Avasarala Technologies Limited, Bangalore V. DCIT, Bangalore

ITA 1401/BANG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0698 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-01-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 29-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR
• Assessee Lawyers: B N SUDARSHAN
• Keywords: Recovery proceedings; Search and seizure; Opportunity of being heard; Additional evidence; Revenue expenditure; Capital expenditure
• Section: 80IB; 10B; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NOS.951 TO 954/BANG/2011 & 1401/BANG/2012 ASSESSMENT YEARS : 2002-03 TO 2009-10 AVASARALA TECHNOLOGIES LTD., NO.47, 36 TH MAIN, BTM IST STAGE, DOLLARS SCHEME, BANGALORE 560 068. PAN : AABCA 2381E VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. APPELLANT RESPONDENT ITA NOS.938 TO 940/BANG/2011 & 1530/BANG/2012 ASSESSMENT YEARS : 2006-07 TO 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. VS. AVASARALA TECHNOLOGIES LTD., NO.47, 36 TH MAIN, BTM IST STAGE, DOLLARS SCHEME, BANGALORE 560 068. PAN : AABCA 2381E APPELLANT RESPONDENT ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 2 OF 24 C.O. NOS.14 TO 17/BANG/2013 [ IN ITA NOS.938 TO 940/BANG/2011 & 1530/BANG/2012] ASSESSMENT YEARS : 2006-07 TO 2008-09 AVASARALA TECHNOLOGIES LTD., NO.47, 36 TH MAIN, BTM IST STAGE, DOLLARS SCHEME, BANGALORE 560 068. PAN : AABCA 2381E VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. CROSS OBJECTOR RESPONDENT ASSESSEE BY : SHRI B.N. SUDARSHAN, C.A. REVENUE BY : SHRI BIJOY KUMAR PANDA, ADDL. CIT(DR) DATE OF HEARING : 05.03.2013 DATE OF PRONOUNCEMENT : 08.03.2013 O R D E R PER BENCH ITA 951/11 & 952/11 THESE ARE APPEALS BY THE ASSESSEE AGAINST THE COMMO N ORDER DATED 30.08.2011 OF THE CIT(APPEALS)-I, BANGALORE RELATIN G TO ASSESSMENT YEARS 2002-03 & 2003-04. 2. THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN TH E BUSINESS OF MANUFACTURE OF ENGINEERING AND HEALTH CARE PRODUCTS , WHICH ARE SUPPLIED TO ISRO, NUCLEAR POWER STATIONS, MARUTHI UDYOG, ETC. A COMPANY BY NAME M/S. ELBEAM DEVICES LTD. (EDL FOR SHORT), BY AN O RDER OF THE HONBLE HIGH ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 3 OF 24 COURT OF KARNATAKA DATED 11.08.2005 IN COMPANY PETI TION, C.P. NO.80 & 74 TO 79/2005 GOT MERGED WITH THE ASSESSEE COMPANY. AS PER THE SCHEME OF MERGER, THE MERGER WAS TO TAKE EFFECT AND COVERE D THE PERIOD BEING PREVIOUS YEARS RELEVANT TO AY 02-03 & 03-04. THERE FORE THE PENALTY PROCEEDINGS WERE IN THE NAME OF THE ASSESSEE. 3. IN THE A.YS. 2002-03 & 2003-04, THE ERSTWHILE CO MPANY EDL CLAIMED DEDUCTION ON ACCOUNT OF CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH AS A DEDUCTION WHILE COMPUTING INCOME. THIS CLAIM FOR DEDUCTION WAS MADE UNDER THE PROVISIONS OF SECTION 35(1)(IV) OF T HE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT], W HICH PROVIDES THAT ANY EXPENDITURE OF A CAPITAL NATURE ON SCIENTIFIC RESEA RCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE SHALL BE ALLOWE D AS A DEDUCTION IN COMPUTING TOTAL INCOME. THE AO AS WELL AS THE CIT (APPEALS) DID NOT ACCEPT THE CLAIM OF THE ASSESSEE THAT THE EXPENDITU RE CLAIMED AS A DEDUCTION WAS IN RESPECT OF SCIENTIFIC RESEARCH REL ATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE. EVEN THE TRIBUNAL HAS NOT ACCEPTED THE CLAIM OF THE ASSESSEE. 4. IN RESPECT OF THE DISALLOWANCE OF THE CLAIM FOR DEDUCTION SO MADE, PROCEEDINGS U/S. 271(1)(C) OF THE ACT WERE INITIATE D. AN ORDER U/S. 271(1)(C) OF THE ACT DATED 30.12.2008 WAS PASSED BY THE AO FO R BOTH THE AFORESAID ASSESSMENT YEARS HOLDING THAT THE CLAIM FOR DEDUCTI ON MADE BY THE ASSESSEE U/S. 35(1)(IV) OF THE ACT AT RS.4,94,90,50 3 AND RS.54,83,155 FOR THE A.YS. 2002-03 & 2003-04 RESPECTIVELY, WHICH WAS DISALLOWED IN THE ASSESSMENT PROCEEDINGS, AMOUNTED TO FURNISHING OF I NACCURATE PARTICULARS ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 4 OF 24 BY THE ASSESSEE AND PENALTY WAS ACCORDINGLY IMPOSED ON THE ASSESSEE BY THE AO. 5. AGAINST THE AFORESAID ORDERS OF THE AO IMPOSING PENALTY, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT(APPEALS). THERE WAS A DELAY ABOUT 840 DAYS IN FILING THE APPEAL BEFORE THE CIT( A). THE REASONS FOR THE DELAY IN FILING THE APPEAL BEFORE THE CIT(A) WAS EX PLAINED BY THE ASSESSEE AS FOLLOWS:- (I) THERE WAS NO PROPER SERVICE OF THE ORDER U/S. 271(1)(C) OF THE ACT AND THAT THE COMPANY WAS NOT AWARE OF THE O RDER U/S. 271(1)(C) OF THE ACT. (II) THE ASSESSEE APPLIED TO THE AO BY LETTER DATED 29.04.2011 FOR ISSUE OF COPY OF ORDER OF PENALTY WHICH WAS GIV EN TO THE AO ON 2.5.2011. THE SAME WAS GIVEN BY THE AO IMMEDIAT ELY. (III) THEREAFTER THE ASSESSEE FILED AN APPEAL FOR T HE A.Y. 2002- 03 AND 2003-04 ON 24.05.2011 AND 23.05.2011 RESPECT IVELY. (IV) IT WAS EXPLAINED THAT THE ASSESSEES AR IN THE INCOME-TAX PROCEEDINGS, M/S. K.P. RAO, C.AS., DID NOT REPRESEN T THE CASE PROPERLY AND THEREFORE THEY HAD ENGAGED M/S. B.N. S UDARSHAN & CO., C.AS., AS AUTHORIZED REPRESENTATIVES. (V) IT WAS ALSO MENTIONED THAT THE PREVIOUS AR DID NOT GUIDE THE ASSESSEE PROPERLY. (VI) DUE TO MERGER OF EDL WITH THE ASSESSEE, THERE WAS SOME CONFUSION WITH REGARD TO THE TAX MATTERS OF THE OLD COMPANY AND THIS ALSO CONTRIBUTED TO THE DELAY IN FILING THE AP PEALS. 6. THE CIT(APPEALS) CALLED FOR A REMAND REPORT ON T HE QUESTION AS TO THE DATE ON WHICH THE PENALTY ORDERS U/S. 271(1)(C) OF THE ACT DATED 30.12.2008 FOR BOTH THE ASSESSMENT YEARS WAS SERVED ON THE ASSESSEE. THE AO IN RESPONSE TO THE QUERY OF THE CIT(A), SUBM ITTED THAT THE PENALTY ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 5 OF 24 ORDERS DATED 30.12.2008 FOR AYS 2002-03 & 2003-04 W ERE SERVED ON THE ASSESSEE AS WELL AS THE AR OF THE ASSESSEE, M/S. K. P. RAO ON 31.12.2008. THE AO ALSO SUBMITTED THAT FOR THE A.Y. 2003-04, TH ERE WAS A LETTER OF AUTHORISATION BY THE ASSESSEE IN FAVOUR OF M/S. K.P . RAO. THE TEAR-OFF ACKNOWLEDGEMENT SLIP EVIDENCING SERVICE OF THE ORDE RS OF PENALTY FOR BOTH THE ASSESSMENT YEARS WAS ALSO FILED ALONG WITH THE LETTER OF THE AO SUBMITTED BEFORE THE CIT(A). 7. ON A CONSIDERATION OF THE ABOVE EVIDENCE, THE CI T(A) WAS OF THE VIEW THAT THERE WAS NO SUFFICIENT CAUSE FOR THE DEL AY IN FILING THE APPEALS BY THE ASSESSEE BEFORE HIM. IN THIS REGARD, THE CIT(A ) WAS OF THE VIEW THAT THE ASSESSEE IS GUILTY OF CARELESSNESS AND LAXITY. HE ALSO NOTICED THAT IN THE QUANTUM PROCEEDINGS, EVEN THE ITAT HAS CONFIRME D THE REFUSAL OF THE CLAIM FOR DEDUCTION MADE BY THE ASSESSEE U/S. 35(1) (IV) OF THE ACT. THE CIT(A) ACCORDINGLY DISMISSED THE APPEAL OF THE ASSE SSEE AS UNADMITTED. AGGRIEVED BY THE IMPUGNED ORDER OF THE CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEALS BEFORE THE TRIBUNAL. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE APAR T FROM REITERATING THE STAND OF THE ASSESSEE BEFORE THE CIT(A), ALSO SUBMI TTED AN AFFIDAVIT OF ONE K. KRISHNA BHATT, AN EMPLOYEE OF THE ASSESSEE. IT IS RELEVANT TO POINT OUT HERE THAT IT WAS K. KRISHNA BHATT WHO SIGNED THE TE AR-OFF ACKNOWLEDGEMENT SLIP EVIDENCING SERVICE OF THE ORDER U/S. 271(1)(C) OF THE ACT ON 31.12.2008, ON BEHALF OF THE ASSESSEE. IN HIS AFFIDAVIT, K. KR ISHNA BHATT HAS AFFIRMED THAT HE WAS AN EMPLOYEE OF THE ASSESSEE AND THAT HE HAD COLLECTED THE PENALTY ORDERS FOR BOTH THE ASSESSMENT YEARS FROM T HE INCOME-TAX ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 6 OF 24 DEPARTMENT. AFTER COLLECTING THE ORDERS ON 31.12.2 008, HE HAD PROCEEDED ON LEAVE FOR A WEEK. AFTER COMING BACK, HE COULD NO T LOCATE THE ORDER WHICH HE HAD GOT FROM THE DEPARTMENT. HE WAS AFRAID OF T HE CONSEQUENCES OF LOSING THE ORDER AND PREFERRED TO KEEP QUIET WITHOU T MENTIONING THE RECEIPT OF THE ORDERS TO ANYONE. HE ALSO AFFIRMED THAT NEI THER THE COMPANY NOR THE M.D. WAS INFORMED BY HIM ABOUT THE RECEIPT OF THE O RDERS AND IT WAS ONLY WHEN THE COMPANY CAME TO KNOW ABOUT THE TEAR-OFF AC KNOWLEDGEMENT SIGNED BY HIM AND WHEN HE WAS CONFRONTED WITH HE SA ME THAT HE REVEALED THE TRUTH TO THE COMPANY. THE AFFIDAVIT OF K. KRIS HNA BHATT IS DATED 19.02.2013 AND FILED BEFORE THE TRIBUNAL. 9. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ERSTWHILE AR OF THE ASSESSEE, M/S. K.P. RAO, DID NOT GIVE THE ORDER S OF PENALTY TO THE ASSESSEE AND THE EMPLOYEE OF THE ASSESSEE ALSO DID NOT GIVE THE ORDERS OF IMPOSING PENALTY TO THE ASSESSEE. IT WAS ONLY DUE TO THESE CIRCUMSTANCES THAT THE ASSESSEE COULD NOT FILE THE APPEALS IN TIM E. THE ASSESSEE CAME TO KNOW ABOUT THE ORDERS WHEN RECOVERY PROCEEDINGS WER E INITIATED AGAINST THE ASSESSEE AND WHEN A NOTICE U/S. 179 WAS ISSUED TO THE DIRECTORS HOLDING THEM RESPONSIBLE FOR RECOVERY OF THE PENALT IES IMPOSED BY THE AO. 10. THE LD. DR, HOWEVER, POINTED OUT THAT THE PROCE EDINGS FOR RECOVERY AGAINST THE DIRECTORS WERE INITIATED IN NOVEMBER, 2 010 AND IT WAS ONLY IN APRIL, 2011 THAT THE ASSESSEE ASKED FOR COPIES OF T HE PENALTY ORDERS FROM THE AO. ACCORDING TO HIM, EVEN HERE THERE WAS A LA PSE ON THE PART OF THE ASSESSEE. ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 7 OF 24 11. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, POIN TED OUT THAT THE ERSTWHILE C.A., M/S. K.P. RAO WERE HANDLING THE MAT TER AND DID NOT ADVICE THE ASSESSEE PROPERLY. THE ASSESSEE THEREAFTER APP ROACHED THE PRESENT AR, WHO FILED THE REQUIRED APPLICATION BEFORE THE A O FOR ISSUE OF ORDERS IMPOSING PENALTY FOR A.Y. 2002-03 & 2003-04. 12. WE HAVE CONSIDERED THE ENTIRE FACTUAL ASPECT OF THE CASE. IT IS CLEAR FROM THE FACTS AS IT TRANSPIRES THAT THE EMPLOYEE O F THE ASSESSEE, MR. K. KRISHNA BHATT RECEIVED THE ORDERS DATED 30.12.2008 FOR THE AYS 2002-03 & 2003-04 ON BEHALF OF THE ASSESSEE. HE HAS SWORN TO THE AFFIDAVIT THE CIRCUMSTANCES UNDER WHICH HE HAD LOST THE ORDER AND PREFERRED TO KEEP SILENT ABOUT THE RECEIPT OF THE ORDERS. THE ORDERS SERVED ON THE AR, M/S. K.P. RAO, C.AS., WAS OF NO EFFECT BECAUSE THEY DID NOT ADVICE THE ASSESSEE ON THE RIGHT COURSE OF ACTION TO BE TAKEN. IT IS SE EN THAT THE DEPARTMENT PROCEEDED WITH RECOVERY OF AMOUNTS FROM THE DIRECTO RS OF THE COMPANY AND IN THIS REGARD NOTICE U/S. 220(2) OF THE ACT WAS SE RVED ON THE DIRECTORS ON 11.11.2010. IT IS THEREAFTER THAT THE ASSESSE, REA LIZING THE SERIOUSNESS OF THE SITUATION, APPROACHED THE PRESENT AR FOR FURTHE R COURSE OF ACTION. THE PRESENT AR HAS MADE AN APPLICATION FOR ISSUE OF DUP LICATE COPIES ON 29.12.2011 AND ON RECEIPT OF THE SAME FILED APPEALS WITHIN A PERIOD OF THREE WEEKS. 13. WE ALSO FIND THAT THE PENALTY IN QUESTION HAS B EEN IMPOSED IN RESPECT OF REJECTION OF A CLAIM MADE U/S. 35(1)(IV) OF THE ACT. THE QUESTION AS TO WHETHER A PENALTY CAN BE IMPOSED FOR REJECTIN G A CLAIM MADE BY THE ASSESSEE REQUIRES TO BE EXAMINED. WE ARE OF THE VI EW THAT THE DELAY IS ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 8 OF 24 OCCASIONED DUE TO SUFFICIENT CAUSE AS DISCUSSED ABO VE. IF THE DELAY IS NOT CONDONED, THE ASSESSEE WILL BE PUT TO SERIOUS HARDS HIP IN AS MUCH AS HUGE PENALTY WILL BE IMPOSED ON THE ASSESSEE FOR CONCEAL MENT, WHICH ON FACTS, REQUIRES EXAMINATION AS TO WHETHER REJECTION OF A C LAIM MADE BY THE ASSESSEE FOR DEDUCTION WOULD AMOUNT TO CONCEALMENT OR NOT, ESPECIALLY IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF RELIANCE PETRO PRODUCTS LTD. (322 ITR 158). CONSI DERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF TH E VIEW THAT THERE WAS SUFFICIENT CAUSE FOR NOT FILING THE APPEAL BEFORE C IT(A) IN TIME AND IN THE INTEREST OF JUSTICE, IT WOULD BE JUST AND PROPER TO CONDONE THE DELAY IN FILING THE APPEALS BEFORE THE CIT(APPEALS). WE THEREFORE CONDONE THE DELAY IN FILING THE APPEALS BY THE ASSESSEE BEFORE THE CIT(A ). THE CIT(A) HAS NOT EXAMINED THE ISSUE ON MERITS AND THEREFORE WE SET A SIDE THE ORDER OF THE CIT(APPEALS) AND DIRECT HIM TO EXAMINE THE QUESTIO N OF IMPOSITION OF PENALTY ON MERITS. 14. THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STA TISTICAL PURPOSES. ITA NOS.953 & 938/11 AND CO 14/13 15. THESE APPEALS BY THE ASSESSEE AND THE REVENUE A S WELL AS THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINS T THE ORDER DATED 19.08.2011 OF THE CIT(APPEALS)-I, BANGALORE RELATIN G TO A.Y. 2006-07. ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 9 OF 24 ITA 953/11 16. THE ONLY GROUND WHICH ARISES FOR CONSIDERATION IN THIS APPEAL BY THE ASSESSEE IS AS TO WHETHER THE REVENUE AUTHORITIES W ERE JUSTIFIED IN REFUSING TO CONSIDER THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 80IB OF THE ACT. 17. THE ASSESSEE FILED A RETURN OF INCOME CLAIMING DEDUCTION U/S. 80IB OF THE ACT IN RESPECT OF THE PROFITS DERIVED BY THE KORAKADU COLOUR DIVISION OF RS.73,75,490 AND KORAKADU HEALTH DIVISION OF RS. 4,36,537. THE DUE DATE FOR FILING THE RETURN OF INCOME FOR THE A.Y. 2 006-07 WAS 30.11.2006. THE ASSESSEE HAD FILED THE RETURN OF INCOME AND CLA IMED THE DEDUCTION U/S. 80IB OF THE ACT IN THE SAID RETURN OF INCOME WHICH WAS FILED ON 27.02.2007. UNDER THE PROVISIONS OF SECTION 80AC OF THE ACT, WH ERE THE ASSESSEE CLAIMS DEDUCTION U/S. 80IB OF THE ACT, NO DEDUCTION SHALL BE ALLOWED TO THE ASSESSEE UNLESS THE RETURN OF INCOME FOR THE ASSESS MENT YEAR FOR WHICH THE CLAIM IS MADE IS FILED ON OR BEFORE THE DUE DAT E SPECIFIED IN SUB-SECTION (1) OF SECTION 139 OF THE ACT. ADMITTEDLY, THE ASS ESSEE HAD NOT FILED THE RETURN OF INCOME WITHIN THE PERIOD SPECIFIED U/S. 1 39(1) OF THE ACT. THE ASSESSING OFFICER THEREFORE REFUSED TO CONSIDER THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 80IB OF THE ACT. 18. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE DELAY IN FLING THE RETURN OF INCOME WITHIN THE DUE DATE WAS ONLY 2 MO NTHS. IT WAS POINTED OUT THAT IN A.Y. 2006-07, THERE WAS A PROVISION F OR COMPANIES TO FILE RETURNS OF INCOME ELECTRONICALLY AND THE ASSESSEE A TTEMPTED TO FILE THE RETURN OF INCOME ELECTRONICALLY. THE SAME WAS NOT ACCEPTED BECAUSE THE ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 10 OF 24 ASSESSEE DID NOT PAY SELF-ASSESSMENT TAX. IT WAS A LSO POINTED OUT THAT THE ASSESSEE WAS COULD NOT PAY SELF-ASSESSMENT TAX DUE TO FINANCIAL PROBLEMS AND THE SAME WAS PAID ONLY ON 26.02.2007. THEREAFT ER ON 27.02.07, THE RETURN OF INCOME WAS FILED ELECTRONICALLY IN WHICH THE CLAIM FOR DEDUCTION U/S. 80IB WAS MADE. THE ASSESSEE RELIED ON THE D ECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. DHIR GLOBAL INDUSTRIES PVT. LTD. (ITA NO.2317/DEL/2010) , WHEREIN IN RESPECT OF AN IDENTICAL PROVISION U/S. 10B OF THE ACT FOR MAKING A CLAIM OF DEDUCTION U/S. 10B OF THE ACT, THE DELHI BENCH OF THE TRIBUNAL CONDONED THE D ELAY AND ALLOWED EXEMPTION U/S. 10B OF THE ACT. 19. THE LD. DR, ON THE OTHER HAND, BROUGHT TO OUR N OTICE THE DECISION OF THE RAJKOT SPECIAL BENCH OF THE TRIBUNAL IN THE CAS E OF M/S. SAPPHIRE GARMENTS V. ITO, 2012 TIOL 735 ITAT RAJKOT (SB) , WHEREIN THE SPECIAL BENCH BY ITS ORDER DATED 30.11.2012 CONSIDE RED IDENTICAL PROVISIONS U/S. 10A(1A) OF THE ACT AND EXPRESSED TH E VIEW THAT SUCH PROVISIONS ARE MANDATORY AND NOT ONLY DIRECTORY. TH E SPECIAL BENCH ACCORDINGLY HELD THAT IN THE ABSENCE OF FILING THE RETURN OF INCOME ON OR BEFORE THE DUE DATE SPECIFIED IN SECTION 139(1) OF THE ACT, THE CLAIM FOR DEDUCTION U/S. 10A CANNOT BE EXAMINED. 20. THE LD. DR ALSO BROUGHT TO OUR NOTICE THE DECIS ION OF THE ITAT AMRITSAR BENCH DECISION IN THE CASE OF BAL KISHAN DHAWAN V. ITO, 2012 18 TAXMAN.COM 234 (ASR) , WHEREIN THE PROVISIONS OF SECTION 80AC VIS--VIS SECTION 80IB WERE CONSIDERED FOR THE A.Y. 2006-07 AND IT ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 11 OF 24 WAS HELD THAT DEDUCTION U/S. 80IB CANNOT BE ENTERTA INED IF THE RETURN OF INCOME HAS NOT BEEN FILED ON OR BEFORE THE DUE DATE SPECIFIED IN SECTION 139(1) OF THE ACT. THE AMRITSAR BENCH OF THE TRIBU NAL HAD ALSO CONSIDERED THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DHIR GLOBAL INDUSTRIES LTD. (SUPRA). 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AR E OF THE VIEW THAT THE PROVISIONS OF SECTION 10A(1A) OF THE ACT WHICH WERE CONSIDERED BY THE RAJKOT SPECIAL BENCH OF THE ITAT IN THE CASE OF M/S. SAPPHIRE GARMENTS (SUPRA) ARE IDENTICAL TO THE PROVISIONS OF SECTION 80AC OF THE ACT. THE RATIO LAID DOWN BY THE SPECIAL BENCH IS B INDING ON US. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(APPE ALS) WAS JUSTIFIED IN REFUSING TO CONSIDER THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 80IB OF THE ACT, BECAUSE OF THE ASSESSEES FAILURE TO FURNISH T HE RETURN OF INCOME ON OR BEFORE THE DUE DATE SPECIFIED U/S. 139(1) OF THE AC T. WE THEREFORE DO NOT FIND ANY MERITS IN THE APPEAL BY THE ASSESSEE, CONS EQUENTLY THE SAME IS DISMISSED. ITA 938/11 & CO 14/13 22. THE ISSUE RAISED BY THE REVENUE IN ITS APPEAL I N ITA NO.938/B/11 IS WITH REGARD TO THE ACTION OF THE CIT(APPEALS) IN AL LOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF CAPITAL EXPENDITURE OF RS .2,71,52,618 U/S. 35(1)(IV) OF THE ACT. THE FACTUAL BACKGROUND OF TH E AFORESAID CLAIM MADE BY THE ASSESSEE, AS WE HAVE ALREADY SEEN IS, THAT A CO MPANY BY NAME EDL GOT MERGED WITH THE ASSESSEE. WE HAVE ALSO SEEN TH AT EDL HAD MADE A ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 12 OF 24 CLAIM FOR DEDUCTION U/S. 35(1)(IV) OF THE ACT FOR T HE AYS 2002-03 & 2003-04, WHICH WAS REJECTED BY THE REVENUE AUTHORITIES AND C ONFIRMED BY THE ITAT. 23. IN THE A.Y. 2006-07 WHICH WAS AFTER THE MERGER OF EDL WITH THE ASSESSEE, THE AFORESAID CLAIM FOR DEDUCTION OF SCIE NTIFIC RESEARCH & DEVELOPMENT EXPENDITURE U/S. 35(1)(IV) OF THE ACT W AS MADE BY THE ASSESSEE. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION BY OBSERVING THAT PRIOR TO THE MERGER OF EDL, THE ASSESSEE HAD NOT MADE ANY SUCH CLAIM, HE WAS THEREFORE OF THE VI EW THAT THE NATURE OF THE ACTIVITIES FOR DEDUCTION FOR WHICH DEDUCTION U/ S. 35(1)(IV) OF THE ACT WAS CLAIMED BY THE ASSESSEE AFTER MERGER WITH EDL WAS T HE SAME AS WAS CLAIMED BY EDL. THE AO REFERRED TO THE FACT THAT S UCH A CLAIM HAD BEEN REJECTED BY THE REVENUE IN THE CASE OF EDL. THE AO THEREFORE REJECTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 35(1)(IV) OF THE ACT. 24. BEFORE THE CIT(A), THE ASSESSEE POINTED OUT THA T SCIENTIFIC RESEARCH CARRIED OUT BY THE ASSESSEE DURING THE PREVIOUS YEA R WAS DIFFERENT FROM THE ONE CARRIED OUT BY EDL. THE ASSESSEE POINTED OUT T HAT RESEARCH AND DEVELOPMENT PRODUCT WAS SEALING AND SHIELDING PLUGS WHICH FORM CRITICAL PART OF NUCLEAR REACTOR PREVENTING RADIATION. THE ASSESSEE ALSO POINTED OUT THAT IT DESIGNED AND DEVELOPED HIGH-END HEALTHCARE PRODUCTS LIKE SOPHISTICATED OPERATION THEATRE TABLES, ANESTHESIA MACHINES AND EV 600 VENTILATORS. THE ASSESSEE GAVE A DESCRIPTION OF TH E RESEARCH & DEVELOPMENT ACTIVITIES AS AN ANNEXURE TO THE SUBMIS SIONS BEFORE THE CIT(A), WHICH IS ALSO ANNEXED AS ANNEXURE TO THE WR ITTEN SUBMISSIONS FILED ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 13 OF 24 BEFORE US. THE CIT(A), ON A CONSIDERATION OF THE A FORESAID SUBMISSIONS, ALLOWED THE CLAIM OF THE ASSESSEE, OBSERVING AS FOL LOWS:- 6.3 I HAVE CONSIDERED THE ABOVE. I FIND THE A.O. HAS COMPLETELY RELIED UPON THE ASSESSMENT ORDER OF A.Y. 2002-03 IN THE CASE OF ELBEAM DEVISES LTD. WHICH LATER ON GOT MERGED IN THE APPELLANT COMPANY. THE QUANTUM OF DISALLOWANCE ON A CCOUNT OF R & D EXPENDITURE WAS CONFIRMED BY THE CIT(A) VIDE ORDER IN ITA NO.13/AC-11(2)/CIT(A)-I/05-06 DATED 30-5-2008. BOTH THE AUTHORITIES FOUND THAT THE COMPANY WAS MANUFACTURIN G COLOUR TUBES USED IN TELEVISION AND ALSO HEAT RESISTING AL UMINIUM FOR SUPPLYING THE SAME TO ISRO FOR THEIR USE IN SATELLI TE LAUNCH VEHICLES BUT THE TECHNOLOGY, THEY FOUND, WAS OF THE ISRO AND ALSO DEVELOPED THEREIN I.E. ISRO AND NO RESEARCH OR DEVELOPMENT OF SUCH TECHNOLOGY WAS BEING CONDUCTED BY M/S. ELBE AM DEVISES LTD. AND THEREFORE UPHELD THE DISALLOWANCE CLAIM OF EXPENDITURE BY THE A.O. HOWEVER, I FIND HERE FACTS ARE DIFFEREN T. BY VIRTUE OF THE ORDER OF KARNATAKA HIGH COURT DATED 11-8-2005 I N COMPANY PETITIONS NO. 80 AND 74 TO 79 OF 2005. M/S ELBEAM D EVISES LTD. GOT MERGED WITH THE APPELLANT COMPANY WHICH WAS INC ORPORATED BY ROC KARNATAKA ON 9-3-1987 UNDER NO. 8228 OF 1986 -87. ONE OF ITS MAIN OBJECTS AS PER THE MEMORANDUM IS - TO U NDERTAKE RESEARCH & DEVELOPMENT PROGRAMMES - IN THE FIELD OF ELECTRICITY AND OTHER ALLIED FIELDS. IT IS CONTINUOUSLY CARRYING ON RESEARCH WORK IN THE FIELD OF ELECTRIC HEAT MANAGEMENT AND DOING PROJECT WORK FOR NUCLEAR REACTORS AT BARC. BESIDES, IT IS COMPLETELY A ENTIT Y OTHER THAN THE ELBEAM DEVISERS LTD WHOSE CASE THE A.O. HAS REL IED UPON TO MAKE THE DISALLOWANCE HERE ALSO. THE A.O. HAS NOT F OUND OUT SPECIFICALLY THAT THIS COMPANY HAS NO RESEARCH ORGA NISATION OR NOT EQUIPPED WITH THE MANPOWER, MACHINE OR TECHNOLOGY T O CONDUCT SUCH RESEARCH IN MANUFACTURING HEAT PLUGS USED IN N UCLEAR REACTORS AND OPERATION TABLES. THEREFORE, I SEE NO SIMILARITY OF FACT OF THIS CASE WITH THAT OF FY 2002-03 OF M/S. E LBEAM DEVISES LTD. AND THEREFORE, DELETE THE ADDITION. APPEAL ON THIS ISSUE IS ADMITTED. 25. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 14 OF 24 26. THE ASSESSEE, IN ITS CROSS OBJECTION, HAS SUPPO RTED THE ORDER OF THE CIT(A) AND FURTHER CLAIMED THAT THE ASSESSEE HAS BE EN RECOGNIZED AS A RESEARCH HOUSE BY THE MINISTRY OF SCIENCE & TECHNOL OGY, GOVT. OF INDIA. A CERTIFICATE GRANTING SUCH RECOGNITION IS SOUGHT TO BE FILED AS ADDITIONAL EVIDENCE BEFORE US AND THE SAME IS CONTAINED IN PAG ES 12 TO 14 OF THE ASSESSEES PAPERBOOK. 27. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. C OUNSEL FOR THE ASSESSEE AND THE LD. DR. THE DESCRIPTION OF EXPEND ITURE INCURRED ON RESEARCH & DEVELOPMENT ACTIVITIES DONE BY THE ASSES SEE IS GIVEN AS ANNEXURE-I TO THIS ORDER. IT CAN BE SEEN FROM THE SAME THAT THERE IS NO BREAK-UP OF THE EXPENSES GIVEN AND AS TO HOW THEY A RE CAPITAL EXPENDITURE INCURRED FOR SCIENTIFIC RESEARCH AND DEVELOPMENT. A GENERAL DESCRIPTION GIVEN IN OUR VIEW WILL NOT BE SUFFICIENT. THE REL ATIONSHIP OF EACH ITEM OF EXPENDITURE AND ITS RELATION TO THE VARIOUS ACTIVIT IES SET OUT IN THE ANNEXURE AND HOW THEY ARE IN THE NATURE OF SCIENTIFIC RESEAR CH AND DEVELOPMENT HAS TO BE GIVEN BY THE ASSESSEE. THE AO DID NOT EXAMIN E THE ISSUE AS HE HAS PROCEEDED ON THE ASSUMPTION THAT THE ACTIVITIES ARE AKIN TO THE ONE CARRIED OUT BY EDL. THE CIT(A) IN HIS IMPUGNED ORDER HAS N OT EXAMINED AND GIVEN A FINDING AS TO WHETHER THE EXPENSES IN QUESTION CA N BE SAID TO BE OF THE NATURE OF CAPITAL EXPENDITURE ON SCIENTIFIC RESEARC H. THE TERM SCIENTIFIC RESEARCH HAS BEEN DEFINED IN SECTION 43(4)(I) OF T HE ACT. WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A), WITHOUT A CRUCIA L FINDING ABOUT AS TO HOW THE SAID EXPENSES WERE RELATED TO THE ACTIVITIES OF SCIENTIFIC RESEARCH AS GIVEN IN ANNEXURE TO THIS ORDER AND AS TO WHETHER T HE AFORESAID EXPENSES ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 15 OF 24 CAN BE SAID TO BE IN THE NATURE OF SCIENTIFIC RESEA RCH, CANNOT BE SUSTAINED. HOWEVER, WE ARE OF THE VIEW THAT THE MATTER SHOULD BE RESTORED TO THE ASSESSING OFFICER WITH A VIEW TO ENABLE THE AO TO C ONSIDER THE CLAIM OF THE ASSESSEE AFRESH IN THE LIGHT OF THE SUBMISSIONS MAD E BY THE ASSESSEE BEFORE THE CIT(A). THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH THE LAW. THE ASSESSEE WILL ALSO BE ENTITLED TO FILE ADDITIONAL E VIDENCE TO SUPPORT ITS CLAIM. 28. THE CROSS OBJECTION BY THE ASSESSEE, IN OUR VIE W, IS ONLY SUPPORTIVE OF THE ORDER OF THE CIT(A) AND THE ADDITIONAL EVIDE NCE SOUGHT TO BE FILED THROUGH THE CO CAN ALSO BE RELIED UPON BY THE ASSES SEE IN THE SET ASIDE PROCEEDINGS BEFORE THE ASSESSING OFFICER. 29. THUS, THE APPEAL OF THE REVENUE AND THE CROSS O BJECTION BY THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PUR POSES. 30. IN THE RESULT, ITA NO.953/B/11 IS DISMISSED, WH ILE ITA NO.938/B/11 AND CO 14/B/13 ARE ALLOWED FOR STATISTICAL PURPOSES . ITAS 939/11 & 940/B/11 AND COS 15 & 16/13 31. ITA NOS.939 & 940/11 ARE APPEALS BY THE REVENUE AND COS 15 & 16/B/13 ARE DIRECTED AGAINST THE COMMON ORDER DATED 19.08.2011 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO AYS 2007-08 & 2008-09 RESPECTIVELY. THE GROUNDS RAISED BY THE REVENUE IN THESE APPEALS AND THE GROUNDS RAISED BY THE ASSESSEE IN THESE CROSS OBJECTIONS AR E IDENTICAL TO THE GROUNDS BY THE REVENUE IN ITA NO.938/B/11 AND THE C O BY THE ASSESSEE IN ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 16 OF 24 CO NO.14/B/13 FOR THE A.Y. 2006-07 AND FOR THE REAS ONS STATED THEREIN, THESE APPEALS AS WELL AS THE COS ARE TREATED AS ALL OWED FOR STATISTICAL PURPOSES. ITA 954/11 32. THE ONLY GRIEVANCE PROJECTED BY THE ASSESSEE IN THIS APPEAL IS THE ACTION OF THE REVENUE AUTHORITIES IN NOT ALLOWING 2 0% OF THE EXPENDITURE OF RS.1,01,59,162 I.E., A SUM OF RS.20,31,832 WHICH WA S THE EXPENDITURE INCURRED IN CONNECTION WITH PREPARATION OF FEASIBIL ITY REPORT, MARKET SURVEY, PROJECT REPORT PREPARATION, STAMP DUTY, ETC. CLAIME D BY THE ASSESSEE U/S. 35D OF THE ACT. 33. THE AO REJECTED THE CLAIM OF THE ASSESSEE FOR D EDUCTION U/S. 35D OF THE ACT HOLDING THAT THE EXPENDITURE IS CAPITAL IN NATURE. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE AO FOR THE FOLLOWING REASONS:- 11.2 I HAVE CONSIDERED THE ABOVE. THE PROVISIONS OF SEC 35D IS APPLICABLE WHEN THE EXPENDITURE IS INCURRED AFTER T HE COMMENCEMENT OF BUSINESS FOR EXTENSION OF THE INDUS TRIAL UNDERTAKING OR SETTING UP A NEW INDUSTRIAL UNIT AND SUCH EXPENDITURE MAY BE INCURRED ON PREPARATION OF A FEA SIBILITY REPORT/PROJECT REPORT/CONDUCTING MARKET SURVEY. THE A.R. PLEADED THAT THE EXPENDITURE OF RS.1,01,59,162/- HAD BEEN I NCURRED TOWARDS COST OF FEASIBILITY AND PREPARATION OF PROJ ECT REPOT AND THE TOTAL EXPENDITURE HAD BEEN AMORTISED AND THEREF ORE THE CLAIM HAS BEEN LIMITED TO 1/5TH I.E. RS.20,31,832/-. HOWE VER, I FIND THE EXPENDITURE HAS BEEN INCURRED ON INCREASING THE AUT HORISED SHARE CAPITAL FROM 6 CRORES FROM A.Y.2005-06 TO RS.12 CRO RES IN A.Y.2006-07. THEREFORE, THE A.O. HAS RIGHTLY HELD T HE SAME AS CAPITAL EXPENDITURE. THE ADDITION IS CONFIRMED. APP EAL ON THIS ISSUE IS DECIDED AGAINST THE APPELLANT. ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 17 OF 24 34. A PERUSAL OF THE ORDER OF THE CIT(A) CLEARLY RE VEALS THAT HE HAS PROCEEDED ON THE ASSUMPTION THAT THE EXPENDITURE IN QUESTION IS FOR ISSUE OF SHARE CAPITAL. IN THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE AO, WHICH ARE AT PAGES 72 TO 88 OF THE ASSESSEES PAPER BOOK, THE BREAK-UP OF THESE EXPENSES IS GIVEN, WHICH IS AS FOLLOWS:- THE FEASIBILITY REPORT EXPENSES : 31,46,080 MARKET SURVEY : 7,00,000 PROJECT REPORT : 56,12,000 STAMP DUTY EXPENSES : 6,00,000 LEGAL CHARGES : 11,28,274 TOTAL : 1,11,86,354 LESS : SERVICE TAX 10,27,192 NET EXPENSES : 1,01,59,162 35. IT IS THUS CLEAR THAT THE CIT(A) HAS PROCEEDED ON AN ERRONEOUS BASIS WITH REGARD TO THE NATURE OF EXPENSES. THE AO HAS PROCEEDED UNDER THE ASSUMPTION THAT CAPITAL EXPENDITURE CANNOT BE ALLOW ED U/S. 35D OF THE ACT. THE PROVISIONS OF SECTION 35D DOES NOT MAKE ANY DIS TINCTION BETWEEN CAPITAL AND REVENUE EXPENDITURE. ANY EXPENDITURE I NCURRED AFTER COMMENCEMENT OF BUSINESS IN CONNECTION WITH EXPANSI ON OF THE UNDERTAKING OR IN CONNECTION WITH THE SET UP OF A N EW UNIT HAS TO BE ALLOWED AS A DEDUCTION OVER A PERIOD OF FIVE YEARS FROM THE PREVIOUS YEAR IN WHICH THE EXPANSION OF THE UNDERTAKING IS COMPLETED OR TH E NEW UNIT COMMENCES ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 18 OF 24 PRODUCTION OR OPERATION IS TO BE ALLOWED AS DEDUCTI ON U/S.35D OF THE ACT. THE NATURE OF EXPENSES THAT WILL BE ALLOWED IS SET OUT IN SEC.35D(2) OF THE ACT. SINCE THE ISSUE HAS NOT BEEN CONSIDERED IN IT S PROPER PERSPECTIVE WITH REFERENCE TO PROVISIONS OF SECTION 35D OF THE ACT, WE DEEM IT APPROPRIATE TO SET ASIDE THE ORDER OF THE CIT(A) AND REMAND THE IS SUE TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THE AO WILL AFFOR D OPPORTUNITY OF BEING HEARD TO THE ASSESSEE FOR DECIDING THE ISSUE IN ACC ORDANCE WITH THE LAW. 36. THUS, THE APPEAL BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITAS 1401 & 1530/12 AND CO 17/13 37. THE APPEALS IN ITA NO.1401 & 1530/B/12 ARE APPE ALS BY THE ASSESSEE & REVENUE RESPECTIVELY AND THE CROSS OBJEC TION IS BY THE ASSESSEE, WHICH ARE ALL DIRECTED AGAINST THE ORDER DATED 23.08.2012 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO A.Y. 2009-10. ITA 1530/12 & CO 17/13 38. ONE OF THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL (IN GR.NO.1 TO 4) AND THE GROUNDS RAISED BY THE ASSESSEE IN ITS CO ARE IDENTICAL TO THE GROUNDS BY THE REVENUE IN ITA NO.938/B/11 AND THE C O BY THE ASSESSEE IN CO NO.14/B/13 FOR THE A.Y. 2006-07 AND FOR THE REAS ONS STATED THEREIN, THIS APPEAL AS WELL AS THE CO IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 39. THE ISSUE RAISED BY THE REVENUE IN GROUND NO.5 OF THE GROUNDS OF APPEAL IS WITH REGARD TO THE ACTION OF THE CIT(A) I N ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.35D OF THE ACT. THIS IS SUE IS IDENTICAL TO THE ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 19 OF 24 ISSUE RAISED BY THE ASSESSEE IN ITA NO.954/B/11 FOR A.Y.08-09. THE REVENUE DISALLOWED THE CLAIM FOR DEDUCTION U/S.35D OF THE ACT IN AY 08-09 BUT ALLOWED THE CLAIM IN 09-10. WHILE DECIDING THE ISSUE IN ASSESSEES APPEAL FOR AY 08-09 WE HAVE ALREADY REMANDED THE IS SUE TO THE AO FOR FRESH CONSIDERATION. THE DEDUCTION U/S.35D HAS TO BE ALLOWED FOR A PERIOD OF 5 YEARS. THE CLAIM CANNOT BE ALLOWED IN ONE YEA R AND DISALLOWED IN ANOTHER YEAR. SINCE THE ISSUE HAS NOT BEEN PROPERL Y EXAMINED BY THE CIT(A) IN THE PRESENT A.Y. AND SINCE IDENTICAL ISSU E HAS ALREADY BEEN REMANDED TO THE AO FOR FRESH CONSIDERATION IN AY 08 -09, WE ARE OF THE VIEW THAT THE ISSUE IN THE PRESENT A.Y. SHOULD ALSO BE R EMANDED TO THE AO FOR FRESH CONSIDERATION AND AS PER DIRECTIONS GIVEN BY US IN AY 08-09. ITA 1401/12 THE FIRST ISSUE RAISED BY THE ASSESSEE IN THIS APPE AL IS WITH REGARD TO DISALLOWANCE OF 1/5 TH OF EXPENDITURE OF RS.48,11,867 I.E,. A SUM OF RS.9,62,373 (1/5 TH OF TOTAL EXPENSES) CLAIMED AS A DEDUCTION BY THE ASSESSEE UNDER SECTION 35D OF THE ACT. 40. THE CLAIM FOR DEDUCTION WAS REJECTED BY THE CIT (A) ON THE GROUND THAT THE CLAIM SHOULD HAVE BEEN MADE IN A.Y. 2008-0 9 WHEN SHARES WERE ISSUED AND NOT IN THE PRESENT ASSESSMENT YEAR. THE AO DISALLOWED THE CLAIM ON THE GROUND THAT SHARE ISSUE EXPENSES ARE C APITAL IN NATURE AND CANNOT BE ALLOWED AS A DEDUCTION. 41. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT U/S. 35D(2)(C)(IV) OF THE ACT, ANY EXPENSES IN CONNECTIO N WITH THE ISSUE, FOR ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 20 OF 24 PUBLIC SUBSCRIPTION, OF SHARES OR DEBENTURES OF THE COMPANY WILL ALSO BE ALLOWED AS A DEDUCTION. THIS IS OF COURSE SUBJECT TO ASSESSEE FULFILLING THE CONDITIONS MENTIONED IN SECTION 35D(1)(II) OF THE A CT. FROM THE ORDERS OF THE REVENUE AUTHORITIES, IT IS NOT CLEAR AS TO WHIC H IS THE YEAR IN WHICH THE SHARE ISSUE EXPENSES ARE INCURRED. WE ARE OF THE V IEW THAT IT WOULD BE JUST AND PROPER TO SET ASIDE THE ORDER OF THE CIT(A) AND REMAND THE ISSUE TO THE AO FOR FRESH CONSIDERATION. THE ASSESSING OFFICER WILL CONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE PROVISIONS OF SECTION 35 D AFTER AFFORDING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECI DE THE ISSUE IN ACCORDANCE WITH THE LAW. FOR STATISTICAL PURPOSES, THE APPEAL BY THE ASSESSEE IS ALLOWED. 42. THE SECOND ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL WITH REGARD TO DISALLOWANCE OF RS.8,77,010/- BEING AMALGAMATION EX PENSES WAS NOT PRESSED AND THE SAME IS DISMISSED AS NOT PRESSED. 43. THE APPEALS IN ITA 1401/12 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND 1530/12 AS WELL AS CO NO.17/13 ARE TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. 44. TO SUM UP, THE APPEALS IN :- ITA NOS. 938 TO 940/B/11 & CO NOS. 14 TO 17/B/13 AR E ALLOWED FOR STATISTICAL PURPOSES; ITA NO.951, 952 & 954/B/11 ARE ALLOWED FOR STATISTI CAL PURPOSES, WHILE ITA NO.953/B/11 IS DISMISSED; ITA NO.1401/B/12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES; AND ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 21 OF 24 ITA NO. 1530/B/12 IS ALLOWED FOR STATISTICAL PURPOS ES. PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF MARCH, 2013. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 08 TH MARCH, 2013. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE. ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 22 OF 24 ANNEXURE-I WRITE UP ON RESEARCH AND DEVELOPMENT ACTIVITIES (ASSESSMENT YEARS 2007-08 AND 2008-09) A. NARRATIVE WRITE UP ON SEALING & SHIELDING PLUGS OF NUCLEAR REACTORS FOR POWER GENERATION : SEALING PLUGS AND SHIELDING PLUGS ARE THE CRITICAL SUB ASSEMBLIES WHICH ARE USED IN THE FUELLING PROCESS IN THE NUCLE AR REACTORS FOR POWER GENERATION. THESE ASSEMBLIES ARE MANUFACTURED USING SPECIAL GRA DE STAINLESS STEEL UNDER RIGID QUALITY CONTROL PROCESS, ASSEMBLED AND TESTED IN DUST PROOF & CONTROLLED ATMOSPHERE. THE FUNCTION OF THE SEALING PLUG IS TO CLOSE BOTH E NDS OF REACTOR COOLANT CHANNELS AND PREVENT ESCAPE OF HEAVY WATER FROM THE END FITTINGS, WHICH ARE LOCATED AT BOTH ENDS OF THE COO LANT CHANNEL AND ALSO TO PROVIDE A MEANS OF LOCATING AND STOPPING THE FUEL C OLUMNS FROM MOVING WHEN SEALING PLUGS ARE WITHDRAWN DURING FUEL CHANGI NG. DURING FUEL CHANGING IT IS NECESSARY TO FIRST REMOV E SEALING PLUGS & THEN THE SHIELDING PLUGS FROM THE END FITTINGS USING REM OTELY CONTROLLED FUELLING MACHINES & ARE STORED IN THE RO TATING MAGAZINE OF THE FUELLING MACHINE DURING REFUELLING OPERATION. AFTER COMPLETION OF REFUELLING OPERATION THE PLUGS ARE RE INSTALLED IN THE END FITTINGS. NARRATIVE DESCRIPTION ON THE RELATED TECHNOLOGY DEVELOPED BY AVASARALA THE SUCCESSFUL COMPLETION OF THE PRODUCT WAS BASED ON THE FOLLOWING DEVELOPMENT ACTIVITIES : SINCE THESE ASSEMBLES ARE VERY CRITICAL BY WAY OF R ADIATION FREE OPERATION OF NUCLEAR REACTORS FOR POWER GENERATION, ALL COMPONEN TS ARE MANUFACTURED FOR SAFETY CLAUSE A COMPONENTS A. RESEARCH AND DEVELOPMENT OF JIGS & FIXTURES TO ACHIEVE HIGH ACCURACY COMPONENTS REPEATEDLY. B. RESEARCH AND DEVELOPMENT OF HEAT TREATMENT PROC ESS TO ACHIEVE REQUIRED HARDWARE C. RESEARCH AND DEVELOPMENT OF HARD SURFACE CHROMI UM PLATING ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 23 OF 24 D. RESEARCH AND DEVELOPMENT OF A SPECIAL ELECTROL YTE NICKEL RING PLATING WITHOUT AIR BUBBLES & A HARD BONDING. THIS IS A SP ECIAL PROCESS EXCLUSIVELY DEVELOPED FOR THIS APPLICATION. E. RESEARCH AND DEVELOPMENT OF HYDRAULIC PRESSURE TESTING SET UP EXCLUSIVELY FOR THE ABOVE PROCEDURE. F. SPECIAL SYSTEMS WERE RESEARCHED AND DEVELOPED FO R MANFUACTRUNG PROCESS TRACKING EACH BATCH OF COMPONE NTS WITH INDIVIDUAL IDENTIFICATION NUMBERS LINKED TO TH E HEAT NUMBERS OF THE RAW MATERIALS USED. G. DOCUMENTATION AND PREPARATION OF HISTORY DOCKETS CONTAINING THE PROCESS ENGINEERING, QUALITY ASSURANCE, ASSEMBLY & TEST PROCEDURES WERE DEVELOPED. H. SUPERVISORY STAFF, OPERATORS AND QUALITY ASSURAN CE ENGINEERS WERE GIVEN SPECIAL TRAINING TO MEET THE TECHNOLOGICAL REQUIREM ENT OF THIS TYPE OF PROJECTS. THE CULTURES IN THE MANUFACTURING SHOP, ASSEMBLY WE RE CHANGED REGARDING THE UNDERSTANDING, INTERPRETATION OF VARIOUS INTERN ATIONAL STANDARDS LIKE ASTM, ASME. SPECIAL MATERIAL HANDLING TRAYS, BINS, CRATES WERE INTRODUCED IN THE SHOP AND ASSEMBLY. PEOPLE WERE TRAINED TO HA NDLE THESE COMPONENTS WITH UTMOST CARE AT ALL STAGES OF MANUFACTURING, AS SEMBLY, TESTING AND DISPATCH. TECHNOLOGY SUSTAINANCE & BENEFIT TO THE COMPANY THIS RESEARCH AND DEVELOPMENT CAN SUSTAIN & GROW FU RTHER UP TO 10 TO 15 YEARS. B RESEARCH AND DEVELOPMENT IN.HEALTHCARE DIVISION EXPENDITURE INCURRED IN RESEARCH AND DEVELOPMENT OF HEALTHCARE PRODUCTS/COMPONENTS INVOLVES DEVELOPMENT OF NEW TEC HNOLOGIES FOR THE MANUFACTURE OF 1. HIGH END OPERATION THEATRE TABLES. 2. HIGH-END ANAESTHASIA (SIGNET) MACHINES. 3. EV 600 VENTILATORS. HIGH END OPERATION THEATRE TABLES AVASARALA DESIGNED AND DEVELOPED #555 MODEL. THE EN TIRE DESIGN IS DONE BY AVASARALA ENGINEERS. AFTER COMPLETING THE DESIGN 2 PROTOTYPE TABLES HAVE BEEN MANUFACTURED AND DESIGN VALIDATION IS DONE ON THE TABLE. AUSTRALIA NEEDS TGA APPROVAL AS PART OF THE STATUTORY REQUIRE MENT FOR MEDICAL EQUIPMENTS. ONE TABLE WAS SENT TO AUSTRALIA FOR TGA APPROVAL. TABLE WAS OFFERED TO VARIOUS HOSPITALS IN AUSTRALIA AS PART O F THE TGA VALIDATION. ITA NOS.938 TO 940 & 951 TO 954/B/11, 1401 & 1530/B/12 & CO 14 TO 17/B/13 PAGE 24 OF 24 THE ENTIRE PROCESS OF DESIGN, PROTOTYPING & VALIDAT ION TOOK 18 MONTHS. AS PART OF THE DEVELOPMENT AVASARALA HAS INVESTED IN DEVELOPING OF SPECIAL TOOLS MOULDS & DIES PATTERN FOR CASTINGS ONE TIME DEVELOPMENT CHARGES TO VENDOR THE ENTIRE DESIGN AND THE TOOLS DEVELOPED ARE THE I NTELLECTUAL PROPERTY OF AVASARALA. CURRENTLY THE DESIGN OF THE PRODUCT HAS BEEN PROVEN AND COEFFICIENT HAS GIVEN PROJECTION OF 100 NOS OF CT T ABLES (#555) OUT OF WHICH ORDER WAS PLACED FOR 50 NUMBERS. HIGH END ANAESTHESIA MACHINES (SIGNET) : THE COMPANY DEVELOPED HIGH END ANESTHESIA MACHINES WITH SPECIAL FEATURES INVOLVING SUBSTANTIAL AMOUNT OF R & D FOLLOWING STEPS FOLLOWED IN THE RESEARCH AND DEVELO PMENT: ANALYSIS OF FEATURES & SPECIFICATIONS DISCUSSION WITH THE DOCTORS FINALISATION OF SPECIFICATIONS PROTOTYPE BUILDING TRIALS IN HOSPITAL QUALITY CE MARKING PRODUCT LAUNCH THE ENTIRE DESIGN & DEVELOPMENT WAS DONE AT AVASARA LA. THE NECESSARY PLANT AND MACHINERY AND MANUFACTURING TOOLS & DIES ARE MANUFACTURED AS PART OF THE DEVELOPMENT. VENTILATOR EV 600: THE COMPANY DEVELOPED HIGH END VENTILATOR EV 600 WI TH SPECIAL FEATURES INVOLVING SUBSTANTIAL AMOUNT OF R & D TOWARDS A DISCUSSION WITH DOCTORS B SPECIAL DESIGN C UNIQUE ELECTRONIC CIRCUITRY. D USER FRIENDLY DISPLAY PANEL E ACCURATE VOLUME CONTROL OF ANASTHETIC AGENT E QUALITY C E MARKING FOR EXPORTS THESE PRODUCTS ARE BEING USED BY R & D MEDICAL INST ITUTION LIKE JIPMER, PONDICHERRY, AIMS DELHI, NARAYAN HRUDAYALAYA, BANGA LORE