ADDL CIT RG 8(2), MUMBAI V. PFIZER PHARMACEUTICALS LTD, MUMBAI

ITA 647/MUM/2011

• Counselvise Citation: 64719914 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-08-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 24-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A
• Assessee Lawyers: MEENA KHIVASARA
• Keywords: Business income; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C , MUMBAI BEFORE SHRI RAJENDRA SINGH , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 647/M/11 ASSESSMENT YEAR: 2005 - 06 DCIT , CIRCLE 8 ( 2 ), MUMBAI R. NO.216 - A, AAYAKAR BHAVAN, M.K. R OAD, MUMBAI VS. M/S. PFIZER PHARMACEUTICALS LTD. [ PRESENTLY KNOWN AS ZOETIS PHARMACEUTICAL RESEARCH PRIVATE LIMITED (ZPRPL) ] PFIZER CENTRE, 5, PATEL ESTATE, OFF. S.V. ROAD, JOGESHWARI (W) MUMBAI - 400 102 PAN: AA D C P 5 293L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KIRIT KAMDA R & MS. MEENA KHIVASARA REVENUE BY : SHRI R.A. PANT, D.R. DATE OF HEARING : 01.08.13 DATE OF PRONOUNCEMENT : 25.09.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBE R: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) DATED 17.09.10 RELEVANT TO ASSESSMENT YEAR 2005 - 06. THROUGH THE GROUNDS OF APPEAL , THE REVENUE HAS CONTESTED THE ACTION OF THE LD. CIT(A) ALLOWING DEDUCTION OF RS. 13,27 ,688/ - TO THE ASSESSEE UNDER SECTION 35D OF THE INCOME TAX ACT. 2. THE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS ALLOWED THE ABOVE SAID DEDUCTION IN RESPECT OF LEASE RENTALS AMORTISED IN THE BOOKS DESPITE ITA NO. 647/M/11 M/S. PFIZER PHARMACEUTICALS LTD. 2 THE FACT THAT THE SAID EXPENDITURE WAS NEITHER CLAIMED BY THE ASSESSEE IN COMPUTATION OF INCOME NOR WAS CLAIMED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE CLAIM WAS MADE FOR THE FIRST TIME BEFORE THE LD. CIT(A). EVEN NO SUCH CLAIM HAS BEEN MADE BY THE ASSESSEE IN THE SUBSEQUENT ASSESSM ENT YEAR I.E. ASSESSMENT YEAR 2006 - 07 ALSO. 3. THE LD. CIT(A) HAS DEALT WITH THE ISSUE IN QUESTION VIDE GROUND NO.5 IN THE IMPUGNED ORDER UNDER APPEAL . WHILE ALLOWING THE SAID CLAIM OF DEDUCTION TO THE ASSESSEE THE LD. CIT(A) HAS OBSERVED AS UNDER: 8 . GROUND NO.5 RELATES TO NOT GRANTING OF DEDUCTION U/S.35D OF THE ACT, IN RESPECT OF LEASE RENTALS AMORTIZED IN THE BOOKS. 8.1 IT WAS CONTENDED THAT APPELLANT WAS ENTITLED FOR A DEDUCTION OF RS.13,27,688/ - (1/10 TH OF RS.1,32,76,887/ - (8 TH YEAR) U/S. 35D O F THE ACT, IN RESPECT OF LEASE RENTALS PAID BY THEM. THE DEDUCTION WAS ALLOWED IN THE ORDER DATED 21 ST NOVEMBER, 2005 ISSUED BY THE COMMISSIONER OF INCOME - TAX (APEALS) - XXX, MUMBAI FOR ASSESSMENT YEAR 1998 - 99 AND IN THE APPELLATE ORDERS FOR SUCCEEDING YEAR S. 8.2 THE SUBMISSION HAS BEEN CONSIDERED. IT IS SEEN THAT MY PREDECESSOR FOR A.Y. 1998 - 99 HAS HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND ALSO PERUSED THE ORDER OF THE AO. THE ADMITTED FACTS ARE THAT THE APPELLAN T FOR THE PURPOSES OF SETTING UP A NEW UNIT ENTERED INTO LEASE AGREEMENT DT.19.10.1995 WITH PDIL. THE LEASE RENTALS COMMENCED WITH THE TRIAL RUN PRODUCTION STARTED ON 11.12.1996. THE ACTUAL COMMERCIAL PRODUCTION OF DIFFERENT PRODUCTS COMMENCED ON FOLLOWI NG DATES: HALLS 24.03.1997 CHECKLETS 24.08.1997 CHLORETS JULY, 1997 THE APPELLANT FOR THE PURPOSE OF STATUTORY ACCOUNTS FOR THE YEAR ENDED 31.03.1998, TREATED THE LEASE RENTALS AS DEFERRED REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNTS. BUT IN THE C OMPUTATION OF INCOME IT CLAIMED DEDUCTION OF ENTIRE LEASE RENTALS PAID UPTO 31.03.1998, RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THUS FROM THESE FACTS IT IS EVIDENT THAT THE LEASE RENTALS CLAIMED AS DEDUCTION ARE PERTAINING TO A UNIT SET UP BY THE AP PELLANT, WHICH HAS NOT YET COMMENCED ITS COMMERCIAL PRODUCTION DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. OBVIOUSLY THE ADMISSIBILITY OF THE LEASE RENTALS AS DEDUCTION FROM THE BUSINESS INCOME TO WHICH IT IS NOT RELATED TO AND ON THE CONTRARY, THE LEASE RENTALS RELATING TO A BUSINESS WHICH IS YET TO COMMENCE ITS PRODUCTION IS NOT AN ALLOWABLE DEDUCTION, IS AN ESTABLISHED LAW. THIS VIEW FINDS SUPPORT IN THE CASE LAWS RELIED UPON BY THE A.O. HOWEVER, DISALLOWING THE LEASE RENTAL S BY TREATING IT A CAPITAL EXPENDITURE IS IN MY OPINION NOT CORRECT, AS IT DOES NOT RESULT IN CREATION OF AN ASSET IN THE NATURE OF PLANT AND MACHINERY ASSIGNING OWNERSHIP TO THE APPELLANT. THEREFORE, THE ITA NO. 647/M/11 M/S. PFIZER PHARMACEUTICALS LTD. 3 ACTION OF THE AO IN TREATING THE LEASE RENTALS AS CAPITAL EXPENDITURE IS NOT JUSTIFIED. I ALSO AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE CASE LAWS RELIED UPON BY THE AO ARE ALSO DISTINGUISHABLE AS NONE OF THESE DECISIONS ARE RELATING TO LEASE RENTALS. HOWEVER, IN VIEW OF THE FACTS THAT THE C OMMERCIAL PRODUCTION HAS NOT STARTED DURING THE YEAR AND ALSO THAT THE APPELLANT HAS ITSELF TREATED THE LEASE RENTALS AS DEFERRED REVENUE EXPENDITURE AS PER THE METHOD OF ACCOUNTING FOLLOWED BY IT AS REQUIRED BY THE MANDATORY ACCOUNTING PRINCIPLE ISSUED BY THE ICAI, THE SAME CAN BE ALLOWED TO BE AMORTISED AS PER THE PROVISION OF SECTION 35D. THE ALTERNATIVE SUBMISSION OF THE APPELLANT THAT THE LEASE RENTALS MAY BE ALLOWED AS WRITTEN OFF DEDUCTION IN VIEW OF DECISION OF SUPREME COURT IN THE CASE OF MADRAS I NDUSTRIAL INVESTMENT CORPN. LTD. HAS ALSO NO MERIT, AS THE FACTS OF THE APPELLANTS CASE IS DIFFERENT. THE FACTS IN THE DECISION OF THE HONBLE APEX COURT RELIED BY THE APPELLANT ARE RELATING TO THE ISSUE OF DEBENTURE AT A DISCOUNT, WHEREAS THE APPELLANT S CASE IS RELATING TO THE LEASE RENTALS. HENCE, THIS DECISION IS NOT APPLICABLE TO THE CASE OF THE APPELLANT. THEREFORE, THE LEASE RENTALS HAVING TREATED BY THE APPELLANT ITSELF, IN THE ACCOUNTS REGULARLY FOLLOWED, AS DEFERRED REVENUE EXPENDITURE, THE SA ME IS ALLOWED TO BE AMORTIZED U/S 35D OF THE I.T. ACT. THE AO IS ACCORDINGLY DIRECTED TO ALLOW THE LEASE RENTAL EXPENDITURE AS PER THE PROVISIONS OF SECTION 35D. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 8.3 AGREEING WITH THE SAME, THE AO IS DIRECTED TO ALLOW 1/10 TH FOR THE RELEVANT YEAR. 4 . FROM THE ABOVE IT IS EVIDENT ON THE FILE THAT SUCH CLAIM WAS ALLOWED TO THE ASSESSEE FOR THE ASSESSMENT YEAR 1998 - 99 ONWARDS AND THE ASSESSEE HAS BEEN CONTINUOUSLY ALLOWED THE SAID CLAIM FOR THE LAST SEVEN Y EARS. THE REVENUE DID NOT CONTEST THE SAID ALLOWANCE BEFORE ANY HIGHER AUTHORITY. HENCE, IN OUR VIEW THE SAID CLAIM IS ALLOWABLE FOR THE ASSESSMENT YEAR IN QUESTION ALSO AND THE SAME HAS RIGHTLY BEEN ALLOWED BY THE LD. CIT(A). 5. SO FAR THE CONTENTION OF THE LD. D.R. TO THE EFFECT THAT THE ASSESSEE HAD FAILED TO MAKE SUCH CLAIM IN ITS RETURN OF INCOME IS CONCERNED , IN OUR VIEW , THE LD. CIT(A) HAS RIGHTLY EXERCISED HIS POWERS IN ALLOWING THE CLAIM ON THE ADMITTED FACTS FOLLOWING THE PRINCIPLES OF NATURA L JUSTICE. IN 'JUTE CORPORATION OF INDIA VS. CIT' (1991) 187ITR 688(SC), THE APEX COURT WHILE CONSIDERING THE QUESTION WHETHER THE APPELLATE ASSISTANT COMMISSIONER HAS THE JURISDICTION TO ALLOW THE ASSESSE E TO RAISE AN ADDITIONAL GROUND IN ASSAILING THE O RDER OF ASSESSMENT BEFORE IT, DREW A DISTINCTION BETWEEN THE POWER TO ENHANCE TAX ON DISCOVERY OF A NEW SOURCE OF INCOME AND GRANTING A DEDUCTION ON THE ADMITTED FACTS SUPPORTED BY THE DECISION OF THE APEX COURT. RELYING ON CERTAIN ITA NO. 647/M/11 M/S. PFIZER PHARMACEUTICALS LTD. 4 OBSERVATIONS MADE BY TH E APEX COURT IN CIT V. KANPUR COAL SYNDICATE (1964) 53 ITR 225 (SC), THE APEX COURT HELD THAT POWERS OF THE FIRST APPELLATE AUTHORITY ARE COTERMINOUS WITH THOSE OF THE ASSESSING OFFICER AND THE FIRST APPELLATE AUTHORITY IS VESTED WITH ALL THE WIDE POWERS, WHICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. 6 . HENCE, WE DO NOT FIND ANY MERIT IN THE APPEAL FILED BY THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25.09. 2013. SD/ - SD/ - ( RAJENDRA SINGH ) ( SANJAY GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 25.09. 2013. * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.