Income Tax Appellate Tribunal - Ahmedabad
M/S. Camphor & Allied Products Ltd,, ... vs Dy. Commissioner Of Income Tax,, ... on 28 June, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH
((BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT
MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER)
ITA. No: 819/AHD/2015
(Assessment Year: 2010-11)
M/s. Camphor @ Allied V/S Dy.CIT, Circle-1(1),
Products Limited. Plot No. Baroda
3, GIDC Ind. Estate ,
Vadodara-391340 (Guj)
(Appellant) (Respondent)
PAN: AAACC9211E
Appellant by : Shri K.P. Singh, AR
Respondent by : Shri Keyur Patel, Sr. D.R.
(आदे श)/ORDER
Date of hearing : 12 -04-2018
Date of Pronouncement : 28 -06-2018
PER MAHAVIR PRASAD, JUDICIAL MEMBER
1. This appeal by the Assessee is directed against the order of the Ld. CIT(A)-I, Baroda dated 14.10.2014 pertaining to A.Y. 2010-11 and following grounds have been taken:
2 ITA No. 819/Ahd/2015. A.Y. 2010-11
1. On the facts, and in the circumstances of the case, the Commissioner of Income Tax (Appeals) -I, Baroda (referred to as CIT) erred in determining the total income of the appellant company at Rs. 17,21,08,451/- as against total income of Rs. 16,79,99,185/- disclosed by the appellant.
2. The Ld. CIT (A) erred in retaining the disallowance of Rs. 3,450/- as made by A.O u/s 14A out of disallowance of Rs. 15,450/-.
3. The Ld. CIT (A) erred in disallowing foreign travel expenses of Rs 12,07,856/-on ad- hoc basis out of total foreign travel expenses of Rs. 48,27,425/-.
4. The Ld. CIT (A) erred in denying the claim of weighted deduction u/s 35(2AB) @ 150% of Rs 22.09 lacs without appreciating the detailed submission of the appellant company and not following the judgment of Hon'ble High Court of Gujarat in the case of Commissioner of Income Tax Vs. Claris Lifescience Ltd. 174 Taxman 1 13(Guj).
5. It is submitted that the Department of Science 85 Industrial Research, Ministry of Science and Technology has renewed recognition of In-House R&D unit upto 31 / 03/2012 and the same was filed with the CIT. On the fact, the CIT ought to have allowed the claim of weighted deduction u/s 35(2AB) as claimed by the appellant.
6. The Ld. CIT (A) grossly erred in disallowing additional depreciation of Rs. 14,85,697/- on new plant and machinery of Rs. 7,42,846/- on the ground that plant and machinery is not new one.
7. The Ld. CIT (A) ought to have understood the meaning of the word "plant" in its ordinary meaning as laid down by the Hon'ble Gujarat High Court in the case of CIT Vs. Elecon Engineering Ltd. 96 ITR 672 (Guj) and CIT Vs. Taj Mahal Hotel 82 ITR 44 (SC) and come to the conclusion that all additions may not be of independent machines but plant is defined to include whatever apparatus or instruments which are used by a businessman in carrying on the business.
8. The appellant craves that additions made herein above be deleted.
3 ITA No. 819/Ahd/2015. A.Y. 2010-11
2. The facts of the case are that the assessee company is engaged in the-business of Manufacturing and sale of Chemicals. During the previous year relevant to the assessment year under consideration, the assessee has shown gross profit of Rs.3030,43 lacs on the total receipts of Rs.16546.21 lacs which Works out the gross profit rate at 18.31 % as against the gross profit of Rs.2228.24 lacs, on the total receipts of Rs.13463.88 lacs which works out the gross profit rate at 16.55% shown in the immediately preceding assessment year.
3. During the financial year under consideration, the assessee has received dividend of Rs.45,000/- and claimed, it as exempt U/s,10(34/35) of the Act. The assessee has made investments in mutual funds. Since, the assessee is paying interest on secured and unsecured loan and therefore, any investment from the fund of business which has interest bearing on it is utilized for investment purpose, the corresponding interest and other administrative expenditure requires to be disallowed under section 14A r.w. rule 8D and disallowance of Rs. 15,456/- was made.
4. On perusal of the Profit and loss account filed along with the return of income, it was seen that the appellant had debited expenditure of Rs. 48,27,425/- towards foreign travel by the Managing Director and Directors. But as per A.O. the details of the country and details of the persons who travelled abroad was not convinced. Therefore, A.O. disallowed to the extent of 25% of claim of Rs. 48,27,425/- which is worked out at Rs. 12,06,856/- was disallowed and added back to the total income of the appellant.
4 ITA No. 819/Ahd/2015. A.Y. 2010-11
5. The appellant has claimed weighted deduction of @ 150% u/s. 35(2AB) of Rs. 63,68,960/-. The appellant was asked vide order sheet entry dated 30.01.2013 why weighted deduction @ 150% should not be disallowed.
6. In response to the same, the assessee filed its reply which is reproduced here as under:-
This report in .Form 3CL is to be submitted by the secretary, Department of scientific and Industrial Research, Government of India in relation to approval1 of the in house research and development facility under section 35(2AB)(4) in order to entitle the assessee for weighted deduction. This report is to be submitted, to Director General (Income Tax Exemption), This report is to be sent by him within 60 days from the date of granting approval. We are filing Renewal of Recognition of In-house R&D unit valid upto 31.03.2012. We have already, filed required details to the Department of Scientific and Industrial Research, Minister of science & Technology on 20.05.2009. The copy is filed. In this connection, we would like to draw your attention to judgment of Hon'ble High Court of Gujarat. In the case of Commissioner of Income Tax vs. Claris lifesciences Ltd, On 174 Taxman I13.(Guj), we would like to draw your attention on para 6 of page no. 116 which reads as under:
"(The words used are any expenditure incurred by the assessee on scientific research on the in- house R&D facility approved by the prescribed authority has to be allowed by deduction of expenditure so incurred. Meaning of this word explain and clear that the facility is to be established first and on approval of the facility all the expenditure so incurred by the assessee for development of in-house facility is to be held as eligible for weighted deduction. Form No. 3 CM which is order of approval as provided by the rules in this behalf also does not have any mention of dated of approval. Rather, it speaks of only approval. The lower authorities are reading more than what is provided by law. A plain and simple reading of the Act provides that on approval of R&D facility expenditure so incurred is eligible for weighted deduction.)"
The copy of the judgment is filed.
Further, the assessee company submitted certificate of renewal of recognition of in-house R&D issued by the Department of Scientific and Industrial Research Technology Bhavan.
5 ITA No. 819/Ahd/2015. A.Y. 2010-11 Submission of the company has been considered and is not found to be acceptable.
As per clause(c) of Rule 6(7A), The Company shall maintain a separate account for each approved facility which shall be audited annually and copy thereof shall be furnished to the secretary, Department of science and Industrial Research by 31st day of October of each succeeding year. The assessee has not mentioned any separate account for its approved facility .The assessee has only submitted a ledger copy of R& D expenses for me period under consideration, separate accounts which have, been audited have not been .produced for the R& D facility as per Rule 6(7A) of I.T Rules,1962. and which is not separately accounted and audited in verification of ledger it is seen that even non eligible expenditure for the purpose of deduction u/s 35(2AB) like basic remuneration to M.D etc has been debited to the R & D ledger A/C. The assessee has not furnished copy of the separate account, to the DSIR.
The assessee company has relied on various court judgments the facts of which are found to be different from the instant case of the assessee. Further the assessee company also failed CO furnish the copy of 3CL/3CK to establish that it has fulfilled all the parameters of section 35(2AB)of IT Act r.w. rule 6(IB),(4)(5A) and 7(A) of the I.T. Rules, 1962. Therefore, Considering the aforementioned above fact and circumstances, the assessee's additional claim of 50% being weighted deduction u/s 35(2AB) of the Act of Rs 14,01,,257/-on claim of R&D Expenses is disallowed and added back to the total income of the assessee .
6 ITA No. 819/Ahd/2015. A.Y. 2010-11
7. On perusal on the depreciation chart annexed to tax audit report, it is revealed that the assessee has claimed additional depreciation on purchase of so called new plant and Machinery during the year under consideration. However, it is observed from-the bills and vouchers as submitted by the assessee company in response to detailed questionnaire that so called new plants and machinery on which the additional depreciation was claimed is not a new plant and Machinery but it is parts of existing plant or Machinery. The assessee company vide order sheet dated 13.02.2013 was asked to explain why the additional depreciation claimed on such new plant or machinery should not be disallowed.
8. In response to the said notice, assessee stated that as per several legal decisions, assessee was entitled for additional depreciation but same plea was not considered by the A.O. and he disallowed the additional depreciation of Rs. 14,85,697/-.
9. Thereafter, assessee preferred first statutory appeal before the ld. CIT(A) who partly allowed the appeal of the assessee.
10. Now appellant has come before us.
11. We have gone through the relevant record in the impugned order. The present appeal is delayed by 86 days. In support of its contention, assessee moved an application along with an affidavit. We are satisfied with the reason mentioned therein and we condoned the delay.
12. So far disallowance of 3450/- as made by the A.O. u/s. 14A is concerned, same is not pressed by the ld. A.R. because of smallness of amount. During the year 7 ITA No. 819/Ahd/2015 . A.Y. 2010-11 under consideration, the appellant company has claimed Rs. 48,27,425/- towards foreign travel expenses. The appellant was asked to justify the claim of the expenses in the assessment proceedings. Vide letter submission dated 13.02.2013, detailed information along with Date of travel, person who has travelled, the places visited and purpose of foreign visit were submitted before the A.O. but A.O. made disallowances on ad-hoc basis i.e. 25% of total foreign travel mere on the basis of presumption and same was confirmed by the ld. CIT(A). Ld. A.R. has submitted details with regard to persons who travelled and places of travel and purpose of travels and same is part of paper book at page no. 18. Therefore, in our considered opinion, lower authorities ought not to have disallowed 25% of total foreign travel expenses as appellant has furnished each and every details pertaining to foreign travel, we allow this ground of appeal.
13. So far denying the claim of weighted deduction u/s. 35(2AB) @ 150% of Rs. 2209 lakhs is concerned, appellant has produced a certificate of "Renewal of Recognition of In-House R & D Unit" dated 11.08.2009. The certificate was issued by the Department of Scientific & Industrial Research, Ministry of Science & Technology, Government of India and certificate bears following lines:
"This is to inform you that it has been decided to accord renewal of recognition to the In- House R & D unit(s) of your firm at 3 Industrial Area, Nandesari, Dist. Baroda up to 31.03.2012."
The above wordings of the certificate themselves show that an approval has been granted for claiming weighted deduction u/s. 35(2AB) of the Act for expenditure incurred for research and development activity. However, the Ld. as well as CIT(A) did not have considered the above authenticated certificate, 8 ITA No. 819/Ahd/2015 . A.Y. 2010-11 issued by DSIR, Govt. of India. In fact, before granting recognition, the DSIR verifies the financial budget for the expected expenses incurred for R & D activity. If DSIR satisfy the budget, then only they grant the recognition or renew the recognition to incur expenditure towards R & D.
14. In the case of CIT Vs. Claris Lifesciences Ltd. 174 Taxmann 113 (Guj.) (2008). It has been contended that whether section 35(2AB) nowhere suggests that date of approval of research and development facility will be cut-off date for eligibility of weighted deduction under this section on expenses incurred from that date onwards; once facility is approved, entire expenditure so incurred on development of research and development facility has to be allowed for weighted deduction.
15. Respectfully following the aforesaid Jurisdictional High Court judgment, we allow this ground of appeal of the appellant.
16. The appellant has claimed additional depreciation on parts ( as per below mentioned table) of existing Plant & Machineries, fitted in during the year under consideration.
Sr Particulars Amount Additional
No. Depreciation
@ 20%
1 Solid Fuel Heater 65,35,921 13,07,184
2 Extended Set for 7,28,264 1,45,653
Compressor/
overhauling
9 ITA No. 819/Ahd/2015
. A.Y. 2010-11
of system for45 TR
Chilling Plant
3 Structural Fabrication 1,64,301 32,860
&
Insulation work in
Reactors /vessels in
Astromeran Plant
TOTAL 14,85,697
17. But lower authorities did not consider aforesaid items as plant. The ld. A.R. cited a judgment of Hon'ble Supreme Court in the matter of CIT vs. Taj Mahal Hotel 82 ITR 44 (SC) and come to the conclusion that all additions may not be independent of machines but plant is defined to include whatever apparatus of instruments which are used by a businessman in carrying on the business.
"A.O. in his order contended that for claiming the additional depreciation the addition should be made in new plant or machinery and it should be acquired and installed during the year.
18. The ld. A.R. also cited an order of Gujarat High Court in the matter of CIT Vs. Elecon Engineering Co. Ltd. [(1974) 96 ITR 672] has observed that the word plant in its ordinary meaning is a word of wide import and it must be broadly construed having regard to the fact that articles like books and surgical instruments are expressly included in the definition of plant in section 43(3) 10 ITA No. 819/Ahd/2015 . A.Y. 2010-11 of the Act. It includes any article or object, fixed or movable, live or dead, used by a businessman for carrying his business. It is not confined to an apparatus which is used for mechanical operations or process or is employed in mechanical or industrial business.
19. Therefore, respectfully following aforesaid judgment, we allow claim of the appellant for additional depreciation.
20. In the result, the appeal filed by the Appellant is allowed.
Order pronounced in Open Court on 28 - 06- 2018
Sd/- Sd/-
(PRAMOD KUMAR) (MAHAVIR PRASAD)
ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER
Ahmedabad: Dated 28 /06/2018
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad