Vi Micro Systems P Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1172/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6311 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 11-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHISH TRIPATHI JT
• Assessee Lawyers: GOPALSAMY CHOKKAPPA
• Keywords: Onus to prove; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C, CHENNAI , ! . '# , $ %& ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ITA NO.1172/MDS/2017 $ ( )( / ASSESSMENT YEAR : 2012-13 VI MICRO SYSTEMS PVT. LTD., 75, ELECTRONICS ESTATE, PERUNGUDI, CHENNAI 600 096. [PAN: AAACV 0909J] VS. ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-3, CHENNAI. ( /APPELLANT ) ( / RESPONDENT ) ./ITA NO.1173/MDS/2017 $ ( )( / ASSESSMENT YEAR : 2013-14 VI MICRO SYSTEMS PVT. LTD., 75, ELECTRONICS ESTATE, PERUNGUDI, CHENNAI 600 096. [PAN: AAACV 0909J] VS. INCOME TAX OFFICER, COMPANY WARD-3(2), CHENNAI. ( /APPELLANT ) ( / RESPONDENT ) *+ - . / APPELLANT BY : SHRI GOPALSAMY CHOKKAPPA, C.A /0*+ - . / RESPONDENT BY : SHRI ASHISH TRIPATHI, JT. CIT - 1 / DATE OF HEARING : 26.07.2017 2) - 1 / DATE OF PRONOUNCEMENT : 29.08.2017 /ORDER PER SANJAY ARORA, AM : THIS IS A SET OF TWO APPEALS BY THE ASSESSEE ARISI NG OUT OF THE COMMON ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1 1, CHENNAI (CIT(A) FOR 2 ITA NO.1172 & 1173/ MDS/2017 (AYS 2012-13 & 2013-14 ) VI MICRO SYSTEMS PVT. LTD. V. ASST. CIT/ITO SHORT) DATED 28.02.2017, DISPOSING THE ASSESSEES A PPEALS CONTESTING ITS ASSESSMENTS FOR TWO CONSECUTIVE YEARS, I.E., ASSESS MENT YEARS (AYS) 2012-13 AND 2013-14, U/S. 143(3) OF THE INCOME TAX ACT, 196 1 (THE ACT HEREINAFTER) DATED 10.03.2015 & 10.02.2016 RESPECTIVELY. THE COMMON ISSUE ARISING IN THESE APPEALS IS THE A DMISSIBILITY OF THE ASSESSEES CLAIM U/S. 35(1) OF THE ACT IN RESPECT O F THE EXPENDITURE CLAIMED U/S. 35(2AB), TO THE EXTENT DISALLOWED THERE-UNDER. THE OTHER ISSUE RAISED IS IF THE DEDUCTION ALLOWED U/S. 35(2AB) IS IN ACCORDANCE WIT H THE SAID PROVISION, SO THAT THE DISALLOWANCE EFFECTED THEREUNDER IS IN TERMS TH EREOF. THIS BECOMES ALSO RELEVANT AS IT IS ONLY THE AMOUNT LIABLE TO BE DISA LLOWED THERE-UNDER WHICH COULD BE EXAMINED FOR ALLOWANCE U/S. 35(1). AN INCIDENTAL ASPECT WOULD BE IF THERE IS ANY CONTRAVENTION OF CLAUSE (2) OF S. 35(2AB), THE RELEVANT PART OF WHICH READS AS UNDER: EXPENDITURE ON SCIENTIFIC RESEARCH. 35. (1) IN RESPECT OF EXPENDITURE ON SCIENTIFIC RESEAR CH, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED (I) THE EXPENDITURE (NOT BEING IN THE NATURE OF CAP ITAL EXPENDITURE) LAID OUT OR EXPENDED ON SCIENTIFIC RESEARCH RELATED TO THE B USINESS. (2) TO (2AA) .. (2AB)( 1 ) WHERE A COMPANY ENGAGED IN THE BUSINESS OF BIO-TE CHNOLOGY OR IN ANY BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY AR TICLE OR THING, NOT BEING AN ARTICLE OR THING SPECIFIED IN THE LIST OF THE EL EVENTH SCHEDULE INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPEN DITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY, THEN, THER E SHALL BE ALLOWED A DEDUCTION OF A SUM EQUAL TO TWO TIMES OF THE EXPEND ITURE SO INCURRED. ( 2 ) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPEN DITURE MENTIONED IN CLAUSE ( 1 ) UNDER ANY OTHER PROVISION OF THE ACT. ( 3 ) .. ( 4 ) THE PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPORT IN RELATION TO THE APPROVAL OF THE SAID FACILITY TO THE DIRECTOR GENER AL IN SUCH FORM AND WITHIN SUCH TIME AS MAY BE PRESCRIBED. THE ASSESSEE IS A MANUFACTURER OF MICRO PROCESSER B ASED SYSTEMS, AND IS APPROVED BY THE SECRETARY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH 3 ITA NO.1172 & 1173/ MDS/2017 (AYS 2012-13 & 2013-14 ) VI MICRO SYSTEMS PVT. LTD. V. ASST. CIT/ITO (DSIR), THE PRESCRIBED AUTHORITY U/S. 35(2AB) OF THE ACT. FOR THE TWO YEARS UNDER REFERENCE, ITS APPLICATION THERETO (DSIR) IN RESPECT OF EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT (R&D) FACILITY WAS APPROVED BY IT FOR MOST PART. ITS CLAIM FOR A WEIGHTED DEDUCTION U/S. 35(2AB) WAS RESTRICTED ACCORDINGLY. ITS ALTERNATE CLAIM FOR BEING ALLOWED THE BALANCE, UNAPPROVED COST, U/S. 35(1), MADE FOR AY 2013-14, WAS DENIED BY THE ASSESSING OFFICER (AO) ON THE GROUND THAT NO EVIDENCE HAD BEEN PRODUCED TO SH OW THAT THE AMOUNT NOT CERTIFIED BY THE PRESCRIBED AUTHORITY WAS INDEED SP ENT ON RESEARCH. THE LD. CIT(A), BEFORE WHOM THE MATTER WAS CARRIED IN APPEA L, CONFIRMED THE DISALLOWANCE ON THE SAME BASIS, SO THAT THE ASSESSE E IS IN FURTHER APPEAL. SURELY, IT IS ONLY THE EXPENDITURE ON SCIENTIFIC R ESEARCH, QUALIFYING U/S. 35(1), AS FOR EXAMPLE WHERE RELATED TO THE ASSESSEE S BUSINESS, AS SPECIFIED IN S. 35(1)(I), THAT COULD BE ALLOWED THERE-UNDER. ALSO, THE BURDEN TO PROVE ITS RETURN, AND THE CLAIMS PREFERRED THEREBY, IS ONLY ON THE AS SESSEE (REFER: CIT V. CALCUTTA AGENCY LTD . [1951] 19 ITR 191 (SC); CIT V. R. VENAKATASWAMY NAIDU [1956] 29 ITR 529 (SC)), AND WHICH THE ASSESSEE HAS CLEARL Y NOT DISCHARGED. THERE IS, AS SUCH, APPARENTLY NOTHING INCORRECT IN THE REVENU ES STAND. AT THE SAME TIME, HOWEVER, WHEN THE ASSESSEES AUDITED ACCOUNTS REFLE CT THE IMPUGNED EXPENDITURE AS ON A R&D FACILITY, WHICH HAS BEEN FU RTHER CLAIMED U/S. 35(2AB), FURNISHING THE RELEVANT DETAILS TO THE PRESCRIBED A UTHORITY, IT IS OSTENSIBLY ONLY ON RESEARCH AND, FURTHER, RELATED TO THE ASSESSEES BU SINESS. THE AO OUGHT TO HAVE CALLED FOR THE REQUISITE DETAILS AND UNDERTAKEN THE NECESSARY VERIFICATION AT HIS END. RATHER, HE HAS NOT EXAMINED THE DETAILS SUBMIT TED TO DSIR. LIKEWISE, THE FIRST APPELLATE AUTHORITY, WHOSE POWERS ARE CO-TERM INUS WITH THAT OF THE AO. IN OUR CLEAR VIEW, IT IS A CASE TO WHICH THE DECISION IN PRABHAVATI V. CIT [1998] 231 ITR 1 (BOM) APPLIES. THE ASSESSEES CLAIM U/S. 37(1) QUA THE SAME EXPENDITURE, AS AN ALTERNATE TO S. 35(1), GETS OUST ED AT THE THRESHOLD IN VIEW OF THE PURVIEW OF SAID PROVISION, EXCLUDING EXPENDITUR E OF THE NATURE DESCRIBED IN 4 ITA NO.1172 & 1173/ MDS/2017 (AYS 2012-13 & 2013-14 ) VI MICRO SYSTEMS PVT. LTD. V. ASST. CIT/ITO SS. 30 TO 36, WHILE THE EXPENDITURE IS ADMITTEDLY O F THE NATURE COVERED U/S.35, IF NOT ALSO CAPITAL. CONTINUING FURTHER, TO SAY THAT THE DEDUCTION U/S. 35(2AB) BE ALLOWED ON THE TOTAL SUM STATED TO BE EXPENDED ON IN-HOUSE RES EARCH AND DEVELOPMENT (R&D) FACILITY, I.E., IRRESPECTIVE OF THAT CERTIFIE D BY THE PRESCRIBED AUTHORITY, AS THE ASSESSEE DOES BEFORE THE FIRST APPELLATE AUTHOR ITY, ALSO RAISING A GROUND BEFORE US, WOULD RENDER THE SAID APPROVAL AS OF NO MOMENT INASMUCH AS IT WOULD IMPLY THAT THE EXPENDITURE NOT APPROVED BY SAID AUT HORITY IS ALSO ELIGIBLE FOR DEDUCTION U/S. 35(2AB). AND WHICH CANNOT BE, REMOVE AS IT DOES THE VERY BAS IS OF THE PROVISION . THE WORDS AS APPROVED OCCURRING IN S. 35(2AB)( 1 ) ARE SIGNIFICANT IN THIS REGARD. THE SAME ARE WITH REFER ENCE TO THE EXPENDITURE, AND NOT THE FACILITY ON WHICH THE SAME IS STATED TO BE INCURRED. THE OPENING WORDS OF RULE 6(7A) (OF THE INCOME TAX RULES, 1962), WHICH R EGULATES THE PROCEDURAL ASPECTS OF THE DEDUCTION, INCLUDING ITS CLAIM AND A LLOWANCE, I.E., APPROVAL OF THE EXPENDITURE INCURRED .. AGAIN MAKE IT ABUNDANTLY CLEAR THAT THE APPROV AL IS OF THE EXPENDITURE. THE SAID RULE PROVIDES THE COND ITIONS SUBJECT TO WHICH THE SAID APPROVAL IS TO BE ALLOWED. R. 6(7A)(B) SPEAKS OF THE APPROVAL OF THE R&D FACILITY, PRESCRIBING THE FORM; THE AUTHORITY TO WH ICH IT IS TO BE SUBMITTED; THE TIME LIMIT THERE-FOR. CLEARLY, THEREFORE, THE IN-HO USE R&D FACILITY IS ALSO TO BE APPROVED BY DSIR. THE SAME HAS ITS BASIS IN S. 35(2 AB)( 4 ). THE INSERTION OF SUB-CLAUSES (I) AND (II) IN R. 6(7A)(B) BY IT (TENT H AMDT.) RULES, 2016 W.E.F. 1/7/2016, PROVIDING (PER SUB-CLAUSE (II)) FOR QUANT IFYING THE EXPENDITURE BY THE PRESCRIBED AUTHORITY AND RESTRICTING THE DEDUCTION U/S. 35(2AB) WITH REFERENCE THERETO, IS CLEARLY CLARIFICATORY IN NATURE, AND DO ES NOT IN ANY MANNER MATERIALLY IMPACT THE PROVISION, I.E., IN SUBSTANCE. THE ASSES SEES LEGAL ARGUMENT IS WITHOUT BASIS ON FACTS AND IN LAW, AND WE FULLY ENDORSE THE LD. CIT(A) IN THE MATTER. WE, ACCORDINGLY, ONLY CONSIDER IT PROPER THAT THE M ATTER IS RESTORED FOR ADJUDICATION ON MERITS, I.E., AS TO VALIDITY OF THE ASSESSEES CLAIM U/S. 35(1), TO 5 ITA NO.1172 & 1173/ MDS/2017 (AYS 2012-13 & 2013-14 ) VI MICRO SYSTEMS PVT. LTD. V. ASST. CIT/ITO THE FILE OF THE AO, MAKING IT CLEAR THAT THE ONUS T O SUBSTANTIATE ITS CLAIM/S IS ONLY ON THE ASSESSEE. FURTHER, THE COPY OF FORM 3CL, I.E ., THE FORM IN WHICH THE REPORT IS SUBMITTED BY DSIR TO THE DIRECTOR GENERAL OF INCOME TAX (EXEMPTIONS) U/S. 35(2AB)( 4 ) OF THE ACT (PB PGS.2-3) AS WELL AS THE AUDITED ACCOUNTS (AS AT PB PGS. 18-19/AY 2013-14), BEAR THE BREAKUP OF THE SAID EXPENDITURE. THE SAME IS CLASSIFIED UNDER THE HEADS CAPITAL EXPENDITURE AND RECURRING EXPENDITURE. THE OTHER GROUPING OF THE SAID EXPENDITURE IS THAT DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THAT CAR RIED OVER IN THE BALANCE SHEET. SURELY, THESE ARE RELEVANT ASPECTS OF THE CLAIM, BO TH U/S. 35(2AB) AND U/S. 35(1), WHICH NEED TO BE EXAMINED IN THE MATTER. WE INCLUDE S. 35(2AB) AS WELL, AS, WITHOUT DOUBT, THERE IS NO QUESTION, THEREFORE, OF THE CAPITAL COST ALLOWED U/S. 35(2A) BEING CLAIMED UNDER ANY OTHER PROVISION OF T HE ACT, INCLUDING U/S. 32, A CAPITAL ALLOWANCE IN RESPECT OF CAPITAL EXPENDITURE . THE AO SHALL EXAMINE THE RELEVANT ASPECTS AND DECIDE PER A SPEAKING ORDER UP ON ALLOWING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE DECIDE ACCORDINGLY. IN THE RESULT, THE ASSESSEE APPEALS ARE PARTLY ALL OWED. ORDER PRONOUNCED ON AUGUST 29, 2017 AT CHENNAI . SD/- SD/- ( ! . '# ) (DUVVURU RL REDDY) $ /JUDICIAL MEMBER ( ) (SANJAY ARORA) /ACCOUNTANT MEMBER /CHENNAI, 3 /DATED, AUGUST 29, 2017 EDN 4 - /$156 76)1 /COPY TO: 1. *+ /APPELLANT 2. /0*+ /RESPONDENT 3. 81 ( )/CIT(A) 4. 81 /CIT 5. 69: /$1$ /DR 6. :#( ; /GF