FERMENTA BIOTECH LTD, MUMBAI V. ASST CIT CIR 1, MUMBAI

ITA 4341/MUM/2012

• Counselvise Citation: 434119914 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 30-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 26-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVI PRAKASH
• Keywords: Business expenditure; Bad and doubtful debts; Revenue expenditure
• Section: 143(3); 80IB; 80G

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . , , , BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER . / ITA NO. 4888 /MUM./ 2012 ( / ASSESSMENT YEAR : 20 0 8 09 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 1, THANE .. / APP ELLANT V/S M/S. FERMENT BIOTECH LTD. DIL COMPLEX, G.B. ROAD S.V. RO AD, MAJIWADE, THANE .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACF2503N . / ITA NO. 4341 /MUM./ 2012 ( / ASSESSMENT YEAR : 2008 09 ) M/S. FERMENT BIOTECH LTD. DIL COMPLEX, G.B. ROAD S.V. ROAD , MAJIWADE, THANE .. / APP ELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 1, THANE .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACF2503N / ASSESSEE BY : MR. NITESH JOSHI A/W MR. VIPUL K. MODI / RE VE NUE BY : MR. RAVI PRAKASH / DATE OF HEARING 2 2 .0 1 .201 4 / DATE OF ORDE R 12.02.2014 M/S. FERMENT BIOTECH LTD. 2 / ORDER , / PER AMIT SHUKLA , J.M. THE SE CROSS APPEAL S ARE DIRECTED AGAINST THE IMPUGNED ORDER DATED 30 TH APRIL 2012, PASSED BY THE LEARNED COMMISSIONER (APPEALS) II, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2005 06 . 2 . WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO.4341/MUM./2012, FOR THE ASSESSMENT YEAR 2008 09, VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED. 1. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN UPHO LDING DISALLOWANCE OF WEIGHTED DEDUCTIONS OF RS. 1,05,65,3921 - CLAIMED UNDER SECTION 35(2AB) OF THE ACT. I T IS SUBMITTED THAT THE BOTH LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF CONDUCTION RESEARCH AND HAS INCURRED AN EXPENDITURE OF RS.70,43,595/ - . THE APPELLANT HAVING FULFILLED THE CONDITIONS OF SECTION 35(2A ) 3) OF THE ACT IS ENTITLED TO A WEIGHTED DEDUCTION OF RS. 1,05,65,392/ - . 2. WITHOUT PREJUDICE TO ABOVE AND IN AN ALTERNATE TO GROUND 1 ABOVE, THE LE ARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN HOLDING THAT THE EXPENDITURE OF RS. 70,43,595/ - INCURRED IS CAPITAL IN NATURE. IT IS SUBMITTED THAT THE APPELLANT HAS INCURRED THE SAID EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. TH E EXPENDITURE OF RS.70,43.595/ - INCURRED BY THE APPELLANT IS REVENUE IN NATURE AND OUGHT TO BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME F OR THE YEAR. THE CONCLUSION ARRIVED AT BY TH E COMMISSIONER OF INCOME - TAX (APPEALS) AND THE LEARNED ASSESSING OFFICE R IS CONTRARY TO THE FACTS AND THE LAW. 3. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED NOT DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 1,08,48,954 / - ERRONEOUSLY MADE ON ACCOUNT OF BAD DEBTS. IT IS SUBMITTED THAT LEARNED COMM ISSIONER OF INCOME - TAX (APPEALS) WHILE ADJUDICATI NG THAT BAD DEBTS OF RS . 8,24,978/ - ARE TO BE ALLOWED, OUGHT TO M/S. FERMENT BIOTECH LTD. 3 GIVEN CLEAR DIRECTION TO DELETE THE ADDITION OF RS . 1,08,48,954/ - MADE ON ACCOUNT OF BAD DEBTS. 4 . THE LEARNED COMMISSIONER OF INCOME - TAX (APP EALS) ERRED IN GIVING DIRECTION TO THE ASSESSING OFFICER TO VERIFY THE CLAIM FOR DEDUCTION UNDER SECTION 80G OF THE ACT IN RESPECT OR DONATIONS PAID. IT IS SUBMITTED THAT BASED ON THE DOCUMENTARY EVIDENCES AVAILABLE ON RECORD, LEARNED COMMISSIONER OF INC OME - TAX (APPEALS) OUGHT TO HAVE QUANTIFIED AND GIVEN SPECIFIC DIRECTIONS TO ALLOW DEDUCTION UNDER SECTION 80G OF THE ACT. 5. THE LEARNED CIT(A) ERRED IN GIVING DIRECTION TO THE ASSESSING OFFICER TO VERIFY THE CLAIM FOR DEDUCTION UNDER SECTION 80IB IN RES PECT OF PROFITS DERIVED BY THE ELIGIBLE UNDERTAKING. 3 . BRIEF FACTS, QUA THE ISSUE INVOLVED IN GROUND NO.1 ABOVE ARE THAT, THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING, MARKETING AND PROCESSING OF DRUG INTERMEDIATES PHARMACEUT ICALS, CHEMICALS AND BULK DRUGS. ON A PERUSAL OF THE RETURN OF INCOME, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF ` 1,05,65,392 ON ACCOUNT OF EXPENDITURE MADE ON INHOUSE SCIEN TIFIC RESEARCH UNDER SECTION 35(2AB)(1). IN RESPON SE TO THE SHOW CAUSE NOTICE, THE ASSESSEE FILED A COPY OF RENEWAL OF RECOGNITION OF INHOUSE R&D UNIT ISSUED BY THE DEPARTMENT OF SCIENTIFIC AND RESEARCH (FOR SHORT DSIR ), NEW DELHI, VIDE LETTER DATED 14 TH NOVEMBER 2005, ISSUED AND SIGNED BY SCIENTIST G . THE ASSESSING OFFICER HELD THAT AS PER THE PROVISIONS OF SECTION 35(2AB), THE APPROVAL HAS TO BE OBTAINED FROM THE PRESCRIBED AUTHORITY WHO IS THE SECRETARY, DSIR, AND HENCE, THE ASSESSEE CANNOT BE ALLOWED THE CLAIM FOR DEDUCTION UNDER SECTION 35(2AB). B EFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT THE SCIENTIST G IS A DESIGNATED OFFICER OF DSIR WH O ISSUES RECOGNITION TO INHOUSE R&D UNITS. THE ASSESSEE ALSO ENCLOSED C ITIZEN S C HARTER ISSUED BY THE DSIR WHICH INDICATES THAT RESPONSIBILITY OF GIVI NG RECOGNITION TO INHOUSE R&D CENTRE LIES WITH SCIENTIFIC G. AFTER CONSIDERING THE ASSESSEES EXPLANATION, THE M/S. FERMENT BIOTECH LTD. 4 ASSESSING OFFICER HELD THAT THE PROVISION OF SECTION 35(2AB) ARE ABSOLUTELY CLEAR THAT CERTIFICATE HAS TO BE ISSUED BY THE SECRETARY, DSIR, AND N OT BY THE SCIENTIST. FURTHER, ON THE REVERSE SIDE OF THE RENEWAL CERTIFICATE, IT IS CLEARLY MENTIONED THAT IT IS NOT FOR THE PURPOSE OF TAX EXEMPTION OR FOR QUANTUM OF TAX CONCESSION. THUS, HE DISALLOWED THE ASSESSEES CLAIM OF ` 1,05,65,392. 4 . BEFORE THE L EARNED COMMISSIONER (APPEALS) , BESIDES REITERATING THE EXPLANATION GIVEN BEFORE THE ASSESSING OFFICER THE ASSESSEE ALSO RELIED HEAVILY UPON THE DECISION OF THE TRIBUNAL IN ACIT V/S M ECO INSTRUMENTS PVT. LTD., ITA NO.4246/MUM./ 2009, ORDER DATED 20 TH AUGUST 2010, WHEREIN IT WAS HELD THAT EVEN THOUGH THE APPROVAL WAS NOT AVAILABLE IN THE PRESCRIBED FORM FOR THE RELEVANT ASSESSMENT YEAR, THE TAX PAYER WAS STILL ENTITLED FOR DEDUCTION FOR THE INHOUSE R&D EXPENDITURE. THE TRIBUNAL ALSO HELD THAT IT IS ONLY A PRO CEDURAL DEFECT AND BE NEFIT CANNOT BE DENIED. THE LEARNED COMMISSIONER (APPEALS) REJECTED THE ASSESSEES SUBMISSION AND HELD THAT PROVISIONS OF SECTION 35(2AB)(1) R/W RULE 6 MAKES IT CLEAR THAT THE DEDUCTION CAN BE ALLOWED ONLY WHEN THE APPROVAL IS GRANTED BY THE PRESCRIBED AUTHORITY IN THE PRESCRIBED FORM. FURTHER, THE ASSESSEE COMPANY HAS NOT PLACED ANY COPY OF APPROVAL FROM THE PRESCRIBED AUTHORITY IN THE PRESCRIBED FORM NO. 3 C M . THE COPY OF LETTER DATED 14 TH NOVEMBER 2005, SIGNED BY THE SCIENTIST G ACCO RDING RECOGNITION TO THE INHOUSE R&D UNIT IS NEITHER SIGNED BY THE PR E SCRIBED AUTHORITY NOR IS IN THE PRESCRIBED FORM NO.3CM. THE LETTER ONLY INDICATES APPROVAL FOR THE PURPOSE OF RECOGNITION AND NOT FOR AVAILING BENEFIT OF THE DEDUCTION UNDER SECTION 35(2 AB). THUS, HE DISALLOWED THE ASSESSEES CLAIM AND UPHELD THE ACTION OF THE ASSESSING OFFICER. M/S. FERMENT BIOTECH LTD. 5 5 . BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE ALSO TOOK ALTERNATE PLEA THAT THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE ON THE INHOUSE R&D UNIT IS REVENUE IN NATURE BECAUSE THE SAME HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND , THEREFORE, SAME SHOULD BE ALLOWED AS BUSINESS EXPENDITURE UNDER SECTION 37. THE LEARNED COMMISSIONER (APPEALS) REJECTED THIS PLEA ALSO ON THE GROUN D THAT EXPENDITURE ON SCIENTIFIC R&D DOES NOT COME UNDER THE CATEGORY OF DAY TO DAY BUSINESS EXPENSES , BUT IT IS INCURRED KEEPING IN VIEW THE LONG TERM BENEFIT TO THE COMPANY. THE EXPENDITURE INCURRED IN R&D WILL HAVE ONLY LONG TERM ENDURING BENEFIT WHICH IS CAPITAL IN NATURE. 6 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONCE THE ASSESSEE HAS APPLIED FOR RENEWAL OF RECOGNITION AND APPROVAL OF INHOUSE RESEARCH AND R&D FACILITY IN THE PRESCRIBED FORM AND THE SAME HAS BEEN ISSUED BY THE DSIR , THEN, INSOFAR AS THE ASSESSEE IS CONCERNED, THE OBLIGATION GETS DISCHARGED. HE STRONGLY REFERRED TO THE DECISION OF THE TRIBUNAL IN M ECO INSTRUMENTS PVT. LTD. (SUPRA), WHEREIN THE TRIBUNAL HAS ANALYSED THE PROVISIONS OF SECTION 35(2AB) AND RULE 6 TO COME TO THE FOLLOWING CONCLUSION: 6.3 NOW, WE WILL ALSO EXAMINE THE ISSUE HAVING REGARD TO THE OBJECT OF LEGISLATION. THE ENTIRE SCHEME DEALS WITH THE GRANTING OF APPROVAL TO THE FACILITIES AND THE OBJECT IS THAT THE RESEARCH AND DEVELOPMENT FACILITY IS NOT RELATED PURELY TO MARKET RESEARCH, SALES PROMOTION, QUALITY CONTROL, TESTING, COMMERCIAL PRODUCTION, STYLE CHANGES, ROUTINE DATA COLLECTION OR ACTIVITIES OF A LIKE NATURE. THE PURPOSE IS TO HAVE RESEARCH AND DEVELOPMENT FACILITIES WHICH CONTRIBUTE TO THE TECHNOLOGICAL ADVANCEMENT AND NOT MERELY LIMITED TO EARNING OF PROFITS. THEREFORE, ONCE THE APPROVAL IS. THERE BY THE PRESCRIBED AUTHORITY, IT COULD BE EASILY CONCLUDED THAT THE SAME MET THE BASIC REQUIREMENT AND MERELY THE SAME IS NOT IN PRESCRIBED FORM, IT WOULD NOT LEAD TO THE CONCLUSION THAT THE APPROVAL WAS OF NO PURPOSE. AS PER THE TERMS AND CONDITIONS OF THE RECOGNITION OF IN - HOUSE R&D UNIT FRAMED BY THE MINISTRY OF SCIENCE AND TECHNOLOGY, THE ASSESSEE COMPANY IS REQUIRED TO SUBMIT BRIEF SUMMARY OF THE ACHIEVEMENTS OF M/S. FERMENT BIOTECH LTD. 6 THE R&D UNIT TO THE DEPARTMENT OF SCIENCE AND INDUSTRIAL RESEARCH EVERY YEAR WHICH INCLUDES PAPER PUBLISHED, PATENTS OBTAINED AND PROCESSES DEVELOPED, NEW PRODUCTS INTRODUCED, AWARDS AND PRIZES RECEIVED AND OTHER ACHIEVEMENTS. FURTHER, AS PER CLAUSE 8, COMMERCIAL EXPLOITATION OF THE KNOW - HOW/PROCESS DEVELOPED BY IN - HOUSE R&D UNIT WAS TO BE SOLELY GOVERNED BY THE LICENSING POLICIES IN OPERATION FROM TIME TO TIME AND THE DECISION OF THE LICENSING AUTHORITIES IN THIS REGARD IS CONSIDERED TO BE FINAL. THUS, STRINGENT CONDITIONS HAVE BEEN IMPOSED BY THE PRESCRIBED AUTHORITY ITSELF THOUGH THE SAID APPROVAL WAS NOT MEANT FOR TAX EXEMPTION BUT IN SUBSTANCE, THERE WAS NOT MUCH DIFFERENCE BETWEEN THE OBJECTS SOUGHT TO BE ACHIEVED BY THESE APPROVAL S. 6.4 FURTHER, IN ANY VIEW OF THE MATTER, AT BEST IT COULD BE SAID THAT IT WAS ONLY A PROCEDURAL DEFECT AND FROM THE VARIOUS DECISIONS, NOTED IN THE ARGUMENTS OF ID COUNSEL FOR THE ASSESSEE, IT IS CLEAR THAT MERELY ON THE GROUND OF TECHNICALITIES OF PRO CEDURE, THE BENEFIT BESTOWED BY LEGISLATURE CANNOT BE DENIED. WHEN IT COMES TO FOLLOW THE PRESCRIBED PROCEDURE, THE EXEMPTION PROVISIONS HAVE TO BE LIBERALLY CONSTRUED AND IF IN SUBSTANCE, THE ASSESSEE HAS FULFILLED THE BASIC REQUIREMENTS THEN THE EXEMPTI ON CANNOT BE DENIED. 7 . THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ORDER OF APPROVAL IN FORM NO.3CM FOR THE SUBSEQUENT YEARS I.E., 1 ST APRIL 20011 TO 31 ST MARCH 2012 AND 1 ST APRIL 2012 TO 31 ST MARCH 2015 HAS BEEN GRANTED BY THE DSIR WHI CH HAS BEEN SIGNED BY THE SCIENTIST G FOR AND ON BEHALF OF THE SECRETARY, DSIR. THIS GOES TO SHOW THAT THE ASSESSEE IS ELIGIBLE FOR MAKING CLAIM UNDER SECTION 35(2AB). BY WAY OF AN ALTERNATIVE SUBMISSIONS, HE SUBMITTED THAT IF SUCH AN EXPENDITURE CANNOT BE ALLOWED AS DEDUCTION UNDER SECTION 35(2AB), THEN THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE TO THE EXTENT OF ` 70,43,595. HE POINTED OUT TO THE RELEVANT DETAILS, AS APPEARING IN PAGE 120 OF THE PAPER BOOK, OF SUCH EXPENSES AND SUBMITTED THAT THESE ARE PURELY INCURRED FOR MATERIAL PURCHASE, EMPLOYEES COST AND OTHER EXPENSES WHICH ARE EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF ASSESSEES BUSINESS. IN SUPPORT OF HIS CONTENTION THAT SUCH EXPENDITURES ARE TO BE ALLOWED, HE RELIED UPON THE DECISION OF THE TRIBUNAL, DELHI BENCH, IN ACIT V/S PARABOLIC DRUGS LTD., [2011] 141 TTJ 662 (DEL.). M/S. FERMENT BIOTECH LTD. 7 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED UPON THE REASONING AND CONCLUSION DRAWN BY THE LEARNED COMMISSIONER (APPEALS) THAT ONCE THE AP PROVAL HAS NOT BEEN GRANTED BY THE PRESCRIBED AUTHORITY, THEN THE CLAIM FOR DEDUCTION UNDER SECTION 35(2AB) CANNOT BE GIVEN. 9 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE ASSESSEE HAS MADE CLAIM FOR THE DEDUCTION UNDER SECTION 35(2AB) WHICH IS FOR EXPENDITURE INCURRED ON INHOUSE R&D FACILITIES ON THE BASIS OF LETTER DATED 14 TH NOVEMBER 2005, ISSUED BY THE DSIR, NEW DELHI, UNDER THE SIGNATURE OF SCIENTIST G . T HE CONTENTS OF THE ENTIRE LETTER IS REPRODUCED HERE UNDER FOR THE SAKE OF READY REFERENCE: - F.NO.TU/IV RD/1967/2005 DATED: 14 NOVEMBER 206 TO M/S. FERMENTA BIOTECH LTD. DIL COMPLEX, OPP. VIDYAPEETH SWAMI VIVAKANANDA ROAD MIJIWADA, THANE 400 607 SUBJECT: RENEWAL OF RECOGNITION OF IN HOUSE R&D UNIT (S) DEAR SIRS, THIS HAS REFERENCE TO YOUR APPLICATION FOR RENEWAL OF RECOGNITION OF YOUR IN HOUSE R&D UNIT BEYOND 31.03.2005 BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH. 2. THIS IS T O INFORM YOU THAT IT HAS BEEN DECIDED TO ACCORD RENEWAL OF RECOGNITION TO THE IN HOUSE R&D UNIT OF YOUR FIRM AT VIII, TAKOLL, PO NAGWAIN, MANDI DIST., H.P. UPTO 31.03.2008. TERMS AND CONDITIONS PERTAINING TO THIS RECOGNITION ARE GIVEN OVERLEAF. 3. KINDLY ACKNOWLEDGE RECEIPT OF THIS LETTER. YOURS FAITHFULLY, SD/ (R.R. A BHYANKAR) SCIENTIST G M/S. FERMENT BIOTECH LTD. 8 10 . ON THE FACE OF THE LETTER, IT IS EVIDENT THAT THE SAID LETTER ISSUED BY DSIR IS ONLY FOR RENEWAL OF RECOGNITION OF INHOUSE R&D UNITS. THERE IS NO FORMAL ORDER OR APPROVAL FOR SUCH INHOUSE R&D FACILITIES IN THE PRESCRIBED FORM UNDER SECTION 35(2AB). THE REVENUES CASE IS THAT SUCH A LETTER HAS NOT BEEN ISSUED BY THE PRESCRIBED AUTHORITY I.E., SECRETARY, DSIR. PROVISI ONS OF SECTION 35(2AB) PROVIDES THAT WHERE A COMPANY IS ENGAGED IN THE BUSINESS OF BIOTECHNOLOGY OR ANY BUSINESS OF MANUFACTURING AND PRODUCTION OF ANYTHING WHICH IS NOT IN THE LIST OF 11 TH SCHEDULE AND INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH NOT IN THE NATURE OF ANY COST OF LAND AND BUILDING BUT ON INHOUSE RESEARCH AND DEVELOPMENT FACILITY WHICH HAS BEEN APPROVED BY THE PRESCRIBED AUTHORITY WHO IS THE SECRETARY, DSIR, GOVERNMENT OF INDIA, THEN THE ASSESSEE SHALL BE ALLOWED SUM EQUAL TO 1 TIMES OF T HE EXPENDITURE SO INCURRED. PROVISIONS OF SUB SECTION (4) PROVIDES THAT PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPORT IN RELATION TO THE APPROVAL OF THE SAID FACILITIES TO THE DIRECTOR GENERAL IN SUCH FORM AND WITHIN SUCH TIME AS MAY BE PRESCRIBED. RULE 6 L AYS DOWN THE PROCEDURE FOR MAKING APPLICATION AND OBTAIN APPROVAL IN THE PRESCRIBED FORM WHICH IS FORM NO.3CK AND THE PRESCRIBED AUTHORITY IS REQUIRED TO GRANT OR APPROVAL IN FORM NO.3CM. THUS, FOR THE PURPOSE OF CLAIMING DEDUCTION ON SCIENTIFIC RESEARCH E XPENDITURE UNDER SECTION 35(2AB), IT HAS TO BE APPROVED BY THE PRESCRIBED AUTHORITY AND THE RULES PROVIDE THAT APPLICATION SHOULD BE MADE IN PROSCRIBED FORM AND ALSO THE APPROVAL IS TO BE GRANTED IN THE PRESCRIBED FORM. 11 . ONCE THE ASSESSEE HAS FILED THE AP PLICATION IN THE PRESCRIBED FORM BEFORE THE PRESCRIBED AUTHORITY, THEN INSOFAR AS THE ASSESSEE IS CONCERNED, IT HAS FULFILLED ITS OBLIGATION. HOWEVER, THERE IS A RIDER THAT M/S. FERMENT BIOTECH LTD. 9 SUCH AN APPLICATION FORM HAS TO BE APPROVED OR HAS TO BE PASSED BY THE PRESCRIBED A UTHORITY IN FORM 3CM. THESE CONDITIONS ARE ESSENTIAL BUT SUCH A STRICT INTERPRETATION MAY DEFEAT THE VERY PURPOSE OF THE LEGISLATION INTENT, IF THE ASSESSEE HAS COMPLIED WITH ALL THE OTHER CONDITIONS AND PROCEDURES. THE PURPOSE OF THIS SECTION R/W RELEVANT RULE IS TO PROMOTE SCIENTIFIC RESEARCH AND DEVELOPMENT FACILITIES WHICH CONTRIBUTE TO THE TECHNICAL ADVANCEMENT. IF THE PROPER PROCESS HAS BEEN FOLLOWED BY THE ASSESSEE, THEN WHETHER THE ORDER OF APPROVAL HAS BEEN GRANTED BY THE SECRETARY, DSIR, OR BY SOM E NODAL OFFICER ON/OR BEHALF OF THE SECRETARY, DSIR, IT DOES NOT MAKE ANY DIFFERENCE IF ALL THE CONDITIONS FOR GRANTING OF APPROVAL ARE SATISFIED. IN THIS CASE, IT IS EVIDENT FROM THE DOCUMENTS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE SUBSEQUENT Y EARS THAT THE DSIR HAS GRANTED ORDER OF APPROVAL IN FORM NO.3CM WHICH HAS BEEN SIGNED BY THE SCIENTIST G FOR AND ON BEHALF OF THE SECRETARY, DSIR. ONCE THE DSIR HAS AUTHORIZED ANY OF ITS NODAL OFFICER TO ISSUE ORDER OF APPROVAL ON OR BEHALF OF THE SECRETAR Y, THEN FOR THE PURPOSE OF SECTION 35(2AB), IT CAN BE TAKEN THAT THE APPROVAL HAS BEEN GRANTED BY THE PRESCRIBED AUTHORITY ITSELF. WHETHER THE ORDER HAS BEEN SIGNED BY THE SECRETARY OR BY ANY OF THE NODAL OFFICER ON HIS BEHALF WILL NOT MAKE ANY DIFFERENCE BECAUSE IT IS NOT THE FAULT OF THE ASSESSEE . IN SUCH A CASE, CLAIM FOR DEDUCTION CANNOT BE DENIED TO THE ASSESSEE . 12 . IN THE PRESENT CASE, HOWEVER, THE ASSESSEE COULD NOT SHOW US WHETHER , ANY APPROVAL OF INHOUSE R&D FACILITIES HAS BEEN ISSUED IN PRESCRIBED FORM BY THE DSIR, EVEN IF IT IS SIGNED BY ANY AUTHORITY LIKE SCIENTIST G FOR O N/OR BEHALF OF THE SECRETARY, DSIR. IN THE SUBSEQUENT YEARS, IF SUCH AN ORDER IS AVAILABLE, THEN THE ASSESSEE HAS TO SHOW THAT THE ORDER OF THE APPROVAL FOR INHOUSE R&D FACILITY HAS BEEN GRANTED BY M/S. FERMENT BIOTECH LTD. 10 THE DSIR COVERING THE PRESENT ASSESSMENT YEAR. THEREFORE, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE F ILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THIS FACT AND TO EXAMINE WHETHER ANY ORDER OF APPROVAL OF INHOUSE R&D FACILITIES HAS BEEN ISSUED FOR THE RELEVANT ASSESSMENT YEAR . THE ASSESSEE WILL PROVIDE ALL THE NECESSARY INFORMATION AND EVIDENCE. I F SUCH AN ORDER IS AVAILABLE AND EVEN IF IT IS SIGNED BY THE SC IENTIST G ON BEHALF OF THE SECRETARY, DSIR, THEN ALSO IT SHOULD BE TAKEN AS IF THE SAME HAS BEEN ISSUED BY THE PRESCRIBED AUTHORITY. 13 . IN CASE, SUCH AN ORDER IS NOT BEING PROVIDED BY THE ASSESSEE, THEN THE ASSESSING OFFICER SHALL EXAMINE THE NATURE OF EXPE NDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF SCIENTIFIC RESEARCH , RELATING TO ITS BUSINESS AND ALSO EXAMINE WHETHER SUCH EXPENDITURE CAN BE ALLOWED UNDER SECTION 35(1) OR AS REVENUE EXPENDITURE UNDER SECTION 37. WE ORDER ACCORDINGLY. THUS, THE GROUN D NO.1 AND 2 RAISED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 14 . GROUND NO. 3 , RELATES TO DISALLOWANCE OF BAD DEBT OF ` 1,08,48,954. 15 . THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY HAS WRITTEN OF BAD DEBT PERTAINING TO AUR UBINDO PHARMA. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE SAID PARTY WAS THEIR CUSTOMER FOR THE LAST SEVERAL YEARS AND THEY HAVE NOT PAID THE AMOUNT DUE FROM THEM , DESPITE MAKING CONTINUOUS EFFORT FOR RECOVERY OF THIS AMOUNT , THE REFORE, THE SAME WERE WRITTEN OF IN THE BOOKS OF ACCOUNT DURING THE YEAR WITH THE APPROVAL OF THE BOARD OF DIRECTORS. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES EXPLANATION AND M/S. FERMENT BIOTECH LTD. 11 DISALLOWED THE CLAIM ON THE GROUND THAT THE ASSESSEE COULD NOT SUBSTAN TIATE ITS CLAIM BY PRODUCING ANY DOCUMENTARY EVIDENCE. 16 . DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE ASSESSEE CONTENDED THAT THE ACTUAL AMOUNT WRITTEN OF DURING THE PERIOD IN RESPECT OF BAD DEBT PERTAINING TO AUR I BINDO PHARMA IS ONLY AMOUNTING TO ` 8,24,978 AND NOT ` 1,08,40,951 AS DISALLOWED BY THE ASSESSING OFFICER. IT WAS FURTHER CONTENDED THAT ALL THE CONDITIONS LAID DOWN IN SECTION 36(1)(VII) AND 36(2) HAS BEEN FULFILLED. THE LEARNED COMMISSIONER (APPEALS), AFTER ANALYZING THE PROVISIONS OF SECT ION 36(1)(VII) AND LAW APPLICABLE FROM 1 ST APRIL 1989, HELD THAT THE ASSESSING OFFICER SHOULD RE - EXAMINE THE CASE OF THE ASSESSEE AND ALSO THE AMOUNT OF BAD DEBT CLAIMED BY THE ASSESSEE. HE ALSO REFERRED AND RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN TRF LTD. V/S CIT, [2010] 323 ITR 397 (SC) . 17 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE AMOUNT DEBITED TO THE PROFIT & LOSS ACCOUNT OF AURIBINDO PHARMA. HE SUBMITTED THAT THE AMOUNT OF ` 1,08,48,951 PERTAINED TO DIFFE RENT CUSTOMERS AND PARTIES. IN THE NAME OF AURIBINDO PHARMA, THE ASSESSEE HAS CLAIMED ONLY BAD DEBT OF ` 8,24,978. THIS IS EVIDENT FROM PAGE - 144 OF THE PAPER BOOK. FURTHER, HE SUBMITTED THAT THE LAW IS ABSOLUTELY CLEAR THAT ONCE THE ASSESSEE HAS WRITTEN OF THE BAD DEBTS IN THE BOOKS OF ACCOUNT, THEN IT HAS TO BE ALLOWED WHILE COMPUTING THE PROFITS. 18 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER AND SUBMITTED THAT IF THERE IS SOME DISCREPANCY IN THE FIGURES, THE MATTER CAN BE REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. M/S. FERMENT BIOTECH LTD. 12 19 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. ON A PERUSAL OF THE DETAILS AS POINTE D OUT BY THE LEARNED COUNSEL, IT IS SEEN THAT IN THE CASE OF AURIBINDO PHARMA, THE ASSESSEE HAD SHOWN THE AMOUNT OF BAD DEBT WRITTEN OF AT ` 8,24,978. IT SEEMS THAT THE ASSESSING OFFICER HAS TAKEN THE FIGURE OF ` 1,08,48,951 , WHICH PERTAINED TO DIFFERENT P ARTIES . THUS, TO THIS EXTENT, WE ARE OF THE OPINION THAT ONLY THE FIGURE OF ` 8,24,978 SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF ADJUDICATION. ON A PERUSAL OF THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS), WE FIND THAT HIS OBSERVATION AND CONCLUSION ARE ABSOLUTELY CORRECT AND IS IN ACCORDANCE WITH THE LAW THAT THE ASSESSING OFFICER HAS TO EXAMINE THE CONDITIONS LAID DOWN IN SECTION 36(1)(VII) AND WHATEVER AMOUNT HAS BEEN WRITTEN OF IN THE BOOKS OF ACCOUNT AS BAD DEBT S THE SAME SHOULD BE ALL OWED IN VIEW OF THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN TRF LIMITED (SUPRA). THUS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) TO THE EXTENT STATED ABOVE. THUS, THE ASSESSEES GROUND IS TREATED AS PARTLY ALLOWED. 20 . IN GROUND NO.4 AND 5, THE ASSESSEE HAS CONTENDED THAT THE LEARNED COMMISSIONER (APPEALS) HAS DIRECTED THE ASSESSING OFFICER TO EXAMINE AND GIVE SPECIFIC FINDINGS REGARDING THE CLAIM OF DEDUCTION UNDER SECTION 80G AND THE CLAIM OF DEDUCTION UNDER SECTION 80IB WITHOUT HIMSELF ALLOWING THE SAME. 21 . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT INSOFAR AS THE CLAIM OF DEDUCTION UNDER SECTION 80G IS CONCERNED, THE ASSESSEES NET INCOME ITSELF WAS IN LOSS, THEREFORE, THIS GROUND HAS NOT MUCH SIGNIF ICANCE. HENCE, THE GROUND IS DISMISSED. HOWEVER, WITH REGARD TO M/S. FERMENT BIOTECH LTD. 13 THE CLAIM UNDER SECTION 80IB, HE SUBMITTED THAT IN CASE THERE IS A POSITIVE INCOME AFTER GIVING EFFECT OF THIS ORDER, THEN THE ASSESSING OFFICER SHOULD BE DIRECTED TO ALLOW THE CLAIM FOR DEDUC TION UNDER SECTION 80IB. 22 . AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNED COUNSEL, IT APPEARS THAT THE CONTENTION OF THE ASSESSEE IS LEGALLY TENABLE BECAUSE AT THE TIME OF FILING OF RETURN OF INCOME, THE NET INCOME WAS IN LOSS, THEREFORE, THE CLAIM OF DE DUCTION UNDER SECTION 80IB HAD NO MEANING. HOWEVER, IF THE INCOME IS ASSESSED AT POSITIVE FIGURE, THEN THE SAME HAS TO BE ALLOWED AS DEDUCTION. THUS, THE ASSESSING OFFICER WHILE GIVING EFFECT TO THIS ORDER WILL KEEP THIS IN MIND AND ALLOW THIS DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF LAW. THUS, THE GROUND NO.5 IS TREATED AS PARTLY ALLOWED. 23 . 23 . IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. WE NOW TAKE UP REVENUES APPEAL IN ITA NO. 4341/MUM./2012 FOR THE ASSESSMENT YEAR 2008 09, WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF BAD DEBTS WRITTEN OFF OF ` 1,08,48,951. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO CONSIDER THE CLAIM OF ASSESSEE STATING THAT ACTUALLY ONLY AMOUNT DESPITE THE ACT THAT THE ASSESSEE HAS WRITTEN OFF ` 1,08,48,951 AND THE DEBTS HAVE NOT BEEN PROVED TO BE BAD / IRRECOVERABLE AND NO DOCUMENTARY EVIDENCES HAVE BEEN FURNISHED TO SUBSTANTIATE THE CLAIM. M/S. FERMENT BIOTECH LTD. 14 24 . THE ISSUE ARISING OUT OF G ROUN D NO.1 AND 2 , RAISED BY THE REVENUE IS IDENTICAL TO THE GROUND NO. 3 RAISED BY THE ASSESSEE, WHEREIN, FOR THE DETAILED REASO NS STATED THEREIN THAT THE DIRECTION OF THE LEARNED COMMISSIONER (APPEALS) IS CORRECT, SUBJECT TO THE QUANTUM OF AMOUNT OF BAD DEBT. SINCE THE ISSUE AS WELL AS THE FACTS AND CIRCUMSTANCES ARE IDENTICAL TO THE GROUND RAISED BY THE ASSESSEE, THEREFORE, THE FINDINGS GIVEN IN ASSESSEES APPEAL WILL APPLY TO THE PRESENT GROUND ALSO. ACCORDINGLY, GROUND NO.1 AND 2 RAISED BY THE REVENUE ARE TR EATED AS DISMISSED. 25 . 2 6 . IN THE RESULT, REVENUES APPEAL IS TREATED AS DISMISSED. 26 . , 2 7 . TO SUM UP, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL IS TREATED AS DISMISSED. 12 TH FEBRUARY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY 2014 SD/ - . . R.C. SH ARMA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 12 TH FEBRUARY 2012 M/S. FERMENT BIOTECH LTD. 15 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI