Physical Research Laboratory, Ahmedabad V. The Dy.DIT(Exemp), Ahmedabad

ITA 2431/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6675 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 02-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHN
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Opportunity of being heard; Initiation of penalty proceedings; Competent authority
• Section: 234B; 12A; 12; 10

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.2431/AHD/2010 A. Y.: 2007-08 PHYSICAL RESEARCH LABORATORY, NAVRANGPURA, UNIVERSITY ROAD, AHMEDABAD VS THE DDIT(EXEMPTION), AAYAKAR BHAVAN, ASHRAM ROAD, AHMEDABAD PA NO. AAATP 4384 L (APPLICANT) (RESPONDENT) APPELLANT BY SHRI S. N. SOPARKAR, AR RESPONDENT BY SHRI ALOK JOHN, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XX I, AHMEDABAD DATED 07-06-2010 FOR ASSESSMENT YEAR 2007-08 ON THE FOLLOWING GROUNDS: 1. LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO IN NOT GRANTING DEDUCTION U/S 10(21) OF THE ACT. BOTH THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THE FACT THAT THE APPELLANT CONDUCTS THE RESEARCH ACTIVITIES IN THE F ILED OF PHYSICAL SCIENCES FROM THE GRANTS RECEIVED FROM THE GOVERNMENT. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED THE DEDUCTION CLAIMED BY THE APPELLANT U/S 10(21) OF THE ACT DENIED BY THE AO. ITA NO.2431/AHD/2010 PHYSICAL RESEARCH LABORATORY VS DDIT (EXEMPTION), A HMEDABAD 2 2. ALTERNATIVELY AND WITHOUT PREJUDICE LEARNED CIT( A) OUGHT NOT TO HAVE CONFIRMED DENIAL OF CLAIM OF DEPRECIATION ON THE ASSETS DEPLOYED FOR THE PURPOSE OF ACTIVITIES. 3. LEARNED CIT(A) HAD ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION OF RS.81,83,211/- MADE BY AO ON ACCOUNT OF DIFFERENCE IN COMPUTATION OF EXCESS O F INCOME OVER EXPENDITURE IN ADDITION TO DENIAL OF EXEMPTION U/S 10 (21) OF THE ACT. THIS ACTION OF LEARNED CIT(A) IN CONFIRMING ADDITION OF DIFFERENCE IN INCOME OVER EXPENDITURE MADE BY AO IS COMPLETELY UNLAWFUL, HARSH AND AGAINST THE PRINCIPLES OF NATUR AL JUSTICE. 4. LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION OF RS.2,80,00,000/- MADE BY AO OF GRANTS SPECIFICALLY RECEIVED FOR ACQUISITION OF FIXED ASSETS ALLEGING THE AMOUNT TO BE ACCUMULATION OF SURPLUS. BOTH THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT THE CONTRIBUTIONS BY WAY OF GRANT WERE FOR ACQUISITION OF FIXED ASSETS AND HAVE NOT BEEN CLAIMED AS EXPENDITURE BUT CAPITALIZED AS ASSETS IN THE BOOKS OF THE APPELLANT. LEARNED CIT(A ) CONFIRMED THE ADDITION MADE IN TOTAL DISREGARD TO T HE FACTS OF THE APPELLANT AND THE ORDER OF LD. CIT(A) DESERVED TO BE QUASHED. 5. LEVY OF INTEREST U/S 234B & 234C OF THE ACT IS N OT JUSTIFIED. 6. INITIATION OF PENALTY PROCEEDINGS U/S 271 (1) ( C ) OF THE ACT IS UNJUSTIFIED. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT ASSESSEE HAD SHOWN TOTAL INCOME OF RS.2,03,25,584/- WHICH WAS CLAIMED AS EXE MPT U/S 10(21) OF THE IT ACT AND THUS TOTAL INCOME WAS SHOWN AT RS. NIL. THE AO IN THE ASSESSMENT ORDER OBSERVED THAT THE ASSESSEE WAS REGISTERED ITA NO.2431/AHD/2010 PHYSICAL RESEARCH LABORATORY VS DDIT (EXEMPTION), A HMEDABAD 3 WITH CHARITY COMMISSIONER AND HAD NOT OBTAINED REGI STRATION U/S 12A OF THE IT ACT. HOWEVER, IT WAS GRANTED REGISTRATION U/S 35 (1) (II) AND (III) OF THE IT ACT FOR THE PERIOD FROM 1 ST APRIL 1997 TO 31 ST MARCH, 2000. IT HAD OBTAINED REGISTRATION VIDE NOTIFICATION OF C BDT NO.5/2009 DATED 1-4-2008. IT IS STATED BY THE AO THAT HOWEVER, IT WAS NOT GRANTED REGISTRATION/APPROVAL U/S 35 (1) (II) OF THE IT ACT FOR THE FINANCIAL YEAR 2006-07 AND 2007-08. HE, THEREFORE, BELIEVED THAT D ELUSION U/S 10 (21) OF THE IT ACT WOULD NOT BE ALLOWED AND CALLED FOR EXPLANATION OF THE ASSESSEE. THE ASSESSEES MAIN OBJECTION BEFORE THE AO WAS THAT THEY HAVE APPLIED FOR REGISTRATION SUBSEQUENT TO 1- 4-2003 BUT NO REPLY HAS BEEN RECEIVED AND THAT THE ASSESSEE WAS GETTING CONTRIBUTION FROM GOVERNMENT OF INDIA (DEPARTMENT OF ATOMIC ENER GY AND DEPARTMENT OF SPACE OF GOVERNMENT OF INDIA). IT WAS ENGAGED IN VARIOUS RESEARCH PROGRAMMES AND FOR THAT IT WAS GET TING RECURRING GRANT FROM GOVERNMENT OF INDIA. IT HAS TO PREPARE B UDGET FOR OPERATIONAL EXPENSES, ADMINISTRATION EXPENSES, MAIN TENANCE OF ASSETS, ACQUISITION OF ASSETS ETC. WHICH IS PLACED BEFORE THE GOVERNMENT FOR RELEASE OF THE FUNDS. IT WAS CREDITE D (GRANT) TO INCOME AND EXPENDITURE ACCOUNT. HOWEVER, OUT OF THE GRANTS SO RECEIVED, THE GRANTS TOWARDS ACQUISITION OF ASSETS WERE TRANSFERR ED TO CORPUS FUNDS AND DEBITED TO INCOME AND EXPENDITURE. THE ASSESSEE CLAIMED EXEMPTION U/S 10 (21) OF THE IT ACT WHICH WAS ALLOW ED BEING THE ASSESSEE CARRYING OUT GENUINE RESEARCH ACTIVITIES A ND SECTION 35 (1) (II) OF THE IT ACT APPLY TO THE CASE OF THE ASSESSE E. IT WAS SUBMITTED THAT SINCE THE APPLICATION FOR APPROVAL IS PENDING WITH THE GOVERNMENT, THEREFORE, IT CANNOT BE PRESUMED THAT T HE APPLICATION OF THE ASSESSEE FOR RENEWAL/EXTENSION HAS BEEN REJECTE D. THE AO ITA NO.2431/AHD/2010 PHYSICAL RESEARCH LABORATORY VS DDIT (EXEMPTION), A HMEDABAD 4 HOWEVER, DID NOT ACCEPT CONTENTION OF THE ASSESSEE BECAUSE EXEMPTION IN THE SECTION CANNOT BE ALLOWED IN THE A BSENCE OF REGISTRATION U/S 12A OF THE IT ACT. FURTHER, REGIST RATION U/S 35 (1) (II) OF THE IT ACT WAS GRANTED UP TO 31-3-2000 AND THEREAFT ER NO SUCH APPROVAL IS GRANTED. IT WAS HELD THAT THE ASSESSEE IS NOT ENTITLED TO GET DEDUCTION U/S 10 (21) OF THE IT ACT AND ACCORDI NGLY EXEMPTION CLAIMED IN THE RETURN WAS NOT ALLOWED. THE AO FOR T HE SAME REASONS ALSO DISALLOWED EXPENDITURE OF RS.81,83,211/- WHICH IS DEBITED IN THE INCOME AND EXPENDITURE ACCOUNT AGAINST TOTAL RECEIP T OF RS.2,85,08,795/- WAS ALSO NOT ALLOWED AND INCOME WA S ASSESSED AT RS.5,65,08,795/-. THE ORDER OF THE AO WAS CHALLENGE D BEFORE THE LEARNED CIT(A) AND THE SAME SUBMISSIONS WERE REITER ATED AND IT WAS STATED THAT SINCE THE ASSESSEE WAS GRANTED APPROVAL U/S 35 (1) (II) OF THE IT ACT FOR THE PERIOD UP TO 1-4-2000 AND FOR TH E SUBSEQUENT PERIOD APPLICATION OF THE ASSESSEE IS PENDING, THEREFORE, ADDITION SHOULD NOT HAVE BEEN MADE. IT WAS STATED THAT THE AO SHOULD NO T HAVE REJECTED THE CLAIM OF THE ASSESSEE BECAUSE OF THE PENDENCY A ND HELD T4HAT SINCE THE APPROVAL OF THE ASSESSEE IS NOT APPROVED BY THE RELEVANT AUTHORITIES U/S 35 (1) (II) OF THE IT ACT, THEREFOR E, CLAIM OF EXEMPTION WAS RIGHTLY DENIED. THE ADDITION ON MERIT WAS ALSO CONFIRMED ON THE SAME REASONS. 3. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET SUBMITTED THAT THE APPLICATION OF THE ASSESSEE FOR EXTENSION/ RENEWAL OF THE APPROVAL U/S 35(1) (II) OF THE IT ACT HAS BEEN ALLO WED BY GOVERNMENT OF INDIA AND NOTIFICATION TO THAT EFFECT IS PASSED ON 1-4-2011 AND APPROVAL WAS GRANTED THROUGH NOTIFICATION TO THE AS SESSEE WITH EFFECT ITA NO.2431/AHD/2010 PHYSICAL RESEARCH LABORATORY VS DDIT (EXEMPTION), A HMEDABAD 5 FROM 1-4-2003 TO 31-3-2008. THEREFORE, APPROVAL IS ACCORDED TO THE ASSESSEE AS PER LAW. COPY OF THE NOTIFICATION IS PL ACED ON RECORD AND SUPPLIED TO THE LEARNED DR ALSO. HE HAS SUBMITTED T HAT ACCORDING TO SECTION 10(21) OF THE IT ACT THE INCOME OF A SCIENT IFIC RESEARCH ASSOCIATION FOR THE TIME BEING APPROVED FOR THE PUR POSE OF CLAUSE (II) OF SUCH SECTION (1) OF SECTION 35 OF THE IT ACT WO ULD NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. HE HAS SUBMITTED THAT SINCE APPROVAL IS SUBSEQUENTLY GRANTED, THEREFORE, THE MA TTER REQUIRES RECONSIDERATION BY THE AO. HE HAS SUBMITTED THAT IN VIEW OF THE APPROVAL GRANTED U/S 35 (1) (II) OF THE IT ACT FOR ASSESSMENT YEAR UNDER APPEAL, THERE IS NO FURTHER REQUIREMENT OF GE TTING REGISTRATION U/S 12 AA OF THE IT ACT. THE LEARNED DR ON GOING TH ROUGH THE NOTIFICATION DATED 1-4-2011 ALSO STATED THAT THE MA TTER MAY BE REMANDED TO THE FILE OF THE AO FOR PASSING THE ORDE R AFRESH IN ACCORDANCE WITH LAW. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S IN THE LIGHT OF THE FINDINGS OF THE AUTHORITIES BELOW. THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10(21) OF THE IT ACT WAS REJECTED BY THE AUTHORITIES BELOW BECAUSE FOR THE ASSESSMENT YEAR UNDER APPEAL THERE WAS NO APPROVAL GRANTED BY GOVERNMENT/COMPETENT AUTHORITY U/S 35 (1) (II) OF THE IT ACT. ACCORDING TO SECTION 10(21) OF THE IT A CT, THE INCOME OF A SCIENTIFIC RESEARCH ASSOCIATION FOR THE TIME BEING APPROVED FOR THE PURPOSE OF CLAUSE (II) OF SUB SECTION (1) TO SECTI ON 35 OF THE IT ACT WOULD NOT FORM PART OF TOTAL INCOME OF THE ASSESSEE . THE ASSESSEE CLAIMED BEFORE THE AUTHORITIES BELOW THAT ITS APPLI CATION IS PENDING FOR APPROVAL FOR EXTENSION BEFORE THE COMPETENT AUTHORI TY BUT, IT DID NOT ITA NO.2431/AHD/2010 PHYSICAL RESEARCH LABORATORY VS DDIT (EXEMPTION), A HMEDABAD 6 FIND FAVOUR OF THE AUTHORITIES BELOW. NOW, DURING T HE COURSE OF PENDENCY OF THE APPEAL, APPROVAL HAS BEEN GRANTED B Y GOVERNMENT OF INDIA/COMPETENT AUTHORITY VIDE NOTIFICATION DATE D 1-4-2011 IN FAVOUR OF THE ASSESSEE U/S 35(1) (II) OF THE IT ACT FOR TH E PERIOD EFFECTIVE FROM 1-4-2003 TO 31-3-2008. THE CLAIM OF THE ASSESSEE WA S REJECTED BECAUSE APPROVAL WAS NOT GRANTED UNDER THE ABOVE PR OVISIONS. NOW, BY SUBSEQUENT GRANT OF APPROVAL U/S 35 (1) (II) OF THE IT ACT IN FAVOUR OF THE ASSESSEE FOR ASSESSMENT YEAR UNDER APPEAL, T HE MATTER SHALL HAVE TO BE RECONSIDERED BY THE AO. WE MAY ALSO NOTE THAT THE AO IN THE ASSESSMENT ORDER ALSO NOTED AFTER REJECTING THE CLAIM OF THE ASSESSEE THAT IF THE ASSESSEE SUBSEQUENTLY OBTAINS APPROVAL U/S 35(1) (II) OF THE ACT FROM PRESCRIBED AUTHORITY FOR THE ABOVE ASSESSMENT YEAR, THE ASSESSMENT WILL BE MODIFIED AC CORDINGLY. IN VIEW OF THE ABOVE FACTS AND THE FACT THAT APPROVAL IS SUBSEQUENTLY GRANTED IN FAVOUR OF THE ASSESSEE U/S 35 (1) (II) O F THE IT ACT, THE MATTER REQUIRES RECONSIDERATION/MODIFICATION AT THE LEVEL OF THE AO. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORIT IES BELOW AND RESTORE THESE ISSUES TO THE FILE OF THE AO WITH DIR ECTION TO RE-DECIDE THE MATER IN ACCORDANCE WITH LAW BY TAKING INTO CON SIDERATION THE APPROVAL GRANTED IN FAVOUR OF THE ASSESSEE U/S 35 ( 1) (II) OF THE IT ACT. THE AO SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO.2431/AHD/2010 PHYSICAL RESEARCH LABORATORY VS DDIT (EXEMPTION), A HMEDABAD 7 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 05-05-2011 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 05-05-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD