DCIT, Circle-1(2), Hyd, Hyderabad V. Celon Laboratories Ltd., Hyd, Hyderabad

ITA 748/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2474 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 19-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained expenditure; Depreciation; Competent authority; Assessment record; Revenue expenditure; Capital expenditure
• Section: 142(1); 115JB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 792/HYD/2016 ASSESSMENT YEAR: 2010-11 CELON LABORATORIES P. LTD., HYDERABAD. PAN AACCG 1654P VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(2), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 748/HYD/2016 ASSESSMENT YEAR: 2010-11 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(2), HYDERABAD. VS. CELON LABORATORIES P. LTD., HYDERABAD. PAN AACCG 1654P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI V. SREEKAR DATE OF HEARING : 20-09-2017 DATE OF PRONOUNCEMENT : 27-10-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THESE ARE CROSS APPEALS FILED BY ASSESSEE AND REVE NUE DIRECTED AGAINST THE ORDER OF CIT(A)-1, HYDERABAD D ATED 17/02/2016 FOR THE AY 2010-11 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING PHARMA PRODUCTS. IT F ILED ITS E-RETURN FOR AY 2010-11 ON 22/09/2010 DECLARING INCOME OF RS . 6,72,28,950/- AND DECLARED BOOK PROFITS U/S 115JB AT RS. 1,88,44, 950/-, WHICH WAS 2 ITA NO. 792 & 748/H/16 CELON LABORATORIES LTD. PROCESSED U/S 143(1) OF THE ACT. THE CASE WAS SELEC TED FOR SCRUTINY UNDER CASS AND NOTICES U/S 143(2) AND 142(1) WERE I SSUED. DURING THE ASSESSMENT PROCEEDINGS, AO DISALLOWED THE FOLLO WING RESEARCH & DEVELOPMENT EXPENDITURE: A) R&D EXPENDITURE: AO NOTICED THAT ASSESSEE DEBITED AN AMOUNT OF RS. 66.24 LAKHS TOWARDS RESEARCH AND DEVELOPMENT (R&D) EXPENDITURE AND CLAIMED DEDUCTION U/S 35D(1) OF THE ACT. ACCORDING TO HIM, IT IS NOT AN ALLOWABLE EXPENDITURE SINCE ASSESSEE HAS GOT APPROV AL FOR IN-HOUSE R&D ACTIVITIES FROM THE APPROPRIATE AUTHORITY ONLY WEF 9 TH MARCH, 2011. ACCORDINGLY, HE DISALLOWED THE ABOVE EXPENDIT URE. B) UNACCOUNTED EXPENDITURE UNDER THE HEAD R&D ON VERIFICATION OF ANNUAL REPORT IN ANNEXURE-I; FO RM B, THE AO NOTICED THAT ASSESSEE HAD INCURRED AN AMOUNT OF RS. 1,19,46,080/- TOWARDS EXPENDITURE ON R&D. WHEREAS THE ASSESSEE HA D DEBITED AN AMOUNT OF RS. 66.24 LAKHS TO P&L A/C INSTEAD OF ACT UAL EXPENDITURE. AO TREATED THE DIFFERENCE AMOUNT AS UNEXPLAINED EXP ENDITURE AND ADDED TO THE INCOME OF THE ASSESSEE. C) WEIGHTED DEDUCTION U/S 35(2AB) OF THE INCOME-TAX ACT, 1961 AO NOTICED FROM THE COMPUTATION OF TOTAL INCOME OF THE ASSESSEE THAT IT HAD CLAIMED DEDUCTION U/S 35(2AB) FOR RS. 4,38,34,823/-. AO ASKED THE ASSESSEE TO FURNISH STA TUTORY REQUIREMENTS FOR CLAIMING THIS EXPENDITURE I.E. TO SUBMIT FORM 3CL & 3CM. HOWEVER, ASSESSEE FILED 3CM APPROVED BY THE DE PARTMENT & SCIENTIFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SC IENCE & TECHNOLOGY DATED 09/03/2011. AO OBSERVED THAT APPROVAL WAS GRA NTED WEF 09/03/2011 UPTO 31/03/2012 AND THE SAME WAS PUT BEF ORE THE ASSESSEE. ASSESSEE HAD FURNISHED REVISED COMPUTATIO N OF INCOME BY WITHDRAWING THE CLAIM OF DEDUCTION U/S 35(2AB) OF T HE ACT AND CLAIMED THE SAME EXPENDITURE UNDER THE HEAD DEFERRED REVEN UE EXPENDITURE. 3 ITA NO. 792 & 748/H/16 CELON LABORATORIES LTD. HE FURTHER NOTED THAT ASSESSEE HAD CLAIMED IN P&L A CCOUNT AS DEFERRED REVENUE EXPENDITURE. ACCORDINGLY, AO HAD D ISALLOWED THE ABOVE EXPENDITURE BY OBSERVING THAT THERE IS NO CON CEPT OF DEFFERED REVENUE EXPENDITURE IN THE INCOME-TAX ACT AND ALSO IN ACCOUNTING STANDARDS. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE WITH REGARD TO DEDUCTION U/S 35(1) RELATING RESEARCH AND DEVELOPME NT EXPENDITURE BY OBSERVING AS UNDER: 3.4 FIRST OF ALL THE ASSESSEE DID NOT CLAIM THE DED UCTION U/S 35(2AB)/35D. SECONDLY, IT DID NOT CLAIM ANY WEIGHTE D DEDUCTION. FURTHER, I HAVE GONE THROUGH THE PROVISI ONS OF SECTION 35, RULE 6 AND THE PRESCRIBED FORMS FOR O BTAINING THE PERMISSION FROM THE COMPETENT AUTHORITY. THERE IS N O FORM PRESCRIBED TO CLAIM DEDUCTION U/S 35(1). FURTHER, E VEN OTHERWISE, THE EXPENSES MENTIONED AT PARA 3.2 ARE P ERMISSIBLE U/S 37, THEREFORE, THE ADDITION MADE BY THE AO IS D ELETED. 4.1 WITH REGARD TO UNACCOUNTED EXPENDITURE OF R&D, CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: 4.2 AS A PART OF NOTES TO ACCOUNTS, ANNEXURE I, F ORM NO. B WHILE GIVING THE DETAILS OF RESEARCH AND DEVELOPMEN T, THE ASSESSEE HAD MENTIONED THAT DURING THE YEAR AN AMOU NT OF RS. 1,19,46,080/- WAS INCURRED. IT WAS EXPLAINED THAT T HIS INCLUDES: A) REVENUE EXPENDITURE : RS. 66,24,000 B) CAPITAL EXPENDITURE : RS. 53,22,080 TOTAL RS. 119,46,080 ============ THE COMPANY CLAIMED DEDUCTION OF REVENUE EXPENDITUR E AND DEBITED THE SAME TO P&L ACCOUNT, THE COMPANY CHARGE D DEPRECIATION ON SUCH CAPITAL EXPENDITURE. THEREFORE , THERE IS NO UNEXPLAINED EXPENDITURE AS HELD BY THE AO. THE ADDI TION WAS MADE WITHOUT CALLING FOR DETAILS OF RS. 1,19,46,080 /-. 4.2 WITH REGARD TO WEIGHTED AVERAGE DEDUCTION, THE CIT(A) HAS ALLOWED THE DEDUCTION OF THE ABOVE EXPENDITURE TO T HE EXTENT OF 20% OF THE TOTAL EXPENDITURE, WHICH WAS DEBITED TO P&L A/C BY RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF MADRAS 4 ITA NO. 792 & 748/H/16 CELON LABORATORIES LTD. INDUSTRIAL INVESTMENT CORPORATION LTD. VS. CIT [199 7] 225 ITR 802 (SC) AND SUSTAINED THE DISALLOWANCE TO THE EXTENT O F RS. 3,43,25,801/-. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE A S WELL AS REVENUE ARE IN APPEAL BEFORE US. 6. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1) THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE AP PELLANT. 2) BOTH THE ASSESSING OFFICER AND THE LEARNED CIT ( A) ERRED IN HOLDING THAT THE CLAIM FOR DEDUCTION OF RS.4,38,34, 823/_ REPRESENT WEIGHTED DEDUCTION U/ S 35(2AB) OF THE I. T. ACT. 3) THE LEARNED CIT (A) AND THE ASSESSING OFFICER OU GHT TO HAVE SEEN THAT THE SAID AMOUNT REPRESENT THE REVENUE EXP ENDITURE INCURRED DURING THE YEAR; DEBITED IN THE BOOKS OF A CCOUNT PARTICULARLY AS' DEFERRED REVENUE EXPENDITURE BUT C LAIMED AS DEDUCTION WHILE COMPUTING THE INCOME FOR THE PURPOS E OF INCOME TAX. 4) THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDI TION OF RS.3,43,25,801/- MADE OUT OF RS.4,38,34,823/- MADE BY THE ASSESSING OFFICER WITHOUT CONSIDERING THE FACT THAT THE ENTIRE EXPENDITURE OF RS.4,38,34,823/- REPRESENT REVENUE E XPENDITURE AND IS ALLOWABLE AS DEDUCTION. 5) ANY OTHER GROUND OR GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 6.1 REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.66,24,0 00/- TOWARDS DISALLOWANCES OF R&D EXPENDITURE ON THE GROUND THAT NO PRESCRIBED FORM IS REQUIRED TO CLAIM EXPENDITURE U/ S.35(1), WHEREAS IT IS CLEARLY MENTIONED IN THE SAID SECTION THAT A CERTIFICATE FROM THE PRESCRIBED AUTHORITY IS REQUIR ED. 2. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED LD. CIT(A) ERRED IN STATING THAT THE R&D EXPENDITUR E OF RS.66,24,000/- WAS ALSO ALLOWABLE U/S.37(1) WITHOUT 5 ITA NO. 792 & 748/H/16 CELON LABORATORIES LTD. APPRECIATING THE FACT THAT THE EXPENDITURE IN ORDER TO BE ALLOWABLE U/S. 37(1) SHOULD BE AN EXPENDITURE NOT O F THE NATURE DESCRIBED IN SECTIONS 30 TO 36. 3. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED LD. CIT(A) OUGHT TO HAVE PROVIDED AN OPPORTUNITY TO VERIFY THE CLAIM OF THE ASSESSEE AS PER RULE 46A OF THE I.T. R ULES. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 7. LD. AR SUBMITTED THAT WITH REGARD TO DISALLOWANC E OF R&D EXPENDITURE U/S 35(1) AND UNACCOUNTED EXPENDITURE U NDER THE HEAD R&D, HE RELIED ON THE FINDINGS OF CIT(A). WITH REGA RD TO ADDITION U/S 35(2AB), LD. AR SUBMITTED THAT ASSESSEE HAS ACCOUNT ED R&D EXPENDITURE SEPARATELY UNDER THE HEAD DEFERRED REV ENUE EXPENDITURE AND AS PER ITS ACCOUNTING METHOD, IT HAS CHARGED 20 % OF THE EXPENDITURE TO P&L A/C IN THE CURRENT AY AND BALANC E IS DEFERRED AS PER THE AS BY THE ASSESSEE. WITH REGARD TO COMPUTAT ION OF INCOME UNDER THE INCOME-TAX ACT, IT HAS CLAIMED TOTAL EXPE NDITURE AS REVENUE EXPENDITURE AND NOT UNDER SECTION 35(2AB) WHEREIN I N ORDER TO CLAIM DEDUCTION U/S 35(2AB) ASSESSEE HAS TO OBTAIN PERMIS SION FROM THE APPROPRIATE AUTHORITY TO CLAIM WEIGHTED DEDUCTION UNDER THE INCOME- TAX ACT. HE SUBMITTED THAT ASSESSEE IS OBLIGATED T O FURNISH APPROVAL FROM APPROPRIATE AUTHORITY ONLY IN TWO SCENARIOS; F IRST, WHEN ASSESSEE IS CLAIMING WEIGHTED DEDUCTION OR SECOND, IT IS CL AIMING EXPENDITURE INCURRED DURING PREVIOUS AYS, IT MAY BE CAPITAL OR REVENUE. IN THE GIVEN CASE, ASSESSEE HAS NOT CLAIMED ANY PREVIOUS E XPENDITURE NOR CLAIMED ANY WEIGHTED DEDUCTION UNDER INCOME-TAX ACT . SINCE, ASSESSEE IS ALLOWED TO CLAIM EXPENDITURE, WHICH IS REVENUE IN NATURE, CAN BE CLAIMED ONLY IN THE YEAR OF EXPENDITURE AND ALSO THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE IN THE INC OME-TAX ACT. HE SUBMITTED THAT ACTION OF THE CIT(A) AS WELL AS AO I S NOT PROPER. 6 ITA NO. 792 & 748/H/16 CELON LABORATORIES LTD. 8. THE LD. DR, ON THE OTHER HAND, FILED WRITTEN SUB MISSIONS, WHICH ARE AS UNDER: ISSUE 1: THE DISALLOWANCE OF RS. 66.24 LAKHS WAS MA DE ON THE GROUND THAT THE COMPANY HAS GOT APPROVAL FROM THE A PPROPRIATE AUTHORITY W.E.F. MARCH 2011 ONLY. THE ASSESSEE ARGU ED THAT THE EXPENDITURE COMES UNDER THE AMBIT OF SECTION 35(1) AND NOT UNDER SECTION 35D(1) OF THE ACT. THE ISSUE IN QUEST ION HAS BEEN EXAMINED AND IT WOULD BE RELEVANT TO HIGHLIGHT THE PROVISIONS OF SECTION 35(1)(I) WHICH IS REPRODUCED BELOW: '35. (1) IN RESPECT OF EXPENDITURE ON SCIENTIFIC RE SEARCH, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED (I) ANY EXPENDITURE (NOT BEING IN THE NATURE OF CAP ITAL EXPENDITURE) LAID OUT OR EXPENDED ON SCIENTIFIC RES EARCH RELATED TO THE BUSINESS. EXPLANATION.-WHERE ANY SUCH EXPENDITURE HAS BEEN LA ID OUT OR EXPENDED BEFORE THE COMMENCEMENT OF THE BUSINESS (N OT BEING EXPENDITURE LAID OUT OR EXPENDED BEFORE THE 1ST DAY OF APRIL, 1973) ON PAYMENT OF ANY SALARY AS DEFINED IN EXPLAN ATION 2 BELOW SUB-SECTION (5) OF SECTION 40A TO AN EMPLOYEE ENGAGED IN SUCH SCIENTIFIC RESEARCH OR ON THE PURCHASE OF MATE RIALS USED IN SUCH SCIENTIFIC RESEARCH, THE AGGREGATE OF THE EXPE NDITURE SO LAID OUT OR EXPENDED WITHIN THE THREE YEARS IMMEDIA TELY PRECEDING THE COMMENCEMENT OF THE BUSINESS SHALL, T O THE EXTENT IT IS CERTIFIED BY THE PRESCRIBED AUTHORITY TO HAVE BEEN LAID OUT OR EXPENDED ON SUCH SCIENTIFIC RESEARCH, B E DEEMED TO HAVE BEEN LAID OUT OR EXPENDED IN THE PREVIOUS YEAR IN WHICH THE BUSINESS IS COMMENCED; ' THUS, IT CAN BE SEEN FROM THE EXPLANATION ABOVE, TH AT CERTIFICATE FROM THE PRESCRIBED AUTHORITY IS REQUIRED IN CASE; (I) THE EXPENDITURE IS LAID OUT OR EXPENDED BEFORE THE COMMENCEMENT OF THE BUSINESS (II) ON PAYMENT OF ANY SALARY AS DEFINED IN EXPLANA TION 2 BELOW SUB-SECTION (5) OF SECTION 40A TO AN EMPLOYEE ENGAG ED IN SUCH SCIENTIFIC RESEARCH OR ON THE PURCHASE OF MATERIALS USED IN SUCH SCIENTIFIC RESEARCH (III) THE AGGREGATE OF THE EXPENDITURE SO LAID OUT OR EXPENDED WITHIN THE THREE YEARS IMMEDIATELY PRECEDING THE COMMENCEMENT OF THE BUSINESS. 7 ITA NO. 792 & 748/H/16 CELON LABORATORIES LTD. FURTHER, IT IS SEEN FROM THE ASSESSMENT RECORD AND THE PAPER BOOK THAT THERE IS NO EVIDENCE TO CONCLUSIVELY SAY THAT THE EXPENDITURE OF RS. 66.24 LAKHS HAS BEEN EXPENDED DU RING THE F.Y. 2009-10. IN THE ABSENCE OF RELEVANT LEDGER ACC OUNTS, IT CANNOT BE SAID WHETHER THE SAID EXPENDITURE FALLS U NDER EXPLANATION (1) OF SECTION 35(I)(I) OF THE ACT WHER EIN A CERTIFICATE FROM A PRESCRIBED AUTHORITY IS HELD TO BE MANDATORY. THEREFORE, THE ISSUE MAY BE DECIDED ON FACTS AND ME RITS OF THE CASE. ISSUE 2: THE ASSESSEE HAS INCURRED AN EXPENDITURE O F RS. 438.55 LAKHS TOWARDS DEFERRED REVENUE EXPENDITURE O F WHICH AN AMOUNT OF RS. 95.09 LAKHS WAS DEBITED TO THE P & L ACCOUNT. HOWEVER, IN THE COMPUTATION OF INCOME, THE ASSESSEE ADDED BACK RS. 95.09 LAKHS AND REDUCED RS. 438.35 LAKHS. THE AO DISALLOWED THE ENTIRE EXPENDITURE OF RS. 438.55 AS NOT ADMISSIBLE U/S 35(2AB) OF THE ACT AS THE ASSESSEE F AILED TO FURNISH CERTIFICATE FROM THE PRESCRIBED AUTHORITY. THE LD. CIT(A) TREATED THE EXPENDITURE OF RS. 438.55 LAKHS AS DEFE RRED REVENUE EXPENDITURE AND ALLOWED DEDUCTION OF 20% AM OUNTING TO RS. 95.09 LAKHS. THE BALANCE ADDITION OF RS. 343 .25 LAKHS WAS CONFIRMED BY THE LD. CIT(A) AND THE REVENUE HAS ACCEPTED THE DECISION OF THE LD. CIT(A). THEREFORE, NO COMME NTS ARE OFFERED ON THIS ISSUE. ASSESSMENT RECORD IN 2 VOLUMES FOR A. Y 2010-11 ALO NG WITH PAPER BOOK IS SUBMITTED HEREWITH. 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. THE ASSESSEE HAS INCURRED REVENUE EXPEND ITURE TO THE EXTENT OF RS. 66.24 LAKHS AND DEFERRED REVENUE EXPE NDITURE TO THE EXTENT OF RS. 438.55 LAKHS. WITH REGARD TO THE REV ENUE EXPENDITURE U/S 35(1) OF THE IT ACT, THE ASSESSEE HAS INCURRED THIS EXPENDITURE FOR R&D IN THE ASSESSMENT YEAR UNDER CONSIDERATION. SE C. 35(1)(I) OF THE IT ACT IS REPRODUCED BELOW: SECTION 35(1)(I): (I) ANY EXPENDITURE (NOT BEING IN THE NATURE OF CAP ITAL EXPENDITURE) LAID OUT OR EXPENDED ON SCIENTIFIC RES EARCH RELATED TO THE BUSINESS. EXPLANATION.- WHERE ANY SUCH EXPENDITURE HAS BEEN L AID OUT OR EXPENDED BEFORE THE COMMENCEMENT OF THE BUSINESS (NOT BEING EXPENDITURE LAID OUT OR EXPENDE D 8 ITA NO. 792 & 748/H/16 CELON LABORATORIES LTD. BEFORE THE 1ST DAY OF APRIL, 1973 ) ON PAYMENT OF A NY SALARY[ AS DEFINED IN EXPLANATION 2 BELOW SUB- SECT ION (5) OF SECTION 40A] TO AN EMPLOYEE ENGAGED IN SUCH SCIENTIFIC RESEARCH OR ON THE PURCHASE OF MATERIALS USED IN SUCH SCIENTIFIC RESEARCH, THE AGGREGATE OF THE EXPENDITURE SO LAID OUT OR EXPENDED WITHIN THE THRE E YEARS IMMEDIATELY PRECEDING THE COMMENCEMENT OF THE BUSINESS SHALL, TO THE EXTENT IT IS CERTIFIED BY TH E PRESCRIBED AUTHORITY TO HAVE BEEN LAID OUT OR EXPEN DED ON SUCH SCIENTIFIC RESEARCH, BE DEEMED TO HAVE BEEN LAID OUT OR EXPENDED IN THE PREVIOUS YEAR IN WHICH THE BUSINESS IS COMMENCED;] FROM THE ABOVE, IT IS CLEAR THAT ANY EXPENDITURE RE LATING TO BUSINESS WHICH MAY BE RELATING TO CURRENT YEAR OR RELATING T O PREVIOUS EXPENDITURE INCURRED BEFORE COMMENCEMENT OF THE BUS INESS AND RESTRICTED TO EXPENSES EXPENDED WITHIN 3 YEARS IMME DIATELY PROCEEDING THE COMMENCEMENT OF THE BUSINESS. AS PE R EXPLANATION TO THIS SUB-CLAUSE, THE ASSESSEE HAS TO SUBMIT CERT IFICATE FROM THE PRESCRIBED AUTHORITY TO GET THE DEDUCTION UNDER THI S HEAD FOR THE EXPENSES INCURRED BEFORE COMMENCEMENT OF THE BUSINE SS. THERE IS NO RESTRICTION WITH REGARD TO EXPENSES EXPENDED DUR ING THE CURRENT ASSESSMENT YEAR. HENCE, THERE IS NO REQUIREMENT ON THE PART OF THE ASSESSEE TO CLAIM REVENUE EXPENDITURE INCURRED DURI NG THE CURRENT ASSESSMENT YEAR. ACCORDINGLY, THE ASSESSEE IS ELIG IBLE TO CLAIM DEDUCTION U/S 35(1) OF THE IT ACT RELATING THE CURR ENT YEAR EXPENDITURE ON R&D. WE ARE IN AGREEMENT WITH THE FINDINGS OF L D. CIT(A). THEREFORE GROUND RAISED BY DEPARTMENT IS DISMISSED. 9.1 WITH REGARD TO DEFERRED REVENUE EXPENDITURE, TH E ASSESSEE HAS INCURRED REVENUE EXPENDITURE DURING THIS YEAR AND CLASSIFIED THE SAME AS DEFERRED REVENUE EXPENDITURE IN ORDER TO DEFER THE EXPENDITURE IN THE FINANCIAL STATEMENT. FOR THE PU RPOSE OF DETERMINING TAXABLE INCOME UNDER THE IT ACT, IT HA S CLAIMED TOTAL REVENUE EXPENDITURE INCURRED DURING THE YEAR, EVEN THOUGH CLASSIFIED AS DEFERRED REVENUE EXPENDITURE, AS EXPENDITURE U/S 35(1) OF THE IT 9 ITA NO. 792 & 748/H/16 CELON LABORATORIES LTD. ACT. THE ASSESSEE HAS SUBMITTED THE BREAKUP OF THE REVENUE EXPENDITURE, WHICH IS PLACED ON RECORD THEY ARE: PARTICULARS 2009-10 EXPENDITURE DURING THE YEAR ARTWORK EXP. 106,965 MARKETING PROMOTION 70,948 PRINTING PROMOTIONS 3,878,672 PRODUCT REGISTRATION 1,299,562 TRADE MARK REGISTRATION 260,007 MARKETING CME 2,666,516 BUSINESS PROMOTION 2,592,719 MARKETING SPONSORSHIP 3,886,785 ADVERTISEMENT 68,972 CLINICAL STUDIES 29,003,150 OTHERS 527 TOTAL 43,834,823 FROM THE ABOVE, EXPENDITURE, THE EXPENSES ON PRODUC T REGISTRATION, TRADE MARK REGISTRATION, BUSINESS PROMOTION AND MAR KETING SPONSORSHIP MAY GIVE BENEFIT OF ENDURING NATURE, WH EREAS, ALL OTHER EXPENDITURE DO NOT CARRY ANY ENDURING BENEFIT TO TH E ASSESSEE, WHICH NECESSITATES TO CARRY FORWARD THE EXPENDITURE TO SU BSEQUENT YEAR BY THE RATIO LAID DOWN IN THE CASE OF MADRAS INDUSTRI AL CORPORATION LTD. (SUPRA). IN OUR OPINION, THE RATIO LAID DOWN IN TH IS DECISIONS IS RELATING TO THE DISCOUNT ON DEBENTURES. EVEN THOUGH THE DIS COUNT IS OFFERED IN THE YEAR OF SUBSCRIPTION, THE DISCOUNT IN FACT RELA TES TO THE TENURE OF THE DEBENTURES. IT CAN BE SPREAD OVER TO THE PERIO D OF DEBENTURE HOLDING. WHEREAS THE NATURE OF EXPENDITURE INCURRED IN THE GIVEN CASE IS R&D. IT IS PECULIAR EXPENDITURE, IT IS NOT NECE SSARY THAT RESEARCH SHOULD BE SUCCESSFUL ALL THE TIME, THE ABSORPTION O F THE COST DEPENDS UPON THE SUCCESS RATE OF THE PROJECT. IT IS PRUDENT TO ABSORB THE REVENUE EXPENSES IN THE YEAR OF EXPENDITURE INCURRE D, WHEN THERE IS NO BENEFIT OF ENDURING NATURE EXPECTED AT THE TIME OF MAKING SUCH EXPENDITURE. IT IS NOT BROUGHT ON RECORD BY THE REV ENUE AUTHORITIES THAT ASSESSEE HAS EXPENDED THIS EXPENSES AND THERE IS ASSET CREATED BY SUCH EXPENDITURE. SINCE THERE IS NO ASSET CREATE D, WHICH HAS ENDURING BENEFIT TO THE BUSINESS OF THE ASSESSEE, I T IS APPROPRIATE TO 10 ITA NO. 792 & 748/H/16 CELON LABORATORIES LTD. ALLOW THESE EXPENDITURE U/S 35(1). AT THE SAME TIME , THE RATIO LAID DOWN IN THE CASE OF MADRAS INVESTMENT CORPORATION ( SUPRA) CANNOT BE APPLIED IN THE GIVEN SITUATION AS THE NATURE OF EXP ENDITURE IS DIFFERENT. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOW ED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 27 TH OCTOBER, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 27 TH OCTOBER, 2017. KV COPY TO:- 1) CELON LABORATORIES PVT. LTD., C/O SRI S. RAMA RA O, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREE T NO. 9, HIMAYATNAGAR, HYDERABAD 500 029. 2) DCIT, CIRCLE 1(2), AYAKAR BHAVAN, BASHEERBAGH, HYD. 3) CIT(A) 1, HYDERABAD 4 PR. CIT 1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE