VIRCHOW LABORATORIES LIMITED,HYDERABAD vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-17(2), HYDERABAD

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ITA 1543/HYD/2017Status: DisposedITAT Hyderabad19 November 2020AY 2013-145 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal allowed the disallowance under Section 14A as no exempt income was earned. However, the issue regarding the R&D deduction was remanded to the AO for de-novo consideration due to lack of proper documentation.

What were the facts?

The assessee claimed deduction for R&D expenditure under Section 35(2AB) and also made investments. The AO disallowed a portion of the R&D deduction due to non-submission of required forms and disallowed expenses under Section 14A. The CIT(A) confirmed these disallowances.

What were the issues?

Whether disallowance under Section 14A is permissible when no exempt income is earned, and whether deduction under Section 35(2AB) is allowable without prescribed forms.

Which sections of the Income-tax Act were involved?

Section 14A,Section 35(2AB)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad

Before: Smt. P. MADHAVI DEVI & Shri D.S. SUNDER SINGH

Hearing: 19/11/2020Pronounced: 19/11/2020

ORDER Per Smt. P. Madhavi Devi, J.M. This is assessee’s appeal for the A.Y. 2013-14 against the order of CIT(A)-5, Hyderabad dated 28.06.2017.

1.

This appeal was taken up for hearing on 19.11.2020 through Video Conferencing and both the parties were heard.

2.

Brief facts of the case are that the assessee company, engaged in the business of manufacturing of bulk drugs and diet sugar, filed its return of income on 27.11.2013 for the A.Y. 2013-14 admitting total

M/s Virchow Laboratories Ltd. Hyd. income of Rs.42,43,85,260/-. The return of income was initially processed u/s 143(1) of the Income Tax Act, 1961 (the Act). Subsequently, on selection of the return of income for scrutiny through CASS, the assessment was completed u/s 143(3) of the Act. During the assessment proceedings, the AO observed that the assessee has made investments, the dividend income from which is exempt from tax. He therefore made a disallowance of Rs.14,43,820/- u/s 14A r.w. Rule 8D of the Act.

2.1. The AO also observed that the assessee has claimed deduction u/s 35(2AB) to the extent of Rs.1,59,10,522/- which is 200% of the R&D expenditure. The assessee was therefore asked to furnish Form 3 CL and Form 3CM issued by the Department of Science and Industrial Research, Govt. of India, New Delhi. However, the assessee did not furnish the said forms and therefore, the AO held that 100% of the R&D expenditure only is allowable as a deduction. AO accordingly allowed Rs,79,55,261/- and disallowed the balance of Rs.79,55,261/- and brought it to tax. Aggrieved, assessee preferred an appeal before the CIT(A) who confirmed the order of the AO.

2.2. Assessee is in second appeal before us by raising the following grounds of appeal. “1. The order of Ld.CIT(A) is erroneous both on facts and in law.

2. The Ld.CIT(A) erred in confirming the disallowance of Rs.14,43,820/- made by the AO u/s 14A of the I.T.Act.

3. The Ld.CIT(A) erred in confirming the disallowance of Rs.79,55,261/- representing the claim for deduction u/s 35(2AB) of the I.T.Act made by the A.O.

4. Any other ground/grounds that may be urged at the time of hearing.”

M/s Virchow Laboratories Ltd. Hyd.

2.3. As regards ground no.2, the Ld.Counsel for the assessee submitted that the assessee has not earned any exempt income during the relevant A.Y. and therefore no disallowance u/s 14A of the Act with regard to said investments is called for. He further submitted that the assessee had sufficient own funds to make investments in its Subsidiaries and therefore assessee has not incurred any expenditure towards investments.

2.4. Ld.DR however, supported the orders of authorities below.

3.

Having regard to rival contentions and material placed on record, we find that there is no dispute that the assessee has not earned any exempt income during the relevant A.Y. Respectfully following the decision of Hon’ble Supreme Court in the case of CIT vs. Chettinad Logistics (P) Ltd. In SLP(Civil) no. 15631 of 2018 wherein it has been held that if no exempt income is earned during the relevant A.Y. no disallowance u/s 14A is called for, we allow ground no.2.

4.

As regards ground no.3, the Ld.Counsel for the assessee submitted that assessee has applied for issuance of Form 3 CM and Form 3 CL, but the department of Scientific and Industrial Research has issued the Form 3 CM w.e.f. 01.04.2014 upto 31st March, 2017 for the purpose of sec.35(2AB). He prayed that the deduction should be given for the earlier period also. In support of his contentions he placed reliance on various decisions. 4.1. Ld.DR however, submitted that the approval from the Dept. of Scientific and Industrial Research, Ministry of Science and Technology, M/s Virchow Laboratories Ltd. Hyd. New Delhi has been given w.e.f. 01.04.2014 and therefore deduction for earlier period cannot be given.

5.

Having regard to rival contentions and material placed on record and various case laws cited, we find that both before the AO as well as the CIT(A), the assessee has not filed any details with regard to Form no.3 CM & 3CL and also as regards the period for which the Applications have been made by the assessee. In view of the same, we deem it fit and proper to remand this issue to the file of AO for de-novo consideration in accordance with law. Needless to mention that assessee shall be given a fair opportunity of hearing. We direct that the assessee also shall cooperate with the AO for early completion of the assessment.

5.1. Accordingly, this ground is treated as allowed for statistical purposes.

6.

In the result, assessee’s appeal is treated as partly allowed for statistical purposes. Order pronounced on 19th November, 2020.

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