ITAT MUMBAI BENCH `L’ MUMBAI,
IN THE CASE OF: ACIT Vs. Wockhardt Ltd.,
APPEAL NO: ITA No. 3556/Mum/ 2007,
DECIDED ON July 9, 2010
ORDER
PER R S PADVEKAR:
In this appeal, the revenue has challenged the impugned order of the ld CIT (A), Central-III, Mumbai for the assessment year 2004-5 dated 7.2.2007.
2 The first issue is in respect of dis allowance of the payment made to clubs of Rs.18.14 lacs.
2.1 The assessee is in the business of manufacturing and trading of pharmaceuticals products. The return of income filed by the assessee was selected for scrutiny and the assessment was completed u/s 143(3) of the Act. During the course of assessment proceedings, it was noticed by the A.O. that as per the audit report, the assessee had claimed expenditure towards payments made to clubs. The assessee claimed that the expenditure on the clubs is merely for the promotion of the business. As per tax audit report, the assessee company paid Rs. 15 lacs towards corporate membership fee to Willington Sports Club. The A.O. made the dis allowance of the entire expenditure of Rs.18,14,762/- as not admissible u/s 37(1) of the Act. On appeal, the ld CIT(A) allowed the claim of the assessee.
3 We have heard the parties and also perused the reasons given by the A.O. a well as the ld CIT(A). The ld counsel of the assessee submitted that the issue is covered in favor of the assessee by the decision of the Hon’ble Delhi High Court in the case of CIT vs Samtel Color Ltd (180 Taxman 82(Del).
3.1 In the present case, there is no dispute about the facts that the assessee company has taken corporate membership in Willington Club, at Mumbai which is one of the prestigious clubs in Mumbai.
3.2 In the case of Samtel Color Ltd (supra), the Hon’ble High Court has held that for qualifying of the deduction u/s 37 is that expenditure incurred should not be on capital account and it should be incurred for the purpose of the business. It is further held that admission fee paid for the purpose of corporate membership of the club, which is an expenditure incurred wholly and exclusively for the purpose of business. In our opinion, the issue is stand covered in favor of the assessee by the decision of the Hon’ble Delhi High Court in the case of Samtal Color Ltd (supra). We, therefore, confirm the order of the ld CIT(A) on this issue and dismiss the relevant ground taken by the revenue.
4 Next issue relates to deletion of addition of Rs. 5,94,000/- made u/s 41(1) of the I T Act.
5 We have heard the parties. It is observed by the A.O. that as per the information furnished by the assessee, sundry creditors to the extent of Rs. 5,93,982/- were outstanding for more than three years. The A.O. was of the opinion that to the extent of sundry creditors, which are outstanding for more than three years, the same are to be added u/s 41(1) of the Act.
5.1 The assessee contended that there was no unilateral writing off of the said liability nor the liability to pay was ceased and hence, no addition can be made u/s 41(1) of the Act. The A.O. rejected the plea of the assessee and made the addition by invoking provisions of sec. 41(1) of the Act. The assessee challenged the said addition before the ld CIT(A) and found favour as the ld CIT(A) by relying on the decision of his predecessor for AY 2001-02, deleted the addition.
6 We have heard the parties. The A.O. made the addition on the presumption that the said `debts’ become time barred under the Limitation Act as no action has be taken for recovery. In our opinion, no such condition is there in sec. 41(1) for considering the cessation of any liability and in respect of any expenditure, even if within the period of limitation of three years, the assessee unilaterally write off the liability within one year then also the provision of sec. 41(1) is applicable. In our opinion, the ld CIT(A) has rightly deleted the addition made by the A.O. u/s 41(1) of the Act; accordingly, we confirm the order of the ld CIT(A) on this issue.
7 Next issue relates to deletion of addition made u/s 80IB.
7.1 During the year under consideration, the assessee had claimed deduction u/s 80IB in respect of Daman-Bhimpore & Daman Kadaiya units without allocating R&D expenditure. The A.O. allocated R&D expenditure to the said units by observing that R&D have nexus with Units in respect of which deduction is claimed under sec. 80IB. The ld CIT(A) deleted the addition by relying on decision of the assesse’s own case for the AY 2001-02. The operative part of the findings given the ld CIT(A) in Paras 8.2 & 8.3 in his order which are as under:
” 8.2 I have gone through the facts brought on record by the A.O. and the contentions of the appellant company, as also the order of the ITAT in the case of the appellant for AY 2001-02. The ITAT, referring to decision of the Madras ITAT in the case of Ponds India Ltd (ITA No.2047/Mad/88 dated 28.5.2002 and the decision of Pune Bench in the case of Vanaz Engineers Ltd, held that no allocation of expenditure on account of R&D expenditure was called for. As in respect of AY 2002-03, during the course of present appeal hearings, the appellant company was required to file the details of product formulations at 80IB qualifying units as well as the details of bulk drugs on which the R&D Centre was working on, to ascertain whether or not the expenditure on R&D had any nexus with the working of the qualifying undertakings. It was fund that the following two items are common.
Name of formulation
Market destination of formulation
Bulk drug used for manufacture
