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2021 (9) TMI 18 - AT - Income TaxNature of expenditure - expenditure incurred on Research & Development - revenue or capital expenditure - whether such expenditure would be eligible for deduction under section 28 to 44DB - HELD THAT:- As decided in own case for AY grants received by the assessee is not taxable being a capital receipt, as the same is bringing into existence a capital asset being technology for manufacturing Aircrafts - We find that research is related to the business of assessee and can be found from the same order of the ITAT. The expression “related to business” is used in section 35(1)(iv) of the I.T.Act is an expression of wide import and it means associated with or connected with. The assessee is using research outcome for its business of manufacturing Defence Aircrafts, and hence, it cannot be denied that research is related to its business - It is clear that the claim of expenditure incurred towards research and development activities u/s 35(1)(iv) of the I.T.Act is to be allowed, provided other conditions are satisfied. Disallowance u/s 14A r.w.r. 8D - addition being 0.5% of average value of investment held by the assessee and proportionate interest expenditure not directly attributable - HELD THAT:- The discussion made by the A.O. in the assessment order would show that the A.O. was not satisfied with the contentions of the assessee, and accordingly, we are of the view that the same would satisfy the requirement of recording of dissatisfaction by the Assessing Officer within the meaning of section 14A of the I.T.Act. We noticed that the A.O. has mechanically applied the provisions of Rule 8D of the I.T.Rules. We noticed that the assessee has received dividend income from only one company named M/s.Indo Russian Aviation Limited - we are of the view that the provisions of Rule 8D of the I.T. Rules should not have been applied mechanically - disallowance u/s 14A of the I.T.Act may be estimated in order to meet the requirement of section 14A of the I.T.Act, since dividend has been received only from one company - disallowance of ₹ 50,000 would meet the requirements of section 14A of the Act and the same will put a quietus to the issue. Therefore, we set aside the order passed by the learned CIT(A) on this issue and direct the A.O. to restrict the disallowance u/s 14A accordingly.
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