AMBALAL SARABHAI ENTERPRISES LIMITED,,BARODA vs. THE ACIT.,CIRCLE-1(1),, BARODA

The assessee and the revenue have both appealed (9 appeals) against the separate orders passed by the Commissioner of Income Tax (Appeals) - 1, Vadodara [hereinafter referred to as “CIT(A)”] for different assessment years, i.e. 2002-03 to 2007-08 [hereinafter referred to as “A.Y.”]. The issues in dispute pertain to various additions, disallowances made by the Assessing Officer [hereinafter referred to as “AO)”] as per his orders under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the respective A.Y.s, while the revenue contests certain deletions granted by the CIT(A). As the grounds raised are common across the assessment years under appeal(s), we are disposing of these appeals by way of a consolidated order for convenience.

Facts of the case:

2.1. The assessee filed return of income for the respective A.Y. and the cases were selected for scrutiny. The assessments were completed under section 143(3) of the Act. The AO made certain disallowances and additions in the income of the assessee for the respective A.Y.s. The details of the returns filed, and assessment completed are tabulated below:

Particulars 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 -> A.Y. Date of Filing Return 31/10/2002 28/11/2003 01/11/2004 31/10/2005 30/12/2006 31/10/2007 of Income Date of 31/03/2005 14/03/2006 29/12/2006 24/12/2007 29/12/2008 31/12/2009 Order of AO Date of Order of 17/03/2015 20/03/2015 29/03/2016 20/05/2016 29/03/2016 20/05/2016 CIT(A) Additions Made by AO Interest on Bonds 1,37,480 1,38,480 1,38,480 1,31,940 1,31,940 1,31,940 Misc. 10,10,079 Expenses 5,50,777 2,42,418 4,57,103 5,21,826 7,57,187 PF, EPF Not paid before - 18,86,439 2,64,339 18,57,336 9,49,096 due date Other - 51,579 Penalties - 5,77,154 - 8,48,733 PF Damages 9,83,308 - - - Selling 1,34,316 78,969 Expenses 3,72,640 1,33,522 1,85,737 62,355 Disallowance on Packart 41,92,427 44,39,285 34,37,677 33,96,312 Unit Previous Year's 49,83,552 2,44,175 1,85,994 3,42,683 - Expenses Foreign Travel 90,262 5,315 6,04,040 1,48,456 65,568 1,96,130 Expenses Transfer of Marketing - 2,00,00,000 2,00,00,000 2,00,00,000 2,00,00,000 - Rights Disallowance - - 67,50,000 - - u/s 14A Bad Debts 2,63,025 - - 1,48,66,928 15,73,662 - Sundry Balances 71,91,000 - - 58,35,000 - - Written off Repairs of 11,28,165 10,03,378 Building - - - 6,74,517 Liabilities - Written off - - - 3,66,67,734 - Claim in respect of 24,10,160 14,83,250 Plant and - - - - Machinery Claim of Depreciation - 6,377 - - - 8,044 at higher rate Disallowance 2,96,005 67,97,562 - - - - u/s 40(a)(i) Deduction - - u/s 43B - - - 7,19,293 U/s 40A(3) - - - - - 4,45,971 U/s 40A(7) - - 1,05,47,731 - - -

3. The assessee filed appeals before CIT(A) who partly allowed appeals. Therefore, both assessee and revenue are in appeal before us with following grounds of appeal: Assessee’s Grounds of Appeal in A.Y. 2002

03. (Appeal against order of CIT(A), dated 17/03/2015)

I. MERITS

1. DISALLOWANCE OF INTEREST ON BONDS ISSUED AT THE TIME OF AMALGAMATION OF SPL - RS. 1,38,840 (PARA 2 OF CIT (A) ORDER)

1.1 CIT(A) has erred in fact and in law by confirming disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with the appellants pursuant to Scheme of amalgamation.

1.2 That CIT(A) has failed to appreciate that the acquisition of the Undertaking and business of the amalgamating company is nothing but an acquisition of capital asset for the purpose of the appellants' business as is evident from the objects of the Scheme of Amalgamation.

1.3 That, therefore, the interest on Bonds is a revenue expenditure incurred wholly and exclusively for the purpose of business carried on by the appellants.

1.4 That CIT(A) has further failed to appreciate that the appellants is a going concern and that the expenditure of interest is incurred after the commencement of the business.

1.5 IN THE FACTS OF THE CASE, interest of Rs.1,38,840 on bonds issued at the time of amalgamation of SPL be directed to be allowed.

2. ADDITIONAL DISALLOWANCE U/S. 43B(b) IN RESPECT OF EMPLOYER'S CONTRIBUTION TO PF, FPF ETC. (PARA 4 OF CIT (A) ORDER)

2.1 CIT(A) has grievously erred in fact and in law in upholding disallowance u/s.43B(b) in respect of contributions to PF etc. of Rs.1,96,21,831 paid on or before due date for filing return of income for the year on the ground that no evidences of payment made are produced.

2.2 That appellants had produced details and documents as called for by CIT(A) in support of claim of payments of contribution to PF etc on or before due date for filing return of income and no further details and documents were called for by him during the course of proceedings before him. That details and documents produced by appellants during the course of proceedings before CIT(A) conclusively establish the payments on or before due date for filing return of income.

2.3 That, therefore, observations by CIT(A) that no evidences of payments made have been produced by appellants are factually incorrect and the very basis of rejecting the claim is not sustainable.

2.4 That CIT(A) has further grievously erred in fact and in law in not allowing appellants' alternate claim of payments of contributions to PF etc. of Rs.18,86,439 during the year, though not within the due date as provided under relevant Act, which are not disallowable u/s.43B(b), in the event claim of the payments made on or before due date for filing return of income is not allowed. That CIT(A) has grievously erred in fact and in law in remanding the issue back to the file of AO to allow the claim of said payments after verification of relevant records even though appellants had placed on record the relevant materials evidencing the payments made.

2.5 IN THE FACTS OF THE CASE, disallowance u/s. 43B(b) in respect of employers PF contribution paid on or before due date for filing return of income of Rs. 1,96,21,831 be directed to be deleted.

3. P.F. DAMAGES U/S. 14B OF THE P.F. ACT - RS. 9,83,308 (PARA 5 OF CIT (A) ORDER)

3.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of claim of damages of Rs. 9,83,308 levied u/s.14B of the P.F, Act, 3.2 That CIT(A) has failed to appreciate that the P.F. damages are compensatory, and not penal, in nature.

3.3 That, even if it is held that P.F. damages are penal in nature, the entire amount of damages cannot be held as penal in nature and damages are partly compensatory and partly penal in nature as has been held in a catena of decisions.

3.4 That CIT(A) has failed to appreciate that PF damages offered for disallowance in return of income was subject to the protest that the PF damages be allowed while determining total income for the year and that the same is not disallowable.

3.5 That appellants' alternate claim of allowing 40% of PF damages by treating it as compensatory nature was based on decisions of CIT(A) himself in earlier AY 1995- 96 to 1997-98 which are upheld by this Hon. ITAT and there is no basis or details given as regards treating 40% of the damages as compensatory in nature. That, therefore, there is no question of any details to be given by appellants as regards 40% of the damages to be treated as compensatory in nature.

3.6 IN THE FACTS OF THE CASE, a. Claim of PF damages be directed to be allowed. b. Alternatively, in case disallowance of claim of PF damages is upheld, then, 40% of PF damages be directed to be allowed following decisions of CIT(A) in earlier AY 1995-96 to 1997-98 which are upheld by this Hon. ITAT.

4. SALARIES AND WAGES OF PACKART PRESS DIVISION- RS. 41,92,427 (PARA 7 OF CIT (A) ORDER)

4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of salary and wages of employees of appellants' Packart Press Unit of Rs. 41,92,427.

4.2 CIT(A) has utterly failed to appreciate that Packart Press Unit is not closed, 4.3 That even if, for argument’s sake, Packart Press Unit is closed, appellants' various other Units are not closed and there is unity of control, inter-connection, inter-lacing and inter-dependence between Packart Press Unit and other units and, therefore, expenses of Packart Press Unit cannot be disallowed.

4.4 That CIT(A) had not called for identity of workers/employees in support of claim of salaries and wages, nor he had called for copy of contractual agreement with the employees / workers and, therefore, disallowance of claim by alleging that identity of workers is not clarified and no details in this regard are made available is not sustainable.

4.5 That till the matter of liability of salaries and wages is settled by Hon. High Court, appellants continue to be liable to make the payments to workers. That simply because the unit is closed, the liability to pay salaries and wages under the Labour Laws does not cease. That liability would cease only when Hon. High Court approves the closure of unit with direction that salaries and wages are not payable.

4.6 That appellant had explained during the proceedings before CIT(A) as to how liability of salaries and wages has accrued.

4.7 That simply because appellants have challenged the order of industrial tribunal disapproving closure of unit, claim could not be disallowed since order of tribunal is not stayed and is still in operation.

4.8 IN THE FACTS OF THE CASE, claim of salary and wages etc. of Packart Press unit of Rs.41,92,427 be directed to be allowed.

5. TRANSFER OF MARKETING/DISTRIBUTION RIGHTS-ADDITIONAL CONSIDERATION OF Rs.2 CRORES (PARA 10 OF CIT(A) ORDER)

5.1 CIT(A) has grievously erred in fact and in law in holding that further additional consideration of Rs.2 crores received for transfer, in previous AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is a revenue receipt taxable as business income u/s.28(ii)(c) under the Act following his appellate order no. CAB-1/05/2014-15, dated 10.3.2015, para 15.12 to 15.25, of previous AY 2001-02.

5.2 That CIT(A) has grievously erred in fact and in law in relying upon decision of Hon. Mumbai ITAT in case of Blue Star Ltd. Vs. DCIT, 13 SOT 25, in his appellate order of previous AY 2001-02, justifying his stand that consideration received for transfer of marketing / distribution rights is revenue receipt, in as much as facts involved in that case are distinctly different from the facts in the given case.

5.3 That CIT(A) has grievously erred in fact and in law in not appreciating that the marketing / distribution rights in question were source of income for the appellants and, therefore, consideration received is capital receipt and cannot be taxed as revenue receipt.

5.4 IN THE FACTS OF THE CASE, it be held that further additional consideration of Rs.2 crores received for transfer, in previous AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is capital receipt not chargeable to tax.

6. DISALLOWANCE U/S.14A- (PARA 11 OF CIT(A) ORDER)

6.1 CIT(A) has grievously erred in fact and in law in upholding 50% of total disallowance of Rs.67,50,000, i.e. Rs.33,75,000, made by AO u/s.14A of the Act.

6.2 That CIT(A) has failed to appreciate that disallowance u/s.14A could not be made on adhoc basis and on assumptions and presumptions that some expenditure must have been incurred.

6.3 That CIT(A) has simply concurred with the views of AO without giving any justification of cogent reasons for sustaining 50% of disallowance made by AO.

6.4 That Revenue has not pinpointed any expenditure that has been incurred by appellants in earning dividend of Rs.6.75 crores, declared / paid by appellants' joint venture company M/s.Sarabhai piramal Pharmaceuticals Pvt. Ltd. (SPPL), claimed as exempt u/s.10(33) of the Act.

6.5 That investments in share capital of SPL were made in earlier AY 1998-99, 1999- 00 and 2000-01 and not in the year under appeal. When investments have been made in earlier years, it cannot be said that expenses have been incurred in the year under appeal for management decisions for making investments in the share capital of SPPL and other management decisions.

6.6 That receiving cheque of dividend income and depositing it in the bank account does not involve incurring of any expenditure as has been held by Revenue.

6.7 That since no expenditure has been incurred and investments have been made in earlier years, disallowance u/s. 14A is called for.

6.8 IN THE FACTS OF THE CASE, disallowance u/s.14A upheld by CIT(A) be directed to be deleted.

II. Such other and further relief may please be granted as may be deemed expedient by this Hon. Tribunal in the facts and circumstances of the case.

III. Appellants crave leave to add, alter, amend or withdraw all or any of the grounds before the adjudication of appeal in finality by this Hon. Tribunal.

IV. Appellants most humbly pray that this Hon. Tribunal may be pleased to call for the records and proceedings of the case as may be deemed necessary.

Assessee’s Grounds of Appeal in – A.Y. 2003-04 (Appeal against order of CIT(A), dated 20/03/2015)

I. MERITS

1. DISALLOWANCE OF INTEREST ON BONDS ISSUED AT THE TIME OF AMALGAMATION OF SPL - RS. 1,38,840 (PARA 2 OF CIT (A) ORDER)

1.1 CIT(A) has erred in fact and in law by confirming disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with the appellants pursuant to Scheme of amalgamation.

1.2 That CIT(A) has failed to appreciate that the acquisition of the Undertaking and business of the amalgamating company is nothing but an acquisition of capital asset for the purpose of the appellants' business as is evident from the objects of the Scheme of Amalgamation.

1.3 That, therefore, the interest on Bonds is a revenue expenditure incurred wholly and exclusively for the purpose of business carried on by the appellants.

1.4 That CIT(A) has further failed to appreciate that the appellants is a going concern and that the expenditure of interest is incurred after the commencement of the business.

1.5 IN THE FACTS OF THE CASE, interest of Rs.1,38,840 on bonds issued at the time of amalgamation of SPL be directed to be allowed.

2. DISALLOWANCE U/S. 43B(b) IN RESPECT OF EMPLOYER'S CONTRIBUTION TO PF, FPF ETC. PAID ON OR BEFORE DUE DATE FOR FILING RETURN OF INCOME – RS. 1,08,53,589 (PARA 4 OF CIT (A) ORDER)

2.1 CIT(A) has grievously erred in fact and in law in upholding disallowance u/s.43B(b) in respect of contributions to PF etc. of Rs.1,08,53,589 paid on or before due date for filing return of income for the year on the ground that no evidences of payment made are produced.

2.2 That there was no dispute by AO that disallowance suo motu offered u/s.43B(b) in respect of PF contributions etc. in return of income of Rs.3,11,74,299 includes an amount of Rs.1,08,53,589 which is paid on or before due date for filing return of income. That this fact was also brought to the notice of CIT(A) during the course of proceedings before him.

2.3 That, therefore, there was no dispute whether said amount is paid by appellants on or before due date for filing return of income.

2.4 That the only grievance and ground raised before CIT(A) was that whether said payment of Rs.1,08,53,589, which is admitted by AO, made by appellants on or before due date for filing return of income is disallowable u/s.43B(b).

2.5 That, therefore, CIT(A) ought not to have confirmed the disallowance on the ground that no evidences have been produced by appellants during the course of proceedings before him in respect of said payment of Rs.1,08,53,589 made on or before due date for filing return of income.

2.6 That, be that as it may, appellants had placed on record the relevant materials in support of claim of payments of contribution to PF etc on or before due date for filing return of income of Rs. 1,08,53,589 and no further details and documents were called for by CIT(A) during the course of proceedings before him. That details and documents produced by appellants during the course of proceedings before CIT(A) conclusively establish the payments on or before due date for filing return of income.

2.7 That, therefore, observations by CIT(A) that no evidences o payments made have been produced by appellants are factually incorrect and the very basis of rejecting the claim is not sustainable.

2.8 IN THE FACTS OF THE CASE, disallowance u/s. 43B(b) in respect of employers PF contribution paid on or before due date for filing return of income of Rs.1,08,53,589 be directed to be deleted.

3. P.F. DAMAGES U/S. 14B OF THE P.F. ACT - RS. 9,83,308 (PARA 5 OF CIT (A) ORDER)

3.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of claim of damages of Rs. 10,79,540 levied u/s.14B of the P.F, Act, 3.2 That CIT(A) has failed to appreciate that the P.F. damages are compensatory, and not penal, in nature.

3.3 That, even if it is held that P.F. damages are penal in nature, the entire amount of damages cannot be held as penal in nature and damages are partly compensatory and partly penal in nature as has been held in a catena of decisions.

3.4 That CIT(A) has failed to appreciate that PF damages offered for disallowance in return of income was subject to the protest that the PF damages be allowed while determining total income for the year and that the same is not disallowable.

3.5 That appellants' alternate claim of allowing 40% of PF damages by treating it as compensatory nature was based on decisions of CIT(A) himself in earlier AY 1995- 96 to 1997-98 which are upheld by this Hon. ITAT and there is no basis or details given as regards treating 40% of the damages as compensatory in nature. That, therefore, there is no question of any details to be given by appellants as regards 40% of the damages to be treated as compensatory in nature.

3.6 IN THE FACTS OF THE CASE, a. Claim of PF damages be directed to be allowed. b. Alternatively, in case disallowance of claim of PF damages is upheld, then, 40% of PF damages be directed to be allowed following decisions of CIT(A) in earlier AY 1995-96 to 1997-98 which are upheld by this Hon. ITAT.

4. SALARIES AND WAGES OF PACKART PRESS DIVISION- RS. 39,47,285 (PARA 7 OF CIT (A) ORDER)

4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of salary and wages of employees of appellants' Packart Press Unit of Rs. 39,47,285.

4.2 CIT(A) has utterly failed to appreciate that Packart Press Unit is not closed, 4.3 That even if, for argument’s sake, Packart Press Unit is closed, appellants' various other Units are not closed and there is unity of control, inter-connection, inter-lacing and inter-dependence between Packart Press Unit and other units and, therefore, expenses of Packart Press Unit cannot be disallowed.

4.4 That CIT(A) had not called for identity of workers/employees in support of claim of salaries and wages, nor he had called for copy of contractual agreement with the employees / workers and, therefore, disallowance of claim by alleging that identity of workers is not clarified and no details in this regard are made available is not sustainable.

4.5 That till the matter of liability of salaries and wages is settled by Hon. High Court, appellants continue to be liable to make the payments to workers. That simply because the unit is closed, the liability to pay salaries and wages under the Labour Laws does not cease. That liability would cease only when Hon. High Court approves the closure of unit with direction that salaries and wages are not payable.

4.6 That appellant had explained during the proceedings before CIT(A) as to how liability of salaries and wages has accrued.

4.7 That simply because appellants have challenged the order of industrial tribunal disapproving closure of unit, claim could not be disallowed since order of tribunal is not stayed and is still in operation.

4.8 IN THE FACTS OF THE CASE, claim of salary and wages etc. of Packart Press unit of Rs.39,47,285 be directed to be allowed.

5. TRANSFER OF MARKETING/DISTRIBUTION RIGHTS-ADDITIONAL CONSIDERATION OF Rs.2 CRORES (PARA 10 OF CIT(A) ORDER)

5.1 CIT(A) has grievously erred in fact and in law in holding that further additional consideration of Rs.2 crores received for transfer, in previous AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is a revenue receipt taxable as business income u/s.28(ii)(c) under the Act. following his appellate order no. CAB-1/05/2014-15, dated 10.3.2015, para 15.12 to 15.25, of previous AY 2001-02.

5.2 That CIT(A) has grievously erred in fact and in law in relying upon decision of Hon. Mumbai ITAT in case of Blue Star Ltd. Vs. DCIT, 13 SOT 25, in his appellate order of previous AY 2001-02, justifying his stand that consideration received for transfer of marketing / distribution rights is revenue receipt, in as much as facts involved in that case are distinctly different from the facts in the given case.

5.3 That CIT(A) has grievously erred in fact and in law in not appreciating that the marketing / distribution rights in question were source of income for the appellants and, therefore, consideration received is capital receipt and cannot be taxed as revenue receipt.

5.4 IN THE FACTS OF THE CASE, it be held that further additional consideration of Rs.2 crores received for transfer, in previous AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is capital receipt not chargeable to tax.

II. Such other and further relief may please be granted as may be deemed expedient by this Hon. Tribunal in the facts and circumstances of the case.

III. Appellants crave leave to add, alter, amend or withdraw all or any of the grounds before the adjudication of appeal in finality by this Hon. Tribunal.

IV. Appellants most humbly pray that this Hon. Tribunal may be pleased to call for the records and proceedings of the case as may be deemed necessary.

Assessee’s Grounds of Appeal in – A.Y. 2004-05 (Appeal against order of CIT(A)-1, Vadodara dated 29/03/2016)

I. MERITS

1. DISALLOWANCE OF INTEREST ON BONDS ISSUED AT THE TIME OF AMALGAMATION OF SPL - RS. 1,40,213 (PARA 2 OF APPELLATE ORDER)

1.1 CIT(A) has erred in fact and in law by confirming disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with the appellants pursuant to Scheme of amalgamation.

1.2 IN THE FACTS OF THE CASE, interest on bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation be directed to be allowed as revenue expenditure incurred for the purpose of business.

2. DISALLOWANCE OF OTHER EXPENSES OF RS. 41,723 BEING 5% OF TOTAL OTHER EXPENSES OF RS. 8,34,460 (PARA 4.1, PAGE 2 OF APPELLATE ORDER)

2.1 CIT(A) has grievously erred in fact and in law in upholding adhoc disallowance of 5% of ‘other expenses’.

2.2 THAT CIT(A) has failed to appreciate that other expenses are in the nature of conveyance, postal and revenue stamps expenses, listing fees, distribution sweets, Diwali boni, conveyance, etc. which are clearly related to Appellants’ business.

2.3 IN THE FACTS OF THE CASE, adhoc disallowance of 5% of other expenses be directed to be deleted.

3. P.F. DAMAGES U/S. 14B OF THE P.F. ACT – DISALLOWANCE OF 60% OF PF DAMAGES - RS. 10,36,953 (PARA 4.2, PAGE 2 OF APPELLATE ORDER)

3.1 CIT(A) has grievously erred in fact and in law in not allowing entire amount of claim of PF damages, levied u/s.14B of the P.F, Act, and, instead, allowing claim of 40% of the damages by holding it as compensatory in the nature.

3.3 IN THE FACTS OF THE CASE, it be held that PF damages are compensatory in nature and disallowance of 60% of PF damages upheld by CIT(A) be directed to be allowed.

4. PENALTIES-BREACH OF CONTRACTUAL OBLIGATIONS - Rs. 1,29,080 (PARA 4.2.1 PAGE 3 OF APPELLATE ORDER)

4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of penalties paid to various parties for breach of contractual obligations as per the contracts entered in to by appellants with the parties though there can not be issue of breach of any statutory provisions in case of breach of contractual obligations.

4.2 IN THE FACTS OF THE CASE, disallowance of other penalties paid to various parties for breach of contractual obligations be directed to be disallowed.

5. SALARIES AND WAGES OF PACKART PRESS DIVISION- RS. 33,86,757 AND OTHER EXPENSES OF Rs.50,920 (PARA 4.4, PAGE 4 OF APPELLATE ORDER)

5.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of salary and wages of employees and other expenses of appellants' Packart Press Unit.

5.2 CIT(A) has utterly failed to appreciate that order of industrial tribunal not allowing closure of the unit is still in force and the whole controversy is pending adjudication by Hon. High Court.

5.3 IN THE FACTS OF THE CASE, claim of salary and wages and other expenses etc. of Packart Press unit be directed to be allowed.

6. FOREIGN TRAVEL EXPENSES -DIRECTORS-DISALLOWANCE OF 50% OF EXPENSES- Rs. 65,568 (PARA 4.6, PAGE 9 OF APPELLATE ORDER)

6.1 CIT(A) has grievously erred in fact and in law in upholding disallowance 50% of foreign travel expenses of working directors even though issue is decided in appellants' favour by him in AY 2001-02, 2002-03, 2003-04 and 2009-10 and Department has not challenged the issue further before Hon. ITAT.

6.2 CIT(A) has failed to appreciate that foreign travel was for appellants' business purpose and there is export business generated during the year.

6.3 IN THE FACTS OF THE CASE, disallowance of 50% of foreign travel expenses of working directors be directed to be allowed.

7. TRANSFER OF MARKETING/DISTRIBUTION RIGHTS-ADDITIONAL CONSIDERATION OF Rs.2 CRORES (PARA 4.7 PAGE 13 OF CIT(A) ORDER)

7.1 CIT(A) has grievously erred in fact and in law in holding that further additional consideration of Rs.2 crores received, for transfer in previous AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is a revenue receipt taxable as business income u/s. 28(ii)(c) under the Act following his appellate order no. CAB-1/05/2014-15, dated 10.3.2015, para 15.12 to 15.25, of previous AY 2001-02.

7.2 That CIT(A) has grievously erred in fact and in law in not appreciating that the marketing / distribution rights in question were source of income for the appellants and, therefore, consideration received is capital receipt and cannot be taxed as revenue receipt.

7.3 IN THE FACTS OF THE CASE, it be held that further additional consideration of Rs.2 crores received, for transfer, in AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is capital receipt not chargeable to tax.

8.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of claim of bad debts and alternate claim of business loss u/s.28 of the Act without appreciating the facts and relevant materials placed on his record by appellants which very clearly establish that claim pertains to write off of outstandings on account of sale of goods, deposits etc. transactions entered into by appellants for the purpose of and in the course of business.

8.2 That CIT(A) has grievously erred in fact and in law in rejecting alternate claim of deduction as business loss u/s.28 on the ground that no evidence or details have been furnished in this regard even though such details and evidences were furnished and even though he not called for any further evidences and details in support of the alternate claim.

8.3 IN THE FACTS OF THE CASE: i. claim of bad debts be directed to be allowed Appellants' claim of bad debts in toto. Alternatively; ii. in the event it is held that claim of write off of outstandings is not allowable as bad debt u/s.36(1)(vii), claim of deduction under general provisions of Sec. 28 r.w.s. 37(1) be directed to be allowed.

9.1 CIT(A) has grievously erred in fact and in law in not allowing appellants' claim that Employees' contributions to PF etc. paid after the end of previous year, but, on or before due date for filing return of income of Rs. 1,02,67,284 is not taxable u/s.2(24)(x) r.w.s. 36(1)(va) and 43B of the Act; 9.2 CIT(A) has further grievously erred in fact and in law in not allowing appellants' alternate claim that in case claim of employees' contributions to PF etc. paid after the end of previous year, but, on or before due date for filing return of income of Rs.1,02,67,284 is not allowed, then, employees PF contributions paid within the previous year itself though with a delay of Rs.1,01,62,284 is not taxable u/s.2(24)(x) r.w.s. 36(1)(va) and 43B of the Act.

9.3 IN THE FACTS OF THE CASE: i. employees' contributions to PF etc. paid after the end of previous year, but, on or before due date for filing return of income of Rs. 1,02,67,284 be directed to be not to be taxed u/s.2(24)(x) r.w.s. 36(1)(va) and 43B of the Act; ALTERNATIVELY ii. in case claim of employees' contributions to PF etc. paid after the end of previous year, but, on or before due date for filing return of income of Rs.1,02,67,284 is not allowed, then, employees PF contributions paid within the previous year itself though with a delay of Rs. 1,01,62,284 be directed to be not to be taxed u/s.2(24)(x) r.w.s. 36(1)(va) and 43B of the Act.

10.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of part of the claim of business loss u/s.28 of the Act of Rs.58.35 lakh without appreciating the facts and relevant materials placed on his record by appellants which very clearly establish that claim pertains to write off of outstandings on account of sale of goods, deposits etc. transactions entered into by appellants for the purpose of and in the course of business.

10.2 That CIT(A) has grievously erred in fact and in law in rejecting claim of deduction as business loss u/s.28 on the ground that no evidence or details have been furnished in this regard even though such details and evidences were furnished and even though he had called for any further evidences and details in support of the alternate claim.

10.3 IN THE FACTS OF THE CASE, claim of deduction under general provisions of Sec. 28 r.w.s. 37(1) be directed to be allowed.

11.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of provision for bad and doubtful debts for the purpose of computation of book profit u/s. 115JB of the Act.

11.2 CIT (A) has failed to appreciate that provision for bad and doubtful debts is not an amount set aside to provisions made for meeting any liabilities, but, provision for non-recoverability of the amount due to be payable to appellants.

11.3 IN THE FACTS OF THE CASE, provision for doubtful debt be directed to be allowed for the purpose of computing book profit u/s.115JB.

II. Such other and further relief may please be granted as may be deemed expedient by this Hon. Tribunal in the facts and circumstances of the case.

III. Appellants crave leave to add, alter, amend or withdraw all or any of the grounds before the adjudication of appeal in finality by this Hon. Tribunal.

IV. Appellants most humbly pray that this Hon. Tribunal may be pleased to call for the records and proceedings of the case as may be deemed necessary.

Assessee’s Grounds of Appeal in A.Y. 2005-06 (Appeal against order of CIT (A)_-1, Vadodara dated 20/05/2016)

I. MERITS

1. INTEREST ON BONDS ISSUED TO THE SHAREHOLDERS OF STANDARD PHARMACEUTICALS LTD. (SPL) AMALGAMATED WITH APPELLANT COMPANY - Rs.1,31,940 (PARA 4, PAGE 2 OF APPELLATE ORDER)

1.1 CIT(A) has grievously erred in fact and in law in confirming disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals: Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation.

1.2 IN THE FACTS OF THE CASE, interest on bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation be directed to be allowed as revenue expenditure incurred for the purpose of business.

2. DISALLOWANCE OF OTHER EXPENSES OF RS. 1,73,973 BEING 5% OF TOTAL OTHER EXPENSES OF RS.34,79,461 (PARA 4.1, PAGE 2 OF APPELLATE ORDER)

2.1 CIT(A) has grievously erred in fact and in law in upholding adhoc disallowance of 5% of 'other expenses'.

2.2 THAT CIT(A) has failed to appreciate that other expenses are in the nature of conveyance, postal and revenue stamps expenses, listing fees, distribution sweets, diwali boni, conveyance etc, which are clearly related to Appellants' business.

2.3. IN THE FACTS OF THE CASE, adhoc disallowance of 5% of other expenses be directed to be deleted.

3. - DISALLOWANCE OF 60% OF PF DAMAGES - RS. 20,15,841 (PARA 4.2 PAGE 3 OF APPELLATE ORDER)

3.1 CIT(A) has grievously erred in fact and in law in not allowing entire amount of claim of PF damages, levied u/s.14B of the P.F. Act, and; instead, allowing claim of 40% of the damages by holding it as compensatory in nature.

3.2 IN THE FACTS OF THE CASE, it be held that PF damages are compensatory in nature and entire amount of PF damages be directed to be allowed.

4. PENALTIES-BREACH OF CONTRACTUAL OBLIGATIONS (PARA 4.2.1 PAGE 3 OF APPELLATE ORDER)

4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of penalties paid to various parties, included in other penalties of RS.9,49,096, for breach of contractual obligations as per the contracts entered in to by appellants with the parties though there not be issue of breach of any statutory provisions in case of breach of contractual obligations.

4.2 IN THE FACTS OF THE CASE, disallowance of penalties paid to various parties for breach of contractual obligations be directed to be deleted.

5. SALARIES AND WAGES - RS. 32,79,890 AND • OTHER EXPENSES - Rs.1,16,422 OF PACKART PRESS DIVISION- (PARA 4.4, PAGE 4 OF APPELLATE ORDER 5.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of salary and wages of employees and other expenses of appellants- Packart Press Unit.

5.2 CIT(A) has utterly failed to appreciate that order of industrial tribunal not allowing closure of the unit is still in force and the whole controversy is pending adjudication by Hon. High Court.

5.3 IN THE FACTS OF THE CASE, claim of salary and wages - and other expenses etc. of Packart Press unit be directed to be allowed.

6. FOREIGN TRAVEL EXPENSES -DIRECTORS-DISALLOWANCE OF 50% OF EXPENSES- Rs. 90,262 (PARA 4.5, PAGE 5 OF APPELLATE ORDER)

6.1 CIT(A) has grievously erred in fact and in law in upholding disallowance 50% of foreign travel expenses of working directors on the ground that appellants have not filed details though he had not called for any further details and even though issue is decided in appellants' favour by him in AY 2001-02, 2002-03, 2003-04 and 2009-10 and Department has not challenged the issue further before Hon. ITAT.

6.2 CIT(A) has failed to appreciate that foreign travel was for appellants' business purpose and there is export business generated during the year.

6.3 IN THE FACTS OF THE CASE, foreign travel expenses of working directors be directed to be allowed.

7. TRANSFER OF MARKETING/DISTRIBUTION RIGHTS-ADDITIONAL CONSIDERATION OF Rs.2 CRORES (PARA 4.6, PAGE 8 OF APPELLATE ORDER)

7.1 CIT(A) has grievously erred in fact and in law in holding that further additional consideration of Rs.2 crores received, for transfer in earlier AY 2001-02, of marketing / distribution rights of veterinary products of various foreign principals having nil cost of acquisition held by appellants, is a revenue receipt taxable as business income u/s.28(ii)(c) under the Act following his appellate order no. CAB- 1/05/2014-15, dated 10.3.2015, para 15.12 to 15.25, of earlier AY 2001-02.

7.2 That CIT(A) has grievously erred in fact and in law in not appreciating that the marketing / distribution rights in question were appellants' source of income and, therefore, consideration received is capital receipt and cannot be taxed as revenue receipt.

7.3 IN THE FACTS OF THE CASE, it be held that further additional consideration of Rs.2 crores received, for transfer, in earlier AY 2001-02, of marketing / distribution rights for veterinary products of various foreign principals having nil cost of acquisition, is capital receipt not chargeable to tax.

II. Such other and further relief may please be granted as may be deemed expedient by this Hon. Tribunal in the facts and circumstances of the case.

III. Appellants crave leave to add, alter, amend or withdraw all or any of the grounds before the adjudication of appeal in finality by this Hon. Tribunal.

IV. Appellants most humbly pray that this Hon. Tribunal may be pleased to call for the records and proceedings of the case as may be deemed necessary.

Assessee’s Grounds of Appeal in A.Y. 2006-07 (Appeal against order of CIT(A)-1, Vadodara dated 29/03/2016)

I. MERITS 1. INTEREST ON BONDS ISSUED TO THE SHAREHOLDERS STANDARD PHARMACEUTICALS LTD. (SPL) AMALGAMATED WITH APPELLANT COMPANY - Rs.1,31,940 (PARA 4, PAGE 2 OF APPELLATE ORDER)

1.1 CIT(A) has grievously erred in fact and in law in confirming disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation.

1.2 IN THE FACTS OF THE CASE, interest on bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation be directed to be allowed as revenue expenditure incurred for the purpose of business.

2. DISALLOWANCE OF OTHER EXPENSES OF RS. 5,09,192 BEING 5% OF TOTAL OTHER EXPENSES OF RS.1,01,83,845 (PARA 4.1, PAGE 2 OF APPELLATE ORDER) 2.1 CIT(A) has grievously erred in fact and in law in upholding adhoc disallowance of 5% of 'other expenses'.

2.2 THAT CIT(A) has failed to appreciate that other expenses are in the nature of conveyance, postal and revenue stamps expenses, listing fees, distribution sweets, diwali boni, conveyance etc, which are clearly related to Appellants' business.

2.3 IN THE FACTS OF THE CASE, adhoc disallowance of 5% of other expenses be directed to be deleted.

3. FOREIGN TRAVEL EXPENSES -DIRECTORS-DISALLOWANCE OF 50% OF EXPENSES- Rs. 5,315 (PARA 4.3, PAGE 3 OF APPELLATE ORDER)

3.1 CIT(A) has grievously erred in fact and in law in upholding disallowance 50% of foreign travel expenses of working directors even though issue is decided in appellants' favour by him in AY 2001-02, 2002-03, 2003-04 and 2009-10 and Department has not challenged the issue further before Hon. ITAT.

3.2 CIT(A) has failed to appreciate that foreign travel was for appellants' business purpose and there is export business generated during the year.

3.3 IN THE FACTS OF THE CASE, disallowance of 50% of foreign travel expenses of working directors be directed to be allowed.

4. BAD DEBTS - RS. 2,63,025 - (PARA 4.4, PAGE 7 OF APPELLATE ORDER)

4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of claim of bad debts and alternate claim of business loss u/s.28 of the Act without appreciating the facts and relevant materials placed on his record by appellants which very clearly establish that claim pertains to write off of outstandings on account of sale of goods, deposits etc. transactions entered into by appellants for the purpose of and in the course of business.

4.2 That CIT(A) has grievously erred in fact and in law in rejecting alternate claim of deduction as business loss u/s.28 on the ground that no evidence or details have been furnished in this regard even though such details and evidences were furnished and even though he had not called for any further evidences and details in support of the alternate claim.

4.3 IN THE FACTS OF THE CASE: i. claim of bad debts be directed to be allowed Appellants' claim of bad debts in toto. Alternatively; ii. in the event it is held that claim of write off of outstandings is not allowable as bad debt u/s.36(1)(vii), claim of deduction under general provisions of Sec. 28 r.w.s. 37(1) be directed to be allowed.

5. REPAIRS-BUILDING - PARTITION IN MUMBAI OFFICE - Rs.2,96,490 AND PARTITION IN CHENNAI OFFICE RS. 1,43,173 - (PARA 4.5, PAGE 18 OF APPELLATE ORDER)

5.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of expenses of partition work at rented branch premises at Mumbai and Chennai branches.

5.2 CIT(A) has failed to appreciate that partition expenses included miscellaneous electrical repairing work of Rs.59,700 at Mumbai branch office premises and of Rs.28,000 at Chennai Branch office premises which could not be disallowed as partition expenses and which are allowable as current repairs.

5.3 IN THE FACTS OF THE CASE: i, expenses of partition work at rented branch premises at Mumbai and Chennai branch offices be directed to be allowed; ii. electrical repairs of Rs.59,700 in case of Mumbai branch office and of Rs. 28,000 in case of Chennai branch office be directed to be allowed in as much as such repairs are not partition expenses but current repairs.

6.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of write off of sundry debit balances as business loss u/s.28 of the Act without appreciating the facts and relevant materials placed on his record by appellants which very clearly establish that claim pertains to write off of outstandings on account of sale of goods, deposits etc. transactions entered into by appellants for the purpose of and in the course of business.

6.2 That CIT(A) has grievously erred in fact and in law in rejecting claim of deduction as business loss u/s.28 on the ground that no evidence or details have been furnished in this regard even though such details and evidences were furnished and even though he had not called for any further evidences and details in support of the alternate claim.

6.3 IN THE FACTS OF THE CASE, claim of write off of sundry debit balances as business loss u/s.28 r.w.s. 37(1) of the Act be directed to be allowed.

7. SALARIES AND WAGES OF PACKART PRESS DIVISION- RS. 32,99,000 AND OTHER EXPENSES OF Rs.7,65,865 (PARA 4.8, PAGE 31 OF APPELLATE ORDER)

7.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of salary and wages of employees and other expenses of appellants' Packart Press Unit.

7.2 CIT(A) has utterly failed to appreciate that order of industrial tribunal not allowing closure of the unit is still in force and the whole controversy is pending adjudication by Hon. High Court.

7.3. IN THE FACTS OF THE CASE, claim of salary and wages and other expenses etc. of Packart Press unit be directed to be allowed.

II. Such other and further relief may please be granted as may be deemed expedient by this Hon. Tribunal in the facts and circumstances of the case.

III. Appellants crave leave to add, alter, amend or withdraw all or any of the grounds before the adjudication of appeal in finality by this Hon. Tribunal.

IV. Appellants most humbly pray that this Hon. Tribunal may be pleased to call for the records and proceedings of the case as may be deemed necessary.

Assessee’s Grounds of Appeal in A.Y. 2007-08 (Appeal against order of CIT(Appeals)-1, Vadodara dated 29/05/2016)

I. MERITS

1. INTEREST ON BONDS ISSUED TO THE SHAREHOLDERS OF STANDARD PHARMACEUTICALS LTD. (SPL) AMALGAMATED WITH APPELLANT COMPANY - Rs.1,31,940 (PARA 4, PAGE 2 OF APPELLATE ORDER)

1.1. CIT(A) has grievously erred in fact and in law in confirming 1.1 disallowance of interest on Bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation.

1.2 IN THE FACTS OF THE CASE, interest on bonds issued to the shareholders of erstwhile Standard Pharmaceuticals Ltd. (SPL) amalgamated with appellant company as per the scheme of amalgamation be directed to be allowed as revenue expenditure incurred for the purpose of business.

2. DISALLOWANCE OF OTHER EXPENSES OF RS. 1,31,538 BEING 5% OF TOTAL OTHER EXPENSES OF RS.26,30,760 (PARA 4.1, PAGE 2 OF APPELLATE ORDER)

2.1 CIT(A). has grievously erred in fact and in law in upholding adhoc disallowance of 5% of 'other expenses'.

2.2 THAT CIT(A) has failed to appreciate that other expenses are . in the nature of conveyance, postal and revenue stamps expenses, listing fees, distribution sweets, diwali boni, conveyance, etc, which are clearly related to Appellants' business.

2.3 IN THE FACTS OF THE CASE, adhoc disallowance of 5% of other expenses be directed to be deleted.

3.1 CIT(A) has grievously erred in fact and in law in upholding disallowance 50% of foreign travel expenses of working directors on the ground that appellants have not filed details though he had not called for any further details and even though issue is decided in appellants® favour by him in AY 2001-02, 2002-03, 2003-04 and 2009-10 and Department has not challenged the issue further before Hon. ITAT.

3.2 CIT(A) has failed to appreciate that foreign travel was for appellants' business purpose and there is export business generated during the year.

3.3 IN THE FACTS OF THE CASE, disallowance of 50% of foreign travel expenses of working directors be directed to be allowed.

4. REPAIRS-BUILDING - RS.10,03,378 - (PARA 4.4, PAGE 7 OF APPELLATE ORDER)

4.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of building repairs expenses.

4.2 CIT(A) has failed to appreciate that repairs are in the nature of current repairs to make the buildings fit for use for appellants' business operations.

4.3 IN THE FACTS OF THE CASE, building repairs expenses be directed to be allowed.

5.1 CIT(A) has grievously erred in fact and in law in upholding disallowance of plant and machinery repairs expenses.

5.2 CIT(A) has failed to appreciate that repairs are in the nature of replacement of existing parts and current repairs to make the plant and machineries fit for use for appellants' business operations.

5.3 IN THE FACTS OF THE CASE, plant and machineries repairs expenses be directed to be allowed.

6. SALARIES AND WAGES OF PACKART PRESS DIVISION- RS. 30,71,067 AND OTHER EXPENSES OF Rs.6,72,814 (PARA 4.7, PAGE 23 OF APPELLATE ORDER 6.1 CIT(A). has grievously erred in fact and in law in upholding disallowance of salary and wages of employees and other expenses of appellants' Packart Press Unit.

6.2 CIT(A) has utterly failed to appreciate that order of industrial tribunal not allowing closure of the unit is still in force and the whole controversy is pending adjudication by Hon. High Court.

6.3 IN THE FACTS OF THE CASE, claim of salary and wages and other expenses etc. of Packart Press unit be directed to be allowed.

II. Such other and further relief may please be granted as may be deemed expedient by this Hon. Tribunal in the facts and circumstances of the case. – III. Appellants crave leave to add, alter, amend or withdraw all or any of the grounds before the adjudication of appeal in finality by this Hon. Tribunal.

IV: Appellants most humbly pray that this Hon. Tribunal may be pleased to call for the records and proceedings of the case as may be deemed necessary.

Revenue’s Grounds of Appeal in – A.Y.2004-05

1. " On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the A.O in the assessment order, i.e. addition made on account of miscellaneous expenses, telephone expenses, vehicle expenses, as the assessee failed to substantiate his claim."

2. "On the facts and in the circumstances of the case and law, the Ld. CIT(A), erred in allowing the disallowances made on account of PF damages u/s 14B of the P.F. Act of Rs. 17,28,256/- and other penalties of Rs. 1,29,080/-, without appreciating the findings brought by the AO in the assessment order. The fact that the amount in question paid by the assessee represents penalty/damages for infringing the provisions of PF Act and it not a nature of compensation as contended by the assessee and hence not allowable business expenditure u/s 37(1) of the I.T. Act.

3. " On the facts and in the circumstances of the case and in law, the Ld.CIT(A) deleted the adhoc disallowance of 5% out of selling expenses amounting to Rs. 1,85,737/-, without appreciating the fact that the assessee failed to give broad bifurcation of selling expenses, and also failed to prove relations of such expenses with the business."

4. "On the facts and in the circumstances of the case and in law, the Ld. CTIT(A), erred in allowing the prior period expenses amounting to Rs. 3,42,683/-, claimed by the assessee. Since the assessee company is following the mercantile system of accounting, the expenses related to the prior period are not an allowable expenses"

5. "On the facts and in the circumstances of the case and in law, the Ld. CTIT(A), erred in deleting the addition made to the Book profit u/s 115JB of the Act, on account of provision for liability for leave encashment of Rs. 3,26,49,000/- and gratuity liability of Rs. 1,75,36,188/-. The AO has rightly justified by making such addition as the above said amount is merely a provision and represents the amount set aside by the assessee to provisions made for meeting liabilities other than ascertained liabilities. Such type of liabilities are covered by explanation (c) Sec. 115JB of the I.T. Act and the same is required to be added as per the explanation to sec. 115JB for computation of book profit of the assessee".

6. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary.

Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored.

Revenue’s Grounds of Appeal in A.Y. 2005-06

1. " On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the A.O in the assessment order, i.e. addition made on account of miscellaneous expenses, telephone expenses, vehicle expenses despite the fact that the assessee failed to substantiate its claim."

2. "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing 40% of the disallowance made on account of P.F. damages u/s 14B of the PF Act and other penalties, without appreciating the findings brought by the AO in the assessment order and also ignoring the fact that the assessee has infringed the provisions of PF Act, which is not allowable as business expenditure u/s 37(1) of the I.T. Act and that the assessee had disallowed amount of Rs. 33,59,735/- itself in computation of income and taking in to account this fact, the AO had not made addition on this point.

3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting disallowances made of Rs. 9,49,096/- being other penalty by holding that the amount was added back by the assessee in return of income contrary to the fact on records where assessee had not added back this amount in return of income filed.

4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A), deleted the adhoc disallowance of 5% out of selling expenses amounting to Rs. 1,34,316/-, without appreciating the fact that the assessee failed to give broad bifurcation of selling expenses, and also failed to prove relations of such expenses with the business."

5. "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred, by allowing writing off the debts as claimed by the assessee, without appreciating the fact that the assessee failed to establish that the debts amounts had been taken into account for computation of income in respective year to which they belonged to qualify for being written off and for claiming the same as deduction.

6. "On the facts and in the circumstances of the case and in law, the Ld. CTIT(A), erred in deleting the disallowance out of repair & maintenance of building, to the extent of Rs. 22.55 lacs, while the A.O had justified the addition by holding expenditure as capital in nature, on account of fact that the assessee had derived benefit of enduring nature."

7. On the facts and in the circumstances of the case and in law, the Ld. CTIT (A), erred in deleting the taxing of write off of loan liability of Rs. 3,66,67,734/-, without appreciating the fact that the loan waived by M/s Tuma Turbomach S.A. (TUMA) of Switzerland, is indeed a benefit to the assesse u/s 28(iv) of the I.T. Act arised during the P.Y. relevant to the A.Y. 2005-06.

8. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary.

Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored.

Revenue’s Grounds of Appeal in – A.Y. 2007-08

1. " On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the A.O in the assessment order, i.e. addition made on account of miscellaneous expenses, telephone expenses, vehicle expenses, even though the assessee failed to substantiate its claim."

2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A), deleted the adhoc disallowance of 5% out of selling expenses amounting to Rs. 62,355/-, without appreciating the fact that the assessee failed to give broad bifurcation of selling expenses, and also failed to prove relations of such expenses with its business."

3. "On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred, by allowing the claim of the assessee without appreciating the fact that the assesse had not claimed deduction/s 43B of Rs. 2,31,55,260/- either in the return or through filing of revised return as held in the decision of the Supreme Court in the case of Goetze [India] Ltd. vs. CIT 284 ITR 323(SC).

4. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary.

Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored.

3.1. The grounds are consolidated and tabulated as follows for the sake of convenience:

Type of Amount Specifi r ent Year Appeal (Rs. c (A.Y.) Groun d No. 1 Disallowance of 1772/Ahd/2015 2002-03 Assessee 1,38,840 1 Interest on Bonds Issued During Amalgamation 1773/Ahd/2015 2003-04 Assessee 1,38,840 1 1290/Ahd/2016 2004-05 Assessee 1,40,213 1 1782/Ahd/2016 2005-06 Assessee 1,31,940 1 1291/Ahd/2016 2006-07 Assessee 1,31,940 1

1783/Ahd/2016 2007-08 Assessee 1,31,940 1 2 Disallowance under 1772/Ahd/2015 2002-03 Assessee 1,96,21,831 2 Section 43B(b) - 1773/Ahd/2015 2003-04 Assessee 1,08,53,589 2 Employer’s 1290/Ahd/2016 2004-05 Assessee 10853589 9 Contribution to PF (Employees Contributio n)

3 Disallowance of PF 1772/Ahd/2015 2002-03 Assessee 9,83,308 3 Damages under 1773/Ahd/2015 2003-04 Assessee 10,79,540 3 Section 14B of the PF Act 1290/Ahd/2016 2004-05 Assessee 10,36,953 3

1594/Ahd/2016 2004-05 Revenue 17,28,256 2

1782/Ahd/2016 2005-06 Assessee 20,15,841 3 2066/Ahd/2016 2005-06 Revenue 33,59,735 2 4 Salaries and Wages of 1772/Ahd/2015 2002-03 Assessee 41,92,427 4 Packart Press 1773/Ahd/2015 2003-04 Assessee 39,47,285 4 Division 1290/Ahd/2016 2004-05 Assessee 33,86,757 5 1782/Ahd/2016 2005-06 Assessee 32,79,890 5

1291/Ahd/2016 2006-07 Assessee 32,99,000 7 1783/Ahd/2016 2007-08 Assessee 30,71,067 6 5 Transfer of 1772/Ahd/2015 2002-03 Assessee 2,00,00,000 5 Marketing/Distributi 1773/Ahd/2015 2003-04 Assessee 2,00,00,000 5 on Rights as Capital 1290/Ahd/2016 2004-05 Assessee 2,00,00,000 7 Receipt 1782/Ahd/2016 2005-06 Assessee 2,00,00,000 5 6 Adhoc Disallowance 1290/Ahd/2016 2004-05 Assessee 41,723 2 of Miscellaneous 1594/Ahd/2016 2004-05 Revenue 4,15,380 1 Expenses 1782/Ahd/2016 2005-06 Assessee 1,73,973 2 2066/Ahd/2016 2005-06 Revenue 3,47,853 1

1291/Ahd/2016 2006-07 Assessee 5,09,192 2 1783/Ahd/2016 2007-08 Assessee 1,31,538 2 2067/Ahd/2016 2007-08 Revenue 6,25,649 1 7 Disallowance of Prior 1594/Ahd/2016 2004-05 Revenue 3,42,683 4 Period Expenses 8 Disallowance of 1290/Ahd/2016 2004-05 Assessee 65,568 6 Foreign Travel Expenses of Directors 1782/Ahd/2016 2005-06 Assessee 90,262 6 1291/Ahd/2016 2006-07 Assessee 5,315 3 1783/Ahd/2016 2007-08 Assessee 1,96,130 3 9 Deletion of 2066/Ahd/2016 2005-06 Revenue 9,49,096 3 Disallowance of Other Penalties (Contractual Obligation)

1290/Ahd/2016 2004-05 Assessee 1,29,080 4 10 Disallowance u/s 14A 1772/Ahd/2015 2002-03 Assessee 6 33,75,000 11 Disallowance relating 1290/Ahd/2016 2004-05 Assessee 8 to Bad Debts 1,48,66,928

1291/Ahd/2016 2006-07 Assessee 4 2,63,025

2066/Ahd/2016 2005-06 Revenue 5 15,73,662 12 Disallowance of 1290/Ahd/2016 2004-05 Assessee 10 Sundry Balances 58,35,000 written off 1291/Ahd/2016 2006-07 Assessee 71,91,000 6 15 Write-off of Loan 2066/Ahd/2016 2005-06 Revenue 3,66,67,734 7 Liabilities as Taxable under Section 28(iv)

13 Disallowance of 2066/Ahd/2016 2005-06 Revenue 6,74,517 6 Repair and 1291/Ahd/2016 2006-07 Assessee 4,39,663 5 Maintenance – 1783/Ahd/2016 2007-08 Assessee 10,03,378 4 Building 14 Disallowance of 1783/Ahd/2016 2007-08 Assessee 14,83,250 5 Repair and Maintenance – Plant & Machinery 15 Grounds Relating to 2066/Ahd/2016 2005-06 Revenue 1,85,737 4 Disallowance of 5% 2067/Ahd/2016 2007-08 Revenue 62,355 2 Selling Expenses 16 Adjustment to Book 1594/Ahd/2016 2004-05 Revenue Gratuity: 5 Profit under Section 1,75,36,188; 115JB - Gratuity & Leave Leave Encashment Encashment: 3,26,49,000

1260/Ahd/2016 2004-05 Assessee Provision 11 for Bad and Doubtful Debts: 60447760

Ground relating to Disallowance of Interest on Bonds Issued During Amalgamation 4.1. This ground of appeal was raised by the assessee across multiple assessment years, reflecting recurring disallowances by the AO and confirmation by the CIT(A). Following are the details of such disallowances – Amount ITA No. A.Y. Disallowed (Rs.) 1772/Ahd/2015 2002-03 1,38,840 1773/Ahd/2015 2003-04 1,38,840 1290/Ahd/2016 2004-05 1,40,213 1782/Ahd/2016 2005-06 1,31,940 1291/Ahd/2016 2006-07 1,31,940 1783/Ahd/2016 2007-08 1,31,940

5. The assessee company claimed an expenditure (amounting to the figures specified in the above table for each A.Y.) as interest on bonds issued to the shareholders of Standard Pharmaceuticals Ltd. (SPL) during the time of amalgamation. The assessee argued that the amalgamation was in the best interest of both companies, ASE and SPL, as it would expand the business and enhance economic efficiency. The assessee further contended that the amalgamation would support an increase in turnover due to expansion into new pharmaceutical products. However, the AO disallowed this claim. The AO reasoned that amalgamation expenses are not allowable as business expenditure under Section 37(1) of the Act. The AO observed that similar claims made by the assessee in previous years were consistently disallowed, and the disallowance was upheld by the CIT(A) as well. Therefore, the AO disallowed the interest claim on the bonds issued at the time of amalgamation, leading to an addition of respective amounts.

6. The CIT(A) upheld the AO's disallowance claimed as interest on bonds, referring to previous disallowances confirmed by co-ordinate bench in assessee’s own case and judicial precedents, the CIT(A) dismissed the assessee's appeal on this ground.

7.1. It is noted that in previous assessment years the assessee’s similar claims for interest on bonds issued during amalgamation were disallowed by the Assessing Officer. These disallowances were subsequently upheld by the CIT(A) and the co-ordinate bench, thereby establishing a consistent judicial stance on this matter. In the assessment years under consideration, the CIT(A) has adhered to the same position, disallowing the claim for interest on bonds as not allowable under the provisions of the Act. We observe that there has been no material change in the facts, or any new legal argument presented that would warrant a departure from this established position.

7.2. In light of the principle of judicial consistency and considering the treatment of similar claims in prior years, we find no reason to take a different view. We, therefore, uphold the disallowances as made by the Assessing Officer and confirmed by the CIT(A).

7.3. Accordingly, the appeals on this common ground are dismissed for all the AY(s) under consideration.

Ground Related to Disallowance under Section 43B(b) - Employer’s Contribution to PF

8. The AO has made a disallowance under Section 43B(b) of the Act, for contributions to ESI, Labour Welfare Fund, Superannuation Fund, PF, FPF, EDLIS, and other similar contributions. As detailed below- .Y. Amount Disallowed (Rs.) 1772/Ahd/2015 2002-03 1,96,21,831 Employer’s Contribution 1773/Ahd/2015 2003-04 1,08,53,589 Employer’s Contribution 1290/Ahd/2016 2004-05 1,02,67,284 Employees’ Contribution 8.1. The AO observed that the assessee did not pay the employer’s contribution to PF, FPF, EDLIS, and other welfare funds within the prescribed due dates. Since the assessee failed to make these contributions within the stipulated time frames, the AO has invoked Section 43B(b) of the Act to disallow these payments.

9. The CIT(A) observed that the AO treated the due date for Section 43B(b) of the Act disallowance as the 20th day from the close of the month, rather than from the actual disbursement date of salaries/wages. The CIT(A) also noted that the assessee had already made a suo moto disallowance, being employer’s PF contribution, based on this interpretation. The CIT(A) noted that there was no evidence on record to confirm whether payments were made before the return filing date. Due to the absence of documentary evidence, the CIT(A) held that such disallowance could not be allowed on the assumption that payments were made within the permissible time frame.

10. During the course of hearing before us the AR stated that the Co- ordinate Bench on the similar facts and circumstances has decided and upheld the decision of CIT(A) in assessee’s own case for A.Y. 2001-02 in ITA No. 1771/Ahd/2015.

10.1. Following the principle of judicial consistency, in the present case the issue should be set aside to the AO for verification to determine whether the contributions were paid on or before the due date for filing the return of income. If the payments were made within the allowable time frame as per Section 43B(b), then the disallowance should be allowed accordingly.

10.2. Thus, the ground regarding the disallowance under Section 43B(b) should be partly allowed subject to verification by the AO, in line with the Co-ordinate Bench’s consistent approach in the assessee’s own case.

11. The assessee has raised ground relating to disallowance of Rs. 1,02,67,284 u/s 43B on account of employees’ contribution of PF in for A.Y. 204-05. The decision of Hon’ble Jurisdictional High Court in case of CIT -II Vs. Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100 is against the assessee on this issue and the AR has conceded the same before us. Hence, the ground of the assessee is dismissed.

Ground related to Disallowance of PF Damages under Section 14B of the PF Act

12.1. The issue of PF damages has been raised across multiple appeals as detailed below:

PF Damages Year (A.Y.) Disallowed (Rs.) 1772/Ahd/2015 2002-03 9,83,308 1773/Ahd/2015 2003-04 10,79,540 1290/Ahd/2016 2004-05 17,28,256 1594/Ahd/2016 2004-05 17,28,256 (Revenue Appeal) 1782/Ahd/2016 2005-06 20,15,841 2066/Ahd/2016 2005-06 33,59,735 (Revenue Appeal)

12.1. During the course of assessment proceedings, the AO observed that the assessee had claimed damages paid under Section 14B of the PF Act as allowable business expenditure. The assessee argued that these damages were compensatory in nature, arising due to delayed payments of PF contributions and were incidental to the business. The assessee relied on the contention that these damages did not amount to a penalty or fine and were allowable under Section 37(1) of the Act. The AO rejected this claim, holding that damages under Section 14B of the Act are penal in nature and are imposed for violation of statutory obligations. As per the AO, such payments cannot be treated as compensatory, and the disallowance was made under Section 37(1) of the Act.

16.1. Accordingly, 40% of the damages of are allowed as compensatory and deductible under Section 37(1) of the Act, while the balance 60% is disallowed as penal in nature. The AO is directed to verify the computation and ensure that the disallowance is limited to 60% of the damages. The appeal on this ground is partly allowed and revenue’s appeal on the ground challenging 40% allowance is dismissed.

Grounds Relating to disallowance of Salary and Wages of Packart Press Unit

Salary and Wages Disallowed (Rs.) Year s (A.Ys.)

1772/Ahd/2015 2002-03 41,92,427 1773/Ahd/2015 2003-04 39,47,285 1290/Ahd/2016 2004-05 33,86,757 1782/Ahd/2016 2005-06 32,79,890 1783/Ahd/2016 2007-08 30,71,067 1291/Ahd/2016 2006-07 32,99,000 (Rs. 7,65,865/- claimed as other expenses relating to the said unit is also part of the ground)

17.1. The AO noted that the Packart Press Unit had been closed as per the order of the Specified Authority (Labour Commissioner). The statutory audit report indicated that no provision for salary, wages, or other expenses was made in the books of account since the unit was closed. The AO observed that the closure of the unit had been challenged by the employees’ union before the Industrial Tribunal and while the Labour Commissioner’s order approving the closure was set aside by the Tribunal, the matter was pending before the Hon’ble Gujarat High Court.

17.2. The AO concluded that no business activity was carried out by the Packart Press Unit during the relevant year. This conclusion was supported by the fact that the unit did not report any sales or services during the year and merely showed a profit in the computation of income. The AO relied on the principle that expenses can only be claimed as a deduction under Section 37(1) of the Act, if they are incurred "wholly and exclusively for the purposes of business or profession." Since the unit was closed and no business activity occurred, the expenses were deemed to lack a nexus with the business operations.

21.1. Considering the identical facts and the Co-ordinate Bench’s decisions in earlier years, the issue is remanded back to the AO for verification of the facts whether the liability for salaries, wages, and related expenses accrued during the relevant year and whether the liability is supported by contractual obligations and substantiated by adequate evidence.

21.2. The AO is directed to give the assessee a reasonable opportunity of being heard and to decide the matter afresh in accordance with law, following the principles of natural justice. The ground of appeal is partly allowed for statistical purposes.

Grounds Relating to Transfer of Marketing/Distribution Rights

ITA No(s). Assessment Consideration Years Amount (Rs.) (A.Ys.) 1772/Ahd/2015 2002-03 2,00,00,000 1773/Ahd/2015 2003-04 2,00,00,000 1290/Ahd/2016 2004-05 2,00,00,000 1782/Ahd/2016 2005-06 2,00,00,000

25.1. In view of the binding precedent, we hold that the consideration received by the assessee for the transfer of marketing rights and trademarks is taxable as revenue income. The findings of the AO and the CIT(A) are upheld. Accordingly, the grounds of appeal raised by the assessee on this issue are dismissed.

Grounds Relating to Other and Miscellaneous Expenses

Amount Nature of Amount Challenged Assessment Type of ITA No(s). Disallowed Disallowed in the Years(A.Ys.) Appeal Expenses by AO (Rs.) appeal (Rs.) Other 1290/Ahd/2016 2004-05 Expenses (5% 457103 41,723 Assessee adhoc) Miscellaneous 1594/Ahd/2016 2004-05 Expenses (5% 457103 4,15,380 Revenue adhoc) Other 1782/Ahd/2016 2005-06 Expenses (5% 521826 1,73,973 Assessee adhoc) Miscellaneous 2066/Ahd/2016 2005-06 Expenses (5% 521826 3,47,853 Revenue adhoc)

Other 1291/Ahd/2016 2006-07 Expenses (5% 1010079 5,09,192 Assessee adhoc) Other 1783/Ahd/2016 2007-08 Expenses (5% 757187 1,31,538 Assessee adhoc) Miscellaneous 2067/Ahd/2016 2007-08 Expenses (5% 757187 6,25,649 Revenue adhoc)

31.1. As regards to Telephone and Vehicle Expenses, we observe that the AO disallowed these expenses purely on assumptions without bringing any specific evidence on record to substantiate personal use of telephones or vehicles by the Directors. The Co-ordinate Bench, in the assessee's own case for earlier years, has categorically held that such ad hoc disallowances are unsustainable in the absence of specific findings or evidence of personal use. During the course of the hearing, the DR was unable to point out any distinguishing features in the facts of the current year vis-à-vis those in earlier years where the issue had already been decided in favour of the assessee. Following the consistent view of the Co-ordinate Bench in earlier years, we find no infirmity in the decision of the CIT(A) to delete the disallowance of telephone and vehicle expenses relating to the Directors.

31.2. The AO disallowed 5% of miscellaneous expenses on an ad hoc basis, citing unverifiability of some components such as Diwali expenses, distribution of sweets, and bonuses. The AO concluded that these expenses were not wholly and exclusively for business purposes. The CIT(A) upheld the disallowance, relying on the appellate order for A.Y. 1998-99, where a similar disallowance was sustained.

32.1. We reproduce the relevant paras of the order of the Co-ordinate Bench in case of for the A.Y. 1996-97 – “41. The Revenue's eleventh ground of appeal relates to disallowance effected @ 5% out of the assessee's. claim of expenditure on account of tapes and floppies (Rs.1.10 lacs), miscellaneous expenses (Rs.27.45 lacs), telephone expenses (Rs.70.88 lacs) and vehicle expenses (Rs.52.88 lacs), i.e.. at an aggregate of Rs.152.31 lacs. The expenditure stands disallowed on account of its un-verifiably. so that a pan thereof is inferred by the A.O as being not laid out for business purposes, estimating the 8 appeals Ambalal Sarabhai Enterprises Ltd. vs. ACIT-DCIT (by Assessee and Revenue) Asst. Years : 2002-03 to 2007-08 46 non-business user at five per cent. In appeal, the same stood allowed by the Ld. CIT(A) on the basis of the assessee having properly substantiated the said expenditure, and following the decision by Tribunal cited before him.

Grounds Relating to Prior Period Expenses

40.1. In view of the above findings and the judicial precedents cited, we uphold the order of the CIT(A) in deleting the disallowance of prior period expenses amounting to Rs. 3,42,683/. The Revenue’s this ground of appeal is dismissed.

Assessee’s Grounds Relating to Foreign Travel Expenses

41.1. The AO disallowed 50% of the expenses on an adhoc basis, alleging insufficient documentation or potential personal use, without identifying specific expenses that were inadmissible. A portion of the expenses was deemed personal in nature (e.g., directors traveling with family), and therefore, not allowable as business expenditure. This ground has been raised by the assessee across following appeals:

Amount Year (A.Y.) Disallowed (Rs.) 1290/Ahd/2016 2004-05 65,568 1782/Ahd/2016 2005-06 90,262 1291/Ahd/2016 2006-07 5,315 1783/Ahd/2016 2007-08 1,96,130

42. During the course of assessment, the assessee has submitted details of foreign travel expenses. The purpose of the foreign travel was explicitly stated to be business-oriented, aimed at exploring new export markets, which ultimately resulted in exports. The AO disallowed 50% of the foreign travel expenses on an ad hoc basis, citing that an element of personal or non- business use could not be ruled out. However, the AO did not bring any specific findings or evidence on record to demonstrate non-business usage of the foreign travel expenses. The CIT(A) upheld the AO’s disallowance, stating that the assessee failed to furnish comprehensive details to substantiate that the expenses were wholly business-related.

43.1. Considering the facts and circumstances, we find that the AO’s disallowance of 50% of the expenses was ad hoc and arbitrary, made without bringing any material on record to justify the presumption of non-business use. The CIT(A) erred in upholding the disallowance by relying solely on the lack of further evidence from the assessee, despite there being sufficient documentation supporting the business purpose of the travel.

43.2. Following the principle of consistency and the co-ordinate bench's decision in the disallowance of 50% of foreign travel expenses is deleted. The appeal of the assessee on this ground is allowed. Grounds Relating to Deletion of Disallowance of Other Penalties (Contractual Obligation)

Type of Amount Year (A.Y.) Appeal Disallowed by AO (Rs.) 1290/Ahd/2016 2004-05 Assessee 1,29,080

2066/Ahd/2016 2005-06 Revenue 9,49,096

45. During the course of assessment proceedings, the AO observed that certain penalties were debited to profit and loss account which include PF damage paid u/s 14B of the PF Act and other penalties. Both AO and CIT(A) disallowed this on the basis of presumption that it is penalty. In both the cases i.e. A.Y. 2004-05 and A.Y. 2005-06 the CIT(A), concluded that the assessee has failed to prove the compensatory nature of such amounts. In case of A.Y. 2004-05 CIT(A) denied any relief to assessee stating that the assessee has suo- moto disallowed and added back this amount to income while filing the return of income. In case of A.Y. 2005-06, the CIT(A) directed AO to delete the disallowance stating that the assessee has suo-moto disallowed and added back this amount to income while filing the return of income.

1. 1. Mahavir Multitrade (P.) Ltd. v. DCIT - [2020] 113 taxmann.com 261 (Delhi - Trib.).

2. Nipro Medical India (P.) Ltd. v. DCIT - [2023] 146 taxmann.com 582 (Hyderabad - Trib.).

46.1. These rulings emphasize that payments for liquidated damages or breach of contractual obligations, if compensatory and arising from commercial requirements, qualify as deductible business expenses under Section 37(1) of the Act.

51.1. CIT(A) observed that the disallowance appeared to be excessive and reduced it to Rs.33,75,000 (5% of the total dividend income). The CIT(A) acknowledged AO’s contention that earning dividend income might involve some incidental expenses, such as administrative or management costs.

54. We have heard the submissions of the AR for the assessee and the DR and have carefully considered the facts and circumstances of the case. The assessee has challenged the disallowance of Rs.33,75,000/- under Section 14A of the Act, which was upheld by the CIT(A). This disallowance represents 50% of the ad hoc disallowance of Rs.67,50,000/- made by the Assessing Officer (AO), purportedly for expenses incurred in earning exempt dividend income of Rs.6.75 crores. The assessee contended that – 8 appeals Ambalal Sarabhai Enterprises Ltd. vs. ACIT-DCIT (by Assessee and Revenue) Asst. Years : 2002-03 to 2007-08 55 - The investments in the shares of SPPL were made in earlier years (AYs 1998-99 to 2000-01) as a strategic business decision to strengthen its position in the pharmaceutical industry. - No fresh investments were made during the year under appeal (AY 2002-03), and no additional expenditure was incurred for managing the said investments. - The dividend income was passively received, credited directly to the bank account, without any active administrative or managerial efforts. - The assessee’s own funds (share capital and reserves) as of 31-03-2002 amounted to Rs.10,842.01 lakh, far exceeding the investments of Rs.22.50 crore in SPPL, thereby negating the need for disallowance of interest or other expenses. 54.1. The AO disallowed Rs.67,50,000/- (10% of the dividend income) on the assumption that administrative and managerial costs must have been incurred to earn the exempt income. The CIT(A), without substantiating any specific basis, reduced the disallowance to Rs.33,75,000/- (5% of the dividend income).

54.2. It is undisputed fact that the investments in SPPL were made in earlier years and not during the year under appeal. Courts have consistently held that no disallowance can be made for expenses related to investments made in earlier years unless specific evidence of expenditure during the year under appeal is provided.

54.3. It is also a fact that the dividend income was received passively, requiring no active management or administrative effort. Activities such as receiving and depositing dividend income in a bank account are incidental and do not involve substantial costs.

8 appeals Ambalal Sarabhai Enterprises Ltd. vs. ACIT-DCIT (by Assessee and Revenue) Asst. Years : 2002-03 to 2007-08 56 54.4. Judicial precedents concerning disallowance under Section 14A before Rule 8D consistently emphasize the following principles: - If the assessee’s interest-free funds (e.g., share capital and reserves) exceed the investments in tax-exempt income-generating assets, courts presume that such investments were made out of interest-free funds. This presumption negates the need for disallowance of interest expenses. - Disallowance under Section 14A can only be made if there is a clear and demonstrable nexus between the expenses incurred and the exempt income. In the absence of evidence establishing this connection, no disallowance is justified. - When investments generating exempt income are made in earlier years, no disallowance for expenses related to those investments can be made in subsequent years unless additional expenditure is incurred during the relevant year. - Courts have consistently disapproved of disallowances based on arbitrary percentages or assumptions. Disallowance must be based on reasonable and fact-specific estimations. - The burden of proof lies on the Revenue to demonstrate that expenses were incurred specifically to earn exempt income. Without such evidence, disallowance under Section 14A cannot be sustained.

54.5. Both the AO and the CIT(A) failed to provide evidence linking any administrative or managerial expenses incurred by the assessee to the earning of exempt income. The disallowance made by the AO (10%) and partially sustained by the CIT(A) (5%) is ad hoc and arbitrary.

54.7. In light of the above findings, it is evident that the investments in SPPL were made in earlier years as a strategic decision, not primarily for earning dividend income. No additional expenditure was incurred during the year under appeal for managing these investments or earning the dividend income. The disallowance of Rs.33,75,000/- sustained by the CIT(A) is based on arbitrary assumptions without any factual support. Accordingly, the disallowance under Section 14A sustained by the CIT(A) is deleted in its entirety.

Assessee’s Ground Relating to Disallowance of Bad Debts of Rs.1,48,66,928/- in for A.Y. 2004-05

8 appeals Ambalal Sarabhai Enterprises Ltd. vs. ACIT-DCIT (by Assessee and Revenue) Asst. Years : 2002-03 to 2007-08 58 56. During the course of hearing before us the AR stated that it is absolutely wrong on part of CIT(A) to hold that the assessee did not provide the details to show that these amounts were offered to tax in earlier years. The AR pointed out from the paper book that the details were submitted to both AO and CIT(A) which include list of amounts written off supported by ledger accounts in which narration clearly indicate invoice numbers, list of depot-wise details of amounts. The AR alternatively claimed the deduction as a business loss under Section 28, arguing that the outstanding balances arose from regular business transactions. The AR Placed reliance on following judicial precedents for the alternate claim: - Jackie Shroff Vs. ACIT, Range 16(1) – [2019] 101 taxmann.com 455 (Mumbai) - Angel Commodities Broking [P.] Ltd. Vs. DCIT, Central Circle 46 – [2013] 40 taxmann.com 234 (Mumbai) - Harshad J.Choksi Vs. CIT, Bombay City- VII [2012] 25 taxmann.com 567 (Bombay HC) 57. On the other hand, the DR placed reliance on the orders of lower authorities.

58.1. The provisions of Section 36(1)(vii) of the Act, post-amendment w.e.f. 1.4.1989, require only that the debts be written off as irrecoverable in the books of accounts. The necessity to establish that the debt has become bad is no longer applicable. The Hon’ble Supreme Court in the case of T.R.F. Ltd. v. CIT [2010] 323 ITR 397 (SC) clarified that the write-off suffices to claim the deduction. The assessee demonstrated that the debts were written off in the books of accounts, fulfilling the primary condition under Section 36(1)(vii). Additionally, the condition under Section 36(2) of the Act, requiring that the debts be included as income in earlier years, is satisfied as some of the amounts represent outstanding balances arising from revenue transactions already taxed in prior years.

59.1. The assessee’s alternate plea to allow the deduction as a business loss under Section 28 was rejected by the CIT(A) on the grounds that the loss was not substantiated as having occurred in the relevant assessment year. The Co- ordinate Bench has decided in case of Jackie Shroff v. ACIT (supra) that Irrecoverable advances, if made for business expediency, may be allowed as business loss under Section 28 or Section 37(1) of the Act.

60.1. The assessee’s ground of appeal relating to the disallowance of Rs.1,48,66,928 as bad debts under Section 36(1)(vii) of the Act to the extent applicable is allowed and in case of remaining amount the alternate claim under Section 28 is allowed. The AO is directed to allow the total deduction of Rs.1,48,66,928. The appeal of the assessee is allowed in toto.

61. The Assessee has taken similar ground in case of for A.Y. 2006-07 where the assesse has written off an amount of Rs. 2,63,025/- as bad debt. The claim was disallowed by the AO and upheld by the CIT(A) on the grounds of insufficient evidence and non-fulfilment of conditions under Section 36(1)(vii) for bad debt deduction. The AR during the course of hearing before us stated that in this case the facts and circumstances are same, except the quantum.

62.1. Considering the judicial precedents relied upon and the similarity of facts, we conclude that the disallowance of Rs.2,63,025/- is unwarranted. The assessee's claim under Section 36(1)(vii) for the bad debts written off is allowed. The AO is directed to allow the deduction of Rs.2,63,025/-. The appeal of the assessee is allowed in toto.

The Revenue has raised a ground related to Write Off of Bad Debts amounting to Rs. 15,73,662/- in for the A.Y. 2005-06.

66.1. In light of the above, the Revenue's appeal is devoid of merit and deserves to be dismissed. In the result, this ground of appeal of the Revenue is dismissed.

Assessee’s Ground relating to disallowance of Sundry Balances written off amounting to Rs.58.35 Lakhs in for A.Y. 2004-05

70.1. In view of the above, we direct the AO to allow the entire claim of Rs. 58.35 lakh as a business loss under Section 28 of the Act. The appeal filed by the assessee is allowed.

Revenue’s Ground relating to Write-off of Loan Liabilities as Taxable under Section 28(iv) in for the A.Y. 2005-06

Before the CIT(A), the assessee contended that: 1. The loan was availed specifically for the purchase of a capital asset, i.e., a power plant, and hence was a capital liability.

8 appeals Ambalal Sarabhai Enterprises Ltd. vs. ACIT-DCIT (by Assessee and Revenue) Asst. Years : 2002-03 to 2007-08 67 2. The loan waiver could not be treated as a trading liability, and therefore, provisions of Section 41(1) were not applicable. 3. The benefit arising out of the waiver was monetary in nature, making Section 28(iv) inapplicable. 4. The assessee relied on judicial precedents, including decisions of the Hon’ble Gujarat High Court in Chetan Chemicals Pvt. Ltd. (188 CTR 572).

77.1. The Hon’ble Supreme Court in the case of Mahindra & Mahindra Ltd. [2018] 93 taxmann.com 32 (SC) dealt with a similar issue. The Court held that Section 28(iv) of the Act applies only to non-monetary benefits. Since the waiver of a loan represents a monetary benefit, Section 28(iv) of the Act was held inapplicable. The Court also held that Section 41(1) of the Act applies only to trading liabilities for which a deduction has been claimed in earlier years. As the loan in that case (and in the present case) was used to acquire capital assets and no deduction was claimed, Section 41(1) was also held to be inapplicable.

77.2. The Hon’ble Supreme Court's findings in this case are squarely applicable to the present case and fortify the assessee's position.

77.3. Section 28(iv) applies to "benefits or perquisites" arising during the course of business or profession, provided such benefits are non-monetary in nature. In the present case, the benefit derived by the assessee is purely monetary, as it pertains to the waiver of a loan liability. Judicial precedents, including the Hon’ble Supreme Court's decision in the case of Mahindra & Mahindra Ltd., confirm that monetary benefits cannot be taxed under Section 28(iv) of the Act. The waiver cannot be brought to tax under Section 41(1) of the Act as well, since the loan was not claimed as a deduction in earlier years. Judicial precedents, including the Hon’ble Gujarat High Court's decision in the case of Chetan Chemicals Pvt. Ltd., support this conclusion.

78.1. In light of the above findings, it is evident that the loan waiver in the present case pertains to a capital liability and is not taxable under either Section 28(iv) or Section 41(1) of the Act. The CIT(A) has rightly deleted the addition of Rs.3,66,67,734/- made by the AO.

78.2. As the Revenue has failed to substantiate its case with any additional arguments or evidence, we find no reason to interfere with the order of the CIT(A). This ground of revenue is dismissed.

Grounds relating to Disallowance of Repair and Maintenance – Building

Amount Type of Year (A.Y.) Disallowed/Challenged Appeal 2066/Ahd/2016 2005-06 Rs. 674517/- Revenue 1291/Ahd/2016 2006-07 Rs.2,96,490 (Mumbai) + Assessee Rs.1,43,173 (Chennai) 1783/Ahd/2016 2007-08 Rs.10,03,378 Assessee

80.1. In case of A.Y. 2005-06 - Waterproofing Rs. 2,83,931/-, Strengthening of beams and columns Rs. 1,66,765/- and Waterproofing work at the end stage Rs. 2,23,821/- 80.2. In case of A.Y. 2006-07, total expenses claimed by assessee as revenue expenditure were Rs. 11,28,165/- out of which the CIT(A) upheld the disallowance on account of Partition in Mumbai and Chennai office amounting to Rs. 2,96,490/- and Rs. 1,43,173/- respectively.

80.3. In case of A.Y. 2007-08 – Total expenses on account of repairs claimed by the assessee were Rs. 37.30 Lakh out of Rs. 10,03,378/- mainly include expenses on partition.

80.4. In all the cases the AO held that the expenses are of capital nature as they are in the nature of enduring benefits.

A.Y. 2005-06 (ITA No. 2066/Ahd/2016 – Revenue’s Appeal)

83.1. The expenses claimed by the assessee (Rs.6,74,517) pertain to waterproofing (Rs.2,83,931), strengthening of beams and columns (Rs.1,66,765), and final waterproofing work (Rs.2,23,821). These expenses were incurred to maintain the rented premises in usable condition, with no new asset or structural improvement being created. The CIT(A)’s deletion of disallowance is upheld as these expenses qualify as current repairs under Section 30 of the Act, necessary for the upkeep of rented premises. The AO failed to demonstrate how these repairs resulted in an enduring benefit or capital asset.

A.Y. 2006-07 (ITA No. 1291/Ahd/2016 – Assessee’s Appeal)

85.1. As a result, the assessee’s appeal is allowed.

A.Y. 2007-08 (ITA No. 1783/Ahd/2016 – Assessee’s Appeal)

86.1. As a result, the assessee’s appeal is allowed.

Assessee’s Ground relating to Disallowance of Repair and Maintenance – Plant & Machinery in for A.Y. 2007-08

8 appeals Ambalal Sarabhai Enterprises Ltd. vs. ACIT-DCIT (by Assessee and Revenue) Asst. Years : 2002-03 to 2007-08 73 88. The AR explained the nature of expenditure as put before CIT(A) and stated that the repairs are of revenue in nature. The AR placed reliance on following judicial precedents:

- CIT v. TVS Motors Ltd. [2019] 112 taxmann.com 167 (Madras High Court). - CIT v. Manohar Lal Hira Lal Ltd. [2013] 39 taxmann.com 110 (Allahabad High Court).

91.1. The AO’s contention that these expenses are capital in nature is without merit, as no new asset was created, nor was the nature or capacity of the existing assets altered. The repairs were necessitated by business exigencies and statutory requirements and qualify as revenue expenditure under Section 31 of the Act. The CIT(A)’s decision to uphold the AO’s disallowance is set aside. Thus, this ground of assessee is allowed.

Revenue’s Grounds Relating to Disallowance of 5% Selling Expenses

Amount Type of Year (A.Y.) Disallowed Appeal (Rs.) 2066/Ahd/2016 2005-06 1,85,737/- Revenue

2067/Ahd/2016 2007-08 62,355/- Revenue

94.1. We also find that the decision of the co-ordinate bench in the assessee’s own case for A.Y. 2001-02 applies squarely to the present appeals. As held in that case, selling expenses incurred wholly and exclusively for the purposes of business are allowable under Section 37(1). We find no infirmity in the CIT(A)’s order. These grounds of revenue are dismissed.

Grounds Relating to adjustment while arriving at book profit under section 115JB of the Act

Nature of Amount Type of Year (A.Y.) Adjustment (Rs. ) Appeal 1290/Ahd/2016 2004-05 Provision for Rs. Assessee Bad Debts 6,04,47,760/- 1594/Ahd/2016 2004-05 Leave Rs. Revenue Encashment 3,26,49,000 and Gratuity And Rs. 1,75,648/-

96.1. The AO observed that these provisions relating to leave encashment and gratuity were made based on actuarial valuation, which he claimed does not render the liabilities ascertained. The AO classified them as amounts set aside to meet future liabilities and hence treated them as unascertained liabilities. Relating to provision for bad debts, the AO stated that this provision is not an ascertained liability but a reserve, which must be added 8 appeals Ambalal Sarabhai Enterprises Ltd. vs. ACIT-DCIT (by Assessee and Revenue) Asst. Years : 2002-03 to 2007-08 77 back to book profits under Explanation 1(c). He held that such provisions are based on subjective parameters and do not represent an actual write-off.

- As per Accounting Standard 15 (AS-15), these are ascertained liabilities calculated scientifically for past services rendered by employees.

- The provisions represent obligations accrued over time, not contingent liabilities or reserves. Relating to Bad and Doubtful Debts: - The provision was created for specific debts identified as doubtful of recovery. It is not an unascertained liability or an adhoc reserve but a provision for irrecoverable trade receivables.

- The assessee emphasized that the provision does not represent a general reserve and is in line with the requirements of accounting standards.

97.1. The assessee argued that Explanation 1(c) to Section 115JB applies only to provisions for unascertained liabilities, which is not the case in the instant case. The assessee also relied on some judicial precedents.

97.2. The CIT(A) agreed with the assessee’s submissions that the liabilities related to Leave Encashment and Gratuity Provisions were ascertained based on actuarial valuations and deleted the addition for the purpose of calculating 8 appeals Ambalal Sarabhai Enterprises Ltd. vs. ACIT-DCIT (by Assessee and Revenue) Asst. Years : 2002-03 to 2007-08 78 book profit u/s 115JB. However, the CIT(A) agreed with the AO stating that the provision for bad and doubtful debts is not an ascertained liability but a reserve for potential losses and upheld the decision of AO.

97.3. Therefore, the revenue preferred an appeal against the deletion of amounts relating to leave encashment and gratuity and assessee raised the ground against to confirmation of addition of amount relating to bad and doubtful debts with reference to book profit u/s 115JB.

- CIT v. Yokogawa India Ltd. [2012] 17 taxmann.com 15 (Kar.).

- Principal CIT v. Narmada Chematur Petrochemicals Ltd. [2021] 130 taxmann.com 522 (Guj.).

- Southern Power Distribution Company of AP Ltd. v. DCIT, Circle 2(1), Tripura [2018] 93 taxmann.com 451 (Hyderabad - Trib.) (TM)

99.1. Regarding the provision for doubtful debts, the appellant cited judicial precedents such as CIT v. Yokogawa India Ltd. [2012] 17 taxmann.com 15 (Kar.) and Principal CIT v. Narmada Chematur Petrochemicals Ltd. [2021] 130 taxmann.com 522 (Guj.). These decisions established that provisions for doubtful debts, if simultaneously reduced from the asset side of the balance sheet, represent actual write-offs and cannot be treated as unascertained liabilities and therefore do not attract Explanation 1(c) to Section 115JB of the Act..

SL. A.Ys. ITA No(s). Type of Result NO(s) Appeal 1772/Ahd/2015 1. 2002-03 Assessee Partly allowed for statistical purposes 1773/Ahd/2015 2. 2003-04 Assessee Partly allowed for statistical purposes. 1290/Ahd/2016 3. 2004-05 Assessee Partly allowed for statistical purposes. 1594/Ahd/2016 4. 2004-05 Revenue Dismissed. 1782/Ahd/2016 5. 2005-06 Assessee Partly allowed for statistical purposes. 2066/Ahd/2016 6. 2005-06 Revenue Dismissed. 1291/Ahd/2016 7. 2006-07 Assessee Partly allowed for statistical purposes. 1783/Ahd/2016 2007-08 Assessee 8. Partly allowed. 2067/Ahd/2016 2007-08 Revenue 9. Dismissed. Order pronounced in the Open Court on 3rd December,2024 at Ahmedabad.