TAYO ROLLS LTD , JAMSHEDPUR V. ACIT CIR-3, JAMSHEDPUR

ITA 244/RAN/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8823 (ITAT-RANCHI)
• Duration Of Justice: 1 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 25-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K MONDAL
• Assessee Lawyers: P R MITTAL
• Keywords: Business expenditure; Rule of consistency; TDS
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI, BENCH, RANCHI BEFORE SHRI S.S. GODARA, JM &DR. A.L.SAINI, AM ./ITA NOS.244 & 245/RAN/2017 ( / ASSESSMENT YEARS: 2007-08 TO 2008-09) TAYO ROLLS LTD. NO. 3, ROAD NO. 11, C.H. AREA (NORTH EAST) BISTUPUR, JAMSHEDPUR-831001 VS. ACIT, CIRCLE-3, JAMSHEDPUR ./ ./PAN/GIR NO.: AABCT 0210 H (ASSESSEE) .. (REVENUE) ASSESSEE BY : SHRI P.R. MITTAL, ADVOCATE RESPONDENT BY : SHRI P.K. MONDAL, JCIT / DATE OF HEARING : 11/01/2019 /DATE OF PRONOUNCEMENT : 05/04/2019 / O R D E R PER BENCH: THE CAPTIONED TWO APPEALS FILED BY THE ASSESSEE , PERTAINING TO ASSESSMENT YEARS 2007-08 TO 2008-09 RESPECTIVELY ARE DIRECT ED AGAINST THE SEPARATE ORDERS PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL)-J AMSHEDPUR, WHICH IN TURN ARISE OUT OF SEPARATE ASSESSMENT ORDERS PASSED BY T HE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. SINCE THESE TWO APPEALS FILED BY THE ASSESSEE CO NTAINED COMMON AND IDENTICAL ISSUES THEREFORE THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE A ND BREVITY. TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 2 22 2 3. IN THESE APPEALS , HOWEVER THE ASSESSEE HAVE RAI SED MULTIPLE GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING THE MAIN GRIEVANCE OF TH E ASSESSEE ARE CONCISED AND SUMMARIZED AS FOLLOWS: I. GROUND NO.1 RAISED BY THE ASSESSEE IN I.T.A. NO. 244/RAN/2017 FOR ASSESSMENT YEAR 2007-08 AND GROUND NO. 3 RAISED BY THE ASSESSE E IN I.T.A. NO. 245/RAN/2017 FOR ASSESSMENT YEAR 2008-09 ARE COMMON AND IDENTICA L AND RELATE TO: A) PROVISION FOR WARRANTY EXPENSES OF RS. 50,66,000 /- FOR A.Y. 2007-08 AND B) PROVISION FOR WARRANTY EXPENSES OF RS. 1,48,13,0 00/- FOR A.Y. 2008-09 SINCE THIS IS COMMON AND IDENTICAL GROUND IN BOTH T HE YEARS I.E. A.Y. 2007-08 WARRANTY EXPENSES OF RS. 50,66,000/- AND A.Y. 2008- 09 WARRANTY EXPENSES IS TO THE TUNE OF RS. 1,48,13,000/- WE TAKE ASSESSEES AP PEAL IN I.T.A. NO. 244/RAN/2017 FOR ASSESSMENT YEAR 2007-08 AS A LEAD CASE TO ADJUDICATE THIS COMMON GROUND. 4. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS DEALT THIS FACT WHICH IS BEING REPRODUCED AS BELOW: PRODUCT WARRANTY CHARGES: THE ASSESSEE HAS MADE PR OVISIONS UNDER THIS HEAD OF RS. 284.66 LAKHS AS IN PREVIOUS YEARS. THE ASSESSEE WAS ASKED TO FURNISH A YEAR-WISE DETAILS CHART OF SUCH PROVISION S WHICH IS REPRODUCED BELOW: FOR REASONS MENTIONED IN EARLIER ASSESSMENT YEARS T HE SAID EXCESS PROVISION OF RS. 50,66,000/- LAKHS IS DISALLOWED AS FACTS REMAIN THE SAME. 5. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 3 33 3 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE COMPANY MANUFACTURES AND SELLS IRON AND STEEL ROLLS TO VARIOUS METALLURGICAL AND NON METALLURGICAL INDUSTR IES. THE COMPANY, AT THE TIME OF SALE, GIVES A GUARANTEE FOR PERFORMANCE OF ROLLS IN THE CUSTOMERS' MILL. IN THE EVENT OF FAILURE OF ROLLS TO GIVE THE MINIMUM GUARA NTEED TONNAGE OF ROLL DUE TO MANUFACTURING DEFECT, THE COMPANY GIVES COMPENSATIO N FOR LOSS OF LIFE OF ROLL OR GIVES FREE REPLACEMENT OF THE DEFECTIVE ROLL, AS MA Y BE APPROPRIATE, AFTER DUE EXAMINATION OF DEFECT. THE COMPANY FOLLOWS A SCIENT IFIC SYSTEM OF ESTIMATING WARRANTY LIABILITY AND MAKING PROVISIONS FOR WARRAN TY EVERY YEAR BY DEBIT TO PRODUCT WARRANTY CHARGES ACCOUNT WITH PROFIT & LOSS ACCOUNT. THIS PRACTICE IS CONSISTENTLY FOLLOWED YEAR AFTER YEAR AND THE AMOUN T DEBITED IN THE PROFIT & LOSS ACCOUNT IS CLAIMED AS BUSINESS EXPENDITURE. WE WOUL D LIKE TO MENTION HERE THAT THE MATTER IS COVERED BY THE ORDER PASSED BY THE LE ARNED COMMISSIONER OF INCOME TAX (APPEAL) IN APPEAL NO. 312/JSR/2008-09 FOR THE ASSESSMENT YEAR 2006-07 AND THE ORDER PASSED BY THE LEARNED JT. COMMISSIONE R OF INCOME TAX FOR THE ASSESSMENT YEAR 2009-10. THEREFORE, THE DEPARTMENT CANNOT TAKE A DIFFERENT STAND IN A.Y. 2007-08 AND IN THE A.Y. 2008-09. FOLLOWING THE PRINCIPLE OF CONSISTENCY THE ADDITION SHOULD NOT BE MADE. IN VIEW OF THE ABO VE, THE ADDITION OF RS.50,66,000/- AND RS. 1,48,13,000/- UNDER THIS HEA D ARE LIABLE TO BE DELETED AND ACCORDINGLY WE DELETE THE ADDITION. 7. NOW WE TAKE THE ASSESSEES APPEAL IN I.T.A. NO. 245/RAN/2017 FOR ASSESSMENT YEAR 2008-09. GROUND NO. 1 RAISED BY THE ASSESSEE RELATES TO DISA LLOWANCE OF EXPENDITURE ON SCIENTIFIC RESEARCH OF RS. 11,07,899/- 8. BRIEF FACTS QUA THE ISSUE ARE THAT THE ASSESSING OFFICER DISALLOWED THE SCIENTIFIC RESEARCH EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THE ASSESSEES EXPENDITURE DOES NOT FIT IN THE DEFINITION OF THE TERMS OF SCIENTIFIC RESEARCH WHICH HAS BEEN DEFINED IN INCOM E TAX ACT IN SECTION 43(4) WHICH READS AS , SCIENTIFIC RESEARCH MEANS ANY ACTIVITY FOR THE EXT ENSION OF KNOWLEDGE IN THE FIELD OF NATURAL AND APPLIED SCIENCE INCLUDING AGRICULTUR E, ANIMAL HUSBANDRY AND TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 4 44 4 FISHIRING. THE EXPENDITURE REFERRED OR INCURRED IN CLUDES ALL EXPENDITURES INCURRED FOR THE PROSECUTION, OR THE PROVISIONS OF FACILITY FOR THE PROSECUTION OR SCIENTIFIC BUT DO NOT INCLUDE ANY EXPENDITURE INCUR RED IN THE ACQUISITION OF RIGHT IN, OR ARISING OUT OF SCIENTIFIC RESEARCH. FURTHER, THE SCIENTIFIC RESEARCH RELATED TO A BUSINESS OR CLASS OF BUSINESS INCLUDES ANY SCIENT IFIC RESEARCH WHICH MAY LEAD TO OR FACILITATE AND EXTENSION OF THAT BUSINESS AND, O R AS THE CASE MAY BE, ALL BUSINESS OF THAT CLASS. THE SUBMISSIONS AS FURNISHED BY THE LD. AR OF THE A SSESSEE HAS BEEN DULY CONSIDERED BUT IT IS IMPORTANT TO POINT OUT THAT TH E ASSESSEE HAS FAILED TO PROVE THAT EXPENDITURE IS WELL WITHIN THE DEFINITION OF SCIENT IFIC RESEARCH AS DEFINED IN SECTION 43(4) OF THE ACT. THE WORK OF THE ASSESSEE IS JUST A LIAISING WORK WITH THE USERS, TO MEET OUT THE NEED OF THE CUSTOMERS. THERE IS NO ELE MENT OF SCIENTIFIC RESEARCH AS DEFINED WITHIN THE MEANING OF ACT. HENCE THE CLAIM OF RS. 11,07,899/- IS BEING DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. 9. AGGRIEVED THE STAND SO TAKEN BY THE ASSESSING OF FICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONF IRMED THE ADDITION MADE BY THE ASSESSING OFFICER OBSERVING THE FOLLOWING: 4.3. I HAVE GONE THROUGH THE ORDER OF THE LEARNED A.O. AS WELL AS THE WRITTEN SUBMISSION MADE BY THE APPELLANT. THE ASSESSING OFF ICER IN HIS ORDER HAS ELABORATELY MENTIONED AS TO WHY THE AMOUNT IS DISAL LOWED WHEREAS THE ASSESSEE FAILED TO BRING ANY COGENT MATERIAL THAT THE EXPEND ITURE IS AN ALLOWABLE DEDUCTION U/S 35(1). SECTION 35(1) STATES THAT THE DEDUCTION IS ALLOWABLE IF THE EXPENDITURE INCURRED ON IN HOUSE RESEARCH U/S 35(2AB). FOR AN A PPROVAL OF THE SAME, THE ASSESSEE-COMPANY IS REQUIRED TO MAKE AN APPLICATION IN FORM NO. 3CK BEFORE THE SECRETARY, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RE SEARCH ON OR BEFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND SUCH APP LICATION IS DULY APPROVED BY THE PRESCRIBED AUTHORITY. WE DO NOT FIND ANY SUCH APPROVAL OF PRESCRIBED AUTHORITY. HENCE EXPENSES INCURRED IS NOT ELIGIBLE FOR DEDUCTION U/S 35(1). THEREFORE THE ASSESSING OFFICER HAS RIGHTLY DISALLO WED RS. 11,07,899/-. HENCE THIS GROUND IS HEREBY DISMISSED. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT SECTION 35(1) OF THE ACT CLEARLY PROV IDES THAT THE DEDUCTION IS ALLOWABLE IF THE ASSESSEE INCURRED THE EXPENDITURE ON IN HOUSE RESEARCH U/S 35(2AB) OF THE ACT. WE NOTE THAT FOR AN APPROVAL OF THE SAME THE ASSESSEE TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 5 55 5 COMPANY IS REQUIRED TO MAKE AN APPLICATION IN FORM NO. 3CK BEFORE THE SECRETARY, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH ON O R BEFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND SUCH APPLICATION IS DULY APPROVED BY THE PRESCRIBED AUTHORITY. HOWEVER THE ASSESSEE HAS NOT DONE THE TECHNICAL PROCESS THEREFORE WE DIRECT THE ASSESSEE TO COMPLETE THE TE CHNICAL PROCESS AND SUBMIT THE RELEVANT PAPERS AND APPROVAL BEFORE THE LD. CIT(A). WE DIRECT THE LD. CIT(A) TO EXAMINE THE ASSESSEES ENTITLEMENT WHETHER THE EXPE NDITURE INCURRED IS ELIGIBLE U/S 35(1) OF THE ACT AND ADJUDICATE THE ISSUE AS PER TH E PROVISION OF LAW. THEREFORE, WE ALLOW THIS GROUND FOR STATISTICAL PURPOSES. 11. GROUND NO. 2 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENDITURE ON BRAND EQUITY OF RS. 32,88,000/-. 12. AT THE TIME OF HEARING, BEFORE US BOTH LD. COUN SEL FOR THE ASSESSEE AS WELL AS LD. DR FOR THE REVENUE BOTH HAVE AGREED THAT THIS ISSUE NEEDS TO BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO IDENTIFY WHETHER E XPENSES CLAIMED BY THE ASSESSEE IS ROYALTY OR NORMAL BUSINESS EXPENDITURE. THEREFOR E, WE SEND THIS GROUND TO THE FILE OF ASSESSING OFFICER TO VERIFY WHETHER THE EXP ENSES CLAIMED BY THE ASSESSEE IS ROYALTY OR NORMAL BUSINESS EXPENDITURE. IF IT IS NO RMAL BUSINESS EXPENDITURE THEN TDS WILL NOT APPLICABLE. THEREFORE WE DIRECT THE AS SESSING OFFICER TO VERIFY THIS FACTUAL ASPECT AND DECIDE THE ISSUE IN ACCORDANCE W ITH LAW. 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 05.04 .2019 SD/- ( S.S.GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 05/04/2019 ( SB, SR.PS ) TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 6 66 6 COPY OF THE ORDER FORWARDED TO: 1. TAYO ROLLS LIMITED 2. ACIT, CIRCLE-3, JAMSHEDPUR 3. C.I.T(A)- 4. C.I.T.- RANCHI 5. CIT(DR), RANCHI BENCH, RANCHI . 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, RANCH I BENCH IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI, BENCH, RANCHI BEFORE SHRI S.S. GODARA, JM &DR. A.L.SAINI, AM ./ITA NOS.244 & 245/RAN/2017 ( / ASSESSMENT YEARS: 2007-08 TO 2008-09) TAYO ROLLS LTD. NO. 3, ROAD NO. 11, C.H. AREA (NORTH EAST) BISTUPUR, JAMSHEDPUR-831001 VS. ACIT, CIRCLE-3, JAMSHEDPUR ./ ./PAN/GIR NO.: AABCT 0210 H (ASSESSEE) .. (REVENUE) ASSESSEE BY : SHRI P.R. MITTAL, ADVOCATE RESPONDENT BY : SHRI P.K. MONDAL, JCIT / DATE OF HEARING : 11/01/2019 /DATE OF PRONOUNCEMENT : 05/04/2019 / O R D E R PER BENCH: THE CAPTIONED TWO APPEALS FILED BY THE ASSESSEE , PERTAINING TO ASSESSMENT YEARS 2007-08 TO 2008-09 RESPECTIVELY ARE DIRECT ED AGAINST THE SEPARATE ORDERS PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL)-J AMSHEDPUR, WHICH IN TURN ARISE OUT OF SEPARATE ASSESSMENT ORDERS PASSED BY T HE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. SINCE THESE TWO APPEALS FILED BY THE ASSESSEE CO NTAINED COMMON AND IDENTICAL ISSUES THEREFORE THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE A ND BREVITY. TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 2 22 2 3. IN THESE APPEALS , HOWEVER THE ASSESSEE HAVE RAI SED MULTIPLE GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING THE MAIN GRIEVANCE OF TH E ASSESSEE ARE CONCISED AND SUMMARIZED AS FOLLOWS: I. GROUND NO.1 RAISED BY THE ASSESSEE IN I.T.A. NO. 244/RAN/2017 FOR ASSESSMENT YEAR 2007-08 AND GROUND NO. 3 RAISED BY THE ASSESSE E IN I.T.A. NO. 245/RAN/2017 FOR ASSESSMENT YEAR 2008-09 ARE COMMON AND IDENTICA L AND RELATE TO: A) PROVISION FOR WARRANTY EXPENSES OF RS. 50,66,000 /- FOR A.Y. 2007-08 AND B) PROVISION FOR WARRANTY EXPENSES OF RS. 1,48,13,0 00/- FOR A.Y. 2008-09 SINCE THIS IS COMMON AND IDENTICAL GROUND IN BOTH T HE YEARS I.E. A.Y. 2007-08 WARRANTY EXPENSES OF RS. 50,66,000/- AND A.Y. 2008- 09 WARRANTY EXPENSES IS TO THE TUNE OF RS. 1,48,13,000/- WE TAKE ASSESSEES AP PEAL IN I.T.A. NO. 244/RAN/2017 FOR ASSESSMENT YEAR 2007-08 AS A LEAD CASE TO ADJUDICATE THIS COMMON GROUND. 4. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS DEALT THIS FACT WHICH IS BEING REPRODUCED AS BELOW: PRODUCT WARRANTY CHARGES: THE ASSESSEE HAS MADE PR OVISIONS UNDER THIS HEAD OF RS. 284.66 LAKHS AS IN PREVIOUS YEARS. THE ASSESSEE WAS ASKED TO FURNISH A YEAR-WISE DETAILS CHART OF SUCH PROVISION S WHICH IS REPRODUCED BELOW: FOR REASONS MENTIONED IN EARLIER ASSESSMENT YEARS T HE SAID EXCESS PROVISION OF RS. 50,66,000/- LAKHS IS DISALLOWED AS FACTS REMAIN THE SAME. 5. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 3 33 3 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE COMPANY MANUFACTURES AND SELLS IRON AND STEEL ROLLS TO VARIOUS METALLURGICAL AND NON METALLURGICAL INDUSTR IES. THE COMPANY, AT THE TIME OF SALE, GIVES A GUARANTEE FOR PERFORMANCE OF ROLLS IN THE CUSTOMERS' MILL. IN THE EVENT OF FAILURE OF ROLLS TO GIVE THE MINIMUM GUARA NTEED TONNAGE OF ROLL DUE TO MANUFACTURING DEFECT, THE COMPANY GIVES COMPENSATIO N FOR LOSS OF LIFE OF ROLL OR GIVES FREE REPLACEMENT OF THE DEFECTIVE ROLL, AS MA Y BE APPROPRIATE, AFTER DUE EXAMINATION OF DEFECT. THE COMPANY FOLLOWS A SCIENT IFIC SYSTEM OF ESTIMATING WARRANTY LIABILITY AND MAKING PROVISIONS FOR WARRAN TY EVERY YEAR BY DEBIT TO PRODUCT WARRANTY CHARGES ACCOUNT WITH PROFIT & LOSS ACCOUNT. THIS PRACTICE IS CONSISTENTLY FOLLOWED YEAR AFTER YEAR AND THE AMOUN T DEBITED IN THE PROFIT & LOSS ACCOUNT IS CLAIMED AS BUSINESS EXPENDITURE. WE WOUL D LIKE TO MENTION HERE THAT THE MATTER IS COVERED BY THE ORDER PASSED BY THE LE ARNED COMMISSIONER OF INCOME TAX (APPEAL) IN APPEAL NO. 312/JSR/2008-09 FOR THE ASSESSMENT YEAR 2006-07 AND THE ORDER PASSED BY THE LEARNED JT. COMMISSIONE R OF INCOME TAX FOR THE ASSESSMENT YEAR 2009-10. THEREFORE, THE DEPARTMENT CANNOT TAKE A DIFFERENT STAND IN A.Y. 2007-08 AND IN THE A.Y. 2008-09. FOLLOWING THE PRINCIPLE OF CONSISTENCY THE ADDITION SHOULD NOT BE MADE. IN VIEW OF THE ABO VE, THE ADDITION OF RS.50,66,000/- AND RS. 1,48,13,000/- UNDER THIS HEA D ARE LIABLE TO BE DELETED AND ACCORDINGLY WE DELETE THE ADDITION. 7. NOW WE TAKE THE ASSESSEES APPEAL IN I.T.A. NO. 245/RAN/2017 FOR ASSESSMENT YEAR 2008-09. GROUND NO. 1 RAISED BY THE ASSESSEE RELATES TO DISA LLOWANCE OF EXPENDITURE ON SCIENTIFIC RESEARCH OF RS. 11,07,899/- 8. BRIEF FACTS QUA THE ISSUE ARE THAT THE ASSESSING OFFICER DISALLOWED THE SCIENTIFIC RESEARCH EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THE ASSESSEES EXPENDITURE DOES NOT FIT IN THE DEFINITION OF THE TERMS OF SCIENTIFIC RESEARCH WHICH HAS BEEN DEFINED IN INCOM E TAX ACT IN SECTION 43(4) WHICH READS AS , SCIENTIFIC RESEARCH MEANS ANY ACTIVITY FOR THE EXT ENSION OF KNOWLEDGE IN THE FIELD OF NATURAL AND APPLIED SCIENCE INCLUDING AGRICULTUR E, ANIMAL HUSBANDRY AND TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 4 44 4 FISHIRING. THE EXPENDITURE REFERRED OR INCURRED IN CLUDES ALL EXPENDITURES INCURRED FOR THE PROSECUTION, OR THE PROVISIONS OF FACILITY FOR THE PROSECUTION OR SCIENTIFIC BUT DO NOT INCLUDE ANY EXPENDITURE INCUR RED IN THE ACQUISITION OF RIGHT IN, OR ARISING OUT OF SCIENTIFIC RESEARCH. FURTHER, THE SCIENTIFIC RESEARCH RELATED TO A BUSINESS OR CLASS OF BUSINESS INCLUDES ANY SCIENT IFIC RESEARCH WHICH MAY LEAD TO OR FACILITATE AND EXTENSION OF THAT BUSINESS AND, O R AS THE CASE MAY BE, ALL BUSINESS OF THAT CLASS. THE SUBMISSIONS AS FURNISHED BY THE LD. AR OF THE A SSESSEE HAS BEEN DULY CONSIDERED BUT IT IS IMPORTANT TO POINT OUT THAT TH E ASSESSEE HAS FAILED TO PROVE THAT EXPENDITURE IS WELL WITHIN THE DEFINITION OF SCIENT IFIC RESEARCH AS DEFINED IN SECTION 43(4) OF THE ACT. THE WORK OF THE ASSESSEE IS JUST A LIAISING WORK WITH THE USERS, TO MEET OUT THE NEED OF THE CUSTOMERS. THERE IS NO ELE MENT OF SCIENTIFIC RESEARCH AS DEFINED WITHIN THE MEANING OF ACT. HENCE THE CLAIM OF RS. 11,07,899/- IS BEING DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. 9. AGGRIEVED THE STAND SO TAKEN BY THE ASSESSING OF FICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONF IRMED THE ADDITION MADE BY THE ASSESSING OFFICER OBSERVING THE FOLLOWING: 4.3. I HAVE GONE THROUGH THE ORDER OF THE LEARNED A.O. AS WELL AS THE WRITTEN SUBMISSION MADE BY THE APPELLANT. THE ASSESSING OFF ICER IN HIS ORDER HAS ELABORATELY MENTIONED AS TO WHY THE AMOUNT IS DISAL LOWED WHEREAS THE ASSESSEE FAILED TO BRING ANY COGENT MATERIAL THAT THE EXPEND ITURE IS AN ALLOWABLE DEDUCTION U/S 35(1). SECTION 35(1) STATES THAT THE DEDUCTION IS ALLOWABLE IF THE EXPENDITURE INCURRED ON IN HOUSE RESEARCH U/S 35(2AB). FOR AN A PPROVAL OF THE SAME, THE ASSESSEE-COMPANY IS REQUIRED TO MAKE AN APPLICATION IN FORM NO. 3CK BEFORE THE SECRETARY, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RE SEARCH ON OR BEFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND SUCH APP LICATION IS DULY APPROVED BY THE PRESCRIBED AUTHORITY. WE DO NOT FIND ANY SUCH APPROVAL OF PRESCRIBED AUTHORITY. HENCE EXPENSES INCURRED IS NOT ELIGIBLE FOR DEDUCTION U/S 35(1). THEREFORE THE ASSESSING OFFICER HAS RIGHTLY DISALLO WED RS. 11,07,899/-. HENCE THIS GROUND IS HEREBY DISMISSED. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT SECTION 35(1) OF THE ACT CLEARLY PROV IDES THAT THE DEDUCTION IS ALLOWABLE IF THE ASSESSEE INCURRED THE EXPENDITURE ON IN HOUSE RESEARCH U/S 35(2AB) OF THE ACT. WE NOTE THAT FOR AN APPROVAL OF THE SAME THE ASSESSEE TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 5 55 5 COMPANY IS REQUIRED TO MAKE AN APPLICATION IN FORM NO. 3CK BEFORE THE SECRETARY, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH ON O R BEFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND SUCH APPLICATION IS DULY APPROVED BY THE PRESCRIBED AUTHORITY. HOWEVER THE ASSESSEE HAS NOT DONE THE TECHNICAL PROCESS THEREFORE WE DIRECT THE ASSESSEE TO COMPLETE THE TE CHNICAL PROCESS AND SUBMIT THE RELEVANT PAPERS AND APPROVAL BEFORE THE LD. CIT(A). WE DIRECT THE LD. CIT(A) TO EXAMINE THE ASSESSEES ENTITLEMENT WHETHER THE EXPE NDITURE INCURRED IS ELIGIBLE U/S 35(1) OF THE ACT AND ADJUDICATE THE ISSUE AS PER TH E PROVISION OF LAW. THEREFORE, WE ALLOW THIS GROUND FOR STATISTICAL PURPOSES. 11. GROUND NO. 2 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENDITURE ON BRAND EQUITY OF RS. 32,88,000/-. 12. AT THE TIME OF HEARING, BEFORE US BOTH LD. COUN SEL FOR THE ASSESSEE AS WELL AS LD. DR FOR THE REVENUE BOTH HAVE AGREED THAT THIS ISSUE NEEDS TO BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO IDENTIFY WHETHER E XPENSES CLAIMED BY THE ASSESSEE IS ROYALTY OR NORMAL BUSINESS EXPENDITURE. THEREFOR E, WE SEND THIS GROUND TO THE FILE OF ASSESSING OFFICER TO VERIFY WHETHER THE EXP ENSES CLAIMED BY THE ASSESSEE IS ROYALTY OR NORMAL BUSINESS EXPENDITURE. IF IT IS NO RMAL BUSINESS EXPENDITURE THEN TDS WILL NOT APPLICABLE. THEREFORE WE DIRECT THE AS SESSING OFFICER TO VERIFY THIS FACTUAL ASPECT AND DECIDE THE ISSUE IN ACCORDANCE W ITH LAW. 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 05.04 .2019 SD/- ( S.S.GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 05/04/2019 ( SB, SR.PS ) TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 6 66 6 COPY OF THE ORDER FORWARDED TO: 1. TAYO ROLLS LIMITED 2. ACIT, CIRCLE-3, JAMSHEDPUR 3. C.I.T(A)- 4. C.I.T.- RANCHI 5. CIT(DR), RANCHI BENCH, RANCHI . 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, RANCH I BENCH IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI, BENCH, RANCHI BEFORE SHRI S.S. GODARA, JM &DR. A.L.SAINI, AM ./ITA NOS.244 & 245/RAN/2017 ( / ASSESSMENT YEARS: 2007-08 TO 2008-09) TAYO ROLLS LTD. NO. 3, ROAD NO. 11, C.H. AREA (NORTH EAST) BISTUPUR, JAMSHEDPUR-831001 VS. ACIT, CIRCLE-3, JAMSHEDPUR ./ ./PAN/GIR NO.: AABCT 0210 H (ASSESSEE) .. (REVENUE) ASSESSEE BY : SHRI P.R. MITTAL, ADVOCATE RESPONDENT BY : SHRI P.K. MONDAL, JCIT / DATE OF HEARING : 11/01/2019 /DATE OF PRONOUNCEMENT : 05/04/2019 / O R D E R PER BENCH: THE CAPTIONED TWO APPEALS FILED BY THE ASSESSEE , PERTAINING TO ASSESSMENT YEARS 2007-08 TO 2008-09 RESPECTIVELY ARE DIRECT ED AGAINST THE SEPARATE ORDERS PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL)-J AMSHEDPUR, WHICH IN TURN ARISE OUT OF SEPARATE ASSESSMENT ORDERS PASSED BY T HE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. SINCE THESE TWO APPEALS FILED BY THE ASSESSEE CO NTAINED COMMON AND IDENTICAL ISSUES THEREFORE THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE A ND BREVITY. TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 2 22 2 3. IN THESE APPEALS , HOWEVER THE ASSESSEE HAVE RAI SED MULTIPLE GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING THE MAIN GRIEVANCE OF TH E ASSESSEE ARE CONCISED AND SUMMARIZED AS FOLLOWS: I. GROUND NO.1 RAISED BY THE ASSESSEE IN I.T.A. NO. 244/RAN/2017 FOR ASSESSMENT YEAR 2007-08 AND GROUND NO. 3 RAISED BY THE ASSESSE E IN I.T.A. NO. 245/RAN/2017 FOR ASSESSMENT YEAR 2008-09 ARE COMMON AND IDENTICA L AND RELATE TO: A) PROVISION FOR WARRANTY EXPENSES OF RS. 50,66,000 /- FOR A.Y. 2007-08 AND B) PROVISION FOR WARRANTY EXPENSES OF RS. 1,48,13,0 00/- FOR A.Y. 2008-09 SINCE THIS IS COMMON AND IDENTICAL GROUND IN BOTH T HE YEARS I.E. A.Y. 2007-08 WARRANTY EXPENSES OF RS. 50,66,000/- AND A.Y. 2008- 09 WARRANTY EXPENSES IS TO THE TUNE OF RS. 1,48,13,000/- WE TAKE ASSESSEES AP PEAL IN I.T.A. NO. 244/RAN/2017 FOR ASSESSMENT YEAR 2007-08 AS A LEAD CASE TO ADJUDICATE THIS COMMON GROUND. 4. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS DEALT THIS FACT WHICH IS BEING REPRODUCED AS BELOW: PRODUCT WARRANTY CHARGES: THE ASSESSEE HAS MADE PR OVISIONS UNDER THIS HEAD OF RS. 284.66 LAKHS AS IN PREVIOUS YEARS. THE ASSESSEE WAS ASKED TO FURNISH A YEAR-WISE DETAILS CHART OF SUCH PROVISION S WHICH IS REPRODUCED BELOW: FOR REASONS MENTIONED IN EARLIER ASSESSMENT YEARS T HE SAID EXCESS PROVISION OF RS. 50,66,000/- LAKHS IS DISALLOWED AS FACTS REMAIN THE SAME. 5. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 3 33 3 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE COMPANY MANUFACTURES AND SELLS IRON AND STEEL ROLLS TO VARIOUS METALLURGICAL AND NON METALLURGICAL INDUSTR IES. THE COMPANY, AT THE TIME OF SALE, GIVES A GUARANTEE FOR PERFORMANCE OF ROLLS IN THE CUSTOMERS' MILL. IN THE EVENT OF FAILURE OF ROLLS TO GIVE THE MINIMUM GUARA NTEED TONNAGE OF ROLL DUE TO MANUFACTURING DEFECT, THE COMPANY GIVES COMPENSATIO N FOR LOSS OF LIFE OF ROLL OR GIVES FREE REPLACEMENT OF THE DEFECTIVE ROLL, AS MA Y BE APPROPRIATE, AFTER DUE EXAMINATION OF DEFECT. THE COMPANY FOLLOWS A SCIENT IFIC SYSTEM OF ESTIMATING WARRANTY LIABILITY AND MAKING PROVISIONS FOR WARRAN TY EVERY YEAR BY DEBIT TO PRODUCT WARRANTY CHARGES ACCOUNT WITH PROFIT & LOSS ACCOUNT. THIS PRACTICE IS CONSISTENTLY FOLLOWED YEAR AFTER YEAR AND THE AMOUN T DEBITED IN THE PROFIT & LOSS ACCOUNT IS CLAIMED AS BUSINESS EXPENDITURE. WE WOUL D LIKE TO MENTION HERE THAT THE MATTER IS COVERED BY THE ORDER PASSED BY THE LE ARNED COMMISSIONER OF INCOME TAX (APPEAL) IN APPEAL NO. 312/JSR/2008-09 FOR THE ASSESSMENT YEAR 2006-07 AND THE ORDER PASSED BY THE LEARNED JT. COMMISSIONE R OF INCOME TAX FOR THE ASSESSMENT YEAR 2009-10. THEREFORE, THE DEPARTMENT CANNOT TAKE A DIFFERENT STAND IN A.Y. 2007-08 AND IN THE A.Y. 2008-09. FOLLOWING THE PRINCIPLE OF CONSISTENCY THE ADDITION SHOULD NOT BE MADE. IN VIEW OF THE ABO VE, THE ADDITION OF RS.50,66,000/- AND RS. 1,48,13,000/- UNDER THIS HEA D ARE LIABLE TO BE DELETED AND ACCORDINGLY WE DELETE THE ADDITION. 7. NOW WE TAKE THE ASSESSEES APPEAL IN I.T.A. NO. 245/RAN/2017 FOR ASSESSMENT YEAR 2008-09. GROUND NO. 1 RAISED BY THE ASSESSEE RELATES TO DISA LLOWANCE OF EXPENDITURE ON SCIENTIFIC RESEARCH OF RS. 11,07,899/- 8. BRIEF FACTS QUA THE ISSUE ARE THAT THE ASSESSING OFFICER DISALLOWED THE SCIENTIFIC RESEARCH EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THE ASSESSEES EXPENDITURE DOES NOT FIT IN THE DEFINITION OF THE TERMS OF SCIENTIFIC RESEARCH WHICH HAS BEEN DEFINED IN INCOM E TAX ACT IN SECTION 43(4) WHICH READS AS , SCIENTIFIC RESEARCH MEANS ANY ACTIVITY FOR THE EXT ENSION OF KNOWLEDGE IN THE FIELD OF NATURAL AND APPLIED SCIENCE INCLUDING AGRICULTUR E, ANIMAL HUSBANDRY AND TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 4 44 4 FISHIRING. THE EXPENDITURE REFERRED OR INCURRED IN CLUDES ALL EXPENDITURES INCURRED FOR THE PROSECUTION, OR THE PROVISIONS OF FACILITY FOR THE PROSECUTION OR SCIENTIFIC BUT DO NOT INCLUDE ANY EXPENDITURE INCUR RED IN THE ACQUISITION OF RIGHT IN, OR ARISING OUT OF SCIENTIFIC RESEARCH. FURTHER, THE SCIENTIFIC RESEARCH RELATED TO A BUSINESS OR CLASS OF BUSINESS INCLUDES ANY SCIENT IFIC RESEARCH WHICH MAY LEAD TO OR FACILITATE AND EXTENSION OF THAT BUSINESS AND, O R AS THE CASE MAY BE, ALL BUSINESS OF THAT CLASS. THE SUBMISSIONS AS FURNISHED BY THE LD. AR OF THE A SSESSEE HAS BEEN DULY CONSIDERED BUT IT IS IMPORTANT TO POINT OUT THAT TH E ASSESSEE HAS FAILED TO PROVE THAT EXPENDITURE IS WELL WITHIN THE DEFINITION OF SCIENT IFIC RESEARCH AS DEFINED IN SECTION 43(4) OF THE ACT. THE WORK OF THE ASSESSEE IS JUST A LIAISING WORK WITH THE USERS, TO MEET OUT THE NEED OF THE CUSTOMERS. THERE IS NO ELE MENT OF SCIENTIFIC RESEARCH AS DEFINED WITHIN THE MEANING OF ACT. HENCE THE CLAIM OF RS. 11,07,899/- IS BEING DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. 9. AGGRIEVED THE STAND SO TAKEN BY THE ASSESSING OF FICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONF IRMED THE ADDITION MADE BY THE ASSESSING OFFICER OBSERVING THE FOLLOWING: 4.3. I HAVE GONE THROUGH THE ORDER OF THE LEARNED A.O. AS WELL AS THE WRITTEN SUBMISSION MADE BY THE APPELLANT. THE ASSESSING OFF ICER IN HIS ORDER HAS ELABORATELY MENTIONED AS TO WHY THE AMOUNT IS DISAL LOWED WHEREAS THE ASSESSEE FAILED TO BRING ANY COGENT MATERIAL THAT THE EXPEND ITURE IS AN ALLOWABLE DEDUCTION U/S 35(1). SECTION 35(1) STATES THAT THE DEDUCTION IS ALLOWABLE IF THE EXPENDITURE INCURRED ON IN HOUSE RESEARCH U/S 35(2AB). FOR AN A PPROVAL OF THE SAME, THE ASSESSEE-COMPANY IS REQUIRED TO MAKE AN APPLICATION IN FORM NO. 3CK BEFORE THE SECRETARY, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RE SEARCH ON OR BEFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND SUCH APP LICATION IS DULY APPROVED BY THE PRESCRIBED AUTHORITY. WE DO NOT FIND ANY SUCH APPROVAL OF PRESCRIBED AUTHORITY. HENCE EXPENSES INCURRED IS NOT ELIGIBLE FOR DEDUCTION U/S 35(1). THEREFORE THE ASSESSING OFFICER HAS RIGHTLY DISALLO WED RS. 11,07,899/-. HENCE THIS GROUND IS HEREBY DISMISSED. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT SECTION 35(1) OF THE ACT CLEARLY PROV IDES THAT THE DEDUCTION IS ALLOWABLE IF THE ASSESSEE INCURRED THE EXPENDITURE ON IN HOUSE RESEARCH U/S 35(2AB) OF THE ACT. WE NOTE THAT FOR AN APPROVAL OF THE SAME THE ASSESSEE TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 5 55 5 COMPANY IS REQUIRED TO MAKE AN APPLICATION IN FORM NO. 3CK BEFORE THE SECRETARY, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH ON O R BEFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND SUCH APPLICATION IS DULY APPROVED BY THE PRESCRIBED AUTHORITY. HOWEVER THE ASSESSEE HAS NOT DONE THE TECHNICAL PROCESS THEREFORE WE DIRECT THE ASSESSEE TO COMPLETE THE TE CHNICAL PROCESS AND SUBMIT THE RELEVANT PAPERS AND APPROVAL BEFORE THE LD. CIT(A). WE DIRECT THE LD. CIT(A) TO EXAMINE THE ASSESSEES ENTITLEMENT WHETHER THE EXPE NDITURE INCURRED IS ELIGIBLE U/S 35(1) OF THE ACT AND ADJUDICATE THE ISSUE AS PER TH E PROVISION OF LAW. THEREFORE, WE ALLOW THIS GROUND FOR STATISTICAL PURPOSES. 11. GROUND NO. 2 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENDITURE ON BRAND EQUITY OF RS. 32,88,000/-. 12. AT THE TIME OF HEARING, BEFORE US BOTH LD. COUN SEL FOR THE ASSESSEE AS WELL AS LD. DR FOR THE REVENUE BOTH HAVE AGREED THAT THIS ISSUE NEEDS TO BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO IDENTIFY WHETHER E XPENSES CLAIMED BY THE ASSESSEE IS ROYALTY OR NORMAL BUSINESS EXPENDITURE. THEREFOR E, WE SEND THIS GROUND TO THE FILE OF ASSESSING OFFICER TO VERIFY WHETHER THE EXP ENSES CLAIMED BY THE ASSESSEE IS ROYALTY OR NORMAL BUSINESS EXPENDITURE. IF IT IS NO RMAL BUSINESS EXPENDITURE THEN TDS WILL NOT APPLICABLE. THEREFORE WE DIRECT THE AS SESSING OFFICER TO VERIFY THIS FACTUAL ASPECT AND DECIDE THE ISSUE IN ACCORDANCE W ITH LAW. 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 05.04 .2019 SD/- ( S.S.GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 05/04/2019 ( SB, SR.PS ) TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 6 66 6 COPY OF THE ORDER FORWARDED TO: 1. TAYO ROLLS LIMITED 2. ACIT, CIRCLE-3, JAMSHEDPUR 3. C.I.T(A)- 4. C.I.T.- RANCHI 5. CIT(DR), RANCHI BENCH, RANCHI . 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, RANCH I BENCH IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI, BENCH, RANCHI BEFORE SHRI S.S. GODARA, JM &DR. A.L.SAINI, AM ./ITA NOS.244 & 245/RAN/2017 ( / ASSESSMENT YEARS: 2007-08 TO 2008-09) TAYO ROLLS LTD. NO. 3, ROAD NO. 11, C.H. AREA (NORTH EAST) BISTUPUR, JAMSHEDPUR-831001 VS. ACIT, CIRCLE-3, JAMSHEDPUR ./ ./PAN/GIR NO.: AABCT 0210 H (ASSESSEE) .. (REVENUE) ASSESSEE BY : SHRI P.R. MITTAL, ADVOCATE RESPONDENT BY : SHRI P.K. MONDAL, JCIT / DATE OF HEARING : 11/01/2019 /DATE OF PRONOUNCEMENT : 05/04/2019 / O R D E R PER BENCH: THE CAPTIONED TWO APPEALS FILED BY THE ASSESSEE , PERTAINING TO ASSESSMENT YEARS 2007-08 TO 2008-09 RESPECTIVELY ARE DIRECT ED AGAINST THE SEPARATE ORDERS PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL)-J AMSHEDPUR, WHICH IN TURN ARISE OUT OF SEPARATE ASSESSMENT ORDERS PASSED BY T HE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. SINCE THESE TWO APPEALS FILED BY THE ASSESSEE CO NTAINED COMMON AND IDENTICAL ISSUES THEREFORE THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE A ND BREVITY. TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 2 22 2 3. IN THESE APPEALS , HOWEVER THE ASSESSEE HAVE RAI SED MULTIPLE GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING THE MAIN GRIEVANCE OF TH E ASSESSEE ARE CONCISED AND SUMMARIZED AS FOLLOWS: I. GROUND NO.1 RAISED BY THE ASSESSEE IN I.T.A. NO. 244/RAN/2017 FOR ASSESSMENT YEAR 2007-08 AND GROUND NO. 3 RAISED BY THE ASSESSE E IN I.T.A. NO. 245/RAN/2017 FOR ASSESSMENT YEAR 2008-09 ARE COMMON AND IDENTICA L AND RELATE TO: A) PROVISION FOR WARRANTY EXPENSES OF RS. 50,66,000 /- FOR A.Y. 2007-08 AND B) PROVISION FOR WARRANTY EXPENSES OF RS. 1,48,13,0 00/- FOR A.Y. 2008-09 SINCE THIS IS COMMON AND IDENTICAL GROUND IN BOTH T HE YEARS I.E. A.Y. 2007-08 WARRANTY EXPENSES OF RS. 50,66,000/- AND A.Y. 2008- 09 WARRANTY EXPENSES IS TO THE TUNE OF RS. 1,48,13,000/- WE TAKE ASSESSEES AP PEAL IN I.T.A. NO. 244/RAN/2017 FOR ASSESSMENT YEAR 2007-08 AS A LEAD CASE TO ADJUDICATE THIS COMMON GROUND. 4. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS DEALT THIS FACT WHICH IS BEING REPRODUCED AS BELOW: PRODUCT WARRANTY CHARGES: THE ASSESSEE HAS MADE PR OVISIONS UNDER THIS HEAD OF RS. 284.66 LAKHS AS IN PREVIOUS YEARS. THE ASSESSEE WAS ASKED TO FURNISH A YEAR-WISE DETAILS CHART OF SUCH PROVISION S WHICH IS REPRODUCED BELOW: FOR REASONS MENTIONED IN EARLIER ASSESSMENT YEARS T HE SAID EXCESS PROVISION OF RS. 50,66,000/- LAKHS IS DISALLOWED AS FACTS REMAIN THE SAME. 5. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 3 33 3 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE COMPANY MANUFACTURES AND SELLS IRON AND STEEL ROLLS TO VARIOUS METALLURGICAL AND NON METALLURGICAL INDUSTR IES. THE COMPANY, AT THE TIME OF SALE, GIVES A GUARANTEE FOR PERFORMANCE OF ROLLS IN THE CUSTOMERS' MILL. IN THE EVENT OF FAILURE OF ROLLS TO GIVE THE MINIMUM GUARA NTEED TONNAGE OF ROLL DUE TO MANUFACTURING DEFECT, THE COMPANY GIVES COMPENSATIO N FOR LOSS OF LIFE OF ROLL OR GIVES FREE REPLACEMENT OF THE DEFECTIVE ROLL, AS MA Y BE APPROPRIATE, AFTER DUE EXAMINATION OF DEFECT. THE COMPANY FOLLOWS A SCIENT IFIC SYSTEM OF ESTIMATING WARRANTY LIABILITY AND MAKING PROVISIONS FOR WARRAN TY EVERY YEAR BY DEBIT TO PRODUCT WARRANTY CHARGES ACCOUNT WITH PROFIT & LOSS ACCOUNT. THIS PRACTICE IS CONSISTENTLY FOLLOWED YEAR AFTER YEAR AND THE AMOUN T DEBITED IN THE PROFIT & LOSS ACCOUNT IS CLAIMED AS BUSINESS EXPENDITURE. WE WOUL D LIKE TO MENTION HERE THAT THE MATTER IS COVERED BY THE ORDER PASSED BY THE LE ARNED COMMISSIONER OF INCOME TAX (APPEAL) IN APPEAL NO. 312/JSR/2008-09 FOR THE ASSESSMENT YEAR 2006-07 AND THE ORDER PASSED BY THE LEARNED JT. COMMISSIONE R OF INCOME TAX FOR THE ASSESSMENT YEAR 2009-10. THEREFORE, THE DEPARTMENT CANNOT TAKE A DIFFERENT STAND IN A.Y. 2007-08 AND IN THE A.Y. 2008-09. FOLLOWING THE PRINCIPLE OF CONSISTENCY THE ADDITION SHOULD NOT BE MADE. IN VIEW OF THE ABO VE, THE ADDITION OF RS.50,66,000/- AND RS. 1,48,13,000/- UNDER THIS HEA D ARE LIABLE TO BE DELETED AND ACCORDINGLY WE DELETE THE ADDITION. 7. NOW WE TAKE THE ASSESSEES APPEAL IN I.T.A. NO. 245/RAN/2017 FOR ASSESSMENT YEAR 2008-09. GROUND NO. 1 RAISED BY THE ASSESSEE RELATES TO DISA LLOWANCE OF EXPENDITURE ON SCIENTIFIC RESEARCH OF RS. 11,07,899/- 8. BRIEF FACTS QUA THE ISSUE ARE THAT THE ASSESSING OFFICER DISALLOWED THE SCIENTIFIC RESEARCH EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THE ASSESSEES EXPENDITURE DOES NOT FIT IN THE DEFINITION OF THE TERMS OF SCIENTIFIC RESEARCH WHICH HAS BEEN DEFINED IN INCOM E TAX ACT IN SECTION 43(4) WHICH READS AS , SCIENTIFIC RESEARCH MEANS ANY ACTIVITY FOR THE EXT ENSION OF KNOWLEDGE IN THE FIELD OF NATURAL AND APPLIED SCIENCE INCLUDING AGRICULTUR E, ANIMAL HUSBANDRY AND TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 4 44 4 FISHIRING. THE EXPENDITURE REFERRED OR INCURRED IN CLUDES ALL EXPENDITURES INCURRED FOR THE PROSECUTION, OR THE PROVISIONS OF FACILITY FOR THE PROSECUTION OR SCIENTIFIC BUT DO NOT INCLUDE ANY EXPENDITURE INCUR RED IN THE ACQUISITION OF RIGHT IN, OR ARISING OUT OF SCIENTIFIC RESEARCH. FURTHER, THE SCIENTIFIC RESEARCH RELATED TO A BUSINESS OR CLASS OF BUSINESS INCLUDES ANY SCIENT IFIC RESEARCH WHICH MAY LEAD TO OR FACILITATE AND EXTENSION OF THAT BUSINESS AND, O R AS THE CASE MAY BE, ALL BUSINESS OF THAT CLASS. THE SUBMISSIONS AS FURNISHED BY THE LD. AR OF THE A SSESSEE HAS BEEN DULY CONSIDERED BUT IT IS IMPORTANT TO POINT OUT THAT TH E ASSESSEE HAS FAILED TO PROVE THAT EXPENDITURE IS WELL WITHIN THE DEFINITION OF SCIENT IFIC RESEARCH AS DEFINED IN SECTION 43(4) OF THE ACT. THE WORK OF THE ASSESSEE IS JUST A LIAISING WORK WITH THE USERS, TO MEET OUT THE NEED OF THE CUSTOMERS. THERE IS NO ELE MENT OF SCIENTIFIC RESEARCH AS DEFINED WITHIN THE MEANING OF ACT. HENCE THE CLAIM OF RS. 11,07,899/- IS BEING DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. 9. AGGRIEVED THE STAND SO TAKEN BY THE ASSESSING OF FICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONF IRMED THE ADDITION MADE BY THE ASSESSING OFFICER OBSERVING THE FOLLOWING: 4.3. I HAVE GONE THROUGH THE ORDER OF THE LEARNED A.O. AS WELL AS THE WRITTEN SUBMISSION MADE BY THE APPELLANT. THE ASSESSING OFF ICER IN HIS ORDER HAS ELABORATELY MENTIONED AS TO WHY THE AMOUNT IS DISAL LOWED WHEREAS THE ASSESSEE FAILED TO BRING ANY COGENT MATERIAL THAT THE EXPEND ITURE IS AN ALLOWABLE DEDUCTION U/S 35(1). SECTION 35(1) STATES THAT THE DEDUCTION IS ALLOWABLE IF THE EXPENDITURE INCURRED ON IN HOUSE RESEARCH U/S 35(2AB). FOR AN A PPROVAL OF THE SAME, THE ASSESSEE-COMPANY IS REQUIRED TO MAKE AN APPLICATION IN FORM NO. 3CK BEFORE THE SECRETARY, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RE SEARCH ON OR BEFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND SUCH APP LICATION IS DULY APPROVED BY THE PRESCRIBED AUTHORITY. WE DO NOT FIND ANY SUCH APPROVAL OF PRESCRIBED AUTHORITY. HENCE EXPENSES INCURRED IS NOT ELIGIBLE FOR DEDUCTION U/S 35(1). THEREFORE THE ASSESSING OFFICER HAS RIGHTLY DISALLO WED RS. 11,07,899/-. HENCE THIS GROUND IS HEREBY DISMISSED. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT SECTION 35(1) OF THE ACT CLEARLY PROV IDES THAT THE DEDUCTION IS ALLOWABLE IF THE ASSESSEE INCURRED THE EXPENDITURE ON IN HOUSE RESEARCH U/S 35(2AB) OF THE ACT. WE NOTE THAT FOR AN APPROVAL OF THE SAME THE ASSESSEE TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 5 55 5 COMPANY IS REQUIRED TO MAKE AN APPLICATION IN FORM NO. 3CK BEFORE THE SECRETARY, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH ON O R BEFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND SUCH APPLICATION IS DULY APPROVED BY THE PRESCRIBED AUTHORITY. HOWEVER THE ASSESSEE HAS NOT DONE THE TECHNICAL PROCESS THEREFORE WE DIRECT THE ASSESSEE TO COMPLETE THE TE CHNICAL PROCESS AND SUBMIT THE RELEVANT PAPERS AND APPROVAL BEFORE THE LD. CIT(A). WE DIRECT THE LD. CIT(A) TO EXAMINE THE ASSESSEES ENTITLEMENT WHETHER THE EXPE NDITURE INCURRED IS ELIGIBLE U/S 35(1) OF THE ACT AND ADJUDICATE THE ISSUE AS PER TH E PROVISION OF LAW. THEREFORE, WE ALLOW THIS GROUND FOR STATISTICAL PURPOSES. 11. GROUND NO. 2 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENDITURE ON BRAND EQUITY OF RS. 32,88,000/-. 12. AT THE TIME OF HEARING, BEFORE US BOTH LD. COUN SEL FOR THE ASSESSEE AS WELL AS LD. DR FOR THE REVENUE BOTH HAVE AGREED THAT THIS ISSUE NEEDS TO BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO IDENTIFY WHETHER E XPENSES CLAIMED BY THE ASSESSEE IS ROYALTY OR NORMAL BUSINESS EXPENDITURE. THEREFOR E, WE SEND THIS GROUND TO THE FILE OF ASSESSING OFFICER TO VERIFY WHETHER THE EXP ENSES CLAIMED BY THE ASSESSEE IS ROYALTY OR NORMAL BUSINESS EXPENDITURE. IF IT IS NO RMAL BUSINESS EXPENDITURE THEN TDS WILL NOT APPLICABLE. THEREFORE WE DIRECT THE AS SESSING OFFICER TO VERIFY THIS FACTUAL ASPECT AND DECIDE THE ISSUE IN ACCORDANCE W ITH LAW. 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 05.04 .2019 SD/- ( S.S.GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 05/04/2019 ( SB, SR.PS ) TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 6 66 6 COPY OF THE ORDER FORWARDED TO: 1. TAYO ROLLS LIMITED 2. ACIT, CIRCLE-3, JAMSHEDPUR 3. C.I.T(A)- 4. C.I.T.- RANCHI 5. CIT(DR), RANCHI BENCH, RANCHI . 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, RANCH I BENCH IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI, BENCH, RANCHI BEFORE SHRI S.S. GODARA, JM &DR. A.L.SAINI, AM ./ITA NOS.244 & 245/RAN/2017 ( / ASSESSMENT YEARS: 2007-08 TO 2008-09) TAYO ROLLS LTD. NO. 3, ROAD NO. 11, C.H. AREA (NORTH EAST) BISTUPUR, JAMSHEDPUR-831001 VS. ACIT, CIRCLE-3, JAMSHEDPUR ./ ./PAN/GIR NO.: AABCT 0210 H (ASSESSEE) .. (REVENUE) ASSESSEE BY : SHRI P.R. MITTAL, ADVOCATE RESPONDENT BY : SHRI P.K. MONDAL, JCIT / DATE OF HEARING : 11/01/2019 /DATE OF PRONOUNCEMENT : 05/04/2019 / O R D E R PER BENCH: THE CAPTIONED TWO APPEALS FILED BY THE ASSESSEE , PERTAINING TO ASSESSMENT YEARS 2007-08 TO 2008-09 RESPECTIVELY ARE DIRECT ED AGAINST THE SEPARATE ORDERS PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL)-J AMSHEDPUR, WHICH IN TURN ARISE OUT OF SEPARATE ASSESSMENT ORDERS PASSED BY T HE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. SINCE THESE TWO APPEALS FILED BY THE ASSESSEE CO NTAINED COMMON AND IDENTICAL ISSUES THEREFORE THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE A ND BREVITY. TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 2 22 2 3. IN THESE APPEALS , HOWEVER THE ASSESSEE HAVE RAI SED MULTIPLE GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING THE MAIN GRIEVANCE OF TH E ASSESSEE ARE CONCISED AND SUMMARIZED AS FOLLOWS: I. GROUND NO.1 RAISED BY THE ASSESSEE IN I.T.A. NO. 244/RAN/2017 FOR ASSESSMENT YEAR 2007-08 AND GROUND NO. 3 RAISED BY THE ASSESSE E IN I.T.A. NO. 245/RAN/2017 FOR ASSESSMENT YEAR 2008-09 ARE COMMON AND IDENTICA L AND RELATE TO: A) PROVISION FOR WARRANTY EXPENSES OF RS. 50,66,000 /- FOR A.Y. 2007-08 AND B) PROVISION FOR WARRANTY EXPENSES OF RS. 1,48,13,0 00/- FOR A.Y. 2008-09 SINCE THIS IS COMMON AND IDENTICAL GROUND IN BOTH T HE YEARS I.E. A.Y. 2007-08 WARRANTY EXPENSES OF RS. 50,66,000/- AND A.Y. 2008- 09 WARRANTY EXPENSES IS TO THE TUNE OF RS. 1,48,13,000/- WE TAKE ASSESSEES AP PEAL IN I.T.A. NO. 244/RAN/2017 FOR ASSESSMENT YEAR 2007-08 AS A LEAD CASE TO ADJUDICATE THIS COMMON GROUND. 4. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS DEALT THIS FACT WHICH IS BEING REPRODUCED AS BELOW: PRODUCT WARRANTY CHARGES: THE ASSESSEE HAS MADE PR OVISIONS UNDER THIS HEAD OF RS. 284.66 LAKHS AS IN PREVIOUS YEARS. THE ASSESSEE WAS ASKED TO FURNISH A YEAR-WISE DETAILS CHART OF SUCH PROVISION S WHICH IS REPRODUCED BELOW: FOR REASONS MENTIONED IN EARLIER ASSESSMENT YEARS T HE SAID EXCESS PROVISION OF RS. 50,66,000/- LAKHS IS DISALLOWED AS FACTS REMAIN THE SAME. 5. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 3 33 3 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE COMPANY MANUFACTURES AND SELLS IRON AND STEEL ROLLS TO VARIOUS METALLURGICAL AND NON METALLURGICAL INDUSTR IES. THE COMPANY, AT THE TIME OF SALE, GIVES A GUARANTEE FOR PERFORMANCE OF ROLLS IN THE CUSTOMERS' MILL. IN THE EVENT OF FAILURE OF ROLLS TO GIVE THE MINIMUM GUARA NTEED TONNAGE OF ROLL DUE TO MANUFACTURING DEFECT, THE COMPANY GIVES COMPENSATIO N FOR LOSS OF LIFE OF ROLL OR GIVES FREE REPLACEMENT OF THE DEFECTIVE ROLL, AS MA Y BE APPROPRIATE, AFTER DUE EXAMINATION OF DEFECT. THE COMPANY FOLLOWS A SCIENT IFIC SYSTEM OF ESTIMATING WARRANTY LIABILITY AND MAKING PROVISIONS FOR WARRAN TY EVERY YEAR BY DEBIT TO PRODUCT WARRANTY CHARGES ACCOUNT WITH PROFIT & LOSS ACCOUNT. THIS PRACTICE IS CONSISTENTLY FOLLOWED YEAR AFTER YEAR AND THE AMOUN T DEBITED IN THE PROFIT & LOSS ACCOUNT IS CLAIMED AS BUSINESS EXPENDITURE. WE WOUL D LIKE TO MENTION HERE THAT THE MATTER IS COVERED BY THE ORDER PASSED BY THE LE ARNED COMMISSIONER OF INCOME TAX (APPEAL) IN APPEAL NO. 312/JSR/2008-09 FOR THE ASSESSMENT YEAR 2006-07 AND THE ORDER PASSED BY THE LEARNED JT. COMMISSIONE R OF INCOME TAX FOR THE ASSESSMENT YEAR 2009-10. THEREFORE, THE DEPARTMENT CANNOT TAKE A DIFFERENT STAND IN A.Y. 2007-08 AND IN THE A.Y. 2008-09. FOLLOWING THE PRINCIPLE OF CONSISTENCY THE ADDITION SHOULD NOT BE MADE. IN VIEW OF THE ABO VE, THE ADDITION OF RS.50,66,000/- AND RS. 1,48,13,000/- UNDER THIS HEA D ARE LIABLE TO BE DELETED AND ACCORDINGLY WE DELETE THE ADDITION. 7. NOW WE TAKE THE ASSESSEES APPEAL IN I.T.A. NO. 245/RAN/2017 FOR ASSESSMENT YEAR 2008-09. GROUND NO. 1 RAISED BY THE ASSESSEE RELATES TO DISA LLOWANCE OF EXPENDITURE ON SCIENTIFIC RESEARCH OF RS. 11,07,899/- 8. BRIEF FACTS QUA THE ISSUE ARE THAT THE ASSESSING OFFICER DISALLOWED THE SCIENTIFIC RESEARCH EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THE ASSESSEES EXPENDITURE DOES NOT FIT IN THE DEFINITION OF THE TERMS OF SCIENTIFIC RESEARCH WHICH HAS BEEN DEFINED IN INCOM E TAX ACT IN SECTION 43(4) WHICH READS AS , SCIENTIFIC RESEARCH MEANS ANY ACTIVITY FOR THE EXT ENSION OF KNOWLEDGE IN THE FIELD OF NATURAL AND APPLIED SCIENCE INCLUDING AGRICULTUR E, ANIMAL HUSBANDRY AND TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 4 44 4 FISHIRING. THE EXPENDITURE REFERRED OR INCURRED IN CLUDES ALL EXPENDITURES INCURRED FOR THE PROSECUTION, OR THE PROVISIONS OF FACILITY FOR THE PROSECUTION OR SCIENTIFIC BUT DO NOT INCLUDE ANY EXPENDITURE INCUR RED IN THE ACQUISITION OF RIGHT IN, OR ARISING OUT OF SCIENTIFIC RESEARCH. FURTHER, THE SCIENTIFIC RESEARCH RELATED TO A BUSINESS OR CLASS OF BUSINESS INCLUDES ANY SCIENT IFIC RESEARCH WHICH MAY LEAD TO OR FACILITATE AND EXTENSION OF THAT BUSINESS AND, O R AS THE CASE MAY BE, ALL BUSINESS OF THAT CLASS. THE SUBMISSIONS AS FURNISHED BY THE LD. AR OF THE A SSESSEE HAS BEEN DULY CONSIDERED BUT IT IS IMPORTANT TO POINT OUT THAT TH E ASSESSEE HAS FAILED TO PROVE THAT EXPENDITURE IS WELL WITHIN THE DEFINITION OF SCIENT IFIC RESEARCH AS DEFINED IN SECTION 43(4) OF THE ACT. THE WORK OF THE ASSESSEE IS JUST A LIAISING WORK WITH THE USERS, TO MEET OUT THE NEED OF THE CUSTOMERS. THERE IS NO ELE MENT OF SCIENTIFIC RESEARCH AS DEFINED WITHIN THE MEANING OF ACT. HENCE THE CLAIM OF RS. 11,07,899/- IS BEING DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. 9. AGGRIEVED THE STAND SO TAKEN BY THE ASSESSING OF FICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONF IRMED THE ADDITION MADE BY THE ASSESSING OFFICER OBSERVING THE FOLLOWING: 4.3. I HAVE GONE THROUGH THE ORDER OF THE LEARNED A.O. AS WELL AS THE WRITTEN SUBMISSION MADE BY THE APPELLANT. THE ASSESSING OFF ICER IN HIS ORDER HAS ELABORATELY MENTIONED AS TO WHY THE AMOUNT IS DISAL LOWED WHEREAS THE ASSESSEE FAILED TO BRING ANY COGENT MATERIAL THAT THE EXPEND ITURE IS AN ALLOWABLE DEDUCTION U/S 35(1). SECTION 35(1) STATES THAT THE DEDUCTION IS ALLOWABLE IF THE EXPENDITURE INCURRED ON IN HOUSE RESEARCH U/S 35(2AB). FOR AN A PPROVAL OF THE SAME, THE ASSESSEE-COMPANY IS REQUIRED TO MAKE AN APPLICATION IN FORM NO. 3CK BEFORE THE SECRETARY, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RE SEARCH ON OR BEFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND SUCH APP LICATION IS DULY APPROVED BY THE PRESCRIBED AUTHORITY. WE DO NOT FIND ANY SUCH APPROVAL OF PRESCRIBED AUTHORITY. HENCE EXPENSES INCURRED IS NOT ELIGIBLE FOR DEDUCTION U/S 35(1). THEREFORE THE ASSESSING OFFICER HAS RIGHTLY DISALLO WED RS. 11,07,899/-. HENCE THIS GROUND IS HEREBY DISMISSED. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT SECTION 35(1) OF THE ACT CLEARLY PROV IDES THAT THE DEDUCTION IS ALLOWABLE IF THE ASSESSEE INCURRED THE EXPENDITURE ON IN HOUSE RESEARCH U/S 35(2AB) OF THE ACT. WE NOTE THAT FOR AN APPROVAL OF THE SAME THE ASSESSEE TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 5 55 5 COMPANY IS REQUIRED TO MAKE AN APPLICATION IN FORM NO. 3CK BEFORE THE SECRETARY, DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH ON O R BEFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND SUCH APPLICATION IS DULY APPROVED BY THE PRESCRIBED AUTHORITY. HOWEVER THE ASSESSEE HAS NOT DONE THE TECHNICAL PROCESS THEREFORE WE DIRECT THE ASSESSEE TO COMPLETE THE TE CHNICAL PROCESS AND SUBMIT THE RELEVANT PAPERS AND APPROVAL BEFORE THE LD. CIT(A). WE DIRECT THE LD. CIT(A) TO EXAMINE THE ASSESSEES ENTITLEMENT WHETHER THE EXPE NDITURE INCURRED IS ELIGIBLE U/S 35(1) OF THE ACT AND ADJUDICATE THE ISSUE AS PER TH E PROVISION OF LAW. THEREFORE, WE ALLOW THIS GROUND FOR STATISTICAL PURPOSES. 11. GROUND NO. 2 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENDITURE ON BRAND EQUITY OF RS. 32,88,000/-. 12. AT THE TIME OF HEARING, BEFORE US BOTH LD. COUN SEL FOR THE ASSESSEE AS WELL AS LD. DR FOR THE REVENUE BOTH HAVE AGREED THAT THIS ISSUE NEEDS TO BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO IDENTIFY WHETHER E XPENSES CLAIMED BY THE ASSESSEE IS ROYALTY OR NORMAL BUSINESS EXPENDITURE. THEREFOR E, WE SEND THIS GROUND TO THE FILE OF ASSESSING OFFICER TO VERIFY WHETHER THE EXP ENSES CLAIMED BY THE ASSESSEE IS ROYALTY OR NORMAL BUSINESS EXPENDITURE. IF IT IS NO RMAL BUSINESS EXPENDITURE THEN TDS WILL NOT APPLICABLE. THEREFORE WE DIRECT THE AS SESSING OFFICER TO VERIFY THIS FACTUAL ASPECT AND DECIDE THE ISSUE IN ACCORDANCE W ITH LAW. 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 05.04 .2019 SD/- ( S.S.GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 05/04/2019 ( SB, SR.PS ) TAYO ROLLS LTD. ITA NOS.244 & 245/RAN/2017 ASSESSMENT YEARS:2007-08 TO 2008-09 P PP PA AA AG GG GE EE E | || | 6 66 6 COPY OF THE ORDER FORWARDED TO: 1. TAYO ROLLS LIMITED 2. ACIT, CIRCLE-3, JAMSHEDPUR 3. C.I.T(A)- 4. C.I.T.- RANCHI 5. CIT(DR), RANCHI BENCH, RANCHI . 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, RANCH I BENCH