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2009 (3) TMI 643 - AT - Income TaxDisallowance of expenditure on scientific research - claim deduction u/s 35(1)(iv) - Whether the assessee is entitled to depreciation claim u/s 32 in the later previous years in respect of the expenditure already allowed u/s 35 in a previous year - business of scientific research and investment in joint venture - assessee submitted copies of their foreign collaboration approvals and the MOA as well as the research agreement between and the sister concerns i.e. CIBA Basle to substantiate that the doing specialized research is the principal business of the assessee - As per the assessee the provisions of section 35(1)(iv) allow the capital expenditure on scientific research related to the business of the assessee as deduction - AO denied the deduction u/s 35(1)(iv) holding that it is allowable only in respect of the capital expenditure on scientific research related to the business of the assessee - he thrust the depreciation u/s 32 @ 25 per cent and 60 per cent on plant and machinery and on computers respectively instead. HELD THAT - The assessee in our considered opinion cannot be said to have two distinct activities i.e. business activity on one side and related scientific research activity on the other. In other words the assessee does not have the business activity to absorb the developed scientific research. Further it is also not the case of the assessee that he is covered by section 43(4)( iii )( a ) i.e. the cases of scientific research which may lead to or to facilitate an extension of that business . Thus by conducting the said research the assessee generates a marketable product or stock-in-trade in the form of the scientific research. In these circumstances we are of the opinion that the provisions of section 35(1)( iv ) have no applicable to assessee s case and accordingly this part of the arguments of the assessee s counsel is dismissed. The assessee incurred capital expenditure on the scientific research and undisputedly it is related to the subsidiary company such as CIBA Basle. Assessee does not have any active business activity carried on by him to which the said research relate to. Further we find that this is not a case of cacus omicus after the amendment to section 35(2)( iv ) to suppress the effects of the Tribunal decision in the case of Vickers Sperry of India 1979 (10) TMI 100 - ITAT BOMBAY . Consequently the recent Co-ordinate Bench decision in assessee s own case for AY 2001-02 is applicable and binding. Regarding the AO s decision in thrusting of the depreciation u/s 32 in the facts and circumstances of the issue where the expenditure on plant and machinery and on computers is undisputedly capital in nature and the same assets were undisputedly owned and used for the business we find AO s decision is fair and found valid. Accordingly the ground of assessee s appeal is dismissed. In the result of the appeal of the assessee is dismissed.
Issues Involved:
1. Validity of reopening the assessment under section 147 of the Income-tax Act. 2. Disallowance of expenditure on scientific research claimed under section 35(1)(iv) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Validity of Reopening the Assessment under Section 147: The assessee argued that the reopening of the assessment under section 147 was unjustified as it was based on a mere change of opinion. The assessee had made full disclosure of facts in the original return, and the issue of deduction under section 35(1)(iv) had already been decided in their favor for the assessment year 1999-2000. The CIT(A) upheld the reassessment, citing that it was initiated within four years from the end of the relevant assessment year, and the original assessment was not completed under section 143(3). The CIT(A) relied on the jurisdictional High Court's decision in Dr. Amin's Pathology Laboratory v. P.N. Prasad and Gujarat High Court's judgment in Praful Chunnilal Patel v. M.J. Makwana, which stated that the disclosure of facts is irrelevant in cases reopened within four years. The Tribunal examined the provisions of section 147, which state that the "reason to believe" concept is assessment year-specific. The Tribunal concluded that an opinion formed for one assessment year cannot be the basis for initiating reassessment proceedings for another assessment year. Thus, the Tribunal dismissed the argument of change of opinion and upheld the Assessing Officer's jurisdiction under section 147. 2. Disallowance of Expenditure on Scientific Research Claimed Under Section 35(1)(iv): The assessee claimed a deduction for capital expenditure on scientific research under section 35(1)(iv), arguing that their business included conducting scientific research and investing in joint ventures. The CIT(A) rejected this claim, stating that the scientific research was related to the business of the group companies, not the assessee's business. The CIT(A) distinguished the assessee's case from the Allahabad High Court judgment in CIT v. U.P. Electronics Corpn. Ltd. and the Supreme Court judgment in Escorts Ltd. v. Union of India. The Tribunal examined the relevant provisions of section 35 and section 43(4) of the Income-tax Act. The Tribunal noted that the deduction under section 35(1)(iv) is available for capital expenditure on scientific research related to the business carried on by the assessee. The Tribunal found that the assessee's research was related to the business of the subsidiary company, not the assessee's business. The Tribunal also referred to the Board's Circulars, which emphasized that the deduction is intended for scientific research related to the assessee's business. The Tribunal dismissed the assessee's reliance on the Special Bench decision in Vickers Sperry of India, noting that the decision was delivered in the pre-amendment period and is no longer applicable. The Tribunal also upheld the co-ordinate Bench decision in the assessee's own case for the assessment year 2001-02, which denied the deduction under section 35(1)(iv). Separate Judgments Delivered: The Tribunal delivered a separate judgment for ITA No. 6720/Mum./2006 for assessment year 2003-04, which involved the same issue of disallowance of expenditure on scientific research. The Tribunal dismissed the appeal, reiterating the findings and reasoning applied in the judgment for assessment year 2000-01. Conclusion: In both appeals, the Tribunal upheld the validity of the reassessment proceedings under section 147 and confirmed the disallowance of the deduction claimed under section 35(1)(iv) for capital expenditure on scientific research. The appeals were dismissed.
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