LAXMI ORGANIC INDUSTRIES LTD, MUMBAI V. DY CIT 3 (2)(1), MUMBAI

ITA 38/MUM/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2853 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 02-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BRAJENDRA KUMAR LD
• Assessee Lawyers: S S NAGAR LD
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3); 13

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE HONBLE SHRI VIKAS AWASTHY, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) ./ I.T.A. NO. 38 /MUM/20 20 ( / ASSESSMENT YEAR : 2012 - 13 ) LAXMI ORGANIC INDUSTRIES LTD. BASEMENT, CHANDERMUKHI, RAMNATH GOENKA MARG NARIMAN POINT, MUMBAI - 400 021 / VS. DCIT 3(2)(1) AAYKAR BHAVAN, M. K. ROAD, MUMBAI - 400 02 0 ./ ./ PAN/GIR NO . A A A CL - 2435 - R ( / APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : SHRI S. S. NAGAR LD. AR REVENUE BY : SHRI BRAJENDRA KUMAR LD. DR / DATE OF HEARING : 29 /09 /2021 / DATE OF PRONOUNCEMENT : 05/10/2021 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR (AY) 2012 - 13 ARISES OUT OF ORDER OF LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 8 , MUMBAI [CIT(A)], DATED 23/10/2019 IN THE MATTER OF ASSESSMENT FRAMED BY LEARNED ASSESSING OFFICER (AO) U/S 143(3) ON 20/03/2015. THE ONLY GROUND RAISED IN THE APPEAL IS QUA DENIAL OF DEDUCTION OF EDUCATION CESS FOR RS.51.02 LACS . 2 2. THE ASSESSEE, VIDE LETTER DATED 19/09/2021, HAS FILED AN ADDITIONAL GROUND CHALLENGING CERTAIN DISALLOWANCE MADE BY LD. AO U/S 35(2AB). SINCE TH IS GROUND HAS BEEN DEALT WITH BY LD. AO AND THE SAME HAS ALSO BEEN DEALT WITH BY LD. CIT(A) IN THE IMPUGNED ORDER, I T IS ADMITTED IN TERM OF THE DECISION OF HONBLE APEX COURT IN NATIONAL THERMAL POWER CORPORATION LTD. V/S CIT ( 1998 ; 229 ITR 383 ). 3. THE ASSESSEE SEEKS DEDUCTION OF EDUCATION CESS IN TERMS OF DECISION OF HONBLE BOMBAY HIGH COURT IN SESA GOA LT D. VS. JCIT ( 117 TAXMANN.COM 96 ) AND THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CHAMBAL FERTILIZERS AND CHEMICALS LTD. V/S JCIT (ITA NO.52/2018 DATED 31/07/2018). THE ASSESSEE SEEK DEDUCTION U/S 35(2AB) IN TERMS OF RECENT DECISION OF PUNE TRIBUNAL IN ITA NO.305/PUN/2021 ORDER DATED 03/09/2021 TITLED AS DCIT V/S M/S FORCE MOTORS LTD. WHICH HAS BEEN RENDERED AFTER CONSIDERING EARLIER DECISION OF PUNE TRIBUNAL IN CUMMINS INDIA LTD. V/S DCIT (ITA NO.309/PUN/2014 DATED 15/05/2018). THE COPIES OF THE ORDERS HAVE BEEN PLACED ON RECORD. 4 . HAVING HEARD RIVAL SUBMISSIONS AND AFTER CAREFUL CONSIDERATION OF MATERIAL ON RECORD, OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. D EDUCTION OF EDUCATION CESS 5.1 THIS CLAIM WA S MADE BY THE ASSESSEE FOR THE FIRST TIME DURING APPELLATE PROCEEDINGS BY WAY OF ADDITIONAL GROUND. THE ASSESSEE DEBITED EDUCATION CESS OF RS.51.02 LACS IN THE PROFIT & LOSS ACCOUNT WHICH WAS DISALLOWED U/S 40(A)(II) IN THE COMPUTATION OF INCOME. HOWEVER, THE ASSESSEE CLAIMED THE DEDUCTION OF THE SAME DURING APPELLATE PROCEEDINGS WHICH WAS REJECTED BY L D. CIT(A). AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3 5.2 WE FIND THAT THIS NOW THIS ISSUE IS SQUARELY COVERED IN ASSESSEES FAVOR BY THE DECISI ON OF HONBLE BOMBAY HIGH COURT IN SESA GOA LTD. VS. JCIT ( 117 TAXMANN.COM 96 ; 28/02/2020) WHEREIN IT HAS BEEN HELD THAT IN THE INCOME - TAX ACT, 1922, S ECTION 10(4) HAD BANNED ALLOWANCE OF ANY SUM PAID ON ACCOUNT OF 'ANY CESS, RATE OR TAX LEVIED ON THE PROF ITS OR GAINS OF ANY BUSINESS OR PROFESSION'. HOWEVER, IN THE CORRESPONDING SECTION 40(A)(II) OF THE IT ACT, 1961 THE EXPRESSION 'CESS' IS QUITE CONSPICUOUS BY ITS ABSENCE. IN FACT, LEGISLATIVE HISTORY BEARS OUT THAT THIS EXPRESSION WAS IN FACT TO BE FOUND IN THE INCOME - TAX BILL, 1961 WHICH WAS INTRODUCED IN THE PARLIAMENT. HOWEVER, THE SELECT COMMITTEE RECOMMENDED THE OMISSION OF EXPRESSION 'CESS' AND CONSEQUENTLY, THIS EXPRESSION FINDS NO PLACE IN THE FINAL TEXT OF THE PROVISION IN SECTION 40(A)(II) OF THE IT ACT, 1961. THE EFFECT OF SUCH OMISSION IS THAT THE PROVISION IN SECTION 40(A)(II) DOES NOT INCLUDE, 'CESS' AND CONSEQUENTLY, 'CESS' WHENEVER PAID IN RELATION TO BUSINESS, IS ALLOWABLE AS DEDUCTABLE EXPENDITURE. THEREFORE, RESPECTFULLY FOLLOWING THE SAM E, WE DIRECT LD. AO TO ALLOW THE DEDUCTION OF EDUCATION CESS PAID BY THE ASSESSEE. THIS GROUND STAND ALLOWED. QUANTUM OF DEDUCTION U/S 35(2AB) 6.1 THE ASSESSEE HAD RECOGNITION FOR IN - HOUSE R & D UNITS FROM DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH (DS IR) AND ACCORDINGLY, IT CLAIMED DED UCTION U/S 35(2AB) FOR RS.150.19 LACS IN THE COMPUTATION OF INCOME ON ACCOUNT OF SCIENTIFIC RESEARCH & DEVELOPMENT. THE DEDUCTION WAS CLAIMED FOR REVENUE EXPENDITURE AS WELL AS CAPITAL EXPENDITURE. THE EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT WAS RS.92.34 LACS WHEREAS CAPITAL EXPENDITURE WAS RS. 57.85 LACS (EXCLUDING THE COST OF LAND & BUILDING) . THE CLAIM WAS DULY CERTIFIED BY THE TAX AUDITOR. 4 HOWEVER, GOING BY THE APPROVAL LETTER DATED 08 /07/2013 IN FORM NO.3CL , THE A SSESSEE SUBMITTED THAT ENHANCED DEDUCTION U/S 35(2AB) WAS TO BE RESTRICTED TO THE EXTENT OF RS.115.48 LACS. ACCORDINGLY, THE DIFFERENTIAL OF RS.34.7 0 LACS WAS ADDED BACK TO ASSESSEES INCOME. 6.2 DURING APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED THAT AS AGAINST AGGREGATE EXPENDITURE OF RS.150.19 LACS AS CLAIMED BY THE ASSESSEE U/S 35(2AB), THE APPROVAL IN FORM 3CL WAS GIVEN FOR RS.115.48 LACS. THUS, THE ALLOWABLE DEDUCTION @200% WOULD BE RS.230.96 LACS. AS AGAINST THE SAME, THE ASSESSEE CLAIMED ONLY RS.2 42.53 LACS (RS.150.19 LACS IN COMPUTATION OF INCOME + RS.92.34 LACS DEBITED IN PROFIT & LOSS ACCOUNT) AND LD. AO ALLOWED DEDUCTION OF 207.82 LACS ONLY SINCE RS.34.71 LACS WERE DISALLOWED. THUS, THERE WAS SHORT DEDUCTION TO THE EXTENT OF RS.23.14 LACS. CONC URRING WITH THE SAME, LD. CIT(A) DIRECTED LD. AO TO VERIFY THE CLAIM AND ALLOW THE DEDUCTION, IF FOUND CORRECT. 6.3 BEFORE US, IT IS THE ARGUMENT OF LD. AR THAT THE AMOUNT MENTIONED IN FORM 3CL WOULD HAVE NO RELEVANCE PRIOR TO AMENDMENT IN THE R ULE 6(7A)(B ) W.E.F. 0 1/07 /2016 AND THE DEDUCTION HAS TO BE ALLOWED AS CLAIMED BY THE ASSESSEE AND CERTIFIED BY THE AUDITORS. FOR THE SAME, LD. AR REFERRED TO THE CITED DECISION OF PUNE TRIBUNAL. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT DEDUCTION WOULD BE AVAILAB LE ONLY IN ACCORDANCE WITH FORM 3CL ISSUED BY THE PRESCRIBED AUTHORITY. 6.4 AFTER GOING THROUGH THE CITED DECISION OF PUNE TRIBUNAL, WE CONCUR WITH THE SUBMISSIONS OF LD. AR THAT DEDUCTION HAS TO BE ALLOWED AS CLAIMED BY THE ASSESSEE AND CERTIFIED BY THE A UDITORS SINCE THE AMENDMENT WAS BROUGHT IN THE RULE 6(7A)(B) W.E.F. 01/07/2016 ONLY . PRIOR TO THE AMENDMENT, THE PRESCRIBED AUTHORITY WAS TO SUBMIT ITS REPORT 5 IN RELATION TO THE APPROVAL OF IN - HOUSE RESEARCH & DEVELOPMENT FACILITY IN FORM NO.3CL TO THE DG (IT EXEMPTIONS) WITHIN 60 DAYS OF ITS GRANTING APPROVAL. IT WAS ONLY WITH EFFECT FROM 01/07/2016, THE PRESCRIBED AUTHORITY WAS REQUIRED TO QUANTIFY THE EXPENDITURE INCURRED BY THE ASSESSEE ON IN - HOUSE RESEARCH & DEVELOPMENT FACILITY. THE RELEVANT FINDINGS OF PUNE TRIBUNAL IN CUMMINS INDIA LTD. V/S DCIT (ITA NO.309/PUN/2014 DATED 15/05/2018) WERE AS UNDER: - 45. THE ISSUE WHICH IS RAISED IN THE PRESENT APPEAL IS THAT WHETHER WHERE THE FACILITY HAS BEEN RECOGNIZED AND NECESSARY CERTIFICATION IS ISSUED BY THE PRESCRIBED AUTHORITY, THE ASSESSEE CAN AVAIL THE DEDUCTION IN RESPECT OF EXPENDITURE INCURRED ON IN - HOUSE R&D FACILITY, FOR WHICH THE ADJUDICATING AUTHORITY IS THE ASSESSING OFFICER AND WHETHER THE PRESCRIBED AUTHORITY IS TO APPROVE EXPENDITURE IN FORM NO. 3CL FROM YEAR TO YEAR. LOOKING INTO THE PROVISIONS OF RULES, IT STIPULATES THE FILING OF AUDIT REPORT BEFORE THE PRESCRIBED AUTHORITY BY THE PERSONS AVAILING THE DEDUCTION UNDER SECTION 35(2AB) OF THE ACT BUT THE PROVISIONS OF THE ACT DO NOT PRESCRIBE ANY METHODOLOGY OF APPROVAL TO BE GRANTED BY THE PRESCRIBED AUTHORITY VIS - - VIS EXPENDITURE FROM YEAR TO YEAR. THE AMENDMENT BROUGHT IN BY THE IT (TENTH AMENDMENT) RULES W.E.F. 01.07.2016, WHEREIN SEPARATE PART HAS BEEN INSERTED FOR CERTIFYING THE AMOUNT OF EX PENDITURE FROM YEAR TO YEAR AND THE AMENDED FORM NO.3CL THUS, LAYS DOWN THE PROCEDURE TO BE FOLLOWED BY THE PRESCRIBED AUTHORITY. PRIOR TO THE AFORESAID AMENDMENT IN 2016, NO SUCH PROCEDURE / METHODOLOGY WAS PRESCRIBED. IN THE ABSENCE OF THE SAME, THERE IS NO MERIT IN THE ORDER OF ASSESSING OFFICER IN CURTAILING THE EXPENDITURE AND CONSEQUENT WEIGHTED DEDUCTION CLAIM UNDER SECTION 35(2AB) OF THE ACT ON THE SURMISE THAT PRESCRIBED AUTHORITY HAS ONLY APPROVED PART OF EXPENDITURE IN FORM NO.3CL. WE FIND NO MER IT IN THE SAID ORDER OF AUTHORITIES BELOW. SIMILAR IS THE DECISION OF MUMBAI TRIBUNAL IN ACIT V/S M/S. CROMPTON GREAVES LTD. ( 111 TAXMANN.COM 338; 27/09/2019 ) AND VARIOUS OTHER DECISIONS AS PLACED ON RECORD . WE FIND THAT FACT AS WELL AS ISSUE IS PARI - M ATERIA THE SAME. IN THE ABSENCE OF ANY CONTRARY DECISION ON RECORD, RESPECTFULLY FOLLOWING THE ABOVE DECISION S , WE WOULD HOLD THAT THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION U/S 35(2AB) ON ACTUAL EXPENDITURE INCURRED BY IT. THE AGGREGATE AMOUNT OF EXPEND ITURE STATED BE TO BE INCURRED BY THE ASSESSEE IS RS.150.19 LACS AND THE ASSESSEE IS ELIGIBLE TO CLAIM 6 DEDUCTION @200%. THE LD. AO IS DIRECTED TO QUANTIFY THE EXACT CLAIM AND ALLOW THE DEDUCTION OF THE SAME. THIS GROUND STAND ALLOWED. 7. THE APPEAL STAND A LLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED ON 5 TH OCTOBER, 2021. SD/ - SD/ - ( VIKAS AWASTHY ) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 05/10/2021 SR.PS, DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, I TAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.