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2025 (2) TMI 602 - AT - Income TaxAddition u/s 14A r.w.r. 8D - AR submitted that the investment being specific and strategic there was no question of considering the same would attract the provisions of Rule 8D - HELD THAT - Contention of the Ld. AR that the investments being specific strategic did not receive any dividend as well and assessee only invested Rs. 24.5 crores out of its own interest free funds (Rs. 350 crores) these aspect though stated has not been demonstrated clearly by the assessee before the AO as well as before the CIT(A). The contention of the DR that opening and closing investments was to the tune of Rs. 10, 20, 98, 000/- and Rs. 10, 29, 96, 000/- respectively does not indicate which component is interest bearing fund utilized for investment and what was the specific and strategic component for investing the same. All these aspects needs verification hence this issue is remanded back to the file of the AO. Besides this whether any expenditure relating to administrative expenditure incurred or not by the assessee also needs verification. Thus the issue is remanded back to the file of the AO for proper verification. Disallowance u/s 43B - AR submitted that the amount represent short payment out of amount of interest provided in respect of DBT Soft Loan 2 is accepted by the assessee while the residual amount represents amount of disallowances - HELD THAT - AR submitted that in the return of income it is already disallowed. The auditor has certified net amount of payment and the remaining amount was to be paid the same was brought forward from earlier years and this will amount to double disallowance. This fact and contentions of the assessee needs verification as that has not been dealt by the AO or by the CIT(A). Hence the said issue is remanded back to the file of the Assessing Officer for proper verification and adjudication. The assessee be given opportunity of hearing by following principles of natural justice. Ground No. 3 is partly allowed for statistical purpose. Disallowing claim u/s.35 - expenditure is not incurred by the assessee company - the relevant expenditure recorded by the assessee company having been netted by merger entries of excess of assets over liabilities representing reserves and surplus of erstwhile - HELD THAT - Since the assessee is filing reconciliation at this juncture and the contentions taken before us needs verification we remand back this issue to the file of the Assessing Officer for proper verification of reconciliation and the submissions of the assessee as per the evidence and adjudicate the same as per the Income Tax Act. Assessee be given opportunity of hearing. Excess deduction u/s.35(2AB) considered @ 200% of the amount of expenditure on clinical trials etc. laid out for the in-house R D -amount was disallowed only due to the difference in the 3CL and this issue is decided in favour of the assessee in assessee s own case - HELD THAT - Since this issue was remanded back in A.Y. 2011-12 but allowed in A.Y. 2013-14 by the Tribunal whether DSIR has given the approval and if so whether other conditions as per requirement of Section 35(2AB) was fulfilled by the assessee needs to be verified thoroughly by the AO. This issue is remanded back to the file of the Assessing Officer for proper verification and adjudication and if satisfied as per Section 35(2AB) be allowed. Assessee be given opportunity of hearing. Ground No. 5 is partly allowed for statistical purpose. Addition being the signing amount of Grant received and been treated by the assessee company as liability being not spent during the year - HELD THAT - It is pertinent to note that it is signing amount for grant received and the contention of the Ld. AR that unless and until project is fully executed and delivered the assessee is a custodian of that grant otherwise it has to be remitted back if the project is not executed which is a liability. This appears to be justifiable. Hence Ground No. 6 is allowed. Disallowing interest expenses considering the same to be of capitalized on account Tangible Assets Capital WIP of the assessee company - HELD THAT - CIT(A) has categorically mentioned that the assessee did not furnish any evidence to prove that any amount of interest was capitalized to CWIP with supporting evidence. Though the Ld. AR submitted that this issue was allowed in A.Y. 2011-12 but the supporting documents was not seen by the CIT(A) in this year therefore we are remanding back this issue to the file of the Assessing Officer for verification and adjudication as per the evidence and decide the same accordingly. The assessee be given opportunity of hearing. Ground No. 7 is partly allowed for statistical purpose. Disallowing exchange fluctuation debit considering the same to be of capitalized on account Capital WIP/Assets of the assessee company - HELD THAT - Section 43A provides that any increase or decrease in liability due to foreign exchange fluctuation in respect of the acquisition of a capital asset is to be adjusted to the actual cost of the asset and depreciation shall be allowed from the year in which the asset is put to use subject to actual settlement of the liability. Since the expenditure is of capital nature it requires verification as to whether it pertains to Work-in-Progress (WIP) or an asset that has been put to use. Accordingly the matter is restored to the file of the Assessing Officer (AO) for verification and adjudication in accordance with the provisions of Section 43A. The AO shall examine whether the fluctuation loss pertains to an asset that has been put to use in which case depreciation shall be allowed from the date of put to use or if it remains as WIP in which case no depreciation shall be admissible. The assessee be given an opportunity of hearing before the AO. Consequently Ground No. 8 is partly allowed for statistical purposes. Foreign commission expenditure treated as ineligible expenditure under the provisions of the Section 40 when the assessee company has duly brought out that the said remittances did not attract TDS/WHT provisions of Sec. 195 - HELD THAT - The finding of the CIT(A) that the assessee failed to adduce necessary evidences appears to be not correct as the assessee has dealt with these non-resident and rendered service outside India in A.Y. 2013-14 there was no distinguishing facts established by the Revenue that the services was rendered in India by the non-residents. Hence following the decision of the Tribunal in assessee s own case for A.Y. 2013-14 this issue is allowed in favour of the assessee. Addition on account of Sec.14A addition made in the assessment to the book profit u/s.115JB deleted as no such addition can be made as relied upon the decision of Special Bench of Tribunal in case of Vireet Investment 2017 (6) TMI 1124 - ITAT DELHI
1. ISSUES PRESENTED and CONSIDERED
The Tribunal considered several issues raised by the assessee in its appeal against the order of the CIT(A) for the Assessment Year 2012-13:
2. ISSUE-WISE DETAILED ANALYSIS Section 14A and Rule 8D Disallowance The Tribunal remanded the issue back to the Assessing Officer (AO) for verification of whether the investments were made from interest-free funds and whether any administrative expenses were incurred. The Tribunal noted the need for a clear demonstration of the source of funds used for investments. Section 43B Disallowance The Tribunal found merit in the assessee's argument that the disallowance resulted in double disallowance and remanded the issue back to the AO for verification of the facts and proper adjudication. Section 35 R&D Deductions The Tribunal remanded the issue back to the AO for verification of reconciliation submitted by the assessee regarding the R&D expenditure and its treatment post-merger with Indus Biotherapeutics Ltd. Section 35(2AB) Excess Deduction The Tribunal directed the AO to verify whether the DSIR approval was obtained and if the conditions under Section 35(2AB) were met, remanding the issue for further verification. Grant Recognition The Tribunal accepted the assessee's argument that the grant should be treated as a liability until the project is executed. The issue was decided in favor of the assessee. Interest and Exchange Fluctuation Disallowance The Tribunal remanded the issues back to the AO for verification of the nexus between borrowed funds and CWIP, and proper treatment of exchange fluctuation as per Section 43A. Foreign Commission Expenditure The Tribunal allowed the deduction, noting that the services were rendered outside India and did not attract TDS under Section 195, following the precedent set in the assessee's own case for A.Y. 2013-14. Bad Debts Deduction The Tribunal remanded the issue back to the AO for verification, as the claim was linked to a previous year's disallowance and required further examination. Section 14A and Book Profit under Section 115JB The Tribunal ruled in favor of the assessee, referencing the Special Bench decision in Vireet Investment, which precludes the addition of Section 14A disallowance to book profit. Foreign Tax Credit and TDS Credit The Tribunal remanded the issue of foreign tax credit back to the AO for examination under Sections 90 and 91 and Rule 128. The issue of TDS credit was not pressed by the assessee and dismissed. Interest under Sections 234A, 234B, 234C, and 234D The Tribunal did not adjudicate this issue, noting it as consequential. Refund Status The Tribunal did not adjudicate this issue, noting it as general. 3. SIGNIFICANT HOLDINGS The Tribunal emphasized the need for verification and proper adjudication by the AO on several issues, reflecting a focus on ensuring that all claims and disallowances are substantiated by evidence. The Tribunal's approach underscores the importance of procedural fairness and adherence to principles of natural justice. The Tribunal's decision to remand multiple issues for further verification highlights the necessity of clear and comprehensive documentation in tax proceedings. The Tribunal also reinforced the applicability of established legal precedents, such as the Special Bench decision in Vireet Investment, to ensure consistency in judicial decisions. Overall, the Tribunal's rulings reflect a balanced approach, allowing for both the correction of procedural errors and the opportunity for the assessee to substantiate its claims with appropriate evidence.
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