M/s. Camphor & Allied Products Ltd., Vadodara V. The DCIT, Circle-1(1)(1), Vadodara

ITA 2355/AHD/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4995 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 04-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Assessee Lawyers: K P SINGH
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(2)

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT) BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI AMARJIT SINH, ACCOUNTANT MEMBER ITA NO.2355/AHD/2018 / ASSTT.YEAR : 2014-15 M/S. CAMPHOR & ALLIED PRODUCTS LTD. PLOT NO.3, GIDC INDUSTRIAL ESTATE NANDESARI, VADODRA 391 340 GUJARAT. PAN : AAACC 9211 E VS. DCIT, CIR.1(1)(1) VADODARA. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI K.P. SINGH, AR REVENUE BY : SHRI L.P. JAIN, SR.DR / DATE OF HEARING : 06/01/2021 / DATE OF PRONOUNCEMENT: 09/02/2021 !'/ O R D E R PER RAJPAL YADAV, VICE-PRESIDENT: THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAIN ST ORDER OF THE LD.CIT(A)-1, VADODARA DATED 4.9.2018 PASSED FOR THE ASSTT.YEAR 2014- 15. 2. THE ASSESSEE HAS TAKEN THREE GROUNDS OF APPEAL, BUT ITS GRIEVANCES REVOLVE AROUND A SINGLE ISSUE VIZ. THE L D.CIT(A) HAS ERRED IN CONFIRMING ACTION OF THE AO FOR DENYING WEIGHTED DEDUCTION OF RS.28.05 LAKHS UNDER SECTION 35(2AB) OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY AT THE RELEVANT TIME WAS ENGAGED IN MANUFACTURING OF FINE CHEMICALS. IT HAS FILED ITS RETURN OF INCOME ON 28.11.2014 DECLARING TOTAL INCOME AT ITA NO.2355/AHD/2018 2 RS.20,67,82,140/-. THE CASE OF THE ASSESSEE WAS SE LECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSU ED AND SERVED UPON THE ASSESSEE. A PERUSAL OF THE RECORD WOULD I NDICATE THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.55.22 LAKHS UN DER SECTION 35(2AB) OF THE ACT. THE LD.AO HAS PERUSED THIS CLA IM AND OBSERVED THAT A PERUSAL OF THE COPY OF FORM NO.3CL WOULD IND ICATE THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.26.47 LA KHS TOWARDS REVENUE AND RS.0.35 LAKHS TOWARDS CAPITAL EXPENDITU RE. SINCE THIS AMOUNT OF RS.26.47 LAKHS WAS ALREADY CLAIMED IN THE REVENUE EXPENDITURE, THEREFORE, DEDUCTION UNDER SECTION 35( 2AB) IS TO BE GRANTED AT 200%. HE ACCORDINGLY GRANTED DEDUCTION AT RS.26.47 LAKHS TOWARDS REVENUE EXPENDITURE AND RS.0.35 LAKHS OF CA PITAL EXPENDITURE. THUS, HE GRANTED DEDUCTION OF RS.27.17 LAKHS AGAINS T THE CLAIM OF RS.55.22 LAKHS. THIS EXERCISE HAS RESULTED IN AN AD DITION OF RS.28.05 LAKHS. DISSATISFIED WITH THE ACTION OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). IT HAS FILE D A WRITTEN SUBMISSION WHICH HAS BEEN REPRODUCED BY THE LD.CIT( A), AND THE SUBMISSIONS MADE BY THE ASSESSEE ON THIS ISSUE READ AS UNDER: 2. EXCESS DEDUCTION CLAIMED U/S. 35(2AB) AS COMPAR ED TO THE APPROVAL IN FORM 3CL - RS.28,05,060/-. SECTION 35(2AB) OF THE ACT SPEAKS AS UNDER: 'WHERE A COMPANY ENGAGED IN THE BUSINESS OF BIO-TEC HNOLOGY OR IN ANY BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THING, NOT BEING AN ARTICLE OR THING SPECIFIED IN THE LIST OF THE EL EVENTH SCHEDULE, INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING E XPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY, THEN, THERE SHALL BE ALLOWED A DEDUCTION OF A SUM EQUAL TO TWO TIMES OF THE EXPENDITURE SO INCURRED. ' DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AP PELLANT COMPANY HAS BEEN ASKED TO PRODUCE FORM 3CL AND 3CM FOR THE PURPOSE OF VERIFICATION OF WEIGHTED DEDUCTION CLAIMED U/S. 35( 2AB) OF THE ACT. THE ITA NO.2355/AHD/2018 3 APPELLANT HAS DULY FURNISHED ALL THE RELEVANT DETAI LS IN SUPPORT OF ITS CLAIM TAKEN U/S. 35(2AB) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE LD. AO HAS T AKEN CERTAIN FIGURES FROM FORM 3CL AND CONTENDED THAT THE APPELL ANT HAS TAKEN EXCESS CLAIM OF RS. 28,05,000/-, WITHOUT IN DEPTH S TUDY OF FORM 3CL AND FORM 3CM. CONSEQUENTLY, AN ADDITION OF RS. 28,05,00 0/- HAS BEEN MADE BY THE LD. AO WHICH IS ABSOLUTELY INCORRECT. IN RES PONSE TO THE SAME, WE HEREBY PRODUCE FACTS AND FIGURES RELATED TO DEDUCTI ON CLAIMED BY THE APPELLANT U/S. 35(2AB) OF THE ACT: DETAILS OF EXPENSES OCCURRED FOR R & D EXPENDITURES (BASED ON FORM 3CL) ARE PRODUCED IN THE FOLLOWING TABLE: SR. NO. PARTICULARS AMOUNT (IN RS.) A CONSUMPTION OF STORES AND SPARES PARTS 2,82,703 B POWER AND FUEL 6,65,412 C OTHER MANUFACTURING AND OPERATING EXPENSE 91,896 D EMPLOYEE BENEFITS EXPENSES 25,92,205 E RENT 5,062 F INSURANCE 53,183 G RATES AND TAXES, EXCLUDING TAXES ON INCOME 3,813 H FREIGHT 1,52,172 I LEGAL & PROFESSIONAL CHARGES 21,59,664 J MISCELLANEOUS EXPENSES RELATED TO R & D EXPENDITU RE 6,63,147 K TOTAL REVENUE EXPE NSES (A+ B+C+ D+E -I-F+ G.H- H + I-T-J) 66,69,257 L TOTAL CAPITAL EXPENDITURES 35,410 M TOTAL R & D RELATED EXPENDITURES (K + L) 67,04,667 N INCOME GENERATED DURING R & D ACTIVITIES 4,14,191 0 R & D EXPENSES TO BE CLAIMED (M-N) 62,90,476 P 200% OF R&D EXPENDITURE (0*200%) 1,25,80,952 Q EXPENSES RELATED TO R & D ALREADY DEBITED TO PROFIT & LOSS ACCOUNT (K) 66,69,257 ITA NO.2355/AHD/2018 4 R EXPENSES TO BE CLAIMED U/S. 35(2AB) OF THE ACT IN RETURN OF INCOME(ROI) (P-Q) 59,11,695 S CLAIMED BY THE ASSESSEE IN ROI ON ACTUAL BASIS 55,22,020 THE ABOVE FIGURES ARE IN CONFORMITY WITH THE DETAIL S SUBMITTED IN FORM 3CL AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR UNDER CONSIDERATION. WE HEREBY PRODUCE COPY OF FORM 3CL AND FINANCIAL ST ATEMENTS FOR YOUR REFERENCE. IT IS PERTINENT TO NOTE THAT WHILE MAKING AN APPLIC ATION IN FORM 3CK TO DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH, MIN ISTRY OF SCIENCE & TECHNOLOGY, GOVERNMENT OF INDIA, THE COMPANY HAS PR ODUCED ALL THE ABOVE FIGURES FOR APPROVAL. THE DEPARTMENT OF SCIEN TIFIC & INDUSTRIAL RESEARCH HAS DULY APPROVED THE FIGURES AND GRANTED A CERTIFICATE TO THE APPELLANT COMPANY. FROM THE ABOVE TABLE, IT CAN BE VERIFIED THAT THE A PPELLANT HAS CLAIMED DEDUCTION U/S. 35(2AB) OF THE ACT IN ACCORDANCE WIT H AN APPROVAL FROM DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH. WHILE REFERRING TO ASSESSMENT ORDER, IT IS APPARENT THAT THE LD. AO HAS MERELY CONSIDERED EXPENDITURE OF RS. 26.47 LACS AND COMPARED THE SAME WITH DEDUCTION CLAIMED OF RS. 55,22,000/-, WIT HOUT VERIFICATION OF ALL THE EXPENSES INCURRED FOR R & D PURPOSE. IT SEEMS T HAT THE ACTION OF THE AO IS NOT FULL PROOF AND ACTED BASED ON MERE SURMIS E AND PRESUMPTIONS. THEREFORE, FROM THE ABOVE DISCUSSION, WE REQUEST YO UR HONOUR TO KINDLY DELETE THE WHOLE ADDITION OF 28,05,000/- MADE BY TH E AO. 4. THE LD.CIT(A) HAS REJECTED THE CONTENTIONS OF TH E ASSESSEE BY RECORDING A FOLLOWING FINDING: 4.2,1, DURING THE COURSE OF THE APPELLATE PROCEEDI NGS, THE LD. AR VIDE HIS WRITTEN SUBMISSION REPRODUCED ABOVE HAS ST ATED THAT THE TOTAL REVENUE EXPENDITURE ON SCIENTIFIC RESEARCH WA S RS.66,69,257/- AND AFTER RECOVERING THE REVENUE GENERATED FROM R & D FACILITIES, THE NET REVENUE AND CAPITAL EXPENDITURE WAS RS.62,90,47 6/- ELIGIBLE FOR WEIGHTED DEDUCTION AT 200% AMOUNTING TO RS.1,25,80, 952/-, SINCE, THE REVENUE EXPENDITURE TO THE TUNE OF RS.66,69,257 /- WAS ALREADY CLAIMED IN THE P & L ACCOUNT, DEDUCTION OF THE EXPE NDITURE OF RS.59,11,695/- WAS ADMISSIBLE U/S 35(2AB). HOWEVER, THE APPELLANT HAS CLAIMED DEDUCTION ONLY TO THE EXTENT OF RS.55,2 2,000/-. ON CAREFUL CONSIDERATION OF THE MATERIAL PLACED ON REC ORD, I FIND THAT THE APPELLANT HAS NOT MAINTAINED SEPARATE BOOKS OF ACCO UNT FOR R & D ITA NO.2355/AHD/2018 5 FACILITY AND HENCE, IT IS NOT VERIFIABLE AS TO HOW MUCH EXPENDITURE WAS ACTUALLY INCURRED FOR RESEARCH AND DEVELOPMENT ACTIVITY. ) THUS, ONLY SOURCE OF VERIFICATION AVAILABLE IS A CERTIFIC ATE ISSUED BY DSIR IN FORM NO. 3CL. ACCORDING TO THIS CERTIFICATE, THE DSIR AS CERTIFIED CAPITAL EXPENDITURE OF RS.0.35 LAKHS AND REVENUE EX PENDITURE OF RS.26.47 LAKHS ELIGIBLE FOR DEDUCTION U/S 35(2AB). THE AO HAS ALLOWED DEDUCTION U/S.35(2AB) ON THE BASIS OF FORM NO. 3CL ONLY AND HENCE, I FIND NO INFIRMITY IN THE ACTION OF THE AO. ACCORDINGLY, DISALLOWANCE MADE BY THE AO ON THIS ACCOUNT IS CONF IRMED AND GROUND 2 IS DISMISSED. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT FACILITY OF THE ASSESSEE ENGAGED IN RESEA RCH ACTIVITY HAS DULY BEEN CERTIFIED BY DSIR. THUS, THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT DEDUCTION UNDER SECTION 35(2AB) OF THE AC T IS ADMISSIBLE TO THE ASSESSEE. THE AO HIMSELF HAS GRANTED THIS DEDU CTION. THE DISPUTE REMAINS FOR QUANTIFICATION OF THE AMOUNT ON WHICH T HIS DEDUCTION IS TO BE GRANTED. AS PER THE AO, HE HAS CONSIDERED THIS EXPENDITURE PERTAINING TO THIS RESEARCH ACTIVITY WHICH IS APPEA RING IN FORM 3CL I.E. FORMS SUBMITTED TO DSIR. ON THE OTHER HAND, THE ST AND OF THE ASSESSEE IS THAT WHATEVER EXPENDITURE IT HAS INCURRED IN THI S RESEARCH WING ARE ALL ELIGIBLE FOR DEDUCTION AT THE RATE OF 200%. WE HAVE PERUSED THE FINDING OF THE AO. HE NOWHERE BOTHERED TO EXAMINE THE NATURE OF THE EXPENDITURE. IN APPEAL THE LD.CIT(A) INSTEAD OF A PPRECIATING THE NATURE OF THE EXPENDITURE HAS OBSERVED THAT THE ASS ESSEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR R&D FACIL ITY, AND HENCE IT IS NOT VERIFIABLE AS TO HOW MUCH EXPENDITURE THEY A CTUALLY INCURRED FOR RESEARCH DEVELOPMENT ACTIVITY. ARMED WITH THIS REA SONING, THE LD.CIT(A) HAS PUT RELIANCE ON FORM NO.3CL. TO OUR MIND THIS REASONING IS NOT SUSTAINABLE BECAUSE THE ASSESSEE I S A COMPANY WHICH HAS RETURNED INCOME OF MORE THAN RS.20.67 CORES. I T HAS GIVEN LIST OF ITA NO.2355/AHD/2018 6 EXPENDITURE, WHICH WE HAVE TAKEN COGNIZANCE WHILE E XTRACTING THE SUBMISSIONS OF THE ASSESSEE FILED BEFORE THE LD.CIT (A). THE FIRST ITEM IN THIS LIST IS CONSUMPTION OF STORES AND SPARE PAR TS. IT HAS BEEN QUANTIFIED AT RS.2,82,703/-. THIS ITEM CANNOT BE A N ITEM FROM OVERALL LIST OF SPARES AND STORES OF A COMPANY WHOSE RETURN ED INCOME IS MORE THAN RS.20.67 CRORES. THUS, ACCORDING TO THE ASSES SEE, IT HAS SUBMITTED COMPLETE DETAILS DURING THE ASSESSMENT PROCEEDINGS AS WELL AS BEFORE THE LD.CIT(A). BUT NONE HAS BOTHERED TO LOOK INTO. AFTER PERUSAL OF THE DETAILS OF EXPENDITURE, WE ARE OF THE VIEW THAT THE LD.CIT(A) HAS FAILED TO ANALYTICALLY EXAMINE THE CLAIM OF THE ASS ESSEE. HE SIMPLY PROCEEDED ON BASIS OF THE LIST OF EXPENDITURE SUBMI TTED BEFORE THE DSIR. PROVISION NOWHERE CONTEMPLATES THAT ASSESSEE WOULD CLAIM DEDUCTION ONLY THOSE EXPENDITURE WHOSE DETAILS HAS BEEN FORWARDED TO THE DSIR FOR THE PURPOSE OF AVAILING CERTIFICATE OF APPROVAL FOR ORGANIZATION ENGAGED IN RESEARCH ACTIVITY. IF AN A SSESSEE INDEPENDENTLY DEMONSTRATES EXPENDITURE IN THE RESEA RCH ACTIVITY (SEE THE SUBMISSION EXTRACTED ABOVE), THEN THEIR NATURE IS REQUIRED TO BE LOOKED INTO BEFORE TAKING A CALL FOR AN ADDITION. NO SUCH EFFORTS WERE MADE BY THE REVENUE AUTHORITIES. THEREFORE, ORDERS OF THE REVENUE AUTHORITIES ARE NOT SUSTAINABLE. WE ALLOW THIS GRO UND OF APPEAL, AND DELETE ADDITION OF RS.28,05,000/-. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 9 TH FEBRUARY, 2021 AT AHMEDABAD. S D / - (AMARJIT SINGH) ACCOUNTANT MEMBER S D / - (RAJPAL YADAV) VICE-PRESIDENT AHMEDABAD; DATED 09/02/2021