2019 (3) TMI 2014 - HC - Income Tax

Benefit of deduction u/s 35(2AB) - approval for the R D activities were given in the subsequent assessment years and not for assessment year under consideration - HELD THAT - As decided in assessee own case 2019 (2) TMI 535 - BOMBAY HIGH COURT l High Courts have held that such research and development activity once approved by the competent authority the approval would relate back to the date of application. Reference in this respect can be made to the decision of CIT Vs. Claris Lifesciences Ltd. 2008 (8) TMI 579 - GUJARAT HIGH COURT and the decision of Sandan Vikas (India) Ltd . 2011 (2) TMI 66 - DELHI HIGH COURT We are informed that the decision of Delhi High Court in case of Sandan Vikas (India) Ltd. (Supra) was carried in appeal before the Supreme Court and the SLP came to be dismissed by an order dated 2012 (1) TMI 408 - SC ORDER 09th January 2012. This question is therefore not entertained. Disallowance u/s 36(1)(va) being employee s contribution to provident fund and ESI - same were not deposited in the respective fund within the stipulated time - We notice that similar questions came up for consideration before this Court in Income Tax Appeal 2013 (2) TMI 922 - BOMBAY HIGH COURT (L) No. 2111 of 2012 in case of this very assessee where by order while dismissing the Revenue s Appeal these questions came up for consideration. These questions in the present appeal therefore are not entertained. Disallowance u/s 36(1)(iii) - interest on loans borrowed for advancing to its subsidiary companies in India and Overseas - HELD THAT - We notice that the Tribunal has held that the assessee had sufficient own interest free funds and therefore the disallowance was not justified. Deduction u/s 80HHC - whether the additional proceeds of export sales due to foreign exchange rate fluctuation would also qualify for deduction under Section 80HHC? - The Assessing Officer was of the opinion that the said amount cannot be said to have arisen out of the assessee s export business. The CIT(A) and the Tribunal however reversed the decision of the Assessing Officer holding that the amount in question was part of the assessee s export sales proceeds. This issue is considered by this Court on earlier occasions in cases of CIT Vs. Amber Exports (India) 2009 (2) TMI 427 - BOMBAY HIGH COURT and CIT Vs. Gem Plus Jewellery India Ltd 2010 (6) TMI 65 - BOMBAY HIGH COURT . Income Tax Appeal is dismissed.

Summary

Issues involved:
1. Benefit of deduction u/S. 35(2AB) for R&D activities in subsequent assessment years.
2. Disallowance u/S. 36(1)(va) for non-deposit of employee contributions to provident fund and ESI.
3. Allowability of interest on loans borrowed for advancing to subsidiary companies under Section 36(1)(iii).
4. Treatment of exchange rate fluctuation as business income under Section 80HHC.

Analysis:

Issue 1: Benefit of deduction u/S. 35(2AB) for R&D activities in subsequent assessment years
The Revenue appealed against the Tribunal's direction to grant the deduction u/S. 35(2AB) for R&D activities approved in subsequent assessment years. The High Court cited precedents where approval for R&D activities was deemed to relate back to the application date. Referring to decisions by various High Courts, the Court upheld the Tribunal's decision, dismissing the Revenue's objection.

Issue 2: Disallowance u/S. 36(1)(va) for non-deposit of employee contributions to provident fund and ESI
The Tribunal justified the deletion of disallowance u/S. 36(1)(va) concerning employee contributions to provident fund and ESI, despite delayed deposits. The Court noted the availability of sufficient own interest-free funds with the assessee, leading to the conclusion that the disallowance was not warranted. Thus, the Tribunal's decision was upheld in this regard.

Issue 3: Allowability of interest on loans borrowed for advancing to subsidiary companies under Section 36(1)(iii)
The Tribunal held that interest on loans borrowed for advancing to subsidiary companies in India and Overseas is allowable under Section 36(1)(iii) as the assessee had sufficient own interest-free funds. Consequently, the disallowance was deemed unjustified, and the Tribunal's decision was upheld by the High Court in this matter.

Issue 4: Treatment of exchange rate fluctuation as business income under Section 80HHC
Regarding the treatment of exchange rate fluctuation as business income under Section 80HHC, the Assessing Officer disagreed that the additional proceeds of export sales due to foreign exchange rate fluctuation qualified for deduction. However, the CIT(A) and the Tribunal reversed this decision, considering the amount as part of the assessee's export sales proceeds. The Court referred to previous cases and upheld the Tribunal's decision, dismissing the Income Tax Appeal.

In conclusion, the High Court dismissed the Income Tax Appeal, upholding the Tribunal's decisions on all the issues raised by the Revenue.