9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (9) TMI 1043 - HC - Income TaxClaim of weighted deduction under Section 35 (2AB) - Held that - Having held that the R&D expenditure as claimed by the Assessee ought to have been allowed there was no question of remanding the matter to the AO for returning a finding on whether the expenditure was of revenue or capital nature. This is because under Section 35 (2AB) of the Act both revenue and capital expenditure are allowable in their entirety excluding expenditure in the nature of cost of any land or building. There was going to be no purpose served in analysing whether the expenditure was of revenue or capital nature. In fact the AO himself had allowed 100% of the expenditure both of revenue and capital nature and the disallowance was only the additional 50% amount which again the CIT (A) had found and correctly so in the opinion of this Court ought not to have been disallowed. Recently in Maruti Suzuki India Limited Vs. UOI & Anr case 2017 (9) TMI 387 - DELHI HIGH COURT has held The legislative intent behind this provision is to encourage innovation research and development in India and non-grant of the benefit under Section 35 (2AB) defeats the legislative intent. In that view of the matter the Court has no hesitation in holding that the Assessee is entitled to the full benefit of Section 35 (2AB) and that the ITAT was in error in remanding this issue to the AO for a fresh decision. Disallowance made under section 14A - assessing officer failure to record his satisfaction in terms of Section 14A(2)/(3) and establish direct/ proximate nexus of expenses with the earning of exempt dividend income? - Held that - In this case a perusal of the AO s reasoning shows that the AO has merely conjectured that there is an inbuilt cost even in passive investment as also incidental expenditure like collection telephone follow up etc. The AO thus concludes that the expenses are embedded as indirect expenses. This is not as per the requirements of Rule 8D. There is no satisfaction recorded based on the accounts of the assessee . The AO simply presumes that since the exempt income exists and is being claimed by the Assessee some portion of the expenses ought to be added back. This is not sufficient as per the law. Once this mandatory requirement is itself not fulfilled in terms of the law explained by this Court in Maxopp Investment Ltd. v. CIT 2011 (11) TMI 267 - Delhi High Court the question of remanding the matter to the CIT(A) and to call for a remand report from the AO for the purposes of rectifying this jurisdictional defect simply did not arise. In this context the Court also notices that in the order passed by the AO on 28/30th December 2016 pursuant to the impugned order of the ITAT on remand the AO had simply repeated his entire assessment order passed in the first instance. Be that as it may the Court is of the view that the ITAT erred in overlooking the correct legal position in remanding the matter to CIT (A). Appeal in favour of the Assessee and against the Revenue
Issues Involved:
1. Exceeding jurisdiction in setting aside the claim of weighted deduction under Section 35(2AB) of the Income Tax Act. 2. Error in not deleting the disallowance made under Section 14A of the Act despite lack of direct/proximate nexus of expenses with the earning of exempt dividend income. Analysis: Issue 1: The Assessee appealed against the ITAT's order regarding the weighted deduction under Section 35(2AB) of the Act. The Assessee had in-house R&D centers approved by DSIR, claiming a weighted deduction of ?19,57,26,863. The AO disallowed 50% of this amount. The CIT (A) allowed the entire expenditure. The ITAT agreed with the Assessee but remanded the matter to the AO for a finding on the nature of expenditure. The High Court held that under Section 35(2AB), both revenue and capital expenditure are allowable entirely. The Court cited a previous case to emphasize the legislative intent to encourage innovation. The Court found the Assessee entitled to the full benefit and criticized the ITAT for remanding the issue unnecessarily. Issue 2: Regarding the disallowance under Section 14A for earning exempt income, the AO computed a disallowance of ?1,02,73,361. The CIT (A) restricted it to ?20,24,169. The ITAT remanded the matter to the CIT (A) for fresh consideration. The High Court emphasized the necessity for the AO to record reasons for disagreeing with the Assessee's claim of no expenditure for earning exempt income. The Court found the AO's reasoning inadequate, as it lacked the required satisfaction based on the Assessee's accounts. The Court cited a legal precedent to support its conclusion. The High Court held that the ITAT erred in remanding the matter to the CIT (A) and ruled in favor of the Assessee. In conclusion, the High Court set aside the ITAT's order and the consequential AO's order, ruling in favor of the Assessee on both issues.
|
