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2016 (2) TMI 418 - ITAT HYDERABAD

2016 (2) TMI 418 - ITAT HYDERABAD - TMI - Disallowance of deduction claimed under S.35(2AB) - disallowance on the ground as approval granted is by a Scientist of DSIR and not the Secretary - Held that:- It is observed that for claiming deduction under S.35(2AB), assessee has relied on two letters issued by Scientist G, referred to hereinabove. It is seen that one letter, as placed at page 13 of the paper-book, relates to Certificate of Registration for availing customs duty exemption. Second let .....

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r S.35(2AB). therefore, we are inclined to remit the matter back to the Assessing Officer for giving an opportunity to the assessee to furnish the report in prescribed form, of the prescribed authority, i.e. either Scientist G of DSIR or any other authority from DSIR, as required in S.35(2AB) of the Act, and redecide the matter in accordance with law, and after giving reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes.

Disallowa .....

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made from out of surplus interest free funds available with the assessee. Further, it is a fact on record that investments in equity shares have been made during the period from 8.10.2005 to 21.1.2007 and not in the previous year relevant to the assessment year under dispute. The Department also has not controverted the contention of the assessee that no disallowance out of interest expenditure was made during the assessment year in which the investment was actually made. In view of the aforesai .....

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not only the bonds were raised outside India, but the interest payments were also made to non-resident Indians outside India from a bank account held by the assessee outside India. Therefore, since no part of the transaction relating to payment of interest has taken place in India, it cannot be said that interest payment made to non-residents has accrued or arisen in India in terms of S.9 of the Act. In our view, therefore, the provisions of S.195 would not apply to such payments, thereby requi .....

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nder S.234B and S.234C, which is more than the interest computed by the Assessing Officer. - Decided against assessee - ITA No.1882/Hyd/2014 - Dated:- 23-12-2015 - B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER For The Appellant : Shri P.Murali Mohan Rao For The Respondent : Shri B.Kurmi Naidu ORDER Per Saktijit Dey, Judicial Member : This is an appeal by the assessee against the order dated 1.10.2014 of learned Commissioner of Income-tax(Appeals) II, Hyderabad for the a .....

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ssessee filed its return of income on 26.9.2009 declaring total income of ₹ 2,36,81,080. During the assessment proceedings, Assessing Officer on verification of the return of income and accompanying statements, found that the assessee has claimed weighted deduction of ₹ 1,77,03,533 under S.35(2AB) of the Act for expenditure incurred on scientific research. The Assessing Officer noticing the same, called upon the assessee s explanation justifying its claim of deduction by furnishing n .....

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ghted deduction under the said provision, the assessee is required to make application in Form No.3CK to the prescribed authority, i.e. DSIR and the prescribed authority has to grant approval in Form No.3CM and also submit a report in respect of approval granted for in-house research and development facility in Form No.3CL to the Director General (Income-tax Exemptions). The Assessing Officer opined that as the assessee could not furnish the approval of the prescribed authority in Form No.3CM, i .....

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he Assessing Officer to verify whether the expenditure could be allowed under S.35(1)(i) or S.35(1)(iv) of the Act. 6. The learned counsel submitted before us that the only reason the departmental authorities disallowed assessee s claim for weighted deduction under S.35(2AB) is because approval granted is by a Scientist of DSIR and not the Secretary. He submitted that the recognition of assessee s in-house R&D unit has been renewed by the DSIR till 31.3.2015. In this context, he referred to .....

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me will also entitle the assessee to claim deduction. In this context, he relied upon the following two decisions- (a) ACIT V/s. Ferment Biotech Ltd. (2014)45 Taxmann 329 (Trib-Mum) (b) Teja Networks Limited (60 taxmann.com.309) (Kar. HC) 7. Learned Departmental Representative, on the other hand, relying upon the observations of the departmental authorities submitted that since the assessee has failed to obtain the approval in the prescribed manner form the competent authority, it is not eligibl .....

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Science and Technology and approval in the prescribed manner, i.e. Form No.3CM is obtained from the competent authority. Therefore, the approval in Form 3CM, even if it is issued by any Scientist of DSIR would, in our view, entitle the assessee to claim deduction under S.35S(2AB). 9. Keeping in view the aforesaid statutory provision, we have to examine the facts of the present case. It is observed that for claiming deduction under S.35(2AB), assessee has relied on two letters issued by Scientis .....

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basis of either the letter issued for renewal of recognition of In-House R&D unit or certificate granted for customs duty exemption, assessee would not be entitled to claim deduction under S.35(2AB). 10. As for the decisions relied upon by the learned counsel for the assessee, on a careful analysis of the same, it is seen that in the case of ACIT V/s. Ferment Bio-tech Ltd. (supra), the ITAT Mumbai Bench taking into consideration the fact that the assessee had only furnished a letter issued .....

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e Bench directed the Assessing Officer to verify whether the approval in the prescribed form has been obtained from DSIR, even if it is signed for such authority by any other officer, like Scientist-G for the Assessment year under consideration. Even applying the aforesaid decision of the Tribunal, to the facts of the present case, the assessee must obtain approval from the DSIR in the prescribed form. In the present case, admittedly, assessee has not furnished approval of the prescribed authori .....

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her before the departmental authorities, nor before us, the assessee has submitted the report either in Form 3CM or in Form 3CL. 12. In the facts and circumstances of the case, therefore, we are inclined to remit the matter back to the Assessing Officer for giving an opportunity to the assessee to furnish the report in prescribed form, of the prescribed authority, i.e. either Scientist G of DSIR or any other authority from DSIR, as required in S.35(2AB) of the Act, and redecide the matter in acc .....

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al of two companies, namely, M/s. Creative Healthcare Pvt. Ltd. and M/s. Vivimed Holdings Ltd., dividend income from which is exempt from tax. Assessee during the relevant previous year has claimed deduction towards bank interest and financial charges for an amount of ₹ 9,57,01,000. The Assessing Officer further noticed that secured and unsecured loans shown by the assessee are ₹ 96,14,40,000 and ₹ 76,70,15,000 respectively. After examining the details in respect of investment .....

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essee could not substantiate that the investments made in equity shares was out of commercial expediency. Relying upon certain judicial precedents, he worked out the proportionate disallowance from bank interest and financial charges, and made a disallowance of ₹ 17,85,000. 15. Being aggrieved of such disallowance, assessee challenged the same before the CIT(A). The CIT(A), upon considering the submission of the assessee that investment in equity shares was from out of internal accruals an .....

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when disallowance of expenditure was not made in the assessment year in which investments were actually made, no disallowance out of interest expenditure could be made in the year under appeal. In support of his contentions, he relied upon the following decisions- (a) Ambience properties Ltd. Hyderabad V/s. Dy. CIT(2014-TIOL-ITAT-HYD) (b) CIT V/s. Bharti Televenture Ltd. (2011-TIOL-51-HCDEL- IT) (c) S.A. Builders ltd. V/s. CIT(2007)158 Taxman 74(SC) 17. The Learned Departmental Representative o .....

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from the Assessing Officer, wherein the Assessing Officer accepted the payments made through Axis Bank as from internal accruals of the company. Further, the financial statement submitted by the assessee also demonstrates that sufficient interest free fund was available with the assessee to make the investment in equity shares of the two companies. Hon'ble Bombay High Court in the case of C.I.T. vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340 (Bom.) has held that when the assesse .....

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to the assessment year under dispute. The Department also has not controverted the contention of the assessee that no disallowance out of interest expenditure was made during the assessment year in which the investment was actually made. In view of the aforesaid factual position, we hold that the disallowance of interest expenditure amounting to ₹ 17,85,00 is not sustainable. Accordingly, we delete the same, allowing the grounds of the assessee on this issue. 19. In ground No.12, assessee .....

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nsidering the fact that the assessee had neither furnished the details of payment, nor could produce the receipt of donation issued by the TTD directed the Assessing Officer to allow the deduction, if the assessee is able to produce the exemption certificate. 22. Having considered the submissions of the parties and perused the material on record, we do not find any infirmity in the directions of the CIT(A). Since the assessee has not furnished the necessary proof with regard to the claim of dedu .....

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ance charges, which included interest on Foreign Currency Convertible Bonds, amounting to ₹ 86,88,000. Noticing that the assessee has not deducted tax at source on the interest paid on FCCBs in terms of S.195 of the Act, the Assessing Officer disallowed the amount of ₹ 86,88,000, invoking provisions of S.40(a)(ia). 25. Being aggrieved , the assessee challenged the disallowance before the first appellate authority, who has sustained the disallowance made, by upholding the view of the .....

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rector of Income-tax(International Taxation), Ahmedabad V/s. Adani Enterprises (2015 ) 63 taxmann.com.11 (Ahmedad-Trib) (b) Mahindra & Mahindra Ltd. V/s. Dy. Commissioner of Incometax (2012) 24 taxmann.com.267 (Mumbai) 27. The Learned Departmental Representative, on the other hand, relied upon the findings of the departmental authorities. 28. We have considered the submissions of the parties and perused the material on record. As could be seen, the assessee has raised long term bonds from th .....

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r of the first appellate authority, it is seen that the only reason on which the departmental authorities disallowed the expenditure is, assessee has not deducted tax at source in terms of S.195 of the Act. However, it is well settled principle of law that if the payments on which tax is sought to be deducted is not chargeable to tax in India, provisions of S.195 would not apply. In the present case, it is not controverted by the Learned Departmental Representative with cogent evidence that not .....

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