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TMI Blog2013 (9) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... grant in aid, the R & D expenses incurred out of the said grant in aid, eligibility of the assessee to claim weighted deduction on such expenses, the question whether it is a tied up grant or not, etc. have not been properly examined by the assessing officer. Accordingly, in our view, this issue requires fresh examination at the end of the assessing officer. Accordingly, we set aside the order of learned CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine this issue afresh after duly addressing the submissions/claims made by the assessee and take appropriate decision in accordance with the law. Nature of grant in aid - Aid received towards Versus compensation payment - Held that:- issue may also require fresh consideration at the end of the AO. Accordingly, we set aside the order of learned CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine the issue afresh after duly addressing the various submissions made by the assessee and decide the same in accordance with the law - matter remanded back. X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, the unabsorbed depreciation of a year shall be added to the amount of current depreciation of the succeeding year. Thereafter the Finance (No.2) Act, 1996 brought the amendment in S. 32(2) providing a restriction of 8 years for carry forward of the unabsorbed depreciation. The CBDT has clarified the legal effect of amendment brought in by the above said Act as under in para 23.5 of the Circular (referred supra).:- "Sub section (2) of section 32, as it existed upto assessment year 1996-97, provided that the unabsorbed depreciation of a year shall be added to the amount of the allowance for depreciation of the following previous year and deemed to be part of that allowance. Therefore, the unabsorbed depreciation allowance, if any, of the assessment year 1996-97 shall be added to the amount of allowance for depreciation of assessment year 1997-98 and deemed to be part of the allowance for this year. In other words, the unabsorbed depreciation allowance of assessment year 1996-97 shall be added to the allowance of 1997-98 and will be deemed to be the allowance of that year. The limitation of eight years shall start from the assessment year 1997-98." 5. The learned CIT(A), by plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred by the assessee out of "grant in aid" is not eligible for weighted deduction, i.e., the assessing officer took the view that the weighted deduction is permissible only in respect of the amount spent out of assessee's own money. Accordingly, the assessing officer disallowed the weighted deduction relatable to Rs.7.10 crores, i.e., 150% of Rs.7.10 crores amounting to Rs.10.65 crores. 10. Before learned CIT(A), it was submitted that the assessee received a sum of Rs.11.75 crores as grant in aid from Government of India, out of which Rs.6.00 crores relate to the grant given to pay VRS compensation to the retired employees. Accordingly, it was submitted that the amount of Grant in Aid received towards R & D activities was only Rs.5.75 crores. The learned CIT(A) accepted the said submissions and accordingly directed the assessing officer to restrict the disallowance to 150% of Rs.5.75 crores, i.e., Rs.8.63 crores and accordingly granted partial relief. In effect, the Ld CIT(A) held that the assessee did not prove that the expenditure incurred on R & D, on which deduction u/s 35(2AB) was claimed, has not been made out of the grant in aid received from Government of India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enable him to satisfy himself about it after carrying out due verification that may be found necessary. 14. We shall now take up the appeal filed by the assessee. The contention of the assessee, as stated earlier, is that the learned CIT(A) has partially confirmed the disallowance without appreciating the facts pertaining to the issue. The learned Counsel for the assessee submitted that the assessee is carrying out two types of research activities viz., (a) In house R & D activities (b) R & D activities carried under grant in aid received from Government of India. The learned Counsel submitted that the grant in aid received from the Government is treated as "tied up grants" by the assessee and accordingly it has been treated as "Current liability" in the books of account. Out of the total "R & D expenses", the assessee ascertained the expenses pertaining to tied up grants and transferred the same to the "Grant in aid" account by reducing the same from 'R & D expenses" account. In this regard, the Ld A.R invited our attention to Schedule J, Note no.8 of Schedule P and Schedule M-2 of the Annual report. 15. The learned Authorised Representative explained the nature of grant i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is given in page 6 of the written submission as under:- Sl. No. Item of Disallowance Amount Rs. in lakhs 1. R&D grants received during the year (Reflected as part of Note No.8 of Schedule P to the financial statements) Not considered as income 575.50 2. Less: Expenditure on R&D projects out of the grants Not claimed as expenditure 488.28 3. Balance to be carried forwarded to be utilized in futu5re year - reflected as current liability in the financial statements 87.22 4. Weighted deduction of 150% U/s. 35(2AB) on R&D expenses (Rs.488.28 lakhs X 50%) - Claimed as deduction in the computation of income 244.14 17. On the contrary, the Learned Departmental Representative submitted that the submissions made learned Authorised Representative were not at all considered by the assessing officer during the course of assessment proceeding. 18. We have heard the rival contentions and perused the record. According to learned Authorised Representative, the assessee has not treated both the "Grant in Aid" and the related "R & D expenses" as revenue items and accordingly, both the items have not been taken to the profit and loss account. On the contrary, the tax authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resentative is that the assessee has been treating the VRS compensation grant as its liability and also as "tied up grant" for the past several years and the said accounting methodology has been accepted by the department in the earlier years. Accordingly, it was contended that the AO was not right in deviating from the accepted accounting methodology. It was further submitted that the VRS compensation grant is in the nature of "tied up grant" and hence it was not correct to treat the same as assessee's income. We notice that the AO did not address the various contentions raised by the assessee. In the preceding paragraphs, we have set aside the issues like ascertaining the quantum and nature of grant in aid, disallowance of R & D expenses etc to the file of the AO. In our view, the issue relating to VRS compensation grant is also linked to the above said issues. Accordingly, we are of the view that this issue may also require fresh consideration at the end of the AO. Accordingly, we set aside the order of learned CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine the issue afresh after duly addressing the various submission ..... X X X X Extracts X X X X X X X X Extracts X X X X
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