Syngene International Ltd., Bengaluru V. Deputy Commissioner Of Income Tax Circle - 6(1)(2), Bengaluru

ITA 2068/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1404 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 20-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V VASUDEVAN, VICE PRESIDNET AND SHRI B.R BASKARAN, ACCOUNTANT MEMBER ITA NO.2068/BANG/2018 ASSESSMENT YEAR : 2012-13 SYNGENE INTERNATIONAL LTD., PLOT NO.2 & 3, BOMMASANDRA IV PHASE, JIGANI LINK ROAD, BANGALORE-560 099. PAN AABCS 9936M. VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, C.A RESPONDENT BY : DR. P.V PRADEEP KUMAR, ADDL. CIT DATE OF HEARING : 06.06.2019 DATE OF PRONOUNCEMENT : 12.06.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 14/3/2018 PASSED BY LD CIT(A)-6, BENGALURU AN D IT RELATES TO ASST. YEAR 2012-13. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT. ITA NO.2068/BANG/2018 PAGE 2 OF 6 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF ORGANIC COMPOUNDS AND IS ALSO UNDERTAKING RESEARCH AND DEVELOPMENT ACTIVITIES. DURING THE YEAR UNDER CONS IDERATION, THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.114.95 LAKH S AND CLAIMED THE SAME AS EXEMPT. THE AO NOTICED THAT THE ASSESS EE HAS NOT DISALLOWED ANY EXPENSE U/S 14A OF THE ACT. THE AO TOOK THE VIEW THAT THE PROVISIONS OF SEC. 14A OF THE ACT ARE ATTR ACTED AND ACCORDINGLY WORKED OUT DISALLOWANCE U/S 14A BY APP LYING PROVISIONS OF RULE 8D. THE AO DISALLOWED INTEREST EXPENSES UNDER RULE 8D(2)(II) OF THE RULES AT RS.2,42,930/- AND FU RTHER MADE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) AT RS.65,498/.- IN AGGREGATE THE AO DISALLOWED A SUM O F RS.3,08,428/- U/S 14A OF THE ACT. THE LD CIT(A) CO NFIRMED THE SAME AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. THE LD AR PLACED RELIANCE ON THE DECISION RENDER ED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE U TILITIES AND POWER LTD., 313 ITR 340 AND SUBMITTED THAT THE ASSE SSEE IS HAVING OWN FUNDS IN EXCESS OF THE VALUE OF INVESTMENTS AND HENCE NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CALLED FOR. 5. WE HAVE GONE THROUGH THE FINANCIAL STATEMENT FUR NISHED BY THE ASSESSEE AND NOTICED THAT THE ASSESSEE IS HAVIN G OWN FUNDS OF 224.50 CRORES AND 302.20 CRORES AS AT THE BEGINNING AND END OF THE YEAR RESPECTIVELY. THE VALUE OF INVESTMENTS HELD B Y THE ASSESSEE AS AT THE BEGINNING AND END OF THE YEAR WAS 2.60 CRORE S AND 10 LAKHS RESPECTIVELY. ADMITTEDLY THE OWN FUNDS AVAILABLE W ITH THE ASSESSEE IS MORE THAN VALUE OF INVESTMENTS AND HENCE AS PER THE DECISION ITA NO.2068/BANG/2018 PAGE 3 OF 6 RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE O F HDFC BANK LTD., 383 ITR 529 NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CALLED FOR. ACCORDINGLY WE SET ASIDE THE ORDER PAS SED BY THE LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE TH E DISALLOWANCE MADE IN RULE 8D(2)(II) OUT OF INTEREST EXPENDITURE. 6. WITH REGARD TO THE DISALLOWANCE MADE OUT OF ADMI NISTRATIVE EXPENSES, THE LD AR SUBMITTED THAT THE ASSESSEE HAS MADE A INVESTMENT ONLY IN UNITS OF MUTUAL FUND AND DIVIDEN D WAS EARNED FROM OUT OF MUTUAL FUNDS ONLY. THE LD AR FURTHER S UBMITTED THAT THE MUTUAL FUND HAS NOT CHARGED ANY AMOUNT TOWARDS EXPENSES UPON THE ASSESSEE AND FURTHER THE ASSESSEE HAS ALSO NOT INCURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME. T HE LD AR FURTHER SUBMITTED THAT THE AO HAS NOT RECORDED HIS DISSATIS FACTION OVER THE CLAIM OF THE ASSESSEE THAT IT DID NOT INCUR ANY EX PENDITURE FOR EARNING DIVIDEND INCOME. ACCORDINGLY, THE LD AR, B Y PLACING RELIANCE ON THE COORDINATE BENCH DECISION RENDERED IN THE CASE OF BIOCON RESEARCH LTD., VS. ADDL. CIT (ITA NOS.1229 A ND 1329/BANG/2016 DATED 18/2/2017), SUBMITTED THAT THE NO DISALLOWANCE U/S 14A IS CALLED FOR. 7. WE HAVE HEARD THE LD DR ON THIS ISSUE AND PERUSE D THE RECORD. FROM THE FINANCIAL STATEMENTS, WE NOTICE T HAT THE ASSESSEE HAS HELD UNITS IN ICICI PRUDENTIAL LIQUID FUND TO T HE TUNE OF 2.60 CRORES AS AT THE BEGINNING OF THE YEAR AND THE SAME HAS BEEN SOLD DURING THE YEAR UNDER CONSIDERATION. FURTHER, DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ALSO MADE FRE SH INVESTMENT OF 10 LAKHS IN ITS SUBSIDIARY NAMED M/S CLINIGENE I NTERNATIONAL ITA NO.2068/BANG/2018 PAGE 4 OF 6 LTD. THE ASSESSEE HAS ALSO RECEIVED DIVIDEND INCOM E OF 114.95 CRORES DURING THE YEAR UNDER CONSIDERATION. THUS, WE NOTICE THAT THERE HAS BEEN CERTAIN AMOUNT OF ACTIVITIES IN THE INVESTMENT PORTFOLIO OF THE ASSESSEE. THE ABOVE SAID ACTIVITI ES, IN OUR VIEW, COULD NOT HAVE BEEN UNDERTAKEN WITHOUT USING THE ES TABLISHMENT OF THE ASSESSEE. HOWEVER, IN THE FACTS AND CIRCUMSTAN CES OF THE CASE, WE ARE OF THE VIEW THAT IT MAY NOT BE PRACTICABLE T O APPLY PROVISION OF RULE 8D(2)(III) OF THE IT RULES BUT AT THE SAME TIME SOME DISALLOWANCE IS CALLED FOR OUT OF ADMINISTRATIVE EX PENSES FOR THE REASONS MENTIONED ABOVE. ACCORDINGLY, IN THE FACT S AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT A DISALLOWANCE OF RS.10,000/- OUT OF ADMINISTRATIVE EXPENSES MAY BE ESTIMATED TO TAKE CARE OF PROVISIONS OF RULE 14A OF THE ACT AND THE SAME WOULD PUT THIS ISSUE AT REST. ACCORDINGLY WE SET ASIDE T HE ORDER PASSED BY THE LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO MA KE DISALLOWANCE OF RS.10,000/- OUT OF ADMINISTRATIVE EXPENSES U/S 1 4A OF THE ACT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE, 2019. SD/ - (N.V VASUDEVAN) VICE PRESIDENT SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 12 TH JUNE, 2019. / VMS / ITA NO.2068/BANG/2018 PAGE 5 OF 6 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE.