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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Shri G S Pannu & Shri Amarjit Singh
O R D E R Per G S Pannu, Accountant Member
Both the appeals are by the same assessee pertaining to assessment years 2011-12 & 2012-13 and since they involve common issues they have been clubbed & heard together and consolidated order is being passed for the sake of convenience and brevity.
The appeal of the assessee for A.Y. 2012-13, is directed against the order of the CIT(A)-2, Thane, dated 14.07.2016, which in turn has arisen out of the order passed by the Assessing Officer u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), is taken up as the lead case.
In the memo of appeal, the assessee has raised the following Grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the learned CITA(A) erred in confirming denial of deduction of research and development expenses to the tune of Rs.1,61,63,015/- under section 35(2AB) being weighted deduction @150% of research and development expenses of Rs.98,63,971.
2. Without prejudice to the Ground no. 1 above, The learned CIT(A) further erred in not granting deduction of Rs.35,64,927/- under section 35(l)(iv) being capital expenditure incurred for research and development related to the business of the Appellant. 4. In so far as Ground of appeal no.1 is concerned, the same relates to claim of deduction u/s. 35(2AB) of the Act, which has not been pressed at the time of hearing. Notably, the Assessing Officer denied the claim of deduction u/s. 35(2AB) of the Act on the ground the requisite approval issued by the Ministry of Science and Technology did not pertain to the period under consideration. The learned representative pointed out that the said position continues and, therefore, the said ground is not pressed. Accordingly, Ground of appeal no.1 is dismissed.
The only point which is canvassed before us is contained in Ground of appeal no.2, which pertains to claim of deduction u/s. 35(1)(iv) of the Act. Pertinently, section 35(1)(iv) of the Act permits deduction in respect of expenditure on scientific research, which is capital in nature. As an alternate to the claim u/s. 35(2AB) of the Act, assessee had claimed before the CIT(A) that in respect to expenditure of capital nature incurred on scientific research amounting to ` 35,64,927/-, the requisite deduction be allowed u/s 35(1)(iv) of the Act. The CIT(A) has denied the claim on the ground that the assessee could not establish that the machinery and equipment in question was wholly and exclusively used for in-house research activities of the assessee relating to the business of the assessee. Nevertheless, CIT(A) allowed normal depreciation on such plant and machinery. Against the denial of relief u/s. 35(1)(iv), the assessee is in appeal before us.
6. Before us the learned representative for the assessee pointed out that in the return of income, assessee had clearly depicted the list of items of plant and machinery, which were used for carrying out research and development activities and even depreciation thereof was not claimed. In this context, our attention has been invited to computation of income as well as schedule of depreciation filed along with the return of income. Our attention was also invited, in particular, to page 14 of the Paper-Book wherein is placed details of plant and machinery, which has been used for research activities amounting to ` 35,64,927/- It is also pointed out by the learned representative that at the stage of assessment, the complete details of the expenditure on research activities were called for by the Assessing Officer and no fault was found with the same except the fact that the required approval from Ministry of Science and Technology was not for the period under consideration. Therefore, according to the learned representative, the CIT(A) has brought out a new angle to the controversy which is dehorse the already accepted position at the level of the Assessing Officer. Apart from that it is pointed out from the list of Research & Development Plant & Machinery (page 14 of the paper-book), that the products are in the nature of Spectro Photometer, Glass Chromotograph, Automatic Tritator, Duel Channel CSW Software etc., which have been used for the scientific research.
On the other hand, learned DR, appearing for the Revenue relied on the orders of the lower authorities.
We have carefully considered the rival submissions. Section 35(1)(iv) of the Act permits deduction in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee. In the present case, the claim has been denied by the CIT(A) primarily for the reason that the usage of the machinery for scientific research was not established by the assessee. However, it is pertinent to note that so far as usage of such machinery per se is concerned, the CIT(A) does not dispute the same in as much as he has allowed normal rate of depreciation. Therefore, so far as the use for the business is concerned the same is an accepted position between the assessee and the Revenue. Further point to be examined is as to whether said plant and machinery has been used for scientific research. As far as the reasons for denial are concerned, we find that the CIT(A) has made very generalized observations which are rather dehorse the assertions made by the assessee since the stage of assessment. At this point we may also put on record the statement at Bar made by the learned representative for the assessee that from subsequent assessment year i.e. from A.Y. 2013-14, the assessee’s claim for deduction u/s. 35(2AB) of the Act had also been allowed in as much as the approval from the Ministry of Science and Technology was available. Under these circumstances and considering the details already furnished by the assessee with regard to the plant and machinery in question, we are unable to uphold the stand of the CIT(A) denying assessee’s claim of deduction u/s. 35(1)(iv) of the Act. Accordingly, the order of the CIT(A) is set aside and the Assessing Officer is directed to allow assessee’s claim for deduction u/s. 35(1)(iv) for A.Y. 2012-13.
As a result, the appeal for A.Y. 2012-13 is partly allowed.
Now, we may take up appeal for assessment year 2011-12. In so far as Ground of appeal no.1 for A.Y. 2011-12 relating to claim u/s. 35(2AB) of the Act is concerned, the same is not pressed and is dismissed as such.
Ground No.2 raised in the memo of appeal has been substituted and modified by the following Ground:
“Without prejudice to Ground No.1, the learned CIT(A) further erred in not granting deduction of Rs 5,20,108/- under section 35(1)(iv) being capital expenditure incurred for research and development related to the business of the Appellant.” Modified Ground of appeal no.2 stands on the same footing as Ground of appeal no.2 dealt by us for A.Y. 2012-13 in the earlier paragraphs of this order. Facts and circumstances of the case are identical for both the assessment years under appeal. Therefore, our finding in the appeal for A.Y 2012-13 in the earlier paras shall apply mutatis mutandis in the A.Y. 2011-12 also.
Resultantly, both the appeals of the assessee are partly allowed.
Order pronounced in the open court on this day of 20th June 2018.