DCIT, CHENNAI V. M/s. Allianz Biosciences Pvt. Ltd., CHENNAI

ITA 2226/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4639 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 12-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 25-07-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: T BANUSEKAR
• Keywords: Business expenditure; Earning of tax free income; Wholly owned subsidiary; Speculation loss
• Section: 143(3); 14A; 80IB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NOS.2225 & 2226/MDS/2016 ( / ASSESSMENT YEARS: 2009-10 & 2010-11) & C.O. NOS. 130 & 131/MDS/2016 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1), CHENNAI -34. VS M/S. ALLIANZ BIOSCIENCES PVT. LTD., 1A, OWNERS COURT, 22 MONTIETH LANE, EGMORE, CHENNAI 600 008 PAN: AABCH2431G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT /RESPONDENT BY : SHRI T. BANUSEKAR, CA /DATE OF HEARING : 12.04.2017 ! /DATE OF PRONOUNCEMENT : 09.05.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS BY THE REVENUE AND CROSS OBJECTIONS B Y THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI, U/ S.250(6) R.W.S. 143(3) OF THE ACT DATED 29.04.2016 IN NEW IT A NO.140/CIT(A)-1/2011-12 FOR THE ASSESSMENT YEAR 200 9-10, & NEW ITA NO.203/CIT(A)-1/2013-14 FOR THE ASSESSMENT YEAR 2010-11. 2 ITA NOS.2225& 2226/M DS/2016 CO NOS.130 & 131/MDS/2016 2.1 THE CRUX OF THE IDENTICAL GROUNDS RAISED BY THE REVENUE IN BOTH THE APPEALS IS THAT:- I. THE LD.CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF DEDUCTION U/S.80IB OF THE ACT WHICH WAS DISALLOWED BY THE LD. AO. II. THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITIO N MADE BY THE LD.AO INVOKING SECTION 14A READ WITH RULE 8D OF THE ACT. 2.2 FOR THE ASSESSMENT YEAR 2009-10, THE REVENUE HA S RAISED ONE MORE GROUND I.E., THE LD. CIT(A) HAS ERRED IN H OLDING THAT THE LOSS INCURRED ON SALE OF SHARES IS BUSINESS LOSS AS AGAINST SPECULATIVE LOSS U/S. SECTION 73 OF THE ACT HELD BY THE LD.A.O. 3. THE ASSESSEE HAS RAISED IDENTICAL GROUNDS IN BOT H THE CROSS OBJECTIONS FOR THE RELEVANT ASSESSMENT YEARS 2009-10 & 2010-11 AND THEY ARE IN SUPPORT OF THE ORDER PASSED BY THE LD.CIT(A). 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING DRUGS, FILED ITS RETURN OF INCOME FOR THE 3 ITA NOS.2225& 2226/M DS/2016 CO NOS.130 & 131/MDS/2016 ASSESSMENT YEARS 2009-10 & 2010-11 ON 29.09.2009 AN D 29.09.2010 ADMITTING TOTAL INCOME OF RS.3,79,790/- AND RS.1,21,01,471/- RESPECTIVELY. INITIALLY THE RETURN S WERE PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY TH E CASE WAS SELECTED UP FOR SCRUTINY AND FINALLY ORDERS WERE PA SSED U/S. 143(3) ON 20.12.2011 AND 28.03.2013 RESPECTIVELY. 5. GROUND NO.2.1(I) - CLAIM OF DEDUCTION U/S.80IB OF T HE ACT:- DURING THE RELEVANT ASSESSMENT YEAR 2009-10, THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 80IB OF THE ACT AS IT WAS ENGAGED IN THE BUSINESS OF MANUFACTURING PHARMACEUT ICAL PRODUCTS. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, IT WAS OBSERVED BY THE LD.AO THAT IN THE ASSESSEES OWN CA SE FOR THE ASSESSMENT YEAR 2005-06 BEING THE INITIAL ASSESSMEN T YEAR IN WHICH THE DEDUCTION U/S.80IB WAS CLAIMED, THE LD.AD DL. CIT DISALLOWED THE CLAIM BY OBSERVING AS UNDER: A) THE ASSESSEE DOES NOT POSSESS A LICENCE TO MANUFACT URE DRUGS IN ITS OWN NAME. B) THE ASSESSEE IS MANUFACTURING ON A LOAN LICENCE T AKEN FROM M/S. TABLETS (INDIA) LIMITED. C) THE TECHNICAL KNOWHOW ON PRODUCTION OPERATION INCLU DING PROCESSING, MIXING, DRYING, COMPOUNDING, FILLING, F INISHING, LABELLING, PACKAGING, STORAGE AND TESTING IN ACCORD ANCE WITH THE 4 ITA NOS.2225& 2226/M DS/2016 CO NOS.130 & 131/MDS/2016 PHARMACOPOEIAL STANDARDS AND QUALITY SPECIFICATIONS ARE PRESCRIBED BY THE PRINCIPAL MANUFACTURER NAMELY, M/ S. TABLES (INDIA) LIMITED FROM TIME TO TIME. D) THE PRODUCTS MANUFACTURED BY THE ASSESSEE COMPANY A RE EXAMINED, INSPECTED AND TESTED FOR QUALITY CHECKS I N ACCORDANCE WITH THE INSTRUCTIONS AND TESTING PROCEDURES PRESCR IBED BY THE PRINCIPAL MANUFACTURER AND REPORTS IN THIS REGARD A RE SUBMITTED TO THE PRINCIPAL MANUFACTURER. E) THE MATERIALS ARE SUPPLIED DIRECTLY B Y THE PRINCIP AL MANUFACTURER NAMELY, M/S. TABLETS (INDIA) LIMITED. IN OTHER WOR DS, THE RAW MATERIALS ARE NOT PURCHASED BY THE ASSESSEE COMPANY . F) THE ASSESSEE IS IN RECEIPT OF ONLY CONVERSION CHARG ES FOR THE WORK DONE BY IT ON BEHALF OF M/S. TABLETS (INDIA) LIMITE D. FURTHER FOR THE ASSESSMENT YEAR 2005-06 DIRECTION S U/S.144A OF THE ACT WAS SOUGHT FROM THE ADDL. COMMI SSIONER OF INCOME TAX, COMPANY RANGE I, CHENNAI ON THE CLAIM O F DEDUCTION U/S.80IB OF THE ACT WHEREIN HE PASSED AN ORDER DISALLOWING THE DEDUCTION U/S.80IB OF THE ACT. SIN CE, THE FACTS OF THE CASE FOR THE RELEVANT ASSESSMENT YEAR WERE IDEN TICAL AND THERE WERE NO FURTHER DEVELOPMENTS ON THE ISSUE, FO LLOWING THE ORDER OF THE ASSESSMENT YEAR 2005-06, THE LD.AO DIS ALLOWED THE CLAIM OF DEDUCTION U/S.80IB OF THE ACT AMOUNTING TO RS.1,33,33,418/- FOR THE RELEVANT ASSESSMENT YEAR 2 009-10. 5.1. FOR THE ASSESSMENT YEAR 2010-11, THE ASSESSEE HAD CLAIMED DEDUCTION U/S.80IB OF THE ACT FOR RS.53,79, 202/-. THE 5 ITA NOS.2225& 2226/M DS/2016 CO NOS.130 & 131/MDS/2016 LD.AO OBSERVED THAT THE RAW MATERIAL USED BY THE AS SESSEE FOR MANUFACTURING HIS PRODUCE ARE BACTERIA LIKE STREPTO COCCUS, CLOSTERIUM, BACILLUS, LACTO BACILLES, ETC.. THE LD. AO FURTHER OPINED THAT THE CONSTITUENTS OF THE TABLETS PRODUCED BY TH E ASSESSEE IS IMMOBILIZED LIVING BACTERIA. THE LD.AO THEREAFTER OBSERVED THAT THE LIVING BACTERIA PUT IN A CARRIER MATERIAL AND P ACKET IN SACHET OR IN CAPSULES WHICH ALSO CONTAINS LIVING BACTERIA, CANNOT BE CONSIDERED AS MANUFACTURING AS PER SEC 2(29)BA OF T HE ACT. THEREFORE, THE LD.AO DENIES THE DEDUCTION CLAIMED U /S.80IB OF THE ACT FOR THE RELEVANT ASSESSMENT YEAR 2010-11. T HIS DECISION OF THE LD.AO WAS ALSO IN PARITY WITH THE DECISION F OR THE EARLIER ASSESSMENT YEAR I.E., 2009-10. 5.2. ON APPEAL, THE LD.CIT(A) FOR BOTH THE ASSESSME NT YEARS PASSED AN IDENTICAL ORDER BY HOLDING THE ISSUE IN F AVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2005-06, 2006-07 & 2008- 09. THE RELEVANT PORTION OF THE ORDER IS REPRODUCE D HEREIN BELOW FOR REFERENCE: 7.THE APPELLANT ASSAILED THE VIEW TAKEN ON COUNTS OF (I) CONSISTENCY (II) MIS-APPRECIATION OF THE TERM 'MANU FACTURE' U/S. 2(298A). (III) THE APPELLANT IS ENGAGED IN THE MANU FACTURE OF DRUG FORMULATION IN CAPSULES/POWDER THROUGH DETAILE D 6 ITA NOS.2225& 2226/M DS/2016 CO NOS.130 & 131/MDS/2016 PROCESSES WITH A ID OF MANPOWER AND STATE )F ART MA CHINERY (IV) THE RAW MATERIALS USED ARE HARD GELATINE CAPSULES, MULTIPLE STRAINS OF IMMOBILIZED BACTERIAL POWDERS AND EXCIPI ENTS USED ALL BEING NON LIVING OBJECTS (V) THE IMMOBILIZED BACTER IAL POWDER CANNOT E CONSIDERED AS LIVING OBJECT (VI) THE PROCE SS RESULTS IN THE TRANSFORMATION OF THE OBJECTS INTO A NEW AND DI STINCT OBJECT HAVING DIFFERENT NAME, CHARACTER AND USE (VII) THE END PRODUCT IS THE DISTINCTLY NEW OBJECT AS IT BRINGS INTO EXIS TENCE AN OBJECT WITH DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STR UCTURE (VIII) THE PROCESS IS IRREVERSIBLE (IX) THE PRODUCT IS EXC ISABLE (X) IT IS A COMMERCIALLY DIFFERENT COMMODITY AS RESULTING FROM A MANUFACTURE AS DIFFERENT FROM PROCESSING (XI) IT AM OUNTS TO PRODUCTION, IF NOT MANUFACTURE. THE APPELLANT ALSO PLACED RELIANCE ON SEVERAL CASE LAWS TO SUPPORT ITS CASE I N THIS REGARD. AMONG THEM ARE TWO OF THE DECISIONS OF THE JURISDIC TIONAL ITAT IN THE APPELLANT'S OWN CASE FOR THE AY 2005-06 AND 2007 IN ITA NO.1365 & 1366/MDS/09 AND FOR THE A.Y. 2008-09 IN I TA NO.28/MDS/2013. 8. IN THE RELIED UPON ORDER OF THE ITAT, THE ISSUE WAS WITH REGARD TO WHETHER THE ASSESSEE COMPANY WAS ENGAGED IN THE MANUFACTURE OF DRUGS AND PHARMACEUTICAL FORMULATION AND WHETHER THE CLAIM MADE FOR DEDUCTION U/S.80IB WAS MAINTAINABLE WITH REGARD/ TO THE PROFITS OF THE ASS ESSEE'S INDUSTRIAL UNDERTAKING SITUATED AT PONDICHERRY. AS SESSMENT YEAR 2005-06 WAS THE INITIAL YEAR IN WHICH THE CLAI M WAS MADE . THE APPELLANT MANUFACTURED DRUGS AND PHARMACEUTICAL FORMULATION FOR M/S. TABLETS INDIA LTD. ON ACCOUNT OF THE FACT IT DID NOT POSSESS A LICENCE TO MANUFACTURE THE DRUGS IN ITS OWN NAME, IT DID MANUFACTURING ON A LOANED LICENCE TA KEN FROM M/S. TABLETS INDIA LTD. THE AO HAD ARRIVED AT A CON CLUSION THAT THE BUSINESS WAS OF CONTRACT MANUFACTURING AND THAT THE DEDUCTION U/S.80IB COULD NOT BE AWARDED TO CONTRACT MANUFACTURER IN PREFERENCE TO THE PRINCIPAL MANUFAC TURER. THE ITAT IN A DETAILED ORDER OF THE COORDINATE BENCH HE LD THAT THERE WAS NO DOUBT ABOUT THE FACTS THAT THE ASSESSE E WAS ENGAGED IN SYSTEMATIC AND ORGANIZED ACTIVITY OF PRO DUCTION BY 7 ITA NOS.2225& 2226/M DS/2016 CO NOS.130 & 131/MDS/2016 ENGAGING LABOURER TO PRODUCE THE END PRODUCT. MORE IMPORTANTLY, THE ASSESSEE HAD CONVERTED THE RAW MAT ERIALS RECEIVED FROM M/S. TABLETS INDIA LTD INTO DRUQS AND OTHER PHARMACEUTICAL FORMULATION. WHEREAS, M/S. TABLETS I NDIA LTD DID NOT HAVE A MANUFACTURING UNIT AND HENCE IT CANN OT CLAIM DEDUCTION U/S.80IB. THE OUTSOURCED ACTIVITY CARRIED ON BY THE ASSESSEE APPELLANT CONSTITUTED MANUFACTURE IN VIEW OF THE DECISION IN CIT VS. TAJ FIRE WORKS INDUSTRIES, (288 ITR 92). IN THE AY 200TL-09, IT SIMILARLY HELD RELYING ON THE E ARLIER DECISION. 9. THE PROVISIONS U/S.80IB PROVIDE FOR SPECIFIED DE DUCTIONS TO AN INDUSTRIAL UNDERTAKING WHICH MANUFACTURE OR PROD UCE AN ARTICLE OR THING. THE PROVISIONS OF SEC. 2(29BA) IN TRODUCED FROM 1.4.2009 DEFINES MANUFACTURING WHICH MANDATES CHANG E IN A NON LIVING PHYSICAL OBJECT OR ARTICLE OR THING WHIC H INCLUDES (I) RESULTING IN TRANSFORMATION INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE OR (II) BRINGING INTO EXISTENCE AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL S TRUCTURE. VARIOUS CASE LAWS HAVE ELUCIDATED THE CONCEPTS OF P RODUCTION AND MANUFACTURE. IN INDIA CINE AGENCIES VS. CIT (30 8 ITR 98), THE SUPREME COURT HELD THAT SHIP BREAKING ACTIVITY GAVE RISE TO PRODUCTION OF A DISTINCT AND DIFFERENT ARTICLE. IT WAS SIMILARLY HELD IN VIJAY SHIP BREAKING CORPORATION AND OTHERS VS CIT (314 ITR 309) THAT CONVERSION OF JUMBO ROLLS OF PH OTOGRAPHIC FILMS INTO SMALL FLAPS AND ROLLS IN DESIRED SIZES A MOUNTS TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING. SIMILARLY, IN ITO VS. ARIHANT TILES AND MARBLES PVT. LTD {320 ITR 79), THE SUPREME COURT HELD THAT CONVERSION OF MARBLE BLOC S INTO POLISHED SLABS AND TILES AMOUNTED TO MANUFACTURE OR PRODUCTION. IN CIT VS. ORACLE SOFTWARE INDIA LTD(32 0 ITR 546) THE SUPREME COURT HELD THAT THE PROCESS OF TRANSFOR MING THE BLANK OR COMPACT DISC IF TO SOFTWARE LOADED DISC AM OUNTS TO MANUFACTURE . WHILE IN CIT VS. EMPEE POLY-YARN PVT. LTD (320 ITR 665), THE SUPREME COURT HELD THAT TWISTING AND TEXTURISING OF PARTIALLY ORIENTED YARN BY THERMO MECHANICAL PRO CESS WHICH CONVERTS IT INTO A TEXTURISED YARN AMOUNTS TO MANUF ACTURE. 8 ITA NOS.2225& 2226/M DS/2016 CO NOS.130 & 131/MDS/2016 10 THE PROVISIONS OF SEC.2(29BA) W.E.F. 1.4.2009 MA NDATE CHANGE IN NON LIVING PHYSICAL OBJECTS OR ARTICLE OR THING RESULTING IN TRANSFORMATION INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE OR BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJEC T OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTE GRAL STRUCTURE. THE APPELLANT MANUFACTURES CAPSULES FOR M/S. TABLETS INDIA LTD AND THE PROCESS OF MANUFACTURING SUCH CAP SULES ARE HIGHLY COMPLEX UNDER CONTROLLED CONDITIONS AND SPEC IALIZED SUPERVISION. THE RAW MATERIALS USED UNDERGO A METAM ORPHIC CHANGE AND THE FINAL PRODUCT IS GENERICALLY NEW AND DISTINCT. IT IS ALSO KNOWN BY A DISTINCT NAME AND THE USAGE ITSE LF IS DIFFERENT IN AS MUCH THAT IT BECOMES A FORMULATED POTABLE MED ICINE. THE INTRODUCTION OF PROVISIONS OF SEC2(29BA) DOES NOT T HEREFORE IMPAIR THE CLAIM OF THE APPELLANT. THE ACTIVITY OF THE APPELLANT CONTINUES TO BE THAT OF MANUFACTURE AND PRODUCTION OF MEDICINES PER SPECIFICATION. THE VIEWS EXPRESSED BY THE HON'BLE ITAT IN THE APPELLANT'S OWN CASE REFERRED IN T E FO REGOING HOLD GOOD AND APPLY IN ALL FORCE. THE AO, IN MY CONSIDER ED VIEW, FELL IN ERROR IN APPLYING THE PROVISIONS OF SEC.2(29BA) TO THE FACTS OF THE CASE. 11. TAKING THE SUM TOTALITY OF THE FACTS AND CASE L AWS INTO ACCOUNT, I HAVE NO HESITATION IN HOLDING THAT THE A PPELLANT IS ENTITLED TO THE CLAIM OF DEDUCTION MADE UHI.80LB OF THE ACT FOR REASONS DISCUSSED IN THE FOREGOING. THIS GROUND OF APPEAL IS ALLOWED. 5.3. THE LD.DR ARGUED IN SUPPORT OF THE ORDERS OF T HE LD.AO, HOWEVER HE COULD NOT SUCCESSFULLY CONTROVERT TO THE DECISION ARRIVED AT BY THE LD.CIT(A) WHO HAD ONLY FOLLOWED T HE ORDER OF 9 ITA NOS.2225& 2226/M DS/2016 CO NOS.130 & 131/MDS/2016 THE TRIBUNAL. THE LD.AR ON THE OTHER HAND RELIED O N THE ORDER OF THE LD.CIT(A) IN THIS ISSUE. 5.4. WE HAVE HEARD THE RIVAL SUBMISSION AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. THE TRIBUNAL ON THE EARLIER OCCASION HAS HELD THE ISSUE IN FAVOUR OF THE ASSESS EE IN ITA NO.28/MDS/2013 AND CO NO.35/MDS/2013 FOR THE ASSESS MENT YEAR 2008-09 ALSO. THE RELEVANT PORTION OF THE ORD ER IS REPRODUCED HEREIN BELOW FOR REFERENCE: 10. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECO RDS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE T RIBUNAL IN ITA NOS. 1365 & 1366/MDS/2009 BY ORDER DATED 19-11-2010 FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 CONSIDERED THE ISSUE INVOLVED IN THE PRESENT APPEAL AND ALLOWED THE APPE ALS OF THE ASSESSEE BY PASSING AN ELABORATE ORDER. THE RELEVA NT PORTION OF THE SAID ORDER IS REPRODUCED HERE-UNDER : 5. WE FIND FORCE IN THE ARGUMENT OF THE LD.AR WHEN HE STATES THAT SECTION 80IB(13) REFERS TO SUB-SECTIONS(5), (7 ) TO (12) OF SECTION 80IA WHICH DEAL WITH THE ELIGIBILITY CRITER IA LIKE, COMPUTATION OF PROFITS/CALCULATION OF DEDUCTION/PRO CEDURE FOR CLAIM OF DEDUCTION APPLICABLE TO AN ELIGIBLE INDUST RIAL UNDERTAKING, MEANING THEREBY, WHATEVER ELIGIBILITY CRITERIA AS LAID DOWN UNDER SECTION 80IB HAS TO BE READ AS COMP LETE IN ITSELF AND NO MEANING CAN BE IMPORTED FROM SECTION 80IA FOR THIS DEDUCTION. WHEN THE ELIGIBILITY CRITERIA IS C LEARLY LAID DOWN UNDER SECTION 80IB ITSELF, THE EXPLANATION OF SECTI ON 80IA CANNOT OVERRIDE THE ELIGIBILITY OF AN INDUSTRIAL UN DERTAKING EITHER U/S 80IA OR 80IB OR VICE VERSA. THESE ARE T O DIFFERENT PROVISIONS OF LAW AND CANNOT BE MIXED OR SUBSTITUTE D EACH OTHER, VICE VERSA. IN OUR OPINION, THE CONTENTION OF THE LD.DR THAT EXPLANATION BELOW SECTION 80IA WILL ALSO APPLY TO ELIGIBILITY CRITERIA FOR DEDUCTION U/S 80IB IS SIMPLISTIC AND D IDACTIC AND CARRIES NO SUBSTANCE THEREIN. SECTION 80IA DEALS W ITH DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM IND USTRIAL 10 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 UNDERTAKINGS OR ENTERPRISES ENGAGED IN INFRASTRUCTU RE DEVELOPMENT LIKE INDUSTRIAL PARK, SOCIO ECONOMIC ZO NE, GENERATION OF POWER OR SUBSTANTIAL RENOVATION AND MODERNIZATION OF EXISTING TRANSMISSION AND DISTRIBU TION LINES OR LAYING AND OPERATION OF CROSS COUNTRY INDUSTRIAL GA S DISTRIBUTION NETWORK WHEREAS SECTION 80IB RELATES T O AN INDUSTRIAL UNDERTAKING OTHER THAN INFRASTRUCTURE DE VELOPMENT UNDERTAKINGS. IN CASE WE ACCEPT THE CONTENTION OF THE LD.DR, THE HARMONY BETWEEN THESE TWO SECTIONS WOULD BECOME EXTINCT WHICH IS NOT PERMISSIBLE IN FISCAL LAW. TH E DRUGS COSMETICS ACT, 1940 VIDE SECTION 69A SPEAKS OF GRAN T OF LOAN LICENCE TO MANUFACTURE FOR SALE OR FOR DISTRIBUTION OF DRUGS OTHER THAN THOSE SPECIFIED IN SCHEDULE C. THE DE CISION OF HON'BLE JURISDICTIONAL HIGH COURT (SUPRA) ALSO SUPP ORTS OUR FINDING. THERE IS NO DOUBT ABOUT THE FACT THAT THE ASSESSEE IS ENGAGED IN SYSTEMATIC AND ORGANIZED ACTIVITY OF PRO DUCTION BY ENGAGING LABOURERS TO PRODUCE THE END PRODUCT. THE HON'BLE P&H HIGH COURT IN THE CASE CITED SUPRA HAS GONE TO THE EXTENT IN HOLDING THAT ONCE IT IS FOUND THAT THE ASSESSEE IS DERIVING INCOME FROM ELIGIBLE BUSINESS COVERED BY SECTION 80 IB APART FROM OTHER CONDITIONS, THE ASSESSEE HAS LIBERTY TO DO MANUFACTURING ACTIVITY NOT ONLY FOR HIMSELF BUT ALS O FOR OTHERS AND CONSEQUENTLY PROFIT DERIVED FROM JOB WORK DONE FOR OTHERS ALSO QUALIFIES FOR DEDUCTION U/S 80IB OF THE ACT. WE HAVE SEEN THE COPY OF THE LOAN LICENCE ENCLOSED IN THE PAPER BOOK AND A COPY OF THE CERTIFICATE ISSUED BY M/S TABLETS (INDIA) LTD AND SO ALSO THE ASSESSMENT ORDER OF THE SAME YEAR I N THE CASE OF M/S TABLETS (INDIA) LTD. ALTHOUGH THESE EVIDENC ES MAY BE SELF-SERVING EVIDENCES YET, IN THE ABSENCE OF ANY D ISPUTE WITH REGARD TO THE FACTS MENTIONED ABOVE, THESE FACTORS HELP THE ASSESSEE TO A GREATER EXTENT TO BRING ITS CLAIM U/S 80IB. SO, IT IS CLEARLY SEEN THAT U/S 80IB(4) SUB-CONTRACT IS NO T PROHIBITED. UNDISPUTEDLY, THE ASSESSEE HAS GOT ITS FACTORY AT P ONDICHERRY FROM WHERE IT CARRIES ON MANUFACTURING ACTIVITIES. THIS COMPANY HOLDS A LICENCE IN FORM NO. 24 AND FORM NO. 28 TO MANUFACTURE DRUGS AND FORMULATIONS UNDER THE LICEN CE OBTAINED IN FORM NO.25A AND FORM 28A OBTAINED BY M/ S TABLETS (INDIA) LTD. A LOAN LICENCE HAS BEEN ISSUE D TO THE ASSESSEE WHO DOES NOT HAVE HIS OWN ARRANGEMENT FOR MANUFACTURE AND WHO INTENDS TO AVAIL FACILITIES FR OM OTHER MANUFACTURERS. HENCE, THE ENTIRE ACTIVITIES ARE DO NE BY THE ASSESSEE ON BEHALF OF THE LOAN-LICENCEE I.E M/S TAB LETS (INDIA) LTD. THE MANUFACTURING ACTIVITIES ARE DONE UNDER T HE DIRECTION AND SUPERVISION OF TECHNICAL STAFF WHO ARE THE EMPL OYEES OF THE ASSESSEE COMPANY. THERE IS A WRITTEN AGREEMENT BETWEEN THE TWO COMPANIES WHICH PROVIDES AND PRESCRIBES THE METHODOLOGY OF THE ROLE OF M/S TABLETS (INDIA) LTD IN 11 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 INSPECTION AND SUPERVISION OF DRUGS MANUFACTURED BY THE ASSESSEE IN ORDER TO EXERCISE QUALITY CONTROL BY TE ST CHECKING WHICH IS A MUST IN THE FIELD OF DRUGS INDUSTRY. TH E DRUGS AND OTHER FORMULATIONS ARE SOLD BY M/S TABLETS (INDIA) LTD UNDER THEIR NAME. SO, IN A WAY THE CONTRACTUAL AGREEMENT IS WITH REGARD TO SUPERVISION OF THE PROCESS BY M/S TABLETS (INDIA) LTD WHEREAS THE ENTIRE MANUFACTURING PROCESS IS BEING DONE BY THE ASSESSEE UNDER HIS STATUTORY OBLIGATION AND AS PER LAW AND AS PER THE TERMS AND CONDITIONS PROVIDED IN THE LOA N LICENCE. THE CAPACITY AND INFRASTRUCTURE REGARDING PRODUCTIO N OF THESE MEDICINES FORMULATIONS AND PHARMACEUTICAL FORMULATI ONS IS NOT DOUBTED BY THE DEPARTMENT. TO MANUFACTURE DRUGS EI THER FOR SELF OR FOR OTHERS ON A LOAN LICENCE BASIS, GETTING A LOAN LICENCE FROM THE AUTHORITIES IS A CONDITION PRECEDENT. IN THE LOAN LICENCE THE PREMISES WHERE THE MANUFACTURING ACTIVI TY IS TO BE CARRIED ON HAS TO BE MENTIONED AND IN THIS CASE, IT IS THE FACTORY OF THE ASSESSEE-COMPANY. THE DRUG CONTROL DEPARTMENT OFFICIALS FREQUENTLY VISIT AND SUPERVISE /VERIFY WITH REGARD TO THE PRESCRIBED STANDARDS REGARDING HYGIEN E STRATEGIES AND CLEANLINESS FAILING WHICH THE LICENC E CAN BE WITHDRAWN. IN THIS CASE, UNDOUBTEDLY THE ASSESSEE HAS USED ITS OWN PLANT AND MACHINERY, INFRASTRUCTURE AND SKI LLED WORKERS FOR THE PURPOSE OF MANUFACTURE. IT HAS MAN UFACTURED GOODS IN ITS PREMISES AND HAS INCURRED SUBSTANTIAL EXPENDITURE ON INFRASTRUCTURE, CONSUMABLES, MANPOWER, ETC. TH E GOODS MANUFACTURED HAVE SUFFERED EXCISE DUTY UNDER THE CA TEGORY DRUGS AND FORMULATIONS. THESE PRODUCTS ARE CLEARED THROUGH CENTRAL EXCISE INVOICES TO M/S TABLETS (INDIA) LTD AFTER PAYING THE RELEVANT CENTRAL EXCISE DUTY. THE ASSESSEE HAS CONVERTED THE RAW MATERIALS RECEIVED FROM M/S TABLETS (INDIA) LTD INTO DRUGS AND OTHER PHARMACEUTICAL FORMULATIONS. WHERE AS M/S TABLETS (INDIA) LTD DOES NOT HAVE A MANUFACTURING U NIT AND HENCE, IT CANNOT CLAIM DEDUCTION U/S 80IB. THE LD. CIT(A) HAS ALSO ASCERTAINED FROM THE ASSESSING OFFICER THROUGH A REMAND REPORT DATED 25.3.2009 THOUGH M/S TABLETS (INDIA) LTD M/S TABLETS (INDIA) LTD HAS NOT CLAIMED DEDUCTION U/S 8 0IB BECAUSE THEY ARE NOT ENTITLED TO DO SO. THE CASE B EFORE US IS THAT AS TO WHETHER THE PERSON TO WHOM THE WORK HAS BEEN OUTSOURCED BY ANOTHER HAS TO BE TREATED AS MANUFACT URER OR NOT. THIS ISSUE IS DIRECTLY COVERED BY THE DECISIO N IN THE CASE OF CIT VS TAJ FIRE WORKS INDUSTRIES (SUPRA) WHICH G OES IN FAVOUR OF THE ASSESSEE. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY VALID REASON(S) TO INTERFERE IN THE IMPUGN ED FINDING, HENCE, WE CONFIRM THE SAME. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE F OR ASSESSMENT YEAR 2005-06 STANDS DISMISSED. 12 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 11. IN VIEW OF THE DECISION OF THE CO-ORDINATE BENC H OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSME NT YEARS 2005-06 AND 2006-07 AND FOLLOWING THE SAME, WE FIND NO INFI RMITY IN THE ORDER PASSED BY THE CIT(APPEALS). ACCORDINGLY, THI S GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. SINCE FOR THE RELEVANT ASSESSMENT YEAR ALSO THE I SSUE IS IDENTICAL, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDERS OF THE LD.CIT(A) WHO HAS ONLY FOLLOWED THE EARLIER DECISIONS OF THE TRIBUNAL. ACCORDINGLY, WE DONT FIND ANY MERIT IN THE APPEAL OF THE REVENUE ON THIS ISSUE. 6. GROUND NO.2.1(II) DISALLOWANCE U/S.14A READ WITH RULE 8D OF THE RULES:- DURING THE COURSE OF SCRUTINY ASSESSMENT, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD MADE INVESTMENTS IN SHARES AND MUTUAL FUNDS FOR EARNING EXEMPT INCOME FOR BOTH THE RELEVANT ASSESSMENT YEARS. THEREFORE HE INVOKED TH E PROVISIONS OF SECTION 14A R.W.R 8D OF THE RULES AND MADE DISAL LOWANCE OF RS.22,585/- FOR THE ASSESSMENT YEAR 2009-10 AND RS. 1,25,613/- FOR THE ASSESSMENT YEAR 2010-11. ON APPEAL, THE LD .CIT(A) DELETED THE ADDITION BECAUSE THE SAME ISSUE HAD COM E UP BEFORE HIS PREDECESSOR IN THE ASSESSMENT YEAR 2008- 09, AND THE 13 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 SAME WAS HELD IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 28.09.2012 IN ITA NO.501/2010-11. AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 6.1 AT THE OUTSET, WE ARE REMINDED OF THE RECENT DE CISION OF THIS BENCH OF THE TRIBUNAL IN ITA NO.3044/MDS/2016 VIDE ORDER DATED 10.04.2017. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. RELYING ON VARIOUS D ECISIONS OF THE HIGHER JUDICIARY THIS BENCH OF THE TRIBUNAL ON THE EARLIER OCCASION IN THE CASE OF LAKSHMI ELECTRICAL DRIVES LTD IN ITA NO.3114/MDS/2016 VIDE ORDER DATED 23.03.2017 HAS HE LD AS FOLLOWS:- THE ASSESSEE HAD INVESTED RS.18.01 CRORES WHICH WO ULD YIELD EXEMPT INCOME. THEREFORE THE LD. AO INVOKED THE PR OVISIONS OF SECTION 14A AND RULE 8D OF THE RULES AND MADE ADDIT ION WHICH WAS SUBSEQUENTLY CONFIRMED BY THE LD. CIT(A). AT T HE OUTSET, THE LD. AR SUBMITTED BEFORE US THAT, THE ENTIRE INVESTM ENTS, FOR STRATEGICALLY REASONS, WAS MADE IN SUBSIDIARY COMPA NIES AND IT WAS SOURCED FROM INTEREST FREE FUNDS. THE LD. AR FURTH ER ARGUED THAT ON SEVERAL OCCASIONS, THE CHENNAI BENCH OF THE TRIBUNA L HAS HELD THAT IF SUCH INVESTMENTS ARE MADE IN SISTER /SUBSIDIARY COMPANIES, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. HE TH EREFORE PLEADED THAT THE ADDITION MADE BY INVOKING THE PROVISIONS O F SECTION 14A OF THE ACT, MAY BE DELETED. THE LD. DR THOUGH OPPOSED TO THE SUBMISSION OF THE LD. AR COULD NOT SUCCESSFULLY CON TROVERT TO THE SUBMISSIONS. AFTER HEARING BOTH SIDES, WE FIND MER IT IN THE ARGUMENTS OF THE LD. AR. ON SEVERAL INSTANCE THIS BENCH OF THE TRIBUNAL HAS HELD AS WHAT WAS ARGUED BY THE LD. AR. FOR INSTANCE IN THE CASE OF M/S. DATA SOFTWARE RESEARCH COMPANY 14 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 (INTERNATIONAL) PVT. LTD. V. ACIT, ITA NOS.2169 & 2 170/MDS/2015 AND ACIT V. M/S. DATA SOFTWARE RESEARCH COMPANY (IN TERNATIONAL) PVT. LTD., ITA NOS. 2171& 2172/MDS/2015 VIDE ORDER DATED 03.02.2016, THIS BENCH OF THE TRIBUNAL HAS HELD AS FOLLOWS: 7.WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS A NORMAL PRACTICE TO MAKE INVESTMENT IN SISTER COMPAN IES DUE TO COMMERCIAL EXIGENCIES. WHILE DOING SO, NO EXPENSE CAN BE ATTRIBUTABLE OTHER THAN INTEREST EXP ENSE FOR MAKING SUCH INVESTMENTS BECAUSE ALL MANAGEMENT COSTS WILL BE ABSORBED FOR STRATEGIC DECISION MAKIN G PROCESS WHICH IS ALLOWABLE AS BUSINESS EXPENDITURE. IN THE CASE OF THE ASSESSEE IT IS SUBMITTED THAT NO IN TEREST COST WAS INCURRED AS THE ENTIRE INVESTMENTS WERE MA DE OUT OF OWN FUNDS. FURTHER IN THE DECISION OF THE TRIBUNAL IN ITA NO.115/MDS/2015 DATED 06.01.2016, EXTRACTED HEREIN BELOW, IT HAS BEEN HELD THAT SECTI ON 14A OF THE ACT WILL NOT BE APPLICABLE WHEN INVESTME NTS ARE MADE IN SISTER COMPANIES. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. ON THE IDENTICA L ISSUE AS POINTED OUT BY THE LD. A.R. THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.156/MDS/2013 VIDE ORDER DATED 20/08/13 FOR THE ASSESSMENT YEAR 2009-10 HAS REMITT ED BACK THE MATTER TO THE LD. ASSESSING OFFICER TO DEC IDE THE MATTER ONCE AGAIN AFRESH BASED ON THE FINDINGS WHET HER THE ASSESSEE HAD ACTUALLY INCURRED ANY EXPENDITURE IN EARNING THE DIVIDEND INCOME. THE RELEVANT PORTION O F THE ORDER IS EXTRACTED HEREIN BELOW FOR REFERENCE:- FURTHER, ON THE IDENTICAL ISSUE VARIOUS BENCHES OF THE TRIBUNAL AND THE HONBLE BOMBAY HIGH COURT HAVE HEL D AS FOLLOWS:- I) GARWARE WALL ROPES LTD., VS. ACIT REPORTED IN (2014) 65 SOT 086 (MUM.) HELD AS FOLLOWS:- WHEN ASSESSEE HAS PRIMA FACIE BROUGHT OUT CASE THA T NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME, W HICH DOES NOT FORM PART OF TOTAL INCOME, THEN IN ABSENCE OF A NY FINDING THAT EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT IN COME PROVISIONS 14A CANNOT BE APPLIED.. 15 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 II) INTEGLOBE ENTERPRIESES LTD., VS. DCIT REPOTED IN (2014) 40 CCH 0022(DEL. TRIB.) HELD AS FOLLOWS:- NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) WHERE NO DIRECT OR INDIRECT INTEREST EXPENDITURE WAS INCURRED FOR MAKING INVESTMENTS. WHERE THE ASSESSEE HAD UTILIZED INTEREST FREE FUNDS FOR MAKING FRESH INVESTMENTS AND THAT TOO INTO ITS SUBSIDIARIE S, WHICH WAS NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME AND WH ICH WAS FOR STRATEGIC PURPOSES ONLY, NO DISALLOWANCE OF INT EREST WAS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) AND S TRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR PURPOSE OF ARRIVI NG AT DISALLOWANCE UNDER RULE 8D(III). III) M/S.JM FINANCIAL LTD., VS. ACIT REPORTED IN 2 014-TIOL- 202-ITAT-MUM HELD AS FOLLOWS: THE DEPARTMENT HAS NOT DISPUTED THIS FACT OUT OF THE TOTAL INVESTMENT ABOUT 98% OF THE INVESTMENT ARE IN SUBSI DIARY COMPANIES OF THE ASSESSEE AND, THEREFORE, THE PURPO SE OF INVESTMENT IS NOT FOR EARNING THE DIVIDEND INCOME B UT HAVING CONTROL AND BUSINESS PURPOSE AND CONSIDERATION. TH E ASSESSEE HAS BROUGHT OUT A CASE TO SHOW THAT NO EXPENDITURE HAS BEEN INCURRED FOR MAINTAINING THE 98% OF THE INVESTMENT MADE IN THE SUBSIDIARY COMPANIES, THEREFORE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME, THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER IS NOT JUSTIFIED, ACCORDINGLY THE SAME IS DELETED. (IV) CIT VS. BHARTI TELEVENTURE LTD. REPORTED IN (2 011) 331 ITR 0502. WHERE THE ASSESSEE WAS FOUND TO BE HAVING ADEQUATE NON-INTEREST BEARING FUND BY WAY OF SHARE CAPITAL A ND RESERVES AND THERE WAS NO NEXUS BETWEEN THE BORROWALS OF ASS ESSEE AND THE ADVANCES GIVEN, NO DISALLOWANCE FOR INTERES T WAS CALLED FOR . (V) CIT VS. RELIANCE UTILITIES & POWER LTD., REPOR TED IN (2009) 313 ITR 0340(BOM.) HAS HELD AS FOLLOWS:- TRIBUNAL HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF THE RELEVANT FINANCIAL Y EAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUND, PRESUMPTION STA NDS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND THER EFORE NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING F UNDS. 16 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 (VI) EIH ASSOCIATED HOTELS LTD VS. DCIT REPORTED I N 2013- TIOL-796-ITAT-MAD . THE INVESTMENTS MADE BY THE ASSESSEE IN THE SU BSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNIN G CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEE N MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY. THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACC OUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASS ESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INC IDENTAL. THEREFORE THE INVESTMENT MADE BY THE ASSESSEE IN IT S SUBSIDIARY IS NOT TO BE RECKONED FOR DISALLOWANCE U /S.14A R.W.R.8D. THE ASSESSING OFFICER IS DIRECTED TO RE-C OMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY. TAKING NOTE OF THE ABOVE DECISIONS AND THE DECISI ON OF THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.156/MDS/13 CITED SUPRA, WE HEREBY REMIT THE MATT ER BACK TO THE FILE OF LD. ASSESSING OFFICER TO EXAMIN E THE ISSUE INVOLVED IN THIS CASE AFRESH AND PASS APPROPR IATE ORDER AS PER LAW AND MERITS AND IN THE LIGHT OF THE DECISIONS CITED HEREIN ABOVE. WHILE DOING SO, WE AL SO DIRECT THE LD. ASSESSING OFFICER TO CONSIDER THE DE CISION OF THE TRIBUNAL IN THE CASE M/S AGILE ELECTRIC SUB ASS EMBLY PVT. LTD. CITED SUPRA WHEREIN IT WAS HELD AS FOLLOW S:- 7.2 IN REGARD TO APPLICABILITY OF SECTION 14A OF THE ACT READ WITH RULE 8D ALSO; THE ABOVE VIEW WILL BE APPL ICABLE. MOREOVER IN THE CASE EIH ASSOCIATED HOTELS LTD V. D CIT REPORTED IN 2013 (9) TMI 604 IN ITA NO.1503, 1624/M DS/2012 DATED 17 TH JULY, 2013, IT HAS BEEN HELD BY THE CHENNAI BENCH OF THE TRIBUNAL AS FOLLOWS:- DISALLOWANCE U/S. 14A RW RULE 8D CIT UPHELD DISALLOWANCE HELD THAT INVESTMENTS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT ON ACCOUNT OF INV ESTMENT FOR EARNING CAPITAL GAINS OR DIVIDEND INCOME. SUCH INV ESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIAR Y COMPANY INTO THE HOTEL INDUSTRY. A PERUSAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL INVESTMENT OF RS.64,18,19,775/-, RS.63,31,25,715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPPORTS THE CASE OF T HE ASSESSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVES TMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASSESSEE FR OM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENT AL. THEREFORE, THE INVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDIARY ARE NOT TO BE RECKONED FOR DISALLOWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFICER IS DIRECTED TO RE -COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D 17 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 AFTER DELETING INVESTMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY DECIDED IN FAVOUR OF ASSESSEE. FOR THE ABOVE SAID REASONS, WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF SECTION 14A READ WIT H RULE 8D WILL NOT BE APPLICABLE IN REGARD TO INVESTMENTS MAD E FOR ACQUIRING THE SHARES OF THE ASSESSEES SISTER CONCE RNS. ACCORDINGLY WE RESTRAIN OURSELVES FROM INTERFERING WITH THE ORDER OF THE LD.CIT(A) ON THIS REGARD. 8. THEREFORE, FOLLOWING THE AFORESAID DECISION OF T HE TRIBUNAL, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF SECTION 14A WHERE INVESTMENTS ARE MADE IN SISTER CONCERNS SUCH AS EQUITY SHARES AND SHARE APPLICATIO N MONEY. HOWEVER, IF THE INVESTMENTS ARE MADE FROM BORROWED FUNDS, SECTION 14A OF THE ACT WOULD BE APPLICABLE AND LEARNED ASSESSING OFFICER SHALL COMP UTE THE DISALLOWANCE UNDER SECTION 14A READ WITH RULES 8D IN ACCORDANCE WITH LAW. 6.1 ACCORDINGLY WE HEREBY REMIT BACK THE MATTER TO THE FILE OF THE LD. AO TO CONSIDER THE ISSUE AFRESH IN THE LIGH T OF THE ABOVE ORDER OF THE TRIBUNAL AND PASS APPROPRIATE ORDER IN ACCORDANCE WITH MERITS AND LAW. WE ALSO MAKE IT CLEAR THAT FO R THE INVESTMENTS MADE IN MUTUAL FUNDS, PROVISIONS OF SECTION 14A REA D WITH RULE 8D WILL BE APPLICABLE SINCE THE ASSESSEE WOULD INCUR S OME EXPENDITURE AT LEAST FOR THE DECISION MAKING PROCESS AS TO IN W HICH MUTUAL FUND THE INVESTMENT HAS TO BE MADE AND AT WHAT POINT OF TIME EXIT FROM SUCH FUNDS. IT IS ORDERED ACCORDINGLY. ACCORDINGLY IN THIS CASE OF THE ASSESSEE ALSO, WE H EREBY REMIT THE MATTER BACK TO THE FILE OF THE LD. AO FOR FRESH CON SIDERATION SO AS TO PASS APPROPRIATE ORDER AS PER MERIT AND LAW AND IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBUNAL. ACCORDINGLY WE HEREBY REMIT THE MATTER BACK TO TH E FILE OF THE LD.AO FOR BOTH THE RELEVANT ASSESSMENT YEARS TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE TR IBUNAL CITED 18 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 HEREIN ABOVE. IT IS ALSO NEEDLESS TO MENTION THAT I F THE ASSESSEE HAS INVESTED IN SHARES AND MUTUAL FUNDS FROM ITS IN TEREST FREE FUNDS IE., FROM ITS OWN CAPITAL AND GENERAL RESERVE S THEN NO COST TOWARDS INTEREST CAN BE ASSUMED WHILE COMPUTING THE DEDUCTION U/S.14A R.W.R 8D(2)(I)&(II) OF THE RULES. 7. GROUND NO.2.2 INVOKING THE PROVISIONS OF SECTION 73 OF THE ACT WITH RESPECT TO LOSS INCURRED ON SALE OF SHARES FOR THE ASSESSMENT YEAR 2009-10:- DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE DECLARED TOTAL LOSS ON ACCOUNT OF SALE OF SHARES RS .89,53,603/-. THE LD.AO OPINED THAT SINCE THE ASSESSEES PRIMARY BUSINESS ACTIVITY IS ONLY RELATED TO PHARMACEUTICAL PRODUCTS AND NOT RELATED TO BUYING AND SELLING OF SHARES, PROVISIONS OF SECT ION 73 OF THE ACT WILL COME INTO PLAY AND ACCORDINGLY LOSS ON ACC OUNT OF SALE OF SHARES HAS TO BE TREATED AS SPECULATIVE LOSS AND NO T BUSINESS LOSS AS CLAIMED BY THE ASSESSEE. 7.1 ON APPEAL, THE LD.CIT(A) HELD THE ISSUE IN FAVO UR OF THE ASSESSEE BY OBSERVING AS UNDER: 25. IN RESPECT OF THE LOSS ARISING FROM SALE OF SH ARE AND SECURITIES, THE PLEA TAKEN BY THE APPELLANT AT THE STAGE OF 19 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 ASSESSMENT AS ALSO AT THE APPELLATE STAGE IS THAT T HE APPELLANT HAD PURCHASED SHARES THROUGH THE PORTFOLIO MANAGEMENT O F KOTAK SECURITY LTD AND SECURITIES FROM RELIANCE PORTFOLIO MANAGEMENT LTD. THERE HAS BEEN ACTUAL DELIVERY OF SHARES AND FURTHER THAT NO SHARES ARE PURCHASED OR SOLD OTHER THAN BY WAY OF A CTUAL DELIVERY. WHAT WOULD FOLLOW IS THAT THE RESULTANT GAINS OR LOSS CANNOT BE TERMED AS BEING SPECULATIVE. THE AO HAS THEREFORE FALLEN IN ERROR WITH REGARD TO CATEGORIZING THE LOS S ARISING FROM TRANSACTION IN SHARES AND SECURITIES AS SPECULATIVE LOSS INSTEAD OF BUSINESS LOSS. 7.2 BEFORE US THE LD.DR ARGUED IN SUPPORT OF THE OR DER OF THE LD.AO WHILE AS THE LD.AR RELIED ON THE ORDERS OF TH E LD.CIT(A). WE HAVE HEARD THE RIVAL SUBMISSION AND CAREFULLY P ERUSED THE MATERIALS AVAILABLE ON RECORD. EXPLANATION TO SECT ION 73A CLEARLY STATES THAT WHERE ANY PART OF THE BUSINESS OF A COM PANY CONSISTS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES S HALL BE DEEMED TO BE CARRYING ON SPECULATION BUSINESS OTHER THAN THE COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SE CURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCE, THE PRINCIPAL BUSINESS IS THE BUSIN ESS OF TRADING IN SHARES OR BANKING OR GRANTING OF LOANS AND ADVANCES . IN THE CASE OF THE ASSESSEE THE PRINCIPAL BUSINESS IS ONLY MANUFACTURING PHARMACEUTICAL PRODUCTS AND THEREFORE THE LD.AO HAD RIGHTLY TREATED THE LOSS ON SALE OF SHARES AS S PECULATIVE LOSS. 20 ITA NOS.2225& 2226/ MDS/2016 CO NOS.130 & 131/MDS/2016 THEREFORE, WE SET ASIDE THE ORDER OF THE LD.CIT(A) IN THIS ISSUE AND UPHOLD THE ORDER OF THE LD.AO. 8. SINCE THE CROSS OBJECTIONS RAISED BY THE ASSESSE E ARE ONLY IN SUPPORT OF THE ORDER OF THE LD.CIT(A) FOR BOTH T HE RELEVANT ASSESSMENT YEARS 2009-10 & 2010-11 THEY ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT APPEALS OF THE REVENUE FOR BOTH TH E RELEVANT ASSESSMENT YEARS 2009-10 & 2010-11 ARE PARTLY ALLOW ED FOR STATISTICAL PURPOSES AS INDICATED HEREIN ABOVE. ORDER PRONOUNCED IN THE COURT ON THE 09 TH MAY, 2017. SD/- SD/- ( ! ' . #$ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) ' #$ /JUDICIAL MEMBER #$ / ACCOUNTANT MEMBER %' /CHENNAI, &# /DATED 09 TH MAY, 2017 JR # () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF