DCIT, Central Circle-4, Hyderabad V. M/s.Syed Labs Limited, Hyderabad

ITA 398/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53652 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 11-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MYTHLI RANI
• Assessee Lawyers: S RAMA RAO
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B ', HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO.398/HYD/11 : AS STT. YEAR 2001-02 DY. COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE 4, HYDERABAD V/S. M/S. SYMED LABS LIMITED, HYDERABAD ( PAN - AADCS 5186 M ) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. K.MYTHLI RANI RESPONDENT BY : S HRI S.RAMA RAO DATE OF HEARING 26.9.2011 DATE OF PRONOUNCEMENT 14.10.2011 O R D E R PER G.C.GUPTA, VICE PRESIDENT: THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEA R 2001-02 IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME-TAX(APPEALS). 2. GROUNDS OF APPEAL OF THE REVENUE ARE AS UNDER- 1. THE ORDER OF THE CIT(A) IS ERRONEOUS ON FACTS. 2. THE LD. CIT(A) HAS NOT DISCUSSED THE MERITS AND HAS IGNORED THE FACT AVAILABLE ON RECORD. 3. THE ORDER OF THE LEARNED. CIT(A) IN ALLOWING DE DUCTION U/S. 35(1)(IV) IS NOT ACCEPTABLE AS THE A.O. MADE THE AD DITION ON THE BASIS OF THE STATEMENT GIVEN BY THE CHAIRMAN OF THE GROUP OF COMPANIES WITHDRAWING THE CLAIM OF DEDUCTION U/S . 35(1)(IV) ON 8/1/2007. ITA NO.398/HYD/11 M/S. SYMED LABS LIMITED, HYDERABAD 2 4. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THA T THE ASSESSEE WAS NOT ENGAGED IN ANY GENUINE R&D WORK BUT ONLY QU ALITY CONTROL/TESTING. 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT THE CIT(A) HAS ERRED IN ALLOWING DEDUCTION UNDER S.35(1 )(IV) OF THE ACT, ALTHOUGH THE ASSESSING OFFICER HAS MADE THE ADDITIO N ON THE BASIS OF THE STATEMENT MADE BY THE CHAIRMAN OF THE GROUP OF COMP ANIES OF THE ASSESSEE, WITHDRAWING THE CLAIM OF THE ASSESSEE FO R DEDUCTION UNDER S.35(1)(IV) OF THE ACT ON 8.1.2007. SHE SUBMITTED THAT THE ASSESSEE WAS NOT ENGAGED IN ANY GENUINE R&D WORK AND THE EXPENSE S INCURRED WERE ONLY ON QUALITY CONTROL OF ITS PRODUCT. MOREOVER, THE SO -CALLED R&D WORK WAS NOT CARRIED OUT IN THE ASSESSEES LAB, BUT THE ASSESSE E CARRIED ON THE SAME AT SOME OTHER PREMISES. SHE REFERRED TO THE RELEVANT P ARAS OF THE ASSESSMENT ORDER IN SUPPORT OF HER ARGUMENT AND RELIED ON THE ORDER OF THE ASSESSING OFFICER. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CHAIRMAN OF THE ASSESSEES GROUP OF COMPANIES IN HI S STATEMENT RECORDED ON 8.1.2007 UNDER S.132(4) HAS STATED THAT IT WOUL D WITHDRAW THE CLAIM OF DEDUCTION UNDER S.35(1)(IV) OF THE ACT, IN RESPECT OF M/S. HETERO DRUGS LTD. AND M/S. HETERO LABS LIMITED AND NEVER AGREED FOR WITHDRAWAL OF THE CLAIM OF DEDUCTION UNDER S.35(1)(IV) OF THE ACT IN THE CA SE OF THE ASSESSEE COMPANY, WHICH IS ESSENTIALLY A SEPARATE LEGAL ENT ITY. HE SUBMITTED THAT THE ASSESSEE COMPANY WAS CARRYING ON R&D ACTIVITIES AT ITS OWN FACTORY PREMISES AND SUCH ACTIVITIES WERE NEVER CARRIED ON, OUTSIDE THE ASSESSEES PREMISES AT ANY POINT OF TIME. HE SUBMITTED THAT T HE ASSESSEE HAS SUBMITTED IN WRITING BEFORE THE ASSESSING OFFICER T HAT THE ASSESSEE WAS CARRYING ON R&D ACTIVITIES AT THE FACTORY PREMISES ITSELF, AND THIS WAS EVIDENCED FROM THE REVENUE EXPENDITURE AND CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH INCURRED BY THE COMPANY YEAR AF TER YEAR. THE LEARNED ITA NO.398/HYD/11 M/S. SYMED LABS LIMITED, HYDERABAD 3 COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS AVERME NT OF THE ASSESSEE WAS NEVER CONTROVERTED BY THE ASSESSING OFFICER. HE SU BMITTED THAT THE NATURE OF THE ASSESSEES BUSINESS BEING DRUGS, INTERMEDIAT ES AND HULK DRUGS AND THE SAME REQUIRES CONTINUOUS PROCESS RESEARCH TO SU STAIN ITSELF IN BUSINESS. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE B OMBAY HIGH COURT IN THE CASE OF CIT V/S. SANDOZ (INDIA) LTD. (206 ITR 384) (BOM). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE PERUSED THE COPY OF THE DULY SWORN STATEMENT OF SHRI B.P.RE DDY, CHAIRMAN OF THE ASSESSEES GROUP OF COMPANIES RECORDED UNDER S.132( 4) OF THE ACT ON 8.1.2007. WE FIND THAT IN REPLY TO QUESTION NO.5, SHRI B.P.REDDY HAS STATED THAT IT WOULD WITHDRAW THE CLAIM FOR DEDUCTION UNDE R S.35(1)(IV) WITH REGARD TO M/S. HETERO DRUGS LTD AND M/S. HETERO LABS LTD. , AND HE HAS NO WHERE STATED THAT THE CLAIM FOR DEDUCTION UNDER S.35(1)(I V) IN RESPECT OF THE ASSESSEE COMPANY WOULD ALSO BE WITHDRAWN. THE ASSE SSEE HAS CLAIMED THAT THE WITHDRAWAL OF THE CLAIM IN THE CASE OF TWO CONC ERNS OF THE ASSESSEES GROUP OF COMPANIES WAS WITH A VIEW TO AVOID DISPUTE S WITH THE DEPARTMENT. WITH RESPECT TO M/S. HETERO DRUGS LTD. AND M/S. HET ERO LABS LTD AND IT HAS NOT WITHDRAWN IN RESPECT OF OTHER GROUP COMPANIES. WE FIND THAT THIS CLAIM OF THE ASSESSEE MADE IN WRITING BEFORE THE ASSESSIN G OFFICER AT THE TIME OF ASSESSMENT ITSELF, WAS NEVER CONTRADICTED BY THE AS SESSING OFFICER IN THE ASSESSMENT ORDER, AND ACCORDINGLY, THE PLEA OF THE REVENUE THAT THE ADDITION WAS BASED ON THE STATEMENT OF THE CHAIRMAN OF THE ASSESSEES GROUP OF COMPANIES IS NOT SUSTAINABLE AND ACCORDING LY, IT IS REJECTED. 6. WITH REGARD TO THE MERITS OF THE CLAIM OF THE ASSESSEE REGARDING DEDUCTION ON ACCOUNT OF R&D EXPENDITURE CLAIMED UND ER S.35(1)(IV) OF THE ACT, WE FIND THAT THE ASSESSEE IN ITS WRITTEN EXPLA NATION FILED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS HAS CLAIMED ITA NO.398/HYD/11 M/S. SYMED LABS LIMITED, HYDERABAD 4 THAT THE ASSESSEE COMPANY AS CARRYING ON THE R&D AC TIVITY AT THE FACTORY PREMISES ITSELF AND THIS WAS EVIDENT FROM THE REVEN UE AS WELL AS CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH INCURRED BY THE ASSESSEE COMPANY YEAR AFTER YEAR. ASSESSEE FURTHER, CLAIMED THAT FOR SURV IVAL OF DRUG AND PHARMACEUTICAL BUSINESS , IT WAS NECESSARY TO CARRY OUT SUCH DEVELOPMENTAL ACTIVITY IN RELATION TO PROCESS DEVELOPMENT AND COS T AMBIT AND THIS EXPENDITURE INCURRED BY THE ASSESSEE FALLS WITHIN T HE SCOPE OF S.35(1)(IV) OF THE ACT. THE ASSESSEE HAS RELIED ON THE DECISION O F THE HONBLE BOMBAY HIGH COURT IN CIT V/S. SANDOZ (INDIA) LTD. (SUPRA). THE CLAIM OF THE ASSESSEE COMPANY WAS THAT THE NATURE OF THE ASSESSE ES BUSINESS REQUIRES CONTINUOUS PROCESS RESEARCH TO SUSTAIN ITSELF IN BU SINESS. WE FIND THAT THIS EXPLANATION OF THE ASSESSEE COULD NOT BE CONTROVERT ED BY THE ASSESSING OFFICER. WE FIND THAT THERE WAS NO BASIS FOR THE ASSESSING OFFICER TO OBSERVE THAT THE EXPENDITURE WAS NOT INCURRED FOR R&D AT IT S LABORATORY BY THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS CLAIMED THA T IT WAS CARRYING ON R&D ACTIVITY AT ITS FACTORY PREMISES ITSELF. THE SAID CLAIM OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER IN A SUMMARY MANN ER, WITHOUT ASSIGNING ANY VALID REASON FOR THE SAME AND HAD NOT MADE FURT HER ENQUIRIES IN THAT REGARD. WE FIND THAT THE NATURE OF THE ASSESSEE REQ UIRES UNDERTAKING OF CONTINUOUS RESEARCH AND DEVELOPMENT ACTIVITY TO SUS TAIN ITSELF IN THE MARKET. WE FIND THAT SIMILAR CLAIM WAS MADE BY THE ASSESSEE IN THE SUBSEQUENT YEARS AND THE ASSESSMENT WAS FRAMED IN SCRUTINY A SSESSMENTS UNDER S.143(3) ACCEPTING SUCH CLAIMS OF THE ASSESSEE. IN THAT PROCESS, SIMILAR CLAIMS OF THE ASSESSEE WERE ACCEPTED BY THE ASSESSI NG OFFICER IN THE ASSESSMENTS FRAMED UNDER S.143(3) OF THE ACT FOR AS SESSMENT YEARS 2002- 03, 2003-04 AND 2004-05. IN THE FACTS OF THE CASE , WE HOLD THAT NO CASE FOR DISALLOWANCE OF THE CLAIM OF DEDUCTION UNDER S.35(1)(IV) COULD BE MADE OUT BY THE REVENUE. ACCORDINGLY, ORDER OF THE CIT( A) IN DECIDING THE ISSUE ITA NO.398/HYD/11 M/S. SYMED LABS LIMITED, HYDERABAD 5 IN FAVOUR OF THE ASSESSEE IS CONFIRMED AND THE GROU NDS OF APPEAL OF THE REVENUE ARE REJECTED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE COURT ON 14.10.2011 SD/- SD/- (AKBER BASHA) (G.C.GUPTA) ACCOUNTANT MEMBER VICE PRESIDENT DT/- 14.10.2011 COPY FORWARDED TO: 1. M/S. SYMED LABS LIMITED, SREE ARCADE, H.NO.8-3-1 66/6, ERRAGADDA, HYDERABAD 2. DY. COMMISSIONER OF INCOME - TAX , CENTRAL CIRCLE 4 , HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) V II HYDERABAD 4. COMMISSIONER OF INCOME TAX CENTRAL , HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S.