Case Law Details
ACIT Vs Wyeth Ltd. (ITAT Mumbai)
ITAT held that deduction under Section 80IB of Income Tax Act, 1961 allowable on scrap generated during the manufacturing process.
Ground no.3 is with respect to the disallowance of deduction under section 80IB of the Act amounting to ₹8,075/-. The assessee has claimed deduction under Section 80IB of the Act on account of profit of Goa Plant amounting to ₹27,16,35,136/-. The learned Assessing Officer noted that ₹8,075/- being sale of scrap is also included therein. Therefore, on sale of scrap deduction under section 80IB of the Act cannot be allowed. The matter reached before the learned CIT(A), who allowed the claim of the assessee. The reason was that the scrap was generated during the manufacturing process.
The learned Departmental Representative, even before us could not dispute that the scrap was not generated during manufacturing process. Thus, we do not find any infirmity in the order of the learned CIT(A). Thus, ground no. 3 of the appeal is dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
01. ITA No. 1778/Mum/2020 is filed by the learned Assessing Officer, ACIT-14(2)(2), Mumbai for A.Y. 2011-12 against the order of learned Commissioner of income-tax (Appeal)-22, Mumbai [the learned CIT (A)] dated 11th February, 2020, wherein disallowance under section 37 of the Act, of ₹2,79,20,249/- being expenditure incurred / paid to doctors in alleged violation of Indian Medical Council Regulation, 2002 was deleted. Further, the learned Assessing Officer was aggrieved with respect to the depreciation and also in computation of eligible income for deduction under section 80IB of the Income Tax Act, 1961 (the Act) with respect to the scrap sold.
02. The learned Assessing Officer has raised following grounds of appeal:-
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) erred in deleting the payments made u/s 37 of Rs.2,78,26,249/- made to Doctors in alleged violation of India Medical Council Regulations, 2002. The Ld. CIT(A) ignored the fact that such that such payments are illegal in nature and hence disallowable under the Act.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting depreciation on revenue expenditure that had earlier been disallowed during assessment proceedings as being capital in nature since the said issue has not reached finality yet.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) erred in deleting that income from scrap be included in computing deduction u/s 80IB although it is different from products manufactured and also sale of scrap was not part of the main business activity of the undertaking.
4. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.
5. The appellant prays that the order of CIT(A)-22, Mumbai on the above ground be set aside and that of the Assessing Officer be restored.”
03. Brief fact of the case shows that assessee is a company who filed return of income on 29th November, 2011 at ₹164,34,74,429/- as regular income and book profit under section 115JB of the Act of ₹185,42,11,000/-. The case of the assessee was selected for scrutiny. The total income of the assessee was assessed at ₹167,27,56,936/- by order dated 30th March, 2015 passed under section 143(3) read with Section 144C(3) of the Act. The assessee aggrieved with the same preferred an appeal before the learned CIT(A), who passed order on 11th February, 2020, partly allowing the appeal of the assessee. Therefore, the learned Assessing Officer is aggrieved with the disallowance deleted by learned CIT(A) and hence, preferred this appeal.
04. The ground no. 1 of the appeal is with respect to the deletion of disallowance under section 37(1) of the Act of ₹2,78,26,249/- incurred for doctors in alleged violation of India Medical Council Regulation, 2002. The learned Assessing Officer found that these expenses have been incurred on various promotional Articles. The learned Assessing Officer noted that Indian Medical Council Regulations with effect from 14th December, 2009 prohibits expenditure towards gift, etc. to the doctors. The view has also been subscribed by Central Board of Direct Taxes by circular dated 1st August, 2012, wherein such expenditure was held to be not allowable. Hence, he disallowed the above sum incurred on brand reminders and customary gift to doctors. Before the learned CIT(A), assessee submitted that these items do not have any significant value for the doctors and the value of each gift is restricted to ₹1,000/- per item. It was also stated that the circular applies to only doctors and not to the company. The learned CIT(A) relying on the decision of co-ordinate Bench in case of DCIT vs. PHL Pharma (P). Ltd, in ITA no. 4605/Mum/2014 deleted the disallowance.
05. The learned Assessing Officer is aggrieved and challenge the same as per ground no.1.
06. The learned Departmental Representative submitted that issue is squarely covered now in favour of the Revenue by the decision of the Hon’ble Supreme Court in case of Apex Laboratories Pvt. Ltd. vs. DCIT dated 22nd February, 2022.
07. The learned Authorised Representative reiterated the submissions which are recorded in paragraph no. 4.2 of the order of the learned CIT(A). He submitted that the amount of expenditure incurred includes very small amount of gifts etc., to the doctors. He categorically stated that it does not exceed ₹1,000/- per item.
08. The Bench asked the learned Authorised Representative to show the details of such expenditure. It was stated that the assessment year involved is A.Y. 2011-12 and all these details were provided to the learned Assessing Officer during the course of assessment proceedings.
09. On careful consideration of the argument of the parties, we find that this issue is squarely covered in favour of the Revenue by the decision of Hon’ble Supreme Court in case of Apex Laboratories Pvt. Ltd.(supra). The Hon’ble Supreme Court has also considered the various decisions which are relied upon by the learned Authorised Representative. However, as the details of such expenses are not available before us, we direct the assessee to submit the details of such expenses within 60 days of this order and then, the learned Assessing Officer after considering the details decide the issue of disallowance as per the order of the Hon’ble Supreme Court. In the result, ground no. 1 of the appeal is allowed with above direction.
010. Ground no 2 is with respect to deprecation on expenditure treated as capital in nature in earlier assessment year. The learned CIT(A) deleted the same holding that in earlier years the learned Assessing Officer has treated various Revenue expenditure claimed by assessee as capital expenditure and disallowed the same. Details of these expenses are submitted to the learned Assessing Officer. He further held that depreciation has to be allowed on depreciable assets. Further, the disallowance made by the learned Assessing Officer in earlier years is pending before various judicial Forums. Therefore, learned Assessing Officer was directed to ascertain the allowance of correct depreciation.
011. Both the parties agreed that this ground is raised as the disallowance made by learned Assessing Officer has not reached finality. In view of this ground no.2 of the appeal of the learned Assessing Officer, is dismissed.
012. Ground no.3 is with respect to the disallowance of deduction under section 80IB of the Act amounting to ₹8,075/-. The assessee has claimed deduction under Section 80IB of the Act on account of profit of Goa Plant amounting to ₹27,16,35,136/-. The learned Assessing Officer noted that ₹8,075/- being sale of scrap is also included therein. Therefore, on sale of scrap deduction under section 80IB of the Act cannot be allowed. The matter reached before the learned CIT(A), who allowed the claim of the assessee. The reason was that the scrap was generated during the manufacturing process.
013. The learned Departmental Representative, even before us could not dispute that the scrap was not generated during manufacturing process. Thus, we do not find any infirmity in the order of the learned CIT(A). Thus, ground no. 3 of the appeal is dismissed.
014. In the result, the appeal filed by the learned Assessing Officer, is partly allowed.
Order pronounced in the open court on 31.05.2022.
