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Vaipa Pharmaceuticals P. Ltd. A-607, 6th Floor, 215 Atruim Chakala, Andheri Kurla Road, Andheri (E), Mumbai-400099 Vs. ACIT-8(3), 2nd Floor, B Wing, Aayakar Bhavan Mumbai -400001
January, 22nd 2016
    ,   Û,F,  
      IN THE INCOME TAX APPELLATE TRIBUNAL
           MUMBAI BENCHES "F", MUMBAI
             [, Û è 
         æ ,  è,  ¢

     Before Shri Sanjay Garg, Judicial Member, and
       Shri Ashwani Taneja, Accountant Member

               ITA NO.5226/Mum/2012
              Assessment Year: 2009-10

Vaipa Pharmaceuticals P. Ltd.        ACIT-8(3),
A-607, 6th Floor, 215 Atruim  /      2nd Floor, B Wing,
Chakala, Andheri Kurla Road,         Aayakar Bhavan
                              Vs.
Andheri (E),                         Mumbai -400001
Mumbai-400099
          (Assessee)                      (Revenue)
P.A. No.AAACV3767A

[    / Assessee by Shri Rashesh V. Parekh
                   (AR)
è    / Revenue by Shri Sanjeev Kashyap (DR)


     / Date of                        06/01/2016
Hearing :
    /Date of Order:                   20/01/2016

                      / O R D E R

Per Ashwani Taneja (Accountant Member):

    This appeal has been filed by the Assessee against the
order of Ld. Commissioner of Income Tax (Appeals)-18,
Mumbai {(in short `CIT(A)'}, dated 11.06.2012 for         the
assessment year 2009-10, passed against the assessment
                               2      Vaipa Pharmaceuticals

order passed by the Assessing Officer (in short `AO') u/s 143(3)
of the Act, on the following grounds:

     "1.Commissioner of Income Tax (A) has erred in conforming
     the disallowing of Rs.1,85,10,887/-            made       by   the
     Assessing Officer u/s 14A read with rule 8 though the
     company has not spent the said amount to earn exempt
     income.
     2.Commissioner     of   Income     Tax   (A)   has    erred     in
     concurring with the Assessing , Officer in treating the
     legal   expenses   of   Rs.1,85,10,887/-       as    of   capital
     nature/ and not allowing as business expenses u/s.37(1)
     of the Income Tax Act 1961. '
     3. Without prejudice to Grounds of Appeal No.1 and No.2
     the legal expenses as incurred by assessee company
     should have allowed as expenses to earn capital gain and
     Commissioner of Income Tax (A) earned in not treating said
     expenses be allowable as expenses incurred wholly and
     exclusively to earn Capital Gain from transfer of shares."





2.   During the course of hearing, arguments were made by
Shri Rashesh V. Parekh, Authorised Representative (AR) on
behalf of the Assessee and by Shri Sanjeev Kashyap,
Departmental Representative (DR) on behalf of the Revenue.


3. The only effective issue raised in this appeal is with regard
to disallowance for a sum of Rs.1,85,10,887/- being the
amount of legal costs on account of fees paid to M/s. AZB &
Partners.
                               3    Vaipa Pharmaceuticals

3.1. The brief facts noted from the records brought before us
are that during the year under consideration the assessee
company was engaged in the manufacture and processing of
Ayurvedic medicines. The assessee company had a substantial
stake in M/s Zandu Pharmaceutical Works Ltd. (in short
Zandu). During the year under consideration, one Emami
Group acquired substantial holding of Zandu, and as required
under SEBI Law, it was required to acquire further 20% stake
from open market by way of open offer. It made open offer of
Rs.7,315/- per share in June 2008. The assessee company,
with a view to safeguard its investment and its business
relationship with Zandu, approached various top lawyers as
well as financial advisors to evaluate the maximum value that
it could get and also to initiate legal methodology to prevent
`Emami' to buy shares at such low price of Rs.7,315/- per
shares. In this manner, actual take over price was increased to
Rs.16,500/- per share, thereby leading to a significant
increase in capital gains income of the assessee company for
Rs.17.05 Crores, approximately. For fighting this legal battle,
the assessee company availed the benefit of professional
services of M/s AZB & Partners and paid fee for the leagal
services availed by it. The fee so paid was claimed as legal
expenses. But AO disallowed these expenses by invoking the
provisions of section 14A on the ground that expenses were
incurred to safeguard the investment-interest of the assessee
and that investment would yield an exempt income in the form
of dividend income.
                                4    Vaipa Pharmaceuticals

3.2. Being aggrieved, the assessee filed an appeal before Ld.
CIT(A), where no relief was given and disallowance made by
the AO was confirmed.


3.3. Still being aggrieved, the assessee filed an appeal before
the Tribunal.


3.4. During the course of hearing, it has been submitted on
behalf of the assessee that AO's allegation is totally irrational,
as no person would incur such huge expenses to merely
safeguard their dividend income. The legal fees were paid to
safeguard the investment made by the assessee. It was further
submitted that the assessee wanted to protect its business
with Zandu. Thus, the impugned expenses have been incurred
to maintain the business and to protect the investment. It
should be allowed as revenue expenditure. Alternatively, it can
be allowed to be added to the cost of shares towards cost of
improvement. On the other hand, Ld. DR supported the orders
of the lower authorities.


3.5. We have gone through the orders of the lower authorities
and submissions made before us by both the sides. At the very
outset, it is noted by us that Ld. CIT(A) has given a finding in
last para of his order that the impugned expenses relates to
the assessee company. The said para is reproduced below for
the sake of ready reference:
     "The challenge of the appellant to the fact that AO has
     erred in assuming expenditure incurred by the appellant in
                                5    Vaipa Pharmaceuticals

     relation to their interest in Zandu Pharmaceuticals Works
     Ltd. (ZPWL)- is liability of ZPWL-borne by the appellant-is
     correct because the expenditure of Rs.1,85,10,887/- has
     been shown by the appellant to have been incurred by
     him-since, M/s. ABZ & Partners have in letter dated
     31.03.2009 required the appellant to make payment of
     this bill- which clearly show that this expenditure relates
     to the appellant. Hence, to this extent only- the plea of the
     appellant is accepted."





3.6. From the perusal of the above, it is clear that genuineness
of the expenses is no more in doubt. It is also not in doubt
that impugned expenses relate to the assessee. The aforesaid
findings have not been challenged by the Revenue by way of
appeal or Cross Objections. Thus, admitted position is that the
expenses pertain to the assessee and these are genuine. Under
these facts and circumstances, limited question that remains
to be decided by us is that whether the assessee can claim
benefit of these expenses in any manner. The undisputed facts
brought before us are that legal fees has been paid to M/s AZB
& Partners (advocates and solicitors) for protecting the
investment of the assessee with Zandu. Further, an admitted
fact is that as a result of the aforesaid legal exercise, the
assessee earned larger amount of capital gains as initial open
offer of Rs.7,315/- per share was eventually enhanced to
Rs.16,500/- per share. The totality of facts and circumstances
of the case and documentary evidences brought before us
clearly suggest that undoubtedly, there was improvement in
                                     6    Vaipa Pharmaceuticals

  the value of the asset being shares of Zandu held by the
  assessee company. During the course of hearing, both the
  parties fairly agreed that even if impugned expenses may not
  be allowable as revenue expenses but these were, for sure,
  aimed for providing enhancement to the value of the shares.
  Under these circumstances, we do not find any hesitation in
  holding that these expenses should be added to the cost of
  shares as cost of improvement. The AO is directed to
  recompute the amount of capital gain earned by the assessee.
  Accordingly, ground number 3 is allowed and ground no.1 and
  2 are dismissed.


  4. In the result, the appeal filed by the assessee is partly
  allowed.


       Order pronounced in the open court on   20th   January, 2016.


              Sd/-                                   Sd/-
          (Sanjay Garg )                          (Ashwani Taneja)
Û è / JUDICIAL MEMBER                 è / ACCOUNTANT MEMBER

    Mumbai;  Dated :20 /01/2016
  
  ctàxÄ? P.S/...
      /Copy of the Order forwarded to :
  1.    / The Appellant
  2.   × / The Respondent.
  3.     () / The CIT, Mumbai.
        È
  4.      / CIT(A)-
        È                     , Mumbai
  5.    ,   ,         / DR,
       ITAT, Mumbai
                          7   Vaipa Pharmaceuticals
6.   [  / Guard file.
                                       / BY ORDER,
           ×  //True Copy//
                        /  (Dy./Asstt. Registrar)
                          ,   / ITAT, Mumbai

 
 
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