M/S JOHNSON & JOHNSON LTD., V. THE ADDL CIT RG 5(2),

ITA 9437/MUM/2004

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1715 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 11-02-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 24-12-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Keywords: Depreciation; Earning of tax free income; Fair market value; Revenue expenditure; Capital expenditure
• Section: 5(2); 80HHC; 14A

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI .. , ! '# $ $ $ $ .$. # , % '#, & BEFORE SHRI R.K.GUPTA, JM AND SHRI R.S.SYAL, AM ITA NOS.3289 & 9437/MUM/2004 ASST.YEARS 2000-2001 & 2001-2002 M/S.JOHNSON & JOHNSON LIMITED 30 FORJETT STREET MUMBAI 400 036. PAN : AAACJ0866E. THE ADDL.COMMISSIONER OF INCOME-TAX RANGE 5(2) MUMBAI. ( '( / // / APPELLANT) * * * * / VS. ( +,'(/ RESPONDENT) ITA NOS.2774 & 9106/MUM/2004 ASST.YEARS 2000-2001 & 2001-2002 THE ADDL.COMMISSIONER OF INCOME-TAX RANGE 5(2) MUMBAI. M/S.JOHNSON & JOHNSON LIMITED 30 FORJETT STREET MUMBAI 400 036. ( '( / // / APPELLANT) * * * * / VS. ( +,'(/ RESPONDENT) REVENUE BY : SHRI S.D.SRIVASTAVA CIT(DR) ASSESSEE BY : S/SHRI RAJAN R.VORA & NIKHIL TIWARI * - .% / / / / DATE OF HEARING : 11.02.2013 /01 - .% / DATE OF PRONOUNCEMENT : 15.02.2013 '2 '2 '2 '2 / / / / O R D E R PER R.S.SYAL (AM) : THESE TWO SETS OF CROSS APPEALS RELATE TO ASSESSME NT YEARS 2000- 2001 AND 2001-2002. SINCE SOME OF THE ISSUES RAISED IN THESE APPEALS ARE COMMON, WE ARE, THEREFORE, PROCEEDING TO DISPOS E THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 2 ASSESSMENT YEAR 2000-2001 2. FIRST GROUND OF THE ASSESSEES APPEAL IS AGAINST THE CONFIRMATION OF ADDITION ON ACCOUNT OF SALES MADE TO JOHNSON & J OHNSON EXPORTS LIMITED OF ` 68,41,258. 3. AT THE VERY OUTSET THE LEARNED COUNSEL FOR THE A SSESSEE CONTENDED THAT SIMILAR ISSUE WAS RAISED IN ASSESSEE S OWN CASE FOR ASSESSMENT YEARS 1997-98 AND 1998-99. PLACING ON RE CORD A COPY OF THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.2679/MUM /2003 AND 2680/MUM/2003 DATED 18 TH JANUARY, 2013, THE LEARNED AR CONTENDED THAT THE TRIBUNAL WAS PLEASED TO RESTORE THIS ISSUE TO THE FILE OF A.O. WITH CERTAIN DIRECTIONS. THE LEARNED DEPARTMENTAL R EPRESENTATIVE FAIRLY CONCEDED THAT THE FACTS AND CIRCUMSTANCES OF THIS GROUND ARE SIMILAR TO THOSE OF EARLIER YEARS ALREADY DECIDED B Y THE TRIBUNAL. RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMIT THE MATTER TO THE FIL E OF A.O. FOR DECIDING IT AFRESH IN CONFORMITY WITH THE OBSERVATI ONS MADE BY THE TRIBUNAL IN THE AFORE-NOTED ORDER FOR EARLIER YEARS . 4. THE SECOND GROUND IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF ` 69,71,705 ON ACCOUNT OF MODVAT EXCISE DUTY CREDIT. 5. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS A ND CIRCUMSTANCES OF THIS GROUND ARE SIMILAR TO THE GROUND RAISED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1999-2000, WHICH HAS BEEN D ISPOSED OFF BY THE TRIBUNAL VIDE ITS ABOVE REFERRED ORDER DATED 18 TH JANUARY, 2013. IT ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 3 IS OBSERVED THAT THE TRIBUNAL HAS RESTORED THE MATT ER TO THE FILE OF A.O. FOR RE-WORKING THE DISALLOWANCE, IF ANY, SUBJE CT TO CERTAIN VERIFICATIONS SET OUT IN THE ORDER. RESPECTFULLY FO LLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMIT THE MATTER TO THE FILE OF A.O. FOR DECIDING IT IN CONFO RMITY WITH THE VIEW TAKEN BY THE TRIBUNAL IN ITS ORDER FOR ASSESSMENT Y EAR 1999-2000. 6. THIRD GROUND OF THE ASSESSEES APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF ` 63,42,497 BEING PROVISION FOR EXECUTIVE RETIREMENT SCHEME (ERS). 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED FROM TH E CHART PREPARED BY THE ASSESSEE ON THE GROUNDS OF APPEAL AND SHOWING H OW SUCH GROUNDS ARE COVERED, THAT THIS ISSUE ALSO CAME UP BEFORE TH E TRIBUNAL IN ITS APPEAL FOR ASSESSMENT YEAR 1997-98 TO 1999-2000. TH E TRIBUNAL HAS DIRECTED TO ALLOW DEDUCTION FOR EXECUTIVE RETIREMEN T SCHEME ON THE `PAYMENT BASIS AS AGAINST THE `PROVISION BASIS CL AIMED BY THE ASSESSEE. THE SAME DIRECTION IS REPEATED FOR THIS Y EAR AS WELL. EVENTUALLY THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF A.O. FOR ALLOWING DEDUCTION OF PAYMENT MADE ON ERS. 8. GROUND NO.4 OF THE APPEAL IS AGAINST THE SUSTENA NCE OF PART OF DISALLOWANCE OF DEDUCTION U/S 80-IB FROM ` 4.92 CRORE TO ` 4.87 CRORE. ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 4 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT TH E TRIBUNAL HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE IN THE AFOR E-NOTED ORDER FOR ASSESSMENT YEAR 1997-98. IN THE ABSENCE OF ANY DIST INGUISHING FEATURE ON THE FACTS OF THIS GROUND VIS--VIS THE EARLIER YEAR, WE APPROVE THE VIEW TAKEN BY THE LEARNED CIT(A). THIS GROUND IS NO T ALLOWED. 10. GROUND NO.5 OF THE ASSESSEES APPEAL AND GROUND NO.3 OF THE REVENUES APPEAL ARE AGAINST THE PROVISION OF CASH DISCOUNT. THE LEARNED AR SUBMITTED THAT SIMILAR ISSUE WAS THERE I N ASSESSEES APPEAL FOR ASSESSMENT YEAR 1999-2000 AND THE TRIBUN AL HAS DIRECTED TO GRANT DEDUCTION OF CASH DISCOUNT ON `PAYMENT BAS IS AS AGAINST THE `PROVISION BASIS. THE LEARNED DEPARTMENTAL REPRESE NTATIVE ALSO ACCEPTED THIS POSITION. FOLLOWING THE DECISION OF T HE TRIBUNAL FOR THE SAID EARLIER YEAR, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF A.O. FOR DECIDING IT IN CONFO RMITY WITH THE VIEW TAKEN BY THE TRIBUNAL IN SUCH EARLIER YEAR IN ALLOW ING DEDUCTION OF CASH DISCOUNT TO THE EXTENT OF ACTUAL PAYMENT. 11. GROUND NO.6 OF THE ASSESSEES APPEAL IS AGAINST CONFIRMATION OF DISALLOWANCE OF ` 6,91,719 AS ESTIMATED EXPENDITURE AT THE RATE OF 2% OF THE TOTAL DIVIDEND CLAIMED AS EXEMPT FROM TAX. T HE ASSESSEE CLAIMED EXEMPTION OF ` 3.45 CRORE IN RESPECT OF DIVIDEND INCOME U/S 10(33) OF THE ACT. AS NO DISALLOWANCE WAS OFFERED B Y THE ASSESSEE TOWARDS EXPENSES INCURRED IN EARNING SUCH EXEMPT IN COME, THE ASSESSING OFFICER DISALLOWED 2% OF THE GROSS DIVIDE ND AS INCIDENTAL ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 5 EXPENSES FOR EARNING OF SUCH DIVIDEND. THE LEARNED CIT(A) UPHELD THE ACTION OF THE A.O. 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT TH E ASSESSEE HAS RELIED ON THE ORDER PASSED BY THE TRIBUNAL FOR EARLIER YEA RS IN WHICH THE SUSTENANCE OF DISALLOWANCE OF EXPENSES IN THE CONTE XT OF DEDUCTION U/S 80M OF THE ACT HAS BEEN SET ASIDE. IN OUR CONSI DERED OPINION THE RATIO OF THE TRIBUNAL ORDER FOR THE EARLIER YEARS C ANNOT BE APPLIED TO THE FACTS OF THE INSTANT CASE INASMUCH AS THERE IS NO QUESTION OF DEDUCTION U/S 80M IN RESPECT OF DIVIDEND IN THE INS TANT YEAR. RATHER IT IS A CASE OF EXEMPT DIVIDEND RECEIVED BY THE ASSESS EE. ONLY WHEN A PARTICULAR INCOME IS OTHERWISE TAXABLE AND ENTERS I NTO THE COMPUTATION OF TOTAL INCOME, THAT IT CAN QUALIFY FO R DEDUCTION UNDER CHAPTER VI-A AS PER THE RELEVANT PROVISIONS. IF AN INCOME IS EXEMPT IN ITSELF, THEN THERE IS NO POINT OF INCLUDING SUCH INCOME IN THE TOTAL INCOME AND THEREAFTER GRANTING DEDUCTION. IN THE PR ESENT APPEAL WE ARE CONCERNED WITH THE ASSESSEE EARNING EXEMPT DIVI DEND INCOME AND NOT CLAIMING DEDUCTION U/S 80M. OBVIOUSLY, PROVISIO NS OF SECTION 14A WOULD APPLY IN RESPECT OF EXEMPT DIVIDEND INCOM E U/S 10(33) OF THE ACT. IN OUR CONSIDERED OPINION THE AUTHORITIES BELOW WERE MORE THAN JUSTIFIED IN DISALLOWING A MERE 2% OF THE GROS S DIVIDEND AS INCIDENTAL EXPENSES FOR EARNING EXEMPT INCOME. THIS GROUND IS NOT ALLOWED. ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 6 13. GROUND NO.7 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF DEDUCTION U/S 80HHC ON RENT. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT SI MILAR ISSUE WAS RAISED IN THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 1999-2000 ALSO. THE TRIBUNAL, FOLLOWING THE JUDGMENT OF THE HONBL E SUPREME COURT IN THE CASE OF ACG ASSOCIATE CAPSULES PRIVATE LIMITED V. CIT [343 ITR 89 (SC)] , HAS HELD THAT NETTING OFF OF RENT PAID SHOULD BE DONE AGAINST THE RENT RECEIVED AND ONLY 90% OF SUCH NET RENT INCOME SHOULD BE CONSIDERED FOR DISALLOWANCE U/S 80HHC. A S THE FACTS OF THE PRESENT GROUND ARE ADMITTEDLY SIMILAR TO THOSE OF THE EARLIER YEARS, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTE R TO THE AO FOR DECIDING THIS ISSUE IN ACCORDANCE WITH THE VIEW TAK EN BY THE TRIBUNAL IN ITS ORDER FOR THE EARLIER YEARS. 15. GROUND NO.8 IS AGAINST THE CONFIRMATION OF DISA LLOWANCE U/S 80HHC IN RESPECT OF MISCELLANEOUS INCOME AND SERVIC E CHARGES. IT IS NOTICED THAT THE ASSESSING OFFICER MADE DISALLOWANC E U/S 80HHC IN RESPECT OF MISCELLANEOUS INCOME AND SERVICE CHARGES ETC. WHICH CAME TO BE UPHELD IN FIRST APPEAL. THE LEARNED AR H AS RELIED ON CERTAIN ORDERS PASSED BY THE TRIBUNAL IN RESPECT OF EACH OF THE ITEMS COMPRISING OF SUCH INCOME ON WHICH DEDUCTION U/S 80 HHC HAS BEEN DENIED. IT WAS REQUESTED THAT THE MATTER MAY BE SEN T BACK TO THE FILE OF A.O. FOR DECIDING THIS ISSUE AFRESH ITEM-WISE BY CO NSIDERING SUCH TRIBUNAL ORDERS. THE LEARNED DEPARTMENTAL REPRESENT ATIVE DID NOT ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 7 RAISE ANY OBJECTION TO SUCH FRESH DECISION, BUT REQ UESTED FOR NOT BINDING THE AO WITH ANY PARTICULAR DIRECTION. WE FI ND THAT SUCH DISALLOWANCE HAS COME UP FOR THE FIRST TIME IN THE YEAR UNDER CONSIDERATION. AS BOTH THE SIDES ARE UNANIMOUS ON T HE RESTORATION OF THIS MATTER TO THE FILE OF A.O., WE SET ASIDE THE I MPUGNED ORDER ON THIS ISSUE AND REMIT THE MATTER TO THE FILE OF A.O. FOR DECIDING IT AS PER LAW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. 16. GROUND NO.1 OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION ON ACCOUNT OF SALES MADE TO JOHNSON & JOHN SON EXPORTS LIMITED. 17. BOTH THE SIDES AGREE THAT THE FACTS AND CIRCUMS TANCES OF THIS GROUND ARE SIMILAR TO THE GROUNDS RAISED IN APPEALS FOR ASSESSMENT YEARS 1997-98 TO 1999-2000 IN WHICH THE TRIBUNAL RE MITTED THE MATTER TO THE FILE OF A.O. GIVING CERTAIN DIRECTION S. IN THE ABSENCE OF ANY DISTINGUISHING FACTS HAVING BEEN BROUGHT TO OUR NOTICE, RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMIT THE MATTER TO THE FILE OF A .O. FOR DECIDING IT IN CONFORMITY WITH THE DIRECTIONS CONTAINED IN THE AFO RE-NOTED TRIBUNAL ORDER. 18. GROUND NO.2 IS AGAINST DELETION OF ADDITION OF ` 2,41,52,480 ON PRODUCTION OF AD FILMS WHICH WAS TREATED BY THE A.O . AS CAPITAL EXPENDITURE BUT REVENUE EXPENDITURE BY THE LEARNED CIT(A). HERE ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 8 AGAIN WE FIND THAT SIMILAR ISSUE WAS RAISED IN THE APPEALS FOR THE ASSESSMENT YEARS 1997-98 TO 1999-2000. THE TRIBUNAL DECIDED THIS ISSUE IN ASSESSEES FAVOUR BY FOLLOWING CERTAIN OTH ER EARLIER ORDERS PASSED IN ASSESSEES OWN CASE. FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. 19. GROUND NO.4 IS AGAINST THE EXCLUSION OF EXCISE DUTY AND TRADE DISCOUNT FROM TOTAL TURNOVER FOR DEDUCTION U/S 80HH C. HERE AGAIN BOTH THE SIDES ARE UNANIMOUS IN THEIR SUBMISSION TH AT THE TRIBUNAL HAS DECIDED THIS ISSUE IN ASSESSEES FAVOUR IN ITS ORDE R FOR ASSESSMENT YEARS 1997-98 TO 1999-2000 BY RELYING ON THE JUDGME NT OF THE HONBLE SUPREME COURT IN THE CASE OF LAKSHMI MACHINE WORKS [290 ITR 667 (SC)] . FOLLOWING THE VIEW TAKEN BY THE TRIBUNAL IN EARLI ER YEAR, WE APPROVE THE IMPUGNED ORDER ON THIS ISSUE. 20. GROUND NO.5 IS AGAINST ALLOWING DEPRECIATION OF ` 16,10,654 ON TESTING EQUIPMENT. 21. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT SIMILAR ISSUE WAS RAISED IN THE CASE OF ASSESSEES SISTER C ONCERN, NAMELY, NR JET ENTERPRISES LIMITED AND THE TRIBUNAL VIDE ITS ORDER DATED 28 TH MAY, 2008 IN ITA NO.4474/MUM/2004 HAS HELD THAT DEP RECIATION SHOULD BE ALLOWED ON THE TESTING EQUIPMENT PROVIDED TO LABORATORIES AND HOSPITALS FREE OF CHARGE AS THE SAID EQUIPMENTS HAVE BEEN PROVIDED TO THE LABORATORIES AND HOSPITALS FOR MAKI NG PROFIT FROM THE SALE OF SLIDES. THE LEARNED DEPARTMENTAL REPRESENTA TIVE DID NOT ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 9 CONTROVERT THIS POSITION. RESPECTFULLY FOLLOWING TH E TRIBUNAL ORDER PASSED IN ANOTHER GROUP CONCERN OF THE ASSESSEE, WH OSE FACTS HAVE NOT BEEN DISTINGUISHED BY THE LD. DR, WE UPHOLD THE IMP UGNED ORDER ON THIS ISSUE. 22. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND THAT OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPO SES. ASSESSMENT YEAR 2001-2002 23. GROUND NO.1 OF THE ASSESSEES APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF MODVAT EXCISE DUTY CREDIT. THIS GROUND IS SIMILAR TO GROUND NO.2 FOR THE ASSESSMENT YEAR 2000 -2001 DECIDED ABOVE. WE HAVE RESTORED THE MATTER TO THE FILE OF A .O. FOR RE-WORKING THE AMOUNT OF DISALLOWANCE, IF ANY. SAME VIEW IS DI RECTED TO BE TAKEN BY THE A.O. IN THIS YEAR ALSO. THE IMPUGNED ORDER I S SET ASIDE AND THE MATTER IS REMITTED TO A.O. 24. GROUND NO.2 IS AGAINST THE CONFIRMATION OF DISA LLOWANCE OF ` 83,64,707 TOWARDS EXECUTIVE RETIREMENT SCHEME (ERS) . 25. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT IN THE SA ID APPEAL FOR ASSESSMENT YEAR 2000-2001, WE HAVE DIRECTED THE ASS ESSING OFFICER TO ALLOW DEDUCTION ON `PAYMENT BASIS AS AGAINST TH E `PROVISION BASIS CLAIMED BY THE ASSESSEE. HOWEVER, IT IS IMPORTANT TO NOTE THAT SECTION 35DDA HAS BEEN INSERTED BY THE FINANCE ACT, 2001 WI TH EFFECT FROM 01.04.2001. THIS SECTION PROVIDES FOR AMORTIZATION OF EXPENDITURE ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 10 INCURRED UNDER VOLUNTARY RETIREMENT SCHEME (VRS) . AS PER THIS SECTION, THE ENTIRE AMOUNT OF EXPENDITURE INCURRED ON VRS CANNOT BE ALLOWED AS DEDUCTION IN THE FIRST YEAR. ONLY 1/5 TH OF THE SAME IS TO BE DEDUCTED IN FIRST YEAR AND THEN EQUAL AMOUNTS IN FO UR IMMEDIATELY SUCCEEDING PREVIOUS YEARS. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE PROVISIONS OF SECTION 35DDA ARE NOT APPLICABLE AS ERS IS DIFFERENT FROM VRS. WE FIND NO DISCUSSION ON THE FACTS OF THE INSTANT GROUND IN THE ORDERS OF THE AUTHORITIES BEL OW. SINCE SECTION 35DDA HAS BEEN INSERTED BY THE FINANCE ACT, 2001, W HICH IS RELEVANT FROM ASSESSMENT YEAR 2001-2002, WE THEREFORE, SET A SIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF A.O. FOR DECIDING THIS ISSUE AFRESH IN THE LIGHT OF SECTION 35DDA, IF APPLICABLE. 26. GROUND NO.3 OF THE ASSESSEES APPEAL AND GROUND NO.2 OF THE REVENUES APPEAL ARE AGAINST THE PROVISION OF CASH DISCOUNT. WE HAVE DEALT WITH THIS ISSUE IN THE APPEALS FOR THE ASSES SMENT YEAR 2000- 2001, BY WHICH THE MATTER HAS BEEN RESTORED TO THE FILE OF A.O. FOR ALLOWING DEDUCTION OF CASH DISCOUNT ON ACTUAL PAYME NT BASIS. AS THE FACTS AND CIRCUMSTANCES OF THESE GROUNDS CONTINUE T O REMAIN THE SAME, WE DIRECT THE A.O. TO DECIDE THIS ISSUE IN CO NFORMITY WITH OUR DIRECTION IN THE SAID EARLIER YEAR. THE IMPUGNED OR DER IS, THEREFORE, SET ASIDE TO THIS EXTENT. 27. GROUND NO.4 OF THE ASSESSEES APPEAL AND GROUND NO.5 OF THE REVENUES APPEAL ARE AGAINST CONFIRMATION/DELETION OF DISALLOWANCE OF PAYMENTS MADE TO THE PERSONS SPECIFIED U/S 40A(2 )(B). THE ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 11 ASSESSING OFFICER OBSERVED THAT THE ASSESSEE PAID R OYALTY AND ALSO PURCHASED FINISHED GOODS FROM ITS SISTER CONCERNS. ON BEING CALLED UPON TO PROVE THAT THE PAYMENTS TO SISTER CONCERNS WERE NOT EXCESSIVE OR UNREASONABLE, THE ASSESSEE SUBMITTED THAT ROYALT Y WAS PAID TO JOHNSON & JOHNSON, USA AND PURCHASE OF FINISHED GOO DS WERE MADE FROM ITS SISTER CONCERNS. THE ASSESSEE SUBMITTED TH AT THERE WERE NO MARKET COMPARABLES FOR THE PURCHASE OF SUCH GOODS. THE ASSESSING OFFICER MADE DISALLOWANCE AT THE RATE OF 10% OF SUC H PAYMENTS ON THE GROUND THAT THE ASSESSEE DID NOT PROVE THAT THE PAYMENTS WERE NOT EXCESSIVE. THE LEARNED CIT(A) UPHELD THE DISALLOWAN CE OF `7,19,551, BEING 10% OF PAYMENTS MADE TO THE SISTER CONCERNS, BUT DELETED THE DISALLOWANCE ON ACCOUNT OF ROYALTY. BOTH THE SIDES ARE IN APPEAL AGAINST THEIR RESPECTIVE STANDS. 28. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT AS PER SE CTION 40A(2)(B) IS ACTIVATED FOR MAKING DISALLOWANCE WHERE THE ASSESSE E INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MA DE TO THE RELATED PARTIES AND THE A.O. IS OF THE OPINION THAT SUCH EX PENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF GOODS, SERVICES OR FACILITIES. IN ORDER TO MAKE ANY DISALLOWANCE U/S 40A(2)(B), IT IS FOR THE A.O. TO BRING ON RECORD SO ME MATERIAL TO INDICATE THAT THE PAYMENT WAS IN FACT EXCESSIVE HAV ING REGARD TO THE FAIR MARKET VALUE OF GOODS OR SERVICES FOR THE LEGI TIMATE NEEDS OF THE BUSINESS. IN SO FAR AS ROYALTY PAYMENT IS CONCERNE D, IT IS OBSERVED THAT THE ASSESSEE MADE PAYMENT TO JOHNSON & JOHNSON , USA AFTER ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 12 DUE APPROVAL FROM RBI. IF THE RBI HAS GIVEN APPRO VAL TO SUCH PAYMENT, THE AO, WITHOUT ANY COGENT MATERIAL, CANNO T TAKE A STAND THAT SUCH PAYMENT WAS EXCESSIVE. IN OUR CONSIDERED OPINION, THE LD. CIT(A) WAS JUSTIFIED IN DELETING DISALLOWANCE TO TH IS EXTENT. NOW, WE TURN TO THE SUSTENANCE OF DISALLOWANCE AT 10% OF TH E VALUE OF GOODS PURCHASED FROM SISTER CONCERNS. A BARE PERUSAL OF SECTION 40A(2)(B) REVEALS THAT DISALLOWANCE CAN BE MADE WHEN THE PAYM ENT IS SHOWN TO HAVE BEEN MADE EXCESSIVE. THE ONUS IS ON THE AO TO DEMONSTRATE THAT THE PAYMENT WAS EXCESSIVE. THERE IS NO WARRANT FOR MAKING ANY DISALLOWANCE UNDER THIS SECTION WITHOUT POINTING OU T AS TO HOW PAYMENT WAS EXCESSIVE. WHEN WE ADVERT TO THE FACTS O F THE INSTANT CASE WE FIND THAT THERE IS REALLY NO MENTION BY THE AUTHORITIES BELOW AS TO THE EXCESSIVE AMOUNT OF PAYMENT MADE BY THE A SSESSEE FOR PURCHASES MADE FROM ITS TWO SISTER CONCERNS. WE, TH EREFORE, OVERTURN THE IMPUGNED ORDER ON THIS ISSUE AND DIRECT TO DELE TE THE DISALLOWANCE. 29. GROUND NO.5 IS AGAINST THE CONFIRMATION OF DISA LLOWANCE TOWARDS PROVISION FOR BONUS AT ` 25,45,215. THIS GROUND IS NOT PRESSED BY THE LEARNED AR. THE SAME IS, THEREFORE, DISMISSE D. 30. GROUND NO.6 IS AGAINST NOT ALLOWING FULL AMOUNT OF DEDUCTION U/S 80-IB. THIS GROUND HAS BEEN DECIDED AGAINST THE ASSESSEE IN EARLIER YEARS. THE SAME VIEW IS REPEATED AND THE IM PUGNED ORDER IS UPHELD. ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 13 31. OTHER PART OF GROUND NO.6 IS AGAINST DENIAL OF DEDUCTION U/S 80- IB ON CERTAIN ITEMS OF MISCELLANEOUS INCOME. THE LE ARNED AR RELIED ON CERTAIN DECISIONS AND REQUESTED THAT THE MATTER MAY BE RESTORED TO THE FILE OF A.O. FOR FRESH DECISION ON SUCH ITEMS I N THE LIGHT OF SUCH DECISIONS. THE LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT OBJECT TO THE RESTORATION OF THE MATTER BUT REQUESTED THAT TH E DECISION BE TAKEN BY CONSIDERING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA V. CIT [(2009) 317 ITR 218 (SC)] . CONSIDERING THE ENTIRE FACTUAL ASPECTS OF THE MATTER, WE DEEM I T FIT TO SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE O F A.O. AS REQUESTED BY BOTH THE SIDES FOR DECIDING THIS ISSUE AFRESH BY CONSIDERING INTER ALIA THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE C ASE OF LIBERTY INDIA (SUPRA). 32. GROUND NOS.7, 8 AND 10 ARE AGAINST REDUCTION/DE NIAL OF DEDUCTION U/S 80HHC ON THE AMOUNT OF WRITE BACK OF LIABILITIES AND MISCELLANEOUS INCOME WITH SERVICE CHARGES AND RECOV ERY OF R & D COST. BOTH THE SIDES RAISED ARGUMENTS SIMILAR TO TH OSE ADVANCED QUA THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2001-2001 . ONCE AGAIN IT WAS REQUESTED THAT THESE ITEMS BE CONSIDERED AFRESH ONE BY ONE FOR THEIR ELIGIBILITY U/S 80HHC AS PER THE RELEVANT JUD GMENTS. FOLLOWING THE VIEW TAKEN IN APPEAL FOR ASSESSMENT YEAR 2000-2 001, WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMIT THE MATT ER TO THE FILE OF A.O. FOR DECIDING THE QUESTION OF ALLOWABILITY OR O THERWISE OF DEDUCTION U/S 80HHC ON WRITE BACK OF LIABILITIES; M ISCELLANEOUS ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 14 INCOME AND RECOVERY OF R & D COST, WHICH ARE SUBJEC T MATTER OF THESE GROUNDS. 33. GROUND NO.9 IS AGAINST DISALLOWANCE U/S 80HHC O N RENT AMOUNTING TO ` 8,38,353. THIS ISSUE IS SIMILAR TO THE ONE DECIDED BY US IN THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2000-2 001. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE DIRECT THAT NETTING OFF OF RENT PAID AGAINST RENT RECEIVED SHOULD BE ALLOWED AND ONLY 90 % OF THE NET RENT INCOME SHOULD BE CONSIDERED FOR DISALLOWANCE U/S 80 HHC. 34. NO ARGUMENT WAS ADVANCED IN SUPPORT OF GROUND NO. 11 OF THE ASSESSEES APPEAL RELATING TO CHARGING OF INTEREST U/S 234D. THE SAME IS, THEREFORE, DISMISSED. 35. GROUND NO.1 OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF ` 3.28 CRORE TOWARDS EXPENDITURE OF PRODUCTION OF ADVERTISEMENT FILMS. SIMILAR ISSUE HAS BEEN DECIDED BY US IN THE APPEAL FOR ASSESSMENT YEAR 2000-2001 IN ASSESSEES FAVOUR BY CONSIDERING CERTAIN OTHER EARLIER ORDERS PASSED ACC ORDINGLY. FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER ON THIS ISSU E. THIS GROUND IS NOT ALLOWED. 36. GROUND NO.3 IS AGAINST GRANTING OF DEPRECIATION OF TESTING EQUIPMENT. THIS ISSUE ALSO CAME UP FOR CONSIDERATIO N BEFORE US IN THE REVENUES APPEAL FOR ASSESSMENT YEAR 2000-2001, WHI CH HAS BEEN DECIDED IN ASSESSEES FAVOUR. FOLLOWING THE VIEW TA KEN HEREINABOVE, WE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 15 37. GROUND NO.4 IS AGAINST DELETION OF DISALLOWANCE OF EXPENSES FOR REPAIRS AND MAINTENANCE AMOUNTING TO ` 52,92,987 . FROM THE DETAILS OF REPAIRS AND MAINTENANCE EXPENSES FOR BUILDING AN D PLANT & MACHINERY, THE ASSESSING OFFICER OBSERVED THAT CERT AIN CAPITAL EXPENDITURE WAS CLAIMED AS REVENUE. HE, THEREFORE, MADE DISALLOWANCE OF ` 52.92 LAKH. THE LEARNED CIT(A), ON PERUSAL OF DETAILS OF SUCH EXPENSES, OBSERVED THAT NO CAPITAL EXPENDITURE WAS INCURRED CALLING FOR ANY DISALLOWANCE. 38. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS SEEN FROM THE DE TAILS OF EXPENSES DISALLOWED BY THE A.O. THAT ALL ARE OF REVENUE NATU RE. AOUNTS HAS BEEN INCURRED ON ITEMS OF REVENUE NATURE, SUCH AS, FALSE CEILING, PANELING AND MONSOON SHED OF TEMPORARY PERIOD. IN O UR CONSIDERED OPINION, THE LEARNED CIT(A) WAS JUSTIFIED IN DELETI NG THE DISALLOWANCE. 39. GROUND NO.6 OF THE REVENUES APPEAL IS AGAINST DELETION OF 10% OF AD HOC DISALLOWANCE OF TRAVELING EXPENSES. THE ASSESSING OFFICER MADE DISALLOWANCE AT 10% OF THE TOTAL TRAVELING EXP ENSES. THE LEARNED CIT(A) DELETED THE SAID ADDITION BY CONSIDE RING THAT IT WAS A CASE OF A COMPANY AND NO DISALLOWANCE WAS CALLED FO R. HE RELIED ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF SAYAJI IRON & ENGG. CO. 253 ITR 749 FOR DELETING THE DISALLOWANCE. ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 16 40. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, THERE IS NO DOUBT THAT THE ASSESSEE IS A LIMITED COMPANY. IN SUCH A SITUATION, THERE CANNOT BE ANY QUESTION OF SUSTAINING ANY DISALLOWANCE EVEN BY TREATING THE EX PENDITURE FOR NON- BUSINESS PURPOSES. IT HAS BEEN HELD SO BY THE HONB LE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGG. CO. (SUPRA) , WHICH VIEW HAS BEEN REITERATED IN DINESH MILLS LTD. V. CIT [(2004) 268 ITR 502 (GUJ.)] . WE, THEREFORE, APPROVE THE IMPUGNED ORDER ON THIS ISSUE. 41. GROUND NO.7 IS AGAINST DELETION OF DISALLOWANCE OF HOTEL EXPENSES OF ` 17,95,624. THE ASSESSEE INCURRED THIS AMOUNT ON VISITORS, WHICH THE A.O. DID NOT ALLOW AS IN HIS O PINION SUCH AMOUNT WAS REQUIRED TO BE BORNE BY THE GUESTS AND NOT THE ASSESSEE. THE LEARNED CIT(A) DELETED THIS ADDITION. WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER ON THIS ISSUE. WHEN THE GUESTS AR E ENTERTAINED BY THE ASSESSEE, IT IS BUT NATURAL TO ARRANGE FOR THEI R STAY. THIS GROUND IS, THEREFORE, NOT ALLOWED. 42. GROUND NO.8 IS AGAINST THE DELETION OF DISALLOW ANCE OF CLUB ENTRANCE FEE OF ` 8,68,800. THE ASSESSEE INCURRED CLUB EXPENSES INTER ALIA INCLUDING A SUM OF ` 10.86 LAKH AS ENTRANCE FEE. THE ASSESSING OFFICER DISALLOWED THE ENTRANCE FEE IN THE YEAR OF PAYMENT BUT ALLOWED DEDUCTION AT 1/5 TH OF THE AMOUNT. THE LEARNED CIT(A), HOWEVER, DELETED THE ADDITION. ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 17 43. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS FOUND THAT THE C ASE IS COVERED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF OTIS ELEVATOR V. CIT 195 ITR 682 (BOM.) AS PER WHICH DEDUCTION OF SUCH ENTRANCE FEE PAID FOR CLUB IS ALLOWABLE IN THE YEAR OF INCURRING. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE LEARNED CI T(A). HOWEVER, THE ASSESSING OFFICER IS DIRECTED TO ENSURE THAT NO DEDUCTION IS ALLOWED FOR THE 4/5 TH OF THE TOTAL AMOUNT IN THE SUCCEEDING YEARS. 44. GROUND NO.9 IS AGAINST DELETION OF ADDITION OF 10% OF PROFESSIONAL SPONSORSHIP EXPENSES AMOUNTING TO ` 22,39,680. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER NOTED THAT THE ASSESSEE INCURRED A SUM OF ` 2.23 CRORE TOWARDS PROFESSIONAL SPONSORSHIP. ON THE PERUSAL OF DETAILS OF SUCH EXPE NSES IT WAS SEEN THAT THIS WAS TOWARDS SPONSORSHIP OF VARIOUS DOCTOR S FOR ATTENDING VARIOUS TRAINING PROGRAMMES ON BEHALF OF THE ASSESS EE. THE A.O. HELD THAT BY SPENDING THIS AMOUNT, THE ASSESSEE-COMPANY HAD INVESTED FOR FUTURE BENEFITS. HE, THEREFORE, DISALLOWED 10% OF S UCH EXPENSES BEING NOT INCURRED FOR BUSINESS PURPOSES. THE LEARNED CIT (A) CHOSE TO DELETE THE ADDITION. 45. HAVING REGARD TO THE FACTS OF THE INSTANT CASE IT IS AMPLY BORNE OUT THAT THE ASSESSING OFFICER ACCEPTED THE INCURRI NG OF SUCH EXPENSES TOWARDS THE PROMOTION OF ASSESSEES BUSINE SS. ONCE THE EXPENDITURE IS HELD TO BE FOR BUSINESS PURPOSES, TH ERE IS NO QUESTION OF DISALLOWING 10% OF SUCH EXPENSES BY TREATING THE SAME AS FOR NON- ITA NO.2774/MUM/2004 & ORS. M/S.JOHNSON & JOHNSON LIMITED. 18 BUSINESS PURPOSES. WE, THEREFORE, UPHOLD THE VIEW TA KEN BY THE LEARNED CIT(A) ON THIS ISSUE. 46. GROUND NO.10 IS AGAINST THE EXCLUSION OF EXCISE DUTY AND TRADE DISCOUNT FROM THE TOTAL TURNOVER FOR DEDUCTION U/S 80HHC. THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN EARLIER YEARS I N ASSESSEES FAVOUR BY RELYING ON THE JUDGMENT OF THE HONBLE SUPREME C OURT IN THE CASE OF LAXMI MACHINE WORKS [290 ITR 667 (SC)] . FOLLOWING THE VIEW TAKEN HEREINABOVE, WE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. 47. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND THAT OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPO SES. ORDER PRONOUNCED ON THIS 15 TH DAY OF FEBRUARY, 2013. '2 - /01 3'*4 0 - SD/- SD/- (R.K.GUPTA) (R.S.SYAL) ! '# ! '# ! '# ! '# / JUDICIAL MEMBER % '# % '# % '# % '# / ACCOUNTANT MEMBER MUMBAI ; 3'* DATED : 15 TH FEBRUARY, 2013. DEVDAS* '2 - +!.56 761. '2 - +!.56 761. '2 - +!.56 761. '2 - +!.56 761./ COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. +,'( / THE RESPONDENT. 3. 8 () / THE CIT V, MUMBAI. 4. 8 / CIT 5. 6; +!.!* , , / DR, ITAT, MUMBAI 6. < = / GUARD FILE. '2* '2* '2* '2* / BY ORDER, ,6. +!. //TRUE COPY// > > > >/ // /? ? ? ? ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI