9911796707
TMI Blog2016 (8) TMI 1602X X X X Extracts X X X X X X X X Extracts X X X X ..... a unit - tenth year of claim - HELD THAT:- In our considered view the assessee has made claim under section 80-IB of the Act which was allowed by the Revenue after detailed enquiry wherein the assessee duly submitted the detailed explanation as to manner of computing deduction u/s 80-IB of the Act which was accepted by the Revenue after scrutiny while framing original assessment under section 143(3) of the Act and no fresh tangible material has come into possession of the Revenue which has live link/nexus with the formation of belief that income has escaped assessment warranting reopening of the concluded assessment, has been brought on record by the Revenue to disturb the claim of the assessee which was earlier accepted in original assessment proceedings under section 143(3) read with section 143(2) of the Act after detailed scrutiny rather it is a case of change of opinion which is not permissible in proceedings under section 147/148 of the Act as the powers of reopening the concluded assessment, under section is to reassess and not to review the concluded assessments. The assessee has made a claim of deduction u/s 80-IB on the basis that the same was common costs which should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely, dated February 15, 2013, and November 6, 2012, respectively, the appellate proceedings before the learned Commissioner of Income-tax (Appeals) arising from the two separate assessment orders dated November 15, 2011, and January 25, 2012, respectively passed by the learned Assessing Officer (hereinafter called "the AO") for the assessment year 2006-07 under section 143(3) read with section 147 of the Income-tax Act, 1961 (herein-after called "the Act") and for the assessment year 2008-09 under section 143(3) read with section 144C(3) of the Act. 2. The grounds of appeal raised by the assessee in I. T. A. No. 3472/Mum/ 2013 for the assessment year 2006-07 in the memo of appeal filed with the Income-tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") reads as under : "1:0 Re.: Validity of reassessment proceedings: 1:1 The Commissioner of Income-tax (Appeals) has erred in upholding the reopening of the appellant's assessment under section 148 of the Income-tax Act, 1961. 1:2 The appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the reopening of assessment un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal." 3. The brief facts of the case are that the assessee is engaged in the business of manufacturing and trading of medicinal and pharmaceutical products, insulin and its formulations. Manufacturing activities were carried out at Goa plant. Assessment was framed under section 143(3) of the Act whereby certain additions were made and the total income was determined at ₹ 84,04,90,479 as against the returned income of ₹ 82,97,07,654. The case was reopened by issuing notice under section148 of the Act on March 8, 2011 on the following reasons : "(i) The assessee has claimed depreciation of ₹ 45,10,828 at 35 per cent. of service equipment whereas the assessee was eligible to claim depreciation of ₹ 19,33,211 by that the assessee has claimed additional depreciation of ₹ 25,77,617. (ii) Deduction under section 80-IB allowed by the Assessing Officer is excess by ₹ 26,70,803 as entire expenses on scientific research of ₹ 95,36,877 should be deducted from the profits as direct expenses instead of 6.65 per cent. on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 32(1)(iia) of the Act clearly shows that the additional depreciation is allowed to an assessee engaged in the business of manufacture or production of any article or thing. The assets or plant and machinery acquired by it for the purpose of enhancing its trading business should not get the benefit of additional depreciation. The Assessing Officer also held that the provisions of the relevant section also clearly state that any plant and machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house, shall not be allowed the benefit of additional depreciation. It was also pointed out that the additional depreciation is meant for promotion of manufacturing and production activity only. The service equipment are installed by the assessee at the hospitals, hence additional depreciation is not available. The Assessing Officer held that the vaporizers were installed at the hospital and hospitals are nothing but in the nature of temporary sales office of the assessee, hence, no additional depreciation is allowable on these service equipment. The Assessing Officer observed that the case law relied on by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alled in the office premises or residential/guest house accommodation which clearly indicates that it is not necessary that plant and machinery should be installed in factory only to be eligible for additional depreciation. The assessee submitted that hospital cannot be considered as office of the assessee and the vaporizers installed at various hospitals and medical institutions enable the hospitals/medical institutions to perform induction and maintenance of general anaesthesia. The assessee submitted that it is entitled for claim of deduction of additional depreciation under section 32(1)(iia) of the Act. The assessee relied upon the decision of the hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC) to contend that incentive provisions in the taxing statute are to be liberally construed. The learned Commissioner of Income-tax (Appeals) observed that the assessee is engaged in two types of business one is simple trading, i.e. import of medicines and their local sales and the other business is of manufacturing at Goa Unit. The vaporizers are useful for promoting the sale of imported medicines and they have no relationship with the manufacturi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in the business of manufacturing or production of an article or thing. The assessee here is involved purely in trading activity and the asset or plant or machinery acquired by it for the purpose of enhancing its trading business should not get the benefit of additional depreciation. The vaporizers are not even distinctly related to its manufacturing activity, hence this ground is rejected. 5. The learned authorised representative submitted that admittedly vaporizers have been purchased by the assessee. It is also an admitted fact that the assessee is engaged in manufacturing activities. The learned authorised representative submits that the assessee has engaged in manufacturing activities and since vaporizers are not installed at its office premises, the sum is qualified for additional depreciation. The learned authorised representative placed his relevance on : 1. CIT v. Diamines and Chemicals Ltd. reported in [2014] 109 DTR (Guj) 62. 2. CIT v. VTM Ltd. reported in [2009] 319 ITR 336 (Mad). 6. The learned Departmental representative relies on the order of the Dispute Resolution Panel. 5. We have perused the orders passed by the authorities below, the submission by b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to ₹ 35,58,040 at its hospitals. The Revenue has not disputed the fact that, the assessee is not engaged in manufacturing activities, carried on at the Goa plant. The assessee provides health care solutions through its fair marketing arms being primary care, speciality care, neuroscience and hospitals care. As far as the application of section 32(1)(iia) of the Act as concern, the assessee is required to satisfy the stipulated conditions in order to claim additional depreciation. We observe that in paragraph 23.2 of the final order passed by the learned Assessing Officer, the factual position in respect of the machinery, has been provided vis-a-vis the conditions under section 32(1)(iia) of the Act. The learned Assessing Officer has disallowed the additional depreciation only on the ground that the assessee has been into trading activity. Apart from the manufacturing activity carried on by the assessee, it also provides health care solutions. The vaporizers, purchased by the assessee are retained by the assessee itself. 10. In our considered opinion, section 32(1)(iia) does not state that setting up of a new machinery or a plant, which was acquired and installed after Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against claim of ₹ 3,69,32,082 made by the assessee under section 80-IB of the Act, vide assessment order dated November 15, 2011, passed by the Assessing Officer under section 143(3) read with section 147 of the Act. 12. Aggrieved by the assessment order dated November 15, 2011, passed by the Assessing Officer under section 143(3) read with section 147 of the Act, the assessee has filed its first appeal before the learned Commissioner of Income-tax (Appeals) which was rejected by the learned Commissioner of Income-tax (Appeals). Before the learned Commissioner of Income-tax (Appeals) the assessee reiterated the submissions what was made before the Assessing Officer and submitted that the assessee has incurred expenditure of ₹ 95,36,877 under the head research and development towards establishing new technical capabilities, import substitution and new vendor development, optimisation, standardisation and improvements of products and manufacturing process and technical evaluation of the shelf products, to ensure quality and stability. It was submitted that the expenses were not incurred to earn income but with the objects of optimisation, standardisation and improvemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r allowed the deduction based upon the ratio of turnover to trading activity. The relevant portion of the assessment order is reproduced below : "20. As indicated, the assessee-company is engaged in manufacturing and trading of pharmaceutical and related products, with the manufacturing unit located at Goa. For the year under consideration, the assessee has claimed a deduction of ₹ 3,69,32,082 under section80-IB of the Income-tax Act, and the claim is made at 30 per cent. on total profit of ₹ 12,31,06,938 being the profit attributable to the Goa unit. This is the 10th year of claim under section 80-IB with the assessment year 1997-98 being the first year of claim. 21. While claiming the deduction under section 80-IB on profits of Goa unit, the assessee has submitted the certificate in Form 10CCB dated November 22, 2006, as certified by the Chartered Accountant. Along with the certificate, the assessee has also furnished a balance- sheet and profit and loss account prepared separately for the Goa unit, which has been carved out of the balance-sheet and the profit and loss account of the company. While preparing the profit and loss account for the Goa unit, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. While preparing the profit and loss account for the Goa unit, expenses on scientific research ₹ 95,36,877 are not apportioned to Goa unit. It was submitted that the company does not have its established research and development centre as such for conducting scientific research. Research and development activity mainly comprises of : indigenising technical know-how, implementation and standardisation of manufacturing process as per the defined standards, process modification for all products, ensuring prescribed quality standards for all products, vendor development, verification of processes followed for all products, verifying quality standards of products manufactured for all products, import substitution, cost reduction in potential areas, addressing complaints in terms of improvement in packaging, quality improvement in respect of all products of the company. 25. Since there is no method of maintaining these expenses on unit basis, it is reasonable and meaningful to apportion such expenses on scientific research to the manufacturing unit of the company at Goa. The expenses under the head scientific research ₹ 95,36,877 are therefore to be apportioned to Goa man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment which is stated to be incurred towards implementation and standardisation of manufacturing process including establishing new technical capabilities, import substitution and new vendor development, optimisation, standardisation and improvements of products and manufacturing processes and technical evaluation of off-the-shelf products, to ensure quality and stability. The assessee has allocated research and development expenses amongst manufacturing and trading activities based upon the sales ratio as the said research and development is stated to be not directed specifically towards manufacturing unit at Goa and being common costs were incurred for its business as a whole. Based upon this, the assessee has made claim of deduction of ₹ 3,69,32,082 under section 80-IB of the Act with respect to the Goa unit as profit derived from Goa unit. The Assessing Officer has allowed the claim of the assessee for this year vide assessment orders under section 143(3) of the Act dated November 26, 2009, whereby detailed enquiry was made by the Assessing Officer before allowing the claim of the assessee. The Revenue has reopened the assessment by invoking the provisions of section 148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible in proceedings under section 147/148 of the Act as the powers of reopening the concluded assessment, under section is to "reassess" and not to "review" the concluded assessments. The reference is made to the decision of the hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). The assessee has made a claim of deduction under section 80-IB of the Act on the basis that the same was common costs which should be allocated between manufacturing and trading activities based on the ratio of sales turnover which was accepted by the Revenue after detailed scrutiny in original assessment proceedings under section 143(3) of the Act which culminated into assessment order dated November 26, 2009 passed by the Assessing Officer under section 143(3) of the Act. Although the reopening has been done within a period of 4 years but still the same is not permissible in the instant case as the concluded assessment has been reopened merely due to change of opinion. Hence, the addition is ordered to be deleted. We order accordingly. Assessee's appeal in ITA No. 832/Mum/2013 for the assessment year 2008-09 16. The grounds of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14A of the Income-tax Act, 1961, is called for and the stand taken by the Assessing Officer is incorrect and the Commissioner of Income-tax (Appeals) ought to have held as such. 3:3 The appellant submits that the Assessing Officer be directed to delete the additional addition so made under section 14A read with rule 8D and to recompute its total income accordingly. 4:0 Re .: Additional depreciation on vaporizer claimed as a deduction under section 32(1)(iia) 4:1 The Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of ₹ 53,32,399 being the additional depreciation under section 32(1)(iia) claimed by the appellant on vaporizers installed at hospitals. 4:2 The appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it is entitled to claim additional depreciation on the vaporizers in terms of section 32(1)(iia) of the Income-tax Act, 1961, and the stand taken by the Assessing Officer in this regard is erroneous, misconceived and ought to be struck down. 4:3 The appellant submits that the Assessing Officer be directed to grant additional depreciation on the vaporizers as claimed by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 while the sales tax pertained to the period from April 1, 2007, to March 31, 2008, and claim of deduction was made under section 43B of the Act in the assessment year 2007-08 which was denied by the Revenue, it was submitted that the Assessing Officer disallowed the same while framing the assessment order for the assessment year 2007-08 as being advance payment of sales tax pertaining to the period April 1, 2007, to March 31, 2008, i.e., the assessment year 2008-09. It was submitted that the matter was disposed of by the Tribunal while deciding the assessee's own appeal in I. T. A. No. 8428/Mum/2011 for the assessment year 2007-08, vide orders dated October 30, 2015, wherein the assessee did not press the said ground. The relevant finding of the Tribunal is as under : "The learned authorised representative submits that ground No. 1 to be not pressed, relating to the disallowance of advances sales tax claimed as deduction. We therefore dismiss the grounds of appeal." Ground No 1:0 raised by the assessee in the assessee's appeal in I. T. A. No. 8428/Mum/2011 for the assessment year 2007-08 which was dismissed by the Tribunal as set out above, read as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t aside to the file of the Assessing Officer and the Assessing Officer shall verify the claims and contentions of the assessee and allow the same on merits in accordance with law. Needless to say the assessee may be granted sufficient opportunity of being heard in accordance with principles of natural justice and the assessee shall be allowed to file relevant evidences and explanations in accordance with law to support its claim and contentions. We order accordingly. 20. Ground No. 4 pertains to the claim of deduction towards additional depreciation on vaporizer claimed as deduction under section 32(1)(iia) of the Act. We have already adjudicated this ground while deciding the assessee's appeal in I. T. A. No. 3472/Mum/2013 for the assessment year 2006- 07 in the foregoing paragraphs of this order. Hence, our above decision in I. T. A. No. 3472/Mum/2013 for the assessment year 2006-07 as contained in preceding paragraphs shall apply mutatis mutandis to the assessee's appeal in I. T. A. No. 832/Mum/2013 for the assessment year 2008-09 wherein the facts are identical. 21. Coming to ground Nos. 1 and 2, the assessee has challenged the non- allowance of the share buy-back exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e share capital, the buy-back, resulted in decrease in the funds. In these circumstances, the assessee has not earned any enduring benefit because of the buy- back. The expenditure incurred thus did not result in bringing in to existence any asset. 17. In view of the above discussions, we hold the expenses incurred by the assessee for buy-back, to be a revenue expenditure, allowable under section 37(1) of the Act." 22. The learned Departmental representative submitted that the matter may be sent back to the file of the Assessing Officer for examination. 23. We have considered the rival contentions and also perused the material available on record including the Tribunal order. We have observed that the assessee has incurred buy-back expenses on shares amounting to ₹ 23,38,849. The assessee has stated to have not claimed the same as deduction in its original return of income filed with the Revenue. The assessee has revised its return of income within time prescribed by law under section 139(5) of the Act whereby the said claim was raised by the assessee. The authorities below have not considered the claim of the assessee. The Tribunal in the assessee's own case for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. The expenditure incurred thus did not result in bringing in to existence any asset. 17. In view of the above discussion we hold the expenses incurred by the assessee for buy-back, to be a revenue expenditure, allowable under section 37(1) of the Act. In the result, the assessee's appeal is allowed." In our considered view, this matter needs to be restored to the file of the Assessing Officer for verification of the claims and contentions of the assessee to have incurred expenses of ₹ 23,38,849 towards expenses for buy-back of shares and then to decide the claims and contentions of the assessee in the light of decision of the Tribunal in the assessee's own case for the assessment year 2007-08 in I. T. A. No. 8428/Mum/2011, vide orders dated October 30, 2015. Needless to say proper and adequate opportunity of being heard shall be provided by the Assessing Officer to the assessee in accordance with the principles of natural justice in accordance with law and the assessee shall be allowed to submit relevant evidences and explanation in defence of its claim. We order accordingly. 24. Ground No. 3 : Disallowance under section 14A of the Act read with rule 8D o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the year. It was submitted that the unsecured loans amounting to ₹ 76,28,092 appearing in the balance-sheet for the year entirely pertains to deferred sales tax liability under the Maharashtra Government Package Scheme of Incentives, 1988. It was submitted that the investment in the mutual funds were and by large static and no direct and indirect expenditure was incurred to earn the exempt dividend income. It was submitted that it was not having any borrowed funds and if at all disallowance is to be made, the same should be restricted to ₹ 2,21,411. The assessee submitted that the Assessing Officer erroneously has considered ₹ 2,21,411 as direct expenses incurred for the earning of tax-free income which income represents the amount of indirect expenses worked out by the assessee by allocating the proportion of employees cost and administrative expenses. The assessee debited the interest expenses to the profit and loss account of ₹ 1,80,798 which consist of interest on delayed payment of TDS amounting to ₹ 80,206, interest on sales tax amounting to ₹ 75,790, interest on inter-company loans amounting to ₹ 7,222 and interest on security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi), 3. Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272 (Delhi) (I. T. A. No. 687/2009), 4. Deputy CIT v. Jindal Photo Ltd. (I. T. A. No. 4539/Delhi/2010, dated December 22, 2010), 5. Yatish Trading Co. (P.) Ltd. v. Asst. CIT [2011] 9 taxmann.com 164 (Mum). 6. Multi Commodity Exchange of (India) Ltd. v. Deputy CIT (I. T. A. No. 1050/M/2010, dated August 5, 2011). 7. CIT v. Walfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1 (SC). 8. Auchtel Products Ltd. v. Asst. CIT (I. T. A. No. 3185/Mum/2011, dated April 30, 2012). The learned Commissioner of Income-tax (Appeals) considered the submission of the assessee whereby he observed that the assessee had made huge investments totalling to ₹ 157.23 crores against which it has earned an income of ₹ 7,89,49,266 which is not forming part of the total income of the assessee, hence, the provisions of section 14A of the Act is clearly applicable in respect of disallowances of corresponding expenditure debited by the assessee in its profit and loss account. The learned Commissioner of Income-tax (Appeals) observed that the assessee in its return of income has disallowed an expenses of ₹ 2,21,411 under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D(2) of the Income-tax Rules, 1962, and the balance disallowance of ₹ 75,92,006 was accordingly sustained by the learned Commissioner of Income-tax (Appeals) under rule 8D(2)(iii) of the Income-tax Rules, 1962 read with section 14A of the Act, vide appellate order dated November 6, 2012. 25. Aggrieved by the appellate order dated November 6, 2012 passed by the learned Commissioner of Income-tax (Appeals), the assessee filed further appeal before the Tribunal. 26. The learned counsel for the assessee contended that the assessee had voluntarily disallowed an amount of ₹ 2,21,411 towards indirect expenses incurred in connection with the earning of exempt income. The Assessing Officer has completed the assessment whereby he had applied rule 8D of the Income-tax Rules, 1962 read with section 14A of the Act for making disallowance while satisfaction was not recorded that how the disallowance was worked out by the assessee is not correct having regards to the accounts of the assessee. The learned counsel submitted that there is no investment in the shares, the entire investment is only in the mutual funds and that too there is no churning of the investment. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o contend that most of the investments are made in liquid mutual funds. Thus, in a nutshell it was submitted that the Assessing Officer has not recorded satisfaction before invoking rule 8D of the Income-tax Rules, 1962, while the learned Commissioner of Income-tax (Appeals) recorded satisfaction before invoking rule 8D of the Income-tax Rules, 1962, wherein he held that the assessee has not maintained separate books of account from wherein disallowance under section 14A of the Act can be worked out, the decision of the hon'ble Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT [2010] 328 ITR 81 (Bom) is applicable and it was also submitted that the authorities below have not come to conclusion that the expenses disallowed voluntarily by the assessee are not unreasonable. The assessee relied upon the decision of the hon'ble Delhi High Court in the case of CIT v. Taikisha Engineering India Ltd. [2015] 370 ITR 338 (Delhi) wherein the hon'ble court duly considered the decision in the case of Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272 (Delhi). 27. The learned Departmental representative submitted that the power of Commissioner of Income-tax (Appeals) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62, while the learned Commissioner of Income-tax (Appeals) ought to have identify the disallowance at the first instance having regards to the accounts of the assessee. The assessee also did not come forward with the complete details of expenses incurred in relation to the earning of exempt income. In our considered view, the matter needs to be set aside and restored to the file of the Assessing Officer for de novo determination of the issue on merits after considering the submissions of the assessee having regard to the accounts of the assessee as to the quantum of disallowance to be made under section 14A of the Act. As such the impugned order of the learned Commissioner of Income-tax (Appeals) is set aside and the issue is remitted back to the file of the Assessing Officer for de novo determination of the issue on merits after providing sufficient opportunity of being heard to the assessee and after considering the relevant evidences/explanations submitted by the assessee in its defence. We order accordingly. 29. In the result, the assessee's appeal in I. T. A. No. 3472/Mum/2013 and I. T. A. No. 832/Mum/2013 are partly allowed as indicated above. 30. Order pronounced in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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