TMI Blog2019 (10) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... ertification of the expenditure, where the actual expenditure, as in the case of the assessee is verified by the Statutory Auditor and certified by the Independent Auditor and Tax Auditor. The assessee is found correct in contending that the ld. CIT(A) has observed that the extent of the expenditure was never verified by the A.O. Thus, according to the assessee it goes to confirms that the A.O. disallowed the claim without due application of mind. This contention of the assessee is correct, as evident from the assessment order itself, wherein the ground for the disallowance was the non approval of the expenditure claimed by the DSIR. On behalf of the assessee, another contention has been raised, that the ld. CIT(A) is wrong in observing that during the remand proceedings, the assessee has not objected to the action of the A.O. in making the disallowance u/s. 35(2AB). This, it has been emphasized, that the assessee had always objected to the disallowance before the A.O. as well as the ld. CIT(A). The attention in this regard has been drawn to the grounds taken by the assessee and the submissions raised by the assessee before the ld. CIT(A). It has further been submitted that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iga could be considered for disallowance. This factual assertion of the assessee may be verified at the level of the A.O. and, thereafter, the disallowance may be computed, for which, the issue is remitted to the file of the A.O. Fresh claim of the assessee concerning the dividend income u/s.10(35) - HELD THAT:- Evidently, the claim made by the assessee cannot be shut out, in view of the Hon'ble Supreme Court decision in the case of Goetze (India) Ltd. v. CIT [ 2006 (3) TMI 75 - SUPREME COURT] , as considered by the Mumbai ITAT in the case of APL India(L) Ltd [ 2012 (7) TMI 492 - ITAT, MUMBAI] and also referred to in the decision of the ITAT Cochin in the case of Apollo Tyres [ 2013 (11) TMI 209 - ITAT COCHIN] holding that the appellate authorities are not debarred to entertain the fresh claim. No decision contrary to the said decisions, as referred to by the ld. CIT(A) amongst others. Therefore, it cannot be said that the ld. CIT(A) committed any error in entertaining the claim made by the assessee. - ITA No. 5295/Mum/2017 And ITA No. 5390/Mum/2017 - - - Dated:- 27-9-2019 - Shri A. D. Jain, VP And Shri Rajesh Kumar, AM For the Assessee : S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd hence provision for Rule 8D2(iii) were applicable. 3.2 Your appellant has submitted the amount of actual expenditure incurred for earning the exempt income and the disallowance ought be restricted to the same in terms of Section 14(1) of the I.T Act, 1961 and without referring to provisions of Rule 8D2(iii) of the I.T Rules 1962. 3. Apropos ground no.1, the Assessing Officer ( A.O. , for short) noted, after verifying Form Nos. 3CM and 3CL concerning the deduction claimed by the assessee u/s. 35(AB) of the Income Tax Act, 1961 ( the Act', for short), that the eligible amount, as noted by the Department of Scientific and Industrial Research ( DSIR for short), in Form No. 3CL was less as compared to the deduction claimed by the assessee. The A.O. made the disallowance of ₹ 42,52,032/- on this basis. The ld. CIT(A) has confirmed the assessment order on this score, by observing as follows: 7.2 I have carefully perused the assessment order and the submission of the appellant. It is found that during remand hearing, the appellant has not objected to the action of the AO for making disallowance u/s 35(2AB) of the Act. Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has contended that the ld. CIT(A) has erred in confirming the disallowance wrongly made by the A.O., without appreciating that the assessee was eligible for weighted deduction based on the Auditor s certificates and the tax audit report; that alternatively and without prejudice, the assessee had incurred the expenditure on Scientific Research in the in-house, Research and Development facility approved by the prescribed authority, being the department of Industrial and Scientific Research, i.e., the DSIR. The written submissions have also been filed, which we shall presently discussing. 5. The ld. Departmental Representative (ld. DR for short), on the other hand, has placed strong reliance on the impugned order. It has been contended that the ld. CIT(A) has correctly undone the A.O. s action of denying the assessee s weighted deduction of ₹ 42,52,032/-, including the amount of ₹ 28,34,688/-, being the actual expenditure incurred @ 100% of the expenditure u/s. 35(1)(iv) of the I.T. Act; that the eligible expenditure, as per the DSIR, in Form No. 3CL was lower as compared to the amount claimed by the assessee; that the DSIR had not given any reason in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the DSIR in issuing Form No. 3CL (APB pgs. 89 90), dated 24.08.2010, quantifying the eligible expenditure at ₹ 11,04,63,000/-, as against that of ₹ 11,32,97,688/-, resulting in a difference of ₹ 28,34,688/-, which prompted the A.O. to make the disallowance in question. 8. It is seen that as rightly contended on behalf of the assessee, section 35 of the Act grants deduction for Scientific Research expenditure, under the circumstances prescribed there-under, on compliance of the conditions laid down in various provisions of section 35. Now, whereas in some cases, like those coming under the provisions of sections 35(1)(i) and 35(2AB), a specific approval of quantum of expenditure, by the prescribed authority, is the pre-requisite for deduction, the provisions of section 35(2AB) requires approval for Units and not approval for the quantum of expenditure. For ready reference, section 35(2)(AB) reads as under: Expenditure on scientific research. 35. (2AB)(1) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the point that it is the unit which requires approval of the prescribed authority under this provision. Further, in the memorandum, explaining the provision of section and the notes on the clauses issued at the time of insertion of section 35(2AB) in the Act, copies of both of which have been filed on record before us by the assessee, it has been clearly provided that the deduction would be available to the assessee s having an approved in-house R D facility by the prescribed authority. Undisputedly, there is no mention or approval of the quantum of expenditure. 10. Then, as observed by the Ahmedbad Bench of the Tribunal in the case of Sun Pharmaceutical Industries Ltd. Vs. Pr.CIT (2017) 162 ITD 484 as approved by the Hon ble Gujarat High Court vide its decision reported at 250 taxmann 270, it has been held that the objective of Form 3CL is limited to the forwarding of the intimation of the approval of the unit; that Form No. 3CL is a mere report for intimation of approval of R D facility. In this regard, as rightly pointed out, such aspect stands confirmed by subrule (7A) of Rule 6 of Income Tax Rules, as within subsisting (now amended w.e.f. 01.07.2016), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) within sixty days of its granting approval. The above also makes it amply clear that prior to the amendment, i.e., upto 30.06.2016, it was not required to quantify the expenditure and it was only w.e.f. 01.07.2016 that this mandate has been put in place. 14. The year under consideration is A.Y. 2009-10 and, for this year, the amendment was not applicable. Therefore, the assessee is right in contending that the non approval of the expenditure claimed by CSIR did not entitle the A.O. to make the disallowance and the ld. CIT(A) to confirm the same. This does also take care of a without prejudice contentions raised by the assessee, to the fact that deduction of actual expenditure of ₹ 28,34,688/- be allowed to the assessee under the provisions of section 35(1)(i) and 35(1)(iv). These provisions of allowing 100% deduction of expenditure on in-house scientific research, irrespective of the approval of the unit and the certification of the expenditure, where the actual expenditure, as in the case of the assessee is verified by the Statutory Auditor and certified by the Independent Auditor and Tax Auditor. 15. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee himself. 20. The grievance of the assessee is that the A.O. disputed the directions of the ld. CIT(A), while passing the order (APB pg. 286) dated 08.02.2018, for giving effect to the ld. CIT(A) s order, failed to upwardly revise the opening WDV and to allow the higher depreciation to the assessee. The department, per contra, has placed strong reliance on the A.O. s order dated 08.02.2018, besides relying on the assessment order. 21. Here, it is seen that the assessee claimed deprecation on a part of the building, i.e., 84%, which become disallowable for the period from A.Y s 2004-05 to 2007-08. Since such disallowance was confirmed by the ITAT, as such, the aggregate amount, to the extent of 84% of the amount disallowed by the A.O. i.e., 100% was required to be added to the WDV of the building, as on 01.04.2008, for the year under consideration, this come to an amount of ₹ 1,90,42,120/-. Since the tribunal order for A.Ys. 2004-05 to 2007-08, confirming the disallowance, came to be passed on 28.03.2012, in the return of income filed by the assessee on 28.09.2009, it had not been possible for the assessee to have adjusted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out to us for habiting the assessee from making the claim of such like the present one in the assessment proceedings. Rather, it stands well settled that the claims of depreciation need must be allowed by the A.O. irrespective of whether the assessee has himself made such claim or not. However, there is no dispute about the entitlement of the assessee to claim of the depreciation. The A.O. ought to have allowed the higher depreciation on the direction issued by the ld. CIT(A), which, unfortunately, has not come about. Accordingly, the A.O. is now directed to upwardly revise the opening WDV and to allow the higher deprecation to the assessee on the part of the building CG house, which part was utilized by the assessee for its business purpose. Accordingly, ground no. 2 is accepted and allowed. 25. Coming to the ground no. 3, the A.O. noted that the assessee had claimed exempt income of ₹ 1,34,47,794/-. However, no disallowance u/s. 14A of the Act had been made in the computation of the income. The A.O. considered the assessee s explanation that it had not incurred any expenditure for earning the exempt income. However, the A.O. rejected the same, relying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee had submitted the amount of actual expenditure incurred for earning the exempt income, and that the disallowance ought to be restricted to the same in terms of section 14(1) of the Act, without referring to the provisions of Rule 8D(2)(iii) of the Rules. It has further been contended that the assessee company has not incurred any expenditure for earning the exempt income which is directly credited electronically to the bank account of the company and the investment is managed by the Managers of Mutual Funds, to whom the payment is made by the fund and not by the company; that the expenditure debited to the profit and loss account has been directly incurred for the purpose of earning taxable income in relation to that in the alternative, the disallowance should be restricted to the amount of salary of the treasury Manager, Shri Prashant Baliga, who alone, at the most, could have been said to have looked after the investments, that the salary paid to him for the year amounted to ₹ 7,91,181/-; that the investments did not require any expenditure because the investments in subsidiaries is a onetime investment and did not need any expenditure to maintain it; that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der (APB pg. 147) dated 17.10.2014, passed for A.Y. 2008-09, in the assessee s case, in ITA Nos. 6277 6167/Mum/2012. b) The investment of ₹ 30.14 crores in units of debt funds, the income whereof was otherwise liable to taxation under the head of capital gains, which income was not exempt, either u/s.10(38) or section 10(35), or otherwise. 28. As a further alternative, the assessee averse that the average investments of ₹ 128.54 crores adopted by the A.O. for applying sub clause (iii) of Rule 8D(2) should be reduced by, firstly, investments aggregating to ₹ 18.89 crores, on which no exempt income was received during the year (reliance placed on Maxopp Investment Ltd. 402 ITR 640 (SC), Vineet Investments Private Ltd. 188 ITD 1 (Del.)(SB), Reliance Natural Resources Ltd. 166 ITD 385 (Mum.)) ; then, it has been requested that the investments should be reduced by those in subsidiaries, aggregating to ₹ 163.62 crores including the investments in foreign subsidiary, amounting to ₹ 101.33 crores considered to be strategic and excluded from average investment as per tribunal s order (APB pg. 162) for A.Y. 2008-09, it has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. The ld. Counsel of the assessee has contended that last but not the least, without prejudice, the disallowance ought to be, if at all, sustained to the expenditure actually incurred, which is an amount of ₹ 7,91,181/- paid as salary to the treasury Manager. For this, reliance has been placed on Gillette Group India (P.) Ltd. (supra). 32. On the other hand, the ld. DR placing heavy reliance on the order under appeal on this issue, has contended that it has not been disputed that the assessee has claimed various administrative expenditure, or that the assessee has not maintained separate books of account, due to which, it does stand substantiated that no expenditure whatsoever was infact incurred; that the administrative expenses incurred by the assessee are composite and indivisible and interlinked. That the A.O. invoked the provisions of section 14A(ii) of the Act r/w Rule 8D(iii) of the Rules, which action cannot be faulted; that the disallowance so worked out at the amount of ₹ 64 lacs and as confirmed by the ld. CIT(A), therefore, required to be upheld; there being no merit in the grievance sought to be raised by the assessee in this regard. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this appeal, which is the cross appeal of the department to the assessee s appeal, the following are the effective revised grounds which have been raised: On the facts and circumstances of case and in law, the Ld.CIT(A) erred in' deleting the addition without appreciating the facts that the Company has been showing rent income from CG House as business income and claiming depreciation on part of that building utilised by the assessee which was not claimed in the return of income. 2. On the facts and. circumstances of case and in law, the Ld.CIT(A) erred in entertaining the fresh claim of depreciation on CG House which was not claimed by the assessee while filing its Return of Income when the CIT(A) has no power to do so in light of Hon'ble Supreme Court decision in the case of Goetze (India) Ltd reported in 284 1TR 323(SQ. 3. On the facts and circumstances of case and in law, the Ld.CIT(A) erred, inthe disallowance computed by the AO under Rule 8D(2}{ii] of the Income Tax Rules holding that provisions of Rule 8D(2)(ii) are not applicable in the present case without appreciating the fact that the assessee fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to appreciate the fact that firstly, the assessee had failed to substantiate its assertion before the A.O.; that no interest bearing funds had been utilized, and that the investments had been made exclusively out of the revised funds owned by the assessee. 39. The ld. Counsel of the assessee has placed reliance on the impugned order in this regard also, the tribunal order (APB pgs. 152-163). The assessee s case for A.Y. 2008-09 has been pressed into service. 40. A sum of ₹ 72 lacs was disallowed by the A.O. under the provisions of section 14A of the Act read with Rule 8D(2)(ii) of the Rules. The ld. CIT(A) deleted the disallowance, observing as under: 10.2 I have carefully perused the assessment order and the submission of the appellant. It is seen that there was sufficient capital and reserve at the disposal of the appellant and this fact was not disputed by the AO. But in view of the decision of Hon'ble Jurisdictional High Court in the case of SBI DHRL Ltd ( 376 ITR 296) and HDFC Bank Ltd ( 366 ITR 505) it is seen that the Jurisdictional High Court held that if there is sufficient capital and reserve at the disposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has also erred in admitting the additional evidence in direct infractuous of Rule 46 of the I. T. Rules, such additional evidence being the claim of the assessee on account of dividend income u/s. 10(35) of the Act; that the ld. CIT(A) also erred in partly allowing the claim of debt compensation upto ₹ 12,25,000/-, as against the assessee s claim of ₹ 13,96,668/-, which itself shows that the fresh examination of facts was the prerequisite for such allowance; that on account of such allowing the assessee s claim concerning the debt compensation, again the ld. CIT(A) has erroneously violated the provisions of section 46A of the Income Tax Act, 1961. 44. On this issue, at the outset, it would be appropriate to record the observations made by the ld. CIT(A), as under : 12.1 I have carefully perused the assessment order and the submission of the appellant. The appellant has relied on the decision of Hon'ble juridication 1TAT in the case of APL India(L) Ltd 58 SOT 41 (URO) Mumbai) and also referred to the decision of Hon'ble ITAT Cochin in the case of Apollo Tyres 60 SOT 1. The decision was found favourable to the appellant i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground was concerned, it was held that since this issue required a proper verification of facts and the relevant facts were not available on record or in the assessment proceedings, it could not be admitted. If one would admit the said ground, then it would go back to the Assessing Officer for verification and the order for directing the Assessing Officer to verify the facts and adjudicate the claim of the assessee would again be against the spirit of the Supreme Court's judgment. It was, therefore, to be held that the claim of the assessee with regard to doctrine of mutuality, could not be entertained at the instant stage. In the light of these facts, there was no infirmity in the order of the Commissioner (Appeals) and the same was to be confirmed. [Para 14], . Also in the case of Orissa Rural Housing Development Corpn. Ltd. reported at 17 taxmann.com 186 (Orissa), wherein it is held that Whether an assessee can revise his return of income by way of filing a revised statement of income after filing original return other than by way of filing revised return as contemplated under section 139(5)? it is quite possible and natural that in sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch revised statement of income is accepted, then the very purpose of enacting section 139(5) for filing revised return shall be frustrated and provision of said section becomes redundant. During the relevant time, as the assessee had maintained the accounts on mercantile basis, it was bound to file the returns on that basis, [Para 15] The Assessing Officer has no power to entertain fresh claim made by the assessee after filing of the original return otherthan by filing of revised return. [Para 16] In view of the decision referred by the appellant and as noted above, I am of the considered view that if the mistake in apparently verifiable and does not require any in depth verification , investigation, then the claim should be entertained. In the instant case the AO has not verified the claim of the appellant, the appellant has submitted the copy of mutual fund statement from which it s apparently verifiable that the dividend earned from mutual funds are exempt income. Therefore, AO is directed to allow the claim of the appellant. With respect to the claim of death compensation, the claim is verifiable relat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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