2019 (7) TMI 537 - AT - Income Tax

Disallowance of discount offered to doctors - allowable business expenditure - HELD THAT - As decided in assessee's own case 2019 (4) TMI 414 - ITAT AHMEDABAD the commercial expediency and prudence are inseparable. If the expenditure is incurred to facilitate carrying on of business of the assessee and is supported by the commercial expediency, it does not matter that the payment is in voluntarily or not necessary or that it also enures to the benefit of a third party. If the object is business promotion, the expenditure can be said to be wholly and exclusively for the purposes of the assessee s business. The assessee in the instant case demonstrated on facts that payment of such discounts are integrally connected to the sales/turn over achieved or has potential to achieve. The discount expenses have thus been incurred with the object of furthering the trade or business interest of the assessee. Therefore, such expense falls within the expression wholly and exclusively referred to in Section 37. No hesitation to concur with the conclusion drawn by the CIT(A) for allowability of discounts given to stockiests/distributors etc. However, we are unable to understand the reasoning of the CIT(A) for discarding the claim of discount expenditure paid to the Doctors. When the test of commercial expediency applied in its natural perspective, there is no reason to exclude Doctors purchasing medicines from C F agents for the purpose of eligibility of discount payments. We thus set aside the action of the CIT(A) to this extent and direct the AO to allow the trade discount paid to all parties including Doctors as ordinary business expenditure. - Decided in favour of assessee. Disallowance of administrative expenditure calculated in terms of Rule 8D(2)(iii) r.w.s. 14A - disallowance of administrative expenses - HELD THAT - In the identical facts, the issue in the instant assessment year is also remitted back to the file of the AO for re-computation of disallowance under Rule 8D(2)(iii) of the IT Rules with reference to these investments which have actually yielded exempt income instead of gross investments. Eligibility of interest expenditure incurred by the assessee as business expenditure delayed payment of trading liability - HELD THAT - As decided in assessee's own case 2019 (4) TMI 414 - ITAT AHMEDABAD we are in agreement with the plea of the assessee that merely because the assessee company is paying huge interest on outstanding credit balance to Sun Pharma while no interest is being charged by the assessee from its debtors cannot be the justifiable reason for resorting to the disallowance of interest. Disallowance u/s 14A with reference to interest expenditure disallowed under Rule 8D - HELD THAT - No merit in the grievance of the Revenue in the light of the fact that the claim of the assessee towards sufficient interest free funds to carry out investments in excess of the corresponding investments not been rebutted by the Revenue. The investments holding the potential to yield tax free income stands at ₹ 16.42 Crores whereas the own interest free funds by way of share capital and reserves stands at ₹ 116.50 Crores. Therefore, in such a scenario, no disallowance under Rule 8D(2)(ii) is permissible in case of CIT vs. UTI Bank Ltd. 2013 (8) TMI 238 - GUJARAT HIGH COURT ; CIT vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT and Reliance Utilities Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT . Hence, we decline to interfere with the decision rendered by the CIT(A) on this score.

Summary

Issues Involved:
1. Disallowance of discount offered to doctors
2. Disallowance under section 14A read with Rule 8D
3. Levy of interest under section 234D
4. Eligibility of interest expenditure as business expenditure
5. Partial reversal of disallowance under section 14A

Issue 1: Disallowance of Discount Offered to Doctors:
The assessee appealed against the disallowance of a discount offered to doctors amounting to ?17,43,519. The contention was that the discounts were given to medical professionals for promoting the business and were wholly and exclusively incurred for business purposes. It was argued that expenses on discounts to doctors should be allowed as business expenditure under section 37(1). The tribunal referred to a previous assessment year where it was held that discounts given to customers have a direct bearing on potential turnover and are integral to business promotion. The tribunal concluded that the disallowance of discounts offered to doctors was unwarranted based on the view taken in earlier assessment years, and thus, allowed Ground No. 2 of the assessee's appeal.

Issue 2: Disallowance under Section 14A read with Rule 8D:
The assessee challenged the disallowance of administrative expenditure amounting to ?7,24,182 calculated under Rule 8D(2)(iii) read with section 14A. The tribunal noted that in a similar case from a previous assessment year, the issue was remitted back to the Assessing Officer for re-computation of disallowance with reference to investments that had actually yielded exempt income. Following this precedent, the tribunal partly allowed Ground No. 3 of the assessee's appeal, directing a re-computation of the disallowance under Rule 8D(2)(iii) with respect to investments generating exempt income.

Issue 3: Levy of Interest under Section 234D:
The assessee contested the levy of interest under section 234D, claiming that the Assessing Officer erred in computational interest. The tribunal did not provide specific details on the resolution of this issue in the summary provided.

Issue 4: Eligibility of Interest Expenditure as Business Expenditure:
The Revenue appealed against the allowance of interest expenditure amounting to ?14,98,46,433 as business expenditure, arguing that the transaction between two companies was not between unrelated parties. The tribunal referred to a previous decision and upheld the CIT(A)'s decision, dismissing Ground No. 1 of the Revenue's appeal.

Issue 5: Partial Reversal of Disallowance under Section 14A:
The Revenue challenged the partial reversal of disallowance under section 14A with reference to interest expenditure disallowed under Rule 8D. The tribunal found no merit in the Revenue's grievance, as the claim of sufficient interest-free funds by the assessee was not rebutted. Citing relevant case law, the tribunal declined to interfere with the decision rendered by the CIT(A) on this issue, resulting in the dismissal of Ground No. 2 of the Revenue's appeal.

In conclusion, the tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal, addressing various issues related to disallowances, interest expenditure, and business expenditures. The detailed analysis of each issue provided insights into the tribunal's reasoning and application of relevant legal principles.