Appeal details
Counselvise Citation
[2019] 116 COUNSELVISE.COM (IT) 1636 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 3 month(s) 28 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
06-09-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Assessment Year
2007-2008
Appeal Filed On
08-05-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM ./ITA NOS.982/KOL/2017 ( / ASSESSMENT YEAR:2007-08) ORGANON (INDIA) PVT. LTD. PLATINA, 7 TH FLOOR, PLOT NO. C-59, G- BLOCK, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400098 VS. DCIT, CIRCLE-12(1), KOLKATA ./ ./PAN/GIR NO.: AAACI 6949 R (APPELLANT) .. (REVENUE) ./ITA NOS.892/KOL/2017 ( / ASSESSMENT YEAR:2007-08) DCIT, CIRCLE-12(1), KOLKATA VS. ORGANON (INDIA) PVT. LTD. PLATINA, 7 TH FLOOR, PLOT NO. C-59, G- BLOCK, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400098 ./ ./PAN/GIR NO.: AAACI 6949 R (ASSESSEE) .. (REVENUE) ASSESSEE BY :SHRI J. P. KHAITAN, SR. ADVOCATE REVENUE BY : DR. P.K. SRIHARI, CIT(D.R.) & SHRI SA NKAR HALDER, JCIT, SR. D.R. / DATE OF HEARING : 11/06/2019 /DATE OF PRONOUNCEMENT : 06/09/2019 / O R D E R PER DR. A. L. SAINI: THESE CROSS APPEALS FILED BY THE ASSESSEE AND REVE NUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A)-22,KOLKATA DATED 16.02.2017, FOR ASSESSMENT YEAR 2007-08, WHICH IN TURN ARISE OUT OF AN ASSESSM ENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3)/144C OF THE INCOME TAX ACT, 1961, ( IN SHORT, THE ACT,), DATED 28.01.2011. ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 2 22 2 2. SINCE THE ISSUES INVOLVED IN THESE CROSS APPEALS A RE COMMON AND IDENTICAL THEREFORE, THESE APPEALS HAVE BEEN HEARD TOGETHER A ND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 3. FIRST WE TAKE UP THE ASSESSEE'S APPEAL IN ITA NO .982/KOL/2017,FOR A.Y.2007- 08. THE ONLY GROUND IN THE ASSESSE'S APPEAL IS AGAI NST THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.14,34,232/- MA DE BY THE ASSESSING OFFICER U/S 40A(A)(I) OF THE ACT ON ACCOUNT OF PAYMENT MADE TO MICROSOFT LICENSE FEE BY THE ASSESSEE. 4. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE RE LEVANT PREVIOUS YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAD INCURRED EXP ENDITURE AMOUNTING TO RS. 2,03,36,851/- WHICH HAS BEEN REPORTED AS PART OF NO TE G- EXPENDITURE IN FOREIGN CURRENCY IN THE FINANCIAL STATEMENT [REFER PG. 21 OF THE PB]. THE SAME INCLUDED INTER ALIA AN AMOUNT OF RS. 14,34,232/- PAID ON ACC OUNT OF MICROSOFT LICENSE FEES. THE AFORESAID AMOUNT OF RS.14,34,232/- REPRESENTS P AYMENT MADE TO ORGANON NV, A NETHERLANDS BASED ASSOCIATED ENTERPRISE (AE) OF T HE ASSESSEE IN RESPECT OF A SOFTWARE LICENSE FROM MICROSOFT. M/S ORGANON NV HAD PURCHASED THE SOFTWARE LICENSE FROM MICROSOFT TO BE USED BY ALL THE GROUP ENTITIES AND THE LICENSE FEES PAID BY ORGANON NV FOR THE SOFTWARE WAS APPORTIONED AT ACTUAL TO SUCH GROUP ENTITIES BASED ON THE NUMBER OF EMPLOYEES. THE SHAR E OF THE ASSESSEE WORKED OUT TO RS.14,34,232/- WHICH WAS REIMBURSED TO ORGANON N V. THIS CLAIM FOR DEDUCTION WAS NOT ACCEPTED BY THE AS SESSING OFFICER, SINCE ACCORDING TO HIM, THE AMOUNT HAS TO BE DISALLOWED F OR NON-DEDUCTION OF TDS. THE ASSESSING OFFICER DID NOT FIND ANY MERIT IN THE CON TENTION OF THE ASSESSEE THAT THIS AMOUNT REPRESENTED PURELY REIMBURSEMENT OF EXPENSES TO M/S ORGANON NV AND SINCE IT DID NOT INCLUDE ANY INCOME ELEMENT, THE AS SESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF THE SAME. THE ASS ESSING OFFICER DID NOT AGREE AND ACCORDING TO HIM THE AMOUNT IN QUESTION WAS PAI D BY THE ASSESSEE FOR THE USE OF SOFTWARE AND SINCE IT WAS TAXABLE AS ROYALTY AS PER THE PROVISIONS OF THE ACT AS WELL AS DTAA BETWEEN INDIA AND USA. THE ASSESSEE WA S REQUIRED TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT FROM THE PAYMENT MADE TO ORGANON NV. AS THE ASSESSEE ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 3 33 3 HAD FAILED TO COMPLY WITH THE SAID REQUIREMENT, THE ASSESSING OFFICER INVOKED SECTION 40(A)(I) OF THE ACT AND DISALLOWED THE SUM OF RS. 14,34,232/-. 5. AGGRIEVED BY THE ORDER OF LD AO, THE ASSESSEE CA RRIED THE MATTER IN APPEAL BEFORE THE LD CIT(A), WHO HAS CONFIRMED THE ORDER P ASSED BY THE LD AO. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 6. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, LEARNE D COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER DATED 15.05.2019 , PASSED BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1 335/KOL/2010 FOR THE ASSESSMENT YEAR 2005-06 WHEREBY THE ISSUE OF ROYALT Y ON MICROSOFT LICENSE FEES HAVE BEEN DISCUSSED AND ADJUDICATED IN FAVOUR OF AS SESSEE. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRESENT APPEAL IS S QUARELY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL, A COPY OF WHICH WAS ALSO PLA CED BEFORE THE BENCH. 7. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE VIDE ORDER DATED 15.05.2019. IN THIS ORDER, THE TRIBUNAL HAS INTER ALIA OBSERVED AS FOLLOWS: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT A SIMILAR ISSUE INVOLVING IDENTICAL F ACTS AND CIRCUMSTANCES WAS CONSIDERED BY THE TRIBUNAL IN ASS ESSEES OWN CASE FOR A.YS. 2003-04 AND 2004-05 VIDE ITS COM MON ORDER DATED SEPTEMBER 20, 2017 AND AFTER CONSIDERING ALL THE RELEVANT ASPECTS INCLUDING THE PROVISIONS OF DTAA, THE CASE LAWS ON THE POINTS ETC. IT WAS HELD BY THE TRIBUNAL THAT THE AM OUNT IN QUESTION PAID BY THE ASSESSEE WAS NOT IN THE NATURE OF ROYALTY. IT WAS HELD THAT SINCE THE SAID AMOUNT WAS PAID TOW ARDS PURCHASE OF SOFTWARE, IT WOULD HAVE BEEN ASSESSABLE AS BUSINESS PROFITS IN THE HANDS OF NETHERLAND BASED A SSOCIATED ENTERPRISE AND SINCE THE SAID ASSOCIATED ENTERPRISE DID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA, THE BUSINE SS PROFITS COULD NOT BE TAXED IN INDIA UNDER ARTICLE 7 OF THE INDO NETHERLAND DTAA. IT WAS HELD BY THE TRIBUNAL THAT T HERE WAS ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 4 44 4 NO ELEMENT OF PROFIT INVOLVED IN THE TRANSACTIONS R EPRESENTING REMITTANCE MADE TOWARDS PURCHASE OF LICENCE SOFTWAR E FOR USE BY THE ASSESSEE, WHICH WAS TAXABLE IN INDIA IN THE HANDS OF THE ASSOCIATED ENTERPRISE AND THE ASSESSEE, THEREFORE, WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE FROM THE SAID PAYM ENT UNDER SECTION 195. IT WAS FURTHER HELD BY THE TRIBUNAL TH AT THE ASSESSEE WAS ENTITLED FOR RELIEF ON THIS ISSUE EVEN ON THE BASIS OF NON-DISCRIMINATION CLAUSE CONTAINED IN ARTICLE 2 4(4) OF THE INDO-NETHERLAND DTAA. THE TRIBUNAL ACCORDINGLY DELE TED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 40(A)(I) OF THE ACT AND CONFIRMED BY THE LD. CIT(AP PEALS) IN BOTH THE YEARS I.E. A.YS. 2003-04 AND 2004-05. 9. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. H AS NOT DISPUTED THE FACT THAT THIS ISSUE STANDS SQUARELY C OVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBU NAL RENDERED IN ASSESSEES OWN CASE FOR A.YS. 2003-04 AND 2004-0 5. HE, HOWEVER, HAS RELIED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS.- ANDAMAN SEA FOO D PVT. LIMITED (ITAT NO. 19 OF 2013 DATED 23.07.2014) WHIC H, ACCORDING TO HIM, SUPPORTS THE REVENUES STAND ON T HIS ISSUE. HOWEVER, AS RIGHTLY CONTENDED BY THE LD. COUNSEL FO R THE ASSESSEE, THE SAID CASE DECIDED BY THE HONBLE CALC UTTA HIGH COURT IS DISTINGUISHABLE ON FACTS, INASMUCH AS, THE TRANSACTIONS UNDER CONSIDERATION IN THE SAID CASE WERE NOT COVER ED BY THE RELEVANT DTAA, WHEREAS THE AMOUNT IN QUESTION PAID BY THE ASSESSEE IN THE PRESENT CASE TO ITS NETHERLAND BASE D ASSOCIATED ENTERPRISE IS NOT TAXABLE IN THE HANDS OF THE ASSOC IATED ENTERPRISE IN INDIA AS PER THE RELEVANT CLAUSE OF T HE DTAA AS FOUND BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FO R A.YS. 2003-04 AND 2004-05. MOREOVER, AS HELD BY THE TRIBU NAL IN ITS ORDER FOR A.YS 2003-04 AND 2004-05, THE ASSESSEE WA S ENTITLED FOR RELIEF ON THIS ISSUE EVEN AS PER THE BENEFIT CO NFERRED UNDER NON-DISCRIMINATION CLAUSE OF THE DTAA. WE, THEREFOR E, RESPECTFULLY FOLLOW THE DECISION OF THE TRIBUNAL RE NDERED IN ASSESSEES OWN CASE FOR A.YS. 2003-04 AND 2004-05 V IDE ITS ORDER DATED SEPTEMBER 20, 2017 (SUPRA) AND DELETE T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 40(A)(I) AND CONFIRMED BY THE LD. CIT(APPEALS). GRO UNDS NO. 1 TO 5 OF THE ASSESSEES APPEAL ARE ACCORDINGLY ALLOW ED. 9. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE BY THE DECISION OF THE COORDINATE BENCH, IN ASSESSEE`S OWN CASE (SUPRA) AN D THERE IS NO CHANGE IN FACTS AND LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MA TERIAL TO CONTROVERT THE ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 5 55 5 AFORESAID FINDINGS OF THE DIVISION BENCH. RESPECTFU LLY, FOLLOWING THE JUDGMENT OF THE COORDINATE BENCH IN ASSESSEE`S OWN CASE (SUPRA) , WE DELETE THE IMPUGNED ADDITION OF RS. 14,34,232/-. 10. NOW, WE ADJUDICATE THE ADDITIONAL GROUNDS OF AP PEAL RAISED BY THE ASSESSEE. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS AGA INST THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF CONVERSION CHARGE S OF RS. 35,87,454/- AS MADE BY THE ASSESSING OFFICER. 11. BRIEF FACTS QUA THE ISSUE ARE THAT THE ASSESSE E HAD INCURRED AN EXPENDITURE OF RS. 35,87,454/- ON ACCOUNT OF CONVERSION CHARGES WH ICH WAS DEBITED TO THE PROFIT & LOSS ACCOUNT FOR THE RELEVANT F.Y. 2006-07 AS PRI OR PERIOD EXPENSES. HOWEVER, SINCE THE COMPANY FOLLOWS MERCANTILE METHOD OF ACCO UNTING, THE SAME WAS CLAIMED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS A DEDUCTION IN ASSESSMENT YEAR 2005-06, BEING THE RELEVANT YEAR TO WHICH SUCH DEDUCTION PERTAINED. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE MADE IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 2005-06, RELYING ON T HE DECISION OF SUPREME COURT IN THE CASE OF GOETZ INDIA LTD. VS. CIT (2006 ) 282 ITR 323 (SC). ON APPEAL, ( FOR A.Y. 2005-06) THE LD CIT(A) CONFIRMED THE ADD ITION MADE BY ASSESSING OFFICER. ON APPEAL BEFORE THE TRIBUNAL, THE TRIBUN AL HAS UPHELD THE ORDER OF THE LD. CIT(A)/ ASSESSING OFFICER FOR A.Y 2005-06 BY HOLDIN G THAT CONVERSION CHARGES REPRESENTING CONTRACTUAL LIABILITY WAS IN DISPUTE A ND THE SAME WAS SETTLED AND CRYSTALLIZED ONLY IN THE ASSESSMENT YEAR 2007-08. I N THIS REGARD, THE FINDINGS OF THE COORDINATE BENCH IN ASSESSEE`S OWN CASE IN ITA NO.1 335/KOL/2010, FOR A.Y.2005-06 ARE AS FOLLOWS: 10. GROUNDS NO. 6 TO 8 INVOLVE A COMMON ISSUE RELA TING TO DISALLOWANCE OF CONVERSION CHARGES OF RS.35,87,454/ - AS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. C IT(APPEALS) ON ACCOUNT OF PRIOR PERIOD EXPENSES. 11. THE ASSESSEE-COMPANY DURING THE RELEVANT PERIOD HAD ENTERED INTO AN AGREEMENT WITH A THIRD PARTY MANUFA CTURER, WHO WAS REQUIRED TO MANUFACTURE GOODS ON BEHALF OF AND UNDER THE LICENSE OF THE ASSESSEE-COMPANY. THE ASSESSEE-COMPA NY WAS ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 6 66 6 LIABLE TO PAY CONVERSION CHARGES TO THE SAID PARTY AND AS PER THE TERMS OF THE AGREEMENT, THE ASSESSEE-COMPANY WA S COMMITTED TO PAY MINIMUM AMOUNT OF CONVERSION CHARG ES EVERY CALENDAR YEAR TO THE SAID PARTY I.E. JANUARY TO DEC EMBER CALLED AS MINIMUM CONVERSION CHARGES. ACCORDINGLY IF THE ACTUAL CONVERSION CHARGES PAID ON THE BASIS OF ACTUAL PROD UCTION DURING THE YEAR WAS SHORT OF A MINIMUM CONVERSION C HARGES, THEN THE ASSESSEE-COMPANY WAS REQUIRED TO MAKE THE SHORT-FALL GOOD. THERE WAS SUCH A SHORT-FALL TO THE EXTENT OF RS.35,87,454/- PERTAINING TO FINANCIAL YEAR 2004-05 AND RS.4,51,83,246/- PERTAINING TO FINANCIAL YEAR 2005- 06. AFTER SETTLING AND FINALIZING THESE AMOUNTS IN THE F.Y. 2 006-07, A TOTAL AMOUNT OF RS.4,87,70,700/- WAS DEBITED BY THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT OF F.Y. 2006-07 ON ACCOUN T OF PRIOR PERIOD EXPENSES. SINCE THE ASSESSEE-COMPANY WAS FOL LOWING THE MERCANTILE SYSTEM OF ACCOUNTING, IT SUO MOTO OFFERE D THE ENTIRE AMOUNT OF RS.4,87,70,700/- IN THE COMPUTATION OF IN COME FOR F.Y. 2006-07 RELEVANT TO A.Y. 2007-08 BEING THE EXP ENDITURE OF PRIOR PERIOD. DURING THE COURSE OF ASSESSMENT PROCE EDINGS FOR THE YEAR UNDER CONSIDERATION, I.E. A.Y. 2005-06, TH E ASSESSEE CLAIMED A DEDUCTION OF RS.35,87,454/- BEING THE EXP ENDITURE INCURRED ON CONVERSION CHARGES PERTAINING TO A.Y. 2 005-06. SINCE THE SAID DEDUCTION WAS NOT CLAIMED BY THE ASS ESSEE EITHER IN THE ORIGINAL RETURN OR EVEN IN THE FORM OF REVIS ED RETURN, THE ASSESSING OFFICER DID NOT ENTERTAIN THE CLAIM OF TH E ASSESSEE FOR THE SAID DEDUCTION BY RELYING ON THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA LIMITED [ 284 ITR 323]. ON APPEAL, THE LD. CIT(APPEALS) UPHELD THE AC TION OF THE ASSESSING OFFICER ON THIS ISSUE BY OBSERVING THAT T HE ASSESSEE WAS NOT ENTITLED TO MAKE ANY FRESH CLAIM, WHICH WAS NOT MADE EITHER IN THE RETURN OF INCOME ORIGINALLY FILED OR BY WAY OF FILING A REVISED RETURN. 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS LIABLE TO MAKE GOOD ANY SHORT-FALL IN THE MINIMUM CONVERSION CHARGES PAYABLE AS PER THE AGREEMENT ENT ERED INTO WITH A CONTRACT MANUFACTURER. HE SUBMITTED THAT SUC H SHORT-FALL PERTAINING TO THE YEAR UNDER CONSIDERATION I.E. A.Y . 2005-06 AS WELL AS FOR A.Y. 2006-07 WAS SETTLED AND FINALIZED IN THE PREVIOUS YEAR RELEVANT TO A.Y. 2007-08. HE SUBMITTE D THAT THE AMOUNT OF SUCH SHORT FALL ACCORDINGLY WAS DEBITED B Y THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT FOR A.Y. 2007 -08 AND IN THE COMPUTATION OF TOTAL INCOME FOR A.Y. 2007-08, T HE AMOUNT SO DEBITED WAS OFFERED TO TAX BEING PRIOR PERIOD EX PENSES. HE INVITED OUR ATTENTION TO THE AUDIT NOTE GIVEN ON TH IS ISSUE PLACED AT PAGE NO. 380 OF THE PAPER BOOK AND POINTE D OUT THAT THE AMOUNT TO THE EXTENT OF RS.35,87,451/- BEING PE RTAINING TO THE YEAR UNDER CONSIDERATION, I.E. A.Y. 2005-06 WAS CLAIMED BY ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 7 77 7 THE ASSESSEE AS DEDUCTION DURING THE COURSE OF ASSE SSMENT PROCEEDINGS. HE CONTENDED THAT SINCE THE SAID AMOUN T UNDISPUTEDLY PERTAINED TO THE YEAR UNDER CONSIDERAT ION AND EVEN THE DEBIT NOTES FOR THE SAME WERE RAISED BY TH E CONCERNED PARTY DURING THE YEAR UNDER CONSIDERATION, THE ASSE SSEE WAS ENTITLED FOR DEDUCTION OF THE SAME AND THE AUTHORIT IES BELOW WERE NOT JUSTIFIED IN DISALLOWING THE DEDUCTION CLA IMED BY THE ASSESSEE MERELY ON THE GROUND THAT THE SAME WAS NOT CLAIMED EITHER IN THE RETURN OF INCOME ORIGINALLY FILED OR BY WAY OF REVISED RETURN. HE CONTENDED THAT SINCE THE AMOUNT IN QUESTION WAS SETTLED AND FINALIZED SUBSEQUENTLY, IT WAS NOT POSSIBLE FOR THE ASSESSEE TO CLAIM THE SAME EITHER IN THE ORIGIN AL RETURN OR BY WAY OF REVISED RETURN. 13. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT NEITHER THE ASSESSING OFFICER NOR THE LD. CIT(APPEALS) HAS DECIDED THIS ISSUE ON MERIT AND THE CLAIM OF THE ASSESSEE FOR DE DUCTION OF THE AMOUNT UNDER CONSIDERATION WAS DISALLOWED BY TH EM ON THE GROUND THAT THE SAME WAS NOT CLAIMED EITHER IN THE RETURN OF INCOME ORIGINALLY FILED OR BY WAY OF REVISED RETURN . HE CONTENDED THAT THE ASSESSEE, HOWEVER, IS NOT ENTITL ED FOR THIS DEDUCTION ON MERIT BECAUSE EVEN THOUGH THE DEBIT NO TES WERE RAISED BY THE CONCERNED PARTY IN THE YEAR UNDER CON SIDERATION, THERE WAS A DISPUTE ABOUT THIS CONTRACTUAL LIABILIT Y PAYABLE BY THE ASSESSEE WHICH WAS FINALLY SETTLED IN THE SUBSE QUENT YEAR RELEVANT TO A.Y. 2007-08. BY RELYING ON THE DECISIO N OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS.- SESHASAYEE BROS. (TRAVANCORE) [82 ITR 442], HE CONTENDED THAT THE DEDUCTION ON ACCOUNT OF CONTRACTUAL LIABILITY CAN B E CLAIMED BY THE ASSESSEE ONLY IN THE YEAR IN WHICH IT IS FINALL Y SETTLED AND CRYSTALLIZED. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD I NCLUDING THE AUDIT NOTE ON THE ISSUE UNDER CONSIDERATION AS GIVE N AT PAGE NO. 380 OF THE PAPER BOOK. IT IS OBSERVED THAT THER E WAS A DIFFERENCE BETWEEN THE ACTUAL CONVERSION CHARGES AN D MINIMUM CONVERSION CHARGES FOR THE YEAR UNDER CONSIDERATION AS PAYABLE BY THE ASSESSEE TO M/S. ASG BIO CHEM LIMITED IN TER MS OF THE LOAN LICENSING AGREEMENT DATED 1 ST JANUARY, 2005. IT IS ALSO OBSERVED THAT DEBIT NOTES FOR SUCH DIFFERENCE WERE RAISED BY M/S. ASG BIO CHEM LIMITED DURING THE YEAR UNDER CONSIDERATION ON 15.02.2005 AND 15.03.2005. HOWEVER , THE AMOUNT RAISED IN THE SAID DEBIT NOTES WAS NOT ACCEP TED BY THE ASSESSEE AND THE SAME WAS IN DISPUTE. THE SAID DISP UTE WAS FINALLY SETTLED IN THE FINANCIAL YEAR 2006-07 RELEV ANT TO ASSESSMENT YEAR 2007-08 AND ACCORDINGLY THE AMOUNT OF DIFFERENCE PAYABLE BY THE ASSESSEE TO M/S. ASG BIO CHEM ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 8 88 8 LIMITED WAS DEBITED TO THE PROFIT & LOSS ACCOUNT FO R THE F.Y. 2006-07. IT IS THUS CLEAR THAT THE AMOUNT IN QUESTI ON PAYABLE BY THE ASSESSEE ON ACCOUNT OF DIFFERENCE BETWEEN THE A CTUAL CONVERSION CHARGES AND MINIMUM CONVERSION CHARGES F OR THE YEAR UNDER CONSIDERATION REPRESENTING CONTRACTUAL L IABILITY WAS IN DISPUTE AND THE SAME WAS SETTLED AND CRYSTALLIZE D ONLY IN THE F.Y. 2006-07 RELEVANT TO A.Y. 2007-08. AS RIGHTLY C ONTENDED BY THE LD. D.R., THE ASSESSEE, THEREFORE, WAS NOT ENTI TLED FOR DEDUCTION ON ACCOUNT OF THIS CONTRACTUAL LIABILITY PERTAINING TO THE YEAR UNDER CONSIDERATION AS THE SAME REPRESENTE D DISPUTED LIABILITY AND SINCE THIS DISPUTE WAS SETTLED AND TH E LIABILITY WAS CRYSTALLIZED ONLY IN THE F.Y. 2006-07, THE ASSESSEE WAS ENTITLED FOR THE DEDUCTION OF THE SAME ONLY IN A.Y. 2007-08. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) CONFIRMING THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON THIS ISSUE AND UPHOLDING THE S AME, WE DISMISS GROUNDS NO. 6 TO 8 OF THE ASSESSEES APPEAL . 12. FROM THE PERUSAL OF THE AFORESAID ORDER OF THE TRIBUNAL FOR A.Y. 2005-06, IT IS CLEAR THAT THE AMOUNT OF RS. 35,87,454/- WAS PAYABL E BY THE ASSESSEE ON ACCOUNT OF DIFFERENCE BETWEEN THE ACTUAL CONVERSION CHARGES AN D MINIMUM CONVERSION CHARGES UNDER A.Y. 2005-06 REPRESENTING CONTRACTUAL LIABILITY WHICH WAS IN DISPUTE AND THE SAME WAS SETTLED AND CRYSTALLIZED O NLY IN THE RELEVANT A.Y. 2007- 08. SINCE THE DISPUTE WAS SETTLED AND THE LIABILITY GOT CRYSTALLIZED ONLY IN THIS A.Y. 2007-08, THE ASSESSEES CLAIM NEED TO BE ALLOWED AN D THEREFORE WE ALLOW THE CLAIM OF THE ASSESSEE MADE IN THE ADDITIONAL GROUNDS TAKI NG INTO CONSIDERATION THE FACT AS ENUMERATED FOR A.Y. 2005-06. THEREFORE, WE ALLOW TH E ADDITIONAL GROUND RAISED BY THE ASSESSEE. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 14. NOW, WE TAKE REVENUES APPEAL IN I.T.A. NO. 892 /KOL/2017, FOR A.Y. 2007- 08. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: 1. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 4,31,18,2 06/- MADE BY THE A.O. ON ACCOUNT OF EXPENSE OF RAW MATERIAL AND PACKING MATE RIAL. 2. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(IA) OF RS.4,07,34,947/- ON ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 9 99 9 ACCOUNT OF NON-DEDUCTION OF TDS AGAINST THE PAYMENT OF TRAVELLING EXPENSES LOCAL AND MEDICAL STAFF FORTNIGHT EXPENSES . 3. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(IA) OF RS.17,11,393/- ON ACCOUNT OF NON-DEDUCTION OF TDS AGAINST THE PAYMENT OF CAR EXPENSES REIMBURSEMENT. 4. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(IA) OF RS. 24,02,234/- ON ACCOUNT OF NON-DEDUCTION OF TDS AGAINST THE PAYMENT OF CYCLE MEETING EXPENSES. 5. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(IA) OF RS. 1,50,28,008/- ON ACCOUNT OF NON-DEDUCTION OF TDS AGAINST THE PAYMENT OF FREIGHT & TRANSPORT EXPENSES. 6. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(IA) OF RS.1,61,01,291/- ON ACCOUNT OF NON-DEDUCTION OF TDS AGAINST THE PAYMENT OF LEGAL & PROFESSIONAL EXPENSES. 7. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN ACCEPTING THE NEW EVIDENCE OF THE ASSESSEE COMPANY. 8. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN VIOLATING RULE 46A OF THE ACT. 9. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED BY NOT DIRECTING THE A.O. TO VERIFY THE NEW E VIDENCES WHICH WAS PLACED BEFORE THE LD. CIT(A). 15. FIRST OF ALL, WE TAKE UP GROUND NOS. 7 , 8 AND 9 RAISED BY THE REVENUE, AS MENTIONED ABOVE. SINCE THE MAIN GRIEVANCE IN GROUND NO. 7 , 8 AND 9 IS THAT THE LD. CIT(A) HAS ACCEPTED NEW EVIDENCES FROM THE ASSESSEE COMPANY BY VIOLATING RULE 46A OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES).IN RE SPECT OF GROUND NOS. 7 , 8 AND 9, THE LD. SENIOR COUNSEL REPRESENTING THE ASSESSEE , DREW OUR ATTENTION TO THE FACT THAT THERE WERE NO ADDITIONAL EVIDENCES IN RESPECT OF GROUND NO. 2 AND FOR GROUND NO. 3.(VIDE EVIDENCES PLACED AT PAGE 252 TO 259 OF THE PAPER BOOK).LD COUNSEL SUBMITTED BEFORE THE BENCH THAT THE DOCUMENTS PLACE D AT PAGE 252 TO 259 OF THE ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 10 1010 10 PAPER BOOK, SHOW THAT THE CAR EXPENSES OF THE EMPLO YEES ARE INCLUDED IN THEIR RESPECTIVE SALARY AND TDS WAS DEDUCTED. ABOUT GROUN D NO. 4, THE LD. SENIOR COUNSEL ALSO DREW OUR ATTENTION TO THE FACT THAT NO ADDITIONAL EVIDENCES WERE FILED BEFORE THE LD. CIT(A). 16. PER CONTRA, LD DR FOR THE REVENUE SUBMITTED BEF ORE US THAT IN GROUND NO.2 THE AMOUNT INVOLVED IS TO THE TUNE OF RS.4,07,34,947/- FOR WHICH ASSESSEE HAS FILED INACCURATE PARTICULARS. LD DR POINTED OUT THAT EXPE NSES OF RS. 4,07,34,947/- IS NOT ACTUALLY TRAVELLING EXPENSES BUT COMMISSION PAID TO MEDICAL STAFF FOR NIGHT DUTY AS PER ASSESSEE`S STATEMENT. THEREFORE, THERE WAS OBL IGATION ON THE ASSESSEE TO DEDUCT TDS ON COMMISSION OF RS.4,07,34,947/-. ABOUT GROUND NO. 3 WHICH RELATES TO PAYMENT OF CAR EXPENSES OF RS.17,11,393/-, LD DR SUBMITTED THAT THESE EXPENSES WERE NOT PART O F SALARY THEREFORE, TDS OUGHT TO HAVE BEEN DEDUCTED ON THESE EXPENSES. ABOUT GROU ND NO. 4 WHICH RELATES TO PAYMENT OF CYCLE MEETING EXPENSES OF RS.24,02,234/- LD DR SUBMITTED THAT THESE EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF BUSIN ESS, AS THERE IS NO CONCEPT OF CYCLE MEETING EXPENSES IN THE BUSINESS SENECIO. THE SE EXPENSES WERE NEITHER EXAMINED BY THE ASSESSING OFFICER NOR BY CIT(A) IN A PROPER PERSPECTIVE. THEREFORE, LD DR FOR THE REVENUE PRAYED THE BENCH T HAT DISPUTED AMOUNT PERTAINING TO GROUND NUMBERS 2, 3 AND 4 SHOULD BE R EMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINATION. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT AT THE TIME OF HEARING, THE LD. SENIOR COUNSEL ARGUED THAT THE EXPENSES CLAIMED UNDER THE HEAD TRAVELLING, FORTNIGHT EXPENS ES OF MEDICAL STAFF, CAR EXPENSES AND CYCLE MEETING EXPENSES WERE REIMBURSED BY THE ASSESSEE TO VARIOUS SALES REPRESENTATIVES, MEDICAL STAFF AND EMPLOYEES. IT IS THE CONTENTION OF LD. SENIOR COUNSEL`S THAT IN CONNECTION WITH CANVASSING ORDERS FOR THE ASSESSEES MEDICAL PRODUCTS, ITS REPRESENTATIVES UNDERTOOK EXT ENSIVE TRAVELLING AND IN CONNECTION WITH THE TRAVELLING SO UNDERTAKEN, THEY INCURRED EXPENSES ON LODGING, BOARDING, LOCAL CONVEYANCE AND TRAVEL ETC. ACCORDIN G TO LD. COUNSEL, ON COMPLETION OF THE VISITS, THE CLAIMS WERE MADE BY T HESE MEDICAL ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 11 1111 11 STAFF/REPRESENTATIVES SEEKING REIMBURSEMENT OF COST S DEFRAYED BY THEM IN THE COURSE OF TRAVELLING UNDERTAKEN FOR THE BUSINESS PU RPOSES. THE LD. COUNSEL THEREFORE FURTHER SUBMITTED THAT THE AMOUNTS DEBITE D UNDER THESE HEADS BEING IN THE NATURE OF PURE REIMBURSEMENT, NO INCOME ELEMENT W AS EMBEDDED IN THESE PAYMENTS AND CONSEQUENTLY, THE ASSESSEE HAD NO OBLI GATION TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENTS TO MEDICAL STAFF / SALES REPR ESENTATIVES TOWARDS REIMBURSEMENTS. WE NOTE THAT THE SUBMISSIONS OF THE LD. COUNSEL APP EARS LOGICAL AT THE FIRST GLANCE BUT HAVING PERUSED THE DETAILS FURNISHED IN THE PAP ER BOOK AT PAGE NO.251 TO 259, WE FIND THAT THERE IS NO RELEVANT MATERIAL AVAILABL E BEFORE US ON THE BASIS OF WHICH THE SUBMISSIONS OF THE LD. COUNSEL COULD BE CORROBO RATED WITH RELEVANT EVIDENCE. THERE IS NO DISPUTE WITH REGARD TO THE PRINCIPLE TH AT IN THE EVENT OF PURE REIMBURSEMENT OF EXPENSES, NO TAX IS REQUIRED TO BE DEDUCTED BECAUSE SUCH PAYMENTS DO NOT INCLUDE ELEMENT OF ANY INCOME. HOWE VER, THE ONUS IS ON THE ASSESSEE TO SUBSTANTIATE WITH RELEVANT DETAILS AND DOCUMENTATIONS TO PROVE THAT WHAT WAS BEING PAID BY THE ASSESSEE WAS IN THE NATU RE OF PURE REIMBURSEMENTS. THE GROUND-WISE EVIDENCES/ADDITIONAL EVIDENCES, SUB MITTED BEFORE THE BENCH ( IN PAPER BOOK) BY THE LD COUNSEL, ARE EXPLAINED BELOW: (I). IN GROUND NO. 2, THE AMOUNT DISALLOWED BY THE AO IS TO THE TUNE OF RS. 4,07,34,947/- WHICH IS CLAIMED BY THE ASSESSEE TO B E INCURRED ON PAYMENT OF LOCAL TRAVELLING EXPENSES AND MEDICAL STAFF FORTNIGHT EXP ENSES. THE ASSESSEE SUBMITTED ONLY DETAIL OF THESE EXPENSES,( VIDE PAGE119 OF THE PAPER BOOK) AND NO ANY EXPENSE BILL OR VOUCHER OF EXPENSES WERE SUBMITTED. THEREFORE, THE VERACITY OF THESE EXPENSES CANNOT BE VERIFIED. AGAIN, VIDE PAPE R BOOK PAGE NO. 120 TO 165 THE ASSESSEE SUBMITTED THE LEDGER COPY OF TRAVELLING E XPENSES, MEDICAL REPRESENTATIVE FORT NIGHT EXP & LOCAL CONVEYANCE, THE TOTAL OF LEDGER ACCOUNT COMES AT RS. 4,07,34,947/-. IN THIS LEDGER ACCOUNT EXPENSES FOR AIR TICKETS, RAIL TICKETS, IST F.N EXP., WHC ASMS EXPENSES, IIND F.N EXPENSES, ETC ARE MENTIONED. HOWEVER, WE NOTE THAT EXPENSES BILLS, LI KE AIR BOARDING PASS, RAIL TICKET, BILL AND VOUCHERS FOR WHC EXPENSES AND OTHE R EXPENSES WERE NOT AVAILABLE IN PAPER BOOK. THE ASSESSEE HAS MERELY SUBMITTED BEFORE US LEDGER COPY OF THESE ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 12 1212 12 EXPENSES WHICH IS NOTHING BUT SUMMARY OF THESE EXPE NSES. THE ASSESSEE COULD NOT FURNISH BEFORE THE BENCH EXPENSE BILLS AND EXPENSE VOUCHERS, EVEN FOR TEST CHECK BASIS THEREFORE, WE ARE OF THE VIEW THAT VERACITY OF THESE EXPENSES WERE NEITHER EXAMINED BY CIT(A) NOR BY AO. HENCE, WE THINK IT FI T AND PROPER TO REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION. THEREFORE, WE SET ASIDE THE ORDER OF LD CIT(A) AND REMIT THIS ISSUE B ACK TO THE FILE OF THE AO TO ADJUDICATE THE ISSUE IN ACCORDANCE TO LAW. WE DIREC T THE ASSESSEE TO SUBMIT THE EXPENSE BILLS, VOUCHER OF EXPENSES/EVIDENCES AND EX PLANATION TO PROVE BONA FIDE OF THESE EXPENSES. THEREFORE, WE ALLOW GROUND NO. 2 RAISED BY THE REVENUE FOR STATISTICAL PURPOSES. (II) IN GROUND NO. 3, THE AMOUNT DISALLOWED BY THE AO IS TO THE TUNE OF RS. 17,11,393/- WHICH IS CLAIMED BY THE ASSESSEE TO BE INCURRED ON PAYMENT OF CAR EXPENSES. WE NOTE THAT THE EVIDENCES IN RESPECT OF GROUND NO. 3.ARE FURNISHED BY THE ASSESSEE, VIDE EVIDENCES PLACED AT PAGE 251 TO 259 OF THE PAPER BOOK. LD COUNSEL SUBMITTED BEFORE THE BENCH THAT THE DOCUMEN TS PLACED AT PAGE 251 TO 259 OF THE PAPER BOOK, SHOW THAT THE CAR EXPENSES OF TH E EMPLOYEES ARE INCLUDED IN THEIR RESPECTIVE SALARY AND TDS WAS DEDUCTED. THE D ETAILS OF THESE CAR EXPENSES ARE AS FOLLOWS: MR. PAPAS CHAKARBORTY RS.1,39,339 MR. AMIT SEN RS. 1,62,000 MR. SUDPIA KUMAR BISWAS RS. 1,38,000 TOTAL RS.4,39,339 WE NOTE THAT ASSESSEE HAS CLAIMED CAR EXPENSES AT R S. 17,11,393/- WHEREAS HE SUBMITTED DETAILS OF CAR EXPENSES ONLY AT RS. 4,39, 339/-. THEREFORE, WE ARE OF THE VIEW THAT THIS ISSUE SHOULD BE REMITTED BACK TO THE FILE OF THE AO TO EXAMINE THE BALANCE CAR EXPENSES OF RS. 12,72,054/- ( RS. 17,11 ,393-RS.4,39,339). THEREFORE, WE SET ASIDE THE ORDER OF LD CIT(A) AND REMIT THIS ISSUE BACK TO THE FILE OF THE AO TO ADJUDICATE THE ISSUE IN ACCORDANCE TO LAW. WE DI RECT THE ASSESSEE TO SUBMIT THE EXPENSE BILLS, EVIDENCES AND EXPLANATION TO PROVE B ONA FIDE OF THESE EXPENSES. THEREFORE, WE ALLOW GROUND NO. 3 RAISED BY THE REVE NUE FOR STATISTICAL PURPOSES. ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 13 1313 13 (III). IN GROUND NO. 4, THE AMOUNT DISALLOWED BY TH E AO IS TO THE TUNE OF RS. 24,02,234/- WHICH IS CLAIMED BY THE ASSESSEE TO BE INCURRED ON PAYMENT OF CYCLE MEETING EXPENSES. WE NOTE THAT IN THE PAPER BOOK SU BMITTED BEFORE THE BENCH, THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE IN RESPECT OF THE CYCLE MEETING EXPENSES. WE NOTE THAT IT WAS OBLIGATORY ON THE PART OF THE A SSESSEE TO PROVE WITH COGENT MATERIAL AND WITH SUPPORTING EVIDENCE THAT THE AMOU NTS PAID BY THE ASSESSEE WERE AGAINST SPECIFIC EXPENSES WHICH THE REPRESENTATIVES / MEDICAL STAFF/ EMPLOYEES INCURRED IN THE COURSE OF TRAVELLING/CYCLE MEETING. FOR THIS PURPOSE, IT WAS OBLIGATORY FOR THE ASSESSEE TO BRING ON RECORD EVID ENCES TO SUBSTANTIATE ITS CASE OF PURE REIMBURSEMENT. WE, HOWEVER, NOTE THAT APART FROM GIVING A PERSON-WISE STATEMENT OF PAYMENTS MADE, NO FURTHER DETAILS OR E VIDENCES WERE PRODUCED BEFORE US ON THE BASIS OF WHICH WE CAN SATISFY OURSELVES T HAT THE PAYMENTS MADE TO THE NAMED PERSONS WERE IN THE NATURE OF PURE REIMBURSE MENTS REQUIRING NO TAX DEDUCTION AT SOURCE. IN THE CIRCUMSTANCES THEREFORE , AND TO MEET THE ENDS OF JUSTICE FOR BOTH THE PARTIES, THIS DISALLOWANCE OF RS. 24,0 2,234/-IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WHO IS DIRECTED TO GRANT OPPO RTUNITY OF HEARING TO THE ASSESSEE FOR BRINGING ON RECORD RELEVANT MATERIALS & EVIDENCES TO PROVE ITS CASE THAT SINCE THE PAYMENTS WERE MADE IN THE NATURE OF PURE REIMBURSEMENTS, IT REQUIRED NO DEDUCTION OF TAX AT SOURCE. THE ASSESSI NG OFFICER SHALL ACCORDINGLY PASS A SPEAKING ORDER ON THE ISSUE. THEREFORE, WE A RE OF THE VIEW THAT THIS ISSUE SHOULD BE REMITTED BACK TO THE FILE OF THE AO TO EX AMINE THE CYCLE MEETING EXPENSES. THEREFORE, WE SET ASIDE THE ORDER OF LD C IT(A) AND REMIT THIS ISSUE BACK TO THE FILE OF THE AO TO ADJUDICATE THE ISSUE IN AC CORDANCE TO LAW. HENCE, WE ALLOW GROUND NO. 4 RAISED BY THE REVENUE FOR STATISTICAL PURPOSES. 18. SO FAR GROUND NO. 1, 5 AND 6 ARE CONCERNED, WE NOTE THAT THERE WERE NO ADDITIONAL EVIDENCES FILED BY THE ASSESSEE BEFORE T HE LD CIT(A). IN RESPECT OF GROUND NO. 5, THE LD. SR. COUNSEL DREW OUR ATTENTIO N TO PAGE NO. 262 TO 267 WHICH WERE DETAILS OF TDS DEDUCTED BY THE ASSESSEE. IN RE SPECT OF GROUND NO. 6, THE TDS DETAILS WERE FILED WHICH CAN BE SEEN FROM THE PERUS AL OF PAPER BOOK PAGES 268 TO 272. ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 14 1414 14 COMING TO GROUND NO. 1, WE NOTE THAT EVIDENCES WERE FILED BY ASSESSEE WHICH CAN BE SEEN FROM PAGE NO. 242 TO 249 OF PAPER BOOK, WHI CH ARE MANUFACTURING INVOICES OF CONVERSION CHARGES. SINCE ASSESSING OFF ICER DISALLOWED THE EXPENSES INCURRED ON RAW MATERIAL AND PACKING MATERIAL CONSU MED, HENCE, IT WAS BROUGHT TO OUR NOTICE BY THE LD. SR. COUNSEL THAT ALL THESE DO CUMENTS WERE FILED BEFORE THE LD. CIT(A) VIDE LETTER DATED 19.07.2011 WHICH IS FOUND PLACE AT PG. 238 TO 241 OF THE PAPER BOOK. ACCORDING TO LD. COUNSEL, THE COPY OF T HE SALE INVOICES WERE PROVIDED TO THE ASSESSING OFFICER IN REMAND PROCEEDINGS. THE LD. SR. COUNSEL DREW OUR ATTENTION TO PAGE 273 OF THE PAPER BOOK, WHERE WE N OTE THAT A LETTER WRITTEN BY THE ASSESSING OFFICER DATED 13.09.2011 IS PLACED WHEREI N AO HAS CANCELLED THE ADDITIONAL EVIDENCES THAT HAS TO BE SUBMITTED BEFOR E THE LD. CIT(A). IN THE LETTER, HE IN HIS OWN WORDS STATES THAT UNDERSIGNED HAS NO OBJECTION TO THE SAME BEING ADMITTED UNDER RULE 46A(4), IF LD. CIT(A) DECIDED T O ADMIT THESE EVIDENCE UNDER RULE 46A(4) . HOWEVER, THE UNDERSIGNED WOULD LIKE TO EXAMINE THE ISSUE OF NON- DEDUCTION OF TDS ON PAYMENT DETAILS. THEREAFTER, AO HAS GIVEN A CHART WHEREIN CERTAIN PA YMENTS WERE NOTED. IT WAS BROUGHT TO OUR NOTICE THAT THESE PAYMENTS MENTIONED IN THE CHART, HAVE NOTHING TO DO WITH GROUND NOS. 1,5 AND 6 RAISED BY THE REVENUE . SO THEREFORE, IN THE FACTS NARRATED ABOVE, WE NOTE THAT ASSESSING OFFICER HAS BEEN PUT TO NOTICE ABOUT THE ADDITIONAL EVIDENCES AND AFTER GOING THROUGH THE SA ME AS HAS NOT OBJECTED TO THE SAME BEING CONSIDERED BY THE LD. CIT(A) AND THEREFO RE OBJECTION RAISED BY REVENUE AS A GROUND OF VIOLATION OF RULE 46A DOES N OT SURVIVE IN RESPECT OF GROUND NOS.1,5 AND 6 AND THEREFORE WE ADJUDICATE TH E GROUND NOS.1,5 AND 6 ON MERITS IN SUBSEQUENT PARA OF THIS ORDER. 19. NOW COMING TO GROUND NO. 1 RAISED BY THE REVENU E, WHICH IS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWAN CE OF RS. 4,31,18,206/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENSES OF RAW MATERIAL AND PACKING MATERIAL. ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 15 1515 15 20. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE R ELEVANT PREVIOUS YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAD INCURRED EXP ENDITURE AMOUNTING TO RS. 21,55,91,028/- ON ACCOUNT OF RAW AND PACKING MATER IALS CONSUMED. IN THE BOOKS OF ACCOUNTS, THE COST OF RAW AND PACKING MATERIALS ACCOUNTED FOR, REPRESENTS THE RAW AND PACKING MATERIALS SUPPLIED BY THE ASSESSEE COMPANY TO SUCH THIRD PARTY MANUFACTURERS. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSEE VIDE ITS LETTER DATED 10 TH DECEMBER, 2010 FILED COMPLETE DETAILS IN RESPECT OF RAW MATERIALS AND PACKING MATERIAL CONSUMED. THE ASSESSEE VIDE A SEPARATE LETTER ON EVEN DATE FILED,THE COPIES OF AGREEMENT ENTERED INTO WITH SOM E OF THE LOAN LICENSEES OF THE COMPANY. IT WAS BROUGHT TO THE NOTICE OF ASSESSING OFFICER THAT THE ASSESSEE COMPANY DOES NOT HAVE ITS OWN MANUFACTURING FACILIT Y AND HAS BEEN ALLOTTED A LOAN LICENSE BY THE LICENSING AUTHORITY TO AVAIL THE MAN UFACTURING FACILITIES OF VARIOUS THIRD PARTY PRODUCERS. UNDER THE SAID ARRANGEMENT, THE COMPANY AVAILS THE MANUFACTURING FACILITIES OF THIRD PARTY PRODUCERS O N LOAN LICENSE BASIS FOR THE PURPOSE OF CONVERSION OF RAW MATERIALS ALONG WITH P ACKING MATERIALS IN TO SPECIFIC PRODUCE AS PER REQUIREMENT OF THE COMPANY. FOR THIS PURPOSE, THE THIRD PARTY PRODUCERS ARE PAID CONVERSION CHARGES WHEREAS, THE ASSESSEE COMPANY IS RESPONSIBLE FOR SUPPLYING THE RAW AND PACKING MATER IAL FREE OF COST AT THE THIRD PARTY PRODUCERS PREMISES. HOWEVER, DISREGARDING TH E SUBMISSION MADE BY THE ASSESSEE, THE ASSESSING OFFICER IN THE IMPUGNED ASS ESSMENT ORDER DATED 28 TH JANUARY, 2011, DISALLOWED 20% OF THE SAID EXPENDITU RE AMOUNTING TO RS. 4,31,18,206/- ON THE FOLLOWING CONTENTIONS: (I).EXAMINATION OF THE LOAN LICENSE AGREEMENT DATED 01-07-2004 BETWEEN ORGANON INDIA LIMITED AND RUGBY PHARMA PVT. LTD. CLEARLY IN DICATES THAT RESPONDENTS CONTENTION IS NOT TOTALLY CORRECT SINCE THE AGREEME NT FILED CLEARLY INDICATES THAT THE COMPANY IS SUPPLYING CERTAIN RAW PACKING AND OTHER MATERIALS FOR THE MANUFACTURES. (II).THE ASSESSEE COMPANY HAS NOT SUBSTANTIATED ITS CLAIM WITH PROPER DOCUMENTARY EVIDENCE (AGREEMENT). 21.AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE COMPA NY CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) IN HIS ORDER DATED 16 TH FEBRUARY,2017 ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 16 1616 16 DELETED THE IMPUGNED DISALLOWANCE MADE BY THE ASSES SING OFFICER ON ACCOUNT OF RAW AND PACKING MATERIALS CONSUMED. 22.WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THR OUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE COMPANY DOES NOT HAVE ITS OWN MANUFACTURING FACILIT Y. THE ASSESSEE COMPANY GET THE GOODS MANUFACTURED THROUGH THIRD PARTY PRODUCER S BY USING THEIR MANUFACTURING FACILITY. THE ASSESSEE COMPANY IS RES PONSIBLE FOR PURCHASE OF RAW MATERIALS AND PACKING MATERIALS WHICH IS SUPPLIED T O THIRD PARTY PRODUCERS, WHO PROCESSES THEM TO FINISHED GOODS. THUS, THE COST OF RAW MATERIALS AND PACKING MATERIALS TO THE EXTENT CONSUMED IN MANUFACTURING F INISHED GOODS IS CONSIDERED AS AN EXPENSE BY THE COMPANY IN ADDITION TO THE CONVER SION/ MANUFACTURING CHARGES PAID TO THIRD PARTY PRODUCERS, ON THE STRENGTH OF L OAN LICENSE AGREEMENT BASIS FOR THE PURPOSE OF CONVERSION OF RAW MATERIALS. HOWEVER, THE ASSESSING OFFICER HAS NOT AGREED TO TH E FACT THAT THE ASSESSEE HAS INCURRED THE COST OF RAW AND PACKING MATERIALS SINC E THE ASSESSEE DID NOT HAVE ANY MANUFACTURING FACILITIES AND AFTER GOING THROUGH TH E LOAN LICENSE AGREEMENT DATED 01.07.2004 BETWEEN THE ASSESSEE AND M/S RUGBY PHARM A PVT. LTD, THE AO WAS OF THE OPINION THAT THE ASSESSEE NEED TO GIVE ONLY CER TAIN RAW MATERIALS AND NOT ALL THE MATERIALS AND THEREFORE HE DISALLOWED 20% OF THE CL AIM. WE NOTE FROM THE LOAN LICENSE AGREEMENT THAT THE ASSESSEE COMPANY IS RESP ONSIBLE FOR PURCHASE OF RAW MATERIAL AND PACKING MATERIALS WHICH IS SUPPLIED TO THE THIRD PARTY PRODUCERS WHO PROCESSES THEM TO FINISHED GOODS. WE NOTE THAT COST OF RAW MATERIALS AND PACKING MATERIALS TO THE EXTENT CONSUMED IN MANUFACTURING F INISHED PRODUCTS CONSIDERED AS EXPENDITURE BY THE ASSESSEE COMPANY IN ADDITION TO THE CONVERSION CHARGES PAID TO THE THIRD PARTY PRODUCERS. OUR ATTENTION WAS DRAWN TO PAGE 180 OF THE PAPER BOOK, WHICH CONTAINS AGREEMENT BETWEEN ASSESSEE AND M/S R UGBY PHARMA PVT. LTD. WHEREIN AT PAGE 181 OF PB, WE NOTE THAT M/S RUGBY P HARMA PROVIDES THE MAN POWER, MANUFACTURING LICENSE, TECHNICAL EXPERTISE, CAPABILITY INFRASTRUCTURE AND FACILITIES REQUIRED FOR MANUFACTURING OF PHARMACEUT ICAL PRODUCTS AT ITS KOLKATA ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 17 1717 17 FACTORY FOR WHICH SERVICE / CONVERSION CHARGES ARE PAID BY THE ASSESSEE COMPANY ALONG WITH RAW MATERIALS AND PACKING MATERIALS SUPP LIED FULLY BY THE ASSESSEE COMPANY. THIS IS EVIDENT FROM PAGE 182 OF PAPER BOO K, WHERE CLAUSE 8 OF THE LOAN LICENSE AGREEMENT CLEARLY EXPLAINS THAT ASSESSEE SH ALL SUPPLY OF RAW AND PACKING MATERIALS AND OTHER MATERIALS TO M/S RUGBY PHARMA P VT. LTD. 23.WE NOTE THAT PROFIT AND LOSS ACCOUNT OF THE ASSE SSEE COMPANY SHOWS THE RAW MATERIAL EXPENSES ( PAGE NO. 3 OF PB). OUR ATTENTI ON WAS DRAWN TO PAGE NO. 18 OF PAPER BOOK, NOTES TO ACCOUNTS VIDE SCHEDULE 28B, WH ICH CONTAINS THE DETAILED ACCOUNT OF THE RAW MATERIAL, CHEMICALS, PACKING MAT ERIALS AND INGREDIENTS CONSUMED ALONG WITH QUANTITY AND VALUE. OUR ATTENTI ON WAS DRAWN TO PAGE 39 OF PAPER BOOK FROM WHICH WE NOTE THAT IN THE AUDITED F INANCIALS AT SCHEDULE 28B, THE ASSESSEE HAS GIVEN THE ENTIRE DETAILS OF THE RAW MA TERIALS IN ANNEXURE XIB AND XIC OF THE TAX AUDIT REPORT. THUS, WE NOTE THAT THE ASS ESSEE HAS DISCHARGED ITS ONUS ABOUT EXPENDITURE ON RAW MATERIALS, PACKING MATERIA LS AND OTHER MATERIALS. WE NOTE THAT LD. CIT(A) HAS DELETED THE ADDITION BY HO LDING AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSION AND EV IDENCES FILED BY THE APPELLANT-COMPANY IN THIS REGARD. AFTER CAREFULLY E XAMINING THE LOAN LICENSE AND INVOICES FILED DURING THE COURSE OF THE APPEAL PROCEEDINGS, IT IS OBSERVED THAT THE APPELLANT-COMPANY IS RESPONSIBLE FOR PURCHASE OF THE RAW MATERIALS AND PACKAGING MATERIALS WHICH ARE BEING S UPPLIED TO THE THIRD PARTY PRODUCERS WHO IN TURN PROCESS THE SAME TO FIN ISHED GOODS. THE THIRD PARTY PRODUCER ACTS AS A CONTRACT MANUFACTURER AND CHARGES FOR CONVERSION AMOUNTS. IT IS SEEN THAT THE APPELLANT COMPANY IS R ESPONSIBLE FOR SUPPLYING RAW MATERIAL AND PACKING MATERIALS AND REMAINS THE OWNER OF THE GOODS SUPPLYING RAW MATERIALS SUPPLIED THROUGHOUT THE MAN UFACTURING PROCESS AND TILL THE GOODS ARE SOLD TO THIRD PARTIES. THERE FORE, THE COST OF RAW AND PACKING MATERIALS PURCHASED AND CONSUMED TO PRODUCE FINISHED GOODS IS A LEGITIMATE EXPENSE IN THE HANDS OF THE COMPANY. IT IS TO BE OBSERVED THAT THE LD. ASSESSING OFFICER APPEARS NOT TO HAVE APPRECIAT ED THE ENTIRE GAMUT OF FACTS AS EMANATING FROM THE CASE. THE LD. ASSESSING OFFICER, MOREOVER, HAS NOT BROUGHT FORTH ANY TANGIBLE EVIDENCE ON RECORD T HAT THE EXPENSES DID NOT PERTAIN TO THE BUSINESS OF THE APPELLANT-COMPANY. 4. MOREOVER, IT IS SEEN THAT THE LD. ASSESSING OFFI CER HAS DISALLOWED 20% OF THE CLAIM OF THE EXPENSES ON AN AD HOC BASIS AND TH AT NOTHING HAS BEEN SAID IN THE REMAND REPORT TO BOLSTER THE ADDITION EITHER . HONBLE COURTS HAVE FROWNED UPON ANY DISALLOWANCES BEING MADE IN AN AD HOC FASHION WITHOUT EXAMINING LEDGERS AND EXPENSE RELATED VOUCHERS. IN THE SAID MATTER OF AD ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 18 1818 18 HOC DISALLOWANCES, VARIOUS HONBLE COURTS, INCLUDIN G THE HONBLE JURISDICTIONAL ITAT HAVE OBSERVED AS UNDER: ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 19 1919 19 ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 20 2020 20 5. BASED ON THE ABOVE JUDICIAL PRONOUNCEMENTS IT AP PEARS THAT SUCH ACTION BY THE LD. ASSESSING OFFICER DOES NOT WARRANT CONFI RMATION, ESPECIALLY IN A SITUATION WHERE THE BOOKS ARE AUDITED, AND THE ASSE SSEE HAS BEEN ABLE TO PRODUCE THE BOOKS VOUCHERS AND LEDGERS BEFORE THE L D. ASSESSING OFFICER. AFTER CONSIDERING ALL MATTERS, I FIND THAT THE DISA LLOWANCE OF 20% FOR THE EXPENDITURE TO BE EXCESSIVE AND UNJUSTIFIED. I AM O F THE CONSIDERED VIEW, THAT THE DISALLOWANCE MADE BY THE LD. ASSESSING OFF ICER IS UNSUSTAINABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, AND THEREF ORE, THE SAME IS ORDERED TO BE DELETED. THE GROUND THEREFORE STANDS ALLOWED. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. THAT BEING SO, WE DECLINE TO INTERFERE IN THE ORDER PASSED BY THE LD CIT(A), HIS ORDER ON THIS ISSUE IS HEREBY ACCEPTED AND GROUNDS OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 24. GROUND NO. 5 RAISED BY THE REVENUE RELATES TO D ELETION OF ADDITION OF RS. 1,50,28,008/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF NON-DEDUCTION OF TDS UNDER SECTION 40(A)(IA) OF THE ACT ON FREIGHT AND TRANSPORT EXPENSES. 25. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE Y EAR, THE COMPANY HAVE SHOWN TO HAVE INCURRED AN AMOUNT OF RS.1,50,28,008/- ON FREI GHT AND TRANSPORT EXPENSES. THE SAME INCLUDED EXPENSES INCURRED BY THE COMPANY ON ACCOUNT OF FREIGHT INWARD AND OUTWARD OF MATERIALS AND EXPORT OF MATER IALS. WHEN THE ASSESSING OFFICER ASKED FOR DETAILS, THE ASSESSEE COMPANY VID E LETTER DATED ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 21 2121 21 10 TH DECEMBER,2010 PROVIDED FULL DETAILS OF FREIGHT AND TRANSPORT EXPENSES VIZ. VOUCHER NUMBER, VOUCHER DATE, DESCRIPTION AND AMOUN T OF EXPENSES. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE ASSESSIN G OFFICER VIDE NOTICE DATED 16 TH DECEMBER, 2010 ASKED THE ASSESSEE COMPANY TO SHOW C AUSE WHY THE SAID EXPENSES SHOULD NOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT. IN RESPONSE TO THE SAME, THE ASSESSEE COMPANY VIDE ITS LETTER DATED 24 TH DECEMBER, 2010, FILED A DETAILED SUBMISSION ON TDS ON FREIGHT AND TRANSPOR T CHARGES. HOWEVER, DISREGARDING THE SUBMISSIONS MADE BY THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED THE ENTIRE AMOUNT OF RS. 1,50,28,008/- O N ACCOUNT OF FREIGHT AND TRANSPORT EXPENSES BASED ON THE CONTENTION THAT ASS ESSEE COMPANY HAD FAILED TO SUBSTANTIATE ITS CLAIM OF EXPENDITURES WITH ANY PRO OF OF EVIDENCE AS WELL AS PROOF OF TAX DEDUCTION. FURTHER, THAT THE ASSESSEE HAS NO T PROPERLY COMPLIED WITH THE SHOW CAUSE NOTICE AND HAS NOT BEEN ABLE TO OFFER AN Y SATISFACTORY EXPLANATION IN ITS WRITTEN SUBMISSION UNDER REFERENCE. 26. AGGRIEVED BY THE ORDER OF LD CIT(A), THE ASSESS EE CARRIED THE MATTER IN APPEAL BEFORE THE LD CIT(A), WHO HAS DELETED THE ADDITION. DURING THE COURSE OF HEARING BEFORE THE LD. CIT(A) THE ASSESSEE DULY FILED A DET AILED WRITTEN SUBMISSION AS WELL AS EVIDENCES BEING TDS DEDUCTED ON FREIGHT AND TRAN SPORT EXPENSES. DURING THE REMAND PROCEEDINGS, THESE EVIDENCES WERE EXAMINED B Y AO,AND HE DID NOT FURNISH ANY ADVERSE REPORT.THEREFORE, LD. CIT(A) DELETED T HE IMPUGNED DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FREIGHT AND TRANSPORT EXPENSES.AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 27. LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER, WHICH WE HAVE ALREADY NOTED IN O UR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. ON THE OTHE R HAND, LD COUNSEL FOR THE ASSESSEE DEFENDED THE ORDER PASSED BY LD CIT(A). 28. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE TH ROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 22 2222 22 CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. WE NOTE THAT THE COMPANY HAD SHOWN TO HAVE INCURRED EXPENDITURE OF RS. 1,50,28,0 08/- ON FREIGHT AND TRANSPORT EXPENSES. IT WAS BROUGHT TO OUR NOTICE BY THE LD. S R. COUNSEL THAT THIS AMOUNT INCLUDED EXPENSES INCURRED BY THE COMPANY ON ACCOUN T OF FREIGHT INWARD AND OUTWARD OF MATERIALS AND EXPORT OF MATERIALS. ACCOR DING TO LD. SR. COUNSEL, ALL THE DETAILS WERE FURNISHED TO THE ASSESSING OFFICER WHI CH IS EVIDENT FROM A PERUSAL OF POINT NO. 20 AT PAGE 52 OF PAPER BOOK, AND ANNEXURE 14 VIDE PAGE 93 TO 110 OF PAPER BOOK. WE NOTE THAT THE ASSESSING OFFICER PLAC ED ALL THE EVIDENCES AND HAS DISALLOWED ENTIRE AMOUNT OF RS. 1,50,28,008/- ON TH E REASON THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM OF EXPENDITURE WIT H ANY PROOF OF EVIDENCE AS WELL AS PROOF OF TAX DEDUCTION. ON APPEAL, THE ADDITIONAL E VIDENCE FILED BY THE ASSESSEE WHICH WAS AVAILABLE AT PAGE 239 AND 240 OF THE PAPE R BOOK AND ANNEXURE 3 AT 260 OF THE PAPER BOOK. AFTER TAKING NOTE OF EVIDENCES F URNISHED, IN RESPECT OF FREIGHT AND TRANSPORT EXPENSES, THE LD. CIT(A) HAS GIVEN RE LIEF TO THE ASSESSEE. WE NOTE THAT THE LD. CIT(A) HAS GIVEN THE FOLLOWING REASONS FOR GIVING RELIEF TO THE ASSESSEE, WHICH ARE AS FOLLOWS: ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 23 2323 23 ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 24 2424 24 ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 25 2525 25 29. THUS, WE NOTE THAT LD. CIT(A) AFTER GOING THROU GH THE REPLY OF THE ASSESSEE NOTED THAT ASSESSEE HAS DEDUCTED TDS ON FREIGHT AND TRANSPORT EXPENSES, AND THEREFORE DELETED THE ADDITION. THAT BEING SO, WE D ECLINE TO INTERFERE IN THE ORDER PASSED BY THE LD CIT(A), HIS ORDER ON THIS ISSUE IS HEREBY ACCEPTED AND GROUNDS OF APPEAL RAISED BY THE REVENUE IS DISMISSED. ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 26 2626 26 30. GROUND NO. 6 RAISED BY THE REVENUE RELATES TO D ELETION OF ADDITION OF RS. 1,61,01,291/- MADE BY THE ASSESSING OFFICER INVOKIN G SECTION 40(A)(IA) OF THE ACT, IN RESPECT OF LEGAL AND PROFESSIONAL EXPENSES. 31. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE Y EAR, THE COMPANY HAVE SHOWN TO HAVE INCURRED AN AMOUNT OF RS. 1,61,01,291/- ON ACC OUNT OF LEGAL AND PROFESSIONAL EXPENSES. WHEN ASKED BY THE ASSESSING OFFICER, THE ASSESSEE COMPANY, VIDE LETTER DATED 10 TH DECEMBER, 2010 PROVIDED DETAILS OF LEGAL AND PROFES SIONAL FEES VIZ. VOUCHER NUMBER, VOUCHER DATE, DESCRIPTION AND AMOUN T OF EXPENSES. NOT SATISFIED WITH THE REPLY OF THE ASSESSEE, THE ASSESSING OFFIC ER VIDE NOTICE DATED 16 TH DECEMBER, 2010 ASKED THE RESPONDENT TO SHOW CAUSE W HY THE SAID EXPENSES SHOULD NOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT. IN RESPONSE TO THE SAME, THE ASSESSEE COMPANY, VIDE ITS LETTER DATED 24 TH DECEMBER, 2010 FILED A DETAILED SUBMISSION ON TDS ON LEGAL AND PROFESSIONAL EXP. HOWEVER, DISREGARDING THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY, THE ASSES SING OFFICER DISALLOWED THE ENTIRE AMOUNT OF RS. 1,61,01,291/- ON ACCOUNT OF LE GAL AND PROFESSIONAL FEES BASED ON THE CONTENTION THAT ASSESSEE COMPANY HAD FAILED TO SUBSTANTIATE ITS CLAIM OF EXPENDITURES WITH ANY PROOF OF EVIDENCE AS WELL AS PROOF OF TAX DEDUCTION. 32. AGGRIEVED BY THE IMPUGNED DISALLOWANCE, THE ASS ESSEE COMPANY FILED AN APPEAL BEFORE THE LD. CIT(A).DURING THE COURSE OF H EARING BEFORE THE LD. CIT(A), THE ASSESSEE COMPANY FILED A DETAILED SUBMISSIONS, WHICH WERE PLACED BEFORE THE ASSESSING OFFICER, WHO DID NOT OFFER ANY ADVERSE CO MMENTS ON THE SAME,THEREFORE, LD. CIT(A) DELETED THE IMPUGNED DISALLOWANCE MADE B Y THE ASSESSING OFFICER ON ACCOUNT OF LEGAL AND PROFESSIONAL FEES. 33. LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER, WHICH WE HAVE ALREADY NOTED IN O UR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. ON THE OTHE R HAND, LD COUNSEL FOR THE ASSESSEE DEFENDED THE ORDER PASSED BY LD CIT(A). ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 27 2727 27 34. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE TH ROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE COMPANY INCURRED EXPENDITURE OF RS. 1,61,01,291/- O N ACCOUNT OF LEGAL AND PROFESSIONAL EXPENSES. WHEN ASKED BY THE ASSESSING OFFICER, THE ASSESSEE HAD FILED DETAILS OF LEGAL AND PROFESSIONAL FEES ALONG WITH VOUCHER NUMBER, VOUCHER DATE, DESCRIPTION AND AMOUNT OF EXPENSES WHICH IS P LACED AT PAGE 52 OF PAPER BOOK VIDE POINT NO. 24 AND ANNEXURE 18 AT PAGE 111 TO 11 8 OF PAPER BOOK. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE DOCUME NTS FURNISHED BEFORE HIM AND HE DISALLOWED THE ENTIRE AMOUNT. ON APPEAL, BEFORE THE LD. CIT(A), THE ASSESSEE HAD FILED THE EVIDENCE TO SHOW THAT TDS WAS DEDUCTE D ON THE LEGAL AND PROFESSIONAL FEES WHICH IS EVIDENT FROM PAGE 240 OF THE PAPER BOOK AND ANNEXURE 4 OF PAGE 268 TO 272 OF PAPER BOOK. THESE ADDITIONA L EVIDENCES WERE ALSO FILED BEFORE THE ASSESSING OFFICER WHO HAS NOT GIVEN ANY ADVERSE COMMENT ON THESE EVIDENCES/DOCUMENTS. THEREFORE, THE LD. CIT(A) AFTE R GOING THROUGH THE MATERIALS PLACED BEFORE HIM HAS DELETED THE ADDITION. THEREF ORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). THAT BEIN G SO, WE DECLINE TO INTERFERE IN THE ORDER PASSED BY THE LD CIT(A), HIS ORDER ON THI S ISSUE IS HEREBY ACCEPTED AND GROUNDS OF APPEAL RAISED BY THE REVENUE IS DISMISSE D. 35. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 06.09.2019 SD/- ( A.T. VARKEY ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 06/09/2019 ( SB, SR.PS ) ORGANON (INDIA) PVT. LTD. ITA NOS.982& 892/KOL/2017 ASSESSMENT YEAR:2007-08 PAGE | PAGE | PAGE | PAGE | 28 2828 28 COPY OF THE ORDER FORWARDED TO: 1. ORGANON (INDIA) PVT. LTD. 2. DCIT, CIRCLE-12(1), KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES
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