Nagarjuna Agrichem Ltd, Hyd, Hyderabad V. DCIT, Circle-16(1), Hyderabad

ITA 1376/HYD/2011

• Counselvise Citation: 137622514 RSA 2011
• Duration Of Justice: 2 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 26-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Reopening of assessment; Gift
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO. A.Y. APPELLANT RESPONDENT 998/HYD/2010 2005-2006 DCIT, CIRCLE 16(1), HYDERABAD. M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD. 1033/HYD/2010 2005-2006 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD. DCIT, CIRCLE 16(1), HYDERABAD. 1250/HYD/2010 2006-2007 1251/HYD/2010 2006-2007 1376/HYD/2011 2007-2008 FOR REVENUE : MS. T.H. VIJAYALAKSHMI FOR ASSESSEE : MR. C.P. RAMASWAMY DATE OF HEARING : 22.05.2014 DATE OF PRONOUNCEMENT : 28.05.2014 ORDER PER B. RAMAKOTAIAH, A.M. 1. THESE APPEALS ARE BY ASSESSEE AND REVENUE AGAINST THE RESPECTIVE ORDERS OF THE CIT(A). SINCE, COMMON ISSUES ARE INVOLVED, THESE APPEALS ARE HEARD TOGETH ER AND DECIDED BY THIS COMMON ORDER. 1.1. IN ALL THESE APPEALS, THE ISSUES ARE WITH RE FERENCE TO CLAIM OF EXPENDITURE ON SCIENTIFIC RESEARCH UNDE R SECTION 35 DISALLOWED BY THE A.O., WHEN ASSESSEE CLAIMED UNDER THE PROVISIONS WITH WEIGHTED DEDUCTION. THE CLAIMS ARE UNDER 2 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD SEC.35(1) AS WELL AS SEC.35(2AB). IN A.Y. 2006-07 T HERE IS ONE MORE ISSUE OF DISALLOWANCE OF 5% OF BUSINESS DEVELO PMENT EXPENDITURE ON ADHOC BASIS. THERE ARE TWO APPEALS B Y ASSESSEE IN AY 2006-07 AS LD CIT(A) ALLOWED ONE CLAIM IN THE ORDER AND BY WAY OF MODIFICATION DISALLOWED THE SAME WITH OUT GIVING OPPORTUNITY TO ASSESSEE. TWO APPEALS ARE THUS PREFE RRED ON DIFFERENT ORDERS OF CIT(A) ON THE CLAIMS AS IN OTHE R YEARS. 2. WE HAVE HEARD THE LD. COUNSEL AND LEARNED D.R. AND PERUSED THE PAPER BOOK. 3. DEDUCTION U/S. 35(2AB) : WITH RESPECT TO CLAIM UNDER SECTION 35(2AB) IN ALL THREE YEARS, AS SESSEE HAS CLAIMED WEIGHTED DEDUCTION AT 150% OF AMOUNTS SPENT UNDER SCIENTIFIC RESEARCH. IN A.Y. 2005-06 THE AMOUNT CLA IMED AT 100% DEBITED TO P & L ACCOUNT WAS RS.61,16,778/- WI TH A WEIGHTED DEDUCTION OF RS.30,58,384/- (TOTAL CLAIM RS.91,75,152/-). IN A.Y. 2006-07 THE AMOUNTS CLAIME D AT 100% WAS RS.67,18,994/- AND WEIGHTED DEDUCTION WAS RS.33,59,497/- (TOTAL CLAIM RS.1,00,78,491/-). LIKE WISE, IN A.Y. 2007-08 ALSO THE AMOUNT CLAIMED AT 100% WAS RS.82,86,957/- AND WEIGHTED DEDUCTION WAS AT RS.41, 43,478/- (TOTAL CLAIM RS.1,24,30,435). 4. THE A.O. DISALLOWED THE CLAIM ON THE REASON THA T ASSESSEE DID NOT FURNISH FORM 3CM AND 3CL ISSUED BY THE PRESCRIBED AUTHORITY TO EXAMINE THE FULFILLMENT OF THE CONDITIONS IN SECTION 35(2AB). IT WAS ALSO ONE OF T HE REASONS THAT DSIR HAS NOT APPROVED THE RESEARCH FACILITY AN D THEREFORE, NOT ONLY THE WEIGHTED DEDUCTION BUT ALSO THE BASIC DEDUCTION WAS DISALLOWED. THE LD. CIT(A) AFTER CONSIDERING TH E ASSESSMENT ORDER AND ORDERS OF HIS PREDECESSOR ON RECORD 3 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD CONFIRMED THE DISALLOWANCE. THEREFORE, ASSESSEE IS IN APPEAL BEFORE US. 5. LD. COUNSEL SUBMITTED THAT ASSESSEE HAS OBTAINE D APPROVAL FROM DSIR FOR RENEWAL OF RECOGNITION OF IN -HOUSE R & D UNIT BEYOND 31.03.2004 AND THIS CERTIFICATE WAS P LACED IN PAPER BOOK NO.1 APPROVING THE R & D UNIT UP TO 31.0 3.2007. THEREFORE, THE FIRST OBJECTION OF THE REVENUE CANNO T BE ACCEPTED AS THE ASSESSEE HAS OBTAINED THE RECOGNITI ON FOR ALL THE IMPUGNED ASSESSMENT YEARS. 6. WITH REFERENCE TO WEIGHTED DEDUCTION, IT WAS SUBMITTED THAT ASSESSEE HAVING APPLIED TO THE CONCE RNED AUTHORITY FOR ISSUANCE OF CERTIFICATES, SO FAR THEY HAVE NOT BEEN ISSUED WITH NECESSARY APPROVALS. IT WAS THE SUBMISS ION OF THE LD. COUNSEL THAT FOR THE TIME BEING ASSESSEE IS RES TRICTING THE CLAIM TO 100% OF THE ACTUAL EXPENDITURE SPENT ON TH E SCIENTIFIC RESEARCH AND THOSE AMOUNTS AT 100% SHOULD BE ALLOWE D. AS AND WHEN NECESSARY 3CM/3CL CERTIFICATES ARE RECEIVE D, ASSESSEE WOULD MAKE FURTHER CLAIM OF WEIGHTED DEDUC TION AS APPLICABLE. HE ALSO REFERRED TO THE ORDERS OF THE I TAT IN A.YS. 2002-03 AND 2003-04 WHEREIN AFTER OBTAINING NECESSA RY CERTIFICATES FROM THE CONCERNED AUTHORITY THE MATTE R WAS RESTORED TO THE FILE OF A.O. FOR VERIFICATION AND A LLOWANCE OF THE AMOUNTS. 7. LEARNED D.R. HOWEVER, REFERRED TO THE ORDERS OF THE A.O. AND SUBMITTED THAT UNLESS ASSESSEE FURNISHES N ECESSARY CERTIFICATES, NO AMOUNT CAN BE ALLOWED AND SPECIFIC ALLY REFERRED TO SUB-SECTION (2) WHEREIN IT WAS SPECIFICALLY MENT IONED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E MENTIONED IN CLAUSE (1) UNDER ANY OTHER PROVISIONS OF THIS AC T. 4 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD 8. IN REPLY, LD. COUNSEL SUBMITTED THAT IF THE AMO UNT IS NOT ALLOWED UNDER SECTION 35(2AB), THEN, ASSESSE E IS ENTITLED TO CLAIM THE ALLOWANCE UNDER SECTION 37(1) AS THE A MOUNT IS SPENT FOR THE PURPOSE OF BUSINESS AND REFERRED TO T HE PROVISIONS OF SECTIONS 37 AND 35(2AB). IT WAS HIS S UBMISSION THAT ASSESSEE IS ENTITLED FOR THE 100% OF THE AMOUN T SPENT IF NOT AT 150%. HE REFERRED TO THE ORDERS OF THE COORD INATE BENCH IN ASSESSEES OWN CASE AS WELL AS THE COORDINATE BE NCH DECISION IN THE CASE OF ELECTRONICS CORPORATION OF INDIA LTD., (ECIL), HYDERABAD VS. ACIT IN ITA.NO.1106/HYD/2011 DATED 25.09.2012. 9. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE PROVISIONS OF THE ACT AS WELL AS FACTS ON RECORD. I N A.Y. 2002-03 THERE IS NO DISALLOWANCE UNDER SECTION 35(2AB) AS T HE 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, TH E A.O. DISALLOWED THE CLAIM AND HAS NOT ALLOWED EVEN 100% OF THE AMOUNT WHICH OTHERWISE IS ELIGIBLE UNDER THE PROVIS IONS. THE ITAT AFTER CONSIDERING THE RIVAL CONTENTIONS IN ASS ESSEES OWN CASE IN ITA.NO.272 & 285/HYD/2011 BY ORDER DATED 13.11.2013 HAS DIRECTED THE A.O. TO EXAMINE AND ALL OW 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 OBSERV ED 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 HA S 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 5 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD 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) A S 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 C ASE OF ECIL VS. ACIT ITA.NO.1106/HYD/2011 DATED 25.09.2012 SIMI LAR ISSUE WAS CONSIDERED BY THE COORDINATE BENCH AS UND ER : 17. AS PER THE PROVISIONS OF SEC 35(2AB) OF ACT AS APPLICABLE TO THE RELEVANT ASSESSMENT YEAR , THE EXPENDITURE I NCURRED BY THE ASSESSEE IN ANY APPROVED IN-HOUSE RESEARCH F ACILITY, TO THE EXTENT OF APPROVED BY THE PRESCRIBED AUTHORI TY, IS ENTITLED TO WEIGHTED DEDUCTION OF 150% OF SUCH APPR OVED EXPENDITURE. THEREFORE, THE EXPENDITURE AS APPROVED BY THE DSIR IN THE CERTIFICATE GIVEN BY THEM IN FORM 3CL A LONE IS TO BE GRANTED WEIGHTED DEDUCTION. THE DSIR IN THEIR CE RTIFICATE HAS CERTIFIED EXPENDITURE ELIGIBLE FOR WEIGHTED DED UCTION AS RS.3,126.02 LAKHS. THEREFORE, IT IS NOT FOR EITHER THE ASSESSING AUTHORITY OR THE APPELLATE AUTHORITY TO D ECIDE ON THE EXPENDITURE WHICH WILL BE ENTITLED TO WEIGHTED DEDUCTION U/S.35(2AB). IN FACT, U/S.35(2AB)(3) IF ANY QUESTIO N ARISES U/S.35 AS TO WHETHER AND IF SO, WHAT EXTENT ANY ACT IVITIES CONSTITUTES OR CONSTITUTED OR ANY ASSET WAS USED FO R 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. THEREFO RE 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 MISTAK E IN THE CERTIFICATE 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 DE CISION OF LOWER AUTHORITIES IN RESTRICTING THE WEIGHTED DEDUC TION U/S.35(2AB) TO RS.46,89,03 LAKHS AND DISALLOWING SU M OF RS.1,69,73,987 OUT OF THE CLAIM MADE BY THE ASSESSE E. WE, HOWEVER, DIRECT THAT IN CASE DSIR CORRECTS THE AMOU NT OF 6 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD RESEARCH AND DEVELOPMENT EXPENDITURE ON WHICH THE ASSESSEE IS ENTITLED WEIGHTED DEDUCTION FOR THE ASS ESSMENT YEAR UNDER APPEAL, CORRESPONDING WEIGHTED DEDUCTION U/S.35(2AB) SHALL BE GRANTED ON RECEIPT OF THE CLAR IFICATION FROM DSIR. CONSEQUENTIALLY IF THE ASSESSEE IS ABLE TO PROVE THAT ANY AMOUNT OF EXPENDITURE IN THEIR IN-HOUSE RE SEARCH AND DEVELOPMENT FACILITIES WAS OMITTED TO BE CONSID ERED BY THE DSIR FOR WEIGHTED DEDUCTION THE SAME MAY BE ALL OWED AS A DEDUCTION U/S.35/ 37 OF THE ACT. WITH THIS OBS ERVATION 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 A S AND WHEN RECEIVED FORM 3CM, WEIGHTED DEDUCTION MAY BE ALLOWE D. 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 THA T THIS AMOUNT IS ALSO ELIGIBLE FOR DEDUCTION UNDER SE CTION 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 ELIGIB LE FOR DEDUCTION UNDER ANY OTHER PROVISIONS OF THE ACT. SU B-CLAUSE 2 OF SECTION 35(2AB) CAN ONLY BE INVOKED WHEN THE AMO UNT IS ALLOWED UNDER SECTION 35(2AB). IN CASE THE AMOUNT I S NOT ALLOWED UNDER SECTION 35(2AB), THEN, THE ALLOWANCE UNDER SECTION 37(1) CAN BE EXAMINED AS THERE IS NO SUCH P ROHIBITION 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 PROVISIO NS ARE MUTUALLY EXCLUSIVE BUT AN ASSESSEE CAN CLAIM A PART ICULAR 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 OFFI CERS CONTENTION THAT THE AMOUNT ONCE CONSIDERED UNDER SE CTION 35 7 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD CANNOT BE CONSIDERED UNDER SECTION 37. BE THAT AS I T MAY, THIS ISSUE IS ACADEMIC NOW AS ASSESSEE RESEARCH FACILITY WAS APPROVED AND ASSESSEE IS ENTITLED FOR DEDUCTION UND ER SECTION 35(2AB) AT 100% FOR THE TIME BEING AND WEIGHTED DED UCTION AS AND WHEN FORM 3CM WAS RECEIVED FROM THE CONCERNED AUTHORITY. AO IS DIRECTED TO ALLOW ACCORDINGLY. GRO UNDS IN ALL THE ASSESSMENT YEARS ON THIS ISSUE ARE CONSIDERED A LLOWED FOR STATISTICAL PURPOSES. 13. DEDUCTION U/SEC. 35(1)(II) : ASSESSEE HAD PAID VARIOUS AMOUNTS TO UNIVERSITIES, RESEARCH CENTRES E TC., EITHER FOR PRODUCT DEVELOPMENT OR OF RESEARCH AND CLAIMED DEDUCTION UNDER SECTION 35(1). EVEN THOUGH AT THE TIME OF FIL ING RETURN, IT WAS STATED TO BE A CLAIM UNDER SECTION 35(1) SUB-CL AUSE(III) IN THE COURSE OF ASSESSMENT AND LATER BEFORE THE CIT(A ), CLAIM WAS MADE UNDER SECTION 35(1)(II). ASSESSING OFFICER DIS ALLOWED THE AMOUNT ON THE REASONS THAT ASSESSEE HAS NOT FURNISH ED EVIDENCE THAT THOSE INSTITUTIONS WERE APPROVED FOR ALLOWING THE AMOUNT UNDER SECTION 35(1)(III). BEFORE THE LD. CIT (A), IT WAS CONTENDED THAT AMOUNTS PAID FOR PRODUCT DEVELOPMENT WERE ALLOWED BY THE LD. CIT(A) IN A.Y. 2004-05 AND ASSES SEE HAD NECESSARY APPROVALS AND THEREFORE, THE CLAIM MAY PL EASE BE ALLOWED. HOWEVER, LD. CIT(A), RELIED ON THE ORDER F OR A.Y. 2003- 04 AND ALSO ON THE REASON THAT ALTERNATE CLAIM UNDE R SECTION 37(1) WAS NOT ALLOWABLE AND DENIED THE CLAIMS. 13.1. IT WAS THE SUBMISSION THAT THESE AMOUNTS ARE ALLOWABLE UNDER THE PROVISIONS OF THE ACT AND RELIE D ON THE ORDERS OF THE COORDINATE BENCH IN ASSESSEES OWN CA SE IN A.YS. 2003-04 AND 2004-05. LD. COUNSEL ALSO SUBMITTED THA T ASSESSEE HAS NECESSARY EVIDENCE TO SUBSTANTIATE THE CLAIM. 8 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD 14. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES AND RECORD. AS SUBMITTED BY THE ASSESSEE BEFORE THE LD. CIT(A), THE EXPENDITURE SPENT FOR PRODUCT DEVELOPMENT IN A.Y. 2 003-04 WAS ALLOWED BY THE CIT(A) AND REVENUE HAS CAME IN A PPEAL IN THAT YEAR BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 04.05.2012 IN ITA.NO.997 & 1032/HYD/2010 IN ASSESSE ES OWN CASE CONSIDERED THE REVENUE APPEAL AND CONFIRME D THE ORDER OF THE CIT(A). THE RELEVANT ORDER IN PARA 5 I S AS UNDER : 5. WE HEARD THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE PAPER BOOK FILED BY THE AS SESSEE ESSENTIALLY CONTAINS THE DETAILS OF THE PRODUCT DEV ELOPMENT EXPENDITURE ALONG WITH THE SUPPORTIVE DOCUMENTS AND BILLS. ON A PERUSAL OF PAGE 1 OF THE PAPER-BOOK, IT IS NOT ICED THAT PAYMENTS WERE MADE TO UNIVERSITIES AND INSTITUTIONS TOWARDS TESTING CHARGES, FIELD TRIALS, CHEMICAL TES TS, DISEASE CONTROLS, BIO-EFFICACY TEST, CHEMICALS ETC. THE TOTAL AMOUNT EXPENDED WORKS OUT TO RS.56,76,389, AND IT H AS TWO COMPONENTS, NAMELY, PAYMENTS MADE TO UNIVERSITIES/INSTITUTIONS OF RS.21,81,750 AND PAYME NTS MADE TOWARDS CHEMICALS OF RS.34,91,639. WE HAVE ALS O PERUSED THE TEST REPORTS/CONTROL REPORTS SUBMITTED BY THE INSTITUTIONS/UNIVERSITIES. IN OUR CONSIDERED OPINIO N, THE AMOUNT IN QUESTION WAS INCURRED TOWARDS SCIENTIFIC RESEARCH ONLY. IN ANY EVENT, IT IS NOT THE CASE OF THE REVENUE THAT THE AMOUNT IN QUESTION WAS NOT EXPENDE D ON SCIENTIFIC RESEARCH. WE HAVE PERUSED THE PROVISIONS OF S.35(1) AND THE RELEVANT PORTION THEREOF IS EXTRACT ED BELOW - EXPENDITURE ON SCIENTIFIC RESEARCH. 35. (1) IN RESPECT OF EXPENDITURE ON SCIENTIFIC RES EARCH, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED (I)) ANY EXPENDITURE (NOT BEING IN THE NATURE OF CA PITAL EXPENDITURE) LAID OUT OR EXPENDED ON SCIENTIFIC RES EARCH RELATED TO THE BUSINESS. EXPLANATION ...... 9 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD AS ARGUED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND THAT THERE IS NO VIOLATION OF ANY PROVISION OF THE ACT BY THE ASSESSEE AND THE ARGUMENTS OF THE LEARNED COUNSEL H AVE TO BE ACCEPTED. FURTHER, WE HAVE ALSO PERUSED PARA 3.7 AND 3.8 OF THE ORDER OF THE CIT(A), AND FIND THE SAME T O BE REASONABLE. NOTHING HAS BEEN BROUGHT OUT BY THE LEA RNED DEPARTMENTAL REPRESENTATIVE BEFORE US TO SHOW THAT THE FINDINGS GIVEN BY THE CIT(A) ARE NO CORRECT. THE SA ID PARAS 3.7 AND 3.8 OF THE ORDER OF THE CIT(A) READ AS UNDE R - 3.7. NOW, LOOKING AT THE NATURE OF EXPENDITURE, TH E APPELLANT HAS CLEARLY STATED THE EXPENDITURE WAS IN CURRED AS A PART OF RESEARCH IN THE DEVELOPMENT OF NEW PRO DUCTS THROUGH THE CONDUCT OF THE TRIAL TESTS TO ASCERTAIN THE EFFICACY OF THE PRODUCTS AND ITS SAFETY TO HUMAN AN D ANIMALS. AS PART OF THE DEVELOPMENT OF NEW PRODUCTS OR NEW MOLECULES THROUGH RESEARCH, FIELD TRIALS ARE VE RY ESSENTIAL. A PRODUCT CAN BE SAID TO BE COMPLETE IN TERMS OF RESEARCH AND DEVELOPMENT ONLY AFTER THE FIELD TRIAL S ARE CONDUCTED. THE APPELLANT HAS STATED THAT THIS IS A PART OF RESEARCH. THE SPECIFIC ARGUMENTS OF THE APPELLANT O N THIS ISSUE SUBMITTED DURING THE EARLIER APPEAL PROCEEDIN GS ARE AS BELOW- ........ 3.8. FROM AN ANALYSIS OF THE ABOVE FACTS AND CIRCUMSTANCES, IT IS CLEAR THAT THE CONDUCT OF EFFI CACY AND SAFETY TESTS WITH REGARD TO NEW MOLECULES IS THE FI NAL STAGE OF RESEARCH INTO SUCH NEW PRODUCTS BEFORE THEY CAN BE STATED TO BE FULLY DEVELOPED. THEREFORE, I HOLD THA T SUCH EXPENDITURE WOULD BE COVERED UNDER SECTION 35 OF TH E ACT. THIS WILL ALSO BE IN LINE WITH THE OBSERVATION OF T HE HONBLE ITAT IN PARA 7 OF THEIR AFOREMENTIONED ORDER, FROM WHICH THIS APPEAL HAS EMANATED. WE HAVE ALSO NOTICED THAT IN THE LINE OF BUSINESS O F THE ASSESSEE, I.E. DEVELOPMENT OF THE INSECTICIDES, THE RE IS REQUIREMENT OF CONTINUOUS ACTIVITIES OF RESEARCH AN D DEVELOPMENT OF THE CHEMICAL PRODUCTS/ INSECTICIDES AND THEY HAVE TO BE SENT TO THE FIELD FOR TRIAL/TESTS A S PER THE GOVERNMENTAL REGULATIONS EXISTING IN OUR COUNTRY. F OR THIS PURPOSE, THE ASSESSEE NEEDS TO INCUR EXPENDITURE ON THE APPROVED INSTITUTIONS/UNIVERSITIES AS DONE BY THE I N THE INSTANT CASE. THEREFORE, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT(A) IS FAIR AND REASONABLE AND DOES NOT C ALL FOR ANY INTERFERENCE. WE ACCORDINGLY UPHOLD THE SAME, R EJECTING THE GROUNDS OF THE REVENUE.. 10 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD 15. SIMILARLY, IN A.Y. 2004-05 IN ASSESSEES OWN CASE IN ITA.NO.272 & 285/HYD/2011 DATED 13.11.2013, SINC E ASSESSEE HAS FURNISHED NECESSARY DETAILS IN THE PAP ER BOOK, THE ITAT DIRECTED THE A.O. TO GRANT WEIGHTED DEDUCT ION AFTER VERIFYING THE NECESSARY DETAILS. THIS ISSUE HAS BEE N DISCUSSED BY US IN ITA.NO.272 & 285/HYD/2011 DATED 13.11.2013 IN PARA 30 AS UNDER : 30. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE AT PAGE 33 OF THE PAPER BOOK F ILED LIST OF PAYMENTS I.E., PAYEES LIST CONSISTING OF VARIOUS UNIVERSITIES AND INSTITUTIONS FOR PURPOSE OF TESTIN G AND AT PAGE 36 OF THE PAPER BOOK, SAMPLE NOTE FOR APPROVAL FROM CENTRAL RICE RESEARCH INSTITUTE, CUTTACK HAS BEEN P RODUCED. HOWEVER, THE LEARNED D.R. SUBMITTED THAT DIRECTIONS SHOULD BE GIVEN TO VERIFY WHETHER APPROVAL HAS BEEN IN ACC ORDANCE WITH THE GUIDELINES PRESCRIBED IN RULES 5C AND 5D O R NOTIFIED BY THE CENTRAL GOVERNMENT ON PROVISO TO CLAUSE (2). IN THESE CIRCUMSTANCES, WE ARE INCLINED TO SET ASIDE THE ISS UE TO THE FILE OF THE A.O. TO GRANT WEIGHTED DEDUCTION AFTER VERIFYING WHETHER THE APPROVAL HAS BEEN OBTAINED BY THE UNIVERSITIES/INSTITUTIONS TO WHOM PAYMENTS HAVE BEE N MADE. 15.1 THEREFORE, RESPECTFULLY FOLLOWING THE COORDIN ATE BENCH DECISION ON THE ISSUE AND ALSO PERUSING THE E VIDENCE PLACED ON RECORD, WE ARE OF THE OPINION THAT ASSESS EE IS ENTITLED FOR NECESSARY DEDUCTION UNDER SECTION 35(1)(II). AO CAN ALSO CONSIDER ALLOWING THE CLAIM U/S 37(1) AS WELL IN CA SE THE EXPENDITURE IS NOT ALLOWED UNDER SEC.35(1), SUBJECT TO FULFILLING THE CONDITIONS OF THAT PROVISION. ASSESSING OFFICER IS DIRECTED TO EXAMINE THE EVIDENCE AND ALLOW AS PER THE PROVISION S OF THE 11 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD ACT, AFTER SATISFYING HIMSELF THAT THE ASSESSEE HAS FULFILLED THE CONDITIONS. WITH THIS OBSERVATION, ASSESSEES GROUN DS IN ALL THE YEARS ON THIS ISSUE ARE CONSIDERED AS ALLOWED FOR S TATISTICAL PURPOSES. REVENUE GROUND IN CROSS APPEAL IN 2005-06 IS DISMISSED AS THERE IS NO MERIT IN THEIR CONTENTIONS AND CIT(A) ORDER WAS IN TUNE WITH ITAT ORDER IN EARLIER YEAR. 16. ADHOC DISALLOWANCE : THIS ISSUE ARISE IN A.Y. 2006-07 IN ASSESSEES APPEAL ITA.NO.1250/HYD/2011 A ND RAISED AS GROUND NO.3. 16.1. BRIEF FACTS ARE THAT THE COMPANY HAS INCURRE D EXPENDITURE TOWARDS BUSINESS DEVELOPMENT EXPENDITUR E OF RS.38,79,981/- OUT OF WHICH, A.O. HAS LISTED 4 ITEM S MORE PARTICULARLY, ITEMS OF GIFTS ACCOUNTED FOR IN APRIL , JUNE AND AUGUST 2005. HE WAS OF THE OPINION THAT EXPENDITURE UNDER THIS HEAD IS NOT RELATED EXCLUSIVELY FOR THE BUSINE SS DEVELOPMENT. THEREFORE, HE HAS DISALLOWED 10% OF TH E TOTAL EXPENDITURE WHICH COMES TO RS.3,88,998/- UNDER SECT ION 37(1). IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE GIFTS PURCHASED WERE OF COMPLIMENTARY IN NATURE AND NECES SARY FOR THE PURPOSE OF BUSINESS. ASSESSEE RELIED ON VARIOUS CASE LAW TO SUBSTANTIATE THAT EXPENDITURE IS WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF BUSINESS AND IS ALLOWABLE UNDER SECTION 37(1). CONSIDERING THE ARGUMENTS OF THE ASSESSEE, LD. CIT( A) RESTRICTED THE DISALLOWANCE TO 5%. 17. EVEN THOUGH LD. COUNSEL CONTENDED THAT THE ENTIRE AMOUNT IS SPENT FOR THE PURPOSE OF BUSINESS, CONSIDERING THE NATURE OF EXPENDITURE AND NON-VERIF IABILITY OF GENUINENESS OF CERTAIN CLAIMS, WE ARE OF THE OPINIO N THAT 5% ADHOC DISALLOWANCE OF THE AMOUNT IS REASONABLE. CON SIDERING 12 ITA.NO.998, 1033 & 1251/HYD/2010, 1376 & 1250/HYD/2011 M/S. NAGARJUNA AGRICHEM LTD., HYDERABAD THESE ASPECTS, WE AFFIRM THE ORDER OF THE LD. CIT(A ) AND REJECT THE ASSESSEES GROUND ON THIS ISSUE. 18. IN THE RESULT, ITA.NO.1033 AND 1251/HYD/2010, 1376/HYD/2011 OF THE ASSESSEE ARE ALLOWED FOR STATI STICAL PURPOSES AND ITA.NO.1250/HYD/2011 OF THE ASSESSEE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA.NO.998/HYD/20 10 OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.05.2014. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 28 TH MAY, 2014 VBP/- COPY TO : 1. DCIT, CIRCLE 16(1), HYDERABAD. 2. M/S. NAGARJUNA AGRICHEM LTD., PLOT NO.61, NAGARJ UNA HILLS, PUNJAGUTTA, HYDERABAD. 3. CIT(A) - V, HYDERABAD 5 COPIES. 4. CIT-IV, HYDERABAD 5. D.R. ITAT A BENCH, HYDERABAD.