M/s Metahelix Life Sciences LImited , Bangalore V. Dy.Commissioner of Income Tax Circle-4(1)(2), Bangalore

ITA 1260/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5646 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 05-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR ACIT
• Keywords: Capital expenditure
• Section: 143(3); 32; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SHRI JASON P BOAZ , ACCOUNTANT MEMBER AND SHRI LALIT KUMAR, JUDICIAL MEMBER I.T . A. NO S . 1260 & 1261 /BANG/20 17 (ASSESSMENT YEAR : 2012 - 13 & 20 13 - 14 ) M/S. METAHELIX LIFE SCIENCES LIMITE D, PLOT NO.3, KIADB 4 TH PHASE, BOMMASANDRA INDL. AREA, BANGALORE - 560 099 . . APPELLANT. VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(2), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI V. SRIDHAR, ADVOCATE. R E SPONDENT BY : DR. P.V. PRADEEP KUMAR, ACIT. DATE OF H EARING : 12.12.2017. DATE OF P RONOUNCEMENT : 17 .01 .201 8 . O R D E R PER SHRI JASON P BOAZ, A .M . : TH E S E TWO APPEAL S BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDER S OF COMMISSIONER OF INCOME TAX (APPEALS) - 4 , BANGALORE DT. 28.02.2017 FOR THE ASSESSMENT YEAR S 20 12 - 13 & 2013 - 14. 2. BRIEFLY STATED, THE FACTS OF THE CASE RELEVANT FOR THE DISPOSAL OF THESE APPEALS ARE AS UNDER : - 2 IT A NO S . 1260 & 1261 /BANG/201 7 THE ASSESSEE - COMPANY IS ENGAGED IN THE RESEARCH AND DEVELOPMENT OF T ECHNOLOGIES RELATED TO CROP IMPROVEMENT AT BANGALORE, HYDERABAD AND OTHER CITIES, IN AN EFFORT TO DEVELOP HIGH QUALITY SEEDS WITH BETTER YIELDS. IN THIS CONTEXT, THE ASSESSEE INCURS R & D EXPENDITURE AND CLAIMED WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENTS WERE COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDERS DT.19.3.2015 FOR ASSESSMENT YEAR 2012 - 13 AND DT.15.2.2016 FOR ASSESSMENT YEAR 2013 - 14, WHEREIN THE ASSESSEE'S CLAIMS FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT, TO THE EXTENT OF RS.1.75,56,823 AND RS.64,96,395 RESPECTIVELY, WERE DISALLOWED BY THE ASSESSING OFFICER. ON APPEAL, THE LEARNED CIT (APPEALS) 4, BANGALORE VIDE THE IMPUGNE D ORDERS DT.28.2.2017 DISMISSED THE ASSESSEE'S APPEALS. 3.1 AGGRIEVED BY THE ORDERS OF THE CIT (APPEALS) DT.28.2.2017 FOR ASSESSMENT YEARS 2012 - 13 & 2013 - 14, THE ASSESSEE HAS PREFERRED THESE APPEALS BEFORE THE TRIBUNAL, WHEREIN IT HAS RAISED THE FOLLO WING IDENTICAL GROUNDS FOR BOTH ASSESSMENT YEARS. 3 IT A NO S . 1260 & 1261 /BANG/201 7 3.2.1 WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE IN SUPPORT OF THE GROUNDS RAISED AND THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE IN SUPPORT OF THE ORDERS OF THE A UTHORITIES BELOW. THE ISSUE FOR CONSIDERATION BEFORE US IN THIS APPEAL IS WHETHER THE ASSESSING OFFICER IS CORRECT IN RESTRICTING THE ALLOWABLE DEDUCTION UNDER SECTION 35(2AB) OF THE ACT TO THE AMOUNT MENTIONED IN THE REPORT OF THE DEPARTMENT OF SCIENTIFI C AND INDUSTRIAL RESEARCH ( DSIR ) OR SHOULD THE ASSESSING OFFICER SHOULD HAVE DECIDED THE MATTER ON HIS OWN ON THE BASIS OF EXAMINATION OF THE DETAILS OF EXPENDITURE FURNISHED BEFORE HIM BY THE ASSESSEE. 3.2.2 SECTION 35(2AB) OF THE ACT READS AS F OLLOWS : 35 (2AB)( 1 ) WHERE A COMPANY ENGAGED IN THE BUSINESS OF BIO - TECHNOLOGY OR IN ANY BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, NOT BEING AN ARTICLE OR THING SPECIFIED IN THE LIST OF THE ELEVENTH SCHEDULE INCURS ANY EXPENDITURE ON SCIENTIFIC 4 IT A NO S . 1260 & 1261 /BANG/201 7 RESEARCH (NOT BEING EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY 62 , THEN, THERE SH ALL BE ALLOWED A DEDUCTION OF A SUM EQUAL TO 63 [ TWO ] TIMES OF THE EXPENDITURE SO INCURRED. FOLLOWING PROVISO SHALL BE INSERTED TO CLAUSE ( 1 ) OF SUB - SECTION (2AB) OF SECTION 35 BY THE FINANCE ACT, 2016, W.E.F. 1 - 4 - 2018: PROVIDED THAT WHERE SUCH EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY IS INCURRED IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR BEGINNING ON OR AFTER THE 1ST DAY OF APRIL, 2021, THE DEDUCTION UNDER THIS CLAUSE SHALL BE EQUAL TO THE EXPENDITURE SO INCURRED. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, 'EXPENDITURE ON SCIENTIFIC RESEARCH', IN RELATION TO DRUGS AND PHARMACEUTIC ALS, SHALL INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL, OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CENTRAL, STATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATENT UNDER THE PATENTS ACT, 1970 (39 OF 1970). ( 2 ) NO DEDUCTION SH ALL BE ALLOWED IN RESPECT OF THE EXPENDITURE MENTIONED IN CLAUSE ( 1 ) UNDER ANY OTHER PROVISION OF THIS ACT. ( 3 ) NO COMPANY SHALL BE ENTITLED FOR DEDUCTION UNDER CLAUSE ( 1 ) UNLESS IT ENTERS INTO AN AGREEMENT WITH THE PRESCRIBED AUTHORITY FOR CO - OPERATION IN SUCH RESEARCH AND DEVELOPMENT FACILITY AND 64 [FULFILS SUCH CONDITIONS WITH REGARD TO MAINTENANCE OF ACCOUNTS AND AUDIT THEREOF AND FURNISHING OF REPORTS IN SUCH MANNER AS MAY BE PRESCRIBED]. ( 4 ) THE PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPORT IN RELATION TO THE APPROVAL OF THE SAID FACILITY TO THE 65 [PRINCIPAL CHIEF COMMISSIONER OR CHIEF COMMISSIONER OR] PRINCIPAL DIRECTOR GENERAL OR DIR ECTOR GENERAL IN SUCH FORM AND WITHIN SUCH TIME AS MAY BE PRESCRIBED. 66 [ ( 5 ) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE REFERRED TO IN CLAUSE ( 1 ) WHICH IS INCURRED AFTER THE 31ST DAY OF MARCH, 2017 . ] ( 6 ) NO DEDUCTION SHALL BE ALLOWED TO A COMPANY APPROVED UNDER SUB - CLAUSE ( C ) OF CLAUSE ( IIA ) OF SUB - SECTION (1) IN RESPECT OF THE EXPENDITURE REFERRED TO IN CLAUSE ( 1 ) WHICH IS INCURRED AFTER THE 31ST DAY OF MARCH, 2008. 3.3.3 I N THE COURSE OF SUBMISSIONS, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE PROVISIONS OF SECTION 35(2B) OF THE ACT WHICH READS AS UNDER : 35 (2B)( A ) WHERE, BEFORE THE 1ST DAY OF MARCH, 1984, AN ASSESSEE HAS INCURRED ANY EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE INCURRED ON THE ACQUISITION OF ANY LAND OR BUILDING OR CONSTRUCTION OF ANY BUILDING) ON SCIENTIFIC RESEARCH 5 IT A NO S . 1260 & 1261 /BANG/201 7 UNDERTAKEN UNDER A PROGRAMME APPROVED IN THIS BEHALF BY THE PRESCRIBED AUTH ORITY HAVING REGARD TO THE SOCIAL, ECONOMIC AND INDUSTRIAL NEEDS OF INDIA, HE SHALL, SUBJECT TO THE PROVISIONS OF THIS SUB - SECTION, BE ALLOWED A DEDUCTION OF A SUM EQUAL TO ONE AND ONE - FOURTH TIMES THE AMOUNT OF THE EXPENDITURE CERTIFIED BY THE PRESCRIBED AUTHORITY TO HAVE BEEN SO INCURRED DURING THE PREVIOUS YEAR. ( B ) WHERE A DEDUCTION HAS BEEN ALLOWED UNDER CLAUSE ( A ) FOR ANY PREVIOUS YEAR IN RESPECT OF ANY EXPENDITURE, NO DEDUCTION IN RESPECT OF SUCH EXPENDITURE SHALL BE ALLOWED UNDER CLAUSE ( I ) OF SUB - S ECTION (1) OR CLAUSE ( IA ) OF SUB - SECTION (2) FOR THE SAME OR ANY OTHER PREVIOUS YEAR. ( C ) WHERE A DEDUCTION IS ALLOWED FOR ANY PREVIOUS YEAR UNDER THIS SUB - SECTION IN RESPECT OF EXPENDITURE REPRESENTED WHOLLY OR PARTLY BY AN ASSET, NO DEDUCTION SHALL BE AL LOWED IN RESPECT OF THAT ASSET UNDER CLAUSE ( II ) OF SUB - SECTION (1) OF SECTION 32 FOR THE SAME OR ANY SUBSEQUENT PREVIOUS YEAR. ( D ) ANY DEDUCTION MADE UNDER THIS SUB - SECTION IN RESPECT OF ANY EXPENDITURE ON SCIENTIFIC RESEARCH IN EXCESS OF THE EXPENDITURE ACTUALLY INCURRED SHALL BE DEEMED TO HAVE BEEN WRONGLY MADE FOR THE PURPOSES OF THIS ACT IF THE ASSESSEE FAILS TO FURNISH WITHIN ONE YEAR OF THE PERIOD ALLOWED BY THE PRESCRIBED AUTHORITY FOR COMPLETION OF THE PROGRAMME, A CERTIFICATE OF ITS COMPLETION OBT AINED FROM THAT AUTHORITY, AND THE PROVISIONS OF SUB - SECTION (5B) OF SECTION 155 SHALL APPLY ACCORDINGLY. 3.3.4 ACCORDING TO THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE, A COMPARISON ON PLAIN READING OF THE TWO SUB - SECTIONS OF SECTION 3 5 OF THE ACT I.E. (2AB) AND (2B) CLEARLY SHOWS THAT THERE IS NO MENTION IN SECTION 35(2AB), AS THERE IS IN SEC. 35(2B) , THAT THE DEDUCTION TO BE ALLOWED THEREUNDER IS TO BE RESTRICTED TO THE AMOUNT PRESCRIBED BY THE PRESCRIBED AUTHORITY FOR EXEMPTION. TH EREFORE, IT IS CONTENDED THAT, FOR ALLOWING THE ASSESSEE EXEMPTION UNDER SECTION 35(2AB) OF THE ACT, THE ASSESSING OFFICER CANNOT DEPEND OR FOLLOW BLINDLY THE AMOUNT MENTIONED BY THE PRESCRIBED AUTHORITY WHICH IS ONLY IN RESPECT OF APPROVED FACILITIES; BUT HAS TO APPLY HIS MIND AND COME TO A CONCLUSION ON THE QUESTION OF EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH; BOTH INSIDE APPROVED FACILITIES AND ALSO OUTSIDE SUCH APPROVED FACILITIES ON THE BASIS OF EXAMINATION AND VERIFICATION OF THE DETAILS FILED BY T HE ASSESSEE 6 IT A NO S . 1260 & 1261 /BANG/201 7 IN THIS REGARD. IN THIS CONTEXT, THE LEARNED AUTHORISED REPRESENTATIVE POINTED OUT THAT IN THE GROUNDS RAISED (SUPRA) IT HAS ALSO BEEN CLEARLY SUBMITTED AND CONTENDED THAT EXPENDITURE ON SCIENTIFIC RESEARCH HAS ALSO BEEN INCURRED BY THE ASSES SEE IN FIELD TESTING AND TRIALS OF PRODUCT S OUTSIDE THE RECOGNIZED / APPROVED FACILITIES AND REPORTS OBTAINED AND CORRECTIONS MADE; WITHOUT WHICH PROPER RESEARCH AND DEVELOPMENT CANNOT TAKE PLACE. IT IS CONTENDED THAT IN THE CIRCUMSTANCES AS MENTIONED ABOV E, IT IS CLEAR THE ASSESSING OFFICER HAS NOT EXAMINED, CONSIDERED OR TAKEN INTO ACCOUNT THE ENTIRE EXPENDITURE ACTUALLY INCURRED BY THE ASSESSEE ON SCIENTIFIC RESEARCH WHILE COMPUTING THE ALLOWABLE DEDUCTION UNDER SECTION 35(2AB). IN SUPPORT OF THE ASSESS EE'S CONTENTIONS, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. BIOCON LIMITED (2015) 375 ITR 306. 3.3.5 IN THE CONTEXT OF THE FACTS OF THE CASE ON HAN D AS DISCUSSED ABOVE (SUPRA), IT WOULD BE APPROPRIATE TO EXTRACT HEREUNDER THE OPERATIVE PORTION OF THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF BIOCON LIMITED IMPORTED IN 375 ITR 306 (SU PRA) AT PARAS 1 TO 3 THEREOF : 1 ..T HE COMMISSIONER OF INCOME TAX (APPEALS), BANGALORE AS WELL AS THE INCOME TAX APPELLATE TRIBUNAL DISAGREED WITH THE SAID CONCLUSION REACHED BY THE ASSESSING OFFICER AND HAVE HELD THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN NOT ALLOWING WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT, INASMUCH AS THE WORDS WHICH ARE NOT PROVIDED IN THE STATUTE ARE SOUGHT TO BE READ INTO, BY THE ASSESSING OFFICER. 2. WE DO NOT FIND ANY GROUND TO DISAGREE WITH THE CONCLUSION REACHED BY THE COMMISSIONER OF INCOME TAX (APP EALS) AND THE APPELLATE TRIBUNAL. WHAT SECTION 35(2AB) OF THE ACT SPEAKS OF IS (A) DEVELOPMENT OF FACILITIES; (B) INCURRING OF 7 IT A NO S . 1260 & 1261 /BANG/201 7 EXPENDITURE BY THE ASSESSEE FOR DEVELOPMENT OF SUCH FACILITIES; (C) APPROVAL OF FACILITY BY THE PRESCRIBED AUTHORITY, WHICH IS 'D SIR'; AND (D) ALLOWANCE OF WEIGHTED DEDUCTION ON THE EXPENDITURE SO INCURRED BY THE ASSESSEE. 3. ON PLAIN READING OF THE SAID PROVISION MAKES IT AMPLY CLEAR THAT THE ASSESSEE HAS TO DEVELOP FACILITY BY INCURRING EXPENDITURE FOR SCIENTIFIC RESEARCH AND HE W ILL HAVE TO FILE APPLICATION BEFORE THE PRESCRIBED AUTHORITY, WHO AFTER FOLLOWING THE PROPER PROCEDURE, WILL ALLOW THE APPLICATION OR OTHERWISE AND THE ASSESSEE WOULD BE ENTITLED FOR WEIGHTED DEDUCTION IN RESPECT OF ALL EXPENDITURE SO INCURRED. THE PROVISI ON NOWHERE SUGGESTS OR IMPLIES THAT MACHINERY IS REQUIRED TO BE INSTALLED AND COMMISSIONED BEFORE THE EXPIRY OF THE RELEVANT PREVIOUS YEAR. THE PROVISION POSTULATES APPROVAL OF 'R & D' FACILITY, WHICH IMPLIES THAT A DEVELOPMENT FACILITY SHALL BE IN EXISTEN CE, WHICH IN TURN, PRESUPPOSES THAT THE ASSESSEE MUST HAVE INCURRED EXPENDITURE IN THIS BEHALF. THE APPELLATE TRIBUNAL HAS RIGHTLY CONCLUDED THAT IN CASE IF THE INTERPRETATION OF THE ASSESSING OFFICER IS ACCEPTED, IT CREATES ABSURDITY IN THE PROVISION, INA SMUCH AS THE WORDS WHICH ARE NOT PROVIDED IN THE STATUTE ARE TO BE READ INTO, WHICH IS AGAINST THE SETTLED PROPOSITION OF LAW WITH REGARD TO PLAIN AND SIMPLE MEANING OF THE PROVISION. THE PLAIN AND HOMOGENOUS READING OF THE PROVISIONS WOULD SUGGEST THAT TH E ENTIRE EXPENDITURE INCURRED IN RESPECT OF 'R & D' HAS TO BE ALLOWED FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. 3.3.6 IN OUR CONSIDERED VIEW, AFTER A CAREFUL CONSIDE R ATION OF THE FACTS OF THE CASE ON HAND AND THE LEGAL POSITION LAID D OWN BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF BIOCON LIMITED (SUPRA), WE FIND THAT THE ASSESSING OFFICER HAS READ INTO SUB - SECTION (2AB) OF SECTION 35 OF THE ACT, THE MANDATE AND REQUIREMENT OF SUB - SECTION (2B) THEREOF, WHILE COMPUTING THE ALLOWA BLE DEDUCTION UNDER SECTION 35(2AB) OF THE ACT ALLOWABLE TO THE ASSESSEE IN THE CASE ON HAND. IN DOING SO, THE ASSESSING OFFICER RESTRICTED THE DEDUCTION TO THE AMOUNT SPECIFIED BY THE PRESCRIBED AUTHORITY AS PROVIDED IN SUB - SECTION (2B) OF SECTION 35 OF THE ACT, WHICH IS NOT A MANDATED REQUIREMENT UNDER SUB - SECTION (2AB) THEREOF. IN THIS FACTUAL AND LEGAL MATRIX OF THE CASE, AS DISCUSSED ABOVE, WE FIND THAT THE ASSESSING OFFICER HAS NOT RENDERED ANY FINDING WITH REGARD TO THE EXPENSES INCURRED AND CLAIM ED BY THE ASSESSEE FOR DEDUCTION UNDER SECTION 35(2A) OF THE ACT WHICH WERE NOT ALLOWED BY 8 IT A NO S . 1260 & 1261 /BANG/201 7 HIM. IN THAT VIEW OF THE MATTER, WE ARE OF THE OPINION THAT IN THE INTEREST OF EQUITY AND JUSTICE, THE FINDING OF THE AUTHORITIES BELOW ON THIS ISSUE BE SET ASIDE AND THE ISSUE OF THE ASSESSEE'S CLAIMS FOR DEDUCTION UNDER SECTION 35(2AB) OF THE ACT FOR BOTH ASSESSMENT YEARS 2012 - 13 AND 2013 - 14 BE RE MANDE D TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION AND VERIFICATION OF THE ASSESSEE'S ENTIRE CLAIM THEREUNDE R AND ADJUDICATION THEREOF IN ACCORDANCE WITH THE PROVISIONS OF SUB - SECTION (2AB) AFTER AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD IN THE MATTER. WE HOLD AND DIRECT ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEE'S APPEALS FOR ASSESS MENT YEARS 2012 - 13 AND 2013 - 14 ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 17TH DAY OF JAN., 201 8 . SD/ - ( LALIET KUMAR ) JUDICIAL MEMBER SD/ - ( JASON P BOAZ ) ACCOUNTANT MEMBER BANGALORE, DT. 17 .01.2018. *REDDY GP COPY TO : 1 APPELLANT 4 CIT(A) 2 RESPONDENT 5 DR. ITAT, BANGALORE 3 CIT 6 GUARD FILE SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL BANGALORE.