DCIT, CHENNAI vs. SHASUN PHARMACEUTICALS LTD., CHENNAI

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.

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.

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 Dated 06.07.2007.

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 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.

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.

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/-

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 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.

On the other hand, the ld. Authorised Representative for assessee submitted that is issue is squarely covered by the judgment I.T.A.No.799/Mds/2014. :- 8 -: of Gujarat High Court in the case of Avani Exports & Others 348 ITR 391.

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.

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.

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.

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 for the assessment year 1999-2000.

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.

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 I.T.A.No.799/Mds/2014. :- 11 -: following decision of the Tribunal in assessee’s own case for assessment year in dated 04.04.2007, Commissioner of Income Tax (Appeals) allowed the appeal of the assessee. Against this, the Revenue is in appeal before us.

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 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)

Respectfully, following the above decision of the Tribunal in assessee’s own case, this ground of the Revenue is dismissed.

In the result, the appeal of the Revenue in is partly allowed.