COMMISSIONER OF INCOME TAX vs. CADILA LABORATORIES LTD.

O/TAXAP/1411/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1411 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX....Appellant(s) Versus CADILA LABORATORIES LTD.....Opponent(s) ================================================================ Appearance: MR MANISH BHATT, SENIOR ADVOCATE WITH MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 5

O/TAXAP/1411/2006 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER

Date : 12/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘C’ (hereinafter referred to as ITAT) dated 10.02.2006 in ITA No. 2009/Ahd/1999 for the Assessment Year 1994-95, the revenue has preferred the present Tax Appeal. 2. This appeal was admitted on 05.07.2007 for consideration of the following substantial question of law: (A) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the disallowance of Rs.10,20,000/- made on account of proportionate provision of premium on debenture written off in the books of accounts? (B) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the disallowance of Rs.29,16,667/- made on account of proportionate provision of discount on debentures? (C) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) directing to include the processing income of Rs.6,23,40,000/- in the amount of turnover for the purpose of deduction u/s.80HHC? 2.1 The assessee Company is engaged in the business of manufacturing of pharmaceutical product and bulk drugs and also has a unit of tissue culture engaged in exporting go plants. The Assessing Officer made a disallowance for Page 2 of 5

O/TAXAP/1411/2006 JUDGMENT proportionate provision of premium on debenture written off in the books of account and proportionate provision of discount on debentures. The Assessing Officer also did not include processing income in the amount of turnover for the purpose of deduction u/s 80HHC. On appeal before the CIT(A), the CIT(A) deleted the dissallowance made by Assessing Officer and directed the Assessing Officer to include processing income in the amount of turnover for the purpose of deduction u/s 80HHC. 2.2 Being aggrieved by the order of the first appellate authority, the revenue preferred appeal before the ITAT and the ITAT vide impugned order partly allowed the appeal and confirmed the order passed by CIT(A) on the aforesaid three grounds. Being aggrieved by the said order, the present appeal is filed. 3. Questions no. (A) & (B) raised for consideration in the present Tax Appeal are now not res integra in view of the decision of the Apex Court in the case of Madras Industrial Investment Corpn. Ltd. vs. Commissioner of Income-tax reported in [1997] 225 ITR 802. The Apex Court in the aforesaid decision has held that discount on debentures was allowable as an expenditure. 3.1 Similarly, question no. (C ) raised in this appeal is also squarely governed by the decision of the Apex Court in the case

of Commissioner

Income-Tax, Thiruvananthapuram vs. K. Ravindranathan Nair reported in [2007] 295 ITR 228 (SC) wherein the Apex Court has held as under: Page 3 of 5

O/TAXAP/1411/2006 JUDGMENT “33. Therefore, two following questions arise for determination: "Whether processing charges were includible in the "total turnover" in the formula in Section 80HHC(3), as it stood at the material time, for computing deduction under Section 80HHC of the I.T. Act." "Whether in the matter of computation of deduction, under Section 80HHC(3)(c) of the I.T. Act, losses suffered by the taxpayer in the export of trading goods can be set off/adjusted against profits from export of manufactured goods and vice versa and whether the assessee would be entitled to deduction if after such adjustments/set off the net figure is a loss." 34. For the reasons given hereinabove, we answer both the above questions in favour of the Department and against assessee. Accordingly civil appeal filed by the Department is allowed, the impugned judgment of the High Court is set aside and the matter is remitted to A.O. for fresh disposal of the case in accordance with law declared hereinabove on both the points. No order as to costs. “ 4. Having heard learned advocates for the revenue and the assessee and the questions posed for consideration for us reproduced hereinabove and considering the decisions cited which squarely govern the questions raised in the present appeal, questions no. (A) & (B) which are raised in the present appeal are required to be answered in favour of the assessee. Similarly, question no. (C ) is required to be answered in favour of the revenue. There is no serious dispute between the learned advocates for the parties about the applicability of the aforesaid decisions on the facts and circumstances of the case. We are not giving any elaborate Page 4 of 5

O/TAXAP/1411/2006 JUDGMENT reasons for the same as this Court in similar cases has answered the very same question in favour of assessee/revenue. 5. In view of the above, the questions no. (A) & (B) raised in the present appeal are answered in the affirmative i.e. in favour of the assessee and question no. (C ) is answered in the negative i.e. favour of the revenue. We, therefore, hold that the Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the disallowance of Rs.10,20,000/- made on account of proportionate provision of premium on debenture written off in the books of accounts and also in confirming the order passed by the CIT(A) deleting the disallowance of Rs.29,16,667/- made on account of proportionate provision of discount on debentures. However, the Tribunal is not justified in law as well as on facts in confirming the order passed by the CIT(A) directing to include the processing income of Rs.6,23,40,000/- in the amount of turnover for the purpose of deduction u/s.80HHC. 6. Consequently, the impugned order passed by the ITAT is modified. Present Tax Appeal is partly allowed. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 5 of 5