Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2020 (2) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (2) TMI 143 - AT - Income TaxWeighted deduction u/s 35(2AB) - expenditure incurred on in-house research and development facility - HELD THAT - Prescribed authority viz., the DSIR is the authority in 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. There is no vested right of the tax payer in the procedures. The amendment made in the Income Tax Rules, 1962, which is coming into force on 01.07.2016, whereby, the DSIR is directed to quantify the expenditure incurred on in-house research and development facility by the assessees incurred during the previous year cannot be said to have adversely affected or restricted the substantive right of the tax payer and no prejudice said to have been caused by the said amendment of Income Tax Rules, 1962 to the assessee and in fact, the DSIR, who is a technical body is well equipped to assessee to quantify the expenses incurred by the tax payer on in-house research and development. All reports in Form 3CL shall be issued by the DSIR effective from 01.07.2016 which should include in Part B is to quantification of the expenses incurred by the tax payers in in-house research in terms of section 35(2AB) of the Act. Hence, the contention of the assessee has no legs to stand and is out rightly rejected. Thus, the entire claim of weighted deduction claimed by the assessee cannot be acceded to over and above the restriction made by the DSIR. CIT(A) has rightly directed the Assessing Officer to allow the correct amount of deduction under section 35(2AB) of the Act after taking note of the DSIR certificate dated 16.03.2017. Thus, the ground raised by the assessee stands dismissed. Disallowance under section 14A r.w. Rule 8D - HELD THAT - Now it is a well settled proposition that in case no exempt income is received during year under consideration, no disallowance of expenditure can be made by invoking provisions of section 14A of the Act. It is a matter of fact that the assessee earned no exempt income during the year under consideration. Further, it is observed that Assessing Officer has not recorded any satisfaction before invoking Rule 8D of the 1962 Rules and has simply invoked provisions of section 14A of the Act r.w. Rule 8D. The Assessing Officer has not analysed modus operandi followed by the assessee in making investments, personnel deployed nor has looked into books of accounts of the assessee to compute expenditure incurred in relation to earning of an exempt income. We find that the in the case of Chettinad Logistics Private Limited 2017 (4) TMI 298 - MADRAS HIGH COURT the Hon ble Madras High Court has held that no disallowance of expenditure under section 14A of the Act can be made when no exempt income is earned by the assessee. Also confirmed by SC 2018 (7) TMI 567 - SC ORDER Thus no disallowance of expenditure by invoking provisions of section 14A of the Act is warranted as the assessee has not earned any exempt income during the year under consideration and hence, the disallowance made by the Assessing Officer under section 14A of the Act stands deleted. - Decided in favour of assessee
Issues Involved:
1. Restriction of weighted deduction under section 35(2AB) of the Income Tax Act, 1961. 2. Confirmation of disallowance under section 14A read with Rule 8D. Detailed Analysis: Issue 1: Restriction of Weighted Deduction under Section 35(2AB) The primary contention revolves around the restriction of weighted deduction under section 35(2AB) of the Income Tax Act, 1961. The assessee claimed a weighted deduction for research and development (R&D) expenditure, which was disallowed by the Assessing Officer due to the absence of a certificate from the Department of Scientific and Industrial Research (DSIR). The DSIR subsequently issued a certificate quantifying the eligible deduction, which was lower than the amount claimed by the assessee. Arguments by Assessee: The assessee argued that the DSIR's authority to restrict claims under section 35(2AB) was only effective from 01.07.2016, applicable from the assessment year 2017-18 onwards. Therefore, the assessee contended that the full deduction as claimed in the return should be allowed for the assessment year 2014-15. Arguments by Revenue: The Revenue countered that the amendment to the Income Tax Rules, 1962, effective from 01.07.2016, mandated the DSIR to quantify the eligible R&D expenditure. The Revenue relied on the decision in the case of Electronic Corporation of India Ltd. v. ACIT, which supported the DSIR's role in determining the quantum of allowable deduction. Tribunal's Findings: The Tribunal upheld the Revenue's stance, emphasizing that the DSIR is the prescribed authority for quantifying eligible R&D expenditure under section 35(2AB). The Tribunal referenced several judicial precedents, including the Hyderabad Bench's decision in Electronic Corporation of India Ltd. v. ACIT and the Karnataka High Court's decision in Tejas Networks Ltd. v. DCIT, which affirmed that the DSIR's certification is final and binding on the quantum of deduction. Consequently, the Tribunal dismissed the assessee's claim for a higher deduction and upheld the CIT(A)'s direction to allow the deduction as per the DSIR certificate. Issue 2: Confirmation of Disallowance under Section 14A read with Rule 8D The second issue pertains to the disallowance of expenditure under section 14A read with Rule 8D. The Assessing Officer disallowed ?18,40,430/- as expenditure related to exempt income, despite the assessee not earning any exempt income during the assessment year. Arguments by Assessee: The assessee argued that no disallowance under section 14A is warranted in the absence of exempt income. The assessee relied on the decision of the Madras High Court in CIT v. Chettinad Logistics (P.) Ltd., which held that disallowance under section 14A is not applicable when no exempt income is earned. The Supreme Court had dismissed the Revenue's Special Leave Petition (SLP) against this decision. Tribunal's Findings: The Tribunal observed that the Assessing Officer had not recorded any satisfaction or analyzed the assessee's modus operandi before invoking Rule 8D. The Tribunal cited the Madras High Court's decisions in CIT v. Chettinad Logistics (P.) Ltd. and Redington (India) Limited v. Addl. CIT, which established that no disallowance under section 14A is permissible in the absence of exempt income. Accordingly, the Tribunal deleted the disallowance made by the Assessing Officer under section 14A. Conclusion: The Tribunal partly allowed the appeal filed by the assessee. The restriction of weighted deduction under section 35(2AB) was upheld as per the DSIR certificate, while the disallowance under section 14A read with Rule 8D was deleted due to the absence of exempt income. The order was pronounced on 26th December 2019 in Chennai.
|