ADDL CIT RG 2(1), MUMBAI vs. ARISTO PHARMACEUTICALS P. LTD, MUMBAI

The only issue raised in this appeal of the assessee is relating to disallowance of 15% out of the total expenditure claimed on account of gift articles.

Briefly stated the facts are, assessee a company is engaged in the business of manufacture and sale of pharmaceutical products. For the assessment year under consideration, the assessee filed its return of income on 31st October 2005, declaring total income of `

Learned Commissioner (Appeals), after considering the submissions of the assessee on the basis of facts and material on record, observed that the entire expenditure incurred on gift articles are not supported by proper documentary evidence. However, being of Aristo Pharmaceuticals Pvt. Ltd. 5 the opinion that disallowance made by the Assessing Officer at 25% is on the higher side, he restricted it to 15% of the expenditure claimed.

Learned Counsel for the assessee, reiterating the stand taken before the Departmental Authorities submitted Commissioner (Appeals) was not correct in observing that supporting evidence / details were not furnished for justifying the expenditure claimed. He submitted assessee had not only maintained proper books of account but the expenditure incurred on account of gift articles are supported by genuine vouchers. Further, he submitted these gift articles have no re–sale value as name of the concerned persons / entities are mentioned in the gift articles. He submitted gift articles exceeding the value of ` 500 aggregated to ` 37,83,923, out of the total expenditure of ` 4,88,24,341, which works out to mere 7.5%. He submitted all other gift articles are less than ` 500, hence, cannot be considered to be unreasonable. As the expenditure is supported by genuine vouchers, no disallowance should be made. He further submitted, in the preceding as well as succeeding assessment years, even though assessments have regularly been completed under section 143(3) of the Act, no such disallowance have ever been made. Finally, learned counsel submitted if at all any disallowance is required to be made then it should not exceeded 5% of the total expenditure claimed. In Aristo Pharmaceuticals Pvt. Ltd. 6 support of such contention, he relied on the order of the Tribunal, Mumbai Bench, in M/s. Mapra Laboratories Ltd. v/s ACIT, & 899/Mum./2007, order dated 17th February 2009.

Learned Departmental Representative supporting the reasons of the Assessing Officer and also challenging the partial relief granted by the learned Commissioner (Appeals), which is also subject matter of challenge in Departmental appeals submitted, as the assessee has failed to justify the expenditure claimed with proper documentary evidence, the disallowance made by the Assessing Officer is justified.

We have considered the submissions of the parties and perused the material available on record. As could be seen, out of the total expenditure claimed by the assessee on account of gift articles the Assessing Officer has quantified the disallowance at 25% whereas the learned Commissioner (Appeals) has restricted it to 15% of the expenditure claimed. However, both the Departmental Authorities have held that some disallowance is required to be made as the entire expenditure is not supported by proper documentary evidence. Per– contra, it is the claim of assessee that every item of expenditure on gift article is not only entered in the books of account but also properly vouched. Aforesaid claim of the assessee to some extent appears to be correct. As could be seen out of the total expenditure claimed

In the result, assessee’s appeal is partly allowed. ./2009 – A.Y. 2005–06 9. Ground no.1, relates to disallowance of assessee’s claim of deduction under section 80IB by the learned Commissioner (Appeals).

At the outset, learned counsel for the assessee pointed out certain factual errors in the ground raised by stating that interest received on bank deposits which is the subject matter of dispute is Aristo Pharmaceuticals Pvt. Ltd. 8 actually ` 7,15,12,459, as against ` 7,81,56,341, mentioned in the ground. He further stated, cash discount on sundry debtors amounted to ` 1,10,906 instead of ` 9,10,976. Learned Departmental Representative also accepted the mistake / error in the ground. Be that as it may, as far as the issue raised in ground no.1 is concerned, facts are, in the course of assessment proceedings, Assessing Officer noticing that assessee has claimed deduction under section 80IB of the Act for its new industrial undertaking at Daman called upon the assessee to furnish necessary details. From the details submitted, it was noticed by the Assessing Officer that the profit from eligible unit from which the assessee claimed deduction under section 80IB, included an amount of ` 8,06,60,389, comprised of various other income including interest income. He, therefore, called upon the assessee to justify claim of deduction under section 80IB on such income. In response to the query raised, though, the assessee submitted that such income has direct / proximate nexus with the business activity of the industrial undertaking, hence, is eligible for deduction under section 80IB but the Assessing Officer did not find merit in the submissions of the assessee. From the details submitted by the assessee including a letter issued by the State Bank of India, Commercial Branch, Vile Parle (E), Mumbai, dated 7th November 2006, the Assessing Officer found that the amount of fixed deposit has Aristo Pharmaceuticals Pvt. Ltd. 9 increased to ` 365 crore from ` 294 crore, existing at the beginning of the year. Further, while examining assessee’s claim that Tribunal in the preceding assessment year has allowed deduction under section 80IB on interest income found that the observation of the Tribunal is restricted to interest income received from bank on the FDR kept as margin money. From the letter received from State Bank of India, the Assessing Officer found that the FDR kept as margin money amount to ` 28.01 crore. He, therefore, worked out the interest on such margin money at ` 1,84,75,756 and interest attributable to Daman Unit was worked out at ` 66,43,882, which he considered as part of the profit eligible for deduction under section 80IB and balance of the interest income was excluded from the profit of business for the purpose of deduction under section 80IB. Further, the Assessing Officer also did not allow deduction under section 80IB, on an amount of ` 25,04,048, comprising of interest, sundry debtors, insurance claim and misc. income. Being aggrieved of such disallowance of deduction claimed under section 80IB assessee preferred appeal before the learned Commissioner (Appeals).

The first appellate authority opining that issue in dispute is covered by the decision of the Tribunal and the order of the learned

Learned Departmental Representative submitted before us, interest earned on FDR under no circumstances can be considered to be having any nexus with the business of new industrial undertaking of the assessee so as to qualify for deduction under section 80IB. For such proposition, he relied upon the decision of the Hon'ble Supreme Court in Liberty India Ltd. v/s CIT, [2009] 317 ITR 218 (SC). Further, he submitted, the information obtained from the bank authorities clearly revealed that the FDR kept as margin money amounted to ` 28.01 crore, therefore, the Assessing Officer following the order of the Tribunal in assessee’s own case in letter and spirit has properly worked out the deduction under section 80IB as far as interest income is concerned. Hence, there is no justification on the part of the learned Commissioner (Appeals) to interfere with the same.

Learned Counsel for the assessee submitted that the FDR on which interest income was earned was for the purpose of margin money only, hence, the issue in dispute relating to claim of deduction us 80IB is covered by the decisions of the Tribunal in assessee’s own case for preceding assessment years.

We have considered the submissions of the parties and perused the material available on record. As can be seen from the facts on record, as far as interest income on which the assessee has claimed deduction under section 80IB, it is not in dispute that such income has been earned on FDRs kept with bank. It is the contention of the assessee that the FDRs are kept as margin money out of business compulsion, hence, interest earned on such FDR would constitute profit derived form the business of the industrial undertaking. It is evident from the assessment order that the Assessing Officer has also accepted in principle that interest earned on FDRs kept as margin money is to be considered as part of profit derived from eligible business of the undertaking. However, the dispute remains with the quantum of money kept as FDR towards margin money. While the assessee has claimed that the entire amount of ` 365 crore kept as FDR with Bank is towards margin money, the Assessing Officer has accepted ` 28.01 crore as margin money. On a perusal of the letter dated 7th November 2006 of SBI, Commercial Branch, Vile Parle (E), Mumbai, reproduced in the assessment order, it is clearly evident that the bank authorities have quantified the amount kept towards margin money at ` 28.01 crore, though, they have mentioned that the total deposits made by the assessee in the branch is ` 365 crore. When the Bench called upon the learned Counsel for the assessee to Aristo Pharmaceuticals Pvt. Ltd. 12 demonstrate that the entire amount of ` 365 crores was kept towards margin money, he was unable to justify such claim. On a perusal of the order passed by the Tribunal in assessee’s own case for assessment year 1995–96 to 2001–02 dated 30th September 2005, it is noticed that the Tribunal has held that interest earned on FDR kept as margin money would only qualify for deduction under section 80IB. As the assessee has failed to establish on record that the entire amount of ` 365 crore kept in the bank in FDR is towards margin money, we are unable to accept the claim of the assessee. On the contrary, since the letter received from the SBI demonstrate that FDRs kept as margin money amounted to ` 28.01 crore, in our view, assessee would be entitled for deduction under section 80IB only on interest earned on amount kept as margin money. As we do not find any infirmity in the reasoning of the Assessing Officer which is also in consonance with the decision of the Tribunal in assessee’s own case as referred to above, we uphold the order of the Assessing Officer on this issue by reversing the decision of the learned Commissioner (Appeals).

As far as disallowance of deduction claimed under section 80IB in respect of misc. income of ` 25,04,048 is concerned, it is observed that in the preceding assessment year, while considering identical nature of dispute the Tribunal has held that such income has direct

The learned Departmental Representative has also not controverted the aforesaid factual position.

In view of the above, respectfully following the decision of the co–ordinate bench of the Tribunal in assessee’s own case as delivered in ITA no.3990/Mum./1998, dated 30th September 2005, and in ITA no.6387/Mum./2004 and others, dated 30th May 2008, we allow assessee’s claim of deduction under section 80IB on this amount by upholding the decision of the learned Commissioner (Appeals). Grounds raised are partly allowed.

In the result, Revenue’s appeal is partly allowed. ./2010 – A.Y. 2006–07 ITA no.5246/Mum./2010 – A.Y. 2007–08

The only common issue arising in the aforesaid appeal of the Department relates to allowance of assessee’s claim of deduction under section 80IB of the Act.

The issue raised in the aforesaid appeals is identical to similar issue raised in ITA no.4097/Mum./2009, of the Department dealt with Aristo Pharmaceuticals Pvt. Ltd. 14 by us in the earlier part of the order. Facts being identical, following our decision therein, while we uphold the decision of the Assessing Officer in restricting the deduction claimed under section 80IB, to the interest income earned on FDR kept as margin money as far as other income are concerned, such as interest on sundry debtors, insurance claim, cash discount from creditors and income from sale of scrap, we uphold the order of the learned Commissioner (Appeals) in allowing assessee’s claim of deduction under section 80IB. Ground raised is partly allowed.

Before parting, we may mention that in ground no.3, raised for assessment year 2007–08, in ITA no.5246/Mum./2010, though the Department has challenged allowance of deduction under section 80IB on interest income earned on deposit with MSEB but at the time of hearing, it is noticed that learned Commissioner (Appeals) has not allowed any such deduction. Learned Departmental Representative also accepted this fact. As the issue does not arise out of the order of the learned Commissioner (Appeals), the ground raised is infructuous and accordingly dismissed.

In the result, Revenue’s appeals are partly allowed.

The only issue raised in the aforesaid appeal of the assessee is disallowance of assessee’s claim of deduction under section 80IB.

As far as interest earned on FDR is concerned, following our decision in ITA no.4097/Mum./2009, we hold that the assessee would be eligible for deduction under section 80IB on interest on FDRs kept as margin money. As far as income arising on account of interest from sundry debtors, insurance claim and profit on sale of scrap, following the decision of the co–ordinate bench of the Tribunal in assessee’s own case, we hold that the assessee would be eligible to claim such deduction under section 80IB, on such income. Grounds raised are partly allowed.

In the result, assessee’s appeal is partly allowed.

To sum up, Revenue’s appeals in ITA no.2478/Mum./2010, ITA no.5246/Mum./2010 and ITA no.4097/Mum./2009 is partly allowed; assessee’s appeal in ITA no.3564/Mum./2009 and ITA no.1536/Mum./ 2012 are partly allowed. Order pronounced in the open Court on 29.01.2016