Income Tax

Nature of expense not changes due to treatment of same in books of account

By TG Team Income Tax Judiciary October 15, 2011

TaxGuru Citation: 2011 taxguru.in 1013
Case Name: ACIT Vs. Parablic Drugs Ltd. (ITAT Delhi)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2006- 07
Courts: ITAT Delhi

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ITAT DELHI

ITA No. 2111/Del/2010

Assessment Year: 2006- 07

ACIT Vs. Parablic Drugs Ltd.

ORDER

PER I.P. BANSAL, J.M.

This is an appeal filed by the revenue. It is directed against the order passed by ld. CIT(A) dated 24.02.2010 for A.Y. 2006-07. Grounds of appeal read as under: –

1. “That on the facts and circumstances of the case and in law the ld. CIT(A) erred in deleting the addition of Rs. 7,10,95,947/- made by the AO on account of dis-allowance of expenditure on R&D being capital in nature.

2. That on the facts and in the circumstances of the case, the ld. CIT(A) erred in directing the AO to allow the deduction u/s 80IB of the I. T. Act, 1961 if it is otherwise allowable without appreciating the fact that the assessee has not made any such claim in its return of income.

3. The appellant craves to the allowed to add, delete or amend any other grounds of appeal.”

2. The assessee is a limited company engaged in the business of manufacture of bulk drugs and fine chemicals etc. The return of income originally was filed on 7.11.2006 declaring its total income at Nil after claiming weighted deduction of expenditure incurred on in-house Scientific Research & Development of Rs. 7,82,53,487/- against which in terms of provisions contained in sec. 35(2AB) of the Income Tax Act, 1961 (Act), the admissible deduction @ 150% was computed at Rs. 11,73,80,230/-. In view of total income computed at Rs. 8,74,75,594/- the deduction u/s 35(2AB) was restricted to that amount and income was computed at Nil. As under the normal provisions computable income was Nil the tax was paid on book profit u/s 115JB and book profit was computed at Rs. 9,21,42,714/-.

3. The breakup of total expenditure of Rs. 7,82,53,487/- incurred on Research & Development in drugs and pharmaceutical constituted of cost of fixed assets shown in the balance sheet at Rs. 44,41,522/- and balance sum of Rs. 7,38,11,965/- was shown under the head “miscellaneous expenditure” in the balance sheet as on 31.3.2006.

4. The assessee company was approved company u/s 35(2AB) by the appropriate authority called as “DSIR”. Such recognition granted by DSIR was up to 31.3.2010. The assessee had made an application to DSIR claiming the benefit of 11,73,80,230/- u/s 35(2AB) of the Act. However, DSIR approved capital expenditure of Rs. 41,69,868/- and the revenue expenditure at Rs. 27,16,018/- both aggregating to Rs. 68,85,886/- and on the basis of such approval the assessee revised its return of income on 7.11.2007 declaring its revised total income at Rs. 60,50,820/-. It claim deduction of Rs. 1,03,28,830/- being 150% was approved amount u/s 35(2AB) and the balance expenditure of Rs. 7,10,95,947/- was claimed to have been incurred on revenue account which was on materials, salaries etc. used for in-house research and development as these were not approved for claiming weighted deduction u/s 35(2AB). These expenditures have been shown as deferred revenue expenditure in the balance sheet on the assets side of the balance sheet under the head “miscellaneous expenditure”.