The Asstt. Commissioner of Income Tax, Circle 2 (1)(1), Ahmedabad V. M/s. Intas Pharmaceuticals Ltd., Ahmedabad

ITA 2113/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9581 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 22-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: V R CHOKSHI
• Keywords: Earning of tax free income; Commercial expediency; Rule 8D; Capital Gains
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.2113/AHD/2017 ( / ASSESSMENT YEAR : 2009-10) THE ACIT CIRCLE-2(1)(1) AHMEDABAD / VS. M/S.INTAS PHARMACEUTICALS LTD. 203, CHINUBHAI CENTRE NEHRU BRIDGE CORNER ASHRAM ROAD AHMEDABAD ./ ./ PAN/GIR NO. : AAAC 15120 L ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S.K. DEV, SR.DR / RESPONDENT BY : SHRI V.R. CHOKSHI, AR / DATE OF HEARING 02/07/2019 !'# / DATE OF PRONOUNCEMENT 03/07/2019 / O R D E R PER SHRI RAJPAL YADAV, JUDICIAL MEMBER : THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAIN ST THE ORDER OF LD.COMMISSIONER OF INCOME TAX(APPEALS)-2, AHMEDABAD [CIT(A) IN SHORT] DATED 02/06/2017 PASSED FOR ASSESSMENT YEAR (AY) 2009-10. ITA NO.2113 /AH D/2017 ACIT VS. INTAS PHARMACEUTICALS LTD. ASST.YEAR 2009-10 - 2 - 2. THE REGISTRY HAS POINTED OUT THAT APPEAL FILE D BY THE REVENUE IS TIME BARRED BY 20 DAYS. IN ORDER TO EXPLAIN THE DELAY, THE REVENUE HAS FILED AN APPLICATION ON 22/09/2017 CONTENDING THEREIN THA T PR.CIT-2 HAD A CONCURRENT CHARGE OF OTHER REGIONS AND WAS OVER BUR DEN WITH VARIOUS ADMINISTRATIVE WORK. HENCE, ON ACCOUNT OF WORK-LOA D, THIS FILE MISSED FROM HIS ATTENTION FOR GRANTING APPROVAL FOR FILING THE APPEAL. 3. WITH THE ASSISTANCE OF LD.REPRESENTATIVES, WE HA VE GONE THROUGH THE RECORDS AND PERUSED THE APPLICATION FOR CONDONA TION OF DELAY. THE LD.COUNSEL FOR THE ASSESSEE HAS NOT SERIOUSLY OBJEC TED TO THE APPLICATION OF THE REVENUE. THEREFORE, CONSIDERING THE PLAUSIBLE EXPLANATION GIVEN BY THE REVENUE, WE CONDONE THE DELAY AND PROCEED TO DE CIDE THE APPEAL ON MERIT. 4. THE SOLITARY GRIEVANCE OF REVENUE IS THAT THE L D.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,79,03,547/- WH ICH WAS DISALLOWED BY THE ASSESSING OFFICER WITH THE AID OF SECTION 14 A READ WITH RULE 8D. 5. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA S FILED ITS RETURN OF INCOME ON 30/09/2009 DECLARING TOTAL INCOME OF RS.8 2,96,56,240/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND NOTICE ITA NO.2113 /AH D/2017 ACIT VS. INTAS PHARMACEUTICALS LTD. ASST.YEAR 2009-10 - 3 - U/S.143(2) OF THE ACT WAS ISSUED AND SERVED. THERE AFTER, THE ASSESSMENT WAS REOPENED AND NOTICE U/S.148 WAS ISSUED ON 22/03 /2016. THE ASSESSING OFFICER HAS OBSERVED THAT ASSESSEE HAS MA DE AN INVESTMENT OF RS.2,10,76,28,223/- IN THE PARTNERSHIP FIRM AND RE CEIVED SHARE OF PROFIT AT RS.76,77,95,809/- WHICH HAS BEEN CLAIMED EXEMPT U/S.10(2)A OF THE ACT. THE ASSESSEE HAS DISALLOWED EXPENDITURE OF R S.36,10,257/- U/S.14A OF THE ACT. THE LD.AO WAS NOT SATISFIED WITH THE AMOUNT DISALLOWED BY THE ASSESSEE SUO MOTO . THEREFORE, HE WORKED OUT THE DISALLOWANCE AS UNDER: THE ASSESSEE HAS DISALLOWED EXPENDITURE OF RS.36,1 0,257/- U/S.14A OF THE ACT. WHILE MAKING DISALLOWANCE, THE ASSESSEE HAS NOT CONSIDERED THE DISALLOWANCE U/S.14A ALONGWITH W ITH THE RULE 8D OF THE I T RULES. THEREFORE, BY APPLYING THE RU LE 8D, THE DISALLOWANCE U/S.14A WILL COMES TO RS.2,15,13,804/- AS PER THE WORKING GIVEN BELOW: I EXPENDITURE INCURRED AS CLAIMED BY ASSESSEE (A) AMOUNT OF EXPENDITURE BY WAY OF INTEREST DEBITED IN THE P&L A/C. 63673827 OPENING VALUE CLOSING VALUE (B) AVERAGE INVESTMENT ON WHICH TAX FREE INCOME IS RECEIVED OR 1099397085 2107628223 1603512654 ITA NO.2113 /AH D/2017 ACIT VS. INTAS PHARMACEUTICALS LTD. ASST.YEAR 2009-10 - 4 - RECEIVABLE (C) AVERAGE VALUE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET 6321815433 8808588397 7565201915 II (A) X (B) /(C) 13496241 III 0.5% OF THE AVERAGE VALUE OF INVESTMENT ON WHICH TAX FREE INCOME IS RECEIVED OR RECEIVABLE 8017563 TOTAL = I + II + III 21513804 THEREFORE, THE DIFFERENCE OF RS.1,79,03,547/- (I.E. 21513804 MINUS 3610257) ON ACCOUNT OF THE SHORT DISALLOWANCE U/S.1 4A IS DISALLOWED AND ADDED TO THE TOTAL INCOME. SINCE TH E ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME PENALTY PROCEEDINGS U/S.27191)(C) OF THE ACT INITIATED SEPARATELY. (DISALLOWANCE U/S.14A RS.1,79,03,547/-). 6. DISSATISFIED BY THE DISALLOWANCE, ASSESSEE CARRI ED THE MATTER BEFORE THE CIT(A). IT HAS FILED DETAILED WRITTEN SUBMISSI ON WHICH HAS BEEN REPRODUCED BY THE LD.FIRST APPELLATE AUTHORITY. TH E LD.CIT(A) THEREAFTER DELETED THE DISALLOWANCE BY RECORDING FO LLOWING FINDING: ITA NO.2113 /AH D/2017 ACIT VS. INTAS PHARMACEUTICALS LTD. ASST.YEAR 2009-10 - 5 - 2.5. ON GOING THROUGH THE DETAILS, IT HAS BEEN NO TICED THAT THE APPELLANT HAS MADE THE VARIOUS INVESTMENTS OF WHICH DETAILS ARE AS UND ER:- AMOUNT IN INR PARTICULARS AS ON 31/03/2009 AS ON 31/03/2008 (A) SRNO IN SUBSIDIARY COMPANIES - UNQUOTED, FULLY PAID-UP 1 ACCORD HEALTHCARE LIMITED 500,000 500,000 2 INTAS PHARMA LIMITED 147,500,000 500,000 3 ASTRON RESEARCH LIMITED 87,668,631 0 4 ANDHRE LABORATORIES LIMITED 543,68,000 54368000 5 ACCORD HEALTHCARE LIMITED, UK 1160822000 758985000 6 ACCORD HEALTHCARE INC., NJ, USA 2,283,078 2,283,078 7 ACCORD HEALTHCARE (PTY) LIMITED, SA 42782000 42782000 8 ACCORD HEALTHCARE NZ LIMITED, NZ 12,891,980 12,891,980 9 ACCORD HEALTHCARE INC., NIC, USA & ACCORD NJ 3231897 1698000 3,231,897 1698000 10 ACCORD HEALTHCARE INC., CANADA 18639000 18639000 11 ACCORD HEALTHCARE S.A.C., PERU 25853000 25853000 ITA NO.2113 /AH D/2017 ACIT VS. INTAS PHARMACEUTICALS LTD. ASST.YEAR 2009-10 - 6 - 12 ACCORD FARMA S.A. DE C.V., MEXICO 143833000 25108000 13 MISC OTHER :QUOTED: SHREE RAMA MULTITECH SHARES (12 00SH): 6,000 6,000 (B) IN PARTNERSHIP FIRM IN THE CAPITAL OF INTAS PHARMACEUTICALS 210126000 110126000 TOTAL 2107628223 1099397085 2.6. IT HAS BEEN NOTICED THAT ALL THESE SUBSIDIARY COMPANIES FROM SI. NO. 2, 3 & 5 TO 12 ARE FOR THE PURPOSE OF STRATEGIC INVESTMENT S AND ALSO THE COMPANIES LISTED AT SI. NO. 5 TO 12 ARE FOREIGN COMPANIES OF WHICH DIVIDEND INCOME IS NOT EXEMPT. THEREFORE, THE PROVISIONS OF SECTION 14A ON THESE COMPANIES ARE NOT APPLICABLE. FURTHER, THE APPELLANT HAS NOT RECEIVED ANY DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION AND THE INVESTM ENT BEING THE STRATEGIC INVESTMENT OUT OF COMMERCIAL EXPEDIENCY WITH NO INT ENTION TO EARN THE DIVIDEND INCOME OR CAPITAL GAINS. MOREOVER, THE APPELLANT HA D THE SHARE CAPITAL AND RESERVES AND SURPLUS AT RS.381.4 CRORES WHICH WAS M UCH MORE THAN THE AVERAGE INVESTMENT IN THE CAPITAL OF THE PARTNERSHI P FIRM NAMELY; M/S. INTAS PHARMACEUTICALS. 2.7. FURTHER WITH REGARD TO INVESTMENT IN SHARE OF ACCORD HEALTHCARE LIMITED, ANDHRE LABS LIMITED AND SHREE RAM MULTI TECH WHICH WAS STATED TO BE MADE OUT OF OWN FUNDS. SINCE, THE APPELLANT HAD THE HUGE FUNDS IN THE FORM OF RESERVES AND SURPLUS, THEREFORE SUCH AMOUNT OF INVE STMENT WOULD NOT ATTRACT ANY DISALLOWANCE OF INTEREST. ALTHOUGH THE DISALLOW ANCE UNDER RULE 8D(2)(III) @ 0.5% TOWARDS ADMINISTRATIVE AND OTHER EXPENSES WO ULD BE WORKED OUT AND THE DISALLOWANCE TO THAT EXTENT IS CONFIRMED AS DISCUSSED BELOW. 2.8. THEREFORE, FOLLOWING THE DECISION IN APPELLANT 'S OWN CASE IN A. Y. 2011-12, AFTER HAVING HELD THAT THE ACCOUNTS OF THE APPELLAN T IN RESPECT OF ADMINISTRATIVE EXPENDITURE INCURRED FOR EARNING THE INCOME WHICH D OES NOT FORM PART OF THE ITA NO.2113 /AH D/2017 ACIT VS. INTAS PHARMACEUTICALS LTD. ASST.YEAR 2009-10 - 7 - TOTAL INCOME ARE NOT CORRECT, THE ADMINISTRATIVE EX PENDITURE INCURRED WILL HAVE TO BE WORKED OUT BY APPLYING THE PROVISIONS OF RULE 8D. IT IS NOTED THAT THE AO HAS APPLIED RULE 8D FOR WORKING OUT THE DISALLOWANCE. ACCORDINGLY, THE APPLICATION OF RULE 8D(2)(III) BY THE AO FOR MAKING THE DISALLOWANCE UNDER SECTION 14 A OUT OF GENERAL EXPENSES IS UPHELD AND THE SAME IS WORKED OUT AS UNDER:- (I) AVERAGE BALANCE OF INVESTMENT IN SHARES RS.5,48,74,000/- OF ACCORD HEALTHCARE LIMITED, ANDHRE LABS LIMITED AND SHREE RAM MULTI TECH (RS.5,00,0007- + RS.5,43,68,000/- + RS.6,000/-) (II) AVERAGE BALANCE IN CAPITAL ACCOUNT RS. 16,01,26,000/- TOWARDS CAPITAL EMPLOYED TOTAL RS.21,50,00,000/- 0.5% OF AVERAGE INVESTMENT OF RS.21,50,00,0007- WOR KS OUT TO RS. 10,75,000/- 2.9. SINCE THE APPELLANT HIMSELF HAS MADE THE SUO M OTO DISALLOWANCE OF RS.36,10,257/- IN THE RETURN OF INCOME, THEREFORE, NO FURTHER DISALLOWANCE IS CALLED FOR. CONSEQUENTLY, THE DISALLOWANCE MADE BY THE AO OF RS.1,79,03,547/- IS DELETED. 7. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE H AVE GONE THROUGH THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT EXPENSES INCURRED FOR RECEIVING SHARE OF PROFIT FRO M THE PARTNERSHIP-FIRM WHICH IS EXEMPT FROM TAX REQUIRED TO BE DISALLOWED U/S.14A OF THE ACT. ITA NO.2113 /AH D/2017 ACIT VS. INTAS PHARMACEUTICALS LTD. ASST.YEAR 2009-10 - 8 - THE LD.COUNSEL FOR THE ASSESSEE WAS CONSCIOUS OF TH E FACT THAT SPECIAL BENCH OF ITAT AHMEDABAD IN THE CASE OF VISHNU ANANT MAHAJAN VS. ACIT 16 ITR (TRIB) 621, HAS SETTLED THIS CONTROVERS Y. THUS, THE DISPUTE REMAINS ABOUT QUANTIFICATION OF THE EXPENSES WHICH ARE REQUIRED TO BE DISALLOWED. IT HAS BEEN DEMONSTRATED BEFORE US THA T TOTAL INVESTMENT IN THE PARTNERSHIP-FIRM WAS OF RS.210.07 CRORES. IT H AS INTEREST-FREE FUNDS OF RS.381.4 CRORES IN THE SHAPE OF SHARE CAPITAL AND R ESERVES & SURPLUS. THUS, OUT OF INTEREST EXPENDITURE, NO DISALLOWANCE DESERVES TO BE MADE. AS FAR AS DISALLOWANCE REQUIRED UNDER SUB-CLAUSE(II I) OF RULE 8D(2) FOR TAKING CARE OF ADMINISTRATIVE EXPENSES IS CONCERNED THAT DISALLOWANCE HAS TO BE MADE AT 0.5% OF THE AVERAGE VALUE OF INVESTME NT WHICH HAS YIELD EXEMPT INCOME. THE LD.CIT(A) HAS WORKED OUT THIS D ISALLOWANCE AT RS.10,75,000/- WHICH IS FAR MORE THAN DISALLOWANCE WORKED OUT BY THE ASSESSEE SUO MOTO . IT IS PERTINENT TO OBSERVE THAT ASSESSING OFFICE R HAS WORKED OUT A SUM OF RS.80,17,563/- BEING 0.5% OF TH E AVERAGE VALUE OF INVESTMENT ON WHICH TAX-FREE INCOME IS RECEIVED OR RECEIVABLE. THIS FINDING OF THE ASSESSING OFFICER IS FACTUALLY INCOR RECT. HE APPEARS TO HAVE TAKEN INTO CONSIDERATION THE AMOUNT OF INVESTM ENT ON WHICH NO EXEMPT INCOME IS AVAILABLE. THE LD.FIRST APPELLAT E AUTHORITY HAS CONSIDERED THIS ASPECT WHILE WORKING OUT THE AVERAG E VALUE OF INVESTMENT FOR THE PURPOSE OF WORKING OUT THE DISALLOWANCE AT 0.5%. THUS, CONSIDERING THE ORDER OF THE CIT(A), WE DO NOT FIND ANY ERROR IN IT AND ACCORDINGLY APPEAL OF THE REVENUE IS DISMISSED. ITA NO.2113 /AH D/2017 ACIT VS. INTAS PHARMACEUTICALS LTD. ASST.YEAR 2009-10 - 9 - 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 3 RD JULY-2019 AT AHMEDABAD. SD/- S D/- ( PRADIP KUMAR KEDIA) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 03 / 07 /2019 &.., .(../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-2, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 2.7.19(DICTATION-PAD 13- PAG ES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..2.7.19 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.03/07/2019 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 03/07/2019 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER