M/S SUNEV PHARMA SOLUTION LTD.,PANCHKULA vs. DCIT, PKL CIRCLE, PANCHKULA

Per Sanjay Garg, Judicial Member:

The present appeals have been preferred by the assessee

against the separate orders of the Commissioner of Income Tax(A),

Panchkula [hereinafter referred to as ‘CIT(A)’] dated 19.12.2016

and 25.5.2017 respectively.

ITA Nos. 354 & 1167/Chd/2018- M/s Sunev Pharma Solutions, Panchkula 2

identical, therefore, these have been heard together and are being

disposed of by this common order. ITA No.354/Chd/2017 is taken

as a lead case for narration of facts.

ITA No.354/Chd/2017 3. At the outset, the Ld. Counsel for the assessee has invited our

attention to the impugned order of the CIT(A) in both the appeals to

state that the Ld. CIT(A) has followed the orders of his predecessor

in the own case of the assessee for assessment year 2012-13 in

appeal No. 33/PKL/15-16 dated 16.9.2016 while confirming /

restricting the impugned disallowance made by the Assessing officer

u/s 14A of the Income-tax Act, 1961 (in short 'the Act') in respect of

expenditure incurred for earning of tax exempt income.

The Ld. counsel has further invited our attention to the order

dated 20.9.2017 of this Tribunal passed in the own case of the

assessee for assessment year 2012-13 in relation to the appeal filed

by the assessee as well as the Revenue bearing ITA Nos.

1157/Chd/2016 and 1185/Chd/2016 and has submitted that the

impugned order of the CIT(A) for assessment year 2012-13 has been

set aside by the Tribunal and the appeal of the assessee has been

allowed , whereas, the appeal of the Revenue has been dismissed.

That since the Ld. CIT(A) has followed the order of his predecessor

for assessment year 2012-13 while deciding the appeals in the

assessment years under consideration i.e. 2013-14 and 2014-15 and

since the order of the CIT(A) for assessment year 2012-13 has been

ITA Nos. 354 & 1167/Chd/2018- M/s Sunev Pharma Solutions, Panchkula 3

set aside by the Tribunal and the appeal of the assessee has been

allowed, hence, the appeals for these years are also liable to be

allowed in favour of the assessee.

the lower authorities.

assessment year 2012-13, the Tribunal vide order dated 20.9.2017 has

allowed the issue in favour of the assessee observing as under:-

“12. A concurrent reading of the Section 14A and the order of the Assessing Officer shows that while it is mandatory to record a satisfaction for determination of expenditure the Assessing Officer has failed to do it. The sub section (3) of Section 14A further emphasis that even when assessee claims that no expenditure has been incurred by him even then also recording of satisfaction is a pre-requisite.

“Section 14A of the Act requires the Assessing Officer to record satisfaction that interest bearing funds , have been used to earn tax free income. The satisfaction to be recorded must be based upon credible and relevant evidence. The onus, therefore, to prove that interest bearing funds were used, lies squarely on the shoulders of the revenue. Thus, if the Assessing Officer is able to refer to relevant material while recording satisfaction that borrowed funds were used to earn interest free income as opposed to the assessee's own funds, the Assessing Officer may legitimately disallow such a claim. The Assessing Officer, however, cannot, by recording general observations, particularly where the assessee has denied using interest bearing funds,

ITA Nos. 354 & 1167/Chd/2018- M/s Sunev Pharma Solutions, Panchkula 4

proceed to infer that interest bearing income must has been used to earn exempted income. Section 14A of the Act, being in the nature of an exception, has to be construed strictly and only where the Assessing Officer records satisfaction, on the basis of clear and cogent material, shall an 5 order be passed under Section 14A of the Act, disallowing such a claim cannot be accepted.”

Assessing officer had not recorded the objective satisfaction having

regard to the accounts of the assessee. The Ld. Counsel for the

assessee has invited our attention to the relevant record and has

submitted that there was no satisfaction recorded by the Assessing

officer having regard to the accounts of the assessee to the effect that

the borrowed funds had been used by the assessee for making the

investments. The Ld. counsel for the assessee has further submitted

that the loans were taken by the assessee for specific purposes and

that even used for those purposes and no part of it were used for

making the investments in question. The Ld. Counsel for the

assessee has also relied upon the cash flow statement / bank account

of the assessee to state that the investments were made out of the

interest free income / reserves of the assessee. The interest free funds

were credited in the bank account of the assessee before these were

utilized for investment.

incurred for making the impugned investment which were based on

the relevant evidence / accounts of the assessee but the Assessing

officer has failed to record his objective satisfaction in this respect

and simply applied Rule 8D of the Income Tax Rules. The Ld.

ITA Nos. 354 & 1167/Chd/2018- M/s Sunev Pharma Solutions, Panchkula 5

CIT(A) followed the order of his predecessor for assessment year 2012-13, while deciding the appeals under consideration and since the order of the CIT(A) for assessment year 2012-13 has been set aside by the Tribunal vide order dated 20.9.2017 (supra) and the issue has been allowed in favour of the assessee, hence, in the identical facts and circumstances and in view of the observations made above, respectfully following the order of the Tribunal in the case of the assessee for assessment year 2012-13, the issue for the year under consideration is decided in favour of the assessee and the impugned disallowance made by the Assessing officer u/s 14A of the Act is ordered to be deleted.

ITA No. 1167/Chd/2017 8. As the facts and issues raised in both the appeals are identical, therefore, our findings and decision in ITA No.354/CHD/2017 would apply mutatis-mutandis to this appeal also . In the result, both the appeals of the assessee are hereby allowed. Order pronounced in the Open Court on 07.08.2018 Sd/- Sd/- (B.R.R KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated :06. 08.2018 Rkk Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR