DEPUTY COMMISSIONER OF INCOME-TAX vs. SERUM INSTITUTE OF INDIA LTD.,, PUNE

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

These are the two sets of cross appeals filed by the Assessee and the Revenue against the separate orders of CIT (Appeals)-11, Pune, dated 29-01-2016 & 04-02-2016 for the Assessment years 2011-12 and 2012-13.

2 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

company engaged in the business of manufacture and sale of life saving

drugs and vaccines. The cases of Poonawalla Group include two sub-

groups (1) includes family members of Shri Cyprus Soli Poonawalla (in

short CSP) and the group concerns under his control and management

(with M/s. Serum Institute of India Ltd. as the flagship company; and

(2) other sub-group includes family members of Shri Zavareh Soli

Poonawalla (in short ZSP) and the group concerns under his control and

management, which is mainly engaged in stud farm activities.

There was search and seizure action u/s.132 of the Act on the

assessee’s group of cases on 21-06-2011. In response to notice

u/s.153A of the Act, assessee filed the return of income on 13-02-2012

declaring total income of Rs.14,83,08,431/-. During the said search

action, various incriminating documents were found and seized/ by the

Department in respect of entities connected with the group. Cash was

also seized by the Department. During the assessment proceedings

u/s.143(3) of the Act, AO made various disallowances u/s.14A of the

Act, EDP expenses, Foreign Travel Expenses, depreciation on plant and

machinery, freight and insurance expense pertains to EOU unit,

provision for leave encashment, repairs to building, plant and

machinery and product development expenses, etc., apart from others

and finally assessed the income at Rs.109,08,84,068/-. CIT(A) partly

allowed the appeal of the assessee relying on the decisions of his

predecessor/Tribunal.

in appeal before the Tribunal. Further, aggrieved with the confirmation

of additions, the assessee is in appeal before us

3 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

We shall first take up the appeal of the Assessee.

ITA No.549/PUN/2016 (By Assessee) A.Y. 2011-12

“On the facts and in the circumstances of the case and in law learned CIT(A) erred:

1a. in confirming the disallowance u/s.14A amounting to Rs.2,42,65,925/- as per rule 8D.

b. in not addressing the ground regarding net off “Interest received” with “interest paid” to consider the proportionate disallowance of “Interest paid”.

b. in not allowing the weighted deduction on expenditure incurred for clinical trials amounting to Rs.5,45,49,486/-.

b. in not granting additional depreciation on Windmills generating “Power for captive consumption in spite of complying the provisions of sec. 32(1)(iia).

4 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

4.1 Assessee also filed modified grounds and the same read as under:

“1a. The Ld.CIT(A) ought to have held that no disallowance u/s.14A(2) r.w.r.8D can be sustained in the absence of a specific recording of satisfaction by the A.O. based on cogent material and having regard to the accounts of the assessee, to the effect that the claim of the assessee is not correct.

b. The Ld.CIT(A) failed to appreciate that the A.O. made the disallowance merely on the basis of observation that “salaries and other administrative expenses are debited to P&L A/c for both taxable and tax free incomes, therefore it is difficult to accept that tax free incomes are earned without incurring these expenses.”

Supplementary Ground to Ground -10.

that most of the grounds raised by the Revenue and the Assessee are

covered issues in favour of the assessee. In this regard, Ld. Counsel

submitted charts on the grounds raised by the Revenue as well as the

Assessee. Therefore, we proceed to decide the issues raised in these

appeals based on the said information.

We shall take up the issue-wise adjudication in the following

paragraphs.

r.w. Rule 8D(2) of the I.T. Rules, 1962 is sustainable when there is no

satisfaction invoking the provisions of the Act/Rules.

5 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

6.1 Bringing our attention to the assessment order in this regard, Ld.

Counsel for the assessee submitted that, on similar satisfaction

mentioned by the AO, the Tribunal in the assessee’s own case for the

A.Y. 2009-10 and in the group case of the company - Poonawalla

Investments and Industries Ltd. Vs. DCIT in ITA Nos. 245 to

250/PUN/2016 for A.Yrs. 2006-07 to 2011-12, dated 28-02-2018

deleted the disallowance made u/s.14A of the Act. In this regard, he

read out the following lines from the assessment order :

“5.1 . . . . . . . . It is difficult to accept the proposition that all the tax free income has been earned without incurring these expenditures and these expenditures were incurred only for earning taxable income. Further, assessee has disallowed expenditure on Adhoc basis without applying rule 8D.

Therefore, I am satisfied that the assessee has not made adequate disallowance as mandated u/s.14A of the I.T. Act and therefore, the case of the assessee is a fit case for computation of the said disallowance u/s.14A of the I.T. Act.”

6.2 After hearing both the sides on this issue, perusing the orders of

the Revenue and the assessee’s own case for the A.Y. 2009-10, we find

the AO did not give the satisfaction having regard to the book of

account of the assessee. Further, with similar kind of satisfaction in

the case of Poonawalla Investment and Industries Pvt. Ltd. (supra), we

hold that the same falls short of the requirement. For the sake of

completeness, relevant paras are extracted as follows :

“27. In connection with Ground No.1, Ld. Counsel for the assessee submitted that AO failed to record satisfaction which is required while invoking the provisions of section 14A of the Act r.w. Rule 8D of the I.T. Rules, 1962. Bringing our attention to the contents of Para No.5.1 of the assessment order, Ld. Counsel submitted that the AO failed to record the satisfaction before invoking the provisions u/s.14A of the Act. Further, Ld. AR read out the relevant lines from the said para of the assessment order. For the sake of completeness, we proceed to extract the same as under :

“5.1. . . . . . . .

It is difficult to accept the proposition that all the tax free income has been earned without incurring these expenditures and these expenditure were incurred only for earning taxable income. Therefore, I am satisfied that the assessee has not made adequate

6 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

disallowance as mandated u/s.14A of the I.T. Act and therefore, the case of the assessee is a fit case for computation of the said disallowance u/s.14A of the I.T. Act.”

“37. We do not see how in the aforesaid fact situation a different view could have been taken for the assessment year 2002-03. Sub-sections (2) and (3) of section 14A of the Act read with rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of section 14A(2) and (3) read with rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.” (emphasis supplied).

“34. We have heard the rival contentions and perused the record. The Assessing Officer while passing the assessment order in para 10 had observed that the assessee had earned significant amount of tax free dividends and in the computation of income, the assessee has disallowed sum of Rs.50 lakhs under section 14A of the Act. Then, reference is made to the Note filed by the assessee on expenditure disallowable under section 14A of the Act. The Assessing Officer thereafter, takes note of the contents of said explanation and observed as under:-

7 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

“I have gone through the submissions made by the assessee. It is observed that apart from investments in the overseas subsidiaries (where there is no tax-free income since the dividend is also taxable) the investments made by the assessee are in mutual funds. The entire investment in mutual fund is in non-equity scheme. In respect of investment in mutual funds, except for growth funds, the company receives tax free dividend. The amount of dividend received by the company is substantial. This is a clear case for application of Rule 8D. Hence, the contention of the assessee cannot be accepted. The disallowance u/s 14A is required to be made by applying Rule 8D. As per the working of disallowance u/s 14A as per Rule 8D, the amount of disallowance comes to Rs.5,68,32,323/-. The assessee has already disallowed Rs.50,00,000/- in the computation of income.”

“37. We do not see how in the aforesaid fact situation a different view could have been taken for the assessment year 2002-03. Sub-sections (2) and (3) of section 14A of the Act read with rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of section 14A(2) and (3) read with rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.”

(underline provided by us for emphasis)

8 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

short of the legal requirement for assuming jurisdiction u/s.14A of the Act. Considering the above position, we are of the view that the AO failed to record the sustainable satisfaction before invoking the provisions of section 14A of the Act. Therefore, the disallowance made by the AO is unsustainable technically. Accordingly, this part of the argument of Ground No.1 is allowed. We find adjudication of the other issues of the said ground relating to merits becomes an academic exercise. Therefore, the same are dismissed as academic.”

Therefore, on the technical grounds, the Ground No.1(a) raised by the

assessee on the issue of satisfaction stands allowed in favour of the

assessee.

Ground No.1(b), being on merits of quantification of disallowable

expenditure u/s.14A of the Act, is dismissed as academic in view of the

relief granted to the assessee in Ground 1(a). Accordingly, Ground No.1

(a) & (b)/modified grounds 1(a) and (b) stand partly allowed.

foreign travel expenses of employees amounting to Rs.12,38,850/-

7.1. Relevant facts of the issue include that the AO treated the said

foreign Travel expenses as capital in nature as against the claim of

assessee as revenue expenditure. Assessee contended that the

expenditure is incurred by senior executives in the normal course of

business and 75% of the assessee’s turnover is on exports and

therefore, the expenditure is allowable u/s.37(1) of the Act. The AO

considered the decision of his predecessor in assessee’s own case for

the A.Y. 2006-07 where the matter was travelled upto the Tribunal and

the Tribunal confirmed the same. Therefore, considering the above

facts, AO concluded that the assessee travelled abroad for acquiring

machinery and thus denied the benefit to the assessee. In the First

9 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

Appellate proceedings, the CIT(A) upheld the views of the AO. Aggrieved

with the order of CIT(A) the assessee is in appeal before us.

7.2. Before us, Ld. Counsel submitted that the expenses incurred are

purely for the business purposes. He further submitted in the

assessee’s own case for the A.Y. 2009-10 the Tribunal relying on the

order of Tribunal for the A.Y. 2008-09 remitted the issue to the file of

AO for verification. He submitted that, in this year also, the issue may

be remitted to the file of AO for verification of facts.

7.3 Per Contra, Ld. DR relied on the orders of the AO/CIT(A).

7.4 On hearing both the sides on this issue, we find the Tribunal in

the assessee’s own case for A.Y. 2009-10 remitted the matter to the file

of AO. We proceed to extract the findings of the Tribunal and the same

reads as under :

“31. However, on the issue of capitalization of the expenditure, in view of the assessee’s submission that the expenses incurred for the purpose other than the purchase of machinery, needs to be verified by the AO, we find this issue needs to be remitted back to the file of AO for verification of correctness of the facts relating to this claim. AO is directed to verify the expenses in this regard after granting reasonable opportunity of being heard to the assessee. Assessee is directed to produce relevant documents to substantiate his claim. Accordingly, Ground No. 2 raised by the assessee is allowed for statistical purposes.”

7.5 Following the same reasoning, we are of the view that this

grounds needs to be remitted to the file of AO. Thus, Ground No.2

raised by the assessee is allowed for statistical purposes.

items of fixed assets amounting to Rs.40,60,897/-.

8.1 Relevant facts of this issue include that the AO classified certain

items as Furniture and allowed depreciation at the rate applicable to

Furniture and certain items as Plant and Machinery and allowed

10 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

depreciation at the rate applicable to them by applying functional test.

Eventually, in the assessment made u/s.143(3) r.w.s. 153A of the Act,

the AO made addition of Rs.1,08,291/- being difference in depreciation

@10% and 15% on some items under block of Plant and Machinery

treating the same as Furniture. Before the CIT(A), the assessee

submitted that this issue has been decided by the Tribunal for the

A.Yrs. 2006-07 and 2007-08. The CIT(A) after considering the

submissions of the assessee and the order of CIT(A) partly allowed the

appeal of the assessee. Contents of Para No.7.1 of the order of CIT(A)

are relevant.

8.2. Before us, Ld. Counsel for the assessee submitted that this issue

is consistently being allowed in favour of the assessee in the earlier

years A.Y. 2006-07 to 2009-10. Therefore, Ld. Counsel prayed for

allowing the ground.

8.3 After hearing both the sides, we find this issue is settled one in

favour of the assessee by virtue of the orders of Tribunal in the A.Yrs.

2006-07 to 2009-10. Considering the same and following the rule of

consistency, we allow the ground No.3 raised by the assessee.

by the AO on account of ‘provision for Leave Encashment’ amounting

to Rs.18,16,795/-.

9.1 Before us, Ld. Counsel for the assessee submitted that the issue

stands decided against the assessee by the orders of Tribunal in

assessee’s own case 2008-09 & 2009-10.

9.1 We heard both the sides and perused the orders of the Revenue

as well as the order of the Tribunal in the assessee’s own case for the

A.Y. 2009-10 and find this issue stands decided against the assessee in

11 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

the earlier assessment years. Considering the same, without going into

the merits, we dismiss this Ground No.4 raised by the assessee.

of Product Development expenses amounting to Rs.2,25,42,606/-.

10.1 Relevant facts on this issue include that the assessee an amount

of Rs.19,08,48,208/- has been claimed as revenue expenditure

u/s.35(2AB)of the Act. AO did not allow the weighted deduction of the

expenses incurred prior to 03-08-2010 (approval date). In the First

Appellate proceedings, the CIT(A), relying on the order of Tribunal in the

case of M/s.Advik Hightech Pvt. Ltd. 51 taxmann.com 245, confirmed

the addition made by the AO.

10.2 Before us, assessee submits that it has all the approvals in place

from the prescribed authority which are applicable for the period under

consideration. However, the CIT(A) emphasized that the approval for

revenue expenses should be available from 03-08-2010. Assessee

submitted that section 35(2AB) was introduced with a view to

encourage the R&D in industrial sector and nowhere it is mentioned

R&D facility is to be approved from a particular date. For this

proposition, he relied on the following decisions :

Ld. AR for the assessee further submitted that it carried out the

scientific research in the facility approved by DSIR. Assessee incurred

various expenditure which includes expenses on clinical trials for

12 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

product development which are conducted out of the approved facility

and the reasons behind the same are :

“i. Clinical drug trial is an integral part of R&D activity carried by the approved R&D unit.

ii. Due to peculiar nature of vaccines, practically of bringing subjects of clinical trials to the approved R&D facility and regulatory requirement of Ministry of Health, such trials are required to be necessarily carried out in the approved Government Hospitals.

iii. While conducting such clinical trials, company’s R&D personnel retail ultimate control over and remain responsible for the activities of clinical trial even if such activities are carried out by the external agencies outside the approved facilities.

Assessee further submitted that the CIT(A) failed to take note of

Explanation to section 35(2AB)(1) of the Act introduced by Finance Act,

2001 w.e.f. 01-04-2002 and relied on the decision in the case of CIT Vs.

Cadila Health care Ltd. 31 taxmann.com 300 (Gujarat).

10.3 On the other hand, Ld. DR for the Revenue relied heavily on the

orders of the AO and the CIT(A).

10.4 We heard both the sides and perused the orders of the Revenue

as well as the submissions made by the assessee before us. We find the

Hon’ble Delhi High Court in the case of M/s.Maruti Suzuki India Ltd.

Vs. UOI held as under :

“40. The settled position in law is that, for availing the benefit under Section 35 (2AB) of the Act what is relevant is not the date of recognition or the cut- off date mentioned in the certificate of the DSIR or even the date of approval but the existence of the recognition. If a R&D Centre is not recognised it is not entitled to deduction but if it is recognised, it is entitled to the benefit. The Gujarat High Court in Claris Lifesciences (supra) has rightly observed that the date of approval of the R&D Centre, not being a part of the provision, extending benefit only from the date of recognition "amounts to reading more in the law which is not expressly provided".

13 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

behind these provisions is to provide impetus for research, development of new technologies, obtaining patent rights, copyrights and know-how.

10.5 From the above, it is evident that the assessment year specific

approach is the decided issue legally and not the date specific

approach. We find the facts are somewhat identical to the facts of the

present case.

Considering the above, we allow the Ground No.5 (a) and (b)

needs to be remanded to the file of AO for fresh adjudication on the

14 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

matters. AO shall follow the above judgment with reference to the issue

raised in Ground 5(a) and 5(b). AO is directed to decide the issue in the

set aside proceedings after granting reasonable opportunity of being

heard to the assessee. Accordingly, Ground 5(a) and 5(b) are allowed

for statistical purposes.

Rs.4,28,524/- u/s.48 of the Act made on account of demat charges

which was claimed as expenditure incurred for earning income from

capital gains.

11.1 Relevant facts on this issue include that assessee debited the said

sum to the profit and loss account and claimed that the same should be

allowed while computing the capital gains. Assessee relied on the

decision of Bangalore Bench of the Tribunal in the case of Infosys

Technologies Vs. JCIT 109 TTJ 631 (Bang.). Assessee contended that

the said expenses has been incurred in the normal course of business

and the dematerialization helped the assessee significantly in reducing

the administrative costs. AO opined that the expenditure incurred for

maintenance of share transactions from demat account is not to be

allowed u/s.48 of the Act since the expenditure was not incurred wholly

and exclusively in connection with such transfer or as the cost of

acquisition and cost of improvement thereto and thus made the

disallowance of sum of Rs.4,28,524/-. While doing so, the AO relied on

the decision of Kolkata Bench of the Tribunal in the case of ACIT Vs. Sri

Raghupati Singhania – ITA No.1761/Kol/2010.The CIT(A) upheld the

disallowance made by the AO relying on the earlier orders. Aggrieved

with the order of CIT(A), the assessee is in appeal before us.

15 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

11.2 Ld counsel for the assessee at the outset submitted that the

issue stands decided in favour of the assessee by virtue of the order of

Tribunal in the assessee’s own case for the A.Y. 2009-10. The Tribunal

in the said order relied on the decision of the Pune Bench of the

Tribunal in the case of KRA Holding and Trading Pvt. Ltd. Vs. DCIT and

vice-versa vide ITA No.703/PN/2012 & ITA No.665/PN/2012 order

dated 19-09-2013 for A.Y. 2008-09 and held that the claim of Portfolio

Management Fees is an allowable expenditure from such capital gain.

11.3 Ld. DR for the Revenue relied heavily on the orders of the

AO/CIT(A).

11.4 On hearing both the sides and on perusing the decision of the

Tribunal in the assessee’s own case for the A.Y. 2009-10, we find the

issue of allowing the demat charges, stands decided in favour of the

assessee. Therefore, following the same reasoning, we allow Ground

No.6 raised by the assessee.

assessee treating them as bogus purchases.

12.1 Relevant facts include that based on the information received

from Sales Tax Department through DGIT (Inv.), Pune, the AO noticed

that assessee purchased some goods from the parties whose names are

listed in the suspected suppliers providing accommodation entries. In

the assessment proceedings, assessee claimed these purchases as

genuine. Alternatively, the assessee claimed the quantum of purchases

for the year under consideration may be treated as inflated and the set

off may be given against the non-business expenditure offered during

search action at Rs.2.25 crores. However, in the absence of producing

the parties and substantiating the claim with supporting evidences, the

16 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

AO treated the same as non-business expenditure. The contention of

the assessee to give set off against the non-business expenditure is

allowed. In the First Appellate proceedings, the CIT(A) upheld the

action of the AO.

12.3 Aggrieved with the action of the CIT(A), the assessee is in appeal

before us.

12.4 Before us, Ld. Counsel for the assessee submitted for remanding

the issue to the file of AO by virtue of decision of Pune Bench of the

Tribunal in the case of M/s. Chhabi Electricals Pvt. Ltd. and others Vs.

DCIT in ITA No.795/PUN/2014, relating to assessment year 2010-11,

decided on 28-04-2017.

12.5 Ld. DR for the Revenue relied heavily on the orders of the

AO/CIT(A).

12.6 On hearing both the sides, we are of the opinion that the matter

should be remanded to the file of CIT(A) for deciding the issue in the

light of classification of various groups of suppliers as done by the

Tribunal while adjudicating the appeal in the case of M/s. Chhabi

Electricals Pvt. Ltd. and others Vs. DCIT in ITA No.795/PUN/2014,

relating to assessment year 2010-11, decided on 28-04-2017. In this

case, the Tribunal analysed various beneficiaries of such bogus entry

operators and depending on the submission of the evidences with

regard to the trail of goods, payment etc. the Tribunal identified 4 types

of categories. For the sake of completeness, we proceed to extract the

said paragraphs from the order of the Tribunal (supra) and the same

read as under :

“40. In view of the above said ratios, the present issue of bogus purchases is to be decided on the basis of facts of each case. The first aspect is the information received by the Assessing Officer from the Sales

17 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

Tax Department in respect of alleged hawala dealers. In many cases, the Assessing Officer has not even received the copy of statement recorded or any other evidence from the Sales Tax Department, except the list of hawala dealers and on the basis of the said list, the assessment proceedings have been completed in the hands of assessee, who had made the purchases from the said parties. In case, no such evidence has been received by the Assessing Officer before making addition, then there is no warrant in making aforesaid addition in the hands of assessee merely on the basis of so called list of hawala dealers. There are other cases, where the Assessing Officer had received the statement of the persons who were hawala dealers and who had admitted to have just issued bills of sale without delivery of goods. In such circumstances, there is evidence against the respective assessee that where the seller of the goods, has admitted not to have entered into real transaction of sale of goods. Against such non- transaction, there can be no delivery of goods, then it is case of passing of bills of sale and purchases, against which no VAT has been paid. Such bogus purchases are then to be added in the hands of assessee. Where the Assessing Officer had confronted the assessee with the information received, supplied copies of statements and where the persons have not been traced and no confirmation has been filed by the assessee in this regard, then the addition is to be made in the hands of assessee on account of such bogus purchases. In the facts and circumstances of some cases, the goods have been transferred by such hawala dealers to the respective purchasers, against which the assessee has to discharge onus of establishing the trail of goods which are transferred and further sold by them. Where the assessee is able to produce evidence of purchase of goods by way of weighment bridge receipts, transportation documents, payment of octroi and subsequent sale of goods to the respective parties and / or where the assessee has maintained complete quantitative details of purchase and sale of goods, then total bogus purchases cannot be added in the hands of assessee, but GP rate of 10% is to be applied on bogus purchases. Where the assessee does not establish its case, then the complete bogus purchases are to be added as hawala purchases. Further, in cases, where the statements are recorded and copies of which have been supplied to the assessee and assessee established the case of receipt of goods and its onward transmission by way of sale bills, then the factum of purchases by the assessee stands established in such circumstances. However, the benefit of purchases being made from grey market, needs estimation in the hands of assessee. The Tribunal has already held that the addition be made by estimating the same @ 10% of the alleged hawala purchases. Accordingly, it is so held. In view thereof, the issues which emerge are as under:-

I. In case no information is received by the Assessing Officer from the Sale Tax Department and no copy of statement recorded or any other evidence is received from the Sales Tax Department, then no addition is to be made on the basis of name of hawala dealer in the list prepared by the Sales Tax Department, where the assessee had asked for the said information during assessment proceedings. II. Where the Assessing Officer had received the statements of persons who had admitted to have just issued bills of sale without any delivery of goods. In view of such evidence, where the assessee had not entered into real transaction of purchase of goods and in the absence of any delivery of goods, the sales are bogus and the entire sales are to be added in the hands of assessee. Admittedly, the dealer had not even paid VAT against such passing of goods.

III. The case where the Assessing Officer had confronted the information received from the Sales Tax Department and had supplied copies of statements recorded and had also issued notice under section 133(6) of the Act, where hawala dealer was not traceable and in the absence of the assessee failing to file any documentary evidence of delivery of

18 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

goods, addition is to be upheld in the hands of assessee on account of such bogus purchases. IV. The next instance is the case of goods which have been admittedly sold by the hawala dealer and has been received by the assessee, who in turn had maintained quantitative details and also evidence of its movement i.e. transportation details and quality control details of consumption of the said material or exact details of sale of the same consignment through same transporter directly to the party, then the total purchases cannot be added in the hands of assessee. However, since the purchases are made from the grey market, some estimation needs to be made in the hands of assessee. The Tribunal in M/s. Chetan Enterprises Vs. ACIT (supra) has already held that the addition be made by estimating the same @ 10% of the alleged hawala purchases, over and above the GP shown by the respective assessee.

V. Another set of cases where the statements recorded by the Sales Tax Department have been handed over to the assessee and the copies of same have been supplied to the assessee, then where the assessee established the case of receipt of goods and its onward transmission, then the factum of purchases by the assessee stands established in such circumstances. However, estimation is to be made in the hands of assessee because of purchases from the grey market and following the above said ratio, addition is to be made by estimating the same @ 10% of the alleged hawala purchases, over and above the net profit shown by the assessee.

12.7 Further, we find the said decision of the Tribunal is not available

at the time of passing of order by the CIT(A) on 29-01-2016. In all

fairness, we are of the opinion that the matter should be remanded to

the file of CIT(A) for considering the above decision of the Tribunal and

19 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

apply the ratio laid down to the facts of the present case. Accordingly,

the ground No.7 raised by the assessee on merits is allowed for

statistical purposes.

on account of rent paid for the property at Bungalow No.70,

Koregaon Park amounting to Rs.31,44,000/- and depreciation at

Rs.12,97,701/-.

13.1 Background facts of this issue include that there is house

property at 70, Koregaon Park and the same is owned by Poonawalla

Finvest and Agro Pvt. Ltd. The said property is occupied by Mr. Z.S.

Poonawalla (Director of both Poonawalla Finvest and Agro Pvt. Ltd. and

Serum Institute of India Ltd.). He is the brother of Dr. Cyprus

Poonawalla. Considering the heritage value of the property as well as

the occupation of the said property by Mr. Z.S. Poonawalla (Director of

the company), the Serum Institute incurred huge expenditure on the

repairs and renovation of the said house. Further, to compensate the

housing facility provided to its own Director, Serum Institute paid rent

of Rs.31,44,000/- per annum over the years including the year under

consideration. Allowability of the said expenditure incurred the rent

and the repairs/renovation was the bone of contention between the

assessee and the Revenue over the years. In the First Appellate

proceedings, the CIT(A) dismissed the ground raised by the assessee

stating that the issue is same as that of A.Y. 2010-11.

13.1 Before us, Ld. Counsel for the assessee submitted that, the

Tribunal decided the issue in favour of the assessee holding that the

said expenditure incurred on repairs and renovation constitutes

revenue expenditure and allowable u/s.37(1) of the Act in the case of

20 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

Serum Institute of India Ltd, The decision of the Tribunal in this regard

are already cited by the assessee’s counsel before us.

Additionally, the rent of Rs.31,44,000/- lakhs paid by Serum

Institute of India Ltd. to Poonawalla Finvest and Agro Pvt. Ltd. is also

held as an allowable deduction in the case of Serum Institute of India

Ltd. over the years including A.Y. 2006-07. Contents of Para Nos. 24 to

27 of the order of Tribunal in ITA Nos. 985 and 986/PN/2015 and ITA

Nos.1535 & 1536/PUN/2015, dated 28-11-2007 for the A.Yrs. 2006-07

and 2007-08 are relevant.

13.2 We heard both the sides, perused the orders of the Revenue and

the order of Tribunal for the A.Y. 2009-10. We find it relevant to

reproduce the finding given by the Tribunal and the same reads as

under :

“54. We heard both the sides and perused the orders of the Revenue and the order of the Tribunal in the assessee’s own case for the A.Yrs. 2006-07 and 2007-08. On perusal of the said order of the Tribunal (supra), it is evident that the ground raised in this appeal relates to rent as well as expenditure incurred on repairs and renovation. At the end of the proceedings, the Tribunal allowed the ground raised by the assessee. We find it relevant to extract the relevant paras of the Tribunal (supra) and the same reads as under :

“25. On this issue, Ld. Counsel for the assessee submitted that similar issue was adjudicated in assessee’s own case for A.Y. 2005-06 in his favour. Bringing our attention to Para Nos. 35 to 37 of the order of the Tribunal in ITA No.1703/PN/2014 dated 30-11-2016, Ld. Counsel for the assessee submitted that the expenditure incurred on Repairs/Renovation of the Bungalow was allowed, as ‘business expenditure’ of the assessee.

“35. In view of the above discussion, we are of the considered opinion that the expenditure of Rs.1,17,88,000/- incurred on repairs and renovation on bungalow located at 70, Koregaon Park, Pune has to be allowed as a business expenditure in the hands of the assessee company. We therefore set aside the order of the CIT(A). The ground raised by the assessee is accordingly allowed.”

21 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

Although, the above finding did not specify the rent expenditure in fact, the ground is on the rent only. Therefore, the ground raised by the assessee stands allowed in favour of the assessee. Considering the above decision of the Tribunal in assessee’s own case, we are of the opinion that the expenditure on account of rent paid on the house property is allowable in favour of the assessee.

13.3 Considering the above, we are of the opinion that, with similar

directions given in A.Y. 2009-10 (supra) this grounds is remanded to

the file of AO for fresh adjudication. Accordingly, the Ground No.8 by

the assessee is allowed for statistical purposes.

the cost and Electrical and Civil Works amounting to

Rs.20,82,47,820/-.

14.1 Relevant facts on this issue include that, during the impugned

assessment year, assessee installed windmill and claimed depreciation

@80% on the same. The AO relying on the decision of Tribunal in the

case of Poonawalla Finvest and Agro (P) Ltd. Vs. ACIT 118 TTJ 68

22 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

allowed the depreciation at the rate of 10% and 15% on building/civil

construction and transformer. In the First Appellate proceedings, the

CIT(A) relying on the decision of Pune Bench of the Tribunal in the case

of Ghodawat Energy Pvt. Ltd. in ITA No.1986/PN/2012, dated

14-07-2014 partly allowed the appeal of the assessee. We proceed to

reproduce the operational para No.26 of the order of CIT(A) here as

under :

“26. In the present case it can be seen that the AO has disallowed the appellant’s claim of accelerated depreciation on the civil foundation work of Rs.14,20,32,000/-. Following the above cited ITAT order the AO may treat 60% of this as part of the windmill eligible for 80% depreciation and 40% as civil work eligible for normal rate of depreciation. The AO shall verify the details, apply the functional test as held by the honourable Tribunal and allocate the electric work also in a like fashion. The ground of appeal is allowed partly, subject to above discussion. As regards the claim of additional depreciation, the amendment cited by the appellant is not retrospective. The contention is therefore rejected.”

14.2 Aggrieved with the part relief given by the CIT(A) the assessee is in

appeal before us.

14.3 Before us, Ld. Counsel for the assessee submitted that the

company considered the expenditure incurred on Electrical as well as

Civil work and labour charges as an integral cost so as to make the

windmill functional. However, the AO deviating from the principles of

capitalization isolated certain expenses allowed the depreciation at

different rates and the dispute depreciation amount works out to

Rs.9,20,56,123/-. In support of its claim, Ld. Counsel relied on the

following decisions :

23 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

In connection with granting of additional depreciation on windmills

generation power for captive consumption, despite complying the

provisions of section 32(1)(iia) of the Act. Ld. Counsel contends that the

generation of Electricity falls under the ambit of production of any

article or thing. For this proposition, he relied on the following

decisions :

14.4 We heard both the sides and perused the orders of the Revenue

on this issue and the decisions relied on by the Ld. Counsel for the

assessee. We find the Hon’ble Bombay High Court in the case of CIT

Vs. Cooper Foundary Pvt. Ltd. on the identical issue has held as under :

“2. The Tribunal has recorded finding of fact that windmill was erected in the desert area of Rajasthan which required special foundation of reinforced cement concrete and that the said reinforced cement concrete formed integral part of the windmill. The Tribunal has also followed the decision of this Court in the case of CIT Vs. Herdilla Chemicals Ltd. reported in (1005) 216 ITR 742 (Bom.) in allowing the claim of the assessee. In our opinion, the finding recorded by the Tribunal that RCC foundation forms integral part of the windmill is a finding of fact and no question of law arises from the same. Hence the appeal is dismissed with no order as to costs.

14.5 Further, we find the Pune Bench of the Tribunal also decided

similar issue in catena of decisions. We find in the case of DCIT Vs.

Shri Subhas Hastimal Lodha in ITA No.1078/PUN/2016 for the A.Y.

2011-12, dated 20-06-2018 held as under :

“5. We heard both the sides on this limited issue of allowing of depreciation @80% for civil structures of the windmill. We also perused the orders of the Revenue authorities and the decisions relied on by both the representatives. We find it relevant to extract the discussion given by the CIT(A) while concluding the issue in favour of the assessee and the same reads as under :

“3.1.2 During the course of appellate proceedings, in respect of Ground No.1 for restricting the allowance of depreciation on wind mill foundation civil work which resulted in addition of Rs.54,19,719, the Ld AR submitted that–

24 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

a) Addition on account of disallowance of depreciation on Wind Mill for A.Y. 2009-10 is pending before Hon'ble ITAT is totally wrong. According, to the Ld AR there was no addition on account of disallowance of depreciation on Wind Mill and no appeal was filed before CIT(A) for A.Y. 2009-10 and no appeal is pending before ITAT.

b) AO has not considered the fact that the appellant himself has not claimed depreciation of Rs.12,43,100 being consideration paid for providing easy and free access and keeping the area vacant surrounding land.

c) Ld AR suggested that no expenses were incurred for control room, site development and internal road has claimed by. the AO and the depreciation of 10% has been allowed by Hon'ble ITAT, Pune in the case of Poonawala Finvest & Agro Pvt. Ltd. (2008) 118 TTJ 68.

d) Ld AR also submitted that foundation civil work in a integral part of Wind Mill on which depreciation @ 80% is allowable and this has been held in the following cases. i) Mayura Steels Pvt. Ltd. Vs. ACIT ITA No1347/PN/2014 by ITAT ‘B’ Bench, Pune dated 26-10-2015. ii) Dr. Santosh Kalmesh Prabhu Vs. ACIT ITA No.1294/PN/2014 by ITAT ‘B’ Bench, dated 28/10/2015 iii) ACIT Vs. Suma Shilipa Limited ITAT Pune (2015) 44 CCH 514.

e) Ld AR also submitted that CIT Vs. Sai Udyog Ltd. relied by AO is in no way applicable to the facts of this case.

With the above, Ld AR for the appellant requested that additions of Rs.54,19,719 may kindly be deleted.

3.1.3 At the outset, the observation made by the AO that similar disallowances made for the AY 2009-10 is pending before the Hon'ble ITAT is factually incorrect. Adverting to the merit of the case, the quantum which remains is whether civil work and foundation necessary for installation of wind mill should be considered as integral part or not. If yes, then, depreciation as applicable to wind mill should be accorded to the civil structure and foundation needed to set up wind mill or not. In my considered view it is a well settled legal position that expenses incurred on foundation should be considered as an integral part of the plant and machinery. This fact has been reiterated by the Hon'ble Supreme Court in the case of Challapalli Sugars Ltd. Vs. CIT (Supra) wherein it has been decided that "fixed assets should include all the expenditure necessary to bring such assets into existence and put them in working condition. During the course of the appellate proceedings Ld AR while referring the ratio of decision of CIT Vs. K. K. Enterprise (2014) reported at 108 DTR 0109 (Raj), Hon'ble Rajasthan High Court has observed that the civil work and foundation is necessary for strong foundation and no windmill could be installed without having a strong foundation. As such depreciation on investment for civil work and foundation at the rate which the depreciation is allowed to windmill is applicable for these items too. The electrical items, components and common power evacuation too are integral part of a wind mill as that could have not been operational without these items". The

25 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

revenue challenged the decisions of the CIT(A) before the ITAT, Jodhpur be dismissed wherein the Hon'ble ITAT affirmed the findings given by the CIT(A) by holding as under:-

"Without doing the civil construction work including foundation work, it was not possible to install the windmill. Similarly, the electric items, components and installation were necessary for the wind mill, because in the absence of these components and electric items it was not possible for the windmill to produce electricity. Therefore, it was also the integral part of the windmill."

In this regard Hon'ble ITAT has also held that foundation of civil work is an integral part of windmill on which depreciation @ 80% is to be allowed. The above positions have been decided by Hon'ble ITAT, Pune in the case of Mayura Steels Pvt. Ltd. Vs. ACIT (Supra), in the case of Santosh Kalmesh Prabhu Vs. ACIT (Supra) and in the case of ACIT Vs. Suma Shilipa Limited (Supra). In the case of Mayura Steels Pvt. Ltd. Vs. ACIT (Supra), Hon'ble ITAT has followed the ratio of Hon'ble Gujarat High Court in the case of CIT, Ahmedabad-III Vs. Parry Engineering & Electronics (P) Ltd (Supra). The same is reproduced below for ready reference:-

"5. We are of the opinion that the approach of both the authorities is perfectly justified. Windmill would require a scientifically designed machinery in order to harness the wind energy to the maximum potential. Such device has to be fitted and mounted on a civil construction, equipped with electric fittings in order to transmit the electricity so generated. Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized. Thus, such civil construction and electric fitting would have no use other than for the purpose of functioning of the windmill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of windmill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant. As already noted, the legislature has provided for higher rate of depreciation of 80% on renewable energy devises including windmill and any specially designed devises, which runs on windmill. The civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same. The assessee's claim for higher depreciation on such investment was, therefore, rightly allowed."

3.1.4 Hon'ble Bombay High Court in the case of CIT-III, Pune Vs. Cooper Foundry Pvt. Ltd.(Supra) has also held that cement foundation is to be included in the cost of the windmill while granting depreciation @ 80%. Similar issue has been taken by Pune Bench "B" in the case of ACIT Vs. Western Precicast Pvt. Ltd. (Supra) and by Chennai Tribunal in the case of Kutti Spinners (P) Ltd. In view of the foregoing discussion and respectfully following the decisions of Bombay High Court in the case of CIT Vs. Great Eastern Shipping Co. Ltd. reported at 118 ITR 772 (Born) and Challapalli Sugars Ltd. Vs. CIT 98 ITR 167 (SC) and decision of Pune ITAT in the case of Mayura Steels Pvt. Ltd. Vs. ACIT (Supra), in the case of Dr. Santosh Kalmesh Prabhu Vs. ACIT (Supra) and in the case of ACIT Vs. Suma Shilipa Limited (Supra), I am of the considered view that higher depreciation is applicable in wind mill and also expenses incurred on civil structures are

26 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

applicable in wind mill and therefore the amount of Rs.54,19,719 disallowed by the AO on account of Hence, the AO is directed to delete the amount of Rs.54,19,719/- on account of excess depreciation. With this ground No.1 stands adjudicated in favour of the appellant.

5.1 Further, we find the Pune Bench of the Tribunal in the case of ACIT Vs. Suma Shilpa Limited 44 CCH 0514 (Pune-Trib.) has held as under :

Conclusion : Civil construction and electrical work are specifically designed for operation of windmills and are not separable, therefore, depreciation on these structures/fittings have to be applied at same rate, as is available to principle asset.

Considering the binding precedents on this limited issue of allowing higher depreciation on the civil works linked to the foundation work of the windmill, we are of the opinion that the assessee is entitled to claim higher depreciation @80% on the civil structures of the windmill which is part and parcel of the windmill and which cannot be separated. Therefore, the order of CIT(A) holding that the higher depreciation is applicable in windmill and also expenses incurred on civil structure, is fair and reasonable and it does not call for any interference. Accordingly, the ground raised by the Revenue is dismissed.”

14.6 Considering the above and following the rule of consistency, we

allow Ground No.9 raised by the assessee in its favour.

Distribution Expenses amounting to Rs.3,64,81,120/-.

15.1 Relevant facts on this issue include that, assessee during the year

under consideration, launched various schemed for the doctors. On

being asked as to why the expenditure on these schemes should not be

disallowed u/s.37(1) of the Act, assessee furnished the reply. The AO

incorporated the submission of the assessee on page 51 of the

assessment order. The AO rejected the submissions given by the

assessee relying on the CBDT Circular No.5/2012, dated 01-08-2012.

Eventually, the AO disallowed an amount of Rs.3,64,81,120/- u/s.37(1)

of the Act. However, the AO allowed the set off of the same against the

additional income disclosed by the assessee on non-business

27 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

expenditure/other expenses/contingency at Rs.6.07 crores. The CIT(A)

dismissed the ground raised by the assessee relying on the order for

A.Y.2010-11.

15.2 Aggrieved with the confirmation of disallowance by the CIT(A) on

this issue, the assessee is in appeal before us.

15.3 Before us, Ld. Counsel for the assessee submitted that the CIT(A)

failed to appreciate the fact that the assessee company is one of the

largest vaccine manufacturing company. During the year, assessee

company launched various new products, such as Hibpro & Pentavac.

In order to make the doctors aware of this innovation, assessee

company conducted a campaign involving private doctors for

encouraging the doctors to conduct vaccination on infants. In the

process, a scheme was formulated offering discount on the basis of

purchases made by them. He submitted that the AO failed in placing

relying on the Notification issued by Medical Council of India dated

14-09-2009. The said circular prohibits medical practitioners,

professional associates from taking any gift, travel facility, hospitality

etc. AO failed to appreciate that the Pharma companies are not the

members of Medical Council and hence, the notification is not

applicable to them. AO failed to appreciate the facts on records that the

expenditure incurred by the assessee company by giving discounts as

incentive to the doctors are wholly & exclusively for the purpose of

business. Passing of the discounts is a post-facto step, which cannot

be equated with freebies, which are prohibited by the notification of

Medical Council of India. Since discounts on purchase of vaccines

given to doctors do not violate any laws and hence, are not covered by

Explanation u/s.37(1) of the Act. AO failed to appreciate that the

Circular issued by CBDT No.5/2015 enlarges the scope of disallowance

28 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

in the hands of Pharma Companies without any enabling Notification or

circular of Medical Council of India. In support of its claim, Ld. Counsel

relied on the following decisions :

15.4 On the other hand, Ld. DR for the Revenue relied on the orders of

the AO/CIT(A).

15.5 We heard both the sides and perused the orders of the Revenue

and the decisions relied on by the Ld. Counsel for the assessee. We

perused the decision of Pune Bench of the Tribunal in the case of

Emcure Pharmaceuticals Ltd. decided on 29-01-2018 (supra) had an

occasion to decide an identical issue in favour of the assessee. We

proceed to extract the findings given by the Tribunal here as under for

the sake of completeness :

“8. We heard both the parties on the issue of requirement of making disallowance u/s.37(1) of the Act in respect of the companies, the giver of the gifts and the articles and others to the medical professionals. There is no dispute on the fact that claim of Rs.76,28,622/- was by the assessee on the gifts and other benefits passed on to the medical professionals. There is also no dispute on the taxability of the same in the hands of the said medical professionals. The only dispute relates to the correct legal position with regard to disallowability of the same u/s.37(1) of the Act in the cases of Pharmaceutical companies. We find this issue is now squarely covered by the decisions of Mumbai Bench of the Tribunal in the case of DCIT Vs. PHL Pharma Pvt. Ltd.decided on 12-01-2017 and in the case of M/s. Solvay Pharma India Ltd. Vs. Pr.CIT decided on 11- 01-2018. For the sake of completeness of the order, we proceed to extract the operational finding from the aforesaid orders of the Tribunal.

Finding from PHL Pharma Pvt. Ltd.

"6. On a plain reading of the aforesaid notification, which has been heavily relied upon by the department, it is quite apparent that the code of conduct enshrined therein is meant to be followed and adhered by medical practitioners/doctors alone. It illustrates the various kinds of conduct or activities which a medical practitioner should avoid while dealing with pharmaceutical companies and allied health sector industry. It provides guidelines to the medical practitioners of their ethical codes and moral conduct. Nowhere the regulation or the notification mentions that such a regulation or code of conduct will cover pharmaceutical companies or health care sector in any manner. The department has not

29 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

brought anything on record to show that the aforesaid regulation issued by Medical Council of India is meant for pharmaceutical companies in any manner........

The aforesaid provision applies to an assessee who is claiming deduction of expenditure while computing his business income. The Explanation provides an embargo upon allowing any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. This means that there should be an offence by an assessee who is claiming the expenditure or there is any kind of prohibition by law which is applicable to the assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical company not to incur any development or sales promotion expenses. A law which is applicable to different class of persons or particular category of assessee, same cannot be made applicable to all. The regulation of 2002 issued by the Medical Council of India (supra), provides limitation/curb/prohibition for medical practitioners only and not for pharmaceutical companies...........

Finding from M/s. Solvay Pharma India Ltd.

"17. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements cited by learned AR and DR during the course of hearing before us as well as referred by CIT in his order passed u/s.263 of the IT Act, in the context of factual matrix of the case. In this case, we found from record that the assessee is engaged in the manufacturing of pharmaceutical products. In the course of its business it has incurred expenditure on advertisement and publicity. While framing the assessment, AO has called for the detail of expenditure so incurred and examined the nature of expenditure and thereafter only AO has allowed the expenditure as having been incurred for the purpose of business. We had also carefully gone through the notification dated 11/03/2002 notifying the regulations issued by the Medical Council of India (MCI). The code of conduct laid down in the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 ('MCI Regulations') issued with effect from 10th December 2009 applies only to doctors and not to Pharmaceutical and Medical device companies. Accordingly, MCI Regulations are not applicable to assessee, the question of assessee incurring expenditure in alleged violation of the regulations does not arise.

30 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

31 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

32 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

the patients, it is imperative that the doctors should keep themselves updated with the latest developments in the medicine and the main object of such conferences and seminars is to update the doctors of the latest developments, which is beneficial to the doctors in treating the patients as well as the pharmaceutical companies."

From the above, it is evident that the scope of the CBDT Circular cannot

be extended to the pharmaceutical companies without having any

enabling Notification or Circular for Medical Council of India.

Consequently, the present assessee being a pharmaceutical company is

outside the scope of the said circulars of MCI and the CBDT.

Considering the above, we are of the opinion that the Ground

No.10/Modified Ground No.10 raised by the assessee should be allowed

in favour of the assessee.

deduction to the Wealth Tax paid by the assessee for the purpose of

computing book profits u/s.115JB of the Act. AO denied the said

payment of tax as not an allowable deduction.

16.1 Before us, Ld. Counsel for the assessee submitted that this issue

is also covered in favour of the assessee by virtue of decision of Tribunal

in the assessee’s own case in ITA Nos. 1183 and 1537/PUN/2015,

dated 28-11-2017 for the A.Y. 2008-09 as well as ITA

No.1184/PUN/2016, dated 08-06-2018 for the A.Y. 2009-10.

16.1 On hearing both the sides, we find this issue needs to be decided

allowed in favour of the assessee by virtue of orders of Tribunal (supra)

33 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

in assessee’s own case for the A.Yrs. 2008-09 and 2009-10. For the

sake of completeness, we proceed to extract the finding given by the

Tribunal for the A.Y. 2009-10 (supra) and the same reads as under :

“26. On hearing both the parties on this issue, we find the decision in the case of Usha Martin Industries Ltd. (supra) helps the assessee. For the sake of completeness, we perused the said decision of the Tribunal and find the discussion given in Para Nos. 7 & 8 are relevant. The Tribunal considered the relevant provisions of section 115JA(2) of the Act and held the provisions of Wealth Tax constitutes an ascertained liability. The relevant portion of the Tribunal order is extracted as under :

“7. . . . . . . . . . . .We agree with the contention of the learned authorised representative of the assessee that a provision made for wealth-tax cannot be equated to any liability towards income- tax and accordingly, cannot be disallowed while computing the book profit by invoking Clause (a) of the Explanation to Section 115JA(2) of the Act.

Thus, the Wealth Tax paid constitutes an allowable deduction as held by the Tribunal in assessee’s own case for the A.Y. 2008-09. Considering the settled nature of the issue in favour of the assessee, the Ground No.9 raised by the assessee is allowed.”

16.2 Considering the above, we hold that the wealth tax paid by the

assessee, being an ascertained liability is an allowable deduction for the

purpose of section 115JA of the Act. Accordingly, Ground No.11 by the

assessee is allowed.

statistical purposes.

34 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

ITA No.550/PUN/2016 – By Assessee A.Y. 2012-13

“On the facts and in the circumstances of the case and in law learned CIT(A) erred:

b. in not allowing depreciation towards the addition of Rs.12,13,652/-

c. in not addressing and allowing the expenditure incurred on foreign travel expenditure of lady directors amounting to Rs.76,11,395/-.

d. in not addressing towards addition of Rs.76,11,395 to income in the computation inspite of it being set off in the amount declared in search action as “Non Business expenditure”.

b. in not granting additional depreciation on Windmills generation “Power for captive consumption inspite of complying the provisions of sec.32(1)(iia).

35 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

18.1 The modified grounds raised by the assessee read as under :

“1a. The Ld.CIT(A) ought to have held that no disallowance u/s.14A(2) r.w.r.8D can be sustained in the absence of a specific recording of satisfaction by the A.O. based on cogent material and having regard to the accounts of the assessee, to the effect that the claim of the assessee is not correct.

b. The Ld.CIT(A) failed to appreciate that the A.O. made the disallowance merely on the basis of observation that “salaries and other administrative expenses are debited to P&L A/c for both taxable and tax free incomes, therefore it is difficult to accept that tax free incomes are earned without incurring these expenses.”

Supplementary Ground to Ground -10.

are identical to that of grounds raised by the Assessee in the appeal of

the assessee for the A.Y. 2011-12. We have decided the issues and

allowed/partly allowed/dismissed/allowed for statistical purposes, the

grounds, as the case may be. Following the same parity of reasoning,

we dispose the appeal of the assessee for the A.Y. 2012-13 pro tanto as

stated in Para Nos. 6 to 16.2 of this order for the A.Y. 2011-12.

allowed for statistical purposes

ITA No.607 & 934/PUN/2016 (By Revenue) A.Yrs. 2011-12 and 2012-13

We shall now take up the appeals of the Revenue for the A.Yrs.

2011-12 and 2012-13.

36 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

assessment years. Therefore, we proceed to decide the appeal

No.607/PUN/2016, taking the facts in the said appeal, as a standard

one. Grounds raised by the Revenue for A.Y. 2011-12 are extracted here

as under:

“1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in directing the AO to exclude investments in Debt Oriented Mutual Funds for the purpose of disallowance u/s.14A r.w.r. 8D when no such exclusion has been mandated by the Act. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in directing the AO to segregate assets into furniture and Plant and Machinery when both assets are indistinguishable and fall in the category of furniture and not plant and machinery. 3. The order of the Ld.CIT(A) may be vacated and the assessing officer be restored. 4. The appellant craves leave to add, alter amend and modify any of the above grounds of appeal.”

vide Ground Nos. 1 and Ground No.2 have been dealt by us while

adjudicating the appeal of the assessee vide Ground Nos. 1 and 3

above. We have decided Ground No.1 against the Revenue on the

technicalities, i.e. absence of satisfaction of the AO; Further the

Ground No.2, being related to classification of the assets into furniture

and Plant and Machinery qua the depreciation rates, was decided in

favour of the assessee relying on the order of Tribunal in the assessee’s

own case for the A.Y. 2009-10.

Therefore, the adjudication of these grounds becomes an

academic. Accordingly, the grounds raised by the Revenue in both the

appeals are dismissed.

37 Serum Institute of India Ltd., A.Yrs. 2011-12 and 2012-13

statistical purposes and both the appeals of the Revenue are dismissed.

Order pronounced in the open court on this 12th day of October,

2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य

पुणे Pune; िदनांक Dated : 12th October, 2018 सतीश

आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent 2. 3. The CIT(Appeals-11, Pune. 4. The CIT (Central), Pune. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “A Bench” Pune; 5. गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER,स

//True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune