Dr.Reddy's Laboratories Limited, V. Addl.CIT,C-1(2),Hyd.,

MA 217/HYD/2013

• Counselvise Citation: [2013] 124 COUNSELVISE.COM (IT) 1117 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 03-09-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G KOMAL KISHORE
• Assessee Lawyers: SAMPATH RAGHUNATHAN
• Keywords: Revised return
• Section: 80IB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER M.A. NO. 217/HYD/2013 (IN ITA NO. 1605/HYD/2010 ASSESSMENT YEAR : 2006-07) DR. REDDYS LABORATORIES LTD., HYDERABAD. PAN: AAACD 7999 Q VS. ADDL. COMMISSIONER OF INCOME- TAX, CIRCLE - 1(2), HYDERABAD. (APP1ICANT) (RESPONDENT) ASSESSEE BY : SHRI SAMPATH RAGHUNATHAN REVENUE BY : SMT. G. KOMAL KISHORE DATE OF HEARING : 25-10-2013 DATE OF PRONOUNCEMENT : 29-11-2013 O R D E R PER B. RAMAKOTAIAH, A.M.: THIS MA IS PREFERRED BY ASSESSEE AGAINST THE ORDER OF TRIBUNAL IN ITA NO. 1605/HYD/2010, DATED 08-08-2013 FOR AY 2 006-07. ASSESSEE HAS RAISED FOUR CONTENTIONS STATING THAT T HE ORDER OF ITAT IS TO BE MODIFIED. 2. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNE D DR. 3. THE FIRST CONTENTION RAISED BY ASSESSEE IS WITH REFERENCE TO THE ISSUE OF LOCAL DOCTORS MEETING EXPENSES/INDIVIDUAL DOCTORS SERVICES. THIS ISSUE WAS DECIDED IN GROUND NO. 5 AT PARA 11 O F THE IMPUGNED ORDER. FOR AY 2006-07, ASSESSEE INCURRED EXPENDITUR E ON LOCAL DOCTORS MEETING AND INDIVIDUAL DOCTOR EXPENSES AND THE SAME WAS 2 ITA NO. 217/HYD/2013 M/S REDDY LABORATORIES LTD. DISALLOWED BY THE AO. THE DRP APPROVED THE ACTION O F THE AO AND ASSESSEE WAS IN APPEAL BEFORE THE TRIBUNAL. THE ITA T FOLLOWING ITS OWN ORDER FOR AY 2003-04 IN ASSESSEES CASE, VIDE PARA 11.2 LOCAL DOCTORS MEETING EXPENDITURE WAS SET ASIDE TO THE AO TO EXAMINE THE NATURE OF EXPENDITURE AND WHETHER THE SAME WAS INCU RRED FOR THE PURPOSE OF BUSINESS OF ASSESSEE. SIMILARLY, VIDE PA RA 11.3 INDIVIDUAL DOCTORS SERVICES WERE CONSIDERED AND FOLLOWING ITS ORDER IN EARLIER YEAR, THIS ISSUE WAS ALSO SET ASIDE TO EXAMINE THE NATURE OF EXPENDITURE AND CONSIDER THE DISALLOWANCE OF EXPEND ITURE WHICH IS NOT INCURRED FOR THE PURPOSE OF BUSINESS. HOWEVER, VIDE PARA 11.4 CIRCULAR ISSUED BY THE BOARD IN 5/2012 AND CODE OF ETHICS REGULATIONS 2002 ISSUED BY MEDICAL COUNCIL OF INDIA APPLICABLE FROM AY 2003-04 WERE REFERRED TO. IT WAS OBSERVED THAT CODE OF ETHICS IS APPLICABLE AND SO THE EXPENDITURE INCURRED ON THE D OCTORS CAN BE CONSIDERED AS UNETHICAL. ASSESSEE IS OBJECTING TO THIS OBSERVATION POINTING OUT THAT THE CODE OF ETHICS WAS APPLICABLE TO DOCTORS INITIALLY AND ONLY AFTER AMENDMENT TO THE GUIDELINES ISSUED O N 10-12-2009, THIS EXPENDITURE CAN BE CONSIDERED FOR DISALLOWANCE IN COMPANY CASE SUBSEQUENT TO THAT DATE AND, THEREFORE, APPLICATION OF MCI GUIDELINES ARE NOT RELEVANT TO AY 2006-07. 4. THE LEARNED DR, HOWEVER SUBMITTED THAT THE ISSUE WAS REMITTED TO THE FILE OF THE AO TO EXAMINE THE NATURE AND WHE THER THE EXPENDITURE IS FOR THE PURPOSES OF BUSINESS. 5. AFTER PERUSING THE ORDER OF TRIBUNAL, WE DO NOT SEE ANY REASON TO MODIFY THE DIRECTIONS. CLEARLY IN PARAS 11.2 & 1 1.3 OF THE ORDER, THE ISSUE WAS SET ASIDE TO THE FILE OF THE AO TO CONSID ER THE SAME U/S 37(1), WHETHER IT WAS INCURRED FOR THE PURPOSE OF B USINESS OR NOT. THE OBSERVATIONS IN PARA 11.4 HAS NO BEARING AT ALL. H OWEVER, BY THE CODE OF ETHICS REGULATIONS, 2002, EXPENDITURE ON TH E DOCTORS BECAME UNETHICAL IN THE HANDS OF DOCTORS AND IT IS STATED SO. HOWEVER, WHETHER THE SAID EXPENDITURE IS FOR THE PURPOSE OF BUSINESS OR NOT IS 3 ITA NO. 217/HYD/2013 M/S REDDY LABORATORIES LTD. ENTIRELY A DIFFERENT ASPECT. THEREFORE, THOSE OBSER VATIONS WILL NOT HAVE ANY BINDING ON THE ISSUE. CLAIM OF EXPENDITURE HAS TO BE EXAMINED VIS--VIS PROVISIONS OF SECTION 37(1). THEREFORE, W E DO NOT SEE ANY REASON TO MODIFY THE DIRECTIONS IN THE ORDER. THE A O IS, HOWEVER, DIRECTED TO KEEP THE ABOVE ASPECTS IN MIND WHILE DE CIDING THE ISSUE. 6. THE NEXT OBJECTION BY ASSESSEE IS WITH REFERENCE TO THE DIRECTIONS GIVEN IN RESPECT OF ALLOCATION OF CORPOR ATE OVERHEADS TO THE UNIT ENTITLED TO DEDUCTION U/S 10B AND 80IB . THIS ISSUE WAS CONSIDERED VIDE GROUND NOS. 10 AND 11 IN THE ORDER. THE AO ALLOCATED CORPORATE OVERHEADS TO THE UNITS, WHICH W ERE ENTITLED TO DEDUCTION U/S 10B AND 80IB ON THE BASIS OF TURNOVER AND THE DRP APPROVED THE SAME. THE COORDINATE BENCH HELD THAT S IMILAR ISSUE WAS DECIDED BY IT IN AY 2003-04 IN ASSESSEES OWN CASE WHEREIN CORPORATE OVERHEADS WERE ALLOCATED TO THE UNITS BAS ED ON TURNOVER . SINCE THE CIT(A) FOLLOWED THE SAME, IT WAS OBSERVED THAT THERE IS NO NEED TO DEVIATE FROM THE DIRECTIONS OF CIT(A) GIVEN IN AY 2003-04 AND ACCORDINGLY THE ISSUE WAS DECIDED. ASSESSEE POINTS OUT THAT WHILE DISPOSING THE GROUND THE TRIBUNAL DID NOT CONSIDER THE RATIO LAID DOWN BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF HIN DUSTAN UNILEVER VIDE TAX CASE 219 OF 2006 DATED 24/09/2012. 7. THE LEARNED DR, HOWEVER, OBJECTED TO STATING THA T THE DECISION OF HINDUSTAN UNILEVER IS GIVEN ON THE FACTS WHEREAS THE HONBLE MP HIGH COURT IN THE CASE OF PRESTIGE FOODS LTD. VS. C IT, [2012] 81 CCH 031 MPHC/70 DTR (MP) 425 HAS UPHELD APPORTIONMENT O F EXPENDITURE BETWEEN TWO UNITS BASED ON TURNOVER. 8. AFTER CONSIDERING RIVAL CONTENTIONS, WE DO NOT S EE ANY REASON TO INTERFERE WITH THE ORDER OF TRIBUNAL ON THE ISSUE. IN FACT VIDE PARA 12.5 OF THE ORDER, THE DIRECTIONS OF THE TRIBUNAL I N AY 2003-04 IN ASSESSEES OWN CASE WERE EXTRACTED AND ACCORDINGLY THE MATTER WAS SET ASIDE TO THE FILE OF THE AO TO REEXAMINE THE CL AIM ON SIMILAR LINES. 4 ITA NO. 217/HYD/2013 M/S REDDY LABORATORIES LTD. THE ISSUE ORIGINALLY AROSE IN AY 2003-04 AND ACCORD INGLY FOLLOWING THE DECISION OF COORDINATE BENCH ALLOCATION ON THE BASIS OF TURNOVER IS ACCEPTED. WE HAVE PERUSED THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN UNILEVER (SU PRA) WHEREIN THE HONBLE HIGH COURT HAS ACCEPTED THE TRIBUNALS ORDE R ON ALLOCATION OF EXPENDITURE ON THE REASON THAT EXPENDITURE INCURRED WAS FOR THE OVERALL MANAGEMENT OF THE UNITS AS WELL AS FOR PROV IDING FINANCE. THIS CONTENTION OF ASSESSEE WAS ACCEPTED AS REVENUE HAD NO GRIEVANCE AS REGARDS THE ORDER PASSED BY THE TRIBUNAL IN THE PRECEDING YEARS FROM 1984-85 ON WARDS AND ON THOSE FACTUAL SITUATIO N, THE TRIBUNALS ORDER WAS APPROVED. HOWEVER, IN ASSESSEES OWN CASE FOR AY 2003- 04, THE ISSUE WAS DISCUSSED AND FOLLOWING ANOTHER D ECISION OF THE COORDINATE BENCH IN THE CASE OF WIPRO GE MEDICAL SY STEMS LTD, ALLOCATION OF BASIC TURNOVER WAS ACCEPTED IN ASSESS EES CASE AND SO, WE ARE OF THE OPINION THAT THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER (SUPRA) HAS NO BE ARING AS BINDING PRECEDENT, BEING ON FACTS. AS RIGHTLY POINTED OUT B Y THE LEARNED DR, THE HONBLE MP HIGH COURT IN THE CASE OF PRESTIGE F OODS (SUPRA) HAS UPHELD APPORTIONMENT OF EXPENDITURE BETWEEN TWO UNI TS BASED ON TURNOVER AND THIS JUDGMENT WAS DISTINGUISHED BY THE HONBLE MADRAS HIGH COURT VIDE PARA 7, ON THE REASON THAT ASSESSEE DID NOT FURNISH EXPENSES INCURRED BY THE UNITS FOR THE PURPOSE OF C ONSIDERING THE DEDUCTIBILITY. SINCE COMMON EXPENDITURE IS DIRECTED TO BE EXAMINED BY THE AO AND ALLOCATED TO VARIOUS UNITS ON THE BAS IS OF TURNOVER, WE DO NOT SEE ANY REASON TO DIFFER FROM THE ORDER OF T HE TRIBUNAL. THIS CONTENTION OF ASSESSEE IS ACCORDINGLY REJECTED. 9. THE THIRD CONTENTION RAISED IN THE MA IS WITH RE FERENCE TO RATE OF INTEREST TO BE CHARGED ON LOANS GRANTED TO AES. THI S ISSUE WAS CONSIDERED AS GROUND NO. 16 IN THE IMPUGNED ORDER. THE TPO MADE THE ADJUSTMENT AND DETERMINED THE ALP OF INTEREST R ATE AT 14%, WHICH WAS UPHELD BY THE DRP. THE CONTENTION BEFORE THE TR IBUNAL WAS THAT SINCE LOANS WERE GIVEN IN FOREIGN CURRENCY, LIBOR L INKED INTEREST RATES SHOULD BE APPLICABLE INSTEAD OF 14% AS DETERM INED BY THE TPO. 5 ITA NO. 217/HYD/2013 M/S REDDY LABORATORIES LTD. IT WAS ALSO CONTENDED, WITHOUT PREJUDICE, THAT THE CIT(A) IN AY 2004- 05 RULED THE ALP AT 7% AND IN THE IMPUGNED ORDER TH E TRIBUNAL AFFIRMED 7% RATE ON THE REASON THAT ASSESSEE WAS AC CEPTED THE RATE AT 7% IN THE EARLIER YEARS. ASSESSEE NOW PRAYING F OR DIRECTING LIBOR LINKED INTEREST RATE SHOULD BE APPLIED AS ALP INTER EST RATE, FOLLOWING THE COORDINATE BENCH DECISION IN THE CASE OF FOUR S OFT LTD. VS. DCIT IN ITA NO. 1495/HYD/2010. 10. THE LEARNED DR, HOWEVER, SUBMITTED THAT CHARGIN G INTEREST AT 7% IS REASONABLE AND NO INTERFERENCE IS CALLED FOR. 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. SINCE ASSESSEE HAS ACCEPTED 7% IN EARLIER YEARS, TRIBUNAL FELT THAT 7% IS REASONABLE AND ACCORDINGLY LIBOR LINKED INTEREST WAS NOT CONSIDERE D. THE ISSUE IN FOUR SOFT LTD.(SUPRA) RELIED UPON BY ASSESSEE IS NO T ABOUT BANK INTEREST RATE OR FD INTEREST RATE. THE ISSUE CONTE STED WAS RATE OF LIBOR, THE ACTUAL LIBOR RATE AS PER ASSESSEE WAS 4. 42% WHEREAS DRP HAS TAKEN LIBOR AT 5.7%, THE TRIBUNAL HAS DIREC TED THE AO TO EXAMINE THE CORRECT RATE OF LIBOR AND ADOPT LIBOR + RATE IN THAT CASE. THERE ARE OTHER JUDGMENTS ALSO WHERE 6% INTER EST RECEIVED WAS CONSIDERED AS LIBOR + 157 BASE POINTS, SO, 7% I NTEREST RATE APPROVED WOULD BE ABOUT LIBOR + 257 BASE POINTS. TH E COORDINATE BENCHES ARE APPROVING ON DIFFERENT FACTUAL SITUATIO N, LIBOR + 1% TO 3% AND CONSIDERING THAT, WE ALSO FEEL THAT 7% RATE IS REASONABLE WHICH IS EQUIVALENT TO LIBOR + 2%. BE THAT AS IT MA Y, SINCE ASSESSEE HAS ACCEPTED 7% IN EARLIER YEAR AND THAT IS THE BAS IS FOR DIRECTING TO ADOPT 7% BY THE TRIBUNAL, WE DO NOT SEE ANY REASON TO MODIFY THE DIRECTIONS OF TRIBUNAL IN THIS REGARD. ACCORDINGLY, THIS CONTENTION OF ASSESSEE IS REJECTED. 12. 4 TH CONTENTION RAISED IN MA IS WITH REFERENCE TO NON- CONSIDERATION OF REVISED RETURN FILED BY ASSESSEE G IVING EFFECT TO MERGER OF PERLECAN PHARMA PVT. LTD. AS PER THE ORDE R OF HONBLE AP 6 ITA NO. 217/HYD/2013 M/S REDDY LABORATORIES LTD. HIGH COURT. ASSESSEE FILED SECOND REVISED RETURN ON 24-12-2009 I.E. BEYOND THE PERIOD PERMITTED UNDER THE LAW TO SUBMIT THAT THE REVISED RETURN WAS FILED CONSEQUENT TO THE ORDER OF THE MER GER BY THE HONBLE AP HIGH COURT. THE TRIBUNAL REJECTED THE GROUND RAI SED BY ASSESSEE ON THE REASON THAT THE TIME LIMIT PROVIDED U/S 139( 5) HAS EXPIRED. IT WAS THE CONTENTION THAT REVISED RETURN WAS FILED IN ACCORDANCE WITH THE DIRECTIONS OF THE HONBLE AP HIGH COURT WHEREIN IT WAS STATED THAT UPON THE SCHEME BECOMING EFFECTIVE, THE TRANSFERE E COMPANY IS EXPRESSLY PERMITTED TO REVISE, IF IT BECOMES NECESS ARY, ITS INCOME TAX RETURNS.PURSUANT TO THE PROVISIONS OF THIS SCHEME . THE CONTENTION WAS THAT THE TRIBUNAL IGNORED THE ABOVE STIPULATION OF THE HONBLE AP HIGH COURT. FURTHER, IT WAS CONTENDED THAT THE TRI BUNAL SHOULD HAVE DIRECTED TO CONSIDER REVISED RETURN BASED ON THE IN FORMATION PROVIDED THEREIN, EVEN IF THE REVISED RETURN IS BELATED AND HENCE, INVALID. ASSESSEE RELIED ON THE DECISION OF HONBLE MADRAS H IGH COURT IN THE CASE OF CIT VS. M/S NEPC INDIA LTD. DECIDED ON 06-0 7-2012 IN TAX CASE (APPEAL) NO. 1615 AND 1616 OF 2005. 13. THE LEARNED DR, HOWEVER, SUBMITTED THAT THIS IS SUE WAS ELABORATELY DISCUSSED AND DECIDED, THEREFORE, THE T RIBUNAL DIDNOT HAVE POWER TO REVIEW ITS OWN ORDER. 14. WE HAVE CONSIDERED THE CONTENTIONS. THIS ISSUE WAS ELABORATELY DISCUSSED FROM PARAS 3.2 TO 3.4 OF THE ORDER AND IT AT DID NOT ALLOW THE CLAIM OF REVISED RETURN AS TIME LIMIT PRESCRIBE D UNDER THE IT ACT HAS ALREADY EXPIRED. AS SEEN FROM THE GROUND, ASSES SEES CONTENTION WAS ONLY FOR ACCEPTANCE OF THE REVISED RETURN AND N OT FOR CONSIDERING THE ISSUE ON MERITS WHETHER LOSSES/EFFECT OF MERGER SHOULD BE CONSIDERED IN ASSESSMENT. SINCE THE GROUND IS ONLY WITH REFERENCE TO CONSIDERATION OF REVISED RETURN AND NOT FOR THE INF ORMATION THEREIN, THE TRIBUNAL RESTRICTED ITSELF TO ACCEPTANCE OF REVISED RETURN AND REJECTED THE CONTENTION AS THE REVISED RETURN WAS BELATED. F URTHER, THE DECISION OF NEPC INDIA LTD. (SUPRA) NOW BEING RELIE D IN MA HAS NOT 7 ITA NO. 217/HYD/2013 M/S REDDY LABORATORIES LTD. BEEN PLACED BEFORE THE BENCH AT THE TIME OF ARGUMEN TS. THEREFORE, CONSIDERATION OR NON-CONSIDERATION OF THE SAME DOES NOT ARISE. MOREOVER, ASSESSEE HAS NOT TAKEN ANY ALTERNATE GROU ND THAT EFFECT OF MERGER SHOULD BE CONSIDERED IN THE ASSESSMENT PROCE EDINGS ON MERITS. CONSEQUENTLY, THE TRIBUNAL CANNOT TRAVERSE BEYOND THE GROUND RAISED BEFORE IT AND, ACCORDINGLY, RESTRICTED ITSEL F WHETHER THE REVISED RETURN CAN BE CONSIDERED AS VALID OR INVALID. IN TH ESE CIRCUMSTANCES, THE CONTENTION RAISED BY ASSESSEE HAS NO MERIT AND ACCORDINGLY REJECTED. 15. IN THE RESULT, THE MA FILED BY ASSESSEE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2013. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED: 29 TH NOVEMBER, 2013. KV COPY TO:- 1) DR. REDDYS LABORATORIES LTD. 7-1-27, AMEERPET, HYDERABAD 500 016 2) ADDL. CIT, CIRCLE 1(2), HYDERABAD. 3) DRP, HYDERABAD. 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A .T., HYDERABAD.