INVENTIA HEALTHCARE P.LTD, MUMBAI V. DCIT 9(2), MUMBAI

ITA 5350/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3432 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 13-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 22-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU MAN RATNAM DARSHI
• Keywords: Bogus purchase; Depreciation; Opportunity of being heard; Bonafide belief; Difference of opinion; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 32

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.5350 /MUM/2014 (A.Y. 2010 - 11) M/S. INVENTIA HEATH CARE PVT. LTD , UNIT NO. 4, KHIRA INDL. ESTATE, B.M BHARGAVA ROAD, SANTACRUZ (W) ,MUMBAI - 40005 4 PAN: AABCT5371R . ... APPELLANT VS. D CIT - 9(2) , MUMBAI. .... RESPONDENT APPELLANT BY : SHRI ANIL SATHE RESPONDENT BY : SHRI SU MAN RATNAM DARSHI DATE OF HEARING : 25/07/2016 DATE OF PRONOUNCEMENT : 2 6 /08/2016 ORDER PER RAVISH SOOD, J.M: THE PRESENT APPEAL FILED BY THE ASSESSEE COMPANY FOR ASSESSMENT YEAR 2010 - 11 IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) - 20, MUMBAI DATED 06 - 05 - 2014, WHICH IN TURN HAS ARISEN OUT OF ORDER PASSED BY THE A SSESSING OFFICER (IN SHORT A.O ) UNDER SECTION 143 (3) OF THE INCOME TAX ACT 1961 (IN SHORT A CT ), DATED 22/02/2013. TH E GROUNDS OF APPEAL RAISED BY THE ASSESSEE COMPANY READ AS UNDER: 2 1. THE L EARNED CIT (A) ERRED IN CONFIRMING THE DENIAL OF THE DEPRECIATION ON PATENT EXPENSES WHICH WERE CAPITALISED IN THE BOOKS BY THE APPELLANT IN EARLIER YEA R S. 2. THE LEARNE D CIT (A) ERRED IN REJECTING THE PRAYER OF THE APPELLANT OF THE ENTIRE CLAIM OF DEPRECIATION OF RS. 10,64,618, AND IN RESTRICTING IT TO RS. 5,19,181/ - I. E. T HE DEP RECIATION OF THE CURRENT YEAR, WITHOUT APPRECIATING THAT THE DE PRECIATION IN RESPECT OF PATENT EXPENDITURE TREATED AS CAPITAL BY THE DEPARTMENT IN EARLIER YEA RS AND WHICH TREATMENT HAD ATTAINED FINALITY WAS ALSO TO BE ALLOWED. 3. THE LEARNE D CIT (A) ERRED IN CONFIRMING THE A CT ION OF THE A.O IN RESTRICTING THE CLAIM UNDER SECTION 35 (2AB) TO RS. 737.17 LAKHS AS AGAINST THE CLAIM OF RS. 750.95 MADE BY THE APP ELLAN T ON THE GROUND THAT IT WAS NOT APPROVED BY MINISTRY OF SCIENCE AND TECHNOLOGY (DSIR) TO THE EXTENT OF 13.78 LAKHS. 4. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE APPELL ANT HAS FULLY DEMONSTRATED THAT THE SAID EXPENDITURE INCURRED WERE DIRECTLY NECESSARY TO FACILITATE OR CARRY ON SCIENTIFIC RESEARCH AND THEREFORE THE PARAMETE RS OF SECTION 35(2AB) WERE SATISFIED. 5. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION OF R S. 13,04,375/ - ON ACCOUNT PURCHASE OF ELECTRICAL MATERIAL WHICH WAS CAPITALI Z ED BY THE APPELLANT 6. THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY AO WHICH WAS PRIMARILY BASED ON THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT ABOUT PARTICULAR SUPPLIER IS INDULGED IN PR A CT ICE OF PROVIDING BOGUS PURCHASE BILLS AND THE ASSESSEE WAS UNABLE TO PRODUCE THE SAID SUPPLIER BEFORE THE A.O . 7. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE APPLICANT HAS DISCHARGED HIS O NUS BY PRODUCING THE SUPPORTIVE DOCUMENTS TO THE PURCHASE OF 'ELECTRICAL MATERIAL' AND ERRED IN COMPLETELY IGNORING THE SUBSTANCE O F TRANS A CT ION OF 3 PURCHASE OF RS. 13.04 LAKHS WHICH CONSTITUTED LESS THAN 1% OF ADDITIONS MADE TO FIXED ASSETS DURING THE YEAR ( RS. 18.07 CRORES) DEMONSTRATING THEREBY NO MOTIVE OF A P P ELLANT TO CLAIM ANY OF SUCH ALLEGED BOGUS PURCHASES. 8. THE LEARNED CIT (A ) FAILED TO APPRECIATE THAT SINCE THE EXPENDITURE WAS CAPITALIZED IN THE BOOKS OF THE COMPANY AND NOT CLAIMED AS DEDUCTION, A QUESTION OF ADDING THE SAME TO THE INCOME DOES NOT ARISE AND THEREBY IGNORING THE ALTERNATE ARGUMENT THAT THE DISALLOWANCE IF ANY SHOULD BE RESTRICTED TO THE AMOUNT OF DEPRECIATION ON FIXED ASSETS. 9. THE APPELLANT CRAVES TO ADD, ALTER OR AMEND ANY OF THE GROUNDS OF APPEAL AT ANY TIME OR AT THE TIME OF HEARING.' 2. THE F A CT S OF THE CASE ARE THA T THE ASSESSEE A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUF A CT URING PHARMACEUTICAL FORMULATIONS FILED ITS RETURN OF INCOME AS ON 07.09.2010 DECLARING A LOSS OF RS. 8,55,11,372/ - , WHICH WAS REVISED AT A LOSS OF RS. 8,71,24,645/ - BY WAY OF A REVISED RETURN OF INCOME FILED AS ON 25.09.2010 . THE CASE OF THE ASSESSEE COMPANY WAS TAKEN UP FOR SCRUTINY ASSESSMENT , PU RS UANT WHERETO THE A.O AFTER DELIBERATING ON CERTAIN ISSUES, ASSESSED THE TOTAL LOSS OF THE ASSESSEE COMPANY AT RS. 8 , 20 , 26 , 201 / - . TH E A.O DURING THE COU R S E OF THE ASSESSMENT PROCEEDINGS CARRIED OUT CERTAIN DISALLOWANCES/ADDITIONS IN THE HANDS OF THE ASSESSEE COMPANY, THE F ACT UAL BACKGROUND OF THOSE WHICH HAD BEEN ASSAILED BY THE ASSESSEE COMPANY BEFORE US ARE BRIEFLY CULLED OUT AS UNDER: (I). DISALLOWANCE OF PATENT EXPENSES : THAT DURING THE COU R S E OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT AN AMOUNT OF RS. 20,76,724/ - INCURRED BY THE ASSESSEE COMPANY TOWARDS PATENT EXPENSES WAS DEBITED UNDER THE HEAD 'MISCELLANEOUS EXPENSES' IN THE P & LOSS A/C . THE A.O BEING OF THE VIEW THAT AS THE SAID EXPENDITURE WAS IN THE NATURE OF A C APITAL EXPENDITURE , THEREFORE CALLED UPON THE ASSESSEE 4 COMPANY TO JUSTIFY ITS CLAIM AS REGARDS ALLO WANCE OF THE SAME AS A REVENUE EXPENDITURE , IN COMPLIANCE WHERETO THE ASSESSEE COMPANY EMPHASISED ON ITS CLAIM AS REGARDS ALLOWABILITY OF THE SAID AMOUNT AS A REVENUE EXPENDITURE, BUT THEREAFTER CAME UP WITH AN ALTERNATIVE PLEA THAT IN CASE OF TREATMENT OF THE SAME AS A CAPITAL EXPENDITURE, DEPRECIATION OF RS. 10,64,618/ - WAS TO BE ALLOWED AS REGARDS THE CAPITALIZED VALUE OF THE PATENT EXPENSES PERTAINING TO THE YEAR UNDER CONSIDERATION , AS WELL AS THOSE FOR THE PRECEDING YEA RS. THE A.O DISCARDING THE CONTENTION OF THE ASSESSEE COMPANY AND BEING OF THE VIEW THAT AS PER E XPLANATION 3 TO S ECTION 32 (1) (II) OF THE ACT , THE PATENTS WERE COVERED IN THE SCOPE AND GAMUT OF THE DEFINITION OF INTANGIBLE ASSETS , THEREFORE THE EXPENSES INCURRED AS REGARDS THE SAME WAS A 'CAPITAL EXPENDITURE', DISALLOWED THE CLAIM OF RS. 20,76,724/ - OF THE ASSESSEE COMPANY , BUT ON THE BASIS OF SUCH RECHARACTERISATION OF THE AFORESAID EXPENDITURE AS A CAPITAL EXPENDITURE, ALLOWED A CONSEQUENTIAL DEPRECIATION OF RS. 5,19,181/ - ON THE AFORESAID CAPITALIZED VALUE OF RS. 20,76,724/ - (SUPRA) TO THE ASSESSEE COMPANY . (II). DISALLOWANCE OF DEDUCTION U/ S 35(2AB) : THAT DURING THE COU R S E OF THE ASSESSMENT PROCEEDINGS THE A.O WHILE SCRUTINIZING THE CLAIM OF THE ASSESSEE COMPAN Y TOWARDS DEDUCTION U/S 35(2AB) OF THE ACT, THEREIN OBSERV ED THAT WHILE FOR THE COPY OF APPROVAL RECEIVED IN ' F ORM 3CM' AND THE REPORT IN ' F ORM 3CL' FROM THE 'MINISTRY OF SCIENCE AND TECHNOLOGY' REVEALED THAT ' C APITAL EXPENDITURE' OF R S . 2 , 73 ,27,967/ - AND 'REVENUE EXPENDITURE' OF R S . 6,54,51,287/ - , THEREIN AGGREGATING TO 9 , 27 ,79,254/ - HAD BEEN APPROVED BY THE SAID PRESCRIBED AUTHORITY AS THE AMOUNT ELIGIBLE FOR CLAIM OF DEDUCTION U/ S 35 (2AB) OF THE ACT , ON THE BASIS OF WHICH THE SAID DEDUCTION STOOD QUANTIFIED AT R S . 7 , 37 , 17 ,242/ - , HOWEVER A PERUSAL OF THE AUDIT REPORT OF THE ASSESSEE COMPANY REVEALED THAT THE LATTER HAD CLAIMED 'CAPITAL EXPENDITURE' OF R S . 2,73,27,967/ - AND 'REVENUE EXPENDITURE' OF R S . 6,82,06,5 83 / - , THEREIN AGGREGATING TO R S . 9 , 55 ,34 ,550/ - AS THE AMOUNT ELIGIBLE FOR CLAIM OF DEDUCTION U/ S 35(2AB) OF THE 5 ACT , ON THE BASIS OF WHICH THE CLAIM TOWARDS THE SAID DEDUCTION WAS RAISED BY THE ASSESSEE COMPANY AT AN AMOUNT OF R S . 7,50,95,242/ - . THE AO HOLDING A CONVICTION THAT THE CLAIM OF TH E ASSESSEE COMPANY TOWARDS DEDUCTION U/S 35(2AB) WAS LIABLE TO BE RESTRICTED ON THE BASIS OF THE AMOUNT APPROVED BY THE PRESCRIBED AUTHORITY, AND NOT ON THE BASIS OF THE CLAIM RAISED BY THE ASSESSEE COMPANY IN ITS FINANCIAL STATEMENTS, TH US RESTRICTED THE SAID CLAIM OF THE ASSESSEE COMPANY TO AN AMOUNT OF RS. 7 , 37 , 17 ,242/ - , AND MADE A CONSEQUENT IAL ADDITION / DISALLOWANCE OF R S . 13,7 8 ,000/ - IN THE HANDS OF THE ASSESSEE COMPANY. (III). ADDITION ON ACCOUNT OF BOGUS PURCHASES : THAT DURING THE COU R S E OF THE ASSESSME NT PROCEEDINGS THE A.O ACT ING ON THE BASIS OF THE INFORMATION RECEIVED FROM THE INVESTIGATION WING THAT THE ASSESSEE COMPANY HAD INDULGED IN THE PR A CT ICE OF TAKING BOGUS PURCHASES BILLS FROM ONE M/ S YASHITA TRADING COMPANY PVT. LTD ., AND DURING THE YEAR UN DER CONSIDERATION HAD ROUTED 'BOGUS PURCHASES' AMOUNTING TO RS. 13,04,375/ - THROUGH ITS BOOKS OF ACCOUNTS , THEREIN BEING OF THE VIEW THAT AS THE ASSESSEE COMPANY DESPITE BEING AFFORDED SUFFICIENT OPPORTUNITY TO SUBSTANTIATE THE GENUINENESS AND VERACITY OF THE AFORESAID PURCHASE TRANSACTIONS, HAD HOWEVER FAILED TO DISCHARGE THE ' O NUS' AS STOOD CAST UPON IT, COUPLED WITH THE F A CT THAT IN LIGHT OF THE SPECIFIC INFORMATION RECEIVED BY THE INVESTIGATION WING OF THE D EPARTMENT AND THE SALES TAX AUTHORITY THAT THE AFORESAID SUPPLIER PARTY I.E . M/ S YASHITA TRADING COMPANY PVT. L TD.(SUPRA) HAD IN ITSELF ADMITTED THAT IT WAS INVOLVED IN THE PRA CT ICE OF PROVIDING PAPER ENTRIES AND HAD ONLY PROVIDED THE ACCOMMODATION ENTRI ES TO THE ASSESSEE COMPANY, THUS IN LIGHT OF THE AFORESAID STATE OF FACTS AS THEY SO REMAINED, THEREIN CONCLUDED THAT THE ASSESSEE COMPANY HAD INDULGED INTO BOOKING OF 'BOGUS PURCHASES' IN ITS BOOKS OF ACCOUNTS . THE A . O FURTHER ADVERTING TO THE SPECIFIC CLAIM OF THE ASSESSEE COMPANY THAT AS IT HAD PURCHASED 'FIXED ASSETS' VIZ. ELECTRICAL MATERIAL FROM THE AFORESAID SUPPLIER PARTY, THEREFORE ADDITION OF THE ENTIRE AMOUNT OF RS. 13,04,375/ - (SUPRA) COULD NOT BE MADE IN ITS 6 HANDS, THEREIN OBSERVING THAT THE A DDITIONS AS CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE COMPANY TOWARDS 'FIXED ASSETS' DURING THE YEAR UNDER CONSIDERATION , ON EXAMINATION WERE NEITHER FOUND TO BE REFLECTED IN THE ASSETS CATEGORISED UNDER THE HEAD 'ELECTRICAL FITTINGS' , NOR UNDER THE OTHER HEADS OF ASSETS, THUS BEING OF THE VIEW THAT THE ASSESSEE COMPANY HAD SUPPRESSED ITS INCOME BY BOOK ING BOGUS PURCHASES OF R S . 13,04,375/ - (SUPRA) , THEREIN MADE AN ADDITION / DISALLOWANCE OF THE SAID AMOUNT IN THE HANDS OF THE ASSESSEE COMPANY. 3. THE ASSESSEE COMPANY BEING AGGRIEVED WITH THE ASSESSMENT FRAMED BY THE AO CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) - 20, MUMBAI, WHO UPHELD THE ORDER OF THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE COMPANY. THAT THE CIT(A) WHILE SUSTAINING THE DISAL LOWANCE/ADDITION OF RS. 20,76,724/ - MADE BY THE AO AS REGARDS THE ' PATENT EXPENSES ', FURTHER REFERRED TO THE F A CT THAT SIMILAR DISALLOWANCE MADE IN THE HANDS OF THE ASSESSEE COMPANY IN A.Y. 2007 - 08 AND A.Y 2009 - 10 HAD BEEN UPHELD BY HIS PREDECESSOR, WHICH WAS NOT FURTHER AGITATED IN APPEAL BY THE ASSESSEE COMPANY, AS A RESULT WHEREOF IT COULD SAFELY BE INFERRED THAT THE ASSESSEE COMPANY HAD CONCURRED TO THE SAME. THE CIT(A) STILL FURTHER DECLINED TO ENTERTAIN THE ALTERNATIVE CONTENTION OF THE ASSESSEE COMPA NY ON THE ISSUE OF QUANTIFICATION OF DEPRECIATION ON ' PATENT EXPENSES ' AS WAS SO CLAIMED BY HIM , AS AGAINST THAT ALLOWED BY THE A . O. THAT ADVERTING TO THE CONTENTION OF THE ASSESSEE COMPANY THAT THE A . O HAD ERRED IN RESTRICTING ITS ENTITLEMENT TOWARDS CLAI M OF DEDUCTION U/ S 35(2AB) OF THE ACT BY AN AMOUNT OF RS. 13,78,000/ - , THE CIT (A) BEING OF THE VIEW THAT AS THE SAID ENTITLEMENT OF THE ASSESSEE COMPANY WAS STATUTORILY REQUIRED TO BE IN PARITY WITH THE AMOUNT COMPUTED ON THE BASIS OF THE FIGURES WHICH WERE APPROVED BY THE 'MINISTRY OF SCIENCE AND TECHNOLOGY' , AND NO FALLACY AS REGARDS THE SAID QUANTIFICATION SO CARRIED OUT BY THE PRESCRIBED AUTHORITY HAD BEEN POINTED OUT BY THE ASSESSEE COMPANY , THE REFORE UPHELD THE DISALLOWANCE/ADDITION MADE ON THE SAID COUNT BY THE AO. THE CIT (A) WHILE UPHOLDING THE DISALLOWANCE/ADDITION MADE BY THE 7 A.O TOWARDS CLAIM OF DEDUCTION U/S 35(2AB), FURTHER CAME UP WITH A FRESH OBSERVATION THAT THE ASSESSEE COMPANY HAD A LSO FAILED TO SUBSTANTIATE AS TO HOW THE EXPENSES PERTAINING TO RENT, REPAIR EXPENDITURE AND PROFESSIONAL AND LEGAL CHARGES , WHICH HAD BEEN CONSIDERED BY THE ASSESSEE COMPANY WHILE COMPUTING ITS DEDUCTION U/ S 35(2AB) WERE RELATED TO SCIENTIFIC RESEARCH. TH E CIT(A) FURTHER ADVERTING TO THE ADDITION OF RS. 13,04,375/ - MADE BY THE A.O AS REGARDS THE BOGUS PURCHASES BOOKED BY THE ASSESSEE COMPANY FOR SUPPRESSING ITS INCOME, THEREIN OBSERVED THAT IN LIGHT OF THE FACT THAT THE ASSESSEE COMPANY HAD FAILED TO EST ABLISH THE GENUINENESS AND VERACITY OF THE PURCHASES CLAIM ED TO HAVE BEEN MADE FROM M/ S YASHITA TRADING COMPANY PRIVATE LIMITED (SUPRA) AND THUS FAILED TO DISCHARGE THE ONUS AS STOOD CAST UPON IT, COUPLED WITH THE F A CT THAT THE INFORMATION RECEIVED BY T HE A . O FROM THE INVESTIGATION WING OF THE I NCOME TAX DEPARTMENT A S WELL AS THE S ALES TAX DEPARTMENT, G OVERNMENT OF MAHARASHTRA, REVEALED THAT M/ S YASHITA TRADING COMPANY PVT. L TD. (SUPRA) WAS ADMITTEDLY AN ACCOMMODATION BILL PROVIDER AND NO GENUINE PURCHASES HAD BEEN CARRIED OUT BY THE ASSESSEE COMPANY FROM THE SAI D CONCERN , THEREIN SUSTAINED THE ADVERSE INFERENCES DRAWN BY THE A.O AS REGARDS THE GENUINENESS AND VERACITY OF THE PURCHASE TRANSACTIONS IN THE HANDS OF THE ASSESSEE COMPANY. THE CIT(A) FU RTHER ENDORSING THE OBSERVATIONS OF THE A.O THAT AS THE PURCHASES UNDER CONSIDERATION FROM THE AFORESAID PARTY, AS CLAIMED BY THE ASSESSEE COMPANY TO HAVE BEEN MADE TOWARDS ADDITIONS IN THE 'FIXED ASSETS' DURING THE YEAR UNDER CONSIDERATION , ON EXAMINATION WERE NEITHER FOUND REFLECTED IN THE ASSETS CATEGORISED UNDER THE HEAD 'ELECTRICAL FITTINGS' , NOR UNDER THE OTHER HEADS OF ASSETS, THEREIN REJECTED THE SAID CONTENTION OF THE ASSESSEE COMPANY AND UPHOLDING THE ORDER OF THE A.O, THEREIN SUSTAINED THE ADDITI ON OF RS. 13,04,375/ - MADE TOWARDS BOGUS PURCHASES IN THE HANDS OF THE ASSESSEE COMPANY. 4. THAT THE ASSESSEE COMPANY BEING AGGRIEVED WITH THE DISMISSAL OF ITS APPEAL BY THE CIT(A) HAD FILED THE PRESENT APPEAL THEREIN ASSAILING THE 8 SUSTAINING OF THE AFORESAID ADDITIONS/DISALLOWANCES IN ITS HANDS. THAT AT THE VERY OUTSET THE L D . AUTHORISED REPRESENTATIVE FOR THE ASSESSEE COMPANY ( FOR SHORT A.R ) ADVERTING TO THE ISSUE AS REGARDS CLAIM OF PATENT EXPENSES BY THE ASSESSEE COMPANY AS A REVENUE EXPENDITU RE IN ITS P ROFIT & LOSS ACCOUNT , THEREIN SUBMITTED THAT THE ASSESSEE COMPANY REMAINING UNDER A BONAFIDE BELIEF THAT AS THE SAID EXPENDITURE WAS INCURRED TOWARDS REGISTRATION CHARGES AND DID NOT GIVE RISE TO AN INTANGIBLE ASSET, HAD THUS CLAIMED THE SAME AS A REVENUE EXPENDITURE. IT WAS FURTHER SUBMITTED BY THE L D . A.R THAT THE LOWER AUTHORITIES AFTER CHARACTERIZING THE AFORESAID EXPENDITURE AS CAPITAL EXPENDITURE, HAD ERRED BY RESTRICTING THE ENTITLEMENT OF THE ASSESSEE COMPANY TOWARDS DEPRECIATION ONLY AS REGARDS THE PATENT EXPENSES OF R S . 20,76,724/ - , I.E THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION, THEREIN ABSOLUTELY LO O SING SIGHT OF THE W RITTEN DOWN VALUE (FOR SHORT W.D.V ) OF THE CAPITALIZED VALUE OF THE PATENT EXPENSES PERTAINING TO THE PRECEDING YEA R S , WHICH AS IN THE YEAR UNDER CONSIDERATION HAD ALSO BEEN TREATED BY THE D EPARTMENT IN THE SAID PRECEDING YEARS AS A C APITAL EXPENDITURE . THE LD. A.R IN ORDER TO FORTIFY HIS CLAIM, THEREIN DREW OUR ATTEN TION TO THE RELEVANT EXTRACT OF THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT IN THE CASE OF THE ASSESSEE COMPANY FOR THE IMMEDIATELY PRECEDING YEAR, I.E A.Y. 2009 - 10 ( PAGE 64 - 65 OF THE APB ) , WHICH THEREIN REVEALED THAT AS IN THE YEAR UNDER CONSIDERATION, THE A.O WHILE FRAMING THE ASSESSMENT FOR THE SAID PRECEDING YEAR , THOUGH ON A SIMILAR FOOTING HAD DIS CARDED THE CLAIM OF THE ASSESSEE COMPANY THAT THE PATENT EXPENSES OF RS. 4,51,282/ - SO INCURRED DURING THE SAID YEAR WERE TO BE ALLOWED AS A REVENUE EXPENDITURE, BUT SIMULTANEOUSLY HAD ACCEPTED THE CLAIM OF THE ASSESSEE COMPANY AND ALLOWED DEPRECIATION ON THE AGGREGATE OF THE OPENING W.D.V OF THE PATENT EXPENSES AS ON 01/04/2008 , AND THOSE INCURRED DURING THE SAID YEAR. IT WAS THUS SUBMI TTED BY THE L D . A.R THAT AS THE DEPARTMENT IN THE CASE OF THE ASSESSEE COMPANY HAD CONSISTENTLY TAKEN THE VIEW THAT EXPENDITURE INCURRED TOWARDS ' PATENT EXPENSES ' IS IN THE NATURE AS THAT OF A CAPITAL EXPENDITURE AND AS 9 A RESULT THEREOF HAD ALLOWED DEPRECI ATION ON THE SAME, THEREFORE THE SAME WOULD RESULT IN AMORTISATION OF THE EXPENDITURE OVER A PERIOD, INSTEAD OF THE SAME BEING ALLOWED IN THE YEAR OF INCURRING OF THE EXPENDITURE. THUS IN LIGHT OF THE AFORESAID FA CT UAL BACKGROUND IT WAS AVERRED BY THE L D . A.R THAT THE LOWER AUTHORITIES HAD ERRED IN NOT A LLOWING DEPRECIATION AS REGARDS THE PATENT EXPENSES WHICH HAD BEEN CAPITALISED IN THE PRECEDING YEA R S AND HAD WRONGLY RESTRICTED THE SAME ONLY AS REGARDS THOSE INCURRED DURING THE YEAR UNDER CONSIDERATION. THE L D . A.R IN ORDER TO FORTIFY HIS QUANTIFICATION OF DEPRECIATION AT R S . 10,64,618 / - (SUPRA), AS AGAINST THE DEPRECIATION OF RS. 5,19,181/ - (SUPRA) ALLOWED BY THE LOWER AUTHORITIES, DREW OUR ATTENTION TO P AGE 11 OF THE APB , WHEREIN THE CALCULATION AS REGARDS THE YEAR WISE INCURRING OF EXPENDITURE TOWARDS P ATENTS EXPENSES BY THE ASSESSEE COMPANY, ON THE BASIS OF WHICH THE ENTITLEMENT OF THE ASSESSEE COMPANY TOWARDS CLAIM OF DEPRECIATION WAS COMPUTED AT AN AMOUNT OF RS 10,64,6 18/ - (SUPRA) STOOD REFLECTED . TH AT ON THE OTHER HAND TH E LD. D.R DURING THE COURSE OF HEARING , ON A QUERY BY THE BENCH AS REGARDS THE INCONSISTENT APPROACH ADOPTED BY THE A.O AS REGARDS THE STATUTORY ENTITLEMENT OF THE ASSESSEE COMPANY TOWARDS DEPRECIATION ON THE BLOCK OF ASSETS - PATENT EXPENSES , THEREIN SUBMITTED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE A.O WITH A DIRECTION TO MAKE NECESSARY VERIFICATION AS REGARDS THE GENUINENESS AND VERACITY OF THE SAID CLAIM OF THE ASSESSEE COMPANY. 4.1 THAT AS REGARDS THE RESTRICTING OF THE DEDUCTION CLAIMED BY THE ASSESSEE COMPANY UNDER SECTION 35(2AB) OF THE ACT TO AN AMOUNT OF RS. RS. 7 , 37 , 17 ,242/ - BY THE LOWER AUTHORITIES, AS AGAINST THE CLAIM OF THE ASSESSEE COMPANY OF RS. 7,50,95,242/ - , THEREIN LEADING TO A CONSEQUENTIAL ADDITION /DISALLOWANCE OF RS. 13,78,000/ - IN THE HANDS OF THE ASSESSEE COMPANY, IT WAS SUBMITTED BY THE L D . A.R THAT THE AUTHORITIES BELOW HAD MISCONCEIVED AND MISINTERPRETED THE SCOPE AND GAMUT OF SECTION 35(2AB) OF THE ACT , AN D THUS HAD WRONGLY OBSERVED THAT THE ENTITLEMENT OF THE ASSESSEE COMPANY TOWARDS 10 CLAIM OF DEDUCTION U / S 35(2AB) WAS LIABLE TO BE QUANTIFIED ON THE BASIS OF THE AMOUNT OF EXPENDITURE AS WAS APPROVED BY THE MINISTRY OF SCIENCE AND TECHNOLOGY . IT WAS SUBMIT TED BY THE L D . A.R THAT THE CLAIM OF THE ASSESSEE COMPANY U / S 35(2AB) WAS AS PER THE MANDATE OF LAW, AND THOUGH THE PROVISIONS OF SECTION 35(2AB) REQUIRES THAT THE DETAILS OF EXPENDITURE INCURRED BY AN ASSESSEE ARE TO BE SUBMITTED TO THE DEPARTMENT OF SCI ENCE AND INDUSTRIAL RESEARCH (FOR SHORT DSIR ), BUT HOWEVER MERELY ON ACCOUNT OF DIFFERENCE OF OPINION BETWEEN THE DSIR AND THE ASSESSEE, THE LATTER CANNOT BE DENIED THE BENEFIT OF DEDUCTION AS CLAIMED BY IT UNDER SECTION 35(2AB). IT WAS FURTHER SUBMITTED BY THE L D. A .R THAT NEITHER THE SECTION, NOR ANY OTHER SPECIFIC PROVISION MANDATES THAT THE WEIGHTED ALLOWANCE UNDER SECTION 35(2AB) IS LIABLE TO BE RESTRICTED TO THE EXPENDITURE APPROVED BY THE 'DSIR', FOR THE REASON IF THAT HAD BEEN SO THEN THE PROVISIONS WOULD HAD CLEARLY PROVIDED FOR AFFORDING OF AN OPPORTUNITY TO THE ASSESSEE TO EXPLAIN HIS CASE IN REGARD TO THE VARIANCE IN THE SAID EXPENDITURE. THE L D. A.R IN ORDER TO DRIVE HOME HIS CONTENTION THEREIN P LACED RELIANCE ON THE ORDER OF THE HON BLE I NCOME TAX APPELLATE TRIBUNAL , AHEMDABAD BENCH , IN THE CASE OF : ACIT V S . TORRENT PHARMACEUTICALS LTD [28 CCH 783 (2009)] . THE LD. D.R ON THE OTHER HAND RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND THEREIN S UBMITTED THAT THE ENTITLEMENT OF THE ASSESSEE COMPANY TOWARDS DEDUCTION U/S 35(2AB) WAS LIABLE TO BE RESTRICTED TO THE AMOUNT APPROVED BY THE PRESCRIBED AUTHORITY. IT WAS THUS SUBMITTED BY THE LD. D.R THAT THE ORDER OF THE CIT(A) BE SUSTAINED AND THE APPEAL OF THE ASSESSEE COMPANY AS REGARDS THE SAID ISSUE UNDER CONSIDERATION BE DISMISSED. 4.2. THAT THE L D A.R FURTHER CHALLENGING THE SUSTAINING OF THE ADDITION OF RS. 13,04,375/ - (SUPRA) BY THE CIT(A) AS REGARDS 'BOGUS PURCHASES', THEREIN SUBMITTED THAT THE ASSESSEE COMPANY HAD CARRIED OUT PURCHASES OF RS. 1 3, 04,375 / - (SUPRA) TOWARDS PURCHASE OF FIXED ASSETS ( E LECTRICAL MATERIAL FROM THE CONCERNED SUPPLIER PARTY , I.E M/S YASHITA TRADING COMPANY PVT. L TD ) , 11 WHICH INADVERTENTLY HAD BEEN CAPITALIZED UNDER THE HEAD FACTORY BUILDING . THE LD. A.R IN ORDER TO SUBSTANTIATE HIS AFORESAID CONTENTION, THEREIN TOOK US THROUGH THE RELEVANT EXTRACTS OF SAP PLACED ON RECORD, WHEREIN THE SAID TRANSACTIONS STOOD REFLECTED. IT WAS THUS IN THE AFORESAID FACTUAL BACKGROUN D SUBMITTED BY THE L D. A.R THAT THOUGH NOT ADMITTING, HOWEVER EVEN IF THE GENUINENESS AND VERACITY OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION WERE TO BE DISBELIEVED BY THE LOWER AUTHORITIES, THE RESULTANT DISALLOWANCE COULD NOT EXCEED THE AMOUNT OF D EPRECIATION PERTAINING TO THE AMOUNT CAPITALIZED BY THE ASSESSEE COMPANY IN ITS BOOKS OF ACCOUNTS. IT WAS THUS SUBMITTED BY THE LD. A.R THAT NOW WHEN THE PURCHASES UNDER CONSIDERATION SO MADE BY THE ASSESSEE COMPANY HAD NOT BEEN CLAIMED AS A REVENUE EXP ENDITURE, THEREFORE THE LOWER AUTHORITIES WITHOUT REBUTTING THE SAID CLAIM OF THE ASSESSEE COMPANY AND PLACING ON RECORD ANY MATERIAL WHICH COULD GO TO PROVE OTHERWISE, WERE NOT JUSTIFIED IN MAKING AN ADDITION OF THE AFORESAID AMOUNT OF RS. 1 3, 04,375 (SUPRA) IN THE HANDS OF THE ASSES S EE COMPANY. THE LD. A.R IN ORDER TO SUBSTANTIATE THE GENUINENESS OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION , THEREIN FURTHER SUBMITTED THAT THE P AYMENTS TOWARDS THE PURCHASE CONSIDERATION TO THE AFORESAID SUPPLIER PA RTY WERE MADE BY THE ASSESSEE COMPANY THROUGH REGULAR BANKING CHANNELS. IT WAS THUS SUBMITTED BY THE L D . A.R THAT THE A.O WITHOUT APPRECIATING THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE, HAD THEREIN ON THE BASIS OF PREMATURE FINDINGS HUSHED THROUGH THE MATTER AND MADE AN ADDITION OF R S . 13,04,375/ - (SUPRA) IN THE HANDS OF THE ASSESSEE COMPANY , WHICH THEREAFTER HAD BEEN SUSTAINED AS SUCH BY THE CIT(A) . 4.3. THE LD. D.R ON THE OTHER HAND HEAVILY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND THEREIN SUBMITTED THAT IN LIGHT OF THE FACT THAT THE SUPPLIER PARTY HAD ADMITTED THAT IT WAS INVOLVED IN THE BUSINESS OF ACCOMMODATION BILL PROVIDER, COUPLED WITH THE FACT THAT THE ASSESSEE COMPANY HAD FAILED TO DISCHARGE THE ONUS AS WAS SO CAST UPON IT TO PROVE THE GENUINENESS AND VERACITY 12 OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION, THEREFORE THE A.O HAD RIGHTLY MADE AN ADDITION OF RS. 13,04,375/ - AS REGARDS THE SAID BOGUS PURCHASES IN THE HANDS OF THE ASSESSEE COMPANY, WHICH THEREAFTER HAD RIGHTLY BEEN S USTAINED BY THE CIT(A). IT WAS THUS SUBMITTED BY THE LD. D.R THAT THE APPEAL OF THE ASSESSEE COMPANY AS REGARDS THE SAID ISSUE UNDER CONSIDERATION MAY BE DISMISSED AND THE ORDER OF THE CIT(A) BE UPHELD. 5 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF EI THER SIDE AND PERUSED THE RELEVANT MATERIALS ON RECORD, INCLUDING THE ORDERS OF THE AUTHORITIES BELOW. THAT AS REGARDS THE ISSUE PERTAINING TO THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY TOWARDS PATENT EXPENSES , WE THOUGH ARE PERSUADED TO BE IN AGRE EMENT WITH THE OBSERVATIONS OF THE LOWER AUTHORITIES THAT IN LIGHT OF CLEARLY WORDED SEC. 32(1)(II) OF THE ACT, WHICH READS AS UNDER: - 32(1). IN RESPECT OF DEPRECIATION OF (II).KNOW HOW, PATENTS , COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL, 1998 , THERE CAN BE NO ESCAPE FROM THE CONCLUSION THAT THE PATENT EXPENSES INCURRED BY THE ASSESSEE COMPANY TAKES THE COLOR AND CHARACTER AS THAT OF A CAPITAL EXPENDITURE, ON WHICH CAPITALIZED VALUE THE ASSESSEE COMPANY WOULD STAND DULY ENTITLED TOWARDS DEPRECIATION , AS A RESULT WHEREOF THE SAME WOULD RESULT IN AMORTISATION OF THE SAID EXPENDITURE OVER A PERIOD, INSTEAD OF THE SAME BEING ALLOWED IN THE YEAR OF INCURRING OF THE EXPENDITURE , BUT HOWEVER ARE UNABLE TO SUBSCRIBE TO THE VIEW OF THE LOWER AUTHORITIES THAT THE ENTITLEMENT OF THE ASSESSEE COMPANY TOWARDS DEPRECIATION IS LIABLE TO BE RESTRICTED ONLY AS REGARDS THE CAPITALIZED VALUE OF THE PATENT EXPEN SE S PERTAINING TO THE YEAR UNDER CONSIDERATION , WHILE FOR NO COGNIZANCE IS TO BE TAKEN OF THE CAPITALIZED VALUE OF 13 THE PATENT EXPENSES IN CURRED BY THE ASSESSEE COMPANY IN THE PRECEDING YEARS. WE ARE OF THE CONSIDERED OPINION THAT NOW WHEN THE LOWER AUTHORITIES HAD DISCARDED THE CLAIM OF THE ASSESSEE COMPANY AND HAD HELD THAT THE PATENT EXPENSES WERE NOT TO BE ALLOWED AS A REVENUE EXPENDITURE , AND HAD RECHARACTERISED THE SAME AS A C APITAL EXPENDITURE, THEREAFTER PURSUANT TO SUCH RECHARACTERISATION , ALL THE MORE IN LIGHT OF THE SPECIFIC CLAIM RAISED BY THE ASSESSEE COMPANY, T HE A.O REMAINED UNDER A STATUTORY OBLIGATION TO ALLOW DEPRECIATION , I.E BOTH AS REGARDS THE CAPITALIZED VALUE OF THE PATENT EXPENSES PERTAINING TO THE YEAR UNDER CONSIDERATION , AS WELL AS ON THE W.D.V OF THOSE AS HAD BEEN CAPITALISED IN THE PRECEDING YEA RS. (I.E ON THE W.D.V OF THE B LOCK OF ASSET - PATENT S ) . THE LD. A.R HAD DURING THE COURSE OF HEARING OF THE AP PEAL DRAWN OUR ATTENTION TO PAGE 11 OF APB, WHEREIN THE QUANTIFICATION OF DEPRECIATION AS REGARDS THE BLOCK OF ASSETS - PATENT EXPENSES , AS COMPUTED BY THE ASSESSEE COMPANY STANDS REFLECTED AT RS. 10,64,618/ - (SUPRA) . THOUGH WE ARE NOT OBLIVIOUS OF THE SETTLED POSITION OF LAW THAT AN ASSESSEE CANNOT BE ALLOWED TO IMPROVE UPON HIS RETURN OF INCOME BY RAISING FRESH CLAIMS IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, BUT AS IN THE CASE OF THE PRESENT ASSESSEE COMPANY, WHE RE AS A RESULT OF DIFFERENTIAL TREATMENT GIVEN BY THE A.O TO A CLAIM RAISED BY AN ASSESSEE IN HIS RETURN OF INCOME, A CONSEQUENTIAL STATUTORY ENTITLEMENT EMERGES AND GETS VESTED WITH THE LATTER, THEN TO OUR OPINION THE A.O REMAINS UNDER A STATUTORY OBLIGAT ION TO GIVE EFFECT TO THE SAME WITHOUT ANY RESERVATION. THUS IN THE CASE OF THE PRESENT ASSESSEE COMPANY, IN THE BACKGROUND OF THE SETTLED POSITION OF LAW AS STANDS CONTEMPLATED IN SEC. 32(1)(II) - EXPLANATION 5 , WHICH READS AS UNDER: - EXPLANATION 5 FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THE PROVISIONS OF THIS SUB - SECTION SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATION IN COMPUTING HIS TOTAL INCOME. 14 , AND THUS PROVIDES THAT IRRESPECTIVE OF THE FACT THAT AS TO WHETHER AN ASSESSEE HAD CLAIMED DEDUCTION IN RESPECT OF DEPRECIATION WHILE COMPUTING HIS TOTAL INCOME, OR NOT, THE SAME SHALL MANDATORILY BE CONSIDERED TO HAVE BEEN GIVEN EFFECT TO , WE ARE THUS OF THE CONSIDERED VIEW THAT PURSUANT TO THE RECHARACTERIS ATION OF THE P ATENT EXPENSES AS CAPITAL EXPENDITURE BY THE A.O, THE ASSESSEE COMPANY AS A RESULT THEREOF WAS ENTITLED TOWARDS DEPRECIATION ON THE BLOCK OF ASSETS - PATENTS, I.E NOT ONLY AS REGARDS THE CAPITALIZED VALUE OF THE PATENT EXPENS ES PERTAINING TO THE YEAR UNDER CONSIDERATION , BUT ALSO AS ON THE OPENING W.D.V OF THOSE PERTAINING TO THE PRECEDING YEA RS, TO THE EXTENT THE SAME HAD BEEN CAPITALISED IN THE SAID PRECEDING YEA RS. WE THUS RESTORE THE ISSUE TO THE FILE OF THE A.O WITH A DIRECTION THAT THE ENTITLEMENT OF THE ASSESSEE COMPANY TOWARDS DEPRECATION ON THE CAPITALIZED VALUE OF THE PATENT EXPENSES BE COMPUTED AND THEREIN GIVEN EFFECT TO IN LIGHT OF OUR AFORESAID OBSERVATI ONS , TO WHICH THE LD. D.R IS IN AGREEMENT . HOWEVER, BEFORE PARTING, WE ARE OF THE VIEW THAT THOUGH THE ASSESSEE COMPANY HAD DRAWN OUR ATTENTION TO THE RELEVANT EXTRACT OF THE ASSESSMENT ORDER PASSED IN ITS CASE U/S 143(3) FOR THE IMMEDIATELY PRECEDING YEAR , I.E A.Y. 2009 - 10 ( PAGE 64 - 65 OF APB), WHEREIN IT STANDS REFLECTED THAT THE A.O HAD ALLOWED DEPRECIATION , BOTH ON THE CAPITALIZED VALUE OF THE PATENT EXPENSES OF RS. 4,51,282/ - PERTAINING TO THE SAID PRECEDING YEAR , AS WELL AS THE OP. W.D.V OF PATENT EXPENSES AMOUNTING TO RS.24,57,716/ - AS ON 01/04/2008, PURSUANT WHERETO THE O P . W.D.V OF THE BLOCK PATENT EXPENSES AS ON 01/04/2009, I.E FOR THE YEAR UNDER CONSIDERATION, AS CLAIMED BY THE ASSESSEE COMPANY STANDS REFLECTED AT RS. 21,81,749/ - , BUT WE ARE OF THE CONSIDERED VIEW THAT THE SUMMARILY ACCEPTANCE OF THE OPENING W.D.V OF PATENT EXPENSES OF RS. 24,57,716/ - (SUPRA) BY THE A.O WHILE FRAMING THE ASSESSMENT IN THE HANDS OF THE ASSESSEE COMPANY FOR A.Y. 2009 - 10, DOES NOT INSPIRE MUCH CONFIDE NCE, THEREFORE AS A WORD OF CAUTION THE A.O IS DIRECTED TO WORK OUT THE OP. W.D.V OF THE BLOCK - PATENT EXPENSES AS ON 01/04/2009 AFTER MAKING NECESSARY VERIFICATIONS TO HIS SATISFACTION , AND ONLY ON BEING CONVINCED 15 THAT NO PART OF THE SAID PATENT EXPENSE S HAD IN THE SAID PRECEDING YEARS BEEN ALLOWED AS A REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY, THEREIN REWORK THE ENTITLEMENT OF THE ASSESSEE COMPANY TOWARDS DEPRECATION ON BLOCK OF ASSETS - PATENT EXPENSES , IN LIGHT OF OUR AFORESAID OBS ERVATIONS . THE GROUND OF APPEAL NO. 1 & 2 SO RAISED BY THE ASSESSEE COMPANY BEFORE US ARE THUS ALLOWED IN LIGHT OF OUR AFORESAID OBSERVATIONS FOR STATISTICAL PURPOSES. 5 .1. WE HAVE FURTHER CONSIDERED THE RIVAL SUBMISSIONS OF EITHER SIDE AND PERUSED THE RELEVANT MATERIALS ON RECORD, INCLUDING THE ORDERS OF THE AUTHORITIES BELOW AS REGARDS THE ADDITION/DISALLOWANCE MADE BY THE A.O U/S 35(2AB) OF THE ACT AND ARE UNABLE TO FIND OURSELVES TO BE IN AGREEMENT WITH THE OBSERVATIONS OF THE LOWER AUTHORITIES, TO THE EXTENT THE LATTER HAD CONCLUDED THAT THE ENTITLEMENT OF THE ASSESSEE COMPANY AS REGARDS WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT IS LIABLE TO BE RESTRICTED TO RS. 7 , 37 , 1 7 ,242/ - , I.E ON THE BASIS OF THE AMOUNT APPROVED BY THE MINISTRY OF SCIENCE & TECHNOLOGY, AS AGAINST THE CLAIM OF RS. 7,50,95,242/ - RAISED BY THE ASSESSEE COMPANY AS PER ITS FINANCIAL STATEMENTS , FOR THE REASON AS HAD WEIGHED WITH THEM, THE ENTITLEMENT OF THE ASSESSEE COMPANY IS STATUTORILY REQUIRED TO BE IN PARITY AND C ANNOT EXCEED THE AMOUNT COMPUTED ON THE BASIS OF THE FIGURES WHICH WERE APPROVED BY THE ' PRESCRIBED AUTHORITY . WE ARE OF THE CONSIDERED VIEW THAT THE LOWER AUTHORITIES HAD ABSOLUTELY MISCONCEIVED AND MISINTERPRETED THE SCOPE AND GAMUT OF THE WEIGHTED DEDUCTION CONTEMPLATED U/S 35(2AB) OF THE ACT. THAT AS PER THE MANDATE OF SEC. 35(2AB) OF THE ACT, AN ELIGIBLE ASSE SSEE COMPANY WHICH INCURS ANY EXPENDITURE ON IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY (NOT BEING EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) AS APPROVED BY THE PRESCRIBED AUTHORITY, IS ENTITLED FOR DEDUCTION CONTEMPLATED THEREIN, SUBJECT T O THE CONDITION THAT IT ENTERS INTO AN AGREEMENT WITH THE PRESCRIBED AUTHORITY FOR CO - OPERATION IN SUCH RESEARCH & DEVELOPMENT FACILITY AND AUDIT OF THE ACCOUNTS MAINTAINED FOR THAT FACILITY, AND SUBMITS WITH THE PRESCRIBED AUTHORITY BY 31 ST 16 DAY OF OCTOB ER OF THE RELEVANT ASSESSMENT YEAR THE DETAILS AS REGARDS THE EXPENDITURE INCURRED BY IT ON THE IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY, ON THE BASIS OF WHICH THE PRESCRIBED AUTHORITY RECORDS ITS APPROVAL AND SUBMITS THE DETAILS OF THE EXPENDITURE APP ROVED TO THE DIRECTOR GENERAL (EXEMPTIONS) IN FORM 3CL. THUS A BARE PERUSAL OF S EC. 35(2AB) REVEALS THAT WHAT IS REQUIRED TO BE APPROVED BY THE PRESCRIBED AUTHORITY IS THE IN - HOUSE R & D FACILITY, AND NOT THE AMOUNT OF EXPENDITURE INCURRED BY R&D APPROVED UNIT. THAT FOR THE SAKE OF CLARITY THE RELEVANT EXTRACT OF SEC. 35(2AB) IS REPRODUCED AS UNDER: - SEC. 35(2AB). WHERE A COMPANY ENGAGED IN THE BUSINESS OF .........INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH............ON IN - HOUSE RESEARCH AND DEVELOPMENT AS APPROVED BY THE PRESCRIBED AUTHORITY THEN, THERE SHALL BE ALLOWED A DEDUCTION [OF A SUM EQUAL TO ONE AND ONE - HALF TIMES OF THE EXPENDITURE SO INCURRED]. THUS IN LIGHT OF THE AFORESAID CLEARLY WORDED STATUTORY PROVISION, IT STANDS IN ESCAPABLY GATHERED BEYOND ANY SCOPE OF DOUBT THAT SEC. 35(2AB) THOUGH POSTULATE S APPROVAL BY THE PRESCRIBED AUTHORITY OF THE IN - HOUSE R & D FACILITY, HOWEVER THE SAME NO WHERE PROVIDES THAT THE AMOUNT OF DEDUCTION SHALL BE REGULATED AND RESTRICTED ON THE BASIS OF THE AMOUNT APPROVED BY THE PRESCRIBED AUTHORITY. THAT OUR AFORESAID VIEW IS FORTIFIED BY THE ORDER OF THE HONBLE AHEMDABAD BENCH OF THE TRIBUNAL , IN THE CASE OF : ACIT VS. TORRENT PHARMACEUTICALS LTD. [28 CCH 783(2009)] , WHEREIN THE TRIBUNAL OBSERVING THAT THE AMOUNT OF EXPENDITURE APPROVED BY THE PRESCRIBED AUTHORITY IN FORM 3CL WILL NOT HAVE ANY BEARING AS REGARDS THE ALLOWABILITY OF THE WEIGHTED DEDUCTION IN THE HANDS OF THE ELIGIBLE ASSESSEE COMPANY, HELD AS UNDER: - 17 THUS THERE WAS NO JUSTIFICATION IN HARPING UPON THE FIGURE CONTAINED IN FORM 3CL AS IS DONE BY THE ASSESSING OFFICER. THE PROVISIONS OF THE ACT DOES NOT CONTAIN ANY SPECIFIC CONDITIONS FOR THE ALLOWANCE OF EXPENDITURE TO THE EFFECT THAT IT WILL BE RESTR ICTED TO THAT CONTAINED IN FORM 3CL WE FIND OURSELVES TO BE IN AGREEMENT WITH THE AFORESAID ORDER OF THE CO - ORDINATE BENCH OF THE TRIBUNAL, AND THUS IN LIGHT OF OUR AFORESAID OBSERVATIONS SET ASIDE THE FINDINGS OF THE LOWER AUTHORITIES THAT THE ENTITL EMENT OF THE ASSESSEE COMPANY TOWARDS WEIGHTED DEDUCTION U/S 35(2AB) IS LIABLE TO BE RESTRICTED TO THE EXTENT THE IN - HOUSE RESEARCH AND DEVELOPMENT EXPENDITURE INCURRED BY THE ASSESSEE COMPANY IS APPROVED BY THE PRESCRIBED AUTHORITY . NOW , ADVERTING TO THE OBSERVATIONS OF THE CIT(A) THAT THE ASSESSEE COMPANY HAD FAILED TO SUBSTANTIATE AS TO HOW THE EXPENSES PERTAINING TO RENT, REPAIR EXPENDITURE AND LEGAL AND PROFESSIONAL CHARGES HAD BEEN INCURRED IN THE COURSE OF THE SCIENTIFIC RESEARCH AC TIVITIES OF THE ASSESSEE COMPANY, WE ARE OF THE CONSIDERED VIEW THAT SUCH A STRAY OBSERVATION RECORDED FOR THE FIRST TIME BY THE CIT(A ) , WITHOUT EVEN CONFRONTING THE SAME TO THE ASSESSEE, AT THE THRESHOLD ON THE SAID COUNT ITSELF IS LIABLE TO BE VACATED . H OWEVER, INDEPENDENT OF THE AFORESAID FACTUAL POSITION , THE LD. A.R SUBMITTED BEFORE US THAT AS THE RENT AND REPAIR EXPENDITURE SO CLAIMED BY THE ASSESSEE COMPANY AS FORMING PART OF THE ELIGIBLE AMOUNT ENTITLED FOR CLAIM OF DEDUCTION U/S 35(2AB) OF THE ACT, IN ITSELF PERTAINED TO THE PREMISES AT WHICH THE RESEARCH AND DEVELOPMENT FACILITY WAS LOCATED, AS WELL AS THE LEGAL AND PROFESSIONAL CHARGES HAD BEEN INCURRE D IN THE COURSE OF AND TO FACILITATE THE SCIENTIFIC RESEARCH, THEREFORE THE SAID NATURE OF THE EXPENSES READ IN LIGHT OF THE UNDERLYING PURPOSE BEHIND INCURRING OF THE SAME, IPSO FACT O ESTABLISHED BEYOND AN Y SCOPE OF DOUBT THE INEXTRICABLE NEXUS OF THE SAI D EXPENSES AND THE SCIENTIFIC RESEARCH ACTIVITIES OF THE ASSESSEE COMPANY, AS REGARDS WHICH NO INFIRMITY HAD EVER BEEN POINTED OUT BY THE A.O . 18 THE LD. A.R IN SUPPORT OF HIS AFORESAID CONTENTION PLACED RELIANCE ON THE ORDER OF A COORDINATE BENCH OF THE TRIB UNAL IN THE CASE OF : - USV LTD. VS. DCIT, CENTRAL CIRCLE - 32, MUMBAI (2012) 24 TAXMANN.COM 218 (MUM) , WHEREIN IT WAS HELD: THE REPAIRS, RENT, ETC., THE EXPENDITURE INCURRED RELATING TO R & D PREMISES CANNOT FORM PART OF COST OF LAND OR BUILDING. IN THE ABSENCE OF ANY FACT THAT THE SAID CLAIM OF THE ASSESSEE AGGREGATING TO RS. 62,00,689/ - , IS NOT THE EXPENDITURE ON RENTS, RATES AND TAXES RELATING TO R &D PREMISES, WE ARE OF THE CONSIDERED VIEW THAT THE SAID EXPENDITURE HAS TO FORM PART OF WEIGHTE D DEDUCTION AS PER SECTION 35(2AB) OF THE ACT WE THUS IN LIGHT OF THE AFORESAID FACTS AND SETTLED POSITION OF LAW, FIND OURSELVES TO BE IN AGREEMENT WITH THE LD. A.R AND ARE OF T H E CONSIDERED VIEW THAT AS THE AFORESAID EXPENSES HAD BEEN INCURRED BY THE ASSESSEE COMPANY ON THE SCIENTIFIC RESEARCH PERTAINING TO ITS BUSINESS OF MANUF ACT URING PHARMACEUTICAL FORMULATIONS (NOT BEING EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY APPROVED BY THE P RESCRIBED AUTHORITY, THEREFORE THE SAME IN THE ABSENCE OF ANY FACT WHICH COULD GO TO PROVE THAT THE SAID CLAIM OF EXPENDITURE BY THE ASSESSEE COMPANY ON RENT AND REPAIRS DOES NOT PERTAIN TO THE R &D PREMISES , OR THE PROFESSIONAL AND LEGAL CHARGES HAS NO NEXUS WITH THE SCIENTIFIC RESEARCH OF THE ASSESSEE COMPANY, THUS S TANDS DULY ELIGIBLE FOR CLAIM OF WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT . THUS IN LIGHT OF OUR AFORESAID OBSERVATIONS, THE DISALLOWANCE OF RS. 13,78,000/ - (SUPRA) SO MADE BY THE A.O IS S ET ASIDE, AND THE GROUND OF APPEAL NO. 3 & 4 SO RAISED BY THE ASSESSEE COMPANY ARE ALLOWED . 19 5 .2. WE HAVE FURTHER CONSIDERED THE RIVAL SUBMISSIONS OF EITHER SIDE AND PERUSED THE RELEVANT MATERIALS ON RECORD, INCLUDING THE ORDERS OF THE AUTHORITIES BELOW AS REGARDS THE ADDITION/DISALLOWANCE OF RS. 13,04,375/ - MADE BY THE A.O ON ACCOUNT OF BOGUS PURCHAS ES STATED TO HAVE BEEN MADE BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION . WE FIND THAT THE A.O ACTING ON THE BASIS OF INFORMATION RECEIVED FROM THE I NVESTIGATION WING AND THE SALES TAX DEPARTMENT , THAT THE ASSESSEE COMPANY HAD DURING THE YE AR UNDER CONSIDERATION ROUTED THROUGH ITS BOOKS OF ACCOUNTS' CERTAIN BOGUS PURCHASES MADE FROM ONE M/ S YASHITA TRADING COMPANY PVT. LTD . , A CONCERN WHICH WAS STATED TO BE CARRYING ON THE BUSINESS OF ACCOMMODATION BILL PROVIDER , THEREIN GOING BY THE AFORESAID INFORMATION SO RECEIVED AND BEING OF THE VIEW THAT THE ASSESSEE COMPANY HAD FAILED TO DISCHARGE THE ONUS AS STOOD CAST UPON IT AS REGARDS PROVING THE GENUINENESS AND VERACITY OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION , THEREIN HUSHED THROUGH THE MATTER AND MADE AN ADDITION OF THE ENTIRE PURCHASES OF RS. 13,04,375/ - (SUPRA) IN THE HANDS OF THE ASSESSEE COMPANY, WHICH THEREAFTER WAS SUSTAIN ED BY THE CIT(A). WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND THOUGH FIND OURSELVES TO BE IN AGREEMENT WITH THE LOWER AUTHORITIES THAT THE ASSESSEE COMPANY HA D FAILED TO HAVE EFFECTED STRICT COMPL IANCE OF THE DIRECTIONS OF THE A.O , AND MAJORITY OF THE QUERIES AND COMPLIANCES SOUGHT FOR BY THE A.O DID NEVER SEE THE LIGHT OF THE DAY, THUS IT COULD SAFELY BE HELD THAT THE ASSESSEE COMPANY HAD FAILED TO DISCHARGE THE ONUS AS STOOD CAST UPON IT AS REGARDS PROVING THE GENUINENESS AND VERACITY OF THE PURCHASE TRANSACTION S UNDER CONSIDERATION, BUT THEREAFTER THE LOWER AUTHORITIES BEFORE ARRIVING AT ANY CONCLUSION , REMAINED UNDER A STATUTORY OBLIGATION TO CONSIDER THE EXPLANATION OF THE ASSESSEE COMPANY, TO THE EXTENT THE SAME WAS MADE AVAILABLE ON RECORD , AND ON THE SAID B ASIS OUGHT TO HAVE ARRIVED AT A LOGICAL CONCLUSION. HOWEVER, WE FIND THAT THE A.O DEALING WITH THE ALTERNATIVE CONTENTION OF THE ASSESSEE COMPANY THAT AS IT HAD PURCHASED FIXED ASSETS ( I.E E LECTRICAL MATERIAL FROM THE AFORESAID SUPPLIER PARTY , I.E M/S YA SHITA 20 TRADING COMPANY PVT. L TD), AND THUS IF ADVERSE INFERENCE AS REGARDS THE GENUINENESS AND VERACITY OF THE SAID PURCHASE TRANSACTIONS WERE TO BE DRAWN, EVEN THEN THE ADDITION WAS LIABLE TO BE RESTRICTED ONLY AS REGARDS THE CORRESPONDING CLAIM OF DEPRECIATION SO RAISED BY THE ASSESSEE COMPANY A S REGARDS THE CAPITALIZED VALUE OF THE SAID ASSETS, HOWEVER PROCEEDED WITH AND OBSERVING THAT THE ADDITIONS AS CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE COMPANY TOWARDS 'FIXED ASSETS' DURING THE YEAR UNDER CONSIDERATION , ON EXAMINATION WERE NEITHER FOUND R EFLECTED IN THE ASSETS CATEGORISED UNDER THE HEAD 'ELECTRICAL FITTINGS' , NOR UNDER THE OTHER HEADS OF ASSETS, THUS HUSHED THROUGH THE MATTER AND CONCLUDED THAT THE ASSESSEE COMPANY HAD SUPPRESSED ITS INCOME BY BOOK ING BOGUS PURCHASES OF RS. 13,04,375/ - , AND MADE AN ADDITION / DISALLOWANCE OF THE SAID AMOUNT IN THE HANDS OF THE ASSESSEE COMPANY . WE ARE OF THE CONSIDERED OPINION THAT THE A.O WHILE MAKING THE ADDITION OF RS. 13,04,375/ - (SUPRA) IN THE HANDS OF THE ASSESSEE COMPANY, HAD GRAVELY ERRED BY LOOSIN G SIGHT OF THE FACT THAT IT HAD NEVER EMERGED THAT THE AMOUNT OF RS. 13,04,375/ - (SUPRA) HAD BEEN CLAIMED BY THE ASSESSEE COMPANY AS A REVENUE EXPENDITURE, THE GENUINENESS AND VERACITY OF WHICH HAVING NOT BEEN ESTABLISHED, WAS THUS LIABLE TO BE ADDED/DISALL OWED IN THE HANDS OF THE ASSESSEE COMPANY. THAT TO BE BRIEF AND EXPLICIT, THE SITUATION WHICH HAD EMERGED PURSUANT TO THE ADDITION OF RS. 13,04,375/ - (SUPRA) IS THAT THE A.O HAD CARRIED OUT DISALLOWANCE OF THE AFORESAID AMOUNT, WHICH THOUGH HAD NOT BEEN PRO VED TO HAVE BEEN CLAIMED AS AN EXPENSE BY THE ASSESSEE COMPANY IN ITS BOOKS OF ACCOUNTS. RATHER WE ARE OF THE VIEW THAT NOW WHEN IT WAS THROUGHOUT CLAIMED BY THE ASSESSEE COMPANY THAT THE PURCHASES UNDER CONSIDERATION BEING IN THE NATURE AS THAT OF FIXE D ASSETS, HAD THUS BEEN CAPITALIZED, THEREFORE A VERY HEAVY ONUS WAS CAST UPON THE LOWER AUTHORITIES, I.E NOT ONLY TO DISLODGE THE SAID CONTENTION, BUT ALSO TO PROVE THAT THE SAID AMOUNT HAD BEEN CLAIMED AS AN EXPENDITURE IN THE FINAL ACCOUNTS OF THE AS SESSEE COMPANY. THAT BEFORE US IT WAS SUBMITTED BY THE LD. A.R THAT THE PURCHASES OF RS. 1 3, 04,375 / - (SUPRA) MADE BY THE ASSESSEE 21 COMPANY TOWARDS PURCHASE OF FIXED ASSETS , INADVERTENTLY HAD BEEN CAPITALIZED UNDER THE HEAD FACTORY BUILDING, IN SUPPORT OF WHICH CONTENTION THE LD. A.R HAS TAKEN US THROUGH THE RELEVANT EXTRACTS OF SAP PLACED ON RECORD, WHEREIN THE SAID TRANSACTIONS AS CLAIMED HEREINABOVE, STOOD REFLECTED. WE HAVE PERUSED THE FACTS OF THE CASE AND THE MATERIAL FURNISHED BEFORE US, AND ARE OF THE CONSIDERED OPINION THAT THE LOWER AUTHORITIES HAD HUSHED THROUGH THE MATTER AND ON THE BASIS OF PREMATURE FINDINGS THEREIN MADE A N ADDITION OF RS. 13,04,375/ - (SUPRA) IN THE HANDS OF THE ASSESSEE COMPANY. THUS TAKING AN OVERALL VIEW OF THE ISSUE UNDER C ONSIDERATION, WE I N ALL FAIRNESS HEREIN RESTORE THE MATTER TO THE FILE OF THE A.O FOR VERIFYING THE AFORESAID CLAIM OF THE ASSESSEE COMPANY THAT THE PURCHASES UNDER CONSIDERATION HAD BEEN CAPITALIZED UNDER THE HEAD FACTORY BUILDING, AND IN CASE IF THE SA ID CONTENTION OF THE ASSESSEE COMPANY IS FOUND TO BE IN ORDER, THEREIN DIRECT THE A.O TO RESTRICT THE ADDITION UPTO THE AMOUNT OF THE CORRESPONDING DEPRECIATION SO CLAMED ON THE SAID CAPITALIZED VALUE. THAT NEEDLESS TO SAY , THE A.O SHALL AFFORD SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE COMPANY DURING THE COURSE OF THE SET ASIDE PROCEEDINGS. THUS IN LIGHT OF OUR AFORESAID OBSERVATIONS , THE GROUNDS OF APPEAL NO. 5 TO 8 RAISED BY THE ASSESSEE COMPANY ARE ALLOWED FOR STATISTICAL PURPOSES. 6 . IN T HE RESULT, THE APPEAL OF THE ASSESSEE COMPANY IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 6 /08/2016 . SD / - S D / - (G.S.PANNU) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI , DATED 2 6 /08/2016 22 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT CONCERNED 5. THE D . R, I BENCH , MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI