The ACIT, Circle-4, Ahmedabad V. Intas Pharmaceuticals Ltd., Ahmedabad

ITA 919/AHD/2004

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8963 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-09-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 25-03-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Revenue expenditure; Capital expenditure; Set aside
• Section: 271(1)(c); 80HHC; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BENCH C AHMEDABAD BENCH C AHMEDABAD BENCH C AHMEDABAD AHMEDABAD AHMEDABAD AHMEDABAD BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI H.L. KARWA H.L. KARWA H.L. KARWA H.L. KARWA, , , , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER AND AND AND AND SHRI SHRI SHRI SHRI N NN N. .. .S. SAINI S. SAINI S. SAINI S. SAINI, , , , ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE OF HEARING : 15.09.09 DRAFTED ON: 15.09. 2009 ITA NO.919/AHD/2004 & C.O. NO.138/AHD/2007 ASSESSMENT YEAR : 2001-02 THE ACIT, CIR.4, NAVJIVAN TRUST BLDG. OFF. ASHRAM ROAD, AHMEDABAD. VS. INTAS PHARMACEUTICALS LTD., 203, CHINUBHAI CENTRE, ASHRAM ROAD, AHMEDABAD. PAN/GIR NO. : AAAC 15120 L (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI ALOK JOHRI, CIT D.R. RESPONDENT BY: SHRI S.N.SOPARKAR O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-VIII, AHMEDABAD, DATED 05.01.2004. ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 2 - 2. GROUND NO.1 OF THE APPEAL RELATES TO DELETING DISALLOWANCE OF RS.1,56,300/- OUT OF STAFF WELFARE EXPENSES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF PHARMACEUTICALS. IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE COMPANY HAD CLAIMED AN AMOUNT OF RS.31.26 LACS TOWARDS STAFF WELFARE EXPENSES. THE LEARNED ASSESSING OFFICER HAS NOTED THAT THE BREAK UP OF THE EXPENSES WERE NOT MADE AVAILABLE. HE HAS ALSO NOTED THAT IN ASSESSMENT YEAR 1998-99, PART THE EXPENSES WERE DISALLOWED AS NOT INCURRED FOR THE PURPOSES OF BUSINESS. THE LEARNED ASSESSING OFFICER HAS THEREFORE, DISALLOWED 5 % OF THE TOTAL EXPENSES I.E. RS. 1,56,300/- IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND ADDED THE SAME TO THE TOTAL INCOME. 4. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IT WAS SUBMITTED THAT THE DISALLOWANCE MADE IN ASSESSMENT YEAR 1998-99 AS REFERRED TO BY THE LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER, HAS BEEN DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BY APPELLANT ORDER DATED ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 3 - 31.08.2000 IN APPEAL NO.CIT(A)-VII/SR.8/37/00-01. HE ALSO INFORMED THAT SIMILAR DISALLOWANCE MADE IN THE PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2000-01 HAS BEEN DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BY ORDER DATED 24.01.2003 IN APPEAL NO.CIT(A) VIII/AC-4/46/02-03. COPIES OF THE APPELLANT ORDERS HAVE BEEN PLACED ON RECORD. THE LD. COUNSEL ALSO INFORMED THAT IN THE ASSESSMENT YEAR UNDER CONSIDERATION STAFF TRAINING EXPENSES OF RS.4,29,476/- WERE INCLUDED FOR THE FIRST TIME WHICH HAD INCREASED THESE EXPENSES UNDER THIS HEAD. IT WAS ARGUED THAT KEEPING IN VIEW THE FACTS OF THE CASE AND THE DECISION GIVEN BY THE APPELLANT AUTHORITIES IN THE PRECEDING ASSESSMENT YEARS, DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER SHOULD BE DELETED. 5. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HELD THAT THE LEARNED ASSESSING OFFICER HAS MADE AD-HOC DISALLOWANCE OF 5% OUT OF STAFF WELFARE EXPENSES. WITHOUT REFERRING TO ANY PART OF THE EXPENSES INCURRED FOR NON BUSINESS PURPOSE. WHILE MAKING THE DISALLOWANCE THE LEARNED ASSESSING OFFICER HAS RELIED UPON THE ASSESSMENT ORDER FOR ASSESSMENT ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 4 - YEAR 1998-99, WHICH WAS DELETED IN APPEAL BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). SIMILAR DISALLOWANCE WAS MADE IN THE ASSESSMENT YEAR 2000-01 WHICH WAS ALSO DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). FURTHER RS.4,29,476/- WAS INCLUDED FOR THE FIRST TIME IN STAFF WELFARE EXPENSES. THE STAFF WELFAR E EXPENSES FOR PRESENT YEAR HAS INCREASED FROM RS.24.67 LACS IN THE PRECEDING YEAR TO RS.31. 25 LACS IN THE YEAR UNDER CONSIDERATION. THE TURN OVER HAS ALSO INCREASED FROM RS.138.46 CRORES TO RS.182.94 CRORES DURING THE YEAR UNDER CONSIDERATION. KEEPING IN VIEW THE NATURE OF BUSINESS AND THE TOTAL TURNOVER IT CANNOT BE SAID THAT THE CLAIM OF STAFF WELFARE EXPENDITURE IS UNREASONABLE AND DELETED THE DISALLOWANCE OF RS.1,56,300/- MADE BY THE LEARNED ASSESSING OFFICER ON ADHOC BASIS. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 7. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE FILED COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 IN ITA NO.1391/AHD/2003 DATED 24.04.2008 AND SUBMITTED ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 5 - THAT SIMILAR DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER AND DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS UPHELD BY THE TRIBUNAL AND THE APPEAL OF REVENUE WAS DISMISSED. FOLLOWING THE SAID ORDER OF THE TRIBUNAL, THE APPEAL OF THE REVENUE IN THE PRESENT YEAR SHOULD ALSO BE DISMISSED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED ASSESSING OFFICER MADE DISALLOWANCE OF 5% OUT OF STAFF WELFARE EXPENSES CLAIMED BY THE ASSESSEE FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 1998-99 AND MADE ADDITION OF RS.1,56,300/- TO THE INCOME OF THE ASSESSEE. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOLLOWING ITS ORDER FOR ASSESSMENT YEAR 1998-99 AND 2000- 01 DELETED THE ADDITION. WE FIND THAT THE REVENUE FILED APPEAL BEFORE THE TRIBUNAL AGAINST DELETION OF ADDITION ON ACCOUNT OF STAFF WELFARE EXPENSES IN ASSESSMENT YEAR 2000-01 WHEREIN THE TRIBUNAL CONFIRMED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND DISMISSED THE APPEAL OF THE REVENUE. WHILE DOING SO, THE TRIBUNAL HELD AS UNDER. ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 6 - 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROU GH THE FACTS OF THE CASE. IT IS NOTICED THAT THE LEARNED ASSESSING OFFICER HAS NOT IDENTIFIED ANY SPECIFIC ITEM OF EXPENDITURE, WHICH WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE TAXPAYER, NECESSITATING D ISALLOWANCE. THE EXPENDITURE HAVING BEEN INCURRED ONLY ON PROVIDI NG TEA, COFFEE ETC. TO STAFF TO MAINTAIN HARMONIOUS RELATIONS WITH THEM IN THE COM PANY THERE WAS NO JUSTIFICATION IN MAKING ESTIMATED DISALLOWANCE LIK EWISE ESTIMATED DISALLOWANCE OUT OF MR EXPENSES IS WITHOUT ANY BASIS. SI NCE, THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY INFIRMITY IN THE FINDS OF LEARNED COMMISSIONER OF INCOME TAX(APPE ALS) IN DELETING THESE ESTIMATED DISALLOWANCES. THERE IS NO GR OUND FOR INTERFERENCE WITH THE FINDINGS OF THE LEARNED COMMISSIONE R OF INCOME TAX(APPEALS). THUS, GROUNDS NO.1(1) & 1(2) OF THE APPEAL ARE REJEC TED. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT SHOW ANY GOOD REASON TO NOT TO FOLLOW THE ABOVE QUOTED ORDER OF THE TRIBUNAL. IN ABSENCE OF THE SAME AND AS FACTS ARE SIMILAR, WE CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE ADDITION OF RS.1,56,300/- OUT OF STAFF WELFARE EXPENSES AND REJECT THE GROUND OF APPEAL OF THE REVENUE. 10. GROUND NO.2 OF THE APPEAL RELATES TO DELETING THE DISALLOWANCE OF RS.1 LACS OUT OF MISCELLANEOUS EXPENSES. ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 7 - 11. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAS CLAIMED MR EXPENSES OF RS.93,71,660/-. THESE EXPENSES INCLUDE DAILY ALLOWANCES AND OTHER MISCELLANEOUS EXPENSES INCURRED BY THE MEDICAL FIELD STAFF ON VARIOUS TRIPS THEY UNDERTAKE ON DAILY BASIS. IT WAS EXPLAINED BEFORE THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE COMPANY IS MANUFACTURING ONLY PRESCRIPTION DRUGS AND THEREFORE, THE MEDICAL FIELD STAFF HAS TO BE IN CONTINUOUS TOUCH WITH THE DOCTORS TO UPDATE THEM ON THE NEW PRODUCTS BEING INTRODUCED. THE A.A. HAS NOTED THAT THE EXPENSES HAVE BEEN CLAIMED ON THE BASIS OF SELF MADE VOUCHERS SUBMITTED BY THE STAFF. THE LEARNED ASSESSING OFFICER HAS OPINED THAT THERE IS EVERY POSSIBILITY THAT THERE WILL BE EXPENDITURE WHICH WILL NOT BE EXCLUSIVELY FOR THE MR EXPENSES HEAD. TAKING INTO ACCOUNT THE TOTALITY OF EXPENSES, VOLUME AND NATURE OF BUSINESS AND FOR WANT OF COMPLETE VERIFICATION, THE LEARNED ASSESSING OFFICER DISALLOWED RS.1 LAC ON ADHOC BASIS. 12. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE ASSESSEE SUBMITTED THAT THE EXPENSES CONSISTS OF DAILY ALLOWANCES TRAVELLING AND OTHER EXPENSES INCURRED BY FIELD STAFF AND ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 8 - MARKETING EXECUTIVE AND SENIOR MARKETING STAFF. IT WAS EXPLAINED THAT THE COMPANYS PRODUCTS ARE ONLY PRESCRIPTIONS DRUGS AND HENCE, MARKETING STAFF HAS TO BE IN CONSTANT TOUCH WITH DOCTORS IN APPRISING THEM ABOUT THE EXISTING NEW PRODUCTS. IT WAS FURTHER SUBMITTED THAT THE COMPANY HAS OVER 400 PRODUCTS REGISTERED WITH FOOD AND DRUG CONTROLLER OFFICER AND THEREFORE, THE MARKETING REPRESENTATIVE PLAY A CRUCIAL ROLL IN PROMOTING THE PRODUCTS. IT WAS FURTHER SUBMITTED THAT SIMILAR DISALLOWANCE IS M ADE IN ASSESSMENT YEAR 1997-98, 1998-99 AND 2000-01 WAS DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 13. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE LEARNED ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC ITEM OF EXPENDITURE WHICH WAS EITHER NOT VOUCHED OR NOT VERIFIABLE. THEREFORE, LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE ON MERE POSSIBILITIES WHEN THE ASSESSEE COMPANY HAS CLAIMED TO HAVE MAINTAIN COMPLETE ACCOUNTS. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS FURTHER NOTED THAT SIMILAR DISALLOWANCE MADE IN PAST WERE DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). HENCE, THE LEARNED ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 9 - COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DISALLOWANCE OF RS.1 LAC MADE BY THE LEARNED ASSESSING OFFICER. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 15. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE FILED COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 IN ITA NO.1391/AHD/2003 DATED 24.04.2008 AND SUBMITTED THAT SIMILAR DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER AND DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS UPHELD BY THE TRIBUNAL AND THE APPEAL OF REVENUE WAS DISMISSED. FOLLOWING THE SAID ORDER OF THE TRIBUNAL, THE APPEAL OF THE REVENUE IN THE PRESENT YEAR SHOULD ALSO BE DISMISSED. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. THE LEARNED ASSESSING OFFICER MADE DISALLOWANCE OF RS.1 LAC OUT OF M.R. EXPENSES OF RS.93,73,660/- ON THE GROUND THAT THE EXPENSES WERE CLAIMED ON THE BASIS OF SELF MADE VOUCHERS SUBMITTED BY STAFF AND IN HIS OPINION THERE ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 10 - WAS POSSIBILITY THAT EXPENDITURE WILL NOT BE EXCLUSIVELY FOR MR EXPENSES HEAD. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVING THAT THE ASSESSEE HAS MAINTAINED COMPLETE ACCOUNTS AND THAT SIMILAR DISALLOWANCES MADE IN THE PAST HAS BEEN DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DISALLOWANCE MADE BY LEARNED ASSESSING OFFICER. WE FIND THAT SIMILAR DISALLOWANCE WAS DELETED BY LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE ASSESSMENT YEAR 2000-01 AND THE REVENUE HAS FILED APPEAL AGAINST THE SAID ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHICH WAS CONFIRMED BY THE TRIBUNAL AND APPEAL OF THE REVENUE WAS DISMISSED. WHILE DOING SO, THE TRIBUNAL HELD AS UNDER:- 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROU GH THE FACTS OF THE CASE. IT IS NOTICED THAT THE LEARNED ASSESSING OFFICER HAS NOT IDENTIFIED ANY SPECIFIC ITEM OF EXPENDITURE, WHICH WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE TAXPAYER, NECESSITATING D ISALLOWANCE. THE EXPENDITURE HAVING BEEN INCURRED ONLY ON PROVIDI NG TEA, COFFEE ETC. TO STAFF TO MAINTAIN HARMONIOUS RELATIONS WITH THEM IN THE COM PANY THERE WAS NO JUSTIFICATION IN MAKING ESTIMATED DISALLOWANCE LIK EWISE ESTIMATED DISALLOWANCE OUT OF MR EXPENSES IS WITHOUT ANY BASIS. SI NCE, THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY INFIRMITY IN THE FINDS OF LEARNED COMMISSIONER OF INCOME TAX(APPE ALS) IN DELETING THESE ESTIMATED DISALLOWANCES. THERE IS NO GR OUND FOR ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 11 - INTERFERENCE WITH THE FINDINGS OF THE LEARNED COMMISSIONE R OF INCOME TAX(APPEALS). THUS, GROUNDS NO.1(1) & 1(2) OF THE APPEAL ARE REJEC TED. 17. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT SHOW ANY GOOD REASON TO NOT TO FOLLOW THE ABOVE QUOTED ORDER OF THE TRIBUNAL. IN ABSENCE OF THE SAME AND AS FACTS ARE SIMILAR, WE CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETING THE ADDITION OF RS.1,56,300/- OUT OF STAFF WELFARE EXPENSES AND REJECT THE GROUND OF APPEAL OF THE REVENUE. 18. GROUND NO.3 OF THE APPEAL RELATES TO DELETING DISALLOWANCE OF RS. 1,10,29,935/- BEING DEFERRED REVENUE EXPENDITURE. 19. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY CLAIMED DEFERRED REVENUE EXPENSE OF RS.1,10,29,935/- WHICH WAS CAPITALIZED IN THE BOOKS OF ACCOUNT AND 25% OF THE SAME WAS CLAIMED AS REVENUE IN EVERY ASSESSMENT YEAR. THE LEARNED ASSESSING OFFICER OBSERVED THAT FACTS AND CIRCUMSTANCES, BASIS ON WHICH THE DISALLOWANCE HAS BEEN MADE AND CONTENTION OF THE LD. COUNSEL ARE THE SAME AS IN ASSESSMENT YEAR 2000-01. THE ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 12 - LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT IN THE APPEAL FOR ASSESSMENT YEAR 2001-01 DECIDED BY THE APPELLATE ORDER DATED 4.01.2003 IN APPEAL NO.CIT(A)-VIII/AC-4/46/02-03. AFTER CONSIDERING THE RELEVANT FACTS AND CONTENTIONS RAISED BY THE LD. COUNSEL THE POSITION OF LAWS AS DISCUSSED IN DETAIL, THE ASSESSEE COMPANY WAS ENTITLED TO COMPLETE DEDUCTION OF DEFERRED REVENUE EXPENSES. HENCE HE DELETED THE DISALLOWANCE OF RS.1,10,29,935/- 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 21. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE FILED COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 IN ITA NO.1391/AHD/2003 DATED 24.04.2008 AND SUBMITTED THAT SIMILAR DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER AND DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS UPHELD BY THE TRIBUNAL AND THE APPEAL OF REVENUE WAS DISMISSED. FOLLOWING THE SAID ORDER OF THE TRIBUNAL, THE APPEAL OF THE REVENUE IN THE PRESENT YEAR SHOULD ALSO BE DISMISSED. ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 13 - 22. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HAS CLAIMED DEDUCTION FOR DEFERRED REVENUE EXPENDITURE OF RS.1,10,29,935/- WHICH WAS CAPITALIZED IN THE BOOKS OF ACCOUNT AND 25% THEREOF WAS CLAIMED DEDUCTION IN EVERY YEAR. THE LEARNED ASSESSING OFFICER DISALLOWED THE DEDUCTION FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2000-01. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADDITION FOLLOWING THIS ORDER PASSED IN ASSESSMENT YEAR 2000-01. 23. WE FIND THAT SIMILAR DISALLOWANCE WAS DELETED BY LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE ASSESSMENT YEAR 2000-01 AND THE REVENUE HAS FILED APPEAL AGAINST THE SAID ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHICH WAS CONFIRMED BY THE TRIBUNAL AND APPEAL OF THE REVENUE WAS DISMISSED. WHILE DOING SO, THE TRIBUNAL HELD AS UNDER:- 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROU GH THE FACTS OF THE CASE. IT IS NOTICED THAT THE LEARNED ASSESSING OFFICER HAS NOT IDENTIFIED ANY SPECIFIC ITEM OF EXPENDITURE, WHICH WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE TAXPAYER, NECESSITATING D ISALLOWANCE. ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 14 - THE EXPENDITURE HAVING BEEN INCURRED ONLY ON PROVIDI NG TEA, COFFEE ETC. TO STAFF TO MAINTAIN HARMONIOUS RELATIONS WITH THEM IN THE COM PANY THERE WAS NO JUSTIFICATION IN MAKING ESTIMATED DISALLOWANCE LIK EWISE ESTIMATED DISALLOWANCE OUT OF MR EXPENSES IS WITHOUT ANY BASIS. SI NCE, THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY INFIRMITY IN THE FINDS OF LEARNED COMMISSIONER OF INCOME TAX(APPE ALS) IN DELETING THESE ESTIMATED DISALLOWANCES. THERE IS NO GR OUND FOR INTERFERENCE WITH THE FINDINGS OF THE LEARNED COMMISSIONE R OF INCOME TAX(APPEALS). THUS, GROUNDS NO.1(1) & 1(2) OF THE APPEAL ARE REJE CTED. 24. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT SHOW ANY GOOD REASON TO NOT TO FOLLOW THE ABOVE QUOTED ORDER OF THE TRIBUNAL. IN ABSENCE OF THE SAME AND FACTS ARE SIMILAR, WE CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE ADDITION OF RS.1,56,300/- OUT OF STAFF WELFARE EXPENSES AND REJECT THE GROUND OF APPEAL OF THE REVENUE. 25. GROUND NO.4 OF THE APPEAL RELATES TO DELETING DISALLOWANCE OF RS.45,12,259/- BEING CAPITAL EXPENDITURE CLAIMED AS REVENUE EXPENDITURE. 26. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER HAS NOTED IN THE ASSESSMENT ORDER THAT THE REPAIR EXPENSES OF ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 15 - RS.45,12,259/- WERE CLAIMED AS REVENUE EXPENDITURE IN THE RETURN OF INCOME ALTHOUGH SUCH EXPENSES WERE CLAIMED AS CAPITAL EXPENSES IN THE BOOKS OF ACCOUNT MAINTAINED BY IT. AFTER DISCUSSING VARIOUS CASE LAWS ON THE SUBJECT, THE LEARNED ASSESSING OFFICER HELD THAT THE ASSESSEES CLAIM OF REPAIRS EXPENSES AS REVENUE IS NOT CORRECT AS THE ASSESSEES ACCOUNTS ARE MAINTAINED ON THE BASIS OF ACCOUNTING STANDARDS AND THEREFORE, THERE WAS NO BASIS TO CLAIM ANY EXPENSES OR INCOME DIFFERENT THEN THE ACCOUNT UNLESS INCOME TAX ACT SPECIFICALLY PROVIDES SO. HE THEREFORE, HELD THAT THE CAPITAL EXPENSES ARE NOT ALLOWABLE AS REVENUE EXPENSES. 27. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAS INCURRED EXPENSES OF RS.45,12,259 ON REPAIRS OF BUILDING, ROADS ETC.. IT WAS EXPLAINED THAT THE EXPENSES HAVE BEEN INCURRED ON FILING OF CRACKS, PLASTERING AND RE-PLASTERING OF PLANT BUILDING WHICH WAS DAMAGED DURING THE EARTHQUAKE. IT WAS CONTENTED THAT BY ITS VERY NATURE THE EXPENSES WERE OF REVENUE IN NATURE AND THE ASSESSEE COMPANY BY INCURRING SUCH ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 16 - EXPENSES NEVER ACQUIRED ANY NEW ASSET BUT THE EXPENSES WERE INCURRED FOR MAINTAINING THE ASSET. IT WAS CONTENDED THAT IF THE EXPENSES ARE OF REVENUE NATURE THEY ARE TO BE ALLOWED IRRESPECTIVE OF THE FACT THAT THE EXPENSES HAVE BEEN CAPITALIZED IN THE BOOKS OF ACCOUNTS. IT WAS POINTED OUT THAT THE ALLOWANCE OR DISALLOWANCE OF EXPENSES IS GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT, AND NOT BY THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE. IT WAS CONTENDED THAT THE PROVISIONS OF INCOME TAX ACT SHOULD PREVAIL OVER THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. THE LD. COUNSEL REFERRED TO THE DECISIONS OF THE HON'BLE CULCUTTA HIGH COURT IN THE CASE OF CIT VS/ BERGER PAINTS (INDIA) LTD. [254 ITR 503] WHEREIN CERTAIN EXPENSES WERE CAPITALIZED IN THE BOOKS OF ACCOUNTS BUT WERE CLAIMED AS REVENUE EXPENSES IN THE RETURN. THE HON'BLE HIGH COURT HELD THAT IF THE EXPENSES WERE ONLY OF REVENUE INCOME THEY SHOULD BE ALLOWED AS DEDUCTION AND TREATMENT GIVEN IN THE BOOKS OF ACCOUNTS WAS NOT RELEVANT. THE LD. COUNSEL FOR THE ASSESSEE ALSO REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT [82 ITR 363] WHEREIN IT HAS BEEN HELD THAT IF UNDER THE INCOME TAX ACT THE ASSESSEE IS ENTITLED TO TREAT A ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 17 - SUM AS REVENUE EXPENDITURE THEN THE LEGAL RIGHT OF THE ASSESSEE IS NOT SELF STOPPED BY THE TREATMENT GIVEN BY HIM IN THE BOOKS OF ACCOUNT. 28. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HELD THAT THE LEARNED ASSESSING OFFICER HAS DISALLOWED THE EXPENSES ONLY ON THE GROUND THAT SUCH EXPENSES WERE CAPITALIZED IN THE BOOKS OF ACCOUNTS. THE LEARNED ASSESSING OFFICER HAS NOT DISCUSSED OR TAKEN INTO CONSIDERATION THE ACTUAL NATURE OF THE EXPENSES. AS EXPLAINED BY THE LD. COUNSEL, THE EXPENSES WERE INCURRED ON REPAIRS OF BUILDING AND ROAD CAUSED DURING THE EARTHQUAKE. BY EFFECTING SUCH REPAIRS THE ASSESSEE COMPANY DID NOT ACQUIRE ANY NEW ASSET AND THE EXPENSES WERE INCURRED FOR THE MAINTENANCE OF THE EXISTING ASSET. IT CANNOT BE SAID THAT THE EXPENDITURE SO INCURRED BROUGHT INTO EXISTENCE ANY NEW ASSET OR ANY BENEFIT OF ENDURING NATURE. THE NATURE OF THE EXPENSES WERE DEFINITELY OF REVENUE AND THEREFORE, THE ASSESSEE COMPANY WAS JUSTIFIED IN CLAIMING EXPENSES AS REVENUE EXPENDITURE. IN VIEW OF THE CASE LAWS CITED BY THE LD. COUNSEL, HE HELD THAT THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 18 - REJECTING THE CLAIM OF THE ASSESSEE COMPANY MERELY ON THE GROUND THAT SUCH EXPENSES HAVE BEEN CAPITALIZED IN THE BOOKS OF ACCOUNTS. THE DISALLOWANCE OF RS.45,12,259/- IS THEREFORE, DELETED. 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE CLAIMED DEDUCTION OF RS.45,12,259/- AS EXPENDITURE INCURRED FOR REPAIRING OF BUILDING IN ITS RETURN OF INCOME WHICH WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAS SHOWN THE EXPENDITURE IN QUESTION AS CAPITAL EXPENDITURE IN ITS BOOKS OF ACCOUNT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FINDING THAT EXPENDITURES WERE INCURRED FOR REPAIRING OF CRACKS AND PLASTERING DAMAGED DUE TO EARTHQUAKE AND NO NEW ASSET WAS ACQUIRED BY THE ASSESSEE DELETED THE DISALLOWANCE. WE FIND THAT THE REVENUE HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT BY INCURRING THE EXPENDITURE IN QUESTION THE ASSESSEE ACQUIRED ANY NEW ASSET. THE CONTENTION OF THE REVENUE THAT THE ASSESSEE HAS TREATED THE EXPENDITURE IN ITS BOOKS OF ACCOUNT AS CAPITAL EXPENDITURE AND HENCE CANNOT BE ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 19 - ALLOWED AS REVENUE EXPENDITURE IS NOT CORRECT. WE AGREE WITH THE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT ALLOWING OR OTHERWISE OF THE EXPENDITURE DOES NOT DEPEND UPON THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT BUT DEPENDS UPON THE ACTUAL NATURE OF THE EXPENSES. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS FURTHER RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SRI MANGAYAYKARASI MILLS P. LTD. (2009) 315 ITR 114(SC) TO SUPPORT THE ACTION OF THE LEARNED ASSESSING OFFICER. WE FIND THAT IN THAT CASE BEFORE HON'BLE SUPREME COURT IT WAS HELD THAT EXPENDITURE INCURRED FOR REPLACEMENT OF OLD MACHINERY WAS NOT ALLOWABLE AS REVENUE EXPENDITURE. THE FACTS OF THE CASE BEFORE THE SUPREME COURT ARE QUITE DISTINGUISHABLE FROM THE FACTS OF THE INSTANT CASE WHEREIN THERE IS NO MATERIAL TO SHOW THAT EXPENDITURE WAS INCURRED FOR ACQUIRING OF ANY NEW ASSET EITHER BY WAY OF REPLACEMENT OF ANY OLD ASSET OR OTHERWISE. THUS IN OUR CONSIDERED VIEW THE ABOVE DECISION DOES NOT SUPPORT THE CASE OF THE REVENUE. IN THE ABOVE FACTS WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 20 - C.O. NO.1 C.O. NO.1 C.O. NO.1 C.O. NO.138/AHD/2007 38/AHD/2007 38/AHD/2007 38/AHD/2007 30. GROUND NO.1 OF THE CROSS OBJECTION, RELATES TO REDUCING 90% OF THE OTHER INCOME OF RS.83,11,571/- FROM THE BUSINESS PROFITS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 31. THE BRIEF FACTS OF THE CASE ARE THAT WHILE COMPUTING THE DEDUCTION THE LEARNED ASSESSING OFFICER DEDUCTED 90% OF OTHER INCOME OF RS.83,11,571/- WHICH WORKED OUT RS.74,79,900/- IN ACCORDANCE WITH CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC OF THE ACT. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER. 32. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE OTHER INCOME COMPRISES OF FOLLOWING AMOUNTS. EXPORT INCENTIVE RS.21,55,735=00 INTEREST ON F.D. RS. 5,35,426=00 CONTRACT MANUFACTURING RS.16,37,952=00 INTEREST INCOME RS. 2,500=00 ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 21 - C&F STOCKIST INTEREST RS. 7,39,659=00 RENT INCOME RS.13,20,000=00 OTHER MISC. INCOME RS.19,20,000=00 TOTAL RS.83,11,571=00 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT HE ONLY WANTS THAT NETTING OF EXPENDITURE SHOULD BE ALLOWED AGAINST INTEREST ON FIXED DEPOSIT RS.5,35,426/-, CONTRACT MANUFACTURING RS.16,37,952/-, INTEREST INCOME OF RS.2,500/-, C&F STOCKIST INTEREST RS.7,39,659/-, IN VIEW OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SHRI RAM HONDA POWER EQUIP. & OTHERS (2007) 289 ITR 275 (DEL.). AS THE RELEVANT FACTS FOR T HE SAME ARE NOT AVAILABLE ON RECORD THEREFORE THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR RE-ADJUDICATING THE SAME. 33. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO HAD NO OBJECTION TO THE SUBMISSION MADE BY LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 22 - 34. AFTER HEARING THE RIVAL SUBMISSIONS, WE FIND THAT NON OF THE LOWER AUTHORITIES HAVE EXAMINED THE ISSUE OF NETTING OF EXPENDITURE AGAINST THE ABOVE INCOME IN THE LIGHT OF THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SHRI RAM HONDA POWER EQUIP. & OTHERS (2007) 289 ITR 275 (DEL.). AS BOTH THE SIDES HAVE AGREED THAT THE MATTER SHOULD BE SENT BACK TO THE LEARNED ASSESSING OFFICER FOR RE-ADJUDICATION OF THE ISSUE IN LIGHT OF THE ABOVE DECISION OF THE HON'BLE DELHI HIGH COURT WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR RE-ADJUDICATING THE ISSUE AFRESH IN THE LIGHT OF THE ABOVE DECISION OF DELHI HIGH COURT AS PER LAW AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THIS GROUND OF CROSS OBJECTION IS ALLOWED FOR STATISTICAL PURPOSES. 35. THE OTHER GROUNDS OF CROSS OBJECTION TAKEN BY THE ASSESSEE REGARDING DENYING DEDUCTION UNDER SECTION 80JJA OF RS.17,10,847/- CHARGING OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT AND INITIATION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT WERE NOT PRESSED ITA NO .919/AHD/2004 C.O.NO.138/ AHD/2007 M/S.INTAS PHARMAC EUTICAL LTD. ASST.YEAR -2001-02 - 23 - BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE AND THEREFORE, THEY ARE DISMISSED AS NOT PRESSED. 36. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18/09/2009. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - ( ( ( ( H.L. KARWA H.L. KARWA H.L. KARWA H.L. KARWA ) )) ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) JUDICIA JUDICIA JUDICIA JUDICIAL MEMBER ACCOUN TANT MEMBER L MEMBER ACCOUNTANT ME MBER L MEMBER ACCOUNTANT ME MBER L MEMBER ACCOUNTANT ME MBER AHMEDABAD; DATED 18/09/ 2009 COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO : :: : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD