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Ambalal Sarabhai Enterprises Ltd. vs. ACIT-DCIT (by Assessee and Revenue) Asst. Years : 2002-03 to 2007-08 1782/Ahd/2016 2005-06 1,31,940 1291/Ahd/2016 2006-07 1,31,940 1783/Ahd/2016 2007-08 1,31,940

5. The assessee company claimed an expenditure (amounting to the figures specified in the above table for each A.Y.) as interest on bonds issued to the shareholders of Standard Pharmaceuticals Ltd. (SPL) during the time of amalgamation. The assessee argued that the amalgamation was in the best interest of both companies, ASE and SPL, as it would expand the business and enhance economic efficiency. The assessee further contended that the amalgamation would support an increase in turnover due to expansion into new pharmaceutical products. However, the AO disallowed this claim. The AO reasoned that amalgamation expenses are not allowable as business expenditure under Section 37(1) of the Act. The AO observed that similar claims made by the assessee in previous years were consistently disallowed, and the disallowance was upheld by the CIT(A) as well. Therefore, the AO disallowed the interest claim on the bonds issued at the time of amalgamation, leading to an addition of respective amounts.

9. The CIT(A) observed that the AO treated the due date for Section 43B(b) of the Act disallowance as the 20th day from the close of the month, rather than from the actual disbursement date of salaries/wages. The CIT(A) also noted that the assessee had already made a suo moto disallowance, being employer's PF contribution, based on this interpretation. The CIT(A) noted that there was no evidence on record to confirm whether payments were made before the return filing date. Due to the absence of documentary evidence, the CIT(A) held that such disallowance could not be allowed on the assumption that payments were made within the permissible time frame.

Ambalal Sarabhai Enterprises Ltd. vs. ACIT-DCIT (by Assessee and Revenue) Asst. Years : 2002-03 to 2007-08

45. During the course of assessment proceedings, the AO observed that certain penalties were debited to profit and loss account which include PF damage paid u/s 14B of the PF Act and other penalties. Both AO and CIT(A) disallowed this on the basis of presumption that it is penalty. In both the cases i.e. A.Y. 2004-05 and A.Y. 2005-06 the CIT(A), concluded that the assessee has failed to prove the compensatory nature of such amounts. In case of A.Y. 2004-05 CIT(A) denied any relief to assessee stating that the assessee has suo- moto disallowed and added back this amount to income while filing the return of income. In case of A.Y. 2005-06, the CIT(A) directed AO to delete the disallowance stating that the assessee has suo-moto disallowed and added back this amount to income while filing the return of income.

54.7. In light of the above findings, it is evident that the investments in SPPL were made in earlier years as a strategic decision, not primarily for earning dividend income. No additional expenditure was incurred during the year under appeal for managing these investments or earning the dividend income. The disallowance of Rs.33,75,000/- sustained by the CIT(A) is based on arbitrary assumptions without any factual support. Accordingly, the disallowance under Section 14A sustained by the CIT(A) is deleted in its entirety.