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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, JM & SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member)
The captioned appeal by revenue for Assessment Year [AY] 2011- 12 contest the order of Ld. Commissioner of Income-Tax (Appeals)-33 [CIT(A)], Mumbai, Appeal No.CIT(A)-33/Rg.21/144/14-15 dated 23/03/2016 by raising the following Grounds of Appeal: -
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in:
ITA.No.3932/Mum/2016 Jaydev Chemical Industries Assessment Year 2011-12 i) Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting addition on account of disallowance of deduction u/s.35(1) amounting to Rs.26,45,128/-. ii) Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting addition of bogus purchase amounting to Rs.23,81,370/- from various parties.
The assessment for impugned AY was framed by Ld. Additional Commissioner of Income Tax-Range-18(1), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 25/03/2014 wherein the income of the assessee has been determined at Rs.274.98 Lacs after certain additions / disallowances as against returned income of Rs.197.44 Lacs filed by the assesse on 28/09/2011. 2.1 Briefly stated, the assessee being resident firm engaged in the business of manufacturing of Chemicals reflected turnover of Rs.7.53 Crores with Net Profit of 20% approx. During assessment proceedings, it was noted that the assessee claimed deduction u/s 35(1) for Rs.26.45 Lacs on account of purchase of certain Plant & Machinery stated to be used for scientific purposes. The said deduction was claimed in terms of the provisions of Section 35(1)(iv) read with Section 35(2)(ia). The assessee purchased the said machinery from separate parties including an entity namely Muskan Enterprises on various dated as noted by Ld. AO on Page Numbers 4 & 5 of the assessment order. To confirm the transactions, notice were sent u/s 133(6) to Muskan Enterprises but the same remained un-served as the given address was found to be incomplete. The notice u/s 133(6) sent to an entity namely Ultra Fab was not complied with. After considering the assessee’s submission, Ld. AO opined that the assessee could not prove that the said machineries were, in fact, used for carrying out scientific research. Finally, Ld. AO, ITA.No.3932/Mum/2016 Jaydev Chemical Industries Assessment Year 2011-12 while denying deduction u/s 35(1), allowed depreciation on Plant & Machinery aggregating to Rs.18,59,128/- but treated the purchases made from Muskan Enterprises for Rs.7,86,000/- as non-genuine and disallowed the same altogether. 2.2 The second addition pertains to addition on account of alleged bogus purchases. To confirm the purchases made by the assessee, notices u/s 133(6) were sent to various parties and after considering the same, the additions were made with respect to following purchases made by the assessee:-
No. Name Amount (Rs.) 1. Star Intach 17,10,450/- 2. Muskan Enterprises 16,91,256/- 3. Krishna Chemical Works 4,23,360/- 4. Shree Ganesh Trading Co. 3,40,200/- 5. V.S.Corporation 9,72,500/- Total 51,37,776/-
Aggrieved the assessee contested the same with success before Ld. CIT(A) vide impugned order dated 23/03/2016 were Ld. CIT(A), after considering the assessee’s submissions, deleted disallowance u/s 35(1) by making following observations:- 9. In this regard, I find the AO has not brought any material on record to substantiate his claim that the said machineries supplied by various concerns cannot be used for scientific research. The appellant has clearly demonstrated before the AO the location of its laboratory, which is spread over at an area of 800 sq. ft. and various new chemicals, molecules and intermediaries for pharma industries, developed by it by utilizing those machineries. The list of new chemicals and molecules are submitted to the AO for verification. The qualifications of the research persons involved in these activities are also submitted to the AO. Even photographs of the laboratory was also submitted. From the list of the machineries, I find that these are new preparative HPLC machineries, Fume Hood set, software for HPLC machines, Rotary Evaporators, High Chromatography machine etc. which cannot be termed as general machines not capable to be used in scientific research and development.
ITA.No.3932/Mum/2016 Jaydev Chemical Industries Assessment Year 2011-12 10. During assessment as well as appellate proceedings, the appellant has given details of sales made of new chemicals, molecules and intermediaries for pharma industries, developed by it, utilizing these machines in different years. Hence, there is no basis in the claim of the appellant that these machines are not used for scientific research. As far as bogus nature of M/s. Muskan Enterprise is concerned, the issue is extensively discussed in the subsequent paragraphs while discussing the ground No.2. Looking to the overall facts and circumstances of the case, in my considered opinion, the rejection of the claim of deduction u/s 35(1) of the Act by the AO, is not justified and hence the addition of Rs.26,45,128/- is deleted. Thus ground of appeal no.1 is allowed.
The partial addition on account of non-genuine purchases has similarly been deleted by Ld.CIT(A) after considering assessee’s submissions and documentary evidences. Aggrieved, the revenue is in further appeal before us.
The Ld. Departmental Representative submitted that the complete onus to prove that the said machineries were used to carry out the scientific research was on assessee and the assessee failed to substantiate the same. Per contra, Ld. Authorized Representative for assessee [AR] placed reliance on the stand of Ld. CIT(A) and contended that the same was quite fair and based on documentary evidences adduced by the assessee.
We have carefully heard the rival contentions and perused relevant material on record. So far as the claim of the assessee u/s 35(1) is concerned, we find that Ld. CIT(A) in paras 9 & 10 as extracted above, considered various documentary evidences submitted by the assessee and after weighing multiple factors reached a conclusion that the stated plant & machinery was not general purpose machinery but used by the assessee to create new molecules and chemicals, the list of which was already submitted by the assessee to Ld. AO. The photographs of the ITA.No.3932/Mum/2016 Jaydev Chemical Industries Assessment Year 2011-12 laboratory as well as various machineries were also submitted by the assessee, which lend certain strength to the claim of the assessee. This is further fortified by the fact that the assessee employed qualified personnel to carry out the research and more particularly, one of the partner of assessee’s firm namely Sanjay Kulkarni had Master Degree in Organic Chemistry and had research experience of more than 3 years in Baba Atomic Research Center on various projects. All these factors / evidences, in our opinion, were quite sufficient to establish the claim of the assessee and therefore, we find the stand of Ld. first appellate authority quite reasonable and justified. At the same time, we find that Ld. AO had allowed depreciation on some Plant & Machinery in the quantum assessment order and therefore, the same needs to be reversed. Secondly, the fact that the assessee has not claimed depreciation on the Plant & Machinery aggregating to Rs.26,45,128/- in subsequent years could not be verified by us from the material available on record. Therefore, while confirming the stand of Ld. CIT(A) in this regard, Ld. AO is directed to reverse the depreciation being allowed to the assessee as per the quantum assessment order and also verify that depreciation on the stated plant & machinery has not been claimed by the assessee in subsequent years. Resultantly, this ground of revenue’s appeal stands partly allowed for statistical purposes.
So far as the addition of alleged non-genuine purchases is concerned, we find that Ld. CIT(A) has confirmed addition of Rs.15.92 Lacs with respect to advances written off against Muskan Enterprises, against which the assessee is not in appeal before us and therefore, the stated addition is not the subject matter of this appeal.
ITA.No.3932/Mum/2016 Jaydev Chemical Industries Assessment Year 2011-12 7. Proceeding further, Ld. CIT(A), after considering assessee’s submissions and related evidences, confirmed disallowance to the extent of 25% against purchases made from Krishna Chemical Works & Shri Ganesh Trading Co. The said estimation, in our opinion, is quite fair and reasonable on factual matrix and therefore, do not require any interference on our part. Therefore, the stand of Ld. CIT(A) with respect to these two parties stands confirmed.
Further, Ld. CIT(A) has deleted addition with respect to tax paid for Rs.98,250/- on account of machinery purchased from Muskan Enterprises. The same is consequential in nature and does not require any further interference on our part since we have confirmed the stand of Ld. CIT(A) with respect to assessee’s claim u/s 35(1).
With respect to purchases made from Star Intach, upon perusal of para 15.1 of the impugned order, we find that the assessee produced the bills, confirmation & copy of return of income filed by the said entity. Further, the payment thereof has been made by the assessee in April, 2011. Therefore, we find no infirmity in the stand of Ld. CIT(A) in deleting addition with respect to this party.
So far as addition with respect to V.S.Corporation is concerned, we find that Ld. AO has disallowed the same on the premise that payment to the said party was outstanding since long period of time. At the same time, Ld. AO opined that the said expenditure should have been capitalized by the assessee. We find that the assessee has filed confirmation from the said party and therefore, discharged primary onus in this regard. The Ld.AO, without bringing on record any cogent material ITA.No.3932/Mum/2016 Jaydev Chemical Industries Assessment Year 2011-12 to controvert the same, made a disallowance which was not fair and justified. Therefore, Ld. CIT(A) has rightly deleted the same.
To sum up, the stand of Ld. CIT(A) qua assessee’s claim u/s 35(1) stands confirmed subject to verifications as enumerated by us in para-5 above whereas the stand of Ld. first appellate authority qua bogus purchases stands confirmed by us.
Resultantly, the revenue’s appeal stands partly allowed for statistical purposes. Order pronounced in the open court on 28th February, 2018 Sd/- Sd/- (Mahavir Singh) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated : 28. 02.2018 Sr.PS:- Thirumalesh आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent 2. आयकर आयु�(अपील) / The CIT(A) 3. आयकर आयु� / CIT – concerned 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6.