Income Tax Appellate Tribunal - Panji
Deputy Commissioner Of Income-Tax,, vs Serum Institute Of India Ltd.,, Pune on 28 November, 2017
आयकर अपीलीय अिधकरण, पुणे ायपीठ "ए
ए" पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
ी डी.
डी क णाकरा राव , लेखा सद य
एवं ी िवकास अव थी,
अव थी याियक सद य के सम
BEFORE SHRI D.KARUNAKARA RAO, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA Nos.985 & 986/PUN/2015
िनधा रण वष / Assessment Years : 2006-07 & 2007-08
Serum Institute of India Ltd.,
Sarosh Bhavan, 16-B/1,
Dr. Ambedkar Road,
Pune - 411 001
PAN : AABCS4225M .... अपीलाथ /Appellant
Vs.
DCIT, Central Circle-1(1),
Pune .... यथ / Respondent
आयकर अपील सं. / ITA Nos.1535 & 1536/PUN/2015
िनधा रण वष / Assessment Years : 2006-07 & 2007-08
DCIT, Central Circle-1(1),
Pune .... अपीलाथ /Appellant
Vs.
Serum Institute of India Ltd.,
212/2, Hadapsar,
Pune - 411 028
PAN : AABCS4225M .... यथ / Respondent
Assessee by : Shri R.S. Abhyankar
Revenue by : Shri Rajeev Kumar, CIT DR
सुनवाई क तारीख / घोषणा क तारीख /
Date of Hearing : 03.11.2017 Date of Pronouncement: 28.11.2017
आदेश / ORDER
PER D. KARUNAKARA RAO, AM :
There are four appeals under consideration filed by the assessee and the revenue involving A.Yrs. 2006-07 & 2007-08. ITA Nos. 985 & 1535/PUN/2015 are the cross appeals for A.Y. 2006-07 and ITA Nos. 986 & 1536/PUN/2015 are the cross appeals for A.Y. 2007-08. These appeals are filed against the orders of CIT(A)-11 commonly dated 28-11-2014.
2
ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd.,
2. Briefly stated relevant facts are that the assessee is a company engaged in the business of manufacturing of vaccines, anti sera, plasma, hormone products etc., and the stud farm activities. There was search action on the assessee u/s.132 of the Act on 21-06-2011 in the Poonawalla Group of cases. The cases of Poonawalla Group include two sub-groups. One sub-group includes family members of Shri Cyrus Soli Poonawalla (in short 'CSP') and the group concerns under his control and management with M/s. Serum Institute of India Ltd., as the flagship company. The other sub-group includes family members of Shri Zavareh Soli Poonawalla (in short 'ZSP'). Assessments were completed u/s.153A r.w.s. 143(3) of the Act. Assessee declared undisclosed income during the search action for the A.Y. 2006-07, the Assessee filed the return of income declaring income of Rs.46,01,00,856/-. Assessment was completed on the total income of Rs.68,18,00,121/- after granting exemption u/s.10B of the Act. CIT(A) gave part relief in the First Appellate proceedings and accordingly, the appeal of the assessee was partly allowed. Against the part relief granted by the CIT(A) to the assessee, the Revenue is in appeal before us. Similarly, aggrieved with the additions confirmed by the CIT(A) the assessee is in appeal before us. ITA No.1535/PUN/2015 (By Revenue - A.Y. 2006-07) : ITA No.985/PUN/2015 (By Assessee - A.Y. 2006-07) :
3. We shall take up the cross appeals for the A.Y. 2006-07. Coming to the issue raised in the cross appeals, Ld. Counsel for the assessee filed a chart before us. Based on the same, we proceed to adjudicate ground-wise and appeal-wise in the following paragraphs. We shall take up the Revenue's appeal first. ITA No.1535/PUN/2015
(A.Y. 2006-07 - By Revenue )
4. In the revenue's appeal, the only issue raised by the Revenue relates to exclusion of Freight and Insurance from the total turnover for the purpose of quality deduction u/s.10B of the Act.
3
ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd.,
5. Ld. DR for the Revenue relied on the order of the AO.
6. At the outset, Ld. Counsel for the assessee submitted that an identical issue came up for adjudication by the Tribunal in the assessee's own case for the A.Y. 2007-08 vide the ITA No.17/PN/2012 and other connected appeals order dated 10- 04-2014. Bringing our attention to Para Nos. 4 and 4.1, the Ld. Counsel for the assessee demonstrated that, on identical facts, relying on the jurisdictional High Court judgment in the case of M/s.Gems Plus Jewellery India Ltd. 330 ITR 175 as well as the Special Bench decision of the Tribunal in the case of Sak Soft Ltd. 121 TTJ 865, the Tribunal decided the issue in favour of the assessee and the AO was directed to exclude Freight and Insurance charges from the total turnover of the assessee for computing the allowable deduction u/s.10B of the Act.
7. After hearing both the sides and perusing the order of the Tribunal on this issue in assessee's own case for A.Y. 2007-08 vide ITA No.17/PN/2012, we proceed to extract the operational Para 4.1 and the same reads as under :
"4.1 Since the Ld.CIT(A) while directing the AO to exclude the Freight and Insurance charges from the total turnover has followed the decision of the Hon'ble jurisdictional High Court in the case of Gems Plus Jewellery India Ltd (Supra) and the decision of the Special Bench of the Tribunal in the case of Sak Soft Ltd. (Supra), therefore, respectfully following the above decisions and in absence of any contrary material brought to our notice, we find no infirmity in the order of the CIT(A). Merely because the Revenue has not accepted the above decision of the Hon'ble High Court and has filed appeal against the said decision will not be a ground to take a contrary view than the view taken by the Hon'ble High Court unless and until the same is reversed. In this view of the matter and in view of the detailed reasoning given by the Ld.CIT(A) directing the AO to exclude the Freight and Insurance charges from the total turnover for computing deduction u/s.10B. We find no infirmity in the same. Accordingly, the order of the CIT(A) on this issue is upheld and the grounds raised by the Revenue are dismissed."
8. From the above extract, it is evident that in the assessee's own case for A.Y. 2007-08, the direction of the Tribunal is clearly in favour of the Assessee and against the Revenue. There is no change on facts for this year. Therefore, we confirm the order of the CIT(A) on this issue. Consequently, the grounds raised by the Revenue are dismissed.
4
ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd.,
9. In the result, appeal of the Revenue is dismissed.
ITA No.985/PUN/2015
(A.Y. 2006-07 -By Assessee)
10. In the grounds raised by the assessee in its appeal, the assessee raised 6 grounds which are summarized by the Ld. Counsel for the assessee in a chart form before us. We proceed to adjudicate the grounds on the basis of the chart provided to us.
11. Ground No.1 relates to disallowance on account of provision for "Leave Encashment" of Rs.49,48,494/-. AO disallowed the said claim and the CIT(A) confirmed the same as per the discussion given in Para 6 on pages 7 to 9 of the order of the CIT(A).
12. Before us, on this issue, Ld. Counsel for the assessee fairly submitted that an identical issue came up for adjudication by the Tribunal for A.Y. 2002-03 (ITA Ni.413/PN/2006 dated 24-02-2012) as well as for A.Y. 2006-07 ITA No.1383/PN/2011 dated 22-02-2013) and the issue was decided against the assessee and in favour of the Revenue. He fairly submitted that this issue needs to be decided against the assessee.
13. On the other hand, Ld. DR for the Revenue heavily relied on the said orders of the Tribunal for AYrs. 2002-03 and 2006-07 (supra).
14. On hearing both the parties on this issue, we proceed to refer to Para No.6 in ITA No.413/PN/2006 and Para No.26 of the order of the Tribunal in ITA No.1383/PN/2011. For the sake of completeness, we reproduce Para No.26 of the order of the Tribunal for A.Y. 2006-07 (ITA No.1383/PN/2011 dated 22-02-2013) and the same reads as under :
"26. The next issue pertains to disallowance of provision for leave encashment amounting to Rs.49,48,494/- with respect to DTA unit of the assessee. It was a common point between the parties that the issue is identical to Ground No.2 5 ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd., considered by us in ITA No.679/PN/2009 for assessment year 2005-06 in earlier paragraphs, wherein following the decision of the Tribunal in assessee's own case in ITA No.413/PN/2006 pertaining to A.Y. 2002-03, the issue was decided against the assessee. In this view of the matter, the CIT(A) made no mistake in confirming the disallowance made by the Assessing Officer in this year also. Thus on this ground assessee fails."
15. The allowability of the claim of 'Leave Encashment' is now settled against the assessee and in favour of the Revenue. Considering the settled nature of the issue and following the rule of consistency, we are of the view that this issue has to be decided against the assessee. Accordingly, Ground No.1 raised by the assessee is dismissed.
16. Ground No.2 deals with the disallowance of Rs.1,69,10,798/- u/s.14A of the Act in assessment u/s.153A of the Act, on adhoc basis @10% of the exempt income in the 'non-abated assessment in the absence of incriminating material'. Relevant facts relating to this issue include that regular assessment u/s.143(3) of the Act was completed making NIL disallowance. In the current assessment year made u/s.153A r.w.s. 143(3) of the Act on adhoc basis, AO disallowed the expenditure u/s.14A of the Act @10% of the exempt income. CIT(A) confirmed the same. Ground No.2 has 3 sub-grounds and all of them revolve around the assessee's grievance of making additions u/s.14A when there is no incriminating material found during the search relating to the expenditure within the meaning of the provisions of section 14A of the Act in connection with the exempt income, which formed part of the total income of the assessee. Aggrieved with the same, the assessee is in appeal before us.
17. Before us, Ld. Counsel for the assessee brought our attention to the so- called seized document and submitted that the said document which has a heading of 'Inter Office Communication' had a reference to the transaction of buying the shares in Group companies involving Deccan Chronicle and Bajaj Holdings. The purchases were made for Dr. C.S. Poonawalla and M/s. Adurjee Brothers. It has nothing to do with the assessee under consideration. As such, all these purchase 6 ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd., transaction of shares are duly accounted in the books of account of the concerned assessees. It is the argument of the Ld. Counsel for the assessee that said document does not constitute an 'unaccounted and an incriminating' one as the said document is duly accounted in the books of account. As such, there is no dispute on this. In such circumstances, as per the Ld. Counsel for the assessee, the AO is not allowed to assume jurisdiction to invoke the provisions of section 14A of the Act in the search and seizure assessments made u/s.153A of the Act when there is no incriminating material. The A.Y. 2006-07 is a non-abated assessment. Further, bringing our attention to assessee's own case for A.Y. 2005-06, Ld. Counsel for the assessee submitted that the Tribunal vide the appeal in ITA No. 1073/PN/2014 dated 30-11-2016 (vide Para Nos. 39 to 44 - page 26 of the order of the Tribunal), deleted the addition holding that such general additions cannot be made in the search and seizure assessment u/s.153A r.w.s. 143(3) of the Act.
18. On hearing both the sides, we perused the finding of the Tribunal on this issue given in ITA No.1073/PN/2014 for A.Y. 2005-06 and proceed the extract the operational para No.44. which reads as under :
"44. The Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (Supra) has held that if there were funds available both interest free and overdraft and or loans taken, then presumption would arise that investment would be out of the interest free funds generated or available with the company. If the interest free funds were sufficient to meet the investments. Since in the instant case admittedly reserves and surplus of the assessee company was Rs.463.58 crores as on 31-03-2005 and the investments are only Rs.200.18 crores, therefore in view of the decisions cited supra, we are of the considered opinion that no disallowance u/s.14A is called for. In this view of the matter, we set aside the order of the CIT(A) and allow the ground raised by the assessee."
19. We also find the seized paper relied upon by the AO cannot be termed as an 'incriminating material' as it does not belong/pertains/relate to the assessee and the transactions on the same are found to be accounted ones. Thus, considering the settled nature of the issue, we are of the opinion that on the ground of absence of any incriminating material the AO cannot assume jurisdiction and invoke the 7 ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd., provisions of section 14A for making disallowance. Accordingly, Ground No.2 raised by the assessee is allowed.
20. Ground No.3 raised by the assessee relates to classification of Stainless steel items as 'Furniture and Fixtures' instead of 'Plant and Machinery'. Addition on this account works out to Rs.8,82,555/-.
21. At the outset, Ld. Counsel for the assessee submitted that an identical issue was subject matter of adjudication by the Tribunal in assessee's own case for many assessment years, i.e. A.Y. 2001-02 to 2006-07. Bringing our attention to Para Nos. 2 to 6 of the order of the Tribunal for A.Y. 2001-02 (ITA No.948/PN/2005 dated 18-01-2012), Ld. Counsel for the assessee submitted that identical issue was decided in favour of the assessee. Similar adjudication was done in favour of the assessee vide the order of the Tribunal in ITA No.1383/PN/2011 for A.Y. 2006-07 dated 22-02-2013 too.
22. We heard both the sides and perused the orders of the Tribunal in assessee's own case on this issue. We proceed to extract the operational Para No.29 of the order of the Tribunal in ITA No.1383/PN/2011 for A.Y. 2006-07. The Tribunal dismissed the ground raised by the Revenue relying on the order of the Tribunal in assessee's own case for A.Y. 2001-02. The same reads as under :
"29. The first issue relates to disallowance of depreciation by classifying certain items of fixed assets located in manufacturing unit as 'Furniture and Fixtures' and not as 'Plant and Machinery', as contended by the assessee. This issue is related to the cross Ground No.4 considered in assessee's appeal for assessment year 2006-07 and it was a common point between the parties that the directions of the CIT(A) are in line with the decision of the Tribunal in assessee's own case for assessment year 2001-02 vide ITA No.948/PN/2005 dated 18-10-2012. Accordingly, the Ground of Appeal raised by the Revenue is dismissed".
23. Considering the settled nature of the issue and following the rule of consistency, we are of the opinion that the ground raised by the assessee is to be allowed in favour of the assessee. Accordingly, Ground no.3 raised by the assessee is allowed.
8
ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd.,
24. Ground no.4 by the assessee relates to the disallowance of expenditure on Repairs/Renovation of Bungalow at 70, Koregaon park. Addition on this account works out to Rs.1,06,07,000/- and Rent paid of Rs.24,00,000/-.
25. On this issue, Ld. Counsel for the assessee submitted that similar issue was adjudicated in assessee's own case for A.Y. 2005-06 in his favour. Bringing our attention to Para Nos. 35 to 37 of the order of the Tribunal in ITA No.1703/PN/2014 dated 30-11-2016, Ld. Counsel for the assessee submitted that the expenditure incurred on Repairs/Renovation of the Bungalow was allowed, as 'business expenditure' of the assessee.
26. On hearing both the sides on this issue, we perused the said paragraphs of the order of the Tribunal in assessee's own case dated 30-11-2016 and for the sake of completeness, we proceed to extract the relevant lines of the operational para. The same reads as under :
"35. In view of the above discussion, we are of the considered opinion that the expenditure of Rs.1,17,88,000/- incurred on repairs and renovation on bungalow located at 70, Koregaon Park, Pune has to be allowed as a business expenditure in the hands of the assessee company. We therefore set aside the order of the CIT(A). The ground raised by the assessee is accordingly allowed."
27. We find that the arguments raised by the Ld. DR for the Revenue are identically raised in the said appeal proceedings for A.Y. 2005-06. Following the decision of the Tribunal in assessee's own case for A.Y. 2005-06 (supra), we are of the opinion that this issue also should be allowed in favour of the assessee. Accordingly, Ground no.4 raised by the assessee is allowed.
28. Ground no.5 relates to inclusion of income of an amount of Rs.1 crore which was offered as contingency in the statement u/s.132(4) of the act. Relevant facts are that the assessee was covered u/s.132 of the Act and the same resulted in disclosure of undisclosed income. Details are given in Para nos. 13 and 13.1 (pages 9 ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd., 55 to 60) of the order of CIT(A). Accordingly, Rs. 1 crore was offered against the contingencies if any to be set off against the discrepancies/omissions. While filing the return of income, and adhering to the said statement u/s.132(4) of the Act, said amount of Rs. 1 crore was offered as undisclosed income of the assessee for the year. Accordingly, the same was taxed although no specific discrepancies/omissions were brought to the notice of the assessee. Assessee did not raise any issue before the AO. However, before the CIT(A), assessee submits that said contingency of Rs.1 crore should not be taxed and the same is required to be excluded from the undisclosed income offered by the assessee. CIT(A) rejected the said demand of the assessee as per the discussion given in para 13.2 of his order. Thus, CIT(A) decided this issue against the assessee.
29. To sum up his finding, in the said para, the CIT(A) held that the claim made by the assessee that such income of Rs.1 crore may be excluded from the total income assessed by the assessee as no discrepancies were found during the assessment proceedings, cannot be accepted as the said additional income was offered voluntarily in the return of income. If accepted, the assessed income shall be lower than the returned income. The alternative claim of the assessee for set off of such contingencies against other disallowances u/s.14A of the Act made by the AO was also rejected despite the existence of the favourable decision of the Tribunal in the group cases of the assessee (M/s. Adurjee Brothers Pvt. Ltd.). Aggrieved with the order of CIT(A) the assessee is in appeal before us.
30. Before us, Ld. Counsel for the assessee submitted that similar issue with some variance came up for adjudication before the Tribunal in a case belonging to the same group named M/s. Adurjee Brothers Pvt. Ltd. (supra). In this case, the demand of the assessee was for set off of the other disallowances made u/s.14A of the Act against such contingency disclosure. The Tribunal allowed the argument of the assessee on this issue of set off. Contents of Para No.12 of the order of the 10 ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd., Tribunal in ITA No.1067/PN/2014 dated 13-06-2014 are relevant and therefore we proceed to extract the same as under :
"12. We find merit in the alternate contention of the Ld. Counsel for the assessee that the amount of Rs.75 lakhs offered to tax in the statement recorded u/s.132(4) be set off against the disallowance calculated under the provisions of section 14A r.w. Rule 8D. Admittedly, the assessee had made disclosure of Rs.75 lakhs voluntarily as additional income under the head "Contingencies" to cover any other errors, omissions or discrepancies. The submission of the Ld. Counsel for the assessee that the amount of Rs.75 lakhs was voluntarily offered and there was no detection of any incriminating material or undisclosed income could not be controverted by the Ld. Departmental Representative. We, therefore, find merit in the submission of the Ld. Counsel for the assessee that the amount of Rs.75 lakhs offered by the assessee as undisclosed income to cover any errors, omissions or discrepancies in computing the taxable income should be set off against the disallowance made u/s.14A r.w. Rule 8D of the I.T. Act. We, therefore, set aside the order of the CIT(A) and direct the AO to restrict the disallowance u/s.14A r.w. Rule 8D to Rs.18,19,294/- i.e. (Rs.93,24,674 - Rs.75,00,000/-). Grounds of appeal No.1 to 3 by the assessee are accordingly partly allowed.
31. From the above, we find the Tribunal permitted for setting off the disallowance of expenditure u/s.14A of the Act against the said buffer disclosure of income. In that case, Rs. 75 lakhs was offered as buffer and the issue of disclosure u/s.14A of the Act created the additional income exceeding the said buffer disclosure of Rs.75 lakhs. Further, in the said decision, the income assessed never fell below the returned income. However, there is no discussion or decision of the Tribunal on the issue of reduction of the disclosed returned income. Therefore, we shall proceed to analyse the legal scope on this issue. Legal scope on the sanctity of returned income - if the assessed income be less than the returned income.
32. On this issue, Ld. Counsel for the assessee submitted that it is a settled legal proposition in favour of the Assessee and against the Revenue. For this, Ld counsel relied on various binding judgments of Apex Courts and others. We shall now proceed to analyse each of them here as under.
33. To start with, we will take up the Apex Court's judgment in the case of Commissioner of Income-tax v. Shelly Products [2003] 261 ITR 367 (SC), the Apex 11 ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd., Court held in favour of refunding of the excess taxes paid (of advance tax as well as self-assessment tax) out of abundant caution or owing to error or non taxability. Held portion of this judgment is extracted as under :
"However, failure or inability of the Revenue to frame a fresh assessment should not place the assessee in a more dis-advantageous position than he would have been in if a fresh assessment were made. In a case where the assessee chooses to deposit, by way of abundant caution, advance tax or tax on self assessment which is in excess of his liability on the basis of the return furnished or, if there is an arithmetical error or inaccuracy, it is open to the assessee to claim refund of the excess tax paid in the course of the assessment proceedings. He can certainly make such a claim before the concerned authority calculating the refund. Similarly, if the assessee has, by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which, if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case where a refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief."
34. In the case of Gujarat Gas Company Ltd. Vs. JCIT (245 ITR 84) the Hon'ble Gujarat High Court held that the instruction of the CBDT Circular No.549 (Para No.5.12 dated 31-10-1989 is ultra-vires when the said instruction mandates the AO against making the scrutiny assessments at the figure less than that returned by the assessee. Relevant held portion of this judgment reads as under :
"Held, that the circular in question refers to assessments which are to be made u/s.143(3) of the Act. The circular directs that in a particular type of cases, i.e. in scrutiny cases u/s.143(3) of the Act, the income can neither be assessed at a figure lower than the returned income nor the loss assessed at a figure higher than the loss nor further refund given except what was due on the basis of the returned income. Thus, by issuance of the circular, the quasi-judicial officer is directed to assess cases of particular nature in a particular manner. The Assessing Officer being bound by it had abdicated his function and did not act independently and, therefore, there was no question of alternative remedy which was a futile remedy. In fact, the jurisdiction had been exercised by the Central Board of Direct Taxes by issuing the circular and, therefore, the order of the Assessing Officer was without jurisdiction. The court had to exercise its jurisdiction under article 226. The order of the Assessing Officer to the extent it stated that the total income would be the returned income, was to be set aside, with a direction to the Assessing Officer to make assessment without keeping in mind the Central Board of Direct Taxes Circular dated 31-10-1989."
35. The same Hon'ble Gujarat High Court again in the case of CIT Vs. Milton Laminates Ltd. vide Tax Appeal No.1022 of 2010 dated 24-01-2012 held the issue in favour of the Assessee and against the Revenue. Revenue took the issue to the 12 ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd., Hon'ble High Court on the issue, if the Tribunal's direction to the AO to allow complete effect to the order of the CIT(A) without restricting the income to the returned income. In this case, after giving effect to the order of the CIT(A), the income assessed has fallen below the returned income of the assessee. The Hon'ble High Court upheld the order of the Tribunal. Relevant lines from this judgment also are extracted as under :
"7. In view of the above, we do not find any reason to interfere with the Tribunal's ultimate conclusion in allowing the assessee's appeal. Though some of the observations may not appeal to us, nevertheless, for the reasons somewhat different from those recorded by the Tribunal we come to the same conclusion. Decision of the Apex Court in case of Shelly Products & Others (supra), was rendered in very different background. It was a case where the assessee had filed return. Assessee had paid self assessment tax on the income disclosed in the return. Tribunal on appeal by the assessee held that the order of the assessment passed by the Assessing Officer was ab-initio void since he had no jurisdiction to deal with such proceedings. Revenue sought reference before the High Court. When such reference was pending, the assessee applied to the department for refund of the tax paid. It was in this background the Apex Court expressed the opinion that liability to pay income tax does not depend on assessment being made and failure or inability to frame fresh assessment after earlier assessment is set aside or nullified in appropriate proceedings, does not disentitle the assessee to claim refund of the advance tax and tax paid on self assessment because to that extent the assessee had admitted his liability to pay tax in accordance with law. Facts of the present case are therefore, different. In case of hand, the assessment was not rendered null. In fact such assessment, which according to the order of CIT(Appeals) had become final tax liability of the assessee, came lower than that declared by him in the return filed."
(1) To sum up, from the above, it is obvious that the fetters imposed by the CBDT, on the AOs, when it comes to assessing the income of assessee lower than the returned income, are held ultra vires. Further, the Hon'ble Apex Court also held that the taxes paid by the assessee as a matter of abundant caution, i.e. by way of Advance or Self Assessment Taxes, needs to be refunded after due verification of the claims.
(2) Ld. Counsel for the assessee filed various decisions of the Tribunal demonstrating that the 'contingency' disclosure are entitled to refund after due verification. In this regard, Ld. Counsel for the assessee filed written note on 'Contingency issue' stating that the return of income filed by the assessee constitutes a notional undisclosed income as part of the total income. The same 13 ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd., should not become an impediment for assessing the income of the assessee based on the principles relating to the Real Income theory. According to him, the income offered by the assessee in the return of income is not sacrosanct and what matters is the AO's finding on the assessed income of the assessee. The assessed income can be lower than the returned income. Relying on the decision of Nagpur Bench of the Tribunal in the case of DCIT Vs. Sanmukhdas Wadhwani 85 ITD 734, Shri R.S. Abhyankar, Ld. Counsel for the assessee submitted that where the assessee himself returned his undisclosed income on adhoc basis without giving any break- up for the same and when the subsequent working submitted by him reveals that the undisclosed income actually assessable in the hands of the assessee is lower than the returned income, the same has to be assessed at such lower income based on the concept of Real Income. Only condition specified in the said decision relates to the verification and correctness of the statements so submitted giving the detailed working before the AO. Relevant portion is extracted as under :
"12. It is observed that a similar issue in the context of regular assessment arose for consideration before the Hon'ble Delhi High Court in the case of CIT v. Bharat General Insurance Co. Ltd. [1971] 81 ITR 303 wherein it was held by their Lordships that even if an assessee declares an income in the return, the Assessing Officer cannot assess it merely on that basis and he has to consider its taxability in the light of other circumstances de hors the admission made in the return. In the case of Narayanan v. Gopal AIR 1960 SC 235, the Hon'ble Supreme Court has held that an admission in the return is not conclusive and it would be decisive only if not subsequently withdrawn or proved to be erroneous. It is well- established that the object of an assessment is to determine the correct income and consequently the correct tax liability. In our opinion, this settled position equally holds good in the matter of block assessment also since the scope of undisclosed income assessable in the block assessment is specifically provided and the procedure for determination of such income is also clearly laid down. In these circumstances, any amount which is not assessable as undisclosed income for the block period cannot be assessed as such merely for the reason that the same was declared by the Assessee in the return for block period and there cannot be such estoppel against the statute. It, therefore, follows that if the assessee commits a patent mistake of fact or law while filing his return of undisclosed income under section 158BC, he cannot be assessed on such incorrect income merely on the basis of admission made in the return.
13. . . . . . . . .In such circumstances, when a detailed working made subsequently by the assessee of undisclosed income revealed that the total undisclosed income assessable in the hands of the Assessee was lower than the returned income, we are of the opinion that the same has to be assessed at such lower amount going by the concept of real income especially when the said working was verified and found to be correct by the Assessing Officer."14
ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd.,
36. Similar proposition was affirmed by the Hon'ble Delhi High Court in the case of CIT Vs. Bharat General Insurance Company Ltd. 81 ITR 303 wherein it is held that when the assessee declares income in the return, the AO cannot assess merely on that basis and has to consider its liability in the light of other circumstances de hors the admission made by him in the return. Ld. Counsel for the assessee also referred to the other judgment in the case of Ester Industries Ltd. Vs. CIT 316 ITR 260 (Delhi). According to this judgment, suo moto disallowance leading to increased returned income can always be verified by the AO in the assessment and decrease the returned income, even if it falls below the amount of total income returned by the assessee in the return of income. In this case, the Hon'ble High Court restored the matter for such verification. Relevant portion of the judgment are extracted as under :
"11. According to us, the Tribunal ought to have examined the issue as to whether the fact that assessee had made an admission with respect to an addition / disallowance in its original return or in the revised return would ipso facto bar the assessee from claiming an expense or disputing an addition if it is otherwise permissible under law. This is so especially in view of the circumstances, that the Assessing Officer while making the additions /disallowances did not call upon the assessee to furnish any explanation. The upshot of the submission made by the learned counsel for the assessee, is that, had the assessee been given an opportunity by the Assessing Officer it could have demonstrated that no additions or disallowances were called for, in view of the binding precedents of Courts and/or Tribunal in respect of each of the addition/disallowance. The observations made in the Tax Audit Report could not have formed the basis of additions/ allowances by the Assessing Officer. On this aspect of the matter the observations in the judgment of the Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 being apposite are extracted hereinbelow :
It is no doubt true that entries in the account books of the assessee amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. (p.
20).
11.1 We find that the Tribunal instead of examining the matter from this angle has repeated the order passed in the first round without due application of mind to the issues which called for adjudication.
15
ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd.,
37. The Nagpur Bench of the Tribunal in the case of DCIT Vs. Sanmukhdas Wadhwani (supra) held categorically that the "income not assessable as undisclosed income of the assessee cannot be assessed as such" merely because assessee declared the same through a statement in search action. Admission made by the assessee in the return of income is no sacrosanct. AO is under statutory obligation to make assessment of assessee based on the facts of case and as per the provisions of Act. In other words, coming to the facts of the assessee, if the said sum of Rs. 1 crore is not assessable to tax as income of the assessee, the same ought not be assessed even if the assessed income comes to a lower figure qua the returned income.
38. We have considered the above legal scope of the principle relating to the lower figure of assessed income qua the returned income. Further, we have heard the parties and perused the written submissions of the Ld. Counsel for the assessee. Further also, we perused the reasoning given by the CIT(A) while dismissing the claim of the assessee. We find the contents of Para No.12 of his order are relevant. For the sake of completeness of this order, we proceed to extract Para No.13.2 of the CIT(A) :
"13.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . To sum up, the fresh claim made by the appellant during the present proceedings that such income of Rs.1,00,00,000/- may be excluded from the total income assessed by the Assessing Officer as no discrepancies were found during the assessment proceedings cannot be accepted as the additional income was offered voluntarily in the return of income. The alternate claim of the appellant for set off of such contingencies against other statutory disallowance made by the AO also cannot be accepted as discussed above. Ground of appeal No.8 stands rejected."
The CIT(A) denied the claim of the assessee ignoring the settled legal propositions on the topic. The reasons given above by the CIT(A) are artificial and not supported by the legal precedents.
39. The CBDT issued a Circular No.549 dated 31-10-1989 imposing fetters on the AOs for not determining the assessed income at a lower figure than the 16 ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd., returned income. The said Circular was held ultra vires by the higher judiciary in the case of Gujarat Gas Company Ltd. (supra). Infact, it is the duty of the AO to make an assessment basing on the facts of the case and as per the provisions of the I.T. Act. In the case of Shelly Products (supra), the Hon'ble Apex Court held that the advance tax/self assessment tax paid as part of an abundant caution are required to be refunded on verification of the claim of the assessee. The Nagpur Coordinate Bench of the Tribunal in the case of DCIT Vs. Sanmukhdas Wadhwani (supra) held that the assessed income can be lower qua the returned income of the assessee. Further, the Tribunal held in this case, any amount which is not assessable as undisclosed income of the assessee cannot be assessed merely for the reason assessee declared in the return of income. There cannot be such estoppels against the statute if the assessee itself finds a patent mistake of fact while filing the return of income assessee cannot be assessed on such incorrect income merely on the basis of admission made by him in the return of income.'
40. In the instant case, considering the above settled legal propositions, we proceed to examine availability of facts relating to the present case. In the return of income, assessee merely offered an amount of Rs.1 crore towards contingency. Meaning thereby that incase the AO makes certain additions basing on same facts or legal issues, the said disclosure amount of Rs.1 crore should be considered for set off/adjustment etc. In case AO failed to make such additions, the said amount of Rs.1 crore is not required to be assessed as income of the assessee. It is an admitted fact that the AO made addition u/s.14A of the Act in the assessment u/s.153A of the Act in the absence of any incriminating material. This addition is made over and above the said contingency amount of Rs.1 crore. However, we find while discussing in the preceding paragraph this disallowance u/s.14A is unsustainable in this assessment as the same does not have strength of any incriminating material. In other words, the AO made an unsustainable addition u/s.14A of the Act and taxed the said amount of Rs.1 crore-contingency income 17 ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd., without making adjustment the said amount of Rs.1 crore. In any case, we deleted said disallowance u/s.14A of the Act. Therefore, the question of adjustment is only an academic exercise. Ignoring the same, we now have to decide that the said amount of Rs. 1 crore is assessable to tax in the light of the above legal scope relating to this addition.
41. The AO has not brought any issue or facts relating to the undisclosed income specific to the said sum of Rs.1 crore. In such circumstances, we are of the opinion that the decision of the Nagpur Bench of the Tribunal in the case of DCIT Vs. Sanmukhdas Wadhwani (supra) becomes relevant to the facts of the present case. As such, we proceed to dismiss the voluntary-centric reasoning given by the CIT(A) for denying the claim of the assessee regarding the issue of taxation of the said amount of Rs.1 crore. Considering the above, we are of the opinion that the AO is directed to verify the working of total undisclosed income assessable in the hands of the assessee going by the concept of real income. He shall grant reasonable opportunity of being heard to the assessee. AO is directed to apply the ratio laid down by the above referred judgments in general and the ratio laid down by the Nagpur Bench of the Tribunal in the case of DCIT Vs. Sanmukhdas Wadhwani (supra) while arriving at the assessed income of the assessee. AO shall not consider the so-called voluntary disclosure of the said amount of Rs. 1 crore as the same does not amount to any voluntary disclosure in a real sense. Had it been really voluntary, the assessee would not have raised this issue before us. It is the requirement of the statute that the AO shall make assessment strictly as per the provisions of the law and determine the assessed income accordingly. For applying the said legal principles as well as the judgments and the order of the Nagpur Bench of the Tribunal, we remand this issue to the file of the AO for the limited purpose of adjudication of the issue relating to taxability of the contingency amount of Rs.1 crore. Accordingly, this ground by the assessee is allowed pro tanto.
42. In the result, appeal of the assessee is partly allowed. 18
ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd.,
43. We shall now take up the cross appeals for A.Y. 2007-08. ITA No.1536/PUN/2015
(A.Y. 2007-08 - By Revenue)
44. Grounds raised by the revenue read as under :
"1. Whether on the facts and circumstances of the case the Ld.CIT(A) has erred in interpreting the provisions of Sec.10B and accordingly allowed exclusion of Freight and Insurance from Total Turnover for the purpose of quantifying the deduction u/s.10B.
2. Whether on the facts and circumstances of the case the Ld.CIT(A) has made an extrapolation of definition of Export Turnover to define "Total Turnover", and thereby distorted the legislative intent in provision strict interpretation of "Export Turnover" as per Explanation 2 to Sec.10B of the Income Tax Act, 1961."
45. We find the above issue solitary issue raised by the Revenue is identical to the one raised in A.Y. 2006-07. We have dismissed the grounds raised by the Revenue while adjudicating the same issue in A.Y. 2006-07 and upheld the order of the CIT(A) being fair and reasonable. Following the same parity of reasoning for the A.Y. 2007-08 too, we dismiss the grounds raised by the Revenue.
46. In the result, appeal of the Revenue is dismissed.
ITA No.986/PUN/2015
(A.Y. 2007-08 - By Assessee)
47. Ground No.1 raised by the Revenue relates to disallowance of Rs.91,61,985/- u/s.14A of the Act.
48. On hearing both the sides, we find the facts, grounds, arguments, the findings by Revenue authorities are identical to the facts (Ground No.2 in A.Y.2006-07). Our decision deleting the disallowance u/s.14A relying on the order of the Tribunal in assessee's own case ITA No. 1703/PN/2014 dated 30-11-2016 in the said assessment year shall apply to this A.Y. 2007-08 too. Accordingly, Ground No.1 raised by the assessee is allowed.
19
ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd.,
49. Ground No.2 raised by the assessee relates to classification of Stainless steel items as 'Furniture and Fixtures' instead of 'Plant and Machinery'. Addition on this account for the A.Y. 2007-08 works out to Rs.9,86,959/-.
50. We find the above ground is identical to Ground No.3 raised by the assessee in A.Y. 2006-07. Our decision on this issue in allowing the ground in favour of the assesee relying on the order of the Tribunal in assessee's own case (ITA no.1383/PN/2011 for A.Y. 2006-07) shall apply to this assessment also. Accordingly, Ground No.2 raised by the assessee is allowed.
51. Ground No.3 raised by the assessee relates to disallowance of Provision for Leave Encashment amounting to Rs.11,40,849/-.
52. After hearing both the sides, we find this ground is identical to the Ground No.1 raised by the assessee in A.Y. 2006-07. We have already adjudicated this issue against the issue in view of the order of the Tribunal in ITA No.1383/PN/2011 dated 22-02-2013. Following the same reasoning and rule of consistency, we dismiss Ground No.3 raised by the assessee for this assessment year.
53. Ground No.4 by the assessee deals with disallowance of Rs.2,45,76,247/- incurred on Repairs/Renovation of Bungalow at 70, Koregaon park, Pune.
54. On hearing both the parties, we find this issue also is identical to Ground No.4 by the assessee in A.Y. 2006-07. We have already adjudicated this issue in favour of the assessee relying on the order of the Tribunal in assessee's own case in ITA No.1703/PN/2014 dated 30-11-2016 (supra). Following the same parity of reasoning, we allow Ground No.4 raised by the assessee for this year too.
55. Ground No.5 raised by the assessee relates to exclusion of Rs. 1 Crore from the undisclosed income offered by the assessee in the absence of any discrepancies found during the assessment proceedings.
20
ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd.,
56. On hearing both the parties, we find this ground is identical to Ground No.5 raised by the assessee in A.Y. 2006-07. We have already adjudicated this ground vide Para Nos 28 to 41 above of this order. With identical directions, this ground of the assessee is allowed pro tanto.
57. Ground No.6 raised by the assessee relates to disallowance of Rs.34,63,969/- on account of PMS fees paid as part of either of cost of acquisition/improvement or cost of transfer for computation of income from capital gains.
58. Before us, Ld. Counsel for the assessee submitted that this issue stands squarely covered in favour of the assessee by the order of the Tribunal in assessee's own in ITA No.102/PN/2012. The Tribunal vide order dated 10-04-2014 relying on the order of Coordinate Bench of the Tribunal in the case of KRA Holding and Trading Investment Pvt. Ltd. Vs. DCIT held that PMS fees paid by the assessee is an allowable deduction.
59. After hearing both the sides on this issue, we perused the order of the Tribunal in assessee's own case for A.Y. 2007-08. We find the Tribunal in Para Nos. 12 and 12.1 of the order has decided this issue in favour of the assessee relying on the order of Tribunal in the case of KRA Holding and Trading Investment Pvt. Ltd. (supra). We proceed to extract the operational para No.12.1 and the same reads as under :
"12.1 Respectfully following the decision of the Tribunal in the case of KRA Holding and Trading Investment Pvt. Ltd. (supra) we hold that the 'PMS' fees paid by the assessee is an allowable deduction from the capital gains."
60. Considering the settled nature of the issue, we are of the opinion that the ground raised by the assessee needs to be allowed. Accordingly, Ground No.6 raised by the assessee is allowed.
21
ITA Nos.985 & 986/PUN/2015 & ITA Nos. 1535 & 1536/PUN/2015 Serum Institute of India Ltd.,
61. In the result, appeal of the assessee is partly allowed.
62. To sum up, both the appeals of the assessee for A.Yrs. 2006-07 and 2007-08 are partly allowed and both the appeals of the Revenue for A.Yrs. 2006-07 and 2007-08 are dismissed.
Order pronounced in the open court on this 28th day of November, 2017.
Sd/- Sd/-
(VIKAS AWASTHY) (D. KARUNAKARA RAO)
याियक सद य /JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
पुणे Pune; दनांक Dated : 28th November, 2017.
सतीश
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. The CIT(A)-11, Pune
4. CIT-11, Pune
5. िवभागीय %ितिनिध, आयकर अपीलीय अिधकरण, "A Bench"
Pune;
6. गाड फाईल / Guard file.
आदेशानुसार/ BY ORDER,स
स यािपत ित //True Copy//
//True Copy// Senior Private Secretary
आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune