DCIT (OSD) 2(3), MUMBAI V. PHARMED LTD, MUMBAI

ITA 4126/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2070 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 05-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI D. KARUNAKARA RAO, A.M. AND SHRI AMARJIT SINGH, J.M. ./ I.T.A. NO.4126/MUM/2014 ( / ASSESSMENT YEAR: 2010-11) DEPUTY COMMISSIONER OF INCOME TAX (OSD)-2(3), OFFICE OF THE DCIT (OSD)-2(3), R.NO.552, AYAKAR BHAVAN, M.K. ROAD, MUMBAI- 400 020. / VS. M/S. PHARMED LIMITED, PHARMED HOUSE, 141,WALCHAND HIRACHAND MARG, MUMBAI-400001. ./ ./PAN/GIR NO. AAACP 2191A ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI DURGA DUTT / RESPONDENT BY : SHRI ANUJ KISNADWALA / DATE OF HEARING : 07/12/2015 !'# / DATE OF PRONOUNCEMENT : 11/12/15 $% / O R D E R PER D. KARUNAKARA RAO, A. M: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-5, MUMBAI DATED 20.03.2014. TH E WHOLE ISSUE RAISED IN THIS APPEAL RELATES TO DISALLOWANCE OF RS.11,93,687 /- U/S 14A OF THE ACT R.W.R.8D. THE GROUNDS RAISED ARE AS UNDER. 2 I.T.A. NO 4126/MUM/2014 (A.Y:2010-11 ) DEPUTY COMMISSIONER OF INCOME TAX VS. M/S. PHARMED LIMITED, 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.11, 93,687/- MADE BY THE AO U/S 14A R.W.R.8D WITHOUT APPRECIATING THAT THE A SSESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN THE FUNDS INVESTED IN A SSETS YIELDING TAX-FREE INCOME AND THE OWN FUNDS. 2. AT THE OUTSET, IN CONNECTION WITH THE ABOVE GROU ND THE LD. COUNSEL FOR THE ASSESEE SUBMITTED THAT THE CIT(A) ATTENDED TO THE A BOVE ISSUE AND ALLOWED THE CLAIM OF THE ASSESSEE AFTER RELYING ON THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09. HE BROUGH T OUR ATTENTION TO PARAGRAPH 4.2 OF THE ORDER OF THE TRIBUNAL WHERE TH ERE IS THE REFERENCE TO TRIBUNAL ORDERS DATED 31-12-2012 IN THE APPEAL (ITA NO. 6569/MUM/11). IT ALSO BROUGHT TO OUR NOTICE THAT THE YEAR UNDER CONS IDERATION, SIMILAR ISSUE WAS EXAMINED BY THE CIT(A) AND HELD THAT THE ASSESSEE H AS GOT ITS OWN FUNDS ( SHARE CAPITAL PLUS RESERVES AND SURPLUS) TO THE TUNE OF R S.14.37 CRORES. HE ALSO MENTIONED THE TOTAL INVESTMENT IN SHARES IS ONLY RS .9.03 CRORES. AFTER CONSIDERING THE ABOVE, CIT(A) HELD NO DISALLOWANCE IS CALLED FOR ALLOCATING ANY PROPORTIONATE INTEREST. ACCORDINGLY, HE DELETED THE ADDITION OF RS. 11,93,687/- THIS AMOUNT CONSTITUTE THE BALANCE AMOUNT AFTER CON SIDERING THE ASSESSEES SUO MOTTO DISALLOWANCE AMOUNTING TO RS. 4,51,712/-. AFTER HEA RING BOTH THE PARTIES, WE PERUSED THE SAID PARAGRAPH 4.2 OF THE ORDER OF T HE CIT(A) AND FIND THE SAME READS AS UNDER. THOUGH THESE GROUNDS, THE ASSESSEE HAS CHALLENGED T HE DISALLOWANCE (OF RS.11,93,687/-) U/S 14A R.W.R. 8D. THE AO NOTED THA T ASSESSEE HAD EARNED DIVIDEND (EXEMPTED INCOME) OF RS.4,70,674/- AND HAD MADE SUO MOTO DISALLOWANCE OF RS. 4,51,712/- U/S 14A (COMPUTED AT 0.5% OF AVERAGE INVESTMENT AS PER CLAUSE (III) OF RULE 8D(2); AND T HAT INSPITE OF THE INTEREST 3 I.T.A. NO 4126/MUM/2014 (A.Y:2010-11 ) DEPUTY COMMISSIONER OF INCOME TAX VS. M/S. PHARMED LIMITED, EXPENSES OF (RS.21,51,545/-) DEBITED IN THE P&L A/C , NO ALLOCATION/ DISALLOWANCE THEREOF WAS MADE AS PER CLAUSE (II) OF RULE 8D(2). ACCORDINGLY, AO COMPUTED THE DISALLOWANCE OF RS.16,45,399/- AND AFTER REDUCING THE DISALLOWANCE MADE BY THE ASSESSEE SUO MOTTO (RS.4,5 1,712/-), HE ADDED THE AMOUNT OF RS.11,93,687/- INTO THE TOTAL INCOME OF T HE ASSESSEE. IN THE CONTEXT, IT WAS SUBMITTED THAT IDENTICAL ISSUE HAD ARISEN IN 20 08-09 AND THE CIT(A) HAD CONFIRMED THE DISALLOWANCE BUT THE HONBLE ITAT VID E ITS ORDER DATED 31.12.2012 IN ITA NO6569/MUM/2011, HAD RESTORED THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY FROM THE BALAN CE SHEET OF THE ASSESSEE WHETHER ASSESSEE HAD SUFFICIENT OWN FUNDS TO MAKE S UCH INVESTMENTS AND THEN AFTER BEING SATISFIED, NOT TO MAKE ANY DISALLOWANCE AS REGARDS TO THE INTEREST COST. AS REGARDS TO THE OTHER EXPENDITURE, THE HON BLE ITAT DIRECTED THE ASSESSEE TO FURNISH DETAILED ALLOCATION OF EXPENSES BEFORE THE AO AND THE AO WAS DIRECTED TO VERIFY THE DETAILS AS PER PROVISION OF SEC 14A R.W.R.8D. IN THE CONTEXT, FOR THE YEAR UNDER CONSIDERATION IT IS NOT ED THAT SHARE CAPITAL AND RESERVES AND SURPLUS AMOUNTED AT RS.14.37 CRORES WH EREAS THE INVESTMENT REMAINED AT RS.9.03 CRORES. IT IS ALSO NOTED THAT T HE GROSS BLOCK OF FIXED ASSETS (BEFORE DEPRECIATION ) IS SHOWN AT RS.6.60 CRORES A ND THUS THIS IS A CASE WHERE THE INVESTMENT TOGETHER WITH THE GROSS BLOCK OF FIX ED ASSETS HAS BEEN MORE OR LESS EQUAL T6O THE AVAILABLE FUNDS IN THE FORM OF S HARE CAPITAL AND RESERVE. THEREFORE, IT IS HELD THAT NO DISALLOWANCE IS CALLE D FOR (FOR ALLOCATING PROPORTIONATE INTEREST) AS PER CLAUSE (III) OF RULE 8D(2). FURTHER, THE ASSESSEE HAS ON ITS OWN MADE DISALLOWANCE PER CLAUSE (II) OF RULE 8D(2). THEREFORE, NO FURTHER ADDITION U/S 14A WAS CALLED FOR. ACCORDINGL Y, THE ADDITION OF RS.11,93,687/- ON ACCOUNT OF DISALLOWANCE MADE U/S 14A IS DELETED. 3. FROM THE ABOVE IT IS EVIDENT THE CIT(A) GOT INTO SOME CONFUSION WITH REGARD TO THE DISALLOWANCE OF PROPORTIONATE INTERES T AND MENTIONED NO DISALLOWANCE CALLED FOR ( FOR ALLOCATING OF PROPORT IONATE INTEREST) AS PER CLAUSE (III) OF RULE 8D. IN OUR VIEW, THE SAME NEEDS TO BE READ AS CLAUSE (II) INSTEAD. FURTHER, THE CIT(A) HAS ALSO COMMITTED THE IDENTICA L MISTAKE WHEN IT COMES TO CLAUSE (II) OF RULE 8D. THE CIT(A) DIRECTED TO RECT IFY THE SAME AND QUANTIFY THE EXACT RELIEF GRANTED TO ASSESSEE AFTER GRANTING THE REASONABLE OPPORTUNITY OF 4 I.T.A. NO 4126/MUM/2014 (A.Y:2010-11 ) DEPUTY COMMISSIONER OF INCOME TAX VS. M/S. PHARMED LIMITED, BEING HEARD BEFORE ASSESSEE. ACCORDINGLY, THE GROUN D RAISED BY THE REVENUE IS DISMISSED IN PRINCIPLE. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED P ROTANTO. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DECEMBER, 2015 SD/- SD/- (AMARJIT SINGH ) (D. KARUNAKARA RAO) &' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ( ) MUMBAI; *$ DATED : 11.12.2015 PS. ASHWINI GAJAKOSH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI