GALENTIC PHARMA (INIDA) P. LTD, MUMBAI V. ACIT 6(3), MUMBAI

ITA 8032/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8728 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 25-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 22-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND DALAL
• Keywords: Opportunity of being heard
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI G BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI I P BANSAL, JM & SHRI RAJENDRA SINGH, AM ITA NO. 8032/MUM/2010 (ASST YEAR 2007-08) GALENTIC PHARMA (INDIA) P LTD 4 TH FLOOR, SAMRUDDHI VENTURE PARK MI(DC, CENTRAL ROAD, ANDHERI (E) MUMBAI VS THE ASST COMMR OF INCOME TAX 6(3), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACG2390L ASSESSEE BY SH ARVIND DALAL REVENUE BY SH AMAR DEEP DT.OF HEARING 25 TH OCT 2012 DT OF PRONOUNCEMENT 25 TH OCT 2012 PER I P BANSAL, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 13.8.20 10 FOR THE ASSESSMENT YEAR 2007-08. 2 THE GROUNDS OF APPEAL READ AS UNDER: 1 A) THE LEARNED COMM. OF INCOME TAX (APPEALS) ERRE D IN DIRECTING THE ASSESSING OFFICER TO CONSIDER INTEREST EXPENDITURE OF RS. 12,48,704/ - AND IN DIRECTING ASSESSING OFFICER TO MAKE A DISALLOWANC E ACCORDINGLY AS STATED IN PARA 4.2 OF THE ORDER. B) THE OBSERVATION OF THE LEARNED COMM. OF INCOME TA X (APPEALS) IN THE LAST PARA I.E. 4.2 OF THE ORDER TO THE EFFECT T HAT APPELLANT ITSELF AGREED TO A 20% TO 25% DISALLOWANCE IS CONTRARY TO T HE FACT. WITH A VIEW TO AVOID LITIGATION AND MULTIPLICITY OF PROCEE DINGS, THE APPELLANT AGREED FOR RESTRICTING THE DISALLOWANCE TO 20% OF RS . 4,46,471/- DISALLOWED BY THE ASSESSING OFFICER LE. RS. 89,294/- AND NOT AS STATED BY THE LEARNED COMM. OF INCOME TAX IN PARA REFERRED TO A BOVE. C) THE LEARNED COMM. OF INCOME TAX (APPEALS) FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT, ON THE FACTS AND IN TH E CIRCUMSTANCES OF ITA NO. 8032/MUM/2010 GALENTIC PHARMA 2 THE CASE, THE DISALLOWANCE U/S 14A R.W. RULE 8D OF T HE ACT IS UNWARRANTED AND UNJUSTIFIED. D) THE APPELLANT PRAYS THAT THE DISALLOWANCE U/S 14A AS DIRECTED BY THE LEARNED COMM. OF INCOME TAX (APPEALS) IS NOT WA RRANTED. 3 WHILE MAKING THE DISALLOWANCE U/S 14A, THE ASSESS ING OFFICER DISALLOWED A SUM OF ` 4,46,471/-. THE DISALLOWANCE PERTAINING TO INTERES T HAS BEEN CALCULATED WITH REFERENCE TO RULE 8D. THE DISALLOWANCE WAS AGITAT ED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE COMMISSIONER OF INCOME TAX(APPEALS ). 3.1 BEFORE THE COMMISSIONER OF INCOME TAX(APPEALS), IT WAS THE CONTENTION OF THE ASSESSEE THAT A SUM OF ` 15,000/- WAS VOLUNTARILY DISALLOWED BY THE ASSESSE E ON AN ESTIMATE BASIS IN THE RETURN OF INCOME. IT WAS SUBMITTED THAT KEEPING IN VIEW THAT A REASONABLE BASIS IS TO BE CONSIDERED FOR DISALL OWANCE, 20% OF INTEREST EXPENSES MAY BE DISALLOWED AND ADDED BACK. THE ASSESSEE SUB MITTED THAT MOST OF THE INTEREST PAID, HAS NO CO-RELATION WITH THE INVESTME NT OF THE COMPANY AND THEREFORE, SHOULD NOT BE CONSIDERED FOR MAKING THE DISALLOWANC E. 3.2 HOWEVER, THE LD COMMISSIONER OF INCOME TAX(APPE ALS) DID NOT AGREE WITH SUCH SUBMISSIONS OF THE ASSESSEE EXCEPT FOR A SUM O F ` 99,537/- BEING INTEREST DIRECTLY RELATED TO PURCHASE OF CAR. THE LD COMMISSIONER OF INCOME TAX(APPEALS) HAS OBSERVED THAT NO OTHER AMOUNT CAN BE TERMED AS HA VING NO CO-RELATION TO INVESTMENTS. THEREFORE, THE LD COMMISSIONER OF INCO ME TAX(APPEALS) HAS TAKEN THE NET INTEREST OF ` 12,43,704/- WHICH COULD BE CONSIDERED OR RELATED TO INVESTMENT MADE BY THE ASSESSEE IN THE SHARES FROM WHERE THE A SSESSEE HAS EARNED DIVIDEND. IT IS FURTHER OBSERVED BY THE LD COMMISSIONER OF INCOM E TAX(APPEALS) THAT RULE 8D IS NOT APPLICABLE FOR ASSESSMENT YEAR 2007-08 ACCORDI NG TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG CO LTD; THEREFORE, A REASONABLE BASIS HAS TO BE ADOPTED. TAKING A VIEW THAT THE ASSESSEE HAD AGREED ITA NO. 8032/MUM/2010 GALENTIC PHARMA 3 FOR 20% TO 25% OF THE DISALLOWANCE OF INTEREST, THE LD COMMISSIONER OF INCOME TAX(APPEALS) HAS DIRECTED THE ASSESSING OFFICER TO RE-COMPUTE THE DISALLOWANCE @ 25% OF THE EXPENSES. 4 THE ASSESSEE AGGRIEVED WITH SUCH DIRECTION AND HA S RAISED THE AFOREMENTIONED GROUNDS OF APPEAL. 5 IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE THA T THE ASSESSEE HAS NEVER AGREED FOR MAKING ANY DISALLOWANCE TO THE TUNE OF 2 0% TO 25% OF THE ENTIRE INTEREST. HE SUBMITTED THAT THE SUBMISSION OF THE ASSESSEE WA S THAT WITH RESPECT TO INTEREST WHICH HAS NO CORRELATION WITH THE INVESTMENT IN SHA RES; NO DISALLOWANCE SHOULD BE MADE. HE SUBMITTED THAT THE BIFURCATION OF THE TOT AL INTEREST ADOPTED BY THE ASSESSEE TO ITS P&L ACCOUNT WAS FILED BEFORE THE CO MMISSIONER OF INCOME TAX(APPEALS), WHICH HAS BEEN REPRODUCED AT PAGE 2 O F THE IMPUGNED ORDER AS UNDER: PARTICULARS ` `` ` . INTEREST ON BANK TERM LOAN 6, 53,501 INTEREST ON CAR LOAN 99,537/- INTEREST ON WORKING CAPITAL 4,680 INTEREST ON PACKING CREDIT1, 80,986 INTEREST ON UNSECURED LOANS 4,57,579 INTEREST ON OTHERS 27,212 14,23,495 LESS: INTEREST RECEIVED (-)75,254 13,48,241/- 5.1 REFERRING TO THE ABOVE DETAILS, IT WAS SUBMITTE D BY HIM THAT THE LD COMMISSIONER OF INCOME TAX(APPEALS) WAS WRONG IN DI RECTING THE ASSESSING OFFICER TO DISALLOWANCE 25% OF THE ENTIRE EXPENSES. HE SU BMITTED THAT THE MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO RE-COMPUTE THE INCOME AFTER GIVING A REASONABLE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. ITA NO. 8032/MUM/2010 GALENTIC PHARMA 4 4.2 ON THE OTHER HAND, THE LD DR HAS PLACED RELIANC E ON THE ORDERS OF THE ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX(AP PEALS). 5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE IMPUGNED ASSESSMENT YEAR IS 2007-08; THEREFORE, ACCORDING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS ACIT REPORTED IN 328 ITR 81, DISALLO WANCE CANNOT BE MADE WITH REFERENCE TO RULE 8D. THE ASSESSEE HAD SUBMITTED T HE COMPLETE DETAILS REGARDING INTEREST PAID BY IT. IT IS THE CONTENTION OF THE A SSESSEE THAT CERTAIN ITEMS CANNOT AT ALL BE CONSIDERED AS THEY ARE NOT RELATED TO THE INVEST MENT MADE BY THE ASSESSEE ON WHICH IT HAD EARNED DIVIDEND INCOME. THERE IS SOM E FORCE IN THE CONTENTION OF THE ASSESSEE; THEREFORE, KEEPING IN VIEW OF THE FACTS O F THE CASE AND ACCEPTING THE SUBMISSIONS OF THE LD AR, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DE- NOVO CONSIDERATION AS PER LAW AFTER GIVING A REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE DIRECT ACCORDINGLY. 6 SINCE THE ONLY ISSUE RAISED BEFORE US WAS REGARDI NG THE DISALLOWANCE U/S 14A, THE ABOVE DECISION WILL COVER ALL THE GROUNDS RAISE D BY THE ASSESSEE AS THE ISSUE IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR DE-NOVO CONSIDERATION. 7 FOR STATISTICAL PURPOSE, THE APPEAL FILED BY THE ASSESSEE SHALL BE TREATED AS ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH OCT 2012. SD/- SD/- ( RAJENDRA SINGH ) ACCOUNTANT MEMBER ( I P BANSAL ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 25 TH OCT 2012 RAJ* ITA NO. 8032/MUM/2010 GALENTIC PHARMA 5 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI