DCIT, New Delhi V. M/s Dhanuka Laboratories Ltd., New Delhi

ITA 163/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3424 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 12-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: S S NAGAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.163/DEL/2016 ASSESSMENT YEAR : 2012-13 DCIT, CIRCLE- 7(2), NEW DELHI. VS. DHANUKA LABORATORIES LTD., 861-862, JOSHI ROAD, KAROL BAGH, NEW DELHI. PAN : AAACD2877R (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI S. R. SENAPATI, SR.DR ASSESSEE BY : SHRI S. S. NAGAR, CA DATE OF HEARING : 20-02-2018 DATE OF PRONOUNCEMENT : 23-02-2018 O R D E R PER R. K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 09.10.2015 OF THE CIT(A)- 3, DELHI RELATING TO ASSE SSMENT YEAR 2012-13. 2. THE REVENUE IN ITS ONLY EFFECTIVE GROUND OF APPE AL HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.46,37,354/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT, 1 961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED INTER-ALIA IN THE BUSINESS OF MANUFACTURING AND TRADING OF BU LK DRUGS AND DRUG FORMULATIONS. IT FILED ITS RETURN OF INCOME ON 29. 09.2012 DECLARING INCOME OF RS.1,61,69,533/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING 2 ITA NO.163/DEL/2016 OFFICER OBSERVED FROM THE BALANCE SHEET AS ON 31.03 .2012 THAT THE ASSESSEE COMPANY HAS INVESTED ITS FUNDS IN EQUITY SHARES, WH ICH STOOD AT RS.10,14,99,590/- AS AT THE BEGINNING OF THE YEAR A ND RS.10,14,99,590/- AS AT THE END OF THE YEAR. HOWEVER, THE ASSESSEE HAS NOT ATT RIBUTED ANY EXPENSES WHICH HAVE BEEN INCURRED TO CARRY OUT THE ACTIVITY OF INV ESTMENTS. ACCORDING TO THE ASSESSING OFFICER, IT IS AN ACCEPTED FACT THAT FOR CARRYING OUT ANY SUCH ACTIVITY, SOME KIND OF EXPENDITURE NECESSARY HAS TO BE INCURR ED. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE ADDITION U/S 14A SHOULD NOT BE MADE FOR DISALLOWANCE OF EXPENSES RELATABLE TO EXEMPT INCOME . THE ASSESSEE IN RESPONSE TO THE SAME SUBMITTED THAT THE COMPANY HAS NOT INCU RRED ANY EXPENDITURE IN RELATION TO EARNING EXEMPT INCOME OR FOR MAKING FRE SH INVESTMENT. IT WAS SUBMITTED THAT THE INVESTMENT HAS BEEN MADE IN OTSU KA CHEMICAL (INDIA) PVT. LTD. AS A PART OF STRATEGIC INVESTMENT AS THE MAIN RAW MATERIAL FOR MANUFACTURING BULK DRUGS BY THE ASSESSEE COMPANY IS PROCURED FROM THE AFORESAID COMPANY. IT WAS SUBMITTED THAT THE PRIMARY OBJECT OF THE INVEST MENT IS HOLDING CONTROLLING STAKE IN THE GROUP COMPANY AND NOT FOR EARNING ANY INCOME OUT OF INVESTMENT. THE ASSESSEE FURTHER SUBMITTED THAT NO EXEMPT INCOM E HAS BEEN EARNED BY THE ASSESSEE COMPANY FROM INVESTMENTS IN SHARES DURING ANY OF THE YEARS INCLUDING THE YEAR UNDER ASSESSMENT. VARIOUS DECISIONS WERE ALSO BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER. 4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM, MERELY BE CAUSE ASSESSEE HAS NOT 3 ITA NO.163/DEL/2016 EARNED ANY EXEMPT INCOME ON ITS INVESTMENTS CANNOT BE A GROUND FOR NOT MAKING ANY DISALLOWANCE U/S 14A OF THE I.T. ACT. A CCORDING TO HIM, THE INVESTMENTS MADE BEING A CONSCIOUS DECISION AND HAV ING DEPLOYMENT OF FUNDS CLEARLY BRINGS INTO PICTURE EXPENDITURE BY WAY OF C OST OF FUNDS INVESTED. INCIDENTAL EXPENDITURE, ACCORDING TO THE ASSESSING OFFICER, ARE BOUND TO BE INCURRED SUCH AS COLLECTION, TELEPHONE, FOLLOW-UP, EVEN DIRECTORS TIME AND ENERGY ETC. THEREFORE, THE CLAIM THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IS NOT ACCEPTABLE. ACCORDINGLY, THE AS SESSING OFFICER HELD THAT EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME A RE EMBEDDED IN INDIRECT EXPENDITURES. RELYING ON CIRCULAR NO.5/2014 ISSUED BY CBDT AND DISTINGUISHING THE VARIOUS OTHER DECISIONS CITED BE FORE HIM, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.46,37,354/- U/S 14A R.W. RULE 8D. 5. IN APPEAL, THE LD. CIT(A) RELYING ON THE DECISIO N OF THE HONBLE DELHI HIGH COURT IN THE CASE OF HOLCIM INDIA PVT. LTD. RE PORTED IN 273 CTR 283 AND IN THE CASE OF CHEMINVEST LTD. VS. ITO REPORTED IN 317 ITR 86 DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE G ROUND THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME WHICH FORM PART OF THE TOTAL INCOME DURING THE YEAR UNDER CONSIDERATION. 6. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH T HE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CON SIDERED THE VARIOUS DECISIONS 4 ITA NO.163/DEL/2016 CITED BEFORE US. IT IS AN ADMITTED FACT THAT THE A SSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME DURING THE YEAR, A FACT STATED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS AND NOT DISPUTED BY THE ASSE SSING OFFICER. THEREFORE, WHEN THE ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOM E, THE QUESTION OF DISALLOWANCE U/S 14A R.W. RULE 8D DOES NOT ARISE IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (SUPRA) AND HOLCIM INDIA PVT. LTD. (SUPRA). SINCE THE LD. CIT(A) HAS FOLLOWED THE DECISIONS OF THE JURISDICTIONAL HIGH COURT WHILE DELETING THE DISALL OWANCE MADE BY THE ASSESSING OFFICER, THEREFORE, IN ABSENCE OF ANY CON TRARY MATERIAL BROUGHT TO OUR NOTICE, WE FIND NO INFIRMITY IN THE SAME. ACCORDIN GLY, THE SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD FEBRUARY, 2018. SD/- SD/- (BEENA A. PILLAI) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23-02-2018. SUJEET COPY OF ORDER TO: - 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT 4) THE CIT(A) 5) THE DR, I.T.A.T., NEW DELHI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, NEW DELHI