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Income Tax Appellate Tribunal, HYDERABAD BENCH ‘B, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ‘B', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No. 761/Hyd/2018 Assessment Year: 2013-14 Dy. Commissioner of vs. Mylan Laboratories Ltd, Income-tax, (Formerly known as Matrix Circle – 16(2), Hyderabad Laboratories Ltd.) Hyderabad. PAN – AADCM 3491 M Appellant Respondent Revenue by: Smt. Alka Rajvanshi Jain Assessee by: Shri K.A. Sai Prasad Date of hearing: 10/10/2018 Date of pronouncement: 31/10/2018 O R D E R PER S. RIFAUR RAHMAN, AM:
This appeal is filed by the Revenue against order of CIT(A) - 4, Hyderabad, dated 27/02/2018 for AY 2013-14 wherein the revenue has raised the following grounds of appeal:
The CIT(A) erred in deleting the disallowance 4,18,876/-. 2. The CIT(A) erred in ignoring CBDT's Circular No.5 of 2014 dated: 11-02-2014. 3. The CIT(A) erred in ignoring the Supreme Court decision in the case of CIT Vs Walfort Share of Stock Brokers P Ltd [326 ITR ] wherein it was held that the mandate of section 14A was to curb the practice of claiming deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of exempt income without making any apportionment of expenses incurred in relation to exempt income.
2 I.T.A. No. 761/Hyd/2018 Mylan Laboratories Ltd. 4. The CIT(A) erred in directing the AO to examine and allow deduction u/s 35(1)(i) in respect of expenditure that is not certified by the DSIR for weighted deduction. 5. The CIT(A) erred in ignoring the fact that Revenue's appeal on identical issue of deduction u/s 35(1)(i), in assessee's own case for A.Y. 2008-09 is pending before Hon'ble High Court. 6. The CIT(A) erred in allowing depreciation on non- compete fee. 7. The CIT(A) erred in ignoring the fact that Revenue's appeal on identical issue of depreciation on non- compete fee, in assessee's own case for A.Y. 2008-09 is pending before Hon'ble High Court. 8. Any other ground that may be urged at the time of hearing.”
As regards Ground Nos. 1 to 3 regarding disallowance u/s 14A of Rs. 4,18,876/-, the AO observed that as per the balance sheet, an amount of Rs. 53,64,10,000/- was shown under the head investments as on 31/03/2013. Further, from the information furnished by the Assessee, the AO noticed that the assessee debited ‘interest and finance cost’ of Rs. 63,01,60,000/- and the assessee company had taken secured loans of Rs. 446,47,00,000/- and unsecured loans of Rs. 1354,01,30,000/-. When the assessee was asked to justify as to why the interest expenditure should not be disallowed u/s 14A of the Act, the assessee submitted that it had not incurred any expenditure for earning exempt income, provisions of section 14A are not applicable and further it was submitted that the investments were strategically made in the group companies for achieving better business results but not for earning exempt income.
2.1 After considering the submissions of the assessee as well as referring the provisions of section 14A, the AO computed the disallowance u/s 14A as under:
3 I.T.A. No. 761/Hyd/2018 Mylan Laboratories Ltd. I Expenditure directly related to Nil exempt income II Apportionment of expenditure not directly related to exempt income (A) Interest expenditure 6301.60 (B) Average value of 248.80 investments (C) Average total assets 5,32,416.70 Expenditure not 2.90 directly related to exempt income (A*B/C) III ½% of average value 1.20 of investment Total expenditure to be disallowed u/s 14A Rs. 4.1 lakhs of the Act.
Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and the assessee, inter-alia, submitted before the CIT(A) that there is no direct or indirect expenditure incurred in relation to income not includible in the total income and, therefore, provisions of section 14A cannot be invoked in its case.
The CIT(A) following the decision of ITAT, Hyderabad Bench in the case of Prathista Industries Ltd. in ITA No. 1302/Hyd/2015, dated 29/04/2016, deleted the disallowance made by the AO u/s 14A observing that since the assessee has not earned any dividend during the relevant AY, the provisions of section 14A rw rule 8D are not applicable in this case.
The ld. DR relied on the order of AO while the ld. AR relied on the order of CIT(A).
Considered the rival submissions and perused the material on record. It is settled position of law that the provisions of section 14A can be applied to quantify the
4 I.T.A. No. 761/Hyd/2018 Mylan Laboratories Ltd. expenses in relation to exempt income. Since the exempt income is Nil, section 14A will not apply. The Rule 8D can be applied only when there is difficulty in finding the expenditure relating to exempt income. The provisions of section 14A and Rule 8D will not apply to the present case and the grounds raised by the revenue are dismissed.
As regards ground Nos. 4 & 5 regarding disallowance of an amount of Rs. 6,43,61,570/- u/s 35(2AB), the AO observed that in the computation of income, the assessee company has claimed weighted deduction of expenditure u/s 35(2AB) at Rs. 72,22,82,365/-. However, after considering the expenditure as per Form No.3CL as approved by DSIR, the allowable weighted deduction u/s 35(2AB) works out to Rs. 65,79,21,000/-. Thus, the assessee company claimed excess of weighted deduction of Rs.6,43,61,570/-, which is not allowable as the deduction claimed by the assessee. It is of a very special and technical in nature warranting certain specific conditions to be fulfilled for which reason exactly, the approval of DSIR, being the assessee agency is considered for qualifying the exact amounts of deduction. Hence, in view of the above discussion, the assessee company's claim of expenditure over and above the expenditure reported in Form 3CL is not allowable and thereby added back to the income returned.
Before the CIT(A), the assessee submitted that the expenditure amounting to Rs. 6,43,61,570/- not considered by the DSIR for weightage, is required to be allowed under normal sub-section (1) of section 35 of the Act as expenditure incurred for scientific research in respect of the business carried on by the tax payer. The assessee also submitted that for A.Y. 2008-09, in the assessee's own case, Hon'ble ITAT
5 I.T.A. No. 761/Hyd/2018 Mylan Laboratories Ltd. vide its order dated 10-01-2014 held that expenditure which is not allowable u/ s 35(2AB) by virtue of DSIR certification is allowab1e u/s 35(1).
8.1 The CIT(A) following the decision of the ITAT in assessee’s own case, directed the AO to examine the necessary expenditure and allow the claim of the assessee.
Considered the rival submissions and perused the material on record. We do not find any infirmity in the order of the CIT(A) as the direction of the CIT(A) to AO to examine the necessary expenditure and allow the claim of the assessee is in consonance with the decision of the ITAT in assessee’s own case for AY 2008-09. Thus, the ground raised by the revenue is dismissed.
As regards ground Nos. 6 & 7 regarding disallowance of depreciation on non-compete fee, the assessee claimed depreciation @ 25% amounting to Rs. 2,11,176/- and Rs. 2,07,642/- on brought forward written down value of Rs. 8,44,702/- and Rs. 8,30,567/- in respect of non-compete fee of Rs. 200 lakhs paid in AY 2002-03 and Rs. 40 lakhs paid in 2007-08 to Medispan ltd., by Medicorp Technologies Ltd and Sudhir Vaid in relation to Concord Biotech Ltd., respectively. The AO disallowed the assessee’s claim.
10.1 On appeal, the CIT(A) following the decision of the ITAT in assessee’s own case for AY 2008-09 (supra), directed the AO to follow the decision of ITAT and calculate allowable depreciation for ground 5(a) which is allowed. With regard to ground 5(b) which is rejected, so the addition made confirmed.
6 I.T.A. No. 761/Hyd/2018 Mylan Laboratories Ltd. 11. Considered the rival submissions and perused the material on record. We do not find any infirmity in the order of CIT(A) in directing the AO to follow the decision of the ITAT in assessee’s own case and calculate the allowable depreciation and the order of the CIT(A) is hereby upheld and grounds raised by the revenue are dismissed.
In the result, appeal of the revenue is dismissed. Pronounced in the open court on 31st October, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 31st October, 2018 kv Copy forwarded to: 1. DCIT, Circle – 16(2), Second Floor, ‘B’ Block, IT Towers, AC Guards, Masab Tank, Hyd. 2. M/s Mylan Laboratories Ltd., Plot No. 564/A/22, Road No. 92, Jubilee Hills, Hyd. 3. CIT(A) - 4 Hyderabad 4. Pr. CIT - 4, Hyderabad 5. The DR, ITAT, Hyderabad 6. Guard File