Dr. Reddy's Research Foundation., Hyd, Hyderabad V. ACIT, Range-17, Hyd, Hyderabad

ITA 944/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6050 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 14-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: K R SEKAR
• Keywords: Reopening of assessment; Depreciation; Business expenditure; Tangible material; Difference of opinion; Reason to believe; Unabsorbed depreciation; Change of opinion; Reassessment proceedings; Capital expenditure
• Section: 143(3); 37(1); 147; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 944/HYD/2015 ASSESSMENT YEAR: 2008-09 DR. REDDYS RESEARCH FOUNDATION, HYDERABAD PAN AABCR 1733M VS. ASST. COMMISSIONER OF INCOME-TAX, RANGE - 17, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.R. SEKAR & SHRI SP CHIDAMBARAM REVENUE BY : SMT. G. APARNA RAO DATE OF HEARING 03-10-2016 DATE OF PRONOUNCEMENT 11-11-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 5, HYDE RABAD, DATED 16/03/2015 FOR AY 2008-09. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY, INCORPORATED TO DO RESEARCH AND DEVELOPMENT, FILED ITS RETURN OF INCOME ON 30.09.2008, ADMITTING 'NIL' INCOME FOR TH E A.Y.2008-09 AFTER SETTING OFF THE INCOMES OF CURRENT YEAR AGAIN ST CARRY FORWARD LOSSES. THE RETURN WAS SELECTED FOR SCRUTINY AND TH E ASSESSMENT WAS ORIGINALLY COMPLETED DETERMINING CAPITAL GAINS AT R S.1,20,79,650/- AFTER SET OFF OF BUSINESS LOSS OF RS.5,95,29,784/- AND UNABSORBED DEPRECIATION OF RS.85,24,442/-. THE ASSESSMENT WAS REOPENED AND BY ISSUE OF NOTICE U/S 148 BY THE ASSESSING OFFICER, T HE ASSESSEE REQUESTED THE ASSESSING OFFICER TO TREAT THE RETURN ORIGINALLY FILED AS 2 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION RETURN FILED IN RESPONSE TO NOTICE U/S 148 OF THE A CT. WHILE FINALIZING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER MA DE AN ADDITION OF RS.18,81,031/- AS THE AMOUNT OF INCOME NOT OFFER ED TO TAX, AS PER MISMATCH OF TDS CERTIFICATES. THE ASSESSING OFFICER ALSO MADE AN ADDITION OF RS.6,00,00,000/- BEING THE DISALLOWANCE OF CONTRIBUTION MADE BY THE ASSESSEE TO M/S INSTITUTE OF LIFE SCIEN CES, AS DEDUCTION U/S 35 / 37 OF THE ACT. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A). 4. BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT T HE ISSUES UNDER REFERENCE WERE BEING EXAMINED DURING THE ORIG INAL ASSESSMENT PROCEEDINGS AND THE REOPENING OF ASSESSMENT IS ONLY ON ACCOUNT OF MERE CHANGE OF OPINION AND WITHOUT ANY FRESH MATERI AL BROUGHT ON RECORD. 5. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE ACTION OF THE AO IN REOPENING OF THE ASSESSMENT BY OBSERVING AS UNDER: THE ASSESSMENT WAS REOPENED TO CONSIDER TAXING THE INCOMES THAT WERE REFLECTED IN THE TDS CERTIFICATES BUT WER E NOT OFFERED TO TAX, APART FROM TACKLING OTHER ISSUES. IN THIS CASE , THE AO INDEED HAD EXAMINED THE AMOUNTS OF INCOMES, AS PER TDS CER TIFICATES WHICH WERE PRIMA FACIE NOT OFFERED FOR TAX FOR THE YEAR UNDER REFERENCE, FOR MAKING THE ADDITIONS. HAVING MADE TH E ADDITIONS ON ONE OF THE ISSUE, THE AO WENT TO MAKE ADDITIONS ON OTHER ISSUES AS WELL. HENCE, AS IT APPEARS, THERE HAS BEE N A VALID BASIS FOR REOPENING THE ASSESSMENT WHICH HAS ALSO R ESULTED IN ADJUSTMENT OF TOTAL INCOME. 6. AS REGARDS THE ADDITION ON ACCOUNT OF AMOUNT NOT OFFERED TO TAX BEING RENT/PROFESSIONAL CHARGES OF RS. 18,81,031/-, THE CIT(A) DELETED THIS ADDITION. 7. AS REGARDS THE DISALLOWANCE OF DEDUCTION U/S 37 OF THE ACT OF RS. 6,00,00,000/-, IT IS OBSERVED THAT DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE 3 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION CLAIMED AN EXPENDITURE OF RS.6,00,00,000/- BEING TH E AMOUNT CONTRIBUTED TO M/S. INSTITUTE OF LIFE SCIENCES' WHI CH SHOWN TO HAVE APPLIED FOR BENEFIT U/S 35(1)(II) FOR WEIGHTED DEDU CTION, BUT WAS PENDING FOR APPROVAL. THE ASSESSING OFFICER REJECTE D THE CLAIM OF THE ASSESSEE ON THE GROUND THAT APPROVAL FOR WEIGHTED D EDUCTION IS STILL PENDING AND PROOF FOR FULFILMENT OF TWO CONDITIONS SPECIFIED U/S 35(1)(II) ARE NOT ON RECORD, FOR WHICH THE ASSESSEE EXPLAINED THAT IT HAS NOT CLAIMED ANY WEIGHTED DEDUCTION, BUT CLAIMED THE DEDUCTION U/S 37 AS BUSINESS EXPENDITURE. THE ASSESSING OFFIC ER OBJECTED TO THE CLAIM OF THE ASSESSEE U/S 37 STATING THAT THE CONTR IBUTION OF RS.6,00,00,000/- MADE BY THE ASSESSEE TO INSTITUTE OF LIFE SCIENCES (ILS) CANNOT BE CONSIDERED AS EXPENDITURE, INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AS LAID DOWN U/S 37 OF THE ACT. THUS, THE ASSESSING OFFICER ADDED THE AMOUNT OF RS.6 CRORES TO THE TOTAL INCOME. 8. BEFORE THE CIT(A), THE ASSESSEE OBJECTED FOR SUC H ADDITION STATING THAT THE CONTRIBUTION MADE TO M/S INSTITUTE OF LIFE SCIENCES TOWARDS RESEARCH AND DEVELOPMENT ACTIVITIES IS THE BUSINESS EXPENDITURE OF THE ASSESSEE SINCE AS PER THE MEMORA NDUM AND ARTICLES OF ASSOCIATION, THE OBJECTIVES OF THE APPE LLANT FOR WHICH IT WAS ESTABLISHED INCLUDE 'SUPPORT AND PROMOTE' RESEARCH AND AS SUCH THE ASSESSEE CAN CARRY ON RESEARCH AND DEVELOPMENT ACT IVITIES ON ITS OWN OR SUPPORT AND PROMOTE THE RESEARCH AND DEVELOP MENT ACTIVITIES CARRIED ON BY OTHER ORGANIZATIONS. THE ASSESSEE FUR THER CONTENDED THAT IN CASE OF RESEARCH AND DEVELOPMENT ORGANIZATI ONS THE ACTIVITIES THEMSELVES MAY NOT GENERATE INCOME AS IN CASE OF OT HER BUSINESS ENTITY AND HENCE EXPENDITURE FOR SUCH ACTIVITY IS I NCURRED OUT OF CONTRIBUTIONS OR GRANTS OR SPONSORSHIPS FROM OTHER ENTITIES AND AS SUCH THE CASE OF THE ASSESSEE CANNOT BE EXAMINED FR OM THE POINT OF VIEW OF TYPICAL BUSINESS ENTITY. 8.1 BEFORE THE CIT(A), WHILE ELABORATING ON THE ISS UE IT WAS SUBMITTED THAT THE ASSESSEE COMPANY WAS CARRYING ON THE RESEARCH 4 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION AND DEVELOPMENT ACTIVITIES ON ITS OWN TILL THE F.Y. 2004-05, BEING A RESEARCH INSTITUTION U/S 10(2) OF THE ACT, BUT IN T HE YEARS DOWN THE LINE, DUE TO REDUCTION IN SPONSORSHIPS AND GRANTS, DISCONTINUED OWN RESEARCH, BUT CONTINUED SUPPORTING / PROMOTING RESE ARCH CARRIED ON BY OTHER ORGANIZATIONS LIKE ILS AND DURING THE YEAR UN DER REFERENCE, IT SPENT A TOTAL AMOUNT OF RS.603.37 LAKHS ON ITS OBJE CTS AND ALLIED ACTIVITIES, OUT OF THE SOURCES LIKE SURPLUS ON SALE OF ASSETS (RS.635.16 LAKHS), INTEREST (RS.8.13 LAKHS), ETC. IT WAS FURTH ER SUBMITTED THAT AN AMOUNT OF RS.600 LAKHS WAS CONTRIBUTED TO ILS TOWAR DS RESEARCH ACTIVITIES, AS PER THE OBJECTIVES OF THE APPELLANT COMPANY AND ILS IS A SECTION 25 COMPANY ESTABLISHED TO CARRY ON RESEARCH ACTIVITIES SIMILAR TO THE COMPANY AND SPENDING ON OBJECTIVES PARTAKES THE CHARACTER OF CARRYING ON BUSINESS AND ANY EXPENDITURE INCURRED F OR CARRYING ON ITS ACTIVITIES SHOULD BE ALLOWED. IT WAS ALSO CLARIFIED FURTHER THAT DEDUCTION WAS CLAIMED U/S 35(1)(II) OF THE I.T. ACT , BUT IN VIEW OF THE FACT THAT ILS DID NOT GET APPROVAL U/S 35 AT THAT T IME, THE DEDUCTION WAS CONFINED TO 100% OF THE CLAIM, AS AGAINST WEIGH TED DEDUCTION AND SUCH CLAIM IS ALLOWABLE U/S 37 OF THE I.T. ACT. IN THIS REGARD, IT WAS ARGUED THAT IF THE PARTICULAR STREAM OF EXPENDI TURE IS ELIGIBLE FOR DEDUCTION THAT IS MORE BENEFICIAL UNDER ANY OTHER P ROVISION, THEN THE ASSESSEE CANNOT BE DENIED SUCH BENEFIT, AND THE MAI N ISSUE THAT REMAINS TO BE EXAMINED IS WHETHER THE CONTRIBUTION MADE IS AN EXPENDITURE INCURRED DURING THE PURSUANCE OF OBJECT IVES, AMOUNTS TO BUSINESS EXPENSES ELIGIBLE FOR DEDUCTION U/S 37 OR NOT. 9. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) UPHELD THE ADDITION MADE BY THE AO BY DISCUSSING TH E ISSUE AT LENGTH. THE RELEVANT OBSERVATIONS OF CIT(A) WERE EXTRACTED BELOW FOR THE SAKE OF CLARITY: 7.3.3 AS COULD BE SEEN FROM THE FURTHER FACTS OF THE CASE , NEITHER THE ASSESSEE COMPANY NOR THE INSTITUTION T O WHICH SUCH CONTRIBUTION MADE, WERE SHOWN TO HAVE BEEN / DEEMED TO HAVE BEEN INCURRED EXPENDITURE ON SCIENTIFIC RESEARCH DU RING THE YEAR, SINCE THE APPELLANT ONLY CONTRIBUTED SUCH AMOUNT TO M/S. ILS AND 5 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION THE SAID INSTITUTION WHICH WAS SHOWN TO HAVE ENGAGE D IN SCIENTIFIC RESEARCH, BUT WITHOUT ANY NEEDED APPROVA L. THUS, PENDING THE APPROVAL U/S 35(1) TO ILS, THE APPELLAN T COMPANY EXERCISED THE OPTION FOR CLAIMING THE AMOUNTS OF CO NTRIBUTION, AS BUSINESS EXPENSES AS PER THE PROVISIONS OF SECTION 37 OF THE LT.ACT. THE GROUND FOR THE APPELLANT COMPANY FOR CL AIMING THE AMOUNTS OF CONTRIBUTION AS BUSINESS EXPENDITURE WAS THAT THE AMOUNTS WERE SPENT ON THE OBJECTIVES OF THE ASSESSE E COMPANY AND THE SPENDING ON OBJECTIVES PARTAKES THE CHARACT ER OF CARRYING ON A BUSINESS AND AS SUCH ANY EXPENSES CAR RYING ON ITS ACTIVITIES SHOULD BE ALLOWED AS EXPENDITURE. 7.4 THE CLAIM OF THE APPELLANT APPEARS TO BE MISPLA CED ON FACTS. THE EXPENDITURE RELATABLE TO SCIENTIFIC RESEARCH IS SPECIALISED AND CANNOT BE EQUATED WITH GENERAL EXPENSES ASSOCIA TED WITH THE BUSINESS. INDEED, IN CASE OF WEIGHTED DEDUCTION U/S 35(1), THE EXPENDITURE SHOULD BE EITHER INCURRED BY THE AS SESSEE ITSELF OR CONTRIBUTED TO A THIRD PARTY ENGAGED IN THE SIMI LAR ACTIVITY OF SCIENTIFIC RESEARCH AND APPROVED BY DSIR. AT THE SA ME LENGTH AND BREATH, THE SCIENTIFIC EXPENDITURE IN ORDER TO BE CLAIMED AS BUSINESS EXPENDITURE IS REQUIRED TO BE ASSOCIATED W ITH THE RELEVANT BUSINESS OR THE SCIENTIFIC RESEARCH UNDERT AKEN BY IT. IN THE CASE UNDER REFERENCE, THERE WAS NO RESEARCH WOR K UNDERTAKEN BY THE ASSESSEE COMPANY DURING THE YEAR. FURTHER, THERE WAS NO BUSINESS ACTIVITY CARRIED ON BY THE AS SESSEE, EXCEPT EARNING THE INTEREST INCOME AND GAINS ON SAL E OF ASSETS OF THE COMPANY. THE ASSESSEE COMPANY ITSELF WAS ON REC ORD TO INDICATE THAT NO BUSINESS IS CARRIED ON BY IT. (VID E LETTER. 09.12.2010, ADDRESSED TO THE ASSESSING OFFICER). IT IS ALSO RELEVANT TO REFER TO THE FACT THAT AN AMOUNT CONTRI BUTED AS PER THE PROVISIONS OF SECTION 35(1)(II), FOR THE PURPOSE OF WEIGHTED DEDUCTION, CANNOT BE CLAIMED AS BUSINESS EXPENSES, WHERE THE ACTIVITIES OF BOTH THE CONTRIBUTOR AS WELL AS THE R ECEIVER, FOR THE YEAR UNDER REFERENCE ARE NOT ESTABLISHED TO BE INCU RRED FOR THE PURPOSE OF BUSINESS OR RESEARCH & DEVELOPMENT. FOR CLAIMING THE EXPENSES U/S 37, THE ESSENTIAL INGREDIENT IS TH AT THE BUSINESS IS CARRIED ON BY THE ASSESSEE. IN THIS REGARD, IT I S RELEVANT TO REFER TO THE PROVISIONS OF SECTION 37, '37(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF TH E NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASS ESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY' FOR TH E PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALL OWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION.' AS COULD BE SEEN FROM THE PROVISIONS OF SECTION 37( 1), THE EXPENDITURE, TO BE CLAIMED AS BUSINESS EXPENDITURE SHOULD BE 6 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSINESS CA RRIED ON BY THE ASSESSEE AND IN THIS CASE NO BUSINESS WAS CARRIED O N BY THE APPELLANT DURING THE YEAR UNDER REFERENCE. MERE MAT CHING OF OBJECTIVES OF THE ASSESSEE AS A CONTRIBUTOR WITH TH AT OF RECEIVER OF CONTRIBUTIONS FOR THE PURPOSE OF ITS .OBJECTIVES , WITHOUT PROVING /ESTABLISHING THAT SUCH CONTRIBUTION WAS MADE TOWAR DS THE OBJECTIVES ENVISAGED MAY NOT AMOUNT TO THE BUSINESS EXPENSES U/S 37(1) OF THE I.T. ACT. IN THIS CASE, THE ENTITY I ORGANISATION TO WHICH SUCH CONTRIBUTION WAS MADE, FAILED TO ESTABLI SH ITS OBJECTIVES THAT MATCHES WITH THE OBJECTIVES OF THE CONTRIBUTOR FOR WHICH SUCH AMOUNTS WERE SPENT, AS NO SUCH APPROVAL WAS ACCORDED FOR THE SAID ORGANISATION BY NAME M/S. LNS TITUTE OF LIFE SCIENCES (ILS), DURING THE YEAR UNDER REFERENCE. TH E ESSENCE OF PROVING THAT AMOUNTS SPENT FOR THE PURPOSE OF BUSIN ESS IN ORDER TO BE CLAIMED AND ALLOWED AS BUSINESS EXPENDITURE U /S 37 OF I.T. ACT, IS TO PROVE THAT SUCH EXPENSES RELATED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CARRIED ON BY THE ASSESSEE .. THIS VIEW IS SUPPORTED BY THE RATIO OF THE DECISION OF PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS . MAJESTIC AUTO LTD. (315 ITR 445) (2009), WHEREIN THE HON'BLE HIGH COURT SUPPORTED THE FINDING OF THE ITAT, THAT THE EXPENSE S IN ORDER TO BE CLAIMED AS BUSINESS EXPENDITURE REQUIRED TO HAVE NEXUS WITH THE EXISTING BUSINESS OF THE ASSESSEE. THUS, BASED ON THE FACTS OF THE CASE, WHERE NO BUSI NESS ACTIVITY WAS CARRIED ON, IT IS REASONABLE TO HOLD THAT ASSES SEE IS NOT ENTITLED FOR CLAIMING THE EXPENDITURE, AS BUSINESS EXPENDITURE. IN THE INSTANT CASE, THE AMOUNT OF RS.6,00,00,000/- CO NTRIBUTED TO M/S. ILS, IS NOT ESTABLISHED TO BE INCURRED FOR THE BUSINESS OF THE ASSESSEE. ACCORDINGLY, THE DISALLOWANCE OF RS.6,00, 00,000/- MADE BY THE ASSESSEE IN THE ASSESSMENT ORDER, HELD TO BE SUSTAINED AND THIS GROUND OF APPEAL TREATED AS DISM ISSED. 10. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 01. THE LEARNED COMMISSIONER OF IT ERRED IN LAW AND AS TO THE FACTS AND CIRCUMSTANCES OF THE CASE IN ALLOWING THE APPEAL ONLY PARTLY AND DISMISSING THE APPEAL ON OTHER GROUNDS. 02. THE LEARNED CIT(A) ERRED IN LAW AND AS TO THE F ACTS AND CIRCUMSTANCES OF THE CASE IN DISMISSING THE APPEAL BY HOLDING THAT APPELLANT COMPANY'S ARGUMENT THAT THE INITIATI ON AND COMPLETION OF THE REASSESSMENT PROCEEDINGS U/S.147 IS NOT TENABLE. 03. THE LEARNED CIT{A) ERRED IN LAW AND AS TO THE F ACTS AND CIRCUMSTANCES OF THE CASE WHILE DISALLOWING THE CON TRIBUTION 7 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION MADE TO THE INSTITUTE OF LIFE SCIENCE (REFERRED TO AS ILS) ON NARROW CONSIDERATIONS IGNORING THE FACTS AND CIRCUM STANCES OF THE APPELLANT AS WELL AS ILS. 04. THE LEARNED CIT(A) ERRED IN LAW AND AS TO THE F ACTS AND CIRCUMSTANCES OF THE CASE IN GIVING DIRECTION AGAIN TO THE ASSESSING OFFICER TO EXAMINE AND ASCERTAIN THE SET OFF OF LOSSES DESPITE THE FACT SUCH A DIRECTION EMANATING FROM TH E APPEAL AGAINST THE ORIGINAL ASSESSMENT ORDER U/S.143(3) IS NOT YET GIVEN EFFECT. HE OUGHT TO HAVE EXAMINED THE CLAIM BASED O N THE INFORMATION MADE AVAILABLE TO HIM DURING THE COURSE OF APPELLATE PROCEEDINGS. 11. AS REGARDS THE REOPENING OF ASSESSMENT U/S 147, THE AR OF THE ASSESSEE SUBMITTED THAT ORIGINAL ASSESSMENT WAS COM PLETED U/S 143(3) ON 31/12/2013. HE SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ALL THE INFORMATION RELATIN G TO ASSESSMENT WERE ALREADY SUBMITTED BEFORE THE AO. IN THIS CONNE CTION, THE AR BROUGHT TO OUR NOTICE THE SUBMISSIONS FILED BEFORE THE AO WITH REGARD TO THE REASONS FOR REOPENING OF ASSESSMENT U/S 148. (REFER PAGES 45 TO 47 OF PAPER BOOK). HE SUBMITTED THAT IT IS ONLY A CHANGE OF OPINION OF THE AO SINCE ALL THE RELEVANT INFORMATION THAT A RE NECESSARY FOR ASSESSMENT, IS ALREADY AVAILABLE WITH THE AO. HE SU BMITTED THAT NO DOUBT THAT THE ORIGINAL ASSESSMENT WAS NON-SPEAKING ORDER RELATING TO THE REASONS MENTIONED IN THE NOTICE ISSUED U/S 148. HE SUBMITTED THAT THE REASONS CITED BY THE AO IN HIS ORDER ARE NOT PR OPER AND THE SAME ARE NOT VALID REASONS FOR REOPENING OF THE ASSESSME NT, AS THERE IS NO TANGIBLE MATERIAL/FRESH MATERIAL AVAILABLE WITH TH E AO FOR REOPENING THE ASSESSMENT U/S 147 OF THE ACT. THE AR RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. K ELVINATOR OF INDIA LTD., [2010] 320 ITR 561 (SC). 11.1 FURTHER, THE LD. AR SUBMITTED THAT ASSESSING O FFICER CITED THE REASON FOR REOPENING AS WEIGHTED DEDUCTION U/S 35(1 )(II) BUT ENDED UP MAKING ADDITION U/S 37. THIS IS CONTRARY TO THE REA SON FOR REOPENING OF ASSESSMENT. ALL THESE INFORMATIONS WERE ALREADY SUB MITTED AND MADE SUBMISSION BEFORE THE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT. THERE IS NO TANGIBLE MATERIAL ON RECORD . 8 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION 2. CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT, [2015] 373 ITR 673 (SC) 12. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT RE OPENING WAS PROPER AS THERE IS COGENT/TANGIBLE MATERIAL AVAILAB LE ON RECORD SINCE THE AO HAS NOTICED MIS-MATCH OF TDS CERTIFICATES WI TH GROSS RECEIPTS. 13. CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL F ACTS ON RECORD. ORIGINAL ASSESSMENT U/S 143(3) WAS COMPLETED ON 31/ 12/2010 AND THE AR BROUGHT TO OUR NOTICE THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE AO ON 09/12/2010 WHEREIN THE ASSESSEE HA S BROUGHT TO THE NOTICE OF AO ABOUT THE TDS RECONCILIATION AND C ONTRIBUTION TO ILS. FROM THE LETTERS SUBMITTED BY LD. AR, THE LETTERS W HICH WERE CLAIMED AS SUBMITTED BEFORE THE ASSESSING OFFICER, HAS NO A UTHENTICATION THAT THESE WERE SUBMITTED BEFORE THE ASSESSING OFFICER. THE SAME CANNOT BE CONSIDERED FOR ADJUDICATION. WE FIND FROM THE RE CORD THAT WHILE FILING THE RETURN OF INCOME, THE ASSESSEE HAS NOT C LAIMED DEDUCTION U/S 35(1)(II) IN THE RETURN OF INCOME. (REFER PAGE 32 AND SCHEDULE ESR), IN WHICH THE COLUMNS WERE LEFT BLANK. ONLY IN THE MEMO OF COMPUTATION (REFER PAGE 42), ASSESSEE MENTIONED THA T IT HAS CLAIMED DEDUCTION U/S 35 @ 100% NOT WEIGHTED DEDUCTION. ONL Y DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE MADE SUBMISSIO N BEFORE THE ASSESSING OFFICER TO TREAT THE ABOVE CONTRIBUTION A S DEDUCTION U/S 37. CONSIDERING THE ABOVE, THE SUBMISSION OF THE ASSESS EE IS INCONSISTENT. MISMATCH OF TDS CERTIFICATES PROMPTED ASSESSING OFFICER TO CONSIDER THE REOPENING OF THE ASSESSMENT . THIS IS INDEED A PROPER REASON TO BELIEVE AT THAT POINT OF TIME THAT INCOME ESCAPED FROM TAX. IN OUR CONSIDERED VIEW, THE ASSESSING OFF ICER HAS PROPER MATERIAL AT THAT POINT OF TIME TO CONSIDER REOPENIN G OF THE ASSESSMENT. WE DO NOT FIND ANY MISTAKE IN REOPENING THE ASSESSMENT. LD. AR RELIED ON THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LT D. (SUPRA) TO CONTEST THAT THERE IS NO PROPER REASON TO REOPEN THE ASSESS MENT AND IT INVOLVES CHANGE OF OPINION SINCE THE ASSESSING OFFI CER HAD ALREADY 9 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION COMPLETED THE ASSESSMENT U/S 143(3). IN OUR CONSIDE RED VIEW, THERE WAS PROPER REASON FOR ASSESSING OFFICER TO CONSIDER REOPENING OF THE ASSESSMENT. HENCE, THIS GROUND OF THE ASSESSEE IS R EJECTED. 14. AS REGARDS GROUND NOS. 3 & 4 PERTAINING TO THE DISALLOWANCE OF DEDUCTION U/S 37 OF THE ACT OF RS. 6,00,00,000/-, T HE LD. AR SUBMITTED THAT ASSESSEE MADE A CONTRIBUTION TO M/S ILS TOWARD S RESEARCH ACTIVITIES SINCE THE OBJECTIVES OF THE ASSESSEE IS WIDE ENOUGH TO SUPPORT AND PROMOTE RESEARCH IN OTHER INSTITUTES. HE BROUGHT TO OUR NOTICE THE OBJECTIVES OF THE MOA AND ALSO THE OBJEC TIVES OF M/S ILS (REFER PAGES 93 TO 100 OF PAPER BOOK). HE SUBMITTED THAT SINCE BOTH THE INSTITUTES OBJECTIVES ARE SIMILAR, THE CONTRIBU TION MADE BY THE ASSESSEE TO M/S ILS IS SIMILAR TO CARRYING ON THE R ESEARCH ACTIVITY BY ITSELF. HE SUBMITTED THAT IT IS NOTHING BUT THE EX PENDITURE INCURRED FOR THE BUSINESS OF THE ASSESSEE, HENCE, IT IS ELIGIBLE TO CLAIM DEDUCTION U/S 37 OF THE ACT. HE FURTHER SUBMITTED THAT ORIGIN ALLY ASSESSEE INTENDED TO CLAIM WEIGHTED DEDUCTION U/S 35(1)(II) OF THE ACT, SINCE ILS COULD NOT GET THE REQUIRED APPROVAL FROM THE AU THORITIES U/S 35, IT WAS BROUGHT TO THE NOTICE OF THE AO DURING THE COUR SE OF ASSESSMENT THAT IT IS CLAIMING CONTRIBUTION MADE TO ILS ONLY U/S 37 OF THE ACT. HE SUBMITTED THAT SINCE THE ABOVE CONTRIBUTION IS MADE FOR THE BUSINESS PURPOSE, IT IS ELIGIBLE TO CLAIM DEDUCTION U/S 37(1 ) OF THE ACT. HE RELIED ON THE FOLLOWING CASE LAWS: 1. DCIT VS. RANBAXY LABORATORIES LTD., TS-5776-ITA T- 2009(DELHI)-O 2. DR. REDDYS LABORATORIES LTD., ITA NO. 1605/HYD /10, DT. 08/08/13. HE FURTHER SUBMITTED THAT IN THE CASE OF SISTER CON CERN M/S DR. REDDY LABORATORIES, THE HONBLE ITAT HAS REMITTED THE ISS UE BACK TO THE FILE OF THE ASSESSING OFFICER TO ALLOW THE DEDUCTION U/ S 37. THE SAME WAS ALLOWED BY THE AO IN THAT CASE. HE SUBMITTED THAT T HIS BEING THE SIMILAR CASE, DEDUCTION U/S 37 SHOULD BE ALLOWED. H E FURTHER SUBMITTED THAT THE CASE OF M/S RANBAXY IS SIMILAR T O THE EXISTING CASE 10 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION AND IN THAT CASE DEDUCTION WAS ALLOWED. THE SAME SH OULD BE CONSIDERED HERE ALSO. 15. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT I N THE ORIGINAL RETURN OF INCOME, THE ASSESSEE INTENDED TO CLAIM WE IGHTED DEDUCTION U/S 35 OF THE ACT, AND LATER ON THE ASSESSEE CHANGE D ITS STAND TO CLAIM DEDUCTION U/S 37 OF THE ACT. LD. DR FURTHER S UBMITTED THAT ASSESSEE HAS DERIVED INCOME ONLY ON INTEREST AND LT CG AND THERE IS NO BUSINESS ACTIVITY CARRIED ON DURING THE YEAR. SH E, THEREFORE, SUBMITTED THAT SINCE THERE IS NO BUSINESS ACTIVITY, THE CLAIM OF THE ASSESSEE THAT THE CONTRIBUTION MADE TO M/S ILS ONLY FOR THE PURPOSE OF BUSINESS, MERELY BECAUSE M/S ILS HAS SIMILAR OBJ ECTIVES, IS NOT PROPER. LD. DR SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE AR ARE DISTINGUISHABLE ON FACTS TO THE CASE OF THE ASS ESSEE. 16. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD AS WELL AS THE CASE LAWS RELIED UPON. TH E FACTS ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S 35(1)(II) FOR THE CO NTRIBUTION MADE TO M/S ILS, SINCE THE APPROVAL U/S 35 WAS NOT FORTHCOM ING, IT MADE SUBMISSION BEFORE THE ASSESSING OFFICER TO CONSIDER THE DEDUCTION U/S 35 ONLY 100% OF PAYMENT MADE OR ON ALTERNATIVE GROU ND DEDUCTION U/S 37. LD. ASSESSING OFFICER AND CIT(A) DECLINED TO AC CEPT THE CONTENTION OF THE ASSESSEE ON THIS COUNT. BEFORE US , LD. AR SUBMITTED THE COORDINATE BENCH IN THE CASE OF M/S DR. REDDYS LABORATORIES LTD., (ITA NO. 1605/HYD/10, ORDER DATED 08/08/2013) , WHICH IS THE SISTER CONCERN OF THE ASSESSEE, ON THE SIMILAR ISSU E, ALLOWED THE DEDUCTION U/S 37 TO THE ASSESSEE, BY OBSERVING AS UNDER: 13.1 THIS GROUND PERTAINS TO DISALLOWANCE OF CONTRI BUTION PAID TO ILS. ILS IS A RESEARCH INSTITUTION, ENGAGED IN RESEARCH ACTIVITIE S IN THE FIELD OF PHARMACEUTICALS AND IS AFFILIATED TO OSMANIA UNIVERSITY, HYDERABAD. SINCE THE ASSESSEE IS ALSO ENGAGED IN THE BUSINESS OF MANUFACTURING, RESEARCH AND DEVELOPMENT OF PHARMACEUTICALS, THE ASSESSEE IN ITS OWN BUSINESS I NTEREST CONTRIBUTED A SUM OF RS.3,41,18,538 TO ILS AND CLAIMED DEDUCTION U/S 35A C AND ALTERNATELY U/S 37. THE AO DISALLOWED THE CONTRIBUTION AS THE ASSESSEE WAS NOT ABLE TO PRODUCE THE CERTIFICATE REQUIRED UNDER THE PROVISIONS OF SECTIO N 35AC OF THE ACT. 11 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION 13.2 IT WAS SUBMITTED THAT THOUGH IT IS NOT ALLOWAB LE U/S 35AC, THE SAID PAYMENT IS ALLOWABLE U/S 37 AS THE PAYMENT WAS MADE TO AN ORGA NIZATION WHICH IS IN SIMILAR LINE WITH ASSESSEE. SIMILAR EXPENDITURE WAS ALLOWED BY CIT(A)-III AND FURTHER CONFIRMED BY ITAT IN OUR OWN CASE FOR THE AY 2003-0 4.IT FURTHER RELIED ON THE DECISION GIVEN IN THE CASE OF RANBAXY LABORATORIES LTD VS. DCII (2009-TIOL-32- ITAT-DEL) (DELHI ITAT). 13.3 AS SEEN FROM THE RECORD, THE AO AND DRP CONSID ERED THE CLAIM ONLY U/S 35AC. SINCE THE SAME WAS NOT ADMISSIBLE, TO THAT EX TENT ORDER OF AO AND DRP IS SUSTAINED. THE ALTERNATE CLAIM U/S 37(1) WAS NOT MA DE BEFORE REVENUE AUTHORITIES. THEREFORE IN THE INTEREST OF JUSTICE WE RESTORE THE CLAIM U/S 37(1) TO THE FILE OF AO TO EXAMINE THE SAME AFRESH, KEEPING IN MIND THE ORD ER OF ITAT IN AY 2003-04 AND OTHER CASES RELIED ON BY ASSESSEE. ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO SUBSTANTIATE THE CLAIM. THE GROUND IS CONSIDERED AL LOWED FOR STATISTICAL PURPOSES. FROM THE ABOVE, IT IS CLEAR THAT THE SISTER CONCERN IS ENGAGED IN THE BUSINESS OF MANUFACTURING, RESEARCH AND DEVELOPMENT OF PHARMACEUTICALS, FOR ITS OWN BUSINESS INTEREST, MAD E THE CONTRIBUTION TO M/S ILS. WHEREAS, IN THE PRESENT CASE, THE ASSES SEE IS NOT ENGAGED IN THE BUSINESS OF RESEARCH AND DEVELOPMENT OR IN ANY ACTIVITY OF BUSINESS, EXCEPT EARNING INTEREST INCOM E OF LATE. SINCE, THE ASSESSEE IS NOT IN BUSINESS THE ABOVE DECISION CANN OT BE APPLIED HERE. 16.1 LD. AR ALSO SUBMITTED THAT THE RANBAXY LABORAT ORIES LTD. CASE IS SIMILAR TO THE CURRENT CASE. ON ANALYSIS, THE CO ORDINATE BENCH OF DELHI HAS HELD AS FOLLOWS: 6.10 THE ISSUE REGARDING CONTRIBUTION TO VARIOUS FOUNDATIONS AND SOCIETIES HAS BEEN CONSIDERED BY VARIOUS COURTS IN RELATION TO ALLOWABILITY OF DEDUCTION OF EXPENDITURE. IN THE CASE OF SRI VENKATA SATAYNARAYANA RICE MILL CONTRACTORS CO. VS. CIT 223 ITR 101 (SC), THE ASSESSEE CLAIMED DEDUCTION OF THE AMOUNT PAID BY IT TO ANDHRA PRADESH WELFARE FUND AS A BUSI NESS EXPENDITURE U/S 37(1) OF THE LT. ACT. THE CASE OF T HE ASSESSEE WAS THAT IT WAS CARRYING ON BUSINESS OF EXPORTING R ICE FROM THE STATE OF ANDHRA PRADESH AND FOR THIS PURPOSE, A PER MIT WAS GRANTED BY THE COLLECTOR WHO GAVE PERMITS ONLY IF P AYMENT WAS MADE TO A WELFARE FUND. THE ITO DISALLOWED THE DEDU CTION BY HOLDING THAT THE PAYMENT WAS NEITHER MANDATORY NOR STATUTORY, BUT WAS ONLY DISCRETIONARY. THE CIT(A) ALSO DISALLO WED THE CLAIM OF THE ASSESSEE. THE SPECIAL BENCH OF THE ITAT CAME TO THE CONCLUSION THAT THOUGH THERE WAS NO COMPULSION ON T HE ASSESSEE 12 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION TO MAKE CONTRIBUTION BUT STILL THE CONTRIBUTION WAS MADE IN PURSUANCE OF A SCHEME WHICH WAS EVOLVED BY THE RICE MILLERS' ASSOCIATION IN CONSULTATION WITH THE DISTRICT COLLE CTOR AND THEREFORE THE DEDUCTION WAS ALLOWABLE U/S 37(1) OF THE ACT. THE TRIBUNAL ALSO HELD THAT SUCH CONTRIBUTION COULD NOT BE HELD TO BE OPPOSED TO PUBLIC POLICY. THE DEPARTMENT FILED REFE RENCE APPLICATION U/S 256. THE HON'BLE HIGH COURT ANSWERE D THE QUESTIONS REFERRED IN FAVOUR OF THE ASSESSEE. THE H ON'BLE HIGH COURT, HOWEVER, DISALLOWED DEDUCTION BY COMING TO T HE CONCLUSION THAT THE PAYMENT OF THIS AMOUNT WAS OPPO SED TO PUBLIC POLICY. THE HON'BLE SUPREME COURT, AFTER MAK ING REFERENCE TO VARIOUS DECISIONS, ALLOWED THE CLAIM O F THE ASSESSEE BY OBSERVING AS UNDER: ' FROM THE AFORESAID DISCUSSION IT FOLLOWS THAT ANY CONTRIBUTION MADE BY AN ASSESSEE TO A PUBLIC WELFARE FUND WHICH IS DIRECTLY CONNECTED OR RELATED WITH THE CARRYING ON OF THE AS SESSEE'S BUSINESS OR WHICH RESULTS IN BENEFIT TO THE ASSESSE E'S BUSINESS HAS TO BE REGARDED AS AN ALLOWABLE DEDUCTION UNDER SECTION 37(1) OF THE ACT. SUCH A DONATION, WHETHER VOLUNTAR Y OR AT THE INSTANCE OF THE AUTHORITIES CONCERNED, WHEN MADE TO A CHIEF MINISTER'S DROUGHT RELIEF FUND OR A DISTRICT WELFAR E FUND ESTABLISHED BY THE DISTRICT COLLECTOR OR ANY OTHER FUND FOR THE BENEFIT OF THE PUBLIC AND WITH A VIEW TO SECURE BEN EFIT TO THE ASSESSEE'S BUSINESS, CANNOT BE REGARDED AS PAYMENT OPPOSED TO PUBLIC POLICY. IT IS NOT AS IF THE PAYMENT IN THE P RESENT CASE HAD BEEN MADE AS AN ILLEGAL GRATIFICATION. THERE IS NO LAW WHICH PROHIBITS THE MAKING OF SUCH A DONATION. THE MERE F ACT THAT MAKING OF A DONATION FOR A CHARITABLE OR PUBLIC CA USE OR IN PUBLIC INTEREST RESULTS IN THE GOVERNMENT GIVING PATRONAGE OR BENEFIT CAN BE NO GROUND TO DENY THE ASSESSEE A DEDUCTION O F THAT AMOUNT U/S 37(1) OF THE ACT WHEN SUCH PAYMENT HAD B EEN MADE FOR THE PURPOSE OF THE ASSESSEES BUSINESS. IN THE ABOVE DECISION, IT IS CLEARLY OBSERVED IN TH E DECISION THAT ANY CONTRIBUTION MADE BY AN ASSESSEE TO A PUBLIC WELFAR E FUND WHICH IS DIRECTLY CONNECTED OR RELATED WITH THE CARRYING ON OF THE ASSESSEES BUSINESS OR WHICH RESULTS IN BENEFIT TO THE ASSESSE ES BUSINESS HAS TO BE REGARDED AS AN ALLOWABLE DEDUCTION U/S 37(1) OF THE ACT. THE MUTE QUESTION HERE IS TO CLAIM DEDUCTION U/S 37(1), THE BENEFIT HAS TO PASS TO THE ASSESSEES BUSINESS. IN THE CASE OF MYSORE K IRLOSKAR LTD. VS. CIT, 166 ITR 836, THE HONBLE KARNATAKA HIGH COURT ALLOWED THE CLAIM OF THE ASSESSEE OBSERVING THAT THE WORDS FOR THE PURPOSE OF THE BUSINESS USED IN SECTION 37(1) SHOULD NOT BE LIMIT ED TO THE MEANING 13 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION OF EARNING PROFIT ALONE. BUSINESS EXPEDIENCY OR C OMMERCIAL EXPEDIENCY MIGHT REQUIRE PROVIDING FACILITIES LIKE SCHOOLS, HOSPITALS ETC., FOR THE EMPLOYEES OR THEIR CHILDREN. THE MUTE POINT IS THAT THE BENEFIT HAS TO BE FOR THE BUSINESS OR BUSINESS ASSO CIATE OR ITS EMPLOYEES, THEN ONLY THE EXPENDITURE CAN BE REGARDE D AS EXPENDED FOR THE BUSINESS PURPOSE. IN THE PRESENT CASE, THE ASSESSEE HAS MADE THE CONTRIBUTION BUT THERE IS NOTHING ON THE R ECORD TO SHOW THAT THE BENEFIT HAS PASSED ON TO THE ASSESSEE OR TO ITS EMPLOYEES BY MAKING SUCH CONTRIBUTION. SINCE, THE ASSESSEE IS NO T RUNNING ANY BUSINESS AND NOT BROUGHT ON RECORD TO SHOW THAT IT HAS BENEFITTED BY MAKING SUCH CONTRIBUTION. MERELY MAKING CONTRIBUTIO N TO OTHER INSTITUTE WHICH HAS SIMILAR OBJECT DOES NOT MEAN AN Y BENEFIT TO THE ASSESSEE. IN OUR CONSIDERED VIEW, TO CLAIM OF DEDUC TION U/S 37(1), THERE HAS TO BE AN EXPENDITURE, WHICH IS INCURRED F OR THE BENEFIT OF BUSINESS IN THE SAME YEAR OR FOR THE FUTURE BENEFIT . IN THE GIVEN CASE, NOTHING WAS BROUGHT ON RECORD TO HIGHLIGHT, HOW THE ASSESSEE HAS GOT THE BENEFIT EITHER IN THIS YEAR OR IN THE FUTURE OR ANY BENEFIT TO THE OVERALL BENEFIT TO THE ORGANISATION AS A WHOLE. THE RE HAS TO BE SOME BENEFIT DIRECTLY OR INDIRECTLY TO THE ORGANISATION. 16.2 IN OUR CONSIDERED VIEW, THE ASSESSEE HAS MADE THE CONTRIBUTION TO M/S ILS WITHOUT ANY RECIPROCAL BENEFIT TO ITS BU SINESS OR TO ITS EMPLOYEES EVEN THOUGH THE OBJECTIVES ARE SIMILAR, I T CANNOT CLAIM ANY DEDUCTION U/S 37(1) OF THE ACT. HENCE, GROUNDS RAIS ED BY THE ASSESSEE ARE DISMISSED. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. PRONOUNCED IN THE OPEN COURT ON 11 TH NOVEMBER, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER 14 ITA NO. 944/H/15 DR. REDDYS RESEARCH FOUNDATION HYDERABAD, DATED: 11 TH NOVEMBER, 2016 KV COPY TO:- 1) DR. REDDYS RESEARCH FOUNDATION, 7-1-27, AMEERPE T, HYDERABAD 500 016 2) ACIT, RANGE 17, 6 TH FLOOR, IT TOWERS, MASAB TANK, HYDERABAD 3) CIT(A) - 5, HYDERABAD 4 CIT - 5, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE