COMMISSIONER OF INCOME TAX-1 CHANDIGARH V. M/S DSM ANTI INFECTIVES INDIA LTD (NOW DSM SINOCHEM PHARMACEUTICALS INDIA PVT LTD)

ITA/118/2014

AI Insights

The case involves the Commissioner of Income Tax-I, Chandigarh as the appellant and M/s DSM Anti Infectives India Ltd. as the respondent. The primary legal issues pertained to the interpretation and application of Sections 36(1)(iii) and 14A of the Income Tax Act concerning the deductibility of commissions and the treatment of interest and dividend income from investments. The Tribunal had previously set aside the Assessing Officer's order, leading to the present appeal by the revenue. The High Court's decision focused on whether the Tribunal had correctly applied the law in restoring the matter to the assessing officer and in its interpretation of Section 14A regarding the non-taxability of certain income.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 703030 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 28-11-2014
• Assessment Year: misc
• Other Referred Cases: The Commissioner of Income Tax-I, Chandigarh Vs. M/s DSM Anti Infectives India Limited
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: URVASHI DHUGGA
• Keywords: Business expediency; Commission; Financial Health; Income Tax; Interest income; Investment
• Section: 14A; 36 (1) (iii)

Judgement Text

"ITA No. 118 of 2014(O&M) -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 118 of 2014(O&M) Date of Decision: 28.11.2014 The Commissioner of Income Tax-I, Chandigrh ... Appellant Versus M/s DSM Anti Infectives India Ltd. ... Respondent CORAM:- HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE B.S. WALIA Present: Ms. Urvashi Dhugga, Advocate, for the appellant. RAJIVE BHALLA, J.(Oral) The revenue has filed this appeal challenging order dated 8.8.2013 passed by the Income Tax Tribunal, Chandigarh, Bench A, accepting the appeal filed by the assessee and as a consequence setting aside the order dated 28.10.2010 passed by the Assessing Officer, on the following substantial questions of law:- “Whether on the facts and in the circumstances of the case, the Tribunal was right in relying upon Section 36(1) (iii) of the Act in isolation without considering the fact that the assessee has not only borrowed money but also has advanced money from which the assessee was liable to receive interest income. (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the advances made to Hindustan Max G.B. were actually for commercial expediency particularly since the advance pertained to the earlier years and whether the commercial expediency can be said to have existed over a prolonged ITA No. 118 of 2014(O&M) -2- period of number of years when no such transaction has taken place in the succeeding years. (iii) Whether on the facts and in the circumstances of the case, the tribunal was right in the law in granting relief of Rs.42,77,213/- to the assessee on commission paid on domestic sales. Further, the Hon'ble ITAT has wrongly held that the Assessing Officer could not interfere with rates of commission paid by the assessee company even if in the light of material available on record these rates are unreasonable and excessive and the assessee could not prove before the A.O. that these payments were actually made. (iv) Whether on the facts and in the circumstances of the case,t he Tribunal was right in the law in not appreciating that the provision of Section 14A are applicable irrespective of existence of business expediency in investments. (v) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of Section 14A were not applicable despite the fact that the assessee had invested in shares from where any income earned would have been exempt being in the nature of dividend and therefore, irrespective of the financial health of the said company this income would not have formed part of the total income of the assessee.” Counsel for the revenue fairly concedes that question Nos.1 & 2 have been answered against the revenue in ITA No.257 of 2009 (The Commissioner of Income Tax-I, Chandigarh Vs. M/s DSM Anti Infectives India Limited) decided on 28.10.2013. As regards the other questions, counsel for the revenue submits that though the Income Tax Appellate Tribunal has restored the matter to the ITA No. 118 of 2014(O&M) -3- assessing officer to examine the veracity of the alleged commissions paid by the assessee, a bare perusal of the material on record reveals the absence of any contract or any conformation by any person, who received commission. The matter, therefore, should have been remitted in its entirety by directing the assessing officer to determine the correctness of the claim and not merely its quantum. As regards the 4th and 5th questions, counsel for the appellant contends that the assessee invested Rs. 5.00 crores in M/s HMGV, was allotted shares and therefore, received interest and dividend. The interest and dividend so received falls within the ambit of Section 14-A of the Act and thus, was rightly computed as income of the assessee. The Income Tax Appellate Tribunal has erred in holding that as this investment was part of business of the assessee and was made as a measure of business expediency, it does not fall within Section 14A of the Act. We have heard counsel for the appellant and perused the impugned order as well as orders passed by the assessing officer etc., but are not inclined to hold that the substantial questions of law should be answered in favour of the revenue. Admittedly, the assessee had taken a positive stand that he had paid commission for sourcing of raw material etc. The Assessing Officer, however, did not carry out any inquiry and by summarily holding that the assessee has not been able to place on record any confirmation, disallowed Rs.92.00 lacs allegedly paid on account of commissions. The Income Tax Appellate Tribunal has ITA No. 118 of 2014(O&M) -4- merely restored the matter to the assessing officer for examining the matter afresh by reference to the identity of the recipients and the nature of transactions said to be commissions paid by the assessee. We find no error of jurisdiction much less of law that would enable us to hold in favour of the revenue or to hold that the discretion exercised by the Tribunal is perverse or arbitrary. The third question is, therefore, answered against the revenue. The last two questions pertain to the applicability of Section 14A of the Income Tax Act. The learned Tribunal has after a detailed consideration of the material on record held as follows:- “The brief facts relating to the issue are that the Assessing Officer from the balance-sheet noted the investment of Rs.5 crores in shares of M/s Hindustan Max-GB Ltd. The said investment was made in the earlier years on which the assessee was earning interest. While deciding ground No.3 of the present appeal, we have deliberated upon the issue of disallowance of interest relatable to such advances made by the assessee on which as per the Assessing Officer, no interest was charged as against the interest expenditure incurred by the assessee. It is an admitted position that the assessee was receiving interest on the said advances. The said investment was made for business purposes i.e. for the purchase of raw material from the said concern. However, as the said concern was in financial constraint, the application was made before the BIFR by the said concern and thereafter, no interest was being charged by the assessee on the said advances. ITA No. 118 of 2014(O&M) -5- Admittedly, the said investment was not made during the year under consideration, as is apparent from the fact that the issue of disallowance of interest under Section 36(1)(iii) of the Act in relation to the said advance, arose before the Tribunal in assessment year 2006-04 and thereafter. IN the totality of the abovesaid facts and circumstances, we are of the view that no disallowance is warranted under Section 14A read with Rule 8D of IT Rules as the said investment had been made by the assessee in a joint venture for business expediency. Accordingly, we direct the Assessing Officer to delete the addition of Rs.12,40,501/-. Ground No. raised by the assessee is thus, allowed.” A perusal of these findings reveals that after failing to include the alleged interest received by the assessee under Section 36(I) (iii) of the Act, the Assessing Officer has by a sleigh of hand made an attempt to place this income under Section 14A of the Act. Admittedly the investment was made in the year 1996 and though the assessee may have received interest and dividend at one stage but for the last over a decade M/s HMGV is before BIFR and has not been paying any interest to the assessee. The investment as is apparent from the facts was made as a business expediency to procure raw material manufactured by M/s Hindustan Max GB Ltd. The Income Tax Appellate Tribunal, therefore, rightly deleted the addition made by the assessing officer, under Section 14A of the Act. The fourth and fifth questions are also answered against the revenue. ITA No. 118 of 2014(O&M) -6- The questions having been answered against the revenue, the appeal is dismissed. ( RAJIVE BHALLA ) JUDGE ( B.S. WALIA ) 28.11.2014 JUDGE monika MONIKA VERMA 2014.12.19 16:15 I attest to the accuracy and authenticity of this document chandigarh "