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Income Tax Appellate Tribunal, “ A ” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
आदेश / O R D E R
PER SHRI RAJPAL YADAV, JUDICIAL MEMBER :
The Revenue is in appeal before the Tribunal against the order of Ld.Commissioner of Income Tax(Appeals)-2, Ahmedabad [‘CIT(A)’ in short] dated 02/06/2017 passed for Assessment Year (AY) 2009-10.
ACIT vs. Intas Pharmaceuticals Ltd. Asst.Year – 2009-10 - 2 -
The Registry has pointed out that appeal filed by the Revenue is time barred by 20 days. In order to explain the delay, the Revenue has filed an application on 22/09/2017 contending therein that Pr.CIT-2 had a concurrent charge of other regions and was over burden with various administrative work. Hence, on account of work-load, this file missed from his attention for granting approval for filing the appeal.
With the assistance of Ld.Representatives, we have gone through the records and perused the application for condonation of delay. The ld.counsel for the assessee has not seriously objected to the application of the Revenue. Therefore, considering the plausible explanation given by the Revenue, we condone the delay and proceed to decide the appeal on merit.
The solitary grievance of Revenue is that the Ld.CIT(A) has erred in deleting the disallowance of Rs.1,79,03,547/- which was disallowed by the Assessing Officer with the aid of section 14A read with Rule 8D.
The brief facts of the case are that assessee has filed its return of income on 30/09/2009 declaring total income of Rs.82,96,56,240/-. The case of the assessee was selected for scrutiny assessment and notice
ACIT vs. Intas Pharmaceuticals Ltd. Asst.Year – 2009-10 - 3 - u/s.143(2) of the Act was issued and served. Thereafter, the assessment was reopened and notice u/s.148 was issued on 22/03/2016. The Assessing Officer has observed that assessee has made an investment of Rs.2,10,76,28,223/- in the partnership firm and received share of profit at Rs.76,77,95,809/- which has been claimed exempt u/s.10(2)A of the Act. The assessee has disallowed expenditure of Rs.36,10,257/- u/s.14A of the Act. The Ld.AO was not satisfied with the amount disallowed by the assessee suo moto. Therefore, he worked out the disallowance as under:
“The assessee has disallowed expenditure of Rs.36,10,257/- u/s.14A of the Act. While making disallowance, the assessee has not considered the disallowance u/s.14A alongwith with the Rule 8D of the I T Rules. Therefore, by applying the Rule 8D, the disallowance u/s.14A will comes to Rs.2,15,13,804/- as per the working given below:
I Expenditure incurred as claimed by assessee (A) Amount of 63673827 expenditure by way of interest debited in the P&L A/c. Opening Value Closing Value (B) Average 1099397085 2107628223 1603512654 investment on which tax free income is received or ACIT vs. Intas Pharmaceuticals Ltd. Asst.Year – 2009-10 - 4 - receivable (C) Average value of 6321815433 8808588397 7565201915 total assets as appearing in the Balance Sheet (A) X (B) /(C) II 13496241 III 0.5% of the 8017563 average value of investment on which tax free income is received or receivable TOTAL = I 21513804 + II + III
Therefore, the difference of Rs.1,79,03,547/- (i.e. 21513804 minus 3610257) on account of the short disallowance u/s.14A is disallowed and added to the total income. Since the assessee has furnished inaccurate particulars of income penalty proceedings u/s.27191)(c) of the Act initiated separately.
(Disallowance u/s.14A Rs.1,79,03,547/-)”.
Dissatisfied by the disallowance, assessee carried the matter before the CIT(A). It has filed detailed written submission which has been reproduced by the Ld.First Appellate Authority. The Ld.CIT(A) thereafter deleted the disallowance by recording following finding:
ACIT vs. Intas Pharmaceuticals Ltd. Asst.Year – 2009-10 - 5 - “ 2.5. On going through the details, it has been noticed that the appellant has made the various investments of which details are as under:-
Amount in INR
Particulars As on As on 31/03/2009 31/03/2008 (A) SrNo In Subsidiary Companies - Unquoted, fully paid-up
1 Accord Healthcare Limited 500,000 500,000 2 Intas Pharma Limited 147,500,000 500,000 3 Astron Research Limited 87,668,631 0 4 Andhre Laboratories Limited 543,68,000 54368000 5 Accord Healthcare Limited, UK 1160822000 758985000 6 Accord Healthcare Inc., NJ, USA 2,283,078 2,283,078 7 Accord Healthcare (Pty) Limited, SA 42782000 42782000 8 Accord Healthcare NZ Limited, NZ 12,891,980 12,891,980
9 Accord Healthcare Inc., NIC, USA 3231897 3,231,897 & Accord NJ 1698000 1698000
10 Accord Healthcare Inc., Canada 18639000 18639000
11 Accord Healthcare S.A.C., Peru 25853000 25853000
ACIT vs. Intas Pharmaceuticals Ltd. Asst.Year – 2009-10 - 6 - 12 Accord Farma S.A. DE C.V., Mexico 143833000 25108000
13 Misc Other :Quoted: Shree Rama Multitech Shares (1200sh): 6,000 6,000 (B) In Partnership Firm
In the Capital of Intas Pharmaceuticals 210126000 110126000 Total 2107628223 1099397085 2.6. It has been noticed that all these subsidiary companies from SI. No. 2, 3 & 5 to 12 are for the purpose of strategic investments and also the companies listed at SI. No. 5 to 12 are foreign companies of which dividend income is not exempt. Therefore, the provisions of section 14A on these companies are not applicable. Further, the appellant has not received any dividend income during the year under consideration and the investment being the strategic investment out of commercial expediency with no intention to earn the dividend income or capital gains. Moreover, the appellant had the share capital and reserves and surplus at Rs.381.4 crores which was much more than the average investment in the capital of the partnership firm namely; M/s. Intas Pharmaceuticals.
2.7. Further with regard to investment in share of Accord Healthcare Limited, Andhre Labs Limited and Shree Ram Multi Tech which Was stated to be made out of own funds. Since, the appellant had the huge funds in the form of reserves and surplus, therefore such amount of investment would not attract any disallowance of interest. Although the disallowance under Rule 8D(2)(iii) @ 0.5% towards administrative and other expenses would be worked out and the disallowance to that extent is confirmed as discussed below.
2.8. Therefore, following the decision in appellant's own case in A. Y. 2011-12, after having held that the accounts of the appellant in respect of administrative expenditure incurred for earning the income which does not form part of the ACIT vs. Intas Pharmaceuticals Ltd. Asst.Year – 2009-10 - 7 - total income are not correct, the administrative expenditure incurred will have to be worked out by applying the Provisions of Rule 8D. It is noted that the AO has applied Rule 8D for working out the disallowance. Accordingly, the application of Rule 8D(2)(iii) by the AO for making the disallowance under section 14 A out of general expenses is upheld and the same is worked out as under:-
(I) Average balance of investment in shares Rs.5,48,74,000/- of Accord Healthcare Limited, Andhre Labs Limited and Shree Ram Multi Tech (Rs.5,00,0007- + Rs.5,43,68,000/- + Rs.6,000/-) (ii) Average balance in capital account Rs. 16,01,26,000/- towards capital employed Total Rs.21,50,00,000/-
0.5% of average investment of Rs.21,50,00,0007- works out to Rs. 10,75,000/- 2.9. Since the appellant himself has made the suo moto disallowance of Rs.36,10,257/- in the return of income, therefore, no further disallowance is called for. Consequently, the disallowance made by the AO of Rs.1,79,03,547/- is deleted.”
With the assistance of Ld. Representatives, we have gone through the record. There is no dispute with regard to the proposition that expenses incurred for receiving share of profit from the partnership-firm which is exempt from tax required to be disallowed u/s.14A of the Act.
ACIT vs. Intas Pharmaceuticals Ltd. Asst.Year – 2009-10 - 8 - The ld.counsel for the assessee was conscious of the fact that Special Bench of ITAT Ahmedabad in the case of Vishnu Anant Mahajan vs. ACIT 16 ITR (Trib) 621, has settled this controversy. Thus, the dispute remains about quantification of the expenses which are required to be disallowed. It has been demonstrated before us that total investment in the partnership-firm was of Rs.210.07 crores. It has interest-free funds of Rs.381.4 crores in the shape of share capital and reserves & surplus. Thus, out of interest expenditure, no disallowance deserves to be made. As far as disallowance required under sub-clause(iii) of Rule 8D(2) for taking care of administrative expenses is concerned that disallowance has to be made at 0.5% of the average value of investment which has yield exempt income. The Ld.CIT(A) has worked out this disallowance at Rs.10,75,000/- which is far more than disallowance worked out by the assessee suo moto. It is pertinent to observe that Assessing Officer has worked out a sum of Rs.80,17,563/- being 0.5% of the average value of investment on which tax-free income is received or receivable. This finding of the Assessing Officer is factually incorrect. He appears to have taken into consideration the amount of investment on which no exempt income is available. The Ld.First Appellate Authority has considered this aspect while working out the average value of investment for the purpose of working out the disallowance at 0.5%. Thus, considering the order of the CIT(A), we do not find any error in it and accordingly appeal of the Revenue is dismissed.
ACIT vs. Intas Pharmaceuticals Ltd. Asst.Year – 2009-10 - 9 -
In the result, appeal of the Revenue is dismissed. Order pronounced in the Court on 3rd July-2019 at Ahmedabad.