Virchow Laboratories Limited, Hyderabad V. Deputy Commissioner of Income Tax, Circle-17(2), Hyderabad

ITA 1543/Hyd/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2887 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2013-2014
• Appeal Filed On: 04-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 143(1); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING ) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER ITA NO. 1543 /HYD/ 201 7 ASSESSMENT YEAR: 201 3 - 14 M/S VI RCHOW LAB ORATORIES LTD. PLOT N O.4, SV CO - OPERATIVE INDUSTRIAL ESTATE, IDA, JEEDIMETLA HYDERABAD 500 055 PAN: AA ACV7245F VS. DCIT, CIRCLE 17(2) HYDERABAD (APPELLANT) (RESPONDENT) A PPELLANT BY: SH. S. RAMA RAO, A DV. RESPONDENT BY : S H. SUNIL KUMAR PANDEY, DR DATE OF HEARING: 1 9 / 11 /2020 DATE OF PRONOUNCEMENT: 19 / 11 /2020 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y. 201 3 - 14 AGAINST THE ORDER OF CIT(A) - 5, HYDERABAD DATED 2 8.06.2017. THIS APPEAL WAS TAKEN UP FOR HEARING ON 1 9 .11.2020 THROUGH VIDEO CONFERENCING AND BOTH THE PARTIES WERE HEARD. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY , ENGAGED IN THE BUSINESS OF MANUFACTURING OF BULK DRUGS AND DIET SUGAR, FILED ITS RETURN OF INCOME ON 2 7.11.2013 FOR THE A.Y. 201 3 - 14 ADMITTING TOTAL ITA NO.1543/HYD/2017 AY 2013 - 14 M/S VIRCHOW LABORATORIES LTD. HYD. 2 INCOME OF RS. 42,43,85,260/ - . THE RETURN OF INCOME WAS INITIALLY PROCESSED U/S 143(1) OF THE I NCOME TAX ACT , 1961 (THE ACT) . S UBSEQUENTLY , ON SELECTION OF THE RETURN OF INCOME FOR SCRUTINY THROUGH CASS, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENTS, THE DIVIDEND INCOME FROM WHICH IS EXEMPT FROM TAX . H E THEREFORE MADE A DISALLOWANCE OF RS.14,43,820/ - U/S 14A R.W. RULE 8D OF THE ACT. 2.1 . THE AO ALSO OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 35(2AB) TO THE EXTENT OF RS. 1,59,10,522/ - WHICH IS 200% OF THE R&D EXPENDITURE. THE ASSESSEE WAS THEREFORE ASKED TO FURNISH FORM 3 CL AND FORM 3CM ISSUED BY THE DEPARTMENT OF SCIENCE AND INDUSTRIAL RESEARCH, GOVT. OF INDIA, NEW DELHI. HOWEVER, THE ASSESSEE DID NOT FURNISH THE SAID FORMS AND THE REFORE, THE AO HELD THAT 100% OF THE R&D EXPENDITURE ONLY IS ALLOWABLE AS A DEDUCTION. AO ACCORDINGLY ALLOWED RS,79,55,261/ - AND DISALLOWED THE BALANCE OF RS.7 9 ,55,261/ - AND BROUGHT IT TO TAX. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) W HO CONFIRMED THE ORDER OF THE AO. 2. 2 . ASSESSEE IS IN SECOND APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL. 1. THE ORDER OF LD.CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LD.CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.14,43,820/ - MADE BY THE AO U/S 14A OF THE I.T.ACT. 3. THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.79,55,261/ - REPRESENTING THE CLAIM FOR DEDUCTION U/S 35(2AB) OF THE I.T.ACT MADE BY THE A.O. 4. AN Y OTHER GROUND/GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. ITA NO.1543/HYD/2017 AY 2013 - 14 M/S VIRCHOW LABORATORIES LTD. HYD. 3 2. 3 . AS REGARDS GROUND NO.2, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE RELEVANT A.Y. AND THEREFORE NO DISALLOWANCE U/S 14A OF THE ACT WITH REGARD TO SAID INVESTMENTS IS CALLED FOR. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT O WN FUNDS TO MAKE INVESTMENTS IN ITS SUBSIDIARIES AND THEREFORE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TOWARDS INVESTMENTS. 2. 4 . LD.DR HOWEVER, SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 3. HAVING REGARD TO RIVAL CONTENTIONS AND MATERIAL PLACED ON RECORD, WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE RELEVANT A.Y. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. CHETTINAD LOGISTICS (P) LTD. IN SLP(CIVIL) NO. 15631 OF 2018 WHEREIN IT HAS BEEN HELD THAT IF NO EXEMP T INCOME IS EARNED DURING THE RELEVANT A.Y. NO DISALLOWANCE U/S 14A IS CALLED FOR, WE ALLOW GROUND NO.2. 4. AS REGARDS GROUND NO.3, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAS APPLIED FOR ISSU ANCE OF FORM 3 CM AND FORM 3 CL, BUT THE DEPA RTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH HAS ISSUED THE FORM 3 CM W.E.F. 01.04.2014 UPTO 31 ST MARCH, 2017 FOR THE PURPOSE OF SEC.35(2AB) . HE PRAYED THAT THE DEDUCTION SHOULD BE GIVEN FOR THE EARLIER PERIOD ALSO. IN SUPPORT OF HIS CONTENTIONS HE PLACED RELIANCE ON VARIOUS DECISIONS. 4.1. LD.DR HOWEVER, SUBMITTED THAT THE APPROVAL FROM THE DEPT. OF SCIENTIFIC AND INDUSTRIAL RESEARCH , MINISTRY OF SCIENCE AND TECHNOLOGY, ITA NO.1543/HYD/2017 AY 2013 - 14 M/S VIRCHOW LABORATORIES LTD. HYD. 4 NEW DELHI HAS BEEN GIVEN W.E.F. 01.04.2014 AND THEREFORE DEDUCTION FOR EARLIER PERIOD CANNOT BE GIVEN. 5. HAVING REGARD TO RIV AL CONTENTIONS AND MATERIAL PLACED ON RECORD AND VARIOUS CASE LAWS CITED, WE FIND THAT BOTH BEFORE THE AO AS WELL AS THE CIT(A), THE ASSESSEE HAS NOT FILED ANY DETAILS WITH REGARD TO FORM NO.3 CM & 3 CL AND ALSO AS REGARDS THE PERIOD FOR WHICH THE APPLICA TIONS HAVE BEEN MADE BY THE ASSESSEE. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE TO THE FILE OF AO FOR DE - NOVO CONSIDERATION IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION THAT ASSESSEE SHALL BE GIVEN A FAIR OPPORTUNITY OF HEARING. WE DIRECT THAT THE ASSESSEE ALSO SHALL COOPERATE WITH THE AO FOR EARLY COMPLETION OF THE ASSESSMENT. 5.1 . ACCORDINGLY, THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 19 TH NOVEMBER, 2020. SD/ - SD/ - ( D.S. SUNDER SINGH ) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 19 TH NOVEMBER, 2020. *GMV ITA NO.1543/HYD/2017 AY 2013 - 14 M/S VIRCHOW LABORATORIES LTD. HYD. 5 COPY TO: 1. M/S. VIRCHOW LABORATORIES LTD., PLOT NO.4, S.V.CO - OPERATIVE INDUSTRIAL ESTATE, IDA, JEEDIMETLA, HYDERABAD 500 055. 2. DCIT, CIRCLE 17(2), HYDERABAD . 3. ACIT, RANGE 17 , HYDERABAD CIT(A) - 5, HYD. 4. PR. CIT 5 , HYDERABAD 5. THE DR, ITAT HYDERABAD 6 GUARD FILE