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TMI Blog2025 (4) TMI 1422X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the orders passed by Ld CIT(A). Since most of the issues are identical in nature, these appeals were heard together and are being disposed of by this common order, for the sake of convenience. 2. The assessee is a pharmaceutical company manufacturing pharmaceutical products, animal healthcare products, eye care products etc. 3. We shall take up the appeals filed by the assessee. The common issues urged either in all the three years or any of the two years shall be disposed of together. 4 The first issue urged in Ground no.1 in AY 2004-05, 2006-07 and 2007-08 (i.e., in all the three years under consideration) relates to the depreciation disallowed on the assets stood vested with Ciba Specialty Chemicals (India) Ltd pursuant to the scheme of demerger. 4.1 The assessee is having many divisions and depreciation was claimed by the assessee on assets of all the divisions together without segregating them division wise. Under the concept of grouping all assets having similar rate of depreciation in a single block, individual identity of assets would be lost. The assessee transferred its Specialty Chemicals division to M/s Ciba Specialty Chemicals (India) Ltd under a scheme of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his addition following the decision rendered in the assessee's own case in AY 1997-98 (ITA No.5238/Mum/2003 dated 25.01.2017). The co-ordinate bench has held that the consistently followed method of valuation of stock, which has been accepted by the departmental authorities earlier, should not be disturbed, since a stray departure in one year tends to upset the calculations. Following the above said decision, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. 6. The next issue urged by the assessee in Ground no.3 relates to disallowance of claim relating to Voluntary Retirement Scheme compensation. Identical issue has been raised by the assessee in AY 2006-07 as Ground No.5 and in AY 2007-08 as Ground No.4. Ld A.R submitted that the assessee has made provision for the incremental value of VRS compensation every year on the basis of actuary certificate. In AY 2004-05, it made provision amounting to Rs. 1,23,09,463/- towards incremental liability and claimed it as deduction. The AO disallowed the same treating it as contingent liability. The Ld CIT(A) has allowed the claim of the assessee. Before Ld CIT(A) the assessee raised an alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of spreading the deduction into five years is to avoid distortion of the profits in one year and also collection of income tax. Accordingly, we are of the view that the provisions of sec.35DDA shall not apply to the pension payments. In the instant case, the incremental liability is related to pension payments. Hence, we are of the view that the provisions of 35DDA shall not be applicable to pension payments, which are recurring in nature. Accordingly, we reject the view taken by the tax authorities on the applicability of sec. 35DDA to the case of the assessee. 6.3 In respect of claim for deduction of incremental liability, we notice that the Ld CIT(A) has also taken different stand in the earlier years, i.e,, in some years, the Ld CIT(A) has confirmed the disallowance of provision for VRS compensation and in some other years, it has been deleted. A provision for expenses is created for a known liability under the accounting principles. Hence, the said claim made by the assessee is in principle allowable as deduction, since it is a provision created for a known liability. Hence the AO was not right in treating it as a contingent liability. Hence the Ld CIT(A) was right in allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound no.4. The AO disallowed 25% of the above said expenses holding the same as not related to the business of the assessee. Before Ld CIT(A), the assessee contended that the same is in the nature of revenue expenses incurred for the purposes of business of the assessee. In the alternative, the assessee contended that if the said expenses are treated as capital in nature, then depreciation should be allowed thereon. The Ld CIT(A), following earlier year's orders of ITAT, deleted the disallowance. Hence, the alternative contention of the assessee is dismissed as infructuous. 8.1 We notice that disallowance of identical expenses has been made in the earlier years also. The Tribunal has deleted the identical disallowance made in AY 2002-03 in ITA No.6832/Mum/2010 dated 20-03-2024, wherein it has followed the decision rendered by the co-ordinate bench in the assessee's own case in AY 1997-98 in ITA No.5238/Mum/2003 dated 25.01.2017. In all these years, the Tribunal noticed that the foreigners are the executives specializing in the business carried on by the assessee and they visit India for business purposes only. Accordingly, the Tribunal has deleted the identical disallowance made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He submitted that the method of determining the value of stock should be identical both for closing stock and opening stock of any year. We find merit in the above said submissions of Ld A.R. Accordingly, we direct the AO to adopt the value of closing of one year as the opening stock of the succeeding year. 12. The next issue urged by the assessee in Ground no.8 of AY 2004-05 relates to the disallowance of advances written off. Identical issue has been raised in Ground no.8 of AY 2006-07. 13. The assessee wrote off irrecoverable advances amounting to Rs. 28,84,126/- in AY 2004-05. The tax authorities disallowed the said claim on the reasoning that the assessee did not fulfill the conditions prescribed in sec.36(1)(vii) r.w.s 36(2) of the Act. The alternative claim that these advances so written off should be considered as business loss was also rejected. In AY 2006-07, the assessee wrote off Rs. 25,25,413/-. 13.1 We heard the parties on this issue and perused the record. According to Ld A.R, these advances are in the nature of trade advances and the irrecoverable advances have been written off by the assessee. We notice that the amount so written off is allowable as deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. The decision rendered by Hon'ble Bombay High Court in the case of Pfizer Ltd (supra) is related to the insurance claim received on stock in trade and hence it is not an independent source of income. Hence, the Hon'ble Bombay High Court held that the said insurance receipt is not required to be excluded. In the instant case, in our view, the royalty receipts are independent source of income. Accordingly, we are of the view that the Ld CIT(A) was justified in confirming the action of the AO in excluding 90% of royalty income from profits for the purpose of computing profits of business as per Explanation (baa) to sec.80HHC of the Act. With regard to other receipts, the Ld A.R submitted that they are covered by the decisions rendered by the Tribunal in earlier years. Accordingly, we direct the AO to follow the decisions rendered by the Tribunal in respect of other receipts. The order passed by Ld CIT(A) is modified accordingly. The matter is restored to the file of the AO for computing deduction u/s 80HHC in terms of discussions made supra. 15. The next issue urged in Ground no.10 in AY 2004-05 relates to the assessment of notional value of rent for the property use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee is recovering the actual costs incurred in respect of those premises like municipal taxes, water taxes and electricity charges. The recovery of water taxes and electricity charges are related to the facilities used by the demerged company and hence they cannot be equated with the rent and cannot be considered as rent payment. However, the payment of municipal taxes is the responsibility of the assessee and if it is recovered from the demerged company, it can be appropriated towards annual rental value. There is no dispute that the rental income has to be computed in respect of house property, which is owned, but not used by the assessee for the purposes of its own business. Accordingly, we are of the view that the notional rental income is required to be assessed. 15.5 However, we notice that the AO has adopted adhoc rate for determining the Annual letting value. We notice that the said methodology is not in accordance with law laid down by Hon'ble Bombay High Court in some of the cases. We also notice that the assessee has also raised similar contentions before the tax authorities. Accordingly, we are of the view that the determination of Annual Letting value ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value as on 1.4.1981 as per the rate determined by the DVO. The above said decision was followed by the Tribunal in AY 2003-04 also. 16.3 Since the co-ordinate benches have already directed the AO to adopt the fair market value determined by DVO, following the same, we also direct the AO to re-compute the long term capital gains in both AY 2004-05 and 2006-07 by adopting the fair market value as on 1.4.1981 at the rate determined by the DVO. The Ld A.R submitted that the area of land sold in AY 2004-05 was 41534.40 sq.ft and the AO has also computed the long term capital gains on the above said area only. The Ld A.R submitted that the DVO has reduced the area of the land sold by the assessee. There should not be any dispute that the long term capital gains has to be computed for the area of land, which is actually sold by the assessee. Accordingly, we direct the AO to compute the long term capital gains on the actual area sold by the assessee and for that purpose, the AO should adopt the fair market value of rate per square feet as on 1.4.1981 as determined by the DVO. 17. The next issue urged in AY 2004-05 in ground no.14 relates to the disallowance of adjustment by way of exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no.16 relates to the charging of Dividend Distribution Tax. Identical issue is urged in AY 2006-07 as Ground no.16 and in AY 2007- 08 as Ground no.7. It is the contention of the assessee that the rate prescribed under relevant DTAA shall be applicable to Dividend distribution tax also. We notice that the above said claim of the assessee is against the decision rendered by the Special bench in the case of DCIT vs. Total Oil India (P) Ltd (2023)(149 taxmann.com 332)(Mum-SB). Accordingly, we reject this ground of the assessee. 20. The last issue urged by the assessee by way of additional Ground numbered as ground no.17 in AY 2004-05 relates to the jurisdiction of additional commissioner in passing the assessment order. Identical issue is urged in AY 2006-07 as ground no.17. The Ld A.R submitted that this ground may be left open in these two years and the assessee may be allowed to contest this issue in appropriate proceedings. Accordingly, we decline to adjudicate this ground and leave the same open in both the above said years. 21. We shall now take up other issues urged in AY 2006-07. In this year, we have to adjudicate only ground no.15 relating to the addition made u/s 50C of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed prior to introduction of sec. 50C, but the actual conveyance took place after the introduction. It was also noticed that the consideration for transfer has also been received by the sellers at the time of entering into agreement. The Tribunal further noticed that the delay in registering the sale deed was due to genuine reasons and the same was beyond the control of the assessee. Hence it was held that the provisions of sec.50C should not be applied. In any case, the provisos below sec.50C also state that the stamp duty value as on the date of entering into the agreement may be adopted, if the assessee had received part consideration through banking channels on that date. 22.3 However, in the instant case, we notice that the assessee did not explain the reasons, which have caused the delay in registering the conveyance deed in the financial year 2005-06, even though the agreement to sale was entered in the financial year 2001-02. It is also not clear as to whether the assessee had received part consideration through banking channels at the time of entering into agreement for sale. 22.4 We have gone through the provisions of Chapter XX-C of the Act. This chapter was introduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stamp duty value as on the date of entering agreement with the actual consideration. Hence, we are of the view that the no-objection certificate issued by the appropriate authority is not relevant for the purpose of sec.50C of the Act. 22.6 We notice all the relevant factual aspects, which are necessary for the purposes of sec.50C, have not been furnished by the assessee to the tax authorities. Hence, we are of the view that this issue requires fresh examination at the end of the AO. If the assessee is able to show that it has received part consideration on the date of the entering of agreement for sale in the manner provided in the proviso to sec.50C of the Act, then the assessee would get the benefit of the proviso. In that case, the stamp duty value as on the date of agreement should be compared with the actual consideration. On the contrary, if the assessee has not received any part of the sale consideration in the manner provided in the proviso, then the provisions of sec.50C would get attracted. The AO may examine this issue afresh in the light of discussions made supra. The assessee may furnish all the information and explanations to support its case before the AO. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of travel expenses incurred on foreigners. While adjudicating the appeal of the assessee in respect of the alternative contention on this issue, we have upheld the decision of Ld CIT(A) in deleting this disallowance. Accordingly, this ground of the revenue does not require separate adjudication. 28. The next ground urged by the revenue in ground no.3 of AY 2006-07 and Ground no.2 of AY 2007-08 relates to the deletion of the adjustment made to closing stock on account of secondary freight adjustment. The assessee is also supporting the decision of Ld CIT(A) on this issue by way of ground no.2 in AY 2006-07 and Ground no.3 in AY 2007-08. 28.1 The assessing officer made adjustment to the value of closing stock on account of freight charges in AY 2006-07 and 2007-08. The same was deleted by Ld CIT(A) with the direction to make similar adjustments to the opening stock also. Hence the revenue is in appeal before us. 28.2 However, in AY 2004-05, the Ld CIT(A) had confirmed the addition and hence the assessee was in appeal before the Tribunal. In the appeal of the assessee filed for AY 2004-05, we have deleted the similar addition made by the AO with the following observations:- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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