Lupin Limited Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that the amount spent by the assessee on clinical trials outside the approved in-house facility is eligible for weighted deduction u/s 35(2AB) of the Act.
Facts- During the course of search, Shri Mahesh R. Sanur, the cashier of the assessee company admitted in his statement that the company has given cheque payments to a commission agent named M/s Versatile Vintrade P Ltd and received cash back from the above said person, i.e., the assessee has been booking bogus expenses in the form commission expenses. He further admitted that an aggregate amount of Rs.37.43 crores represents total of unaccounted cash receipts for the period from 1.4.2009 to 31.12.2010. The Statement so given by Shri Mahesh R Sanur was confronted with the Managing Director Shri Kamal Kishore Sharma. He confirmed the statement given by Shri Mahesh R Sanur and agreed to surrender a sum of Rs.37.43 crores for the period from 1.4.2009 to 31.12.2010. He also stated that the above said disclosure/surrender has been made after consultation with Shri K R Gupta, Director, Corporate Affairs of the assessee company. The Managing Director also admitted that the company has made transaction by way of mere book entries in other years also. Accordingly, he agreed to offer Rs.60.33 crores in aggregate in various financial years starting from F.Y 2004-05 to 2011-12. He also submitted that the above said sum of Rs.60.33 crores has been expended for various miscellaneous purposes. In this back ground, the AO completed the assessment by making various additions. The Ld CIT(A) granted partial relief and hence both the parties have filed appeals assailing the order passed by Ld CIT(A) on the issues decided against each of them.
Conclusion- We noticed earlier that the total income is computed in accordance with the provision of Income tax Act and “Book profit” is computed on the basis of financial statements prepared in accordance with the accounting principles and accounting standards. Even though the decision in the case of Vijaya Bank (supra) was rendered by Hon’ble Supreme Court in the context of sec. 36(1)(vii) of the Act relating to computation of income, the Hon’ble High Courts have chosen to extend the said principle laid down by Hon’ble Supreme Court to computation of ‘book profit” u/s 115JB of the Act, wherein the accounting principles and accounting standards acquire prime importance. Following the decision rendered by High courts (referred supra), we hold that the amount of “Provision for bad and doubtful debts”, if reduced from the amount of “Sundry debtors balance” in the assets side of Balance Sheet, the same would not be hit by clause (i) of Explanation 1 to sec.115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO not to add the amount of Provision for bad and doubtful debts to net profit, while computing book profit u/s 115JB of the Act.
Accordingly, following the decision of Hon’ble Gujarat High Court in the case of Cadila Healthcare Ltd., we hold that the amount spent by the assessee on clinical trials outside the approved in-house facility is eligible for weighted deduction u/s 35(2AB) of the Act.
The Special bench has expressed the view that the assessee is entitled for deduction of ESOP expenses when the rights are “vested” in the hands of the assessee and the said view has since been upheld by the Hon’ble Karnataka High Court. Hence the deduction should be allowed in the year in which the rights are vested in the hands of the assessee. For this purpose, the actual exercise of option by the employee is not relevant.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The cross appeals filed by the parties and the cross objection filed by the assessee are directed against the order dated 22-09-2020 passed by Ld CIT(A)-57, Mumbai and they relate to the assessment year 2009-10.
2. The assessee is engaged in the business of manufacture and sale of pharmaceuticals products. The assessee filed its return of income for the year under consideration u/s 139(1) of the Act on 30-09-2009 declaring total income of Rs.77.29 crores under normal provisions of the Act and declaring book profit of Rs.459.47 crores u/s 115JB of the Act. The return of income field by the assessee was processed u/s 143(1) of the Act on 31-03-2011. Subsequently, it was selected for scrutiny by issuing notice u/s 143(2) of the Act on 13.06.2011. When the assessment was pending, search action took place in the hands of the assessee on 15.3.2012. Consequent thereto, the proceedings u/s 153A of the Act was initiated by issuing notice on 18-012013 and the present assessment order came to be passed.
3. During the course of search proceedings, a statement u/s 132(4) of the Act was recorded from
(a) Shri Mahesh R Sanur, the cashier of the assessee company.
(b) Shri Kamal Kishore Sharma, Managing Director of M/s Lupin Ltd.
During the course of operation of prohibitory order u/s 132(3) of the Act, a Statement was recorded u/s 132(4) from Shri Ramesh Swaminathan, President (Finance & Planning) also. Post search, a statement was recorded from Shri Ramesh Kumar Khaitan, Vice President (Taxation) u/s 131 of the Act on 10-05-2012. We are making reference to all these statements recorded, since the AO has placed reliance upon them.
4. Shri Mahesh R. Sanur, the cashier of the assessee company admitted in his statement that the company has given cheque payments to a commission agent named M/s Versatile Vintrade P Ltd and received cash back from the above said person, i.e., the assessee has been booking bogus expenses in the form commission expenses. He further admitted that an aggregate amount of Rs.37.43 crores represents total of unaccounted cash receipts for the period from 1.4.2009 to 31.12.2010. The Statement so given by Shri Mahesh R Sanur was confronted with the Managing Director Shri Kamal Kishore Sharma. He confirmed the statement given by Shri Mahesh R Sanur and agreed to surrender a sum of Rs.37.43 crores for the period from 1.4.2009 to 31.12.2010. He also stated that the above said disclosure/surrender has been made after consultation with Shri K R Gupta, Director, Corporate Affairs of the assessee company. The Managing Director also admitted that the company has made transaction by way of mere book entries in other years also. Accordingly, he agreed to offer Rs.60.33 crores in aggregate in various financial years starting from F.Y 2004-05 to 2011-12. He also submitted that the above said sum of Rs.60.33 crores has been expended for various miscellaneous purposes. In this back ground, the AO completed the assessment by making various additions. The Ld CIT(A) granted partial relief and hence both the parties have filed appeals assailing the order passed by Ld CIT(A) on the issues decided against each of them.
5. We shall first take up the appeal filed by the assessee. On certain issues, both the parties are in cross appeals. Hence those common issues are adjudicated together, by pointing out the same.
6. The first issue urged by the assessee relates to the disallowance of unverified expenses. In the statement recorded u/s 132(4) of the Act, the assessee had admitted that it has claimed bogus commission expenses of Rs.4,76,34,543/- in Ay 2009-10. In the return of income filed for AY 200910 u/s 153A of the Act, the assessee has, however, admitted a sum of Rs.4,27,45,491/- only, being the commission payments made to M/s Agnes Bruno Limited and M/s Apsara Vanijya Limited amounting to Rs.3.12 crores and Rs.1.16 crores respectively. The assessee did not offer the payments made to following persons as its income:-
