ACIT 6(1), MUMBAI vs. BOOTS PIRAMAL HEALTHCARE LTD, MUMBAI

Order u/s 254(1) of Income Tax Act PER PAWAN SINGH ,JUDICIAL MEMBER: 1. This appeal under section 253 of the Income Tax Act (‘Act’) is directed by revenue against the order of Commissioner of income tax (Appeals) 14, Mumbai dated 29th November 2010 for assessment year 2007 -08. The revenue has raised following grounds of appeal; (i) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of expenditure of Rs.5,35,37,000/- ignoring the facts that these expenses were capital in nature and occurred due to discontinuance of business. (ii) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that advertisement expenditure of Rs. 64,46,180/-made to Nicolas Piramal India Ltd is not liable to TDS.

mentioned above.

3. We have heard Sh. Jeevanlal Lavedia the ld departmental representative (‘ld DR’) for revenue and Sh. J.D. Mistry Sr Advocate (‘ld AR’) for assessee and perused the material available on record. First ground of appeal relates to deletion of disallowance of expenditure of Rs. 5,35,37,000/-. The learned DR for revenue argued that this loss of Rs. 5,35,37,000/- relates to capital expenditure as appearing from the details filed by the assessee and was not allowable as revenue expenditure. The assessee claimed that it on account of expenditure in the nature of shortages/damage and spoilage of the products. The assessee failed to prove whether this was an actual loss or notional or capital loss as in case of product damage expiring, shortage the same is claimed separately and is not allowable. It was further argued that the learned CIT(A) appeals allowed it on wrong premises. On the other hand the ld AR for assessee argued that the assessee suffered a loss on account of discontinuance of dealing in brands of Boots Company PLC and loss on damages, expiring of period, shortage etc. It was further argued the AO failed to appreciate that the aforesaid expenditure is broadly related to business and is allowable under the provisions of the Act as revenue expenditure and not to be treated as a capital expenditure. The assessee has not made separate loss in the profit and loss account. The ld AR of assessee to buttress his submission relied upon the decisions of Hon’ble Kerala High Court in Travancore Tea Estate Company Ltd Vs CIT (1992) 197 ITR 528 (Ker), in Josna Bank Ltd Vs CIT (1974) 97 ITR 72(Kerala) and Madras High Court in CIT Versus Pathinen Grama Arya Vysya Bank (1977) 109 ITR 788 (Madras)

4. We have considered the rival contentions of ld. AR of parties and perused the orders of authorities below. We have also considered the various decisions cited by the Ld AR of the assessee. We have noticed that initially AO disallowed Rs. 6,00,88,000/-, however, it was restricted to Rs.5,35,37,000/- vide order u/s 154 dated 11.02.2010,on the application of the assessee company. The AO while making disallowance concluded that assessee failed to clarify whether loss is actual or notional or capital loss because in case of product damage, expiring, shortage is claimed and allowed separately. Before CIT(A) the assessee submitted bifurcation/ breakup of claims as under: , AY 2007-08 Boots Piramal Healthcare Ltd

Sr No Particular Amount (000) 1 Unallocated expenses 1,00,41 2 Loss on discontinuance of dealing in Boots Company 3,51,50 PLC Brands 3 Loss on difference in rates on discontinuance of 56,34 dealing in Boots Company PLC Brands 4 Raw material/packing material written of 27,12 Total 5,35,37 The ld CIT (A) after considering the claim of assessee concluded as under:

“6. I have considered the above submission very carefully and details filed before me as well as the order of assessing officer. After a detailed perusal of the same, the contention of the assessee as regard to unallocated expenses of Rs. 1,00,41,000/- that these expenses are recurring expenses incurred during the day to day business age acceptable and accordingly allowed. As regard to amount of Rs. 3,51,50,000/-, this relates to slow moving, non- moving and inactive existing stock of strapsil, sweetex, clearsil etc, which had to be written -off due to discontinuance of its sale and marketing by the appellant. The write-off arose out of agreement dated 14 September 2006 whereby the appellant’s marketing rights in these brands were transferred to RBIL. The details of these are given at page 55-56 of the paper book. NPIL has raised debit notes on this count. After verification of the details/debit notes I am of the view that the write-off on account of the inactive slow-moving and non-moving the stock is related to the business and therefore and allowable expenditure in the hands of appellant. The loss on account of difference in rates towards discount on sales of Rs. 56,34,000/- and the write off of raw material and packing material of Rs. 27,12,000/-is similarly related to discontinuance of dealing in Boots company PLC Brands. Based on details filed and the submissions made by the appellant. I am of the view that the write off/loss of Rs.4,34,96,000/- is related to the business carried out by the appellant and accordingly allowable. This ground of appeal is allowed.” We have seen that the claims raised by the assessee were purely factual in nature. The amount of Rs. Rs. 1,00,41,000/- was incurred during the day to day business and was allowable expenses. Rs. 3,51,50,000/-, relates to slow moving, non-moving and inactive existing stock of strapsil, sweetex, clearsil etc, which were written -off due to discontinuance of their sale and marketing by the appellant. Moreover the write-off arise due agreement dated

14. September 2006 whereby the appellant’s marketing rights in these brands were transferred to RBIL. The loss on account of difference in rates towards discount on sales of 3. AY 2007-08 Boots Piramal Healthcare Ltd Rs. 56,34,000/- and the write off of raw material and packing material of Rs. 27,12,000/- is similarly related to discontinuance of dealing in Boots company PLC Brands, these expenses are recurring expenses were allowable as revenue expenses and accordingly allowed by Ld CIT(A). Thus we do not find any illegality or infirmity in the order passed by ld CIT(A). accordingly the ground of appeal raised by revenue is dismissed.

5. Ground No.2 relates to the deletion of advertisement expenses reimbursed to Nicolas Piramal India Ltd at Rs. 64,46,180/-. The AO made the disallowance on account of advertisement expenses for Saridon BME holding that no TDS is done on these expenses. The assessee explained that TDS was done on these expenses by NPIL and therefore the assessee has not made TDS on these credits to NPIL. The contention of assessee was not accepted and the AO disallowed the entire amount of Rs. 64,46,180/-. Before first appellate authority assessee explained that NPIL had made advertisement expenses and the assessee reimbursed the same and has NPI L has deducted tax at source. The AR for the assessee also placed on record the certificate of CA certifying that TDS has been deducted by NPIL on the payments of Rs. 64,46,180/-. The first appellate authority considering the contentions of the assessee the order for earlier passed by his predecessor for AY 2005-06 accepted the contention of the assessee and deleted the disallowance.

6. The ld AR of the assessee argued that identical addition was made in the past in AY 2005-06 and again in AY 2006-07 and the matter was travel to the Tribunal. The Tribunal vide and in ITA No 1054/M/2011 for AY 2005-06 and for AY 2006-07 respectively adjudicated in favour of assessee. The ld DR for revenue not disputed the factual position submitted by ld AR for assessee.

7. We have considered the rival contention of the parties and perused the order of Tribunal for AY 2005–06 in ITA No. 3213/M/009 dated 18 Feb 2015 and for AY 2006-07 in ITA No.1054/M/20114 dated 12 August 2015. The coordinate bench of this Tribunal while considering the identical issues held as under:

“ 4. During the proceeding before us, at the outset, explaining the above grounds, ld DR for the revenue submitted that assessee claimed the following expenditure viz; Rs. 1,87,12,487/-on account of advertisement expenses and Rs.3,91,447/- on account of salary expenditure paid to Mr. Nerukar, an employee of Nicolas Piramal India Ltd(NPIL). The case of the revenue is that the said expenditure was incurred by the group company of the assessee i.e. NPIL. These expenses were actually incurred by the said company and recovered the same from the assessee. The AO did not allow the claim of the assessee on these two accounts by invoking the provisions of section 40(a)(ia) of the Act for failure of the assessee to make TDS on said payments. Similar AY 2007-08 Boots Piramal Healthcare Ltd addition was made in the past i.e. AY 2005-06. In this regard, learned counsel for the assessee submitted that the identical addition was made in the past and the matter was travel to the tribunal vide appeal 2009 and others and for AYs 2004-05 and 2005-06, order dated 18.02.2015, the issue was adjudicated by the Tribunal in favour of assessee and against the revenue. Bringing our attention to para 26 of the said order of the Tribunal(supra), learned Counsel for the assessee submitted that the Tribunal held that in respect of the payments by way of reimbursements, the provisions of section 40(a)(ia) do not apply for failure to make TDS. The decision was taken by Tribunal actually in respect of ‘advertisement expenses’. Further, ld counsel for the assessee submitted that in principle the similar issue applies with equal force to the ‘salary’ of Mr Nerulkar, which is reimbursed by the assessee to the NPIL. Considering the significance of the and also for the sake of completeness of this order the said para 26 of the criminal is extracted as under:

26. Before us, the learned DR supported the assessment order, the ld counsel for the assessee reiterated the same facts what has been stated before the lower authorities. It is an undisputed fact that the advertisement expenses have been incurred by the NPIL. It is also undisputed fact that the assessee has simply credited it to the account of NPIL as reimbursement of the expenditure. It is further found that NPIL has made TDS on the advertisement expenses. All that being the facts of the matter, we do not find any reason to interfere with the finding of ld CIT(A). Ground No 3 is accordingly dismissed.