Deccan Health Care Pvt.Ltd., Hyd, Hyderabad V. DCIT, Circle-1(2), Hyd, Hyderabad

ITA 477/HYD/2015

• Counselvise Citation: 47722514 RSA 2015
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 28-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S NARASAMMA
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Assessment record
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 477/HYD/2015 ASSESSMENT YEAR: 2010-11 M/S DECCAN HEALTH CARE PVT. LTD., HYDERABAD. PAN AABCD0352N VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : SMT. S. NARASAMMA DATE OF HEARING 07-07-2015 DATE OF PRONOUNCEMENT 15-07-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER DATED 25/03/2015 PASSED BY PRINCIPAL COMMISSIONER OF INCO ME-TAX 5, HYDERABAD U/S 263 OF THE ACT FOR THE AY 2010-11. 2. BRIEFLY THE FACTS ARE, ASSESSEE A COMPANY IS ENG AGED IN THE BUSINESS OF MANUFACTURE OF PHARMA PRODUCTS. FOR THE AY UNDER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME ON 14/10/2010 DECLARING LOSS OF RS. 66,89,888 UNDER NORMAL PROVIS IONS AND BOOK PROFIT OF RS. 75,23,600 UNDER SECTION 115JB. DURING THE ASSESSMENT PROCEEDING, AO WHILE VERIFYING P&L A/C NOTICED THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS. 1,03,70,865 BEING 20% OF E XPENSES ON R&D OUT OF THE TOTAL R&D EXPENSES OF RS. 3,47,80,000 SH OWN IN THE BALANCE SHEET. ALLEGING THAT ASSESSEE HAS FAILED TO OFFER ANY 2 ITA NO. 477 /HYD/2015 DECCAN HEALTH CARE PVT. LTD. EXPLANATION AS TO WHY SUCH EXPENDITURE SHOULD BE AL LOWED, AO ADDED BACK THE SAID AMOUNT TO THE INCOME RETURNED. ACCORD INGLY, AO COMPLETED ASSESSMENT VIDE ORDER DATED 08/01/13 PASS ED U/S 143(3) OF THE ACT BY DETERMINING TOTAL INCOME AT RS. 36,80 ,977. BEING AGGRIEVED OF THE ASSESSMENT ORDER, SO PASSED, AS ST ATED BY LD. AR, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A), WHICH IS STILL PENDING. IN THE MEANWHILE, LD. CIT IN EXERCISE OF POWER CONFERR ED U/S 263 OF THE ACT CALLED FOR THE ASSESSMENT RECORDS OF ASSESSEE F OR THE IMPUGNED AY AND AFTER EXAMINING THE SAME WAS OF THE VIEW THA T ASSESSMENT ORDER PASSED FOR THE AY UNDER CONSIDERATION IS ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE DUE TO THE FOLLOWING REASONS: I) THE AO DISALLOWED RS. 1,03,70,865 DEBITED TOWARDS R&D EXPENDITURE TO THE P&L ACCOUNT AS THE ASSESSEE FAI LED TO DISCLOSE THE DETAILS AND ALSO COULD NOT OFFER ANY EXPLANATION. IN THIS CONTEXT, IT WAS SEEN FROM THE COMPUTATION OF INCOME FURNISHED THAT THE ASSESSEE FIRST ADDED THE AMOUNT OF RS. 1,03,70,865 AND THEN AGAIN CLAIMED RS. 1,24,04,325 TOWARDS R&D EXPENDITURE. HENCE, THE TOTAL DISALLOWANCE THA T SHOULD HAVE BEEN MADE BY AO WAS RS. 1,24,04,325 INSTEAD O F RS. 1,03,70,865. OMISSION TO DO SO RESULTED IN UNDER A SSESSMENT OF INCOME TO AN EXTENT OF RS. 20,33,460 (RS. 1,24,04, 325 1,03,70,865) II) IT WAS ALSO OBSERVED FROM THE SCHEDULE 4 FOR MING PART OF BALANCE SHEET THAT AN AMOUNT OF RS. 16,07,156 WAS SHOWN AS CLOSING STOCK OF RAW MATERIAL. HOWEVER, THIS AMOUN T WAS NEITHER ADJUSTED WITH PURCHASE NOR CREDITED TO PROFIT AND LOSS ACCOUNT. THE AO FAILED TO ADD THIS AMOUNT OF RS. 16,07,156 TO THE TOTAL INCOME OF THE ASSESSEE. THIS HAS RESULTED IN AN UN DERSTATEMENT OF CLOSING STOCK AND UNDER ASSESSMENT OF INCOME TO THE SAME EXTENT. ACCORDINGLY, LD. CIT ISSUED NOTICE TO ASSESSEE CALL ING UPON TO SHOW CAUSE AS TO WHY ASSESSMENT ORDER PASSED SHALL NOT B E REVISED OR SET ASIDE AS IT IS ERRONEOUS AND PREJUDICIAL TO THE INT ERESTS OF REVENUE. THOUGH, ASSESSEE OBJECTED TO THE PROPOSED REVISION OF THE ASSESSMENT ORDER, BUT, LD. CIT DID NOT FIND MERIT IN THE SUBMISSIONS OF ASSESSEE. HE WAS OF THE VIEW THAT WHEN THE ACTUA L AMOUNT DEDUCTED BY ASSESSEE TOWARDS R&D EXPENSES WRITTEN O FF IS RS. 1,24,04,325, AO INSTEAD OF ADDING THAT AMOUNT SHOUL D NOT HAVE ADDED 3 ITA NO. 477 /HYD/2015 DECCAN HEALTH CARE PVT. LTD. THE AMOUNT OF RS. 1,03,70,865. HE FURTHER OBSERVED THAT THE CLOSING STOCK OF RAW MATERIAL AMOUNTING TO RS. 16,07,156 AS SHOWN IN THE BALANCE SHEET WAS NEITHER ADJUSTED AGAINST PURCHASE S NOR CREDITED TO P&L A/C, WHICH RESULTED IN UNDERSTATEMENT OF CLOSIN G STOCK. HE OPINED THAT SINCE DURING ASSESSMENT PROCEEDING AO HAS NEIT HER CALLED FOR THE DETAILS OF THE CLOSING STOCK NOR SOUGHT ANY EXP LANATION OF ASSESSEE ON THE ISSUE, ASSESSMENT ORDER IS ERRONEOU S AND PREJUDICIAL TO THE INTERESTS OF REVENUE. ON THE AFORESAID PREMI SES, LD. CIT SET ASIDE THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT AND DIRECTED AO TO RE-DO THE ASSESSMENT DENOVO AFTER EXAMINING T HE FACTS AND MATERIALS ON RECORD. BEING AGGRIEVED, ASSESSEE IS B EFORE US. 3. LD. AR SUBMITTED BEFORE US, AS FAR AS THE ISSUE OF DISALLOWANCE OF R&D EXPENDITURE IS CONCERNED, SINCE ASSESSEES A PPEAL AGAINST THE ADDITION MADE BY AO IS PENDING BEFORE LD. CIT(A ), CIT HAS NO JURISDICTION U/S 263 OF THE ACT TO REVISE THE ASSES SMENT ORDER. AS FAR AS THE SECOND ISSUE IS CONCERNED, LD. AR SUBMITTED BEFORE US, AO HAVING EXAMINED THE ISSUE AT THE TIME OF ASSESSMENT PROCEEDING, LD. CIT CANNOT HOLD THE ASSESSMENT ORDER TO BE ERRONEOU S AND PREJUDICIAL TO THE INTERESTS OF REVENUE AS AO AFTER PROPER EXAM INATION HAS TAKEN A VIEW IN THE MATTER. 4. LD. DR, ON THE OTHER HAND, RELIED UPON THE REASO NING OF LD. CIT. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. AS FAR AS THE FIRST ISSUE OF R&D EXPENDITURE IS CON CERNED, AS CAN BE SEEN FROM THE ASSESSMENT ORDER, AO HIMSELF HAS CONS IDERED THE R&D EXPENDITURE OF RS. 1,03,70,865 DEBITED TO THE P&L A /C AS UNALLOWABLE ITEM AND ADDED BACK TO THE INCOME OF ASSESSEE. HOWE VER, IT IS VERY MUCH EVIDENT FROM THE FACTS ON RECORD THAT R&D EXPE NDITURE OF RS. 1,03,70,865 DEBITED TO THE P&L A/C WAS ACTUALLY ADD ED BACK BY ASSESSEE IN ITS COMPUTATION OF INCOME AND THE AMOUN T OF DEDUCTION CLAIMED AGAIN BY ASSESSEE ON ACCOUNT OF R&D EXPEND ITURE WAS RS. 1,24,04,325. THUS, THE ACTUAL AMOUNT WHICH SHOULD H AVE BEEN 4 ITA NO. 477 /HYD/2015 DECCAN HEALTH CARE PVT. LTD. CONSIDERED BY AO FOR THE PURPOSE OF DISALLOWANCE IS RS. 1,24,04,325 IN STEAD OF RS. 1,03,70,865. THEREFORE, TO THAT EXT ENT THERE IS AN ERROR IN THE ORDER OF AO, WHICH IS ALSO PREJUDICIAL TO TH E INTERESTS OF REVENUE. THEREFORE, EXERCISE OF JURISDICTION U/S 26 3 ON THIS ISSUE, IN OUR VIEW, DO NOT CALL FOR ANY INTERFERENCE. HOWEVER , WHILE DIRECTING AO TO INCORPORATE THE QUANTUM OF DISALLOWANCE AT RS. 1 ,24,04,325 IN PLACE OF RS. 1,03,70,865, WE MAY ALSO OBSERVE THAT ASSESSEE IS AT LIBERTY TO CHALLENGE THE DISALLOWANCE OF RS. 1,24,0 4,325 IN APPEAL PENDING BEFORE LD. CIT(A). AS FAR AS THE ASSESSEES CONTENTION THAT SINCE ASSESSEES APPEAL ON THIS ISSUE OF DISALLOWAN CE OF R&D EXPENDITURE IS PENDING BEFORE LD. CIT(A), LD. CIT C ANNOT EXERCISE HIS POWER U/S 263, WE ARE UNABLE TO ACCEPT SUCH CONTENT ION OF LD. AR IN VIEW OF THE CLEAR STATUTORY PROVISION CONTAINED U/S 263(1) EXPLANATION 1(C), WHICH RESTRICTS LD. CIT FROM INVOKING OF HIS POWER U/S 263 OF THE ACT IN CASE OF AN ISSUE WHICH HAS BEEN CONSIDERED A ND DECIDED BY APPELLATE AUTHORITY. 5.1 AS FAR AS THE SECOND ISSUE RELATING TO UNDERST ATEMENT OF CLOSING STOCK IS CONCERNED, AFTER PERUSAL OF THE RE LEVANT MATERIALS ON RECORD, WE ARE OF THE VIEW THAT EXERCISE OF POWER U /S 263 ON THIS ISSUE IS UNCALLED FOR. IT IS CLEARLY EVIDENT FROM T HE BALANCE SHEET AND P&L A/C OF ASSESSEE THAT ASSESSEE HAS CORRECTLY ACC OUNTED FOR THE CLOSING STOCK OF RAW MATERIAL AND THERE IS NO NEED FOR ASSESSEE TO CREDIT SUCH AMOUNT TO P&L A/C. MOREOVER, IT CANNOT BE SAID THAT AO WHILE COMPLETING THE ASSESSMENT HAS NOT EXAMINED TH IS ISSUE AS FINANCIAL STATEMENTS OF ASSESSEE WERE VERIFIED BY A O IN COURSE OF ASSESSMENT PROCEEDING. THEREFORE, WHEN AO AFTER EXA MINING P&L A/C AND BALANCE SHEET HAS ACCEPTED THE STOCK POSITION, LD. CIT CANNOT IMPOSE HIS OPINION ON AO. MOREOVER, ALLEGATION OF U NDERSTATEMENT OF CLOSING STOCK BY LD. CIT, IN OUR VIEW, IS WITHOUT P ROPERLY APPRECIATING THE ACCOUNTING PRINCIPLES. ACCORDINGLY, EXERCISE OF POWER U/S 263 BY LD. CIT ON THIS ISSUE BEING INVALID IS QUASHED. 5 ITA NO. 477 /HYD/2015 DECCAN HEALTH CARE PVT. LTD. 6. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLO WED. PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2015. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 15 TH JULY, 2015 KV COPY TO:- 1) M/S DECCAN HEALTH CARE PVT. LTD., 2)DCIT, CIRCLE -1(2), HYDERABAD 3) PR. CIT - 5, HYDERABAD 4)ADDL. CIT, RANGE 17, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.`