9911796707
TMI Blog2025 (4) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... ns granted by the CIT(A). As the grounds raised are common across the assessment years under appeal(s), we are disposing of these appeals by way of a consolidated order for convenience. Facts of the case: 2. The assessee-company is mainly engaged in the manufacture of drugs and pharmaceuticals, it also provides marketing and consultancy activities in respect of drugs and pharmaceuticals, fine chemicals, industrial glass containers, packing materials, electronic tests and measuring instruments, consumer electronic and industrial research. There are 15 divisions including service units catering to the needs of other units of corporate body. 2.1. The assessee filed return of income for the respective A. Y. and the cases were selected for scrutiny. The assessments were completed under section 143(3) of the Act. The AO made certain disallowances and additions in the income of the assessee for the respective A.Y.s. The details of the returns filed, and assessment completed are tabulated below: Particulars -> A.Y. 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Date of Filing Return of Income 31/10/2002 28/11/2003 01/11/2004 31/10/2005 30/12/2006 31/10/2007 Date of Order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing but an acquisition of capital asset for the purpose of the appellants' business as is evident from the objects of the Scheme of Amalgamation. 1.3 That, therefore, the interest on Bonds is a revenue expenditure incurred wholly and exclusively for the purpose of business carried on by the appellants. 1.4 That CIT(A) has further failed to appreciate that the appellants is a going concern and that the expenditure of interest is incurred after the commencement of the business. 1.5 IN THE FACTS OF THE CASE, interest of Rs.1,38,840 on bonds issued at the time of amalgamation of SPL be directed to be allowed. 2. ADDITIONAL DISALLOWANCE U/S. 43B(b) IN RESPECT OF EMPLOYER'S CONTRIBUTION TO PF, FPF ETC. (PARA 4 OF CIT (A) ORDER) 2.1 CIT(A) has grievously erred in fact and in law in upholding disallowance u/s.43B(b) in respect of contributions to PF etc. of Rs.1,96,21,831 paid on or before due date for filing return of income for the year on the ground that no evidences of payment made are produced. 2.2 That appellants had produced details and documents as called for by CIT(A) in support of claim of payments of contribution to PF etc on or before due date for filing ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon. ITAT and there is no basis or details given as regards treating 40% of the damages as compensatory in nature. That, therefore, there is no question of any details to be given by appellants as regards 40% of the damages to be treated as compensatory in nature. 3.6 IN THE FACTS OF THE CASE, a. Claim of PF damages be directed to be allowed. b. Alternatively, in case disallowance of claim of PF damages is upheld, then, 40% of PF damages be directed to be allowed following decisions of CIT(A) in earlier AY 1995-96 to 1997-98 which are upheld by this Hon. ITAT. 4. SALARIES AND WAGES OF PACKART PRESS DIVISION- RS. 41,92,427 (PARA 7 OF CIT (A) ORDER) 4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of salary and wages of employees of appellants' Packart Press Unit of Rs. 41,92,427. 4.2 CIT(A) has utterly failed to appreciate that Packart Press Unit is not closed, 4.3 That even if, for argument's sake, Packart Press Unit is closed, appellants' various other Units are not closed and there is unity of control, inter-connection, inter-lacing and inter-dependence between Packart Press Unit and other units and, therefore, expenses of Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion were source of income for the appellants and, therefore, consideration received is capital receipt and cannot be taxed as revenue receipt. 5.4 IN THE FACTS OF THE CASE, it be held that further additional consideration of Rs.2 crores received for transfer, in previous AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is capital receipt not chargeable to tax. 6. DISALLOWANCE U/S.14A- (PARA 11 OF CIT(A) ORDER) 6.1 CIT(A) has grievously erred in fact and in law in upholding 50% of total disallowance of Rs.67,50,000, i.e. Rs.33,75,000, made by AO u/s.14A of the Act. 6.2 That CIT(A) has failed to appreciate that disallowance u/s.14A could not be made on adhoc basis and on assumptions and presumptions that some expenditure must have been incurred. 6.3 That CIT(A) has simply concurred with the views of AO without giving any justification of cogent reasons for sustaining 50% of disallowance made by AO. 6.4 That Revenue has not pinpointed any expenditure that has been incurred by appellants in earning dividend of Rs.6.75 crores, declared / paid by appellants' joint venture company M/s. Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommencement of the business. 1.5 IN THE FACTS OF THE CASE, interest of Rs.1,38,840 on bonds issued at the time of amalgamation of SPL be directed to be allowed. 2. DISALLOWANCE U/S. 43B(b) IN RESPECT OF EMPLOYER'S CONTRIBUTION TO PF, FPF ETC. PAID ON OR BEFORE DUE DATE FOR FILING RETURN OF INCOME - RS. 1,08,53,589 (PARA 4 OF CIT (A) ORDER) 2.1 CIT(A) has grievously erred in fact and in law in upholding disallowance u/s.43B(b) in respect of contributions to PF etc. of Rs.1,08,53,589 paid on or before due date for filing return of income for the year on the ground that no evidences of payment made are produced. 2.2 That there was no dispute by AO that disallowance suo motu offered u/s.43B(b) in respect of PF contributions etc. in return of income of Rs.3,11,74,299 includes an amount of Rs.1,08,53,589 which is paid on or before due date for filing return of income. That this fact was also brought to the notice of CIT(A) during the course of proceedings before him. 2.3 That, therefore, there was no dispute whether said amount is paid by appellants on or before due date for filing return of income. 2.4 That the only grievance and ground raised before CIT(A) was that whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no basis or details given as regards treating 40% of the damages as compensatory in nature. That, therefore, there is no question of any details to be given by appellants as regards 40% of the damages to be treated as compensatory in nature. 3.6 IN THE FACTS OF THE CASE, a. Claim of PF damages be directed to be allowed. b. Alternatively, in case disallowance of claim of PF damages is upheld, then, 40% of PF damages be directed to be allowed following decisions of CIT(A) in earlier AY 1995-96 to 1997-98 which are upheld by this Hon. ITAT. 4. SALARIES AND WAGES OF PACKART PRESS DIVISION- RS. 39,47,285 (PARA 7 OF CIT (A) ORDER) 4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of salary and wages of employees of appellants' Packart Press Unit of Rs. 39,47,285. 4.2 CIT(A) has utterly failed to appreciate that Packart Press Unit is not closed, 4.3 That even if, for argument's sake, Packart Press Unit is closed, appellants' various other Units are not closed and there is unity of control, inter-connection, inter-lacing and inter-dependence between Packart Press Unit and other units and, therefore, expenses of Packart Press Unit cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income for the appellants and, therefore, consideration received is capital receipt and cannot be taxed as revenue receipt. 5.4 IN THE FACTS OF THE CASE, it be held that further additional consideration of Rs.2 crores received for transfer, in previous AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is capital receipt not chargeable to tax. II. Such other and further relief may please be granted as may be deemed expedient by this Hon. Tribunal in the facts and circumstances of the case. III. Appellants crave leave to add, alter, amend or withdraw all or any of the grounds before the adjudication of appeal in finality by this Hon. Tribunal. IV. Appellants most humbly pray that this Hon. Tribunal may be pleased to call for the records and proceedings of the case as may be deemed necessary. Assessee's Grounds of Appeal in ITA No. 1290/Ahd/2016 - A.Y. 2004-05 (Appeal against order of CIT(A)-1, Vadodara dated 29/03/2016) I. MERITS 1. DISALLOWANCE OF INTEREST ON BONDS ISSUED AT THE TIME OF AMALGAMATION OF SPL - RS. 1,40,213 (PARA 2 OF APPELLATE ORDER) 1.1 CIT(A) has erred in fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and in law in upholding disallowance of salary and wages of employees and other expenses of appellants' Packart Press Unit. 5.2 CIT(A) has utterly failed to appreciate that order of industrial tribunal not allowing closure of the unit is still in force and the whole controversy is pending adjudication by Hon. High Court. 5.3 IN THE FACTS OF THE CASE, claim of salary and wages and other expenses etc. of Packart Press unit be directed to be allowed. 6. FOREIGN TRAVEL EXPENSES -DIRECTORS-DISALLOWANCE OF 50% OF EXPENSES- Rs. 65,568 (PARA 4.6, PAGE 9 OF APPELLATE ORDER) 6.1 CIT(A) has grievously erred in fact and in law in upholding disallowance 50% of foreign travel expenses of working directors even though issue is decided in appellants' favour by him in AY 2001-02, 2002-03, 2003-04 and 2009-10 and Department has not challenged the issue further before Hon. ITAT. 6.2 CIT(A) has failed to appreciate that foreign travel was for appellants' business purpose and there is export business generated during the year. 6.3 IN THE FACTS OF THE CASE, disallowance of 50% of foreign travel expenses of working directors be directed to be allowed. 7. TRANSFER OF MA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INCOME U/S. 2(24)(x) VIS-A-VIS DEDUCTION U/S. 36(1)(va) - EMPLOYEES' CONTRIBUTIONS TO PF ETC. - (PARA 4.9, PAGE 26 OF APPELLATE ORDER) 9.1 CIT(A) has grievously erred in fact and in law in not allowing appellants' claim that Employees' contributions to PF etc. paid after the end of previous year, but, on or before due date for filing return of income of Rs. 1,02,67,284 is not taxable u/s.2(24)(x) r.w.s. 36(1)(va) and 43B of the Act; 9.2 CIT(A) has further grievously erred in fact and in law in not allowing appellants' alternate claim that in case claim of employees' contributions to PF etc. paid after the end of previous year, but, on or before due date for filing return of income of Rs.1,02,67,284 is not allowed, then, employees PF contributions paid within the previous year itself though with a delay of Rs.1,01,62,284 is not taxable u/s.2(24)(x) r.w.s. 36(1)(va) and 43B of the Act. 9.3 IN THE FACTS OF THE CASE: i. employees' contributions to PF etc. paid after the end of previous year, but, on or before due date for filing return of income of Rs. 1,02,67,284 be directed to be not to be taxed u/s.2(24)(x) r.w.s. 36(1)(va) and 43B of the Act; AL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in finality by this Hon. Tribunal. IV. Appellants most humbly pray that this Hon. Tribunal may be pleased to call for the records and proceedings of the case as may be deemed necessary. Assessee's Grounds of Appeal in ITA No. 1782/Ahd/2016 A.Y. 2005-06 (Appeal against order of CIT (A)_-1, Vadodara dated 20/05/2016) I. MERITS 1. INTEREST ON BONDS ISSUED TO THE SHAREHOLDERS OF STANDARD PHARMACEUTICALS LTD. (SPL) AMALGAMATED WITH APPELLANT COMPANY - Rs.1,31,940 (PARA 4, PAGE 2 OF APPELLATE ORDER) 1.1 CIT(A) has grievously erred in fact and in law in confirming disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals: Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation. 1.2 IN THE FACTS OF THE CASE, interest on bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation be directed to be allowed as revenue expenditure incurred for the purpose of business. 2. DISALLOWANCE OF OTHER EXPENSES OF RS. 1,73,973 BEING 5% OF TOTAL OTHER EXPENSES OF RS.34,79,461 (PARA 4.1, PAGE 2 OF APPELLATE ORDER) 2.1 CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign travel expenses of working directors on the ground that appellants have not filed details though he had not called for any further details and even though issue is decided in appellants' favour by him in AY 2001-02, 2002-03, 2003-04 and 2009-10 and Department has not challenged the issue further before Hon. ITAT. 6.2 CIT(A) has failed to appreciate that foreign travel was for appellants' business purpose and there is export business generated during the year. 6.3 IN THE FACTS OF THE CASE, foreign travel expenses of working directors be directed to be allowed. 7. TRANSFER OF MARKETING/DISTRIBUTION RIGHTS-ADDITIONAL CONSIDERATION OF Rs.2 CRORES (PARA 4.6, PAGE 8 OF APPELLATE ORDER) 7.1 CIT(A) has grievously erred in fact and in law in holding that further additional consideration of Rs.2 crores received, for transfer in earlier AY 2001-02, of marketing / distribution rights of veterinary products of various foreign principals having nil cost of acquisition held by appellants, is a revenue receipt taxable as business income u/s.28(ii)(c) under the Act following his appellate order no. CAB- 1/05/2014-15, dated 10.3.2015, para 15.12 to 15.25, of earlier AY 2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.3 IN THE FACTS OF THE CASE, adhoc disallowance of 5% of other expenses be directed to be deleted. 3. FOREIGN TRAVEL EXPENSES -DIRECTORS-DISALLOWANCE OF 50% OF EXPENSES- Rs. 5,315 (PARA 4.3, PAGE 3 OF APPELLATE ORDER) 3.1 CIT(A) has grievously erred in fact and in law in upholding disallowance 50% of foreign travel expenses of working directors even though issue is decided in appellants' favour by him in AY 2001-02, 2002-03, 2003-04 and 2009-10 and Department has not challenged the issue further before Hon. ITAT. 3.2 CIT(A) has failed to appreciate that foreign travel was for appellants' business purpose and there is export business generated during the year. 3.3 IN THE FACTS OF THE CASE, disallowance of 50% of foreign travel expenses of working directors be directed to be allowed. 4. BAD DEBTS - RS. 2,63,025 - (PARA 4.4, PAGE 7 OF APPELLATE ORDER) 4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of claim of bad debts and alternate claim of business loss u/s.28 of the Act without appreciating the facts and relevant materials placed on his record by appellants which very clearly establish that claim pertains to write off of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of business. 6.2 That CIT(A) has grievously erred in fact and in law in rejecting claim of deduction as business loss u/s.28 on the ground that no evidence or details have been furnished in this regard even though such details and evidences were furnished and even though he had not called for any further evidences and details in support of the alternate claim. 6.3 IN THE FACTS OF THE CASE, claim of write off of sundry debit balances as business loss u/s.28 r.w.s. 37(1) of the Act be directed to be allowed. 7. SALARIES AND WAGES OF PACKART PRESS DIVISION- RS. 32,99,000 AND OTHER EXPENSES OF Rs.7,65,865 (PARA 4.8, PAGE 31 OF APPELLATE ORDER) 7.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of salary and wages of employees and other expenses of appellants' Packart Press Unit. 7.2 CIT(A) has utterly failed to appreciate that order of industrial tribunal not allowing closure of the unit is still in force and the whole controversy is pending adjudication by Hon. High Court. 7.3. IN THE FACTS OF THE CASE, claim of salary and wages and other expenses etc. of Packart Press unit be directed to be allowed. II. Such other and further re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t challenged the issue further before Hon. ITAT. 3.2 CIT(A) has failed to appreciate that foreign travel was for appellants' business purpose and there is export business generated during the year. 3.3 IN THE FACTS OF THE CASE, disallowance of 50% of foreign travel expenses of working directors be directed to be allowed. 4. REPAIRS-BUILDING - RS.10,03,378 - (PARA 4.4, PAGE 7 OF APPELLATE ORDER) 4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of building repairs expenses. 4.2 CIT(A) has failed to appreciate that repairs are in the nature of current repairs to make the buildings fit for use for appellants' business operations. 4.3 IN THE FACTS OF THE CASE, building repairs expenses be directed to be allowed. 5. REPAIRS PLANT AND MACHINERY Rs.14,83,250 - (PARA 4.5, PAGE 11 OF APPELLATE ORDER) 5.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of plant and machinery repairs expenses. 5.2 CIT(A) has failed to appreciate that repairs are in the nature of replacement of existing parts and current repairs to make the plant and machineries fit for use for appellants' business operations. 5.3 IN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elling expenses, and also failed to prove relations of such expenses with the business." 4. "On the facts and in the circumstances of the case and in law, the Ld. CTIT(A), erred in allowing the prior period expenses amounting to Rs. 3,42,683/-, claimed by the assessee. Since the assessee company is following the mercantile system of accounting, the expenses related to the prior period are not an allowable expenses" 5. "On the facts and in the circumstances of the case and in law, the Ld. CTIT(A), erred in deleting the addition made to the Book profit u/s 115JB of the Act, on account of provision for liability for leave encashment of Rs. 3,26,49,000/- and gratuity liability of Rs. 1,75,36,188/-. The AO has rightly justified by making such addition as the above said amount is merely a provision and represents the amount set aside by the assessee to provisions made for meeting liabilities other than ascertained liabilities. Such type of liabilities are covered by explanation (c) Sec. 115JB of the I.T. Act and the same is required to be added as per the explanation to sec. 115JB for computation of book profit of the assessee". 6. The appellant craves leave to add to, amend or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce out of repair & maintenance of building, to the extent of Rs. 22.55 lacs, while the A.O had justified the addition by holding expenditure as capital in nature, on account of fact that the assessee had derived benefit of enduring nature." 7. On the facts and in the circumstances of the case and in law, the Ld. CTIT (A), erred in deleting the taxing of write off of loan liability of Rs. 3,66,67,734/-, without appreciating the fact that the loan waived by M/s Tuma Turbomach S.A. (TUMA) of Switzerland, is indeed a benefit to the assesse u/s 28(iv) of the I.T. Act arised during the P.Y. relevant to the A.Y. 2005-06. 8. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored. Revenue's Grounds of Appeal in ITA No. 2066/Ahd/2016 - A.Y. 2007-08 1. " On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the A.O in the assessment order, i.e. addition made on account of miscellaneous expenses, telephone expenses, vehicle expenses, even thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32,79,890 5 1291/ Ahd/2016 2006-07 Assessee 32,99,000 7 1783/ Ahd/2016 2007-08 Assessee 30,71,067 6 5 Transfer of Marketing/Distributi on Rights as Capital Receipt 1772/Ahd/2015 2002-03 Assessee 2,00,00,000 5 1773/ Ahd/2015 2003-04 Assessee 2,00,00,000 5 1290/Ahd/2016 2004-05 Assessee 2,00,00,000 7 1782/ Ahd/2016 2005-06 Assessee 2,00,00,000 5 6 Adhoc Disallowance of Miscellaneous Expenses 1290/Ahd/2016 2004-05 Assessee 41,723 2 1594/Ahd/2016 2004-05 Revenue 4,15,380 1 1782/Ahd/2016 2005-06 Assessee 1,73,973 2 2066/ Ahd/2016 2005-06 Revenue 3,47,853 1 1291/ Ahd/2016 2006-07 Assessee 5,09,192 2 1783/ Ahd/2016 2007-08 Assessee 1,31,538 2 2067/ Ahd/2016 2007-08 Revenue 6,25,649 1 7 Disallowance of Prior Period Expenses 1594/Ahd/2016 2004-05 Revenue 3,42,683 4 8 Disallowance of Foreign Travel Expenses of Directors 1290/ Ahd/2016 2004-05 Assessee 65,568 6 1782/ Ahd/2016 2005-06 Assessee 90,262 6 1291/ Ahd/2016 2006-07 Assessee 5,315 3 1783/ Ahd/2016 2007-08 Assessee 1,96,130 3 9 Deletion of Disallowance of Other Penalties (Contractual Obligation) 2066/Ahd/2016 2005-06 Revenue 9,49,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation would support an increase in turnover due to expansion into new pharmaceutical products. However, the AO disallowed this claim. The AO reasoned that amalgamation expenses are not allowable as business expenditure under Section 37(1) of the Act. The AO observed that similar claims made by the assessee in previous years were consistently disallowed, and the disallowance was upheld by the CIT(A) as well. Therefore, the AO disallowed the interest claim on the bonds issued at the time of amalgamation, leading to an addition of respective amounts. 6. The CIT(A) upheld the AO's disallowance claimed as interest on bonds, referring to previous disallowances confirmed by co-ordinate bench in assessee's own case and judicial precedents, the CIT(A) dismissed the assessee's appeal on this ground. 7. During the course of hearing before us the Authorised Representative (AR) of the assessee conceded that the Co-ordinate Bench in ITA No. 1771/ Ahd/2015 for the AY 2001-02 has decided against the assessee. The Departmental Representative (DR) relied on the orders of lower authorities. 7.1. It is noted that in previous assessment years the assessee's similar claims for interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumption that payments were made within the permissible time frame. 10. During the course of hearing before us the AR stated that the Co- ordinate Bench on the similar facts and circumstances has decided and upheld the decision of CIT(A) in assessee's own case for A.Y. 2001-02 in ITA No. 1771/ Ahd/2015. 10.1. Following the principle of judicial consistency, in the present case the issue should be set aside to the AO for verification to determine whether the contributions were paid on or before the due date for filing the return of income. If the payments were made within the allowable time frame as per Section 43B(b), then the disallowance should be allowed accordingly. 10.2. Thus, the ground regarding the disallowance under Section 43B(b) should be partly allowed subject to verification by the AO, in line with the Co-ordinate Bench's consistent approach in the assessee's own case. 11. The assessee has raised ground relating to disallowance of Rs. 1,02,67,284 u/s 43B on account of employees' contribution of PF in ITA No. 1290/ Ahd/2016 for A.Y. 204-05. The decision of Hon'ble Jurisdictional High Court in case of CIT -II Vs. Gujarat State Road Transport Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature and arose as a consequence of delayed payments of PF contributions, which were incidental to the business. The AR referred to the co-ordinate bench's decision in ITA No. 1771/ AHD/2015 for A.Y. 2001- 02 and submitted that 40% of the damages under Section 14B had been allowed as compensatory in earlier assessment years, following judicial precedents, such as, Swadeshi Cotton Mills Co. Ltd. vs. CIT [233 ITR 199 (SC)]. The AR argued that judicial consistency should be maintained, and the disallowance of the entire amount of damages was unwarranted. 15. The DR supported the orders of the AO and CIT(A), stating that the damages under Section 14B of the Act were clearly penal in nature and were levied for violation of statutory provisions. The DR, in case of revenue's appeal on this ground, also contended that the reliance on earlier decisions allowing 40% of damages as compensatory was misplaced, as no evidence was presented in the present case to substantiate such bifurcation. 16. We have heard the submissions of both parties and perused the material available on record, including the orders of the lower authorities and the decisions relied upon by the assessee. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial Tribunal and while the Labour Commissioner's order approving the closure was set aside by the Tribunal, the matter was pending before the Hon'ble Gujarat High Court. 17.2. The AO concluded that no business activity was carried out by the Packart Press Unit during the relevant year. This conclusion was supported by the fact that the unit did not report any sales or services during the year and merely showed a profit in the computation of income. The AO relied on the principle that expenses can only be claimed as a deduction under Section 37(1) of the Act, if they are incurred "wholly and exclusively for the purposes of business or profession." Since the unit was closed and no business activity occurred, the expenses were deemed to lack a nexus with the business operations. 18. The CIT(A) noted that the Packart Press Unit was not entirely closed, as per the assessee's submission, but had no active sales or business operations during the year. The unit was kept in a ready-to-operate condition with fixed costs incurred for maintaining assets like rent, insurance, and bank accounts. The CIT(A) found that the closure had not been finalized, and thus the liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year and the assessee has not furnished sufficient evidence, such as salary registers or employee details, to establish the identity of the employees or the actual payment of salaries and wages. The CIT(A)'s observation that no such liability was accounted for in the books of account remains uncontested. 21.1. Considering the identical facts and the Co-ordinate Bench's decisions in earlier years, the issue is remanded back to the AO for verification of the facts whether the liability for salaries, wages, and related expenses accrued during the relevant year and whether the liability is supported by contractual obligations and substantiated by adequate evidence. 21.2. The AO is directed to give the assessee a reasonable opportunity of being heard and to decide the matter afresh in accordance with law, following the principles of natural justice. The ground of appeal is partly allowed for statistical purposes. Grounds Relating to Transfer of Marketing/Distribution Rights 22. The assessee has contested the addition made by the AO on account of additional consideration received for the transfer of marketing and distribution rights, which the AO and CIT(A) have treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal against the ad hoc disallowance and the revenue is in appeal against the deletion of remaining disallowance made by the AO. The amounts involved in these appeals are tabulated as under: ITA No(s). Assessment Years (A.Ys.) Nature of Disallowed Expenses Amount Disallowed by AO (Rs.) Amount Challenged in the appeal (Rs.) Type of Appeal 1290/ Ahd/2016 2004-05 Other Expenses (5% adhoc) 457103 41,723 Assessee 1594/ Ahd/2016 2004-05 Miscellaneous Expenses (5% adhoc) 457103 4,15,380 Revenue 1782/Ahd/2016 2005-06 Other Expenses (5% adhoc) 521826 1,73,973 Assessee 2066/ Ahd/2016 2005-06 Miscellaneous Expenses (5% adhoc) 521826 3,47,853 Revenue 1291/ Ahd/2016 2006-07 Other Expenses (5% adhoc) 1010079 5,09,192 Assessee 1783/ Ahd/2016 2007-08 Other Expenses (5% adhoc) 757187 1,31,538 Assessee 2067/ Ahd/2016 2007-08 Miscellaneous Expenses (5% adhoc) 757187 6,25,649 Revenue 27. The AO disallowed a portion of the expenses claimed under the Profit and Loss account on the grounds that they were either non-business in nature or lacked sufficient evidence to establish that they were incurred wholly and exclusively for business purposes. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been disallowed on an ad hoc basis. 31.1. As regards to Telephone and Vehicle Expenses, we observe that the AO disallowed these expenses purely on assumptions without bringing any specific evidence on record to substantiate personal use of telephones or vehicles by the Directors. The Co-ordinate Bench, in the assessee's own case for earlier years, has categorically held that such ad hoc disallowances are unsustainable in the absence of specific findings or evidence of personal use. During the course of the hearing, the DR was unable to point out any distinguishing features in the facts of the current year vis-à-vis those in earlier years where the issue had already been decided in favour of the assessee. Following the consistent view of the Co-ordinate Bench in earlier years, we find no infirmity in the decision of the CIT(A) to delete the disallowance of telephone and vehicle expenses relating to the Directors. 31.2. The AO disallowed 5% of miscellaneous expenses on an ad hoc basis, citing unverifiability of some components such as Diwali expenses, distribution of sweets, and bonuses. The AO concluded that these expenses were not wholly and exclusively for busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs in earlier years. 34. The appeal of the Revenue, challenging the deletion of disallowance of telephone and vehicle expenses relating to Directors, is dismissed and the appeal of the assessee, challenging the disallowance of 5% of miscellaneous expenses, is allowed. Grounds Relating to Prior Period Expenses 35. The Revenue has challenged the allowance of prior period expenses by the CIT(A) for A.Y. 2004-05 in ITA No. 1594/ Ahd/2016. The dispute revolves around expenses claimed by the assessee that pertain to earlier years but were accounted for in the current year. 36. The AO disallowed Rs.3,42,683/- on the grounds that the expenses related to prior years and could not be allowed in the current year, as the assessee follows the mercantile system of accounting. The AO also noted that except for a short provision for bonus, other expenses such as interest, price differences, and disputes with creditors were ascertainable and quantifiable in the prior financial year itself. The AO concluded that these expenses could not be said to have crystallized during the year under consideration. 37. The CIT(A) deleted the disallowance made by the AO, holding that the liability crystallize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove findings and the judicial precedents cited, we uphold the order of the CIT(A) in deleting the disallowance of prior period expenses amounting to Rs. 3,42,683/. The Revenue's this ground of appeal is dismissed. Assessee's Grounds Relating to Foreign Travel Expenses 41. These expenses primarily pertain to foreign travel undertaken by directors and executives, which the assessee claims were for business purposes, such as attending conferences, meeting clients, or exploring new business opportunities. 41.1. The AO disallowed 50% of the expenses on an adhoc basis, alleging insufficient documentation or potential personal use, without identifying specific expenses that were inadmissible. A portion of the expenses was deemed personal in nature (e.g., directors traveling with family), and therefore, not allowable as business expenditure. This ground has been raised by the assessee across following appeals: ITA No. Assessment Year (A.Y.) Amount Disallowed (Rs.) 1290/ Ahd/2016 2004-05 65,568 1782/ Ahd/2016 2005-06 90,262 1291/ Ahd/2016 2006-07 5,315 1783/ Ahd/2016 2007-08 1,96,130 42. During the course of assessment, the assessee has submitted details of foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F damage paid u/s 14B of the PF Act and other penalties. Both AO and CIT(A) disallowed this on the basis of presumption that it is penalty. In both the cases i.e. A.Y. 2004-05 and A.Y. 2005-06 the CIT(A), concluded that the assessee has failed to prove the compensatory nature of such amounts. In case of A.Y. 2004-05 CIT(A) denied any relief to assessee stating that the assessee has suo- moto disallowed and added back this amount to income while filing the return of income. In case of A.Y. 2005-06, the CIT(A) directed AO to delete the disallowance stating that the assessee has suo-moto disallowed and added back this amount to income while filing the return of income. 45. Therefore, both the assessee and revenue are in appeal before us. 46. During the course of hearing, the AR stated that the amounts of Rs. 1,29,080/- for the A.Y. 2004-05 and Rs. 9,49,096/ - represent the liquidated damages paid to various parties. In case of A.Y. 2005-06, the AR stated that the amount of Rs. 9,49,096/- is related to sales tax. The AR placed reliance on the following decisions of co-ordinate benches: 1. Mahavir Multitrade (P.) Ltd. v. DCIT - [2020] 113 taxmann.com 261 (Delhi - Trib.). 2. Nipro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n earning the dividend income of Rs.6.75 crores. The assessee stated that the investments were funded from internal accruals and not from borrowed capital, eliminating any interest expense. The assessee further stated that the investments in Sarabhai Piramal Pharmaceuticals Ltd. (SPPL) were made in earlier assessment years and was a strategic business investment, made to strengthen the group's position in the pharmaceutical industry, and not for the primary purpose of earning dividend income. The assessee emphasized that dividend income was received passively without any direct involvement of human resources or management and Dividends were credited directly into the bank account, eliminating the need for any substantial administrative or operational efforts. The assessee also contended that the AO failed to establish a direct nexus between any expense and the exempt income. 51.1. CIT(A) observed that the disallowance appeared to be excessive and reduced it to Rs.33,75,000 (5% of the total dividend income). The CIT(A) acknowledged AO's contention that earning dividend income might involve some incidental expenses, such as administrative or management costs. 52. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -03-2002 amounted to Rs.10,842.01 lakh, far exceeding the investments of Rs.22.50 crore in SPPL, thereby negating the need for disallowance of interest or other expenses. 54.1. The AO disallowed Rs.67,50,000/ - (10% of the dividend income) on the assumption that administrative and managerial costs must have been incurred to earn the exempt income. The CIT(A), without substantiating any specific basis, reduced the disallowance to Rs.33,75,000/ - (5% of the dividend income). 54.2. It is undisputed fact that the investments in SPPL were made in earlier years and not during the year under appeal. Courts have consistently held that no disallowance can be made for expenses related to investments made in earlier years unless specific evidence of expenditure during the year under appeal is provided. 54.3. It is also a fact that the dividend income was received passively, requiring no active management or administrative effort. Activities such as receiving and depositing dividend income in a bank account are incidental and do not involve substantial costs. 54.4. Judicial precedents concerning disallowance under Section 14A before Rule 8D consistently emphasize the following principles: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese investments or earning the dividend income. The disallowance of Rs.33,75,000/- sustained by the CIT(A) is based on arbitrary assumptions without any factual support. Accordingly, the disallowance under Section 14A sustained by the CIT(A) is deleted in its entirety. Assessee's Ground Relating to Disallowance of Bad Debts of Rs.1,48,66,928/- in ITA No. 1290/Ahd/2016 for A.Y. 2004-05 55. The assessee has challenged the disallowance of a claim for bad debts amounting to Rs.1,48,66,928, which was upheld by the CIT(A]. The assessee has also raised an alternate claim for treating the write-off as a business loss under Section 28 of the Act. The amounts written off pertains to outstanding on account of sales of goods, deposits, and other transactions undertaken by the assessee in the course of business. The claim was disallowed by the AO and upheld by the CIT(A) on the grounds of insufficient evidence and non- fulfilment of conditions under Section 36(1)(vii) for bad debt deduction. 56. During the course of hearing before us the AR stated that it is absolutely wrong on part of CIT(A) to hold that the assessee did not provide the details to show that these amounts were offered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isive for allowing the deduction. It was also decided in case of Harshad J. Choksi v. CIT (supra) that if bad debts are disallowed due to technical issues under Section 36(2), they may still qualify as a business loss under Section 28 of the Act. 59.1. The assessee's alternate plea to allow the deduction as a business loss under Section 28 was rejected by the CIT(A) on the grounds that the loss was not substantiated as having occurred in the relevant assessment year. The Co- ordinate Bench has decided in case of Jackie Shroff v. ACIT (supra) that Irrecoverable advances, if made for business expediency, may be allowed as business loss under Section 28 or Section 37(1) of the Act. 60. Considering the facts and circumstances, judicial precedents relied on, we conclude that the assessee has provided sufficient evidence to establish that the amount of Rs.1,48,66,928 was written off as irrecoverable in the books of accounts. The details submitted, including ledger accounts and depot-wise narrations, clearly indicate the amounts related to business transactions and were part of the income offered to tax in earlier years. Post-amendment (w.e.f. 1.4.1989), the act of writing off debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 36(2) of the Act, as the amounts written off are reflected as irrecoverable in the books of accounts and pertain to business transactions. The necessity to prove that the debts became bad no longer applies, as clarified by the Hon'ble Supreme Court in T.R.F. Ltd. v. CIT [2010] 323 ITR 397 (SC). Furthermore, if any part of the claim does not meet the technical requirements of Section 36(1)(vii) of the Act, it would still qualify as a business loss under Section 28 of the Act, as held in Harshad J. Choksi v. CIT [2012] 25 taxmann.com 567 (Bom HC) and Jackie Shroff v. ACIT [2019] 101 taxmann.com 455 (Mumbai ITAT). 62.1. Considering the judicial precedents relied upon and the similarity of facts, we conclude that the disallowance of Rs.2,63,025/ - is unwarranted. The assessee's claim under Section 36(1)(vii) for the bad debts written off is allowed. The AO is directed to allow the deduction of Rs.2,63,025/ -. The appeal of the assessee is allowed in toto. The Revenue has raised a ground related to Write Off of Bad Debts amounting to Rs. 15,73,662/- in ITA No. 2066/Ahd/2016 for the A.Y. 2005-06. 63. In the instant case the AO disallowed an amount of Rs. 15,73,662/- w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions and supporting evidence placed on record. The CIT(A)'s decision is, therefore, in consonance with the principles laid down by the Hon'ble Supreme Court in T.R.F. Ltd.(supra), and we find no infirmity in the same. 66.1. In light of the above, the Revenue's appeal is devoid of merit and deserves to be dismissed. In the result, this ground of appeal of the Revenue is dismissed. Assessee's Ground relating to disallowance of Sundry Balances written off amounting to Rs.58.35 Lakhs in ITA No. 1290/Ahd/2016 for A.Y. 2004-05 67. The assessee had claimed a deduction of Rs. 58.35 lakh as a business loss, which comprised Sundry debit balances written off on account of sales of goods, aggregating Rs.21,09,182 and Other debit balances written off, including advances and deposits, aggregating Rs.37,26,818, incurred in the ordinary course of business. The AO disallowed the entire claim on the grounds that the write-off of advances and deposits could not be allowed under Section 36(1)(vii) of the Act or Section 37 of the Act and no evidence was furnished to substantiate the alternate claim under Section 28. The CIT(A) partially allowed the claim for Rs.21,09,182 as bad debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) failed to call for any further details or provide an opportunity to furnish additional evidence. Following the ratio laid down in the aforementioned judicial precedents, we hold that the amount of Rs. 21,09,182 relating to sales of goods is allowable as a business loss under Section 28, as it pertains to irrecoverable amounts taxed in earlier years. The balance amount of Rs.37,26,818, representing irrecoverable deposits and advances made during the course of business, is also allowable as a business loss under Section 28, as it is incidental to the assessee's business operations. 70.1. In view of the above, we direct the AO to allow the entire claim of Rs. 58.35 lakh as a business loss under Section 28 of the Act. The appeal filed by the assessee is allowed. 71. Similar ground is raised by the assessee in respect of A. Y. 2006-07 in ITA No. 1291/ Ahd/2016. In the aforementioned appeal, the AO had disallowed a sum of Rs.71.91 lakh as sundry balances written off. However, the CIT(A) allowed the claim in its entirety as bad debts under Section 36(1)(vii) of the Act, relying on the decision of the Hon'ble Supreme Court in the case of T.R.F. Ltd. vs. CIT [2010] 190 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be treated as a trading liability, and therefore, provisions of Section 41(1) were not applicable. 3. The benefit arising out of the waiver was monetary in nature, making Section 28(iv) inapplicable. 4. The assessee relied on judicial precedents, including decisions of the Hon'ble Gujarat High Court in Chetan Chemicals Pvt. Ltd. (188 CTR 572). 74. The CIT(A) accepted the assessee's arguments and deleted the addition made by the AO. The CIT(A) also relied on the decision of Jurisdictional High Court in case of Gujarat State Fertilizers & Chemicals Ltd. (36 taxmann.com 230), which categorically held that waiver of a capital loan is not taxable. 75. During the course of hearing before us the AR explained the facts and placed reliance on judgement of Hon'ble Supreme Court in case of Mahindra and Mahindra [2018] 404 ITR. 76. The DR, on the other hand, relied on the order of AO. 77. We have heard the submissions of the rival parties and perused the material available on record. The facts on record establish that the loan in question was availed exclusively for the acquisition of a power plant. The purpose of the loan, being directly linked to the purchase of a cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder either Section 28(iv) or Section 41(1) of the Act. The CIT(A) has rightly deleted the addition of Rs.3,66,67,734/ - made by the AO. 78.2. As the Revenue has failed to substantiate its case with any additional arguments or evidence, we find no reason to interfere with the order of the CIT(A). This ground of revenue is dismissed. Grounds relating to Disallowance of Repair and Maintenance - Building 79. The issue concerns the disallowance of repair and maintenance expenses for building infrastructure. While the assessee has contested disallowances of certain expenses as capital expenditure, the Revenue has raised a ground challenging the allowance of certain repair expenses by the CIT(A). The grounds raised are summarized in the following table: ITA No. Assessment Year (A.Y.) Amount Disallowed/Challenged Type of Appeal 2066/ Ahd/2016 2005-06 Rs. 674517 /- Revenue 1291/ Ahd/2016 2006-07 Rs.2,96,490 (Mumbai) + Rs.1,43,173 (Chennai) Assessee 1783/ Ahd/2016 2007-08 Rs.10,03,378 Assessee 80. The Nature of disputed expenses claimed by the assessee as revenue expenditure is as follows: 80.1. In case of A.Y. 2005-06 - Waterproofing Rs. 2,83,931/-, Strengthening of be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctural improvement being created. The CIT(A)'s deletion of disallowance is upheld as these expenses qualify as current repairs under Section 30 of the Act, necessary for the upkeep of rented premises. The AO failed to demonstrate how these repairs resulted in an enduring benefit or capital asset. 84. As a result, the Revenue's appeal is dismissed. A.Y. 2006-07 (ITA No. 1291/Ahd/2016 - Assessee's Appeal) 85. Out of the total repair and maintenance claim of Rs.11,28,165, disallowances of Rs.2,96,490 (Mumbai) and Rs.1,43,173 (Chennai) relate to partition work. These partitions were installed in rented premises to make the space operationally suitable for business needs. The expenditure does not result in the creation of any capital asset owned by the assessee, as the premises were rented. The expenses are routine and necessary for business use, aligning with the decision of the Hon'ble Bombay High Court in HEDE Consultancy (P.) Ltd. v. CIT [258 ITR 380], where similar repairs to rented premises were allowed as revenue expenditure. 85.1. As a result, the assessee's appeal is allowed. A.Y. 2007-08 (ITA No. 1783/Ahd/2016 - Assessee's Appeal) 86. The repair e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdizing the renewal of its manufacturing license. The AO treated these expenses as capital in nature, arguing that they resulted in enduring benefits. However, the repairs did not create a new asset or enhance the capacity of existing assets. Instead, they were aimed at maintaining the plant and machinery in working condition, qualifying as current repairs under Section 31. 91. We have noted the judicial precedents relied on. In case of CIT v. Manohar Lal Hira Lal Ltd.(supra) the Hon'ble Allahabad High Court decided that repairs to plant and machinery (such as replacement of tools, dies, and factory wall plaster) that do not extend the capacity or change the nature of the machinery are allowable as current repairs. Applying this precedent, the expenses incurred for slide valve repair and metalizing work qualify as revenue expenditure. In case of CIT v. TVS Motors Ltd. (supra) Hon'ble Madras High Court) decided that expenditure is considered as current repairs if its object is not to bring a new asset into existence or derive a new advantage. The repair work in this case aligns with this principle, as it was undertaken to maintain operational efficiency rather than create a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting book profit under Section 115JB. The details of grounds are tabulated as follows: ITA No. Assessment Year (A.Y.) Nature of Adjustment Amount (Rs. ) Type of Appeal 1290/ Ahd/2016 2004-05 Provision for Bad Debts Rs. 6,04,47,760/- Assessee 1594/ Ahd/2016 2004-05 Leave Encashment and Gratuity Rs. 3,26,49,000 And Rs. 1,75,648/- Revenue 96. The AO disallowed and added back provisions for bad debts, leave encashment, and gratuity while computing book profit under Section 115JB, on the grounds that these are unascertained liabilities as per Explanation 1(c) to Section 115JB. 96.1. The AO observed that these provisions relating to leave encashment and gratuity were made based on actuarial valuation, which he claimed does not render the liabilities ascertained. The AO classified them as amounts set aside to meet future liabilities and hence treated them as unascertained liabilities. Relating to provision for bad debts, the AO stated that this provision is not an ascertained liability but a reserve, which must be added back to book profits under Explanation 1(c). He held that such provisions are based on subjective parameters and do not represent an actual write-off. 97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarial valuations and comply with Accounting Standards issued by the ICAI. The provisions for gratuity and leave encashment are recognized liabilities, determined scientifically for services rendered by employees during the relevant period. In the landmark judgment in case of Bharat Earth Movers v. Commissioner of Income-Tax [2000] 245 ITR 428 (SC), the Hon'ble Supreme Court held that a liability arising from an obligation that has already accrued, though the payment may be deferred, is not a contingent liability. Such liabilities, if based on a scientific method like actuarial valuation, qualify as ascertained liabilities and are deductible. Therefore, the CIT(A) has rightfully deleted the addition relating to these provisions. 99.1. Regarding the provision for doubtful debts, the appellant cited judicial precedents such as CIT v. Yokogawa India Ltd. [2012] 17 taxmann.com 15 (Kar.) and Principal CIT v. Narmada Chematur Petrochemicals Ltd. [2021] 130 taxmann.com 522 (Guj.). These decisions established that provisions for doubtful debts, if simultaneously reduced from the asset side of the balance sheet, represent actual write-offs and cannot be treated as unascertained liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X
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