Cadila Pharmaceuticals Ltd.,, ... vs Assessee

Cadila Pharmaceuticals Ltd. 708, Sarkhej Dholka Road, Bhat, Ahmedabad-382210 Appellant

Vs.

DCIT(OSD), Range-1, Ahmedabad Respondent

PAN: AAACC6251E

अपीलाथ क ओर से /By Appellant : Shri S. N. Soparkar, A.R. ू यथ क ओर से/By Respondent : Shri M. K. Singh, Sr. D.R. सुनवाई क तार!ख/Date of Hearing : 25.02.2015 घोषणा क तार!ख/Date of Pronouncement : 30.03.2015

ORDER

PER SHAILENDRA KUMAR YADAV, J.M:

This appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-VI, Ahmedabad, dated 19.07.2011 for A.Y. 2001-02 on the following grounds:

ITA No. 2052/Ahd/11 A.Y. 01-02 [Cadila Pharmace uticals Ltd. vs. DCIT (OSD )] Page 2

"Appellant craves leave to submit the following concise grounds of appeal before the Hon'ble ITAT:

1. General

2. Ld. CIT (A) erred in law and on facts in confirming addition Rs.33,91,715/-to the book profit u/s 115JB of the Act. Ld. CIT (A) ought to have deleted addition considering various judicious I pronouncements. It be so held now.

3, 4 & 6. Ld. CIT (A) erred in law and on facts in confirming addition of Rs. 35,99,516/- of reversal of provision of income tax to the book profit u/s 115JB of the Act. Both the lower authorities ignored facts that due to statutory disclosure requirements appellant company has shown separately current year provisions of Rs. 1, 25, 00,000/-(debit) and reversal of provision of income tax of Rs.35,99,516/-(credit) however debited only net provision Rs. 89,00,484/- in return of income and computation u/s 115JB of the Act. Ld. CIT (A) ought to have deleted addition considering this factual aspect. It be so held now.

5. Ld. CIT (A) erred in law and on facts in considering only credit parts of prior period expenditure and ignored debit part of prior period expenditures. Ld. CIT (A) ought to have considered both debit and credit parts of prior period expenditures. It be so held now."

2. At the outset, learned Authorized Representative pointed out that assessee has not pressed the issue regarding addition of Rs.35,99,516/-. Accordingly, same is dismissed.

3. The only issue survives with regards to addition of Rs.33,91,715/-. Assessing Officer stated in assessment order dated 22.11.2010 on this issue as under:

ITA No. 2052/Ahd/11 A.Y. 01-02 [Cadila Pharmace uticals Ltd. vs. DCIT (OSD )] Page 3

8.1. have carefully considered reply of the assessee and not found acceptable. On the issue of adding back of prior period expenses, the assessee has only furnished details of expenses and allow ability of these expenses has not been explained by the assessee. Perusal of the details furnished by the assessee reveals that expenses claimed are on account of salary, interest, stationery, insurance, travelling, etc ... which are related to years ranging from 1999-00 to 1998-99.

9. These expenses are to be disallowed since these do not relate to the. current year. Here the expenditure incurred is not matching with the year of earning revenue. No proof has been submitted regarding the crystallization of the expenditure in the current year. No bills, no vouchers, no reasoning for lack of provisioning for the expenses in the earlier year were submitted. Accordingly, the claim for deduction of prior period expenditure of Rs. 27.36 lacs is disallowed and added to the income of the assessee.

10. On the issue of loss by fire, the assessee has claimed Rs. 85.02 lacs but how this figure is arrived was explain by the assessee as under:-

The assessee lost Rs. 1,44,42,752 + 40,40,932 = Rs. 1,84.83,684/- due to fire as per certificate issued by Foods and Drugs control administrator dated 22/02/2001. Out of this the assessee received 1,05,36,758/- from insurance company against claim of fire. In addition to the loss of fire the assessee has also reduced Rs.5 lacs from the receipts as expenditure for getting realization of claim.

The claim of assessee regarding reduction of Rs. 5 lacs out of insurance claimed cannot be accepted because the assessee has not furnished any evidences for such expenditure. Hence, the loss by fire claimed is restricted to Rs. 79,46,926/- (1,84,83,684 - 105,36,758).

11. The amount debited below the line in P&L a/c towards prior period expenses are required to be added back while arriving at the amount of book profit as per the decision of ITA No. 2052/Ahd/11 A.Y. 01-02 [Cadila Pharmace uticals Ltd. vs. DCIT (OSD )] Page 4

ITAT madras in case of Shree Rajendra Mills Ltd. vs. DCIT.

(63 TTJ 697) & ITAT Delhi in case of Innovative Tech Park Ltd vis. ACIT (79 ITO 445) where it was held that prior year expenses should not be deducted in computing book profit u/s1158J. Accordingly, as discussed above the figure of claim in the computation of income of Rs. 33,00,641/- as prior period expenditure and extra ordinary items is revised as under:-

1. Prior period expenditure (not allowable as discussed above) Rs. NIL

2.Loss by fire (as discussed above) Rs.79,46,926/-

3.Credits in respect of excess provision for Income tax (as per reply of the assessee dated 25/03/2010.) Rs. 35.99 lacs

4.Other credits prior period (as per reply of the assessee dated 25/03/2010.) Rs.44,39 lacs Total prior period and extraordinary items revised Rs. 91,074/-

12. Hence, as discussed above, as against, the deduction claimed of Rs. 33,00,641 in the computation of income out of book profit, ere will be addition of Rs. 91,074/- in the book profit. Penalty U/s.271(1)(c) is initiated for furnishing inaccurate particulars of income.

(Disallowance of Rs. 33,91.7151 -)

13. On the issue of adding back of provision of Income Tax of Rs. 33.99 lacs, the assessee has claimed that this being reversal of excess provision for Income tax pertaining to past period.

14. After considering reply of the assessee, vide order sheet doled 13/09/2010. The assessee was asked to furnish ledger explaining the income tax provision for last years. However, the assessee has not furnished any details in this regard.

ITA No. 2052/Ahd/11 A.Y. 01-02 [Cadila Pharmace uticals Ltd. vs. DCIT (OSD )] Page 5

15. The assessee company had made provisions of income lax of Rs. 1,25 crores. However, while computing taxable income if has added back only Rs. 89,00,484/-. Thus difference of Rs. 35,99,516/- was also required to be added back in the book profit, which was not done by the assesee company."

3.1 Matter was carried before the First Appellate Authority, wherein CIT(A) held as under:

"3.3 I have considered the facts of the case; assessment order and appellant's submission. In this case the revision order under section 263 was passed by CIT setting aside the assessment to the assessing officer to consider prior period items and difference in tax provisions debited. Appellant did not appeal against the order of CIT under section 263 and therefore revision order is final. Assessing officer noticed prior period items claimed by the appellant which as per the decisions of ITAT referred in the assessment order are not deductible from book profit. Appellant argued that it contained extra ordinary item including loss by Fire also. However it is seen that assessing officer considered loss by Fire allowable with minor adjustment based on facts of the case. What is held to be not deductible is only prior period expenses. Prior period income and other items cannot be adjusted and accordingly assessing officer is justified in not allowing prior period items from book profit for the purpose of section 115 JB. This adjustment is accordingly confirmed.

As regards provisions for tax, the same has to be clearly added to the book profit. It is not in dispute that appellant debited RS 1.25 crores as income tax provision however in the computation of book profit only 89 Lacs were added. Therefore there was a shortfall of RS 35.99 Lacs. The amount was therefore correctly added by the assessing officer to the book profit. Appellant claimed that the excess provision of tax was credited which was earlier included in book profit. However appellant could not establish this ITA No. 2052/Ahd/11 A.Y. 01-02 [Cadila Pharmace uticals Ltd. vs. DCIT (OSD )] Page 6

claim by records or documents. Therefore appellant's claim cannot be accepted. The addition is accordingly confirmed."

3.2 Same has been opposed before us on behalf of assessee inter alia submitted that CIT(A) was not justified in confirming the addition of Rs.33,91,715/- in book profit u/s. 115JB of the Income Tax Act. CIT(A) should have deleted the addition in view of according to various judicial pronouncements on the issue. Learned Authorized Representative also pointed out that this issue is covered in favour of assessee by order of ITAT 'B' Bench, Ahmedabad, in case of assessee's own case for A.Y. 2006-07 in ITA Nos. 1146 & 1518/Ahd/2011, wherein similar issue has been decided by Tribunal in favour of assessee by observing as under:

"21. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs. Meghmani Organics Ltd.(supra), the question No.1(C) before the Hon'ble Court was as under:-

"(c) Whether on the facts and in the circumstances of the case and in law the Appellate Tribunal erred in directing to reduce the prior ITA No.1146/Ahd/2011 (By Assessee) and period expenses of Rs.71,16,879/-

for the computation of taxable income u/s.115JA of the Act, 1961?"

21.1. The Hon'ble Gujarat High Court answered the question in favour of assessee by observing as under:-

"10. In that view of the matter, as rightly pointed out by the counsel for the assessee, in view of the decisions of the Apex Court in the case of Apollo Tyres Ltd. vs. Commissioner of Income-Tax reported in ITA No. 2052/Ahd/11 A.Y. 01-02 [Cadila Pharmace uticals Ltd. vs. DCIT (OSD )] Page 7

(2002) 255 ITR 273 and in the case of Commissioner of Income-Tax vs. HCL Comnet systems and Services Ltd.

reported in (2008) 305 ITR 405(SC), the Assessing Officer, could not have varied the Profit and Loss Account of the company duly audited and prepared in terms of the provisions contained in the Companies Act."

"12. We have, however, proceeded on the basis of the facts recorded by the Tribunal. Material aspect of the Tribunal's recording the fact is that the amount of Rs.71 lakhs was reduced by the assessee passed on after approval of the company in its AGM, which was also accepted by the auditors. If that be so, the Assessing Officer thereafter could not have made any further adjustment dehors the provisions of Section 115JA of the Act. However, if these facts are for some reason to correctly recorded by the Tribunal, surely, it would be open for the Revenue to approach the Tribunal seeking rectification of its order. Only for this purpose, we do not find any reason to entertain the present Tax Appeal."

21.2. We, respectfully following the aforesaid judgement of the Hon'ble Gujarat High Court in the case of CIT vs. Meghmani Organics Ltd.(supra) and allow this ground of assessee's appeal."

4. In view of above, we are not inclined to concur with the finding of CIT(A) who has confirmed the addition of Rs.33,91,715/- made to book profit u/s. 115JB of the Act. We find that Tribunal in assessee's own case for A.Y. 06-07 allowed the appeal by following the decision of CIT vs. Meghmani Organics Ltd. (supra), wherein it has been held that material aspect of Tribunal's recording the fact is that amount of Rs. 71 lacs was reduced by assessee passed on after approval of company in its AGM, which was also accepted by ITA No. 2052/Ahd/11 A.Y. 01-02 [Cadila Pharmace uticals Ltd. vs. DCIT (OSD )] Page 8

the auditors. If that be so, the Assessing Officer thereafter could not have made any further adjustment dehors the provisions of Section 115JA of the Act. Nothing contrary brought to our knowledge on behalf of revenue. Facts being similar so following same reasoning, we are not inclined to conquer with the finding of CIT(A) and Assessing Officer is directed to delete the addition of Rs.33,91,715/- as discussed above.

5. As a result, appeal filed by the assessee is partly allowed.

Pronounced in the open Court on this the 30th day of March, 2015.

Sd/- Sd/- (ANIL CHATURVEDI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 30/03/2015 True Copy S.K.SINHA

आदे श क ूितिल'प अमे'षत / Copy of Order Forwarded to:-

1. राजःव / Revenue

2. आवेदक / Assessee

3. संबंिधत आयकर आयु0 / Concerned CIT

4. आयकर आयु0- अपील / CIT (A)

5. 'वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड9 फाइल / Guard file.

By order/आदे श से,

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद ।