LUPIN LTD, MUMBAI V. ASST CIT LTU, MUMBAI

ITA 7488/MUM/2013

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7373 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 08-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 19-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESHPANDE LD
• Assessee Lawyers: HEMAN K CHANDANIYALD ARS
• Keywords: Business income; Transfer pricing; Business expenditure; Earning of tax free income; Revised return
• Section: 143(3); 14A; 37(1)

Judgement Text

ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.7488/MUM/2013 ( / ASSESSMENT YEAR: 2005-06) LUPIN LIMITED 159,C.S.T ROAD, KALINA,SANTACRUZ(EAST) MUMBAI-400 005 / VS. ASSISTANT COMMISSIONER OF INCOME TAX (LTU) CENTER NO.1, WORLD TRADE CENTRE 29 TH FLOOR, CUFFE PARADE MUMBAI-400 005 ! ./ ./ PAN/GIR NO.AAACL-1069-K ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) REVENUE BY : SAURABH DESHPANDE,LD.DR ASSESSEE BY : RAJAN R.VORA & HEMAN K.CHANDANIYA,LD.ARS / DATE OF HEARING : 24/04/2018 / DATE OF PRONOUNCEMENT : 27/04/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEA R [AY] 2005-06 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-15, MUMBAI [CIT(A)], APPEAL NO.CIT(A)-15/ARR.14/13-14 DATED 31/10/2013 QUA 2 ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 CONFIRMATION OF CERTAIN ADDITIONS. THE ASSESSMENT F OR IMPUGNED AY WAS FRAMED BY LD. ASSISTANT COMMISSIONER OF INCOME TAX, LTU, MUMB AI [AO] U/S 143(3) ON 30/12/2008. THE GROUNDS RAISED IN THE APPEAL MAY BE SUMMARIZED AS FOLLOWS:- 2. FACTS IN BRIEF ARE THAT ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN MANUFACTURING OF PHARMACEUTICALS, SCIENTIFIC RESEAR CH ETC. WAS ASSESSED U/S 143(3) AT LOSS OF RS.21.58 CRORES UNDE R NORMAL PROVISIONS AFTER CERTAIN ADJUSTMENTS / DISALLOWANCES AS AGAINS T REVISED RETURNED LOSS OF RS.24.36 FILED BY THE ASSESSEE ON 07/11/2006. AS EV IDENT FROM GROUNDS OF APPEAL, THE SUBJECT MATTER OF THE APPEAL IS CERTAIN TRANSFER PRICING ADJUSTMENTS [TP] AS WELL AS NON-TP ADJUSTMENTS AS CONFIRMED BY LD. FIRST APPELLATE AUTHORITY, WHICH WE SHALL DEAL IN SUBSEQU ENT PARAGRAPHS. 3. GROUND NUMBERS 1 & 2 ARE RELATED WITH DISALLOWAN CE OF PRIOR-PERIOD ROYALTY PAYMENTS OF RS.57.27 LACS PAID BY THE ASSESSEE TO AN ENTITY NAMELY FUJIWASA PHARMACEUTICALS CO. LTD., JAPAN FOR USE OF TRADEMARK PURSUANT TO LICENSE AGREEMENT DATED 02/04/2003. THE AFORESAID PAYMENT PERTAINED TO SALES MADE BY THE ASSESSEE DURING THE MONTH OF MARCH, 2004. AS PER THE TERMS OF THE AGREEMENT, THE ROYALTY PAYM ENT @3% AGAINST THE SL.NO HEAD GROUND NUMBERS 1 PRIOR PERIOD EXPENDITURE 1 & 2 2 INTEREST ON INCOME TAX REFUND 3 3 DISALLOWANCE U/S 14A 4 TO 7 4 PROVISION FOR LEAVE ENCASHMENT 8 5 TRANSFER PRICING ADJUSTMENT 9 & 10 6 GENERAL IN NATURE 11 & 12 3 ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 SAME WAS PAYABLE WITHIN A PERIOD OF 60 DAYS FROM TH E END OF THE QUARTER. THE ASSESSEE HAS NOT CLAIMED THE SAME IN AY 2004-05 BUT CLAIMED THE SAME AS PRIOR PERIOD ITEMS IN AY 2005-06 WHICH HAS BEEN DENIED BY THE REVENUE ON THE PREMISE THAT THE SAME HAD ALREADY CR YSTALLIZED IN AY 2004- 05 AND THE ASSESSEE, FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, COULD NOT BE ALLOWED DEDUCTION OF THE SAME IN THE IMPUGNED AY . UPON DUE CONSIDERATION, WE FIND THAT IT IS UNDISPUTED FACT T HAT THE PAYMENT PERTAINS TO AY 2004-05 AND THE LIABILITY HAD ALREADY CRYSTALLIZ ED IN THAT AY ONLY AND THEREFORE, THE ASSESSEE, FOLLOWING MERCANTILE SYSTE M OF ACCOUNTING, WAS ELIGIBLE TO CLAIM THE SAME IN AY 2004-05 ONLY. THE TAX NEUTRALITY PLEA RAISED BEFORE US BY LD. AR COULD NOT BE ACCEPTED SINCE THE RE WAS NO JUSTIFIABLE REASON WHICH PREVENTED THE ASSESSEE TO CLAIM THE SA ME OR MAKE PROVISION THEREOF IN AY 2004-05. THEREFORE, IN OUR OPINION, T HE DEDUCTION THEREOF HAS RIGHTLY BEEN DENIED TO THE ASSESSEE IN THE IMPUGNED AY. HOWEVER, AS A LOGICAL CONSEQUENCE, SINCE THE EXPENDITURE IS A LEG ITIMATE CLAIM OF THE ASSESSEE AND THE ASSESSEE WAS ENTITLED TO CLAIM THE SAME IN AY 2004-05, LD. AO IS DIRECTED TO VERIFY AND CONSIDER THE CLAIM OF THE ASSESSEE FOR AY 2004-05. TECHNICALLY, THE GROUNDS STANDS DISMISSED, HOWEVER, THE ASSESSEE SHALL GET CONSEQUENTIAL RELIEF IN AY 2004- 05. 4.1 GROUND NUMBER 3 IS RELATED WITH ADJUSTMENT OF I NTEREST ON INCOME TAX DEMAND WITH INTEREST ON INCOME TAX REFUND RECEIVED BY THE ASSESSEE. DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT TH E ASSESSEE RECEIVED INTEREST OF RS.3.01 CRORES ON INCOME TAX REFUNDS PERTAINING TO EARLIER AYS 4 ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 STARTING FROM AY 1996-97. THE ASSESSEE HAS PAID INT EREST OF RS.99.11 LACS ON INCOME TAX DEMAND PERTAINING TO AY 2004-05 AND O FFERED THE NET INTEREST I.E. RS.2.02 CRORES TO TAX IN IMPUGNED AY. THE LD. AO DENIED THE SAID ADJUSTMENT ON THE PREMISE THAT INTEREST EXPEND ITURE HAD NO NEXUS WITH THE INTEREST EARNED BY THE ASSESSEE AND STATUTE DID NOT PROVIDE FOR DEDUCTION OF INTEREST PAID ON INCOME TAX. THE STAND OF LD. AO HAS BEEN CONFIRMED BY LD. FIRST APPELLATE AUTHORITY BY PLACI NG RELIANCE ON THE ORDER OF PUNE TRIBUNAL RENDERED IN SANDVIK ASIA [15 TAXMANN.COM 381]. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4.2 THE LD. AR HAS DRAWN OUR ATTENTION TO THE FACT THAT SIMILAR ISSUE STOOD AGAINST ASSESSEE FOR AY 2007-08 BY THE ORDER OF THI S TRIBUNAL VIDE ITA NO.4061 & 4338/MUM/2011 DATED 17/02/2016. HOWEVER, THE ORDER HAS SUBSEQUENTLY BEEN RECALLED VIDE MA NO.49/MUM/2017 DATED 16/04/2018, FINDING MISTAKE IN THE SAME. THE COPIES OF THE ORDE RS HAVE BEEN PLACED BEFORE US. ON MERITS, LD. AR HAS PLACED RELIANCE ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN DIT VS. BANK OF AMERICA NT & SA [ITA 177 OF 2012 DATED 03/07/2014] & ORDER OF MUMBAI TRIBUNAL RENDERED IN CYNAMID INDIA LIMITED VS. ITO [ITA NO. 4561/BOM/198 2 23/05/1984]. PER CONTRA, LD. DR SUPPORTED THE STAND TAKEN BY LOWER AUTHORITI ES. 4.3 UPON CAREFUL CONSIDERATION, IT IS EVIDENT FROM THE ORDER OF LD. AO THAT THE INTEREST RECEIVED BY THE ASSESSEE WAS ASSESSABL E UNDER THE HEAD INCOME FROM OTHER SOURCES AND THE NETTING-OFF HAS BEEN DENIED BY THE LD. AO ON THE PREMISE THAT THE INTEREST PAYMENT HAD NO NEXUS WITH THE INTEREST 5 ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 EARNED BY THE ASSESSEE AND THE STATUTE DO NOT PROVI DED FOR SUCH DEDUCTION. IN OUR OPINION, THE ASSESSEES CLAIM COULD, AT THE MOST, FALL U/S 57(III). UPON PERUSAL OF THE CASE LAWS, WE FIND THAT PRESENT FACT UAL MATRIX IS SQUARELY COVERED BY THE CITED DECISION OF HONBLE BOMBAY HIG H COURT WHICH HAS CONFIRMED THE STAND OF TRIBUNAL IN THIS REGARD. UPO N PERUSAL OF TRIBUNAL ORDER WHICH WAS UNDER CHALLENGE BEFORE HONBLE HIGH COURT, WE FIND THAT THE CLAIM HAS BEEN ALLOWED BY THE TRIBUNAL BY MAKIN G FOLLOWING OBSERVATIONS:- 14. GROUND NO. 3 RAISED BY THE ASSESSEE READS AS FOLLO WS: '3.1 THE CIT(APPEALS) ERRED IN CONFIRMING THE DISAL LOWANCE OF INTEREST PAID TO THE INCOME-TAX DEPARTMENT HAVING FAILED TO APPRECIATE THAT THE EXP ENDITURE WAS INCURRED IN THE NORMAL COURSE OF BUSINESS AND IS, THEREFORE, ALLOWABLE. 3.2 WITHOUT PREJUDICE TO THE ABOVE, YOUR APPELLANTS SUBMIT THAT IN ANY CASE, THE INTEREST OF RS. 1,026,906 PAID TO THE INCOME-TAX AUTHORITIES BE ALL OWED TO BE SET OFF AGAINST THE INTEREST OF RS. 10,757,930 RECEIVED FROM THE INCOME-TAX AUTHORITIES DURING THE SAME FINANCIAL YEAR, AND ONLY THE NET INTEREST RECEIVED OR PAID BE TAXED OR DISAL LOWED AS THE CASE MAY BE.' 15. THE ASSESSEE RECEIVED INTEREST ON REFUND OF TAXES PAID. THE ASSESSEE ALSO PAID INTEREST ON TAXES PAYABLE. THE ASSESSEE SOUGHT TO SET OFF THE INTERES T PAID AGAINST THE INTEREST RECEIVED AND OFFERED TH E NET INTEREST RECEIVED TO TAX. THE ASSESSING OFFICER FOR THE REASONS GIVEN WHILE DISALLOWING SIMILAR CLAIM MADE BY THE ASSESSEE IN ASSESSMENT YEAR 1991- 92 REFUSED TO ALLOW THE SET OFF AND BROUGHT THE GROSS INTEREST INCOME TO TAX. ON APPEAL BY THE ASSE SSEE THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER FOR THE FOLLOWING REASONS. '7. GROUND NO. 7.'INDIRECT INCOME RECEIVED FROM TH E DEPARTMENT' THE ASSESSEE PAID INTEREST TO THE INCOME-TAX DEPTT. AMOUNTING TO RS. 10,26,906 DURING THE PRESENT ASSESSMENT YEAR. THE ASSESSEE CLAIMED THAT THIS WAS BUSINESS EXPENDITURE AND, THEREFORE, THIS SHOULD HAVE BEEN ALLOWED. THE ASSES SEE HAS RECEIVED AN INTEREST OF RS. 1,07,57,930. IT WAS CLAIMED THAT THE AMOUNT OF INTE REST PAID BY THE ASSESSEE SHOULD HAVE BEEN ALLOWED TO BE SET OFF AGAINST THE INTEREST RECEIVED FROM THE DEPARTMENT AND TAXED IN THE HANDS OF THE ASSESSEE. THE LD. ADVOCATE PLEADED THAT THE INTEREST PAID TO AND RECEIVED FROM WAS FROM THE SAME PARTY I.E., GOVERNMENT OF INDIA. THAT, THE REFORE, BOTH THE TRANSACTIONS SHOULD BE TAKEN TOGETHER AND THE INTEREST PAID BY THE ASSESEE SHOUL D BE ADJUSTED AGAINST THE INTEREST RECEIVED BY THE ASSESSEE AND ONLY NET INTEREST SO ARRIVED AT SHOULD BE TAXED IN ITS HANDS. THE LD. A.O RELYING UPON APPELLATE ORDERS FOR THE ASSESSMENT YE AR 1990-91, REJECTED THE CLAIM OF THE ASSESSEE. THE LD. ADVOCATE, HOWEVER, PLACED RELIANC E ON THE TWO TRIBUNAL JUDGMENTS IN THIS REGARD. THE TWO DECISIONS ARE: (A) CYANAMIDI INDIA V. ITO [ITA NO. 4561(BOM.) OF 199 1-92, DATED 23-5-1984]. 6 ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 (B) R.M. AGARWAL V. ITO 2 SOT 361 (DELHI) THE CASE AT (A) ABOVE IS DIRECTLY ON THE POINT. HOW EVER, I MUST SAY THAT BOTH THE JUDGMENTS DO SUPPORT THE CONTENTION RAISED BY THE LD. ADVOCATE. HOWEVER, I TRIED WITH DUE RESPECT, I COULD NOT PERSUADE MYSELF TO FOLLOW THOSE JUDGMENTS ON TH IS POINT. THE INTEREST RECEIVED FROM THE DEPARTMENT IS ASSESSABLE UNDER THE HEAD 'OTHER SOUR CES'. THERE IS NO DISPUTE ON THIS. THE LD. ADVOCATE DID AGREE THAT THE ONLY HEAD OF INCOME UND ER WHICH THIS INTEREST WAS ASSESSABLE WAS THE HEAD OTHER SOURCES. IF THIS IS SETTLED, THEN, T HE ONLY DEDUCTION THAT COULD BE ALLOWED WERE THE DEDUCTIONS AS STATED IN SECTION 57 OF THE INCOM E-TAX ACT. OBVIOUSLY, THE DEDUCTIONS REFERRED TO IN CLAUSES (I) (IA), (II ) AND (IIA) ARE NOT REL EVANT FOR THE ABOVE PURPOSE. THEREFORE, THE ONLY CLAUSE UNDER WHICH THIS DEDUCTION COULD BE CLAIMED IS CLAUSE (III) OF SECTION 57 THE CONDITIONS FOR ALLOWING ANY EXPENDITURE UNDER THIS CLAUSE IS T HAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THE ASSESSEE HAD PAID INTEREST TO THE DEPARTMENT EITHER FOR LATE PAYMENTS OR FOR SHORT PAYMENTS. THAT MEANS, INTEREST HAS BEEN LEVIED FOR ONE DEFAUL T OR THE OTHER. NOW CAN IT BE SAID THAT INCURRING SUCH DEFAULT WAS FOR THE PURPOSES OF EARN ING INTEREST FROM THE DEPARTMENT. THE ANSWER IS OBVIOUS. THE LAW IS WELL SETTLED THAT ONC E THE INCOME FALLS UNDER A PARTICULAR HEAD, THE TAXABLE INCOME HAS TO BE COMPUTED WITH REFERENC E TO THE PARTICULAR PROVISIONS GIVEN IN THE ACT WITH REGARD TO THE SAID HEAD OF INCOME. IN NALI NIKANT MODY 61 ITR 420 (SC), THIS PROPOSITION HAS BEEN CLEARLY LAID DOWN. THEREFORE, THE LD. OFFICER WAS JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. THE GROUND IS NOT ALLOWED.' 16. AT THE TIME OF HEARING OF THIS APPEAL IT WAS BROUG HT TO OUR NOTICE THAT IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE I N ITA NO. 5240/BOM./05 FOR ASSESSMENT YEAR 1990-91 AND THE TRIBUNAL ON AN IDENTICAL ISSUE HELD AS FOLLOWS: '13. COMING TO THE LAST GROUND ON THE NETTING OF IN TEREST WE FIND THAT THE BOMBAY BENCH 'C' OF THE TRIBUNAL IN THE CASE OF CYANAMIDI INDIA LTD. V. ITO [ITA NO. 4561(BOM.) OF 1982] HAS TAKEN A VIEW ON THE MATTER. AT PARA 9 OF ITS ORDER IT IS HELD AS FOLLOWS: 'WE FIND MERIT IN SHRI IRANI'S SUBMISSION THAT BETW EEN TWO PERSONS, THERE CAN BE ONLY ONE ACCOUNT. PROCEEDING ON THAT BASIS, ONE HAS TO CONSI DER THE NET INTEREST RECEIVED BY THE ASSESSEE AS ASSESSEE'S INCOME FROM OTHER SOURCES. ACCORDINGL Y WE DIRECT THE INCOME-TAX OFFICER TO REDUCE THE BUSINESS INCOME BY AN AMOUNT OF RS. 3,52 ,988 AND TO CHARGE INCOME FROM OTHER SOURCES AN AMOUNT OF RS. 3,44,600.' IN R.N. AGARWAL V. ITO (SUPRA ) AT PARAGRAPH 14, TH E SAME ISSUE IS DISCUSSED WHEREIN IT IS HELD AS FOLLOWS: '14 IT IS TRUE THAT IN VIEW OF THE DECISION OF THE PUNJAB AND HARYANA HIGH COURT IN ORIENTAL CARPETS CASE ( SUPRA), INTEREST PAID BY THE ASSESSE E ON DELAYED PAYMENT OF TAX COULD NOT BE DEDUCTED UNDER SECTION 37(1) OF THE ACT AS BUSINESS EXPENDITURE. BUT IF THE FACTS OF THE CASE ARE TAKEN INTO CONSIDERATION IT WOULD APPEAR THAT IT IS NOT THE ASSESSEE'S CASE THAT DEDUCTION FOR THE INTEREST PAID SHOULD BE ALLOWED IN THE COMPUTATION OF INCOME FROM BUSINESS. IT IS ALSO NOT SERIOUSLY URGED BEFORE US THAT DEDUCTION FOR THE AM OUNT SHOULD BE MADE IN TERMS OF SECTION 57(III). THE CASE OF THE ASSESSEE MERELY IS THAT ON LY THE NET INCOME FROM INTEREST WHICH IS THE REAL INCOME SHOULD BE ASSESSED. TO US THIS ARGUMENT SEEMS TO BE PLAUSIBLE. THE ASSESSEE WAS TO RECEIVE FROM THE GOVERNMENT CERTAIN AMOUNT OF RE FUND OBVIOUSLY BECAUSE EXCESS TAX HAD BEEN PAID. ON THAT ACCOUNT THE GOVERNMENT PAID INTE REST UNDER SECTION 244.ON THE OTHER HAND, 7 ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 THE ASSESSEE RETAINED THE GOVERNMENT MONEY BY DELAY ING PAYMENT OF TAX AND ACCORDINGLY INTEREST BECAME PAYABLE BY THE ASSESSEE TO THE GOVE RNMENT. IF THE INTEREST PAID BY THE ASSESSEE ON DELAYED PAYMENT OF TAX COULD NOT BE TREATED AS B USINESS EXPENDITURE, AS HELD BY THE PUNJAB AND HARYANA HIGH COURT IN ORIENT CARPETS'S CASE (SU PRA), INTEREST RECEIVED FROM GOVERNMENT ON DELAYED PAYMENT OF REFUND FOR THE SAME REASONS C OULD NOT BE TREATED AS INCOME FROM BUSINESS. IN FACT BOTH, THE INTEREST RECEIVED AND T HE INTEREST PAID ARE TO BE ASSESSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' ALTHOUGH THE ITO S EEMS TO HAVE ASSESSED THE GOVERNMENT RETAINED THE ASSESSEE'S MONEY AND PAID INTEREST THE REON, THE ASSESSEE, IN THE SAME WAY, RETAINED THE GOVERNMENT'S MONEY AND PAID INTEREST T HEREON. BOTH HAD THE SAME CHARACTER AND, THEREFORE, IF THE INTEREST RECEIVED FROM THE GOVERN MENT EXCEEDED THE INTEREST PAID BY THE ASSESSEE, THEN ONLY NET AMOUNT COULD BE TAXED. SIMI LARLY, IF THE INTEREST RECEIVED WAS LESS THAN THE INTEREST PAID DIFFERENCE ONLY SHOULD BE ALLOWED , WHILE COMPUTING THE INCOME FROM OTHER SOURCES. THE REAL INCOME FROM INTEREST HAS TO BE DE TERMINED IN THIS MANNER AND TO BE CONSIDERED WHILE MAKING THE ASSESSMENT. IF THE ISSU E IS CONSIDERED FROM THIS ANGLE WHICH SEEMS TO US TO BE THE PROPER APPROACH, NEITHER THE PUNJAB AND HARYANA HIGH COURT DECISION IN ORIENT CARPETS CASE (SUPRA) WOULD STAND IN THE ASSE SSEE'S WAY, NOR THE PLEA THAT THE INTEREST PAID BY THE ASSESSEE IS NOT EXPENDITURE CONTEMPLATE D UNDER SECTION 57(III) COULD DEPRIVE THE ASSESSEE THE BENEFIT OF THE ADJUSTMENT OF THE INTER EST PAID AGAINST INTEREST RECEIVED FROM THE GOVERNMENT. WE DIRECT THAT INTEREST PAID UNDER SECT ION 220(2) AMOUNTING TO RS. 18,597 BE ADJUSTED AGAINST THE INTEREST RECEIVED UNDER SECTIO N 244 AMOUNTING TO RS. 19,490 AND THE NET AMOUNT ONLY SHOULD BE TAXED.' RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISI ONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE WE ALLOW THE GROUND TO THE EXTENT OF NETTI NG OF INTEREST. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE WE ALLOW GROUND NO. 3 RAISED BY THE ASSESSEE. THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED ON THE P REMISE THAT BETWEEN TWO PERSONS, THERE COULD ONLY BE ONE ACCOUNT AND TH EREFORE, THE BENEFIT OF NETTING WAS AVAILABLE TO THE ASSESSEE. AS NOTED ABO VE, THE HONBLE COURT HAS CONFIRMED THE STAND OF TRIBUNAL BY NOT ADMITTIN G THE APPEAL OF THE REVENUE. THEREFORE, RESPECTFULLY FOLLOWING THE SAME , BY DELETING THIS ADDITION, WE ALLOW THIS GROUND OF ASSESSEES APPEAL . 5. GROUND NUMBERS 4 TO 7 ARE RELATED WITH DISALLOWA NCE U/S 14A FOR RS.7.10 LACS SINCE THE ASSESSEE EARNED TAX FREE INC OME OF RS.14.33 LACS. LD. AO, APPLYING RULE 8D, COMPUTED THE SAME AT RS.7.10 LACS COMPRISING- 8 ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 OFF OF INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS.5.80 LACS AND EXPENSE DISALLOWANCE @0.5% OF U/R 8D(2)(III) FOR RS.1.3 LACS. THE SAME UPON CONFIRMATION BY LD. CIT(A) HAS BEEN CONTESTED BEFOR E US. THE LD. AR SUBMITTED THAT OWN FUNDS IN THE SHAPE OF SHARE CAPITAL & RESERVES FAR EXCEEDED THE INVESTMENT MADE BY THE ASSESSEE AND TH EREFORE, THE ASSUMPTION WAS TO BE DRAWN IN FAVOR OF THE ASSESSEE THAT THE INVESTMENTS WERE MADE OUT OF OWN FUNDS. AT THE SAME TIME, THE L D. AR PLEADED FOR REASONABLE EXPENSES DISALLOWANCE SINCE RULE 8D WAS NOT APPLICABLE IN THE IMPUGNED AY. THE BARE PERUSAL OF THE FINANCIALS OF THE ASSESSEE REVEAL THAT SHAREHOLDERS FUNDS OF MORE THAN RS.500 CRORES FAR EXCEEDS THE MEAGER INVESTMENT OF RS.9.37 CRORE MADE BY THE ASSESSEE. F URTHER THE OPENING INVESTMENTS STOOD AT RS.8.91 CRORES WHICH DEMONSTRA TE THAT FRESH INVESTMENT WERE MARGINAL IN THE IMPUGNED AY AND THE REFORE, INTEREST DISALLOWANCE, IN OUR OPINION, IS NOT JUSTIFIED. THE EXPENSES DISALLOWANCE IS ESTIMATED AT 5% OF EXEMPT INCOME EARNED BY THE ASSE SSEE. THE LD. AO IS DIRECTED TO RE-COMPUTE THE SAME IN THE LIGHT OF OUR DECISION. 6. GROUND NO. 8 IS RELATED WITH PROVISION OF LEAVE ENCASHMENT FOR RS.79.55 LACS MADE BY THE ASSESSEE DURING THE IMPUG NED AY. THE SAME WAS INITIALLY SUO-MOTO DISALLOWED BY THE ASSESSEE U/S 43B(F) IN COMPUTATIO N OF INCOME BUT LATER ON CLAIMED DURING ASSESSMENT PR OCEEDINGS IN VIEW OF THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT RENDERE D IN EXIDE INDUSTRIES LTD. VS. UOI & ORS. THE SAME HAS BEEN DENIED BY THE LOWER AUTHORITIES SINCE THE REVENUES APPEAL AGAINST THE SAME WAS PEN DING BEFORE HONBLE 9 ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 APEX COURT AND THE HONBLE COURT, BY WAY OF INTERIM ORDER, STAYED THE OPERATION OF THE CITED JUDGMENT OF THE HONBLE CALC UTTA HIGH COURT. BOTH THE REPRESENTATIVE CONVERGED ON THE POINT THAT SUITABLE DIRECTIONS MAY BE GIVEN TO THE LOWER AUTHORITIES TO APPLY THE RULING WHENEV ER RENDERED BY HONBLE APEX COURT IN THE AFORESAID MATTER. THEREFORE THE I SSUE, AT THE OUTSET, IS RESTORED BACK TO THE FILE OF LD. AO WITH A DIRECTIO N TO APPLY THE RULING OF HONBLE APEX COURT RENDERED IN AFORESAID MATTER. HO WEVER, IT IS CLARIFIED THAT IN TERM OF DIRECTIONS OF HONBLE SUPREME COURT , THE ASSESSEE SHALL PAY TAX ON THE DISALLOWANCE AS IF SECTION 43B(F) WAS ON STATUTE BOOK. THEREFORE, THE LD. AO IS DIRECTED TO COMPUTE THE TAX, IF ANY, AFTER MAKING SUCH DISALLOWANCE. THE ASSESSEE WOULD BE AT LIBERTY TO S EEK THE AMENDMENT TO THE ASSESSMENT ORDER IN TERMS OF THE RULING OF HON BLE COURT. TECHNICALLY, THE GROUND OF APPEAL, FOR THE TIME BEING, STAND DIS MISSED. 7. GROUND NUMBERS 9 & 10 ARE RELATED WITH TP ADJUST MENT AGAINST PURCHASE OF RAW MATERIAL AND SALE OF FINISHED GOODS . THE ADJUSTMENT AGAINST PURCHASE OF RAW MATERIAL HAS NOT BEEN PRESS ED BY LD. AR DUE TO SMALLNESS OF THE AMOUNT INVOLVED. THE TP ADJUSTMENT OF RS.8 LACS ON ACCOUNT OF SALE OF FINISHED GOODS IS UNDER APPEAL B EFORE US. 8.1 FACTS QUA THE SAME ARE THAT THE ASSESSEE SOLD FINISHED GOODS TO ITS ASSOCIATED ENTERPRISES [AE] SITUATED IN THAILAND & HONG KONG AMOUNTING TO RS.24.33 CRORES AND BENCHMARKED THE SAME USING T NMM METHOD. THE LD. TPO, APPLYING INTERNAL CUP AND APPLYING CUSTOMS RATE, COMPUTED THE ADJUSTMENT AT RS.8 LACS. THE SAME, UPON CONFIRMATIO N BY FIRST APPELLATE 10 ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 AUTHORITY, IS UNDER CHALLENGE BEFORE US. THE LD. AR MADE A SHORT SUBMISSION THAT THE ADJUSTMENT ARE PRIMARILY RELATE D WITH SALE MADE BY ASSESSEE TO ITS AE SITUATED AT HONG KONG AND THEREFORE, THE CUP RATES FOR HONG KONG ONLY SHOULD BE COMPARED TO WORK OUT THE S AID DISALLOWANCE AS AGAINST AVERAGE RATES OF VARIOUS COUNTRIES TAKEN BY LD. TPO. THE WORKING OF THE SAME HAS BEEN PLACED BEFORE US. AT A GLANCE, WE FIND THE SUBMISSIONS QUITE PLAUSIBLE AND THEREFORE, ACCEPTIN G THE SAID CONTENTION, WE REDUCE THE IMPUGNED TP ADJUSTMENT TO RS.43,620/- AS PER THE COMPUTATIONS PLACED BEFORE US. THIS GROUND STANDS P ARTLY ALLOWED. IT IS AGREED BETWEEN THE REPRESENTATIVES THAT THIS APPROA CH SHALL REMAIN VALID ONLY FOR THIS IMPUGNED AY AND WOULD NOT BE APPLICAB LE IN ANY OTHER AY. 9. GROUND NUMBERS 11 & 12 ARE GENERAL IN NATURE. AL L THE GROUNDS STAND DISPOSED-OFF IN TERMS OF OUR ABOVE ORDER. 10. FINALLY, THE ASSESSEES APPEAL STANDS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL, 2018. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 27. 04.2018 SR.PS:-THIRUMALESH 11 ITA NO.7488/MUM/2013 LUPIN LIMITED ASSESSMENT YEAR:2005-06 / COPY OF THE ORDER FORWARDED TO : 1. 234 56 / THE APPELLANT 2. :; 56 / THE RESPONDENT 3. ? @? ABC234D / THE CITCAD 4. ? @? AB / CIT CONCERNED 5. JKL M4 : B NO ? @234P 2NO@Q / DR ITAT MUMBAI 6. M ST / GUARD FILE / BY ORDER / CDY./ASSTT.REGISTRARD ./012 / ITAT2 MUMBAI