Win for Piramal Enterprises: ITAT Deletes 80IC Disallowance, Rejects Interest Allocation to Baddi Unit Funded by Rights Issue [Read Order]
The tribunal accepted that the Baddi unit was financed entirely through the proceeds of a June 2005 rights issue, with no borrowed funds involved
Win for Piramal Enterprises – Piramal Enterprises – ITAT – taxscan
Win for Piramal Enterprises – Piramal Enterprises – ITAT – taxscan
The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT )ruled in favor of Piramal Enterprises Ltd. by rejecting the interest allocation to its Baddi unit funded through a rights issue and deleting the related disallowance under Section 80IC of Income Tax Act,1961, for Assessment Year 2008-09.
Piramal Enterprises Ltd, appellant-assessee, was involved in pharmaceutical manufacturing, research and development, financial services, and information management through its subsidiaries. It had manufacturing plants at Baddi, Pithampur, Mahad, Digwal, Ennore, and VFCD Thane. The Baddi, Pithampur, and Mahad plants made formulation products for India and abroad, including contract manufacturing. Digwal and Ennore produced APIs and customized APIs, while VFCD Thane made vitamins and food premixes. The assessee also earned income from trading and services.
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For the assessment year 2008-09, the assessee filed its return showing income of Rs. 58.66 crores after claiming a deduction of Rs. 247.10 crores under section 80IC, mainly for the Baddi unit. The Assessing Officer (AO) allocated R&D expenses of Rs. 12.28 crores and interest expenses of Rs. 11.31 crores to the Baddi unit, reducing the 80IC deduction by Rs. 23.59 crores. This disallowance was upheld by the DRP but the tribunal sent the case back for fresh consideration. On reassessment, the deduction was again disallowed.
The assessee argued that it used only its own funds, including money from a rights issue in June 2005, to set up the Baddi unit and did not use borrowed funds. The Baddi unit started operations in June 2006. Documents showed the rights issue proceeds were meant to finance the new plant, with a planned investment of Rs. 165 crores by March 2007.
The two member bench comprising Beena Pillai (Judicial Member) and Girish Agrawal (Accountant Member) found that the key fact showing no borrowed funds were used to set up the Baddi unit was ignored earlier.
Since the funds came from the rights issue meant for Baddi, the appellate tribunal said the AO should not have allocated any interest expense to that unit. Therefore, the tribunal removed the interest allocation that reduced the assessee’s section 80IC deduction.
To Read the full text of the Order CLICK HERE
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