Fourrts (India) Labs Pvt Ltd., CHENNAI V. DCIT, CHENNAI

ITA 778/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4098 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 30-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SURESH RAO JICIT D R
• Keywords: Business expenditure; Revenue expenditure

Judgement Text

, C/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL C/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.778 /MDS./2017 ( ASSESSMENT YEARS : 2012-13) M/S.FOURRTS (INDIA) LABS PVT LTD ., PLOT NO.1,FOURRTS AVENUE, ANNA INDIRA NAGAR, OKKIYAM, THORAIPAKKAM, CHENNAI 600 096. VS. DCIT, CORPORATE CIRCLE-2(1), CHENNAI. PAN AAACF 0467 F ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENT BY : MR.P.SURESH RAO, JICIT, D.R ! ' / DATE OF HEARING : 12.06.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 05.07.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-6, CHENNA I DATED 17.01.2017 PERTAINING TO ASSESSMENT YEAR 2012-13. ITA NO. 778/MDS/2017 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS F OR ADJUDICATION. 1. THE HONORABLE COMMISSIONER OF INCOME TAX WAS WR ONG TO HAVE NOT ACCEPTED APPELLANT SUBMISSIONS. 2. THE DEPUTY COMMISSIONER OF INCOME TAX (DC) WAS W RONG TO HAVE ADDED BACK ` 4,28,59,543/- CONTENDING THAT THE SAID PAYMENT WAS PENAL IN NATURE, VIOLATING GOVERNMENT ORDER. 3. THE HONORABLE COMMISSIONER OF INCOME TAX (APPEAL ) OUGHT TO HAVE APPLIED THE RATIO OF DECISIONS. DR.REDDY LAB LTD VS. ADDITIONAL COMMISSIONER OF INCOME TAX (ITA NO. 1605/HYD/20 10) WHEREIN IT WAS HELD TH AT PAYMENT MADE TO NPPA WAS NOT IN THE NATURE OF PENALTY. 4. THE CIT FAILED TO NOTE THAT THE SAID PAYMENT WAS TOWARDS EXCESS PRICE CHARGED AND FOR BRINGING THE PRICE TO THE LEVEL FIXED BY TH E SAID ORDER. 5. THE PAYMENT WAS TO BE TREATED AS REDUCTION IN TH E SALE UNDER BUSINESS CONDITIONS AND CANNOT BE TREATED AS BUSINESS COMMITMENT AND NO T AS PENAL IN NATURE. 6. THE CIT OVERLOOKED THE POINT THAT THE DEPARTMENT AL ORDER NEVER STATED THAT IT WAS PENAL IN NATURE AND IT WAS ONLY A DIRECTION TO DEPOSIT THE EXCESS PRICE CHARGED WITH THEM. 7. THE DC WAS ALSO WRONG TO ADD BACK A SUM OF ` 1,17,17,667/- BEING INTEREST PAID ON THE ABOVE SAID AMOUNT AS ALSO PENAL IN NATURE. 8. THE INTEREST WAS PAID TOWARDS DELAYED REMITTANCE DUE AND IT SHOULD HAVE BEEN TREATED AS OVERDUE INTEREST IN THE COURSE OF TRADE AND NOT AS PENALTY BASED ON JUDICIAL PRONOUNCEMENTS. ITA NO. 778/MDS/2017 3 9. ON THE ABOVE GROUNDS AND ON SUCH OTHER GROUNDS T HAT MAY BE ADVANCED AT THE TIME OF APPEAL, THE APPELLANT PRAYS THAT THE ADDITI ONS MADE BY DC BE DELETED. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING P HARMACEUTICAL FORMULATIONS AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 RETURNING AN INCOME OF ` 14,69,29,707/-. SOME PRODUCTS OF THE APPELLANTS ARE COVERED BY DRUG PRICING CONTROL ORDER (DPCO) OF THE GOVERNMENT AND GOVERNMENT FIXED BASIC PRICES FO R CERTAIN PRODUCTS. NATIONAL PHARMACEUTICAL PRICING AUTHORITY (NPPA) OVERSEES PRICING PRACTICES AND IN CASE OF EXCESS PRICE, IT D IRECTS THE CONCERNED COMPANY TO DEPOSIT THE EXCESS CHARGED WITH THE AUTH ORITY. DURING THE PREVIOUS YEAR ENDED 31ST MARCH 2012, NPPA HAD CHARG ED A SUM OF ` 4,28,59,543/- AS PRICING DIFFERENCE AND A SUM OF ` 1,17,17,667/- AS INTEREST UNDER SECTION 7A OF ESSENTIAL COMMODITIES ACT, 1955. THE APPELLANT CLAIMED IT AS EXPENSES IN THEIR ACCOUNTS. 3.1 THE AO BY HIS ORDER DATED 25.03.2015 ASCERTAI NED THAT THE AMOUNT CONSISTED OF TWO PARTS VIZ. (I) AMOUNT OF ` 4,28,59,543/- FOR ITA NO. 778/MDS/2017 4 OVERCHARGING THE PRICES NOTIFIED BY THE GOVERNMENT UNDER PARA 13 OF DPCO AND (II) INTEREST OF ` 1,17,17,667/- FOR OVERCHARGED AMOUNT @ 15% PER ANNUM U/S.7A OF THE ESSENTIAL COMMODITIES A CT, 1955 AND HAD HELD THAT BOTH THESE AMOUNTS TOTALING TO ` 5,45,77,209/- WERE IN NATURE OF PENALTY FOR VIOLATION OF THE PROVISIONS O F CENTRAL ACT, AND HENCE WERE NOT ALLOWABLE AS PER THE PROVISIONS OF E XPLANATION TO SEC.37(1) OF THE ACT. AGGRIEVED, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE CIT(A). 3.2 ON APPEAL, BEFORE THE LD.CIT(A) THE LD.A.R CIT ED JUDICIAL DECISIONS WHICH SUPPORTED ITS CLAIM. AFTER DISCUSS ING THE CASE LAWS BRIEFLY, THE LD.CIT(A) OBSERVED THAT THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE ARE RADICALLY DIFFERENT FROM TH E CASES CITED BY THE LD.A.R. LD.CIT(A) ENDORSED THE VIEW OF THE LD. ASSE SSING OFFICER WITH THIS FOLLOWING OBSERVATIONS. IT IS ALSO APPARENT THAT INTENTION BEHIND SUCH A S TRINGENT POLICY AND REGULATION ON THE DRUG MANUFACTURERS IS TO PROTECT THE LARGER PUBLIC GOOD, AND ALSO PREVENT MONOPOLISTIC PRACTICES. THE SELLING OF DRUGS AND PHARMACEUTICALS AT PRICE HIGHER THAN THE CEILIN G FIXED BY NPPA IS PROHIBITED BY LAW (SECTION 3 OF DRUG PRICING CONTRO L ORDER, 1995), AND CLEARLY FALLS WITHIN THE AMBIT OF EXPLANATION TO SE C.37(1) OF THE ACT. ITA NO. 778/MDS/2017 5 AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. I PROCEED TO DECIDE THE ISSUE AFTER HEARING THE LD.D.R AND PERUSING THE MATERIAL ON RECORD. ADMITTEDLY, THE A SSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING PHARMACEUT ICAL FORMULATIONS. SOME PRODUCTS OF THE APPELLANTS ARE C OVERED BY DRUG PRICING CONTROL ORDER (DPCO) OF THE GOVERNMENT AND GOVERNMENT FIXED BASIC PRICES FOR CERTAIN PRODUCTS. NATIONAL P HARMACEUTICAL PRICING AUTHORITY (NPPA) OVERSEES PRICING PRACTICES AND IN CASE OF EXCESS PRICE, IT DIRECTS THE CONCERNED COMPANY TO D EPOSIT THE EXCESS CHARGED WITH THE AUTHORITY. DURING THE ASSESSMENT YEAR, NPPA HAD CHARGED ` 4,28,59,543/- FOR OVERCHARGING THE PRICES AND INTE REST OF ` 1,17,17,667/- FOR OVERCHARGED AMOUNT @ 15% PER ANNU M U/S.7A OF THE ESSENTIAL COMMODITIES ACT, 1955. THE ASSESSEE CLAIMED IT AS AN EXPENDITURE IN ITS ACCOUNTS, BUT THE LOWER AUTHORIT IES FOUND THESE BUSINESS EXPENSES BY INVOKING THE PROVISIONS OF EXP LANATION TO SEC.37(1) OF THE ACT. 4.1 AFTER GOING THROUGH THE FACTS OF THE CASE, I F IND THAT THE PAYMENT MADE BY THE ASSESSEE IS REFUND OF EXCESS PRICE PAID BY THE ASSESSEE ITA NO. 778/MDS/2017 6 TO NPAA. HENCE, THERE IS NO VIOLATION AND INFRINGE MENT OF ANY LAW OR GOVERNMENTS ORDER. THE ASSESSEE HAS BEEN KEPT ON REPRESENTING BEFORE THE LOWER AUTHORITIES THAT IT IS NOT A PENAL TY FOR ANY VIOLATION OF LAW AND IT IS ONLY A REFUND OF EXCESS FUND COLLECTE D BY THE ASSESSEE AND INTEREST THEREON AND INTEREST IS A COMPENSATORY NATURE FOR HOLDING THE AMOUNT, WHICH IS AN EXCESS PRICE COLLECTED BY T HE ASSESSEE. IN MY OPINION, IT IS ALLOWABLE AS REVENUE EXPENDITURE U/S.37(1) OF THE ACT AND IT CANNOT BE CONSIDERED AS A PENALTY SO AS TO D ISALLOW THE SAME. ACCORDINGLY, I AM INCLINED TO DELETED THE ADDITION ON THIS COUNT AND ALLOW THE APPEAL OF ASSESSEE. 5. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH JULY , 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 05 TH JULY, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF