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

ITA 28/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1183 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 04-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S MO HARANA
• Assessee Lawyers: T BANUSEKAR
• Section: 14A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH CHENNAI BEFORE SHRI N. S. SAINI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ------- ITA NOS. 28/MDS/2013 ASSESSMENT YEAR : 2008-09 THE DY. COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-I(1), CHENNAI. V. M/S. ALLIANZ BIOSCIENCES LTD., 656, T.H. ROAD, CHENNAI-600 081. (PAN : AABCH2431G) (APPELLANT) (RESPONDENT) A ND C.O. NO. 35/MDS/2013 (IN ITA NO. 28/MDS/2013) ASSESSMENT YEAR : 2008-09 M/S. ALLIANZ BIOSCIENCES LTD., V. THE D Y. COMMISSIONER 656, T.H. ROAD, OF INCOME TAX, CHENNAI-600 081. COMPANY CIRCLE-I(1), (CROSS OBJECTOR) ( RESPONDENT) DEPARTMENT BY : SHRI S. MOHARANA, CIT-DR ASSESSEE BY : SHRI T. BANUSEKAR, CA DATE OF HEARING : 18.03.2013 DATE OF PRONOUNCEMENT : 21. 03.2013 ITA NO. 28/MDS/2013 & CO NO. 35/MDS/2013 : 2 : O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(APPEALS)-IX, CHENNAI DATED 28-09-2012 FOR THE ASSESSMENT YEAR 2008-09. 2. THE FIRST GROUND OF APPEAL RELATES TO DISALLOWAN CE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 ('THE ACT' FOR SHORT). DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD RE CEIVED ` 47,596/-, BEING TAX-FREE DIVIDEND. THE ASSESSING O FFICER ASKED THE ASSESSEE TO EXPLAIN APPLICABILITY OF SEC. 14A. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THA T THE ENTIRE AMOUNT OF INVESTMENT WAS OUT OF SURPLUS FUND S GENERATED FROM THE BUSINESS AND THAT IT WAS NOT OUT OF BORROWALS MADE BY THE ASSESSEE. IT WAS FURTHER SU BMITTED THAT NO DIRECT EXPENDITURE WAS INCURRED FOR EARNING OF THE EXEMPTED INCOME. THE ASSESSING OFFICER AFTER CONSI DERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSES SEE HAS USED ITS OFFICE ESTABLISHMENT AS WELL AS ITS STAFF FOR EARNING OF THE DIVIDEND INCOME. THUS EVEN THOUGH THE DISALLOW ANCE ITA NO. 28/MDS/2013 & CO NO. 35/MDS/2013 : 3 : UNDER THE FIRST TWO LIMBS OF COMPUTATION AS PER RUL E 8D FOR THE PURPOSE OF SEC. 14A IS NIL, THE THIRD LIMB OF RULE 8D WILL DEFINITELY BE APPLICABLE CONSIDERING THAT IT WOULD REQUIRE A SPECIALIZED ATTENTION BY A DEDICATED TEAM OF PROFES SIONALS OR THE DIRECTORS TO MONITOR THESE INVESTMENTS. THUS T HERE WAS CERTAINLY A HIDDEN COST IN THE OVERALL COST TO THE COMPANY AND THEREFORE A PROPORTIONATE DISALLOWANCE BASED ON THE INVESTMENT VALUE IN TERMS OF THE THIRD LIMB OF RULE 8D WAS ATTRACTED. ACCORDINGLY, HE DISALLOWED ` 69,925/- AS 0.5% OF THE VALUE OF THE INVESTMENT MADE BY THE ASSESSEE. 3. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER BEFORE THE CIT(APPEALS). THE CIT(APPEALS) DELETED T HE ADDITION BY SIMPLY OBSERVING THAT THE ASSESSING OFF ICER HAS NOT GIVEN ANY FINDING THAT THE EXPENDITURE HAD BEEN INC URRED FOR THE EARNING THE EXEMPTED INCOME. 4. ON APPEAL, WE HAVE HEARD BOTH SIDES. THE ASSESS ING OFFICER HAS GIVEN A FINDING THAT IN THE PRESENT CAS E THE THIRD LIMB OF RULE 8D IS APPLICABLE AND HE HAS FURTHER GI VEN A FINDING THAT TO EARN SUCH INCOME, IT REQUIRED SPECIALIZED A TTENTION BY A DEDICATED TEAM OF PROFESSIONALS OR THE DIRECTORS TO MONITOR THE INVESTMENTS. THUS THERE IS CERTAINLY A HIDDEN COST IN THE OVERALL COST TO THE COMPANY AND THEREFORE HE DISALL OWED ` ITA NO. 28/MDS/2013 & CO NO. 35/MDS/2013 : 4 : 69,925/-. HOWEVER, THE CIT(APPEALS) DELETED THE AD DITION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT NO FINDING HAS BEEN GIVEN BY THE ASSESSING OFFICER WITH REGARD TO THE EXPENDITURE INCURRED RELATING TO THE EXEMPTED INCOM E. THE ASSESSING OFFICER AFTER RECORDING A FINDING DISALLO WED ` 69,925/-. WE ACCORDINGLY REVERSE THE ORDER PASSED B Y THE CIT(APPEALS). THIS GROUND OF APPEAL RAISED BY THE REVENUE IS THEREFORE ALLOWED. 5. THE SECOND GROUND OF APPEAL RELATES TO THE CLAIM OF DEDUCTION UNDER SECTION 80-IB OF THE ACT. BRIEF FA CTS ARE THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80-IB TO THE EXTENT OF ` 1,98,01,926/- AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E PROFITS DERIVED BY THE ASSESSEES INDUSTRIAL UNDERTAKING AT PONDICHERRY HAS BEEN CLAIMED IN FULL AS DEDUCTION U /S 80-IB OF THE ACT. ASSESSMENT YEAR 2005-06 IS THE INITIAL AS SESSMENT YEAR IN WHICH SUCH DEDUCTION WAS CLAIMED. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2 005-06 DIRECTIONS U/S 144A WAS SOUGHT FROM THE THEN ADDL. CIT, COMPANY RANGE-I ON THE ALLOWABILITY OF DEDUCTION U/ S 80-IB. THE ADDL. CIT PASSED AN ELABORATE ORDER U/S 144A DI RECTING THE THEN ASSESSING OFFICER TO DISALLOW THE DEDUCTIO N CLAIMED ITA NO. 28/MDS/2013 & CO NO. 35/MDS/2013 : 5 : BY THE ASSESSEE U/S 80-IB OF THE ACT. ACCORDINGLY, IN THE FIRST YEAR ITSELF, THE DEDUCTION U/S 80-IB WAS NOT ALLOWE D FOR THE FOLLOWING REASONS THAT : A) THE ASSESSEE DOES NOT POSSESS THE LICENCE TO MANUFACTURE DRUGS IN ITS OWN NAME; B) THE ASSESSEE IS MANUFACTURING ON A LOAN LICENCE TAKEN FROM M/S. TABLETS INDIA LTD.; C) THE TECHNICAL KNOW-HOW AND THE QUALITY SPECIFICATIONS ARE PRESCRIBED BY THE PRINCIPAL MANU FACTURER, M/S. TABLET INDIA LTD.; D) THE INSPECTION AND QUALITY CHECKS ARE DONE BY T H PRINCIPAL MANUFACTURER; E) THE MATERIALS ARE SUPPLIED DIRECTLY BY THE PRINC IPAL MANUFACTURER, I.E. THE RAW MATERIALS ARE NOT PURCHA SED BY THE ASSESSEE COMPANY; F) THE ASSESSEE IS IN RECEIPT OF ONLY CONVERSION CHARGES FOR THE WORK DONE BY IT ON BEHALF OF M/S. T ABLET INDIA LTD. 6. SINCE THE FACTS WERE IDENTICAL AS IN EARLIER YEA R, THE ASSESSING OFFICER, FOLLOWING THE REASON GIVEN FOR T HAT YEAR, DISALLOWED THE CLAIM OF DEDUCTION U/S 80-IB. 7. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(APPEALS). THE CIT(APPEALS), BY FOLLOWING THE D ECISION OF ITA NO. 28/MDS/2013 & CO NO. 35/MDS/2013 : 6 : THE TRIBUNAL IN ITA NOS. 1365 & 1366/MDS/2009 IN TH E ASSESSEES OWN CASE, ALLOWED THE CLAIM OF THE ASSES SEE. 8. ON BEING AGGRIEVED, THE REVENUE HAS COME UP IN A PPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING THE LE ARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE T RIBUNAL FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 AND THAT T HE SAME MAY BE FOLLOWED IN THE PRESENT APPEAL. 9. THE LEARNED DR FAIRLY CONCEDED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. IT WAS HOWEVER SUBMITTE D THAT APPEALS ARE PENDING BEFORE THE HONBLE HIGH COURT F OR THE EARLIER ASSESSMENT YEARS. 10. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECOR DS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE TRIBUNAL IN ITA NOS. 1365 & 1366/MDS/2009 BY ORDER DATED 19- 11-2010 FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 CONSID ERED THE ISSUE INVOLVED IN THE PRESENT APPEAL AND ALLOWED TH E APPEALS OF THE ASSESSEE BY PASSING AN ELABORATE ORDER. THE RELEVANT PORTION OF THE SAID ORDER IS REPRODUCED HERE-UNDER : 5. WE FIND FORCE IN THE ARGUMENT OF THE LD.AR WHE N HE STATES THAT SECTION 80IB(13) REFERS TO SUB-SECTI ONS(5), (7) TO (12) OF SECTION 80IA WHICH DEAL WITH THE ELI GIBILITY CRITERIA LIKE, COMPUTATION OF PROFITS/CALCULATION O F DEDUCTION/PROCEDURE FOR CLAIM OF DEDUCTION APPLICAB LE TO AN ELIGIBLE INDUSTRIAL UNDERTAKING, MEANING THEREBY , ITA NO. 28/MDS/2013 & CO NO. 35/MDS/2013 : 7 : WHATEVER ELIGIBILITY CRITERIA AS LAID DOWN UNDER SE CTION 80IB HAS TO BE READ AS COMPLETE IN ITSELF AND NO ME ANING CAN BE IMPORTED FROM SECTION 80IA FOR THIS DEDUCTIO N. WHEN THE ELIGIBILITY CRITERIA IS CLEARLY LAID DOWN UNDER SECTION 80IB ITSELF, THE EXPLANATION OF SECTION 80I A CANNOT OVERRIDE THE ELIGIBILITY OF AN INDUSTRIAL UNDERTAKI NG EITHER U/S 80IA OR 80IB OR VICE VERSA. THESE ARE TO DIFFE RENT PROVISIONS OF LAW AND CANNOT BE MIXED OR SUBSTITUTE D EACH OTHER, VICE VERSA. IN OUR OPINION, THE CONTEN TION OF THE LD.DR THAT EXPLANATION BELOW SECTION 80IA WILL ALSO APPLY TO ELIGIBILITY CRITERIA FOR DEDUCTION U/S 80I B IS SIMPLISTIC AND DIDACTIC AND CARRIES NO SUBSTANCE TH EREIN. SECTION 80IA DEALS WITH DEDUCTION IN RESPECT OF PR OFITS AND GAINS FROM INDUSTRIAL UNDERTAKINGS OR ENTERPRIS ES ENGAGED IN INFRASTRUCTURE DEVELOPMENT LIKE INDUSTRI AL PARK, SOCIO ECONOMIC ZONE, GENERATION OF POWER OR SUBSTANTIAL RENOVATION AND MODERNIZATION OF EXISTIN G TRANSMISSION AND DISTRIBUTION LINES OR LAYING AND O PERATION OF CROSS COUNTRY INDUSTRIAL GAS DISTRIBUTION NETWOR K WHEREAS SECTION 80IB RELATES TO AN INDUSTRIAL UNDER TAKING OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS. IN CASE WE ACCEPT THE CONTENTION OF THE LD.DR, THE HAR MONY BETWEEN THESE TWO SECTIONS WOULD BECOME EXTINCT WHI CH IS NOT PERMISSIBLE IN FISCAL LAW. THE DRUGS COSMET ICS ACT, 1940 VIDE SECTION 69A SPEAKS OF GRANT OF LOAN LICEN CE TO MANUFACTURE FOR SALE OR FOR DISTRIBUTION OF DRUGS O THER THAN THOSE SPECIFIED IN SCHEDULE C. THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT (SUPRA) ALSO SUPP ORTS OUR FINDING. THERE IS NO DOUBT ABOUT THE FACT TH AT THE ASSESSEE IS ENGAGED IN SYSTEMATIC AND ORGANIZED ACT IVITY OF PRODUCTION BY ENGAGING LABOURERS TO PRODUCE THE END PRODUCT. THE HON'BLE P&H HIGH COURT IN THE CASE CI TED SUPRA HAS GONE TO THE EXTENT IN HOLDING THAT ONCE I T IS FOUND THAT THE ASSESSEE IS DERIVING INCOME FROM ELI GIBLE BUSINESS COVERED BY SECTION 80IB APART FROM OTHER CONDITIONS, THE ASSESSEE HAS LIBERTY TO DO MANUFACT URING ACTIVITY NOT ONLY FOR HIMSELF BUT ALSO FOR OTHERS A ND 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 IN THE CASE OF M/S TABLETS (INDIA) LTD. ALTHOUGH THESE EVIDENCES MAY BE SELF-SERVING EVIDEN CES YET, IN THE ABSENCE OF ANY DISPUTE WITH REGARD TO T HE ITA NO. 28/MDS/2013 & CO NO. 35/MDS/2013 : 8 : FACTS MENTIONED ABOVE, THESE FACTORS HELP THE ASSES SEE TO A GREATER EXTENT TO BRING ITS CLAIM U/S 80IB. S O, IT IS CLEARLY SEEN THAT U/S 80IB(4) SUB-CONTRACT IS NOT PROHIBITED. UNDISPUTEDLY, THE ASSESSEE HAS GOT ITS FACTORY AT PONDICHERRY FROM WHERE IT CARRIES ON MANUFACTUR ING ACTIVITIES. THIS COMPANY HOLDS A LICENCE IN FORM N O. 24 AND FORM NO.28 TO MANUFACTURE DRUGS AND FORMULATIO NS UNDER THE LICENCE OBTAINED IN FORM NO.25A AND FORM 28A OBTAINED BY M/S TABLETS (INDIA) LTD. A LOAN LICENC E HAS BEEN ISSUED TO THE ASSESSEE WHO DOES NOT HAVE HIS O WN ARRANGEMENT FOR MANUFACTURE AND WHO INTENDS TO AVAI L FACILITIES FROM OTHER MANUFACTURERS. HENCE, THE EN TIRE ACTIVITIES ARE DONE BY THE ASSESSEE ON BEHALF OF TH E LOAN- LICENCEE I.E M/S TABLETS (INDIA) LTD. THE MANUFACT URING ACTIVITIES ARE DONE UNDER THE DIRECTION AND SUPERVI SION OF TECHNICAL STAFF WHO ARE THE EMPLOYEES OF THE ASSESS EE- 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 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 INDU STRY. THE DRUGS AND OTHER FORMULATIONS ARE SOLD BY M/S TA BLETS (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 A S PER THE TERMS AND CONDITIONS PROVIDED IN THE LOAN LICEN CE. THE CAPACITY AND INFRASTRUCTURE REGARDING PRODUCTIO N OF THESE MEDICINES FORMULATIONS AND PHARMACEUTICAL FORMULATIONS IS NOT DOUBTED BY THE DEPARTMENT. TO MANUFACTURE DRUGS EITHER FOR SELF OR FOR OTHERS ON A LOAN LICENCE BASIS, GETTING A LOAN LICENCE FROM THE AUTH ORITIES IS A CONDITION PRECEDENT. IN THE LOAN LICENCE THE PRE MISES WHERE THE MANUFACTURING ACTIVITY IS TO BE CARRIED O N 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 WIT H REGARD TO THE PRESCRIBED STANDARDS REGARDING HYGIENE STRAT EGIES AND CLEANLINESS FAILING WHICH THE LICENCE CAN BE WITHDRAWN. IN THIS CASE, UNDOUBTEDLY THE ASSESSEE HAS USED ITS OWN PLANT AND MACHINERY, INFRASTRUCTURE AN D SKILLED WORKERS FOR THE PURPOSE OF MANUFACTURE. IT HAS MANUFACTURED GOODS IN ITS PREMISES AND HAS INCURRED ITA NO. 28/MDS/2013 & CO NO. 35/MDS/2013 : 9 : SUBSTANTIAL EXPENDITURE ON INFRASTRUCTURE, CONSUMAB LES, MANPOWER, ETC. THE GOODS MANUFACTURED HAVE SUFFER ED EXCISE DUTY UNDER THE CATEGORY 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 ASSES SEE HAS CONVERTED THE RAW MATERIALS RECEIVED FROM M/S TABLETS (INDIA) LTD INTO DRUGS AND OTHER PHARMACEUT ICAL FORMULATIONS. WHEREAS M/S TABLETS (INDIA) LTD DOES NOT HAVE A MANUFACTURING UNIT AND HENCE, IT CANNOT CLAI M DEDUCTION U/S 80IB. THE LD. CIT(A) HAS ALSO ASCERT AINED 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 WOR K HAS BEEN OUTSOURCED BY ANOTHER HAS TO BE TREATED AS MANUFACTURER OR NOT. THIS ISSUE IS DIRECTLY COVERE D BY THE DECISION IN THE CASE OF CIT VS TAJ FIRE WORKS INDUS TRIES (SUPRA) WHICH GOES IN FAVOUR OF THE ASSESSEE. IN T HESE CIRCUMSTANCES, WE DO NOT FIND ANY VALID REASON(S) T O INTERFERE IN THE IMPUGNED FINDING, HENCE, WE CONFIR M THE SAME. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE F OR ASSESSMENT YEAR 2005-06 STANDS DISMISSED. 11. IN VIEW OF THE DECISION OF THE CO-ORDINATE BENC H OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS 2005-06 AND 2006-07 AND FOLLOWING THE SAME, W E FIND NO INFIRMITY IN THE ORDER PASSED BY THE CIT(APPEALS). ACCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE REVENUE IS DISM ISSED. 12. THE CROSS OBJECTION FILED BY THE ASSESSEE HAS N OT BEEN PRESSED. THEREFORE, THE SAME IS DISMISSED AS NOT P RESSED. ITA NO. 28/MDS/2013 & CO NO. 35/MDS/2013 : 10 : 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESS EE IS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 21 ST OF MARCH, 2013, AT CHENNAI. SD/- SD/- (N. S. SAINI) (V.DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 21 ST MARCH, 2013. H. COPY TO: ASSESSEE/AO/CIT(A)/CIT/D.R./GUARD FILE