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TMI Blog2016 (5) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... nch in the case of Lalsons Enterprises (2004 (2) TMI 294 - ITAT DELHI-E ) which was approved by the Supreme Court in the case of ACG Associates Capsules (2012 (2) TMI 101 - SUPREME COURT OF INDIA). Thus, we direct the Assessing Officer to exclude only the net interest. Upholding deduction of 90% of (a) insurance claim (b) Miscellaneous income (c) Service charges (d) Cenvat credit (e) Extraordinary income as per clause (baa) of Explanation to Sec. 80HHC - Held that:- In so far as insurance claim and sale of scrap is concerned, in our view, this income is generated from business and therefore 90% of such income cannot be reduced for the purpose of computing deduction u/s. 80HHC of the Act. This also supported by the decision of the Hon’ble Bombay High Court in the case of Pfizer Ltd (2010 (6) TMI 433 - Bombay High Court ). In so far as service charges are concerned, we are of the view that this income is not derived from the business operations of the assessee therefore, we uphold the action of the Assessing Officer in reducing 90% of such income while computing deduction u/s. 80HHC of the Act. Coming to Cenvat credit, it is held that is derived from the industrial undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been rebutted by the Revenue, we do not find any infirmity in the order passed by the Ld. CIT(A) for the year under consideration also. - I.TA No. 6681/Mum/2013 I.TA No. 6454/Mum/2013, I.TA No. 6682/Mum/2013, I.TA No. 6455/Mum/2013, I.TA No. 6558/Mum/2013, I.TA No. 6456/Mum/2013 - - - Dated:- 18-5-2016 - SHRI RAJENDRA ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER Assessee by : Shri M.P. Lohia Shri Pranay Gandhi Shri Saurabh Deshpande Revenue by: Shri N.K. Chand O R D E R PER C.N. PRASAD, JM: These bunch of appeals are filed by the assessee and the Revenue against the orders of the Ld. CIT(A)-15 for the Assessment Years 2004-05, 2005-06 and 2007-08. As these appeals were heard together, they are disposed of by this common order for the sake of convenience. ITA No. 6681/M/2013 -A.Y. 2004-05 Assessee s appeal 2. The first ground of appeal in assessee s appeal is that the Ld. CIT(A) erred in upholding the disallowance of sales promotion UCB 3 India Pvt. Ltd. expenses incurred by the assessee to the tune of ₹ 10,42,837/- by considering the same as not having been incurred for the appellant s business. 3. Brief facts are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 428 429 of 2007, the Tribunal had held that the adhoc disallowance made by the Assessing Officer is based on mere surmises and presumptions therefore deleted the disallowance. The Ld. Counsel for the assessee submits that copy of the Tribunal order is placed at page-107 of the Paper Book. He submits that since the Assessing Officer has made disallowance of sales promotion expenses on adhoc basis, similar to Assessment Years 2002-03 and 2003-04, the same should be deleted. The Ld. Counsel for the assessee further submits that the Ahmedabad Tribunal in the case of Life Sight Surgicals Pvt. Ltd., Vs DCIT (133 TTJ 27) held that expenditure on sponsorship of different programes is allowable as business expenditure. The Ld. Counsel submits that Hon ble CIT(A) confirmed the disallowance holding that the same is prohibited by MCI regulations and should be disallowed in view of the CBDT Circular No. 5 of 2012 dated 1st August, 2012. The Ld. Counsel submits that Medical Council of India s notification preventing the Pharma Companies in gifting articles to the medical practitioners notified in the official gazette on 10.12.2009 and is effective from this date is not applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the company distributed its product through various medical representative, who got in touch with large number of doctors, etc. for marking and distributing the company products. It was submitted that the gift items are distributed through these medical representatives and the sales promotion expenses incurred were for the purpose of business to promote sales and has to be allowed. The undisputed fact was that all the gift articles bore the logo of the company and were useful for branch regulating. Samples of these gift articles were produced before the assessing officer. The assessing officer directed the assessee to submit details of recipients of gift articles. On the ground that non business obligation of the same cannot be rules out 20% of ₹ 44,48,975/- was disallowed for the assessment year 2002-03 and20% of ₹ 1,04,71,947/- was disallowed for the assessment year 2006-07 by the AO . Aggrieved the assessee carried the matter in appeal without success. Further aggrieved the assessee is before us. After considering rival submissions we observe that there is no dispute as to the allowability of this expenditure as business expenditure. Only the quantum is being re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doctors but it is regarded as advertising expenses. As regards sponsoring doctors for conferences and extending hospitality, pharmaceuticals companies have been sponsoring practicing doctors to attend prestigious conferences so that they gather contemporary knowledge about management of certain illness/disease and learn about newer therapies. We found that the disallowance was made by the AO by relying on the CBDT Circular dated 01.08.2012 onwards. However, the Circular was not applicable because it was introduced w.e.f.01.08.2012 i.e. assessment year 2013-2014, whereas the relevant assessment year under consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance so made by the AO in both the assessment years under consideration . Respectfully following the decision of the Co-ordinate Bench in assessee s own case, we delete the adhoc disallowance made by the Assessing Officer in respect of gifts articles. Ground No. 1 is allowed. 8. The second ground in assessee s appeal is that the Ld. CIT(A) erred in upholding the disallowance of bank interest amounting to ₹ 6,61,187/- as business income and excluding the same while computing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal directed the Assessing Officer to eliminate only the net of interest following the Special Bench decisions in the case of Lalsons Enterprises Vs DCIT 89 ITD 25 (supra) as well as decision in the case of CIT Vs Ram Honda Power Equipment 289 ITR 475 (supra). However, we find that Jurisdictional High Court in the case of CIT Vs Swani Spice Mills Pvt. Ltd. (332 ITR 288) after analyzing various decisions of various High Courts and Apex Court including its earlier decision in the case of Indo Swiss Jewels Ltd (supra) held as under: The consistent line of reasoning which emerges from the decision of several High Courts adverted to earlier is that the mere fact that an assessee carries on business would not result in an inference that the income which is earned by way of interest would fall for classification as business income. Where an assessee invests its surplus funds in order to earn interest and to obviate its funds lying idle, such income would not fall for classification as business income. This is particularly so in a situation where the business of the assessee does not consist in the investment of funds. Where the assessee engages in an independent line of business, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. Counsel for the assessee submits that the Ld. CIT(A) confirmed the order of the Assessing Officer holding that the decision of the Supreme Court in the case of Indian Additives Ltd Vs DCIT (25 Taxmann.Com 412) have held that the services and commission income are not derived from the business activity of the undertaking. He also relied on the decision of the Hon ble Supreme Court in the case of Liberty India Vs CIT (317 ITR 218). 14.1. With reference to the Insurance amount of ₹ 3,53,385/-, the Ld. Counsel for the assessee submits that insurance claim against various operating losses/breakages at the factory and distribution stages. These are the salvaged value of operational losses and relate to the business operations of the assessee. Drawing our attention to the decision in the case of Pfizer Ltd (330 ITR 62), it was held that insurance claim form part of profits of the business and therefore cannot be excluded while computing business profits for the purpose of Sec. 80HHC of the Act. 14.2. With reference to miscellaneous income, the Ld. Counsel for the assessee submits that this amount represents sale of scrap generated from wastage or breakage of bottles, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Coming to extraordinary income, the Ld. Counsel for the assessee submits that this amount pertains to the excess of assets over liabilities pertaining to resins and additives business of Solutia Chemicals India Pvt. Ltd., which was acquired by the assessee on a going concern basis from 1.6.2003. The Ld. Counsel for the assessee submits that this amount is the cost differential of asset over liability. The Ld. Counsel for the assessee submits that this amount is not income at all but should go capital reserve therefore not be considered as income at all. 15. The Ld. Departmental Representative vehemently supports the orders of the lower authorities in excluding 90% of all these incomes while computing deduction u/s. 80HHC of the Act. He submits that none of these incomes are derived from industrial undertaking for the purpose of considering as income for deduction u/s. 80HHC. Hence, he submits that 90% of such income have to be excluded by applying clause (baa) to Explanation to Section 80HHC of the Act. 16. We have heard both the parties and the case laws relied on by the assessee. In so far as insurance claim and sale of scrap is concerned, in our view, this income is gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income of the earlier years but denied the deduction on the ground that this is not the income derived from the industrial undertaking. 6 In view of the above discussion, we do not find any merit or substance in the contention of the ld DR. 6.1 On the issue whether this benefit of Modvat credit is the income derived from the industrial undertaking or not, the Hon ble Guwahati High Court in the case of Meghalaya Steels Ltd. (supra), has held as under: In so far as the second question is concerned, the Central excise duty refund claimed by the assessee is on the basis of an exemption notifications issued by the Ministry of Finance (Department of Revenue) being Notification No. 32 of 1999 and Notification No. 33 of 1999 both dated July 8, 1999. In terms of these notifications, a manufacturer is required to first pay the Central excise duty and thereafter claimed a refund on fulfilment of certain conditions. In the next month, after verification of the claim, the Central excise duty so deposited is refunded to the assessee if the conditions laid down in the notifications are fulfilled. In the present case, there is no dispute that the assessee was entitled to the Central e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect has to be looked into by the Assessing Officer for the reason that if this amount is not income at all, the question of reducing 90% will not arise. Thus, we restore the matter to the file of the Assessing Officer for fresh adjudication. 17. The last ground in assessee s appeal is that the Ld. CIT(A) erred in upholding the addition of ₹ 8,01,887/- by considering econnectivity charges as an expense incurred for acquiring Software and resulting in benefit of enduring nature and thereby classifying the expenses as Capital expenditure. 17.1. The Assessing Officer while computing the assessment disallowed e-connectivity charges of ₹ 20,04,718/- paid by the assessee to its parent company UCB SA by treating such expenses as capital expenditure. The Assessing Officer was of the view that assessee has acquired this software and this has enduring benefit therefore the cost for acquisition of such software is capital in nature and allowed depreciation @16%. 17.2. On appeal, the Ld. CIT(A) following the DRP directions for the Assessment Years 2006-07 and 2008-09 upheld the finding of the Assessing Officer that these expenses are being incurred for acquisition of softw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o UCB COMPANY 18.4. The Ld. Counsel submits that the learned AO inferred that license charges includes expenses on development of software and in case of any future changes, upgradation or new versions that will be developed in future, the assessee will have an access to the same. The AO further, held that since the Assessee is not in the business of Software but in the manufacturing business acquiring of the econnectivity and information system services is to support its pharmaceutical business. Further, schedule 1 to the agreement, i.e. 'Services' which is SAO Services to UCB Entities was referred and held that the e-connectivity tantamount acquiring of a 'Software.' Accordingly, the AO has held that it the payment for e-connectivity charges was for purchase of software and accordingly, allowed depreciation at the rate of 60% on the same. The Ld. Counsel further submits that the assessee does not get any owner's right to any software, server, processes, connections etc. The Assessee merely receives services related to the software. Also, the Assessee pays the costs/ charges for usage of the lease line separately. 18.5. The Ld. Counsel further submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue s appeal is with respect of Transfer pricing adjustment. The Revenue has raised following grounds: 1. The Ld. CIT(A) has erred on facts and in law in rejecting CUP method followed by Assessing Officer/TPO for computing of the arm s length price in respect of international transaction of purchase of Active Pharmaceutical Ingredients from its associate enterprise without properly appreciating the factual and legal matrix of the case as clearly brought out by the Assessing Officer in the assessment order. 2. The Ld. CIT(A) has erred on facts and in law in holding that the TNMM method considered by the assessee is most appropriate method for computing of the arm s length price without appreciating the fact that the Hon ble ITAT in assessee s own case for Assessment Year 2002-03 2003-04 has rejected both the methods adopted by the Assessing Officer (CUP the assessee (TNMM) and had restored the issue back to the file of the Assessing Officer for readjudication . 23. At the outset, the Ld. Counsel for the assessee submits that in assessee s own case for Assessment Years 2002-03 and 2003-04 the Co-ordinate Bench of this Tribunal in ITA Nos. 428 429 of 2007 dated 6.2.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustaining the order of the Ld. CIT(A). 26. We have heard the rival contentions and perused the orders of the authorities below. In this case, the Tribunal for the Assessment Years 2002-03 and 2003-04 rejected CUP method and considered segmental TNMM method as the most appropriate method directed the Assessing Officer to examine the external comparables and in the absence of such comparables to accept internal comparables including segmental data or internal TNMM and adjudicate the issue in accordance with law after giving adequate opportunity to the assessee. It is the submission of the assessee that order giving effect was passed by the TPO granting relief as per the directions of the ITAT for the Assessment Years 2002-03 and 2003-04 and such order is placed at page-183 to 188 of the Paper Book. It is the submission that segmental data has been provided and considering the same effect order was passed for the year under consideration also. We find from the order of the Ld. CIT(A) that remand report was called for by the Ld. CIT(A) and considering the remand report and directions of the DRP for the Assessment Years 2006-07 and 2008- 09, the Ld. CIT(A) held that assessee s margi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r operating income and hence the international transaction entered meets arm's length test. Regarding non submission of screen shot for computing the fresh' search it was stated by the appellant that same were submitted as per letter dated 21.01.2011 before the TPO. Even otherwise the search was conducted on prowess data and capitaline which was accessible by the TPO as well. Regarding TPO's objection for non specification of percentage of RPT the appellant stated that for computing of comparable companies, companies in related party transaction have already been rejected and hence the observation was not correct. Since CUP method was rejected by Hon'ble IT AT and also objected to by TPO in remand, same is not being considered. Accordingly objection raised by TPO under rule 46A is not relevant. For evidence relating to TNMM no objection was raised by TPO. Accordingly in view of submission vide dated 20.07.2011 and case laws referred to therein, same is admitted. The DRP vide order 20.09.2010 in A.Y. 2006-07 relying upon the judgement of Hon'ble ITAT have accepted the transactional computation made by the assessee under TNMM and rejected the CUP method and del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r/TPO would be at liberty to factually verify the benchmarking analysis carried out by the appellant under TNMM on transaction to transaction basis in consonance with directions of IT A T while giving effect to this order. This ground of appeal is therefore allowed subject to verification as above . As seen from the above, the Ld. CIT(A) adopted the directions given by the DRP for the Assessment Year 2006-07 and 2008-09 for the year under consideration to change the method following the decision of the ITAT. The above findings have not been rebutted by the Revenue, we do not find any infirmity in the order passed by the Ld. CIT(A) for the year under consideration also. 27. In the result, the appeal filed by the Revenue is dismissed. ITA No. 6682/M/2013 A.Y. 2005-06 Assessee s appeal 28. The first ground of appeal in assessee s appeal is that the Ld. CIT(A) erred in upholding the disallowance of sales promotion expenses incurred by the appellant to the tune of ₹ 11,94,376/- by considering the same as not having been incurred for the appellant s business. 22. This issue is identical with the issue in Ground No.1 in ITA No. 6681/M/13 for assessment year 2004-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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