KEE PHARMA LTD. Vs. A.C.I.T.

JUDGEMENT

(1.) THIS is an appeal by the assessee and is directed against the order dated 23.7.2012 of ld. CIT(A) -VIII, New Delhi. The only grievance of the assessee in this appeal relates to the confirmation of disallowance of Rs. 5,83,124/ - made by the AO by invoking the provisions of Sec. 14A of the I.T. Act, 1961 (hereinafter referred to as the Act).

(2.) FACTS of the case in brief are that the assessee was engaged in the business of manufacturing and trading of pharmaceuticals and filed its return of income on 27.9.2009 declaring an income of Rs. 55,35,110/ - which was processed u/s. 143(1) of the I.T. Act, 1961 (hereinafter referred to as the Act) on 8.3.2011. Later on the case was selected for scrutiny. During the course of assessment proceedings the AO noticed that the assessee had been investing in quoted and unquoted equity shares. He required the assessee to explain as to why disallowance in terms of provisions of Rule 8D may not be made for addition u/s. 14A of the Act. The assessee vide letter dated 4.10.2011 submitted to the AO as under:

(3.) BEING aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that the assessee in its bid to focus on efforts on enhancing the Research & Development activities had acquired two subsidiary companies namely Helvetica Industries Pvt. Ltd., Hyderabad and Kee Gad Biogen Pvt. Ltd., Delhi. Both those companies presented immense possibilities for growth and were likely to contribute substantially to the profitability in the years to come. The assessee was holding 60% shares in M/s. Helvetica Industries Pvt. Ltd. and 99.9% in M/s. Kee Gad Biogen Pvt. Ltd. The said investment had been made keeping in view the commercial interest of the assessee company since both the companies in which investments have been made indulged in R & D activities, the products invented by them would exclusively benefit the assessee in its business of pharmaceuticals. Hence, it would not be the dividend on amount invested in those companies which the assessee was looking forward but the assessee would earn huge profits from its business by using the research made by those two subsidiaries by making the world class products. Reliance was placed on the following cases: