M/s Vivimed Labs Limited, Hyderabad V. DCIT., Circle-3(3), Hyderabad, Hyderabad

ITA 1882/HYD/2014

• Counselvise Citation: 188222514 RSA 2014
• Duration Of Justice: 1 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Competent authority; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORESHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1882/HYD/2014 (ASSESSMENT YEAR 2009-10) M/S. VIVIMED LABS LIMITED, HYDERABAD. (PAN - AAACV 6060 A) V/S DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(3), HYDERABAD, HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.MURALI MOHAN RAO RESPONDENT BY : SHRI B.KURMI NAIDU DATE OF HEARING 26.11.2015 DATE OF PRONOUNCEMENT 23.12.2015 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 1.10.2014 OF LEARNED COMMISSIONER OF INCOME-TAX(APP EALS) II, HYDERABAD FOR THE ASSESSMENT YEAR 2009-10. 2. ASSESSEE HAS RAISED IN TOTAL 15 GROUNDS. GROUN D NO.1 AND 15 BEING GENERAL IN NATURE, REQUIRE NO SPECIFIC ADJUDI CATION. 3. IN GROUNDS NO.2 TO 5, ASSESSEE HAS CHALLENGED T HE DISALLOWANCE OF DEDUCTION CLAIMED UNDER S.35(2AB) O F THE ACT OF AN AMOUNT OF RS.1,77,03,533. 4. BRIEFLY FACTS ARE, THE ASSESSEE COMPANY IS EN GAGED IN THE BUSINESS OF RESEARCH AND DEVELOPMENT MANUFACTURE O F SPECIALISED CHEMICALS AND PHARMACEUTICALS. FOR THE ASSESSMENT Y EAR UNDER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME ON 26.9.2009 DECLARING TOTAL INCOME OF RS.2,36,81,080. DURING THE ASSESSM ENT PROCEEDINGS, ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 2 ASSESSING OFFICER ON VERIFICATION OF THE RETURN OF INCOME AND ACCOMPANYING STATEMENTS, FOUND THAT THE ASSESSEE HA S CLAIMED WEIGHTED DEDUCTION OF RS.1,77,03,533 UNDER S.35(2AB) OF THE ACT FOR EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH. THE ASSESSING OFFI CER NOTICING THE SAME, CALLED UPON THE ASSESSEES EXPLANATION JUSTIFYING I TS CLAIM OF DEDUCTION BY FURNISHING NECESSARY DETAILS SUCH AS APPROVAL OF CO MPETENT AUTHORITY, ETC. IN RESPONSE TO THE QUERY RAISED, THE ASSESSEE SUBMI TTED THAT IT WAS HAVING A IN-HOUSE R&D CENTRE WHICH IS RECOGNISED B Y DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH(DSIR). IN SUPPO RT OF SUCH CLAIM, ASSESSEE FILED LETTER NO.TU/IV-RD/2509/2011 DATED 2 9.4.2011, WHEREIN THE RECOGNITION OF IN-HOUSE R&D UNIT OF THE ASSESSE E WAS RENEWED UPTO 31.3.2015. THE ASSESSING OFFICER REFERRING TO S.35( 2AB) AND RULE 6 OBSERVED THAT FOR WEIGHTED DEDUCTION UNDER THE SA ID PROVISION, THE ASSESSEE IS REQUIRED TO MAKE APPLICATION IN FORM NO .3CK TO THE PRESCRIBED AUTHORITY, I.E. DSIR AND THE PRESCRIBED AUTHORITY HAS TO GRANT APPROVAL IN FORM NO.3CM AND ALSO SUBMIT A REPORT I N RESPECT OF APPROVAL GRANTED FOR IN-HOUSE RESEARCH AND DEVELOPMENT FACIL ITY IN FORM NO.3CL TO THE DIRECTOR GENERAL (INCOME-TAX EXEMPTIONS). THE ASSESSING OFFICER OPINED THAT AS THE ASSESSEE COULD NOT FURNISH THE A PPROVAL OF THE PRESCRIBED AUTHORITY IN FORM NO.3CM, IT IS NOT ENTI TLED TO CLAIM DEDUCTION UNDER S.35(2AB). ACCORDINGLY, HE ADDED BACK THE DED UCTION CLAIMED AMOUNTING TO RS.1,77,03,533. 5. BEING AGGRIEVED BY SUCH DISALLOWANCE, ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED CIT(A) THE LEARNED CIT(A ) ALSO CONFIRMED THE DISALLOWANCE BY OBSERVING THAT AS ASSESSEE HAS FAIL ED TO FURNISH THE APPROVAL OF THE COMPETENT AUTHORITY IN FORM 3CM, IT IS NOT ENTITLED FOR DEDUCTION. HOWEVER, CONSIDERING THE ALTERNATIVE PLE A OF THE ASSESSEE, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY WHE THER THE EXPENDITURE COULD BE ALLOWED UNDER S.35(1)(I) OR S.35(1)(IV) OF THE ACT. ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 3 6. THE LEARNED COUNSEL SUBMITTED BEFORE US THAT T HE ONLY REASON THE DEPARTMENTAL AUTHORITIES DISALLOWED ASSESSEES CLAIM FOR WEIGHTED DEDUCTION UNDER S.35(2AB) IS BECAUSE APPROVAL GRAN TED IS BY A SCIENTIST OF DSIR AND NOT THE SECRETARY. HE SUBMITTED THAT T HE RECOGNITION OF ASSESSEES IN-HOUSE R&D UNIT HAS BEEN RENEWED BY TH E DSIR TILL 31.3.2015. IN THIS CONTEXT, HE REFERRED TO TWO LET TERS ISSUED BY SCIENTIST- G OF DSIR VIDE LETTER NO.TU/IV-RD/2509/2011 DATED 2 9 TH APRIL, 2011, AS SUBMITTED IN THE PAPER-BOOK. THUS, IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT SINCE IN-HOUSE RESEA RCH AND DEVELOPMENT FACILITY OF THE ASSESSEE IS APPROVED BY THE COMPETENT AUTHORITY, ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION UNDER S.35(2AB) FOR THE EXPENDITURE INCURRED TOWARDS RESEARCH AND DEVELOPME NT. HE SUBMITTED THAT EVEN IF THE APPROVAL IS GIVEN BY THE SCIENTIST -G, THE SAME WILL ALSO ENTITLE THE ASSESSEE TO CLAIM DEDUCTION. IN THIS C ONTEXT, HE RELIED UPON THE FOLLOWING TWO DECISIONS- (A) ACIT V/S. FERMENT BIOTECH LTD. (2014)45 TAXMANN 32 9 (TRIB-MUM) (B) TEJA NETWORKS LIMITED (60 TAXMANN.COM.309) (KAR. H C) 7. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OT HER HAND, RELYING UPON THE OBSERVATIONS OF THE DEPARTMENTAL A UTHORITIES SUBMITTED THAT SINCE THE ASSESSEE HAS FAILED TO OBTAIN THE AP PROVAL IN THE PRESCRIBED MANNER FORM THE COMPETENT AUTHORITY, IT IS NOT ELI GIBLE TO CALIM DEDUCTION UNDER S.35(2AB). 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES, PERUSED THE MATERIAL ON RECORD AS WELL AS THE DECISIONS CIT ED BEFORE US. ON A CAREFUL EXAMINATION OF THE RELEVANT STATUTORY PROVI SIONS IT IS VERY MUCH ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 4 CLEAR THAT ASSESSEE WOULD BE ENTITLED TO CLAIM DEDU CTION UNDER SECTION 35(2AB) FOR THE EXPENDITURE INCURRED TOWARDS RESEAR CH AND DEVELOPMENT, IF THE RESEARCH AND DEVELOPMENT FACILITY IS RECOGNI SED BY THE COMPETENT AUTHORITY, WHICH IS DSIR IN THE MINISTRY OF SCIENCE AND TECHNOLOGY AND APPROVAL IN THE PRESCRIBED MANNER, I.E. FORM NO.3CM IS OBTAINED FROM THE COMPETENT AUTHORITY. THEREFORE, THE APPROVAL IN FORM 3CM, EVEN IF IT IS ISSUED BY ANY SCIENTIST OF DSIR WOULD, IN OUR VI EW, ENTITLE THE ASSESSEE TO CLAIM DEDUCTION UNDER S.35S(2AB). 9. KEEPING IN VIEW THE AFORESAID STATUTORY PROVI SION, WE HAVE TO EXAMINE THE FACTS OF THE PRESENT CASE. IT IS OBSER VED THAT FOR CLAIMING DEDUCTION UNDER S.35(2AB), ASSESSEE HAS RELIED ON T WO LETTERS ISSUED BY SCIENTIST G, REFERRED TO HEREINABOVE. IT IS SEEN T HAT ONE LETTER, AS PLACED AT PAGE 13 OF THE PAPER-BOOK, RELATES TO CERTIFICAT E OF REGISTRATION FOR AVAILING CUSTOMS DUTY EXEMPTION. SECOND LETTER, PLA CED AT PAGE 14 OF THE PAPER-BOOK, IS IN RESPECT OF RENEWAL OF RECOGNITIO N GRANTED TO THE IN- HOUSE R & D FACILITY TILL 31.3.2015. THE ASSESSEE NEITHER BEFORE THE DEPARTMENTAL AUTHORITIES NOR BEFORE US HAS PRODUCED ANY APPROVAL IN FORM 3CM, EVEN FROM A SCIENTIST OF DSIR. THEREFORE, IN OUR VIEW, ONLY ON THE BASIS OF EITHER THE LETTER ISSUED FOR RENEWAL O F RECOGNITION OF IN-HOUSE R&D UNIT OR CERTIFICATE GRANTED FOR CUSTOMS DUTY EX EMPTION, ASSESSEE WOULD NOT BE ENTITLED TO CLAIM DEDUCTION UNDER S.35 (2AB). 10. AS FOR THE DECISIONS RELIED UPON BY THE LEAR NED COUNSEL FOR THE ASSESSEE, ON A CAREFUL ANALYSIS OF THE SAME, IT IS SEEN THAT IN THE CASE OF ACIT V/S. FERMENT BIO-TECH LTD. (SUPRA), THE ITAT M UMBAI BENCH TAKING INTO CONSIDERATION THE FACT THAT THE ASSESSEE HAD O NLY FURNISHED A LETTER ISSUED BY SCIENTIST-G TOWARDS RENEWAL OF RECOGNITIO N OF IN-HOUSE R&D UNIT, HAS OBSERVED THAT FORMAL APPROVAL FOR THE IN- HOUSE R&D FACILITY IN PRESCRIBED FORM UNDER S.35(2AB) IS REQUIRED FOR ALL OWING DEDUCTION UNDER ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 5 S.35(2AB). ON CAREFULLY GOING THROUGH THE FINDING OF THE COORDINATE BENCH IN PARAGRAPHS 10 TO 13 OF THE ORDER, IT IS OB SERVED THAT IN SPITE OF THE FACT THAT THE ASSESSEE IN THAT CASE OBTAINED AP PROVAL FROM THE PRESCRIBED AUTHORITY IN FORM 3CM FOR SUBSEQUENT ASS ESSMENT YEARS STILL, THE BENCH DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER THE APPROVAL IN THE PRESCRIBED FORM HAS BEEN OBTAINED FROM DSIR, EV EN IF IT IS SIGNED FOR SUCH AUTHORITY BY ANY OTHER OFFICER, LIKE SCIENTIST -G FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. EVEN APPLYING THE AFORESA ID DECISION OF THE TRIBUNAL, TO THE FACTS OF THE PRESENT CASE, THE ASS ESSEE MUST OBTAIN APPROVAL FROM THE DSIR IN THE PRESCRIBED FORM. IN THE PRESENT CASE, ADMITTEDLY, ASSESSEE HAS NOT FURNISHED APPROVAL OF THE PRESCRIBED AUTHORITY IN FORM 3CM. 11. IN THE CASE OF TEJA NETWORKS LTD. V/S. DCIT(SU PRA), FROM A PERUSAL OF FACTS DISCUSSED THEREIN, IT IS CLEAR THA T THE ASSESSEE HAD OBTAINED REPORT FROM THE PRESCRIBED AUTHORITY IN FO RM 3CL AS REQUIRED IN S.35(2AB). THEREFORE, THE HON'BLE HIGH COURT, TAKIN G THAT FACT INTO CONSIDERATION, HELD THAT ONCE THE COMPETENT AUTHORI TY SUBMITS HIS REPORT IN THE PRESCRIBED MANNER IN TERMS OF S.35(2AB), THE ASSESSING OFFICER CANNOT SIT IN JUDGMENT OVER THE SAME. IN THE PRESE NT CASE, NEITHER BEFORE THE DEPARTMENTAL AUTHORITIES, NOR BEFORE US, THE ASSESSEE HAS SUBMITTED THE REPORT EITHER IN FORM 3CM OR IN FORM 3CL. 12. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THEREFORE, WE ARE INCLINED TO REMIT THE MATTER BACK TO THE ASSESSING OFFICER FOR GIVING AN OPPORTUNITY TO THE ASSESSEE TO FURNISH THE REPORT I N PRESCRIBED FORM, OF THE PRESCRIBED AUTHORITY, I.E. EITHER SCIENTIST G O F DSIR OR ANY OTHER AUTHORITY FROM DSIR, AS REQUIRED IN S.35(2AB) OF TH E ACT, AND REDECIDE THE MATTER IN ACCORDANCE WITH LAW, AND AFTER GIVING REASONABLE ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 6 OPPORTUNITY OF HEARING TO THE ASSESSEE. ACCORDINGLY , GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE ALLOWED FOR STATISTI CAL PURPOSES. 13. IN GROUNDS NO.6 TO 11, THE ASSESSEE HAS CHALLE NGED THE DISALLOWANCE MADE UNDER S.36(1)(III) OF THE ACT OUT OF BANK INTEREST AND FINANCIAL CHARGES. 14. BRIEFLY, FACTS ARE, DURING THE ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE MADE IN VESTMENT OF RS.2,50,93,178 IN EQUITY SHARE CAPITAL OF TWO COMPA NIES, NAMELY, M/S. CREATIVE HEALTHCARE PVT. LTD. AND M/S. VIVIMED HOLD INGS LTD., DIVIDEND INCOME FROM WHICH IS EXEMPT FROM TAX. ASSESSEE DURI NG THE RELEVANT PREVIOUS YEAR HAS CLAIMED DEDUCTION TOWARDS BANK IN TEREST AND FINANCIAL CHARGES FOR AN AMOUNT OF RS.9,57,01,000. THE ASSESS ING OFFICER FURTHER NOTICED THAT SECURED AND UNSECURED LOANS SHOWN BY T HE ASSESSEE ARE RS.96,14,40,000 AND RS.76,70,15,000 RESPECTIVELY. A FTER EXAMINING THE DETAILS IN RESPECT OF INVESTMENT IN EQUITY SHARES O F THE TWO COMPANIES, THE ASSESSING OFFICER FOUND THAT THE SOURCE OF INVE STMENT IS FROM THE BANK ACCOUNT HELD WITH CITI BANK, SECUNDERABAD, STA TE BANK OF HYDERABAD, OVERSEAS BRANCH, SOMAJIGUDA, HDFC BANK, NACHARAM, HYDERABAD, AXIS BANK, TARNAKA BRANCH, HYDERABAD. I T WAS EXPLAINED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS THAT THE INVESTMENT MADE IN EQUITY SHARES WAS OUT OF INTERNAL ACCRUALS AND NOT FROM BORROWED FUNDS. HOWEVER, THE ASSESSING OFFICER OBS ERVED THAT THE ASSESSEE COULD NOT SUBSTANTIATE THAT THE INVESTMENT S MADE IN EQUITY SHARES WAS OUT OF COMMERCIAL EXPEDIENCY. RELYING UP ON CERTAIN JUDICIAL PRECEDENTS, HE WORKED OUT THE PROPORTIONATE DISALLO WANCE FROM BANK INTEREST AND FINANCIAL CHARGES, AND MADE A DISALLOW ANCE OF RS.17,85,000. 15. BEING AGGRIEVED OF SUCH DISALLOWANCE, ASSESSEE CHALLENGED THE SAME BEFORE THE CIT(A). THE CIT(A), UPON CONSID ERING THE SUBMISSION ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 7 OF THE ASSESSEE THAT INVESTMENT IN EQUITY SHARES WA S FROM OUT OF INTERNAL ACCRUALS AND NOT FROM BORROWED FUNDS, DID NOT FIND MERIT IN THE SAME, AND SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER. 16. LEARNED COUNSEL FOR THE ASSESSEE, REITERATING THE STAND TAKEN BEFORE THE DEPARTMENTAL AUTHORITIES, SUBMITTED THAT ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH HIM T O MAKE THE INVESTMENT IN EQUITY SHARES OF THE TWO COMPANIES. HE FURTHER SUB MITTED THAT INVESTMENTS WERE MADE IN THE YEARS 2005 TO 2007 AND NOT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, WHE N DISALLOWANCE OF EXPENDITURE WAS NOT MADE IN THE ASSESSMENT YEAR IN WHICH INVESTMENTS WERE ACTUALLY MADE, NO DISALLOWANCE OUT OF INTEREST EXPENDITURE COULD BE MADE IN THE YEAR UNDER APPEAL. IN SUPPORT OF HIS C ONTENTIONS, HE RELIED UPON THE FOLLOWING DECISIONS- (A) AMBIENCE PROPERTIES LTD. HYDERABAD V/S. DY. CIT(2014-TIOL-ITAT-HYD) (B) CIT V/S. BHARTI TELEVENTURE LTD. (2011-TIOL-51-HC- DEL-IT) (C) S.A. BUILDERS LTD. V/S. CIT(2007)158 TAXMAN 74(SC) 17. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, RELIED UPON THE FINDING AND ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). 18. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL ON RECORD. IT IS RELEVANT TO NOTE THAT RIGHT FROM THE ASSESSMENT STAGE, IT IS THE PLEA OF THE ASSESSEE TH AT INVESTMENT IN EQUITY SHARES OF THE TWO COMPANIES WAS MADE FROM OUT OF IN TERNAL ACCRUALS AND NO INTEREST BEARING FUND WAS UTILISED. IN FACT, DU RING THE APPELLATE PROCEEDINGS BEFORE THE CIT(A), A REMAND REPORT WAS CALLED FROM THE ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 8 ASSESSING OFFICER, WHEREIN THE ASSESSING OFFICER AC CEPTED THE PAYMENTS MADE THROUGH AXIS BANK AS FROM INTERNAL ACCRUALS OF THE COMPANY. FURTHER, THE FINANCIAL STATEMENT SUBMITTED BY THE A SSESSEE ALSO DEMONSTRATES THAT SUFFICIENT INTEREST FREE FUND WAS AVAILABLE WITH THE ASSESSEE TO MAKE THE INVESTMENT IN EQUITY SHARES OF THE TWO COMPANIES. HON'BLE BOMBAY HIGH COURT IN THE CASE OF C.I.T. VS. RELIANCE UTILITIES & POWER LTD., (2009) 313 ITR 340 (BOM.) HAS HELD THAT WHEN THE ASSESSEE HAS MIXED FUNDS, I.E. BOTH INTEREST FREE AND INTER EST BEARING FUNDS, PRESUMPTION WOULD BE INTEREST FREE ADVANCES ARE FRO M INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. APPLYING THE SAME PRI NCIPLE, IT HAS TO BE HELD THAT THE INVESTMENT IN EQUITY SHARES WERE MADE FROM OUT OF SURPLUS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. FU RTHER, IT IS A FACT ON RECORD THAT INVESTMENTS IN EQUITY SHARES HAVE BEEN MADE DURING THE PERIOD FROM 8.10.2005 TO 21.1.2007 AND NOT IN THE P REVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE. THE DEPARTMENT ALSO HAS NOT CONTROVERTED THE CONTENTION OF THE ASSESSEE THA T NO DISALLOWANCE OUT OF INTEREST EXPENDITURE WAS MADE DURING THE ASSESS MENT YEAR IN WHICH THE INVESTMENT WAS ACTUALLY MADE. IN VIEW OF THE A FORESAID FACTUAL POSITION, WE HOLD THAT THE DISALLOWANCE OF INTEREST EXPENDITURE AMOUNTING TO RS.17,85,00 IS NOT SUSTAINABLE. ACCORDINGLY, WE DELETE THE SAME, ALLOWING THE GROUNDS OF THE ASSESSEE ON THIS ISSUE. 19. IN GROUND NO.12, ASSESSEE HAS CHALLENGED THE DIRECTION OF THE CIT(A) WITH REGARD TO DEDUCTION CLAIMED UNDER S.80G . 20. BRIEFLY THE FACTS ARE, THE ASSESSING OFFI CER AT THE TIME OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE H AS CLAIMED DEDUCTION UNDER S.80G ON ACCOUNT OF DONATION MADE O F RS.1 LAKH TO TTD. OBSERVING THAT THE ASSESSEE COULD NOT ESTABLISH THA T THE TRUST/INSTITUTION IS EXEMPT UNDER S.80G OF THE ACT, HE DISALLOWED THE DEDUCTION CLAIMED. ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 9 21 IN APPELLATE PROCEEDINGS, THE FIRST APPELLATE AUTHORITY, CONSIDERING THE FACT THAT THE ASSESSEE HAD NEITHER FURNISHED THE DETAILS OF PAYMENT, NOR COULD PRODUCE THE RECEIPT OF DONATION ISSUED BY THE TTD DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEDUCTI ON, IF THE ASSESSEE IS ABLE TO PRODUCE THE EXEMPTION CERTIFICATE. 22. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIAL ON RECORD, WE DO NOT FIND ANY INFIRMIT Y IN THE DIRECTIONS OF THE CIT(A). SINCE THE ASSESSEE HAS NOT FURNISHED THE NECESSARY PROOF WITH REGARD TO THE CLAIM OF DEDUCTION, THE LEARNED CIT(A), IN OUR VIEW, IS JUSTIFIED IN ISSUING DIRECTIONS TO ASSESSING OFFICE R TO ALLOW THE DEDUCTION CLAIMED, IN CASE THE ASSESSEE PRODUCES EXEMPTION CE RTIFICATE. THIS GROUND IS ACCORDINGLY DISMISSED. 23. IN GROUND NO.13, ASSESSEE HAS CHALLENGED THE D ISALLOWANCE OF INTEREST ON FOREIGN CURRENCY CONVERTIBLE BONDS(FCCB ). 24. BRIEFLY, THE FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED DEDUCTION TOWARDS BANK INTEREST AND FINANCE CHARGES, WHICH IN CLUDED INTEREST ON FOREIGN CURRENCY CONVERTIBLE BONDS, AMOUNTING TO RS .86,88,000. NOTICING THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THE INTEREST PAID ON FCCBS IN TERMS OF S.195 OF THE ACT, THE ASS ESSING OFFICER DISALLOWED THE AMOUNT OF RS.86,88,000, INVOKING PRO VISIONS OF S.40(A)(IA). 25. BEING AGGRIEVED , THE ASSESSEE CHALLENGED TH E DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY, WHO HAS SUSTA INED THE DISALLOWANCE MADE, BY UPHOLDING THE VIEW OF THE ASSESSING OFFICE R. ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 10 26. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ENTIRE FCCBS WERE RAISED ABROAD AND THE PA YMENTS WERE ALSO MADE THROUGH ASSESSEES BANK ACCOUNT ABROAD. HE SU BMITTED THAT AS THE SOURCE FROM WHICH THE BONDS WERE RAISED WERE OUTSID E INDIA AND THE PAYMENT OF INTEREST IS ALSO OUTSIDE INDIA, THE PR OVISIONS OF S.195 WOULD NOT APPLY, SINCE THE PAYMENTS WERE MADE TO NON-RESI DENTS OUTSIDE INDIA. IN THIS CONTEXT, HE RELIED UPON THE FOLLOWING DECIS IONS- (A) ASSTT. DIRECTOR OF INCOME-TAX(INTERNATIONAL TAXATIO N), AHMEDABAD V/S. ADANI ENTERPRISES (2015 ) 63 TAXMANN.COM.11 (AHMEDAD-TRIB) (B) MAHINDRA & MAHINDRA LTD. V/S. DY. COMMISSIONER OF I NCOME- TAX (2012) 24 TAXMANN.COM.267 (MUMBAI) 27. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON T HE OTHER HAND, RELIED UPON THE FINDINGS OF THE DEPARTMENTAL AUTHORITIES. 28. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PAR TIES AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN, T HE ASSESSEE HAS RAISED LONG TERM BONDS FROM THE INTERNATIONAL MARKE T BY ISSUING FCCBS OF US $ 50 MILLION, WITH OPTION TO CONVERT INTO EQUITY SHARES OR CLAIM REPAYMENT AFTER FIVE YEARS. THE BONDS WERE RAISED IN THE FINANCIAL YEAR 2007-08 WITH INTEREST RATE OF 1% PER ANNUM. IT IS THE CLAIM OF THE ASSESSEE THAT NOT ONLY THE BONDS WERE RAISED FROM I NTERNATIONAL MARKET, BUT THE PAYMENTS WERE ALSO SOURCED FROM ASSESSEES BANK ACCOUNT ABROAD. THEREFORE, THE PROVISIONS OF S.195 COULD N OT BE APPLIED. ON A PERUSAL OF THE ASSESSMENT ORDER AND THE ORDER OF TH E FIRST APPELLATE AUTHORITY, IT IS SEEN THAT THE ONLY REASON ON WHICH THE DEPARTMENTAL AUTHORITIES DISALLOWED THE EXPENDITURE IS, ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE IN TERMS OF S.195 OF THE ACT. HOWEVER, I T IS WELL SETTLED PRINCIPLE OF LAW THAT IF THE PAYMENTS ON WHICH TAX IS SOUGHT TO BE ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 11 DEDUCTED IS NOT CHARGEABLE TO TAX IN INDIA, PROVISI ONS OF S.195 WOULD NOT APPLY. IN THE PRESENT CASE, IT IS NOT CONTROVERTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE WITH COGENT EVIDENCE TH AT NOT ONLY THE BONDS WERE RAISED OUTSIDE INDIA, BUT THE INTEREST P AYMENTS WERE ALSO MADE TO NON-RESIDENT INDIANS OUTSIDE INDIA FROM A B ANK ACCOUNT HELD BY THE ASSESSEE OUTSIDE INDIA. THEREFORE, SINCE NO PAR T OF THE TRANSACTION RELATING TO PAYMENT OF INTEREST HAS TAKEN PLACE IN INDIA, IT CANNOT BE SAID THAT INTEREST PAYMENT MADE TO NON-RESIDENTS HAS ACC RUED OR ARISEN IN INDIA IN TERMS OF S.9 OF THE ACT. IN OUR VIEW, TH EREFORE, THE PROVISIONS OF S.195 WOULD NOT APPLY TO SUCH PAYMENTS, THEREBY REQ UIRING THE ASSESSEE TO DEDUCT TAX AT SOURCE. WE ARE SUPPORTED IN OUR V IEW BY THE DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE. AC CORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE I N THIS BEHALF, AND ALLOW THIS GROUND OF THE ASSESSEE. 29. IN GROUND NO.14, ASSESSEE HAS CHALLENGED THE L EVY OF INTEREST UNDER S.234B AND S.234C OF THE ACT, ON THE GROUND T HAT THE ASSESSEE HAS PAID TAX UNDER S.115JB. 30. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTI ES, WE ARE UNABLE TO ACCEPT THE PLEA RAISED BY THE ASSESSEE. ON A PERUSAL OF THE MATERIAL AVAILABLE ON RECORD, IT IS SEEN THAT IN TH E COMPUTATION OF INCOME FILED ALONGWITH THE RETURN OF INCOME, ASSESSEE ITSE LF HAS CALCULATED INTEREST UNDER S.234B AND S.234C, WHICH IS MORE TH AN THE INTEREST COMPUTED BY THE ASSESSING OFFICER. IN VIEW OF THE D ECISION OF HONBLE SUPREME COURT RELIED UPON BY LD. CIT(A) ASSESSEES CLAIM CANNOT BE ALLOWED. THAT BEING THE CASE, WE DECLINE TO INTERFE RE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE. ITA NO.1882/HYD/2014 M/S. VIVIMEND LABS LIMITED, HYDERABAD 12 31. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALL OWED. PRONOUNCED IN THE COURT ON 23 RD DECEMBER, 2015 SD/- SD/- (B.RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER. JUDICIAL MEMBER DT/- 23 RD DECEMBER, 2015 COPY FORWARDED TO: 1. M/S.VIVIMED LABS LIMITED, C/O. M/S.P.MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1ST FLOOR, SOMAJIGUDA, HY DERABAD-82 2. DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(3), H YDERABAD 3. 4. COMMISSIONER OF INCOME-TAX(APPEALS) II, HYDERABAD COMMISSIONER OF INCOME - TAX - III , HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S.