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TMI Blog2016 (8) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance u/s. 14A. The same view was taken in ITAT Mumbai, in the case of Morgan Stanley India Securities Pvt Ltd Vis ACIT [2014 (1) TMI 1412 - ITAT MUMBAI]and ITAT Ahemdabad in the case ITO vs. Karnavati Petrochmem Pvt Ltd.[2014 (1) TMI 920 - ITAT AHMEDABAD ]. Thus the view taken by AO regarding netting of interest is a possible and legally tenable view which cannot be faulted by CIT. From the record, we also found that during the year the interest paid on the loans taken was for the purpose of business activities on bank overdraft limit. Interest was received on the deposits from the customers, from shareholders and directors and the bank commission is for other charges and not any expenditure was incurred for earning the exempted income. We also found that as per balance-sheet placed on record investment as on 31/3/09 is 15,91,91,128/-. However, the increase in investment is out of the fund received on sale of brand of 113 crores i.e. interest-free. No interest bearing funds has been invested for earning the exempted income. As the investment is made after the receipt of the sale proceeds of brand i.e. interest-free fund. The utilization of the interest-free fund is for inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made by assessee was with a view to reduce tax or not. No infirmity for offering the tax on sale of brands as LTCG. There is no merit in CIT’s observation for treating the same as business income. Claim of clinical support expenses - Held that:- Whatever the separate expenditure are incurred by the assessee was in relation to gather the data making aware of the product of the company and remaining in the market. From the order of CIT we observe that no where the CIT has pointed out as to how the treatment given by assessee was erroneous, i.e. not as per law and as a result of which prejudice was caused to revenue. The CIT has merely asked the Assessing Officer to look into the matter without pointing out any mistake or prejudice caused to revenue. He has simply directed the Assessing Officer, without satisfying himself, to verify whether the bifurcation made by assessee was with a view to reduce tax or not. From the record we found that the details with regard to clinical support expenses were verified by the AO in the original assessment proceedings. Since the AO was satisfied with the details furnished by assessee vide letter dated 15.12.2011, no addition was made by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Per R. C. Sharma, A. M.: These are the appeals filed by the assessee against the order of CIT passed u/s. 263 for the Assessment Years (A.Ys.) 2009-10 and 2010-11. Common grounds have been taken by the assessee in both the year under consideration. Following grounds have been taken by the assessee in the A.Y. 2009-10: 1. On the facts and circumstances of the case, the order passed by the Ld. Commissioner of Income tax is bad in law, void ab initio without jurisdiction as the order u/s. 263 is passed by the Ld. CIT on the basis of audit objection memo dt: 02/04/2013. 2. On the facts and circumstances of the case, the order passed u/s 263 of the Act by Ld. CIT may be quashed and set aside on the ground that the Ld. CIT did not consider the argument taken by the appellant that the order passed by the AO u/s 143(3) is neither erroneous nor prejudicial to the interest of the revenue. 2.1 That all the issues raised by the ld CIT, a possible view has been taken by the Assessing Officer while passing the order u/s 143(3). Hence neither the order is prejudicial nor erroneous to the interest of revenue. 2.2 The Ld CIT ought to have held that the order passed by the AO was neither erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 263, the CIT observed that the assessee has incurred STT expenses to the tune of ₹ 19,42,671/-. This has been debited under the head "Miscellaneous expenses". No enquiry has been carried out in this regard. The bifurcation of miscellaneous expenses is available on record but these details have not been examined properly by the A.O. The AO was required to consider how much STT has been paid for F & O Transactions and how much STT has been paid on account of Purchase and Sale of L & T shares which were on delivery basis. The AO ought to have considered these details for proper working of capita loss on L& T shares as well as business income from F & O. The Assessing Officer merely acted in a mechanical fashion in accepting the claim of assessee with regard to loss on L& T shares and also profits from F&O Transactions. Even for working out disallowance u/s 14A r.w Rule 8D pertaining to exempt income the AO ought to have gathered these basic details. The disallowance under the head "Direct expenses" under Rule 8D hinged upon collecting this vital information. If this information was not there A.O ought to have considered entire amount of STT (Rs.19,42,671/-) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O was required to examine these vital aspects by independently getting opinion as to valuation of Trade Marks & know how fee etc. As per CIT, the AO was also required to examine the claim of the assessee that these brands/trade marks were generated/developed by the assessee itself and not purchased by verifying with respect to expenditure incurred in the earlier years for registration of Trade Marks and Copy Right brand building and whether these were claimed as revenue expenditure or treated as capital expenditure. Without making any relevant inquiry the AO accepted the claim of the assessee. 7. With regard to the expenses incurred on clinical support, the CIT observed that the AO also failed to consider nature of expenses incurred under the head "Clinical Support expenses" without calling for these detail the AO cannot not come to any definite conclusion whether the expenditure incurred would fall within the mischief sought to be plugged under Explanation to section 37 of the Act, i.e. whether expenditure is of inadmissible nature as per the Circular No.5/2012 issued by the Medical Counsil of India prohibiting expenditure incurred by pharmaceutical companies which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply filed by the assessee and taken a conscious decision after judicial deliberation came to the legally tenable view cannot be faulted only because CIT was of the view that some other view was also possible. The ld. AR also invited our attention to the detailed replies filed by assessee along with evidences with respect to each and every quarry of AO and contended that before setting aside the order of AO for doing fresh assessment. CIT should have considered the justification so filed by the assessee along with documentary evidences. The ld. AR also placed on record the order giving effect passed by the A.O. u/s. 143(3) r/w s. 263 to contend that the Assessing Officer has also not properly appreciated the direction of the CIT and blindly made the addition. 13. On merits it was argued by ld. AR that issue with regard to disallowance of interest u/s.14A, when the assessee is having sufficient interest free funds is squarely covered by the decision of jurisdictional High Court in the case of Reliance Utilities, 178 taxmann 135. Accordingly no infirmity can be found in the order of AO insofar as assessee was having sufficient interest free funds available with its as well as funds r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original assessment proceeding as well as before the CIT in reply to quarries so raised by him while passing the order u/s. 263 respectively. We have also considered judicial pronouncements cited by ld. AR and ld. DR during the course of hearing before us, with reference to the factual matrix of the case. 18. From the record, we found that in the audit conducted by the internal audit party on 02.04.2013, certain objections were raised in as much as, according to them, there was 'incorrect disallowance of expenses u/s. 14A r.w.r. 8D of IT. Rules amounting to ₹ 30,74,312/-', under-assessments due to the treatment of profits from sale of brands of ₹ 112,26,98,800/- as capital gain, allowance of clinical support expenses of ₹ 1,86,72,348/-. In addition, according to the audit party, short-term capital loss of ₹ 41,38,87,308/were to be ignored in view of Ss. 94(7) and 94(8) of the Act and there was also incorrect computation of book profits. Armed with the report of the audit party, the Commissioner of Income-tax issued a notice u/s. 263 of the Act setting aside the assessment completed u/s. 143(3) of the Act and directing the AO to re-do the same de no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 48,18,532/- is required to be considered for disallowance u/s. 14A. The same view was taken in ITAT Mumbai, in the case of Morgan Stanley India Securities Pvt Ltd Vis ACIT and ITAT Ahemdabad in the case ITO vs. Karnavati Petrochmem Pvt Ltd. Thus the view taken by AO regarding netting of interest is a possible and legally tenable view which cannot be faulted by CIT. From the record, we also found that during the year the interest paid on the loans taken was for the purpose of business activities on bank overdraft limit. Interest was received on the deposits from the customers, from shareholders and directors and the bank commission is for other charges and not any expenditure was incurred for earning the exempted income. 21. We also found that as per balance-sheet placed on record investment as on 31/3/09 is ₹ 15,91,91,128/-. However, the increase in investment is out of the fund received on sale of brand of ₹ 113 crores i.e. interest-free. No interest bearing funds has been invested for earning the exempted income. As the investment is made after the receipt of the sale proceeds of brand i.e. interest-free fund. The utilization of the interest-free fund is for inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business] [or a right to manufacture, produce or process any article or thing] [or right to carry 011 any business], tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and (ii) in any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 491, shall be taken to be nil; Once the act itself, takes the sale of the goodwill, trademark, brand name, as liable to capital gains the question of charging the same as business income do not arises. 26. In view of the above settled legal position where apparatus of the business is sold, it is the sale of capital asset and not stock-in-trade. As per the provisions of the Act as existed prior to 1995 where the cost of the acquisition could not be ascertained in the case of goodwill , trade mark, or brand the same was not taxable but the legislature in its own wisdom taxed the sale of brand etc as capital gain u/s. 55(2) of the Act. Thus, the assessee has correctly off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a necessary expenditure for the company to maintain the business relationship with the customer in turn with the medical fraternity. The circular of Medical Council of India as referred by the CIT speaks about the gift, travel facility, hospital, money granted however none of these facilities are given by assessee. In fact, whatever the separate expenditure are incurred by the assessee was in relation to gather the data making aware of the product of the company and remaining in the market. From the order of CIT we observe that no where the CIT has pointed out as to how the treatment given by assessee was erroneous, i.e. not as per law and as a result of which prejudice was caused to revenue. The CIT has merely asked the Assessing Officer to look into the matter without pointing out any mistake or prejudice caused to revenue. He has simply directed the Assessing Officer, without satisfying himself, to verify whether the bifurcation made by assessee was with a view to reduce tax or not. From the record we found that the details with regard to clinical support expenses were verified by the AO in the original assessment proceedings. Since the AO was satisfied with the details furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the additional units referred to in clause (b), then, the loss, if any, arising to him on account of such purchase and sale of all or any of such units shall be ignored for the purposes of computing his income chargeable to tax and notwithstanding anything contained in any other provision of this Act, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units referred to in clause (b) as are held by him on the date of such sale or transfer.] Explanation.-For the purposes of this section,- (a) "interest" includes a dividend; (aa) "record date" means such date as may be fixed by- (i) a company for the purposes of entitlement of the holder of the securities to receive dividend; or (ii) a Mutual Fund or the Administrator of the specified undertaking or the specified company as referred to in the Explanation to clause (35) of section 10, for the purposes of entitlement of the holder of the units to receive income, or additional unit without any consideration, as the case may be; (b) "securities" includes stocks and shares; (c) securities shall be deemed to be similar if they entitle their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d received on those Shares/Units. However in the assessee's case, though the Units are sold within 9 Months from the date on which Dividend is received, the same were purchased (19/9/2008) beyond 3 months prior (27/9/2008) to the date of declaration of dividend (26/12/2008). Therefore the provisions of section 94(7) are not applicable as both the conditions must be satisfied together for the provisions to apply. In assessee's case the purchase is prior to 3 months from the record date. 34. From the record we also found that during the course of original assessment proceedings, complete details were given to the Assessing Officer with regard to working of capital gains on sale of shares and units. On perusal of the said details, it can be seen that the assessee purchased units on 19.09.2008 and sold the same on 26.12.2008. The dividend on the said units was declared on 26.12.2008. Thought the units were sold within nine months from the date on which dividend has been received, since they were purchased more than three months prior to date of declaration of dividend, the provisions of S. 94(7) of the Act will not apply. 35. With regard to CIT's observation regarding loss incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernal audit party on 02.04.2013, certain objections were raised in as much as, according to them, there was 'incorrect disallowance of expenses u/s. 14A r.w.r. 8D amounting to ₹ 24,39,606/-, under-assessments to the extent of ₹ 31,36,884/- as a result of acceptance of the claim for 'clinical support expenses of ₹ 31,36,884/- and u/s. 115JB of the Act. Armed with the report of the audit party the CIT passed order u/s. 263 dated 31.3.2015. The CIT, in his order passed u/s. 263 of the Act, directed the Assessing Officer to examine: i) whether STT expenses were incurred on F & O transactions or sale of L&T shares. ii) whether there was direct use of borrowed funds by the assessee for purpose of investment in shares. iii) the nature of expenses incurred under clinical support services. iv) the computation of capital gain with regard to the 'composite sale of factory building with land'. A perusal of sub-para (i) of paragraph No. 2 of the impugned order would reveal that the direction given by the CIT, in so far as STT of ₹ 7,06,432/-, was to examine for which transactions STT was paid and was claimed as expenditure. The Assessing Officer in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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