SOLVAY PHARMA INDIA LTD,MUMBAI vs. DCIT RG 2(1)(1), MUMBAI

We have heard the parties and perused the record. The assessee- company is engaged in the business of manufacture and sale of pharmaceutical formulations through third parties on loan licensee basis. The assessee had invested his funds in mutual fund schemes, mainly liquid fund schemes. During the year under consideration, the assessee earned exempt dividend income of ` 84.92 lakhs. The assessee disallowed a sum of ` 2.19 lakhs u/s. 14A of the Act. The Assessing Officer took the view that disallowance should be computed in accordance with Rule 8D of the I.T. Rules.

The Learned AR submitted that the assessee has invested its surplus funds in liquid scheme of mutual funds only, which does not require much analysis. He submitted that the dividend income is also either reinvested or received directly into the bank account. Accordingly he submitted that the assessee has not really incurred any expenditure for earning the dividend income. He submitted that the assessee has, however, voluntarily disallowed a sum of ` 2.19 lakhs to meet the requirements of section 14A. Accordingly he submitted that the AO was not justified in applying the provisions of Rule 8D, in the facts and circumstances of the case, without pointing out any mistakes in the workings of the assessee.

On the contrary, the learned DR supported the order passed by the learned CIT(A).

Having heard the rival submissions, we are of the view that there is merit in the contentions of the assessee. A perusal of the investment portfolio of the assessee would show that the assessee has invested in four schemes of mutual funds, out of which two items have been brought forward from earlier years. During the year under consideration, the assessee has made new investments in only two schemes. Since investment activity of the assessee is limited as stated above, in our view, the Assessing Officer was not justified in invoking provisions of Rule 8D of the I.T. Rules without recording dissatisfaction on the methodology adopted by the assessee. Considering low level of investment activity, we are of the view that the disallowance of ` 2.19 lakhs made by the assessee u/s. 14A of the Act would meet the requirements of section 14A of the Act. Accordingly, we set aside the order passed by the 3 Solvay Pharma India Limited (Now merged with Abbott India Limited)

The next issue relates to interest charged u/s. 234C of the Act by the Assessing Officer. The Learned AR submitted that interest u/s. 234C of the Act should be computed on the “returned income” of the assessee and further the advance tax paid by the assessee should be considered while computing the same. The Learned AR submitted that there was error in the assessment order in computing interest u/s. 234C of the Act.

We have heard learned DR on this issue. There should not be any dispute that interest u/s. 234C of the Act has to be computed on the returned income as per mandate of section 234C of the Act, after duly considering the advance tax paid by the assessee. According to the Ld A.R, there is mistake in the computation of interest. Hence, we restore this issue to the file of the Assessing Officer for examining the claim of the assessee by duly considering the returned income as well as advance tax paid by the assessee.

In the result, appeal filed by the assessee is treated as allowed. Order has been pronounced in the Court on 26.9.2018.