M/S PANACEA BIOTEC LTD.,DELHI vs. ACIT, CENTRAL CIRCLE 29, DELHI

P a g e | 1 ITA No.6144/Del/2025 M/s Panacea Biotec Ltd. (AY 2020-21) IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, DELHI BEFORE SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER & SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No. 6144/Del/2025 (Assessment Year: 2020-21) M/s Panacea Biotec Ltd. Vs. ACIT B1 Extn/G-3, MCIE, Central Circle 29 Tughlakabad, Badarpur Delhi S.O., South East Delhi 110044 �थायीलेखासं./जीआइआरसं./PAN/GIR No: AAACP 5335 J Appellant .. Respondent

Appellant by : Sh. Madhur Aggarwal, Adv Respondent by : Sh. Manish Gupta, Sr. DR

Date of Hearing 09.03.2026 Date of Pronouncement 29.04.2026

O R D E R PER VIMAL KUMAR, JM: The appeal filed by the assessee is against the order dated 14.08.2025 of the Ld. Commissioner of Income Tax (Appeals)-30, New Delhi (hereinafter referred to as “Ld. CIT(A)”), u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), arising out of assessment order dated 29.09.2022 of the Ld. Assessing Officer/Assessment Unit, (hereinafter

P a g e | 2 ITA No.6144/Del/2025 M/s Panacea Biotec Ltd. (AY 2020-21) referred to as “Ld. AO”), u/s 143(3) r.w.s. 144B of the Act for Assessment Year 2020-21.

2.1. On completion of proceedings Ld. AO vide order dated 29.09.2022 made addition of Rs.3,44,64,263/-, on account of disallowance u/s 14A of the Act.

P a g e | 3 ITA No.6144/Del/2025 M/s Panacea Biotec Ltd. (AY 2020-21) 1.1 That the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in failing to appreciate that the assessee-appellant has not claimed any expenditure as having been incurred for the purpose of earning exempt income, nevertheless, on a prudent and conservative basis, the assesses-appellant suo motu disallowed a sum of Rs. 35,428/- being the amount of exempt dividend earned during the year under consideration, and disallowance under section 14A cannot exceed the exempt income. 1.2. That the learned Commissioner of Income Tax (Appeals) has proceeded to sustain the addition/disallowance of a sum of Rs. 3,44,64,263/- by mechanically applying Rule 8D(2)(ii) of the I.T. Rules, 1962 without recording the mandatory satisfaction as required u/s 14A(2) of the I.T. Act, 1961, and as such the addition/disallowance so sustained is liable to be deleted. 1.3 That the learned CIT (A) has grossly erred in sustaining the impugned disallowance with preconceived notions, relying on irrelevant judgments, recording perverse findings and also by arbitrarily brushing aside the detailed submissions/evidences/material/judgments placed on record, which were furnished in order to support the fact that there was no need for making /sustaining any disallowance under section 14A of the Act. 2. That the learned Commissioner of Income Tax (Appeals) has grossly erred in law and on facts by sustaining a disallowance of a sum of Rs. 29, 612/- on account of ESI/PF. 3. The appellant craves leave to add, amend, alter, or withdraw any ground of appeal at the time of hearing. 5. Ld. Authorized Representative for appellant-assessee submitted that,

Ld. CIT(A) erred in sustaining addition of Rs. 3,44,64,263/- on account of

disallowance u/s 14A of the Act read with Rule 8D(ii). Ld. CIT(A) failed to

appreciate that assessee had not claimed any expenditure as having been incurred for the purpose of earning exempt income. However, the assesses-

appellant suo moto disallowed a sum of Rs. 35,428/- being the amount of exempt dividend earned during the year under consideration, and

disallowance under section 14A cannot exceed the exempt income.

P a g e | 4 ITA No.6144/Del/2025 M/s Panacea Biotec Ltd. (AY 2020-21) 5.1. Hon’ble High Court of Delhi in ITA No.117 of 2015 titled as Joint Investments (P.) Ltd. Vs. Commissioner of Income-tax decided on 25th February, 2015 reported as [2015] 59 taxmann.com 295 (Delhi) in para No.9 held as under:-

………………. 9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440 as a disallowance under s. 14A had to be rejected. Taikisha Engg. India Ltd. (supra) says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO-an aspect which is completely unnoticed by the CIT(A) and the Tribunal. The third, and in the opinion of this Court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000, the disallowance ultimately directed works out to nearly 110 per cent of that sum, ie, Rs. 52,56,197. By no stretch of imagination can s. 14A or r. 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in s. 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. …………… 5.2. Similar is position in Pr. Commissioner of Income-tax-2 Vs. Caraf Builders & Constructions (P.) Ltd. decided on 13.11.2018 reported as [2019] 101 taxmann.com 167 (Delhi) and Deputy Commissioner of Income-tax Vs. Jite Shipyard Ltd. decided on 13.12.2023 reported as [2023] 157 taxmann.com 733 (Delhi).

P a g e | 5 ITA No.6144/Del/2025 M/s Panacea Biotec Ltd. (AY 2020-21) 7. From examination of record, in light of aforesaid rival contention, it is crystal clear that, Ld. CIT(A) vide order dated 14.08.2025 sustained addition of Rs.3,44,64,263/- on account of disallowance u/s 14A of the Act read with Rule 8D(ii) of the Rules.

7.1. As per assessment order dated 29.09.2022, the assessee in return of income declared total income of Rs.157,79,76,960/-. The return was processed u/s 143(1)(a) at Rs.679,57,40,550/-. The assessee in its computation of income disallowed Rs.35,428/- u/s 14A. The assessee was show caused as to why remaining amount of Rs.3,44,64,263/- (Rs.3,44,99,961/- MINUS Rs.35,428/-) should not be disallowed. The assessee submitted monthly average of investments. One percent of annual average of monthly investments was taken for computing disallowance as per Rule 8D which came to be Rs. 3,44,99,691/-. Since the assessee had disallowed an amount of Rs. 35,428/-, the remaining amount of Rs. 3,44,64,263/- was disallowed and added in income.

7.2. As per ratio of judgment, in ITA No.117 of 2015 titled as Joint Investment (P.) Ltd Vs. Commissioner of Income-tax decided on 25th February, 2015 reported as [2015] 59 taxmann.com 295 (Delhi), it is well settled that by no stretch of imagination can s. 14A or r. 8D be interpreted so

P a g e | 6 ITA No.6144/Del/2025 M/s Panacea Biotec Ltd. (AY 2020-21) as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in s. 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.

7.3. In view of above material fact especially tax exempt income of Rs. 35,428/- being less than expenditure and well settled principle of law, the action of Ld. AO being illegal, is set aside.

7.4. Therefore, grounds of Appeal Nos.1, 1.1 to 1.3 are accepted.

Order pronounced in the open court on 29.04.2026

Sd/- Sd/- (S. Rifaur Rahman) (Vimal Kumar) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 29.04.2026 *Mittali, Sr. PS Copy forwarded to: 1. Appellant

P a g e | 7 ITA No.6144/Del/2025 M/s Panacea Biotec Ltd. (AY 2020-21) 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI