COMMISSIONER OF INCOME TAX Vs. PANACEA BIOTECH LTD.

JUDGEMENT

(1.) THREE issues have been raised by the Revenue in this appeal under s. 260A of the IT Act, 1961. The first issue is that the Tribunal has erred in allowing depreciation on the flat purchased by the assessee at Mumbai. The second issue raised by the Revenue is that the Tribunal has erred in allowing expenditure made by the assessee for the purchase of two machines in the relevant year. The third issue canvassed is that Tribunal has erred in allowing expenditure incurred by the assessee on its R&D office and the same ought not to have been allowed.

(2.) QUA the first issue, the facts which have emerged from the record are that the possession of the flat was obtained on with the requisite amenities for using it as an office. Thus, the office was ready for use and functional and was actually used for the purpose of business. User of the flat is, therefore, a finding of fact by the two concurrent authorities below in which we need not interfere. The counsel for the Revenue has urged that passive user does not entitle the assessee to claim depreciation. In the facts of the case, there is an actual user and not passive user. Besides, so far use as an office is concerned, user of the same need not be full -fledged and nor is it so urged by the Revenue. Obviously, the assessee must have purchased this flat within the relevant financial year to take benefit of depreciation as tax planning. We do not see any illegality in the action of the assessee in the facts and circumstances of the case. The counsel for the Revenue has relied upon the judgment of the Bombay High Court in the case of Dineshkumar Gulabchand Agrawal vs. CIT (2004) 267 ITR 768 (Bom). However, since there are judgments of two Division Benches of this Court in the case reported as CIT vs. Refrigeration & Allied Industries Ltd. (2000) 163 CTR (Del) 498 : (2001) 247 ITR 12 (Del) and Capital Bus Service (P) Ltd. vs. CIT (1980) 17 CTR (Del) 155 : (1980) 123 ITR 404 (Del), we would be bound by the same. In the case of Refrigeration & Allied Industries Ltd. (supra) it had been held by this Court that the expression

(3.) SO far as the contention with regard to the disallowing the claim on the expenditure incurred on the purchase of two machineries is concerned, the counsel for the Revenue has urged that though with respect to the first machinery an advance payment was made within the assessment year, with respect to the second machinery no payment at all was made. It was, therefore, urged that since expenditure was not incurred within the meaning of the provision of s. 35(2) (ia), it was said that in the present assessment year the benefit of the same cannot be claimed and it would be entitled only in the next assessment year. Per contra the counsel for the assessee has urged that the books of accounts were maintained on mercantile basis and, therefore, since the invoices were raised within the relevant financial year and since a letter of credit was already opened with respect to the second machinery, it cannot be said that expenditure was not incurred. It was argued that a debt incurred is an expenditure incurred within the meaning of the expression "expenditure is incurred" occurring in s. 35(2)(ia). The counsel for the assessee drew the attention of this Court to s. 43 sub -s. (2) of the Act which defines the expression "paid" to mean actually paid or incurred according to the method of accounting upon the basis of which profits or gains are computed. It is not disputed by the Revenue that the books of accounts are maintained by the assessee on mercantile basis. This is also the concurrent finding of the two authorities below. In the mercantile method of accounting incurring of the expenditure is not based on payment but on the liability to pay. Once the goods have been purchased, the invoices raised and the purchase considerations are accounted for in the books of the assessee, the expenditure can be said to have been incurred as per the method of accounting followed by the assessee. Counsel for the assessee has rightly relied upon the judgment reported as Belpahar Refractories Ltd. vs. CIT (1994) 118 CTR (Ori) 181 : (1994) 207 ITR 144 (Ori) in which the Division Bench of the Orrisa High Court has held that incurring of expenditure for scientific research means "to become liable to" i.e., to incur a debt and at such time the expenditure can be said to have been incurred. It was further held that the expression "incurring" includes either an actual payment or that the concerned person has become liable for payment but had not actually made payment. We agree with this view since in the facts of this case the position which has emerged from the record is that the assessee has maintained its books on a mercantile basis.