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DCIT, Circle-VI, Kolkata Versus M/s. J.K. Tyre & Industries Ltd.

2015 (10) TMI 2254 - ITAT KOLKATA

Eligibility for deduction u/s.35(2AA) - expenditure incurred on scientific research - Held that:- It is not the case of the AO that deduction cannot be allowed to the Assessee as the scientific research for which the Assessee incurred expenditure in question related to its business and therefore the deduction claimed cannot be allowed. It is not open for the revenue to set up a totally new case in its grounds of appeal which was never the case of the AO/CIT(A). Under clause (ii) to Sec.35(1) of .....

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e incurred towards scientific research is in connection with the Assessee's business or not.

Whether the notification approving IIT, Madras as an approved institution for the purpose of Sec.35(1)(ii) of the Act is no longer valid? - Held that:- Erstwhile Sec.35 of the Act got revived and remained in suspended animation for a short period. Since the erstwhile Sec.35 of the Act has always been part of the Act, the notification dated 10.12.1973 notifying IIT, Madras as an approved instit .....

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4 of the General Clauses Act, 1897 are applicable even when there is a statutory amendment without there being a repeal of an enactment and re-enactment in place of repealed law and the reliance placed by the learned counsel for the Assessee on the decision of the Hon'ble Supreme Court in the case of Parle Biscuits (P) Ltd. Vs. State of Bihar (2004 (12) TMI 363 - SUPREME COURT OF INDIA ) for the above proposition, in our view, is acceptable and the said stand clearly supports the plea of the Ass .....

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are as follows: The Assessee is a company. It is engaged in the business of manufacturing and selling of Automobile tyres, tubes & flats and also generation and distribution of power. For AY 2005-06, the Assessee filed return of income declaring "nil" income. Income u/s.115JB of the Act was also returned at a loss of ₹ 35,34,75,710/-. In the computation of total income the Assessee claimed a deduction of a sum of ₹ 1,43,00,000 which amount was paid by the Assessee to II .....

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ction will be claimed after receipt of approval from specified authority." 3. Sec.35 of the Act provides for certain deductions, while computing income from business or profession, viz., expenditure incurred on scientific research. The following provisions are relevant for the purpose of deciding these appeals. "Section 35: Expenditure on scientific research. (1) In respect of expenditure on scientific research, the following deductions shall be allowed- (i) any expenditure (not being .....

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arch, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authority to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced . (ii) an amount equal to one and one-fourth times of any sum paid to a scientific research association which has as its object the .....

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Central Government….. (2AA) Where the assessee pays any sum to a National Laboratory or a University or an Indian Institute of Technology or a specified person with a specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority, then- (a) there shall be allowed a deduction of a sum equal to one and one-fourth times the sum so paid; and (b) no deduction in respect of such sum shall be allowed und .....

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roved in this behalf from the prescribed authority. Admittedly as per note-9 to the return of income which we have referred to earlier, such approval did not exist and therefore the Assessee made a claim for deduction of the expenditure incurred on scientific research. This claim is apparently u/s.35(1)(ii) of the Act, though there is no such reference in note-9 to the return of income. For a claim u/s.35(1)(ii) of the Act at 125%, the condition is that amount should have been paid to a scientif .....

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)(ii) of the Act. 3.2. The Assessing Officer (AO) after making a reference to the claim of the Assessee for deduction of the sum of ₹ 1.43 Crores u/s.35(2AA) of the Act observed that the Assessee has not submitted approval of the prescribed authority and that the Assessee had also not made any claim for deduction u/s.35(1)(ii) of the Act. The AO further observed as follows: "In the above circumstances no additional allowance is allowed subject to the observation that assessment will b .....

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12.2007. In the said order of assessment, certain other additions and disallowances were made by the AO. Against the same the Assessee filed appeal before the CIT(A). The issue with regard to deduction u/s.35(2AA) of the Act was not raised by the Assessee, as admittedly there was no approval by the prescribed authority and therefore the deduction was not admissible u/s.35(2AA) of the Act. The CIT(A) decided the appeal of the Assessee vide his order dated 25.3.2008 in Appeal No.95/CC-VI/CIT(A), C .....

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Assessee had claimed deduction u/s.35(2AA) of the Act and in the absence of approval of the prescribed authority the deduction was not admissible. The AO ought to not to have allowed the deduction of ₹ 1.43 crores. 3.4. On 30.4.2009, the Assessee filed an additional ground before the Tribunal in the appeal filed by it in ITA No.1018/Kol/2008. In the said additional ground the Assessee claimed that it ought to have been allowed deduction at 125% u/s.35(1)(ii) of the Act but was allowed only .....

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see pointed out that the deduction at 125% was allowable u/s.35(2AA) of the Act. Deduction at 125% of the expenditure was also admissible to the Assessee u/s.35(1)(i) or 35(1)(ii) of the Act and therefore the deduction allowed by the AO was not erroneous. The Assessee also pointed out the order of the Tribunal dated 29.10.2009 remanding the issue of allowance of deduction at 125% of expenditure incurred on scientific research u/s.35(1)(ii) of the Act to the CIT(A) for fresh consideration. The As .....

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in the case of Goetze India Ltd. Vs. CIT 284 ITR 323(SC) wherein the Hon'ble Supreme Court held that the AO cannot entertain a claim by the Assessee without filing a revised return of income making such a claim. He was also of the view that the CIT(A) in pursuance of the directions of the Tribunal had not decided the issue and therefore the subject matter of revision u/s.263 of the Act is not an issue which has already been decided by the CIT(A). He therefore held that the proceedings u/s.26 .....

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ribunal in Appeal No.218/CC-VI/CIT(A)C-I/10-11. 3.8. Against the said order dated 4.3.2010 passed by the CIT u/s.263 of the Act, the Assessee preferred appeal before the Tribunal in ITA No.742/Kol/2010. The Tribunal vide its order dated 6.2.2012 upheld the order u/s.263 of the Act and after taking note of the directions of the Tribunal in ITA No.1018/Kol/2008 dated 29.10.2009 gave the following directions: "(A) In case, ld.CIT(Appeals) allows the assessee's claim in view of the provisio .....

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ii) of the Act at 125% took up the said issue for consideration and passed order dated 20.12.2012 (Appeal No.95/CC-VI/CIT(A), C-I/07-08 Tribunal). 3.10. The CIT(A) also passed another order dated 20.12.2012 (Appeal No.218/CCVI/CIT(A)C-I/10-11) in the appeal preferred by the Assessee against the order dated 31.12.2010 passed by the AO pursuant to order u/s.263 of the Act giving effect to the directions given in the said order u/s.263 of the Act. 3.11. In the order passed in Appeal No.95/CC-VI/CIT .....

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scientific research projects in the field of tyre & vehicle mechanics. The IIT, Madras in the Certificate dated 09-09-2008 has confirmed that during the FY 2004-05, it had undertaken scientific research projects jointly with the appellant, and on its completion, results were communicated to the appellant. The IIT, Madras was notified by the Central Government as an approved Institution under section 35(1)(ii) vide Notification No.287 dated 10-11-1973 with effect from 01.04.1973. In this fact .....

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rcumstances, the only question to be adjudicated by the first appellate authority is whether on the facts and circumstances of the case, the appellant fulfilled the conditions of section 35(1)(vii) for claiming weighted deduction. As discussed in the foregoing paragraphs, the sum paid by the appellant to the IIT Madras fulfilled all the conditions as prescribed in section 35(1)(ii). I therefore hold that the appellant was entitled to claim deduction for expenditure on scientific research u/s 35( .....

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in the order u/s.263 of the Act. The following were the relevant observations of the CIT(A): "10. Having considered the factual matrix, I agree with the submissions of the Ld.ARs that before deciding the present appeal, it is necessary to decide the issue which was restored to the file of the CIT(A) by the ITAT by its order dated 29-10-2009. In its order dated 29-10-2009, the Tribunal had admitted appellant's additional grounds claiming weighted deduction u/s 35(1)(ii) and had directed .....

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ppellant is entitled either to weighted deduction u/s 35(1)(ii) if allowed by the CIT(A), or in the alternate, the appellant is not entitled for any deduction u/s 35(1)(i). In view of my said order, I hold that the appellant is entitled for weighted deduction u/s 35(1)(ii) in respect of the sum paid to the IIT, Madras. Ground no.5 is allowed. 11. In view of my finding with regard to ground no.5, the other grounds raised in this appeal have become infructuous; and accordingly, they are dismissed. .....

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it. Since such a claim was not made in the return of income nor did the Assessee file a revised return of income making such a claim, the AO ought not to have allowed the claim in view of the decision of the Hon'ble Supreme Court in the case of Goetze India Ltd. Vs. CIT 284 ITR 323(SC) wherein the Hon'ble Supreme Court held that the AO cannot entertain a claim by the Assessee without filing a revised return of income making such a claim. 5. The grievance projected in the grounds of appea .....

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as a whole. 6. We have heard the submissions of the learned DR who reiterated the stand of the Revenue as reflected in the grounds of appeal filed before the Tribunal. The learned DR also submitted that erstwhile Sec.35 of the Act was deleted by Sec. 10 of the Direct Tax Laws (Amendment) Act, 1987 (Act 4 of 1988). The notification dated 10.12.1973 (Notification:P S.O.287) approving of IIT, Madras for the purpose of Sec.35(1)(ii) of the Act based on which the CIT(A) allowed deduction to the Asse .....

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, erstwhile Sec.35 which was deleted by Sec.10 of the Direct Tax Laws (Amendment Act, 1987 (Act 4 of 1988), has been restored. Thus according to him the erstwhile Sec.35 of the Act got revived and remained in suspended animation for a short period. Since the erstwhile Sec.35 of the Act has always been part of the Act, the notification dated 10.12.1973 notifying IIT, Madras as an approved institution for the purpose of Sec.35(1)(ii) of the Act was valid at all point of time. Our attention was als .....

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tment, notification, order, scheme, rule, form or bye-law made or issued under the repealed Act or Regulation shall, so far as it is not inconsistent with the provisions re-enacted, continue in force, and be deemed to have been made or issued under the provisions so re-enacted, unless and until it is superseded by any appointment, notification, order, scheme, rule, form or bye-law made or issued under the provisions so re-enacted. According to him nowhere it is expressly provided that approval o .....

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5 (192) E.L.T 23 (SC) wherein the Hon'ble Supreme Court held that provisions analogous to Sec.24 of the General Clauses Act, 1897 are applicable even when there is a statutory amendment without there being a repeal of an enactment and reenactment in place of repealed law. 6.2. We have given a very careful consideration to the rival submissions. The first question that arises for our consideration is as to whether in the absence of a claim made by the Assessee for deduction u/s.35(1)(ii) of t .....

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he Tribunal has directed the AO to consider the claim of the Assessee. The Hon'ble Supreme Court in Goetze India Ltd. (supra) in para 4 of its judgment observed as follows:- "4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Asses .....

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abundantly clear that the Tribunal has the power to entertain a claim de hors revised return of income. The claim of assessee required examination by the AO and therefore, the Tribunal remanded the issue to the Assessing Officer for fresh consideration in accordance with law, after affording opportunity of being heard to the assessee. The grievance projected by the revenue in this regard is therefore without any basis and therefore the same is rejected. 6.3. The next question that needs to be a .....

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which was never the case of the AO/CIT(A). Under clause (ii) to Sec.35(1) of the Act, any sum paid to approved scientific research association which has as its object the undertaking of scientific research or to an approved university, college or other institution to be used for scientific research is deductible. Unlike cl. (i) to Sec.35(1) of the Act, this clause does not lay down that the "scientific research", for which the amount is paid should be related to the assessee's bus .....

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rect Tax Laws (Amendment) Act, 1987 (Act 4 of 1988). The notification dated 10.12.1973 (Notification:P S.O.287) approving of IIT, Madras for the purpose of Sec.35(1)(ii) of the Act was issued under the erstwhile Section 35(1)(ii). It is also true that there is no other notification after 1973 notifying IIT, Madras as an approved institution for the purpose of Sec.35(1)(ii) of the Act. However by Sec.95(2)(e) of the Direct Tax Laws (Amendment) Act, 1989 (Act 3 of 1989), erstwhile Sec.35 which was .....

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