M/s Bhagiradha Chemicals & Industries Ltd., Hyderabad V. Addl. CIT, Hyderabad

CO 47/HYD/2009

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7188 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 31-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: MRS S RAVI A V RAGHURAM
• Keywords: Depreciation; Permanent establishment; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.CCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER S. NO. ITA NO. A.Y. APPELLANT RESPONDENT 01 906/HYD/2009 2006-07 ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-1, HYDERABAD M/S BHAGIRADHA CHEMICALS & INDUSTRIES LTD., HYDERABAD 02 1415/HYD/2008 2005-06 -DO- -DO- AND C.O. NO. AY CROSS OBJECTOR RESPONDENT 01 47/HYD/09 (IN ITA NO. 906/HYD/09) 2006-07 M/S BHAGIRADHA CHEMICALS & INDUSTRIES LTD., HYDERABAD ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-1, HYDERABAD 02 26/HYD/08 (IN ITA NO. 1415/HYD/2008) 2005-06 - DO - - DO - REVENUE BY : MR. V. SRINIVAS ASSESSEE BY : MR/S.S. RAVI &A.V.RAGHURAM DATE OF HEARING : 05/03/2012 DATE OF PRONOUNCEMENT : 09/05/2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: BOTH THESE APPEALS FILED BY THE REVENUE ARE DIRECT ED AGAINST THE ORDERS OF THE CIT(A)-II, HYDERABAD FOR THE ASSESSMENT YEARS 2005-06 & 2006-07. THE ASSESSEE AL SO RAISED C.OS. IN BOTH THE YEARS UNDER CONSIDERATION AGAINST THE VERY SAME ORDER OF THE CIT(A). SINCE IDENTICAL ISSU ES ARE INVOLVED IN THESE APPEALS, THE SAME WERE HEARD TOGE THER AND, THEREFORE, WE FIND IT CONVENIENT TO DISPOSE OF THES E APPEALS BY WAY OF A COMMON ORDER. ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 2 ITA NO. 906/HYD/09 FOR AY 2006-07. 2. THE FIRST GROUND OF APPEAL BY THE REVENUE IS AGA INST THE ALLOWANCE OF RS.4048573/- BEING THE COMMISSION PAID BY THE ASSESSEE TO VARIOUS AGENTS ABROAD WITHOUT DEDUCTION OF TAX AT SOURCE . 3. BEFORE THE CIT(A) THE ASSESSEE RELIED ON CIRCULA R NO. 786 DATED 07.02.2000 ISSUED BY THE CBDT TO THE EFFECT T HAT COMMISSION PAID TO FOREIGN AGENTS FOR PROCURING ORD ERS DOES NOT REQUIRE DEDUCTION OF TAX AT SOURCE UNDER SECTIO N 195 NOR CAN THE COMMISSION AMOUNT BE DISALLOWED UNDER SECTI ON 40(A)(I). 4. THE CIT(A) DEALT WITH IN DETAIL ABOUT VARIOUS AG ENTS AND PARTICULARS OF COMMISSION PAID TO THEM. HE ALSO REL IED ON VARIOUS DECISIONS WHILE ALLOWING THE CLAIM OF THE A SSESSEE AND THE CIT(A) FURTHER HELD AS FOLLOWS: 4.2 AS STATED EARLIER IDENTICAL ISSUE HAS BEEN DECIDED BY ME IN ASSESSEES ONW CASE FOR ASSESSMEN T YEAR 2005-06. WHILE DECIDING THE APPEAL FOR THAT YE AR I HAD DISCUSSED THE ISSUE IN DETAIL AND RELYING ON VA RIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE DECISION OF I TAT HYDERABAD IN THE CASE OF DR. REDDYS LABORATORIES L TD IN ITA NO. 621/HYD/2000 DATED 24/08/2007 FOR THE ASSESSMENT YEAR 1997-98 AND IN THE CASE OF ACIT CIRCLE-2(3) VS. M/S PREMIER EXPLOSIVES LTD. IN ITA NO. 736/HYD/03 DATED 25/04/2008 I HAD ALLOWED THE GROUN D OF THE ASSESSEE. IN VIEW OF THE FACT THAT THE ISSUE IN THE YEAR UNDER CONSIDERATION IS IDENTICAL TO THE ONE IN THE ASSESSMENT YEAR 2005-06 FOLLOWING THE STAND TAKEN IN ASSESSMENT YEAR 2005-06, I HOLD THAT THE COMMISSION PAID TO THE NON-RESIDENT AGENTS, FOR RENDERING SERV ICES ABROAD, IS NOT LIABLE FOR DEDUCTION OF TAX AT SOURC E U/S 195 AND CONSEQUENTLY THE SAID PAYMENTS ARE NOT ATTR ACTED BY THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. T HEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAID COMMISSION PAID AS AN EXPENDITURE FOR THE PURPOSE O F COMPUTATION OF TOTAL INCOME. THUS, THE EFFECTIVE OF APPEAL IS ALLOWED. ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 3 AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE I S IN APPEAL BEFORE US. 5. WE HAVE HEARD ARGUMENTS OF BOTH THE PARTIES, PER USED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHO RITIES BELOW. IN THE CASE OF FOREIGN AGENTS WHO PROCURE OR DERS FOR EXPORTS TO INDIAN ASSESSEES, SERVICES ARE RENDERED BY THE AGENTS OUTSIDE INDIA AND THE REMUNERATION FOR SUCH SERVICES WILL CONSTITUTE BUSINESS PROFITS OF THE FOREIGN AGE NTS. THEY ARE NOT RENDERING TECHNICAL SERVICES FOR PROCURING ORDE RS AND HENCE REMUNERATION FOR PROCURING ORDERS CANNOT BE C ONSIDERED AS FEES FOR TECHNICAL SERVICES. AS THE AGENT DID N OT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA NO PART OF THE COM MISSION PAYABLE FOR PROCURING EXPORT ORDERS IS TAXABLE IN I NDIA. RECENTLY, THE HONBLE HIGH COURT OF DELHI IN THE CA SE OF CIT VS EON TECHNOLOGY REPORTED IN 246 CTR 40 HAS HELD THAT PAYMENT OF SALE COMMISSION TO NON RESIDENT CANNOT B E DISALLOWED UNDER SECTION 40(A)(I). RESPECTFULLY FOL LOWING THE DECISION OF THE DELHI HIGH COURT(SUPRA), WE UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD AND DISMISS THE GROU ND OF APPEAL OF THE REVENUE. 6. SECOND GROUND OF APPEAL OF THE REVENUE IS AGAINS T THE DIRECTION GIVEN BY THE CIT(A) THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR WHICH THEY HAD MADE CLAIM FOR WEIG HTED DEDUCTION UNDER SECTION 35(2AB) AND WHICH WAS DISAL LOWED AS REQUISITE APPROVAL FROM THE SPECIFIED AUTHORITY HAS NOT BEEN OBTAINED, SHOULD BE CONSIDERED FOR DEDUCTION U/S 35 (1). 7. ON THIS ISSUE, THE ASSESSEE HAS ALSO RAISED CRO SS OBJECTION SINCE THEY HAVE RECEIVED APPROVAL OF THE DEPARTMENT OF SCIENTIFIC AND RESEARCH TECHNOLOGY, GOVERNMENT O F INDIA UNDER SECTION 35(2AB) DATED 16.06.2009. ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 4 8. THE ASSESSING OFFICER DISALLOWED THE CLAIM U/S 3 5(2AB) MADE BY THE ASSESSEE ON THE GROUND THAT THE REQUISI TE CERTIFICATE FROM THE PRESCRIBED AUTHORITY HAD NOT B EEN FILED. ON APPEAL, BEFORE THE CIT(A) THE ASSESSEE FILED WRI TTEN SUBMISSION AND SUBMITTED THAT WHILE COMPUTING TAXAB LE INCOME, THE ASSESSEE HAD ADDED BACK RS. 45,97,325/- (RS.44,70,010/- + RS. 1,27,315/) TO ITS TOTAL INCOM E AND THEREAFTER HAD CLAIMED DEDUCTION U/S 35(2AB) @ 150% . THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER DISAL LOWED THE CLAIM U/S 35(2AB) WITHOUT CORRESPONDINGLY ALLOWING THE REVENUE EXPENDITURE WHICH WAS ADDED TO THE COMPUTAT ION OF INCOME, WHICH TANTAMOUNTS TO DOUBLE ADDITION. THE A SSESSEE ALSO CONTENDED THAT RS. 45,97,325/- WHICH WAS ORIG INALLY ADDED TO THE COMPUTATION OF TOTAL INCOME SHOULD BE DEDUCTED FROM THE TOTAL INCOME. THE ASSESSEE ALSO SUBMITTED THAT IDENTICAL ISSUE WAS DECIDED BY THE CIT(A) IN ASSESS EES OWN CASE FOR ASSESSMENT YEAR 2005-06. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE CIT(A) HELD AS UNDE R:- 5.1 I HAVE GONE THROUGH THE FACTS OF THE ISSUE. I F IND THAT IN THE COMPUTATION OF TOTAL INCOME FILED ALONG WITH THE RETURN OF INCOME, THE APPELLANT HAD ADDED BACK RS. 45,97,325/- TO ITS NET PROFIT IN THE P&L A/CIT (A) AND HAD THEREAFTER CLAIMED DEDUCTION U/S 35(2AB) OF RS. 68,95,988/-. THE ASSESSING OFFICER HAS DISALLOWED T HE CLAIM U/S 35(2AB) ON THE GROUND THAT THE REQUISITE CERTIFICATE FROM THE PRESCRIBED AUTHORITY HAS NOT B EEN FILED BY THE APPELLANT. I ALSO FIND THAT AN IDENTICAL ISS UE WAS DECIDED BY ME IN APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO. 222/CIT(A)- II/HYD/07-08, DATED 19/06/08. WHILE DECIDING THE APPEAL I HAD HELD THAT SINCE THE APPELLANT IS HAVIN G AN R&D CENTRE WHICH IS DULY RECOGNIZED BY DSIR, THE APPELLANT IS AT LEAST ENTITLED FOR DEDUCTION U/S 35 (1) IN RESPECT OF EXPENDITURE ON SCIENTIFIC RESEARCH. WHIL E DECIDING SO, I HAD RELIED ON THE COMMUNICATION RECE IVED BY THE APPELLANT FROM THE MINISTRY OF SCIENCE & TECHNOLOGY FOR RENEWAL OF RECOGNITION OF THE IN HOU SE R&D UNIT AS ALSO DECISIONS OF ITAT, SPECIAL BENCH IN TH E CASE OF JCIT VS. ITC (112 ITD 57) AS ALSO THE DECISION O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 5 YAMUNA DIGITAL ELECTRONICS PVT. LTD. (238 ITR 717). I HAD ALSO ALLOWED 100% DEDUCTION U/S 35(1)(IV) ON THE CA PITAL EXPENDITURE INCURRED ON THE R&D ACTIVITY. WHILE ALL OWING THE DEDUCTION U/S 35(1)(IV), I HAD RELIED ON THE DE CISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF TUBE INVESTMENTS OF INDIA LTD., 260 ITR 94. SINCE THE AP PELLANT ITSELF HAS ADDED BACK THE EXPENDITURE ON RESEARCH A ND DEVELOPMENT WHILE COMPUTING THE INCOME, IT WILL TANTAMOUNT TO DOUBLE DISALLOWANCE IF THE AMOUNT IS NOT ALLOWED U/S 35(1)/35(1)(IV). SINCE THE ISSUE IN THE YEAR UNDER CONSIDERATION IS IDENTICAL TO THE ONE DECIDED BY ME IN APPELLLANTS OWN CASE FOR THE ASSESSMENT YEAR 20 05- 06, FOLLOWING THE STAND TAKEN THEREIN, THE ASSESSIN G OFFICER IS DIRECTED TO ALLOW DEDUCTION U/S 35(1) FO R THE EXPENDITURE INCURRED BY THE APPELLANT ON THE REVENU E AND CAPITAL ACCOUNT FOR THE DETAIL REASON MENTIONED IN THE APPELLATE ORDER PASSED FOR THE ASSESSMENT YEAR 2005 - 06 AND BECAUSE OF THE FACT THAT THE YEAR UNDER THE CONSIDERATION REMAINS. IN THE RESULT, THIS GROUND O F APPEAL IS PARTLY ALLOWED. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE I S IN APPEAL BEFORE US AND ALSO THE ASSESSEE FILED C.O. 9. THE LEARNED DR SHRI V. SRINIVAS HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 10. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S. R AVI RELIED ON THE DECISION OF CIT VS. SANDAN VIKAS (INDIA) LTD ., [2011] 335 ITR 117 (DELHI), WHEREIN IT HAS BEEN HELD AS FO LLOWS: SECTION 35(2AB) OF THE INCOME-TAX ACT, 1961, SPEAKS OF (I) DEVELOPMENT OF FACILITY; (II) INCURRING OF EXPENDIT URE BY THE ASSESSEE FOR DEVELOPMENT OF SUCH FACILITY; (III) AP PROVAL OF THE FACILITY BY THE PRESCRIBED AUTHORITY, WHICH IS THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH; A ND (IV) ALLOWANCE OF WEIGHTED DEDUCTION ON THE EXPENDITURE SO INCURRED BY THE ASSESSEE. THE PROVISIONS NOWHERE SU GGEST OR IMPLY THAT THE RESEARCH AND DEVELOPMENT FACILITY IS TO BE APPROVED FROM A PARTICULAR DATE. IN OTHER WORDS, IT IS NOWHERE SUGGESTED THAT THE DATE OF APPROVAL ALONE W ILL BE THE CUT-OFF DATE FOR ELIGIBILITY OF WEIGHTED DEDUCT ION ON THE EXPENSES INCURRED FROM THAT DATE ONWARDS. THE ASSES SEE HAS TO DEVELOP THE FACILITY, WHICH PRESUPPOSES INCU RRING EXPENDITURE IN THIS BEHALF, APPLICATION TO THE PRES CRIBED AUTHORITY, WHO AFTER FOLLOWING PROPER PROCEDURE WIL L ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 6 APPROVE THE FACILITY OR OTHERWISE AND THE ASSESSEE WILL BE ENTITLED TO WEIGHTED DEDUCTION OF ANY AND ALL EXPEN DITURE SO INCURRED. 11. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIE D UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CLARIS LIFESCIENCES LTD., [2008] 174 TAXMAN(GUJ.) 113 WHEREIN IT HAS BEEN HELD AS UNDER:- THE PROVISIONS OF SECTION 35(2AB) NOWHERE SUGGEST O R IMPLY THAT RESEARCH & DEVELOPMENT FACILITY IS TO BE APPROVED FROM A PARTICULAR DATE AND IN OTHER WORDS, IT IS NOWHERE SUGGESTED THAT DATE OF APPROVAL ONLY WILL B E CUT- OFF DATE FOR ELIGIBILITY OF WEIGHTED DEDUCTION ON T HE EXPENSES INCURRED FROM THAT DATE ONWARDS. A PLAIN READING OF THIS SECTION CLEARLY MANIFESTS THAT THE ASSESSEE HAS TO DEVELOP FACILITY, WHICH PRE-SUPPOSES INCURRI NG EXPENDITURE IN THIS BEHALF AND APPLYING TO THE PRES CRIBED AUTHORITY, WHO, AFTER FOLLOWING PROPER PROCEDURE, W ILL APPROVE THE FACILITY OR OTHERWISE, AND THE ASSESSEE WILL BE ENTITLED TO WEIGHTED DEDUCTION OF ANY AND ALL EXPEN DITURE SO INCURRED. THE TRIBUNAL HAD, THEREFORE, COME TO T HE CONCLUSION THAT ON PLAIN READING OF SECTION 35(2AB) ITSELF, THE ASSESSEE WAS ENTITLED TO WEIGHTED DEDUCTION ON EXPENDITURE SO INCURRED BY IT FOR DEVELOPMENT OF FA CILITY, AND IT HAD ALSO CONSIDERED RULE 6(%A) AND FORM NO. 3CM AND CAME TO THE CONCLUSION THAT A PLAIN AND HARMONI OUS READING OF RULE AND FORM CLEARLY SUGGESTS THAT ONCE FACILITY IS APPROVED, THE ENTIRE EXPENDITURE SO INC URRED ON DEVELOPMENT OF R&D FACILITY HAS TO BE ALLOWED FOR WEIGHTED DEDUCTION AS PROVIDED BY SECTION 35(2AB). THE TRIBUNAL HAD ALSO CONSIDERED THE LEGISLATIVE INTENT ION BEHIND ABOVE ENACTMENT AND OBSERVED THAT TO BOOS UP R&D FACILITY IN INDIA, THE LEGISLATURE HAS PROVIDED THIS PROVISION TO ENCOURAGE THE DEVELOPMENT OF THE FACIL ITY BY PROVIDING DEDUCTION OF WEIGHTED EXPENDITURE. SINCE WHAT IS STATED TO BE PROMOTED IS DEVELOPMENT OF FACILITY , INTENTION OF THE LEGISLATURE BY MAKING ABOVE AMENDM ENT IS VERY CLEAR THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE ON DEVELOPMENT OF FACILITY, IF APPROVED, H AS TO BE ALLOWED FOR THE PURPOSE OF WEIGHTED DEDUCTION. THUS, THE REASONING GIVEN BY THE TRIBUNAL WAS TO BE ACCEPTED; THERE WAS NO SCOPE FOR ANY OTHER INTERPRE TATION. SINCE THE APPROVAL WAS GRANTED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION, THE AS SESSEE WAS ENTITLED TO CLAIM WEIGHTED DEDUCTION IN RESPECT OF THE ENTIRE EXPENDITURE INCURRED BY IT U/S 35(2AB). ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 7 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W AS WELL AS DECISIONS CITED. IN VIEW OF THE RATIOS LAID DOWN BY THE HONBLE DELHI HIGH COURT AND GUJARAT HIGH COURT(SUP RA) AND IN THE LIGHT OF CERTIFICATE ISSUED BY DSIR, GOVERNM ENT OF INDIA DATED 16.06.2009, WE SET ASIDE THE ISSUE TO THE F ILE OF THE AO TO GRANT WEIGHTED DEDUCTION U/S 35(2AB). THE BALANC E EXPENDITURE IF ANY NOT APPROVED BY THE DSIR WILL HA VE TO BE CONSIDERED FOR DEDUCTION UNDER SECTION 35(1) OR UND ER NORMAL PROVISIONS OF THE ACT. THE EXPENDITURE HAS BEEN INC URRED BY THE R & D FACILITY OF THE ASSESSEE APPROVED BY THE GOVERNMENT OF INDIA. MERELY BECAUSE PART OF THE EXPENDITURE IN CURRED BY THE APPROVED R & D FACILITIES IS NOT CONSIDERED FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) WOULD NOT RENDER EXPENDITURE IS NOT TOWARDS R & D OR NOT FOR THE PUR POSES OF THE BUSINESS. ALLOWABILITY OF SUCH EXPENDITURE U/S 35(1) OR UNDER OTHER APPROPRIATE PROVISIONS OF THE ACT WILL HAVE TO BE CONSIDERED. 13. HENCE, THE CROSS OBJECTION(C.O. NO. 47/HYD/09) CLAIMING WEIGHTED DEDUCTION UNDER SECTION 35(2AB) O N THE GROUND THAT REQUISITE CERTIFICATE FROM THE DSIR HAS BEEN RECEIVED IS TREATED AS ALLOWED FOR STATISTICAL PURP OSE. 14. IN THE CIRCUMSTANCES, THE SECOND GROUND OF APPE AL RAISED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICA L PURPOSES. 15. IN THE RESULT, REVENUE APPEAL IN ITA NO 901/H/ 09 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND CO NO 4 7/H/09 IS ALLOWED FOR STATISTICAL PURPOSE. ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 8 ITA NO. 1415/HYD/08 FOR AY 2006-07 16. AS REGARDS GROUND NO. 1 REGARDING DISALLOWANCE MADE U/S 40(A)(I), SIMILAR GROUND OF APPEAL HAS ALREADY BEEN DECIDED BY US IN ITA NO. 906/HYD/09 (SUPRA) WHEREIN WE HAVE UPHELD THE ORDER OF THE CIT(A) AND DISMISSED THE GROUND OF APPEAL OF THE REVENUE. SINCE THE ISSUE IS IDENTICAL, FOLLOWIN G THE CONCLUSIONS DRAWN IN ITA NO. 906/HYD/09, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GROUND OF APPEA L OF THE REVENUE. 17. GROUND NO. 2 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN ALLOWING DEDUCTION U/S 35(1)(IV) WHEN NO APPROVA L FROM THE PRESCRIBED AUTHORITY. 18. AS PER THE STATEMENT OF TOTAL INCOME ENCLOSED T O THE RETURN, THE ASSESSEE HAD CLAIMED DEDUCTION U/S 35(2 AB), FOR RS. 1,11,79,738/-. IN SUPPORT OF ITS CLAIM FOR DEDU CTION, THE ASSESSEE HAD FILED COPIES OF THE LETTER RECEIVED FR OM THE MINISTRY OF SCIENCE AND TECHNOLOGY, DEPARTMENT OF S CIENTIFIC AND INDUSTRIAL RESEARCH DATED 26/08/05. IN THE SAID LETTER, RECOGNITION TO THE IN-HOUSE R&D UNIT OF THE ASSESSE E COMPANY AT HYDERABAD WAS ACCORDED UP TO 31/03/08 SUBJECT TO DIFFERENT TERMS AND CONDITIONS. IN THE ASSESSMENT O RDER, THE ASSESSING OFFICER ELABORATELY NOTED DOWN ALL THE TE RMS AND CONDITIONS BUT ULTIMATELY THE ASSESSEES CLAIM FOR DEDUCTION U/S 35(1) WAS NOT CONSIDERED FOR THE SIMPLE REASON THAT THE ASSESSEE FAILED TO SUBSTANTIATE THAT IT HAD CARRIED OUT THE R&D ACTIVITY. THE ASSESSING OFFICER OBSERVED THAT MOST OF THE EVIDENCES AND DETAILS FILED BY THE ASSESSEE SHOWED THAT THEY PERTAIN TO THE REGULAR BUSINESS ACTIVITY OF MANUFAC TURING OF PESTICIDES. ACCORDINGLY, THE EXPENDITURE CLAIMED TO HAVE BEEN ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 9 INCURRED FOR R&D WAS NOT CONSIDERED FOR DEDUCTION U /S 35(1) AND DEPRECIATION ON THE CAPITAL EXPENDITURE AS PER IT RULES WAS ALLOWED. AGGRIEVED, THE ASSESSEE CARRIED THE M ATTER IN APPEAL BEFORE THE CIT(A). 19. BEFORE THE CIT(A) THE ASSESSEE FILED WRITTEN SU BMISSIONS WHEREIN AGAINST THE ALLEGATIONS MADE BY THE ASSESSI NG OFFICER THAT THE ASSESSEE FAILED TO SHOW ANY FURTHER EVIDEN CE/DETAILS SHOWING THAT IT HAS CARRIED OUT ANY R&D ACTIVITY, I NTER-ALIA, THE ASSESSEE STATED THAT THE R&D CENTRE OF THE COMP ANY IS ESTABLISHED AT A SEPARATE PLACE WITH THE APPROVAL O F THE DSIR AND THE COMPANY IS REGULARLY SUBMITTING ITS REPORT TO THE PRESCRIBED AUTHORITY. THE GOVT. OF INDIA THROUGH DS IR HAS RENEWED THE RECOGNITION/APPROVAL OF THE IN-HOUSE R& D UNIT UP TO 31/03/2011, WHICH SHOWS WITHOUT DOUBT THAT THE A SSESSEE IS HAVING A RESEARCH UNIT. THE ASSESSEE REFERRED T O THE DECISION OF THE ITAT SPECIAL BENCH IN THE CASE OF J CIT VS. ITC LTD., 112 ITD 57), WHEREIN, IT WAS HELD THAT WHEN I T IS NOT DISPUTED THAT THE ASSESSEE HAS BEEN MAINTAINING A R ESEARCH UNIT, THEN THE NATURAL CONCLUSION, IN THE ABSENCE O F ANY EVIDENCE TO THE CONTRARY, SHOULD HAVE BEEN THAT THE WORK FOR WHICH THESE UNITS ARE RUN MUST HAVE BEEN CARRIED OU T. IN THE LIGHT OF THE ABOVE SUBMISSION, THE ASSESSEE URGED T HAT THE DISALLOWANCE U/S 35(1) MADE BY THE ASSESSING OFFICE R BE DELETED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LEARNED CIT(A) EXAMINED THE ISSUE WITH CASE LAW S AND HELD AS UNDER:- 5.9 ACCORDINGLY, IN MY VIEW, THE REJECTION OF THE C LAIM U/S 35(1)(IV) OF THE APPELLANT BY THE ASSESSING OFF ICER OF THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE IS NOT JUSTIFIED. FURTHER, AS PER SECTION 35(3)(B) OF THE ACT, IF ANY QUESTION ARISES UNDER THIS SECTION AS TO WHETHER AN D IF SO TO WHAT EXTENT, ANY ACTIVITY CONSTITUTES OR CONSTIT UTED OR ANY ASSET IS OR WAS BEING USED FOR SCIENTIFIC RESEA RCH, THE BOARD SHALL REFER THE QUESTION TO THE PRESCRIBED AU THORITY WHEN SUCH QUESTION RELATES TO ANY ACTIVITY OTHER TH AN THE ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 10 ACTIVITY SPECIFIED IN CLAUSE (3)(A). I DO NOT FIND ANYTHING IN THE ASSESSMENT ORDER TO SHOW THAT ANY REFERENCE WAS MADE BY THE ASSESSING OFFICER TO THE CBDT RELATING TO THE DISPUTED CLAIM U/S 35/35(2AB). THEREFORE, THE CONTE NTION OF THE APPELLANT THAT THE ASSESSING OFFICER WAS NOT COMPETENT TO DISALLOW THE CLAIM U/S 35 IS NOT WITHO UT ANY BASIS. 5.10 THE ASSESSING OFFICER WHILE DISALLOWING THE CL AIM HAS ALSO OBSERVED THAT THE ASSESSEE HAD NOT FILED A NY PROOF SHOWING THAT IT HAS TAKEN APPROVAL FROM THE D SIR AS PER THE CONDITIONS NO. 11 OF DSIR FOR IMPORT OF THE EQUIPMENT FOR RS. 23,41,517/- CLAIMED TO HAVE BEEN UTILIZED FOR R&D ACTIVITY. AT PAGE 8 OF THE ORDER, THE ASSESSING OFFICER HAS MENTIONED THE CONDITION NO. 1 1. AS PER THE CONDITION NO. 11, DISPOSAL/SALE OF IMPORTED RAW MATERIALS, EQUIPMENTS AND PRODUCTS/INTERMEDIATES EMANATING FROM MATERIAL AND EQUIPMENT IMPORTED FOR R&D SHALL NOT BE MADE WITHOUT PRIOR PERMISSION OF DSIR IRRESPECTIVE OF THE FIRM HOLDING INDUSTRIAL LICENSE OR NOT EXCEPT IF THE SAME IS TO A PUBLIC SECTOR UNDERTAKIN G. IN CASE OF A SALE TO PUBLIC SECTOR UNDERTAKING, THE FI RM HAS ONLY TO INTIMATE THE DSIR WITHIN 30 DAYS OF ALL DET AILS OF SALE. IN MY VIEW THE ASSESSING OFFICER HAD NOT PROP ERLY INTERPRETED THE CONDITION NO. 11 WHICH BASICALLY SP EAKS OF DISPOSAL/SALE OF IMPORTED EQUIPMENTS, PRODUCTS ETC. IN THE CASE UNDER CONSIDERATION, THERE ARE NO SALE/DISPOSA L OF IMPORTED EQUIPMENTS OF RS. 23,41,517/-. APPARENTLY, THE ASSESSEE HAD FILED ALL THE DETAILS RELATING TO THE IMPORTED EQUIPMENT AND INTIMATION THEREOF TO DSIR VIDE LETTE R DATED 29/12/04. FURTHER, THE FACT THAT THE PRESCRIBED AUT HORITY HAS RENEWED THE RECOGNITION OF R&D HOUSE UP TO 31/03/2011 INDICATED THAT THE APPELLANT HAS BEEN ADHERING TO THE TERMS AND CONDITIONS STIPULATED IN THE ORIGINAL RECOGNITION. ACCORDINGLY, THE ASSESSING OF FICERS CONTENTION IS NOT SUSTAINABLE. 5.11. 5.12 THUS, CONSIDERING THE TOTALITY OF THE FACTS AN D CIRCUMSTANCES OF THE CASE AND ALSO RELYING UPON THE JUDICIAL PRONOUNCEMENTS REFERRED TO ABOVE IN THIS O RDER, I AM OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR DE DUCTION U/S 35(1)(IV) ON THE CAPITAL EXPENDITURE INCURRED B Y IT FOR THE RESEARCH UNIT ESTABLISHED BY IT. ACCORDINGLY, T HE ASSESSING OFFICER IS DIRECTED TO ENTERTAIN THE CLAI M OF THE APPELLANT U/S 35(1)(IV) ON THE CAPITAL EXPENDITURE INCURRED BY IT FOR SCIENTIFIC RESEARCH. GROUNDS OF APPEAL NO . 2 TO 4 ARE ALLOWED. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 11 20. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE HAVE ALREADY DISCUSSED SIMILAR ISSUE ELABORATELY IN ITA NO. 906/HYD/10 IN PARA NOS. 10 TO 19 (SUPRA). THEREFORE , FOLLOWING THE DECISIONS IN THE CASE OF CIT VS. SAND AN VIKAS (INDIA) LTD., [2011] 335 ITR 117 (DELHI), CIT VS. C LARIS LIFESCIENCES LTD., [2008] 174 TAXMAN(GUJ.) 113 AND ITAT SPECIAL BENCH IN THE CASE OF JCIT VS. ITC LTD., 112 ITD 57), ON WHICH RELIANCE PLACED BY THE ASSESSEE, WE SET AS IDE THE ISSUE TO THE FILE OF THE AO TO GRANT WEIGHTED DEDUC TION U/S 35(2AB). THE BALANCE EXPENDITURE IF ANY NOT APPROVE D BY THE DSIR WILL HAVE TO BE CONSIDERED FOR DEDUCTION UNDER SECTION 35(1)(IV) OR UNDER NORMAL PROVISIONS OF THE ACT. TH E EXPENDITURE HAS BEEN INCURRED BY THE R & D FACILITY OF THE ASSESSEE APPROVED BY THE GOVERNMENT OF INDIA. MEREL Y BECAUSE PART OF THE EXPENDITURE INCURRED BY THE APP ROVED R & D FACILITIES IS NOT CONSIDERED FOR WEIGHTED DEDUCTI ON UNDER SECTION 35(2AB) WOULD NOT RENDER EXPENDITURE IS NOT TOWARDS R & D OR NOT FOR THE PURPOSES OF THE BUSINESS. ALLO WABILITY OF SUCH EXPENDITURE U/S 35(1)(IV) UNDER OTHER APPROPRI ATE PROVISIONS OF THE ACT WILL HAVE TO BE CONSIDERED. 21. HENCE, THE CROSS OBJECTION(C.O. NO. 26/HYD/08) CLAIMING WEIGHTED DEDUCTION UNDER SECTION 35(2AB) O N THE GROUND THAT REQUISITE CERTIFICATE FROM THE DSIR HAS BEEN RECEIVED IS TREATED AS ALLOWED FOR STATISTICAL PURP OSE. 22. IN THE RESULT, REVENUE APPEAL IN ITA NO 1415/ H/08 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND CO NO 2 6/H/08 IS ALLOWED FOR STATISTICAL PURPOSE. ITA NOS. 906/HYD/09 & 1415/HYD/08 & C.O. NOS. 47/HYD/09 & 26/HYD/08. 12 23. TO SUM UP, BOTH THE APPEALS OF THE REVENUE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE C.O NOS. 26/H/08 AND 47/HYD/09 ARE TREATED AS ALLOWED FOR ST ATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 09 TH MAY, 2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGH AVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 09 TH MAY, 2012. KV COPY TO:- 1) ADDL. COMMISSIONER OF INCOME-TAX, RANGE-1, 4 TH FLOOR, AAYAKAR BHAVAN, BASHEER BAGH, HYD. 2) M/S BHAGIRADHA CHEMICALS & INDUSTRIES LTD., 8-2-248/A/B, ROAD NO.3, BANJARA HILLS, HYDERABAD. 3) THE CIT (A)-II, HYDERABAD 4) THE CIT-1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE,I.T.A.T., HYDERABAD.