9911796707
TMI Blog2014 (9) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 50,35,36,390/-. Subsequently, rectification was made u/s 154 by giving credit to prepaid taxes, which resulted in a refund of Rs. 22,97,050/-. During the scrutiny assessment proceeding, the AO while examining the materials on record noticed that assessee has claimed weighted deduction of Rs. 6,05,19,532/- towards R&D expenses comprising of Rs. 1,31,87,576/- on account of revenue and Rs. 4,73,31,958/- on account of capital. However, as the assessee did not file approval for R&D from the competent authority in the prescribed manner, the AO concluded that assessee is not entitled to claim weighted deduction and accordingly added back an amount of Rs. 3,02,59,766/-. Being aggrieved of such disallowance, assessee preferred appeal before the CIT(A). 4. In course of appeal proceeding before the CIT(A), assessee submitted the approval in Form 3CL from DSIR in respect of R&D expenses on which weighted deduction u/s 35(2AB) was claimed. The CIT(A) on the basis of the approval of DSIR submitted before him called for a remand report from the AO. As noted by the CIT(A) in para 3.1 of her order, AO in his report dated 20/10/2011 stated that the assessee may be allowed weighted deduction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 35(1)(iv) read with section 35(2)(ia) of the Act. So far as the revenue expenditure of Rs. 1,31,87,576/- is concerned, the learned AR advancing similar arguments and submitted that the only reason on which CIT(A) has disallowed the claim of the assessee is that expenditure was not approved by the DSIR. It was submitted that when there is no dispute that the assessee has incurred expenditure for R&D activities, only because the DSIR has not approved the expenditure, expenditure cannot be disallowed. It was submitted that DSIR's approval is only confined to weighted deduction as envisaged u/s 35(2AB) and not relevant for claim of deduction under any other provision contained u/s 35 or u/s 37 of the Act. In support of such contention, learned AR relied upon a decision of the Hon'ble Madras High court in case of Tube Investments India Ltd. Vs. CIT, 260 ITR 94 and the decision of the ITAT, Delhi Bench in case of ACIT Vs. Parabolic Drugs Ltd. 141 TTJ 662. It was submitted that revenue expenditure incurred by the assessee is towards salary and wages, hence, is an allowable expenditure u/s 37 of the Act. Finally, learned AR submitted that, if at all, there is any dispute with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from DSIR, certainly can be allowed as deduction u/s 35(1)(i) and 37(1) of the Act as the case may be. ITAT, Delhi Bench in case of ACIT Parabolic Drugs Ltd. (supra) while considering the issue held as follows: "28. Sec. 35(1)(i) falls under Chapter IV under the head "Computation of business income". It describes the allowability of the expenditure in case where business income is computed. It deals with the expenditure incurred by the assessee on scientific research. It has been prescribed therein that in respect of expenditure on scientific research the same will be allowed if the said expenditure has been laid out or expended on scientific research related to the business. It is not the case of anybody that Explanation to s. 35(1)(i) is applicable to the facts of the case. Therefore, the case of the assessee has to be seen in the light of provisions contained in s. 35(1)(i) without application of Explanation. The business of the assessee is of manufacturing of bulk drugs and fine chemicals etc. In the process of its manufacturing of drugs it has to make R&D so to make the drug more effective and also to bring down the cost. No material has been brought on record to suggest that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find no infirmity in the findings recorded by learned CIT(A), whereby following the decisions of Delhi Tribunal in the cases of Jt. CIT Vs. Modi Olivetti Ltd. (supra) and Asst. CIT Vs. Medicamen Blotech Ltd. (supra), he has allowed the relief to the assessee. 30. In view of the above discussion, it has to be held that all of these expenditure were incurred by the assessee in the course of its business and none of the expenditure can be classified as expenditure in the nature of capital. Therefore, no infirmity is found in the order of CIT(A) vide which the assessee has been held eligible for deduction of these expenditure under both the sections either under s. 35(1)(i) or under s. 37(1). We decline to interfere in such deletion and this ground of revenue is dismissed. 8. In the present case, the department has not disputed the fact that expenditure incurred was towards salary and wages. That being the case, the expenditure is allowable u/s 35(1)(i) or u/s 37(1) as held by ITAT Delhi Bench (supra). So far as disallowance of capital expenditure of Rs. 2,23,215 is concerned, undisputedly, no material has been brought on record by the department to controvert assessee's claim th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 14A read with Rule 8D of the IT rules. 11. Briefly the facts relating to the issue are, assessee during the year received dividend income of Rs. 3,43,15,864 from units of mutual fund. In the computation of income made for the assessment year under consideration, assessee itself disallowed an amount of Rs. 5,05,951/- u/s 14A of the Act. In course of assessment proceeding, the AO, however, not being satisfied with the disallowance made by the assessee towards expenditure incurred on earning of exempt income applied Rule 8D of the Act and computed disallowance at Rs. 89,60,563/- as under:- 12. The assessee challenged the disallowance made before the CIT(A). In course of hearing before the CIT(A), assessee submitted that it has not made any investments out of the borrowed funds, but, investments were made out of surplus funds available with it. On the basis of the submissions made, the CIT(A) called for a remand report from the AO. In the remand report, the AO stated that on examining the details submitted by the assessee it was noticed that on several occasions the bank balance in the OD account is negative, which clearly indicated a nexus between the investments and borrowal f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by the AO at the time of assessment proceeding or even during remand and nor by the CIT(A) it needs to be examined again. 14. The learned DR on the other hand submitted that the entire issue has been thoroughly verified by the AO as well as CIT(A). However, he submitted that if the assessee is still feels that it has not been properly verified, the matter can be reexamined by the AO. 15. We have considered the submissions of the parties and perused the materials on record as well as the orders of the revenue authorities. In course of hearing before us, the learned AR has submitted a working of disallowance to be made u/s 14A read with Rule 8D of the Act. The grievance of the assessee is on two counts, firstly, it is the contention of the assessee that the investment in Godavari Fertilizers Ltd. of Rs. 13,419 lakhs has to be excluded as the said 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 at page 54 & 55 of paper book, total disallowance on account of investments made out of borrowed fund has been worked out at Rs. 14,35,215/-. Thou ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
