TMI Blog2018 (11) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for weighted deduction u/s 35(2AB), the expenditure towards such R&D facility cannot be disallowed when the assessee has filed necessary details to prove genuineness of such expenditure. In this case, on perusal of details, we find that the AO has never doubted the expenditure incurred by the assessee towards its R&D activities. The AO also not doubted the genuineness of such expenditure. Therefore, we are of the considered view that once the assessee has proved expenses with a necessary evidence, there is no reason for the AO to disallow such expenditure u/s 37(1) of the Act. Hence, we direct the AO to allow revenue expenditure incurred by the assessee to the extent u/s 37(1) Disallowance u/s 14A r.w. Rule 8D - suo moto disallowance by assessee - Held that:- The assessee has made suo moto disallowance of ₹ 10,000 considering the nature and amount of dividend income earned for the year. Admittedly, the assessee has earned dividend income of ₹ 3,945 as against which it has made disallowance of ₹ 10,000 towards expenditure incurred in relation to exempt income. As in the case of CIT vs Cheminvest Ltd vs CIT [2015 (9) TMI 238 - DELHI HIGH COURT]) held that dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction claimed u/s 35(2AB) to argue that the assessee is eligible for deduction as its R D facility has been approved by the competent authority, i.e. Department of Scientific Industrial Research, Government of India and to this effect issued form 3CM on 14-01-2013, in response to an application filed by the assessee in form 3CK on 06-11-2012. Insofar as disallowance of expenditure incurred in relation to exempt income, assessee has submitted that it has earned dividend income of ₹ 3,945 and suo moto disallowance of ₹ 10,000 has been made, whereas the AO has determined disallowance of ₹ 31,99,258 without appreciating the fact that disallowance contemplated u/s 14A cannot swallow entire exempt income of the assessee. 4. The CIT(A), after considering relevant submissions of the assessee deleted addition made by AO towards weighted deduction claimed u/s 35(2AB) in respect of R D expenditure by holding that the assessee is eligible for deduction u/s 35(2AB) of the Act. The relevant portion of the order is extracted below:- 7.5 I have carefully considered rival submission and facts of the case. It is an undisputed fact that the Appellant Company is engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the Assessing Officer and dismissed the appeal, however, the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal ) has come to the conclusion that the assessee would be entitled to weighted deductions of the aforesaid expenditure incurred by the assessee in terms of the Section 3 (2AB) of the Act and in coming to this conclusion, the Tribunal has relied upon the judgment ofGujarat High Court in CITv. Claris Lifesciences Ltd. [2010!326 ITR 251 /[2oo8] 174 Taxman jj.q . We have gone through the aforesaid judgment of the Gujarat High Court and find that Gujarat High Court detailed in no-uncertain terms that the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assessee was in indulging in R D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued, that would be sufficient to hold that the assessee fulfills the conditions laid down in the aforesaid provisions. The discussions, which is undertaken by the Gujarat High Court while interpreting the aforesaid provisions, is extracted below: 7. .........The lower authorities are reading more than what is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are oj the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under Section 35(2AB) of the Act by the assessee, \ 7.8 The Hon'ble Gujarat High Court in Claris Lifesciences Ltd. 326 ITR 251 has observed that: Para 6- The Tribunal has discussed this issue at length in its order. It was contended by the assessee before the Tribunal that nowhere the provisions provide that expenditure from the date of approval only has to be allowed. In the absence of those words, such conditions cannot be imputed in the statute by the lower authorities. Doing so amounts to reading more in the law which is not expressly provided. The words used are any expenditure incurred by the assessee on scientific research on the in-house R D facility approved by the prescribed authorities has to be allowed by deduction of expenditure so incurred. Meaning of these words is plain and clear that the facility is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the Legislature by mdking above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 7.9 In view of the above, it is clear that the Learned Assessing Officer was reading more in the section than what is provided in law. My attention is also drawn to the format of Form No. 3CM as given in the Income Tax Rules, 1962. There is no reference in the Form No. sCM to any Assessment Year or cut-off date for allowability of the weighted deduction and therefore, the form is in complete alignment with the section and as interpreted by the Delhi High Court. In view of these facts and the judicial decisions on the issue, Ground No. 2 is allowed. However, the AO is directed to verify and ensure that no depreciation is claimed and allowed on capital expenditure of ₹ 15,33,26,9287- claimed eligible deduction u/s 35(2AB) of the Act by the appellant. Insofar as addition made towards disallowance of expenses incurred in relation to exempt income u/s 14A r.w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has already made suo motto disallowance of ₹ 10,000/-, whereas the AO is not required to make computation as per Rule 8D(2)(ii) of the IT Rules, 1962. Therefore, the disallowance to be restricted to suo motto disallowance of ₹ 10,000/- . Therefore, addition of Rs, 31,99,258/- is to be deleted. In view of the same Ground No. 3 is partly allowed. 5. The first issue that came up for our consideration from revenue appeal is disallowance of weighted deduction claimed u/s 35(2AB) of the Income-tax Act, 1961. During the course of assessment proceedings, the AO called upon the assessee to explain as to how it is eligible for weighted deduction u/s 35(2AB) in respect of R D expenditure with. The AO, after considering the evidences filed by the assessee to justify deduction claimed u/s 35(2AB), issued notice u/s 133(6) to the Secretary, Department of Scientific Industrial Research, Government of India to provide the status of approval granted to the assessee u/s 35(2AB) issued, if any. In response to notice u/s 133(6), Secretary, Department of Scientific Industrial Research, Government of India, has written a letter dated 15-12-2014 which was received by the AO on 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (India) Ltd 355 ITR 117 and Hon ble Gujarat High Court in the case of CIT v. Claris Life Sciences Ltd. 326 ITR 251. Alternatively, the assessee further contended that in case if it is held that the assessee is not eligible for weighted deduction u/s 35(2AB), deduction should be allowed u/s 37(1) in respect of expenditure incurred by the assessee as the AO never doubted genuineness of expenditure during assessment proceeding. 7. We have heard both the parties, perused the materials available on record and gone through the orders of authorities below. The fact with regard to the approval of assessee s R D facility by the competent authority, i.e. Secretary, Department of Scientific Industrial Research, Government of India is not disputed. The assessee has filed necessary evidence to prove approval granted by the competent authority in Form 3CM. The only dispute is with regard to the approval of its R D facility for the impugned assessment year. Accordingly to the AO, assessee s R D facility has not been approved for the impugned assessment year which is evident from the fact that the competent authority i.e. Secretary, Department of Scientific Industrial Research, Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n u/s 35(2AB) in respect of R D expenditure. 9. Coming the case laws relied upon by the assessee. The assessee has relied upon the decision of Hon ble Delhi High Court in the case of Sandan Vikas (India) Ltd. (supra) and also the decision of Hon ble Gujarat High Court in the case of Claris Life Sciences (supra). The assessee also relied upon the decision of ITAT Hyderabad Bench, in the case of Shri Biotech Laboratories India v. ACIT (2016) 69 taxmann.com 361 (Hyderabad-Trib). We have gone through the case laws relied upon by the assessee in the light of provisions of section 35(2AB) of the Act. The case laws relied upon by the assessee are not applicable to the facts of the assessee s case as all the case laws are rendered in the context of approval granted by the competent authority in the subsequent financial year, but including the assessment years under consideration therein. Under these circumstances the Courts held that once R D facility is approved by the competent authority then there is no reason to the AO to deny benefit from the date of approval of such facility as the Act does not prescribe any cut off date for allowing such benefit. In the present case, the compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Cheminvest Ltd vs CIT (2015) 378 ITR 33 (Del) wherein it was held that disallowance contemplated u/s 14A cannot exceed exempt income. 12. We have heard both the parties and considered material on record. There is no dispute with regard to applicability of provisions of section 14A r.w.r. 8D of I.T. Rules, 1962. The assessee has made suo moto disallowance of ₹ 10,000 considering the nature and amount of dividend income earned for the year. Admittedly, the assessee has earned dividend income of ₹ 3,945 as against which it has made disallowance of ₹ 10,000 towards expenditure incurred in relation to exempt income. The Hon ble Delhi High Court in the case of CIT vs Cheminvest Ltd vs CIT (supra) held that disallowance contemplated u/s 14A shall not exceed exempt income. This legal proposition is further reiterated by the Hon ble Delhi High Court in the case of Joint Investment (P) Ltd vs CIT (2015) 372 ITR 694 (Del). Therefore, we are of the considered view that disallowance worked out by the AO by invoking Rule 8D(2)(ii) 8D(2)(iii) is in excess of exempt income earned for the year and in view of the decision of the Hon ble Delhi High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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