DCIT CIR 7(1) vs. M/S NOVARTIS INDIA LTD,

order s of the CIT(A)/DCIT-XIX,Mumbai,the assessee and the Assessing Officers(AO.s)have filed Cross-appeals/Corss objections(CO.s)for the above mentioned three assessment years(AY.s.)raising various grounds of appeal.As the issues are almost common for all the three AY.s.,so,for the sake of convenience we are adjudicating both the appeals by a single common order. Assessee-company is engaged in the business of manufacturing of pharmaceuticals etc.Details of filing of returns,returned incomes, assessed incomes etc.can be summarised as under: AY. ROI filed on Returned income Asstt.Dt. Assessed Income CIT(A)order 1997-98 01.12.1997 Rs.29.74crores 31.03.2000 Rs.42,68,98,539/- 13.05.2000 1998-99 30.11.1998 Rs.68,80,21,410/- 19.02.2001 Rs.71,64,65,150/- 02.06.2004 1999-00 31.12.1999 Rs.1,08,11,58,622/- 20.02.2002 Rs.1,10,25,69,240/- 04.06.2004 ITA/5238/M/2003: AY-1997-98 : 2.First ground of appeal,raised by the assessee,deals with upholding the disallowance on account of incremental liability (Rs.3,21,03,537/-)for payment of pension created on an actuarial basis.

2.Second Ground deals with disallowance of 20% of foreign travelling expenses (Rs.33, 89,997/-)on the ground that it is capital in nature.It was brought to our notice that while deciding the appeal for the AY.s 1991-92-1996-97(ITA/9566/Mum/1995,dt.04.11.10; ITA/ 1584/Mum/1999,dt.12.10.2011;ITA/334/Mum/1997,dt.29.06.2012;ITA/2874/Mum/99/ dt.31. 10.2012;ITA/2951/Mum/2000,dt.13.06.2014)respectively,the Tribunal had dealt with the said issue.We would like to reproduce the relevant portion of the said order (ITA/ 2951/ Mum/2000,dated 13.06.2014) and it reads as under:- “6.Next ground is about disallowance of Rs.22,73,715/-,being 1/5th of the foreign travelling expenses.During the assessment proceedings,AO held that details of foreign travel expense were not furnished.Following the order for the year l995-96,he made the disallowance of 25% of foreign travel expenses.Before the FAA,it was argued that the details of foreign travel expenses were furnished as annexed to the return of Income.A copy of the same was also filed before the FAA,during the hearing of the appeal.He held that the details filed by the assessee contained the name of the persons who undertook the foreign travel expenses, p1aces visited, period of visit and purpose of visits.Further, during the hearing of the appeal papers were filed along with the sample copies of the tour reports as submitted by the touring officers.He held that the details contained certain foreign visits which were to Kathmandu,Nepal against which the on1y purpose ‘given was ‘Business discussion’,that expenses of such visits totaled to Rs.7,70,051.He held that some of the visits were personal in nature,that the foreign travel expenses could not be allowed in full as claimed by the assessee.Following the orders for the year 1993-94 and 1991-92 he upheld disallowances of 20% of the foreign travel expenses claimed by the assessee. 6.1.Before us,AR and DR agreed that issue has been dealt by the 2 ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis Tribunal in earlier AY.s. 6.2.We have heard the rival submission and perused the details filed by assessee in this regard.We find the in the year 1991-92 Cross appeals were filed by the assessee and the AO against the partial allowance/ disallowance of foreign travel expenses.Deciding the appeal,Tribunal held as under: “The disallowance has been made on assumptions and presumptions. The very basis on which the disallowance has been made is found to be not correct. In fact in AY 74-75, 64-65 76-77 and 77-78 similar disallowance of expenses has been deleted by the Tribunal. Copies of the said orders are in the paper book. In view of the above, we direct that the disallowance sustained by the CIT(A) be deleted. Ground No.4(a) is allowed and therefore Ground No.4(b) and (c) do not require any adjudication. Ground No.2 of the Revenue is dismissed.” Following the same, we decide the issue in favour of the assessee. As ground no.5(a) has been decided in favour of the assessee, ground no. 5(b) becomes infructuous.” Respectfully following the above Tribunal order Ground No.2,raised by the assessee,is allowed.

3.Third Ground of appeal deals with the disallowance of following expenses held as enter - tainment expenses amounting to Rs.14,81,515/- i)Lunch expenses etc. to company’s personnel Rs. 7,16,526/- ii)5% of total canteen expenses of Rs.76,70,771/- Rs. 3,83,538/- iii)Conference /Business meeting expenses Rs.16,64,979/- iv)Expenses on annual general meeting (AGM) Rs. 1,98,472/- The Tribunal had dealt with the said issue in the assessee’s own case for the AY.1995-96. The relevant portion of the order in ITA/498/Mum/2003 (supra)reads as under :- “38. Ground no. 8 relates to the disallowance of expenses treating in the nature of entertainment expenses u/s 37(2) of the Act. Following amounts have been considered to be in the nature of entertainment expenses. 1) Lunch expenses to personnel on duty Rs.5,41,313/- 2) 5% of total canteen expenses of Rs.2,18,004/- 3) Business Meeting Expenses Rs.2,69,255/- 4) Expenses on Annual General Meeting(AGM) Rs. 9,084/- Rs.10,37,656/- 50% disallowed of Rs.5,18,828 39.

39. Both parties agreed that similar issue has been decided by the Tribunal in assessee’s own case in A.Y. 1991-92, 1992-93 and 1993-94. We have carefully considered the order of the Tribunal for A.Y. 1993-94 in ITA No.334/Mum/1997. We find that identical facts have been considered by the Tribunal at para 48 of its order. We find that the Tribunal has directed the AO to allow the business meeting expenses and expenses of AGM and the Tribunal has confirmed disallowance of Rs. 2 lakhs out of total canteen expenses which come to around 40% of the total canteen expenses disallowed. Lunch expenses on employees during the course of outdoor duty has been fully allowed u/s 37(3) of the Act. Respectfully following the findings of the Tribunal (Supra), we direct the AO to allow the lunch expenses on employees during the outdoor duty, business meeting expenses, expenses on AGM fully and we confirmed disallowance of Rs.85,000/- out of the total canteen expenses of 2,18,004/-. Ground no. 8 is partly allowed.”

Respectfully, following the above Tribunal order Ground No.3,raised by the assessee,is partly allowed. 4.Next Ground raised by the assessee is with regard to disallowance of an amount of Rs. 36, 25,189/- towards hotel expenses and air fares of foreign visitors coming/visiting to India.The ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis Tribunal had dealt with the said issue in the assessee’s own case for the AY.1996-97. The relevant portion of the order in dated 13.06.2014 reads as under :- “7. Ground no.6(a) is about disallowance of Rs. 46,34,888/- towards the total expenses and Air Fair of foreign visitors company of India, ground no. 6(b), 6(a) and 6(c) are alternative grounds. Additional ground of appeal no.2 of 12.05.2012 is also related to the same issue.The disallowance was made by the AO on the basis of the order for the AY.1995-96.In that year identical claim was disallowed on the ground that the expenditure was incurred for non- business purposes. The assessee argued before the FAA that the foreign visitors coming to India were world-wide Division heads of Chemical formulations,information and technology, detergents, marketing, financial operation etc.,that those senior and experience personnel came to India in order to impart training, conduct discussions on business finance and marketing strategies, solution of computer related problems, that the expenses were wholly and exclusively for the purpose of business. FAA upheld the order the AO. 7.1.Before us, representatives of both the sides stated that the identical issue has been dealt with by the Tribunal,while deciding the appeals for earlier years. 7.2.We have heard the rival submissions and perused the material before us.We find that in the year 1992-93 issue of hotel and airfare expenses was decided by the Tribunal as under: “31.We have considered the rival contention and perused the relevant material on record. We note that for the AY 1983-84, the Tribunal following the order for the AY 1981-82 to 82-83 has decided the issue in para 11 as under:

11. Ground no.3 is in respect of deletion of an addition of Rs. 83,202/- made on account of entertainment expenses incurred on foreign national. In assessee’s own case in the past i.e. Assessment Year 1981-82 and 1982-83, cited supra, this issue has been decided in favour of the assessee. Our attention was drawn on the order of I Bench Mumbai in assessee’s own case for the Assessment Year 1982-83 bearing ITA No.2091 & 2077/B/94 order dated 17.12.02 wherein it was held as under: “3. The second ground is that the CIT(A) erred in deleting the addition of Rs. 51,375/- made on account of entertainment expenses incurred on foreign nationals. This issue is discussed in page 6, paras 9 & 10 of the assessment order. The brief facts in this connection are that the assessee incurred expenditure in respect of visitors to India, in connection with its business. Such expenditure amounted to Rs. 51,375/-. The assessee furnished the details of such expenditure. The Assessing Officer took the view that the expenditure represented hospitality extended to the visitors and therefore, disallowed the same as entertainment expenses. On appeal the CIT(A) noted that the foreign visitors had come to India for the purpose of attending Board meeting, general discussion, finance, reporting etc. The assessee contended that this expenditure cannot therefore, be considered to be entertainment expenditure. An order of the Bombay Bench of the Tribunal in the case of R H Windsor India Ltd vs ITO was relied upon the CIT(A), finding that the facts of the present case are nearly similar, held that the expenditure cannot be treated as entertainment expenditure. The revenue is in appeal. In view of the finding recorded by the CIT(A) that the foreign victors came to India for purposes of attending the board meetings, general discussion, finance, reporting etc. It is considered that the expenditure represented predominantly business expenditure. This decision of the CIT(A) is accordingly upheld and the ground is dismissed.” 31.1.Therefore, following the order of the Tribunal for the AY 83-84, we decide the issue in favour of the assessee. Respectfully following the orders of the earlier years,including the order for the year 1992-93 we decide ground np.6(a) in favour of the assessee.” Respectfully following the orders passed by the Tribunal of the earlier years,we decide the issue in favour of the assessee .

5.Fifth Ground,raised by the assessee,is with regard to reducing the loss on export of trading goods of Rs.87,28,000/- from deduction computed under section 80HHC(3) in respect of 4 ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis manufactured goods.The Tribunal had dealt with the said issue in the assessee’s own case for the assessment year 1996-97 in para 5.The relevant portion of the order in Mum/2000,dated 13.06.2014 reads as under :- “ 5.Ground No.4 is about reducing the loss on export of trading goods of Rs. 26.62 lakhs from the deduction computed u/s.80HHC(3)of the Act in respect of manufactured goods.During the course of hearing before us,AR fairly conceded that issue is decided in favour of the department in view of the judgment of Hon’ble Apex Court delivered in the case of Ipca Laboratories (266 ITR 521). Respectfully,following the judgment of Ipca Laboratories (supra),we decide ground no.4 against the assessee.” Respectfully following the order passed by the Tribunal in the earlier year,we decide the issue against the assessee .

6.Next Ground of appeal is with regard to upholding the action of AO in granting deduction u/s.80-O on net research income earned after deducting expenses. Representatives of both the sides agreed,before us,that the issue stands covered against the assessee by the orders of Asian Cable (129 Taxmann 590);Petroleum India International (71ITD 31)and M.N. Dastur & Co. (243 ITR 10) Respectfully,following the above orders,we decide the issue against the assessee 7.Ground No.7 raised by the assessee deals with non entitlement of the assessee to interest u/s.244A on the amount of Self Assessment (SA)tax paid by it.The Tribunal had dealt with the said issue in its order dated 09/06/2004 (ITA/5848/ Mum/2000 for AY.19998-99).The relevant portion of the said order dated 09/ 06/2004 reads as under :- “This is Revenue's appeal directed against the order of the learned CIT(A)-X, Mumbai dated 11.10.2000 for Assessment Year 1998-99. The grounds of appeal raised by the revenue are as under :- “ On the facts in the circumstances of the case, the learned CIT(A) erred in fact and in law, by directing the A.O. to pay to the assessee’s interest u/.s.244A -on processing the return u/s. 143(1) (a) even on the amount of self-assessment tax paid by the assessee u/s.140A of the Act in as much as: i)On the facts and in the circumstances of the case and in law, the learned CIT(A) lost sight of the fact that the Explanation to clause (b) of' section 244A(1) on which explanation the learned CIT(A) placed reliance, refers to the excess payment; of tax made by the assessee in response to the demand made of him by the A.O. vide notice u/s.156 of the Act. And ii)The learned CIT(A) also lost sight of the fact that in the case under consideration the impugned tax was paid by the assessee suo moto or voluntarily as the tax admitted by the asssessee on the income declared by him and that such tax payment was not demanded of the assessee by the AO.'

2. It was contended by the learned departmental representative of the Revenue that no interest is payable u/s.244A on the amount of self-assessment tax paid by the assessee u/s.140A. In this regard, our attention was drawn to the Explanation 1 to section 244A (l)(b) and it was contended, that as per this Explanation, only the amount of tax paid in respect to notice of demand issued u/s.156 is to be considered and not the self-assessment tax. Reliance was placed on the grounds of appeal.

ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis 3. As against this, it was contended by the learned Authorized Representative of the assessee that this issue is fully covered in favour of the assessee by the order of Mumbai Bench of the Tribunal in the case of DCIT Vs. M/s.National Organic Chemical Industries Ltd., rendered in dated 25.04.2003. It was also contended that in this order, the decision of the Calcutta Bench of the Tribunal in the case of Hooghly Mills Co. Ltd. DCIT reported in 74 ITD 309 has been followed.

8.Ground No.8 deals with non eligibility of the assessee for depreciation on assets that stood vested in Ciba Speciality Chemicals (India) Ltd.(CSCIL).During the assessment proceedings the AO came to the conclusion that the book value of the transferred assets shall be adopted from block of assets for the purpose of depreciation. He was of the opinion that since consideration had flowed to the assessee for the transfer of assets to CSCIL the assessee was not entitled to claim of depreciation. 8.1.Before the FAA,the assessee contended that Demerger was not a sale-transaction,that consequently no money was payable as defined u/s.41(4) of the Act,that no adjustment was to be made to WDV of block of assets while computing depreciation claims.It further argued that what was required to be reduced from the block was money value received from the sale of assets.It relied on the decision of Kasturi & Sons(237ITR24) of the Hon'ble Supreme Court wherein the Hon’ble Court had defined the words “moneys payable” and had held that the phrase included actual currency form and not money’s worth.It was, therefore,contended that since no money in actual currency was received by the assessee on account of demerger, no adjustment was required to be done to the WDV with reference to assets in question.It further submitted that reliance placed by the AO with regard to the treatment given by another assessee in its own case was irrelevant and also that the observation made by the AO that the assessee had fraudulently claimed excess depreciation was wholly unjustified,that it had fully disclosed the stand taken by it in the return filed. After considering the submissions of the assesee and the order of the AO,he held ,that an assessee had to be the owner of a particular asset on which depreciation had been claimed, that the said assets had to be used for the purpose of its business,that the assessee was neither the owner of the assets transferred nor were same used for the business purposes during the year under consideration, that it had failed to satisfy the basic condition prescribed u/s.32 of the Act on the assets transferred to CSCIL,that the assessee was not justified in claiming that 6 ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis nothing should be reduced from its block of assets and that depreciation should be granted on the full block of assets as existing prior to the transfer of assets,that the reliance placed by the assessee on section 43(6)(c)(i)(B) of the Act was no help to it,that it could not be said that it had not received any consideration or moneys payable as envisaged under section 43 (6), that the AO had rightfully held that the assets transferred by the assessee were not without any consideration,that the shareholders of the assessee company received shares of CSCIL as per the scheme of arrangement sanctioned by the Hon’ble,High Court,that CSCIL had paid consideration to the shareholders of assessee,that the transfer of shares was in respect of the assets transferred by the assessee.He further held that AO was not justified in adopting the book value of the assets transferred while reducing the assessee’s claim for depreciation, that he should have reduced from the block of asset that the WDV of the transferred assets as per the income tax records and not as per the book value of the assets.He directed the AO to substitute the written down value of the transferred assets by the WDV of the book value of such assets while reducing the value of assets from the block before allowing the assessee’s claim for depreciation. 8.2.During the course of hearing before us,the AR argued that whole business was transferred under the scheme of demerger, that the assessee did not receive any money, that the share holders of the company had received the shares in pursuance of the merger, that the arrange -ment was about whole business and not in respect of any asset, that nothing was sold/ discarded, that for claiming depreciation the ownership of a particular asset is not mandatory, that after the block concept has come into existence,individual assets would lose their independent character,that the provisions of section 43(6) were not applicable to the facts of the case.He relied upon the cases of Kasturi & Sons(supra),Motors and General Stores(66ITR692)and Bharat Bijlee Ltd.(46taxmann.com 257). The DR supported the order of the FAA.The DR stated that entire chemical business was not transferred, that only one division was transferred , that the AO had made enquiry with other concern, that he found that the assets were taken on book value, that requirement of ownership of assets was a must, that it was not a case of slump sale, that the cases relied upon by the assessee were distinguishable on facts. 8.3.We find that in the case of Kasturi & Sons(supra)the Hon’ble Apex Court has interpreted the phrase money’s worth and applicability of section 41(2)of the Act as under: “ 19. We are unable to accept the contention that the word `money' should be interpreted as `money's worth'.The reasons given by us earlier are sufficient and we need not add to them. The reason for introducing a fiction in S.41 (2) of the Act as explained in Bipinchandra Maganlal & Co. Ltd. (41 I.T.R. 290) quoted in Artex Manufacturing Co. (1997) 6 S.C.C. 437 that it is for the purpose of recoupment by the Revenue of the benefit allowed to the assessee in the previous years does not alter the situation. 7 ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis 20. In the result, we do not find any error in the view expressed by the High Court in the judgment under appeal.We are in agreement with the reasoning and conclusion of the High Court in this case.” Respectfully,following the above,we reverse the order of the FAA.We find that what was transferred,in the transaction in question,was not money.In our opinion,facts of the above case are quite similar to the case under appeal.We have also taken note of fact that it is a case of demerger,not of sale or exchange.Last ground of appeal,raised by the assessee,is decided in its favour.

ITA/5258/M/2003-AY.1997-98 : 9.First Ground of appeal,raised by the AO,deals with deleting the disallowance of Rs.4,09, 47,886/-incurred on amalgamation/demerger and in holding that the expenditure was of revenue nature.During the assessment proceedings,the AO found that the main purpose of the expenditure was for the business of the foreign parent companies and that expenditure was of capital nature and he disallowed the same. 9.1.On the other hand the First Appellate Authority (FAA) decided the ground in favour of the assessee holding that the expenditure incurred by the assessee was of revenue nature and hence permissible as a deduction in the computation of total income.The FAA was of the view that the expenditure,consisting of profession fee etc.,was not capital in nature as no asset had been created nor had it added any value to the existing asset. 9.2.The DR relied upon the order of the AO.The AR supported the order of the FAA and relied upon the case of Bombay Dyeing & Mfg. Co. Ltd.(219ITR521).We find that the in the case of Bombay Dyeing(supra)the Hon’ble Apex Court has dealt with the similar issue as follows: “2 The facts concerning the first question are the following : a company named Nawrosjee Wadia Ginning & Pressing Co was amalgamated with the assessee-company In that connection an expenditure of Rs 10,350 was incurred by the assessee-company towards the professional charges paid to the firm of solicitors In the assessment proceedings the said amount was claimed as a revenue expenditure The assessee’s case was that Nawrosjee Wadia Ginning & Pressing Co was engaged in the same business as the assessee In other words, the business of both the companies were complimentary. “The directors of both the companies thought that it would be advantageous if both the companies are amalgamated Accordingly, a scheme of amalgamation was evolved It was submitted that the legal expenses incurred in connection with the said amalgamation are in the nature of revenue expenditure The ITO did not agree nor did the AAC On further appeal, the Tribunal upheld the assessee’s contention It disagreed with the Revenue’s contention that inasmuch as the said amalgamation resulted in acquisition of the other company by the assessee, which acquisition was in the nature of acquisition of a capital asset, the legal expenses incurred in that behalf partake the nature of capital expenditure.The Tribunal was of the opinion thatas both the companies were carrying on complimentary business and their amalgamation was necessary for the smooth and efficient conduct of the business, it is an expenditure laid out wholly and exclusively for the purpose of the business of the assessee In view of the said finding and also in view of the decision of this Court in Bombay Steam ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis Navigation Co (1953) (P) Ltd Vs CIT (1965) 56 ITR 52 (SC), we are of the opinion that the Tribunal was right in its conclusion The decision in Bombay Steam Navigation (supra) also pertains to amalgamation of two shipping companies The assessee-company took over the assets of the other company and part of the price was treated as a loan secured by a promissory note and hypothecation of all movable properties of the assessee company The loan was to carry simple interest at 6 per cent The question that arose in the said case was whether the interest paid upon the said loan was deductible as revenue expenditure It was held by this Court that it was an expenditure deductible u/s 10(2)(xv) of the IT Act It was held that transaction of acquisition of the asset was closely related to the commencement and carrying on of the assessee’s business and, therefore, interest paid on the unpaid balance of the consideration for the assets acquired had, in the normal course, to be regarded as expenditure for the purpose of the business which was carried on in the accounting periods In the course of the judgment this Court referred to the earlier decision of this Court in State of Madras Vs G J Coelho (1954) 53 ITR 186 (SC) wherein it was held that the interest on the amount borrowed for acquiring a capital asset is deductible as revenue expenditure It is true, that in the said decision this Court reaffirmed the well established principle that any expenditure laid out for acquiring an asset of a permanent character would be capital expenditure, held at the same time that inasmuch as the acquisition of the other company was in the course of carrying on of the assessee’s business, the interest paid thereon was deductible u/s 10(2)(xv) of the Act In this case too, the Tribunal has recorded a finding that the acquisition of Nawrosjee Wadia Ginning & Pressing Co was necessary for the smooth and efficient conduct of the assessee’s business Following the ratio of the aforementioned decisions of the Court, we hold that the expenditure incurred towards professional charges of the solicitors firm for the services rendered in connection with the said amalgamation was in the course of carrying on of the assessee’s business and, therefore, deductible as a revenue expenditure In this view of the matter, it is not necessary for us to deal with the other decisions cited before us on this question.” Respectfully following the above decision of the Hon’ble Apex Court,first ground is decided against the AO. 10.Second ground is with regard to directing the AO to substitute the WDV of the transferred assets by the WDV of the book value of such assets and at the same time reduce the value of such assets from block of assets before allowing the assessee to claim depreciation. While deciding the issue with regard to non eligibility of the assessee for depreciation on merger(GOA-8),we had adjudicated it in its favour.Following the same second ground,raised by the AO,stands dismissed. 11.Next ground of appeal deals with deleting the disallowance of advertisement and publicity expenses,amounting to Rs.42.99 lakhs. 11.1.During the course of hearing the representatives of both the sides agreed that identical issue stands decided against the AO by the orders of the Tribunal for earlier AY.s.(1991-92 to 1996-97),that the Hon’ble Bombay High Court had upheld the order of the Tribunal for the AY.1996-97. 1. ......we find that the issue pertains to allowance of advertising and publicity expenses. The Commissioner (Appeals) held in favour of the assessee . In appeal preferred by revenue, learned Tribunal relied on the judgment of the Supreme Court in the case of Empire Jute Co. Ltd., reported in 124 ITR 1.

2. In the light of the above, question as framed would not arise and consequently, appeal dismissed.” 9 ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis Respectfully, following the above order, of the Hon’ble High Court,we dismiss Ground No.3.

12.Fourth ground of appeal is with regard to expenditure incurred on computer software of Rs. 25.54 lakhs.The AR and the DR agreed that similar issue was decided in favour of the assessee by the Tribunal while deciding the appeals for the AY.s.1991-92,1995-96 and 1996- 97 and that the Department had not challenged the orders of the Tribunal before the Hon’ble High Court.The AR further referred to the cases of Raychem RPG Ltd.(346ITR148)and Asahi India Safety Glass Limited(245CTR529) 12.1.We find that while deciding the appeal for the AY.1996-97 the Tribunal has dealt the issue as under: “11.First ground of appeal is about expenditure incurred on computer software,amounting to Rs.19.45 lakhs.First ground of CO also deals with the identical issue.During the assessment proceedings,AO held that the expenditure incurred by the assessee was of capital nature,whereas FAA was of the opinion expenditure was of revenue nature. 11.1.Before us,DR supported the order of the AO.AR contended that similar issue was decided in favour of the assessee by the Tribunal while deciding the appeal for the year 91-92 and 95- 96.He referred to pages 236-37 of the paper book.He relied upon the case of Ashi Glass safety India Ltd.(245CTR )delivered by the Delhi High Court. 11.2.We find that while deciding the appeal for the year 1995-96(ITA/1749/mum/2003-25.09. 2013),Tribunal has dealt the issue as under: “The AO was of the opinion that the benefits of the software are long term or of enduring nature arid accordingly treated this expenditure as capital and allowed the depreciation and disallowed the remainder. Assessee strongly agitated this issue before CIT(A). The CIT(A) has considered this grievance of the assessee at para 8 and para 30 of its order. The CIT(A) was convinced that the application software of computers get outdated in no time. Hence, such expenditure cannot be treated as capital expenditure.The CIT(A) further observed that in immediately two preceding assessment years , his predecessors have treated similar expenditure as revenue expenditure, following the findings of his predecessors,the C1T(A) directed the AO to delete the entire disallowance.However,at the same time he directed the AO to withdraw the depreciation allowed.Aggrieved by this revenue is before us.The ld.DR strongly supported the findings of the AO, Counsel for the assess strongly relied upon the decision of the Hon’ble Delhi High Court in the case of Asahi India safety glass limited 245 CTR 529.We have considered the rival submissions and perused the orders of the lower authorities. It is not in dispute that the expenditure has been incurred on application software The Hon’ble Delhi High Court in the case of Asahi Safety Glass ltd.(Supra) has held that application software arc of revenue in nature as the AO has not doubted that the expenses were on application software therefore respectfully following the decision of the Hon’ble Delhi High Court, findings of the CIT(A) are confirmed. Appeal of the revenue is dismissed.” Following the same,ground no.1 filed by the AO,is decided against him.As the ground has been decided in favour of the assessee,so,first ground of CO become infructuous.” Respectfully following the orders of the Tribunal for the earlier years and judgment of Raychem RPG Ltd.(supra) of the Jurisdictional High Court, we decide Ground No.4 against the AO.

13.Fifth Ground deals with deletion of an addition of Rs.71.70 lakhs made by the AO on account of estimated freight components in the closing stock. It was brought to our notice that identical issue was decided against the department by the Tribunal while adjudicating the appeals for the earlier AY.s(1992-93 to 1996-97).We are reproducing page 12-13 of the order of the Tribunal for 1996-97,dealing with the issue and it reads as under:

ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis “14.Ground no.4 is about deletion of Rs.33.58 lakhs on account of freight component of closing stock.Ground no.3 of CO also deals with same issue.Beforeus,DR supported the order of the AO.AR stated that similar issue arising in the earlier years had been decided in favour of the assessee by the Tribunal. 14.1.We find that in the year 1993-94 identical issue was raised by the Department before the Tribunal.Deciding the appeal,Tribunal(ITA.No.213/Mum/1997,AY.1993-94,dated 19/08/ 2005) held as under: “First issue is regarding the deletion of addition of Rs. 21,85,160/made to the valuation of closing stock as on 31.03.1993 attributable to estimate pro-rata freight on stock dispatched to various depots on the reasoning that the assessee company is regularly following the method of accounting and also the addition to the closing stock consequently increase the opening stock of next year which ultimately no benefit to revenue.As far as this issue is concerned, the Mumbai Bench ‘B’ of the Tribunal, vide Paras- 3,4 & 8, in ITA.No. 7894/ Mum/1995, the issue was been decided in favour of the assessee by holding as under: “We have considered the facts and the rival contentions. It is not disputed before us that the assessee has been consistently following the method of valuing the closing stock by excluding the expenses incurred pm freight and cartage outwards and packing of the goods for the purpose of enduring the transport from central distribution depot on various depots across the country. Now, the departmental authorities are entitled to discord the consistent method following by the assessee, but only if the true profits of the business cannot be deducted therefrom. In the case of British Paints Ltd. (188 ITR 44), on which heavy reliance was placed by the departmental authorities as well as the ld.DR before us, the factory costs, which are undisputedly to be considered as part of the cost of the product, were not included in the closing stock valuation. It is for this reason that the Supreme Court held that the method adopted by the assessee in that case was not an acceptable or sound method from which the true profits could be deducted. It is in this context,that they held that a method of valuation of closing stock has been adopted by,it is erroneous or unsound or unacceptable or is against accouning or commercial practice,the same can be discarded.In case, this principle is not attracted because the incurring expenses on freight or cartage outward or packing expenses purposes of transporting the goods have not added any stock.They are post manufacturing expenses are to be as selling expenses.Normally, the manufacturing are debited to the manufacturing account whereas the expenses are debited to the profit & loss account.According to the Advanced Accounts by R.N.Carter (1939 Rev.Edn.,Page-32),carriage inwards increases the cost of the goods purchased and is hence debited to trading account whereas carriage outwards is a selling expenses and is debited to profit & loss account. In the present case, the goods manufactured by the assessee had to be distributed to the depots across the country from the centralized distribution depot at Bombay and the transporting cost is purely for the purpose of selling the goods. The packaging expenses are not the expenses are not expenses incurred in the primary wrapping of the products, but they have been incurred in packing them in boxes so as to facilitate easy transport to the various depots. The primary packing which makes the product marketable is no doubt part of the cost, but the further packaging carried out for the purpose of transporting the products is part of the selling.William Pickles in his 1960 edition of Accountancy has recognized this by observing at Page 88 of the his treatise that the direct and indirect expenses actually incurred, “having regard to the stage of manufacture condition or location of the goods may be added to the cost (underlining ours). It may possibly be argued that the carriage outwards and packaging expenses incurred for facilitation of the transport of the goods can be excluded from cost only if the goods have already been sold and that in the present case, the goods have not been sold, and therefore, such costs cannot be excluded. The answer to this argument is that these costs have been incurred after the manufacture of the products and though the goods have not been sold, the expenses will have to be considered as part of the selling expense. Certainly, while fixing ;the price, the assessee will take into account the selling expenses and recover the same in the pricing of the products, but that is not a satisfactory reason to hold that such expenses or costs should be taken into account even while valuing the closing stock. In our opinion, there is no impediment to the deduction of true profits and gains of the business because of the method of valuation followed by the assessee consistently and which has also been accepted by the departmental authorities. A stray departure just for one year tends to upset the calculations. When the method has not been found fault with for a long period of years. It acquires fundamental character and forms a sound basis for the assessment of the profits especially when the method followed is not patently false or unacceptable, and any accepted fundamental feature of an assessment cannot be lightly tinkered with as held by the Supreme Court in the case of Radhasaomi Satsang Sabha (1993 ITR 321).” The same,was followed in ITA.No.7458/Mum/1997.The learned Departmental Representative did not dispute the same.In view of discussion, we are not inclined to interfere with the finding of The same is upheld.”

ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis In the year 1994-95 and 1995-96 identical issue was decided against the AO.Respecfully following the order of the Tribunal for earlier years,ground no.4,filed by the AO stands dismissed. Ground no.3 of CO is treated as infructuous.” Respectfully following the above Ground No.5 is dismissed.

14.Expenditure incurred by the assessee on transit houses maintained by it is the subject matter of sixth Ground of appeal.While deciding the appeal, filed by the assessee, the FAA deleted the disallowance of Rs.6.88 lakhs made by AO u/s.37(4) of the Act. 14.1.We find that while deciding the appeal for the AY 1991-92 to 1996-97 the Tribunal had partly allowed the expenditure incurred by the assessee on transit houses, that the food and beverages expenditure were allowed by the Tribunal,that the other expenses were disallowed, that the department did not challenge the orders of the Tribunal before the Hon'ble High Court.The order of the Tribunal for AY 1996-97 at para no.16 deals with the issue as under : “16.Ground no.6,filed by the AO,is about deletion of disallowance of Rs.9.69 lakhs u/s.37(4)of the Act,in respect of expenditure incurred by the assessee on transit houses maintained by it at Goregaon and Goa.Before us,AR and DR stated that while dealing with the identical issue in earlier years (AY.1991-92,1993-94to1995-96)the Tribunal had remitted back the issue to the file of the AO for fresh adjudication with regard to food and beverages expenses.He referred to page no.308 of the PB.We have heard the rival submissions and perused the material before us. 16.1.We find that in the appeal decided for the year 1991-92,Tribunal has held as under: “It is not in dispute before us that in view of the decision of the Hon’b1e Supreme Court in the case of Brittania India Ltd. Vs.CIT 278 ITR 546(SC),any expenditure on maintenance of a guest house cannot be allowed as a deduction.The learned counsel for the Assessee however submitted that the expenses to the extent it relates to provision of food to employees would not, fall within the meaning of the expression “expenditure incurred in maintenance of the guest house’ (See Canteen supply materials in the chart given above) within the meaning of Sec.37(4) of the Act and to that extent the disallowance has to be deleted. In this regard he relied on the decision of the ITAT Mumbai in the case of M/s.Tata engineering & Locomotive Co. Ltd. Vs. DCIT dated l9-4- 2006 wherein identical issue has been considered. The learned DR however submitted that expenditure incurred on providing food would also be expenditure incurred in maintenance of a guest house. 44.We have considered the rival submissions.The ITAT Mumbai in the case of M/s. Tata engineering & Locomotive Co. Ltd.(supra)held as under: X X X X X X X We are of the view that the issue in so far as it relates to expenditure on food and beverages has to be decided afresh by the Assessing Officer on the basis of the directions as given above be the Tribunal.” Following the same we are of the opinion that matter should be adjudicated afresh in light of the direction issued by the Tribunal in earlier years.Ground no.6 is allowed in favour of the AO,in part.” Respectfully following the above we decide Ground No.6 in favour of the AO,in part.

15.Ground No.7 deals with direction given by FAA to AO to exclude the sales tax (Rs.13.84 crores and excise duty (Rs.25.97 crores) for the purpose of computing deduction u/s. 80HHC of the Act. 15.1.The DR and the AR agreed that while deciding the appeals for AY 1991-92 to 1996-97 the Tribunal had upheld the order of the then FAA.s who had given similar direction the then AO.s. The AR further relied upon the cases of Sudershan Chemicals Industries Ltd. (245 ITR 769)and Laxmi Machine Works (296ITR667).

ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis 15.2.The Hon’ble Apex Court and the Jurisdictional High Court have in the cases of Laxmi Machine Works and Sudershan Chemical Industries Ltd.(supra),held that sales tax and excise duty cannot be included for the purpose of computing the 80HHC deduction. Respectfully following the above mentioned two judgments,we dismiss Ground No.7. C.O./249/Mum/2004,AY-1997-98 : 16.First Ground of the Cross Objection(C.O.)is about expenditure incurred for amalgama - tion/demerger.While deciding Ground No.1,we have dismissed appeal of the AO. Ground No.1 is allowed for statistical purpose. 17.Ground No.2 is about advertisement and publicity expenses.Considering the fact that we have dismissed Ground No.3 raised by AO dealing with the issue,we allow second Ground raised in the CO for statistical purposes. 18.Ground No.3, 4 of the CO deal with software expenditure and estimate freight component. In the earlier part of our order, we have decided both the issues against the AO .Ground No.3 and 4 of C.O. are allowed for statistical purposes. 19.With regard to Ground No.5 of C.O.,AR stated that it had become academic as the deduction had been allowed to the assessee in AY 1996-97, hence,we are not adjudicating the ground. ITA.s/6224-6225/Mum/2004,AY.s.1998-1999 & 1999-2000: 20.For the above mentioned two AY.s.the assessee has raised following four identical grounds of appeal-the only difference is of amounts involved: i.)disallowance of expenditure (Rs.10.58 lakhs & Rs. 1.05 Crores respectively) on a/c. of Software purchase, ii.)20%disallowance of foreign travel expenses-(Rs.38.46 lakhs & Rs.28.07 lakhs), iii.)disallowance of hotel and airfare expenses of foreign visitors-(Rs.9.74 lakhs & Rs.10.58 lakhs), iv.)depreciation on assets on demerger. 20.1.While deciding the appeals filed by the AO/Assessee for the earlier year,we have dealt with all the above issues.Ground of appeal No.1(GOA-1) was part of the appeal filed by the AO,whereas remaining three grounds were part of appeal of the assessee.Following our orders for AY.1997-98,)we decide all the four grounds in favour of the assessee for both the AY.s. ITA.s/5979 & 5980/Mum/2003,AY.s.1998-99 &1999-00: 21.While filing the appeals for the above mentioned two AY.s.,the AO.s. have raised eight effective grounds of appeal for both the years.First we will deal with the grounds that are ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis common for both the AY.s.and will adjudicate the independent grounds later on.Common five grounds of appeal are as follow: i.)deleting the disallowance of expenditure incurred on amalgamation/demerger (Rs.54.42 lakhs and Rs. 6 lakhs respectively), ii.)allowing depreciation by taking the WDV of the block of assets on a/c.of demerger, iii.)deleting the disallowance of advertisement expenses(Rs.99.61 lakhs and Rs. 47. 39 lakhs), iv.)deleting the addition on account of estimated freight component in the closing stock (Rs. 6.41 lakhs and Rs.8.29 lakhs) v.)Exclusion of sales taxes, excise duty and sale of scrape for computing the 80HHC deduction (Rs.13.84 crores +Rs.27.15crores+Rs.75.15 lakhs and Rs.20.36 crores +Rs.36.17 crores +Rs.86.37 lakhs ) 21.2.While deciding the cross-appeals for the earlier AY.,we have dealt with all the above five issues.Following the orders of those appeals,we dismiss all the five grounds,raised by the AO,for both the years. 22.Now,we would take up the independent grounds raised by the AO for the above referred two AY.s.First we would deal with Ground of appeal No.7 (GOA-7) for the AY.1998-99 and it deals with granting interest u/s.244A of the Act on SA paid by the assessee.While deciding the identical ground for the AY.1997-98(Ground 7),we had allowed the appeal filed by the assessee.Following the same,seventh ground for AY.1998-99 stands decided against the AO. 23.Ground No.5 for the same year is about incremental liability on account of VRS, amounting to Rs.3.09 Crores in respect of workers who had retired in the earlier years from the assessee is unit at Bhandup.While adjudicating the first ground of appeal,for the AY. 1997-98,we have decided the issue in favour of the assessee.Following the same,ground no.5 is decided against the AO and in favour of the assessee. 24.Next independent ground(GOA-8)for the year under appeal is about deleting the disallow -ance on account of expenditure incurred in connection with earning of interest income exempt u/s.10(15) of the Act. During the assessment proceedings the AO found that the assessee had claimed an amount of Rs.2.70 crores relating to receipt of interest on tax free bonds as exempt, that it had also claimed exemption for Rs.45,448/- u/s.10(33), that the deductions under both the provisions were claimed on gross amount of interest /dividend. He held that only net income by way of interest/dividend and not the gross amount received by the assessee was eligible for deduction. He called for an explanation from the assessee in that regard.Finally,he made a disallowance of Rs.5.41 lakhs-calling it a ‘reasonable estimate’ towards earning exempt income.

ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis 24.1.Before the FAA the assessee argued that no administrative/overhead expenses were incurred for earning tax free interest /dividend, that the AO had wrongly observed that certain managerial and administrative time/expenses must have been spent/devoted by assessee for managing large investment portfolio, that there had been no change in investment during the year under appeal, that in the AY 1995-96 the AO had attributed 2% of the dividend income towards administrative /overhead expenses while computing deduction u/s.80M of the Act. The assessee relied upon the case of General Insurance(254ITR203);Ingersoll Rand (I) Ltd. (ITA/1178/Bom/93)and United Collieries(203ITR 857-AT).After considering the submission of the assessee,the FAA ,following the order of his predecessors for AY.1995-96,deleted the addition made by AO. 24.2.Before us,the DR stated that the issue before the then FAA was deduction u/s. 80M, that the AO had invoked the provisions of section 14A of the Act for the year under considera - tion.The AR supported the order of the FAA.Alternatively,it was argued that disallowance should be restricted to reasonable limits. 24.3.We have heard the rival submissions.We find that the FAA had referred to the order of the then FAA for the AY.1995-96,that in that year the issue was of deduction u/s.80M. Considering the facts of the case we want to restrict the disallowance to 0.05% of the exempt income.Ground of appeal No.8 is decided in favour of the AO,in part. CO/112/M/2015-AY.1998-99: 25.The assessee has raised four Grounds of appeal in its C.O.While dealing with Ground No.1,3,4 and 5 raised by the AO,we have decided all the issue against the AO.Therefore, Grounds of CO stand statistically allowed. 26.Now we would deal with the independent grounds taken by the AO for the AY.1999- 2000.First independent ground raised by the AO,deals with expenditure incurred on computer soft ware,amounting to Rs.25.54 lakhs.The AO treated the said expenditure as capital expendi -ture,whereas the FAA held that the expenditure was revenue in nature.While deciding identical ground for the AY.1997-98,we have held that expenditure incurred for computer software was revenue expenditure.Following the same we dismiss ground No.4,raised by AO. 27.Second independent Ground(GOA-7)is about deleting the disallowance of 2% made by the AO,on the tax free interest and dividend income.While deciding the identical issue for earlier year,we have restricted disallowance to 0.05%.Ground No.7 is partly allowed in favour of the AO. 28.The next Ground of appeal is about direction issued by FAA to the AO to grant deduction u/s.43B on delayed payment of ESIC of Rs.1.28 lakhs.The AO found that there was delay in ITA.s/5238/03;5258/03;6224/04;5979/04;6225/04 ; C.O.s249/04 & 112/05-Novartis payment of ESIC dues.Invoking the provisions of section 43B, he made an addition of Rs.1,28,685/-.After hearing the assessee,the FAA held that amount was paid within the grace period allowed under the ESI Act, that there was no justification for the addition.The DR left the issue to the discretion of the Bench and the AR supported the order of the FAA. 28.1.We find that the assessee had paid the dues before the due date of filing of return and there was only delay of one day in depositing the amount.In our opinion,there is no need to interfere with the order of the FAA.Confirming the same,Ground No.8 is decided against the AO. C.O.113/Mum/2005-AY.1999-00 : 29.In its CO the assessee has raised four grounds and they are related with the Ground No.1, 2,4 and 5 raised by the AO.We have dismissed the grounds raised by the AO, therefore, the CO stands allowed for statistical purpose .