ACIT, Coimbatore V. Lakshmi Machine Works Ltd., Coimbatore

ITA 1349/CHNY/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9914 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 20-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 13-06-2013
• Court: TRIBUNAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Additional depreciation; Wholly owned subsidiary; Revenue expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CHE NNAI , . ! ! ! ! , ' ' ' ' #$ #$ #$ #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.1349/MDS/2013 ' ! %! / ASSESSMENT YEAR :2009-10 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(2), INCOME TAX BUILDING, RACE COURSE ROAD, COIMBATORE 641 018. VS. M/S. LAKSHMI MACHINE WORKS LTD., PERIANAICKANPALAYAM, COIMBATORE 641 020. [PAN: AAACL5244N] ( &' &' &' &' /APPELLANT ) ( ()&' ()&' ()&' ()&' / RESPONDENT ) &' * + / APPELLANT BY : SHRI PATHLAVETH PEERYA, CIT ()&' * + / RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE * , / DATE OF HEARING : 20.05.2015 -.% * , /DATE OF PRONOUNCEMENT : 09.07.2015 / / / / / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) I, COIMBAT ORE, DATED 13.03.2013 RELEVANT TO THE ASSESSMENT YEAR 2009-10. 2. THE APPEAL OF THE REVENUE IS FOUND TO HAVE BEEN FILED LATE BY SIX DAYS. THE ASSESSING OFFICER HAS FILED AFFIDAVIT FOR CONDONATION OF DELAY. BY PLEADING THE REASONS STATED IN THE AFFIDAVIT, THE L D. DR HAS REQUESTED FOR CONDONING THE DELAY AND TO ADMIT THE APPEAL FOR HEA RING. THE LD. COUNSEL FOR I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 2 THE ASSESSEE HAS NOT SERIOUSLY OBJECT TO THE SUBMIS SIONS OF THE LD. DR. ACCORDINGLY, WE CONDONE THE DELAY OF SIX DAYS IN FI LING THE APPEAL AND ADMIT THE APPEAL FOR HEARING. 3. THE FIRST GROUND RAISED IN THE APPEAL OF THE RE VENUE IS WITH REGARD TO THE ADDITION IN RESPECT OF .67,24,547/-. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A TEXTILE MACHINERY MANUFACTURER. IN THE ASSESSMENT ORDER, THE ASSESSIN G OFFICER HAS OBSERVED THAT THE ASSESSEE HAS INCURRED EXPENSES AMOUNTING T O .67,24,547/- BY WAY OF PROFESSIONAL CHARGES PAID TO PACIFIC CONSULTANTS FOR THE GREEN FIELD PROJECT EXECUTED IN CHINA AND ALSO LEGAL FEES PAID OF .51,00,000/- IN RESPECT OF COMPANY LAW MATTERS FOR THE PURPOSE OF E STABLISHING SUBSIDIARY COMPANY IN CHINA FOR THE GREEN FIELD PROJECT. THESE EXPENSES ARE INCURRED IN CONNECTION WITH THE FEASIBILITY STUDIES AND FORM ING WHOLLY OWNED SUBSIDIARY COMPANY IN CHINA. SINCE THESE EXPENSES I NCURRED ARE NOT DIRECTLY RELATED TO THE ASSESSEES BUSINESS ACTIVITIES IN IN DIA AND THEY ARE INCURRED AS CAPITAL EXPENDITURE FOR FORMING NEW SUBSIDIARY COMP ANY IN CHINA, THE ASSESSING OFFICER HAS OBSERVED THAT THIS CANNOT BE ALLOWED AS REVENUE EXPENDITURE UNDER SECTION 37 OF THE INCOME TAX ACT AND THEREFORE, THE ASSESSING OFFICER HAS DISALLOWED THE SAME. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 3 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(A). THE LD. CIT(A) HAS OBSERVED THAT THE SUBSIDIARY IN CHIN A IS MANUFACTURING ONLY RING FRAMES. THE EXPENDITURE WAS INCURRED FOR EXPAN DING THE EXISTING BUSINESS OF THE ASSESSEE IN OTHER COUNTRIES. IT IS NOT THE CASE OF THE ASSESSEE THAT HE CONSULTANT WAS APPOINTED FOR START ING A NEW LINE OF BUSINESS. THE PAYMENTS WERE MADE ON THE GROUND OF C OMMERCIAL EXPEDIENCY AND TO FACILITATE THE CARRYING ON OF THE BUSINESS FOR NECESSARY EXPANSION WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRADE. SINCE THE EXPENDITURE WAS INCURRED IN THE ORDINARY COURSE OF THE BUSINESS OF THE COMPANY AND ALSO FOR FINDING AVENUES FOR EXPORT OF THE MANUFACTURED MACHINERY OF THE ASSESSEE OUT OF INDIA, THE LD. CIT (A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE UNDER SE CTION 37(1) OF THE ACT. 6. THE REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. DR HAS SUBMITTED THAT THE EXPENDITURE I NCURRED BY THE ASSESSEE IS NOT FOR ASSESSEES BUSINESS AND IT IS F OR ESTABLISHMENT OF SUBSIDIARY. IT IS ALTOGETHER A NEW COMPANY AND IT C ONTINUES ENDURING BENEFIT TO THE ASSESSEE. THEREFORE IT IS CAPITAL EXPENDITUR E AND NOT REVENUE EXPENDITURE. THE LD. DR HAS RELIED ON THE DECISIONS IN THE CASE OF CIT V. T.S. HAJEE MOOSA & CO. 153 ITR 422 (MAD), TRIVENI ENGG. WORKS LTD. V. CIT 232 ITR 639 (DELHI) AND MCGAX-RAVINDRA LABORATORIES (IN DIA) LTD. V. CIT 210 ITR 1002 (GUJ.) I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 4 8. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE HAS SUBMITTED THAT IT IS ONLY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND IT IS ALLOWABLE UNDER SECTION 37 OF THE ACT. HE RELIED ON THE DECIS IONS IN THE CASE OF INDO RAMA SYNTHETICS INDIA LTD. V. CIT 333 ITR 18 (DELHI ), CIT V. EURO INDIA LTD. 2013-TIOL-780-HC-DEL-IT, CIT V. PRIYA VILLAGE ROADS HOWS LTD. 332 ITR 594(DELHI) & CIT V. F.C.S. INTERNATIONAL MARKETING P. LTD. 283 ITR 32 (P&H). 9. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH ORDERS OF AUTHORITIES BELOW. THE ASSESSEE I S A MANUFACTURING COMPANY I.E., M/S. LAKSHMI MACHINE WORKS LTD., COIM BATORE. THE ASSESSEE INTENDS TO EXPAND ITS BUSINESS BY SETTING UP OF NEW MANUFACTURING TEXTILE MACHINERY COMPANY IN CHINA. FOR THAT PURPOSE, THE A SSESSEE HAS CONSULTED PACIFIC CONSULT AG, ZURICH, SWITZERLAND IN CONNECTI ON WITH FEASIBILITY STATE OF THE PROSPECTS AVAILABLE FOR THE PROPOSED NEW COMPAN Y. ACCORDINGLY, THE COMPANY PACIFIC CONSULT AG CONDUCTED SURVEY AND REP ORTS WERE SUBMITTED. THE ASSESSEE HAS CLAIMED THE ABOVE EXPENDITURE INCU RRED AS REVENUE EXPENSES AND CLAIMED DEDUCTION UNDER SECTION 37 OF THE ACT. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT IT H AS INCURRED IN CONNECTION WITH THE FEASIBILITY STATUS FOR FORMING WHOLLY OWNE D SUBSIDIARY COMPANY IN CHINA AND IT IS CAPITAL EXPENDITURE TO FORM NEW SUB SIDIARY COMPANY, IT CANNOT BE ALLOWED UNDER SECTION 37 OF THE ACT. ON APPEAL, THE LD. CIT(A) HAS OBSERVED THAT THE EXPENDITURE INCURRED IN THE ORDIN ARY COURSE OF THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 5 BUSINESS OF THE COMPANY AND ALSO FOR FINDING AVENUE S FOR EXPORT OF THE MANUFACTURED MACHINERY OF THE ASSESSEE OUTSIDE OF I NDIA AND DIRECTED THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE UNDER SE CTION 37(1) OF THE ACT. WE FIND THAT THE EXPENDITURE INCURRED BY THE ASSESS EE WAS NOT FOR THE PURPOSE OF EXPORTING GOODS FROM INDIA TO CHINA. THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY TO FIND OUT THE FEASIBILITY OF PROPOSED NEW ESTABLISHMENT IN CHINA. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE IS FOR THE PURPOSE FEASIBILITY OF ESTABLISHING A NE W COMPANY I.E. GREEN FIELD PROJECT IN CHINA CANNOT BE SAID THAT IT IS FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IT IS NOT THE CASE OF THE ASSESSEE TH AT THE PROJECT CARRIED OUT BY THE ASSESSEE ULTIMATELY NOT MATERIALIZED. IT IS ONLY A CASE OF THE ASSESSEE THAT THE EXPENDITURE INCURRED IS REVENUE EXPENDITUR E. IN OUR OPINION, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS E OF ESTABLISHING A NEW MANUFACTURING UNIT IN CHINA AND THE EXPENSES INCURR ED FOR FEASIBILITY STATUS OF THE COMPANY GIVEN ENDURING BENEFIT TO THE COMPAN Y WHICH PROPOSED TO BE ESTABLISHED BY THE ASSESSEE. THEREFORE, IT HAS TO B E TREATED AS CAPITAL EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY PR OPOSED TO BE ESTABLISHED BY THE ASSESSEE AND NOT AS REVENUE EXPE NDITURE IN THE HANDS OF THE ASSESSEE. 10. SO FAR AS CASE LAW RELIED ON BY THE LD. COUNSE L FOR THE ASSESSEE IS CONCERNED IN THE CASE OF INDO RAMA SYNTHETICS INDIA LTD. V. CIT (SUPRA), IN I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 6 THIS CASE, THE TEST OF EXISTING BUSINESS WITH COMMO N ADMINISTRATION AND COMMON FUND WAS MET. SINCE THE PROJECT WAS ABANDONE D, NO NEW ASSET ALSO CAME TO BE CREATED. THE HONBLE DELHI HIGH COURT HA S HELD THAT THE EXPENDITURE IS DEDUCTIBLE. IN THE PRESENT CASE, IT IS NOT A CASE OF THE ASSESSEE THAT THE PROJECT IS ABANDONED AND THE ONLY ASPECT OF THE ASSESSEE IS THAT THE ASSESSEE WANTED TO ESTABLISH A DIFFEREN T ESTABLISHMENT IN A FOREIGN COUNTRY I.E., CHINA. THEREFORE, THE CASE LA W RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE HAS NO APPLICATION. 11. IN THE CASE OF CIT V. EURO INDIA LTD. (SUPRA), THE HONBLE DELHI HIGH COURT HAS OBSERVED THAT WHETHER THE EXPENDITURE OR PAYMENT MADE WAS FOR FACILITATING THE ASSESSEES EXISTING TRADING OPERAT IONS OR ENABLING MANAGEMENT AND FOR CONDUCT OF ASSESSEES BUSINESS M ORE EFFICIENCY OR PROFITABLY. IF THE ANSWER IS YES, THE EXPENDITURE I S REVENUE, OTHERWISE EXPENDITURE IS CAPITAL. IT IS ONLY WHEN PROJECT REP ORTS HAVE BEEN ACCEPTED AND SUCCESSFULLY IMPLEMENTED; THE ASSESSEE GOES INT O PRODUCTION A NEW PRODUCT. THIS CANNOT, THEREFORE, BE THE SOLE CRITER IA TO DECIDE WHETHER THE EXPENDITURE WAS CAPITAL OR REVENUE IN NATURE, UNLES S A NEW ASSET COMES INTO EXISTENCE. BUT, IF A NEW ASSET HAS COME INTO EXISTE NCE WHICH WAS OF ENDURING BENEFIT, THEN SUCH EXPENDITURE WOULD BE OF CAPITAL NATURE. IN THE PRESENT, IT IS NOT THE CASE OF THE ASSESSEE THAT TH E PROPOSED NEW COMPANY HAS COME INTO EXISTENCE. IT IS ONLY CASE OF THE ASS ESSEE THAT THE EXPENDITURE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 7 IS FOR THE PURPOSE OF BUSINESS AND HAS NO APPLICATI ON TO THE FACTS OF THE PRESENT CASE. 12. IN THE CASE OF CIT V. PRIYA VILLAGE ROADSHOWS LTD. (SUPRA), THE HONBLE DELHI HIGH COURT HAS OBSERVED THAT IF THERE IS NO CREATION OF A NEW ASSET, THEN THE EXPENDITURE INCURRED WOULD BE OF RE VENUE NATURE. IN THE PRESENT CASE, IT IS NOT THE CASE OF THE ASSESSEE TH AT THE ASSESSEE HAS NOT CREATED ANY NEW ASSET. THEREFORE, THE CASE LAW HAS NO APPLICATION TO THE FACTS OF THE CASE. 13. IN SO FAR AS CASE LAW RELIED ON BY THE LD. DR I S CONCERNED, IN THE CASE OF TRIVENI ENGG. WORKS LTD. V. CIT (SUPRA), THE HON BLE DELHI HIGH COURT HAS OBSERVED THAT THE EXPENDITURE WAS ATTRIBUTABLE TO C APITAL HAVING BEEN INCURRED WITH A VIEW TO BRINGING AN ASSET OR ADVANT AGE INTO EXISTENCE AND HAVING ENDURING BENEFIT. IF THE PROJECT IS NOT MATE RIALIZED, THE NATURE OF EXPENDITURE WOULD NOT CHANGE TO REVENUE. FURTHER, I N THE CASE OF MCGAX- RAVINDRA LABORATORIES (INDIA) LTD. V. CIT (SUPRA), IN THIS CASE, THE ASSESSEE COMPANY WANTED TO SET UP A MANUFACTURING UNIT IN MA LAYSIA AND IT WAS A JOINT VENTURE UNIT. THE HONBLE DELHI HIGH COURT HA S OBSERVED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE FOREIG N TRAVEL OF ITS EMPLOYEES FOR EXPLORING THE POSSIBILITY OF ESTABLISHING JOINT VENTURE UNIT IN MALAYSIA IS NOT REVENUE IN NATURE AND IT WAS HELD THAT IT IS CA PITAL. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 8 14. KEEPING IN VIEW OF THE ABOVE, WE FIND THAT THE LD. CIT(A), WITHOUT CONSIDERING THE FACTS IN PROPER PROSPECTIVE, SIMPLY ALLOWED THE GROUND RAISED BY THE ASSESSEE BY OBSERVING THAT IT IS FOR THE BUS INESS EXPEDIENCE OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO ALLO W THE EXPENDITURE UNDER SECTION 37 OF THE ACT. WE FIND THAT THE ORDER PASSE D BY THE LD. CIT(A) IS NOT CORRECT AND HE HAS NOT CONSIDERED THE FACTS IN RIGH T PROSPECTIVE. THE LD. CIT(A) PROCEEDED THAT THE ASSESSEE COMPANY AND THE SUBSIDIARY WHICH THE ASSESSEE WANTED TO ESTABLISH ARE ONE AND THE SAME. WE THEREFORE, REVERSE THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. A CCORDINGLY, THE GROUND RAISED BY THE REVENUE IS ALLOWED. 15. IN SO FAR AS CONSULTANCY CHARGES PAID TO M/S. CHATURVEDI & SHAH, CHARTERED ACCOUNTANTS IS CONCERNED, THE PROFESSIONA L CHARGES PAID WAS RELATING TO THE PROPOSED GREEN FIELD PROJECT TO BE ESTABLISHED BY THE ASSESSEE COMPANY IN CHINA, WHICH IS NOT RELATING TO THE BUSINESS AND WE FIND THAT IT IS NOT A REVENUE EXPENSES. THE LD. CIT (A) HAS OBSERVED THAT THE EXPENDITURE INCURRED IN THE COURSE OF BUSINESS. THE LD. CIT(A) IGNORING THE MATERIAL FACT THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT FOR THE PURPOSE OF ASSESSEES BUSINESS OR FOR THE PURPOSE O F NEW ESTABLISHMENT IN CHINA. WE FIND THAT IT CANNOT BE SAID THAT IT IS FO R THE PURPOSE OF ASSESSEES OWN BUSINESS AND THE EXPENDITURE INCURRED WAS RELAT ING TO THE PROPOSED NEW ESTABLISHMENT, WHICH THE ASSESSEE WANTED TO EST ABLISH IN CHINA AND I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 9 THEREFORE, IT IS CAPITAL EXPENDITURE. THUS, WE REVE RSE THE ORDER PASSED THE LD. CIT(A) ON THIS ISSUE AND THIS GROUND OF APPEAL RAIS ED BY THE REVENUE IS ALLOWED. 16. THE NEXT GROUND OF APPEAL OF THE REVENUE IS RE LATING TO R&D EXPENSES. IN THE ASSESSMENT ORDER, THE ASSESSING OF FICER HAS OBSERVED THAT THE ASSESSEE, DURING THE YEAR HAS CLAIMED DEDUCTION OF EXPENDITURE INCURRED ON INSTALLATION OF MACHINERY IN PILOT MILL AMOUNTIN G TO .4,56,43,185/-. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HA S CLAIMED DEDUCTION OF EXPENDITURE INCURRED ON INSTALLATION OF MACHINERY I N PILOT MILL. THE ASSESSEE HAS STATED THAT IT HAD ENTERED INTO AN AGREEMENT WI TH SUPER SALES INDIA LIMITED, A RELATED PARTY VIDE AGREEMENT DATED 05.05 .2008 TO LEASE OUT THE BUILDING AND THE MACHINERIES ERECTED IN THE PILOT M ILL TO THAT COMPANY. THE LEASE DEED WAS TO BE RENEWED 11 MONTHS. THE LESSEE WAS TO PURCHASE RAW MATERIAL AND MANUFACTURE YARN WITH ITS OWN FUNDS AN D EMPLOYEES. THE LESSEE SUPER SALE INDIA LTD. WAS TO GIVE FEEDBACK O N THE PERFORMANCE OF THE MACHINERIES TO THE ASSESSEE COMPANY SO THAT IT CAN BE USED BY R & D DEPARTMENT TO RECTIFY ANY SHORT-COMINGS IN THESE MA CHINERIES. SO, THE ASSESSEE HAS CLAIMED THAT THESE MACHINERIES ARE USE D IN R & D WORK AND SHOULD BE ALLOWED UNDER SECTION 35(IV) OF THE ACT. THE ASSESSING OFFICER HAS INSPECTED TO VERIFY THE ACTUAL R & D WORK CARRIED OUT AND FOUND THAT OUTING BUILDING 1/3 RD PORTION OF BEING USED FOR THE PURPOSE OF ACTUAL WO RKING OF R&D I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 10 AND ITS PERSONNEL ARE TESTING ON THE PROTOTYPE WHIC H ARE DESIGNED BY THE DIVISION. VARIOUS ADJUSTMENTS ARE BEING MADE ON THE PROTOTYPE MACHINERY BY R&D PERSONNEL. THE BALANCE 2/3 RD PORTION OF THE PILOT MILLS IS BEING RUN BY SUPER SALES INDIA LTD. AS TEXTILE MILL ON THE BASIS OF LEASE AGREEMENT DATED 05.05.2008 AND 01.04.2009. THE LEASE IS RENEWED EVE RY ELEVEN MONTHS. THE SUPER SALES INDIA LTD. USED ITS OWN RESOURCES F OR PURCHASE OF RAW MATERIALS, MANUFACTURE OF YARN AND IT HAS OWN EMPLO YEES AND YARN IS BEING MARKETED BY THEM AND INCOME ADMITTED BY THAT COMPAN Y. THE ASSESSEE COMPANY ONLY TRANSFERRED PILOT MACHINERY MANUFACTUR ED BY THEM TO THE MILL PREMISES TO BE RUN BY SUPER SALES INDIA SO THAT ON THE BASIS OF FEEDBACK RECEIVED FOR THIS MONTH, ANY ALTERATION TO THIS MAC HINERY CAN BE MADE BY THE R&D DEPARTMENT. SINCE THESE MACHINERIES ARE USED BY THE THIRD PARTY FOR ITS BUSINESS ACTIVITIES, IT CANNOT BE SAID TO HAVE BEEN USED DIRECTLY BY THE ASSESSEE FOR DOING RESEARCH AND DEVELOPMENT IN PROT OTYPES OR DEVELOPMENT NEW MACHINERY. THE ASSESSEE HAS CLAIMED DEPRECIATIO N AT 35% (INCLUDING ADDITIONAL DEPRECIATION ON THIS MACHINERY) IN THE I NCOME TAX COMPUTATION STATEMENT. THEREFORE, THE ASSESSING OFFICER DISALLO WED THE EXPENDITURE OF .4,56,43,185/- AS NOT BEING USED DIRECTLY FOR THE P URPOSE OF RESEARCH AND DEVELOPMENT FUNCTIONING. 17. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE HAS SUBMITTED AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 11 THE ASSESSING OFFICER HAS NOT DENIED THE FACT THAT THE APPELLANT HAD THE BENEFIT AND ADVANTAGE OF SCIENTIFIC RESEARC H THROUGH THE CLOSED MONITORING BY ITS OWN STAFF IN CHARGE OF RESEARCH A T THE PILOT PROJECT TO STUDY THE PERFORMANCE OF THE MACHINERY. THE FACT TH AT SSIL HAD ITS OWN EMPLOYEES/OR PURCHASE OF RAW MATERIALS AND MANUFACT URE OF YARN AND THE INCOME / LOSS FROM THE YARN PRODUCED ACCRUED TO IT, CANNOT BE A BAR FOR THE ALLOWANCE OF THE CLAIM U/S 35(IV) MADE BY T HE APPELLANT. THE ASSESSING OFFICER HAS NOT FOUND THAT THE ACTIVITY O F THE SCIENTIFIC RESEARCH DID NOT TAKE PLACE, WITH THE HELP OF THE E XPENDITURE IN QUESTION. IT WAS INDEED, A MEASURE OF COMMERCIAL EX PEDIENCY ON THE PART OF THE APPELLANT WHICH MADE IT NOT TO COMMIT I TS RESOURCES IN THE DAY TO DAY OPERATIONS OF THE SPINNING MILL, WHILE I T FACILITATED THE EXTENSION OF THE BUSINESS OF SPINNING MILL MACHINER Y BY BRINGING IMPROVEMENT TO THE MACHINERY BY STUDY OF THE WORKIN G OF THE MACHINERY AT THE PILOT PLANT. THE ASSESSING OFFICER HAS MERELY DENIED THE DEDUCTI ON U/S 35(IV) BECAUSE OF THE FACT THAT THE APPELLANT DID NOT INVE ST IN RAW MATERIALS, DID NOT EMPLOY ITS OWN EMPLOYEES IN THE PROCESS OF MANUFACTURE OF YARN AND DID NOT MARKET THE YARN AND ALSO DID NOT ADMIT INCOME FROM THE ACTIVITY OF MANUFACTURE AND SALE OF YARN. IT IS SUBMITTED THAT THEY ARE FACTORS TO BE CONSIDERED FOR PURPOSE OF SECTION 35(IV) AND ARE NOT RELEVANT. SO LONG AS THE SCIENTIFIC RESEARCH WAS FACILITATED AS A RESULT OF EXPENDITURE OF CLAIM, THE EXPENDITURE CLAIMED WOULD QUALIFY FOR DEDUCTION U/S 35(IV). THE REFERENCE TO SCIENTIFIC RESEARCH IN SEC TION 43(4) RELATED TO BUSINESS SHALL INCLUDE IN SCIENTIFIC RESEARCH WHICH MAY LEAD TO OR FACILITATE EXTENSION OF SUCH BUSINESS. IT IS ALSO S UBMITTED THAT THE MINISTRY OF SCIENCE AND TECHNOLOGY, GOVERNMENT OF I NDIA HAD RECOGNIZED THE IN-HOUSE R & D ACTIVITY OF THE APPEL LANT COMPANY BY ACCORDING PERIODICAL RENEWALS FROM TIME TO TIME. CO PIES OF THE REPORT OF THE STAFF OF R & D DEPARTMENT OF THE APPELLANT C OMPANY REGARDING THEIR OBSERVATIONS THROUGH A STUDY OF THE PERFORMAN CE OF THE TEXTILE MACHINERY UNDER MILL CONDITIONS AT THE PILOT PROJEC T ARE ENCLOSED. THEY WERE HIGHLY USEFUL IN THE EXTENSION OF THE APPELLAN T'S BUSINESS AND THIS FACT HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER . 18. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE, ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS U NDER: 5.2 I HAVE GONE THROUGH THE SUBMISSIONS MADE BY T HE APPELLANT AND ALSO THE ORDER OF THE ASSESSING OFFICER. THE PROVIS IONS OF SECTION 35(IV) ARE AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 12 (IV) IN RESPECT OF ANY EXPENDITURE OF A CAPITAL NA TURE ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE, SUCH DEDUCTION AS MAY BE ADMISSIBLE UNDER THE PROVISIONS OF SUB- SECTION (2) ..... (2) FOR THE PURPOSE OF CLAUSE (IV) OF SUB-SECTION ( 1) (I) IN A CASE WHERE SUCH CAPITAL EXPENDITURE IS INC URRED BEFORE THE 1 ST DAY OF APRIL, 1967, ONE-FIFTH OF THE CAPITAL EXPENDITURE INCURRED IN ANY PREVIOUS YEAR SHALL BE DEDUCTED FOR THAT PREVIOUS YEAR, AND THE BALANCE OF THE EXPENDITURE SHALL BE DEDUCTED IN EQUAL INSTALLMENTS FOR EACH OF THE FOUR IMMEDIATELY SUCCEEDING PREVIOUS YE ARS. (IA) IN A CASE WHERE SUCH CAPITAL EXPENDITURE IS IN CURRED AFTER THE 31 ST DAY OF MARCH, 1967, THE WHOLE OF SUCH CAPITAL EXPENDITURE INCURRED IN ANY PREVIOUS YEAR SHALL BE DEDUCTED FOR THAT PREVIOUS YEAR. PROVIDED THAT NO DEDUCTION SHALL BE ADMISSIBLE UNDE R THIS CLAUSE IN RESPECT OF ANY EXPENDITURE INCURRED ON THE ACQU ISITION OF ANY LAND, WHETHER THE LAND IS ACQUIRED AS SUCH OR AS PA RT OF ANY PROPERTY, AFTER THE 29 TH DAY OF FEBRUARY, 1984. 5.3 THE PROVISIONS OF SECTION 35(IV) CLEARLY STATE S THAT 'WHERE SUCH CAPITAL EXPENDITURE IS INCURRED AFTER 31 ST DAY OF MARCH, 1967 ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE, THE WHOLE OF SUCH CAPITAL EXPENDITURE INCURRED IN THE P REVIOUS YEAR SHALL BE DEDUCTED FOR THAT PREVIOUS YEAR'. THE APPELLANT IS A MANUFACTURER OF SPINNING MILL MACHINERY AND IS A MAJOR SUPPLIER OF THE MACHINERY TO ALL MAJOR TEXTILE MILLS IN INDIA AS WELL AS TO EXPORT M ARKETS. IN THE EARLIER YEARS, THE APPELLANT WAS PAYING TO ANOTHER SPINNING MILL M/S ADVAITH TEXTILES FOR ALLOWING THEM TO TEST THEIR MACHINERY @ RS.50 LACS PER QUARTER. THE APPELLANT HAS TO UPGRADE THE MACHINERY AFTER GETTING THE FEEDBACK FROM THE CUSTOMERS. THE LEARNED AR SUBMITT ED THAT ANY NEW PROTOTYPE DEVELOPED BY THE APPELLANT COMPANY HAS TO BE PUT TO TEST IN PRACTICAL MILL CONDITIONS FOR ACHIEVING MAXIMUM EFF ICIENCY AND ALSO FOR FURTHER DEVELOPMENT AND FINE TUNE OF THE VARIOUS AS PECTS OF THAT MACHINE. I HAD EXAMINED THE AGREEMENT ENTERED ON 5 TH MAY 2008 BETWEEN THE APPELLANT COMPANY AND SSIL. THERE WAS A LSO A SUPPLEMENTARY AGREEMENT ON THE SAME DAY WHEREBY LMW HAS PERMITTED SSIL TO OPERATE ITS PILOT MILL SITUATED AT PERIANAI CKENPALAYAM. AS SEEN FROM THIS AGREEMENT, LMW AFTER' MANUFACTURING A MAC HINE, BEFORE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 13 COMMERCIALIZATION OF THE SAME, IT REQUIRED THOROUGH TESTING AND VALIDATION IN MILL CONDITION. THE MACHINERY BEFORE RELEASE INTO MARKET WAS BEING FURTHER IMPROVED WITH MODIFICATION AFTER BEING OPERATIONAL IN MILL CONDITION AND ALSO INPUT DATA WAS USED FOR FUT URE MACHINERY DEVELOPMENT. 5.4 AS SEEN FROM THIS AGREEMENT, SSIL HAS AGREED F OR LMW'S PROPOSAL TO MAKE TRIAL RUN AND EVALUATE THE PERFORM ANCE OF TEXTILE MACHINERY IN MILL CONDITION AND TO PROVIDE EXPERT K NOWLEDGE FOR THE RUNNING AND EVALUATION OF THE PERFORMANCE OF THE MA CHINERY. THE APPELLANT AFTER MANUFACTURING OF THE MACHINE, BEFOR E COMMERCIALIZATION, HAVE NAMED THEM AS PILOT MACHINERY AND HAS GIVEN CO DE NUMBER AS SEEN FROM THE INFORMATION FILED BEFORE ME. I HAVE ALSO E XAMINED THE LIST OF R & D MACHINES CAPITALIZED DURING THE FINANCIAL YEAR 2008-09. IT INCLUDES BLOW ROOM MACHINERY, PROTOTYPE MACHINE AND PILOT MA CHINE, CARD LC 333, DIFFERENT PILOT BATCHES, DRAW FRAME MODELS, SP EED FRAME MODELS AND RING FRAME MODELS. THE MACHINERY WAS CAPITALIZED AT THE COST INCURRED BY THE APPELLANT COMPANY FOR MANUFACTURING OF THE S AME. THE DETAILS OF COST OF MANUFACTURE HAVE ALSO BEEN EXAMINED. 5.5 I HAVE ALSO EXAMINED VARIOUS OBSERVATION REPOR TS FURNISHED BY THE APPELLANT ALONG WITH THE TECHNICAL DETAILS ON T HE VALIDATION TRIAL. THERE WERE CHANGES MADE WITH REGARD TO VARIOUS MACH INES. FOR EXAMPLE, IN THE CASE OF VALIDATION OF COMBER LK 64, WHICH WAS MODIFIED IN THE TESTINGS BY IMPROVING THE LOADING AND UNLOAD ING PROCEDURE, DRAFTING UNITS AND THE REDUCTION OF THICKNESS OF CH ANGER FRAME FROM 6 MM TO 4 MM COMPARED TO LK 54 COMBER. SIMILARLY WAS THE VALIDATION TRIALS AND VALIDATION REPORTS REGARDING SPEED FRAME LF 4200A AND CARD LC 333. THERE WERE CHANGES MADE WITH REGARD TO SPEE D OF THE MACHINE, ROLLER SETTINGS AND COTTON FEED PER NICK (COMBER). AS SEEN FROM THE INFORMATION FURNISHED, THE MACHINES WERE TESTED AT DIFFERENT SHIFTS WITH DIFFERENT RAW MATERIAL TYPES TO ACHIEVE THE MAXIMUM EFFICIENCY. THE MACHINES DEVELOPED AFTER THESE TESTS WERE COMMERCIA LIZED DURING THE VARIOUS MONTHS OF THE FINANCIAL YEAR AND SUBSEQUENT LY IN THE CASE OF CARD LC 333, THE COMMERCIALIZATION WAS DONE IN JULY 2008 WHERE IN THE SUBSEQUENT YEAR 2009-10, 261 MACHINES WERE SOLD, 20 10-11 512 MACHINES WERE SOLD AND 2011-12 586 MACHINES WERE SO LD. IN THE CASE OF COMBER LK-64, THE COMMERCIALIZATION WAS DONE IN SEP TEMBER, 2008. THE QUANTITY OF MACHINES SOLD INCREASED FROM 172 (2 009-10) TO 358 (2011-12). SIMILARLY THE IMPROVEMENT IN SPEED FRAME LF-1 6608, RING FRAME LR 60AX (C DOFFER) RESULTED IN SUBSTANTIAL SA LES IN THE SUBSEQUENT YEARS. THE APPELLANT HAS FURNISHED DETAILS OF ALL T HE MACHINES WHERE IMPROVEMENTS WERE DONE AFTER THE SCIENTIFIC RESEARC H CONCLUDED IN THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 14 PILOT MILL. THE NUMBER OF SPINDLES WAS INCREASED PE R SPEED FRAME, RING FRAME ALPHA MODEL, ETC. THE TERM SCIENTIFIC RESEARC H IS DESCRIBED IN SECTION 45(4) WHERE REFERENCE TO SCIENTIFIC RESEARC H RELATED TO A BUSINESS OR CLASS OF BUSINESS INCLUDE (A) ANY SCIENTIFIC RESEARCH WHICH MAY LEAD TO OR F ACILITATE AN EXTENSION OF THAT BUSINESS OR AS THE CASE MAY BE, A LL BUSINESSES OF THAT CLASS. (B) ANY SCIENTIFIC RESEARCH OF A MEDICAL NATURE WH ICH HAS A SPECIAL RELATION TO THE WELFARE OF WORKERS EMPLOYED IN THAT BUSINESS OR, AS THE CASE MAY BE ALL BUSINESSES OF THAT CLASS. 5.6 THE COMPANY PROVIDED IN-HOUSE FACILITIES FOR CO NDUCTING OF ITS SCIENTIFIC RESEARCH BY INSTALLING ITS MACHINERY IN ITS PILOT BATCH. THE APPELLANT IS NOT WELL VERSED IN RUNNING THE SPINNIN G MILL AND ALSO IT INCLUDES PROJECTS OF RAW MATERIALS, COTTON, ETC., A LONG WITH WORK FORCE TO MANUFACTURE THE YARN. THE PRIMARY PURPOSE OF THE PI LOT MILL WAS TO EVALUATE THE MACHINES IN THE ACTUAL PRACTICAL SITUA TIONS BEFORE COMMERCIALIZATION OF THE PRODUCT. I HAD GONE THROUG H SOME OF THE REPORTS OF THE R & D DEPARTMENT REGARDING THE OBSER VATIONS AND ACTION TAKEN IN THE DEVELOPMENT OF SPEED FRAME LF 4200A. S.NO. OBSERVATION ACTION TAKEN 1. FLYER TROUGH VIBRATION AT 1350 RPM NEW HOUSING WITH RIGHT TOLERANCE UNDER MANUFACTURING. 2. FLYER RUN OUT IS MORE FLYER RUN IS CORRECT TO LESS THAN 0.5 MM BY BENDING THE CENTER STEM. THIS IS TO- BE MONITORED FURTHER. R & D TO RECOMMEND THE ALLOWABLE RUN OUT. SPINDLE SPEED TO BE INCREASED FROM 1000 RPM TO 1350 RPM AND OBSERVED. SIMILARLY IN CASE OF OTHER MACHINES ALSO, VALIDATIO N REPORTS AT DIFFERENT STAGES OF RUNNING THE MACHINE AND THE CONSOLIDATION REPORTS WERE FILED TO SHOW THAT THE DATA COLLECTED DURING THESE STAGES IS USED BY THE RESEARCH & DEVELOPMENT DEPARTMENT OF THE APPELLANT COMPANY TO MAKE SUITABLE CHANGES BEFORE RELEASING INTO THE COM MERCIAL MARKET. STAFF OF THE APPELLANT COMPANY WAS PRESENT IN THE P ILOT MILL TO STUDY THE PERFORMANCE OF THE MACHINES PLACED IN THE PILOT MIL L. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY MATERIAL TO S AY THAT THE ACTIVITY OF THE SCIENTIFIC RESEARCH DID NOT TAKE PLACE. THE ASSESSING OFFICER HAS MERELY DENIED THE DEDUCTION BECAUSE THE MACHINERY A RE USED THIRD I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 15 PARTIES FOR ITS BUSINESS ACTIVITIES AND IT CANNOT B E SAID TO HAVE BEEN USED DIRECTLY BY THE ASSESSEE FOR DOING RESEARCH AN D DEVELOPMENT IN PROTOTYPES OR DEVELOPING NEW MACHINERY. ON EXAMINAT ION OF ALL THE INFORMATION FURNISHED BY THE APPELLANT, IT IS CLEAR THAT WHEN THE MACHINERY ARE USED BY SSIL FOR MANUFACTURING YARN, THE STUDY OF THE PROBLEMS INCURRED DURING THE ACTUAL PERFORMANCE OF THE MACHINES HAS HELPED THE APPELLANT TO CHANGE VARIOUS PARAMETERS T O ACHIEVE THE BEST EFFICIENCY WHICH RESULTED IN HIGHER SALES OF THE DE VELOPED MACHINE PROTOTYPE AS REFLECTED IN THE RESULTS OF THE COMPAN Y. ON GOING THROUGH THE INFORMATION FURNISHED BY THE APPELLANT, IN MY O PINION, THE APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 35(IV) OF THE INCOME TAX ACT. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF THE APPEL LANT. THESE GROUNDS OF APPEAL ARE ALLOWED. 19. ON BEING AGGRIEVED, THE REVENUE CARRIED THE MA TTER IN APPEAL BEFORE THE TRIBUNAL. 20. THE LD. DR HAS SUBMITTED THAT THE MACHINES INST ALLED BY THE ASSESSEE IN A PILOT MILL WERE NOT USED FOR THE PURPOSE OF R & D. IT WAS USED BY SUPER SALES INDIA LIMITED. ON THE BASIS OF REPORT SUBMITT ED BY THE 3 RD PARTY, THE ASSESSEE CARRIED OUT RESEARCH WORK AND THEREFORE, D EDUCTION CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED. 21. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASS ESSEE HAS REITERATED THE SUBMISSIONS WHICH HE HAS MADE BEFORE THE LD. CIT(A) AND SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 22. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS EE HAS CLAIMED DEDUCTION OF EXPENDITURE INCURRED ON INSTALLATION O F MACHINERY IN THE PILOT MILL I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 16 AMOUNT TO .4,56,43,185/- FOR R&D PURPOSE. IN THE ASSESSMENT O RDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HA S ENTERED INTO AN AGREEMENT WITH M/S. SUPER SALES INDIA LIMITED VIDE AGREEMENT DATED 05.05.2008 AND LEASED OUT THE BUILDING AND MACHINER IES ERECTED IN THE PILOT MILL TO THAT COMPANY. AS PER THE LEASE AGREEMENT DA TED 05.05.2008 [AS STATED IN THE ASSESSMENT ORDER] LEASE DEED WAS EXEC UTED AND RENEWED EVERY ELEVEN MONTHS AND THE LESSEE WAS TO PURCHASE RAW MATERIALS, MANUFACTURE OF YARN WITH ITS OWN FUND AND EMPLOYEES . THE LESSEE M/S. SUPER SALES INDIA LIMITED WAS TO GIVE A FEED BACK O N THE PERFORMANCE OF THE MACHINERIES TO THE ASSESSEE COMPANY SO THAT IT CAN BE USED BY THE R&D DEPARTMENT TO RECTIFY ANY SHORT COMING. FROM THAT I T IS VERY CLEAR THAT THE MACHINERIES INSTALLED IN THE PILOT MILL ARE USED BY THE LESSEE M/S. SUPER SALES INDIA LIMITED AND NOT BY THE ASSESSEE DIRECTL Y. M/S. SUPER SALES INDIA LIMITED HAS TO GIVE A PERFORMANCE REPORT OF THE MAC HINERIES TO THE ASSESSEE COMPANY AND THEREBY THE R&D DEPARTMENT RECTIFY ANY SHORTCOMING BASED ON THE REPORT GIVEN BY M/S. SUPER SALES INDIA LIMITED. ULTIMATELY, M/S. SUPER SALES INDIA LIMITED HAS UTILISED THE MACHINERIES IN STALLED BY THE ASSESSEE FOR THE R&D FACILITIES AND THEREBY M/S. SUPER SALES IND IA LIMITED MANUFACTURED YARN, SOLD THE SAME AND INCOME WAS EARNED. THE MAIN PURPOSE OF M/S. SUPER SALES INDIA LIMITED IS TO EARN INCOME. IN THA T PROCESS, IF ANY SHORTCOMING IS FOUND, IT HAS TO BE REPORTED THE ASS ESSEE, THEREBY THE MACHINERIES INSTALLED BY THE ASSESSEE HAS NOT DIREC TLY USED FOR THE PURPOSE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 17 OF R&D. THE MACHINERIES USED BY THE 3 RD PARTY CANNOT BE SAID THAT THE ASSESSEE COMPANY ONLY CARRIED OUT R&D ACTIVITIES BA SED ON THE REPORT SUBMITTED BY THE 3 RD PARTY I.E. M/S. SUPER SALES INDIA LIMITED. THEREFO RE, THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED. THE LD. CI T(A), WITHOUT EXAMINING THE BASIC FACTS OF THE CASE AND BY CONSIDERING THE AGREEMENT SUBMITTED BY THE ASSESSEE, DIRECTED THE ASSESSING OFFICER TO ALL OW THE CLAIM OF THE ASSESSEE. BEFORE THE LD. CIT(A), THE ASSESSEE HAS F ILED AGREEMENT DATED 05.05.2008 BETWEEN THE ASSESSEE COMPANY AND M/S. SU PER SALES INDIA LIMITED AND SUPPLEMENTARY AGREEMENT WAS ALSO ENTERE D INTO BY BOTH PARTIES. THESE AGREEMENTS ARE NOT MADE AVAILABLE TO US TO EX AMINE THE ACTUAL TERMS AND CONDITIONS OF THE AGREEMENT ENTERED INTO BETWEE N THE ASSESSEE AND M/S. SUPER SALES INDIA LIMITED. THE ASSESSING OFFIC ER HAS NOT COMMENTED ANYTHING ABOUT THE SUPPLEMENTARY AGREEMENT. IT APPE ARS FROM THE ORDER OF THE LD. CIT(A) THAT THE ASSESSEE HAS ALSO FILED A T ECHNICAL REPORT BEFORE THE LD. CIT(A). BASED ON THAT REPORT, HE HAS MADE CERTA IN OBSERVATIONS. SUCH REPORT WAS ALSO NOT PLACED BEFORE US FOR OUR CONSID ERATION. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT ABLE TO EXPLAIN TH E R&D ACTIVITIES CARRIED OUT BY THE ASSESSEE ON THE MACHINERIES UTILIZED BY M/S. SUPER SALES INDIA LIMITED OR FURNISHED COPY OF THE AGREEMENT/SUPPLEME NTARY AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S. SUPER SA LES INDIA LIMITED TO CONSIDER THE ACTUAL TERMS AND CONDITIONS AGREED UPO N BY THEM OR ANY OTHER TECHNICAL REPORTS GENERATED BY THE R&D DEPARTMENT. THEREFORE, UNDER THESE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .1349 1349 1349 1349/M/ /M/ /M/ /M/1 11 13 33 3 18 FACTS AND CIRCUMSTANCES, WE SET ASIDE THE ORDER PAS SED BY THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO EXAM INE THE ISSUE IN DETAIL BY CONSIDERING THE TERMS AND CONDITIONS ENTERED INTO B ETWEEN THEM AND THE TECHNICAL REPORT AS STATED TO HAVE FILED BEFORE THE LD. CIT(A) AS TO WHETHER THE MACHINERIES INSTALLED BY THE ASSESSEE WAS ACTUA LLY USED FOR R&D ACTIVITIES BY THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 23. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 9 TH OF JULY, 2015 AT CHENNAI. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 09.07.2015 VM/- / * (',01 21%, /COPY TO: 1. &' / APPELLANT, 2. ()&' / RESPONDENT, 3. 3 ( ) /CIT(A), 4. 3 /CIT, 5. 14 (',' /DR & 6. 5! 6 /GF.