ORDER These are appeals filed by Revenue against order of learned CIT(A), Dehradun, dt. 29th Sept., 2005 for asst. yrs. 1999-2000, 2002-03 and 2001-02.The assessee has also filed cross-objection in asst. yr. 1999-2000. Following grounds of appeal have been taken by Revenue : ITA No. 4517/Del/2005 (asst. yr. 1999-2000) : "(1) That learned CIT(A) has erred in law and on facts in allowing deductions under s. 80-O of IT Act, 1961, amounting to Rs. 51,25,370 to assessee company without appreciating fact that patents were in name of Shri Rakesh Goel and not in name of company i.e. M/s S.K. Dynamics (P) Ltd. (2) The, order of learned CIT(A) be set aside and that of AO be restored." ITA No. 4518/Del/2005 (asst. yr. 2002-03) : "(1) That learned CIT(A) has erred in law and on facts in allowing deductions under s. 80-O of IT Act, 1961 amounting to Rs. 52,85,620 to assessee company without appreciating fact that patents were in name of Shri Rakesh Goel and not in name of company i.e. M/s S.K. Dynamics (P) Ltd. (2) order of learned CIT(A) be set aside and that of AO be restored." 2 . Common grounds have been raised by assessee with regard to decline of deduction under s. 80-O of Act, in both asst. yrs. 1999-2000 and 2002-03. Rival contentions have been heard and record perused. brief facts of case are that assessee, M/s S.K. Dynamics (P) Ltd., was deriving income from research, development of patents and design, prototype manufacturing and production of electro-mechanical systems. AO found that assessee had following two patents only : (i) US patent : Control system for permanent magnet Synchronous motor (ii) US patent : Gate driver and hysteresis circuit. 3. assessee has shown following patents as pending for approval : (1) US patent pending : Apparatus and method for generating gravitational force/gravitational field. (2) Indian patent pending : Electrical transmission based verticle take-off and landing vehicle. (3) Indian patent pending : Apparatus and method for generating gravitational force/gravitational field (Design). (4) Indian patent pending : Apparatus for gravity generation (Design II). (5) Indian patent pending : Electronic compass (6) Indian patent pending : Geared permanent magnet synchoronous motor (7) Indian patent pending : Communicationless DC motor 4 . AO found that entire royalties received by assessee from M/s Analog Device Inc., USA (herein called ADI), related to use outside India of first mentioned two patents and for certain technical designs only. AO further found that in respect of both these patents, inventor was Shri Rakesh Goel of Roorkee and assignee was Analog Device, USA. AO therefore held that owner of these patents was Shri Rakesh Goel and not assessee company and held that assessee was not entitled to deduction under s. 80-O. While refusing deduction under s. 80-O, AO observed that so- called patents were in respect of inventions made by Shri Rakesh Goel. It is clear from patents itself that inventor of same was Shri Rakesh Goyal, Roorkee, India, and assignee of same was Analog Device Inc., Norwood. Hence, as per AO above referred patents were property of Shri Rakesh Goyal in his individual capacity. fact that Shri Rakesh Goyal is managing director of assessee company depicts distinctly separate identity of Shri Rakesh Goyal. AO further stated that in cl. 4 under sub-heading Main Objects To Be Pursued By Company, of memorandum of association and article of association of assessee, it has been resolved as under : "To continue to maintain clear identity of its own in terms of premises, laboratories, workshop, equipment and test, pilot plants, reference and calibration facilities, library, prototype development facilities to meet research and development requirements." Further, in cl. 4 of para B of memorandum of association and article of association of assessee having sub-heading Objects Incidental Or Ancillary To Attainment Of Main Object, it is stipulated as under : "To sell and to receive royalty on embedded software in any form developed by company which does not employ any manufacturing process." Hence, as per AO, since inception of assessee company not only clear separate identity was conceptualized but also it was resolved that assessee company would sell and receive royalty on embedded software in any form developed by company. Hence, in view of abovenoted facts, and legal position in respect of company being separate person, it was held by AO that identity of company cannot be coalesced with that of Shri Rakesh Goyal, individual, notwithstanding fact that Shri Rakesh Goyal was managing director of company. 5. AO also observed that term of appointment and powers to be exercised by managing director as well as terms of remuneration to be paid to managing director, were explicitly stipulated in memorandum o f association and article of association of assessee company. As regards assessee s condition that "A genuine remuneration for this technical task in shape of commission for technical development etc. has to be paid by M/s SK Dynamics (P) Ltd.", AO noticed that payment of remuneration cannot make company owner of patents which are property of Shri Rakesh Goyal, notwithstanding that he was managing director of assessee company. 6. In view of above discussion, AO reached to conclusion that assessee company was not entitled for deduction in respect of income earned by it in foreign convertible exchange from research, development of patents and designs, prototype manufacturing and production of electro-mechanical system. 7. By impugned order, after recording detailed findings, CIT(A) directed for allowing deduction under s. 80-O by observing that assessee company derived royalty as consideration for use of patents and design in convertible foreign exchange from ADI in respect of patents and designs developed by it under development, production and licensing agreement dt. 14th May, 1995 entered into between assessee company and ADI. CIT(A) further recorded finding that Shri Rakesh Goyal is managing director of company and is employed by company as scientist, research undertaken by company leading to patent bars consumed as input, both human skill and labour of Shri Rakesh Goyal, scientist and physical researches of assessee company like laboratory and equipment. CIT(A) further found that Shri Rakesh Goyal has been paid adequately by assessee company and there is indeed no tacit agreement between Shri Rakesh Goyal and assessee company by which assessee company alone was beneficial owner of patent developed by Shri Rakesh Goyal. CIT(A) observed that assessee company has been represented by Shri Rakesh Goyal himself. He has participated in securing for assessee company and not for himself, entitlement to receive royalties due from ADI. This is confirmed beyond any reasonable doubt whatsoever, that ownership or at least beneficial ownership to patents and designs vests with assessee company. 8 . In pp. 4.4 and 4.5 of his appellate order, CIT(A) (has) also given categorical finding regarding fulfilment of all conditions for claim of deduction as provided under s. 80-O of Act. With regard to quantum of deduction to be allowed out of receipt in convertible foreign exchange, CIT(A) directed AO to take net receipts after reducing 15 per cent of total resources utilized for earning receipt, while allowing deduction under s. 80-O of Act. 9 . Aggrieved by above order of CIT(A), Revenue is in appeal before us. 10. It was contended by learned Departmental Representative Shri BP Mishra that patents were in respect of invention made by Shri Rakesh Goyal and assignee of same was ADI, therefore, Rakesh Goyal was entitled to have benefit of deduction under s. 80-O of Act and not assessee company. He further placed reliance on order of AO. 11. On other hand, learned Authorised Representative, Shri KP Garg submitted that assessee company was set up in year 1992 for pursuing research and developed (R&D) projects in area of electro-mechanical engineering digital signal processing, power electronics and systems engineering. It was duly recognized by Department of Scientific and Industrial Research, Ministry of Science & Technology, Government of India, as in-house R&D unit. He further observed that in recognition of and in course of R&D activities, assessee company has won several prestigious awards. deduction under s. 80-O was consistently allowed by Department in earlier years and there was no change in facts and circumstances during year under consideration, AO was patently wrong in observing that managing director of company, Shri Rakesh Goyal, was owner of patent so developed by assessee company. It was assessee company which has entered into agreement with ADI for use of patents and designs developed by it, and convertible foreign exchange was also received by assessee company in terms of agreement so entered dt. 14th May, 1995. He drawn our attention to various documents placed on record, which were submitted before AO, and relied on by CIT(A) for recording detailed finding regarding ownership of patent by assessee company and eligibility of assessee company with regard to fulfillment of various conditions for allowing deduction stipulated under s. 80-O of Act. 12. We have considered rival contentions, carefully gone through orders of authorities below and also deliberated on case law cited by lower authorities in their respective orders and referred by learned Authorised Representative and Departmental Representative during course of hearing before us. From record, we found that assessee company was set u p for pursuing research and development (R&D Project) since 1992. It was recognized by Department of Scientific & Industrial Research, Ministry of Science & Technology, Government of India, as in-house R&D unit since 1995. In respect of foreign exchange earned by assessee company from research and development of patent designs and its use, was duly supported by agreement entered into with ADI dt. 14th May, 1995. claim of deduction under s. 80-O in respect of convertible foreign exchange received by assessee company was declined by AO by incorrectly assuming that patents are property of Shri Rakesh Goyal instead of assessee company, M/s S.K. Dynamics (P) Ltd. We found that Shri Rakesh Goyal was managing director of company and was employed by assessee company as scientist. patents so developed by employee, Shri Rakesh Goyal, was for and on behalf of assessee company. assessee company has paid to Shri Rakesh Goyal for services rendered by him, during process of search, invention, physical resources of assessee company like laboratory and equipments were used. There was agreement between assessee company and Shri Rakesh Goyal, according to which assessee company alone was beneficial owner of patents so developed by Shri Rakesh Goyal. Since assessee company was artificially created entity, only human being can become inventor and not any company. detailed finding has been recorded by CIT(A), which is as per material on record, to effect that beneficial ownership of patents and designs vested with assessee company and not with Shri Rakesh Goyal. As per provisions of s. 80-O for claiming deduction, income should be derived by assessee including company who is resident in India and such income should be received from Government of foreign State or foreign enterprise, as consideration for use outside India of any patent, invention, design or registered trademark. Such income should be in convertible foreign exchange or should be received outside India and converted outside India in convertible foreign exchange and should be brought into India by or on behalf of assessee in accordance with law within six months from end of previous year or within such extended time as competent authority may allow in this regard. However, for claiming of such deduction, assessee is statutorily required to furnish certificate in prescribed form being Form No. 10HA, certifying that deduction has correctly been claimed in accordance with provisions of s. 80-O of Act. AO has not found any fault in certificate so furnished by assessee. Furthermore, with respect to all conditions stipulated under s. 80-O, AO has not expressed any reservation for non-compliance thereof. Only reservation of AO was that assessee company is not owner of patent. However, as per Indian law, ownership of invention made by employee rests with company in absence of any contract to contrary. In instant case, no material has been indicated by AO to indicate that patents so invented do not belong to assessee company but to its employee, Shri Rakesh Goyal. On basis of material placed on record, we are satisfied that no fault can be found in findings recorded by CIT(A) to effect that ownership of invention made by Shri Rakesh Goyal, in course of employment rests with employer, M/s S.K. Dynamics (P) Ltd. (the assessee). 1 3 . In view of above discussion, we are inclined to agree with learned Authorised Representative that assessee company was entitled for claim of deduction under s. 80-O of Act, both for asst. yrs. 1999-2000 and 2002-03, and no interference is called for in findings recorded by CIT(A) with regard to ownership of patents and fulfilment of prerequisite conditions for allowing deduction under s. 80-O of Act. 14. In result, appeals of Revenue for asst. yrs. 1999-2000 and 2002-03 are dismissed. C.O. No. 64/Del/2006 : 15. In asst. yr. 1999-2000, assessee has filed cross-objection, objecting reassessment proceedings initiated under s. 147 of Act. As per learned Authorised Representative, there was only change of opinion which did not empower AO to reopen completed assessment, when primary facts necessary for assessment were fully and truly disclosed. For this proposition, he relied on decisions of Hon ble Supreme Court in cases of CIT vs. Dinesh Chandra H. Shah (1971) 82 ITR 367 (SC) and CIT vs. Simon Carves Ltd. 1976 CTR (SC) 418 : (1976) 105 ITR 212 (SC) and Swedish East Asia Co. Ltd. vs. IAC (1989) 79 CTR (Cal) 249 : (1989) 180 ITR 47 (Cal). Learned Authorised Representative further submitted that in instant case, AO has reopened completed assessment just to re-examine and review completed assessment to find out some more facts to enable AO to determine whether any income has escaped assessment, whereas s. 147 authorises AO to reassess any income which has escaped assessment on basis of positive material. As per learned Authorised Representative, it does not authorize him to review and re-examine case, even if different view has been taken in any subsequent years or as per subsequent information with AO. Under provisions of s. 147, AO is not authorized to rectify every mistake committed by predecessor or himself while making assessment for earlier years. In support of his contention reliance was placed on various decisions of High Courts reported as CIT vs. B.A. Rajakrishnan (1996) 136 CTR (Ker) 120 : (1997) 226 ITR 323 (Ker), CIT vs. Sun Engg. Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC), S. Hariniwas Chowdry vs. Asstt. CIT (2000) 246 ITR 256 (Mad) and Arjun Singh vs. Director of IT (2000) 159 CTR (MP) 53 : (2000) 246 ITR 363 (MP). As per learned Authorised Representative subsequent findings is no ground for issue of notice under s. 148 and for making reassessment under s.147 in every case. There is no provision in law for reassessment for completed cases merely on ground that some additions have been made in subsequent year, as has been done in case of this assessee. wrong disallowance made in subsequent year has been utilized for issue of notice under s. 148 for asst. yr. 1999-2000. As per Authorised Representative, in case of Dinesh Chandra (supra) after considering existing case law in Bhimraj Panna Lal vs. CIT (1957) 32 ITR 289 (Pat), affirmed in Bhimraj Pannalal vs. CIT (1961) 41 ITR 221 (SC) and others, Hon ble Supreme Court held, "The rule that AO is entitled to act on information obtained after original assessment from record of assessment itself does not permit fresh application of mind to same issue or enable AO to correct his own or his predecessor s errors of judgment, AO cannot take any action under this section merely because he happens to change his opinion or to hold opinion different from that of his predecessor, on same set of facts." 16. On other hand, learned Departmental Representative supported action of CIT(A) in holding reassessment proceedings as validly initiated, and in support of it, he relied on decisions cited and reported at ITO vs. K.L. Srihari (HUF) (2002) 176 CTR (SC) 99 : (2001) 250 ITR 193 (SC) and V. Jaganmohan Rao vs. CIT (1970) 75 ITR 373 (SC). As per learned Departmental Representative, if reopening is on one ground, AO can go on another ground while framing reassessment. 17. We have considered rival contentions, carefully gone through decisions cited by learned Authorised Representative and Departmental Representative with reference to validity of reopening and requisite conditions empowering AO to initiate reassessment proceedings where income has escaped assessment. 18. In instant case, we have already decided issue of deduction under s. 80-O on merits, in favour of assessee, therefore, technical ground raised by assessee regarding validity of reopening has become infructuous. 1 9 . In result, cross-objection filed by assessee is being infructuous, disposed of accordingly. ITA No.l700/Del/2005 : 20. appeal filed by Revenue bearing ITA No. l700/Del/05 relates to asst. yr. 2001-02, wherein following grounds of appeal have been raised : "(1) That learned CIT(A) has erred in law and on facts of case in treating capital expenditure to be of revenue nature appreciating fact that neither projects, except Analog Devices, were complete nor there was any nexus between amount of expenditure incurred and profits to be earned in subsequent years, if any. (2) That learned CIT(A) has erred in law and on facts of case in ignoring provisions of s. 35(l)(iv) of IT Act, 1961 which state that expenditure of capital nature can be allowed as deduction only if it is related to business. (3) That learned CIT(A) has erred in law and on facts of case in not appreciating fact that assessee had itself admitted that only 8 per cent of total expenditure was spent towards project, namely, Analog Devices which earned income. (4) That learned CIT(A) has erred in law and on facts of case in treating appellant company as R&D company without appreciating fact that certificate for purpose of s. 80-IB(8) was effective from asst. yr. 2003-04 and not for year under scrutiny which was 2001-02." 21. Rival contentions have been heard and record perused. Facts in brief are that assessee was in business of R&D since its inception. It has been incurring expenditure on research and development. assessee s incomes have come from its findings of research and sale of prototypes, use of registered patents, technical know-how, etc. process of development in scientific field is long-drawn affair. results come over years after hard and prolonged effort and hours that have gone into various projects. During course of scrutiny assessment, AO disallowed sum of Rs.1,03,87,205 equal to 92 per cent of expenditure incurred by assessee on account of various expenditures on premises that these were incurred on projects under implementation and question of receving any revenue in future was still not known and hence expenditure claimed as business expenditure by assessee could at best be treated as capital expenditure. AO has discussed issues relating to aforesaid disallowance in para 4 of assessment order and held that out of total expenditure incurred by assessee only 8 per cent expenditure can be treated as revenue and balance of 92 per cent is to be treated as capital expenditure. By impugned order, CIT(A) allowed claim of expenses by observing that assessee is R&D company and that during year assessee was fully engaged in its business activities and had also effected sales of Rs. 14.69 lacs. relevant issue in present appeal revolves around nature of assessee s business and allowability of expenditure incurred by it. Undisputedly, assessee is R&D company engaged in research, development of patents/designs, prototype, manufacturing products of electro-mechanical system. AO acknowledges this fact at para 2 (p. 1) of his order where he remarked, "The income declared by assessee during year under consideration is by way of manufacturing/sale of E-Cycle and various other products, receipts in foreign currency in form of royalty, interest income, etc. assessee has been working on number of projects during year, but receipt in foreign currency is only from one project, namely, Analog Devices Inc.(ADI)." Further, AO remarks at para 4.1 of order at p. 6, "the reply of assessee has been considered. assessee itself admitted that remaining expenditure i.e. 92 per cent was spent towards sales as per P&L a/c and ongoing R&D work for which patents were pending or R&D work had not finished." 22. Before AO, assessee has furnished copy of audit report under s. 44AB, wherein cl. 8(a) specifies nature of assessee s business. Explanation on nature of business was also filed vide letter dt. 27th Nov., 2002 and copy of certificate of approval as R&D company under s. 80-IB of Act was also filed. On basis of these documents, AO has duly accepted fact that assessee is R&D company. As R&D company, its nature of activity is not just material to facts of present case, but most important and relevant, conclusive and determinative in deciding issue whether expenditure in question was allowable or not. expenditures debited in P&L a/c which have been disallowed by AO are of following heads of accounts : S. No. Head of Account Amount (a) Salary and other benefits 43,60,365 (b) Administrative expenses 50,86,649 (c) Interest and bank charges 40,893 (d) Repairs & Maintenance 8,01,565 (e) Depreciation as per IT Rules 13,16,577 23. In view of nature of assessee s business being R&D company, even if some of projects in question were not completed during year expenditure incurred on project in progress cannot be disallowed. From record, we found that during year assessee has also earned income in foreign currency from use of patents, also made sales amounting to Rs.14.69 lacs which have been duly reflected in audited P&L a/c, as placed before AO. assessee s business is going concern concept, expenditures are booked on accrual basis, same have been incurred to earn revenue and not to create any capital assets.Even if part of such expenditure has been incurred on projects, in respect of which scientific research continues and end result is not yet achieved but might be achieved after few years, it would bring business revenue to assessee. Undisputediy and evidently, all aforesaid expenditures incurred by assessee were revenue in nature, which have been wrongly treated by AOas capital expenditure. We found that assessee company was assessed to tax since 1993, it has been regularly accounting for expenditure and income on accrual basis, basis of accounting of assessee is consistent with AS-8 issued by ICAI of India which specifies that costs of R&D are to be charged to expenses in period in which they are incurred. Department has never in past questioned method of accounting of assessee. assessee s method of accounting is consistent with one followed in preceding years. 24. action of AO in interpreting provisions of s. 35 was also misplaced. According to s. 35(1)(i) any expenditure (not being in nature of capital expenditure) laid out or expended on scientific research related to business of assessee should be allowed as deduction. Explanation found below s. 35(1)(i) further provides for allowing even expenditure on payment of salary on purchase of materials for use in scientific research, even if incurred prior to commencement of business. provision allows for deduction of scientific research expenditure even if assessee is not entirely engaged in business of scientific research but carries out such research in connection with its business. However, in instant case, assessee company was solely engaged in business of scientific research, therefore, any business expenditure that it incurs, would be expenditure on scientific research related to its business hence allowable under s. 35(1) of Act. Even if AO takes stand of treating said expenditure as capital expenditure, even then s. 35(2)(ia) allows for deduction of said capital expenditure against business income of assessee. Hon ble Karnataka High Court in case CIT vs. H.M.T. Ltd. (1992) 108 CTR (Kar) 215 : (1993) 199 ITR 235 (Kar) has held that "deduction under s. 35(l)(iv) r/w s. 35(2) is available in respect of value of capital represented by work-in-progress and machinery in transit and under erection in assessee s research division". 25. Hon ble Allahabad High Court in case of J.K. Synthetics Ltd. vs. ITO 1975 CTR (All) 256 : (1976) 105 ITR 864 (All) held that if ITO does not accept claim of assessee made under s. 35, he cannot outrightly reject claim. He is required to refer matter to CBDT and Board has to refer question to prescribed authority. On such reference, decision of prescribed authority becomes final. above decision was taken in appeal before apex Court but this question was not pressed before Hon ble Court. Thus, Department has accepted decision of jurisdictional High Court. 26. In view of above discussion, we can safely conclude that AO was factually and legally wrong in making addition on account of revenue expenditure incurred by assessee by treating same as capital expenditure. No interference in findings recorded by CIT(A) is required for holding assessee as R&D company, as same are as per materials on record. Nothing was brought on record by learned Departmental Representative to persuade us to deviate from findings recorded by CIT(A) resulting in allowability of entire expenditures incurred by assessee which were undisputedly revenue in nature. 27. In result, appeal filed by Revenue is dismissed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. S.K. DYNAMICS (P) LTD.