Panacea Biotech Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 2666/DEL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5479 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 06-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 24-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MEENAKSHI VOHRA SENIOR
• Assessee Lawyers: SHALESH GUPTA
• Keywords: Earning of tax free income; Revised return
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2666/DEL./2011 (ASSESSMENT YEAR : 2008-09) M/S. PANACEA BIOTEC LIMITED, VS. ADDL.CIT, RANGE 14, G 3/B 1, EXTENSION, NEW DELHI. MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI. (PAN : AAACP5335J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SALIL AGGARWAL, ADVOCATE AND SHRI SHALESH GUPTA, CA REVENUE BY : MS. MEENAKSHI VOHRA, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM TH E ORDER OF THE CIT (APPEALS)-XVII, NEW DELHI DATED 22.03.2011. THE GR OUNDS OF APPEAL READ AS UNDER :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT (APPEALS) ERRED IN UPHO LDING THE ADDITION U/S 14A AT ` 30,15,375/- MADE BY THE LD. A.O. WITHOUT APPRECIATING THAT THE INTENT OF THE ASSESSEE WAS NO T TO EARN ANY EXEMPT INCOME AND THE PROVISIONS OF THE ACT. ITA NO.2666/DEL./2011 2 2. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, A LTER, MODIFY, SUBSTITUTE OR DELETE ANY GROUND OR GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF THE APPEAL. 2 . THE ONLY ISSUE INVOLVED IS AGAINST THE DELETION OF THE ADDITION OF ` 30,15,375/- MADE BY THE AO. THE BRIEF FACTS OF TH E CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MA NUFACTURING AND TRADING OF PHARMACEUTICAL PRODUCTS. THE RETURN OF INCOME F ILED ON 29.09.2008. THE ASSESSING OFFICER FOUND THAT ASSESSEE HAS MADE INVE STMENTS RESULTING INTO THE EXEMPT INCOME AS PER THE PROVISIONS OF INCOME-TAX A CT, 1961. THE ASSESSEE WAS PROVIDED AN OPPORTUNITY. THE ASSESSEE FILED A REVISED RETURN AND MADE A DISALLOWANCE OF ` 33,52,297/- U/S 14A OF THE ACT. THE ASSESSEE SUBMI TS WORKING AS PER RULE 8D WHERE DISALLOWANCE WAS WORKE D OUT AT ` 1,75,89,561/-. THE ASSESSEE AGAIN SUBMITTED A REWO RKING ON 24.12.2010 BEFORE THE ASSESSING OFFICER AS PER RULE 8D AND WOR KED OUT DISALLOWANCE AT RS.1.45 CRORES. IN THIS REVISED WORKING, INVESTMEN T MADE WITH RESPECT TO TWO COMPANIES, I.E. CHIRON PANECEA VACCINES PRIVATE LTD . AND CAMBRIDGE BIOSATUBLY LTD. AND INTEREST EARNING FROM CAMBRIDGE BIOSATUBLY LTD. WAS NOT CONSIDERED. THE ASSESSING OFFICER HELD THAT INVEST MENTS MADE IN THESE COMPANIES YIELDING NON-TAXABLE INCOME TO THE ASSESS EE, THEREFORE, NEED TO BE CONSIDERED FOR WORKING OUT THE DISALLOWANCE AS PER RULE 8D AND ADDED THE DIFFERENCE IN WORKING OF DISALLOWANCE OF ` 33,52,259/- TO THE INCOME OF THE ASSESSEE. THE CIT (A) SUSTAINED THE ADDITION BY HO LDING AS UNDER :- ITA NO.2666/DEL./2011 3 2.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LD. AR AND PERUSED THE ASSESSMENT ORDER PASSED BY THE AO. THE AO WAS OF THE VIEW THAT SINCE THE APPELLANT HAS RECEIVED EXEMPT INCOME , DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE. THE AO APPLIED RULE 8D ON THE ENTIRE INVESTMENT AND COMPUTED DISALLOWANCE AT RS.1,75,00, 000/-. THE LD. AR SUBMITTED THAT THE APPELLANT IS NOT DENYING THE APP LICABILITY OF PROVISIONS OF SECTION 14A AND ACCORDINGLY THE APPELLANT ITSELF HAS COMPUTED DISALLOWANCE AT RS.1,45,00,000/- UNDER RULE 8D. HOW EVER, THE LD. AR SUBMITTED THAT THE APPELLANT DISPUTED FURTHER DISAL LOWANCE OF RS.30 LAKH MADE BY THE AO OVER AND ABOVE THE DISALLOWANCE COMP UTED BY THE APPELLANT. THE LD. AR VEHEMENTLY ARGUED THAT THE PR OVISIONS OF 14A ARE APPLICABLE IN RESPECT OF THE INVESTMENT MADE FOR EA RNING EXEMPT INCOME. BUT IN THE CASE OF THE APPELLANT THE INVESTMENT MAD E IN FOUR JOINT VENTURE COMPANIES NAMELY CHIRON PANECEA VACCINES (P) LTD., CAMBRIDGE BIOSTABILITY LTD., PANHEBER BIOTEC (P) LTD. (PANERA BIOTEC (P) LTD.) AND SHIVALIK SOLID WASTE MANAGEMENT LTD. WAS WITH THE I NTENTION TO EXPAND THE BUSINESS OF THE APPELLANT OUT OF COMMERCIAL EXP EDIENCY AND NOT WITH THE INTENTION OF EARNING EXEMPT INCOME. HE SUBMITTE D THAT EARNING OF EXEMPT INCOME BY WAY OF DIVIDEND WAS ONLY INCIDENTA L TO THE MAIN INTENTION OF THE APPELLANT OF EXPANDING ITS BUSINES S. HE SUBMITTED THAT BECAUSE OF INVESTMENTS MADE IN THE JOINT VENTURE CO MPANIES, THE APPELLANT WAS ABLE TO INCREASE ITS SALES SUBSTANTIA LLY. MY OBSERVATIONS AND FINDINGS ARE AS UNDER: (I) SECTION 14A PROVIDES THAT WHEREVER ANY EXPENDI TURE HAS BEEN INCURRED IN RELATION TO EARNING OF EXEMPT INCOME, T HE DISALLOWANCE IS REQUIRED TO BE MADE U/S 14A OF THE I.T. ACT, 1961. (II) RULE 80 IS APPLICABLE FROM THE A.Y. 2008-09 I. E. THE YEAR UNDER CONSIDERATION. RULE 80 PROVIDES THE MECHANISM BY WH ICH COMPUTATION OF DISALLOWANCE U/S 14A IS TO BE MADE. (III) PLAIN READING OF SECTION 14A AND RULE 80 DOES NOT PROVIDE THE EXCLUSION OF INVESTMENT MADE IN JOINT VENTURE COMPA NIES FOR WORKING OF THE DISALLOWANCE UNDER RULE 8D. THE RULE PROVIDES FOR CONSIDERATION OF AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME, AS APPEARING IN THE BALA NCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. IT DOES NOT EXCLUDE THE INVESTMENT MADE IN JOINT VENTURE COMPAN IES. THE LEGISLATURE IN ITS WISDOM HAS NOT EXCLUDED THE INVESTMENT IN JO INT VENTURE COMPANIES FOR CONSIDERING THE DISALLOWANCE. (IV) IT IS AN ADMITTED FACT THAT THE APPELLANT HAS RECEIVED DIVIDEND INCOME FROM ONE OF JOINT VENTURE COMPANIES DURING T HE YEAR UNDER CONSIDERATION WHICH WAS EXEMPT FROM TAX. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LEGAL PROVISION ON THE ISSUE, I AM OF THE CONSIDERED VIEW THAT THE A.O. WAS JUSTIFIED IN COMPUTING THE DISALLOWANCE UNDER RULE 8D BY CONSIDERING THE ITA NO.2666/DEL./2011 4 INVESTMENT IN JOINT VENTURE COMPANIES ALSO. IN VIE W OF THE ABOVE DISCUSSION, THE DISALLOWANCE MADE BY THE A.O. IS UP HELD. THIS GROUND OF APPEAL IS REJECTED. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 3. LD. AR RELIED ON THE DECISION OF ITAT, DELHI BEN CH IN THE CASE OF RELAXO FOOTWEAR LTD. VS. ADDL. CIT REPORTED IN (201 2) 50 SOT 102 WHEREIN THE ISSUE HAS BEEN DECIDED BY RELYING ON THE DECISI ON OF HON'BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS. DCIT 328 ITR 81, HON'BLE DELHI HIGH COURT IN THE CASE OF MAX OPP INVESTMENT LTD. & ORS. VS. CIT AND CIT VS. ESCORTS FINANCE LTD., NALW A INVESTMENTS LTD. AND SHARDA MOTORS INDUSTRIES LTD. 203 TAXMAN 364 THE LD. AR ALSO RELIED ON THE DECISION OF ITAT, DELHI IN THE CASE OF DCIT VS. JINDAL PHOTO LTD. IN ITA NO.4539/DEL/2010 DATED 07.01.2011 FOR THE PROPOSITI ON THAT BEFORE MAKING ANY DISALLOWANCE, THE AO SHOULD POINT OUT INACCURAC Y IN THE METHOD OF APPORTIONMENT AND ALLOCATION OF EXPENSES, AS ADOPTE D BY ASSESSEE. LD. AR ALSO RELIED ON THE DECISION OF HONBLE DELHI HIGH C OURT IN THE CASE OF CIT VS. ORIENTAL STRUCTURAL ENGINEERS (P.) LTD. REPORTED IN (2013) 35 TAXMANN.COM 210 (DELHI) FOR THE PROPOSITION THAT WHERE THE INVE STMENT WAS MADE IN A SUBSIDIARY FIRM TO FORM SPECIAL PURPOSE VEHICLE TO OBTAIN NHAI CONTRACT THEN EXPENSES WHICH HAD BEEN CLAIMED BY THE ASSESSEE WER E NOT TOWARDS THE EXEMPTED INCOME. 4. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS O F THE AUTHORITIES BELOW. ITA NO.2666/DEL./2011 5 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. AFTE R HEARING BOTH THE SIDES AND ALSO CONSIDERING THE FACTS OF THE CASE, WE FIND THAT INVESTMENT MADE IN FOUR JOINT VENTURE COMPANIES, NAMELY, CHIRON PANECE A VACCINES (P) LTD., CAMBRIDGE BIOSTABILITY LTD., PANHEBER BIOTEC (P) LT D. (PANERA BIOTEC (P) LTD.) AND SHIVALIK SOLID WASTE MANAGEMENT LTD. WERE WITH THE INTENTION TO EXPEND THE BUSINESS OF THE ASSESSEE OUT OF THE COMM ERCIAL EXPEDIENCY AND NOT WITH THE INTENTION OF EXEMPTED INCOME. THE EARNING OF EXEMPTED INCOME BY WAY OF DIVIDEND INCOME IS ONLY INCIDENTAL OF EXPAND ING ITS BUSINESS. FROM MAKING THIS INVESTMENT, THE ASSESSEE IS ABLE TO ENH ANCE ITS SALE SUBSTANTIALLY. IN VIEW OF THIS FACTUAL POSITION, WE FIND THAT THE CIT (A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF ` 30,15,375/- WHICH WAS OVER AND ABOVE THE COMPUTATION MADE BY THE ASSESSEE FOR DISALLOWANCE A T RS1.45 CRORES AS PER RULE 8D. ACCORDINGLY, WE SET ASIDE THE ORDERS OF T HE LOWER AUTHORITIES ON THIS GROUND. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 30 TH DAY OF JANUARY, 2014. SD/- SD/- (R.P. TOLANI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 30 TH DAY OF JANUARY, 2014 TS ITA NO.2666/DEL./2011 6 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XVII, DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.