2013 (9) TMI 803 - AT - Income Tax

Deduction under S.35(2AB) - Grant in aid received - Amount not shown in Profit and Loss account - Held that - CIT(A) has accepted the submissions of the assessee and the assessing officer was not confronted with the said submissions. In any case, this issue revolves around factual aspects and hence it requires only verification of books of accounts. Mere verification of books of accounts to ascertain correct facts would not cause prejudice to anybody. Accordingly, this issue of ascertaining the correct amount of grant in aid pertaining to Research and Development activity is set aside to the file of the assessing officer in order to enable him to satisfy himself about it after carrying out due verification that may be found necessary. Assessee has not treated both the Grant in Aid and the related R & D expenses as revenue items and accordingly, both the items have not been taken to the profit and loss account - issues relating to the nature of the grant in aid, the R & D expenses incurred out of the said grant in aid, eligibility of the assessee to claim weighted deduction on such expenses, the question whether it is a tied up grant or not, etc. have not been properly examined by the assessing officer. Accordingly, in our view, this issue requires fresh examination at the end of the assessing officer. Accordingly, we set aside the order of learned CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine this issue afresh after duly addressing the submissions/claims made by the assessee and take appropriate decision in accordance with the law. Nature of grant in aid - Aid received towards Versus compensation payment - Held that - issue may also require fresh consideration at the end of the AO. Accordingly, we set aside the order of learned CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine the issue afresh after duly addressing the various submissions made by the assessee and decide the same in accordance with the law - matter remanded back.

Summary

Issues Involved:
1. Set-off of unabsorbed depreciation from assessment years 1990-91 to 1992-93 against income for the assessment year 2002-03.
2. Treatment of "Grants-in-aid" received by the assessee from the Government of India for the assessment year 2004-05.
3. Nature of Grant in aid received towards VRS compensation payment.

Issue-Wise Detailed Analysis:

1. Set-off of Unabsorbed Depreciation:
The revenue challenged the decision of CIT(A) allowing the set-off of unabsorbed depreciation from assessment years 1990-91 to 1992-93 against the income for the assessment year 2002-03, despite the eight-year carry-forward period having expired. The CIT(A) relied on Circular No. 762 dated 18-02-1998 by CBDT, which clarified that unabsorbed depreciation up to the assessment year 1996-97 could be carried forward and set off against income for subsequent years, starting from the assessment year 1997-98. The ITAT upheld CIT(A)'s decision, stating that the circulars issued by CBDT are binding on tax authorities. The ITAT also referenced similar decisions in other cases, such as DCIT vs. Andhra Petrochemicals Ltd, DCIT vs. Time Guaranty Ltd, and General Motors India Ltd vs. DCIT, supporting the view taken by CIT(A).

2. Treatment of "Grants-in-aid":
The issue pertained to the treatment of grants-in-aid received by the assessee for Research and Development (R&D) activities. The assessee did not credit the grants to its Profit and Loss account but treated them as "Current liability." The Assessing Officer (AO) considered the grants as revenue receipts and disallowed the weighted deduction under S.35(2AB) for the expenditure incurred from these grants. CIT(A) partially accepted the assessee's contention, reducing the disallowance to Rs. 8.63 crores from Rs. 10.65 crores. The ITAT found that the AO had not verified the exact amount of the grant and its utilization. The case was remanded to the AO for verification of the correct amount of grant-in-aid received for R&D activities and to reassess the eligibility for weighted deduction under S.35(2AB).

3. Nature of Grant in Aid for VRS Compensation:
The assessee argued that the VRS compensation grant should be treated as a "tied-up grant" and not as income, consistent with the accounting treatment accepted by the department in previous years. The ITAT noted that the AO did not address the various contentions raised by the assessee. Given that the issue is linked to the treatment of grants-in-aid for R&D, the ITAT remanded this issue to the AO for fresh consideration. The AO was directed to examine the nature of the grant, the related R&D expenses, and the eligibility for weighted deduction, ensuring that the assessee's submissions are duly addressed.

Conclusion:
The ITAT dismissed the revenue's appeal for the assessment year 2002-03, upholding the set-off of unabsorbed depreciation. For the assessment year 2004-05, the appeals were remanded to the AO for further verification and reassessment of the grants-in-aid for R&D activities and the VRS compensation grant. The AO was instructed to provide the assessee with an opportunity to present their case and furnish necessary details.

Order Pronounced:
The order was pronounced in the Court on 4.1.2013.