M/s Ardee Business Services Pvt Ltd., Visakhapatnam V. The Ad CIT, Range-3, Visakhapatnam

ITA 284/VIZ/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0752 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 27-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR
• Keywords: Additional evidence; Set aside

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO.284/VIZAG/2009 ASSESSMENT YEAR : 2006-07 ARDEE BUSINESS SERVICES PVT. LTD. VISAKHAPATNAM VS. ADDL. CIT, RANGE-3 VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AABCA4800A I.T.A. NO.321/VIZAG/2009 ASSESSMENT YEAR : 2006-07 ADDL. CIT, RANGE-3 VISAKHAPATNAM VS. ARDEE BUSINESS SERVICES PVT. LTD. VISAKHAPATNAM (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI I. KAMA SASTRY, CA RESPONDENT BY : SHRI SUBRATA SARKAR, DR O R D E R PER SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 26.3.2009 PASSED BY LD. CIT(A), VISAKHAPATNAM AND THEY RELATE TO THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PRODU CTION AND SALE OF TEMPERATURE, MOLTEN METAL QUALITY MEASUREMENT EQUIP MENT REQUIRED FOR THE STEEL INDUSTRY. THE ASSESSEE COMPANY IS HAVING ITS RESEA RCH AND DEVELOPMENT UNIT AT VISAKHAPATNAM AND ALSO AT ROURKELA, ORISSA. IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSEE CLAIMED DEDUC TION U/S 35(2AB) OF THE ACT 2 AT 150% OF ACTUAL EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT ACTIVITIES CARRIED OUT AT VISAKHAPATNAM AND ALSO AT ROURKELA. 2.1 UNDER SECTION 35(2AB), A COMPANY SHALL BE A LLOWED A DEDUCTION OF A SUM EQUAL TO ONE AND ONE HALF TIMES OF THE EXPENDITURE INCURRED ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRI BED AUTHORITY. FURTHER THE PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPORT IN REL ATION TO THE APPROVAL OF THE SAID FACILITY TO THE DIRECTOR GENERAL (INCOME TAX EXEMPT IONS) IN THE PRESCRIBED FORM. RULE 6 OF THE INCOME TAX RULES PRESCRIBES THE NAME OF THE PRESCRIBED AUTHORITY AND ALSO THE VARIOUS DOCUMENTS TO BE USED IN THIS R EGARD. THE PRESCRIBED AUTHORITY SHALL BE THE SECRETARY, DEPARTMENT OF SCI ENTIFIC AND INDUSTRIAL RESEARCH,(DSIR), GOVERNMENT OF INDIA. THE ASSESSEE COMPANY IS REQUIRED TO FURNISH AN APPLICATION IN FORM NO.3CK. THE PRESCRI BED AUTHORITY SHALL PASS AN ORDER IN WRITING IN FORM NO.3CM. THE APPROVAL OF E XPENDITURE INCURRED ON IN- HOUSE RESEARCH AND DEVELOPMENT FACILITY BY A COMPAN Y IS SUBJECT TO CERTAIN CONDITIONS, WHICH, INTER ALIA, INCLUDES A CONDITION THAT THE PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPORT IN RELATION TO THE APPROVAL OF IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY IN FORM NO.3CL TO THE DIRECTOR GENERAL (INCOME TAX EXEMPTIONS) WITHIN SIXTY DAYS OF ITS GRANTING APPRO VAL. 2.2 THE AMOUNT CLAIMED FOR VISAKHAPATNAM UNIT W AS RS.25.26 LAKHS AND THE AMOUNT CLAIMED FOR ROURKELA UNIT WAS RS.181.08 LAKH S. THE AO DID NOT ACCEPT BOTH THE CLAIMS AND ACCORDINGLY DISALLOWED BOTH THE CLAIMS. THE DISALLOWANCE OF EXPENDITURE INCURRED AT VISAKHAPATNAM UNIT WAS MADE FOR THE REASON THAT THE ASSESSEE COMPANY COULD NOT FURNISH A COPY OF FORM N O.3CL TO BE FURNISHED TO THE DIRECTOR GENERAL (INCOME TAX EXEMPTIONS). THE EXPE NSES INCURRED AT ROURKELA UNIT WERE DISALLOWED ON THE GROUND THAT THE ASSESSE E DID NOT HAVE REQUIRED APPROVAL FROM THE PRESCRIBED AUTHORITY FOR THE EXPE NDITURE INCURRED IN THAT UNIT. 2.3 THE ASSESSEE COMPANY HAD RECEIVED A SUM OF RS.30 LAKHS, BY WAY OF ASSISTANCE, FROM THE DEPARTMENT OF SCIENTIFIC AND I NDUSTRIAL RESEARCH IN THE 3 NAME OF GRANT-IN-AID. THE ASSESSEE TREATED THE S AID SUM AS UNSECURED LOAN IN ITS BOOKS OF ACCOUNT. THE ASSESSING OFFICER CO NSIDERED THE SAME AS A GRANT IN AID AND ACCORDINGLY OPINED THAT ABOVE SAID SUM O F RS.30 LAKHS SHOULD BE DEDUCTED FROM THE EXPENDITURE CLAIMED AS DEDUCTION U/S 35(2AB) OF THE ACT. HOWEVER, SINCE THE AO HAD FULLY DISALLOWED THE CLAI M MADE U/S 35(2AB), THE AO DID NOT MAKE ANY SEPARATE ADDITION FOR THE ABOVE SA ID RS.30 LAKHS. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL FILED BEFORE LD. CIT(A). BEFORE LD. CIT(A) THE ASSESSEE FILED THE COPY OF FORM NO.3 CL AS AN ADDITIONAL EVIDENCE. THE LD CIT(A) CONFRONTED THE SAME WITH THE ASSESSIN G OFFICER. THE ASSESSING OFFICER EXPRESSED NO OBJECTION FOR ADMISSION OF THE FORM NO.3CL AS AN ADDITIONAL EVIDENCE. ACCORDINGLY, THE LD. CIT(A) DELETED THE ADDITION OF 25.26 LAKHS RELATING TO THE EXPENDITURE INCURRED AT VISAKHAPATNAM UNIT. WITH REGARD TO THE EXPENDITURE INCURRED AT ROURKELA UNIT, THE ASSESSIN G OFFICER MAINTAINED HIS STAND THAT THE SAME IS NOT ALLOWABLE U/S 35(2AB) AS THE R EQUIRED APPROVAL WAS NOT OBTAINED FOR THE EXPENDITURE INCURRED IN THAT UNIT. HOWEVER, THE LD. CIT(A) DELETED THE ADDITION RELATING TO THE ROURKELA UNIT, BY PLACING RELIANCE ON CERTAIN CORRESPONDENCES MADE BETWEEN THE ASSESSEE COMPANY A ND THE DSIR. WITH REGARD TO THE AMOUNT OF RS.30 LAKHS DESCRIBED AS GR ANT-IN-AID, THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 4. THE ASSESSEE IS IN APPEAL BEFORE US WITH REGARD TO THE AMOUNT OF RS.30 LAKHS TREATED AS GRANT-IN-AID BY THE TAX AUTHORITIE S, WHILE THE CONTENTION OF THE ASSESSEE IS THAT THE SAID AMOUNT IS ONLY AN UNSECUR ED LOAN. THE REVENUE IS IN APPEAL BEFORE US ASSAILING THE DECISION OF LD. CIT( A) IN DELETING THE ADDITION RELATING TO THE EXPENDITURE INCURRED AT THE ROURKEL A UNIT. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. WE SHALL FIRST TAKE UP THE APPEAL OF THE ASSESSEE. TH E ONLY ISSUE IN THE APPEAL OF THE ASSESSEE, AS STATED EARLIER, IS WITH REGARD TO THE NATURE OF THE AMOUNT OF RS.30 LAKHS RECEIVED BY THE ASSESSEE FROM THE DSIR, BY WA Y OF ASSISTANCE. IN THIS 4 REGARD, THE ASSESSEE HAS FILED BEFORE US A COPY OF THE CERTIFICATE DATED 21.7.2009 ISSUED BY THE SCIENTIST `G OF THE DSIR ALONG WITH A PETITION TO ADMIT THE SAME AS AN ADDITIONAL EVIDENCE. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR NOTICE THAT THIS BENCH HAS ALREADY DECIDED AN IDENTICAL ISSUE, VIDE ITS ORDER DATED 19.5.2009 IN ITA NO.159/V/05 AND OTHERS IN THE ASSESSEES OWN CASE. THE ASSESSEE HAS FILED ADDITIONAL EVIDENCE AND THE SAME WILL HAVE A MAJOR BEARING ON THE DECISION MADE BY THE ASSESSING OFFICER. FURTHER, ACCORDING TO THE ASSESSEE, AN IDENTICAL ISSUE HAS ALREADY BEEN DECIDED BY THIS BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE RELATING TO EARLIER YEARS. ACCORDINGLY, W E SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO CONSIDER THE ISSUE AFRESH ON TH E BASIS OF THE ADDITIONAL EVIDENCE AND ALSO TAKING INTO ACCOUNT THE ORDER OF THE ITAT DATED 19.5.2009 IN THE ASSESSEES OWN CASE REFERRED SUPRA. 6. NOW WE SHALL TAKE UP THE APPEAL FILED BY THE REV ENUE. THE DISPUTE RELATES TO THE ALLOWABILITY OF EXPENDITURE INCURRED AT THE ROURKELA UNIT U/S 35(2AB) OF THE ACT. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE SINE QUA NON FOR THE DEDUCTION U/S 35(2AB) IS THE APPROVAL FROM THE PRES CRIBED AUTHORITY, VIZ., DSIR. THERE IS ALSO NO DISPUTE THAT IN THE ORDER PASSED B Y DSIR IN FORM NO.3CM AS WELL AS IN FORM NO.3CL SUBMITTED TO THE DIRECTORATE GENE RAL (INCOME TAX EXEMPTION), THE PRESCRIBED AUTHORITY HAS MENTIONED ONLY THE R&D CENTRE LOCATED AT VISAKHAPATNAM. IN THIS REGARD, WE THINK IT APPROPR IATE TO EXTRACT BELOW POINT NO.5 TO 7 AS FOUND IN FORM NO.3CL:- 5. PROPOSED OBJECTIVES OF SCIENTIFIC RESEARCH CONTEMPL ATED BY THE COMPANY: TO INDIGENIZE IMPORTED COMPONENTS AND CONTROL SYSTE MS AND TO DEVELOP NEW QUALITY CONTROL INSTRUMENTS, SYS TEMS AND PROCESSES. 6. WHETHER THE NATURE OF THE BUSINESS IS RELATED TO THE PROPOSED OBJECTIVES OF THE SCIENTIFIC RESEARCH CONTEMPLATED BY THE COMPANY: YES. 5 7. DETAILS OF THE NATURE OF EXISTING IN-HOUSE RESEA RCH AND DEVELOPMENT FACILITIES SPECIFYING WHETHER THE IN-HO USE AND DEVELOPMENT FACILITY IS ADEQUATE FOR CARRYING OUT SCIENTIFIC RE SEARCH: IN-HOUSE R&D CENTRE LOCATED AT SIRIPURAM, VISAKHAPA TNAM IS ENGAGED IN DEVELOPMENT OF ELECTRONIC QUALITY CON TROL EQUIPMENTS. FLOOR AREA OF R&D CENTRE IS 3000 SQ.FT . R&D CENTRE OF THE COMPANY HAS NECESSARY FACILITIES LIKE PC BAS ED SPECTRUM ANALYZER, DIGITAL AND ANALOG OSCILLOSCOPES, FREQUEN CY COUNTERS, FREQUENCY GENERATORS, SWITCH MODE POWER SUPPLIES FO R VARIOUS AC&DC POWER REQUIREMENTS, SIGNAL GENERATORS AND SIG NAL ANALYZERS, AUTO CAD AND PCB DESIGN STATIONS, RAMDRS INSTRUMENTS FOR RADIATION MONITORING FOR DEVELOPMEN T AND DESIGN OF ELECTRONIC ANALYTICAL INSTRUMENTS. R&D FACILITI ES ARE ADEQUATE FOR CARRYING OUT SCIENTIFIC RESEARCH. 7. THUS THE REPORT SUBMITTED BY THE PRESCRIBED AUTH ORITY IN FORM NO.3CL IS VERY SPECIFIC ABOUT THE PLACE OF R&D CENTRE, VIZ., SIRIPURAM, VISAKHAPATNAM. THERE IS NO MENTION ABOUT THE UNIT LOCATED AT ROURK ELA. THOUGH THE LD AR SUBMITS THAT ONLY IN-HOUSE RESEARCH WAS DONE AT VIS AKHAPATNAM AND THE PRACTICAL EXPERIMENTS WERE CARRIED OUT AT ROURKELA, YET NO CONVINCING REPALY WAS GIVEN TO THE QUESTION VIZ., WHAT PREVENTED THE ASSE SSEE AS WELL AS THE PRESCRIBED AUTHORITY TO MENTION THE PLACE OF THE R & D FACILIT Y LOCATED IN ROURKELA. THOUGH THE LD AR CONTENDS THAT THE APPROVAL GRANTED FOR VI SAKHAPATNAM R & D CENTRE WILL ENCOMPASS THE R & D FACILITY LOCATED AT ROURKE LA, YET THE SAID CONTENTION WAS NOT PROPERLY SUBSTANTIATED. WE NOTICE THAT THE LD CIT(A) HAS INFERRED THE APPROVAL ON THE BASIS OF CERTAIN CORRESPONDENCES, WHEN THE REQUIREMENT OF LAW IS THAT THE EXPENDITURE INCURRED FOR THE IN-HOUSE R ESEARCH AND DEVELOPMENT FACILITY SHOULD BE APPROVED BY THE PRESCRIBED AUTHO RITY, IN OUR OPINION, THE NECESSARY APPROVAL FROM THE PRESCRIBED AUTHORITY IS A MUST AND IT IS NOT CORRECT TO INFER THE AVAILABILITY OF THE APPROVAL. THE FACT R EMAINS THAT THE ASSESSEE COULD NOT PRODUCE ANY APPROVAL FOR THE ROURKELA UNIT. TH E ADDRESS OF THE ROURKELA UNIT WAS NOT MENTIONED IN EITHER FORM NO.3CM OR FORM NO. 3CL. IN VIEW OF THE ABOVE, WE ARE UNABLE TO AGREE WITH THE DECISION REA CHED BY LD. CIT(A) BY DRAWING INFERENCES ON THE BASIS OF CERTAIN CORRESPO NDENCES. ACCORDINGLY, WE 6 REVERSE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND R ESTORE THE ADDITION MADE BY THE ASSESSING OFFICER. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 13.5.2010 SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER VG/SPS VISAKHAPATNAM DATE : 13 TH MAY, 2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 ARDEE BUSINESS SERVICES PVT. LTD., 9-30-4, BALAJ I NAGAR, SIRIPURAM, VISAKHAPATNAM-530 003. 02 THE ADDL. CIT, RANGE-3, VISAKHAPATNAM 03 THE CIT (A), VISAKHAPATNAM 04 THE CIT, VISAKHAPATNAM 05 THE DR, ITAT, VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH