DCIT, CIRCLE-1(1)(2), AHMEDABAD vs. M/S. CADILA HEALTHCARE LTD., AHMEDABAD

The Department has taken the following grounds of appeal:-

The brief facts of the case are that the assessee filed return of income on 28-09-2010 declaring total income of Rs. 24,00,61,422/- and dividend distribution tax (DDT) of � 9,53,58,500/-. The return of the assessee was processed u/s 143(1) of the Act by order dated 03-05-2011 in which the demand of � 10,69, 99,920/- was raised upon the assessee and credit of DDT of � 9,53,58,500/- paid by the assessee and was not granted. The assessee filed rectification application under section 154 of the Act on 23- 06-2011 and pointed out that the entire DDT of � 10,43,91,098/-has been shown as payable, however the assessee had deposited excess DDT to the tune of � 75,04,960/-which was refundable to the assessee. The AO disposed of the rectification application filed by the assessee by order dated 30-08-2011, in which AO gave part relief to the assessee by reducing from the amount of dividend declared by the assessee, the amount of dividend received from two of its wholly owned subsidiaries namely German Page No. 3 DCIT vs. M/s. Cadila Healthcare Ltd. Remedies Ltd, Mumbai and Zydus wellness Ltd, as per the provisions of section 115-O (1A) of the Act. However, in the Case of Zydus Animal Health Ltd (ZAHL), the AO held that only the dividend received from the subsidiary can be reduced, but the DDT paid by the subsidiary cannot be given credit while working out the DDT payable by the assessee company. In this case, the DDT paid by ZAHL cannot be given credit against the DDT payable by the assessee, in terms of section 115-O(4) of the Act. Therefore, the AO by its order dated 30-08-2011, rejected the claim of the assessee company in respect of refund of DDT of � 75,05,960/-.

Thereafter, the assessee’s case was picked up for scrutiny for the impugned assessment year and assessment order under section 143(3) r.w.s. 144C of the Act was passed on 06-02-2015. In response thereto, the assessee filed rectification application under section 154 of the Act dated 20-03-2015 in which it was submitted that in the tax computation, the AO has not allowed credit of excess DDT paid under section 115-O of the Act of � 75,04,969. The assessee further submitted that in this regard the assessee had earlier filed rectification application dated 21-09-2011, which also had not been disposed of. Thereafter, the assessee filed another rectification application dated 08-06-2017 in which he pointed out that the assessee’s case is directly covered by the ratio of the jurisdictional Gujarat High Court in the case of Torrent Private Limited v CIT 35 Taxman.com 300 (Gujarat). Thereafter, the AO passed order dated 05-07-2017, in which it dismissed the assessee’s rectification application by holding that the issue has been already decided by the AO by its order dated 30-08-2011 and accordingly since there is no mistake in the above order, accordingly assessee’s application Page No. 4 DCIT vs. M/s. Cadila Healthcare Ltd. dated 08-06-2017 was dismissed. The AO made the following observations while passing the order:

The AO in, earlier order has invoked the section 115O(4) that the DOT paid by M/s. ZAHL as per section 2(22)(d) r.w.s. 115O shall be treated as the final payment of tax by M/s. ZAHL and credit of the said tax paid by the ZAHL cannot be given against the DDT payable by the Assessee. However, it is seen that the appellant is not asking for credit of DDT paid by ZAHL but it is claiming DDT of Rs. 9,53,58,500/- paid on 11/08/2009 on net dividend of Rs. 51,69,37,536/- computed as per section 115O(1A) of the I. T. Act. I agree with the submission made by the appellant that dividend income of M/s. ZAHL is to be reduced while computing the dividend on which dividend distribution tax is payable as M/s. ZAHL is a subsidiary company of the appellant and the later has paid DDT on the same. The appellant is therefore eligible for refund of excess tax paid on dividend computed as per section 115O(1A) of the I. T. Act. The appeal is accordingly allowed.”

As observed by us earlier, the AO disposed of the rectification application filed by the assessee by order dated 30-08-2011, in which he gave part relief to the assessee. Thereafter, the assessee’s case was picked up for scrutiny and assessment order under section 143(3) r.w.s. 144C of the Act was passed on 06-02-2015. In response thereto, the assessee filed another rectification application under section 154 of the Act dated 20-03- 2015 in which it was submitted that in the tax computation, the AO has not allowed credit of excess DDT paid under section 115-O of the Act of � 75,04,969.Thereafter, the assessee filed another rectification application dated 08-06-2017 in which he pointed out that the assessee’s case is directly covered by the ratio of the jurisdictional Gujarat High Court in the case of Torrent Private Limited v CIT 35 Taxman.com 300 (Gujarat). Thereafter, the AO passed order dated 05-07-2017, in which it dismissed the assessee’s rectification application by holding that the issue has been already decided by the AO by its order dated 30-08-2011. It is against this order that the Ld. CIT(Appeals) passed order dated 12-09-2019, against which the present appeal has been filed before us. Therefore, the issue for consideration before us is whether limitation of passing order u/s 154 of the Act dated 05-7-2017 has to be seen from the original rectification order u/s 154 of the Act passed on 30-08-2011 or from date of assessment order passed u/s 143(3) r.w.s. 144 of the Act dated 06-02-2015. We note that the assessee made claim of refund of excess DDT of � 75,04,969 in the return of income. The said claim was neither allowed to the assessee in the initial return processed u/s 143(1) of the Act vide order dated 03-08-2011 and neither in the assessment order passed u/s 143(3) r.w.s. 144 of the Act dated 06-02-2015. In our considered view, there is no bar on the assessee to file rectification Page No. 8 DCIT vs. M/s. Cadila Healthcare Ltd. application u/s 154 of the Act against assessment order passed u/s 143(3) r.w.s. 144 of the Act dated 06-02-2015, wherein claim of the assessee for refund of DDT was not granted and no reason for non-grant of DDT was specified. Therefore, given the chain of events presented before us, we are of the view that the dated 05-07-2017 is not time-barred and the order passed by the AO under section 154 dated 05-07-2017 was within the of limitation of 4 years from the date of the assessment order dated 06-02-2015, which is sought to be rectified.

In the result, ground number 1 of the Department’s appeal is dismissed.

In the instant case, we observe that the assessee received an amount of � 4,41,59,816/- from ZAHL as deemed dividend under section 2(22)(d) of the Act (as per Explanation to section 115Q as it stood at the relevant time, dividend also includes “deemed dividend” under section 2(22)(d) of the Act). It is also not in dispute that ZAHL paid DDT on such deemed dividend u/s 2(22)(d) of the Act at the time of distribution of dividend to the assessee company consequent reduction of its share capital to the extent to which the said company possessed accumulated profits. It is also not in dispute that ZAHL is a wholly-owned subsidiary of the assessee company. Accordingly, in view of the language of section 115-O (1A) of the Act, the above amount of � 4,41,59,816/- received as dividend from ZAHL was required to be deducted from the total amount of dividend on which DDT was required to be paid by the assessee company. Accordingly, in the instant facts we find no infirmity in the order of the Ld. CIT(Appeals) when he observed that the AO is incorrect in coming to the conclusion that the assessee is claiming credit of DDT paid by its subsidiary ZAHL against its DDT liability, but Page No. 10 DCIT vs. M/s. Cadila Healthcare Ltd. instead the assessee is seeking that the dividend income received from ZAHL (on which DDT has been paid by the ZAHL)be reduced from the dividend on which DDT is required to be paid by the assessee company u/s section 115-O (1A) of the Act. We are of the view that Ld. CIT(Appeals) has not erred in facts and in law in allowing the assessee’s appeal in the instant facts.

In the result, Ground No. 2 and 3 of the Department’s appeal are dismissed.

Ground No. 4 of the assessee’s is general in nature and does not require a specific adjudication.

In the result, appeal of the Department is dismissed.