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TMI Blog2015 (2) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... ic research has been carried out by the appellant." 4. Learned A.R. of the assessee placed reliance on the following judicial pronouncements: (i) I.T.A. No.90/Lkw/2013 dated 13/11/2013 in assessee's own case. (ii) CIT vs. Claris Lifesciences Ltd. [2010] 326 ITR 251 (Guj) (iii) CIT vs. Cadila Healthcare Ltd. [2013] 214 Taxman 672 (Guj) 5. Learned D.R. of the Revenue supported the orders of the authorities below. 6. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) as per Para 4.1.3 of his order, which is reproduced below for the sake of ready reference:- "4.1.3 As the issue is identical in the year under consideration, hence following the finding in the A.Y. 2006-07 the disallowance of Rs. 59,24,213/- claimed under section 35(2AB) of the Income-tax Act, 1961 is hereby confirmed. However, the Assessing Officer is directed to allow the claim of expenditure of Rs. 39,49,475/- under section 37(1) of the Income-tax Act, 1961 as the assessee is entitled to the claim of expenditure incurred wholly and exclusively for the purposes of the business. This ground of appeal is partly allowed with relief of Rs. 39,49,475/- to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying out in-house development of various products from time to time, it would not have been possible to remain in the competitive market. However, the details of expenditure as sought for relating specifically to in-house scientific research for the applicability of section 35(2AB) of the Income-tax Act, 1961 were not filed. The reply of the assessee has to be examined with the provisions in this regard which are reproduced as under: 35(2AB)(l) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and onehalf limes of the expenditure so incurred. Explanation.-For the purposes of this clause, "expenditure on scientific research ", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2006-07, we find that he has given a clear finding that the assessee has failed to justify his claim of in-house scientific research carried out and therefore, no deduction under section 35(2AB) is admissible to the assessee. In assessment year 2009-10 also, this issue was decided by the Tribunal against the assessee in I.T.A. No.90/Lkw/2013 dated 13/11/2013 and Para 4 of this Tribunal order is reproduced below for the sake of ready reference:- "4. We have considered the rival submissions, perused the material available on record and have also gone through the orders of the authorities below. We find that the claim of the assessee was rejected by the authorities below on the basis that the assessee has not separately shown expenditure for inhouse research & development. As per the details, it is seen that there is no expenditure incurred for any salary for any person who was there to carry out in-house research & development. From the details of expenses, it is seen that the amount was paid to ARAI, Pune and for purchasing certain items from the market from various parties. Merely getting approval from ARAI and purchasing certain material from the market cannot be said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was paying higher rate of interest on bank borrowings. It was explained that the Term Deposits are held against L/C margin and other Term Deposits are held as securities against Cash Credit Limit with IOB, SBI and Allahabad Bank. The Term Deposits were explained to be cushion for day to day requirement, which was not accepted by the Assessing Officer. The commercial expediency for the interest paid on borrowings could not be established and, therefore, the Assessing Officer disallowed a sum of Rs. 63,61,399/- @6.75% average rate of interest. The assessee is aggrieved and has stated in the Statement of Facts that the cash credit loans from SBI, IOB and Allahabad Bank aggregating to Rs. 6,52,07,594/- were hypothecated against inventories/book debts and TDRs etc. The appellant also had long term loan of Rs. 11,68,15,862/- from PICUP and had interest of Rs. 1,07,62,911/-. The loans and FDs are said to be for business expediency of the assessee. Similar issue arose in the A.Y. 2006-07 and the finding in this respect is as reproduced below: "4.2.1 I have considered the explanation filed. It would be relevant to consider some of the judicial pronouncements in this regard: i. Karnat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led return for the assessment year 1993-94. During the course of assessment proceedings, it was noticed that the assessee had raised interest bearing loans and interest liability which arose during the year was debited to profit and loss account as pre-operative expenses. It was also noticed that the assessee had advanced large amounts of money interest free to its sister concern before the commencement of production and also after the commencement of production. The Assessing Officer disallowed interest under section 36(1)(iii) on borrowing to the extent those diverted to sister concerns without interest for nonbusiness purposes. The Assessing Officer also rejected the assessee's case, that amounts given to sister concerns were given out of company's own funds represented by share capital and no borrowed funds had been utilized in giving the interest free loans and, hence, there was no nexus between borrowing and loans given interest free. On appeal, the Commissioner (Appeals) deleted the disallowance. On revenue's appeal the Tribunal upheld the order of Commissioner (Appeals). On appeal to the Hon'ble High Court it was held that: It was not in dispute that besides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer that whatever loans were raised by the assessee, the same were used for business purposes. If in the process of examination of genuineness of such a deduction, it transpires that the assessee had advanced certain funds to sister concerns or any other person without any interest, there would be very heavy onus on the assessee to be discharged before the Assessing Officer to the effect that in spite of pending term loans and working capital loans on which the assessee is incurring liability to pay interest, still there was justification to advance loans to sister concerns for non-business purposes without any interest and, accordingly, the assessee should be allowed deduction of interest being paid on the loans raised by it to that extent. Even the plea of nexus of loans raised by the assessee with the funds advanced to the sister concerns on interest free basis might be pleaded to be out of sale proceeds or share capital or different account could not be accepted. [Para 14] Entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds, etc., do not have any different col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when no loans had been raised by the assessee at the time of disbursement of funds. This would depend on facts of each case. [Para 16] Section 106 of the Indian Evidence Act or the principles analogous thereto places the burden in respect thereof upon the assessee, as the facts are within its special knowledge. However, a presumption may be raised in a given case as to why an assessee who for the purpose of running its business is required to borrow money from banks and other financial institutions would be giving loan to its subsidiary companies and that too when it pays a heavy interest to its lenders, it would claim no or little interest from its subsidiaries. [Para 17] Once it is borne out from the record that the assessee had borrowed certain funds on which liability to pay tax is being incurred and on the other hand, certain amounts had been advanced to sister concerns or others without carrying any interest and without any business purpose, the interest to the extent, the advance had been made without carrying any interest is to be disallowed under "section 36(1)(iii). Such borrowings to that extent cannot possibly be held for the purpose of business but for supplementing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced above. We also find that in the assessment order, the Assessing Officer has held that the interest received on deposit with bank is to the extent of 6.75% on average basis and to this extent, he has allowed deduction of interest on borrowed funds also, which has been computed by him at Rs. 44,01,512/- as against Rs. 1,07,62,911/- paid by the assessee to banks. The disallowance made by the Assessing Officer was Rs. 63,61,399/- being the difference in these two figures. Since the assessee could not establish that borrowings were for business purposes, deduction is not allowable u/s 36(1)(iii) of the Act and moreover, u/s 57(iii) also, deduction is already allowed by the Assessing Officer to the extent of interest income and entire interest expenditure cannot be allowed because it could not be established by the assessee that the borrowing was made for making investment in FDR by showing direct nexus between the borrowing from bank and making FDR in bank. Considering all these facts, we do not find any reason to interfere in the orders of the authorities below. Accordingly, ground No. 2 is rejected. Regarding various judgments, cited by Learned A.R. of the assessee, we find that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee on write back of this expenditure. 17. On the other hand, Learned D.R. of the Revenue supported the orders of the authorities below. 18. We have considered the rival submissions. We find that since the amount in question was debited by the assessee in the profit & loss account in the present year, the same is not allowable as deduction in view of these judgments of Hon'ble Apex Court in the case of Brooke Bond India Ltd. vs. CIT [1997] 225 ITR 798 (SC) and Punjab State Industrial Development Corporation Ltd. vs. CIT [1997] 225 ITR 792 (SC). However, if the assessee can show that the cheque in question was not encashed by the ROC and reverse entry was passed by the assessee in the next year and the corresponding amount was taken by the assessee as income in the next year then in the next year, the same should not be taxed. We, therefore, direct the Assessing Officer that if the assessee can establish that the liability created in the present year on account of ROC fees has been reversed in the next year and the amount was considered by the assessee as income in that year, then the income in that year should be reduced to the extent it is being added back to the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance is not justified. This ground is allowed. 27. Ground No. 7 is as under: "7. Because, the learned CIT(A) erred in law as well as on facts in confirming the addition of Rs. 53,000/- solely on the consideration that confirmation of one bank balance have not been obtained, but has wrongly considered that there was a difference of Rs. 53,000/- in one bank account." 28. Learned A.R. of the assessee reiterated the same contentions, which were raised before CIT(A) whereas Learned D.R. of the Revenue supported the orders of the authorities below. 29. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) as per Para 4.12 of his order, which is reproduced below for the sake of ready reference:- "4.12 Ground No. 12 relates to the addition of Rs. 53,000/- on account of unreconciled bank balance in the bank account at Chennai for which no explanation was furnished before the Assessing Officer except for stating that the same has no impact on the profitability of the company. Even in the course of the appeal, nothing further has been stated except for the Statement of Facts where it is stated that "the appellant had one bank account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f LIC but disallowed the said amount by invoking the provisions of sec.40A(7) of the I.T. Act. 6. Because, the Learned CIT(Appeals) erred in law as well as on facts by confirming the disallowance of interest subsidy on housing loan of Rs. 3,67,956/- on the plea that there is nothing on record that TDS on this amount has been made as per the provisions of section 40 (ia) of the I.T. Act." 32. It was fairly agreed by both the sides that various issues, raised by the assessee in this year, are same as has been raised by the assessee in assessment year 2005-06, except one issue regarding addition of Rs. 53,000/- in assessment year 2005-06, which is not the issue in this year. It was agreed by both the sides that all the issues can be decided on similar line. In assessment year 2005-06, except one issue i.e. regarding interest subsidy raised by the assessee as per ground No. 6, all the issues were decided against the assessee in assessment year 2005-06 and accordingly, on the same line, in the present year also, all the issues are decided against the assessee except ground No. 6, which stands allowed as in assessment year 2005-06. 33. In the result, the appeal of the assessee stands ..... X X X X Extracts X X X X X X X X Extracts X X X X
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