DCIT, Circle-3(2), Hyd, Hyderabad V. Sri Biotech Laboratories India Ltd., Hyd, Hyderabad

CO 33/HYD/2016

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3363 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 08-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Opportunity of being heard; Competent authority; Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 499/HYD/2016 AND C.O. NO. 33/HYD/2016 ASSESSMENT YEAR: 2010-11 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 3(2), HYD. VS. SRI BIOTECH LABORATORIES INDIA LTD., HYDERABAD. PAN AAKCS 6296B APPELLANT RESPONDENT/CROSS OBJECTOR REVENUE BY: SMT. U. MINICHANDRAN ASSESSEE BY: SHRI R. VIJAYARAGHAVAN DATE OF HEARING: 11/12/2017 DATE OF PRONOUNCEMENT: 13/12/2017 O R D E R PER S. RIFAUR RAHMAN, AM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF CIT(A) - 3, HYDERABAD DATED 29/01/2016 RELATES TO T HE AY 2010-11. THE ASSESSEE ALSO FILED C.O. AGAINST THE S AID ORDER OF CIT(A). 2. BRIEFLY THE FACTS OF THE CASE ARE, ASSESSEE COMP ANY IS IN THE BUSINESS OF MANUFACTURE AND SALE OF PESTICIDES, BIO- FERTILIZERS AND ORGANIC MANURE. ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2010-11 ON 15/10/2010 BY ADMITTING IN COME OF RS. 14,63,84,180/- AFTER CLAIMING A DEDUCTION OF RS . 6,02,05,350/- U/S 80JJA OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE HAS COMPUTED DEDUCTION U/S 80JJA AS UNDER: PARTICULARS TOTAL ORGANIC MANURE NON ORGANIC INCOME INCOME FROM 75,74,70,126 17,33,01,500 58,41,68,626 I.T.A. NO. 499/HYD/2016 AND CO NO. 33/HYD/16 SRI BIOTECH LABORATORIES INDIA LTD., HYD. 2 SUPPLY AND SERVICES OTHER INCOME 2,97,01,958 0 2,97,01,958 TOTAL 78,71,72,084 17,33,01,500 61,38,70,584 EXPENDITURE: MANUFACTURING EXPENSES 37,98,53,756 8,25,08,112 29,73,45,644 SELLING & ADMINISTRATIVE EXPENSES 8,31,24,878 1,90,18,131 6,41,06,747 PAYMENTS & BENEFITS TO EMPLOYEES 3,07,17,566 70,27,868 2,36,89,698 RESEARCH & DEVELOPMENT EXPENSES 3,49,70,194 0 3,49,70,194 FINANCIAL CHARGES 55,18,341 12,62,541 42,55,800 DEPRECIATION 1,81,76,836 32,79,498 1,48,97,338 TOTAL 55,23,61,571 11,30,96,150 43,92,65,421 NET PROFIT 23,48,10,513 6,02,05,350 17,46,05,163 PROFIT FOR THE YEAR 23,48,10,513 6,02,05,350 17,46,05,163 BASED ON THE ABOVE TABLE, ASSESSEE CLAIMED DEDUCTI ON U/S 80JJA FOR RS. 6,02,05,350/-. DURING THE ASSESSMENT PROCEEDINGS, AO OBSERVED THAT ASSESSEE APPORTIONED DIRECT EXPENSES BETWEEN ORGANIC AND NON-ORGANIC SEGMENTS ON THE ACTUAL EXPENSES BASIS. FURTHER, HE NOTED THAT ASSES SEE HAS DECLARED ORGANIC MANURE SALE OF RS. 17.33 CRORES, I T IS 22.88% OF TOTAL TURNOVER, WHICH IS RS. 75.75 CRORES AS PER THE ABOVE TABLE. HE OBSERVED THAT ASSESSEE HAS CLAIMED R&D EX PENSES IN THE P&L A/C, WHICH WAS CHARGED ONLY TO NON-ORGAN IC SEGMENT. ACCORDINGLY, HE APPORTIONED THE R&D EXPENS ES BASED ON THE TURNOVER BASIS. BASED ON THE ABOVE, AO HAS REWORKED THE PROFIT OF THE ORGANIC SEGMENT FOR RS. 5,22,04,170/- AND ACCORDINGLY, DISALLOWED TO THE EX TENT OF RS. 80,01,180/-. 2.1 FURTHER, AO NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 35(2AB) TO THE EXTENT OF RS. 30,39,75 9/-. IN ORDER TO ALLOW DEDUCTION, AO ASKED THE ASSESSEE TO SUBMIT I.T.A. NO. 499/HYD/2016 AND CO NO. 33/HYD/16 SRI BIOTECH LABORATORIES INDIA LTD., HYD. 3 RELEVANT APPROVAL CERTIFICATES FROM DSIR AND SUPPOR TING VOUCHERS FOR THE SAME. SINCE THE ASSESSEE COULD NOT FILE THE REQUIRED INFORMATION CALLED FOR, AO DENIED THE DEDU CTION U/S 35(2AB). AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A). 3. AS REGARDS THE DEDUCTION U/S 80JJA, THE ASSESSEE EXPLAINED BEFORE THE CIT(A) THAT ALL THE EXPENDITUR E WERE INCURRED EXCLUSIVELY TOWARDS NON-ORGANIC SEGMENT, THEREFORE, THE SAME CANNOT BE PROPORTIONATELY ALLOCATED TO ORG ANIC SEGMENT. VIDE LETTER DATED 04/02/2015, CIT DIRECTED THE AO TO ALLOW AN OPPORTUNITY TO THE ASSESSEE TO MAKE SUBMIS SIONS AND AO WAS ASKED TO EXAMINE THE ISSUE AND SEND HIS REMA ND REPORT. ACCORDINGLY, THE AO SUBMITTED HIS REPORT VI DE LETTER DATED 24/08/2015, WHICH WAS EXTRACTED BY THE CIT(A) IN HIS ORDER AT PAGES 4 & 5. COPY OF THE REMAND REPORT WA S FORWARDED TO THE ASSESSEE FOR ITS COMMENTS, AND VID E ITS LETTER DATED 06/11/2015, THE ASSESSEE SUBMITTED ITS REPLY, WHICH WAS EXTRACTED AT PAGE 5 OF HIS ORDER BY CIT(A). 4. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS REMAND REPORT OF THE AO, DIREC TED THE AO TO RESTRICT THE DISALLOWANCE U/S 80JJA TO THE EXTEN T OF RS. 38.75 LAKHS AS AGAINST RS. 88,80,542/- DISALLOWED B Y THE AO. 5. WITH REGARD TO THE DEDUCTION U/S 35(2AB), THE AS SESSEE SUBMITTED BEFORE THE CIT(A) THAT THIS ISSUE IS SQUA RELY COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2009-10 IN ITA NO. 385/HYD/2014, DATED 24/09/2014. CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) ALLOWED THE DEDUCTION CLAIM OF ASSESSEE U/S 35(2AB). I.T.A. NO. 499/HYD/2016 AND CO NO. 33/HYD/16 SRI BIOTECH LABORATORIES INDIA LTD., HYD. 4 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US AGAINST THE ACTION OF THE CIT(A) I N DELETING THE DISALLOWANCE OF DEDUCTION CLAIMED U/S 35(2AB) O F THE ACT, WHILE, THE ASSESSEE FILED CROSS OBJECTIONS AGAINST THE ACTION OF THE CIT(A) IN SUSTAINING THE ADDITION TO THE EXTENT OF RS. 38.75 LAKHS U/S 80JJA OF THE ACT. 7. FIRST WE DEAL WITH THE APPEAL OF THE REVENUE. 8. LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT SUBMI TTED ANY PROOF OF EXPENDITURE INCURRED AND FURTHER SUBMI TTED THAT ASSESSEE HAS NOT SUBMITTED APPROVAL CERTIFICATE FRO M DSIR. HE THEREFORE CONTENDED THAT IN ABSENCE OF RELEVANT INFORMATION, I.E. SUBMISSION OF PROOF OF EXPENDITUR E AND APPROVAL CERTIFICATE FROM DSIR, THE CIT(A) IS WRONG IN DELETING DEDUCTION U/S 35(2AB). 9. THE LD. AR, ON THE OTHER HAND, WITH REGARD TO GR OUND NO. 2 RAISED BY THE REVENUE, SUBMITTED THAT THE ASSESSE E HAS NOT SUBMITTED PROOF OF EXPENDITURE INCURRED BEFORE THE AO. HE BROUGHT TO OUR NOTICE THAT ASSESSEE HAS SUBMITTED T HE RELEVANT PROOF OF EXPENDITURE BEFORE THE CIT(A) AND THE CIT( A) REMANDED THE SAME TO THE AO FOR VERIFICATION, WHO H AS VERIFIED THE DETAILS THOROUGHLY AND GAVE HIS FINDINGS TO THE CIT(A). HE SUBMITTED THAT BASED ON THE REMAND REPORT SUBMITTED BY THE AO, CIT(A) CONSIDERED ALLOWING DEDUCTION U/S 35(2AB ). 9.1 WITH REGARD TO GROUND NO. 3, LD. AR SUBMITTED T HAT HONBLE ITAT HAS ALREADY CONSIDERED ISSUE OF APPROV AL CERTIFICATE FROM DSIR IN ASSESSEES OWN CASE FOR AY 2009-10, A COPY OF WHICH IS FILED BEFORE US. I.T.A. NO. 499/HYD/2016 AND CO NO. 33/HYD/16 SRI BIOTECH LABORATORIES INDIA LTD., HYD. 5 10. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. ASSESSEE HAS SUBMITTED DE TAILS OF R&D EXPENDITURE BEFORE THE CIT(A) AND THE SAME WAS REMANDED TO THE AO FOR VERIFICATION AND THE AO HAS NOT SUBMITTED ANY ADVERSE REPORT ON THE R&D EXPENDITURE INCURRED BY THE ASSESSEE. THEREFORE, IT CANNOT BE CLAIMED TH AT THERE IS NO PROOF OF SUCH EXPENDITURE. WITH REGARD TO APPROV AL FROM DSIR, THE COORDINATE BENCH OF THIS TRIBUNAL HAS ALR EADY CONSIDERED THIS ASPECT AND IT HAS ALLOWED THE PLEA OF THE ASSESSEE BY OBSERVING AS UNDER: '12. HOWEVER, AS CAN BE SEEN FROM THE FACTS ON RECO RD AS WELL AS THE OBSERVATIONS MADE BY THE LD. CIT(A), ASSESSEE'S R&D FACILITY HAS BEEN APPROVED BY THE COMPETENT AUTHORITY FROM THE A Y 2003-04 AND SUCH APPROVAL HAS BEEN EXTENDED TILL 31.03.2015. IT FURT HER TRANSPIRES FROM RECORD THAT ASSESSEE ON 26.09.2012 SUBMITTED ITS APPLICATION IN FORM NO.3CK FOR CERTIF ICATION OF R&D EXPENDITURE RELATING TO FYS 2008-09, 2009-10 AND 2001-11 WHICH IS DULY CERTIFIED BY THE AUDITORS . IT IS FURTHER EVIDENT THAT ASSESSEE ALONG WITH FORM 3CK H AS ALSO SUBMITTED ACCOUNT COPIES. THEREFORE, IT IS EVI DENT THAT ASSESSEE HAS COMPLIED TO THE PROVISIONS OF SEC.35(2AB) OF THE ACT R.W. RULE 6. IT IS FURTHER E VIDENT THAT ON THE APPLICATION MADE BY ASSESSEE IN FORM 3C K DATED 26.09.2012 DSIR HAS ALSO ISSUED ORDER OF APPROVAL IN FORM NO.3CM APPROVING R&D FACILITY OF ASSESSEE UPTO 31 ST MARCH, 2016 FOR THE PURPOSE OF SEC.35(2AB). THEREFORE, WHEN THE PRESCRIBED AUTHORI TY HAS APPROVED ASSESSEE'S R&D FACILITY AND ASSESSEE H AS COMPLIED TO THE CONDITIONS LAID DOWN IN SEC.35(2AB) R.W. RULE 6, ONLY BECAUSE THE PRESCRIBED AUTHORITY HAS N OT SUBMITTED THE REPORT IN FORM 3CL TO THE DIRECTOR (EXEMPTIONS), ASSESSEE'S CLAIM OF DEDUCTION U/S 35(2AB) CANNOT BE DISALLOWED CONSIDERING THE FACT T HAT INCURRING OF EXPENDITURE BY ASSESSEE HAS NOT BEEN DISPUTED. 13. IN THE AFORESAID VIEW OF THE MATTER, WE DIRECT ASSESSING OFFICER TO ALLOW WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT AMOUNTING TO RS. 72,75,245. HOWEVER, WE MAKE IT CLEAR THAT IF SUBSEQUENTLY THE PRESCRIBED AUTHORITY DOES NOT APPROVE EXPENDITURE CLAIMED BY ASSESSEE OR QUANTIFIES AT A LESSER AMOUN T, THEN THE DEDUCTION CLAIMED BY ASSESSEE SHOULD BE I.T.A. NO. 499/HYD/2016 AND CO NO. 33/HYD/16 SRI BIOTECH LABORATORIES INDIA LTD., HYD. 6 MODIFIED ACCORDINGLY. ASSESSEE'S GROUND IS CONSIDER ED TO HAVE BEEN ALLOWED.' AS THE FACTS AND CIRCUMSTANCES ARE THE SAME, RESPEC TFULLY FOLLOWING THE ABOVE DECISION, THE GROUNDS RAISED B Y THE REVENUE ARE DISMISSED. 11. COMING TO THE CROSS OBJECTIONS FILED BY THE ASS ESSEE, LD. AR SUBMITTED THAT CIT(A) HAS ADJUDICATED THAT A S PER THE AO RS. 38.75 LAKHS WAS SPENT ON R&D IN ORGANIC SEGM ENT. HOWEVER, ACCORDING TO HIM, AO DID NOT GIVE THE DETA ILS OF THE SAME AND HOW HE ARRIVED AT THE CONCLUSION THAT EXPE NSES WERE SPENT ON ORGANIC SEGMENT. ACCORDINGLY, CIT(A) CALLED FOR THE ASSESSMENT RECORDS, WHICH WAS NOT MADE AVAI LABLE TO HIM. THEREFORE, HE DIRECTED THE AO TO RESTRICT THE DISALLOWANCE U/S 80JJA TO THE EXTENT OF RS. 38.75 LAKHS AGAINST RS. 88.81 LAKHS MADE BY THE AO. LD. AR SUBMITTED THAT R&D EXP ENDITURE CANNOT BE ALLOCATED WITHOUT ANY BASIS IN COMPUTING THE BUSINESS PROFIT TO ARRIVE DEDUCTION U/S 80JJA. HE S UBMITTED THAT IN THE ABSENCE OF INFORMATION I.E. HOW THE AO HAS ARRIVED AND HOW THIS EXPENDITURE WAS SPENT ON ORGANIC SEGME NT, HE PRAYED THAT THIS MATTER SHOULD GO BACK TO THE AO FO R PROPER VERIFICATION AND PROPER DEDUCTION AS PER LAW. 12. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF CIT(A). 13. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. IT IS A FACT THAT THE INF ORMATION RELEVANT TO R&D EXPENDITURE AND BASIS OF ALLOCATION BETWEEN ORGANIC AND NON-ORGANIC WAS NOT MADE AVAILABLE TO T HE CIT(A) IN ORDER TO ARRIVE AT THE PROPER DEDUCTION U/S 80JJ A. IT IS PERTINENT TO HAVE THE INFORMATION AVAILABLE TO ALLO W ANY DEDUCTION BASED ON SOME METHOD, AS PER WHICH, AO H AS I.T.A. NO. 499/HYD/2016 AND CO NO. 33/HYD/16 SRI BIOTECH LABORATORIES INDIA LTD., HYD. 7 ARRIVED THE DEDUCTION U/S 80JJA, WHICH WAS NOT MADE AVAILABLE TO THE CIT(A). EVEN, CIT(A) WITHOUT ANY B ASIS RESTRICTED THE DISALLOWANCE TO RS. 38.75 LAKHS AGAI NST RS. 88.81 LAKHS MADE BY THE AO. THEREFORE, WE FIND IT A PPROPRIATE TO REMIT THIS MATTER BACK TO THE FILE OF THE AO TO SHARE THE INFORMATION WITH ASSESSEE AND ARRIVE AT THE PROPER DEDUCTION U/S 80JJA AFTER PROVIDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THE MATTER. ACCORDINGLY, T HE CROSS OBJECTIONS RAISED BY THE ASSESSEE ARE TREATED AS AL LOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND THE CO FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 13 TH DECEMBER, 2017 SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER SD/- (S. RIFAUR RAHMAN) ACCOUNTANT MEMBER HYDERABAD, DATED 13 TH DECEMBER, 2017 KV COPY FORWARDED TO: 1. DCIT, CIRCLE 3(2), 7 TH FLOOR, B BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 2. M/S SRI BIOTECH LABORATORIES INDIA LTD., PLOT NO . 21, STREET NO. 02, SAGAR SOCIETY, ROAD NO. 02, BANJARA HILLS, HYD. 3. CIT(A) - 3, HYDERABAD 4 PR. CIT - 3, HYDERABAD 5 THE DR, ITAT, HYDERABAD 6. GUARD FILE