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

ITA 8739/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2365 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 05-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Unexplained investment; Capital asset; Business income; Depreciation; Transfer pricing; Business expenditure; Rectification of order; International transaction; Retrospective amendment; Cost of acquisition; Non-deduction of tax; Fair market value; Valuation report; Scheme of amalgamation
• Section: 143(3); 244A; 133(6); 194C; 147; 69; 148

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.8739/MUM/2011 ASSESSMENT YEAR: 2007-08 & ITA NO.583/MUM/2013 ASSESSMENT YEAR: 2008-09 PFIZER LIMITED, PATEL ESTATE, OFF S.V. RD. JOGESHWARI (W), MUMBA-400102 / VS. ACIT RANGE 8(2), AAYAKAR BAHWAN, M.K. MARG, MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AA ACP3334M APPELLANT BY SHRI RAJAN VORA SHRI KANCHUN KAUSHAL MS. CHARUL TOPRANI SHRI ALIASGER RAMPURWALA MS. CHANDNI SHAH (AR) RESPONDENT BY SHRI N.K. CHAND ( CIT DR) / DATE OF HEARING: 01/10/2015 / DATE OF ORDER: 20/11/2015 PFIZER LIMITED 2 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS OF DISPUTES RESOLUTION PENAL -II, MUMBAI {IN SHORT, D RP}, FOR THE ASSESSMENT YEARS 2007-08 & 2008-09. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI SHRI RAJAN VORA, SHRI KANCHUN KAUSHAL, MS. CHA RUL TOPRANI, SHRI ALIASGER RAMPURWALA & MS. CHANDNI SHA H, AUTHORISED REPRESENTATIVE (LD. COUNSEL) ON BEHALF O F THE ASSESSEE AND BY SHRI N.K. CHAND, DEPARTMENTAL REPRESENTATIVE (LD CIT DR) ON BEHALF OF THE REVENUE . WE FIRST TAKE UP ITA NO.8739/M/2011, FOR A.Y. 2007- 08: AFTER HEARING BOTH THE SIDES, THE APPEAL IS DECIDED GROUND WISE AS UNDER: 3. GROUND NO.1: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE DECISION OF THE DRP IN CONFIRMING THE ACTION OF AO IN MAKING AN ADJUSTMENT OF RS.1,88,83,489/- IN RELATIO N TO THE ASSESSEES INTERNATIONAL TRANSACTIONS OF PROVISION OF SUPPORT SERVICES IN RESPECT OF CLINICAL STUDY MANAGEMENT AN D MONITORING SUPPORT SERVICES. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE, AND ALSO GONE THROUGH THE ORDERS OF LOW ER AUTHORITIES. 3.1. THE BRIEF BACKGROUND OF THE CASE IS THAT DURING TH E YEAR THE ASSESSEE PROVIDED SUPPORT SERVICES TO ITS AE IN RELATION TO PFIZER LIMITED 3 COORDINATION AND MANAGING THE CLINICAL TRIAL PERFOR MED BY THIRD PARTY INSTITUTIONS/HOSPITALS/ TRUST IN INDIA (INVESTIGATORS UNDER THE INSTRUCTIONS OF PFIZER INC.). AS PER THE ASSESSEE, THE FUNCTIONS PERFORMED BY IT ARE AS UNDER: 1) PROVIDING LOW END SUPPORT/COORDINATION SERVICES TO ITS AES 2) ACTING AS A FACILITATOR / COORDINATOR BETWEEN TH E AE AND THE THIRD PARTY INSTITUTIONS/ HOSPITALS/ DOCTOR S, WHO ACTUALLY PERFORM THE CLINICAL TRIALS UNDER THE INSTRUCTIONS OF PFIZER INC. 3.2. THE OTHER VITAL FACTS ARE THAT THE ASSESSEE COMPAN Y IS EARNING ASSURED RETURN BY ADDING 10% MARK-UP ON THE TOTAL COST AND IT HAS CHARACTERIZED ITSELF AS A LOW RISK SUPPORT SERVICE PROVIDER. FOLLOWING COMPARISON HAS BEEN FU RNISHED WITH RESPECT TO ASSESSEES COMPARABLES VIS-A-VIS TP OS COMPARABLES: AS PER TP STUDY REPORT OP/TC USING MARCH 2007 DATA AS PER TPO OP/TC NATURE OF BUSINESS AGRIMA CONSULTANTS INTERNATIONAL LTD. -2.42% 1.39% ENGAGED IN PROVIDING BUSINESS SUPPORT SERVICES AND ASSISTANCE IN FEASIBILITY STUDY OF PROJECTS. CYBER MEDIA EVENTS LTD. 2.33% 8.73% ENGAGED IN ORGANIZING CONFERENCES, EXHIBITIONS & SEMINARS AND SPECIALLY EVENTS. PFIZER LIMITED 4 HINDUSTAN HOUSING CO. LTD. 10.33% 9.57% ENGAGED IN RENDERING ADMINISTRATIVE AND ALLIED SERVICES SUBEX AZURE LTD. -1.11% 12.43% ENGAGED IN PROVIDING STAFF AUGMENTATION TO TELECOM COMPANIES IN USA ALPHAGEO(INDIA) LTD. 38.50% ENGAGES IN SEISMIC SURVEY AND OTHER REATED ACTIVITIES. CHOKSI LABORATORIES LIMITED 33.76% COMMERCIAL TESTING HOUSE WHICH IS ENGAGED IN TESTING OF PRODUCTS. N.G. INDUSTREIS LTD. 18.10% ENGAGED IN PROVIDING MEDICAL SERIES TCG LIFE SCIENCES LT. 26.06% ENGAGED IN HIGH AND LIFE SCIENCE CONTRACT RESEARCH AND INFORMATICS SOLUTIONS ORGANIZATION. VIMTA LABS LTD. 26.92% ENGAGED IN HIGH END CONTRACT RESEARCH AND TESTING ACTIVITIES. 3.3. THE ASSESSEE HAS CONTENDED THAT IT SHOULD BE COMPA RED WITH SUPPORT SERVICES PROVIDERS RATHER THAN COMPARA BLES ENGAGED IN PROVIDING HIGH END CLINICAL RESEARCH AND DEVELOPMENT ACTIVITIES. THE ASSESSEE HAS FURTHER EX PLAINED THAT ITS ROLE IS TO IDENTIFY AND RECOMMEND THE INVE STIGATORS WHO HAVE CAPABILITIES TO UNDERTAKE THE CLINICAL TRI AL BASE ON PFIZER LIMITED 5 PARAMETERS LAID DOWN BY THE AE. ONCE AN INVESTIGATO R IS APPROVED BY THE AE, THEN THE ASSESSEE ACTS AS AN INTERMEDIARY/FACILITATOR BETWEEN ITS AE AND THE INV ESTIGATORS. THE AE UNDERTAKES THE PRIMARY R & D ACTIVITY FOR DE VELOPING NEW MOLECULE FOR UNDERTAKING OF THE CLINICAL TRIAL AND TAKES OVER ALL RESPONSIBILITY OF THE TRIAL. THE ENTIRE RI SK OF INITIATING THE RESEARCH FOR INVESTING A FORMULATION FOR A DISE ASE, OBTAINING REGULATORY APPROVAL FROM FDA, FAILURE/ SU CCESS OF SUCH REVERSALS IS BORNE BY THE AE. THE ASSESSEE MERELY PROVIDES SUPPORT SERVICES IN A RISK FREE ENVIRONMENT. ON THIS BASIS, THE ASSESSEE HAS CONTEN DED THAT THE PROFIT MARGIN FOR PROVISION OF SUPPORT SER VICES SHOULD BE DETERMINED IN ITS CASE BY TAKING INTO CONSIDERATION ONLY THE COST INCURRED BY IT TO UNDER TAKE INTERMEDIARY FUNCTIONS I.E. OWN INTERNAL COSTS AND THAT THE PAYMENTS TO THE INVESTIGATOR SHOULD BE EXCLUDED FROM THE COST WHILE DETERMINING PROFIT MARK UP. IF SUCH PASS THROUGH COSTS ARE EXCLUDED, THE ASSESSEE' S MARGIN WOULD BE 12% AND IF THESE PASS THROUGH COSTS ARE NOT EXCLUDED ITS OPERATING PROFIT MARGIN IS 7.8 3%, BOTH OF WHICH ARE HIGHER THAN THE COMPARABLE COMPANIES WHOSE OPERATING PROFIT MARGIN IS 2.28%. THUS, THE TRANSACTION OF THE ASSESSEE WITH THE AE B EING AT ARM'S LENGTH, NO ADJUSTMENT IS WARRANTED. 'THE ASSESSEE HAS ALSO FILED A COPY OF ITS AGREEMENT DAT ED 1.1.97 WITH ITS AE IN SUPPORT OF ITS CLAIM THAT ITS ROLE WITH REGARD TO CLINICAL STUDY MANAGEMENT IS MERELY THAT OF A FACILITATOR OR AN INTERMEDIARY, PERFORMIN G ITS PFIZER LIMITED 6 AGENCY FUNCTION. ON THIS BASIS, THE ASSESSEE CONTEN DED THAT ADJUSTMENT IS NOT WARRANTED, AS UNLIKE THOSE COMPANIES, THE ASSESSEE ACTS AS A RISK FREE SUPPORT SERVICE PROVIDER. THE ASSESSEE ALSO CONTENDED THAT THE TPO HAS NOT PROVIDED THE BENEFIT OF 5% RANGE AS PRE SCRIBED IN THE PROVISO TO SECTION 92C(2) OF THE ACT. 3.4. THE ASSESSEE HAS RELIED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ZYDUS ALTANA HEALTHCARE PVT. LTD, WHEREIN ACTIVITY IN THE NATURE OF COORDINATING / FACILITATING CLINICAL TRIALS CARRIED OUT BY VARIOUS HOSPITALS RATHER THAN PERFORMING THE R & D FUNCTION S ITSELF, FOR A RETURN OF 5% ON COST, WAS ACCEPTED AT ARMS LENGT H. 3.5. THE DRP REJECTED THE SUBMISSIONS OF THE ASSESSEE A ND UPHELD THE ADJUSTMENT MADE BY THE TPO (TRANSFER PRI CING OFFICER). 3.6. BUT, WHILE DECIDING THIS ISSUE, THE DRP HAS NOT GI VEN DETAILED REASONING TO ARRIVE AT ITS CONCLUSION. THE REAL ISSUES RAISED BY THE ASSESSEE IN DETAILED SUBMISSIONS FILE D BEFORE THE DRP HAVE NOT BEEN DEALT WITH PROPERLY. IT APPEARS T HAT THE DRP COULD NOT PROPERLY APPRECIATE THE FACTS OF THE CASE AND ISSUES INVOLVED THEREIN. IT HAS BEEN POINTED OUT BY THE LD. COUNSEL THAT SOME INCORRECT FACTS HAVE BEEN NOTED B Y THE DRP IN ITS ORDER. IT HAS BEEN MENTIONED BY THE DRP THAT THE ASSESSEE HAD SOLE RIGHT TO DECIDE INVESTIGATOR, WHE REAS AS PER LD. COUNSEL, THE CORRECT FACTS ARE THAT THE ASSESSE E COMPANY HAS RIGHT TO ONLY MONITOR THE PROGRESS OF THE INVES TIGATOR. IN ITS PFIZER LIMITED 7 LETTER DATED 14.07.2011, ADDRESSED TO THE DRP, THE ASSESSEE HAS MADE DETAILED SUBMISSIONS AND ALSO CONTESTED TH E COMPARABLES CONSIDERED BY THE TPO. IT IS NOTED FROM THE ORDER OF THE DRP THAT NO FINDINGS HAVE BEEN GIVEN WITH RE GARD TO THE OBJECTIONS MADE BY THE ASSESSEE WITH RESPECT TO SEL ECTION OF COMPARABLES BY THE TPO. NO PROPER DECISION HAS BEEN GIVEN BY THE DRP ON THE MERITS OF THE CASE ALSO. THEREFORE, IN OUR CONSIDERED OPINION, THIS GROUND NEEDS TO GO BACK TO THE FILE OF THE DRP TO RE-ADJUDICATE THE SAME, AND TO DECIDE AL L THE ISSUES RAISED BY THE ASSESSEE IN THE SUBMISSIONS FILED IT BEFORE THE DRP, AFTER AFFORDING ADEQUATE OPPORTUNITY OF HEARIN G TO THE ASSESSEE. THE ASSESSEEE SHALL BE GRANTED OPPORTUNIT Y BY THE DRP TO ENABLE IT TO SUBMIT ALL THE DETAILS AND EVID ENCES AS MAY BE CONSIDERED APPROPRIATE, IN SUPPORT OF ITS SUBMIS SIONS. THUS, GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOS ES. 4. GROUND NO.2: THIS GROUND IS NOT PRESSED AND THEREFORE, DISMISSED AS SUCH. 5. GROUND NO.3 : IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF AO IN DENYING THE (+/_) 5% RANGE BENEFIT AVAILABLE UNDER PROVISO TO SECTION 92C(2) O F THE ACT. THIS GROUND IS CONSEQUENTIAL TO GROUND NO.1 AND THE REFORE, THE SAME IS ALSO SENT BACK TO THE FILE OF THE DRP, TO BE DECIDED ALONG WITH GROUND NO.1. 6. GROUND NO.4 : IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF DRP IN CONFIRMING THE ACTI ON OF AO IN TAXING AN AMOUNT OF RS.5,98,81,000/- BEING RENTAL I NCOME PFIZER LIMITED 8 FROM LEASED PROPERTIES, AS PROFIT AND GAINS OF BUSI NESS OR PROFESSION, INSTEAD OF INCOME FROM HOUSE PROPERTY. 6.1. IT HAS BEEN ARGUED AT THE OUTSET BY LD. COUNSEL OF THE ASSESSEE THAT THESE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HONBLE BOMBAY HIGH COU RT IN ASSESSEES OWN CASE. OUR ATTENTION HAS BEEN DRAWN B Y HIM UPON THE JUDGMENT OF HONBLE HIGH COURT AVAILABLE A T PAGES NO. 7 TO 8 OF THE PAPER BOOK. THIS JUDGMENT IS ALSO REPORTED AS CIT VS. PFIZER LTD 330 ITR 62. IN THIS JUDGMENT, HO NBLE HIGH COURT HAS AFFIRMED THE ORDER OF TRIBUNAL HOLDING TH AT THE RENTAL INCOME RECEIVED BY THE ASSESSEE FROM SUB-LEA SE OF THE COMMERCIAL PRICES WAS TO BE CONSIDERED AS INCOME F ROM HOUSE PROPERTY. IT WAS ARGUED THAT THE DRP HAS ILLEGALLY CONFIRMED THE ACTION OF AO. ON THE OTHER HAND, LD CIT DR HAS RELIED UPON THE ORDERS OF LOWER AUTHORITIES. 6.2. WE HAVE GONE THROUGH FACTS OF THE CASE AND ORDERS O F LOWER AUTHORITIES. THE RELEVANT FACTS AS CULLED OUT FROM THE ORDERS ARE THAT IN ITS PROFIT & LOSS ACCOUNT, THE A SSESSEE HAD CREDITED A SUM OF RS.5,98,81,000/- BEING RENTAL INC OME FROM SUB-LEASING OF OFFICE PREMISES SITUATED AT EXPRESS TOWERS, NARIMAN POINT, MUMBAI, WHICH WAS OWNED BY THE INDIA N EXPRESS GROUP. THE ASSESSEE COMPANY REDUCED THE SAI D RENTAL INCOME OF RS.5,98,81,000/- FROM ITS INCOME UNDER TH E HEAD 'INCOME FROM BUSINESS & PROFESSION' AND SHOWN THE SAME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AN D PFIZER LIMITED 9 TAXED IT ACCORDINGLY. THE ASSESSING OFFICER FELT T HAT ASSESSEE COMPANY WAS NOT THE OWNER OF THE PREMISES, AND THER EFORE HE ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE RENT AL RECEIPTS SHOULD NOT BE TREATED AS ITS INCOME UNDER THE HEAD 'INCOME FROM BUSINESS & PROFESSION' AND BE TAXED ACCORDINGL Y, FOR THE REASONS DISCUSSED IN DETAIL IN THE ASSESSMENT ORDER FOR THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2006-07 AND YE ARS PRIOR THERETO. THE ASSESSEE COMPANY, VIDE ITS WRITT EN SUBMISSIONS DATED 06.09.2010, STATED THAT THE INDIA N EXPRESSION GROUP HAS GRANTED IRREVOCABLE PERMISSION TO THE ASSESSEE TO SUB-LEASE THE SAID LEASED PREMISES, UPO N SUCH TERMS AND CONDITIONS AS MAY BE FOUND FIT BY THE ASS ESSEE COMPANY, FURTHER, AS THE LEASE PERIOD EXCEEDS 12 YE ARS, THE ASSESSEE IS THE DEEMED OWNER OF THE LEASED PREMIS ES IN TERMS OF THE PROVISIONS OF SECTION 27(1)(III)(B) R.W.S. 2 69UA(F) OF THE ACT. BUT, THE ASSESSING OFFICER REJECTED THE ASSESS EE'S PLEA, FOLLOWING THE VIEW TAKEN BY THE DEPARTMENT IN THE ASSESSMENTS FOR EARLIER YEARS THAT THE ASSESSEE IS A LESSEE OF THE PROPERTY AND NOT ITS OWNER. FOLLOWING THE VI EW TAKEN IN EARLIER YEARS, THE ASSESSING OFFICER TREAT ED THE RENTAL RECEIPTS AS BUSINESS INCOME AND ALLOWED DEDU CTION FOR THE PROPORTIONATE AMOUNT OF PROPERTY TAX AND SE RVICE CHARGES PAID TO INDIAN EXPRESS AS BUSINESS EXPENSES . 6.3 . BEING AGGRIEVED, THE ASSESSEE FILED OBJECTIONS BE FORE PFIZER LIMITED 10 THE DRP. DURING THE PROCEEDINGS BEFORE THE DRP, THE ARGUMENTS ADVANCED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WERE REITERATED, AND ALSO RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN IT S OWN CASE FOR A.Y. 2000-01 WHEREIN, VIDE ORDER DATED 18.06.2010, THE HONBLE HIGH COURT HAS ALLOWED THE ASSESSEE'S CLAIM. 6.4. BUT, SURPRISINGLY, THE DRP REFUSED TO FOLLOW THE O RDER OF HONBLE JURISDICTIONAL HIGH COURT, GIVEN IN ASSESSE ES OWN CASE AND CHOSE TO FOLLOW THE VIEW TAKEN BY THE AO, THAT TOO WITHOUT POINTING OUT ANY DISTINCTION IN FACTS OR LA W. THE FINDINGS AND OBSERVATIONS GIVEN BY THE DRP IN THIS REGARD ARE REPRODUCED HEREIN: WE HAVE CONSIDERED THE DRAFT ASSESSMENT ORDER VIS- -VIS THE SUBMISSIONS AND ARGUMENTS PUT FORTH BY THE ASSE SSEE IN THE COURSE OF THESE PROCEEDINGS. IT IS FOUND FRO M RECORD THAT IN ALL THE EARLIER YEARS, THE DEPARTMENT HAS CONSISTENTLY TAKEN THE VIEW THAT THE IMPUGNED INCOM E IS ASSESSABLE AS INCOME FROM BUSINESS AND NOT INCOM E FROM HOUSE PROPERTY AS CLAIMED BY THE ASSESSEE. CONFORMING WITH THE DEPARTMENTAL VIEW ON THIS ISSUE , THE ASSESSING OFFICERS PROPOSED TREATMENT OF THE RENTA L INCOME AS INCOME FROM BUSINESS IS UPHELD. 6.5. IN OUR CONSIDERED VIEW, THE JUDGMENT OF JURISDICTI ONAL HIGH COURT THAT TOO IN ASSESSEES OWN CASE MUST HAV E BEEN PFIZER LIMITED 11 FOLLOWED, STRICTLY AND RESPECTFULLY. THE ACTION OF THE DRP, DISREGARDING THE JUDGMENT WAS CONTEMPTUOUS IN NATUR E. THUS, RESPECTFULLY FOLLOWING THE JUDGMENT OF JURISDICTION AL HIGH COURT WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO ASSESS THE IMPUGNED RENTAL INCOME UNDER THE H EAD, INCOME FROM HOUSE PROPERTY. THEREFORE, GROUND NO. 4 IS ALLOWED. 7. GROUND NO.5 IS NOT PRESSED BY THE LD. COUNSEL. ACCORDINGLY, IT IS DISMISSED. 8 . GROUND NO.6: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. AO AND THE DRP IN MAKING THE DISA LLOWANCE U/S.40(A)(IA) OF THE ACT, BEING THE PAYMENTS MADE T O MANUFACTURES TOWARDS PURCHASE OF FINISHED GOODS AMO UNTING TO RS.43,70,60,000/- ON THE GROUND THAT THE CONTRAC T WITH THE CONCERNED MANUFACTURES WERE WORKS CONTRACT AND NO T CONTRACT FOR SALE, AND ACCORDINGLY THESE WERE LIA BLE FOR DEDUCTION OF TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194C OF THE ACT. 8.1. THE BRIEF FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE MADE PAYMENTS TO THE TH IRD PARTY MANUFACTURERS FOR PURCHASE OF FINISHED GOODS AMOUNT ING TO RS.9166.75 LACS AND FOR PURCHASE OF PACKAGING MATER IAL AMOUNTING TO RS.4370.60 LACS. THE ASSESSEE MADE THE SAID PAYMENTS WITHOUT DEDUCTION OF TAX AT SOURCE CONSIDE RING THAT THE PAYMENTS WERE MADE FOR CONTRACT OF SALE O F GOODS AND HENCE, NOT LIABLE FOR DEDUCTION OF TAX AT SOURC E. THE AO, PFIZER LIMITED 12 HOWEVER, CONTENDED THAT THE PAYMENT FOR PURCHASE OF FINISHED GOODS AND PACKING MATERIALS CONSTITUTES CO NTRACTUAL PAYMENTS AND HENCE, LIABLE FOR TAX DEDUCTION AT SOU RCE UNDER THE PROVISIONS OF SECTION 194C OF THE ACT THE AO MADE A DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE. 8.2. ON REFERENCE TO THE DRP, IT CONCURRED WITH THE VIE W OF THE AO THAT PURCHASE OF FINISHED GOODS AND PACKING MATERIALS BY THE ASSESSEE FROM THE THIRD PARTY MANUFACTURERS CONSTITUTES A WORKS CONTRACT CONSIDER ING THE DEFINITION OF 'WORK' AS PROVIDED IN THE EXPLANA TION TO SECTION 194C OF THE ACT AND HENCE HELD THE SAME TO BE LIABLE TO DEDUCTION OF TAX AT SOURCE. 8.3. AGGRIEVED BY THE SAME, THE ASSESSEE IS IN APPEAL B EFORE TRIBUNAL. DURING THE COURSE OF HEARING BEFORE US, L D. COUNSEL HAS SUBMITTED THAT PAYMENT FOR PURCHASE OF GOODS AN D PACKING MATERIALS WAS NOT LIABLE TO DEDUCTION OF TA X AT SOURCE U/S 194C OF THE ACT. IT HAS BEEN FURTHER SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO AGREEMENTS WITH VARIOUS T HIRD PARTY MANUFACTURERS/SUPPLIERS FOR THE SUPPLY OF FINISHED GOODS. THE SAMPLE COPIES OF AGREEMENTS ENTERED INTO BY PFIZER WITH THE THIRD PARTIES FOR PURCHASE OF FINISHED GOODS, AS EN CLOSED IN PAPER BOOK WERE SHOWN TO US. IT WAS SUBMITTED THAT IN THIS REGARD, BASED ON THE SPECIFICATIONS OF THE ASSESSEE , THE MANUFACTURERS PURCHASE THE REQUISITE RAW MATERIALS, MANUFACTURE THE PRODUCTS IN THEIR PREMISES AND DELI VER PFIZER LIMITED 13 THE FINAL FINISHED PRODUCTS. AS PER THE AGREEMENT, THE ASSESSEE HAS A RIGHT TO VISIT THE MANUFACTURERS' PR EMISES AND INSPECT THE PROCESS TO ENSURE THAT THE GOODS ARE AS PER THE SPECIFICATIONS. FOR THE PURPOSE OF PACKING ITS PROD UCTS, THE ASSESSEE PURCHASES PACKAGING MATERIALS FROM VARIOUS SUPPLIERS ON A PRINCIPAL TO PRINCIPAL BASIS. THE PA CKAGING MATERIAL IS SUPPLIED AS PER THE INSTRUCTIONS GIVEN IN THE PURCHASE ORDER. THE INVOICE RAISED FOR THE SUPPLIES IS INCLUSIVE OF THE EXCISE DUTY AND SALES TAX AS IN TH E CASE FOR NORMAL PURCHASE OF MATERIAL. THE PAYMENTS ARE M ADE TO THESE INDEPENDENT MANUFACTURERS/SUPPLIERS AS PER TH E TERMS OF THE AGREEMENTS. THE MANUFACTURER PAYS EXCI SE DUTY AND VAT ON THE GOODS AND THE TITLE IN THE GOODS IS TRANSFERRED TO THE APPELLANT AT THE TIME OF DELIVERY. IN VIEW OF THESE FEATURES, IT WAS SUBMITTED THAT THESE TRANSACTIONS WERE IN THE NATURE OF PURCHASE/SALE OF GOODS AND HENCE NOT COVERED UNDER SECTION 194C OF THE ACT. 8.4. IT WAS ALSO SUBMITTED BY THE LD. COUNSEL THAT AMEN DMENT HAS BEEN MADE U/S 194C BY FINANCE ACT 2009, WHEREBY , IN THE DEFINITION OF TERM WORK, AN EXCLUSION HAS BEE N MADE PROVIDING THAT, WORK DOES NOT INCLUDE MANUFACTURI NG OR SUPPLYING A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF THE CUSTOMERS BY USING MATERIAL PU RCHASED FROM A PERSON, OTHER THAN CUSTOMER. LD. COUNSEL SUB MITTED THAT THERE WAS ONGOING LITIGATION ON THIS ISSUE AND THEREFORE, AFORESAID AMENDMENT HAS BEEN MADE TO SECTION 194C F OR THE PURPOSE OF BRINGING OUT CLARITY ON THIS ISSUE, IN F AVOUR OF THE PFIZER LIMITED 14 ASSESSEE. FURTHER, RELIANCE HAS BEEN PLACED ON THE CIRCULAR OF CBDT, NO. 681 DATED 8 TH MARCH 1984, WHEREIN IT HAS BEEN PROVIDED THAT PROVISIONS OF SECTION 194C WOULD NOT BE APPLICABLE IN CASE OF CONTRACT FOR SALE OF GOODS. L ASTLY, IT WAS SUBMITTED THAT THE MOST IMPORTANT ASPECT IS THAT FO R THE AFORESAID FAILURE OF ASSESSEE FOR DEDUCTION OF TAX, AN ORDER WAS PASSED U/S 201 HOLDING THE ASSESSEE IN DEFAULT FOR FAILURE TO DEDUCT TDS AT SOURCE. THE MATTER HAS REACHED UP TO ITAT, WHEREIN THE TRIBUNAL VIDE ORDER 31.10.2012 HAS HELD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON THE PURCHASE OF FINISHED GOODS AND PACKING MATERIALS. 8.5. ON THE OTHER HAND, LD. DR HAS SUPPORTED THE ORDER OF LOWER AUTHORITIES. 8.6. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES AS WELL AS MATERIAL PLACED BEFORE US FOR OUR CONSIDERATION AND ALSO THE JUDGMENTS OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y.2007-08, AGAINST THE ORDER PASSED U/S 201. THE UNDISPUTED FACTS ARE THAT PAYMENTS HAVE BEEN MADE F OR PURCHASE OF PACKING MATERIALS AND FINISHED GOODS, F OR WHICH RAW MATERIAL WAS NOT PROVIDED BY THE ASSESSEE. IT I S, UNDISPUTEDLY AND CLEARLY, A CASE OF PURCHASE OF GOO DS. BUT, THE MAIN GRIEVANCE OF THE LOWER AUTHORITIES IS THAT THE SE GOODS HAVE BEEN PURCHASED BASED ON SPECIFICATIONS OF THE ASSESSEE COMPANY. IN THIS REGARD, IT IS NOTED THAT LEGISLATU RE HAS NOW PUT THIS CONTROVERSY TO REST BY MAKING APPROPRIATE AMENDMENT IN FINANCE ACT 2009, WHEREIN IT HAS BEEN PROVIDED T HAT THE EXPRESSION WORK, AS USED IN SECTION 194C, SHALL N OT INCLUDE PFIZER LIMITED 15 PAYMENTS MADE FOR MANUFACTURING OR SUPPLYING A PROD UCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM SUCH CUSTOMER, BUT DO ES NOT INCLUDE MANUFACTURING OR SUPPLYING A PRODUCT ACCORD ING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM A PERSON, OTHER THAN SUCH CUSTOMER. 8.7. IT IS FURTHER NOTED THAT IN THE EXPLANATORY MEMORA NDUM TO THE FINANCE BILL, 2009, THE BACKGROUND OF THE AM ENDMENT HAS BEEN EXPLAINED AS UNDER: 'THERE IS ONGOING LITIGATION AS TO WHETHER TDS IS DEDUCTIBLE UNDER SECTION 194C ON OUTSOURCING CONTRACTS AND WHETHER OUTSOURCING CONSTITUTES WORK OR NOT. TO BRING CLARITY ON THIS ISSUE, IT IS PROPOSED TO PROVIDE THAT 'WORK' SHALL NOT INCLUDE MANUFACTURING OR SUPPLYING PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING RAW MATERIAL PURCHASED FROM A PERSON OTHER THAN SUCH CUSTOMER AS SUCH A CONTRACT IS A CONTRACT FOR 'SALE'. THIS WILL HOWEVER NOT APPLY TO A CONTRACT WHICH DOES NOT ENTAIL MANUF ACTURE OR SUPPLY OF AN ARTICLE OR THING (E.G. A CONSTRUCTI ON CONTRACT). IT IS ALSO PROPOSED TO INCLUDE MANUFACTU RING OR SUPPLYING A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCH ASED FROM SUCH CUSTOMER, WITHIN THE DEFINITION OF 'WORK' . IT IS FURTHER PROPOSED TO PROVIDE THAT IN SUCH A CASE TDS SHALL BE DEDUCTED ON THE INVOICE EXCLUDING THE VALUE OF M ATERIAL PURCHASED FROM SUCH CUSTOMER IF SUCH VALUE IS MENTI ONED PFIZER LIMITED 16 SEPARATELY IN THE INVOICE. WHERE THE MATERIAL COMPO NENT HAS NOT BEEN SEPARATELY MENTIONED IN THE INVOICE, T DS SHALL BE DEDUCTED ON THE WHOLE OF THE INVOICE VALUE . 8.8. THE PERUSAL OF THIS EXPLANATORY STATEMENT CLARIFIE S THAT INTENTION OF THE LEGISLATURE FOR BRINGING OUT THIS AMENDMENT WAS TO AVOID UNINTENDED CONSEQUENCES WHICH THE TAXP AYERS WERE FACING AS A RESULT OF WRONG APPLICATION OF PRE -AMENDED SECTION 194C. THE LEGISLATURE WANTED TO REMOVE THE HARDSHIPS FACED BY THE ASSESSEE IN SUCH CASES. THERE WAS NO I NTENTION OF THE LEGISLATURE FOR DEDUCTION OF TAX AT SOURCE IN T HE CASES OF TRANSACTIONS OF PURE SALE AND PURCHASE. THEREFORE, TO REMOVE THIS ANOMALY, THIS AMENDMENT WAS BROUGHT OUT, FOR T HE BENEFIT OF THE ASSESSEE. THUS, IN OUR VIEW, THE AFORESAID A MENDMENT MADE IN THE DEFINITION OF TERM WORKS, IN SECTION 194C IS CLARIFICATORY IN NATURE, AND THEREFORE, ASSESSEE SH OULD GET ITS BENEFIT IN ASSESSMENT YEAR 2007-08 ALSO. 8.9. THE FACTS OF THE PRESENT CASE ARE THAT, IT IS NOT THE CASE OF AO OR DRP THAT MATERIAL WAS SUPPLIED BY THE ASSESSE E. THE PURCHASES HAVE BEEN MADE BY THE ASSESSEE FROM MANUFACTURER/SUPPLIERS ON PRINCIPAL TO PRINCIPAL BA SIS. THE MANUFACTURERS/SUPPLIERS HAD ALSO LEVIED EXCISE DUTY OR SALES TAX OR VAT, AS WAS APPLICABLE. AS PER THE TERMS OF THE AGREEMENT, TITLE IN THESE GOODS WAS TRANSFERRED TO THE ASSESSEE AT THE TIME OF DELIVERY. IT IS FURTHER NOTED THAT T HE CENTRAL BOARD OF DIRECTOR TAXES HAD ISSUED CIRCULAR NO.681 DATED 8 TH MARCH 1984 PROVIDING THAT A CONTRACT UNDERTAKEN TO SUPPLY PFIZER LIMITED 17 ANY ARTICLE OR GOODS ACCORDING TO THE SPECIFICATION S GIVEN BY ANY PERSON AND THE PROPERTY IN SUCH ARTICLE OR THIN G PASSES TO SUCH PERSON ONLY AFTER SUCH ARTICLE OR THING IS DEL IVERED, THEN CONTRACT WILL BE A CONTRACT FOR SALE AND AS SUCH OU TSIDE OF THE PROVISO OF SECTION 194C. THUS, IN VIEW THIS CIRCULA R AS WELL AS AMENDMENT BROUGHT OUT BY FINANCE ACT, 2009, IN OUR VIEW THE IMPUGNED TRANSACTIONS WERE NOT LIABLE FOR DEDUCTION OF TDS U/S 194C. 8.10. LASTLY, IT IS NOTED BY US THAT AN ORDER WAS PASSED IN THE CASE OF ASSESSEE U/S 201 FOR FAILURE OF THE ASSESSE E IN DEDUCTION OF TAX AT SOURCE U/S 194C. THIS ORDER HAD REACHED UP TO TRIBUNAL. THE TRIBUNAL PASSED AN ORDER DATED 31.10.2012 IN ITA NO.1765/2010, AND FOLLOWED THE OR DERS OF JURISDICTIONAL HIGH COURT IN THE CASE OF BDA LTD. V S. ITO 281 ITR 99 (BOMBAY) AND CIT VS. GLENMARK PHARMACEUTICAL LTD. 324 ITR 199, FOR HOLDING THAT THE ASSESSEE WAS NOT LIABLE FOR DEDUCTION OF TAX ON THESE TRANSACTIONS. THE DEPARTM ENT HAD CARRIED THIS MATTER BEFORE THE HIGH COURT. THE HON BLE BOMBAY HIGH COURT HAS UPHELD THE DECISION OF THE TRIBUNAL AND DID NOT ADMIT THE APPEAL FILED BY THE DEPARTMENT. 8.11. THUS, WHEN IT HAS BEEN HELD THAT THE ASSESSEE WAS NOT LIABLE FOR DEDUCTION OF TDS ON THIS TRANSACTIONS, Q UESTION OF MAKING ANY DISALLOWANCE U/S 40(A)(IA) OF THE ACT, D OES NOT ARISE, AND THEREFORE, KEEPING IN VIEW THE AFORESAI D DISCUSSION, FACTS AND CIRCUMSTANCES OF THE CASE AND THE POSITIO N OF LAW, WE FIND THAT THE DISALLOWANCE MADE BY THE AO IS ILLEGA L AND THE SAME IS DIRECTED TO BE DELETED, AND GROUND NO.6 IS ALLOWED. PFIZER LIMITED 18 9 . GROUND NO.7: IT DEALS WITH THE ACTION OF LOWER AUTHORITIES IN MAKING REFERENCE TO THE DVO FOR DETERMINATION OF FA IR MARKET VALUE OF CHANDIGARH PROPERTY AS ON 1 ST APRIL 1981 WHICH WAS SOLD BY THE ASSESSEE DURING THE YEAR, AND RE-COMPUT ING THE CAPITAL GAINS ON ITS SALE AT RS.2,52,31,62,959/- AS AGAINST AN AMOUNT OF RS.206,64,67,043/- AS SHOWN BY THE ASSESS EE IN THE RETURN OF INCOME. 9.1. THE BRIEF FACTS ARE THAT DURING THE FINANCIAL YEAR ENDED 31 MARCH 2007, THE ASSESSEE HAD SOLD THE PROPERTY AT CHANDIGARH FOR A TOTAL CONSIDERATION OF RS. 2,74,73 ,00,000/-. FURTHER, IN THE AGREEMENT TO SELL DATED 1ST SEPTEMB ER 2006, AN AMOUNT OF RS. 2,72,98,00,000/- WAS ALLOCATED TOW ARDS THE CHANDIGARH LAND OUT OF THE AFORESAID TOTAL CONS IDERATION. IN RESPECT OF THE AFORESAID LAND AT CHANDIGARH, THE ASSESSEE HAD OBTAINED A VALUATION REPORT DATED 30TH MAY 2006 , FROM A GOVERNMENT REGISTERED VALUER, M/S AMOL SEKHRI & ASSOCIATES, WHICH DETERMINED THE FMV OF THE LAND AS ON 1 APRIL 1981 AT RS. 12,54,52,800/- IN THE RETURN OF INCOME, THE ASSESSEE HAD OFFERED LONG TERM CAPITAL GAINS OF RS. 2,02,64,67,043/- ON SALE OF LAND AT CHANDIGA RH. 9.2. THE ASSESSING OFFICER REFERRED THE VALUATION OF TH E CHANDIGARH LAND TO THE DVO, CHANDIGARH UNDER SECTIO N 55A OF THE ACT. PURSUANT TO THE SAME, THE DVO ISSUE D A VALUATION REPORT DATED 27 DECEMBER 2010 DETERMINING THE FMV OF THE CHANDIGARH LAND AT RS. 36,974,000/-. FUR THER, THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASKED THE PFIZER LIMITED 19 ASSESSEE TO SHOW CAUSE AS TO WHY THE FMV AS ON 1 AP RIL 1981 DETERMINED BY THE DVO SHOULD NOT BE ADOPTED FOR THE PURPOSE OF COMPUTING CAPITAL GAINS ON SALE OF CHANDIGARH LA ND. IN RESPONSE TO THE SAME, THE ASSESSEE OBJECTED FOR ADO PTION OF DVOS REPORT AND ALSO SUBMITTED ITS OBJECTIONS TO T HE METHOD ADOPTED BY THE DVO IN THE SAID VALUATION REPORT. TH E AO, HOWEVER, CONTINUED WITH THE VALUE DETERMINED BY THE DVO IN THE ASSESSMENT ORDER PASSED . 9.3. THE DRP UPHELD THE ACTION OF THE AO IN REJECTING T HE COST OF ACQUISITION AS ON 1 ST APRIL 1981 AND INDEXATION THEREOF AS PER REGISTERED VALUER'S REPORT AND INSTEAD ADOPTED THE FMV OF RS. 3,69,74,000 AS ON 1ST APRIL 1981 AS PER D.V. O.'S REPORT. AGGRIEVED BY THE SAME, THE ASSESSEE COMPANY IS IN A PPEAL BEFORE THE TRIBUNAL. 9.4. BEFORE US, BOTH THE PARTIES HAVE MADE THEIR RESPEC TIVE ARGUMENTS AT LENGTH. IT HAS BEEN SUBMITTED BY THE L D. COUNSEL AT THE OUTSET THAT REFERENCE MADE TO DVO U/S 55A IS BAD IN LAW, AND THEREFORE OUGHT TO BE QUASHED AS NULL AND VOID. ON THIS ISSUE, IT WAS FURTHER ELABORATED BY THE LD. CO UNSEL BY DRAWING OUR ATTENTION TO THE FACT THAT A REFERENCE TO THE DVO UNDER SECTION 55A(A) OF THE ACT COULD BE MADE ONLY IF THE AO IS OF THE OPINION THAT THE VALUE CLAIMED BY THE ASSESS EE WAS LESS THAN THE FMV. IN THE INSTANT CASE, THE VALUE DETERM INED BY THE DVO WAS IN FACT, LOWER THAN THAT CLAIMED BY THE ASS ESSEE, I.E. THE VALUE AS PER THE REGISTERED VALUER. HENCE, THER E WAS NO PFIZER LIMITED 20 QUESTION OF MAKING A REFERENCE TO THE DVO UNDER THE SAID SECTION. 9.5. IT WAS FURTHER SUBMITTED THAT A REFERENCE TO THE VALUATION OFFICER UNDER SECTION 55A(B) CAN BE MADE ONLY IN A CASE WHERE THE ASSESSEE HAS NOT FURNISHED A VALUATI ON REPORT. IN THE INSTANT CASE, SINCE THE VALUE AS ON 1 APRIL 1981 WAS TAKEN BY THE ASSESSEE ON THE BASIS OF THE REPOR T OF A REGISTERED VALUER, THE AO DID NOT HAVE THE POWER TO MAKE A REFERENCE UNDER SECTION 55A(B) OF THE ACT. ACCORDIN GLY, THE AO'S REFERENCE TO THE DVO IS INVALID EVEN UNDER SEC TION 55A(B) OF THE ACT. 9.6. OUR ATTENTION WAS ALSO INVITED TO THE FACT THAT TH E AMENDMENT MADE TO SECTION 55A BY THE FINANCE ACT 20 12 HAS BEEN MADE EFFECTIVE FROM 1ST JULY, 2012 AND WAS ACCORDINGLY NOT APPLICABLE TO THE YEAR UNDER CONSID ERATION I.E. AY 2007-08. 9.7. LASTLY, IT WAS SUBMITTED THAT LEGAL POSITION WAS W ELL SETTLED ON THIS ISSUE. OUR ATTENTION WAS INVITED TO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS PUJA PRINTS, 360 ITR 697 (BOMBAY). IN THIS DECISION, HON 'BLE BOMBAY HIGH COURT HAS, AFTER CONSIDERING THE SAID AMENDMENT, HELD THAT IF A REPORT OF A REGISTERED VA LUER HAS BEEN TAKEN BY THE ASSESSEE, THEN THE PROVISIONS OF SECTION 55A(A) ONLY ARE APPLICABLE AND SECTION 55A(B) HAS N O APPLICATION, AND FURTHER IF THE VALUE DETERMINED BY THE DVO IS LOWER THAT THAN CLAIMED BY THE ASSESSEE, THEN THE R EFERENCE TO PFIZER LIMITED 21 THE DVO IS NOT VALID. 9.8. OUR ATTENTION WAS ALSO INVITED TO THE FOLLOWING DE CISIONS WHICH HAVE DECIDED THE SAME PRINCIPLE WITH REGARDS TO THE APPLICABILITY OF SECTION 55A(A) VIS-A-VIS SECTION 5 5A(B): (A) HIABEN JAYANTILAL SHAH V INCOME-TAX OFFICER (G UI HC) (310 ITR 31) B) MS. RUBAB M. KAZERANI V JOINT COMMISSIONER OF IN COME-TAX 97 TTJ 698 (MUM) C) INCOME-TAX OFFICER VS SMT. LALITABEN KAPADIA (11 5 TTJ 938) (MUM) (D) SMT. SARLA N. SAKRANEY V INCOME-TAX OFFICER (MUM) ( E ) SAJJANKUMAR M. HARLALKA V JOINT COMMISSIONER OF INC OME- TAX (102 TTJ 974) (MUM) (F) SMT. KRISHNABAI TINGRE V INCOME-TAX OFFICER (10 1 LTD 317) (PUNE) 9.9. ON THE OTHER HAND LD. CIT (DR) HAS VEHEMENTLY OPPO SED THE ARGUMENTS OF THE LD. COUNSEL. HE HAS SUPPORTED THE ACTION OF AO IN MAKING REFERENCE TO THE DVO. IT HAS BEEN ARGUED BY HIM THAT REFERENCE HAS BEEN MADE BY LD. D VO U/S 55A(B)(II) AND NOT IN SECTION 55(A(A), HE PLACED RE LIANCE UPON BOARDS CIRCULAR NO.96 DATED 25.11.1972. AS PER LD. DR, THE AO HAS ALL THE POWERS UNDER THE LAW I.E. WHETHER TH E FAIR MARKET VALUE OF THE IMPUGNED PROPERTY IS FOUND TO B E MORE THAN WHAT HAS BEEN STATED BY THE ASSESSEE IN THE RE TURN OF INCOME OR LESS THAN AS STATED BY THE ASSESSEE IN THE RETURN OF INCOME. HE HAS RELIED UPON THE JUDGMENTS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF HIABEN JAYANTILAL SHAH VS. ITO 310 PFIZER LIMITED 22 ITR 31. HE HAS ALSO REFERRED TO THE JUDGMENT OF PUJ A PRINTS OF BOMBAY HIGH COURT (SUPRA) FOR MAKING ARGUMENTS THAT IN THESE JUDGMENTS, IT WAS A CASE OF REFERENCE MADE U/ S 55A(A) WHEREAS IN THE PRESENT CASE THE REFERENCE HAS BEEN MADE BY THE AO U/S 55A(B)(II). 9.10. IN REPLY LD. COUNSEL HAS SUBMITTED THAT ARGUMENTS MADE BY THE LD. CIT (DR) ARE CONTEMPTUOUS IN NATURE . IT HAS BEEN SUBMITTED THAT THIS ISSUE IS NOW SQUARELY COVE RED BY THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF PUJA PRINTS (SUPRA). IT IS SUBMITTED THAT THE TRIBU NAL HAS NO POWER UNDER THE LAW TO GO AGAINST THE JUDGMENT OF H ONBLE JURISDICTIONAL HIGH COURT, AND IN CASE THE REVENUE HAS ANY GRIEVANCE, THEN THE RIGHT FORUM WOULD BE HONBLE SU PREME COURT ONLY. ACCORDING TO LD. COUNSEL, THIS ISSUE IS NO MORE OPEN FOR DISCUSSION OR DEBATE, AND HE REQUESTED FOR FOLLOWING THE ORDER OF HONBLE JURISDICTIONAL HIGH COURT ON T HIS ISSUE FOR HOLDING THAT THE REFERENCE MADE BY THE DVO WAS ILLE GAL AND VOID AB INITIO . 9.11. WE HAVE GONE THROUGH THE FACTS OF THE CASE, ARGUME NTS MADE AND THE JUDGMENTS PLACED BY BOTH THE PARTIES, MORE PARTICULARLY JUDGMENT OF HONBLE JURISDICTIONAL HIG H COURT. WE HAVE SERIOUSLY PONDERED OVER THE CONTENTIOUS ISSUES . THE ISSUE BEFORE US IS WHETHER THE AO HAS REQUISITE POWERS UN DER THE LAW TO MAKE A REFERENCE TO DVO IN CASE HE FINDS THA T THE VALUE OF THE IMPUGNED PROPERTY AS ON 01.04.1981 AS SHOWN BY THE ASSESSEE IN THE RETURN OF INCOME IS MORE THAN THE F AIR MARKET VALUE IN THE OPINION OF THE AO. AS PER THE LD. COUN SEL, THE AO PFIZER LIMITED 23 DOES NOT HAVE ANY SUCH POWERS, ESPECIALLY IN VIEW O F THE JUDGMENT OF JURISDICTIONAL HIGH COURT. ON THE OTHER HAND, AS PER LD. CIT DR, THE AO DOES HAVE REQUISITE POWERS UNDER THE LAW IRRESPECTIVE OF THE FACT WHETHER FAIR MARKET VA LUE IS EXPECTED TO BE MORE OR LESS THAN THE VALUE CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. 9.12. BEFORE WE APPLY OUR OWN ANALYSIS ON THIS ISSUE, WE FIND IT APPROPRIATE TO REFER TO THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PUJA PRINTS (SUPR A) 360 ITR 697. THE RELEVANT ABSTRACT OF THIS JUDGMENT IS REPR ODUCED BELOW: 'WE FIND THAT SECTION 55A(A) OF THE ACT VERY CLEARL Y AT THE RELEVANT TIME PROVIDED THAT A REFERENCE COULD BE MA DE TO THE DEPARTMENTAL VALUATION OFFICER ONLY WHEN THE VA LUE ADOPTED BY THE ASSESSEE WAS LESS THAN THE FAIR MARKET VALUE. IN THE PRESENT CASE, IT IS AN UNDISPUTED POS ITION THAT THE VALUE ADOPTED BY THE RESPONDENT-ASSESSEE O F THE PROPERTY AT RS. 35.99 IAKHS WAS MUCH MORE THAN THE FAIR MARKET VALUE OF RS. 6.68 LAKHS EVEN AS DETERMI NED BY THE DEPARTMENTAL VALUATION OFFICER. IN FACT, THE ASSESSING OFFICER REFERRED THE ISSUE OF VALUATION T O THE DEPARTMENTAL VALUATION OFFICER ONLY BECAUSE IN HIS VIEW THE VALUATION OF THE PROPERTY AS ON 1981 AS MADE BY RESPONDENT-ASSESSEE WAS HIGHER THAN THE FAIR MARKET VALUE, IN THE AFORESAID CIRCUMSTANCES, THE INVOCATI ON OF SECTION 55A (A) OF THE ACT IS NOT JUSTIFIED. THE CONTENTION OF THE REVENUE THAT IN VIEW OF THE PFIZER LIMITED 24 AMENDMENT TO SECTION 55A(A) OF THE ACT IN 2012 BY W HICH THE WORDS 'IS LESS THAN THE FAIR MARKET VALUE' IS SUBSTITUTED BY THE WORDS ' 'IS AT VARIANCE WITH ITS FAIR MARKET VALUE' IS CLARIFACTORY AND COULD BE GIVEN RETROSPECTIVE EFFECT. THIS SUBMISSION IS IN FACE OF THE FACT THAT THE 2012 AMENDMENT WAS MADE EFFECTIVE ONL Y FROM 1 JULY 2012. THE PARLIAMENT HAS NOT GIVEN RETROSPECTIVE EFFECT TO THE AMENDMENT. THEREFORE, T HE LAW TO BE APPLIED IN THE PRESENT CASE IS SECTION 55 A(A) OF THE ACT AS EXISTING DURING THE PERIOD RELEVANT T O THE ASSESSMENT YEAR 2006-07- AT THE RELEVANT TIME, VERY CLEARLY REFERENCE COULD BE MADE TO DEPARTMENTAL VALUATION OFFICER ONLY IF THE VALUE DECLARED BY THE ASSESSEE IS IN THE OPINION OF ASSESSING OFFICER LES S THAN ITS FAIR MARKET VALUE. THE CONTENTION OF THE REVENU E THAT THE REFERENCE TO THE DEPARTMENTAL VALUATION OF FICER BY THE ASSESSING OFFICER IS SUSTAINABLE IN VIEW OF SECTION 55A(B) (II) OF THE ACT IS NOT ACCEPTABLE. THIS IS F OR THE REASON THAT SECTION 55A(B)OF THE ACT VERY CLEARLY S TATES THAT IT WOULD APPLY IN ANY OTHER CASE I.E. A CASE N OT COVERED BY SECTION 55A(A) OF THE ACT. IN THIS CASE, IT IS AN UNDISPUTABLE POSITION THAT THE ISSUE IS COVERED BY SECTION 55A(A) OF THE ACT. THEREFORE, RESORT CANNOT BE HAD TO THE RESIDUARY CLAUSE PROVIDED IN SECTION 55A(B)(II) OF THE ACT. IN VIEW OF THE ABOVE, THE CB DT CIRCULAR DATED 25 NOVEMBER 1972 CAN HAVE NO APPLICATION IN THE FACE OF THE CLEAR POSITION IN LA W. THIS IS SO AS THE UNDERSTANDING OF THE STATUTORY PFIZER LIMITED 25 PROVISIONS BY THE REVENUE AS FOUND IN CIRCULAR ISSU ED BY THE CBDT IS NOT BINDING UPON THE ASSESSEE AND IT IS OPEN TO AN ASSESSEE TO CONTEND TO THE CONTRARY. THE CONTENTION OF THE REVENUE THAT THE ASSESSING OF FICER IS ENTITLED TO REFER THE ISSUE OF VALUATION OF THE PRO PERTY TO THE DEPARTMENTAL VALUATION OFFICER IN EXERCISE OF ITS P OWER UNDER SECTIONS 131, 133(6) AND 142(2) OF THE ACT IS ENTIRELY BASED UPON THE DECISION OF THE GUWAHATI HI GH COURT IN SMT. AMIYA BALA PAUL (SUPRA). HOWEVER, THE APEX COURT IN SMT. AMIYA BALA PAUL (SUPRA) HAS REVERSED THE DECISION OF THE GUWAHATI HIGH COURT AN D HELD THAT IF THE POWER TO REFER ANY DISPUTE WITH RE GARD TO THE VALUATION OF THE PROPERTY WAS ALREADY AVAILA BLE UNDER SECTIONS 131(L), 136(6) AND 142(2) OF THE ACT , THERE WAS NO NEED TO SPECIFICALLY EMPOWER THE ASSESSING OFFICER TO DO SO IN CIRCUMSTANCES SPECIFI ED UNDER SECTION 55A OF THE ACT. IT FURTHER HELD THAT WHEN A SPECIFIC PROVISION UNDER WHICH THE REFERENCE CAN BE MADE TO THE DEPARTMENTAL VALUATION OFFICER IS AVAILABLE, THERE IS NO OCCASION FOR THE ASSESSING O FFICER TO INVOKE THE GENERAL POWERS OF ENQUIRY.' 9.13. WE HAVE GONE THROUGH THE ABOVE SAID JUDGMENT VERY CAREFULLY, AND ALSO COMPARED IT WITH THE DETAILED A RGUMENTS MADE BY LD. CIT-DR. IT IS NOTED BY US THAT HONBLE JURISDICTIONAL HIGH COURT HAS ALSO CONSIDERED THE A MENDMENT MADE UNDER THE LAW AND HELD THAT THE SAME IS PROSPE CTIVE AND PFIZER LIMITED 26 NOT RETROSPECTIVE IN NATURE, AND THEREFORE, REVENUE CANNOT BE GIVEN THE BENEFIT OF AMENDMENT. IT HAS BEEN FURTHER HELD BY THE JURISDICTIONAL HIGH COURT THAT IN ALL THOSE CAS ES WHICH ARE COVERED BY SECTION 55A(A), RESORT CANNOT BE MADE TO THE RESIDUARY CLAUSE PROVIDED IN SECTION 55A(B)(II). IN OTHER WORDS, REFERENCE U/S 55A(B)(II) CAN BE MADE ONLY IN THOSE CASES WHICH ARE NOT COVERED BY THIS SECTION 55A(A). IT IS NOTED BY US THAT CLAUSE (A) COVERS THOSE CASES WHERE THE VALUE OF AS SET IS ADOPTED BY THE ASSESSEE ON THE BASIS OF REPORT OF R EGISTERED VALUER. 9.14. THE PRESENT CASE IS CLEARLY COVERED UNDER CLAUSE ( A), SINCE THE ASSESSEE HAD ADOPTED THE VALUE OF THE IMP UGNED LAND AS ON 01.04.1981 ON THE BASIS OF REPORT OF REG ISTERED VALUER. THUS, UNDER SUCH CIRCUMSTANCES INVOCATION O F CLAUSE (B)(II) OF SECTION 55A WAS OUSTED, AND THEREFORE, R EFERENCE COULD HAVE BEEN MADE BY THE AO U/S 55A (A), ONLY. 9.15. LD CIT DR ARGUED THAT IN THIS CASE REFERENCE WAS M ADE BY THE AO U/S 55A(B)(II). DURING THE COURSE OF HEAR ING WE ASKED LD. CIT DR TO SHOW THIS ASPECT FROM THE ORDER OF LOWER AUTHORITIES. IN RESPONSE, LD. CIT DR SUBMITTED THAT THERE IS NO REFERENCE TO CLAUSE (A), AND THEREFORE, IT SHOULD B E INFERRED FROM THE ORDER PASSED BY THE AO THAT REFERENCE WAS MADE UNDER CLAUSE (B)(II) OF SECTION 55A. HE ALSO SUBMIT TED THAT SAME IS DISCERNIBLE FROM THE SATISFACTION OF THE AO AS IS MADE OUT IN THE ASSESSMENT ORDER. PFIZER LIMITED 27 9.16. WE DO NOT FIND SUBSTANCE IN THE ARGUMENTS OF LD. C IT- DR. IN OUR VIEW, IT CANNOT BE MADE OUT FROM THE REC ORDS SHOWN TO US THAT REFERENCE WAS MADE IN CLAUSE (B)(II) OF SECTION 55A. EVEN OTHERWISE, AS PER LAW, THE AO WAS NOT EMPOWERE D, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, TO MAKE A REFERENCE UNDER CLAUSE (B)(II). MAKING OF REFERENCE IS A QUES TION OF FACT. IT CANNOT BE PRESUMED OR INFERRED. THUS, ARGUMENTS MAD E BY THE LD. CIT DR ARE FACTUALLY INCORRECT AND CONTRARY TO LAW. 9.17. IN OUR CONSIDERED VIEW, THIS ISSUE HAS BEEN CLEARL Y THRASHED OUT BY HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF PUJA PRINTS (SUPRA), AS PER WHICH THE AO WAS EMP OWERED UNDER THE LAW TO MAKE A REFERENCE TO DVO, IF IN HIS OPINION THE FAIR MARKET VALUE OF THE IMPUGNED PROPERTY WAS MORE THAN THE VALUE AS ADOPTED BY THE ASSESSEE IN THE RETURN OF I NCOME ON THE BASIS OF REPORT OF ITS REGISTERED VALUER. THE F ACTS OF THE PRESENT CASE ARE CLEARLY COVERED WITH THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT, AND THEREFORE, RESPECTFU LLY FOLLOWING THE SAME WE HOLD THAT REFERENCE MADE BY THE DVO WAS BAD IN LAW AND IS HELD TO BE INVALID AND THEREFORE, CONSEQ UENT TO THIS, ALL FURTHER PROCEEDINGS MADE BY THE AO IN PURSUANCE TO SUCH REFERENCE ARE ALSO ILLEGAL, AND THEREFORE, THE ADDI TION MADE BY THE AO ON THE BASIS OF ILLEGAL REFERENCE AND REPORT OF DVO IS ALSO ILLEGAL, AND THE SAME IS HEREBY DELETED. AS A RESULT GROUND NO.7 OF THE ASSESSEES APPEAL IS ALLOWED ON PRIMARY ISSUE. AT THIS STAGE, WE REFRAIN OURSELVES FROM GOI NG INTO THE MERITS OF THE OTHER ARGUMENTS WITH RESPECT TO FACTU AL PFIZER LIMITED 28 INFIRMITIES IN THE REPORT OF THE DVO, SINCE WE HAVE DECIDED THIS ISSUE ON THE PRIMARY GROUND ITSELF. 10. GROUNDS NO. 8 AND 9 ARE NOT PRESSED AND THESE ARE DISMISSED. 11. GROUND NO.10 : IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. AO IN ADDING A SUM OF RS. 26,779/ - TOWARDS IN PURCHASES AS UNEXPLAINED INVESTMENT U/S 69 OF TH E ACT. IN THIS REGARD, IT WAS SUBMITTED BY THE LD. COUNSEL TH AT THE ASSESSEE HAD TRANSACTIONS OF MORE THAN RS. 25 CRORE S WITH THE M/S EMCURE PHARMACEUTICALS, AND THE ASSESSEE WAS AB LE TO RECONCILE MAJORITY OF THE TRANSACTION WITH ITS BOOK S OF ACCOUNTS, BUT ONLY A MINISCULE AMOUNT OF RS.26,779/ - COULD NOT BE RECONCILED, AND CONSEQUENTLY THE SAME WAS AD DED BY THE AO. 11.1. WE HAVE GONE THROUGH THE MATERIAL PLACED BEFORE US AND THE SUBMISSIONS MADE BY THE ASSESSEE. IT IS NOTED T HAT NO SPECIFIC ARGUMENTS WERE MADE, NOR ANYTHING HAS BEEN SHOWN THAT THIS DIFFERENCE WAS DULY RECONCILED. IN VIEW O F THE ABOVE, GROUND NO.10 IS REJECTED. 12. GROUND NO.11: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. AO IN LEVYING INTEREST U/S 234C OF THE ACT AMOUNTING TO RS.2,11,33,619/-, BY IGNORING THE PROVISO BELOW SECTION 234C(1)(B). IT HAS BEEN SUBMI TTED THAT THE ASSESSEE HAD SOLD PROPERTY AT CHANDIGARH ON 16 TH MARCH 2007, AND ACCORDINGLY, THE CAPITAL GAINS HAD ARISEN AFTER DUE PFIZER LIMITED 29 DATE OF PAYMENT OF INSTALLMENT OF ADVANCE TAX. THE ASSESSEE HAS PAID THE ENTIRE TAX IN RESPECT OF THE LONG TERM CAPITAL GAIN ARISING ON THE SALE OF AFORESAID PROPERTY, AMOUNTIN G TO RS.46 CRORES ON 31 ST MARCH 2007. IT WAS ARGUED THAT UNDER THESE CIRCUMSTANCES PROVISO BELOW SECTION 234C(1)(B) BECA ME APPLICABLE AND INTEREST WAS NOT LEVIABLE TO THIS EX TENT. RELIANCE HAS BEEN PLACED BY LD. COUNSEL ON THE JUDGMENT OF H ONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS PREMLATA JALANI 264 ITR 744. ON THE OTHER HAND, LD. DR HAS RELIED U PON THE ORDERS OF LOWER AUTHORITIES. 12.1. WE HAVE GONE THROUGH THE SUBMISSIONS MADE, MATERIA L PLACED BEFORE US AND JUDGMENTS RELIED BY BOTH THE S IDES. THE FACTS NARRATED BY LD. COUNSEL REMAIN UNDISPUTED. TH E PROPERTY WAS SOLD AFTER 15 TH MARCH OF THE F.Y., AND THUS, CAPITAL GAIN AROSE TO ASSESSEE AFTER TIME FOR PAYME NT OF ADVANCE TAX HAD PASSED. THE ASSESSEE COULD NOT HAVE , APPARENTLY FORECASTED THE AMOUNT OF INCOME ACCRUED TO IT BY WAY OF AFORESAID CAPITAL GAINS. THE LEGISLATURE HAS TAKEN CARE OF THIS SITUATION BY INSERTING A PROVISO BELOW SECT ION 234C(1)(B). 12.2. THERE IS NO DISPUTE ON THE FACT THAT THE EXACT EST IMATE COULD NOT BE DONE BY THE ASSESSEE ON THE AMOUNT OF CAPITAL GAINS. THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. SMT. PR EMLATA JALANI (SUPRA), WHEREIN VIEW HAS BEEN TAKEN SUPPORT ING THE CLAIM OF THE ASSESSEE IN VIEW OF THE AFORESAID PROV ISO.INTEREST HAS BEEN LEVIED IGNORING THE EFFECT OF AFORESAID PR OVISO AS WELL PFIZER LIMITED 30 AS JUDGMENT OF HONBLE RAJASTHAN HIGH COURT, AND TH EREFORE IN THE INTEREST OF JUSTICE, WE SEND THIS ISSUE BACK TO THE FILE OF THE AO TO DECIDE THE SAME IN TERMS OF OUR DIRECTIONS AS CONTAINED ABOVE. THE AO SHALL DECIDE THIS ISSUE, AND RECOMPUT ED THE AMOUNT OF INTEREST PAYABLE BY THE ASSESSEE, IF ANY, KEEPING IN VIEW POSITION OF LAW AS DISCUSSED ABOVE IN JUXTAPOS ITION OF THE FACTS OF THE CASE. THUS GROUND NO 11 IS ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NO.12 (ADDITIONAL GROUND): IN THIS GROUND THE ASSESSEE HAS SOUGHT THE DIRECTION FOR THE LD. AO TO REDUCE THE INTEREST INCOME GRANTED U/S 244A PERTAINING TO A.Y. 2003-04, AMOUNTING TO RS.1,18,76,000/-, WHICH WAS OFFERED BY THE ASSESSEE IN THE RETURN OF INCOME FOR U/S 2007-08; I N VIEW OF THE FACT THAT IT HAS ALSO BEEN ASSESSED BY THE AO I N ASSESSMENT YEAR 2005-06 VIDE ORDER PASSED U/S 147 R.W.S.143(3) OF THE ACT, THEREBY AMOUNTING TO DOUBL E TAXATION. 13.1. DURING THE COURSE OF HEARING, FOLLOWING FACTS HAVE BEEN NARRATED BY THE LD. COUNSEL BY WAY OF FACTS SHEET S UBMITTED TO THE BENCH. 1. DURING THE FINANCIAL YEAR RELEVANT TO AY 2005-0 6, THE APPELLANT HAD RECEIVED AN 'INTIMATION DATED 30 MARCH 2004 ISSUED UNDER SECTION 143(1)(A) OF THE AC T, WHEREIN INTEREST UNDER SECTION 244A AMOUNTING TO RS . 1,87,81,254 WAS GRANTED FOR AY 2003-04 (REFER COMPILATION PAGE NO 132). THE SAID INTEREST INCOME WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT FOR THE SAI D YEAR. PFIZER LIMITED 31 2. IN THE RETURN OF INCOME FOR AY 2005-06, THE SAID INTEREST WAS NOT OFFERED TO TAX ON THE GROUND THAT A NOTICE UNDER SECTION 143(2) OF THE ACT HAD ALREADY BEEN IS SUED AND THE ASSESSMENT PROCEEDINGS FOR AY 2003-04 HAD N OT BEEN FINALIZED. 3. AN ORDER UNDER SECTION 143(3) OF THE ACT WAS PAS SED ON 31 MARCH 2006 FOR AY 2003-04 WHEREIN INTEREST UNDER SECTION 244A OF THE ACT WAS RECOMPUTED AT RS.1,18,75,551. THE SAID AMOUNT WAS OFFERED TO TAX IN THE RETURN OF INCOME FOR A.Y. 2007-08 AND HAS BEEN TAXED IN THE ASSESSMENT ORDER (SR. NO. 2 ON PAGE 23 OF THE DRAFT ASSESSMENT ORDER). 4 SUBSEQUENTLY, VIDE ORDER DATED 10 MARCH 2011 GIVI NG EFFECT TO THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX-(APPEALS) ['CIT(A)] FOR AY 2003-04, INTE REST UNDER SECTION 244A OF THE ACT HAS BEEN RECOMPUTED A T RS.1,29,50,156/-. 5. A NOTICE DATED 26 MARCH, 2012 WAS ISSUED TO THE APPELLANT, UNDER SECTION 148 OF THE ACT FOR AY 2005 -06 REQUIRING THE APPELLANT TO FILE A RETURN OF INCOME WITHIN 30 DAYS OF THE RECEIPT OF THE SAME. 6. IN THE RETURN OF INCOME FILED PURSUANCE TO THE NOTI CE UNDER SECTION 148 FOR AY 2005-06, INTEREST UNDER SE CTION 244A AS DETERMINED IN THE ORDER GIVING EFFECT TO TH E ORDER PASSED BY THE CIT(A) AMOUNTING TO RS.1,29,50, 156 WAS OFFERED TO TAX IN THE LIGHT OF THE DECISION OF THE MUMBAI TRIBUNAL (SPECIAL BENCH) IN THE CASE OF AVAD A TRADING CO. (P.) LTD (6 SOT 1). THE BALANCE INTERES T PFIZER LIMITED 32 AMOUNTING TO RS. 58,31,098/- WHICH WAS WITHDRAWN (RS. 1,87,81,254 (CREDITED TO THE PROFIT AND LOSS ACCOUNT) - RS. 1,29,50,156 (GRANTED IN THE ORDER GI VING EFFECT)), HAD BEEN REDUCED FROM THE TOTAL INCOME. 7. IN RESPONSE TO THE SAME, THE AO VIDE NOTICE DATED 2 JULY 2012, ISSUED THE REASONS FOR REOPENING THE ASSESSME NT FOR THE AFORESAID YEAR STATING THAT THE APPELLANT O UGHT TO HAVE OFFERED THE INTEREST INCOME AMOUNTING TO RS. 1,87,81,254 TO TAX SINCE THE SAME HAD ACCRUED IN TH E HANDS OF THE APPELLANT IN THE FINANCIAL YEAR RELEVA NT TO AY 2005-06. 8. IN RESPONSE TO THE AFORESAID REASONS FOR REOPENI NG OF THE ASSESSMENT, THE APPELLANT VIDE LETTER DATED 17 JULY 2012 SUBMITTED ITS OBJECTIONS. 9. IN THE ORDER DATED 11 OCTOBER 2012 PASSED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT FOR AY 2005-06, THE AO REJECTED THE SUBMISSIONS OF THE APPELLANT AND INCLUDED THE ENTIRE INTEREST AMOUNTIN G TO RS. 1,87,81,254 IN THE TOTAL INCOME (REFER COMPILAT ION PAGE NOS. 133 TO 140). 10. ON APPEAL FILED BEFORE CIT(A) AGAINST THE AFORESAID REASSESSMENT ORDER FOR AY 2005-06, THE CIT(A) IN IT S ORDER DATED 7 AUGUST 2013 HAS HELD THAT THE INTEREST AMOU NTING TO RS. 1,29,50,156 WHICH WAS FINALLY DETERMINED FOR AY 2003-04 OUGHT TO BE TAXED IN AY 2005-06 AS WAS OFFE RED BY THE APPELLANT IN THE RETURN OF INCOME FILED IN P URSUANCE OF THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT. (REFER COMPILATION PAGE NOS 252 TO 255) PFIZER LIMITED 33 11. ACCORDINGLY, THE INTEREST INCOME OF RS.1,18,76, 000 WHICH HAS BEEN TAXED IN A.Y.2007-08 HAS ALSO BEEN T AXED IN A.Y. 2005-06. 13.2. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, IT H AS BEEN REQUESTED BY THE LD. COUNSEL THAT, AS THE INTE REST INCOME FOR A.Y.2003-04 HAS BEEN OFFERED TO TAX IN A.Y.2005 -06 AS PER THE ORDER OF LD. CIT(A), THE AMOUNT OF RS.1,18,75,5 51/- OFFERED TO TAX IN THE RETURN OF INCOME FOR A.Y.2007-08 AND TAXED AS SUCH IN THE ASSESSMENT ORDER DATED 21.10.2011, OUGH T NOT TO TAXED IN A.Y.2007-08. 13.3. ON THE OTHER HAND, LD. CIT- DR HAS SUPPORTED THE ORDERS OF LOWER AUTHORITIES. WITH RESPECT TO ADMISS ION OF THE ADDITIONAL GROUND, NO SERIOUS OBJECTION WAS RAISED BY HIM. 13.4. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES AND COPIES OF ORDERS SHOWN TO US. IN OUR CONSIDERED VIEW, THE GROUND RAISED BY THE ASSESSEE IS PURELY L EGAL GROUND, AND IT CAN BE DECIDED ON THE BASIS OF FACTS ALREADY HELD ON RECORDS. THEREFORE, IN VIEW OF JUDGMENT OF HONBLE SUPREME COURT, THE ADDITIONAL GROUND IS ADMITTED. 13.5. WE FIND THAT ASSESSMENT OF THE INTEREST INCOME U/S 244A HAS BEEN DONE IN SUCH A MANNER THAT IT HAS LED TO DOUBLE TAXATION, AS ON DATE. WE FEEL THAT THE ROLE OF THE INCOME TAX AUTHORITIES, UNDER THE LAW, IS TO MAKE FAIR ASS ESSMENT OF INCOME AND DETERMINE TAX PAYABLE THEREON. NO TAX CA N BE PFIZER LIMITED 34 COLLECTED EXCEPT WITH THE AUTHORITY OF LAW, AS PER CLEAR MANDATE OF OUR CONSTITUTION, AS ENSHRINED IN ARTICL E 265. THE LAW DOES NOT INTEND TO MAKE UNJUST ENRICHMENT OF TH E GOVERNMENT, AT THE COST OF TAXPAYERS. THEREFORE, IN THE INTEREST OF JUSTICE AND IN ALL FAIRNESS, WE DIRECT THE AO TO LOOK INTO ALL THESE ASPECTS AND ENSURE THAT IMPUGNED INTEREST INC OME IS TAXED ONLY ONCE, IN APPROPRIATE YEAR. FOR THIS PURP OSE, NECESSARY RECTIFICATION ORDERS SHALL BE PASSED, AS PER LAW. THE ASSESSEE SHALL EXTEND REQUISITE COOPERATION TO THE AO BY PROVIDING REQUIRED DETAILS, INFORMATION AND DOCUMEN TARY EVIDENCES. THUS, GROUND NO.12 IS SENT BACK TO FILE OF THE AO, WITH OUR DIRECTIONS AS CONTAINED ABOVE. 14. GROUND NO.13 (ADDITIONAL GROUND): IN THIS GROUND, RAISED AS ADDITIONAL GROUND, THE ASSESSEE HAS SOUGH T DIRECTIONS TO BE ISSUED FOR INCREASING THE VALUE OF OPENING STOCK BY RS.8,94,86,220/- FOR THE YEAR UNDER ENDED ON 31 ST MARCH 2007 AND GRANTING DEDUCTION IN A.Y. 2007-08; DUE TO AN ADDITION MADE IN CLOSING STOCK FOR THE YEAR ENDE D 31 ST MARCH 2006 ON ACCOUNT OF UNUTILIZED MODVAT CREDIT, VIDE ORDER PASSED U/S143(3) OF THE ACT FOR A.Y.2006-07. 14.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WA S SUBMITTED BY THE LEARNED COUNSEL THAT IN A.Y. 2006- 07, ADDITIONS OF RS.8,94,86,220/- WAS MADE U/S 145 OF T HE ACT TO THE CLOSING STOCK VALUE. THEREFORE, IN ACCORDANCE W ITH THE DEPARTMENTS STAND FOR A.Y.2006-07, THE OPENING STO CK OF A.Y.2007-08 OUGHT TO BE INCREASED AND DEDUCTION SHO ULD BE PFIZER LIMITED 35 GRANTED TO THE SAID EXTENT. IN SUPPORT, THE RELIANC E HAS BEEN PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MAHALAXMI GLASS WORKS (P) LTD. 318 ITR 116 AND DECISION OF ITAT MUMBAI IN THE CASE OF HAWKINS COOKERS LIMITED VS. ITO (ITA NO.505/MUM/2004 (14 DTR 206) 14.2. WE HAVE GONE THROUGH THE SUBMISSIONS MADE AND CASE S RELIED UPON BY BOTH THE SIDES. THIS GROUND BEING A LEGAL GROUND IS ADMITTED FOR ADJUDICATION. 14.3. THE BRIEF FACTS ARE THAT THE AO VIDE ITS ORDER DA TED 5TH FEBRUARY, 2010, PASSED UNDER SECTION 143(3) OF THE ACT FOR THE A.Y.2006-07, MADE AN ADDITION UNDER SECTION 145A OF THE ACT TO THE CLOSING STOCK AMOUNTING TO RS.8,94,86,220/- ON ACCOUNT OF UNUTILIZED MODVAT CREDIT. HOWEVER, THE S AME EFFECT WAS NOT GIVEN TO THE OPENING STOCK OF SUCCEEDING YE AR I.E. A.Y.2007-08. 14.4. IN OUR CONSIDERED VIEW, AS THE FAIRNESS DEMANDS AND AS PER LAW, THE VALUE OF CLOSING STOCK OF A PARTICULAR YEAR SHOULD BE THE OPENING STOCK OF THE NEXT YEAR. THERE CAN BE NO DOUBT OR DEBATE ON THIS PROPOSITION. IF THIS PRINCIPAL IS NOT FOLLOWED, IT MAY GIVE RISE TO ABSURD RESULTS, LEADING TO EXCE SSIVE AND UNFAIR ASSESSMENT OF INCOME IN THE HANDS OF THE ASS ESSEE. THEREFORE, WE DIRECT THE AO TO ADOPT THE VALUE OF C LOSING STOCK OF A.Y. 2006-07 AS VALUE OF OPENING STOCK OF ASSESS MENT YEAR 2007-08, IN CASE THE ADDITION MADE BY THE AO IN THE CLOSING STOCK OF A.Y.2006-07 HAS ATTAINED FINALITY. ACCORDI NGLY, THIS PFIZER LIMITED 36 GROUND IS SENT BACK TO THE FILE OF THE AO WITH THE DIRECTIONS AS GIVEN ABOVE, AND MAY BE TREATED AS ALLOWED FOR STAT ISTICAL PURPOSES. 15. GROUND NO.14: THIS GROUND IS NOT PRESSED BY THE ASSESSEE, AND THEREFORE DISMISSED. 16. GROUND NO.15 (ADDITIONAL GROUND): IN THIS GROUND, THE ASSESSEE HAS SOUGHT DIRECTION TO BE ISSUED FOR GRAN TING 1/5 TH OF THE EXPENSES AMOUNTING TO RS.13,06,200/- RELATED TO MERGER OF PHARMACIA HEALTHCARE LIMITED WITH PFIZER LIMITED , AS PER THE PROVISIONS OF SECTION 35DD OF THE ACT. 16.1. IT HAS BEEN ARGUED THAT 1/5 TH OF EXPENDITURE INCURRED IN RELATION TO AMALGAMATION OF PHARMACIA HEALTHCARE LI MITED WITH PFIZER LIMITED IN A.Y. 2004-05 AMOUNTING TO RS.13,06,200/- WAS ALLOWED AS DEDUCTION IN A.Y. 200 4-05 IN ACCORDANCE WITH THE PROVISIONS OF SECTION 35DD OF T HE ACT, AND THEREFORE, CONSEQUENTLY, TO MAINTAIN CONSISTENCY, S IMILAR AMOUNT SHOULD BE ALLOWED AS A DEDUCTION IN THE IMPU GNED YEAR ALSO, AND THEREFORE DIRECTION SHOULD BE GIVEN FOR THIS PURPOSE. 16.2. THE BRIEF BACKGROUND IS THAT THE CIT(A) VIDE ITS O RDER DATED 27 TH DECEMBER, 2006 HAS ALLOWED DEDUCTION OF RS.13,06,200/- IN A.Y.2004-05, I.E. 1/5 TH OF THE TOTAL EXPENDITURE UNDER THE PROVISIONS OF SECTION 35DD. A S PER THE PROVISIONS OF SECTION 35DD OF THE ACT, THE ASSESSEE SHALL BE PFIZER LIMITED 37 ALLOWED DEDUCTION OF AN AMOUNT EQUAL TO ONE-FIFTH O F SUCH EXPENDITURE FOR EACH OF THE FIVE SUCCESSIVE PREVIOU S YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE AMALG AMATION TAKES PLACE. 16.3. IT WAS SUBMITTED THAT THE A.Y. 2007-08 BEING THE F OURTH YEAR FROM THE YEAR IN WHICH AMALGAMATION TOOK PLACE , THE ASSESSEE WAS ELIGIBLE FOR CLAIMING THE DEDUCTION OF 1/5 TH OF THE EXPENDITURE UNDER SECTION 35DD OF THE ACT, AND ACCO RDINGLY, IT WAS REQUESTED TO GRANT DEDUCTION OF RS.13,06,200/- UNDER SECTION 35DD OF THE ACT. 16.4. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES. AS PER LAW DEDUCTION HAS TO BE ALLOWED E QUIVALENT TO THE AMOUNT OF 1/5 TH OF THE TOTAL EXPENDITURE U/S 35DD AS HAS ALREADY BEEN ALLOWED TO THE ASSESSEE IN A.Y. 2004-0 5. WE DIRECT THE AO TO MAINTAIN CONSISTENCY, AND FOLLOW T HE ORDER FOR A.Y. 2004-05. THUS, GROUND NO.15 IS ALLOWED. ITA NO.583/MUM/2013 FOR A.Y. 2008-09: 17. GROUND NO.1: GROUND NO.1 IS NOT PRESSED BY THE ASSESSEE, AND THEREFORE, THE SAME IS DISMISSED. 18 . GROUND NO.2 : IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. AO IN PROPOSING AN ADJUSTMENT TO ARMS LENGTH PRICE ON ACCOUNT OF INTEREST ON OUTSTANDING RECEIVABLE FOR RS.5,62,836/-. PFIZER LIMITED 38 18.1. THE BRIEF FACTS ARE THAT THE TPO MADE ADJUSTMENT T O THE ARMS LENGTH PRICE RELATING TO THE INTEREST OUTSTAN DING RECEIVABLE AND QUANTIFIED THE SAME @ OF 16% PER ANN UM. THE ASSESSEE CONTESTED THIS MATTER BEFORE THE DRP, WHO UPHELD THE ADJUSTMENT IN PRINCIPLE, BUT REDUCED THE RATE O F PRIME LENDING RATE (PLR) OF INDIA AT RATE OF 13.25% OF PE R ANNUM. 18.2 BEING AGGRIEVED THE ASSESSEE HAS CONTESTED THIS MA TTER BEFORE THE TRIBUNAL. BEFORE US LD. COUNSEL HAS MADE DETAILED SUBMISSIONS. 18.3. IT WAS SUBMITTED THAT THE TPO ERRED IN CALCULATING DELAY IN PAYMENT UP TILL THE DATE OF REALIZATION OF PAYME NT WHICH FALLS IN THE SUBSEQUENT YEAR. IT WAS SUBMITTED THAT INTEREST ON OUTSTANDING RECEIVABLE CAN BE CALCULATED ONLY FOR T HE DELAY DURING THE RELEVANT FINANCIAL YEAR 2007-08 I.E. IN THE SCENARIO WHEREIN THE OUTSTANDING AMOUNT HAS BEEN RECEIVED DU RING THE YEAR, THE INTEREST SHALL BE CALCULATED FROM THE DUE DATE TILL THE DATE OF REALIZATION. IN THE SCENARIO THAT THE OUTST ANDING AMOUNT IS RECEIVED AFTER 31 ST MARCH 2008, THE INTEREST SHOULD BE CALCULATED FROM THE DUE DATE TILL THE LAST DAY O F THE RELEVANT FINANCIAL YEAR I.E. 31 ST MARCH, 2008. IN SUPPORT OF HIS ARGUMENTS LD. COUNSEL HAS RELIED UPON THE JUDGMENT OF MUMBAI BENCH OF ITAT IN THE CASE OF TECNIMONT ICB H OUSE, (A.Y.2009-10 ITA NO.487/MUM/2014, ORDER DATED 08.07.2015) FOR THE PROPOSITION THAT INTEREST CAN B E CHARGED ONLY UP TO THE END OF THE F.Y. WITH REGARD TO THE O THER PFIZER LIMITED 39 PROPOSITION THAT RATE OF INTEREST SHOULD BE ON THE BASIS OF LIBOR PLUS, RELIANCE HAS BEEN PLACED ON THE JUDGMEN T OF PUNE BENCH OF ITAT IN THE CASE OF IGATE COMPUTER SYSTEM LTD. (ITA NO.2504/PN/2012, A.Y. 2005-06, ORDER DATED 27.05.20 15). 18.4. ON THE OTHER HAND, LD. CIT DR HAS ARGUED THAT INTE REST SHOULD BE SPREAD IN THE NEXT YEAR ALSO AND APPROPRI ATE DIRECTION CAN BE GIVEN BY THE TRIBUNAL FOR THAT. WI TH REGARD TO RATE OF INTEREST, IT HAS BEEN SUGGESTED BY THE LD. CIT- DR THAT IT CAN BE LIBOR PLUS 150 BASIS POINTS. 18.5. IN REPLY, LD. COUNSEL HAS SUBMITTED THAT IF INTERE ST IS LEVIABLE, IT CAN BE CHARGED ONLY TILL THE END OF TH E RELEVANT FINANCIAL YEAR, AS NO DIRECTION CAN BE GIVEN BY THE BENCH FOR THE SUBSEQUENT YEARS, AS ONLY PRESENT YEAR IS OPEN BEFORE THE BENCH. 18.6. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES AND MATERIAL PLACED BEFORE FOR OUR CONSID ERATION. IT IS NOTED THAT THIS ISSUE HAS BEEN THRASHED OUT BY THE HONBLE PUNE BENCH IN THE CASE OF IGATE COMPUTER SYSTEM LTD . (SUPRA), WHEREIN IT HAS BEEN HELD THAT ONCE THE TRA NSACTION BETWEEN THE ASSESSEE AND ITS AES WAS IN FOREIGN CUR RENCY, THEN THE SAME PARTAKES THE NATURE OF INTERNATIONAL TRANSACTION AND THE SAID TRANSACTION HAS TO BE LOOKED UPON BY A PPLYING THE COMMERCIAL PRINCIPLES WITH REGARD TO AN INTERNA TIONAL TRANSACTION. IF THAT IS SO, THEN THE DOMESTIC LENDI NG RATES CANNOT BE APPLIED IN ORDER TO BENCHMARK THE TRANSAC TION OF PFIZER LIMITED 40 THE ASSESSEE WITH ITS AES AND THE INTERNATIONAL RAT ES FIXED BY LIBOR WOULD COME INTO PLACE. 18.7. IT IS FURTHER NOTED BY US THAT NO SERIOUS OBJECTIO NS HAVE BEEN RAISED BY THE LD. CIT-DR FOR ADOPTION OF INTER NATIONAL RATES FIXED BY LIBOR, KEEPING IN VIEW THE FACT THAT AMOUNT WAS TO BE RECEIVED BACK IN US CURRENCY ONLY. THUS, KEEPING IN VIEW THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CA SE AND LAW AS EXPLAINED BY HONBLE PUNE BENCH IN THE CASE OF I GATE COMPUTER SYSTEM LTD.(SUPRA), WE HOLD THAT INDIAN PR IME LENDING RATES CANNOT BE APPLIED AND THE INTERNATION AL RATE FIXED BY THE LIBOR WOULD COME INTO PLAY. IN OUR CON SIDERED VIEW, AS PER AS PER THE SUGGESTIONS RECEIVED FROM B OTH THE SIDES, THE RATE OF INTEREST SHOULD BE LIBOR PLUS 15 0 BASIS POINTS. 18.8. THE NEXT ISSUE IS TO BE DECIDED IS ABOUT THE PERIO D, UP TO WHICH ADJUSTMENT ON ACCOUNT OF INTEREST CAN BE MADE TO THE INCOME TO THE CURRENT YEAR. 18.9. IN THIS REGARD WE FIND THAT THIS ISSUE HAS BEEN VE RY WELL EXPLAINED BY THE MUMBAI BENCH OF ITAT IN CASE OF TE CNIMONT ICB HOUSE (SUPRA), WHEREIN IT HAS BEEN HELD THAT IN TEREST SHOULD BE CHARGED ONLY UP TILL THE END OF THE F.Y. THUS, IT IS HELD THAT INTEREST SHOULD BE CALCULATED FROM THE DU E DATE TILL THE DATE OF REALISATION, IF THE OUTSTANDING AMOUNT HAS BEEN RECEIVED DURING THE YEAR. IN CASE THE OUTSTANDING A MOUNT HAS BEEN RECEIVED BACK AFTER 31 ST MARCH 2008, THEN INTEREST WILL BE PFIZER LIMITED 41 CALCULATED FROM THE DUE DATE TILL THE LAST DATE OF THIS F.Y. I.E. 31 ST MARCH 2008. WE DIRECT THE AO TO GIVE EFFECT TO OUR DIRECTIONS, ACCORDINGLY. THUS, GROUND NO.2 IS PARTL Y ALLOWED AS IN TERMS OF OUR DIRECTIONS AS STATED ABOVE. 19. GROUND NO.3: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. AO IN TAXING AN AMOUNT OF RS.6,21 ,49,000/- BEING RENTAL INCOME FROM LEASED PROPERTIES AS PROF ITS AND GAINS OF BUSINESS OR PROFESSION, INSTEAD OF INCOM E FROM HOUSE PROPERTY. 19.1. THIS GROUND IS SAME AS GROUND NO.4 OF A.Y. 2007-08 . BOTH THE PARTIES HAVE CONFIRMED THAT FACTS AND ISSU ES INVOLVED IN THE AFORESAID YEAR ARE IDENTICAL IN THIS YEAR, A S WELL. THEREFORE, WE DIRECT THE AO TO FOLLOW OUR ORDER OF A.Y. 2007-08 ON THIS ISSUE. 20. GROUND NO.4: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. AO IN MAKING DISALLOWANCE U/S 40( A)(IA), ON ACCOUNT OF PAYMENTS MADE TO MANUFACTURES TOWARDS PU RCHASE OF FINISHED GOODS AMOUNTING TO RS.69,14,21,000/- A ND PURCHASE OF PACKING MATERIALS AMOUNTING TO RS. 45,25,56,000/- BY HOLDING THAT THESE WERE LIABLE FO R DEDUCTION OF TAX AT SOURCE, UNDER THE PROVISIONS OF SECTION 1 94C OF THE ACT. 20.1. WE FIND THAT ISSUE INVOLVED IS IDENTICAL TO GROUND NO. 6 OF APPEAL OF A.Y.2007-08. IT IS INFORMED THAT THERE IS NO PFIZER LIMITED 42 CHANGE IN FACTS IN THIS YEAR. THUS, WE DIRECT THE A O TO FOLLOW OUR ORDER OF ASSESSMENT YEAR 2007-08 ON THIS ISSUE. 21. GROUND NO.5 : IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF AO IN MAKING THE DISALLOWANCE U/S 40( A)(IA) OF THE ACT ON ACCOUNT OF AN AMOUNT OF RS.3,56,15,341/- PAID TOWARDS CLINICAL TRIAL EXPENDITURE. 21.1. THE BRIEF FACTS ARE THAT THE ASSESSEE DEBITED A SU M OF RS.10,49,89,239 TOWARDS CLINICAL TRIAL EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. OUT OF THE TOTAL EXPENDITU RE OF RS.10,49,89,239, THE ASSESSEE HAD DEDUCTED TAX AT S OURCE ON PAYMENTS AMOUNTING TO RS.6,84,47,188 AND FOR RS.9,26,710, THE ASSESSEE HAD SUBMITTED NIL WITHHOL DING TAX EXEMPTION CERTIFICATES FURNISHED BY THE RECIPIENTS. FOR THE BALANCE AMOUNT OF RS. 3,56,15,341, THE ASSESSEE STA TED THAT THE SAID AMOUNT CONSTITUTES PURCHASE OF MATERIALS, EXPENSES ON FOOD AND TRAVELLING, PAYMENT OF REGULAT ORY FEES AND OTHER SIMILAR PAYMENTS ON WHICH NO TAX IS REQUI RED TO BE DEDUCTED AT SOURCE. THE AO, HOWEVER, DISREGARDING T HE CONTENTIONS OF THE ASSESSEE, HELD THAT DEDUCTION OF TAX ON CLINICAL TRIAL EXPENSES HAS ALREADY BEEN UPHELD BY THE CIT(A)-14 VIDE HIS ORDER DATED 31 DECEMBER 2009 AND HENCE, THE SAID AMOUNT OF RS.3,56,15,341 WAS TO BE DISALLO WED UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE AC T. ON REFERENCE TO THE DRP, THE DRP IGNORED ASSESSEE'S CONTENTIONS AND HELD THAT PURCHASE OF MATERIALS, EX PENSES ON FOOD AND TRAVELLING, PAYMENT OF REGULATORY FEES WERE NOT PFIZER LIMITED 43 REIMBURSEMENT OF EXPENSES BUT FIRST HAND BUSINESS EXPENDITURE ON WHICH TAX WAS DEDUCTIBLE AT SOURCE. THE DRP FURTHER HELD THAT THE ASSESSEE HAD NOT FURNISHED DE TAILS FOR THE AMOUNT OF RS. 3,56,15,341. THE ASSESSEE FILED A N APPLICATION FOR RECTIFICATION BEFORE THE DRP. THE D RP VIDE ORDER DATED 31 DECEMBER 2012 REJECTED THE SAME ON T HE GROUND THAT THE SAME ARE NOT RECTIFIABLE ISSUES. AG GRIEVED BY THE SAME, THE ASSESSEE COMPANY IS IN APPEAL BEFORE THE TRIBUNAL. 21.2. BEFORE US, LD. COUNSEL OF THE ASSESSEE HAS SUBMITT ED AS UNDER: THE APPELLANT RESPECTFULLY SUBMITS THAT THE DRP HA S ERRED IN UPHOLDING THE ACTION OF THE AO AND IN VALI DATING THE JUSTIFICATION OF THE AO THAT THE CIT(A) - TDS I N ITS ORDER DATED 31 DECEMBER 2009 FOR THE AY 2007-08 HAS DISMISSED THE APPELLANT'S APPEAL WITH REGARD TO NON - DEDUCTION OF TAX AT SOURCE ON CLINICAL TRIAL EXPEND ITURE. THE OBSERVATION OF THE AO THAT THE CIT(A)-TDS HAS DISMISSED THE APPELLANT'S APPEAL WITH REGARD TO NON - DEDUCTION OF TAX ON CLINICAL TRIAL EXPENDITURE IS INCORRECT IN AS MUCH AS THE CIT (APPEALS) - TDS HAD DIRECTED THE AO TO VERIFY THE BREAK-UP OF CLINICAL TRIAL EXPENDITURE AND GRANT RELIEF ACCORDINGLY. ATTENTION IS INVITED TO THE ORDER DATED 30 MARCH 20 13 PASSED BY THE CIT(A)-TDS FOR THE YEAR UNDER CONSIDERATION VIZ. AY 2008-09 WHEREIN IT HAS BEEN H ELD THAT TAX IS NOT DEDUCTIBLE AT SOURCE ON THE AFORESA ID ITEMS PFIZER LIMITED 44 (REFER COMPILATION PAGE NOS 217 TO 221). IT MAY BE NOTED THAT THE DEPARTMENT HAS ACCEPTED THE ORDERS PASSED BY THE CIT(A)-TDS FOR BOTH THE YEARS I.E. AY 2007-08 A ND AY 2008-09. IN THE ORDER DATED 31ST DECEMBER, 2014 GIVING EFFEC T TO THE AFORESAID ORDER OF THE CIT(A) FOR AY 2008-09, IT WA S HELD THAT TAXES ARE NOT REQUIRED TO BE DEDUCTED ON CLINI CAL TRIAL EXPENDITURE AGGREGATING TO RS. 3,34,44,563 (REFER COMPILATION PAGE NOS 484 TO 488). IN VIEW OF THE ABOVE, THE APPELLANT SUBMITS BEFORE YOUR HONOUR THAT THE AO BE DIRECTED TO DELETE THE DISALLOWANCE UNDER SECTION 40(A)(IA) IN RESPECT OF CLINICAL TRIAL EXPENDITURE AMOUNTING TO RS.3,34,44,563/-. 21.3. THUS, IN NUT SHELL, THE ASSESSEE SUBMITTED THAT DISALLOWANCE TO THE EXTENT OF RS. 21,70,778/- IS NO T PRESSED AND BALANCE DISALLOWANCE OF RS.3,34,44,563/- SHOULD BE DELETED AS THE BASIS OF THE DISALLOWANCE CEASES TO EXIST. 21.4. ON THE OTHER HAND, LD. DR HAS RELIED UPON THE ORDE RS OF THE LOWER AUTHORITIES. 21.5. WE HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITI ES AND SUBMISSIONS MADE BY BOTH THE SIDES AS WELL AS O RDER OF LD. CIT(A)-TDS DATED 30 TH MARCH 2013 FOR A.Y. 2008-09 IN ASSESSEES OWN CASE AND ALSO ORDER PASSED BY THE DC IT (TDS) DATED 31.12.2014 GIVING EFFECT TO THE ORDER OF LD. CIT(A) DATED 30.03.2013. AS PER THE ORDER PASSED BY LD. CIT(A), IT HAS BEEN PFIZER LIMITED 45 HELD, IN PRINCIPLE, THAT OUT OF CLINICAL TRIAL EXPE NSES AMOUNTING TO RS.3.56 CRORES, TDS WAS NOT REQUIRED TO BE DEDUC TED. KEEPING IN VIEW NATURE OF THESE EXPENSES, AND FOR T HE PURPOSES OF REQUISITE VERIFICATION OF FACTS AS WAS CLAIMED BY THE ASSESSEE, THE MATTER WAS SENT BACK TO THE FILE OF AO. THEREAFTER THE AO PASSED AN ORDER GIVING EFFECT DAT ED 31 ST DECEMBER 2014. WE, THEREFORE, SEND THIS GROUND BACK TO THE FILE OF THE AO TO EXAMINE THESE FACTS THAT OUT OF T OTAL DISALLOWANCE OF RS. 3.56 CRORES, HOW MUCH AMOUNT HA S BEEN DELETED BY THE AO IN THE ORDER DATED 31.12.2014. TH E DISALLOWANCE SHALL BE DELETED EQUIVALENT TO THIS AM OUNT AND BALANCE AMOUNT OF DISALLOWANCE SHALL BE SUSTAINED. THUS, ASSESSEE GETS PART RELIEF, AND THIS GROUND IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSES. 22. GROUND NO.6 : THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. AO IN TREATING THE PROFIT ON SALE OF RIGHT TO U SE THE TRADEMARK/LICENSE PERTAINING TO CONSUMER HEALTH BRA NDS TREATED AS SHORT TERM CAPITAL GAINS INSTEAD OF LONG TERM CAPITAL GAINS. IT HAS BEEN FURTHER CONTENDED IN THIS GROUND THAT THE AO ERRED IN APPLYING THE PROVISIONS OF SECTION 50 O F THE ACT. 22.2. THE BRIEF FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD TRANSFERRED ITS RIG HT TO USE THE TRADEMARK/ LICENSE PERTAINING TO CONSUMER HEALTH BR ANDS (I.E., LISTERINE, BENADRYL, CALADRYL AND BENYLIN) FOR A CO NSIDERATION OF RS.2,10,60,10,000. THE LONG TERM CAPITAL GAIN ON ACCOUNT OF THE TRANSFER OF INTELLECTUAL PROPERTY RIGHTS WAS COMPUTED AT PFIZER LIMITED 46 RS.2,10,60,10,000. THE AO, HOWEVER, HELD THAT PROFI T EARNED ON SALE OF LICENSE/TRADEMARK WAS IN THE NATURE OF S HORT TERM CAPITAL GAIN AS THE SAID LICENSE/TRADEMARK HAS BEEN RECOGNIZED FOR THE FIRST TIME BY THE ASESSEE IN ITS BOOKS OF ACCOUNT DURING THE YEAR UNDER CONSIDERATION. THUS, AS THE INTANGIBLES FORMED PART OF THE BLOCK OF ASSETS DURI NG THE AY 2008-09 AND WERE SOLD IN THE SAME YEAR, THE GAIN IS TO BE TREATED AS SHORT TERM CAPITAL GAIN. THE ASSESSEE HA D SUBMITTED TO THE AO, EXTRACTS FROM THE ANNUAL REPOR T OF PARKE DAVIS INDIA LTD TO SHOW THAT THE SAID COMPANY WAS THE LICENSED USER OF THE SAID TRADEMARK/ LICENSE. 22.3. ON REFERENCE TO THE DRP, THE DRP UPHELD THE ACTION OF THE AO BY STATING THAT THE ASSESSEE HAS SOLD A D EPRECIABLE ASSET, THE GAIN/LOSS ON WHICH IS TO BE TREATED AS P ER THE PROVISIONS OF SECTION 50 OF THE ACT. THE DRP REJECT ED THE CLAIM OF THE APPELLANT THAT THE LICENSE/TRADEMARK G OT TRANSFERRED TO THE ASSESSEE WITH EFFECT FROM 01. 12 .2001 ON ACCOUNT OF AMALGAMATION OF ASSESSEE COMPANY WITH PA RKE DAVIS INDIA LIMITED AND HELD THAT THE LICENSE/TRADEMARK HAS BEEN RECOGNIZED FOR THE FIRST TIME IN THE BOOKS OF ACCOUNT DURING THE AY 2008-09. 22.4. THE ASSESSEE ALSO FILED A RECTIFICATION APPLICATIO N BEFORE THE DRP TO RECTIFY THE INCORRECT FACTUAL FIN DING THAT THE LICENSE HAS BEEN RECOGNIZED FOR THE FIRST TIME DURING AY 2008-09 AS THE RIGHT TO USE LICENSE/TRADEMARK WAS TRANSFERRED WITH EFFECT FROM 1 DECEMBER 2001, NEITH ER ANY PFIZER LIMITED 47 PAYMENT NOR ANY EXPENDITURE WAS INCURRED FOR ACQUIR ING THE SAME AND EVEN AS PER ANNEXURE 6(A) TO THE TAX AUDIT REPORT FOR THE AY 2008-09, THERE WERE NO ADDITIONS TO THE BLOCK OF INTANGIBLE ASSETS. HOWEVER, THE APPLICATIO N WAS REJECTED BY THE DRP ON THE GROUND THAT THE MATTER W AS CONCLUSIVELY DECIDED BY THE DRP. AGGRIEVED BY THE S AME, THE ASSESSEE COMPANY FILED AN APPEAL BEFORE THE TRIBUNA L. 22.5. BEFORE US THE LD. COUNSEL HAS MADE DETAILED ARGUME NTS FOLLOWING SUBMISSIONS HAVE BEEN MADE BY THE LD. COU NSEL ON THIS ISSUE, ON THE BASIS OF FACT SHEET SUBMITTED DU RING THE COURSE OF HEARING: THE APPELLANT HEREBY SUBMITS THAT IT WAS AMALGAMAT ED WITH PARKE DAVIS INDIA LIMITED PURSUANT TO SANCTION OF THE AMALGAMATION SCHEME BY THE HIGH COURT OF BOMBAY ON 7TH FEBRUARY 2003 WITH EFFECT FROM 1ST DECEMBER 2001 (REFER COMPILATION PAGE NOS 450 TO 453). BY VI RTUE OF THE SAID AMALGAMATION, THE LICENSE FOR THE RIGHT TO USE THE AFORESAID TRADEMARKS/ LICENSES GOT TRANSFER RED TO THE APPELLANT WITH EFFECT FROM 1ST DECEMBER 2001 BY VIRTUE OF THE ABOVE FACTS, IT IS EVIDENT THAT THE A FORESAID LICENSES WERE USED BY THE APPELLANT FOR MORE THAN 3 YEARS PRIOR TO THE DATE OF SALE. THE ORDER OF THE AO UPHELD BY THE DRP SUFFERS FROM ERROR IN AS MUCH AS THE FACT THAT THE SAID ASSETS WERE NE ITHER CAPITALIZED IN THE ACCOUNTS NOR INCLUDED UNDER THE BLOCK OF 'INTANGIBLE ASSETS'. PFIZER LIMITED 48 ATTENTION IS INVITED TO SECTION 2(42A) OF THE ACT W HICH DEFINES SHORT TERM CAPITAL ASSET AS A CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMEDIATELY PRECEDING THE DATE OF TRANSFER. IN THE INSTANT CASE, THE RIGHT TO USE THE TRADEMARK/LICENS E PERTAINING TO CONSUMER HEALTH BRANDS WAS HELD BY TH E APPELLANT FOR MORE THAN THIRTY-SIX MONTHS. ACCORDIN GLY, THE SAID RIGHT TO USE THE TRADEMARK/ LICENSE PERTAINING TO CONSUMER HEALTH BRANDS DO NOT FALL WITHIN THE DEFIN ITION OF A SHORT TERM CAPITAL ASSET AND ACCORDINGLY THE G AIN ARISING ON THE TRANSFER OF THE SAID ASSET CANNOT BE TERMED AS A SHORT TERM CAPITAL GAIN. THE APPELLANT SUBMITS THAT THE RIGHTS TO USE THE TRADEMARKS/ LICENSES WERE ACQUIRED BY THE APPELLANT FROM PARKE DAVIS INDIA LIMITED IN THE SCHEME OF AMALGAMATION SANCTIONED BY THE HON'BLE BOMBAY HIGH COURT WITH EFFECT FROM 1ST DECEMBER 2001 (REFER COMPILATION PAGE NOS 450 TO 453), THE SAID LICENSES WERE HELD BY AND USED BY THE APPELLANT FOR MORE THAN 3 Y EARS PRIOR TO THE DATE OF SALE. ACCORDINGLY, THERE WAS N O QUESTION OF TREATING THEM AS A SHORT TERM CAPITAL A SSET AND THEREFORE NO REASON TO CHARGE THEM TO TAX AS SH ORT TERM CAPITAL GAINS. THE DRP HAS UPHELD THAT ACTION OF THE AO ON THE GRO UND THAT SINCE THE TRADEMARKS/ LICENCES FORMED PART OF THE BLOCK OF ASSETS AND THE SAME WERE TRANSFERRED DURIN G THE YEAR UNDER CONSIDERATION, THE GAIN ARISING THEREFRO M IS PFIZER LIMITED 49 DEEMED TO BE SHORT TERM CAPITAL GAIN AS PER THE PRO VISIONS OF SECTION 50 OF THE ACT. 22.6. THE PROVISIONS OF SECTION 50 WERE READ DURING THE COURSE OF HEARING TO CONTEND THAT IN ORDER TO TREAT CAPITA L GAINS ARISING FROM THE TRANSFER OF THE AFORESAID LICENSES AS SHORT- TERM CAPITAL GAINS, AS PER THE PROVISIONS OF SECTIO N 50 OF THE ACT, IT WAS NECESSARY THAT THE FOLLOWING CONDITIONS MENTIONED IN THE SAID SECTION BE FULFILLED VIZ. (I) THE CAPITAL ASSET SHOULD BE AN ASSET FORMING PA RT OF BLOCK OF ASSETS, AND (II) DEPRECIATION SHOULD HAVE BEEN ALLOWED ON IT UN DER THE INCOME TAX ACT. IT IS ONLY ON THE FULFILLMENT OF BOTH THESE CONDITI ONS THAT THE PROVISIONS OF SECTION 50 SHALL GET ATTRACTED. 22.7. IT WAS FURTHER SUBMITTED THAT IT WAS EVIDENT FROM ANNEXURE -6A OF THE TAX AUDIT REPORT SUBMITTED TO T HE AO THAT THE IMPUGNED TRADEMARKS/LICENSE WERE NOT PART OF BLOCK OF ASSETS. IT WAS SUBMITTED BY THE LD. COUNSEL THAT SINCE THE ASSETS WERE NOT FORMING PART OF BLOCK OF ASSETS, TH ERE WAS NO QUESTION OF CLAIMING ANY DEPRECIATION ON THE SAME, AND THEREFORE, THE PROVISIONS OF SECTION 50 WERE NOT AP PLICABLE ON THE FACTS OF THIS CASE. IN SUPPORT OF HIS ARGUMENTS LD. COUNSEL HAS RELIED UPON FOLLOWING DECISIONS: (I) DIVINE CONSTRUCTION COMPANY VS. ASSISTANT COMMI SSIONER OF INCOME TAX (138 ITD 72) PFIZER LIMITED 50 (II) CIT VS. SANTOSH STRUCTURAL & ALLOYS LTD. ( 206 TAXMAN 616) (III) MEDIWORLD PUBLICATIONS (P) LTD. 337 ITR 178) (DELHI) 22.8. SUMMARIZING HIS ARGUMENTS, LD. COUNSEL SUBMITTED THAT SECTION 50 CANNOT BE APPLIED TO AN ASSET ON WH ICH NO DEPRECIATION HAS BEEN CLAIMED OR ALLOWED, IT WAS RE QUESTED THAT AO BE DIRECTED TO RECOMPUTE THE CAPITAL GAINS ARISING ON SALE OF LICENSE/TRADEMARKS AS LONG TERMS CAPITAL GA INS INSTEAD OF SHORT TERM CAPITAL GAINS. 22.9. ON THE OTHER HAND, LD. DR HAS RELIED UPON THE ORDE RS OF LOWER AUTHORITIES. HE HAS SUBMITTED THAT NO VALUE W AS RECORDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS, AND THAT ASSESSEE SHOWED NIL VALUE AT THE TIME OF SALE, WHER EAS IT HAD A VALUE AT THE TIME WHEN PARKE DAVIS WAS REQUIRED IT WAS FURTHER SUBMITTED THAT ON THIS AMOUNT NOW DEPRECIAT ION IS ALLOWABLE AS PER LAW AND SINCE THESE ARE DEPRECIABL E ASSET, THESE WOULD BE COVERED U/S.50, TALKS OF DEPRECIABLE ASSETS. IT WAS LASTLY ARGUED THAT BY VIEW OF DEALING FICTION T HE IMPUGNED ASSETS WOULD BE SHORT TERM CAPITAL ASSET, THEREFORE , THE ACTION OF LOWER AUTHORITIES IN TREATING CAPITAL GAIN ARISI NG FROM SALE OF THESE ASSETS AS RIGHTLY BEEN TREATED AS SHORT TERM CAPITAL GAINS. 22.10. WE HAVE GONE THROUGH THE SUBMISSIONS OF BOTH THE SIDES AND MATERIAL PLACED BEFORE US FOR OUR CONSIDE RATION AND ALSO GONE THROUGH THE APPLICABLE POSITION OF LAW AN D JUDGMENT PFIZER LIMITED 51 RELIED BY THE PARTIES. IN OUR CONSIDERED VIEW THE A CTION OF THE LD. AO IN TREATING THE IMPUGNED ASSET AS SHORT TERM CAPITAL ASSET IS NOT SUSTAINABLE, ON LAW AND FACTS, FOR FOL LOWING REASONS: 22.11. FIRST OF ALL IT IS NOTED ON FACTS, WHICH REMAINS UNDISPUTED, THAT THE ASSETS WERE NOT MADE PART OF B LOCK OF ASSETS. THUS, THERE AROSE NO QUESTION OF ALLOWING A NY DEPRECIATION OF THESE ASSETS. IN FACT, NO DEPRECIAT ION WAS EVER CLAIMED OR ACTUALLY ALLOWED ON THESE ASSETS. UNDER THESE CIRCUMSTANCES, IN OUR VIEW THESE ASSETS CANNOT BE H IT BY PROVISIONS OF SECTION 50. FOR THE SAKE OF READY REF ERENCE, WE FIND IT APPROPRIATE TO REPRODUCE SECTION 50 HEREUND ER: '50. NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (42A) OF S. 2, WHERE THE CAPITAL ASSET IS AN ASSET FORMIN G PART OF A BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED TINDER THIS ACT OR UNDER THE INDIAN IT ACT, 1922 (11 OF 1922), THE PROVISIONS OF SS. 48 AND 49 SHALL APP LY SUBJECT TO THE FOLLOWING MODIFICATIONS: (1) WHERE THE FULL VALUE OF THE CONSIDERATION RECEI VED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE ASSET T OGETHER WITH THE FULL VALUE OF SUCH CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF ANY OTHER C APITAL ASSET FALLING WITHIN THE BLOCK OF THE ASSETS DURING THE PREVIOUS YEAR, EXCEEDS THE AGGREGATE OF THE FOLLOWI NG AMOUNTS, NAMELY: (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER OR TRANSFERS; (II) THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT TH E BEGINNING OF THE PREVIOUS YEAR AND (III) THE ACTUAL COST OF ANY ASSET FALLING WITHIN T HE BLOCK OF ASSETS ACQUIRED DURING THE PREVIOUS YEAR, SUCH EXCESS SHALL BE DEEMED TO BE THE CAPITAL GAINS ARIS ING FROM THE TRANSFER OF SHORT-TERM CAPITAL ASSETS; PFIZER LIMITED 52 22.12. IN THE FIRST PARA ITSELF ON THIS SECTION IT HAS BE EN MENTIONED THAT TO BE COVERED WITHIN THE PROVISIONS OF THIS SECTION, FOLLOWING TWO CONDITIONS ARE NECESSARY I.E .: (I) THE CAPITAL ASSET FORMS PART OF BLOCK OF ASSETS AND (II) DEPRECATION HAS BEEN ALLOWED ON IT UNDER THE I NCOME TAX ACT. IT IS NOTED FROM THE FACTS ON RECORD THAT BOTH THE CONDITIONS ARE FOUND TO BE MISSING, AND THEREFORE, THERE IS NO FORCE IN THE ARGUMENTS OF LD. CIT- DR THAT BECAUSE THESE ARE DEPRECIABLE ASSETS, AND THEREFORE, BY VIEW OF DEEMI NG FICTION CREATED BY SECTION 50, THESE ASSETS SHOULD BE HELD TO BE SHORT TERM CAPITAL ASSET, BY NECESSARY IMPLICATION. THUS IN OUR CONSIDERED VIEW, THE CASE OF THE REVENUE FAILS ON T HE PRIMARY FACTS ITSELF, AND THEREFORE, THE TREATMENT DONE BY THE AO IN HOLDING THESE ASSETS ARE SHORT TERM ASSETS BECOMES INVALID IN THE EYES OF LAW. 22.13. OUR VIEW IS SUPPORTED BY THE JUDGMENTS OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SANTOSH STRUCTURAL & ALLOYS LTD. (SUPRA), WHEREIN IT WAS HE LD THAT IF NO DEPRECIATION WAS EVER CLAIMED AND ALLOWED ON THE AS SETS THEN THE SAME CANNOT BE COVERED U/S 50, MERELY ON THE GR OUND THAT THE SAID ASSETS WERE DEPRECIABLE ASSET. SIMILAR VIE W HAS BEEN TAKEN BY HONBLE BOMBAY BENCH IN THE CASE OF DIVINE CONSTRUCTION COMPANY VS. ASSISTANT COMMISSIONER OF INCOME TAX (138 ITD 72), HOLDING THAT IN ORDER TO TREAT CA PITAL GAIN ARISING FROM THE TRANSFER OF CAPITAL ASSETS IN THE CIRCUMSTANCES MENTIONED IN SECTION 50, IT IS NECESSARY THAT THE C ONDITIONS IN PFIZER LIMITED 53 THE OPENING LINES OF SECTION 50 BE FULFILLED. IT WA S FURTHER HELD THAT IT IS ONLY ON THE FULFILLMENT OF THESE CONDITI ONS THAT THE PROVISIONS OF SECTION 50 GET ACTIVATED. IN THE PRES ENT CASE IT HAS ALREADY BEEN HELD THAT ON FACTS, BOTH THE MANDA TORY CONDITIONS ARE FOUND TO BE MISSING. THUS, ACTION OF LOWER AUTHORITIES IS CONTRARY TO LAW AND FACTS. 22.14. FURTHER, FOR THE PURPOSE OF ADDRESSING THE OTHER ARGUMENTS RAISED BY THE LOWER AUTHORITIES TO DENY T HE BENEFIT TO THE ASSESSEE COMPANY, WE HAVE EXAMINED THIS ISSU E FROM ANOTHER ANGLE ALSO. IT IS WELL SETTLED LAW THAT UND ER THE INCOME TAX LAW, THE CONCEPT OF DE-FACTO OWNERSHIP OF THE ASSETS/ PROPERTIES IS FOLLOWED. IT IS ALSO WELL SETTLED LAW THAT ENTRIES IN THE BOOKS OF ACCOUNTS DO NOT NECESSARILY DETERMINE TAXABILITY OR OTHERWISE OF THE TRANSACTION, IN THE HANDS OF TH E ASSESSEE. ONE HAS TO LOOK INTO THE REAL SUBSTANCE OF THE TR ANSACTIONS AND NOT MERELY ITS FORM, TO DETERMINE THE TAXABIL ITY IN THE GIVEN FACTS OF A CASE. 22.15. IT IS UNDISPUTED FACT THAT THE IMPUGNED ASSETS WER E ACQUIRED BY THE ASSESSEE COMPANY WAY BACK ON 1 ST DECEMBER, 2001, ON THE AMALGAMATION OF PARK DEVIS INDIA LTD. PURSUANT TO SANCTION OF THE AMALGAMATION SCHEME BY THE HIGH COURT OF BOMBAY OF 7 TH FEBRUARY, 2003 WITH EFFECT FROM 1 ST DECEMBER 2001. IN VIEW OF THE AMALGAMATION, THESE ASSETS VIZ . THE LICENCE FOR THE RIGHT TO USE THE IMPUGNED TRADE-MAR KS/LICENCE GOT TRANSFERRED TO THE ASSESSEE COMPANY W.E.F. 1 ST DECEMEBER PFIZER LIMITED 54 2001. THESE VITAL FACTS HAVE NOT BEEN DISPUTED OR D ENIED BY THE LOWER AUTHORITIES. 22.16. HONBLE DELHI HIGH COURT IN THE CASE OF MEDIWORLDS PUBLICATIONS (P) LTD. (SUPRA) HELD THAT TRADEMARKS, COPY RIGHTS BRAND NAMES GOODWILL ETC. ARE CAPITAL ASSETS AND AN Y GAIN ARISING ON THE TRANSACTION OF THESE ASSETS SHALL GI VE RISE TO INCOME TAXABLE UNDER THE HEAD OF CAPITAL GAIN AND N OT ITS BUSINESS INCOME. NOW, UNDER THESE FACTS AND CLEAR P OSITION OF LAW IT CAN BE SAID, UNHESITATINGLY, THAT THE ASSESS EE COMPANY WAS HOLDING THESE ASSETS SINCE 1 ST DECEMBER 2001. MERELY, BECAUSE OF THE FACTS THAT THESE WERE NOT RECORDED I N THE BOOKS OF ACCOUNTS, WOULD NEITHER ALTER THE CHARACTER OF T HESE ASSETS IN THE HANDS OF THE ASSESSEE, NOR THE HOLDING PERIO D, AND NOR THE TAXABILITY OF THE INCOME ARISING FROM TRANSFER OF THESE ASSETS. THE ACCOUNTING ENTRIES ARE NOT DETERMINATIV E OF THE NATURE OF TRANSACTIONS, AND NOR THEIR TAXABILITY. T HE OWNERSHIP OF AN ASSET IS NOT DECIDED ON THE BASIS OF ENTRIES OR NO ENTRIES IN THE BOOKS OF ACCOUNTS OF A PERSON, MUCH LESS UND ER THE INCOME TAX LAW. 22.17. IN THE GIVEN FACTS OF THE CASE, REAL SUBSTANCE OF THE TRANSACTIONS IS THAT THE ASSESSEE COMPANY WAS RIGHT FUL AND LEGAL OWNER OF THESE ASSETS SINCE 1 ST DECEMBER 2001 AND HAS BEEN HOLDING THESE ASSETS IN THE CAPACITY OF DEFACTO AS WELL AS DEJURE OWNER. THESE ARE CLEARLY LONG TERM ASSETS UNDER TH E INCOME TAX LAW, HAVING BEEN HELD FOR MORE THAN 36 M ONTHS BY THE ASSESSEE. THEREFORE, IN VIEW OF THESE FACTS AND PFIZER LIMITED 55 CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE CAPI TAL GAIN ARISING ON THE TRANSFER OF THESE ASSETS IS LONG TER M CAPITAL GAIN. THUS, THE AO IS DIRECTED TO RECOMPUTE THE INC OME OF THE ASSESSEE. ACCORDINGLY, GROUND NO. 6 IS ALLOWED. ` 23. GROUND NO.7: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ADDITION MADE BY THE AO ON ACCOUNT OF MISMATCH OF INDIVIDUAL TRANSACTION STATEMENT TRANSACTIONS WITH INSURANCE COMPANIES, AMOUNTING TO RS. 84,72,985/- . 23.1. THE BRIEF FACTS IN THIS CASE ARE THAT DURING THE C OURSE OF THE ASSESSMENT PROCEEDINGS THE AO HAD HANDED OVER T O THE ASSESSEE AN AIR STATEMENT AND ASKED THE ASSESSEE TO RECONCILE THE TRANSACTIONS WITH THE INSURANCE COMPA NIES AS APPEARING IN THE SAID STATEMENT WITH ITS BOOKS OF A CCOUNT. THE ASSESSEE REQUESTED THE AO TO PROVIDE A FURTHER BREAK- UP OF THE AMOUNT INVOLVED SINCE THE NAME OF THE PAR TIES DID NOT APPEAR IN THE STATEMENT. HOWEVER, AS FURTHER IN FORMATION WAS NOT AVAILABLE WITHIN THE SYSTEM, THE AO HELD TH E AMOUNT REMAINED UN-RECONCILED AND PROPOSED AN ADDIT ION FOR THE SAME. THE ASSESSEE HAD SUBMITTED BEFORE THE AO AN AFFIDAVIT AFFIRMING THAT ALL TRANSACTIONS PERTAININ G TO PAYMENTS TO INSURANCE COMPANIES REPORTED IN THE AIR WERE ENTERED INTO THE BOOKS OF ACCOUNT OF THE ASSES SEE IN ACCORDANCE WITH THE SYSTEM OF ACCOUNTING FOLLOWE D BY THE ASSESSEE AND DENIED THAT THE ASSESSEE HAS ENTER ED INTO ANY TRANSACTION WHICH HAS NOT BEEN ENTERED INTO OR PFIZER LIMITED 56 ACCOUNTED FOR IN ITS BOOKS OF ACCOUNT. BUT AO MADE THE ADDITION. 23.2. ON REFERENCE TO THE DRP, THE DRP DIRECTED THE AO T O INQUIRE INTO THE MATTER WITH THE DEPARTMENTAL AUTHO RITIES AS WELL AS THE INSURANCE AGENCIES AND TO CARRY OUT THE PROPOSED ADDITION ONLY IF FURTHER VERIFIABLE AND INCRIMINATI NG MATERIAL IS OBTAINED AGAINST THE ASSESSEE. HOWEVER, AS THE ASSESSMENT WAS GETTING TIME-BARRED, IN THE FINAL OR DER, THE AO SOUGHT TO MAKE AN ADDITION WITHOUT OBTAINING ANY INCRIMINATING AND VERIFIABLE INFORMATION AGAINST TH E ASSESSEE. 23.3. AGGRIEVED BY THE SAME, THE ASSESSEE COMPANY FILED APPEAL BEFORE THE TRIBUNAL. 23.4. IT HAS BEEN CONTENDED BY LD COUNSEL THAT THE AIR STATEMENT DID NOT EVEN CONTAIN THE NAMES OF THE PAR TIES WHO HAD REPORTED THE SAID TRANSACTIONS PERTAINING TO TH E INSURANCE PREMIUM AND THE SAME WERE NOT EVEN PROVID ED BY THE AO. IN SUCH CIRCUMSTANCES, WHERE EVEN THE IDENT ITY OF THE PAYEE IS NOT KNOWN TO THE DEPARTMENT ITSELF, TH ERE WAS NO REASON WHATSOEVER OF MAKING AN ADDITION IN R ESPECT THEREOF. IN SUPPORT OF HIS CLAIM, LD. COUNSEL HAS R ELIED UPON THE FOLLOWING JUDGMENTS FOR THE PROPOSITION THAT AD DITION CANNOT BE MADE MERELY ON THE BASIS OF STATEMENT REC EIVED THROUGH AIR: (I)A.F. FERGUSSON & CO. VS. JCIT (ITA NO.5037/MUM/2 012) (II) SHRI S. GANESH V. ACIT (ITA NO.527/MUM/2010) PFIZER LIMITED 57 (III) ARATI RAMAN V. DCIT (ITA NO.245/BANG/2014 (IV) AEGIS LIMITED VS. ADDL. CIT (ITA NO.1213/MUM/2 014) LASTLY, IT HAS BEEN SUBMITTED BY THE LD. COUNSEL TH AT THE AO DISREGARDED THE INSTRUCTIONS OF DRP, TO MAKE AVAILA BLE FURTHER VERIFIABLE INFORMATION AGAINST THE ASSESSEE, BUT AO REPEATED THE ADDITION WITHOUT OBTAINING ANY VERIFIABLE INFOR MATION AGAINST THE ASSESSEE. 23.5. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT INFORMATION WAS CONFRONTED TO THE ASSESSEE AND THER EFORE, ONUS WAS UPON HIM AND REQUESTED THAT MATTER SHOULD BE SENT BACK TO THE AO FOR REQUISITE VERIFICATION. 23.6. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES AND ALSO PERUSED MATERIAL PLACED BEFORE U S FOR OUR CONSIDERATION. WE HAVE GONE THOUGH THE STATEMENTS O F AIR TRANSACTIONS PROVIDED BY THE DEPARTMENT TO THE ASSE SSEE. IT IS NOTED THAT THIS INFORMATION HAS BEEN COMPILED IN A VERY CASUAL AND GENERALIZED MANNER. ASSESSEEE CONTENDED THAT TRANSACTIONS WITH THE INSURANCE COMPANY ARE MUCH MO RE THAN WHAT IS REPORTED IN THE AIR STATEMENT, AND ALL THES E TRANSACTIONS ARE DULY RECORDED IN THE BOOKS OF ACCOU NTS, AND SUMMARY OF THE TRANSACTIONS WAS GIVEN BY THE ASSESS EE SHOWING THAT TOTAL TRANSACTIONS WERE TO THE TUNE OF RS.1,86,40,758/-, WHEREAS AMOUNT INCLUDED IN THESE STATEMENTS IS AMOUNTING TO RS. 84 LAKHS ONLY, AND T HAT NOTHING HAS BEEN PAID OUTSIDE THE BOOKS OF ACCOUNTS , AND IN PFIZER LIMITED 58 ANY CASE NO SUCH EVIDENCE HAS BEEN PROVIDED BY THE REVENUE, AND THEREFORE, THE ADDITION MADE BY THE AO WAS WITH OUT ANY BASIS AND RATIONALITY. IN OUR CONSIDERED VIEW, THE ACTION OF LD. AO IN MAKING THE ADDITION IN THIS MANNER WAS HIGHLY UNFAIR AND UNJUSTIFIED. WHEN THE ASSESSEE HAD PROVIDED COM PLETE DETAILS, THEN ONUS SHIFTED UPON THE AO TO SHOW THAT WHAT PAYMENTS HAVE BEEN MADE BY THE ASSESSEE OVER AND AB OVE WHAT HAS BEEN REFLECTED BY IT IN THE BOOKS OF ACCOU NTS. THE AIR STATEMENT DOES NOT EVEN CONTAIN NAMES OF THE PA RTIES. UNDER THESE CIRCUMSTANCES, WE FIND IT APPROPRIATE T O SEND THIS ISSUE BACK TO THE FILE OF THE AO WITH THE DIRECTION THAT THE AO SHALL PROVIDE TO THE ASSESSEE COMPLETE INFORMATION AND ADVERSE MATERIAL WITH ALL REQUISITE PARTICULARS. IN RESPONSE, THE ASSESSEE SHALL PROVIDE COMPLETE BOOKS OF ACCOUNTS A ND REQUISITE DETAILS AND DOCUMENTS AND OTHER EVIDENCES TO SHOW THAT THE AMOUNT REPORTED IN THE AIR, BELONGING TO T HE ASSESSEE, ARE DULY RECORDED IN THE BOOKS OF ACCOUNT S. IF IT IS POINTED OUT BY THE ASSESSEE THAT CERTAIN TRANSACTIO NS IN THE AIR STATEMENT DO NOT BELONG TO THE ASSESSE, THEN TH E AO SHOULD PROVIDE REQUISITE DETAILS AND EVIDENCES TO T HE ASSESSEE ESTABLISHING THAT IMPUGNED TRANSACTIONS DO BELONG T O THE ASSESSEE. 23.7. WE CLARIFY THAT IN OUR CONSIDERED VIEW, THE PRIMAR Y ONUS IS UPON SHOULDERS OF THE AO TO SHOW THAT THE TRANSA CTIONS REPORTED IN AIR BELONG TO THE ASSESSEE. IT IS ONLY THEREAFTER, THE ONUS OF THE ASSESSEE SHALL START TO SHOW THAT T HESE TRANSACTIONS HAVE BEEN DULY RECORDED IN THE BOOKS O F ACCOUNT PFIZER LIMITED 59 OF THE ASSESSEE, FAILING WHICH THE ADDITION MAY BE LIABLE TO BE MADE. WITH THESE DIRECTIONS, THIS ISSUE IS SENT BAC K TO THE FILE OF THE AO WITH FURTHER DIRECTIONS TO GRANT ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSE E SHALL ALSO EXTEND REQUISITE COOPERATION TO THE AO. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 24. GROUNDS NO. 8 & 9: IN THESE GROUNDS ALSO THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. AO IN MAKING THE A DDITION BY THE AO ON ACCOUNT OF SOME DIFFERENCES ON THE BASIS OF AIR INFORMATION VIS-A-VIZ TRANSACTIONS DONE WITH AMERIC AL EXPRESS BANK LTD. AND IN GROUND NO.9 THE ASSESSEE IS AGGRIE VED WITH AN ADDITION ON ACCOUNT OF MISMATCH WITH FROM 26. IT HAS BEEN ARGUED BY THE LD. COUNSEL THAT FACTS ARE IDENTICAL TO THE CIRCUMSTANCES NARRATED IN GROUND NO.7 ABOVE. ON THE OTHER HAND, LD. CIT DR ALSO GAVE HIS NO OBJECTION IF THES E ISSUES ARE SENT BACK TO THE FILE OF THE AO. 24.1. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS MADE BY BOTH THE SIDES. OUR PRIMA FACIE VIEW IS THAT THE AD DITION HAS BEEN MADE AND SUSTAINED BY THE LOWER AUTHORITIES BY FOLLOWING A CASUAL AND IRRESPONSIBLE APPROACH. THE ASSESSE HA S SUBMITTED COMPLETE INFORMATION SHOWING PROPER RECON CILIATION. THESE HAVE BEEN EITHER IGNORED OR NOT PROPERLY APPR ECIATED BY THE LOWER AUTHORITIES. BOTH OF THESE GROUNDS ARE SE NT BACK TO THE FILE OF THE AO WITH OUR DIRECTIONS AS HAVE BEEN GIVEN WHILE DISPOSING GROUND NO. 7 ABOVE. THUS, THESE GROUNDS A RE ALLOWED FOR STATISTICAL PURPOSES. PFIZER LIMITED 60 25. GROUND NO.10: THIS GROUND IS NOT PRESSED BY THE LD. COUNSEL, AND THEREFORE DISMISSED. 26. GROUND NO.11: IN THIS GROUND THE ASSESSEE IS SEEKING A DIRECTION OF THE HONBLE BENCH TO AO FOR GRANTING C REDIT OF TAX DEDUCTED AT SOURCE, AMOUNTING TO RS.1,55,11,220/-. 26.1. IT IS NOTED THAT DRP HAS ALREADY GIVEN DIRECTION T O THE AO TO VERIFY THE CLAIM, AND ACCORDINGLY GRANT CREDI T OF TAX DEBITED AT SOURCE BY HSBC. WE REINFORCE DIRECTION G IVEN BY THE DRP AND DIRECT THE AO TO GRANT CREDIT FOR TDS AFTER MAKING REQUISITE VERIFICATION, AS PER LAW. THUS, THIS GROU ND IS ALLOWED FOR STATISTICAL PURPOSES. 27. GROUND NO.12 IS CONSEQUENTIAL AND DOES NOT REQUIRE ANY ADJUDICATION. 28. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER, 2015. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED : 20/11/2015 CTX? P.S/. .. PFIZER LIMITED 61 #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -./ (01 , * % 012 , / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. / BY ORDER, )-% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI