The Commissioner Of Income Tax-L, Chandigrh v. M/S Dsm Anti Infectives India Ltd

ITA No. 118 of 2014(0&M) IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 118 of 2014(O0&MDate of Decision: 28.11.2014 The Commissioner of Income Tax-l, Chandigrh ... Appellant Versus M/s DSM Anti Infectives India Ltd. ... Respondent CORAM:- HON'BLE MR. JUSTICE RAJIVE BHALLAHON'BLE MR. JUSTICE B.S. WALIA Present:Ms. Urvashi Dhugga, Advocate,for the appellant. RAJIVE BHALLA, J.(Oral) The revenue has filed this appeal challenging orderdated 8.8.2013 passed by the Income Tax Tribunal, Chandigarh,Bench A, accepting the appeal filed by the assessee and as aconsequence setting aside the order dated 23.10.2010 passed by theAssessing Officer, on the following substantial questions of law:- “Whether on the facts and In the circumstances of thecase, the Tribunal was right in relying upon Section 36(7)(ill) of the Act in isolation without considering the fact thatthe assessee has not only borrowed money but also nasadvanced money from which the assessee was liable toreceive interest Income. (11)Whether on the facts and in the circumstances ofthe case, the Tribunal was right in holding that theadvances made to Hindustan Max G.B. were actually forcommercial expediency particularly since the advancepertained to the earlier years and whether the commercialexpeaiency can be Said to nave existed over a prolonged ITA No. 118 of 2014(0&M) period of number of years when no such transaction hastaken place in the succeeaing years. (111)Whether on the facts and in the circumstances ofthe case, the tribunal was right in the law in granting reliefof Rs.42,77,213/- to the assessee on commission paid ondomestic sales. Furtner, the Honble IITAT has wronglyheld that the Assessing Officer could not interfere withrates of commission paid by the assessee company evenif in the light of material available on record these ratesare unreasonable and excessive and the assessee couldnot prove before the A.O. that these payments wereactually made. (IV)Whether on the facts and In the circumstances ofthe case,t he Inbunal was right in the law in notappreciating that the provision of Section 14A areapplicable irrespective of existence of businessexpediency in investments. (VvWhether, on the facts and in the circumstances ofthe case, the [Tribunal was rignt in law in nolding that thprovisions of Section 14A were not applicable despite thefact that the assessee had invested in shares from whereany income earned would have been exempt being in thenature of dividend and therefore, irrespective of thefinancial health of the said company this income wouldnot have formed part of the total income of theassessee. Counsel for the revenue fairly concedes that questionNos.1 & 2 have been answered against the revenue inITA No.25/7 o2009 (The Commissioner of Income Tax-!, Chandigarh Vs. M/s DSMAnti Infectives India Limited) decided on 28.10.2013. AS regards theother questions, counsel for the revenue submits that though theIncome Tax Appellate Tribunal has restored the matter to the ITA No. 118 of 2014(0&M) assessing officer to examine the veracity of the alleged commissionspaid by the assessee, a bare perusal of the material on recordreveals the absence of any contract or any conformation by anyperson, who received commission. Ihe matter, therefore, shouldhave been remitted in its entirety by directing the assessing officer todetermine the correctness of the claim and not merely its quantum, As regards tne 4[th]anda 5[th]questions, counsel for theappellant contends that the assessee invested Rs. 5.00 crores in M/sHMGV, was allotted shares and therefore, received interest anddividend. The interest and dividend so received falls within the ambitof section 14-A of the Act and thus, was rightly computed asincome of the assessee. The Income Tax Appellate Tribunal haserred in holding that as this investment was part of business of theassessee and was made as a measure of business expediency, itdoes not fall within Section 14A of the Act. As regards tne 4[th]anda 5[th]questions, counsel for theappellant contends that the assessee invested Rs. 5.00 crores in M/sHMGV, was allotted shares and therefore, received interest anddividend. The interest and dividend so received falls within the ambitof section 14-A of the Act and thus, was rightly computed asincome of the assessee. The Income Tax Appellate Tribunal haserred in holding that as this investment was part of business of theassessee and was made as a measure of business expediency, itdoes not fall within Section 14A of the Act. We have heard counsel for the appellant and perused theimpugned order as well as orders passed by the assessing officeretc., but are not inclined to hold that the substantial questions of lawshould be answered in favour of the revenue. Admittedly, the assessee nad taken a positive stand tnathe had paid commission for sourcing of raw material etc. TheAssessing Officer, however, did not carry out any Inquiry and bysummarily nolaing that the assessee nas not been able to place onrecord any confirmation, disallowed Rs.92.00 lacs allegedly paid onaccount of commissions. The Income Tax Appellate Tribunal has ITA No. 118 of 2014(0&M) merely restored the matter to the assessing officer for examining thematter afresh by reference to the identity of the recipients and thenature of transactions said to be commissions paid by the assessee.We find no error of jurisdiction much less of law that would enable usto hold in favour of the revenue or to hold that the discretionexercised by the Iribunal is perverse or arbitrary. [he third questionis, therefore, answered against the revenue. The last two questions pertain to the applicability ofSection 14A of the Income Tax Act. The learned Tribunal has afteradetailed consideration of the material on record held as follows:- “The brief facts relating to the issue are that theAssessing Officer from the balance-sheet noted theinvestment of Ps.5 crores In shares of WsHindustan Max-GB Ltd. The said investment wasmade in the earlier years on which the assesseewas earning interest. While deciaing ground No.3of the present appeal, we have deliberated uponthe issue of disallowance of Interest relatable tosucn advances maae by the assessee on wnich asper the Assessing Officer, no interest was chargedas against the interest expenaiture incurred by theassessee. /t Is an admitted position that theassessee was receiving interest on the saidadvances. |The said investment was meade forbusiness purposes i.e. for the purchase of rawmaterial from the said concern. However, as thesaid concern was_ in financial constraint, thapplication was made before the BIFR by the saidconcern and thereafter, no interest was beingcharged by the assessee on the said aavances. Aamittealy, the saiaq investment was not madauring the year under consideration, as IS apparentfrom the fact that the issue of disallowance ofinterest under Section 36(1)(i11) of the Act in relationto the said advance, arose before the Tribunal inassessment year 2006-04 and thereafter. IN thetotality of the abovesaid facts and circumstances,we are of the wew that no disallowance Iswarranted under Section 74A read with Rule 8D of!T Rules as the said investment had been made bythe assessee in a joint venture for businessexpediency. Accoraingly, we airect the AssessingOfficer to delete the addition of Rs.12,40,501/-.Ground No. raised by the assessee is_ thus,allowed.’ Aamittealy, the saiaq investment was not madauring the year under consideration, as IS apparentfrom the fact that the issue of disallowance ofinterest under Section 36(1)(i11) of the Act in relationto the said advance, arose before the Tribunal inassessment year 2006-04 and thereafter. IN thetotality of the abovesaid facts and circumstances,we are of the wew that no disallowance Iswarranted under Section 74A read with Rule 8D of!T Rules as the said investment had been made bythe assessee in a joint venture for businessexpediency. Accoraingly, we airect the AssessingOfficer to delete the addition of Rs.12,40,501/-.Ground No. raised by the assessee is_ thus,allowed.’ A perusal of these findings reveals that after failing toinclude the alleged interest received by the assessee under Section36(1) (lil) of the Act, the Assessing Officer has by a sleigh of handmade an attempt to place this Income under Section 14A of the Act.Admittedly the investment was made in the year 1996 and though theassessee may have received interest and dividend at one stage butfor the last over a decade M/s HMGV Is before BIFR and has notbeen paying any interest to the assessee. Ihe investment as isapparent from the facts was made as a business expediency toprocure raw material manufactured by M/s Hindustan Max GB Ltd,The Income Tax Appellate Tribunal, therefore, rightly deleted theaddition made by the assessing officer, under Section 14A of theAct. The fourth and fifth questions are also answered against therevenue. ITA No. 118 of 2014(0&M) Tne questions having been answered against therevenue, the appeal Is dismissed. ( RAJIVE BHALLA )JUDGE| 28.11.2014monika (B.S. WALIA )JUDGE