DCIT, Chandigarh V. M/s Scott Edil Pharmacia Ltd., Chandigarh

ITA 114/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6582 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 12-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Earning of tax free income
• Section: 14A; 2

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHB, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.1407/CHD/2016 (ASSESSMENT YEAR : 2012-13) SCOTT EDIL PHARMACIA LTD. VS. DCIT PLOTT NO. 54-55, INDUSTRIAL AREA CIRCLE-1(1), CHA NDIGARH PHASE-II, CHANDIGARH PAN: AAHCS1643K ITA NO.114/CHD/2017 (ASSESSMENT YEAR : 2012-1) DCIT VS. SCOTT EDIL PHARMACIA LTD. CIRCLE-1(1), CHANDIGARH PLOTT NO. 54-55, INDUST RIAL AREA PHASE-II, CHANDIGARH (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PARIKSHIT AGGARWAL DEPARTMENT BY : SHRI. MANJIT SINGH DATE OF HEARING : 28.09.2017 DATE OF PRONOUNCEMENT : 23/11/2017 O R D E R PER DR.B.R.R.KUMAR, A.M . : BOTH APPEALS HAVE BEEN FILED BY THE ASSESSEE AND T HE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-2 , AMRITSAR, DATED 02/10/2016. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS, CIRCUMSTANCES AND LEGAL POSI TION OF THE CASE, THE WORTHY CIT(A) IN APPEAL NO. 49/14-15 DATED 02.10.20 16 HAS ERRED IN PASSING THAT ORDER IN CONTRAVENTION OF THE PROVISIONS OF SECTION 250(6) OF THE INCOME TAX ACT, 1961. 2. THAT ON LAW, FACTS AND CIRCUMSTANCES OF THE CASE , THE WORTHY CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF LD. AO WH EREBY WORTHY CIT(A) CONFIRMED ADDITION OF RS. 11,03,883/- AS AGAINST MADE BY LD. AO AT RS. 37,10,530/- U/S 36(L)(III) 2 OF THE INCOME TAX ACT, 1961 BY ERRONEOUSLY HOLDING THAT SAID INTEREST IS DISALLOWABLE ON ACCOUNT OF GIVING OF INTEREST FREE ADVANCES EVEN WHEN THE OWNED FUNDS OF THE APPELLANT FAR EXCEEDED THE RELEV ANT INTEREST FREE ADVANCES AND ALSO THE INTEREST ON THESE ADVANCES WAS NOT DIS ALLOWABLE U/S 36(L)(III) ON MERITS ALSO. 3. THAT ON LAW, FACTS AND CIRCUMSTANCES OF THE CASE , THE WORTHY CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF LD. AO OF DENIAL OF DEDUCTION U/S 80IC ON THE OTHER INCOME OF RS. 4,30,909/- WHICH NON ALLOWANCE IS AGAINST THE RATIO OF LAW LAID DOWN BY HON'BLE SC IN THE CASE OF CIT VS MEGHALAYA STEELS LTD. (2016) 383 ITR217. 4. THAT ON LAW, FACTS 8 B CIRCUMSTANCES OF THE CASE, THE WORTHY CIT(A) WAS NO T JUSTIFIED IN CONFIRMING THE ACTION OF LD. AO WHEREB Y LD. AO HAS ERRED IN NOT ALLOWING THE BENEFIT OF SET OFF & CARRY FORWARD OF MAT CREDIT IN RESPECT OF PAYMENT OF EDUCATION CESS AND SURCHARGE PAID ON MAT LIABILI TY IN THE PRECEDING YEARS AND THE LD. AO HAD ALSO ERRED IN CHARGING SURCHARGE AND EDUCATION CESS BEFORE THE ALLOWANCE OF MAT CREDIT EVEN WHEN FIRSTLY THE MAT C REDIT WAS ALLOWABLE AND ON THE RESULTANT FIGURE, THE SURCHARGE AND EDUCATION C ESS WAS LEVIABLE. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOU T APPRECIATING THE FACTS OF THE CASE. 2. THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF RS.33,73,204/- U/S 80IC BY IGNORING THE FACT THAT THE SAID PROFITS WERE EARNED FROM TRADING ACTIVITY OF THE ASSESSEE A ND NOT FROM THE MANUFACTURING ACTIVITY? 3. THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION ON DISALLOWANCE OF RS.34,02,350/- U/S 14A R.W.S. 8D ON ACCOUNT OF INVE STMENT IN UNQUOTED SHARES AMOUNTING TO RS.9,00,00,000/- THE INCOME EARNED (IF ANY) FROM WHICH IS EXEMPT FROM TAX, WITHOUT TAKING COGNIZANCE OF CIRCULAR NO. 5 OF 2014 OF CBDT ON THIS ISSUE? 4. IT IS PRAYED THAT THE ORDER OF THE LD.CIT(A) BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 4. GROUND NO.1 OF THE ASSESSEE APPEAL IS GENERAL IN NATURE THEREFORE NEEDS NO ADJUDICATION. 5. GROUND NO. 2 OF THE ASSESSEE APPEAL RELATES TO A DDITION OF RS. 11,03,883/- ON ACCOUNT OF INTEREST DISALLOWED ON INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. 6. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S SHOWN ADVANCES TO CREDITORS AND OTHERS INCLUDING DIRECTORS AND SISTER CONCERNS AMOUNTING TO RS. 5,54,70,874/-THE AO HELD THAT THE ASSESSEE HAD DIVE RTED INTEREST BEARING FUNDS FOR OTHER THAN BUSINESS PURPOSES OR COMMERCIAL EXPE DIENCY. 7. THE LD. CIT(A) HAS CALCULATED DISALLOWANCE ON TH E AVERAGE COST OF DEBT BASIS TAKING INTO ACCOUNT AVERAGE ASSETS / LIABILIT IES AGAINST THE INTEREST COST 3 DEBITED TO P&L ACCOUNT AND WORKED OUT 3.57% AND DIS ALLOWED AN AMOUNT OF RS. 11,03,883/- AGAINST THE DISALLOWANCE MADE BY THE A O OF RS. 33,73,204/-. 8. BEFORE US THE AR SUBMITTED THAT THE AMOUNTS HAVE BEEN GIVEN FOR BUSINESS EXPEDIENCY FOR PURCHASE OF RAW MATERIALS. THE AR FU RTHER SUBMITTED THAT THE ASSESSEE HAD INTEREST FREE OWN FUNDS OF RS. 48.59 C RORES AND THE NET PROFIT FOR THE YEAR OF RS. 7.99 CRORES AGAINST THE AVERAGE INTERES T FREE ADVANCES GIVEN OF RS. 3.274 CRORES. THUS WE OBSERVE THE INTEREST FREE FUN DS ADVANCED ARE FAR LESS THAN THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE . 9. CRISPLY TO SAY THAT THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) ON ADVANCES CONFIRMED BY THE LD. CIT(A) IS ON THE PRIN CIPLE THAT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES FOR NON BUSINESS PURPO SES. THE LD. CIT(A) RELIANCE ON ABHISHEK INDUSTRIES 286 ITR 1 CANNOT BE ACCEPTED IN VIEW OF THE FURTHER DEVELOPMENT OF THE JUDICIAL PRONOUNCEMENTS ON THE I SSUE. WHEN THE ASSESSEE HAS GOT OWN FUNDS AVAILABLE AT THEIR DISPOSAL NO DI SALLOWANCE IS CALLED FOR AS ENUNCIATED IN VARIOUS JUDGMENTS. IN THE CASE OF BRI GHT ENTERPRISES PVT. LTD. VS. CIT (PUNJAB & HARYANA HIGH COURT IN ITA NO. 224/2013 DT . 24/07/2015 IT WAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE THEN IT WILL BE PRESUMED THAT THESE HAVE BEEN MADE OUT OF INTEREST FREE FUNDS. SIMILAR VIEW WAS HELD IN THE CASE OF CIT VS. KAPSONS ASSOCIATES INVESTMENT PVT. LTD. [2015] 381 ITR 204 (P&H) WHEREIN, THE HONBLE COURT HAS HELD THAT INTEREST ON INVESTMENT IN OTHER PROPERTIES NOT FOR BUSINESS PURPOSE CANNOT BE DISALLOWED IF THE ASSESS EE IS HAVING SUFFICIENT INTEREST FREE FUNDS AT ITS DISPOSAL. SIMILAR VIEW WAS TAKEN IN THE CASE OF HERO CYCLES PVT. LTD. 63 TAXMAN 308 (SUPREME COURT) 2015 WHEREIN THE HONBLE SUPREME COURT HELD THAT ONCE IT IS A ESTABLISHED THAT THERE IS A NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS NO DISALLOWANCE IS CALLED FOR. SINCE THE FACTS ARE APPLICABLE TO THE INSTANT CASE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE VARIOUS JUDICIAL PRONOUN CEMENTS, THE DISALLOWANCE MADE ON ACCOUNT OF INTEREST IS HEREBY DELETED. 10. GROUND NO. 3 OF THE ASSESSEE APPEAL IS NOT PRES SED BEFORE US. 11. GROUND NO. 4 OF THE ASSESSEE APPEAL DEALS WITH BENEFIT OF SET OFF AND CARRY FORWARD OF MAT CREDIT IN RESPECT OF PAYMENT O F EDUCATION CESS AND SURCHARGE PAID ON MAT LIABILITY IN THE PRECEDING YE ARS. 12. THE LD. CIT(A) HAS DIRECTED TO COMPUTE THE GROS S TAX LIABILITY OF THE ASSESSEE IN ACCORDANCE WITH THE METHOD OF COMPUTATI ON PROVIDED IN ITR- 6. 4 13. LD. AR SUBMITTED THAT THE CONTENTION OF THE ASS ESSEE HAS BEEN UPHELD IN THE CASE OF DCIT VS. VACMENT INDIA LTD. 369 ITR 304 WHEREIN THE METHOD OF COMPUTATION OF MAT CREDIT AND THE SEQUENCE HAS BEEN MENTIONED IN DETAIL. SINCE IT IS A FACTUAL ISSUE THE MATTER IS BEING SET ASIDE TO COMPUTATION TO THE FILE OF ASSESSING OFFICER TO COMPUTE AND TO GIVE CREDIT OF MAT AS PER THE PROVISIONS RELEVANT FOR THE AY 2012-13. 14. THIS GROUND IS TREATED AS ALLOWED FOR STATISTIC AL PURPOSES. 15. GROUND NO. 2 OF THE REVENUE DEALS WITH DENIAL O F DEDUCTION UNDER SECTION 80IC ON THE OTHER INCOME AND ON TRADING ACT IVITY. 16. DURING THE YEAR THE ASSESSEE HAD TRADING AND MA NUFACTURING ACTIVITIES. THE ASSESSING OFFICER HAS DISALLOWED DEDUCTION UNDE R SECTION 80IC ON THE PROFIT MADE ON ACCOUNT OF SALES OF RS. 22,05,91,171/- ON A PROPORTIONATE BASIS OF PROFIT TO TRADING TURNOVER. 17. THE CIT(A) HAS HELD THAT THE ASSESSEE HAS DONE THE EXERCISE OF DETERMINING THE PROFITS OUT OF TRADING ACTIVITY AND MANUFACTURING ACTIVITY BASED ON THE ACTUAL TRANSACTIONS AND DOCUMENTARY EVIDENCE S AND FOUND NO PROFIT WAS EARNED ON TRADING OPERATIONS. HE FURTHER HELD T HAT NO DISALLOWANCE OF DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80I C OF THE ACT IS CALLED FOR ON THIS EXERCISE IS TO BE MADE SINCE THE ASSESSEE HAD ALREADY CLEARLY DEMONSTRATED THAT NO PROFIT HAS BEEN EARNED FROM TRADING OPERATI ONS. THE SIMILAR ISSUE WAS DEALT BY THE COORDINATE BENCH OF ITAT CHANDIGARH IN CASE OF THE ASSESSEE FOR THE EARLIER AY 2011-12. SINCE THE ASSESSEE COULD PR OVE THAT NO TRADING PROFITS HAVE BEEN EARNED BEFORE THE LD. CIT(A), THE DECISIO N OF THE LD. CIT(A) DELETING THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80IC ON THE ALLEGED TRADING PROFITS IS HEREBY UPHELD. 18. THE GROUND NO. 3 OF THE REVENUE APPEAL RELATES TO THE DISALLOWANCE UNDER SECTION 14A. 19. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSE E HAD INVESTMENT OF RS. 9.00 CRORES IN M/S SEARLE LTD. AND DISALLOWED RS. 3402350/- UNDER SECTION 14 R.W.R 8D OF THE INCOME TAX ACT. 5 20. THE LD. CIT(A) DELETED THE ADDITION ON THE GROU NDS THAT THE ASSESSEE HAS NOT EARNED ANY INCOME FROM THESE INVESTMENTS AND TH ERE WAS NO CLAIM OF ANY EXEMPT INCOME. 21. WE REFRAIN FROM INTERFERING IN THE ORDER OF TH E LD. CIT(A) AS THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR AN D THE PROVISIONS OF THE SECTION 14A AND RULE 8D CANNOT BE APPLIED. MOREOVER THE ASSESSING OFFICER DID NOT RECORD ANY SATISFACTION BEFORE MAKING ADJUSTMEN T IN THE DISALLOWANCE. KEEPING IN VIEW THE DECISIONS IN THE CASE OF SWAMI AUTOMOBILES PVT. LTD. BY THE HONBLE ITAT, CHANDIGARH IN ITA NO. 74/CHD/2015 DAT ED 10/02/2016 AND IN VIEW OF THE DECISION OF HONBLE PUNJAB & HARYANA HIGH CO URT IN THE CASE OF CIT VS. DEEPAK MITTAL (2014) 361 ITR 131(P&H) AND ALSO THE DECISION OF CIT VS. LAKHANI MARKETING INCL (2014) 272 CTR 265, THE ACTION OF TH E LD. CIT(A) IS HEREBY UPHELD. 22. THIS GROUND OF REVENUE IS THEREFORE DISMISSED. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :23/11/2017 AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR