HEMMO PHARMACEUTICAL P.LTD,MUMBAI vs. DCIT 4(2), MUMBAI

At the outset the Learned Counsel for the assessee submits that in assessee’s own case the Coordinate Bench of the Tribunal for the Assessment Year 2008-09 restored the issue to the file of the Assessing Officer to examine the contentions of the assessee that the investments were made out of own funds in which case there should not be any disallowance u/s 14A of the Act. The Learned Counsel for the assessee submits that the Coordinate Bench also directed to consider the binding judgment of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd [313 ITR 340]. Learned Counsel for the assessee further submits that the Coordinate Bench also directed the Assessing Officer to consider only those investments which yielded dividend income for the purpose of computing disallowance u/s 14A of the Act read with Rule 8D. The Learned Counsel for the assessee submits that a similar direction may be given for the Assessment Year under consideration also as the investments were made out of own funds.

The Ld. DR has no serious objection in giving similar direction following the Coordinate Bench decision in assessee’s own case.

Heard both sides, perused the order of the Coordinate Bench in assessee’s own case. Similar issue of disallowance u/s 14A r.w. Rule 8D of the Act came up in assessee’s own case for the Assessment Year 2008-09 and the Coordinate Bench in ITA.No. 8756/Mum/2011 dated (A.Y: 2011-12) Hemmo Pharmaceutical P. Ltd. 10.12.2013 restored the matter back to the file of the Assessing Officer with the following observations: - “4. The Assessing Officer has not considered the fact that the assessee has own funds which are actually invested in the shares, which yielded exempt income. Relying on the judgment of the Hon'ble Gujarat High Court in the case of CTI vs. UTI bank Ltd [2013] 215 Taxman 8, dated 22nd March, 2013, which was decided after considering the jurisdictional High Court judgment in the case of CIT vs. Reliance Utilities & power Ltd [2009] 313 ITR 340 for the proposition that when the interest free funds are more than borrowed funds, when hybrid funds are maintained the benefit of doubt that he interest free funds have gone into the investments, which yielded exempt income, should be considered in favour of the assessee. We accordingly order the AO to considere the said binding judgment in the case of Reliance Utilities & Power Ltd (supra) and re-decide the issue afresh after granting a reasonable opportunity of being heard to the assessee.

The error relates to the inclusion of investments of ₹.7.65 Crs which yielded taxable income for the purpose of computing the disallowance u/s 14A read with Rule 8D of the Act. In this regard, Ld Counsel brought our attention to Page 8 of the paper book and mentioned that out of the total investments, the exempt income is attributable to the investment of ₹.7.05 Crs only the balance of ₹.7.65 Crs yielded income which is taxable under the Income Tax Act, 1961. If the said investment of ₹7.05 Crs is considered for the purpose of computing he disallowance under Rule 8D, there will be change in the figures. For this purpose also the issue needs to revisit the files of the AO for fresh computation after due verification and after granting a reasonable opportunity of being heard to the assessee. We find merit in the said argument of the assessee. Accordingly, for the above said reasons we remand the matter to the files of the AO for reworking of the disallowance after considering the above submissions of the assessee and also the binding decisions mentioned by the assessee before us. Accordingly, grounds raised by the assessee are allowed for statistical purposes.

(A.Y: 2011-12) Hemmo Pharmaceutical P. Ltd. 5. Following the said order, we direct the Assessing Officer to recompute the disallowance u/s 14A r.w. Rule 8D of the Act keeping in view the observations of the Coordinate Bench and decide the issue accordingly.

In the result the appeal of the assessee is allowed for statistical purpose.