ABOTT INDIA LTD, MUMBAI V. ASST CIT CIR 2(1), MUMBAI

ITA 832/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3151 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 31-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MORYA PRATAP
• Keywords: Business income; Depreciation; Opportunity of being heard; Principle of natural justice; Additional depreciation; Earning of tax free income; Difference of opinion; Revised return; Change of opinion; Revenue expenditure
• Section: 43B; 143(3); 14A; 80IB; 37(1); 139(5); 32; 147; 148

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 3472 /MUM/2013 ( / ASSESSMENT YEAR : 2006-07) ./ I.T.A. NO. 832 /MUM/2013 ( / ASSESSMENT YEAR : 2008-09) ABBOT INDIA LIMITED,, 3/4,CORPORATE PARK, SION TROMBAY ROAD, MUMBAI 400 071. / V. ASSISTANT COMMISSIONER OF INCOME TAX- CIRCLE 2(1), AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI 400 020. ./ PAN : AAACB5170B ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI MADHUR AGARWAL REVENUE BY : SHRI MORYA PRATAP / DATE OF HEARING : 06-06-2016 / DATE OF PRONOUNCEMENT : 24-08-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THESE TWO APPEALS FILED BY THE ASSESSEE COMPANY FOR THE ASSESSMENT YEARS 2006-07 AND 2008-09 ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-4, MUM BAI (HEREINAFTER CALLED THE CIT(A)) AND LEARNED CIT(A)-15 RESPECTIVELY , DATED 15-2-2013 AND 6-11- 2012 RESPECTIVELY, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE TWO SEPARATE ASSESSMENT ORDERS DATED 15-11 -2011 AND 25-01-2012 RESPECTIVELY PASSED BY THE LEARNED ASSESSING OFFICE R (HEREINAFTER CALLED THE AO) FOR THE ASSESSMENT YEAR 2006-07 U/S 143(3) REA D WITH SECTION 147 OF THE ITA 3482/MUM/2013 & ITA 832/MUM/2013 2 INCOME TAX ACT,1961 (HEREINAFTER CALLED THE ACT) AND FOR THE ASSESSMENT YEAR 2008-09 U/S 143(3) R.W.S 144C(3) OF THE ACT. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITA NO. 3472/MUM/2013 FOR THE ASSESSMENT YEAR 2006-07 IN TH E MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READS AS UNDER:- 1:0 RE.: VALIDITY OF RE-ASSESSMENT PROCEEDINGS: 1:1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERR ED IN UPHOLDING THE RE-OPENING OF THE APPELLANT'S ASSESSME NT U/S. 148 OF THE INCOME-TAX ACT, 1961. 1:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE RE- OPENING OF ASSESSMENT U/S. 148 WAS IN EXCESS OF JURI SDICTION AND THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE HEL D AS SUCH. 1:3 THE APPELLANT SUBMITS THAT THE PROCEEDINGS U/S. 148 OF THE ACT WERE NOT IN ACCORDANCE WITH LAW AND CONSEQUENTLY OUGHT TO BE STRUCK DOWN. WITHOUT PREJUDICE TO THE FOREGOING: 2:0 ADDITIONAL DEPRECIATION ON VAPORIZERS CLAIMED AS A DEDUCTION U/S. 32(1)(IIA): 2:1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERR ED IN UPHOLDING THE DISALLOWANCE OF A SUM OF RS. 25,77,616 /- BEING THE ADDITIONAL DEPRECIATION CLAIMED BY THE APPELLANT ON V APORIZERS INSTALLED AT HOSPITALS. 2:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT, IT IS ENTITLED TO CLAIM ADDITIONAL DEPRECIATION IN TERMS OF S ECTION 32(1 )(IIA) OF THE INCOME-TAX ACT, 1961 AND THE STAND TAKEN BY THE ASSES SING OFFICER IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AND INCORR ECT AND OUGHT TO BE STRUCK DOWN AND THE COMMISSIONER OF INCOME-TAX (APPEAL S) OUGHT TO HAVE HELD AS SUCH. 2:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER B E DIRECTED TO GRANT ADDITIONAL DEPRECIATION ON THE VAPORIZERS AS CLA IMED BY IT AND TO RE-COMPUTE ITS TOTAL INCOME ACCORDINGLY. ITA 3482/MUM/2013 & ITA 832/MUM/2013 3 3:0 RE.: COMPUTATION OF DEDUCTION U/S. 80 - IB OF THE INCOME - TAX ACT, 1961: 3:1 THE COMMISSIONER OF INCOME-TAX HAS ERRED IN UPHO LDING THE ACTION OF THE ASSESSING OFFICER IN REDUCING THE DEDUC TION U/S. 80 - IB OF THE INCOME-TAX ACT, 1961 TO RS. 3,40,71,018/- AS AGAIN ST THE DEDUCTION OF RS. 3,69,32,082/- CLAIMED BY THE APPELLANT IN ITS R ETURN OF INCOME AND GRANTED TO THE APPELLANT IN TERMS OF THE ORIGINAL ASSESSMENT ORDER. 3:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON TH E SUBJECT IT IS ENTITLED TO A DEDUCTION OF RS. 3,69,32,082/- IN TERMS O F SECTION 80 - IB OF THE INCOME-TAX ACT, 1961 AND THE STAND TAKEN BY THE ASS ESSING OFFICER IN THIS REGARD IS ERRONEOUS AND OUGHT TO BE STRUCK DOWN AND THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE HEL D AS SUCH. 3:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO GRANT THE DEDUCTION OF RS. 3,69,32,082/- U/S. 80 -IB O F THE INCOME-TAX ACT, 1961 AND TO RE-COMPUTE ITS TOTAL INCOME ACCORDINGL Y. 4:0 RE.: GENERAL: 4:1 THE APPELLANT CRAVES LEAVES TO ADD, ALTER, AMEND , SUBSTITUTE AND/OR MODIFY IN ANY MANNER WHATSOEVER ALL OR ANY O F THE FOREGOING GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPE AL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF MEDICINAL AND PHARMACEUTICAL PRODUCTS, INSULIN AND ITS FORMULATIONS. MANUFACTUR ING ACTIVITIES WERE CARRIED OUT AT GOA PLANT. ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT WHEREBY CERTAIN ADDITIONS WERE MADE AND THE TOTAL INCOME WA S DETERMINED AT RS. 84,04,90,479/- AS AGAINST THE RETURNED INCOME OF RS . 82,97,07,654/-. THE CASE WAS REOPENED BY ISSUING NOTICE U/S 148 OF THE ACT ON 8 TH MARCH, 2011 ON THE FOLLOWING REASONS:- (I) THE ASSESSEE' HAS CLAIMED DEPRECIATION OF RS. 45,10,828/- @35% OF SERVICE EQUIPMENTS WHERE AS THE ASSESSEE WA S ELIGIBLE TO ITA 3482/MUM/2013 & ITA 832/MUM/2013 4 CLAIM DEPRECIATION OF RS. 19,33,211/- BY THAT THE A SSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION OF RS.25,77,617/- (II) DEDUCTION UNDER SECTION. 80IB ALLOWED BY AO I S EXCESS BY 26,70,803/- AS ENTIRE EXPENSES ON SCIENTIFIC RESEAR CH OF RS. 95,36,877/- SHOULD BE DEDUCTED FROM THE PROFITS AS DIRECT EXPENSES INSTEAD OF 6.65% ON THE BASIS OF SALES RAT IO TAKEN IN ASSESSMENT UNDER SECTION. 143(3). 4. ADDITIONAL DEPRECIATION: THE ASSESSEE IMPORTS REAGENTS FROM ITS PARENT COMPANY NAMELY , SEVORANE AND ISOFORANE. THESE RE-A GENTS ARE ADMINISTERED WITH THE HELP OF VAPORIZERS AND ARE USED AS ANAESTH ETIC AT HOSPITALS. IN ORDER TO SELL ITS REAGENTS, THE ASSESSEE INSTALLS VAPORIZ ERS AT THE HOSPITALS FREE OF COST. HOWEVER, THE ASSESSEE RETAINS THE OWNERSHIP O F VAPORIZERS AND CLAIMS DEPRECIATION ON THE SAME. THE ASSESSEE ALSO HAS A M ANUFACTURING UNIT AT GOA WHERE IT MANUFACTURES DRUGS LIKE DIGENE, PEDIASURE ETC. HOWEVER, NO REAGENT IS MANUFACTURED AT THIS FACILITY. THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION AS PER PROVISIONS OF SECTION 32(1)(IIA ) OF THE ACT AGGREGATING TO RS. 45,10,828/- AND ON PERUSAL OF THE DETAILS OF ADDITI ONS DURING THE YEAR MADE IN THE BLOCK OF PLANT AND MACHINERY ON WHICH THE AD DITIONAL DEPRECIATION WAS CLAIMED, THE A.O. OBSERVED THAT THE ASSESSEE HAS CL AIMED AN AMOUNT OF RS. 25,77,617/- AS ADDITIONAL DEPRECIATION ON VAPORIZER S. SINCE THESE VAPORIZERS WERE RELATED PURELY TO THE TRADING ACTIVITY OF THE ASSESSEE, THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE ADDITIONAL DEPRECIATION CL AIMED SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF PHARMA PRODUCTS. NEW MACHINERY OR PLANT HAS BEEN ACQUIRED AND INSTALLED AFTER 31 ST MARCH, 2005 I.E. DURING THE FINANCIAL YEAR 2005-06. THE ASSESSEE SUBMITTED THAT THE MACH INERY IN QUESTION WAS ITA 3482/MUM/2013 & ITA 832/MUM/2013 5 NOT USED BEFORE ITS INSTALLATION . THE SAID VAPORIZ ERS ARE INSTALLED IN HOSPITALS/MEDICAL INSTITUTIONS AND THE ASSESSEE CON TINUES TO BE THE OWNER OF THE SAID VAPORIZERS. IT WAS SUBMITTED THAT THE MACH INERY IS NOT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATIO N, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST HOUSE. IT I S NOT OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES AND THE ACTUAL COST IS NEVE R ALLOWED AS A DEDUCTION UNDER ANY PROVISIONS OF THE INCOME TAX ACT, 1961. THUS, IN NUTSHELL THE ASSESSEE SUBMITTED THAT AS PER THE PROVISIONS OF S ECTION 32(1)(IIA) OF THE ACT, THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATIO N AS PROVIDED UNDER THE ACT. THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF BAJAJ TEMPO LTD. V. CIT (1992) 196 ITR 188(SC). THE A.O. REJECTED THE CONTENTIONS OF THE ASSESSEE H OLDING THAT PROVISIONS OF SECTION 32(1){IIA) OF THE ACT, CLEARLY SHOWS THAT T HE ADDITIONAL DEPRECIATION IS ALLOWED TO AN ASSESSEE ENGAGED IN THE BUSINESS OF M ANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE ASSETS OR PLANT AND MA CHINERY ACQUIRED BY IT FOR THE PURPOSE OF ENHANCING ITS TRADING BUSINESS SHOUL D NOT GET THE BENEFIT OF ADDITIONAL DEPRECIATION. THE A.O. ALSO HELD THAT T HE, PROVISIONS OF THE RELEVANT SECTION ALSO CLEARLY STATE THAT ANY PLANT AND MACHI NERY INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDIN G ACCOMMODATION IN THE NATURE OF A GUEST HOUSE, SHALL NOT BE ALLOWED THE B ENEFIT OF ADDITIONAL DEPRECIATION. IT WAS ALSO POINTED OUT THAT THE ADDI TIONAL DEPRECIATION IS MEANT FOR PROMOTION OF MANUFACTURING AND PRODUCTION ACTIV ITY ONLY. THE SERVICE EQUIPMENTS ARE INSTALLED BY THE ASSESSEE AT THE HOS PITALS , HENCE ADDITIONAL DEPRECIATION IS NOT AVAILABLE. THE A.O. HELD THAT T HE VAPORIZERS WERE INSTALLED AT THE HOSPITAL AND HOSPITALS ARE NOTHING BUT IN TH E NATURE OF TEMPORARY SALES OFFICE OF THE ASSESSEE, HENCE, NO ADDITIONAL DEPREC IATION IS ALLOWABLE ON THESE SERVICE EQUIPMENTS. THE AO OBSERVED THAT THE CASE LAW RELIED ON BY THE ASSESSEE IN THE CASE OF BAJAJ TEMPO LTD. V. CIT (SU PRA) IS NOT APPLICABLE AS THE SAME PERTAINS TO THE PERIOD PRIOR TO ASSESSMENT YEA R 2006-07. THE SECTION ITA 3482/MUM/2013 & ITA 832/MUM/2013 6 32(1)(IIA) OF THE ACT WAS DRASTICALLY CHANGED W.E.F . 01.04.2006 . THE RATIO IN LAW AS EXISTED PRIOR TO THE ASSESSMENT YEAR 2006-07 DO NOT APPLY TO THE CASE OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATION I.E . ASSESSMENT YEAR 2006-07. MOREOVER, THE CASE LAW IS NOT APPLICABLE AS THE ASS ESSEE WHICH IS PRIMARILY ENGAGED IN TRADING ACTIVITY AND ONLY A PART OF ITS BUSINESS RELATES TO MANUFACTURING AND PRODUCTION ACTIVITY, HENCE, ADDIT IONAL DEPRECIATION CLAIMED ON VAPORIZERS AMOUNTING TO RS. 25,77,616/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY THE AO VIDE ASSESSMENT ORDER DATED 15.11.2011 PASSED BY THE AO U/S 143(3) R.W.S . 147 OF THE ACT . 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 15.11.2 011 PASSED BY THE A.O. U/S 143(3) R.W.S. 147 OF THE ACT , THE ASSESS EE COMPANY FILED ITS FIRST APPEAL BEFORE THE LD. CIT(A). 6. BEFORE THE LD. CIT(A) THE ASSESSEE REITERATED TH E SUBMISSIONS AS WERE MADE BEFORE THE A.O. HENCE THE SAME ARE NOT REPEATE D HERE. THE ASSESSEE SUBMITTED THAT NO SUCH CONDITIONS HAVE BEEN IMPOSED U/S. 32(1)(IIA) OF THE ACT THAT THE VAPORIZERS DO NOT IN ANY WAY PROMOTE T HE MANUFACTURING OR PRODUCTION ACTIVITY OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE ONLY REQUIREMENT IS THAT THE ASSESSEE SHOULD BE ENGAGED IN THE BUSINESS OF MANUFACTURING WHICH WAS SATISFIED BY THE ASSESSEE. IN SUPPORT, THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VIKRANT TYRES LTD. V. ITO, 247 ITR 821 (SC) AND IN THE CASE OF AHMED G.H. ARIFF V. CWT, 76 ITR 471, 478 (SC). IT WAS SUBMITTED THAT NE W PLANT OR MACHINERY ACQUIRED NEED NOT HAVE OPERATIONAL CONNECTIVITY TO THE ARTICLE OR THING THAT WAS MANUFACTURED AND IN SUPPORT THE ASSESSEE ALSO R ELIED ON THE DECISION IN THE CASE OF CIT V. HI TECH ARAI LTD. (2010) 321 ITR 477 AND CIT V. TEXMO PRECISION CASTINGS (2010) 321 ITR 481. THE ASSESSEE SUBMITTED THAT THE ONLY REQUIREMENT TO BE MET UNDER THE PROVISIONS OF THE A CT IS THAT THE PLANT AND MACHINERY SHOULD NOT BE INSTALLED IN THE OFFICE PRE MISES OR RESIDENTIAL/GUEST ITA 3482/MUM/2013 & ITA 832/MUM/2013 7 HOUSE ACCOMMODATION WHICH CLEARLY INDICATES THAT IT IS NOT NECESSARY THAT PLANT AND MACHINERY SHOULD BE INSTALLED IN FACTORY ONLY TO BE ELIGIBLE FOR ADDITIONAL DEPRECIATION. THE ASSESSEE SUBMITTED THA T HOSPITAL CANNOT BE CONSIDERED AS OFFICE OF THE ASSESSEE AND THE VAPOR IZERS INSTALLED AT VARIOUS HOSPITALS AND MEDICAL INSTITUTIONS ENABLE THE HOSPI TALS / MEDICAL INSTITUTIONS TO PERFORM INDUCTION AND MAINTENANCE OF GENERAL ANE STHESIA. THE ASSESSEE SUBMITTED THAT IT IS ENTITLED FOR CLAIM OF DEDUCTIO N OF ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT. THE ASSESSEE RELIED UPO N THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LIMITED V. CIT (1992) 196 ITR 188 (SC) TO CONTEND THAT INCENTIVE PROVISIONS IN THE TA XING STATUTE ARE TO BE LIBERALLY CONSTRUED. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE IS ENGAG ED IN TWO TYPES OF BUSINESS ONE IS SIMPLE TRADING I.E. IMPORT OF MEDICINES AND THEIR LOCAL SALES AND THE OTHER BUSINESS IS OF MANUFACTURING AT GOA UNIT. THE VAPORIZERS ARE USEFUL FOR PROMOTING THE SALE OF IMPORTED MEDICINES AND THEY H AVE NO RELATIONSHIP WITH THE MANUFACTURING ACTIVITY OF THE PRODUCT. THESE VA PORIZERS ARE NOT LOCATED ON THE FACTORY OR BUSINESS PREMISES OF THE ASSESSEE. T HE LANGUAGE OF CLAUSE (IIA) OF SUB SECTION (1) OF SECTION 32 CLEARLY SUGGESTS T HAT THE PLANT AND MACHINERY WHICH IS ACQUIRED AND INSTALLED AFTER 31 ST MARCH, 2005 SHOULD BE LOCATED AND RELATE TO THE MANUFACTURING AND OR PRODUCTION UNIT AS THE PROVISION IS TO ENCOURAGE THE MANUFACTURING ACTIVITY AND NOT TO ENC OURAGE MERE TRADING ACTIVITY THEREFORE THE CONTENTIONS OF THE ASSESSEE WERE REJECTED BY THE LEARNED CIT(A) AND THE FINDINGS OF THE A.O. WAS UPHELD VID E APPELLATE ORDER DATED 15- 02-2013. 7. AGGRIEVED BY THE APPELLATE ORDER DATED 15-02-201 3 OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA 3482/MUM/2013 & ITA 832/MUM/2013 8 8. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 8428/MUM /2011 FOR THE ASSESSMENT YEAR 2007-08 VIDE ORDERS DATED 30 TH OCTOBER, 2015 HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND HENCE THE ISSUE IS SQUARELY COVERED IN ASSESSEE FAVOUR IN ASSESSEES OWN CASE BY THE ORDER OF THE TRIBUNAL. 9. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE O RDERS OF AUTHORITIES BELOW. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE TRIBUNAL ORDER. WE HAVE OBSERVED THAT THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION U/S 32 (1)(IIA) OF THE ACT ON VAPORIZERS WHICH ARE INSTALLED IN THE HOSPITAL/MEDI CAL INSTITUTIONS AND WHICH ARE CONTINUED TO BE OWNED BY THE ASSESSEE. WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 8428/MUM/2011 FOR TH E ASSESSMENT YEAR 2007-08 VIDE ORDERS DATED 30 TH OCTOBER, 2015 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT FINDINGS OF THE TRIB UNAL ARE AS UNDER:- GROUND NO. 2 DISALLOWANCE OF ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE 4. THE LD. DRP OF THIS ISSUE IS HELD AS UNDER:- THE DRP HAS CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND WE ARE OF THE VIEW THAT THE AOS ORDER SHOULD NOT BE INTERFER ED WITH. THE PLAIN READING OF THE PROVISION OF SEC. 32(1)(IIA) CLEARLY SHOWS THAT ADDITIONAL DEPRECIATION IS ALLOWED TO AN ASSESSED ENGAGED IN T HE BUSINESS OF MANUFACTURING OR PRODUCTION OF AN ARTICLE OR THING. THE ASSESSEE HERE IS INVOLVED PURELY IN TRADING ACTIVITY AND THE ASSET O R PLANT OR MACHINERY ACQUIRED BY IT FOR THE PURPOSE OF ENHANCING ITS TRA DING BUSINESS SHOULD NOT GET THE BENEFIT OF ADDITIONAL DEPRECIATION. THE VAP ORIZERS ARE NOT EVEN DISTINCTLY RELATED TO ITS MANUFACTURING ACTIVITY, H ENCE THIS GROUND IS REJECTED. ITA 3482/MUM/2013 & ITA 832/MUM/2013 9 5. THE LD. AR SUBMITTED THAT ADMITTEDLY VAPORIZERS HAVE BEEN PURCHASED BY THE ASSESSEE. IT IS ALSO AN ADMITTED F ACT THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING ACTIVITIES. THE LD. AR SUB MITS THAT THE ASSESSEE HAS ENGAGED IN MANUFACTURING ACTIVATES AND SINCE VA PORIZERS ARE NOT INSTALLED AT ITS OFFICE PREMISES, THE SUM IS QUALIF IED FOR ADDITIONAL DEPRECIATION. THE LD.AR PLACED HIS RELEVANCE ON; 1. CIT VS. DIAMINES AND CHEMICALS LTD. REPORTED I N 109 DTR(GUJ) 62. 2. CIT VS. VTM LTD. REPORTED IN (2009) 319 ITR 33 6(MAD). 6. THE LD. DR RELIES ON THE ORDER OF DRP. 5. WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORI TIES BELOW, THE SUBMISSION BY BOTH THE PARTIES AND THE JUDGMENTS RE LIED UPON BY THE LD.AR. BEFORE WE START WITH OUR OBSERVATION, SECTION 32(1) (IIA), AS IT STOOD AT THE RELEVANT ASSESSMENT YEAR, IS UNDER; DEPRECIATION. 32 (1) IN RESPECT OF DEPRECIATION OF- (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OT HER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AF TER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING OR IN THE BUSINE SS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER, A FURTHER SUM EQUAL TO TWENTY PER ITA 3482/MUM/2013 & ITA 832/MUM/2013 10 CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II) : PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF- (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTAL LATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHE R PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLE S; OR (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIAT ION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION' OF ANYONE PREVIOUS YEAR; 7. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF D CIT V COSMO FILMS LTD., BEARING ITA NO. 2831/DEL/2007, INTER-ALIA HAD THE OCCASION TO EXAMINE THE PROVISIONS RELATING TO THE GRANT OF ADD ITIONAL DEPRECIATION. THE TRIBUNAL HELD THEREIN THAT, THE ASSESSEE WOULD BE A BLE TO CLAIM THE ADDITIONAL DEPRECIATION. WHILE DOING SO, THE TRIBUN AL REFERRED TO THE SPEECH OF FINANCE MINISTER WHILE INSERTING THE RELE VANT PROVISIONS, WHEN IT WAS STATED THAT THIS CLAUSE WAS INSERTED TO PROVIDE AN INCENTIVE FOR FRESH INVESTMENT IN INDUSTRIAL SECTOR. 8. IT OBSERVED THAT THIS PROVISION HAS BEEN DIRECTE D TOWARDS ENCOURAGING INDUSTRIALIZATION BY ALLOWING ADDITIONAL BENEFIT TO THE TAX PAYERS SETTING UP NEW INDUSTRIAL UNDERTAKINGS/MAKING MORE INVESTMENT IN CAPITAL GOODS. ITA 3482/MUM/2013 & ITA 832/MUM/2013 11 THUS, THESE ARE INCENTIVES AIMED TO BOOST NEW INVES TMENTS IN SETTING UP AND EXPANDING THE UNITS. 9. IN THE FACTS OF THE PRESENT CASE THE ASSESSEE HA S INSTALLED VAPORIZERS AMOUNTING TO RS.35,58,040/- AT ITS HOSPITALS. THE R EVENUE HAS NOT DISPUTED THE FACT THAT, THE ASSESSEE IS NOT ENGAGED IN MANUF ACTURING ACTIVITIES, CARRIED ON AT GOA PLANT. THE ASSESSEE PROVIDES HEAL TH CARE SOLUTIONS THROUGH ITS FAIR MARKETING ARMS BEING PRIMARY CARE, SPECIALTY CARE, NEUROSCIENCE AND HOSPITALS CARE. AS FAR AS THE APPL ICATION OF SEC. 32(1)(IIA) OF THE ACT AS CONCERN, THE ASSESSEE IS R EQUIRED SATISFY THE STIPULATED CONDITIONS IN ORDER TO CLAIM ADDITIONAL DEPRECIATION. WE OBSERVE THAT IN PARA 23.2 OF THE FINAL ORDER PASSED BY THE ID.AO, THE FACTUAL POSITION IN RESPECT OF THE MACHINERY, HAS BEEN PROV IDED VIS-AVIS THE CONDITIONS U/S.321(IIA) OF THE ACT. THE ID.AO, HAS DISALLOWED THE ADDITIONAL DEPRECIATION ONLY ON THE GROUND THAT THE ASSESSEE HAS BEEN INTO TRADING ACTIVITY. APART FROM THE MANUFACTURING ACTI VITY CARRIED ON BY THE ASSESSEE, IT ALSO PROVIDES HEALTH CARE SOLUTIONS. T HE VAPORIZERS, PURCHASED BY THE ASSESSEE ARE RETAINED BY THE ASSESSEE ITSELF . 10. IN OUR CONSIDERED OPINION, SECTION32(1)(IIA) DO ES NOT STATE THAT SETTING UP OF A NEW MACHINERY OR A PLANT, WHICH WAS ACQUIRE D AND INSTALLED AFTER 31.03.2005, SHOULD HAVE AN OPERATIONAL CONNECTIVITY TO THE ARTICLE OR THING THAT WAS ALREADY BEING MANUFACTURED BY THE ASSESSEE . THEREFORE THE REASONING OF THE ID.AO THAT THE VAPORIZERS, HAS NOT HING TO DO WITH THE MANUFACTURING OF ARTICLES ETC., IS TOTALLY NOT GERM ANE TO THE SPECIFIC PROVISION CONTAINED IN SECTION 32 (1) (IIA) OF THE ACT. ITA 3482/MUM/2013 & ITA 832/MUM/2013 12 11. IN THE LIGHT OF THE ABOVE THAT DISCUSSION, WE H OLD THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION ON VAPORIZERS U/S.32(1) (IIA) OF THE ACT. RESPECTFULLY FOLLOWING THE ABOVE-STATED DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 842 8/MUM/2011 FOR THE ASSESSMENT YEAR 2007-08 , WE ALLOW THIS GROUND RAIS ED BY THE ASSESSEE. WE ORDER ACCORDINGLY. 11. COMPUTATION OF DEDUCTION U/S 80 IB OF THE ACT. THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 3,69,32,0 82/- AS DEDUCTION U/S 80-IB OF THE ACT BEING 30% OF THE PROFITS OF GO A UNIT. THE ASSESSEE IS ENGAGED IN THE MANUFACTURING AND TRADING OF PHARMAC EUTICAL AND RELATED PRODUCTS, WITH THE MANUFACTURING UNIT LOCATED AT GO A. THIS IS THE 10 TH YEAR OF CLAIM U/S 80IB OF THE ACT WITH THE ASSESSMENT YEAR 1997-98 BEING THE FIRST YEAR OF CLAIM. THE ASSESSEE HAS ALSO CHALLENGED THE REOPENING WHICH WAS REJECTED BY THE A.O. . THE A.O. OBSERVED THAT THE E NTIRE EXPENSES RELATES TO IMPLEMENTATION AND STANDARDIZATION OF MANUFACTURING PROCESS AND AS SUCH THE ENTIRE EXPENSES SHOULD BE DEDUCTED FROM THE PRO FITS AS DIRECT EXPENSES. IT WAS OBSERVED THAT THE BUSINESS OF TRADING ACTIVITY IN PHARMACEUTICAL PRODUCTS DOES NOT INVOLVE ANY SCIENTIFIC RESEARCH EXPENDITUR E SINCE THE ASSESSEE IS MERELY PURCHASING THE GOODS AND SELLING THEM SUBSEQ UENTLY. THE ASSESSEE IS ALSO CARRYING OUT MANUFACTURING ACTIVITY AT GOA WHI CH REQUIRES RESEARCH AND DEVELOPMENT EXPENSES(R & D), WHICH SHOULD HAVE BEEN ALLOCATED IN TOTALITY TO THE SAID UNIT. THE AO HELD THAT, HOWEVER, THE ASSE SSEE HAS ALLOCATED R&D EXPENSES IN ACCORDANCE WITH SALES TURNOVER ON PRORA TE BASIS AND DUE TO FAILURE ON THE PART OF THE ASSESSEE TO FURNISH COMP LETE DETAILS OF UNIT-WISE ITA 3482/MUM/2013 & ITA 832/MUM/2013 13 EXPENDITURE WHICH HAS LED TO ESCAPEMENT OF INCOME B Y CLAIM OF EXCESSIVE DEDUCTION AND HENCE DEDUCTION TO THE EXTENT OF RS. 3,40,71,018/- IS ALLOWABLE U/S 80IB OF THE ACT AS AGAINST CLAIM OF RS. 3,69,32 ,082/- MADE BY THE ASSESSEE U/S 80IB OF THE ACT, VIDE ASSESSMENT ORDER DATED 15.11.2011 PASSED BY THE AO U/S 143(3) R.W.S. 147 OF THE ACT . 12. AGGRIEVED BY THE ASSESSMENT ORDER DATED 15.11 .2011 PASSED BY THE A.O. U/S 143(3) R.W.S. 147 OF THE ACT , THE ASSESSE E HAS FILED ITS FIRST APPEAL BEFORE THE LD. CIT(A) WHICH WAS REJECTED BY THE LD. CIT(A). BEFORE THE LD. CIT(A) THE ASSESSEE REITERATED THE S UBMISSIONS WHAT WAS MADE BEFORE THE A.O. AND SUBMITTED THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. 95,36,877/- UNDER THE HEAD RESEARCH AND DEVELOP MENT TOWARDS ESTABLISHING NEW TECHNICAL CAPABILITIES, IMPORT SUB STITUTION AND NEW VENDOR DEVELOPMENT, OPTIMIZATION, STANDARDIZATION AND IMPR OVEMENTS OF PRODUCTS AND MANUFACTURING PROCESS AND TECHNICAL EVALUATION OF THE SHELF PRODUCTS, TO ENSURE QUALITY AND STABILITY. IT WAS SUBMITTED THA T THE EXPENSES WERE NOT INCURRED TO EARN INCOME BUT WITH THE OBJECTS OF OPT IMIZATION, STANDARDIZATION AND IMPROVEMENTS OF PRODUCTS AND MANUFACTURING PROC ESSES AND REDUCE COSTS AND HENCE THE SAME WERE NOT APPORTIONED /ALLO CATED WHILE COMPUTING PROFITS AND GAINS DERIVED OF GOA UNIT ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. DURING THE COURSE OF ASSESSMENTS PROCEEDINGS THE DETAILS OF RESEARCH AND DEVELOPMENT EXPENDITURE INCURRED WERE CALLED FO R AND THE SAME WERE FURNISHED BY THE ASSESSEE VIDE ASSESSEES LETTER DA TED 12 TH NOVEMBER, 2009. IN NUTSHELL,, THE ASSESSEE SUBMITTED THAT THE R&D E XPENSES BEING COMMON COST WERE INCURRED BY THE ASSESSEE FOR ITS BUSINES S AS A WHOLE AND NOT MERELY PERTAINING TO ITS GOA UNIT BUT OVERALL BUSINESS AND THE UNIT ELIGIBLE FOR DEDUCTION WAS ALLOCATED ON THE BASIS OF SALES RATIO . IT WAS SUBMITTED BY THE ASSESSEE THAT ,HOWEVER, THE A.O. MISDIRECTED HIMSEL F BY ALLOCATING THE ENTIRE EXPENSES TO THE GOA UNIT AND AS SUCH BY HOLDING THA T THE ENTIRE EXPENSES ITA 3482/MUM/2013 & ITA 832/MUM/2013 14 SHOULD BE DEDUCTED FROM THE PROFITS OF THE GOA ELIG IBLE UNIT AS DIRECT EXPENSES WHILE COMPUTING DEDUCTION U/S 80IB OF THE ACT. THE LD. CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT NO RESEARC H IS REQUIRED FOR TRADING ACTIVITIES HENCE EXPENSES ON RESEARCH RELATES TO MA NUFACTURING UNIT ONLY. THE LD. CIT(A) HELD THAT THE ASSESSEE HAS TO PROVE IF S UCH EXPENSES WERE INCURRED BY FILING DETAILED EVIDENCE BUT THE ASSESSEE FAILED TO DO SO. HENCE, THE CLAIM OF THE ASSESSEE THAT RESEARCH EXPENSES WERE REQUIRE D TO BE ALLOCATED IN THE RATIO OF TURNOVER TO TRADING ACTIVITY AND MANUFACTU RING IS NOT HAVING ANY BASIS AND ACCORDINGLY THE LD. CIT(A) REJECTED THE CLAIM O F THE ASSESSEE VIDE APPELLATE ORDERS DATED 15-02-2013. 13. AGGRIEVED BY THE APPELLATE ORDER DATED 15-02-20 13 PASSED BY THE LD. CIT(A), THE ASSESSEE FILED SECOND APPEAL BEFORE THE TRIBUNAL. 14. BEFORE THE TRIBUNAL, THE LD. COUNSEL FOR THE AS SESSEE SUBMITTED THAT THE A.O. IN THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143 (3) READ WITH SECTION 143(2) OF THE ACT, THE AO HAS DISCUSSED THIS ISSUE IN DETAIL IN THE ASSESSMENT ORDER DARTED 26 TH NOVEMBER, 2009 PASSED U/S 143(3) OF THE ACT WHEREB Y THE COMPLETE DETAILS WERE SUBMITTED BEFORE THE A.O. AND THE A.O. ALLOWED THE DEDUCTION BASED UPON THE RATIO OF TURNOVER TO TRADI NG ACTIVITY. THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS REPRODUCED BELOW :- 20. AS INDICATED, ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING AND TRADING OF PHARMACEUTICAL AND REL ATED PRODUCTS, WITH THE MANUFACTURING UNIT LOCATED AT GO A. FOR THE YEAR UNDER CONSIDERATION, ASSESSEE HAS CLAIMED A DE DUCTION OF RS.3,69,32,082/- U/S. 80-IB OF THE INCOME-TAX ACT, AND THE CLAIM IS MADE @ 30% ON TOTAL PROFIT OF RS.12,31,06,938/- BEING THE PROFIT ATTRIBUTABLE TO GOA UNIT. THIS IS THE 10TH Y EAR OF CLAIM U/S. 80-IB WITH A.Y.1997-98 BEING THE FIRST YEAR OF CLAI M. ITA 3482/MUM/2013 & ITA 832/MUM/2013 15 21. WHILE CLAIMING THE DEDUCTION U/S.80-IB ON PROFI TS OF GOA UNIT, THE ASSESSEE HAS SUBMITTED THE CERTIFICATE IN FORM 10CCB DT.22.11.2006 AS CERTIFIED BY THE CHARTERED ACCOUNT ANT. ALONG WITH THE CERTIFICATE, ASSESSEE HAS ALSO FURNISHED A BALANCE SHEET AND' PROFIT & LOSS ACCOUNT PREPARED SEPARATELY FOR THE GOA UNIT, WHICH HAS BEEN CARVED OUT OF THE BALANCE SHEET AND THE PROFIT & LOSS ACCOUNT OF THE COMPANY. WHILE PREPARING THE PR OFIT & LOSS ACCOUNT FOR GOA UNIT, IT WAS INDICATED THAT CERTAIN EXPENDITURES ARE ALLOCATED ON ACTUAL BASIS WHERE CERTAIN INDIREC T EXPENSES ARE ALLOCATED ON PRORATE BASIS AND THE BASIS FOR THIS P URPOSE IS STATED TO BE THE PERCENTAGE OF THE TURNOVER /SALES OF THE GOA UNIT, TO THAT OF THE COMPANY. 22, DETAILS OF EXPENSES PERTAINING TO GOA UNIT VIS- A-VIS THE COMPANY AS A WHOLE, ARE AS UNDER: PARTICULARS GOA UNIT TOTAL ENTITY(INCL. GOA UNIT) SALES OTHER INCOME LESS: MANUFACTURING AND OTHER EXP . RAW AND PACKING MATERIAL CONSUMED OTHER CONVERSION MATERIAL PURCHASE AND FINISHED GOODS WAGES AND SALARIES ELECTRICITY 322,545,639 3,243,004 325,788,644 90,377,319 2,620,167 - 11,127,493 9,083,138 4,851,012, 404 164,955,484 5,015,967,889 90,377,319 3,669,538 3,518,878,752 258,520,420 26,138,022 ITA 3482/MUM/2013 & ITA 832/MUM/2013 16 FUEL AND OIL WATER REPAIRS AND MAINTENANCE DEPRECIATION OTHER DIRECT EXPENSES PROFITS OF GOA UNIT- AFTER DIRECT EXP LESS: INDIRECT EXPENSES ADVERTISING EXP. SELLING EXPENSES DISTRIBUTION EXP. ADMINISTRATION EXP INTEREST CHARGES OTHER INDIRECT EXPENSES PROFITS OF GOA UNIT- AFTER INDIRECT EXPENSES ADD: CLOSING STOCK WORK-IN-PROGRESS FINISHED GOODS LESS: OPENING STOCK WORK-IN-PROGRESS 854,951 889,474 10,821,727 12,596,406 6,516,856 154,887,530 170,901,113 14,776,991 20,939,065 10,391,041 6,538,032 13,882 52,659,010 118,242,103 3,635,548 34,469,011 38,104,559 3,372,864 854,951 915,691 25,449,679 40,072,847 8,159,447 3,973,036,666 1,042,931,222 121,446,231 118,429,259 71,086,363 79,944,933 1,068,406 55,582,228 447,557,419 595,373,804 3,635,548 800,484,874 804,120,422 3,372,864 ITA 3482/MUM/2013 & ITA 832/MUM/2013 17 FINISHED GOODS ADD: BOOK DEPRECIATION LESS: TAX DEPRECIATION PROFITS OF GOA UNIT 30% OF ELIGIBLE PROFITS 27,750,709 31,123,573 125,223,088 12,596,406 14,712,556 123,106,938 36,932,082 469,439,393 472,812,257 926,681,968 40,072,847 22,913,289 943,841,526 23. BASIS OF ALLOCATION OF EXPENSES SHOWN: # EXPENSES NATURE BASIS 1 INTEREST INDIRECT EXPENSES SALES RATIO 2 ADVERTISING INDIRECT EXPENSES ACTUAL S 3 SELLING INDIRECT EXPENSES SALES RATIO 4 DISTRIBUTION INDIRECT EXPENSES SALES RATIO 5 MANUFACTURING INDIRECT EXPENSES ACTUALS 6 DEPRECIATION INDIRECT EXPENSES A CTUALS 24. WHILE PREPARING THE PROFIT & LOSS ACCOUNT FOR G OA UNIT, 'EXPENSES ON SCIENTIFIC RESEARCH RS..95,36,877/- AR E NOT APPORTIONED TO GOA UNIT. IT WAS SUBMITTED THAT THE COMPANY DOESN'T HAVE ITS ESTABLISHED R&D CENTRE AS SUCH FOR CONDUCTING SCIENTIFIC RESEARCH. RESEARCH AND DEVELOPMENT ACTIV ITY MAINLY COMPRISES OF: INDIGENIZING TECHNICAL KNOW-HOW, IMPL EMENTATION AND STANDARDIZATION OF MANUFACTURING PROCESS AS PER THE DEFINED STANDARDS, PROCESS MODIFICATION FOR ALL PRODUCTS, E NSURING PRESCRIBED QUALITY STANDARDS FOR ALL PRODUCTS, VEND OR DEVELOPMENT, VERIFICATION OF PROCESSES FOLLOWED FOR ALL PRODUCTS, VERIFYING QUALITY STANDARDS OF PRODUCTS MANUFACTURE D FOR ALL ITA 3482/MUM/2013 & ITA 832/MUM/2013 18 PRODUCTS, IMPORT SUBSTITUTION, COST REDUCTION IN PO TENTIAL AREAS, ADDRESSING COMPLAINTS IN TERMS OF IMPROVEMENT IN PA CKAGING, QUALITY IMPROVEMENT IN RESPECT OF ALL PRODUCTS OF T HE COMPANY. 25. SINCE THERE IS NO METHOD OF MAINTAINING THESE E XPENSES ON UNIT BASIS, IT IS REASONABLE AND MEANINGFUL TO APPO RTION SUCH EXPENSES ON SCIENTIFIC RESEARCH TO THE MANUFACTURIN G UNIT OF THE COMPANY AT GOA. THE EXPENSES UNDER THE HEAD SCIENTI FIC RESEARCH RS.95,36,877/- ARE THEREFORE TO BE APPORTI ONED TO GOA MANUFACTURING UNIT IN THE RATIO OF SALES TURNOVER BETWEEN GOA UNIT VIS-A-VIS TOTAL TURNOVER OF THE COMPANY. THE W ORKING IS AS UNDER :- GOA UNIT SALES RS.32,25,45,639/- TOTAL SALES OF ASSESSEE RS. 4,85,10,12,404/- RATIO == 32,25,45,639 X 100 / 4,85,10,12,404 = 6.65 % 26. ACCORDINGLY, SHARE OF SUCH EXPENSES RELATED TO GOA UNIT IS QUANTIFIED 6.65% OF RS95,36,877/-, WHICH WORKS OUT TO RS.6,34,202/- BASED ON PRORATE BASIS. 27 ON THESE LINES OF DISCUSSION AND FINDINGS, THE INCOME THAT IS ELIGIBLE FOR DEDUCTION U/S 80-IB IN THE CASE OF GOA UNIT, IS RE- WORKED AS UNDER, FOR COMPUTING THE TAXABLE INCOME O F THE COMPANY. TOTAL INCOME AS COMPUTED IN CERTIFICATE IN FORM N O. 10CCB 12,31,06,938 ITA 3482/MUM/2013 & ITA 832/MUM/2013 19 LESS: SCIENTIFIC RESEARCH EXPENSES APPORTIONED TO GOA UNIT 6,34,202 REVISED TOTAL INCOME FOR GOA UNIT 12,24,72,736 ELIGIBLE DEDUCTIONS U/S.80-IB @ 30% 3,67,41, 821 THE LD. COUNSEL DRAWN OUR ATTENTION TO THE ASSESSME NT ORDER VIDE PAPER BOOK PAGE 58 TO 66 FILED WITH THE TRIBUNAL AND SUBMITTED THAT ALLOCATING THE ENTIRE R&D EXPENSES TOWARDS GOA MANUFACTURING UNIT IS NOTH ING BUT A CHANGE OF OPINION WHICH IS NOT PERMISSIBLE UNDER LAW. THE LD . COUNSEL SUBMITTED THAT DETAILED REPLY WAS SUBMITTED DURING THE COURSE OF A SSESSMENT PROCEEDINGS. HE ALSO DREW OUR ATTENTION TO THE VARIOUS REPLIES S UBMITTED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHICH A RE PLACED IN THE PAPER BOOK PAGES 17 TO 57 WHEREBY DETAIL REPLY WAS SUBMIT TED WITH RESPECT TO THE CLAIM OF DEDUCTION 80IB OF THE ACT. IT WAS ALSO SU BMITTED THAT THIS IS THE 10 TH YEAR OF THE CLAIM AND THE REVENUE HAS ALLOWED THE C LAIM FOR LAST 9 YEARS AND NOW THE SAME CANNOT BE DENIED WITHOUT DISTURBING TH E ORIGINAL ALLOWABILITY OF THE CLAIM. IT WAS SUBMITTED THAT IT IS MERELY A CHA NGE OF OPINION WHICH IS NOT PERMISSIBLE. THE LD DR RELIED UPON THE ORDERS OF TH E AUTHORITIES BELOW. 15. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE IS ENGAGED IN THE B USINESS OF MANUFACTURING AND TRADING OF MEDICINAL AND PHARMACEUTICAL PRODUCT S, INSULIN AND ITS FORMULATIONS. MANUFACTURING ACTIVITIES WERE CARRIE D OUT AT GOA BY THE ASSESSEE COMPANY. THE ASSESSEE HAS INCURRED EXPEN DITURE OF RS. 95,36,877/- TOWARDS RESEARCH AND DEVELOPMENT WHICH IS STATED TO BE INCURRED TOWARDS IMPLEMENTATION AND STANDARDIZATION OF MANUF ACTURING PROCESS INCLUDING ESTABLISHING NEW TECHNICAL CAPABILITIES, IMPORT SUBSTITUTION AND NEW VENDOR DEVELOPMENT , OPTIMIZATION , STANDARDIZA TION AND IMPROVEMENTS OF PRODUCTS AND MANUFACTURING PROCESSES AND TECHNIC AL EVALUATION OF OFF THE SHELF PRODUCTS, TO ENSURE QUALITY AND STABILITY. TH E ASSESSEE HAS ALLOCATED R & ITA 3482/MUM/2013 & ITA 832/MUM/2013 20 D EXPENSES AMONGST MANUFACTURING AND TRADING ACTIVI TIES BASED UPON THE SALES RATIO AS THE SAID R&D IS STATED TO BE NOT DI RECTED SPECIFICALLY TOWARDS MANUFACTURING UNIT AT GOA AND BEING COMMON COSTS WE RE INCURRED FOR ITS BUSINESS AS A WHOLE . BASED UPON THIS , THE ASSESS EE HAS MADE CLAIM OF DEDUCTION OF RS. 3,69,32,082/- U/S 80IB OF THE ACT WITH RESPECT TO THE GOA UNIT AS PROFIT DERIVED FROM GOA UNIT. THE A.O. HAS ALLOWED THE CLAIM OF THE ASSESSEE FOR THIS YEAR VIDE ASSESSMENT ORDERS U/S 1 43(3) OF THE ACT DATED 26 TH NOVEMBER, 2009 WHEREBY DETAILED ENQUIRY WAS MADE BY THE A.O. BEFORE ALLOWING THE CLAIM OF THE ASSESSEE. THE REVENUE HAS REOPENED THE ASSESSMENT BY INVOKING THE PROVISIONS OF SECTION 148 OF THE AC T WITHIN A PERIOD OF FOUR YEARS WHEREIN THE ORIGINAL ASSESSMENT WAS FRAMED U/ S 143(3) OF THE ACT, WHEREBY THE REVENUE IS ATTEMPTING TO ALLOCATE THE E NTIRE R&D EXPENDITURE OF RS. 95,36,877/- TO THE GOA UNIT IN THE RE-OPENED PR OCEEDINGS ON THE CONTENTION THAT THE R & D WAS DIRECTED TOWARDS MANU FACTURING UNIT WHILE THE ASSESSEE CONTENTIONS FROM BEGINNING BEING THAT THE SAME IS COMMON COST TOWARDS ESTABLISHING NEW TECHNICAL CAPABILITIES, IM PORT SUBSTITUTION AND NEW VENDOR DEVELOPMENT, OPTIMIZATION, STANDARDIZATION A ND IMPROVEMENTS OF PRODUCTS AND MANUFACTURING PROCESS AND TECHNICAL EV ALUATION OF THE SHELF PRODUCTS, TO ENSURE QUALITY AND STABILITY AND THAT THE EXPENSES WERE NOT INCURRED TO EARN INCOME BUT WITH THE OBJECTS OF OPT IMIZATION, STANDARDIZATION AND IMPROVEMENTS OF PRODUCTS AND MANUFACTURING PROC ESSES AND REDUCE COSTS AND HENCE THE SAME WERE NOT APPORTIONED /ALLO CATED BY THE ASSESSEE WHILE COMPUTING PROFITS AND GAINS DERIVED OF GOA UN IT ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. . IT IS ALSO THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THIS IS THE TENTH YEAR OF CLAIM U/S 8 0IB OF THE ACT WHEREIN THE REVENUE HAS ALLOWED THE CLAIM U/S 80IB OF THE ACT I N THE LAST NINE YEARS WHICH INCLUDED THIS CLAIM OF DEDUCTION OF R & D COM PUTED BASED ON ALLOCATION BETWEEN MANUFACTURING UNIT AT GOA AS WEL L TRADING ACTIVITIES WHICH WAS ACCEPTED BY THE REVENUE IN PRECEDING YEARS. IN OUR CONSIDERED VIEW THE ASSESSEE HAS MADE CLAIM U/S 80IB OF THE ACT WHICH W AS ALLOWED BY THE ITA 3482/MUM/2013 & ITA 832/MUM/2013 21 REVENUE AFTER DETAILED ENQUIRY WHEREIN THE ASSESSEE DULY SUBMITTED THE DETAILED EXPLANATION AS TO MANNER OF COMPUTING DEDU CTION U/S 80IB OF THE ACT WHICH WAS ACCEPTED BY THE REVENUE AFTER SCRUTIN Y WHILE FRAMING ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT AND NO FRESH TANGI BLE MATERIAL HAS COME INTO POSSESSION OF THE REVENUE WHICH HAS LIVE LINK/ NEXUS WITH THE FORMATION OF BELIEF THAT INCOME HAS ESCAPED ASSESSMENT WARRAN TING RE-OPENING OF THE CONCLUDED ASSESSMENT , HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO DISTURB THE CLAIM OF THE ASSESSEE WHICH WAS EARLIER ACCEPTED IN ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) OF THE ACT AFTER DETAILED SCRUTINY RATHER IT IS A CASE OF CHANGE OF OPINION W HICH IS NOT PERMISSIBLE IN PROCEEDINGS U/S 147/148 OF THE ACT AS THE POWERS OF RE-OPENING THE CONCLUDED ASSESSMENT , U/S IS TO RE-ASSESS AND NO T TO REVIEW THE CONCLUDED ASSESSMENTS. THE REFERENCE IS MADE TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V. KELVINATOR OF INDIA LIMITED ( 2010) 320 ITR 561(SC). THE ASSESSEE HAS MADE A CLAIM OF DEDUCTION U/S 80IB OF THE ACT ON THE BASIS THAT THE SAME WAS COMMON COSTS WHICH SHOULD BE ALLOCATED BETWEEN MANUFACTURING AND TRADING ACTIVITIES BASED ON THE R ATIO OF SALES TURNOVER WHICH WAS ACCEPTED BY THE REVENUE AFTER DETAILED SC RUTINY IN ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT WHICH CULMINATED INTO ASSESSMENT ORDER DATED 26.11.2009 PASSED BY THE AO U/S 143(3) OF THE ACT. ALTHOUGH THE REOPENING HAS BEEN DONE WITHIN A PERIO D OF 4 YEARS BUT STILL THE SAME IS NOT PERMISSIBLE IN THE INSTANT CASE AS THE CONCLUDED ASSESSMENT HAS BEEN RE-OPENED MERELY DUE TO CHANGE OF OPINION. HE NCE THE ADDITION IS ORDERED TO BE DELETED. WE ORDER ACCORDINGLY. ASSESSEES APPEAL IN ITA 832/MUM/2013 FOR THE ASSES SMENT YEAR 2008- 09 16. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITA NO. 832/MUM/2013 FOR THE ASSESSMENT YEAR 2008-09 IN THE MEMO OF APPEAL FILED ITA 3482/MUM/2013 & ITA 832/MUM/2013 22 WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI (HER EINAFTER CALLED THE TRIBUNAL) READS AS UNDER:-: 1:0 RE.: NON-CONSIDERATION OF THE REVISED RETURN O F INCOME FILED FOR THE YEAR: 1:1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ER RED IN NOT ADJUDICATING ON THE GROUND OF APPEAL RAISED BEFORE HIM VIS-A-VIS NON CONSIDERATION OF THE REVISED RETURN OF INCOME B Y ERRONEOUSLY HOLDING THAT THE REPRESENTATIVE OF THE APPELLANT HA S AGREED THAT THEY WOULD TAKE UP THE MATTER WITH THE ASSESSING OF FICER. 1:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE GROUND OF APPEAL RAISED BY THE APPELLANT VIS-A- VIS NON CONSIDERATION OF THE REVISED RETURN OF INCOME OUGHT TO HAVE BEEN ADJUDICATED ON BY THE COMMISSIONER OF INCOME-TAX (A PPEALS). 1:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R BE DIRECTED TO CONSIDER THE REVISED RETURN OF INCOME FILED BY T HE APPELLANT FOR THE YEAR AND TO RE-COMPUTE ITS TOTAL INCOME ACCORDI NGLY. 2:0 RE.: NON-ALLOWANCE OF THE SHARE BUY - BACK EXPE NSES: 2:1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ER RED IN NOT SPECIFICALLY DIRECTING THE ASSESSING OFFICER TO GRA NT A DEDUCTION FOR THE SHARE BUY-BACK EXPENSES AS CLAIMED BY THE A PPELLANT. 2:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF THE CASE AND THE LAW PREVAILING ON THE SUBJECT, IT IS ENTITLED TO A DEDUCTION OF SHARE BUY-BACK EXP ENSES INCURRED BY IT AND THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO ITA 3482/MUM/2013 & ITA 832/MUM/2013 23 DIRECTED THE ASSESSING OFFICER TO RECOMPUTE ITS TOT AL INCOME AFTER GRANTING A DEDUCTION FOR THE SAID SHARE BUY-BACK EX PENSES. 2 : 3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFI CER BE DIRECTED TO GRANT THE APPELLANT A DEDUCTION FOR THE SHARE BU Y-BACK EXPENSES AS CLAIMED AND TO RE-COMPUTE IT'S TOTAL IN COME ACCORDINGLY. 3:0 RE: ADDITIONAL DISALLOWANCE U/S. 14A 3:1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ER RED IN CONFIRMING THE ADDITIONAL DISALLOWANCE U/S. 14A OF THE INCOME- TAX ACT, 1961 MADE BY THE ASSESSING OFFICER BY APPL YING THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962 . 3:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT NO FURTHER DISALLOWANCE U/S. 14A OF THE INCOME-TAX ACT , 1961 IS CALLED FOR AND THE STAND TAKEN BY THE ASSESSING OFF ICER IS INCORRECT AND THE COMMISSIONER OF INCOME-TAX (APPEA LS) OUGHT TO HAVE HELD AS SUCH. 3:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R BE DIRECTED TO DELETE THE ADDITIONAL ADDITION SO MADE U/S. 14A R.W.R 8D AND TO RE-COMPUTE ITS TOTAL INCOME ACCORDINGLY. 4:0 RE.: ADDITIONAL DEPRECIATION ON VAPORIZER CLAIM ED AS A DEDUCTION UNDER SECTION 32(1)(IIA) 4 : 1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 53,32,399/- BEIN G THE ITA 3482/MUM/2013 & ITA 832/MUM/2013 24 ADDITIONAL DEPRECIATION U/S 32(L)(IIA) CLAIMED BY T HE APPELLANT ON VAPORIZERS INSTALLED AT HOSPITALS. 4:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT, IT IS ENTITLED TO CLAIM ADDITIONAL DEPRECIATION ON THE VAPORIZERS IN TERMS OF SECTION 32(1)(IIA) OF THE INCOME-TAX ACT, 1961 AND THE STAND TAKEN BY THE ASSESSING OFFICER IN THIS REGARD IS ERRONEOUS, MISCONCEIVED AND OUGHT TO BE STRUCK DOWN. 4:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R BE DIRECTED TO GRANT ADDITIONAL DEPRECIATION ON THE VAPORIZERS AS CLAIMED BY IT AND TO RE-COMPUTE ITS TOTAL INCOME ACCORDINGLY. THE ASSESSEE HAS ALSO RAISED FOLLOWING ADDITIONAL G ROUNDS OF APPEAL BEFORE THE TRIBUNAL AND PRAYED FOR ITS ADMISSION BEING LEGAL G ROUND: ADDITIONAL GROUND OF APPEAL DEDUCTION IN RESPECT OF ADVANCE PAYMENT OF SALES T AX MADE IN A.Y. 2007-08. (I) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE APPELLANT SUBMITS THAT SINCE DEDUCTION IN RESPECT O F ADVANCE PAYMENT OF SALES TAX AMOUNTING TO RS. 40,39,333/- MADE IN AY 2 007-08 HAS BEEN DISALLOWED IN THE SAID YEAR, THE SAME OUGHT TO BE G RANTED FOR THE CAPTIONED A.Y. FOR WHICH IT PERTAINS. 17. THE ASSESSEE PRAYED FOR THE ADMISSION OF THE AD DITIONAL GROUND BY CONTENDING THAT THE ASSESSEE PAID SALES TAX IN ADVA NCE OF RS. 40,39,333/- IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2 007-08 FOR THE PERIOD FROM ITA 3482/MUM/2013 & ITA 832/MUM/2013 25 1 ST APRIL 2007 TO 31 ST MARCH 2008 AND CLAIMED THE SAME AS DEDUCTION FOR THE ASSESSMENT YEAR 2007-08 U/S 43B OF THE ACT WHICH DE DUCTION WAS DISALLOWED BY THE AO ON ACCOUNT OF BEING ADVANCE PAYMENT OF SA LES TAX VIDE ASSESSMENT ORDERS DATED 30-09-2011 PASSED U/S. 143(3) OF THE A CT READ WITH THE SECTION 144C(13) OF THE ACT PASSED FOR THE ASSESSMENT YEAR 2007-08. THE ASSESSEE CONTENDED THAT APPEAL WAS FILED WITH THE TRIBUNAL W HEREIN THE ASSESSEE DID NOT PRESS THIS GROUND CONSIDERING THAT THE SAME OUG HT TO HAVE BEEN ALLOWED IN THE YEAR TO WHICH IT PERTAINS I.E. ASSESSMENT YE AR 2008-09. THUS, IT WAS PRAYED THAT THE SAID GROUND BE ADMITTED AS IT IS P URELY A LEGAL GROUND AND ALSO OTHERWISE SERIOUS PREJUDICE WILL BE CAUSED TO THE ASSESSEE AS THE ASSESSEE WILL BE DENIED OF THE LEGITIMATE DEDUCTION UNDER THE PROVISIONS OF THE ACT TO WHICH IT IS LEGALLY ENTITLED . THE LD. DR S UBMITTED THAT THIS ISSUES NEEDS VERIFICATION BY AUTHORITIES BELOW. WE HAVE CONSIDERED THE CONTENTION OF BOTH THE PARTI ES AND WE ARE OF THE CONSIDERED VIEW THAT IN THE INTEREST OF SUBSTANTIAL JUSTICE THIS ADDITIONAL GROUND DESERVES TO BE ADMITTED AND WE HEREBY ORDER THE ADMISSION OF THE SAID ADDITIONAL GROUND RAISED BY THE ASSESSEE. IN THIS ADDITIONAL GROUND RAISED BY THE ASSESSEE W HEREIN IT WAS SUBMITTED THAT THE PAYMENT OF SALES TAX IN ADVANCE AMOUNTING TO RS. 40,39,333/- WAS MADE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSME NT YEAR 2007-08 WHILE THE SALES TAX PERTAINED TO THE PERIOD FROM 01-04-2007 T O 31-03-2008 AND CLAIM OF DEDUCTION WAS MADE U/S. 43B OF THE ACT IN THE ASSES SMENT YEAR 2007-08 WHICH WAS DENIED BY THE REVENUE, IT WAS SUBMITTED T HAT THE AO DISALLOWED THE SAME WHILE FRAMING THE ASSESSMENT ORDER FOR ASS ESSMENT YEAR 2007-08 AS BEING ADVANCE PAYMENT OF SALES TAX PERTAINING TO TH E PERIOD 01-04-2007 TO 31-03-2008 I.E. ASSESSMENT YEAR 2008-09 . IT WAS SU BMITTED THAT THE MATTER WAS DISPOSED OF BY THE TRIBUNAL WHILE DECIDING THE ASSESSEES OWN APPEAL IN ITA NO. 8428/MUM/2011 FOR THE ASSESSMENT YEAR 2007- 08 VIDE ORDERS DATED ITA 3482/MUM/2013 & ITA 832/MUM/2013 26 30 TH OCTOBER, 2015 WHEREIN THE ASSESSEE DID NOT PRESSED THE SAID GROUND. THE RELEVANT FINDING OF THE TRIBUNAL IS AS UNDER:- THE LD.AR SUBMITS THAT GROUND NO. 1 TO BE NOT PRESS ED, RELATING TO THE DISALLOWANCE OF ADVANCES SALES TAX CLAIMED AS DEDUC TION. WE THEREFORE DISMISS THE GROUNDS OF APPEAL. THE GROUND NO 1:0 RAISED BY THE ASSESSEE IN ASSESSE ES APPEAL IN ITA NO. 8428/MUM/2011 FOR ASSESSMENT YEAR 2007-08 WHICH WAS DISMISSED BY THE TRIBUNAL AS SET OUT ABOVE, READ AS UNDER: 1:0 ADVANCE SALES TAX PAID CLAIMED AS DEDUCTION: 1:1 THE ASSESSING OFFICER / THE DISPUTE RESOLUTION PANEL HAS ERRED IN NOT GRANTING A DEDUCTION FOR AN AMOUNT OF RS. 40,39,333 /- BEING SALES TAX PAID IN ADVANCE DURING THE YEAR- FOR THE PERIOD 01 APRIL 20 07 TO 31 MARCH 2008. 1:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT, THE ADV ANCE SALES TAX PAID IS ALLOWABLE AS A DEDUCTION U/S. 43B OF THE INCOME-TAX ACT,1961 AND THE STAND TAKEN BY THE ASSESSING OFFICER IN THIS REGARD IS ERRONEOU S AND NOT IN ACCORDANCE WITH LAW. 1:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R BE DIRECTED TO DELETE THE DISALLOWANCE SO MADE BY HIM AND TO RE-COMPUTE ITS T OTAL INCOME ACCORDINGLY. WITHOUT PREJUDICE TO THE FOREGOING: ITA 3482/MUM/2013 & ITA 832/MUM/2013 27 1:4 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF ITS CASE AND SPECIFICALLY IN VIEW OF THE FACTS THAT A D EDUCTION HAS NOT BEEN GRANTED IN RESPECT OF THE SALES TAX PAID IN ADVANCE DURING THE YEAR UNDER CONSIDERATION, A DEDUCTION OUGHT TO BE GRANTED TO IT FOR THE SALES T AX IN THE YEAR TO WHICH SAID SALES TAX PERTAINS VIZ. THE ASSESSMENT YEAR 2008-20 09. THUS, IT WAS SUBMITTED THAT THIS SALES LIABILITY PA ID IN ADVANCE PERTAINED TO THE ASSESSMENT 2008-09 , WHICH WAS PAID IN ADVANCE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 AND SHOULD BE ALLOWED TO THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR 2008-09. 18. THE LD. D.R. SUBMITTED THAT THE MATTER NEEDS VE RIFICATION AND IT SHOULD BE SET ASIDE TO THE FILE OF THE A.O. FOR VERIFICATI ON OF THE CLAIM OF THE ASSESSEE ON MERITS. 19. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE IS STATED TO HAVE MADE PAYMENT OF RS. 40,39,333/- AS SALES TAX PAID IN ADV ANCE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 WHILE THE SAID SALES TAX LIABILITY PAID IN ADVANCE PERTAINED TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008-09.. THE ASSESSEE HAS NOT PRESSED THE GROUND O F APPEAL BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO. 8428/MUM/2011 FOR THE ASSESSMENT YEAR 2007-08 AND T HE SAME WAS DISMISSED BY THE TRIBUNAL VIDE ORDERS DATED 30 TH OCTOBER, 2015. IN OUR CONSIDERED VIEW THIS ISSUE NEEDS TO BE SET ASIDE TO THE FILE OF THE A.O. AND THE A.O. SHALL VERIFY THE CLAIMS AND CONTENTIONS OF THE ASSESSEE AND ALLOW THE SAME ON MERITS IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THE ASSESSEE MAY BE GRANTED SUFFICIENT OPPORTUNITY OF BEING HEARD IN AC CORDANCE WITH PRINCIPLES OF NATURAL JUSTICE AND THE ASSESSEE SHALL BE ALLOWED T O FILE RELEVANT EVIDENCES ITA 3482/MUM/2013 & ITA 832/MUM/2013 28 AND EXPLANATIONS IN ACCORDANCE WITH LAW TO SUPPORT ITS CLAIM AND CONTENTIONS .WE ORDER ACCORDINGLY. 20. GROUND NO. 4 PERTAINS TO THE CLAIM OF DEDUCTION TOWARDS ADDITIONAL DEPRECIATION ON VAPORIZER CLAIMED AS DEDUCTION U/S 32(1)(IIA) OF THE ACT. WE HAVE ALREADY ADJUDICATED THIS GROUND WHILE DECIDING THE ASSESSEES APPEAL IN ITA NO. 3472/MUM/2013 FOR THE ASSESSMENT YEAR 2006- 07 IN THE FOREGOING PARAGRAPHS OF THIS ORDER. HENCE, OUR ABOVE DECISION IN ITA NO. 3472/MUM/2013 FOR THE ASSESSMENT YEAR 2006-07 AS CONTAINED IN PRECEDING PARAS SHALL APPLY MUTATIS MUTANDIS TO TH E ASSESSEES APPEAL IN ITA NO. 832/MUM/2013 FOR THE ASSESSMENT YEAR 2008-09 W HEREIN THE FACTS ARE IDENTICAL. 21. COMING TO GROUND NO. 1 & 2, THE ASSESSEE HAS CH ALLENGED THE NON- ALLOWANCE OF THE SHARE BUY-BACK EXPENSES. THE ASSE SSEE HAS FILED REVISED RETURN OF INCOME WHEREBY THE ASSESSEE HAS CLAIMED D EDUCTION ON ACCOUNT OF BUY-BACK EXPENSES ON SHARES. THE ASSESSEE HAS CLAI MED AS REVENUE EXPENDITURE AN AMOUNT OF RS. 23,38,849/- TOWARDS BU Y BACK EXPENSES BY FILING REVISED RETURN OF INCOME WITHIN THE PRESCRI BED PERIOD OF TIME AS STIPULATED U/S 139(5) OF THE ACT WHICH WAS NOT CONS IDERED BY THE LD. CIT(A). THE ASSESSEE CONTENDED THAT IN THE ORIGINAL RETURN OF INCOME FILED WITH THE REVENUE THE ASSESSEE ERRONEOUSLY DISALLOWED THE CLA IM OF DEDUCTION ON ACCOUNT OF BUY-BACK EXPENSES ON SHARES INCURRED DUR ING THE YEAR. THE ASSESSEE REVISED ITS RETURN OF INCOME AND CLAIMED A N AMOUNT OF RS. 23,38,849/- AS DEDUCTION TOWARDS BUY-BACK EXPENSES ON SHARES IN THE REVISED RETURN OF INCOME FILED WITH THE REVENUE. T HE REVISED RETURN OF INCOME WAS NOT CONSIDERED BY THE A.O. AS WELL AS BY THE LD . CIT(A). THE ORIGINAL RETURN OF INCOME WAS FILED ON 29 TH SEPTEMBER, 2008 WHICH IS THE DUE DATE OF FILING THE RETURN OF INCOME WHILE THE REVISED RETUR N OF INCOME WAS FILED ON 31 ST MARCH, 2010 WHICH WAS WITHIN A PERIOD OF ONE YEAR FROM THE END OF THE ITA 3482/MUM/2013 & ITA 832/MUM/2013 29 ASSESSMENT YEAR I.E. THE SAID REVISED RETURN WAS FI LED WITHIN PRESCRIBED TIME AS STIPULATED UNDER U/S 139(5) OF THE ACT. THE LD. CIT(A) DISMISSED THE GROUNDS RAISED BY THE ASSESSEE BEFORE HIM ON THE GR OUND THAT THE ASSESSEE HAS STATED THAT THE ASSESSEE SHALL TAKE UP THIS ISS UE WITH THE AO AND HENCE THE GROUNDS RAISED BY THE ASSESSEE WERE DISMISSED B Y LEARNED CIT(A). WE FIND THAT THE ISSUE REGARDING ALLOWABILITY OF THE C LAIM OF BUY BACK EXPENSES AS DEDUCTION WHILE COMPUTING INCOME OF THE ASSESSEE H AS BEEN CONSIDERED BY THE TRIBUNAL WHILE DISPOSING OF THE APPEAL IN ITA N O. 8428/MUM/2011 FOR THE ASSESSMENT YEAR 2007-08 VIDE ORDERS DATED 30 TH OCTOBER, 2015 IN ASSESSEES OWN CASE WHEREBY THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE. THE ORDER OF THE TRIBUNAL IS PLACED ON RECORD AT PAGE 62-71/P APER BOOK FILED WITH THE TRIBUNAL. THE TRIBUNAL IN THE SAID ORDER HELD AS UN DER: 16. IN THE PRESENT CASE WE OBSERVE THAT THE ASSESS EE UNDERTOOK THE EXERCISE OF BUY BACK AS THE SHARES OF THE COMPANY W ERE NOT TRADED IN THE STOCK MARKET. INSTEAD OF INCREASE IN THE SHARE CAPI TAL , THE BUY BACK, RESULTED IN DECREASE IN THE FUNDS. IN THESE CIRCUMS TANCES , THE ASSESSEE HAS NOT EARNED ANY ENDURING BENEFIT BECAUSE OF THE BUY BACK. THE EXPENDITURE INCURRED THUS DID NOT RESULT IN BRINGIN G IN TO EXISTENCE ANY ASSET. 17. IN VIEW OF THE ABOVE DISCUSSIONS WE HOLD THE EX PENSES INCURRED BY THE ASSESSEE FOR BUY BACK, TO BE A REVENUE EXPENDIT URE, ALLOWABLE U/S. 37(1) OF THE ACT. 22. THE LD. D.R. SUBMITTED THAT THE MATTER MAY BE S ENT BACK TO THE FILE OF THE A.O. FOR EXAMINATION. 23. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE TRIBUNAL ORDER. WE HAVE OBSERVED THAT THE ITA 3482/MUM/2013 & ITA 832/MUM/2013 30 ASSESSEE HAS INCURRED BUY-BACK EXPENSES ON SHARES A MOUNTING TO RS. 23,38,849/-. THE ASSESSEE HAS STATED TO HAVE NOT C LAIMED THE SAME AS DEDUCTION IN ITS ORIGINAL RETURN OF INCOME FILED WI TH THE REVENUE. THE ASSESSEE HAS REVISED ITS RETURN OF INCOME WITHIN TI ME PRESCRIBED BY LAW U/S. 139(5) OF THE ACT WHEREBY THE SAID CLAIM WAS RAISED BY THE ASSESSEE. THE AUTHORITIES BELOW HAVE NOT CONSIDERED THE CLAIM OF THE ASSESSEE. THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200 7-08 ADJUDICATED THE MATTER IN ITA NO. 8428/MUM/2011 VIDE ORDERS DATED 3 0 TH OCTOBER, 2015 IN ASSESSEES FAVOUR. THE RELEVANT FINDINGS OF THE TR IBUNAL ARE AS UNDER:- GROUND N 0.3 DISALLOWANCE OF EXPENSES FOR BUY BACK OF SHARES CLAIMED BY THE ASSESSEE. 12. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD PAID BACK 807360, FULLY PAID UP EQUITY SHARES OF RS.10 EACH, AT A PREMIUM OF RS.640/- PER SHARE. CONSEQUENTLY THE PAID UP EQUITY SHARE CAPITAL STOOD REDUCES. FOR THIS BUY BACK, THE ASSESSEE INCURRED E XPENSES AMOUNTING TO RS. 1,11,38,780/-. THE ASSESSEE HAS DISALLOWED THE EXPENSES IN ITS ORIGINAL RETURN OF INCOME. HOWEVER ON RE EXAMINATION THE ASS ESSEE FILED A REVISED STATEMENT OF INCOME AND THE SAID EXPENDITURE WAS SH OWN CONSIDERED FOR DEDUCTION U/S.37(1) OF THE ACT. 13. THE ID. AR SUBMITTED THAT THE ENTIRE BUY BACK W AS UNDERTAKEN TO PROVIDE AN EASY EXIT TO ITS EXISTING SHARE HOLDERS, SINCE THE SHARES OF THE COMPANY WERE NOT ACTIVELY TRADED ON THE STOCK EXCHA NGE. HE FURTHER SUBMITTED THAT THE EXPENSES INCURRED FOR THE BUYBAC K OF SHARES IS AN ALLOWABLE EXPENSES U/S.37(1) OF THE ACT. THE ID. AR RELIED UPON; ITA 3482/MUM/2013 & ITA 832/MUM/2013 31 CIT VS. SELAN EXPLORATION TECHNOLOGY LTD., REPORT ED IN 188 TAXMAN 1(DEL.) DECCAN CHRONICAL HOLDINGS LTD., VS. DCIT, REPORTE D IN 41 CCH 96(HYD.TRIB.) ACIT VS. BRITANNIA INDUSTRIES LTD., IN ITA NO. 17 89/ KOL/2008. 14. THE ABOVE JUDGMENTS LAY DOWN THAT, IN THE EVENT OF BUY BACK OF SHARES, IF THERE IS NO PERMANENT CHANGE IN THE CAPITAL STRU CTURE OF THE COMPANY, AND, SUCH PURCHASES ARE EFFECTED FROM THE FREE RESE RVES AVAILABLE WITH THE COMPANY, WHICH OTHERWISE WOULD HAVE BEEN AVAILABLE FOR DISTRIBUTION BY WAY OF DIVIDENDS ETC., WOULD NOT GIVE RISE TO A BEN EFIT OF ENDURING NATURE TO THE ASSESSEE. 15. ON THE CONTRARY, THE ID. DR RELIES ON THE ORDER OF THE DRP. 16. IN THE PRESENT CASE WE OBSERVE THAT THE ASSESSE E UNDERTOOK THE EXERCISE OF BUY BACK, AS THE SHARES OF THE COMPANY WERE NOT TRADED IN THE STOCK MARKET. INSTEAD OF INCREASE IN THE SHARE CAPITAL, T HE BUY BACK, RESULTED IN DECREASE IN THE FUNDS. IN THESE CIRCUMSTANCES, THE ASSESSEE HAS NOT EARNED ANY ENDURING BENEFIT BECAUSE OF THE BUY BACK. THE E XPENDITURE INCURRED THUS DID NOT RESULT IN BRINGING IN TO EXISTENCE ANY ASSET. 17. IN VIEW OF THE ABOVE DISCUSSION WE HOLD THE EXP ENSES INCURRED BY THE ASSESSEE FOR BUY BACK, TO BE A REVENUE EXPENDITURE, ALLOWABLE U/S.37(1) OF THE ACT. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ITA 3482/MUM/2013 & ITA 832/MUM/2013 32 IN OUR CONSIDERED VIEW, THIS MATTER NEEDS TO BE RES TORED TO THE FILE OF THE A.O. FOR VERIFICATION OF THE CLAIMS AND CONTENTIONS OF THE ASSESSEE TO HAVE INCURRED EXPENSES OF RS.23,38,849/- TOWARDS EXPENSES FOR BUY BACK OF SHARES AND THEN TO DECIDE THE CLAIMS AND CONTENTIONS OF THE A SSESSEE IN THE LIGHT OF DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007- 08 IN ITA NO. 8428/MUM/2011 VIDE ORDERS DATED 30-10 -2015. NEEDLESS TO SAY PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY THE AO TO THE ASSESSEE IN ACCORDANCE WITH THE PRINCIPLE S OF NATURAL JUSTICE IN ACCORDANCE WITH LAW AND THE ASSESSEE SHALL BE ALLOW ED TO SUBMIT RELEVANT EVIDENCES AND EXPLANATION IN DEFENSE OF ITS CLAIM. WE ORDER ACCORDINGLY. 24. GROUND NO. 3- DISALLOWANCE U/S 14A OF THE ACT R EAD WITH RULE 8D OF INCOME TAX RULES, 1962. IT WAS OBSERVED BY THE A.O . FROM THE DETAILS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAS EAR NED AN AMOUNT OF RS. 7,89,49,266/- AS DIVIDEND FROM MUTUAL FUND AND HAS CLAIMED THE SAME AS EXEMPT U/S 10(35) OF THE ACT. THE TOTAL INVESTMENT OF THE ASSESSEE IN DIVIDEND YIELDING ASSETS AS ON 31 ST MARCH 2008 WAS AROUND RS. 157.23 CRORES. THE ASSESSEE HAD DISALLOWED AN AMOUNT OF RS. 2,21,4 11/- U/S 14A OF THE ACT. THE A.O. REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE RELATABLE EXPENSES TO THE EXEMPT INCOME SHOULD NOT BE COMPUTED AS PER SEC TION 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. IN REPLY, THE AS SESSEE SUBMITTED THAT THE ASSESSEE HAS ALREADY DISALLOWED AN AMOUNT OF RS. 2, 21,411/- U/S 14A OF THE ACT. THE CONTENTION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. AND THE A.O. COMPUTED THE DISALLOWANCE TO THE TUNE OF R S. 78,95,352/- U/S. 14A OF THE ACT COMPUTED AS UNDER , VIDE ASSESSMENT ORDE R DATED 25.01.2012 PASSED U/S. 143(3) R.W.S. 144C(3) OF THE ACT: PARTICULARS AMOUNT DIRECT EXPENSES (A) AS GIVEN BY 2,21,411 ITA 3482/MUM/2013 & ITA 832/MUM/2013 33 THE ASSESSEE) INDIRECT INTEREST EXPENSES DEBITED TO P&L ACCOUNT 180798 OPENING INVESTMENT YIELDING EXEMPT INCOME 1464444580 CLOSING INVESTMENT YIELDING EXEMPT INCOME 1572357753 AVERAGE INVESTMENTS 15128401166 OPENING TOTAL ASSETS 3150717817 CLOSING TOTAL ASSETS 3550269794 AVERAGE TOTAL ASSETS 3350493805 INDIRECT INTEREST ATTRIBUTABLE TO EXEMPT INCOME (B) 81935 0.5% OF AVERAGE INVESTMENTS (C ) 7592006 TOTAL EXPENSES ATTRIBUTABLE TO EXEMPT INCOME (A+B+C) 78,95,352 AGGRIEVED BY THE ASSESSMENT ORDER DATED 25.01.2012 PASSED BY THE A.O. U/S. 143(3) READ WITH SECTION 144C(3) OF THE ACT, THE AS SESSEE FILED FIRST APPEAL BEFORE THE LD. CIT(A) AND SUBMITTED THAT THE ASSESS EE ARRIVED AT RS. 2,21,411/- AS DISALLOWANCE U/S 14A OF THE ACT BY AL LOCATING A PART OF EMPLOYEES EXPENSES AND ADMINISTRATIVE EXPENSES FOR EARNING OF TAX FREE INCOME. IT WAS SUBMITTED THAT THE INVESTMENTS IN MU TUAL FUNDS UNITS WERE MADE OUT OF SURPLUS FUNDS WHICH WERE TEMPORARILY AV AILABLE AND THAT THE ASSESSEE ARE HAVING NO BORROWED FUNDS WHICH IS CLEA R FROM THE BALANCE SHEET FOR THE YEAR. IT WAS SUBMITTED THAT THE UNSECURED LOANS AMOUNTING TO RS.76,28,092/- APPEARING IN THE BALANCE SHEET FOR T HE YEAR ENTIRELY PERTAINS TO DEFERRED SALES TAX LIABILITY UNDER THE MAHARASHT RA GOVERNMENT PACKAGE SCHEME OF INCENTIVES, 1988. IT WAS SUBMITTED THAT T HE INVESTMENT IN THE MUTUAL FUNDS WERE AND BY LARGE STATIC AND NO DIRECT AND INDIRECT EXPENDITURE WAS INCURRED TO EARN THE EXEMPT DIVIDEND INCOME. IT WAS SUBMITTED THAT IT WAS NOT HAVING ANY BORROWED FUNDS AND IF AT ALL DIS ALLOWANCE IS TO BE MADE, THE SAME SHOULD BE RESTRICTED TO RS. 2,21,411/-. TH E ASSESSEE SUBMITTED THAT THE AO ERRONEOUSLY HAS CONSIDERED RS.2,21,411/- AS DIRECT EXPENSES INCURRED ITA 3482/MUM/2013 & ITA 832/MUM/2013 34 FOR THE EARNING OF TAX FREE INCOME WHICH INCOME REP RESENTS THE AMOUNT OF INDIRECT EXPENSES WORKED OUT BY THE ASSESSEE BY ALL OCATING THE PROPORTION OF EMPLOYEES COST AND ADMINISTRATIVE EXPENSES. THE ASS ESSEE DEBITED THE INTEREST EXPENSES TO THE P&L ACCOUNT OF RS. 1,80,79 8/- WHICH CONSIST OF INTEREST ON DELAYED PAYMENT OF TDS AMOUNTING TO RS. 80,206/-, INTEREST ON SALES TAX AMOUNTING TO RS. 75,790/-, INTEREST ON IN TER-COMPANY LOANS AMOUNTING TO RS.7,222/- AND INTEREST ON SECURITY DE POSITS TAKEN FROM STOCKIST AMOUNTING TO RS. RS.93,370/-, TOTALLING TO RS. L,80,798/- WHICH CLEARLY SHOWS THAT THERE WERE DUES PAYABLE TO THE G OVERNMENT, DEPOSITS RECEIVED FROM THE STOCKIST AND HENCE CANNOT/OUGHT N OT BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE IN TERMS OF RULE 8D OF THE INCOME TAX RULES, 1962. IT WAS SUBMITTED THAT PROVISION DO ES NOT ALLOW THE AO TO APPLY THE METHOD PRESCRIBED BY RULE 8D OF INCOME TA X RULES, 1962 WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IS CORRECT, THE SATISFACTION OF THE AO SHOULD BE RECORDED ON OBJECT IVE BASIS HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE ASSESSEE RELIED UPON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. LTD. VIS. DCIT (2010) 234 CTR I (BOM). THE ASSESSEE SUBMITTED THAT IT HAS SUO MOTU DISALLOWED A SUM OF RS.2,21,411/- U/S. 14A OF THE A CT IN THE RETURN OF INCOME FILED WITH THE REVENUE BY ALLOCATING PROPORTION OF EMPLOYEE EXPENSES AND ADMINISTRATIVE EXPENSES WHICH CAN BE SAID TO BE INC URRED FOR THE PURPOSES OF EARNING TAX FREE INCOME. IT WAS SUBMITTED THAT NO O THER EXPENSES HAVE BEEN INCURRED FOR PURPOSES OF EARNING TAX FREE INCOME . THE ASSESSEE HAS ALSO FURNISHED A BREAK-UP OF EXPENDITURE INCURRED UNDER THE HEAD MANUFACTURING, ADMINISTRATIVE AND SELLING EXPENSES AGGREGATING TO RS 108.80 CRORES AS PER THE SCHEDULE 14 OF THE ANNUAL REPORT AND IT HAS BEE N STATED THAT NONE OF THESE EXPENDITURE ARE PERTAINING TO THE EARNING OF TAX FREE INCOME. IT WAS ALSO SUBMITTED THAT 100% OF THE INVESTMENT AS ON 31ST MA RCH, 2008 AMOUNTING TO RS.157.23 CRORES, ARE IN MUTUAL FUNDS AND NO INVEST MENT IS MADE IN EQUITY SHARES, HENCE, THE DISALLOWANCE IS NOT CALLED FOR. THE ASSESSEE SUBMITTED THAT ITA 3482/MUM/2013 & ITA 832/MUM/2013 35 MUTUAL FUNDS THEMSELVES CHARGE ADMINISTRATIVE FEES FOR THE MANAGEMENT OF THE INVESTMENTS , WHICH ARE DEDUCTED FROM THE NET A SSET VALUE (NAV) OF THE UNITS. THE ASSESSEE ALSO SUBMITTED THAT THE AO HAS NOT RECORDED ANY SATISFACTION VIS--VIS THE INCORRECTNESS OF THE CLA IM IN RESPECT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME. IN SUPPORT, THE ASSESSEE HAS RELIED UPON THE FOLLOWING DECISION S:- 1. CIT VIS. HERO CYCLE LTD. (2009) 17 DTR 281. 2. MINDAS INVESTMENT VIS. DCIT (2010ITIOL699ITA T-DEL), 3. MAXOPP INVESTMENT LTD. VIS. CIT (ITA NO. 687/200 9), 4. DCIT V. JINDAL PHOTO LTD, (ITA NO.4539/DEI.12010 ), 5. YATISH TRADING CO. (P) LTD. (2011) 9 TAXRNAN.COM 164. 6. MULTI COMMODITY EXCHANGE OF (INDIA) LIMITED VS. DCIT (ITA NO. 1050/M/2010 7. CL'I' VS. WALFORT SHARE AND STOCK BROKERS PVT. L TD. (2010) 326 ITR 1 8. AUCHTEL PRODUCTS LTD. VS.. ACIT (ITA NO. 3I 85/M UM/2011) THE LD. CIT(A) CONSIDERED THE SUBMISSION OF THE ASS ESSEE WHEREBY HE OBSERVED THAT THE ASSESSEE HAD MADE HUGE INVESTMENTS TOTALLI NG TO RS. 157.23 CRORES AGAINST WHICH IT HAS EARNED AN INCOME OF RS. 7,89,4 9,266 WHICH IS NOT FORMING PART OF THE TOTAL INCOME OF THE ASSESSEE, H ENCE, THE PROVISIONS OF SECTION 14A OF THE ACT IS CLEARLY APPLICABLE IN RES PECT OF DISALLOWANCES OF CORRESPONDING EXPENDITURE DEBITED BY THE ASSESSEE I N ITS P&L A/C. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE IN ITS RETURN OF INCOME HAS DISALLOWED AN EXPENSES OF RS. 2,21,411/- U/S 14A OF THE ACT, THER EFORE IT CANNOT BE SAID THAT THERE WERE NO COST/EXPENSES ATTRIBUTABLE TO EA RNING THE EXEMPT INCOME WHICH IS FORMING PART OF THE TOTAL INCOME. THE AS SESSEE CONTENDED THAT THE A.O. HAD NOT IDENTIFIED ANY EXPENDITURE WHICH WAS D IRECTLY OR INDIRECTLY ITA 3482/MUM/2013 & ITA 832/MUM/2013 36 RELATABLE TO EARNING OF DIVIDEND AND AS SUCH THE A. O. CANNOT MADE ANY DISALLOWANCE. THE LD. CIT(A) OBSERVED THAT THE HON BLE HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) HELD THAT T HE RULE 8D OF INCOME TAX RULES, 1962 IS APPLICABLE FROM THE ASSESSMENT YEAR 2008-08 HENCE THE A.O. IS DUTY BOUND TO WORK OUT THE DISALLOWANCE U/S 14A. TH E LD. CIT(A) OBSERVED THE ASSESSEE HAS CONTENDED THAT IT HAS SUFFICIENT OWN F UNDS AND THAT THE INVESTMENTS ARE MADE OUT OF INTERNAL ACCRUALS. IT W AS OBSERVED BY THE LEARNED CIT(A) THAT THE A.O. HAS CONSIDERED THE DISALLOWANC E WORKED OUT BY THE ASSESSEE AT RS. 2,21,411/- AS DIRECT EXPENSES ATTRI BUTABLE TO EARNING OF EXEMPT INCOME WHICH IS NOT CORRECT AS PER CLAUSE (I ) OF RULE 8D(2) OF THE INCOME TAX RULES, 1962. IT WAS ALSO OBSERVED BY TH E LEARNED CIT(A) THAT HUGE INVESTMENT OF RS. 157.23 CRORES WERE MADE BY THE AS SESSEE IN INVESTMENT YIELDING TAX FREE INCOME AND SUCH DEPLOYMENT CANNOT BE THERE WITHOUT ADEQUATE AVAILABILITY OF FUNDS AND A MACHINERY TO M ANAGE THE SAME WHICH ACTIVITIES CANNOT BE DONE WITHOUT ASSOCIATED COSTS AND IF EXACT COST CANNOT BE ASCERTAINED , PRINCIPLES OF APPORTIONMENT WILL APPL Y HAVING REGARDS TO THE ACCOUNTS OF THE ASSESSEE.THE LEARNED CIT(A) ALSO HE LD THAT THE INTEREST ACTUALLY PAID BY THE ASSESSEE IS TOWARDS PAYMENT OF TDS, INTEREST ON SALES TAX, INTEREST ON INTER COMPANY LOANS AND INTEREST O N SECURITY DEPOSIT AND AS SUCH THESE INTEREST WHICH ARE DIRECTLY ATTRIBUTABLE TO A PARTICULAR INCOME OR RECEIPT CANNOT BE DISALLOWED U/S 14A OF THE ACT RE AD WITH RULE 8D(2)II) OF INCOME TAX RULES, 1962. THUS, IN NUTSHELL THE LD. C IT(A) GRANTED RELIEF TO THE ASSESSEE TO THE TUNE OF RS. 303,346/- (RS, 2,21,41 1 + RS. 81,935) ON ACCOUNT OF DISALLOWANCE MADE BY THE AO AS PER CLAUSE (I) AN D (II) OF THE RULE 8D(2) OF INCOME TAX RULES, 1962, AND THE BALANCE DISALLOWANC E OF RS. 75,92,006/-WAS ACCORDINGLY SUSTAINED BY THE LEARNED CIT(A) U/R 8D( 2)(III) OF INCOME TAX RULES, 1962 READ WITH SECTION 14A OF THE ACT , VIDE APPELLATE ORDER DATED 06.11.2012 . ITA 3482/MUM/2013 & ITA 832/MUM/2013 37 25. AGGRIEVED BY THE APPELLATE ORDER DATED 06.11.2 012 PASSED BY THE LD. CIT(A), THE ASSESSEE FILED FURTHER APPEAL BEFORE T HE TRIBUNAL. 26. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSEE HAD VOLUNTARILY DISALLOWED AN AMOUNT OF RS. 2,21,411/- TOWARDS INDIRECT EXPENSES INCURRED IN CONNECTION WITH THE EARNING OF EXEMPT I NCOME. THE A.O. HAS COMPLETED THE ASSESSMENT WHEREBY HE HAD APPLIED RU LE 8D OF THE INCOME TAX RULES, 1962 READ WITH SECTION 14A OF THE ACT FOR MA KING DISALLOWANCE WHILE SATISFACTION WAS NOT RECORDED THAT HOW THE DISALLOW ANCE WAS WORKED OUT BY THE ASSESSEE IS NOT CORRECT HAVING REGARDS TO THE A CCOUNTS OF THE ASSESSEE. THE LD. COUNSEL SUBMITTED THAT THERE IS NO INVESTME NT IN THE SHARES, THE ENTIRE INVESTMENT IS ONLY IN THE MUTUAL FUNDS AND T HAT TOO THERE IS NO CHURNING OF THE INVESTMENT. THE ASSESSEE HAS ALREA DY VOLUNTARILY DISALLOWED AN AMOUNT OF RS. 2,21,411/-IN THE RETURN OF INCOME FILED WITH THE REVENUE. THE A.O. HAS DISALLOWED AN AMOUNT OF RS. 78,95,352/ - UNDER RULE 8D OF INCOME TAX RULES, 1962 READ SECTION 14A OF THE ACT .THE ASSESSEE DREW OUR ATTENTION TO PAGE 20/PAPER BOOK WHEREBY DISALLOWANC E OF RS.2,21,411/- WAS MADE VOLUNTARILY BY THE ASSESSEE IN RETURN OF INCOM E FILED WITH THE REVENUE. OUR ATTENTION IS ALSO DRAWN TO REVISED COMPUTATION OF INCOME FILED WHICH IS PLACED AT PAGE 23/PAPER BOOK WITH THE REVISED RETUR N OF INCOME WHICH IS PLACED AT PAGE 25 WHEREBY THE SIMILAR DISALLOWANCE WAS MADE BY THE ASSESSEE VOLUNTARILY. IT WAS SUBMITTED THAT THE LD. CIT(A) HAS GIVEN PART RELIEF TO THE ASSESSEE WHEREBY THE DIRECT EXPENSES OF RS.2,21,411 /- CONSIDERED BY THE AO U/R 8D(2)(I) OF INCOME TAX RULES, 19962 FOR DISALLO WANCE AND ALSO DISALLOWANCE ON ACCOUNT OF INTEREST COMPONENT OF RS . 81,935/- U/R 8D(2)(II) OF INCOME TAX RULES, 1962 WAS DELETED BY THE LD. CIT(A ) AND DISALLOWANCE TO THE TUNE OF RS.75,92,006/- WAS SUSTAINED U/R 8D(2)(III) OF INCOME TAX RULES, 1962 READ WITH SECTION 14A OF THE ACT. THE LD. CO UNSEL SUBMITTED THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS WHICH IS MORE THA N THE INVESTMENT AND NO AMOUNT OF BORROWED FUNDS WERE UTILIZED FOR MAKING I NVESTMENT IN SECURITIES ITA 3482/MUM/2013 & ITA 832/MUM/2013 38 YIELDING EXEMPT INCOME. THE LD. COUNSEL SUBMITTED THAT THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. LTD. (SUPRA) IS APPLICABLE.THE ASSESSEE DREW OUR ATTENTION TO THE A UDITED FINANCIAL STATEMENTS OF THE ASSESSEE AND CONTENDED THAT AS PE R AUDITED BALANCE SHEET PLACED AT PAGE NO 80/PAPER BOOK, THE ASSESSEE OWN F UND COMPRISING OF SHARE CAPITAL AND RESERVES ARE RS 250.36 CRORES AS AT 31- 03-2008 WHILE INVESTMENTS MADE ARE TO THE TUNE OF RS.157.24 CRORES. SIMILARLY , IT WAS SUBMITTED THAT THE THE ASSESSEE OWN FUND COMPRISING OF SHARE CAPITAL A ND RESERVES ARE RS. 214.68 CRORES AS AT 31-03-2007 WHILE INVESTMENTS MA DE ARE TO THE TUNE OF RS.148.44 CRORES AS AT 31-03-2007.THE ASSESSEE DREW OUR ATTENTION TO SCHEDULE OF INVESTMENTS BEING PART OF AUDITED FINAN CIAL STATEMENT PLACED AT PAPER BOOK PAGE 85 TO CONTEND THAT MOST OF THE INVE STMENTS ARE MADE IN LIQUID MUTUAL FUNDS. THUS, IN NUTSHELL IT WAS SUBMI TTED THAT THE AO HAS NOT RECORDED SATISFACTION BEFORE INVOKING RULE 8D OF IN COME TAX RULES, 1962 WHILE LEARNED CIT(A) RECORDED SATISFACTION BEFORE INVOKIN G RULE 8D OF INCOME TAX RULES, 1962 WHEREIN HE HELD THAT THE ASSESSEE HAS N OT MAINTAINED SEPARATE BOOKS OF ACCOUNTS FROM WHEREIN DISALLOWANCE U/S 14A OF THE ACT CAN BE WORKED OUT, THE DECISION OF HONBLE BOMBAY HIGH COU RT IN GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED(SUPRA) IS APPLICABLE AND IT WAS ALSO SUBMITTED THAT THE AUTHORITIES BELOW HAVE NOT COME TO CONCLUSION THAT THE EXPENSES DISALLOWED VOLUNTARILY BY THE ASSESSEE ARE NOT UN-REASONABLE.THE ASSESSEE RELIED UPON DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. TAIKISHA ENGINEERING INDIA LIMITED (2015) 370 ITR 0 338(DEL. HC) WHEREIN THE HONBLE COURT DULY CONSIDERED THE DECISION IN THE C ASE OF MAXOOP INVESTMENT LIMITED V. CIT (2012) 347 ITR 272(DEL.HC). 27. THE LD. D.R. SUBMITTED THAT THE POWER OF CIT(A) IS CO-TERMINUS WITH THE POWER OF A.O. HE HAS RECORDED THE SATISFACTION BEF ORE INVOKING RULE 8D OF INCOME TAX RULES, 1962. THE ASSESSEE HAS NOT COME OUT WITH THE COMPLETE ITA 3482/MUM/2013 & ITA 832/MUM/2013 39 DETAILS AND AS SUCH THE ISSUE CAN BE SET ASIDE TO T HE FILE OF THE AO FOR DE NOVO DETERMINATION OF THE ISSUE AFRESH ON MERITS. 28. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSE SSEE HAS MADE AN INVESTMENT OF RS. 157.23 CRORES MAINLY IN LIQUID M UTUAL FUNDS , OUT OF WHICH THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS . 7.89 CROES DURING THE ASSESSMENT YEAR WHICH WAS CLAIMED TO BE EXEMPT U/S 10(35) OF THE ACT. THE ASSESSEE CAME OUT WITH THE EXPLANATION THAT IT HAS INCURRED AN INDIRECT EXPENDITURE AMOUNTING TO RS. 2,21,411/- TOWARDS EAR NING OF AFORE-STATED EXEMPT INCOME AND DISALLOWED THE SAME VOLUNTARILY I N THE RETURN OF INCOME FILED WITH THE REVENUE TOWARDS INDIRECT EXPENSES IN RELATION TO EARNING OF EXEMPT INCOME. THE REVENUE WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND ACCORDINGLY APPLIED RULE 8D OF THE INC OME TAX RULES 1962 READ WITH SECTION 14A OF THE ACT. HOWEVER, THE AO HAS NO T RECORDED THE SATISFACTION BEFORE INVOKING RULE 8D OF INCOME TAX RULES, 1962 READ WITH SECTION 14A OF THE ACT . THE LD. CIT(A) WHOSE POWER S ARE CO-TERMINUS WITH THE POWERS OF THE AO HAS RECORDED THE SATISFACTION THAT THE ASSESSSEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR IDENTIFYI NG EXPENSES INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME AND HENCE THE DIS-SATISFACTION WITH THE AMOUNT OFFERED BY THE ASSESSEE FOR DISALLOWANCE . THE LD. CIT(A) INVOKED RULE 8D(2)((III) OF INCOME TAX RULES, 1962 READ WIT H SECTION 14A OF THE ACT TO CONFIRM DISALLOWANCE OF RS.75,92,006/- IN THE HANDS OF THE ASSESSEE. SECTION 14A(2) OF THE ACT CONTEMPLATES COMPUTING DISALLOWA NCE OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOM E HAVING REGARDS TO THE ACCOUNTS OF THE ASSESSEE. THE LEARNED CIT(A) ALTHOU GH RECORDED SATISFACTION THAT THE DISALLOWANCE OFFERED BY THE ASSESSEE OF RS .2,21,411/- CANNOT BE ACCEPTED AS NO PROPER BASIS OF DISALLOWANCE WAS SPE CIFIED BY THE ASSESSEE BUT WENT ON TO APPLY RULE 8D(2)(III) OF INCOME TAX RULE S, 1962 , WHILE THE LEARNED CIT(A) OUGHT TO HAVE IDENTIFY THE DISALLOWANCE AT T HE FIRST INSTANCE HAVING ITA 3482/MUM/2013 & ITA 832/MUM/2013 40 REGARDS TO THE ACCOUNTS OF THE ASSESSEE.THE ASSESSE E ALSO DID NOT CAME FORWARD WITH THE COMPLETE DETAILS OF EXPENSES INCUR RED IN RELATION TO THE EARNING OF EXEMPT INCOME. IN OUR CONSIDERED VIEW, THE MATTER NEEDS TO BE SET ASIDE AND RESTORED TO THE FILE OF THE A.O. FOR DE NOVO DETERMINATION OF THE ISSUE ON MERITS AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AS TO THE QU ANTUM OF DISALLOWANCE TO BE MADE U/S 14A OF THE ACT. AS SUCH THE IMPUGNED O RDER OF THE LD. CIT(A) IS SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE FIL E OF THE A.O. FOR DE NOVO DETERMINATION OF THE ISSUE ON MERITS AFTER PROVIDIN G SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND AFTER CONSIDERING T HE RELEVANT EVIDENCES /EXPLANATIONS SUBMITTED BY THE ASSESSEE IN ITS DEFE NSE. WE ORDER ACCORDINGLY. 29. IN THE RESULT, ASSESSEES APPEAL IN ITA NO 347 2/MUM/2013 AND ITA NO. 832/MUM/2013 ARE PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST , 2016. # $% &' . ( SD/- SD/- (MAHAVIR SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 24-08-2016 [ ITA 3482/MUM/2013 & ITA 832/MUM/2013 41 .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI