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M/s India Nippon Electricals Ltd. Versus Deputy Commissioner of Income Tax

2016 (4) TMI 667 - ITAT CHENNAI

Disallowance of apportionment of expenses towards R&D between 80IB and non 80IB units in the ratio of turnover - Held that:- To claim R&D expenses as allowable deduction under section 35(2AB) of the Act, first of all, the DSIR has to recognize the in-house R&D of the company. After obtaining recognition from DSIR, the company has to submit complete report of the R&D activities and expenditure incurred for the same in the prescribed format to the Prescribed Authority i.e., Secretary, DSIR and aft .....

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at Hosur only", which shows that the assessee has obtained only recognition from DSIR. Moreover, there was no mention about the approval in From 3CL communicated by the Secretary, DSIR to DGIT[E]. Mere recognition by DSIR shall not entitle the assessee to claim deduction under section 35(2AB) of the Act.

In this case, the DSIR recognized the in-house R&D facility of Hosur unit, as per the written submission dated 21.12.2010 before the Assessing Officer. But, the Assessing Officer fail .....

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(2AB) of the Act, if the assessee produces approval in Form 3CL communicated by the Secretary, DSIR to DGIT[E] to the unit(s), which was recognized by the DSIR, otherwise, no claim of deduction under section 35(2AB) of the Act could be allowed. - Decided in favour of assessee for statistical purposes.

Disallowance made under section 14A read with Rule 8D - Held that:- In the present case, the assessment year under consideration is 2008- 09 and in view of the decision in the case of Go .....

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ated the probable expenses by way of financial charges and other overhead expenses between the investment activities and manufacturing and export activities. In view of the above, the Assessing Officer has rightly applied the provisions of Rule 8D by invoking section 14 of the Act, which was confirmed by the ld. CIT(A). Therefore, we find no infirmity in the order of the ld. CIT(A) on this issue - Decided against assessee - ITA No. 459/Mds/2014 - Dated:- 17-2-2016 - Chandra Poojari, AM And Duvvu .....

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n 80IB and non 80IB units in the ratio of turnover and the second ground relates to confirmation of disallowance made under section 14A r.w.r. 8D of the Income Tax Act, 1961 ["Act" in short]. 2. The assessee is engaged in the business of manufacture of electronic ignition system and filed its return declaring an income of ₹ 7,64,267,970/-. The return filed by the assessee was processed under section 143(1) of the Act. The case of the assessee was selected for scrutiny and notice .....

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97,13,933/- out of which an amount of ₹ 5,43,66,171/- has been claimed as deduction under section 80IB of the Act. After verifying the details and submissions filed by the assessee, the assessment under section 143(3) of the Act was completed by making various additions. 3. The assessee carried the matter in appeal. After considering the facts, submissions of the assessee and also by considering the various decisions, the ld. CIT(A) partly allowed the appeal filed by the assessee. 4. Aggri .....

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research and development expenditure @ 150% amounting to ₹ 2,09,29,926/- under section 35(2AB) of the Act. The assessee in its return of income claimed the entire weighted deduction under section 35(2AB) of the Act against the income of Hosur unit. The Assessing Officer has observed that since all the units manufactured the same product, i.e., electronic ignition system, the benefits of the R&D are accruing to all the units and hence, the R&D expenses have to be apportioned among a .....

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ed deduction under section 35(2AB) on R&D can be attributable to any of the specific units. The assessee has explained before the ld. CIT(A) that the R&D carried out during the year was relevant to the Hosur unit and hence, the entire R&D expenses are attributable to the Hosur unit only. The ld. CIT(A) fairly conceded that the R&D facility is located in Hosur, but the R&D carried out in the facility is in relation to the improvement and innovations in the manufacturing of ele .....

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arious decisions, the ld. CIT(A) has finally held that the R&D expenses are the general business expenditure of the assessee in the line of manufacturing the electronic ignition systems and therefore, the R&D benefits are bound to accrue to all the units equally. In such a situation, the expenditure in R&D, which is common business expenditure, is also equally attributable to all the three units. Since the R&D is common business expenditure, the expenditure of R&D is to be ap .....

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tion 35(2AB) of the Act, first of all, the DSIR has to recognize the in-house R&D of the company. After obtaining recognition from DSIR, the company has to submit complete report of the R&D activities and expenditure incurred for the same in the prescribed format to the Prescribed Authority i.e., Secretary, DSIR and after assessment of the report furnished by the assessee, the Secretary, DSIR will communicate approval in Form 3CL to the Director General of Income Tax [Exemption]. Based o .....

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unicated by the Secretary, DSIR to DGIT[E]. Mere recognition by DSIR shall not entitle the assessee to claim deduction under section 35(2AB) of the Act. Section 35(2AB) of the Act is a special provision to claim R&D expenses. After carefully going through the orders of authorities below, we find that the assessee was not asked to file approval in Form 3CL to claim the deduction under section 35(2AB) of the Act. Approval in Form 3CL is mandatory requirement to claim deduction under section 35 .....

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he Secretary, DSIR and (2) approval in Form 3CL communicated by the Secretary, DSIR to DGIT[E] and after verification of the same, the Assessing Officer should allow the claim of deduction under section 35(2AB) of the Act, if the assessee produces approval in Form 3CL communicated by the Secretary, DSIR to DGIT[E] to the unit(s), which was recognized by the DSIR, otherwise, no claim of deduction under section 35(2AB) of the Act could be allowed. Further, we make it clear that the DSIR is the onl .....

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ces, we direct the Assessing Officer to verify the particulars and decide the issue in accordance with law after allowing sufficient opportunities of hearing to the assessee. Thus, the ground raised by the assessee is allowed for statistical purposes. 7. The second issue raised in the appeal of the assessee relates to confirmation of disallowance made under section 14A read with Rule 8D. It is not disputed that the total investments made by the assessee in the form of shares/funds is ₹ 99, .....

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l funds, but the assessee has not maintained any separate sets of books for the investment activity and the manufacturing activities. All the funds are pooled up and utilized for various activities from a common kitty. Therefore, the Assessing Officer has segregated the probable expenses by way of financial charges and other overhead expenses between the investment activity and manufacturing and export activities. Accordingly, by invoking the provisions of section 14A of the Act and applying Rul .....

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