TMI Blog2020 (1) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... R D facility as weighted deduction under section 35(2AB) - no merit in the orders of authorities below in restricting weighted deduction claimed under section 35(2AB) on the ground that DSIR had not approved the said expenditure. It may be pointed out herein itself that reasons for not approving expenditure have also not been made available to the assessee. Consequently, the same cannot be basis for curtailing deduction claimed under section 35(2AB) - Appeal of assessee is allowed - ITA No.1229/PUN/2017 - - - Dated:- 21-1-2020 - Shri Anil Chaturvedi, Accountant Member And Shri S.S. Viswanethra Ravi, Judicial Member For the Assessee : Shri Nikhil Pathak For the Revenue : Shri Deepak Garg ORDER PER ANIL CHATURVEDI, AM : This appeal preferred by the assessee emanates from the order of the Ld. CIT(A)-1, Pune, dated 10.03.2017, for the assessment year 2014-15. 2. The relevant facts as culled out from the material on record are as under :- The assessee is a company stated to be engaged in the business of manufacturing and supplying forged and machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd there was no expenditure incurred in earning dividend from those companies. The learned Commissioner of Income Tax (Appeals) - 1, Pune, further failed to appreciate that the above investments in the group concerns were strategic investments which did not require regular monitoring and therefore, there was no expenditure incurred to earn any income from these investments. 1.4 Without prejudice to ground nos. 1.1 to 1.3 above, the learned Commissioner of Income Tax (Appeals) - 1, Pune, erred in not directing the Assessing Officer to exclude the investments which had not actually given any tax-free dividend income during the relevant previous year for the purposes of working out disallowance under Rule 8D(iii). 2.1 The learned Commissioner of Income Tax (Appeals) - 1, Pune erred in confirming the disallowance of ₹ 4,05,000/- out of weighted deduction of expenditure incurred on in-house research development activities allowable u/s. 35(2AB) of the Income Tax Act 1961 being expenditure not approved by the DSIR. 2.2 He erred in not appreciating that the DSIR had not provided any details or reasoning for such rejection of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed exempt dividend income to the tune of ₹ 39.35 crores (rounded off) and worked out the disallowance u/s 14A of the Act at ₹ 64,73,000/-. The assessee was asked to furnish the basis of calculation of disallowance made. The assessee made various submissions which were not found to be acceptable to the Assessing Officer. The Assessing Officer was of the view that provisions of section 14A of the Act and Rule 8D of the Rules are attracted in assessee‟s case and hence, by following the methodology prescribed under Rule 8D of the Rules worked out the disallowance u/s 14A at ₹ 91,77,567/-. He thereafter, after giving credit of the disallowance suo motu worked out by assessee of ₹ 64,73,000/- made addition of the balance sum of ₹ 27,04,567/- (₹ 91,77,567/- (-) ₹ 64,73,000/- already disallowed). Aggrieved by the order of Assessing Officer, assessee carried the matter before the CIT(A), who dismissed the appeal of assessee. 6. Aggrieved by the order of CIT(A), the assessee is now in appeal before us. 7. Before us the ld. AR reiterated the submissions made before the Assessing Officer and CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of Tribunal in the case of ACIT Vs. Vireet Investments (P) Ltd. (supra) has held that only those investments are to be considered while computing average value of investments, which yielded exempt income during the year. Thus, in the light of decision of Special Bench we concur with the contentions of assessee. The issue is restored back to the file of Assessing Officer for recalculation of disallowance u/s. 14A r.w. Rule 8D after excluding those investments on which the assessee has not earned any exempt income during the period relevant to the assessment year under appeal. 4.1 The ld. AR of assessee has stated at the Bar that if amount of disallowance u/s. 14A after recomputation is reduced below suo-moto disallowance made, the assessee would not claim refund/adjustment of excess suo-moto disallowance already made. Thus, in the light of our above observations and the concession granted by the ld. AR of assessee, the ground No. 1 raised in the appeal by the assessee is allowed for statistical purpose. 10. Before us, the Revenue has not placed any contrary binding decision in its support nor has placed any material on record to demonstra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23;s favour by the decision of Co-ordinate Bench of Pune in assessee‟s own case for A.Y. 2012-13. He also placed on record the copy of the order of Tribunal for A.Y. 2012-13 and submitted that the facts are identical to that of A.Y. 2012-13 and therefore following A.Y. 2012-13, the ground be decided in assessee‟s favour. 15. The ld. DR on the other hand supported the orders of Assessing Officer and CIT(A). 16. We have heard the rival submissions and perused the material on record. The issue in the ground Nos.2.1 to 2.6 is with respect to disallowance of weighted deduction u/s 35(2AB) of the Act. We find that Pune Tribunal in ITA No.805/PUN/2017, order dated 04.09.2019 for A.Y. 2012-13 on identical facts in assessee‟s own case has decided the issue in assessee‟s favour by observing as under:- 5. In ground No. 2 of the appeal, the assessee has assailed disallowance of weighted deduction claimed in respect of expenditure on in-house research development activities u/s. 35(2AB) of the Act. We find that similar disallowance was made by the Assessing Officer in assessment year 201112. The Tribunal decided this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority has to satisfy itself about the genuineness of activities and make enquiries in this regard. Under sub-section (2B) to section 35 of the Act, a company engaged in the specified business as laid there on, if it incurs expenditure on scientific research or in-house Research Development facility also needs to be approved by the prescribed authority, is entitled to deduction, provided the same is approved by the prescribed authority. 39. Now, coming to sub-section (2AA) to section 35 of the Act, it talks about granting of approval by the prescribed authority but the approval to the expenditure being incurred is missing under the said section. Similar is the position in sub-section (2A). Further in subsection (2AB), it is provided that facility has to be approved by the prescribed authority, then there shall be allowed deduction of expenditure incurred whether 100%, 150% or 200% as prescribed from time to time. Clause (2) to section 35 of the Act provides that no deduction shall be allowed in respect of expenditure mentioned in clause (1) under any provisions of the Act. Clause (3) further lays down that no company shall be entitled for deduction under claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sub-section 2AB of section 35 of the Act in part B of form No.3CL. In other words the quantification of expenditure has been prescribed vide IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016. Prior to this amendment, no such power was with DSIR i.e. after approval of facility. 41. Under the amended provisions, beside maintaining separate accounts of R D facility, copy of audited accounts have to be submitted to the prescribed authority. These amendments to rules 6 and 7a are w.e.f. 01.07.2016 i.e. under the amended rules, the prescribed authority as in part A give approval of the facility and in part B quantify the expenditure eligible for deduction under section 35(2AB) of the Act. 42. The issue which is raised before us relates to pre-amended provisions and question is where the facility has been approved by the prescribed authority, can the deduction be denied to the assessee under section 35(2AB) of the Act for non issue of form No.3CL by the said prescribed authority or the power is with the Assessing Officer to look into the nature of expenditure to be allowed as weighted deduction under section 35(2AB) of the Act. The first issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making 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. 10. We are in full agreement 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 of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under s. 35(2AB) of the Act by the assessee. 44. The Hon‟ble High Court of Delhi in CIT Vs. Sandan Vikas (India) Ltd. (2011) 335 ITR 117 (Del) on similar issue of weighted deduction under section 35(2AB) of the Act held that the condition precedent was the certificate from DSIR, but the date of certificate was not important, where the objective was to encourage research and development by the business enterprises in India. In the facts before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below. 46. The Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on inhouse R D facility as weighted deduction under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by ₹ 6,75,000/-. Thus, grounds of appeal No.10.1, 10.2 and 10.3 are allowed. 18. The issue arising before us is similar to the issue in Cummins India Ltd. Vs. DCIT (supra) and following the same parity of reasoning, we hold that where facility has been recognized by the prescribed aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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