2018 (10) TMI 2000 - AT - Income Tax

Weighted deduction u/s.35(2AB) - R D expenditure - HELD THAT - The act does not place any restrictions to incur the expenditure. The expenditure incurred for the purpose of scientific research required to be allowed as deduction u/s.35(AB) subject to complying the conditions laid down in Rule 6. The expenditure was incurred by the assessee which is certified by the tax audit report. There is no dispute regarding the actual amount incurred by the assessee. The decisions relied upon by the Ld.AR are not directly related to the issue of R D expenditure incurred over and above the specified limit of DSIR, but the essence of the judgments relied upon by the Ld.AR suggests to allow the actual expenditure. There is no dispute regarding the genuineness of expenditure. Therefore, we hold that the assessee is entitled for the weighted average deduction on the amount actually spent. Decided in favour of assessee. Disallowance of carry forward additional depreciation in respect of assets acquired in the preceding assessment year - HELD THAT - It is not disputed that the claim of the assessee was on the balance of the additional depreciation remaining after what was availed on assets acquired during the preceding assessment year. As relying on Brakes India Ltd 2017 (4) TMI 511 - MADRAS HIGH COURT we direct the AO to allow the claim of the balance additional depreciation. Additional depreciation on an air circulator - Claim disallowed by the lower authorities considering it to be electrical installation - HELD THAT - There is nothing on record to show that electrical installation on which additional depreciation was claimed by the assessee was an air circulator which could be construed as plant and machinery. Accordingly, we are of the opinion that lower authorities were justified in denying the claim of additional depreciation on the said item. We do not find any reason to interfere with the orders of the lower authorities. Proportionate disallowance on the deduction claimed by the assessee u/s.10B - AO charged a part of the R D expenditure to the units on which assessee was claiming deduction u/s.10B - claim of the assessee was that R D unit was a separate one and its expenses could not be charged to the units on which deduction was claimed u/s.10B - HELD THAT - As decided by Hon ble Apex Court in 2016 (12) TMI 881 - SUPREME COURT though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. Decided against revenue. TDS u/s 195 - Disallowance u/s.40(a)(i) - logistic service charges paid to a Non Resident - HELD THAT - As in assessee s own case for assessment years 2007-08 to 2009-2010 2017 (5) TMI 1749 - ITAT CHENNAI the profits of the services rendered outside India cannot be taxed in India unless the non-resident has permanent establishment/or business connection in India as envisaged in Sec.9(1) - CIT(A) deleted the addition correctly relying on the decision of GE Technological Centre Pvt. Ltd 2010 (9) TMI 7 - SUPREME COURT . Depreciation at the rate of 60% on UPS - HELD THAT - CIT (A) was justified in allowing the claim of depreciation at the rate of 60% on UPS.

Summary

Issues Involved:
1. Disallowance of weighted deduction under Section 35(2AB) of the Income Tax Act.
2. Disallowance under Section 14A of the Act.
3. Non-adjudication of an issue relating to computation of deduction under Section 10B.
4. Disallowance of carry forward additional depreciation.
5. Disallowance of additional depreciation on electrical installation.
6. Proportionate disallowance of deduction claimed under Section 10B.
7. Disallowance under Section 40(a)(i) on logistic service charges.
8. Depreciation rate on UPS.

Issue-wise Detailed Analysis:

1. Disallowance of Weighted Deduction Under Section 35(2AB):
The assessee was aggrieved by the disallowance of a claim for weighted deduction on R&D expenditure of Rs. 28,33,318/-. The claim was curtailed by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals) on the grounds that DSIR approval was only for Rs. 10,11,02,517/-. The Tribunal, following its own decision in the assessee’s case for AY 2009-2010, allowed the claim, stating that the actual expenditure incurred for scientific research should be allowed as deduction subject to compliance with Rule 6. The genuineness of the expenditure was not in dispute.

2. Disallowance Under Section 14A:
The assessee did not press this ground. Consequently, it was dismissed as not pressed.

3. Non-adjudication of Issue Relating to Computation of Deduction Under Section 10B:
The assessee did not address any arguments on this ground, and it was not included in the chart of issues submitted. Therefore, it was dismissed as not argued.

4. Disallowance of Carry Forward Additional Depreciation:
The assessee claimed additional depreciation for plant and machinery acquired in the previous year, arguing that only 50% was allowed initially and the balance 50% should be allowed in the current year. The Tribunal, relying on the jurisdictional High Court’s decision in Brakes India Ltd vs. DCIT, directed the Assessing Officer to allow the claim of the balance additional depreciation of Rs. 1,02,18,216/-.

5. Disallowance of Additional Depreciation on Electrical Installation:
The claim for additional depreciation on an air circulator was disallowed by lower authorities, considering it as electrical installation. The Tribunal found no evidence to classify the air circulator as plant and machinery and upheld the disallowance.

6. Proportionate Disallowance of Deduction Claimed Under Section 10B:
The Revenue was aggrieved by the deletion of proportionate disallowance of deduction under Section 10B, arguing that R&D expenses should be charged to the unit claiming the deduction. The Tribunal, following the Apex Court’s affirmation of the Karnataka High Court’s decision in CIT vs. Yokogawa India Ltd., held that the deduction under Section 10B is to be computed independently for the eligible undertaking and dismissed the Revenue’s ground.

7. Disallowance Under Section 40(a)(i) on Logistic Service Charges:
The Revenue contended that the assessee should have deducted tax on logistic service charges paid to a non-resident. The Tribunal, referring to its earlier decision in the assessee’s case for AY 2007-08 to 2009-10, upheld the Commissioner of Income Tax (Appeals)’s deletion of the disallowance, noting that the services were rendered outside India and the non-resident had no permanent establishment in India.

8. Depreciation Rate on UPS:
The Revenue challenged the allowance of depreciation at 60% on UPS. The Tribunal, referring to its decision in the assessee’s case for AY 2007-08 to 2009-10, upheld the Commissioner of Income Tax (Appeals)’s direction to allow depreciation at 60%, considering UPS as part of the computer system.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed.