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ORDER/आदेश "या"यक सद"य iou flag iou flag iou flag के अनुसार PER PAWAN SINGH, JM- iou flag
1. These four appeals were heard together with the consent of parties as all the appeals are interconnected on the facts and the grounds raised
therein.
2. First we shall take up the Appeal for AY 2003-04 filed by Revenue against the order of CIT(A)-17, Mumbai dated 30.12.2013. Though, the revenue has raised as many as 8 grounds of appeal but only substantial ground of appeal raised by revenue that CIT(A) erred in allowing the deduction u/s 10B of Income Tax Act, and further allowing brought forward business losses and unabsorbed depreciation. Rests of the grounds are argumentative in nature.
3. Brief facts of the case are that the assessee-company filed its return of income for relevant AY on 01.12.2013 declaring total income at NIL. The c return of income was selected for scrutiny. In the return of income, the assessee claimed exemption u/s 10B of the Act amounting to Rs. 75,19,679/-in respect of profit of contract research organization(CRO) activities carried by the assessee. The AO denied the deduction on the ground that assessee has losses under its Medical Transcription Activity(MT) and hence the losses have to be set off before claiming deduction under section 10B of the Act, the assessee has brought forward loss is of Rs. 61,12,464/- and there is no income after such set off to allow deduction, approval for CRO activity was received by assessee only on 5th December 2003, assessee was not entitled deduction in the year under appeal, the local turnover carried out by assessee exceed limit to 25% of the turnover. CRO activity is not eligible for deduction as the same does not amount to manufacture of computer software. Aggrieved by the order of AO, M/s Pharmaceutical Research Association (I) Pvt. Ltd. the assessee filed appeal before the CIT (A) wherein the appeal of the assessee was accepted and the assessee was held eligible for deduction u/s 10B of the Act. Aggrieved by the order of AO, the Revenue filed the present appeal before us.
We have heard Departmental Representative (DR) for Revenue and Authorized Representative (AR) for assessee and perused the material available on record. DR for Revenue argued that assessee has not filed the necessary approval from Software Technology Park of India (STPI) and the claim of assessee was correctly disallowed by the AO. The assessee filed appeal before the CIT(A) wherein the same was affirmed by the First Appellate Authority (FAA), thereafter, the assessee filed appeal before the ITAT vide Appeal No. 3097/M/2007 and the matter was restored to the file of CIT(A) in view of the decision of Hon’ble Bombay High Court in case of CIT vs. Black and Veatch Consulting Pvt. Ltd. (251 CTR 265), Hindustan Unilever Ltd. vs. DCIT (325 ITR 102) while restoring the case, it was further observed that loss in eligible unit cannot be set off against the profit of not eligible unit. However, in relation to section 80HHC the Hon’ble Supreme Court in case of Shirke Construction Ltd. (292 ITR 380) have held that brought forward losses has to be adjusted before allowing the deduction. And the CIT(A) in the remand proceeding allowed the claim of assessee. Now the DR for Revenue further argued that approval was not available with the assessee for the relevant AY, hence, the assessee is not entitled for deduction u/s 10B of the Act. DR for Revenue also relied upon the decision of Hon’ble Delhi High Court in CIT Vs Regency Creations Ltd. (2012) 27 taxmann.com 322(Delhi) and the decision of Hon’ble Bombay High Court in CIT Vs Galaxy Surfactans Ltd. (2012) 19 taxmann.com 141(Bombay) Ld. AR of the assessee argued that the assessee has availed the necessary approval from STPI and approval of 100% Export Oriented Unit (EOU) was granted by STPI authorities, the assessee also filed a document/report in form no. 56G, the AR of assessee further argued that the argument of DR are misconceived. And the case of assessee was correctly appreciated by CIT(A) while allowing the claim u/s 10B and to further allow M/s Pharmaceutical Research Association (I) Pvt. Ltd. the brought forward business losses and unabsorbed depreciation before allowing the deduction. AR of assessee invited our attention to the report of STPI which is available at page no. 15 to 18 of Paper Book (PB) and further the report in form no. 56G in respect of claim of deduction u/s 10B of the Act.
We have considered the rival contention of the parties and perused the material available on record. The assessee has claimed that he is engaged in three different business activities.
Contract Research Organization (CRO).
Medical Transcription Activities (MT).
Trading and Marketing Activities And claimed deduction u/s 10B in respect of two entities i.e. CRO and M.T. and the Trading and Marketing Activities are normal business activities and not claimed any special deduction, the AO denied the deduction on the ground that assessee has losses under M.T. Activities and losses have to be set off before claiming deduction u/s 10B of the Act. The assessee has brought forward losses of Rs. 62,12,644/- and there is no income after such set off to allow deduction. The approval of CRO was received by assessee only on 05.12.2003, thus the assessee is not entitled for deduction. The local turnover of assessee exceeded the limit of 25% of the turnover, thus, assessee is not eligible for deduction and CRO activities are not eligible for deduction since the same does not amount to manufacture of Computer Software. In First round of appeal the this Tribunal remanded/restored to the file of CIT(A) vide with the direction to consider the decision of Hon’ble Bombay High Court in Black and Veatch Consulting Pvt. Ltd.(supra), Hindustan Unilever Ltd. (supra). And further in relation to section 80HHC in Shirke Construction Ltd.(supra). It was further directed to give finding on merit as to whether the activities of assessee are eligible for deduction u/s 10B and section 80HHE. The CIT(A) after considering the facts of the case in accordance with the direction of this Tribunal made the following order:
“In view of the foregoing discussion, it can be held that the CRO activities of the appellant are eligible for deduction u/s 10B of the M/s Pharmaceutical Research Association (I) Pvt. Ltd.
Act and the fact that the approval was received late cannot be held against the appellant as the approval itself is applicable with retrospective effect. Further, as held in case of CIT v. Schmetz India (P) Ltd (supra) and in CIT v. Black & Veatch Consulting (P) Ltd (supra), by the Hon’ble Bombay High Court held that that the deduction u/s. 10/B of the Act should be allowed first and only on the balance remaining if any, the loss from other units should be adjusted. The Ld. AO also wrongly applied the provisions of the proviso of section 10B which held that the profits from the local activity would also be eligible for the deduction u/s. 10B of the Act if the said activity constitutes less than 25% of the total turnover. To put it differently, if the turnover from tile local activity to exceeds 25% of the total turnover r such profit from the domestic sales will not be allowed as deduction u/s. 10B of the Act. However, the provisions do not state that the whole of the profits of the eligible undertaking from the eligible activity would get disallowed if the domestic turnover exceeds 25%. Since the domestic turnover exceeded 25% of the total turnover, the appellant had never claimed deduction u/s. 10B of the Act in respect of such domestic sales. Under these circumstances, the Assessing Officer was not correct in coming to the conclusion that the appellant is not eligible for deduction u/s. 10B of the Act in respect of the entire eligible undertaking. Moreover, it may be pointed out that the benefit given to the domestic sales was subsequently withdrawn by the legislature w.e.f. 01.04.2002 and that as per the provisions applicable for the year under appeal, no such benefit if; granted even to the profits from the domestic sales irrespective whether the same exceeds the limit prescribed in the proviso. In light of the above, the disallowance of deduction u/s. 10B of the Act is incorrect and unjustified, the Ld. AO is thus directed to give the deduction u/s 10B of the Act to the appellant, this ground of appeal is thus allowed. As regards the alternative claim of the appellant regarding the deduction u/s. 80HHE of the Act, I find that there is no discussion on this issue by the Ld. AO in his order though as per the appellant the certificate in Form 56G was filed before the Assessing Officer which is ignored by him. Since, I held that the appellant is eligible for deduction u/s 10B of the Act, the alternate claim of the appellant is not taken up for adjudication.”
6. DR for Revenue relied upon the decision of Hon’ble Delhi High Court in CIT Vs Regency Creations Ltd. (supra) and the decision of Hon’ble Bombay High Court in CIT vs Galaxy Surfactans Ltd. (supra). The decision of Delhi High Court in Regency Creation Ltd that various from the fact of the present case. In Regency creation there was no valid approval of 100% EOU from the M/s Pharmaceutical Research Association (I) Pvt. Ltd. competent authority. The decision of Bombay High Court in Galaxy Surfactants Ltd, rather support the contention of assessee.
7. In view of the above factual and legal discussion, we find that order of CIT(A) is well-reasoned basis on the decision of Hon’ble Bombay High Court in Hindustan Unilever Ltd. (supra) and Black and Veatch Consulting Pvt. Ltd.(supra). The assessee is also entitled for adjustment of unabsorbed depreciation against the income for the purpose of exemption u/s 10B in accordance with the decision of Hon’ble Supreme Court in Himatsingka Seide Ltd. vs. CIT. In view of the above observation, we do not find any illegality or infirmity in the order passed by CIT(A). Thus, the appeal filed by the Revenue is dismissed. 8.
9. This appeal is filed by Revenue against the order of CIT(A)-17, Mumbai dated 30.12.2013, wherein the penalty u/s 271(1)(c) dated 27.03.2008 was deleted.
10. The AO has levied the penalty on the ground that the claim of assessee for deduction u/s 10B was not allowed. However, the same was deleted by CIT(A) on the ground that the addition/deduction on the basis of which has been deleted by the Appellate Authority. Since the quantum addition has been deleted by the FAA, hence, the penalty levied by AO was also deleted. Aggrieved by the order of CIT(A), the Revenue has filed the present appeal before us.
11. While hearing of the appeal of Revenue on the quantum assessment for AY 2003-04 we have confirmed the order of CIT(A) on the quantum appeal of the assessee in ITA No. 1644/Mum/2014. Thus, in our considered opinion, when the entire addition has been deleted by appellate authority, either by Commissioner of Income Tax Appeal or by Tribunal, the order of penalty levied under section 271(1)(c) does not survive. In the above observation, the appeal filed by the Revenue is dismissed.
This appeal is filed by the assessee against the order of CIT(A)-17, Mumbai dated 30.12.2013 for AY-2005-06 raising the following grounds of appeal:
1. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in passing the order u/s. 250 of the Act partly M/s Pharmaceutical Research Association (I) Pvt. Ltd. disallowing the appeal against the appeal directed by Income Tax Appellate Tribunal’s order.
2. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in confirming the disallowance of expenses amounting to Rs. 27,57,933/- on the ground that the expenditure incurred is of capital in nature.
The fact leading to filing of the appeal is that while framing the assessment, the AO disallowed a sum of Rs. 27,57,933/- on the ground that expenditure are capital in nature and the same was confirmed by the FAA. The assessee filed appeal before this Tribunal and the same was restored to the file of Commissioner of income tax appeal with the direction to decide the appeal afresh. After giving opportunity to the assessee. The Learned CIT appeals confirmed the addition of expenditure disallowed by AO, thus the present appeal is filed before us.
We have heard AR of the assessee and DR for Revenue. AR of assessee argued that the expenses are revenue in nature and the assessee is entitled for the entire expenses. AR of assessee further argued that this is second ground of appeal
in first ground of appeal, the matter was restored to the file of CIT(A) with the direction to file details of expenditure, which have not been brought on record either on the order of AO or CIT(A) and thus the issue was restored to the file of AO for passing fresh order after necessary examination with regard to expenditure whether they are capital or revenue in nature. The AR of assessee further argued that the Learned CIT has not allowed the allowable expenditure, which was revenue in nature. All the expenditure was made in the office of director of the assessee. All the necessary documentary evidence was provided to the Commissioner of appeals, but the same was not considered and the claim of assessee was disallowed. DR for revenue argued that the order of Commissioner of income tax appeal are reasoned one and does not require any interference at the end of this Tribunal.
15. We have considered the rival contention of the parties and perused the material available on record. The assessee has filed all record, the details of bills and other evidence in respect of expenses incurred on repair of tenanted premises. The AO while disallowing the expenses observed that the expenses were M/s Pharmaceutical Research Association (I) Pvt. Ltd. incurred on rental premises and the same is not accepted as revenue expenditure, the assessee made expenditure on account of Furniture and Fixtures and not on the building, hence, these are in the nature of capital expenditure and allowed depreciation @ 15% out of Rs. 27,57,993/- and thus granted partial relief of Rs. 4,13,690/-. CIT(A) while considering this ground in second ground of appeal observed that the matter was re-examined in accordance with the direction of ITAT. The assessee was asked to provide copy of agreement and other related documents. CIT(A) further observed that no copy of agreement was provided by the assessee and assessee submitted that the expenditure are revenue in nature and in the normal course of business and purpose of business and for creating any capital assets of endur9ing in nature. The CIT(A) concluded that he has no reason to deviate from the finding given by his predecessors and dismissed the ground of appeal. The assessee has carried out the repair and renovation in the Director’s office. During the first appellate proceeding, the assessee claimed expenses incurred on rented accommodation and the matter was remanded with the specific direction to the AO to produce the copy of agreement with landlord. No such copy of agreement was produced, the details submitted by assessee which were filed before the CIT(A) in the details which consist a number of invoices and one of the invoice at page 25 of PB contains the details of Shifting 200 KVA Diesel Generating Set at A-1 Building at Deepak Complex and its cost is claimed Rs. 76,000/- and Rs. 5,000/- on account of obtaining NOC from Electricity Inspector and another bills dated 02.08.2004 by M/s R.K. Enterprises for plumbing work, another plumbing work of Rs. 22,409/- and another bill dated 02.08.2004 for Aluminum door of Rs. 4300/- and similarly a number of other invoices with numerous details which are certainly not in respect of repairs and maintenance as claimed by assessee. However, keeping in view the fact and circumstances of the case and the assessee is before this tribunal in 2nd round of litigation, we allowed the assessee 50% of the claim of expenses out of the total expenditure claimed by assessee. The AO is directed accordingly.
16. In the result, the appeal of the assessee is partly allowed. M/s Pharmaceutical Research Association (I) Pvt. Ltd.
ITA No. 685/M/2013.
This appeal is filed by assessee against the order of Commissioner of income tax Appeals-18 dated 6 Nov 2012 confirming the order of penalty levied under section 271( 1)(c ) of the Act .
Penalty order under section 271 (1)© of the Act was levied by the AO, on the ground that deduction under section 10 B claimed by the assessee was disallowed in the quantum assessment. The order of penalty was confirmed by the Commissioner of income tax appeals in its order dated 6 November 2012. The assessee has also challenged the quantum assessment before the Tribunal and the same was restored to the file of ld Commissioner of Income Tax Appeals for fresh adjudication. The Learned Commissioner of Income Tax Appeal allowed the deduction under section 10B of the Act as claimed by assessee in the original assessment vide order dated 30 December 2013. Aggrieved by the order of Commissioner of Income Tax Appeal, the revenue filed appeal before this Tribunal and the same was dismissed vide dated 21st March 2016. The 30 December 2013. Thus, in our considered opinion, when the addition has been deleted by appellate authority , either by Commissioner of Income Tax Appeal or Tribunal, the order of penalty levied under section 271(1)(c) does not survive. Thus the appeal of the assessee is allowed.
In the result, ITA No. 1643/M/2014 and ITA No.1644/M/2014 for AY 2003 – 04 filed by Revenue are dismissed. The appeal ITA No. 1726/M/2014 for AYB2005-06 filed by assessee is partly allowed and appeal ITA No. 685/M/2013 filed by assessee against penalty order for same AY is allowed. Parties are left to bear own costs.