DY. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE vs. AQUAPHARM CHEMICALS PVT. LTD., PUNE

ITA 2150/PUN/2024Status: DisposedITAT Pune25 September 2026AY 2016-1736 pages
AI SummaryPartly Allowed

What were the facts?

The Revenue (DCIT, Circle-8, Pune) appealed against the order of the CIT(NFAC) dated 14.08.2024, which arose from an assessment order dated 21.12.2018 passed under section 143(3) of the Income-tax Act, 1961, for Assessment Year 2016-17. The assessee, Aquapharm Chemicals Pvt. Ltd., filed a cross-objection. The Revenue's appeal concerned the deletion of additions of Rs. 3,54,24,728/- under section 14A read with Rule 8D and Rs. 8,62,68,864/- under section 40(a)(ia). The assessee's cross-objection challenged the addition of Rs. 3,54,24,728/- under section 14A for not recording satisfaction as mandated by section 14A(2). The assessee is engaged in the manufacture and sale of chemicals. The assessment was under scrutiny.

What did the Tribunal hold?

The Tribunal addressed two main issues. Firstly, regarding the disallowance under section 14A, the Tribunal noted that the assessee's cross-objection regarding the AO's failure to record satisfaction was not adjudicated by the CIT(A). Therefore, this issue was restored to the CIT(A) for fresh adjudication. Secondly, concerning the disallowance under section 40(a)(ia) for payments to non-residents: - The Tribunal upheld the CIT(A)'s deletion of disallowance for export commission and designing brochure expenses (Rs. 4,78,55,027/-), finding that these were incurred for earning income from outside India, thus falling under the exception in section 9(1)(vii)(b). - The Tribunal sustained the disallowance for import inspection expenses (Rs. 44,78,680/-), holding that these were Fees for Technical Services and not incurred for earning income from outside India. - The issue of legal compliance expenses (Rs. 3,39,46,157/-) was restored to the CIT(A) for fresh adjudication to determine if these were incurred for earning income from outside India, as the CIT(A) had not examined this aspect. The Tribunal noted that Tax Resident Certificates were not submitted before the AO. The Revenue's grounds of appeal were partly allowed for statistical purposes.

What were the issues?

1. Whether the CIT(A) erred in deleting the addition of Rs. 3,54,24,728/- on account of disallowance under section 14A read with Rule 8D by holding that the assessee's own funds exceeded investments yielding exempt income, and whether the CIT(A) erred in restricting the disallowance to investments yielding exempt income during the year, ignoring the Explanation to Section 14A regarding expenditure incurred in relation to such income even if not accrued or received in the previous year? Assessee's Contention (Cross Objection): The addition of Rs. 3,54,24,728/- under section 14A was erroneous as the Assessing Officer failed to record satisfaction as mandated by section 14A(2). Revenue's Contention: The CIT(A) erred by holding that the assessee's own funds covered the investments and by ignoring the Explanation to Section 14A. The Revenue argued that the entire interest-free funds were already applied to fixed assets, capital work-in-progress, and liabilities, thus not available for investments yielding exempt income. They also contended that the disallowance should apply even if exempt income was not accrued or received in the year, provided expenditure was incurred. 2. Whether the CIT(A) erred in deleting the addition of Rs. 8,62,68,864/- under section 40(a)(ia) by holding that non-resident agents are not liable to tax in India for services rendered outside India, and whether the CIT(A) erred by not appreciating that the AO found these services to be technical, consultancy, or managerial falling under Fee for Technical Services (FTS) under section 9(1)(vii), and that the assessee failed to provide TRCs as mandatory under section 90(4) for DTAA relief? Revenue's Contention: The services rendered by non-residents were in the nature of technical, consultancy, or managerial services, taxable as FTS under section 9(1)(vii). The assessee's failure to provide TRCs made them ineligible for DTAA benefits. The CIT(A) erred in deleting the addition.

Which sections of the Income-tax Act were involved?

Section 14A,Section 8D,Section 40(a)(ia),Section 9(1)(vii),Section 90(4),Section 143(3),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCHES “C”, PUNE

Before: DR.MANISH BORAD & SHRI VINAY BHAMORE

For Appellant: Shri Ajit Jain and Shri Siddhesh Chaugule
For Respondent: Smt. Sudha Gupta, CIT-DR
Hearing: 02.07.2026Pronounced: 25.09.2026

Heard together (2 matters)

ITA No.2150/PUN/2024
C.O. No.16/PUN/2025

Read from the judgment's own cause title. This page is filed under one of them.

PER DR. MANISH BORAD, ACCOUNTANT MEMBER :

The captioned appeal at the instance of Revenue and Cross Objection by the assessee pertaining to A.Y. 2016-17 are directed against the order of ld.CIT/NFAC dated 14.08.2024 passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Assessment order dated 21.12.2018 passed u/s.143(3) of the Act.

The order continues below.

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