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TMI Blog2016 (2) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer for giving an opportunity to the assessee to furnish the report in prescribed form, of the prescribed authority, i.e. either Scientist G of DSIR or any other authority from DSIR, as required in S.35(2AB) of the Act, and redecide the matter in accordance with law, and after giving reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes. Disallowance made under S.36(1)(iii) out of bank interest and financial charges - Held that:- Hon'ble Bombay High Court in the case of C.I.T. vs. Reliance Utilities & Power Ltd., (2009 (1) TMI 4 - BOMBAY HIGH COURT ) has held that when the assessee has mixed funds, i.e. both interest free and interest bearing funds, presumption would be interest free advances are from interest free funds available with the assessee. Applying the same principle, it has to be held that the investment in equity shares were made from out of surplus interest free funds available with the assessee. Further, it is a fact on record that investments in equity shares have been made during the period from 8.10.2005 to 21.1.2007 and not in the previous year relevant to the assessment year under dispute. The Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, assessee has challenged the disallowance of deduction claimed under S.35(2AB) of the Act of an amount of ₹ 1,77,03,533. 4. Briefly facts are, the assessee company is engaged in the business of research and development manufacture of specialised chemicals and pharmaceuticals. For the assessment year under consideration, assessee filed its return of income on 26.9.2009 declaring total income of ₹ 2,36,81,080. During the assessment proceedings, Assessing Officer on verification of the return of income and accompanying statements, found that the assessee has claimed weighted deduction of ₹ 1,77,03,533 under S.35(2AB) of the Act for expenditure incurred on scientific research. The Assessing Officer noticing the same, called upon the assessee s explanation justifying its claim of deduction by furnishing necessary details such as approval of competent authority, etc. In response to the query raised, the assessee submitted that it was having a in-house R D Centre which is recognised by Department of Scientific and Industrial Research(DSIR). In support of such claim, assessee filed letter No.TU/IV-RD/2509/2011 dated 29.4.2011, wherein the recognition of in-house R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal Representative, on the other hand, relying upon the observations of the departmental authorities submitted that since the assessee has failed to obtain the approval in the prescribed manner form the competent authority, it is not eligible to calim deduction under S.35(2AB). 8. We have considered the submissions of the parties, perused the material on record as well as the decisions cited before us. On a careful examination of the relevant statutory provisions it is very much clear that assessee would be entitled to claim deduction under section 35(2AB) for the expenditure incurred towards research and development, if the research and development facility is recognised by the competent authority, which is DSIR in the Ministry of Science and Technology and approval in the prescribed manner, i.e. Form No.3CM is obtained from the competent authority. Therefore, the approval in Form 3CM, even if it is issued by any Scientist of DSIR would, in our view, entitle the assessee to claim deduction under S.35S(2AB). 9. Keeping in view the aforesaid statutory provision, we have to examine the facts of the present case. It is observed that for claiming deduction under S.35(2AB), asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port in the prescribed manner in terms of S.35(2AB), the Assessing Officer cannot sit in judgment over the same. In the present case, neither before the departmental authorities, nor before us, the assessee has submitted the report either in Form 3CM or in Form 3CL. 12. In the facts and circumstances of the case, therefore, we are inclined to remit the matter back to the Assessing Officer for giving an opportunity to the assessee to furnish the report in prescribed form, of the prescribed authority, i.e. either Scientist G of DSIR or any other authority from DSIR, as required in S.35(2AB) of the Act, and redecide the matter in accordance with law, and after giving reasonable opportunity of hearing to the assessee. Accordingly, grounds raised by the assessee on this issue are allowed for statistical purposes. 13. In grounds No.6 to 11, the assessee has challenged the disallowance made under S.36(1)(iii) of the Act out of bank interest and financial charges. 14. Briefly, facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee made investment of ₹ 2,50,93,178 in equity share capital of two companies, namely, M/s. Creative Healthcare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58 Taxman 74(SC) 17. The Learned Departmental Representative on the other hand, relied upon the finding and orders of the Assessing Officer and the CIT(A). 18. We have considered the submissions of the parties and perused the material on record. It is relevant to note that right from the assessment stage, it is the plea of the assessee that investment in equity shares of the two companies was made from out of internal accruals and no interest bearing fund was utilised. In fact, during the appellate proceedings before the CIT(A), a remand report was called from the Assessing Officer, wherein the Assessing Officer accepted the payments made through Axis Bank as from internal accruals of the company. Further, the financial statement submitted by the assessee also demonstrates that sufficient interest free fund was available with the assessee to make the investment in equity shares of the two companies. Hon'ble Bombay High Court in the case of C.I.T. vs. Reliance Utilities Power Ltd., (2009) 313 ITR 340 (Bom.) has held that when the assessee has mixed funds, i.e. both interest free and interest bearing funds, presumption would be interest free advances are from interest fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h included interest on Foreign Currency Convertible Bonds, amounting to ₹ 86,88,000. Noticing that the assessee has not deducted tax at source on the interest paid on FCCBs in terms of S.195 of the Act, the Assessing Officer disallowed the amount of ₹ 86,88,000, invoking provisions of S.40(a)(ia). 25. Being aggrieved , the assessee challenged the disallowance before the first appellate authority, who has sustained the disallowance made, by upholding the view of the Assessing Officer. 26. The learned counsel for the assessee submitted before us that the entire FCCBs were raised abroad and the payments were also made through assessee s bank account abroad. He submitted that as the source from which the bonds were raised were outside India and the payment of interest is also outside India, the provisions of S.195 would not apply, since the payments were made to non-residents outside India. In this context, he relied upon the following decisions- (a) Asstt. Director of Income-tax(International Taxation), Ahmedabad V/s. Adani Enterprises (2015 ) 63 taxmann.com.11 (Ahmedad-Trib) (b) Mahindra Mahindra Ltd. V/s. Dy. Commissioner of Incometax (2012) 24 taxmann.com. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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