Dy. Commissioner of Income Tax, Circle-2(1), Hyderabad V. M/s. Indian Immunologicals Limited, Hyderabad

ITA 108/HYD/2014

• Counselvise Citation: 10822514 RSA 2014
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 28-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: C S SUBRAMANYAM
• Keywords: Reopening of assessment; Competent authority; Revenue expenditure
• Section: 37; 115JB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 108/HYD/2014 ASSESSMENT YEAR 2010-11 THE DEPUTY CIT CIRCLE-2(1) HYDERABAD VS. M/S. INDIAN IMMUNOLOGICALS LTD., HYDERABAD PAN: AAACI6620F APPELLANT RESPONDENT APPELLANT BY: SRI RAMAKRISHNA BANDI RESPONDENT BY: SRI C.S. SUBRAMANYAM DATE OF HEARING: 1 0 .1 2 .2014 DATE OF PRONOUNCEMENT: 24. 1 2.2014 O R D E R PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, HYDERABAD DATED 14 TH NOVEMBER, 2013 FOR ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURE AND TRADE OF DRUGS AND MEDICINES. IT FI LED RETURN OF INCOME FOR A.Y. 2010-11 ON 14-10-2010 DEC LARING TOTAL INCOME OF RS. 36,02,26,050 UNDER NORMAL PROVI SIONS AND RS. 40,33,03,835 U/S. 115JB OF THE IT ACT, 1961 . THE ASSESSEE CLAIMED WEIGHTED DEDUCTION U/S. 35(2AB), I N AN AMOUNT OF RS. 15,93,96,792 RECKONED AT 150% OF THE R&D REVENUE EXPENDITURE OF RS. 10,62,64,528. ON PERUSA L OF FORM 3CL FILED BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT APPRO VAL ITA NO. 108/HYD/2014 M/S. INDIAN IMMUNOLOGICALS LTD. ======================== 2 GIVEN BY DSIR IN THIS REGARD WAS ONLY FOR AN AMOUNT OF RS. 9,43,49,000. THE ASSESSING OFFICER PROPOSED TO DISA LLOW AN AMOUNT OF RS. 1,78,73,292 AS SHOWN AT ITEM (G) B ELOW AS PER DETAILS SHOWN HEREUNDER: SL. NO. PARTICULARS AMOUNT (RS.) A. R&D EXPENSES (REVENUE) AS PER P&L ACCOUNT 10,62,64,528 B. R&D EXPENSES (REVENUE) APPROVED AS PER DSIR 9,43,49,000 C. DIFFERENCE REMAINING TO BE APPROVED. 1,19,15,52 8 D. DIFFERENCE IN WEIGHTED DEDUCTION LIABLE TO BE DISALLOWED AT 50% OF (C) 59,57,764 E. WEIGHTED DEDUCTION CLAIMED AT 150% U/S. 35(2AB) ON (A) ABOVE 15,93,96,792 F. WEIGHTED DEDUCTION ALLOWABLE AT 150% U/S. 35(2AB) ON (B) ABOVE 14,15,23,500 G. AMOUNT DISALLOWED BY AO 1,78,73,292 3. THE ASSESSEE OBJECTED TO THE PROPOSAL AND CLAIMED THAT THE DISALLOWANCE CAN BE ONLY IN AN AMOUNT OF R S. 59,97,764. I.E., AT 50% OF THE EXPENDITURE OF RS. 1,19,15,528 WHICH WAS NOT APPROVED. THE AO, HOWEVER , DISALLOWED 150% OF THE AMOUNT NOT APPROVED WHICH WORKED OUT TO RS. 1,78,73,292. AGGRIEVED BY THE DISALLOWANCE OF RS. 1,78,73,292 THE ASSESSEE APPEAL ED BEFORE THE CIT(A). THE CIT(A) ALLOWED THE ASSESSEE' S APPEAL HOLDING THAT IT IS NOT THE POSITION TAKEN BY THE AO THAT THE ONLY AN EXPENDITURE OF RS. 9,43,49,000 INC URRED BY THE ASSESSEE AND THAT THE BALANCE OF RS. 1,19,15,52 8 WAS NEVER INCURRED. HE FURTHER HELD THAT THERE IS NO E VIDENCE ON RECORD AND NO CONCLUSION TO THIS EFFECT. THE CIT (A) STATED THAT THE ONLY EVIDENCE WAS THAT THE BALANCE AMOUNT WAS NOT ELIGIBLE FOR WEIGHTED DEDUCTION U/S. 35(2AB ) OF THE ITA NO. 108/HYD/2014 M/S. INDIAN IMMUNOLOGICALS LTD. ======================== 3 ACT. OTHERWISE IT WAS INCURRED IN THE NORMAL COURSE OF ASSESSEE'S BUSINESS. THE CIT(A) HELD THAT THE AFORE SAID DIFFERENTIAL AMOUNT OF RS. 1,19,15,528/- IS ALLOWAB LE. 4. AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE CIT(A) ERRED ON FACTS AND IN LAW IN GRANTING DEDUCTION TO R & D EXPENSES U/S. 37 WHEN THERE ARE SPECIFIC PROVISIONS OF SECTION 35(1)(I) AND 36(1)(IV) FOR GRANTING SUCH DEDUCTION. 2. THE CIT(A) ERRED ON FACTS AND IN LAW IN GRANTING DEDUCTION TO R & D EXPENSES U/S. 37 THOUGH THE SAME ARE NOT INCURRED FOR RUNNING THE EXISTING BUSINESS. 3. THE CIT(A) ERRED ON FACTS AND IN LAW IN GRANTING DEDUCTION TO EXPENSES WHICH ARE NOT RECOGNISED BY THE COMPETENT AUTHORITY AS R & D EXPENSES. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT IN DISPUTE HAS BEEN INCURRED BY THE ASSE SSEE AS PART OF REVENUE EXPENSES. AS CORRECTLY HELD BY T HE CIT(A), THERE NO EVIDENCE OR FINDING THAT THE SAID EXPENDITURE IS NOT INCURRED. THE LEARNED COUNSEL SUBMITTED THAT IN THESE CIRCUMSTANCES THERE IS NO M ERIT IN THE GROUNDS OF APPEAL TAKEN BY THE DEPARTMENT. IN THIS CONNECTION THE COUNSEL RELIED ON THE DECISION OF TH IS TRIBUNAL 'A N BENCH, HYDERABAD DATED 28-05-2014 IN THE CASE OF NAGARJUNA AGRICHEM LTD., IN ITA NOS. 998, 1033,1250 AND 1251/ HYD/ 2010 AND ITA NO. 1376/HYD/ 2011 WHEREIN THE TRIBUNAL UPHELD THE CLAIM OF THE ASSESS EE FOR ALLOWANCE OF 100% DEDUCTION U/S. 37 OF THE ACT IN R ESPECT OF THE AMOUNT WHICH REMAINED TO BE APPROVED BY DSIR . ITA NO. 108/HYD/2014 M/S. INDIAN IMMUNOLOGICALS LTD. ======================== 4 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD AND FIND THAT THE CO-ORDINATE BE NCH HAS ADJUDICATED ON SIMILAR ISSUE IN THE CASE OF DCIT VS . NAGARJUNA AGRICHEM LTD. IN ITA NOS. 998, 1033, 1250 , 1251/HYD/2010 AND 1376/HYD/2011 ORDER DATED 28.5.20 14 WHEREIN THIS TRIBUNAL HELD AS FOLLOWS: '6. WITH REFERENCE TO WEIGHTED DEDUCTION, IT WAS SUBMITTED THAT ASSESSEE HAVING APPLIED TO THE CONCERNED AUTHORITY FOR ISSUANCE OF CERTIFICATES, SO FAR THEY HAVE NOT BEEN ISSUED WITH NECESSARY APPROVALS. IT WAS THE SUBMISSION OF THE LD. COUNSEL THAT FOR THE TIME BEING ASSESSEE IS RESTRICTING THE CLAIM TO 100% OF THE ACTUAL EXPENDITURE SPENT ON THE SCIENTIFIC RESEARCH AND THOSE AMOUNTS AT 100% SHOULD BE ALLOWED. AS AND WHEN NECESSARY 3CM/3CL CERTIFICATES ARE RECEIVED, ASSESSEE WOULD MAKE FURTHER CLAIM OF WEIGHTED DEDUCTION AS APPLICABLE. HE ALSO REFERRED TO THE ORDERS OF THE ITAT IN A.YS. 2002-03 AND 2003-04 WHEREIN AFTER OBTAINING NECESSARY CERTIFICATES FROM THE CONCERNED AUTHORITY THE MATTER WAS RESTORED TO THE FILE OF A.O. FOR VERIFICATION AND ALLOWANCE OF THE AMOUNTS. 7. LEARNED DR HOWEVER, REFERRED TO THE ORDERS OF THE A.O. AND SUBMITTED THAT UNLESS ASSESSEE FURNISHES NECESSARY CERTIFICATES, NO AMOUNT CAN BE ALLOWED AND SPECIFICALLY REFERRED TO SUB-SECTION (2) WHEREIN IT WAS SPECIFICALLY MENTIONED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE MENTIONED IN CLAUSE (1) UNDER ANY OTHER PROVISIONS OF THIS ACT. 8. IN REPLY, LD. COUNSEL SUBMITTED THAT IF THE AMOUNT IS NOT ALLOWED UNDER SECTION 35(2AB), THEN, ASSESSEE IS ENTITLED TO CLAIM THE ALLOWANCE UNDER SECTION 37(1) AS THE AMOUNT IS SPENT FOR THE PURPOSE OF BUSINESS AND REFERRED TO THE PROVISIONS OF SECTIONS 37 AND 35(2AB). IT WAS HIS SUBMISSION THAT ASSESSEE IS ENTITLED FOR THE 100% OF THE AMOUNT SPENT IF NOT AT 150%. HE REFERRED TO THE ORDERS OF THE COORDINATE BENCH IN ASSESSEES OWN CASE AS WELL AS THE COORDINATE BENCH DECISION IN THE CASE OF ELECTRONICS CORPORATION OF INDIA LTD., (ECIL), HYDERABAD VS. ACIT IN ITA. NO. 1106/ HYD/2011 DATED 25.09.2012. ITA NO. 108/HYD/2014 M/S. INDIAN IMMUNOLOGICALS LTD. ======================== 5 9. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE PROVISIONS OF THE ACT AS WELL AS FACTS ON RECORD. IN A.Y. 2002-03 THERE IS NO DISALLOWANCE UNDER SECTION 35(2AB) AS THE ASSESSEE HAD RELEVANT APPROVAL AT THAT POINT OF TIME. IN A.Y. 2004-05 SINCE THE RENEWAL OF R & D HAS NOT COME IN TIME, THE A.O. DISALLOWED THE CLAIM AND HAS NOT ALLOWED EVEN 100% OF THE AMOUNT WHICH OTHERWISE IS ELIGIBLE UNDER THE PROVISIONS. THE ITAT AFTER CONSIDERING THE RIVAL CONTENTIONS IN ASSESSEES OWN CASE IN ITA. NO. 272 & 285/HYD/2011 BY ORDER DATED 13.11.2013 HAS DIRECTED THE A.O. TO EXAMINE AND ALLOW THE WEIGHTED DEDUCTION AS UNDER : '23. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES. IT IS OBSERVED THAT THE STATUTORY FORMALITIES FOR GETTING APPROVAL U/S 35(2AB) ARE THAT APPLICATION IN FORM NO. 3CK AND 3CL ARE TO BE SUBMITTED AND AN ORDER OF APPROVAL HAS TO BE OBTAINED IN FORM NO. 3CM FROM THE PRESCRIBED AUTHORITY. WE FIND THAT THE ASSESSEE HAS NOT FURNISHED FORM NO. 3CM EITHER BEFORE THE REVENUE AUTHORITIES OR BEFORE US FOR CLAIMING WEIGHTED DEDUCTION U/S 35(2AB). THE AO HAS ALLOWED THIS CLAIM EARLIER WITHOUT EXAMINING THE ALLOWABILITY IN THE ABSENCE OF CERTIFICATES. CONSEQUENTLY THERE IS JUSTIFICATION FOR REOPENING OF ASSESSMENT. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO ALLOW WEIGHTED DEDUCTION U/S 35(2AB) AS AND WHEN THE ASSESSEE RECEIVES THE APPROVAL UNDER FORM NO. 3CM FROM THE PRESCRIBED AUTHORITY. GROUND NO. 4 IS ALLOWED FOR STATISTICAL PURPOSES.' 10. IN THIS ORDER, OBVIOUSLY THE RELEVANT FORM 3CK AND 3CL ARE EVEN THOUGH SUBMITTED, THE APPROVAL IN FORM 3CM HAS NOT YET BEEN RECEIVED BY THE ASSESSEE. IN THE CASE OF ECIL VS. ACIT ITA. NO. 1106/HYD/2011 DATED 25.09.2012 SIMILAR ISSUE WAS CONSIDERED BY THE COORDINATE BENCH AS UNDER : 17. AS PER THE PROVISIONS OF SEC 35(2AB) OF ACT AS APPLICABLE TO THE RELEVANT ASSESSMENT YEAR , THE EXPENDITURE INCURRED BY THE ASSESSEE IN ANY APPROVED IN-HOUSE RESEARCH FACILITY, TO THE EXTENT OF APPROVED BY THE PRESCRIBED AUTHORITY, IS ENTITLE D ITA NO. 108/HYD/2014 M/S. INDIAN IMMUNOLOGICALS LTD. ======================== 6 TO WEIGHTED DEDUCTION OF 150% OF SUCH APPROVED EXPENDITURE. THEREFORE, THE EXPENDITURE AS APPROVED BY THE DSIR IN THE CERTIFICATE GIVEN BY THEM IN FORM 3CL ALONE IS TO BE GRANTED WEIGHTED DEDUCTION. THE DSIR IN THEIR CERTIFICATE HAS CERTIFIED EXPENDITURE ELIGIBLE FOR WEIGHTED DEDUCTION AS RS. 3,126.02 LAKHS. THEREFORE, IT IS NOT FOR EITHER THE ASSESSING AUTHORITY OR THE APPELLATE AUTHORITY TO DECIDE ON THE EXPENDITURE WHICH WILL BE ENTITLED TO WEIGHTED DEDUCTION U/S.35(2AB). IN FACT, U/S. 35(2AB)(3) IF ANY QUESTI ON ARISES U/S.35 AS TO WHETHER AND IF SO, WHAT EXTENT ANY ACTIVITIES CONSTITUTES OR CONSTITUTED OR ANY ASSET WAS USED FOR SCIENTIFIC RESEARCH, THE MATTER SHOULD BE REFERRED TO THE APPROPRIATE AUTHORITY WHOSE DECISION WILL BE FINAL. IN THIS CASE THE APPROPRIATE AUTHORITY IS THE DSIR. THEREFORE ONCE THE DSIR HAS CERTIFIED THE QUANTUM OF ELIGIBLE R&D EXPENDITURE FOR THE PURPOSES OF WEIGHTED DEDUCTION U/S 35(2AB) THE FIGURE CANNOT BE TAMPERED WITH BY ITAT. EVEN IF THE ASSESSEE IS RIGHT IN THAT THE THERE IS A MISTAKE IN THE CERTIFI CATE ISSUED BY THE DSIR, WHICH WE DONT KNOW, THE SAME CAN ONLY BE RECTIFIED BY DSIR AND NOT THE ITAT IN APPELLATE PROCEEDINGS. WE, THEREFORE, UPHOLD THE DECISION OF LOWER AUTHORITIES IN RESTRICTING THE WEIGHTED DEDUCTION U/S. 35(2AB) TO RS. 46,89,03 LAKHS AND DISALLOWING SUM OF RS. 1,69,73,987 OUT OF THE CLAIM MADE BY THE ASSESSEE. WE, HOWEVER, DIRECT THAT IN CASE DSIR CORRECTS THE AMOUNT OF RESEARCH AND DEVELOPMENT EXPENDITURE ON WHICH THE ASSESSEE IS ENTITLED WEIGHTED DEDUCTION FOR THE ASSESSMENT YEAR UNDER APPEAL, CORRESPONDING WEIGHTED DEDUCTION U/S.35(2AB) SHALL BE GRANTED ON RECEIPT OF THE CLARIFICATION FR OM DSIR. CONSEQUENTIALLY IF THE ASSESSEE IS ABLE TO PROVE THAT ANY AMOUNT OF EXPENDITURE IN THEIR IN- HOUSE RESEARCH AND DEVELOPMENT FACILITIES WAS OMITTED TO BE CONSIDERED BY THE DSIR FOR WEIGHTED DEDUCTION THE SAME MAY BE ALLOWED AS A DEDUCTION U/S. 35/37 OF THE ACT. WITH THIS OBSERVATION WE DISMISS THE APPEAL OF THE ASSESSEE ON THIS ISSUE. 11. THEREFORE, WE ARE OF THE OPINION THAT ASSESSEE IS ENTITLED FOR 100% OF THE ALLOWANCE AT PRESENT AND AS AND WHEN RECEIVED FORM 3CM, WEIGHTED DEDUCTION MAY BE ALLOWED. WITH THESE OBSERVATIONS/DIRECTIONS, A.O. IS DIRECTED TO ALLOW 100% OF THE AMOUNT IMMEDIATELY AND WEIGHTED DEDUCTION AS AND WHEN FORM 3CM RECEIVED. 12. ASSESSEE ALSO MADE AN ALTERNATE CONTENTION THAT THIS AMOUNT IS ALSO ELIGIBLE FOR ITA NO. 108/HYD/2014 M/S. INDIAN IMMUNOLOGICALS LTD. ======================== 7 DEDUCTION UNDER SECTION 37(1). IT WAS THE CONTENTION OF THE A.O. THAT BY VIRTUE OF SECTION 35(2A)(II) OF THE ACT, ASSESSEE WOULD NOT BE ELIGIBLE FOR DEDUCTION UNDER ANY OTHER PROVISIONS OF THE ACT. SUB-CLAUSE 2 OF SECTION 35(2AB) CAN ONLY BE INVOKED WHEN THE AMOUNT IS ALLOWED UNDER SECTION 35(2AB). IN CASE THE AMOUNT IS NOT ALLOWED UNDER SECTION 35(2AB), THEN, THE ALLOWANCE UNDER SECTION 37(1) CAN BE EXAMINED AS THERE IS NO SUCH PROHIBITION UNDER THAT PROVISION. RESTRICTION PLACED IN SECTION 35(2AB) WILL APPLY, IN OUR OPINION, ONLY IN THE CASE WHEN AMOUNT WAS ALLOWED UNDER SECTION 35 ITSELF. THESE TWO PROVISIONS ARE MUTUALLY EXCLUSIVE BUT AN ASSESSEE CAN CLAIM A PARTICULAR DEDUCTION EITHER UNDER SECTION 35 OR UNDER SECTION 37 SO LONG AS THE AMOUNT SPENT IS FOR THE PURPOSE OF BUSINESS. IN VIEW OF THIS, WE DO NOT SEE ANY MERIT IN THE ASSESSING OFFICERS CONTENTION THAT THE AMOUNT ONCE CONSIDERED UNDER SECTION 35 CANNOT BE CONSIDERED UNDER SECTION 37. BE THAT AS IT MAY, THIS ISSUE IS ACADEMIC NOW AS ASSESSEE RESEARCH FACILITY WAS APPROVED AND ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 35(2AB) AT 100% FOR THE TIME BEING AND WEIGHTED DEDUCTION AS AND WHEN FORM 3CM WAS RECEIVED FROM THE CONCERNED AUTHORITY. AO IS DIRECTED TO ALLOW ACCORDINGLY. GROUNDS IN ALL THE ASSESSMENT YEARS ON THIS ISSUE ARE CONSIDERED ALLOWED FOR STATISTICA L PURPOSES.' 7. RESPECTFULLY FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH, THE GROUNDS RAISED BY THE DEPARTMEN T IN THIS APPEAL ARE REJECTED. 8. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 24 TH DECEMBER, 2014. SD/ - (P.M. JAGTAP) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED 24 TH DECEMBER, 2014 TPRAO ITA NO. 108/HYD/2014 M/S. INDIAN IMMUNOLOGICALS LTD. ======================== 8 COPY FORWARDED TO: 1. THE DEPUTY CIT, CIRCLE - 2(1), 8 TH FLOOR, B - BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 2. M/S. INDIAN IMMUNOLOGICALS LTD., ROAD NO. 44, JUBIL EE HILLS, HYDERABAD-500 033. 3. THE CIT(A) - II I , HYDERABAD . 4. THE CIT - II , HYDERABAD . 5. THE DR 'A' BENCH, ITAT, HYDERABAD