ZOETIS PHARMACEUTICALS RESEARCH P. LTD., MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 9145/MUM/2010

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8266 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 14-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 30-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H N SINGH
• Assessee Lawyers: CHARUL TOPRANI
• Keywords: Business income; Depreciation; Rectification of order; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 14A; 115JB; 194C; 11

Judgement Text

1 ITA NO.9145/MUM/2010 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.9145 /MUM/2010 (ASSESSMENT YEAR: 2006-07 ) ZOETIS PHARMACEUTICALS RESEARCH PVT LTD (FORMERLY KNOWN AS PFIZER PHARMACEUTICAL INDIA PVT LTD) 5, PATEL ESTATE, OFF S.V. ROAD JOGESHWARI (W), MUMBAI 102 PAN :AAACW0787H VS DY.CIT, RANGE 8(2), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI CHARUL TOPRANI RESPONDENT BY SHRI H.N. SINGH DATE OF HEARING 20-09-2017 DATE OF PRONOUNCEMENT 22-11-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE AO U/S 143(3) R.W.S. 144C(13) OF THE INCOME-TAX ACT, 1 961 PURSUANT TO DIRECTIONS OF DISPUTE RESOLUTION PANEL AND IT PERTAINS TO ASSE SSMENT YEAR 2006-07. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE 2 ITA NO.9145/MUM/2010 LEARNED DCLT ERRED IN DISALLOWING AN AMOUNT OF RS. 2,24,57,168 UNDER SECTION 14A,AS PER THE DIRECTIONS OF THE DISP UTE RESOLUTION PANEL, WHILE COMPUTING THE INCOME UNDER SECTION 11 5JB AS WELL AS UNDER THE PROVISIONS OTHER THAN SECTION 11 5JB. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED DCLT ERRED IN HOLDING THAT THE PRO VISIONS OF SECTION 14A OF THE ACT ARE APPLICABLE TO THE APPELL ANT, ALTHOUGH NO DEDUCTION WAS CLAIMED UNDER SECTION 10A. 3. WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL AN D IN THE ALTERNATIVE, THE LEARNED DCIT ERRED IN NOT APPRECIA TING THAT THE PROVISIONS OF SECTION 14A DOES NOT APPLY TO LOSS. 4. WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL AN D IN THE ALTERNATIVE, THE LEARNED DCIT ERRED IN NOT APPRECIA TING THAT THE AMOUNT OF RS.2,24,57,168 REPRESENTED A LOSS OF THE UNIT AT CHENNAI AND SECTION 14A DOES NOT APPLY TO LOSS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED DCLT ERRED IN HOLDING THAT THE EXP ENSES INCURRED AMOUNTING TO RS.22,86,948 IN RESPECT OF STAMP DUTY AND PROFESSIONAL FEES (RS.12,74,100 + RS.10,12,848) FOR SETTING UP THE STPI DIVISION AT CHENNAI IS CAPITAL IN NATURE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED DCLT ERRED IN MAKING A DOUBLE DISA LLOWANCE OF RS.22,86,948 IN RESPECT OF STAMP DUTY AND PROFESSIO NAL FEES (RS.12,74,100 + RS.10,12,848) FOR SETTING UP THE ST PI DIVISION AT CHENNAI WHICH ALREADY FORMED A PART OF THE DISALLOW ANCE MADE UNDER SECTION 14A THEREBY NOT FOLLOWING THE DIRECTI ONS GIVEN BY THE HONORABLE DISPUTE RESOLUTION PANEL. 7. A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DCIT ERRED IN DISALLOWING AN AMOUNT OF RS. 16,13,260 AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED DCIT ERRED IN DISALLOWING, AS PER THE DIREC TIONS OF THE DISPUTE RESOLUTION PANEL, EXPENSES INCURRED ON DISTRIBUTION OF SAMPLES OF RS. 1,50,800 UNDER THE PROVISIONS OF SECTION 40(A)(IA). 7. C)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONORABLE DISPUTE RESOLUTION PANEL ERRED IN NOT GIVING ANY FINDING FOR THE EXPENDITURE) AMOUNTING TO RS.8,77,0 51 (1,50,800+85, 800+88,896 +68,875 +4,82,740) REPRESENTING PAYMENT TOWARDS HALL HIRE CHARGES, FOOD, TRAVELLING AND INTERVIEW EXPENS ES 3 ITA NO.9145/MUM/2010 D) WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL , AND IN THE ALTERNATIVE, THE DCIT BE DIRECTED TO GRANT DEDUCTIO N IN THE YEAR IN WHICH THE TAX IS DEDUCTED AND PAID. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED DCIT ERRED IN DISALLOWING AN AMOUNT OF RS.5 ,68,529 IN RESPECT OF LEGAL AND PROFESSIONAL FEES U/S 40(A)(IA) ALTHOU GH TAX HAD BEEN DEDUCTED AT SOURCE THEREON, THEREBY NOT FOLLOWING T HE DIRECTIONS OF THE HONORABLE DISPUTE RESOLUTION PANEL 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED DCIT ERRED IN DISALLOWING U/S 40(A)(IA) AN EXPENSE AGGREGATING TO RS68,875 ON HIRE OF HALL A THOUGH P ROVISIONS OF SECTION 1941 WERE NOT APPLICABLE. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED DCIT ERRED IN RESTRICTING THE CLAIM OF SET OFF OF BUSINESS LOSS TO RS. 4,27,10,713 AS PER THE DIRECTIONS OF THE DISPUT E RESOLUTION PANEL AS AGAINST RS.10,51,00,000 CLAIMED BY THE APPELLAN T IN THE RETURN OF INCOME. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED DCIT ERRED IN TREATING THE EXPENDITURE INCU RRED ON MISCELLANEOUS HARDWARE EXPENSES AMOUNTING TO RS. 8, 61,215 AS CAPITAL IN NATURE AND ADDING THE SAME TO THE TOTAL INCOME 12. WITHOUT PREJUDICE TO GROUND NO. 9 AND IN THE AL TERNATIVE, THE LEARNED DCIT ERRED IN NOT GRANTING DEPRECIATION ON MISCELLANEOUS HARDWARE EXPENSES AMOUNTING TO RS. 8,61,215 HELD AS CAPITAL IN NATURE. 13. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED DCIT ERRED IN NOT REDUCING THE PROVISION FO R FRINGE BENEFIT TAX AMOUNTING TO RS. 7,50,000 WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. 14. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED DCIT ERRED IN NOT GRANTING CREDIT OF TAX DE DUCTED AT SOURCE AMOUNTING TO RS.63,80,046. 5.0N THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED DCIT ERRED IN NOT G RANTING CREDIT OF ADVANCE TAX PAID AGGREGATING TO RS.57,00,000. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY, ENGAGED IN THE BUSINESS OF TRADING IN PHARMACEUTICAL PRODUCTS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 30-11-200 6 DECLARING TOTAL 4 ITA NO.9145/MUM/2010 INCOME AT NIL AFTER SETTING OFF OF EARLIER LOSSES U NDER NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT OF RS.9,19,69,250 U/S 115JB OF THE ACT. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND NOTICE U/S 143(2 ) AND 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO THE SAID NOTICES, THE ASSESSEE FILED VARIOUS DETAILS, AS CALLED FOR BY THE AO FROM TIME TO TIME. THE AO HAS PASSED DRAFT ASSESSMENT ORDER U/S 144C(1) R.W.S. 143(3) ON 31-12 -2009 PROPOSING TO ASSESS TOTAL INCOME OF THE ASSESSEE AT RS.9,75,83,3 90 AND A COPY OF THE SAME HAS BEEN SERVED ON THE ASSESSEE. IN RESPONSE TO THE SAME, THE ASSESSEE COMPANY HAS FILED ITS OBJECTIONS AGAINST T HE DRAFT ASSESSMENT ORDER BEFORE THE DRP-II, MUMBAI. THE DRP-II, MUMBA I, VIDE ITS ORDER U/S 144C(5) DATED 27-09-2010 MADE A DETAILED DISCUSSION IN ITS ORDER AND REJECTED GROUNDS 4 & 6; HOWEVER, IN THE PROCEEDINGS UNDER CONSIDERATION, DISCUSSION IS BEING MADE IN RESPECT OF ISSUES RELAT ING TO RELIEF ALLOWED BY THE DRP. THE AO HAS PASSED FINAL ASSESSMENT ORDER U/S 143(3) R.W.S. 144C(13) ON 28-10-2010 DETERMINING THE TOTAL INCOME AT RS.9,16,95,580 INTERALIA MAKING ADDITION / DISALLOWANCE TOWARDS DI SALLOWANCE U/S 14A, DISALLOWANCE OF CAPITAL EXPENDITURE, DISALLOWANCE O F EXPENDITURE U/S 40(A)(IA), DISALLOWANCE OF MISCELLANEOUS HARDWARE E XPENSES AND ADDITIONS U/S 92CA OF THE INCOME-TAX ACT, 1961. THE AO ALSO MADE ADJUSTMENTS TOWARDS BOOK PROFIT U/S 115JB TOWARDS DISALLOWANCE U/S 14A. AGGRIEVED BY 5 ITA NO.9145/MUM/2010 THE ASSESSMENT ORDER, THE ASSESSEE IS IN APPEAL BEF ORE US. 3. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION FROM GROUNDS 1 TO 4 IS DISALLOWANCE U/S 14A IN RESPECT OF EXPENDITURE A MOUNTING TO RS.2,24,57,168 INCURRED FOR SETTING UP STPI UNIT AT CHENNAI HOLDING IT AS INADMISSIBLE IN TERMS OF SECTION 14A OF THE ACT. T HE AO OBSERVED THAT SINCE THE AUDITOR HAS QUANTIFIED THE DISALLOWANCE T O BE MADE U/S 14A AND THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION, DISAL LOWED THE SAME U/S 14A OF THE ACT AND ALSO MADE ADJUSTMENTS OF SIMILAR AMO UNT TO THE BOOK PROFIT COMPUTED U/S 115JB OF THE INCOME-TAX ACT, 1961. TH E LD.AR FOR THE ASSESSEE SUBMITTED THAT IN THE ABSENCE OF ANY EXEMP T INCOME, THERE IS NO QUESTION OF DISALLOWANCE U/S 14A OF THE ACT. THE L D.AR FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE STPI UNIT AT CHENNAI HAS NOT COMMENCED ITS BUSINESS OPERATIONS AND THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION U/S 10A OF THE ACT. THEREFORE, THE QUEST ION OF DISALLOWANCE U/S 14A DOES NOT ARISE. IN THIS REGARD HE RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS C IT 94 CCH 2 (DEL). THE LD.AR MADE AN ALTERNATIVE SUBMISSION INASMUCH AS TH E PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO SECTION 10A AS TH E FORMER PROVIDES FOR DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING EX EMPT INCOME WHEREAS SECTION 10A PROVIDES FOR DEDUCTION FOR INCOME EARNE D BY ELIGIBLE UNITS. 6 ITA NO.9145/MUM/2010 THEREFORE, THE AO WAS INCORRECT IN DISALLOWING EXPE NDITURE BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. IN THIS REGA RD, HE RELIED UPON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF MEDIT AP SPECIALITIES PVT LTD VS ACIT 33 CCH 360. THE LD.AR FURTHER SUBMITTED TH AT SECTION 10A OF THE ACT IS A PROVISION FOR DEDUCTION AND NOT EXEMPTION PROVISION, THEREFORE, THE AO WAS INCORRECT IN DISALLOWING EXPENDITURE INC URRED FOR SETTING UP STPI UNIT AT CHENNAI WHICH IS GENERATING INCOME WHI CH IS DEDUCTIBLE U/S 10A BY INVOKING SECTION 14A OF THE INCOME-TAX ACT, 1961 WHICH PROVIDES FOR DISALLOWANCE OF EXPENDITURE INCURRED IN RELATIO N TO EXEMPT INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 4. THE LD.DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AO TO ARGUE THAT THE AO HAS RIGHTLY INVOKED SECTION 14A T O DISALLOW EXPENDITURE INCURRED FOR SETTING UP STPI UNIT AS THE INCOME FRO M STPI UNIT IS TAX EXEMPT U/S 10A OF THE ACT. THOUGH THE AUDITOR HAD QUANTIF IED DISALLOWANCE TO BE MADE U/S 14A, THE ASSESSEE HAS FAILED TO DISALLOW E XPENDITURE IN ITS COMPUTATION AND HENCE, THE AO WAS RIGHT IN DISALLOW ING IMPUGNED EXPENDITURE AND HIS ORDER SHOULD BE UPHELD. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA L AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE AO DISALLOWED EXPENDITURE INCURRED TOWARDS SETTING UP OF STPI UNIT AT CHENNAI 7 ITA NO.9145/MUM/2010 U/S 14A OF THE ACT. ACCORDING TO THE AO, THE TAX AUDITOR HAS QUANTIFIED THE EXPENDITURE TO BE DISALLOWED U/S 14A TOWARDS EX PENDITURE INCURRED FOR SETTING UP STPI UNIT AT CHENNAI. IT IS THE CONTENT ION OF THE ASSESSEE THAT NO DISALLOWANCE CAN BE MADE U/S 14A, WHEN THERE IS NO EXEMPT INCOME. THE ASSESSEE FURTHER CONTENDED THAT STPI UNIT AT CHENNA I DID NOT COMMENCE ITS ACTIVITIES DURING THE YEAR UNDER CONSIDERATION AND THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION U/S 10A, THEREFORE, THE AO WA S ERRED IN DISALLOWING EXPENDITURE U/S 14A OF THE ACT. WE FIND FORCE IN T HE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS CIT (SUPRA) HAS OBSERVED THAT WHE N THERE IS NO EXEMPT INCOME, DISALLOWANCE OF EXPENDITURE U/S 14A CANNOT BE MADE. THEREFORE, WE DIRECT THE AO TO DELETE ADDITION MADE TOWARDS EX PENDITURE INCURRED FOR SETTING UP OF STPI UNIT U/S 14A OF THE ACT. WE FURTHER DIRECT THE AO TO DELETE ADJUSTMENT MADE TOWARDS BOOK PROFIT COMPUTED U/S 115JB OF THE INCOME-TAX ACT, 1961. AS A RESULT, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6. THE NEXT ISSUE FROM GROUND 5 & 6 THAT CAME UP FOR O UR CONSIDERATION IS DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS.10,1 2,848 INCURRED IN RESPECT OF LEGAL AND PROFESSIONAL FEES AND RS.12,74 ,100 IN RESPECT OF STAMP DUTY. THE AO DISALLOWED EXPENDITURE INCURRED TOWAR DS LEGAL AND 8 ITA NO.9145/MUM/2010 PROFESSIONAL CHARGES IN RESPECT OF STPI UNIT ON THE GROUND THAT EXPENDITURE INCURRED IS IN THE NATURE OF CAPITAL EXPENDITURE. THE AO DISALLOWED THE IMPUGNED EXPENDITURE ON THE GROUND THAT EXPENDITURE INCURRED FOR SETTING UP OF STPI UNIT WHICH WAS GOING TO PROVIDE WORKING APPARATUS GIVING ENDURING BENEFIT TO THE ASSESSEE. IT IS THE CONTEN TION OF THE ASSESSEE THAT PROFESSIONAL EXPENDITURE WERE INCURRED FOR ORACLE M IGRATION ACCOUNTING AND PROJECT CONTROL SOFTWARE FOR STPI DIVISION WHIC H IS IN THE NATURE OF REVENUE EXPENDITURE WHICH DOES NOT GIVE ANY ENDURIN G BENEFIT TO THE ASSESSEE. THE ASSESSEE HAS NOT CREATED ANY NEW ASS ET WHICH WOULD GIVE ENDURING BENEFIT BUT ONLY CHANGED THE PRESENT SOFTW ARE SYSTEM INTO ORACLE SOFTWARE. THE ASSESSEE FURTHER CONTENDED TH AT MEMBERSHIP FEES PAID TO STPI, A GOVERNMENT OF INDIA UNDERTAKING ACC ORDING TO THE NORMS SET UP BY STPI AUTHORITIES ARE IN THE NATURE OF RECURRI NG EXPENDITURE. THE ASSESSEE FURTHER SUBMITTED THAT STAMP DUTY INCURRED FOR REGISTRATION OF LEASE AGREEMENTS IS ALSO IN THE NATURE OF REVENUE E XPENDITURE AS THE ASSESSEE IS NOT DERIVING ANY ENDURING BENEFIT OUT O F LEASE AGREEMENT. IN THIS REGARD HE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS CINECITA (P) LTD 137 ITR 652 (BO M). ALTERNATIVELY THE ASSESSEE SUBMITTED THAT IF THE SAID EXPENDITURE IS HELD TO BE CAPITAL IN NATURE, DEPRECIATION OUGHT TO BE ALLOWED ON THE SAM E. 9 ITA NO.9145/MUM/2010 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED THE MATE RIALS AVAILABLE ON RECORD, WE FIND THAT THE EXPENDITURE INCURRED IS IN THE NATURE OF PROFESSIONAL EXPENDITURE FOR ORACLE MIGRATION AND A CCOUNTING SOFTWARE FOR STPI UNIT AND ANNUAL MEMBERSHIP FEES PAID TO STPI, A GOVERNMENT OF INDIA UNDERTAKING ARE IN THE NATURE OF RECURRING EXPENDIT URE WHICH DOES NOT GIVE ANY ENDURING BENEFIT TO THE ASSESSEE. WE FURTHER N OTICE THAT STAMP DUTY INCURRED FOR REGISTRATION OF LEASE AGREEMENT IS ALS O REVENUE EXPENDITURE IRRESPECTIVE OF PERIOD OF LEASE. THIS LEGAL PROPOS ITION IS SUPPORTED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS CINECITA (P) LTD (SUPRA) WHEREIN IT WAS HELD THAT EXPENDITURE ON REG ISTRATION FEE, STAMP DUTY AND SOLICITORS FEE INCURRED IN CONNECTION WIT H REGISTRATION OF LEASE DEED IS REVENUE EXPENDITURE IRRESPECTIVE OF PERIOD OF LEASE. THEREFORE, WE ARE OF THE VIEW THAT THE AO WAS ERRED IN TREATING T HE EXPENDITURE AS CAPITAL IN NATURE. HOWEVER, THE LD.AR FOR THE ASSESSEE STA TED THAT THE EXPENDITURE INCURRED TOWARDS LEGAL AND PROFESSIONAL FEES AND STAMP DUTY FOR REGISTRATION OF LEASE AGREEMENTS IS ALSO DISALL OWED U/S 14A IN RESPECT OF EXPENDITURE INCURRED FOR SETTING UP STPI UNIT AT CHENNAI IN ADDITION TO SEPARATE DISALLOWANCE MADE BY THE AO. THE AO HAS G RANTED RELIEF IN THE RECTIFICATION ORDER DATED 10-03-2011. HOWEVER, THE RE IS NO CLARITY AS TO UNDER WHICH DISALLOWANCE RELIEF IS GRANTED. WE FIN D THAT THE AO HAS MADE 10 ITA NO.9145/MUM/2010 ADDITION TOWARDS TOTAL EXPENDITURE INCURRED FOR SET TING UP OF STPI UNIT AT CHENNAI U/S 14A AND ALSO MADE SEPARATE ADDITION TOW ARDS CAPITAL EXPENDITURE. THOUGH RELIEF IS GRANTED IN THE RECTI FICATION ORDER DATED 10- 03-2011, THERE IS NO CLARITY ON THE ISSUE AS TO WHE THER THE RELIEF WAS ALLOWED TOWARDS ADDITION MADE U/S 14A OR ADDITION M ADE UNDER THE HEAD LEGAL AND PROFESSIONAL CHARGES. THEREFORE, WE AR E OF THE VIEW THAT THE ISSUE NEEDS TO BE RE-EXAMINED BY THE AO AND HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO GIVE A FIND ING AS TO WHETHER RELIEF IS GIVEN TOWARDS ADDITION MADE UNDER THE HEAD LEGAL A ND PROFESSIONAL CHARGES OR DISALLOWANCE U/S 14A OF THE ACT. 8. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION F ROM GROUND 7 TO 8 IS DISALLOWANCE OF EXPENDITURE U/S 40(A)(IA) MOUNTI NG TO RS.16,13,260 ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE. THE AO HAS DISALLOWED VARIOUS EXPENDITURE INCURRED BY THE ASSESSEE LIKE PROFESSIO NAL FEES, PURCHASE OF SAMPLES, HALL HIRE CHARGES AND FOOD CHARGES FOR FAI LURE TO DEDUCT TAX AT SOURCE UNDER RESPECTIVE PROVISIONS OF THE ACT. 9. THE LD.AR FOR THE ASSESSEE CONTENDED THAT THOUGH TH E AO HAS MADE ADDITION TOWARDS VARIOUS EXPENDITURE, RECTIFIED THE MISTAKES VIDE RECTIFICATION ORDER DATED 10 TH MARCH, 2011 IN RESPECT OF PROFESSIONAL FEES PAID TO M/S KURIEN & KURIEN FOR RSW.5,25,000 AND PR OFESSIONAL FEES PAID TO 11 ITA NO.9145/MUM/2010 M/S DYNAMIC CARGO PVT LTD FOR RS.43,529. INSOFAR A S OTHER EXPENDITURE LIKE PURCHASE OF SAMPLES, HIRE CHARGES OF HALL AND FOOD CHARGES, ALL ARE IN THE NATURE OF REIMBURSEMENT OF EXPENSES FOR WHICH THE P ROVISIONS OF TDS HAS NO APPLICATION. IN THIS REGARD, HE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CE NTRE (P) LTD VS CIT 372 ITR 456 (SC). 10. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS FILED VARIOUS DETAILS TO SUPPORT ITS ARGUMENTS IN THE FORM OF BILLS AND CONFIRMATIONS FROM PERSON TO WHOM THE AMOUNT HAS BEEN PAID. ACCORDING TO THE ASSESSEE, ALL THESE EX PENSES ARE REIMBURSEMENT OF EXPENDITURE INCURRED BY THIRD PART IES ON BEHALF OF THE ASSESSEE WITHOUT ANY PROFIT ELEMENT. THE ASSESSEE FURTHER CONTENDED THAT REIMBURSEMENT OF EXPENDITURE IS OUTSIDE THE PURVIEW OF PROVISIONS OF SECTION 194C / 194J; THEREFORE, THERE IS NO OBLIGAT ION ON THE PART OF THE ASSESSEE TO DEDUCT TDS. WE FIND FORCE IN THE ARGUM ENTS OF THE ASSESSEE FOR THE REASON THAT THE HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS SIEMENS AKTIONGESELLSCHAFT 310 ITR 320 (BOM) HAS HE LD THAT PAYMENT BY WAY OF REIMBURSEMENT OF EXPENDITURE INCURRED ON BEH ALF OF PAYER IS NOT INCOME CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE. THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD VS CIT (SUPRA) 12 ITA NO.9145/MUM/2010 OBSERVED THAT IF THE PAYMENT DOES NOT CONTAIN THE E LEMENT OF INCOME, THE PAYER CANNOT BE MADE LIABLE TO DEDUCT TAX AT SOURCE . HOWEVER, THE FACTS ARE NOT CLEAR. THOUGH THE ASSESSEE CLAIMS TO HAVE REIMBURSED THE EXPENDITURE, ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE IT APPEARS THAT MOST OF THE EXPENDITURE LIKE HALL HIRE CHARGES AND FOOD CHARGES ARE INCURRED FOR THE PURPOSE OF CONDUCTING INTERVIEW AR E DIRECTLY INCURRED BY THE ASSESSEE. INSOFAR AS REIMBURSEMENT OF INTERVIE W CHARGES TO CERTAIN PARTIES, THE ASSESSEE HAS FILED SOME CONFIRMATION L ETTERS TO PROVE THAT THESE ARE REIMBURSEMENT OF EXPENSES. THEREFORE, WE ARE OF THE VIEW THAT THE ISSUES NEED TO BE RE-EXAMINED BY THE AO AFRESH; HENCE WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO C ONSIDER THE ISSUE AFRESH AFTER AFFORDING AN OPPORTUNITY TO THE ASSESSEE. 11. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S RESTRICTING THE CLAIM OF SET OFF OF BUSINESS LOSS TO RS.4,27,10,713 AS AGAINST RS.10.51 CRORES AS CLAIMED BY THE ASSESSEE. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT, MUMBAI BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 199 7-98 TO 1999-2000 IN ITA NO.3367/MUM/2009 DATED 08-07-2016. WE FIND TH AT THE CO-ORDINATE BENCH CONSIDERED SIMILAR ISSUE IN THE LIGHT OF PROV ISIONS OF SECTION 71, 72 AND AFTER CONSIDERING THE RELEVANT PROVISIONS OBSER VED THAT THE PRE- 13 ITA NO.9145/MUM/2010 CONDITION OF CONTINUATION OF BUSINESS HAS BEEN DISP ENSED BY THE FINANCE BILL, 1999 AND, THEREFORE, THE PROVISIONS OF SECTIO N 72 WOULD BE APPLICABLE BUT NOT PROVISIONS OF SECTION 71 AS HELD BY THE AO AND THE FIRST APPELLATE AUTHORITY. THE RELEVANT PORTION OF THE ORDER IS EX TRACTED BELOW:- 7.1.BEFORE THE FAA THE ASSESSEE ARGUED THAT THE PRO VISIONS FOR CARRY FORWARD, SET OFF OF BUSINESS LOSSES WERE GOVE RNED BY SECTION 72 AND NOT BY SECTION 71(L)(I), THAT THE PROVISO IN CO NNECTION WITH THE CONTINUANCE OF BUSINESS HAD BEEN OMITTED BY THE FIN ANCE ACT, 1999 W.E.F. 1.4.2000.AFTER CONSIDERING THE SUBMISSI ON OF THE ASSESSEE THE FAA HELD THAT AS PER THE PROVISO OF SECTION 72 THE UNABSORBED LOSSES THAT WERE DISCONTINUED COULD BE SET OFF AGAI NST THE PROFIT AND GAINS, IF ANY, OF THAT BUSINESS, THAT THE ASSESSEE HAD NO BUSINESS INCOME FOR THE YEAR, THAT THE 7.2.THE AR MADE THE S AME SUBMISSION THAT WERE ADVANCED BEFORE FAA. HE REFERRED TO MEMOR ANDUM EXPLAINING THE PROVISION IN FINANCE BILL 1999, THAT IHE ASSESSEE WAS ENTITLED TO BRING FORWARD BUSINESS LOSSES OF THE EA RLIER YEARS. THE DR RELIED UPON THE ORDER OF THE FAA. 7.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US IN O UR OPINION PROVISIONS OF SECTION 72 WOULD BE APPLICABLE IN THE PRESENT CASE AND NOT THE PROVISIONS OF SECTION 71 ,AS HELD BY TH E AO AND THE FAA.WE FURTHER FIND THAT THE PRE-CONDITION OF CONTI NUATION OF BUSINESS HAS BEEN DISPENSED WITH BY THE FIN BILL 19 99. THEREFORE, WE ARE OF THE OPINION THAT THE CLAIM MADE BY THE ASSES SEE SHOULD HAVE BEEN ALLOWED. REVERSING THE ORDER OF THE FAA,WE DEC IDE THE ISSUE IN FAVOUR OF THE ASSESSEE. CONSIDERING THE FACTS AND ALSO CONSISTENT WITH THE VIEW TAKEN BY THE CO- ORDINATE BENCH, WE ARE OF THE VIEW THAT THE AO WAS ERRED IN RESTRICTING SET OFF OF BROUGHT FORWARD BUSINESS LOSSES; HENCE, WE DIREC T THE AO TO ALLOW BROUGHT FORWARD LOSSES AS CLAIMED BY THE ASSESSEE. 12. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION F ROM GROUNDS 11 & 14 ITA NO.9145/MUM/2010 12 IS DISALLOWANCE OF MISCELLANEOUS HARDWARE EXPEND ITURE AMOUNTING TO RS.8,61,215 AND DEPRECIATION ON MISCELLANEOUS HARDW ARE EXPENDITURE. THE AO DISALLOWED MISCELLANEOUS HARDWARE EXPENDITURE ON THE GROUND THAT EXPENDITURE INCURRED UNDER THE HEAD MISCELLANEOUS HARDWARE EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE. THE LD.AR FO R THE ASSESSEE AT THE TIME OF HEARING DID NOT PRESS THE GROUNDS CHALLENGING DISAL LOWANCE MADE BY THE AO TOWARDS MISCELLANEOUS HARDWARE EXPENDITURE; HOWEVER , REQUESTED TO GIVE A DIRECTION TO ALLOW DEPRECIATION ON THE MISCELLANEOU S HARDWARE EXPENDITURE, IF TREATED AS CAPITAL EXPENDITURE. WE FIND FORCE IN T HE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT ONCE A PARTICULAR EXPE NDITURE HAS BEEN DISALLOWED AS CAPITAL EXPENDITURE, THE AO IS BOUND TO ALLOW DEPRECIATION ALLOWABLE ON SUCH CAPITAL EXPENDITURE AS PER THE PR OVISIONS OF THE ACT. THEREFORE, WE DIRECT THE AO TO ALLOW DEPRECIATION O N MISCELLANEOUS HARDWARE EXPENDITURE TREATED AS CAPITAL EXPENDITURE. HENCE, THE GROUND OF ASSESSEE IS DISMISSED. 13. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION F ROM GROUND 13 IS ADJUSTMENTS TOWARDS PROVISION FOR FRINGE BENEFIT TA X AMOUNTING TO RS.7,50,000 FOR BOOK PROFITS COMPUTED U/S 115JB OF THE INCOME-T AX ACT, 1961. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE AO WAS ERRED IN NOT REDUCING PROVISION FOR FRINGE BENEFIT TAX WHILE COMPUTING BOOK PROFIT U/S 115JB EVEN THOUGH THE 15 ITA NO.9145/MUM/2010 CIRCULAR ISSUED BY THE CBDT VIDE CIRCULAR NO.8 OF 2 005 CLARIFIES THAT FRINGE BENEFIT TAX IS AN ALLOWABLE DEDUCTION IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. WE FIND THAT THOUGH THE ASSESSEE HAS TAKE N A GROUND ON THE ISSUE, ON PERUSAL OF THE ASSESSMENT ORDER OF AO AS WELL AS DI RECTIONS OF THE DRP U/S 144(5), THE AO HAS NOT MADE ANY ADJUSTMENTS TO BOOK PROFIT COMPUTED U/S 115JB OF THE ACT. THE AO HAS ACCEPTED BOOK PROFIT COMPUTED BY THE ASSESSEE WITHOUT ANY MODIFICATION EXCEPT ADDITION MADE U/S 1 4A IN RESPECT OF EXPENDITURE INCURRED FOR STPI UNIT AT CHENNAI. THE REFORE, WE ARE OF THE VIEW THAT THE ISSUE IS NOT EMANATING FROM THE ORDERS OF LOWER AUTHORITIES; HENCE, THERE IS NO MERIT IN THE GROUND RAISED BY THE ASSES SEE. 14. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION F ROM GROUNDS 14 & 15 IS AGAINST NON GRANTING OF CREDIT FOR TAX DEDUCT ED AT SOURCE AND ADVANCE- TAX PAID. THE LD.AR FOR THE ASSESSEE SUBMITTED THA T THE AO HAS ALLOWED CREDIT FOR TDS AS WELL AS ADVANCE TAX PAID IN THE RECTIFIC ATION ORDER DATED 10-03-2011 AND HENCE, HE DID NOT WANT TO PRESS GROUNDS 14 & 15 . HENCE, THESE GROUNDS ARE DISMISSED, AS NOT PRESSED. 15. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSE. 16 ITA NO.9145/MUM/2010 ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND NOVEMBER, 2017. SD/- SD/- (SAKTIJIT DEY) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 22 ND NOVEMBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI