ACIT-4(2), MUMBAI V. M/S MEGA FINE PHARMA PVT. LTD., MUMBAI

ITA 4318/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4110 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 28-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-05-2013
• Court: TRIBUNAL
• Department Lawyers: AIRI JV JAIKARAN
• Keywords: Depreciation; Difference of opinion; Capital expenditure

Judgement Text

MEGA FINE PHARMA PVT LTD ITA NO. 4318 /M/201 3 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B , MUMBAI . . , , BEFORE SHRI R C SHARMA , ACCOUNTANT MEMBER AND SHRI AMAR J IT SINGH , JU DICIAL MEMBER ITA NO. : 4318 /MUM/20 1 3 (ASSESSMENT YEAR: 2009 - 1 0) ACIT - 4(2), ROOM NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 VS MEGA FINE PHARMA PVT LTD , SETHNA, 4 TH FLOOR, 55 M K ROAD, MARINE LINES, MUMBAI - 400 020 .: PA N : AAACM 6462 M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AIRI JV JAIKARAN RESPONDENT BY : SHRI C V JAIN /DATE OF HEARING : 02 - 1 1 - 2015 / DATE OF PRONOU NCEMENT : 01 - 02 - 201 6 ORDER . . , . . : PER R C SHARMA , A .M. : TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2009 - 10. 2. IN THIS APPEAL REVENUE IS AGGRIEVED BY THE ACTION OF THE CIT(A) DIR ECTING THE AO TO ALLOW 100% DEPRECATION OF AFFLUENT TREATMENT OF PLANT AND 80% OF BOILER AS AGAINST NORMAL RATES ALLOWED BY THE AO. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE FACTS OF THE CASE A RE THAT THE ASSESSEE HAD CLAIMED DEPRECATIO N @ 80% AND 100% AMOUNTING TO RS. 1,16,4 9,642/ - ON THE BOILER AND RS. 1 3,63,051/ - ON EFFLUENT TREATMENT PLANT. THE ASSESSEE HAD ALSO CLAIMED ADDITIONAL DEPRECATION @ 20% IN THE CASE OF BOILER. THE ASSESSEES SUBMISSIONS WERE NOT ACCEPTE D BY THE AO. THE AO H ELD THAT THE RATES OF DEPRECATION FOR ALL BLOCKS OF ASSETS ARE PROVIDED AS PER RULE 5 OF THE I.T. RULES. NEW APPENDIX - I PROVIDES MEGA FINE PHARMA PVT LTD ITA NO. 4318 /M/201 3 2 RATES OF DEPRECATION FROM AY 2006 - 07 ONWARDS. ON PERUSAL OF THIS APPENDIX, IT IS OBSERVED THAT THE EFFLUENT TREAT MENT PLANT DOES NOT FORM PART OF ANY BLOCK OF ASSET ON WHICH 100% DEPRECATION HAS BEEN PRESCRIBED. THEREFORE, IN SUCH CASES, AS PER AO DEPRECATION SHOULD HAVE BEEN CLAIMED AT NORMAL RATE PRESCRIBED FOR PLANT AND MACHINERY. SIMILARLY, ON PERUSAL OF THE APPE NDIX TO RULE 5 FOR DEPRECIATION, IT WAS OBSERVED BY AO THAT 80% DEPRECIATION IS ALLOWED ONLY ON SPECIALIZED BOILERS AND NOT ON NORMAL BOILERS. THE AO HELD THAT THE ASSESSEE HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO PROVE THAT THE ASSESSEE HAD INSTALLED SPE CIALIZED BOILERS. 4. BY THE IMPUGNED ORDER CIT(A) DIRECTED THE AO TO ALLOW ASSESSEES CLAIM OF DEPRECIATION @ 100% OF CAPITAL EXPENDITURE INCURRED FOR THE PURPOSE OF R&D ACTIVITY, AFTER HAVING FOLLOWING OBSERVATION: I HAVE CONSIDERED THE FACTS OF THE CAS E. THE APPELLANT INCURRED R&D EXPENDITURE AMOUNTING TO RS. 2,09,29,267/ - BEING USED FOR R & D, THE APPELLANT CLAIMED 100% DEPRECIATION THEREON. THE AO HELD THAT THE EQUIPMENTS ON WHICH CAPITAL EXPENDITURE WAS INCURRED WERE NOT USED ON R & D BUT WERE USED F OR NORMAL MANUFACTURING ACTIVITY AND THEREFORE, ONLY NORMAL RATE OF DEPRECATION WAS ALLOWABLE AND NOT 100% AS CLAIMED BY THE APPELLANT. THE APPELLANT INCURRED EXPENDITURE OF RS. 2,09,29,267/ - . THE GENUINENESS OF SUCH EXPENDITURE HAS BEEN ACCEPTED BY THE A O. THE ONLY DIFFERENCE OF OPINION IS AS TO WHETHER THE SAID EXPENDITURE WAS INCURRED FOR R & D PURPOSES OR FOR NORMAL MANUFACTURING ACTIVITY. THE APPELLANT IN ITS SUBMISSION HAS SATISFACTORILY EXPLAINED THAT IT HAD A SEPARATE R&D UNIT WHICH IS PHYSICALLY SEPARATED AND EARMARKED FROM MANUFACTURING UNIT. THE APPELLANT HAS ALSO EXPLAINED THAT THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (MINISTRY OF SCIENCE AND TECHNOLOGY, GOVERNMENT OF INDIA) HAS CERTIFIED THAT THE APPELLANT HAS IN - HOUSE R&D LAB. THE APPELLANT HAD MADE APPLICATION TO STATE GOVERNMENT AGENCY. THE SAID GOVERNMENT AGENCY HAS EXAMINED AND VERIFIED APPELLANTS CAPITAL EXPENDITURE AND HAD APPROVED SAID CAPITAL EXPENDITURE. IN THE FACTS AND CIRCUMSTANCES, IT IS A FACT ON RECORD THAT THE APPE LLANT HAD SPECIALIZED AND SEPARATE R&D UNIT, WHICH REQUIRES CAPITAL EXPENDITURE FOR THE PURPOSE OF R & D. THE APPELLANT HAS SATISFACTORILY EXPLAINED THAT THE EQUIPMENTS VIZ. HPLC AND GC ETC. WERE USED FOR R & D ACTIVITY AND NOT FOR MANUFACTURING ACTIVITY. THE APPELLANT MEGA FINE PHARMA PVT LTD ITA NO. 4318 /M/201 3 3 HAD ALSO CLAIMED SUCH CAPITAL EXPENDITURE ON R & D IN THE IMMEDIATELY PRECEDING YEAR WHICH HAD BEEN ALLOWED BY THE AO AFTER VERIFICATION AND EXAMINATION. IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE CONSIDERED OPINION THAT THE APPELLANT WAS ENTITLED FOR 100% DEPRECIATION ON CAPITAL EXPENDITURE INCURRED FOR THE PURPOSE OF R&D ACTIVITY. THE AO IS DIRECTED TO ALLOW APPELLANTS CLAIM. THIS GROUND OF APPEAL IS, THEREFORE, ALLOWED. 5. AGAINST THE ABOVE ORDER OF THE CIT(A), THE REVENUE IS IN FURT HER APPEAL BEFORE US. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE CAPITAL EXPENSES WAS MADE FOR PURPOSE OF USE IN R&D. THE ASSESSEE HAD FURNISHED CERTIFICATE ISSUED BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (MINISTRY OF SCIENC E AND TECHNOLOGY, GOVERNMENT OF INDIA) WHICH HAS CERTIFIED THAT THE ASSESSEE COMPANY HAS IN - HOUSE R & D LAB WHICH IS RECOGNIZED BY DSIR. THE ASSESSEE HAD ALSO FILED COPY OF APPLICATION FOR RECOGNITION MADE TO DSIR. ON THE BASIS OF SAID APPLICATION INDEPEND ENT VERIFICATION WAS MADE BY DSIR AND AMOUNT OF CAPITAL EXPENDITURE ON R & D FOR THE ASSESSMENT UNDER APPEAL WAS CHECKED AND VERIFIED BY THEM. THE CAPITAL EXPENDITURE AS DISCLOSED IN THE APPLICATION FORM ALSO TALLIES WITH THE CAPITAL EXPENDITURE ON R&D AS CLAIMED BY THE ASSESSEE. AS SUCH, IT IS EVIDENT THAT THE ENTIRE AMOUNT WAS VERIFIED AND APPROVED BY AN INDEPENDENT CENTRAL GOVERNMENT AGENCY. 6. WE ALSO FOUND THAT ASSESSEE HAS A SEPARATE R & D LAB AND ALL THE MATERIALS, EQUIPMENTS AND OTHER GOODS ARE S PECIFICALLY USED EXCLUSIVELY BY R & D LAB FOR WHICH SEPARATE RECORDS ARE MAINTAINED. THE COMPANY ALSO HAS A SEPARATE QUALITY CONTROL LAB WHICH IS MEANT TO ANALYSE ALL THE COMMERCIAL PRODUCTION BATCHES OF PRODUCTS WHICH ARE MEANT FOR SALE. 7. IN VIEW OF THE DETAILED FINDING RECORDED BY THE CTI(A) WHICH HAS NOT BEEN CONTROVERTED, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS OF THE CIT(A). MEGA FINE PHARMA PVT LTD ITA NO. 4318 /M/201 3 4 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST FEBRUARY , 2016. SD/ - SD/ - ( ) ( . . ) ( AMARJIT SINGH ) (R C SHARMA) JUDI CIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE: 1 ST FEBRUARY , 2016. / COPY TO: - 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT ( A) - 8 , MUMBAI 4) THE CIT 4, MUMBAI . 5) , , / THE D.R. B BENCH, MUMBAI. 6) COPY TO GUARD FILE. / BY ORDER / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS