"IN THE INCOME TAX APPELLATE TRIBUNAL \nMUMBAI BENCHES “B”, MUMBAI \n \nBefore Justice (Retd.) C V Bhadang, Hon’ble President & \nShri B R Baskaran, Hon’ble Accountant Member \n \nITA No. 4700/Mum/2013 (AY :2006-07) \nITA No. 7799/Mum/2012 (AY :2007-08) \nITA No. 4699/Mum/2013 (AY :2004-05) \n \nDCIT Cir 7(1)/ACIT Cir 7(1), \nMumbai \n \nVs. \nNovartis India Ltd., \n6th & 7th Floor, Inspire BKC, \nG Block, BKC Main Road, \nBandra East, \nMumbai 400 051 \n \nPAN AAACH2914F \n(Appellant) \n(Respondent) \n \nITA Nos. 4573/Mum/2013 (AY :2004-05) \nITA Nos. 7733/Mum/2012 (AY :2007-08) \nITA Nos. 4574/Mum/2013 (AY :2006-07) \n& \nCo No. 187/Mum/2014 \n(Arising out of ITA No. 4700/Mum/2013 (AY :2006-07) \nCO No. 34/Mum/2014 \n(Arising out of ITA No. 7799/Mum/2012 (AY :2007-08) \nCO No. 186/Mum/2014 \n(Arising out of ITA No. 4699/Mum/2013 (AY :2004-05) \n \nNovartis India Ltd., \nMumbai 400 051 \n \nPAN AAACH2914F \n \nVs. \nAddl. CIT 7(1)/ Asst CIT 7(1), \nMumbai \n(Appellant/Cross-Objector) \n(Respondent) \n \n \n \n\n2 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nFor the assessee : Shri J D Mistry, Sr. Advocate \n \n \n Shri Nitesh Joshi & Shri Brijesh Parmar \nFor the Revenue : Shri Kailash C Kanojiya, CIT-DR \n \n \n \nDate of Hearing : 23.01.2025 \n Date of Pronouncement:21.03.2025 \n \nO R D E R \nPer B.R.Baskaran (Accountant Member) :- \nThese are set of nine appeals relating to AY 2004-05, 2006-07 and 2007-\n08. Both the parties have filed cross appeals for these three years. The \nassessee has filed cross objections against the appeals filed by the revenue. \nHence there are three appeals for each of the assessment year mentioned \nabove. All these appeals are directed against the orders passed by Ld CIT(A). \nSince most of the issues are identical in nature, these appeals were heard \ntogether and are being disposed of by this common order, for the sake of \nconvenience. \n2. The assessee is a pharmaceutical company manufacturing pharmaceutical \nproducts, animal healthcare products, eye care products etc. \n3. We shall take up the appeals filed by the assessee. The common issues \nurged either in all the three years or any of the two years shall be disposed of \ntogether. \n4 The first issue urged in Ground no.1 in AY 2004-05, 2006-07 and 2007-08 \n(i.e., in all the three years under consideration) relates to the depreciation \ndisallowed on the assets stood vested with Ciba Specialty Chemicals (India) Ltd \npursuant to the scheme of demerger. \n4.1 The assessee is having many divisions and depreciation was claimed by \nthe assessee on assets of all the divisions together without segregating them \n\n3 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \ndivision wise. Under the concept of grouping all assets having similar rate of \ndepreciation in a single block, individual identity of assets would be lost. The \nassessee transferred its Specialty Chemicals division to M/s Ciba Specialty \nChemicals (India) Ltd under a scheme of demerger and the appointed date was \nfixed as 1st April 1996. However, the assessee continued to claim depreciation \non the WDV of various block of assets, without excluding the assets so \ntransferred under the scheme of demerger to the above said company. In the \nearlier years, the AO had disallowed proportionate depreciation attributable to \nthe assets transferred to the above said company demerged. In the years \nunder consideration also, the AO disallowed proportionate depreciation \nattributable to the assets to transferred to the above said company as done in \nthe earlier years. The Ld CIT(A) confirmed the said disallowance, but accepted \nthe alternative contention of the assessee, i.e., he directed the AO to adopt the \nconsequential WDV of block of assets as per IT records for the AY 1997-98 for \ncomputing the depreciation in all these three years. \n4.2 We heard the parties on this issue and perused the record. Identical \nissue was considered by the co-ordinate bench in AY 2003-04 in ITA \nNo.2308/MUM/2012 in its order dated 27-05-2024. The co-ordinate bench \nnoticed that it is a recurring issue every year. Further, it noticed that another \nco-ordinate bench has reached a compromise formula in AY 2008-09 in ITA \nNo.7644/Mum/2012 dated 28th July, 2022), wherein the AO was directed to \ntreat the opening WDV of assets transferred to the above said company as loss \nof assets. Hence, the co-ordinate bench held in AY 2003-04 that, in order to \ngive effect to the above said direction given by the Tribunal in AY 2008-09, the \ndepreciation claimed by the assessee in AY 2003-04 should be allowed. \nAccordingly, the co-ordinate bench deleted the disallowance of depreciation \nmade by the AO in AY 2003-04. Accordingly, following the above said decision \nof the co-ordinate bench, we also direct the AO to delete the disallowance of \n\n4 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \ndepreciation made on the assets transferred to M/s Ciba Specialty Chemicals \n(India) Ltd in this year also. \n5. The next issue urged by the assessee in Ground no.2 in AY 2004-05 is \nrelating to addition of Rs.60,29,327/- made by the AO by enhancing the value \nof closing stock as on 31.3.2004 by the amount of estimated secondary freight \ncost. The Ld CIT(A) upheld the same. \n5.1 We notice that the AO had made identical addition in AY 2002-03 in the \nhands of the assessee. The co-ordinate bench, vide its order dated 20-03-2024 \npassed in ITA No.6772/Mum/2010, has deleted this addition following the \ndecision rendered in the assessee’s own case in AY 1997-98 (ITA \nNo.5238/Mum/2003 dated 25.01.2017). The co-ordinate bench has held that \nthe consistently followed method of valuation of stock, which has been \naccepted by the departmental authorities earlier, should not be disturbed, \nsince a stray departure in one year tends to upset the calculations. Following \nthe above said decision, we set aside the order passed by Ld CIT(A) on this \nissue and direct the AO to delete this addition. \n6. The next issue urged by the assessee in Ground no.3 relates to \ndisallowance of claim relating to Voluntary Retirement Scheme compensation. \nIdentical issue has been raised by the assessee in AY 2006-07 as Ground No.5 \nand in AY 2007-08 as Ground No.4. Ld A.R submitted that the assessee has \nmade provision for the incremental value of VRS compensation every year on \nthe basis of actuary certificate. In AY 2004-05, it made provision amounting to \nRs.1,23,09,463/- towards incremental liability and claimed it as deduction. \nThe AO disallowed the same treating it as contingent liability. The Ld CIT(A) \nhas allowed the claim of the assessee. Before Ld CIT(A) the assessee raised an \nalternative contention, i.e., the assessee submitted that the AO had disallowed \nsimilar provision claimed in the earlier year treating it as contingent liability. It \n\n5 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nwas submitted that, during the year under consideration, the assessee has \nmade actual payment of Rs.3,89,26,463/- towards VRS compensation. \nAccordingly, it was submitted by the assessee that the actual payment to the \nextent of provision created by it should be allowed as deduction. The Ld CIT(A) \nrejected the above said alternative contention as infructuous, since the \nprovision created by the assessee was allowed by him. \n6.1 In AY 2006-07 and 2007-08, the AO has also invoked the provisions of \nsec.35DDA, which provided amortization of expenditure incurred under \nVoluntary Retirement Scheme (VRS) in five years. The above said section \n35DDA was inserted in Statute with effect from 1.4.2001. The assessee \nsubmitted that the VRS scheme was implemented in the year 1993 and hence \nthe new provision of sec.35DDA will not apply to it. The tax authorities did not \naccept the same. The provisions of sec. 35DDA used the expression “incurs \nany expenditure by way of payment of any sum to an employee”. Hence, the \nAO took the view that the deduction of VRS payments should be allowed on \npayment basis only. Accordingly, on this count also, the AO disallowed the \nincremental liability of VRS claimed by the assessee. The Ld CIT(A) confirmed \nthe same. \n6.2 We heard the parties on this issue and perused the record. We notice \nthat the VRS scheme of the assessee was instituted in the year 1993 and the \ndeduction is being claimed from that year on accrual basis. We also notice \nthat, as per the VRS scheme, a portion of compensation payable by the \nassessee could be commuted by the employees and for the balance portion held \nby the assessee, the amount is being paid by way of pension. The commuted \namount of VRS compensation has been paid in the year 1993 itself. The \nincremental liability claimed by the assessee is related to the pension liability, \nwhich is recurring in nature. The contention of the assessee is that the new \nprovisions of sec.35DDA have come into force from 1.4.2001 and hence it \n\n6 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nwould not apply to the scheme instituted in the earlier years. In our view, the \nprovisions of sec.35DDA are related to lump sum compensation paid, since the \nquestion of amortization shall arise only in respect of lump sum payments. \nThe purpose of spreading the deduction into five years is to avoid distortion of \nthe profits in one year and also collection of income tax. Accordingly, we are of \nthe view that the provisions of sec.35DDA shall not apply to the pension \npayments. In the instant case, the incremental liability is related to pension \npayments. Hence, we are of the view that the provisions of 35DDA shall not be \napplicable to pension payments, which are recurring in nature. Accordingly, \nwe reject the view taken by the tax authorities on the applicability of \nsec.35DDA to the case of the assessee. \n6.3 In respect of claim for deduction of incremental liability, we notice that \nthe Ld CIT(A) has also taken different stand in the earlier years, i.e,, in some \nyears, the Ld CIT(A) has confirmed the disallowance of provision for VRS \ncompensation and in some other years, it has been deleted. A provision for \nexpenses is created for a known liability under the accounting principles. \nHence, the said claim made by the assessee is in principle allowable as \ndeduction, since it is a provision created for a known liability. Hence the AO \nwas not right in treating it as a contingent liability. Hence the Ld CIT(A) was \nright in allowing the same as deduction. \n6.4 However, if the provision so made is not allowed as deduction in any of \nthe years by the AO or the appellate authorities, then the actual payment made \nout of that provision is allowable as deduction. It is the submission of the \nassessee that Rs.3,89,26,463/- represents actual payment made in this year. \nHence, if the relevant provision amount had been disallowed in any of the prior \nyears, then the actual payment should be allowed as deduction. However, the \nrelevant details are not available on record. Hence the claim of the assessee \nrequires verification at the end of the AO. Accordingly, we restore this \n\n7 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nalternative ground of the assessee in all the three years under consideration to \nthe file of the assessing officer for examining the same in the light of \ndiscussions made supra. \n7. The next issue urged by the assessee in Ground no.4 in AY 2004-05 \nrelates to the disallowance of software expenses incurred by the assessee. \nIdentical issue is being urged by the assessee in AY 2006-07 as Ground no.2 \nand in AY 2007-08 as Ground No.2. \n7.1 The assessee claimed the software expenses as revenue in nature, but the \nAO considered it as capital in nature. Accordingly, he disallowed the claim of \nthe assessee, but granted depreciation thereon. The ld CIT(A) also confirmed \nthe same. \n7.2 We heard the parties on this issue. We notice that an identical issue has \nbeen dealt with by the co-ordinate bench in the assessee’s own case in AY \n2003-04 (referred supra) and the same was decided in favour of the assessee \nfollowing the decision rendered in AY 2002-03 in the assessee’s own case in ITA \nNos.6832 & 6772/Mum/2010. In AY 2002-03, the Tribunal has followed the \ndecision rendered in the assessee’s own case in AY 1991-92 (ITA \nNo.9679/Mum/1995). The Tribunal has accepted the submission of the \nassessee that the application software usually become outdated in no time and \nhence they cannot be treated as capital expenditure. Accordingly, following the \ndecision of co-ordinate benches rendered in the earlier years in the hands of \nthe assessee, we set aside the order passed by Ld CIT(A) on this issue in all the \nthree years and direct the AO to allow software expenses as revenue expenses. \n8. The next issue urged in Ground no.5 in AY 2004-05 relates to disallowance \nof travel expenses on visit of foreigners. Identical issue has been raised in AY \n2006-07 as Ground no.4. The AO disallowed 25% of the above said expenses \nholding the same as not related to the business of the assessee. Before Ld \n\n8 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nCIT(A), the assessee contended that the same is in the nature of revenue \nexpenses incurred for the purposes of business of the assessee. In the \nalternative, the assessee contended that if the said expenses are treated as \ncapital in nature, then depreciation should be allowed thereon. The Ld CIT(A), \nfollowing earlier year’s orders of ITAT, deleted the disallowance. Hence, the \nalternative contention of the assessee is dismissed as infructuous. \n8.1 We notice that disallowance of identical expenses has been made in the \nearlier years also. The Tribunal has deleted the identical disallowance made in \nAY 2002-03 in ITA No.6832/Mum/2010 dated 20-03-2024, wherein it has \nfollowed the decision rendered by the co-ordinate bench in the assessee’s own \ncase in AY 1997-98 in ITA No.5238/Mum/2003 dated 25.01.2017. In all these \nyears, the Tribunal noticed that the foreigners are the executives specializing in \nthe business carried on by the assessee and they visit India for business \npurposes only. Accordingly, the Tribunal has deleted the identical \ndisallowance made in the earlier years. Accordingly, following the decision \nrendered by the co-ordinate benches, we set aside the order passed by Ld \nCIT(A) on this issue in AY 2004-05 and 2006-07 and direct the AO to delete the \ndisallowance made in both the years mentioned above. \n9. The next issue urged by the assessee in Ground no.6 in AY 2004-05 \nrelates to the disallowance made u/s 14A of the Act. Identical issue is urged in \nGround no.7 in AY 2006-07 and in ground no.6 in AY 2007-08. \n10. The assessee had earned exempt income and hence the disallowance is \nrequired to be made u/s 14A of the Act. However, the provisions of Rule 8D \nhas come into effect from AY 2008-09 onwards and hence in the earlier years, \nthe provisions of Rule 8D cannot be applied as held by Hon’ble Bombay High \nCourt in the case of Godrej Boyce Mfg Co Ltd (328 ITR 81)(Bom). We notice \nthat the co-ordinate bench in the case of Godrej Agrovet Ltd vs. ACIT (ITA \n\n9 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nNo.1629/Mum/2009 dated 17-09-2010) has confirmed disallowance u/s 14A \nto the extent of 2% of the dividend income and the same has been upheld by \nHon’ble Bombay High Court in ITA No.934/2011 in the very same case. \n10.1 We notice that the Ld CIT(A) has confirmed disallowance to the extent of \n2% of dividend income in AY 2004-05. Hence, his order does not call for any \ninterference. In AY 2006-07, the ld CIT(A) has directed the AO to disallow such \npercentage of dividend income as applied in the earlier years. We modify the \nsaid order of Ld CIT(A) and direct the AO to disallow 2% of the dividend income. \nIn AY 2007-08, the AO and Ld CIT(A) has applied the provisions of Rule 8D, \nwhich is contrary to the decision rendered by Hon’ble Bombay High Court in \nthe case of Godrej Boyce Mfg co. (supra). Accordingly, we set aside the order \npassed by Ld CIT(A) on this issue in AY 2007-08 and direct the AO to restrict \nthe disallowance u/s 14A to 2% of the dividend income. \n11. The next issue urged by the assessee in Ground no.7 of AY 2004-05 \nrelates to the addition made by loading unutilised Modvat credit amount to the \nvalue of closing stock. Identical issue has been raised in Ground no.3 in AY \n2006-07 and in Ground no.3 in AY 2007-08. \n11.1 The Ld A.R submitted that value of closing stock as on 31.3.2004 was \ndetermined by the AO by loading the unutilised modvat credit. He submitted \nthat the AO should be directed to adopt the same method for the opening stock \nas on 1.4.2004. He submitted that the method of determining the value of \nstock should be identical both for closing stock and opening stock of any year. \nWe find merit in the above said submissions of Ld A.R. Accordingly, we direct \nthe AO to adopt the value of closing of one year as the opening stock of the \nsucceeding year. \n\n10 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \n12. The next issue urged by the assessee in Ground no.8 of AY 2004-05 \nrelates to the disallowance of advances written off. Identical issue has been \nraised in Ground no.8 of AY 2006-07. \n13. The assessee wrote off irrecoverable advances amounting to \nRs.28,84,126/- in AY 2004-05. The tax authorities disallowed the said claim \non the reasoning that the assessee did not fulfill the conditions prescribed in \nsec.36(1)(vii) r.w.s 36(2) of the Act. The alternative claim that these advances \nso written off should be considered as business loss was also rejected. In AY \n2006-07, the assessee wrote off Rs.25,25,413/-. \n13.1 We heard the parties on this issue and perused the record. According \nto Ld A.R, these advances are in the nature of trade advances and the \nirrecoverable advances have been written off by the assessee. We notice that \nthe amount so written off is allowable as deduction u/s 28 or u/s 37(1), if the \nsaid advances had been given for revenue purposes. In our view, the question \nof examining the amount so written off u/s 36(1)(vii) shall not arise in this \ncase. The Ld A.R submitted that the assessee is having relevant details \nrelating to the advances so written off. Under these set of facts, we are of the \nview that this issue requires fresh examination at the end of the AO in both AY \n2004-05 and 2006-07. Accordingly, we set aside the order passed by Ld CIT(A) \non this issue in both the years under consideration and restore the same to the \nfile of the AO for examining afresh. The assessee is also directed to furnish the \ndetails of advances and show that those advances were given for revenue \npurposes. \n14. Ground no.9 urged by the assessee in AY 2004-05 relates to the \ndetermination of “Profits of business” for the purposes of deduction u/s 80HHC \nof the Act. While computing the profits of business, the AO had excluded 90% \nreceipts by way of interest on employee loans, sales tax set off claims, liabilities \n\n11 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nwritten back, income from royalties, exchange gains, other miscellaneous \nincome, cost of services recovered, profit u/s 41(3) on sale of R & D assets. \nAccording to AO, all these receipts are independent sources income and \naccordingly, he reduced 90% thereof while computing “Profits of business” for \nthe purpose of computing deduction u/s 80HHC of the Act. The ld CIT(A) also \nconfirmed the same. \n14.1 The Ld A.R submitted that all receipts except “income from royalties” \nhave been held to be part of “profits of business” by the Tribunal in the earlier \nyears, since they cannot be considered as independent source of income. \nAccordingly, the Ld A.R submitted that there is no necessity to exclude them \nfrom the profits. With regard to “Income from royalties”, the Ld A.R submitted \nthat the same is also not required to be reduced, since it is also arising from \nthe exercise of same business only. He also placed his reliance on the decision \nrendered by Hon’ble Bombay High Court in the case of CIT vs. Pfizer Ltd \n(2011)(330 ITR 62)(Bom). \n14.2 We heard Ld D.R and perused the record. With regard to “Income from \nRoyalties’, we are unable to accept the contentions of the Ld A.R. In our view, \nthe income from royalties is received on licensing some rights to a third party \nand the same is not connected with the business or business of exports carried \non by the assessee. The decision rendered by Hon’ble Bombay High Court in \nthe case of Pfizer Ltd (supra) is related to the insurance claim received on stock \nin trade and hence it is not an independent source of income. Hence, the \nHon’ble Bombay High Court held that the said insurance receipt is not required \nto be excluded. In the instant case, in our view, the royalty receipts are \nindependent source of income. Accordingly, we are of the view that the Ld \nCIT(A) was justified in confirming the action of the AO in excluding 90% of \nroyalty income from profits for the purpose of computing profits of business as \nper Explanation (baa) to sec.80HHC of the Act. With regard to other receipts, \n\n12 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nthe Ld A.R submitted that they are covered by the decisions rendered by the \nTribunal in earlier years. Accordingly, we direct the AO to follow the decisions \nrendered by the Tribunal in respect of other receipts. The order passed by Ld \nCIT(A) is modified accordingly. The matter is restored to the file of the AO for \ncomputing deduction u/s 80HHC in terms of discussions made supra. \n15. The next issue urged in Ground no.10 in AY 2004-05 relates to the \nassessment of notional value of rent for the property used by the demerged \ncompany. Identical ground has been urged in Ground no.9 of AY 2006-07. \n15.1 The AO noticed that the assessee has allowed M/s Ciba Specialty \nChemicals ltd (demerged company) to use some of its premises. It had \nrecovered certain costs from the above said company. When questioned about \nthe amount received from the above said company, the assessee submitted that \ncertain residential flats belonging to the assessee were allowed to be used by \nthe above said company. We noticed that the above said company was formed \nby demerging one of the divisions of the assessee company on 01-04-1996. It \nwas stated that there was mutual understanding between both the companies \nto share the premises and all the costs incurred on those premises are \nrecovered. The AO however took the view that the recovery of actual costs \nincurred on those premises is not relevant and the Annual letting value has to \nbe computed and assessed under the head Income from house property. The \nAO noticed that the annual letting value was determined in AY 2002-03 by \nconsidering the market rate of rent at Rs,15/- per sq. ft. per month. The value \nso arrived at was increased by 5% in AY 2003-04. The AO adopted the same \nmethodology and arrived at the fair rental value by increasing 5% of the rent \ndetermined in AY 2003-04 and assessed the same in AY 2004-05. The Ld \nCIT(A) also confirmed the same. \n\n13 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \n15.2 In the earlier years, the Tribunal had accepted the submission of the \nassessee that it has permitted use of its premises in order to facilitate the \nprocess of demerger, i.e., it was also considered as the use of premises for the \npurpose of business of the assessee. Accordingly, the addition of notional rent \nwas deleted by the Tribunal. \n15.3 Before us, same contentions were raised. We noticed that the demerger \nhas taken place long back, i.e., on 1.4.1996 and hence, in our view, the \nquestion of facilitation of demerger should not arise in the years under \nconsideration. Accordingly, we are of the view that there is change in facts and \nhence the decision rendered by the Tribunal in the earlier years need not be \nfollowed in the changed circumstances. There is no dispute that the demerged \ncompany is a separate person and carrying on business separately. Hence the \nuse of premises by the demerged company cannot be considered as usage by \nthe assessee for the purposes of its business. \n15.4 It is stated that the assessee is recovering the actual costs incurred in \nrespect of those premises like municipal taxes, water taxes and electricity \ncharges. The recovery of water taxes and electricity charges are related to the \nfacilities used by the demerged company and hence they cannot be equated \nwith the rent and cannot be considered as rent payment. However, the \npayment of municipal taxes is the responsibility of the assessee and if it is \nrecovered from the demerged company, it can be appropriated towards annual \nrental value. There is no dispute that the rental income has to be computed in \nrespect of house property, which is owned, but not used by the assessee for the \npurposes of its own business. Accordingly, we are of the view that the notional \nrental income is required to be assessed. \n15.5 However, we notice that the AO has adopted adhoc rate for determining \nthe Annual letting value. We notice that the said methodology is not in \n\n14 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \naccordance with law laid down by Hon’ble Bombay High Court in some of the \ncases. We also notice that the assessee has also raised similar contentions \nbefore the tax authorities. Accordingly, we are of the view that the \ndetermination of Annual Letting value (ALV) requires fresh examination. \nAccordingly, we restore this issue to the file of AO in AY 2004-05 and 2006-07 \nfor determining ALV in accordance with the decisions rendered by Hon’ble \nBombay High Court. The recovery of municipal taxes paid towards the \npremises occupied by the demerged company should be appropriated towards \nthe annual letting value so determined and the addition should be restricted to \nthe excess amount, if any. The order passed by Ld CIT(A) in both the above \nsaid years would stand modified accordingly. \n16. The next issue urged by the assessee in ground no.11 to 13 in AY 2004-\n05 relates to the determination of fair market value as on 1.4.1981 for the land \nsold by the assessee. Identical issue has been raised in ground no. 10 to 14 in \nAY 2006-07. \n16.1 The assessee held certain parcel of lands in Goregaon area of Mumbai \nand it sold part of the same during the financial years relevant to AY 2004-05 \nand 2006-07. The assessee, while computing long term capital gain, adopted \nthe fair market value as on 1.4.1981 on the basis of valuation reports given by \na valuer. The AO, initially took the view that the valuer has determined the \nvalue of land at the “rate per square meter”, but the Assessee has wrongly \nconsidered the same to be “rate per square feet”. Accordingly, he recomputed \nthe fair market value as on 1.4.1981 by converting the rate per square meter \ninto rate per square feet. In the mean time, the assessee furnished valuation \nreports from two other valuers also. Hence, the AO referred the matter of \ndetermination of fair market value as on 1.4.1981 to the departmental \nvaluation officer (DVO). However, the DVO did not furnish his report before \nthe completion of assessment. Hence the AO completed the assessment by \n\n15 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nadopting the rate per square feet, as determined by him. The Ld CIT( A) also \nconfirmed the same in both the years, viz., AY 2004-05 and 2006-07. \n16.2 We heard the parties on this issue and perused the record. We notice \nthat an identical issue has been considered by the co-ordinate bench in AY \n2002-03 and 2003-04 (referred supra). When the appeal of AY 2002-03 was \npending, the DVO report was brought to the notice of the Tribunal. The DVO \nhad determined the fair market value as on 1.4.1981 at Rs.71.12 per sq ft. \nAccordingly, the Tribunal directed the AO to compute the long term capital \ngains on sale of land by adopting the fair market value as on 1.4.1981 as per \nthe rate determined by the DVO. The above said decision was followed by the \nTribunal in AY 2003-04 also. \n16.3 Since the co-ordinate benches have already directed the AO to adopt \nthe fair market value determined by DVO, following the same, we also direct \nthe AO to re-compute the long term capital gains in both AY 2004-05 and \n2006-07 by adopting the fair market value as on 1.4.1981 at the rate \ndetermined by the DVO. The Ld A.R submitted that the area of land sold in AY \n2004-05 was 41534.40 sq.ft and the AO has also computed the long term \ncapital gains on the above said area only. The Ld A.R submitted that the DVO \nhas reduced the area of the land sold by the assessee. There should not be any \ndispute that the long term capital gains has to be computed for the area of \nland, which is actually sold by the assessee. Accordingly, we direct the AO to \ncompute the long term capital gains on the actual area sold by the assessee \nand for that purpose, the AO should adopt the fair market value of rate per \nsquare feet as on 1.4.1981 as determined by the DVO. \n17. The next issue urged in AY 2004-05 in ground no.14 relates to the \ndisallowance of adjustment by way of excess/short amount in respect of the \nyear end provision made for expenses. \n\n16 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \n17.1 We notice that an identical issue has been considered by the co-\nordinate bench in the assessee’s own case in AY 2008-09 in ITA \nNo.7644/Mum/2012 dated 28-09-2022. The co-ordinate bench has deleted \nthe disallowance by following the decision rendered by the Hon’ble Supreme \nCourt in the case of Rotork Controls India (P) Ltd (314 ITR 62)(SC), wherein the \nHon’ble Supreme Court noticed that “a provision is a liability which can be \nmeasured only by using a substantial degree of estimation” and such provision \ncan be allowed as deduction when \n \n(a) an enterprise has a present obligation as a result of past event \n(b) it is possible that an outflow of resources will be required to settle the \nobligation. \n \n(c) a reliable estimate can be made of the amount of the obligation. \nIn the instant case, there is no dispute that the provision for expenses were \nmade on the basis of estimates made with reliable data. Whatever may be the \ndegree of estimation, there bound to be some difference when the actual bill is \nreceived and hence the same would require adjustment on account of \nexcess/short provision. Such adjustment would be a recurring feature and \nthey are considered as current year’s expenses as per the accounting \nprinciples. Hence, there is no reason to disallow the same. Accordingly, \nfollowing the order passed by the co-ordinate bench in the hands of the \nassessee in AY 2008-09, we set aside the order passed by Ld CIT(A) on this \nissue in all the three years, viz., AY 2004-05, 2006-07 and 2007-08 and direct \nthe AO to delete this disallowance made in the above said three years. \n18. The next issue urged in AY 2004-05 in Ground no.15 is the manner of \ncharging of interest u/s 234C of the Act. As per the provisions of sec.234C of \nthe Act, the interest under that section should be charged on the returned \n\n17 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nincome. The Ld AR submitted that the AO has charged interest on the \nassessed income and accordingly submitted that the same requires correction. \n18.1 We heard the parties on this issue. There should not be any dispute \nthat the interest u/s 234C is required to be computed on the returned income. \nAccordingly, we restore this issue to the file of the AO for computing interest \nu/s 234C as per the provisions of the Act. \n19. The next issue urged in AY 2004-05 by way of additional ground \nnumbered as Ground no.16 relates to the charging of Dividend Distribution \nTax. Identical issue is urged in AY 2006-07 as Ground no.16 and in AY 2007-\n08 as Ground no.7. It is the contention of the assessee that the rate prescribed \nunder relevant DTAA shall be applicable to Dividend distribution tax also. We \nnotice that the above said claim of the assessee is against the decision \nrendered by the Special bench in the case of DCIT vs. Total Oil India (P) Ltd \n(2023)(149 taxmann.com 332)(Mum-SB). Accordingly, we reject this ground of \nthe assessee. \n20. The last issue urged by the assessee by way of additional Ground \nnumbered as ground no.17 in AY 2004-05 relates to the jurisdiction of \nadditional commissioner in passing the assessment order. Identical issue is \nurged in AY 2006-07 as ground no.17. The Ld A.R submitted that this ground \nmay be left open in these two years and the assessee may be allowed to contest \nthis issue in appropriate proceedings. Accordingly, we decline to adjudicate \nthis ground and leave the same open in both the above said years. \n21. We shall now take up other issues urged in AY 2006-07. In this year, we \nhave to adjudicate only ground no.15 relating to the addition made u/s 50C of \nthe Act. All other grounds have been adjudicated in the earlier paragraphs \nalong with the similar grounds raised in AY 2004-05. \n\n18 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \n22. The facts relating to this addition are discussed in brief. The AO noticed \nthat the assessee has sold a land and building located in Plot no.5 in \nGoregaon, Mumbai for a consideration of Rs.17.50 crores, vide Conveyance \ndeed dated 12.9.2005. The AO noticed that the stamp duty authorities have \ndetermined the market value of above property at Rs.26.02 crores on the date \nof registration. Accordingly, the AO proposed to invoke the provisions of sec. \n50C of the Act. The assessee submitted that the above said sale price \ndetermined on the date of entering of agreement has been approved by the \nAppropriate authority under Chapter XXC of the Act during the financial year \n2001-02 itself and hence the conveyance deed has been executed on 12-09-\n2005 for the very same value, as approved by the Appropriate authority. It was \nfurther contended that the provisions of sec.50C has been inserted with effect \nfrom 1.4.2003 and hence it should not be applied to the agreements entered \nprior to that. Accordingly, it was contended that the provisions of sec.50C are \nnot applicable to this transaction. The AO did not accept the above said \ncontentions of the assessee. He noticed that the value of building has been \ndetermined at Rs.1,51,51,000/- and he reduced same from the stamp duty \nvaluation of Rs.26.02 crores. Accordingly, the AO adopted the sale \nconsideration as Rs.24,51,16,000/- in terms of sec.50C and accordingly \ncomputed long term capital gains. The Ld CIT(A) also confirmed the same. \n22.1 The Ld A.R placed his reliance on the decision rendered by \nVisakhapatnam bench of ITAT in the case of M Siva Parvathi and others vs. ITO \n(2011)( 7 ITR (Trib) 468)(Visakhapatnam) and contended that this decision \nwould apply to the facts of the present case. The Ld A.R submitted that the \nsale price agreed between the parties have been approved by the Appropriate \nauthority under Chapter XXC in the financial year 2001-02, i.e., prior to \nintroduction of sec.50C. Accordingly, he contended that the provisions of \n\n19 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nsec.50C should not be applied in the hands of the assessee in respect of above \ntransactions. \n22.2 We heard Ld D.R and perused the record. In the case of M Siva Parvathi \n(supra), which was relied upon by Ld A.R, we notice that the agreement for sale \nwas entered prior to introduction of sec.50C, but the actual conveyance took \nplace after the introduction. It was also noticed that the consideration for \ntransfer has also been received by the sellers at the time of entering into \nagreement. The Tribunal further noticed that the delay in registering the sale \ndeed was due to genuine reasons and the same was beyond the control of the \nassessee. Hence it was held that the provisions of sec.50C should not be \napplied. In any case, the provisos below sec.50C also state that the stamp \nduty value as on the date of entering into the agreement may be adopted, if the \nassessee had received part consideration through banking channels on that \ndate. \n22.3 However, in the instant case, we notice that the assessee did not explain \nthe reasons, which have caused the delay in registering the conveyance deed in \nthe financial year 2005-06, even though the agreement to sale was entered in \nthe financial year 2001-02. It is also not clear as to whether the assessee had \nreceived part consideration through banking channels at the time of entering \ninto agreement for sale. \n22.4 We have gone through the provisions of Chapter XX-C of the Act. This \nchapter was introduced in the Act in those years in order to make provisions \nfor purchase of immovable property by the Central Government at the value of \napparent consideration entered between the parties, if the appropriate \nauthority is of the view that the apparent consideration is less than the market \nvalue. Hence the certificate was issued by the Appropriate authority in the \nform of “no objection certificate” for transferring the property, if he is satisfied \n\n20 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nthat there was no understatement of sale consideration. Apparently, the \nappropriate authority would give no objection, only if he is satisfied that the \napparent consideration is equal to or more than the market value. In the \ninstant case, the no objection certificate was given by the appropriate authority \nin the financial year 2001-02 on the basis of market conditions prevailing in \nthat year. We further notice that the scheme of pre-emptive purchase \nprescribed in Chapter XX-C has been discontinued with effect from 1st July, \n2002 by Finance Act, 2002. After that, the provisions of sec.50C have been \nintroduced w.e.f. 1.4.2003 by the very same Finance Act, 2002. \n22.5 In the instant case, the actual registration of sale agreement has taken \nplace on 12.09.2005. At that point of time, the provisions of sec.50C are very \nmuch applicable. The provisions of 50C are deeming provisions and hence \nthey are required to be applied strictly. As noticed earlier, in the case of M. \nSivaparvati (supra), the entire sale consideration was received in August, 2001 \n(prior to the introduction of sec.50C), but the actual registration was completed \nin October, 2004 (after introduction). It was further noticed that the delay in \nregistration was on genuine reasons, which were beyond the control of the \nparties. Under these peculiar facts, the Tribunal held that the provisions of \nsec.50C should not be applied. On the contrary, in the instant case, no reason \nhas been cited by the parties for the delay in completing the registration. It is \nalso not clear as to whether the assessee has received any part of consideration \nin FY 2001-02, when the agreement was entered into as per the conditions \nprescribed in the proviso to sec.50C. If the assessee had received any part of \nconsideration at the time of entering of agreement for sale, then the assessee \nwould be covered by the provisos to sec.50C of the Act. Even in that case, \nwhat is required to be compared is the stamp duty value as on the date of \nentering agreement with the actual consideration. Hence, we are of the view \n\n21 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nthat the no-objection certificate issued by the appropriate authority is not \nrelevant for the purpose of sec.50C of the Act. \n22.6 We notice all the relevant factual aspects, which are necessary for the \npurposes of sec.50C, have not been furnished by the assessee to the tax \nauthorities. Hence, we are of the view that this issue requires fresh \nexamination at the end of the AO. If the assessee is able to show that it has \nreceived part consideration on the date of the entering of agreement for sale in \nthe manner provided in the proviso to sec.50C of the Act, then the assessee \nwould get the benefit of the proviso. In that case, the stamp duty value as on \nthe date of agreement should be compared with the actual consideration. On \nthe contrary, if the assessee has not received any part of the sale consideration \nin the manner provided in the proviso, then the provisions of sec.50C would get \nattracted. The AO may examine this issue afresh in the light of discussions \nmade supra. The assessee may furnish all the information and explanations to \nsupport its case before the AO. The order passed by Ld CIT(A) on this issue \nwould stand modified accordingly. \n23. No other independent issue has been urged in AY 2007-08. Accordingly, \nwith the adjudication of the above discussed independent issue in AY 2006-07, \nall the grounds urged by the assessee in its appeals filed for AY 2004-05, 2006-\n07 and 2007-08 are disposed of. \n24. We shall now take up the appeals filed by the revenue and the cross \nobjections filed by the assessee. We notice the grounds urged in all these \nappeals are identical with the issues adjudicated by us in the earlier \nparagraphs. Accordingly, they are disposed of together. \n25. The first issue urged by the revenue in Ground no.1 & 2 in AY 2004-05 \nand 2006-07 and in Ground no.1 in AY 2007-08 relates to the decision of Ld \nCIT(A) in accepting the alternative claim for computing WDV consequent to the \n\n22 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \ndemerger. In the ground no.1 urged by the assessee in the cross objection of \nall the three years, the assessee is contesting the decision of Ld CIT(A) in \nconfirming the addition of depreciation. \n25.1 This issue has been disposed of by us while adjudicating the appeals of \nthe assessee, wherein we have directed the AO to allow depreciation as per the \nclaim of the assessee. Accordingly, the order passed by Ld CIT(A) on this issue \nwas reversed. Hence the relief granted by Ld CIT(A) accepting alternative \ncontention of the assessee shall become infructuous. The ground urged in \ncross objection is also identical with the ground urged in the appeals of the \nassessee, which has already been disposed of. Hence this ground does not \nrequire separate adjudication. \n26. The next issue urged by the revenue in ground no.2 in AY 2004-05 is \nrelated to the decision of Ld CIT(A) in directing the AO to allow deduction of \nincremental VRS liability of Rs.1,23,09,463/-. In Ground no.2 of cross \nobjection relating to AY 2004-05, the assessee is contesting the decision of Ld \nCIT(A) in rejecting the alternative claim of the assessee. \n26.1 The issue relating to VRS compensation has been discussed in detail \nwhile dealing with the appeals of the assessee and this issue has been restored \nto the file of the AO with certain directions. In view of the above, the grounds \nurged by the revenue and the assessee in cross objection do not require \nseparate adjudication. \n27. The next issue urged by the revenue in Ground no. 4 of AY 2004-05 and \n2006-07 is related to disallowance of travel expenses incurred on foreigners. \nWhile adjudicating the appeal of the assessee in respect of the alternative \ncontention on this issue, we have upheld the decision of Ld CIT(A) in deleting \nthis disallowance. Accordingly, this ground of the revenue does not require \nseparate adjudication. \n\n23 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \n28. The next ground urged by the revenue in ground no.3 of AY 2006-07 and \nGround no.2 of AY 2007-08 relates to the deletion of the adjustment made to \nclosing stock on account of secondary freight adjustment. The assessee is also \nsupporting the decision of Ld CIT(A) on this issue by way of ground no.2 in AY \n2006-07 and Ground no.3 in AY 2007-08. \n28.1 The assessing officer made adjustment to the value of closing stock on \naccount of freight charges in AY 2006-07 and 2007-08. The same was deleted \nby Ld CIT(A) with the direction to make similar adjustments to the opening \nstock also. Hence the revenue is in appeal before us. \n28.2 However, in AY 2004-05, the Ld CIT(A) had confirmed the addition and \nhence the assessee was in appeal before the Tribunal. In the appeal of the \nassessee filed for AY 2004-05, we have deleted the similar addition made by the \nAO with the following observations:- \n“5. The next issue urged by the assessee in Ground no.2 in AY 2004-\n05 is relating to addition of Rs.60,29,327/- made by the AO by \nenhancing the value of closing stock as on 31.3.2004 by the amount of \nestimated secondary freight cost. The Ld CIT(A) upheld the same. \n5.1 We notice that the AO had made identical addition in AY 2002-03 \nin the hands of the assessee. The co-ordinate bench, vide its order dated \n20-03-2024 passed in ITA No.6772/Mum/2010, has deleted this \naddition following the decision rendered in the assessee’s own case in AY \n1997-98 (ITA No.5238/Mum/2003 dated 25.01.2017). The co-ordinate \nbench has held that the consistently followed method of valuation of \nstock, which has been accepted by the departmental authorities earlier, \nshould not be disturbed, since a stray departure in one year tends to \nupset the calculations. Following the above said decision, we set aside \nthe order passed by Ld CIT(A) on this issue and direct the AO to delete \nthis addition.” \nFollowing the decision rendered by us in AY 2004-05 in the appeal of the \nassessee in the earlier paragraphs, we hold that this addition is liable to \ndeleted. Accordingly, we set aside the order passed by Ld CIT(A) on this issue \n\n24 \n \nITA No. 4573/Mum/2013 & Ors \nNovartis India Ltd. \n \n \nin AY 2006-07 and 2007-08 and direct the AO to delete the addition in both the \nyears under consideration. \n29. The last issue urged by the revenue in Ground no.3 and 4 of AY 2007-08 \nis related to the addition made on account of excess/shortage of year end \nprovisions. \n29.1 While adjudicating the appeal of the assessee, we have upheld the \ndecision rendered by Ld CIT(A) on this issue in deleting the similar addition \nmade by the AO. Accordingly, the above said ground of revenue is liable to be \nrejected. In the CO, the assessee has raised an alternative contention, but it \ndoes not require adjudication, since the addition made by AO has been deleted. \n30. In the result, all the appeals of assessee and revenue and the cross \nobjections of the assessee are partly allowed in the aforesaid terms. \n Order pronounced on 21st March 2025 \n \n \n \nSd/- \n \n \n \n \n Sd/- \n \n [Justice (Retd.) C V Bhadang] \n (B.R. Baskaran) \n PRESIDEMT ACCOUNTANT MEMBER \nMumbai.; Dated : 21/03/2025 \nCopy of the Order forwarded to : \n \n1. \nThe Appellant \n2. \nThe Respondent \n3. \nThe PCIT \n4. \nCIT \n5. \nDR, ITAT, Mumbai. \n6. \nGuard File. \n \n \n \n \n \n \n \n \nBY ORDER, \n \n//True Copy// \n \n \n \n \n \n (Assistant Registrar) \nSA \n \n \n \n \n \n \n \n ITAT, Mumbai \n \n"