Dhanuka Labs Ltd., New Delhi V. DCIT, New Delhi

ITA 3898/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5174 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 07-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANSHUL PRAKASH
• Assessee Lawyers: HIMANSHU GUPTA
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.3898/DEL/2014 ASSESSMENT YEAR : 2009-10 DHANUKA LABS LTD., 861-862, JOSHI ROAD, KAROL BAGH, NEW DELHI. PAN: AAACD2877R VS. DCIT, CIRCLE-10(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HIMANSHU GUPTA DEPARTMENT BY : SHRI ANSHUL PRAKASH, SR. DR DATE OF HEARING : 17.08.2017 DATE OF PRONOUNCEMENT : 18.08.2017 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF TH E ORDER PASSED BY THE CIT(A) ON 02.05.2014 IN RELATION TO THE ASSESSM ENT YEAR 2009-10. ITA NO.3898/DEL/2014 2 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT). 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING BULK DRUGS. IT EA RNED CERTAIN AMOUNT OF DIVIDEND INCOME DURING THE YEAR WHICH WAS CLAIMED A S EXEMPT. ON BEING CALLED UPON TO EXPLAIN AS TO WHY NO DISALLOWA NCE U/S 14A WAS MADE, THE ASSESSEE TENDERED ITS REPLY WHICH HAS BEE N REPRODUCED IN THE ASSESSMENT ORDER. NOT SATISFIED, THE ASSESSING OFF ICER COMPUTED DISALLOWANCE U/S 14A READ WITH RULE 8D AT RS.56,15, 000/- CONSISTING OF RS.50.16 LAC ON ACCOUNT OF INTEREST UNDER RULE 8D(2 )(II) AND RS.4.48 LAC TOWARDS EXPENSES @ % OF THE AVERAGE VALUE OF INVE STMENTS UNDER RULE 8D(2)(III). THE LD. CIT(A) REDUCED THE AMOUNT OF DISALLOWANCE UNDER CLAUSE (II) OF RULE 8D(2) TO RS.24,19,402/- A ND SUSTAINED THE DISALLOWANCE AT RS.4.48 LAC UNDER CLAUSE (III) OF R ULE 8D(2). THE ASSESSEE IS AGGRIEVED AGAINST SUSTENANCE OF DISALLO WANCE AT SUCH LEVEL. ITA NO.3898/DEL/2014 3 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. IN SO FAR AS THE DISALLOWANCE UNDER CLA USE (II) OF RULE 8D(2) IS CONCERNED, WE FIND THAT THE ASSESSEE ARGUED BEFO RE THE AUTHORITIES THAT INVESTMENT IN SHARES WAS MADE OUT OF ITS OWN FUNDS. ON A SPECIFIC QUERY, THE LD. AR COULD NOT PLACE ON RECORD THE BAL ANCE SHEET OF THE ASSESSEE FOR SHOWING THE AVAILABILITY OF SHAREHOLDE RS FUNDS FOR THE PURPOSES OF INVESTMENT IN SECURITIES YIELDING EXEMP T INCOME. 5. THE HON'BLE KARNATAKA HIGH COURT IN CIT & ANR VS. MICROLABS (2016) 383 ITR 490 (KAR) HAS HELD THAT WHEN INVESTMENTS ARE MADE FROM COMMON POOL AND NON-INTER EST BEARING FUNDS ARE MORE THAN THE INVESTMENT IN TAX F REE SECURITIES, NO DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A CAN BE MADE. THIS VIEW HAS BEEN TAKEN BY FOLLOWING THE JUDGMENTS OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 515 (BOM). IT IS FURTHER OBSERVED THAT THIS ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE RECENT JUDGMENT DELIVERED BY THE HON'BLE SUPREME CO URT IN ITA NO.3898/DEL/2014 4 GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT (2017) 394 ITR 449 (SC), IN WHICH IT HAS BEEN HELD THAT WHEN INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE S ARE MORE THAN INVESTMENT, THEN NO DISALLOWANCE OF INTEREST C AN BE MADE U/S 14A. SINCE THE NECESSARY DETAILS DEMONSTRATING THE AVAILABILITY OF INTEREST REFUNDS IN THE FORM OF SHA RE CAPITAL AND RESERVES ETC. ARE NOT AVAILABLE ON RECORD, WE SET A SIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE O F THE ASSESSING OFFICER FOR DECIDING THE COMPONENT OF DIS ALLOWANCE, IF ANY, UNDER CLAUSE (II) OF SECTION 8D(2) AFRESH I N CONSONANCE WITH THE DECISIONS DISCUSSED HEREINABOVE. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED AN ADEQUATE OPPORTUNITY OF HEARING BY THE AO IN SUCH FRESH PROCEEDINGS. 6. AS REGARDS THE SUSTENANCE OF DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D(2), WE FIND THE SAME TO BE FULLY J USTIFIED. AS SUCH DISALLOWANCE @ % OF THE AVERAGE VALUE OF INVE STMENTS IS REQUIRED TO BE MADE IN TERMS OF RULE 8D, WE, THE REFORE, ITA NO.3898/DEL/2014 5 UPHOLD THE SUSTENANCE OF DISALLOWANCE AT RS.4.48 LA C. THIS PART OF THE GROUND FAILS. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 18.08.201 7. SD/- SD/- [K. NARASIMHA CHARY] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 18 TH AUGUST, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.