Income Tax Appellate Tribunal - Chandigarh
M/S Parabolic Drugs Limited, ... vs Cit, Gurgaon on 4 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES'B', CHANDIGARH
BEFORE SHRI. SANJAY GARG, JUDICIAL MEMBER AND
DR. B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No. 1119/Chd/2014
Assessment Year: 2011-12
M/s. Parabolic Drugs Ltd. Vs. The CI T(Central)
SCO 99-100, Top Floor, Gurgaon
Sector- 17B, Chandigarh
PAN No. AACCP1419K
(Appellant) (Respondent)
Appellant By : Sh. Sudhir Sehgal
Respondent By : Sh. Ravi Sarangal
Date of hearing : 24/10/2017
Date of Pronouncement : 04/01/2018
ORDER
PER DR. B.R.R. KUMAR, A.M:
The present appeal has been filed by the assessee is direc ted against the order dated 09/10/2014 passed by the CI T(Central), Gurgaon.
2. Assessee has raised the following grounds of appeal:
1. That the Worthy Commissioner of Income Tax-Central, Gurgaon has erred in being giving directions to Id. A.O. to suitably amend the assessment [as framed by the Assessing Officer u/s 153A(1)(b) r.w.s. 143(3)] by treating the same as erroneous and prejudicial to the interest of revenue.
2. That the Worthy CIT has failed to consider that on various occasions, the replies had been filed to him by way of written submissions and detailed discussion have been taken place on various dates and has failed to consider the submissions made before him vide letters on various dates.
3. That the CIT has failed to consider that the assessment as framed by the Assessing Officer was after due application of mind and after considering the detailed replies on various dates as filed before him during the course of assessment proceedings.
4. Without prejudice to Ground Nos.1 to 3 above, that the learned CIT has erred in directing the Ld. A.O to verify the allowability of deductions u/s 35(1) of the Indian Income Tax Act-1961, the Assessing Officer has taken a possible and correct view as per the law and the CIT could not have invoked the jurisdiction to direct the Ld. AO to verify and amend assessment already framed.2
5. That the learned CIT has erred in concluding that The Assessing Officer has failed to make necessary inquiries and failed to apply his mind as regards the set off of unabsorbed depreciation against the surrendered income.
6. That the learned CIT has erred in directing the Ld. A.O to verify the disallowance u/s 40(a)(ia) of the Indian Income Tax Act-1961. The Assessing Officer has taken a possible and correct view as per the law and the CIT could not have invoked the jurisdiction to direct the Ld.AO to verify and amend assessment already framed.
7. That the learned CIT has erred in directing the Ld. A.O to examine the contention of the assessee denovo on treatment of eligible research & development expenditure and treating the same as revenue expenditure as per judgment of ITAT in assessee's own case for A Y 2006-07 The Assessing Officer has taken a possible and correct view as per the law and the CIT could not have invoked the jurisdiction to direct the Ld.AO to verify and amend assessment already framed.
8. That the learned CIT has failed to point out as to how the assessment framed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. On every occasion the learned CIT directs the Ld. A.O. to verify the claims of assessee. Whereas the claims of assessee were already been verified by Ld. A.O. Only After detailed assessment proceedings the Assessing Officer has taken a possible and correct view as per the law and the CIT could not have invoked the jurisdiction to direct the Ld.AO to verify and amend assessment already framed.
3. Ground No. 1 ,2, and 3 are general in nature and needs no adjudication.
4. Brief facts of the case are that the assessee company is a private limited company and the assessment order u/s 153A(1)(b) r.w.s 143(3) of I.T. Act, 1961 dated 31/03/2013 for A.Y. 2011-12 was passed by Assistant Commissioner of Income Tax, Central Circle-I, Chandigarh (the Assessing Officer). The order passed by Assessing Officer was examined by the Ld. Pr. CIT. After examination the Pr. CIT having vested the powers under section 263 of the Income Tax Act, 1961 has directed the Assessing Officer to re-examine certain issues and amend the assessment accordingly.
5. Aggrieved with the order of the Ld. Pr. CIT the assessee filed appeal before us.
6. The Ground No. 4 & 5 contested by the assessee relates to deduction under section 35(1), and set off of unabsorbed depreciation against surrendered income.
"(i) Deduction u/s 35(1): The return of Income for this Assessment Year was filed on 28.09.2011with the business loss of Rs. 603,950,380/- It is claimed that in the computation of income the amount of R&D Expenses written off amounting to Rs.
92,573,531/- has been added to the taxable income.
The copy of computation attached with reply dated 06.02.2014 was perused and It is seen that the following amounts of deduction has been claimed u/s 35(2AB) of the Income Tax Act (worked out @ 200 percent):
3Item and details of claimed Deduction claimed I. Capital expenditure of Rs. 7835519 and its 200% is 15,671,038 15671038 II. Revenue expenditure of Rs. 640170023 and its 200% 1,280,340,046 is 1,280,340,046 III. Capital expenditure of Rs. 16183369 and its 200% is 32,366,738 32,366,738 Total deduction claimed 1,328,377,822 It is further submitted that the assessee filed a revised return on 11.03.2014 and the computation chart shows that an amount of Rs. 92,573,531/- was added back to the taxable income. This figure is sum of two figures viz. Rs. 9,25,73,531/- and Rs. 6,12,350/- which were earlier claimed for being expenses as per books on R&D. In the revised return the claim of deduction being expenses on R&D was restricted to Rs. 640170023 being the actual revenue expense in this regard. The reasoning of such claim has been explained as pending approval from the Department of Scientific and Institutional Research."
7. The Ld. Pr. CIT has directed the Assessing Officer to examine the claim denovo.
8. The Ld. Pr. CIT further held that "The issue of Surrendered Income, Refund of prepaid taxes and Set off unabsorbed Depreciation by the assessee are taken up together. The contention of the assessee company is that it filed its ITR for the Assessment Year 2011-12 with the business loss of Rs. 60.40 (after considering the declared income of Rs. 14.23 Cr) crores by claiming the weighted deducted (i.e. 200%) of the expenses incurred on scientific research and development.
(Amounting Rs. 132.84 Crores.). Thereafter, company revised its return on 23rd March, 2013, Since the approval from Department of Scientific and Institutional Research was pending at the time of filing of such return the company claimed only 100% of the revenue expenditure of Rs. 64.02 Crores incurred on scientific research in its revised return. The same was claimed in purview of ITAT judgment in the assessee's case in the Asstt. Year 2006-07, wherein it was decided that the expenditure incurred on scientific research shall be allowable either under section 35 or 37 of Income Tax Act, 1961. Gross Total income in the revised return after taking into consideration the declared income of Rs. 14.23 crores was arrived at Rs. 8.42 crores which was set of against the brought forward unabsorbed depreciated of Rs. 8.53 crores of the AY 2009-10. Therefore the net total income after set-off of depreciation was Nil.
The contention of the assessee need verification from the records and also consideration of allow ability in view of the decisions of courts in the case of Kim Pharma (P) Ltd. VS. CIT, ITA No. 106 of 2011 (O&M), dated 27.04.2011, Liberty Plywood (P) Ltd. vs. ACIT, Ambala, 727/CHD/2012 and Hon'ble Gujrat High Court in the case of Fakir Mohammad Haji Hassan vs. CIT, 247 ITR 290 (Guj.). The Assessing Officer will also examine the reasons whether the depreciation was claimed in original return and if not whether the same is admissible in revised return".
9. Before the Pr. CIT the assessee vide Letter dt. 14/03/2014 submitted as under:
a) Company had filed its original return for the AY 2011-12 with the business loss of Rs 60.40 crores by claiming the weighted deduction of 200% of the expenses incurred on scientific research and development. Total weighted deduction claimed on account of expenses incurred on scientific research and development was Rs 132.84 crores on account of capital and revenue expenditure of Rs 2.40 crores and Rs 64.02 crores respectively incurred by the company. The brought forward unabsorbed depreciation rores could not be set off due to losses in the current assessment year and the same was carried forward.4
b) Thereafter, company revised its return on 23rd March 2013. Since the approval m Department of Scientific and Institutional Research was pending at the time of filing of such return the company claimed only 100% of the revenue expenditure of Rs 64.02 crores incurred on scientific research in its revised return. The same was claimed in purview of ITAT judgment in the assessee's case wherein it was decided that the expenditure incurred on scientific research shall be allowable either under section 35 or 37 of Income Tax Act 1961.
c) Gross Total income in the revised return after taking into consideration the declared income of Rs 14.23 crores was arrived at Rs 8.42 crores which was set off against the brought forward unabsorbed depreciation of Rs 8.53 crores of the AY 2010-11. Therefore the net total income after set-off of depreciation was Nil.
d) The assessee company dint had any intention to evade tax, rather it was as per the provisions of law that the tax liability of the assessee arrived at Nil. As it has been made mandatory for all the company assessee to file its return electronically, the benefits of set-off of unabsorbed depreciation/loss is automatically provided to the assessee at the time of filing of its Income Tax Return. Such set-off or the benefit of expenses allowable as per the Act is given to the assessee which is beyond its control. In this context it is clearly evident that the assessee was ready to pay its tax liability and comply with law in its full spirit, but the benefits deriving from the law could not be avoided.
e) Since the company was awaiting the approval from Department of Scientific & Institutional Research for the revenue expenditure incurred by it on Research and Development for the relevant assessment year, it followed an accounting practice of capitalizing the revenue expenditure in its books of accounts resulting into higher book profits. At the time of filing of the return, since the approval from Department of Scientific & Institutional Research was not received, the company treated it as a normal business revenue expenditure in lieu of the ITAT judgment in its case where it was decided that the revenue expenditure incurred on scientific research and development was allowable either u/s 35 or 37 of Income Tax Act 1961. Since this revenue expenditure was capitalized in the books of accounts, the book profits of the company was unreasonably inflated. Therefore in order to follow the same practice both for computation of total income for tax purposes and book profits as per books of accounts, the amount of such revenue expenditure was adjusted from the book profits of the company and the tax liability (if any) which aroused was duly accepted.
10. This issue has to be examined in context of the provisions relating to Section 263 which reads as under:
Section 263- (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation 1--For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,--
(a) an order passed on or before or after the 1st day of June, 1988, by the Assessing Officer shall include--(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
5(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120;
(b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
Explanation 2.--For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,--
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.
Explanation.--In computing the period of limitation for the purposes of sub- section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso of section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.
11. The assessee before us contested that during the assessment proceedings this matter has been duly examined while the Ld. DR relied on the order of the Ld. CIT.
12. We have gone through the record before us and find that this issue has been duly considered by the Assessing Officer during the assessment proceedings and also this matter of deduction under section 35(1) has been 6 examined by the coordinate Bench of ITAT, Chandigarh for the AY 2011-12(for which the order under section 263 passed). Wherein the Tribunal allowed the claim of the assessee of deduction under section 37(1) and 35(1)(i) of the Act. Hence we direct that the order of the Assessing Officer is not erroneous and prejudicial to the interest of the Revenue on this ground.
13. The Ground No. 6 involved in the order under section 263 is disallowance under Section 40(a)(ia); the details are as under:
Disallowance under Section 40(a)(ia); In response to the notice the assessee company replied that on the payment to Bibby Financial Services and Tata Capital Ltd. were subjected to TDS even though the tax was deducted but the same was deposited with delay. As per the assessment record no evidence was filed during the course of assessment proceedings.
The Assessing Officer is directed to verify the claim of the assessee denove and arrive at appropriate conclusion for disallowance in view of the provisions contained in section. 40 (a) (ia) of the Act.
14. Before us the Ld. AR has taken to the questionnaire issued dt .29/02/2012 by the DCIT where in question no. 11 the assessee has specifically asked 'please give the details of expenses on which provisions of TDS are applicable. Also explain whether TDS has been deduction on these expenses'. Thus the issue raised by the Ld. CIT stands examined by the Assessing Officer during the assessment proceedings.
15. The Ld. CIT held that though the tax was deducted but the same was deposited with delay. This cannot be a reason to revise the assessment order. Hence we direct that the order of the Assessing Officer is not erroneous and prejudicial to the interest of the Revenue on this ground.
16. Ground No. 7 relates to the direction of the Ld. CIT to examine denovo on the treatment of eligible research and development expenditure and treating the same as Revenue expenditure.
17. The order of the L.d CIT on the issue of Revenue expenditure is as under:
"Revenue Expenditure Capitalized: The Company was awaiting the approval from Department of Scientific & Institutional Research for the revenue expenditure incurred by it on Research and Development for the relevant assessment year. In this regards the company was following an accounting practice of capitalizing the revenue expenditure in its books of accounts because these were eligible for a weighted deduction of 150% on approval from Department of scientific & Institutional Research. At the time of filing of the return since the approval from Department of Scientific & Institutional Research was not received, the company treated it as a normal business revenue 7 expenditure as per the judgment of IT AT in its case in Assessment Year 2006-07 (ITA No. 2111/Del/2010 dated 11/10/2012 - Copy Enclosed). Hon'ble bench of Income Tax Appellate Tribunal, Delhi held that the revenue.
This issue has bearing upon and is inter-linked with the issue discussed in para 3-1 of this order, therefore, the Assessing Officer is directed to examine the contention of the assessee denove as has already been directed above and arrive at fresh conclusion after detailed enquiry."
18. Before us the Ld. AR argued that this issue has already been examined by the Coordinate Bench of ITAT, Delhi in its own case in Assessment Year 2006-07 (ITA No. 2111/Del/2010 dated 11/10/2012 and allowed the expenditure and treated this expenditure as Revenue expenditure. The Ld. AR further argued that since the matter stands settled by the order of the ITAT, the order of the Ld. CIT directing the Assessing Officer to examine the contention of the assessee denovo cannot be accepted to as the order of the Assessing Officer is not erroneous and prejudicial to the interest of the Revenue on this ground.
19. We have gone through the questionnaire issued by the Ld. CIT, the reply furnished by the assessee and also the order under section 263 of the Income Tax Act, 1961 passed by the Ld. CIT, in addition to the questionnaire issued by the Assessing Officer and the assessment order, and find that the issues raised by the Ld. CIT stands covered examined by the Assessing Officer and settled by the decision of the Tribunal in assessee's own case.
19.1 The Hon'ble Jurisdictional High Court in the case of Hari Trading co. vs. CIT as reported in 263 ITR 437 wherein it has been held as under:
"AO having made full inquiries before accepting the claim of the assessee qua the amount surrendered at the time of survey on account discrepancy in stock and accordingly passed the order without making the addition, the order of CIT under s. 263 could not be sustained on the ground that the assessment was made without proper enquiry, more so when the assessee's case was being monitored by the CIT from time to time and the assessment order has been passed after a draft order had been forwarded to the then CIT for his approval."
19.2 The facts of the above said case are similar to that of the Assessee. In the said case surrender was made during the course of search proceedings and after a thorough investigation the same was accepted by the AO.
Similarly in the case of M/s. Gupta Spinning Mills vs CIT in ITA No. 3398/Del/2010 dated 29.02.2012 wherein it was held as under:
8"The Id. CIT totally ignored the aforesaid reply .........filed by the assessee before the AO. Mere change of opinion or view would not enable the CIT to exercise jurisdiction u/s 263 of the Act more so, when the AO had considered the details and the explanation offered by the assessee. Change of opinion by reappraising the evidence is not within the parameters of revisional jurisdiction of Commissioner under section 263 o f the Act. In view thereof, we set aside the impugned order u/s 263 of the Act and quash the same."
19.3 Similarly in the case of Small Wonder Industries vs CIT in ITA No. 2464/Mum/2013 order dated 24.02.2017, the Hon'ble Court has observed as under:
"There is a distinction between "lack of enquiry" and "inadequate enquiry". If the AO has called for the necessary details and assessee has furnished the same, the fact that the AO is silent in the assessment order does not mean that he has not applied his mind so as to justify exercise of revisional powers by the CIT u/s 263"
20. Keeping in view the above judgments and facts of the case, we find that the order of the Ld. CIT passed under section 263 cannot be upheld as valid.
21. In the result appeal of the assessee is allowed.
Order pronounced in the Open Court on 04/01/2018
Sd/- Sd/-
(SANJAY GARG) (DR. B.R.R. KUMAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
AG
Dated : 04/01/2018
Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR