Income Tax Appellate Tribunal - Ahmedabad
Alembic Pharmaceuticals Limited,, ... vs The Dy.Cit.,Circle-1(1)(1),, Baroda on 26 October, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH
Before: Shri Rajpal Yadav, Judicial Member
And Shri Amarjit Singh, Accountant Member
ITA No. 2329 & C.O. No. 176/Ahd/2015
Assessment Year 2012-13
The DCIT, M/s. Ale mbic
Circle-1(1)(1), Phar maceuticals Ltd.
Vadodara Vs Ale mbic road,
(Appellant/Respondent) Baroda-390003
PAN: AAI CA5591 M
(Respondent/Cross
Objector)
Reve nue by: Shri Aparna Agarwal, CIT -D.R.
Assessee by: Shri S.N. So parkar, A. R.
Date of hearing : 16-10-2018
Date of pronounce ment : 26-10-2018
आदेश /ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This revenue's appeal and assessee's cross objection for A.Y. 2012-13, arise from order of the CIT(A)-1, Vadodara dated 22-05-2015, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
2. The revenue has raised following grounds of appeal:-
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in restricted disallowance u/s.14A r.w.rule 8D for diversion of interest bearing business fund for earning exempt income without appreciating the fact that there is no logic in excluding the amounts of external commercial borrowing for capital investment purpose, interest for debentures for acquisition and interest on packing credit loan from gross interest receipts for the purpose of apportionment under rule 8D(2)(ii) and that the reduction of current liabilities from total assets is also not valid and not as per Income-tax Act. ?
I.T.A No. 2329 & CO No. 176/Ahd/2014 A.Y. 2012-13 Page No 2 DCIT vs. M/s. Alembic Pharmaceuticals Ltd.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in directing the Assessing Officer to allow the amount of Rs. 791.6 lacs transferred to debenture redemption reserve for computing book profit u/s,115JB of the Act without considering that the debenture redemption reserve is not at all a liability, but a reserve only, and if it is considered as a liability, it is necessary to be verified as to whether it is an ascertained liability and that the liability is for capital expenditure or revenue expenditure ?
3. The Ld. CIT(A) failed in appreciating that the amount disallowable under section!4A is covered under clause (f) of Explanation 1 to section 115JB(2) and, thus, said amount has to be added back while computing amount of book profits ?
4. The Ld. CIT(A) failed in appreciating the fact that the contribution of employees' has to be deposited within the prescribed time as per Provident Fund Act, and in case of th employees' contribution towards Provident Fund, the time limit is 20 day of subsequent month (inclusive of grace period) ?"
Cross Objection No. 176/Ahd/2014
3. The assessee has raised following grounds in cross objection:-
"1. Re: Disallowance u/s. 14A amounting to Rs. 9,65,507/-
1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the learned CIT (A)']) failed to appreciate that the Assessing Officer disallowed expenditure u/s 14A read with Rule 8D without reaching satisfaction that the amount disallowed by the Appellant was not adequate.
1.2 The learned CIT(A) erred in not appreciating that die Appellant had very large own funds which were more than sufficient for the purpose of making the investments. 1.3 Without prejudice to the above, the learned CIT(A) ought to have considered that investment which does not produce exempt income ought to be excluded while computing disallowance u/s 14A.
2. Re: Disallowance of amount contributed to Employee State Insurance Corporation amounting to Rs. 3,52,674/-
4.1 On the facts and in the circumstances of the case and in law, the learned CIT (A) failed to appreciate that the Assessing Officer disallowed the amount contributed by the Assessee towards ESIC after the due date as per the ESIC regulations without considering that the same was deposited before the due date of filing return of income. 4.2 The learned CIT(A) erred in not appreciating that the reason for delay in payment was some technical problem with the server of the Corporation and the same was communicated to the Corporation."
4. Some of the grounds of appeal of the revenue and cross objections filed by the assessee are interconnected, therefore, for the sake of convenience, they are adjudicated together.
5. The brief fact of the case is that the assesse has filed return of income on 28th Sep, 2012 declaring total income of Rs. 37,07,80,480/-. Subsequently, the I.T.A No. 2329 & CO No. 176/Ahd/2014 A.Y. 2012-13 Page No 3 DCIT vs. M/s. Alembic Pharmaceuticals Ltd.
case was selected under scrutiny by issuing of notice u/s.143(2) of the on 6th August, 2013. Further facts of the case are discussed under respective ground of appeal.
Ground No. 1 of Revenue (disallowance u/s. 14A r.w. rule 8D) and Cross objection No.1 of the assessee
6. During the course of assessment proceedings, the assessing officer noticed that assessee has earned exempt income mainly in the nature of dividend income, however, it has not made any disallowance of expenses incurred towards earning exempt income. The assessee has shown dividend income of Rs. 35,312/- during the year under consideration. The assessing officer observed that the assessee company was having interest bearing fund which might have been used for investment purpose, therefore, he was of the view that proportionate interest needs to be disallowed. The assessee has explained that no borrowed fund has been used for investments therefore no disallowance should be made u/s. 14A of the act however, it has himself suomotto disallowance of Rs. 61,300/- u/s. 14A of the act. The assessing officer has not accepted the explanation of the assessee and stated that assessee has not considered for such disallowance any proportionate interest expenses, administrative expenses, common facility, utilization of assets of business for investment activities. Consequently , he has worked out the disallowance as per rule 8D r.w.s 14A to the amount of Rs. 9,65,507/-.
7. The assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The relevant part of the decision of ld. CIT(A) is reproduced as under:-
"4.12 The ground of appeal no. 3 of the appellant is in respect of addition of expenses disallowed u/s 14A for computing book profit u/s 115JB of Rs. 9,65,507/-. The ground of appeal no. 3.1 of the appellant is that the AO has erred in disallowing Rs. 9,65,507/- while computing book profits u/s 1153B by invoking the provisions of s. 14A read with rule 8Di With regard to this ground of appeal, the submission of the appellant aS reproduced in earlier paragraphs has been considered. In this regard it is mentioned that I.T.A No. 2329 & CO No. 176/Ahd/2014 A.Y. 2012-13 Page No 4 DCIT vs. M/s. Alembic Pharmaceuticals Ltd.
the Hon'ble ITAT, Ahmedabad in the case of Alembic Ltd. for AY 2007-08 while deciding the similar issue in its order in ITA No. 1928/Ahd/2010 dated 27/03/2014 has mentioned that for making adjustment u/s 115JB, the ITAT, Mumbai Bench in the case of M/s Essar Teleholdings Ltd. vs DCIT in ITA No. 3850/Mum/2010 for 2005-06 has held that provisions of sub section 2 and 3 of section 14A cannot be imported into clause (f) of explanation to section 115JB of the Act. As per ITAT; Ahmedabad it is held by the Hon'ble ITAT Mumbai Bench that clause (f) of explanation 1 to section 115JB refers to amount debited to P&L Account, which can be added back to the book profit while computing the book profit u/s 115JB. As per Hon'ble ITAT, Ahmedabad similar views have been taken by the ITAT, Delhi Bench in the case of Goetze (India) Ltd. 32 SOT 101. Thus, the Hon'ble ITAT has held that adjustment made by the AO is not as per law. Respectfully following this decision of Hon'ble ITAT, Ahmedabad in the case of Alembic Ltd. for AY 2007-08 it is held that the AO is not correct in disallowing Rs. 9,65,507/- while computing book profit u/s 115JB by invoking the provisions of section 14A read with Rule 8D. In view of this the AO is directed to delete the disallowance of Rs. 9,65,507/- while computing/ book profit u/s 115JB. Thus, the grounds of appeal no. 3 and 3.1 of the appellant are allowed."
8. During the course of appellate proceedings before, ld. departmental representative has supported the order of assessing officer. On the other hand, ld. counsel has submitted that identical issue has been decided by the Co- ordinate of the ITAT vide ITA No. 101/Ahd/2015 for assessment year 2011-12 in the case of the assessee itself. It was contended that Co-ordinate Bench of the ITAT in the case of the assessee for assessment year 2009-10 vide ITA No. 1912/Ahd/2012 has also decided the identical issue in favour of the assessee.
9. We have heard both the sides and perused the material on record carefully. It is noticed that the Co-ordinate Bench of the ITAT vide ITA No. 1912/Ahd/2012 has decided the identical issue in favour of the assessee. The relevant part of the decision of the Co-ordinate Bench is reproduced as under:-
"8. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. As the facts emerge, we find that the assessee's own funds, i.e., equity, reserve and surplus funds amounting to Rs.32,699.06 lakhs far exceed the tax free investments. The impugned investments are old and out of own funds have not been rebutted. Relying on the Hon'ble Gujarat High Court judgments in the case of Hitachi Home and Life Solutions (I) Ltd (supra), Torrent Power Ltd (supra) and other judgments mentioned above, we are of the view that when the assessee possesses own funds much more than the tax free investments, the disallowance u/s 14A read with Rule 8D cannot be made. There is also merit in the plea of ld. Counsel on the count that the burden of establishing the nexus has been wrongly attributed to the assessee and it was for the Assessing Officer to rebut the assessee's contention and demonstrate that the tax free investments were not from own funds but from borrowed funds. In the absence of such rebuttal, it cannot be assumed that the assessee made tax free investments out of borrowed funds. The assessee has suo moto I.T.A No. 2329 & CO No. 176/Ahd/2014 A.Y. 2012-13 Page No 5 DCIT vs. M/s. Alembic Pharmaceuticals Ltd.
offered Rs. 2 lakhs out of income of Rs.3,18,472/- as disallowed u/s 14A of the Act. In view of our foregoing observations and relying on Hon'ble Gujarat High Court judgments, we are of the view that no disallowance beyond what has been suo moto disallowed by the assessee can be made. In the result, the assessee's ground in this behalf is allowed and that of Revenue is dismissed."
Respectfully following the decision of Co-ordinate Bench of the ITAT, we consider that assessee itself has already disallowed an amount of Rs. 61,300/- which is higher than dividend income of Rs. 35,312/- earned by the assessee during the year under consideration, therefore, we do not any merit in the appeal of the revenue after taking in to consideration a number of judicial pronouncement of the coordinate benches Ahmedabad.. Accordingly, the decision of the ld. CIT(A) is justified, therefore, the appeal of the revenue on this issue is dismissed. In the light of the discussion made while adjudicating the appeal of the revenue as supra in this order we do not find any merit in the cross objection ground of cross therefore the same is dismissed. Therefore the appeal of the revenue and cross objection filed by the assessee on the issue are dismissed.
2nd ground of appeal
10. During the course of assessment proceedings, the assessing officer has noticed that assessee has transferred a sum of Rs. 7,91,60,000/- to debenture redemption reserves therefore the assessing officer asked the assesse to explain why debenture redemption reserves should not be added back to book profit. The assessee has explained that even in the preceeding assessment years the ld. CIT(A) has allowed the reduction set apart for debenture by way of transfer of debenture redemption reserves for assessment year 2009-10, assessment year 2010-11 and assessment year 2011-12 respectively. It was also stated that the case of the assessee was also covered by the decision of Hon'ble Bombay High Court in the case of Raymond Ltd. Appeal No 1324 of 2010 wherein it is held that amount set apart as debenture redemption reserves is not a reserves within I.T.A No. 2329 & CO No. 176/Ahd/2014 A.Y. 2012-13 Page No 6 DCIT vs. M/s. Alembic Pharmaceuticals Ltd.
meaning of explanation (b) to section 1115JA and should not be added back for computing the book profit u/s. 1115JB of the act.
The assessing officer has not accepted the explanation of the asssessee. He referred clause (b) of the explanation to section 115JB and stated that the said amount is to be added to the net profit for computing book profit for the purpose of section 115JB of the act. The assessing officer by referring clause
(c) of explanation 1 to section 115JB of the act stated that the amount or amount set aside as provision made for meeting liabilities other than ascertained liability are to be added to increase the book profit worked out by the assessee. He was of the view that the assessee has computed the book profit on the basis of the profit transfer to the balance sheet of the assessee company where the profit was reduced by debenture redemption reserve before transferring the profit to the balance sheet. He further observed that debenture is kind of loan which is of the nature of capital expenditure so also the provision made for such repayment or debenture loan is capital in nature and not deductible in working out the net profit. Therefore, citing the provision of clause (b) of the explanation of section 115JB, the claim of the assessee was disallowed and added back to the book profit of the assessee company.
11. The assessee has filed appeal against the decision of ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The relevant part of the assessee of the decision of ld. CIT(A) is reproduced as under:-
"5.2 The reasons for making disallowance of Rs. 7,91,60,000/- transferred to debenture redemption reserve for computing book profit u/s 115JB as mentioned by the AO in the assessment order as well as above submission of AR of the appellant have been considered. In this regard, it is mentioned that my predecessor i.e. CIT(A)-I, Baroda in his appellate order in appeal No.CAB-1/41/11-12 dated 07-06-2012 in the case of M/s; Alembic Ltd. for AY 2009-10 while deciding the similar issue has made discussion on page no.38, 39, 40, 41, 42, 43 & 44 of such appellate order and has held that amount transferred to debenture redemption reserve is required to be allowed as deduction for computing book profit u/s 1153B in appellant's case. Thus, the Ld. CIT(A) in this referred order has allowed the claim of the appellant. Following the decision of Ld. CIT(A) as given in his above order, the amount transferred to debenture redemption reserve for computing book profit u/s 115JB is allowed. Thus, the grounds of appeal no. 4, 4.1 and 4.2 of the appellant are allowed."
I.T.A No. 2329 & CO No. 176/Ahd/2014 A.Y. 2012-13 Page No 7 DCIT vs. M/s. Alembic Pharmaceuticals Ltd.
12. During the course of appellate proceedings before us, the ld. departmental representative has supported the order of assessing officer. On the other hand, ld. counsel has submited paper book containing the bill and explanation submitted before the assessing officer and ld. CIT(A) during the course of assessment proceedings and appellate proceedings. He has also stated that Co-ordinate Bench of the ITAT in the case of the assessee itself for assessment year 2009-10, assessment year 2010-11 and assessment year 2011-12 vide ITA Nos. 1912/Ahd/2012, 2855/Ahd/2013 & 101/Ahd/2015 respectively has decided the identical issue in favour of the asssessee.
13. After considering the above facts and findings and decision of the Co- ordinate Bench wherein it is held amount transferred to determine reserve is required to be allowed as deduction for computing book profit u/s. 1115JB, we do not find any error in the decision of ld. CIT(A). Therefore, appeal of the revenue is dismissed.
4th Ground of appeal of the Revenue and 2nd Ground of cross objection of the assessee
14. During the course of assessment proceedings, the assessing officer has noticed that assessee has deducted ESIC contribution from its employees but did not deposit in the govt. account within the prescribed period as per respective law. Therefore, the assessing officer has disallowed an amount of Rs. 15,84,888/- as per provision of section 2(24) r.w.s. 36(1)(va) of the act.
13. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the asssessee. The relevant part of the decision of CIT(A) is reproduced as under:-
"6.2 The reasons as mentioned by the AO in the assessment order for making disallowance of Rs. 15,84,884/- being ESIC payment as well as above submission of the appellant have been considered. It is pleaded bf the appellant that the AO has wrongly considered the due date of employees' contribution to Provident Fund instead of due date for employees' contribution to ESIC. As per the appellant accordingly the AO has wrongly I.T.A No. 2329 & CO No. 176/Ahd/2014 A.Y. 2012-13 Page No 8 DCIT vs. M/s. Alembic Pharmaceuticals Ltd.
mentioned 20th of next month as the due date instead of 21st of next month (excluding five grace days) as the due date for contribution towards ESIC as per the ESIC regulations. As per the appellant all payment! made during the grace period are regarded as payments made within the due date in view of the fact that under the Provident Fund and ESIC regulations, a grace period of five days is allowed for making payment of the dues. The appellant has relied upon decisions of various Hon'ble Courts including the decision of Hon'ble ITAT, Ahmedabad in the case of Rotex Mfgi & Engg. (Guj) (P) Ltd., 90 TT3 171. As per the appellant accordingly there shall be no disallowance for month of January 2012 as the date of payment is very much within the due date and on account of no delay the disallowance for month of January does not hold good. With regard to this submission of appellant, it is mentioned that employees' contribution to Provident Fund and ESIC etc. are required to be made on or before due date. As regards plea of the appellant that the AO has wrongly considered the due date of employees' contribution to Provident Fund, the same is found to be tenable. In my opinion, the due date in respect of payment of employees' contribution is required to be considered 21st of next month and such due date is required to be extended further by ^Including grace period of five days and accordingly, the due date as per ESIC regulation including grace period should be 26th of the next month. In view of this the AO is directed to allow those payments being employees' contribution to ESIC which have been made on or before 26th of the next month."
15. We have heard the rival contention on this issue and perused the material on record carefully.We consider that ld. CIT(A) has discussed the impugned issue in detail holding that the due date in respect of payment of employees' contribution is required to be considered 21st of next month and such due date is required to be extended further by Including grace period of five days and accordingly, the due date as per ESIC regulation including grace period should be 26th of the next month issue. During the appellate proceeding before us the revenue has failed to controverted the findings of the Ld. CIT(A) with any relevant material therefore we do not find any error in the decision of the Ld.CIT(A).Accordingly the ground of appeal of the revenue on this issue is dismissed.
16. Regarding cross objection of the assessee we observe that Ld.CIT(A) has granted relevant relief to the assessee by considering the due date and grace period and restricted the total disallowance to Rs. 352674/- as against the disallowance of Rs. 15,84,888/- made by the assessing officer. After considering the findings of the Ld.CIT(A) that there was no relaxation extended by the ESIC Corporation for occurring any delay on account of technical fault we do not find any merit in the contention of the assessee. Further after taking into I.T.A No. 2329 & CO No. 176/Ahd/2014 A.Y. 2012-13 Page No 9 DCIT vs. M/s. Alembic Pharmaceuticals Ltd.
consideration the decision of Hon'ble High Court in the case of Gujarat State Road Transport Corporation 265 CTR 64 (Guj) that the assessee has to deposit the employees contribution within the date prescribed in the respective act, we do not find any merit in the cross objection of the assessee on this issue. Accordingly, the same is dismissed.
17. In the result, the appeal of the revenue is dismissed and cross objection of the assessee is partly allowed.
Order pronounced in the open court on 26-10-2018
Sd/- Sd/-
(RAJPAL YADAV) (AMARJIT SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad : Dated 26/10/2018
आदेश क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदेश से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण,
अहमदाबाद