Lupin International (Succeeded By ... vs Assessee

आयकर अपील य अ धकरण, ए खंडपीठ मंब ु ई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A -BENCH सव ी आई पी बंसल , या यक सद य एवं राजे , लेखा सद य Before S/Sh. I P Bansal,Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.6301/Mum/2011, नधारण वष/Assessment Year-1997-98 Lupin International (Succeeded Income tax Officer by Novamed Pharmaceuticals 19(2)(3), 3rd floor, Pvt. Ltd.) Vs Piramal Chambers, Lower Parel 159, CST Road, Kalina Mumbai-400 012.

Mumbai-400 098.

PAN:AABFL 2573 J (अपीलाथ /Appellant) ( यथ / Respondent) नधा रती ओर से/Assessee by :Ms. Vasanti Patel राज व क ओर से/ Revenue by :Shri Asghar Zain सुनवाई क तार ख/ Date of Hearing : 01- 06 -2015 घोषणा क तार ख / Date of Pronouncement : 01-06-2015 आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श Order u/s.254(1)of the Inco me-tax Act,1961(Act) लेखा सद य राजे के अनुसार PER RAJENDRA, AM-

Challenging the order dt.29.01.2009 of CIT(A)-35, Mumbai, the assessee has raised the following grounds of appeal:-

"1. The CIT (A) has erred in disallowing appellant's claim of discounting charges/ interest of Rs. 96,94,638/- disregarding the fact that the borrowed funds were utilized for the purpose of appellant's business and accordingly the appellant was entitled to claim deduction under section 36(1 )(iii)/37 of the Income tax Act.

2. The CIT (A) erred in arriving at the conclusion that the borrowing were not made for the purpose of appellant's business. The appellant submits that the CIT (A) failed to take into consideration the submission and the fund flow statement filed before him which would establish that the borrowed funds were utilized by the appellant for the purpose of its business activity.

3. The CIT (A) erred in arriving at the conclusion that there was no business activity carried out by the appellant and therefore the appellant was not entitled to claim deduction on account of said discounting charges I interest under section 36(1 )(iii) of the Act.

4. The CIT (A) failed to take into consideration the fact that the borrowing were made in the earlier year for the purpose of business and accordingly there was no disallowance made by the assessing officer in the earlier and the said position as on today is not disturbed and therefore there is no reason why the transaction for the year under consideration should also not be accepted.

5. The CIT (A) erred in disregarding the decision of the another CIT (A) given in the case of appellant itself in subsequent assessment year i.e. assessment year 1998-99 without giving any cogent reasons.

6. The Appellant craves leave to add, alter, amplify, modify or delete all or any of the aforesaid grounds at or before the hearing."

6301/M/11-Lupin Intl. (97-98)

2.Assessee-company,engaged in the business of trading and investments in shares and securities and financing filed its retun of income on 02/11/1998 declaring loss of Rs.89.84 lacs. The Assessing Officer (AO) completed the assessment,u/s. 143(3) r.w.s. 254 of the Act,on 26/12/ 2008,determining income of the assessee at Rs.9.55 lacs. In the appellate proceedings the First Appellate Authority (FAA)upheld the disallowance made by the AO in respect of interest expenses of Rs.96,94,638/-.However, he allowed relief to the assessee by treating Rs.1.84 lacs as business income and Rs.5.62 lacs as income from other sources. The revised total income was worked out at Rs.7,10,305 after giving effect to the FAA's order. Aggrieved by the order of the FAA the assessee preferred an appeal before the Tribunal . Vide its order ITA/5591/Mum/2004 dated 16.8.2007,the Tribunal restored the matter back to the file of the AO with following directions:

"In view of the facts and circumstances we restore the issue involved interest he appeal here before us to the file of the AO to decide the same afresh in the light of the decision of the Tribunal in assessment year 1998-99. The Assessing Officer is directed to allow reasonable opportunity of being heard to the assessee. We order accordingly."

During the reassessment proceedings the AO again disallowed the interest charges of Rs.96.94 lacs. He held that during the set aside proceedings the assessee had not filed any evidence to claim that those were genuine bill discounting charges on interest paid, that they were all ledger entries belonging to group concerns,that it had not produced any material to show that interest payments were actually made. Finally,he refused to entertain the claim of the assessee of interest charges paid amounting to Rs.96.94 lacs that were claimed as bill discounting charges, as stated earlier.

3.Aggrieved by the order of the AO,the assessee again filed an appeal before the FAA in the second round.Before him,it was argued that for the assessment year 1998-99, the then FAA had allowed the claim and discounting charges.

The FAA required the assessee to file P&L Account, Balance sheet for assessment years 1995-96 to 1997-98. He found that for the earlier years, the assessee ahd claimed interest of Rs.22.25 lacs, that for the year under appeal it had claimed interest at Rs.96,94,638/-, it had not made any advances to sister concerns in the earlier years, that it had made advances to group entities during the year under appeal. The assessee clarified that interest was paid to Lupin Laboratories Ltd. (LPL) from whom the assessee had taken loans. The FAA observed that the outstanding amount in case of LPL as on 31.3.1997 was Rs.9.07 crores,that the assessee had received interest income of Rs. 5.26 lacs was from Central Bank of India, that it did not admit any interest from the following advances appearing in the balance sheet for the year under consideration:Lupin Agro Chemicals(I) Ltd.-(Rs.1.51 crores);Orgo Pharm Chemical -(Rs.3.89 crores) ;Synchem Chemicals (I) P.Rs.(1.45 crores); and Sanoja Investment (P.) Ltd. (Rs.22.90 lacs).It was also found that there was debit balance in account of the partners current account to the extent of Rs.1.54 crores. From the above the FAA held that the assessee had obtained loan from LPL and made interest free advances to sister concerns, that no interest income was admitted from the group entities, that the purpose of borrowing was not made for business activities but to give interest free advances to the sister concerns, that order of CIT(A)-19, Mumbai cannot be followed in a routine manner, that the perusal of the balance sheet as on 31/3/1997 showed that the loans were utilized only for making loans and advances, that there was no business activity, that the entire investment in the business was only Rs.2.00 lacs, that the assessee had not fulfilled the condition laid down in section 36(iii), that the interest can be allowed only if it was taken for the purpose 2 6301/M/11-Lupin Intl. (97-98)

of business. Finally, he held that the assessee was not entitled to claim interest as loan was diverted to sister concern without charging interest .

5.Before us,the Authorised Representative (AR) stated that the FAA while deciding the appeal for assessment year 1998-99 (ITA No.5553/Mum/2009) dated 9/4/2015 had decided the issue in favour of the assessee .It was further argued that in the case of Delta International & East West Corporation and other group concerns, the Tribunal had decided the identical issue in favour of the assessee .The Departmental Representative (DR) left the issue to the discretion of the Bench.

6.We have heard both the authorities and gone through the paper filed by the assessee . We find that while deciding the appeal for assessment year 1998-99 (supra), the Tribunal decided the issue as under :-

"5.We have heard the rival submissions and perused the material before us.We find that the issue of discounting charges have been extensively deliberated upon by the Tribunal in the group cases and it had dismissed the appeals filed by the AO.s for the AY.1997-98.We would like to reproduce the decisions of Delta International,delivered by the Tribunal on 25.09.2013(supra) and it reads as under:

"Ground Nos. I to 3 relate to disallowance of discounting charges/ interest of Rs. 46, 32, 752.Briefly stated the facts of the case are that the original assessment in this case was completed, making addition, inter-alia, of Rs.46,32,752/- on account of discounting charges/ interest.When the matter finally came up before the Tribunal, the Tribunal vide order dated 28.11.2006 passed in ITA No.639/M12004 restored the issue to the file of A.O. with a direction to examine as to whether such discount/interest was incurred by the assessee in carrying on of its business. This order was passed by the Tribunal by following another order by the Tribunal in the case of another group concern of the assessee the"Fellowship corporation vs.JCIT[ITA No.4352/MumI2001]. Pursuant to the direction given by the Tribunal, the Assessing Officer repeated the addition towards finance charges in the present case. The learned CIT(A), however deleted the said addition. The Revenue has come up in appeal against such deletion.The ld. AR has brought to our notice that the issue under consideration is squarely covered with the findings of the co-ordinate bench of the tribunal given in the own case of the assessee for A.Y.1996-97 passed in ITA No.5028/Mum/2009 vide order dt.24.07.2013.

The operating part of the order,for the sake of convenience is reproduced as under: "From the body of the assessment order it can be seen that the Assessing Officer simply repeated the assessment and first appellate authority's order without discussing anything new about the matter on which the Tribunal gave direction.He simply noticed that the assessee did not produce any additional evidence to co-relate the financing charges with the business expenditure.As against that, the learned AR invited our attention towards various details furnished before the Assessing Officer during the course of such fresh proceedings. First letter of the assessee in the fresh proceedings is dated 05.09.2006 by which it furnished Fund flow statement, Balance sheet and profit and loss account for the year in question and for the earlier year,details of discount charges paid,statement of account, parties in support of receipt payment of discounting charges, copies of account of parties tracing the original funds, user of funds and repayment of charges with discounting charges etc. Another letter was filed before the Assessing Officer on 24.11.2006 producing complete books of account, details of finance charges paid with bifurcation of parties and rate of interest and a copy of assessment order passed by the A.O. for the preceding year in which similar deduction was allowed.The present assessment order was passed by the AO on 18.12.2006 after filing of the above referred

3 6301/M/11-Lupin Intl. (97-98)

documents by the assessee.It is surprising that the Assessing Officer did not make a whisper, in the assessment order of such details having been filed by the assessee What to talk of adversely commenting ,the A.0.even did not bother to incorporate or discuss such facts in the assessment order. This fact has been elaborately considered by the learned CIT(A), the discussion on which has been made in par as 1.10 to 1.14 of the impugned order. On the appreciation of the entire material /evidence placed by the assessee before the A.O. in the fresh round of proceedings,the learned CIT(A) has recorded a categorical finding that these expenses were incurred during the course of business. Apart from relying on the assessment order, the learned Departmental Representative could not controvert the findings given by the learned CIT(A)in support of the grant of deduction. We, therefore, uphold the impugned order in deleting the said addition."

3.Ld. D.R. has not brought before us any distinguishable fact which may justify departure from the findings of the co-ordinate bench of the tribunal given for the preceding year based on similar facts and circumstances. So respectfully following the findings of the co ordinate bench of the tribunal for the earlier year, the issue is decided against the Revenue and the order of the Id. CIT(A) deleting the disallowance relating to the issue is upheld." As the facts of the case under appeal and that of Delta International are identical,therefore, respectfully,following it we are upholding the order of the FAA.Effective ground of appeal is decided against the AO.

Following the above order,we decided the effective ground of appeal in favour of the assessee .

As a result, appeal filed by the assessee stands allowed.

फलतः नधा रती वारा दा खल क गई अपील मंजूर क जाती है. Order pronounced in the open court on 1st,June,2015. आदे श क घोषणा खल ु े यायालय म दनांक 1 जून,2015 को क गई । st

Sd/- Sd/- (आई पी बंसल/I P Bansal) (राजे / RAJENDRA) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मुंबई/Mumbai, दनांक/Date: 01.06.2015 व. न.स. Jv.Sr.PS. आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1.Appellant /अपीलाथ 2. Respondent / यथ

3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त

5.DR "A" Bench, ITAT, Mumbai / वभागीय त न ध, ए खंडपीठ,आ.अ. याया.मुंबई

6.Guard File/गाड फाईल स या पत त //True Copy// आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai.

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