LEBEN LABORATORIES PVT. LTD.,AKOLA vs. ACIT, AKOLA CIRCLE, AKOLA

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SANDEEP GOSAIN, JM & SHRI ARUN KHODPIA, AM ITA No. 173/NAG/2017 Assessment Year: 2013-14 M/s. Leben Laboratories Pvt. Ltd. Vs. The ACIT L-4, Phase-III, MIDC Akola Circle Akola – 444 104 Akola PAN No.:AAACL 2524 M Appellant Respondent Assessee by: Shri S.C. Thakar, Adv. Shri Rachit S. Thakar, Adv. Revenue by :Smt. Agnes P Thomas (CIT-DR) Date of Hearing: 28/04/2022 Date of Pronouncement: 8 /6 /2022 ORDER PER: SANDEEP GOSAIN, J.M. This is an appeal filed by the assessee against the order of the ld. CIT(A)- 1, Nagpur dated 17-02-2017 for the assessment year 2013-14 wherein the assessee has raised the following grounds.

“1. The Ld. CIT(A) erred in disallowing depreciation, on Air and Water Pollution Control Machine, of Rs.30,41,138/- 2. The Ld. CIT(A) erred in disallowing Selling and Distribution Expenses of Rs.7,34,850/-. 2. Brief facts relevant for the purpose of this Appeal are that the Appellant- Company is engaged in the business of manufacturing and selling pharmaceutical formulation such as capsules, tablets, ointments, liquid oral,

2 ITA No.173/NAG/2017 Leben Laboratories Pvt. Ltd. vs ACIT, Akola-Circle, Akola injections etc. During the financial year 2012-13 relevant to assessment year 2013-14 the Assessee-Company fabricated and installed Air Pollution Control Equipment and Water Pollution Control Equipment at the total cost of Rs.60,82,274/-. These equipments were put to use after 30th September 2012. On Air Pollution Control equipment and Water Pollution Control equipments, depreciation is allowable at 100% as per I.T. Rules, New Appendix-1 effective from A.Y.2006-07 (Part A III Machinery and Plant item (3) (viii) Air Pollution Control equipment and (ix) Water Pollution Control equipment). Since these equipments were put to use after 30th September the Assessee claimed depreciation at 50% of it’s cost of Rs.60,82,274/- i.e. it claimed depreciation of Rs.30,41,138/-. During assessment proceedings the Assessee produced bills for purchase of various items of machineries and equipments required for fabrication of Air Pollution Control Plant and Water Pollution Control Plant and the bills for fabrication charges along with valuation report-cum-certificate of Chartered Engineer dt.22.12.2015. The A.O. observed in assessment order that looking to the various items purchased such as cooler, ducting material, compressor, green wind mobile cooler, model G.W. 18 (speed), items shown in fabrication etc. do not fall within the list of machineries mentioned in new appendix-1 Part –III sub- clause 3(viii) & (ix) and that the Assessee failed to explain how the machinery purchased by it controls Air and Water Pollution. So observing, the AO stated that depreciation claimed on Air Pollution equipment at Rs.5,73,868/- and

3 ITA No.173/NAG/2017 Leben Laboratories Pvt. Ltd. vs ACIT, Akola-Circle, Akola Rs.22,68,969/- and on Water Pollution equipment at Rs.1,98,301/-, total Rs.30,41,138/- is disallowed.

2.1 In appeal before CIT(A) Assessee filed Written Submission and drew his attention to the certificate of Chartered Engineer (Valuer) regarding plant and machinery installed in Assessee’s factory by fabrication and submitted that the Assessee was rightly entitled to 100% depreciation of Rs.30,41,138/- i.e. 50% of total cost of Rs.60,82,275/- as the same was put to use after 30th Sept. It was also pointed out that the Assessee had claimed balance 50% of depreciation amounting to Rs.30,41,138/- in subsequent year i.e. A.Y.2014-15 and the same Assessing Officer allowed the depreciation as claimed.

2.2 Learned CIT(A) in his order stated that the Assessee has failed to rebut the fact stated by A.O. that these machines are not mentioned in the prescribed list of specified items. He also held that principle of res-judicata is not applicable to Income Tax Act and the Assessee has failed to categorically mention that it was the same item during the year as was in A.Y.2014-15. So holding he confirmed the said addition.

2.3 Learned A.R. submitted before us that the learned lower authorities were in error to see individual components of the plant and machinery instead of seeing plant and machinery as a whole which did constitute Air Pollution Control Plant and Water Pollution Control Plant. Further this has been duly certified by

4 ITA No.173/NAG/2017 Leben Laboratories Pvt. Ltd. vs ACIT, Akola-Circle, Akola Chartered Engineer and valuer who has described the plant and machinery and it’s working. Further the same A.O. in subsequent year on the same plant and machinery allowed depreciation of the balance amount of depreciation. Authorities cannot take inconsistent stand on the same facts.

2.4 On the other hand, the ld D.R. relied on the orders of A.O. and CIT(A).

2.5 We have considered the rival submission and perused the orders of A.O. as well CIT(A) and the certificate-cum-valuation report of Chartered Engineer. As per W.H.O. guidelines and other Food and Drug administration the pharmaceutical manufacturers are required to install Air Pollution Control equipment and Water Pollution Control equipment as the medicine are for human consumption and any unwanted dust particles can have potential hazard for consumers. Said Chartered Engineer in his report has explained the working of Air Pollution Control equipments and Water Pollution Control equipment by chart and has given valuation of the said plant at Rs.67,65,000/-. However the Assessee has claimed depreciation at 100% of the actual cost of Rs.60,82,275/- and not on the valuation as per valuation report. While analyzing the entry we have to see the description of plant as a whole and not the description of various items – small and big which go to constitute the plant. We have no doubt that the plant installed was the plant of air and water pollution control which was admittedly put to use after 30th September. Further on the very same plant and

5 ITA No.173/NAG/2017 Leben Laboratories Pvt. Ltd. vs ACIT, Akola-Circle, Akola machinery the very same A.O. has allowed balance depreciation of 50% in A.Y.2014-15 and that order is final. In view of this fact, we see no reason for lower authorities to disallow depreciation of Rs.30,41,138/- for A.Y.2013-14 the year in question. Here there is no question of arguing that principle of res- judicata is not applicable and hence the finding of A.Y.2014-15 cannot be said to be binding in A.Y.2013-14. On the same plant and machinery the same A.O. in one year allows depreciation at the prescribed rate of 100% and in another year on the same machinery the same A.O. totally disallows the depreciation. This is most inconsistent, and illogical. Applying the principle of consistency as is firmly established by the decision of Hon’ble Supreme Court in the case of Radhasoami Satsang Vs. Comm. of I.T. (1992) 193 ITR P.321 (SC) and Bombay H.C. in the case Pr.CIT Vs. Quest Investment Advisor Pvt. Ltd. (2018) 409 ITR P.545 (Bom.) the depreciation of Rs.30,41,138/- as claimed by the Assessee in the year in question i.e. A.Y.2013-14 is allowable. Accordingly we set aside the finding of learned A.O. and learned CIT(A) in this regard and allow depreciation of Rs.30,41,138/- for A.Y.2013-14 as claimed by Assessee. Thus ground No.1 taken by the Assessee is allowed.

6 ITA No.173/NAG/2017 Leben Laboratories Pvt. Ltd. vs ACIT, Akola-Circle, Akola 3.1 Facts in relation to the issue is that the Assessee claimed selling and distribution expenses at Rs.7,34,85,065/- on total turnover of sales amounting to Rs.61,62,00,715/- which amounts to 11.92% to the turnover. The selling and distribution expenses included expenses on advertisement, annual conference expenses, cash discount, export commission, freight and transport, incentive to dealers, godown rent, heavy vehicle expenses and printed and promotional material expenses. A.O. considered the expenses at higher side. He therefore disallowed selling and distribution expenses to the extent of 2.95% i.e. Rs.21,72,102/-. However since he had already disallowed Rs.8,21,100/- separately out of printed & promotional material, he disallowed Rs.13,51,002/- (Rs.21,72,102/- - Rs.8,21,100/-).

3.2 Against the said disallowance of Rs.13,51,002/- the Assessee objected to the said disallowance in an appeal filed by Assessee before ld. CIT(A). Assessee submitted before ld. CIT(A) that there is no dispute that these are business expenses and have been allowed by the department in earlier and later year even though the same was at higher figures. It was pointed out that the books of accounts are duly audited and no defect has been found in the account and the same are accepted year after year. There was thus no basis to make some disallowance arbitrarily. The ld CIT(A) after verifying assessment records relevant ledger accounts, copy of bills etc. held that there is no doubt that promotion,

7 ITA No.173/NAG/2017 Leben Laboratories Pvt. Ltd. vs ACIT, Akola-Circle, Akola marketing and advertisement is an integral part of the Appellant’s business and that the Assessee’s claim at higher percentage has been allowed in other years and that the A.O. has accepted Appellant’s audited books of account without mentioning any defect or deficiency. However he said that keeping in view the fact that the separate addition of Rs,.8,21,000/- made for promotional printing material has been deleted by him and that both the directors individually have been paid commission it would be reasonable to restrict the disallowance at 1% of such expenses and accordingly out of addition of Rs.13,51,002/- made by A.O. be retained the addition of Rs.7,34,850/-.

3.3 Against the said disallowance Assessee had taken the grounds of appeal as stated earlier. Learned A.R. pointed out that the A.O. and ld.CIT(A) having accepted that the expenditure was for business purpose and higher expenditure than what is claimed in this year has been allowed in earlier and later year and the books of accounts being audited and the A.O. having not found any defect there was no justification to make some adhoc disallowance on some arbitrary assumption. Learned A.R. also relied on various case laws. As against this the learned D.R. relied on the order of A.O. and ld. CIT(A) and relied on the decision of Goodlas Nerolac Paints Ltd. Vs. CIT reported in (1982) 137 ITR P.58 (Bom.) which says that the Assessee has to prove that the expenses are wholly and

8 ITA No.173/NAG/2017 Leben Laboratories Pvt. Ltd. vs ACIT, Akola-Circle, Akola exclusively laid out for business purposes and submitted that the said addition be confirmed.

3.4 We have heard the rival submission. At the outset it needs to be pointed out that there is no dispute that the relevant expenses are for business purpose and they have been allowed year after year. Ld CIT(A) has also held that there is no doubt that the promotion, marketing and advertisement expense are part of business expenses. Neither the A.O. nor the ld. CIT(A) has doubted the allowability of expenses. The decision cited by ld. DR related to alleged secret commission allegedly paid by Assessee without any details and hence the same was disallowed by Hon’ble Bombay H.C. Said case has no application to the facts of the case. In the present case it is worth noting that, higher commission than what is claimed in this year has been allowed in earlier and later years. This will be clear from the following chart.

Assessment Year 2012-13 2013-14 2014-15 Turnover in lakhs 5319.99 6162.01 7709.74 Selling and distributing 7,35,94,861/- 7,34,85,063/- 13,09,14,045/- expenses % percentage to turnover 13.83% 11.92% 17.31%

There is thus no justification to make disallow of 1% and thereby retain addition of Rs.7,34,850/-. Ld CIT(A) has specifically mentioned that he has perused relevant copies of accounts and bills etc. and has not found any defect in the

9 ITA No.173/NAG/2017 Leben Laboratories Pvt. Ltd. vs ACIT, Akola-Circle, Akola accounts. Similarly the department has always accepted the accounts which are duly audited. No defect of any nature has been pointed out or proved. Looking to the facts and circumstances of the case and assessment records of Assessee the claim of the Assessee, in our view, cannot be said to be unreasonable. There was neither any material or basis before ld CIT(A) to make an adhoc disallowance of 1% of expenses amounting to Rs.7,34,850/-. Thus under the facts and circumstances of the case, we delete the said addition of Rs.7,34,850/- retained by ld CIT(A). Hence ground No. 2 of Assessee is allowed.

4.0 In the result the appeal of the assessee is allowed Order pronounced in the open court on 8/ 6 /2022 Sd/- Sd/- Sd/- Sd/- (ARUN KHODPIA) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Nagpur DATED: 8 /6 /2022 *Mishra Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. By Order

Assistant Registrar ITAT, Nagpur