SI GROUP INDIA LTD, NAVI MUMBAI V. CIT (LTU), MUMBAI

ITA 4240/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0057 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B C S NAIK
• Assessee Lawyers: DIVYESH I SHAH
• Keywords: Depreciation; Assessment record; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C , MUMBAI BEFORE SHRI G. S. PANNU , ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEV, JUDICIAL MEMBER ITA NO. 4240 /MUM/201 3 , (A.Y : 2007 08 ) M/S. SI GROUP INDIA LTD. PLOT NO. D - 2/1, TTC INDL. AREA THANE BELAPUR ROAD, OPP: JUINAGAR RAILWAY STATION, NAVI MUMBAI 400 705 PAN : AAACH7323L V. COMMISSIONER OF INCOME TAX (LTU) MUMBAI ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI DIVYESH I. SHAH / RE SPONDENT BY : SHRI B.C.S NAIK / DATE OF HEARING : 23.03.2017 / DATE OF PRONOUNCEMENT : 21.06.2017 / O R D E R PER SAKTIJIT DEY ( JM) 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 22.03.2013 PASSED UNDER SECTION 263 OF THE INCOME TAX ACT 1961 BY LEARNED CIT(LTU), MUMBAI FOR THE ASSESSMENT YEAR 2007 08. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 2 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (LTU), MUMBAI {THE CIT} ERRED IN PASSING THE ORDER UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (THE ACT) ON THE ALLEGED GROUND THAT THE ASSESSMENT ORDER ASS ED BY THE DEPUTY COMMISSIONER OF INCOME TAX (LTU), MUMBAI (THE AO') WAS ERRONEOUS TO THE EXTENT OF THE CLAIM UNDER SECTION 35 OF THE ACT CLAIMED AND ALLOWED BY THE AO AND AS SUCH WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. (2) THE APPELLANT PRAYS THAT T HE DIRECTION GIVEN IN THE ORDER UNDER SECTION 263 OF THE ACT TO MODIFY THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT FOR DISALLOWING THE CLAIM UNDER SECTION 35 OF THE ACT BE HELD AB - INITIO AND / OR OTHERWISE VOID AND BAD - IN - LAW. 3. BRIEFLY THE FACTS ARE , ASSESSEE A DOMESTIC COMPANY , IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF ORGANIC CHEMICALS . FOR THE ASSESSMENT YEAR UNDER DISPUTE ASSESSEE FILED ITS RETURN OF INCOME ON 22.10.07 DECLARING LOSS OF RUPEES 11,32,03,970/ - UNDER NORMAL PROVISION S AND BOOK PROFIT OF RS. NILL UNDER SECTION 115JB . THE ASSESSMENT IN CASE OF THE ASSESSEE WAS COMPLETED UNDER SECTION 143(3) R/W SECTION 144(C) OF THE ACT V IDE ORDER DATED 25.01.2011. 4. AFTER CALLING FOR AND EXAMINING THE ASSESSMENT RECORDS OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR , LEARNED CIT (LTU) BEING OF THE VIEW THAT THE ASSESSMENT ORDER PASSED I S ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ACCOUNT OF ALLOWANCE OF ASSESSEES CLAIM OF DEDUCTION OF CAPITAL EXPENDITURE AMOUNT ING TO RS. 1,24,87,0 64 UNDER SECTION 35(1)(IV) OF THE ACT , EXERCISED HIS POWER UNDER SECTION 263 OF THE ACT, BY ISSUING A SHOW 3 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD CAUSE NOTICE TO THE ASSESSEE CALLING UPON IT TO EXPLAIN WHY THE ASSESSMENT ORDER SHOULD NOT BE REVISED. 5. IN RESPONSE TO THE SHOW CAUS E NOTICE , THOUGH , THE ASSESSEE ACCEPTED THAT THE REVENUE EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT (R&D) ACTIVITIES WERE ON BEHALF OF ITS PARENT COMPANY IN US AND HAS BEEN REIMBUR SED BY THEM , H OWEVER , AS FAR AS THE CAPITAL EXPENDITURE IS CONCERNED, IT WAS CLAIMED THAT SUCH EXPENDITURE RELATED TO ASSESSEES OWN BUSINESS. HENCE , DEDUCTION CLAIM ED IS ALLOWABLE . IN SUPPORT OF ITS C ONTENTION ASSESSEE RELIED UPON A NUMBER OF DECISIONS. 6. LEARNED CIT AFTER C ONSIDERING THE SUBMISSION S OF THE A SSESSEE OBSERVED THAT AS PER ASSESSEES OWN ADMISSION IT HAS CONDUCTED R&D ACTIVITIES ON BEHALF OF FOREIGN CLIENTS AND INCOME EARNED ON ACCOUNT OF SUCH ACTIVITIES ARE CREDITED TO THE PROFIT AND LOSS ACCOUNT . FROM THE COP IES OF THE MONTHLY REPORTS F ILED BEFORE HIM BY THE ASSESSEE, LD. CIT FOUND THAT THE PROCESS OF R &D ACTIVITIES HAS BEEN CONTINUING REGULARLY AND WERE DONE FOR THE BENEFIT O F FOREIGN CLIENTS / ASSOCIATES ENTERPRISES ABROAD. LD.CIT WAS OF THE VIEW THAT FOR CLAIMING THE DEDUCTION UNDER SE CTION 35(1)(IV) OF THE ACT, THE R&D ACTIVITY MUST BE CONNECTED WITH THE BUSINESS OF THE ASSESSEE. SINCE , THE CAPITAL EXPENDITURE CLAIMED BY THE ASSESSEE WAS IN CONNECTION WITH THE 4 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD R&D ACTIVITIES CARRIED ON FOR THE BENEFIT OF OTHER ENTITIES , LD.CIT HELD THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT. SINCE, THE ASSESSING OFFI CER HAS ALLOWED ASSESSEES CLAIM U/S 35(1)(IV) , LD.CIT HOLDING THE ASSESSMENT ORDER P ASSED BY THE ASSESSING OFFI CER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF THE REVENUES SET IT ASIDE WITH A DIRECTION TO DISALLOW ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT IN RESPECT OF THE CAPITAL EXPENDITURE INCURRED OF RS. 1,24,87,065/ - 7. REITERATIN G THE STAND TAKEN BEFORE THE REVISION AL AUTHORITY, LD.AR SUBMITTED, ASSESSEE HA S IN - HOUSE SCIENTIFIC RESEARCH FACILITIES APPROVED BY THE CENTRAL GOVERNMENT. HE SUBMITTED, THE ASSESSEE ITSELF IS ENGAGED IN DEVELOPING AND MANUFACTURING OF PRODUCTS WHICH REQUIRES SCIENTIFIC RESEARCH. HE SUBMITTED, THE CAPITAL EXPENDITURE RELATING TO R&D ACTIVITIES WAS IN RESPECT OF ASSESSEES OWN BUSINESS ACTIVITIES AND NOT RELA TED TO THE BUSINESS ACTIVITIES OF ITS HOLDING COMPANY. THE LD.AR SUBMITTED, THE ASSESSEE IS IN MANUFACTURING AND SALES OF PRODUCTS, HENCE, UTILIZE D THE BENEFIT OF RESEARCH FOR ITS OWN BUSINESS. THE RESULT OBTAINED FROM RESEARCH IS NOT SOLD TO THE PARENT COMPANY , RATHER , IS USED TO ENHANCE ITS OWN PRODUCTS. HE SUBMITTED, THE ASSESSEE DOES NOT CARR Y RESEARCH ON JOB WORK OR CONTRACT BASIS AS IT IS ENGAGED IN PRODUCT MANUFACTURING AND SELLING ACTIVITIES. HE SUBMITTED NO PRODUCTION IS UNDERTAKEN BY THE PARENT COMPANY ON THE BASIS 5 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD OF THE REPORTS OF THE ASSESSEE. NO FORMULATION IS FORMED ON BASIS OF TH E ORDER PLACED BY THE PARENT COMPANY. HE SUBMITTED , FOR CLAIMING DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT THERE IS NO EXPRESS CONDITION THAT THE ASSETS SHOULD BE OWNED BY THE ASSESSEE. HE FURTHER SUBMITTED THE DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT IS ALLOWABLE EVEN IF BENEFIT IS AVAILED BY A THIRD PARTY. ONLY CONDITION BEING , EXPENDITURE INCURRED ON R&D ACTIVITIES SHOULD BE RELATED TO THE BUSINESS. TO LAY EMPHASIS ON HIS CONTENTIONS , LD.AR TOOK US THROUGH VARIOUS DOCUMENTARY EVIDEN CES SUBMITTED IN THE PAPER BOOK, SUCH AS AUDITED FINANCIAL ACCOUNTS , APPROVAL OF ITS R&D UNIT AS WELL AS AGREEMENT WITH THE PARENT COMPANY FOR CARRYING OUT R&D ACTIVITIES. HE ALSO RELIED UPON THE FOLLOWING DECISIONS: - (I) INDIAN TELEPHONE INDUSTRIES LTD V. IAC (10 ITD 338) BANGALORE TRIBUNAL) (II) CIT V. SANDOZ INDIA LTD (74 TAXMAN 225) (BOMBAY HIGH COURT) (III) ACIT V. CONSOLIDATED ENERGY CONSULTANTS LTD (63 SOT 10) (INDORE TRIB UNAL ) (IV) CIT V. SAMSUNG INDIA ELECTRONICS LTD (V) CIT V. U.P ELECTRONIC CORPORATION (145 TAXM AN 494) (HIGH COURT OF ALLAHABAD) (VI) AYUSHAKTI AYURVED (P) LTD V. ACIT (MUMBAI TRIBUNAL) 8. THE LD. DR ON THE OTHER HAND, STRONGLY SUPPORTING THE REASONING OF THE CIT, SUBMITTED THAT THE FACTS ON RECORD CLEARLY ESTABLISH THAT THE ENTIRE EXPENDITURE RELATING TO R&D ACTIVITIES WAS FOR THE BUSINESS OF ITS PARENT COMPANY AND OTHER ENTITIES AND NOT FOR ITS OWN BUSINESS. IN THIS CONTEXT LD. 6 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD DR TOOK US THROUGH VARIOUS CLAUSES OF THE R&D AGREEMENT WITH PARENT COMPANY AS SUBMITTED IN THE PAPER BOOK. THE LD.DR SUBMITT ED, THE ASSESSEE ITSELF HAS ADMITTED THAT THE REVENUE EXPENDITURE RELATING TO R&D ACTIVITIES WAS INCURRED FOR THE BUSINESS OF THE PARENT COMPANY HENCE , WAS FULLY REIMBURSED. THEREFORE, T HE CAPITAL EXPENDITURE RELATING TO THE VERY SAME R&D ACTIVITIES ARISI NG OUT OF THE SAME CONTRACT CANNOT BE IN RELATION TO ASSESSEE S BUSINESS. HE SUBMITTED AS PER THE TERMS OF THE AGREEMENT THE DISCOVERIES AND INVENTIONS MADE AS A RESULT OF R&D PROJECT WOULD ACCRUE TO THE PARENT COMPANY . HE SUBMITTED, AS PER THE TERMS OF THE AGREEMENT NOT ONLY THE PARENT COMPANY BEARS ALL COSTS RELATING TO THE R&D ACTIVITIES BUT ALSO PAYS THE MARKUP OF 15% OVER THE COSTS TO THE ASSESSEE. HE SUBMITTED, AS PE R THE TERMS OF THE AGREEMENT ALL RISK RELAT ING TO SUCCESS / FAILURE OF THE R& D WORK UNDERTAKEN BY THE ASSESSEE SHALL LIE WITH THE PARENT COMPANY AND ONLY ON REQUEST BY THE ASSESSEE THE PARENT COMPANY MAY GRANT LICENSE TO THE ASSESSEE FOR USE OF R&D PROJECT RESULTS IN INDIA, SUBJECT TO PAYMENT OF ROYALTY . THUS, IT WAS S UBMITTED, THE R&D ACTIVITIES CARRIED ON BY THE ASSESSEE BEING IN CONNECTION WITH THE BUSINESS OF THE PARENT COMPANY, ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT. IN SUPPORT OF SUCH CONTENTIONS LD.D R RELIED UPON THE FOLLOWING DEC ISION S: - I. CIBA (P). LTD V. INCOME TAX OFFICER, 9(1)3, MUMBAI [2009] ITD 94 (MUMBAI) 7 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD II. ENEM NOSTRUM REMEDIES (P.) LTD V. ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE 8(1), MUMBAI [2009] 119 ITD 427 (MUMBAI) III. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 1(3), HYDERABAD V. BHARAT BIOTECH INTERNATIONAL LTD. [2014] 42 TAXMANN.COM 204 HYDERABAD - TRIBUNAL. 9. WE HAVE CAREFULLY AND PATIENTLY HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISION S RELIED UPON BY BOTH PARTIES. THE CORE ISSUES WHICH ARISE FOR CONSIDERATION BEFORE US ARE WHETHER CIT WAS JUSTIFIED IN EXERCISING HIS JURISDICTION UNDER SECTION 263 OF THE ACT AND SECONDLY WHETHER ASSESSEE S CLAIM OF DEDUC TION UNDER SECTION 35(1)(IV) OF THE ACT IS PERMISSIBLE. AS FAR AS THE FIRST ISSUE IS CONCERNED, ON PERUSAL OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT WE HAVE NOTED THAT , THERE IS NO OBSERVATION OF THE ASSESSING OFFICER ON THE ISSUE REL ATING TO ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT. MOREOVER , NOTHING HAS BEEN BROUGHT ON RECORD TO DEMONSTRATE THAT IN COURSE OF THE ASSESSMENT PRO CEEDINGS THE ASSESSING OFFICER HAS EITHER EXAMINED OR ENQUIRED INTO THE ISSUE RELATING TO CL AIM OF DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT. AT LEAST , NO DOCUMENTARY EVIDENCE HAVE BEEN BROUGHT TO OUR NOTICE BY THE LD.AR TO INDIC ATE THAT THE ASSESSING OFFICER HAS EITHER RAISED ANY QUERY OR IN ANY OTHER MANNER H AS ENQUIRED INTO THE DEDUCTION CLAIM ED UNDER SECTION 35(1)(IV) OF THE ACT . NOTABLY , THE ASSESSEE ITSELF IN ITS ACCOUNTS HAS NOT CLAIMED 8 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD REVENUE EXPENDITURE RELATING TO THE R&D ACTIVITIES , SINCE , SUCH EXPENDITURE WAS REIMBURSE D TO THE ASSESSEE BY THE PARENT COMPANY AS IT WAS INCURRED FOR THE BUSINESS OF THE PARENT COMPANY. THUS , WHEN THE REVENUE EXPENDITURE RELATING TO R&D ACTIVITY WAS NOT CLAIMED AS DEDUCTION SINCE IT WAS INCURRED ON BEHALF OF THE PARENT COMPANY AND RELATED T O THE BUSINESS O F THE PARENT COMPANY, IT SHOULD HAVE TRIGGERED AN ENQUIRY BY THE ASSESSING OFFICER TO VERIFY WHETHER THE CAPITAL EXPENDITURE CLAIMED AS DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT RELATES TO ASSESSEES OWN BUSINESS OR WAS INCURRED ON BEHAL F OF THE PARENT COMPANY. ABSENCE OF ANY ENQUIRY BY THE ASSESSING OFFICER TO ASCERTAIN THE VERACITY OF ASSESSEES CLAIM IN RESPECT OF CAPITAL EXPENDITURE ON R&D ACTIVITIES CERTAINLY HAS MADE THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN VIEW OF THE AFORESAID FACTS , LD. CIT WAS JUSTIFIED IN EXERCISING POWER UNDER SECTION 263 O F THE ACT AS BOTH THE CONDITIONS ENSHRINED IN THE SAID PROVISION ARE FULFILLED. HAVING HELD SO, NOW WE MAY PROCEED TO EXAMINE ASSESSEES CLAIM OF D EDUCTION UNDER SECTION 35(1)(IV) OF THE ACT ON MERITS. BEFORE WE PROCEED TO DECIDE THE ISSUE, IT IS NECES SARY TO LOOK INTO THE PROVISION CONTAINED UNDER SECTION 35(1)(IV) OF THE ACT WHICH READ S AS UNDER : - IN RESPECT OF ANY EXPENDITURE OF A CAPITAL NATURE ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE, SUCH DEDUCTION AS MAY BE ADMISSIBLE UNDER THE PROVISIONS OF SUB - SECTION (2) 9 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD 10. A PLAIN READING OF THE AFORESAID PROVISION MAKES IT CLEAR THAT CAPITAL EXPENDITURE INCURRED ON S CIENTIFIC RESEARCH IS ALLOWABLE AS DEDUCTION TO ASSESSEE SUBJECT TO FULFILLMENT OF TWO CONDITIONS. FI RSTLY, SUCH CAPITAL EXPENDITURE MUST BE INCURRED ON SCIENTIFIC RESEARCH AND SECONDLY , SUCH SCIENTIFIC RESEARCH MUST BE RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE. KEEPING IN VIEW THE AFORESAID LEGAL POSITION WE HAVE TO EXAMINE THE FACTS OF THE PRESENT CASE. ON PERUSAL OF THE AUDITED PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR THE YEAR ENDED 31 MARCH 07 IT IS NOTICED DURING THE RELEVANT PREVIOUS YEAR ASSESSEE HAS RECEIVED AN AMOUNT OF RS. 164 . 63 LAKHS FROM ITS PARENT COMPANY TOWARD S RESEARCH AND DEVELOPMENT FEES. A S PER ASSESSEES OWN ADMISSION OUT OF THE AFORESAID AMOUNT AN AMOUNT OF RS. 1,38,22,122/ - IS TOWARDS REVENUE EXPENDITURE INCURRED ON R&D ACTIVITIES CARRIED ON FOR THE PARENT COMPANY. IT IS VERY MUCH CLEAR FROM THE AUDIT FINANCIAL STATEMENTS OF THE ASSESSEE, IT HAS NOT CLAIMED ANY DEDUCTION ON ACCOUNT OF REVENUE EXPENDITU RE ON R&D IN RESPECT OF ITS OWN BUSINESS. WHEREAS , THE ENTIRE CAPITAL EXPENDITURE ON R&D ACTIVITIES HAS BEEN CLAIMED AS DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT ON THE PLEA THAT IT RELATES TO ITS OWN BUSINESS. WE FAIL TO UNDERSTAND WHEN THE ASSESSEE HAS NOT CLAIMED ANY REVENUE EXPENDITURE ON R&D FOR ITS OWN BUSINESS, HOW THE CAPITAL EXPENDITURE ON R&D CAN RELATE TO ITS BUSINESS. AS COULD BE SEEN , ASSESSEE ON 01.01.2003 HAD 10 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD ENTERED INTO A RESEARCH AND DEVELOPMENT AGREEMENT WITH SI GROUP US WHICH IS E NGAGED IN THE DEVELOPMENT AND MANUFACTURE OF CHEMICAL PRODUCTS . FOR DEVELOPING NEW PRODUCTS AND ENHANCING QUALITY CONTINUOUS R&D ACTIVITY IS REQUIRED. SINCE , THE ASSESSEE HAS THE FACILITIES FOR RESEARCH AND DEVELOPMENT OF NEW AND ENHANCED CHEMICAL PRODUC TS , SI GROUP US ENTERED INTO A RESEARCH AND DEVELOPMENT AGREEMENT WHICH WAS SUBSEQUENTLY RENEWED V IDE AGREEMENT DATED 01.01.2007 . A S IT APPEAR S FROM THE TERMS OF THE SAID AGREEMENT , THE ASSESSEE IS TO RENDER RESEARCH AND DEVELOPMENT SERVICES TO SI GROUP , US FOR THE PURPOSE OF ENHANCING THE CHEMICAL PRODUCTS AND CREATING NEW CHEMICAL PRODUCTS. AS PER THE TERMS OF THE AGREEMENT ASSESSEE SHALL PROVIDE SI GROUP , U S WITH DETAILED WRITTEN QUARTERLY REPORTS ON THE RESEARCH AND DEVELOPMENT WORK CARRIED OUT. THE ASSESSEE IS ALSO REQUIRED TO INFORM SI GROUP US OF ANY COST OVER RUNS AS COMPARED TO THE BUDGET . IT IS ALSO PROVIDED , SI GROUP US MAY AT ANY TIME REQUIRE THE ASSESSEE TO ALTER THE R&D PROJECT AND ITS IMPLEMENTATION. AS PER ARTICLE 3 OF THE AGREEMENT , SI GROUP , US SHALL PAY TO THE ASSESSEE ALL COSTS INVOLVED IN THE R&D PROJECT INCLUDING THE SALARIES TO EMPLOYEES, VARIABLE COSTS, VAT WITH A MARKUP OF 15%. EVEN , AS PER THE TERMS OF THE AGREEMENT THE VARIABLE COSTS SHALL INCLUDE COST OF MATERIAL AND SUPPLIES , COST OF EQUIPMENT REPAIRS AND MAIN TENANCE AND DEPRECIATION ETC. ARTICLE 4 OF THE AG REEMENT INDICATES THAT SI GROUP, US 11 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD SHALL BECOME THE OWNER OF ALL RESULTS OF EACH R&D PROJECT DEVELOPED BY THE ASSESSEE AND ALL RISK RELATED TO THE SUCCESS / FAILURE OF THE R&D PROJECT WILL BE WITH SI GROUP US. THE ASSESSEE IS PERMITTED TO USE THE R&D PROJECT RESULTS IN INDIA SUBJECT TO GRANT OF LICENSE BY SI GROUP US AND ON P AYMENT OF ROYALTY. THUS , FROM THE OVERALL READING OF THE AGREEMENT BETWEEN THE A SSESSEE AND SI GROUP US IT BECOME S ABUNDANTLY CLEAR THAT THE ENTIRE R&D ACTIVIT Y IS CARRIED ON FOR THE BENEFIT AND DEVELOPMENT OF BUSINESS OF SI GROUP US AND DOES NOT PERTAIN TO THE ASSESSEES BUSINESS. THE ASSESSEE IS PERMITTED TO USE THE RESULT OF THE R&D PRODUCT ONLY IF THE SI GROUP US GRANTS LICENSE WHICH IS ALSO SUBJECT TO PAYMENT OF ROYALTY. THESE FACTORS CLEARLY DEMONSTRATE THAT THE ENTIRE R&D ACTIVITIES CARRIED ON BY THE ASSESSEE IS FOR THE BUSINESS OF SI GROUP US AND NOT FOR ITSELF. THIS FACT IS FURTHER PROVED FROM ASSESSEES OWN ADMISSION THAT THE ENTIRE REVENUE EXPENDITURE RELATING TO R&D ACTIVITIES WAS REIMBURSED BY SI GROUP US. KEEPING IN PERSPECTIVE THE AFORES AID FACTUAL POSITON , IT IS HARDLY BELIEVABLE THAT THE REVENUE EXPENDITURE ON R&D RELATES TO THE BUSIN ESS OF THE PARENT COMPANY WHEREAS, THE CAPITAL EXPENDITURE ON R&D RELATES TO THE ASSESSEE. 11. WE FAIL TO UNDERSTAND HOW THE ASSESSEE INCURS ONLY CAPITAL EXPENDITURE ON R&D RELATING TO ITS OWN BUSINESS WITHOUT INCURRING ANY REVENUE EXPENDITURE ON R&D. THEREFORE , WHEN THE ASSESSEE ACCEPTS THAT THE 12 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD REVENUE EXPENDITURE ON R&D IS RELATING TO THE BUSINESS OF THE PARENT COMPANY LOGICALLY IT MUST FOLLOW THAT THE CAPITAL EXPENDITURE ON R&D ALSO BELONG S TO THE PARENT COMPANY. THE ASSESSEE CANNOT BLOW HOT AND COLD AT THE SAME TIME BY CLAIMING CAPITAL EXPENDITURE ON R&D ON ITS OWN ACCOUNT AND REVENUE EXPENDITURE ON R&D IN THE ACCOUNT OF ITS PARENT COMPANY. IN ANY C ASE OF THE MATER , THE ASSESSEE HAS NOT BROUGHT ANY EVIDENCE BEFORE US TO CONCLUSIVELY PROVE THAT THE CAPITAL EXPENDITURE CLAIMED A DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT IS RELATED TO R&D ACTIVITIES CARRIED ON FOR ASSESSEES OWN BUSINESS. IN THAT VIE W OF THE MATTER , ONE OF THE CONDITIONS OF THE SECTION 35(1)(IV) OF THE ACT IS NOT FULFILLED. IN OTHER WORDS, THE ASSESSEE HAS FAILED TO PROVE THAT THE SCIENTIFIC RESEARCH IN RELATION TO WHICH CAPITAL EXPENDITURE WAS INCURRED IS CARRIED ON FOR ASSESSEE'S OWN BUSINESS. THAT BEING THE CASE , ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT. RESULTANTLY THE ASSESSING OFFICER WAS IN ERROR WHILE ALLOWING DEDUCTION CLAIMED UNDER SECTION 35(1)(IV) OF THE ACT WHICH HAS CAUSED PREJUDI CE TO THE REVENUE. THEREFORE, CIT WAS JUSTIFIED IN REVISING THE ASSESSMENT ORDER BY INVOKING HIS POWERS UNDER SECTION 263 OF THE ACT. BEFORE PARTING WE MAY BRIEFLY ANALYZE THE DECISION S CITED BEFORE US . IN CASE OF CIT V. SANDOZ INDIA LTD. (74 TAXMAN 2 25) (SUP RA), THE CLAIM OF CAPITAL EXPENDITURE WAS IN RESPECT OF AN APPROACH ROAD TO THE R&D FACILITIES OF THE 13 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD ASSESSEE. THE DEPARTMENT DISALLOWED ASSESSEE S CLAIM OF DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT ON THE REASONING THAT THE ROAD CAN BE USED NOT ONLY BY ASSESSEE BUT BY OTHERS ALSO. IN THIS CONTEXT THE HONBLE HIGH COURT HELD THAT PRIMARILY THE EXPENDITURE INCURRED FOR THE APPROACH ROAD WAS RELATED TO THE BUSINESS OF THE ASSESSEE. THE FACT THAT THE APPROACH ROAD MAY BENEFIT THIRD PART IES WOUL D NOT DIS - ENTITLE THE ASSESSEE FROM CLAIMING THE DEDUCTION. HOWEVER , THE FACTS IN ASSESSEES CASE ARE DIFFEREN T. A S DISCUSSED BY US EARLIER , THE ENTIRE R&D ACTIVITIES WAS CARRIED ON BY THE ASSESSEE FOR THE BENEFIT OF ITS PARENT COMPANY AND NOT FOR ITSELF. THEREFORE , ONE OF T HE BASIC CONDITIONS OF SECTION 35(1)(IV) OF THE ACT IS NOT FULFILLED. SIMILARLY , IN CASE OF THE ACIT V. CONSOLIDATED ENERGY CONSULTANTS LTD (63 SOT 10) (INDORE TRIB UNAL ), IT WAS FOUND AS A FACT THAT THE ASSESSEE WAS DOING RESEARCH IN THE FIELD OF DEVELO PMENT OF WIND POWER ON ITS OWN WHICH WAS USED FOR THE BENEFIT OF PUBLIC . T HEREFORE , IT WAS HELD THAT THE ASSESSEE WAS ELIGIB LE FOR DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT . HOWEVER, THE FACTS ARE DIFFERENT IN CASE OF THE ASSESSEE, AS THE ASSESSEE IS NOT DOING ANYTHING FOR THE BENEFIT OF THE PUBLIC. ON THE OTHER HAND, IN CASE OF CIBA INDIA ( P .) LTD V. INCOME TAX OFFICER, 9(1)3, MUMBAI (SUPRA) THE TRIBUNAL HELD THAT ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION UNDE R SECTION 35(1)(IV) OF THE ACT AS THE CAP ITAL EXPENDITURE ON SCIENTIFIC RESEARCH RELATED TO ITS SUBSIDIARIES. THE 14 ITA NOS. 4240/MUM/2013 (.AY.2007 08 ) M/S SI GROUP INDIA LTD OTHER DECISIONS CITED BY THE LD.AR WERE FOUND TO BE FACTUALLY DISTINGUISHABLE , HENCE , NOT APPLICABLE TO THE ASSESSEES CASE. IN VIEW OF THE AFORESAID UPHOLDING THE IMPUGNED ORDER OF LD.CIT WE DISMISS THE GROUNDS RAISED BY THE ASSESSEE. 12. IN THE RESULT ASSESSEES APPEAL IS DISMISSED. ORDER PRONO UNCED IN THE OPEN COURT ON THE 21 ST JUNE, 2017. SD/ - SD/ - ( G.S PANNU ) ( SAKTIJIT DEY) / / ACCOUNTANT MEMBER JUDICIAL MEMBER / MUMBAI; / DATED 21 / 06/2017 VSSGB , SPS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, (ASSTT. REGISTRAR) , / ITAT, MUM 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. // TRUE COPY / /