KABRA EXTRUSIONTECHNIK LTD, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX 10(1)(2), MUMBAI

ITA 4736/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3435 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Appeal Filed On: 05-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule 8D
• Section: 14A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER AND ITA NO.4736/MUM/2017 ASSESSMENT YEAR-2013-14 KABRA EXTRUSIONTECHNIK LTD. 31, SHAH INDL. ESTATE, VEERA DESAI ROAD, ANDHERI (WEST), MUMBAI-400053 / VS. DCIT - 10(1)(2), MUMBAI PAN NO. AAACK4289L ( / ASSESSEE) ( / REVENUE) / ASSESSEE BY SHRI NITESH JOSHI / REVENUE BY SHRI MANOJ KUMAR SINGH / DATE OF HEARING : 25/04/2019 / DATE OF ORDER: 03/05/2019 / O R D E R PER SHAMIM YAHYA (ACCOUNTANT MEMBER) THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST ORDER O F THE LD. CIT(A)-17 MUMBAI, DATED 28/09/2017 AND PERTAIN TO ASSESSMENT YEAR 2013-14. THE GROUND OF APPEAL RAISE D BY THE ASSESSEE IS AS UNDER:- ITA NO.4736MUM/2017, KABRA EXTRUSIONTECHNIK LTD. 2 THE APPELLANT APPEALS AGAINST THE IMPUGNED ORDER DA TED 28.04.2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)- 17, MUMBAI [THE CIT(A)] UNDER SECTION 253 OF THE IN COME-TAX ACT (THE ACT), ON THE FOLLOWING AMONGST OTHER GROUNDS, EACH OF ITS IS IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO ANY OTHERS: 1. THE CIT(A) ERRED IN UPHOLDING ASSESSMENT OF THE APPELLANT'S INCOME AT RS.9,04,79,780 AS AGAINST INCOME AS RETUR NED BY IT OF RS. 5,11,4,252. 2. THE CIT(A) ERRED IN UPHOLDING THE APPLICATION OF RULE 8D OF THE INCOME- TAX RULES TO THE PRESENT CASE FOR COMPUTATI ON OF DISALLOWANCE UNDER SECTION 14A OF THE ACT, ERRONEOU SLY HOLDING THAT THE JURISDICTIONAL PRECONDITIONS UNDER SECTION 14A( 2) OF THE ACT HAD BEEN SATISFIED BY THE AO. 3. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE U NDER SECTION 14A OF THE ACT OF RS.2,04,508. 4. THE CIT(A) OUGHT TO HAVE HELD THAT THE DISALLOWA NCE AS MADE UNDER SECTION 14A OF THE ACT IN THE REGULAR COMPUTA TION OF INCOME CANNOT BE AUTOMATICALLY TAKEN INTO ACCOUNT WHILE CO MPUTING ITS BOOK PROFIT UNDER SECTION 11 5JB OF THE ACT. 5. THE CIT(A) ERRED IN UPHOLDING THE REDUCTION OF D EPRECIATION CLAIM BY RS.3,13,547. 6. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE U NDER SECTION 35(2AB) OF THE ACT OF RS.3,87,87,471/- 3. GROUND NUMBER ONE IS GENERAL. FROM NUMBER 2 TO 4 HAVE NOT BEEN PRESSED. HENCE, THESE ARE DISMISSED A S NOT PRESSED 4. AS REGARDS GROUND NUMBER FIVE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED AGAINS T THE ASSESSEE BY THE DECISION OF HONOURABLE SUPREME COUR T IN ASSESSEE'S OWN CASE. ACCORDINGLY THIS GROUND RAISED BY THE ASSESSEE STANDS DISMISSED. ITA NO.4736MUM/2017, KABRA EXTRUSIONTECHNIK LTD. 3 5. BRIEF FACTS OF THE CASE AS REGARDS THE REMAINING GROUND IS THAT THE ASSESSEES CLAIM OF RS.38,700,471/- U/S 35(2AB) OF THE ACT WAS DISALLOWED BY THE AO ON THE BASIS TH AT THE APPROVAL GRANTED BY THE DEPARTMENT OF SCIENCE AND I NDUSTRIAL RESEARCH (DSIR IN SHORT), GOVERNMENT OF INDIA IS NOT FOR THIS ASSESSMENT YEAR. 6. AGAINST ABOVE ORDER ASSESSEE APPEALED BEFORE THE LEARNED CIT(A). LEARNED CIT(A) NOTED THAT ASSESSEE' S CONTENTION BUT REJECTED THE SAME BY HOLDING AS UNDE R:- HOWEVER, DURING THE APPELLATE PROCEEDINGS, IT HAS BEEN CLAIMED THAT THE APPELLANT COMPANY WAS ELIGIBL E FOR WEIGHTED DEDUCTION U/S.35 (2AB) DURING THE YEAR IN WHICH THE APPLICATION WAS MADE. THE INTERPRETATION OF THE APPELLANT COMPANY IS ABSOLUTELY NOT AS PER THE PROVISION OF THE ACT. THE PROVISION OF SECTION 35(2AB) STATES...... 'WHERE A COMPANY................................. ................................ .ON IN HOUSE RESEARCH DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY. SO INCLINED. FROM THE PROVISION ITSELF IT IS VERY CLEAR THAT WEIGHTED DEDUCTION HAS TO BE ALLOWED AS PER THE APPROVAL OF THE PRESCRIBED AUTHORITY. THE PRESCRIBE D AUTHORITY IN THIS CASE IS THE SECRETARY, DEPARTMENT OF SCIENCE AND INDUSTRIAL RESEARCH, GOVERNMENT OF INDI A. THE PRESCRIBED AUTHORITY HAS TO GIVE A ORDER OF APPROVAL IN THE PRESCRIBED FORM NO. 3CM AS PER INCO ME TAX RULES. THE COPY OF THE SAID FORM HAS BEEN FILED IN THE PAPER BOOK ALSO, WHICH APPEARS AT SR.NO.137. COLUMN NO.5 OF THE SAID FORM REFERS THE SAID APPROV AL WHICH STATES THE ABOVE RESEARCH & DEVELOPMENT FACILITY IS APPROVED FOR THE PURPOSE OF SECTION 35(2AB) FROM 01.04.2013 TO 31.03.2015, SUBJECT TO THE CONDITIONS UNDERLINED THEREIN. ITA NO.4736MUM/2017, KABRA EXTRUSIONTECHNIK LTD. 4 THUS, APPROVAL GIVEN BY THE DSIR LEADS NO SCOPE TO INTERFERE WITH THE FINDINGS OF THE AO. THE PERIOD O F RELEVANT, FINANCIAL YEAR I.E.1.4.2012 TO 31.3.2013 WAS NOT THE PERIOD FOR WHICH APPROVAL WAS GRANTED BY TH E PRESCRIBED AUTHORITY. HENCE, THE DISALLOWANCE MADE BY THE AO IS FULLY JUSTIFIED AND UPHELD. THE APPEAL FI LED BY THE APPELLANT COMPANY ON THIS ISSUE IS THEREFORE DISMISSED. 7. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE US. 8. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE F OLLOWING HONBLE HIGH COURT DECISIONS 1. BANCO PRODUCTS (INDIA) LTD. VS DCIT 405 ITR 318 (GUJ.) II. CIT VS SADAN VIKAS LTD. 335 ITR 117 (DEL.) 9. HE SUBMITTED THAT THESE DECISIONS DULY EXPOUNDED THAT DSIR HAS ONLY TO GIVE THE APPROVAL TO THE ASSESSEE' S PROPOSAL AND THEY WERE NOT MANDATED TO PROVIDE THE DATE FOR DEDUCTION. HE CLAIMED THAT IN THE PRESENT CASE THE ASSESSEE HAS DULY SUBMITTED THE APPLICATION ON 28/11/2012. HE SUBMITTED THAT IN THE APPLICATION ASSESSEE DULY MEN TIONED THAT IT WAS DOING THE RESEARCH AND DEVELOPMENT ACTI VITIES FROM 1970. THE ASSESSEE HAS ALSO DULY SUBMITTED THE DETAILS OF EXPENDITURE INCURRED IN THIS REGARD FOR THE PREV IOUS THREE YEARS. HE SUBMITTED THAT THE DSIR HAD ALREADY GIVE N THE ITA NO.4736MUM/2017, KABRA EXTRUSIONTECHNIK LTD. 5 APPROVAL VIDE LETTER DATED 4/3/13 FOR THE PERIOD UP TO 31/3/15. HE SUBMITTED THAT SUBSEQUENTLY IN FORM NUM BER 3CM, THE AUTHORITY HAS SPECIFIED THAT THE ASSESSEE S FACILITY IS APPROVED FOR 1/14/13 TO 31/3/15. LEARNE D COUNSEL SUBMITTED THAT THIS WAS NOT AT ALL MANDATED IN THE FORM 3CM IN THIS REGARD. HE SUBMITTED THAT THE LINE SPECIFYI NG DATES AS MENTIONED BY THE CONCERNED AUTHORITY WAS INSERTED W ITH EFFECT FROM 01/07/2016. HE SUBMITTED THAT FOR THE PRESENT ASSESSMENT YEAR IT HAS NO APPLICATION. HENCE LEARNE D COUNSEL SUBMITTED THAT FOR THE CURRENT ASSESSMENT YEAR THE ASSESSEE SCHEME WAS DULY PROVED AND THE CLAIM WAS JUSTIFIED FOR THE PRESENT ASSESSMENT YEAR ON THE TOUCHSTONE OF AFORES AID HONOURABLE HIGH COURT DECISIONS. 10. PER CONTRA LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT HE WOULD RELY UPON THE ORDER'S OF TH E AUTHORITIES BELOW. HOWEVER THE LEARNED COUNSEL COUL D NOT PRODUCE ANY JURISDICTIONAL HIGH COURT DECISION CONT RARY TO THE VIEWS EXPRESSED BY THE HONOURABLE HIGH COURT AS ABOVE. 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION PER USED THE RECORDS. UP ON CAREFUL CONSIDERATION WE NOTE TH AT ITA NO.4736MUM/2017, KABRA EXTRUSIONTECHNIK LTD. 6 ASSESSING IN THIS CASE FILED APPLICATION ON 28/11/2 012. IN THE SAID APPLICATION ASSESSEE HAS DULY STATED THAT IT H AS COMMENCED RESEARCH AND DEVELOPMENT ACTIVITIES FROM THE YEAR 1970. THE ASSESSEE HAS DULY GIVEN THE EXPENDIT URES INCURRED IN THIS REGARD FOR THE PRECEDING THREE YEA RS. CONCERNED AUTHORITY VIDE E ORDER DATED 04/03/2013 H AS DULY APPROVED THE APPLICATION AND MENTIONED THAT APPROVA L WAS VALID UP TO 31/3/15. HOWEVER THE CERTIFICATE ISSUED IN FORM 3CM, SUBSEQUENTLY, THE AUTHORITY HAS A SPECIFIED TH E PERIOD AS 01/04/2013 TO 31/03/2015. ON THE BASIS OF THIS CERTIFICATE AUTHORITIES BELOW HAVE BEEN DENIED THAT ASSESSEE THE BENEFIT OF DEDUCTION UNDER SECTION 35(2AB). 12. NOW WE HAVE HONOURABLE HIGH COURT'S DECISION FO R THE PROPOSITION THAT CONCERNED AUTHORITY WAS ONLY TO GI VE APPROVAL AND NOT PROVIDE THE DATES. IN THIS REGARD , WE MAY GAINFULLY REFER TO THE DECISION OF HONOURABLE GUJAR AT HIGH COURT IN THE CASE OF BANCO PRODUCTS (INDIA) LTD. VS DCIT (2018) 405 ITR 318(GUJ.) HELD THAT SECTION 35(2AB) OF THE INCOME-TAX ACT, 1961 IS AIM ED AT PROMOTING DEVELOPMENT OF IN- HOUSE RESEARCH AND DEVELOPMENT FACILITY WHICH NECES SARILY WOULD REQUIRE SUBSTANTIAL EXPENDITURE WHICH IMMEDIATELY MAY NOT YIELD DESIRED RESULTS OR HE CORRELATED TO GENERATION OF ADDITIONAL REVENUE. BY THE VERY NATUR E OF THINGS, RESEARCH AND DEVELOPMENT IS A HIT AND MISS EXERCISE. MUCH OF THE EFFORTS, CAPITAL AS WELL AS HUMAN ITA NO.4736MUM/2017, KABRA EXTRUSIONTECHNIK LTD. 7 INVESTMENT MAY GO WASTE IF THE RESEARCH IS NOT SUCC ESSFUL. THE LEGISLATURE THEREFORE, HAVING GRANTED SPECIAL DEDUCTION FOR SUCH EXPENDITU RE, IT SHOULD BE SEEN IN THE LIGHT OF THE PURPOSE FOR WHICH IT HAS BEEN RECOGNISED. RESEA RCH AND DEVELOPMENT FACILITY CAN BE SET UP ONLY AFTER INCURRING SUBSTANTIAL EXPENDITURE . THE APPLICATION FOR APPROVAL OF SUCH FACILITY CAN BE MADE ONLY AFTER SETTING UP OF THE F ACILITY. ONCE AN APPLICATION IS FILED BY THE ASSESSEE TO THE PRESCRIBED AUTHORITY, THE ASSESSEE WOULD HAVE NO CONTROL OVER WHEN SUCH APPLICATION IS PROCESSED AND DECIDED. EVEN IF THEREFORE, THE APPLICATION IS COMPLETE IN ALL RESPECTS AND THE ASSESSEE IS OTHERWISE ELIGI BLE FOR GRANT OF SUCH APPROVAL, APPROVAL MAY TAKE SOME TIME TO COME BY. THE CLAIM FOR DEDUCT ION CANNOT BE DEFEATED ON THE GROUND THAT SUCH APPROVAL WAS GRANTED IN THE YEAR S UBSEQUENT TO THE FINANCIAL YEAR IN WHICH THE EXPENDITURE WAS INCURRED. IN ORDER TO AVA IL OF THE DEDUCTION UNDER SECTION 35(2AB) WHAT IS RELEVANT IS NOT THE DATE OF RECOGNI TION OR THE CUT-OFF DATE MENTIONED IN THE CERTIFICATE OF THE PRESCRIBED AUTHORITY OR EVEN THE DATE OF APPROVAL, BUT THE EXISTENCE OF RECOGNITION. THE ASSESSEE CLAIMED WEIGHTED DEDUCTION UNDER SECTI ON 35(2A B) OF THE ACT ON THE EXPENDITURE INCURRED FOR SETTING UP RESEARCH AND DE VELOPMENT FACILITY. THIS WAS SUPPORTED BY THE APPROVAL GRANTED BY THE CONCERNED AUTHORITY WITH RESPECT TO SUCH FACILITY. THE ASSESSING OFFICER AND THE COMMISSIONE R (APPEALS) WERE OF THE OPINION THAT SUCH DEDUCTION COULD NOT BE GRANTED FOR THE PERIOD PRIOR TO THE EFFECTIVE DATE OF APPROVAL. THE TRIBUNAL HOWEVER, TOOK THE VIEW THAT THE FACTS WERE SOMEWHAT CONTRADICTORY. IT WAS NOT CLEAR WHEN THE APPLICATION FOR APPROVAL WAS MAD E AND WHEN ACTUALLY APPROVAL WAS GRANTED. THE TRIBUNAL THEREFORE, REMANDED THE PROCE EDINGS FOR FRESH CONSIDERATION BY THE ASSESSING OFFICER. ON APPEAL: HELD, THAT THE ASSESSING OFFICER WAS NOT RIGHT IN R ESTRICTING THE DEDUCTION TO EXPENDITURE INCURRED PRIOR TO APRIL 1, 2008. HE HAD TO RECOMPUT E SUCH DEDUCTION AND GIVE ITS EFFECT TO THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. 13. SIMILARLY HONOURABLE DELHI HIGH COURT IN THE C ASE OF CIT VS SANDAN VIKAS (INDIA) LTD. (2011) 335 ITR 117 (DEL.) HELD AS UNDER:- 'SECTION 35(2AB) OF THE INCOME-TAX ACT, 1961, SPEAK S OF DEVELOPMENT OF FACILITY; (II) INCURRING OF EXPENDITURE BY THE ASSESSEE FOR DEVELO PMENT OF SUCH FACILITY; (III) APPROVAL OF THE FACILITY BY THE PRESCRIBED AUTHORITY, WHICH IS THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH ; AND (IV) ALLOWANCE OF WEIGHTED DEDUCTION ON THE EXPENDITURE SO INCURRED BY THE ASSESSEE. THE PROVISIONS NOWHERE SUGGEST OR IMPLY T HAT THE RESEARCH AND DEVELOPMENT FACILITY IS TO BE APPROVED FROM A PARTICULAR DATE. IN OTHER WORDS, IT IS NOWHERE SUGGESTED THAT THE DATE OF APPROVAL ALONE WILL BE THE CUT-OFF DATE FOR ELIGIBILITY OF WEIGHTED DEDUCTION ON THE EXPENSES INCURRED FROM THAT DATE ONWARDS. TH E ASSESSEE HAS TO DEVELOP THE FACILITY, WHICH PRESUPPOSES INCURRING EXPENDITURE I N THIS BEHALF, APPLICATION TO THE PRESCRIBED AUTHORITY, WHO AFTER FOLLOWING PROPER PR OCEDURE WILL APPROVE THE FACILITY OR OTHERWISE AND THE ASSESSEE WILL BE ENTITLED TO WEIG HTED DEDUCTION OF ANY AND ALL EXPENDITURE SO INCURRED. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFAC TURE OF AUTOMOTIVE AIR-CONDITIONING AND ALSO UNDERTOOK RESEARCH AND DEVELOPMENT ACTIVIT Y IN THIS BEHALF. IN THE ASSESSMENT ITA NO.4736MUM/2017, KABRA EXTRUSIONTECHNIK LTD. 8 YEAR 2005-06, THE ASSESSEE CLAIMED A DEDUCTION UNDE R SECTION 35(2AB). THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH BY ITS LETTER DATED FEBRUARY 23, 2006, GRANTED RECOGNITION TO THE IN- HOUSE RESEARCH AND DEVELOPME NT FACILITIES OF THE ASSESSEE AND ALSO GRANTED APPROVAL FOR THE EXPENSES INCURRED BY THE A SSESSEE ON THE IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY IN FORM 3CM BY LETTER DATED SE PTEMBER 18, 2006 THE ASSESSING OFFICER, HOWEVER, REFUSED TO ACCORD THE BENEFIT OF THE PROVISIONS OF WEIGHTED DEDUCTION TO THE ASSESSEE ON THE GROUND THAT RECOGNITION AND APP ROVAL WAS GIVEN BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH IN FEBRUARY/SEPT EMBER, 2006, I.E., IN THE NEXT ASSESSMENT YEAR AND, THEREFORE, THE ASSESSEE WAS NO T ENTITLED TO THE BENEFIT. THE COMMISSIONER(APPEALS) ACCEPTED THE VIEW OF THE ASSE SSING OFFICER. THE TRIBUNAL HELD THAT THE ASSESSEE WAS ENTITLED TO WEIGHTED DEDUCTIO N. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE WAS ENTITLED TO WEIGHTED DEDUCTION UNDER SECTION 35(2AB) FOR THE ASSESSMENT YEAR 2005-06. 14. THESE DECISIONS ARE DULY CORROBORATED BY THE F ORM NUMBER 3CM, APPLICABLE FOR THE EXTANT PERIOD WHICH AT THAT TIME DID NOT PROVIDE FOR DATE OF DEDUCTION TO BE SP ECIFIED. SUCH A SPECIFICATION WAS INSERTED BY COLUMN 6 OF TH IS FORM WITH EFFECT FROM 01/07/2016. IN THESE CIRCUMSTANCES THE DECISIONS FROM HONOURABLE HIGH COURTS MENTIONED ABO VE DULY SUPPORTED THE CASE OF THE ASSESSEE. THE CONCERNED A UTHORITY HAVING APPROVED THE APPLICATION GIVEN BY THE ASSESS EE HAS DULY CONFORMED THE ASSESSEE'S ENGAGEMENT IN THE RES EARCH AND DEVELOPMENT ACTIVITY. THE SAID APPLICATION EARL IER MENTIONED THAT ASSESSEE WAS DULY ENGAGING INTO THOS E ACTIVITIES FOR THE CONCERNED ASSESSMENT YEAR. NO DI SPUTE HAS BEEN RAISED IN THIS REGARD. HENCE AS HELD BY THE HONOURABLE HIGH COURTS IN THOSE PERIODS CONCERNED AUTHORITY AS PER THE EXTANT PROVISION DID NOT NEED TO MENTION ANY DATE OF ITA NO.4736MUM/2017, KABRA EXTRUSIONTECHNIK LTD. 9 DEDUCTION IF THE APPLICATION IS MADE DURING THE ASS ESSMENT YEAR, AND THE SAME IS APPROVED, THAT WOULD SUFFICE AND ASSESSEE WOULD BE ELIGIBLE FOR DEDUCTION FOR THE CO NCERNED ASSESSMENT YEAR. ACCORDINGLY, WE HOLD THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 32(2AB) OF THE ACT FOR THE CONCERNED ASSESSMENT YEAR. 15. IN THE RESULT THIS APPEAL BY THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/054/2019 SD/- S D/- (RAVISH SOOD) (SHAMIM YAHYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 03/05/2019 F{X~{T? P.S/. .. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT (RESPECTIVE ASSESSEE) 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI, 5. ( )*# !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE CO// / (DY./ASSTT. REGISTRAR) $%&', / ITAT, MUMBAI