Ankur Scientific Energy Technologies Pvt. Ltd., Baroda V. The Dy. CIT, Circle-1(1), Baroda

ITA 2551/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9461 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 30-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Competent authority

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA.NO.2551/AHD/2013 / ASSTT. YEAR: 2010-2011 ANKUR SCIENTIFIC ENERGY TECHNLOGIES P.LTD. ANKUR NR. NAVARACHANA SCHOOL SAMA, VADODARA. VS. DCIT, CIR.1(1) BARODA. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI SURENDRA MODIANI REVENUE BY : SHRI PRASOON KABRA, SR.DR / DATE OF HEARING : 12/01/2017 / DATE OF PRONOUNCEMENT: 18/01/2017 +,/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST T HE ORDER OF THE LD.CIT(A)-I, BARODA DATED 2.9.2013 PASSED FOR THE A SSTT.YEAR 2010-11. 2. GROUNDS OF TAKEN BY THE ASSESSEE ARE NOT IN CONS ONANCE WITH THE RULE 8 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 - THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF GRIEVANCE OF THE ASSESSEE IS OF TWO FOLDS VIZ. (A) THE LD.CIT(A) HAS ERRED IN CONFIRMING ACTION OF THE AO FOR TREATING GAIN ON SALE OF SHARES AT RS.28,24,217/- AS A BUSINESS INCO ME INSTEAD OF SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE, AND (B) THE LD. CIT(A) HAS ERRED IN ITA NO.2551/AHD/2013 2 UPHOLDING DISALLOWANCE OF WEIGHTED DEDUCTION OF RS. 13,48,732/- MADE UNDER SECTION 35(2AB) OF THE INCOME TAX ACT CLAIMED FOR R ESEARCH AND DEVELOPMENT EXPENSES. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PRIVAT E LIMITED COMPANY ENGAGED IN MANUFACTURING AND SELLING OF BIOMASS GASFIER. I T HAS FILED ITS RETURN OF INCOME ELECTRONICALLY ON 29.9.2009 DECLARING TOTAL INCOME AT RS.3,44,94,749/- . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTI NY ASSESSMENT AND NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT WAS ISSU ED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS SHOWN GAIN ON SALE OF SHARES AND MUTUAL FUND. ACCORDING TO THE AO, THE ASSESSEE HAS CLAIMED SHORT TERM CAPITAL GAIN OF RS. 28,24,217/- FROM SALE OF INVESTMENT (LIMITED EQUITY SHARES). THE LD.AO HAS CONFRONTED THE ASSESSEE TO SHOW AS TO WHY THE ABOVE GAIN SHOULD NOT BE TREATED AS A BUSINESS INCOME. IN OTHER WORDS, HE DISPUTED ACTIVITY OF THE ASSESSEE A S AN INVESTOR AND CONFRONTED TO THE ASSESSEE AS TO WHY IT SHOULD NOT BE TREATED AS A TRADER IN THE SHARES. IN RESPONSE TO THE QUERY OF THE AO, THE ASSESSEE HAS F ILED DETAILED WRITTEN SUBMISSION ON 3.12.2012. THIS SUBMISSION HAS BEEN REPRODUCED BY THE AO. THE ASSESSEE HAS ALSO MADE OTHER SUBMISSIONS. THE LD.AO HAS GONE THROUGH THE WRITTEN SUBMISSIONS OF THE ASSESSEE, BUT DID NO T CONCUR WITH THEM, AND ULTIMATELY ASSESSED SHORT TERM CAPITAL GAIN DISCLOS ED BY THE ASSESSEE AS A BUSINESS INCOME. APPEAL TO THE LD.CIT(A) DID NOT B RING ANY RELIEF TO THE ASSESSEE. 4. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE TOOK US THROUGH WRITTEN SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LD.REV ENUE AUTHORITIES BELOW. HE SPECIFICALLY DREW OUR ATTENTION TOWARDS SUBMISSI ONS NOTICED BY THE LD.CIT(A) ON PAGE NO.8 TO 13 OF THE IMPUGNED ORDER. ITA NO.2551/AHD/2013 3 5. ON THE OTHER HAND, LD.DR RELIED UPON THE ORDERS OF THE AO. HE CONTENDED THAT LD.AO HAS REJECTED CONTENTIONS BECAU SE THERE WAS LARGE NUMBER OF TRANSACTIONS WHICH HAVE BEEN UNDERTAKEN B Y THE ASSESSEE. 6. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. THE ISSUE, WHETHER GAIN FROM SALE OF SHARES IS TO B E ASSESSED AS A BUSINESS INCOME OR SHORT TERM CAPITAL GAIN/LONG TER M CAPITAL GAIN, IS A HIGHLY DEBATABLE ISSUE. IT ALWAYS PUZZLED THE ADJUDICATOR EVEN AFTER AVAILABILITY OF LARGE NUMBERS OF AUTHORITATIVE PRONOUNCEMENTS BY TH E HONBLE SUPREME COURT/HONBLE HIGH COURT. THE REASON FOR THE PUZZL E IS, ONE HAS TO GATHER THE INTENTION OF AN ASSESSEE WHILE HE ENTERED INTO THE TRANSACTION. THE EXPRESSION INTENTION AS DEFINED IN MERIAM WEBSTER DICTIONARY MEANS, WHAT ONE INTENDS TO ACCOMPLISH OR ATTAIN, IT IMPLIES LITTLE MORE THAN WHAT ONE HAS IN MIND TO DO OR BRING OUT. IT SUGGESTS CLEAR FORMULA TION OR DELIBERATION. THUS, IT IS ALWAYS DIFFICULT TO ENTER INTO THE RECESS OF THE MIND OF AN ASSESSEE TO FIND OUT THE OPERATIVE FORCES EXHIBITING THE INTENTION F OR ENTERING INTO THE TRANSACTION. THIS WOULD GIVE RISE A DEBATE. NEVERT HELESS, WE HAVE TO LOOK INTO THE CURIOUS FEATURES OF THIS CASE WHICH WILL GOAD U S ON JUST CONCLUSION. 7. BEFORE WE EMBARK UPON AN INQUIRY ON THE FACTS OF PRESENT CASE SO AS TO FIND OUT, WHETHER ASSESSEE IS TO BE TERMED AS INVOL VING IN THE TRADING OF SHARES OR TO BE TREATED AS A SIMPLICITOR INVESTORS. WE WO ULD LIKE TO REFER CERTAIN BROAD PRINCIPLE CULLED OUT BY ITAT LUCKNOW BENCH IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD. REPORTED IN 120 TTJ 216. THESE TESTS READ AS UNDER:- 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FO LLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRA DE OR ARE MERELY FOR INVESTMENT PURPOSES: ITA NO.2551/AHD/2013 4 (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED STOCK-IN-TRADE OR INVESTMENT. WHETHE R SHOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVEST MENT OR NON- TRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN AS SET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASE AND DISP OSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT , OR THERE ARE SUBSTANTIAL TRANSACTION IN THAT ITEM, IF WOULD INDI CATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AN D THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTI NG (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREA S LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADES AND LATTER, AN INVESTM ENT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIA L MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST , IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEM ORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TR ADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHE THER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO C ARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSE. 7. IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHO W THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT D ISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPA RENT IS NOT REAL. ITA NO.2551/AHD/2013 5 8. THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHAR ES ( OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. 9. ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITE S FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE A SSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN I NTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR W HEN PURCHASES WERE MADE? 10. IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15 TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIO S, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR B OTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. 11. NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EF FECT OF SEVERAL FACTORS HAS TO BE SEEN. 8. THE HONBLE GUJARAT HIGH COURT HAD ALSO AN OCCAS ION TO CONSIDER THIS ISSUE IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RIVA SHARKAR A KOTHARI REPORTED IN 283 ITR 338. HONBLE COURT HAS MADE RE FERENCE TO THE TEST LAID BY IT IN ITS EARLIER DECISION RENDERED IN THE CASE OF PARI MANGALDAS GIRDHARDAS VS. CIT REPORTED IN 1977 CTR 647. THESE TESTS READ AS UNDER: AFTER ANALYZING VARIOUS DECISIONS OF THE APEX COUR T, THIS COURT HAS FORMULATED CERTAIN TESTS TO DETERMINE AS TO WHETHER AN ASSESSEE CAN BE SAID TO BE CARRYING ON BUSINESS. (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITION O F THE SUBJECT-MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN THE ITEM, OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTION, SINCE THE INCEPTION, APPEARS TO BE IMPRESSED WITH THE CHARACT ER OF A ITA NO.2551/AHD/2013 6 COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDELINE. (B) THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY. (C) THE THIRD TEST, WHICH IS FREQUENTLY APPLIED, IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT-MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS THE ASSESSEE. HAS IT BEEN TREATED AS STOCK-IN- TRADE, OR HAS IT BEEN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE SHEE T AS AN INVESTMENT. THIS INQUIRY, THOUGH RELEVANT, IS NOT CONCLUSIVE. (D) THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSELF HAS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEEDING ASSESSMENTS. THIS FACTOR, THOUGH NOT CONCLUSIVE, CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF THE TRANSACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDERED IN THE ABSEN CE OF ANY SATISFACTORY EXPLANATION. (E) THE FIFTH TEST, NORMALLY APPLIED IN CASE OF PARTNER SHIP FIRMS AND COMPANIES, IS WHETHER THE DEED OF PARTNERSHIP OR TH E MEMORANDUM OF ASSOCIATION, AS THE CASE MAY BE, AUTHORIZES SUCH AN ACTIVITY. (F) THE LAST BUT NOT THE LEAST, RATHER THE MOST IMPORTA NT TEST, IS AS TO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRA NSACTION OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CAS E WHERE THERE IS REPETITION AND CONTINUITY, COUPLED WITH THE MAGNITU DE OF THE TRANSACTION, BEARING REASONABLE PROPOSITION TO THE STRENGTH OF HOLDING THEN AN INFERENCE CAN READILY BE DRAWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS. ITA NO.2551/AHD/2013 7 9. IN THE LIGHT OF THE ABOVE, LET US EXAMINE FACTS OF THE PRESENT CASE. IN ORDER TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE, WE WOULD LIKE TO TAKE NOTE OF WRITTEN SUBMISSIONS MADE BY THE ASSESS EE BEFORE THE LD.CIT(A). RELEVANT PART OF THE SUBMISSION READS AS UNDER: 2. OUR SUBMISSIONS ON CONSIDERING GAIN FROM SALE O F SHARES AS BUSINESS INCOME RATHER THAN CAPITAL GAIN THE ASSESSEE HUMBLY SUBMITS THAT IT EARNED SHORT TE RM CAPITAL GAIN OF RS. 4,427,978/- FROM SALE OF MUTUAL FUND, SHORT TERM CAPITAL GAIN OF RS. 2,824,217/- FROM SALE OF INVESTMENT (LISTED EQU ITY SHARES) AND LONG TERM CAPITAL GAIN OF RS. 6,22,612/- FROM SALE OF MF/LISTED EQUITY SHARES AND OFFERED THE SAME AS CAPITAL GAIN AS PER APPLICABLE PROVISIONS OF THE ACT. DURING THE ASSESSMENT PROCEE DINGS, ASSESSING OFFICER HAS ACCEPTED SHORT TERM CAPITAL GAIN OF RS. 4,427,978/- FROM SALE OF MUTUAL FUND AND LONG TERM CAPITAL GAIN OF RS622,612/- FROM SALE OF MF/LISTED EQUITY SHARES BUT CONSIDERED SHORT TERM CAPITAL GAIN OF RS. 2.824,217/- FROM SALE OF INVESTMENT (LISTED EQUITY SHARES) AS BUSINESS INCOME. THE ASSESSEE HUMBLY SUBMITTED THAT GAIN OF RS. 2,82 4,217/- EARNED FROM LISTED EQUITY SHARES WAS RIGHTLY OFFERED AS CA PITAL GAIN AND MADE FOLLOWING SUBMISSIONS TO ASSESSING OFFICER VID E LETTER DATED 3 D DEC 2012 IN SUPPORT OF SAME :- COMPANY IS A MANUFACTURING COMPANY AND ITS MAIN OBJ ECT IS TO MAKE BUSINESS PROFIT FROM MANUFACTURING OF BIOMASS GASIF IERS AND NOT FROM SHARES AND MUTUAL FUND. IT IS EVIDENT FROM MEMORAND UM AND ARTICLES OF THE ASSESSEE COMPANY. INVESTMENT WAS ONLY IN FEW COMPANIES AND MOST OF TH EM ARE BLUE SHIP/ A CATEGORY COMPANIES WHERE INVESTORS WANT TO INVEST MONEY MAINLY FOR INVESTMENT AND NOT FOR TRADING. TOTAL NO . OF SCRIPTS WERE 27 ONL Y AND TOTAL NO. OF TRANSACTIONS WERE 57 ONLY AVERAGE 1 TRANSACTION PER WEEK) ALL THE SHARES SOLD DURING THE YEAR WERE DELIVERY B ASED AND DELIVERY WAS GIVEN FROM THE DEMA T ACCOUNT OF THE ASSESSEE. FURTHER, MANY OF THE SHARES SOLD DURING THE PREVIOUS YEAR, WERE F ROM OPENING STOCK AND SHOWN AS PART OF INVESTMENT AS CLEAR FROM THE B ALANCE SHEET OF THE ASSESSEE. ALL THE INVESTMENT WAS FROM OWN FUNDS AND NO BO RROWED MONEY FOR USED FOR THE INVESTMENT. ITA NO.2551/AHD/2013 8 OPENING BALANCE OF INVESTMENT IN EQUITY SHARES AS ON APRIL 1, 2009 WAS RS.526.30 LACS WHICH INCREASED TO RS. 79 1.35 LACS AS ON MARCH 31,2010. THIS ALSO SHOWS THAT MONEY WAS PUT PURELY FOR INVESTMENT PURPOSE. ASSESSEE COMPANY WAS VALUING SUCH INVESTMENTS IN SH ARES AND MUTUAL FUND AT COST CONSISTENTLY. ASSESSEE COMPANY IS CONSISTENTLY INVESTING FROM ITS SURPLUS FUNDS IN SHARES AND MUTUAL FUND AND IS CONSISTENTLY FOLLO WING THE SAME PRACTICE SINCE INCORPORATION AND THE SAME WAS ACCEP TED. THE ASSESSEE FURTHER SUBMITS THAT CBDT CIRCULAR NO. 4/2007 DATED JUNE 15, 2007 AND VARIOUS JUDICIAL PRONOUNCEMENTS M ADE IT CLEAR THAT COMBINATION OF VARIOUS TEST/FACTORS ARE TO BE APPLI ED FOR DETERMINATION WHETHER INCOME FROM SALE OF SHARES SHOULD BE CONSID ERED AS CAPITAL GAIN OR BUSINESS INCOME AND NOT ON ANY PARTICULAR O R SINGLE CRITERION. RELEVANT EXTRACTS FROM CBDT CIRCULAR NO. 4/2007 IS REPRODUCED HERE. THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE P RINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, T HE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE'. THE ASSESSEE FURTHER SUBMITS THAT IN SPITE OF PROVI DING ALL THE DETAILS AND FACT THAT THE ASSESSING OFFICER DID NOT DISPUTE ANY OF OUR SUBMISSION, RELEVANT JUDICIAL PRONOUNCEMENTS AND ME ETING VARIOUS CRITERIONS MENTIONED ABOVE, THE ASSESSING ORDER ARB ITRATORILY DECIDED TO TREAT THE INCOME FROM SALE OF LISTED EQUITY SHAR ES AS BUSINESS INCOME RATHER THAN SHORT TERM CAPITAL GAIN. WE HAVE PROVIDED COMPLETE DETAILS OF SHORT TERM CAP ITAL GAIN OF RS.2,824,217/- VIDE OUR SUBMISSION DATED NOV. 21, 2 102 AND IT CAN BE SUMMARISED AS UNDER:- NO. OF SCRIPTS (A) NO. OF SALES TRANSACTIONS PER SCRIPT (B) TOTAL NO. OF SALES TRANSACTIONS C=(A)*(B) 13 1 13 7 2 14 ITA NO.2551/AHD/2013 9 3 3 9 1 4 4 1 5 5 2 6 12 TOTAL 27 SCRIPTS TOTAL 57 (AVERAGE 1 PER WEEK) IN SPITE OF OUR DETAILED WRITTEN SUBMISSION SUPPORT ED BY RELEVANT CASE LAWS, THE ASSESSING OFFICER DECIDED THAT GAIN OF RS . 2,824,217/- FROM SALE OF LISTED EQUITY SHARES IS INCOME FROM BUSINES S OR PROFESSION. OBSERVATION OF ASSESSING OFFICER FROM ASSESSMENT OR DER AND OUR SUBMISSIONS CAN BE COMPILED IN THIS TABLE:- S. NO. OBSERVATION OF ASSESSING OFFICER OUR SUBMISSION 1. THE ASSESSING OFFICER HEAVILY RELIED ON THE CASE OF COMMISSIONER OF INCOME. TAX V/S. REWASHANKER A.KOTHARI 2006(283) ITR 338 (GUJ.)&PARI MANGALDASGI RDHARDAS V/S CIT (1977)CTR 647 (GUJ.) TO JUSTIFY HIS STAND THAT THE MOST IMPORTANT TEST SUGGESTED IS REGARDING VOLUME, FREQUENCY, CONTINUITY AND REGULARITY FOR TRANSACTION OF PURCHASE AND SALE , OF GOODS CONCERNED. BASED ON THIS, THE ASSESSING OFFICER DECIDED THAT GAIN FROM IT HAS BEEN ON RECORD AND UNDISPUTED FACT THAT DURING THE WHOLE YEAR, THERE WERE ONLY 57SALES TRANSACTIONS (AVERAGE 1 SALE TRANSACTION PER WEEK) AND ONLY IN 27 SC RIPTS (MOST OF THEM ARE BLUE CHIP SCRIPTS). BY NO STRETCH OF IMAGINATION, THIS CAN BE CONSIDERED AS HIGH FREQUENCY OR REGULARITY OF TRANSACTIONS AND IT NOWHERE PROVES THAT THE ASSESSEE IS A DEALER IN SHARES. FURTHER AS MENTIONED VERY CLEARLY IN CBDT CIRCUL AR NO. 4/2007 THAT 'THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR ITA NO.2551/AHD/2013 10 27 SCRIPTS AND 57 TRANSACTIONS ARE TO BE ASSESSED AS INCOME FROM BUSINESS. STOCK-IN-TRADE'. EVEN GUJARAT HIGH COURT (JURISDICTIONAL HIGH COURT) WHILE ACCEPTING IN THE MATTER OF COMMISSIONER OF INCOME TAX-HI - VS VAIBHAVJ SHAH (HUF) -TAX APPEAL NO. 77 & 78 OF 2010 THAT GAIN FROM SALE OF SHARES IS CAPITAL GAIN AND IT WAS BASE ON ITS OWN CASE LAW OF COMMISSIONER OF INCOME TAX V/S. REWASHANKER.A. KOTHARI 2006(283) ITR 338 (GUJ.) THEREFORE, EVEN IN THE FACT OF OUR CASE, THESE JUDGMENTS ARE IN OUR FAVOR. 2. THE ASSESSING OFFICER DID NOT REBUT THAT, CASE LAWS CITED BY US AND INCLUDED IN THE ASSESSMENT ORDER, WERE NOT RELEVANT AT ALL THESE CASE LAWS ARE CLEARLY APPLICABLE TO OUR CASE AND SHOULD HAVE BEEN CONSIDERED/ACCEPTED BY THE ASSESSING OFFICER OR REASONS SHOULD HAVE BEEN GIVEN FOR NOT ACCEPTING THE SAME. FOLLOWING ARE THE ADDITIONAL JUDICIAL PRONOUNCEMENT S WHICH SUPPORT OUR VIEW THAT CONSIDERING THE FACTS OF OUR CASE, GA IN FROM SALE OF LISTED EQUITY SHARES OF RS. 2,824,217/-CAN BE ASSESSED ONL Y AS SHORT TERM CAPITAL GAIN AND NOT AS INCOME FROM BUSINESS. SAME ARE ALSO ATTACHED WITH LETTER AS NAMED AS COMPLETE TEXT ON C ASE LAWS: 10. APART FROM THE ABOVE SUBMISSION, THE ASSESSEE H AS EXPLAINED THAT EVEN IN THE ASSTT.YEAR 2010-11, THERE WERE TRANSACTIONS OF SALE AND PURCHASES OF MUTUAL FUNDS AND SHORT TERM CAPITAL HAD ARISEN. TH EY WERE ACCEPTED BY THE DEPARTMENT. IT IS PERTINENT TO OBSERVE THAT THE AS SESSEE HAS DISCLOSED SHORT TERM CAPITAL GAIN OF RS.44,27,978/- FROM SALE OF MU TUAL FUND. THE AO DID NOT DISPUTE ABOUT THIS DISCLOSURE. SIMILARLY, THE ASSE SSEE HAS SHOWN LONG TERM CAPITAL GAIN OF RS.6,22,612/- FROM SALE OF MUTUAL F UND AND LISTED EQUITY. THE ITA NO.2551/AHD/2013 11 SHORT TERM CAPITAL AND LONG TERM CAPITAL GAINS HAD BEEN EARNED BY THE ASSESSEE-COMPANY IN THE ASSTT.YEAR 2010-11 AND THE AO DID NOT DISPUTE ABOUT STATUS OF ASSESSEE AS AN INVESTOR. ALL OF A SUDDEN WHAT HAPPENED TO THE STATUS OF THE ASSESSEE IN SUBSEQUENT YEAR HAS NOT B EEN SPECIFICALLY POINTED OUT. FREQUENCY OF A TRANSACTION IS ONE OF THE REASONS AM ONGST OTHERS FOR FORMING A BELIEF WHETHER AN ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF SHARE TRANSACTIONS OR IT WAS ONLY MAKING INVESTMENT. THIS ONE FACTOR CANNOT BE SUFFICIENT TO DECIDE CONTROVERSY CONCLUSIVELY. IT IS PERTINENT T O OBSERVE THAT THE ASSESSEE HAS ALWAYS VALUED INVESTMENT AT COST. HAD IT BEEN ENGAGED IN TRADING OF SHARES, THEN AT THE CLOSE OF THE YEAR, THE VALUATIO N WOULD HAVE BEEN MADE EITHER AT COST OR AT MARKET PRICE WHICHEVER IS LOWE R. THE ASSESSEE HAS NOT USED ANY INTEREST BEARING FUNDS. ITS TRANSACTIONS ARE D ELIVERY BASED. ITS MAIN BUSINESS IS OF MANUFACTURING AND SELLING OF BIOMASS GASFIER. CUMULATIVE SETTING OF ALL THESE FACTORS WOULD INDICATE THAT TH E ASSESSEE WAS NOT DEALING IN SHARES AS TRADER. EVEN IF FREQUENCY IS CONSIDERED, THAT ALSO NOT ON HIGHER SIDE. IT HAS DEALT 27 SCRIP AND 57 TRANSACTIONS IN THE YE AR. THE LD.CIT(A) WHILE REJECTING CONTENTIONS OF THE ASSESSEE HAD MADE AN O BSERVATION THAT OPENING BALANCE IN THE EQUITY SHARES AS ON 1.4.2009 WAS RS. 526.30 LACS WHICH INCREASED TO RS.791.35 LACS IN 31.3.2010. WE FAILE D TO UNDERSTAND THAT HOW INCREASE IN THE VALUE OF INVESTMENT WOULD BE A FACT OR TO DOUBT ACTIVITY OF THE ASSESSEE AS A INVESTOR. HOW THIS FACT COULD GOAD A NY ADJUDICATING AUTHORITY TO ARRIVE AT A CONCLUSION THAT TRANSACTION WAS OF A BU SINESS IN NATURE. IF THE ASSESSEE DID NOT MAKE ANY SALE IN A PARTICULAR YEAR AND KEEP ON INVESTMENT, THE VALUE IN INVESTMENT WOULD INCREASE. AS OBSERVE D EARLIER THAT LARGE NUMBER OF DECISIONS AT THE END OF HONBLE HIGH COUR T AND ITAT ARE AVAILABLE ON THIS POINT. SIMILARLY, ASSESSEE HAS ALSO MADE R EFERENCE TO LARGE NUMBER OF CASES IN ITS SUBMISSION BEFORE LD.REVENUE AUTHORITI ES. WE DO NOT DEEM IT NECESSARY TO RECITE AND RECAPITULATE ALL THESE DECI SIONS BECAUSE MOST OF THE ITA NO.2551/AHD/2013 12 DECISIONS HAVE BEEN CONSIDERED IN THE CASE OF SARNA TH INFRASTRUCTURE PVT. LTD. ONE OF THE CASES REFERRED BY THE ASSESSEE IS GOPAL PUROHIT BY ITAT, MUMBAI. IT IS OBSERVED THAT THIS ORDER HAS BEEN UPHELD BY H ONBLE BOMBAY HIGH COURT IN 35 DTR 52. IN THIS CASE, TRANSACTIONS WERE MORE THAN 150 AND IN THAT CASE IT WAS OBSERVED THAT IF DELIVERY BASED TRANSACTIONS ARE AVAILABLE, THEN, PROFIT RECEIVED FROM SUCH TRANSACTION IS TO BE TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN. THUS, TAKING INTO CONSIDERA TION OVERALL FACTS, WE ARE OF THE VIEW THAT THE LD.REVENUE AUTHORITIES BELOW ARE NOT JUSTIFIED IN TREATING THE ASSESSEE AS TRADER IN THE SHARES, THEREFORE, WE ALL OW THE FIRST FOLD OF GRIEVANCE AND SET ASIDE ASSESSMENT OF RS.28,24,217/- AS A BUS INESS INCOME. WE DIRECT THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE, AND ASS ESS THIS AMOUNT AS A SHORT TERM CAPITAL GAIN. 11. IN THE NEXT FOLD OF GRIEVANCE, THE ASSESSEE HAS PLEADED THAT IT HAS CLAIMED WEIGHTED DEDUCTION OF RS.13,48,732/- UNDER SECTION 35(2AB) OF THE INCOME TAX ACT, 1961. 12. THE LD.AO HAS REJECTED THE CONTENTIONS OF THE A SSESSEE FOR TWO REASONS VIZ. (A) DEPARTMENT OF SCIENCE & INDUSTRIAL RESEARC H (DSIR) WHICH IS A COMPETENT AUTHORITY TO GRANT APPROVAL, HAS APPROVED R&D FACILITY FOR THE PURPOSE OF SECTION 35(2AB) OF THE INCOME TAX ACT FO R THE PERIOD 1 ST APRIL, 2010 TO 31.3.3012, AND (B) THE ASSESSEE WAS REQUIRE D TO MAINTAIN SEPARATE ACCOUNTS FOR EACH APPROVED FACILITY AS PER CLAUSE ( C) OF RULE 6(7A) OF THE INCOME TAX RULES, 1962. THE ASSESSEE FAILED TO MAI NTAIN SUCH ACCOUNTS, AND THEREFORE, IT IS NOT ENTITLE FOR WEIGHTED DEDUCTION AT THE RATE OF 150% UNDER SECTION 35(2AB) OF THE INCOME TAX ACT, 1961. 13. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. BEFORE THE LD.CIT(A), THE ASSESS EE HAS FILED WRITTEN ITA NO.2551/AHD/2013 13 SUBMISSIONS AND EXPLAINED ITS CASE QUA THE OBSERVATION OF THE AO. THE LD.CIT(A) HAS REPRODUCED IN HIS ORDER OBSERVATION O F THE AO AND THE REPLY OF THE ASSESSEE IN TABULAR FORM. THE EXPLANATION GIVE N BY THE ASSESSEE IS WORTH TO NOTE. IT READS AS UNDER: 3. ' OUR SUBMISSIONS ON DISALLOWANCES OF WEIGHTED DEDUCTION OF R & D EXPENSES U/S 35(2AB) OF THE INCOME TAX ACT, 1961 - AMOUNT OF WEIQHTAGE DEDUCTION RS. 1,348.732/- ADDED TO RETURN ED INCOME OF THE ASSESSEE. THE ASSESSEE HAS A RESEARCH & DEVELOPMENT UNIT SITU ATED AT NEAR VILLAGE GOTHDA, SAVLI ROAD, DIST. VADODARA, 391773, WHICH HAS BEEN RECOGNISED BY DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH (DSIR) SINCE 5 TH APRIL, 1990 AND LAST RENEWAL WAS DONE ON 09.04.200 9 WHICH WAS VALID FROM 01.04.2009 TO 31.03.2012. BASED ON T HE PROVISIONS OF THE SECTION 35(2AB) OF THE INCOME TAX ACT, 1961, WE CLAIMED 150% DEDUCTION OF RESEARCH & DEVELOPMENT EXPENSES OF RS. 26.97,451 LAKH AND BASED ON THIS, ADDITIONAL 50% DEDUCTION OF RS.13,48,726 LAKH WAS CLAIMED. THE ASSESSING OFFICER REJECTED THE AMOUNT OF INCREM ENTAL 50% ALLOWABLE U/S 35(2AB) ON CERTAIN GROUNDS IN SPITE O F THE FACT THAT THE ISSUE RAISED BY THE ASSESSING OFFICER WAS CLEARLY D ECIDED BY THE JURISDICTIONAL ( GUJARAT) HIGH COURT IN OUR FAVOUR AND SAME HAS BEEN UPHELD BY THE HONB'LE SUPREME COURT. WE ALSO CITED FEW OTHER JUDICIAL PRONOUNCEMENTS WHICH THOUGH CITED IN THE ASSESSMENT ORDER BUT NOT CONSIDERED APPROPRIATELY BY THE ASSESSING OFFICER. SR. NO. OBSERVATION OF ASSESSING OFFICER OUR SUBMISSION ITA NO.2551/AHD/2013 14 1. DSIR (APPROVING AUTHORITY) HAS GIVEN APPROVAL IN FORM 3 CM FROM APRIL 1, 2010 AND SAME IS APPLICABLE ONLY FROM A.Y. 2011-12 AND NOT FROM A.Y. 2010-11. WE WOULD TO BRING ON RECORD THAT BASIC APPROVAL FOR THIS UNIT AS APPROVED R & D CENTRE HAS BEEN SINCE 1990 AND RENEWED FOR THE PERIOD FROM 01.04.2009 TO 31.03.2012 VIDE DSIR LETTER DATED 09.04.2009 . THOUGH DSIR (APPROVING AUTHORITY) HAS MENTIONED IN FORM 3CM THAT WEIGHTAGE DEDUCTION IS AVAILABLE FROM APRIL 1, 2010 BUT IT IT HAS BEEN DECIDED BY JURISDICTIONAL HIGH COURT THAT WHAT IS IMPORTANT AND RELEVANT IS THAT IN- HOUSE R & D LAB IS APPROVED AND RECOGNIZED BY DSIR AND THE CUT- OFF DATE MENTIONED IN THE CERTIFICATE ISSUED BY THE DSIR WOULD BE OF NO RELEVANCE. WHAT IS TO BE SEEN IS THAT THE ASSESSEE WAS INDULGING IN R&D ACTIVITY AND HAD INCURRED THE EXPENDITURE THEREUPON. ONCE A CERTIFICATE BY DSIR IS ISSUED, THAT WOULD BE SUFFICIENT TO HOLD THAT THE ASSESSEE FULFILS THE CONDITIONS AND ELIGIBLE FOR WEIGHTED DEDUCTION. IN OUR CASE, WE HAVE BEEN APPROVED & RECOGNISED BY DSIR AND THEREFORE, ELIGIBLE FOR WEIGHTED DEDUCTION U/S 35(2AB). EXTRACTS AND TEXT OF CASE LAWS RELIED DARING ASSESSMENT PROCEEDINGS AND INCLUDED BY THE ASSESSING OFFICER IN HIS ORDER ARE BEING GIVEN IN THIS SUBMISSION. 2. RULE 6(7A)( C) OF THE INCOME TAX RULES PROVIDES THAT THE COMPANY SHALL MAINTAIN SEPARATE BOOKS FOR EACH APPROVED FACILITY BUT THE ASSESSEE HAS NOT MAINTAINED THE SEPARATE ACCOUNT FOR THE APPROVED FACILITY. ASSESSEE HIMSELF HAS MENTIONED TO DSIR IN ITS APPL ICATION THAT SEPARATE BOOKS FOR R & D EXPENDITURE HAVE BEEN MAINTAINED FROM FINANCIAL THE ASSESSEE FURTHER SUBMITS THAT ASSESSING OFFICER CONVENIENTLY IGNORED THE AUDITOR'S CERTIFICATE DATED 20TH SEPTEMBER 2010 ISSUED IN ACCORDANCE WITH INCOME TAX RULES, 1962 AND MENTIONED THAT SEPARATE LEDGER ACCOUNTS WERE MAINTAINED AND FU RTHER CERTIFIED THAT THE EXPENDITURE CERTIFIED WERE ALSO IN CONSONANCE WITH DSIR GUIDELINES. REQUIREMENT OF INCOME TAX RULES IS TO HAVE SEPARATE ACCOUNTS (AND NOT TO HAVE SEPARATE BOOKS OF ACCOUNTS) FOR R & D SO THAT R & D EXPENSES CAN BE EASILY TRACKED. T HE ASSESSEE HAD FULFILLED THE SAME AND IN SPITE OF SAME, THE ASSESSING OFFICER ARBITRATORILY DECIDED TO REJECT THE ASSESSEE CLAIM OF ITA NO.2551/AHD/2013 15 YEAR 2010-11. EVEN ASSESSING OFFICER HIMSELF HAS ACCEPTED AT PAGE 6 OF THE ASSESSMENT ORDER THAT SEPARATE LEDGER ACCOUNT HAS BEEN MAINTAINED FOR R & D EXPENSES WEIGHTED DEDUCTION OF R & D EXPENSES. THE SAME HAS BEEN PROVIDED TO THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS AND ENCLOSED IN THIS SUBMISSION. DATE OF CA CERTIFICATE IS 20/09/2010WHICH IS MUCH AFTER DATE OF APPLICATION TO DSIR. EVEN ASSESSING OFFICER HIMSELF HAS ACCEPTED AT PAGE 6 OF THE ASSESSMENT ORDER THAT SEPARATE LEDGER ACCOUNT HAS BEEN MAINTAINED FOR R & D EXPENSES & SUBMITTED DURING ASSESSMENT PROCEEDINGS. WITHOUT ADMITTING BUT ASSUMING THAT EVEN IF THE CONDITION OF INCOME TAX RULES IS NOT MET, THAN AT BEST IT CAN BE CONSIDERED AS PROCEDURAL/ TECHNICAL DEFICIENCY/DIFFERENCE IN INTERPRETATION AND BENEFIT C ANNOT BE DENIED MERELY ON PROCEDURAL OR TECHNICAL LAPSES WHEN SUBSTANTIAL CONDITIONS HAVE BEEN COMPLIED AND GENUINENESS OF R & D EXPENSES HAVE NOT BEEN DOUBTED. OUR VIEW US SUPPORTED BY VARIOUS JUDICIAL PRONOUNCEMENTS ENCLOSED WITH THIS LETTER. THE ASSESSING OFFICER IS REFERRING TO THE PART REMUNERATION OF M.D. INCLUDED IN R & D EXPENSES. IT IS TO BE NOTED THAT SINCE MANAGING DIRECTOR OF THE COMPANY IS A HIGH END TECHNICAL PERSON, HIS PART REMUNERATION HAS BEEN INCLUDED AS PART OF R & D EXPENSES ONLY IN BOOKS OF ACCOUNTS AS IT IS AS PER ACCOUNTING NORMS. THIS HAS NOT BEEN CLAIMED AS R & D EXPENSES AND EASILY VERIFIABLE FROM TABLE GIVEN ON PAGE 5 OF THE ASSESSMENT ORDER AND THEREFORE, TOTALLY IRRELEVANT FOR MAKING A GROUND FOR DISALLOWANCE OF WEIGH TAGE DEDUCTION OF OTHER ELIGIBLE R & D EXPENSES. IN ADDITION TO THE FACTS MENTIONED ABOVE, WE DRAW S UPPORT FROM THE FOLLOWING JUDICIAL PRONOUNCEMENTS WHICH STATES THAT WHAT IS IMPORTANT AND RELEVANT IS THAT IN-HOUSE R & D LAB IS APPROVED AND RECOGNISED ITA NO.2551/AHD/2013 16 BY DSIR AND THE CUT-OFF DATE MENTIONED IN THE CERTI FICATE ISSUED BY THE DSIR WOULD BE OF NO RELEVANCE. WHAT IS TO BE SEEN I S THAT THE ASSESSES WAS INDULGING IN R&D ACTIVITY AND HAD INCU RRED THE EXPENDITURE THEREUPON. ONCE A CERTIFICATE BY DSIR I S ISSUED, THAT WOULD BE SUFFICIENT TO HOLD THAT THE ASSESSEE FULFI LS THE CONDITIONS AND ELIGIBLE FOR WEIGHTED DEDUCTION. 14. APART FROM THE REITERATION OF THE ABOVE, THE LD .COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS. CLARIS LIFESCIENCES LTD., 326 ITR 251 (G UJ). ACCORDING TO THE LD.COUNSEL FOR THE ASSESSEE, THE HONBLE HIGH COURT HAS UPHELD THE ORDER OF THE ITAT WHEREIN IT HAS BEEN HELD THAT THE INCOME T AX ACT NOWHERE PROVIDES THAT SUCH WEIGHTED DEDUCTION WOULD BE ALLOWED FROM A PARTICULAR DATE. IN OTHER WORDS, EITHER THE ASSESSEE HAS BEEN CARRYING OUT RESEARCH AND DEVELOPMENT ACTIVITY, WHICH CAN AUTHORIZE IT TO CLA IM WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT OR NOT. THERE CAN NOT BE ANY CUT- OFF DATE AS CONTEMPLATED IN THE POLICY. ON THE OTHER HAND, THE LD.DR CONTENDED THAT THE LD.CIT(A) HAS CONSIDERED RULE 6(7A) OF THE INCOME T AX RULES, 1962 AND POLICY FRAMED BY DSIR. ACCORDING TO THE CIT(A), DS IR IN ITS POLICY FOR GRANT OF APPROVAL HAS LAID DOWN THAT SUCH APPROVAL WILL BE GIVEN FROM 1 ST APRIL OF THE YEAR IN WHICH APPLICATION IS MADE IN F ORM NO.3CL. SINCE DISR HAS GRANTED APPROVAL FOR THE PERIOD FROM 1.4.2010 T O 31.12.2012 THEREFORE THE ASSESSEE IS NOT ENTITLED FOR THE DEDUCTION. HE TOO K US THROUGH PARAGRAPH 7 OF THE LD.CIT(A)S ORDER. 15. ON DUE CONSIDERATION OF THE ABOVE FACTS AND CIR CUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE HAS SPECIFICALLY PLEADED BEFORE THE LD.CIT(A) THAT IT HAS BEEN MAINTAINING SEPARATE ACCOUNTS, AND IT HAS BEEN PRODUCED BEFORE THE DSIR. ACCORDING TO THE ASSESSEE, NOWHERE IN THE SE CTION 35(2AB) OF THE INCOME TAX ACT OR RULE 6(7A) OF THE INCOME TAX RULE S HAS PROVIDED ITA NO.2551/AHD/2013 17 MAINTENANCE OF ANY SEPARATE BOOKS OF ACCOUNTS. THE ASSESSEE HAS BEEN MAINTAINING SEPARATE LEDGER ACCOUNTS WHICH HAS DULY CERTIFIED BY THE CHARTERED ACCOUNTANTS. HENCE, IT HAS FULFILLED CON DITIONS CONTEMPLATED IN CLAUSE (C) OF RULE 6(7A) OF THE INCOME TAX RULES. AS FAR AS GRANT OF CERTIFICATE FROM 1.4.2010 IS CONCERNED, THE ACT NOW HERE GIVES SUCH POWERS TO DSIR. THE POLICY, IF CONTRARY TO THE STATUTORY PROV ISIONS, THEN WEIGHT TO THAT POLICY CANNOT BE GIVEN. THE ROLE OF DSIR IS TO FIN D OUT WHETHER THE ASSESSEES ACTIVITY FALLS WITHIN THE AMBIT OF RESEARCH AND DEV ELOPMENT ACTIVITY OR NOT. THIS ASPECT OF GRANT OF APPROVAL FOR CUT OFF PERIOD HAS BEEN CONSIDERED BY THE HONBLE HIGH COURT IN THE CASE OF CLARIS LIFE SCIEN CES LTD. (SUPRA) AND THE FINDING OF THE HONBLE HIGH COURT IN THIS REGARD RE AD AS UNDER: WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LEA RNED STANDING COUNSEL APPEARING FOR THE REVENUE AND WE HAVE ALSO PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW. THE TRIBUNAL HAS DISCUSSED THIS ISSUE AT LENGTH IN ITS ORDER. IT WAS CONTENDED BY THE ASSESSEE BEFORE THE TRIBUNAL THAT NOWHERE THE PROVISIONS PROVIDE THAT EXPENDITURE FROM THE DATE O F APPROVAL ONLY HAS TO BE ALLOWED. IN THE ABSENCE OF THOSE WORDS, SUCH CONDITIONS CANNOT BE IMPUTED IN THE STATUTE BY THE LOWER AUTHORITIES. DO ING SO AMOUNTS TO READING MORE IN THE LAW WHICH IS NOT EXPRESSLY PROV IDED. THE WORDS USED ARE ANY EXPENDITURE INCURRED BY THE ASSESSEE O N SCIENTIFIC RESEARCH ON THE IN-HOUSE 'R & D' FACILITY APPROVED BY THE PRESCRIBED AUTHORITIES HAS TO BE ALLOWED BY DEDUCTION OF EXPEN DITURE SO INCURRED. MEANING OF THESE WORDS IS PLAIN AND CLEAR THAT THE FACILITY IS TO BE ESTABLISHED FIRST AND ON APPROVAL OF THE FACILITY A LL THE EXPENDITURE SO INCURRED BY THE ASSESSEE FOR DEVELOPMENT OF IN-HOUS E FACILITY IS TO BE HELD AS ELIGIBLE FOR WEIGHTED DEDUCTION. FORM NO. 3 CM, WHICH IS ORDER OF APPROVAL AS PROVIDED BY THE RULES IN THIS BEHALF ALSO DOES NOT HAVE ANY MENTION OF DATE OF APPROVAL RATHER IT SPEAKS OF ONLY APPROVAL. THE LOWER AUTHORITIES ARE READING MORE THAN WHAT IS PRO VIDED BY LAW. A PLAIN AND SIMPLE READING OF THE ACT PROVIDES THAT O N APPROVAL OF THE 'R & D' FACILITY, EXPENDITURE SO INCURRED IS ELIGIBLE FOR WEIGHTED DEDUCTION. ITA NO.2551/AHD/2013 18 THE TRIBUNAL HAS CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND TOOK THE VIEW THAT SECTION SPEAKS OF ( I) DEVELOPMENT OF FACILITY; (II) INCURRING OF EXPENDITURE BY THE ASSE SSEE FOR DEVELOPMENT OF SUCH FACILITY; (III) APPROVAL OF THE FACILITY BY TH E PRESCRIBED AUTHORITY, WHICH IS 'DSIR'; AND (IV) ALLOWANCE OF WEIGHTED DED UCTION ON THE EXPENDITURE SO INCURRED BY THE ASSESSEE. THE PROVIS IONS NOWHERE SUGGEST OR IMPLY THAT 'R & D' FACILITY IS TO BE APP ROVED FROM A PARTICULAR DATE AND IN OTHER WORDS, IT IS NOWHERE S UGGESTED THAT DATE OF APPROVAL ONLY WILL BE CUT-OFF DATE FOR ELIGIBILITY OF WEIGHTED DEDUCTION ON THE EXPENSES INCURRED FROM THAT DATE ONWARDS. A PLAIN READING CLEARLY MANIFESTS THAT THE ASSESSEE HAS TO DEVELOP FACILITY, WHICH PRESUPPOSES INCURRING EXPENDITURE IN THIS BEHALF, A PPLICATION TO THE PRESCRIBED AUTHORITY, WHO AFTER FOLLOWING PROPER PR OCEDURE WILL APPROVE THE FACILITY OR OTHERWISE AND THE ASSESSEE WILL BE ENTITLED TO WEIGHTED DEDUCTION OF ANY AND ALL EXPENDITURE SO IN CURRED. THE TRIBUNAL HAS, THEREFORE, COME TO THE CONCLUSION THA T ON PLAIN READING OF SECTION ITSELF, THE ASSESSEE IS ENTITLED TO WEIGHTE D DEDUCTION ON EXPENDITURE SO INCURRED BY THE ASSESSEE FOR DEVELOP MENT OF FACILITY. THE TRIBUNAL HAS ALSO CONSIDERED RULE 6(5A) AND FORM NO . 3CM AND COME TO THE CONCLUSION THAT A PLAIN AND HARMONIOUS READI NG OF RULE AND FORM CLEARLY SUGGESTS THAT ONCE FACILITY IS APPROVE D, THE ENTIRE EXPENDITURE SO INCURRED ON DEVELOPMENT OF 'R & D' F ACILITY HAS TO BE ALLOWED FOR WEIGHTED DEDUCTION AS PROVIDED BY SECTI ON 35(2AB). THE TRIBUNAL HAS ALSO CONSIDERED THE LEGISLATIVE INTENT ION BEHIND ABOVE ENACTMENT AND OBSERVED THAT TO BOOST UP R & D FACIL ITY IN INDIA, THE LEGISLATURE HAS PROVIDED THIS PROVISION TO ENCOURAG E THE DEVELOPMENT OF THE FACILITY BY PROVIDING DEDUCTION OF WEIGHTED EXPENDITURE. SINCE WHAT IS STATED TO BE PROMOTED WAS DEVELOPMENT OF FA CILITY, INTENTION OF THE LEGISLATURE BY MAKING ABOVE AMENDMENT IS VERY C LEAR THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE ON DEVE LOPMENT OF FACILITY, IF APPROVED, HAS TO BE ALLOWED FOR THE PURPOSE OF W EIGHTED DEDUCTION. WE ARE IN FULL AGREEMENT WITH THE REASONING GIVEN B Y THE TRIBUNAL AND WE ARE OF THE VIEW THAT THERE IS NO SCOPE FOR ANY O THER INTERPRETATION AND SINCE THE APPROVAL IS GRANTED DURING THE PREVIO US YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM WEIGHTED DEDUCTION IN RESPECT OF THE ENTIRE EXPENDITURE INCURRED UNDER SECTION 35(2AB) OF THE ACT BY THE AS SESSEE. 16. IF, IN THE LIGHT OF THE ABOVE, WE EXAMINE THE O RDER OF THE LD.CIT(A), THEN IT WOULD REVEAL THAT THE LD.CIT(A) HAS FAILED TO ADHERE TO CONDITIONS ITA NO.2551/AHD/2013 19 CONTEMPLATED IN SECTION 35(2AB) OF THE INCOME TAX A CT AND RULE 6(7A) OF THE INCOME TAX RULES.. THE FINDING OF THE LD.CIT(A ) THAT THE ASSESSEE WAS NOT MAINTAINING SEPARATE ACCOUNTS IS FACTUALLY INCO RRECT. AS DULY PLEADED BEFORE THE LD.CIT(A) THAT IT HAS BEEN MAINTAINING S EPARATE LEDGER ACCOUNTS, WHICH WAS DULY CERTIFIED. THIS WAS FOR THE DSIR TO CONSIDER BEFORE GRANT OF APPROVAL. DSIR HAS NOT DISPUTED IT, AND THEREFORE, GRANTED APPROVAL. THE SECOND QUESTION IS WHETHER AFTER SATISFYING ITSELF FOR GRANT OF APPROVAL, DSIR CAN GRANT APPROVAL FOR SPECIFIC PERIOD ON THE STREN GTH OF SOME POLICY FORMULATED BY IT. IN THIS AREA, JUDGMENT OF HONBL E GUJARAT HIGH COURT IS RELEVANT, WHEREIN IT HAS BEEN HELD THAT THIS CUT OF F PERIOD WOULD NOT BE OF ANY RELEVANCE, BECAUSE ONCE THE FACILITY IS APPROVED, T HEN ENTIRE EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT FACILITY HAS T O BE ALLOWED FOR WEIGHTED DEDUCTION. THE ACT NOWHERE AUTHORIZES DSIR TO GRAN T APPROVAL FOR SPECIFIC PERIOD. THE JOB OF DSIR WAS NOT FIND OUT WHETHER R &D ACTIVITY WAS CARRIED OUT BY THE ASSESSEE OR NOT, AND THE EXPENDITURE WER E INCURRED OR NOT. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT, WE ALLOW THIS GROUND OF APPEAL AND DIRECT THE LD.AO TO GRANT WEIGHTED DEDUCTION OF RS.13,48,732/- UNDER SECTION 35(2AB) OF THE INCO ME TAX ACT, 1961. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 18 TH JANUARY, 2017 AT AHMEDABAD. SD/- SD/- ( PRADIP KUMAR KEDIA ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 18/01/2017