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TMI Blog2012 (2) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... ri S.V. Mehrotra, Accountant Member, This appeal filed by the assessee is against the order of ld. Commissioner of Income- Tax (Central-I), Kolkata dated 04.03.2010 for the assessment year 2005-06. 2. Brief facts of the case are that ld. CIT(Central-I), Kolkata examined the records of assessee for assessment year 2005-06 and noticed that the assessment had been completed under section 143(3) on 19.12.2007 at a loss of Rs.20,11,49,218/-. He noticed that in arriving at this loss, the Assessing Officer, inter alia, allowed an amount of Rs.1,43,00,000/- being the claim made on account of a donation of the like amount to Indian Institute of Technology(IIT), Chennai. This claim was made in the computation of income read with following note 9 to the computation of income :- Pending approval as eligible project under section 35(2AA), deduction is being claimed at 100% of the amount contributed. Enhanced deduction will be claimed after receipt of approval from specified authority . Further, he noticed that in Annexure-3 to the audited accounts, the auditors had given a note as under :- Approval under section 35(2AA) is awaited. As and when received, company will be entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the prescribed authority for availing deduction u/s 35(2AA) had not been received, It was also alternatively entitled to a deduction at 125% of the amount paid in view of the provisions of an alternative section i.e. Sec. 35(1)(ii) which allows deduction in respect of expenditure on scientific research. The recipient of the payment, IIT, Chennai had been properly notified for the purpose of Sec. 35(1)(ii) benefit. Hence the company was also entitled to a deduction u/s 35(1)(ii). 2. Though the assessee did not raise this issue before the CIT(A) in the course of appeal for the relevant year, during the course of appeal for the same year before the ITAT an additional ground regarding its entitlement for deduction u/s 35(1)(ii) was raised and the Tribunal was pleased to admit the additional ground and remitted the issue back to the files of the CIT(A) against whose order the appeal to the ITAT lay, for reconsidering the issue since it had not been raised before him [the CIT(A)] earlier and to decide it on merits. 3. In view of this, proceedings u/s 263 would not lie considering that the issue had been decided in appeal and hence excluded from the purview of Sec. 263 by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct interpretation has to be given to fiscal statutes and, therefore, the words appearing in section 263(1) explanation (C) namely to such matters as had not been considered and decided. Cumulative conditions to be met. 4. Ld. CIT (Central-1), therefore, concluded that the Assessing Officer erred in allowing an amount of Rs.143 lakhs claimed by the assessee without proper verification and also being against the provision of law. He, therefore, set aside the assessment order dated 19.12.2007 holding the same as erroneous and prejudicial to the interest of revenue with a direction to redo the same as per law. 5. Ld. counsel for the assessee referred to page 127 of the paper book, wherein the statement of assessable income for the assessment year 2005-06 is contained and referred to page 3 of the said computation to point out that while computing the income contribution to IIT, Chennai of Rs.1,43,00,000/- was first added to the business income and thereafter at page 4, deduction was claimed by giving following narration :- (a) amount paid to IIT, Chennai in nature of scientific research expenditure Rs.1,43,00,000/- ; The following note was also appended in this regard, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see-company had paid Rs.143 lakhs to IIT Madras for the purpose of undertaking research development work, which was disclosed in the computation of total income filed along with the return. He submitted that pending formalities for obtaining approval under section 35(2AA) the deduction was claimed only at 100%. However, the AO allowed only deduction for amount paid to IIT Madras. Since IIT Madras is approved by Central Government under section 35(1)(ii), the amount paid for carrying out research by IIT also qualifies for weighted deduction under section 35(1)(ii). The AO did not allow such claim in spite of all basic information available with him. It was further contended that due to inadvertence and oversight, the assessee did not object to this denial by the AO in appeal before the CIT(A.). In the above circumstances, the learned counsel requested to admission of the additional grounds referred to above. On merit of the grounds, the learned counsel submitted that the Hon ble Bombay High Court in the case of Tata Chemicals Ltd. vs.- CIT [195 ITR 561] has decided the issue in faovur of the assessee. The ld. D.R. did not raise any serious objection to the admission of the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 263 could not be passed in respect of the issue, which had merged with the order of Tribunal and since in terms of the said order, the question of allowability of deduction for Rs.1,43,00,000/- paid to IIT, Chennai was to be adjudicated only by ld. CIT(Appeals), the ld. CIT had no jurisdiction to pass any order or give any direction to Assessing Officer in relation to the issue, which was to be decided only by the ld. CIT(Appeals). 5.1. Ld. counsel referred to joint development agreement contained at pages 27 to 46 of the paper book to submit that Institute of IIT, Chennai had agreed to carry out research and development work in the area of tyre and vehicle mechanics. Thus there was direct correlation between the assessee s business and the research work carried out by the Institute. He submitted that in section 35, there are various conditions on fulfillment of which the assessee becomes entitle to weighted deduction. Ld. counsel submitted that the assessee did not claim weighted deduction under section 35(2AA). But only gave a note that the amount paid may qualify for the weighted deduction under section 35(2AA) of the Act if requisite approval was granted by the speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not ignore the binding nature of the said Notification. Therefore, Assessing Officer should have allowed the weighted deduction under section 35(1)(ii) of the Act. As regards assumption of jurisdiction under section 263 of the ld. CIT after passing of the ITAT order, ld. counsel submitted that the question of allowability of weighted deduction under section 35(1)(ii) of the Act was considered/ adjudicated by the ITAT in its order, which was passed prior to the order under section 263 and the ld. CIT was not competent to give any finding contrary to the findings and directions issued by the ITAT. He submitted that once the Tribunal admitted and restored the issue of allowability of deduction with reference to the sum paid to IIT, Chennai to the file of ld. CIT(Appeals), then the entire issue concerning the said payment merged with the order of the Tribunal. Having considered the issue, the decision of the Tribunal was that the ld. CIT(Appeals) was the competent forum, who was to decide and adjudicate the assessee s claim for deduction under section 35(1)(ii) arising from the payment made to IIT, Chennai. Thus the Tribunal made the payment of Rs.1,43,00,000/- to IIT, Chennai a subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by ld. CIT(Appeals) and, therefore, ld. CIT s jurisdiction under section 263 was not curtailed. In this regard, ld. DR relied on the following decisions :- (1) CIT vs.- Joy Kumar B. Patel [236 ITR 469], wherein it was, inter alia, held that ld. CIT has power to initiate revisional proceedings in respect of such issues, which have not been dealt with by ld. CIT(Appeals) in his appellate order. (2) CIT vs.-Techno Enterprise Pvt. Limited [206 ITR page 36 (Kol.)- In this case while considering the powers of ld. CIT under section 263, it was held that doctrine of merger is applicable only to matters, which are the subject matter of decision by the first appellate authority and, therefore, revision with reference to issues not taken up in appeal or which have not been considered by the first appellate authority as well. It was, inter alia, held that a narrow construction of the power of the Commissioner under section 263 of the Income Tax Act, 1961 will defeat the purpose for which the provision was enacted. He, therefore, submitted that ld. CIT was well within his power in passing the order under section 263. Ld. counsel in the rejoinder submitted that Notification No. 287 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration of second issue and the same had to be independently considered by ld. CIT(Appeals) in pursuance to the directions of Tribunal. In view of such a state of affair existing on the date of passing of order by ld. CIT, he had no jurisdiction to cancel the assessment order in entirety and direct the Assessing Officer to redo the assessment. By so directing he impliedly annulled the directions of Tribunal also because Tribunal s directions were given with reference to assessment order only. Ld. CIT s jurisdiction was limited to the examination of assessment order only and since assessment proceedings had traveled to higher forum then his jurisdiction stood curtailed to the issues considered and decided by appellate authorities in view of Explanation (c) to section 263. Further, if an issue is pending consideration of appellate authority, which was not the subject matter of consideration of assessment, then with reference to such issues, ld. CIT could not pass any order under section 263. Further, we are in agreement with the assessee s counsel that ld. CIT was not justified in directing the Assessing Officer to make the assessment de novo because he had not given any show-cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment order. Therefore, now the moot question for consideration is whether the assessee s claim was rightly allowed by the Assessing Officer under section 35(1)(i) when specifically not claimed in the return or not. The main contention of ld. CIT is that section 35(1)(i) relates only to any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business. He has considered all the three sections, viz. 35(1)(i), 35(1)(ii) and section 35(2AA) and has observed that from the wordings of the three sub-sections, it can be seen that the deduction under section 35(1)(i) relates only to expenditure directly incurred by the assessee, excluding capital expenditure, for the purpose of scientific research related to its business, whereas section 35(1)(ii) as also section 35(2AA) clearly relate to expenditure being donation to other Institutions engaged in scientific research. He observed that since no expenditure was directly incurred by the assessee for scientific research and it only made a donation, the assessee was not entitled to any deduction under section 35(1)(i). Thus in substance, ld. CIT has observed that sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director General in such form as may be prescribed. From bare reading of aforesaid sections, it is evident that if deduction is claimed under section 35(2AA) then in view of Clause (b) of section 35(2AA), deduction cannot be claimed under any other provision of the Act. From the above discussion, it is evident that sections 35(1)(i) and section 35(2AA) operate entirely in different fields and are mutually exclusive. The primary condition for availing deduction under section 35(2AA) is that the sum should have been paid by the assessee to National Laboratory, University or IIT with specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority. Therefore, the programme could be undertaken only when the same had been approved by the prescribed authority. Till the programme is approved by the prescribed authority, the amount simply was lying with the IIT but it could not be used for scientific research. Therefore, it could not be treated as being laid out or expended for the purposes of scientific research. It is true that for claiming deduction under section 35(1)(i), it is not necessary t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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