Biological E Limited , Hyderabad V. Dy. Commissioner of Income Tax , Circle-1(2), Hyderabad

ITA 1191/Hyd/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2972 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 03-06-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 07-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N ESTHER
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Depreciation; Earning of tax free income; Revised return; Rule 8D
• Section: 143(3); 14A; 191

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT A NO. 1 191 /H/20 1 8 ASSESSMENT YEAR: 2 0 1 3 - 1 4 BIOLOGICAL E LTD., HYDERABAD. PAN A A ACB 7873P VS. DY . COMMISSIONER OF INCOME - TAX, CIRCLE 1 ( 2 ), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI V. SIVA KUMAR REVENUE BY: S MT. N. ESTHER DATE OF HEARING: 03 /0 5 /2021 DATE OF PRONOUNCEMENT: 15 /0 6 /2021 O R D E R PER L.P. SAHU, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST CIT(A) 1 , HYDERABADS ORDER DATED 26 / 0 4 /201 8 FOR AY 20 1 3 - 1 4 INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT ON THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, HYDERABAD DATED 26 - 04 - 2018 IS ERRONEOUS, CONTRARY TO LAW AND FACTS OF THE CASE. I TA NO. 1 191 /HYD /201 8 BIOLOGICAL E LTD., HYD. : - 2 - : 2. COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF RS.18, 18,478/ - MADE BY THE ASSESSING OFFICER U/S.14A R.W.R.8D OF THE ACT STATING THAT 'THERE SHOULD BE A COST FOR ANY INVESTMENT RETURN'. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE SEEN THAT THE APPELLANT DID NOT INCUR EITHER INTER EST OR ANY EXPENDITURE FOR EARNING EXEMPT INCOME SINCE MOST OF THE INVESTMENTS WERE MADE IN EARLIER YEARS ONLY. HENCE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS.18,18,478/ - U/S.14A AS MADE BY THE ASSESSING OFF ICER. 3. COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE INTEREST CHARGED UJS.234A BY THE ASSESSING OFFICER. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE SEEN THAT THE DUE DATE FOR FILING OF RETURN OF INCOME BY THE APPELLANT IS 30 - 11 - 2013 SINCE CERTIFICATE IN FORM NO.3CEB WAS TO BE OBTAINED ON ACCOUNT O R SPECIFIED DOMESTIC TRANSACTIONS AND THE APPELLANT UPLOADED THE RETURN OF INCOME ON 30 - 11 - 2013 AS EVIDENT ON THE ACKNOWLEDGMENT OF THE RETURN OF INCOME BUT ACKNOWLEDGMENT WAS G ENERATED WITH DATE OF 01 - 12 - 2013 WHICH MIGHT HAVE HAPPENED DUE TO OVERLOAD ON THE DEPARTMENT'S SERVER. 4. FOR ALL OF THE ABOVE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING IT IS MOST RESPECTFULLY PRAYED THAT THIS HON'BLE TRIBUNAL MAY BE PLEASED TO ALLOW THE APPEAL AND DIRECT THE ASSESSING OFFICER TO DELETE DISALLOWANCE OF RS.18,18,478/ - U/S.14A AND INTEREST CHARGED U/S.234A IN THE ASSESSMENT ORDER IN THE INTEREST OF JUSTICE. 2 . BRIEFLY, THE FACTS OF THE CASE ARE THAT THE A SSESSEE COMPANY IS ENGAGED IN MANUFACTURING AND SALE OF BULK DRUGS AND PHARMACEUTICAL FORMULATION PRODUCTS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2013 - 14 ON I TA NO. 1 191 /HYD /201 8 BIOLOGICAL E LTD., HYD. : - 3 - : 01.12.2013 ADMITTING TOTAL INCOME OF RS.71,25,99,060/ - UNDER NORMAL PROVISIONS AND RS.128,80 ,81,472/ - UNDER THE PROVISIONS OF SECTION 115JB. THE ASSESSEE FILED REVISED RETURN OF INCOME ON 31.03.2015, DECLARING A TOTAL INCOME OF RS.18,96,12T070/ - . THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICES U/S.143(2) AND U/S.142(1) WERE ISSUED. THE ASSESSMENT WAS COMPLETED U/S.143(3) ON 17.03.2016 BY DETERMINING TOTAL INCOME AT RS.19,58,95T894/ - BY MAKING DISALLOWANCE OF EXPENDITURE OF RS. 18,18,478/ - U/S 14A AND U/S 234A OF THE ACT. 3. WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), THE C IT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 5. THE ASSESSEE HAS RAISED 4 GROUNDS OF APPEAL, OUT OF WHICH GROUND NOS. 1 & 4 ARE GENERAL IN NATURE. 6. AS REGARDS GROUN D NO. 2 REGARDING DISALLOWANCE U/S 14A OF THE ACT, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED FROM THE BALANCE SHEET THAT THE ASSESSEE COMPANY HAS MADE INVESTMENTS TO THE TUNE OF RS.24,51,92,004/ - IN THE EQUITY OF CERTAIN COMPANIES. A LSO, RECEIVED DIVIDEND OF RS.69,03,080/ - DURING THE RELEVANT I TA NO. 1 191 /HYD /201 8 BIOLOGICAL E LTD., HYD. : - 4 - : FINANCIAL YEAR FROM WHICH HAS BEEN CLAIMED EXEMPT INCOME U/S.10(34) IN ITS COMPUTATION OF INCOME. ANY INCOME ARISING FROM THIS INVESTMENT WILL BE EXEMPT U/S. 10(34) IN THE HANDS OF THE ASSESSEE C OMPANY. SECTION 14A STATES THAT, 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER T HIS ACT.' THE ASSESSING OFFICER RELYING UPON THE HON'BLE BOMBAY HIGH COURT'S DECISION IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD COMPUTED THE DISALLOWANCE U/S.14A IS AS FOLLOWS: (I) DISALLOWANCE UNDER RULE 8D(I) NIL (II) DISALLOWANCE UNDER RULE 8D(II) RS. 5,92,518 (III) DISALLOWANCE UNDER RULE 8D(III) RS.12,25,960 (1/2% OF THE INVESTMENT) TOTAL DISALLOWANCE U/S.14A : RS.18,18,478 (I) + (II) +(III) 7. THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY AO. 8. BEFORE US, THE LD. AR OF THE ASSESSEE FILED WRITTEN SUBMISSIONS IN SUPPORT OF ASSESSEES CASE, WHICH ARE AS UNDER: 2.3 AGGRIEVED , APPELLANT IS IN APPEAL BEFORE HON'BLE ITAT. THE APPELLANT SUBMITS THAT APART FROM THE FACTS SUBMITTED BEFORE THE LEARNED C.I.T(A), IT MAY ALSO KINDLY BE SEEN FROM THE BALANCE SHEET THAT ITS CAPITAL AND RESERVED WERE RS.71,03,96,368/ - AS AT 31 - 03 - 2012 AND RS.166)5,43)38 AS AT 31 - 03 - 2013. (PLEASE SEE PAGE 1 OF I TA NO. 1 191 /HYD /201 8 BIOLOGICAL E LTD., HYD. : - 5 - : PAPER BOOK) PROFIT AFTER DEPRECIATION AND TAXES WAS RS.96. 87 C RORES. (PLEASE SEE PAGE 2 OF PAPER BOOK). INVESTMENTS AS AT 31 - 03 - 2012 WERE RS.2,71,65,223/ - AND INCREASED TO RS.2,75,95,387/ - AS AT 31 - 03 - 2013. (PLEASE SEE PAGE 1 OF PAPER BOOK) IN THIS CONNECTION THE APPELLANT RELIES ON THE DECISION OF THE HON'BLE B OMBAY HIGH COURT IN THE CASE OF PR. CIT VS SHAPOORJI PALLONJI & CO. LTD., 117 TAXMANN.COM 625 BOM HC (ANNEXED AT PAGES 6 TO 10) WHEREIN IT HAS BEEN HELD THAT WHERE INTEREST - FREE FUNDS WERE AVAILABLE WITH THE APPELLANT, IT WAS TO BE PRESUMED THAT INVESTMENT S ARE MADE OUT OF INTEREST - FREE FUNDS. APPELLANT PRAYS THAT THE DISALLOWANCE OF RS.5,92,518/ - MADE UNDER RULE 8D(2)(II) MAY KINDLY BE DIRECTED TO BE DELETED. 2.4. THE APPELLANT SUBMITS THAT THE DISALLOWANCE OF RS.12,251960/ - APPEARS TO HAVE BEEN WORKED OUT INCORRECTLY ON THE PREMISE THAT THE ASSESSMENT ORDER. THE ACTUAL AVERAGE INVESTMENT AND 0.5% THEREOF SHOULD WORK OUT TO RS.1,36,902. THE APPELLANT REITERATES THE SUBMISSIONS MADE BEFORE THE C.I.T(A) THAT THE DIVIDEND EARNED WAS DIRECTLY CREDITED TO IT S BANK ACCOUNT WITHOUT ANY EFFORT FROM THE APPELLANT. HENCE THERE IS NO EXPENDITURE INCURRED BY THE APPELLANT AND ACCORDINGLY DISALLOWANCE UNDER RULE 8D(2)(III) IS NOT WARRANTED. THE APPELLANT PRAY THAT THE DISALLOWANCE OF RS.12,25,960/ - MY KINDLY BE DIREC TED TO BE DELETED. 9. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS REGARDS THE DISALLOWANCE OF RS. 5,92,518/ - MADE UNDER RULE 8D(2 ) (II), THE CONTENTION OF THE ASSESSEE IS THAT SINCE THE ASSESSEE HAS SURPLUS RESERVES, IT MAY BE PRESUMED THAT THE INVESTMENTS I TA NO. 1 191 /HYD /201 8 BIOLOGICAL E LTD., HYD. : - 6 - : WERE MADE OUT OF INTEREST - FREE FUNDS. FOR THIS PROPOSITION, H E RELIED ON THE DECISION IN THE CASE OF PR. CIT VS. SHAPOORJI PALLONJI & CO. LTD., 117 TAXMANN.COM 625 BOM HC . SINCE THE EXEMPT INCOME OF THE ASSESSEE IS RS. 69,03,080/ - , THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE THAT THERE WAS A SUFFICIENT RESERVE S AND SURPLUS ARE AVAILABLE WITH THE ASSESSEE. THE ASSESSEE WAS UNABLE TO SHOW WHETHER SUFFICIENT RESERVES AND SURPLUS ARE AVAILABLE ON THE DATE OF INVESTMENT MADE . MERELY SHOWING STATISTICAL DATA AT THE YEAR END IS NOT SUFFICIENT AND SHE SHOULD HAVE PRO VED BEFORE THE AUTHORITIES BELOW THAT THE ASSESSEE HAS SURPLUS FUNDS WHICH HAVE BEEN INVESTED. FURTHER, ON PERUSAL OF THE FINANCIAL STATEMENTS, THERE WAS HARDLY INVESTMENT OF ONLY RS. 4,30,164/ - MADE DURING THE YEAR . IT CLEARLY SHOWS THAT THE ASSESSEE HAS INVESTED IN THE EARLIER YEARS. FURTHER, WE OBSERVE THAT THERE WAS INCREASE IN THE RESERVES AND SURPLUS DURING THE IMPUGNED AY IS RS. 95,71,47,370/ - . THE DETAILS OF INVESTMENTS ARE APPEARING IN NOTE NO. 8 WHERE THE INCREASE IN THE INVESTMENTS IN MUTUAL FU NDS ONLY BY RS. 4,30,1 6 4/ - . THE ASSESSEE ALSO TRIED TO EXPLAIN THAT INVESTMENTS WERE MADE ON 31 ST MARCH, 2007 IN MUTUAL FUNDS OF RS. 1,95,58,373/ - , WHICH HAS BEEN CARRIED FORWARD TILL THE IMPUGNED AY, BUT, IT IS NOT CLEAR THAT EXACT SCRIPS WERE IN EXISTENC E DURING THE IMPUGNED AY AND THE QUANTUM OF MUTUAL FUND INVESTMENTS HAS ALSO BEEN REDUCED FROM 2007 TO 2013M WHICH ONLY RS. 45,43,087/ - . THE TOTAL INVESTMENTS AT THE YEAR END AS PER SCHEDULE NO. 8 IS RS. I TA NO. 1 191 /HYD /201 8 BIOLOGICAL E LTD., HYD. : - 7 - : 2,75,95,387/ - , BUT, THE ASSESSEE HAS NOT EXPLAINED T HE REST OF THE AMOUNT OF INVESTMENT FROM WHERE IT HAS BEEN INVESTED EITHER FROM OWN FUNDS OR FROM INTEREST BEARING FUNDS. FURTHER, WE OBSERVE THAT DURING THE IMPUGNED AY, THE ASSESSEE HAS ALSO PAID INTEREST. WHILE PERUSING THE ORDER OF THE AO, WE NOTICE T HAT THE AO HAS WRONGLY TAKEN THE FIGURES OF INVESTMENTS WHILE DISALLOWING U/S 14A AS PER PARA 4 OF HIS ORDER, WHEREAS, THE ACTUAL INVESTMENTS ARE MUCH LOWER THAN QUOTED BY THE AO. THEREFORE, THE ISSUE IN DISPUTE IS RESTORED BACK TO THE FILE OF THE AO FOR RECALCULATION OF DISALLOWANCE MADE U/S 14A OF THE ACT. THE AR OF THE ASSESSEE DREW OUR ATTENTION TO THE DISALLOWANCE MADE UNDER ULE 8D(2)(III) AND SUBMITTED THAT THE AO HAS TAKEN WRONG FIGURES WHILE CALCULATING THE DISALLOWANCE UNDER THE SAID SECTION. THE REFORE, WE REMIT THIS ISSUE IS ALSO TO THE FILE OF THE AO WITH A DIRECTION RECOMPUTE THE DISALLOWANCE UNDER THE SAID SECTION WITH CORRECT FIGURES. ACCORDINGLY, GROUND NO. 2 & 4 RAISED ON THESE ISSUES IS ALLOWED FOR STATISTICAL PURPOSES. THE CASE LAW RELIE D UPON BY THE LD. AR OF THE ASSESSEE IN SUPPORT OF ASSESSEES CASE ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. 11. AS REGARDS GROUND NO. 3 REGARDING CHARGING OF INTEREST U/S 234A, CHARGING OF INTEREST UNDER THIS SECTION IS CONSEQUENTIAL IN NATURE, THE AO IS DIRECTED ACCORDINGLY. I TA NO. 1 191 /HYD /201 8 BIOLOGICAL E LTD., HYD. : - 8 - : 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES IN ABOVE TERMS. PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE , 2021 . SD/ - SD/ - ( S.S. GODARA ) (L . P . SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDE RABAD, DATED : 15 TH JUNE , 20 2 1 . K V C OPY TO : 1 BIOLOGICAL E LTD., 18/1 & 3, AZAMABAD, HYDERABAD 20 2 D C IT, CIRCLE 1 ( 2 ) , HYDERABAD. 3 C I T(A) 1 , HYDERABAD. 4 PR. CIT - 1 , HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.