Radicura Pharmaceuticals Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 5980/DEL/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4168 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 13-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 05-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : SMC-1 : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER ITA NO.5980/DEL/2014 ASSESSMENT YEAR : 2011-12 RADICURA PHARMACEUTICALS PVT. LTD., B-117, OKHLA INDUSTRIAL AREA, PHASE I, NEW DELHI. PAN: AAACR1536P VS. ITO, WARD-15(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY JAIN, CA DEPARTMENT BY : SHRI N.K. BANSAL, SR. DR DATE OF HEARING : 13.10.2016 DATE OF PRONOUNCEMENT : 14.10.2016 ORDER THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDE R PASSED BY THE CIT(A) ON 28.7.2014 IN RELATION TO THE ASSESSMENT Y EAR 2011-12. 2. THIS APPEAL IS TIME BARRED AS DELAYED BY 25 DAYS . THE ASSESSEE HAS FILED AN APPLICATION FOR CONDONATION OF DELAY. I A M SATISFIED WITH THE ITA NO.5980/D/2014 2 REASONS WHICH LED TO THE DELAYED FILING OF APPEAL B EFORE THE TRIBUNAL. AS SUCH, THE DELAY IS CONDONED AND THE APPEAL IS ADMIT TED FOR HEARING. 3. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE CONFIRMATION OF ADDITION OF RS.3,48,691/- U/S 14A OF THE ACT. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AS WELL AS TRADING IN MEDICINES. IT RECEIVED A DIVIDEND INCOME OF RS.96, 785/-FROM INVESTMENT IN SHARES AND SECURITIES. SUCH INCOME WA S CLAIMED AS EXEMPT. THE ASSESSEE SUO MOTU DISALLOWED EXPENSES AMOUNTING TO RS.32,041/- ON ACCOUNT OF DEMAT CHARGES AND EXPENSE S ON PORTFOLIO MANAGEMENT SERVICES TREATING THEM AS COVERED U/S 14 A. THE AO INVOKED THE PROVISIONS OF SECTION 14A READ WITH RUL E 8D AND MADE AN ADDITION OF RS.3,48,691/-. THIS FURTHER DISALLOWAN CE CONSISTED OF TWO PARTS, NAMELY, DISALLOWANCE OF INTEREST AMOUNTING T O RS.3,03,087/- AND DISALLOWANCE @ % OF THE AVERAGE OF THE VALUE OF IN VESTMENTS AT RS.45,604/-. THE LD. CIT(A) UPHELD THE ADDITION. T HE ASSESSEE IS AGGRIEVED AGAINST THIS ADDITION. ITA NO.5980/D/2014 3 5. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED FROM THE ASSESSE ES BALANCE SHEET, A COPY OF WHICH IS AVAILABLE ON RECORD, THAT INVESTME NT IN SHARES AND SECURITIES, FETCHING EXEMPT DIVIDEND INCOME, STOOD AT RS.79,05,765/-. AS AGAINST THAT, THE ASSESSEE HAS SHAREHOLDERS FUN D TO THE TUNE OF RS.5,76,20,504/- AS AT THE END OF THE YEAR. THIS S HOWS THAT THE AMOUNT INVESTED IN SHARES AND SECURITIES IS FAR LESS THAN THE AMOUNT OF SHAREHOLDERS FUNDS. THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 34 0 (BOM) HAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE WIT H THE ASSESSEE SUFFICIENT TO MEET INVESTMENTS AND, AT THE SAME TIME, SOME INT EREST BEARING LOAN IS TAKEN, IT SHOULD BE PRESUMED THAT THE INVESTMENTS W ERE MADE FROM INTEREST FREE FUNDS AND, CONSEQUENTLY, NO DISALLOWA NCE OF INTEREST SHOULD BE MADE. THIS DECISION WAS RENDERED BY THE HONBLE BOMBAY HIGH COURT AFTER FOLLOWING THE JUDGMENT OF THE HONBLE S UMMIT COURT IN EAST INDIA PHARMACEUTICAL WORKS VS. CIT (1997) 224 ITR 6 27 (SC). THE ITA NO.5980/D/2014 4 HONBLE GUJARAT HIGH COURT IN PRINCIPAL CIT VS. INDIA GELATINE AND CHEMICALS LTD. (2015) 376 ITR 353 (GUJ) HAS FOLLOWED THIS PRINCIPLE IN THE CONTEXT OF SECTION 14A BY HOLDING THAT NO DISAL LOWANCE OF INTEREST U/S 14A SHOULD BE MADE WHERE INVESTMENTS MADE BY TH E ASSESSEE IN SHARES AND MUTUAL FUNDS ARE OUT OF INTEREST FREE FU NDS. AS THE INVESTMENTS MADE BY THE ASSESSEE IN SHARES AND SECU RITIES FETCHING EXEMPT DIVIDEND INCOME IS HELD TO BE MADE OUT OF IN TEREST FREE FUNDS IN TERMS OF RELIANCE UTILITIES (SUPRA) , RESPECTFULLY FOLLOWING INDIA GELATINE AND CHEMICALS LTD (SUPRA) , I ORDER FOR THE DELETION OF THE ADDITION TOWARDS INTEREST AMOUNTING TO RS.3,03,087/-. 6. THE OTHER COMPONENT OF DISALLOWANCE U/S 14A AMOU NTING TO RS.45,604/- IS ON ACCOUNT OF % OF THE AVERAGE OF T HE VALUE OF INVESTMENTS TOWARDS ADMINISTRATIVE EXPENSES. THIS ADDITION IS STRICTLY IN CONFORMITY WITH RULE 8D(2)(III). THE SAME IS, THER EFORE, UPHELD. ITA NO.5980/D/2014 5 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 14.10.201 6. SD/- [R.S. SYAL] ACCOUNTANT MEMBER DATED, 14 TH OCTOBER, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.