D. K. PHARMACHEM PVT. LTD., BADLAPUR V. DCIT CIR.-1 KALYAN, KALYAN

ITA 6150/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6938 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 17-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: DEVDATTA MAINKAR
• Keywords: Depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI G S PANNU, ACCOUNTANT MEMBER & SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NOS.6150 & 6151/MUM/2016 ASSESSMENT YEARS : 2011-12 & 2012-13 D K PHARMACHEM PVT. LTD., PLOT NO.32, MIDC, BADLAPUR 421 503 PAN AABCB4071C VS. DCIT CIR.1, KALYAN (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEVDATTA MAINKAR RESPONDENT BY: SHRI RAM TIWARI DATE OF HEARING : 16.05.2018 DATE OF PRONOUNCEMEN T : 20.06.2018 O R D E R PER G S PANNU, ACCOUNTANT MEMBER BOTH THE APPEALS ARE BY THE SAME ASSESSEE PERTAINI NG TO ASSESSMENT YEARS 2011-12 & 2012-13 AND SINCE THEY INVOLVE COMMON ISS UES THEY HAVE BEEN CLUBBED & HEARD TOGETHER AND CONSOLIDATED ORDER IS BEING PA SSED FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE APPEAL OF THE ASSESSEE FOR A.Y. 2012-13, IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-2, THANE, DATED 14.07.2016, WHICH IN TUR N HAS ARISEN OUT OF THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), IS TAKEN UP AS THE LEAD CASE. 3. IN THE MEMO OF APPEAL, THE ASSESSEE HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CITA(A) ERRED IN CONFIRMING DENIAL OF DEDUC TION OF RESEARCH AND DEVELOPMENT EXPENSES TO THE TUNE OF RS.1,61,63,015/ - UNDER SECTION ITA NOS.6150& 6151/MUM/2016 D K PHARMACHEM P LTD 2 35(2AB) BEING WEIGHTED DEDUCTION @150% OF RESEARCH AND DEVELOPMENT EXPENSES OF RS.98,63,971. 2. WITHOUT PREJUDICE TO THE GROUND NO. 1 ABOVE, T HE LEARNED CIT(A) FURTHER ERRED IN NOT GRANTING DEDUCTION OF RS.35,64 ,927/- UNDER SECTION 35(L)(IV) BEING CAPITAL EXPENDITURE INCURRED FOR RE SEARCH AND DEVELOPMENT RELATED TO THE BUSINESS OF THE APPELLANT. 4. IN SO FAR AS GROUND OF APPEAL NO.1 IS CONCERNED, THE SAME RELATES TO CLAIM OF DEDUCTION U/S. 35(2AB) OF THE ACT, WHICH HAS NOT BE EN PRESSED AT THE TIME OF HEARING. NOTABLY, THE ASSESSING OFFICER DENIED THE CLAIM OF DEDUCTION U/S. 35(2AB) OF THE ACT ON THE GROUND THE REQUISITE APPROVAL ISS UED BY THE MINISTRY OF SCIENCE AND TECHNOLOGY DID NOT PERTAIN TO THE PERIOD UNDER CONSIDERATION. THE LEARNED REPRESENTATIVE POINTED OUT THAT THE SAID POSITION C ONTINUES AND, THEREFORE, THE SAID GROUND IS NOT PRESSED. ACCORDINGLY, GROUND OF APPE AL NO.1 IS DISMISSED. 5. THE ONLY POINT WHICH IS CANVASSED BEFORE US IS C ONTAINED IN GROUND OF APPEAL NO.2, WHICH PERTAINS TO CLAIM OF DEDUCTION U/S. 35( 1)(IV) OF THE ACT. PERTINENTLY, SECTION 35(1)(IV) OF THE ACT PERMITS DEDUCTION IN R ESPECT OF EXPENDITURE ON SCIENTIFIC RESEARCH, WHICH IS CAPITAL IN NATURE. AS AN ALTERN ATE TO THE CLAIM U/S. 35(2AB) OF THE ACT, ASSESSEE HAD CLAIMED BEFORE THE CIT(A) THAT IN RESPECT TO EXPENDITURE OF CAPITAL NATURE INCURRED ON SCIENTIFIC RESEARCH AMOUNTING TO ` 35,64,927/-, THE REQUISITE DEDUCTION BE ALLOWED U/S 35(1)(IV) OF THE ACT. THE CIT(A) HAS DENIED THE CLAIM ON THE GROUND THAT THE ASSESSEE COULD NOT ESTABLISH TH AT THE MACHINERY AND EQUIPMENT IN QUESTION WAS WHOLLY AND EXCLUSIVELY USED FOR IN- HOUSE RESEARCH ACTIVITIES OF THE ASSESSEE RELATING TO THE BUSINESS OF THE ASSESSEE. NEVERTHELESS, CIT(A) ALLOWED NORMAL DEPRECIATION ON SUCH PLANT AND MACHINERY. A GAINST THE DENIAL OF RELIEF U/S. 35(1)(IV), THE ASSESSEE IS IN APPEAL BEFORE US. 6. BEFORE US THE LEARNED REPRESENTATIVE FOR THE ASS ESSEE POINTED OUT THAT IN THE RETURN OF INCOME, ASSESSEE HAD CLEARLY DEPICTED THE LIST OF ITEMS OF PLANT AND MACHINERY, WHICH WERE USED FOR CARRYING OUT RESEARC H AND DEVELOPMENT ACTIVITIES AND EVEN DEPRECIATION THEREOF WAS NOT CLAIMED. IN T HIS CONTEXT, OUR ATTENTION HAS BEEN INVITED TO COMPUTATION OF INCOME AS WELL AS SC HEDULE OF DEPRECIATION FILED ALONG WITH THE RETURN OF INCOME. OUR ATTENTION WAS ALSO INVITED, IN PARTICULAR, TO PAGE 14 OF THE PAPER-BOOK WHEREIN IS PLACED DETAILS OF PLANT AND MACHINERY, WHICH ITA NOS.6150& 6151/MUM/2016 D K PHARMACHEM P LTD 3 HAS BEEN USED FOR RESEARCH ACTIVITIES AMOUNTING TO ` 35,64,927/- IT IS ALSO POINTED OUT BY THE LEARNED REPRESENTATIVE THAT AT THE STAGE OF ASSESSMENT, THE COMPLETE DETAILS OF THE EXPENDITURE ON RESEARCH ACTIVITIES W ERE CALLED FOR BY THE ASSESSING OFFICER AND NO FAULT WAS FOUND WITH THE SAME EXCEPT THE FACT THAT THE REQUIRED APPROVAL FROM MINISTRY OF SCIENCE AND TECHNOLOGY WA S NOT FOR THE PERIOD UNDER CONSIDERATION. THEREFORE, ACCORDING TO THE LEARNED REPRESENTATIVE, THE CIT(A) HAS BROUGHT OUT A NEW ANGLE TO THE CONTROVERSY WHICH IS DEHORSE THE ALREADY ACCEPTED POSITION AT THE LEVEL OF THE ASSESSING OFFICER. AP ART FROM THAT IT IS POINTED OUT FROM THE LIST OF RESEARCH & DEVELOPMENT PLANT & MACHINER Y (PAGE 14 OF THE PAPER-BOOK), THAT THE PRODUCTS ARE IN THE NATURE OF SPECTRO PHOT OMETER, GLASS CHROMOTOGRAPH, AUTOMATIC TRITATOR, DUEL CHANNEL CSW SOFTWARE ETC., WHICH HAVE BEEN USED FOR THE SCIENTIFIC RESEARCH. 7. ON THE OTHER HAND, LEARNED DR, APPEARING FOR THE REVENUE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. SECTION 35(1)(IV) OF THE ACT PERMITS DEDUCTION IN RESPECT OF ANY EXPENDITURE OF A CAPITAL NATURE ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE. IN THE PRESENT CASE, THE CLAIM HAS BEEN DENIED BY THE CIT(A) PRIMARILY F OR THE REASON THAT THE USAGE OF THE MACHINERY FOR SCIENTIFIC RESEARCH WAS NOT ESTAB LISHED BY THE ASSESSEE. HOWEVER, IT IS PERTINENT TO NOTE THAT SO FAR AS USA GE OF SUCH MACHINERY PER SE IS CONCERNED, THE CIT(A) DOES NOT DISPUTE THE SAME IN AS MUCH AS HE HAS ALLOWED NORMAL RATE OF DEPRECIATION. THEREFORE, SO FAR AS THE USE FOR THE BUSINESS IS CONCERNED THE SAME IS AN ACCEPTED POSITION BETWEEN THE ASSESSEE AND THE REVENUE. FURTHER POINT TO BE EXAMINED IS AS TO WHE THER SAID PLANT AND MACHINERY HAS BEEN USED FOR SCIENTIFIC RESEARCH. AS FAR AS THE REASONS FOR DENIAL ARE CONCERNED, WE FIND THAT THE CIT(A) HAS MADE VERY GE NERALIZED OBSERVATIONS WHICH ARE RATHER DEHORSE THE ASSERTIONS MADE BY THE ASSES SEE SINCE THE STAGE OF ASSESSMENT. AT THIS POINT WE MAY ALSO PUT ON RECOR D THE STATEMENT AT BAR MADE BY THE LEARNED REPRESENTATIVE FOR THE ASSESSEE THAT FR OM SUBSEQUENT ASSESSMENT YEAR I.E. FROM A.Y. 2013-14, THE ASSESSEES CLAIM FOR DE DUCTION U/S. 35(2AB) OF THE ACT HAD ALSO BEEN ALLOWED IN AS MUCH AS THE APPROVAL FR OM THE MINISTRY OF SCIENCE AND ITA NOS.6150& 6151/MUM/2016 D K PHARMACHEM P LTD 4 TECHNOLOGY WAS AVAILABLE. UNDER THESE CIRCUMSTANCE S AND CONSIDERING THE DETAILS ALREADY FURNISHED BY THE ASSESSEE WITH REGARD TO TH E PLANT AND MACHINERY IN QUESTION, WE ARE UNABLE TO UPHOLD THE STAND OF THE CIT(A) DENYING ASSESSEES CLAIM OF DEDUCTION U/S. 35(1)(IV) OF THE ACT. ACCORDINGL Y, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLO W ASSESSEES CLAIM FOR DEDUCTION U/S. 35(1)(IV) FOR A.Y. 2012-13. AS A RESULT, THE APPEAL FOR A.Y. 2012-13 IS PARTLY ALLOWED. 9. NOW, WE MAY TAKE UP APPEAL FOR ASSESSMENT YEAR 2 011-12. IN SO FAR AS GROUND OF APPEAL NO.1 FOR A.Y. 2011-12 RELATING TO CLAIM U/S. 35(2AB) OF THE ACT IS CONCERNED, THE SAME IS NOT PRESSED AND IS DISMISSED AS SUCH. 10. GROUND NO.2 RAISED IN THE MEMO OF APPEAL HAS BE EN SUBSTITUTED AND MODIFIED BY THE FOLLOWING GROUND: WITHOUT PREJUDICE TO GROUND NO.1, THE LEARNED CIT( A) FURTHER ERRED IN NOT GRANTING DEDUCTION OF RS 5,20,108/- UNDER SECTION 35(1)(IV) BEING CAPITAL EXPENDITURE INCURRED FOR RESEARCH AND DEVEL OPMENT RELATED TO THE BUSINESS OF THE APPELLANT. MODIFIED GROUND OF APPEAL NO.2 STANDS ON THE SAME F OOTING AS GROUND OF APPEAL NO.2 DEALT BY US FOR A.Y. 2012-13 IN THE EARLIER PA RAGRAPHS OF THIS ORDER. FACTS AND CIRCUMSTANCES OF THE CASE ARE IDENTICAL FOR BOTH TH E ASSESSMENT YEARS UNDER APPEAL. THEREFORE, OUR FINDING IN THE APPEAL FOR A.Y 2012-1 3 IN THE EARLIER PARAS SHALL APPLY MUTATIS MUTANDIS IN THE A.Y. 2011-12 ALSO. 11. RESULTANTLY, BOTH THE APPEALS OF THE ASSESSEE A RE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 0 TH JUNE 2018. SD/- SD/- (AMARJIT SINGH) (G S PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED :20 TH JUNE, 2018. SA ITA NOS.6150& 6151/MUM/2016 D K PHARMACHEM P LTD 5 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T , MUMBAI. 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI