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Income Tax Appellate Tribunal, “J”
Before: SHRIR. C. SHARMA, AM & SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
This appeal filed by the assessee is against the order of CIT(A)-2, Mumbai, dated 10.03.15 for the assessment year 2010- 11 on the grounds mentioned herein below:-
D. K. Pharmachem Pvt. Ltd. 1. On the facts and in the circumstances of the case and in law, the learned C1TA(A) erred in confirming denial of deduction of research and development expenses to the tune of Rs. 93,45,748/- u/s 35(2AB) being weighted deduction @150% of research and development expenses of Rs. 61,89,030.
2. Without prejudice to the Ground no. 1 above, a. the learned C1T(A) erred in confirming the disallowance of consultancy fees paid to Mrs. AlkaBaksM of Rs. 43 lacs out of total fess of Rs. 48 lacs u/s 40A(2)(b) without appreciating the facts and circumstances of the case in totality. b. The learned C1T(A) further erred in not granting deduction of Rs. 4,79,582 u/s 35(1)(iv) being capital expenditure in connection with research and development related to the business of the Appellant.
3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance of sponsorship expenses to the tune of Rs. 1,67,078. Your Appellant reserves the right to add to, alter or amend any of the grounds of appeal.
D. K. Pharmachem Pvt. Ltd.
As per the facts of the present case, the assessee company is engaged in the business of manufacturing of chemicals. The Return of loss of Rs.36,66,598/- was filed on 14.10.2010. The appellant has shown GP of Rs.4,82,07,029/- on gross sales of Rs.12,30,41,342/-,which works out to 39.17% and the NP of Rs.1,72,519/- after claiming deduction u/35(2AB) of Rs.93,45,748/- and depreciation of Rs.66,30,347/-, assessee has shown loss from business of Rs.37,60,350/-. The scrutiny assessment u/s. 143(3) was completed by arriving the total income at R.s.51,46,250/- after making additions/disallowances to the extent of Rs. 1,02,60,707/-.
Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee. Now before us, the assessee has preferred the appeal.
Ground No. 1. 4. This ground raised by the assessee has not been pressed by Ld AR, therefore this ground is being not adjudicated as not pressed.
D. K. Pharmachem Pvt. Ltd. Ground No. 2 (a). 5. This ground raised by the assessee is against challenging the order of Ld. CIT(A) in confirming the disallowance of consultancy fee paid to M/s AlkaBakshi of Rs. 43 lakhs out of the total fee of Rs. 48 lakhs u/s 40A(2b) of the Act.
6. We have heard both the counsels of the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). Ld. CIT(A) while dealing with the said ground has passed the detail order at para no. 5(5.2 to 5.4). The operative portion of CIT(A)’s order is contained in para no. 5.3 and the same is reproduced below:-
5.3 In the facts and circumstances if-the case, I find 30% of purchasedisallowance to be fair and reasonable in this case. Normal G.P. ration is in the range of 17-18 % J am of the opinion That disallowance of 1000/0 of the purchase amount is not justified unless it is proved that the entire cash was returned and came to the pocket of the assessee and the assessee has not purchased any material from any D. K. Pharmachem Pvt. Ltd. other source . In the present case, in-depth enquiries were not conducted by the AO. The AO did not carry out further investigation from the bank to examine whether the supplier had withdrawn cash from his account. Accordingly, addition of Rs. 3546,664/-[ being 300/ of Rs. 1,18,22,214/-] is sustained and balance Rs. 82,75,550/-[ being 70% of Rs. 1,18,22214/] is deleted. The grounds are partly allowed.
Ld. AR appearing on behalf of the assessee submitted that Coordinate Bench of Hon’ble ITAT has already decided similar issue in assessee’s own case in for AY 2009-10 and the Hon’ble Tribunal has restored this ground back to the file of AO. The operative portion of Hon’ble ITAT is reproduced below:- 8. We have heard the parties on this issue and perused the record. We notice that the Ld CIT(A) was under the impression that the rate of tax payable on the income of Rs.98.88 lakhs declared by Smt. AlkaBakshi is the same as payable by the assessee and further the disallowance has been made u/s 40A(2)(a) of the Act. We notice that the AO has not referred to the provisions of sec. 40A(2)(a) of the Act, but only noticed D. K. Pharmachem Pvt. Ltd. that the fee paid to her was disproportionate to the services rendered by her. However, neither the assessing officer nor the Ld CIT(A) has examined the nature of service provided by Smt. AlkaBakshi to the company. We also notice that the assessee has also not furnished any material to substantiate the contribution made by Smt. AlkaBakshi to the Research & Development Activities. Further, the Ld CIT(A) has considered the turnover of AY 2007-08 and 2009-10 to determine the reasonableness. In our view, the same may not be right criteria, since the result of R & D activity may not immediately generate revenue. Hence, the reasonableness of fee is required to be determined on the basis of the contribution made by Smt. AlkaBakshi, the compensation that would have been to a third party for identical services etc. It was stated that some of the key research personnel has left the assessee and the said gap was filled by Smt. AlkaBakshi. In that case, the salary paid to those persons would also help to determine the reasonableness of the payment.
9. In view of the above, we are of the view that this issue requires fresh examination at the end of the AO. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of D. K. Pharmachem Pvt. Ltd. the AO with the direction to examine this issue afresh in the light of discussions made supra. The assessee is also directed to furnish the details of contribution made by Smt. AlkaBakshi to the assessee-company and also such other information or explanation that may be called for by the AO.
After analyzing the aforementioned order passed by Ld. CIT(A) as well as that of the Coordinate Bench of Hon’ble ITAT and after hearing the arguments for both the parties at length, we find thatCoordinate Bench of Hon’ble ITAT has already decided similar issue in assessee’s own case in for AY 2009-10. Since the factual position is similar in this year. Therefore, respectfully following the decision of the coordinate bench and in order to maintain judicial consistency which is applicable mutatis mutandis in the case of the assessee, we also set aside the order passed by Ld CIT(A) on this issue and restore thematter back to the file of the AO with same reasoning as are recorded by the Coordinate Bench for AY 2009-10 and also with a direction to examine this issue afresh andthereafter pass afresh order assessment. It is needless here to mention that before D. K. Pharmachem Pvt. Ltd. passing the order of assessment, the AO shall provide sufficient opportunity of hearing to the assesse. Before parting, we may make it clear that our decision to restore the matter back to the file of AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law. Accordingly, this ground raised by the assessee is allowed for statistical purposes.
Ground No. 2 (b). 8. This ground raised by the assessee is against challenging the order of Ld. CIT(A) in not granting deduction of Rs. 4,79,582 u/s 35(1)(iv) being capital expenditure in connection with research and development related to the business of the Assessee.
We have heard both the counsels of the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that since this ground is raised before us for the first time, therefore considering the interest of justice, we restore the matter back to the file of the D. K. Pharmachem Pvt. Ltd. AO with direction to examine this issue afresh and thereafter pass afresh order of assessment. It is needless here to mention that before passing the order of assessment, the AO shall provide sufficient opportunity of hearing to the assesse. Before parting, we may make it clear that our decision to restore the matter back to the file of AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law. Accordingly, this ground raised by the assessee is allowed for statistical purposes.
Ground No. 3. 10. This ground raised by the assessee is against challenging the order of Ld. CIT(A)in confirming disallowance of sponsorship expenses to the tune of Rs. 1,67,078/-.
We have heard both the counsels of the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that Ld. AR appearing on behalf of the assessee submitted that Coordinate D. K. Pharmachem Pvt. Ltd. Bench of Hon’ble ITAT has already decided similar issue in assessee’s own case in for AY 2009-10 and the Hon’ble Tribunal has restored this ground back to the file of AO. The operative portion of Hon’ble ITAT is reproduced below:- 11. We have heard the parties on this issue. If the assessee has placed any advertisement at the sports venue, it might help the assessee in its business and in that case these expenses are allowable as deduction. It is the responsibility of the assessee to show that the advertisement materials were placed at the sports venue. If no such advertisement was placed, then it is the responsibility of the assessee to show as to how this expenditure contributed to the business of the assessee. We notice that the assessee has not furnished these details. Hence, in the interest of natural justice, we are of the view that the assessee may be provided with one more opportunity to prove its case. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine the same afresh after affording necessary opportunity to the assessee.
D. K. Pharmachem Pvt. Ltd. After analyzing the aforementioned order passed by Ld. CIT(A) as well as Coordinate Bench of Hon’ble ITAT and hearing the arguments for both the parties at length, we find that since the facts of the year under consideration are similar to the facts for AY 2009-10. Therefore, respectfully following the decision of the coordinate bench and in order to maintain judicial consistency which is applicable mutatis mutandis in the case of the assessee, we set aside the order passed by Ld CIT(A) on this issue and restore the matter back to the file of the AO with direction to examine this issue afresh andthereafter pass afresh order assessment. It is needless here to mention that before passing the order of assessment, the AO shall provide sufficient opportunity of hearing to the assesse. Before parting, we may make it clear that our decision to restore the matter back to the file of AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law. Accordingly, this ground raised by the assessee is allowed for statistical purposes.