA TION ISSUED UNDER A DIFFERENT ACT SO AS TO IMPOSE ANY KIND OF HARDSHIP OR LIABILITY TO THE ASSESSEE. IN ANY CASE, IT IS TRITE LAW THAT THE CBD T CIRCULAR WHICH CREATES A BURDEN OR LIABILITY OR IMPOSES A NEW KIND OF IMPARITY, SAME CANNOT BE RECKONED RETROSPECTIVELY. THE BENEFICIAL CIRCULAR MAY APPLY RETROSPECTIVELY BUT A CIRCULAR IMPOSING A BURDEN HA S TO BE APPLIED PROSPECTIVELY ONLY. HERE IN THIS CASE THE CBDT HAS ENLARGED THE SCOPE OF 'INDIAN MEDICAL COUNCIL REGULATION, 2002' AND MA DE IT APPLICABLE FOR THE PHARMACEUTICAL COMPANIES. THEREFORE, SUCH A CBD T CIRCULAR CANNOT BE RECKONED TO HAVE RETROSPECTIVE EFFECT. THE FREE SAMPLE OF MEDICINE IS ONLY TO PROVE THE EFFICACY AND TO ESTABLISH THE TRU ST OF THE DOCTORS ON THE QUALITY OF THE DRUGS. THIS AGAIN CANNOT BE RECK ONED AS FREEBIES GIVEN TO THE DOCTORS BUT FOR PROMOTION OF ITS PRODU CTS. THE PHARMACEUTICAL COMPANY, WHICH IS ENGAGED IN MANUFAC TURING AND ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 25 MARKETING OF PHARMACEUTICAL PRODUCTS, CAN PROMOTE I TS SALE AND BRAND ONLY BY ARRANGING SEMINARS, CONFERENCES AND THEREBY CREATING AWARENESS AMONGST DOCTORS ABOUT THE NEW RESEARCH IN THE MEDICAL FIELD AND THERAPEUTIC AREAS, ETC. EVERY DAY THERE A RE NEW DEVELOPMENTS TAKING PLACE AROUND THE WORLD IN THE A REA OF MEDICINE AND THERAPEUTIC, HENCE IN ORDER TO PROVIDE CORRECT DIAGNOSIS AND TREATMENT OF THE PATIENTS, IT IS IMPERATIVE THAT TH E DOCTORS SHOULD KEEP THEMSELVES UPDATED WITH THE LATEST DEVELOPMENTS IN THE MEDICINE AND THE MAIN OBJECT OF SUCH CONFERENCES AND SEMINARS IS TO UPDATE THE DOCTORS OF THE LATEST DEVELOPMENTS, WHICH IS BENEFI CIAL TO THE DOCTORS IN TREATING THE PATIENTS AS WELL AS THE PHARMACEUTICAL COMPANIES.' 9. THE ABOVE JUDGMENTAL LAWS ARE RELEVANT FOR THE P ROPOSITION THAT THE CIRCULAR ISSUED BY THE CBDT ENLARGING THE SCOPE OF DISALLOWANCE TO THE PHARMACEUTICAL COMPANIES IS WIT HOUT ANY ENABLING NOTIFICATION OR CIRCULAR OF THE MEDICAL CO UNCIL OF INDIA. CONSIDERING THE SETTLED LEGAL POSITION ON TH E ISSUE, WE ARE OF THE OPINION THAT THE ISSUE NOW STANDS COVERE D IN FAVOUR OF THE ASSESSEE. THE PHARMACEUTICAL COMPANY LIKE TH E ASSESSEE IS OUTSIDE THE SCOPE OF THE CIRCULARS BY THE MEDICA L COUNCIL OF INDIA OR THE CBDT. THEREFORE, THE CONCLUSIONS OF TH E AO/CIT(A) IN THIS REGARD ARE REVERSED. THUS, THE GROUNDS RAIS ED BY THE ASSESSEE ARE REQUIRED TO BE ALLOWED. FROM THE ABOVE, IT IS EVIDENT THAT THE SCOPE OF THE CBDT CIRCULAR CANNOT BE EXTENDED TO THE PHARMACEUTICAL COMPANIES WITHOUT HA VING ANY ENABLING NOTIFICATION OR CIRCULAR FOR MEDICAL COUNCIL OF IND IA. CONSEQUENTLY, THE PRESENT ASSESSEE BEING A PHARMACEUTICAL COMPANY IS OUTSIDE THE SCOPE OF THE SAID CIRCULARS OF MCI AND THE CBDT. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE GROUND NO.10/MODIFIED GROUND NO.10 RAISED BY THE ASSESSEE SHOULD BE ALLOWED IN FAVOUR OF THE ASSESSE E. 13.6 THUS, THE ABOVE RATIO OF OUR DECISION IN A.Y.2009-10 IS APPLICABLE TO THIS YEAR TOO. CONSEQUENTLY, THE CIRCULAR OF CBDT IS IN-AP PLICABLE TO THE PRESENT CASE AS HELD BY US. CONSIDERING THE SETTLED NAT URE OF THE ISSUE AND FOLLOWING THE RULE OF CONSISTENCY, THIS GROUND RAISED BY THE ASSESSEE NEEDS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, GRO UND NO.7 RAISED BY THE ASSESSEE IS ALLOWED. 14. GROUND NO.8 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF RENT PAID FOR BUNGALOW LOCATED AT 70, KOREGAON PARK , PUNE. 14.1 BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T SERUM INSTITUTE PAID RENT OF RS.30 DURING THE YEAR UNDER CONSID ERATION. ALLOWABILITY OF THE SAID EXPENDITURE INCURRED THE RENT AND T HE REPAIRS/RENOVATION WAS THE BONE OF CONTENTION BETWEEN THE ASSESSEE AND ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 26 THE REVENUE OVER THE YEARS. EVENTUALLY, THE TRIBUNAL D ECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND HELD THAT THE SAID EXPENDITUR E INCURRED ON REPAIRS AND RENOVATION CONSTITUTES REVENUE EXPENDITURE AND ALLOWABLE U/S.37(1) OF THE ACT. LD. COUNSEL DREW OUR ATTENTION TO TH E ORDER OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y. 2009-10 TO DEMONSTR ATE THE FACT OF DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. 14.2 WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS O F THE REVENUE. ON GOING THROUGH THE ORDER OF TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE A.Y. 2009-10. WE FIND THIS IS A DECIDED ISSUE AND THEREFORE, WE PROCEED TO EXTRACT THE FINDING GIVEN BY THE TRIBUNAL (SUPRA) AND THE S AME READS AS UNDER : 54. WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF THE REVENUE AND THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CAS E FOR THE A.YRS. 2006-07 AND 2007-08. ON PERUSAL OF THE SAID ORDER OF THE T RIBUNAL (SUPRA), IT IS EVIDENT THAT THE GROUND RAISED IN THIS APPEAL RELAT ES TO RENT AS WELL AS EXPENDITURE INCURRED ON REPAIRS AND RENOVATION. AT THE END OF THE PROCEEDINGS, THE TRIBUNAL ALLOWED THE GROUND RAISED BY THE ASSESSEE. WE FIND IT RELEVANT TO EXTRACT THE RELEVANT PARAS OF T HE TRIBUNAL (SUPRA) AND THE SAME READS AS UNDER : 25. ON THIS ISSUE, LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT SIMILAR ISSUE WAS ADJUDICATED IN ASSESSEES OWN CAS E FOR A.Y. 2005- 06 IN HIS FAVOUR. BRINGING OUR ATTENTION TO PARA N OS. 35 TO 37 OF THE ORDER OF THE TRIBUNAL IN ITA NO.1703/PN/2014 DATED 30-11-2016, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENDI TURE INCURRED ON REPAIRS/RENOVATION OF THE BUNGALOW WAS ALLOWED, AS BUSINESS EXPENDITURE OF THE ASSESSEE. 26. ON HEARING BOTH THE SIDES ON THIS ISSUE, WE PER USED THE SAID PARAGRAPHS OF THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE DATED 30-11-2016 AND FOR THE SAKE OF COMPLETENESS, WE PRO CEED TO EXTRACT THE RELEVANT LINES OF THE OPERATIONAL PARA. THE SAM E READS AS UNDER : 35. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE EXPENDITURE OF RS.1,17,88,000/- INCURRED ON REPAIRS AND RENOVATION ON BUNGALOW LOCATED AT 70 , KOREGAON PARK, PUNE HAS TO BE ALLOWED AS A BUSINESS EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A). THE G ROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 27. WE FIND THAT THE ARGUMENTS RAISED BY THE LD. DR FOR THE REVENUE ARE IDENTICALLY RAISED IN THE SAID APPEAL P ROCEEDINGS FOR A.Y. 2005-06. FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005-06 (SUPRA), WE ARE OF THE OPINIO N THAT THIS ISSUE ALSO ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 27 SHOULD BE ALLOWED IN FAVOUR OF THE ASSESSEE. ACCOR DINGLY, GROUND NO.4 RAISED BY THE ASSESSEE IS ALLOWED. ALTHOUGH, THE ABOVE FINDING DID NOT SPECIFY THE REN T EXPENDITURE IN FACT, THE GROUND IS ON THE RENT ONLY. THEREFORE, THE GRO UND RAISED BY THE ASSESSEE STANDS ALLOWED IN FAVOUR OF THE ASSESSEE. CONSIDERING THE ABOVE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CA SE, WE ARE OF THE OPINION THAT THE EXPENDITURE ON ACCOUNT OF RENT PAI D ON THE HOUSE PROPERTY IS ALLOWABLE IN FAVOUR OF THE ASSESS EE. 55. REGARDING THE OTHER LIMB OF GROUND RELATING TO ALLOWABILITY OF DEPRECIATION OF CAPITAL EXPENDITURE IN CONNECTION W ITH THE SAID HOUSE PROPERTY AT 70, KOREGAON PARK, IT IS NOW SETTLED LEGAL ISSUE THAT THE EXPENDITURE BY SERUM INSTITUTE OF INDIA LTD. CONSTITUTES AN ALLOWA BLE EXPENDITURE SO LONG AS THERE ARE REVENUE IN NATURE. REGARDING THE EXPENDI TURE OF CAPITAL NATURE OF SAME ANALOGY, ASSESSEE ONLY WANTED ALLOWABILITY OF DEPRECIATION ON THE SAID CAPITALISED EXPENDITURE CONSIDERED FOR BUSINESS PUR POSES. 56. ON HEARING BOTH THE PARTIES ON THIS ISSUE, WE F IND THERE IS NO CLARITY WITH REFERENCE TO THE CAPITALISED ITEMS OF ASSETS C REDITED TO THE SERUM INSTITUTE OF INDIA LTD. IN THE SAID HOUSE PREMISES OCCUPIED BY MR. Z.S. POONAWALLA, APPLICABLE RATE OF DEPRECIATION AND THE USE OF THE ASSET ETC. AS DISCUSSED IN THE OPEN COURT, WE ARE OF THE OPINION THAT THIS LIMB OF THE GROUND SHOULD BE REMANDED TO THE FILE OF AO FOR FRE SH ADJUDICATION AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE IN ACCORDANCE WITH THE SET PRINCIPLES OF NATURAL JU STICE. ACCORDINGLY, THIS PART OF THE ISSUE IS ALLOWED FOR STATISTICAL P URPOSES. THUS, GROUND NO.8 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 14.3 CONSIDERING THE ABOVE AND RULE OF CONSISTENCY, WE ALLO W THE EXPENDITURE ON ACCOUNT OF RENT PAID IN FAVOUR OF THE ASS ESSEE AND REMIT THE ISSUE PERTAINING TO DEPRECIATION WITH IDENTICAL DIRECTIONS. AC CORDINGLY, GROUND NO.8 BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOS ES. 15. GROUND NO.9 RAISED BY THE ASSESSEE RELATES TO DISALLO WANCE OF RS.7,78,950/- ON ACCOUNT OF BOGUS PURCHASES. 15.1 RELEVANT FACTS ON THIS ISSUE INCLUDE THAT AO DISALLOWED RS.7,78,950/- BEING PURCHASES MADE FROM B.S. ENTERPRISES AND THE CIT(A ) RELYING ON THE ORDER OF HIS PREDECESSOR FOR THE A.Y. 2009-10 CONFIRMED TH E DISALLOWANCE MADE BY THE AO. CONTRACT OF PARA NO.16 OF THE ORDER OF CIT(A) ARE RELEVAN T. 15.2 AGGRIEVED WITH THE ORDER OF CIT(A) ON THIS ISSUE, THE A SSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 28 15.3 WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS O F THE REVENUE. CONSIDERING THE NATURE OF THE ISSUE, WE FIND THE PUNE BENC HES OF THE TRIBUNAL HAS DECIDED THE ISSUE IN A SERIES OF DECISIONS. WE FIND THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. CHHABI ELECTRICALS PVT. LTD. AND OTHERS VS. DCIT IN ITA NO.795/PUN/2014, RELATING TO ASSES SMENT YEAR 2010-11, DECIDED ON 28-04-2017 IS NOT AVAILABLE TO THE AO /CIT(A). IN THIS CASE, THE TRIBUNAL ANALYSED VARIOUS BENEFICIARIES OF SUCH B OGUS ENTRY OPERATORS AND DEPENDING ON THE SUBMISSION OF THE EVIDENC ES WITH REGARD TO THE TRAIL OF GOODS, PAYMENT ETC. THE TRIBUNAL IDENTIFIED 4 TY PES OF CATEGORIES. FOR THE SAKE OF COMPLETENESS, WE PROCEED TO EXTRACT TH E SAID PARAGRAPHS FROM THE ORDER OF THE TRIBUNAL (SUPRA) AND THE SAME READ AS UNDER : 40. IN VIEW OF THE ABOVE SAID RATIOS, THE PRESENT ISSUE OF BOGUS PURCHASES IS TO BE DECIDED ON THE BASIS OF FACTS OF EACH CASE . THE FIRST ASPECT IS THE INFORMATION RECEIVED BY THE ASSESSING OFFICER FROM THE SALES TAX DEPARTMENT IN RESPECT OF ALLEGED HAWALA DEALERS. IN MANY CASES, THE ASSESSING OFFICER HAS NOT EVEN RECEIVED THE COPY OF STATEMENT RECORDED OR ANY OTHER EVIDENCE FROM THE SALES TAX DEPARTMENT, EXCEPT THE LIST OF HAWALA DEA LERS AND ON THE BASIS OF THE SAID LIST, THE ASSESSMENT PROCEEDINGS HAVE BEEN COM PLETED IN THE HANDS OF ASSESSEE, WHO HAD MADE THE PURCHASES FROM THE SAID PARTIES. IN CASE, NO SUCH EVIDENCE HAS BEEN RECEIVED BY THE ASSESSING OFFICER BEFORE MAKING ADDITION, THEN THERE IS NO WARRANT IN MAKING AFORESAID ADDITI ON IN THE HANDS OF ASSESSEE MERELY ON THE BASIS OF SO CALLED LIST OF HAWALA DEA LERS. THERE ARE OTHER CASES, WHERE THE ASSESSING OFFICER HAD RECEIVED THE STATEM ENT OF THE PERSONS WHO WERE HAWALA DEALERS AND WHO HAD ADMITTED TO HAVE JU ST ISSUED BILLS OF SALE WITHOUT DELIVERY OF GOODS. IN SUCH CIRCUMSTANCES, THERE IS EVIDENCE AGAINST THE RESPECTIVE ASSESSEE THAT WHERE THE SELLER OF THE GO ODS, HAS ADMITTED NOT TO HAVE ENTERED INTO REAL TRANSACTION OF SALE OF GOODS. AG AINST SUCH NON-TRANSACTION, THERE CAN BE NO DELIVERY OF GOODS, THEN IT IS CASE OF PASSING OF BILLS OF SALE AND PURCHASES, AGAINST WHICH NO VAT HAS BEEN PAID. SUC H BOGUS PURCHASES ARE THEN TO BE ADDED IN THE HANDS OF ASSESSEE. WHERE T HE ASSESSING OFFICER HAD CONFRONTED THE ASSESSEE WITH THE INFORMATION RECEIV ED, SUPPLIED COPIES OF STATEMENTS AND WHERE THE PERSONS HAVE NOT BEEN TRAC ED AND NO CONFIRMATION HAS BEEN FILED BY THE ASSESSEE IN THIS REGARD, THEN THE ADDITION IS TO BE MADE IN THE HANDS OF ASSESSEE ON ACCOUNT OF SUCH BOGUS PURC HASES. IN THE FACTS AND CIRCUMSTANCES OF SOME CASES, THE GOODS HAVE BEEN TR ANSFERRED BY SUCH HAWALA DEALERS TO THE RESPECTIVE PURCHASERS, AGAINST WHICH THE ASSESSEE HAS TO DISCHARGE ONUS OF ESTABLISHING THE TRAIL OF GOODS W HICH ARE TRANSFERRED AND FURTHER SOLD BY THEM. WHERE THE ASSESSEE IS ABLE T O PRODUCE EVIDENCE OF PURCHASE OF GOODS BY WAY OF WEIGHMENT BRIDGE RECEIP TS, TRANSPORTATION DOCUMENTS, PAYMENT OF OCTROI AND SUBSEQUENT SALE OF GOODS TO THE RESPECTIVE PARTIES AND / OR WHERE THE ASSESSEE HAS MAINTAINED COMPLETE QUANTITATIVE DETAILS OF PURCHASE AND SALE OF GOODS, THEN TOTAL B OGUS PURCHASES CANNOT BE ADDED IN THE HANDS OF ASSESSEE, BUT GP RATE OF 10% IS TO BE APPLIED ON BOGUS PURCHASES. WHERE THE ASSESSEE DOES NOT ESTABLISH I TS CASE, THEN THE COMPLETE BOGUS PURCHASES ARE TO BE ADDED AS HAWALA PURCHASES . FURTHER, IN CASES, WHERE THE STATEMENTS ARE RECORDED AND COPIES OF WHI CH HAVE BEEN SUPPLIED TO THE ASSESSEE AND ASSESSEE ESTABLISHED THE CASE OF R ECEIPT OF GOODS AND ITS ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 29 ONWARD TRANSMISSION BY WAY OF SALE BILLS, THEN THE FACTUM OF PURCHASES BY THE ASSESSEE STANDS ESTABLISHED IN SUCH CIRCUMSTANCES. HOWEVER, THE BENEFIT OF PURCHASES BEING MADE FROM GREY MARKET, NEEDS ESTIMA TION IN THE HANDS OF ASSESSEE. THE TRIBUNAL HAS ALREADY HELD THAT THE A DDITION BE MADE BY ESTIMATING THE SAME @ 10% OF THE ALLEGED HAWALA PUR CHASES. ACCORDINGLY, IT IS SO HELD. IN VIEW THEREOF, THE ISSUES WHICH EMERGE ARE AS UNDER:- I. IN CASE NO INFORMATION IS RECEIVED BY THE ASSESSING OFFICER FROM THE SALE TAX DEPARTMENT AND NO COPY OF STATEMENT RECORDED OR ANY OTHER EVIDENCE IS RECEIVED FROM THE SALES TAX DEPARTMENT, THEN NO ADD ITION IS TO BE MADE ON THE BASIS OF NAME OF HAWALA DEALER IN THE LIST PREP ARED BY THE SALES TAX DEPARTMENT, WHERE THE ASSESSEE HAD ASKED FOR THE SA ID INFORMATION DURING ASSESSMENT PROCEEDINGS. II. WHERE THE ASSESSING OFFICER HAD RECEIVED THE STATEM ENTS OF PERSONS WHO HAD ADMITTED TO HAVE JUST ISSUED BILLS OF SALE WITHOUT ANY DELIVERY OF GOODS. IN VIEW OF SUCH EVIDENCE, WHERE THE ASSESSEE HAD NOT E NTERED INTO REAL TRANSACTION OF PURCHASE OF GOODS AND IN THE ABSENCE OF ANY DELIVERY OF GOODS, THE SALES ARE BOGUS AND THE ENTIRE SALES ARE TO BE ADDED IN THE HANDS OF ASSESSEE. ADMITTEDLY, THE DEALER HAD NOT EVEN P AID VAT AGAINST SUCH PASSING OF GOODS. III. THE CASE WHERE THE ASSESSING OFFICER HAD CONFRONTED THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT AND HAD SUPPLIED COPI ES OF STATEMENTS RECORDED AND HAD ALSO ISSUED NOTICE UNDER SECTION 1 33(6) OF THE ACT, WHERE HAWALA DEALER WAS NOT TRACEABLE AND IN THE ABSENCE OF THE ASSESSEE FAILING TO FILE ANY DOCUMENTARY EVIDENCE OF DELIVERY OF GOO DS, ADDITION IS TO BE UPHELD IN THE HANDS OF ASSESSEE ON ACCOUNT OF SUCH BOGUS PURCHASES. IV. THE NEXT INSTANCE IS THE CASE OF GOODS WHICH HAVE B EEN ADMITTEDLY SOLD BY THE HAWALA DEALER AND HAS BEEN RECEIVED BY THE ASSESSEE, WHO IN TURN HAD MAINTAINED QUANTITATIVE DETAILS AND ALSO EVIDENCE OF ITS MOVEMENT I.E. TRANSPORTATION DETAILS AND QUA LITY CONTROL DETAILS OF CONSUMPTION OF THE SAID MATERIAL OR EXAC T DETAILS OF SALE OF THE SAME CONSIGNMENT THROUGH SAME TRANSPORTER DI RECTLY TO THE PARTY, THEN THE TOTAL PURCHASES CANNOT BE ADDED IN THE HANDS OF ASSESSEE. HOWEVER, SINCE THE PURCHASES ARE MADE FR OM THE GREY MARKET, SOME ESTIMATION NEEDS TO BE MADE IN THE HAN DS OF ASSESSEE. THE TRIBUNAL IN M/S. CHETAN ENTERPRISES VS. ACIT (S UPRA) HAS ALREADY HELD THAT THE ADDITION BE MADE BY ESTIMATING THE SA ME @ 10% OF THE ALLEGED HAWALA PURCHASES, OVER AND ABOVE THE GP SHO WN BY THE RESPECTIVE ASSESSEE. V. ANOTHER SET OF CASES WHERE THE STATEMENTS RECORDED BY THE SALES TAX DEPARTMENT HAVE BEEN HANDED OVER TO THE ASSESSEE AN D THE COPIES OF SAME HAVE BEEN SUPPLIED TO THE ASSESSEE, THEN WHERE THE ASSESSEE ESTABLISHED THE CASE OF RECEIPT OF GOODS AND ITS ONWARD TRANSMI SSION, THEN THE FACTUM OF PURCHASES BY THE ASSESSEE STANDS ESTABLISHED IN SUC H CIRCUMSTANCES. HOWEVER, ESTIMATION IS TO BE MADE IN THE HANDS OF A SSESSEE BECAUSE OF PURCHASES FROM THE GREY MARKET AND FOLLOWING THE AB OVE SAID RATIO, ADDITION IS TO BE MADE BY ESTIMATING THE SAME @ 10% OF THE A LLEGED HAWALA PURCHASES, OVER AND ABOVE THE NET PROFIT SHOWN BY T HE ASSESSEE. 41. NOW, COMING TO THE FACTUAL ASPECTS OF EACH OF T HE APPEAL, WHICH HAVE ALREADY BEEN REFERRED TO BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AND ALSO REFER TO THE ORDERS OF AUTHORITIE S BELOW, WHERE NONE HAS APPEARED ON BEHALF OF THE ASSESSEE. 42. THE LEAD CASE IS IN THE CASE OF M/S. CHHABI ELE CTRICALS PVT. LTD., WHERE THE GRIEVANCE OF THE ASSESSEE IS THAT THE ASSESSING OFFICER BEFORE MAKING THE ADDITION HAS NOT EVEN SUPPLIED THE COPY OF STATEMEN T OR ANY OTHER EVIDENCE ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 30 RECORDED BY THE SALES TAX DEPARTMENT TO ESTABLISH T HAT THE PURCHASES MADE BY THE ASSESSEE WERE BOGUS. I HAVE ALREADY DECIDED TH IS ISSUE IN M/S. CHETAN ENTERPRISES VS. ACIT (SUPRA) AND HELD THAT IN CASES WHERE THE ASSESSING OFFICER HAS FAILED TO SUPPLY SUCH STATEMENT RECORDED BY THE SALES TAX DEPARTMENT OR ANY OTHER EVIDENCE JUSTIFYING THE ADDITION, NO ADDI TION IS TO BE MADE IN THE HANDS OF ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FURTHER REFERRED TO VARIOUS DOCUMENTS I.E. GATE PASS, GRN A ND ISSUE PASS ESTABLISH ITS CASE OF DELIVERY OF GOODS I.E. PURCHASE FROM HAWALA DEALER AND ITS ONWARDS CONSUMPTION IN THE MANUFACTURING PROCESS OF THE ASS ESSEE. IN SUCH CIRCUMSTANCES, WHERE THE ASSESSEE HAS ESTABLISHED T HE TRAIL OF GOODS PURCHASED TO THE FINAL CONSUMPTION, THEN THERE IS N O MERIT IN THE ADDITION MADE BY THE ASSESSING OFFICER. THUS, THE GROUNDS OF APP EAL RAISED BY THE ASSESSEE ARE ALLOWED AND APPEAL OF THE ASSESSEE IS ALLOWED. 15.4 CONSIDERING THE ABOVE AND IN ALL FAIRNESS, WE ARE OF TH E OPINION THAT THE MATTER SHOULD BE REMANDED TO THE FILE OF CIT(A) FOR CON SIDERING THE ABOVE DECISION OF THE TRIBUNAL IN THE CASE OF CHHABI ELECTRIC ALS PVT. LTD. (SUPRA.) AFTER DUE VERIFICATION OF THE FACTS OF THE PRESENT CA SE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE ON MERITS IS ALLOWED FO R STATISTICAL PURPOSES. 16. GROUND NO.10 BY THE ASSESSEE RELATES TO DISALLOWANCE ON ACCOUNT OF WEALTH TAX PAID AMOUNTING TO RS.21,40,955/-. RELEVANT FACT S INCLUDE THAT THE ASSESSEE HAS NOT DEBITED THE WEALTH TAX PAID TO TH E PROFIT AND LOSS ACCOUNT. ASSESSEE CLAIMS THAT THOUGH THE WEALTH TAX IS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT THE SAME IS DEDUCTIBLE FROM THE BO OK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. AO DENIED THE SAME AND THE CIT(A) CONFIRMED THE VIEW OF THE AO RELYING THE ORDER OF HIS PRED ECESSOR FOR THE A.Y. 2009-10. AGGRIEVED WITH THE ORDER OF CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE THE TRIBUNAL VIDE GROUND NO.10. 16.1 BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THIS ISSUE WAS A DECIDED ONE IN FAVOUR OF THE ASSESSEE IN THE ASSESSEE S OWN CASE FOR THE A.Y. 2009-10. PER CONTRA, LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE AO/CIT(A). HOWEVER, HE FAIRLY SUBMITTED THAT THIS ISSU E IS COVERED ONE IN FAVOUR OF THE ASSESSEE BY VIRTUE OF ORDER OF THE TRIBUNAL. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 31 16.2 BOTH THE SIDES HEARD AND PERUSED THE ORDERS OF TH E REVENUE AS WELL AS THE ORDER OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y. 2009-10. WE PROCEED TO REPRODUCE THE FINDING GIVEN BY THE TRIBUNAL HERE AS UN DER : 59. ON HEARING BOTH THE SIDES, WE FIND THIS ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE ORDER OF TRIB UNAL (SUPRA) IN ASSESSEES OWN CASE FOR THE A.Y. 2008-09. FOR THE SAKE OF COM PLETENESS, WE PROCEED TO EXTRACT THE FINDING GIVEN BY THE TRIBUNAL AND THE S AME READS AS UNDER : 26. ON HEARING BOTH THE PARTIES ON THIS ISSUE, WE FIND THE DECISION IN THE CASE OF USHA MARTIN INDUSTRIES LTD. (SUPRA) HELPS THE ASSESSEE. FOR THE SAKE OF COMPLETENESS, WE PERUSED THE SAID D ECISION OF THE TRIBUNAL AND FIND THE DISCUSSION GIVEN IN PARA NOS. 7 & 8 ARE RELEVANT. THE TRIBUNAL CONSIDERED THE RELEVANT PROVISIONS OF SECTION 115JA(2) OF THE ACT AND HELD THE PROVISIONS OF WEALTH TAX CONST ITUTES AN ASCERTAINED LIABILITY. THE RELEVANT PORTION OF THE TRIBUNAL ORDER IS EXTRACTED AS UNDER : 7. . . . . . . . . . . .WE AGREE WITH THE CONTENTI ON OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT A PR OVISION MADE FOR WEALTH-TAX CANNOT BE EQUATED TO ANY LIABILITY T OWARDS INCOME-TAX AND ACCORDINGLY, CANNOT BE DISALLOWED WH ILE COMPUTING THE BOOK PROFIT BY INVOKING CLAUSE (A) OF THE EXPLANATION TO SECTION 115JA(2) OF THE ACT. 27. IN ANY CASE, THIS IS THE CASE WHERE NO INCRIMINA TING MATERIAL WAS SEIZED BY THE REVENUE DURING THE SEARCH ACTION CONNECTING TO THE DISALLOWABILITY OF WEALTH TAX PAYMENT QUA THE BOOK PROFITS COMPUTATION. THEREFORE, ON BOTH COUNTS, THE ASSESS EE IS ENTITLED TO RELIEF. ACCORDINGLY, GROUND NO.9 RAISED BY THE ASS ESSEE IS ALLOWED. THUS, THE WEALTH TAX PAID CONSTITUTES AN ALLOWABLE DEDUCTION AS HELD BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2008-0 9. CONSIDERING THE SETTLED NATURE OF THE ISSUE IN FAVOUR OF THE ASSESS EE, THE GROUND NO.9 RAISED BY THE ASSESSEE IS ALLOWED. 16.3 THEREFORE, THE WEALTH TAX PAYMENT CONSTITUTES AN AS CERTAINED LIABILITY FOR MAT PURPOSES. CONSIDERING THE FAVOURABLE DECISION IN FAVO UR OF THE ASSESSEE, WE ALLOW GROUND NO.10 RAISED BY THE ASSESSEE. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. NOW WE SHALL TAKE UP THE APPEAL OF THE REVENUE. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 32 ITA NO.606/PUN/2016 BY REVENUE A.Y. 2010-11 18. GROUNDS RAISED BY THE REVENUE ARE EXTRACTED HERE AS UNDER : 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO EXCLUDE INVESTMENTS IN DEBIT OR IENTED MUTUAL FUNDS FOR THE PURPOSE OF DISALLOWANCE U/S.14A R.W.R.8D WHEN N O SUCH EXCLUSION HAS BEEN MANDATED BY THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO SEGREGATE ASSETS INTO FURNITURE AND PLANT AND MACHINERY WHEN BOTH ASSETS ARE INDISTINGUISHABLE AND FALL IN THE CATEGORY OF FURNITURE AND NOT PLANT AND MACHINERY. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN ALLOWING THE APPEAL BY TREATING PRODUCT DEVELOPMEN T EXPENDITURE OF RS.14,42,53,591/- AS REVENUE EXPENDITURE, WHEN THE SAID EXPENDITURE LEADS TO ENDURING BENEFIT AND SHOULD HAVE BEEN TREATED AS CAPITAL EXPENDITURE. 4. THE ORDER OF THE LD. CIT(A) MAY BE VACATED AND T HE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 19. THE ISSUES RAISED BY THE REVENUE IN GROUND NO. 1 HA VE BEEN DEALT BY US WHILE ADJUDICATING THE APPEAL OF THE ASSESSEE VIDE GROU ND NOS. 1 (A) AND (B)/MODIFIED GROUNDS ABOVE. WE HAVE DECIDED GROUND NO.1 IN FAVOUR OF THE ASSESSEE ON THE TECHNICALITIES, I.E. ABSENCE OF SATISFACTION OF THE AO. GROUND NO.2 BEING RELATED TO CLASSIFICATION OF THE ASSETS INT O FURNITURE AND PLANT AND MACHINERY QUA THE DEPRECIATION RATES IS DECIDE D IN FAVOUR OF THE ASSESSEE RELYING ON THE ORDER OF TRIBUNAL IN THE ASSESS EES OWN CASE FOR THE A.Y. 2009-10. GROUND NO.3 RELATING TO PRODUCT DEVELOPMENT EXPENDITURE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE WHILE DEALING WITH GRO UND NO.7 RAISED BY THE ASSESSEE. THEREFORE, THE ADJUDICATION OF THESE GROUNDS BECOMES AN ACADEMIC. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE IN ARE DISMISSED. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ITA NOS. 548 & 606/PUN/2016 SERUM INSTITUTE OF INDIA LTD. 33 21. TO SUM UP, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 02 ND NOVEMBER, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KA RUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 02 ND NOVEMBER, 2018 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE. 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(APPEALS ), PUNE - 11. 4. THE PR. CIT(CENTRAL), PUNE. 5. , , A BENCH PUNE; 6. / GUARD FILE.