TMI Blog2016 (11) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... as placed details of loans raised, loan agreements and details of interest paid during the previous year relevant to the impugned assessment year to contend that none of the loans raised by the assessee were directed towards acquisition of investments. Nothing incriminating is brought on record by the Revenue to prove that interest bearing funds were specifically used for making investments and hence in our considered view , addition of ₹ 10,74,405/- made by the AO is not sustainable and is ordered to be deleted. With respect to disallowance of ₹ 1,13,010/- made by learned AO towards administrative and other indirect expenses attributable to the earning of exempt income being dividend of ₹ 1,15,64,882/- received by the assessee during the previous year relevant to the impugned assessment , which disallowance of ₹ 1,13,010/- in our considered view is very reasonable and fair which we upheld and sustain and do not intend to interfere with the orders of the authorities below keeping in view of fairness and reasonability of the disallowance keeping in view facts and circumstances of the case as emanating from the records before us. Claim for deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granting the benefit of claim of deduction on account of write off advances to the tune of ₹ 14,44,832/-. The assessee has placed all documents in connection thereof in paper book page 154-262. We are of the considered view that in the interest of substantial justice, this issue need to be set aside and restored to the file of the AO for de-novo examination of the issue on merits by the AO before granting deduction on account of write off of advance of ₹ 14,44,832/- u/s. 36(1)(vii) read with Section 36(2) of the Act in accordance with law. - I .T.A. No. 2897/Mum/2011 - - - Dated:- 12-9-2016 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Divyesh J.Shah / Moksha K.Shah For The Revenue : Shri A. Ramachandran ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee company, being ITA No. 2897/Mum/2011, is directed against the appellate order dated 31st January, 2011 passed by learned Commissioner of Income Tax (Appeals)- 22, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2007-08, the appellate proceedings before the learned CIT(A) arising from the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 1,15,64,882/- which was claimed as exempt u/s. 10(34) of the Act. The AO asked the assessee to submit the details of expenses attributable to exempt income as per provisions of Section 14A of the Act read with Rule 8D of Income Tax Rules, 1962. The assessee in its reply before the AO submitted that no expenses have been incurred for earning exempt income and hence no disallowance is called for u/s. 14A of the Act. Without prejudice, the assessee submitted the working of disallowance u/r. 8D of Income Tax Rules, 1962 which worked out to ₹ 1,13,010/-. The AO rejected the contentions of the assessee keeping in view Board s letter F.No. 173/172/2008-I.T.A.I dated 04-02-2009 whereby Board directed to consider applicability of provision of Section 14A of the Act keeping in view the judgment of Special Bench of the Tribunal in the case of Daga Capial Management Limited (ITA No. 8057/Mum/2003 dated 20-10- 2008) whereby the Tribunal held that provisions of Section 14A(2) and 14A(3) of the Act though introduced by Finance Act, 2006 w.e.f. 01-04-2007 are clarificatory in nature and shall apply retrospectively w.e.f. 01-04-1962 and in the result Rule 8D will also apply accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the assessee contended that the assessee s own funds comprising of share capital and reserves after adjusting miscellaneous expenditure as at 31-03-2007 was ₹ 5562.13 lacs ( ₹ 3902.04 lacs as at 31-03-2006) , while investment made by the assessee as at 31-03-2007 was ₹ 226.02 lacs (Rs.226.02 lacs as at 31-03-2006) and hence presumption shall apply that the assessee has invested its own funds as it has its own funds sufficient to make investment and no disallowance can be made u/s 14A of the Act with respect to interest paid by the assessee. The audited financial statements of the assessee for the financial year 1997-98 to 2006-07 are placed in paper book page 47-106 filed with the Tribunal. It was contended that loans were raised for various purposes such as cash credit, export credits, car loans and term loans and none of the loans were utilized for making investments . The loan agreements are placed in paper book page 5-46 filed with the Tribunal. The details of interest paid is also placed in paper book page 107 and details of secured and unsecured loans raised by the assessee is placed on paper book page 108-121. Thus, it was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has invested its own funds towards making investment unless contrary is brought on record by the Revenue. Nothing incriminating is brought on record by the Revenue to prove that interest bearing funds were specifically used for making investments and hence in our considered view , addition of ₹ 10,74,405/- made by the AO is not sustainable and is ordered to be deleted. With respect to disallowance of ₹ 1,13,010/- made by learned AO towards administrative and other indirect expenses attributable to the earning of exempt income being dividend of ₹ 1,15,64,882/- received by the assessee during the previous year relevant to the impugned assessment , which disallowance of ₹ 1,13,010/- in our considered view is very reasonable and fair which we upheld and sustain and do not intend to interfere with the orders of the authorities below keeping in view of fairness and reasonability of the disallowance keeping in view facts and circumstances of the case as emanating from the records before us. This disposes of ground no 1 (1.1 to 1.4 ) raised by the assessee in the memo of appeal filed with the Tribunal. We order accordingly. 11. The second ground raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20/- claimed u/s. 35(2AB) of the Act was disallowed by the AO vide assessment order dated 24.12.2009 passed u/s 143(3) of the Act. 12. Aggrieved by the assessment order dated 24.12.2009 passed u/s. 143(3) of the Act by the AO, the assessee filed first appeal with the learned CIT(A). 13. The assessee contended before the learned CIT(A) that Section 35(2AB) of the Act mandate that in case of a company which is engaged in the business of manufacture or production of any drugs, pharmaceuticals , incurs any expenditure on scientific research 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 one-half times of the expenditure so incurred. The assessee further submitted that application forms 3CK and 3CL are prescribed under Rule 6(4) and 7(a) of the Income Tax Rules, 1962 relate to the approval of the Government and the report in relation to the approval to be given by Director General (Exemptions) . It was submitted by the assessee that the provisions of Section 35(2AB) of the Act only requires that R D facility should be approved by the prescribed authority and there is no ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal and statutory requirements before granting deductions u/s 35(2AB) of the Act. Ld. DR relied upon the orders of the learned CIT(A) . 16. We have considered the rival contentions and perused the material on record. We have observed that the assessee has claimed weighted deductions u/s 35(2AB) of the Act of ₹ 60,33,820/- towards R D carried on by the assessee, which was not allowed by the authorities below as the approvals from prescribed authorities were not submitted as well genuineness of the research conducted by the assessee was doubted by the authorities below as evidences of conducting research in the field of drugs and pharmaceuticals were not submitted by the assessee before the authorities below. Further, the AO has also held that the assessee did not complied with the conditions of maintenance and audits and separate accounts for the approved facility. The assessee has now contended that the approvals from prescribed authorities have been received and if an opportunity is granted the assessee will produce all necessary evidences and approvals to satisfy the AO that the assessee has fully and duly complied with all the legal and statutory requirements for ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debited an amount of ₹ 14,44,832/- on account of advances/amount written off. The assessee was asked by the AO during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act to justify its claim as per provisions of Section 36(1)(vii) read with Section 36(2) of the Act. The assessee in reply thereof furnished before the AO breakup of such advance write off and no explanation was furnished by the assessee. The AO rejected the contentions of the assessee as the assessee has written off advances which were not on revenue account and the same cannot be equated with debt. The said advances were not offered as income either in the instant assessment year or in earlier years and hence the advance written off of ₹ 14,44,832/- was not allowed as deduction and added to the income of the assessee by the AO vide assessment order dated 24.12.2009 passed by the AO u/s. 143(3) of the Act. 18. Aggrieved by the assessment order dated 24.12.2009 passed by the AO u/s. 143(3) of the Act , the assessee filed first appeal with the learned CIT(A). 19. The assessee contended before the learned CIT(A) that the debit balances of creditors which were advances or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these observations of the AO in remand report despite the fact that copy of the remand report was forwarded by learned CIT(A) to the assessee. The learned CIT(A) confirmed/sustained the additions as made by the AO as the assessee failed to prove that the conditions laid down u/s. 36(1)(vii) read with section 36(2) of the Act were satisfied, vide appellate order dated 31.01.2011 passed by the learned CIT(A). 20. Aggrieved by the appellate order dated 31.01.2011 passed by the learned CIT(A), the assessee filed second appeal with the Tribunal. 21. Before the Tribunal, the learned counsel for the assessee contended that the assessee could not reply before the learned CIT(A) with respect to the observations of the AO in remand report as proper and sufficient opportunity was not granted by learned CIT(A) to the assessee. The learned counsel submitted that the assessee is eligible for deduction on account of write off as it has satisfied all the requirements of Section 36(1)(vii) read with Section 36(2) of the Act and if opportunity is granted then the assessee will explain in details that the assessee duly fulfilled all the conditions stipulated u/s 36(1)(vii) read with Section 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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