The DCIT, Central Circle-2(1), Ahmedabad V. Intas Pharmaceuticals Ltd., Ahmedabad

ITA 2403/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72878 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 10-01-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 29-10-2012
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: S N SOPARKAR WITH SH P M MEHTA
• Keywords: Earning of tax free income; Wholly owned subsidiary; Commercial expediency
• Section: 14A

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA/CO NO. ASSESSMENT YEAR APPELLANT RESPONDENT ITA NO.2403/AHD/2012 2004-05 INTAS PHARMACEUTICALS LTD., AHDMEDABAD PAN: AAACI5120L DCIT CENTRAL CIRCLE-2(1), AHMEDABAD ITA NO.2404/AHD/2012 2005-06 REVENUE ASSESSEE CO NO. 240/AHD/2012 2004-05 ASSESSEE REVENUE CO NO. 241/AHD/2012 2005-06 ASSESSEE REVENUE REVENUE BY : SH. O.P. BATHEJA, SR.D.R. ASSESSEE(S) BY : SH. S.N. SOPARKAR WITH SH. P.M. MEHTA, AR / // / DATE OF HEARING : 10/01/2014 !'# / DATE OF PRONOUNCEMENT : 17/01/2014 $%/ O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE THE APPEALS FILED BY THE REVENUE AND CROS S-OBJECTIONS BY THE ASSESSEE AGAINST THE CONSOLIDATED ORDER OF T HE CIT(A)-III, AHMEDABAD DATED 31.08.2012 FOR ASSESSMENT YEARS 200 4-05 AND 2005- 06. 2. IN GROUND NO. 1 OF THE APPEAL FOR BOTH THE YEARS UNDER CONSIDERATION, THE GRIEVANCES OF THE REVENUE IS THA T THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION U/S 14A OF THE IN COME TAX ACT AT RS 9,416/- OUT OF THE TOTAL ADDITION OF RS 1,54,953 /- IN THE ASSESSMENT YEAR 2004-05 AND RS 8,438/- OUT OF THE T OTAL ADDITION OF RS 5,13,215/- IN ASSESSMENT YEAR 2005-06. IN THE CROSS ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 2 - OBJECTION FILED BY THE ASSESSEE, THE ASSESSEE IS AG AINST CONFIRMATION OF RS.9,416/- IN THE ASSESSMENT YEAR 2 004-05 AND RS.8,438/- IN THE ASSESSMENT YEAR 2005-06 BEING DIS ALLOWANCE MADE FOR ADMINISTRATIVE CHARGES BY THE ASSESSING OF FICER U/S.14A OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSI NG OFFICER OBSERVED THAT IN ASSESSMENT YEAR 2004-05, THE ASSESSEE HAS O WN FUNDS AVAILABLE IN THE FORM OF SHARE CAPITAL AND RESERVE AND SURPLUS OF RS 9929.16 LAKHS AND LOAN FUNDS OF RS 12449.54 AND THE ASSESSEE HAS PAID INTEREST OF RS 1172.82 LAKHS AND THAT THE ASSE SSEE HAS MADE INVESTMENT OF RS 27,48,000/-. HE, THEREFORE, MADE A PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE OF RS 1,45,457 /-. SIMILARLY, HE OBSERVED THAT THE ASSESSEE HAS INCURRED ADMINIST RATIVE EXPENSES IN THE FORM OF SALARY AND WAGES OF RS 2042.32 LAKHS AND PRINTING AND STATIONERY RS 93.60 LAKHS TOTALING TO RS 2135.9 2 LAKHS, AND THEREFORE, HE MADE A PROPORTIONATE DISALLOWANCE FOR ADMINISTRATIVE EXPENSES OF RS 9416/-. SIMILARLY, IN THE ASSESSMEN T YEAR 2005- 06, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSE E WAS HAVING OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE SURPLUS OF RS 16573.64 LAKHS AND LOAN FUNDS OF RS 13839.47 LAKHS AND THAT THE ASSESSEE HAS PAID INTEREST OF RS 997.78 LAKHS AND H AS MADE INVESTMENT OF RS 153.86 LAKHS. HE THEREFORE, MADE PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE OF RS 5,04,777 /-. SIMILARLY, HE OBSERVED THAT THE ASSESSEE HAS INCURRED ADMINIST RATIVE EXPENSES IN THE FORM OF SALARY AND WAGES OF RS 2559.08 LAKHS AND PRINTING AND MACHINERY EXPENSES OF RS 76.76 LAKHS TOTALING T O RS 2635.84 LAKHS. ACCORDINGLY, HE MADE A PROPORTIONATE DISALL OWANCE OF ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 3 - ADMINISTRATIVE EXPENSES OF RS 8438/-. IN THIS WAY, THE ASSESSING OFFICER MADE DISALLOWANCE OF EXPENDITURE U/S 14A OF RS 1,54,953/- IN THE ASSESSMENT YEAR 2004-05 AND RS 5, 13,215/- IN THE ASSESSMENT YEAR 2005-06. 4. ON APPEAL, THE LD. CIT(A) RESTRICTED THE DISALLO WANCE MADE U/S 14A OF THE ACT FOR ADMINISTRATIVE EXPENSES OF RS 9, 416/- IN ASSESSMENT YEAR 2004-05 AND RS 8,348/- IN THE ASSES SMENT YEAR 2005-06 AND DELETED THE DISALLOWANCE OF INTEREST EX PENDITURE OF RS 1,45,537/- IN ASSESSMENT YEAR 2004-05 AND RS 5,04,7 77/- IN ASSESSMENT YEAR 2005-06 ON THE GROUND THAT THE ASSE SSING OFFICER HAS NOT ESTABLISHED THE NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE INVESTMENT MADE BY THE ASSESSEE IN THE SHAR ES OF THE COMPANY FROM WHOM THE ASSESSEE EARNED EXEMPT DIVIDE ND INCOME, BY RELYING ON THE DECISION OF DELHI BENCH O F THE TRIBUNAL IN THE CASE OF MARUTI UDYOG LIMITED VS. DCIT, 92 IT D 119 (DELHI) AND ACIT VS. EICHER LIMITED 101 ITD 369. 5. THE LD. DR RELIED ON THE DECISION OF THE HONBL E CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS VS. CIT (2011) 12 TAXMANN.COM 227 9CAL.) WHEREIN IT WAS HELD THAT THE ASSESSEE HAS TO SHOW BY PRODUCTION OF MATERIALS THAT SHARES WERE ACQUIRED FROM FUNDS AVAILABLE IN HIS HANDS AT RELEVANT POINT OF T IME WITHOUT TAKING BENEFIT OF ANY LOAN. HE FURTHER RELIED ON T HE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KALPATA RU CONSTRUCTION OVERSEAS PRIVATE LIMITED VS. DCIT (200 7) 13 SOT 174 (MUM.) WHEREIN IT WAS HELD THAT ALL EXPENSES CO NNECTED WITH EXEMPT INCOME HAVE TO BE DISALLOWED U/S 14A REGARDL ESS WHETHER ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 4 - THEY ARE DIRECT OR INDIRECT, FIXED OR VARIABLE AND MANAGERIAL OR FINANCIAL. HE ALSO RELIED ON THE DECISION OF THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTUR ING COMPANY LIMITED VS. DCIT 328 ITR 81 (BOM.) WHEREIN IT WAS HELD THAT THE ASSESSING OFFICER WAS BOUND TO DETERM INE THE EXPENDITURE WHICH HAD BEEN INCURRED IN EARNING EXEM PT INCOME BY ADOPTING REASONABLE BASIS OR METHOD CONSISTENT WITH THE RELEVANT FACTS & CIRCUMSTANCES. HE, THEREFORE, SUBMITTED TH AT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWAN CE OF INTEREST EXPENDITURE IN THE YEARS UNDER CONSIDERATION AS THE ONUS WAS ON THE ASSESSEE TO SHOW THE NEXUS BETWEEN THE INVESTME NTS MADE BY THE ASSESSEE AND THE OWN FUNDS OF THE ASSESSEE. 6. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE PL ACED RELIANCE ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT VS. SUZLON ENERGY LIMITED (2013) 215 TAXMANN.COM 27 2 (GUJ.) WHEREIN IT WAS HELD THAT WHERE THE ASSESSEE HAD OWN INTEREST FREE FUNDS MANY TIMES OVER THE INVESTMENT MADE IN INDIAN SUBSIDIARIES AND FURTHER THERE WAS NO DIRECT NEXUS BETWEEN INTER EST BEARING BORROWED FUNDS AND SUCH INVESTMENT, NO DISALLOWANCE OF INTEREST EXPENDITURE COULD BE MADE U/S 14A OF THE ACT. HE F URTHER RELIED ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN TH E CASE OF CIT VS. UTI BANK LIMITED (2013) 32 TAXMANN.COM 370 (GUJ .) WHEREIN IT WAS HELD THAT IN THE CASE WHERE THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MEET HIS TAX FREE INVESTMENT S YIELDING EXEMPT INCOME, IT COULD BE PRESUMED THAT SUCH INVESTMENTS WERE MADE FROM INTEREST BEARING FUNDS AND NOT LOAN FUNDS AND THUS NO DISALLOWANCE U/S 14A WAS WARRANTED. HE ALSO RELIED ON THE ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 5 - DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION LIMITED (2013), 218 TAXMANN.COM 142 (GUJ.) WHERE IT WAS HELD THAT WHERE THE REVENUE FAILED TO ESTABLISH THAT THE ASSESSEE HAD INCURRED ANY EXPENSES FOR EARNING DIVIDEND INCOME FROM AMOUNT BORROWED, NO AD DITION COULD BE MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL PLACED ON RECORD . THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS UTILIZED INTEREST BE ARING FUNDS FOR MAKING INVESTMENT AND MADE PROPORTIONATE DISALLOWAN CE OF INTEREST EXPENDITURE OF RS 1,45,537/- IN ASSESSMENT YEAR 2004-05 AND RS 5,04,777/- IN ASSESSMENT YEAR 2005-06 ON THE GROUND THAT THE ASSESSEE HAS MADE INVESTMENT OF RS 27.48 LAKHS IN ASSESSMENT YEAR 2004-05 AND RS 153.86 LAKHS IN ASSESSMENT YEAR 2005-06 AND HAS EARNED EXEMPT DIVIDEND INCOME. ON APPEAL, THE DISALLOWANCE MADE WAS DELETED BY THE CIT(A) BY FOLL OWING THE DECISION OF THE BOMBAY HIGH COURT IN CIT VS. RELIAN CE UTILITIES & POWER LIMITED, 313 ITR 340 AND THE DECISION OF TH E AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. HIPPOLIN LIMITED IN ITA NO. 4257/AHD/2007 WHICH WAS CONFIRMED BY HONBLE GUJARAT HIGH COURT IN TAX APPE AL NO. 870 OF 2010, ORDER DATED 25.07.2011. THE HONBLE GUJAR AT HIGH COURT OBSERVED THAT IT WAS UNDISPUTED FACT THAT THE APPEL LANT HAD SUBSTANTIAL SHARE CAPITAL AND RESERVES AND THEREFOR E, IT CANNOT BE SAID THAT THE INVESTMENTS IN SHARES WERE MADE OUT O F INTEREST ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 6 - BEARING FUNDS. IN THE INSTANT CASE ALSO, WE FIND T HAT IN THE ASSESSMENT YEAR 2004-05, THE ASSESSEE HAD SUBSTANTI AL INTEREST FREE FUND IN THE FORM OF SHARE CAPITAL AND RESERVES OF RS 9929.16 LAKHS IN ASSESSMENT YEAR 2004-05 AND RS 16573.64 LA KHS IN ASSESSMENT YEAR 2005-06 WHEREAS THE INVESTMENT OF T HE ASSESSEE WAS RS 27.48 LAKHS IN THE ASSESSMENT YEAR 2004-05 A ND RS 15.86 LAKHS IN THE ASSESSMENT YEAR 2005-06. WE FIND THAT THE AO HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT ANY INTE REST BEARING BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE FOR MA KING INVESTMENT IN SHARES IN ANY OF THE YEARS UNDER CONS IDERATION. THEREFORE, THE DECISION OF THE HONBLE GUJARAT HIGH COURT SQUARELY APPLIES TO THE FACTS OF THE ASSESSEES CAS E. THE LD. DR HAS RELIED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT AND HAS SUBMITTED THAT THE ONUS WAS ON THE ASSESSEE TO PROV E THAT NO INTEREST BEARING FUNDS WERE UTILIZED BY THE ASSESSE E IN MAKING THE INVESTMENTS FROM WHICH TAX FREE INCOME WAS EARNED B Y THE ASSESSEE, AND AS THE ASSESSEE FAILED TO DO SO, THE DISALLOWANCE MADE BY THE AO WAS JUSTIFIED IN VIEW OF THE DECISIO N OF THE HONBLE CALCUTTA HIGH COURT. WE FIND THAT THE DECIS ION OF JURISDICTIONAL GUJARAT HIGH COURT IS TO THE EFFECT THAT WHERE THE ASSESSEE HAS SUBSTANTIAL INTEREST FREE FUND TO MEET HIS TAX FREE INVESTMENTS YIELDING EXEMPT INCOME, IT CAN BE PRESU MED THAT SUCH INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS AND NOT LOAN FUNDS. AS THE DECISION OF THE JURISDICTIONAL HIGH C OURT IS BINDING ON THE TRIBUNAL, WE RESPECTFULLY FOLLOWING THE DECI SION OF HONBLE GUJARAT HIGH COURT, CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GROUND OF APPEAL OF THE REVENUE IN BOTH THE ASS ESSMENT YEARS UNDER CONSIDERATION. ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 7 - 8. IN THE CROSS OBJECTION, THE ASSESSEE HAS RAISED GROUND AGAINST THE CONFIRMATION OF DISALLOWANCE U/S.14A OF RS.9,460/- IN ASSESSMENT YEAR 2004-05 AND RS.8,438/- IN ASSESSMENT YEAR 2004 -05 OUT OF ADMINISTRATIVE EXPENSES. AT THE TIME OF HEARING AS THESE GROUNDS INVOLVED VERY NOMINAL AMOUNT NO SERIOUS ARGUMENTS W ERE ADVANCED BY THE LEARNED AR OF THE ASSESSEE AND THER EFORE THESE GROUNDS OF CROSS OBJECTION FOR BOTH THE YEARS ARE N OT ADJUDICATED UPON AND ARE TREATED AS DEEM TO BE NOT PRESSED AND ARE ACCORDINGLY DISMISSED. 9. THE GROUND NO. 2 OF APPEAL IS DIRECTED AGAINST T HE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE OF INTEREST OF RS 21,58,321/- OUT OF TOTAL ADDITION OF RS 38,87,881/- IN ASSESSMENT Y EAR 2004-05 AND RS 7,33,624/- OUT OF TOTAL ADDITION OF RS 13,98 ,459/- IN ASSESSMENT YEAR 2005-06 MADE U/S 36 OF THE INCOME T AX ACT. IN THE CROSS OBJECTION FILED BY THE ASSESSEE, THE ASSE SSEE IS AGAINST THE CONFIRMATION OF ADDITION OF RS.17,29,660/- OUT OF THE TOTAL ADDITION MADE ON ACCOUNT OF INTEREST EXPENDITURE U/ S.36 OF THE IT ACT IN THE ASSESSMENT YEAR 2004-05 AND CONFIRMATION OF ADDITION OF RS.6,64,835/- IN ASSESSMENT YEAR 2005-06 OUT OF THE TOTAL ADDITION MADE ON ACCOUNT OF INTEREST EXPENDITURE U/ S.36 OF THE IT ACT. 10. THE ASSESSING OFFICER OBSERVED THAT IN ASSESSME NT YEAR 2004-05, THE ASSESSEE HAD MADE INTEREST FREE ADVANCE OF RS 4 16.32 LAKHS TO ITS WHOLLY OWNED SUBSIDIARY COMPANY ACCORD HEALTHCA RE, UK AND HAS PAID INTEREST EXPENDITURE OF RS 1172.82 LAKHS. SIMILARLY, HE ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 8 - OBSERVED THAT IN THE ASSESSMENT YEAR 2005-06, THE A SSESSEE HAS MADE INTEREST FREE ADVANCE TO ITS WHOLLY OWNED SUBS IDIARY COMPANY ACCORD HEALTHCARE, UK OF RS 576.65 LAKHS, T O ACCORD HEALTHCARE, NZ LIMITED OF RS 13.36 LAKHS AND TO ACC ORD HEALTHCARE LIMITED, BRASIL OF RS 20.28 LAKHS, TOTAL ING TO RS 610.29 LAKHS. THE ASSESSEE HAS ALSO MADE INTEREST PAYMENT OF RS 997.78 LAKHS. THEREFORE, THE ASSESSING OFFICER MADE PROPO RTIONATE DISALLOWANCE OF INTEREST EXPENDITURE OF RS 33,87,88 1/- IN ASSESSMENT YEAR 2004-05 AND RS 13,98,459/- IN THE A SSESSMENT YEAR 2005-06. 11. ON APPEAL, THE LD. CIT(A) RESTRICTED THE DISALL OWANCE OF RS 1729660/- IN ASSESSMENT YEAR 2004-05 AND RS 6,64,83 5/- IN ASSESSMENT YEAR 2005-06 BY OBSERVING THAT LOANS IN ADVANCES WERE GIVEN TO THE SISTER CONCERNS DURING THE PERIOD 14.11.2003 TO 31.03.2004 ONLY AND THAT INTEREST DISALLOWANCE SHOU LD BE MADE FOR ONE DAY IN THE CASE OF LOAN OF RS 40,95,000/- GIVEN TO ACCORD HEALTHCARE LIMITED, UK ON 31.03.2004 AND FOR THE PE RIOD 15.11.2003 TO 31.03.2004 IN RESPECT OF AMOUNT OF RS 410.95 LAKHS. SIMILARLY, FOR ASSESSMENT YEAR 2005-06, THE CIT(A) HELD THAT LOANS WERE GIVEN TO ACCORD HEALTHCARE LIMITED, UK D URING THE YEAR 26.11.2004 TO 23.03.2005 AND THEREFORE, THE CIT(A) DIRECTED TO RESTRICT THE DISALLOWANCE OF INT EREST FROM THE DAY OF GIVING OF ADVANCE TO 21.03.2005 ONLY. 12. BEING AGGRIEVED AGAINST THIS ORDER, THE REVENUE IS IN APPEAL AGAINST THE DELETION OF DISALLOWANCE OF INTEREST EX PENDITURE OF RS 21,58,221/- IN ASSESSMENT YEAR 2004-05 AND RS 7,33, 624/- IN THE ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 9 - ASSESSMENT YEAR 2005-06 AND THE ASSESSEE IS IN THE CROSS- OBJECTION AGAINST THE SUSTENANCE OF DISALLOWANCE OF RS 17,29,660/- IN ASSESSMENT YEAR 2004-05 AND RS 6,64,835/- IN THE ASSESSMENT YEAR 2005-06. 13. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THIS IS SECOND ROUND OF APPEAL BEFORE THE TRIBUNAL. IN THE FIRST ROUND OF APPEAL, THE TRIBUNAL VIDE ORDER DATED 22.10.2010 IN ITAS NO. 8/ AHD/08 AND 9/AHD/08 AND COS NO. 27/AHD/08 AND 28/AHD/08 DIRECT ED THE ASSESSING OFFICER VIDE PARA 7.2 AT PAGE 7 OF THE OR DER TO VERIFY IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF RELIANCE UTILITIES POWER LIMITED, 221 CTR 4 35 (BOM.) THAT IF GLOBAL POSITION OF THE AVAILABILITY OF FUND S SHOWS THAT SUFFICIENT NON-INTEREST BEARING FUNDS ARE AVAILABLE WITH THE ASSESSEE, THEN NO DISALLOWANCE OF INTEREST EXPENDIT URE WAS TO BE MADE AND ALSO TO EXAMINE IN THE LIGHT OF THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS, 228 ITR 1 SC (SC) WHERE INTEREST FREE ADVANCE HAD NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE, AND IN THAT CASE NO DISAL LOWANCE OF INTEREST EXPENDITURE WAS MADE. IT WAS THE SUBMISSION OF THE LD. AR OF THE ASSESSEE THAT WHEN THE ASSESSEE HAD SUFFICIENT INTE REST FREE OWN FUNDS, THEN IN THE ORDER PASSED PURSUANCE TO THE DI RECTION OF THE TRIBUNAL, THE ASSESSING OFFICER WAS NOT JUSTIFIED I N MAKING THE PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE. THUS, THE ASSESSING OFFICER EXCEEDED HIS JURISDICTION AND THE REFORE, IT WAS HIS PRAYER THAT THE ENTIRE DISALLOWANCE OF INTEREST EXPENDITURE WAS TO BE DELETED. ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 10 - 14. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ER OF THE CIT(A). AFTER HEARING RIVAL SUBMISSIONS AND PERUSING THE OR DERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE ASSESSING OFFICER HAS MADE PROPORTIONATE DISALLOWAN CE OF INTEREST EXPENDITURE OF RS 38,87,881/- IN ASSESSMENT YEAR 20 04-05 AND RS 13,98,459/- IN ASSESSMENT YEAR 2005-06 ON INTEREST FREE ADVANCE OF RS 416.32 LAKHS IN ASSESSMENT YEAR 2004-05 AND R S 610.29 LAKHS IN ASSESSMENT YEAR 2005-06 GIVEN BY THE ASSE SSEE TO ITS WHOLLY OWNED SUBSIDIARIES. THE MATTER WAS RESTORED BACK BY THE TRIBUNAL TO THE FILE OF THE ASSESSING OFFICER IN FI RST ROUND OF THE PROCEEDINGS VIDE ORDER DATED22.10.2010 TO EXAMINE W HETHER THE INTEREST FREE ADVANCE HAD A NEXUS WITH THE BUSINESS OF THE ASSESSEE OR THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT TO GIVE INTEREST FREE ADVANCES AND IF SO FOUND, NO DIS ALLOWANCE FOR INTEREST EXPENDITURE WAS CALLED FOR. IN THE SET AS IDE PROCEEDINGS, THE ASSESSING OFFICER AGAIN MADE PROPORTIONATE DISA LLOWANCE OF INTEREST EXPENDITURE OF RS 1,45,537/- IN ASSESSMENT YEAR 2004-05 AND RS 5,04,777/- IN ASSESSMENT YEAR 2005-06 WHICH WAS RESTRICTED BY THE CIT(A) TO RS 17,29,660/- IN ASSES SMENT YEAR 2004-05 AND RS 6,64,835/- IN 2005-06. THE LEARNED AR OF THE ASSESSEE HAS POINTED OUT FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAD SUFFICIENT OWN INTEREST FREE FUNDS OF RS 9929.16 LAKHS IN THE ASSESSMENT YEAR 2004-05 AND RS 16573.64 LAKH S IN ASSESSMENT YEAR 2005-06 WHICH WAS MUCH LESS THAN TH E INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE TO ITS SUBSIDIA RIES. HENCE, IT IS HIS SUBMISSION THAT IN SPITE OF FINDINGS THAT THE A SSESSEE HAD SUFFICIENT INTEREST FREE FUND, THE ASSESSMENT OFFIC ER EXCEEDED HIS JURISDICTION IN AGAIN MAKING PROPORTIONATE DISALLOW ANCE OF INTEREST ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 11 - EXPENDITURE AND INTEREST EXPENDITURE IN THE YEARS U NDER CONSIDERATION WHICH IS NOT IN ACCORDANCE WITH THE D IRECTION GIVEN BY THE TRIBUNAL VIDE ITS ORDER DATED 22.10.2010. W E, THEREFORE, DELETE THE DISALLOWANCE OF INTEREST EXPENDITURE SUS TAINED BY THE LD. CIT(A) AND THUS DISMISS THE GROUND OF APPEAL OF THE REVENUE AND ALLOW THE CROSS-OBJECTIONS OF THE ASSESSEE. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDER OF THE LOWER AUTHORITIES. THIS IS THE SECOND ROUND OF APPE AL BEFORE THIS TRIBUNAL. IN THE FIRST ROUND OF APPEAL THE TRIBUNAL VIDE ITS ORDER DATED 22 ND OCTOBER, 2010 PASSED IN ITA NOS. 8 AND 9/AHD/2008 AND COS. 27 AND 28/AHD/2008 PASSED THE FOLLOWING OR DER: 7.2 IT HAS BEEN AGREED BY BOTH THE SIDES THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE APE X COURT IN THE CASE OF SA BUILDERS, 288 ITR 1 (SC) WHEREIN IT HAS BEEN HELD THAT IF THE INTEREST FREE ADVANCE HAS A N EXUS WITH THE BUSINESS ACTIVITY, IE. TO ESTABLISH COMMERCIAL EXPEDIENCY THEN ONLY NO DISALLOWANCE COULD BE MADE. THERE IS A NOTHER LATEST DECISION OF RELIANCE UTILITIES & POWER LTD., 221 CTR 435 (BOM.) WHEREIN A GLOBAL POSITION OF THE AVAILABILITY OF FUNDS HAS TO BE EXAMINED AND IF SUFFICIENCY OF NON- INTEREST BEARING FUND IS ESTABLISHED THEN ONLY THE CLAIM CAN BE ALLOWED. RESPECTFULLY FOLLOWING THESE JUDGMENT WE R ESTGORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICE AND DIRECT HIM TO DECIDE THE ISSUE IN LINE WITH THE JUDGMENT O F THE HONBLE APEX COURT AFTER AFFORDING REASONABLE OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. WHILE DECIDING THE ISSUE THE ASSESSING OFFICE WILL BEAR IN MIND THAT THE ADVANCE FREE LOAN OF RS.4,00,95,000/- HAS BEEN GIVEN TO A WHOLLY OWNE D SUBSIDIARY COMPANY. THE GROUND OF THE REVENUE IS ACCORDINGLY TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES. 16. IN PURSUANCE THEREOF THE AO PASSED FRESH ORDERS ON 28.12.2011 FOR BOTH THE YEARS WHEREIN HE DISALLOWED INTEREST OF RS .38,87,881/- FOR ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 12 - ASSESSMENT YEAR 2004-05 AND RS.13,38,459/- FOR ASSE SSMENT YEAR 2005-06 ON THE GROUND THAT ASSESSEE FAILED TO ESTAB LISH THAT THERE WAS NO NEXUS BETWEEN INTEREST BEARING BORROWED FUND S AND ADVANCE GIVEN TO WHOLLY OWNED SUBSIDIARY COMPANIES. LEARNED CIT(A) OBSERVED THAT IN ASSESSMENT YEAR 2004-05 INT EREST EXPENSES OF RS.11.73 CRORES INCLUDES INTEREST ON TE RM LOAN ON 6.51 CRORES SIMILARLY IN ASSESSMENT YEAR 2005-06 ALSO TH E TOTAL INTEREST INCLUDES INTEREST ON TERM LOANS AND THE SAME HAS TO BE EXCLUDED FROM THE TOTAL INTEREST BECAUSE THE TERM LOAN IS US ED THE BY THE ASSESSE FOR SPECIFIC PURPOSE SUCH AS PURCHASE OF PL ANT AND MACHINERY ETC. AND ACCORDINGLY DIRECTED FOR DELETIO N OF INTEREST OF RS.21,58,221/- IN THE ASSESSMENT YEAR 2004-05 AND R S.7,33,624/- IN THE ASSESSMENT YEAR 2005-06. 17. FURTHER, LEARNED CIT(A) OBSERVED THAT BANK STAT EMENT OF CORPORATION BANK COULD NOT BE FILED BY THE ASSESSEE BEFORE HIM AND THEREFORE HE SET ASIDE THE BALANCE AMOUNT INTER EST DISALLOWANCE BACK TO THE FILE OF THE AO FOR RE-ADJUDICATION AFRE SH AFTER VERIFYING THE BANK ACCOUNT OF SBI AND CORPORATION BANK. BEING AGGRIEVED BY THIS ORDER BOTH THE PARTIES ARE IN APPEAL BEFORE US. 18. LEARNED AR OF THE ASSESSEE SUBMITTED THAT BOTH THE LOWER AUTHORITIES HAVE EXCEEDED THEIR JURISDICTION INASMU CH AS THEY EXCEEDED THE JURISDICTION CONFERRED BY THE TRIBUNAL UPON THEM. HE THEREFORE CONTENDED THAT DISALLOWANCE OF INTEREST O UGHT TO BE DELETED IN FULL. ON THE OTHER HAND, LEARNED DR SUPP ORTED THE ORDER OF THE AO ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 13 - 19. WE FIND THAT IN THE INSTANT CASE, THE TRIBUNAL OBSERVED THAT THE HONBLE BOMBAY HIGH IN THE CASE OF RELIANCE UTILITI ES AND POWER LIMITED, 221 CTR 435 (BOM) HELD THAT A GLOBAL POSIT ION OF THE AVAILABILITY OF FUNDS HAS TO BE EXAMINED AND AFTER SUFFICIENCY OF NON INTEREST BEARING FUNDS IS ESTABLISHED THEN ONLY CLAIM CAN BE ALLOWED AND DIRECTED THE AO TO TAKE THIS DECISION A LSO IN CONSIDERATION. HOWEVER FROM THE ORDERS OF THE LOWER AUTHORITIES, WE FIND THAT NONE OF THE LOWER AUTHORITIES HAVE FOU ND THAT ON GLOBAL EXAMINATION OF AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE WAS NOT SUFFICIENT FOR ADVANCING INTEREST FREE ADVANCE TO THE SUBSIDIARIES. THEREFORE, IN VIEW OF THE DECISIO N OF THE TRIBUNAL THE DISALLOWANCE OF INTEREST AGAIN WAS NOT WARRANTE D. WE, THEREFORE, DELETE THE DISALLOWANCE OF INTEREST EXPE NDITURE OF BOTH THE YEARS, I.E., RS.17,29,660/- IN ASSESSMENT YEAR 2004-05 AND RS.6,64,835/- IN THE ASSESSMENT YEAR 2005-06. THUS THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED AND THE GROU NDS OF CROSS OBJECTION OF ASSESSEE ARE ALLOWED. 20. IN THE RESULT, THE APPEALS OF THE REVENUE ARE D ISMISSED AND THE CROSS-OBJECTIONS FILED BY THE ASSESSEE ARE PARTLY A LLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 17 TH OF JANUARY, 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 17/01/2014 GHANSHYAM MAURYA GHANSHYAM MAURYA GHANSHYAM MAURYA GHANSHYAM MAURYA, SR. P , SR. P , SR. P , SR. P. .. .S SS S ITA NO.2403 & 2404/AHD/2012 AND CO NO. 240 & 241/AH D/2012 INTAS PHARMACEUTICALS LTD. VS. DCIT, CIRCLE-2(1), A HD FOR A.Y. 2004-05 & 2005-06 - 14 - $% &' ($'# $% &' ($'# $% &' ($'# $% &' ($'#/ COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. &+)* / THE RESPONDENT. 3. ,, - / CONCERNED CIT 4. -() / THE CIT(A)-III, AHMEDABAD 5. '01 & , , / DR, ITAT, AHMEDABAD 6. 123 4 / GUARD FILE. $% $% $% $% / BY ORDER, 5 55 5/ // / ,6 ,6 ,6 ,6 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD