Dy. Commissioner of Income Tax , Circle-16(1), Hyderabad V. Leiutis Pharmaceuticals Private Limited , Hyderabad

ITA 482/Hyd/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0151 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2013-2014
• Appeal Filed On: 02-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ROHIT MAJUMDAR
• Keywords: Depreciation
• Section: 143(3); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD. BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER (THROUGH VIRTUAL HEARING) ITA NO. 482 /HYD/201 9 (ASSESSMENT YEAR : 201 3 - 14 ) DY. COMMISSIONER OF INCOME TAX, CIRCLE 16(1), HYDERABAD. VS. M/S. LEIUTIS PHARMACEUTICALS PVT. LTD., PLOT NO.23, 4 TH FLOOR, VSR COMPLEX, T E CHNOCRAFTS INDL. ESTATE, 1 ST PHASE, BALANAGAR, HYDERABAD - 500 037 PAN AACCL1579N APPELLANT RESPONDENT APPELLANT BY : NONE. RESPONDENT BY : SHRI ROHIT MAJUMDAR (D.R) DATE OF HEARING : 15.02. 2021. DATE OF PRONOUNCEMENT : 15 .03. 2021. O R D E R PER S.S. GODARA, J.M. : THIS REVENUE S APPEAL FOR THE ASST. YEAR 201 3 - 14 ARISES FROM THE COMMISSIONER OF INCOME TAX (APPEALS) - 4 , HYDERABAD ORDER DT. 31.01.2019 PASSED IN THE CASE OF APPEAL NO. 4/0108/17 - 18/ACIT C 16(1), HYD/CIT(A)/HYD/18 - 19 IN THE PROCEEDINGS UNDER SECTION 143(3) OF INCOME TAX ACT, 1961 (THE ACT). 2 ITA NO. 482/HYD/2019 CA SE CALLED TWICE. NONE APPEARED AT ASSESSEE'S BEHEST. IT IS ACCORDINGLY PROCEEDED EX - PARTE. CASE FILE PER USED. 2. COMING TO THE R EVENUES S OLITARY SUBSTANTI VE GRIEVANCE THAT THE CIT(A)HAD ERRED IN LAW AND ON FACTS IN REVERSING THE ASSESSEE'S ACTION D ISALLOWING/ADDING ASSESSEE'S EXPENDITURE CLAIM OF RS.3 , 55,44,472 COMPRISING OF RS.259,07,925 AND RS.96,36,547 TOWARDS VARIOUS M ISC. ACTIVITIES AND DEPRECIATION; RESPECTIVELY , WE NOTICE THAT THE IMPUGNED LOWER APPELLATE DISCUSSION READS AS UNDER : 7. I HAVE CONSIDERED THE ASSESSMENT ORDER, GROUNDS OF APPEAL AND AR'S SUBMISSIONS. IT CAN BE SEEN FROM THE FACTS THAT THE APPELLANT IS IN THE BUSINESS OF RESEARCH, DEVELOPMENT AND MANUFACTURING IN PHARMACEUTICALS (AS SEEN FROM THE MEMORANDUM OF ASSOCIATION) DURING T HE YEAR UNDER APPEAL THE APPELLANT HAS CLAIMED RS.3,55,44,472/ - (RS.2,59,07,925/ - AMOUNTS TOWARDS EXPENSES AND RS.96,36,547/ - TOWARDS THE DEPRECIATION OF THE ACT). DURING THE COURSE OF SCRUTINY PROCEEDING, THE SAME WAS DISALLOWED BY THE A.O. CITING THE RE ASON THAT THE APPELLANT HAS NOT COMMENCED ITS BUSINESS ACTIVITIES AS NO RECEIPTS/INVOICES HAS BEEN RAISED BY THE APPELLANT, HENCE AO IS OF THE VIEW THAT EXPENDITURE CLAIMED DESERVED TO BE DISALLOWED. ON THE OTHER HAND THE AR HAS SUBMITTED THAT IT IS CLEAR FROM THE FINANCIAL STATEMENTS, 3 ITA NO. 482/HYD/2019 THAT APPELLANT HAS ESTABLISHED/ SETUP ITS BUSINESS AND EXPENSES UNDER VARIOUS HEADS HAVE BEEN INCURRED. THE AR HAS FURTHER CONTENTED THAT NO INVOICE HAS BEEN RAISED TOWARDS SALES ETC. DOES NOT CONCLUSIVELY PROVE THAT AO'S VIE W OF NOT COMMENCEMENT OF THE BUSINESS. IN THIS REGARD I PERUSED THE FINANCIALS AND IT IS CLEAR FROM THE SAME THAT THE APPELL A NT HAS ESTABLISHED/ SETUP THE BUSINESS WHICH IS DEMONSTRATED BY WAY OF INCURRING THE EXPENDITURE UNDER VARIOUS HEADS. 1) COST OF M ATERIALS CONSUMED RS.39,89,737, 2) EMPLOYEE BENEFIT EXPENSE RS/63,21,452, 3) FINANCIAL COSTS RS.18,32,120 4) OTHER ADMN. EXPENSES RS.1,37,64,617; 5) DEPRECIATION RS.96,36,547. IT IS TO BE NOTED THAT THE APPELLANT HAS NOT RAISED ANY INVOICE/RECEIPT WHI CH DOES NOT PREVENT THE APPELLANT FORM CLAIMING THE EXPENDITURE DEBITED TO P&L A/C. AS PER APPELLANT HAS INCURRED EXPENDITURE THAT IS REQUIRED FOR CARRYING OUT THE BUSINESS, THAT AMOUNTS TO ESTABLISHMENT/SET UP OF BUSINESS. THEREFORE, ASSESSING OFFICER IS NOT JUSTIFIED IN STATING THAT THE APPELLANT HAS NOT COMMENCED ITS BUSINESS. AS THERE IS A CLEAR DISTINCTION BETWEEN A PERSON COMMENCING A BUSINESS AND A PERSON SETTING UP A BUSINESS AND FOR THE PURPOSES OF THE ACT, THE SETTING UP OF THE BUSINESS AND NO T THE ANNOUNCEMENT OF THE BUSINESS IS TO BE CONSIDERED. IT IS ALSO EVIDENT FROM THE SUBMISSIONS OF AR THAT THE APPELLANT ENTERED INTO AN 4 ITA NO. 482/HYD/2019 AGREEMENT WITH M/S. LEIUTIS PHARMACEUTICALS INC., USA, MADE ON 3.4.2012 FOR CONDUCTING R&D AND THEREBY DEVELOPING THE ENVISAGED PRODUCT. IN ORDER TO MEET THE REQUIREMENTS FOR DEVELOPING THE PRODUCT AGREED UPON, THE APPELLANT HAS INCURRED EXPENDITURE MENTIONED, (SUPRA). IN VIEW OF THE ABOVE FACTS, IT IS CLEAR THAT THE APPELLANT HAS RIGHTLY CLAIMED THE EXPENDITURE U/S.37 OF THE ACT. THEREFORE, THE CASE LAWS RELIED UPON BY THE AR ARE SQUARELY APPLICABLE TO THE APPELLANTS CASE. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, I AM OF THE CONSIDERED VIEW, THE ACTION OF THE ASSESSING OFFICER IS NOT JUSTIFIED AND HENCE, DIRECTED TO ALLOW THE EXPENDITURE OF RS.3,55,44,472 CLAIMED BY THE APPELLANT. AS A RESULT, THE GROUNDS RAISED IN THIS REGARD ARE ALLOWED. 3. L D. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY CONTENDED THAT THE ASSESSING OFFICER HA D RIGHTLY DISALLOWED THE ASSESSEE 'S FOREGOING TWIN CLAIMS (SUPRA) FOR THE REASON THAT IT HAD NOT STARTED ANY COMMERCIAL ACTIVITY. THE SAME CARRIES NO SUBSTANCE IN OUR CONSIDERED OPINION. I T HAS COME ON RECORD IN THE CIT(A) ORDER THAT THE ASSESSEE'S BUSINESS ACTIVITY HAD DULY COMMENCED AS PER THE COST S OF THE MATERIAL CONSUMED, EMPLOYEES BENEFIT EXPENSES, INITIAL COSTS, ADMINISTRATIVE EXPENSES AND DEPRECIATION; RESPECTIVELY. THE SAME HAVE GONE VERY MUCH 5 ITA NO. 482/HYD/2019 UNREBUTTED FROM THE R EVENUE SIDE IN ITS PLEADIN GS IN GROUND NOS.1 & 2 AS WELL AS DURING THE COURSE OF HEARING. WE THUS QUOTE HONBLE APEX COURTS LARGER BENCH DECISION IN CIT VS. K Y PILLAIAH & SONS (1967) 63 ITR 411 (SC) TO EX PRESS OUR COMPLET IO N AGREEMENT WITH THE CIT(A) DETAILED DISCUSSION EXTRACTED IN THE PRECEDING PARAGRAPH. THE R EVENUE FAIL S IN ITS SO LE GRIEVANCE THERE FORE . 4. THIS R EVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 .03. 2021. SD/ - SD/ - (LAXMI PRASAD SAHU) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER *REDDY GP COPY TO : 1. M/S. LEIUTIS PHARMACEUTICALS PVT. LTD., PLOT NO.23, 4 TH FLOOR, VSR COMPLEX, T E CHNOCRAFTS INDL. ESTATE, 1 ST PHASE, BALANAGAR, HYDERABAD - 500 037 2. DY.CIT, CIRCLE 16(1), HYDERABAD. 3. PR. C I T - 4, HYDERABAD. 4. CIT(APPEALS) 4, HYDERABAD. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE. BY ORDER SR. PVT. SECRETARY, ITAT, HYDERABAD.