PFIZER LTD,MUMBAI vs. ADDL CIT RG 8(2), MUMBAI

आदेश / O R D E R

Per Ashwani Taneja (Accountant Member): These appeals are filed by the Assessee against the orders of Disputes Resolution Penal -II, Mumbai {In short, ‘DRP’}, for the assessment years 2007-08 & 2008-09.

We first take up ITA No.8739/M/2011, for A.Y. 2007-08: After hearing both the sides, the appeal is decided ground wise as under:

3.1. The brief background of the case is that during the year the assessee provided support services to its AE in relation to

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coordination and managing the clinical trial performed by third party institutions/hospitals/ Trust in India (investigators under the instructions of Pfizer Inc.). As per the assessee, the functions performed by it are as under: 1) Providing low end support/coordination services to its AE’s 2) Acting as a facilitator / coordinator between the AE and the third party institutions/ hospitals/ doctors, who actually perform the clinical trials under the instructions of Pfizer Inc.

3.2. The other vital facts are that the assessee company is earning assured return by adding 10% mark-up on the total cost and it has characterized itself as a low risk support service provider. Following comparison has been furnished with respect to assessee’s comparables vis-a-vis TPO’s comparables: As per TP OP/TC Using As per TPO OP/TC Nature of study Report March business 2007 data Agrima -2.42% 1.39% Engaged in consultants providing International business Ltd. support services and assistance in feasibility study of projects. Cyber media 2.33% 8.73% Engaged in events Ltd. organizing conferences, exhibitions & Seminars and specially events.

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Hindustan 10.33% 9.57% Engaged in Housing Co. rendering Ltd. administrative and allied services Subex Azure -1.11% 12.43% Engaged in Ltd. providing staff augmentation to telecom companies in USA Alphageo(India) 38.50% Engages in Ltd. seismic survey and other reated activities. Choksi 33.76% Commercial Laboratories testing house Limited which is engaged in testing of products. N.G. Industreis 18.10% Engaged in Ltd. providing medical series TCG Life 26.06% Engaged in Sciences Lt. high and life science contract research and informatics solutions organization. Vimta Labs 26.92% Engaged in Ltd. high end contract research and testing activities.

3.3. The assessee has contended that it should be compared with support services providers rather than comparables engaged in providing high end clinical research and development activities. The assessee has further explained that its role is to identify and recommend the investigators who have capabilities to undertake the clinical trial base on

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parameters laid down by the AE. Once an Investigator is approved by the AE, then the assessee acts as an intermediary/facilitator between its AE and the Investigators. The AE undertakes the primary R & D activity for developing new molecule for undertaking of the clinical trial and takes over all responsibility of the trial. The entire risk of initiating the research for investing a formulation for a disease, obtaining regulatory approval from FDA, failure/ success of such reversals is borne by the AE. The assessee merely provides support services in a risk free environment. On this basis, the assessee has contended that the profit margin for provision of support services should be determined in its case by taking into consideration only the cost incurred by it to undertake intermediary functions i.e. own internal costs and that the payments to the investigator should be excluded from the cost while determining profit mark up. If such pass through costs are excluded, the assessee's margin would be 12% and if these pass through costs are not excluded its operating profit margin is 7.83%, both of which are higher than the comparable companies whose operating profit margin is 2.28%. Thus, the transaction of the assessee with the AE being at arm's length, no adjustment is warranted. 'the assessee has also filed a copy of its agreement dated 1.1.97 with its AE in support of its claim that its role with regard to clinical study management is merely that of a facilitator or an intermediary, performing its

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agency function. On this basis, the assessee contended that adjustment is not warranted, as unlike those companies, the assessee acts as a risk free support service provider. The assessee also contended that the TPO has not provided the benefit of 5% range as prescribed in the Proviso to Section 92C(2) of the Act.

3.4. The assessee has relied on the decision of Mumbai Bench of the Tribunal in the case of Zydus Altana Healthcare Pvt. Ltd, wherein activity in the nature of coordinating / facilitating clinical trials carried out by various hospitals rather than performing the R & D functions itself, for a return of 5% on cost, was accepted at arm’s length.

3.5. The DRP rejected the submissions of the assessee and upheld the adjustment made by the TPO (Transfer Pricing Officer).

3.6. But, while deciding this issue, the DRP has not given detailed reasoning to arrive at its conclusion. The real issues raised by the assessee in detailed submissions filed before the DRP have not been dealt with properly. It appears that the DRP could not properly appreciate the facts of the case and issues involved therein. It has been pointed out by the Ld. Counsel that some incorrect facts have been noted by the DRP in its order. It has been mentioned by the DRP that the assessee had sole right to decide investigator, whereas as per Ld. Counsel, the correct facts are that the assessee company has right to only monitor the progress of the investigator. In its

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letter dated 14.07.2011, addressed to the DRP, the assessee has made detailed submissions and also contested the comparables considered by the TPO. It is noted from the order of the DRP that no findings have been given with regard to the objections made by the assessee with respect to selection of comparables by the TPO. No proper decision has been given by the DRP on the merits of the case also. Therefore, in our considered opinion, this ground needs to go back to the file of the DRP to re-adjudicate the same, and to decide all the issues raised by the assessee in the submissions filed it before the DRP, after affording adequate opportunity of hearing to the assessee. The assesseee shall be granted opportunity by the DRP to enable it to submit all the details and evidences as may be considered appropriate, in support of its submissions. Thus, Ground No.1 is allowed for statistical purposes.

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from leased properties, as profit and gains of business or profession, instead of income from house property.

6.1. It has been argued at the outset by Ld. Counsel of the assessee that these issues are covered in favour of the assessee by the judgment of Hon’ble Bombay High Court in assessee’s own case. Our attention has been drawn by him upon the judgment of Hon’ble High Court available at pages No. 7 to 8 of the paper book. This judgment is also reported as CIT vs. Pfizer Ltd 330 ITR 62. In this judgment, Hon’ble High Court has affirmed the order of Tribunal holding that the rental income received by the assessee from sub-lease of the commercial prices was to be considered as ‘income from house property’. It was argued that the DRP has illegally confirmed the action of AO. On the other hand, Ld CIT DR has relied upon the orders of lower authorities. 6.2. We have gone through facts of the case and orders of lower authorities. The relevant facts as culled out from the orders are that in its Profit & Loss Account, the assessee had credited a sum of Rs.5,98,81,000/- being rental income from sub-leasing of office premises situated at Express Towers, Nariman Point, Mumbai, which was owned by the Indian Express Group. The assessee company reduced the said rental income of Rs.5,98,81,000/- from its income under the head "Income from Business & Profession" and shown the same under the head "Income from House Property" and

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taxed it accordingly. The Assessing Officer felt that assessee company was not the owner of the premises, and therefore he asked the assessee to show cause as to why the rental receipts should not be treated as its income under the head "Income from Business & Profession" and be taxed accordingly, for the reasons discussed in detail in the assessment order for the immediately preceding year i.e. A.Y. 2006-07 and years prior thereto. The assessee company, vide its written submissions dated 06.09.2010, stated that the Indian Expression Group has granted irrevocable permission to the assessee to sub-lease the said leased premises, upon such terms and conditions as may be found fit by the assessee company, further, as the lease period exceeds 12 years, the assessee is the ‘deemed owner’ of the leased premises in terms of the provisions of section 27(1)(iii)(b) r.w.s. 269UA(f) of the Act. But, the Assessing Officer rejected the assessee's plea, following the view taken by the Department in the assessments for earlier years that the assessee is a lessee of the property and not its owner. Following the view taken in earlier years, the Assessing Officer treated the rental receipts as business income and allowed deduction for the proportionate amount of property tax and service charges paid to Indian Express as business expenses.

6.3. Being aggrieved, the assessee filed objections before

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the DRP. During the proceedings before the DRP, the arguments advanced by the assessee before the Assessing Officer were reiterated, and also relied upon the decision of the Hon’ble Bombay High Court in its own case for A.Y. 2000-01 wherein, vide order dated 18.06.2010, the Hon’ble High Court has allowed the assessee's claim.

6.4. But, surprisingly, the DRP refused to follow the order of Hon’ble Jurisdictional High Court, given in assessee’s own case and chose to follow the view taken by the AO, that too without pointing out any distinction in facts or law. The findings and observations given by the DRP in this regard are reproduced herein: “We have considered the draft assessment order vis-à-vis the submissions and arguments put forth by the assessee in the course of these proceedings. It is found from record that in all the earlier years, the department has consistently taken the view that the impugned income is assessable as ‘income from Business’ and not ‘Income from House Property’ as claimed by the assessee. Conforming with the Departmental view on this issue, the Assessing Officer’s proposed treatment of the rental income as “Income from Business” is upheld.”

6.5. In our considered view, the judgment of jurisdictional High Court that too in assessee’s own case must have been

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followed, strictly and respectfully. The action of the DRP, disregarding the judgment was contemptuous in nature. Thus, respectfully following the judgment of jurisdictional High Court we decide this issue in favour of the assessee and direct the AO to assess the impugned rental income under the head, “income from house property”. Therefore, Ground no.4 is allowed.

8.1. The brief facts are that during the year under consideration, the assessee made payments to the third party manufacturers for purchase of finished goods amounting to Rs.9166.75 lacs and for purchase of packaging material amounting to Rs.4370.60 lacs. The assessee made the said payments without deduction of tax at source considering that the payments were made for contract of ‘sale of goods’ and hence, not liable for deduction of tax at source. The AO,

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however, contended that the payment for purchase of finished goods and packing materials constitutes contractual payments and hence, liable for tax deduction at source under the provisions of section 194C of the Act The AO made a disallowance under section 40(a)(ia) of the Act on account of non-deduction of tax at source.

8.2. On reference to the DRP, it concurred with the view of the AO that purchase of finished goods and packing materials by the assessee from the third party manufacturers constitutes a works contract considering the definition of 'work' as provided in the explanation to section 194C of the Act and hence held the same to be liable to deduction of tax at source.

8.3. Aggrieved by the same, the assessee is in appeal before Tribunal. During the course of hearing before us, Ld. Counsel has submitted that payment for purchase of goods and packing materials was not liable to deduction of tax at source u/s 194C of the Act. It has been further submitted that the assessee has entered into agreements with various third party manufacturers/suppliers for the supply of finished goods. The sample copies of agreements entered into by Pfizer with the third parties for purchase of finished goods, as enclosed in paper book were shown to us. It was submitted that in this regard, based on the specifications of the assessee, the manufacturers purchase the requisite raw materials, manufacture the products in their premises and deliver

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the final finished products. As per the agreement, the assessee has a right to visit the manufacturers' premises and inspect the process to ensure that the goods are as per the specifications. For the purpose of packing its products, the assessee purchases packaging materials from various suppliers on a principal to principal basis. The packaging material is supplied as per the instructions given in the purchase order. The invoice raised for the supplies is inclusive of the Excise duty and Sales tax as in the case for normal purchase of material. The payments are made to these independent manufacturers/suppliers as per the terms of the agreements. The Manufacturer pays Excise duty and VAT on the goods and the title in the goods is transferred to the appellant at the time of delivery. In view of these features, it was submitted that these transactions were in the nature of purchase/sale of goods and hence not covered under section 194C of the Act.

8.4. It was also submitted by the Ld. Counsel that amendment has been made u/s 194C by Finance Act 2009, whereby, in the definition of term “Work”, an exclusion has been made providing that, “work” does not include manufacturing or supplying a product according to the requirement or specification of the customers by using material purchased from a person, other than customer. Ld. Counsel submitted that there was ongoing litigation on this issue and therefore, aforesaid amendment has been made to section 194C for the purpose of bringing out clarity on this issue, in favour of the

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assessee. Further, reliance has been placed on the circular of CBDT, No. 681 dated 8th March 1984, wherein it has been provided that provisions of section 194C would not be applicable in case of contract for sale of goods. Lastly, it was submitted that the most important aspect is that for the aforesaid failure of assessee for deduction of tax, an order was passed u/s 201 holding the assessee in default for failure to deduct TDS at source. The matter has reached up to ITAT, wherein the Tribunal vide order 31.10.2012 has held that the assessee was not liable to deduct tax at source on the purchase of finished goods and packing materials.

8.5. On the other hand, Ld. DR has supported the order of lower authorities.

8.6. We have gone through the submissions made by both the sides as well as material placed before us for our consideration and also the judgments of the Tribunal in assessee’s own case for A.Y.2007-08, against the order passed u/s 201. The undisputed facts are that payments have been made for purchase of packing materials and finished goods, for which raw material was not provided by the assessee. It is, undisputedly and clearly, a case of purchase of goods. But, the main grievance of the lower authorities is that these goods have been purchased based on specifications of the assessee company. In this regard, it is noted that legislature has now put this controversy to rest by making appropriate amendment in Finance Act 2009, wherein it has been provided that the expression ‘work’, as used in section 194C, shall not include

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payments made for manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.

8.7. It is further noted that in the Explanatory Memorandum to the Finance Bill, 2009, the background of the amendment has been explained as under: "There is ongoing litigation as to whether TDS is deductible under section 194C on outsourcing contracts and whether outsourcing constitutes work or not. To bring clarity on this issue, it is proposed to provide that "work" shall not include manufacturing or supplying product according to the requirement or specification of a customer by using raw material purchased from a person other than such customer as such a contract is a contract for 'sale'. This will however not apply to a contract which does not entail manufacture or supply of an article or thing (e.g. a construction contract). It is also proposed to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, within the definition of 'work'. It is further proposed to provide that in such a case TDS shall be deducted on the invoice excluding the value of material purchased from such customer if such value is mentioned

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separately in the invoice. Where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value.”

8.8. The perusal of this explanatory statement clarifies that intention of the legislature for bringing out this amendment was to avoid unintended consequences which the taxpayers were facing as a result of wrong application of pre-amended section 194C. The Legislature wanted to remove the hardships faced by the assessee in such cases. There was no intention of the legislature for deduction of tax at source in the cases of transactions of pure sale and purchase. Therefore, to remove this anomaly, this amendment was brought out, for the benefit of the assessee. Thus, in our view, the aforesaid amendment made in the definition of term “works”, in section 194C is clarificatory in nature, and therefore, assessee should get its benefit in assessment year 2007-08 also.

8.9. The facts of the present case are that, it is not the case of AO or DRP that material was supplied by the assessee. The purchases have been made by the assessee from manufacturer/suppliers on principal to principal basis. The manufacturers/suppliers had also levied excise duty or sales tax or VAT, as was applicable. As per the terms of the agreement, title in these goods was transferred to the assessee at the time of delivery. It is further noted that the Central Board of Director Taxes had issued Circular No.681 dated 8th March 1984 providing that a contract undertaken to supply

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any article or goods according to the specifications given by any person and the property in such article or thing passes to such person only after such article or thing is delivered, then contract will be a contract for sale and as such outside of the proviso of section 194C. Thus, in view this circular as well as amendment brought out by Finance Act, 2009, in our view the impugned transactions were not liable for deduction of TDS u/s 194C.

8.10. Lastly, it is noted by us that an order was passed in the case of assessee u/s 201 for failure of the assessee in deduction of tax at source u/s 194C. This order had reached up to Tribunal. The Tribunal passed an order dated 31.10.2012 in ITA No.1765/2010, and followed the orders of Jurisdictional High Court in the case of BDA Ltd. vs. ITO 281 ITR 99 (Bombay) and CIT vs. Glenmark Pharmaceutical Ltd. 324 ITR 199, for holding that the assessee was not liable for deduction of tax on these transactions. The Department had carried this matter before the High Court. The Hon’ble Bombay High Court has upheld the decision of the Tribunal and did not admit the appeal filed by the department.

8.11. Thus, when it has been held that the assessee was not liable for deduction of TDS on this transactions, question of making any disallowance u/s 40(a)(ia) of the Act, does not arise, and therefore, keeping in view the aforesaid discussion, facts and circumstances of the case and the position of law, we find that the disallowance made by the AO is illegal and the same is directed to be deleted, and Ground no.6 is allowed.

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9.1. The brief facts are that during the financial year ended 31 March 2007, the assessee had sold the property at Chandigarh for a total consideration of Rs. 2,74,73,00,000/-. Further, in the agreement to sell dated 1st September 2006, an amount of Rs. 2,72,98,00,000/- was allocated towards the Chandigarh land out of the aforesaid total consideration. In respect of the aforesaid land at Chandigarh, the assessee had obtained a Valuation report dated 30th May 2006, from a Government Registered Valuer, M/s Amol Sekhri & Associates, which determined the FMV of the land as on 1 April 1981 at Rs. 12,54,52,800/- In the Return of Income, the assessee had offered long term capital gains of Rs. 2,02,64,67,043/- on sale of land at Chandigarh.

9.2. The Assessing Officer referred the valuation of the Chandigarh Land to the DVO, Chandigarh under Section 55A of the Act. Pursuant to the same, the DVO issued a valuation report dated 27 December 2010 determining the FMV of the Chandigarh Land at Rs. 36,974,000/-. Further, the AO during the course of assessment proceedings asked the

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assessee to show cause as to why the FMV as on 1 April 1981 determined by the DVO should not be adopted for the purpose of computing capital gains on sale of Chandigarh Land. In response to the same, the assessee objected for adoption of DVO’s report and also submitted its objections to the method adopted by the DVO in the said valuation report. The AO, however, continued with the value determined by the DVO in the assessment order passed.

9.3. The DRP upheld the action of the AO in rejecting the cost of acquisition as on 1st April 1981 and indexation thereof as per Registered Valuer's Report and instead adopted the FMV of Rs. 3,69,74,000 as on 1st April 1981 as per D.V.O.'s report. Aggrieved by the same, the assessee company is in appeal before the Tribunal.

9.4. Before us, both the parties have made their respective arguments at length. It has been submitted by the Ld. Counsel at the outset that reference made to DVO u/s 55A is bad in law, and therefore ought to be quashed as null and void. On this issue, it was further elaborated by the Ld. Counsel by drawing our attention to the fact that a reference to the DVO under section 55A(a) of the Act could be made only if the AO is of the opinion that the value claimed by the assessee was less than the FMV. In the instant case, the value determined by the DVO was in fact, lower than that claimed by the assessee, i.e. the value as per the Registered Valuer. Hence, there was no

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question of making a reference to the DVO under the said section. 9.5. It was further submitted that a reference to the Valuation Officer under section 55A(b) can be made only in a case where the assessee has not furnished a valuation report. In the instant case, since the value as on 1 April 1981 was taken by the assessee on the basis of the report of a registered valuer, the AO did not have the power to make a reference under section 55A(b) of the Act. Accordingly, the AO's reference to the DVO is invalid even under section 55A(b) of the Act.

9.6. Our attention was also invited to the fact that the amendment made to section 55A by the Finance Act 2012 has been made effective from 1st July, 2012 and was accordingly not applicable to the year under consideration i.e. AY 2007-08.

9.7. Lastly, it was submitted that legal position was well settled on this issue. Our attention was invited to the decision of the jurisdictional High Court in the case of CIT vs Puja Prints, 360 ITR 697 (Bombay). In this decision, Hon'ble Bombay High Court has, after considering the said amendment, held that if a report of a registered valuer has been taken by the assessee, then the provisions of section 55A(a) only are applicable and section 55A(b) has no application, and further if the value determined by the DVO is lower that than claimed by the assessee, then the reference to

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the DVO is not valid.

9.8. Our attention was also invited to the following decisions which have decided the same principle with regards to the applicability of section 55A(a) vis-a-vis section 55A(b):

(a) Hiaben Jayantilal Shah v Income-tax Officer (Gui HC) (310 ITR 31) b) Ms. Rubab M. Kazerani v Joint Commissioner of Income-tax 97 TTJ 698 (Mum)

c) Income-tax Officer vs Smt. Lalitaben Kapadia (115 TTJ 938) (Mum)

(d) Smt. Sarla N. Sakraney v Income-tax Officer (Mum)

(e) Sajjankumar M. Harlalka v Joint Commissioner of Income- tax (102 TTJ 974) (Mum)

(f) Smt. Krishnabai Tingre v Income-tax Officer (101 lTD 317) (Pune)

9.9. On the other hand Ld. CIT (DR) has vehemently opposed the arguments of the Ld. Counsel. He has supported the action of AO in making reference to the DVO. It has been argued by him that reference has been made by Ld. DVO u/s 55A(b)(ii) and not in section 55(A(a), he placed reliance upon Board’s circular No.96 dated 25.11.1972. As per Ld. DR, the AO has all the powers under the law i.e. whether the fair market value of the impugned property is found to be “more” than what has been stated by the assessee in the return of income or “less” than as stated by the assessee in the return of income. He has relied upon the judgments of Hon’ble Gujarat High Court in the case of Hiaben Jayantilal Shah vs. ITO 310

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ITR 31. He has also referred to the judgment of Puja Prints of Bombay High Court (supra) for making arguments that in these judgments, it was a case of reference made u/s 55A(a) whereas in the present case the reference has been made by the AO u/s 55A(b)(ii).

9.10. In reply Ld. Counsel has submitted that arguments made by the Ld. CIT (DR) are contemptuous in nature. It has been submitted that this issue is now squarely covered by the judgment of Hon’ble Jurisdictional High court in the case of Puja Prints (supra). It is submitted that the tribunal has no power under the law to go against the judgment of Honble Jurisdictional High Court, and in case the Revenue has any grievance, then the right forum would be Hon’ble Supreme Court only. According to Ld. Counsel, this issue is no more open for discussion or debate, and he requested for following the order of Hon’ble Jurisdictional High Court on this issue for holding that the reference made by the DVO was illegal and void ab initio.

9.11. We have gone through the facts of the case, arguments made and the judgments placed by both the parties, more particularly judgment of Hon’ble Jurisdictional High Court. We have seriously pondered over the contentious issues. The issue before us is whether the AO has requisite powers under the law to make a reference to DVO in case he finds that the value of the impugned property as on 01.04.1981 as shown by the assessee in the return of income is more than the fair market value in the opinion of the AO. As per the Ld. Counsel, the AO

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does not have any such powers, especially in view of the judgment of Jurisdictional High Court. On the other hand, as per Ld. CIT –DR, the AO does have requisite powers under the law irrespective of the fact whether fair market value is expected to be more or less than the value claimed by the assessee in the return of income.

9.12. Before we apply our own analysis on this issue, we find it appropriate to refer to the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Puja Prints (supra) 360 ITR 697. The relevant abstract of this judgment is reproduced below: "We find that Section 55A(a) of the Act very clearly at the relevant time provided that a reference could be made to the Departmental Valuation Officer only when the value adopted by the assessee was less than the fair market value. In the present case, it is an undisputed position that the value adopted by the respondent-assessee of the property at Rs. 35.99 Iakhs was much more than the fair market value of Rs. 6.68 lakhs even as determined by the Departmental Valuation Officer. In fact, the Assessing Officer referred the issue of valuation to the Departmental Valuation Officer only because in his view the valuation of the property as on 1981 as made by respondent-assessee was higher than the fair market value, In the aforesaid circumstances, the invocation of Section 55A (a) of the Act is not justified. The contention of the revenue that in view of the

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amendment to Section 55A(a) of the Act in 2012 by which the words "is less than the fair market value" is substituted by the words " "is at variance with its fair market value" is clarifactory and could be given retrospective effect. This submission is in face of the fact that the 2012 amendment was made effective only from 1 July 2012. The Parliament has not given retrospective effect to the amendment. Therefore, the law to be applied in the present case is Section 55A(a) of the Act as existing during the period relevant to the Assessment Year 2006-07- At the relevant time, very clearly reference could be made to Departmental Valuation Officer only if the value declared by the assessee is in the opinion of Assessing Officer less than its fair market value. The contention of the revenue that the reference to the Departmental Valuation Officer by the Assessing Officer is sustainable in view of Section 55A(b) (ii) of the Act is not acceptable. This is for the reason that Section 55A(b)of the Act very clearly states that it would apply in any other case i.e. a case not covered by Section 55A(a) of the Act. In this case, it is an undisputable position that the issue is covered by Section 55A(a) of the Act. Therefore, resort cannot be had to the residuary clause provided in Section 55A(b)(ii) of the Act. In view of the above, the CBDT Circular dated 25 November 1972 can have no application in the face of the clear position in law. This is so as the understanding of the statutory

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provisions by the revenue as found in Circular issued by the CBDT is not binding upon the assessee and it is open to an assessee to contend to the contrary.

The contention of the revenue that the Assessing Officer is entitled to refer the issue of valuation of the property to the Departmental Valuation Officer in exercise of its power under Sections 131, 133(6) and 142(2) of the Act is entirely based upon the decision of the Guwahati High Court in Smt. Amiya Bala Paul (supra). However, the Apex Court in Smt. Amiya Bala Paul (supra) has reversed the decision of the Guwahati High Court and held that if the power to refer any dispute with regard to the valuation of the property was already available under Sections 131(l), 136(6) and 142(2) of the Act, there was no need to specifically empower the Assessing Officer to do so in circumstances specified under Section 55A of the Act. It further held that when a specific provision under which the reference can be made to the Departmental Valuation Officer is available, there is no occasion for the Assessing Officer to invoke the general powers of enquiry."

9.13. We have gone through the above said judgment very carefully, and also compared it with the detailed arguments made by Ld. CIT-DR. It is noted by us that Hon’ble Jurisdictional High Court has also considered the amendment made under the law and held that the same is prospective and

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not retrospective in nature, and therefore, Revenue cannot be given the benefit of amendment. It has been further held by the Jurisdictional High Court that in all those cases which are covered by section 55A(a), resort cannot be made to the residuary clause provided in section 55A(b)(ii). In other words, reference u/s 55A(b)(ii) can be made only in those cases which are not covered by this section 55A(a). It is noted by us that clause (a) covers those cases where the value of asset is adopted by the assessee on the basis of report of registered valuer.

9.14. The present case is clearly covered under clause (a), since the assessee had adopted the value of the impugned land as on 01.04.1981 on the basis of report of registered valuer. Thus, under such circumstances invocation of clause (b)(ii) of section 55A was ousted, and therefore, reference could have been made by the AO u/s 55A (a), only.

9.15. Ld CIT DR argued that in this case reference was made by the AO u/s 55A(b)(ii). During the course of hearing we asked Ld. CIT DR to show this aspect from the order of lower authorities. In response, Ld. CIT DR submitted that there is no reference to clause (a), and therefore, it should be inferred from the order passed by the AO that reference was made under clause (b)(ii) of section 55A. He also submitted that same is discernible from the satisfaction of the AO as is made out in the assessment order.

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9.16. We do not find substance in the arguments of Ld. CIT- DR. In our view, it cannot be made out from the records shown to us that reference was made in clause (b)(ii) of section 55A. Even otherwise, as per law, the AO was not empowered, in the given facts and circumstances of the case, to make a reference under clause (b)(ii). Making of reference is a question of fact. It cannot be presumed or inferred. Thus, arguments made by the Ld. CIT DR are factually incorrect and contrary to law.

9.17. In our considered view, this issue has been clearly thrashed out by Hon’ble Jurisdictional High Court in the case of Puja Prints (supra), as per which the AO was empowered under the law to make a reference to DVO, if in his opinion the fair market value of the impugned property was more than the value as adopted by the assessee in the return of income on the basis of report of its registered valuer. The facts of the present case are clearly covered with the judgment of Hon’ble Jurisdictional High court, and therefore, respectfully following the same we hold that reference made by the DVO was bad in law and is held to be invalid and therefore, consequent to this, all further proceedings made by the AO in pursuance to such reference are also illegal, and therefore, the addition made by the AO on the basis of illegal reference and report of DVO is also illegal, and the same is hereby deleted. As a result Ground No.7 of the assessee’s appeal is allowed on primary issue. At this stage, we refrain ourselves from going into the merits of the other arguments with respect to factual

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infirmities in the report of the DVO, since we have decided this issue on the primary ground itself.

11.1. We have gone through the material placed before us and the submissions made by the assessee. It is noted that no specific arguments were made, nor anything has been shown that this difference was duly reconciled. In view of the above, Ground No.10 is rejected.

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date of payment of installment of advance tax. The assessee has paid the entire tax in respect of the long term capital gain arising on the sale of aforesaid property, amounting to Rs.46 crores on 31st March 2007. It was argued that under these circumstances proviso below section 234C(1)(b) became applicable and interest was not leviable to this extent. Reliance has been placed by Ld. Counsel on the judgment of Hon’ble Rajasthan High Court in the case of CIT vs Premlata Jalani 264 ITR 744. On the other hand, Ld. DR has relied upon the orders of lower authorities.

12.1. We have gone through the submissions made, material placed before us and judgments relied by both the sides. The facts narrated by Ld. Counsel remain undisputed. The property was sold after 15th March of the F.Y., and thus, capital gain arose to assessee after time for payment of advance tax had passed. The assessee could not have, apparently forecasted the amount of income accrued to it by way of aforesaid capital gains. The legislature has taken care of this situation by inserting a proviso below section 234C(1)(b).

12.2. There is no dispute on the fact that the exact estimate could not be done by the assessee on the amount of capital gains. The assessee has relied upon the judgment of Hon’ble Rajasthan High Court in the case of CIT vs. Smt. Premlata Jalani (supra), wherein view has been taken supporting the claim of the assessee in view of the aforesaid proviso.Interest has been levied ignoring the effect of aforesaid proviso as well

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as judgment of Hon’ble Rajasthan High Court, and therefore in the interest of justice, we send this issue back to the file of the AO to decide the same in terms of our directions as contained above. The AO shall decide this issue, and recomputed the amount of interest payable by the assessee, if any, keeping in view position of law as discussed above in juxtaposition of the facts of the case. Thus Ground no 11 is allowed for statistical purposes.

13.1. During the course of hearing, following facts have been narrated by the Ld. Counsel by way of facts sheet submitted to the Bench.

“1. During the financial year relevant to AY 2005-06, the appellant had received an 'intimation dated 30 March 2004 issued under section 143(1)(a) of the Act, wherein interest under section 244A amounting to Rs. 1,87,81,254 was granted for AY 2003-04 (refer compilation page no 132). The said interest income was credited to the Profit and Loss Account for the said year.

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amounting to Rs. 58,31,098/- which was withdrawn (Rs. 1,87,81,254 (credited to the Profit and Loss Account) - Rs. 1,29,50,156 (granted in the order giving effect)), had been reduced from the total income. 7. In response to the same, the AO vide notice dated 2 July 2012, issued the reasons for reopening the assessment for the aforesaid year stating that the appellant ought to have offered the interest income amounting to Rs. 1,87,81,254 to tax since the same had accrued in the hands of the appellant in the financial year relevant to AY 2005-06. 8. In response to the aforesaid reasons for reopening of the assessment, the appellant vide letter dated 17 July 2012 submitted its objections. 9. In the order dated 11 October 2012 passed under section 143(3) read with section 147 of the Act for AY 2005-06, the AO rejected the submissions of the Appellant and included the entire interest amounting to Rs. 1,87,81,254 in the total income (refer compilation page nos. 133 to 140). 10. On appeal filed before CIT(A) against the aforesaid reassessment order for AY 2005-06, the CIT(A) in its order dated 7 August 2013 has held that the interest amounting to Rs. 1,29,50,156 which was finally determined for AY 2003-04 ought to be taxed in AY 2005-06 as was offered by the Appellant in the return of income filed in pursuance of the notice issued under section 148 of the Act. (refer compilation page nos 252 to 255)

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13.2. In view of the above facts and circumstances, it has been requested by the Ld. Counsel that, as the interest income for A.Y.2003-04 has been offered to tax in A.Y.2005-06 as per the order of Ld. CIT(A), the amount of Rs.1,18,75,551/- offered to tax in the return of income for A.Y.2007-08 and taxed as such in the assessment order dated 21.10.2011, ought not to taxed in A.Y.2007-08.

13.3. On the other hand, Ld. CIT- DR has supported the orders of lower authorities. With respect to admission of the additional ground, no serious objection was raised by him.

13.4. We have gone through the submissions made by both the sides and copies of orders shown to us. In our considered view, the ground raised by the assessee is purely legal ground, and it can be decided on the basis of facts already held on records. Therefore, in view of judgment of Hon’ble Supreme Court, the additional ground is admitted.

13.5. We find that assessment of the interest income u/s 244A has been done in such a manner that it has led to double taxation, as on date. We feel that the role of the income tax authorities, under the law, is to make fair assessment of income and determine tax payable thereon. No tax can be

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collected except with the authority of law, as per clear mandate of our Constitution, as enshrined in article 265. The law does not intend to make unjust enrichment of the Government, at the cost of taxpayers. Therefore, in the interest of justice and in all fairness, we direct the AO to look into all these aspects and ensure that impugned interest income is taxed only once, in appropriate year. For this purpose, necessary rectification orders shall be passed, as per law. The assessee shall extend requisite cooperation to the AO by providing required details, information and documentary evidences. Thus, Ground no.12 is sent back to file of the AO, with our directions as contained above.

14.1. During the course of assessment proceedings, it was submitted by the learned counsel that in A.Y. 2006-07, additions of Rs.8,94,86,220/- was made u/s 145 of the Act to the closing stock value. Therefore, in accordance with the department’s stand for A.Y.2006-07, the opening stock of A.Y.2007-08 ought to be increased and deduction should be

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granted to the said extent. In support, the reliance has been placed on the judgment of Hon’ble Bombay High Court in the case of CIT vs. Mahalaxmi Glass Works (P) Ltd. 318 ITR 116 and decision of ITAT Mumbai in the case of Hawkins Cookers Limited vs. ITO (ITA No.505/Mum/2004 (14 DTR 206)

14.2. We have gone through the submissions made and cases relied upon by both the sides. This ground being a legal ground is admitted for adjudication.

14.3. The brief facts are that the AO vide its order dated 5th February, 2010, passed under section 143(3) of the Act for the A.Y.2006-07, made an addition under section 145A of the Act to the closing stock amounting to Rs.8,94,86,220/- on account of unutilized modvat credit. However, the same effect was not given to the opening stock of succeeding year i.e. A.Y.2007-08.

14.4. In our considered view, as the fairness demands and as per law, the value of closing stock of a particular year should be the opening stock of the next year. There can be no doubt or debate on this proposition. If this principal is not followed, it may give rise to absurd results, leading to excessive and unfair assessment of income in the hands of the assessee. Therefore, we direct the AO to adopt the value of closing stock of A.Y. 2006-07 as value of opening stock of assessment year 2007-08, in case the addition made by the AO in the closing stock of A.Y.2006-07 has attained finality. Accordingly, this

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ground is sent back to the file of the AO with the directions as given above, and may be treated as allowed for statistical purposes.

16.1. It has been argued that 1/5th of expenditure incurred in relation to amalgamation of Pharmacia Healthcare Limited with Pfizer Limited in A.Y. 2004-05 amounting to Rs.13,06,200/- was allowed as deduction in A.Y. 2004-05 in accordance with the provisions of section 35DD of the Act, and therefore, consequently, to maintain consistency, similar amount should be allowed as a deduction in the impugned year also, and therefore direction should be given for this purpose.

16.2. The brief background is that the CIT(A) vide its order dated 27thDecember, 2006 has allowed deduction of Rs.13,06,200/- in A.Y.2004-05, i.e. 1/5th of the total expenditure under the provisions of section 35DD. As per the provisions of section 35DD of the Act, the assessee shall be

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allowed deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation takes place.

16.3. It was submitted that the A.Y. 2007-08 being the fourth year from the year in which amalgamation took place, the assessee was eligible for claiming the deduction of 1/5th of the expenditure under section 35DD of the Act, and accordingly, it was requested to grant deduction of Rs.13,06,200/- under section 35DD of the Act.

16.4. We have gone through the submissions made by both the sides. As per law deduction has to be allowed equivalent to the amount of 1/5th of the total expenditure u/s 35DD as has already been allowed to the assessee in A.Y. 2004-05. We direct the AO to maintain consistency, and follow the order for A.Y. 2004-05. Thus, Ground no.15 is allowed.

ITA No.583/Mum/2013 for A.Y. 2008-09:

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18.1. The brief facts are that the TPO made adjustment to the Arm’s Length Price relating to the interest outstanding receivable and quantified the same @ of 16% per annum. The assessee contested this matter before the DRP, who upheld the adjustment in principle, but reduced the rate of Prime Lending Rate (PLR) of India at rate of 13.25% of per annum.

18.2 Being aggrieved the assessee has contested this matter before the Tribunal. Before us Ld. Counsel has made detailed submissions.

18.3. It was submitted that the TPO erred in calculating delay in payment up till the date of realization of payment which falls in the subsequent year. It was submitted that interest on outstanding receivable can be calculated only for the delay during the relevant financial year 2007-08 i.e. in the scenario wherein the outstanding amount has been received during the year, the interest shall be calculated from the due date till the date of realization. In the scenario that the outstanding amount is received after 31st March 2008, the interest should be calculated from the due date till the last day of the relevant financial year i.e. 31st March, 2008. In support of his arguments Ld. Counsel has relied upon the judgment of Mumbai Bench of ITAT in the case of Tecnimont ICB House, (A.Y.2009-10 ITA No.487/Mum/2014, order dated 08.07.2015) for the proposition that interest can be charged only up to the end of the F.Y. With regard to the other

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proposition that rate of interest should be on the basis of LIBOR plus, reliance has been placed on the judgment of Pune Bench of ITAT in the case of iGATE Computer System Ltd. (ITA No.2504/PN/2012, A.Y. 2005-06, order dated 27.05.2015).

18.4. On the other hand, Ld. CIT DR has argued that interest should be spread in the next year also and appropriate direction can be given by the Tribunal for that. With regard to rate of interest, it has been suggested by the Ld. CIT- DR that it can be LIBOR plus 150 basis points.

18.5. In reply, Ld. Counsel has submitted that if interest is leviable, it can be charged only till the end of the relevant financial year, as no direction can be given by the bench for the subsequent years, as only present year is open before the bench.

18.6. We have gone through the submissions made by both the sides and material placed before for our consideration. It is noted that this issue has been thrashed out by the Hon’ble Pune Bench in the case of iGATE Computer System Ltd. (supra), wherein it has been held that once the transaction between the assessee and its AEs was in foreign currency, then the same partakes the nature of international transaction and the said transaction has to be looked upon by applying the commercial principles with regard to an international transaction. If that is so, then the domestic lending rates cannot be applied in order to benchmark the transaction of

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the assessee with its AEs and the international rates fixed by LIBOR would come into place.

18.7. It is further noted by us that no serious objections have been raised by the Ld. CIT-DR for adoption of international rates fixed by LIBOR, keeping in view the fact that amount was to be received back in US currency only. Thus, keeping in view the peculiar facts and circumstances of the case and law as explained by Hon’ble Pune Bench in the case of iGATE Computer System Ltd.(supra), we hold that Indian prime lending rates cannot be applied and the international rate fixed by the LIBOR would come into play. In our considered view, as per as per the suggestions received from both the sides, the rate of interest should be LIBOR plus 150 basis points.

18.8. The next issue is to be decided is about the period, up to which adjustment on account of interest can be made to the income to the current year.

18.9. In this regard we find that this issue has been very well explained by the Mumbai Bench of ITAT in case of Tecnimont ICB House (supra), wherein it has been held that interest should be charged only up till the end of the F.Y. Thus, it is held that interest should be calculated from the due date till the date of realisation, if the outstanding amount has been received during the year. In case the outstanding amount has been received back after 31st March 2008, then interest will be

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calculated from the due date till the last date of this F.Y. i.e. 31st March 2008. We direct the AO to give effect to our directions, accordingly. Thus, Ground no.2 is partly allowed as in terms of our directions as stated above.

19.1. This ground is same as Ground No.4 of A.Y. 2007-08. Both the parties have confirmed that facts and issues involved in the aforesaid year are identical in this year, as well. Therefore, we direct the AO to follow our order of A.Y. 2007-08 on this issue.

20.1. We find that issue involved is identical to Ground no. 6 of appeal of A.Y.2007-08. It is informed that there is no

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change in facts in this year. Thus, we direct the AO to follow our order of assessment year 2007-08 on this issue.

21.1. The brief facts are that the assessee debited a sum of Rs.10,49,89,239 towards clinical trial expenditure in the profit and loss account. Out of the total expenditure of Rs.10,49,89,239, the assessee had deducted tax at source on payments amounting to Rs.6,84,47,188 and for Rs.9,26,710, the assessee had submitted Nil withholding tax exemption certificates furnished by the recipients. For the balance amount of Rs. 3,56,15,341, the assessee stated that the said amount constitutes purchase of materials, expenses on food and travelling, payment of regulatory fees and other similar payments on which no tax is required to be deducted at source. The AO, however, disregarding the contentions of the assessee, held that deduction of tax on clinical trial expenses has already been upheld by the CIT(A)-14 vide his order dated 31 December 2009 and hence, the said amount of Rs.3,56,15,341 was to be disallowed under the provisions of section 40(a)(ia) of the Act. On reference to the DRP, the DRP ignored assessee's contentions and held that purchase of materials, expenses on food and travelling, payment of regulatory fees were not

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reimbursement of expenses but first hand business expenditure on which tax was deductible at source. The DRP further held that the assessee had not furnished details for the amount of Rs. 3,56,15,341. The assessee filed an application for rectification before the DRP. The DRP vide order dated 31 December 2012 rejected the same on the ground that the same are not rectifiable issues. Aggrieved by the same, the assessee company is in appeal before the Tribunal.

21.2. Before us, Ld. Counsel of the assessee has submitted as under: “The appellant respectfully submits that the DRP has erred in upholding the action of the AO and in validating the justification of the AO that the CIT(A) - TDS in its order dated 31 December 2009 for the AY 2007-08 has dismissed the appellant's appeal with regard to non- deduction of tax at source on clinical trial expenditure. The observation of the AO that the CIT(A)-TDS has dismissed the appellant's appeal with regard to non- deduction of tax on clinical trial expenditure is incorrect in as much as the CIT (Appeals) - TDS had directed the AO to verify the break-up of clinical trial expenditure and grant relief accordingly. Attention is invited to the order dated 30 March 2013 passed by the CIT(A)-TDS for the year under consideration viz. AY 2008-09 wherein it has been held that tax is not deductible at source on the aforesaid items

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(refer compilation page nos 217 to 221). It may be noted that the department has accepted the orders passed by the CIT(A)-TDS for both the years i.e. AY 2007-08 and AY 2008-09. In the order dated 31st December, 2014 giving effect to the aforesaid order of the CIT(A) for AY 2008-09, it was held that taxes are not required to be deducted on clinical trial expenditure aggregating to Rs. 3,34,44,563 (refer compilation page nos 484 to 488). In view of the above, the appellant submits before Your Honour that the AO be directed to delete the disallowance under Section 40(a)(ia) in respect of clinical trial expenditure amounting to Rs.3,34,44,563/-.”

21.3. Thus, in nut shell, the assessee submitted that disallowance to the extent of Rs. 21,70,778/- is not pressed and balance disallowance of Rs.3,34,44,563/- should be deleted as the basis of the disallowance ceases to exist.

21.4. On the other hand, Ld. DR has relied upon the orders of the lower authorities.

21.5. We have gone through the orders of lower authorities and submissions made by both the sides as well as order of Ld. CIT(A)-TDS dated 30th March 2013 for A.Y. 2008-09 in assessee’s own case and also order passed by the DCIT (TDS) dated 31.12.2014 giving effect to the order of Ld. CIT(A) dated 30.03.2013. As per the order passed by Ld. CIT(A), it has been

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held, in principle, that out of clinical trial expenses amounting to Rs.3.56 crores, TDS was not required to be deducted. Keeping in view nature of these expenses, and for the purposes of requisite verification of facts as was claimed by the assessee, the matter was sent back to the file of AO. Thereafter the AO passed an order giving effect dated 31st December 2014. We, therefore, send this ground back to the file of the AO to examine these facts that out of total disallowance of Rs. 3.56 crores, how much amount has been deleted by the AO in the order dated 31.12.2014. The disallowance shall be deleted equivalent to this amount and balance amount of disallowance shall be sustained. Thus, assessee gets part relief, and this ground is treated as allowed for statistical purposes.

22.2. The brief facts are that during the year under consideration, the assessee had transferred its right to use the trademark/ license pertaining to consumer health brands (i.e., Listerine, Benadryl, Caladryl and Benylin) for a consideration of Rs.2,10,60,10,000. The long term capital gain on account of the transfer of intellectual property rights was computed at

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Rs.2,10,60,10,000. The AO, however, held that profit earned on sale of license/trademark was in the nature of short term capital gain as the said license/trademark has been recognized for the first time by the asessee in its books of account during the year under consideration. Thus, as the intangibles formed part of the block of assets during the AY 2008-09 and were sold in the same year, the gain is to be treated as short term capital gain. The assessee had submitted to the AO, extracts from the annual report of Parke Davis India Ltd to show that the said company was the licensed user of the said trademark/ license.

22.3. On reference to the DRP, the DRP upheld the action of the AO by stating that the assessee has sold a depreciable asset, the gain/loss on which is to be treated as per the provisions of section 50 of the Act. The DRP rejected the claim of the appellant that the license/trademark got transferred to the assessee with effect from 01. 12.2001 on account of amalgamation of assessee company with Parke Davis India Limited and held that the license/trademark has been recognized for the first time in the books of account during the AY 2008-09.

22.4. The assessee also filed a rectification application before the DRP to rectify the incorrect factual finding that the license has been recognized for the first time during AY 2008-09 as the right to use license/trademark was transferred with effect from 1 December 2001, neither any

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payment nor any expenditure was incurred for acquiring the same and even as per Annexure 6(a) to the Tax Audit Report for the AY 2008-09, there were no additions to the block of intangible assets. However, the application was rejected by the DRP on the ground that the matter was conclusively decided by the DRP. Aggrieved by the same, the assessee company filed an appeal before the Tribunal.

22.5. Before us the Ld. Counsel has made detailed arguments Following submissions have been made by the ld. Counsel on this issue, on the basis of Fact sheet submitted during the course of hearing:

“The appellant hereby submits that it was amalgamated with Parke Davis India Limited pursuant to sanction of the amalgamation scheme by the High Court of Bombay on —7th February 2003 with effect from 1st December 2001 (refer compilation page nos 450 to 453). By virtue of the said amalgamation, the license for the right to use the aforesaid trademarks/ licenses got transferred to the appellant with effect from 1st December 2001 By virtue of the above facts, it is evident that the aforesaid licenses were used by the appellant for more than 3 years prior to the date of sale. The order of the AO upheld by the DRP suffers from error in as much as the fact that the said assets were neither capitalized in the accounts nor included under the block of 'Intangible Assets'.

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Attention is invited to section 2(42A) of the Act which defines Short term capital asset as a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of transfer. In the instant case, the right to use the trademark/license pertaining to consumer health brands was held by the appellant for more than thirty-six months. Accordingly, the said right to use the trademark/ license pertaining to consumer health brands do not fall within the definition of a short term capital asset and accordingly the gain arising on the transfer of the said asset cannot be termed as a short term capital gain. The appellant submits that the rights to use the trademarks/ licenses were acquired by the appellant from Parke Davis India Limited in the scheme of amalgamation sanctioned by the Hon'ble Bombay High Court with effect from 1st December 2001 (refer compilation page nos 450 to 453), the said licenses were held by and used by the appellant for more than 3 years prior to the date of sale. Accordingly, there was no question of treating them as a short term capital asset and therefore no reason to charge them to tax as short term capital gains. The DRP has upheld that action of the AO on the ground that since the trademarks/ licences formed part of the block of assets and the same were transferred during the year under consideration, the gain arising therefrom is

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deemed to be short term capital gain as per the provisions of section 50 of the Act.”

22.6. The provisions of section 50 were read during the course of hearing to contend that in order to treat capital gains arising from the transfer of the aforesaid licenses as short- term capital gains, as per the provisions of section 50 of the Act, it was necessary that the following conditions mentioned in the said section be fulfilled viz. (i) The capital asset should be an asset forming part of block of assets, and (ii) Depreciation should have been allowed on it under the Income tax Act. It is only on the fulfillment of both these conditions that the provisions of section 50 shall get attracted.

22.7. It was further submitted that it was evident from Annexure -6A of the Tax Audit Report submitted to the AO that the impugned trademarks/license were not part of block of assets. It was submitted by the Ld. Counsel that since the assets were not forming part of block of assets, there was no question of claiming any depreciation on the same, and therefore, the provisions of section 50 were not applicable on the facts of this case. In support of his arguments Ld. Counsel has relied upon following decisions: (i) Divine Construction Company vs. Assistant Commissioner of Income Tax (138 ITD 72)

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(ii) CIT vs. Santosh Structural & Alloys Ltd. (206 Taxman 616) (iii) Mediworld Publications (P) Ltd. 337 ITR 178) (Delhi)

22.8. Summarizing his arguments, Ld. Counsel submitted that section 50 cannot be applied to an asset on which no depreciation has been claimed or allowed, it was requested that AO be directed to recompute the capital gains arising on sale of license/trademarks as long terms capital gains instead of short term capital gains.

22.9. On the other hand, Ld. DR has relied upon the orders of lower authorities. He has submitted that no value was recorded by the assessee in its books of accounts, and that assessee showed nil value at the time of sale, whereas it had a value at the time when Parke Davis was required it was further submitted that on this amount now depreciation is allowable as per law and since these are depreciable asset, these would be covered u/s.50, talks of depreciable assets. It was lastly argued that by view of dealing fiction the impugned assets would be short term capital asset, therefore, the action of lower authorities in treating capital gain arising from sale of these assets as rightly been treated as short term capital gains.

22.10. We have gone through the submissions of both the sides and material placed before us for our consideration and also gone through the applicable position of law and judgment

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relied by the parties. In our considered view the action of the Ld. AO in treating the impugned asset as short term capital asset is not sustainable, on law and facts, for following reasons:

22.11. First of all it is noted on facts, which remains undisputed, that the assets were not made part of block of assets. Thus, there arose no question of allowing any depreciation of these assets. In fact, no depreciation was ever claimed or actually allowed on these assets. Under these circumstances, in our view these assets cannot be hit by provisions of section 50. For the sake of ready reference, we find it appropriate to reproduce section 50 hereunder: "50. Notwithstanding anything contained in clause (42A) of s. 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed tinder this Act or under the Indian IT Act, 1922 (11 of 1922), the provisions of ss. 48 and 49 shall apply subject to the following modifications: (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely: (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers; (ii)the written down value of the block of assets at the beginning of the previous year and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;

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22.12. In the first para itself on this section it has been mentioned that to be covered within the provisions of this section, following two conditions are necessary i.e.:

(i) The capital asset forms part of block of assets and (ii) Deprecation has been allowed on it under the Income Tax Act. It is noted from the facts on record that both the conditions are found to be missing, and therefore, there is no force in the arguments of Ld. CIT- DR that because these are depreciable assets, and therefore, by view of deeming fiction created by section 50, these assets should be held to be short term capital asset, by necessary implication. Thus in our considered view, the case of the revenue fails on the primary facts itself, and therefore, the treatment done by the AO in holding these assets are short term assets becomes invalid in the eyes of law.

22.13. Our view is supported by the judgments of Hon’ble Punjab & Haryana High Court in the case of CIT vs. Santosh Structural & Alloys Ltd. (supra), wherein it was held that if no depreciation was ever claimed and allowed on the assets then the same cannot be covered u/s 50, merely on the ground that the said assets were depreciable asset. Similar view has been taken by Hon’ble Bombay Bench in the case of Divine Construction Company vs. Assistant Commissioner of Income Tax (138 ITD 72), holding that in order to treat capital gain arising from the transfer of capital assets in the circumstances mentioned in section 50, it is necessary that the conditions in

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the opening lines of section 50 be fulfilled. It was further held that it is only on the fulfillment of these conditions that the provisions of section 50 get activated. In the present case it has already been held that on facts, both the mandatory conditions are found to be missing. Thus, action of lower authorities is contrary to law and facts.

22.14. Further, for the purpose of addressing the other arguments raised by the lower authorities to deny the benefit to the assessee company, we have examined this issue from another angle also. It is well settled law that under the Income Tax Law, the concept of de-facto ownership of the assets/ properties is followed. It is also well settled law that entries in the books of accounts do not necessarily determine taxability or otherwise of the transaction, in the hands of the assessee. One has to look into the real ‘substance’ of the transactions and not merely its ‘form’, to determine the taxability in the given facts of a case.

22.15. It is undisputed fact that the impugned assets were acquired by the assessee company way back on 1st December, 2001, on the amalgamation of Park Devis India Ltd. Pursuant to sanction of the amalgamation scheme by the High Court of Bombay of 7th February, 2003 with effect from 1st December 2001. In view of the amalgamation, these assets viz. the licence for the right to use the impugned trade-marks/licence got transferred to the assessee company w.e.f. 1st Decemeber

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2001. These vital facts have not been disputed or denied by the lower authorities.

22.16. Hon’ble Delhi High Court in the case of Mediworlds Publications (P) Ltd. (supra) held that trademarks, copy rights brand names goodwill etc. are capital assets and any gain arising on the transaction of these assets shall give rise to income taxable under the head of capital gain and not its business income. Now, under these facts and clear position of law it can be said, unhesitatingly, that the assessee company was holding these assets since 1st December 2001. Merely, because of the facts that these were not recorded in the books of accounts, would neither alter the character of these assets in the hands of the assessee, nor the holding period, and nor the taxability of the income arising from transfer of these assets. The accounting entries are not determinative of the nature of transactions, and nor their taxability. The ownership of an asset is not decided on the basis of entries or no entries in the books of accounts of a person, much less under the income tax law.

22.17. In the given facts of the case, real substance of the transactions is that the assessee company was rightful and legal owner of these assets since 1st December 2001 and has been holding these assets in the capacity of defacto as well as dejure owner. These are clearly long term assets under the income tax law, having been held for more than 36 months by the assessee. Therefore, in view of these facts and

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circumstances of the case, it is held that the capital gain arising on the transfer of these assets is long term capital gain. Thus, the AO is directed to recompute the income of the assessee. Accordingly, Ground no. 6 is allowed. `

23.1. The brief facts in this case are that during the course of the assessment proceedings the AO had handed over to the assessee an AIR statement and asked the assessee to reconcile the transactions with the insurance companies as appearing in the said statement with its books of account. The assessee requested the AO to provide a further break- up of the amount involved since the name of the parties did not appear in the statement. However, as further information was not available within the system, the AO held the amount remained un-reconciled and proposed an addition for the same. The assessee had submitted before the AO an affidavit affirming that all transactions pertaining to payments to insurance companies reported in the AIR were entered into the books of account of the assessee in accordance with the system of accounting followed by the assessee and denied that the assessee has entered into any transaction which has not been entered into or

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accounted for in its books of account. But AO made the addition.

23.2. On reference to the DRP, the DRP directed the AO to inquire into the matter with the departmental authorities as well as the insurance agencies and to carry out the proposed addition only if further verifiable and incriminating material is obtained against the assessee. However, as the assessment was getting time-barred, in the final order, the AO sought to make an addition without obtaining any incriminating and verifiable information against the assessee.

23.3. Aggrieved by the same, the assessee company filed appeal before the Tribunal.

23.4. It has been contended by Ld Counsel that the AIR statement did not even contain the names of the parties who had reported the said transactions pertaining to the insurance premium and the same were not even provided by the AO. In such circumstances, where even the identity of the payee is not known to the Department itself, there was no reason whatsoever of making an addition in respect thereof. In support of his claim, Ld. Counsel has relied upon the following judgments for the proposition that addition cannot be made merely on the basis of statement received through AIR: (i)A.F. Fergusson & Co. Vs. JCIT (ITA No.5037/Mum/2012) (ii) Shri S. Ganesh v. ACIT (ITA No.527/Mum/2010)

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(iii) Arati Raman v. DCIT (ITA No.245/Bang/2014 (iv) Aegis Limited vs. Addl. CIT (ITA No.1213/Mum/2014)

Lastly, it has been submitted by the Ld. Counsel that the AO disregarded the instructions of DRP, to make available further verifiable information against the assessee, but AO repeated the addition without obtaining any verifiable information against the assessee.

23.5. On the other hand, Ld. DR has submitted that information was confronted to the assessee and therefore, onus was upon him and requested that matter should be sent back to the AO for requisite verification.

23.6. We have gone through the submissions made by both the sides and also perused material placed before us for our consideration. We have gone though the statements of AIR transactions provided by the department to the assessee. It is noted that this information has been compiled in a very casual and generalized manner. Assesseee contended that transactions with the insurance company are much more than what is reported in the AIR statement, and all these transactions are duly recorded in the books of accounts, and summary of the transactions was given by the assessee showing that total transactions were to the tune of Rs.1,86,40,758/-, whereas amount included in these statements is amounting to Rs. 84 lakhs only, and that nothing has been paid outside the books of accounts, and in

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any case no such evidence has been provided by the Revenue, and therefore, the addition made by the AO was without any basis and rationality. In our considered view, the action of Ld. AO in making the addition in this manner was highly unfair and unjustified. When the assessee had provided complete details, then onus shifted upon the AO to show that what payments have been made by the assessee over and above what has been reflected by it in the books of accounts. The AIR statement does not even contain names of the parties. Under these circumstances, we find it appropriate to send this issue back to the file of the AO with the direction that the AO shall provide to the assessee complete information and adverse material with all requisite particulars. In response, the assessee shall provide complete books of accounts and requisite details and documents and other evidences to show that the amount reported in the AIR, belonging to the assessee, are duly recorded in the books of accounts. If it is pointed out by the assessee that certain transactions in the AIR statement do not belong to the assesse, then the AO should provide requisite details and evidences to the assessee establishing that impugned transactions do belong to the assessee.

23.7. We clarify that in our considered view, the primary onus is upon shoulders of the AO to show that the transactions reported in AIR belong to the assessee. It is only thereafter, the onus of the assessee shall start to show that these transactions have been duly recorded in the books of account

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of the assessee, failing which the addition may be liable to be made. With these directions, this issue is sent back to the file of the AO with further directions to grant adequate opportunity of hearing to the assessee. The assessee shall also extend requisite cooperation to the AO. This ground is allowed for statistical purposes.

24.1. We have carefully considered the arguments made by both the sides. Our prima facie view is that the addition has been made and sustained by the lower authorities by following a casual and irresponsible approach. The assesse has submitted complete information showing proper reconciliation. These have been either ignored or not properly appreciated by the lower authorities. Both of these grounds are sent back to the file of the AO with our directions as have been given while disposing Ground no. 7 above. Thus, these grounds are allowed for statistical purposes.

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26.1. It is noted that DRP has already given direction to the AO to verify the claim, and accordingly grant credit of tax debited at source by HSBC. We reinforce direction given by the DRP and direct the AO to grant credit for TDS after making requisite verification, as per law. Thus, this ground is allowed for statistical purposes.

Order pronounced in the open court on 20th November, 2015.

Sd/- Sd/- (Amit Shukla ) (Ashwani Taneja) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated : 20/11/2015 ctàxÄ? P.S/.�न.स.

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आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai