ZEUS NUMERIX P.LTD, MUMBAI V. ITO WD 10(30(4), MUMBAI

ITA 3464/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92350 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 12-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 16-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Assessee Lawyers: DR JAYANT M RANADE
• Keywords: Services rendered outside India; Capital expenditure
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI . . , , BEFORE SHRI B R BASKARAN , ACCOUNTANT MEMBER AND S HRI VIVEK VARMA, JUDICIAL MEMBER ITA S NO. : 3 464 / MUM /20 12 (ASSESSMENT YEAR S : 200 9 - 1 0) ZEUS NUMERIX PRIVATE LIMITED, M - 03, SINE CSRE BUILDING, IIT BOMBAY CAMPUS, POWAI, MUMBAI - 400 076 PAN: AAACZ 2163 J VS INCOME TAX OFFICER WARD 10 ( 3 ) (4 ) , ROOM NO. 452, 4 T H FLOOR, AAYAKAR BHAVAN, M K ROAD, CHURCHGATE, MUMBAI - 400 02 0 (APPELLANT) (RESPONDENT) APPELLANT BY : DR JAYANT M RANADE RESPONDENT BY : SHRI PAVAN KUMAR BEERLA /DATE OF HEARING : 1 2 - 02 - 201 5 / DATE OF PRONOUNCEMENT : 21 - 04 - 201 5 ORDER , : PER VIVEK VARMA, JM: APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 22, MUMBAI, DATED 22.02.2012, WHEREIN, THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(APPE ALS) ERRED IN CONFIRMING THE DISALLOWANCE OF DEDUCTION U/S 35(2AB) OF THE INCOME TAX ACT, 1961 MADE BY THE ASSESSING OFFICER. 2. ANY OTHER GROUNDS OF APPEAL THAT MAY BE RAISED AT THE TIME OF HEARING OF THE APPEAL. 2. THE SOLITARY ISSUE PERTAINS TO DIS ALLOWANCE OF DEDUCTION CLAIMED U/S 35(2AB), WHICH HAS BEEN SUSTAINED BY THE CIT(A). 3 . THE F ACTS ARE, THAT T HE ASSESSEE IS CARRYING ON THE BUSINESS OF PROVIDING COMPUTER AIDED ENGINEERING SOLUTIONS TO GOVERNMENT DEPARTMENTS, BUSINESS, INDUSTRY AND SOCIET Y, TO APPLY LATEST TECHNOLOGY IN NUMERICAL SIMULATIONS FOR DEVELOPING NEW PRODUCTS OR CUSTOMIZING EXISTING NEW PRODUCTS TARGETED AT ZEUS NUMERIX PRIVATE LIMITED ITA 3464 / MUM /20 12 2 SOLVING COMPLEX ENGINEERING PROBLEMS. IT ALSO OFFERS ENGINEERING OUTSOURCING SERVICES BASED ON SOFTWARE PACKAGES OF CUSTOMER 'S CHOICE, WHICH ALSO INCLUDES EXPORT OF SERVICES. THE MAJOR CUSTOMER S OF THE COMPANY INCLUDES ARDE P UNE, BARC MUMBAI , ICGAR KALPAKKAM, C - DAC, & EADS FRANCE . 4. THE ASSESSEE IS INVOLVED INTO I N - H OUSE R ESEARCH & D EVELOPMENT ACTIVITIES, WHICH ARE UNDERTAKEN AT P UNE CENTER. ACCORDING TO THE ASSESSEE , IT HAS GOT RECOGNITION FROM DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH, MINISTRY OF SCIENCE & TECHNOLOGY, GOVERNMENT OF INDIA, WHICH IS A PREREQUISITE FOR CLAIMING WEIGHTED DEDUCTION U/S 35(2AB) OF THE INCOME T AX ACT , 1961. 5. SINCE THE ASSESSEE WAS ACCORDED THE RECOGNITION FROM THE MINISTRY OF SCIENCE & TECHNOLOGY, IT CLAIMED WEIGHTED DEDUCTION U/S 35(2AB) OF THE INCOME TAX ACT 1961 , ON THE EXPENSES INCURRED BY IT. 6. WHILE COMPLETING THE ASSESSMENT U/S 143(3) , THE A O DISALLOWED THE WEIGHTED DEDUCTION OF RS.1,46,08,8821 - (150% OF RS. 97,39,254/ - ) CLAIMED BY THE ASSESSEE UNDER SECTION 35(2AB) OF THE INCOME TAX ACT 1961 . HOWEVER THE AO ALLOWED THE DEDUCTION OF RS. 97 , 39,2541 - UNDER SECTION 35(1)((I) OF THE INCOME TAX ACT , 1961 . 4. WHILE DISALLOWING THE DEDUCTION, THE AO OBSERVED , PERUSAL OF THE DETAILS OF R & D EXPENDITURE SHOWS THAT THE SAME HAS BEEN INCURRED AND RELATED PURELY TO ELECTRICITY, OFFICE EXPENSES, RENT, MANPOWER EXPENSES AND INCLUDES CONVEYANCE , I NCENTIVE, TRAVEL EXPENDITURE ETC. IN THE INSTANT CASE, THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO ESTABLISH THAT IT HAS AN IN - HOUSE R & D FACILITY AND HAS CARRIED OUT ANY RESEARCH AND DEVELOPMENT ACTIVITIES IN RESPECT ELECTRONIC EQUIPMENTS OR COMPUTERS WHICH HAS RESULTED INTO CREATION OF PATENTS. THE OTHER CONDITIONS AS MENTIONED ABOVE IN FORM NO. 3CK FOR THE PURPOSE OF MAKING APPLICATION TO THE PRESCRIBED AUTHORITY AND FORM NO. 3CL GRANTING APPROVAL OF THE SAID FACILITY HAS NOT BEEN FURNISHED BY THE AS SESSEE. THE ASSESSEE HAS ALSO NOT COMPLIED WITH THE ZEUS NUMERIX PRIVATE LIMITED ITA 3464 / MUM /20 12 3 CONDITIONS OF MAINTENANCE AND AUDIT AND SEPARATE ACCOUNTS FOR THE APPROVED FACILITY . 5. THE AO WAS ALSO OF THE VIEW THAT THE ASSESSEE HAD SUBMITTED A LETTER FROM MR. R. R. ABHYANKAR (SCIENTIST G) ON B EHALF OF GOVT. OF INDIA DEPARTMENT OF SCIENTIFIC RESEARCH BUT NOT FROM THE PRESCRIBED AUTHORITY, I.E. SECRETARY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH. THE AO ALSO OBSERVED THAT THE ASSESSEE HAS NOT SUBMITTED FORM 3CL AND 3CK. 6. THE AO DISALLO WED THE CLAIM OF DEDUCTION U/S 35(2AB) AT RS. 1,46,08,882/ - BEING 150% OF RS. 97,39,254/ - . 7. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED ITS ARGUMENTS AND THE CIT(A), AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEE HELD, THE APPELLANT HAS SUBMITTED A COPY OF SO CALLED RECOGNITION OF R&D UNIT SIGNED BY SCIENTIST IN DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH DATED 9 - 1 - 2008. HOWEVER, I AGREE WITH THE A.O. THAT FOR AVAILING DEDUCTION U/S 35(2AB) ASSESSEE HAS TO MAKE APPLICATION IN FORM NO. 3CK(PART A) AN D ALSO ENTER INTO AGREEMENT WITH THE PRESCRIBED AUTHORITY I.E. SECRETARY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH . IN ADDITION THE ASSESSEE HAS TO FURNISH COPY OF FORM NO. 3CM DULY SIGNED BY THE SECRETARY DSIR WHO IS PRESCRIBED AUTHORITY IN THE D SIR. AS GIVEN IN THE ACTION POINT IN FORM NO. 3CM THE PRESCRIBED AUTHORITY SHALL IF HE IS SATISFIED THAT THE CONDITIONS PROVIDED IN THIS RULE AND IN SUB SEC 2AB OF S. 32 ARE FULFILLED PASS THE ORDER IN WRITING IN FORM NO.3CM. THUS FURNISHING OF FORM NO. 3C M DULY SIGNED BY SECRETARY DSIR IS A PREREQUISITE FOR AVAILING DEDUCTION U /S 35(2AB) WHICH HAS BEEN NOT SATISFIED BY THE ASSESSEE. BEFORE ME THE APPELLANT FAILED TO FURNISH ANY DOCUMENTARY EVIDENCE IN SUPPORT OF THAT SAID POWERS WERE DELEGATED BY SECRETARY DSIR TO THE SCIENTIST FURTHER THERE IS NO AGREEMENT BETWEEN THE ASSESSEE COMPANY AND THE SECRETARY DSIR PARTS 3 OF FORM NO 3CK PROVIDES FOR MAINTENANCE OF SEPARATE ACCOUNTS FOR BOTH REVENUE AND CAPITAL EXPENDITURE AND SCIENTIFIC RESEARCH INCLUDING THAT ON IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY WHICH HAS TO BE AUDITED. NEITHER BEFORE AO NOR DURING THE COURSE OF APPELLATE PROCEEDINGS ANY EVIDENCES WERE PRODUCED THAT THE ACCOUNTS HAVE BEEN MAINTAINED SATISFYING THIS CONDITION. IN VIEW OF THESE FACTS AND L EGAL POSITION AS DISCUSSED, I AM OF THE CONSIDERED OPINION THAT THE AO HAS RIGHTLY DISALLOWED THE DEDUCTION U/S 35(2AB) WHICH IS UPHELD. ZEUS NUMERIX PRIVATE LIMITED ITA 3464 / MUM /20 12 4 8. THE CIT(A) THEREFORE, SUSTAINED THE ORDER OF THE AO, DENYING THE WEIGHTED DEDUCTION CLAIMED U/S 35(2AB) OF THE INC OME TAX ACT, 1961. 9. AGAINST THIS ORDER OF THE CIT(A), THE ASSESSEE IS BEFORE THE ITAT. 10. BEFORE US, THE AR NARRATED THE FACTS, WHICH ARE UNCONTROVERTED. 11. THE AR SUBMITTED THAT THE REVENUE AUTHORITIES MISREAD THE LETTER FROM MR. R.R. ABHYANKAR. T HIS LETTER STATES ONLY THE GRANT OF RENEWAL OF RECOGNITION OF IN HOUSE R&D UNIT. THE AR SUBMITTED THAT THE ASSESSEE ALREADY HAD THE RECOGNITION UPTO 31.03.20 10 AND THIS LETTER THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH UNDER MINISTRY OF SCIENCE A ND TECHNOLOGY WAS ONLY EXTENDING THE RENEWAL. IDENTICAL FACTS WERE SEIZED WITH THE ITAT IN ITA NO. 4888/MUM/2012 IN THE CASE OF FERMENT BIOTECH LTD. IN THAT CASE THE COORDINATE BENCH HELD, ON THE FACE OF THE LETTER, IT IS EVIDENT THAT THE SAID LETTER ISSUE D BY DSIR IS ONLY FOR RENEWAL OF RECOGNITION OF INHOUSE R&D UNITS. THERE IS NO FORMAL ORDER OR APPROVAL FOR SUCH INHOUSE R&D FACILITIES IN THE PRESCRIBED FORM UNDER SECTION 35(2AB). THE REVENUE'S CASE IS THAT SUCH A LETTER HAS NOT BEEN ISSUED BY THE PRES CRIBED AUTHORITY I.E., SECRETARY, DSIR. PROVISIONS OF SECTION 35(2AB) PROVIDES THAT WHERE A COMPANY IS ENGAGED IN THE BUSINESS OF BIOTECHNOLOGY OR ANY BUSINESS OF MANUFACTURING AND PRODUCTION OF ANYTHING WHICH IS NOT IN THE LIST OF 11TH SCHEDULE AND INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH NOT IN THE NATURE OF ANY COST OF LAND AND BUILDING BUT ON INHOUSE RESEARCH AND DEVELOPMENT FACILITY WHICH HAS BEEN APPROVED BY THE PRESCRIBED AUTHORITY WHO IS THE SECRETARY, DSIR, GOVERNMENT. OF INDIA, THEN THE ASSES SEE SHALL BE ALLOWED SUM EQUAL TO 11/2 TIMES OF THE EXPENDITURE SO INCURRED, PROVISIONS OF SUB - SECTION (4) PROVIDES THAT PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPORT IN RELATION TO THE APPROVAL OF THE SAID FACILITIES TO THE DIRECTOR GENERAL IN SUCH FORM AN D WITHIN SUCH TIME AS MAY BE PRESCRIBED. RULE - 6 LAYS DOWN THE PROCEDURE FOR MAKING APPLICATION AND OBTAIN APPROVAL IN THE PRESCRIBED FORM WHICH IS FORM NO. 3CK AND THE PRESCRIBED AUTHORITY IS REQUIRED TO GRANT OR APPROVAL IN FORM NO. 3CM. THUS, FOR THE PUR POSE OF CLAIMING DEDUCTION ON SCIENTIFIC RESEARCH EXPENDITURE UNDER ZEUS NUMERIX PRIVATE LIMITED ITA 3464 / MUM /20 12 5 SECTION 35(2AB), IT HAS TO BE APPROVED BY THE PRESCRIBED AUTHORITY AND THE RULES PROVIDE THAT APPLICATION SHOULD BE MADE IN PROSCRIBED FORM AND ALSO THE APPROVAL IS TO BE GRANTED IN THE PR ESCRIBED FORM. 11. ONCE THE ASSESSEE HAS FILED THE APPLICATION IN THE PRESCRIBED FORM BEFORE THE PRESCRIBED AUTHORITY, THEN INSOFAR AS THE ASSESSEE IS CONCERNED, IT HAS FULFILLED ITS OBLIGATION. HOWEVER, THERE IS A RIDER THAT SUCH AN APPLICATION FORM HAS T O BE APPROVED OR HAS TO BE PASSED BY THE PRESCRIBED AUTHORITY IN FORM 3CM. THESE CONDITIONS ARE ESSENTIAL BUT SUCH A STRICT INTERPRETATION MAY DEFEAT THE VERY PURPOSE OF THE LEGISLATION INTENT, IF THE ASSESSEE HAS COMPLIED WITH ALL THE OTHER CONDITIONS AND PROCEDURES. THE PURPOSE OF THIS SECTION R/W RELEVANT RULE IS TO PROMOTE SCIENTIFIC RESEARCH AND DEVELOPMENT FACILITIES WHICH CONTRIBUTE TO THE TECHNICAL ADVANCEMENT. IF THE PROPER PROCESS HAS BEEN FOLLOWED BY THE ASSESSEE, THEN WHETHER THE ORDER OF APPROV AL HAS BEEN GRANTED BY THE SECRETARY, DSIR, OR BY SOME NODAL OFFICER ON/OR BEHALF OF THE SECRETARY, DSIR, IT DOES NOT MAKE ANY DIFFERENCE IF ALL THE CONDITIONS FOR GRANTING OF APPROVAL ARE SATISFIED. IN THIS CASE, IT IS EVIDENT FROM THE DOCUMENTS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE SUBSEQUENT YEARS THAT THE DSIR HAS GRANTED ORDER OF APPROVAL IN FORM NO. 3CM WHICH HAS BEEN SIGNED BY THE SCIENTIST - G FOR AND ON BEHALF OF THE SECRETARY, DSIR. ONCE THE DSIR HAS AUTHORIZED ANY OF ITS NODAL OFFICER T O ISSUE ORDER OF APPROVAL ON OR BEHALF OF THE SECRETARY, THEN FOR THE PURPOSE OF SECTION 35(2AB), IT CAN HE TAKEN THAT THE APPROVAL HAS BEEN GRANTED BY THE PRESCRIBED AUTHORITY ITSELF. WHETHER THE ORDER HAS BEEN SIGNED BY THE SECRETARY OR BY ANY OF THE NOD AL OFFICER ON HIS BEHALF WILL NOT MAKE ANY DIFFERENCE BECAUSE IT IS NOT THE FAULT OF THE ASSESSEE. IN SUCH A CASE, CLAIM FOR DEDUCTION CANNOT BE DENIED TO THE ASSESSEE . 12. TH E AR ALSO RELIED ON THE DECISION OF BAJAJ TEMPO LTD. VS CIT, REPORTED IN 196 IT R 188, WHEREIN HONBLE SUPREME COURT HELD, SINCE A PROVISION INTENDED FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY . 13. THE AR, THEREFORE, SUBMITTED THAT WEIGHTED DEDUCTION WAS RIGHTLY CLAIMED AND MUST BE ALLOWED. 14. THE DR RELIED O N THE ORDERS OF THE REVENUE AUTHORITIES AND SUBMITTED THAT PRESCRIBED DOCUMENTS WERE NOT FILED AND HENCE THE DENIAL OF WEIGHTED DEDUCTION WAS CORRECT IN LAW. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PERUSED THE MATERIAL PLACED ON RECORD. IT IS NOT THE CASE OF THE REVENUE ZEUS NUMERIX PRIVATE LIMITED ITA 3464 / MUM /20 12 6 AUTHORITIES THAT THE ASSESSEE WAS NOT DOING SCIENTIFIC RESEARCH. IT IS A FACT THAT THE ASSESSEE WAS CONDUCTING RESEARCH IN ITS FIELD EARLIER , IS EVIDENT FROM THE LETTER RECEIVED FROM MR. R.R. ABHYANKAR (SCIENTIST G) READS AS RENEWA L, THEREFORE, IT MEANS THAT THE RELEVANT APPROVAL HAD BEEN RECEIVED AND WHEN WE READ TH E PRECEDING LETTER ALSO, WE FIND THAT IT TALKS ABOUT RENEWAL FROM 01.04.2010. IN FACT VIDE LETTER DATED 09.01.2008 THE NODAL OFFICER FROM THE DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH HAD ACCORDED THE RECOGNITION UPTO 31.03.2010. HOWEVER ALL THESE FACTS REQUIRE VERIFICATION. HENCE, THIS ISSUE IS SET ASIDE TO THE FILE OF THE AO. 16 . AS A RESULT, THE APPEAL AS FILED BY THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONO UNCED IN THE OPEN COURT ON 21 ST APRIL , 2015 SD/ - SD/ - ( . . ) ( ) ( B R BASKARAN ) ( VIVEK VARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 21 ST APRIL , 2015 / COPY TO: - 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A) - 22 , MUMBAI . 4) THE CIT - 10 , MUMBAI . 5) ____ , , / THE D.R. ____ / CONCERNED _____ BENCH, DELHI/NEW DELHI . 6) COPY TO GUARD FILE. ZEUS NUMERIX PRIVATE LIMITED ITA 3464 / MUM /20 12 7 / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS