Shasun Pharmaceuticals Ltd., Chennai vs Department Of Income Tax

अपीलाथ क ओर से / Appellant by : Shri. S. Das Gupta, IRS, JCIT. यथ क ओर से / Respondent by : Shri. S. Sridhar, Advocate.

सन ु वाई क तार ख/Date of hearing : 26.05.2015 घोषणा क तार ख /Date of Pronouncement : 19.06.2015

आदे श / O R D E R

PER CHANDRA POOJARI, ACCOUNTANT MEMBER

This appeal by Revenue is directed against the order of the

Commissioner of Income Tax (Appeals)-VI, Chennai, dated 29.11.2013

for the assessment year 2003-2004.

:- 2 -: I.T.A.No.799/Mds/2014.

2. The first ground in this appeal is that the Commissioner of

Income Tax (Appeals) erred in directing the Assessing Officer to delete

the disallowance of share issue expenses of @4,55,189/- to be

amortized u/s.35D of the Income Tax Act.

3. After hearing both the sides, a similar issue came up for our

consideration in assessee's own case for the assessment year 1999-

2000 in jurisdictional High Court in T.C. No.1415 of 2007 and TCA

No.48 of 2008, interalia, it was held that

''15. By applying the principle laid down in the aforesaid decisions, particularly in Agro Cargo Transport Ltd case, one hs to come to a conclusion that there is no particulars with regard to the expenditure incurred by the assessee to claim deduction and further the expenditure incurred by the assessee is to be treated as a capital expenditure and not as a revenue expenditure. The decision f the Assessing Officer is also liable to be confirmed for another reason. In the appeals before the Commissioner of Income-tax and the Tribunal, both the authorities have not gone into the merits of the case or perused the materials to show the expenditure incurred by the assessee. On the other hand, both the authorities by simply stating that the claim of the assessee for the previous assessment years had been allowed, the claim of the assessee. If the appellate authority or the Tribunal would have gone into the merits of the case and perused the material, they would have come to a reasonable conclusion. Since both the authorizes have not decided the matter on merits and, in the light of the aforesaid decisions, the finding of the Assessing Officer has to be confirmed.''

4. Respectfully, following the above decision of the jurisdictional

High Court in assessee's own case, this ground of the Revenue is

allowed.

:- 3 -: I.T.A.No.799/Mds/2014.

5. The next ground is that the Commissioner of Income Tax

(Appeals) erred in directing the Assessing Officer to recompute the

addition of depreciation of @1,74,55,191/- on the basis of final

opening WDV relying upon the decision of ITAT in the assesee's own

case for the assessment year 2002-03 in ITA No.553/Mds/2006, Dated

06.07.2007.

6. We have heard both the parties and perused the material on

record. The Commissioner of Income Tax (Appeals) gave direction to

the Assessing Officer to recompute the depreciation on the basis of

written down value after giving effect to the Tribunal order in

assessee's own case in ITA No.553/Mds/2006 for the assessment year

2002-03 vide order dated 06.07.2007. Being so, we find no infirmity in

the order of the Commissioner of Income Tax (Appeals). This

ground of the Revenue is rejected.

7. The next ground is that the Commissioner of Income Tax

(Appeals) erred in holding that the assessee is eligible for deduction

u/s.80HHC on the issue of adjustment of negative profit and also on

the issue of consideration of export incentives without application of

eligibility conditions in the 3rd and 4th proviso to sec 80HHC (3) of the

I.T. Act and allow deduction accordingly.

:- 4 -: I.T.A.No.799/Mds/2014.

8. The facts of the case are that the Assessing Officer in denying

deduction u/s.80HHC of @3,42,13,823/- on the ground that the

computation of profit claimed by the assessee u/s.80HHC is a negative

figure. The Assessing Officer had also observed that 90% of the

following amounts had to be excluded for the purpose of education

u/s.80HHC.

Miscellaneous receipts : @ 24,34,000/-

Insurance Claim : @2,38,52,650/-

Profits on sale of assets : @ 9,91,000/-

Exchange gain : @ 23,68,000/-

Provisions written back : @ 8,18,000/-

The Assessing Officer has also observed that excise duty and sales tax

of @.3,83,22,737/- has been included for arriving a total turnover for

the purpose of calculation of deduction u/s.80HHC. Aggrieved, the

assessee went on appeal before the Commissioner of Income Tax

(Appeals).

9. On appeal, the Commissioner of Income Tax (Appeals)

observed that this issue of adjustment of the negative profit with

90% of the export incentives, the Supreme Court of India in the

case of IPCA Laboratory reported in 256 ITR 521 held that the :- 5 -: I.T.A.No.799/Mds/2014.

deduction should be computed after adjustment of negative

profit with the 90% of the export incentives in proportion of the

export turnover to the total turnover. Subsequently, fifth

proviso was inserted by Taxation Laws (Amendment) Act, 2005

w.r.e.f. 1.4.1992 to sub-sec (3)of 80HHC wherein it was

provided that the loss was necessarily required to be set off

against the 90% of the export incentives in proportion of the

export turnover to the total turnover. Meanwhile, several

assessees' filed Writ Petition before Hon'ble Madras High Court

and also other Courts challenging the insertion of the third and

fourth provisos to sec 80HHC(3) of the I.T.Act. Regarding the

validity of the insertion of the third and fourth proviso to sec

80HHC, on the direction of Supreme Court of India, the Gujarat

High Court heard the issue at length, considered various decisions

of the Apex Court including the cases of Topman Exports reported

in 342 ITR 49 (SC), IPCA Laboratory Ltd v. DCIT reported in 266

ITR 521 (SC) on the issue of taxability of DEPB and allowability of

deduction u/s.80HHC and passed an order dated 02.07.2012

which was reported in 348 ITR 391 in the case of Avani Exports &

Others v. Commissioner of Income-tax, Rajkot and others. The

operational paras 26 & 27 of the decision of the Hon'ble Gujarat :- 6 -: I.T.A.No.799/Mds/2014.

High Court in the case of M/s. Avani Exports and Others vs. CIT

reported in 348 ITR 391 is reproduced herewith:

" On consideration of the entire materials on record, we, Therefore find substance in the contention of the learned counsel for the petitioners that the impugned amendment is violative for its retrospective operation in order to overcome the decision of the Tribunal, and at the same time, for depriving the benefit earlier granted to a class of the assessees whose assessments were still pending although such benefit will be available to the assessees whose assessments have already been concluded. In other words, in this type of substantive amendment, retrospective operation can be given only if it is for the benefit of the assessee but not in a case where it affects even a fewer section of the assessees.

We, accordingly, quash the impugned amendment only to this extent that the operation of the said section could be given effect from the date of amendment and not in respect of earlier assessment years of the assessees whose export turnover is above ₹10 crore. In other words, the retrospective amendment should not be detrimental to any of the assessees''

9.1 The Commissioner of Income Tax (Appeals) observed that the

Apex Court in the case of IPCA Laboratory Ltd (supra) also held

that the loss resulting in the computation of 80HHC of the I.T. Act

shall be adjusted against the profit of the export incentives in

proportion of the export turnover to the total turnover. The

Supreme Court in the case of Topman Exports (supra) also allowed

the claim of deduction of 80HHC on the issue of DEPB sales.

Respectfully following the decision of the Gujarat High Court in the :- 7 -: I.T.A.No.799/Mds/2014.

case of Avani Exports (supra), and Apex Court decisions in the

cases of IPCA Laboratory Ltd (supra), Topman Exports (supra), the

Commissioner of Income Tax (Appeals) of the considered view that

the assessee was eligible for deduction u/s. 80HHC on the issue of

adjustment of negative profit and also on the issue of

consideration of the export incentives and allowed the ground.

Against this, the Revenue is in appeal before us

10. On the other hand, the ld. Departmental Representative

submitted that the Commissioner of Income Tax (Appeals) relied on

the judgment of the Gujarat High Court in the case of M/s. Avani

Exports & Others 348 ITR 391, and the decision of the Gujarat High

Court has not become final and the department has preferred an SLP

which is pending before the Supreme Court. The ld. Departmental

Representative further submitted that the decision of the Tribunal

relied upon by the Commissioner of Income Tax (Appeals) in ITA

No.1633/Mds/2006, dated 19.11.2007 in the assessee's own case has

not become final and the Department had preferred an appeal before

the High Court of Madras.

11. On the other hand, the ld. Authorised Representative for

assessee submitted that is issue is squarely covered by the judgment :- 8 -: I.T.A.No.799/Mds/2014.

of Gujarat High Court in the case of Avani Exports & Others 348 ITR

391.

12. We have both the parties and perused the material on record. As

discussed in para No.9 of this order, the Gujarat High Court in the case

of Avani Exports & Others (cited supra) quashed the amendment made

by the Taxation Law and (Amendment) Act, 2005 with retrospective

effect from 1st April, 1998 by way of adding second, third, fourth and

fifth proviso to section 80HHC (3), only to the extent that the

operation of the said section could be given effect from the date of

amendment and not in respect of earlier assessment years of the

assessees who export turnover is above @10 crores. Since, in the

present case, the assessment year involved is 2003-04, being so, the

issue of amendment has no consequence to the assessee's case.

Accordingly, we uphold the finding of the Commissioner of Income Tax

(Appeals) on this issue. This ground is rejected.

13. The next ground for our consideration is that the Commissioner

of Income Tax (Appeals) erred in holding that except commission

receipt other amounts arise out of manufacture and export activity to

be considered for the purpose of computation of book profit u/s.115JA

and 115JB in relation to deduction u/s.80HHC.

:- 9 -: I.T.A.No.799/Mds/2014.

14. This ground of the Revenue is misplaced as this ground was not

adjudicated by the Commissioner of Income Tax (Appeals) and the

assessee has not pressed the same. In other words, this ground of

the assessee is also dismissed by the Commissioner of Income Tax

(Appeals) as not pressed. Hence, this ground is dismissed as

infructuous.

15. The next ground is that the Commissioner of Income Tax

(Appeals) erred in holding that the assessee is eligible for @70,65,156/-

and not for weighted portion of the claim of @35,32,578/- u/s.35(2AB)

relying upon the decision by the Tribunal in ITA No.949/Mds/2005 for

the assessment year 1999-2000.

16. The facts of the case are that the Assessing Officer denied the

claim of deduction u/s.35(2AB) of @11,70,43,544/- on the ground that

the official copy of the communication in Form No.3CL issued by the

Ministry of Science and Technology was not received. Therefore, the

Assessing Officer passed order u/s.154 dated 07.11.2006 allowing

deduction u/s.35(2AB) of @10,64,45,810/- on the basis of the approval

given by DSIR and balance amount of @1,05,97,734/- was disallowed.

Aggrieved, the assessee went on appeal before the Commissioner of

Income Tax (Appeals).

:- 10 -: I.T.A.No.799/Mds/2014.

17. On appeal, the Commissioner of Income Tax (Appeals) observed

that the Assessing Officer has not disputed the incurrence of

expenditure of @70,65,156/- but only disallowed on account of the

approval not granted by the competent authority at weighted

perecented. The Assessing Officer has also not disputed the nature of

the expenditure. The sec 35(1) provides for deduction of expenditure

other than the capital expenditure laid out or expended on scientific

research related to the business. The nature of the expenses claimed

are like civil work including refurnishing of floor, painting work,

carpentry work, general housekeeping, gardening, false ceiling,

cleaning door, repairing, salary paid to personal in R & D unit whose

serves Associated Enterprise in administrative in nature, security guard

expenses, interest expense etc. The expenses are essentially incurred

for repair and maintenance of existing R&D facility and for general

upkeeping of the R &D unit which was subject to inspection by various

authorities like US FDA etc. and not for construction of new building or

extension of the existing building. Even otherwise, these expenses are

allowable u/s.37 of the I.T. Act, 1961. Looking at the nature of the

expenses claimed by the assessee, the Commissioner of Income Tax

(Appeals) confirmed the view of the assessee had incurred an

expenditure of @70,65,156/- as revenue expenditure and respectfully :- 11 -: I.T.A.No.799/Mds/2014.

following decision of the Tribunal in assessee's own case for

assessment year in ITA No.949/2005 dated 04.04.2007, Commissioner

of Income Tax (Appeals) allowed the appeal of the assessee. Against

this, the Revenue is in appeal before us.

18. We have heard both the parties and perused the material on

record. The Commissioner of Income Tax (Appeals) has followed the

order of the Tribunal in assessee's own case in ITA No.949/2005,

dated 04.04.2007, wherein held that

''3. Having heard the rival contentions and going through the case records, it is observed that the Assessing Officer as well as the Commissioner of Income Tax (Appeals) has repeated the same mistake. It is seen that the assessee is entitled to claim for deduction on scientific research under Sec.35(2AB) of the Act but the lower authorities have restricted the revenue expenditure to the extent of ₹128.38 lakhs and capital expenditure of ₹28.82 lakhs restricted to ₹26.50 lakhs. The ld. Counsel for the assessee filed a copy of scientific expenditure as certified by the Ministry of Science & Technology, Department of Scientifiic & Industrial Research , New Delhi whereby the complete details regarding total eligible R & D expenditure under sec.35(2AB) of the Act is given. The relevant part from the certificate is reproduced as it is:

(₹ in lacs)

Sl. A.Y. A.Y. A.Y. No 1998-99 1999-2000 2000-2001 i. Capital Expenditure --- --- ---

(Land and Building) ii Eligible capital 29.82 28.82 78.41 expenditure (other than land and building) iii Eligible Recurring 101.53 126.06 156.46 Expenditure :- 12 -: I.T.A.No.799/Mds/2014.

iv Total eligible R & D 131.35 154.88 234.87 v Amount received in Cash --- --- 35.33 & kind vi Total eligible R & D 131.35 154.88 201.54 Expenditure u/s.35(2AB)

The eligible recurring expenditure is ₹126.06 lakhs whereas eligible capital expenditure is ₹28.82 lakhs thereby totally eligible research and development expenditure is ₹154.88 lakhs. It seems that the Assessing Officer as well as the Commissioner of Income Tax (Appeals) has committed a mistake in principle. However, both the parties agreed that it is an allowable expenditure . In view of this, we are of the view that the Assessing Officer should amend the order to that effect and allow the claim of the assessee amounting to ₹,2.90 lakhs and recalculate the income. Accordingly, the appeal of the assessee is allowed.

19. Respectfully, following the above decision of the Tribunal in

assessee's own case, this ground of the Revenue is dismissed.

20. In the result, the appeal of the Revenue in ITA

No.799/Mds/2014 is partly allowed.

Order pronounced on Friday, the 19th day of June, 2015, at Chennai.

Sd/- Sd/- (वी. दग ु ा! राव) (चं पज ू ार ) V. DURGA RAO (CHANDRA POOJARI) या"यक सद य / JUDICIAL MEMBER लेखा सद य/ ACCOUNTANT MEMBER चे$नई/Chennai. %दनांक/Dated:19.06.2015. KV

आदे श क त(ल)प अ*े)षत/Copy to: 1. अपीलाथ /Appellant 2. यथ / Respondent 3. आयकर आय, ु त (अपील)/CIT(A) 4. आयकर आय, ु त/CIT 5. )वभागीय त न/ध/DR 6. गाड फाईल/GF.

:- 13 -: I.T.A.No.799/Mds/2014.