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2018 (11) TMI 266 - AT - Income TaxAddition invoking the provisions of section 14A r.w. Rule 8D - non recording of satisfaction before invoking the provisions of section 14A & Rule 8D - Held that - The preliminary satisfaction to be recorded by Assessing Officer, before making disallowance under section 14A of the Act read with Rule 8D of the Rules, is missing in the case; in the absence of the same, there is no merit in the disallowance made by the Assessing Officer. We find support from the ratio laid down by the Hon ble Supreme Court in Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT & Anr. 2017 (5) TMI 403 - SUPREME COURT OF INDIA Satisfaction recorded by the AO in Para No.5.1 is extremely based on the suspicion and surmises. The satisfaction arrived at by the AO with reference to the entries in the books of account of the assessee and also having regard to the correctness of the claim of the assessee. In that sense of the matter, the satisfaction recorded by the AO is extremely generic and which falls short of the legal requirement for assuming jurisdiction u/s.14A of the Act. - Decided in favour of assessee. Nature of expenses - Foreign Travel Expenses of Employees - revenue or capital expenditure - Held that - n the issue of capitalization of the expenditure, in view of the assessee s submission that the expenses incurred for the purpose other than the purchase of machinery, needs to be verified by the AO, we find this issue needs to be remitted back to the file of AO for verification of correctness of the facts relating to this claim. AO is directed to verify the expenses in this regard after granting reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. Classification issues qua the depreciation rates - held that - AO classified certain items as Furniture and allowed depreciation at the rate applicable to Furniture and certain items as Plant and Machinery and allowed depreciation at the rate applicable to them by applying functional test. Eventually, in the assessment made u/s.143(3) r.w.s. 153A of the Act, the AO made addition of ₹ 1,44,126/- being difference in depreciation @10% and 15% on some items under block of Plant and Machinery treating the same as Furniture. Before the CIT(A), the assessee submitted that this issue has been decided in favour of the assessee for the A.Yrs. 2006-07, 2007-08 and 2008-09. The CIT(A) after considering the submissions of the assessee and the order of CIT(A) for the A.Y. 2008-09 allowed the appeal of the assessee. Thus we find this issue has already been adjudicated by us against the Revenue and in favour of the assessee while dealing with the appeal of the Revenue. Provision for Leave Encashment disallowance - Held that - We find this issue stands decided against the assessee by virtue of the order of Tribunal in the assessee s own case for the A.Y. 2009-10. Disallowance of Demat charges as claimed as expenditure incurred for earning income from capital gains - Held that - We find this issue is also a decided issue in favour of the assessee by virtue of the order of Tribunal in the assessee own case for the A.Y. 2009-10 we respectfully following the order of the Tribunal in assessee s own case for A.Y. 2004-05 allow the claim of the Portfolio Management fees as an allowable expenditure. The ground raised by the assessee is accordingly allowed. Disallowance of expenditure relating to laying of water pipelines - revenue or capital expenditure - Held that - We are of the opinion that the expenditure incurred on laying of the water pipeline involving the land owned by Maharashtra Government constitutes Revenue expenditure Disallowance on account of selling and distribution expenses - Held that - scope of the CBDT Circular cannot be extended to the pharmaceutical companies without having any enabling Notification or Circular for Medical Council of India. Consequently, the present assessee being a pharmaceutical company is outside the scope of the said circulars of MCI and the CBDT. Considering the settled nature of the issue and following the rule of consistency, this ground raised by the assessee needs to be allowed in favour of the assessee. Disallowance of rent paid for Bungalow located at 70, Koregaon Park, Pune - expenditure allowable u/s.37(1) - Held that - Expenditure on account of rent paid on the house property is allowable in favour of the assessee. We allow the expenditure on account of rent paid in favour of the assessee and remit the issue pertaining to depreciation with identical directions. Disallowance of bogus purchases - Held that - We are of the opinion that the matter should be remanded to the file of CIT(A) for considering the above decision of the Tribunal in the case of Chhabi Electricals Pvt. Ltd. (2017 (6) TMI 514 - ITAT PUNE) after due verification of the facts of the present case. Accordingly, the ground raised by the assessee on merits is allowed for statistical purposes. MAT computation - Disallowance on account of Wealth Tax paid - Held that - The wealth tax payment constitutes an ascertained liability for MAT purposes. Considering the favourable decision in favour of the assessee, we allow Ground raised by the assessee.
Issues Involved:
1. Disallowance under Section 14A. 2. Foreign Travel Expenses. 3. Classification of Fixed Assets for Depreciation. 4. Provision for Leave Encashment. 5. Disallowance of Demat Charges. 6. Treatment of Water Pipeline Expenditure. 7. Disallowance of Selling and Distribution Expenses. 8. Rent and Depreciation for Bungalow. 9. Disallowance of Bogus Purchases. 10. Wealth Tax Deduction under Section 115JB. Detailed Analysis: 1. Disallowance under Section 14A: The Assessee challenged the disallowance of ?3,18,85,207 under Section 14A read with Rule 8D. The Tribunal found that the Assessing Officer (AO) did not record specific satisfaction as required under Section 14A(2). This issue was previously decided in the Assessee's favor for AY 2009-10. The Tribunal reiterated that without specific recording of satisfaction based on the Assessee's accounts, the disallowance is unsustainable. Consequently, the ground was allowed in favor of the Assessee. 2. Foreign Travel Expenses: The Assessee contested the disallowance of ?6,77,682 as capital expenditure. The Tribunal noted that similar issues were remanded for verification in earlier years. The Tribunal remitted the issue back to the AO for verification of expenses incurred other than for the purchase of machinery, thus allowing the ground for statistical purposes. 3. Classification of Fixed Assets for Depreciation: The Assessee disputed the classification of certain fixed assets as 'Furniture' instead of 'Plant and Machinery'. The Tribunal found that this issue was previously decided in favor of the Assessee for AY 2009-10, allowing the higher depreciation rate applicable to 'Plant and Machinery'. The Tribunal allowed this ground in favor of the Assessee. 4. Provision for Leave Encashment: The Assessee's claim for provision for leave encashment amounting to ?18,16,795 was disallowed. The Tribunal upheld the disallowance, citing previous decisions against the Assessee for similar claims in earlier years. This ground was dismissed. 5. Disallowance of Demat Charges: The Assessee's claim for demat charges of ?4,01,453 was disallowed. The Tribunal referenced its decision for AY 2009-10, where such charges were allowed as expenditure under Section 48. The Tribunal allowed this ground in favor of the Assessee. 6. Treatment of Water Pipeline Expenditure: The Assessee claimed ?31,39,226 as revenue expenditure for laying a water pipeline. The Tribunal referred to its decision for AY 2009-10, where such expenditure was considered revenue in nature, essential for the business. The Tribunal allowed this ground in favor of the Assessee. 7. Disallowance of Selling and Distribution Expenses: The Assessee contested the disallowance of ?1,11,64,214 related to selling and distribution expenses. The Tribunal found that similar issues were decided in favor of the Assessee in earlier years, noting that the CBDT Circular No. 5/2012 does not apply to pharmaceutical companies. The Tribunal allowed this ground in favor of the Assessee. 8. Rent and Depreciation for Bungalow: The Assessee claimed rent of ?30,00,000 and depreciation of ?15,26,708 for a bungalow. The Tribunal noted that similar issues were decided in favor of the Assessee in earlier years, treating the expenditure as allowable business expenditure. The Tribunal allowed the rent claim and remitted the depreciation issue back to the AO for verification, thus partly allowing the ground for statistical purposes. 9. Disallowance of Bogus Purchases: The Assessee challenged the disallowance of ?7,78,950 as bogus purchases. The Tribunal referred to its decision in the case of M/s. Chhabi Electricals Pvt. Ltd., where similar issues were adjudicated based on the evidence of actual receipt and usage of goods. The Tribunal remitted the issue back to the CIT(A) for reconsideration, allowing the ground for statistical purposes. 10. Wealth Tax Deduction under Section 115JB: The Assessee claimed a deduction for wealth tax paid amounting to ?21,40,955 while computing book profit under Section 115JB. The Tribunal upheld the Assessee's claim, referencing previous decisions where such tax was considered an ascertained liability. This ground was allowed in favor of the Assessee. Appeal by Revenue: The Revenue's appeal contested the exclusion of investments in debt-oriented mutual funds for disallowance under Section 14A, classification of assets for depreciation, and treatment of product development expenditure as revenue expenditure. The Tribunal dismissed the Revenue's appeal, noting that these issues were already decided in favor of the Assessee in earlier years. Conclusion: The Assessee's appeal was partly allowed for statistical purposes, and the Revenue's appeal was dismissed. The Tribunal's decisions were largely based on consistency with previous rulings and verification of specific facts.
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