BIOPHORE INDIA PHARMACEUTICALS PRIVATE LIMITED,HYDERABAD V. DCIT., CIRCLE-1(1), HYDERABAD

ITA 729/HYD/2025

AI Insights

The case involves Biophore India Pharmaceuticals Private Limited, which appealed against the order of the PCIT, Hyderabad-1, setting aside the assessment order for the assessment year 2020-2021. The PCIT had invoked section 263, claiming the original assessment was erroneous and prejudicial to the interests of the Revenue because the Assessing Officer failed to examine the disallowance under section 14A read with Rule 8D of the Income Tax Rules, 1962, concerning expenses related to exempt income. The Tribunal, however, found that the Assessing Officer had adequately examined the issue during the assessment proceedings and that the PCIT's assumptions were not supported by concrete findings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 773490 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2020-2021
• Appeal Filed On: 28-04-2025
• Other Referred Cases: Cheminvest Ltd. vs. CIT, PCIT vs. Era Infrastructure (India) Ltd., NCC Infrastructure Holdings Ltd. vs. The ACIT, Circle-16(1), Hyderabad
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Assessee Lawyers: S K GUPTA
• Keywords: Set aside; Earning of tax free income; Rule 8D
• Section: 144; 143(3); 263; 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “A” BENCH: HYDERABAD BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G, ACCOUNTANT MEMBER ITA.No.729/Hyd./2025 Assessment Years 2020-2021 Biophore India Pharmaceuticals Private Limited, Hyderabad. PIN – 500 033. PAN AADCB0914C vs. The DCIT, Circle-1(1), Hyderabad. (Appellant) (Respondent) For Assessee : Sri S K Gupta, Advocate For Revenue : MS. U Mini Chandran, CIT-DR Date of Hearing : 23.09.2025 Date of Pronouncement : 26.09.2025 ORDER PER MANJUNATHA G. : The above appeal has been filed by the assessee against the Order dated 27.02.2025 of the learned Principal Commissioner of Income Tax, Hyderabad-1, Hyderabad, relating to the assessment year 2020-2021. 2. The assessee has raised the following grounds in the instant appeal : Printed from counselvise.com 2 ITA.No.729/Hyd./2025 1. “The disallowance of Rs.32,50,783 made by the Learned PCIT under section 144 of the Income Tax Act, read with Rule SD(20d for the AY 2020-21 is erroneous, bad in law, and contrary to the facts and circumstances of the case. 2. The provisions of Section 14A of the Income Tax Act, read with Rule BD of the Income Tax Rules, are not applicable to this case as the disallowance made under Section 144 is done regardless of the absence of any exempt income. 3. The Appellant has not earned any exempt income from its subsidiary or associated companies during the relevant assessment year, nor in the preceding years Furthermore, the Appellant has not incurred any expenditure either directly or indirectly in relation to such exempt income 4. The Rule BD provides only a method of determining the amount of expenditure incurred in relation to income which does not form part of the total income, and it cannot go beyond what is provided in section 144. 5. The amendment to section14A in the Finance Act, 2022 is prospective in its operation, and cannot be made applicable to the Assessment year 2020-21, the subject appeal year. 6. The appellant holds substantial reserves, which is multiple times of the value of the investments made and hence Section 144 cannot be invoked. On the facts and in the circumstances of the case and in law the Assessing Officer (the Learned PCIT), erred in making the disallowance of expenditure without appreciating the facts and figures of the case.” 3. Brief facts of the case are that, the assessee viz., “Biophore India Pharmaceuticals Private Limited” filed it’s return of income for the assessment year 2020-2021 on 15.02.2021 declaring total income under MAT of Rs.12,08,37,771/-. The case was selected for scrutiny under Printed from counselvise.com 3 ITA.No.729/Hyd./2025 CASS. The assessment was completed by Faceless Assessment Unit [in short “FAU”] u/sec.143(3) r.w.sec.144B of the Income Tax Act, 1961 [in short “the Act”] on 09.09.2022 accepting the income returned by the assessee. 4. Subsequently, the case has been taken-up for revision proceedings by Pr. CIT, Hyderabad-1 and a show cause notice under section 263 of the Income Tax Act, 1961 [in short “the Act”] dated 17.12.2024 was issued to the assessee-company. In the said show cause notice, the learned PCIT observed that, the assessee-company has substantial investments in the nature of equity shares, which are capable of generating the income, which would be exempt from taxation. However, the assessee-company has not disallowed the associated expenses against these investments. No separate accounts for expenses related to these investments was found to be maintained by the assessee-company. Since the assessee-company has made substantial investments, from which, it will derive exempt income in future and also considering that, it maintains a common pool of funds for it’s regular business as well as for Printed from counselvise.com 4 ITA.No.729/Hyd./2025 investment, from which, it will derive exempt income, appropriate disallowance was required to be made as per the provisions of section 14A read with Rule 8D of I.T. Rules, 1962. Further, the Assessing Officer has not verified the issue in right perspective of law and has completed the assessment by accepting the returned income which resulted in an erroneous order passed by the Assessing Officer in so far as it is prejudicial to the interests of Revenue. Therefore, called-upon the assessee-company to file it's objections, if any, for the proposed revision of assessment order. 5. In response, the assessee-company vide letter dated 05.02.2025 and 14.02.2025 submitted that, the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of Revenue on the issue of disallowance u/sec.14A read with Rule 8D of I.T. Rules, 1962 because, the assessee-company does not earn any exempt income and claimed exemption u/sec.10(34) of the Act. Further, the assessee-company has not incurred any expenditure in relation to exempt income and, therefore, the Printed from counselvise.com 5 ITA.No.729/Hyd./2025 question of disallowance of expenditure u/sec.14A read with Rule 8D of I.T. Rules, 1962 does not arise. The assessee further submitted that, during the course of assessment proceedings, the Assessing Officer called-for necessary information with regard to substantial amount of investments/advances/loans in the assets side of the balance-sheet and corresponding income including exempt income, for which, the assessee-company has filed complete details of nature of investments, source of investment and also explained that, the assessee-company does not earn any exempt income, which was claimed u/sec.10(34) of the Act. The Assessing Officer after considering the relevant facts and the explanation of assessee-company, completed the assessment without proposing any addition. Therefore, it cannot be said that, the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue. 6. The learned PCIT after considering the relevant submissions of the assessee-company and also taking note of provisions of section 263 of the Act observed that, the Printed from counselvise.com 6 ITA.No.729/Hyd./2025 assessee-company company has huge investment in unlisted equities amounting to Rs.32,51,28,088/-, out of which, it will derive exempt income in future and also considering that, it maintains a common pool of funds for it’s regular business as well as for investments from which it will derive exemption income, appropriate disallowance is required to be made as per the provisions of sec.14A read with Rule 8 of I.T. Rules, 1962 and accordingly disallowed 1% of average investment u/sec.14A of the Act at Rs.32,50,783/- and directed the Assessing Officer to frame assessment order afresh, in absence of relevant information of investments made by the assessee company to earn exempt income before the Assessing Officer, so as to examine whether sec.14A read with Rule 8D of I.T. Rules, 1962 applies in the case of the assessee-company or not ? Since the Assessing Officer has not examined the issue, the learned PCIT observed that, order passed by the Assessing Officer under section 143(3) read with section 144B dated 09.09.2022 is erroneous in so far as it is prejudicial to the interests of Revenue. Therefore, the learned PCIT has set Printed from counselvise.com 7 ITA.No.729/Hyd./2025 aside the assessment order passed by the Assessing Officer and directed the Assessing Officer to pass fresh assessment order as per the provisions of law, after considering proper facts and submissions of the assessee-company on the issue, after providing sufficient opportunity of hearing to the assessee. 7. Aggrieved by the Order of the learned PCIT, the assessee is, now in appeal before the Tribunal. 8. Sri S K Gupta, Advocate-Learned Counsel for the Assessee submitted that, the learned PCIT was erred in invoking jurisdiction under section 263 of the Act and set aside the assessment order dated 09.09.2022 passed by the Assessing Officer under section 143(3) read with section 144B of the Act, even though, the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of Revenue on the issue of disallowance u/sec.14A read with Rule 8D of I.T. Rules, 1962. Learned Counsel for the Assessee further submitted that, the assessee-company has not received any exempt income and further, has not incurred any expenditure relatable to Printed from counselvise.com 8 ITA.No.729/Hyd./2025 exempt income. Further, the assessee-company has investments in unlisted equities amounting to Rs.32,51,28,088/-, out of which, it will derive exempt income in future. Learned Counsel for the Assessee submitted that, during the course of assessment proceedings, the Assessing Officer called-for necessary information with regard to substantial amount of investments/advances/loans in the assets side of the balance-sheet and corresponding income including exempt income, for which, the assessee-company has filed complete details of nature of investments, source of investment and also explained that, the assessee-company does not earn any exempt income, which was claimed u/sec.10(34) of the Act. The Assessing Officer after considering the relevant facts and the explanation of assessee-company, completed the assessment without proposing any addition. Therefore, it cannot be said that, the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue. He accordingly submitted that, in absence of any exempt income, the question of disallowance Printed from counselvise.com 9 ITA.No.729/Hyd./2025 of expenses relatable to exempt income does not arise. The Assessing Officer after considering the relevant facts, has rightly accepted the claim of the assessee-company and, therefore, it cannot be said that, the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue on this issue. In this regard, he relied on the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd., vs., CIT [2015] 378 ITR 33 (Del.) and submitted that, the same has been upheld by the Hon’ble Supreme Court and dismissed the SLP filed by the Revenue against the other of the Hon'ble Delhi High Court. The assessee-company had also relied upon the decision of ITAT, Hyderabad Bench, Hyderabad in assessee-company’s own case for earlier assessment years. Further, the Learned Counsel for the Assessee submitted that, the learned PCIT has invoked jurisdiction u/sec.263 by considering proviso inserted to sec.14A of the Act by the Finance Act, 2022 and the same has been considered by the Hon’ble Delhi High Court in the case of PCIT vs., Era Infrastructure (India) Ltd., [2022] 141 taxmann.com 289 (Del.) where it has been Printed from counselvise.com 10 ITA.No.729/Hyd./2025 clearly held that, proviso inserted is prospective in nature and cannot be applied retrospectively. This issue has been considered by the Coordinate Bench of ITAT, Hyderabad in the case of NCC Infrastructure Holdings Ltd., Hyderabad vs., The ACIT, Circle-16(1), Hyderabad, in ITA.No.144/Hyd./ 2023, Order dated 12.06.2023 holding that amendment is prospective in nature. 9. MS. U Mini Chandran, learned CIT-DR for the Revenue, on the other hand, supporting the order of the learned PCIT submitted that, the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue because, the Assessing Officer has failed to carry out required enquiry, which he ought to have carried-out in respect of huge investments and relevant exempt income, if any, earned by the assessee-company during the relevant assessment year under consideration. Since, the Assessing Officer has failed to carry-out required enquiries on the issue of disallowance u/sec.14A read with Rule 8D of I.T. Rules, 1962, the learned PCIT has rightly invoked jurisdiction and set-aside the order passed by the Printed from counselvise.com 11 ITA.No.729/Hyd./2025 Assessing Officer on this issue. Therefore, he submitted that, there is no error in the reasons given by the learned PCIT. The Learned DR further submitted that, if we go by the amendment to sec.14A by insertion of proviso it has been stated that in the said amendment it has been clarified that, the above amendment shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year and, therefore, it means that the amendment is retrospective. The Learned CIT-DR accordingly submitted that the CPC has rightly invoked amended provisions and set-aside the assessment order and, therefore, the order of the learned PCIT should be upheld. 10. We have heard both the parties, perused the material on record and the orders of the authorities below. The learned PCIT invoked jurisdiction under section 263 of the Act and set-aside the assessment order passed by the Assessing Officer under section 143(3) read with section 144B of the Act dated 09.09.2022 on the ground that, the Printed from counselvise.com 12 ITA.No.729/Hyd./2025 order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue. The learned PCIT has discussed the issue of disallowance u/sec.14A read with Rule 8D of I.T. Rules, 1962 and observed that, the investment made by the assessee-company are capable of earning exempt income in future and this fact has not been examined by the Assessing Officer. Otherwise, there is no finding from the PCIT that, the assessee-company has earned exempt income for the year under consideration from the said investment and also incurred various expenditure relatable to exempt income and the same has not been disallowed either by the assessee-company on its own or by the Assessing Officer during the assessment proceedings, which renders the assessment order erroneous in so far as it is prejudicial to the interests of Revenue. In our considered view, the learned PCIT cannot assume jurisdiction and set-aside the assessment order passed by the Assessing Officer for making further enquiry to ascertain, whether the assessee-company has earned exempt income and incurred any expenditure relatable to Printed from counselvise.com 13 ITA.No.729/Hyd./2025 the said exempt income. In our considered view, once the learned PCIT has invoked jurisdiction under section 263 of the Act, he should give a specific finding that, the Assessing Officer has failed to carry-out required enquiry which he ought to have carried-out and because of this, lawful revenue payable to the Government has not been paid, which caused prejudicial to the interests of Revenue. Unless the learned PCIT makes-out a case that, the order passed by the Assessing Officer is erroneous which caused prejudicial to the interests of Revenue, simply he cannot set-aside the assessment order passed by the Assessing Officer by exercising powers conferred under section 263 of the Act for further verification. 11. In the present case, going by the reasons given by the learned PCIT in the order passed under section 263 of the Act, nowhere, the learned PCIT has made-out a case that, assessee-company has earned exempt income and resultant expenditure relatable to exempt income has not been disallowed. On the contrary, the learned PCIT observed that, investment made by the assessee-company are capable Printed from counselvise.com 14 ITA.No.729/Hyd./2025 of earning exempt income in future and further, the assessee-company has not maintained separate books of accounts for the investment activity. In our considered view, the said finding of the learned PCIT is not based on appraisal going by the assessment order passed by the Assessing Officer, where the Assessing Officer has caused detailed enquiry on the issue of large investment as on the end of the balance-sheet date and consequent exempt income, if any, earned by the assessee-company for the relevant assessment year. In response to a specific question, the assessee-company has explained that, the Company has Subscribed 9999 equity shares of M/s. Vivere Imaging Pvt. Ltd., at ther ate of Rs.10 each, totalling to Rs.99,990/- and no other investment was made apart from this for the impugned assessment year 2020-2021 and the sources of the same was from reserves/surplus funds and there was no interest cost. However, the learned PCIT noted in para- 7.11 of the order that as could be seen from the balance- sheet as on 31.03.2020 that, the assessee has huge investment in unlisted equities amounting to Printed from counselvise.com 15 ITA.No.729/Hyd./2025 Rs.32,51,28,088/- and these investments are capable of generating the income in future and since the assessee has not disallowed the associated expenses against these investments and no separate accounts for expenses related to these investments are maintained by the assessee and that, the assessee has maintained common pool of funds for it’s regular business, the learned PCIT has disallowed 1% of average investment i.e., Rs.32,50,783/- out of Rs.32,50,28,098/-. It was the argument of the Counsel for the Assessee that, the appellant holds substantial reserves, which is multiple times of the value of the investments made. This indicates that the investments were financed by internal resources rather than borrowed funds. As a result, the assessee possesses sufficient funds, comprising Share Capital and Reserves, to make investments. Therefore, Section 14A cannot be invoked to disallow expenditure attributable to exempt income. We find that, the Assessing Officer after considering the relevant facts, has rightly accepted the explanation of assessee-company and has not made any disallowance u/sec.14A read with Rule 8D of I.T. Printed from counselvise.com 16 ITA.No.729/Hyd./2025 Rules, 1962. The learned PCIT without appreciating the relevant facts and also without bringing on record any reasons as to how the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue, has simply with an assumption set-aside the assessment order passed by the Assessing Officer in terms of section 263 of the Act. 12. Further, the learned PCIT has invoked jurisdiction u/sec.263 by considering proviso inserted to sec.14A of the Act by the Finance Act, 2022. We find that, the same issue has been considered by the Hon’ble Delhi High Court in the case of PCIT vs., Era Infrastructure (India) Ltd., [2022] 141 taxmann.com 289 (Del.) where it has been clearly held that, proviso inserted is prospective in nature and cannot be applied retrospectively. Further, on identical set of facts, this issue has been considered by the Coordinate Bench of ITAT, Hyderabad in the case of NCC Infrastructure Holdings Ltd., Hyderabad vs., The ACIT, Circle-16(1), Hyderabad, in ITA.No.144/Hyd./2023, Order dated 12.06.2023, wherein the Coordinate Bench of Printed from counselvise.com 17 ITA.No.729/Hyd./2025 Hyderabad Tribunal on identical set of facts has considered the issue and held that, the amended provisions of sec.14A and proviso provided therein by the Finance Act, 2022 cannot be applied for prior financial years. The relevant observations of the Tribunal are as under : “6. We have gone through the record in the light of the submissions made on either side. There are no contrary findings of the authorities to the plea taken by the assessee that during the year under consideration, the assessee did not earn any exempt income. The basis for making the addition that the assessee incurred interest expenditure in respect of the amounts that were used for making investment also. In that process, learned CIT(A) relied upon the amendment to section 14A of the Act by insertion of explanation by Finance Act, 2022 and also to the decision of the Guwahati Bench of the Tribunal, referred above. 7. In the case of Era Infrastructure (India) Ltd., (supra) Hon'ble Delhi High Court considered the effect of amendment made by the Finance Act, 2022 to section 14A of the Act by insertion of a non obstante clause and explanation after the proviso, subsequent to the decision of the Hon'ble Delhi High Court in the case of PCIT vs. IL&FS Energy Development Co. Ltd., (2017) 84 taxmann.com 186, Hon'ble Delhi High Court and also the memorandum of Finance Bill, 2022 accordingly to clauses 5 to 7 thereof. The Hon'ble High Court analysed the same in the light of the decision of the Hon'ble Supreme Court in the case of Sedco Forex International Drill. Inc. vs. CIT (2005) 149 Taxman 352 reiterated in M.M. Aqua Technologies Ltd. vs. CIT (2021) 129 Printed from counselvise.com 18 ITA.No.729/Hyd./2025 taxmann.com 145 and held that the amendment of section 14A of the Act which is ‘for removal of doubt’ cannot be presumed to be retrospective even where such language is used, if it alters or changes law as it earlier stood. 8. Thereupon the Hon'ble High Court followed the decision of IL&FS Energy Development Co. Ltd., (supra) and concluded that no disallowance under section 14A of the Act can be made if the assessee had not earned any exempt income during the year under consideration. Hon'ble High Court, however, was pleased to clarify that the orders passed in the case of Era Infrastructure (India) Ltd., (supra) shall abide by the final decision of the Hon'ble Supreme Court in the SLP filed in the case of IL&FS Energy Development Co. Ltd., (supra). The decision in Era Infrastructure (India) Ltd., (supra) was followed by the Hon'ble Delhi High Court in the case of Delhi International Airport (P.) Ltd., (supra). 9. We are not in agreement with the submissions made on behalf of the Revenue that since the Tribunal at Hyderabad is not bound by the decisions of the other Hon'ble High Courts, the findings of the learned CIT(A) following the provisions of law has to be upheld. It is pertinent to note that learned CIT(A) himself followed the decision of the Guwahati Bench of the Tribunal in the case of Williamson Financial Services Limited (supra). In the absence of any decision of the Hon'ble jurisdictional High Court/Hon'ble Supreme Court, the decisions of other Hon'ble High Courts will constitute the binding precedent to be followed by the Tribunal. 10. With this view of the matter, we allow the appeal of assessee, and in view of the direction of the Hon'ble Delhi High Court the orders now passed in this appeal shall abide by the final decision of the Supreme Court in the SLP filed in the case of Printed from counselvise.com 19 ITA.No.729/Hyd./2025 IL&FS Energy Development Co. Ltd., (supra). Subject to the above observation, the appeal of assessee stands allowed.” 13. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, the learned PCIT was erred in invoking jurisdiction under section 263 of the Income Tax Act, 1961 and set-aside the assessment order passed by the Assessing Officer under section 143(3) r.w.s.144B of the Income Tax Act, 1961. We, thus, set-aside the order of the learned PCIT passed under section 263 of the Act and restore the order of the Assessing Officer. 14. In the result appeal of the assessee is allowed. Order pronounced in the open Court on 26.09.2025. Sd/- Sd/- [VIJAY PAL RAO] [MANJUNATHA G] VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 26th September, 2025 VBP Printed from counselvise.com 20 ITA.No.729/Hyd./2025 Copy to 1. Biophore India Pharmaceuticals Private Limited, Plot No.92, 1-98/2/92, Kavuri Hills Phase-II, Jubilee Hills, Hyderabad - 500 033. 2. The DCIT, Circle-1(1), Room No.724, Block-7B, 7th Floor, I.T. Tower, AC Guards, Masab Tank, Hyderabad. PIN – 500 004. Telangana. 3. The Principal Commissioner of Income Tax, Room No.711, 7th Floor, IT Towers, Masab Tank, Hyderabad. 4. The DR ITAT “A” Bench, Hyderabad. 5. Guard File. //By Order// //True Copy// Printed from counselvise.com "