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TMI Blog2019 (4) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 5,47,46,712/- as claimed by the assessee and that too by recording incorrect facts and findings and without giving adequate opportunity of hearing. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in not allowing the statutory claim of deduction u/s 80IC of Rs. 56,78,153/- pertaining to Guwahati Unit and has further erred in restricting the deduction to the extent of Rs. 4,90,68,559/- instead of Rs. 5,47,46,712/- as claimed by the assessee is bad in law and against the facts and circumstances of the case. 3. Without prejudice to the above ground and having regard to the facts and circumstances of the case, deduction u/s 80IC should have been allowed on the amount of income assessed by Ld. AO. A.Y. 2009-10: 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not allowing the statutory claim of deduction u/s 80IC of Rs. 1,09,81,936/- pertaining to Guwahati Unit and has further erred in restricting the deduction to the extent of Rs. 1,64,93,324/- instead of Rs. 2,74,75,260/- as claimed by the assessee and that too by recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 18,24,490/- on account of interest of FNCR which was to be paid to the bank on the accrual basis as per law. 4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in disallowing a sum of Rs. 18,24,490/- on account of interest of FNCR is bad in law and against the facts and circumstances of the case. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the disallowance of Rs. 14,54,111/- fully as made by Ld. AO u/s 14A read with Rule 8D and has further erred in sustaining the disallowance to the extent of Rs. 1,09,400/- under Rule 8D(2)(iii) of Income Tax Rules, 1962. 6. That in any case and in any view of the matter, action of Ld. CIT(A) in not deleting the disallowance of Rs. 14,54,111/- fully as made by Ld. AO u/s 14A read with Rule 8D and has further erred in sustaining the disallowance to the extent of Rs. 1,09,400/- under Rule 8D(2)(iii) is bad in law and against the facts and circumstances of the case. 7. Without prejudice to the above ground and having regard to the facts and circumstances of the case, deduction u/s 80IC should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mandatory provisions of sub-rule 8D r.w.s.l4A of the Income tax Act, 1961. A.Y. 20010-11: 1. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs. 13,86,656/- since the assessee is not entitled to claim deduction u/s 80IC on the products which are being manufactured by other company without appreciating the facts that the assessee has failed to submit the details material with evidence. 2. On the facts and in the circumstances of the case, the Id CIT(A) has erred in deleting the addition of Rs. 1,21,42,231/- on account of 'Sale promotion expenses' without appreciating the facts that the assessee company has failed to submit the details material with evidence and the bills /vouchers relating to sale promotion expenses were not furnished in full. 3. On the facts and in the circumstances of the case, the Id CIT(A) has erred in deleting the addition of Rs. 52,20,590/- made on account of 'Sale promotion expenses' claimed in the name of sister concerns without appreciating the facts that the assessee company has not established that the expenditure on sale promotion with reference to the fair market value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing activity and are not derived from the manufacturing activity of the undertaking. He also relied on several decisions on the issue. 6. Before us, the ld. counsel for the assessee, reiterating the submissions made before the ld. CIT(A), submitted that the aforesaid amounts pertain to the business activities of the assessee carried out at Guwahati and as such the denial of deduction u/s. 80IC on such incomes is not justified. However, the ld. AR of the assessee further submitted in his written synopsis on this issue as under : In this regard, it is respectfully submitted that deduction under section 80IC of the Act has been disallowed in respect of the 'other incomes' of the appellant, however, it includes interest subsidy, insurance subsidy and similar incomes which are inextricably linked to the business of the appellant and are eligible for deduction u/s 80IC as held in the decision of Hon'ble Supreme court of India in case of CIT vs. Meghalaya Steels Ltd. 383 ITR 217(SC) dated 09.03.2016, It is pertinent to submit that Hon'ble Apex Court in the aforesaid decision have considered their lordships earlier decision in the case of Liberty India vs. CIT (2009) 317 ITR 218 (SC) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee, we find that the Assessing Officer has not examined these incomes as detailed above. In presence of all these facts, and in view of our aforesaid discussion, we think it appropriate to restore this issue to the file of Assessing Officer to decide the same afresh after examining all the details of income and in the light of recent decision of Hon'ble Supreme Court in the case of CIT vs. Meghalaya Steels Ltd. (supra). Needless to say, the assessee shall be given reasonable opportunity of being heard. Accordingly, Grounds Nos. 1 & 2 in all the three appeals of the assessee for A.Yrs. 2008-09, 2009-10 and 2010-11 are allowed for statistical purposes. Ground No.3 raised in A.Y. 2008-09 is misconceived as no disallowance of expenditure is made during this year. 9. The second issue involved in appeals of assessee for A. Yrs. 2009-10 and 2010-11 is with respect to disallowance u/s. 14A . The brief facts of the issue are that the assessee had made investment in shares of Rs. 3.14 crores in equity, units of mutual funds and preference share capital of companies in A.Y. 2009-10 and of Rs. 85,15,314/- in A.Y. 2010-11, out of which the assessee earned dividend income of Rs. 2,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, therefore, the AO has rightly disallowed expenditure u/s. 14A by applying the provisions of Rule 8D. 12. We have heard the rival submissions and have gone through the entire material on record. We noted from the order of the ld. CIT(A) that the assessee had invested in shares etc., income from which does not form part of the total income. It is also noticed from assessee's submissions made before CIT(A) that assessee has also earned Rs. 28,73,189.85 as profit from partnership firm, namely M/s. Ozone Architectural Products from investment of Rs. 1,83,87,130/- in A.Y. 2009-10. The share of profit from firm falls u/s. 10 and exempt from tax. This fact has not been considered by the ld. CIT(A) while examining the contention of the assessee that he had earned exempt income only to the extent of Rs. 2,725/-. However, the assessee has not declared in his written submission before the CIT(A) nor before us whether said exempt income was received by the assessee in A.Y. 2010-11 or not. Once, the assessee had earned substantial exempt income out of investments made in the partnership firm, the contention of the assessee that he had earned exempt income of Rs. 2725/- is nothing but mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 09.08.2010 before filing the return of income (date of filing of return mentioned in asst. order as 31.03.2012) and as such, this amount is allowable u/s. 43B of the Act. This fact requires verification at the stage of AO. In case the contention of the assessee is found correct, then this amount would be allowable u/s. 43B of the Act and in case it is found otherwise, the AO shall examine the disallowance on the anvil of CBDT Circular No. 37/2016 dated 02.11.2016, as contended by the assessee also in alternate. Accordingly, this issue is also restored to the file of AO to decide it afresh after giving reasonable opportunity of hearing to the assessee. Accordingly, ground No. 3 for A.Y. 2010-11 is also allowed for statistical purposes. 17. In the result, all the appeals of assessee are allowed for statistical purposes. 18. Now, we come to the appeals of Revenue. The first common issue involved in all the three years is with respect to deletion of additions made on account of Sales Promotion Expenses of Rs. 1,11,55,261/-, Rs. 1,22,37,690/- and Rs. 1,21,42,231/- respectively. We first take up the appeal for A.Y. 2008- 09. 19. The brief facts of the issue are that the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 02.11.2016. 22. After hearing both the parties we find that before the ld. CIT(A), it was emphatically submitted by the ld. Counsel for the assessee that complete books of accounts along with complete bills and vouchers were produced before the AO. However, on perusal of the assessment order, it reveals that the AO has categorically averred that complete bills/vouchers were not produced. It was also stated before the ld. CIT(A) that the assessee has brought complete accounts alongwith complete bills/vouchers and requested the CIT(A) to verify at his own or to get them verified from the AO. But while deleting the entire addition, the findings recorded by ld. CIT(A), nowhere demonstrate that the impugned expenditure were verified by the ld. CIT(A) from bills/vouchers alleged to have been produced before him or any remand report was called for from the Assessing Officer so as to get them verified. This was incumbent upon the ld. CIT(A) to call for the remand report of the AO, particularly when the AO had observed non-production of complete bills/vouchers in the assessment proceedings. Therefore, deletion of addition made by the ld. CIT(A) does not appear justified for want of ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 dated 02.11.2016. 27. After considering the submissions of both the parties, we find substance in the contention of assessee. It is not the case of the AO that the impugned expenditure were not supported by any evidence or were not open for verification. Secondly, the submissions made before the ld. CIT(A) were also that the assessee had invested in M/s. Ozone Research Frontier Ltd. in USA, in which research in respect of protein sequence was being carried out and also visited China to attend the Trade Fair. These submissions of assessee do not stand controverted by the ld. DR. Therefore, it cannot be said that the aforesaid visits were made for the purpose other than business. We, therefore, reject this ground. 28. The next issue involved in appeal of Revenue for A.Y. 2009-10 is with regard to deletion of disallowance u/s. 14A amounting to Rs. 9,00,103/-. This issue is covered by our decision on ground No. 3 & 4 of assessee's appeal for A.Y. 2009-10, whereby the impugned issue has been restored back to the file of AO. Accordingly, the present issue also stands remitted back to the AO on the similar terms. Thus, ground No. 2 of Revenue's appeal for A.Y. 2009-10 stands allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee Company is also engaged in business of trading in medicines. For the purposes of trading, appellant company makes purchases from different parties and in turn books sales of these medicines in its trading unit only. It is submitted that 80IC unit of the appellant company does not make any purchases for trading and is engaged in the manufacturing of medicines only. Ld. AO inadvertently presumed that purchases made from M/s. Ozone Ayurvedics (an associated concern of the assessee company) of Rs. 5 Crores are for Guwahati Unit, and these are sold from Guwahati Unit only, whereas, the fact is that these medicines were purchased by the assessee company in the trading units only and has no concern with the purchases made by the Guwahati Unit, which is also evident from the raw material purchases shown in the Profit & Loss Account of Guwahati Unit which is only for a sum of Rs. 7,24,02,774/-. It is submitted that purchases made from M/s Ozone Ayurvedics (sister concern of the appellant company) is for the items which are not manufactured by the appellant company as those items are got manufactured by M/s Ozone Ayurvedics only and are traded by the appellant company. Since these it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted by the ld. CIT(A). The brief facts relating to this issue are that in the assessment proceedings, the AO noted that the assessee had claimed sales promotion expenses in the profit & loss account to the tune of Rs. 16,18,96,408/-, out of which a sum of Rs. 5,22,05,896/- had been paid to the following parties, which are relatives as per section 40A(2)(b) of the IT Act : (i). M/s. Ozone Ayurvedics 3,75,02,642/- (ii). M/s. Fourth Dimension Media P. Ltd. 1,17,76,015/- (iii). M/s. Fourth Dimension IMC P. Ltd. 25,51,988/- (iv). M/s. Ozone Mission 3,75,251/- 5,22,05,896/- The assessee was asked to justify the genuineness of expenses and whether the expenses are at Arm's length. In response, the assessee submitted that they had purchased magazines from M/s. Fourth Dimension Media Pvt. Ltd. at market rate and payments to other parties also on comparable market rates, therefore, the provisions of section 40A(2)(b) are not applicable in this case. The AO being not satisfied with the reply of assessee, concluded that the assessee failed to prove the payments made to the sister concerns are not in arm's length. He, therefore, disallowed a lump sum ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontains advertisement materials and describes the products manufactured by the assessee. For this reason, assessee purchased bulk magazines and these are at lesser price as compared to price at which these are sold to other vendors who purchases these magazines in small quantities. Therefore, without appreciating these facts the addition made by Ld. AO @ 10% in an ad hoc manner is contrary to law and without appreciating the facts of the case. PB 92 - 118 are copies of bills evidencing the rates at which magazines have been sold to appellant company and to third parties by M/s Fourth Dimension. In view of above submissions, it is humbly prayed the provisions of section 40A(2)(b) are not applicable in the case of the appellant company. 3) M/s Fourth Dimension IMC Pvt. Ltd. - Rs. 25,51,988/- From this company, assessee gets some designing work done for its products. Since this work is got done in house from associated concern in order to keep the secrecy of the business no comparable rates could be made available as no work is got done from outside of this very nature. In view of the above submissions made, since assessee has not incurred any expense and has not inflated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is not applicable. 35. The ld. AR on the other hand, reiterated the submissions made before the CIT(A) and submitted that the ld. CIT(A) has rightly deleted the addition after considering the written submissions of the assessee. It was further submitted that the onus to prove that the impugned expenditure were excessive or unreasonable was on the Assessing officer, which he failed to discharge while making the adhoc addition. Reliance is placed on the decision in the case of S.K. Engineering vs. JCIT, 103 ITD 97 (Bang. Tribunal) and ACIT vs. Bombay Real Estate Developers Co. Pvt. Ltd. (64 DTR 137) and Anurag Agarwal vs. ACIT, ITA No. 497/Agra/2015. In alternate, the ld. Counsel submitted that in case any addition is sustained on this head, the enhanced profit of eligible unit may be considered for deduction u/s. 80IC in terms of Circular No. 37/2016 dated 02.11.2016. 36. We have considered the rival submissions and have gone through the material on record and we find substance in the contention of the assessee that once, the AO alleges that the impugned payments to related entities were not in arm's length, the onus was on the AO to prove the same, which he failed to disc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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