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ACIT, Circle-II, Faridabad. vs. Porritts & Spencer Ltd. CGO Complex, N.H. IV, Plot No. 113-114, Sector-24, Faridabad.
September, 04th 2014
                        DELHI BENCH `F', NEW DELHI


                                 ITA No. 1697/Del/2011
                                 Assessment Year: 1993-94
 Porritts & Spencer (Asia) Ltd.,                    vs.    ACIT,
 (Now known as M/s Voith Paper Fabrics India Ltd.)         Circle-II,
 Plot No. 113-114, Sector-24,                              CGO Complex, N.H.IV,
 Faridabad.                                                Faridabad.
 (Appellant)                                               (Respondent)
                                     ITA No. 2090/Del/2012
                                 Assessment Year: 1993-94
 ACIT,                                              vs.    Porritts & Spencer Ltd.
 Circle-II, CGO Complex, N.H. IV,                          Plot No. 113-114,
 Faridabad.                                                Sector-24, Faridabad.
  (Appellant)                                              (Respondent)
                       Appellant by : Sh. Manoj Kumar Chopra, Sr. DR
                         Respondent by : Sh. Santosh K. Aggarwal, Adv.


 These appeals have been filed by the assessee and the Revenue

pertaining to 1993-94 assessment year are being decided by a common

order for the sake of convenience. The assessee has filed its appeal against

the order dated 12/01/2011 of CIT(A)-Faridabad on various grounds.

However, at the time of hearing the arguments were confined to ground no.

2 which reads as under: -

  2. "Whether, in the facts and circumstances of the case and in law, the ld.
  CIT(A) was justified in not following the decision of the Hon'ble Tribunal
                          ITA Nos. 1697/Del/2011 & 2090/D/2012                2

     passed in appellant's own appeal for the A.Y. 1994-95 ITA No. 1232/Del/2006;
     on 20.02.2009."
2.       The Revenue in its appeal against the order of the CIT(A)-Faridabad

dated 16/02/2012 passed on the rectification petition filed by the assessee

u/s 154 of the Income Tax Act, 1961 contends that the CIT(A) has reviewed

its order. The record shows that the assessee in his petition filed u/s 154 of

the Act pleaded that while deciding the appeal the issue pertaining to

assessee's claim of deduction on account of Scientific Research &

Development addressed vide ground no. 2 before the CIT(A) as per original

grounds thereafter substituted by the revised ground no. 3(iii) before the

CIT(A) remained un-adjudicated by mistake as such the same may be


3.       Both the parties qua their respective appeals have been heard and as

far as the non-adjudication of the specific ground before the CIT(A) is

concerned. This fact is not disputed.

4.       We have heard the rival submissions and considered the material

available on record including information obtained under the RTI by the

assessee which has been considered by the CIT(A) and the order dated

20/02/2009 of the Tribunal in assessee's own case on similar facts and

circumstances on which reliance has been placed by the ld. AR.

5.       The specific argument of the ld. Sr. DR was that he relies on the

assessment order as on going through the material available on record the
                        ITA Nos. 1697/Del/2011 & 2090/D/2012                 3

finding recorded in the order dated 16/02/2012 of CIT(A)-Faridabad which is

supported by the relevant documents in the paper book he could not refer to

any fact or position in law in order to canvas a contrary view.

6.      The relevant facts of the case are that the assessee who declared an

income of Rs. 4,59,13,380/- claimed as a deduction expenditure of Rs.

47,85,600/- on Scientific Research related to his business.            The said

expenditure consisted of revenue expenditure of Rs. 20,30,199/- and capital

expenditure of Rs. 27,55,401/-. In support of the said claim reliance was

placed upon the provisions of section 35 of the Act and the renewal of

recognition to in house research and development unit of the assessee at

Faridabad, Haryana after 31/03/1994 granted by the Government of India,

Ministry of Science & Technology, Depart of Scientific & Industrial Research,

New Delhi.       Whereas the AO allowed revenue expenditure, capital

expenditure was not allowed by him. The said action was challenged in

appeal before the CIT(A) who however failed to adjudicate upon the issue

resulting in the appeal filed by the assessee. The assessee also moved a

rectification u/s 154 before the CIT(A) which was allowed. Resulting in the

appeal of the Revenue it is seen that the CIT(A) in his impugned order u/s

154 decided the issue in the following manner:

     3. "I have considered the submissions filed by the ld.Counsel for the
     appellant. In the appellate order dated 12.01.2011, the issue regarding
     allowability of deduction u/s 35 for expenditure on scientific research was
     decided in para 6.1 of the order. The decision was based on the remand
     report of the AO dated 11.08.2006, in para (ii) of which, the AO submitted
                     ITA Nos. 1697/Del/2011 & 2090/D/2012                     4

that, "As directed by the ld. CIT(A) by his order in appeal No. 147/96-97
dated 12.12.1999, a reference has been made on 11.08.2006 to the
prescribed authority for their decision in the matter". This was the sole
reasons distinguishing the facts of appellant's case for AY 2003-04 from AY
2004-05 wherein the Hon'ble ITAT had allowed the claim of deduction for
expenditure on scientific research when no reference was made by the AO. In
view of the contentions raised by the appellant in rectification application, the
case records were requisitioned vide letter dated 09.12.2011 and examined on
being submitted by the AO on 16.12.2011. Since, no reference was found to
have been made, the AO, vide letter dated 21.12.2011, was directed to clarify
the position as under:
 "2. The assessment records (in 4 volumes) of above named assessee have
 been received through your letter dated 14.12.2011. On examination of
 case records, it is revealed that the copy of reference dated 11.08.2006
 made to prescribed authority in connection with claim of expenditure on
 scientific research and development has not been found to be on records.
 In my appellate order dated 12.01.2011 in appeal No. 195/2002-03
 (74/2010-11), the Ground No. 2 of appeal has been decided vide para 6.1
 of the appellate order rejecting the ground of appeal after considering the
 Remand Report dated 11.08.2006 u/s 35D of the Act. In assessment year
 1994-95, Hon'ble ITAT allowed relief only on the ground that when the
 AO chooses not to refer the matter to the prescribed authority, the deletion
 made by ld.CIT(A) was right. The appellant has filed an application u/s
 154 against the appellate order dated 12.01.2011, which is pending
 adjudication. You are directed to clarify only two points:
         (i)    Whether a reference as stated in Remand Report dated
                11.08.2006 has been made;
         (ii)   If so, a copy thereof.
 The report in the matter may be submitted to this office on or before
 10.01.2012 positively. The case records are returned herewith in 4
3.1 The AO, vide letter F.No. ACIT/C-II/FBD/2011-12/6190 dated
30.01.2012 has submitted as under:
 "In this connection, it is submitted that on request of the assessee all
 possible efforts were made by this office to locate the said relevant
 record/letter but unfortunately the said particular record has not been
 located till date though assessment records for the AO 1993-94 in four
 volumes is available, which was also submitted to your goodself vide letter
 dated 14.12.2011".
3.2 The appellant has also sought information under Right to Information
Act and a copy of information submitted by the AO is filed on record. On
                          ITA Nos. 1697/Del/2011 & 2090/D/2012                    5

     examination of case records, the report of the AO and the information
     provided under the RTI Act, it is abundantly clear that the AO has not
     referred the matter u/s 35(3) to the prescribed authority. If that being so,
     the facts of the case remain identical to that of A.Y. 1994-95 wherein the
     Hon'ble ITAT has decided this issue in favour of the assessee. Therefore, in
     absence of any reference to the prescribed authority for AY 2003-04 and in
     view of the order of Hon'ble ITAT in the appellant's own case for AY 1994-
     95, the decision in para 6.1 of the order dated 12.01.2011 taken against the
     assessee was opposed to the decision of Hon'ble ITAT in the identical facts
     and circumstances and constitutes a mistake apparent from records.
     Consequently, the AO is directed to allow deduction of Rs. 27,55,408/- u/s
     35 of the Act on account of expenditure on scientific research. It may be
     reiterated that in the assessment order, the AO has held part of the
     expenditure on scientific research as capital in nature but did not allow any
     depreciation. The depreciation on such capital expenditure was allowed
     vide order u/s 154 dated 14.06.1996 and subsequently modified vide order
     u/s 154 dated 19.07.1996. consequent to the decision allowing deduction for
     expenditure on scientific research, the AO is directed to withdraw the
     depreciation granted in the year under appeal as well as in subsequent years
     as per the provisions of law."
7.      It is seen that not only the view taken is in full accord with the view of

the ITAT in assessee's own case, similar issue came up for consideration

before the Punjab & Haryana High Court in the case of CIT vs. FCS

International Marketing Pvt. Limited, 283 ITR page 32 (P&H), wherein their

Lordships came to the following conclusion:

     6. "We are unable to agree with ld. Counsel. It is manifestly clear from the
     impugned order that the Tribunal's conclusion that the Assessing Officer
     was duty bound to refer the matter to the specified authority for its opinion,
     not only because of a specific direction to that effect by the Tribunal in its
     earlier order but also on account of the provisions of sub-section (3) of
     section 35 of the Act. It provides that if any question arises under this
     section as to whether, and if so, to what extent, any activity constituted, or
     any asset was being used for scientific research, the Board shall refer the
     question to the prescribed authority, whose decision shall be final. The AO
     was duty bound to strictly comply with the statutory provisions as also the
     direction by the Tribunal. Admittedly, no such reference was made by the
     AO and, therefore, there was no occasion for the Board also to refer the
     same to the prescribed authority. In view of the said factual scenario, no
                        ITA Nos. 1697/Del/2011 & 2090/D/2012                  6

    fault can be found with the impugned order. An assessee is not expected
    to undergo the process of an endless litigation on account of inaction on
    the part of the AO. In our opinion, no question of law, much less a
    substantial question of law, arises from the impugned order."
                                               (emphasis provided by the Bench)
7.1    In the aforementioned peculiar facts and circumstances, we are of the

view that in the absence of any specific argument assailing the facts or

position of law we find no good reason to come to a contrary finding. On a

consideration of the peculiar facts and circumstances of the case we hold

that rectification order in the facts as they stand does not amount to a review

as admittedly the ground was not decided by the CIT(A) by mistake while

passing the order dated 12.1.2011. We have taken ourselves through the

order of the Tribunal followed by the CIT(A), wherein the expenditure has

been denied for no fault to the assessee and merely because the AO

chooses not to refer the matter to the prescribed authority does not warrant

any interference. We find that the incurring of expenditure has not been

doubted. Respectfully following the order of the Tribunal the departmental

appeal is dismissed.     Since the relief granted by the CIT(A) has been

confirmed by us on the reasoning that non-adjudication of the specific

ground in appeal by the CIT(A) in his order dated 12.01.2011 which

necessitated the filing of rectification petition u/s 154 cannot be said to an act

of reviewing the order as admittedly in the order dated 12.1.2011 mistake

rectifiable u/s 154 had occurred which was corrected in the order dated
                         ITA Nos. 1697/Del/2011 & 2090/D/2012                      7

  16.2.2012. Thus, since the order dated 16.2.2012 has been confirmed the

  assessee's appeal becomes infructuous.

  8.       In the result, the appeal of the department is dismissed and the

  assessee's appeal becomes infructuous.

    The order is pronounced in the open court on 29th August 2014.

    Sd/-                                                                    Sd/-
(J.S. REDDY)                                                        (DIVA SINGH)
ACCOUNTANT MEMBER                                                JUDICIAL MEMBER
Dated: 29/08/2014

Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
                       TRUE COPY
                                                                By Order,

                                                      ASSISTANT REGISTRAR
ITA Nos. 1697/Del/2011 & 2090/D/2012   8
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