THE DY. CIT, CIRCLE-4(1)(1),, AHMEDABAD vs. SUNDYOTA NUMANDIS PHARMACEUTICALS PVT. LTD.,, AHMEDABAD

This appeal has been preferred by the Revenue against the deletion of addition of Rs. 70,71,329/- made on account of sales promotion and C.O. has been preferred by the assessee and has taken following grounds: 1. The learned CIT(A) has erred in law and on facts of the case in confirming disallowance of interest expenses of Rs.3,75,6007- u/s 36(l)(iii) of the Act. 2. The learned CIT(A) has erred in law and on facts of the case in confirming disallowance in respect of sales promotion expenses to the extent of Rs. 16,60,451/- out of total disallowance of Rs.87,31,780/-.

The facts of the case are that the assessee company is engaged in the business of Trading in Medicines. And in scrutiny assessment, disallowance u/s. 36(1)(iii) to the tune of Rs. 3,75,600/- was made and disallowance of Sales Promotion Expenses of Rs. 87,31,780/- was made.

So far disallowance u/s 36(1)(iii) is concerned, assessee company had advanced a sum of Rs. 93,88,125/- for factory land and guest house. No specific borrowings were made for making such advances. And assessee company had capital and reserve in excess of amount advanced and assessee relied the decision of Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. 178 taxmann.com 135 wherein it is held in such circumstances, no disallowance can be made. We are in agreement with the assessee that assessee has made advance for the business purpose and such in circumstances interest was paid for purpose of business is allowable expenses. Therefore, we allow the objections of the assessee.

As we can see, these disallowances were made on account of CBDT Circular No. 5/2012 has been issued on 01.08.2012 whereas the year under consideration is assessment year 2011-12 and Financial Year 2010-11 that is period prior to the issuance of concerned circular. The said circular is not retrospective in the nature. Therefore, in our considered opinion, in such circumstances, no disallowance can be made on the basis of above said circular. Therefore, we allow objection of the assessee.

So far deleting the addition of Rs. 70,71,329/- is concerned, same has also been made on the basis of above said circular. Since, the said circular is not applicable in the case of assessee. Thus, we dismiss this ground of appeal of revenue.

In the result, appeal filed by the Revenue is dismissed and Cross Objection filed by the Assessee are allowed.