2022 (5) TMI 520 - AT - Income Tax

Disallowance of discounts offered to doctors - allowable expenditure u/s.37 or not? - HELD THAT - It is the case of the assessee that the trade discounts given to the doctors are similar to the discounts given to the distributors and other dealers which is an allowable expenditure under section 37 of the Act. This view is confirmed by the Coordinate Bench of the Tribunal in assessee s own case for the Asstt.Year 2009-10 2019 (4) TMI 414 - ITAT AHMEDABAD Respectfully following the decision we set aside the orders of the CIT(A) and AO and direct the AO to allow trade discount paid to the Doctors as ordinary business expenditure. Thus we allow ground no.1 in favour of the assessee. Disallowance u/s. 14A read with rule 8D - HELD THAT - We do not find any infirmity in the order of the ld.CIT(A) so far as deletion representing interest expenses. However upholding of disallowance being administrative expenses was not based on logical parameters. We find similar issue came up for hearing before the Tribunal for the Asstt.Year 2013-14 in assessee s own case 2019 (7) TMI 537 - ITAT AHMEDABAD wherein Co-ordinate Bench remitted back the issue to the file of AO with direction to re-compute the disallowance under Rule 8D(2)(iii) and consider only the investments which have actually yielded exempt income instead of gross investment. We are of the view that similar direction to the AO to decide the issue afresh in line with the directions of the Tribunal in AY 2013-14 would be just and appropriate in this assessment year also. We hold so and direct the AO accordingly. Levy of interest under section 234A of the Act for delay in filing return of income - HELD THAT - As per the assessee the assessee had furnished the return of income for year under consideration within the due date prescribed under section 139(1) of the Act. Though this interest is consequential in a nature this issue is remitted back to the file of the AO to decide whether interest of Rs.1, 97, 584/- was in accordance with law or not. Allowing the differential interest made out of interest claimed under section 36(1)(iii) of the Act by treating it as a business expenditure - HELD THAT - We find that the issue of payment of interest on overdue bills to the Sun Pharma Ltd. does not require elaborate discussion because as stated by the ld.Senior Counsel the issue was being agitated time and again i.e. in the year 1997-98 2010-2011 2011- 12 and 2012-13 and the assessee has succeeded in all these years either before the CIT(A) or before the ITAT and even before the Hon ble Gujarat High Court 2010 (5) TMI 823 - GUJARAT HIGH COURT Thus we dismiss this ground of appeal of the Revenue.

Issues Involved:
1. Disallowance of discounts offered to doctors.
2. Disallowance under section 14A read with Rule 8D.
3. Deduction of education and secondary & higher education cess under section 37(1).
4. Levy of interest under section 234A.
5. Differential interest treated as business expenditure.
6. Disallowance under section 14A.

Issue-wise Detailed Analysis:

1. Disallowance of Discounts Offered to Doctors:
The assessee argued that the discounts given to doctors were similar to those given to distributors and other dealers and should be allowed as an expenditure under section 37 of the Income Tax Act. The Tribunal referenced its decision in the assessee's own case for the assessment year 2009-10, where it was held that discounts given to doctors had a direct bearing on the potential turnover and were thus allowable as business expenditure. The Tribunal set aside the orders of the CIT(A) and AO and directed the AO to allow the trade discount paid to doctors as ordinary business expenditure, thereby allowing ground no.1 in favor of the assessee.

2. Disallowance Under Section 14A Read with Rule 8D:
The CIT(A) had deleted Rs.1,15,98,908/- representing interest expenses but upheld Rs.8,10,910/- as administrative expenses. The Tribunal found the upholding of the disallowance of administrative expenses was not based on logical parameters. It directed the AO to re-compute the disallowance under Rule 8D(2)(iii) considering only the investments that have actually yielded exempt income, in line with the Tribunal's direction for the assessment year 2013-14.

3. Deduction of Education and Secondary & Higher Education Cess Under Section 37(1):
This ground was not pressed by the assessee, and hence no adjudication was required.

4. Levy of Interest Under Section 234A:
The assessee contended that the return of income was filed within the due date prescribed under section 139(1). The Tribunal remitted the issue back to the AO to decide whether the interest of Rs.1,97,584/- was in accordance with the law.

5. Differential Interest Treated as Business Expenditure:
The AO disallowed Rs.12,11,46,320/- on the grounds that the transaction between the assessee and Sun Pharma Group was not at arm's length and was designed to transfer income to Sun Pharma, which claimed deduction under section 80IC. The CIT(A) allowed the interest expenditure, following the decision in the assessee's own case for the assessment year 2012-13. The Tribunal upheld the CIT(A)'s decision, noting that similar claims had been allowed in earlier years and were confirmed by the Hon'ble Gujarat High Court. The Tribunal found no reason to disallow the interest expenditure and dismissed this ground of the Revenue's appeal.

6. Disallowance Under Section 14A:
This issue was already dealt with while adjudicating the appeal of the assessee. The Tribunal dismissed this ground of the Revenue's appeal.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, and the appeal of the Revenue was dismissed. The Tribunal's directions included allowing trade discounts to doctors, re-computing disallowances under Rule 8D(2)(iii), and remitting the issue of interest under section 234A back to the AO. The Tribunal upheld the CIT(A)'s decision on the differential interest treated as business expenditure, following the precedent set in earlier years and confirmed by the Hon'ble Gujarat High Court.

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