ACIT, Circle-2(2), Hyd, Hyderabad V. GVK Biosciences Pvt.Ltd., Hyderabad

ITA 740/HYD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2705 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 01-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K ASHOK KUMAR
• Assessee Lawyers: V SIVA KUMAR
• Section: 14A; 115JB; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 705/HYD/15 2009-10 GVK BIOSCIENCES PVT. LTD., HYDERABAD [PAN: AABCG3208J] DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2), HYDERABAD 706/HYD/15 2010-11 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(2), HYDERABAD 707/HYD/15 2011-12 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2), HYDERABAD 738/HYD/15 2009-10 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(2), HYDERABAD GVK BIOSCIENCES PVT. LTD., HYDERABAD [PAN: AABCG3208J] 739/HYD/15 2010-11 740/HYD/15 2011-12 FOR ASSESSEE : SHRI V. SIVA KUMAR, AR FOR REVENUE : SHRI K. ASHOK KUMAR, DR DATE OF HEARING : 02-01-2018 DATE OF PRONOUNCEMENT : 10-01-2018 O R D E R PER BENCH: THESE ARE CROSS-APPEALS BY ASSESSEE AND REVENUE FOR THE AYS. 2009-10, 2010-11 & 2011-12 AGAINST THE ORDERS O F THE GVK BIOSCIENCES PVT. LTD., :- 2 - : COMMISSIONER OF INCOME TAX (APPEALS)-2, HYDERABAD, DATED 23-03- 2015. SINCE COMMON ISSUES ARE INVOLVED IN ALL THESE APPEALS, THESE ARE HEARD TOGETHER AND DECIDED BY THIS COMMON ORD ER. 2. BRIEFLY STATED, ASSESSEE IS A COMPANY ENGAGED IN T HE BUSINESS OF BIO-INFORMATICS, CONTRACT RESEARCH SERVICES ETC. IN THE YEARS UNDER CONSIDERATION, ASSESSEE HAS CLAIMED DEDUCTION U /S. 10A OF THE INCOME TAX ACT [ACT] AND ALSO U/S. 80IB ON SOME OF THE UNITS, BUT OFFERED INCOME U/S. 115JB OF THE ACT AS WELL. IN THE SCRUTINY ASSESSMENTS COMPLETED, THE ASSESSING OFFICER (AO) INV OKED THE PROVISIONS OF SECTION 14A FOR AY. 2009-10, DENIED DE DUCTION U/S. 80IB(8A) IN THE AYS. 2009-10, 2010-11 & 2011-12. I N ADDITION, AO ALSO RESTRICTED THE DISALLOWANCE U/S. 10A BY EXCLUDING CERTAIN COMMUNICATION CHARGES FROM THE EXPORT TURNOVER ALONE AND MADE ADJUSTMENT IN AY. 2009-10, WHEREAS IN AY. 2010-11 AND 2011-12, AO DENIED THE ENTIRE CLAIM U/S. 10A ON THE REASON THAT CERTAIN FIRCS ISSUED BY KOTAK MAHINDRA BANK MENTIONED THE PURP OSE OF REMITTANCE AS RESEARCH SERVICES AND NOT AS SOFTWAR E EXPORTS AND ACCORDINGLY, ASSESSEE WAS NOT ELIGIBLE U/S. 10A OF T HE ACT. THERE WAS ALSO DISALLOWANCE OF ESOP EXPENDITURE IN AY 2010 -11 AND 2011-12. 3. BEFORE THE LD.CIT(A), ASSESSEE HAS MADE DETAILED SUBMISSIONS. WHILE DEDUCTION U/S. 14A, DEDUCTION U/S . 80IB AND CLAIM OF ESOP EXPENDITURE WAS ALLOWED BY THE CIT(A), THE CLAIM U/S. 10A HAS BEEN REJECTED BY THE CIT(A). HENCE THE CROSS APPEALS. WE HAVE HEARD LD. COUNSEL FOR ASSESSEE AND LD. DR I N DETAIL. GVK BIOSCIENCES PVT. LTD., :- 3 - : DISALLOWANCE U/S. 14A: 4. THIS ISSUE ARISES IN AY. 2009-10 IN THE DEPARTMENTA L APPEAL. ASSESSEE EARNED DIVIDEND OF RS. 88,09,181/- AND CLA IMED THE SAME AS EXEMPT. AO DISALLOWED THE SUM OF RS. 7,08,664/- U/S. 14A R.W. RULE 8D(2)(III). IN APPEAL, THE LD.CIT(A) ALLO WED THE ASSESSEES CONTENTION, CONSIDERING ASSESSEES STATEMENT THAT COMPANY UTILISED THE SERVICES OF ONE EMPLOYEE FOR LOOKING AFTER THE IN VESTMENT AND COST OF SUCH EMPLOYEE WAS ONLY RS. 2,30,000/- AND THE SAID EXPENDITURES ARE SUFFICIENT TO BE CONSIDERED AND NOT 0. 5% OF THE VALUE OF THE AVERAGE INVESTMENT. LD.CIT(A) DID NOT GI VE ANY REASON BUT ACCEPTED ASSESSEES CONTENTION AND HENCE REVENUE I S AGGRIEVED. 4.1. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT THE CALCULATION U/S. 14A REQUIRES RE-EXAMINATION BY THE AO. IN FACT, AS SEEN FROM THE ORDER, AO DID NOT VERIFY WHE THER THERE IS ANY DIRECT EXPENDITURE OR NOT. ASSESSEE STATES THAT THERE IS DIRECT EXPENDITURE BY WAY OF COST OF ONE EMPLOYEE AT RS.2,30, 000/-. LD.CIT(A) WITHOUT EXAMINING THE ISSUE HAS ACCEPTED TH E CONTENTION. MOREOVER, IT IS ALSO NOTICED THAT THE AVERAGE OF INVESTMENTS AS STATED BY THE AO SEEMS TO BE NOT CORRECT. THE AVERAGE OF OPENING INVESTMENT AT RS. 44,49,44,803/- AN D CLOSING BALANCE AT RS. 16,14,79,458/- RESULTS IN AVERAGE VAL UE OF RS. 30,32,12,130/- AS AGAINST RS. 17,17,32,670/- STATED BY THE AO IN THE ORDER. 0.5% THEREON AT RS. 7,08,664/- WAS NOT CORRE CTLY WORKED OUT. THEREFORE, WITHOUT GOING INTO MERITS OF THE ADDITIO N, WE ACCEPT THE REVENUES GROUND AND RESTORE THE ISSUE OF ENTIRE D ISALLOWANCE U/S. 14A TO THE FILE OF AO TO BE CONSIDERED AFRESH, AFTER GIVING DUE GVK BIOSCIENCES PVT. LTD., :- 4 - : OPPORTUNITY TO ASSESSEE. THE GROUNDS ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. DEDUCTION CLAIMED U/S. 80IB(8A): 5. ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IB IN VARIO US YEARS AND AO DENIED THE DEDUCTION CLAIMED BY ASSESSEE. AO WAS OF THE VIEW THAT THE WORK CARRIED OUT BY ASSESSEE WAS IN THE NA TURE OF JOB WORK/SERVICE AND IT CANNOT BE TERMED AS SCIENTIFIC RE SEARCH AND DEVELOPMENT. AO WAS OF THE VIEW THAT ASSESSEE DID NO T FULFIL THE CONDITIONS LAID DOWN IN RULE 18DA OF IT RULES. ACC ORDINGLY, AO DISALLOWED THE DEDUCTION CLAIMED IN ALL THE IMPUGNED TH REE ASSESSMENT YEARS. IN APPEAL, LD.CIT(A) ALLOWED ASSE SSEES CLAIM FOLLOWING THE DECISION OF ITAT IN ASSESSEES OWN CA SE VIDE ORDER IN ITA NO. 1276/HYD/2010 DT. 02-08-2013 FOR AY. 2006-07 AND ALSO ORDER IN ITA NO. 1053/HYD/2013 DT. 06-02-2014 FOR THE AY. 2008- 09. REVENUE IS AGGRIEVED. 6. IT WAS SUBMITTED THAT THE APPROVAL GRANTED TO ASSESSEE W HILE ALLOWING DEDUCTION U/S. 80IB IN AYS. 2006-07 AND 200 8-09 BY THE DEPARTMENT HAS BEEN RENEWED FOR THE AYS. 2009-10, 2010 -11 AND 2011-12 VIDE LETTER NO.TU/IV-R&D/COM/GVK/81/2006 DATE D 11- 04-2008 ISSUED BY THE PRESCRIBED AUTHORITY VIZ., SECRETARY TO GOVERNMENT OF INDIA IN THE DEPT. OF SCIENTIFIC AND IND USTRIAL RESEARCH. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAS AL SO BEEN GRANTED FURTHER RENEWAL U/S. 80IB(8A) FOR THE ASST. YE ARS 2012-13, 2013-14 AND 2014-15 BY THE SAID PRESCRIBED AUTHORITY VIDE LETTER NO. TU/IV /R&D.COM/GVK/81/2005 DATED 29-07-2011. GVK BIOSCIENCES PVT. LTD., :- 5 - : 7. LD.DR, HOWEVER, SUBMITTED THAT CIT(A) IS NOT CORRECT I N GRANTING RELIEF AS THE ITAT ORDER INDICATE THAT THE FACTS ARE TO BE EXAMINED IN EACH OF THE YEARS. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS PLACED ON RECORD. IN THE LIGHT OF THE DECISIO N OF THE ITAT IN ASSESSEES OWN CASE FOR EARLIER YEARS, WHICH THE LD. CIT(A) HAS FOLLOWED, WE DO NOT SEE ANY REASON TO DIFFER FROM THE ORDER OF THE CIT(A). IT IS TRUE THAT ITAT HAS STATED THAT THE CLAIM HAS TO BE EXAMINED IN EACH OF THE YEARS AND LEFT A NOTE OF CAUTIO N THAT THE VIEW TAKEN THEREIN MAY NOT APPLY TO SUBSEQUENT YEARS, I F THERE ARE CHANGE OF FACTS. HOWEVER, AS SEEN FROM THE APPROVAL GRANTED, THERE ARE NO CHANGE OF FACTS AND ASSESSEE IS FOUND TO BE E LIGIBLE FOR DEDUCTION U/S. 80IB. IN VIEW OF THAT, AS THE ISSUE IS SQUARELY COVERED BY THE EARLIER DECISION, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE REVENUE GROUNDS ON THIS IN ALL THE YEARS. DEDUCTION TOWARDS ESOP: 9. THIS ISSUE ARISES IN REVENUE APPEALS FOR AYS. 20 10-11 AND 2011-12. ASSESSEE DEBITED AN AMOUNT OF RS. 63,53,5 01/- IN THE P&L A/C IN THE FINANCIAL YEAR RELEVANT TO THE AY. 201 0-11 AND AN AMOUNT OF RS. 32,00,042/- IN FINANCIAL YEAR RELEVANT FOR AY. 2011- 12 IN THE P&L A/C TOWARDS STOCK BASED COMPENSATION. A O FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF RA NBAXY LABORATORIES LTD., [124 TTJ 77] (DELHI) DISALLOWED TH E DEDUCTION. IN APPEAL, LD.CIT(A) ALLOWED THE CLAIM FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE HON'BLE ITAT, BANGALORE IN THE CASE OF BIOCON LTD., VS. DCIT [144 ITD 21] [35 TAXMANN.COM 335] (BAN GALORE- GVK BIOSCIENCES PVT. LTD., :- 6 - : TRIB.) (SB). THE DEPARTMENT IS AGGRIEVED AND PREFERRED GROUNDS IN THESE TWO YEARS. 10. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT S EE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) AS HE HAS FOLLOWED THE SPECIAL BENCH DECISION IN THE CASE OF BIOCON LTD., VS. DCIT (SUPRA) WHICH IS BINDING ON THE AUTHORITIES. THE GRO UNDS OF REVENUE ARE ACCORDINGLY DISMISSED. DISALLOWANCE OF COMMUNICATION CHARGES WHILE COMPUTIN G DEDUCTION U/S. 10A: 11. THIS ISSUE ARISES IN AY. 2009-10 IN ASSESSEES APPEAL. ASSESSEE FURNISHED FORM 56F AND CLAIMED DEDUCTION U/ S. 10A ON TWO OF THE UNITS. AO NOTICING THAT THERE MAY BE INTERN ET CHARGES ATTRIBUTABLE TO DELIVERY OF ARTICLE/THING OUTSIDE INDIA, D ISALLOWED THE CLAIM OF COMMUNICATION CHARGES. (BIO-INFORMATICS DIVISION, BALANAGAR, HYDERABAD AT RS. 1,18,877/- & AN AMOUNT OF RS. 11,082/- IN INFORMATICS DIVISION, CHENNAI.) AGGRIEV ED BY THE DISALLOWANCE MADE U/S. 10A, ASSESSEE PREFERRED AN A PPEAL BEFORE THE LD.CIT(A) AND RELIED ON VARIOUS CASE LAW INCLUDI NG THE DEFINITION OF EXPORT TURNOVER AND TOTAL TURNOVER B ASED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS LTD., [290 ITR 667] (SC). LD. CIT(A), HOWEVER, LD. CIT(A) DID NOT AGREE STATING THAT THE CLAI M DOES NOT HOLD WATER. 12. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT THIS ISSUE IS COVERED BY THE DECISION OF ITAT IN THE CASE OF PATNI TELECOM SOLUTIONS (P) LTD., VS. ITO [35 TAXMANN. COM 87] GVK BIOSCIENCES PVT. LTD., :- 7 - : (HYD) WHEREIN THE ITAT HAS HELD THAT INTER NET EXPENSES COULD NOT BE TREATED AS COMMUNICATION CHARGES UNDER CLAUSE-4 OF EXPLANATION-2 TO SECTION 10A. HOWEVER, ASSESSEE FAIL ED TO FURNISH THE AMOUNT OF INTERNET CHARGES OR ANY EXPENDITURE UNDER THIS HEAD. WHEN THIS WAS POINTED OUT, ASSESSEES COUNSEL A CCEPTED FOR ALTERNATE CONTENTION THAT WHATEVER IS EXCLUDED FROM THE E XPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER ON THE PRINCIPLES LAID DOWN BY THE HON'BLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD., [194 TAXMA N 192] (BOMBAY) [330 ITR 175] (BOM). THIS ALTERNATE CONTENTI ON IS SQUARELY COVERED BY THE ABOVE DECISION AND ALSO SPE CIAL BENCH DECISION OF THE ITAT, CHENNAI IN THE CASE OF ITO VS. SAK SOFT LTD. [313 ITR (AT) 353], WHEREIN IT HAS BEEN HELD THAT COMM UNICATION CHARGES ETC., ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA WHICH ARE TO BE REDUCED FROM THE EXPORT TU RNOVER SHOULD BE REDUCED FROM THE TOTAL TURNOVER AS WELL, WHIL E COMPUTING THE DEDUCTION U/S. 10A. THEREFORE, FOLLOWING THE RATIO LAID DOWN IN THE AFORESAID CASES, WE DIRECT THE AO TO EXCLUDE THE SA ME AMOUNT FROM TOTAL TURNOVER AS WELL AND RE-WORKOUT THE DISALL OWANCE U/S. 10A. GROUNDS ARE PARTLY ALLOWED. DISALLOWANCE OF ENTIRE CLAIM U/S. 10A: 13. IN AYS. 2010-11 AND 2011-12, AO DISALLOWED THE E NTIRE CLAIM ON SECTION 10A ON THE REASON THAT SOME OF THE FIRCS ISS UED BY KOTAK MAHINDRA BANK MENTIONED THE PURPOSE AS RESEARCH SERVICES. SINCE ASSESSEE HAS CLAIMED THE DEDUCTION FOR SOFTWARE EXPORTS, AO WAS OF THE OPINION THAT RESEARCH SERVICES PROVIDED BY ASSESSEE ARE NOT ELIGIBLE FOR DEDUCTION U/S. 10A. L D.CIT(A) CONFIRMED THE DISALLOWANCE, EVEN THOUGH ASSESSEE EXPL AINED THAT GVK BIOSCIENCES PVT. LTD., :- 8 - : THEY WERE INTO SOFTWARE EXPORTS AND GAVE DETAILED EXPLA NATION AND ALSO FURNISHED NECESSARY INVOICES IN SUPPORT OF THE C LAIM. 14. LD. COUNSEL REFERRED TO THE SUBMISSIONS MADE BEFO RE THE CIT(A) AND SUBMITTED THAT THE REFERENCE TO RESEARCH SERVI CES IS BECAUSE ASSESSEE IS MAINLY INVOLVED IN PROVIDING ME DICAL RESEARCH SERVICES. THEREFORE, THERE MAY BE MISTAKE IN ISSUING THE CERTIFICATE BUT THAT DOES NOT PROVE THAT ASSESSEE HAS NOT EXPORTED SOFT WARE ON WHICH THE CLAIMS ARE MADE. REFERRING TO THE ORDER OF ASSESSMENT IN AY. 2009-10 [WHICH IS ALSO IN APPEAL BEFORE US], THE LD. COUNSEL POINTED OUT THAT FROM THE SAME UNITS, ASSESSEE HAS CLAIM ED DEDUCTIONS U/S. 10A WHICH WAS ALLOWED IN EARLIER YEA RS BUT IN THESE TWO YEARS, AO TOOK A DIFFERENT STAND. 15. LD.DR, HOWEVER, RELIED ON THE ORDERS OF THE AO AN D CIT(A) ON THIS ISSUE. 16. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE SUBMISSIONS ON THIS ISSUE. THE CLAIM U/S. 10A ON TH E SIMILAR FACTS WAS ALLOWED BY THE AO IN THE ASSESSMENTS MADE U/S. 1 43(3) FOR AYS. 2005-06, 2006-07 AND 2008-09. SIMILAR COMPUTATIO N OF INCOME AND COPIES OF REPORT IN FORM 56F WERE FILED B Y ASSESSEE. EVEN IN AY. 2009-10, WHICH IS ALSO IN APPEAL BEFORE US, THE CLAIM WAS ALLOWED. THEREFORE PRIMA-FACIE THE CLAIM OF DEDUCTION U/S. 10A IS ALLOWABLE. HOWEVER, THE AO MADE OUT A NEW CASE THAT THE REMITTANCES WERE FOR RESEARCH SERVICES. THE FIRC I SSUED BY THE BANK CANNOT BE TAKEN AS A CONCLUSIVE EVIDENCE, UNLESS SUPPORTED BY ACTUAL RESEARCH FOR WHICH REMITTANCES ARE MADE. TH IS ASPECT HAS NOT BEEN EXAMINED BY THE AO AT ALL. MOREOVER, THE DETAILED GVK BIOSCIENCES PVT. LTD., :- 9 - : EXPLANATION MADE BEFORE THE CIT(A) HAS NOT BEEN EXAMIN ED BY THE CIT(A). HE HAS SUMMARILY REJECTED ASSESSEES CONTEN TIONS STATING THAT IT DOES NOT HOLD WATER. WE ARE OF THE OPINION THA T THIS ISSUE REQUIRES RE-EXAMINATION BY THE AO BASED ON THE INVOIC ES RAISED AND CORRESPONDING AMOUNTS REMITTED, SO THAT WHETHER ASSE SSEE HAS INDEED EXPORTED SOFTWARE SERVICES OR THE AMOUNTS REMITTED WERE INDEED FOR RESEARCH SERVICES AS STATED IN THE CER TIFICATE. SINCE THE INVOICES ARE REQUIRED TO BE EXAMINED, THE ISSUE OF DEDUCTION U/S. 10A IS RESTORED TO THE FILE OF AO TO EXAMINE AFRES H AND ALLOW THE CLAIM, IF ASSESSEE SATISFIES THE PROVISIONS OF SEC TION 10A. THE ISSUE IN AYS. 2010-11 AND 2011-12 ARE ACCORDINGLY R ESTORED TO THE FILE OF AO FOR FRESH EXAMINATION. GROUNDS ARE CONSID ERED ALLOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT, REVENUE APPEALS IN AY 2010-11,2011 -12 ARE DISMISSED AND ALL THE OTHER APPEALS ARE CONSIDERED PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JANUARY, 2018 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 10 TH JANUARY, 2018 TNMM GVK BIOSCIENCES PVT. LTD., :- 10 -: COPY TO : 1. GVK BIOSCIENCES PVT. LTD., PLOT NO. 28A, ROAD NO . 15, IDA NACHARAM, HYDERABAD. 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2), HYDERABAD. 3. ASST. COMMISSIONER OF INCOME TAX, CIRCLE- 2(2), HYDERABAD. 4. CIT (APPEALS)-2, HYDERABAD. 5. PR.CIT-2, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.