DCIT, NEW DELHI vs. M/S DHANUKA LABORATORIES LTD., NEW DELHI

O R D E R

PER R. K. PANDA, AM :

has challenged the order of the ld. CIT(A) in deleting the addition of Rs.46,37,354/- made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.

3. Facts of the case, in brief, are that the assessee is a company engaged inter-alia in the business of manufacturing and trading of bulk drugs and drug formulations. It filed its return of income on 29.09.2012 declaring income of Rs.1,61,69,533/-. During the course of assessment proceedings, the Assessing Officer observed from the Balance Sheet as on 31.03.2012 that the assessee company has invested its funds in equity shares, which stood at Rs.10,14,99,590/- as at the beginning of the year and Rs.10,14,99,590/- as at the end of the year. However, the assessee has not attributed any expenses which have been incurred to carry out the activity of investments. According to the Assessing Officer, it is an accepted fact that for carrying out any such activity, some kind of expenditure necessary has to be incurred. He, therefore, asked the assessee to explain as to why the addition u/s 14A should not be made for disallowance of expenses relatable to exempt income. The assessee in response to the same submitted that the company has not incurred any expenditure in relation to earning exempt income or for making fresh investment. It was submitted that the investment has been made in Otsuka Chemical (India) Pvt. Ltd. as a part of strategic investment as the main raw material for manufacturing bulk drugs by the assessee company is procured from the aforesaid company. It was submitted that the primary object of the investment is holding controlling stake in the group company and not for earning any income out of investment.

The assessee further submitted that no exempt income has been earned by the assessee company from investments in shares during any of the years including the year under assessment. Various decisions were also brought to the notice of the Assessing Officer.

Incidental expenditure, according to the Assessing Officer, are bound to be incurred such as collection, telephone, follow-up, even director’s time and energy etc. Therefore, the claim that the assessee has not incurred any expenditure is not acceptable. Accordingly, the Assessing Officer held that expenditure incurred for earning of exempt income are embedded in indirect expenditures. Relying on Circular No.5/2014 issued by CBDT and distinguishing the various other decisions cited before him, the Assessing Officer made disallowance of Rs.46,37,354/- u/s 14A r.w. Rule 8D.