ACIT, Circle-10(2), New Delhi V. Invictus Oncology P.Ltd, Delhi

ITA 7332/DEL/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5435 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 07-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: SHIPRA WALIA
• Keywords: Depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: SMC NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER ITA NO.-7332/DEL/2017 ( ASSESSMENT YEAR: 2013-14) ACIT CIRCLE 10(2), NEW DELHI. VS M/S INVICTUS ONCOLOGY P. LTD. PLOT NO. 465, 1 ST FLOOR, FIE PATPARGANJ, INDUSTRIAL AREA, DELHI. 110092. AACC15921K ASSESSEE BY MS. SHIPRA WALIA, CA REVENUE BY MS. ASHIMA NEB, SR. DR ORDER THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A SSAILING THE CORRECTNESS OF THE ORDER DT. 27.9.2017 OF CIT(A)-22, DELHI PERT AINING TO 2013-14 AY ON THE FOLLOWING GROUNDS: 1. WHETHER THE CIT(A) WAS CORRECT ON FACTS AND CIR CUMSTANCES ON DELETING THE PENALTY U/S 271(1)(C ) OF THE ACT, AMOUNTING TO RS. 30,90,567/- 2. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. AT THE TIME OF HEARING AN ADJOURNMENT APPLICATIO N HAS BEEN MOVED ON BEHALF OF THE ASSESSEE. HOWEVER, CONSIDERING THE M ATERIAL AVAILABLE ON RECORD. IT WAS DEEMED APPROPRIATE TO REJECT THE SAME AND PA SSED AN ORDER ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AFTER HEARING THE P ARTIES. 3. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF DEVELOPING CANCER DRUGS, ESTABLISHING MOLECULAR DIAGNOSTICS PLATFORM FOR DIFFERENT TYPES AND DISCOV ERING CHEMOTHERAPEUTIC/CHEMO PREVENTIVE NUTRACEUTICALS DECLARED A LOSS RETURN WH ICH WAS SELECTED FOR SCRUTINY. THE AO IN THE COURSE OF THE ASSESSMENT PROCEEDINGS VIDE HIS ORDER U/S 143(3) OF THE ACT HELD THAT THE EXPENSES INCURRED ARE IN RELA TION TO DEVELOPMENT OF AN INTANGIBLE ASSETS AND THUS, WERE REQUIRED TO BE CAP ITALIZED RESULTING IN ADDITION BY WAY OF A DISALLOWANCE OF EXPENDITURE OF RS. 1,04,2 3,852/-. THE RETURNED LOSS OF RS. 97,05,486/- WAS ASSESSED AT A POSITIVE INCOME O F RS. 7,18,366/-. AS A RESULT OF THIS, PENALTY U/S 271(1)(C ) WAS INITIATED AND I MPOSED UPON THE ASSESSEE. THE ASSESSEE IN THE PENALTY PROCEEDINGS REITERATED THE EXPLANATION ADVANCED BEFORE DATE OF HEARING 23.04.2018 DATE OF PRONOUNCEMENT 26 .04.2018 ITA NO. 733 2 /DEL/2017 2 THE AO. IT WAS EXPLAINED THAT IT WAS A R&D COMPANY AS THE ASSESSEE WAS DOING RESEARCH AND ITS RESEARCH RESULTS INTO VARIOUS FORM ULATIONS AND THE EXPENSES WERE CONSEQUENTLY CLAIMED AS REVENUE EXPENSES AS TH EY WERE INCURRED ON A DAY TO DAY ACTIVITY. THE SAID CLAIM WAS HELD TO BE NOT ALLOWABLE LEADING TO THE PENALTY OF RS. 30,90,567/-. 4. THE ASSESSEE CARRIED THE ISSUE IN APPEAL BEFORE THE CIT(A) WHO CONSIDERING THE SUBMISSIONS PROCEED TO QUASH THE PE NALTY ORDER HOLDING AS UNDER: 4.2 THE FACT OF THE CASE THAT THE AO IN THE ASSES SMENT ORDER STATED THAT THE APPELLANT BEING AN R&D COMPANY, SHOULD HAV E CAPITALIZED ALL EXPENSES INCLUDING THE DEPRECIATION CLAIMED INSTEAD OF CLAIMING THEM AS A BUSINESS LOSS. THE AO COMPLETED THE ASSESSMENT UND ER 143(3) AT AN INCOME OF RS. 7,18,370/- AGAINST THE DECLARED CURRE NT YEAR LOSS OF RS. 97,05,486/-. THE AO DISALLOWED THE ENTIRE EXPENSES CLAIMED BY THE APPELLANT TREATING THE SAME AS CAPITAL EXPENDITURE. FOR THIS PENALTY PROCEEDING U/S 271(1)(C ) WERE SIMULTANEOUSLY INITI ATED AND PENALTY ORDER LEVYING PENALTY U/S 271(1)(C ) OF RS. 30,90,567/- H AS BEEN PASSED BY THE AO. 4.3 BEFORE ME THE APPELLANT IS CONTESTING THE PENAL TY LEVIED BY THE AO. THE AO AR SUBMITTED THAT THE APPELLANT IS R&D COMPA NY AND ENGAGED IN DEVELOPING NEXT GENERATION CANCER DRUGS. THE LD. A R SUBMITTED THAT THE APPELLANT HAS CLAIMED EXPENSES RELATED TO RESEARCH AS PER THE PRESCRIBED ACCOUNTING STANDARD 26AS BY ICAI R.W.S. 145 OF THE ACT AND EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE AS SESSEE. THE AR FURTHER SUBMIT THAT IT IS MERELY A CASE OF CHANGE OF OPINIO N BY CONSIDERING THE EXPENSES CLAIMED AS REVENUE, AS CAPITAL IN NATURE, NO PENALTY SHOULD BE LEVIED UPON. THE LD. AR RELIED UPON VARIOUS CASE L AWS INCLUDING THE DELHI HIGH COURT IN CIT VS. HMA UDYOG (P) LTD. (2007) 159 TAXMAN 394 AND COMMISSIONER OF INCOME TAX VS. DEBAN INTERNATIONAL LTD. (2010) 2 DTLONLINE 140 (DELHI) AND THE SUPREME COURT IN RELI ANCE PETROPRODUCTS P. LTD. 322 ITR 158 (SC) CIVIL APPEAL NO. 2463 OF 2 010 MARCH 17, 2010. 4.4 CONTENTIONS OF THE APPELLANT HAVE BEEN EXAMINED THERE IS NO DISPUTE IN THE FACT THAT APPELLANT IS ENGAGED IN R& D ACTIVITY. THE ISSUE IS NOT WHETHER THE EXPENSE IS INCURRED OR NOT. THE AO HAS DISALLOWED THE EXPENSES AS THEY WERE CLAIMED BY THE APPELLANT AS R EVENUE EXPENSES. THE AO IN THE ORDER U/S 271(1)(C ), HAS STATED THAT AS THE ASSESSEE IS AN R&D COMPANY AND THUS ALL THE EXPENSES CLAIMED AS REVENU E SHALL ALSO BE CAPITALIZED. HOWEVER, IT DOES NOT ESTABLISH THAT T HERE WAS SUPPRESSION OF ANY MATERIAL FACTS BY THE APPELLANT NOR DOES IT EST ABLISH THAT THE APPELLANT EXPLANATION WAS NOT BONA FIDE. IT IS TRUE THAT MER E MAKING OF A CLAIM WHICH IS NOT ALLOWED, CANNOT PERSE LEAD TO IMPOSITION OF PENALTY U/S 271(1)(C ). FURTHER MERE FACT THAT THE SAID EXPLANATION WAS NOT ACCEPTED AND THE ADDITION WAS MADE, DOES NOT LEAD TO IMPOSITION OF P ENALTY AS HELD BY THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETRO PR ODUCTS P. LTD. (SUPRA). 4.5 THE IMPACT OF CAPITALIZING THE EXPENSES WILL ON LY LEAD TO DEFERMENT OF THE EXPENSES CLAIMED BY THE APPELLANT TO A LATER YEAR. THUS, THERE IS NO FURNISHING OF INACCURATE PARTICULARS BUT NOT ACCEPT ING THE CLAIM MADE BY THE APPELLANT WHICH DOES NOT MAKE THE CLAIM OF APPELLAN T AS BEREFT OF BONAFIDE. THE APPELLANT HAD DISCLOSED ALL NECESSARY MATERIAL AND RAISED CONTENTIONS, BUT SUCH CONTENTIONS WERE NOT ACCEPTED BY AO. IN V IEW OF THE JUDICIAL ITA NO. 733 2 /DEL/2017 3 DECISION RELIED UPON BY THE APPELLANT AND AFTER CON SIDERING ALL THE FACTS I AM INCLINED TO ACCEPT THE ARGUMENT OF THE LD. AR. TH EREFORE, THE PENALTY LEVIED BY THE AO IS CANCELLED. 5. THE LD. SR. DR RELIES UPON THE ASSESSMENT ORDER AND THE PENALTY ORDER. 6. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ON THE OTHER HAND, SUBMITTED THAT THOUGH THE ADDITION MADE IN THE ASSE SSMENT ORDER HAS BEEN ACCEPTED BY THE ASSESSEE AS THERE WAS NO IMPACT THE REOF, HOWEVER, THE TREATMENT GIVEN BY THE AO REPEATED IN THE SUBSEQUEN T YEAR HAS BEEN CHALLENGED. ACCORDINGLY, IT WAS HER SUBMISSION THA T THE ASSESSEES CLAIM ON MERIT IS ALLOWABLE EVEN IF THE ISSUE HAS NOT BEEN C ONTESTED IN THE QUANTUM PROCEEDINGS IN THE YEAR UNDER CONSIDERATION. IT WA S ALSO THE ARGUMENT THAT NOTWITHSTANDING THE FACT THAT ON MERITS THE ADDITIO N REMAINS NOT CHALLENGED EVEN THEN THE CLAIM OF THE ASSESSEE WHICH HAS BEEN ACCEP TED BY THE CIT(A) IN THE PENALTY PROCEEDINGS AS A BONAFIDE CLAIM DESERVES TO BE UPHELD AS IN THE FACTS OF THE PRESENT CASE THERE WAS NO CONCEALMENT OR FILING OF INACCURATE PARTICULARS BY THE ASSESSEE. THE ORDER IT WAS SUBMITTED MAY BE UP HELD. 7. I HAVE HEARD THE SUBMISSIONS AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. THE PECULIAR FACTS & CIRCUMSTANCES OF THE PRESENT CASE HAVE BEEN ELABORATED AT LENGTH IN THE EARLIER PART OF THE ORD ER. ON GOING THROUGH THE SAME, I AM OF THE VIEW THAT, ADMITTEDLY IT IS NEITHER A CAS E OF CONCEALMENT OR OF FILING OF INACCURATE PARTICULARS. WITHOUT GETTING INTO THE D EBATE OF CORRECTNESS OF THE SAID CLAIM AS THE CORRECTNESS OF THE SAME IN SUBSEQUENT YEAR IS PENDING BEFORE THE ITAT, I FIND THAT IN THE PECULIAR FACTS OF THE PRES ENT CASE THE CLAIM OF THE ASSESSEE IS ALLOWABLE. THE CLAIM OF THE ASSESSEE M ADE IN ITS FIRST YEAR WHEN CONSIDERED ON THE BASIS OF MATERIAL AVAILABLE ON RE CORD IN THE LIGHT OF THE POSITION OF LAW AS CONSIDERED BY THE DECISION OF THE APEX CO URT IN THE CASE OF RELIANCE PETRO PRODUCTS P. LTD. 322 ITR 158 (SC) I AM OF THE VIEW HAS CORRECTLY BEEN HELD TO BE A BONA FIDE CLAIM. ACCORDINGLY, IN THE FACT S AS I FIND NO INFIRMITY IN THE IMPUGNED ORDER BEING SATISFIED BY THE CONSISTENT EX PLANATION OF THE ASSESSEE AND ON GOING THROUGH THE IMPUGNED ORDER THE DEPARTM ENTAL APPEAL ACCORDINGLY, IS DISMISSED. SAID ORDER WAS PRONOUNCED IN THE OPE N COURT AT THE TIME OF HEARING ITSELF. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ITA NO. 733 2 /DEL/2017 4 ORDER WAS PRONOUNCED IN THE OPEN COURT ON 26.04.201 8. SD/- (DIVA SINGH) JUDICIAL MEMBER DATED: 26.04.2018 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI DRAFT DICTATED ON 23.4.18, 26.4.18 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 26.4.18 KEPT FOR PRONOUNCEMENT ON 26.4.18 FILE SENT TO THE BENCH CLERK 26.4.18 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.