M/s. Efftronics Systems Private Limited, Vijayawada V. The Deputy. CIT, Vijayawada

CO 31/VIZ/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3630 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 02-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: DEBAKUMAR SONOWAL
• Keywords: Reopening of assessment; Difference of opinion; Competent authority; Change of opinion; Reassessment proceedings; Capital expenditure
• Section: 143(3); 147; 148; 28

Judgement Text

ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . .. . . . . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NOS.61, 62 & 63/VIZAG/2017 ( / ASSESSMENT YEARS: 2008-09, 2009-10 & 2010-11) DCIT, CIRCLE - 2(1) VIJAYAWADA M/S. EFFTRONICS SYSTEMS PVT. LTD. VIJAYAWADA [PAN NO. AAACE4879Q ] ( ' / APPELLANT) ( ()' / RESPONDENT) C.O. NOS.31, 32 & 33/VIZAG/2017 (ARISING OUT OF I.T.A.NOS.61, 62 & 63/VIZAG/2017) ( / ASSESSMENT YEARS: 2008-09, 2009-10 & 2010-11) M/S. EFFTRONICS SYSTEMS PVT. LTD. VIJAYAWADA DCIT, CIRCLE - 2(1) VIJAYAWADA ( ' / APPELLANT) ( ()' / RESPONDENT) I.T.A.NO.551/VIZAG/2017 ( / ASSESSMENT YEAR: 2013-14) DCIT, CIRCLE - 2(1) VIJAYAWADA M/S. EFFTRONICS SYSTEMS PVT. LTD. VIJAYAWADA ( ' / APPELLANT) ( ()' / RESPONDENT) ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 2 C.O. NO.6/VIZAG/2018 (ARISING OUT OF I.T.A.NO.551/VIZAG/2017) ( / ASSESSMENT YEAR: 2013-14) M/S. EFFTRONICS SYSTEMS PVT. LTD. VIJAYAWADA DCIT, CIRCLE - 2(1) VIJAYAWADA ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI DEBA K UMAR SONOWAL, DR / RESPONDENT BY : SHRI C. SUBRAHMANYAM, AR / DATE OF HEARING : 05.03.2018 / DATE OF PRONOUNCEMENT : 09.03.2018 / O R D E R PER BENCH: THESE APPEALS FILED BY THE REVENUE ARE DIRECTED AG AINST ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) {CIT(A)}, VIJAYAWADA VIDE ITA NOS.134 & 133/CIT(A)/VJA/15-16 DATED 23.9.2016 FOR THE ASSESSMENT YEARS 2008-09, 2009-10 & 2010-11 AND VIDE ORDER ITA NO.56/CIT(A)/VJA/16-17 DATED 15.9.2017 FOR THE ASSESSMENT YEAR 2013-14. THE CROSS OBJECTIONS FILED BY THE ASSESSE E ARE IN SUPPORT OF THE ORDERS PASSED BY THE LD. CIT(A). SINCE, THE FA CTS ARE IDENTICAL AND ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 3 ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENI ENCE. ITA NOS.61, 62 & 63/VIZAG/2017 (2008-09 TO 2010-11) : 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF ELECTRONICS, MOVING DISPLAY BOARDS, DATA LOGGERS, E LECTRONIC SYSTEMS, ETC. SINCE THE FACTS ARE COMMON IN THESE APPEALS THE SAM E ARE EXTRACTED FROM THE A.Y.2008-09. THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.43,09,030/-. THE CASE WAS SELEC TED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCO ME TAX ACT (HEREINAFTER CALLED AS THE ACT) ON TOTAL INCOME O F RS.79,84,858/- BY AN ORDER DATED 24/12/2010. IN THE RETURN OF INCOME FI LED BY THE ASSESSEE, THE ASSESSEE HAD CLAIMED THE DEDUCTION OF RS.3,36,7 0,436/- U/S 35(1)(2AB) OF THE ACT, WHICH WAS ALLOWED BY THE A.O . IN THE ORIGINAL SCRUTINY ASSESSMENT AFTER VERIFYING THE DETAILS. S UBSEQUENTLY, THE A.O. COLLECTED THE INFORMATION FROM THE INDIAN RAILWAYS ACCORDING TO WHICH THE ASSESSEE IS PRIMARILY ENGAGED IN CONTRACT WORKS IN MANUFACTURING, INSTALLATION AND COMMISSIONING OF DATA LOGGERS AS W ELL AS MANUFACTURING AND INSTALLATION OF LED EQUIPMENT, DISPLAY BOARDS T HAT ARE INSTALLED IN THE RAILWAY STATIONS. THE LD.AO FURTHER OBSERVED TH AT THE DEDUCTION IS AVAILABLE TO THE ASSESSES WHO MANUFACTURES ARTICLES THAT ARE NOT INCLUDED IN ELEVENTH SCHEDULE BUT THE ARTICLES MANUFACTURED BY THE ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 4 ASSESSEE ARE THE ARTICLES MENTIONED IN ELEVENTH SCHEDULE, HENCE REOPENED THE ASSESSMENT U/S 147 BY ISSUE OF NOTICE U/S 148 OF THE I.T. ACT. DURING THE REASSESSMENT PROCEEDINGS THE ASSESS EE ARGUED THAT THE 11 SCHEDULE HAS NO REFERENCE IN SECTION 35(2AB) OF THE ACT AND SAME WAS NOT APPLICABLE FOR THE A.Y.2008-09 AND 2009-10. HAVING OBTAINED APPROVAL FROM DS&R FOR SCIENTIFIC RESEARCH, IN CASE OF DISPUTE WITH REGARD TO THE DEDUCTION HAS TO BE SORTED OUT BY REF ERRING THE ISSUE TO THE BOARD AS PROVIDED IN SECTION 35(3) OF I.T. ACT AND HENCE REQUESTED TO REFER THE MATTER TO THE PRESCRIBED AUTHORITY. TH E ASSESSEE HAD ALSO ARGUED BEFORE THE A.O. THAT SCIENTIFIC RESEARCH WOR KS INVOLVES NOT ONLY THE PRODUCTS DEVELOPMENT TO RAILWAYS BUT OTHER PRO DUCTS SUCH AS WEATHER MONITORING SYSTEM, URBAN BUS DISPLAYS, BATT ERY MONITORING UNIT, LED LIGHTING EQUIPMENT. ETC., BUT NOT SUBSTANTIATED ITS CLAIM WITH ANY MATERIAL EVIDENCE. THEREFORE, THE A.O. WAS OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 35(2AB), ACCORDINGLY COMPLETED THE REASSESSMENT BY DISALLOWING THE CLAIM MADE BY THE ASSESSEE U/S 35(2AB) OF I.T. ACT. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) HELD THAT REO PENING OF ASSESSMENT IS BAD IN LAW AND ACCORDINGLY ALLOWED THE APPEAL OF THE ASSESSEE. ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 5 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REV ENUE IS IN APPEAL BEFORE THIS TRIBUNAL RAISING THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANC E OF CLAIM OF DEDUCTION U/S.35(2AB) OF RS.3,36,70,436/-, SINCE TH E DEDUCTION IS ALLOWABLE FOR MANUFACTURE OF CERTAIN ELECTRONIC ITE MS ONLY AND NOT TO THE ARTICLES MANUFACTURED BY THE ASSESSEE WHICH ARE MAC HINES USED IN RAILWAY STATIONS THAT CANNOT BE CATEGORIZED AS ELECTRONIC I TEMS; 2. THE LD. CIT(A) IS NOT JUSTIFIED IN ALLOWING THE WE IGHTED DEDUCTION CLAIMED BY THE ASSESSEE U/S.35(2AB) IN SPITE OF THE FACT THAT THE ASSESSEE FAILED TO PROVIDE ANY CONVINCING MATERIAL FACTS ON RECORD TO CLAIM THAT THE INSTRUMENTS/ARTICLES DO NOT FALL UNDER THE ELEVENTH SCHEDULE. 3. THE LD. CIT(A) ERRED IN DELETING THE ADDITION THOU GH THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.35(2AB) OF THE ACT S INCE THE MAIN ACTIVITY OF THE ASSESSEE WAS MANUFACTURING, INSTALLATION AND CO MMISSIONING OF DATA LOGGERS AS WELL AS MANUFACTURING AND INSTALLATION O F LED DISPLAY BOARDS IN THE RAILWAY STATION, WHICH WAS CERTIFIED BY THE DEP ARTMENT OF INDIAN RAILWAYS AND THUS, THE ASSESSEE IS INELIGIBLE TO MA KE ANY CLAIM U/S.35(2AB) AND THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS CL AIM WITH ANY MATERIAL EVIDENCE THAT ITS SCIENTIFIC RESEARCH WORKS INVOLVE S OTHER PRODUCTS SUCH AS WEATHER MONITORING SYSTEM, URBAN BUS DISPLAYS, BATT ERY MONITORING UNIT, LED LIGHTING EQUIPMENT ETC. 4. THE LD. CIT(A) ERRED IN HOLDING THAT REOPENING OF ASSESSMENT PROCEEDINGS U/S.147 ARE BAD IN LAW. 5. THE LD. CIT(A) ERRED IGNORING THE FACT THAT THE DE DUCTION WHICH IS NOT ALLOWABLE WAS ALLOWED IN THE ASSESSMENT AND THE INI TIATION OF PROCEEDINGS U/S.147 OF THE ACT IS WELL WITHIN THE PURVIEW OF TH E PROVISIONS OF THE INCOME TAX ACT. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 5. THE FACTS IN THIS CASE FOR THE ASSESSMENT YEARS 2008-09 TO 2010- 11 ARE IDENTICAL. GROUND NOS.4 & 5 ARE RELATED TO THE REOPENING OF ASSESSMENT AND THE REMAINING GROUNDS ARE RELATED TO THE MERITS OF THE CASE WITH REGARD TO THE ALLOWABILITY OF DEDUCTION U /S 35(2AB) OF THE ACT. IN THIS CASE, THE ASSESSMENTS WERE COMPLETED U/S 14 3(3) OF THE ACT ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 6 ORIGINALLY AND THE A.O. HAS ALLOWED THE DEDUCTION A FTER EXAMINING THE DETAILS. THERE IS NO FRESH MATERIAL AVAILABLE TO T HE A.O. TO RECONSIDER THE ALLOWABILTY OF DEDUCTION U/S 35(2AB) OF THE ACT. T HOUGH THE ORIGINAL ASSESSMENT WAS COMPLETED AFTER CONSIDERING ALL THE FACTS AND EVIDENCES, THE PRESENT A.O. REVISITED THE ASSESSMENT CONSIDERI NG THE AMENDMENT MADE TO SECTION 35(2AB) AND SCHEDULE 11 WHICH IS EF FECTIVE FROM 2010- 11 AND RE-ANALYSED THE SECTION 35(2AB) OF THE ACT A ND REOPENED THE ASSESSMENT. IN FACT SECTION 35(2AB) DOES NOT CONTAI N REFERENCE TO SCHEDULE 11 BEFORE 2010. THE ASSESSING OFFICER INTE RPRETED THE AMENDED PROVISIONS TO REOPEN THE ASSESSMENT WITHOUT HAVING ANY FRESH MATERIAL. THE ISSUE CONSIDERED BY THE A.O.IN ORIGINAL ASSESSM ENT CANNOT BE REVISITED BY INTERPRETING THE PROVISIONS APPLICABLE IN THE SUBSEQUENT YEARS FOR THE PURPOSE OF REOPENING. THE CIT(A) HAS DISCUSSED THIS ISSUE IN DETAIL IN PARA NO.6.3.2 AND RELIED ON THE DECISI ONS OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BHANJI LAVJI (1971) 79 ITR 582 AND ITO VS. NAWAB MIR BHARKAT ALI KHAN BAHADUR (1974) 97 ITR 23 9 (SC) AND HELD THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW. FO R READY REFERENCE, WE EXTRACT RELEVANT PARAGRAPH OF THE CIT(A) FROM 6.3 T O 6.3.2 AS FOLLOWS: 6.3 AS REGARDS THE LEGAL ISSUE OF VALIDITY OF RE-O PENING OF ASSESSMENT FOR ASST. YEARS 2008-09 & 2009-10, IT IS NOTED THAT SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED AFTER DUE VERIFICATION BY ASSESSING O FFICER FOR BOTH ASSESSMENT YEARS. 6.3.1 ASSESSING OFFICER QUOTED THE FOLLOWING REASON FOR ISSUE OF NOTICE U/S 148 OF THE ACT. ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 7 AS SEEN FROM THE FACTS OF THE CASE AND AS PER THE COMPUTATION OF INCOME, THE ASSESSEE HAD CLAIMED DEDUCTION U/S 35(1)(2AB) OF IT ACT TO THE EXTENT OF RS.2,92,45,167/- WHICH WAS ALLOWED AS DEDUCTION, WH ILE COMPLETING THE ASSESSMENT. THE DEDUCTION IS ALLOWABLE TO THE ASSES SEE, AS PER THE PROVISIONS OF SEC.35(1)(2AB) OF THE IT ACT, ONLY IF THE MANUFA CTURED ARTICLES ARE NOT THE ARTICLES WHICH FORM PART OF THE ELEVENTH SCHEDULE. BUT, AS THE ARTICLES MANUFACTURED BY THE ASSESSEE ARE THE ARTICLES MENTI ONED IN THE ELEVENTH SCHEDULE, THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S.35(1)(2AB) OF THE IT ACT. HENCE, THE AMOUNT OF RS.2,92,45,167/CLA IMED AS DEDUCTION BY THE ASSESSEE U/S.35(1)(2AB) OF THE IT ACT DID ESCAPE TH E ASSESSMENT.' SIMILAR REASONING WAS GIVEN FOR RE-OPENING OF ASSESSMENT FO R ASST. YEAR 2008-09 ALSO. 6.3.2. AN AMENDMENT IN SEC.35(2AB) OF THE ACT WAS B ROUGHT BY THE FINANCE (NO.2) ACT, 2009. WE.F 01.04.2010. RELEVANT EXPLANA TORY NOTE IS REPRODUCED BELOW: '15. WEIGHTED DEDUCTION FOR IN-HOUSE RESEARCH AND D EVELOPMENT. 15.1. UNDER THE EX/STING PROVISIONS OF THE INCOME-T AX ACT, UNDER SUBSECTION (2AB) OF SEC. 35, WEIGHTED DEDUCTION OF 150 PER CENT IS ALLOWED TO A COMPANY ENGAGED IN THE BUSINESS OF BIOTECHNOLOGY OR IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF DRUGS, PHARMACEUTICALS, ELECTRONIC EQUIPMENTS, COMP UTERS. TELECOMMUNICATION EQUIPMENTS, CHEMICALS OR ANY OTHE R ARTICLE OR THING NOTIFIED BY THE BOARD AND WHICH HAS INCURRED EXPENDITURE (EXCEPTING ON LAND AND BUILDING) ON IN-HOUSE SCIENT IFIC RESEARCH AND DEVELOPMENT FACILITY APPROVED BY THE PRESCRIBED AUTHORITY. 15.2. WITH A VIEW TO PROMOTING RESEARCH AND DEVELOP MENT IN ALL SECTORS OF THE ECONOMY, THE ACT HAS BEEN AMENDED TO EXTEND THE BENEFIT OF WEIGHTED DEDUCTION TO COMPANIES ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING EXCEPT THOSE SPECIFIED IN THE ELEVENTH SCHEDULE OF THE INCOME-TAX ACT. 15.3. APPLICABILITY - THIS AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM L APRIL, 2010 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSESSMENT YEAR 2010-11 AND SUBSEQU ENT ASSESSMENT YEARS.' PRIOR TO THE AMENDMENT (I.E.) FOR RELEVANT ASSESSME NT YEARS 2008-09 & 2009-10 IN APPEAL, CORRESPONDING PROVISION OF SEC.3 5(2AB)(1) READ THUS:- 'WHERE A COMPANY ENGAGED IN THE BUSINESS OF (BIO-TE CHNOLOGY) ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 8 OR IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY DRUGS, PHARMACEUTICALS, ELECTRONIC EQUIPMENTS, COMPUTERS, CHEMICALS OR ANY OTHER ARTICLE OR THING NOTIFIED BY THE BOARD' I NCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING IN TH E NATURE OF COST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND D EVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY, T HEN THERE SHALL BE ALLOWED A DEDUCTION OF A SUM OF .....(..... OF THE EXPENDITURE) SO INCURRED.' AS PER THIS THEN EXTANT PROVISIONS OF THE ACT, APPE LLANT'S IN-HOUSE R&D FACILITY IS APPROVED BY COMPETENT AUTHORITY AND APPELLANT'S SCIENTIFIC RESEARCH RELATED TO ELECTRONIC EQUIPMENTS. HENCE AP PELLANT'S CASE IS CLEARLY COVERED UNDER THE PROVISIONS OF RELEVANT ACT. ASSESSING OFFICER CANNOT MAKE USE OF AN AMENDMENT M ADE IN THE ACT WHICH IS EFFECTIVE FOR SUBSEQUENT ASSESSMENT YEARS (I.E.) A.Y. 2010-11 AND ONWARDS (AND NOT APPLICABLE FOR AYS 2008-09 & 2009- 10 IN APPEAL) TO DENY A CLAIM OF DEDUCTION U/S.35(2AB) OF THE ACT WHICH A PPELLANT IS OTHERWISE ENTITLED TO BY THE EXTANT PROVISIONS OF LAW BY WAY OF REOPEN ING OF THOSE ASSESSMENTS. - PRIMA FACIE, NO FRESH MATERIAL/EVIDENCE HAS BEEN BROUGHT ON RECORD BY ASSESSING OFFICER NECESSITATING REOPENING OF ASS ESSMENTS FOR AYS 2008-09 & 2009-10. - IN MY VIEW, THIS IS ONLY CHANGE OF OPINION OF ASS ESSING OFFICER. 'WHEN THE PRIMARY FACTS NECESSARY FOR ASSESSMENT AR E FULLY AND TRULY DISCLOSED, THE ITO WILL NOT BE ENTITLED ON CH ANGE OF OPINION TO COMMENCE PROCEEDINGS FOR REASSESSMENT. SIMILARLY , IF HE HAS RAISED A WRONG LEGAL INFERENCE FROM THE FACTS DISCL OSED, HE WILL NOT, ON THAT ACCOUNT, BE COMPETENT TO COMMENCE REAS SESSMENT PROCEEDINGS - COMMISSIONER OF INCOME-TAX VS. BHANJI LAVJI (1971) 79 ITR 582 (SC). HAVING SECOND THOUGHTS ON THE SAME MATERIAL, AND OM ISSION TO DRAW THE CORRECT LEGAL PRESUMPTION DURING ORIGINAL ASSESSMENT DO NOT WARRANT THE INITIATION OF A PROCEEDING UNDER SE CTION 147 - ITO VS. NAWAB MIR BARKAT ALI KHAN BAHADUR (1974) 97 ITR 239 (SC).' IN VIEW OF THE ABOVE, REOPENING OF ASSESSMENT IS, IN MY VIEW, BAD IN LAW. HENCE, ON LEGAL ISSUE ALSO, THE RE-OPENED ASSESSMEN T ORDERS CANNOT BE SUSTAINED. 6. DURING THE APPEAL HEARING, THE LD. D.R. DID N OT BRING ANY MATERIAL TO CONTROVERT THE FACT THAT THERE WAS EVID ENCE AVAILABLE TO THE A.O. LEADING TO ESCAPEMENT OF INCOME. IN THIS CASE AS DISCUSSED EARLIER, ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 9 THE A.O. CONSIDERED THIS ISSUE OF ALLOWABILITY OF D EDUCTION U/S 35(2AB) OF THE ACT AND ALLOWED THE SAME AFTER DUE VERIFICATION . THE ASSESSEE ALSO FURNISHED THE NECESSARY DETAILS SUCH AS CERTIFICATE FROM THE SCIENTIFIC RESEARCH AND INDUSTRIAL DEVELOPMENT AUTHORITY AND T HE A.O. ALLOWED THE DEDUCTION ACCEPTING THAT THE ASSESSEE IS ENGAGED IN THE IN HOUSE RESEARCH AND DEVELOPMENT. THE ASSESSEE DEMONSTRATE D THAT THE ASSESSEE HAS SATISFIED THE CONDITIONS FOR ALLOWING THE DEDUCTION U/S 35(2AB) OF THE ACT AND THE PROJECT WAS APPROVED BY THE GOVERNMENT OF INDIA FOR IN HOUSE RESEARCH. THE PRESCRIBED AUTHOR ITY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH GRANTED THE RECO GNITION OF IN HOUSE R&D FACILITIES IN THE PRESCRIBED FORM 3CL. R&D FAC ILITY OF THE ASSESSEE ALSO APPROVED FOR THE PURPOSE OF SECTION 35(2AB) FO R THE A.Y. 2008-09 TO 2010-11. ONCE THE CERTIFICATE IS ISSUED THAT WO ULD BE SUFFICIENT TO HOLD THAT THE ASSESSEE HAS FULFILLED THE CONDITION LAID DOWN U/S 35(2AB) OF THE ACT. THE ASSESSING OFFICER CONSIDERED ALL T HESE FACTS WHILE COMPLETING THE ORIGINAL ASSESSMENT. HENCE, REOPENI NG OF ASSESSMENT ON REANALYZING THE ISSUE WOULD BE DIFFERENCE OF OPINIO N. THEREFORE, WE HOLD THAT THE REOPENING OF ASSESSMENT IS A CHANGE O F OPINION, HENCE CANNOT BE UPHELD. ACCORDINGLY, WE UPHOLD THE ORDER S OF THE CIT(A) ON ISSUE OF NOTICE U/S 148 OF THE ACT AND DISMISS THE APPEALS OF THE REVENUE. ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 10 7. SINCE WE UP HELD THE ORDER OF THE LD.CIT(A) ON THE ISSUE OF NOTICE U/S 148, WE CONSIDER IT IS NOT NECESSARY TO ADJUDI CATE THE APPEAL ON GROUND NOS.1, 2, 3 & 6 WHICH ARE RELATED TO THE MER ITS OF THE CASE. 8. IN THE RESULT THE APPEALS OF THE REVENUE ARE DISMIS SED. C.O. NOS.31, 32 & 33/VIAG/2017: 9. THE CROSS OBJECTIONS ARE SUPPORTIVE TO THE ORDER PASSED BY THE CIT(A) WITH RESPECT TO THE DEDUCTIONS CLAIMED BY TH E ASSESSEE U/S 35(2AB) OF THE ACT. SINCE WE HAVE DISMISSED THE AP PEAL OF THE REVENUE, THE CROSS OBJECTIONS HAVE BECOME INFRUCTUOUS AND TH E SAME ARE DISMISSED. ITA NO.551/VIZAG/2017: 10. GROUND NO.1 IS RELATED TO THE DISALLOWANCE MADE U/S 35(2AB) OF THE ACT TOWARDS SCIENTIFIC RESEARCH EXPENDITURE. T HE ASSESSEE FILED RETURN OF INCOME ADMITTING TOTAL INCOME OF RS.1,31, 44,960/- ON 25.9.2013. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON TOTAL INCOME OF RS.2,69,82,110/-. IN THE ASSESSMENT THE A.O. MADE ADDITION OF RS.1,34,30,935/- IN RESPECT OF THE DEDUCTION U/S 35(2AB) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. FOUND F ROM THE STOCK REGISTERS MAINTAINED FOR PRODUCTION FOR THE PURPOSE OF CENTRAL EXCISE THAT THE ASSESSEE IS ENGAGED IN THE ELECTRONIC MOVI NG DISPLAY BOARDS FOR INFORMATION TEXT INSTALLED IN RAILWAY STATIONS WITH TRAFFIC CODE 85414020 ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 11 AND DATA LOGGERS (BASED ON DATA ACQUISITION AND CON TROL SYSTEMS) WITH TARIFF CODE 8471 AND THE A.O. WAS OF THE VIEW THAT THE ABOVE ITEMS ARE INCLUDED IN ELEVENTH SCHEDULE IN ITEM NO.22, HENCE INELIGIBLE FOR DEDUCTION U/S 35(2AB). THE LD.AO ALSO OBSERVED THAT THERE IS NO IDENTITY OF THE EMPLOYEES WORKING IN THE R&D AND THE COMPANY EFFTRONICS SYSTEMS. THE DUTIES OF THE EMPLOYEES ARE INTERCHANG ED AND USED BY BOTH FOR R&D AND THE COMPANY, HENCE WAS OF THE VIEW THAT NO WEIGHTED DEDUCTION IS ALLOWABLE. ACCORDINGLY, DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 35(2AB)AND ADDED BACK TO THE INCOM E. 11. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSE E WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) ALLOWED THE AP PEAL OF THE ASSESSEE FOLLOWING THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011-12 IN ITA NO.188 & 216/VIZAG/2 015 DATED 21.10.2016. 12. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, T HE LD. D.R. RELIED ON THE ORDER OF THE A.O. AGAINST RELIANCE PLACED BY TH E ASSESSEE ON THE ORDER OF THE LD. CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ISSUE WITH REGARD TO THE ALLOWABILITY OF DEDUCTION U/S 35(2AB) OF THE ACT ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 12 IN THE CASE OF THE ASSESSEE WAS EXAMINED BY THE TRI BUNAL IN THE ASSESEES OWN CASE FOR THE ASSESSMENT YEAR 2011-12, WHICH IS CITED (SUPRA). FOR READY REFERENCE, WE EXTRACT RELEVANT PARAGRAPH OF THE ORDER OF THE LD. CIT(A) IN PARA NOS.7.1 TO 7.3, WHI CH READS AS UNDER; 7.1 HON'BLE ITAT, VISAKHAPATNAM IN APPELLANT'S OWN CASE FOR EARLIER ASSESSMENT YEAR 2011-12 IN ITS ORDER DATED 21.10.20 16 IN ITA NO. 188/VIZAG/2015 & 216/VIZAG/2015 HELD THE FOLLOWING: 'PARA 15: HAVING HEARD BOTH THE PARTIES, WE FIND FO RCE IN THE ARGUMENTS OF THE LD. A. R. FOR THE ASSESSEE FOR THE REASON THAT THE PROV ISIONS OF SECTION 35('2AB) OF THE ACT, WITH RELEVANT RULES MAKES IT MANDATORY FOR THE ASSESSEE COMPANY TO FILE ITS APPLICATION FOR APPROVAL OF ITS IN HOUSE R&D BEFORE THE SECRETARY, DSIR, GOVERNMENT OF INDIA. THE APPLICANT COMPANY SHOULD ALSO SUBMIT AN UNDERTAKING AS PER PARA-C OF FORM NO. 3CK TO MAINTAIN SEPARATE ACCOUNTS FOR EACH R&D CENTRE APPROVED U/C. 35(2AB) OF THE ACT BY THE PRESCRIBED AUTHORITY AND TO GET ACCOUNTS DULY AUDIT ED EVERY YEAR BY AN AUDITOR AS DEFINED IN SUB SECTION (2) OF SECTION 28 8 OF THE ACT. THE COMPANY SHOULD ENTER INTO AN AGREEMENT WITH THE PRESCRIBED AUTHORITY (SECRETARY, DSIR) FOR COOPERATION IN SUCH RESEARCH AND DEVELOPME NT FACILITY AND FOR AUDIT OF THE ACCOUNTS MAINTAINED FOR THAT FACILITY AS PER FORM GIVEN IN PARA-B OF FORM 3CK. THE SECRETARY, DSIR AFTER SATISFIED WIT H THE DETAILS FURNISHED BY THE ASSESSEE AND ALSO AFTER COMPLIED WITH THE CO NDITIONS PRESCRIBED UNDER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT AND RULES THERE UNDER PASS AN ORDER OF APPROVAL INFORM NO. 3CM BY DULY IN TIMATING SUCH APPROVAL TO THE DIRECTOR GENERAL OF INCOME TAX (EXEMPTION) IN FORM NO. 3C'L WITHIN 60 DAYS OF GRANTING APPROVAL. ONCE, THE R&D FACILIT Y IS APPROVED BY THE COMPETENT AUTHORITY AND ASSESSEE HAS COMPLIED WITH THE PRESCRIBED RULES, THE A. 0. IS BOUND TO ALLOW THE DEDUCTIONS CLAIMED U/S. 35(2AB) OF THE ACT, IF HE IS SATISFIED THAT THE ASSESSEE FACILITY IS AP PROVED BY THE COMPETENT AUTHORITY. IN CASE THE A. 0. IS HAVING ANY DOUBT WIT H REGARD TO THE GOODS MANUFACTURED BY THE ASSESSEE OR EXPENDITURE CLAIMED , THE A.0. IS BOUND TO REFER THE MATTER BACK TO THE COMPETENT AUTHORITY TH ROUGH APPROPRIATE AUTHORITY I.E. THE CENTRAL BOARD OF DIRECT TAXES (' C'BDT) AND SEEK CLARIFICATIONS. THUS, IT WOULD EMERGE FROM ABOVE AN ALYSIS THAT NEITHER THE A.0. NOR THE BOARD WAS COMPETENT TO TAKE ANY DECISI ON OF ANY SUCH CONTROVERSY RELATING TO REPORT AND APPROVAL GRANTED BY THE PRESCRIBED AUTHORITY AS IT INVOLVED EXPERT VIEW OR OPINION. IT WAS PRESCRIBED AUTHORITY ALONE WHICH WOULD BE COMPETENT TO TAKE DECISION WIT H REGARD TO THE CORRECTNESS OR OTHERWISE AND ITS ORDER OF APPROVAL GRANTED IN FORM NO. 3CL AS PRESCRIBED U/S. 35('2AB) OF THE ACT READ WITH RU LE 7A OF THE INCOME TAX RULES, 1962. IN THE PRESENT CASE ON HAND, ON PERUSAL OF THE FACTS AVAILABLE ON RECORD, WE FIND THAT THE A.0. WITHOUT FOLLOWING THE PROCEDURE LAID DOWN ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 13 UNDER RULES, SIMPLY DISALLOWED THE EXPENDITURE CLAI MED BY THE ASSESSEE BY HOLDING THAT THE GOODS MANUFACTURED BY THE ASSESSEE ARE MERE OFFICE MACHINES AND APPARATUS LISTED IN ELEVENTH SCHEDULE. THEREFORE, WE ARE OF THE VIEW THAT THE A.0. IS NOT CORRECT IN DISALLOWIN G THE CLAIM MADE BY THE ASSESSEE U/S. 35(2AB) OF THE ACT. PARA. 20: CONSIDERING THE FACTS AND CIRCUMSTANCES O F THIS CASE AND ALSO RESPECTFULLY FOLLOWING THE RATIOS OF DECISIONS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE A.0. ERRED IN DISALLOWING THE WEIGHTED DEDUCTION CL AIMED BY THE ASSESSEE UNDER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT, DESPITE THE ASSESSEES R&D FACILITY WAS APPROVED BY THE COMPETENT AUTHORIT Y. WE FURTHER WERE OF THE VIEW THAT THE GOODS MANUFACTURED BY THE ASSESSE E ARE NOT A MERE OFFICE MACHINES OR APPARATUS AS LISTED IN ELEVENTH SCHEDUL E, BUT THEY ARE SPECIALLY DESIGNED ELECTRONIC EQUIPMENTS MEANT FOR USE BY INDI AN RAILWAYS TO MONITOR SMOOTH MOVEMENT OF TRAINS. THE ASSESSEE HAS CATEGO RICALLY PROVED BY FILING NECESSARY EVIDENCES OF APPROVAL GRANTED BY THE PRES CRIBED AUTHORITY AND ALSO RETURNS FILED ANNUALLY TO THE PRESCRIBED AUTHO RITY TO JUSTIFY THE EXPENDITURE INCURRED TOWARDS R&D EXPENDITURE. IN OU R CONSIDERED VIEW, THE COMPETENT AUTHORITY HAS TO DECIDE WHETHER A PARTICU LAR EXPENDITURE IS ELIGIBLE FOR DEDUCTION,, U/S. 35(2AB) OF THE ACT OR NOT, BUT NOT THE ASSESSING OFFICER. IN THE PRESENT CASE, THE A.0. WI THOUT FOLLOWING THE DUE PROCEDURE LAID DOWN UNDER THE PROVISIONS OF THE ACT AND RULES THERE UNDER, SIMPLY DISALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE. THEREFORE, WE DIRECT THE A.0. TO ALLOW THE WEIGHTED DEDUCTION CLAIMED BY THE ASSESSEE UNDER THE PROVISIONS OF SECTION 35(2AB ) (1) OF THE ACT.' 7.2 R&D FACILITY OF THE APPELLANT WAS APPROVED BY C OMPETENT AUTHORITY FOR THE PURPOSE OF SECTION 35(2AB) OF THE ACT FOR THE PERIO D 01.04.2012 TO 31 .03.2016. THE COPY OF APPROVAL IN FORM NO. 3CM IS REPRODUCED BELOW: ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 14 7.3 IN VIEW OF THE ABOVE ITAT DECISION AND THE FACT THAT APPELLANTS R&D FACILITY WAS APPROVED BY THE COMPETENT AUTHORITY FOR THE PURPOSE OF SECTION 35(2AB) FOR THE PERIOD 1.4.2012 TO 31.3.2016, I DIRECT THE ASSESSING OFFIC ER TO DELETE ADDITION OF ` 1,34,30,935/- MADE IN THE ASSESSMENT ORDER AS THE ISSUE INVOLVED FOR T HIS ASST. YEAR 2013-14 IS IDENTICAL TO THE ISSUE DECIDED BY HONBLE ITAT FOR ASST. YEAR 2011-1 2. GROUNDS OF APPEAL NUMBERS 2 & 3 ARE ALLOWED. 14. DURING THE APPEAL HEARING, THE LD. D.R. DID NOT FURNISH ANY EVIDENCE OR THE CASE LAW OF ANY HIGHER JUDICIAL AUT HORITY TO CONTROVERT THE FINDING OF THE LD. CIT(A).THE LD.CIT(A) HAS GIV EN A CATEGORICAL FINDING THAT THE R&D FACILITY WAS APPROVED FOR THE PERIOD 1.4.2012 TO ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 15 31.3.2016. THEREFORE, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/ S 35(2AB) OF THE ACT AND THE APPEAL OF THE REVENUE IS DISMISSED ON THIS GROUND. 15. GROUND NO.2 IS RELATED TO THE ALLOWABILITY OF C APITAL EXPENDITURE INCURRED AS RESEARCH DEVELOPMENT AMOUNTING TO RS.3, 92,636/-. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. FOUND THAT THE ASSESSEE HAS DEDUCTED A SUM OF RS.3,92,636/- TOWARDS CAPITAL EQU IPMENT. HENCE, THE ASSESSING OFFICER TREATED THE EXPENDITURE AS A CAPI TAL EXPENDITURE AND DISALLOWED THE SAME. 16. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSE E WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) ALLOWED THE AP PEAL OF THE ASSESSEE HOLDING THAT THE EXPENDITURE WAS INCURRED FOR THE P URPOSE OF R&D ONLY. FOR READY REFERENCE, WE REPRODUCE PARA NO.7.4 OF TH E LD. CIT(A) WHICH READS AS UNDER: 7.4 A SUM OF ` 3,92,636/- WAS WHOLLY INCURRED FOR THE PURPOSE OF R&D ONLY IS EVIDENT FROM FORM NO.3CL. ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 16 IN VIEW OF THE CERTIFICATE ISSUED BY COMPETENT AUTHO RITY IN FORM NO.3CL, I DIRECT THE ASSESSING OFFICER TO DELETE ADDITION MAD E OF RS.3,92,636/- TOWARDS CAPITAL EXPENDITURE (OTHER THAN LAND & BUILDING). ASSESSIN G OFFICER WITHOUT EXAMINING THE NATURE OF EXPENDITURE CANNOT MAKE DISALLOWANCE HOLD ING THAT THE EXPENDITURE WAS NOT WHOLLY INCURRED FOR THE PURPOSE OF R&D. HENCE GROUNDS OF APPEAL NUMBER 4 IS ALLOWED. 17. AS PER FORM NO.3CL, THE EXPENDITURE WAS R&D ONL Y. THE EVIDENCE BROUGHT ON RECORD SHOWS THAT THE EXPENDITURE WAS CA PITAL EXPENDITURE OTHER THAN LAND AND BUILDING. THE A.O. DISALLOWED THE SAME WITHOUT ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 17 EXAMINING THE NATURE OF EXPENDITURE. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SA ME IS UPHELD. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. C.O. NO.6/VIZAG/2018: 19. THE CROSS OBJECTION FILED BY THE ASSESSEE IS SU PPORTING ORDER TO THE LD. CIT(A). SINCE WE HAVE DISMISSED THE APPEAL OF THE REVENUE, THE C.O. FILED BY THE ASSESSEE BECOMES INFRUCTUOUS AND ACCORDINGLY DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 9 TH MAR18. SD/- SD/- ( . ) ( . .. . . . . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 09.03.2018 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-2(1), VIJAYAWAD A 2. / THE RESPONDENT M/S. EFFTRONICS SYSTEMS PVT. LT D., D.NO.40-15-9, BRINDAVAN COLONY, LABBIPET, VIJAYAWADA-520 010. 3. + / THE CIT, VIJAYAWADA 4. + ( ) / THE CIT (A), VIJAYAWADA ITA NOS.61, 62 & 63/VIZAG/2017 ; CO NOS. 31, 32&33/ VIZAG/2017, ITA 551/VIZAG/2017 & CO 6/VIZAG2018 18 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM