JK Tyre & Industries Limited, Kolkata V. CIT, Central - I, Kolkata, Kolkata

ITA 742/KOL/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7645 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 13-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR D R
• Assessee Lawyers: D S DAMLE
• Keywords: Business income; Opportunity of being heard; Assessment record; Capital expenditure
• Section: 143(3); 37; 263; 154

Judgement Text

, ' , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA ( ) . . , , , , , , ) [BEFORE SRI S.V. MEHROTRA, A.M. & SRI MAHAVIR SING H, J.M.] ! ! ! ! / I.T.A NO. 742/KOL/2010 ASSESSMENT YEAR : 2005-2006 J.K. TYRE & INDUSTRIES LIMITED, KOLKATA -VS.- COMMISSIONER OF INCOME TAX, CENTRAL-1, (PAN : AAACJ 6716 F) KOLKATA ( '# /APPELLANT ) ( $%'# / RESPONDENT ) FOR THE APPELLANT ( '# ) : SHRI D.S. DAMLE, A.R. FOR THE RESPONDENT ( $%'# ) : SHRI NIRAJ KUMAR, D.R. &' ( ) * &' ( ) * &' ( ) * &' ( ) * /DATE OF HEARING : 21.12.2011 +, ) * +, ) * +, ) * +, ) * /DATE OF PRONOUNCEMENT : 06.01.2012 - / ORDER PER SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER/ . . , :- THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER OF LD. COMMISSIONER OF INCOME- TAX (CENTRAL-I), KOLKATA DATED 04.03.2010 FOR THE A SSESSMENT YEAR 2005-06. 2. BRIEF FACTS OF THE CASE ARE THAT LD. CIT(CENTRAL -I), KOLKATA EXAMINED THE RECORDS OF ASSESSEE FOR ASSESSMENT YEAR 2005-06 AND NOTICED TH AT THE ASSESSMENT HAD BEEN COMPLETED UNDER SECTION 143(3) ON 19.12.2007 AT A LOSS OF RS. 20,11,49,218/-. HE NOTICED THAT IN ARRIVING AT THIS LOSS, THE ASSESSING OFFICER, INTER ALIA, AL LOWED AN AMOUNT OF RS.1,43,00,000/- BEING THE CLAIM MADE ON ACCOUNT OF A DONATION OF THE LIKE AMO UNT TO INDIAN INSTITUTE OF TECHNOLOGY(IIT), CHENNAI. THIS CLAIM WAS MADE IN THE COMPUTATION OF INCOME READ WITH FOLLOWING NOTE 9 TO THE COMPUTATION OF INCOME :- PENDING APPROVAL AS ELIGIBLE PROJECT UNDER SECTION 35(2AA), DEDUCTION IS BEING CLAIMED AT 100% OF THE AMOUNT CONTRIBUTED. ENHANCED DEDUCTION WILL BE CLAIMED AFTER RECEIPT OF APPROVAL FROM SPECIFIED AUTHORITY. FURTHER, HE NOTICED THAT IN ANNEXURE-3 TO THE AUDIT ED ACCOUNTS, THE AUDITORS HAD GIVEN A NOTE AS UNDER :- ITA NO. 742/KOL./2010 2 APPROVAL UNDER SECTION 35(2AA) IS AWAITED. AS AND WHEN RECEIVED, COMPANY WILL BE ENTITLED TO A DEDUCTION OF 125% OF THE CONTRIBUTION MADE. HE NOTICED THAT THOUGH NO APPROVAL FROM THE SPECIFI ED AUTHORITY WAS RECEIVED, STILL ASSESSING OFFICER ALLOWED THE ENTIRE AMOUNT CLAIMED BY THE AS SESSEE. HE POINTED OUT THAT SINCE THE PROJECT HAD NOT BEEN APPROVED BY THE PRESCRIBED AUT HORITY, NO DEDUCTION UNDER SECTION 35(2AA) WAS ALLOWABLE. IN VIEW OF THE ABOVE FACTS, HE CONCLUDED THAT SINCE THE ASSESSEE HAD MADE THE CLAIM ONLY UNDER SECTION 35(2AA), THE ALLO WANCE OF ANY SUCH CLAIM IN THE ABSENCE OF REQUISITE APPROVAL WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. ACCORDINGLY, HE ISSUED NOTICE TO THE ASSESSEE DATED 26.03.2009 CONT AINED AT PAGES 8-9 OF THE PAPER BOOK, WHICH READS AS UNDER :- THE ASSESSMENT IN THIS CASE WAS MADE UNDER SECTION 143(3) ON 19.12.2007 ON A LOSS OF RS.20,11,49,218/-. THE ASSE SSEE CLAIMED DEDUCTION OF RS.1,43,00,000/- ON ACCOUNT OF DONATION TO IIT, CHENNAI, IN THE COMPUTATION OF INCOME, STATING THE SAME AS IN THE N ATURE OF SCIENTIFIC RESEARCH EXPENDITURE. BUT IN NOTE NO. 9 IN RESPECT OF THE COMPUTATION, THE ASSESSEE MENTIONED PENDING APPROVAL AS ELIGIBLE PR OJECT UNDER SECTION 35(2AA), DEDUCTION IS BEING CLAIMED @ 100% OF THE A MOUNT CONTRIBUTED. ENHANCED DEDUCTION WILL BE CLAIMED AFTER RECEIPT OF APPROVAL FROM SPECIFIED AUTHORITY. IN ANNEXURE-3 TO THE AUDITED ACCOUNTS, THE AUDITORS HAVE GIVEN THE NOTE APPROVAL UNDER SECTION 35(2AA) AWAITED. AS AND WHEN RECEIVED, COMPANY WILL BE ENTITLED TO A DEDUCT ION OF 125% OF THE CONTRIBUTION MADE. THE CLAIM OF DEDUCTION HAS BEEN ALLOWED IN THE ASSE SSMENT ALTHOUGH NO APPROVAL FROM THE SPECIFIED AUTHORITY WAS FURNISHED . AS THE PROJECT HAS NOT BEEN APPROVED BY THE PRESCRIBED AUTHORITY, NO DEDUC TION UNDER SECTION 35(2AA) IS ALLOWABLE. THERE IS NO PROVISION TO ALLO W PEACE MEAL DEDUCTION PENDING THE REQUIRED APPROVAL OF THE PROJECT. THE AO HAS MENTIONED THAT THE ASSESSEE CLAIMED DEDU CTION UNDER SECTION 35(1)(I) DURING THE COURSE OF HEARING. BUT THERE IS NOTHING ON RECORD IN SUPPORT OF THAT. 3. LD. CIT, CENTRAL-I, KOLKATA HAS SUMMARIZED THE A SSESSEES SUBMISSIONS MADE BEFORE HIM AS UNDER :- 1. THE EXPENDITURE INVOLVED WAS LAID OUT WHOLLY A ND EXCLUSIVELY FOR THE PURPOSES OF THE COMPANIES BUSINESS AND IN THE RETUR N OF INCOME FILED THE COMPANY CLAIMED 100% DEDUCTION U/S 35(1)(I) EVEN TH OUGH IT WAS ENTITLED TO A DEDUCTION AT 125% U/S 35(2AA) ON ACCOUNT OF THE FAC T THAT THE PERMISSION OF THE PRESCRIBED AUTHORITY FOR AVAILING DEDUCTION U/S 35( 2AA) HAD NOT BEEN RECEIVED, IT WAS ALSO ALTERNATIVELY ENTITLED TO A DEDUCTION AT 1 25% OF THE AMOUNT PAID IN VIEW ITA NO. 742/KOL./2010 3 OF THE PROVISIONS OF AN ALTERNATIVE SECTION I.E. SE C. 35(1)(II) WHICH ALLOWS DEDUCTION IN RESPECT OF EXPENDITURE ON SCIENTIFIC R ESEARCH. THE RECIPIENT OF THE PAYMENT, IIT, CHENNAI HAD BEEN PROPERLY NOTIFIED FO R THE PURPOSE OF SEC. 35(1)(II) BENEFIT. HENCE THE COMPANY WAS ALSO ENTIT LED TO A DEDUCTION U/S 35(1)(II). 2. THOUGH THE ASSESSEE DID NOT RAISE THIS ISSUE BE FORE THE CIT(A) IN THE COURSE OF APPEAL FOR THE RELEVANT YEAR, DURING THE COURSE OF APPEAL FOR THE SAME YEAR BEFORE THE ITAT AN ADDITIONAL GROUND REGARDING ITS ENTITLEMENT FOR DEDUCTION U/S 35(1)(II) WAS RAISED AND THE TRIBUNAL WAS PLEASED TO ADMIT THE ADDITIONAL GROUND AND REMITTED THE ISSUE BACK TO TH E FILES OF THE CIT(A) AGAINST WHOSE ORDER THE APPEAL TO THE ITAT LAY, FOR RECONSI DERING THE ISSUE SINCE IT HAD NOT BEEN RAISED BEFORE HIM [THE CIT(A)] EARLIER AND TO DECIDE IT ON MERITS. 3. IN VIEW OF THIS, PROCEEDINGS U/S 263 WOULD NOT LIE CONSIDERING THAT THE ISSUE HAD BEEN DECIDED IN APPEAL AND HENCE EXCLUDED FROM THE PURVIEW OF SEC. 263 BY VIRTUE OF CLAUSE (C) OF EXPLANATION TO SEC. 263(1). 3.1. LD. CIT AFTER CONSIDERING THE ASSESSEES SUBMI SSIONS REJECTED THE SAME FOR THE FOLLOWING REASONS :- (1) THE CLAIM MADE IN THE RETURN OF INCOME WAS UNDE R SECTION 35(2AA) AND NOT UNDER SECTION 35(1)(I) AND EVEN SECTION 35(1)(II) W OULD NOT BE APPLICABLE TO IT. (2) SECTION 35(1)(I) RELATES ONLY TO EXPENDITURE DI RECTLY INCURRED BY THE ASSESSEE, EXCLUDING CAPITAL EXPENDITURE, FOR THE PURPOSE OF S CIENTIFIC RESEARCH RELATED TO ITS BUSINESS, WHEREAS SECTION 35(1)(II) AS ALSO 35(2AA) CLEARLY RELATE TO EXPENDITURE BEING DONATION TO OTHER INSTITUTIONS ENGAGED IN SCI ENTIFIC RESEARCH. (3) THE ASSESSEE NEVER MADE ANY CLAIM UNDER SECTION 35(1)(I) BEFORE THE ASSESSING OFFICER. THEREFORE, IN VIEW OF THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA LIMITED VS.- CIT (2006) 284 ITR 323, THE ASSESSEES CLAIM UNDER SECTION 35(1)(I) WAS NOT ADM ISSIBLE. (4) AS REGARDS THE ALTERNATIVE CLAIM UNDER SECTION 35(1)(II) VIDE SUBMISSION NO.(2) NOTED ABOVE, THE LD. CIT OBSERVED THAT SINCE THE CLAIM WAS NOT MADE EITHER BEFORE THE ASSESSING OFFICER OR EVEN BEFORE THE LD. CIT, THEREFORE, IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF GOETZE INDIA LTD. (SUPRA), THE SAME WAS NOT ALLOWABLE. ITA NO. 742/KOL./2010 4 (5) AS REGARDS THE LAST OBJECTION RAISED TO SECTIO N 263 ACTION ON THE BASIS OF APPLICABILITY OF EXPLANATION (C) TO SECTION 263(1), LD. CIT POINTED OUT THAT THE ASSESSEES OBJECTION WAS NOT TENABLE FOR THE FOLLOW ING REASONS :- (I) REFERENCE IN THE EXPLANATION IS TO ORDERS PASSE D BY THE ASSESSING OFFICER WHICH HAD BEEN THE SUBJECT MATTER OF APPEAL AND ISSUES CONSIDERED AND DECIDED THEREIN. HOWEVER, IN THE INS TANT CASE, THE ORDER PASSED BY THE ASSESSING OFFICER HAD NOT BEEN THE SU BJECT MATTER OF APPEAL BY THE ASSESSEE BEFORE THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) ON THE ISSUE OF ALLOWABILITY UNDER ANY OF THE SUB-SECTIONS OF SECTION 35. THE ORDER WHICH WAS THE SUBJECT MATTER OF APPEAL BEFORE THE ITAT WAS AN ORDER PASSED BY THE LD. CIT(APPEALS), W HO IS NOT AN ASSESSING OFFICER IN TERMS OF THE DEFINITION OF ASS ESSING OFFICER GIVEN IN SECTION 2(7A). (II) THE ISSUE OF ALLOWABILITY OF ASSESSEES CLAIM UNDER SECTION 35(1)(II) HAD NOT BEEN DECIDED BY THE ITAT AND ITAT HAD MERELY ORDERED RECONSIDERATION OF THE ISSUE BY LD. CIT(APP EALS) ON MERITS AND AFTER PROPER OPPORTUNITY OF BEING HEARD IS GRANTED . (III) STRICT INTERPRETATION HAS TO BE GIVEN TO FIS CAL STATUTES AND, THEREFORE, THE WORDS APPEARING IN SECTION 263(1) EX PLANATION (C) NAMELY TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECI DED. CUMULATIVE CONDITIONS TO BE MET. 4. LD. CIT (CENTRAL-1), THEREFORE, CONCLUDED THAT T HE ASSESSING OFFICER ERRED IN ALLOWING AN AMOUNT OF RS.143 LAKHS CLAIMED BY THE ASSESSEE W ITHOUT PROPER VERIFICATION AND ALSO BEING AGAINST THE PROVISION OF LAW. HE, THEREFORE, SET AS IDE THE ASSESSMENT ORDER DATED 19.12.2007 HOLDING THE SAME AS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF REVENUE WITH A DIRECTION TO REDO THE SAME AS PER LAW. ITA NO. 742/KOL./2010 5 5. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 12 7 OF THE PAPER BOOK, WHEREIN THE STATEMENT OF ASSESSABLE INCOME FOR THE ASSESSMENT Y EAR 2005-06 IS CONTAINED AND REFERRED TO PAGE 3 OF THE SAID COMPUTATION TO POINT OUT THAT WH ILE COMPUTING THE INCOME CONTRIBUTION TO IIT, CHENNAI OF RS.1,43,00,000/- WAS FIRST ADDED TO THE BUSINESS INCOME AND THEREAFTER AT PAGE 4, DEDUCTION WAS CLAIMED BY GIVING FOLLOWING NARRAT ION :- (A) AMOUNT PAID TO IIT, CHENNAI IN NATURE OF SCIEN TIFIC RESEARCH EXPENDITURE RS.1,43,00,000/-; THE FOLLOWING NOTE WAS ALSO APPENDED IN THIS REGAR D, WHICH IS AT PAGE 7 OF THE SAID COMPUTATION, THE SAID NOTE READS AS UNDER :- COMPANY HAS PAID RS.143 LACS TO IIT, CHENNAI FOR S CIENTIFIC RESEARCH PROJECT. THE COMPANY IS ENTITLED TO A DEDUCTION OF 125% OF THE AMOUNT CONTRIBUTED UNDER SECTION 35(2AA) OF THE INCOME TAX ACT, 1961. PENDING RECEIPT OF APPROVAL AS ELIGIBLE PROJECT UND ER SECTION 35(2AA), DEDUCTION IS BEING CLAIMED @100% OF THE AMOUNT CONT RIBUTED. ENHANCED DEDUCTION WILL BE CLAIMED AFTER RECEIPT OF APPROVAL FROM SPECIFIED AUTHORITY. WITH REFERENCE TO THESE FACTUAL ASPECTS, LD. COUNSE L FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD CLAIMED ONLY 100% DEDUCTION OF THE AMOUNT PAID TO IIT, CHENNAI IN NATURE OF SCIENTIFIC RESEARCH EXPENDITURE AND NOT WEIGHTED DEDUCTION. LD . COUNSEL SUBMITTED THAT ALL THE INFORMATION IN THIS REGARD WAS DULY DISCLOSED IN TH E RETURN. HE REFERRED TO PAGE 8 OF THE ASSESSMENT ORDER AND POINTED OUT THAT ASSESSING OFF ICER HAD ALLOWED THE DEDUCTION AS CLAIMED BY THE ASSESSEE. LD. COUNSEL REFERRED TO PAGES 49 T O 52 OF THE PAPER BOOK, WHEREIN THE ORDER OF TRIBUNAL FOR VARIOUS ASSESSMENT YEARS INCLUDING ASS ESSMENT YEAR 2005-06 IS CONTAINED AND POINTED OUT THAT THE TRIBUNAL HAD ADMITTED THE ASSE SSEES ADDITIONAL GROUNDS FOR CLAIMING DEDUCTION UNDER SECTION 35(1)(II) OF THE ACT BY OBS ERVING AT PARA 5 TO 5.2 OF ITS ORDER AS UNDER :- 5. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS FOR ASSESSMENT YEAR 2005-06 ON THE ISSUE OF WEIGHTED DEDUCTION UNDER SE CTION 35(1)(II) OF THE ACT, WHICH ARE REPRODUCED BELOW :- (1) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO WAS NOT JUSTIFIED IN NOT ALLOWING WEIGHTED DEDUCTIO N @125% OF RS.143 LACS PAID BY THE APPELLANT TO INDIAN INSTITUTE OF T ECHNOLOGY, MADRAS UNDER SECTION 35(1)(II) OF THE I.T. ACT. (2) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE INDIAN INSTITUTE OF TECHNOLOGY BEING AN INSTITUTION NOTIFI ED BY THE CENTRAL GOVERNMENT AS AN APPROVED INSTITUTION UNDER SECTION 35(1)(II) OF THE ACT, THE AO SHOULD HAVE ALLOWED THE DEDUCTION AS PR OVIDED IN S. 35(1)(II) OF THE ACT. ITA NO. 742/KOL./2010 6 (3) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE AO BE DIRECTED TO ALLOW WEIGHTED DEDUCTION @125% UNDER SE CTION 35(1)(II) IN RESPECT OF RS.143 LAKHS PAID TO IIT, MADRAS. 5.1. AT THE TIME OF HEARING BEFORE US, THE ASSESSEERS L EARNED COUNSEL SUBMITTED THAT DURING THE FINANCIAL YEAR RELEVANT T O AY 2005-06, THE ASSESSEE-COMPANY HAD PAID RS.143 LAKHS TO IIT MADRA S FOR THE PURPOSE OF UNDERTAKING RESEARCH & DEVELOPMENT WORK, WHICH W AS DISCLOSED IN THE COMPUTATION OF TOTAL INCOME FILED ALONG WITH TH E RETURN. HE SUBMITTED THAT PENDING FORMALITIES FOR OBTAINING AP PROVAL UNDER SECTION 35(2AA) THE DEDUCTION WAS CLAIMED ONLY AT 100%. HOW EVER, THE AO ALLOWED ONLY DEDUCTION FOR AMOUNT PAID TO IIT MADRA S. SINCE IIT MADRAS IS APPROVED BY CENTRAL GOVERNMENT UNDER SECT ION 35(1)(II), THE AMOUNT PAID FOR CARRYING OUT RESEARCH BY IIT ALSO Q UALIFIES FOR WEIGHTED DEDUCTION UNDER SECTION 35(1)(II). THE AO DID NOT A LLOW SUCH CLAIM IN SPITE OF ALL BASIC INFORMATION AVAILABLE WITH HIM. IT WAS FURTHER CONTENDED THAT DUE TO INADVERTENCE AND OVERSIGHT, T HE ASSESSEE DID NOT OBJECT TO THIS DENIAL BY THE AO IN APPEAL BEFORE TH E CIT(A.). IN THE ABOVE CIRCUMSTANCES, THE LEARNED COUNSEL REQUESTED TO ADM ISSION OF THE ADDITIONAL GROUNDS REFERRED TO ABOVE. ON MERIT OF T HE GROUNDS, THE LEARNED COUNSEL SUBMITTED THAT THE HONBLE BOMBAY H IGH COURT IN THE CASE OF TATA CHEMICALS LTD. VS.- CIT [195 ITR 561] HAS DECIDED THE ISSUE IN FAOVUR OF THE ASSESSEE. THE LD. D.R. DID N OT RAISE ANY SERIOUS OBJECTION TO THE ADMISSION OF THE ADDITIONAL GROUND S. 5.2. AFTER HEARING THE PARTIES WE FIND THAT THE ADDITION AL GROUNDS RAISED ARE LEGAL GROUNDS AND NO NEW FACTS ARE INVOLVED IN THEM . THEREFORE, WE ADMIT THE SAME FOR ADJUDICATION. HOWEVER, WE FIND T HAT THESE GROUNDS WERE NOT RAISED BEFORE THE CIT(A.). THEREFORE, TO M EET THE ENDS OF JUSTICE, WE SENT BACK THESE ADDITIONAL GROUNDS TO T HE FILE OF CIT(A.) TO ENABLE HIM TO DECIDE THE SAME IN ACCORDANCE WITH LA W AND AFTER ALLOWING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . LD. COUNSEL SUBMITTED THAT THIS GROUND WAS ADMITTED BY THE TRIBUNAL VIDE ITS ORDER DATED 29.10.2009 AND, THEREFORE, WHEN LD CIT PASSED THE O RDER UNDER SECTION 263 ON 04.03.2010, THE SAID ORDER WAS AVAILABLE TO LD. CIT. THEREFORE, LD. CIT WRONGLY DIRECTED THE ASSESSING OFFICER TO DISALLOW THE ENTIRE EXPENDITURE OF RS.1,43,00,00 0/-CLAIMED BY THE ASSESSEE AND ALSO TO REDO THE ASSESSMENT. IN THE BACKDROP OF THESE FACTS, LD. COUNSEL REFERRED TO VARIOUS GROUNDS RAISED BY HIM IN WHICH HE HAS PRIMARILY RAISED THE FOLLOWING ISSUES :- (I) SINCE ONLY ISSUE RAISED IN THE SHOW-CAUSE NOTIC E WAS REGARDING ALLOWABILITY OF DEDUCTION FOR RS.1,43,00,000/-, THEREFORE, LD. C IT WAS WRONG IN DIRECTING THE ASSESSING OFFICER TO REDO THE ENTIRE ASSESSMENT. ITA NO. 742/KOL./2010 7 (II) THE ASSESSING OFFICER HAD RIGHTLY ALLOWED THE CLAIM UNDER SECTION 35(1)(I) FOR RS.1,43,00,000/- BEING SUM PAID TO IIT, CHENNAI AND, THEREFORE, THERE WAS NO ERROR IN THE ASSESSMENT ORDER. (III) THE ASSESSEE HAD NOT CLAIMED THE WEIGHTED DED UCTION UNDER SECTION 35(2AA) BUT HAD CLAIMED 100% DEDUCTION IN RESPECT O F EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH UNDER SECTION 35(1)(I) AND THE LD CIT(APPEALS) ERRED IN TAKING A CONTRADICTORY VIEW. (IV) LD. CIT WRONGLY HELD THAT DEDUCTION UNDER SECT ION 35(1)(I) WAS PERMISSIBLE ONLY IN RESPECT OF EXPENDITURE LAID OUT OR EXPENDED ON SCIENTIFIC RESEARCH RELATED TO BUSINESS IGNORING THE FACT THAT THE AMOUNT PAID TO IIT, CHENNAI RELATED TO RESEARCH IN TYRE TECHNOLOGY, WHICH RELATED TO ASSES SEES BUSINESS. (V) ITAT, KOLKATA HAVING DIRECTED THE LD .CIT(APPEA LS) TO CONSIDER ALLOWABILITY OF DEDUCTION PERMISSIBLE WITH REFERENCE TO THE PAYM ENT OF RS.1,43,00,000/- MADE TO IIT, CHENNAI, THE LD. CIT HAD NO AUTHORITY TO PASS ANY ORDER UNDER SECTION 263 CONTRARY TO OR CONCERNING THE SAME ISSU E AND, THEREFORE, THE ORDER OF LD. CIT WAS PASSED IN VIOLATION OF SECTION 263. IT IS FURTHER SUBMITTED THAT THE ORDER UNDER SECTIO N 263 COULD NOT BE PASSED IN RESPECT OF THE ISSUE, WHICH HAD MERGED WITH THE ORDER OF TRIBUNAL AND SINCE IN TERMS OF THE SAID ORDER, THE QUESTION OF ALLOWABILITY OF DEDUCTION FOR RS.1,43,0 0,000/- PAID TO IIT, CHENNAI WAS TO BE ADJUDICATED ONLY BY LD. CIT(APPEALS), THE LD. CIT H AD NO JURISDICTION TO PASS ANY ORDER OR GIVE ANY DIRECTION TO ASSESSING OFFICER IN RELATION TO T HE ISSUE, WHICH WAS TO BE DECIDED ONLY BY THE LD. CIT(APPEALS). 5.1. LD. COUNSEL REFERRED TO JOINT DEVELOPMENT AGRE EMENT CONTAINED AT PAGES 27 TO 46 OF THE PAPER BOOK TO SUBMIT THAT INSTITUTE OF IIT, CHENNAI HAD AGREED TO CARRY OUT RESEARCH AND DEVELOPMENT WORK IN THE AREA OF TYRE AND VEHICLE ME CHANICS. THUS THERE WAS DIRECT CORRELATION BETWEEN THE ASSESSEES BUSINESS AND THE RESEARCH WO RK CARRIED OUT BY THE INSTITUTE. HE SUBMITTED THAT IN SECTION 35, THERE ARE VARIOUS CON DITIONS ON FULFILLMENT OF WHICH THE ASSESSEE ITA NO. 742/KOL./2010 8 BECOMES ENTITLE TO WEIGHTED DEDUCTION. LD. COUNSEL SUBMITTED THAT THE ASSESSEE DID NOT CLAIM WEIGHTED DEDUCTION UNDER SECTION 35(2AA). BUT ONLY GAVE A NOTE THAT THE AMOUNT PAID MAY QUALIFY FOR THE WEIGHTED DEDUCTION UNDER SECTION 35 (2AA) OF THE ACT IF REQUISITE APPROVAL WAS GRANTED BY THE SPECIFIED AUTHORITY. LD. COUNSEL SUB MITTED THAT THE MERE DISCLOSURE OF ASSESSEES INTENTION TO CLAIM DEDUCTION UNDER SECTION 35(2AA) AT A FUTURE DATE, SUBJECT TO FULFILLMENT OF STATUTORY CONDITIONS, DID NOT MEAN THAT IN THE RETU RN FILED THE ASSESSEE CLAIMED WEIGHTED DEDUCTION UNDER SECTION 35(2AA). HE, THEREFORE, SUB MITTED THAT THE LD. CIT WAS FACTUALLY AND LEGALLY WRONG IN STATING THAT THE ASSESSEE HAD ACTU ALLY CLAIMED IN THE RETURN DEDUCTION UNDER SECTION 35(2AA) OF THE ACT. LD. COUNSEL SUBMITTED T HAT THE ASSESSEE HAD ACTUALLY CLAIMED 100% OF RS.1,43,00,000/- PAID TO IIT, CHENNAI FOR SCIENT IFIC RESEARCH AS PER THE PROVISIONS OF SECTION 35(1)(I) OF THE ACT AND THAT WAS ONLY ALLOWED BY TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER. LD. COUNSEL SUBMITTED THAT LD. CIT HAS WRONGLY OBSE RVED THAT THE CLAIM WAS NEVER MADE UNDER SECTION 35(1)(I) AND, THEREFORE, IN VIEW OF THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA LIMITED VS.- CIT [284 ITR 323], THE S AID CLAIM COULD NOT BE ALLOWED. HE SUBMITTED THAT THE ASSESSEE HAD MADE CLAIM IN THE RETURN AT THE RATE OF 100% OF THE EXPENDITURE ACTUALLY INCURRED ON SCIENTIFIC RESEARCH AND, THERE FORE, THE CLAIM WAS ONLY UNDER SECTION 35(1)(I) AND NO OTHER SECTION. THE CLAIM MADE IN TH E RETURN WAS NOT UNDER SECTION 35(2AA) OR UNDER SECTION 35(1)(II) OF THE ACT AS SUCH THERE WA S NO CONTRAVENTION OF THE JUDICIAL PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA LTD. HE SUBMITTED THAT THE CLAIM FOR SCIENTIFIC RESEARCH UNDER SECTION 35(1)(I ) WAS ALLOWED BY THE ASSESSING OFFICER IN THE ASSESSMENT ON BEING SATISFIED THAT THE CONDITIONS T HEREOF WERE FULFILLED. 5.2. LD. COUNSEL FURTHER POINTED OUT THAT LD. CIT H AS ALSO HELD THAT THE ASSESSEES ALTERNATIVE CLAIM UNDER SECTION 35(1)(II) WAS NOT PERMISSIBLE B ECAUSE NO SUCH CLAIM WAS MADE BEFORE THE ASSESSING OFFICER OR LD. CIT(APPEALS) AND IN VIEW O F THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA LIMITED (SUPRA), THE DEDUCTION UNDER SECTION 35(1)(II) WAS NOT PERMISSIBLE AS WELL. LD. COUNSEL POINTED OUT THAT I IT, CHENNAI IS A SCIENTIFIC RESEARCH INSTITUTION APPROVED UNDER SECTION 35(1)(II) OF THE ACT. THIS W AS GRANTED BY THE CENTRAL GOVERNMENT VIDE NOTIFICATION NO. 287 DATED 10.12.1973. THIS NOTIFIC ATION WAS AVAILABLE TO THE ASSESSING OFFICER WHEN THE ASSESSMENT ORDER WAS PASSED IN DEC EMBER, 2007. THE ASSESSING OFFICER COULD NOT IGNORE THE BINDING NATURE OF THE SAID NOT IFICATION. THEREFORE, ASSESSING OFFICER SHOULD HAVE ALLOWED THE WEIGHTED DEDUCTION UNDER SE CTION 35(1)(II) OF THE ACT. ITA NO. 742/KOL./2010 9 AS REGARDS ASSUMPTION OF JURISDICTION UNDER SECTION 263 OF THE LD. CIT AFTER PASSING OF THE ITAT ORDER, LD. COUNSEL SUBMITTED THAT THE QUES TION OF ALLOWABILITY OF WEIGHTED DEDUCTION UNDER SECTION 35(1)(II) OF THE ACT WAS CONSIDERED/ ADJUDICATED BY THE ITAT IN ITS ORDER, WHICH WAS PASSED PRIOR TO THE ORDER UNDER SECTION 263 AND THE LD. CIT WAS NOT COMPETENT TO GIVE ANY FINDING CONTRARY TO THE FINDINGS AND DIRECTIONS ISS UED BY THE ITAT. HE SUBMITTED THAT ONCE THE TRIBUNAL ADMITTED AND RESTORED THE ISSUE OF ALLOWAB ILITY OF DEDUCTION WITH REFERENCE TO THE SUM PAID TO IIT, CHENNAI TO THE FILE OF LD. CIT(APPEALS ), THEN THE ENTIRE ISSUE CONCERNING THE SAID PAYMENT MERGED WITH THE ORDER OF THE TRIBUNAL. HAVI NG CONSIDERED THE ISSUE, THE DECISION OF THE TRIBUNAL WAS THAT THE LD. CIT(APPEALS) WAS THE COMPETENT FORUM, WHO WAS TO DECIDE AND ADJUDICATE THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 35(1)(II) ARISING FROM THE PAYMENT MADE TO IIT, CHENNAI. THUS THE TRIBUNAL MADE THE PA YMENT OF RS.1,43,00,000/- TO IIT, CHENNAI A SUBJECT MATTER OF SPECIFIC PROVISIONS OF SECTION 35(1)(II). IN SUCH CIRCUMSTANCES, LD. COUNSEL SUBMITTED THAT THE TRIBUNAL HAS DECIDED THAT THE LD . CIT WAS THE COMPETENT FORUM TO ADJUDICATE THE ASSESSEES CLAIM WITH REFERENCE TO RS.1,43,00,0 00/- PAID TO IIT, CHENNAI. LD. CIT IN ITS ORDER UNDER SECTION 263 COULD NOT DIRECT THE ASSESS ING OFFICER TO ADJUDICATE THE ISSUES ARISING FROM THE VERY PAYMENT OF RS.1,43,00,000/-. THE WRIT TEN SUBMISSIONS FILED BY ASSESSEE ARE PLACED ON RECORD. 6. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT TRIBUNAL DIRECTED LD. CIT(APPEALS) TO EXAMINE THE CLAIM UNDER SECTION 35( 1)(II) OF THE ACT BY ALLOWING ADDITIONAL GROUND RAISED BEFORE IT, INTER ALIA, OBSERVING THAT ALL THE DETAILS WERE AVAILABLE IN THE ASSESSMENT RECORD. IN THIS REGARD, LD. D.R. SUBMITTED THAT THE ASSESSMENT ORDER WAS PASSED ON 19.12.2007 AND THEREAFTER ON 10.09.2008 LD. A.R. OF THE ASSESS EE FILED A LETTER BEFORE THE ASSESSING OFFICER REFERRING TO NOTIFICATION NO. 287 DATED 10.12.1973. HE SUBMITTED THAT THIS NOTIFICATION WAS MADE AVAILABLE TO ASSESSING OFFICER FOR THE FIRST T IME ON 10.09.2008 AND, THEREFORE, IT IS WRONG TO SAY THAT ALL THE DETAILS WERE AVAILABLE FOR ADJU DICATING THE CLAIM UNDER SECTION 35(1)(II) OF THE ACT. IN SUPPORT OF THIS CLAIM, LD. D.R. PRODUCED OF FICE RECORD. HE SUBMITTED THAT IN THE COMPUTATION FILED BY THE ASSESSEE, NO CLAIM UNDER S ECTION 35(1)(I) WAS MADE. HE ALSO SUBMITTED THAT ASSESSEE HAD NOT WRITTEN UNDER WHICH SECTION IT HAD CLAIMED RS.1,43,00,000/-. ON THE CONTRARY, VIDE NOTE 9 TO THE SAID COMPUTATIO N, THE ASSESSEE CATEGORICALLY POINTED OUT ITS INTENTION OF CLAIMING DEDUCTION UNDER SECTION 35(2A A). LD. DR SUBMITTED THAT THE ASSESSEES ITA NO. 742/KOL./2010 10 CLAIM COULD BE UNDER SECTION 37 ALSO. BUT THE ASSES SING OFFICER HAS NOT POINTED OUT UNDER WHICH SECTION HE WAS ALLOWING THE ASSESSEES CLAIM. LD. DR FURTHER SUBMITTED THAT THERE IS NOTHING IN THE PAPER BOOK REGARDING STATUS OF APPRO VAL FROM SPECIFIED AUTHORITY. THEREFORE, WHETHER AT ALL THE IMPUGNED AMOUNT COULD BE TREATED AS AN EXPENDITURE ON ACCOUNT OF SCIENTIFIC RESEARCH OR NOT, WAS NOT EXAMINED BY THE ASSESSING OFFICER. FURTHER, THE ASSESSEE WAS TRYING TO CLAIM DEDUCTION IN PIECEMEAL, WHICH IS NOT PERMISSI BLE. AS REGARDS JURISDICTION OF LD. CIT, LD. DR SUBMITTED THAT TRIBUNAL HAD ONLY DIRECTED LD. CI T(APPEALS) TO EXAMINE THE CLAIM UNDER SECTION 35(1)(II), BUT THE SAID CLAIM HAS NOT BEEN ADJUDICATED BY LD. CIT(APPEALS) AND, THEREFORE, LD. CITS JURISDICTION UNDER SECTION 263 WAS NOT CURTAILED. IN THIS REGARD, LD. DR RELIED ON THE FOLLOWING DECISIONS :- (1) CIT VS.- JOY KUMAR B. PATEL [236 ITR 469] , WHEREIN IT WAS, INTER ALIA, HELD THAT LD. CIT HAS POWER TO INITIATE REVISIONAL PROCEEDINGS IN RESPECT OF SUCH ISSUES, WHICH HAVE NOT BEEN DEALT WITH BY LD. CIT(APPEALS) IN HIS APPELLATE ORDER. (2) CIT VS.-TECHNO ENTERPRISE PVT. LIMITED [206 ITR PA GE 36 (KOL.) - IN THIS CASE WHILE CONSIDERING THE POWERS OF LD. CIT U NDER SECTION 263, IT WAS HELD THAT DOCTRINE OF MERGER IS APPLICABLE ONLY TO MATTERS, WHICH ARE THE SUBJECT MATTER OF DECISION BY THE FIRST APPELLATE A UTHORITY AND, THEREFORE, REVISION WITH REFERENCE TO ISSUES NOT TAKEN UP IN A PPEAL OR WHICH HAVE NOT BEEN CONSIDERED BY THE FIRST APPELLATE AUTHORITY AS WELL. IT WAS, INTER ALIA, HELD THAT A NARROW CONSTRUCTION OF THE POWER OF THE COMMISSIONER UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 WILL DEFEAT THE PURPOSE FOR WHICH THE PROVISION WAS ENACTED. HE, THEREFORE, SUBMITTED THAT LD. CIT WAS WELL WITH IN HIS POWER IN PASSING THE ORDER UNDER SECTION 263. LD. COUNSEL IN THE REJOINDER SUBMITTED THAT NOTIFI CATION NO. 287 DATED 10.12.1973 WAS IN PUBLIC DOMAIN AND, THEREFORE, ASSESSING OFFICER IS PRESUMED TO BE IN KNOW OF SAID NOTIFICATION. HE, HOWEVER, SUBMITTED THAT NO APPROV AL UNDER SECTION 35(2AA) HAS BEEN RECEIVED. ITA NO. 742/KOL./2010 11 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORDS OF THE CASE. FIRST OF ALL, WE PROCEED TO DECIDE THE CH ALLENGE TO LD. CITS JURISDICTION UNDER SECTION 263 ON THE GROUND THAT TRIBUNAL HAD ALLOWED THE AS SESSEES ADDITIONAL GROUND AND HAD DIRECTED LD. CIT(APPEALS) TO EXAMINE THE CLAIM UNDER SECTION 35(1)(II) OF THE ACT AND, THEREFORE, SINCE TRIBUNAL WAS SEIZED WITH THE ISSUE REGARDING ALLOWA BILITY OF DEDUCTION UNDER SECTION 35(1)(II) AND HAD DIRECTED LD. CIT(APPEALS) TO EXAMINE THE SA ID PLEA, THE LD. CITS JURISDICTION UNDER SECTION 263 STOOD CURTAILED. UNDER SECTION 263 LD. CIT HAS JURISDICTION TO REVISE THE ASSESSMENT ORDER WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF REVENUE. HOWEVER, TO THE EXTENT THE ASSESSMENT ORDER STANDS MERGED WITH THE ORDER OF LD . CIT(APPEALS) IN RESPECT OF ISSUES CONSIDERED AND DECIDED BY HIM, LD. CIT LOOSES HIS J URISDICTION IN RESPECT OF THOSE PARTICULAR ISSUES ONLY. DOCTRINE OF MERGER COMES INTO PLAY ONL Y WHEN AN ISSUE IS CONSIDERED AND DECIDED BY LD. CIT(APPEALS).HOWEVER, MERELY IF AN ISSUE IS PENDING CONSIDERATION BEFORE LD. CIT(APPEALS), LD. CITS JURISDICTION DOES NOT GETS CURTAILED QUA ASSESSMENT ORDER. EXPLANATION (C) TO SECTION 263 IS VERY SPECIFIC IN THIS REGARD. IN THE PRESENT SET OF FACTS, THERE ARE TWO ISSUES FOR CONSIDERATION, VIZ. (I) ALLOWABILITY OF 100% DEDUCTION OF EXPENDITURE L AID DOWN ON SCIENTIFIC RESEARCH AS ALLEGEDLY CLAIMED IN THE RETURN UNDER S ECTION 35(1)(I); (II) ALLOWABILITY OF 125% DEDUCTION IN RESPECT OF DONATION FOR SCIENTIFIC RESEARCH GOVERNED BY THE PROVISIONS CONTAINED UNDER SECTIONS 35(1)(II) AND 35(2AA). BOTH THE ISSUES ARE TO BE SEPARATELY CONSIDERED AS THEY ARE GOVERNED BY DIFFERENT CLAUSES OF SECTION 35. ALTOGETHER DIFFERENT CONSIDERATIONS APP LY IN RESPECT OF ABOVE ISSUES. LD. CIT WAS EXAMINING THE ASSESSMENT ORDER WITH RESPECT TO FIRS T ITEM. MERE CONSIDERATION OF SECOND ISSUE BY LD. CIT(APPEALS) IN PURSUANCE TO THE DIRECTIONS OF TRIBUNAL DID NOT WIPE OUT THE ERROR IN THE ASSESSMENT ORDER PER SE AND, THEREFORE, LD. CIT WA S WELL WITHIN HIS JURISDICTION TO EXAMINE THE ASSESSMENT ORDER QUA FIRST ISSUE. HOWEVER, HIS JURI SDICTION DID NOT EXTEND TO CONSIDERATION OF SECOND ISSUE AND THE SAME HAD TO BE INDEPENDENTLY C ONSIDERED BY LD. CIT(APPEALS) IN PURSUANCE TO THE DIRECTIONS OF TRIBUNAL. IN VIEW OF SUCH A STATE OF AFFAIR EXISTING ON THE DATE OF PASSING OF ORDER BY LD. CIT, HE HAD NO JURISDICTION TO CANCEL THE ASSESSMENT ORDER IN ENTIRETY AND DIRECT THE ASSESSING OFFICER TO REDO THE ASSESS MENT. BY SO DIRECTING HE IMPLIEDLY ANNULLED THE DIRECTIONS OF TRIBUNAL ALSO BECAUSE TRIBUNALS DIRECTIONS WERE GIVEN WITH REFERENCE TO ASSESSMENT ORDER ONLY. LD. CITS JURISDICTION WAS L IMITED TO THE EXAMINATION OF ASSESSMENT ITA NO. 742/KOL./2010 12 ORDER ONLY AND SINCE ASSESSMENT PROCEEDINGS HAD TRA VELED TO HIGHER FORUM THEN HIS JURISDICTION STOOD CURTAILED TO THE ISSUES CONSIDERED AND DECIDE D BY APPELLATE AUTHORITIES IN VIEW OF EXPLANATION (C) TO SECTION 263. FURTHER, IF AN ISSU E IS PENDING CONSIDERATION OF APPELLATE AUTHORITY, WHICH WAS NOT THE SUBJECT MATTER OF CONS IDERATION OF ASSESSMENT, THEN WITH REFERENCE TO SUCH ISSUES, LD. CIT COULD NOT PASS ANY ORDER UN DER SECTION 263. FURTHER, WE ARE IN AGREEMENT WITH THE ASSESSEES COUNSEL THAT LD. CIT WAS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO MAKE THE ASSESSMENT DE NOVO BECAUSE HE H AD NOT GIVEN ANY SHOW-CAUSE NOTICE IN REGARD TO OTHER ITEMS. IN VIEW OF ABOVE DISCUSSION, WE ALLOW FIRST ISSUE RAISED BY ASSESSEE VIDE GROUND NOS.1 AND 2 AND HOLD THAT LD. CIT WAS NOT JUSTIFIED IN CANCELING THE ASSESSMENT ORDER AND DIRECTING THE ASSESSING OFFICER TO REDO THE ASSESSMENT. HOWEV ER, HE HAD JURISDICTION TO REVISE THE ASSESSMENT ORDER AS PER PROVISIONS CONTAINED UNDER SECTION 263. 8. NOW COMING TO THE ISSUE REGARDING JUSTIFIABILITY OF ORDER PASSED UNDER SECTION 263. IN THIS REGARD WE HAVE TO EXAMINE THE ORDER UNDER SECT ION 263 IN TWO CATEGORIES; FIRSTLY WITH REFERENCE TO THE ASSESSMENT ORDER PASSED UNDER SECT ION 143(3), AND SECONDLY THE EFFECT OF TRIBUNALS ORDER DIRECTING LD. CIT(APPEALS) TO EXAM INE THE ASSESSEES CLAIM UNDER SECTION 35(1)(II) OF THE ACT AS THE SAME FORMED PART OF RE CORD AVAILABLE TO LD. CIT WHILE PASSING ORDER UNDER SECTION 263. 9. IT IS WELL SETTLED LAW THAT LD. CIT SHOULD HAVE PRIMA FACIE SATISFACTION THAT THE ASSESSMENT ORDER IS ERRONEOUS IN SO FAR AS IT IS PR EJUDICIAL TO THE INTERESTS OF REVENUE. ONCE LD. CIT COMES TO THE CONCLUSION, ON THE BASIS OF MATERI AL, THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE, THE COMMISSIONER IS EMPOWERED TO PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE MAY WARRA NT. WHETHER, THE PRIMA FACIE OPINION FORMED BY LD. CIT IN HOLDING THAT THE ASSESSMENT OR DER WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTERESTS OF REVENUE, IS JUSTICI ABLE AND, THEREFORE, NEEDS TO BE EXAMINED. IN THE PRESENT CASE, LD. CIT FORMED PRIMA FACIE OPINION TH AT ASSESSEE HAD NOT CLAIMED ANY DEDUCTION UNDER SECTION 35(1)(I) IN THE RETURN OF INCOME AND, THEREFORE, IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA LTD., THE ASSESSEES CLAIM WAS NOT ALLOWABLE. THEREFORE, ASSESSING OFFICER WRONGLY ALLOWED THE SA ID CLAIM. SECONDLY, LD. CIT WAS OF THE OPINION THAT ASSESSEE COULD NOT CLAIM THE DEDUCTION IN PIECEMEAL ON THE GROUND THAT WHEN THE ITA NO. 742/KOL./2010 13 REQUISITE PERMISSION UNDER SECTION 35(2AA) WOULD BE OBTAINED, THEN THE ASSESSEE WILL CLAIM BALANCE WEIGHTED DEDUCTION. BEFORE PROCEEDING FURTH ER, WE MAY OBSERVE THAT AS FAR AS SECOND REASONING OF LD. CIT IS CONCERNED, WE ARE NOT IN AG REEMENT WITH THE SAME. THE ASSESSEE ON GETTING REQUISITE PERMISSION COULD FILE PETITION UN DER SECTION 154 TO GET THE ASSESSMENT ORDER AMENDED. ON THIS COUNT THERE COULD NOT BE SAID TO B E ANY ERROR IN THE ASSESSMENT ORDER. THEREFORE, NOW THE MOOT QUESTION FOR CONSIDERATION IS WHETHER THE ASSESSEES CLAIM WAS RIGHTLY ALLOWED BY THE ASSESSING OFFICER UNDER SECTION 35(1 )(I) WHEN SPECIFICALLY NOT CLAIMED IN THE RETURN OR NOT. THE MAIN CONTENTION OF LD. CIT IS TH AT SECTION 35(1)(I) RELATES ONLY TO ANY EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXP ENDITURE) LAID OUT OR EXPENDED ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS. HE HAS CONSIDERED ALL THE THREE SECTIONS, VIZ. 35(1)(I), 35(1)(II) AND SECTION 35(2AA) AND HAS OBSERVED THAT FROM THE WORDINGS OF THE THREE SUB-SECTIONS, IT CAN BE SEEN THAT THE DEDUCTION UNDER SECTION 35(1)(I) RELATES ONLY TO EXPENDITURE DIRECTLY INCURRED BY THE ASSESSEE, EXCLUDING CAPITAL EXPENDITURE, FOR THE PURPOSE OF SCIENTIFIC RESEARCH RELATED TO ITS BUSINESS, WHEREAS SECTION 35(1)(II) AS ALSO SEC TION 35(2AA) CLEARLY RELATE TO EXPENDITURE BEING DONATION TO OTHER INSTITUTIONS ENGAGED IN SCI ENTIFIC RESEARCH. HE OBSERVED THAT SINCE NO EXPENDITURE WAS DIRECTLY INCURRED BY THE ASSESSEE F OR SCIENTIFIC RESEARCH AND IT ONLY MADE A DONATION, THE ASSESSEE WAS NOT ENTITLED TO ANY DEDU CTION UNDER SECTION 35(1)(I). THUS IN SUBSTANCE, LD. CIT HAS OBSERVED THAT SECTION 35(1)( I) WAS NEVER CLAIMED BY THE ASSESSEE. NOW IF WE EXAMINE THE FACTS OF THE CASE, WE FIND THAT THE ASSESSEE HAD CLAIMED 100% OF AMOUNT PAID TO IIT, CHENNAI IN NATURE OF SCIENTIFIC RESEARCH EX PENDITURE. A RIDER WAS PUT BY WAY OF NOTE 9 TO THE COMPUTATION THAT PENDING RECEIPT OF APPROVAL AS ELIGIBLE PROJECT UNDER SECTION 35(2AA), DEDUCTION WAS BEING CLAIMED @ 100% OF THE AMOUNT CO NTRIBUTED. THUS, ADMITTEDLY THE ASSESSEE HAD CLAIMED THIS AMOUNT WITH REFERENCE TO SECTION 35(2AA). NOW THE QUESTION IS WHETHER SECTIONS 35(1)(I) AND SECTION 35(2AA) ARE M UTUALLY EXCLUSIVE OR SECTION 35(2AA) ENCOMPASSES IN ITS AMBIT THE PROVISIONS OF SECTION 35(1)(I) ALSO. IN ORDER TO APPRECIATE THIS CONTROVERSY, WE REPRODUCE HEREUNDER THE RELEVANT SE CTIONS :- SECTION 35(1)(I) : IN RESPECT OF EXPENDITURE ON SCIENTIFIC RESEARCH , THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED (I) ANY EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED ON SCIENTIFIC RESEARCH RELATED TO THE B USINESS. SECTION 35(1)(II) : AN AMOUNT EQUAL TO (ONE AND THREE-FOURTH) TIMES OF ANY SUM PAID TO A RESEARCH ASSOCIATION WHICH HAS AS ITS OBJ ECT THE UNDERTAKING OR ITA NO. 742/KOL./2010 14 SCIENTIFIC RESEARCH OR TO A UNIVERSITY, COLLEGE OR OTHER INSTITUTION TO BE USED FOR SCIENTIFIC RESEARCH : PROVIDED THAT SUCH ASSOCIATION, UNIVERSITY, COLLEGE OR OTHER INSTITUTION FOR THE PURPOSES OF THIS CLAUSE (A) IS FOR THE TIME BEING APPROVED, IN ACCORDANCE WITH THE GUIDELINES, IN THE MANNER AND SUBJECT TO SUCH CONDITIONS AS MAY BE PRE SCRIBED; AND (B) SUCH ASSOCIATION, UNIVERSITY, COLLEGE OR OTHER INST ITUTION IS SPECIFIED AS SUCH, BY NOTIFICATION IN THE OFFICIAL GAZETTE, BY THE CEN TRAL GOVERNMENT.. SECTION 35(2AA) : WHERE THE ASSESSEE PAYS ANY SUM TO A NATIONAL LA BORATORY (OR A UNIVERSITY OR AN INDIAN INSTITUTE OF TECHNOLO GY OR A SPECIFIED PERSON) WITH A SPECIFIC DIRECTION THAT THE SAID SUM SHALL BE USE D FOR SCIENTIFIC RESEARCH UNDERTAKEN UNDER A PROGRAMME APPROVED IN THIS BEHAL F BY THE PRESCRIBED AUTHORITY, THEN- (A) THERE SHALL BE ALLOWED A DEDUCTION OF A SUM EQUAL T O ONE AND THREE-FOURTH TIMES THE SUM SO PAID; AND (B) NO DEDUCTION IN RESPECT OF SUCH SUM SHALL BE ALLOWE D UNDER ANY OTHER PROVISION OF THIS ACT : PROVIDED THAT THE PRESCRIBED AUTHORITY SHALL, BEFOR E GRANTING APPROVAL, SATISFY ITSELF ABOUT THE FEASIBILITY OF CARRYING OUT THE SC IENTIFIC RESEARCH AND SHALL SUBMIT ITS REP ORT TO THE DIRECTOR GENERAL IN SUCH FORM AS MAY BE PRESCRIBED. FROM BARE READING OF AFORESAID SECTIONS, IT IS EVID ENT THAT IF DEDUCTION IS CLAIMED UNDER SECTION 35(2AA) THEN IN VIEW OF CLAUSE (B) OF SECTI ON 35(2AA), DEDUCTION CANNOT BE CLAIMED UNDER ANY OTHER PROVISION OF THE ACT. FROM THE ABOV E DISCUSSION, IT IS EVIDENT THAT SECTIONS 35(1)(I) AND SECTION 35(2AA) OPERATE ENTIRELY IN DI FFERENT FIELDS AND ARE MUTUALLY EXCLUSIVE. THE PRIMARY CONDITION FOR AVAILING DEDUCTION UNDER SECTION 35(2AA) IS THAT THE SUM SHOULD HAVE BEEN PAID BY THE ASSESSEE TO NATIONAL LABORATO RY, UNIVERSITY OR IIT WITH SPECIFIC DIRECTION THAT THE SAID SUM SHALL BE USED FOR SCIENTIFIC RESE ARCH UNDERTAKEN UNDER A PROGRAMME APPROVED IN THIS BEHALF BY THE PRESCRIBED AUTHORITY. THEREFO RE, THE PROGRAMME COULD BE UNDERTAKEN ONLY WHEN THE SAME HAD BEEN APPROVED BY THE PRESCRIBED A UTHORITY. TILL THE PROGRAMME IS APPROVED BY THE PRESCRIBED AUTHORITY, THE AMOUNT SIMPLY WAS LYING WITH THE IIT BUT IT COULD NOT BE USED FOR SCIENTIFIC RESEARCH. THEREFORE, IT COULD NOT BE TREATED AS BEING LAID OUT OR EXPENDED FOR THE PURPOSES OF SCIENTIFIC RESEARCH. IT IS TRUE THAT FO R CLAIMING DEDUCTION UNDER SECTION 35(1)(I), IT IS NOT NECESSARY THAT THE RESEARCH MUST HAVE BEEN CARR IED BY THE ASSESSEE HIMSELF. THE DEDUCTION COULD BE CLAIMED EVEN IF THE RESEARCH WAS CARRIED O N BY SOME OTHER PERSON FOR AND ON BEHALF OF THE ASSESSEE AS WAS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS.- NATIONAL RAYON CORPORATION LIMITED (1983) 140 ITR 143 (BOM.) AND CIT VS.- NATIONAL RAYON ITA NO. 742/KOL./2010 15 CORPORATION (1985) 155 ITR 413. HOWEVER, THE BASIC CONDITION FOR APPLICABILITY OF SECTION 35(1)(I) IS THAT THE AMOUNT SHOULD HAVE BEEN LAID O UT OR EXPENDED ON SCIENTIFIC RESEARCH. IN CONTRA DISTINCTION TO THIS, UNDER SECTION 35(2AA), AS ALREADY OBSERVED BY US, THE AMOUNT CAN BE HELD TO BE LAID OUT OR EXPENDED ON SCIENTIFIC RESEA RCH ONLY WHEN THE PROGRAMME WAS DULY APPROVED BY THE PRESCRIBED AUTHORITY IN ORDER TO AV OID MULTIPLICITY OF PROCEEDINGS. 10. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASS ESSEE FAIRLY CONCEDED THAT NO SUCH APPLICATION WAS MADE AS PER THE REQUIREMENTS IN FOR M NO.3CG TO THE PRESCRIBED AUTHORITY, IN TERMS OF RULE 6(1A) OF THE INCOME TAX RULES. MERELY PAYING THE AMOUNT TO IIT DOES NOT IMPLY THAT THE AMOUNT HAD BEEN LAID OUT OR EXPENDED ON SC IENTIFIC RESEARCH. THEREFORE, IN OUR OPINION, ASSESSMENT ORDER WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTERESTS OF REVENUE ON THIS COUNT. WE, THEREFORE, UPHOLD THE ORDER OF LD. CIT T O THIS EXTENT. HOWEVER, THIS ISSUE DOES NOT STOP AT THIS STAGE. THE EFFECT OF ADDITIONAL FACT I S ALSO TO BE TAKEN INTO CONSIDERATION, WHICH IS ADDITIONAL GROUND ALLOWED BY THE TRIBUNAL DIRECTING LD. CIT(APPEALS) TO EXAMINE THE ISSUE IN THE LIGHT OF PROVISION OF SECTION 35(1)(II) OF THE ACT. ADMITTEDLY, LD. CIT(APPEALS) HAD NOT DECIDED THIS ISSUE AND, THEREFORE, AS ALREADY HELD, THE JURISDICTION OF LD. CIT WAS NOT CURTAILED. HOWEVER, THE DIRECTIONS OF TRIBUNAL ARE ALSO TO BE IMPLEMENTED BY LD. CIT(APPEALS) AND IN ORDER TO OBVIATE ANY CONFLICTING DECISION, WE CONSI DER IT IN THE INTEREST OF JUSTICE TO MODIFY THE DIRECTIONS OF LD. CIT TO THE ASSESSING OFFICER. WE, THEREFORE, DIRECT AS UNDER:- (A) IN CASE, LD. CIT(APPEALS) ALLOWS THE ASSESSEES CLAIM IN VIEW OF THE PROVISIONS OF SECTION 35(1)(II), THEN ASSESSING OFFICER SHOULD GI VE EFFECT TO THE ORDER OF LD. CIT(APPEALS). (B) IN CASE, LD. CIT(APPEALS) DOES NOT ALLOW THE A SSESSEES CLAIM, THEN THE ENTIRE DEDUCTION ALLOWED BY THE ASSESSING OFFICER OF RS.1, 43,00,000/- IS TO BE WITHDRAWN. 11. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF ABOVE DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 06/ 01 /2012. & . / - 06/01/2012. SD/- SD/- [ MAHAVIR SINGH / ] [S.V. MEHROTRA/ ( . . )] JUDICIAL MEMBER/ ACCOUNTANT MEMBER/ DATED : 06/ 01/ 2012 ITA NO. 742/KOL./2010 16 COPY OF THE ORDER FORWARDED TO: 1. M/S. J.K. TYRE & INDUSTRIES LIMITED, 7, COUNCIL HOU SE STREET, KOLKATA-1 2 CIT, CENTRAL-1, KOLKATA, 3. COMMISSIONER OF INCOME-TAX (APPEALS)- , KOLKATA 4. CIT- , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, I.T.A.T., KOLKATA LAHA, SR. P.S.