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2017 (2) TMI 502 - AT - Income TaxAddition made u/s 35(2AB) in respect of research and development expenditure - Held that:- When the R&D centre at Chennai has been established by assessee company on 11.08.2005 and R&D expenditure have been continuously allowed on the basis of approval accorded by DSIR, no material has come on record to depart from the rule of consistency by the AO. When the AO has himself admitted that the R&D centre at Chennai approved by DSIR is carrying out its research and development activities, by disallowing the weighted deduction at 50%, the remaining expenditure of ₹ 34,57,130/- cannot be disallowed. Moreover, the conjoint reading of section 35(2AB) and Rule 6(7A)(a) leads to the conclusion that the fulfillment of the conditions to carry out R&D activities are to be examined by DSIR and it is not within the purview of AO. So, in case, there is escalation of sales of the product produced by the assessee company, it may be due to the consequence of research and not because of the fact that R&D facilities have been used for market research and sales promotion. So, we are of the considered view that the CIT (A) has rightly and validly deleted the addition Disallowance of provision for warranty in excess of actual warranty claims being the same as unascertained liability - Held that:- Following the order passed by the coordinate Bench in assessee’s own case for AY 2009-10 by following the judgment in case of Rotork Controls (2009 (5) TMI 16 - SUPREME COURT OF INDIA) wherein held that estimated provisions for warranty are allowable for deduction, thus we find no illegality or perversity in the deletion of disallowance Disallowance u/s 14A computation - work out the disallowance under Rule 8D - Held that:- The entire exercise to work out the disallowance under Rule 8D done by the AO is on the basis of imagined expenditure based upon the average value of the investment whereas the expression “expenditure incurred” refers to actual expenditure and not imagined expenditure. AO without recording his dissatisfaction of the correctness of the claim of expenditure made by the assessee and without arriving at the conclusion that the claim of assessee that “no expenditure has been incurred is incorrect” proceeded to invoke the provisions of section 14A read with Rule 8D. At the same time, AO has not disputed the audited books of account of the assessee in respect of investment and earning dividend income. So, when from the balance sheet produced before AO as well as CIT(A), it has come on record that assessee has sufficient cash flow during the year under assessment; the AO has failed to prove any nexus of borrowed funds with various investments held by the assessee; the AO without recording his dissatisfaction of correctness of the claim of expenditure made by the assessee nor AO has rejected the claim of the assessee that no expenditure has been incurred in earning the dividend income, the provisions contained under section 14A read with Rule 8D are not attracted. Thus AO as well as CIT (A) have erred in disallowing / confirming the disallowance of normal expenses of ₹ 26,97,608/- while computing the book profit u/s 115JB of the Act. - Decided in favour of the assessee.
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