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TMI Blog2025 (3) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... n claimed in respect of the Research & Development expenditure incurred at the approved in-house R&D facility u/s 35(2AB) of the Act. 4.1 The facts as discernible from the records are that, the assessee had incurred scientific research expenditure, both revenue and capital, at its approved in-house R&D facility. According to the AO, the assessee had claimed weighted deduction of Rs. 731,68,77,636/- being 200% of the aggregate expenditure u/s 35(2AB) of the Act. The AO in the course of assessment, had required the assessee to submit the Form 3CL issued by the DSIR, to which the assessee is noted to have submitted that, the DSIR was yet to issue Form 3CL. According to the assessee however, the non-availability of Form 3CL would not prevent it from claiming weighted deduction u/s 35(2AB) of the Act. After considering the submissions of the assessee, the AO is noted to have held that, in absence of Form 3CL, the assessee cannot claim weighted deduction u/s 35(2AB) of the Act. 4.2 The AO thereafter observed that, the assessee had incurred revenue expenditure of Rs. 387,57,96,408/-, in relation to which weighted deduction of 200% being Rs. 775,50,92,814/- had been claimed as deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Amendment) Rules, 2016 applicable with effect from 01.07.2016 provides that, the approval of expenditure under 35(2AB) of the Act shall be subject to the condition that, the prescribed authority, i.e. DSIR, shall submit its report in Form 3CL to the PCCIT or CCIT. The relevant Rule is reproduced hereunder: "(7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely :- (a) The facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature; (b) The prescribed authority shall furnish electronically its report,- (i) in relation to the approval of in-house research and development facility in Part A of Form No. 3CL; (ii) quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section (2AB) of section 35 of the Act in Part B of Form No. 3CL; (ba) The report in Form No. 3CL referred to in clause (b) shall be furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of provision of Section 35(2) of the Act. It is further noted that sub-clause (ia) of Section 35(2) of the Act provides that, where the capital expenditure has been incurred after 31.03.1967, the entire value of capital expenditure is eligible for deduction from the profits of the business. Hence, in our considered view therefore, an assessee is entitled for normal deduction i.e. 100% of the capital expenditure incurred at its R&D facility in terms of Section 35(1)(iv) read with Section 35(2)(ia) of the Act, irrespective whether such capital expenditure is eligible for weighted deduction u/s 35(2AB) of the Act or not. 4.7 Our view finds support from the decision of the Hon'ble jurisdictional Madras High Court in the case of CIT vs Rajapalayam Mills Ltd. (265 Taxman 209). In the decided case, the assessee had claimed deduction u/s 35(2AB) of the Act in respect of the expenditure, both revenue and capital, incurred at its R&D facility. Since the assessee was unable to fulfill the conditions prescribed in Section 35(2AB) of the Act, the claim for weighted deduction was denied to it. The assessee had alternatively claimed normal deduction us 35(1)(i) and 35(1)(iv) of the Act in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nothing wrong with the directions of the CIT(Appeals) to the Assessing Officer to allow normal deduction under Sec. 35(1) particularly in view of the fact that the Assessing Officer himself has allowed deduction for the Asst. Year 2005-06." 5. Though there was no issue about the claim of weighted deduction, the Revenue has still preferred the present Appeal under Section 260A of the Act which was admitted by a coordinate Bench of this Court by order dated 9.1.2009, by framing the following substantial questions of law:- "(i) Whether, on the facts and circumstances of the case, the Tribunal was right in law in entertaining a change of claim of deduction by the assessee from 35(2AB) to 35(1) of the Income Tax Act? (ii) Whether, on the facts and circumstances of the case, the Tribunal was right in granting relief under Section 35(1) when the Assessee has not produced the relevant approval from the prescribed authorities for the claim of deduction?" 6. Having heard the learned Senior Standing Counsel for the Revenue, we are satisfied that there is no substance in the present Appeal, since the claim of weighted deduction at 1.5 times of the expenditure incurred by the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and certified the same being relatable to scientific research in Form 3CLA. According to us therefore, these contemporaneous evidences sufficiently establish that the capital expenditure of Rs. 100,21,22,016/- was incurred in relation to scientific research and was therefore eligible for deduction u/s 35(1)(iv) of the Act. Hence, the order of the lower authorities to that extent stands reversed. 4.9 In view of our above findings therefore, we direct the AO to further allow normal deduction for the capital R&D expenditure of Rs. 100,21,22,016/- u/s 35(1)(iv) of the Act, and resultantly delete disallowance to the extent of Rs. 70,14,85,411/- (Rs.100,21,22,016/- minus Rs. 30,06,36,605/-). This ground therefore stands partly allowed. 5. Ground Nos.7 to 15 of the assessee's appeal and Ground No.3 of the Revenue appeal relates to the claim of the assessee regarding deduction u/s 80IA of the Income Tax Act, 1961 (hereinafter in short "the Act") for its plant/unit at Pantnagar. 5.1 The facts as noted are that, the assessee had established a manufacturing facility for production of commercial vehicles in Pantnagar, Uttarakhand, which was eligible for deduction u/s 80-IC of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , vis-à-vis, GST and that the assessee's action of booking the sales at the retail point was without any basis. The AO further observed that, the eligible unit was a cost center and therefore, only a minimum margin should be allowed on their total activities as the AO characterized the assessee to be a low-risk manufacturer. The AO noted that, the design sketch comes from design departments located outside the eligible units and also the R&D happens outside the eligible unit and thus the eligible unit was carrying out only a low-end activity. With these observations, the AO is noted to have concluded that the assessee was shifting profits to its 80-IC unit through artificial booking of higher sales and overheads. Overall, therefore, according to the AO, the assessee had arranged its affairs in such a manner so as to evade tax by showing higher profits in a low-end job, i.e. manufacturing activity carried out at the eligible unit. After these discussions, the AO is noted to have taken the cost base as available in the stand-alone accounts of the eligible unit, applied margin of 3% and accordingly computed allowable deduction u/s 80-IC of the Act at Rs. 69,40,86,511/- and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that of eligible unit was 12.09% and that if the financial results of the eligible unit were removed, then PBT of the assessee was 6.09%. The Ld. CIT(A) accordingly directed the AO modify the disallowance u/s 80-IC by adopting margin of 6.09% instead of 3%. Aggrieved by this order of the Ld. CIT(A), both the parties are in appeal before us. 5.5 Assailing the action of Ld. CIT(A), the Ld. AR for the assessee argued that, the lower authorities had erred in alleging that the stand- alone financials of the eligible units were distorted to reflect higher profits. The Ld. AR first narrated the entire business model of the company along with the manner in which its manufacturing facility at Pantnagar operates. He submitted that, the provisions of Section 80-IC were meant to allow deduction for the profits derived by a manufacturing undertaking and therefore understandably, a manufacturing plant is a profit center and not a cost center as wrongly alleged by the lower authorities. He further showed that that, the entire revenues were mapped to the sales made to the customers out of the products manufactured by the eligible unit. He explained that, all the chassis manufactured by the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible unit. Also, the per unit employee cost at the eligible unit was lower due to the high level of automation at their state-of-the-art eligible facility. Further, the said eligible unit also enjoyed other subsidies from the Government, which was also a contributing factor to the higher profit margin of the eligible unit. He accordingly contended that, eligible profits of the Pantnagar Unit had been ascertained in accordance with due accounting principles and provisions of law and therefore urged that the disallowance made u/s 80-IC ought to be deleted. 5.8 Per contra, the Ld. CIT, DR supported the action of the AO. Reiterating the findings of the AO, he argued that the revenues shown by the eligible unit had no proper linkage with the books of accounts and therefore contended that the revenues were artificially increased to show higher profits. For this, he referred to the AO's finding that, for GST the sales were recognized at manufacturing point whereas for income-tax sales were recognized at retail point. He argued that a manufacturing facility is always a cost center and in assessee's case, the plant was simply carrying out the orders of the head office and therefore only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he heavy- vehicles/goods/products are sold and sent to the ultimate consumers. It was brought to our notice that, the sales-yard is generally within the same premises as that of the manufacturing units to accommodate storage of the manufactured chassis etc, as they cannot be kept inside the plant for operational efficiency reasons and thereafter transferred to RSO/ware-house, from where the goods are sent to the ultimate customers. However, according to AO, there was no linkage between the goods sold from the RSO with the goods manufactured by the eligible unit and therefore he alleged that, the revenues credited in the stand-alone financials were shown to be higher, to shift profits. In this regard, we find that the Ld. CIT(A) had rightly taken note of the assessee's explanation that, the products manufactured by the eligible unit was identifiable from the chassis/product number which inter alia included a unique 11th alphabet from which the place of manufacture i.e. Pantnagar Unit was identifiable. The assessee had placed before us sample invoices to show that, they contained the chassis numbers from which the place of manufacture i.e. Pantnagar, was discernible from the eleventh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. [Explanation.-For the purposes of this sub-section, "market value", in relation to any goods or services, means- (i) the price that such goods or services would ordinarily fetch in the open market; or (ii) the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA." 5.12 From the above it is clear that, the sale price shall be the price which such goods fetch in the open market. We note that, the sales recorded in the stand-alone accounts are based on the price at which the goods manufactured were sold to the customers viz., based on the invoices raised upon the third parties. According to us therefore, this basis of revenue recognition followed by the assessee is in line with Section 80-IC(6) read with Section 80-IA(8) of the Act. We therefore see no reason to tinker with the figure of revenues recognized in the stand- alone accounts of the eligible unit. 5.13 We find that the Revenue's case is that, the assessee is discharging GST at the manufacturing point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue recognition for recording inter-unit transfers i.e., market value at which goods were sold to ultimate customers, has been accepted to be sound & reasonable basis by the TPO in the earlier AY 2017-18, then applying the principle of consistency, and in absence of change of any facts and in position of law in the relevant AY 2018-19, the basis of recognizing revenues in the relevant year could not have been disputed by the AO. 5.15 It is further noted that, much ado has been made by the lower authorities that, a manufacturing unit is a cost center and therefore have no role in profit generation. We find this observation to lack any cogent logic. The Ld. AR has rightly pointed out that, the benefit of deduction u/s 80-IC of the Act is available only to such a unit which is engaged in manufacture of any article or thing and therefore the logic propounded by the lower authorities that, a manufacturing unit is a cost center having no/limited role in profit generation is contrary to the intention of the Legislature and the very purpose of bringing in this profit-linked deduction i.e. Section 80-IC of the Act. Also, in our considered view, normally a profit center is that segm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loan Ratio - Working Capital Ratio - Cost of Production Ratio - Exports Turnover Ratio Corporate General OH costs including Consultancy, Rent, Admin etc Cost of Production ratio Research, Design & Product Development cost incurred in R&D cente Cost of Production ratio Selling and Distribution costs including Advertisement, Aftermarkets / Spares cost, Service cost, Travel cost, Commission, etc Domestic / Exports / Total Turnover ratio 5.17 Having gone through the above, we therefore note that, all the common costs had indeed been allocated by the assessee to the eligible unit based on sound parameters. We agree with the Ld. AR that, all the costs attributable to the R&D efforts and sales/marketing efforts towards the sales of goods manufactured by the eligible unit, were already captured and debited in the audited stand-alone accounts and therefore there was no further cost left to be attributed thereto. It is noted that the lower authorities have not pointed out any infirmity or falsity in the above cost allocation parameters adopted by the assessee. It is also not the Revenue's case that, the assessee had not allocated any particular cost/expense, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable. Moreover, in our considered opinion, when the assessee has placed the audited standalone accounts of the eligible unit at Pantnagar and still if the AO was of the view that the profits of the unit set up in backward area should be lower than other units, then the onus lay on the AO to establish the same with cogent material and corroborative evidence or at least, find specific fault or infirmity in the books produced by the assessee. We however note that the AO clearly failed to do so. Nothing tangible was brought on record to support such allegation or reasoning. As noted above, both the revenues recognized in the stand-alone accounts as well as the costs debited in the stand-alone accounts were based on fair & reasonable parameters and sound accounting principles. The AO has not pointed out any specific defect in the manner of preparation of the stand-alone accounts, with corroborative evidence. Instead, the disallowance is noted to have made on mere suspicion and unfounded, baseless observations, as already discussed above. 5.20 According to us, the fact that high profits were earned by the eligible unit in comparison to other units by itself cannot lead to conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the eligible unit only if he could first point out, (a) as to whether he was of the view that the transactions conducted by the eligible unit were not at fair market value in terms of section 80IA(8) of the Act, or that (b) there was any arrangement with AEs in terms of Section 80IA(10) of the Act which led to higher profits. As already noted by us above, the revenues recognized in the stand-alone accounts was in accordance with Section 80-IA(8) of the Act and therefore the first option (a) was not applicable in the present case. Further, it is not the AO's case that there was any such arrangement as set out in Section 80-IA(10), basis which it could be alleged that the profits had been shifted out of non-eligible unit to the eligible unit. According to us, the AO has failed to show that there existed any arrangement between the assessee and its connected persons or other ineligible units, by which the transactions were so arranged as to produce more than the ordinary profits in the hands of the assessee. Since the AO was also unable to show that there was any 'arrangement' in terms of Section 80IA(10) of the Act, in our view, the AO could not have invoked the deeming pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y deem fit." (emphasis supplied) 11. The expression "such reasonable basis" pre-supposes that the AO has to explain with sufficient clarity why the AO is rejecting the profit figures as put forth by the Assessee which emerges from the audited accounts of the Assessee. In the present case, for instance, the AO had to explain why he was rejecting for AY 2006-07 the GP ratio of 38.05% and substituting it with a rate of 23%. What the AO appears to have done in the present case is to reject an explanation given by an Assessee as to the difference in the selling price of the products manufactured by it at its Baddi unit compared to that at Delhi unit. The AO proceeded on the basis that the sales were to related parties thus giving an unfair advantage to the Assessee. 12. The above approach of the AO was rightly found by the CIT(A) to be not justified. Without pointing out the error, if any, in the accounts or disturbing the figures of sales or purchases, to compare the trading results of business of two units and simply reject was clearly not a "reasonable basis", as contemplated by the proviso to Section 80-IA (8) of the Act. The AO's order does not explain the basis for determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from manufacturing of the product which was taken by P2P supplier, (ii) profit derived from brand value of the product and (iii) profit derived from marketing network of those products. The AO has then invited attention on the provisions of section 80IC and opined that the profits and gains of an eligible business is the only source of income of the assessee. He has referred section 80IC(7) r.w.s.80IA(5), so that the profits of the eligible undertaking is to be computed as if such eligible business is the only source of income. His conclusion was that the sale price of the products manufactured at the Baddi Unit should be the cost of the production plus a reasonable amount of profit which should have been charged, however, the average sale price was escalated by claiming profit derived on sale of products manufactured by Baddi Unit which according to him, the alleged huge profit was not correct for the purpose of claiming the deduction u/s.80IC of the IT Act. 6.8 He has given an another reasoning and wanted to analyze the issue from yet an another angle. According to him, the assets, such as, brand value and marketing network are the assets owned by the assessee- company as a who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies have 'Total Cost' based pricing method. Total Cost has, broadly speaking, two components; i.e. raw-material plus value addition (it includes all overheads). Therefore, profit margin is price minus total cost. In manufacturing Unit, thus cost of conversion is production overheads, such as, direct labour cost and inextricably linked expenditure of production. In general, every manufacturing concern has fixed manufacturing capacity. So the objective of such concern ought to be to maximize the profit. Now the problem, as posed, is that let us assume that the said manufacturing unit is producing two products; viz. "A" & "B". For production of "A" product, let us say, there is less working hours, but fetching more value for less money. However, in the production of product "B" due to complex process of manufacturing it requires more working hours. For pricing product "B" the situation is that more money expenditure and may fetch less value. Therefore, in the processing department it is not possible to segregate the two components to determine the segregated margins. Keeping this accounting principle in mind, we revert back to the language of section 80IC which says that a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of other Units of the assessee, more so when separate books were maintained by the assessee in respect of the said eligible Unit. In the present case as well the AO has proceeded to disturb the profit of the Baddi Unit and held that only 6% profit is eligible for deduction u/s.80IC.While doing so, identically, the AO has not pinpointed any defect in the working of the "profit" of the Baddi Unit. In such a situation, we can say that the legal proposition as laid down by Delhi Bench can also be applied in the present appeal as well. 10.4 The AO has also concluded that only the incremental profit, representing the difference between the profits earned earlier when the products were procured on P2P basis and the profits earned by the Baddi Unit, should be treated as a manufacturing profit. The AO has then said that earlier the assessee was procuring the products on P2P basis and showing the average profit at 80%, however, on the basis of average selling rate of the produces manufactured by Baddi Unit the average profit was gone up to 86%. The AO has therefore restricted the deduction only at 6%. He has placed reliance on Rolls Royce Plc (supra). In that case, the assessee was a UK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independently be established that the major portion of the profit could be attributed to the assessee- company and rest of the profit could only be attributed to the Baddi Unit." 5.26 In the decided case (supra) also, the Tribunal also noted that the AO had not disputed the allocation of common expenses amongst the units including the eligible unit and the fact that the costs incurred on R&D, marketing, brand promotion etc. had already been allocated on sound allocation parameters while computing the profits of the eligible unit as well. Accordingly, when the cost base of the eligible unit was held to be correctly worked out, the Tribunal held it to be improper to segregate and allocate the profits of the eligible unit to the R&D, marketing, brand promotion activities, when all the related costs had already been considered in the stand-alone accounts of the eligible unit, by holding as under:- "10.5 The AO has also made out a case that the book profit percentage of Baddi Unit was 58.67%, whereas the profit of the assessee-company as a whole was 11.88%. If we further elaborate this aspect, then the AO has also given a working through which the average selling rate was 86.36% of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80-IA(8) of the Act. According to us, the sale price cannot further be segregated by imputing price attributable to marketing and R&D efforts for the simple reason that there is no such provision contained in law. We agree with the Ld. AR that, the method of computation to be adopted by the assessee, in line with Section 80-IA(8) of the Act and the relevant jurisprudence on this subject is that, on one side of the P&L A/c the sale price i.e. market value of products is to be credited and on the other side, the production cost plus overheads including common & indirect costs allocable to turnover is to be debited to compute the profit. We find that, this is what has been done by the assessee and certified by the auditor as well in Form 10CCB. Accordingly, we see no reason to tinker with the eligible profits as computed by the assessee, particularly when, the lower authorities have not pointed out any specific infirmity in the calculation, basis of allocation etc. In support of the foregoing, we further rely on the following findings made by this Tribunal in the case of Cadilla Health Care Ltd (supra); "10.6 From the side of the Revenue, ld. Special Counsel has argued that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of profit. Rather, we have seen that the profit of an undertaking is always computed as a whole by taking into account the sale price of the product in the market. 10.7 The Ld. AO has suggested that the assessee should have passed entries in its books of account by recording internal transfer of the product from Baddhi Unit to the head office marketing unit and that too at arm's length price. From the side of the appellant an argument was raised that what should be the arm's length price in a situation when a product is ultimately to be sold in the open market. Whether the AO is suggesting that an imaginary line be drawn to determine the profit of the Baddi Unit at a particular stage of transfer of products. Definitely a difficulty will arise to arrive at the sale price as suggested by AO on transfer of product from Baddi to head office. What could be the reasonable profit which is to be charged by the Baddi Unit will then be a subject of dispute and shall be an issue of controversy. On the contrary, if the sale price is recorded at the market price, which is easily ascertainable, that was recorded in the Baddi Unit account, the scope of controversy gets minimal. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns are not practicable. If these two suggestions are to be implemented, then a Pandora box shall be opened in respect of the determination of arm's length price vis a vis a fair market and then to arrive at reasonable profit. Rather a very complex situation shall emerge. Specially when the Statute do not subscribe such deemed inter-corporate transfer but subscribe actual earning of profit, then the impugned suggestion of the AO do not have legal sanctity in the eyes of law. 10.9 A very pertinent question has been raised by ld.AR Mr. Patel that what should be the line of demarcation to determine the sale price of a product if not the market price. As far as the present system of fixation of sale price of the product is concerned, a consistent method was adopted keeping in mind the several factors, depending upon the market situation, we have been informed. But if the assessee is compelled to deviate from the consistent method of pricing, then any other suggestion shall not be workable because no imaginary line of profit can be drawn, precisely pleaded before us. So the uncertainty is that on the production cost what should be the reasonable mark-up which shall cover up the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive is linked with generation of 'operational profit'. Therefore, the respected Parliament has confined the grant of deductions only derived from eligible business. Each eligible business constitutes a stand alone item in the matter of computation of profit. The Court has said that because of this reason the concept of "segment reporting" was introduced in Indian Accounting Standards. Ld. Counsel Mr. Srivastava has argued that the deduction u/s.80IC is a profit linked incentive. Only the Operational Profit has to be claimed for 80IC deduction. According to him, each of the eligible business constitutes a stand alone item in the matter of computation of profit. For the computation of profit of an eligible business the word used is "derived" in section 80IC which is a narrower connotation, as compared to the word "attributable". In other words, by using the expression "profits derived by an undertaking", Parliament intended to cover such sources not beyond the first degree, i.e. the first degree of manufacturing activity. The law pronounced by the Hon'ble Supreme Court is final and should not be disputed. However, a judgement is to be correctly interpreted. .... 10.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncalled for as the allegations of 'tax evasion' is a very serious allegation and therefore, the AO should have desisted from using such expression when he never made out such a case in the impugned order. We note that, such allegation, for the reasons discussed above, were unfounded and that the decisions relied upon by the AO for stating so, was completely distinguishable having no relevance in the factum of the present case. It is not in dispute that the assessee had indeed invested and set-up a manufacturing facility in industrially designated backward area in Pantnagar, Uttarakhand, in which it has investment more than Rs. 2250 crores. The said unit has been in operation for more than nine years and in none of the prior years the authorities are noted to have doubted its existence. It is also not the Revenue's case that the assessee has not fulfilled the conditions precedent in Section 80-IC to avail deduction in respect of profits derived by this eligible unit. We are in agreement with the Ld. AR of the assessee that the assessee is free and entitled to arrange its affairs within the four corners of law to avail tax benefits, which the law permits it to claim. According to us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable on 'plant & machinery'. It was pointed out that, the 'energy saving devices' were specifically mentioned at Sl. No. III(8)(ix), 'renewable energy devices' were mentioned at Sl. No. III (8)(xiii) and 'pollution control devices' were mentioned at Sl. No. III(3)(vii) & (ix). We are therefore in agreement with the Ld. CIT(A) that these fixed assets were in the nature of 'plant & machinery' and hence the assessee had rightly claimed additional depreciation u/s 32(1)(iia) of the Act on the same. The Ld. CIT, DR appearing before us are was unable to controvert the same. We therefore do not see any reason to interfere with the order of Ld. CIT(A) in this regard and accordingly dismiss this ground of the Revenue. 9. Ground No. 4 of the Revenue is against the Ld. CIT(A)'s action of deleting the disallowance made u/s 14A of the Act while computing the book profit u/s 115JB of the Act. 9.1 The facts as noted are that, during the year, the assessee had derived exempt income of Rs. 5,544/- and according to it, no expenditure was incurred for deriving such exempt income. The AO was not agreeable to the contention of the assessee and sought to invoke Rule 8D. The AO is noted to have comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company mentioned in this section. Therefore, any expenditure relatable to earning of income exempt under section 10(2A) and section 10(35) of the Act is disallowed under section 14A of the Act and is added back to book profit under clause (f) of section 115JB of the Act, the same would amount to doing violence with the statutory provision viz., sub-sections (1) and (5) of section 115JB of the Act. It is also pertinent to mention here that the amounts mentioned in clauses (a) to (i) of Explanation to section 115JB(2) are debited to the statement of profit and loss account, then only the provisions of section 115JB would apply. The disallowance under section 14A of the Act is a notional disallowance and therefore, by taking recourse to section 14A of the Act, the amount cannot be added back to book profit under clause (f) of section 115JB of the Act. It is also pertinent to mention here that similar view, which has been taken by this court in Gokaldas Images (P.) Ltd. (supra) was also taken by High Court of Bombay in CIT v. Bengal Finance & Investments (P.) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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