ENEM NOSTRUM REMEDIES P.LTD, MUMBAI V. ITO RG 8(1)(3), MUMBAI

ITA 2977/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0492 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 01-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 18-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Keywords: Business income; Depreciation; Rule of consistency; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G , MUMBAI BEFORE S HRI G.S. PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 2977 /MUM/20 1 5 ASSESSMENT YEAR: 2011 - 12 M/S ENEM NOSTRUM REMEDIES PVT. LTD., UNIT NO. 201 - 204, GAYATRI COMMERCIAL COMPLEX, BEH IND MITTAL INDUSTRIAL ESTATE, OFF ANDHERI KURLA ROAD, MAROL, ANDHERI (E), MUMBAI - 400059 PAN: AAACE8766G VS. THE INCOME TAX OFFICER, RANGE - 8(1)(3), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL SATHE (A R) RESPONDENT BY : MS. ANUPAMA SINGLA (D R) DATE OF HEARING: 01 /03 /201 7 DATE OF PRONOUNCEMENT: 31 / 0 5 /201 7 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST ORDER DATED 06/01 /20 15 PASSED BY THE LD. CIT (APPEALS) - 16 , MUMBAI , FOR THE A S S ESSMENT YEAR 2011 - 12 , WHEREBY THE LD. CIT (A) HAS DISMISSED THE APPEAL FILED BY THE ASSESSEE U/S 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) . 2. BRIEF FACTS OF THE CASE ARE THAT THE AS SESSEE ENGAGED IN THE BUSINESS OF RESEARCH & DEVELOPMENT OF PHARMACEUTICALS FORMULATIONS FOR THE BUSINESS OF ITS PARENT COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011 - 12 DECLARING THE LOSS OF RS. 20,71,803/ - . THE RETURN WAS PROCESSED AND A FTER 2 ITA NO. 2977 /MUM/2015 ASSESSMENT YEAR: 2011 - 12 SCRUTINY ASSESSMENT ORDER WAS PASSED DETERMINING THE TOTAL LOSS OF RS. 1,27,984/ - . THE AO MADE ADDITION OF RS. 14,03,040/ - AS INCOME FROM HOUSE PROPERTY AGAINST THE CLAIM OF THE ASSESSEE COMPANY THAT THE SAME IS INCOME FROM BUSINESS . THE AO ALSO DISA LLOW ED THE CONSEQUENTIAL DEPRECIATION OF RS. 8,71,481/ - AND MADE DISALLOWANCE OF RS. 14,93,251/ - U/S 14A R.W. RULE 8D OF THE INCOME TAX RULES. THE ASSESSEE ASSAILED THE ASSESSMENT ORDER BY FILING APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) AFTER HEARING THE ASSESSEE UPHELD THE ACTION OF THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE. 3 . STILL A GGRIEVED BY THE ORDER OF LD. CIT (APPEAL S ), THE ASSESSEE PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUNDS: - TREATMENT OF REVENUE U NDER INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME : 1) THE LEARNED CIT (A) ERRED IN CONFIRMING THE ASSESSMENT OF INCOME OF RS. 14,03,040/ - UNDER THE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF INCOME OF BUSINESS AS DECLARED BY THE ASSESSEE COMPANY, WIT HOUT APPRECIATING THE FACTUAL MATRIX AND BY RELYING ON THE DECISION OF THE APEX COURT IN CIT V/S SHAMBHU INVESTMENTS PVT. LTD. THE FACTS OF WHICH CASE ARE CLEARLY DISTINGUISHABLE. 2) THE LEARNED CIT (A), ERRED IN NOT APPRECIATING THAT THE INCOME FROM PERMITT ING USE OF PREMISES AND INFRASTRUCTURE HAS BEEN ASSESSED IN THE EARLIER YEARS UNDER THE HEAD BUSINESS INCOME AND AS LAID DOWN BY THE APEX COURT THE PRINCIPLE OF CONSISTENCY NEEDS TO BE FOLLOWED. DENIAL OF CLAIM DEPRECIATION: 3) THE LEARNED CIT (A) THEREBY E RRED IN CONFIRMING THE CONSEQUENTIAL DISALLOWANCE OF DEPRECIATION OF RS. 8,71,481/ - ON THE PROPERTY. DISALLOWANCE U/S 14A R.W. RULE 8D: 3 ITA NO. 2977 /MUM/2015 ASSESSMENT YEAR: 2011 - 12 4) THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 14,93,251/ - U/S. 14A R.W. RULE 8D WITHOUT APPRECIATING THAT THE PROVISIONS OF SECTION 14A DID NOT APPLY AT THE THRESHOLD. 5) THE LEARNED CIT (A) ERRED IN NOT APPRECIATING THAT THE STRATEGIC INVESTMENTS WERE MADE OUT OF OWNED FUNDS AND THE INTEREST INCURRED ON BORROWED FUNDS HAD A DIRECT NEXUS WITH TAXABLE INCOM E OF THE APPELLANT AND THEREFORE INTEREST COULD NOT BE CONSIDERED AT ALL FOR THE PURPOSE OF DISALLOWANCE U/S 14A. 4. GROUND NO.1 & 2 OF APPEAL PERTAIN TO CONFIRMATION OF THE ACTION OF THE AO IN TREATING RS. 14,03,040/ - AS INCOME FROM HOUSE PROPERTY INST EAD OF INCOME OF THE BUSINESS AS DECLARED BY THE ASSESSEE COMPANY. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT (A) HAS WRONGLY RELIED ON THE DECISION OF CIT VS. SHAMBHU INVESTMENT PVT. LTD . 249 ITR 47 AND TREATED THE INCOME OF THE ASSESSEE COMPANY UNDER THE HEAD INCOME FROM HOUSE PROPERTY WITHOUT APPRECIATING THAT THE FACTS OF THE CASE CIT VS. SHAMBHU INVESTMENTS PVT. LTD . ARE DIFFERENT FROM THE FACTS OF THE PRESENT CASE. THE LD. COUNSEL CONTENDED THAT THE APPELLANT HAS PERMITTED I TS SISTE R CONCERN S NAMELY NEXGEN HEALTHCARE PVT. LTD., SYMMENTIRC BIOTECH PVT. LTD. AND NORSTRUM TECHNOLOGIES PVT. LTD. , TO USE SOME PORTION OF ITS BUSINESS PREMISES AND CHARGED COMPENSATION IN THE NOMENCLATURE OF RENT. THE SAID ARRANGEMENT WAS MADE TO REDUCE THE ADMINISTRATIVE COST, CARRY ON THE BUSINESS MORE EFFICIENTLY , TO OPTIMAL USE OF COMMERCIAL COMPLEX AND TO SHARE THE COST BURDEN AMONG THE SISTER CONCERN S . THEREFORE, THE RELATIONSHIP BETWEEN THE COMPAN IES IS NOT THAT OF A LESSER AND THE LESSEE. RELYING ON T HE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF G ESCO CORPORATION LTD. VS. COMMISSIONER OF INCOME TAX (2009) 31 SOT 132 (MUM) , T HE LD. COUNSEL SUBMITTED THAT SINCE THE INTENTION OF THE ASSESSEE TO USE THE PREMISES AS A BUSINESS ASSET , THE INCOME EARNED THERE FORM SHOULD BE ASSESSED AS BUSINESS INCOME . THE LD. COUNSEL FURTHER POINTED OUT THAT THE HONBLE BOMBAY HIGH COURT IN NUTAN WAREHOUSING COMPANY HOUSING LTD. 326 4 ITA NO. 2977 /MUM/2015 ASSESSMENT YEAR: 2011 - 12 ITR 94, REMANDED THE SIMILAR MATTER TO THE ASSESSING OFFICER FOR FURTHER EXAMINATION. THE L D. C OUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ISSUE UNDER CONSIDERATION HAS BEEN A SUBJECT MATTER OF ASSESSMENTS IN THE PRECEDING YEARS AND THE ASSESSMENT ORDER U/S 143 (3) HAVE BEEN PASSED BY THE AO ACCEPTING THE CONTENTION OF THE ASSESSEE THAT THE N ATURE OF INCOME FROM THE RENT AS BUSINESS INCOME AS NOT INCOME FROM HOUSE PROPERTY. THEREFORE, WITH THE SAME SET OF FACTS DURING THE YEAR UNDER CONSIDERATION THE STAND TAKEN BY THE DEPARTMENT IN THE PRECEDING YEARS CANNOT BE CHANGED. RELYING ON THE JUDGMEN T S OF THE HONBEL SUPREM E COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT 193 ITR 321 SC AND CIT VS. EXCEL INDUSTRIES LTD. 358 ITR 295 SC , THE LD. COUNSEL SUBMITTED THAT THOUGH RES JUDICATA DOES NOT APPLY TO THE PROCEEDINGS UNDER THE INCOME TAX ACT, HOWE VER, IF, THE FACT S REMAIN UNCHANGED THEN ORDINARILY THE FINDINGS OR STAND TAKEN BY THE ASSESSING AUTHORITY IN ONE YEAR SHOULD NOT BE DEPARTED IN ANOTHER UNLESS THERE ARE COMPELLING REASONS TO DO SO. 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATI VE (DR) RELYING ON THE CONCURRENT FINDINGS OF THE AUTHORITIES BELOW SUBMITTED THAT SINCE THE FINDINGS OF THE AO IS BASED ON THE LAW LAID DOWN BY THE HONBLE SUPR E ME COURT IN THE CASE OF CIT VS. SHAMBHU INVESTMENT PV T . LTD. (SUPRA) , THE LD. CIT (A) HAS RIGH TLY UPHELD THE FINDINGS OF THE AO. HENCE THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE DECISIONS RELIED UPON BY THE ASSESSEE AND AUTHORITIES BELOW. IN OUR CONSIDERED OPINION THE FACTS OF THE CASE CIT VS. SHAMBHU INVESTMENTS PVT. LTD. (SUPRA) ARE DIFFERENT FROM THE FACTS OF THE PRESENT CASE. AS PER THE SETTLED LAW, MERELY BECAUSE INCOME IS ATTACHED TO IMMOVABLE PROPERTY, IT CANNOT BE CONSIDERED AS IN COME FROM HOUSE PROPERTY. IN 5 ITA NO. 2977 /MUM/2015 ASSESSMENT YEAR: 2011 - 12 ORDER TO DETERMINE WHETHER A PARTICULAR INCOME IS INCOME FROM HOUSE PROPERTY OR THE SAME IS BUSINESS INCOME, THE TEST IS TO ASCERTAIN THE PRIMARY OBJECT OF USE OF THE PROPERTY. IN THE PRESENT CASE, IN OUR CONSIDERED OPINION THE MAIN INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMMERCIAL ACTIVITIES. THEREFORE, THE SAME CANNOT BE TREATED AS INCOME FROM HOUSE PROPERTY AS THE PREMISES ARE USED BY THE ASSOCIATE CONCERN AND NOT USED BY THE OUTSIDERS. IN G ESCO CORPORATION LTD. V S. ACIT (SUPRA) THE COORDINATE BENCH HAS HELD THAT IN ORDER TO DETERMINE WHETHER THE INCOME IS BUSINESS INCOME OR INCOME FOR HOUSE PROPERTY, IT IS NECESSARY TO SEE THE MAIN INTENTION OF THE ASSESSEE. IF IT IS TO USE THE PROPERTY AS A BUSINESS ASSET, THE INCOME THERE FROM SHOULD BE ASSESSED AS BUSINESS INCOME AND IF THE PRIMARY INTENTION IS TO LET OUT THE PROPERTY THE INCOME HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. WE FURTHER NOTICE THAT THE ISSUE UNDER CONSIDERATION HAS BEEN THE SUBJECT MATTE R OF THE ASSESSMENT IN THE PRECEDING YEARS AND ASSESSMENT ORDERS U/S 143 (3) HAVE BEEN PASSED BY THE AO ACCEPTING THE CONTENTION OF THE NATURE OF INCOME FROM RENT AS BUSINESS INCOME AND NOT INCOME FROM THE HOUSE PROPERTY. AS PER THE LAW LAID DOWN BY THE HO NBLE SUPREME COURT IN CIT VS. EXCEL INDUSTRIES LTD. AND RADHASOMI SATSANG VS. CIT (SUPRA) , I F THE FACTS REMAIN UNCHANGED THEN ORDINARILY FINDING OR STAND TAKEN BY THE ASSESSING AUTHORITY IN ONE YEAR SHOULD NOT BE DEPARTED IN ANOTHER YEAR, UNLESS THERE ARE COMPELLING REASONS TO DO SO. IN THE PRESENT CASE, THE AO HAS NOT MENTIONED ANY COMPELLING REASONS TO DEVIATE FROM THE CONSISTENT VIEW TAKEN IN THE EARLIER YEARS. WE , ACCORDINGLY , DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO COMPUTE THE QUESTIONED INCOME UNDER THE HEAD INCOME FROM THE BUSINESS AS DECLARED BY THE ASSESSEE COMPANY IN ITS RETURN OF INCOME. 7. THE SECOND GROUND THE APPEAL IS CONSEQUENTIAL. SINCE, WE HAVE ALLOWED THE FIRST GROUND OF THE APPEAL OF THE ASSESSEE, THERE I S NO NEED TO ADJUDICATE THIS GROUND OF APPEAL SEPARATELY. 6 ITA NO. 2977 /MUM/2015 ASSESSMENT YEAR: 2011 - 12 8. G ROUND NO. 4 & 5 PERTAIN TO DISALLOWANCE U/S 14A R.W. 8D OF THE INCOME TAX RULES. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE MANDATE OF SECTION 14A OF THE ACT IS TO PREVENT CLAIMS FOR DEDUCTION OF EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. IN ORDER TO MAKE DISALLOWANCE U/S 14A, AO MUST DETERMIN E WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT ? T HE DETERMINATION MUST B E MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. IT IS ONLY WHEN THE AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THE SECTION COMES INTO PICTURE . IN THE PRESENT CASE SINCE THE AO HAS NOT RECORDED ANY SATISFACTION ABOUT THE CLAIM MADE BY THE ASS ESSEE COMPANY. THE LD. CIT (A) HAS WRONGLY CONFIRMED THE DISALLOWANCE MADE BY THE AO, THEREFORE, THE DISALLOWANCE SHOULD BE DELETED. THE LD. COUNSEL FURTHER CONTENDED THAT THE INVESTMENTS MADE BY COMPANY WERE STRATEGIC IN NATURE AND MADE WITH A VIEW TO ENH ANCE BUSINESS PERSPECTIVES AND NOT FOR THE PURPOSE OF EARNING DIVIDEND. SINCE, THE ASSESSEE COMPANY HAS NOT EARNED ANY EXEMPT INCOME DURING THE PREVIOUS YEAR , THE CLAIM OF EXPENDITURE TO EARN SUCH INCOME DOES NOT ARISE. THEREFORE, THE IMPUGNED ORDER IS LIA BLE TO BE SET ASIDE. 9. ON THE OTHER HAND, THE LD. DR REL YING ON THE CONCURRENT FI NDINGS OF THE AUTHORITIES BELOW SUBMITTED THAT THERE IS NO EVIDENCE TO ESTABLISH THAT THE INVESTMENTS IN QUESTION ARE STRATEGIC INVESTMENTS MADE FOR THE BENEFIT OF THE BUSI NESS. THEREFORE, THE LD. CIT (A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE AO. 10. HAVING HEARD THE RIVAL SUBMISSIONS, WE NOTICE THAT AO HAS DISALLOWED THE EXPENSES U/S 14A ON THE GROUND THAT THE ASSESSEE HAS SHOWN INVESTMENTS OF RS. 5,70,00,00 0 . THE INITIAL SUBMISSIONS OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO FOR THE REASONS THAT IN THE CASE OF CHEMINVEST VS. ( 2015) ITO ,121 ITD 7 ITA NO. 2977 /MUM/2015 ASSESSMENT YEAR: 2011 - 12 318 , THE DELHI SPECIAL BENCH HAS HELD THAT IR RESPECTIVE OF THE FACT WHETHER ASSESSEE HAS EARNED OR RECEIVED ANY EXEM PT INCOME IN A PARTICULAR YEAR, THE DISALLOWANCE U/S 14A HAS TO BE MADE. HOWEVER, T HE HONBLE DELHI HIGH COURT HAS SET ASIDE THE DECISION OF THE DELHI SPECIAL BENCH AFORESAID IN CHEMINVEST VS. COMMISSIONER OF INCOME TAX 378 ITR 33 ( DEL ) HOLDING THAT SECT ION 14A WILL NOT APPLY IF, NO EXEMPT INCOME IS RECEIVE OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. IN THE PRESENT CASE WE DO NOT FIND ANY OBSERVATION OF THE AO TO THE EFFECT THAT THE ASSESSEE HAD EARNED ANY EXEMPT INCOME DURING THE FINANCIAL YEAR RELE VANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. COUNSEL HAS SPECIFICALLY POINTED OUT THAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE COMPANY DURING THE PREVIOUS YEAR. THE HONBLR DELHI HIGH COURT IN CHEMINVEST VS. COMMISSIONER OF INCOME TAX (SUP RA) HAS HELD THAT NO DISALLOWANCE U/S 14A CAN BE MADE IN THE YEAR IN WHICH NO EXEMPT INCOME HAD BEEN EARNED OR RECEIVED BY THE ASSESSEE. HENCE, THE IMPUGNED ORDER IS CONTRARY TO THE LAW LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE ABOVE REFERRED CASE. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND ALLOW THE ISSUE RAISED BY THE ASSESSEE VIDE GROUND NO. 4 & 5 OF THE APPEAL. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR A SSESSMENT YEAR 2011 - 2012 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY , 2017 . SD/ - SD/ - ( G.S. PANNU ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 31 / 0 5 / 2017 ALINDRA, PS 8 ITA NO. 2977 /MUM/2015 ASSESSMENT YEAR: 2011 - 12 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. R EGISTRAR) , / ITAT, MUMBAI