AURIGENE ONCOLOGY LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BANGALORE

PER KESHAV DUBEY, JUDICIAL MEMBER:

These appeals at the instance of the assessee are directed against the separate orders of ld. CIT(A)/NFAC both dated 22.7.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025- 26/1078741886 (1) for the assessment year 2018-19 & vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1078745170 (1) for the assessment year 2020-21 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). Since the issue involved in both these appeals is common in nature, these are clubbed together, heard together and disposed of by this common order for the sake of convenience and brevity.

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ITA Nos.2108 & 2109/Bang/2025 Aurigene Oncology, Bengaluru Page 4 of 11 4. The brief facts of the case are that the Assessee is a public limited company incorporated in India under the Companies Act, 1956. The Assessee is a drug discovery biotech company operating in the fields of oncology, inflammation and metabolic disorders. The Assessee is focused on collaborative drug discovery with pharmaceutical and biotech companies on a risk-sharing basis and is also involved in providing services on contract basis. The Assessee e-filed its return of income for the AY 2018-19 on 22.11.2018 declaring total income of Rs. 26,42,85,610/-. The case was selected for scrutiny assessment proceedings by issuing notice under section 143(2) of the Act. Thereafter notices under section 142(1) were issued and the details called for were duly furnished by the Assessee. During the course of assessment proceedings, the AO focused on the payments made to non- residents towards compound testing charges, patent expenses and disallowance u/s 14A of the Act.

4.1 During the assessment proceeding, the AO sought for details in relation to applicability of section 14A of the Act for FY 2017-18. It was submitted before the AO that the Assessee does not have any investments which are capable of earning exempt income and all the expenditure incurred by the Assessee is directly attributable to business activity (the income from which is taxable). Further the Assessee also submitted that it had not earned any exempt income during the year. However, the AO without considering the submissions of the Assessee proceeded with the disallowance as under: Particulars Amount a) Foreign Payments for Study of Compounds Rs.2,09,29,151/- b) Patent Payments Rs.2,77,01,786/- c) Disallowance u/s 14A Rs.4,79,59,652/- Rs.9,65,90,589/- Total:

ITA Nos.2108 & 2109/Bang/2025 Aurigene Oncology, Bengaluru Page 5 of 11 4.2 Further, the AO retained the addition made in the Intimation under section 143(1) of the Act as below:

a. The AO did not consider the fact that cash payment of Rs. 13,776/- was already disallowed in the ITR filed by the Assessee in Schedule BP under - 'Amount debited to P&L to the extent disallowable under section 40A of the Act'. b. The AO failed to consider the fact that Rs.935/- payable to Labour Welfare Fund was paid before the due date of the fund and filing the return of income and the same is eligible for deduction under section 43B.

ITA Nos.2108 & 2109/Bang/2025 Aurigene Oncology, Bengaluru Page 6 of 11 8. Before us, the ld. A.R. for the assessee vehemently submitted that the ld. CIT(A)/NFAC erred in law in not appreciating that in the absence of any exempt income or expenditure incurred by the assessee, the provision of section 14A of the Act could not have been invoked by the AO. Further, the ld. A.R. of the assessee vehemently submitted that the Authorities below erred in not appreciating the fact that disallowance u/s 14A r.w. Rule 8D cannot exceed the income claimed as exempt from tax.

“6. We have considered the submissions made on both sides and have perused the record. Admittedly, the first substantial question of law does not arise for consideration. Therefore, we need not deal with the same. So far as second substantial question of law is concerned, this Court in Biocon Ltd. v. Dy. CIT [IT Appeal No. 416 of 2014, dated 12-1-2021] has held that if no exempt income has

ITA Nos.2108 & 2109/Bang/2025 Aurigene Oncology, Bengaluru Page 7 of 11 accrued to the assessee the provisions of section 14A do not apply. However, reliance placed by the learned counsel for the revenue on the decision in the case of Kingfisher Finvest Ltd.(supra) is concerned, suffice it to say that reliance was placed in the aforesaid decision on the decision in Maxopp Investment Ltd. v. CIT [2018] 91 taxmann.com 154/254 Taxman 325/402 ITR 640 (SC). It is pertinent to note that the decision Maxopp Investment Ltd. (supra) does not deal with the issue of applicability of Section 14A of the Act. The subsequent decisions of Madras High Court as well as Delhi High Court, namely in Chettinad Logistics (P.) Ltd. (supra) and Cheminvest Ltd. (supra) have been affirmed by the Supreme Court subsequently. Therefore, taking into account the fact that Maxopp Investment Ltd. (supra) does not deal with the issue with regard to applicability of Section 14A of the Act, we are in respectful agreement with the view taken by the High Court of Madras and High Court of Delhi. Since no exempt income has accrued to the assessee, therefore we hold that the provisions of Section 14A of the Act do not apply to the fact situation of the case. In the result, the second substantial question of law is answered against the revenue and in favour of the assessee.”

10.1 Further, we also relied upon the decision of the Hon’ble High Court of Gujarat in the case of Commissioner of Income Tax-1 Vs. Corrtech Energy (P.) Ltd. reported in (2015) 372 ITR 97 (Guj.), wherein it is held as under:

“The ld. AR submitted that this finding of ld. CIT(A) is containing to the law settled by various judicial pronouncements. We have given our thoughtful consideration to the facts and the decision relied upon by the ld. AR. The Hon'ble Punjab & Haryana High Court in the case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 has held that in the present case, admittedly, the assessee did not make any claim for exemption. In such a situation, section 14A could have no application. In this case also, the assessee has not claimed any exempt income in this year. Therefore, respectfully following the judgement of Hon'ble High Court of Punjab & Haryana in the case of Winsome Textile Industries Ltd. (supra), we hereby allow this ground and direct the AO to delete the addition. Therefore, ground Nos. 1 to 1.2 raised by the assessee in its cross-objection are allowed." 4. Counsel for the Revenue submitted that the Assessing Officer as well as CIT(Appeals) had applied formula of rule 8D of the Income Tax Rules, since this case arose after the assessment year 2009-2010. Since in the present case, we are concerned with the assessment year 2009-2010, such formula was correctly applied by the Revenue. We however, notice that sub-section(1) of section 14A provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench

ITA Nos.2108 & 2109/Bang/2025 Aurigene Oncology, Bengaluru Page 8 of 11 of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed as under : "7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd (2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no application." 5. We do not find any question of law arising, Tax Appeal is therefore dismissed.”

10.2 We also rely on the judgment of the Apex Court in the case of Principal Commissioner of Income Tax Vs. Delhi International Airport (P.) Ltd. reported in (2022) 287 taxman 100 wherein it was held as under:

“14. Now we may advert to the second substantial question of law. It is pertinent to note that for Assessment Year 2009-10 the assessee has not earned dividend income. The aforesaid fact has not been disputed by the revenue. It is also relevant to mention that Circular No. 5/2014 dated 11-2-2014 is not applicable in the instant case as the instant case pertains to Assessment Year 2009-10. The aforesaid Circular has no retrospective operation. It is noteworthy that aforesaid Circular was not even relied by the parties. This court in Commissioner of Income Tax v. Kingfisher Investment India Ltd. vide judgment dated 29-9-2020 inter alia held that disallowance under section 14A read with rule 8D has to be made even when taxpayer in a particular year has not earned any exempt income. This court relied on the decision of the Supreme Court in Maxopp Investment Ltd. (supra) which was reproduced in Paragraph 5 of the decision and reliance was also placed on Circular dated 11-2-2014 issued by Central Board of Direct Taxes (CBDT). However, the aforesaid decision was subsequently considered by this court in judgment dated 16-1-2021 passed in I.T.A.No.271/2017 (Principal Commissioner of Income Tax v. Novel Software Development) in which it was held that decision of this court in Kingfisher Finvest Ltd. was distinguishable as the basis of the aforesaid decision of this court was the decision of the Supreme Court in Maxopp Investments Ltd. supra and it was held that the aforesaid decision does not deal with applicability of section 14A of the Act. However, eventually this court agreed with the view taken by High Court of Madras in CIT v. Chettinad Logistics (P.) Ltd., (2017) 80 taxmann.com 221 (Mad.) and Kem Invest Ltd. v. CIT, (2015) 16 taxmann.com 118 (Delhi) and held that since no exempt income has accrued to the assessee therefore, the provisions of section 14A of the Act do not apply to the fact situation of the case. Therefore, it has become necessary for us to clarify the view taken in the two decisions viz., Kingfisher Finvest India Ltd. and Novel Software

ITA Nos.2108 & 2109/Bang/2025 Aurigene Oncology, Bengaluru Page 9 of 11 India (P) Ltd. supra. At this stage, we may refer to Paragraph 40 of the decision of the Supreme Court in Maxopp supra, the relevant extract of which reads as under: It is to be kept in mind that in those cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to the deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even that the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes upon order to earn profits. In the result, the appeals filed by the revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove.

ITA Nos.2108 & 2109/Bang/2025 Aurigene Oncology, Bengaluru Page 10 of 11 7. In light of the aforesaid judgment passed in ITA No. 133/2015, the question of law is answered in favour of the assessee and against the revenue. Resultantly, the appeal stands dismissed.”

10.3 Therefore, respectfully, relying on the above judgments, we are of the considered opinion that disallowance u/s 14A of the Act cannot be made where tax payer has not earned any exempt income and accordingly, we allow this ground of appeal raised by the assessee for both the assessment years under consideration.

10.4 Now with regard to the additions made in the intimation u/s 143(1) of the Act, we are of the considered opinion that the issue of disallowances u/s 143(1) of the Act was not actively examined and adjudicated upon in the assessment order passed u/s 143(3) of the Act and the AO had merely adopted the figures from the intimation u/s 143(1) as base while computing the assessed income. In view of the above, we direct the assessee to file a separate appeal before the first appellate authority against the intimation passed u/s 143(1) of the Act with an application for condonation. The ld. CIT(A)/NFAC after considering the application for condonation shall pass the order in accordance with law. Accordingly, this ground of appeal of the assessee is partly allowed for statistical purposes.

ITA Nos.2108 & 2109/Bang/2025 Aurigene Oncology, Bengaluru Page 11 of 11 13. In the combined result, appeal in ITA No.2108/Bang/2025 is partly allowed for statistical purposes and appeal in ITA No.2109/Bang/2025 is allowed.

Order pronounced in the open court on 22nd June, 2026

Sd/- Sd/- (Prashant Maharishi) (Keshav Dubey) Vice President Judicial Member

Bangalore, Dated 22nd June, 2026. VG/SPS

Copy to:

Asst. Registrar, ITAT, Bangalore.