M/S. Harita Seating Systems Limited v. Deputy Commissioner Of Income Taxcorporate Circle 2 (2)Nungambakkamchennai 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 02.03.2020 CORAM : THE HON'BLE MR. JUSTICE M.SATHYANARAYANANANDTHE HONOURABLE MR. JUSTICE ABDUL QUDDHOSE Tax Case (Appeal) No.470 of 2018 M/s. Harita Seating Systems Limited ..Appellant/Appellant -vs- Deputy Commissioner of Income TaxCorporate Circle 2 (2)NungambakkamChennai 600 034. ..Respondent/Respondent Appeal filed under Section 260A of the IT Act, 1961 againstthe order of the Income Tax Appellate Tribunal, "C" Bench,Chennai, dated 8th December, 2017 in ITA No.1665/Mds/2017 asagainst the order of the Commissioner of the income tax(Appeals-6, Chennai, dated 27/04/2017, in ITA No.33/CIT(A)-6/2016-17 and against the order of the Deputy Commissioner of Income Tax Corporate circle-2(2), Chennai, dated 29/03/2016 inPA.AAA Ch2492N-Assessment year 2013-14. For Petitioner : Mr. R. Vijayaraghavanfor M/s.Subbaraya AiyarPadmafor M/s.Subbaraya AiyarPadma For Respondent : Mr. Karthik Ranganathan Standing Counsel.Standing Counsel. ORDER (Order of the Court was made by M.SATHYANARAYANAN, J.,) The present Appeal has been filed Under Section260 A of theIT Act 1961 [in short “IT Act”], against the impugned order ofthe Income Tax Appellate Tribunal, "C" Bench, Chennai dated08.12.2017, confirming the order of the Commissioner of IncomeTax (Appeals)-6, Chennai 600 034, dated 27.04.2017. 2. The facts narrated briefly for the disposal of thisappeal are as follows: 2.1. The appellant / assessee is registered at Chennai andengaged in the business of manufacturing of seating systems forautomobiles. The assessee has filed its Original Return ofIncome Tax for the Assessment Year 2013-14 (Financial Year 2012-13) admitting total income of Rs.7,18,79,936/- and subsequentlyfiled its Revised Return of Income for the said Assessment Yearadmitting an income of Rs.7,16,15,936/-. The said return wasprocessed Under Section 143(1) of the IT Act, and selected forscrutiny and was followed by a Notice under Section 143(2) ofthe IT Act, dated 02.09.2014. The appellant / assessee hadclaimed weighted deduction at the rate of 200% amounting toRs.7,78,74,366/- towards Research and Development expenditureUnder Section 35(AB)(2) of the IT Act 1961, and the saiddeduction pertains to income from Hosur Unit, which carries outResearch and Development works. 2.2. The Assessing Officer found that benefit of theResearch and Development done by the Hosur Unit is utilised bythe other manufacturing Unit of Himachal Pradesh also andcomputed the taxable income of the Assessee as follows, videassessment order dated 29.03.2016. 2.3. The assessee aggrieved by the said assessment order,preferred an appeal before the Commissioner of Income Tax (Appeals)-6, Chennai 600 034. The CIT (Appeals), vide orderdated 27.04.2017, had concurred with the views of the AssessingOfficer and held that there is a direct connection and proximitybetween the Research and Development expenses and profitabilityof the manufacturing units and while allowing the appeal partly,has allowed the deduction under Section 80IC of the IT Act to anextent of 4,69,504/-. 2.3. The assessee aggrieved by the said assessment order,preferred an appeal before the Commissioner of Income Tax (Appeals)-6, Chennai 600 034. The CIT (Appeals), vide orderdated 27.04.2017, had concurred with the views of the AssessingOfficer and held that there is a direct connection and proximitybetween the Research and Development expenses and profitabilityof the manufacturing units and while allowing the appeal partly,has allowed the deduction under Section 80IC of the IT Act to anextent of 4,69,504/-. 2.4. The assessee challenging the legality of the saidorder, preferred a further appeal before the Income TaxAppellate Tribunal (ITAT), at Chennai. The ITAT, vide impugnedorderdate08.12.2017,onfactsfoundthattheappellant/assessee is having its units set up in Pune, Hosur,Bangalore and Himachal Pradesh and all the undertakings aredoing the same business as that of manufacturing of seats andSeating Systems and it claimed deduction on the Research andDevelopment expenditure under Section 35(AB2) against the incomefrom the units of Hosur, Pune, Bangalore only. The ITAT alsofound that the benefits of the Research done by the Hosur unitis availed by all the units of the assessee and consequently,the Research and Development expenditure has to be apportionedand having taken note of the concurrent findings recorded by theAssessing Officer as well as the CIT(A), held that it is not thefit case to interfere with the same and accordingly dismissedthe appeal. The Assessee, aggrieved by the dismissal of theappeal by ITAT, has filed the present appeal. 3. The Appeal was admitted by this Court on 03.12.2018 andwhile admitting, the following substantial questions of law wereformulated. 1) “Whether the Tribunal was right in law inholding that the expenses incurred towardsResearch & Development Centre in Hosur shouldbe allocated and deducted while computing theprofits derived from the undertaking atHimachal Pradesh by ignoring the scope ofprofits derived from the undertaking underChapter VI-A and the decisions rendered byvarious Courts in this regard?2) Whether the Tribunal was right in law inholding that the benefits of research isavailed by all the units of the assessee andhence the R & D expenditure has to beapportioned between the 80IC unit and non 80ICunit? 3) Whether the expenses incurred by the R & Dunit at Hosur which has nothing to do withoperations of the eligible undertaking atHimachal Pradesh can be artificiallyapportioned?" 4. Mr.VijayaRaghavan, learned counsel appearing for theappellant/assessee has made the following submissions: 4.1. The Assessing Officer had presumed and acted on thebasis that the benefit of the Research and Development done bythe Hosur Unit is also availed by the unit at Himachal Pradesh,for which there was no tenable and substantial material, exceptthe Assessment Officer’s own presumption. 4.2.The certification given by the Department of Scientificand Industrial Research, New Delhi, which enabled the assesseeto claim exemption would also disclose that the benefit ofResearch and Development done by the Hosur Unit is being availedby the Unit at Himachal Pradesh and the Assessing Officer, CIT(Appeals) as well as ITAT merely went on presumption and actedon conjectures and surmises. 4.3.Thelearnedcounselappearingfortheappellant/assessee, in support of his submissions, placedreliance upon the following decisions.1) (2004) 192 CTR 0165 : (2005) 273 ITR 0152 (BushBoake Allen (India Ltd., vs. AssistantCommissioner of Income Tax) (Division Bench ofHigh Court of Madras)2) (2007) 161 Taxman 0047 (Commissioner of IncomeTax vs. Brakes India Ltd) (Division Bench of HighCourt of Madras)3) (2013) 259 CTR 0253 : (2013) 350 ITR 0366 (ZanduPharmaceuticals Works Limited vs. Commissioner ofIncome Tax) (Division Bench of High Court ofBombay). 4.3.Thelearnedcounselappearingfortheappellant/assessee, in support of his submissions, placedreliance upon the following decisions.1) (2004) 192 CTR 0165 : (2005) 273 ITR 0152 (BushBoake Allen (India Ltd., vs. AssistantCommissioner of Income Tax) (Division Bench ofHigh Court of Madras)2) (2007) 161 Taxman 0047 (Commissioner of IncomeTax vs. Brakes India Ltd) (Division Bench of HighCourt of Madras)3) (2013) 259 CTR 0253 : (2013) 350 ITR 0366 (ZanduPharmaceuticals Works Limited vs. Commissioner ofIncome Tax) (Division Bench of High Court ofBombay). Thus, the learned counsel appearing for the appellant / assesseepleads for interference by answering the substantial questionsof law positively in favour of the appellant. 5. Per contra, the learned Standing Counsel appearing forthe Revenue would submit that admittedly all the units of theappellants are manufacturing seats for automation applicationand also draw the attention of this Court to form 3CL dated14.08.2015 annexing the typed set of documents filed by theappellant/assessee and would submit that even the said form doesnot make it clear as to the availment of the benefit of theResearch and Development only by Hosur, Pune and Bangalore. Itis also not in dispute that the unit at Himachal Pradesh doesnot have any separate Research and Development for the same andtherefore, the presumption is that the benefit of the saidResearch and Development is also availed by the unit at HimachalPradesh. It is further submitted by the learned Standing counselappearing for the Revenue that the assessee ought to exempt theincome generated by the unit at Himachal Pradesh, by citing the reason that the benefit of Research and Development having beenavailed by the said unit and it is also convincing and logicalfor the reason that income expenditure has to be apportioned byall the manufacturing units and any deduction is to be only onthe net income. It is further submitted by the learned standingCounsel for the Revenue that the findings of the CIT(appeals)and ITAT are concurrent in nature and therefore, there are nosubstantial questions of law arise for consideration in thisappeal and prays for dismissal of the same. 6. This Court has carefully considered the argumentsadvanced by the learned counsel appearing for theappellant/assessee and the learned counsel appearing for theRevenue. 7. The learned counsel appearing for the appellant hasplaced reliance upon two decisions rendered by the DivisionBench of this Court and the decision rendered by the DivisionBench of Bombay High Court. 7.1. In the case of Bush Boake Allen India Ltd., vs.Assistant Commissioner of Income Tax (Division Bench of HighCourt of Madras)[(2005) 273 ITR 0152], it was observed that apresumption was made by the Assessing Officer that anytechnology about new flavours and essence will automatically beutilized in Chithoor unit without examining as to whether theResearch and development actually carried out at Chennai was ofuse for the unit at Chithoor, as the assesse has othermanufacturing units besides the one at Chithoor and therefore,remitted back the matter to the Income Tax Appellate Tribunal. 7.2 In the case of Commissioner of Income Tax vs. BrakesIndia Ltd) (Division Bench of High Court of Madras [ (2007) 161Taxman 0047], concurrent findings are recorded that as therebeing no dispute that separate books of account were maintainedand further that the Revenue had not been able to show thatthere was no connection between R&D unit and Sholinganallur unitand dismissed the appeal filed by the Revenue. 7.2 In the case of Commissioner of Income Tax vs. BrakesIndia Ltd) (Division Bench of High Court of Madras [ (2007) 161Taxman 0047], concurrent findings are recorded that as therebeing no dispute that separate books of account were maintainedand further that the Revenue had not been able to show thatthere was no connection between R&D unit and Sholinganallur unitand dismissed the appeal filed by the Revenue. 7.3 In the case of Zandu Pharmaceuticals Works Limited vs.Commissioner of Income Tax) (Division Bench of High Court ofBombay) [ (2013) 350 ITR 0366 ], in paragraph 5, a finding wasrecorded that the head office and each of the units have theirown separate R&D departments, including laboratories and alsoplaced reliance upon (2005) 273 ITR 152 and the appeal filed bythe assessee was allowed. 8. Insofar as the judgment relied upon by the learnedstanding counsel appearing for the Revenue in the case ofCommissioner of Income Tax v. ECS Ltd., reported in (2010) 194 Taxman 311 (Delhi High Court Division Bench), it is settledposition of law that the deduction is to be allowed only on netincome for the purpose of assessing tax and not on actual amount. 9. In the considered opinion of this Court, the decisionsrelied upon by the learned counsel appearing for the appellant /assessee are distinguishable on facts. It is not in dispute thatthe appellant is having it's registered office at Chennai andmanufacturing units at Hosur, Pune, Bangalore and HimachalPradesh, for manufacture seats and parts of seats for automobileapplication. A perusal of Form 3CL dated 14.08.2015 appended tothe typed set of documents, does not throw any light (or)supportive of the case of the appellant / assessee that thebenefits of the research and development done by the Hosur unithaving been availed by their manufacturing unit at HimachalPradesh. 10. In the considered opinion of this Court, in order todraw presumption that Himachal Pradesh unit does not haveavailed the benefit of the research and development done by theHosur Unit, no material whatsoever has been placed by theappellant/assessee, before the assessing officer. It is not thecase of the assessee that the unit at Himachal Pradesh is havingit's own Research and Development Unit. 11.The considered opinion of this Court is that theAssessing Officer as well as CTI (Appeals) and the ITAT, hadthoroughly gone into the factual aspects and legal position andrightly arrived at the conclusion as to the plea made by theappellant. In sum and substance, the findings rendered by theauthorities are concurrent in nature and therefore, there are nosubstantial questions of law arise for consideration in thisappeal. 12. Therefore, this appeal is dismissed, confirming theimpugned order of the Income Tax Appellate Tribunal inI.T.A.No.1665/Mds/2017 dated 08.12.2017. No costs. Sd/- Assistant Registrar(CS IV) //True Copy// Sub Assistant Registrar bga TO 1. The Deputy Commissioner of Income Tax Corporate Circle 2 (2) Nungambakkam Chennai 600 034. 2. The Income Tax Appellate Tribunal "C" Bench, Chennai. 3.The Commissioner of Income Tax (Appeals-6), Chennai-34. +1cc to Mr.Subbaraya Aiyar Padmanabhan, Advocate, S.R.No.18580+1cc to Mr.Karthik Rangahathan, S.R.No.18123NR(CO)EU 9.7.2020 Tax Case (Appeal) No.470 of 2018