TMI Blog2022 (11) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO, on the issue of deduction claimed towards R D expenditure incurred for Bio-pharma division. Hence, we are inclined to uphold the order passed by the PCIT u/s. 263 of the Act and dismiss the appeal filed by the assessee. - ITA No. 1719/Chny/2018 - - - Dated:- 14-10-2022 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER Appellant by : Shri. T.S. Lakshmi Venkataraman, CA Respondent by : Shri. S. Palani Kumar, CIT ORDER PER G. MANJUNATHA, ACCOUNTANT MEMBER : This appeal filed by the assessee is directed against the order passed by the learned Principal Commissioner of Income Tax [PCIT], Salem, dated 08.03.2018 u/s. 263 of the Incometax Act, 1961 (hereinafter referred to as the Act ) and pertains to assessment year 2013-14. 2. The assessee has raised the following concise grounds of appeal: 1. On the facts and circumstances of the case the learned PCIT is not justified in invoking the provisions of section 263 of the Act to set aside the order of the Assessing officer dated 31/03/201-6 passed u/s143(3) of the Income tax act. 2. On the facts and circumstances of the case the learned PCIT is not justified in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served on the assessee and called upon to explain as to why the assessment order passed by the AO u/s. 143(3) of the Act dated 31.03.2016 shall not be revised. In the said show cause notice, the PCIT observed that the assessee claimed deduction u/s. 35(1) of the Act for Rs. 10,70,08,883/- towards expenditure for R D for Bio-pharma division. However, said expenditure has been allowed as deduction u/s. 35(1) of the Act, even though the assessee has not commenced commercial activity which is evident from the fact that there is no revenue from operations from Bio-pharma division. The AO without verifying necessary facts simply allowed the claim of the assessee which rendered the assessment order to be erroneous and prejudicial to the interest of the revenue. 5. In response to the show cause notice, the assessee submitted that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. The AO has considered the view of deduction towards R D expenditure u/s. 35(1) of the Act, after considering the explanation of the assessee for weighted deduction u/s. 35(2AB) of the Act and opined that the assessee is not entitled for weighted deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of the Company appeared on 23.02.2018 and the case was discussed with him. 2.1 On perusal of the records, it is seen that the expenditure of Rs. 10,70,08,883/- claimed by the Bio-Pharma division of the company is not allowable since no commercial- activity is shown by that division and the expenditure is in the nature of pre-operative expenses. The expenditure is allowable only if the assessee started commercial activities and shown- results from such commercial activities. 2.2 The Managing Director of the assessee company filed written submissions dated 23.02.2018, wherein it is stated that:- .........The company's agro division is in operation since 1998 and its biotech division was started in the year 2005 intended to manufacture and trade latest pharmaceutical and bio similar molecules : . . . . . . . . The company has applied for exemption of its R D expenditure under section 35(2AB) and got the approval by Form #CM initially up to March 2012 and then renewed up to 31.03.2015. (Copies of the same are herewith submitted for your information and record.) ........ ...The project was capitalized as on 31.03.2012 and all the expenses incurred till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The AO after considering relevant submissions has rightly allowed the claim of the assessee and thus, the PCIT cannot assume jurisdiction u/s. 263 of the Act. 8. The Ld. CIT(DR) appearing for the revenue referring to various documents including audited financial statement of the assessee for the assessment year 2013-14 submitted that from the audited financial statement and information submitted by the assessee before the AO during the assessment proceedings, it is very clear that from Bio-pharma division there is no income from operations. Further, the assessee had only claimed expenditure of Rs. 10,70,08,883/-, even though there is no commercial activity in the impugned assessment year. The AO has allowed total expenditure claimed for Bio-pharma division which rendered the assessment order passed by the AO erroneous and prejudicial to the interest of the revenue and thus, the PCIT has rightly invoked jurisdiction and set aside the assessment order and their order should be upheld. 9. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The provisions of section 263 empowers the PCIT to invoke his jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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