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02-11-2018, Serum Institute of India, Section 14A, 37(1), 133(6), Tribunal Pune
These are cross appeals filed by the Assessee and the Revenue against the order of CIT (Appeals)-11, Pune, dated 29-01-2016 for the Assessment year 2010-11.
2. Background facts of the assessee include that the assessee is a company engaged in the business of manufacture and sale of life saving drugs, vaccines etc. The cases of Poonawalla Group include two sub-groups (1) includes family members of Shri Cyprus Soli Poonawalla (in short CSP) and the group concerns under his control and management (with M/s. Serum Institute of India Ltd. as the flagship company; and (2) other subgroup includes family members of Shri Zavareh Soli Poonawalla (in short ZSP) and the group concerns under his control and management, which is mainly engaged in stud farm activities.
There was search and seizure action u/s 132 of the Act on the assessee’s group of cases on 21-06-2011. In response to notice u/s.153A of the Act, assessee filed the return of income on 15-10-2010 declaring total income of Rs.42,12,57,021/-. During the said search action, various incriminating documents were found and seized/ by the Department in respect of entities connected with the group. Cash was also seized by the Department.
During the assessment proceedings u/s.143(3) of the Act for the A.Y.2010-11, AO made various disallowances i.e. additions u/s.14A of the Act, EDP expenses, Foreign Travel Expenses, depreciation on plant and machinery, freight and insurance expense pertains to EOU unit, provision for leave encashment, repairs to building, plant and machinery and product development expenses, etc., apart from others. AO assessed the income of the assessee for the year under consideration at Rs.158,31,61,728/-. CIT(A) partly allowed the appeal of the assessee relying on the decisions of his predecessor/Tribunal.
3. Aggrieved with the part relief given by the CIT(A), the Revenue is in appeal before the Tribunal. Further, aggrieved with the confirmation of additions, the assessee is in appeal before us.
4. Before us, at the outset, Ld. Counsel for the assessee submitted that most of the grounds raised by the Revenue and the Assessee are covered issues in favour of the assessee. Ld. Counsel for the assessee submitted that the facts, issue are same as that of earlier assessment years and the orders of the Tribunal in the assessee’s own case for the A.Yrs. 2008-09 and 2009-10. Therefore, we proceed to decide the issues raised in these appeals based on the said information.
We shall first take up the appeal of the Assessee.
ITA No.548/PUN/2016 – By Assessee A Y. 2010-11
5. Grounds raised by the assessee read as under :
“On the facts and in the circumstances of the case and in law the learned CIT(A) erred in :
1a. in confirmi g the disallowance u/s.14A amounting to Rs.3,18,85,207/- as per rule 8D.
2. in confirming the disallowance of foreign travel expenses of employees amounting to Rs.6,77,682/- who travelled abroad.
3a. in directing the AO to classify items of fixed assets of Rs.40,60,897/- like stainless steel tables stools, racks etc. located in manufacturing unit into‘Furniture and Fixtures’ and ‘Plant and Machinery’
b. in not applying correctly the functional test to the facts of the case while deciding whether certain items like stainless steel table, stools, trolleys etc. constituted ‘plant’ or not.
4. in confirming the disallowance of the ‘provision for Leave Encashment’ amounting to Rs.18,16,795/- pertaining to ‘DTA’ unit ascertained on the basis of actuarial valuation for the specific employees of the Appellant Company.
5. in confirming the disallowance of ‘demat charges’ amounting to Rs.4,01,453/- made by the Assessing Officer.
6. in not treating the expenditure on laying of water pipeline amounting to Rs.31,39,226 as ‘revenue expenditure’ which has been laid down in the vicinity area of the factory to fulfil the water requirement of its manufacturing process.
7. in confirming disallowance of Selling and Distribution expenses of Rs.1,11,64,214/- (Gross Disallowance Rs.2,21,01,193/- less set off against the amount declared as Non business. Expenditure in search actionRs.1,09,36,979/-).
8. in confirming disallowance of rent paid of Rs.30,00,000/- for bungalow located at 70, Koregaon Park, Pune taken on lease (belonging to M/s.Poonawalla Finvest & Agro Pvt. Ltd. ZSP Group company) for office of Director of appellant company and depreciation of Rs.15,26,708/- on the assets placed thereat.
9. in upholding the disallowance of purchases of Rs.7,78,950/- by treating the same as ‘Bogus purchases’.
10. in confirming the action of A.O. for not directing the AO to reduce Wealth Tax paid of Rs.21,40,955/- for computing book profit u/s.115JB.
11. The appellant craves leave to add/alter/withdraw any of the ‘Grounds of Appeal’ at the time of appeal proceedings. Your appellant further submits that the grounds of appeal are, save as otherwise specified, notwithstanding and without prejudice to each other.”
5.1 Assessee also filed modified grounds and the same read as under:
“1a. The Ld.CIT(A) ought to have held that no disallowance u/s.14A(2)r.w.r.8D can be sustained in the absence of a specific recording of satisfaction by the A.O. based on cogent material and having regard to the accounts of the assessee, to the effect that the claim of the assessee is not correct.
b. The Ld.CIT(A) failed to appreciate that the A.O. made the disallowance merely on the basis of observation that “salaries and other administrative expenses are debited to P&L A/c for both taxable and tax free incomes, therefore it is difficult to accept that tax free incomes are earned without incurring these expenses.”
Supplementary Ground to Ground -10.
10. “Disallowance of Selling & Distribution expenses have been partly set off against contingency offered, if the disallowance is deleted by Hon. ITAT, as a corollary, the addition of contingency may also be deleted in view of decisions of earlier years.”
6. After going through the facts of the case and hearing both the counsels, we find the issues are covered ones by virtue of order of Tribunal in the assessee’s own case in the earlier A.Y. 2009-10. Further, we find there is no issue which needs separate adjudication in the cross appeals. Therefore, we proceed to extract the issue wise findings of the Tribunal in the following paragraphs.