Dr. Reddy's Laboratories Ltd, Hyderabad V. ACIT, Circle 1(2), Hyderabad

MA 173/HYD/2012

• Counselvise Citation: [2012] 123 COUNSELVISE.COM (IT) 9695 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 29-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KARLA
• Assessee Lawyers: S RAGHUNATHAN
• Keywords: Depreciation; Capital expenditure
• Section: 80HHC; 32; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER M.A. NO.173/HYD/12 ASS T.YEAR 2003-04 (IN ITA NO.655/H/10 M/S. DR. REDDYS LABORATORIES, LTD.,HYDERABAD. V- ACIT, CIR-16(2), HYDERABAD (PAN:AAACD 7999 Q) . (APPLICANT) (RESPONDENT ) APPLICANT BY : SHRI S. RAGHUNATHAN RESPONDENT BY : SMT. VIDISHA KARLA DATE OF HEARING: 12-10-2011 DATE OF PRONOUNCEMENT: 07-12-2 012. O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: BY THIS MISC. APPLICATION, THE ASSESSEE SEEKS RECTIFICATION OF CERTAIN FINDINGS OF THE ORDER DATED 29 -10-2010 OF THE TRIBUNAL PASSED IN ITA NO.655/HYD/07 PERTAININ G TO THE ASSESSMENT YEAR 2003-04. 2. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE RAISED A GROUND IN ITA NO.655/HYD/2007 WITH REGA RD TO DISALLOWANCE OF AMORTIZATION OF EURO ISSUE EXPENSES U/ S 35D M.A.NO.173 OF 2012 DR.REDDYS LABORATORIES LIMITED., HYD. ======================= 2 OF THE ACT. THOUGH THE ASSESSEE HAS PRESSED THIS GROUND AS THE ISSUE IS COVERED BY THE EARLIER ORDER OF THE TRIBUN AL IN ITA NO.987/HYD/2006 PERTAINING TO ASSESSMENT YEAR 2002-03, T HE TRIBUNAL DISPOSED OF THIS GROUND AS NOT PRESSED. IT IS S UBMITTED THAT THIS IS A MISTAKE APPARENT FROM RECORD, REQUIRES TO BE RECTIFIED. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY THIS ISSUE WA S DECIDED BY THE EARLIER ORDER OF THE TRIBUNAL DATED 14-11-20 08 PASSED IN ITA NO.987/HYD/2006 WHEREIN THE TRIBUNAL HELD IN P ARA-51 OF THE SAID ORDER WHICH READS AS UNDER:- 51. SIXTH GROUND IS AGAINST THE DISALLOWANCE OF THE AMORTIZATION OF EURO ISSUE EXPENDITURE U/S 35D OF T HE ACT. THE ASSESSEE CLAIMED RS.7,57,712 AS PRELIMIN ARY EXPENSES U/S 35-D-8 TH YEAR. IT WAS STATED BY THE ASSESSEE THAT NO EXPENSES HAVE BEEN INCURRED DURING THE YEAR AND THAT THE DETAILS OF THE EXPENSES ARE ALREADY ON THE RECORDS OF EARLIER YEARS. THE AO OBSERVED FROM THE EARLIER RECORDS THAT THE EURO ISS UE HAS NOT BEEN UTILIZED FOR THE PURPOSE OF EXPANSION OF THE INDUSTRIAL UNDERTAKING. HE REFERRED TO THE JUD GMENT OF THE SUPREME COURT IN THE CASE OF BROOKE BOND IND IA LTD. (225 ITR 798) AND HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN CONNECTION WITH THE RAI SING OF THE CAPITAL IS CAPITAL EXPENDITURE. THE AO OBSE RVED THAT THE CLAIM IN THE FIRST YEAR I.E. ASSESSMENT YE AR 1996-97, WAS DISALLOWED AND IN ASSESSMENT YEARS 1997-98 AND 1998-99 IT WAS ALLOWED. IT WAS AGAIN M.A.NO.173 OF 2012 DR.REDDYS LABORATORIES LIMITED., HYD. ======================= 3 DISALLOWED IN ASSESSMENT YEAR 1999-2000. IN ANY CA SE, HE OBSERVED THAT THE APPEALS ARE PENDING BEFORE THE TRIBUNAL IN THE EARLIER YEARS AND MAKING THIS OBSERVATION HE DISALLOWED THE CLAIM THIS YEAR ALSO . THE CIT (A) CONFIRMED THE DISALLOWANCE. THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN TH E ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1996-97 IN ITA NO.275/HYD/2000 DATED 17-8-2007. THE TRIBUNAL HELD THAT 1/10 TH OF THE EXPENDITURE WAS ALLOWABLE U/S 35D(2)(C)(IV) OF THE ACT. HENCE, FOLLOWING THE EAR LIER ORDER OF THE TRIBUNAL, THE CLAIM FOR THIS YEAR IS A LSO ALLOWED. BEING SO, THE TRIBUNAL COMMITTED A MISTAKE WHILE DISPOSI NG THE APPEAL IN ITA NO. 655/HYD/07 BY ITS ORDER DATED 29-10 -2010. ACCORDINGLY, FOLLOWING THE ORDER OF THE TRIBUNAL IN I TA NO.987/HYD/2006 (SUPRA), WE ALLOW THIS GROUND OF THE ASSESSEE. WE DIRECT ACCORDINGLY. 4. THE SECOND ISSUE RAISED BY THE ASSESSEE IN THIS MISC. APPLICATION IS THAT THE ASSESSEE RAISED A GROUND WITH REGA RD TO 90% OF INCOME COMPRISING OF INTEREST, SERVICE CONTRACT INCO ME, FOREIGN EXCHANGE GAIN, MISC. INCOME, INCOME FROM SERVICES, DUTY DRAWBACK, SALE OF DEPB AND NON CONSIDERATION OF PR OFIT FROM TRADING GOODS WHILE COMPUTING THE DEDUCTION U/S 80 HHC. 5. THE LEARNED AR SUBMITTED THAT THE TRIBUNAL ORDER IS SILENT ABOUT THE COMPUTATION OF DEDUCTION U/S 80 HHC CONSIDERING THE TRADING TURNOVER OF THE ASSESSEE. FURTHER, THE ORDER I S ALSO SILENT ON THE ALLOWABILITY OF 80HHC DEDUCTION OF INCOMES SUCH M.A.NO.173 OF 2012 DR.REDDYS LABORATORIES LIMITED., HYD. ======================= 4 AS SERVICE INCOME, FOREIGN EXCHANGE FLUCTUATION INCOME, MISCELLANEOUS INCOME FROM SERVICES. THE LEARNED AR SUBMITTED THAT THE TRIBUNAL JUST PLACED RELIANCE ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BAKE LITE HYLAM LIMITED (287 ITR 75) AND IN VIEW OF THE ABOVE JUDGMENT, THE ENTIRE GROUND WAS DISMISSED. ACCORDING TO THE LEARNED AR, HONBLE JURISDICTIONAL HIGH COURT HAS DECIDE D THE ONLY ISSUE IN RESPECT OF INTEREST AND NOT ON OTHER ISSUE S RAISED IN THIS APPEAL. HENCE, IT IS A MISTAKE APPARENT FROM R ECORD WHICH IS TO BE RECTIFIED. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE TRIBUNAL. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION,WITH REGARD TO I NTEREST, SERVICE CONTRACTS INCOME, FOREIGN EXCHANGE GAIN, MISC. INCOM E EXCEPT DEPB AND CONSIDERATION OF PROFIT FROM TRADING G OODS WHILE COMPUTING THE DEDUCTION U/S 80HHC, THE TRIBUNAL H AS CORRECTLY RELIED ON JURISDICTIONAL HIGH COURTS DECISION I N THE CASE OF BAKELITE HYLAM LIMITED (SUPRA) AND NO INTERFERE NCE IS CALLED FOR IN THIS REGARD. 8. HOWEVER, WITH REGARD TO THE SALE OF DEPB, THE ISSU E IS TO BE DECIDED BY THE AO IN THE LIGHT OF JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF M/S TOPMAN EXPORTS VS. CI T, MUMBAI (247 CTR 353) (SC) WHEREIN IT HELD THAT WHEN THE DEPB IS HELD BY A PERSON, THIS PROFIT ON TRANSFER OF D EPB WOULD THE SALE VALUE OF DEPB LESS ITS FACE VALUE WHICH REPRESENT S THE M.A.NO.173 OF 2012 DR.REDDYS LABORATORIES LIMITED., HYD. ======================= 5 COST OF DEPB AND NOT THE ENTIRE SUM ISSUED BY HIM ON SUCH TRANSFER; DEPB CHARGEABLE AS INCOME UNDER CLAUSE (IIIB) O F SECTION 28 IN THE YEAR IN WHICH SUCH PERSON APPLIES FOR DE PB CREDIT AGAINST THE EXPORTS, WHEREAS THE PROFIT ON TRAN SFER OF DEPB BY THAT PERSON IS CHARGEABLE AS INCOME UNDER CLAUSE (IIIB) OF SECTION 28 OF THE ACT IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. 9. WITH REGARD TO TRADING TURNOVER, THE SAME IS TO BE DECIDED IN THE LIGHT OF THE JUDGMENT OF HONBLE SUPR EME COURT IN THE CASE OF IPCA LABORATORY LIMITED VS. DCIT (266 I TR 521) WHEREIN IT HELD AT PAGE-522 OF THE JUDGMENT AS UNDER :- A PLAIN READING OF SUB-SECTION (3) SHOWS THAT PRO FITS FROM SUCH EXPORTS HAS TO BE PROFITS OF EXPORTS OF SELF- MANUFACTURED GOODS PLUS PROFITS OF EXPORTS OF TRADI NG GOODS. THE OPENING WORDS PROFIT DERIVED FROM SUCH EXPORTS TOGETHER WITH THE WORD AND CLEARLY INDIC ATE THAT THE PROFITS HAVE TO BE CALCULATED BY COUNTING BOTH THE EXPORTS. DEDUCTION CAN BE PERMITTED UNDER SECT ION 80HHC(1) ONLY IF THERE IS A POSITIVE PROFIT IN THE EXPORTS OF BOTH SELF-MANUFACTURED GOODS AS WELL AS TRADING GOODS. IF THERE IS A LOSS IN EITHER OF THE TWO THE N THE LOSS HAS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF COMPUTING THE PROFITS. IN VIEW OF THE ABOVE JUDGMENT, WE DIRECT THE ASSESSING O FFICER TO COMPUTE THE PROFITS FOR THE PURPOSE OF SECTION 80HHC AF TER CONSIDERING PROFITS AND LOSSES BOTH FROM EXPORT OF MANUFACTURING GOODS AND TRADING GOODS IF THERE IS POSIT IVE PROFIT, ASSESSEE WILL BE ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE M.A.NO.173 OF 2012 DR.REDDYS LABORATORIES LIMITED., HYD. ======================= 6 ACT AND IF THERE IS LOSS, THE ASSESSEE IS NOT ELIGIBLE FOR ANY DEDUCTION. 10. THE LAST ISSUE RAISED BEFORE US IN THIS MISC. APPLICATIO N IS WITH REGARD TO THE CLAIM OF THE ASSESSEE U/S 37 OF THE A CT IN RESPECT OF GOODWILL. 11. THE LEARNED AR SUBMITTED THAT THE ASSESSEE RAISED TH E GROUNDS WITH REGARD TO ALLOWABILITY OF GOODWILL U/S 3 7 IN ADDITION TO THE CLAIM OF DEPRECIATION U/S 32 OF THE ACT . WHILE ARGUING THE CASE, THE LEARNED AR PLACED RELIANCE ON TH E ORDER OF THE TRIBUNAL DATED 4-11-2009 IN THE CASE OF AP PA PER MILLS LIMITED VS. ACIT IN ITA NO.218/HYD/2006 WHICH IS SQUAREL Y APPLICABLE TO THE FACTS OF THE INSTANT CASE AND IS IN FA VOUR OF THE ASSESSEE AND THE SAME WAS NOT CONSIDERED BY THE TRIBUNA L WHILE DISPOSING OF THE APPEAL. 12. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE WHILE OPPOSING THE SUBMISSIONS OF THE LEA RNED COUNSEL FOR THE ASSESSEE IN THIS RESPECT AND RELIED ON THE O RDER OF THE TRIBUNAL IN THE INSTANT CASE. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE TRIBUNAL FOLLOWED THE EARLIER ORDER IN THE ASSESSE ES OWN CASE FOR ASSESSMENT YEARS 2000-01,2001-02 AND 2002-03 IN ITA NOS. 572,1085/04 AND 987/HYD/2006 DATED 14-1-2008 AND SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER RE LATING TO ALLOWABILITY OF CLAIM OF DEDUCTION U/S 37 OF THE ACT. IT IS TO BE M.A.NO.173 OF 2012 DR.REDDYS LABORATORIES LIMITED., HYD. ======================= 7 NOTED THAT WHEN THE TRIBUNAL CONSIDERED THE ALLOWABIL ITY OF EXPENDITURE AND GOODWILL U/S 37 OF THE ACT WHICH IS LA RGER CLAIM THAN U/S 32 FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, T HIS GROUND WITH REGARD TO CLAIM U/S 32 OF THE ACT HAS BECOM E INFRUCTUOUS. BEING SO, IT WAS NOT ADJUDICATED UPON BY T HE TRIBUNAL. NOW, THE ASSESSEES CLAIM IS THAT THE ISSUE WITH REGARD TO DEPRECIATION U/S 32 OF THE ACT IS IN FAVOUR O F THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE CASE OF AP PAPER MILLS LIMITED VS. ACIT (SUPRA). IN OUR OPINION, WHEN THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE ON SAME SE T OF FACTS AVAILABLE BEFORE THE TRIBUNAL AT THE TIME OF ADJUDICATING THE ISSUE, IT IS APPROPRIATE TO FOLLOW THE SAME INSTEAD OF SOME OTHER DECISIONS. HENCE, THE ASSESSEE IN THIS MISC. APPLICATI ON IS MIS-CONCEIVED ON THIS ISSUE AND NO INTERFERENCE IS CALLED FOR AT THIS STAGE U/S 254(2) OF THE ACT. IN VIEW OF THE ABO VE, THIS PLEA OF THE ASSESSEE ON THIS ISSUE IS REJECTED. 14. IN THE RESULT, THE MISC. APPLICATION FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE COURT ON 07-12-2012. SD/- SD/- SMT ASHA VIJAYARAGHAVAN (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER. DATED:07-12-2012. M.A.NO.173 OF 2012 DR.REDDYS LABORATORIES LIMITED., HYD. ======================= 8 COPY FORWARDED TO: 1. SHRI A. RAMACHANDRA RAO & CO., 3-6-369/A/11, 1 ST FLOOR, ST. NO.1, HIMAYATNAGAR, HYDERABAD. ERRAGADDA, HYDERABAD. 2. DCIT, CIR-1(2),HYDERABAD. 3 4. 5 JMR* CIT (A)- II, HYDERABAD. CIT CONCERNED, HYDERABAD. DR, ITAT, HYDEERABAD. M.A.NO.173 OF 2012 DR.REDDYS LABORATORIES LIMITED., HYD. ======================= 9