AARTI HEALTHCARE LTD, MUMBAI V. ITO RG 10(3)(1), MUMBAI

ITA 9039/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4248 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Keywords: Business income; Depreciation; Principle of natural justice; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 9039/MUM/2010 ASSESSMENT YEAR : 2006-07 ANUSHAKTI CHEMICALS & DRUGS LTD.( FORMERLY, AARTI HEALTHCARE LTD) 2 ND FLOOR , UDYOG KSHETRA MULUND GOREGAON LINK ROAD MUMBAI-400 080. PAN NO.AAACA 3517 H VS. INCOME TAX OFFICER RANGE-10(3)(1) MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIJAY MEH TA REVENUE BY : SHRI SURINDER JIT SINGH DATE OF HEARING : 02.07.2013 DATE OF PRONOUNCEMENT : 10 .07.2013 O R D E R PER B. RAMAKOTAIAH, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-11, MUMBAI DATED 06.10.10 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. RE: ORDER PASSED BY THE CIT(A) IS GROSSLY ERRON EOUS AND BAD IN LAW: 1.1 THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT (A)] IS GROSS LY ERRONEOUS, ONE SIDED AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS DE SPITE DETAILED SUBMISSIONS GIVEN BY THE APPELLANT, THE SAME HAVE N OT BEEN CONSIDERED IN PROPER LIGHT AT ALL. ITA NO.9039/M/10 A.Y.06-07 ANUSHAKTI CHEMICALS & DRUGS LTD. 2 2. RE: DISALLOWANCE OF CLAIM OF WEIGHTED PORTION U/ S 35(2AB) OF RS. 2,63,58,205/- 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF CLA IM OF WEIGHTED PORTION OF DEDUCTION U/S 35(2AB). 3. RE: DISALLOWANCE OF PROPORTIONATE SCIENTIFIC RES EARCH EXPENSES OF RS. 1,75,72,136/- 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN UPHOLDING DISALLOWANCE OF PROPORTI ONATE PORTION OF REVENUE AND CAPITAL EXPENDITURE ON SCIENTIFIC RESEA RCH WHICH HAD BEEN CLAIMED BY THE APPELLANT ON THE GROUND THAT NO BUSINESS WAS CARRIED OUT. 3.2 WITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) GRO SSLY ERRED IN UPHOLDING THE COMPUTATION OF THE DISALLOWANCE BY TH E ASSESSING OFFICER FOR 4 MONTHS (BEGINNING FROM 1 DECEMBER, 2 005) WITHOUT APPRECIATING THAT THE APPELLANT CONTINUED ITS MANUF ACTURING BUSINESS TILL I 5 DECEMBER, 2005. 3.3 WITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) OUG HT TO HAVE ALLOWED EXPENDITURE ON SCIENTIFIC RESEARCH UNDER HEAD INCOM E FROM OTHER SOURCES AS THE MANUFACTURING SERVICE INCOME DERIVED BY THE APPELLANT WAS INTIMATELY CONNECTED WITH SCIENTIFIC RESEARCH C ARRIED ON. 3.4 WITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) OUG HT TO HAVE ALLOWED DEPRECIATION TO THE APPELLANT IN RESPECT OF CAPITAL EXPENDITURE FOR WHICH NO DEDUCTION U/S. 35(1)(IV) WAS ALLOWED. 4. RE: DISALLOWANCE OF DEDUCTION U/S 35(1)(IV) OF R S. 18,65,217/- 4.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE OF DEDU CTION U/S 35(1)(IV) CLAIMED BY THE APPELLANT ON THE CAPITAL EXPENDITURE FOR BUILDING FOR ITS IN-HOUSE RESEARCH CENTRE ON THE PREMISE THAT NO BUS INESS ACTIVITY WAS CARRIED ON. 4.2 WITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) GRO SSLY ERRED IN NOT ALLOWING THE EXPENDITURE ON SCIENTIFIC RESEARCH FOR THE PERIOD THE MANUFACTURING BUSINESS WAS CARRIED ON BY THE APPELL ANT. 5. RE: TREATMENT OF MANUFACTURING SERVICE INCOME AS INCOME FROM OTHER SOURCE RS. 33,33,313/- ITA NO.9039/M/10 A.Y.06-07 ANUSHAKTI CHEMICALS & DRUGS LTD. 3 5.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN UPHOLDING THE CONTENTION OF THE AS SESSING OFFICER THAT THE INCOME RECEIVED FOR MANUFACTURING SERVICES REND ERED IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S SINCE THERE WAS NO INVOLVEMENT OF THE APPELLANT IN THE MANUFACT URING ACTIVITY. 5.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) WITHOUT APPRECIATING THE SUBMISSIONS MADE B Y THE APPELLANT, GROSSLY ERRED IN MAKING SWEEPING AND UNSUBSTANTIATE D ALLEGATIONS THAT THE SISTER CONCERN OF THE APPELLANT HAD SHIFTE D THE PROFITS TO THE APPELLANT IN VIEW OF THE LOSSES OF THE APPELLANT. 6. RE: TREATMENT OF LEASE RENTAL AS INCOME FROM OTH ER SOURCES RS.1,22,50,000/- 6.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN UPHOLDING THE CONTENTION OF THE AS SESSING OFFICER TREATING THE INCOME FROM LEASE RENTAL OF THE PLANT AND MACHINERY TOGETHER WITH THE BUILDING AS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES WITHOUT APPRECIATING THAT THE APPELL ANT CONTINUED TO DEVELOP AND DEPLOY ITS INTELLECTUAL PROPERTY RIGHTS ENGAGING A HUGE WORK FORCE OF SCIENTISTS AND ENGINEERS FOR RENDERED MANUFACTURING SERVICES TO THE LESSEE AS A COMPOSITE ARRANGEMENT. 6.2 THE CIT (A) IS GROSSLY ERRED IN UPHOLDING THAT SINCE THE APPELLANT DID NOT HAVE THE INTENTION OF CARRYING ON BUSINESS, THE ASSETS OF THE APPELLANT CEASED TO BE COMMERCIAL ASSETS. 2. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE A ND THE LD. DR IN DETAIL. GROUND NO.1 IS GENERAL IN NATURE AND DOES N OT REQUIRE ANY ADJUDICATION. GROUND NO.2 TO 7 ARE INTER-LINKED AND BRIEF FACTS OF THE CASE ARE AS UNDER. 3. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND TRADING OF BULK DRUGS AND RESEARCH HAVING AN IN-HOUSE RESEARCH FACILITY. DURING THE YEAR, BY VIRTUE OF AN AGREEMENT DATED 01.08.2005 WI TH M/S. AARTI INDUSTRIES LTD. ANOTHER GROUP CONCERN, THE ASSESSEE ENTERED WAS TO PROVIDE SERVICES RELATING TO MANUFACTURE OF BULK DR UGS (API) AND ITA NO.9039/M/10 A.Y.06-07 ANUSHAKTI CHEMICALS & DRUGS LTD. 4 INTERMEDIARIES BY DEPLOYING ITS OWN TECHNICAL RESOU RCES, IN TERMS OF ITS SKILLED TECHNICAL STAFF AND TECHNICAL KNOWLEDGE AND EXPERTISE. AS PART OF TERMS OF THE AGREEMENT THE ASSESSEE WAS TO RECEIVE FEES FOR THE SERVICE RENDERED, A SUM CALCULATED @ 30% OF THE GROSS CONTR IBUTIONS FROM APIS AND INTERMEDIARIES SOLD DURING THREE CALENDAR MONTH S BY AIL (CL.6). THE GROSS CONTRIBUTION WAS DEFINED AS AN AMOUNT EQUAL T O AMOUNT OF SALES PRICE NET OF TAXES LESS COST OF RAW MATERIALS, FUEL , POWER AND WATER USED DIRECTLY IN MANUFACTURING OF THE PRODUCES ON GOODS SOLD (CL.7). IT WAS ALSO PROVIDED THAT IN CASE OF GROSS CONTRIBUTION BEING N EGATIVE NO AMOUNT SHALL BE PAYABLE BY THE ASSESSEE TO AIL AND VICE-VE RSA. EVENTHOUGH, THIS AGREEMENT WAS TO COMMENCE FROM 16 TH DAY OF AUGUST, 2005, THE SAME WAS IMPLEMENTED W.E.F. 16 TH DECEMBER, 2005 AS ON THAT DATE ANOTHER LEASE AND LICENSE AGREEMENT ALSO CAME INTO EFFECT. VIDE AGREEMENT DATED 05.12.2005 ENTERED INTO WITH AARTI INDUSTRIES LTD. THE ASSESSEE GAVE ITS MANUFACTURING FACILITIES ON LEAVE AND LICENSE BASIS FOR A PERIOD OF SIXTY MONTHS FOR A SUM OF RS.35.00 LACS PER MONTH AS COMP ENSATION IN CONSIDERATION OF THE LICENSE AND PERMISSION TO LICE NSEE TO CARRYOUT ITS MANUFACTURING AND BUSINESS ACTIVITIES IN THE SAID P REMISES BEING GRANTED TO THE LICENSEE. THERE ARE OTHER TERMS AND CONDITIO NS WHICH ARE NOT MATERIAL TO THE ISSUES TO BE DECIDED AT PRESENT. IT WAS THE CONTENTION THAT THE ASSESSEE WAS INVOLVED IN BUSINESS ACTIVITY THRO UGH OUT THE YEAR WHEREAS AO TREATED THE RECEIPTS FROM MANUFACTURING SERVICES AS WELL AS LEASE RENTAL INCOME AS INCOME FROM OTHER SOURCES. CONSEQUENTLY THE SCIENTIFIC RESEARCH EXPENSES CLAIMED BOTH REVENUE A ND CAPITAL U/S. 35(1)(IV) WERE DISALLOWED BY AO TO THE EXTENT OF FO UR MONTHS I.E. FROM 1 ST DECEMBER, 2005 TO 31 ST MARC 2006. AS IN EARLIER YEARS, AO ALSO DID NOT ALLOW WEIGHTED DEDUCTION U/S. 35(2AB) TO AN EXTENT OF RS. 2.66 CRORES. THESE ARE THE ISSUES WHICH REQUIRE CONSIDERATION IN THIS APPEAL. IN THE COURSE OF ARGUMENT THE LD. COUNSEL DID NOT PRESS FO R GROUND NO.3.4 RAISED IN THE ABOVE GROUNDS. ITA NO.9039/M/10 A.Y.06-07 ANUSHAKTI CHEMICALS & DRUGS LTD. 5 4. GROUND NO.2 IS WITH REFERENCE TO CLAIM OF WEIGHT ED DEDUCTION U/S.35(2AA). IT WAS FAIRLY SUBMITTED THAT AO FOLLOW ED THE ORDERS IN ASSESSMENT YEAR 2005-06 IN DISALLOWING THE AMOUNT A ND ITAT IN THAT YEAR VIDE THE ORDER IN ITA NO.4402/MUM/2009 DATED 1 8.7.2012 RESTORED THE ISSUE TO THE FILE OF AO BY STATING AS UNDER :- CONSIDERING THE ABOVE SUBMISSIONS OF LD. REPRESENT ATIVES AND THE FACT THAT ASSESSEE IS FOLLOWING UP THE MATTER WITH DSIR FOR ITS APPROVAL FOR IN HOUSE R&D FACILITY FOR INCURRING AL L THE EXPENDITURE, WE CONSIDER IT PRUDENT, IN THE INTEREST OF JUSTICE, TO RESTORE THE MATTER TO ASSESSING OFFICER WITH A DIRECTION THAT IF THE A SSESSEE GETS THE APPROVAL FROM DSIR, THE CLAIM OF THE ASSESSEE BE AL LOWED AS PER PROVISIONS OF THE ACT. HENCE, GROUNDS OF APPEAL TAK EN BY THE ASSESSEE ARE ALLOWED. 4.1 RESPECTFULLY FOLLOWING THE SAME, SINCE AO AND C IT(A) FOLLOWED THE ORDERS IN ASSESSMENT YEAR 2005-06, WE RESTORE THE M ATTER TO AO WITH A DIRECTION TO ALLOW DEDUCTION AS PER PROVISIONS OF T HE ACT, IN CASE THE ASSESSEE GETS APPROVAL FROM DSIR. THE GROUND IS CON SIDERED ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NOS.3, 4 AND 5,6 ARE IN A WAY INTERLINKED . CONSEQUENT TO THE TREATMENT GIVEN TO THE RECEIPT OF MANUFACTURING SERVICE INCOME AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INC OME, AO PROPORTIONATELY DISALLOWED THE CLAIM OF SCIENTIFIC RESEARCH EXPENSES. IN CASE INCOMES WERE TREATED AS BUSINESS INCOME IN GRO UND NO.5 AUTOMATICALLY THE GROUND NO.3 AND 4 GETS ALLOWED TO ASSESSEE. THERE ARE SUB-GROUNDS IN THE ABOVE GROUNDS WHICH ARE WITHOUT PREJUDICE TO EACH OTHER THAT ASSESSING OFFICER SHOULD HAVE DISALLOWED ONLY 3 MONTHS CLAIM AS AGAINST 4 MONTHS, AS ASSESSEE CONTINUED IT S OWN MANUFACTURING ACTIVITY TILL 15 TH DECEMBER, 2005. ITA NO.9039/M/10 A.Y.06-07 ANUSHAKTI CHEMICALS & DRUGS LTD. 6 5.1 ARGUING MAINLY ON GROUND NO.5 IT WAS THE SUBMIS SION OF THE LD. COUNSEL THAT BOTH ASSESSING OFFICER AND CIT(A) MIST OOK THE TWO ARGUMENTS ENTERED BY THE ASSESSEE AS ONE OF LEASING MANUFACTURING ACTIVITY TO THE AARTI INDUSTRIES LTD. HE REFERRED T O THE VARIOUS TERMS AND CONDITIONS, DETAILS PLACED ON RECORD, REIMBURSEMENT OF SALARY EXPENSES ETC. TO SUBMIT THAT THE ASSESSEE IN FACT HAD TWO SE PARATE ACTIVITIES. THE FACTORY HAS BEEN LEASED OUT ALONG WITH ITS PLANT AN D MACHINERY SEPARATELY TO SAID AARTI INDUSTRIES, THE ISSUE OF T REATING LEASE RENT WAS THE CONTENTION IN GROUND NO.6. AS FAR AS THE ISSUE IN GROUND NO.5 IS CONCERNED, IT WAS SUBMITTED THAT THE ASSESSEE BY VI RTUE OF THIS RESEARCH ACTIVITY OBTAINED VARIOUS PATENTS AND KNOWLEDGE FOR THE PROCESSES OF APIS, GENERALLY CALLED AS BULK DRUGS. REFERRING TO THE PATENTS FILED IN ASSESSMENT YEAR 2005, 2006 AND 2007, AS PLACED IN T HE PAPER BOOK AT PAGE 51 AND 52, IT WAS SUBMITTED THAT THE ASSESSEE BY VIRTUE OF ITS TECHNICAL COMPETENCE HAS TO ENTER INTO MANUFACTURIN G SERVICES AGREEMENT, AS IT DID NOT HAVE NECESSARY FINANCE TO DO THE ACTIVITY ON ITS OWN. BY VIRTUE OF THIS AGREEMENT IT HAS SUPERVISED MANUFACTURING ACTIVITY OF PRODUCTS/ PROCESS DEVELOPED BY IT. HE ALSO SUBMI TTED THAT THE ASSESSEE WAS SHARING THE PROFITS UNDER MANUFACTURIN G SERVICES AGREEMENT. ON THE BASIS OF THE ACTIVITY OF SUPERVIS ING PRODUCTION BY DEPLOYING THEIR OWN STAFF AND THE INCOME OF NOT ONL Y PRODUCTS MANUFACTURED IN FACTORY WHICH WAS LEASED OUT, BUT A LSO IN OTHER UNITS OF AIL WHEREVER THIS PROCESS WAS DEPLOYED. IT WAS HIS SUBMISSION THAT MANUFACTURING SERVICES INCOME IS ENTIRELY OF BUSINE SS ACTIVITY BY DEPLOYING ITS OWN SUPERVISORS AND STAFF. EVEN THOUG H SALARIES WERE REIMBURSED TO THE SUB-ORDINATES BY AIL, ALL THE TEC HNICAL PERSONNEL AND RESEARCH PERSONNEL WORKING IN EMPLOYMENT OF THE ASS ESSEE COMPANY AND ASSESSEE WAS RENDERING CONSULTANCY SERVICES IN THE NATURE OF TECHNICAL SERVICES. IT WAS ASSESSEES SUBMISSION THAT BEFORE THE LD. CIT(A) EVEN THOUGH DETAILED SUBMISSIONS WERE MADE, HE DID NOT A PPRECIATE CONTENTIONS OF THE ASSESSEE AND TREATED THE INCOME AS INCOME FROM OTHER ITA NO.9039/M/10 A.Y.06-07 ANUSHAKTI CHEMICALS & DRUGS LTD. 7 SOURCES. WITH REFERENCE TO THE LEASE RENTALS RECEIV ED ON THE LEAVE AND LICENSE AGREEMENT, IT WAS SUBMITTED THAT THIS CAN N OT BE CONSIDERED AS INCOME FROM OTHER SOURCES AS THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND HAS TEMPORARILY LEASED OUT TO THE GROUP COMPANY AND HAVING FIXED RENTAL INCOME WAS THE INTENTION TO FINANCE ITS RESEARCH ACTIVITIES. 5.2 THE LD. DR HOWEVER, RELIED ON THE ORDERS OF ASS ESSING OFFICER AND CIT(A) TO SUBMIT THAT THE ACTIVITY WAS CORRECTLY TR EATED AS NON-BUSINESS ACTIVITY AND CORRECTLY ASSESSED AS INCOME FROM OTHE R SOURCES. CONSEQUENTLY, HE SUPPORTED THE ORDER OF ASSESSING O FFICER IN TREATING THE INCOMES AND TO PROPORTIONATELY DISALLOW SCIENTIFIC RESEARCH EXPENSES. 6. IN THE COURSE OF ARGUMENTS, WE HAVE ENQUIRED ABO UT THE LICENSE FOR MANUFACTURING BULK DRUGS AND NATURE OF SERVICES BEI NG RENDERED ALONG WITH DETAILS OF REIMBURSEMENT OF EXPENSES. THE LD. DR ALSO POINTED OUT THAT THE SO CALLED RESEARCH PERSONNEL WERE NOT PAID VERY HIGHLY SO AS TO INDULGE IN THE RESEARCH ACTIVITY. IT IS ALSO NOTICE D, ON THE ARGUMENT RAISED THAT THE ASSESSEE HAS WORK IN CAPITAL LOANS FROM BANKS AS ON 31.3.2006, THE SAME WAS ALSO REPAID IN THE NEXT YEA R. THE DETAILS OF REIMBURSEMENT OF EXPENSES, LICENSES OBTAINED FROM D RUG CONTROL AUTHORITIES AND NATURE OF SUPERVISORY SERVICES WER E NOT PLACED ON RECORD SO AS TO EXAMINE THEM. IT IS ALSO NOTICED THAT LD. CIT(A) OPINED THAT IT WAS TRANSFER OF PROFITS OF THE PARENT COMPANY (AIL) IN THE GUISE OF MANUFACTURING SERVICE CHARGES APPARENTLY WITH THE M OTIVE TO AVOID TAXABILITY, SINCE THE APPELLANT WAS HAVING HUGE LOS SES. THIS OBSERVATION THE CIT(A) WAS NOT BASED ON ANY FACTS NOR ANY SUCH DISALLOWANCE SEEMS TO HAVE BEEN MADE IN THE HANDS OF AARTI INDUSTRIES LTD. THEREFORE, WE ARE OF THE VIEW THAT THE ISSUE WAS NOT EXAMINED PROPERL Y BY AO OR BY THE CIT(A) WHO HAD NOT AT ALL CONSIDERED THE DETAILED S UBMISSIONS MADE BY THE ASSESSEE BEFORE HIM. ITA NO.9039/M/10 A.Y.06-07 ANUSHAKTI CHEMICALS & DRUGS LTD. 8 7. IN VIEW OF THIS, WE HAVE NO OPTION THAN TO SET ASIDE THE ISSUE TO THE FILE OF AO TO DETERMINE EXACTLY THE NATURE OF S ERVICES BEING RENDERED BY THE ASSESSEE CONSEQUENT TO THE AGREEMENT DATED 1 .08.2005 AND TO EXAMINE WHETHER THE ASSESSEE HAS SIMPLY LEASED OUT FACTORY ALONG WITH LICENSES AND /OR RENDERING ANY CONSULTANCY SERVICES AS CLAIMED, SO THAT THIS ACTIVITY CAN BE TAKEN AS A SEPARATE BUSINESS A CTIVITY. AO IS ALSO DIRECTED TO EXAMINE THE OTHER CONTENTION (A) THAT T HE SALARIES WERE REIMBURSED AND TO WHAT EXTENT AND THE NUMBER OF EMP LOYEES AND FURTHER WHETHER ANY SEPARATE LICENSES WERE OBTAINED FOR MAN UFACTURING BULK DRUGS ON THE BASIS OF PATENTS/PROCESS DEVELOPED BY ASSESSEES RESEARCH UNIT, SO AS TO CONSIDER SPECIAL TECHNICAL SERVICES AND WHETHER SHARING OF PROFIT WAS LIMITED TO ASSESSEES OWN UNIT LEASEED O UT OR ON ALSO OTHER SALES DONE BY AIL ON THE BASIS OF TECHNICAL SERVICE S SO RENDERED/ CLAIMED. THE ASSESSING OFFICER WAS DIRECTED TO EXAM INE WHETHER LICENSE OF FACTORY IS INCIDENTAL TO THE SO CALLED MANUFACTU RING SERVICES AGREEMENT OR INDEPENDENT OF THE SAME. AFTER EXAMINING THE FAC TS, AO WAS DIRECTED TO DECIDE WHETHER BOTH STREAMS OF INCOME ARE TO BE CONSIDERED AS INCOME FROM OTHER SOURCES OR THEY CAN BE CONSIDERED AS BUSINESS INCOMES INDEPENDENTLY OR OTHERWISE. IN CASE ASSESSE E ACTIVITY WAS CONSIDERED AS SEPARATE BUSINESS ACTIVITY TO THE EXT ENT OF EARNING MANUFACTURING SERVICES INCOME, THEN PROPORTIONATE D ISALLOWANCE OF SCIENTIFIC RESEARCH EXPENSES CLAIMED U/S. 35(1)(IV) MAY NOT ARISE. OTHERWISE, THE PROPORTIONATE DISALLOWANCE IS TO BE RESTRICTED FROM 15 TH DECEMBER, 2005 ONLY AND NOT FROM 1 ST DECEMBER, 2005 AS ASSESSEE WAS HAVING ITS OWN MANUFACTURING ACTIVITY UP TO 15.12.2 005. WITH THESE DIRECTIONS, THE ISSUE IN GROUND NO. 3 TO 6 ARE REST ORED TO THE FILE OF ASSESSING OFFICER FOR EXAMINATION OF THE FACTS AND CONTENTIONS AFRESH AND TO DECIDE ACCORDINGLY. NEEDLES TO SAY, ASSESSEE SH OULD BE GIVEN DUE OPPORTUNITY IN THE PROCEEDINGS. ITA NO.9039/M/10 A.Y.06-07 ANUSHAKTI CHEMICALS & DRUGS LTD. 9 8. IN THE RESULT, ASSESSEE APPEAL IS ALLOWED FOR ST ATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY 2013. SD/- SD/- (VIVEK VARMA) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 10 TH JULY 2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.