THE DY CIT RG 8(3), Mumbai v. M/S. VINATI ORGANICS LTD., Mumbai

ITA 1934/MUM/2005 | 2000-2001
Pronouncement Date: 29-07-2011 | Result: Allowed

Appeal Details

RSA Number 193419914 RSA 2005
Assessee PAN AAACV6538K
Bench Mumbai
Appeal Number ITA 1934/MUM/2005
Duration Of Justice 6 year(s) 4 month(s) 19 day(s)
Appellant THE DY CIT RG 8(3), Mumbai
Respondent M/S. VINATI ORGANICS LTD., Mumbai
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted B
Tribunal Order Date 29-07-2011
Date Of Final Hearing 12-07-2011
Next Hearing Date 12-07-2011
Assessment Year 2000-2001
Appeal Filed On 11-03-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI R.S. SYAL A.M. AND SHRI V. DURGA RAO J.M. ITA NO. 1934/MUM/2005 ASSESSMENT YEAR: 2001-02 DY. COMMISSIONER OF INCOME-TAX . APPELLANT RANGE 8(3) MUMBAI VS. M/S VINATI ORGANICS LTD. . RESPONDENT SHIV ASHISH 2 ND FLOOR ANDHERI-KURLA ROAD SAKINAKA MUMBAI. (PAN AAACV6538K) C.O. NO. 291/M/05 (IN ITA NO. 1934/MUM/2005 ASSESSMENT YEAR: 2001-02) M/S VINATI ORGANICS LTD. . CROSS OBJECTOR SHIV ASHISH 2 ND FLOOR ANDHERI-KURLA ROAD SAKINAKA MUMBAI. (PAN AAACV6538K) VS. DY. COMMISSIONER OF INCOME-TAX RESPONDENT RANGE 8(3) MUMBAI REVENUE BY : MR. P.C. MAURYA ASSESSEE BY : MR. VIJAY MEHTA ORDER PER V. DURGA RAO J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- XXIX MUMBAI PASSED ON 31/12/2004 FOR THE ASSESSMENT YEAR 2001-02. THE ASSESSEE ALSO FILED C.O. AGAINST THE SAID ORDER OF CIT(A). ITA NO. 1934/M/2005 & C.O. 291/M/05 M/S VINATI ORGANICS LTD. 2 2. GROUND NO. 1 RAISED BY THE REVENUE READS AS UNDE R:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS . 71 33 292/- ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENSES AND FURTHER DISALLOWANCE OF RS. 12 75 000/- BEING WEIGHTED DEDU CTION CLAIMED U/S 35(2AA) OF THE ACT WITHOUT APPRECIATIN G THE FACTS OF THE CASE. 3. THE AO NOTICED THAT THE ASSESSEE HAD DEBITED A S UM OF RS. 71 33 292/- IN P&L A/C UNDER THE HEAD RESEARCH & D EVELOPMENT EXPENSES. HE FURTHER NOTICED THAT IN THE COMPUTATI ON OF INCOME THE ASSESSEE HAD FURTHER CLAIMED RS. 12 75 000/- AS WEI GHTED DEDUCTION U/S 35(2AA) OF THE ACT BEING 25% OF RS. 51 00 000/- . ON BEING ASKED TO EXPLAIN BY THE AO HOW THE SCIENTIFIC RESEARCH AN D DEVELOPMENT EXPENSES AS CONTAINED IN PROVISIONS OF SECTION 35(2 AA) ARE SATISFIED THE ASSESSEE HAD NOT FURNISHED ANY CLARIFICATION AN D JUSTIFICATION IN RESPECT OF THE ABOVE EXPENSES. THE AO AFTER REFERRI NG SECTION 35(2AA) OF THE ACT THE AO HELD THAT THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENS ES THEREFORE THE CLAIM OF DEDUCTION OF RS. 71 33 292/- ON ACCOUN T OF RESEARCH AND DEVELOPMENT EXPENSES IS DISALLOWED AND ALSO RS. 12 75 000/- WAS ALSO NOT ALLOWED. ON APPEAL THE CIT(A) AFTER CONSIDERIN G THE SUBMISSIONS OF THE ASSESSEE DISCUSSED THE ISSUE AT LENGTH ELAB ORATELY AND DIRECTED THE AO TO ALLOW THE SAID CLAIMS OF THE ASSESSEE. AG GRIEVED THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US THE LEARNED DR SUBMITTED THAT IN AY 2 000-01 THE TRIBUNAL REMITTED THE MATTER BACK TO THE FILE OF TH E AO TO CONSIDER THE ISSUE AFRESH AFTER EXAMINING THE RELEVANT MATER IAL. 5. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND SUBMITTED THAT IN AY 2000-01 THERE WAS NO RELEVANT MATERIAL IN RESPECT OF CLAIM MADE BY THE ASSESSEE AND THEREFOR E APPEAL FILED BY THE ASSESSEE WAS DISMISSED BY THE CIT(A). ON APPEAL BEFORE THE TRIBUNAL THE TRIBUNAL REMITTED THE MATTER BACK TO THE FILE OF THE AO. ITA NO. 1934/M/2005 & C.O. 291/M/05 M/S VINATI ORGANICS LTD. 3 IN THE YEAR UNDER CONSIDERATION ALL THE RELEVANT M ATERIAL WAS FILED BEFORE THE AO AS WELL AS CIT(A). THE LEARNED CIT(A) AFTER CONSIDERING THE MATERIAL ALLOWED APPEAL OF THE ASSESSEE. THE LE ARNED COUNSEL FOR THE ASSESSEE POINTED OUT FROM THE PAPER BOOK AT PAG ES 1 TO 4 WITH REGARD TO DETAILS OF R& D EXPENSES AND AT PAGES 5 T O 74 WITH REGARD TO FORM NOS. 3CG 3CH & 3CI ALONG WITH COPY OF THE AG REEMENT AND DETAILED LETTER ALSO SUBMITTED TO THE AO WHICH IS FILED AT PAGES 71 TO 81 TO SUBMIT THAT ALL THE RELEVANT MATERIAL HAS BEE N FILED BEFORE THE REVENUE AUTHORITIES. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUSE D THE RELEVANT MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF T HE AUTHORITIES BELOW. IN THIS CASE THE AO HAS GIVEN A FINDING THA T NO DETAILS OF R&D EXPENSES ON WHICH WEIGHTED DEDUCTION HAS BEEN CLAI MED WERE FURNISHED AND ON SIMILAR ISSUE FOR AY 2000-01 ADDIT ION ON ACCOUNT OF R&D EXPENSES WAS MADE SINCE IT WAS FOUND ON CROSS V ERIFICATION WITH THE NATIONAL CHEMICAL LABORATORY AND THE INDIAN INS TITUTE OF CHEMICAL TECHNOLOGY THAT THE ASSESSEE HAD NOT CARRI ED OUT ANY R&D EXPENDITURE. IN FACT IT HAD SPENT THE SAID AMOUN T FOR THE PURPOSE OF SPONSORSHIP TRANSFER OF KNOW-HOW AND SUCH MATTERS OTHER THAN ACTUALLY CARRYING OUT R&D. THE AO FURTHER GAVE A FI NDING THAT THE NATIONAL CHEMICAL LABORATORY PUNE HAD ALSO CONFIRM ED THAT IT HAD NOT CARRIED OUT ANY TRANSACTION WITH THE ASSESSEE C OMPANY. ON THE BASIS OF THE ABOVE FINDING THE AO DISALLOWED THE C LAIM OF THE ASSESSEE. ON APPEAL THE CIT(A) OBSERVED THAT SIMI LAR ISSUE CAME UP FOR CONSIDERATION IN ASSESSEES OWN CASE FOR AY 200 0-01 WHEREIN THE AO HAD DISALLOWED R&D EXPENSES OF RS. 67 23 582/- A ND WEIGHTED DEDUCTION OF RS. 11 61 362/- U/S 35(2AA) OF THE ACT . ON APPEAL THE DISALLOWANCE MADE BY THE AO WERE UPHELD BY THE CIT( A) VIDE ORDER NO. CIT(A)XXIX/IT)-8(3)(4)/IT.73/03/04 DTD. 24/02/06 A ND THIS YEAR ARE DIFFERENT. IN AY 2000-01 R&D EXPENDITURE WAS DISALL OWED U/S 35(1) AND THE YEAR UNDER CONSIDERATION THE CLAIM IS MADE U/S 35(2AA) OF THE ACT WHICH IS SUPPORTED ALL THE RELEVANT DOCUME NTS AND THE ITA NO. 1934/M/2005 & C.O. 291/M/05 M/S VINATI ORGANICS LTD. 4 CONTENTIONS OF THE LEARNED AR IN THIS REGARD ARE F OUND TO BE CORRECT. IT IS SEEN FROM THE APPEAL ORDER FOR AY 2000-01 THA T A FINDING WAS RECORDED TO THE FACT THAT THE ABOVE DEDUCTION HAS B EEN CLAIMED U/S 35(1). THEREFORE IT WAS EXAMINED WHETHER THE CONDI TIONS LAID DOWN U/S 35(1) HAVE BEEN FULFILLED OR NOT AND IT WAS FOU ND THAT THE CONDITIONS LAID DOWN IN THE SAID SECTION HAVE NOT B EEN FULFILLED THEREFORE AFTER RECORDING DETAILED REASONS THE CL AIM OF THE ASSESSEE OF RS. 67 23 582 IN AY 2000-01 WAS DISALLOWED BY TH E AO WAS UPHELD. HOWEVER THIS YEAR IT IS SEEN THAT THE CLAIM OF AS SESSEE OF RS. 51 00 000/- HAS BEEN MADE U/S 35(2AA) WHICH IS SUP PORTED BY RELEVANT FORMS SUCH AS FORM NOS. 3CG 3CG AND 3CI A ND THEREFORE THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AFTER DETAILED FINDING. IN THE LIGHT OF THE FINDINGS OF THE CIT(A) THAT THE AS SESSEE CLAIMED R& D EXPENDITURE IN AY 2000-01 U/S 35(1) WHEREAS IN THE YEAR UNDER CONSIDERATION THE SAME EXPENDITURE WAS CLAIMED U/S 35(2AA) OF THE ACT. WE FIND THAT THE CLAIM U/S 35(2AA) IS NOT BOR N OUT FROM THE ORDER OF THE AO. THEREFORE IN VIEW OF THE CONTRA F INDINGS OF AO & CIT(A) WE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE WHETHER THE CLA IM IS U/S 35(1) OR U/S 35(2AA) AND DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF APPEAL IS TREATED AS ALLOWED FOR STATISTI CAL PURPOSES. 7. GROUND NO. 2 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN DIRECTING THE AO TO ACCEPT THE ASSESSEES CLAIM THAT RS. 87 412/- BEING EXCHANGE FLUCTUATION IS ELI GIBLE FOR DEDUCTION U/S 80IA OF THE ACT WITHOUT APPRECIATING THE FACTS OF THE CASE. 8. THE AO HAD NOT ALLOWED DEDUCTION ON THE SUM OF R S. 87 412/- BEING THE FOREIGN EXCHANGE RATE FLUCTUATION DIFFERE NCE ON THE GROUND THAT THE SAID CANNOT BE CONSIDERED AS INCOME DERIV ED FROM THE INDUSTRIAL UNDERTAKING. ON APPEAL THE CIT(A) FOLLO WING THE DECISION FOR AY 2000-01 IN ASSESSEES OWN CASE DIRECTED THE AO TO ALLOW THE ITA NO. 1934/M/2005 & C.O. 291/M/05 M/S VINATI ORGANICS LTD. 5 CLAIM OF THE ASSESSEE. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE BOTH THE PARTIES AND PERUSED T HE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE IN DISPU TE IS COVERED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. RACHNA UDHYOG [2010] 230 CTR (BOM)72 WHEREIN T HE COURT HELD THAT EXCHANGE RATE DIFFERENCE ARISES OUT OF AND IS DIREC TLY RELATED TO SALE TRANSACTION INVOLVING EXPORT OF GOODS OF THE I NDUSTRIAL UNDERTAKING AND THEREFORE THE DIFFERENCE ON ACCOUNT OF EXCHAN GE RATE FLUCTUATION IS ENTITLED TO DEDUCTION U/S 80-IB. RESPECTFULLY FOLLOWING THE SAID RATION WE HEREBY UPHOLD THE ORDER OF THE CIT(A) IN DIRECTI NG THE AO TO ALLOW THE ASSESSEES CLAIM THAT RS. 87 412/- BEING EXCHAN GE FLUCTUATION. C.O. BY THE ASSESSEE 10. GROUND NO. 1 & 2 ARE DIRECTED AGAINST THE ACTIO N OF THE CIT(A) IN HOLDING THAT GROSS INTEREST OF RS. 1 67 324/- AND E XPORT BENEFITS/IMPORT ENTITLEMENTS OF RS. 7 76 101/- ARE NOT ELIGIBLE FOR DEDUCTION U/S 80-IA OF THE ACT. 11. THE AO EXCLUDED INTEREST INCOME ON THE GROUND T HAT THERE IS NO ELEMENT OF INTEREST AND EXPORT BENEFITS/IMPORT ENTI TLEMENTS INCLUDED IN THE BUSINESS INCOME WHICH ARE ELIGIBLE FOR DEDUC TION U/S 80-IA OF THE ACT. THEREFORE THE AO EXCLUDED THE INTEREST IN COME OF RS. 1 67 324/- AND EXPORT BENEFITS/IMPORT ENTITLEMENTS OF RS. 7 76 101/- WHILE COMPUTING DEDUCTION U/S 80-IA OF THE ACT. ON APPEAL THE CIT(A) CONFIRMED THE ACTION OF THE AO. AGGRIEVED THE ASSE SSEE IS FILED CO BEFORE THE TRIBUNAL. 12. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNE D REPRESENTATIVES OF THE PARTIES AND PERUSING THE RECORD WE FIND THA T THIS ISSUE COVERED AGAINST THE ASSESSEE BY THE DECISION OF HONBLE JUR ISDICTIONAL HIGH ITA NO. 1934/M/2005 & C.O. 291/M/05 M/S VINATI ORGANICS LTD. 6 COURT IN THE CASE OF HONBLE SUPREME COURT IN THE C ASE OF LIBERTY INDIA VS. CIT [2009] 317 ITR 218(SC). RESPECTFULLY FOLLOWING THE SAID DECISION WE CONFIRM THE ORDER OF THE CIT(A) IN CON FIRMING THE ACTION OF THE AO IN EXCLUDING THE INTEREST INCOME OF RS. 1 67 324/- AND EXPORT BENEFITS/IMPORT ENTITLEMENTS OF RS. 7 76 101 /- WHILE COMPUTING DEDUCTION U/S 80-IA OF THE ACT AND DISMI SS THE C.O. NO. 1 & 2 RAISED BY THE ASSESSEE. 13. C.O. NO. 3 READS AS UNDER:- THE LEARNED CIT(A) ERRED IN HOLDING THAT 90% OF TH E INTEREST RECEIVED OF RS. 1 67 324/- IS REQUIRED TO BE EXCLUD ED FROM THE PROFITS OF THE BUSINESS UNDER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80 HHC FOR COMPUTING DEDUCTION U/S 80 HHC. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT TO HAVE HELD THAT THE SAID SUM OF RS. 1 67 324/- IS NOT REQUIRED TO B E EXCLUDED UNDER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80 HHC FOR COMPUTING DEDUCTION U/S 80 HHC. 14. THE AO HAD TREATED INTEREST INCOME OF RS. 1 67 324/- AS INCOME FROM OTHER SOURCES AND EXCLUDED THE SAME FOR THE PU RPOSE OF COMPUTING DEDUCTION U/S 80 HHC. ON APPEAL THE CIT( A) CONFIRMED THE ACTION OF THE AO. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 15. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THIS ISSUE IS COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR LTD. [2010] 326 ITR 56(BOM) WHEREIN THE HONBLE COURT HELD THAT FOR THE PURPOSE OF EXPLANATION (BAA) TO SECTION 80HHC THE GROSS INTEREST ON FIXED DEPOSITS IN THE B ANK RECEIVED BY THE ASSESSEE SHOULD BE CONSIDERED FOR THE PURPOSE OF WORKING OUT THE DEDUCTION UNDER SECTION 80HHC AND NOT THE NET INTEREST.. RESPECTFULLY FOLLOWING THE SAID DECISION WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO INCLUDE THE INTEREST INCOME FOR THE PURPOSE OF COMPUTING DEDUCT ION U/S 80 HHC OF THE ACT. THUS THIS C.O. IS ALLOWED. ITA NO. 1934/M/2005 & C.O. 291/M/05 M/S VINATI ORGANICS LTD. 7 16. C.O. NO. 4 REGARDING CHARGING OF INTEREST U/S 2 20(2) HAS NOT PRESSED AT THE TIME OF HEARING BEFORE US THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 17. IN THE RESULT APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED AND THE C.O. OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF JULY 2011. SD/- SD/- (R.S. SYAL) (V. D URGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: 29 TH JULY 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE B BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 13/07/11 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 13/07/11 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER