9911796707
TMI Blog2023 (1) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee is engaged in the business of trading of various medical equipments and consumables. They have filed their return of income on 30/11/2016 admitting loss of Rs. 7,36,04,831/- and a loss at Rs. (-)23,87,15,864/- under section 115JB of the Income Tax Act, 1961 (for short "the Act"). Assessment under section 143(3) of the Act was complete by order dated 22/12/2018 determining the loss at Rs. 4,33,40,323/- by making addition of Rs. 3 crores which the assessee paid to one M/s. Atlantic Pharmaceuticals towards contractual breach, by holding that it was in the nature of penalty and Rs. 2,64,508/- towards the delay deposit of the provident fund collected from the employees, beyond the stipulated date to the Government account. 3. Agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity of the assessee during the period of assessment year 2015-16 and years prior to the assessment year 2015-16 inasmuch as the assessee started trading business only from financial year 2015-16 relevant to the assessment year 2016-17; that even the contract said to have been breached was not between the assessee and M/s. Atlantic Pharmaceuticals but it was between M/s. Nipro India Corporation Pvt. Ltd. and M/s. Atlantic Pharmaceuticals; and that therefore, the said amount paid by the assessee cannot be said to be for the purpose of business of the assessee. 6. Per contra, it is the submission of the Ld. AR that the assessee was formed as 100% subsidiary of the Nipro Corporation in the financial year 2006-07 itself for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Madras High Court against the Nipro India Corporation Pvt. Ltd. Having realised the futility of litigation, both the parties opted to approach an Arbitrator and accordingly the matter was referred to arbitration. In the meanwhile, assessee undertook the activity of trading activity. In the circumstances, when the order of the Arbitrator was passed for a sum of Rs. 3 crores payable by Nipro Corporation to M/s. Atlantic Pharmaceuticals, the assessee paid the said amount, and claimed the same as business expenditure. 8. Insofar as the facts are concerned, absolutely there is no dispute. Though it is contended on behalf of the Revenue that the assessee was not conducting the trading activity in the financial year 2015-16, is not in di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Arbitrator and found that it was for payment of settled compensation by the assessee to save future litigation costs and to save brand image in the market, apart from the fact that the distribution agreement reads that in the event of dishonesty, poor performance and/or violation of any provision of the agreement by either party, both the parties shall do their best effort to settle the matter in dispute in a prompt and amicable manner, and that there is no mention of any penal clause/action in the event of violation of any provisions of the agreement. Basing on this, Ld. CIT(A) concluded that the payment was towards discharge of the liability as contractual obligation and the transaction does not constitute any offence, nor is it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred with a view to bring profits or monetary advantages today or tomorrow, to render the assessee immune from impending or reasonably apprehended litigation, in order to save losses in foreseeable future, for affecting economy in working which may pay dividends today or tomorrow, for increasing efficiency and working and for removing inefficiency in the working. 13. When viewed from the angle of the tests formulated by the Hon'ble Gujarat High Court in Navsari Cotton (supra) it is clear that the amounts paid by the assessee to M/s. Atlantic Pharmaceuticals fall in the category of the expenditure incurred by the assessee to make it immune from the impending or reasonably apprehended litigation, and to save losses in fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
