Appeal details
Counselvise Citation
[2018] 126 COUNSELVISE.COM (IT) 0486 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 8 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-01-2018
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Assessment Year
2009-2010
Appeal Filed On
16-05-2014
Judgement Text
1 IT A 3533/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.3533/MUM/2014 (ASSESSMENT YEAR:2009-10 ) M/S NIVO CONTROLS PVT LTD 8, MOHATTA BHAVAN OFF DR. E MOSES ROAD WORLI, MUMBAI-400 018 PAN : AAACN6646C VS CIT-1, MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI RUTURAJ H GURJAR REVENUE BY SHRI T KIPGEN DATE OF HEARING 05 -12-2017 DATE OF PRONOUNCEMENT -01-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX-1, MUMBAI DATED 29-03-20 14 U/S 263 OF THE INCOME-TAX ACT, 1961 FOR THE ASSESSMENT YEAR 20 09-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW: 1. . THE LEARNED COMMISSIONER OF INCOME TAX-1 (CIT) E RRED IN SETTING ASIDE THE ASSESSMENT ORDER BY INVOKING POWERS UNDER S 263, WHEN THE SAID A SSESSMENT ORDER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. .. 2. THE (EARNED CIT ERRED IN EXERCISING POWERS U/S 263 , WHEN THE JURISDICTIONAL CONDITIONS FOR THE SAME HAD NOT BEEN SATISFIED. 3. THE LEARNED CIT ERRED IN DIRECTING FOR DISALLOWANC E OF CLAIM U/S 35. SUCH A DIRECTION WAS OUTSIDE THE SCOPE OF S 263, AND ON MERITS ALSO, UNS USTAINABLE. THE LEARNED CIT ERRED IN INSISTING ON COMPLIANCE WITH ADDITIONAL CONDITIONS F OR ALLOWING THE SAID DEDUCTION, WHEN SUCH CONDITIONS ARE NOT AT ALL MANDATED BY S 35 OR ANY O THER RELEVANT SECTION. 4. THE ORDER OF LEARNED CIT IS AGAINST THE WEIGHT OF EVI DENCE, EQUITY AND NATURAL JUSTICE. 2 IT A 3533/MUM/2014 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF ELE CTRONIC PROCESS CONTROL EQUIPMENT AND CONSULTANCY SERVICES, FILED I TS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 30-09-2009 DECLARING TOTAL INCOME AT RS.23,98,230. THE ASSESSMENT WAS COMPLETED U/S 143 (3) ON 31-10- 2011 DETERMINING TOTAL INCOME AT RS.26,46,230 INTER ALIA MAKING ADDITIONS TOWARDS DISALLOWANCE OF PENAL INTEREST AN D ADHOC DISALLOWANCE OF 10% TRAVELLING EXPENSES. 3. SUBSEQUENTLY, THE COMMISSIONER OF INCOME-TAX-1, MUM BAI (HEREINAFTER CIT) ISSUED A NOTICE U/S 263 OF THE IN COME-TAX, 1961 ON THE BASIS OF PROPOSAL RECEIVED FROM AO IN RESPECT OF DE DUCTION CLAIMED U/S 35(1) TOWARDS RESEARCH AND DEVELOPMENT EXPENDITURE AND ASKED THE ASSESSEE AS TO WHY THE ASSESSMENT ORDER PASSED BY T HE AO U/S 143(3) ON 31-10-2011 SHALL NOT BE REVISED. IN THE SAID SH OW CAUSE THE CIT OBSERVED THAT THE ASSESSMENT ORDER PASSED BY THE AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE AS THE AO HAS ALLOWED DEDUCTION U/S 35(1) TOWARDS R&D EXPENDITURE EVEN THOUGH SUCH EXPENDITURE IS NOT OTHERWISE ALLOWABLE TO THE ASSES SEE. IN RESPONSE TO SHOW CAUSE NOTICE, SHRI MANISH PANDIT, GENERAL MANA GER (TAXATION) APPEARED AND FURNISHED NECESSARY DETAILS, AS CALLED FOR. THE ASSESSEE CONTENDED THAT IT IS ENTITLED FOR DEDUCTION U/S 35( 1) TOWARDS CAPITAL EXPENDITURE INCURRED ON R&D ACTIVITIES UNDERTAKEN I N ITS IN-HOUSE R&D 3 IT A 3533/MUM/2014 FACILITY AS THE SAME HAS BEEN APPROVED BY THE COMPE TENT AUTHORITIES, I.E. DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH. TH E ASSESSEE FURTHER SUBMITTED THAT IT HAS FURNISHED ALL DETAILS BEFORE THE AO AT THE TIME OF COMPLETION OF ASSESSMENT U/S 143(3) AND THE AO AFTE R FULLY SATISFIED WITH THE EXPLANATION COMPLETED ASSESSMENT U/S 143(3) WIT HOUT ANY ADVERSE COMMENT ON DEDUCTION CLAIMED U/S 35(1). THEREFORE, ASSESSMENT ORDER PASSED BY THE AO CANNOT BE CONSIDERED AS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 4. THE CIT, AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THERE IS NO DOCUMENTARY EVIDENCE AVAI LABLE ON RECORD TO ESTABLISH THAT EITHER THE ASSESSEE HAS FURNISHED NE CESSARY EVIDENCE TO PROVE THAT IT IS ENTITLED FOR DEDUCTION TOWARDS CAP ITAL EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT NOR THE AO HAS EXAMINED THE ISSUE OF ALLOWABILITY OF DEDUCTION U/S 35 OF THE ACT. THERE FORE, HE OPINED THAT THE ASSESSMENT ORDER PASSED BY THE AO IS ERRONEOUS INSO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CI T(A) FURTHER OBSERVED THAT THOUGH THE CONDITIONS PRESCRIBED U/S 35(1) STI PULATES THAT THE ASSESSEE NEEDS TO MAINTAIN SEPARATE BOOKS OF ACCOUN T FOR ITS R&D ACTIVITY, THE AUTHORISED REPRESENTATIVE OF THE ASSE SSEE ACCEPTED THAT NO SEPARATE BOOKS OF ACCOUNT IN RESPECT OF R&D ACTIVIT Y HAS BEEN MAINTAINED. THE AO HAS NOT LOOKED INTO WHETHER OR NOT DEDUCTION U/S 35 IS ALLOWABLE TO THE ASSESSEE. HE HAS MECHANICALLY GRANTED DEDUCTION 4 IT A 3533/MUM/2014 WITHOUT APPLICATION OF MIND TO THE PROVISIONS OF TH E ACT; THEREFORE, THE CIT OPINED THAT THE ASSESSMENT ORDER PASSED BY THE AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND HENCE SET ASIDE THE ORDER PASSED BY THE AO AND DIRECTED HIM T O FRAME FRESH ASSESSMENT ORDER AFTER DISALLOWING THE CLAIM OF DED UCTION U/S 35(1)(IV) OF THE INCOME-TAX ACT, 1961. AGGRIEVED BY THE ORDER O F CIT, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T WAS ERRED IN SETTING ASIDE ASSESSMENT ORDER BY INVOKING POWERS U /S 263 WHEN THE SAID ASSESSMENT ORDER WAS NEITHER ERRONEOUS NOR PRE JUDICIAL TO THE INTEREST OF THE REVENUE. THE LD.AR FURTHER SUBMITT ED THAT THE ASSESSEE HAS FURNISHED VARIOUS DETAILS IN SUPPORT OF DEDUCTI ON CLAIMED U/S 35(1) AND THE AO HAS EXAMINED THE ISSUE IN THE LIGHT OF D ETAILS FILED BY THE ASSESSEE. THEREFORE, MERELY BECAUSE THERE WAS NO D ISCUSSION IN THE ASSESSMENT ORDER ABOUT THE DEDUCTION CLAIMED U/S 35 (1), AN ADVERSE INFERENCE CANNOT BE DRAWN THAT THE AO HAS NOT CONSI DERED THE ISSUE. THE LD.AR FURTHER SUBMITTED THAT ITS R&D FACILITY H AS BEEN APPROVED BY THE COMPETENT AUTHORITY, I.E. DEPARTMENT OF SCIENTI FIC & INDUSTRIAL RESEARCH, GOVERNMENT OF INDIA AND ITS CLAIM MADE IN THE EARLIER AND SUBSEQUENT ASSESSMENT YEARS HAS BEEN ACCEPTED BY TH E DEPARTMENT. THE LD.AR FURTHER SUBMITTED THAT THE LD.CIT(A) ERRE D IN DIRECTING THE AO TO DISALLOW CLAIM OF DEDUCTION U/S 35, AS SUCH THE DIRECTION WAS OUTSIDE 5 IT A 3533/MUM/2014 THE SCOPE OF SECTION 263. 6. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTED TH E ORDER OF CIT. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA L AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE CIT SET ASIDE THE ASSESSMENT ORDER PASSED BY THE AO U/S 143 (3) BY INVOKING HIS POWERS U/S 263 ON THE GROUND THAT THE ASSESSMENT OR DER PASSED BY THE AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE AS THE AO HAS ALLOWED DEDUCTION CLAIMED U/S 35(1) T OWARDS R & D EXPENDITURE EVEN THOUGH THE ASSESSEE IS NOT ELIGIBL E FOR DEDUCTION. ACCORDING TO THE CIT, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 35(1) AS IT HAS FAILED TO FULFIL CONDITIONS PRESCRIBED U/ S 35(1) BY MAINTAINING SEPARATE BOOKS OF ACCOUNT IN RESPECT OF R&D FACILIT Y. THE AO, WITHOUT EXAMINING THE FACT IN THE LIGHT OF PROVISIONS OF SE CTION 35(1) MECHANICALLY ALLOWED DEDUCTION CLAIMED BY THE ASSESSEE WHICH REN DERED ASSESSMENT ORDER ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 8. IT IS THE CONTENTION OF THE ASSESSEE THAT ITS R&D F ACILITY IS APPROVED BY COMPETENT AUTHORITY, I.E. DEPARTMENT OF SCIENTIF IC & INDUSTRIAL RESEARCH AND IT IS CLAIMING DEDUCTION TOWARDS EXPEN DITURE INCURRED IN ITS IN-HOUSE R&D FACILITY RIGHT FROM AY 2001-02 ONWARDS AND SUCH CLAIM HAS BEEN ACCEPTED BY THE DEPARTMENT. THE ASSESSEE FURTHER CONTENDED THAT WITHOUT THERE BEING ANY MATERIAL CHANGES IN FA CTS, THE CIT DIRECTED THE AO TO DISALLOW CLAIM U/S 35(1). WE DO NOT FIND ANY MERITS IN THE 6 IT A 3533/MUM/2014 ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THOUG H ASSESSEE CLAIMS TO HAVE FURNISHED NECESSARY DETAILS BEFORE THE AO I N SUPPORT OF DEDUCTION CLAIMED U/S 35(1) AT THE TIME OF ORIGINAL ASSESSMENT U/S 143(3), BUT FAILED TO ADDUCE ANY EVIDENCE TO JUSTIF Y ITS CLAIM. WE FURTHER OBSERVE THAT THE AO HAS ALLOWED DEDUCTION CLAIMED U /S 35(1) WITHOUT ANY DISCUSSION AS TO WHETHER THE CLAIM MADE BY THE ASSESSEE IS IN ACCORDANCE WITH PROVISIONS OF SECTION 35(1) OR NOT. WE FURTHER NOTICE THAT THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE ACCEPTED BEFORE THE CIT THAT IT HAS NOT MAINTAINED SEPARATE BOOKS OF AC COUNT IN RESPECT OF R&D FACILITY EVEN THOUGH IT WAS REQUIRED TO MAINTAI N SEPARATE BOOKS OF ACCOUNT AS PER THE PROVISIONS OF THE ACT. THEREFOR E, WE ARE OF THE CONSIDERED VIEW THAT THE CIT WAS RIGHT IN SETTING ASIDE THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) AS THE ASSESSMENT ORDER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER EST OF THE REVENUE. HOWEVER, WE FIND MERIT IN THE ARGUMENTS OF THE ASSE SSEE THAT THE CIT HAS GIVEN SPECIFIC DIRECTION TO THE AO TO DISALLOW DEDUCTION CLAIMED U/S 35(1), WITHOUT OFFERING AN OPPORTUNITY TO FURNISH N ECESSARY DETAILS. THE CIT, IN HIS ORDER, HAS GIVEN SPECIFIC DIRECTION TO THE AO TO DISALLOW CLAIM OF DEDUCTION U/S 35(1), IN THE FRESH ASSESSMENT ORD ER PASSED CONSEQUENT TO ORDER PASSED U/S 263 OF THE INCOME-TA X ACT, 1961. THEREFORE, WE ARE OF THE VIEW THAT THE DIRECTION GI VEN BY THE CIT NEEDS TO BE MODIFIED TO THE EXTENT OF ALLOWING THE AO TO EXAMINE THE CLAIM OF 7 IT A 3533/MUM/2014 THE ASSESSEE IN THE LIGHT OF PROVISIONS OF SECTION 35(1) AND EXPLANATION OF THE ASSESSEE SO AS TO COME TO A CONCLUSION THAT ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- (D.T. GARASIA) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 31 ST JANUARY, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI
