9911796707
TMI Blog2016 (8) TMI 1602X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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 alloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 under section 148 was in excess of jurisdiction and the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore 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 basis of the sales ratio taken in assessment under section 143(3). 4. Additional depreciation : The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged 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 the assessee in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC) is not applicable as the same pertains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 manufacturing activity of the product. These vaporizers are not located on the factory or business premises of the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 both the parties and the judgments relied upon by the learned authorised representative Before we start with our observation, section 32(1)(iia), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 March 31, 2005, should have an operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore the reasoning of the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 improvements of products and manufacturing processes and reduce costs and hence the same were not apportioned/allocated while computing profits and gains derived of the Goa unit eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was indicated that certain expenditures are allocated on actual basis where certain indirect expenses are allocated on prorate basis and the basis for this purpose is stated to be the percentage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 manufacturing unit-in the ratio of sales turnover between Goa unit vis-a-vis total turnover of the company. The working is as under : Goa unit sales-Rs. 32,25,45,639 Total sales of the assessee-Rs. 4,85,10,12,404 Ratio = 32,25,45,639 x 100 = 6.65% 4,85,10,12,404 26. Accordingly, share of such expenses related to the Goa unit is quantified 6.65 per cent. of ₹ 95,36,877, which works out to ₹ 6,34,202 based on prorate basis. 27. On these lines of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Act within a period of four years wherein the original assessment was framed under section 143(3) of the Act, whereby the Revenue is attempting to allocate the entire research and development expenditure of ₹ 95,36,877 to the Goa unit in the reopened proceedings on the contention that the research and development was directed towards manufacturing unit while the assessee's contentions from beginning being that the same is common cost towards establishing new technical cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading 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 raised by the assessee in I. T. A. No. 832/Mum/ 2013 for the assessment year 2008-09 in the memo of appeal filed with the Income-tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) reads as under : 1:0 Re.: Non-consideration of the revised return of income filed for the year : 1:1 The Commissioner of Income-tax (Appeals) has erred in not adjudicating on the ground of appeal raised before him vis-a-vis non- consideration of the revised return of income by erroneously holding that the representative of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 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 it and to re-compute its total income accordingly. The assessee has also raised the following additional grounds of appeal before the Tribunal and prayed for its admission being legal ground : Additional ground of appeal Deduction in respect of advance payment of sales tax made in the assessment year 2007-08. (i) On the facts and in the circumstances of the case and in law, the appellant submits that since deduction in respect of advance payment of sales tax amounting to ₹ 40,39,333 made in the assessment year 2007-08 has been disallowed in the said year, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under : 1:0 Advance sales tax paid claimed as deduction : 1:1 The Assessing Officer/the Dispute Resolution Panel has erred in not granting a deduction for an amount of ₹ 40,39,333 being sales tax paid in advance during the year for the period April 1, 2007, to March 31, 2008. 1:2 The appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the advance sales tax paid is allowable as a deduction under section 43B of the Income-tax Act, 1961, and the stand taken by the Assessing Officer in this regard is erroneous and not in accordance with law. 1:3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady 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 expenses. The assessee has filed a revised return of income whereby the assessee has claimed deduction on account of buy-back expenses on shares. The assessee has claimed as revenue expenditure an amount of ₹ 23,38,849 towards buy-back expenses by filing revised return of income within the prescribed period of time as stipulated under section 139(5) of the Act which was not considered by the learned Commissioner of Income-tax (Appeals). The assessee contended that in the original return of income filed with the Revenue the assessee erroneously disallowed the claim of deduction on account of buy-back expenses on shares incurred dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord 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 the assessment year 2007- 08 adjudicated the matter in I. T. A. No. 8428/Mum/2011 vide orders dated October 30, 2015 in the assessee's favour. The relevant findings of the Tribunal are as under : Ground No. 3 Disallowance of expenses for buy-back of shares claimed by the assessee. 12. During the year under consideration, the assessee had paid back 8,07,360, fully paid up equity shares of ₹ 10 each, at a premium of ₹ 640 per share. Consequently, the paid up equity share capital stood reduced. For this buy-back, the assessee incurred expenses amounting to ₹ 1,11,38,780. The assessee has disallowed the expenses in its original retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 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 of Income-tax Rules, 1962. It was observed by the Assessing Officer from the details submitted by the assessee that the assessee has earned an amount of ₹ 7,89,49,266 as dividend from mutual fund and has claimed the same as exempt under section 10(35) of the Act. The total investment of the assessee in dividend yielding assets as on March 31, 2008, was around ₹ 157.23 crores. The assessee had disallowed an amount of ₹ 2,21,411 under section 14A of the Act. The Assessing Officer required the assessee to explain as to why the relatable expenses to the exempt income should not be computed as per section 14A read with rule8D of the Income-tax Rules, 1962. In reply, the assessee submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deposits taken from stockist amounting to ₹ 93,370, totalling to ₹ 1,80,798 which clearly shows that there were dues payable to the Government, deposits received from the stockist and, hence, cannot/ought not be considered for the purpose of computation of disallowance in terms of rule 8D of the Income-tax Rules, 1962. It was submitted that provision does not allow the Assessing Officer to apply the method prescribed by rule 8D of the Income-tax Rules, 1962 without considering whether the claim made by the assessee is correct, the satisfaction of the Assessing Officer should be recorded on objective basis having regard to the accounts of the assessee. The assessee relied upon the decision of the hon'ble Bombay High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome 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 section 14A of the Act, therefore it cannot be said that there were no cost/expenses attributable to earning the exempt income which is forming part of the total income. The assessee contended that the Assessing Officer had not identified any expenditure which was directly or indirectly relatable to earning of dividend and as such the Assessing Officer cannot make any disallowance. The learned Commissioner of Income-tax (Appeals) observed that the hon'ble High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT [2010] 328 ITR 81 (Bom) held that the rule 8D of the Income-tax Rules, 1962 is applicable from the assessment year 2008-09 hence the Assessing Officer is duty bound to work out the disallowance under section 14A. The learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 already voluntarily disallowed an amount of ₹ 2,21,411 in the return of income filed with the Revenue. The Assessing Officer has disallowed an amount of ₹ 78,95,352 under rule 8D of the Income-tax Rules, 1962, read with section 14A of the Act. The assessee drew our attention to page 20 of the paper book whereby disallowance of ₹ 2,21,411 was made voluntarily by the assessee in return of income filed with the Revenue. Our attention is also drawn to the revised computation of income filed which is placed at page 23 of the paper book with the revised return of income which is placed at page 25 whereby the similar disallowance was made by the assessee voluntarily. It was submitted that the learned Commissioner of Income-tax (Appeals) has given p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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) is co-terminus with the power of Assessing Officer. He has recorded the satisfaction before invoking rule 8D of the Income-tax Rules, 1962. The assessee has not come out with the complete details and as such the issue can be set aside to the file of the Assessing Officer for de novo determination of the issue afresh on the merits. 28. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee has made an investment of ₹ 157.23 crores mainly in liquid mutual funds, out of which the assessee has earned dividend income of ₹ 7.89 crores during the assessment year which was claimed to be exempt under section 10(35) of the Act. The assessee came out with the explanation that it has incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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