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TMI Blog1991 (2) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... Wockhardt P. Ltd. The Commissioner (Appeals) deleted such disallowance and hence the revenue came in appeal before the Tribunal. While setting the background of this controversy, the Tribunal pointed out that a similar issue came before the assessing authority for the assessment year 1978-79 when the assessee had made an additional debit of Rs. 7,48,947 on the ground that the processing charges for different products were revised from 1-7-1976. This additional debit was treated for that year by the assessing authority as fictitious payment and disallowed. Such disallowance was sustained in appeal. The assessing authority's argument was that Wockhardt Pvt. Ltd. and the assessee-firm belonged to one family, namely Akbarallys. The shareholders of Wockhardt P. Ltd. were the senior members of the family of Akbarallys whereas the partners of M/s. Panama Industries Laboratories, the assessee herein, were the junior members of the same family. Therefore, by applying the provisions of section 40A(2), the assessing authority disallowed Rs. 12,64,212 as excessive processing charges. 3. When the matter went before the Commissioner (Appeals), the Commissioner (Appeals) felt that it was ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. and the further submission that Shri Dastur had filed a statement before us to show the percentage of increase with overheads of various types from year to year. The Tribunal took cognisance of this statement at some considerable length as can be seen from the following observations of the Bench in its order, viz : " 10.... Shri Dastur has filed a statement before us to show the percentage of increase with overheads of various types from year to year. This statement requires proper scrutiny. It is necessary to find out how such increase in overheads would affect the processing charges. For example, there is an increase of as much as 21.31 % in interest liability and 27.09% in travelling conveyance. The maximum percentage of increase is under the head ' payments to and provisions ' which has gone up to 45.90% in the year 1977-78 and 46.13% in the year 1978-79. The reason for such increase and its relation to the processing charges has to be enquired into particularly in the light of the fact that there is no increase in the sale price in the manufactured goods sold by the assessee-firm to Wockhardt P. Ltd. As regards the CIT (A)'s finding about the tax effect, we have exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue that requires to be dealt with. There was a similar disallowance of Rs. 7,48,947 for an earlier year, which was confirmed by the Commissioner (Appeals) and which was also confirmed in appeal by the assessee before the Tribunal. The portion of the Tribunal's order on which Shri Dastur relied upon has been reproduced in paragraph 8 of the Tribunal's order. In our opinion, the Tribunal had made only a passing of reference to the order of the Commissioner (Appeals) for the subsequent year and has not given any finding on the merits of the decision of the Commissioner (Appeals) for the assessment year 1979-80, as indeed it could not have. Further, such stray observations of the Tribunal cannot be relied upon to support the assessee's case and, in any case, are not binding on another Bench of the Tribunal which is independently deciding the issue for a different assessment year. The Tribunal took note of the fact that similar disallowance made by the assessing authority was not only confirmed by the Commissioner (Appeals) but also was confirmed by the Tribunal. We are not concerned with what the Tribunal observed about the considerations that might have weighed with the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Value No. Product duction value to in quantity rupees 1. ------------------------------------------------------------------------------------------------------------------------------------------------- 1. Proxyvon 1,50,38,408 5,79,612 3.86% 3.85% 1,82,577 Cap. Cap. 2. Sp.Proxyvon 51,21,452 760340 14.31% 14.84% 2,56,614 Cap. Cap. 3. Calferium 62,756 Lit. 5123 Lit. 7.97% 8.16% 87,102 4. Sedex 50 MI. 11948 Lit. 3109 Lit. 30.5% 26% 1,57,845 ---------------- 6,84,138 ------------------------------------------------------------------------------------------------------------------------------------------------- It was argued that distribution of such samples was a common practice in the pharmaceutical industry. The types of goods manufactured by the assessee were such that they were available only on a prescription of a registered medical practitioner. Therefore, such a sample had to be distributed as a part of the marketing/sales strategy directed towards doctors, physicians and surgeons. When similar issue came before the CIT(A) for an earlier year, the CIT(A) observed that while any sales of samples outside the books could not found by the IAC, it could also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 6 of his order. The assessee had debited to the profit and loss account an interest amount of Rs. 56,700. The IAC found that the interest was paid on loans that were taken during the previous year but remained outstanding for payment till the end of the present accounting year. The JAC had not accepted the genuineness of the loan for the assessment year 1978-79. He, therefore, following the same stand, disallowed this amount. The CIT(A) had confirmed that these loans were spurious in character. However, when the matter went before the Tribunal for the assessment year 1978-79, the Tribunal, in the aforementioned order, restored the matter for reconsideration to the IAC with a direction that the IAC should furnish the assessee with the copies of the depositions of the various depositors and allow the assessee an opportunity to cross examine the deponents. The Tribunal, before reaching this decision, took into account the fact that there was a similar disallowance of as much an interest amount as Rs. 56,700 for the subsequent year (which is the year under appeal). Shri Dastur has filed before us a copy of the order of the IAC under section 143(3) read with section 254 purporting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears that similar issue came before the IAC for the assessment year 1978-79 when the assessee had made an additional debit of Rs. 7,48,947 under similar circumstances and the IAC held that the arrangement of price difference was only a make believe and that the additional debit of Rs. 7,48,947 was fictitious in nature. Such disallowance was sustained in appeal. The IAC observed that Wockhardt P. Ltd. and the assessee firm belonged to one family i.e., Akbarallys. The shareholders of Wockhardt Pvt. Ltd. were the senior members of the family of Akbarallys, whereas the partners of Panama Industries Laboratories are the Junior members of the same family. Therefore, the increase in sale price had to be considered as excessive and unreasonable in terms of section 40A(2). He, therefore, disallowed Rs. 12,64,212 charged in the present year as excessing processing charges. 7. When the matter went in appeal, the CIT(A) observed that before applying the provisions of section 40A(2) it had to be seen whether these provisions were attracted on the facts of the case. It was necessary to establish that what was paid to Wockhardt P. Ltd. was in excess of the normal rate of processing charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 31 of their order. The Tribunal reached its conclusion after detailed examination of this issue in para 32, pan of which reads as under :--- " We find merit in Shri Dastur's submission that since a final understanding was not reached till the end of the accounting year under consideration, the debit would be raised by the assessee in its books only by means of a journal entry. However, against this fact, one has to consider the second act recorded by the IAC at page 21 viz. that the limited company has passed entries in its books on 31-8-1977. It is accordingly that we find merit in Shri Shukla's submission that even though admittedly letters have been exchanged on 30-6-1977, the final agreement appears to have been arrived at only in August 1977. In the circumstances, we find that on this issue the decision of the CIT(A) is correct not only for the reasons given in the year under consideration but also on the basis of the reasons given in his subsequent year's order to which our attention has been drawn by Shri Dastur. Accordingly, we hold against the assessee the third dispute." The Tribunal confirmed the order of the CIT(A) for the assessment year 1978-79 about the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt requires proper scrutiny. It is necessary to find out how such increase in overheads would affect the processing charges. For example, there is an increase of as much as 21.31% in interest liability and 27.09% in travelling conveyance. The maximum percentage of increase is under the head " payments to and provisions " which has gone up to 45.90% in the year 1977-78 and 46.13% in the year 1978-79. The reason for such increase and its relation to the processing charges has to be enquired into particularly in the light of the fact that there is no increase in the sale price in the manufactured goods sold by the assessee to Wockhardt P. Ltd. As regards the CIT(A)'s finding about the tax effect, we have examined the statement filed by Shri Dastur in which it is stated that the tax paid by the company on Rs. 12,64,212 received by it by way of processing charges is about Rs. 7,96,452. The registered firm's tax on the total income returned by the assessee-firm is Rs. 4,30,043 and the firm tax on the assessed income of the firm is shown to be Rs. 3,88,922 to show that there is only a difference of Rs. 3,48,922 in registered firm's tax, whereas the limited company has paid tax of Rs. 7, ..... 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