ACIT, Hyderabad V. M/s PrabhatAgri Bio Tech(P) Ltd, Hyderabad

ITA 1215/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61844 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-02-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 13-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PHANI KISHORE
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Business income; General deduction; Business expenditure; Proportionate interest
• Section: 143(3); 14A; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1214/HYD/2010 ASSESSMENT YEAR 2004-05 ITA NO.1215/HYD/2010 ASSESSMENT YEAR 2007-08 THE ACIT, CIRCLE 16(3), HYDERABAD VS M/S PRABHAT AGRO BIO TECH (P) LTD., HYDERABAD (PAN AABCP8801C) APPELLANT RESPONDENT APPELLANT BY : SHRI PHANI KISHORE RESPONDENT BY : SHRI K.A. SAI PRASAD DATE OF HEARING : 1.3.2012 DATE OF PRONOUNCEMENT : 13.4.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM . THESE TWO APPEALS PREFERRED BY THE REV ENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) V, HYDERABA D DATED 21.6.2010 AND PERTAINS TO THE ASSESSMENT YEARS 2004 -05 & 2007-08. ASSESSMENT YEAR : 2004-05: 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE B USINESS OF SEED PRODUCTION, GENERATION AND SALE OF WIND POWER. FOR THE ASSESSMENT YEAR 2004-05, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 31.10.2004, ADMITTING TOTAL INCOME OF RS.41,43,231/-. THE ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED ON 5.12.2006 DETERMINING THE TAXABLE INCOME AT RS.1,28,52,642/-. ITA NO.1214 & 1215/H/2010 M/S PRABHAT AGRO BIO TECH, HYD. 2 3. THE ASSESSING OFFICER NOTICED THAT THE ASSE SSEE HAD CLAIMED DEDUCTION OF RS.26,84,451/- TOWARDS RESEARC H AND DEVELOPMENT EXPENSES U/S 35(2AB) OF THE ACT. SINCE THE BENEFIT OF DEDUCTION U/S 35(2AB) OF THE ACT IS AVAILABLE ON LY TO THE COMPANIES INVOLVED IN THE BUSINESS OF BIO TECHNOLOG Y, THE ASSESSING OFFICER ISSUED NOTICE U/S 148 OF THE ACT. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143( 3) R.W.S. 147 OF THE ACT ON 18.9.2009 DETERMINING THE TOTAL I NCOME OF THE ASSESSEE COMPANY AT RS.77,82,061/- AFTER SETTING OF F OF LOSSES OF EARLIER YEARS OF RS.31,00,863/-. 4. THE FACTS ARE THAT THE ASSESSEE HAD CLAIME D DEDUCTION OF RS.26,84,451/- TOWARDS RESEARCH AND DEVELOPMENT EXP ENSES U/S 35(2AB) OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THIS DEDUCTION WAS AVAILABLE ONLY TO THE COMPANIES INVOL VED IN THE BUSINESS OF BIO TECHNOLOGY. MOREOVER, IN THE HOUSE RESEARCH AND DEVELOPMENT CARRIED ON BY THE COMPANY HAS TO BE APP ROVED BY THE SECRETARY, DEPARTMENT OF INDUSTRIAL AND SCIENTI FIC RESEARCH. IT WAS OBSERVED BY THE AO THAT SUCH STATUTORY REQUI REMENT HAD NOT BEEN FULFILLED BY THE ASSESSEE. ACCORDINGLY, T HE ASSESSING OFFICER MADE AN ADDITION OF RS.17,89,632/-. 5. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE VIDE ITS WRITTEN SUBMISSIONS FILED ON 31.8.2009, OB JECTED TO THE DISALLOWANCE OF BALANCE AMOUNT OF RS.17,89,632/- U /S 35(2AB) OF IT ACT, AS FOLLOWS: IN THE ABOVE CASE, THE ASSESSEE FILED ON 31.10.200 4 ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2004-05 CLAIMI NG DEDUCTION OF RESEARCH AND DEVELOPMENT EXPENSES @ 1. 5 TO U/S 35(2AB) OF THE IT ACT. THE AO IN HIS ORDER U/S 143(3) DISCUSSED THE ELIGIBILITY TO CLAIM ENHANCED DEDUCTI ON. HE ITA NO.1214 & 1215/H/2010 M/S PRABHAT AGRO BIO TECH, HYD. 3 WAS OF THE OPINION THAT FOR THE OPERATIONS OF THE A SSESSEE, THE APPROVAL BY MINISTRY OF SCIENCE AND TECHNOLOGY WAS NOT GIVEN BY THE DESIGNATED OFFICER. THE GENUINENESS O F THE EXPENSES INCURRED WAS NEVER DOUBTED. HIS INTENTION WAS ALWAYS TO DISALLOW THE ENHANCED DEDUCTION CLAIMED B Y THE ASSESSEE. THE AO NEVER OBSERVED THAT THE ASSESSEE DID NOT INCUR ANY SUCH EXPENSES. IT IS AN ADMITTED AND ACC EPTED FACT THAT THE ASSESSEE HAD INCURRED EXPENDITURE. T HE DISCUSSION IN THE ASSESSMENT ORDER AND DISALLOWANCE IS U/S 35(2AB) WHICH IS WITH REGARD TO ENHANCED DEDUCTION CLAIM. THE GENERAL DEDUCTION FOR THE ACTUAL EXPENDITURE IN CURRED IS U8/S 37. 6. THE ASSESSEE SUBMITTED BEFORE THE AO THAT I N THE PREVIOUS ASSESSMENTS COMPLETED U/S 143(3) AND IN THE SUBSEQU ENT ASSESSMENTS COMPLETED ALSO U/S 143(3) NO WHERE THE GENUINENESS OF THE EXPENSES IS DOUBTED AND THE DEDU CTION AT ONE TIME IS ALWAYS ALLOWED AFTER PROPER VERIFICATIO N OF THE DETAILS CALLED FOR AND SUBMITTED. IN THE CIRCUMSTANCES TH E PROPOSAL U/S 148 IS NOT CORRECT. 7. THE AO HELD THAT THE ASSESSEES CONTENTION IS NOT ACCEPTABLE AND AS S PER THE PROVISIONS OF SUB SECTION (2AB) OF SECTION 35 OF THE IT ACT THE COMPANY WHICH FULFILS CONDITIONS STI PULATED THEREIN WILL BE ELIGIBLE FOR A DEDUCTION OF ONE AND ONE HALF TIMES OF THE EXPENDITURE SO INCURRED AND IT AUTOMATICALLY MEANS THAT IF THE CONDITIONS ARE NOT SATISFIED, THE ASSESSEE IS N OT ELIGIBLE FOR DEDUCTION ONE AND ONE HALF TIMES OF THE EXPENDITURE AND NOT THE ENHANCED DEDUCTION AS CONTESTED BY THE ASSESSEE IN ITS LETTER. ITA NO.1214 & 1215/H/2010 M/S PRABHAT AGRO BIO TECH, HYD. 4 8. HENCE THE AO DISALLOWED THE BALANCE AMOUNT CLAIM MADE BY THE ASSESSEE U/S 35(2AB) OF THE IT ACT AMOUNTING TO RS.17,89,632/- AND ADDED BACK THE SAME. 9. DURING THE APPEAL PROCEEDINGS BEFORE THE CIT(A ), THE ASSESSEE STATED THAT IT WAS NOT CONTESTING THE FACT THAT ENHANCED DEDUCTION AS ENVISAGED U/S 35(2AB) OF THE ACT IS AL LOWABLE OR NOT. IT WAS STATED THAT IN THE STATEMENT OF INCOME , THE RESEARCH AND DEVELOPMENT EXPENDITURE HAD BEEN CLAIMED AS RS.17,89,632/-. WHILE COMPUTING THE TOTAL INCOME THIS AMOUNT WAS ADDED BACK AND 1.5 TIMES OF THIS AMOUNT I.E. RS.26,84,451/- WAS CLAIMED AS ENVISAGED U/S 35(2AB) OF THE ACT. THE ASSESSEE STATED THAT IT IS NOT DISPUTED B Y THE ASSESSING OFFICER THAT THE RESEARCH AND DEVELOPMENT EXPENSES AMOUNTING TO RS.17,89,634/- ARE GENUINE. THEREFORE, EVEN IF THE WEIGHTED DEDUCTION WAS NOT TO BE ALLOWED, AT LEAST THE BUSIN ESS EXPENDITURE SHOULD BE ALLOWED. THE ASSESSEE ALSO S TATED THAT THESE EXPENSES HAD BEEN ALLOWED WITHOUT THE WEIGHTE D DEDUCTION IN THE ASSESSMENT YEAR 2005-06 AND IN THE ORIGINAL ORDER OF THE CURRENT ASSESSMENT YEAR. 10. THE CIT(A) HAS HELD AS FOLLOWS: I HAVE CONSIDERED THE FACTS OF THE CASE AND ALL TH E ARGUMENTS. SECTION 35(2AB) OF THE ACT HAS BEEN INCORPORATED FOR THE ENCOURAGEMENT OF SPECIFIED RES EARCH. THAT IS THE REASON WHY THE SECTION ALLOWS 1.5 TIMES OF THE ACTUAL RESEARCH AND DEVELOPMENT EXPENSE AS A DEDUCT ION. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT CONTENDED THAT THE EXPENDITURE OF RS.17,89,632/- IS EITHER BOGUS OR HAS NOT BEEN EXPENDED FOR BUSINESS PURPOSE . IT IS NOT THE CASE OF ASSESSING OFFICER THAT SUCH AN EXPE NSE IS NOT ALLOWABLE AT ALL. THEREFORE, IT IS TO BE DEDUC ED THAT THE ITA NO.1214 & 1215/H/2010 M/S PRABHAT AGRO BIO TECH, HYD. 5 AFOREMENTIONED EXPENDITURE IS CORRECT AND HAS BEEN MADE FOR BUSINESS PURPOSE. THERE IS THEREFORE, NO LOGIC IN DISALLOWING THIS EXPENSE. WITH REGARD TO THE WEIGH TED DEDUCTION U/S 35(2AB) OF THE ACT, THE ASSESSEE HAS NOT CONTESTED THE ISSUE AT ALL. THEREFORE, GIVEN THE F ACTS AND CIRCUMSTANCES, THE ASSESSING OFFICER CANNOT DISALLO W THE ENTIRE CLAIM OF RS.26,84,451/-. ONLY THE WEIGHTED DEDUCTION PART IS TO BE DISALLOWED AND RS.17,89,634 /- IS TO BE ALLOWED TO THE ASSESSEE AS BUSINESS EXPENDITURE. 11. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS: 12. WE HEARD BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE ACTUAL EXPENSES INCURRED BY THE ASSESSEE ARE A LLOWABLE U/S 37. THE GENUINENESS OF THE EXPENDITURE ARE NOT BEE N DOUBTED. WE FIND THAT IN THE PREVIOUS ASSESSMENT YEARS AND S UBSEQUENT ASSESSMENT YEARS THE DEDUCTION U/S 37 HAS BEEN ALLO WED ON THE GROUND THAT THE EXPENDITURE HAS BEEN INCURRED FOR B USINESS PURPOSES. THE REVENUES CONTENTION THAT THE ASSESS EE HAS NOT PRODUCED ANY EVIDENCE OF RESEARCH AND DEVELOPMENT E XPENDITURE IS MISCONCEIVED AS THE ASSESSEE HAS NOT CONTESTED T HE ISSUE OF WEIGHTED DEDUCTION U/S 35 (2AB) AND HAS ONLY CLAIME D DEDUCTION U/S 37 OF THE IT ACT. 13. WE CONFIRM THE ORDER OF THE CIT(A) AND DISM ISS THE REVENUES APPEAL. 14. IN THE RESULT, REVENUES APPEAL IS DISMISS ED. ASSESSMENT YEAR 2007-08 ITA NO.1214 & 1215/H/2010 M/S PRABHAT AGRO BIO TECH, HYD. 6 1. BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY IS IN THE BUSINESS OF SEED PRODUCTION, GENERATION AND SAL E OF WIND POWER. FOR THE ASSESSMENT YEAR 2007-08, THE ASSESS EE COMPANY FILED ITS E-RETURN OF INCOME ON 29.10.2007 ADMITTIN G TOTAL INCOME OF RS.18,33,250/- AFTER CLAIMING INCOME FROM WIND P OWER PROJECT OF RS.41,77,145/- AS DEDUCTION U/S 80 IA(2) OF THE ACT. THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT DETE RMINING THE TOTAL INCOME OF THE ASSESSEE COMPANY AT RS.64,33,62 1/- INCLUDING SHORT TERM CAPITAL GAINS OF RS.11,07,172/ - BY MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES: A) DISALLOWANCE OF EXEMPTION U/S 10(1) OF THE ACT O F RS.41,17,645/-. B) DISALLOWANCE OF DEDUCTION OF RS.4,32,722/- TOWAR DS PROPORTIONATE INTEREST ON THE LOAN TAKEN FROM HDFC BANK. 2. THE FIRST ISSUE DEALS WITH THE DISALLOWANCE OF CLAIM U/S 10(1) OF THE ACT, WHEREBY THE ASSESSEE HAD CLAIMED RS.41,17,645/- AS AGRICULTURAL INCOME. THE AO DENI ED THIS CLAIM, STATING THAT THE ACTIVITIES OF THE ASSESSEE WITH REGARD TO SEED PRODUCTION DO NOT FALL WITHIN THE AMBIT OF AGR ICULTURAL OPERATIONS. THE AO RELIED ON THE TRIBUNAL DELHI BE NCH IN THE CASE OF PROAGRO SEEDS AND REJECTED THE ASSESSEE S CLAIM OF EXEMPTION U/S 10(1) AND BROUGHT TO TAX AN AMOUNT OF RS.41,17,645/- TREATING IT AS BUSINESS INCOME. 3. BEFORE THE CIT(A), THE ASSESSEE STATED THAT IN ITS OWN CASE , THE TRIBUNAL FOR THE ASSESSMENT YEARS 2003-04, 200 4-05 AND 2005-06 HAD DECIDED THE IDENTICAL ISSUE IN THEIR FA VOUR. ITA NO.1214 & 1215/H/2010 M/S PRABHAT AGRO BIO TECH, HYD. 7 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE ORDERS OF THE REVENUE AUTHORITIES. THE ISSUE B EFORE US IS WITH REGARD TO ELIGIBILITY OF ASSESSEE FOR EXEMPTIO N U/S S.10(1) IN RESPECT OF THE VALUE OF FOUNDATION/BASIC SEEDS PROD UCED BY THE ASSESSEE. WE FIND THAT THE DECISION OF THE TRIBUNA L IN THE CASE OF SWAGATH SEEDS (P) LTD. RELIED UPON BY THE LEARNED A R, BEFORE US, SQUARELY COVERS THIS ISSUE IN FAVOUR OF THE ASSESSE E AND AGAINST THE REVENUE. PARA-4 OF THE ORDER OF THE TRIBUNAL D ATED 16.5.2008 READS AS UNDER: 4....... ADMITTEDLY, THE ASSESSEE IS CULTIVATING BY PERFORMING AGRICULTURAL OPERATION IN ORDER TO GENERATE BASIC F OUNDATION SEEDS. THE SAID FOUNDATION SEEDS WERE DISTRIBUTED TO FARMERS FOR THE PURPOSE OF GENERATING FURTHER SEEDS. THE LEARN ED REPRESENTATIVE FOR THE ASSESSEE CLARIFIED THAT IN R ESPECT OF SEEDS WHICH ERE PURCHASED FROM OTHER FARMERS, THE ASSESSE E IS NOT CLAIMING ANY EXEMPTION U/S 10(1) OF THE IT ACT. T HE ASSESSEE IS ADMITTEDLY CLAIMING EXEMPTION U/S 10(1) IN RESPECT OF BASIC FOUNDATION SEEDS WHICH WERE GENERATED BY PERFORMING AGRICULTURAL OPERATION BY THE LAND BY THE ASSESSEE. THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001 -02 CONSIDERED THIS ISSUE AND FOUND THAT THE ASSESSEE I S ENTITLED FOR EXEMPTION U/S 10(1) WITH REGARD TO THE BASIC SEEDS WHICH WERE GENERATED OUT OF CULTIVATION MADE BY THE ASSESSEE. IN OUR OPINION, THE DECISION OF THE TRIBUNAL FOR ASSESSMEN T YEAR 2001-02 IN THE ASSESSEES OWN CASE IS EQUALLY APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN ITA NO.943/HYD/2004 D ATED 18.1.2008, WE HOLD THAT THE ASSESSEE IS ENTITLED FO R EXEMPTION U/S 10(1) ONLY IN RESPECT OF BASIC FOUNDATION SEEDS WHICH ARE GENERATED OUT OF THE CULTIVATION MADE BY THE ASSESS EE. 5. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE H OLD THAT THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 10(1) OF THE ACT AND THAT INCOME GENERATED ON CULTIVATION OF BASIC /FOUNDATI ON SEEDS HAS TO BE TREATED AS AGRICULTURAL INCOME. WE ORDER ACC ORDINGLY. ITA NO.1214 & 1215/H/2010 M/S PRABHAT AGRO BIO TECH, HYD. 8 6. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED ON THIS ISSUE. 7. THE NEXT ISSUE RELATES TO THE ADDITION FO RS .4,32,722/- ON ACCOUNT OF DISALLOWANCE OF CLAIM OF INTEREST. THE FACTS ARE THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF INTEREST OF R S.4,32,722/- FROM SHORT TERM CAPITAL GAINS OF RS.11,07,171/- AND HAVE OFFERED THE BALANCE OF RS.6,74,450/- TO TAX. THE AO STATED THAT THERE WAS NO NEXUS BETWEEN THIS INTEREST WHICH AHD BEEN P AID ON ACCOUNT TAKEN FROM HDFC BANK WITH THE SHORET TERM C APIUTAL GAIN. ACCORDINGLY THE AMOUNT WAS ADDED BACK. 8. ON FURTHER APPEAL BEFORE THE CIT(A), THE ASSESSEE STATED THAT IT HAD TAKEN LOAN FROM HDFC BANK WHICH IS ON R ECORD AND DULY ENTERED IN THE BOOKS OF ACCOUNT. THE ASSESSEE STATED THAT ALL THE DETAILS ARE ON THE ASSESSMENT FILE AND SUBM ITTED THAT THE INTEREST PAID ON THIS LOAN WAS RS.19,00,000/-. HOW EVER, OUT OF THIS AMOUNT ONLY RS.4,32,722/- WAS CLAIMED AS DEDUC TION BECAUSE IT IS RELATED PROPORTIONATELY TO THE SHORT TERM CAPITAL GAINS OF RS.11,07,171/- OUT OF THE TOTAL INCOME FRO M MUTUAL FUNDS AMOUNTING TO RS.35,92,650/-. THE ASSESSEE S TATED THAT THE BALANCE OF INTEREST OUT OF RS.19,00,000 HAD BEE N ADDED BACK U/S 14A OF THE ACT AS IT RELATED TO INCOME WHICH WA S NOT TAXABLE. 9. THE CIT(A) DELETED THE ADDITION. 10. WE HEARD BOTH THE PARTIES AND PERUSED THE B OOKS OF ACCOUNT AND DETAILS AND FROM THE FACTS OF THE CASE IT IS CLEAR THAT ONLY THE INTEREST COMPONENT RELATING TO TAXABLE INC OME HAS BEEN CLAIMED AS A DEDUCTION. FURTHER, THE AO HAS NOT GI VEN ANY REASONS AS TO WHY THE NEXUS IS NOT THERE. IT IS CL EAR THAT THE LOAN HAS BEEN TAKEN FROM THE HDFC BANK AND THE INTE REST HAS ITA NO.1214 & 1215/H/2010 M/S PRABHAT AGRO BIO TECH, HYD. 9 BEEN PAID ON THE SAME. HENCE, WE CONFIRM THE ORDER OF THE CIT(A) AND DELETE THE ADDITIONS. 11. IN THE RESULT, THE REVENUES APPEAL ON THIS I SSUE IS DISMISSED. 12. HENCE THE REVENUES APPEALS FOR BOTH THE ASS ESSMENT YEARS 2004-05 AND 2007 -08 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON: 13.4 .2012 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED THE 13 TH APRIL, 2012 COPY FORWARDED TO: 1. THE DCIT, CIRCLE 16(3), HYDERABAD 2. M/S PRABHAT AGRI BIO TECH (P) LTD., OPP. SBH, PUNJAGUTTA, HYDERABAD 3. THE CIT(A)-V, HYDERABAD 4. THE CIT, AP, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/