NOVARTIS INDIA LTD, V. DCIT SP RG 23,

MA 132/MUM/2013

• Counselvise Citation: [2015] 124 COUNSELVISE.COM (IT) 3284 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 24 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 03-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 06-09-2013
• Assessment Year: 1994-1995
• Appeal Filed On: 09-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIVEK PERAMPURA
• Assessee Lawyers: J D MISTRI
• Keywords: Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER MISCELLANEOUS APPLICATION 13 2 /MUM/201 3 ARISING OUT OF ITA NO. 2874/MUM/1999 AY 1994 - 95 MISCELLANEOUS APPLICATION 133/MUM/2013 ARISING OUT OF ITA NO. 2720/MUM/1999 AY 1994 - 95 NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUST AN CIBA GEIGY LTD) , SANDOZ HOUSE, DR. ANNIE BESANT ROAD, WORLI, MUMBAI - 400 018 .: PAN: AA A CH 1458 C VS THE DY . COMMISSIONER OF INCOME - TAX SPL RANGE - 23, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J D MISTRI RESPONDENT BY : SHRI VIVEK PERAMPURA /DATE OF HEARING : 03 - 0 7 - 201 5 / DATE OF PRONOUNCEMENT : 10 - 07 - 201 5 O R DE R , : PER AMIT SHUKLA , JM : THE AFORESAID MISCELLANEOUS APPLICATIONS HAVE BEEN FILED BY THE ASSESSEE IN RELATION TO TRIBUNAL ORDER DATED 31.10.2012 PASSED IN ITA NO. 2874/MUM/1999 AND 2720/MUM/1999 , SEEKING RECTIFICATION OF CERTAIN ISSUES. 2. WE WILL FIRST TAKE - UP MA NO. 132/M/2013, WHEREIN, THE ASSESSEE HAS RAISED FIVE ISSUES , WHEREIN, IT HAS CONTENDED THAT CERTAIN MISTAKES HAVE CREPT IN THE ORDER, WHICH NEEDS RECTIFICATION WITHIN THE SCOPE AND MEANING OF SECTION 254(2), THE SAME ARE BEING DEALT AS UNDER. NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 2 3. ISSUE NO. 1: NON - DISPOSAL OF GROUNDS 6(I) WHICH PERTAINS TO DISALLOW ANCE OF LUNCH EXPENSES TO PERSONNEL ON OUTDOOR DUTY FOR SUM AGGREGATING TO RS. 6,34,988/ - . 4. BEFORE US, THE LD. SR. COUNSEL , SHRI J D MISTRI SUBMITTED THAT THERE WERE VARIOUS DISALLOWANCE S OF EXPENSES WHICH WERE RAISED IN GROUND NO. 6 OUT OF WHICH, THREE EXPENSES HAVE BEEN DEALT BY THE TRIBUNAL. HOWEVER, THE DISALLOWANCE OF LUNCH EXPENSES TO PERSONNEL ON OUTDOOR DUTY HAVE NOT BEEN ADJUDICATED. HE FURTHER SUBMITTED THAT IN THE ASSESSMENT YEAR 1995 - 96, THE TRIBUNAL HAD ALLOWED THE SAID EXPENSE, THEREFORE, O N SIMILAR FACTS THIS ISSUE CAN BE DECIDED. 5 . AFTER HEARING THE LD. DR AND LD. SENIOR COUNSEL FOR THE ASSESSEE, WE FIND THAT THE TRIBUNAL WHILE ADJUDICATING GROUND NO. 6 IN PARA 14 HAD OMITTED TO DECIDE THE SAID GROUND RELATING TO LUNCH EXPENSES TO PERSON NEL ON OUTDOOR DUTY EXPENSE . WE FIND THAT IN THE ASSESSMENT YEAR 1992 - 93, THE TRIBUNAL FOLLOWING EARLIER ORDER FOR AY 1991 - 92 HAS UPHELD THE DISALLOWANCE OF LUNCH EXPENSES TO THE EXTENT OF RS. 2 LAKHS. WHEREAS, IN THE ASSESSMENT YEAR 1995 - 96, THE TRIBUNAL HAS HELD THAT LUNCH EXPENSES INCURRED FOR THE EMPLOYEES DURING THE COURSE OF OUTDOOR DUTIES IS TO BE ALLOWED U/S 37(3) AND ACCORDINGLY , FOLLOWING THE SAME, WE DIRECT THE AO TO ALLOW THE LUNCH EXPENSES OF THE EMPLOYEES INCURRED ON THE OUTDOOR DUTY. THUS , TH IS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 6 . SECOND ISSUE RELATES TO FOREIGN TRAVEL EXPENSES. THE LD. SENIOR COUNSEL POINTED OUT THAT THE TRIBUNAL IN ITS ORDER HAS HELD THAT THIS GROUND OF APPEAL HAS NOT BEEN PRESSED AT THE TIME OF HEARING. HE SUBMIT TED THAT, IN FACT, THE ASSESSEE HAD RAISED TH IS ISSUE OF DISALLOWANCE OF FOREIGN TRAVEL EXPENSES, VIDE GROUND NO. 3(A) AND AT THE SAME TIME, GROUND NO. 3(B) RAISED THE ALTERNATE CONTENTION THAT IF THE FOREIGN TRAVEL EXPENSES ARE HELD TO BE CAPITAL IN NATUR E THEN NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 3 DEPRECIATION SHOULD BE ALLOWED. HOWEVER, THE TRIBUNAL WHILE ADJUDICATING THE SAID GROUND, HAS TREATED THE ENTIRE ISSUE AS INFRUCTUOUS AND, THEREFORE, IT WAS HELD THAT THE SAID GROUND IS NOT PRESSED. IN FACT, THE SAID GROUNDS WERE STATED TO BE COVERE D BY THE DECISION OF THE TRIBUNAL ORDER IN ASSESSEES OWN CASE RIGHT FROM THE ASSESSMENT YEAR 1991 - 92 TO 1993 - 94. 7 . AFTER HEARING BOTH THE PARTIES, IT I S NOTICED THAT THE ASSESSEE VIDE GROUND NO. 3(A) HAS CHALLENGED THAT THE LD. CIT(A) HAS ERRED IN DISAL LOWING RS. 19,94,623/ - , BEING 20% OF TOTAL FOREIGN TRAVELLING EXPENSES ON THE GROUND THAT THEY ARE CAPITAL IN NATURE. IN GROUND NO. 3(B), AN ALTERNATE CONTENTION WAS RAISED BY THE ASSESSEE, IN CASE SUCH A N EXPENSE IS NOT ALLOWED , THEN DEPRECIATION SHOULD B E ALLOWED. IN THE CHART SUBMITTED BY THE ASSESSEE AND ALSO ON PERUSAL OF OUR LOG - BOOK, WE HAVE A L SO NOTED THAT GROUND NO. 3(B) WILL BECOME INFRUCTUOUS IF GROUND NO. 3(A) IS ALLOWED. HOWEVER, IN THE ORDER, IT HAS BEEN WRONGLY HELD THAT THE SAID GROUND IS NO T PRESSED. THIS IS CLEAR A MISTAKE APPARENT FROM RECORD, WHICH NEEDS TO BE RECTIFIED. 8. ON MERITS, WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL NOT ONLY IN THE EARLIER YEARS BUT ALSO IN THE ASSESSMENT YEAR 1995 - 96 WHEREIN, THE TRIBUNAL VIDE PARA NO. 37 HAS DELETED THE SAID ADDITION AFTER FOLLOWING THE EARLIER YEARS ORDERS OF THE TRIBUNAL. THUS, RESPECTFULLY FOLLOWING THE EARLIER YEARS PRECEDENCE AND ALSO THE ORDER FOR THE ASSESSMENT YEAR 1995 - 96, WE DIRECT THE AO TO DELETE THE SAID ADDITION. ACCORDINGLY GROUND NO. 3(A) IS ALLOWED. 9 . ISSUE NO. 3, WHICH IS WITH REGARD TO GROUND NO. 4 CHALLENGING THE DISALLOWANCE OF RS. 14,64,642/ - FOR TOTAL EXPENSES AND AIR FARES OF FOREIGN VISITORS IN INDIA. AFTER CONSIDERING THE SUBMISSION OF THE LD. COUNSEL AND ON PERUSAL OF THE RELEVANT MATERIAL ON RECORD, WE FIND THAT SO FAR AS THE ISSUE OF DISALLOWANCE OF RS. 14,64,642/ - FOR HOTEL NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 4 EXPENSES AND AIR - FARES OF FOREIGN VISITORS TO INDIA , IT WAS RAISED VIDE GROUND NO. 4(A) WHEREIN, THE ASSESSEE HAD CATEGORICALL Y STATED THAT THIS ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1992 - 93 AND 1993 - 94. IF THE SAID GROUND IS ALLOWED THEN GROUND NO. 4(B) AND 4(C) WOULD BECOME INFRUCTUOUS. WE FIND THAT A MISTAK E HAS BEEN CREPT IN THE ORDER OF THE TRIBUNAL, WHEREIN, IT HAS BEEN NOTED THAT THE SAID GROUND IS NOT PRESSED , WHICH FACT IS NOT CORRECT. ACCORDINGLY, WE RECTIFY THE SAME AND HOLD THAT SUCH EXPENSES ARE TO BE ALLOWED AS SIMILAR DISALLOWANCES HAVE BEEN D ELE TED BY THE TRIBUNAL NOT ONLY IN THE ASSESSMENT YEARS 1992 - 93 AND 1993 - 94 BUT ALSO IN THE ASSESSMENT YEAR 1995 - 96. THUS, GROUND NO. 4(A) IS TREATED AS ALLOWED. 11. ISSUE NO. 4 PERTAINS TO EXCESS AND SHORT PROVISION OF EXPENDITURE. THE LD. SENIOR COUNSEL PO INTED OUT THAT THE TRIBUNAL HAS DEALT THE ISSUE VIDE PARA AND 6 AND FURTHER VIDE PARA 24 TO 26. THE RELEVANT OBSERVATION S OF THE TRIBUNAL IN THE IMPUGNED ORDER IN THIS REGARD ARE AS UNDER: 4. DURING THE YEAR UNDER CONSIDERATION, PROVISION WAS MADE BY THE ASSESSEE FOR CERTAIN EXPENSES ON ESTIMATED BASIS. AS PER THE FINAL POSITION EMERGED IN THE SUBSEQUENT YEAR, THE PROVISION SO MADE FOR SOME EXPENSES TURNED OUT TO BE MORE WHEREAS THE PROVISION MADE FOR OTHER EXPENSES TURNED OUT TO BE SHORT. THE EXCESS PROV ISION WAS WRITTEN BACK BY THE ASSESSEE IN THE SUBSEQUENT YEARS WHICH WAS OFFERED TO TAX BY THE ASSESSEE IN THE SUBSEQUENT YEAR. IN THE YEAR UNDER CONSIDERATION, THE AO, HOWEVER, DISALLOWED THE AMOUNT OF PROVISION FOR EXPENSES MADE BY THE ASSESSEE IN EXCESS AND CONFIRMING THE SAID ADDITION MADE BY THE AO, THE LEARNED CIT(APPEALS) DIRECTED THE AO TO CONSIDER THIS ASPECT IN THE SUBSEQUENT YEAR BY REDUCING THE INCOME NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 5 OFFERED BY THE ASSESSEE IN THAT YEAR BY WAY OF EXCESS PROVISION WRITTEN BACK TO AVOID DOUBLE TA XATION. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IN RESPECT OF EXCESS PROVISION, THE ASSESSEE HAS ALREADY GOT THE RELIEF FROM THE AO IN THE SUBSEQUENT YEAR AS PER THE DIRECTION GIVEN BY THE LEARNED CIT(APPEALS) INASMUCH AS THE EXCESS PROVISION WRITTEN BACK HAS BEEN EXCLUDED BY HIM FROM THE TOTAL INCOME OF THE ASSESSEE. HE, HOWEVER, HAS CONTENDED THAT NO DEDUCTION HAS BEEN ALLOWED BY THE AO IN THE SUBSEQUENT YEAR ON ACCOUNT OF SHORT PROVISION MADE IN THE YEAR UNDER CONSIDERATION FOR WHICH PAYMENT WAS MADE IN THE SUBSEQUENT YEAR ON THE GROUND THAT THE SAME REPRESENTED EXPENSES PERTAINING TO ASSESSMENT YEAR 1994 - 95. HE HAS CONTENDED THAT THE ASSESSEE THUS HAS NOT GOT DEDUCTION FOR THIS AMOUNT EITHER IN ASSESSMENT YEAR 1995 - 96 ON THE GROUND THAT IT WAS PERTAINING TO ASSESSMENT YEAR 1994 - 95 AND EVEN IN 1994 - 95 ON THE GROUND THAT THE SAME WAS NOT CLAIMED BY IT IN THAT YEAR. HE HAS CONTEN DED THAT THE AO, THEREFORE, MAY BE DIRECTED TO ALLOW DEDUCTION FOR THE SAID AMOUNT IN THE YEAR UNDER CONSIDERATION AS THE SAME REPRESENTS EXPENSES PERTAINING TO THAT YEAR. THE LEARNED DR, ON THE OTHER HAND, STRONGLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED FROM THE RELEVANT PORTION OF THE LEARNED CIT(APPEALS) IMPUGNED ORDER (PARA NO. 18 TO 22) THAT THE ISSUE AS REGARDS THE SHORT PRO VISION WAS NEITHER SPECIFICALLY RAISED BY THE ASSESSEE NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 6 NOR CONSIDERED BY THE LEARNED CIT(APPEALS) ALTHOUGH THE DETAILS FURNISHED BY THE ASSESSEE AT PAGE NO. 94 AND 95 OF HIS PAPER BOOK SHOW THAT THERE WAS A CASE OF SHORT PROVISION MADE FOR CERTAIN EXPENSES . IT IS ALSO OBSERVED THAT A SIMILAR ISSUE WAS INVOLVED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1993 - 94 AND THE TRIBUNAL VIDE ITS ORDER DATED 29 - 06 - 2012 PASSED IN ITA NO. 334/MUM/1997 UPHELD THE ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE. AS THE JU DICIAL DISCIPLINE WARRANTS US TO FOLLOW THE ORDER OF THE COORDINATE BENCH PASSED IN ASSESSEES OWN CASE ESPECIALLY WHEN THE ISSUE INVOLVED AS WELL AS MATERIAL FACTS RELEVANT THERETO ARE SIMILAR, WE FOLLOW THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1993 - 94 AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE. GROUND NO. 1 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED . 24. THE ISSUE RAISED IN GROUND NO. 11 OF THE ASSESSEES APPEAL RELATES TO THE DISA LLOWANCE OF RS.63,93,929/ - MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF EXPENSES PERTAINING TO ASSESSMENT YEAR 1993 - 94. 25. DURING THE YEAR UNDER CONSIDERATION, A SUM OF RS.63,93,929/ - WAS CLAIMED BY THE ASSESSEE ON ACCOUNT OF EXP ENSES PERTAINING TO ASSESSMENT YEAR 1993 - 94 WHICH WERE ACTUALLY INCURRED IN THE YEAR UNDER CONSIDERATION. ACCORDING TO THE ASSESSEE, PROVISION FOR THE RELEVANT EXPENSES MADE IN ASSESSMENT YEAR 1993 - 94 WAS SHORT AND, THEREFORE, THE ACTUAL EXPENSES INCURRED TO THE EXTENT THEY WERE MORE THAN THE PROVISION MADE IN ASSESSMENT YEAR 1993 - 94 WERE CLAIMED IN THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 1994 - 95. THE AO AS WELL AS THE LEARNED CIT(APPEALS), HOWEVER, DISALLOWED THE CLAIM OF THE NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 7 ASSESSEE ON THIS ISS UE ON THE GROUND THAT THIS AMOUNT REPRESENTED EXPENSES PERTAINING TO ASSESSMENT YEAR 1993 - 94 WHICH COULD NOT BE ALLOWED IN 1994 - 95. 26. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED BEFORE US THAT AS A RESULT OF STAND TAKEN BY THE AUTHORITIES BELOW ON THIS ISSUE, THE ASSESSEE IS NOT IN A POSITION TO GET THE DEDUCTION ON ACCOUNT OF GENUINE BUSINESS EXPENDITURE EITHER IN ASSESSMENT YEA R 1993 - 94 OR EVEN IN ASSESSMENT YEAR 1994 - 95, IT IS OBSERVED THAT A SIMILAR CONTENTION RAISED ON BEHALF OF THE ASSESSEE IN ASSESSMENT YEAR 1993 - 94 HAS NOT BEEN ACCEPTED BY THE TRIBUNAL VIDE ITS ORDER DATED 29 - 06 - 2010 (SUPRA) AND A SIMILAR ISSUE HAS BEEN DE CIDED AGAINST THE ASSESSEE. AS A MATTER OF JUDICIAL DISCIPLINE, WE FOLLOW THE SAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1993 - 94 AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) CONFIRMING THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE. GROUND NO.11 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED . 8. R EG ARD ING THIS ISSUE , THE LD. SENIOR COUNSEL SUB MITTED THAT ASSESSEES CLAIM WAS THAT THE AO HAS ERRED IN DISALLOWING ITS CLAIM FOR THE YEAR END PROVISION OF EXPENSES, BASED ON ESTIMATES FOR WHICH ACTUAL BILLS WERE NOT RECEIVED, ON THE GROUND THAT THE ACTUAL EXPENDITURE IN THE SUBSEQUENT YEAR IS LESS THAN THE PROVISIONS MADE IN THE YEAR. BASED ON THIS, THE AO HAD DENIED THE ASSESSEES CLAIM FOR PROVISIONS OF EXPENSES TO THE EXTENT OF THE DIFFERENCE BETWEEN THE PROVISION MADE AND THE ACTUAL AMOUNT PAID IN THE SUBSEQUENT YEAR. THIS ISSUE WAS RAISED BEFORE THE TRIBUNAL IN GROUND NO. 1, WHICH HAS BEEN DEALT BY THE TRIBUNAL VIDE PARA 3 TO 6 (WHICH HAS BEEN NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 8 INCORPORATED ABOVE). IN GROUND NO. 11, THE ASSES S EE HAS RAISED THAT THERE WAS A SHORT PROVISION IN THE ASSESSMENT YEAR 1993 - 94 , SINCE ACTUAL EXPENDITURE IN THE YEAR UNDER CONSIDERATION I.E. AY 1994 - 95 WAS MORE THAN THE AMOUNT OF PROVISION MADE IN 1993 - 94, THEREFORE, THE EXCE SS AMOUNT WAS CLAIMED AS DEDUCTION FOR THE YEAR. BOTH THE AFORESAID CLAIMS OF THE ASSESSEE HAVE BEEN DENIED BY THE TRIBUNAL. IN THIS REGARD, ASSESSEES CASE BEFORE THE TRIBUNAL WAS AS UNDER: A ) UNDER MERCANTILE SYSTEM OF ACCOUNTING A PROVISION FOR EXPENSE HA S TO BE MADE IN RESPECT OF AN SERVICE/GOODS RECEIVED DURING THE PREVIOUS YEAR BUT WHICH BILL IS NOT RECEIVED AT THE TIME OF PROVISION AND PAYMENT IS TO BE MADE AT A LATER DATE UPON RECEIPT OF ACTUAL BILL. THE APPLICANT HAD MADE PROVISION FOR EXPENSES AS IT WAS FOLLOWING MERCANTILE METHOD OF ACCOUNTING WHICH HAS BEEN ACCEPTED BY THE REVENUE. B ) IT WAS A NECESSARY INCIDENT OF MERCANTILE METHOD OF ACCOUNTING AND MAKING PROVISIONS THAT THERE COULD BE SOME EXCESS PROVISION OR SHORT PROVISION. NO DISALLOWANCE CAN B E MADE IN THE YEAR IN WHICH THE PROVISION IS MADE ON THE GROUND THAT THE ESTIMATED PROVISION IS IN EXCESS OF THE ACTUAL PAYMENT MADE BY THE ASSESSEE IN THE LATER YEAR. SIMILARLY, IF THE PROVISION MADE IN YEAR 1 IS LESSER THAN THE ACTUAL PAYMENT/ EXPENDITUR E INCURRED IN YEAR 2, NO DISALLOWANCE CAN BE MADE IN YEAR 2 IN RESPECT OF THE ACTUAL EXPENDITURE CLAIMED WHICH WAS IN EXCESS OF THE PROVISION MADE IN YEAR 1 BY THE ASSESSEE. C ) IT WAS NOT THE CASE OF THE REVENUE THAT THE APPLICANT OUGHT NOT TO HAVE MADE A PR OVISION IN RESPECT OF A PARTICULAR EXPENDITURE, BUT, THE ISSUE WAS WITH RESPECT TO NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 9 QUANTIFICATION OF THE AMOUNT FOR WHICH THE PROVISION OUGHT TO HAVE BEEN MADE. ACCORDING TO THE REVENUE, THE ASSESSEE SHOULD IN EACH CASE BE ABLE TO ESTIMATE THE AMOUNT OF EX PENDITURE TO BE INCURRED IN LATER YEARS WHICH SHOULD EXACTLY MATCH WITH THE ACTUAL EXPENDITURE INCURRED IN THE LATER YEAR. THE APPLICANT SUBMITS THAT IT WAS IMPOSSIBLE TO ACHIEVE THIS POSITION AS IN ESTIMATION BY ITS VERY NATURE THERE COULD BE SOME EXCESS OR SHORT PROVISION. THEREFORE, THE DISALLOWANCE AS MADE BY THE AO IN RESPECT OF EXCESS PROVISION FOR THE YEAR UNDER CONSIDERATION COVERED BY GROUND NO. 2 AND ACTUAL PAYMENT/EXPENDITURE IN EXCESS OF THE PROVISION FOR THE EARLIER YEARS COVERED BY GROUND NO. 14 OUGHT TO HAVE BEEN ALLOWED. D) IN THE ALTERNATIVE IT WAS URGED BY THE APPLICANT THAT THE SAME PRINCIPLES TO BE APPLIED TO SHORT PROVISION AND EXCESS PROVISION AND THEREBY DEDUCTION SHOULD BE GRANTED IN RESPECT OF SHORT PROVISION OF RS. 8,229,109 / - DE TAILS OF WHICH WERE AVAILABLE BEFORE THE TRIBUNAL AT PAGE 1 OF THE PAPER BOOK. 11. HE SUBMITTED THAT T HE FINDING OF THE TRIBUNAL (AS NOTED ABOVE) IS BASED ON NON - APPRECIATION OF THE FACTS AND ISSUES INVOLVED BECAUSE THE TRIBUNAL FOR THE ASSESSMENT YEAR 19 93 - 94 HAD DECIDED THE MATTER ON THE PRESUMPTION THAT THIS ISSUE STANDS COVERED BY THE EARLIER ORDER OF THE TRIBUNAL . THE TRIBUNAL IN AY 1993 - 94 HAD RELIED UPON THE ORDER OF THE ASSESSEE FOR THE ASSESSMENT YEAR 199 2 - 9 3 ON THE PRESUMPTION THAT THE ISSUES STA NDS COVERED BY THE ORDER. HOWEVER, IN THAT YEAR THE ASSESSEE HAD NOT RAISED THE ISSUE O F DENIAL OF DEDUCTION IN RESPECT OF EITHER EXCESS PROVISION OR SHORT PROVISION. IN THAT YEAR, THE FACTUAL POSITION WAS THAT THERE WAS AN EXCESS PROVISION IN THE EARLIER YEAR I.E. IN AY 1991 - 92 AND THE ACTUAL EXPENDITURE INCURRED IN 1992 - 93 WAS NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 10 LESS THAN THE AMOUNT OF PROVISION, THEREFORE, IN THIS BACKGROUND, SUCH A DISALLOWANCE MADE BY THE AO WAS NOT DISPUTED. IN AY 1992 - 93, THE ASSESSEE HAS REVERSED THE PROVISION FOR EXP ENSES AND OFFERED THE EXCESS PROVISION SO REVERSED TO TAX. THE TRIBUNAL ORDER FOR THE SAID ORDER HAS THUS NO RESEMBLANCE AT ALL TO THE ISSUE INVOLVED FOR THE ASSESSMENT YEAR 1993 - 94 AND IN THE YEAR UNDER CONSIDERATION. THEREFORE, THE RELIANCE PLACED BY THE TRIBUNAL IN ITS EARLIER ORDER OF 1993 - 94, WHICH IN TURN IS BASED ON A Y 1992 - 93 HAD NO BEARING, THEREFORE, IT CONSTITUTES A MISTAKE APPARENT FROM RECORD, WHICH NEEDS TO BE RECTIFIED. HOWEVER, HE ADMITTED THAT IN THE MISCELLANEOUS APPLICATION FILED FOR THE AY 1993 - 94, POINTING OUT THE SIMILAR MISTAKE HAS BEEN REJECTED BY THE TRIBUNAL. ON THE OTHER HAND, LD. DR SUBMITTED THAT SINCE SIMILAR ISSUE HAS BEEN DISMISSED BY THE TRIBUNAL IN THE MISCELLANEOUS APPLICATION FOR THE AY 1993 - 94 , THEREFORE, THIS ISSUE NEED S TO BE DISMISSED. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO THE RELEVANT FINDING GIVEN BY THE TRIBUNAL IN THE IMPUGNED ORDER. IN GROUND NO. 1, THE ASSESSEE HAD MAINLY CHALLENGED THE ADDING BACK OF THE AMOUNT OF PROVISIONS OF EXPENSES AS ON YEAR E ND BASED ON ESTIMATE S FOR WHICH ACTUAL BILLS WERE NOT RECEIVED. THE ASSESSEE HAS BEEN MAKING THE PROVISIONS FOR EXPENSES IN RESPECT OF SERVICES AND GOODS RECEIVED DURING THE PREVIOUS YEAR FOR WHICH BILL IS NOT RECEIVED TILL THE TIME OF THE PROVISION IS MAD E AND PAYMENT IS MADE ON LATER DATE UPON THE RECEIPT OF THE BILL. SUCH A CLAIM OF PROVISION HAS BEEN MADE AS ASSESSEE WAS FOLLOWING MERCANTILE METHOD OF ACCOUNTING. IF THERE WAS SOME EXCESS PROVISION AS COMPARED TO THE ACTUAL PAYMENT MADE TO THE ASSESSEE I N THE LATER YEAR THEN SAME NEEDS TO BE ADDED BACK. THE LD. CIT(A) AFTER CONFIRMING THE SAID ADDITION HAD DIRECTED THE AO TO CONSIDER THIS ASPECT IN THE SUBSEQUENT YEAR BY REDUCING THE INCOME OFFERED BY THE ASSESSEE IN THAT YEAR TO THE AMOUNT OF THE EXCESS NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 11 PROVISION WRITTEN BACK TO AVOID DOUBLE TAXATION. SO FAR AS ADDITION ON THIS ACCOUNT IS CONCERNED, THE FINDING OF THE TRIBUNAL IN PARA 5 & 6 CANNOT BE DISTURBED , BECAUSE IF SUCH AN EXCESS PROVISION HAS BEEN ADDED BACK AND DIRECTIONS HAVE BEEN GIVEN T O T HE A O THAT HE SHOULD REDUCE THE INCOME OFFERED BY THE ASSESSEE O N SUCH A PROVISION WRITTEN BACK BY THE ASSESSEE , THERE IS NO MERITS IN ALLOWING SUCH EXCESS PROVISION IN THIS YEAR, AS DIRECTION HAS BEEN ALREADY GIVEN FOR CONSEQUENTIAL RELIEF IN THE NEXT YEAR. T HIS YEAR, NO DIFFERENT STAND CAN BE TAKEN. 12. IN SO FAR AS THE ISSUE AS RAISED IN GROUND NO. 11, WHEREIN, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE ON ACCOUNT OF EXPENSES PERTAINING TO THE ASSESSMENT YEAR 1993 - 94, WHICH WERE ACTUALLY INCURRED IN THE YEAR UNDER CONSIDERATION AND THERE WAS SHORT PROVISION MAD E IN THE EARLIER YEAR , THOUGH WE FEEL PERSUADED TO AGREE WITH THE CONTENTION OF THE LD. SR. COUNSEL THAT , I F THE EXCESS PROVISION IS BEING DISALLOWED ON THE GROUND THAT ACTUAL BILLS FOR WHICH PAYMEN T HAS BEEN MADE IS LESS THAN THE PROVISION AND SAME SHOULD BE ADDED IN THE YEAR OF EXCESS PROVISION, THE N ON SAME LOGIC IT HAS TO BE HELD THAT IF THE ASSESSEES ACTUAL PAYMENT IS MORE THAN THE PROVISIONS MADE, THEN ASSESSEE SHOULD BE GRANTED DEDUCTION IN R ESPECT OF SHORT PROVISION MADE , BECAUSE, IT WOULD LEAD TO JEOPARDY TO THE ASSESSEE. HOWEVER, WE FIND IT DIFFICULT TO TAKE A CONTRARY VIEW, WITHIN THE LIMITED SCOPE OF SECTION 254(2), AS IT WILL AMOUNT TO REVIEW OF THE EARLIER ORDER, WHICH IS NOT PERMISSIBL E. MORE SO, IN THE WAKE OF THE FACT THAT IN AY 1993 - 94, THE TRIBUNAL HAS DISMISSED THIS POINT RAISED BY THE ASSESSEE IN MISCELLANEOUS APPLICATION, AS FAIRLY POINTED OUT BY THE LD. SR. COUNSEL. ACCORDINGLY, WE DECLINE TO INTERFERE WITH THE CONCLUSION OF THE TRIBUNAL 1 3 . FIFTH ISSUE RELATES TO DEPRECIATION IN RESPECT OF KANDLA PLANT. IN THIS REGARD, THE LD. SENIOR COUNSEL SUBMITTED THAT WHILE GIVING APPEAL EFFECT, THE AO HAS ALLOWED THE DEPRECIATION , THEREFORE, THIS ISSUE IS NOT PRESSED. ACCORDINGLY, WE DISM ISS POINT NO. 5 (I.E. FIFTH ISSUE) RAISED BY NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 12 THE ASSESSEE IN THE PRESENT MISCELLANEOUS APPLICATION. 1 4 . IN VIEW OF THE FINDING GIVEN ABOVE, THE ASSESSEES MISCELLANEOUS APPLICATION IS TREATED AS PARTLY ALLOWED. 1 5 . NOW, WE WILL COME TO MA NO. 133/MUM/20 13. IN THE AFORESAID MISCELLANEOUS APPLICATION THE ASSESSEE HAS RAISED THE ISSUE OF VRS EXPENSES OF RS. 4,29,85,250/ - IN RESPECT OF BHANDUP UNIT WORKS AND RS. 1,05,80,000/ - IN RESPECT OF HEAD OFFICE EMPLOYEES. 1 6 . IN THIS REGARD, LD. SENIOR COUNSEL SUBMIT TED THAT THE TRIBUNAL IN ITS ORDER HAS FIRSTLY, ACCEPTED THAT VRS SCHEME WAS GOVERNED BY COMMERCIAL REASONS; SECONDLY, RIGHTS OF THE EMPLOYEES ARE SUPPORTED BY THE AGREEMENT BETWEEN THE ASSESSEE AND THE EMPLOYEES; AND LASTLY, THE LIABILITY IS WELL SUPPORTE D BY ACTUARIAL VALUATION. HOWEVER, AFTER HOLDING SO, THE TRIBUNAL HAS RESTORED BACK THE MATTER TO THE FILE OF THE AO FOLLOWING THE TRIBUNAL ORDER FOR THE AY 1993 - 94 WITH A DIRECTION THAT THE AO SHOULD EXAMINE AND VERIFY THE ACTUARIAL VALUATION CERTIFICATE AND THE AGREEMENT BETWEEN THE ASSESSEE AND THE EMPLOYEES. HE SUBMITTED THAT THE LD. CIT(A) HAD ALREADY ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE AFTER REVIEWING AND EXAMINING THE RELEVANT AGREEMENT AND HELD THAT THE LIABILITY WAS AN ASCERTAINED LIABILI TY AND SAME WAS MADE ON THE BASIS OF ACTUARIAL VALUATION. THIS FINDING OF FACT WAS NOT BEING DISPUTED, THEREFORE, THE MATTER COULD NOT HAVE BEEN RESTORED BACK TO THE AO FOR THE SAME PURPOSE. THE TRIBUNAL HAS PROCEEDED ON THE BASIS THAT THIS ISSUE STANDS CO VERED BY THE EARLIER ORDER OF THE TRIBUNAL. IN FACT, IN THE ASSESSMENT YEAR 1993 - 94, THE LD. CIT(A) HAD NO OCCASION TO REVIEW THE AGREEMENTS, WHEREAS, IN THE PRESENT ASSESSMENT YEAR I.E. AY 1994 - 95, THE CIT(A) HAD AN OCCASION TO REVIEW THE AGREEMENT AND TH ERE IS A SPECIFIC FINDING TO THAT EFFECT BY THE LD. CIT(A) IN HIS ORDER. FURTHER, THE ISSUE OF QUANTUM OF PROVISION OF VRS LIABILITY WAS INVOLVED IN THE AY 1993 - 94 , WHEREAS IN NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 13 THE ASSESSMENT YEAR 1994 - 95, THE MATTER WAS ONLY OF INCREMENTAL LIABILITY, WHICH HAS NOT BEEN DISPUTED BY THE AO IN THE ASSESSMENT ORDER. HE FURTHER POINTED OUT THAT THE TRIBUNAL FOR THE ASSESSMENT YEAR 1995 - 96 IN THE MA ORDER HAS ACCEPTED THIS FACT AFTER OBSERVING AND HOLDING AS UNDER: 13. AFTER GIVING THOUGHTFUL CONSIDERATION, WE F IND FORCE IN THE CONTENTION OF THE LD. SENIOR COUNSEL. IN THE ASSESSMENT YEAR 1993 - 94, THE TRIBUNAL HAS RESTORED THE ISSUE WITH A DIRECTION TO SEE THAT THE AMOUNT CLAIMED IS AS PER ACTUARIAL VALUATION CERTIFICATE. HOWEVER, DURING THE YEAR UNDER CONSIDERATI ON, THE LIABILITY FOR PAYMENT OF PENSION IS ONLY INCREMENTAL LIABILITY AND THERE IS NO NEED FOR VERIFICATION BY ACTUARIAL VALUATION CERTIFICATE. TO THIS EXTENT, WE MODIFY THE FINDINGS OF THE TRIBUNAL. 1 7 . AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE AND ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT IN THIS YEAR THE ONLY ISSUE WAS THAT OF INCREMENTAL LIABILITY TOWARDS PAYMENT OF PENSION UNDER VRS SCHEME. THERE WAS NO NEED FOR ANY ACTUARIAL VALUATION CERTIFICATE OR EXAMINATION OF AGREEMENTS. MOREOVER, IN THIS YEAR, THE LD. CIT(A) HAS ALREADY VERIFIED THE SAME. THEREFORE, THERE WAS NO NEED FOR THE TRIBUNAL TO SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR RE - EXAMINATION AND THIS FACT SEEMS TO BE OMITTED BY THE TRIBUNAL WHILE GIVING THE FINDING THAT SAME I S COVERED BY THE EARLIER ORDER OF THE TRIBUNAL. ACCORDINGLY, WE HOLD THAT THERE IS NO NEED FOR VERIFICATION EITHER OF THE AGREEMENT OR ACTUARIAL VALUATION CERTIFICATE; AS FIRSTLY, THIS HAS ALREADY BEEN EXAMINED BY THE LD. CIT(A); SECONDLY, IN THIS YEAR IT HAS INCURRED ONLY INCREMENTAL LIABILITY; AND LASTLY, THE TRIBUNAL IN AY 1995 - 96 VIDE ORDER DATED 27.02.2015 IN MA 376/MUM/2014 HAS ALREADY MODIFIED THE SIMILAR FINDING. ACCORDINGLY, THE PRESENT MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE IS ALLOWED. NOVARTIS INDIA LTD (AS SUCCESSOR TO HINDUSTAN CIBA GEIGY LTD) MA 132 /MUM/201 3 MA 133/MUM/2013 14 1 8 . IN THE RESULT, MISCELLANEOUS APPLICATION IN MA 132/MUM/2013 STANDS PARTLY ALLOWED AND MA NO. 133/MUM/2013 STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY , 2015 . SD/ - SD/ - ( ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 10 T H J ULY , 2015 / COPY TO: - 1 ) / THE APP E L LA NT. 2 ) / THE RESPONDENT. 3) ( ) - CONCERNED . 4 ) CONCERNED , MUMBAI / THE CIT CONCERNED , MUMBAI , 5 ) , , / THE D.R. I BENCH , MUMBAI. 6 ) COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / [ / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . * CHAVAN, SR. PS