Jubilant Biosys Ltd, Noida V. JCIT, Range-1, Noida

ITA 7541/DEL/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3460 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 28-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOJ SENIOR
• Keywords: Depreciation; Bad and doubtful debts; Revenue expenditure
• Section: 271(1)(c); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH FRIDAY, NEW DELHI. BEFORE HONBLE VICE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER EARLY HEARING APPLICATION NO.25/DEL/2019 (IN ITA NO.7541/DEL./2018) (ASSESSMENT YEAR : 2011-12) AND ITA NO.7541/DEL./2018 (ASSESSMENT YEAR : 2011-12) M/S. JUBILANT BIOSYS LIMITED, VS. JCIT, RANGE 1, PLOT NO.1A, SECTOR 16A, NOIDA. G.B. NAGAR, NOIDA 201 301 (U.P.) (PAN : AAACJ9445P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RISHABH MALHOTRA, AR REVENUE BY : SHRI AMIT KATOJ, SENIOR DR DATE OF HEARING : 01.02.2019 DATE OF ORDER : 25.02.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : KEEPING IN VIEW THE UNDISPUTED FACT THAT THE ADDITI ON MADE BY THE AO AND CONFIRMED BY LD. CIT (A) ON THE BASIS OF WHICH PENALTY PROCEEDINGS WERE INITIATED, HAS BEEN DELETE D AND IN THE GIVEN CIRCUMSTANCES, PRIMA FACIE PENALTY LEVIED BY LD. CIT (A) IS ITA NO.7541/DEL./2018 2 NOT SUSTAINABLE IN THE EYES OF LAW, SO THE APPLICAT ION FOR EARLY HEARING IS ALLOWED AND THE BENCH IS PROCEEDED TO HE AR AND DECIDE THE APPEAL BY TODAY ITSELF. 2. THE APPELLANT, M/S. JUBILANT BIOSYS LIMITED (HER EINAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESEN T APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 31.03.2018 PASSE D BY LD. CIT (APPEALS)-I, NOIDA QUA THE ASSESSMENT YEAR 2011-12 ON THE GROUNDS INTER ALIA THAT :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] UNDER SECTION 271(1)(C) OF THE I NCOME TAX ACT 1961 ['THE ACT] IS BAD IN LAW AND PASSED IN HAS TE WITHOUT PROVIDING REASONABLE OPPORTUNITY TO THE APPELLANT M ORE SO WHEN THE QUANTUM MERITS APPEAL IS CURRENTLY PENDING BEFO RE THE HON'BLE APPELLATE TRIBUNAL, DELHI. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE SHOW CAUSE NOTICE UNDER SECTION 271(1)( C) OF THE ACT IS ISSUED MECHANICALLY AND PRINTED WITHOUT SPECIFYI NG THE PRECISE CHARGE TO LEVY PENALTY UNDER SECTION 271(1)(C) FOR THE YEAR UNDER CONSIDERATION. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT (A) ERRED IN INITIATING AND IMP OSING PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON INCOME ENHANC ED BY HIS OFFICE IN THE APPELLATE ORDER DATED 30.06.2017 ARIS ING FROM THE ASSESSMENT ORDER DATED 25.03.2014. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) ERRED IN LEVYING PENALTY UND ER SECTION 271(1)(C) OF THE ACT ON THE ALLEGED GROUND THAT THE APPELLANT HAS WILLFULLY AND DELIBERATELY FURNISHED INACCURATE PAR TICULARS OF INCOME AND HAS ALSO CONCEALED THE PARTICULARS OF IT S INCOME TO THE EXTENT OF THE INCOME ENHANCED BY HIS OFFICE IN THESE APPELLATE ORDER DATED 30.06.2017. 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ON THE BASIS OF COMPLETED ASSESSMENT ITA NO.7541/DEL./2018 3 UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (F OR SHORT THE ACT) AT LOSS OF (-) RS.2,85,68,828/-, PENALTY PROC EEDINGS UNDER SECTION 271(1)(C) WAS INITIATED. AFTER DECLINING T HE CONTENTIONS RAISED BY THE ASSESSEE, LD. CIT(A) PROCEEDED TO LEV Y THE PENALTY OF RS.87,34,96,838/- @ 100% UNDER SECTION 271(1)(C) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS WILLFULLY FURNISHE D THE INACCURATE PARTICULARS OF INCOME AND HAS DELIBERATELY CONCEALE D PARTICULARS OF ITS INCOME. 4. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFO RE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. AT THE VERY OUTSET, IT IS BROUGHT TO OUR NOTICE BY THE LD. AR FOR THE ASSESSEE THAT SINCE THE CO-ORDINATE BENCH O F THE TRIBUNAL VIDE ORDER DATED 28.11.2018 IN ITA NOS.7302/DEL/201 7, 1822/DEL/2018, 1823/DEL/2018, 2759/DEL/2018 & 2760/ DEL/2018, HAS DELETED THE QUANTUM ADDITION, PENALTY LEVIED ON THE BASIS OF ASSESSMENT ORDER IS NOT SUSTAINABLE. 7. BARE PERUSAL OF THE ORDER PASSED BY THE CO-ORDIN ATE BENCH OF THE TRIBUNAL IN QUANTUM PROCEEDINGS GOES TO PROVE T HAT ADDITION ITA NO.7541/DEL./2018 4 MADE BY THE AO/LD. CIT (A) ON ACCOUNT OF DISALLOWAN CE OF EXPENDITURE CLAIMED BY THE ASSESSEE TO THE TUNE OF RS.102,52,32,000/- HAS BEEN DELETED BY RETURNING FO LLOWING FINDINGS :- 11. GROUND NO. 3-3.2 IS IN RESPECT OF DISALLOWANC E OF EXPENDITURE AMOUNTING TO RS.102,52,32,000/- HOLDING IT TO BE CA PITAL IN NATURE. 12. LD. COUNSEL SUBMITTED THAT LD.CIT(A) DISALLOWE D ENTIRE EXPENDITURE BY HOLDING THAT RESEARCH ACTIVITY CARRI ED ON BY ASSESSEE HAS RESULTED IN ENDURING BENEFITS TO ASSESSEE. HE SUBMI TTED THAT WHILE DOING SO, LD.CIT(A) EXAMINED VARIOUS DEFINITIONS OF THE T ERM RESEARCH TO ARRIVE AT THE CONCLUSION THAT THE ACTIVITY PERTAINS TO ENHANCEMENT OF CUMULATIVE KNOWLEDGE OF HUMAN CIVILISATION AND, THE REFORE, COST OF RESEARCH DONE BY ASSESSEE RESULTED IN LONG AND ENDU RING BENEFIT, WHICH CANNOT BE HELD AS REVENUE EXPENDITURE. LD.COUNSEL S UBMITTED THAT LD. CIT (A) FAILED TO APPRECIATE THAT ASSESSEE IS IN TH E BUSINESS OF RESEARCH AND INFORMATICS SERVICES FOR DRUG DISCOVERY UNITS B ASED UPON INSILCO SOLUTIONS. IT HAS BEEN SUBMITTED THAT ASSESSEE PROV IDES DISCOVERY INFORMATICS PRODUCTS AND SERVICES AND COLLABORATIVE DRUG SERVICES THAT INCLUDE PRE-CLINICAL, IN-VIVO AND FORMULATION SERVI CES. HE SUBMITTED BY PLACING RELIANCE UPON AGREEMENT PLACED AT PAGE 109 OF PAPER BOOK THAT, SERVICES RENDERED ARE AS PER AGREEMENT, AND U PON TERMINATION OF AGREEMENT ALL RESEARCH MATERIALS, NOTES ETC SHALL B E PROPERTY OF ELLY LILLY AND CO. LD.COUNSEL FURTHER SUBMITTED THAT ON ONE HAND ASSESSING OFFICER IS ACCEPTING INCOME OFFERED BY ASSESSEE REC EIVED FROM RESEARCH SERVICES RENDERED, AND ON OTHER HAND EXPENDITURE IN CURRED FOR EARNING INCOME HAS BEEN TOTALLY DISALLOWED. PLACING RELIANC E UPON AUDITED ACCOUNTS PLACED IN PAPER BOOK, LD.COUNSEL SUBMITTED THAT BREAKUP OF EXPENDITURE INCURRED BY ASSESSEE ARE AS UNDER: PARTICULARS AMOUNT (RS.) REMARKS COST OF SERVICES AND OTHER EXPENSES (EXCLUDING SUBCONTRACTOR SERVICES) 64,98,47,000 SUCH EXPENSES WERE INCURRED TOWARDS: 1. LAB CHEMICALS AND SPARES CONSUMED; 2. REPAIRS AND MAINTENANCE OF PLANT AND MACHINERY; 3. SALARY, WAGES, BONUS, GRATUITY AND ALLOWANCES, 4. STAFF WELFARE EXPENSES, 5. ADVERTISEMENT EXPENSES, 6. PRINTING AND STATIONARY EXPENSES, 7. COMMUNICATION EXPENSES 8. FREIGHT AND FORWARDING EXPENSES, 9. OFFICE MAINTENANCE EXPENSES, 10. CONTRIBUTION TO PROVIDENT FUND ITA NO.7541/DEL./2018 5 AND OTHER FUNDS ETC. 11. RATES AND TAXES 12. RENT 13. INSURANCE 14. VEHICLE AND RUNNING MAINTENANCE 15. STAFF RECRUITMENT AND TRAINING 16. SOFTWARE LICENSE FEE 17. FINANCE CHARGES 18. MISC. EXPENSES 19. BAD DEBTS SUBCONTRACTOR SERVICES 15,92,90,000 SUCH EXPENSES WERE INCURRED TOWARDS SUB-CONTRACTING OF A PART OF RESEARCH ACTIVITIES DEPRECIATION & AMORTISATION 8,27,41,000 SUCH EXPENSES WERE INCURRED TOWARDS NORMAL WEAR AND TEAR OF FIXED ASSETS INTEREST 13,33,54,000 SUCH EXPENSES WERE INCURRED TOWARDS UNSECURED LOANS BORROWED BY THE APPELLANT TOTAL: 1,02,52,32,000 13. HE PLACED RELIANCE UPON DECISION OF HONBLE SU PREME COURT IN CASE OF BOMBAY STEAM NAVIGATION CO (1953) (P.) LTD. , VS. CIT REPORTED IN (1965) 56 ITR 52. 14. ON THE CONTRARY, LD. SR.DR PLACED RELIANCE UPO N THE ORDERS OF AUTHORITIES BELOW. 15. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN THE LIGHT OF RECORDS PLACED BEFORE US. 16. IT IS OBSERVED THAT, EXPENDITURE INCURRED BY A SSESSEE IS IN ITS NORMAL COURSE OF BUSINESS. FURTHER, IT IS ALSO NOT DISPUTED THAT ASSESSEE HAS BEEN REMUNERATED AS PER CONTRACT, UNDER WHICH A SSESSEE IS REQUIRED TO INCUR EXPENDITURE. LD. AO/CIT(A) DID NOT DISPUTE THAT EXPENDITURE HAS NOT BEEN INCURRED FOR PURPOSES OF RESEARCH ACTI VITY CARRIED ON BY ASSESSEE IN ITS NORMAL COURSE OF BUSINESS. WE DRAW OUR SUPPORT FROM DECISION OF HONBLE SUPREME COURT IN CASE OF EMPIRE JUTE COMPANY LTD VS. CIT REPORTED IN (1980) 124 ITR 1, WHEREIN H ONBLE COURT LAID DOWN THAT TEST OF ENDURING BENEFIT CANNOT BE APPLIE D BLINDLY AND MECHANICALLY WITHOUT HAVING REGARD TO FACTS AND CIR CUMSTANCES OF A GIVEN CASE. WE ALSO REFERRED TO CLAUSE 5.1 OF AGREE MENT AT PAGE 109 OF PAPER BOOK, WHEREIN ASSESSEE HAS TO ENSURE THAT IT IS ABLE TO CARRY OUT ITS OBLIGATIONS UNDER CONTRACT, WHEREIN THE OWNERSHIP O F INVENTIONS OF RESEARCH SERVICES UNDER AGREEMENT WAS TO BE RETAINE D BY ELI LILLY AND NOT BY ASSESSEE. 17. WE ARE THEREFORE ARE OF CONSIDERED OPINION THA T ASSESSEE HAS TO BE GRANTED BENEFIT OF EXPENDITURE INCURRED BY IT, I NCURRED IN DUE COURSE OF BUSINESS ACTIVITY. ITA NO.7541/DEL./2018 6 8. WHEN UNDISPUTEDLY ADDITION ON THE BASIS OF WHICH PENALTY PROCEEDINGS HAVE BEEN INITIATED IS NO MORE IN EXIST ENCE HAVING BEEN DELETED BY THE TRIBUNAL, PENALTY LEVIED BY AO AND CONFIRMED BY THE LD. CIT(A) IS NOT SUSTAINABLE IN THE EYES OF LAW, HENCE ORDERED TO BE DELETED IN VIEW OF THE JUDGMENT RENDE RED BY THE HONBLE APEX COURT IN THE CASE OF K.C. BUILDERS & ANR VS. ACIT 265 ITR 562 (SC) WHEREIN IT IS HELD THAT, WHEN THE ADDITION MADE IN THE ASSESSMENT ORDER ON THE BASIS OF WHICH PENAL TY FOR CONCEALMENT IS LEVIED HAVE BEEN DELETED THERE REMAI NS NO BASIS AT ALL FOR LEVYING THE PENALTY FOR CONCEALMENT AND IN SUCH CASE, NO PENALTY CAN SURVIVE AND THE PENALTY IS LIABLE TO BE CANCELLED. SO, IN VIEW OF THE MATTER, PENALTY LEVIED BY THE LD. CI T (A) IS ORDERED TO BE DELETED. CONSEQUENTLY, THE APPEAL FILED BY T HE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 25 TH DAY OF FEBRUARY, 2019. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) VICE PRESIDENT JUDICIAL M EMBER DATED THE 25 TH DAY OF FEBRUARY, 2019/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-I, NOIDA. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.