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2015 (10) TMI 2769 - AT - Income TaxDisallowance u/s.14A - HELD THAT - We have been informed that the AO has not passed fresh order so far in pursuance to the order of the Tribunal. in AY 2006-07. In our considered opinion, before this issue can be decided in the impugned year i.e. A.Y. 2007-08, it is imperative that it is first decided by Assessing Officer in A.Y. 2006-07. In case, we decide this issue first, it may pre-empt the order of Assessing Officer for A.Y. 2006-07, and it may also close the gates for the AO to make proper examination of facts and circumstances in A.Y. 2006-07. Therefore, to avoid this situation, we deem it proper to send this issue of disallowance u/s 14A, in totality, to the file of Assessing Officer. He shall re-decide this issue, after giving adequate opportunity of hearing to the assessee and after considering the facts and circumstances of the case and the law available at the time of deciding this issue. Expenditure for the in-house research facility - Disallowance of deduction u/s 35(2AB) and u/s 37(1), by treating the same as capital expenditure - HELD THAT - Since we have received order of Department of Scientific Industrial Research (DSIR) dt. 24.08.2010, in which the DSIR while approving our R D facilities for the purpose of section 35(2AB) has not considered clinical trial expenditure incurred by us as a part of in-house R D expenditure on the ground that by definition these expenditure were incurred outside of approved R D facility. This is the stand taken by DSIR for all pharma R D companies. Accordingly, we withdraw our claim for weighted deduction of the aforesaid expenditure u/s.35(2AB). However, we submit that the aforesaid expenditure should be allowed as an expenditure u/s 37(1) (without weightage of 150%). With respect to alternate claim made by the assessee u/s 37(1) of the Act, it is noted that the invoice of M/s. Reliance Clinical Research Services Pvt. Ltd. dated 31.03.2007 is enclosed at page no. 3 of the paper book, showing that payment has been made to the said company under the head Clinical Trial Fees for the month of March, 2007 for time spent on 1st March to 31st March, 2007 for conducting clinical trials, in support of to all K projects , for a sum of ₹ 57,65,564/-. It is further noted that on the back side of the invoice, complete details have been given with respect to time spent by 22 employees of RCRS, also giving particulars of the studies done by these employees. Names of these employees have been given along with their rates per hour. It is further noted that ld. Assessing Officer has shown no doubts about the genuineness of these expenses. It was held by Ld. CIT(A) that since claim of assessee with respect to deduction u/s.35(2AB) has been denied, therefore, these expenses are capital in nature. It was further observed by ld. CIT(A) that Assessing Officer, as well as assessee, have treated these expenses as capital in nature. In our view, the observations of Ld. CIT(A) are misplaced and without any basis. We have gone through details of these expenses. In our considered view, these expenses are apparently revenue in nature. Ld DR also could not point out as to which expenses are capital in nature. Thus, in our view, these expenses are of revenue nature. TDS u/s 194J - Disallowance of software expenses incurred by treating the same as capital expenditure - Counsel has submitted that injustice has been done by the Ld. CIT(A) by not examining the facts and evidences placed by assessee - HELD THAT - It is noted that full co-operation has been extended by the assessee at all times i.e. during course of assessment proceeding, and also during appellate proceeding before the ld. CIT(A). If the CIT(A) wanted to have one separate petition under Rule 46A, the same could have been very well pointed out to the assessee. Without affording opportunity to the assessee, the valid claim of the assessee should not have been denied to it, merely for some technical reasons. Under these circumstances, we find it appropriate to send this issue back to the file of ld. CIT(A) who shall give opportunity to the assessee to file all the evidences as may be considered appropriate, along with petition under Rule 46A etc.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance under Section 35(2AB) and Section 37(1) of the Income Tax Act. 3. Disallowance of software expenses under Section 37(1) and Section 40(a)(ia) of the Income Tax Act. Detailed Analysis: 1. Disallowance under Section 14A: The primary issue in both the Revenue's and Assessee's appeals concerns the disallowance under Section 14A of the Income Tax Act. The Revenue argued that the CIT(A) erred in restricting the disallowance to Rs.1,96,000/- without proper appreciation of the factual and legal matrix, asserting that the disallowance should be computed as per Rule 8D, mandatory from A.Y. 2008-09 onwards. The Assessee contended that the disallowance confirmed by the CIT(A) was unjustified and should be deleted or appropriately reduced. The Tribunal noted that a similar issue in the Assessee's case for A.Y. 2006-07 was remanded to the Assessing Officer for re-adjudication. To maintain consistency and avoid pre-empting the decision for A.Y. 2006-07, the Tribunal decided to remand the issue of disallowance under Section 14A for A.Y. 2007-08 back to the Assessing Officer for re-adjudication after considering the complete facts and the latest legal position. 2. Disallowance under Section 35(2AB) and Section 37(1): The Assessee challenged the disallowance of Rs.57.66 lakhs out of the claim of deduction under Section 35(2AB) and Section 37(1), treated as capital expenditure by the Assessing Officer. The Assessee argued that the expenditure for clinical trials conducted by Reliance Clinical Research Services Pvt. Ltd. should be allowed under Section 37(1) as it was incurred for R&D purposes. The Tribunal observed that the Assessee had withdrawn its claim under Section 35(2AB) following the DSIR's order but maintained that the expenditure should be allowed under Section 37(1). The Tribunal found the expenses to be genuine and revenue in nature, rejecting the CIT(A)'s view that they were capital expenses. The Tribunal directed the Assessing Officer to allow these expenses under Section 37(1). 3. Disallowance of Software Expenses under Section 37(1) and Section 40(a)(ia): The Assessee contested the disallowance of Rs.776,132/- for software expenses, treated as capital expenditure by the Assessing Officer, who also noted non-deduction of TDS on the payment, invoking Section 40(a)(ia). The CIT(A) upheld the disallowance, refusing to admit the Assessee's bills under Rule 46A. The Tribunal found that the CIT(A) should have provided the Assessee an opportunity to file the necessary evidence and petition under Rule 46A. The Tribunal remanded the issue back to the CIT(A) for re-examination, directing the CIT(A) to allow the Assessee to submit all relevant evidence and cooperate fully. Conclusion: - The appeals concerning disallowance under Section 14A are remanded to the Assessing Officer for re-adjudication. - The disallowance under Section 35(2AB) is upheld, but the expenses are allowed under Section 37(1). - The issue of software expenses is remanded to the CIT(A) for re-examination with an opportunity for the Assessee to submit evidence. The Revenue's appeal is allowed for statistical purposes, and the Assessee's appeal is partly allowed.
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