ITO 8(3)3, MUMBAI V. TRANCHEM LTD, MUMBAI

ITA 1457/MUM/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 6263 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 04-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR SINGH
• Assessee Lawyers: H S RAHEJA
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI P.M.JAGTAP, AM & SMT. P.MADHAVI DEVI, JM I.T.A.NO.1457/MUM/2009 - A.Y 2006-07 INCOME TAX OFFICER, 8 (3) -3 MUMBAI. VS. M/S TRANSCHEM LIMITED, A/21, SAUBHAGYA CO-OP. HSG. SOCIETY JEEVAN VIKAS KENDRA ROAD ANDHERI (EAST) MUMBAI 400 058 PAN NO. AAACT 2645 K (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ANIL KUMAR SINGH. ASSESSEE BY : SHRI H. S. RAHEJA. O R D E R PER P.MADHAVI DEVI, JM: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST CIT (A)S ORDER DATED 31-12-2008. 2. THE ONLY GRIEVANCE OF THE REVENUE IN THIS APPEAL IS THAT THE LD. CIT[A] HAS ERRED IN DELETING THE ADDITION OF RS.1, 02,00,000/- MADE BY THE AO BY TREATING THE RESEARCH AND DEVELOPMENT EXP ENDITURE AS CAPITAL IN NATURE WITHOUT APPRECIATING THE FACTS AN D CIRCUMSTANCES OF THE CASE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE MANUFACTURE AND EXPORT OF BULK DRUGS AND ALSO TRADING IN SHARES. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AS NIL. DUR ING THE ASSESSMENT PROCEEDINGS 143[3], AO OBSERVED THAT THE ASSESSEE H AS PAID A SUM OF 2 RS.1,02,00,000/- TO M/S P.I.DRUGS & PHARMACEUTICALS LTD. TOWARDS RESEARCH AND DEVELOPMENT AND IT HAS BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT UNDER THE HEAD LABORATORY AND R&D EXPENSES . THE ASSESSEE WAS ASKED TO CLARIFY ON ALLOWABILITY OF THE SAID EX PENDITURE. THE ASSESSEE SUBMITTED ITS REPLY DATED 18-2-2008. AFTER CONSIDER THE SAME, AO CONCLUDED THAT SIMILAR REPLY HAS BEEN FURNISHED FOR THE A.Y 2005-06 ALSO WHICH HAS NOT BEEN ACCEPTED AND FOR THE DETAIL ED REASONING GIVEN IN THE ORDER U/S.143[3] FOR THE A.Y 2005-06, IT IS NOT ALLOWABLE AS REVENUE EXPENDITURE IN THIS YEAR ALSO. 4. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE C IT[A] WHO FOLLOWED THE ORDER OF HIS PREDECESSOR FOR THE A.YRS . 2003-04, 2004-05 AND 2005-06 AND ALSO THE DECISION OF THE TRIBUNAL F OR THE RELEVANT ASSESSMENT YEAR AND DELETED THE DISALLOWANCE. AGGRI EVED, REVENUE IS IN APPEAL BEFORE US. 5. WHILE THE LD. DR PLACED RELIANCE ON THE ORDER OF THE AO, THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED BEFORE US DECIS ION OF THE B BENCH OF THE TRIBUNAL IN I.T.A.NO.4083/M/06 IN THE ASSESS EES OWN CASE FOR A.Y 2003-04 WHEREIN THE ISSUE HAS BEEN EXAMINED AT LENGTH AT PARA-4 AND IT HAS BEEN HELD AS UNDER- 4. AFTER CONSIDERING THE SUBMISSION AND PERUSING T HE RELEVANT MATERIAL ON RECORD, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT[A] . THE FINDING OF THE LD CIT[A] ARE GIVEN AT PAGE 5 & 6 OF HIS ORDER WHICH ARE AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BY THE APPELLANT. AFTER CONSIDERIN G THE FACTS OF THE CASE AND SUBMISSION OF THE APPELLA NT, I AM OF THE OPINION THAT ABOVE EXPENDITURE HAS BEEN INCURRED BY THE APPELLANT FOR ITS BUSINESS PURPOSES AND 3 THEREFORE IS ALLOWABLE. AS ALREADY DISCUSSED, APPEL LANT IS IN THE BUSINESS OF MANUFACTURING BULK DRUGS AND PHARMACEUTICAL PRODUCTS. APPELLANT HAS TO UNDERTAKE ON REGULAR BASIS TESTING AND DEVELOPMENT OF DIFFERE NT PRODUCTS. SINCE THE APPELLANT ITSELF DOES NOT HAVE THE REQUIRED FACILITY, APPELLANT GETS SUCH RESEARCH AND DEVELOPMENT AND TESTING BY ANOTHER COMPANY NAMELY PI DRUGS & PHARMACEUTICALS. APPELLANT PAYS CHARGES FOR SUCH TESTING AND DEVELOPMENT TO THE SAID PI DRU GS & PHARMACEUTICALS. SUCH CHARGES INCLUDE COST OF CHEMICALS, CONSUMABLES AND ANALYSIS CHARGES. THESE CHARGES HAVE BEEN DEBITED UNDER THE HEAD, LABORATORIES, RESEARCH & DEVELOPMENT EXPENSES. IN MY OPINION, THE AFORESAID EXPENSES INCURRED FOR TES TING AND DEVELOPMENT OF PHARMACEUTICALS DRUGS DOES NOT AMOUNT TO EXPENDITURE RESULTING INTO BENEFIT OF ENDURING NATURE AS ERRONEOUSLY HELD BY THE AO. SUCH EXPENDITURE IS INCURRED IN THE REGULAR COURSE OF BUSINESS AND PAYMENTS ARE MADE EVERY MONTH. MOREOVER, APPELLANT HAS STATED THAT SUCH EXPENDITUR E HAS REGULARLY BEEN INCURRED AND IN NO TIME IN THE P AST, ANY PART OF SUCH EXPENDITURE HAS BEEN DISALLOWED. CONSIDERING THE DISCUSSION MADE ABOVE, I AM OF THE OPINION, THAT ABOVE EXPENDITURE IS ALLOWABLE AND, THEREFORE, ADDITION IS DELETED. AS FACTS AND CIRCUMSTANCES ARE SIMILAR, RESPECTFULL Y FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT[A] AND ACCORDINGLY THE GROUND OF APPEAL RAISED BY THE REVENUE IS REJECTED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 4 TH DAY OF FEBRUARY, 2010. SD/- SD/- (P.M.JAGTAP) (P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 4 TH FEBRUARY, 2010. P/-* 4 COPY TO- 1) APPELLANT 2) RESPONDENT 3) CITA MUMBAI. 4) CIT CITY MUMBAI 5) DR BENCH MUMBAI TRUE COPY BY ORDER DY /ASST.REGISTRAR,ITAT MUMBAI. SR.NO. PARTICULARS DATE INITIALS 1 DRAFT DICTATED ON 2-2-10 P 2 DRAFT PLACED BEFORE AUTHOR 3-2-10 P 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO SR.PS/PS 6 ORDER KEPT FOR PRONOUNCEMENT 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER