DCIT 4(2)(2), MUMBAI V. MEGA FINE PHARMA P, LTD, MUMBAI

ITA 5679/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 0235 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 07-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST DIFFERENT PASSED
• Keywords: Business expenditure; Difference of opinion; Competent authority; Change of opinion; Set aside
• Section: 143(3); 142(1); 143(2); 13; 22; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO S . 5679 TO 5681 /M UM /201 7 ( / ASSESSMENT YEAR S : 2011 - 12, 2012 - 13 & 2013 - 14 ) THE DCIT - 4(2)(2) ROOM NO.640, 6 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400020. / VS. M/S. MEGA FINE PHARMA PVT. LTD. SETHNA, 4 TH FLOOR, 55, M. K. ROAD, MARINE LINES, MUMBAI - 400002. ./ ./ PAN/GIR NO. : AAAC M7472M ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 03 / 11 / 20 20 /DATE OF PRONOUNCEMENT: 22 / 12 / 2020 / O R D E R PER AMARJIT SINGH, JM: THE ABOVE MENTIONED APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST THE DIFFERENT ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 9 , MUMBAI [HEREINAFTE R REFE RRED TO AS THE CIT(A)] RELEVANT TO THE A.Y S . 2 0 11 - 12, 2 0 12 - 13 & 2013 - 14 . ITA. NO. 5679 /M/201 7 :- 2 . THE REVENUE HAS FILED THE PRESENT A PPEAL AGAINST THE ORDER DATED 12 . 0 6 .201 7 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 9 , MUMBAI [HEREINAFTER REFERR ED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 11 - 12 . REVENUE BY: SHRI VIJAY KUMAR G. SUBRAMANYAM (SR. AR) ASSESSEE BY : SHRI C. V. JAIN ITA. NOS.5679 TO 5681 / M/201 7 A.Y S . 2011 - 12, 2012 - 13 & 2013 - 14 2 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING RELIEF TO THE ASSESSEE ON ACCOUNT OF WEIGHTED DEDUCTI ON U/S 35(2AB) EVEN THOUGH THE APPLICATION FOR THE FORM 3CM WAS SUBMITTED TO THE DSIR ON 18.09.2013 AND FORM 3CM WAS VALID FROM 01.04.2013 TO 31.03.2016. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING R ELIEF TO THE ASSESSEE ON ACCOUNT OF WEIGHTED DEDUCTION U/S 35(2AB) WITHOUT CONSIDERING THE FACT THAT IN THE CASE OF ACIT VS. MECO INSTRUMENTS, THE ASSESSEE APPLIED FOR THE FORM 3CM AND DID NOT RECEIVE IN THAT PARTICULAR F.Y. BUT IN THE PRESENT CASE THE RE IS NO EVIDENCE AND ASSESSEE ALSO FAILED TO PROVE THAT THEY WERE APPLIED FOR THE FORM 3CM IN THE YEAR UNDER CONSIDERATION. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD NEW GROUND WHICH MAY BE NECESSARY. 4 . THE BRIEF FACTS OF T HE CASE ARE THAT THE ASSESSEE FILED ITS R ETURN OF INCOME ON 23 . 09 .20 11 DECLARING TOTAL INCOME TO TH E TUNE OF RS.5,53,78,331/ - . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER, THE ASSESSMENT U/S 143(3) OF THE ACT WAS PASSED ON 11.02.2014 ASSESSING TOTAL INCOME TO THE TUNE OF RS.6,24,36,150/ - . THE CASE OF THE ASSESSEE WAS FURTHER REOPENED BY ISSUANCE OF NOTICE U/S 148 OF THE ACT ON 17.03.2015 . THE REASONS FOR REOPENING WERE SUPPLIED BY VIRTUE OF LETTER DATED 20.07.2015. THEREAFTER, THE NOTICE U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF THE DEALING BULK DRUGS AND CHEMICALS. IT WAS OBSERVED THAT THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S 35(2AB) OF THE I. T. ACT, 1961 AMOUNTING TO RS.3,56,18,753/ - AS EXPENSES ON IN - HOUSE R & D (BEING THE 200% OF R & D EXPENDITURE OF RS.1,78,09,377/ - ) . THE NOTICE WAS GIVEN AND AFTER THE REPLY OF THE ASSESSEE, THE RESEARCH AND DEVELOPMENT EXPENSES WHICH PERTAINS TO IN HOUSE DEVE LOPMENT EXPENSES ITA. NOS.5679 TO 5681 / M/201 7 A.Y S . 2011 - 12, 2012 - 13 & 2013 - 14 3 AMOUNTING TO RS.1,78,09,376/ - WAS ALLOWED AS BUSINESS EXPENSES U/S 37. THE TOTAL DISALLOWANCE WORKED OUT OF RS. 1,78,09,377/ - (RS.3,56,18,753/ - ( - ) 1,78,09,377/ - ). THEREAFTER, THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED IN SUM OF RS.8,02, 45,520/ - . FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE, THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 5 . WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LD. REPRESENTATIVE O F THE PARTIES AND PERUSED THE RECORD. THE LD. REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT THE CIT(A) HAS WRONGLY ALLOWED THE CLAIM OF THE ASSESSEE, THEREFORE, THE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE, HENCE, IS LIABLE TO BE SET ASIDE. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. BEFORE GOING FURTHER, WE DEEM IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD: - 6.2 DURING THE COURSE OF APPELLATE PROCEED INGS, THE LD. AR OF THE A PPELLANT SUBMITTED WRITTEN SUBMISSION, RELEVANT PORTION OF THE SAME IS REPRODUCED AS UNDER. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE AO AS PER HIS ASSESSMENT ORDER AND THE ARGUMENTS OF THE AR ALONG WITH HIS WRITTEN SUBMI SSIONS DATED 17.05.2017. THE AR OF THE APPELLANT HAS FILED FOLLOWING DOCUMENTS IN SUPPORT OF HIS SUBMISSION AND CLAIM OF WEIGHTED DEDUCTION U/S 35(2AB). A. APPLICATION FOR RECOGNITION OF IN - HOUSE R & D UNIT DATED 11/03/2010 SUBMITTED TO DSIR ON 15/03/2010 ALONG WITH FORM SCK. B. DSJR RECOGNITION LETTER DATED 21/09/2010. ITA. NOS.5679 TO 5681 / M/201 7 A.Y S . 2011 - 12, 2012 - 13 & 2013 - 14 4 C. JUDGMENT OF HONOURABLE ITAT IN CASE OF MECO INSTRUMENTS P. LTD. D. ANNUAL COMPLIANCE LETTER FOR APPROVED R & D UNIT DATED 05/08/2013. E. APPLICATION LETTER SEEKING APPROVAL U/S 33(2AB) D ATED 18/09/2013. D. DSIR APPROVAL LETTER DATED 11/03/2014 ALONG WITH FORM NO. 3CM. G. DSIR SUBMISSION OF REPORT IN FORM 3CL DATED 28/12/2015. H. APPLICATION FOR RENEWAL AND RECOGNITION LETTER DATED 30/12/2015. IT IS FOUND FROM THE RECORDS THAT THOUGH T HE JUDGMENT OF HONOURABLE OF ITAT MUMBAI IN CASE OF MECO INSTRUMENTS I'. LTD WAS BROUGHT TO THE NOTICE OF THE AO AT THE TIME OF ASSESSMENT, HE HAS NOT DEALT WITH THE SAME IN HIS ORDER AND WITHOUT DISTINGUISHING THE SAME HE HAS FAILED TO FOLLOW THE SAME. TH E AR OF THE APPELLANT HAS GIVEN A COMPARATIVE STUDY OF APPELLANT'S CASE WITH MECO INSTRUMENTS P. LTD, WHERE THE HONOUR ABLE ILAT MUMBAI, HAS CATEGORICALLY HELD AS UNDER: 'IT IS CLEAR THAT MERELY ON THE GROUND OF TECHNICALITIES OF PROCEDURE, THE BENEFIT BES TOWED 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 EXEMPTION CANNOT BE DENIED. 6. 3. I HAVE CONSIDERED THE FACTS OF THE CASE AS WELL AS ASSESSMENT ORDER PASSED BY THE AG AND THE SUBMISSION OF THE APPELLANT. THE AR OF THE APPELLANT HAS PRODUCED FOLLOWING DOCUMENTS IN SUPPORT OF HIS SUBMISSIONS AND CLAIM OF WEIGHTED DEDUCTION U/S. 35(2AB) ITA. NOS.5679 TO 5681 / M/201 7 A.Y S . 2011 - 12, 2012 - 13 & 2013 - 14 5 A. APPLICATION FOR RECOGNITION OF IN - HOUSE R & D UNIT DATED 11/03/2010 SUBMITTED TO DSJR ON 15/03/2010 ALONG WITH FORM 3CC B. DSIR RECOGNITION LETTER DATED 21/09/2010. C. JUDGMENT OF HON'BLE ITAT IN CASE OF MECO INSTRUMENTS P. LTD. D. ANNUAL COMPLIANCE LE TTER FOR APPROVED R & D UNIT DATED 05/08/2013. E. APPLICATION LETTER SEEKING APPROVAL U/S 35(2AB) DATED 18/09/2013. G. DSIR SUBMISSION OF REPORT IN FORM 3CL DATED 28/12/2015. H. APPLICATION FOR RENEWAL AND RECOGNITION LETTER DATED 30/12/2015. IT IS FOUND F ROM THE RECORDS THAT THOUGH THE JUDGMENT OF HONBLE ITAT, MUMBAI IN THE CASE OF MECO INSTRUMENTS P. LTD WAS BROUGHT TO THE NOTICE OF THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAS NOT DEALT WITH THE SAME IN HIS ORDER AND WITHOUT DISTINGUISH ING THE SAME HE HAS FAILED TO FOLLOW THE SAME. THE AR OF THE APPELLANT HAS GIVEN A COMPARATIVE STUDY OF APPELLANT'S CASE WITH MECO INSTRUMENTS P. LTD., WHICH HAS BEEN NARRATED IN EARLIER PARAGRAPH AND FOR THE SAKE OF BREVITY; THE SAME IS NOT BEING REPEATED HERE. IN THIS CASE, THE HONBLE ITAT, MUMBAI, HAS CATEGORICALLY HELD AS UNDER: 'IT IS CLEAR THAT MERELY ON THE GROUND OF TECHNICALITIES OF PROCEDURE, THE BENEFIT BESTOWED BY LEGISLATURE CANNOT BE DENIED. WHEN IT COMES TO FOLLOW THE PRESCRIBED PROCEDURE, T HE EXEMPTION PROVISIONS HAVE TO BE LIBERALLY CONSTRUED AND IF IN SUBSTANCE, THE ASSESSEE HAS FULFILLED THE BASIC REQUIREMENTS THEN THE EXEMPTION CANNOT BE DENIED.' ITA. NOS.5679 TO 5681 / M/201 7 A.Y S . 2011 - 12, 2012 - 13 & 2013 - 14 6 AFTER CONSIDERING THE SUBMISSIONS AND THE EXPLANATIONS AND FACTUAL NARRATION OF THE CASEBY T HE LD.AR, THE FACTUAL ANALYSIS REGARDING THE FACTS AND THE SIMILARITY OF RATIO OF THEPRESENT APPELLANT CASE I.E, MEGA FINE PHARMA P LTD. AND THE MECO INSTRUMENTS PVT. LTD. CAN BE DEPICTED AS UNDER: ISSUES FACTS OF MECO FACTS OF MEGA FINE REMARK ASSES SMENT YEAR 2005 - 06 2011 - 12, 2012 - 13 & 2013 - 14 DEDUCTION U/S 35(2AB) WEIGHTED DEDUCTION CLAIMED WEIGHTED DEDUCTION CLAIMED SAME POSITION DETAILS OF R & D ACTIVITIES & EXPENDITURE SUBMITTED AT THE TIME OF ASSESSMENT SUBMITTED TO AO SAME POSITION FORM 3CM &3CL NOT OBTAINED NOT OBTAINED SAME POSITION FORM 3CK NOT SUBMITTED SUBMITTED TO DSIR COPY FLED WITH AO BETTER COMPLIANCE BY MEGA FINE APPROVAL OF RECOGNITION FROM MINISTRY OF SCIENCE & TECHNOLOGY FOR IN HOUSE $ & D UNIT OBTAINED & SUBMITTED TO AO OBTAI NED & SUBMITTED TO AO SAME POSITION APPROVAL SIGNED BY SCIENTIST SCIENTIST SAME POSITION DIRECTOR REMUNERATION & FOREIGN TRAVEL CLAIMED UNDER WEIGHTED DEDUCTION NOT CLAIMED AS WEIGHTED DEDUCTION BETTER COMPLIANCE BY MEGA FINE FORM 3CK FILED LATER FILED ON 28.04.2008 FILED ON 15.03.2010 NON - COMPLIANCE BY MECO INSTRUMENTS &FULL COMPLIANCE BY MEGA FINE AUDITED ACCOUNTS NOT SUBMITTED TO DSIR SUBMITTED TO DSIR N 18.09.2013 SUBSEQUENT COMPLIANCE BY MEGA FINE & NO COMPLIANCE BY MECO INSTRUMENTS OPPORTUNITY BY DSIR NOT GIVEN NOT GIVEN SAME POSITION REJECTION BY COMPETENT AUTHORITY NO ORDER PASSED NOT ORDER PASSED SAME POSITION ITA. NOS.5679 TO 5681 / M/201 7 A.Y S . 2011 - 12, 2012 - 13 & 2013 - 14 7 FINDINGS OF ITAT UNIT IS DULY APPROVED & RECOGNIZED SAME POSITION RECOGNITION IS NOT MEANT FOR TAX EXEMPTION RECOGNITION R ENEWED FROM TIME TO TIME SAME POSITION AO RAISED OBJECTION FOR FIRST TIME IN AY 2005 - 06 WEIGHTED DEDUCTION WAS INITIALLY ALLOWED AND LATER DISALLOWED BY REOPENING ON A CHANGE OF OPINION. FINAL VERDICT MERELY ON THE GROUNDS OF TECHNICALITIES OF PROCEDU RE, THE BENEFIT BESTOWED BY LEGISLATURE CANNOT BE DENIED. WHEN IT COMES TO FOLLOW THE PRESCRIBE ED PROCEDURE, THE EXEMPTION PROVISIONS HAVE TO BE LIBERALLY CONSTRUED AND IF IN SUBSTANCE, THE ASSESSEE HAS FULFILLED THE BASIC REQUIREMENTS THEN THE EXEMPTION CANNOT BE DENIED. THUS, ON CAREFUL CONSIDERATIONS OF THE FACTS OF MECO INSTRUMENTS (SUPRA) AND THE CASE IN HAND, IT MAY BE FOUND THAT FACTS OF BOTH THE CASES ARE IDENTICAL AND THEREFORE, I AM INCLINED TO FOLLOW THE JUDGMENT OF MECO INSTRUMENTS P. LTD F OR DECIDING THE ALLOW - ABILITY OF WEIGHTED DEDUCTION CLAIMED BY THE APPELLANT U/S. 35(2AB). FURTHER, THE LD.AR HAS EXPLAINED THAT THE AO ITSELF HAS FOUND THAT MOST OF THE R&D EXPENSES PERTAIN TO RAW MATERIAL PURCHASES - AND SALARY OF THE EMPLOYEES WHICH ARE REVENUE IN NATURE. THE ASSESSEE COMPANY HAS ALREADY SUBMITTED BILLS AND VOUCHERS OF THE RESEARCH ITA. NOS.5679 TO 5681 / M/201 7 A.Y S . 2011 - 12, 2012 - 13 & 2013 - 14 8 AND DEVELOPMENT EXPENSES WHICH PERTAIN TO IN HOUSE R&D UNIT OF THE ASSESSEE COMPANY. THEREFORE, THE EXPENSES INCURRED FOR IN HOUSE R&D UNIT OF APPELLANT COMPA NY ARE SUPPORTED BY BILLS AND VOUCHERS AND DULY VERIFIED BY THE AO. HENCE, DULY FOLLOWING THE JUDGMENT OF ITAT MUMBAI IN CASE OF MECO INSTRUMENTS P. LTD, THE WEIGHTED DEDUCTION CLAIMED BY THE APPELLANT U/S 35(2A5) IS ALLOWABLE AND THE AO IS DIRECTED TO ALL OW THE CLAIM OF THE APPELLANT. HOWEVER, THIS IS SUBJECT TO THE FACT THAT IF IN FUTURE THE DECISION OF HONG,LE ITAT MUMBAI IN THE CASE OF NIECO INSTRUMENT P.LTD. IS MODIFIED OR REVERSED AT HIGHER JUDICIAL FORUM NAMELY, THE HON'BLE HIGH COURT AND HON'BLE SUP REME COURT, SUCH CLAIM OF THE APPELLANT WILL HAVE TO BE WITHDRAWN BY THE AO AND THE AO WILL BE FREE TO TAKE REMEDIAL MEASURES AS PER INCOME TAX LAW. IN THE RESULT, THESE GROUNDS OF APPEAL NO.4 TO 6 ARE TO BE TREATED AS ALLOWED. 6 . ON APPRAISAL OF THE ABO VE MENTIONED FINDING, WE NOTICE D THAT THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE ON THE BASIS OF DECISION OF HONBLE ITAT MUMBAI IN THE CASE OF MECO INSTRUMENTS PVT. LTD. IN THIS CASE ALS O , T HE EXPENSES INCURRED ON IN - HOUSE R & D WAS ALLOWED. THE EXP ENSES INCURRED FOR IN - HOUSE R&D UNIT OF APPELLANT COMPANY ARE SUPPORTED BY BILL AND VOUCHERS AND DULY VERIFIED BY THE AO . THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE. THE FACTS IN THE CASE OF MECO INSTRUMENTS PVT. LTD. (SUPRA) IS QUITE IDENTICAL TO THE FACTS OF THE PRESENT CASE ALSO . THERE IS NOTHING ON RECORD TO WHICH IT CAN BE ASSUMED THAT THE LAW SETTLED IN MECO INSTRUMENTS PVT. LTD. (SUPRA) HAS BEEN CHANGED OR VARIED, THEREFORE, IN THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECID ED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE ITA. NOS.5679 TO 5681 / M/201 7 A.Y S . 2011 - 12, 2012 - 13 & 2013 - 14 9 INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HE REBY DISMISSED. ITA. NO. 5680 & 5681 /M/201 7 :- 7 . THE FACTS OF THE PRESENT CASE ARE QUITE SIMILAR TO THE FACT OF THE CASE AS NARRATED ABOVE WHILE DECIDING THE ITA. NO. 5679 /M/201 7 , THEREFORE, THERE IS NO NEED TO REPEAT THE SAME. HOWEVER, THE FIGURE IS DIFFERE NT. THE MATTER OF CONTROVERSY IS ALSO THE SAME . THE FINDING GIVEN ABOVE IN ITA. NO.5679 /M/2017 IS QUITE APPLICABLE TO THE FACTS OF THE PRESENT CASE AS M UTATIS MUTANDIS AND ACCORDINGLY WE DISMISS THE APPEAL S OF THE REVENUE. 8 . IN THE RESULT, APPEAL S FILED BY THE REVENUE ARE HEREBY DISMISSED . ORDER PRONOUNCE D IN THE OPEN COURT ON 22 / 12 / 20 20 SD/ - SD/ - ( SHAMIM YAHYA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBA I DATED : 22 /12 /20 20 VIJAY PAL SINGH ( SR. PS ) ITA. NOS.5679 TO 5681 / M/201 7 A.Y S . 2011 - 12, 2012 - 13 & 2013 - 14 10 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / /(DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI