9911796707
TMI Blog2013 (6) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... company. 3. Brief facts of the case are that, the assessee is 75% subsidiary of Johnsons & Johnsons, U.S.A., and it also holds 100% share in one of the company namely - Johnsons & Johnsons Exports Ltd. (for short "JJE"). Thus, the JJE is a 100% subsidiary of the assessee company. The assessee is engaged in the business of manufacturing and marketing of various consumer care, health care and diagnostic products as well as surgical instruments & material, etc. The assessee has disclosed its total turnover from its various divisions at Rs. 450.60 crores out of which, sale of 4,31,82,151, represents the sale of finished products to JJE. During the course of assessment proceedings, the assessee was required to disclose details of rate at which the products were sold to the subsidiary company vis-a-vis the rate at which these products were sold to the other third parties. The Assessing Officer also required to provide printed price list of these products. From the perusal of the details, it was found that sales to JEE were made at the rates much lower than the printed price list of the products i.e., the rate at which these products were sold to the third parties. In response to the sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the elements of excise duty and trade discount are concerned, the Assessing Officer accepted that the same will not have material effect as the subsidiary is 100% export unit and goods and merchandise exported by that unit is not liable for excise duty and trade discount is also acceptable because the sale to the subsidiary does not take place in competitive market. However, other cost factors like advertisement and sales promotion expenses, bonus, sales and distribution expenses, competition from other brands, price sensitivity of the product and price that market can bear are very vital inputs which cannot be segregated from the manufacturing process and total trading expenses. The Assessing Officer further observed that the assessee has adopted two different techniques of accounting with regard to the costing of stock-in-trade, one in respect of goods sold to third parties and other in respect of goods sold to subsidiary. Such a technique is not feasible without deliberate and pre-plan intervention in the accounting of various expenses in the books of account that includes the manufacturing accounts. Such a technique of accounting has been disapproved by the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sales to the subsidiary during the year. The Assessing Officer has also dealt upon the capital structure of the subsidiary company, that the subsidiary company made its purchases over whelmingly from the assessee company and also that the subsidiary company being 100% export company gets full income tax exemption under section 80HHC and its profits flow back to the assessee company by way of dividend which is also exempt from income tax under section 80M in the hands of the assessee company. It was thus observed that the assessee company has under priced the sale of its products to the subsidiary to the total exclusion of the third party from such concessions. It thus, generated loss which lowered the chargeable income. The subsidiary company being 100% export company increased its profits which was exempt under section 80HHC and then the dividends received by the assessee from the subsidiary company got exemption under section 80M. 6. Thus, the Assessing Officer concluded that the assessee has borne loss which is not out of any genuine commercial or trading but by deliberate under-pricing of the sale price to the subsidiary and the consequent deduction of the profits of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g certain expenditure which would have been incurred in relation to the sales made to the other parties are not required for making a sale to the subsidiary and the same should be deducted. Such types of expenses were illustrated as under:- Freight Transportation & Shipping expenses @ 2.83% of sales Rs. 16,81,668 Selling expenses @ 8.10% of sales Rs. 48,12,968 Merchandising Expenses @ 1.31% of sales Rs. 7,78,694 Advertising and sales promotion expenses @ 12.04% of sales Rs. 71,54,090 Other Administrative Expenses @ 5.28% of sales Rs. 31,37,342 8. The above calculation has been worked out on the basis of actual percentage of expenses of sales. While apportioning the various expenses, it has been observed by the Commissioner (Appeals) that the assessee has also allocated expenses like salary / allowances, stores & spares parts, light & power, rent, rates and taxes, repairs and maintenance of machinery and building, sales tax, directors' fee, depreciation, etc. Thus, as per the working of the assessee, the net impact after considering the various manufacturing expenses, the profit will come to Rs. 13,93,719, on the sales made to subsidiary company. The Commissioner (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then applying the same percentage to the sales made by the assessee to the subsidiary company. For this purpose, the sales figure will have to be taken at Rs. 5,94,19,356. For this purpose, the sales figure will have to be taken at Rs. 5,94,19,356. If the assessee is not able to provide the relevant information in this regard as required by the A.O. he may make a fair and just estimate to the freight expenses in respect of sales to other parties on the basis of available information. So far as the advertisement expenses are concerned, it is understandable that for sales made to the subsidiary, the assessee would not have to incur any advertisement expenses which are sold to the subsidiary company which in turn exports those products. As such no advertisement expenses need to be incurred in India. Therefore, the claim of the assessee for set off of advertisement expenses is acceptable. These may be calculated by first calculating the advertisement expenses as percentage of sales to the other parties and then applying the same percentage to the sales made by the assessee company to the subsidiary. Here too, only direct advertisement expenses in respect of sales to other parties will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I uphold disallowance calculated in the aforesaid manner." 10. Learned Counsel, appearing on behalf of the assessee, submitted that the assessee had no export division, therefore, it has made a wholly owned subsidiary company dealing in 100% exports. The total exports of the assessee company were around Rs. 4.39 crores, which was through the subsidiary company JJE. The assessee has, in fact, earned a dividend of Rs. 2.58 crores from this company and, therefore, the assessee was within his right to open a 100% export subsidiary for claim of deduction under section 80HHC. Thus, there was no colourable device for tax evasion, as alleged by the Assessing Officer. In support of this contention, he relied upon various case laws including that of Vodafone International Holdings B. V. v/s Union of India, [2012] 341 ITR 001 (SC) and CIT v/s Walfort Share and Stock Brokers Pvt. Ltd., [2010] 326 ITR 001 (SC). A list of such compilation of case laws has been filed separately in the paper book. Further, such a set-up of subsidiary was part of a business strategy to export its product to an export house i.e., JJE. Regarding various expenses which are not required for the sale of subsidiary com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses because the same is embedded in the brand value. Even when the subsidiary is making an export, it is exporting a product which has a brand value and in which advertisement expenses are most essential part. The preferential rate adopted by the assessee is against the tents of law and accounting principle as the loss is incidental and it cannot be pre-arranged or pre-determined. By under- pricing the products to the subsidiary, the assessee is in fact pre-arranging its loss. Therefore, the Assessing Officer was within the law to examine as to whether the price charged by the subsidiary is at arm's length. He submitted that none of the expenses can be segregated for working out the cost of the price in the sale price charged by the assessee from its subsidiary. He, thus, strongly relied upon the detail reasoning and the conclusion drawn by the A.O and also part of the learned Commissioner (Appeals)'s order. 14. In the rejoinder, the learned Counsel for the assessee submitted that the assessee has not pre-arranged or pre-ordained the loss as the assessee has itself shown cost +15% margin on the sales made to its subsidiary. It cannot be held that all the expenses which are attri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promotion expenses are not required for making sales to the subsidiary companies. The case of the learned Counsel before us is that - firstly, cost plus 15% mark-up is sufficient to determine the actual sale price made to the subsidiary which takes care of all the necessary expenses in relation to the product sold; secondly, it is assessee's prerogative to sell the product at a mutual agreed price with its subsidiary and the Revenue cannot dispute for such sale price; and lastly, the adjustment of various expenses has to be made in reference to working out the sale price for the products sold to the subsidiary because these expenses are not required in case of sale made to the subsidiary which is otherwise necessary in case of sale made to the third parties. Learned Departmental Representative, before us, contended that it is very difficult to segregate the expenses while working out the sale price of the product because most of the expenses are inbuilt in the manufacturing of the product for e.g., in case of advertisement expenses it has a direct implication on the brand value which is embedded while making a sale of the product; secondly, differential pricing militates the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd parties as per the actual sales of the products and the sale price made to the subsidiary company. Secondly, the Assessing Officer should verify the actual expenditure attributable to the products and the sale made to the subsidiary and lastly, the adjustment of expenditure should be made on some reasonable basis while working out the sale price charged from the subsidiary as there are certain expenses which are not required for making the sales to the subsidiary as compared to the other parties. While doing so, the Assessing Officer will also take into consideration the fact that the assessee had shown cost plus 15% mark-up. The assessee is also required to furnish all the necessary details and the actual expenses relating to sales to the subsidiary. Thus, the entire matter has to be examined afresh in the light of the above observation after giving due and effective opportunity of hearing to the assessee for presenting its case. Thus, ground no.1, is allowed for statistical purposes. 18. In ground no.2, the assessee has challenged the disallowance of Rs. 1,56,59,547, on account of provisions for Executive Retirement Scheme (ERS) on the ground that such provisions made for ERS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s based on the specific modus of computation & since 1972 year after year, provisions were made in the accounts and added back in the total income. The Payments were made out of those provisions. We are, therefore, inclined to agree with ld. Counsel for the assessee that actual payment made during the relevant assessment year is allowable business expenditure. Accordingly, we direct the Assessing Officer to allow the claim of the assessee on this count." 21. Thus, respectfully following the precedence of the aforesaid order, we direct the Assessing Officer to allow the said expenses on the basis of actual payment made during the relevant assessment year as business expenses. Accordingly, ground no.2, is partly allowed. 22. Ground no.3, relates to disallowance of foreign travel expenses of Rs. 1,68,597, incurred on the wife of the Executive Officer of the assessee. 23. Rival contentions heard. As agreed by both the parties, this issue has come up before the co-ordinate bench of the Tribunal in earlier years in assessee's own case wherein identical issue has been allowed and in subsequent years, the same was decided against. The Commissioner (Appeals) has confirmed the said additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes to disallowance of Rs. 1,34,929/- incurred on the foreign trip of Mrs. Lata Palekar, w/o Mr. V.S. Palekar. The Assessing Officer disallowed the claim since it was not incurred for the purpose of business. However, the learned CIT(A) has deleted the same following the Special Bench decision in the case of Glaxo Laboratories Ltd., 18 ITD 226. Aggrieved by the same, the Revenue is in appeal before the Tribunal. After hearing both the parties, we find that the decision of the Special Bench mentioned above is no more relevant in view of the recent decision of the Hon'ble Bombay High Court in the case of Bhor Industries Ltd., 284 ITR 319, wherein it has been held that such claim of the assessee cannot be allowed unless it is shown that the tour of the spouse of the employee was for the purpose of business. A query was raised as to whether there was any invitation for the purpose for the spouse. In response to the same, the answer was in negative. Therefore, it cannot be said that the trip of the wife was for the purpose of business particularly when no material / evidence has been furnished before either of the authorities. Therefore, the claim of the assessee cannot be accepted. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up for consideration before the Tribunal in the earlier years in assessee's own case in which a detailed chart is given with reference to the findings of the Tribunal in various years. 30. After carefully considering the findings of the Commissioner (Appeals) as well as of the Assessing Officer and also the order passed by the Tribunal, we find that in assessee's own case for assessment year 1995-96 in ITA no. 6633/Mum./1998, the Tribunal has upheld the 80% of the disallowance confirmed by the Commissioner (Appeals) which was at 35% of the disallowance made by the Assessing Officer. Consistent with the view taken therein, we hold that 80% of the disallowance should be confirmed out of the disallowance made by the Commissioner (Appeals). In case of disallowance on account of conference expenses of Rs. 8,33,476, the learned Counsel submitted that this issue has been decided in favour of the assessee by the Tribunal in assessee's own case for assessment year 1984-85, wherein the Tribunal has followed Special Bench decision in Chemay Pvt. Ltd., ITA no. 430/Bom./1984. Consistent with the view taken therein, we also allow the said expenses incurred on account of conference expenses as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Respectfully following the decision of the Tribunal, we decide this issue in favour of the assessee and against the revenue. With regard to the expenditure on Giveaways and Complementaries, assessee submitted that identical issue was decided by the appellate Tribunal in its own case for the assessment year 1984-85. As we find that the issue is separately covered by the decision of the Tribunal cited supra, we decide the same in favour of the assessee against the Revenue." 36. Consistent with the aforesaid view taken by the Tribunal in assessee's own case, we set aside the impugned order passed by the Commissioner (Appeals) and allow the ground raised by the assessee. 37. With regard to the disallowance of miscellaneous business expenses on food and beverages of Rs. 15,65,633, it has been admitted by the learned Counsel that the Tribunal in earlier years has upheld 80% of the disallowance confirmed by the Commissioner (Appeals). 38. After going through the order passed by the Tribunal in assessment year 1995-96 in assessee's own case in ITA no.6633/Mum./1998, we find that the Tribunal has further allowed 20% of the expenses sustained by the Commissioner (Appeals) after observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely 7% of the total profit of the Aurangabad unit which appears to be reasonable. Accordingly, the orders of the learned CIT(A) are upheld on this issue." 43. Consistent with the view taken by the Tribunal in assessee's own case cited supra, this issue is decided against the Assessee. Thus, this ground is dismissed. 44. Ground no.6, relates to ad-hoc disallowance of 2% of dividend income on account of expenditure for earning the dividend income. 45. Before us, the learned Counsel for the assessee has relied upon the judgment of Jurisdictional High Court in CIT v/s Emrald Co. Ltd. [2006] 284 ITR 586 (Bom.). 46. On the other hand, the learned Departmental Representative relied upon the order passed by the Commissioner (Appeals). 47. After carefully considering the facts of the case and the observations and findings given by the Commissioner (Appeals) as well as by the Assessing Officer, we find that the Commissioner (Appeals) has decided this issue after observing and holding as under:- The appellant had claimed deduction under section 80M at Rs. 7,58,99,000 on account of dividend income from subsidiary company. The appellant claimed this deduction on the gross amount while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein below:- "Business income is broken up under the different heads only for the purpose of computing the total income, but the income does not cease to be income of the business. Therefore, in the case of a dealer in shares, the dividend retains the character of business income though assessed under section 56 of the Income-tax Act, 1961. The interest on the borrowings is paid for the purpose of business and therefore allowable under section 36(1)(iii). The court in the case of CIT v. Maganlal Chhaganlal P. Ltd. [1999] 236 ITR 456 (Bom) following the ratio of the decision of the Supreme Court in the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 held that deduction under section 80M(1) of the Act has to be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act and forming part of the gross total income, i.e, after deducting interest on monies borrowed for earning such income and not with reference to the full amount of dividend received by the assessee. The Calcutta High Court in CIT v. National and Grindlays Bank Ltd. [1993] 202 ITR 559 had held that the relevant section 80M is admissible on the gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal is partly allowed for statistical purposes. 51. We now take up Revenue's appeal in ITA no.145/Mum./2001, for assessment year 1997-98. 52. In ground no.1, the Revenue has challenged deletion of addition on account of Johnson & Johnson Exports Ltd. 53. Rival contentions heard. Both the parties agree before us that this issue is similar to ground no.1, raised in assessee's appeal in ITA no.349/Mum./2001 and consistent with the view taken therein, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer for denovo adjudication. This ground is, thus, allowed for statistical purposes. 54. In ground no.2, the Revenue has challenged the deletion of addition of Rs. 2,32,94,702, on production of add films treating it as revenue expenditure by the Commissioner (Appeals). 55. The Commissioner (Appeals) has decided the issue in favour of the assessee on the ground that in the earlier years, the Commissioner (Appeals) has decided this issue in favour of the assessee. 56. Before us also, both the parties agree that this issue stands covered by the decision of the Tribunal in assessee's own case right from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) accepted assessee's contention and held "the addition on account of advertisement films being of capital nature does not survive as the amount in any case cannot form part of the appellant's income. Aggrieved by the above order the Revenue is in appeal before the Tribunal. The contenting parties reiterated their respective stand. Relying upon the decision of the Jurisdictional High Court in the case reported in 1001 ITR 219 in the case of CIT Bombay City V/s Pate! International Films Ltd., the Ld. DR submitted that expenditure on films for advertisement is to be treated as capita! expenditure. On the other hand, the Ld Counsel for the assessee relied upon the decision of Hon'b!e Himachal Pradesh High Court in the case of Mohan Meakin Breweries (supra) and Submitted, this being expenditure on advertisement need to be allowed. He further submitted, this being expenditure I furtherance of business, the expenditure whether in the form of film or not is to be treated as business expenditure. The film as such has no enduring character. This will last only as long as the product is in market, on which the advertisement is made, submitted the Counsel. Again relying upon the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee who had no interest in the film as such. This ground by the Revenue fails and dismissed." 58. Thus, following the aforesaid decision which has been followed in other years also, this issue is decided in favour of the assessee by treating the same to be allowed as revenue expenditure. Thus, ground no.2, raised by the Revenue is dismissed. 59. In ground no.3, the Revenue has challenged the disallowance of Rs. 66,34,000, made on account of MODVAT credit. 60. The Assessing Officer found that unutilized MODVAT credit receivable by the assessee, as per the balance sheet, comes to Rs. 66,34,320, which has not been added for the purpose of valuation of closing stock. Accordingly, the same was added in the total income of the assessee. 61. Before the Commissioner (Appeals), it was argued that the valuation of closing stock adopted by the assessee is in accordance with the Accounting Standards prescribed by the ICAI and the same has been consistently followed by it. The Commissioner (Appeals) held that since this issue has been decided in favour of the assessee in the earlier years, therefore, the same stands deleted. 62. Before us also, the learned Counsel submitted that thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection no.88/Mum./2001, which is arising out of Revenue's appeal in ITA no.145/Mum./2001, for assessment year 1997-98. 68. In this cross objection, the assessee stated that in case the expenditure on account of production of advertising films is treated as capital expenditure, then 100% depreciation should be allowed. 69. Since we have already allowed the said expenditure as revenue expenditure, therefore, the ground raised in the cross objection become infructuous and the same is dismissed as such. 70. In the result, assessee's cross objection is dismissed. We now take up assessee's appeal in ITA no.2679/Mum./2003, for assessment year 1998-99. 71. In ground no.1, the assessee has challenged the addition on account of sales made to Johnson & Johnson Exports Ltd., a subsidiary of the assessee company. 72. Rival contentions heard. As admitted by both the parties, this issue is similar to ground no.1, in assessee's appeal in ITA no.349/Mum./2001, for assessment year 1997-98. In view of our decision given therein which applies mutatis mutandis to this issue also, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the issue back to the file of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses. We now take up Revenue's appeal in ITA no.2054/Mum./2003, for assessment year 1998-99. 82. Ground no.1, relates deletion of addition on account of sales made Johnson & Johnson Exports Ltd. 83. Rival contentions heard. After hearing both the parties, we find that this issue is similar to the issue raised in ground no.1, by the assessee in its appeal in ITA no.849/Mum./2001, for assessment year 1997-98, wherein the issue as a whole has been restored back to the file of the Assessing Officer for denovo adjudication. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer for adjudication afresh in the light of the observations made therein. Thus, ground no.1, is allowed for statistical purposes. 84. Ground no.2, relates to disallowance of expenditure on production of advertising films by treating the same as revenue expenditure by the learned Commissioner (Appeals). 85. Rival contentions heard. Both the parties agree before us that this issue is similar to the issue raised in ground no.2, in ITA no.145/Mum./2001, for assessment year 1997-98, wherein the ground raised by the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire deduction claimed cannot be regarded as relating to exports. Therefore, while interpreting the words "total turnover" in the formula in section 80HHC one has to give a schematic interpretation. The various amendments made therein show that receipts by way of brokerage, commission, interest, rent, etc., do not form part of business profits as they have no nexus with the activity of export. The amendments made from time to time indicate that they became necessary in order to make the formula workable. If so, excise duty and sales tax also cannot form part of the "total turnover" under section 80HHC(3) : otherwise the formula becomes unworkable. Decisions of the Madras High Court in CIT v. Sundaram Clayton Ltd. [2006] 281 ITR 425 (Mad) and CIT v. Sri Jayajothi and Co. Ltd. [2007] 290 ITR 660 (Mad) affirmed. [The Supreme Court made it clear that the reasoning in this case is confined to the workability of the formula in section 80HHC as it stood in the assessment year 1993-94.] 90. Respectfully following the aforesaid law settled by the Hon'ble Supreme Court which has been followed in various cases, this issue is decided against the Revenue and in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties agree before us that this issue is similar to the issue raised in ground no.2, in assessee's appeal in ITA no.349/Mum./2001, for assessment year 1997-98. In view of our findings given therein, we set aside the impugned order passed by the learned Commissioner (Appeals) and direct the Assessing Officer to allow the said expenses on the basis of actual payment made during the relevant assessment year as business expenses. Accordingly, ground no.4, raised by the assessee is partly allowed. 101. Ground no.5, relates to deduction under section 80IA. 102. Rival contentions heard. Both the parties agree before us that this issue is similar to the issue raised in ground no.5, in assessee's appeal in ITA no.349/Mum./2001, for assessment year 1997-98, wherein this ground is dismissed for the reasons given therein. Consistent with the view taken by us, this ground of the assessee is dismissed. 103. In ground no.6, the assessee has challenged the provisions of cash discount of Rs. 20,43,091. 104. The case of the assessee was that it has made provisions for cash discount aggregating to Rs. 88,04,000, which was a provision for the month of March 1999. This cash discount is offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein, we allow this ground no.7, raised by the assessee. 111. Ground no.8, relates to the disallowance of Rs. 13,91,536, on account of deduction under section 80HHC of the Act. 112. Before us, the learned Counsel for the assessee submitted that this issue may be restore to the file of the Assessing Officer for netting-off in view of the judgment of Hon'ble Supreme Court in ACG Associated Capsules Pvt. Ltd. v/s CIT, [2012] 343 ITR 089 (SC). 113. Learned Departmental Representative fairly admitted that the matter can be restored to the file of the Assessing Officer to decide the issue in the light of the said judgment of the Hon'ble Supreme Court. 114. After going through the orders passed by the learned Commissioner (Appeals) as well as by the Assessing Officer, we find that the assessee has claimed 90% of the net rental which ought to have been reduced while working out the deduction computed under section 80HHC. The learned Commissioner (Appeals) has decided this issue against the assessee after following various case laws. Now the issue has been settled by the Hon'ble Supreme Court in ACG Associated Capsules Pvt. Ltd. (supra), wherein Their Lordships have obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, in law, was justified in ignoring the decision of the hon'ble Bombay High Court in CIT v. Asian Star Company Limitedin I. T. A. No. 200 of 2009, dated March 18/19, 2010-since reported in [2010] 326 ITR 56 (Bom), and directing the Department to apply the decision of the Income-tax Appellate Tribunal, Special Bench, Mumbai, in the case of Lalsons Enterprises v. Deputy CIT[2004] 89 ITD 25 and the decision of the Delhi High Court in the case of CIT v. Shri Ram Honda Power Equip [2007] 289 ITR 475 (Delhi)? 4. Whether, on the facts and in the circumstances of the case, the Tribunal, in law, was justified in directing to reduce the rent paid from the rent received while considering the rental income for the purpose of exclusion of business income for computing deduction under section 80HHC of the Act by ignoring the decision of the hon'ble Bombay High Court in CIT v. Asian Star Company Limitedin I. T. A. No. 200 of 2009, dated March 18/19, 2010-since reported in [2010] 326 ITR 56 (Bom)?' The learned counsel appearing on behalf of the Revenue and the learned counsel appearing on behalf of the assessee are agreed in stating before the court that since the Tribunal has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order passed by the learned Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer who shall decide the same afresh in the light of the aforesaid judgment of the Hon'ble Supreme Court and only 90% of the net amount of rent should be reduced in view of the provisions of Explanation (baa) to section 80HHC. Accordingly, this ground is partly allowed for statistical purposes. 116. Ground no.9, relates to non-grant of credit of TDS. 117. Learned Counsel for the assessee contended before us that he did not wish to press this ground. Learned Departmental Representative, on the other hand, also did not object to the submissions made by the learned Counsel for the assessee. Consequently, this ground is dismissed as "not pressed". 118. In the result, assessee's appeal is partly allowed for statistical purposes. We now take up Revenue's appeal in ITA no.2055/Mum./2003, for assessment year 1999-2000. 119. Ground no.1, relates deletion of addition on account of sales made Johnson & Johnson Exports Ltd. 120. Rival contentions heard. Both the parties agree before us that the issue arising out of this ground is similar to the issue raised in groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 2. Ground no.2: Disallowance of payment to NPPA, erred in upholding the disallowance of the payment of Rs. 1.5 crores made to the National Pharmaceuticals Pricing Authority (NPPA) as per the directions of Hon'ble Delhi High Court 3. Ground no.3: levy of interest under section 220(2) of the Act, erred in up holding the levy of interest of Rs. 12,88,881 under section 220(2) of the Act." 128. Brief facts of the case are that the assessee has filed its return of income on 31st December 1999, showing total income of Rs. 37,46,41,580, and has claimed deduction of Rs. 19,08,778, under section 80HHC and Rs. 4,22,07,736 under section 80IA. The said return of income was subject to scrutiny assessment and the assessment was made under section 143(3) at an income of Rs. 49,35,80,370, vide order dated 28th February 2002 and deduction under sections 80HHC and 80IA were allowed at Rs. 20,50,868 and Rs. 4,17,19,022, respectively. The said assessment had been re-opened under section 147 on the ground that certain deduction under section 80HHC and 80IA was not made properly in accordance with law. The said re-assessment order was passed under section 143(3) r/w section 147 on 28th Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... review the price fixed vide order dated 07.01 .96. The appellant was not successful and filed writ petition before the Delhi High Court on 15.10.98. During the Pendency of writ petition, Delhi High Court directed the appellant to deposit Rs. 1.5 crore, which the appellant deposited on 10.12.98. Writ petition of the appellant was disposed by the Delhi High court on 01.07.2008 directing the NPPA to pass fresh order for fixing the price of the scheduled drug after considering the submissions of the appellant. Delhi High Court also directed that the amount of Rs. 1.5 crore deposited with the NPPA will remain with the NPPA as deposit till the matter is finally settled. 1.2 In the assessment proceedings, the appellant claimed deduction of Rs. 1.5 crore deposited with the NPPA on 10.12.98 in accordance with the directions of Delhi High Court. The appellant had claimed before the Assessing Officer that the amount of Rs. 1.5 crore is deposited under para 13 of the DPCO and is not in the nature of penalty and deduction is required to be allowed u/s 37(1) of the income tax Assessing Officer held that the deduction claimed by the appellant can not be allowed as deduction in view of explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a disallowance of Rs. 1.5 crores on account of NPPA. 7. 3rd November 2008 Hon'ble CIT(A) disposed off the appeal by confirming the addition made in re-assessment order - Appeal filed before Hon'ble ITAT which is pending." "Events before NPPA and Delhi High Court 1. 7th August 1996 NPPA order issued under Drug Price Control Order, 1995, fixing revised price of Raricap Tablets at Rs. 16.24. 2. 19th August 1996 Reply of appellant informing that the price of Raricap (40's) was approved at Rs. 25.01, undre DPCO 1987 and requesting the Govern-ment to furnish cost data to submit review application. 3. 30th March 1997 J&J India discontinues manufacturing of Raricap Tablets. 4. 24th September 1998 Notice from the NPPA determining total overcharged amount of Rs. 5.32 crores from the period of August 1996 to August 1998. 5. 14th October 1998 Filed a Writ Petition with the Delhi High Court. 6. 15th October 1998 Delhi High Court asked J&J India to file submissions with NPPA. 7. 23rd November 1998 Delhi High Court passed interim order and directed J&J India to deposit a sum of Rs. 1.5 crores with the NPPA till the disposal of the petition. 8. 10th December 1998 Paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration certain cost parameter. The assessee was charging Rs. 25 per strip of Raricap tablet. Later on, the NPPA, vide order dated 7th August 19996, fixing the revised price of Raricap tablet at Rs. 16.24. Immediately thereafter, the assessee on 19th August 1996, filed a detail reply that price of Rs. 25, was approved under DPCO, 1987 and, therefore, requested the Government to furnish the cost data so that the revised application can be filed. Subsequently, on 30th March 1997, the assessee discontinued to manufacture Raricap tablet. On 24th September 1998, a notice was issued from NPPA determining the total over charged amount of Rs. 5.32 crores from the period of August 1996 to August 1998. Against the said notice, the assessee filed Writ Petition before the Delhi High Court. The Delhi High Court, vide its judgment dated 23rd November 1998, passed an interim order and directed the assessee to deposit Rs. 1.50 crores with NPPA till the disposal of the Petition. On 10th December 1998, payment of Rs. 1.50 crores was paid to NPPA based on such interim order of the High Court. From the records, it is seen that the assessee has been regularly filing replies to the NPPA for giving ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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