TMI Blog2021 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance u/s 14A r.w.r. 8D - addition being 0.5% of average value of investment held by the assessee and proportionate interest expenditure not directly attributable - HELD THAT:- The discussion made by the A.O. in the assessment order would show that the A.O. was not satisfied with the contentions of the assessee, and accordingly, we are of the view that the same would satisfy the requirement of recording of dissatisfaction by the Assessing Officer within the meaning of section 14A of the I.T.Act. We noticed that the A.O. has mechanically applied the provisions of Rule 8D of the I.T.Rules. We noticed that the assessee has received dividend income from only one company named M/s.Indo Russian Aviation Limited - we are of the view that the provisions of Rule 8D of the I.T. Rules should not have been applied mechanically - disallowance u/s 14A of the I.T.Act may be estimated in order to meet the requirement of section 14A of the I.T.Act, since dividend has been received only from one company - disallowance of ₹ 50,000 would meet the requirements of section 14A of the Act and the same will put a quietus to the issue. Therefore, we set aside the order passed by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (c) That the learned CIT(A) erred in not following the orders of The Hon'ble Income Tax Appellate Tribunal ['ITAT] in the company's own case for the assessment year 2005-06, 2006- 07, 2009-10, 2010-11 wherein the ITAT has allowed deduction under section 35(1)(iv). 4. Without prejudice to the Ground No. 2 and 3above, where the research and development expenditure incurred is considered as capital in nature, CIT(A) has erred in not allowing depreciation on the same. 5. That the learned CIT(A) erred in dismissing the ground relating to disallowances of prior period expenditure. 6. That the learned CIT(A) erred in not considering the brought forward losses. 7. That the learned CIT(A) erred in not granting MAT credit available to the company. 8. That the learned CIT(A) erred in not granting TDS credit available to the company, 9. That the learned CIT(M erred in law and facts in upholding the order of the learned Assessing Officer in levying interest under section 234B, 234C and 234D of the Act. 10. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent dated 09.12.2020). The copy of the judgment of the Hon ble High Court is placed on record. 3.4 The learned Departmental Representative has filed a brief written submission essentially supporting the stand taken by the A.O. and the CIT(A). 3.5 We have heard rival submissions and perused the material on record. For assessment year 2009-2010, an identical issue had cropped up before the Income Tax Authorities. The claim before the A.O. was that the expenditure incurred for research and development has to be allowed as deduction u/s 37 of the I.T.Act. The assessee also made an alternative claim that the same is to be allowed as deduction u/s 35(1)(iv) of the I.T.Act. The claims of deduction, both u/s 37 and u/s 35(1)(iv) of the I.T.Act were disallowed by the Assessing Officer for assessment year 2009-2010. The view taken by the A.O. was confirmed by the CIT(A). On further appeal before the ITAT, the ITAT confirmed the assessment order that the assessee is not entitled to deduction u/s 37 of the I.T.Act. Insofar as deduction u/s 35(1)(iv) of the I.T.Act is concerned, the ITAT restored the issue to the files of the A.O. to examine the alternative claim of the assessee. On f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not on record. It is not clear how the grants have been expended, that is, whether it is a revenue expenditure or capital expenditure. The Hon ble High Court in assessee s own case for assessment years 2009-2010 and 2010-2011 (supra) had categorically held that it is immaterial whether the expenditure has been incurred out of the grants given by the Central Government. The Hon ble High Court held that if the expenditure is on the revenue field, the same is to be allowed as an expenditure u/s 37 of the I.T.Act instead of section 35(1)(iv) of the I.T.Act. Since the bifurcation of the expenditure claimed as deduction u/s 37 of the I.T.Act is not very clear, we restore this issue to the files of the A.O. The A.O. is directed to examine each of the expenditure whether it is in the revenue field and if so allow the same as deductible expenditure u/s 37 of the I.T.Act. The above direction is in tune with the dictum laid down by the Hon ble High Court in assessee s own case for assessment years 2009- 2010 and 2011-2011 (supra). As regards the other expenditure, which are not deductible u/s 37 of the I.T.Act, we direct the A.O. to examine the assessee s alternative claim of deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 2. The receipt is to acquire capital asset in the form of technology and know-how, the receipt are capital in nature and not includible in income. 9 3. Capital cost of the project would be met and provided by the Government but with a clear condition that all capital asset acquired with the funds provided by Government shall be the property of Government of India. 11 4. . they were receipts for bringing into existence capital of lasting value. Facts of this case being identical to assesee s case before us is also relevant and applicable. (b) Grant is not revenue as it is not in relation to trading activities because the Appellant is not in the business of selling technology : Sr. No. Quote Para. Reference 1. Grant is given relating to defence related research and is in public interest through which technology is developed. Since selling technology is not part of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce equipments. 23 3.5.5 In the light of the above, it is clear that the claim of expenditure incurred towards research and development activities u/s 35(1)(iv) of the I.T.Act is to be allowed, provided other conditions are satisfied. Ground Nos.3(a), 3(b), 3(c) and 4 4. The above grounds have become redundant in view of disposal of grounds No.2(a), 2(b). (We have directed the A.O. to examine the expenditure incurred whether it can be allowed as a deduction u/s 37 or 35(1)(iv) of the I.T.Act). Ground No.5 5. This ground was not pressed by the learned AR, hence, the same is dismissed. Ground No.6 6. In this ground, the assessee submits that the CIT(A) has erred in not considering the brought forward losses. 6.1 We have heard the rival submissions. The A.O. is directed to allow the set off of brought forward losses in accordance with law. It is ordered accordingly. Ground No.7 7. In the above ground, the assessee contends that the CIT(A) has erred in not granting MAT credit available to it. 7.1 After hearing the rival submissions, we direct the A.O. to allow appropriate MAT credit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that expenditure is revenue in nature and allowed the same as deduction u/s 37 of the I.T.Act. Hence, these grounds are dismissed as infructuous. Ground No.3 13. In this ground, it is submitted that the CIT(A) has erred in not granting MAT credit available to the assessee-company. 13.1 After hearing the rival submissions the A.O. is directed to allow appropriate credit in respect of MAT credit. It is ordered accordingly. Ground No.4 14. The assessee submits that the CIT(A) has erred in not granting TDS credit available to the assessee. 14.1 Heard rival submissions. The Assessing Officer is directed to allow appropriate credit in respect of TDS. Ground No.5 15. This ground is regarding levy of interest u/s 234B and 234C of the I.T.Act. This ground is only consequential and the same is dismissed. ITA No.1091/Bang/2017 (Asst.Year 2011-2012) 16. The grounds raised read as follow: The grounds mentioned herein are without prejudice to one another. 1. That the order passed by the learned Commissioner of Income-Tax (Appeals) ['CIT(A)'] under section 250 of the Income-tax Act, 1961 ('Act'), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground Nos.2(a) and 2(b) (disallowance u/s 14A of the I.T.Act. 17. The Assessing Officer made a disallowance of ₹ 1,57,05,523 u/s 14A of the I.T.Act r.w. Rule 8D(2)(ii) of the I.T.Rules being 0.5% of average value of investment held by the assessee and proportionate interest expenditure not directly attributable. 17.1 The CIT(A) upheld the disallowance u/s 14A of the I.T.Act. The CIT(A) relied on the order of the Tribunal in assessee s own case for assessment year 2009-2010. However, with respect to disallowance of interest expenditure of ₹ 1,355, the CIT(A) granted relief. 17.2 The assessee being aggrieved, has raised this issue before the Tribunal. The learned AR submitted that the issue in question is covered in favour of the assessee by the judgment of the Hon ble High Court in assessee s own case for assessment years 2009-2010 and 2010-2011 in ITA No.404/2016 and 481/2016 (judgment dated 09.12.2020). It was submitted that the Hon ble High Court had deleted disallowance u/s 14A of the I.T.Act by holding that the A.O. has not recorded any satisfaction with regard to genuineness of the claim of the assessee before invoking the powers u/s 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view that the provisions of Rule 8D of the I.T. Rules should not have been applied mechanically. We are of the view that the disallowance u/s 14A of the I.T.Act may be estimated in order to meet the requirement of section 14A of the I.T.Act, since dividend has been received only from one company. Accordingly, we are of the view that a disallowance of ₹ 50,000 would meet the requirements of section 14A of the Act and the same will put a quietus to the issue. Therefore, we set aside the order passed by the learned CIT(A) on this issue and direct the A.O. to restrict the disallowance to ₹ 50,000 u/s 14A of the I.T.Act for assessment year 2011-2012. Ground Nos.3(a), 3(b), 4(a), 4(b), 4(c) and 5 18. The above grounds relate to the issue of disallowance of research and development expenditure. Identical issues were adjudicated by us in ITA No.1090.Bang/2017, concerning assessment year 2007-2008 (supra). For the reasons stated in para 3.5 to 3.5.5, these issues are restored to the files of the A.O. The A.O. shall follow the directions given by us in ITA No.1090/Bang/2019, concerning assessment year 2007- 2008. Ground Nos. 6 and 7 19. It is the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the grant received from the Government of India is capital in nature, the learned CITCA) erred in not granting deduction under Section 35(1)(iv) of the Act in respect of such expenditure. (b) That the learned CIT(A) erred in law facts in concluding that such expenses were not incurred for the purpose of the business of the company. (c) That the learned CIT(A) erred in not following the order of The Hon'ble Income Tax Appellate Tribunal ['ITAT'] in the company's own case for the assessment year 2005-06, 2006- 07, 2009-10, 2010-11 wherein in the ITAT has allowed deduction under section 35(1)(iv). 5. Without prejudice to the Ground NO.3 and 4 above, where the research and development expenditure incurred is considered as capital in nature, CIT(A) erred in not allowing depreciation on the same. 6. That the learned CIT(A) erred in not granting TDS credit available to the company. 7. That the learned CIT(A) erred in law and facts in upholding the order of the learned Assessing Officer in levying interest under section 234B 234C of the Act. 8. That the Appellant craves leave to add to and /or to alter, amend, rescind, modif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1962 ('Rules'). (b) That the learned CITCA) erred in upholding the disallowances under section 14A in excess of the amount of exempt income. 3. (a) That on the facts in the circumstances of the case, the learned CIT(A) erred in upholding the disallowance of expenditure incurred by the Appellant on Research Development amounting to INR 18,118,779,000 considering the same to be capital in nature. (b) That the learned CITCA) erred in law and facts in disallowing the Research and Development expenditure incurred by the Company without considering the fact that such expenditure would be eligible for deduction under section 28 to 44DB of the Act. 4. (a) Without prejudice to the Grounds No. 3(a) and 3(b) above, having held that the expenditure incurred by the Company out of the grant received from the Government of India is capital in nature, the learned CITCA) erred in not granting deduction under Section 35(1)(iv) of the Act in respect of such expenditure. (b) That the learned CIT(A) erred in law facts in concluding that such expenses were not incurred for the purpose of the business of the company. (c) That the learned CIT(A) erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest u/s 234B, of the I.T.Act. The levy of interest being consequential, the above ground is rejected. 34. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. ITA No.84/Bang/2018 (Asst.Year 2014-2015) 35. The grounds raised read as follows:- The grounds mentioned herein are without prejudice to one another. 1. That the order passed by the learned Commissioner of Income-Tax (Appeals) ['CIT(A) ] under section 250 of the Income-tax Act, 1961 ('Act'), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2 (a) That the learned CIT(A) erred in law and on the facts of the case in upholding the disallowance of INR 35,369,427 under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ('Rules'). (b) That the learned CITCA) erred in upholding the disallowances under section 14A in excess of the amount of exempt income. 3. (a) That on the facts in the circumstances of the case, the learned CIT(A) erred in upholding the disallowance of expenditure incurred by the Appellant on Research Development amounting to INR 7,333,718,000 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference amount. It is ordered accordingly. Ground Nos.3(a), 3(b), 4(a), 4(b) and 5 (Disallowance of research and development expenditure) 37. An identical issue was adjudicated by us in assessment year 2007-2008 in ITA No.1090/Bang/2017 (supra). For the reasons stated in para 3.5 to 3.5.5 (supra), we restore the above issues to the files of the A.O. The A.O. is directed to dispose of the above issues following our directions contained in our order for assessment year 2007-2008 in ITA No.1090/ Bang.2017. It is ordered accordingly. Ground No.6 38. In this assessee, the assessee contends that the CIT(A) has erred in not granting MAT credit available to it. 38.1 After hearing the rival submissions, we direct the A.O. to allow appropriate MAT credit in accordance with law. Ground No.7 39. In the above ground, the assessee submits that the CIT(A) has erred in not granting TDS credit available to the assessee. 39.1 We have heard the rival submissions and perused the material on record. The A.O. is directed to allow appropriate credit in respect of the TDS. It is ordered accordingly. Ground No.8 40. This ground is with rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture incurred is considered as capital in nature, CIT(A) erred in not allowing depreciation on the same. 6. That the learned CIT(A) erred in not granting MAT credit available to the company. 7. That the learned CIT(A) erred in law and facts in upholding the order of the learned Assessing Officer in levying interest under section 234B and 234D of the Act. 8. That the Appellant craves leave to add to and /or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this appeal. Ground Nos.2(a) and 2(b) (Disallowance u/s 14A of the I.T.Act) 43. The issue of disallowance u/s 14A had come up for adjudication on identical facts in the preceding assessment year, namely Asst.Year 2011-2012. In this year, the assessee has received dividend income of ₹ 183.97 lakh from three companies. The assessee has voluntarily disallowed a sum of ₹ 7.63 lakh. For our reasoning stated in para 17 to 17.6 for A.Y. 2011-2012 in ITA No.1091/Bang/ 2017 (supra), we are of the view that no further disallowance is called for. The A.O. is directed not to make any further disallowance. It is ordered acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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