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TMI Blog2014 (9) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance was only for the reason that it is not approved by DSIR - even in absence of approval from DSIR though assessee may not be eligible for deduction u/s 35(2AB), still assessee can claim the deduction u/s 35(1)(iv) – relying upon Tube Investments of India Ltd. Vs. CIT [2002 (9) TMI 45 - MADRAS High Court] - assessee is eligible for deduction in respect of revenue expenditure and capital expenditure – Decided in favour of assessee. Disallowance made u/s 14A read with Rule 8D – Held that:- It is the contention of the assessee that the investment in Godavari Fertilizers Ltd. has to be excluded as the company has merged with the assessee in pursuance to scheme of amalgamation approved by the AP High court - So far as interest expenditure is concerned, as per the details furnished by assessee, total disallowance on account of investments made out of borrowed fund has been worked out - all these facts were available before the departmental authorities, as it appears, they have not properly applied their mind to these factual issues – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 4,73,31,958 by the assessee. She, therefore, allowed the amount of ₹ 4,71,08,743/- as approved by DSIR and disallowed capital expenditure of ₹ 2,23,215/-, though she directed the AO to verify the claim of depreciation on the said amount in accordance with law. So far as the claim of weighted deduction on revenue expenditure of ₹ 1,31,87,576/- is concerned, the CIT(A) noted that the entire revenue expenditure claimed by the assessee was not approved by the DSIR. Though the assessee contended that even though the DSIR has not allowed weighted deduction on the revenue expenditure of ₹ 1,31,87,576/- but the same can be allowed as a business expenditure u/s 37(1) of the Act. The CIT(A), however, was not impressed with such contention of the assessee. She noted that as per the information available in form No. 3CL, DSIR allowed revenue expenditure for AY 2009-10 and 2010-11 but did not do so for the impugned assessment year. She opined that any expenditure has to be allowed only in accordance with the provisions of IT Act, hence, claim of the assessee that R&D expenditure can be otherwise allowed u/s 37 is devoid of merit. She further noted that revenue expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained under sub- section (3) of section 35. 6. The learned DR, on the other hand, submitted before us that the CIT(A) having allowed deduction strictly in terms with the approval granted by DSIR, the grievance of the assessee is not maintainable. 7. We have considered the arguments of the parties and perused the materials on record as well as the orders of the Revenue authorities. We have also carefully applied our mind to the decisions relied upon by the parties. It is a fact on record that out of the total deduction of ₹ 4,73,31,953/- claimed by the assessee towards R&D expenditure on capital field, DSIR in its approval in form No. 3CL allowed the claim to the extent of ₹ 4,71,08,743 and in the process disallowing the amount of ₹ 2,23,215/-. Whereas the entire revenue expenditure of ₹ 1,31,87,576/- was not approved by DSIR. It is the contention of the learned AR that approval of DSIR as envisaged u/s 35(2AB) is only confined to deduction claimed under that section. Such approval is neither necessary to decide whether expenditure is in the nature of revenue or capital nor it is relevant for considering assessee's claim under any other provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring of drug, process of R&D is continuous process which augments the business of the assessee. These expenses are not in the nature of any personal expenditure as no such allegation has been made. Therefore, the remaining criteria to consider the allowability is only the thing to be seen is that whether the expenditure is incurred by the assessee is capital in nature. So as it relates to capital expenditure of ₹ 44.41 lakhs, the assessee itself has claimed the said expenditure as being capital in nature. Therefore, there is no dispute with regard to that. So as it relates to expenses of ₹ 19.57 lakhs on salary and wages the same cannot be considered to be expenditure of being capital in nature as the said salary and wages are paid to the manpower deployed for carrying out the R&D activity which is part and parcel of the business of the assessee. 29. Now coming to the expenses of ₹ 611.78 lakhs relating to materials/consumables/spares, it is not the case of the AO that the said material was not consumed in the R&D process and some part thereof was remaining in the closing stock. Therefore, these expenditure incurred on material used for lab trials cannot in any m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved by DSIR. However, even in absence of approval from DSIR though assessee may not be eligible for deduction u/s 35(2AB), still assessee can claim the deduction u/s 35(1)(iv). In this context we refer to the decision of Hon'ble Madras High Court in case of Tube Investments of India Ltd. Vs. CIT (supra) wherein it is held a under: "Sec. 35 of the Act deals with expenditure on scientific research. Section 35(1)(iv) refers to expenditure of a capital nature on scientific research related to the business carried on by the assessee. Sec. 35(2B) refers to expenditure, other than capital expenditure incurred on the acquisition of any land or building or construction of any building, on scientific research undertaken under a programme approved in that behalf by the prescribed authority, having regard to the social, economic and industrial need of India. It is only such expenditure as is incurred on a programme which has been approved by the authority prescribed under s. 35(2B), which can be claimed as deduction under that provision. The capital expenditure on the acquisition of land or building whether acquired or constructed cannot be claimed under s. 35(2B). The benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Though, the assessee contested the finding of the AO, but the CIT(A) rejecting all submissions of the assessee confirmed the disallowance made by the AO. 13. Reiterating the submissions made before the CIT(A), learned AR contended that when the assessee himself has computed the disallowance u/s 14A read with Rule 8D of the Act, the AO has to record a satisfaction before rejecting the computation made by the assessee. It was submitted that in the present case, the AO has not recorded any such satisfaction but has arbitrarily rejected assessee's claim and proceeded to make fresh computation on his own. The learned AR submitted that so far as average value of investment on the first day of previous year is concerned, AO has considered the same at ₹ 13,50,20,000/- by including the investment of ₹ 13149 lakhs in M/s Godavari Fertilizers and Chemicals Ltd. whereas pursuant to scheme of amalgamation approved by the AP High Court, Godavari Fertilizers and Chemicals Ltd. merged with assessee company with effect from 01/04/2007. Hence, as on 1 st April, 2007, Coromandel International Ltd. did not hold any shares in Godavari Fertilizers and Chemicals Ltd. Therefore, investm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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